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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

MILACRON INC.

Securities Registered Pursuant to Section 12(b) of the Act:

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

	Yes x               No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x               

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

	Yes x               No o

     The aggregate market value of voting stock held by non-affiliates of the registrant is $265,666,739 at June 30, 2002*

     *Voting stock held by officers, directors and principal holders is not included in the computation. The company, however, has not made a determination that such individuals are “affiliates” within the meaning of Rule 405 under the Securities Act of 1933.

     Number of shares of Common Stock, $1.00 par value, outstanding as of February 28, 2003: 33,771,939

Documents Incorporated by Reference:
PART III — Proxy statement, dated March 25, 2003

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Milacron Inc.

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PART I

Item 1.      Business

General

•	Machinery technologies — North America
•	Machinery technologies — Europe
•	Mold technologies
•	Industrial fluids

     Our first three segments provide plastics processors with a broad range of technologically advanced products and services — machinery, tooling, parts and applications expertise — required for today’s plastics processing techniques. Our fourth segment is a leading supplier of industrial fluids, whose unique formulations meet many stringent performance, health and safety requirements in a wide variety of metalworking applications.

     Starting out in the 1860s as a screw and tap maker in a small shop in downtown Cincinnati, the company was first incorporated in 1884. As a successor to that business, Milacron was most recently incorporated in Delaware in 1983. Known throughout most of our history as a leading machine tool maker serving metalworking industries, during the last five years we have divested this business as well as our carbide metalcutting insert businesses in order to focus exclusively on plastics technologies and industrial fluids.

     Accounting for 86% of consolidated sales from continuing operations in 2002, our plastics technologies segments manufacture and sell equipment and turnkey systems for the three most common methods of processing plastic — injection molding, extrusion and blow molding — as well as related mold tooling and components, MRO (maintenance, repair and operating) supplies and value-added services for these same methods. Major global markets for our plastics technologies include packaging, automotive, components, building materials, consumer goods, medical, housewares, electrical and electronics.

     In our industrial fluids segment, representing 14% of total sales from continuing operations, we blend and sell coolants, lubricants, process cleaners, corrosion inhibitors and provide related value-added services to a variety of metalworking industries. Major global markets for our industrial fluids include automotive and transportation, machinery, components, aerospace, consumer goods and off-road equipment.

     In the second half of the 1990s, Milacron benefited from a strong economy with high levels of sales and growing profitability. Strategic acquisitions allowed us to grow our core businesses faster than the general economy. In 2001, however, we entered what turned out to be the deepest and longest recession in the North American manufacturing sector in 50 years. Furthermore, in 2002, while the recession continued in North America, demand in European markets began to soften. As a result, consolidated sales from continuing operations fell from peak levels of $994 million in 1999 and $975 million in 2000 to $755 million in 2001 and $693 million in 2002, and we sustained substantial losses in both 2001 and 2002. Our net loss from all operations including restructuring costs was $35.7 million, or $1.08 per share, in 2001 and $222.9 million, or $6.67 per share, in 2002. From continuing operations, excluding restructuring costs, Milacron lost $17.7 million, or $.55 per share, in 2001 and $9.6 million, or $.30 per share, in 2002.

     We maintain an Internet website at www.milacron.com. Our site provides company, product and service information, including our annual and quarterly reports and other filings, as well as our latest news releases, stock information, investor presentations and conference calls. The information contained on our website is not incorporated by reference in this report.

Strategic Acquisitions and Divestitures

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     Due to exceptionally weak business conditions we made no significant acquisitions in 2002. Additions to our continuing operations in the last five years have been:

     Milacron is committed to growing profitability in each of our business segments and we will seek to divest any operation or product line that is not critical to our core businesses or not likely to meet our growth targets. In 2002 we sold our large metalcutting tool businesses — Valenite in North America and Widia and Werkö in Europe and Asia — and we also initiated plans to seek strategic alternatives for our round metalcutting tool and grinding wheel businesses. In the last five years, we have divested the following five businesses:

Cost Cutting and Efficiency Initiatives

     Milacron’s cost reduction program in North America and Europe over the past three years has entailed closing 14 manufacturing plants and eliminating approximately 1,400, or 27%, of our manufacturing and administrative positions worldwide, while generating an annualized payroll savings of more than $60 million.

     In 2002, we undertook the consolidation of the manufacture of North American container blow molding and structural foam machines with our integrated machinery manufacturing center in Batavia, Ohio. For the remaining mold making and blow molding applications and support operations, we moved into smaller, more efficient facilities in the Manchester, Michigan area. In addition, we consolidated our mold technologies manufacturing and support operations in both North America and Europe. For these consolidations, expected to be complete in 2003, Milacron estimates total pretax charges of $7 to $8 million and annualized pretax cost savings in excess of $4 million. We took about half of these charges in 2002 and expect to realize most of the annualized cost savings for 2003. Cash costs for these initiatives are estimated at about $6 million, most of which will be spent in 2003.

     Milacron is committed to better serving our customers and to improving our competitive advantage through the implementation of Lean and Six Sigma processes. Since adopting these processes in mid-2001 as part of our total quality leadership business philosophy, over one-third of our employees have received Lean/ Six Sigma training and hundreds of cross-functional teams have solved problems and improved process efficiency. The primary goal of these efforts is to shorten lead times, which improves our response time to customers and reduces our overall working capital requirements.

Research and Development, New Product
Development and Capital Expenditures

Patents

Employees

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Segment Information

Plastics Technologies

       Products and Services. We believe Milacron is the world’s broadest-line supplier of machinery, mold bases and related tooling, supplies and services to process plastics. With combined 2002 sales of $597 million, our plastics technologies businesses are organized in three segments:

Machinery technologies — North America

•	Injection molding systems, parts and services supplied from North America and India
•	Blow molding systems, parts, molds and services supplied from North America
•	Extrusion systems, parts and services supplied from North America

Machinery technologies — Europe

•	Injection molding systems, parts and services supplied from Europe
•	Blow molding systems, parts, molds and services supplied from Europe

Mold technologies

•	Injection mold bases, related components/tooling and services worldwide
•	MRO — aftermarket parts and supplies worldwide

     Milacron strives to be the one-stop supplier of choice for the needs of plastics processors. We offer full lines of advanced injection molding, extrusion and blow molding equipment and systems, and specialty auxiliary equipment for all types of plastics processing, as well as supplies and replacement parts. To maximize productivity and profitability, customers count on Milacron’s technology innovations, value-added services and comprehensive applications expertise. Milacron is a leading maker and supplier of mold bases and related tooling, components and supplies for the injection mold-making industry, and we make complete molds for blow molding. We are also a supplier of aftermarket MRO (maintenance, repair and operating) items for plastics processing, and we provide retrofit and rebuild services for older equipment manufactured by Milacron and others.

     Injection molding is a very versatile process that is used to make a wide variety of plastic products, ranging from auto components, toothbrushes and computer devices to mobile phones, toys, medical equipment and DVDs. We are leading the global industry shift to all-electric injection molding technology, which is cleaner, quieter, more accurate and more energy efficient than traditional hydraulic machines. Milacron is also a recognized technology leader in multi-material injection molding, offering systems that significantly reduce the total cost per molded part. And our patented PC-based control technology for plastics molding machines assures high-quality part production and brings the power of the Internet and improved communications to the shop floor.

     In blow molding, we believe Milacron is the number-one maker of systems to produce HDPE (high density polyethylene) containers, as well as the world’s largest producer of industrial blow molding equipment, which is used to make such hollow or semi-hollow products as automotive components, toys, furniture, luggage, and storage and shipping containers. In addition to providing turnkey, state-of-the-art blow molding systems, we are an integrated supplier of molds, tooling, aftermarket parts and services, and applications expertise.

     Our high-output twin-screw extruders are sold in North America to produce a wide variety of PVC (polyvinyl chloride) and plastic composite products, such as siding, decking, fencing and pipe used in commercial and home construction markets. Smaller models of our single-screw extruders serve such end markets as plastics film and medical tubing. We also supply a full line of new and rebuilt high-performance barrels and screws, which are the productivity and value components in the extrusion business, for all makes and models of extruders.

     Milacron’s pre-engineered mold bases and components for injection molding are market leaders in their categories in North America and Europe. We offer the widest range of standard and special mold technologies and the latest advances in quick-change molds, hot runner systems and art-to-part metal printing of complex molds. Independent mold makers are our largest customer category.

     We sell MRO supplies and services primarily through catalogs to OEM (original equipment manufacturers) and aftermarket customers around the world. Known for carrying high-quality products at competitive prices, we strive to become an extension of our customers’ businesses by meeting their day-to-day needs for small tools, gauges, temperature regulators, nozzles, screw tips, lubricants, safety supplies and thousands of other items.

     Our service and service parts organization continues to grow worldwide. We supplement our own service technicians with a network of independent providers for 24-hour response across North and South America and in many European countries. Customers have the option of ordering parts and service over the phone or via the Internet.

     Markets. One of the largest industries in the world, plastics processing is a major contributor to the vitality of industrialized economies and to the continuing growth of developing areas. Markets for plastics processing systems and supplies have grown steadily for over half a century, as plastics and plastic composites continue to replace tradi-

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     Advancements in material development and in processing equipment continue to make plastic products more functional and less expensive, thus spurring secular growth. Thanks to superior strength-to-weight ratios, plastics are increasingly used in transportation-related applications. And consumer demand for safer, more convenient products continues to drive general demand for plastic products.

     Milacron competes in a global market, estimated to be $12 billion on an annualized basis, for plastics equipment and supplies. Our product mix generally parallels the major segments of this market. About two-thirds of the market consists of capital equipment, which is highly sensitive to general economic cycles and capital spending patterns. In addition, demand is often shaped by other factors such as fluctuations in resin pricing and availability, oil, gas and electricity prices, the impact of interest rates on new housing starts and auto sales, the introduction of new products or models, and consumer confidence and spending. Changes in currency exchange rates may also affect our customers’ businesses and, in turn, the demand for processing equipment. To reduce our dependency on capital goods cycles, we have focused on expanding our durable and consumable product offerings.

     It has been well known for many decades that, generally speaking, the use of plastics is environmentally friendly and actually conserves energy when compared to making the same products out of metal, wood, paper or glass. To further address environmental concerns, however, many polymer suppliers, machinery makers and processors are actively developing and improving methods of recycling. As a member of the trade association, The Society of the Plastics Industry, Milacron continues to work with other leading companies to make plastics a part of the solution to the challenges of energy and environmental conservation.

     Geographic Sales. About 67% of our plastics technologies products and services in 2002 were sold to customers in North America. European sales made up about 24% of the total, with the remainder coming from Asia and the rest of the world.

     Distribution. We sell our plastics machinery and systems through a combination of direct sales and independent agents, who are spread geographically throughout our key markets. We sell our mold bases, supplies and components through a direct distribution network in North America and Europe and through a large network of joint venture sales and service offices in Asia. We market MRO supplies in traditional printed catalogs as well as through electronic catalogs and over the Internet.

     Milacron maintains sales, marketing and customer service facilities in major cities across North America, Europe and Asia. We also sell through large networks of distributors and/or sales and service offices in all major countries. A great number of our mold technology products are sold through catalogs and telemarketing, and we are rapidly developing e-business capabilities for Internet sales and distribution in all our businesses.

     Customers. Our plastics technologies customers are involved in making a wide range of everyday products: from food and beverage containers to refrigerator liners; from electronic and medical components to digital cameras and razors; from milk bottles to plastic-lumber decking. Key markets in order of 2002 sales were packaging, automotive, industrial components, building materials, consumer goods and toys, custom molders, medical devices, housewares, and electrical and electronics.

     Production Facilities. For our three plastics technologies segments, Milacron maintains the following principal production facilities:

(a)	The operations of this facility will be relocated in the first quarter of 2003.

*	Leased

     Competition. The markets for plastics technologies are global and highly competitive and include North American, European and Asian competitors. We believe Milacron has the number-one share of the North American market and the number-two share worldwide. Some of our competitors are larger than us, most are smaller, and only a few compete in more than one product category. Principal com-

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Industrial Fluids

       Products and Services. We provide metalworking industries worldwide with a wide variety of coolants, lubricants, forming fluids, process cleaners and corrosion inhibitors used in the shaping of metal products. Customers count on our extensive knowledge of chemistry and metalworking applications to maximize their productivity.

     With 2002 sales of $96 million, our industrial fluids segment consists of:

•	Metalcutting and metalforming coolants and lubricants
•	Process cleaners, corrosion inhibitors and specialty products

     Coolants are required in the vast majority of metalworking operations, including cutting, grinding, stamping and forming, to achieve desired part quality and output through higher metal-removal rates and longer tool life. Our family of premium fluids meets the demands of today’s toughest metalworking operations, offering unmatched machining and grinding performance. One of our more popular blends, for example, can increase the life of grinding wheels by a hundredfold or more in certain applications compared to conventional fluids. For over 50 years, our specialty has been synthetic, or water-based, fluids, which provide excellent lubricity and are generally cleaner than oil-based products. More recently, our new high-performance “green” fluids made from vegetable oils have been gaining acceptance among metalworking customers concerned with environmental and/or disposal issues.

     We add value for our customers by helping them maintain the safety and effectiveness of their fluids and by offering them our expertise in fluid/tool synergies in order to optimize their metalworking operations. Optimized fluid and tool selection can provide significant productivity gains and cost savings.

     Our strength is in the area of metal removal (metalcutting and grinding), but we also blend and sell stamping and metalforming fluids, process cleaners, corrosion inhibitors and other specialty products for metalworking, all of which represent good growth opportunities for us.

     Markets. Key markets for our industrial fluids include the whole spectrum of metalworking industries: from automotive, aircraft and machinery makers and job shops to manufacturers of appliances, agricultural equipment, and consumer and sporting goods. Milacron fluids are also used in the production of glass and mirrors and in high-tech processes such as silicon wafer slicing and polishing.

     Our industrial fluids compete in a global market that is estimated to be $2.5 billion on an annualized basis. Over one-third of the market consists of metalcutting and grinding fluids, with metalforming fluids and process cleaners each accounting for about one-quarter of the market. Demand for our fluids is generally directly proportional to levels of industrial production, although we specifically target higher-growth areas such as machining and forming exotic alloys and aluminum. Factors affecting our customers’ production rates and ultimately demand for our fluids include auto and machinery sales, consumer spending and confidence, interest rates, energy prices and currency exchange rates.

     Environmental, health and safety concerns could negatively affect demand for metalworking fluids. When it comes to industrial fluids, Milacron places very high importance on employee safety and environmental protection. In a proactive approach to continually improve the health and environmental effects of metalworking fluids, we work both locally and internationally with suppliers, customers and regulatory authorities and we support and participate in research and educational programs regarding metalworking fluids.

     Geographic Sales. About 57% of our 2002 industrial fluid sales were made to customers in North America, while another 35% were to European customers. The remaining sales were to customers in Asia and the rest of the world.

     Distribution. Milacron’s industrial fluids are sold primarily through industrial distributors, with some direct sales, as well as through traditional printed catalogs and electronic catalogs over the Internet. We produce most of what we sell, and most of what we make is sold under our own brand names. In addition, some of our fluids are sold under brand names of other companies through their own market channels.

     Customers. Our metalworking fluids are involved in making all kinds of products: from automotive power train components to aluminum soft drink cans, from air conditioners and glass mirrors to bearings and golf clubs, not to mention a wide variety of industrial components.

     Markets for our industrial fluids in order of importance based on 2002 sales were automotive and transportation, job shops, industrial components, consumer goods, industrial machinery, off-road and other heavy equipment, aerospace, oil and primary metals, packaging, housewares and electrical. The largest customer category, automotive and transportation, accounted for 42% of fluid sales in 2002.

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     Production Facilities. For our industrial fluids segment, Milacron maintains the following principal production facilities:

*	Leased

     Competition. We believe Milacron holds a leadership position in world markets for water-based, or synthetic, metalworking fluids. Our competitors range from large petrochemical companies to smaller companies specializing in similar fluids. Principal competitive factors in this business include market coverage, product performance, delivery, price and customer service.

Executive Officers of the Registrant

The following information is included in accordance with the provisions for Part III, Item 10:

	The parenthetical figure below the name of each individual indicates his or her age at most recent birthday prior to December 31, 2002.

   There are no family relationships among the executive officers of the Registrant.

   Officers of the company are elected each year by the Board of Directors.

	(a)	Mr. Christie retired at the end of 2002.

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Item 2.   Properties

     The remaining information required by Item 2 is included in Part I on pages 5 and 7 of this Form 10-K.

Item 3.   Legal Proceedings

     While, in the opinion of management, the liability resulting from these matters will not have a significant effect on the company’s consolidated financial position or results of operations, the outcome of individual matters cannot be predicted with reasonable certainty at this time.

     The following table shows the price range of the common shares for 2001 and 2002, as reported by the New York Stock Exchange. Cash dividends of $.12 per common share were paid in each of the first three quarters of 2001. Cash dividends of $.01 per common share were paid in the fourth quarter of 2001 and each quarter of 2002. Our revolving credit facility (discussed on page 41 of this Form 10-K) currently limits the payment of cash dividends to $.01 per share in each quarter.

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Item 6.   Selected Financial Data

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       Effective December 31, 2002, Milacron began reporting four business segments: machinery technologies — North America, machinery technologies — Europe, mold technologies and industrial fluids. The first three segments comprise Milacron’s plastics technologies business.

Acquisitions

Presence Outside the U.S.

     Between December 31, 2001 and December 31, 2002, the euro strengthened against the dollar by approximately 14% which caused a majority of a $6 million increase in consolidated shareholders’ equity due to favorable foreign currency translation adjustments.

     If the euro should weaken against the U.S. dollar in future periods, we could experience a negative effect in translating our European new orders, sales and earnings when compared to historical results.

Significant Accounting Policies and Judgments

       The consolidated financial statements discussed herein have been prepared in accordance with generally accepted accounting principles in the United States, which require management to make estimates and assumptions that affect the amounts that are included therein. The following is a summary of certain accounting policies, estimates and judgmental matters that management believes are significant to Milacron’s reported financial position and results of operations. Additional accounting policies are described in the note captioned “Summary of Significant Accounting Policies” on pages 27 through 29 of this Form 10-K, which should be read in connection with the discussion that follows. Management regularly reviews its estimates and judgments and the assumptions regarding future events and economic conditions that serve as their basis. While management believes the estimates used in the preparation of the consolidated 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, 2002, Milacron had a U.S. federal net operating loss carryforward of $12 million which expires in 2022. Deferred tax assets related to this loss carryforward and to additional state and local loss carryforwards totaled $14 million. Additional deferred tax assets totaling approximately $127 million have 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. No valuation allowances have been provided with respect to these assets because management believes they will be fully realized. This judgment is based on the availability of qualified tax planning strategies, the expectation of increased U.S. industrial production and capital spending in 2003 and on the significant reductions in Milacron’s cost structure that have been achieved in recent years and that will be achieved through the restructuring programs that are currently in progress and that may be announced in the future (see Restructuring Costs on page 13).

     At December 31, 2002, Milacron had non-U.S. net operating loss carryforwards — principally in The Nether-

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     If management’s current estimates and the related assumptions change in the future, Milacron may be required to record new valuation allowances or increase the allowances that are already recorded. This would result in additional income tax expense in the period of the change. Conversely, reductions of valuation allowances as a result of changes in estimates or assumptions would have a beneficial effect on Milacron’s provision for income taxes.

Accounts Receivable, Inventory and Warranty Reserves

     Allowances for doubtful accounts are generally established using specific percentages of the gross receivable amounts based on their age as of a particular balance sheet date. The amounts calculated through this process are then adjusted for known credit risks and collection problems. Write-offs of accounts receivable for Milacron’s continuing operations have averaged $2.4 million during the last three years. While management believes that the company’s reserves for doubtful accounts are reasonable in the circumstances, adverse changes in general economic conditions or in the financial condition of Milacron’s major customers could result in the need for additional reserves in the future.

     Reserves for inventory obsolescence are generally calculated by applying specific percentages to inventory carrying values based on the level of usage and sales in recent years. These calculations are then adjusted based on current economic trends, expected product line changes, changes in customer requirements and other factors. In 2002, Milacron’s continuing operations recorded new inventory obsolescence reserves totaling $6.9 million and utilized $3.6 million of such reserves in connection with the disposal of obsolete inventory. Management believes that Milacron’s reserves are appropriate in light of its historical results and its assumptions regarding the future. However, adverse economic changes or changes in customer requirements could necessitate the recording of additional reserves through charges to earnings in the future.

     Milacron’s warranty reserves are of two types — “normal” and “extraordinary.” Normal warranty reserves are intended to cover routine costs associated with the repair or replacement of products sold in the ordinary course of business during the warranty period. These reserves are accrued on a percentage-of-sales method based on the ratio of actual warranty costs over a representative number of years to sales revenues from products sold with warranties over the same period. The percentages are required to be adjusted at least annually. Extraordinary warranty reserves are intended to cover major problems related to a single machine or customer order or to problems related to a large number of machines or other type of product. These reserves are intended to cover the estimated costs of resolving the problems based on all relevant facts and circumstances. In recent years, costs related to extraordinary warranty problems have not been significant. In 2002, Milacron’s continuing operations accrued warranty reserves totaling $3.6 million and incurred warranty related costs totaling $3.2 million. While management believes that the company’s warranty reserves are adequate in the circumstances, unforeseen problems related to unexpired warranty obligations could result in a requirement for additional reserves in the future.

Impairment of Long-Lived Assets and Goodwill

     In years prior to 2002, Milacron reviewed the carrying value of goodwill annually using estimated undiscounted future cash flows in a manner similar to the methodology described above. Using this approach in 2001, the maximum period of time to recover the carrying value of recorded goodwill through undiscounted cash flows was determined to be approximately 12 years and the weighted-average recovery period was approximately 18% of the average remaining amortization period. However, effective January 1, 2002 Milacron adopted Statement of Financial

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Insurance Reserves

     MAL’s reserves are established based on known claims, including those arising from litigation, and management’s best estimates of the ultimate exposures thereunder (after consideration of excess carriers’ liabilities) and on estimates of the cost of incurred but not reported claims. For certain types of exposures, MAL and the company utilize actuarially calculated estimates prepared by outside consultants to ensure the adequacy of the reserves. Reserves are reviewed and adjusted quarterly based on all evidence available as of the respective balance sheet dates. While the ultimate amount of MAL’s exposure to claims is dependent on future events that cannot be predicted with certainty, management believes that the recorded reserves are adequate in the circumstances. However, claims in excess of the recorded amounts could adversely affect earnings in the future when additional information becomes available.

Pensions

     A significant factor in determining the amount of income recorded for the funded U.S. plan is the expected long-term rate of return on plan assets. In 2002 and in several preceding years, Milacron used an expected long-term rate of return of 9 1/2%. However, the company will begin using a rate of return of 9% beginning in 2003. This rate was developed based on the current mix of equity and debt securities included in the plan’s assets and on the historical returns on those types of investments judgmentally reduced to reflect more conservative expectations of future returns. In evaluating future returns on equity securities, the existing portfolio was stratified to separately consider large and small capitalization investments as well as international securities. Based on the methodology described below, the change from the 9 1/2% rate of return assumption to the lower 9% rate will have the effect of reducing the amount of pension income that would otherwise be reportable in 2003 by approximately $2 million.

     In determining the amount of pension income or expense to be recognized, the expected long-term rate of return is applied to a calculated value of plan assets that recognizes changes in fair value over a three-year period. This practice is intended to reduce year-to-year volatility in recorded pension income or expense but it can have the effect of delaying the recognition of differences between actual returns on assets and expected returns based on the long-term rate of return assumption. At December 31, 2002, the market value of Milacron’s pension assets was $343 million whereas the calculated value of these assets was $430 million. The difference arises because the latter amount includes only two thirds and one third of the asset-related losses incurred in 2001 and 2002, respectively. In the absence of significant asset-related gains in 2003, recognition of additional deferred losses in 2004 and 2005 will have the effect of significantly increasing the amount of pension expense to be recognized in those years in relation to 2003.

     In addition to the expected rate of return on plan assets, recorded pension income or expense includes the effects of service cost — the actuarial cost of benefits earned during a period — and interest on the plan’s liabilities to participants. These amounts are determined actuarially based on current discount rates and assumptions regarding matters such as future salary increases and mortality. Differences in actual experience in relation to these assumptions are generally not recognized immediately but rather are deferred together with asset-related gains or losses. When cumulative asset-related and liability-related gains or losses exceed the greater of 10% of total liabilities or assets, the excess is amortized and included in pension income or expense. At December 31, 2001, the discount rate used to value the liabilities of the principal U.S. plan was reduced from 7 3/4% to 7 1/4%. The rate was further lowered to 6 1/2% at December 31, 2002. The combined effects of these changes and the losses in relation to the

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     As discussed above, Milacron recorded pension income of $9.4 million related to its principal U.S. plan in 2002. However, due to the combined effects of the lower rate of return assumption, the asset-related losses incurred in recent years and the amortization of cumulative losses, Milacron expects to record pension expense related to this plan of approximately $1 million in 2003. In the absence of significant asset-related gains or an increase in the plan’s discount rate, expense for 2004 and beyond could be as much as $10 million per year.

     Because of the significant decrease in the value of the assets of the funded plan for U.S. employees during 2001 and 2002 and the simultaneous decreases in the plan’s discount rate, Milacron was required to record a minimum pension liability adjustment of $118 million effective December 31, 2002 and to significantly reduce the carrying value of the pension asset related to the plan. These adjustments were recorded as a component of accumulated other comprehensive loss and therefore did not affect reported earnings. However, they resulted in a $95 million after-tax reduction of shareholders’ equity.

Results of Operations

       In an effort to help readers better understand the composition of Milacron’s operating results, certain of the discussions that follow include references to restructuring costs and other items of income and expense. Accordingly, those discussions should be read in connection with (i) the tables on page 18 of this Form 10-K under the caption “Comparative Operating Results” and (ii) the consolidated financial statements and notes thereto that are included herein on pages 23 through 47.

Discontinued Operations

2002 Compared to 2001

New Orders and Sales

     Export orders totaled $66 million in 2002 compared to $78 million in 2001 while export sales decreased from $82 million to $71 million. In both cases, the decreases resulted from reduced export volume for plastics processing machinery. Sales of all segments to non-U.S. customers, including exports, totaled $296 million, or 43% of sales, in 2002 compared to $307 million, or 41% of sales, in 2001. Sales of products manufactured outside the U.S. were $257 million in 2002 and $256 million in 2001.

     Milacron’s backlog of unfilled orders was $76 million at December 31, 2002 and $61 million at December 31, 2001. The increase resulted principally from higher fourth quarter order levels for plastics processing machinery worldwide.

Margins, Costs and Expenses

     In 2002, total selling and administrative expense decreased in dollar amount due to our ongoing cost reduction initiatives and reduced variable selling costs that resulted from lower sales volume. As a percentage of sales, selling expense held steady at 13.4%. Administrative expense decreased by 5% in relation to 2001.

     Other expense-net decreased from $12.9 million in 2001 to an insignificant net amount in 2002. The amount for 2002 includes $4.5 million of royalty income from the licensing of patented technology whereas the amount for 2001 includes goodwill amortization expense of $10.8 million and a gain of $2.6 million on the sale of surplus real estate.

     Interest expense net of interest income totaled $23.3 million in 2002 and $22.5 million in 2001.

Restructuring Costs

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     In connection with the plans initiated in 2001, Milacron recorded pretax restructuring costs related to continuing operations of $8.3 million in 2002 compared to $17.5 million in 2001. Cash costs for the restructuring actions and the integration of EOC and Reform were $13.2 million in 2002. In the aggregate, the actions initiated in 2001 are generating over $35 million in annualized cost savings, most of which were realized in 2002.

     In the third quarter of 2002, we approved additional restructuring plans for the purpose of further reducing the company’s cost structure in certain businesses and to reduce corporate costs as a result of the dispositions of Widia, Werkö and Valenite. These actions resulted in third quarter restructuring expenses of $1.3 million.

     In November, 2002, we announced additional restructuring initiatives intended to improve operating efficiency and customer service. The first action involves the transfer of all manufacturing of container blow molding machines and structural foam systems from the plant in Manchester, Michigan to our more modern and efficient facility near Cincinnati, Ohio. The mold making operation in Manchester will also be moved to a smaller, more cost-effective location near the existing facility. In the second initiative, the manufacture of special mold bases for injection molding at the Monterey Park, California plant is being phased out and transferred to various other facilities in North America. These additional actions are expected to result in incremental restructuring costs of $7 to $8 million, of which $4.3 million was charged to expense in 2002 with the remainder to be recorded in 2003. The total cash cost of these initiatives is expected to be approximately $6 million, most of which will be spent in 2003. The pretax annualized cost savings are expected to exceed $4 million, most of which will be realized in 2003.

     Early in 2003, the company initiated a plan for the further restructuring of its European blow molding machinery operations at a cost of up to $6 million. Additional restructuring actions at other locations may be announced later in the year. The cost of all of these actions, including an additional $3 to $4 million to complete the actions initiated in 2002 that are discussed in the preceding paragraph, could total $9 to $12 million in 2003.

Results By Segment

       Machinery technologies — North America — In 2002, the machinery technologies — North America segment had orders and sales of $321 million and $314 million, respectively. In 2001, the segment’s orders totaled $337 million and sales were $362 million. While new business and shipment levels remained low for much of the year due to depressed capital spending levels in the plastics processing industry, volume increased modestly in the fourth quarter. Despite lower sales volume, the segment’s manufacturing margin improved in 2002 as a result of our cost reduction and restructuring efforts. After deducting restructuring costs of $6.7 million, the segment had an operating profit of $1.3 million in 2002 compared to an operating loss of $20.3 million in 2001 which includes restructuring costs of $6.8 million. Excluding restructuring, the segment’s operating profit was $8.0 million in 2002 compared to a loss of $13.5 million in 2001. The amounts for 2002 include the previously discussed $4.5 million of royalty income. Goodwill amortization expense included in the 2001 amounts totaled $3.9 million.

     Machinery technologies — Europe — New orders were $122 million in 2002, an increase of $8 million in relation to the prior year that was due principally to favorable currency effects. Sales decreased from $123 million to $117 million despite favorable currency effects. Manufacturing margins also decreased slightly in 2002. Including a credit of $.4 million related to the reversal of excess restructuring reserves that had been accrued in 2001, the segment had an operating loss of $7.7 million in 2002 compared to a loss of $16.0 million in 2001. The amount for 2001 includes restructuring costs of $6.9 million and goodwill amortization expense of $1.4 million. Excluding restructuring costs, the segment’s loss was $8.1 million in 2002 compared to a loss of $9.1 million in 2001. Results for 2002 continued to be penalized by operating problems related to the consolidation of the segment’s European blow molding systems business that was completed in 2001.

     Mold technologies — The mold technologies segment had new orders of $174 million in 2002, a decrease of $10 million in relation to orders of $184 million in 2001. Sales also decreased by $10 million from $185 million to $175 million. The decreases were due in part to low levels of industrial production and capacity utilization in the North American plastics industry but order levels and shipments also decreased in the segment’s European operations. Due to reduced volume, the segment’s manufacturing margin decreased by approximately one percentage point. Including restructuring costs of $6.4 million, the segment had an operating loss of $1.1 million in 2002 compared to an operating profit of $8.6 million in 2001 which is net of restructuring costs of $3.5 million. Excluding restructuring, the segment had an operating profit of $5.3 million in 2002 compared to $12.1 million in the prior year. The margin decrease and reduction in profitability were due principally to costs and inefficiencies related to the integration of EOC and Reform (see Acquisitions) with the segment’s existing European mold base business. The amounts for 2002 include a fourth quarter goodwill impairment charge of $1.0 million related to a small business unit in the segment. Goodwill amortization expense in 2001 was $5.2 million.

     Industrial fluids — In the industrial fluids segment, new orders and sales both increased from $93 million in 2001 to

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Loss Before Income Taxes

Income Taxes

     Milacron entered both 2002 and 2001 with significant net operating loss carryforwards in certain jurisdictions along with valuation allowances against the carryforwards and other deferred tax assets. Valuation allowances are evaluated periodically and revised based on a “more likely than not” assessment of whether the related deferred tax assets will be realized. Increases or decreases in these valuation allowances serve to unfavorably or favorably impact our effective tax rate.

Loss From Continuing Operations

Discontinued Operations

     As described more fully in the notes to the consolidated financial statements, in 2002 discontinued operations includes a net gain of $8.4 million that resulted from a gain of $31.3 million on the sale of Valenite and a benefit of $1.9 million from adjustments of reserves related to the 1998 divestiture of the company’s machine tools segment. These amounts were partially offset by losses on the sale of Widia and Werkö of $14.9 million and on the planned dispositions of the round metalcutting tools and grinding wheels businesses totaling $9.9 million. The latter amount was recorded as a charge to earnings in the fourth quarter. The amounts for the Valenite and the Widia and Werkö transactions have been revised in the fourth quarter from the amounts previously recognized to reflect final purchase price adjustments and to adjust reserves and tax effects to reflect more recent estimates of expected liabilities or benefits.

Cumulative Effect of Change in Method of Accounting

Net Loss

2001 Compared to 2000

New Orders and Sales

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     Export orders decreased from $89 million in 2000 to $78 million in 2001 and export sales fell from $97 million to $82 million. Both decreases resulted principally from lower export demand for U.S.-built plastics processing machinery. Sales of all segments to non-U.S. markets totaled $307 million both in 2001 and 2000. For 2001 and 2000, products manufactured outside the U.S. approximated 34% and 26% of sales, respectively, while products sold outside the U.S. approximated 41% and 31% of sales, respectively.

     At December 31, 2001, Milacron’s backlog of unfilled orders was $61 million compared to $100 million at December 31, 2000.

Margins, Costs and Expenses

     In response to the general economic slowdown, we continued to reduce production costs to meet lower levels of demand and implemented stringent cost reduction measures throughout our operations. In the first two quarters of 2001, we eliminated more than 480 positions in North America in response to lower order and shipment levels. During the third and fourth quarters, we announced plans to further reduce our cost structure and break-even point by consolidating a number of smaller manufacturing facilities and further reducing general overhead levels (see Restructuring Costs). These actions in 2001 are in addition to the programs to improve operating efficiency that were initiated in 1999 and completed in 2000. We also began making structural improvements in the way we run our businesses, including the use of “Six Sigma” and “Lean” manufacturing techniques throughout our operations to reduce cycle times and working capital requirements.

     For 2001, total selling and administrative expense decreased in dollar amount due to reduced variable selling expenses and the aggressive cost reduction measures implemented in recent years. As a percentage of sales, however, selling expense increased from 10.6% to 13.4% due in part to modestly higher expense for bad debts. Administrative expense decreased by almost 10% due principally to

     Other expense-net totaled $12.9 million in 2001 compared to $7.0 million in 2000. The amount for 2001 includes a pretax gain of $2.6 million ($1.6 million after tax) on the sale of surplus real estate while the amount for 2000 includes $8.3 million ($5.2 million after tax) of revenue from the licensing of patented plastics processing technology.

     For 2001, net interest expense related to continuing operations increased despite a general reduction in short term interest rates. Substantially all of the 2001 interest expense attributable to the company’s revolving credit facility has been allocated to discontinued operations due to mandatory debt repayments using the divestiture proceeds. As a result, interest on fixed-rate debt represents a higher percentage of interest expense in continuing operations in 2001 than was the case in 2000.

Restructuring Costs

     As discussed more fully in the notes to the consolidated financial statements, in the third and fourth quarters of 2001 we formally approved plans to consolidate additional operations and further reduce the company’s cost structure at a cost of $17.8 million. Of the total cost of the plans, $14.1 million was recorded in 2001, including reserves totaling $9.9 million for employee termination benefits and facility exit costs, $.5 million for supplemental retirement benefits to be funded through the company’s principal U.S. pension plan, and $3.1 million for product line discontinuation and certain other inventory writedowns. The plans involved the closure of four manufacturing facilities and several sales and administrative locations and the elimination of approximately 450 manufacturing and administrative positions. The 2001 cash cost of implementing these plans was $5.8 million. During 2001, we also approved a plan to integrate the operations of EOC and Reform with our existing mold base and components business in Europe at a cost of $9.2 million which includes reserves for employee termination benefits and facility exit costs of $1.2 million that were established in the allocations of the respective acquisition costs. The remainder was charged to expense, including $3.4 million in 2001. Cash costs of the integration in 2001 totaled $1.1 million.

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Results by Segment

       Machinery technologies — North America — The machinery technologies — North America segment had orders of $337 million and sales of $362 million in 2001 compared to orders of $513 million and sales of $550 million in 2000. Low levels of industrial production in North America resulted in significantly reduced demand for the segment’s plastics machinery products which represent a substantial portion of its sales revenues. The segment’s manufacturing margin also decreased due to underabsorption of manufacturing costs despite major cost reduction and downsizing initiatives. Principally as a result of decreased volume, the segment had a 2001 operating loss of $20.3 million which includes $6.8 million of restructuring costs. Excluding restructuring, the segment’s loss in 2001 was $13.5 million compared to earnings of $66.7 million in 2000 which is net of $.5 million of restructuring costs and includes the previously discussed $8.3 million of royalty income.

     Machinery technologies — Europe — In 2001, the machinery technologies — Europe segment had orders of $114 million, a decrease of 20% in relation to 2000 orders of $143 million. The segment’s sales decreased from $145 million in 2000 to $123 million in 2001, or approximately 15%. The decreases in relation to the prior year were due in part to adverse currency effects and increasingly soft economic conditions in Europe in the second half of the year. Consistent with the decrease in sales and orders, manufacturing margins decreased and the segment had an operating loss of $16.0 million in 2001 compared to operating earnings of $1.7 million in 2000. The segment’s restructuring costs were $6.9 million in 2001 and $.5 million in 2000. Excluding these amounts, the loss for 2001 was $9.1 million compared to earnings of $2.2 million in 2000. Problems arising from the eighteen month long reorganization of the segment’s blow molding machinery operations, which was completed in 2001, contributed to the adverse margin and earnings comparisons. As previously discussed, these problems continued into 2002.

     Mold technologies — The mold technologies segment had new orders of $184 million in 2001 compared to orders of $191 million in 2000. The segment’s sales were $185 million in 2001 and $190 million in 2000. The decreases occurred despite the contributions of the acquisitions of EOC and Reform (see Acquisitions) and resulted principally from lower levels of industrial production and capacity utilization in the plastics processing industry in North America. Adverse currency effects also contributed to the decreases. The segment’s manufacturing margin decreased by approximately five percentage points due to reduced volume. Including restructuring costs of $3.5 million, the segment had operating earnings of $8.6 million in 2001 compared to earnings of $27.1 million in 2000. Excluding restructuring costs, the segment’s operating earnings decreased from $27.2 million in 2000 to $12.1 million in 2001.

     Industrial fluids — Orders for industrial fluids decreased from $102 million in 2000 to $93 million in 2001 while the segment’s sales decreased from $101 million to $93 million. The decreases occurred principally in North America due to reduced levels of industrial production. Manufacturing margins decreased modestly but the segment’s operating profit increased from $17.5 million to $17.8 million as a result of favorable one-time adjustments. Excluding restructuring costs of $.3 million the segment’s earnings for 2001 were $18.1 million.

Earnings (Loss) Before Income Taxes

Income Taxes

     Milacron entered both 2001 and 2000 with significant net operating loss carryforwards in certain jurisdictions, along with valuation allowances against the carryforwards and other deferred tax assets. Valuation allowances are evaluated periodically and revised based on a “more likely than not” assessment of whether the related deferred tax assets will be realized. Increases or decreases in these valuation allowances serve to unfavorably or favorably affect our effective tax rate. Milacron’s effective tax rate for 2000 was less than the federal statutory rate due principally to reductions of valuation allowances and to favorable rulings from various taxing authorities.

Earnings (Loss) from Continuing Operations

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Discontinued Operations

Net Earnings (Loss)

Comparative Operating Results

Market Risk

Foreign Currency Exchange Rate Risk

Interest Rate Risk

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Liquidity and Sources of Capital

     As of December 31, 2002, Milacron’s current ratio related to continuing operations was 1.6 compared to 1.7 at December 31, 2001.

     In 2002, operating activities provided $36 million cash compared to a $5 million use of cash in 2001. The generation of cash in 2002 was due principally to our aggressive working capital management initiatives which included programs to further reduce inventories. The amount for 2001 includes the negative effects of a $16 million reduction of the amount of accounts receivable sold under our receivables purchase agreement. However, cash flow from operations in 2001 benefited from reductions in accounts receivable in the normal course of business due to lower sales volume and from significant reductions in inventories that were achieved through our working capital reduction plan.

     Investing activities provided $301 million of cash in 2002 due almost entirely to the proceeds from the sales of Valenite, Widia and Werkö. In 2001, investing activities used $37 million of cash, including $29 million for acquisitions and $14 million for capital expenditures.

     In 2002, financing activities used $303 million of cash due to repayments of borrowings under lines of credit using the divestiture proceeds and cash provided by operations. Financing activities provided $102 million of cash in 2001 due to net additional borrowings of $119 million, the effects of which were partially offset by dividends of $13 million.

     Total shareholders’ equity was $134 million at December 31, 2002, a decrease of $301 million from December 31, 2001. The decrease resulted principally from the $223 million net loss incurred during 2002 which includes the $188 million cumulative effect adjustment related to goodwill impairment. In addition, the company recorded a $95 million after-tax minimum pension liability adjustment as a component of accumulated other comprehensive loss. This adjustment is more fully described above in the section captioned “Significant Accounting Policies and Judgments”.

     The company’s debt and lease obligations for 2003 and beyond are shown in the table that follows.

     Note: The above table excludes contingent liabilities of up to $17.4 million related to sales of receivables and loan guarantees and $24.8 million of purchase price adjustments that will be paid to the buyers of Valenite, Widia and Werkö in the first quarter of 2003.

     Our ability to satisfy our 2003 obligations and other liquidity needs is a function of a number of factors, the most important of which include: our available cash and cash equivalents, our continued ability to borrow under our revolving credit facility and other lines of credit, our ability to continue to utilize our U.S. receivables purchase agreement and other similar arrangements, and our cash flow from operating activities.

     At December 31, 2002, we had cash and cash equivalents of approximately $122 million.

     At December 31, 2002, Milacron had lines of credit with various U.S. and non-U.S. banks totaling approximately $143 million, including a $106 million committed revolving credit facility. At December 31, 2002, $54 million was drawn against the facility, including outstanding letters of credit of $12 million. The facility includes a number of financial covenants and at December 31, 2002, was scheduled to mature on December 31, 2004. As discussed below, the facility was amended in February, 2003 to, among other things, change the maturity date to March 15, 2004.

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     Effective December 30, 2002 the revolving credit facility was amended to, among other things, reduce the commitment amount from $110 million to $106 million in connection with a reorganization of our round metalcutting tools business in anticipation of its expected sale.

     The current agreement includes covenants, including those which (i) require the company to achieve specified minimum levels of quarterly cumulative EBITDA and (ii) limit the incurrence of new debt. At December 31, 2002, the company was in compliance with these covenants. The company had $122 million of cash at December 31, 2002 and the ability to borrow an additional $31 million for general corporate purposes under the revolving credit facility. The company could also borrow approximately $12 million under existing lines of credit other than the facility. The facility also allows over $72 million of additional indebtedness from other sources.

     Effective February 11, 2003, the revolving credit facility was amended to, among other things, reduce the facility to $85 million reflecting a reduction in projected cash requirements for 2003. In addition to a reduction in the four-quarter cumulative trailing EBITDA covenant and suspension of the leverage test for all of 2003, the amended agreement requires further permanent reductions in the facility on June 30, 2003, September 30, 2003 and December 15, 2003 to $75 million, $65 million and $55 million, respectively. The maturity date of the facility was changed from December 31, 2004 to March 15, 2004.

     For 2003, the company’s significant cost cutting actions coupled with an expected modest, gradual improvement in business conditions cause us to believe that operating earnings will continue to increase, which should allow us to continue to meet the covenants. However, if unforeseen market conditions develop or the company is otherwise unable to meet the covenants, it is possible that it would not be in compliance. In that event, we would attempt to renegotiate the covenants with the bank group to assure compliance. However, our lenders’ actions are not controllable by us and if the renegotiations were not successful, the company could be placed in default under the agreement, which would allow the lenders to declare the outstanding borrowings currently due and payable. In addition, due to cross-default provisions in Milacron’s other agreements, over 90% of our other debt could become payable in full and our receivables purchase program (as discussed below) could be terminated if we were in default under the credit facility. Were these events to occur, we would experience a material adverse impact on our reported liquidity, financial position and results of operations.

     In addition to the revolving credit facility, as of December 31, 2002 we had a number of other credit lines totaling $37 million, of which approximately $12 million was available for future borrowing. Under the terms of the revolving credit facility as amended, increases in debt are primarily limited to current lines of credit and certain other indebtedness from other sources.

     Milacron’s debt and credit are rated by Standard & Poor’s (S&P) and Moody’s Investors Service (Moody’s). On October 25, 2002, Moody’s announced it had lowered Milacron’s senior implied and senior secured rating one notch from Ba3 with a “negative outlook” to B1 with a “stable outlook” and Milacron’s senior unsecured rating one notch from B1 with a “negative outlook” to B2 with a “stable outlook.” On November 20, 2002, S&P announced it had lowered Milacron’s corporate credit rating to B+ from BB- with a “negative outlook.” At the same time, the rating on the company’s senior secured bank facility was lowered to B+ from BB-. Milacron’s senior unsecured debt was affirmed at B.

     None of the company’s debt instruments include rating triggers that would accelerate maturity or increase interest rates. Accordingly, the rating changes are expected to have no significant short-term effect, although they could potentially affect the types and cost of credit facilities and debt instruments available to the company in the future.

     Another important source of liquidity is our accounts receivable purchase program. Although the agreement could be terminated upon the occurrence of certain events, some of which may be beyond our control, we expect to continue to be able to use the program at least through December 31, 2003. At December 31, 2002, $41 million of the $50 million facility was utilized. Of the total amount utilized, approximately $6 million relates to the grinding wheels and round metalcutting tools businesses that are being treated as discontinued operations. The amount available to the company was reduced to $45 million effective January 31, 2003 and will be further reduced by $2.5 million effective with each of the disposals of the company’s grinding wheels and round metalcutting tools businesses. As the amount of eligible accounts receivable increases due to improved business conditions, we expect to be able to utilize the remaining amounts available under the facility.

     Milacron expects to generate positive cash flow from operating activities during 2003, which will be partially offset by up to $15 million for capital expenditures.

     Assuming there is no further significant deterioration in the markets we serve, we believe that Milacron’s current cash position, cash flow from operations, available credit lines and capacity to sell receivables will be sufficient to meet the company’s operating and capital requirements in 2003.

Cautionary Statement

•	global and regional economic conditions, consumer

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	spending, capital spending levels and industrial production, particularly in segments related to the level of automotive production and spending in the construction industry;
•	fluctuations in currency exchange rates of U.S. and foreign countries, including countries in Europe and Asia where Milacron has several principal manufacturing facilities and where many of our customers, competitors and suppliers are based;
•	Milacron’s continued ability to borrow under its lines of credit and sell accounts receivable under its receivables purchase agreement;
•	fluctuations in interest rates which affect the cost of borrowing under Milacron’s lines of credit and financing costs related to the sale of domestic accounts receivable;
•	production and pricing levels of important raw materials, including plastic resins, which are a key material used by purchasers of Milacron’s plastics technologies products, as well as steel, oil, and industrial grains used in the production of grinding wheels;
•	lower than anticipated levels of plant utilization resulting in production inefficiencies and higher costs, whether related to the delay of new product introductions, improved production processes or equipment, or labor relations issues;
•	customer acceptance of new products introduced during 2002 and products that will be introduced in 2003;
•	any major disruption in production at key customer or supplier facilities or at Milacron’s facilities;
•	disruptions in global or regional commerce due to wars, social, civil or political unrest in the non-U.S. countries in which Milacron operates and to acts of terrorism, continued threats of terrorism and military, political and economic responses (including heightened security measures) to terrorism;
•	alterations in trade conditions in and between the U.S. and non-U.S. countries where Milacron does business, including export duties, import controls, quotas and other trade barriers;
•	changes in tax, environmental and other laws and regulations in the U.S. and non-U.S. countries where Milacron does business;
•	litigation, claims or assessments, including but not limited to claims or problems related to product liability, warranty or environmental issues; and
•	fluctuations in stock market valuations of pension plan assets that could result in reduced pension income, increased pension expense and reduced shareholders’ equity.

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Responsibility for Financial Reporting

Financial Statements

Internal Control System

     The company assessed its internal control system as of December 31, 2002 in relation to criteria for effective internal control over the preparation of its published annual and quarterly financial statements described in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the company believes that, as of December 31, 2002, its system of internal control over the preparation of its published annual and quarterly financial statements and over the safeguarding of assets against unauthorized acquisition, use or disposition met those criteria.

February 10, 2003

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Consolidated Statements of Earnings