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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2004
Commission File Number 1-8485
Milacron Inc.
2090 Florence Avenue
Cincinnati, Ohio 45206
(513) 487-5000
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Incorporated in Delaware
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I.R.S. No. 31-1062125 |
Securities Registered Pursuant to Section 12(b) of the
Act:
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Title of Each Class:
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Name of Each Exchange on Which Registered: |
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Common Shares — Par Value $.01
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New York Stock Exchange, Inc. |
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past
90 days. Yes þ 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. o
Indicate by check mark whether the
registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes þ No o
The aggregate market value of
voting stock held by non-affiliates of the registrant was
$126,107,092 at June 30, 2004.
*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,
$.01 par value, outstanding as of March 24, 2005:
49,701,938
DOCUMENTS INCORPORATED BY REFERENCE: None
MILACRON INC.
2004 FORM 10-K
TABLE OF CONTENTS
1
PART I
General
Milacron is a major solutions provider to the
plastics-processing industries and a leading supplier of premium
metalworking fluids. By offering advanced technology and
superior aftermarket service and support, we are committed to
the success of our customers worldwide. We operate four business
segments:
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Machinery technologies — North America |
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Machinery technologies — Europe |
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Mold technologies |
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Industrial fluids |
Our first three segments provide plastics processors with a
broad range of technologically advanced products, services and
support used in state-of-the-art injection molding, blow molding
and extrusion processing. Our fourth segment blends and sells
industrial fluids with advanced formulations that meet many
stringent performance, health and safety requirements and are
used in a wide variety of metalworking applications.
Starting in the 1860s as a screw and tap machine shop in
downtown Cincinnati, the company was first incorporated in 1884.
As a successor to that business, Milacron was most recently
incorporated in Delaware in 1983. Known throughout most of our
history as a leading machine tool maker serving metalworking
industries, in the late 1990s we divested this legacy business
and subsequently in the past three years also divested our
metalcutting carbide insert, round tool and grinding wheel
businesses in order to focus exclusively on plastics
technologies and industrial fluids.
Accounting for 86% of consolidated sales from continuing
operations in 2004, our plastics technologies segments
manufacture and sell machines and turnkey systems as well as
related mold tooling and components, MRO (maintenance, repair
and operating) supplies, and value-added services and support
for injection molding, extrusion and blow molding —
methods that account for over 90% of all plastic part
production. Major global markets for our plastics technologies
include packaging, automotive, consumer goods, building
materials, medical, housewares, and electronics.
In our industrial fluids segment, representing 14% of total
sales from continuing operations, we develop, manufacture and
sell coolants, lubricants, process cleaners and corrosion
inhibitors and provide related value-added services to a variety
of metalworking industries. Major global markets for our
industrial fluids include automotive, industrial components and
machinery, off-road equipment, appliances, aerospace, oil and
primary metals, and consumer goods.
During the 1990s, Milacron benefited from a strong economy with
high levels of sales and growing profitability. Strategic
acquisitions allowed us to expand faster than the general
economy. From mid 2000 to late 2003, however, we experienced the
most severe and prolonged downturn in the North American
manufacturing sector since the 1930s. During this recession in
North America, with both European and Asian markets also in
decline, our global plastics technologies sales dropped by more
than 25% and operating earnings fell from almost
$100 million in 2000 to a loss in 2001 and only marginal
profitability in 2002 and 2003. This difficult economic
environment also significantly impaired our liquidity and access
to capital. In response, we reduced our cost structure, exited
non-core businesses and completed a number of key refinancing
transactions in order to improve our profitability, focus on
core competencies, reduce our indebtedness and increase our
financial flexibility.
In the fourth quarter of 2003, we began to see gradual increases
in plastic part production and in capacity utilization of
plastics processors. This encouraging trend continued midway
through 2004, at which time a sudden, unexpected rise in oil and
resin prices set the recovery back for several months. By the
end of 2004, however, capacity utilization rates were again
approaching levels historically associated with increases in
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capital investment. For the year 2004, Milacron had a
consolidated net loss of $51.8 million, compared to
$190.9 million in 2003, on sales of $774 million, a 5%
increase over the prior year.
We maintain an Internet website at www.milacron.com. Our site
provides company, product, service and investor information,
including our annual report and other filings as well as our
latest earnings and 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
Milacron has made a number of key acquisitions and divestitures
designed to strengthen our core businesses — plastics
technologies and industrial fluids — on a global
basis. In the last five years we have made six acquisitions in
plastics technologies. During this time we have also divested
seven businesses, most of them metalworking product lines. In
plastics, we have expanded our presence in durable goods and
consumable products, which are less sensitive to economic cycles
and generally have higher margins than capital goods. In 2004,
capital goods accounted for about 48% of our plastics sales,
compared to 88% in 1994.
Due to exceptionally weak business conditions we have made no
significant acquisitions since 2001. Additions to our operations
in the last five years have been:
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Product Lines |
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Akron Extruders
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2000 |
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Plastics single-screw extruders
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Rite-Tek Canada
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2000 |
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Plastics MRO supplies
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Ontario Heater and Supply
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Plastics MRO supplies
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Progress Precision
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2001 |
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Plastics extrusion feed screws
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Reform Flachstahl
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2001 |
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Plastics mold bases and components
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EOC Normalien
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2001 |
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Plastics mold bases and components
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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 carbide insert businesses in North America, Europe
and Asia, and our round metalcutting tool business in Europe. In
2003 and 2004, we sold our North American round metalcutting
tool businesses and grinding wheel business, respectively.
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Product Lines |
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Widia magnet engineering
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2000 |
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Industrial magnets
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Valenite, Widia
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2002 |
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Carbide metalcutting inserts, tool holders
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Werkö
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2002 |
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Round metalcutting tools
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Talbot, Minnesota Twist Drill
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2003 |
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Round metalcutting tools
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Cimform
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Vitrified and resin-bonded grinding wheels
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Manufacturing Efficiency and Cost Structure
We are focused on better serving our customers and improving our
financial performance through continuous cost reduction, greater
working capital efficiency, increasing manufacturing
productivity and enhanced product quality.
Milacron began implementing Lean Manufacturing and Six Sigma
methodologies throughout our operations in 2001 and we have
accelerated implementation through intensive employee training
programs. Most of our employees worldwide have received Lean/
Six Sigma training, and hundreds of cross-functional teams
continue to solve problems and improve process efficiencies
resulting in shorter customer response times, lower working
capital requirements and improved cash flow.
We are reducing our overall costs and improving our operational
efficiency through strategic global sourcing and manufacturing.
We are concentrating our own manufacturing on those core
components we can
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make better and/or less expensively than we would obtain through
outsourcing. As part of this effort, we continue to seek
suppliers who offer greater flexibility, lower cost and higher
quality, while consolidating supplier relationships and making
other improvements to our supply chain.
Over the past four years we have closed nine manufacturing
plants in North America and Europe and have consolidated
manufacturing capacity to more efficient facilities. During this
time period we also eliminated the need for approximately 1,700
manufacturing and administrative positions worldwide and
divested various non-core assets.
These initiatives have contributed materially to the generation
of over $72 million of annualized cost savings from our
operating structure since the end of 2000 and a reduction in
primary working capital as a percent of sales from 40% in 2001
to 25% by the end of 2004. In 2005, we expect further savings
from operations of $6 million as we continue to implement
these and other initiatives in our ongoing effort to achieve
operational excellence.
Refinancing
During 2004, Milacron completed a number of key refinancing
transactions to strengthen our balance sheet and improve our
financial flexibility. We repaid long-term debt issues due to
mature in 2004 and 2005 and eventually consolidated all our
major long-term debt into one obligation of $225 million in
111/2% Senior
Secured Notes due 2011. We also successfully negotiated a new
four-year, $75 million senior secured revolving credit
facility to expire in 2008 and we issued 500,000 shares of
6% Series B Convertible Preferred Stock to Glencore Finance
AG and Mizuho International plc in exchange for
$100 million of new capital, which we used to help retire
our 2004 maturities. As a result of all these transactions, we
increased our equity base, improved our financial flexibility
and reduced our cost structure, which we believe leaves us
better prepared to benefit from the anticipated recovery in our
end markets in 2005 and beyond.
In the fourth quarter of 2004, we conducted a rights offering,
which allowed existing holders of common stock to purchase 0.452
new shares for every share held at $2.00 each. At
78% subscribed, the offering resulted in the issuance of
12.7 million new shares of common stock and net proceeds to
the company of $24.2 million. In early March of 2005, we
announced we would use the proceeds to pay down short-term debt
and to add to our cash position in anticipation of working
capital needs related to the continued strong growth in our
North American plastics machinery business, higher levels of
investment for new equipment and systems upgrades and any other
developments in 2005.
Product Research and Development
We design and manufacture innovative, value-added products to
reinforce our leading global positions and achieve sales growth.
We continually invest in research and development to improve the
performance of our existing products, to bring new products to
market and to remain at the technological forefront of the
plastics processing and metalworking fluids industries. To these
ends we invested $19.8 million, or 2.6% of sales, in
R&D in 2004, compared to $17.8 million, or 2.4% of
sales, in 2003 and $15.8 million, or 2.3% of sales, in 2002.
Patents
Milacron holds a number of patents pertaining to both plastics
technologies and industrial fluids, none of which are material
to their respective business segments.
Employees
The average number of employees from continuing operations at
Milacron was 3,490 people in 2004. Of these, almost half were
outside the U.S. As of year-end 2004, our employment was
about 3,470 people.
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Segment Information
Segment and geographic information for the years ended
December 31, 2004, 2003 and 2002 is included in the notes
to Milacron’s Consolidated Financial Statements on
pages 91 through 94 of this Form 10-K.
Plastics Technologies
Products and Services. We believe Milacron is the
world’s broadest-line supplier of machinery, mold bases and
related tooling and supplies to process plastics. Our extensive
applications engineering expertise and comprehensive aftermarket
service and support further differentiate us from our
competitors. With combined 2004 sales of $665 million, our
plastics technologies businesses are organized in three segments:
Machinery technologies — North America
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Injection molding systems, parts and services supplied from
North America and India |
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Blow molding systems, parts, molds and services supplied from
North America |
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Extrusion systems, parts and services supplied from North America |
Machinery technologies — Europe
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Injection molding systems, parts and services supplied from
Europe |
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Blow molding systems, parts, molds and services supplied from
Europe |
Mold technologies
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Injection mold bases, related components/tooling and services
worldwide |
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MRO — maintenance, repair and supplies worldwide |
Milacron strives to be a “one-stop” supplier of
complete end-to-end plastics processing solutions. We offer full
lines of advanced injection molding, blow molding and extrusion
systems, aftermarket replacement parts, and specialty auxiliary
equipment for plastics processing. Milacron is a manufacturer of
mold bases and related tooling and components for injection mold
making and injection molders, and we make complete molds for
blow molding. We are also a supplier of aftermarket MRO items
for plastics processing and mold making, and we provide retrofit
and rebuild services for older equipment manufactured by
Milacron and others.
Injection molding is a very versatile process used to make a
wide variety of plastic products, ranging from auto components,
toothbrushes and computer devices to mobile phones, toys,
medical equipment and DVDs. Milacron is the largest supplier of
injection molding machinery to the North American market and the
third largest worldwide. We are a recognized technology leader
in all-electric injection molding and in co-injection,
multi-component-material-color, high-tonnage, and low-pressure
foam/gas-assisted injection molding, offering systems that
significantly reduce the customer’s cost per part. Our
patented PC-based control technology for plastics molding
machines assures high-quality part production and brings the
power of the Internet and improved communications to the shop
floor.
In blow molding, we believe Milacron is the number-one supplier
of systems to produce HDPE (high density polyethylene)
containers, as well as one of the world’s largest producers
of industrial blow molding equipment to make hollow or
semi-hollow products such as automotive components, toys,
furniture, luggage and storage and shipping containers. In
addition to providing turnkey, state-of-the-art systems, we are
an integrated supplier of molds and related tooling for blow
molding.
Our high-output, twin-screw extruders are North American market
leaders for producing a wide variety of PVC (polyvinyl chloride)
and plastic composite products, such as siding, decking, fencing
and pipe, used in commercial and home construction markets.
Smaller models of our single-screw extruders serve such end
markets as plastics film and medical tubing. We also supply a
leading line of new and rebuilt high-
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performance screws and barrels, which are the productivity and
value components in the extrusion business, for all makes and
models of extruders. With the December 2004 expiration of a
five-year non-compete agreement with the buyer of our divested
European extrusion systems business, in 2005 we plan to
reintroduce our advanced extrusion systems and technologies to
markets outside North America.
For North American injection mold makers and injection molders,
Milacron is the leading supplier of durable mold bases, mold
base components, ejector pins, nozzles, screw tips and MRO
supplies. We are the number-two supplier of mold bases,
components and MRO supplies in Europe and on a global basis.
Independent mold makers are our largest customer category. We
provide the widest range of standard and special mold
technologies and the latest advances in quick-change molds, hot
runner systems and art-to-part metal printing of complex molds.
Offering high-quality MRO products at competitive prices, we
strive to become an extension of our customers’ businesses
by meeting their day-to-day needs for small tools, gauges,
temperature regulators, lubricants, safety supplies and
thousands of other items.
We leverage our size and geographic presence to provide rapid,
comprehensive, high-quality service and support to our customers
worldwide. Through our integrated service and supply network, we
offer 24/7 technical support and repair services. Our customers
have access to repair and maintenance services onsite or via the
Internet as well as next-day parts availability on a global
basis.
Markets. One of the largest industries in the world,
plastics processing is a major contributor to the vitality of
industrialized economies and to the continuing growth of
developing areas. Markets for plastics processing systems and
supplies have grown steadily for over half a century, as
plastics and plastic composites continue to replace traditional
materials such as metal, wood, paper and glass. Plastics have
increasingly become the material of choice in many, if not most,
manufactured goods.
Advancements in material development and in processing equipment
capabilities continue to make plastic products more functional
and less expensive, thus spurring secular growth. Thanks to
superior strength-to-weight ratios, plastics are increasingly
used in transportation-related applications. 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
$13 billion on an annualized basis, for plastics equipment
and supplies. Our product mix generally parallels the major
segments of this market. About two-thirds of the market consists
of capital equipment, which is highly sensitive to general
economic cycles and capital spending patterns. In addition,
demand is often shaped by other factors such as fluctuations in
resin pricing and availability, oil and other energy costs, the
impact of interest rates on new housing starts and auto sales,
the introduction of new products or models, and consumer
confidence and spending. Changes in currency exchange rates may
also affect our customers’ businesses and, in turn, the
demand for processing equipment. To reduce our dependency on
capital goods cycles, we have continued to look for ways to
expand our durable and consumable product offerings as well as
our aftermarket services on a global basis.
Although not always understood by those outside the industry,
the use of plastics generally is environmentally friendly and
conserves energy when compared to making the same products out
of metal, wood, paper and glass. In addition, 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 61% of our plastics technologies
products and services in 2004 were sold to customers in North
America. European sales made up about 27% of the total, with the
remainder coming from Asia and the rest of the world.
Distribution. Milacron maintains sales, marketing and
customer service facilities in major cities and regions across
North America, Europe and Asia. We also sell through large
networks of distributors and/or sales and service offices in all
major countries.
We sell our plastics machinery and systems through a combination
of direct sales force and independent agents who are spread
geographically throughout our key markets. We sell our mold
bases, supplies and
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components through a direct distribution network in North
America and Europe, through a large network of joint venture
sales and service offices in Asia, over the Internet and via
telemarketing. We market our MRO supplies through both paper and
electronic catalogs as well as over the Internet.
Customers. Our plastics technologies customers are
involved in making a wide range of everyday products: from food
and beverage containers to refrigerator liners; from electronic
and medical components to digital cameras and razors; from milk
bottles to plastic-lumber decking. Key end markets in order of
2004 sales were packaging, automotive, consumer goods and toys,
building materials, industrial components, custom molders,
medical, appliances and housewares, and electrical and
electronics.
Production Facilities. For our three plastics
technologies segments, Milacron maintains the following
principal production facilities:
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Products |
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Ahmedabad, India
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Injection molding machines |
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Batavia, Ohio*
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Injection molding machines
Blow molding machines
Extrusion systems |
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Charlevoix, Michigan
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Mold components |
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Corby, England
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Injection molding components |
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Fulda, Germany
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Mold bases |
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Greenville, Michigan*
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Mold bases |
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Jiangyin, China*
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Injection molding machines |
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Lewistown, Pennsylvania
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Mold components |
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Madison Heights, Michigan
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Hot runner systems |
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Magenta, Italy*
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Blow molding machines |
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Malterdingen, Germany
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Injection molding machines |
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McPherson, Kansas*
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Extrusion screws and barrels |
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Mechelen, Belgium
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Mold components |
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Melrose Park, Illinois
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Mold bases |
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Mississauga, Canada*
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Extrusion screws |
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Mt. Orab, Ohio
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Plastics machinery parts |
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Policka, Czech Republic*
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Blow molding machines |
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Tecumseh, Michigan*
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Molds for blow molding |
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Windsor, Canada
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Mold bases |
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Youngwood, Pennsylvania
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Mold bases and components |
The above facilities provide almost two million square feet of
manufacturing, warehousing and office space. All facilities are
in good repair and are considered suitable for the purposes for
which they are used. The level of utilization of the facilities
in relation to their practical capacities varies but, in all
instances, is sufficient to justify their continued operation.
In addition to the facilities listed above, we currently own
three inactive manufacturing facilities that are held for sale.
In the fourth quarter of 2004, these locations were written down
to reflect revised estimates of their expected selling prices.
The following owned facilities were pledged as collateral to
secure our obligations under the indenture governing our
111/2%
Senior Secured Notes due 2011 and the financing agreement
governing our $75 million asset based revolving credit
facility with JPMorgan Chase Bank, as administrative agent and
collateral agent: (i) Lewistown, Pennsylvania,
(ii) Youngwood, Pennsylvania, (iii) Melrose Park,
Illinois, (iv) Mt. Orab, Ohio and (v) Madison Heights,
Michigan.
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Competition. The markets for plastics technologies are
global, highly competitive and include principally North
American, European and Asian competitors. We believe Milacron
has the number-one position in the North American market and
that we are one of the largest suppliers worldwide. A few of our
competitors are larger than us, most are smaller, and only a few
compete in more than one product category. Principal competitive
factors in the plastics technologies industry are product
features, technology, performance, reliability, quality,
delivery, price and customer service.
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 2004 sales of $109 million, our industrial fluids
segment consists of:
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Metalcutting and metalforming coolants and lubricants |
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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 offers superior performance while meeting the demands of
today’s toughest metalworking operations. We enhance our
customers’ competitiveness by prolonging tool life,
reducing coolant usage, and improving metal removal and
metalforming productivity. For over half a century, our
specialty has been synthetic (water-based) and semi-synthetic
fluids, which provide excellent lubricity and are generally more
environmentally friendly than traditional mineral oil-based
products. In recent years, we have developed advanced
“green” fluids, made from renewable oils and synthetic
esters, which match or exceed the performance characteristics of
mineral oil-based fluids, but with improved health and safety
features and environmental advantages.
We add value for our customers by helping them maintain the
safety and effectiveness of their fluids and by offering them
our expertise in fluid/operation synergies in order to optimize
their metalworking processes. Fluid optimization can provide our
customers with significant productivity gains and cost savings.
Traditionally our strength has been in the area of metal removal
(cutting and grinding), but we also blend and sell stamping and
metalforming fluids, process cleaners, corrosion inhibitors and
other specialty products for metalworking, all of which
represent good growth opportunities for us.
Markets. Key markets for our industrial fluids include
the whole spectrum of metalworking industries: from automotive,
aircraft and machinery makers and job shops to manufacturers of
appliances, agricultural equipment and consumer and sporting
goods. Milacron fluids are also used in the production of glass
and mirrors and in high-tech processes such as silicon wafer
slicing and polishing.
The markets in which our industrial fluids compete total
$2.5 billion on an annualized, global basis. Over one-third
of the market consists of metalcutting and grinding fluids, with
metalforming fluids and process cleaners each accounting for
about one-quarter of the market. Demand for our fluids is
generally directly proportional to levels of industrial
production, although we specifically target higher-growth areas
such as machining and forming exotic alloys and aluminum.
Factors affecting our customers’ production rates and
ultimately the demand for our fluids include auto and machinery
sales, consumer spending and confidence, interest rates, energy
prices and currency exchange rates.
Environmental, health and safety concerns have the potential to
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.
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Geographic Sales. About 53% of our 2004 industrial fluid
sales were made to customers in North America, while another 39%
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. We
produce most of what we sell, and most of what we make is sold
under our own brand names. In addition, some of our fluids are
sold under brand names of other companies through their own
market channels.
Customers. Our metalworking fluids are involved in making
all kinds of products: from automotive power train components to
aluminum soft drink cans, from air conditioners and glass
mirrors to bearings, golf clubs and a wide variety of industrial
components.
Markets for our industrial fluids in order of importance based
on 2004 sales were automotive, industrial components, industrial
machinery, job shops, off-road equipment, appliances and
housewares, aerospace, oil and primary metals, and consumer
goods. The largest customer category, automotive, accounted for
37% of fluid sales in 2004.
Production Facilities. For our industrial fluids segment,
Milacron maintains the following principal production facilities:
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Products |
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Cincinnati, Ohio
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Metalworking fluids
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Corby, England*
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Metalworking and metalforming fluids
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Freiburg, Germany*
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Process cleaners, corrosion inhibitors, specialty products
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Livonia, Michigan
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Metalworking fluids
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Sturgis, Michigan
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Metalworking fluids
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Ulsan, South Korea
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Metalworking fluids
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Vlaardingen, The Netherlands
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Metalforming fluids
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The above facilities provide approximately 250,000 square
feet of manufacturing, warehousing and office space. All
facilities are in good repair and are considered suitable for
the purposes for which they are used. The level of utilization
of the facilities in relation to their practical capacities
varies but, in all instances, is sufficient to justify their
continued operation.
The following owned facilities were pledged as collateral to
secure our obligations under the indenture governing our
111/2%
Senior Secured Notes due 2011 and the financing agreement
governing our $75 million asset based revolving credit
facility with JPMorgan Chase Bank, as administrative agent and
collateral agent: (i) Cincinnati, Ohio, (ii) Sturgis,
Michigan and (iii) Livonia, Michigan.
Competition. We believe Milacron holds a leadership
position in world markets for synthetic metalworking fluids. Our
competitors range from large petrochemical companies to smaller
companies specializing in similar fluids. Principal competitive
factors in this business include market coverage, product
performance, delivery, price and customer service.
9
Executive Officers of the Registrant
The following information is included in accordance with the
provisions for Part III, Item 10:
| |
|
|
|
|
| Name and Age |
|
Position |
|
Positions Held During Last Five Years |
| |
|
|
|
|
|
Ronald D. Brown (51)
|
|
Chairman, President and Chief Executive Officer |
|
Elected Chairman, President and Chief Executive Officer in 2001.
Elected President and Chief Operating Officer in 1999. Has
served as a Director since 1999. |
|
Robert P. Lienesch (59)
|
|
Senior Vice President — Finance, Controller and Chief
Financial Officer |
|
Elected Senior Vice President — Finance and Controller
in 2004. Elected Vice President — Finance and Chief
Financial Officer in 1999. Elected Vice President and Treasurer
in 1998 and served as Treasurer until 2001. |
|
Hugh C. O’Donnell (53)
|
|
Senior Vice President, General Counsel and Secretary |
|
Elected Senior Vice President in 2004 and elected Vice
President, General Counsel and Secretary in 1999. Prior thereto
was Corporate Counsel from 1992. |
|
Dr. Karlheinz Bourdon (47)
|
|
President — Global Plastics Machinery |
|
Elected President of Global Plastics Machinery business in 2004.
Prior thereto was General Manager, Plastics Machinery
Technologies Group from 2003 to 2004, Senior Managing Director,
Plastics Machinery Europe from 2001 to 2003, and Managing
Director, Ferromatik Milacron from 1999 to 2001. |
|
David E. Lawrence (54)
|
|
President — Global Mold Technologies |
|
Elected President of Global Mold Technologies business in 2004.
Prior thereto was General Manager, Global Mold Technologies from
2003 to 2004 and General Manager, North America of D-M-E, a
Milacron subsidiary, from 1999 to 2003. |
|
Robert C. McKee (53)
|
|
President — Global Industrial Fluids |
|
Elected President of Global Industrial Fluids business in 2004.
Prior thereto was General Manager, Global Industrial Fluids from
2002, General Manager, Consumable Products Division from 2000 to
2002 and President of Talbot Holdings, a Milacron subsidiary,
from 1995 to 2000. |
10
| |
|
|
|
|
| Name and Age |
|
Position |
|
Positions Held During Last Five Years |
| |
|
|
|
|
|
M. Bradley Baker (39)
|
|
Vice President — Human Resources |
|
Elected Vice President of Human Resources in 2004. Prior thereto
was Director, Global Human Resources from 2002 to 2004 and Group
Director, Human Resources — Plastics Technologies from
1999 to 2002. |
|
John C. Francy
(40)
|
|
Vice President and Treasurer |
|
Elected Vice President in 2004 and Treasurer in 2001. Prior
thereto was Assistant Treasurer from 1998. |
Notes:
|
|
| |
The parenthetical figure below the name of each individual
indicates his age at most recent birthday prior to
December 31, 2004. |
| |
| |
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. |
We lease our corporate headquarters building from a third party.
This building is located in Cincinnati, Ohio.
The remaining information required by Item 2 is included in
Part I on pages 7 and 9 of this Form 10-K.
|
|
| Item 3. |
Legal Proceedings |
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, including metalworking fluids,
supplied and/or managed 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 company’s asset based credit facility is currently
expected to be adequate to cover the company’s 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 company’s dependence on its asset
based credit facility for liquidity). It is possible that the
company’s 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
company’s future operating results and financial condition,
particularly its liquidity, could be adversely affected.
11
|
|
| Item 4. |
Submission of Matters to a Vote of Security Holders |
There were no matters submitted to a vote of security holders
during the fourth quarter of 2004.
PART II
|
|
| Item 5. |
Market for the Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
Our common shares are listed on the New York Stock Exchange.
Such shares are also traded on the Cincinnati Stock Exchange,
Boston Stock Exchange, Pacific Stock Exchange, Philadelphia
Stock Exchange and Midwest Stock Exchange, with options traded
on the Philadelphia Stock Exchange. As of March 24, 2005,
there were approximately 4,082 holders of record of our common
shares. Our 4% Cumulative Preferred Stock and 6% Series B
Convertible Preferred Stock are not actively traded.
The following table shows the price range of the common shares
for 2003 and 2004, as reported by the New York Stock Exchange.
Cash dividends of $.01 per common share were paid in the
first two quarters of 2003. No dividends were paid in 2004 or in
the last two quarters of 2003. The indenture governing our
111/2% Senior
Secured Notes due 2011 (discussed on page 80 of this
Form 10-K) contains restrictions limiting the payment of
cash dividends on our common stock, and our asset based
revolving credit facility (discussed on pages 38 through 41
of this Form 10-K) prevents the payment of cash dividends
on our common stock.
| |
|
|
|
|
|
|
|
|
|
| |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
2003, quarter ended
|
|
|
|
|
|
|
|
|
| |
March 31
|
|
$ |
6.55 |
|
|
$ |
3.76 |
|
| |
June 30
|
|
|
5.59 |
|
|
|
4.08 |
|
| |
September 30
|
|
|
5.00 |
|
|
|
2.00 |
|
| |
December 31
|
|
|
4.47 |
|
|
|
2.23 |
|
|
2004, quarter ended
|
|
|
|
|
|
|
|
|
| |
March 31
|
|
$ |
4.55 |
|
|
$ |
1.86 |
|
| |
June 30
|
|
|
4.49 |
|
|
|
3.25 |
|
| |
September 30
|
|
|
4.02 |
|
|
|
2.83 |
|
| |
December 31
|
|
|
3.76 |
|
|
|
2.66 |
|
The following table summarizes stock repurchases and
reacquisitions for the quarter ended December 31, 2004.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(a) | |
|
(b) | |
|
(c) | |
|
(d) | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
|
|
Total Number | |
|
Maximum Number | |
| |
|
|
|
|
|
of Shares | |
|
(or Approximate | |
| |
|
|
|
|
|
(or Units) | |
|
Dollar Value) of | |
| |
|
|
|
|
|
Purchased as | |
|
Shares (or Units) | |
| |
|
Total Number | |
|
Average Price | |
|
Part of Publicly | |
|
that May Yet Be | |
| |
|
of Shares | |
|
Paid per | |
|
Announced | |
|
Purchased Under | |
| |
|
(or Units) | |
|
Share | |
|
Plans | |
|
the Plans or | |
| Period |
|
Purchased | |
|
(or Unit) | |
|
or Programs(1) | |
|
Programs(1) | |
| |
|
| |
|
| |
|
| |
|
| |
|
October 1 - October 31, 2004
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
November 1 - November 30, 2004
|
|
|
32,851 |
(2) |
|
|
2.97 |
|
|
|
— |
|
|
|
— |
|
|
December 1 - December 31, 2004
|
|
|
3,749 |
(2) |
|
|
2.99 |
|
|
|
— |
|
|
|
— |
|
|
Total
|
|
|
36,600 |
|
|
|
2.97 |
|
|
|
— |
|
|
|
— |
|
12
|
|
| (1) |
As of December 31, 2004, there were no publicly announced
plans or programs to repurchase stock. |
| |
| (2) |
Represents shares issued in a rights offering that were
cancelled to cover withholding taxes owed by certain holders of
restricted shares who participated in the offering. |
|
|
| Item 6. |
Selected Financial Data |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Dollars in millions, except per-share amounts) | |
|
Summary of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
774.2 |
|
|
$ |
739.7 |
|
|
$ |
693.2 |
|
|
$ |
755.2 |
|
|
$ |
974.5 |
|
|
Earnings (loss) from continuing operations before cumulative
effect of change in method of accounting(a)
|
|
|
(51.3 |
)(b) |
|
|
(183.7 |
)(b) |
|
|
(18.7 |
)(b) |
|
|
(28.6 |
)(b) |
|
|
48.2 |
(b) |
| |
Per common share(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic
|
|
|
(1.33 |
) |
|
|
(5.02 |
) |
|
|
(.52 |
) |
|
|
(.80 |
) |
|
|
1.26 |
|
| |
|
Diluted
|
|
|
(1.33 |
)(d) |
|
|
(5.02 |
)(d) |
|
|
(.52 |
)(d) |
|
|
(.80 |
)(d) |
|
|
1.25 |
|
|
Earnings (loss) from discontinued operations
|
|
|
(.5 |
)(e) |
|
|
(7.2 |
)(e) |
|
|
(16.8 |
)(e) |
|
|
(7.0 |
) |
|
|
22.8 |
|
| |
Per common share(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic
|
|
|
(.01 |
) |
|
|
(.19 |
) |
|
|
(.46 |
) |
|
|
(.19 |
) |
|
|
.60 |
|
| |
|
Diluted
|
|
|
(.01 |
)(d) |
|
|
(.19 |
)(d) |
|
|
(.46 |
)(d) |
|
|
(.19 |
)(d) |
|
|
.60 |
|
|
Cumulative effect of change in method of accounting
|
|
|
— |
|
|
|
— |
|
|
|
(187.7 |
)(f) |
|
|
— |
|
|
|
— |
|
| |
Per common share(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic
|
|
|
— |
|
|
|
— |
|
|
|
(5.15 |
) |
|
|
— |
|
|
|
— |
|
| |
|
Diluted
|
|
|
— |
|
|
|
— |
|
|
|
(5.15 |
)(d) |
|
|
— |
|
|
|
— |
|
|
Net earnings (loss)(a)
|
|
|
(51.8 |
) |
|
|
(190.9 |
) |
|
|
(223.2 |
) |
|
|
(35.6 |
) |
|
|
71.0 |
|
| |
Per common share(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic
|
|
|
(1.34 |
) |
|
|
(5.21 |
) |
|
|
(6.13 |
) |
|
|
(.99 |
) |
|
|
1.86 |
|
| |
|
Diluted
|
|
|
(1.34 |
)(d) |
|
|
(5.21 |
)(d) |
|
|
(6.13 |
)(d) |
|
|
(.99 |
)(d) |
|
|
1.85 |
|
|
Financial Position at Year End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital of continuing operations
|
|
|
193.4 |
|
|
|
22.2 |
|
|
|
166.9 |
|
|
|
176.5 |
|
|
|
102.5 |
|
|
Property, plant and equipment-net
|
|
|
128.4 |
|
|
|
140.8 |
|
|
|
149.8 |
|
|
|
165.8 |
|
|
|
165.0 |
|
|
Total assets
|
|
|
739.9 |
|
|
|
733.4 |
|
|
|
947.3 |
|
|
|
1,528.5 |
|
|
|
1,481.0 |
|
|
Long-term debt
|
|
|
235.9 |
|
|
|
163.5 |
|
|
|
255.4 |
|
|
|
501.1 |
|
|
|
371.3 |
|
|
Total debt
|
|
|
253.1 |
|
|
|
323.4 |
|
|
|
301.5 |
|
|
|
576.7 |
|
|
|
457.2 |
|
|
Net debt (total debt less cash and cash equivalents)
|
|
|
183.9 |
|
|
|
230.6 |
|
|
|
179.2 |
|
|
|
486.6 |
|
|
|
423.4 |
|
|
Shareholders’ equity (deficit)
|
|
|
50.4 |
|
|
|
(23.6 |
) |
|
|
143.5 |
|
|
|
444.6 |
|
|
|
494.0 |
|
| |
Per common share
|
|
|
(1.42 |
) |
|
|
(.85 |
) |
|
|
4.07 |
|
|
|
13.11 |
|
|
|
14.64 |
|
|
Other Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to common shareholders
|
|
|
— |
|
|
|
.7 |
|
|
|
1.4 |
|
|
|
12.4 |
|
|
|
16.8 |
|
| |
Per common share
|
|
|
— |
|
|
|
.02 |
|
|
|
.04 |
|
|
|
.37 |
|
|
|
.50 |
|
|
Capital expenditures
|
|
|
8.8 |
|
|
|
6.5 |
|
|
|
6.2 |
|
|
|
13.5 |
|
|
|
26.5 |
|
|
Depreciation and amortization
|
|
|
20.3 |
|
|
|
21.7 |
|
|
|
23.0 |
|
|
|
34.9 |
|
|
|
35.4 |
|
|
Backlog of unfilled orders at year-end
|
|
|
87.3 |
|
|
|
92.0 |
|
|
|
76.4 |
|
|
|
61.2 |
|
|
|
100.0 |
|
|
Employees (average)
|
|
|
3,490 |
|
|
|
3,760 |
|
|
|
4,090 |
|
|
|
4,672 |
|
|
|
4,789 |
|
|
|
|
|
(a) |
|
In the fourth quarter of 2004, the company elected to change its
method of accounting for certain U.S. plastics machinery
inventories from the last-in, first-out (LIFO) method to
the first-in, first-out |
13
|
|
|
|
|
|
(FIFO) method, retroactive to the beginning of the year.
The amounts presented herein for the years 2000 through 2003
have been restated to conform to the 2004 presentation. |
| |
|
(b) |
|
Includes restructuring costs of $13.0 million (with no tax
benefit) in 2004, $27.1 million ($25.5 million after
tax) in 2003, $13.9 million ($8.8 million after tax)
in 2002, $17.5 million ($11.0 million after tax) in
2001 and $1.4 million ($.9 million after tax) in 2000.
In 2004 and 2003, includes refinancing costs of
$21.4 million and $1.8 million, respectively, in both
cases with no tax benefit. In 2003 and 2002, includes goodwill
impairment charges of $65.6 million and $1.0 million,
respectively, in both cases with no tax benefit. |
| |
|
(c) |
|
The number of shares used to compute earnings (loss) per common
share data for all years prior to 2004 has been restated to
reflect the effects of a “bonus element” inherent in
the rights offering that was completed in the fourth quarter of
2004. Under the terms of the offering, holders of common shares
were permitted to acquire additional shares at a price of
$2.00 per share compared to a weighted-average market price
on the closing dates of $2.91 per share. As a result of the
bonus element, shares previously used to calculate basic and
diluted earnings (loss) per common share were increased by a
factor of 1.0891. |
| |
|
(d) |
|
For 2004, 2003, 2002 and 2001, diluted earnings per common share
is equal to basic earnings per common share because the
inclusion of potentially dilutive securities would result in a
smaller loss per common share. |
| |
|
(e) |
|
In 2004 and 2003, includes net income of $.8 million and
net expense of $.8 million, respectively, related to
adjustments of previously recorded gains and losses on
divestitures of discontinued operations. In 2002, includes a net
gain of $8.4 million on the divestitures of the Valenite
and Widia and Werkö metalcutting tools businesses, the
planned divestiture of the round metalcutting tools and grinding
wheels businesses and adjustments of reserves related to the
1998 sale of the machine tools segment. |
| |
|
(f) |
|
Represents a goodwill impairment charge related to the adoption
of a new accounting standard. |
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
Executive Summary
Milacron is a leading global provider of equipment, supplies,
services and complete end-to-end solutions to the plastics
processing industries. We are also a leading global supplier of
premium industrial fluids to the metalworking industries. First
incorporated in 1884 and headquartered in Cincinnati, Ohio, we
employ about 3,500 people and operate major manufacturing
facilities in North America, Europe and Asia, while maintaining
sales and services offices in over one hundred countries around
the world. Milacron’s top priority is to support our
customers with the most advanced technology and the most
comprehensive, reliable service in our industry.
We operate in four business segments. The first three, machinery
technologies-North America, machinery technologies-Europe and
mold technologies, serve the plastics processing industries. Our
fourth segment, industrial fluids, serves the metalworking
sector. Both of our machinery technologies segments provide
leading-edge capital equipment, related tooling and replacement
parts for the three most common methods of processing plastics:
injection molding, blow molding and extrusion. Our mold
technologies segment supplies mold bases, mold components, hot
runner systems and numerous other components for injection
molding, as well as MRO (maintenance, repair and operating)
supplies for all plastics processing operations. Our industrial
fluids segment develops and sells premium fluids for
metalworking applications such as machining, grinding, forming
and process cleaning. In all our businesses, we focus on
leading-edge technology with superior aftermarket service and
support.
We entered the plastics machinery business with the introduction
of our first line of injection molding machines in the late
1960s. By the mid 1980s, we had become the number-one
U.S. producer of plastics machinery. Our major customers
are producers of packaging, automobiles, consumer goods,
building materials, industrial components, medical devices,
appliances and housewares, and electrical products.
14
Milacron pioneered the development of synthetic (water-based)
industrial fluids and we have sold these fluids since the late
1940s. Our largest customer for fluids is the automotive
industry, followed by makers of industrial components and
machinery, off-road equipment, appliances and housewares, and
aircraft.
|
|
|
Plastics Markets — Background and Recent
History |
Since the end of World War II, plastics and plastic
composites have increasingly replaced traditional materials such
as metal, wood, glass and paper throughout manufacturing. Since
1970, global consumption of plastics resins has grown at a
compounded annual rate of 6%, compared to 1% for steel and 3%
for aluminum (Sources: BASF AG, Association of Plastics
Manufacturers in Europe, International Iron & Steel
Institute, U.S. Geological Survey).
Plastic part production, like industrial production in general,
has historically shown sustained growth. In every year from 1980
to 2000, plastic part production in the U.S. increased over
the prior year, averaging 7% compounded annual growth (Source:
U.S. Federal Reserve Board). Growth in plastics consumption
and production has generally created increasing demand for our
plastics machinery and related supplies. Between 1980 and 2000,
our sales of plastics equipment and supplies in North America
grew at 8% compounded annually excluding acquisitions (11%
including acquisitions).
In the 1990s, Milacron, like many other U.S. companies,
benefited from a strong, growing economy. Our plastics
technologies sales were approaching $1 billion with good
profitability. At the end of the decade, however, the
U.S. manufacturing sector fell into its most severe and
prolonged downturn since the 1930s. From June 2000 to June 2003,
for example, U.S. industrial production, a key indicator of
demand for our products, declined 6% (Source: U.S. Federal
Reserve Board). The plastics processing portion of the
manufacturing sector was severely impacted. As production
slowed, capacity utilization rates of U.S. plastics
processors dropped from the previous peaks near 90% to record
lows around 77% (Source: U.S. Federal Reserve Board), and
shipments of injection molding machines in North America fell
from a $1.2 billion 12-month moving total in 2000 to under
$700 million by the end of 2001, and it stayed at very low
levels through 2003 but experienced a partial recovery in 2004
(Source: The Society of Plastics Industry).
During this deep recession in North America, with both European
and Asian markets also in decline, albeit more modestly, demand
for many of our plastics machinery lines declined by 50% or
more, and our total global plastics technologies sales fell 27%.
Despite a series of responsive actions, including a number of
plant closings, head-count reductions and other measures
resulting in cumulative annual cost-savings of $72 million,
severely depressed sales volumes led to consolidated losses from
continuing operations in 2001 through 2004.
At the end of 2003, the manufacturing sector of the North
American economy began to show some signs of recovery. In early
2004, the Institute for Supply Management’s manufacturing
index, traditionally a very accurate leading indicator, rose to
its highest level in twenty years, portending the long-awaited
rebound in manufacturing. In the plastics sector, part
production and U.S. capacity utilization were increasing
gradually. In mid-2004, however, the industry was hit by a
steep, unexpected jump in oil prices, resulting in rapid rises
in material and resin costs. Many of our plastics-processing
customers were negatively impacted, and we saw a corresponding
weakness in plastics machinery orders in the second half of the
year. By the end of 2004, however, there were signs that the
recovery had resumed, including a double-digit increase in
orders for plastics injection molding machinery in North America.
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Industrial Fluids — Recent History |
During the severe manufacturing recession of 2000-2003, overall
demand for our metalworking fluids declined by only 10%, as our
largest customer group, automakers, maintained high levels of
production both in North America and worldwide. Profitability in
the fluids business, although impacted, held up fairly well
throughout this period, with operating earnings in the range of
13% to 15% of sales.
In 2004, sales of our metalworking fluids were up 5% from the
prior year, aided in part by our geographic expansion in the
growing eastern European and Asian markets, as well as by
favorable currency translation
15
effects. However, profitability in this segment declined due to
a significant increase in insurance expense, as well as higher
material costs and pension expense.
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Consolidated 2004 Results |
Sales and new orders in 2004 were up slightly compared to 2003,
as good growth in North America and Asia and favorable currency
translation effects were tempered by weakness in western Europe.
Our net loss for the year was $52 million, and included
$21 million in refinancing costs and $13 million in
restructuring charges. Earnings from continuing operations
before interest, taxes, restructuring, refinancing and goodwill
impairment charges were two and one half times higher than in
2003, as savings from restructuring and other cost reduction
measures more than compensated for increased costs of materials,
pension, insurance and compliance with the Sarbanes-Oxley Act.
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Opportunities and Challenges |
Milacron successfully overcame a number of difficult challenges
in 2004. In the first half of the year, even though an economic
recovery in the manufacturing sector was gradually taking hold
in North America, uncertainty surrounding the refinancing of
major debt obligations maturing at that time had a discernible
negative impact on our orders. By mid year, we had completed all
the key refinancing transactions needed to strengthen our
balance sheet and improve our financial flexibility and we were
well positioned to begin taking advantage of the recovery.
Unfortunately, at that time sudden increases in oil and material
prices stalled the recovery and had a dampening effect on
capital spending by our customers.
To help reduce the impact of rising material costs and improve
the availability of various steel components, we have been
increasing our sourcing of parts and subassemblies from
non-traditional markets. In addition, we have been able to
offset some higher material costs with aggressive cost
reductions and selective price increases, depending on market
conditions. This should have a favorable impact on margins going
forward.
In 2004 we continued to expand our presence outside the United
States, Canada and western Europe. During the year, we launched
a joint venture operation in China, stepped up production in
India and expanded our customer service capabilities in Asia and
eastern Europe. As a result, we achieved sales growth in excess
of 25% in these non-traditional markets. In addition, we
undertook a number of initiatives to strengthen our performance
and customer focus in our home markets of North America and
western Europe.
As we enter 2005, the recovery in machinery orders is once again
taking hold and we are encouraged by recent order trends,
particularly in North America. Beyond new machinery sales, our
customers also want their existing tooling and equipment to last
longer, and this creates major opportunities for us in all of
our businesses, particularly aftermarket sales and service. A
critical part of our strategy going forward, therefore, is to
broaden our capabilities to provide strong aftermarket support.
Among the challenges facing us in 2005 are: increased pension
and insurance expense, higher material costs and ongoing
weakness in western European markets. We expect to overcome
these challenges through continued aggressive cost reductions,
selective price increases and further sales growth in North
America, eastern Europe and Asia. While our primary focus is on
helping our customers become more competitive and profitable
through advanced technology and superior service, we will also
continue to improve our own competitiveness and profitability
through Lean manufacturing techniques and other efficiency
measures. Combined, all of these factors should help make 2005 a
better year for Milacron.
Consolidated 2004 Results
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Presence Outside the U.S. |
Since 1993, Milacron has significantly expanded its presence
outside the U.S. and become more globally balanced. For 2004,
markets outside the U.S. represented the following
percentages of our consolidated sales: Europe 29%; Asia 8%;
Canada and Mexico 7%; and the rest of the world 3%. As a result
of this geographic mix, foreign currency exchange rate
fluctuations affect the translation of our sales and earnings,
as well as
16
consolidated shareholders’ equity. During 2004, the
weighted-average exchange rate of the euro was stronger in
relation to the U.S. dollar than in 2003. As a result,
Milacron experienced favorable currency translation effects on
new orders and sales of $24 million and $25 million,
respectively. The effect on earnings was not material.
During 2004, the euro strengthened against the
U.S. dollar by approximately 8% which caused the majority
of a $16 million favorable adjustment to consolidated
shareholders’ equity.
If the euro should weaken against the dollar in future periods,
we could experience a negative effect in translating our
European new orders, sales and earnings when compared to
historical results.
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Internal Control Over Financial Reporting |
While our management’s and our independent auditor’s
assessments of the effectiveness of internal control over
financial reporting are not complete, a material weakness, as
defined in standards established by the Public Company
Accounting Oversight Board (United States), has been identified.
The deficiency consists of inadequate levels of review of
complex and judgmental accounting issues. Various adjustments to
our financial statements were needed to correct errors resulting
from the internal control deficiency. The deficiency manifested
itself in the determination of deferred tax valuation allowances
as well as litigation reserves and recoverables from third-party
insurers. This internal control deficiency does not affect our
independent auditor’s unqualified report on our financial
statements as of December 31, 2004 and for the year then
ended included in this annual report on Form 10-K. To
address this material weakness we have increased our levels of
review of complex and judgmental accounting issues and have
initiated a plan to add personnel with technical accounting
expertise as well as made a commitment to increase professional
development for finance and accounting personnel.
See Item 9A of this Form 10-K for further
discussion of our internal control over financial reporting.
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Significant Accounting Policies and Judgments |
The Consolidated Financial Statements discussed herein have been
prepared in accordance with U.S. generally accepted
accounting principles, which require us to make estimates and
assumptions that affect the amounts that are included therein.
The following is a summary of certain accounting policies,
estimates and judgmental matters that we believe are significant
to our reported financial position and results of operations.
Additional accounting policies are described in the note
captioned “Summary of Significant Accounting Policies”
on pages 47 through 52 of this Form 10-K, which should
be read in connection with the discussion that follows. We
regularly review our estimates and judgments and the assumptions
regarding future events and economic conditions that serve as
their basis. While we believe that the estimates used in the
preparation of the Consolidated Financial Statements are
reasonable in the circumstances, the recorded amounts could vary
under different conditions or assumptions.
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Deferred Tax Assets and Valuation Allowances |
At December 31, 2004, we had significant deferred tax
assets related to U.S. and non-U.S. net operating loss and
tax credit carryforwards and related to charges that have been
deducted for financial reporting purposes but which are not yet
deductible for income tax reporting. These charges include the
write-down of goodwill and a charge to equity related to minimum
pension funding. At December 31, 2004, we have provided
valuation allowances against all net deferred tax assets except
$61 million in the U.S. that are offset by qualified tax
planning strategies and available carrybacks and $6 million
of non-U.S. assets to be realized through future income
expectations and tax planning strategies. Valuation allowances
serve to reduce the recorded deferred tax assets to amounts
reasonably expected to be realized in the future. The
establishment of valuation allowances and their subsequent
adjustment requires a significant amount of judgment because
expectations as to the realization of deferred tax
assets — particularly those assets related to net
operating loss carryforwards — are generally
contingent on the generation of taxable income, the reversal of
deferred tax liabilities in the future and the availability of
qualified tax planning strategies. Tax planning strategies
represent prudent and feasible actions that management would
take to create taxable income to keep a tax
17
attribute from expiring during the carryforward period.
Determinations of the amounts related to tax planning strategies
assume hypothetical transactions, some of which involve the
disposal of substantial business assets, and certain variables
which are judgmental and subjective. In determining the need for
valuation allowances, we 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, 2004, we had non-U.S. net operating
loss carryforwards — principally in The Netherlands,
Germany and Italy — totaling $193 million and
related deferred tax assets of $57 million. Valuation
allowances totaling $51 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 and
Italy — to conclude that no valuation allowances are
required.
At December 31, 2004, we had a U.S. federal net
operating loss carryforward of $113 million, of which
$17 million, $40 million and $56 million expire
in 2023, 2024 and 2025, respectively. Deferred tax assets
related to this loss carryforward, as well as to federal tax
credit carryforwards ($14 million) and additional state and
local loss carryforwards ($10 million), totaled
$64 million. Additional deferred tax assets totaling
approximately $107 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 deducted 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 2025.
The transaction entered into with Glencore Finance AG and Mizuho
International plc on June 10, 2004 will substantially delay
the timing of the utilization of certain of the U.S. loss
carryforwards and other tax attributes that are discussed in the
preceding paragraph (see Liquidity and Sources of Capital).
This delay will increase tax expense and decrease available cash
in future years. Although the amounts are dependent on a number
of future events and are therefore not currently determinable,
we are completing our analysis to determine the annual
limitations applicable to the U.S. net operating loss and tax
credit carryforwards.
At December 31, 2002, no valuation allowances had been
provided with respect to the U.S. deferred tax assets based
on a “more likely than not” assessment of whether they
would be realized. This decision was based on the availability
of qualified tax planning strategies and the expectation of
increased industrial production and capital spending in the
U.S. plastics industry. Higher sales and order levels in
2003 and beyond, combined with the significant reductions in our
cost structure that had been achieved in recent years, were
expected to result in improved operating results in relation to
the losses incurred in 2002 and 2001.
At June 30, 2003, however, we concluded that a recovery in
the plastics industry and our return to profitability in the
U.S. would be delayed longer than originally expected. As a
result of these delays and the incremental costs of the
restructuring initiatives announced in the third quarter of
2003, we expected to incur a cumulative operating loss in the
U.S. for the three year period ending December 31,
2003. In such situations, U.S. generally accepted
accounting principles include a presumption that expectations of
earnings in the future cannot be considered in assessing the
need for valuation allowances. Accordingly, a charge to the tax
provision of approximately $71 million was recorded in the
second quarter of 2003 to establish valuation allowances with
respect to a portion of our U.S. deferred tax assets for
which future income was previously assumed.
During the second half of 2003, we increased U.S. deferred
tax assets by approximately $18 million due to continued
losses from operations and a goodwill impairment charge, the
effects of which were partially offset by taxable income related
to dividends from non-U.S. subsidiaries. Valuation
allowances were also increased by $18 million and as a
result, there was no tax benefit for financial reporting
purposes associated with the losses and the impairment charge.
During 2004, deferred tax assets and valuation allowances were
further increased by $15 million and $17 million,
respectively. As of December 31, 2004, U.S. deferred
tax assets net of deferred tax liabilities totaled
$171 million and U.S. valuation allowances totaled
$106 million.
18
We continue to rely on the availability of qualified tax
planning strategies to conclude that valuation allowances are
not required with respect to a portion of our U.S. deferred
tax assets. At December 31, 2004, valuation allowances had
not been recorded with respect to $65 million of
U.S. deferred tax assets based on qualified tax planning
strategies of $61 million and tax carrybacks of
$4 million. Due to better market information and refined
estimates, the $61 million of tax planning strategies at
the end of 2004 represents a net $8 million increase over
the tax planning strategies at December 31, 2003 which
resulted in a $8 million non-cash credit to the provision
for income taxes in 2004.
We will reassess our conclusions regarding qualified tax
planning strategies and their effect on the amount of valuation
allowances that are required on a quarterly basis. This could
result in a further increase or decrease in income tax expense
and a corresponding decrease or increase in shareholders’
equity in the period of the change.
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Accounts Receivable, Inventory and Warranty
Reserves |
Our internal accounting policies require that each of our
operations maintain appropriate reserves for uncollectible
receivables, inventory obsolescence and warranty costs in
accordance with U.S. generally accepted accounting
principles. Because of the diversity of our customers and
product lines, the specific procedures used to calculate these
reserves vary by location but in all cases must conform to
company guidelines. Reserves are required to be reviewed and
adjusted as necessary on a quarterly basis.
Allowances for doubtful accounts are generally established using
specific percentages of the gross receivable amounts based on
their age as of a particular balance sheet date. Because of the
product line and customer diversity noted above, each business
unit is required to base the percentages it applies to its aged
receivables on its unique history of collection problems. The
percentages used are reviewed for continued reasonableness on a
quarterly basis. The amounts calculated through this process are
then adjusted for known credit risks and collection problems.
Write-offs of accounts receivable for our continuing operations
have averaged $3.2 million during the last three years.
While we believe that our reserves for doubtful accounts are
reasonable in the circumstances, adverse changes in general
economic conditions or in the financial condition of our major
customers could result in the need for additional reserves in
the future.
Reserves for inventory obsolescence are generally calculated by
applying specific percentages to inventory carrying values based
on the level of usage and sales in recent years. As is the case
for allowances for doubtful accounts, each business unit selects
the percentages it applies based on its (i) unique history
of inventory usage and obsolescence problems and
(ii) forecasted usage. The preliminary calculations are
then adjusted based on current economic trends, expected product
line changes, changes in customer requirements and other
factors. In 2004, our continuing operations recorded new
inventory obsolescence reserves totaling $7.4 million and
utilized $6.2 million of such reserves in connection with
the disposal of obsolete inventory. We believe that our reserves
are appropriate in light of our historical results and our
assumptions regarding the future. However, adverse economic
changes or changes in customer requirements could necessitate
the recording of additional reserves through charges to earnings
in the future.
Our warranty reserves are of two types —
“normal” and “extraordinary.” Normal
warranty reserves are intended to cover routine costs associated
with the repair or replacement of products sold in the ordinary
course of business during the warranty period. These reserves
are accrued using a percentage-of-sales approach based on the
ratio of actual warranty costs over a representative number of
years to sales revenues from products sold with warranties over
the same period. The percentages are required to be reviewed and
adjusted as necessary at least annually. Extraordinary warranty
reserves are intended to cover major problems related to a
single machine or customer order or to problems related to a
large number of machines or other type of product. These
reserves are intended to cover the estimated costs of resolving
the problems based on all relevant facts and circumstances. In
recent years, costs related to extraordinary warranty problems
have not been significant. In 2004, our continuing operations
accrued warranty reserves totaling $4.2 million and
incurred warranty-related costs totaling $5.6 million.
While we believe that our warranty reserves are adequate in the
circumstances, unforeseen problems related to unexpired warranty
obligations could result in a requirement for additional
reserves in the future.
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Impairment of Goodwill and Long-Lived Assets |
In years prior to 2002, we reviewed the carrying value of
goodwill annually using estimated undiscounted future cash
flows. However, effective January 1, 2002 we adopted
Statement of Financial Accounting Standards No. 142,
“Goodwill and Other Intangible Assets”
(SFAS No. 142), under which we test goodwill for
impairment using probability-weighted cash flows discounted at
market interest rates. The change from undiscounted to
discounted cash flows resulted in a pretax goodwill impairment
charge of $247.5 million ($187.7 million after tax)
that was recorded as the cumulative effect of a change in
accounting method as of January 1, 2002.
SFAS No. 142 requires that the first phase of testing
goodwill for impairment be based on a business unit’s
“fair value,” which is generally best determined
through market prices. Due to the absence of market prices for
our businesses and as permitted by SFAS No. 142, we
have elected to base our testing on discounted cash flows as
discussed above. Although the discount rates and other input
variables may differ, the model we use in this process is the
same model we use to evaluate the fair value of acquisition
candidates and the fairness of offers to purchase businesses
that we are considering for divestiture. The cash flows we use
are derived from the annual long-range planning process that we
complete in the third quarter of each year. In this process,
each business unit is required to develop reasonable sales,
earnings and cash flow forecasts for the next three years based
on current and forecasted economic conditions. Each business
unit’s plan is reviewed by corporate management and the
entire plan is reviewed with our board of directors. For
purposes of testing for impairment, the cash flow forecasts are
adjusted as needed to reflect information that becomes available
concerning changes in business levels and general economic
trends. The discount rates are obtained from an outside source
based on the Standard Industrial Classification codes in which
our businesses operate. These discount rates are then
judgmentally adjusted for “plan risk” (the risk that a
business will fail to achieve its forecasted results) and
“country risk” (the risk that economic or political
instability in the non-U.S. countries in which we operate
will cause a business unit’s projections to be inaccurate).
Finally, a growth factor beyond the three-year period for which
cash flows are planned is selected based on expectations of
future economic conditions. Virtually all of the assumptions
used are susceptible to change due to global and regional
economic conditions as well as competitive factors in the
industries in which we operate. In recent years, many of our
cash flow forecasts have not been achieved due in large part to
the unprecedented length and depth of the recession,
particularly in the market for capital equipment in the plastics
processing industry. Unanticipated changes in discount rates
from one year to the next can also have a significant effect on
the results of the calculations. While we believe the estimates
and assumptions we use are reasonable in the circumstances,
various economic factors could cause the results of our testing
to vary significantly.
SFAS No. 142 requires that goodwill be tested for
impairment annually or whenever certain indicators of impairment
are determined to be present. We conducted our first annual
review of goodwill balances as of October 1, 2002. This
review resulted in a pretax goodwill impairment charge related
to the mold technologies segment of $1.0 million (with no
tax benefit) that was recorded in the fourth quarter. In the
third quarter of 2003, we tested the goodwill of the mold base
and components and maintenance, repair and operating supplies
(MRO) businesses that are included in the mold technologies
segment for impairment due to the presence of certain indicators
of impairment. Although these businesses failed to achieve the
cash flow forecasts included in their annual business plans
during the first half of the year, at the end of the second
quarter of 2003 it was believed that a further economic recovery
in both North America and Europe would result in improved cash
flows for these businesses for the remainder of the year and for
subsequent years. It was also anticipated that the restructuring
actions undertaken in Europe in the years 2001 through 2003
would significantly improve the overall cash flow of the mold
base and components business. During the third quarter of 2003,
we completed our annual long-range planning process that focused
on the years 2004 through 2006. This process revealed that the
future cash flows expected to be generated by the two businesses
would continue to be lower than the amounts anticipated a year
earlier. The biggest decrease in expected cash flow related to
the European mold base and components business due to the
anticipation of continued softness in the markets it serves.
Because of the change in expectations, we tested the goodwill of
both businesses for impairment during the third quarter of 2003
rather than waiting for the annual review that is conducted
during the fourth quarter. This review resulted in a preliminary
goodwill impairment charge of $52.3 million that was
recorded in the third
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quarter and subsequently adjusted to $65.6 million in the
fourth quarter after the completion of the independent
appraisals of certain tangible and intangible assets that were
required to determine their fair values. Our annual review of
goodwill as of October 1, 2003 did not result in any
additional impairment charges.
Our annual review of goodwill impairment as of October 1,
2004 did not result in additional impairment charges.
We review the carrying values of our long-lived assets other
than goodwill annually under the provisions of Statement of
Financial Accounting Standards No. 144, “Accounting
for the Impairment or Disposal of Long-Lived Assets.” These
reviews are conducted by comparing the estimates of undiscounted
future cash flows that are included in our long-range internal
operating plans to the carrying values of the related assets. To
be conservative, no growth in operating cash flows beyond the
third year is currently assumed. Under this methodology,
impairment would be deemed to exist if the carrying values
exceeded the expected future cash flow amounts. In 2004, we
reviewed the aggregate carrying values of selected groups of our
long-lived assets. The assets included in these reviews
consisted principally of property, plant and equipment and,
where applicable, intangible assets other than goodwill. Based
on these reviews, it was determined that the maximum period of
time to recover the carrying values of the tested groups of
assets through undiscounted cash flows is approximately
9 years and that the weighted-average recovery period is
approximately 28% of the remaining average lives of the assets.
Based on the results of the reviews, no impairment charges were
recorded in 2004.
Through our wholly-owned insurance subsidiary, Milacron
Assurance Ltd. (MAL), we are primarily self-insured for many
types of risks, including general liability, product liability,
environmental claims and worker’s compensation for certain
U.S. employees. MAL, which is incorporated in Bermuda and
is subject to the insurance laws and regulations of that
jurisdiction, establishes reserves commensurate with known or
estimated exposures under the policies it issues to us. Exposure
for general and product liability claims is supplemented by
reinsurance coverage in some cases and by excess liability
coverage in all policy years. Worker’s compensation claims
in excess of certain limits are insured with commercial
carriers. At December 31, 2004, MAL had reserves for known
claims and incurred but not reported claims under all coverages
totaling approximately $33.9 million and expected
recoveries from excess carriers and other third parties of
$13.8 million. Expected recoveries represent the excess of
total reserves for known exposures and incurred but not reported
claims over the limits on the policies MAL issues to us. Of the
$33.9 million in reserves at December 31, 2004,
$26.8 million is included in long-term accrued liabilities
in the Consolidated Balance Sheet at that date. The remaining
$7.1 million is included in accrued and other current
liabilities. The expected recoveries from excess carriers and
other third parties are included in other current assets
($4.1 million) and other noncurrent assets
($9.7 million).
MAL’s reserves are established based on known claims,
including those arising from litigation, and our best estimates
of the ultimate liabilities thereunder (after consideration of
excess carriers’ liabilities and claims against third
parties) and on estimates of the cost of incurred but not
reported claims. For certain types of exposures, MAL and the
company utilize actuarially calculated estimates prepared by
outside consultants to ensure the adequacy of the reserves.
Reserves are reviewed and adjusted at least quarterly based on
all evidence available as of the respective balance sheet dates
or as further information becomes available or circumstances
change. While the ultimate amount of MAL’s exposure to
claims is dependent on future events that cannot be predicted
with certainty, we believe that the recorded reserves are
appropriate based on current information. It is possible that
our ultimate liability could substantially exceed our recorded
reserves as of December 31, 2004, but the amount of any
such excess cannot be reasonably determined at this time. Were
we to have significant adverse judgments or determine, as cases
progress, that significant additional reserves should be
recorded, our future operating results, financial condition and
liquidity could be adversely affected.
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We maintain defined benefit and defined contribution pension
plans that provide retirement benefits to substantially all
U.S. employees and certain non-U.S. employees. The
most significant of these plans is the principal defined benefit
plan for certain U.S. employees, which is also the only
defined benefit plan that is funded. Excluding charges of
$4.7 million for temporary supplemental retirement benefits
that were offered in connection with restructuring actions, we
recorded pension income of $9.4 million related to this
plan in 2002. In 2003, however, pension income decreased to
$.6 million, once again excluding charges for supplemental
benefits of $3.2 million. We recorded pension expense
related to this plan of approximately $6.7 million in 2004
and currently expect to record pension expense of
$11 million to $12 million in 2005. Pension expense
for 2006 and beyond is dependent on a number of factors
including returns on plan assets and changes in the plan’s
discount rate and therefore cannot be predicted with certainty
at this time. The following paragraphs discuss the significant
factors that affect the amount of recorded pension income or
expense and the reasons for the reductions in income identified
above.
A significant factor in determining the amount of income or
expense to be recorded for the funded U.S. plan is the
expected long-term rate of return on assets assumption. In 2002
and in several preceding years, we used an expected long-term
rate of return of
91/2%.
However, we began using a rate of return of 9% beginning in 2003
and continued to do so in 2004. We develop the long-term rate of
return assumption 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
adjusted to reflect current expectations of future returns. In
evaluating future returns on equity securities, the existing
portfolio is stratified to separately consider large and small
capitalization investments, as well as international securities.
The change from the
91/2%
rate of return assumption to the lower 9% rate had the effect of
reducing the amount of pension income that would otherwise be
reportable in 2004 by almost $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, 2004, the market value of the plan’s
assets was $379 million whereas the calculated value of
these assets was $365 million. The difference arises
because the latter amount includes only two-thirds of the
asset-related gain realized in 2003 and one-third of the gain
from 2004. However, if significant asset-related losses are
incurred in 2005, it will have the effect of increasing the
amount of pension expense to be recognized in future years
beginning in 2006.
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 the calculated
value of plan assets, the excess is amortized and included in
pension income or expense. At December 31, 2002, the
discount rate used to value the liabilities of the principal
U.S. plan was reduced from
71/4%
to
61/2%.
The rate was further lowered to
61/4%
at December 31, 2003 and to 6% at December 31, 2004.
The combined effects of these changes and the variances in
relation to the long-term rate of return assumption discussed
above have resulted in cumulative losses in excess of the 10%
corridor. Pension expense for 2004 includes more than
$6 million for the amortization of previously unrecognized
losses. Expense for amortization of previously unrecognized
losses is expected to be in excess of $9 million in 2005.
Additional changes in the key assumptions discussed above would
affect the amount of pension expense currently expected to be
recorded for years subsequent to 2005. Specifically, a one-half
percent increase in the rate of return on plan assets assumption
would have the effect of decreasing pension expense by
approximately $2 million. A comparable decrease in this
assumption would have the opposite effect. In addition, a one-
22
quarter percent increase in the discount rate would decrease
expense by approximately $.9 million. Conversely, a
one-quarter percent decrease in the discount rate would have the
effect of increasing pension expense by $1.2 million.
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 decreases in the plan’s discount rate, we recorded
a minimum pension liability adjustment of $118 million
effective December 31, 2002 and significantly reduced the
carrying value of the pension asset related to the plan. This
resulted in a $95 million after-tax reduction in
shareholders’ equity. At December 31, 2003,
shareholders’ equity was increased by $14 million
(with no tax effect) due to an increase in plan assets in 2003
that was partially offset by an increase in liabilities that
resulted from a lower discount rate. During 2004, the amount of
the adjustment to shareholders’ equity was increased by
$13 million (with no related tax effect) to
$94 million. The change was due to an increase in the
assets of the funded plan that was more than offset by an
increase in its liabilities due to the change in the discount
rate and to the recording of a similar adjustment related to an
unfunded plan. All of these adjustments were recorded as a
component of accumulated other comprehensive loss and therefore
did not affect reported earnings or loss. However, they resulted
in $94 million and $81 million after-tax reductions of
shareholders’ equity at December 31, 2004 and
December 31, 2003, respectively.
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. Accordingly, those
discussions should be read in connection with (i) the
tables on pages 34 and 35 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 43 through 104.
As discussed more fully in the note to the Consolidated
Financial Statements captioned “Summary of Significant
Accounting Policies — Changes in Methods of
Accounting,” in the fourth quarter of 2004, we elected to
change our method of accounting for certain U.S. plastics
machinery inventories from the last-in, first-out
(LIFO) method to the first-in, first-out
(FIFO) method, retroactive to the beginning of the year.
Certain of the amounts discussed herein for the years 2002 and
2003 have been restated to conform to the 2004 presentation.
|
|
|
Earnings Per Common Share |
As discussed more fully in the note to the Consolidated
Financial Statements captioned “Earnings Per Common
Share,” the number of shares previously used to compute
earnings (loss) per common share data for all years prior to
2004 has been increased by a factor of 1.0891 to reflect the
effects of a “bonus element” inherent in a rights
offering that was completed in the fourth quarter of 2004.
As discussed more fully in the note to the Consolidated
Financial Statements captioned “Discontinued
Operations,” in the third quarter of 2002 we completed the
sales of our Valenite and Widia and Werkö metalcutting
tools businesses and began to explore strategic alternatives for
the sale of our round metalcutting tools and grinding wheels
businesses. The round metalcutting tools business was sold in
two separate transactions in the third quarter of 2003 and the
grinding wheels business was sold on April 30, 2004. All of
these businesses are reported as discontinued operations in the
Consolidated Financial Statements. The comparisons of results of
operations that follow exclude these businesses and relate
solely to our continuing operations unless otherwise indicated.
23
|
|
|
Pension Income and Expense |
In 2002 and prior years, we recorded significant amounts of
income related to our defined benefit pension plan for certain
U.S. employees. However, because of the significant
decrease in the value of the plan’s assets and changes in
the rate-of-return on assets and discount rate assumptions (see
“Significant Accounting Policies and Judgments —
Pensions”), pension income in 2003 was reduced to
$.6 million, of which $.5 million is included in
continuing operations. For 2004, we recorded pension expense of
$6.7 million, substantially all of which was charged to
continuing operations. As discussed further below, the
fluctuations between years have negatively affected margins,
selling and administrative expense and earnings. Additional
increases in non-cash pension expense are expected in 2005.
Because of the funded status of the plan, we will be required to
make cash contributions to the plan’s trust for the next
several years in addition to the $4.2 million that was
contributed in 2004. Estimated amounts applicable to future
years are included in the table captioned “Contractual
Obligations” and discussed in note (a) thereto (see
“Contractual Obligations”).
2004 Compared to 2003
Consolidated new orders were $766 million in 2004 compared
to $747 million in 2003. Consolidated sales totaled
$774 million in 2004, which represents a $34 million,
or 5%, increase over 2003 sales of $740 million. New orders
and sales benefited from $24 million and $25 million,
respectively, of favorable currency effects that resulted
principally from the strength of the euro in relation to the
U.S. dollar.
Export orders increased from $73 million in 2003 to
$79 million in 2004 and export sales increased from
$73 million to $78 million. The increases were due
principally to higher export business for U.S.-built injection
molding machines that was offset to some degree by lower volume
for blow molding systems. Total sales to non-U.S. markets,
including exports, were $362 million in 2004 compared to
$338 million in 2003 with the increase being due
principally to currency effects. In 2004, products sold outside
the U.S. represented 47% of total sales compared to 46% in
2003. Products manufactured outside the U.S. represented
40% of total sales in 2004 compared to 39% in 2003.
The backlog of unfilled orders was $87 million at
December 31, 2004. At December 31, 2003, the backlog
was $92 million. While the backlog for U.S.-built injection
molding machines increased in 2004, the overall decrease
resulted principally from lower order levels for European-built
machinery in the fourth quarter of the year.
|
|
|
Margins, Costs and Expenses |
The consolidated manufacturing margin was 18.9% in 2004, which
includes restructuring costs of $1.4 million related to
product line discontinuation. Excluding restructuring costs, the
2004 manufacturing margin was 19.1%. Including $3.3 million
of restructuring costs, the manufacturing margin was 17.9% in
2003. Excluding this amount, the margin was 18.4%. The
improvement in the margin excluding restructuring costs was
achieved despite higher raw material costs and a
$4.2 million increase in insurance expense. Pension expense
also increased to $4.8 million in 2004 compared to income
of $.4 million in 2003. Pension expense related to cost of
products sold is expected to increase further in 2005 to as much
as $9 million. Incremental cost savings from the
restructuring actions that are discussed below were
approximately $23 million in 2004. We expect to realize an
additional $6 million of savings in 2005 when we receive
the full benefit of actions initiated in 2004. Approximately
two-thirds of savings in both years relate to cost of products
sold. While precise quantification is impossible, we believe
that our results for 2004 also benefited from the process
improvements initiated in recent years.
Total selling and administrative expense decreased modestly from
$129 million in 2003 to $127 million in 2004 despite
adverse currency effects and a $1.7 million increase in
pension expense. Selling expense decreased by $2.7 million
due in part to the benefits of our restructuring actions. Lower
bad debt expense and trade show costs also contributed to the
decrease. As a percent of sales, selling expense decreased from
14.0%
24
in 2003 to 13.1% in 2004. Administrative expense increased
modestly due to currency effects and $1.9 million of costs
associated with implementing Section 404 of the
Sarbanes-Oxley Act of 2002. These increases more than offset the
benefits of our cost-cutting initiatives.
Other expense-net was expense of $2.9 million in 2004
compared to income of $.2 million in 2003. The latter
amount includes $3.5 million of income from the settlement
of warranty claims against a supplier and $.9 million of
income from the licensing of patented technology. Income from
technology licensing was $.8 million in 2004.
Interest expense net of interest income increased from
$23.0 million in 2003 to $37.3 million in 2004 due to
higher borrowing costs (including amortization of deferred
financing fees) related to the new financing arrangements
entered into on March 12, 2004 and June 10, 2004 (see
Liquidity and Sources of Capital). The amount for 2004 also
includes a one-time, non-cash charge of $6.4 million for
the write off of a financial asset related to the Series A
Notes that were issued on March 12, 2004. The asset
resulted from a beneficial conversion feature that allowed the
holders of Series A Notes to acquire shares of common stock
at approximately $2.00 per share compared to a market value
of $2.40 per share on March 12, 2004. The interest
rate swap that was entered into on July 30, 2004 (see
Liquidity and Sources of Capital) had the effect of lowering
interest expense by $.4 million in 2004. Increases in
short-term interest rates will have the effect of increasing
interest expense in the future.
During 2004, we charged to expense $21.4 million of
refinancing costs, including $6.6 million incurred in
pursuing various alternatives to the March 12, 2004
refinancing of approximately $200 million in debt and other
obligations (see Liquidity and Sources of Capital). Other
refinancing costs in 2004 included (i) $6.2 million
for the tender offer premium for our
75/8%
Eurobonds due 2005 and the related expenses, (ii) a charge
of $2.6 million related to the early vesting of
1,090,310 shares of restricted stock as a result of a
change in control provision, (iii) charges of
$4.5 million for the write-off of the deferred financing
fees related to the credit facility entered into with Credit
Suisse First Boston on March 12, 2004 and subsequently
repaid on June 10, 2004 and for other refinancing-related
expenses and (iv) a $1.5 million prepayment penalty
for the term loan included in the Credit Suisse First Boston
facility. In the third and fourth quarters of 2003, we expensed
a total of $1.8 million of costs incurred in that year in
pursuing alternatives to the 2004 refinancing transactions. No
further refinancing expenses are expected in 2005.
The following paragraphs discuss the restructuring actions
undertaken in recent years. These actions are discussed more
fully in the note to the Consolidated Financial Statements
captioned “Restructuring Costs” which should be read
in connection with the discussion that follows.
In November 2002, we announced restructuring initiatives
intended to improve operating efficiency and customer service.
One of these actions involved the transfer of all manufacturing
of container blow molding machines and structural foam systems
from the plant in Manchester, Michigan to our more modern and
efficient facility near Cincinnati, Ohio. In addition, the mold
making operation has been moved to a smaller, more
cost-effective location near Manchester. In another action, the
manufacture of special mold bases for injection molding at the
Monterey Park, California plant was discontinued and transferred
to other facilities in North America.
Early in 2003, we initiated a plan for the further restructuring
of our European blow molding machinery operations, including the
discontinuation of the manufacture of certain product lines at
the Magenta, Italy plant. We also initiated a plan to close our
special mold base machining operation in Mahlberg, Germany and
relocate a portion of its manufacturing to another location.
Certain other production was outsourced. In the third quarter of
2003, we began to implement additional restructuring initiatives
that focused on further overhead cost reductions in each of our
plastics technologies segments and at the corporate office.
These actions involved the relocation of production, closure of
sales offices, voluntary early retirement programs and general
overhead reductions.
25
In the second quarter of 2004, we initiated additional actions
to further enhance customer service while reducing the total
overhead cost structure of our North American plastics machinery
operations. In the third quarter of 2004, we elected to
discontinue the sale of certain lines of blow molding systems in
North America. This decision resulted in a charge of
$1.4 million to adjust the carrying values of the related
inventory to net realizable value. Finally, in response to soft
market conditions in western Europe, we implemented further
headcount reductions in our mold technologies business in that
region during the fourth quarter.
In addition to the actions that are discussed above,
restructuring costs in both 2004 and 2003 include costs to
integrate the operations of two businesses acquired in 2001 with
our existing mold base and components business in Europe. A
majority of the 2004 costs relate to adjustments of the carrying
values of two closed manufacturing facilities to reflect revised
estimates of their ultimate selling prices.
In total, the actions described above resulted in restructuring
costs of $13.0 million in 2004 and $27.1 million in
2003. The amount for 2004 includes fourth quarter non-cash
charges totaling $6.2 million to adjust the carrying values
of surplus machinery and three closed manufacturing facilities,
including one located in the U.S., to expected realizable
values. Cash costs related to the restructuring actions totaled
$8.3 million and $10.2 million in 2004 and 2003,
respectively. Cash costs for certain other restructuring actions
that were initiated in 2001 and 2002 were $1.6 million in
2003. In 2005, restructuring expense to complete the actions
initiated in 2003 and 2004 will be approximately
$1.0 million while cash costs are expected to be
approximately $2.7 million.
The costs and related cash effects of the actions described
above as well as certain other actions that were initiated in
2001 are summarized in the table that follows.
Restructuring Actions
| |
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|
|
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|
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| |
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|
Restructuring Costs | |
|
Cash Costs | |
| |
|
|
|
| |
|
| |
| |
|
Year Initiated | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
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|
(In millions) | |
|
Machinery technologies — North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Injection molding and blow molding employment reductions
|
|
|
2003 & 2004 |
|
|
$ |
2.5 |
|
|
$ |
3.8 |
|
|
$ |
— |
|
|
$ |
1.7 |
|
|
$ |
.7 |
|
|
$ |
— |
|
| |
Blow molding machinery and mold making relocations
|
|
|
2002 |
|
|
|
5.5 |
|
|
|
3.9 |
|
|
|
3.4 |
|
|
|
.6 |
|
|
|
3.4 |
|
|
|
.4 |
|
| |
Southwest Ohio reorganization
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|
2002 |
|
|
|
— |
|
|
|
— |
|
|
|
.6 |
|
|
|
— |
|
|
|
— |
|
|
|
.1 |
|
| |
Injection molding and extrusion early retirement program and
general overhead reductions
|
|
|
2001 |
|
|
|
— |
|
|
|
— |
|
|
|
2.3 |
|
|
|
— |
|
|
|
— |
|
|
|
.6 |
|
| |
Injection molding and blow molding facilities product line
rationalization
|
|
|
2001 |
|
|
|
— |
|
|
|
— |
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|
|
.4 |
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|
|
— |
|
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|
— |
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|
.2 |
|
| |
Other 2001 actions
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2001 |
|
|
|
— |
|
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|
— |
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|
— |
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— |
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|
— |
|
|
|
.2 |
|
| |
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|
|
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|
|
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|
|
|
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|
| |
|
|
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|
8.0 |
|
|
|
7.7 |
|
|
|
6.7 |
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|
2.3 |
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|
4.1 |
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|
1.5 |
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|
Machinery technologies — Europe
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| |
Blow molding product line rationalization and employment
reductions
|
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|
2003 |
|
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|
.2 |
|
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4.5 |
|
|
|
— |
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|
.9 |
|
|
|
.7 |
|
|
|
— |
|
| |
Injection molding sales office and employment reductions
|
|
|
2003 |
|
|
|
— |
|
|
|
2.0 |
|
|
|
— |
|
|
|
1.4 |
|
|
|
.5 |
|
|
|
— |
|
| |
Injection molding and blow molding overhead reductions
|
|
|
2001 |
|
|
|
— |
|
|
|
— |
|
|
|
(.4 |
) |
|
|
— |
|
|
|
1.3 |
|
|
|
4.0 |
|
| |
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| |
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.2 |
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6.5 |
|
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(.4 |
) |
|
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2.3 |
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2.5 |
|
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4.0 |
|
26
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Restructuring Costs | |
|
Cash Costs | |
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|
Year Initiated | |
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2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
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(In millions) | |
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Mold technologies
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| |
Downsize Fulda plant
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2004 |
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|
2.2 |
|
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— |
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— |
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|
.6 |
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|
— |
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— |
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| |
Mahlberg plant closure
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2003 |
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|
1.3 |
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5.7 |
|
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— |
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— |
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2.8 |
|
|
|
— |
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| |
North American employment reductions
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2003 |
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— |
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1.0 |
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— |
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|
.3 |
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|
.6 |
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— |
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| |
European sales reorganization
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2003 & 2004 |
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|
1.0 |
|
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3.6 |
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— |
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2.4 |
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1.3 |
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— |
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Monterey Park plant closure
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2002 |
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— |
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|
.5 |
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|
.9 |
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— |
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(.2 |
) |
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— |
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| |
EOC and Reform integration
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2001 |
|
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|
.3 |
|
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|
1.8 |
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4.6 |
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.2 |
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.2 |
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7.8 |
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| |
North American overhead and general employment reductions
|
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2001 & 2002 |
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— |
|
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— |
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|
.9 |
|
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— |
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— |
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|
.3 |
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4.8 |
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12.6 |
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6.4 |
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3.5 |
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4.7 |
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|
8.1 |
|
|
Industrial fluids and corporate
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|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Early retirement program and general overhead reductions
|
|
|
2003 |
|
|
|
— |
|
|
|
.3 |
|
|
|
— |
|
|
|
.1 |
|
|
|
.2 |
|
|
|
— |
|
| |
Early retirement program and general overhead reductions
|
|
|
2001 & 2002 |
|
|
|
— |
|
|
|
— |
|
|
|
1.2 |
|
|
|
.1 |
|
|
|
.3 |
|
|
|
.3 |
|
| |
|
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|
|
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| |
|
|
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|
|
— |
|
|
|
.3 |
|
|
|
1.2 |
|
|
|
.2 |
|
|
|
.5 |
|
|
|
.3 |
|
| |
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|
| |
|
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|
|
$ |
13.0 |
|
|
$ |
27.1 |
|
|
$ |
13.9 |
|
|
$ |
8.3 |
|
|
$ |
11.8 |
|
|
$ |
13.9 |
|
| |
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|
The non-cash costs of the restructuring actions presented in the
above table consist principally of $6.1 million of
supplemental early retirement benefits that will be paid by our
defined benefit pension plan for certain U.S. employees,
$6.6 million to adjust inventories related to discontinued
product lines to expected realizable values and
$12.7 million to adjust the carrying values of facilities
and production equipment to be disposed of to expected
realizable values.
The table that follows depicts the cost savings realized in
2002, 2003 and 2004 from the restructuring actions discussed
above and from certain 2001 actions and the incremental savings
of approximately $5.7 million that are expected to be
realized in 2005.
Restructuring Actions
| |
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| |
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Cost Savings | |
| |
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| |
| |
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|
|
Headcount | |
|
|
|
Incremental | |
| |
|
Year Initiated | |
|
Reductions | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
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|
|
(In millions) | |
|
Machinery technologies — North America
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Injection molding and blow molding employment reductions
|
|
|
2003 & 2004 |
|
|
|
165 |
|
|
$ |
— |
|
|
$ |
2.1 |
|
|
$ |
8.8 |
|
|
$ |
3.3 |
|
| |
Blow molding machinery and mold making relocations
|
|
|
2002 |
|
|
|
42 |
|
|
|
— |
|
|
|
3.7 |
|
|
|
4.7 |
|
|
|
— |
|
| |
Southwest Ohio reorganization
|
|
|
2002 |
|
|
|
24 |
|
|
|
.8 |
|
|
|
2.7 |
|
|
|
2.7 |
|
|
|
— |
|
| |
Injection molding and extrusion early retirement program and
general overhead reductions
|
|
|
2001 |
|
|
|
165 |
|
|
|
9.9 |
|
|
|
10.7 |
|
|
|
10.7 |
|
|
|
— |
|
| |
Injection molding and blow molding facilities product line
rationalization
|
|
|
2001 |
|
|
|
64 |
|
|
|
4.4 |
|
|
|
4.2 |
|
|
|
4.2 |
|
|
|
— |
|
| |
Other 2001 actions
|
|
|
2001 |
|
|
|
52 |
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
5.0 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
512 |
|
|
|
20.1 |
|
|
|
28.4 |
|
|
|
36.1 |
|
|
|
3.3 |
|
27
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Cost Savings | |
| |
|
|
|
|
|
| |
| |
|
|
|
Headcount | |
|
|
|
Incremental | |
| |
|
Year Initiated | |
|
Reductions | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
|
|
(In millions) | |
|
Machinery technologies — Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Blow molding product line rationalization and employment
reductions
|
|
|
2003 |
|
|
|
47 |
|
|
|
— |
|
|
|
1.0 |
|
|
|
2.8 |
|
|
|
— |
|
| |
Injection molding sales office and employment reductions
|
|
|
2003 |
|
|
|
72 |
|
|
|
— |
|
|
|
.4 |
|
|
|
3.6 |
|
|
|
.9 |
|
| |
Injection molding and blow molding overhead reductions
|
|
|
2001 |
|
|
|
133 |
|
|
|
5.0 |
|
|
|
6.8 |
|
|
|
7.2 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
252 |
|
|
|
5.0 |
|
|
|
8.2 |
|
|
|
13.6 |
|
|
|
.9 |
|
|
Mold technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Downsize Fulda plant
|
|
|
2004 |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
.8 |
|
| |
Mahlberg plant closure
|
|
|
2003 |
|
|
|
64 |
|
|
|
— |
|
|
|
2.1 |
|
|
|
3.8 |
|
|
|
.2 |
|
| |
North American employment reductions
|
|
|
2003 |
|
|
|
38 |
|
|
|
— |
|
|
|
1.0 |
|
|
|
3.1 |
|
|
|
.1 |
|
| |
European sales reorganization
|
|
|
2003 & 2004 |
|
|
|
79 |
|
|
|
— |
|
|
|
.1 |
|
|
|
5.5 |
|
|
|
.4 |
|
| |
Monterey Park plant closure
|
|
|
2002 |
|
|
|
12 |
|
|
|
— |
|
|
|
.6 |
|
|
|
.8 |
|
|
|
— |
|
| |
EOC and Reform integration
|
|
|
2001 |
|
|
|
233 |
|
|
|
3.0 |
|
|
|
5.2 |
|
|
|
5.2 |
|
|
|
— |
|
| |
North American overhead and general employment reductions
|
|
|
2001 & 2002 |
|
|
|
47 |
|
|
|
1.9 |
|
|
|
2.0 |
|
|
|
1.9 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
498 |
|
|
|
4.9 |
|
|
|
11.0 |
|
|
|
20.3 |
|
|
|
1.5 |
|
|
Industrial fluids and corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Early retirement program and general overhead reductions
|
|
|
2003 |
|
|
|
11 |
|
|
|
— |
|
|
|
.5 |
|
|
|
1.4 |
|
|
|
— |
|
| |
Early retirement program and general overhead reductions
|
|
|
2001 & 2002 |
|
|
|
16 |
|
|
|
.5 |
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
27 |
|
|
|
.5 |
|
|
|
1.5 |
|
|
|
2.4 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
1,289 |
|
|
$ |
30.5 |
|
|
$ |
49.1 |
|
|
$ |
72.4 |
|
|
$ |
5.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill Impairment Charge |
In 2003, we recorded a goodwill impairment charge of
$65.6 million (with no tax benefit) to adjust the carrying
value of the goodwill of two businesses included in the mold
technologies segment. The charge was calculated by discounting
estimated future cash flows and resulted from a downward
adjustment of the cash flows expected to be generated by these
businesses due to the delay in the general economic recovery in
both North America and Europe. The largest decrease in cash flow
expectations related to our European mold base and components
business due to continued weakness in the markets it serves.
Machinery technologies — North
America — New orders in the machinery
technologies — North America segment increased from
$325 million in 2003 to $337 million in 2004. The
segment’s sales increased by $13 million from
$321 million to $334 million. The increases were due
principally to improved demand for injection molding machines,
especially in the fourth quarter. Despite higher raw materials
costs, the absence of $3.5 million of income from the
settlement of warranty claims against a supplier and a
$6.3 million increase in pension expense, the segment had
operating earnings of $16.0 million in 2004 compared to
earnings of $8.1 million in 2003, in both cases excluding
restructuring costs which were $8.0 million in 2004 and
$7.7 million in 2003. In 2004, these costs related
principally to actions intended to enhance customer service
while further reducing overhead costs and to a non-cash
adjustment of the carrying value of our former blow
28
molding systems facility to reflect revised estimates of its
ultimate selling price. The relocation of the blow molding
machinery business and supplemental early retirement benefits
intended to reduce the segment’s cost structure accounted
for a majority of the 2003 expense. The segment’s improved
operating results in 2004 were due principally to increased
sales volume, improved price realization and incremental
benefits of approximately $8 million related to the
restructuring and cost-cutting initiatives that were implemented
in 2002 through 2004. The incremental savings in 2005 are
expected to be in excess of $3 million.
Machinery technologies — Europe — The
machinery technologies — Europe segment had new orders
of $155 million and sales of $167 million in 2004. In
2003, orders were $154 million while sales totaled
$151 million. Currency effects contributed $13 million
of incremental orders and $14 million of sales in 2004.
Demand was primarily export-driven as orders in western Europe
slowed, particularly in the fourth quarter of the year. Despite
rising material costs, the segment had an operating profit of
$1.9 million in 2004 compared to a loss of
$1.4 million in 2003. These amounts exclude restructuring
costs of $.2 million in 2004 and $6.5 million in 2003.
In both years, these costs related to the restructuring of the
segment’s blow molding machinery business (including the
discontinuation of certain product lines) that was undertaken in
2003 and to overhead reductions in the segment’s injection
molding machinery business. The incremental savings related to
these actions totaled approximately $5 million in 2004.
Approximately $1 million of incremental savings are
expected in 2005.
Mold technologies — The mold technologies
segment’s 2004 new orders of $168 million were
virtually unchanged from the prior year despite favorable
currency effects of $6 million. The segment’s sales of
$167 million were also flat despite $6 million of
favorable currency effects. Orders and sales improved modestly
in North America but decreased in Europe due to weak economic
conditions in that region. Despite higher insurance costs in
North America and raw material cost increases worldwide, the
segment had an operating profit of $4.3 million in 2004
compared to a profit of $1.8 million in 2003, in both cases
excluding restructuring costs. The improvement in profitability
was primarily the result of cost savings from recent
restructuring actions in Europe. Weak price realization and
reduced sales volume in Europe tempered the extent of the
improvement. The segment’s restructuring costs totaled
$4.8 million in 2004 and $12.6 million in 2003. The
2003 costs related principally to overhead reductions in North
America and the further consolidation of the segment’s
European operations, including the closure of a manufacturing
plant and the reorganization of its marketing and sales
structure. The amount for 2004 was due to adjustments to the
carrying values of two closed facilities to reflect revised
estimates of their future selling prices, costs to downsize
another facility and additional overhead reductions implemented
in the fourth quarter. Cost savings related to the 2003 and 2004
actions and to actions implemented in 2002 totaled approximately
$9 million. The incremental savings related to the 2003
actions and the overhead reductions implemented in 2004 are
expected to total approximately $1.5 million in 2005.
Industrial Fluids — The industrial fluids
segment had new orders and sales of $109 million each in
2004 compared to orders and sales of $104 million in 2003.
Favorable currency effects accounted for a majority of the
increases as manufacturing activity slowed in the second half of
the year. The segment’s operating profit decreased from
$15.7 million in 2003 to $9.2 million in 2004 due
principally to higher insurance costs, which increased by
$2.8 million, and higher raw material costs, especially for
chemicals and steel. Transportation costs also increased in
2004. The segment’s pension expense increased by
$.6 million as did selling expense to expand distribution
networks in both North America and eastern Europe. Pension
expense can be expected to increase further in 2005 but future
insurance costs will depend on factors that cannot be predicted
with certainty at this time. To offset the higher material
costs, price increases were phased in during the fourth quarter
of 2004 but because a high percentage of fluid sales are made on
a six– or twelve-month contract basis, the full effect of
the increases will not be realized until the first half of 2005.
|
|
|
Loss From Continuing Operations Before Income Taxes |
Our pretax loss from continuing operations was
$53.9 million in 2004 compared to a loss of
$110.4 million in 2003. The amount for 2004 includes
refinancing costs of $21.4 million and restructuring costs
of $13.0 million. The loss for 2003 includes the previously
discussed $65.6 million goodwill impairment charge as well
as restructuring and refinancing costs of $27.1 million and
$1.8 million, respectively. The comparison
29
between years benefited from incremental savings of
$23 million arising from the restructuring actions
initiated in 2002 through 2004 but was adversely affected by a
$6.9 million increase in pension expense as well as higher
insurance and raw material costs.
In the second quarter of 2003, we recorded a $71 million
charge in the provision for income taxes to establish valuation
allowances against a portion of our U.S. deferred tax
assets (see Significant Accounting Policies and
Judgments — Deferred Tax Assets and Valuation
Allowances). Additional deferred tax assets and valuation
allowances were recorded in the second half of 2003 and in 2004.
In 2004, we recorded a net U.S. tax benefit of
$9.7 million primarily related to a $7.8 million
increase in the value of our tax planning strategies and
benefits relating to a special ten year carryback of
$1.9 million. However, due to insufficient positive
evidence we were precluded from recognizing a tax benefit
related to the remaining operating loss incurred for the year.
Certain of our non-U.S. subsidiaries also lacked sufficient
positive evidence to allow them to record any tax benefits with
respect to their losses for the year. However, profitable
non-U.S. operations, primarily in The Netherlands, Canada
and India, recorded net income tax expense of $4.3 million
in 2004. Additional valuation allowances of $2.8 million
were recorded against deferred tax asset balances in Italy,
France and Denmark. In the aggregate, these factors resulted in
a 2004 tax benefit of $2.6 million on a pretax loss from
continuing operations of $53.9 million.
In 2003, the provision for income taxes of $73.3 million
includes the previously discussed $71 million second
quarter charge as well as tax expense related to profitable
non-U.S. operations. The same factors that precluded the
recognition of tax benefits with respect to U.S. and certain
non-U.S. losses were also applicable in 2003.
|
|
|
Loss From Continuing Operations |
Our 2004 loss from continuing operations was $51.3 million,
or $1.33 per share, compared to a loss of
$183.7 million, or $5.02 per share, in 2003. The loss
for 2004 includes refinancing costs of $21.4 million and
restructuring costs of $13.0 million, in both cases with no
tax benefit. In 2003, the loss from continuing operations
includes the $65.6 million goodwill impairment charge (with
no tax benefit) as well as $25.5 million in after-tax
restructuring costs.
In 2004 and 2003, the loss from discontinued operations includes
the operating results of our grinding wheels business which was
sold on April 30, 2004. In 2003, discontinued operations
also includes the results of our round metalcutting tools
business that was sold in two separate transactions in September
of that year.
In 2004, discontinued operations includes a net gain of
$.8 million to adjust the previously recorded loss on the
divestiture of the grinding wheels business to reflect the
actual sale proceeds and transaction costs and to further adjust
losses on divestitures completed in prior years. In 2003,
discontinued operations includes net expense of $.8 million
to adjust previously recorded gains and losses on divestitures
to reflect revised estimates of reserve requirements and
expected divestiture proceeds.
Including the previously discussed refinancing and restructuring
costs and the results of discontinued operations, our net loss
in 2004 was $51.8 million, or $1.34 per share. In
2003, our net loss was $190.9 million, or $5.21 per
share, which includes the $71 million tax charge as well as
restructuring costs and the goodwill impairment charge.
30
2003 Compared to 2002
Consolidated new orders totaled $747 million in 2003
compared to $703 million in 2002. Currency translation
effects resulting principally from the strength of the euro in
relation to the U.S. dollar contributed substantially all
of the $44 million increase. Consolidated sales increased
from $693 million in 2002 to $740 million in 2003. As
was the case with new orders, translation effects contributed
most of the increase. Order and shipment levels showed
improvement in the fourth quarter but continued to be penalized
by low levels of industrial production in the U.S. and capital
spending in the plastics processing industry.
Export orders totaled $73 million in 2003, an increase of
$7 million from $66 million in 2002. Export sales
increased from $71 million in 2002 to $73 million in
2003. Both increases related principally to higher export sales
of U.S.-built blow molding systems. Total sales of all segments
to non-U.S. markets, including exports, were
$338 million, or 46% of consolidated sales, in 2003
compared to $296 million, or 43% of sales, in 2002. Sales
of goods manufactured outside the U.S. totaled 41% in 2003
compared to 38% in 2002. The strength of the euro in relation to
the dollar was a significant factor in both increases.
Our backlog of unfilled orders was $92 million at
December 31, 2003 compared to $76 million at
December 31, 2002. The increase reflects higher order
levels for blow molding systems in the U.S. and injection
molding machinery in Europe.
|
|
|
Margins, Costs and Expenses |
Including $3.3 million of restructuring costs related to
product line discontinuation, the consolidated manufacturing
margin was 17.9% in 2003. Excluding restructuring costs, the
consolidated margin was 18.4%. In 2002, the consolidated
manufacturing margin, including $1.9 million of
restructuring costs, was 17.2%. Excluding restructuring costs,
the 2002 margin was 17.5%. Margins remained low in relation to
pre-recession historical levels due to reduced sales volume and
the related underabsorption of manufacturing costs. Margins were
also penalized by increased pricing pressure for plastics
processing machinery in both North America and Europe and a
$5.0 million decrease from 2002 in the amount of pension
income included in the cost of products sold. However, margins
benefited from the effects of our process improvement
initiatives and our recent restructuring actions.
Total selling and administrative expense was $129 million
in 2003 compared to $121 million in 2002. Selling expense
increased from $93 million, or 13.4% of sales, in 2002 to
$104 million, or 14.0% of sales, in 2003 due principally to
variable selling costs associated with higher sales volume,
increased bad debt expense and a $2.0 million reduction in
pension income. Costs associated with the triennial National
Plastics Exposition that was held in June of 2003 and currency
effects also contributed to the increase in selling expense.
Conversely, administrative expense decreased by more than
$2 million due principally to the effects of our
restructuring actions and cost containment efforts despite
almost $2 million in adverse currency effects.
Other expense-net increased from income of $1.0 million in
2002 to income of $.2 million in 2003. The amount for 2003
includes income of $3.5 million from the settlement of
warranty claims against a supplier and $.9 million of
income from the licensing of patented technology. The 2002
amount includes income of $4.5 million from technology
licensing.
As discussed more fully in the note to the Consolidated
Financial Statements captioned “Restructuring Costs,”
in 2002 and 2003 we announced additional restructuring
initiatives intended to further reduce our cost structure as
well as to improve operating efficiency and customer service. In
the aggregate, these actions ultimately resulted in the
elimination of approximately 500 positions worldwide. Cost
savings related to these actions were in excess of
$15 million in 2003. This is in addition to the savings we
realized from the restructuring actions that were initiated in
2001.
31
In the fourth quarter of 2002, we initiated the transfer of all
manufacture of container blow molding machines and structural
foam systems from the plant in Manchester, Michigan to our
facility near Cincinnati, Ohio. The mold making operation in
Manchester was moved to a smaller, more cost-effective location
near the former facility. In another action, the manufacture of
special mold bases for injection molding at the Monterey Park,
California plant was discontinued and transferred to other
facilities in North America.
Early in 2003, we initiated a plan for the further restructuring
of our European blow molding machinery operations, including the
discontinuation of the manufacture of certain product lines at
the Magenta, Italy plant. In the second quarter of 2003, we
initiated a plan to close the special mold base machining
operation in Mahlberg, Germany and relocate a portion of its
manufacturing to another facility. Certain other production is
being outsourced. In the third quarter of 2003, we began to
implement additional restructuring initiatives that focus on
further overhead cost reductions in each of our plastics
technologies segments and at the corporate office. These actions
involve the relocation of production, closure of sales offices,
voluntary early retirement programs and general overhead
reductions.
In 2003 and 2002, restructuring costs also include amounts for
the integration of EOC and Reform, two businesses acquired in
2001, with our existing mold base and components business in
Europe and costs associated with initiatives announced in 2001
and 2002 to consolidate manufacturing operations and reduce
Milacron’s cost structure.
The costs of the actions described above as well as the related
cash effects and cost savings are summarized in the tables on
pages 26 through 28 of this Form 10-K.
|
|
|
Goodwill Impairment Charge |
In 2003, we recorded a goodwill impairment charge of
$65.6 million (with no tax benefit) to adjust the carrying
value of the goodwill of two businesses included in the mold
technologies segment. The charge was calculated by discounting
estimated future cash flows and resulted from a downward
adjustment of the cash flows expected to be generated by these
businesses due to the delay in the general economic recovery in
both North America and Europe. The largest decrease in cash flow
expectations related to our European mold base and components
business due to continued weakness in the markets it serves.
The following sections discuss the operating results of our
business segments which are presented in tabular form on
pages 91 through 93 of this Form 10-K. As presented
therein, segment operating profit or loss excludes restructuring
costs and goodwill impairment charges.
Machinery technologies — North
America — New orders in the machinery
technologies — North America segment were
$325 million in 2003 compared to $321 million in 2002.
The segment’s sales also increased modestly from
$314 million in 2002 to $321 million in 2003. Despite
signs of increased capacity utilization in U.S. plastics
processing industries in the fourth quarter, orders and
shipments remained at low levels for the third consecutive year
due to depressed capital spending. In addition, the
segment’s results were penalized by weaker price
realization and reduced pension income but benefited from our
restructuring and cost reduction initiatives. Excluding
restructuring costs, the segment had operating earnings of
$8.1 million in 2003 compared to $7.5 million in 2002.
The decrease was due entirely to a $6.1 million reduction
in pension income and the absence of $4.5 million of
royalty income from the licensing of patented technology that
was received in 2002. Restructuring costs for the segment were
$7.7 million in 2003 and $6.7 million in 2002. In both
years, most of these costs related to the relocation of the
North American blow molding systems business and to supplemental
retirement benefits offered for the purpose of reducing the cost
structure of the segment’s injection molding and extrusion
machinery businesses. The restructuring actions initiated in
2002 and 2003 resulted in incremental cost savings in excess of
$8 million in 2003.
Machinery technologies — Europe — The
machinery technologies — Europe segment had new orders
of $154 million and sales of $151 million in 2003
compared to orders of $122 million and sales of
$117 million in 2002. Currency translation effects related
to the strength of the euro in relation to the dollar
contributed about
32
two-thirds of both increases. Sales of blow molding systems were
flat in relation to 2002 but orders and shipments of
European-built injection molding machines increased as measured
in local currency despite weaker price realization. The
segment’s operating results improved significantly as a
result of our restructuring of its blow molding systems business
as its loss excluding restructuring costs decreased from
$8.1 million in 2002 to $1.4 million in 2003.
Restructuring costs totaled $6.5 million in 2003 and
related principally to the restructuring of our European blow
molding operations and the discontinuation of certain of its
product lines and to overhead reductions in the segment’s
injection molding machinery business. In 2003, these actions
have resulted in savings in excess of $1 million.
Mold technologies — In 2003, the mold
technologies segment had new orders and sales of
$169 million compared to $175 million of orders and
sales in 2002. The decreases occurred despite favorable currency
effects of approximately $10 million. The segment’s
profitability was adversely affected by low levels of industrial
production and capacity utilization in both North America and
Europe. Inefficiencies associated with the consolidation of the
segment’s European operations continued into 2003 and
adversely affected its results as did reduced profitability in
North America. Excluding restructuring costs, the segment had
operating earnings of $1.8 million in 2003 compared to
earnings of $5.3 million in 2002. Restructuring costs
totaled $12.6 million in 2003 and related principally to
overhead reductions in North America and to the further
consolidation of the segment’s European operations. The
actions in Europe included the closure of two manufacturing
plants and the reorganization and consolidation of the European
marketing and sales structure. Restructuring costs of
$6.4 million in 2002 related principally to the closure of
a manufacturing plant in the U.S. and to costs to integrate two
businesses acquired in 2001 with the segment’s existing
European operations. The actions initiated in 2002 and 2003
resulted in savings of almost $4 million in 2003.
Industrial Fluids — The industrial fluids
segment had new orders and sales of $104 million compared
to orders and sales of $96 million in 2002. Both increases
were due principally to currency effects related to the
segment’s operations in Europe. Despite a $.9 million
reduction in pension income, the segment’s operating profit
increased from $14.4 million in 2002 to $15.7 million
in 2003.
|
|
|
Loss From Continuing Operations Before Income Taxes |
Our pretax loss was $110.4 million in 2003 compared to a
loss of $37.1 million in 2002. The amount for 2003 includes
restructuring costs of $27.1 million and the previously
discussed $65.6 million goodwill impairment charge. In
2002, restructuring costs were $13.9 million. The
comparison between years was also adversely affected by a
$7.1 million reduction in the amount of pension income
related to continuing operations and the absence in 2003 of the
previously discussed $4.5 million of royalty income.
As was previously discussed (see Significant Accounting Policies
and Judgments — Deferred Tax Assets and Valuation
Allowances), in 2003 we recorded a $71 million charge in
the second quarter tax provision to establish valuation
allowances against a portion of the company’s
U.S. deferred tax assets. Additional deferred tax assets
and valuation allowances were recorded in the second half of the
year. Due to the geographic mix of earnings and losses, the tax
provision for 2003 also includes income tax expense related to
profitable operations in non-U.S. jurisdictions. These
factors resulted in a 2003 provision for income taxes of
$73.3 million despite a pretax loss of $110.4 million.
In 2002, we recorded tax benefits related to losses in the
U.S. at the federal statutory rate. We also had a favorable
tax rate for non-U.S. operations due in part to permanent
deductions in The Netherlands, the benefits of which were
partially offset by increases in valuation allowances in Germany
and Italy. The 2002 consolidated effective rate of almost 50%
also benefited from the favorable resolution of tax
contingencies in the U.S. and other jurisdictions.
|
|
|
Loss From Continuing Operations |
Our 2003 loss from continuing operations was
$183.7 million, or $5.02 per share, which includes
after-tax restructuring costs of $25.5 million, the
goodwill impairment charge of $65.6 million (with no tax
benefit) and
33
the $71 million tax adjustment to record
U.S. valuation allowances. In 2002, our loss from
continuing operations was $18.7 million, or $.52 per
share. The loss for 2002 includes after-tax restructuring costs
and royalty income of $8.8 million and $2.8 million,
respectively. After-tax pension income was $.5 million in
2003 compared to $4.9 million in 2002.
In 2003 and 2002, the loss from discontinued operations includes
our round metalcutting tools and grinding wheels businesses. The
former was sold in two separate transactions in 2003 and the
grinding wheels business was sold in 2004. In 2002, discontinued
operations also includes the Valenite and Widia and Werkö
metalcutting tools businesses that were sold in August of that
year. The losses that were incurred in both years resulted from
depressed levels of industrial production in North America
and — in 2002 — Europe and India and from
inefficiencies associated with managing businesses in the
process of being sold.
As discussed more fully in the note to the Consolidated
Financial Statements captioned “Discontinued
Operations,” in 2002 we recorded a net gain of
$8.4 million related to the divestitures of discontinued
operations. In 2003, we recorded expense of $.8 million to
adjust sale-related accruals and reserves to reflect
then-current expectations.
|
|
|
Cumulative Effect of Change in Method of Accounting |
Effective January 1, 2002, Milacron recorded a pretax
goodwill impairment charge of $247.5 million ($187.7 after
tax or $5.15 per share) as the cumulative effect of a
change in method of accounting in connection with the adoption
of Statement of Financial Accounting Standards No. 142.
Approximately 75% of the pretax charge related to the
company’s blow molding and round metalcutting tools
businesses, the latter of which was sold in 2003.
Our net loss for 2003 was $190.9 million, or $5.21 per
share, compared to a loss of $223.2 million, or
$6.13 per share, in 2002. The amount for 2003 includes the
previously discussed restructuring costs, goodwill impairment
charge, tax adjustment for valuation allowances and the losses
from discontinued operations. The loss for 2002 includes
restructuring costs, the net loss from discontinued operations
and the cumulative effect adjustment.
Comparative Operating Results
Due to the significant effects of restructuring costs in recent
years, the following tables are provided to assist the reader in
better understanding our operating earnings (loss) including
these amounts.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Machinery Technologies — North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings as reported
|
|
$ |
16.0 |
|
|
$ |
8.1 |
|
|
$ |
7.5 |
|
|
Restructuring costs
|
|
|
(8.0 |
) |
|
|
(7.7 |
) |
|
|
(6.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Adjusted operating earnings
|
|
$ |
8.0 |
|
|
$ |
.4 |
|
|
$ |
.8 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Machinery Technologies — Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings (loss) as reported
|
|
$ |
1.9 |
|
|
$ |
(1.4 |
) |
|
$ |
(8.1 |
) |
|
Restructuring costs
|
|
|
(.2 |
) |
|
|
(6.5 |
) |
|
|
.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
Adjusted operating earnings (loss)
|
|
$ |
1.7 |
|
|
$ |
(7.9 |
) |
|
$ |
(7.7 |
) |
| |
|
|
|
|
|
|
|
|
|
34
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Mold Technologies |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings as reported
|
|
$ |
4.3 |
|
|
$ |
1.8 |
|
|
$ |
5.3 |
|
|
Restructuring costs
|
|
|
(4.8 |
) |
|
|
(12.6 |
) |
|
|
(6.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Adjusted operating loss
|
|
$ |
(.5 |
) |
|
$ |
(10.8 |
) |
|
$ |
(1.1 |
) |
| |
|
|
|
|
|
|
|
|
|
The industrial fluids segment had no restructuring costs in
2004, 2003, or 2002.
Market Risk
|
|
|
Foreign Currency Exchange Rate Risk |
We use foreign currency forward exchange contracts to hedge our
exposure to adverse changes in foreign currency exchange rates
related to firm or anticipated commitments arising from
international transactions. We do not hold or issue derivative
instruments for trading purposes. At December 31, 2004, we
had no outstanding forward contracts. Forward contracts totaled
$4.7 million at December 31, 2003. The annual
potential loss from a hypothetical 10% adverse change in foreign
currency rates on our foreign exchange contracts at
December 31, 2003 would not have materially affected our
consolidated financial position, results of operations or cash
flows.
At December 31, 2004, we had fixed rate debt of
$231 million, including $225 million face value of
111/2% Senior
Secured Notes due 2011 that were issued on May 26, 2004,
and floating rate debt of $22 million. At December 31,
2003, fixed rate debt totaled $270 million and included the
83/8% Notes
due 2004 that were repaid on March 15, 2004 and the
75/8%
Eurobonds due 2005, substantially all of which were repurchased
on June 10, 2004 pursuant to a tender offer therefor.
Floating rate debt totaled $53 million at December 31,
2003. During 2003 and through March 12, 2004, we also had
the ability to sell accounts receivable under our accounts
receivable purchase agreement which resulted in financing fees
that fluctuated based on changes in commercial paper rates. As a
result of these factors, a portion of annual interest expense
and financing fees fluctuate based on changes in short-term
borrowing rates. However, before consideration of any adverse
effect of the interest rate swap that is discussed in the
following paragraph, 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.
On July 30, 2004, we entered into a $50 million
(notional amount) interest rate swap that effectively converts a
portion of fixed-rate interest debt into a floating-rate
obligation. The swap, which matures on November 15, 2008,
is intended to achieve a better balance between fixed-rate and
floating-rate debt. The interest rate swap had the effect of
lowering interest expense in 2004 by $.4 million. At
December 31, 2004, the potential annual increase in
interest expense from a hypothetical 10% increase in interest
rates would have been approximately $.2 million. However,
increases in short-term interest rates will have the effect of
increasing interest expense in the first quarter of 2005. In
addition, the fair value of the swap can change dramatically
based on a number of variables, including a significant change
in the shape of the yield curve and the passage of time. Changes
in the fair value of the swap are reported as non-cash increases
or decreases in interest expense.
Off-Balance Sheet Arrangements
|
|
|
Sales of Accounts Receivable |
As discussed more fully in the note to the Consolidated
Financial Statements captioned “Receivables,” during
several preceding years and through March 12, 2004, we
maintained a receivables purchase agreement with a third party
financial institution. Under this arrangement we sold, on a
revolving basis, an undivided percentage ownership interest in
designated pools of accounts receivable. As existing receivables
were
35
collected, undivided interests in new eligible receivables were
sold. Accounts that became 60 days past due were no longer
eligible to be sold and we were at risk for any related credit
issues. Credit losses were not significant and we maintained an
allowance for doubtful accounts sufficient to cover our
estimated exposures. On March 12, 2004 this facility was
repaid (see Liquidity and Sources of Capital).
Certain of our non-U.S. subsidiaries sell accounts
receivable on an ongoing basis for purposes of improving
liquidity and cash flows. Some of these sales are made with
recourse, in which case appropriate reserves for potential
losses are provided. At December 31, 2004, the gross amount
of receivables sold totaled $6.6 million. The average
amount sold during the year was approximately $4.3 million.
Financing fees related to these arrangements were not material.
|
|
|
Sales of Notes and Guarantees |
Certain of our U.S. operations sell with recourse notes
from customers for the purchase of plastics processing
machinery. In certain other cases, we guarantee the repayment of
all or a portion of notes payable from our customers to third
party lenders. These arrangements are entered into for the
purpose of facilitating sales of machinery. In the event a
customer fails to repay a note, we generally regain title to the
machinery. At December 31, 2004, our maximum exposure under
these U.S. guarantees, as well as guarantees by certain of
our non-U.S. subsidiaries, totaled $8.0 million.
Losses related to sales of notes and guarantees have not been
material in the past.
Contractual Obligations
Our contractual obligations for 2005 and beyond are shown as of
December 31, 2004 in the table that follows.
| |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
2006- | |
|
2008- | |
|
Beyond | |
| |
|
Total | |
|
2005 | |
|
2007 | |
|
2009 | |
|
2009 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-based facility due 2008
|
|
$ |
11.0 |
|
|
$ |
11.0 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
111/2% Senior
Secured Notes due 2011
|
|
|
225.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
225.0 |
|
|
Other long-term debt
|
|
|
5.9 |
|
|
|
4.1 |
|
|
|
1.2 |
|
|
|
.4 |
|
|
|
.2 |
|
|
Capital lease obligations
|
|
|
15.9 |
|
|
|
1.9 |
|
|
|
4.1 |
|
|
|
6.4 |
|
|
|
3.5 |
|
|
Operating leases
|
|
|
32.2 |
|
|
|
11.8 |
|
|
|
14.3 |
|
|
|
5.1 |
|
|
|
1.0 |
|
|
Purchase obligations(a)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Pension plan contributions(b)
|
|
|
62.6 |
|
|
|
2.5 |
|
|
|
44.1 |
|
|
|
16.0 |
|
|
|
— |
|
| |
Unfunded pension benefits(c)(d)
|
|
|
145.1 |
|
|
|
2.9 |
|
|
|
5.9 |
|
|
|
6.2 |
|
|
|
130.1 |
|
| |
Postretirement medical benefits(d)
|
|
|
45.9 |
|
|
|
3.1 |
|
|
|
5.8 |
|
|
|
4.5 |
|
|
|
32.5 |
|
| |
Insurance reserves(d)
|
|
|
20.1 |
|
|
|
3.4 |
|
|
|
8.3 |
|
|
|
3.5 |
|
|
|
4.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
563.7 |
|
|
$ |
40.7 |
|
|
$ |
83.7 |
|
|
$ |
42.1 |
|
|
$ |
397.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We did not have any significant purchase obligations as of
December 31, 2004. |
| |
|
(b) |
|
We are required to make contributions to our defined benefit
pension plan for certain U.S. employees. The amounts shown
above are estimates based on the current funded status of the
plan and discount rates required to be used for minimum funding
purposes by the Pension Funding Act of 2004 that was enacted on
April 10, 2004. The amounts also give effect to
supplemental early retirement benefits that were granted in
connection with restructuring initiatives, the sale of the
grinding wheels business and expectations regarding future
changes in discount rates for funding purposes. The amounts of
actual contributions can be expected to vary based on factors
such as returns on plan assets, changes in the plan’s
discount rate and actuarial gains and losses. |
36
|
|
|
|
(c) |
|
Represents liabilities related to unfunded pension plans in the
U.S. and Germany. |
| |
|
(d) |
|
The amounts presented for unfunded pension benefits,
postretirement medical benefits and insurance reserves are
estimates based on current assumptions and expectations. Actual
payments related to these obligations can be expected to differ
from the amounts shown. The amounts shown for insurance reserves
are net of expected recoveries from excess carriers and other
third parties totaling $13.8 million. |
The above table excludes the contingent liabilities of up to
$14.6 million related to sales of receivables and loan
guarantees that are described above.
Liquidity and Sources of Capital
At December 31, 2004, we had cash and cash equivalents of
$69 million, a decrease of $24 million from
December 31, 2003. The December 31, 2004 amount
includes $25.2 million of proceeds that were received from
a rights offering that was completed in the fourth quarter. We
will use a portion of this cash to repay all outstanding amounts
borrowed under our asset based credit facility.
At December 31, 2004, approximately $5 million of cash
was used to collateralize sales of certain
non-U.S. receivables. Approximately 65% of the
$69 million of cash was held in foreign accounts in support
of our non-U.S. operations. Were this non-U.S. cash to
be repatriated, it could result in withholding taxes in foreign
jurisdictions.
Operating activities used $42 million of cash in 2004 due
principally to a $33 million payment related to the
termination of our receivables purchase agreement on
March 12, 2004. The usage of cash in 2004 also includes
$10 million for the final annual interest payment on the
75/8%
Eurobonds, substantially all of which were repurchased on
June 10, 2004, and $5 million of cash spent in
pursuing alternatives to the refinancing actions that are
discussed below. Operating activities provided $10 million
of cash in 2003 due to reductions in inventories and trade
receivables that resulted from our aggressive working capital
management initiatives. Cash flows for 2003 also benefited from
the receipt of $21 million of refunds of income taxes paid
in prior years. These benefits were partially offset by
reductions of certain current liabilities.
Investing activities used a negligible amount of cash in 2004 as
capital expenditures of $9 million were substantially
offset by the proceeds from the sale of the grinding wheels
business. In 2003, investing activities used $31 million of
cash, principally for post-closing adjustments related to
divestitures that were completed in 2002 and for acquisitions
and capital additions.
Financing activities provided $21 million of cash in 2004
which includes the $25 million of proceeds from the rights
offering that were received in the fourth quarter of the year. A
substantial portion of the $1.2 million of costs of the
offering will be paid in the first quarter of 2005. Cash
provided by financing activities in 2004 also includes the
proceeds of the refinancing transactions of March 12, 2004
and June 10, 2004 (including $100 million of
short-term loans that were ultimately converted to new equity in
a non-cash transaction), and usages of cash of $42 million
to repay bank borrowings and $28 million for debt issuance
costs. In 2003, financing activities used $6 million of
cash, principally for debt repayments.
Our current ratio was 1.9 at December 31, 2004. Excluding
the assets and liabilities of discontinued operations, the
current ratio was 1.1 at December 31, 2003. The change in
relation to the prior year is due to the effects of the
March 12, 2004 and June 10, 2004 refinancing
transactions that are discussed below and the rights offering.
Total shareholders’ equity was $50 million at
December 31, 2004, an increase of $74 million from
December 31, 2003. The increase is due principally to the
issuance of the Series B Preferred Stock (as discussed
below) and the completion of the rights offering, the combined
effects of which were partially offset by the net loss for 2004.
Total debt was $253 million at December 31, 2004
compared to $323 million at December 31, 2003. The
decrease is due to the results of the refinancing transitions.
37
On March 12, 2004, we entered into a definitive agreement
whereby Glencore Finance AG and Mizuho International plc
purchased $100 million in aggregate principal amount of our
new exchangeable debt securities. The proceeds from this
transaction, together with existing cash balances, were used to
repay our
83/8% Notes
due March 15, 2004. The securities we issued were
$30 million of 20% Secured Step-Up Series A Notes due
2007 and $70 million of 20% Secured Step-Up Series B
Notes due 2007. The $30 million of Series A Notes were
convertible into shares of our common stock at a conversion
price of $2.00 per share. Glencore Finance AG and Mizuho
International plc converted the entire principal amount of the
Series A Notes into 15.0 million shares of common
stock on April 15, 2004. The Series A Notes and
Series B Notes initially bore a combination of cash and
pay-in-kind interest at a total rate of 20% per annum. The
rate was retroactively reset on June 10, 2004 to
6% per annum from the date of issuance, payable in cash.
On March 12, 2004, we also reached a separate agreement
with Credit Suisse First Boston for a $140 million senior
secured credit facility having a term of approximately one year.
This senior secured credit facility consisted of a
$65 million revolving A facility and a $75 million
term loan B facility. On March 12, 2004, we used
extensions of credit under the revolving A facility and term
loan B facility in an aggregate amount of $84 million
to repay and terminate our then-existing revolving credit
facility (in addition to replacing or providing credit support
for outstanding letters of credit) and our then-existing
receivables purchase program. All amounts borrowed under the
Credit Suisse First Boston facility were repaid on June 10,
2004, as described below.
On June 10, 2004, (i) the common stock into which the
Series A Notes were converted and (ii) the
Series B Notes were exchanged for 500,000 shares of
Series B Preferred Stock, a new series of convertible
preferred stock with a cumulative cash dividend rate of 6%. On
June 10, 2004, we also satisfied the conditions to release
to us from escrow the proceeds from the offering of
$225 million of
111/2% Senior
Secured Notes due 2011 and entered into an agreement for a new
$75 million asset based revolving credit facility with
JPMorgan Chase Bank as administrative agent and collateral agent.
On June 10, 2004, we applied the proceeds from the issuance
of the
111/2% Senior
Secured Notes due 2011, together with $7.3 million in
borrowings under our asset based facility and approximately
$10.3 million of cash on hand, to:
|
|
|
| |
• |
purchase €114,990,000
of
the €115 million
aggregate outstanding principal amount of Milacron Capital
Holdings B.V.’s
75/8%
Guaranteed Bonds due in April 2005 at the settlement of a tender
offer therefor; |
| |
| |
• |
terminate and repay $19 million of borrowings outstanding
under the revolving A facility of the Credit Suisse First Boston
facility, which included additional amounts borrowed subsequent
to March 12, 2004. We also used $17.4 million of
availability under our asset based facility to replace or
provide credit support for the outstanding letters of credit
under the revolving A facility of the Credit Suisse First Boston
facility; |
| |
| |
• |
repay the $75 million term loan B facility of the
Credit Suisse First Boston facility; and |
| |
| |
• |
pay transaction expenses. |
The borrowings under the asset based facility entered into on
June 10, 2004 are secured by a first priority security
interest, subject to permitted liens, in, among other things,
U.S. and Canadian accounts receivable, cash and cash
equivalents, inventory and, in the U.S., certain related rights
under contracts, licenses and other general intangibles, subject
to certain exceptions. Our asset based facility is also secured
by a second priority security interest on the assets that secure
the
111/2% Senior
Secured Notes due 2011 on a first priority basis. The
availability of loans under our asset based facility is limited
to a borrowing base equal to specified percentages of eligible
U.S. and Canadian accounts receivable and U.S. inventory
and is subject to other conditions to borrowing and limitations,
including an excess availability reserve (the minimum required
availability) of $10 million and an additional
$1 million hedging reserve as a result of the interest rate
swap that was entered into on July 30, 2004.
Based on the assets included in the borrowing base as of
December 31, 2004 and without giving effect to reserves,
outstanding borrowings and issuances of letters of credit (in
all cases, as discussed below), we had
38
approximately $61 million of borrowing availability,
subject to the customary ability of the administrative agent for
the lenders to reduce 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. The terms of our asset based facility impose a daily cash
“sweep” on cash received in our U.S. bank
accounts from collections of our accounts receivable. This daily
cash “sweep” is automatically applied to pay down any
outstanding borrowings under our asset based facility. The terms
of our asset based facility also provide for the administrative
agent, at its option and at any time, to impose a daily cash
“sweep” on cash received in our Canadian bank accounts
from collections of our accounts receivable. Since the cash we
receive from collection of receivables is subject to the
automatic “sweep” to repay the borrowings under our
asset based facility on a daily basis, we rely on borrowings
under our asset based facility as our primary source of cash for
use in our North American operations. If we have no additional
availability or are unable to satisfy the borrowing conditions,
our liquidity could be materially adversely affected.
Our asset based facility contains customary conditions precedent
to any borrowings, as well as customary covenants, including,
but not limited to, maintenance of unused availability under the
borrowing base based on reserves (including the excess
availability reserve and the hedging reserve) established by the
administrative agent. As of December 31, 2004, after giving
effect to then-outstanding letters of credit and the
$11 million borrowed under the facility, our availability
after deducting the $11 million of reserves was
approximately $28 million. On November 8, 2004, we
reached an agreement with the lenders to waive various technical
defaults concerning certain inactive subsidiaries. In addition,
our asset based facility originally contained, for the first
five quarters, a financial covenant requiring us to maintain a
minimum level of cumulative consolidated EBITDA (as defined in
the facility), to be tested quarterly. The facility was amended
on September 28, 2004 and February 11, 2005, to reduce
these requirements as discussed more fully below. The facility
also contains a limit on capital expenditures to be complied
with on a quarterly basis, beginning with the third quarter of
2004. Thereafter, we will have to comply with a fixed charge
coverage ratio to be tested quarterly. This test was originally
to be required beginning in the fourth quarter of 2005 but on
February 11, 2005, we reached an agreement with the lenders
to delay it until the first quarter of 2006.
Our asset based facility requires us to maintain minimum levels
of cumulative consolidated EBITDA to be tested quarterly. This
test was originally required through September 30, 2005 but
the February 11, 2005 amendment to the facility extended it
through December 31, 2005. In response to a reassessment of
projected earnings and EBITDA for the third and fourth fiscal
quarters of 2004, our asset based facility was amended on
September 28, 2004 to reduce the minimum cumulative
consolidated EBITDA requirement for the three consecutive
calendar months ending September 30, 2004 from
$11.6 million to $8.0 million and for the six
consecutive calendar months ending December 31, 2004 from
$25.9 million to $24.0 million. We subsequently
identified additional adjustments that resulted in reducing our
fourth quarter 2004 EBITDA to below the minimum level required
by the revised covenant. However, we reached an agreement with
our lenders on March 16, 2005 to waive any noncompliance in
our fourth quarter resulting from certain of these adjustments.
Accordingly, after giving effect to the wavier, we were in
compliance with the revised covenant as of December 31,
2004. The facility was also amended on February 11, 2005 to
reduce the minimum cumulative consolidated EBITDA requirements
for 2005 as follows: for the nine consecutive calendar months
ended March 31, 2005 from $32.3 million to
$26.4 million; for the twelve consecutive calendar months
ended June 30, 2005 from $43.0 million to
$35.8 million; and for the twelve consecutive calendar
months ended September 30, 2005 from $48.4 million to
$36.6 million. This amendment also established a minimum
cumulative consolidated EBITDA requirement of $38.0 million
for the twelve consecutive calendar months ended
December 31, 2005 and extended the limitation on capital
expenditures originally required through September 30, 2005
to December 31, 2005.
Our ability to continue to meet the cumulative consolidated
EBITDA covenant will be contingent on a number of factors, many
of which are beyond our control. These include our need for a
continued increase in capital spending in the plastics
processing industry and the resulting increases in our sales
revenues and operating margins, our need for no material
decrease in price realization, our ability to absorb recent raw
material price increases or pass such price increases through to
customers, and our continued ability to realize
39
the benefits of our cost reduction and process improvement
initiatives. If we are unable to meet or exceed the minimum
cumulative consolidated EBITDA requirements of our asset based
facility, we will attempt to further renegotiate this covenant
with our lenders to assure compliance. However, we cannot
control our lenders’ actions and, if the negotiations are
not successful, we could be forced to seek alternative sources
of liquidity. This may include, but is not necessarily limited
to, seeking alternative lenders, sales of assets or business
units and the issuance of additional indebtedness or equity.
Failure to meet or exceed the minimum cumulative consolidated
EBITDA requirements of our asset based facility would constitute
an event of default under the facility, which would permit the
lenders to accelerate the indebtedness owed thereunder (if such
indebtedness remained unpaid) and terminate their commitments to
lend. The acceleration of indebtedness under the asset based
facility would also create a cross-default under our
111/2% Senior
Secured Notes due 2011 if the principal amount of indebtedness
accelerated, together with the principal amount of any other
such indebtedness under which there was a payment default or the
maturity had been so accelerated, aggregated $15 million or
more, and such cross-default would permit the trustee under the
indenture governing the
111/2% Senior
Secured Notes due 2011 or the holders of at least 25% in
principal amount of the then outstanding notes to declare the
notes to be due and payable immediately. The acceleration of
obligations under our outstanding indebtedness would have a
material adverse effect on our business, financial condition and
results of operations.
Our continued viability depends on realizing anticipated cost
savings and operating improvements on schedule and continued
improvement in demand levels in 2005 and beyond, the latter of
which is largely beyond our control. Unless we realize
anticipated cost savings and operating improvements on schedule
and volume and pricing levels improve significantly, we may need
to fund interest payments on the
111/2% Senior
Secured Notes in part with the proceeds of borrowings under our
asset based facility. However, our ability to borrow under our
asset based facility is subject to borrowing base limitations,
including the excess availability reserve and the hedging
reserve, which may be adjusted from time to time by the
administrative agent for the lenders at its discretion, and our
satisfaction of certain conditions to borrowing, including,
among other things, conditions related to the continued accuracy
of our representations and warranties and the absence of any
unmatured or matured defaults (including under financial
covenants) or any material adverse change in our business or
financial condition. In particular, our continued ability to
borrow under our asset based facility is contingent on our
ability to comply with financial covenants, including meeting
the minimum cumulative consolidated EBITDA requirements and
other conditions to borrowing as discussed above. If we have no
additional availability or are otherwise unable to borrow
against the facility, our liquidity would be impaired and we
would need to pursue the alternative sources of liquidity
discussed above to service our debt and pay our expenses. There
is no assurance that we would be able to sell assets, refinance
debt or raise equity on commercially acceptable terms or at all,
which could cause us to default on our obligations under our
indebtedness, as discussed above. Our inability to generate
sufficient cash flow or draw sufficient amounts under our asset
based facility to satisfy our debt obligations and pay our other
expenses could cause us to default on our obligations and would
have a material adverse effect on our business, financial
condition and results of operations.
Borrowings under our asset based facility bear interest, at our
option, at either (i) the LIBO Rate plus the applicable
margin (as defined below) or (ii) an ABR plus the
applicable margin (as defined below). The “applicable
margin,” with respect to Eurodollar loans, is between
2.50% per annum and 3.25% per annum and, with respect
to ABR loans, is between .75% per annum and 1.50% per
annum, determined based on a calculation of the trailing average
availability levels under our asset based facility. LIBO Rate
means the rate at which Eurodollar deposits in the London
interbank market are quoted. We may elect Eurodollar loan
interest periods of one, two or three months. “ABR”
means the higher of (i) the rate of interest publicly
announced by the administrative agent as its prime rate in
effect at its principal office in New York City or (ii) the
federal funds effective rate from time to time plus .50%.
Our asset based facility provides that we will pay a monthly
unused line fee equal to .50% per annum on the average
daily unused portion of our credit commitment, as well as
customary loan servicing and letter of credit issuance fees.
40
Our asset based facility provides that upon the occurrence and
continuance of an event of default under our asset based
facility, upon demand by the agent, we will have to pay
(i) in the case of revolving credit loans, a rate of
interest per annum equal to the rate of interest otherwise in
effect (assuming the rate in effect is at the maximum applicable
margin) pursuant to the terms of our asset based facility plus
2% and (ii) in the case of other amounts, a rate of
interest per annum equal to the ABR plus the maximum applicable
margin plus 2%.
As discussed more fully in Item 9A of this Form 10-K,
we do not expect to file an amendment hereto that includes
management’s report and our auditor’s attestation on
internal control over financial reporting by the May 2,
2005 deadline. However, we have reached an agreement with the
lenders to waive the provision of our asset based facility
concerning the timely filing of our Form 10-K as it relates
to this information provided, among other things, the amendment
is filed no later than June 30, 2005. While we believe we
will meet this deadline, failure to do so could result in us
being declared in default.
At December 31, 2004, we had other lines of credit with
various U.S. and non-U.S. banks totaling approximately
$27 million, of which approximately $10 million was
available under certain circumstances.
Our debt and credit are rated by Standard & Poor’s
(S&P) and Moody’s Investors Service (Moody’s). On
June 11, 2004, S&P announced that it had raised our
corporate credit rating to B- with a “positive”
outlook. S&P’s “positive” outlook was
reaffirmed on August 25, 2004. On June 16, 2004,
Moody’s reaffirmed our senior unsecured rating at Caa2 and
our senior implied rating to Caa1 and raised the outlook to
“positive.”
None of our debt instruments include rating triggers that would
accelerate maturity or increase interest rates in the event of a
ratings downgrade. Accordingly, any potential rating 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.
We expect to generate positive cash flow from operating
activities during 2005, which will be partially offset by up to
$16 million for capital expenditures.
We believe that our current cash position, cash flow from
operations and available credit lines, including our asset based
revolving credit facility, will be sufficient to meet our
operating and capital expenditure requirements for 2005.
Cautionary Statement
We wish to caution readers about all of the forward-looking
statements in the “Management’s 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 2005 and beyond and cause them to
differ materially from those expressed in any of our
forward-looking statements:
|
|
|
| |
• |
our ability to comply with financial and other covenants
contained in the agreements governing our indebtedness,
including our senior secured notes and asset based credit
facility; |
| |
| |
• |
our ability to remediate or otherwise mitigate the identified
material weakness in internal control over financial reporting,
or any additional material weakness or significant deficiencies
that may be identified; |
| |
| |
• |
global and regional economic conditions, consumer spending,
capital spending levels and industrial production, particularly
in segments related to the level of automotive production and
spending in the plastics and construction industries; |
| |
| |
• |
fluctuations in currency exchange rates of U.S. and foreign
countries, including countries in Europe and Asia where we have
several principal manufacturing facilities and where many of our
customers, competitors and suppliers are based; |
| |
| |
• |
fluctuations in interest rates which affect the cost of
borrowing; |
41
|
|
|
| |
• |
production and pricing levels of important raw materials,
including plastic resins, which are a key material used by
purchasers of our plastics technologies products, as well as
steel, oil and chemicals; |
| |
| |
• |
lower than anticipated levels of plant utilization resulting in
production inefficiencies and higher costs, whether related to
the delay of new product introductions, improved production
processes or equipment, or labor relations issues; |
| |
| |
• |
customer acceptance of new products introduced during 2004 and
products expected to be introduced in 2005; |
| |
| |
• |
any major disruption in production at key customer or supplier
facilities or at our facilities; |
| |
| |
• |
disruptions in global or regional commerce due to wars, to
social, civil or political unrest in the non-U.S. countries
in which we operate and to acts of terrorism, continued threats
of terrorism and military, political and economic responses
(including heightened security measures) to terrorism; |
| |
| |
• |
alterations in trade conditions in and between the U.S. and
non-U.S. countries where we do business, including export
duties, import controls, quotas and other trade barriers; |
| |
| |
• |
changes in tax, environmental and other laws and regulations in
the U.S. and non-U.S. countries where we do business; |
| |
| |
• |
litigation, claims or assessments, including but not limited to
claims or problems related to product liability, warranty or
environmental issues; and |
| |
| |
• |
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. |
|
|
| Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk |
The information required by Item 7A is included in
Item 7 on page 35 of this Form 10-K.
|
|
| Item 8. |
Financial Statements and Supplementary Data |
Beginning on page 43 and continuing through page 106
are the Consolidated Financial Statements with applicable notes
and the related Report of Independent Registered Public
Accounting Firm, and the supplementary financial information
specified by Item 302 of Regulation S-K.
42
MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2004, 2003 and 2002
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except per-share | |
| |
|
amounts) | |
|
Sales
|
|
$ |
774.2 |
|
|
$ |
739.7 |
|
|
$ |
693.2 |
|
| |
Cost of products sold
|
|
|
626.6 |
|
|
|
603.8 |
|
|
|
572.1 |
|
| |
Cost of products sold related to restructuring
|
|
|
1.4 |
|
|
|
3.3 |
|
|
|
1.9 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total cost of products sold
|
|
|
628.0 |
|
|
|
607.1 |
|
|
|
574.0 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Manufacturing margins
|
|
|
146.2 |
|
|
|
132.6 |
|
|
|
119.2 |
|
|
Other costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling and administrative
|
|
|
126.9 |
|
|
|
129.0 |
|
|
|
121.0 |
|
| |
Restructuring costs
|
|
|
11.6 |
|
|
|
23.8 |
|
|
|
12.0 |
|
| |
Refinancing costs
|
|
|
21.4 |
|
|
|
1.8 |
|
|
|
— |
|
| |
Goodwill impairment charge
|
|
|
— |
|
|
|
65.6 |
|
|
|
1.0 |
|
| |
Other expense — net
|
|
|
2.9 |
|
|
|
(.2 |
) |
|
|
(1.0 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total other costs and expenses
|
|
|
162.8 |
|
|
|
220.0 |
|
|
|
133.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(16.6 |
) |
|
|
(87.4 |
) |
|
|
(13.8 |
) |
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income
|
|
|
2.0 |
|
|
|
1.9 |
|
|
|
2.2 |
|
| |
Expense
|
|
|
(39.3 |
) |
|
|
(24.9 |
) |
|
|
(25.5 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Interest — net
|
|
|
(37.3 |
) |
|
|
(23.0 |
) |
|
|
(23.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes and
cumulative effect of change in method of accounting
|
|
|
(53.9 |
) |
|
|
(110.4 |
) |
|
|
(37.1 |
) |
|
Provision (benefit) for income taxes
|
|
|
(2.6 |
) |
|
|
73.3 |
|
|
|
(18.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before cumulative effect of
change in method of accounting
|
|
|
(51.3 |
) |
|
|
(183.7 |
) |
|
|
(18.7 |
) |
|
Discontinued operations net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loss from operations
|
|
|
(1.3 |
) |
|
|
(6.4 |
) |
|
|
(25.2 |
) |
| |
Net gain (loss) on divestitures
|
|
|
.8 |
|
|
|
(.8 |
) |
|
|
8.4 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total discontinued operations
|
|
|
(.5 |
) |
|
|
(7.2 |
) |
|
|
(16.8 |
) |
|
Cumulative effect of change in method of accounting
|
|
|
— |
|
|
|
— |
|
|
|
(187.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(51.8 |
) |
|
$ |
(190.9 |
) |
|
$ |
(223.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Loss per common share — basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Continuing operations
|
|
$ |
(1.33 |
) |
|
$ |
(5.02 |
) |
|
$ |
(.52 |
) |
| |
Discontinued operations
|
|
|
(.01 |
) |
|
|
(.19 |
) |
|
|
(.46 |
) |
| |
Cumulative effect of change in method of accounting
|
|
|
— |
|
|
|
— |
|
|
|
(5.15 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(1.34 |
) |
|
$ |
( 5.21 |
) |
|
$ |
(6.13 |
) |
| |
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
43
MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2003
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions, except | |
| |
|
par value) | |
|
ASSETS |
|
Current assets
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
69.2 |
|
|
$ |
92.8 |
|
| |
Notes and accounts receivable, less allowances of $12.1 in 2004
and $15.1 in 2003
|
|
|
134.6 |
|
|
|
93.8 |
|
| |
Inventories
|
|
|
|
|
|
|
|
|
| |
|
Raw materials
|
|
|
8.1 |
|
|
|
8.2 |
|
| |
|
Work-in-process and finished parts
|
|
|
69.2 |
|
|
|
69.4 |
|
| |
|
Finished products
|
|
|
76.6 |
|
|
|
71.9 |
|
| |
|
|
|
|
|
|
| |
|
|
Total inventories
|
|
|
153.9 |
|
|
|
149.5 |
|
| |
|
Other current assets
|
|
|
49.1 |
|
|
|
45.2 |
|
| |
|
|
|
|
|
|
| |
|
|
Current assets of continuing operations
|
|
|
406.8 |
|
|
|
381.3 |
|
| |
|
Assets of discontinued operations
|
|
|
— |
|
|
|
7.2 |
|
| |
|
|
|
|
|
|
| |
|
|
Total current assets
|
|
|
406.8 |
|
|
|
388.5 |
|
|
Property, plant and equipment — net
|
|
|
128.4 |
|
|
|
140.8 |
|
|
Goodwill
|
|
|
86.6 |
|
|
|
83.8 |
|
|
Other noncurrent assets
|
|
|
118.1 |
|
|
|
120.3 |
|
| |
|
|
|
|
|
|
|
Total assets
|
|
$ |
739.9 |
|
|
$ |
733.4 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
|
Current liabilities
|
|
|
|
|
|
|
|
|
| |
Short-term borrowings
|
|
$ |
11.2 |
|
|
$ |
42.6 |
|
| |
Long-term debt and capital lease obligations due within one year
|
|
|
6.0 |
|
|
|
117.3 |
|
| |
Trade accounts payable
|
|
|
80.3 |
|
|
|
67.9 |
|
| |
Advance billings and deposits
|
|
|
18.6 |
|
|
|
15.2 |
|
| |
Accrued and other current liabilities
|
|
|
97.3 |
|
|
|
116.1 |
|
| |
|
|
|
|
|
|
| |
|
Current liabilities of continuing operations
|
|
|
213.4 |
|
|
|
359.1 |
|
| |
Liabilities of discontinued operations
|
|
|
— |
|
|
|
1.8 |
|
| |
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
213.4 |
|
|
|
360.9 |
|
|
Long-term accrued liabilities
|
|
|
240.2 |
|
|
|
232.6 |
|
|
Long-term debt
|
|
|
235.9 |
|
|
|
163.5 |
|
| |
|
|
|
|
|
|
| |
Total liabilities
|
|
|
689.5 |
|
|
|
757.0 |
|
|
Commitments and contingencies
|
|
|
— |
|
|
|
— |
|
|
Shareholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
| |
4% Cumulative Preferred shares
|
|
|
6.0 |
|
|
|
6.0 |
|
| |
6% Series B Convertible Preferred Stock, $.01 par
value (outstanding: .5 in 2004)
|
|
|
112.9 |
|
|
|
— |
|
| |
Common shares, $.01 par value in 2004 and $1.00 par
value in 2003 (outstanding: 48.6 in 2004 and 34.8 in 2003)
|
|
|
.5 |
|
|
|
34.8 |
|
| |
Capital in excess of par value
|
|
|
347.2 |
|
|
|
284.0 |
|
| |
Contingent warrants
|
|
|
.5 |
|
|
|
— |
|
| |
Accumulated deficit
|
|
|
(312.7 |
) |
|
|
(241.7 |
) |
| |
Accumulated other comprehensive loss
|
|
|
(104.0 |
) |
|
|
(106.7 |
) |
| |
|
|
|
|
|
|
| |
|
Total shareholders’ equity (deficit)
|
|
|
50.4 |
|
|
|
(23.6 |
) |
| |
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity (deficit)
|
|
$ |
739.9 |
|
|
$ |
733.4 |
|
| |
|
|
|
|
|
|
See notes to consolidated financial statements.
44
MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND
SHAREHOLDERS’
EQUITY (DEFICIT)
Years ended December 31, 2004, 2003 and 2002
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
4% Cumulative Preferred shares
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at beginning and end of period
|
|
$ |
6.0 |
|
|
$ |
6.0 |
|
|
$ |
6.0 |
|
|
6% Series B Convertible Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at beginning of period
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
Net proceeds from issuance
|
|
|
97.0 |
|
|
|
— |
|
|
|
— |
|
| |
|
Beneficial conversion feature
|
|
|
15.9 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Balance at end of period
|
|
|
112.9 |
|
|
|
— |
|
|
|
— |
|
|
Common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at beginning of period
|
|
|
318.8 |
|
|
|
317.3 |
|
|
|
314.9 |
|
| |
|
Stock options exercised and net restricted stock activity
|
|
|
3.1 |
|
|
|
.2 |
|
|
|
.5 |
|
| |
|
Reissuance of treasury shares
|
|
|
1.6 |
|
|
|
1.3 |
|
|
|
1.9 |
|
| |
|
Beneficial conversion feature related to Series A Notes
|
|
|
6.6 |
|
|
|
— |
|
|
|
— |
|
| |
|
Conversion of Series A Notes to common stock
|
|
|
28.1 |
|
|
|
— |
|
|
|
— |
|
| |
|
Conversion to Series B Convertible Preferred Stock
|
|
|
(34.6 |
) |
|
|
— |
|
|
|
— |
|
| |
|
Net proceeds from rights offering
|
|
|
24.1 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Balance at end of period
|
|
|
347.7 |
|
|
|
318.8 |
|
|
|
317.3 |
|
|
Contingent warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at beginning of period
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
Issuance of contingent warrants
|
|
|
.5 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Balance at end of period
|
|
|
.5 |
|
|
|
— |
|
|
|
— |
|
|
Retained earnings (accumulated deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
December 31, 2001 balance as originally reported
|
|
|
|
|
|
|
|
|
|
|
165.0 |
|
| |
Effect of restatement for change in method of accounting
|
|
|
|
|
|
|
|
|
|
|
9.8 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Balance at beginning of period
|
|
|
(241.7 |
) |
|
|
(50.0 |
) |
|
|
174.8 |
|
| |
|
Net loss for the period
|
|
|
(51.8 |
) |
|
|
(190.9 |
) |
|
|
(223.2 |
) |
| |
|
Dividends paid and declared
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
4% Cumulative Preferred shares
|
|
|
(.4 |
) |
|
|
(.1 |
) |
|
|
(.2 |
) |
| |
|
|
6% Series B Convertible Preferred Stock
|
|
|
(2.9 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
Common shares
|
|
|
— |
|
|
|
(.7 |
) |
|
|
(1.4 |
) |
| |
|
Beneficial conversion feature related to Series B
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Preferred Stock
|
|
|
(15.9 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Balance at end of period
|
|
|
(312.7 |
) |
|
|
(241.7 |
) |
|
|
(50.0 |
) |
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at beginning of period
|
|
|
(106.7 |
) |
|
|
(129.8 |
) |
|
|
(51.0 |
) |
| |
|
Foreign currency translation adjustments
|
|
|
15.9 |
|
|
|
8.5 |
|
|
|
5.9 |
|
| |
|
Minimum pension liability adjustment
|
|
|
(13.0 |
) |
|
|
14.6 |
|
|
|
(95.4 |
) |
| |
|
Other
|
|
|
(.2 |
) |
|
|
— |
|
|
|
10.7 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Balance at end of period
|
|
|
(104.0 |
) |
|
|
(106.7 |
) |
|
|
(129.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity (deficit)
|
|
$ |
50.4 |
|
|
$ |
(23.6 |
) |
|
$ |
143.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
$ |
(51.8 |
) |
|
$ |
(190.9 |
) |
|
|
(223.2 |
) |
|
Change in accumulated other comprehensive income (loss)
|
|
|
2.7 |
|
|
|
23.1 |
|
|
|
(78.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$ |
(49.1 |
) |
|
$ |
(167.8 |
) |
|
$ |
(302.0 |
) |
| |
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
45
MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2004, 2003 and 2002
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net loss
|
|
$ |
(51.8 |
) |
|
$ |
(190.9 |
) |
|
$ |
(223.2 |
) |
| |
|
Cumulative effect of change in method of accounting
|
|
|
— |
|
|
|
— |
|
|
|
187.7 |
|
| |
|
Operating activities providing (using) cash
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Loss from discontinued operations
|
|
|
1.3 |
|
|
|
6.4 |
|
|
|
25.2 |
|
| |
|
|
Net (gain) loss on divestitures
|
|
|
(.8 |
) |
|
|
.8 |
|
|
|
(8.4 |
) |
| |
|
|
Depreciation and amortization
|
|
|
20.3 |
|
|
|
21.7 |
|
|
|
23.0 |
|
| |
|
|
Restructuring costs
|
|
|
13.0 |
|
|
|
27.1 |
|
|
|
13.9 |
|
| |
|
|
Refinancing costs
|
|
|
21.4 |
|
|
|
1.8 |
|
|
|
— |
|
| |
|
|
Goodwill impairment charge
|
|
|
— |
|
|
|
65.6 |
|
|
|
1.0 |
|
| |
|
|
Deferred income taxes
|
|
|
8.7 |
|
|
|
73.9 |
|
|
|
(16.9 |
) |
| |
|
|
Working capital changes
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Notes and accounts receivable
|
|
|
(36.1 |
) |
|
|
6.6 |
|
|
|
9.7 |
|
| |
|
|
|
Inventories
|
|
|
(1.1 |
) |
|
|
22.3 |
|
|
|
36.4 |
|
| |
|
|
|
Other current assets
|
|
|
3.0 |
|
|
|
13.9 |
|
|
|
2.4 |
|
| |
|
|
|
Trade accounts payable
|
|
|
9.3 |
|
|
|
(6.1 |
) |
|
|
6.9 |
|
| |
|
|
|
Other current liabilities
|
|
|
(30.4 |
) |
|
|
(31.3 |
) |
|
|
(10.9 |
) |
| |
|
|
Decrease (increase) in other noncurrent assets
|
|
|
3.0 |
|
|
|
(.6 |
) |
|
|
(7.0 |
) |
| |
|
|
Decrease in long-term accrued liabilities
|
|
|
(1.9 |
) |
|
|
(2.7 |
) |
|
|
(4.2 |
) |
| |
|
|
Other — net
|
|
|
.4 |
|
|
|
1.5 |
|
|
|
.3 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided (used) by operating activities
|
|
|
(41.7 |
) |
|
|
10.0 |
|
|
|
35.9 |
|
| |
Investing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Capital expenditures
|
|
|
(8.8 |
) |
|
|
(6.5 |
) |
|
|
(6.2 |
) |
| |
|
Net disposals of property, plant and equipment
|
|
|
.6 |
|
|
|
2.5 |
|
|
|
7.5 |
|
| |
|
Divestitures
|
|
|
8.0 |
|
|
|
(20.3 |
) |
|
|
303.9 |
|
| |
|
Acquisitions
|
|
|
— |
|
|
|
(6.5 |
) |
|
|
(4.3 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided (used) by investing activities
|
|
|
(.2 |
) |
|
|
(30.8 |
) |
|
|
300.9 |
|
| |
Financing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Issuance of long-term debt
|
|
|
219.8 |
|
|
|
— |
|
|
|
11.5 |
|
| |
|
Repayments of long-term debt
|
|
|
(261.5 |
) |
|
|
(2.2 |
) |
|
|
(1.3 |
) |
| |
|
Increase (decrease) in short-term borrowings
|
|
|
68.5 |
|
|
|
(2.6 |
) |
|
|
(311.6 |
) |
| |
|
Issuance of common shares
|
|
|
25.2 |
|
|
|
— |
|
|
|
.4 |
|
| |
|
Debt issuance costs
|
|
|
(27.8 |
) |
|
|
— |
|
|
|
— |
|
| |
|
Dividends paid
|
|
|
(3.3 |
) |
|
|
(.8 |
) |
|
|
(1.6 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided (used) by financing activities
|
|
|
20.9 |
|
|
|
(5.6 |
) |
|
|
(302.6 |
) |
|
Effect of exchange rate fluctuations on cash and cash
equivalents
|
|
|
1.6 |
|
|
|
8.8 |
|
|
|
5.6 |
|
|
Cash flows related to discontinued operations
|
|
|
(4.2 |
) |
|
|
(11.9 |
) |
|
|
(7.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(23.6 |
) |
|
|
(29.5 |
) |
|
|
32.2 |
|
|
Cash and cash equivalents at beginning of year
|
|
|
92.8 |
|
|
|
122.3 |
|
|
|
90.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
69.2 |
|
|
$ |
92.8 |
|
|
$ |
122.3 |
|
| |
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
46
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
As discussed more fully below, in the fourth quarter of 2004,
the company elected to change its method of accounting for
certain U.S. inventories from the last-in, first-out
(LIFO) method to the first-in, first-out
(FIFO) method. The Consolidated Financial Statements for
all prior years have been restated to conform to the 2004
presentation.
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
The Consolidated Financial Statements include the accounts of
the company and its subsidiaries. All significant intercompany
transactions are eliminated.
|
|
|
Foreign Currency Translation |
Assets and liabilities of the company’s
non-U.S. operations are translated into U.S. dollars
at period-end exchange rates. Net exchange gains or losses
resulting from such translation are excluded from net earnings
and accumulated in a separate component of shareholders’
equity. Income and expense accounts are translated at
weighted-average exchange rates for the period. Gains and losses
from foreign currency transactions are included in other
expense-net in the Consolidated Statements of Operations and are
not material in any year presented.
The company recognizes revenue when products are shipped to
unaffiliated customers, legal title has passed, the sales price
is fixed and determinable, all significant contractual
obligations have been satisfied and the collectibility of the
sales price is reasonably assured. Revenues from services, which
are not significant, are recognized when earned.
Contracts for the sale of plastics processing machinery
typically include customer acceptance provisions, which are
satisfied prior to shipment or at the customer’s facility.
Revenue is recognized when all significant acceptance provisions
have been satisfied. Such contracts may also include multiple
elements, such as molds and downstream equipment for blow
molding systems and — in rare occasions —
installation of machinery. In the former case, revenue is
recognized when all elements have been delivered and all
applicable revenue recognition criteria have been satisfied.
Installation is typically not included in the sale price of
plastics processing machinery. To the extent that it is, it is
generally of a perfunctory nature and reserves for any related
costs are provided at the time revenue is recognized.
The company offers volume discounts and rebates to certain
customers, usually distributors, of its metalworking fluids
business. Discounts offered to distributors are based on the
number of gallons included in a particular order. Discounts and
rebates are applied as reductions of sales revenues.
Appropriate allowances for returns (which are not significant)
and post-sale warranty costs (see Summary of Significant
Accounting Policies — Warranty Reserves) are made at
the time revenue is recognized. The company continually
evaluates the creditworthiness of its customers and enters into
sales contracts only when collection of the sales price is
reasonably assured. For sales of plastics processing
47
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
machinery, customers are generally required to make substantial
down-payments prior to shipment which helps to ensure collection
of the full price.
Advertising costs are charged to expense as incurred. Excluding
amounts related to participation in trade shows, advertising
costs totaled $6.8 million in 2004, $5.4 million in
2003 and $4.8 million in 2002.
The company provides deferred income taxes for cumulative
temporary differences between the financial reporting basis and
income tax basis of its assets and liabilities. Provisions are
made for all currently payable federal and state and local
income taxes at applicable tax rates. Provisions are also made
for any additional taxes on anticipated distributions from
non-U.S. subsidiaries.
|
|
|
Earnings Per Common Share |
Basic earnings per common share data are based on the
weighted-average number of common shares outstanding during the
respective periods. Diluted earnings per common share data are
based on the weighted-average number of common shares
outstanding adjusted to include the effects of potentially
dilutive stock options and certain restricted shares.
The number of shares used to compute earnings (loss) per common
share data for all years prior to 2004 has been restated to
reflect the effects of a bonus element inherent in the rights
offering that was completed in the fourth quarter of 2004 (see
Earnings Per Common Share and Shareholders’ Equity).
|
|
|
Cash and Cash Equivalents |
The company considers all highly liquid investments with a
maturity of three months or less, including invested amounts
received as a result of the rights offering, to be cash
equivalents.
Inventories are stated at the lower of cost or market, including
provisions for obsolescence commensurate with known or estimated
exposures. The principal methods of determining costs are
average or standard costs, which approximate first-in, first-out
(FIFO). As discussed more fully below (see Summary of
Significant Accounting Policies — Changes in Methods
of Accounting), certain U.S. inventories were accounted for
on the last-in, first-out (LIFO) method in years prior to
2004.
|
|
|
Property, Plant and Equipment |
Property, plant and equipment, including amounts related to
capital leases, are stated at cost or, for assets acquired
through business combinations, at fair value at the dates of the
respective acquisitions. For financial reporting purposes,
depreciation is generally determined on the straight-line method
using estimated useful lives of the assets. Depreciation expense
related to continuing operations was $18.9 million,
$20.3 million and $22.0 million for 2004, 2003 and
2002, respectively.
48
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The ranges of depreciation lives that are used for most assets
are as follows:
| |
|
|
|
|
| |
|
Range of | |
| Asset |
|
Depreciation Life | |
| |
|
| |
|
Buildings (new)
|
|
|
25 – 45 years |
|
|
Buildings (used)
|
|
|
20 – 30 years |
|
|
Land improvements
|
|
|
10 – 20 years |
|
|
Building components
|
|
|
5 – 45 years |
|
|
Factory machinery
|
|
|
6 – 12 years |
|
|
Vehicles
|
|
|
3 – 6 years |
|
|
Office furniture and fixtures
|
|
|
5 – 10 years |
|
|
Computers
|
|
|
3 – 5 years |
|
|
Personal computers
|
|
|
3 years |
|
Property, plant and equipment that are idle and held for sale
are valued at the lower of historical cost less accumulated
depreciation or at fair value less cost to sell. Carrying costs
through the expected disposal dates of such assets are accrued
at the time expected losses are recognized. For assets expected
to be sold at a gain, carrying costs are charged to expense as
incurred.
Goodwill, which represents the excess of acquisition cost over
the fair value of net assets acquired in business combinations,
is reviewed annually for impairment. The company has elected to
conduct its annual impairment reviews as of October 1 of
each year and base its assessments of possible impairment on the
discounted present value of the operating cash flows of its
various reporting units. (see Summary of Significant Accounting
Policies — Change in Method of Accounting and Goodwill
Impairment Charge). The company has identified nine reporting
units for purposes of testing goodwill for impairment.
The company evaluates its long-lived assets, including certain
intangible assets, for impairment annually or when facts and
circumstances suggest that the carrying amounts of these assets
might not be recoverable.
The company maintains warranty reserves intended to cover future
costs associated with its warranty obligations. These reserves
are based on estimates of the amounts of those costs. Warranty
costs are of two types — normal and extraordinary.
Normal warranty costs represent repair costs incurred in the
ordinary course of business and reserves are calculated using a
percentage of sales approach consistent with past experience.
Extraordinary warranty costs are unique major problems
associated with a single machine, customer order, or a set of
problems related to a large number of machines. Extraordinary
warranty reserves are estimated based on specific facts and
circumstances. The company’s policy is to adjust its
warranty reserves quarterly.
Through its wholly owned insurance subsidiary, Milacron
Assurance Ltd. (MAL), the company is primarily self-insured for
many types of risks, including general liability, product
liability, environmental claims and worker’s compensation
for certain domestic employees. MAL, which is fully consolidated
in the Consolidated Financial Statements and subject to the
insurance laws and regulations of Bermuda, establishes reserves
for known or estimated exposures under the policies it issues to
the company. MAL’s exposure for
49
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
general and product liability claims is limited by reinsurance
coverage in some cases and by excess liability coverage in all
policy years. Worker’s compensation claims in excess of
certain limits are insured with commercial carriers.
MAL’s reserves are established based on known claims,
including those arising from litigation, and estimates of the
ultimate exposures thereunder (after consideration of expected
recoveries from excess liability carriers and claims against
third parties) and on estimates of the cost of incurred but not
reported claims. Expected recoveries represent the excess of
total reserves for known exposures and incurred but not reported
claims over the limits on the policies MAL issues to the
company. For certain types of exposures, MAL and the company
utilize actuarially calculated estimates prepared by outside
consultants to ensure the adequacy of the reserves. Reserves are
reviewed and adjusted at least quarterly based on all available
information as of the respective balance sheet dates or as
further information becomes available or circumstances change.
MAL’s reserves are included in accrued and other current
liabilities and long-term accrued liabilities in the
Consolidated Balance Sheets. Expected recoveries from excess
carriers are included in other current assets and other
noncurrent assets.
The company maintains various defined benefit and defined
contribution pension plans covering substantially all
U.S. employees and certain non-U.S. employees. For
defined benefit plans, pension benefits are based primarily on
length of service and compensation. The company’s policy is
to fund the plans in accordance with applicable laws and
regulations. The company also sponsors a defined benefit
postretirement health care plan under which such benefits are
provided to certain U.S. employees.
The benefit obligations related to defined benefit pension plans
and the postretirement health care plan are actuarially valued
as of January 1 of each year. The amounts so determined are then
progressed to year end based on known or expected changes. The
assets of the funded defined benefit pension plan for certain
U.S. employees are valued as of December 31 of each
year.
50
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The company currently accounts for stock-based compensation,
including stock options, under the provisions of Accounting
Principles Board Opinion No. 25, “Accounting for Stock
Issued to Employees,” and the related interpretations.
Because all stock options outstanding under the company’s
1997 and 2004 Long-Term Incentive Plans and a predecessor plan
have exercise prices equal to the fair market value of the
underlying common shares at the respective grant dates, no
compensation expense is recognized in earnings. The following
table illustrates on a pro forma basis the effect on net loss
and net loss per common share if the stock options granted from
1995 through 2004 had been accounted for based on their fair
values as determined under the provisions of Statement of
Financial Accounting Standards No. 123, “Accounting
for Stock-Based Compensation.”
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except | |
| |
|
per-share amounts) | |
|
Net loss as reported
|
|
$ |
(51.8 |
) |
|
$ |
(190.9 |
) |
|
$ |
(223.2 |
) |
|
Effect on reported loss of accounting for stock options at fair
value
|
|
|
(1.2 |
) |
|
|
(1.1 |
) |
|
|
(2.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$ |
(53.0 |
) |
|
$ |
(192.0 |
) |
|
$ |
(225.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Loss per common share — basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
(1.34 |
) |
|
$ |
(5.21 |
) |
|
$ |
(6.13 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Pro forma
|
|
$ |
(1.37 |
) |
|
$ |
(5.24 |
) |
|
$ |
(6.19 |
) |
| |
|
|
|
|
|
|
|
|
|
The conversion of $30.0 million of Series A Notes into
15.0 million common shares on April 15, 2004 (see
Refinancing Transactions) resulted in a change in control under
the provisions of the 1997 Long-Term Incentive Plan which
triggered the early vesting of all outstanding stock options.
Accordingly, the pro forma net loss amount for 2004 includes a
charge of $.7 million in excess of the amount that would
otherwise have been reported to recognize all remaining
compensation expense related to these stock options.
As discussed more fully below, a newly issued accounting
standard will require the company to include expense related to
stock options in the Consolidated Financial Statements beginning
in the third quarter of 2005 rather than reporting it on a pro
forma basis as in the past.
Additional information regarding stock options and expense
related to restricted shares granted under the 1997 and 2004
Long-Term Incentive Plans is included in the note captioned
“Stock-Based Compensation.”
|
|
|
Derivative Financial Instruments |
The company enters into foreign currency forward exchange
contracts, which are a type of derivative financial instrument,
on an ongoing basis commensurate with known or expected
exposures. The purpose of this practice is to minimize the
potentially adverse effects of foreign currency exchange rate
fluctuations on the company’s operating results. These
contracts are typically designated as cash flow hedges with any
gains or losses resulting from changes in their fair value being
recorded as a component of other comprehensive loss pending
completion of the transactions being hedged.
On July 30, 2004, the company entered into an interest rate
swap, a form of derivative financial instrument, for the purpose
of achieving a better balance between fixed- and floating rate
debt. The amounts paid or received under this arrangement are
recorded as adjustments of interest expense. Changes in the fair
value of the arrangement are also applied as adjustments of
interest expense.
51
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The company does not currently hold other types of derivative
financial instruments and does not engage in speculation.
|
|
|
Changes in Methods of Accounting |
In the fourth quarter of 2004, the company elected to change its
method of accounting for certain U.S. plastics machinery
inventories from the last-in, first-out (LIFO) method to
the first-in, first-out (FIFO) method, retroactive to the
beginning of the year. The Consolidated Financial Statements for
all prior years have been restated to conform to the 2004
presentation. The effect of the restatement was to decrease the
net loss for 2003 by $.8 million, or $.02 per share,
increase the net loss for 2002 by $.3 million, or
$.01 per share, and decrease the accumulated deficit as of
December 31, 2003 by $10.3 million.
The company believes that the FIFO method is preferable because
it results in a more meaningful and understandable presentation
of financial position to users of the company’s financial
statements. The change also conforms the accounting for all of
the company’s inventories to a single method, which is also
used by a large number of its competitors. Moreover, cost
increases have not been significant in recent years and
significant cost increases are not expected in the future. The
FIFO method also results in improved reporting of operating cash
flows by eliminating the non-cash effects of the LIFO method and
will result in improved interim financial reporting by
eliminating the need to estimate the effects of the LIFO method.
Effective January 1, 2002, the company adopted Statement of
Financial Accounting Standards No. 142, “Goodwill and
Other Intangible Assets.” As required by this standard,
during 2002 the company completed the transitional reviews of
recorded goodwill balances as of January 1, 2002. These
transitional reviews resulted in a pretax goodwill impairment
charge of $247.5 million ($187.7 million after tax or
$5.15 per share) that was recorded as the cumulative effect
of a change in method of accounting as of January 1, 2002.
Approximately 75% of the pretax charge related to the
company’s blow molding machinery and round metalcutting
tools businesses, the latter of which was sold in 2003.
|
|
|
Recently Issued Pronouncements |
In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123
(Revised 2004), “Share-Based Payment”
(SFAS No. 123R). Among other things, this standard
requires that expense related to stock options be included in a
company’s primary financial statements over the vesting
periods based on their fair values as of the grant dates. The
company will comply with SFAS No. 123R beginning in
the third quarter of 2005 but, because there are currently only
14,000 stock options that are not fully vested, the effect of
doing so is not currently expected to be material. The company
will use the “modified-prospective” transition method
and prior years’ financial statements will therefore not be
restated. The company is evaluating the other provisions of
SFAS No. 123R but currently does not expect their
effects to be significant.
Discontinued Operations
In 2002, the company announced a strategy of focusing its
capital and resources on building its position as a premier
supplier of plastics processing technologies and strengthening
its worldwide industrial fluids business. In connection with
this strategy, during 2002 the company sold two businesses that
were included in its former metalworking technologies segment
and initiated efforts to seek strategic alternatives for two
other businesses of the segment.
On August 9, 2002, the company completed the sale of its
Valenite metalcutting tools business to Sandvik AB for
$175 million in cash. After deducting post-closing
adjustments that were paid in 2003, transaction costs and
sale-related expenses, the net cash proceeds from the sale were
approximately $145 million, a majority of which was used to
repay bank borrowings. The company recorded an after-tax gain
52
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
on the sale of $31.3 million in 2002 that was subsequently
adjusted to $31.7 million in 2003 and to $31.3 million
in 2004.
On August 30, 2002, the company completed the sale of its
Widia and Werkö metalcutting tools businesses to
Kennametal, Inc.
for €188 million
in cash (approximately $185 million), subject to
post-closing adjustments. In a separate but contingent
transaction, the company purchased an additional 26% of the
shares of Widia India, thereby increasing its ownership interest
from 51% to 77%. The entire 77% of the Widia India shares was
included in the sale transaction. After deducting post-closing
adjustments that were paid in 2003, transaction costs and the
cost to increase the company’s ownership interest in Widia
India, the ultimate net cash proceeds from the sale were
approximately $135 million, most of which was used to repay
bank borrowings. The sale resulted in a 2002 after-tax loss of
$14.9 million that was subsequently adjusted to
$14.0 million in 2003 and to $13.5 million in 2004.
Approximately $7 million of the loss resulted from the
recognition of the cumulative foreign currency translation
adjustments that had been recorded in accumulated other
comprehensive loss since the acquisition of Widia in 1995.
During the third quarter of 2002, the company retained advisors
to explore strategic alternatives for its round metalcutting
tools and grinding wheels businesses and in the fourth quarter
of that year, initiated plans for their sale. The disposition of
the round metalcutting tools business was completed in the third
quarter of 2003 in two separate transactions. In 2002, the
company had recorded an estimated loss on the sale of this
business of $4.7 million which was increased to
$6.9 million in 2003 based on the actual sale proceeds and
transaction-related expenses. The loss was further adjusted to
$7.4 million in 2004. The sale of the grinding wheels
business was completed in the second quarter of 2004. The
company had previously recorded an estimated loss of
$4.2 million on the disposition of this business which was
adjusted to $3.6 million in 2004 to reflect the actual sale
proceeds and sale-related costs.
All of the businesses discussed above are reported as
discontinued operations and the Consolidated Financial
Statements for all prior periods have been adjusted to reflect
this presentation. Operating results for all of the businesses
included in discontinued operations are presented in the
following table.
|
|
|
Loss From Discontinued Operations |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Sales
|
|
$ |
9.6 |
|
|
$ |
51.6 |
|
|
$ |
325.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating loss including restructuring costs
|
|
|
(1.2 |
) |
|
|
(5.1 |
) |
|
|
(26.8 |
) |
|
Allocated interest expense
|
|
|
(.1 |
) |
|
|
(1.3 |
) |
|
|
(10.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and minority shareholders’
interests
|
|
|
(1.3 |
) |
|
|
(6.4 |
) |
|
|
(37.7 |
) |
|
Benefit for income taxes
|
|
|
— |
|
|
|
— |
|
|
|
(10.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Loss before minority shareholders’ interests
|
|
|
(1.3 |
) |
|
|
(6.4 |
) |
|
|
(27.3 |
) |
|
Minority shareholders’ interests
|
|
|
— |
|
|
|
— |
|
|
|
(2.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$ |
(1.3 |
) |
|
$ |
(6.4 |
) |
|
$ |
(25.2 |
) |
| |
|
|
|
|
|
|
|
|
|
As reflected in the preceding table, allocated interest expense
includes interest on debt assumed by the respective buyers,
interest on borrowings that were required to be repaid using a
portion of the proceeds from the Widia and Werkö
transaction and the Valenite transaction, interest on borrowings
secured by assets of the businesses sold and an allocated
portion of other consolidated interest expense based on the
ratio of net assets sold or to be sold to consolidated assets.
53
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As presented in the Consolidated Statements of Operations, the
line captioned “Net gain (loss) on divestitures”
includes the following components.
|
|
|
Gain (Loss) on Divestiture of Discontinued
Operations |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Gain on sale of Valenite
|
|
$ |
(.4 |
) |
|
$ |
.4 |
|
|
$ |
31.3 |
|
|
Loss on sale of Widia and Werkö
|
|
|
.5 |
|
|
|
.9 |
|
|
|
(14.9 |
) |
|
Loss on sale of round metalcutting tools business
|
|
|
(.5 |
) |
|
|
(2.2 |
) |
|
|
(4.7 |
) |
|
Loss on sale of grinding wheels business
|
|
|
.6 |
|
|
|
1.0 |
|
|
|
(5.2 |
) |
|
Adjustment of reserves for the 1998 divestiture of the machine
tools segment
|
|
|
.6 |
|
|
|
(.9 |
) |
|
|
1.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on divestitures
|
|
$ |
.8 |
|
|
$ |
(.8 |
) |
|
$ |
8.4 |
|
| |
|
|
|
|
|
|
|
|
|
The major classes of assets and liabilities of discontinued
operations in the Consolidated Balance Sheet as of
December 31, 2003 are as follows:
|
|
|
Assets and Liabilities of Discontinued Operations |
| |
|
|
|
|
|
| |
|
2003 | |
| |
|
| |
| |
|
(In millions) | |
|
Notes and accounts receivable
|
|
$ |
.4 |
|
|
Inventories
|
|
|
4.1 |
|
|
Other current assets
|
|
|
.2 |
|
|
Property, plant and equipment-net
|
|
|
2.5 |
|
| |
|
|
|
| |
Total assets
|
|
|
7.2 |
|
|
Trade accounts payable
|
|
|
1.1 |
|
|
Other current liabilities
|
|
|
.5 |
|
|
Long-term accrued liabilities
|
|
|
.2 |
|
| |
|
|
|
| |
Total liabilities
|
|
|
1.8 |
|
| |
|
|
|
|
Net assets
|
|
$ |
5.4 |
|
| |
|
|
|
Goodwill Impairment Charge
In 2003, the company recorded a goodwill impairment charge of
$65.6 million (with no tax benefit) to adjust the carrying
value of the goodwill of two businesses included in the mold
technologies segment. The charge resulted from a downward
adjustment of the future cash flows expected to be generated by
these businesses due to the delay in the general economic
recovery both in North America and Europe. The largest decrease
in cash flow expectations related to the company’s European
mold base and components business due to continued weakness in
the markets it serves.
In 2002, the company recorded an impairment charge of
$1.0 million (with no tax benefit) related to a small
business unit included in the mold technologies segment.
The amounts of the charges recorded in 2003 and 2002 were
determined based on a comparison of the present value of
expected future cash flows to the historical carrying values of
the businesses’ assets (including goodwill) and liabilities.
54
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Restructuring Costs
In 2001, the company’s management formally approved plans
to consolidate certain manufacturing operations and reduce its
cost structure. Implementation of these plans resulted in pretax
charges to earnings from continuing operations of
$17.8 million. Of the total cost of the plans,
$14.1 million was recorded in 2001 and an additional
$3.7 million was charged to expense in continuing
operations during 2002. The 2001 plans involved the closure of
four manufacturing facilities in North America and the
elimination of several sales and administrative locations
worldwide. The consolidations and overhead reductions resulted
in the elimination of approximately 450 manufacturing and
administrative positions within the company’s continuing
operations, principally in the U.S. and Europe. The cash cost of
implementing the plans related to continuing operations was
$12.5 million, of which, $5.8 million was spent in
2001, $5.4 million in 2002 and $1.3 million in 2003.
The non-cash cost related principally to supplemental retirement
benefits, inventory adjustments and asset write-downs to
expected realizable values.
During 2001, the company’s management also approved a plan
to integrate the operations of EOC and Reform, two businesses
acquired earlier in that year, with the company’s existing
European mold base and components business. These businesses are
included in the mold technologies segment. As approved by
management, the plan involved the consolidation of the
manufacturing operations of five facilities located in Germany
and Belgium into three facilities, the reorganization of
warehousing and distribution activities in Europe, and the
elimination of approximately 230 manufacturing and
administrative positions. The total cost of the integration was
$11.3 million, of which $1.2 million was included in
reserves for employee termination benefits and facility exit
costs that were established in the allocations of the EOC and
Reform acquisition costs. The remaining $10.1 million was
charged to expense, including $3.4 million in 2001,
$4.6 million in 2002, $1.8 million 2003 and
$.3 million in 2004. The amount for 2004 represents a
fourth quarter charge to further adjust the carrying value of
one of the closed facilities based on revised estimates of its
expected selling price. Of the total cost of the plan,
$4.4 million related to employee termination benefits,
$2.8 million to facility exit costs and $4.1 million
to other costs, including $3.1 million to relocate
employees, inventory and machinery and equipment. The total cash
cost of the integration will be $9.4 million, of which
$1.1 million was spent in 2001, $7.8 million in 2002
and $.2 million in 2003. An additional $.2 million was
spent in 2004 and $.1 million is expected to be spent in
2005. The non-cash costs of the integration related principally
to the previously discussed facility write-down in 2004 and a
similar adjustment that was recorded in 2003.
In 2002, the company’s management 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 disposition of Widia,
Werkö and Valenite. These actions resulted in 2002
restructuring expense of $1.3 million and cash costs of
$.3 million in 2002 and $.2 million in 2003.
In November 2002, the company announced additional restructuring
initiatives intended to improve operating efficiency and
customer service. The first action involved the transfer of all
manufacturing of container blow molding machines and structural
foam systems from the plant in Manchester, Michigan to the
company’s more modern and efficient facility near
Cincinnati, Ohio. The mold making operation has also been moved
to a smaller location near Manchester. These operations are
included in the machinery technologies — North America
segment. The relocations, which involved the elimination of 40
positions, are resulting in restructuring costs of
$13.3 million, including $3.3 million in 2002,
$4.0 million in 2003 and $5.5 million in 2004. The
amount for 2004 includes costs to complete the move of the mold
making operation and a fourth quarter charge of
$3.6 million to reduce the carrying value of the Manchester
facility to its expected realizable value based on revised
estimates of its current market value. An additional
$.5 million is expected to be charged to expense in 2005.
Of the total cost of $13.3 million, $1.5 million
relates to employee severance costs, $5.9 million to
facility exit costs (including adjustments to the carrying
values of the Manchester building and other assets to be
disposed of), $1.9 million to inventory adjustments related
to discontinued product lines and $4.0 million to other
move-related costs, including employee, inventory and machinery
and equipment
55
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
relocation. The cash cost of the relocations will be
approximately $6.0 million, including $1.7 million for
severance and other termination benefits, $.4 million for
plant clean-up costs and $3.9 million for other costs,
principally to relocate inventory and machinery and equipment.
The non-cash cost of $7.3 million relates principally to
the previously mentioned adjustments related to inventories of
discontinued product lines and assets to be disposed of as a
result of the plant closure.
In November 2002, the company also announced that the
manufacturing of special mold bases for injection molding at the
mold technologies segment’s Monterey Park, California plant
would be phased out and transferred to various other locations
in North America. The closure of the facility resulted in the
elimination of 12 positions and restructuring costs of
$1.4 million, including $.9 million in 2002 and
$.5 million in 2003. The total cost includes
$.1 million for employee termination costs,
$.5 million to adjust the carrying values of assets to be
sold and other plant closure costs and $.8 million for the
relocation of equipment and other moving costs. The net cash
cost of the closure was $.2 million, which is net of
$1.5 million of proceeds from the sale of the facility. The
non-cash costs were not significant.
Early in 2003, the company initiated a plan for the further
restructuring of its European blow molding machinery operations
at a cost of $4.0 million. The restructuring involved the
discontinuation of the manufacture of certain product lines at
the plant in Magenta, Italy, which is included in the machinery
technologies — Europe segment, and the elimination of
approximately 35 positions. The $4.0 million cost of the
restructuring included $3.3 million to adjust the carrying
values of inventories for the discontinued product lines to
expected realizable values and $.7 million for severance
and other termination benefits. The cash cost of the
restructuring was $.9 million based on exchange rates in
effect when the termination benefits were actually paid. The
non-cash cost related almost entirely to the inventory
adjustments discussed above.
In 2003, the company initiated a plan to close the mold
technology segment’s special mold base machining operation
in Mahlberg, Germany and relocate a portion of its manufacturing
to another location. Certain other production was outsourced.
The closure resulted in restructuring costs of $7.0 million
and the elimination of approximately 65 positions. The
total cost included $4.1 million to adjust the recorded
values of the facility and certain other assets to expected
realizable values, $2.4 million for severance and other
termination benefits, $.3 million to relocate manufacturing
equipment and $.2 million for plant clean-up and other
costs. Of the total cost of the closure, $5.7 million was
recorded in 2003. An additional $1.3 million was charged to
expense in 2004, principally to further adjust the carrying
value of the facility to its expected realizable value. The cash
cost of this initiative was $2.7 million, of which
$2.2 million related to severance-related costs. The
non-cash cost of $4.3 million related principally to the
write-down of the facility to expected realizable value.
In 2003, the company announced additional restructuring
initiatives that focus on further overhead cost reductions in
each of its plastics technologies segments and at the corporate
office. These actions, which involve the relocation of
production and warehousing (including the closure of one small
facility and the downsizing of two other facilities), closures
of sales offices, voluntary early retirement programs and
general overhead reductions, are expected to result in the
elimination of approximately 300 positions worldwide. A total of
$11.2 million was charged to expense in 2003 in connection
with these initiatives and an additional $.6 million was
expensed in 2004 to substantially complete them. Of the total
cost of $11.8 million, $3.7 million relates to the
machinery technologies — North America segment,
$2.7 million to the machinery technologies —
Europe segment and $5.0 million to the mold technologies
segment. The total cost of the 2003 actions includes
$3.2 million for supplemental early retirement benefits
that will be paid through the company’s defined benefit
pension plan for U.S. employees, $6.8 million for
severance and other termination benefits for certain other
employees, $.6 million for facility exit costs and
$1.2 million for moving expenses. The supplemental early
retirement benefits will have the effect of increasing the
amount of the company’s funding requirements in future
years. The cash costs of the initiatives — including
$7.0 million for severance and other termination benefits,
$.5 million for lease termination and other facility exit
costs and $.9 million for
56
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
other costs will be $8.4 million. Of this amount,
$3.5 million was spent in 2003 and another
$4.7 million was spent in 2004. The non-cash cost of the
2003 initiatives was $3.4 million and related principally
to early retirement benefits to be funded through the pension
plan as discussed above.
In the second quarter of 2004, the company initiated additional
actions to further enhance customer service while reducing the
overhead cost structure of its machinery
technologies — North America segment. These overhead
reductions resulted in restructuring expense of
$1.1 million in 2004. Termination benefits accounted for
$.9 of this amount while facility exit costs represented a
substantial majority of the remaining $.2 million. An
additional $.5 million is expected to be charged to expense
in 2005 in connection with these actions. Total cash costs are
expected to be approximately $1.4 million, of which
$.8 million was spent in 2004. The remainder will be spent
in 2005. The cash costs include $.9 million for severance
and $.4 million for facility exit and moving costs. These
actions are resulting in the elimination of 63 positions, a
majority of which occurred during 2004.
In the third quarter of 2004, the company elected to discontinue
the sale of certain blow molding systems in North America. This
decision resulted in a charge in that quarter of
$1.7 million to adjust the carrying values of the inventory
to estimated realizable values. The amount of the charge was
adjusted to $1.4 million in the fourth quarter due to
higher than expected liquidation proceeds.
In the fourth quarter of 2004, the company initiated a plan to
reduce employment levels at a mold technologies facility in
Germany due to sluggish demand in Europe. The plan will result
in the elimination of approximately 25 positions at a cost of
$1.1 million, all of which was charged to expense in 2004.
In addition, certain surplus assets were written down to
estimated realizable value through non-cash charges totaling
$1.1 million. The cash costs, principally for severance
benefits, will be approximately $1.1 million. Of this
amount, $.6 million was spent in 2004. The remainder will
be spent in 2005.
In the fourth quarter of 2004, the company initiated additional
headcount reductions in its European mold base and components
business that resulted in expense of $.6 million. These
reductions represent a continuation of the actions initiated in
the third and fourth quarters of 2003 (as discussed above) and
were undertaken due to continued slow economic conditions in
Europe.
57
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table presents the components of the line
captioned “Restructuring costs” in the Consolidated
Statements of Operations for the years 2004, 2003 and 2002.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Accruals for restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Termination benefits
|
|
$ |
2.5 |
|
|
$ |
8.7 |
|
|
$ |
2.0 |
|
| |
Facility exit costs
|
|
|
.2 |
|
|
|
.4 |
|
|
|
.9 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total accruals
|
|
|
2.7 |
|
|
|
9.1 |
|
|
|
2.9 |
|
|
Supplemental retirement benefits
|
|
|
— |
|
|
|
3.2 |
|
|
|
2.9 |
|
|
Adjustment of assets to realizable values(a)
|
|
|
6.3 |
|
|
|
4.1 |
|
|
|
.4 |
|
|
Other restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Costs charged to expense as incurred
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Inventory adjustments related to product line discontinuation
|
|
|
1.4 |
|
|
|
3.3 |
|
|
|
1.9 |
|
| |
|
Inventory and machinery relocation
|
|
|
1.2 |
|
|
|
1.5 |
|
|
|
.1 |
|
| |
|
Employee relocation and other move costs
|
|
|
— |
|
|
|
1.1 |
|
|
|
.1 |
|
| |
|
Severance and facility exist costs
|
|
|
.8 |
|
|
|
3.7 |
|
|
|
1.3 |
|
| |
|
Other
|
|
|
.5 |
|
|
|
1.1 |
|
|
|
.2 |
|
| |
Reserve adjustments
|
|
|
(.2 |
) |
|
|
(1.8 |
) |
|
|
(.5 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
12.7 |
|
|
|
25.3 |
|
|
|
9.3 |
|
|
Costs related to the EOC and Reform integration(a)
|
|
|
.3 |
|
|
|
1.8 |
|
|
|
4.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total restructuring costs
|
|
$ |
13.0 |
|
|
$ |
27.1 |
|
|
$ |
13.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In 2004, the amounts presented on these lines include
$6.2 million of non-cash charges recorded in the fourth
quarter to adjust the carrying values of idle plant and
equipment to expected realizable values. |
The amounts on the line captioned “Inventory adjustments
related to product line discontinuation” are included in
cost of products sold on the Consolidated Statements of
Operations.
As presented in the above table, the costs under the line
captioned “Costs charged to expense as incurred” do
not meet the conditions for accrual under U.S. generally
accepted accounting principles and are therefore expensed when
the related contractual liabilities are incurred. Accordingly,
no reserves related to these costs have been established.
58
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The status of the reserves for the initiatives discussed above
is summarized in the following tables. The amounts included
therein relate solely to continuing operations.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
| |
|
| |
| |
|
Beginning | |
|
|
|
Usage and | |
|
Ending | |
| |
|
Balance | |
|
Additions | |
|
Other | |
|
Balance | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
EOC and Reform integration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Termination benefits
|
|
$ |
1.3 |
|
|
$ |
— |
|
|
$ |
(.3 |
) |
|
$ |
1.0 |
|
| |
Facility exit costs
|
|
|
.3 |
|
|
|
— |
|
|
|
— |
|
|
|
.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1.6 |
|
|
|
— |
|
|
|
(.3 |
) |
|
|
1.3 |
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Termination benefits
|
|
|
4.5 |
|
|
|
2.5 |
|
|
|
(5.7 |
) |
|
|
1.3 |
|
| |
Facility exit costs
|
|
|
.4 |
|
|
|
.2 |
|
|
|
(.4 |
) |
|
|
.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
4.9 |
|
|
|
2.7 |
|
|
|
(6.1 |
) |
|
|
1.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reserves related to continuing operations
|
|
$ |
6.5 |
|
|
$ |
2.7 |
|
|
$ |
(6.4 |
) |
|
$ |
2.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2003 | |
| |
|
| |
| |
|
Beginning | |
|
|
|
Usage and | |
|
Ending | |
| |
|
Balance | |
|
Additions | |
|
Other | |
|
Balance | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
EOC and Reform integration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Termination benefits
|
|
$ |
1.7 |
|
|
$ |
— |
|
|
$ |
(.4 |
) |
|
$ |
1.3 |
|
| |
Facility exit costs
|
|
|
— |
|
|
|
.3 |
|
|
|
— |
|
|
|
.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
1.7 |
|
|
|
.3 |
|
|
|
(.4 |
) |
|
|
1.6 |
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Termination benefits
|
|
|
3.1 |
|
|
|
8.7 |
|
|
|
(7.3 |
) |
|
|
4.5 |
|
| |
Facility exit costs
|
|
|
.6 |
|
|
|
.4 |
|
|
|
(.6 |
) |
|
|
.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
3.7 |
|
|
|
9.1 |
|
|
|
(7.9 |
) |
|
|
4.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reserves related to continuing operations
|
|
$ |
5.4 |
|
|
$ |
9.4 |
|
|
$ |
(8.3 |
) |
|
$ |
6.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Approximately $1.6 million of the $2.8 million of
reserves related to restructuring actions is expected to be
utilized in 2005. A large majority of the remaining
$1.2 million represents supplemental retirement benefits
for certain employees in Europe that will be paid at a rate of
approximately $.1 million per year for the next several
years.
Refinancing Costs
During 2004, the company charged to expense $21.4 million
of refinancing costs, including $6.6 million incurred in
pursuing various alternatives to the March 12, 2004
refinancing of approximately $200 million in debt and other
obligations (see Refinancing Transactions). Other refinancing
costs in 2004 included (i) $6.2 million for the tender
offer premium for the
75/8%
Eurobonds due 2005 and the related expenses, (ii) a charge
of $2.6 million related to the early vesting of
1,090,310 shares of restricted stock as a result of a
change in control provision, (iii) charges of
$4.5 million for the write-off of the deferred financing
fees related to the credit facility entered into with Credit
Suisse First Boston on March 12, 2004 and subsequently
repaid on
59
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
June 10, 2004 and for other refinancing-related expenses
and (iv) a $1.5 million prepayment penalty for the
term loan included in the Credit Suisse First Boston facility.
In the third and fourth quarters of 2003, the company charged to
expense $1.8 million of costs incurred in that year in
pursuing alternatives to the 2004 refinancing transactions.
Acquisitions
In 2002, the company acquired the remaining 74% of the
outstanding shares of Ferromatik Milacron A/ S, which sells and
services Ferromatik injection molding machines in Denmark.
Ferromatik Milacron A/ S, which has annual sales of
approximately $4 million, was previously accounted for on
the equity method but is now fully consolidated beginning in
2002.
In 2003, the company purchased the remaining 51% of the shares
of Klockner Ferromatik AG, a Ferromatik sales office in
Switzerland with annual sales of approximately $6 million.
In addition, the company acquired the remaining 25% of 450500
Ontario Limited, a consolidated subsidiary that manufactures
components for molds used in injection molding.
All of the acquisitions were accounted for under the purchase
method and were financed through the use of available cash and
bank borrowings. The aggregate cost of the acquisitions,
including professional fees and other related costs, totaled
$1.1 million in 2003, and $.9 million in 2002. The
allocation of the aggregate cost of the acquisitions to the
assets acquired and liabilities assumed is presented in the
table that follows. The amounts for 2003 relate solely to
Klockner Ferromatik AG.
|
|
|
Allocation of Acquisition Cost |
| |
|
|
|
|
|
|
|
|
|
| |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Cash and cash equivalents
|
|
$ |
.4 |
|
|
$ |
— |
|
|
Accounts receivable
|
|
|
1.5 |
|
|
|
.4 |
|
|
Inventories
|
|
|
.3 |
|
|
|
.7 |
|
|
Other current assets
|
|
|
.1 |
|
|
|
— |
|
|
Property, plant and equipment
|
|
|
.2 |
|
|
|
.3 |
|
|
Goodwill
|
|
|
— |
|
|
|
.4 |
|
| |
|
|
|
|
|
|
| |
Total assets
|
|
|
2.5 |
|
|
|
1.8 |
|
|
Current liabilities
|
|
|
1.4 |
|
|
|
.8 |
|
|
Long-term debt
|
|
|
— |
|
|
|
.1 |
|
| |
|
|
|
|
|
|
| |
Total liabilities
|
|
|
1.4 |
|
|
|
.9 |
|
| |
|
|
|
|
|
|
|
Total acquisition cost
|
|
$ |
1.1 |
|
|
$ |
.9 |
|
| |
|
|
|
|
|
|
Unaudited pro forma sales and earnings information is not
presented because the amounts would not vary materially from the
comparable amounts reflected in the company’s historical
Consolidated Statements of Operations for either year.
60
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Research and Development
Charges to operations for the research and development
activities of continuing operations are summarized below.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Research and development
|
|
$ |
19.8 |
|
|
$ |
17.8 |
|
|
$ |
15.8 |
|
| |
|
|
|
|
|
|
|
|
|
Retirement Benefit Plans
Pension cost for all defined benefit plans is summarized in the
following table. For all years presented, the table includes
amounts for plans for certain employees in the U.S. and Germany.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Service cost (benefits earned during the period)
|
|
$ |
4.2 |
|
|
$ |
4.5 |
|
|
$ |
4.6 |
|
|
Interest cost on projected benefit obligation
|
|
|
33.8 |
|
|
|
33.4 |
|
|
|
34.5 |
|
|
Expected return on plan assets
|
|
|
(35.1 |
) |
|
|
(38.8 |
) |
|
|
(45.9 |
) |
|
Supplemental retirement benefits(a)
|
|
|
— |
|
|
|
3.2 |
|
|
|
4.7 |
|
|
Amortization of unrecognized prior service cost
|
|
|
.8 |
|
|
|
.8 |
|
|
|
.8 |
|
|
Amortization of unrecognized gains and losses
|
|
|
7.0 |
|
|
|
3.1 |
|
|
|
.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
Pension expense (income)
|
|
$ |
10.7 |
|
|
$ |
6.2 |
|
|
$ |
(.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In 2003, the entire amount is included in the line captioned
“Restructuring costs” in the Consolidated Statement of
Operations for that year. In 2002, $2.9 million is included
in restructuring costs and $1.8 million is included in
results of discontinued operations. |
The following table summarizes changes in the projected benefit
obligation for all defined benefit plans.
|
|
|
Projected Benefit Obligation |
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Balance at beginning of year
|
|
$ |
(537.3 |
) |
|
$ |
(527.2 |
) |
|
Service cost
|
|
|
(4.2 |
) |
|
|
(4.5 |
) |
|
Interest cost
|
|
|
(33.8 |
) |
|
|
(33.4 |
) |
|
Benefits paid
|
|
|
42.8 |
|
|
|
39.3 |
|
|
Actuarial gain (loss)
|
|
|
(6.1 |
) |
|
|
12.6 |
|
|
Merger of subsidiary plan
|
|
|
— |
|
|
|
(4.0 |
) |
|
Supplemental retirement benefits
|
|
|
— |
|
|
|
(3.2 |
) |
|
Changes in discount rates
|
|
|
(16.6 |
) |
|
|
(14.6 |
) |
|
Foreign currency translation adjustments
|
|
|
(1.1 |
) |
|
|
(2.3 |
) |
| |
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
(556.3 |
) |
|
$ |
(537.3 |
) |
| |
|
|
|
|
|
|
61
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes the changes in plan assets for
the funded U.S. plan. Consistent with customary practice in
Germany, the plan for employees in that country has not been
funded.
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Balance at beginning of year
|
|
$ |
370.9 |
|
|
$ |
342.7 |
|
|
Actual investment gain (loss)
|
|
|
44.0 |
|
|
|
61.4 |
|
|
Benefits and expenses paid
|
|
|
(40.3 |
) |
|
|
(37.0 |
) |
|
Contributions
|
|
|
4.2 |
|
|
|
— |
|
|
Merger of subsidiary plan
|
|
|
— |
|
|
|
3.8 |
|
| |
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
378.8 |
|
|
$ |
370.9 |
|
| |
|
|
|
|
|
|
The weighted allocations of plan assets at December 31,
2004 and 2003 are shown in the following table.
|
|
|
Allocation of Plan Assets |
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Equity securities
|
|
|
69 |
% |
|
|
65 |
% |
|
Debt securities
|
|
|
31 |
% |
|
|
34 |
% |
|
Cash and cash equivalents
|
|
|
— |
% |
|
|
1 |
% |
| |
|
|
|
|
|
|
| |
|
|
100 |
% |
|
|
100 |
% |
| |
|
|
|
|
|
|
At December 31, 2004 and 2003, common shares of the company
represented 3% and 4% of the plan’s equity securities.
These common shares had a market value of $11.8 million at
December 31, 2004 and $9.2 million at
December 31, 2003.
At December 31, 2004, the company’s target allocation
percentages for plan assets were approximately 60% to 65% equity
securities and 35% to 40% debt securities. The targets may be
adjusted periodically to reflect current market conditions and
trends as well as inflation levels, interest rates and the trend
thereof, and economic and monetary policy. The objective
underlying this allocation is to achieve a long-term rate of
return of inflation plus 6%. Under the current policy, the
investment in equity securities may not be less than 35% or more
than 80% of total assets. Investments in debt securities may not
be less than 20% or more than 65% of total assets.
The expected long-term rates of return on plan assets for
purposes of determining pension expense were 9.0% in 2004 and
2003 and 9.5% in 2002. The company will continue to use a 9.0%
rate in 2005. Expected rates of return are developed based on
the target allocation of debt and equity securities and on the
historical returns on these types of investments judgmentally
adjusted to reflect current expectations of future returns and
value-added expectations based on historical experience of the
plan’s investment managers. In evaluating future returns on
equity securities, the existing portfolio is stratified to
separately consider large and small capitalization investments
as well as international and other types of securities.
The company made cash contributions to the plan of
$4.2 million in 2004 and currently expects to make
contributions of approximately $2.5 million in 2005.
62
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table sets forth the funded status of the plans
for U.S. employees at year-end 2004 and 2003.
|
|
|
Funded Status at Year-End |
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Vested benefit obligation
|
|
$ |
(506.7 |
) |
|
$ |
(487.1 |
) |
| |
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$ |
(519.0 |
) |
|
$ |
(500.6 |
) |
| |
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$ |
(541.1 |
) |
|
$ |
(523.3 |
) |
|
Plan assets at fair value
|
|
|
378.8 |
|
|
|
370.9 |
|
| |
|
|
|
|
|
|
|
Deficiency of plan assets in relation to projected benefit
obligation
|
|
|
(162.3 |
) |
|
|
(152.4 |
) |
|
Unrecognized net loss
|
|
|
166.9 |
|
|
|
164.4 |
|
|
Unrecognized prior service cost
|
|
|
3.6 |
|
|
|
4.1 |
|
| |
|
|
|
|
|
|
|
Prepaid pension cost
|
|
$ |
8.2 |
|
|
$ |
16.1 |
|
| |
|
|
|
|
|
|
The presentation of the amounts included in the previous table
in the Consolidated Balance Sheets at December 31, 2004 and
December 31, 2003 is reflected in the following table.
|
|
|
Balance Sheet Presentation |
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Intangible asset
|
|
$ |
3.6 |
|
|
$ |
3.5 |
|
|
Accrued pension cost
|
|
|
(140.5 |
) |
|
|
(119.6 |
) |
|
Accumulated other comprehensive loss(a)
|
|
|
145.1 |
|
|
|
132.2 |
|
| |
|
|
|
|
|
|
| |
|
$ |
8.2 |
|
|
$ |
16.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the pretax amount of cumulative after-tax charges to
accumulated other comprehensive loss of $93.8 million in
2004 and $80.8 million in 2003. |
The intangible asset is included in other noncurrent assets in
the Consolidated Balance Sheets as of the respective dates.
Accrued pension cost is included in long-term accrued
liabilities.
The following table sets forth the status of the company’s
defined benefit pension plan for certain employees in Germany.
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Vested benefit obligation
|
|
$ |
(11.4 |
) |
|
$ |
(10.4 |
) |
| |
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$ |
(13.2 |
) |
|
$ |
(12.1 |
) |
| |
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$ |
(15.2 |
) |
|
$ |
(14.0 |
) |
|
Unrecognized net (gain) loss
|
|
|
(.6 |
) |
|
|
.3 |
|
| |
|
|
|
|
|
|
|
Accrued pension cost
|
|
$ |
(15.8 |
) |
|
$ |
(13.7 |
) |
| |
|
|
|
|
|
|
63
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table presents the weighted-average actuarial
assumptions used to determine pension income or expense for all
defined benefit plans in 2004, 2003 and 2002.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Discount rate
|
|
|
6.24 |
% |
|
|
6.49 |
% |
|
|
7.23 |
% |
|
Expected long-term rate of return on plan assets
|
|
|
9.00 |
% |
|
|
9.00 |
% |
|
|
9.50 |
% |
|
Rate of increase in future compensation levels
|
|
|
3.66 |
% |
|
|
2.41 |
% |
|
|
.73 |
% |
The following table presents the weighted-average actuarial
assumptions used to determine the projected benefit obligation
for all defined benefit plans at December 31, 2004 and
December 31, 2003.
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Discount rate
|
|
|
6.00 |
% |
|
|
6.24 |
% |
|
Rate of increase on future compensation levels
|
|
|
3.66 |
% |
|
|
3.69 |
% |
The following table presents future estimated benefit payments,
including the effects of future service, under all defined
benefit plans as of December 31, 2004.
| |
|
|
|
|
| |
|
(In millions) | |
|
2005
|
|
$ |
36.6 |
|
|
2006
|
|
|
36.1 |
|
|
2007
|
|
|
35.7 |
|
|
2008
|
|
|
35.6 |
|
|
2009
|
|
|
35.8 |
|
|
2010-2104
|
|
|
186.9 |
|
The company also maintains certain defined contribution and
401(k) plans. Participation in these plans is available to
certain U.S. employees. Costs included in continuing
operations for these plans were $1.1 million,
$1.6 million and $1.6 million in 2004, 2003 and 2002,
respectively.
In addition to pension benefits, the company also provides
varying levels of postretirement health care benefits to certain
U.S. employees. Substantially all such employees are
covered by the company’s principal plan, under which
benefits are provided to employees who retire from active
service after having attained age 55 and ten years of
service. The plan is contributory in nature. For employees
retiring prior to 1980, contributions are based on varying
percentages of the current per-contract cost of benefits, with
the company funding any excess over these amounts. For employees
retiring after 1979, the dollar amount of the company’s
current and future contributions is frozen.
64
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table presents the components of the
company’s postretirement health care cost under the
principal U.S. plan.
|
|
|
Postretirement Health Care Cost |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Service cost (benefits earned during the period)
|
|
$ |
.1 |
|
|
$ |
.1 |
|
|
$ |
.1 |
|
|
Interest cost on accumulated postretirement benefit obligation
|
|
|
1.4 |
|
|
|
1.5 |
|
|
|
1.7 |
|
|
Amortization of unrecognized gains
|
|
|
(.2 |
) |
|
|
(.3 |
) |
|
|
(.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Postretirement health care cost
|
|
$ |
1.3 |
|
|
$ |
1.3 |
|
|
$ |
1.4 |
|
| |
|
|
|
|
|
|
|
|
|
The following table summarizes changes in the accumulated
postretirement benefit obligation for the principal
U.S. plan.
|
|
|
Accumulated Postretirement Benefit Obligation |
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Balance at beginning of year
|
|
$ |
(23.2 |
) |
|
$ |
(24.9 |
) |
|
Service cost
|
|
|
(.1 |
) |
|
|
(.1 |
) |
|
Interest cost
|
|
|
(1.4 |
) |
|
|
(1.5 |
) |
|
Participant contributions
|
|
|
(5.7 |
) |
|
|
(5.0 |
) |
|
Benefits paid
|
|
|
8.4 |
|
|
|
7.9 |
|
|
Actuarial gain (loss)
|
|
|
(.4 |
) |
|
|
.8 |
|
|
Changes in discount rates
|
|
|
(.4 |
) |
|
|
(.4 |
) |
| |
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
(22.8 |
) |
|
$ |
(23.2 |
) |
| |
|
|
|
|
|
|
The following table presents the components of the
company’s liability for postretirement health care benefits
under the principal U.S. plan.
|
|
|
Accrued Postretirement Health Care Benefits |
| |
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Accumulated postretirement benefit obligation
|
|
|
|
|
|
|
|
|
| |
Retirees
|
|
$ |
(16.9 |
) |
|
$ |
(17.3 |
) |
| |
Fully eligible active participants
|
|
|
(1.6 |
) |
|
|
(1.7 |
) |
| |
Other active participants
|
|
|
(4.3 |
) |
|
|
(4.2 |
) |
| |
|
|
|
|
|
|
| |
|
|
(22.8 |
) |
|
|
(23.2 |
) |
|
Unrecognized net gain
|
|
|
(4.5 |
) |
|
|
(5.5 |
) |
| |
|
|
|
|
|
|
|
Accrued postretirement health care benefits
|
|
$ |
(27.3 |
) |
|
$ |
(28.7 |
) |
| |
|
|
|
|
|
|
65
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table presents the discount rates used to
calculate the accumulated postretirement benefit obligation at
December 31, 2004, December 31, 2003 and
December 31, 2002 and the rates used to calculate
postretirement health care cost for the years then ended.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Accumulated postretirement benefit obligation
|
|
|
6.00 |
% |
|
|
6.25 |
% |
|
|
6.50 |
% |
|
Postretirement health care cost
|
|
|
6.25 |
% |
|
|
6.50 |
% |
|
|
7.25 |
% |
For 2005, the assumed rate of increase in health care costs used
to calculate the accumulated postretirement benefit obligation
is 12.0%. This rate is assumed to decrease in varying degrees
annually to 5.0% for years after 2012. Because the dollar amount
of the company’s contributions for most employees is
frozen, a one percent change in each year in relation to the
above assumptions would not significantly change the accumulated
postretirement benefit obligation or the total cost of the plan.
The following table presents estimated future payments of
postretirement health care benefits as of December 31,
2004. The amounts presented therein are net of participant
contributions.
|
|
|
Postretirement Health Care Benefits |
| |
|
|
|
|
| |
|
(In millions) | |
|
2005
|
|
$ |
2.6 |
|
|
2006
|
|
|
2.5 |
|
|
2007
|
|
|
2.3 |
|
|
2008
|
|
|
2.2 |
|
|
2009
|
|
|
2.1 |
|
|
2010-2014
|
|
|
8.7 |
|
On December 8, 2003, the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the Act) was enacted.
Among other things, the Act created new federal subsidies
beginning in 2006 for employers that provide prescription drug
coverage for their retirees. However, the subsidies will only be
available to employers whose prescription drug coverage is
determined to be “actuarially equivalent” to Medicare
Part D. The principal postretirement health care plan for
certain U.S. employees provides prescription drug coverage
but due to the absence of definitive regulations for determining
actuarial equivalency, the company is currently unable to
determine the extent to which the subsidies will be available or
their potential effect on postretirement health care costs. The
company is evaluating its options regarding the Act, including
potential modifications to the plan. However, the amounts
presented in the preceding tables reflect no adjustments related
to the Act.
Income Taxes
At December 31, 2004, the company had non-U.S. net
operating loss carryforwards — principally in The
Netherlands, Germany and Italy — totaling
$193 million, of which $33 million will expire between
2007 and 2020. The remaining $160 million have no
expiration dates. Deferred tax assets related to the
non-U.S. loss carryforwards totaled $57 million at
December 31, 2004 and valuation allowances totaling
$51 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 and
Italy — to conclude that no valuation allowances are
required.
66
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
At December 31, 2004, the company had a U.S. federal
net operating loss carryforward of $113 million, of which
$17 million, $40 million and $56 million expire
in 2023, 2024 and 2025 respectively. Deferred tax assets related
to this loss carryforward, as well as to federal tax credit
carryforwards ($14 million) and additional state and local
loss carry forwards ($10 million), totaled
$64 million. Of the federal tax credit carryforwards,
$5 million expire between 2008 and 2014 and $9 million
have no expiration dates. Approximately 40% of the state and
local loss carryforwards will expire by 2010 and the remainder
will expire by 2019. At December 31, 2004, additional
deferred tax assets totaling approximately $107 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 deducted 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 its
ultimate expiration of the net operating loss carryforward
beyond 2025.
The conversion of the Series A Notes into common stock and
the exchange of such common stock and the Series B Notes
for Series B Preferred Stock on June 10, 2004
triggered an “ownership change” for U.S. federal
income tax purposes. (see Refinancing Transactions.) As a
consequence of this ownership change, the timing of the
company’s utilization of its U.S. tax loss
carryforwards and other tax attributes will be substantially
delayed. This delay will increase tax expense and decrease
available cash in future years. Although the amounts are
dependent on a number of future events and are therefore not
currently determinable, the company is completing its analysis
to determine the annual limitations applicable to the U.S. net
operating loss and tax credit carryforwards.
At December 31, 2002, management concluded that no
valuation allowances were currently required with respect to the
company’s U.S. deferred tax assets. This conclusion
was based on the availability of qualified tax planning
strategies and the expectation that increased industrial
production and capital spending in the U.S. plastics
industry combined with the significant reductions in the
company’s cost structure that had been achieved in recent
years, would result in improved operating results in relation to
the losses incurred in 2001 and 2002.
At June 30, 2003, however, management concluded that a
recovery in the plastics industry and the company’s return
to profitability in the U.S. would be delayed longer than
originally expected. As a result of these delays and the
incremental costs of the restructuring initiatives announced in
the third quarter of 2003 (see Restructuring Costs), the company
expected to incur a cumulative operating loss in the
U.S. for the three year period ending December 31,
2003. In such situations, U.S. generally accepted
accounting principles include a presumption that expectations of
earnings in the future cannot be considered in assessing the
need for valuation allowances. Accordingly, a tax provision of
approximately $71 million was recorded in the second
quarter of 2003 to establish valuation allowances with respect
to a portion of the company’s U.S. deferred tax assets
for which future income was previously assumed.
During the second half of 2003, U.S. deferred tax assets
increased by approximately $18 million due to continued
losses from operations and a goodwill impairment charge, the
effects of which were partially offset by taxable income related
to dividends from non-U.S. subsidiaries. Valuation
allowances were also increased by $18 million. Deferred tax
assets and valuation allowances were further increased
$15 million and $17 million, respectively, during
2004. As of December 31, 2004, U.S. deferred tax
assets net of deferred tax liabilities totaled $171 million
and U.S. valuation allowances totaled $106 million.
The company continues to rely on the availability of qualified
tax planning strategies to conclude that valuation allowances
are not required with respect to a portion of its U.S. deferred
tax assets. Tax planning strategies represent prudent and
feasible actions the company could take to create taxable income
to keep a tax attribute from expiring during the carryforward
period. Determinations of the amounts related to tax planning
strategies assume hypothetical transactions, some of which
involve the disposal of substantial business assets, and certain
variables that are judgmental and subjective. At
December 31, 2004, valuation allowances had not been
recorded with respect to
67
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
$65 million of U.S. deferred tax assets based on
qualified tax planning strategies of $61 million and tax
carrybacks of $4 million. Due to better market information
and refined estimates, the $61 million of tax planning
strategies at the end of 2004 represents a net $8 million
increase over the tax planning strategies at December 31,
2003 which resulted in a $8 million non-cash credit to the
provision for income taxes in 2004.
The company will continue to reassess its conclusions regarding
qualifying tax planning strategies and their effect on the
amount of valuation allowances that are required on a quarterly
basis. This could result in a further increase in income tax
expense and a corresponding decrease in shareholders’
equity in the period of the change.
In 2004, the company recorded a net U.S. tax benefit of
$9.7 million primarily related to a $7.8 million
increase in the value of its tax planning strategies and
benefits relating to a special ten year carryback of
$1.9 million. However, due to insufficient positive
evidence the company was precluded from recognizing a tax
benefit related to the remaining operating loss incurred for the
year. Certain of the company’s non-U.S. subsidiaries
lacked sufficient positive evidence to allow them to record any
tax benefits with respect to their losses for the year. However,
profitable non-U.S. operations, primarily in Holland,
Canada and India, recorded net income tax expense of
$4.3 million in 2004. Additional valuation allowances of
$2.8 million were recorded against deferred tax asset
balances in Italy, France and Denmark. In the aggregate, these
factors resulted in a 2004 tax benefit of $2.6 million on a
pretax loss of $53.9 million.
On October 22, 2004, the President signed the American Jobs
Creation Act of 2004 (the Act). The Act creates a temporary (one
tax year) incentive for U.S. corporations to repatriate
accumulated income earned abroad by providing an 85% dividend
received deduction for qualifying dividends from controlled
foreign corporations. The deduction is subject to numerous
requirements and limitations and uncertainty remains as to how
to interpret certain provisions of the Act. The provision is
elective and, for companies with a calendar year end, is
available only for the years 2004 or 2005.
The company does not intend to make an election for calendar
year 2004 and is still evaluating the merits of making the
election for the year 2005. The evaluation necessarily requires
an analysis of the company’s geographic liquidity needs and
the relative benefit of a repatriation that qualifies as
extraordinary under the Act. Also, the tax benefits derived from
this provision of the Act during 2005 would be delayed to a
future date due to the company’s net operating loss and tax
credit carryforwards. The decision whether or not to elect an
extraordinary dividend repatriation for the year 2005 should be
finalized by the second quarter of 2005. The amount of any
potential repatriation and the associated tax benefits have not
been determined at this time. Accordingly, it remains the
intention of the company to permanently reinvest earnings of its
foreign subsidiaries pending the completion of its analysis.
Additionally, the Act provides a deduction for income from
qualified domestic production activities, which will be phased
in from 2005 through 2010. In return, the Act also provides for
a two-year phase-out of the existing extra-territorial income
exclusion (ETI) for foreign sales that was viewed to be
inconsistent with international trade protocols by the European
Union. The company does not expect these provisions to have any
impact on its effective tax rate for 2005 or 2006 based on
current earnings levels and the availability of substantial net
operating loss carryforwards. In the long term, the company
expects that the new deduction will result in a decrease of the
annual effective tax rate. However, the timing and amount of the
decrease are indeterminable at this time.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The
68
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
significant components of the company’s deferred tax assets
and liabilities as of year-end 2004 and 2003 are as follows:
|
|
|
Components of Deferred Tax Assets and Liabilities |
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
| |
Net operating loss carryforwards
|
|
$ |
111.2 |
|
|
$ |
95.2 |
|
| |
Tax credit carryforwards
|
|
|
14.2 |
|
|
|
12.4 |
|
| |
Accrued postretirement health care benefits
|
|
|
8.5 |
|
|
|
9.3 |
|
| |
Inventories, due principally to obsolescence reserves and
additional costs inventoried for tax purposes
|
|
|
4.8 |
|
|
|
6.3 |
|
| |
Accrued employee benefits other than pensions and retiree health
care benefits
|
|
|
1.7 |
|
|
|
3.4 |
|
| |
Accrued pension cost
|
|
|
8.8 |
|
|
|
8.5 |
|
| |
Accrued warranty cost
|
|
|
1.2 |
|
|
|
1.8 |
|
| |
Accrued taxes
|
|
|
2.1 |
|
|
|
3.0 |
|
| |
Accounts receivable, due principally to allowances for doubtful
accounts
|
|
|
1.7 |
|
|
|
1.8 |
|
| |
Goodwill
|
|
|
39.2 |
|
|
|
46.0 |
|
| |
Deferred pension costs
|
|
|
41.1 |
|
|
|
35.7 |
|
| |
Accrued liabilities and other
|
|
|
11.8 |
|
|
|
15.2 |
|
| |
|
|
|
|
|
|
| |
|
Total deferred tax assets
|
|
|
246.3 |
|
|
|
238.6 |
|
| |
|
Less valuation allowances
|
|
|
(157.1 |
) |
|
|
(139.8 |
) |
| |
|
|
|
|
|
|
| |
|
|
Deferred tax assets net of valuation allowances
|
|
|
89.2 |
|
|
|
98.8 |
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
| |
Property, plant and equipment, due principally to differences in
depreciation methods
|
|
|
8.5 |
|
|
|
8.2 |
|
| |
Inventories
|
|
|
9.5 |
|
|
|
12.8 |
|
| |
|
|
|
|
|
|
| |
|
Total deferred tax liabilities
|
|
|
18.0 |
|
|
|
21.0 |
|
| |
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$ |
71.2 |
|
|
$ |
77.8 |
|
| |
|
|
|
|
|
|
Summarized in the following tables are the company’s
earnings (loss) from continuing operations before income taxes,
its provision for income taxes, the components of the provision
for deferred income taxes and a reconciliation of the
U.S. statutory rate to the tax provision rate.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
United States
|
|
$ |
(59.7 |
) |
|
$ |
(96.7 |
) |
|
$ |
(26.1 |
) |
|
Non-U.S.
|
|
|
5.8 |
|
|
|
(13.7 |
) |
|
|
(11.0 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(53.9 |
) |
|
$ |
( 110.4 |
) |
|
$ |
( 37.1 |
) |
| |
|
|
|
|
|
|
|
|
|
As presented in the above table, losses from U.S. and
non-U.S. operations in 2004 include restructuring costs of
$8.0 million and $5.0 million, respectively. Losses
from U.S. operations in 2003 include restructuring
69
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
costs of $9.7 million while earnings from
non-U.S. operations include $17.4 million of such
costs. Losses from U.S. and non-U.S. operations in 2002
include restructuring costs of $9.8 million and
$4.1 million, respectively. Loss from U.S. operations
also includes goodwill impairment charges of $65.6 million
in 2003 and $1.0 million in 2002.
|
|
|
Provision (Benefit) for Income Taxes |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Current provision (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States
|
|
$ |
(12.5 |
) |
|
$ |
(1.8 |
) |
|
$ |
(4.4 |
) |
| |
|
State and local
|
|
|
.1 |
|
|
|
— |
|
|
|
.2 |
|
| |
|
Non-U.S.
|
|
|
1.1 |
|
|
|
1.2 |
|
|
|
2.7 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
(11.3 |
) |
|
|
(.6 |
) |
|
|
(1.5 |
) |
| |
Deferred provision (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States
|
|
|
2.7 |
|
|
|
68.7 |
|
|
|
(12.5 |
) |
| |
|
Non-U.S.
|
|
|
6.0 |
|
|
|
5.2 |
|
|
|
(4.4 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
8.7 |
|
|
|
73.9 |
|
|
|
(16.9 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(2.6 |
) |
|
$ |
73.3 |
|
|
$ |
(18.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Components of the Provision (Benefit) for Deferred Income
Taxes |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Change in valuation allowances
|
|
$ |
17.3 |
|
|
$ |
104.6 |
|
|
$ |
19.2 |
|
|
Change in deferred taxes related to operating loss and tax
credit carryforwards
|
|
|
(17.8 |
) |
|
|
(30.5 |
) |
|
|
(31.7 |
) |
|
Depreciation and amortization
|
|
|
7.1 |
|
|
|
6.0 |
|
|
|
6.3 |
|
|
Inventories and accounts receivable
|
|
|
(1.7 |
) |
|
|
1.2 |
|
|
|
(4.6 |
) |
|
Accrued pension and other employee costs
|
|
|
(4.0 |
) |
|
|
4.7 |
|
|
|
3.1 |
|
|
Other
|
|
|
7.8 |
|
|
|
(12.1 |
) |
|
|
(9.2 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
8.7 |
|
|
$ |
73.9 |
|
|
$ |
(16.9 |
) |
| |
|
|
|
|
|
|
|
|
|
The change in valuation allowances in 2003, as presented in the
above table, represents $35.4 million related to 2003
activities and $69.2 million due to a change in
circumstances and judgment related to deferred tax balances at
December 31, 2002.
70
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Reconciliation of the U.S. Statutory Rate to the Tax
Provision Rate |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
U.S. statutory tax rate
|
|
|
(35.0 |
)% |
|
|
(35.0 |
)% |
|
|
(35.0 |
)% |
|
Increase (decrease) resulting from
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Effect of changes in valuation allowances
|
|
|
37.9 |
|
|
|
94.7 |
|
|
|
31.5 |
|
| |
Losses without current tax benefits
|
|
|
— |
|
|
|
— |
|
|
|
(.2 |
) |
| |
Adjustment of tax reserves
|
|
|
(19.5 |
) |
|
|
— |
|
|
|
(4.6 |
) |
| |
Statutory tax rate changes
|
|
|
.9 |
|
|
|
— |
|
|
|
— |
|
| |
Effect of operations outside the U.S.
|
|
|
— |
|
|
|
— |
|
|
|
(37.7 |
) |
| |
State and local income taxes, net of federal benefit
|
|
|
.2 |
|
|
|
— |
|
|
|
(2.1 |
) |
| |
Foreign dividends
|
|
|
12.4 |
|
|
|
6.7 |
|
|
|
1.0 |
|
| |
Other
|
|
|
(1.7 |
) |
|
|
— |
|
|
|
(2.6 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
(4.8 |
)% |
|
|
66.4 |
% |
|
|
(49.7 |
)% |
| |
|
|
|
|
|
|
|
|
|
At year-end 2004 the company had U.S. net operating loss
carryforwards of approximately $113 million that expire in
2023 through 2025. In addition, certain of the company’s
non-U.S. subsidiaries had net operating loss carryforwards
aggregating approximately $193 million, substantially all
of which have no expiration date.
Undistributed earnings of foreign subsidiaries which are
intended to be indefinitely reinvested aggregated
$111 million at the end of 2004. No deferred income taxes
have been recorded with respect to this amount. As a result of
the 2004 refinancing, approximately $3.4 million of the
unrepatriated earnings of our Canadian subsidiaries were deemed,
under U.S. Federal income tax rules and regulations, to be
distributed. Also, approximately $15.6 million of the
company’s earnings in The Netherlands were distributed to
pay interest, fees and expenses and premium related to the
redemption of the
75/8%
Eurobonds. The unrecorded deferred tax liability related to
undistributed non-U.S. earnings was approximately
$39 million at December 31, 2004.
The company received net tax refunds of $1.9 million in
2004, $17.0 million in 2003 and $14.2 million in 2002.
Earnings Per Common Share
The following tables present the calculation of earnings
available to common shareholders and a reconciliation of the
shares used to calculate basic and diluted earnings per common
share.
|
|
|
Earnings Applicable to Common Shareholders |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net loss
|
|
$ |
(51.8 |
) |
|
$ |
(190.9 |
) |
|
$ |
(223.2 |
) |
|
Dividends on preferred shares
|
|
|
(3.1 |
) |
|
|
(.2 |
) |
|
|
(.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Loss applicable to common shareholders
|
|
$ |
(54.9 |
) |
|
$ |
(191.1 |
) |
|
$ |
(223.4 |
) |
| |
|
|
|
|
|
|
|
|
|
71
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Weighted-average common shares outstanding
|
|
|
40,955 |
|
|
|
36,660 |
|
|
|
36,465 |
|
|
Effect of dilutive stock options and restricted shares
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares assuming dilution
|
|
|
40,955 |
|
|
|
36,660 |
|
|
|
36,465 |
|
| |
|
|
|
|
|
|
|
|
|
The number of shares used to compute earnings (loss) per common
share data for all years prior to 2004 has been restated to
reflect the effects of a “bonus element” inherent in a
rights offering that was completed in the fourth quarter of 2004
(see Shareholders’ Equity). Under the terms of the
offering, holders of common shares were permitted to acquire
additional shares at a price of $2.00 per share compared to
a weighted-average market price on the closing dates of
$2.91 per share. As a result of the bonus element, shares
previously used to calculate basic and diluted earnings (loss)
per common share were increased by a factor of 1.0891.
In 2004, the common shares into which the Series B
Preferred Stock is convertible are excluded from
weighted-average common shares assuming dilution because their
inclusion would result in a smaller loss per common share. For
all years, the effects of potentially dilutive stock options and
restricted shares are also excluded. Had all of these shares
been included, weighted-average shares assuming dilution would
have been 70,585 thousand in 2004, 36,679 thousand in
2003 and 36,499 thousand in 2002.
Receivables
During several preceding years and through March 12, 2004,
the company maintained a receivables purchase agreement with a
third party financial institution. Under this arrangement, the
company sold, on a revolving basis, an undivided percentage
ownership interest in designated pools of accounts receivable.
As existing receivables were collected, undivided interests in
new eligible receivables were sold. Accounts that became
60 days past due were no longer eligible to be sold and the
company was at risk for credit losses for which the company
maintained a reserve for doubtful accounts sufficient to cover
estimated expenses. At December 31, 2003, approximately
$33 million of accounts receivable related to continuing
operations had been sold under this arrangement. This amount is
reported as a reduction of accounts receivable in the
Consolidated Balance Sheet at that date. On March 12, 2004,
all amounts sold by the company under the receivables purchase
agreement were repurchased using a portion of the proceeds of
the refinancing transactions entered into on that date (see
Refinancing Transactions). The effect was to increase the use of
cash from operating activities in the Consolidated Statement of
Cash Flows for the year ended December 31, 2004 by
$33 million.
During the period the receivables purchase agreement was in
effect, increases and decreases in the amount sold were reported
as operating cash flows in the Consolidated Statements of Cash
Flows. Costs related to the sales were $.2 million in 2004,
$1.5 million in 2003 and $1.2 million in 2002. These
amounts are included in other expense-net in the Consolidated
Statements of Operations.
Certain of the company’s subsidiaries also sell accounts
receivable on an ongoing basis. In some cases, these sales are
made with recourse, in which case appropriate reserves for
potential losses are recorded at the sale date. At
December 31, 2004 and December 31, 2003, the gross
amounts of accounts receivable that had been sold under these
arrangements totaled $6.6 million and $3.8 million,
respectively. At December 31, 2004 and December 31,
2003, certain of these amounts were partially collateralized
with approximately $5.3 million and $3.0 million,
respectively, of cash deposits that are included in cash and
cash equivalents in the Consolidated Balance Sheets at those
dates.
72
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The company also periodically sells with recourse notes
receivable arising from customer purchases of plastics
processing machinery and, in a limited number of cases,
guarantees the repayment of all or a portion of notes payable by
its customers to third party lenders. At December 31, 2004
and December 31, 2003, the company’s maximum exposure
under these arrangements totaled $8.0 million and
$11.6 million, respectively. In the event a customer were
to fail to repay a note, the company would generally regain
title to the machinery for later resale as used equipment. Costs
related to sales of notes receivable and guarantees have not
been material in the past.
Inventories
As presented in the Consolidated Balance Sheets, inventories are
net of reserves for obsolescence of $29.7 million and
$27.0 million in 2004 and 2003, respectively.
Goodwill and Other Intangible Assets
The carrying value of goodwill totaled $86.6 million and
$83.8 million at December 31, 2004 and
December 31, 2003, respectively. The company’s other
intangible assets, all of which are subject to amortization, are
included in other noncurrent assets in the Consolidated Balance
Sheets and totaled $5.1 million at December 31, 2004
and $6.5 million at December 31, 2003. Amortization
expense related to these assets was $1.4 million in 2004,
$1.4 million in 2003 and $1.0 million in 2002.
Changes in goodwill during the years ended December 31,
2004 and December 31, 2003 are presented in the following
table.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
| |
|
| |
| |
|
Machinery | |
|
|
| |
|
Technologies | |
|
Machinery | |
|
|
| |
|
North | |
|
Technologies | |
|
Mold | |
|
Industrial | |
|
|
| |
|
America | |
|
Europe | |
|
Technologies | |
|
Fluids | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Balance at beginning of year
|
|
$ |
17.5 |
|
|
$ |
.7 |
|
|
$ |
55.4 |
|
|
$ |
10.2 |
|
|
$ |
83.8 |
|
|
Foreign currency translation adjustments
|
|
|
.1 |
|
|
|
.1 |
|
|
|
2.6 |
|
|
|
— |
|
|
|
2.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
17.6 |
|
|
$ |
.8 |
|
|
$ |
58.0 |
|
|
$ |
10.2 |
|
|
$ |
86.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2003 | |
| |
|
| |
| |
|
Machinery | |
|
|
| |
|
Technologies | |
|
Machinery | |
|
|
| |
|
North | |
|
Technologies | |
|
Mold | |
|
Industrial | |
|
|
| |
|
America | |
|
Europe | |
|
Technologies | |
|
Fluids | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Balance at beginning of year
|
|
$ |
17.3 |
|
|
$ |
.5 |
|
|
$ |
115.3 |
|
|
$ |
10.2 |
|
|
$ |
143.3 |
|
|
Goodwill acquired
|
|
|
— |
|
|
|
— |
|
|
|
.2 |
|
|
|
— |
|
|
|
.2 |
|
|
Impairment charges
|
|
|
— |
|
|
|
— |
|
|
|
(65.6 |
) |
|
|
— |
|
|
|
(65.6 |
) |
|
Foreign currency translation adjustments
|
|
|
.2 |
|
|
|
.2 |
|
|
|
5.5 |
|
|
|
— |
|
|
|
5.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
17.5 |
|
|
$ |
.7 |
|
|
$ |
55.4 |
|
|
$ |
10.2 |
|
|
$ |
83.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Property, Plant and Equipment
The components of property, plant and equipment, including
amounts related to capital leases, are shown in the following
table.
|
|
|
Property, Plant and Equipment-Net |
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Land
|
|
$ |
11.3 |
|
|
$ |
10.7 |
|
|
Buildings
|
|
|
132.5 |
|
|
|
125.2 |
|
|
Machinery and equipment
|
|
|
218.2 |
|
|
|
211.6 |
|
| |
|
|
|
|
|
|
| |
|
|
362.0 |
|
|
|
347.5 |
|
|
Less accumulated depreciation
|
|
|
(233.6 |
) |
|
|
(206.7 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
128.4 |
|
|
$ |
140.8 |
|
| |
|
|
|
|
|
|
Other Assets
The components of other current assets and other noncurrent
assets are shown in the tables that follow.
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Deferred income taxes
|
|
$ |
26.2 |
|
|
$ |
27.9 |
|
|
Recoverable from excess liability carriers
|
|
|
4.1 |
|
|
|
— |
|
|
Refundable income taxes
|
|
|
3.5 |
|
|
|
2.7 |
|
|
Other
|
|
|
15.3 |
|
|
|
14.6 |
|
| |
|
|
|
|
|
|
| |
|
$ |
49.1 |
|
|
$ |
45.2 |
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Deferred income taxes net of valuation allowances
|
|
$ |
63.1 |
|
|
$ |
70.9 |
|
|
Recoverable from excess liability carriers
|
|
|
9.7 |
|
|
|
4.7 |
|
|
Intangible assets other than goodwill
|
|
|
5.1 |
|
|
|
6.5 |
|
|
Other
|
|
|
40.2 |
|
|
|
38.2 |
|
| |
|
|
|
|
|
|
| |
|
$ |
118.1 |
|
|
$ |
120.3 |
|
| |
|
|
|
|
|
|
74
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Liabilities
The components of accrued and other current liabilities are
shown in the following table.
|
|
|
Accrued and Other Current Liabilities |
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Accrued salaries, wages and other compensation
|
|
$ |
24.0 |
|
|
$ |
20.9 |
|
|
Taxes payable other than income taxes
|
|
|
9.9 |
|
|
|
10.8 |
|
|
Reserves for post-closing adjustments and transaction costs on
divestitures
|
|
|
4.9 |
|
|
|
9.4 |
|
|
Accrued and deferred income taxes
|
|
|
13.2 |
|
|
|
14.8 |
|
|
Accrued insurance and self-insurance reserves
|
|
|
14.1 |
|
|
|
11.7 |
|
|
Other accrued expenses
|
|
|
31.2 |
|
|
|
48.5 |
|
| |
|
|
|
|
|
|
| |
|
$ |
97.3 |
|
|
$ |
116.1 |
|
| |
|
|
|
|
|
|
The following table summarizes changes in the company’s
warranty reserves. These reserves are included in accrued and
other current liabilities in the Consolidated Balance Sheets.
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Balance at beginning of year
|
|
$ |
8.1 |
|
|
$ |
5.9 |
|
|
Accruals
|
|
|
4.2 |
|
|
|
4.9 |
|
|
Payments
|
|
|
(5.6 |
) |
|
|
(3.0 |
) |
|
Warranty expirations
|
|
|
(.3 |
) |
|
|
(.1 |
) |
|
Foreign currency translation adjustments
|
|
|
.1 |
|
|
|
.4 |
|
| |
|
|
|
|
|
|
|
Balance at end of year
|
|
$ |
6.5 |
|
|
$ |
8.1 |
|
| |
|
|
|
|
|
|
The components of long-term accrued liabilities are shown in the
following table.
|
|
|
Long-Term Accrued Liabilities |
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Accrued pensions and other compensation
|
|
$ |
39.9 |
|
|
$ |
42.5 |
|
|
Minimum pension liability
|
|
|
119.8 |
|
|
|
104.3 |
|
|
Accrued postretirement health care benefits
|
|
|
28.7 |
|
|
|
31.2 |
|
|
Self-insurance reserves(a)
|
|
|
26.8 |
|
|
|
23.0 |
|
|
Accrued and deferred income taxes
|
|
|
11.4 |
|
|
|
21.5 |
|
|
Reserves for post-closing adjustments and transaction costs on
divestitures
|
|
|
7.1 |
|
|
|
2.4 |
|
|
Other
|
|
|
6.5 |
|
|
|
7.7 |
|
| |
|
|
|
|
|
|
| |
|
$ |
240.2 |
|
|
$ |
232.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
(a) |
|
As presented in the above table, self-insurance reserves exclude
expected recoveries from excess liability carriers and other
third parties of $13.8 million in 2004 and
$4.7 million in 2003. These amounts are included in other
current assets and other noncurrent assets. |
75
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On March 12, 2004, the company entered into a definitive
agreement whereby Glencore Finance AG and Mizuho International
plc purchased $100 million in aggregate principal amount of
the company’s new exchangeable debt securities. The
proceeds from this transaction, together with existing cash
balances, were used to repay the
83/8% Notes
due March 15, 2004. The securities the company issued were
$30 million of 20% Secured Step-Up Series A Notes due
2007 and $70 million of 20% Secured Step-Up Series B
Notes due 2007. The $30 million of Series A Notes were
convertible into shares of the company’s common stock at a
conversion price of $2.00 per share. Glencore Finance AG
and Mizuho International plc converted the entire principal
amount of the Series A Notes into 15.0 million shares
of common stock on April 15, 2004. The Series A Notes
and Series B Notes initially bore a combination of cash and
pay-in-kind interest at a total rate of 20% per annum. The
rate was retroactively reset on June 10, 2004 to
6% per annum from the date of issuance, payable in cash.
On March 12, 2004, the company also reached a separate
agreement with Credit Suisse First Boston for a
$140 million credit facility having a term of approximately
one year. This senior secured credit facility consisted of a
$65 million revolving A facility and a $75 million
term loan B facility. On March 12, 2004, extensions of
credit under the facility in an aggregate amount of
$84 million were utilized to repay and terminate the
company’s then-existing revolving credit facility (in
addition to replacing or providing credit support for
outstanding letters of credit) and its then-existing receivables
purchase program. As discussed below, all borrowings under the
Credit Suisse First Boston facility were repaid on June 10,
2004.
On May 26, 2004, Milacron Escrow Corporation, a
wholly-owned, direct subsidiary of the company created solely to
issue notes and to merge with and into the company, issued
$225 million in aggregate principal amount of
111/2% Senior
Secured Notes due 2011 in a private placement. The proceeds of
this issuance were initially placed in escrow. On June 10,
2004, the conditions for release of the proceeds from escrow
were satisfied, including the consummation of the merger of
Milacron Escrow Corporation with and into the company.
On June 10, 2004, (i) the common stock into which the
Series A Notes were converted and (ii) the
Series B Notes were exchanged for 500,000 shares of
Series B Preferred Stock, a new series of convertible
preferred stock with a cumulative cash dividend rate of 6%. On
June 10, 2004, the company also entered into an agreement
for a new $75 million asset based revolving credit facility
with JPMorgan Chase Bank as administrative agent and collateral
agent.
On June 10, 2004, the company applied the proceeds of the
issuance of the
111/2% Senior
Secured Notes due 2011, together with $7.3 million in
borrowings under the asset based facility and approximately
$10.3 million of cash on hand, to:
|
|
|
| |
• |
purchase €114,990,000
of
the €115 million
aggregate outstanding principal amount of Milacron Capital
Holdings B.V.’s
75/8%
Guaranteed Bonds due in April 2005 at the settlement of a tender
offer therefor; |
| |
| |
• |
terminate and repay $19 million of borrowings outstanding
under the revolving A facility of the Credit Suisse First Boston
facility, which included additional amounts borrowed subsequent
to March 12, 2004. The company also used $17.4 million
in availability under the asset based facility to replace or
provide credit support for the outstanding letters of credit
under the revolving A facility of the Credit Suisse First Boston
facility; |
| |
| |
• |
repay the $75 million term loan B facility of the
Credit Suisse First Boston facility; and |
| |
| |
• |
pay transaction expenses. |
The conversion of the Series A Notes into common stock on
April 15, 2004, and the exchange of such common stock and
the Series B Notes for Series B Preferred Stock on
June 10, 2004, triggered an “ownership
76
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
change” for U.S. federal income tax purposes. As a
consequence of the ownership change, timing of the
company’s utilization of tax loss carryforwards and other
tax attributes will be substantially delayed. This delay will
increase income tax expense and decrease available cash in
future years, although the amounts are dependent upon a number
of future events and are therefore not determinable at this time.
Short-Term Borrowings
The components of short-term borrowings are shown in the table
that follows.
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Asset based credit facility due 2008
|
|
$ |
11.0 |
|
|
$ |
— |
|
|
Revolving credit facility due 2004
|
|
|
— |
|
|
|
42.0 |
|
|
Borrowings under other lines of credit
|
|
|
.2 |
|
|
|
.6 |
|
| |
|
|
|
|
|
|
| |
|
$ |
11.2 |
|
|
$ |
42.6 |
|
| |
|
|
|
|
|
|
Borrowings under the asset based facility are secured by a first
priority security interest, subject to permitted liens, in,
among other things, U.S. and Canadian accounts receivable, cash
and cash equivalents, inventories and, in the U.S., certain
related rights under contracts, licenses and other general
intangibles, subject to certain exceptions. The asset based
facility is also secured by a second priority security interest
in the assets that secure the
111/2% Senior
Secured Notes due 2011 on a first priority basis. The
availability of loans under the facility is limited to a
borrowing base equal to specified percentages of eligible U.S.
and Canadian accounts receivable and U.S. inventory and is
subject to other conditions and limitations, including an excess
availability reserve (the minimum required availability) of
$10 million and an additional $1 million hedging
reserve as a result of an interest rate swap that was entered
into on July 30, 2004 (see Long-Term Debt).
Pursuant to the terms of the asset based facility, the cash the
company receives from collection of receivables is subject to an
automatic “sweep” to repay any outstanding borrowings
under the asset based facility on a daily basis. As a result,
the company relies on borrowings under the asset based facility
as the primary source of cash for use in its North American
operations. The availability of borrowings under the asset based
facility is subject to the borrowing base limitations, including
the excess availability and hedging reserves, which may be
adjusted from time to time by the administrative agent at its
discretion, and the satisfaction of certain conditions to
borrowing, including, among other things, conditions related to
the continued accuracy of the company’s representations and
warranties and the absence of any unmatured or matured defaults
(including under financial covenants) or any material adverse
change in the company’s business or financial condition.
The asset based facility originally contained for the first five
quarters, a financial covenant requiring the company to maintain
a minimum level of cumulative consolidated EBITDA (earnings
before interest, taxes, depreciation and amortization) as
defined in the facility, to be tested quarterly. The facility
was amended on September 28, 2004, and February 11,
2005 to reduce these requirements as more fully discussed below.
The facility also contains a limit on capital expenditures to be
complied with on a quarterly basis beginning with the third
quarter of 2004. Thereafter, the company will have to comply
with a fixed charge coverage ratio to be tested quarterly. This
test was originally to be required beginning in the fourth
quarter of 2005 but on February 11, 2005 the company
reached an agreement with the lenders to delay it until the
first quarter of 2006.
77
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As discussed above, the asset based facility requires the
company to maintain minimum levels of cumulative consolidated
EBITDA to be tested quarterly. This test was originally required
through September 30, 2005 but the previously discussed
amendment to the facility extended it through December 31,
2005. In response to a reassessment of projected earnings and
EBITDA for the third and fourth fiscal quarters of 2004, the
facility was amended on September 28, 2004 to reduce the
minimum cumulative consolidated EBITDA requirement for the three
consecutive calendar months ending September 30, 2004 from
$11.6 million to $8.0 million and for the six
consecutive calendar months ending December 31, 2004 from
$25.9 million to $24.0 million. The company
subsequently identified additional adjustments that resulted in
reducing fourth quarter 2004 EBITDA to below the minimum level
required by the revised covenant. However, the company reached
an agreement with the lenders on March 16, 2005 to waive
any noncompliance in the fourth quarter resulting from certain
of these adjustments. Accordingly, after giving effect to the
waiver, the company was in compliance with the revised covenant
as of December 31, 2004. The facility was also amended on
February 11, 2005 to reduce the minimum cumulative
consolidated EBITDA requirements for 2005 as follows: for the
nine consecutive calendar months ended March 31, 2005 from
$32.3 million to $26.4 million; for the twelve
consecutive calendar months ended June 30, 2005 from
$43.0 million to $35.8 million; and for the twelve
consecutive calendar months ended September 30, 2005 from
$48.4 million to $36.6 million. This amendment also
established a minimum cumulative consolidated EBITDA requirement
of $38.0 million for the twelve consecutive calendar months
ending December 31, 2005, extended the limitation on
capital expenditures originally required through
September 30, 2005 to December 31, 2005 and corrected
a minor technical violation related to an investment.
The company’s ability to continue to meet the cumulative
consolidated EBITDA covenant will be contingent on a number of
factors, many of which are beyond its control. These include the
company’s need for a continued increase in capital spending
in the plastics processing industry and the resulting increases
in sales revenues and operating margins, the need for no
material decrease in price realization for the products the
company sells, the company’s ability to absorb recent raw
material price increases or pass such price increases through to
customers, and the company’s continued ability to realize
the benefits of its cost reduction and process improvement
initiatives. If the company is unable to meet or exceed the
minimum cumulative consolidated EBITDA requirements and other
conditions to borrowing of its asset based facility, it will
attempt to further renegotiate this covenant with its lenders to
assure compliance. However, the company cannot control its
lenders’ actions and, if the negotiations are not
successful, the company could be forced to seek alternative
sources of liquidity. This may include, but is not necessarily
limited to, seeking alternative lenders, sales of assets or
business units and the issuance of additional indebtedness or
equity. Failure to meet or exceed the minimum cumulative
consolidated EBITDA requirements of the asset based facility
would constitute an event of default under the facility, which
would permit the lenders to accelerate indebtedness owed
thereunder (if such indebtedness remained unpaid) and terminate
their commitments to lend. The acceleration of the indebtedness
under the asset based facility would also create a cross-default
under the company’s
111/2% Senior
Secured Notes due 2011 if the principal amount of indebtedness
accelerated, together with the principal amount of any other
such indebtedness under which there has been a payment default
or the maturity has been so accelerated, aggregated
$15 million or more. Such cross-default would permit the
trustee under the indenture governing the
111/2% Senior
Secured Notes due 2011 or the holders of at least 25% in
principal amount of the then outstanding notes to declare the
notes to be due and payable immediately. Events of default under
the asset based facility and the
111/2% Senior
Secured Notes due 2011 in addition to those described above,
including, without limitation, the failure to make required
payments in respect of such indebtedness in a timely manner, may
result in the acceleration of indebtedness owed under these
instruments. The acceleration of obligations under the
company’s outstanding indebtedness would have a material
adverse effect on its business, financial condition and results
of operations.
At December 31, 2004, $22 million of the asset based
credit facility was utilized, including borrowings of
$11 million and letters of credit of $11 million.
Under the terms of the facility, the company’s additional
78
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
borrowing capacity based on the assets included in the borrowing
base at December 31, 2004 was approximately
$28 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 asset based credit facility at December 31, 2004
was 5.7%. On February 11, 2005, the company used
$2.5 million of the proceeds of a rights offering (see
Shareholders’ Equity) to make a prepayment of the asset
based facility. All additional short-term borrowings drawn under
the asset based facility were subsequently repaid using the
rights offering proceeds.
The facility includes a number of covenants. On November 8,
2004, the company reached an agreement with the lenders to waive
various technical defaults. On March 14, 2005, the company
reached an agreement with the lenders to waive certain
provisions under the facility as they relate solely to any delay
in filing an amendment to this Form 10-K containing
management’s report and the auditor’s attestation on
internal control over financial reporting as required by
Section 404 of the Sarbanes-Oxley Act of 2002. Such waiver,
however, is subject to certain conditions, including that
management’s report and the auditor’s attestation are
filed no later than June 30, 2005. Failure to meet the
June 30, 2005 deadline, without a subsequent waiver, could
result in the company being in default or unable to borrow under
the facility. After giving effect to the previously discussed
February 11, 2005 amendment, the company was in compliance
with all covenants as of December 31, 2004.
At December 31, 2004, the company had other lines of credit
with various U.S. and non-U.S. banks totaling approximately
$27 million. These credit facilities support the
discounting of receivables, letters of credit, guarantees and
leases in addition to providing borrowings under varying terms.
Approximately $10 million was available to the company
under these lines under certain circumstances.
During 2003 and through March 12, 2004, the company had a
$65 million committed revolving credit facility with
certain U.S. and non-U.S. banks. At December 31, 2003,
$54 million was utilized, including borrowings of
$42 million. All amounts borrowed under the facility were
repaid using a portion of the proceeds of the refinancing
transactions entered into on March 12, 2004 (see
Refinancing Transactions).
Long-Term Debt
The components of long-term debt are shown in the following
table.
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
111/2% Senior
Secured Notes due 2011
|
|
$ |
220.1 |
|
|
$ |
— |
|
|
83/8% Notes
due 2004
|
|
|
— |
|
|
|
115.0 |
|
|
75/8% Eurobonds
due 2005
|
|
|
— |
|
|
|
142.6 |
|
|
Capital lease obligations
|
|
|
15.9 |
|
|
|
17.1 |
|
|
Other
|
|
|
5.9 |
|
|
|
6.1 |
|
| |
|
|
|
|
|
|
| |
|
|
241.9 |
|
|
|
280.8 |
|
|
Less current maturities
|
|
|
(6.0 |
) |
|
|
(117.3 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
235.9 |
|
|
$ |
163.5 |
|
| |
|
|
|
|
|
|
On March 15, 2004, the
83/8% Notes
were repaid using a portion of the proceeds of the refinancing
transactions entered into on March 12, 2004. On
June 10, 2004, the company
repurchased €114,990,000
of the
75/8% Eurobonds
due 2005 following the completion of a tender offer for these
obligations (see Refinancing Transactions).
79
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The
111/2% Senior
Secured Notes due 2011 are jointly and severally guaranteed on a
senior secured basis by substantially all of the company’s
U.S. and Canadian subsidiaries and on a senior unsecured basis
by Milacron Capital Holdings B.V., a Dutch subsidiary. The notes
and guarantees are secured by a first priority security interest
in certain of the company’s U.S. assets other than
those securing the asset based facility on a first priority
basis (see Short-Term Borrowings) as well as the capital stock
of certain subsidiaries and a second priority security interest
in all of the assets securing the company’s asset based
credit facility on a first priority basis.
Subject to a number of important limitations, exceptions and
qualifications, the indenture governing the
111/2% Senior
Secured Notes due 2011 contains covenants that limit the ability
of the company and its restricted subsidiaries to incur
additional indebtedness, create liens, engage in sale and
leaseback transactions, pay dividends or make other equity
distributions, purchase or redeem capital stock, make
investments, sell assets, engage in transactions with affiliates
and effect a consolidation or merger.
As discussed more fully in the note captioned “Subsequent
Events,” the
111/2%
Senior Secured Notes due 2011 could be declared due and payable
if the company fails to file within sixty days after May 2,
2005 an amendment to its Form 10-K for the year ended
December 31, 2004 containing management’s report and
auditor’s attestation on internal control over financial
reporting that is required by Section 404 of the
Sarbanes-Oxley Act of 2002.
As presented in the preceding table, the value of the
111/2% Senior
Secured Notes due 2011 is net of the unamortized portion of a
$5.1 million discount at issuance. As a result of the
discount, the effective interest rate for financial reporting
purposes is approximately 12%.
On July 30, 2004, the company entered into a
$50 million (notional amount) interest rate swap that
effectively converts a portion of fixed-rate debt into a
floating-rate obligation. The swap, which matures on
November 15, 2008, is intended to achieve a better balance
between fixed-rate and floating-rate debt. The floating rate is
calculated based on six-month LIBOR set in arrears. The interest
rate swap had the effect of lowering interest expense for 2004
by $.4 million. However, increases in short-term interest
rates will have the effect of increasing interest expense in the
first quarter of 2005. In addition, the fair value of the swap,
which is included in other noncurrent assets, can change
dramatically based on a number of variables, including a
significant change in the shape of the yield curve and the
passage of time. Changes in the fair value of the swap are
reported as non-cash increases or decreases in interest expense.
At December 31, 2004, the fair value of the swap was not
material.
Certain of the company’s long-term debt obligations contain
various restrictions and financial covenants, including those
described above. The
111/2% Senior
Secured Notes due 2011 and the asset based credit facility are
secured as described above. Except for obligations under capital
leases, none of the company’s other indebtedness is secured.
Total interest paid was $33.7 million in 2004,
$23.3 million in 2003 and $35.8 million in 2002. Of
these amounts, interest related to continuing operations was
$33.6 million in 2004, $22.0 million in 2003 and
$25.1 million in 2002.
80
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Maturities of long-term debt excluding capital leases for the
five years after 2004 are shown in the following table.
|
|
|
Maturities of Long-Term Debt |
| |
|
|
|
|
| |
|
(In millions) | |
|
2005
|
|
$ |
4.2 |
|
|
2006
|
|
|
.9 |
|
|
2007
|
|
|
.2 |
|
|
2008
|
|
|
.2 |
|
|
2009
|
|
|
.2 |
|
The company leases two manufacturing facilities under capital
leases. The assets related to these leases are included in
property, plant and equipment — net in the
Consolidated Balance Sheets and had net book values of
$16.5 million at December 31, 2004 and
$16.6 million at December 31, 2003. Amortization of
these assets is included in depreciation expense and interest on
lease obligations is included in interest expense. Future
minimum payments for capital leases during the next five years
and in the aggregate thereafter are shown in the following table.
| |
|
|
|
|
| |
|
(In millions) | |
|
2005
|
|
$ |
2.9 |
|
|
2006
|
|
|
2.8 |
|
|
2007
|
|
|
2.7 |
|
|
2008
|
|
|
2.8 |
|
|
2009
|
|
|
4.6 |
|
|
After 2010
|
|
|
3.8 |
|
| |
|
|
|
|
Total capital lease payments
|
|
|
19.6 |
|
|
Less interest component(a)
|
|
|
(3.7 |
) |
| |
|
|
|
|
Capital lease obligations
|
|
$ |
15.9 |
|
| |
|
|
|
|
|
|
|
(a) |
|
Includes $1.0 million applicable to 2005. |
The company also leases certain equipment and facilities under
operating leases, some of which include varying renewal and
purchase options. Future minimum rental payments applicable to
noncancellable operating leases during the next five years and
in the aggregate thereafter are shown in the following table.
| |
|
|
|
|
| |
|
(In millions) | |
|
2005
|
|
$ |
11.8 |
|
|
2006
|
|
|
8.6 |
|
|
2007
|
|
|
5.7 |
|
|
2008
|
|
|
3.4 |
|
|
2009
|
|
|
1.7 |
|
|
After 2009
|
|
|
1.0 |
|
81
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Rent expense related to continuing operations was
$14.9 million, $14.2 million and $13.7 million in
2004, 2003 and 2002, respectively.
Shareholders’ Equity
On April 15, 2004, the $30.0 million of Series A
Notes issued to Glencore Finance AG and Mizuho International plc
on March 12, 2004 (see Refinancing Transactions), were
converted into 15,000,000 common shares. The conversion involved
the reissuance of 4,607,088 treasury shares and the issuance of
10,392,912 authorized but previously unissued common shares.
On June 9, 2004, the company’s shareholders, among
other things, approved the following resolutions:
|
|
|
| |
• |
an increase in the number of authorized common shares from
50.0 million to 165.0 million; |
| |
| |
• |
a decrease in the par value of each common share from
$1.00 per share to $.01 per share; |
| |
| |
• |
the issuance of a new series of Series B Preferred Stock
that is convertible into common shares; and |
| |
| |
• |
the issuance of contingent warrants which will be exercisable to
purchase additional shares of the company’s common stock
under certain circumstances. |
On June 10, 2004, the 15.0 million common shares into
which the Series A Notes were converted and the
$70.0 million of Series B Notes (see Refinancing
Transactions) were exchanged for 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 500,000 shares of Series B
Preferred Stock are initially convertible into 50.0 million
common shares of the company at a conversion price of
$2.00 per share and have 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. 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 initial
conversion price of $2.00 per share of common stock will be
reset to $1.75 per share effective June 30, 2005
because a test based on the company’s financial performance
for 2004 was not satisfied. The test required the company to
achieve EBITDA, as defined, of at least $50 million in
2004. Assuming the conversion price reset were to take place as
of December 31, 2004, the total number of common shares
outstanding on an as-converted basis would increase from
approximately 98.6 million to approximately
105.7 million. To the extent not previously converted to
common shares at the option of the holders or redeemed at the
option of the company, the Series B Preferred Stock must be
converted to common shares on the seventh anniversary of the
date of its issuance. In the event of the liquidation of the
company, the Series B Preferred Stock ranks junior to the
company’s 4% Cumulative Preferred Stock. Portions of the
Series B Preferred Stock may be redeemed at the
company’s 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 company’s
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 company’s shareholders, voting together with
the holders of the company’s 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. The holders of the Series B Preferred Stock, voting
separately as a class, have the right to elect a number of
directors to the company’s board of directors in proportion
to the percentage of fully diluted common stock
82
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
represented by the outstanding 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 December 31, 2004, Glencore Finance AG and Mizuho
International plc collectively owned 100% of the Series B
Preferred Stock which represents approximately 51% of the
company’s fully diluted common equity (on an as-converted
basis). Glencore Finance AG has reported in a Schedule 13D
amendment dated June 21, 2004 with the Securities and
Exchange Commission (SEC) that it has sold an undivided
participation interest in its investment in the company to
Triage Offshore Funds, Ltd. (Triage) equivalent to
62,500 shares of Series B Preferred Stock,
representing approximately 6.3% of the company’s
outstanding common equity (on an as-converted basis), with
Glencore Finance AG remaining as the recorded holder of such
shares. After giving effect to the reset of the conversion price
of the Series B Preferred Stock from $2.00 per share
to $1.75, Glencore Finance AG’s and Mizuho International
plc’s collective holdings will represent approximately 54%
of the company’s as-converted common equity with
Triage’s participation interest representing 5.9%, in both
cases assuming that no pay-in-kind dividends on the
Series B Preferred Stock have been paid.
The Series B Preferred Stock includes a beneficial
conversion feature of $15.9 million because it allows the
holders to acquire common shares of the company at an effective
conversion price of approximately $2.08 per share compared
to a fair value per common share of $2.40 on March 12,
2004. In the Consolidated Balance Sheet at December 31,
2004, the $15.9 million related to the beneficial
conversion feature is included in the recorded value of the
Series B Preferred Stock and has been applied as a direct
increase of accumulated deficit.
On June 10, 2004, the company also issued to holders of the
Series B Preferred Stock contingent warrants to purchase an
aggregate of one million shares of its common stock for
$.01 per share. The contingent warrants are exercisable
only if a test based on the company’s financial performance
for 2005 is not satisfied. The test requires the company to
achieve EBITDA, as defined, of at least $60 million in
2005. If the test is not satisfied, the contingent warrants will
be exercisable until March 25, 2011. If the test based on
financial performance is satisfied, the contingent warrants will
immediately terminate and will not be exercisable. The
contingent warrants are included in shareholders’ equity at
an amount representative of their relative fair value in
relation to the Series B Preferred Stock. If the contingent
warrants do not become exercisable, their carrying value will be
transferred to the carrying value of the Series B Preferred
Stock. If they should be exercised, their carrying value will be
included in the value of the newly issued common stock.
On June 25, 2004, as permitted by the terms of the
agreement with Glencore Finance AG and Mizuho International plc,
the company filed a registration statement with the SEC for
additional common shares to be issued through a rights offering.
The registration statement was declared effective by the SEC on
October 6, 2004. Pursuant to the rights offering, the
holders of shares of common stock (other than common stock
received upon the conversion of Series B Preferred Stock)
were granted .452 rights for each share of common stock held as
of 5:00 p.m., New York City time, on October 18, 2004.
The number of rights granted to each holder of common stock was
rounded up to the nearest whole number. Each right was
exercisable for one share of common stock at an exercise price
of $2.00 per full share. The rights offering, which was
originally scheduled to expire on November 22, 2004 but
extended to December 10, 2004, resulted in the reissuance
of 12,716,175 treasury shares and net cash proceeds of
$24.2 million after deducting the related costs. Of the
total shares issued in the rights offering, 36,600 shares
were cancelled to cover withholding taxes owed by certain
holders of restricted stock who participated in the offering. On
February 11, 2005, the company used $2.5 million of
the proceeds of the rights offering to make a prepayment of its
asset based credit facility (see Short-Term Borrowings). As
permitted under the terms of the agreement with Glencore Finance
AG and Mizuho International plc, the company had the option of
using the proceeds of the offering to redeem a portion of the
Series B Preferred Stock. However, the company has elected
to use the proceeds to repay additional short-term borrowings
and invest the surplus cash for the purpose of improving its
liquidity and to
83
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
provide increased financial flexibility to satisfy anticipated
working capital needs, higher levels of capital spending and any
other developments in 2005.
In addition to the Series B Preferred Stock, at
December 31, 2004 and December 31, 2003, the company
had outstanding 60,000 shares 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
company’s 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, 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 $4 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 company’s 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 $105 per share if the
action is voluntary and $100 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 company’s election, by resolution of the
board of directors, for a redemption price of $105 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 $4 per share or more.
On June 11, 2004, the company issued 1,110,000 previously
unissued common shares in the form of grants of restricted stock.
In addition to the treasury shares reissued in connection with
the rights offering, an additional 378,006 treasury shares were
reissued during 2004 in connection with grants of restricted
stock and contributions to employee benefit plans. This
reduction was more than offset by (i) the cancellation of
432,132 restricted shares and (ii) the cancellation of
36,600 shares to cover withholding taxes in connection with
the rights offering. These shares were added to the treasury
share balance in lieu of their cancellation. The 15,000,000
common shares that were exchanged for Series B Preferred
Stock on June 10, 2004 were also added to the treasury
share balance on that date. In November, 2004, a total of
1,278,946 treasury shares were cancelled and returned to the
pool of authorized but unissued common shares.
In 2003, a total of 1,168,531 treasury shares were reissued in
connection with grants of restricted shares and contributions to
employee benefit programs. This reduction in treasury shares was
partially offset by the forfeiture of 98,287 restricted shares
that were added to the treasury share balance. The net reduction
in treasury shares includes 851,500 restricted stock awards made
to certain key employees, including the chief executive officer
and other corporate officers. These grants were made in
connection with an employee retention program approved by the
company’s board of directors after consideration of advice
from independent compensation consultants.
84
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Shareholders’ Equity — Preferred and Common
Shares |
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
4% Cumulative Preferred shares authorized, issued and
outstanding, 60,000 shares at $100 par value,
redeemable at $105 a share
|
|
$ |
6.0 |
|
|
$ |
6.0 |
|
|
6% Series B Convertible Preferred Stock authorized, issued
and outstanding, 500,000 shares at $.01 par value
|
|
|
— |
|
|
|
— |
|
|
Common shares, $.01 par value in 2004 and $1.00 par
value in 2003, authorized 165,000,000 shares, issued and
outstanding,
2004: 48,559,474 shares, 2003: 34,824,025 shares
|
|
|
.5 |
|
|
|
34.8 |
|
As presented in the previous table, common shares outstanding
are net of treasury shares of 1,271,580 in 2004 and 4,783,063 in
2003.
Changes in common shares outstanding for the years 2004, 2003
and 2002 are shown in the table that follows.
|
|
|
Changes in Common Shares Outstanding |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Outstanding at beginning of year
|
|
|
34,824,025 |
|
|
|
33,753,781 |
|
|
|
33,467,506 |
|
|
Net restricted stock activity
|
|
|
760,440 |
|
|
|
826,013 |
|
|
|
109,552 |
|
|
Stock options exercised
|
|
|
— |
|
|
|
— |
|
|
|
29,250 |
|
|
Reissuance of treasury shares for employee benefit and incentive
programs
|
|
|
295,434 |
|
|
|
244,231 |
|
|
|
147,473 |
|
|
Conversion of Series A Notes to common stock
|
|
|
15,000,000 |
|
|
|
— |
|
|
|
— |
|
|
Conversion of common stock to Series B Preferred Stock
|
|
|
(15,000,000 |
) |
|
|
— |
|
|
|
— |
|
|
Net common shares issued in rights offering
|
|
|
12,679,575 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
48,559,474 |
|
|
|
34,824,025 |
|
|
|
33,753,781 |
|
| |
|
|
|
|
|
|
|
|
|
Dividends of $5.70 per share were paid with respect to the
Series B Preferred Stock in 2004. Dividends of
$7.00 per share of 4% Cumulative Preferred Stock were
declared in 2004, of which $6.00 was paid in that year. The
remaining $1.00 per share was paid on March 1, 2005.
Dividends declared and paid with respect to the 4% Cumulative
Preferred Stock were $2.00 per share in 2003 and
$4.00 per share in 2002. Dividends declared and paid per
share of common stock were $.02 per share in 2003 and
$.04 per share in 2002.
The company has authorized 10 million serial preference
shares with $.01 par value. A decrease in the par value of
serial preference shares from $1.00 per share to
$.01 per share was approved by the company’s
shareholders on June 9, 2004. In 1999, 300,000 serial
preference shares were designated as Series A Participating
Cumulative Preferred Shares in connection with the stockholder
rights plan discussed below. No serial preference shares had
been issued as of December 31, 2003. On June 9, 2004,
900,000 serial preference shares were designated as 6.0%
Series B Convertible Preferred Stock. As discussed above,
500,000 shares of Series B Preferred Stock were issued
on June 10, 2004. As of December 31, 2004, no other
serial preference shares have been designated or issued by the
company.
On May 23, 2003, the company’s shareholders adopted an
amendment to the company’s certificate of incorporation to
eliminate the right of holders of common shares to ten votes per
share upon satisfaction of certain ownership tenure
requirements. In the past, holders of common shares were
entitled to cast ten votes
85
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
for each share that had been beneficially owned for at least 36
consecutive calendar months. As a result of the change, each
common share is now entitled to one vote irrespective to the
period of time it has been owned.
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 company’s outstanding common shares. In the event that
any party should acquire more than 15% of the company’s
common shares, the rights entitle all other shareholders to
purchase the preferred shares at a substantial discount. In
addition, if a merger occurs with any potential acquirer owning
more than 15% of the common shares outstanding, holders of
rights other than the potential acquirer will be able to
purchase the acquirer’s 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 company’s shareholders. The rights plan
expires in February 2009.
Comprehensive Loss
Total comprehensive income or loss represents the net change in
shareholders’ equity during a period from sources other
than transactions with shareholders and, as such, includes net
earnings or loss for the period. The components of total
comprehensive loss are shown in the table that follows.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Net loss
|
|
$ |
(51.8 |
) |
|
$ |
(190.9 |
) |
|
$ |
(223.2 |
) |
|
Foreign currency translation adjustments
|
|
|
15.9 |
|
|
|
8.5 |
|
|
|
5.9 |
|
|
Reclassification of foreign currency translation adjustments to
net gain on divestitures
|
|
|
— |
|
|
|
— |
|
|
|
10.6 |
|
|
Minimum pension liability adjustment(a)
|
|
|
(13.0 |
) |
|
|
14.6 |
|
|
|
(95.4 |
) |
|
Change in fair value of foreign currency exchange contracts
|
|
|
(.2 |
) |
|
|
— |
|
|
|
.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$ |
(49.1 |
) |
|
$ |
(167.8 |
) |
|
$ |
(302.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In 2004 and 2003, includes no tax effect. In 2002, includes a
tax benefit of $51.4 million. |
86
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The components of accumulated other comprehensive loss are shown
in the following table.
|
|
|
Accumulated Other Comprehensive Loss |
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Foreign currency translation adjustments
|
|
$ |
(10.2 |
) |
|
$ |
(26.1 |
) |
|
Minimum pension liability adjustment
|
|
|
(93.8 |
) |
|
|
(80.8 |
) |
|
Fair value of foreign currency exchange contracts
|
|
|
— |
|
|
|
.2 |
|
| |
|
|
|
|
|
|
| |
|
$ |
(104.0 |
) |
|
$ |
(106.7 |
) |
| |
|
|
|
|
|
|
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, including metalworking fluids,
supplied and/or managed 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 company’s asset based credit facility is currently
expected to be adequate to cover the company’s 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 company’s dependence on its asset based
credit facility for liquidity). It is possible that the
company’s 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
company’s future operating results and financial condition,
particularly its liquidity, could be adversely affected.
Foreign Exchange Contracts
At December 31, 2004, the company had no outstanding
forward contracts. Forward exchange contracts totaled
$4.7 million at December 31, 2003.
Stock-Based Compensation
On June 9, 2004, the company’s shareholders’
approved the 2004 Long-Term Incentive plan (2004 Plan) which
permits the company to grant its common shares in the form of
non-qualified stock options, incentive stock options,
performance shares, restricted shares and deferred shares. The
2004 Plan also provides for the granting of appreciation rights,
either in tandem with stock options or free-standing. Awards
under the 2004 Plan may include “management
objectives,” the attainment of which governs the extent to
which the related awards vest or become exercisable. A
predecessor plan, the 1997 Long-Term Incentive Plan (1997 Plan)
also permits the granting of non-qualified stock options,
incentive stock options and restricted stock in addition to
performance awards.
87
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Under the 2004 Plan and the 1997 Plan, non-qualified and
incentive stock options are granted at market value, vest in
increments over a four or five year period, and expire not more
than ten years subsequent to the award. Of the
3,524,900 stock options outstanding at December 31,
2004, 220,000 are incentive stock options.
Summaries of stock options granted under the 2004 Plan, 1997
Plan and a predecessor plan are presented in the following
tables.
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted- | |
| |
|
|
|
Average | |
| |
|
|
|
Exercise | |
| |
|
Shares | |
|
Price | |
| |
|
| |
|
| |
|
Outstanding at year-end 2001
|
|
|
4,214,775 |
|
|
$ |
21.06 |
|
| |
Granted
|
|
|
829,500 |
|
|
|
13.19 |
|
| |
Exercised
|
|
|
(29,250 |
) |
|
|
13.97 |
|
| |
Cancelled
|
|
|
(397,075 |
) |
|
|
17.15 |
|
| |
|
|
|
|
|
|
|
Outstanding at year-end 2002
|
|
|
4,617,950 |
|
|
|
20.03 |
|
| |
Granted
|
|
|
18,000 |
|
|
|
5.43 |
|
| |
Cancelled
|
|
|
(314,100 |
) |
|
|
18.65 |
|
| |
Waived
|
|
|
(465,900 |
) |
|
|
22.75 |
|
| |
|
|
|
|
|
|
|
Outstanding at year-end 2003
|
|
|
3,855,950 |
|
|
|
19.75 |
|
| |
Granted
|
|
|
14,000 |
|
|
|
4.30 |
|
| |
Cancelled
|
|
|
(345,050 |
) |
|
|
22.97 |
|
| |
|
|
|
|
|
|
|
Outstanding at year-end 2004
|
|
|
3,524,900 |
|
|
|
19.37 |
|
| |
|
|
|
|
|
|
On April 21, 2003, the company’s executive officers
waived all right and all interest to their options to
purchase 465,900 common shares of the company. In all
cases, the option prices were in excess of current market price
of the company’s common shares as of the date of the
waivers. The waivers were made without any promise of future
options being offered to these officers. The purpose of the
waivers was to allow the company to make future grants to
participants under the company’s long-term incentive plans
without increasing shareholder dilution.
|
|
|
Exercisable Stock Options at Year-End |
| |
|
|
|
|
| |
|
Stock | |
| |
|
Options | |
| |
|
| |
|
2002
|
|
|
2,653,163 |
|
|
2003
|
|
|
2,723,088 |
|
|
2004
|
|
|
2,887,288 |
|
|
|
|
Shares Available for Future Grant at Year-End |
| |
|
|
|
|
| |
|
Shares | |
| |
|
| |
|
2002
|
|
|
969,524 |
|
|
2003
|
|
|
276,737 |
|
|
2004
|
|
|
7,127,180 |
|
88
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following tables summarize information about stock options
outstanding at December 31, 2004.
|
|
|
Components of Outstanding Stock Options |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Average | |
|
Weighted- | |
| |
|
|
|
Remaining | |
|
Average | |
| |
|
Number | |
|
Contract | |
|
Exercise | |
| Range of Exercise Prices |
|
Outstanding | |
|
Life | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
$ 4.30-19.53
|
|
|
1,359,075 |
|
|
|
3.5 |
|
|
$ |
13.23 |
|
|
20.09-27.91
|
|
|
2,165,825 |
|
|
|
2.8 |
|
|
|
23.22 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
3,524,900 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Components of Exercisable Stock Options |
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted- | |
| |
|
|
|
Average | |
| |
|
Number | |
|
Exercise | |
| Range of Exercise Prices |
|
Exercisable | |
|
Price | |
| |
|
| |
|
| |
|
$ 4.30-19.56
|
|
|
827,463 |
|
|
$ |
13.47 |
|
|
20.09-27.91
|
|
|
2,059,825 |
|
|
|
23.38 |
|
| |
|
|
|
|
|
|
| |
|
|
2,887,288 |
|
|
|
|
|
| |
|
|
|
|
|
|
As discussed more fully in the Stock-Based Compensation section
of the note captioned “Summary of Significant Accounting
Policies,” the company currently does not expense stock
options but will begin doing so in 2005 as a result of a newly
issued accounting standard. For purposes of determining the pro
forma amounts presented in the referenced section, the
weighted-average per-share fair values of stock options granted
during 2004, 2003 and 2002 were $2.72, $2.37 and $5.35,
respectively. The fair values of the options were calculated as
of the grant dates using the Black-Scholes option pricing model
and the following assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Dividend yield
|
|
|
0.0 |
% |
|
|
1.6 |
% |
|
|
.3-.7 |
% |
|
Expected volatility
|
|
|
74 |
% |
|
|
54 |
% |
|
|
46-50 |
% |
|
Risk free interest rate at grant date
|
|
|
4.00 |
% |
|
|
2.97 |
% |
|
|
2.98- 4.28 |
% |
|
Expected life in years
|
|
|
5 |
|
|
|
5 |
|
|
|
2-5 |
|
Under the 2004 Plan, grants of restricted stock may include
specific financial targets or objectives, the attainment of
which governs the extent to which the shares ultimately vest.
Performance awards were granted under the 1997 Plan in the form
of shares of restricted stock which vested based on the
achievement of specified earnings objectives over a three-year
period. The 2004 Plan and the 1997 Plan also permit the granting
of other restricted stock awards, which also vest two or three
years from the date of grant. During the restriction period,
restricted stock awards entitle the holder to all the rights of
a holder of common shares, including dividend and voting rights.
Unvested shares are restricted as to disposition and subject to
forfeiture under certain circumstances. Expense for restricted
shares, including performance awards, was $3.6 million in
2004, $.6 million in 2003 and $1.0 million in 2002.
The amount for 2004 includes a charge of $2.6 million
related to the early vesting of 1,090,310 shares as a
result of a change in control provision that was triggered by
89
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the refinancing transactions that occurred on March 12,
2004 and June 10, 2004 (see Refinancing Transactions).
Restricted stock award activity is as follows:
|
|
|
Restricted Stock Activity |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Restricted stock granted
|
|
|
1,192,572 |
|
|
|
924,300 |
|
|
|
192,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
Weighted-average market value on date of grant
|
|
$ |
4.25 |
|
|
$ |
2.74 |
|
|
$ |
13.09 |
|
| |
|
|
|
|
|
|
|
|
|
Grants of restricted shares and performance awards subject to
contingent vesting totaled 1,110,000 in 2004, 38,000 in 2003 and
46,000 in 2002. Outstanding restricted shares subject to
contingent vesting totaled 1,110,000, 104,646 and 141,795 at
year-end 2004, 2003 and 2002, respectively.
Cancellations of restricted stock, including shares cancelled to
pay employee withholding taxes at maturity, totaled 432,132 in
2004, 98,287 in 2003 and 82,448 in 2002.
Issuances of shares related to performance awards earned under a
prior plan and to deferred directors’ fees totaled 67,185
in 2004, 19,903 in 2003 and 1,003 in 2002.
Organization
The company has four business segments: machinery
technologies — North America, machinery
technologies — Europe, mold technologies and
industrial fluids.
The company’s segments conform to its internal management
reporting structure and are based on the nature of the products
they produce and the principal markets they serve. The machinery
technologies — North America segment produces
injection molding machines and extrusion and blow molding
systems for distribution primarily in North America at the
company’s principal plastics machinery plant located near
Cincinnati, Ohio. The segment also sells specialty and
peripheral equipment for plastics processing as well as
replacement parts for its machinery products. The machinery
technologies — Europe segment manufactures injection
molding machines and blow molding systems for distribution in
Europe and Asia at its principal manufacturing plants located in
Germany and Italy. The mold technologies segment —
which has its major operations in North America and
Europe — produces mold bases and components for
injection molding and distributes maintenance, repair and
operating supplies for all types to plastics processors. The
industrial fluids segment is also international in scope with
major blending facilities in the U.S. and The Netherlands and
manufactures and sells coolants, lubricants, corrosion
inhibitors and cleaning fluids used in metalworking.
The markets for all four segments tend to be cyclical in nature,
especially in the two machinery segments where demand is heavily
influenced by consumer confidence and spending levels, interest
rates and general capital spending patterns, particularly in the
automotive, packaging and construction industries. The markets
for the mold technologies and industrial fluids are somewhat
less cyclical and are influenced by industrial capacity
utilization and consumer spending.
Financial data for the past three years for the company’s
business segments are shown in the following tables. The
accounting policies followed by the segments are identical to
those used in the preparation of the company’s Consolidated
Financial Statements. The effects of intersegment transactions,
which are not significant in amount, have been eliminated. The
company incurs costs and expenses and holds certain assets at
the corporate level which relate to its business as a whole.
Certain of these amounts have been allocated to
90
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the company’s business segments by various methods, largely
on the basis of usage. Management believes that all such
allocations are reasonable.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Plastics technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Machinery technologies-North America
|
|
$ |
334.4 |
|
|
$ |
321.2 |
|
|
$ |
313.6 |
|
| |
Machinery technologies-Europe
|
|
|
167.0 |
|
|
|
151.0 |
|
|
|
117.4 |
|
| |
Mold technologies
|
|
|
167.1 |
|
|
|
168.7 |
|
|
|
174.7 |
|
| |
Eliminations
|
|
|
(3.3 |
) |
|
|
(5.4 |
) |
|
|
(8.5 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
Total plastics technologies
|
|
|
665.2 |
|
|
|
635.5 |
|
|
|
597.2 |
|
|
Industrial fluids
|
|
|
109.0 |
|
|
|
104.2 |
|
|
|
96.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$ |
774.2 |
|
|
$ |
739.7 |
|
|
$ |
693.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Customer Sales by Segment |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Plastics technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Machinery technologies-North America
|
|
$ |
333.9 |
|
|
$ |
319.6 |
|
|
$ |
312.5 |
|
| |
Machinery technologies-Europe
|
|
|
164.2 |
|
|
|
147.2 |
|
|
|
110.0 |
|
| |
Mold technologies
|
|
|
167.1 |
|
|
|
168.7 |
|
|
|
174.7 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total plastics technologies
|
|
|
665.2 |
|
|
|
635.5 |
|
|
|
597.2 |
|
|
Industrial fluids
|
|
|
109.0 |
|
|
|
104.2 |
|
|
|
96.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$ |
774.2 |
|
|
$ |
739.7 |
|
|
$ |
693.2 |
|
| |
|
|
|
|
|
|
|
|
|
91
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Operating Information by Segment |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Operating profit (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Plastics technologies(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Machinery technologies-North America
|
|
$ |
16.0 |
|
|
$ |
8.1 |
|
|
$ |
7.5 |
|
| |
|
Machinery technologies-Europe
|
|
|
1.9 |
|
|
|
(1.4 |
) |
|
|
(8.1 |
) |
| |
|
Mold technologies
|
|
|
4.3 |
|
|
|
1.8 |
|
|
|
5.3 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total plastics technologies
|
|
|
22.2 |
|
|
|
8.5 |
|
|
|
4.7 |
|
| |
Industrial fluids
|
|
|
9.2 |
|
|
|
15.7 |
|
|
|
14.4 |
|
| |
Goodwill impairment charge(b)
|
|
|
— |
|
|
|
(65.6 |
) |
|
|
— |
|
| |
Restructuring costs(c)
|
|
|
(13.0 |
) |
|
|
(27.1 |
) |
|
|
(13.9 |
) |
| |
Refinancing costs
|
|
|
(21.4 |
) |
|
|
(1.8 |
) |
|
|
— |
|
| |
Corporate expenses
|
|
|
(11.9 |
) |
|
|
(14.3 |
) |
|
|
(15.4 |
) |
| |
Other unallocated expenses(d)
|
|
|
(1.7 |
) |
|
|
(2.8 |
) |
|
|
(3.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(16.6 |
) |
|
|
(87.4 |
) |
|
|
(13.8 |
) |
|
Interest expense-net
|
|
|
(37.3 |
) |
|
|
(23.0 |
) |
|
|
(23.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$ |
(53.9 |
) |
|
$ |
(110.4 |
) |
|
$ |
(37.1 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Segment assets(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Plastics technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Machinery technologies-North America
|
|
$ |
183.9 |
|
|
$ |
181.3 |
|
|
$ |
202.5 |
|
| |
|
Machinery technologies-Europe
|
|
|
116.4 |
|
|
|
110.2 |
|
|
|
97.7 |
|
| |
|
Mold technologies
|
|
|
152.9 |
|
|
|
156.4 |
|
|
|
227.6 |
|
| |
|
Other
|
|
|
(.9 |
) |
|
|
.7 |
|
|
|
1.1 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total plastics technologies
|
|
|
452.3 |
|
|
|
448.6 |
|
|
|
528.9 |
|
| |
Industrial fluids
|
|
|
49.2 |
|
|
|
50.2 |
|
|
|
48.1 |
|
| |
Cash and cash equivalents
|
|
|
69.2 |
|
|
|
92.8 |
|
|
|
122.3 |
|
| |
Receivables sold
|
|
|
— |
|
|
|
(33.0 |
) |
|
|
(34.6 |
) |
| |
Deferred income taxes
|
|
|
89.2 |
|
|
|
98.8 |
|
|
|
173.0 |
|
| |
Assets of discontinued operations
|
|
|
— |
|
|
|
7.2 |
|
|
|
16.0 |
|
| |
Unallocated corporate and other(f)
|
|
|
80.0 |
|
|
|
68.8 |
|
|
|
93.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
739.9 |
|
|
$ |
733.4 |
|
|
$ |
947.3 |
|
| |
|
|
|
|
|
|
|
|
|
92
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Operating Information by Segment |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Plastics technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Machinery technologies-North America
|
|
$ |
4.0 |
|
|
$ |
1.7 |
|
|
$ |
2.6 |
|
| |
|
Machinery technologies-Europe
|
|
|
1.6 |
|
|
|
1.1 |
|
|
|
.3 |
|
| |
|
Mold technologies
|
|
|
1.7 |
|
|
|
1.6 |
|
|
|
1.7 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total plastics technologies
|
|
|
7.3 |
|
|
|
4.4 |
|
|
|
4.6 |
|
| |
Industrial fluids
|
|
|
1.4 |
|
|
|
2.1 |
|
|
|
1.5 |
|
| |
Unallocated corporate
|
|
|
.1 |
|
|
|
— |
|
|
|
.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$ |
8.8 |
|
|
$ |
6.5 |
|
|
$ |
6.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Plastics technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Machinery technologies-North America
|
|
$ |
7.3 |
|
|
$ |
8.7 |
|
|
$ |
9.9 |
|
| |
|
Machinery technologies-Europe
|
|
|
4.2 |
|
|
|
3.9 |
|
|
|
3.5 |
|
| |
|
Mold technologies
|
|
|
6.7 |
|
|
|
6.7 |
|
|
|
7.4 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
Total plastics technologies
|
|
|
18.2 |
|
|
|
19.3 |
|
|
|
20.8 |
|
| |
Industrial fluids
|
|
|
1.8 |
|
|
|
2.0 |
|
|
|
1.5 |
|
| |
Unallocated corporate
|
|
|
.3 |
|
|
|
.4 |
|
|
|
.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$ |
20.3 |
|
|
$ |
21.7 |
|
|
$ |
23.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In 2002, operating profit of the machinery
technologies — North America segment includes
$4.5 million of royalty income from the licensing of
patented technology and the operating profit of the mold
technologies segment includes a $1.0 million goodwill
impairment charge. |
| |
|
(b) |
|
Relates to the mold technologies segment. |
| |
|
(c) |
|
In 2004, $8.0 million relates to machinery
technologies — North America, $.2 million relates
to machinery technologies — Europe and
$4.8 million relates to mold technologies. In 2003,
$7.7 million relates to machinery technologies —
North America, $6.5 million relates to machinery
technologies — Europe, $12.6 million relates to
mold technologies and $.3 million relates to corporate
expenses. In 2002, $6.7 million relates to machinery
technologies — North America, $(.4) million
relates to machinery technologies — Europe
$6.4 million relates to mold technologies and
$1.2 million relates to corporate expenses. In 2004, 2003
and 2002, $1.4, $3.3 and $1.9 million, respectively,
relates to product line discontinuation and is therefore
included in cost of products sold in the Consolidated Statements
of Operations for those years. |
| |
|
(d) |
|
Represents financing costs, including those related to the sale
of accounts receivable prior to March 12, 2004. |
| |
|
(e) |
|
Segment assets consist principally of accounts receivable,
inventories, goodwill and property, plant and equipment which
are considered controllable assets for management reporting
purposes. |
| |
|
(f) |
|
Consists principally of corporate assets, nonconsolidated
investments, certain intangible assets, expected recoveries from
excess insurance carriers, cash surrender value of company-owned
life insurance, prepaid expenses and deferred charges. |
93
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Sales(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
$ |
466.6 |
|
|
$ |
450.8 |
|
|
$ |
444.4 |
|
| |
Non-U.S. operations
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Germany
|
|
|
104.5 |
|
|
|
102.3 |
|
|
|
84.3 |
|
| |
|
Other Western Europe
|
|
|
134.2 |
|
|
|
121.9 |
|
|
|
105.8 |
|
| |
|
Asia
|
|
|
36.4 |
|
|
|
31.0 |
|
|
|
31.7 |
|
| |
|
Other
|
|
|
32.5 |
|
|
|
33.7 |
|
|
|
27.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$ |
774.2 |
|
|
$ |
739.7 |
|
|
$ |
693.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
United States
|
|
$ |
103.8 |
|
|
$ |
103.3 |
|
|
$ |
125.1 |
|
| |
Non-U.S. operations
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Germany
|
|
|
45.4 |
|
|
|
46.7 |
|
|
|
45.8 |
|
| |
|
Other Western Europe
|
|
|
18.7 |
|
|
|
21.5 |
|
|
|
19.6 |
|
| |
|
Asia
|
|
|
6.6 |
|
|
|
5.7 |
|
|
|
5.9 |
|
| |
|
Other
|
|
|
1.8 |
|
|
|
4.9 |
|
|
|
5.6 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
176.3 |
|
|
|
182.1 |
|
|
|
202.0 |
|
| |
Investments not consolidated
|
|
|
2.0 |
|
|
|
1.6 |
|
|
|
1.2 |
|
| |
Goodwill
|
|
|
86.6 |
|
|
|
83.8 |
|
|
|
143.3 |
|
| |
Other intangible assets
|
|
|
5.1 |
|
|
|
6.5 |
|
|
|
7.8 |
|
| |
Deferred income taxes net of valuation allowances
|
|
|
63.1 |
|
|
|
70.9 |
|
|
|
132.4 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total noncurrent assets
|
|
$ |
333.1 |
|
|
$ |
344.9 |
|
|
$ |
486.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Sales are attributed to specific countries or geographic areas
based on the origin of the shipment. |
Sales of U.S. operations include export sales of
$78.0 million in 2004, $73.0 million in 2003 and
$70.7 million in 2002.
Total sales of the company’s U.S. and
non-U.S. operations to unaffiliated customers outside the
U.S. were $361.7 million, $338.2 million and
$295.7 million in 2004, 2003 and 2002, respectively.
Subsequent Events
On February 11, 2005, the company amended its
$75 million asset based credit facility and made a
$2.5 million prepayment of the facility from the proceeds
of a rights offering. The February 11, 2005 amendment
reduced the minimum cumulative consolidated EBITDA requirements
for 2005 and added a minimum consolidated EBITDA requirement for
the twelve consecutive calendar months ending December 31,
2005. The amendment also delayed the beginning of the fixed
charge coverage ratio test from the fourth quarter of 2005 until
the first quarter of 2006, extended the capital expenditures
test from September 30, 2005 to December 31, 2005 and
corrected a minor technical violation. The company also reached
an agreement with the lenders to allow for a change in the
method of accounting for certain U.S. plastics machinery
inventories from the last-in, first-out (LIFO) method to
the first-in, first-out (FIFO) method (see Summary of
Significant Accounting Policies — Changes in Methods
of Accounting).
94
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On March 2, 2004, the company announced that it has decided
to use a portion of the net proceeds from the rights offering
that was completed in the fourth quarter of 2004 (see
Shareholders’ Equity) to repay all short-term borrowings
under its asset based credit facility and invest the surplus
cash rather than redeeming a portion of the company’s
Series B Preferred Stock. All such borrowings have
subsequently been repaid. The objective of the company’s
decision was to improve its liquidity and to provide increased
financial flexibility to satisfy anticipated working capital
needs, higher levels of capital spending and any other cash
requirements in 2005.
On March 16, 2005, the company announced that it had
identified a deficiency in internal control over financial
reporting that constitutes a material weakness, as defined in
standards established by the Public Company Accounting Oversight
Board (United States). The deficiency consists of inadequate
levels of review of complex and judgmental accounting issues.
This internal control deficiency does not affect
Ernst & Young LLP’s unqualified report on the
company’s financial statements as of December 31, 2004
or for the year then ended.
To address the deficiency, the company has increased its levels
of review of complex and judgmental accounting issues, initiated
a plan to add personnel with technical accounting expertise and
has adopted a policy to increase professional development for
finance and accounting personnel.
The company received a waiver from its bank group on
March 16, 2005 for any noncompliance with its minimum level
of fourth quarter, 2004 EBITDA (earnings before interest, taxes,
depreciation and amortization) resulting from certain fourth
quarter adjustments to the company’s financial statements.
After giving effect to this waiver, the company was in
compliance with this covenant at December 31, 2004.
The SEC, in Release No. 34-50754 dated November 30,
2004, announced that certain companies, including Milacron, have
an additional 45 days in which to file an amendment to
Form 10-K that contains management’s report and the
auditor’s attestation on internal control over financial
reporting as required by Section 404 of the Sarbanes-Oxley
Act of 2002 (SOX-404). At this time, the company’s
management has not completed the procedures necessary to issue
its management report nor have its independent auditors
completed their procedures necessary to issue their attestation
on internal control over financial reporting as required by
SOX-404. While the company has hired consultants experienced in
SOX-404 compliance to provide additional resources to complete
this process, it is unlikely that these assessments will be
completed in time to file the required 10-K amendment by the
May 2, 2005 deadline. If a filing is not made by this date,
the company will be considered to have not filed its annual
report on Form 10-K in a timely manner.
The indenture governing the company’s
111/2%
Senior Secured Notes due 2011 requires filing the Form 10-K
in a timely manner. The failure to do so is a default under the
indenture, which if not remedied within 60 days after
notice is given by the trustee or the holders of 25% in
aggregate principal amount of the notes, would allow either the
trustee or the holders of 25% in aggregate principal amount of
the notes to declare all of the notes due and payable
immediately. The company believes that the filing will be made
within the 60-day cure period.
Similarly, the company’s asset-based revolving credit
facility contains certain provisions that could be implicated if
it does not file its Form 10-K in a timely manner. However,
the company has reached an agreement with its lenders to waive
such provisions as they relate solely to a delayed filing,
subject to certain conditions, of an amendment to the
Form 10-K containing management’s report and the
auditor’s attestation on internal control over financial
reporting not later than June 30, 2005. While the company
believes it will meet this deadline, failure to do so, without a
subsequent waiver, could result in the company being in default
or being unable to borrow under the facility. For a description
of the risks and consequences of being in default or not being
able to borrow under the company’s asset-based revolving
credit facility, see Short-Term Borrowings.
95
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Condensed Consolidating Financial Information |
On May 26, 2004,
111/2% Senior
Secured Notes due 2011 were issued by Milacron Escrow
Corporation, a wholly-owned, direct subsidiary of Milacron Inc.
created solely to issue the Senior Secured Notes and to merge
with and into Milacron Inc. The merger of Milacron Escrow
Corporation with and into Milacron Inc. was completed on
June 10, 2004. Also on June 10, 2004, the Senior
Secured Notes were jointly, severally, fully and unconditionally
guaranteed by the company’s U.S. and Canadian restricted
subsidiaries and by Milacron Capital Holdings B.V. Following are
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 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 consolidating financial statements
should be read in conjunction with the accompanying Consolidated
Financial Statements of the company.
96
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Consolidating Statement of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2004 | |
| |
|
| |
| |
|
|
|
Guarantor | |
|
Nonguarantor | |
|
Eliminations & | |
|
|
| |
|
Milacron Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Other | |
|
Consolidated | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Sales
|
|
$ |
— |
|
|
$ |
498.0 |
|
|
$ |
300.7 |
|
|
$ |
(24.5 |
) |
|
$ |
774.2 |
|
| |
Cost of products sold
|
|
|
5.3 |
|
|
|
408.1 |
|
|
|
237.7 |
|
|
|
(24.5 |
) |
|
|
626.6 |
|
| |
Cost of products sold related to restructuring
|
|
|
— |
|
|
|
1.4 |
|
|
|
— |
|
|
|
— |
|
|
|
1.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total cost of products sold
|
|
|
5.3 |
|
|
|
409.5 |
|
|
|
237.7 |
|
|
|
(24.5 |
) |
|
|
628.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Manufacturing margins
|
|
|
(5.3 |
) |
|
|
88.5 |
|
|
|
63.0 |
|
|
|
— |
|
|
|
146.2 |
|
|
Other costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling and administrative
|
|
|
17.6 |
|
|
|
52.0 |
|
|
|
57.3 |
|
|
|
— |
|
|
|
126.9 |
|
| |
Restructuring costs
|
|
|
.1 |
|
|
|
6.5 |
|
|
|
5.0 |
|
|
|
— |
|
|
|
11.6 |
|
| |
Refinancing costs
|
|
|
15.8 |
|
|
|
5.6 |
|
|
|
— |
|
|
|
— |
|
|
|
21.4 |
|
| |
Other expense — net
|
|
|
2.0 |
|
|
|
.2 |
|
|
|
.7 |
|
|
|
— |
|
|
|
2.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total other costs and expenses
|
|
|
35.5 |
|
|
|
64.3 |
|
|
|
63.0 |
|
|
|
— |
|
|
|
162.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
(40.8 |
) |
|
|
24.2 |
|
|
|
— |
|
|
|
— |
|
|
|
(16.6 |
) |
|
Other non-operating expense (income) Intercompany management fees
|
|
|
(10.9 |
) |
|
|
10.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Intercompany interest
|
|
|
(15.4 |
) |
|
|
16.3 |
|
|
|
(.9 |
) |
|
|
— |
|
|
|
— |
|
| |
Equity in (earnings) losses of subsidiaries
|
|
|
14.8 |
|
|
|
(4.1 |
) |
|
|
— |
|
|
|
(10.7 |
) |
|
|
— |
|
| |
Other intercompany transactions
|
|
|
(1.2 |
) |
|
|
1.1 |
|
|
|
.1 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total other non-operating expense (income)
|
|
|
(12.7 |
) |
|
|
24.2 |
|
|
|
(.8 |
) |
|
|
(10.7 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before interest
and income taxes
|
|
|
(28.1 |
) |
|
|
— |
|
|
|
.8 |
|
|
|
10.7 |
|
|
|
(16.6 |
) |
|
Interest expense — net
|
|
|
(32.3 |
) |
|
|
(4.4 |
) |
|
|
(.6 |
) |
|
|
— |
|
|
|
(37.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income
taxes
|
|
|
(60.4 |
) |
|
|
(4.4 |
) |
|
|
.2 |
|
|
|
10.7 |
|
|
|
(53.9 |
) |
|
Provision (benefit) for income taxes
|
|
|
(7.8 |
) |
|
|
.8 |
|
|
|
4.4 |
|
|
|
— |
|
|
|
(2.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
(52.6 |
) |
|
|
(5.2 |
) |
|
|
(4.2 |
) |
|
|
10.7 |
|
|
|
(51.3 |
) |
|
Discontinued operations net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loss from operations
|
|
|
— |
|
|
|
(1.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1.3 |
) |
| |
Net gain on divestitures
|
|
|
.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations
|
|
|
.8 |
|
|
|
(1.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
(.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net earnings (loss)
|
|
$ |
(51.8 |
) |
|
$ |
(6.5 |
) |
|
$ |
(4.2 |
) |
|
$ |
10.7 |
|
|
$ |
(51.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Consolidating Statement of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2003 | |
| |
|
| |
| |
|
|
|
Guarantor | |
|
Nonguarantor | |
|
Eliminations & | |
|
|
| |
|
Milacron Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Other | |
|
Consolidated | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Sales
|
|
$ |
— |
|
|
$ |
482.7 |
|
|
$ |
275.8 |
|
|
$ |
(18.8 |
) |
|
$ |
739.7 |
|
| |
Cost of products sold
|
|
|
(.9 |
) |
|
|
405.4 |
|
|
|
218.1 |
|
|
|
(18.8 |
) |
|
|
603.8 |
|
| |
Cost of products sold related to restructuring
|
|
|
— |
|
|
|
— |
|
|
|
3.3 |
|
|
|
— |
|
|
|
3.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total cost of products sold
|
|
|
(.9 |
) |
|
|
405.4 |
|
|
|
221.4 |
|
|
|
(18.8 |
) |
|
|
607.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Manufacturing margins
|
|
|
.9 |
|
|
|
77.3 |
|
|
|
54.4 |
|
|
|
— |
|
|
|
132.6 |
|
|
Other costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling and administrative
|
|
|
14.5 |
|
|
|
58.1 |
|
|
|
56.4 |
|
|
|
— |
|
|
|
129.0 |
|
| |
Goodwill impairment charge
|
|
|
— |
|
|
|
65.6 |
|
|
|
— |
|
|
|
— |
|
|
|
65.6 |
|
| |
Restructuring costs
|
|
|
.7 |
|
|
|
8.8 |
|
|
|
14.3 |
|
|
|
— |
|
|
|
23.8 |
|
| |
Refinancing costs
|
|
|
1.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.8 |
|
| |
Other expense (income) — net
|
|
|
1.6 |
|
|
|
(2.1 |
) |
|
|
.3 |
|
|
|
— |
|
|
|
(.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total other costs and expenses
|
|
|
18.6 |
|
|
|
130.4 |
|
|
|
71.0 |
|
|
|
— |
|
|
|
220.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(17.7 |
) |
|
|
(53.1 |
) |
|
|
(16.6 |
) |
|
|
— |
|
|
|
(87.4 |
) |
|
Other non-operating expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Intercompany management fees
|
|
|
(11.9 |
) |
|
|
11.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Intercompany interest
|
|
|
(5.3 |
) |
|
|
6.1 |
|
|
|
(.8 |
) |
|
|
— |
|
|
|
— |
|
| |
Equity in (earnings) losses of subsidiaries
|
|
|
107.9 |
|
|
|
(25.6 |
) |
|
|
— |
|
|
|
(82.3 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total other non-operating expense (income)
|
|
|
90.7 |
|
|
|
(7.6 |
) |
|
|
(.8 |
) |
|
|
(82.3 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before interest
and income taxes
|
|
|
(108.4 |
) |
|
|
(45.5 |
) |
|
|
(15.8 |
) |
|
|
82.3 |
|
|
|
(87.4 |
) |
|
Interest expense — net
|
|
|
(13.4 |
) |
|
|
(9.2 |
) |
|
|
(.4 |
) |
|
|
— |
|
|
|
(23.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income
taxes
|
|
|
(121.8 |
) |
|
|
(54.7 |
) |
|
|
(16.2 |
) |
|
|
82.3 |
|
|
|
(110.4 |
) |
|
Provision (benefit) for income taxes
|
|
|
68.3 |
|
|
|
(.9 |
) |
|
|
5.9 |
|
|
|
— |
|
|
|
73.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
(190.1 |
) |
|
|
(53.8 |
) |
|
|
(22.1 |
) |
|
|
82.3 |
|
|
|
(183.7 |
) |
|
Discontinued operations net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loss from operations
|
|
|
— |
|
|
|
(6.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6.4 |
) |
| |
Net loss on divestitures
|
|
|
(.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations
|
|
|
(.8 |
) |
|
|
(6.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
(7.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net earnings (loss)
|
|
$ |
(190.9 |
) |
|
$ |
(60.2 |
) |
|
$ |
(22.1 |
) |
|
$ |
82.3 |
|
|
$ |
(190.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Consolidating Statement of Operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2002 | |
| |
|
| |
| |
|
|
|
Guarantor | |
|
Nonguarantor | |
|
Eliminations & | |
|
|
| |
|
Milacron Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Other | |
|
Consolidated | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Sales
|
|
$ |
— |
|
|
$ |
480.6 |
|
|
$ |
236.4 |
|
|
$ |
(23.8 |
) |
|
$ |
693.2 |
|
| |
Cost of products sold
|
|
|
(.3 |
) |
|
|
403.5 |
|
|
|
192.7 |
|
|
|
(23.8 |
) |
|
|
572.1 |
|
| |
Cost of products sold related to restructuring
|
|
|
— |
|
|
|
1.9 |
|
|
|
— |
|
|
|
— |
|
|
|
1.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total cost of products sold
|
|
|
(.3 |
) |
|
|
405.4 |
|
|
|
192.7 |
|
|
|
(23.8 |
) |
|
|
574.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Manufacturing margins
|
|
|
.3 |
|
|
|
75.2 |
|
|
|
43.7 |
|
|
|
— |
|
|
|
119.2 |
|
|
Other costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Selling and administrative
|
|
|
13.9 |
|
|
|
55.8 |
|
|
|
51.3 |
|
|
|
— |
|
|
|
121.0 |
|
| |
Goodwill impairment charge
|
|
|
— |
|
|
|
1.0 |
|
|
|
— |
|
|
|
— |
|
|
|
1.0 |
|
| |
Restructuring costs
|
|
|
.7 |
|
|
|
6.8 |
|
|
|
4.5 |
|
|
|
— |
|
|
|
12.0 |
|
| |
Other expense (income) — net
|
|
|
3.1 |
|
|
|
(3.2 |
) |
|
|
(.9 |
) |
|
|
— |
|
|
|
(1.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total other costs and expenses
|
|
|
17.7 |
|
|
|
60.4 |
|
|
|
54.9 |
|
|
|
— |
|
|
|
133.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
(17.4 |
) |
|
|
14.8 |
|
|
|
(11.2 |
) |
|
|
— |
|
|
|
(13.8 |
) |
|
Other non-operating expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Intercompany management fees
|
|
|
(14.1 |
) |
|
|
12.4 |
|
|
|
1.7 |
|
|
|
— |
|
|
|
— |
|
| |
Intercompany royalties
|
|
|
— |
|
|
|
3.6 |
|
|
|
(3.6 |
) |
|
|
— |
|
|
|
— |
|
| |
Intercompany interest
|
|
|
(6.6 |
) |
|
|
7.9 |
|
|
|
(1.3 |
) |
|
|
— |
|
|
|
— |
|
| |
Equity in (earnings) losses of subsidiaries
|
|
|
242.1 |
|
|
|
29.8 |
|
|
|
31.7 |
|
|
|
(303.6 |
) |
|
|
— |
|
|
Other intercompany transactions
|
|
|
.9 |
|
|
|
.4 |
|
|
|
(.4 |
) |
|
|
(.9 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total other non-operating expense (income)
|
|
|
222.3 |
|
|
|
54.1 |
|
|
|
28.1 |
|
|
|
(304.5 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before interest
and income taxes
|
|
|
(239.7 |
) |
|
|
(39.3 |
) |
|
|
(39.3 |
) |
|
|
304.5 |
|
|
|
(13.8 |
) |
|
Interest expense — net
|
|
|
(13.9 |
) |
|
|
(8.6 |
) |
|
|
(.8 |
) |
|
|
— |
|
|
|
(23.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income
taxes and cumulative effect of accounting change
|
|
|
(253.6 |
) |
|
|
(47.9 |
) |
|
|
(40.1 |
) |
|
|
304.5 |
|
|
|
(37.1 |
) |
|
Benefit for income taxes
|
|
|
(8.2 |
) |
|
|
(6.2 |
) |
|
|
(4.0 |
) |
|
|
— |
|
|
|
(18.4 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before cumulative
effect of accounting change
|
|
|
(245.4 |
) |
|
|
(41.7 |
) |
|
|
(36.1 |
) |
|
|
304.5 |
|
|
|
(18.7 |
) |
|
Discontinued operations net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loss from operations
|
|
|
— |
|
|
|
(7.7 |
) |
|
|
(17.5 |
) |
|
|
— |
|
|
|
(25.2 |
) |
| |
Net gain (loss) on divestitures
|
|
|
22.2 |
|
|
|
(5.2 |
) |
|
|
(8.6 |
) |
|
|
— |
|
|
|
8.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued operations
|
|
|
22.2 |
|
|
|
(12.9 |
) |
|
|
(26.1 |
) |
|
|
— |
|
|
|
(16.8 |
) |
|
Cumulative effect of change in method of accounting
|
|
|
— |
|
|
|
(141.3 |
) |
|
|
(46.4 |
) |
|
|
— |
|
|
|
(187.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net earnings (loss)
|
|
$ |
(223.2 |
) |
|
$ |
(195.9 |
) |
|
$ |
(108.6 |
) |
|
$ |
304.5 |
|
|
$ |
(223.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Consolidating Balance Sheet
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2004 | |
| |
|
| |
| |
|
|
|
Guarantor | |
|
Nonguarantor | |
|
Eliminations & | |
|
|
| |
|
Milacron Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Other | |
|
Consolidated | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
ASSETS |
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
23.0 |
|
|
$ |
7.9 |
|
|
$ |
38.3 |
|
|
$ |
— |
|
|
$ |
69.2 |
|
| |
Notes and accounts receivable (excluding intercompany
receivables)
|
|
|
1.3 |
|
|
|
75.7 |
|
|
|
57.6 |
|
|
|
— |
|
|
|
134.6 |
|
| |
Inventories
|
|
|
(.2 |
) |
|
|
90.2 |
|
|
|
63.9 |
|
|
|
— |
|
|
|
153.9 |
|
| |
Other current assets
|
|
|
12.7 |
|
|
|
16.6 |
|
|
|
19.8 |
|
|
|
— |
|
|
|
49.1 |
|
| |
Intercompany receivables (payables)
|
|
|
(331.7 |
) |
|
|
218.9 |
|
|
|
115.1 |
|
|
|
(2.3 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
(294.9 |
) |
|
|
409.3 |
|
|
|
294.7 |
|
|
|
(2.3 |
) |
|
|
406.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment — net
|
|
|
1.1 |
|
|
|
58.9 |
|
|
|
68.4 |
|
|
|
— |
|
|
|
128.4 |
|
|
Goodwill
|
|
|
— |
|
|
|
52.7 |
|
|
|
33.9 |
|
|
|
— |
|
|
|
86.6 |
|
|
Investment in subsidiaries
|
|
|
301.0 |
|
|
|
173.8 |
|
|
|
(15.8 |
) |
|
|
(459.0 |
) |
|
|
— |
|
|
Intercompany advances — net
|
|
|
461.6 |
|
|
|
(499.3 |
) |
|
|
37.7 |
|
|
|
— |
|
|
|
— |
|
|
Other noncurrent assets
|
|
|
37.8 |
|
|
|
59.7 |
|
|
|
20.6 |
|
|
|
— |
|
|
|
118.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total assets
|
|
$ |
506.6 |
|
|
$ |
255.1 |
|
|
$ |
439.5 |
|
|
$ |
(461.3 |
) |
|
$ |
739.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Short-term borrowings
|
|
$ |
11.0 |
|
|
$ |
— |
|
|
$ |
.2 |
|
|
$ |
— |
|
|
$ |
11.2 |
|
| |
Long-term debt and capital lease obligations due within one year
|
|
|
1.0 |
|
|
|
— |
|
|
|
5.0 |
|
|
|
— |
|
|
|
6.0 |
|
| |
Trade accounts payable
|
|
|
6.8 |
|
|
|
39.2 |
|
|
|
34.3 |
|
|
|
— |
|
|
|
80.3 |
|
| |
Advance billings and deposits
|
|
|
— |
|
|
|
12.5 |
|
|
|
6.1 |
|
|
|
— |
|
|
|
18.6 |
|
| |
Accrued and other current liabilities
|
|
|
29.4 |
|
|
|
26.9 |
|
|
|
41.0 |
|
|
|
— |
|
|
|
97.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
48.2 |
|
|
|
78.6 |
|
|
|
86.6 |
|
|
|
— |
|
|
|
213.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term accrued liabilities
|
|
|
179.7 |
|
|
|
7.7 |
|
|
|
52.8 |
|
|
|
— |
|
|
|
240.2 |
|
|
Long-term debt
|
|
|
228.3 |
|
|
|
— |
|
|
|
7.6 |
|
|
|
— |
|
|
|
235.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total liabilities
|
|
|
456.2 |
|
|
|
86.3 |
|
|
|
147.0 |
|
|
|
— |
|
|
|
689.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shareholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
4% Cumulative Preferred shares
|
|
|
6.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6.0 |
|
| |
6% Series B Convertible Preferred Stock
|
|
|
112.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
112.9 |
|
| |
Common shares, $.01 par value
|
|
|
.5 |
|
|
|
25.4 |
|
|
|
12.8 |
|
|
|
(38.2 |
) |
|
|
.5 |
|
| |
Capital in excess of par value
|
|
|
347.2 |
|
|
|
316.4 |
|
|
|
78.7 |
|
|
|
(395.1 |
) |
|
|
347.2 |
|
| |
Contingent warrants
|
|
|
.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
.5 |
|
| |
Reinvested earnings (accumulated deficit)
|
|
|
(312.7 |
) |
|
|
(146.2 |
) |
|
|
180.3 |
|
|
|
(34.1 |
) |
|
|
(312.7 |
) |
| |
Other comprehensive income (accumulated other comprehensive loss)
|
|
|
(104.0 |
) |
|
|
(26.8 |
) |
|
|
20.7 |
|
|
|
6.1 |
|
|
|
(104.0 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total shareholders’ equity (deficit)
|
|
|
50.4 |
|
|
|
168.8 |
|
|
|
292.5 |
|
|
|
(461.3 |
) |
|
|
50.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity (deficit)
|
|
$ |
506.6 |
|
|
$ |
255.1 |
|
|
$ |
439.5 |
|
|
$ |
(461.3 |
) |
|
$ |
739.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Consolidating Balance Sheet
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2003 | |
| |
|
| |
| |
|
|
|
Guarantor | |
|
Nonguarantor | |
|
Eliminations & | |
|
|
| |
|
Milacron Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Other | |
|
Consolidated | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
ASSETS |
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
26.7 |
|
|
$ |
14.3 |
|
|
$ |
51.8 |
|
|
$ |
— |
|
|
$ |
92.8 |
|
| |
Notes and accounts receivable (excluding intercompany
receivables)
|
|
|
1.7 |
|
|
|
35.3 |
|
|
|
56.8 |
|
|
|
— |
|
|
|
93.8 |
|
| |
Inventories
|
|
|
.9 |
|
|
|
88.8 |
|
|
|
59.8 |
|
|
|
— |
|
|
|
149.5 |
|
| |
Other current assets
|
|
|
13.9 |
|
|
|
11.0 |
|
|
|
20.3 |
|
|
|
— |
|
|
|
45.2 |
|
| |
Intercompany receivables (payables)
|
|
|
(326.4 |
) |
|
|
233.9 |
|
|
|
94.8 |
|
|
|
(2.3 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Current assets of continuing operations
|
|
|
(283.2 |
) |
|
|
383.3 |
|
|
|
283.5 |
|
|
|
(2.3 |
) |
|
|
381.3 |
|
| |
Assets of discontinued operations
|
|
|
— |
|
|
|
7.2 |
|
|
|
— |
|
|
|
— |
|
|
|
7.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
(283.2 |
) |
|
|
390.5 |
|
|
|
283.5 |
|
|
|
(2.3 |
) |
|
|
388.5 |
|
|
Property, plant and equipment — net
|
|
|
1.3 |
|
|
|
69.5 |
|
|
|
70.0 |
|
|
|
— |
|
|
|
140.8 |
|
|
Goodwill
|
|
|
— |
|
|
|
52.3 |
|
|
|
31.5 |
|
|
|
— |
|
|
|
83.8 |
|
|
Investment in subsidiaries
|
|
|
310.9 |
|
|
|
198.0 |
|
|
|
(15.8 |
) |
|
|
(493.1 |
) |
|
|
— |
|
|
Intercompany advances — net
|
|
|
297.8 |
|
|
|
(332.4 |
) |
|
|
34.6 |
|
|
|
— |
|
|
|
— |
|
|
Other noncurrent assets
|
|
|
32.7 |
|
|
|
72.9 |
|
|
|
14.7 |
|
|
|
— |
|
|
|
120.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total assets
|
|
$ |
359.5 |
|
|
$ |
450.8 |
|
|
$ |
418.5 |
|
|
$ |
(495.4 |
) |
|
$ |
733.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Short-term borrowings
|
|
$ |
42.0 |
|
|
$ |
— |
|
|
$ |
.6 |
|
|
$ |
— |
|
|
$ |
42.6 |
|
| |
Long-term debt and capital lease obligations due within one year
|
|
|
115.9 |
|
|
|
— |
|
|
|
1.4 |
|
|
|
— |
|
|
|
117.3 |
|
| |
Trade accounts payable
|
|
|
2.6 |
|
|
|
31.9 |
|
|
|
33.4 |
|
|
|
— |
|
|
|
67.9 |
|
| |
Advance billings and deposits
|
|
|
— |
|
|
|
9.6 |
|
|
|
5.6 |
|
|
|
— |
|
|
|
15.2 |
|
| |
Accrued and other current liabilities
|
|
|
35.5 |
|
|
|
62.3 |
|
|
|
18.3 |
|
|
|
— |
|
|
|
116.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Current liabilities of continuing operations
|
|
|
196.0 |
|
|
|
103.8 |
|
|
|
59.3 |
|
|
|
— |
|
|
|
359.1 |
|
| |
Liabilities of discontinued operations
|
|
|
— |
|
|
|
1.8 |
|
|
|
— |
|
|
|
— |
|
|
|
1.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
196.0 |
|
|
|
105.6 |
|
|
|
59.3 |
|
|
|
— |
|
|
|
360.9 |
|
|
Long-term accrued liabilities
|
|
|
177.8 |
|
|
|
10.3 |
|
|
|
44.5 |
|
|
|
— |
|
|
|
232.6 |
|
|
Long-term debt
|
|
|
9.3 |
|
|
|
142.6 |
|
|
|
11.6 |
|
|
|
— |
|
|
|
163.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total liabilities
|
|
|
383.1 |
|
|
|
258.5 |
|
|
|
115.4 |
|
|
|
— |
|
|
|
757.0 |
|
|
Commitments and contingencies
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shareholders’ equity (deficit)
4% Cumulative Preferred shares
|
|
|
6.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6.0 |
|
| |
Common shares, $1.00 par value
|
|
|
34.8 |
|
|
|
34.4 |
|
|
|
12.8 |
|
|
|
(47.2 |
) |
|
|
34.8 |
|
| |
Capital in excess of par value
|
|
|
284.0 |
|
|
|
294.1 |
|
|
|
78.2 |
|
|
|
(372.3 |
) |
|
|
284.0 |
|
| |
Reinvested earnings (accumulated deficit)
|
|
|
(241.7 |
) |
|
|
(111.9 |
) |
|
|
200.3 |
|
|
|
(88.4 |
) |
|
|
(241.7 |
) |
| |
Other comprehensive income (accumulated other comprehensive loss)
|
|
|
(106.7 |
) |
|
|
(24.3 |
) |
|
|
11.8 |
|
|
|
12.5 |
|
|
|
(106.7 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total shareholders’ equity (deficit)
|
|
|
(23.6 |
) |
|
|
192.3 |
|
|
|
303.1 |
|
|
|
(495.4 |
) |
|
|
(23.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity (deficit)
|
|
$ |
359.5 |
|
|
$ |
450.8 |
|
|
$ |
418.5 |
|
|
$ |
(495.4 |
) |
|
$ |
733.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Consolidating Statement of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2004 | |
| |
|
| |
| |
|
|
|
Guarantor | |
|
Nonguarantor | |
|
Eliminations & | |
|
|
| |
|
Milacron Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Other | |
|
Consolidated | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Increase (decrease) in cash and cash equivalents Operating
activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net earnings (loss)
|
|
$ |
(51.8 |
) |
|
$ |
(6.5 |
) |
|
$ |
(4.2 |
) |
|
$ |
10.7 |
|
|
$ |
(51.8 |
) |
| |
Operating activities providing (using) cash
Loss from discontinued operations
|
|
|
— |
|
|
|
1.3 |
|
|
|
— |
|
|
|
— |
|
|
|
1.3 |
|
| |
|
Net (gain) loss on divestiture
|
|
|
(.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(.8 |
) |
| |
|
Depreciation
|
|
|
.2 |
|
|
|
11.2 |
|
|
|
7.5 |
|
|
|
— |
|
|
|
18.9 |
|
| |
|
Amortization of intangibles
|
|
|
— |
|
|
|
1.4 |
|
|
|
— |
|
|
|
— |
|
|
|
1.4 |
|
| |
|
Refinancing costs
|
|
|
15.8 |
|
|
|
5.6 |
|
|
|
— |
|
|
|
— |
|
|
|
21.4 |
|
| |
|
Restructuring costs
|
|
|
.1 |
|
|
|
7.9 |
|
|
|
5.0 |
|
|
|
— |
|
|
|
13.0 |
|
| |
|
Equity in (earnings) losses of subsidiaries
|
|
|
26.8 |
|
|
|
11.6 |
|
|
|
— |
|
|
|
(38.4 |
) |
|
|
— |
|
| |
|
Distributions from equity subsidiaries
|
|
|
— |
|
|
|
(12.0 |
) |
|
|
(15.7 |
) |
|
|
27.7 |
|
|
|
— |
|
| |
|
Deferred income taxes
|
|
|
.9 |
|
|
|
5.0 |
|
|
|
2.8 |
|
|
|
— |
|
|
|
8.7 |
|
| |
|
Working capital changes
Notes and accounts receivable
|
|
|
.6 |
|
|
|
(40.1 |
) |
|
|
3.4 |
|
|
|
— |
|
|
|
(36.1 |
) |
| |
|
|
Inventories
|
|
|
1.1 |
|
|
|
(2.7 |
) |
|
|
.5 |
|
|
|
— |
|
|
|
(1.1 |
) |
| |
|
|
Other current assets
|
|
|
4.7 |
|
|
|
(3.3 |
) |
|
|
1.6 |
|
|
|
— |
|
|
|
3.0 |
|
| |
|
|
Trade accounts payable
|
|
|
3.1 |
|
|
|
7.2 |
|
|
|
(1.0 |
) |
|
|
— |
|
|
|
9.3 |
|
| |
|
|
Other current liabilities
|
|
|
(11.4 |
) |
|
|
(9.8 |
) |
|
|
(9.2 |
) |
|
|
— |
|
|
|
(30.4 |
) |
| |
|
Decrease in other noncurrent assets
|
|
|
2.3 |
|
|
|
— |
|
|
|
.7 |
|
|
|
— |
|
|
|
3.0 |
|
| |
|
Increase (decrease) in long-term accrued liabilities
|
|
|
(2.9 |
) |
|
|
(.8 |
) |
|
|
1.8 |
|
|
|
— |
|
|
|
(1.9 |
) |
| |
|
Other — net
|
|
|
(.5 |
) |
|
|
— |
|
|
|
.9 |
|
|
|
— |
|
|
|
.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided (used) by operating activities
|
|
|
(11.8 |
) |
|
|
(24.0 |
) |
|
|
(5.9 |
) |
|
|
— |
|
|
|
(41.7 |
) |
|
Investing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Capital expenditures
|
|
|
— |
|
|
|
(4.6 |
) |
|
|
(4.2 |
) |
|
|
— |
|
|
|
(8.8 |
) |
| |
Net disposals of plant, property and equipment
|
|
|
— |
|
|
|
.3 |
|
|
|
.3 |
|
|
|
— |
|
|
|
.6 |
|
| |
Divestitures
|
|
|
8.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net cash provided (used) by investing activities
|
|
|
8.0 |
|
|
|
(4.3 |
) |
|
|
(3.9 |
) |
|
|
— |
|
|
|
(.2 |
) |
|
Financing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Issuance of long-term debt
|
|
|
219.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
219.8 |
|
| |
Repayments of long-term debt
|
|
|
(115.7 |
) |
|
|
(144.7 |
) |
|
|
(1.1 |
) |
|
|
— |
|
|
|
(261.5 |
) |
| |
Increase (decrease) in short-term borrowings
|
|
|
69.0 |
|
|
|
— |
|
|
|
(.5 |
) |
|
|
— |
|
|
|
68.5 |
|
| |
Issuance of common shares
|
|
|
25.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25.2 |
|
| |
Debt issuance costs
|
|
|
(27.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(27.8 |
) |
| |
Dividends paid
|
|
|
(3.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net cash provided (used) by financing activities
|
|
|
167.2 |
|
|
|
(144.7 |
) |
|
|
(1.6 |
) |
|
|
— |
|
|
|
20.9 |
|
|
Intercompany receivables and payables
|
|
|
(8.1 |
) |
|
|
6.3 |
|
|
|
1.8 |
|
|
|
— |
|
|
|
— |
|
|
Intercompany advances
|
|
|
(150.7 |
) |
|
|
156.0 |
|
|
|
(5.3 |
) |
|
|
— |
|
|
|
— |
|
|
Effect of exchange rate fluctuations on cash and cash
equivalents
|
|
|
— |
|
|
|
.2 |
|
|
|
1.4 |
|
|
|
— |
|
|
|
1.6 |
|
|
Cash flows related to discontinued operations
|
|
|
(8.3 |
) |
|
|
4.1 |
|
|
|
— |
|
|
|
— |
|
|
|
(4.2 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(3.7 |
) |
|
|
(6.4 |
) |
|
|
(13.5 |
) |
|
|
— |
|
|
|
(23.6 |
) |
|
Cash and cash equivalents at beginning of year
|
|
|
26.7 |
|
|
|
14.3 |
|
|
|
51.8 |
|
|
|
— |
|
|
|
92.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
23.0 |
|
|
$ |
7.9 |
|
|
$ |
38.3 |
|
|
$ |
— |
|
|
$ |
69.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Consolidating Statement of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2003 | |
| |
|
| |
| |
|
|
|
Guarantor | |
|
Nonguarantor | |
|
Eliminations & | |
|
|
| |
|
Milacron Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Other | |
|
Consolidated | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net loss
|
|
$ |
(190.9 |
) |
|
$ |
(60.2 |
) |
|
$ |
(22.1 |
) |
|
$ |
82.3 |
|
|
$ |
(190.9 |
) |
| |
|
Operating activities providing (using) cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Loss from discontinued operations
|
|
|
— |
|
|
|
6.4 |
|
|
|
— |
|
|
|
— |
|
|
|
6.4 |
|
| |
|
Net loss on divestitures
|
|
|
.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
.8 |
|
| |
|
Depreciation
|
|
|
.4 |
|
|
|
12.4 |
|
|
|
7.5 |
|
|
|
— |
|
|
|
20.3 |
|
| |
|
Amortization of intangibles
|
|
|
— |
|
|
|
1.4 |
|
|
|
— |
|
|
|
— |
|
|
|
1.4 |
|
| |
|
Refinancing costs
|
|
|
1.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1.8 |
|
| |
|
Restructuring costs
|
|
|
.7 |
|
|
|
8.8 |
|
|
|
17.6 |
|
|
|
— |
|
|
|
27.1 |
|
| |
|
Equity in (earnings) losses of subsidiaries
|
|
|
119.8 |
|
|
|
(4.9 |
) |
|
|
— |
|
|
|
(114.9 |
) |
|
|
— |
|
| |
|
Distributions from equity subsidiaries
|
|
|
— |
|
|
|
(11.9 |
) |
|
|
(20.7 |
) |
|
|
32.6 |
|
|
|
— |
|
| |
|
Goodwill impairment charge
|
|
|
— |
|
|
|
65.6 |
|
|
|
— |
|
|
|
— |
|
|
|
65.6 |
|
| |
|
Deferred income taxes
|
|
|
81.3 |
|
|
|
(15.7 |
) |
|
|
8.3 |
|
|
|
— |
|
|
|
73.9 |
|
| |
|
Working capital changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Notes and accounts receivable
|
|
|
(.5 |
) |
|
|
2.9 |
|
|
|
4.2 |
|
|
|
— |
|
|
|
6.6 |
|
| |
|
|
Inventories
|
|
|
— |
|
|
|
13.4 |
|
|
|
8.9 |
|
|
|
— |
|
|
|
22.3 |
|
| |
|
|
Other current assets
|
|
|
9.0 |
|
|
|
2.8 |
|
|
|
2.1 |
|
|
|
— |
|
|
|
13.9 |
|
| |
|
|
Trade accounts payable
|
|
|
.4 |
|
|
|
(7.3 |
) |
|
|
.8 |
|
|
|
— |
|
|
|
(6.1 |
) |
| |
|
|
Other current liabilities
|
|
|
(10.6 |
) |
|
|
(17.7 |
) |
|
|
(3.0 |
) |
|
|
— |
|
|
|
(31.3 |
) |
| |
|
Decrease (increase) in other noncurrent assets
|
|
|
(3.0 |
) |
|
|
1.6 |
|
|
|
.8 |
|
|
|
— |
|
|
|
(.6 |
) |
| |
|
Increase (decrease) in long-term accrued liabilities
|
|
|
.3 |
|
|
|
(.8 |
) |
|
|
(2.2 |
) |
|
|
— |
|
|
|
(2.7 |
) |
| |
|
Other — net
|
|
|
7.7 |
|
|
|
(3.5 |
) |
|
|
(2.7 |
) |
|
|
— |
|
|
|
1.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Net cash provided (used) by operating activities
|
|
|
17.2 |
|
|
|
(6.7 |
) |
|
|
(.5 |
) |
|
|
— |
|
|
|
10.0 |
|
| |
Investing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Capital expenditures
|
|
|
— |
|
|
|
(4.5 |
) |
|
|
(2.0 |
) |
|
|
— |
|
|
|
(6.5 |
) |
| |
|
Net disposals of plant, property and equipment
|
|
|
.5 |
|
|
|
1.7 |
|
|
|
.3 |
|
|
|
— |
|
|
|
2.5 |
|
| |
|
Divestitures
|
|
|
(20.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20.3 |
) |
| |
|
Acquisitions
|
|
|
— |
|
|
|
(2.9 |
) |
|
|
(3.6 |
) |
|
|
— |
|
|
|
(6.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used by investing activities
|
|
|
(19.8 |
) |
|
|
(5.7 |
) |
|
|
(5.3 |
) |
|
|
— |
|
|
|
(30.8 |
) |
| |
Financing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Repayments of long-term debt
|
|
|
(.9 |
) |
|
|
— |
|
|
|
(1.3 |
) |
|
|
— |
|
|
|
(2.2 |
) |
| |
|
Decrease in short-term borrowings
|
|
|
— |
|
|
|
— |
|
|
|
(2.6 |
) |
|
|
— |
|
|
|
(2.6 |
) |
| |
|
Dividends paid
|
|
|
(.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used by financing activities
|
|
|
(1.7 |
) |
|
|
— |
|
|
|
(3.9 |
) |
|
|
— |
|
|
|
(5.6 |
) |
|
Intercompany receivables and payables
|
|
|
14.3 |
|
|
|
32.9 |
|
|
|
(47.2 |
) |
|
|
— |
|
|
|
— |
|
|
Intercompany advances
|
|
|
.7 |
|
|
|
(7.5 |
) |
|
|
6.8 |
|
|
|
— |
|
|
|
— |
|
|
Effect of exchange rate fluctuations on cash and cash
equivalents
|
|
|
— |
|
|
|
.4 |
|
|
|
8.4 |
|
|
|
— |
|
|
|
8.8 |
|
|
Cash flows related to discontinued operations
|
|
|
(5.4 |
) |
|
|
(6.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
(11.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
5.3 |
|
|
|
6.9 |
|
|
|
(41.7 |
) |
|
|
— |
|
|
|
(29.5 |
) |
|
Cash and cash equivalents at beginning of year
|
|
|
21.4 |
|
|
|
7.4 |
|
|
|
93.5 |
|
|
|
— |
|
|
|
122.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
26.7 |
|
|
$ |
14.3 |
|
|
$ |
51.8 |
|
|
$ |
— |
|
|
$ |
92.8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Consolidating Statement of Cash Flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, 2002 | |
| |
|
| |
| |
|
|
|
Guarantor | |
|
Nonguarantor | |
|
Eliminations & | |
|
|
| |
|
Milacron Inc. | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Other | |
|
Consolidated | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions) | |
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net earnings (loss)
|
|
$ |
(223.2 |
) |
|
$ |
(195.9 |
) |
|
$ |
(108.6 |
) |
|
$ |
304.5 |
|
|
$ |
(223.2 |
) |
| |
|
Operating activities providing (using) cash Loss from
discontinued operations
|
|
|
— |
|
|
|
7.7 |
|
|
|
17.5 |
|
|
|
— |
|
|
|
25.2 |
|
| |
|
|
Net gain (loss) on divestitures
|
|
|
(22.2 |
) |
|
|
5.2 |
|
|
|
8.6 |
|
|
|
— |
|
|
|
(8.4 |
) |
| |
|
|
Cumulative effect on change in method of accounting
|
|
|
— |
|
|
|
141.3 |
|
|
|
46.4 |
|
|
|
— |
|
|
|
187.7 |
|
| |
|
|
Depreciation
|
|
|
.7 |
|
|
|
14.3 |
|
|
|
7.0 |
|
|
|
— |
|
|
|
22.0 |
|
| |
|
|
Amortization of intangibles
|
|
|
— |
|
|
|
1.0 |
|
|
|
— |
|
|
|
— |
|
|
|
1.0 |
|
| |
|
|
Goodwill impairment charge
|
|
|
— |
|
|
|
1.0 |
|
|
|
— |
|
|
|
— |
|
|
|
1.0 |
|
| |
|
|
Restructuring costs
|
|
|
.7 |
|
|
|
8.7 |
|
|
|
4.5 |
|
|
|
— |
|
|
|
13.9 |
|
| |
|
|
Equity in (earnings) losses of subsidiaries
|
|
|
300.4 |
|
|
|
30.5 |
|
|
|
32.5 |
|
|
|
(363.4 |
) |
|
|
— |
|
| |
|
|
Distributions from equity subsidiaries
|
|
|
— |
|
|
|
(12.4 |
) |
|
|
(47.4 |
) |
|
|
59.8 |
|
|
|
— |
|
| |
|
|
Deferred income taxes
|
|
|
(10.9 |
) |
|
|
(.4 |
) |
|
|
(5.6 |
) |
|
|
— |
|
|
|
(16.9 |
) |
| |
|
|
Working capital changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Notes and accounts receivable
|
|
|
1.6 |
|
|
|
1.2 |
|
|
|
6.9 |
|
|
|
— |
|
|
|
9.7 |
|
| |
|
|
|
Inventories
|
|
|
.1 |
|
|
|
23.8 |
|
|
|
12.5 |
|
|
|
— |
|
|
|
36.4 |
|
| |
|
|
|
Other current assets
|
|
|
— |
|
|
|
2.4 |
|
|
|
— |
|
|
|
— |
|
|
|
2.4 |
|
| |
|
|
|
Trade accounts payable
|
|
|
(1.4 |
) |
|
|
8.2 |
|
|
|
.1 |
|
|
|
— |
|
|
|
6.9 |
|
| |
|
|
|
Other current liabilities
|
|
|
39.8 |
|
|
|
(16.0 |
) |
|
|
(34.7 |
) |
|
|
— |
|
|
|
(10.9 |
) |
| |
|
|
Decrease (increase) in other noncurrent assets
|
|
|
(3.3 |
) |
|
|
(4.8 |
) |
|
|
1.1 |
|
|
|
— |
|
|
|
(7.0 |
) |
| |
|
|
Increase (decrease) in long-term accrued liabilities
|
|
|
(4.7 |
) |
|
|
— |
|
|
|
.5 |
|
|
|
— |
|
|
|
(4.2 |
) |
| |
|
|
Other — net
|
|
|
2.4 |
|
|
|
(2.5 |
) |
|
|
1.3 |
|
|
|
(.9 |
) |
|
|
.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided (used) by operating activities
|
|
|
80.0 |
|
|
|
13.3 |
|
|
|
(57.4 |
) |
|
|
— |
|
|
|
35.9 |
|
| |
Investing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Capital expenditures
|
|
|
— |
|
|
|
(4.6 |
) |
|
|
(1.6 |
) |
|
|
— |
|
|
|
(6.2 |
) |
| |
|
Net disposals of plant, property and equipment
|
|
|
— |
|
|
|
5.6 |
|
|
|
1.9 |
|
|
|
— |
|
|
|
7.5 |
|
| |
|
Acquisitions
|
|
|
— |
|
|
|
— |
|
|
|
(4.3 |
) |
|
|
— |
|
|
|
(4.3 |
) |
| |
|
Divestitures
|
|
|
125.6 |
|
|
|
— |
|
|
|
178.3 |
|
|
|
— |
|
|
|
303.9 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used by investing activities
|
|
|
125.6 |
|
|
|
1.0 |
|
|
|
174.3 |
|
|
|
— |
|
|
|
300.9 |
|
| |
Financing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Issuance of long-term debt
|
|
|
11.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11.5 |
|
| |
|
Repayments of long-term debt
|
|
|
(.3 |
) |
|
|
— |
|
|
|
(1.0 |
) |
|
|
— |
|
|
|
(1.3 |
) |
| |
|
Decrease in short-term borrowings
|
|
|
(232.0 |
) |
|
|
— |
|
|
|
(79.6 |
) |
|
|
— |
|
|
|
(311.6 |
) |
| |
|
Issuance of common shares
|
|
|
.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
.4 |
|
| |
|
Dividends paid
|
|
|
(1.6 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided (used) by financing activities
|
|
|
(222.0 |
) |
|
|
— |
|
|
|
(80.6 |
) |
|
|
— |
|
|
|
(302.6 |
) |
|
Intercompany receivables and payables
|
|
|
30.1 |
|
|
|
(64.4 |
) |
|
|
34.3 |
|
|
|
— |
|
|
|
— |
|
|
Intercompany advances
|
|
|
(44.0 |
) |
|
|
15.4 |
|
|
|
28.6 |
|
|
|
— |
|
|
|
— |
|
|
Effect of exchange rate fluctuations on cash and cash
equivalents
|
|
|
— |
|
|
|
.1 |
|
|
|
5.5 |
|
|
|
— |
|
|
|
5.6 |
|
|
Cash flows related to discontinued operations
|
|
|
— |
|
|
|
32.3 |
|
|
|
(39.9 |
) |
|
|
— |
|
|
|
(7.6 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(30.3 |
) |
|
|
(2.3 |
) |
|
|
64.8 |
|
|
|
— |
|
|
|
32.2 |
|
|
Cash and cash equivalents at beginning of year
|
|
|
51.7 |
|
|
|
9.7 |
|
|
|
28.7 |
|
|
|
— |
|
|
|
90.1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$ |
21.4 |
|
|
$ |
7.4 |
|
|
$ |
93.5 |
|
|
$ |
— |
|
|
$ |
122.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Milacron Inc.
We have audited the accompanying Consolidated Balance Sheets of
Milacron Inc. and subsidiaries as of December 31, 2004 and
2003, and the related Consolidated Statements of Operations,
Comprehensive Income and Shareholders’ Equity (Deficit),
and Cash Flows for each of the three years in the period ended
December 31, 2004. Our audits also included the financial
statement schedule listed in the Index at Item 15(c). These
financial statements and schedule are the responsibility of the
company’s management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Milacron Inc. and subsidiaries at
December 31, 2004 and 2003, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2004, in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed under the heading “Change in Method of
Accounting” in the notes to the consolidated financial
statements, in 2004, the Company changed its method of
accounting for certain U.S. plastics machinery inventories
from LIFO to FIFO. Also as discussed under the heading
“Change in Method of Accounting” in the notes to the
consolidated financial statements, in 2002, the company changed
its method of accounting for goodwill and other intangible
assets.
Cincinnati, Ohio
March 25, 2005
105
SUPPLEMENTARY FINANCIAL INFORMATION
Operating
Results by Quarter (Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
| |
|
| |
| |
|
Qtr 1 | |
|
Qtr 2 | |
|
Qtr 3 | |
|
Qtr 4 | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In millions, except per-share amounts) | |
|
Sales
|
|
$ |
188.9 |
|
|
$ |
191.7 |
|
|
$ |
180.5 |
|
|
$ |
213.1 |
|
|
Manufacturing margins
|
|
|
32.8 |
|
|
|
35.5 |
|
|
|
34.2 |
|
|
|
43.7 |
|
| |
Percent of sales
|
|
|
17.4 |
% |
|
|
18.5 |
% |
|
|
18.9 |
% |
|
|
20.5 |
% |
|
Loss from continuing operations(a)
|
|
|
(16.0 |
) |
|
|
(27.9 |
) |
|
|
(5.5 |
) |
|
|
(1.9 |
) |
| |
Per common share — basic and diluted(b)
|
|
|
(.43 |
) |
|
|
(.61 |
) |
|
|
(.18 |
) |
|
|
(.08 |
) |
|
Discontinued operations
|
|
|
(.6 |
) |
|
|
.1 |
|
|
|
— |
|
|
|
— |
|
| |
Per common share — basic and diluted(b)
|
|
|
(0.2 |
) |
|
|
.01 |
|
|
|
— |
|
|
|
— |
|
|
Net loss
|
|
|
(16.6 |
) |
|
|
(27.8 |
) |
|
|
(5.5 |
) |
|
|
(1.9 |
) |
| |
Per common share — basic and diluted(b)
|
|
|
(.45 |
) |
|
|
(.60 |
) |
|
|
(.18 |
) |
|
|
(.08 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2003 | |
| |
|
| |
| |
|
Qtr 1 | |
|
Qtr 2 | |
|
Qtr 3 | |
|
Qtr 4 | |
| |
|
| |
|
| |
|
| |
|
| |
|
Sales
|
|
$ |
190.2 |
|
|
$ |
181.6 |
|
|
$ |
170.2 |
|
|
$ |
197.7 |
|
|
Manufacturing margins
|
|
|
32.0 |
|
|
|
28.2 |
|
|
|
31.6 |
|
|
|
40.8 |
|
| |
Percent of sales(c)
|
|
|
16.8 |
% |
|
|
15.5 |
% |
|
|
18.6 |
% |
|
|
20.6 |
% |
|
Loss from continuing operations(d)
|
|
|
(7.6 |
) |
|
|
(88.1 |
) |
|
|
(65.3 |
) |
|
|
(22.7 |
) |
| |
Per common share — basic and diluted(b)
|
|
|
(.21 |
) |
|
|
(2.41 |
) |
|
|
(1.78 |
) |
|
|
(.62 |
) |
|
Discontinued operations
|
|
|
(.7 |
) |
|
|
(3.0 |
) |
|
|
(2.0 |
) |
|
|
(1.5 |
) |
| |
Per common share — basic and diluted(b)
|
|
|
(.02 |
) |
|
|
(.08 |
) |
|
|
(.05 |
) |
|
|
(.04 |
) |
|
Net loss(c)
|
|
|
(8.3 |
) |
|
|
(91.1 |
) |
|
|
(67.3 |
) |
|
|
(24.2 |
) |
| |
Per common share — basic and diluted(b)
|
|
|
(.23 |
) |
|
|
(2.49 |
) |
|
|
(1.83 |
) |
|
|
(.66 |
) |
|
|
|
|
(a) |
|
Includes restructuring costs of $1.1 million in
quarter 1, $1.7 million in quarter 2,
$2.3 million in quarter 3 and $7.9 million in
quarter 4, in all cases with no tax benefit. |
| |
|
(b) |
|
As discussed more fully in the notes to the Consolidated
Financial Statements that are included elsewhere herein, the
number of shares used to compute earnings (loss) per common
share data for all periods prior to the fourth quarter of 2004
has been restated to reflect the effects of a “bonus
element” inherent in a rights offering that was completed
in that quarter. |
| |
|
(c) |
|
In the fourth quarter of 2004, the company elected to change its
method of accounting for certain U.S. plastics machinery
inventories from the last-in, first-out (LIFO) method to the
first-in, first-out (FIFO) method, retroactive to the beginning
of the year. The Consolidated Financial Statements for all prior
periods have been restated to conform to the 2004 presentation. |
| |
|
(d) |
|
Includes restructuring costs of $6.0 million
($4.8 million after tax) in quarter 1,
$6.3 million with no tax benefit in quarter 2,
$6.4 million ($6.3 million after tax) in
quarter 3 and $8.4 million ($8.1 million after
tax) in quarter 4. Also includes goodwill impairment
charges of $52.3 million in quarter 3 and
$13.3 million in quarter 4, in both cases with no tax
benefit. |
106
|
|
| Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
Not applicable.
|
|
| Item 9A. |
Controls and Procedures |
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required
to be disclosed by the company is recorded, processed,
summarized and reported, within the time periods specified in
the rules and forms of the Securities and Exchange Commission
(SEC). As of the end of the company’s fourth quarter,
management conducted an evaluation (under the supervision and
with the participation of the chief executive officer and the
chief financial officer), pursuant to Rule 13a-15(b)
promulgated under the Securities Exchange Act of 1934, as
amended (the Exchange Act), of the effectiveness of the
company’s disclosure controls and procedures. As part of
such evaluation, management considered the matters discussed
below relating to internal control over financial reporting.
Based on this evaluation, the company’s chief executive
officer and chief financial officer have concluded that the
company’s disclosure controls and procedures were not
effective as of December 31, 2004, due to the material
weakness in internal control over financial reporting described
below.
Internal Control Over Financial Reporting
The company’s management is responsible for establishing
and maintaining adequate internal control over financial
reporting, as defined in Rule 13a-15(f) or 15d-15(f) under
the Exchange Act. Management (under the supervision and with the
participation of the chief executive officer and the chief
financial officer) is in the process of conducting an evaluation
of its internal control over financial reporting based on the
criteria established in “Internal Control —
Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:
|
|
|
| |
• |
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the issuer; |
| |
| |
• |
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made
only in accordance with authorizations of management and
directors of the company; and |
| |
| |
• |
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the
financial statements. |
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that control may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
While the company’s assessment of the effectiveness of its
internal control over financial reporting is not complete, a
material weakness, as defined in standards established by the
Public Company Accounting Oversight Board (United States), has
been identified. A material weakness is a deficiency in internal
control over financial reporting that results in more than a
remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected.
The identified material weakness consists of inadequate levels
of review of complex and judgmental accounting issues. Various
audit adjustments were needed to correct errors resulting from
the internal control deficiency. This deficiency manifested
itself in the determination of deferred tax valuation allowances
as well as litigation reserves and
107
recoverables from third-party insurers. These adjustments are
reflected in the company’s audited financial statements for
the year ended December 31, 2004.
Although its audit of internal control over financial reporting
is not complete, Ernst & Young LLP has indicated its
agreement with the above statements and has advised that the
internal control deficiency does not affect Ernst &
Young LLP’s unqualified report on the company’s
financial statements as of December 31, 2004 and for the
year then ended included in this annual report on Form 10-K.
To address the identified material weakness, the company is in
the process of implementing remediation plans, including the
following:
|
|
|
| |
• |
The company has increased its levels of review of complex and
judgmental accounting issues. |
| |
| |
• |
The company has initiated a plan to add personnel with technical
accounting expertise. |
| |
| |
• |
The company has made a commitment to increase professional
development for finance and accounting personnel. |
Since management’s assessment and Ernst & Young
LLP’s audit of internal control over financial reporting
are not yet complete, it is possible that additional material
weaknesses may be identified.
The SEC, in Release No. 34-50754 dated November 30,
2004 (the Release), announced that certain companies, including
Milacron, have an additional 45 days in which to file an
amendment to Form 10-K that contains management’s
report and the auditor’s attestation on internal control
over financial reporting as required by Section 404 of the
Sarbanes-Oxley Act of 2002 (SOX-404). In reliance on the
Release, the company has not included the following items in
this Form 10-K: (a) management’s annual report on
internal control over financial reporting and (b) an
attestation report of Ernst & Young LLP, the registered
public accounting firm that audited the company’s financial
statements as of and for the year ended December 31, 2004.
While the company has hired consultants experienced in SOX-404
compliance to provide additional resources, it is unlikely that
the required assessments will be completed in time to file the
required amendment by the May 2, 2005 deadline. If a filing
is not made by this date, the company will be considered to have
not filed its annual report on Form 10-K in a timely manner.
The indenture governing the company’s
111/2% Senior
Secured Notes due 2011 requires filing the Form 10-K in a
timely manner. The failure to do so is a default under the
indenture, which, if not remedied within 60 days after
notice is given by the trustee or the holders of 25% in
aggregate principal amount of the notes, would allow either the
trustee or the holders of 25% in aggregate principal amount of
the notes to declare all of the notes due and payable
immediately. The company believes that the filing will be made
within the 60-day cure period.
Similarly, the company’s asset-based revolving credit
facility contains certain provisions that could be implicated if
it does not file its Form 10-K in a timely manner. However,
the company has reached an agreement with its lenders to waive
such provisions as they relate solely to a delayed filing,
subject to certain conditions, of an amendment to the
Form 10-K containing management’s report and the
auditor’s attestation on internal control over financial
reporting not later than June 30, 2005. While the company
believes it will meet this deadline, failure to do so, without a
subsequent waiver, could result in the company being in default
or being unable to borrow under the facility. See Liquidity and
Sources of Capital for a description of the risks and
consequences of being in default or not being able to borrow
under the asset-based revolving credit facility.
Since a material weakness has been identified, management’s
annual report on internal control over financial reporting will
be unable to conclude that the company’s internal control
over financial reporting was effective as of December 31,
2004 and Ernst & Young LLP is expected to issue an
adverse opinion on the effectiveness of the company’s
internal control over financial reporting.
No change in internal control over financial reporting was made
in the fourth quarter of 2004 that has materially affected, or
is likely to materially affect, the company’s internal
control over financial reporting.
108
|
|
| Item 9B. |
Other Information |
On March 30, 2005 the company and Karlheinz Bourdon,
entered into a new employment agreement in order to update
Mr. Bourdon’s terms of employment in light of his
recent election as an executive officer. The form of employment
agreement is attached to this report as Exhibit 10.20.
PART III
|
|
| Item 10. |
Directors and Executive Officers of the Registrant |
The information required by the first part of Item 10 is
included in Part I “Executive Officers of the
Registrant”, of this Form 10-K and presented below.
Directors of the Registrant
The following information is furnished with respect to each
director of the Company.
| |
|
|
|
|
|
|
| Name and Age |
|
Committee Membership | |
|
Positions Held During Last Five Years |
| |
|
| |
|
|
|
Darryl F. Allen (61)
|
|
|
Audit
Finance |
|
|
Director since 1993. Term expires 2006. Mr. Allen is the
retired Chairman, President and Chief Executive Officer of
Aeroquip-Vickers, Inc., Maumee, Ohio, a world-wide manufacturer
and distributor of engineered components and systems for markets
which include industrial, automotive, aerospace and defense.
Director of Fifth Third Bancorp. |
|
Sallie B. Bailey (45)
|
|
|
Audit |
|
|
Director since November 18, 2004. Term expires
2006.1
Ms. Bailey is Senior Vice President, Finance and
Controller of The Timken Company, Canton, Ohio, a global
manufacturer of highly-engineered bearings and alloy steels, and
has served in that capacity since January, 2003. She was
Corporate Controller from April, 2001, to January, 2003, and
Director, Finance and Treasurer from November, 1999, to April,
2001. |
|
Ronald D. Brown (51)
|
|
|
|
|
|
Director since 1999. Term expires 2006. Mr. Brown is
Chairman, President and Chief Executive Officer of the Company.
He has served as Chairman and Chief Executive Officer since
June 1, 2001. Prior thereto, he was President and Chief
Operating Officer from September 20, 1999, Vice
President-Finance and Administration and Chief Financial Officer
from 1997. Director of A.O. Smith Corporation. |
109
| |
|
|
|
|
|
|
| Name and Age |
|
Committee Membership | |
|
Positions Held During Last Five Years |
| |
|
| |
|
|
|
David L. Burner (65)
|
|
Audit
Personnel and Compensation |
|
Director since 1998. Term expires 2007. Mr. Burner is the
retired Chairman and Chief Executive Officer of Goodrich
Corporation, Charlotte, North Carolina, a provider of aircraft
systems and services. He served in that capacity from July, 1997
to October, 2003. He was Chief Executive Officer from December,
1996, to July, 1997, and President from December, 1995, to
January, 1997. Prior to 1997 he was an Executive Vice President
of The BFGoodrich Company and the President & Chief
Operating Officer of BFGoodrich Aerospace. Director of Progress
Energy, Inc., Briggs & Stratton Corporation, Lance,
Inc., and Engelhard Corporation. |
|
Barbara Hackman Franklin (64)
|
|
Finance
Nominating and Corporate Governance |
|
Director since 1996. Term expires 2005. Ms. Franklin is
President and Chief Executive Officer of Barbara Franklin
Enterprises, Washington, D.C., an international consulting
and investment firm, and has served in that capacity since
January, 1995. Prior thereto, she was an independent director,
consultant and lecturer (1993-1995), and in 1992 she served as
the 29th U.S. Secretary of Commerce. Director of Aetna,
Inc., The DOW Chemical Company, MedImmune, Inc., and GenVec, Inc. |
|
Steven N. Isaacs (41)
|
|
|
Finance |
|
|
Director since April 5, 2004. Term expires 2007.
Mr. Isaacs is the Chairman and Managing Director of
Glencore Finance AG, an investment subsidiary of Glencore
International AG, and a director of Mopani Copper Mines Limited
(Zambia). Mr. Isaacs was selected for appointment as a
director and selected for nomination for re-election by Glencore
Finance AG and Mizuho International plc and is a Series B
Director. |
|
Mark L. Segal (40)
|
|
|
Audit |
|
|
Director since August 1, 2004. Term expires
2006.1
Mr. Segal is Chief Financial Officer of Spin Master
Ltd., Toronto, Canada, a designer, developer, manufacturer and
marketer of consumer products for children, and has served in
that capacity since September, 2001. He was Vice President,
Corporate Treasurer of Norigen Communications Inc., from
February, 2000, to August, 2001, and Director, Treasury and
Finance of Husky Injection Molding Systems Ltd. from February,
1997, to February, 2000. |
|
Joseph A. Steger (68)
|
|
Nominating and Corporate Governance Personnel and Compensation |
|
Director since 1985. Term expires 2007. Dr. Steger had
served for more than five years, until his retirement in 2003,
as President of the University of Cincinnati, and now serves as
President Emeritus. |
110
| |
|
|
|
|
|
|
| Name and Age |
|
Committee Membership | |
|
Positions Held During Last Five Years |
| |
|
| |
|
|
|
Duane K. Stullich (36)
|
|
Nominating and Corporate Governance |
|
Director since August 1, 2004. Term expires 2005.
Mr. Stullich is Co-Founder and Managing Member of
FocalPoint Partners, LLC, Los Angeles, California, an
independent investment bank specializing in mergers and
acquisitions, raising capital, and financial restructurings, and
has served in that capacity since December, 2002. He was
Principal of Murphy Noell Capital, LLC from March, 1999 to
December, 2001, and consultant with Murphy Noell Capital, LLC
from December, 2001 to July, 2002. |
|
Charles F.C. Turner (44)
|
|
|
Finance |
|
|
Director since 2002. Term expires 2005. Mr. Turner has been
President, Conklin Group, LLC, a real estate holding and
management company, since 2002. Prior to his election to the
Board in 2002, he had served in various capacities at the
Company, his last position being Group Director of Information
Technology for the Company’s Plastics Technologies Group.
Mr. Turner is a great-grandson of the late Fred A. Geier,
one of the founders of the Company, and a nephew of the late
James A.D. Geier, a former director and chief executive officer
of the Company. |
|
Larry D. Yost (67)
|
|
Nominating and Corporate Governance Personnel and Compensation |
|
Director since August 1, 2004. Term expires 2005.
Mr. Yost is the retired Chairman and Chief Executive
Officer of Arvin Meritor, Inc., Troy, Michigan, a global
supplier of components and systems for commercial, specialty and
light vehicle original equipment manufacturers and related
aftermarkets. He served in that capacity from October 1997 to
August, 2004. He was President of Rockwell Automotive from
March, 1997 to October, 1997, and President of the Heavy Vehicle
Systems group of Rockwell Automotive from November, 1994 to
March, 1997. Director of Kennametal, Inc. and UNOVA, Inc. |
|
|
| (1) |
Pursuant to the Company’s By-Laws, must stand for
re-election at the 2005 annual meeting of shareholders. |
Audit Committee Financial Literacy and Financial Experts
The Company’s Audit Committee is comprised of Darryl F.
Allen, Sallie B. Bailey, David L. Burner and Mark L. Segal, with
Mr. Burner serving as Chairperson. All members are
independent under applicable Securities and Exchange Commission
(“SEC”) and New York Stock Exchange (“NYSE”)
rules. Messrs. Allen, Burner, and Segal and Ms. Bailey
are “audit committee financial experts” in accordance
with SEC rules.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 and
related regulations require the Company’s directors,
executive officers, and persons who own more than 10% of the
Company’s common stock
111
(“reporting persons”) to report their initial
ownership of the Company’s common stock and any changes in
that ownership to the SEC and the NYSE. All reporting persons
are required by SEC regulations to furnish the Company with
copies of all Section 16(a) reports they file. Based on the
Company’s review of the reports it has received, the
Company believes that all Section 16(a) filing requirements
applicable to reporting persons were complied with except as
follows. Each of the following executive officers had one
transaction related to the forfeiture of restricted stock filed
via a delinquent Form 4: Messrs. Brown, Francy,
Lienesch and O’Donnell. In addition, Mr. Lienesch
reported two transactions related to the transfer of shares to a
trust established for his wife’s benefit on one delinquent
Form 4. Mr. Isaacs reported one transaction related to
Glencore’s acquisition of securities of the company on a
delinquent Form 4. Glencore Finance AG reported two
transactions related to the acquisition of securities of the
company on one delinquent Form 4. Finally, Mizuho
International plc filed a delinquent Form 3 following its
acquisition of 10% or more of the Series B Preferred Stock.
Code of Ethics
The company has adopted a Code of Ethics that applies to its
principal executive officer, principal financial officer and
principal accounting officer. A copy of the Code of Ethics is
available on the company’s website, www.milacron.com. A
copy can also be obtained by calling the company’s world
headquarters at 513.487.5000 or by writing to the following
address:
|
|
| |
Milacron Inc. |
| |
Attention: Investor Relations |
| |
2090 Florence Avenue |
| |
Cincinnati, OH 45206-2425 |
Other Corporate Governance Matters
The company’s board of directors has approved Corporate
Governance Guidelines and a Business Code of Conduct that
conform to NYSE requirements. Copies of these documents are
available on the company’s website, www.milacron.com.
Copies may also be obtained by calling the company’s world
headquarters at 513.487.5000 or by writing to the following
address:
|
|
| |
Milacron Inc. |
| |
Attention: Investor Relations |
| |
2090 Florence Avenue |
| |
Cincinnati, OH 45206-2425 |
Copies of the following documents may also be obtained on the
company’s website or as described above.
|
|
| |
Audit Committee Charter |
| |
Personnel and Compensation Committee Charter |
| |
Nominating and Corporate Governance Charter |
| |
and the related appendix regarding Criteria |
| |
for Selecting Board of Directors Candidates |
| |
Finance Committee Charter |
The company filed its 2004 annual CEO certification with the
NYSE on July 9, 2004. The certification was unqualified and
states that the CEO is not aware of any violation by the company
of any of the NYSE corporate governance listing standards.
Additionally, the company filed with the SEC as exhibits to its
Form 10-K for the year ended December 31, 2003 the CEO
and CFO certification required under Section 302 of the
Sarbanes-Oxley Act of 2002.
112
|
|
| Item 11. |
Executive Compensation |
SUMMARY COMPENSATION TABLE
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Long-Term Compensation | |
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
| |
|
|
|
|
|
Awards | |
|
|
|
|
| |
|
|
|
Annual Compensation(1) | |
|
| |
|
Payouts | |
|
|
| |
|
|
|
| |
|
|
|
Shares | |
|
| |
|
|
| |
|
|
|
|
|
Other | |
|
Performance/ | |
|
Underlying | |
|
LTIP | |
|
|
| Name |
|
|
|
Salary | |
|
Bonus | |
|
Annual | |
|
Restricted | |
|
Stock | |
|
Payouts | |
|
All Other | |
| Principal Position |
|
Year | |
|
($) | |
|
($) | |
|
Comp.($) | |
|
Stock ($)(2) | |
|
Options (#) | |
|
($) | |
|
Comp. ($)(3) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
R.D. Brown
|
|
|
2004 |
|
|
|
627,500 |
|
|
|
275,000 |
|
|
|
32,253 |
|
|
|
1,326,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
197,100 |
|
| |
Chairman, President and
|
|
|
2003 |
|
|
|
600,000 |
|
|
|
0 |
|
|
|
2,238 |
|
|
|
465,040 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
| |
Chief Executive Officer
|
|
|
2002 |
|
|
|
562,585 |
|
|
|
196,230 |
|
|
|
10,984 |
|
|
|
621,450 |
|
|
|
100,000 |
|
|
|
0 |
|
|
|
0 |
|
|
R.P. Lienesch
|
|
|
2004 |
|
|
|
289,800 |
|
|
|
85,520 |
|
|
|
74,078 |
(6) |
|
|
265,200 |
|
|
|
0 |
|
|
|
0 |
|
|
|
39,420 |
|
| |
Sr. V.P. of Finance,
|
|
|
2003 |
|
|
|
270,000 |
|
|
|
0 |
|
|
|
52,194 |
|
|
|
139,088 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
| |
Controller and
|
|
|
2002 |
|
|
|
253,800 |
|
|
|
60,861 |
|
|
|
11,777 |
|
|
|
248,580 |
|
|
|
58,000 |
|
|
|
0 |
|
|
|
0 |
|
| |
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H.C. O’Donnell
|
|
|
2004 |
|
|
|
246,867 |
|
|
|
89,103 |
(5) |
|
|
17,490 |
|
|
|
265,200 |
|
|
|
0 |
|
|
|
0 |
|
|
|
29,200 |
|
| |
Sr. V.P., General Counsel
|
|
|
2003 |
|
|
|
230,004 |
|
|
|
11,500 |
(5) |
|
|
6,335 |
|
|
|
137,240 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
| |
and Secretary
|
|
|
2002 |
|
|
|
216,207 |
|
|
|
51,846 |
|
|
|
3,267 |
|
|
|
165,720 |
|
|
|
44,000 |
|
|
|
0 |
|
|
|
0 |
|
|
K. Bourdon
|
|
|
2004 |
|
|
|
319,610 |
|
|
|
84,368 |
|
|
|
0 |
|
|
|
272,813 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
| |
Vice President and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
President — Global Plastics Machinery(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R.C. McKee
|
|
|
2004 |
|
|
|
197,700 |
|
|
|
63,512 |
|
|
|
9 |
|
|
|
176,800 |
|
|
|
0 |
|
|
|
0 |
|
|
|
26,280 |
|
| |
Vice President and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
President — Global Industrial Fluids(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Includes amounts earned in fiscal year. |
| |
| (2) |
Performance Share Awards: On February 12, 2002,
February 11, 2003, and June 11, 2004, the Personnel
and Compensation Committee of the Board of Directors awarded
performance share grants in the form of restricted stock under
the 1997 Long-Term Incentive Plan (for the 2002 and 2003 grants)
and under the 2004 Long-Term Incentive Plan (for the 2004
grants). Mr. Brown was awarded 15,000 shares in 2002,
12,000 shares in 2003 and 300,000 shares in 2004;
Mr. Lienesch was awarded 3,000 shares in 2002,
2,400 shares in 2003 and 60,000 shares in 2004;
Mr. O’Donnell was awarded 2,000 shares in each of
2002 and 2003 and 60,000 shares in 2004; and Mr. McKee
was awarded 40,000 shares in 2004. Under the terms of these
restricted stock grants, the restricted stock vests only upon
the achievement of certain performance targets during a
three-year performance period; however, as described in
footnote 3 below, the 2002 and 2003 grants were forfeited
in exchange for a payment by the company as a result of changes
in control of the company. Mr. Bourdon was granted a
phantom-performance award in an amount equivalent to
60,000 shares in 2004. The phantom-performance stock award
will vest only if certain performance targets are met during the
three-year performance period and can be settled either in cash
or in stock, at the discretion of the company. |
The performance-related restricted stock and the
phantom-performance award granted in 2004 will vest in a linear
fashion based on the extent to which the company attains certain
levels of cumulative earnings before interest, taxes,
depreciation and amortization (EBITDA) for the three-year
performance period. No awards will vest unless a certain
preestablished threshold of cumulative EBITDA is achieved.
Restricted Stock Awards: On February 12, 2002 and
November 6, 2003, the Personnel and Compensation Committee
awarded restricted stock, under the 1994 and 1997 Long-Term
Incentive Plans, which vests at the end of 3 years (for
awards made on November 6, 2003, 50% will vest at the end
of 2 years) provided the executive is still employed by the
company, has retired from the company or has become disabled, as
follows: Mr. Brown, 30,000 shares in 2002 and
160,000 shares in 2003; Mr. Lienesch,
15,000 shares in 2002 and 50,000 shares in 2003; and
Mr. O’Donnell, 10,000 shares in 2002 and
50,000 shares in 2003. As described in footnote 3
below, the 2002 and 2003 grants became fully vested in 2004 as a
result of a change in control of the company. The Personnel and
Compensation Committee also granted a phantom-restricted award
on February 10, 2004 to Mr. Bourdon in an amount
equivalent to
113
2,080 shares. The phantom-restricted award granted to
Mr. Bourdon vests at the end of two years and can be
settled either in cash or in stock, at the discretion of the
company.
The values of the awards under the Long-Term Incentive Plans
shown in the table are based on the closing prices of $13.81 for
the February 12, 2002 awards, $4.62 for the
February 11, 2003 awards, $2.56 for the November 6,
2003 awards, $3.66 for the February 10, 2004 awards and
$4.42 for the June 11, 2004 awards.
Dividends — Dividends are paid on all restricted stock
granted under the Long-Term Incentive Plans at the same time and
the same rate as dividends are paid to the shareholders on
unrestricted stock. Dividends are similarly credited on
phantom-performance shares and phantom-restricted awards in the
form of additional whole and fractional phantom shares.
NOTE: The total number of shares of restricted stock held by the
listed officers and the aggregate market value at the end of the
company’s fiscal year are as follows: Mr. Brown held
300,000 restricted shares valued at $1,017,000;
Mr. Lienesch held 60,000 shares valued at $203,400;
Mr. O’Donnell held 60,000 shares valued at
$203,400; and Mr. McKee held 40,000 shares valued at
$135,600. Mr. Bourdon held 110,775 phantom-performance and
phantom-restricted awards valued at $375,524. Aggregate market
value is based on the closing price of $3.39 at
December 31, 2004.
|
|
| (3) |
These amounts reflect payments made in connection with the
forfeiture of outstanding performance shares (in the form of
restricted stock) as a result of a change in control of the
company in 2004. The company’s recapitalization in 2004
constituted a change in control with respect to certain
compensation plans, including the company’s 1994 Long-Term
Incentive Plan and the 1997 Long-Term Incentive Plan. As a
result, all outstanding performance shares (in the form of
restricted stock) awarded prior to January 1, 2004 were
forfeited and employees, including the named executive officers,
received a payment in an amount equal to twice the closing price
of the common stock on the effective date of the change in
control. In addition, as a result of the 2004 change in control,
all other restricted shares granted to employees, including the
named executive officers, prior to January 1, 2004 became
fully vested. |
| |
| (4) |
Messrs. Bourdon and McKee became executive officers of the
company on August 2, 2004. |
| |
| (5) |
The Board of Directors approved bonuses to certain employees in
2003 and 2004, at the discretion of the CEO, in recognition of
extraordinary job demands required during the company’s
refinancing process. Mr. O’Donnell was paid a
discretionary bonus in the amount of $11,500 in 2003 and $16,253
in 2004. |
| |
| (6) |
Includes $20,449 for Supplemental Life Insurance benefits in
2004 and $20,834 in 2003 and $11,393 in 2004 relative to Medical
Expense Reimbursement received by Mr. Lienesch, which were
the only two perquisites or other personal benefits received by
him that exceeded 25% of the total of all perquisites and other
personal benefits received by him. |
Option Grants in Last Fiscal Year
There were no stock options granted in 2004 to any executive
officer or employee of the company.
Aggregated Option Exercises in Last
Year and Fiscal Year-End Option Values
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of | |
|
|
| |
|
|
|
|
|
Securities Underlying | |
|
Value (1) of Unexercised, | |
| |
|
|
|
|
|
Unexercised Options at | |
|
In-the Money Options | |
| |
|
Number of | |
|
|
|
Fiscal Year-End (#)(2) | |
|
Held at Fiscal Year-End ($) | |
| |
|
Shares Acquired | |
|
Value | |
|
| |
|
| |
| Name |
|
on Exercise (#) | |
|
Realized ($) | |
|
Exercisable | |
|
Unexercisable | |
|
Exercisable ($) | |
|
Unexercisable ($) | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
R.D. Brown
|
|
|
0 |
|
|
$ |
0 |
|
|
|
260,000 |
|
|
|
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
K. Bourdon
|
|
|
0 |
|
|
$ |
0 |
|
|
|
47,300 |
|
|
|
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
R.P. Lienesch
|
|
|
0 |
|
|
$ |
0 |
|
|
|
113,000 |
|
|
|
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
H.C. O’Donnell
|
|
|
0 |
|
|
$ |
0 |
|
|
|
85,000 |
|
|
|
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
R.C. McKee
|
|
|
0 |
|
|
$ |
0 |
|
|
|
78,050 |
|
|
|
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
114
|
|
| (1) |
Based on a fair market value (average of high and low market
prices) of Company common stock on December 31, 2004, of
$3.49. |
| |
| (2) |
The company’s recapitalization in 2004 constituted a change
in control with respect to certain compensation plans, including
the company’s 1994 Long-Term Incentive Plan and the 1997
Long-Term Incentive Plan. As a result, all unvested outstanding
non-qualified and incentive stock options granted to employees,
including the named executive officers, prior to April 23,
2003 (none of which were in-the-money on December 31, 2004)
became fully vested. |
Retirement Benefits
The calculation of estimated annual retirement benefits under
the Milacron Retirement Plan (the “Retirement Plan”)
is based upon years of service and average earnings for the five
consecutive years of highest compensation during such service.
Earnings include all cash compensation, including amounts
received or accrued under the Short-Term Management Incentive
Program, but exclude benefits or payments received under
long-term incentive plans or any other employee benefit plan.
The Retirement Plan is non-contributory and limits the
individual annual benefit to the maximum level permitted under
existing law. The credited years of service under the Retirement
Plan for the executive officers named in the Summary
Compensation Table set forth below are: 24 for Mr. Brown,
25 for Mr. Lienesch, 13 for Mr. McKee, and 17 for
Mr. O’Donnell. Mr. Bourdon, a German citizen, is
not a participant in the Retirement Plan. Mr. Bourdon is a
participant in the Milacron Europe Retirement Plan. Directors
who are not officers or employees of the company are not
eligible to participate in the Retirement Plan.
Mr. Bourdon, a German citizen, is not a participant in the
Retirement Plan. Mr. Bourdon is a participant in the
Milacron Europe Retirement Plan which provides a benefit based
upon: (i) the participant’s salary, (ii) the
participant’s years of service, and (iii) an
adjustment factor based on the ratio of pensionable pay to the
creditable contribution ceiling in the German State Scheme. The
estimated annual benefit payable to Mr. Bourdon at
age 65 under this plan (assuming pay as of
December 31, 2004 and continued participation in the plan
until age 65) is $70,982 per year.
The table below shows examples of pension benefits which are
computed on a straight life annuity basis before deduction of
the offset provided by the Retirement Plan, which is up to
one-half of the primary Social Security benefit, depending on
length of service:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Estimated Annual Pension for Representative Years of Credited Service | |
| Highest Consecutive |
|
| |
| Five-Year Average |
|
|
|
35 or | |
| Compensation |
|
10 | |
|
15 | |
|
20 | |
|
25 | |
|
30 | |
|
more | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$100,000
|
|
$ |
15,000 |
|
|
$ |
22,500 |
|
|
$ |
30,000 |
|
|
$ |
37,500 |
|
|
$ |
45,000 |
|
|
$ |
52,500 |
|
|
$250,000
|
|
$ |
37,500 |
|
|
$ |
56,250 |
|
|
$ |
75,000 |
|
|
$ |
93,750 |
|
|
$ |
112,500 |
|
|
$ |
131,250 |
|
|
$500,000
|
|
$ |
75,000 |
|
|
$ |
112,500 |
|
|
$ |
150,000 |
|
|
$ |
187,500 |
|
|
$ |
225,000 |
|
|
$ |
262,500 |
|
|
$750,000
|
|
$ |
112,500 |
|
|
$ |
168,750 |
|
|
$ |
225,000 |
|
|
$ |
281,250 |
|
|
$ |
337,500 |
|
|
$ |
393,750 |
|
|
$1,000,000
|
|
$ |
150,000 |
|
|
$ |
225,000 |
|
|
$ |
300,000 |
|
|
$ |
375,000 |
|
|
$ |
450,000 |
|
|
$ |
525,000 |
|
|
$1,250,000
|
|
$ |
187,500 |
|
|
$ |
281,250 |
|
|
$ |
375,000 |
|
|
$ |
468,750 |
|
|
$ |
562,500 |
|
|
$ |
656,250 |
|
Under existing law, the Retirement Plan limits the amount of
annual earnings that may be taken into account to $210,000 (as
adjusted) and provides that annual retirement benefits may not
exceed $170,000 (as adjusted). Benefits in excess of these
limits will be paid to executive officers directly by the
company under a non-qualified supplemental retirement plan.
The company’s supplemental plans provide certain executive
officers (including the executive officers named in the Summary
Compensation Table) meeting certain eligibility, age and service
requirements as an executive officer, an annual benefit at
retirement. Credited years of service as an executive officer
under the supplemental plans for executive officers named in the
Summary Compensation Table set forth below are: less than 1 for
Messrs. Bourdon and McKee, 15 for Mr. Brown, 15 for
Mr. Lienesch, and 5 for Mr. O’Donnell.
115
The table below shows examples of the annual benefits payable at
age 65 under the supplemental plans, computed on a straight
life annuity basis.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Estimated Annual Pension for Representative Years of Officer Service | |
| Highest Consecutive |
|
| |
| Three-Year Average |
|
|
|
10 or more | |
| Compensation |
|
1 | |
|
2 | |
|
4 | |
|
6 | |
|
8 | |
|
years* | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$100,000
|
|
$ |
1,000 |
|
|
$ |
2,000 |
|
|
$ |
4,000 |
|
|
$ |
6,000 |
|
|
$ |
8,000 |
|
|
$ |
10,000 |
|
|
$250,000
|
|
$ |
2,500 |
|
|
$ |
5,000 |
|
|
$ |
10,000 |
|
|
$ |
15,000 |
|
|
$ |
20,000 |
|
|
$ |
25,000 |
|
|
$500,000
|
|
$ |
5,000 |
|
|
$ |
10,000 |
|
|
$ |
20,000 |
|
|
$ |
30,000 |
|
|
$ |
40,000 |
|
|
$ |
50,000 |
|
|
$750,000
|
|
$ |
7,500 |
|
|
$ |
15,000 |
|
|
$ |
30,000 |
|
|
$ |
45,000 |
|
|
$ |
60,000 |
|
|
$ |
75,000 |
|
|
$1,000,000
|
|
$ |
10,000 |
|
|
$ |
20,000 |
|
|
$ |
40,000 |
|
|
$ |
60,000 |
|
|
$ |
80,000 |
|
|
$ |
100,000 |
|
|
$1,250,000
|
|
$ |
12,500 |
|
|
$ |
25,000 |
|
|
$ |
50,000 |
|
|
$ |
75,000 |
|
|
$ |
100,000 |
|
|
$ |
125,000 |
|
|
|
| * |
Executive officers with 10 or more years of officer service
receive the higher of 10% of their average compensation or 52.5%
of their average compensation reduced by benefits received from
all other Company provided pension plans, including the
Retirement Plan, the Milacron Supplemental Retirement Plan and
the Milacron Europe Retirement Plan. |
Compensation and Benefits for Non-Employee Directors
Our compensation program for non-employee directors is designed
to attract and retain highly qualified directors and to align
their interests with the long-term interests of our
shareholders. Following is a summary of the program:
|
|
| |
Cash Component. Each non-employee director is
entitled to receive an annual cash retainer of $25,000 and a fee
of $1,500 for each Board and committee meeting attended, either
personally or via telephone conference call. Chairpersons of the
Finance Committee, Nominating and Corporate Governance
Committee, and Personnel and Compensation Committee are entitled
to receive an additional retainer of $4,000, and the chairperson
of the Audit Committee is entitled to receive an additional
retainer of $7,000. Prior to January 1, 2005, non-employee
directors were entitled to defer all or a portion of their fees
under the Company’s Plan for the Deferral of
Directors’ Compensation. In November 2004, the Board froze
this plan, effective for years beginning after December 31,
2004, in response to changes in the tax rules governing deferred
compensation plans imposed by the American Jobs Creation Act of
2004. |
| |
| |
Equity Component. Each non-employee director is
entitled to receive annual equity compensation with an aggregate
value of $40,000, consisting of the following: (i) a credit
of phantom stock units with a value of $10,000 to his or her
account under a successor plan to the Plan for the Deferral of
Directors’ Compensation that will be adopted by the Board
and comply with the tax rules imposed by the American Jobs
Creation Act of 2004, and (ii) an award of deferred shares
under the 2004 Long-Term Incentive Plan with a value of $30,000.
In addition, each non-employee director first elected to the
Board is entitled to receive a restricted stock award (or an
equivalent award) covering 2,000 shares. In this regard,
the Board’s newest member, Sallie Bailey, is entitled to
receive a credit under the successor plan to the Plan for the
Deferral of Directors’ Compensation of 2,000 phantom stock
units, subject to a three-year vesting schedule. |
| |
| |
Other Compensation. Each non-employee director may
elect to be covered by $100,000 of company-paid group term life
insurance. |
Executive Agreements
The company has entered into Executive Severance Agreements (the
“Severance Agreements”) with its named executive
officers and certain other key executives. The Severance
Agreements continue through December 31, 2005, and provide
that they are to be automatically extended in one year
increments (unless notice by the Company is otherwise given)
and, in any event, will continue in effect for a period of two
years beyond the term if a Change in Control (as defined below)
of the company occurs.
116
Generally, a “Change in Control” of the company will
be deemed to have occurred if: (i) anyone acquires 20% or
more of the outstanding voting stock of the company;
(ii) the persons serving as directors of the company as of
the date of the agreement, and replacements or additions
subsequently approved by at least 60% of the incumbent Board,
cease to make up a majority of the Board; (iii) a merger,
consolidation, or reorganization occurs after which the holders
of the company’s outstanding stock immediately preceding
such transaction own less than
662/3%
of the surviving corporation; (iv) the company disposes of
all or substantially all of its assets; or (v) the
shareholders of the company approve a plan of liquidation or
dissolution of the company.
The Severance Agreements provide that the executives are
entitled to certain benefits following a Change in Control of
the company, including: (i) the vesting of all equity-based
awards, and (ii) cash payments equal to the value of each
executive’s target annual incentive award and any earned
but unpaid annual bonus. The Severance Agreements were amended
effective February 10, 2004 to provide that the events
related to the 2004 recapitalization would not result in a
Change in Control for purposes of these benefits. Therefore,
equity awards granted to executives on or after
February 10, 2004 did not accelerate as a result of the
2004 recapitalization, and the executives did not automatically
become entitled to their 2004 target annual incentive awards.
In the event that an executive’s employment is terminated
without “cause” or the executive terminates his
employment for “good reason” within two years
following a Change in Control, the executive is entitled to the
following additional benefits: (i) a portion of the
executive’s target annual incentive award for the year of
termination; (ii) a cash payment equal to the value of all
outstanding long-term incentive awards, assuming maximum
performance, (iii) an amount equal to three times (for our
CEO) or two times (for our other executives) the sum of the
executive’s base salary and highest bonus award;
(iv) a payment equal to the additional retirement benefits
that the executive would have accrued had he received three
years (for our CEO) or two years (for our other executives) of
additional age and service credit under the company’s
retirement plans; (v) outplacement services for a period of
one year; (vi) reimbursement of legal fees incurred by the
executive as a result of such termination; and
(vii) continuation of all life, disability and accident
insurance, and medical plan coverage for a period of three years
(for our CEO) or two years (for our other executives).
Furthermore, if any of these payments would be subjected to the
excise tax imposed on excess parachute payments by the Internal
Revenue Code, the company will “gross-up” the
executive’s compensation for all such excise taxes. The
events related to the 2004 recapitalization were considered a
Change in Control for purposes of these benefits. Therefore,
executives covered by a Severance Agreement on the effective
date of the change in control will become entitled to these
benefits if, within two years following such event, their
employment is terminated without “cause” or they leave
for “good reason.”
On the recommendation of independent advisors to the
Personnel & Compensation Committee of the Board of
Directors, in an effort to retain key employees during the
uncertainty created by the recapitalization process, the company
established a Temporary Enhanced Severance Plan effective
November 1, 2003 and extending through December 31,
2005 for certain key employees, including Messrs. Brown,
Lienesch, McKee and O’Donnell. Should the company terminate
a participant’s employment without “cause” during
this period, he or she would be entitled to a continuation of
base salary for a period of months (ranging from 6 months
to 36 months depending on the participant’s position)
and outplacement assistance. In exchange for these benefits, the
participants agree to be subject to standard non-competition,
non-solicitation and confidentiality provisions. The benefits
provided under this plan would not be cumulative to any other
severance benefits to which a participant would be entitled. In
the event a participant would receive benefits under another
severance arrangement, such as the Severance Agreements, then
the payments under this plan would be reduced by a like amount.
Effective February 1, 2005, Ferromatik Milacron
Maschinenbau GmbH and Dr. Karlheinz Bourdon entered into a
Service Contract For Managing Director (the “Employment
Contract”). The Employment Contract restates and updates,
in light of Dr. Bourdon’s election as an officer of
Milacron Inc., the terms of employment contained in a previous
agreement. The Employment Contract is filed with this
Form 10-K as Exhibit 10.20 and indicates, among other
things, that: Dr. Bourdon shall continue to act as Managing
Director of Ferromatik Milacron Maschinenbau GmbH;
Dr. Bourdon’s gross annual salary shall be EURO
250,000;
117
and, Dr. Bourdon shall participate in the Milacron Europe
Retirement Plan and shall participate in the other plans and
programs available to employees of Ferromatik Milacron
Maschinenbau GmbH. In addition, the Employment Agreement states
that Dr. Bourdon may participate in such other benefit
plans as determined by the Personnel and Compensation Committee
of the Milacron Inc. Board of Directors. The Employment
Agreement has an initial term of one year and renews
automatically for one year periods, unless either party to the
contract provides advance notice of termination. The Employment
Agreement also contains provisions that, following
Dr. Bourdon’s separation from Ferromatik Milacron
Maschinebau GmbH, except in the case of retirement, restrict
Dr. Bourdon’s ability to compete with Ferromatik
Milacron Maschinebau GmbH for two years and require Ferromatik
Milacron Maschinebau GmbH to compensate Dr. Bourdon at a
reduced salary during this period.
Compensation Committee Interlocks and Insider
Participation
The Company’s Personnel and Compensation Committee is
comprised of David L. Burner, Joseph A. Steger and Larry D.
Yost, with Mr. Steger serving as Chairperson. James E.
Perrella and Joseph A. Pichler also served on the Personnel and
Compensation Committee in 2004 prior to their retirement from
the Board. Each member of the Committee is independent, as
defined by the SEC and the NYSE. No member of the Board and no
employee of the Company serves or has served on the compensation
committee (or the board of directors of a corporation lacking a
compensation committee) of a corporation employing a member of
the Board.
|
|
| Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
Securities Authorized for Issuance Under Equity Compensation
Plans
|
|
| |
Equity Compensation Plan Information |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of Securities | |
| |
|
|
|
|
|
Remaining Available for | |
| |
|
Number of Securities to be | |
|
|
|
Future Issuance Under Equity | |
| |
|
Issued Upon Exercise of | |
|
Weighted-Average Exercise | |
|
Compensation Plans [c] | |
| |
|
Outstanding Options, | |
|
Price of Outstanding Options, | |
|
(Excluding Securities Reflected | |
| Plan Category |
|
Warrants and Rights [a] | |
|
Warrants and Rights [b] | |
|
in Column [a]) | |
| |
|
| |
|
| |
|
| |
|
Equity compensation plans not approved by security holders
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Equity compensation plans approved by security holders
|
|
|
3,524,900 |
|
|
$ |
19.37 |
|
|
|
7,127,180 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,524,900 |
|
|
$ |
19.37 |
|
|
|
7,127,180 |
|
| |
|
|
|
|
|
|
|
|
|
118
Principal Holders of Voting Securities
The following table sets forth information, unless otherwise
indicated, as of March 8, 2005, concerning the beneficial
owners of more than five percent of the company’s
outstanding shares of the Common Stock, Series B Preferred
Stock and 4% Cumulative Preferred Stock. Unless otherwise noted,
the individuals or entities named in the table have sole voting
and investment power.
Common Stock
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Percent of | |
| |
|
|
|
Percent of | |
|
Voting Power | |
| Beneficial Owner |
|
Shares | |
|
Class Outstanding | |
|
Outstanding(1) | |
| |
|
| |
|
| |
|
| |
|
Putnam, LLC d/b/a Putnam Investments(2)
|
|
|
3,921,294 |
|
|
|
7.9 |
|
|
|
3.9 |
|
| |
One Post Office Square
Boston, MA 02109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pzena Investment Management, LLC(3)
|
|
|
3,636,500 |
|
|
|
7.3 |
|
|
|
3.6 |
|
| |
120 West 45th Street, 34th Floor
New York, NY 10036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dimensional Fund Advisors Inc.(4)
|
|
|
3,531,401 |
|
|
|
7.1 |
|
|
|
3.5 |
|
| |
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
David G. Greene & Company, LLC(5)
|
|
|
3,346,029 |
|
|
|
6.7 |
|
|
|
3.3 |
|
| |
599 Lexington Avenue
New York, NY 10022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mellon Trust of New England
|
|
|
3,323,459 |
|
|
|
6.7 |
|
|
|
3.5 |
(9) |
| |
525 William Penn Place, Suite 3418
Pittsburgh, PA 15259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trustee — Milacron Employee Benefit Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred Stock
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Percent of | |
| |
|
|
|
Percent of | |
|
Voting Power | |
| Beneficial Owner |
|
Shares | |
|
Class Outstanding | |
|
Outstanding(1) | |
| |
|
| |
|
| |
|
| |
|
Glencore Finance AG(6)
|
|
|
350,000 |
|
|
|
70.0 |
|
|
|
34.6 |
|
| |
Baarermattstrasse 3
CH-6341 Baar
Switzerland |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mizuho International plc(7)
|
|
|
150,000 |
|
|
|
30.0 |
|
|
|
14.8 |
|
| |
Bracken House
One Friday Street
London EC4M 9JA
United Kingdom |
|
|
|
|
|
|
|
|
|
|
|
|
|
Triage Offshore Fund, Ltd.(8)
|
|
|
62,500 |
|
|
|
12.5 |
|
|
|
6.2 |
|
| |
c/o International Fund Administration, Ltd.
48 Par-la-Ville Road, Suite 464
Hamilton, HM11 Bermuda |
|
|
|
|
|
|
|
|
|
|
|
|
119
4% Cumulative Preferred Stock
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Percent of | |
| |
|
|
|
Percent of | |
|
Voting Power | |
| Beneficial Owner |
|
Shares | |
|
Class Outstanding | |
|
Outstanding(1) | |
| |
|
| |
|
| |
|
| |
|
Mellon Trust of New England
|
|
|
11,126 |
|
|
|
18.5 |
|
|
|
3.5 |
(9) |
| |
525 William Penn Place, Suite 3418
Pittsburgh, PA 15259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trustee — Milacron Employee Benefit Plans
|
|
|
7,285 |
|
|
|
12.1 |
|
|
|
0.2 |
|
| |
Bear Stearns Securities Corp |
|
|
|
|
|
|
|
|
|
|
|
|
| |
One Metrotech Center North, 4th Floor
Brooklyn, NY 11201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Empire & Co.
|
|
|
7,154 |
|
|
|
11.9 |
|
|
|
0.2 |
|
| |
Box 328A
Exchange Place Station
69 Montgomery Street
Jersey City, NJ 07303-0328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase Bank
|
|
|
7,004 |
|
|
|
11.7 |
|
|
|
0.2 |
|
| |
c/o JP Morgan Investor Services
14201 Dallas Parkway, 12th Floor
Dallas, TX 75254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
RBC Dan Rauscher Inc.
|
|
|
5,385 |
|
|
|
8.9 |
|
|
|
0.1 |
|
| |
510 Marquette Avenue South
Minneapolis, MN 55402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Milacron Geier Foundation
|
|
|
3,913 |
|
|
|
6.5 |
|
|
|
0.1 |
|
| |
2090 Florence Avenue, Cincinnati, OH 45206
(R. D. Brown, J. A. Steger, and C. F.C. Turner, Trustees) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
The following chart sets forth the percentage of voting power of
(a) the holders of the company’s common stock,
(b) the holders of the company’s Series B
Preferred Stock and (c) the holders of the company’s
4% Cumulative Preferred Stock, giving effect solely to the reset
of the conversion price of the Series B Preferred Stock,
the exercise of the contingent warrants and payment of
pay-in-kind dividends on the Series B Preferred Stock
through to its mandatory conversion date (and without giving
effect to any other transactions that the company may enter into
during the applicable periods that would result in additional
dilution). |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
On Series B | |
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|
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|
|
Preferred Stock | |
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|
|
|
|
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|
Mandatory | |
| |
|
|
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|
|
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|
Conversion Date | |
| |
|
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|
(June 10, 2011) | |
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|
|
Following Reset of | |
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|
|
Assuming Pay-in- | |
| |
|
|
|
Conversion Price of | |
|
|
|
kind Dividends on | |
| |
|
As of | |
|
Series B Preferred | |
|
Following Exercise | |
|
Series B Preferred | |
| |
|
March 8, | |
|
Stock to | |
|
of Contingent | |
|
Stock Until Such | |
| |
|
2005 | |
|
$1.75(c)(d) | |
|
Warrants(c)(e) | |
|
Date(f) | |
| |
|
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|
| |
|
| |
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|
Holders of Common Stock(a)
|
|
|
49.1% |
|
|
|
45.9% |
|
|
|
45.5% |
|
|
|
34.1% |
|
|
Holders of Series B Preferred Stock
|
|
|
49.5% |
|
|
|
52.8% |
|
|
|
53.2% |
|
|
|
64.9% |
|
|
Holder of 4% Cumulative Preferred Stock(b)
|
|
|
1.4% |
|
|
|
1.3% |
|
|
|
1.3% |
|
|
|
1.0% |
|
|
|
|
| |
(a) |
Each holder of common stock is entitled to one vote for each
share of common stock held. In this chart the voting power of
common stock issued upon exercise of contingent warrants is
attributed to holders of Series B Preferred Stock. |
120
|
|
|
| |
(b) |
Each holder of 4% Cumulative Preferred Stock is entitled to 24
votes for each such share of 4% Preferred Stock held. |
| |
| |
(c) |
Assumes no pay-in-kind dividends on the Series B Preferred
Stock have been paid. |
| |
| |
(d) |
The initial conversion price of $2.00 per share will be
reset to $1.75 per share effective June 30, 2005
because a test based on the company’s financial performance
for 2004 was not satisfied. |
| |
| |
(e) |
Assumes that all contingent warrants and common stock issued
upon exercise thereof continue to be held by holders of
Series B Preferred Stock. The voting power of common stock
issued upon exercise of the contingent warrants is attributed to
holders of Series B Preferred Stock. The contingent
warrants will be exercisable only if a test contained in the
contingent warrants based on the company’s financial
performance for 2005 is not satisfied. |
| |
| |
(f) |
Assumes reset of the conversion price of the Series B
Preferred Stock to $1.75, exercise of the contingent warrants
and that all contingent warrants and common stock issued upon
exercise thereof continue to be held by holders of Series B
Preferred Stock. |
|
|
| (2) |
As reported in an Amendment to Schedule 13G dated
February 4, 2005 filed with the SEC by Putnam, LLC
(“Putnam”), a subsidiary of Marsh & McLennan
Companies, Inc. (“MMc”), on behalf of MMc, on its own
behalf and on behalf of its two registered investment advisory
subsidiaries, Putnam Investment Management, LLC (advisor to the
Putnam family of mutual funds) and The Putnam Advisory Company,
LLC (advisor to Putnam’s institutional clients), with
respect to 2,430,264 shares of Common Stock as to which
Putnam and Putnam Investment Management, LLC reported shared
dispositive power and with respect to 1,491,030 shares of
Common Stock as to which Putnam and The Putnam Advisory Company,
LLC reported shared dispositive power. Putnam and The Putnam
Advisory Company, LLC also reported shared voting power with
respect to 1,099,510 of the shares of Common Stock as to which
they reported shared dispositive power. |
| |
| (3) |
As reported in Schedule 13G dated February 11, 2005
filed with the SEC by Pzena Investment Management, LLC
(“Pzena”), a registered investment advisor, with
respect to shares of Common Stock of which clients of Pzena have
the right to receive and the ultimate power to direct the
receipt of dividends, or the proceeds of sale. Pzena also
reported sole voting power with respect to 3,210,300 of the
shares of Common Stock as to which it reported sole dispositive
power. |
| |
| (4) |
As reported in an Amendment to Schedule 13G dated
February 9, 2005 filed with the SEC by Dimensional
Fund Advisors Inc., an investment advisor in accordance
with Rule 13d-1(b)(1)(ii)(E) of the Securities Exchange Act
of 1934, with respect to shares of Common Stock held by funds as
to which it serves as investment advisor or manager. |
| |
| (5) |
As reported in Schedule 13G dated February 2, 2005
filed with the SEC by David G. Greene and Company, LLC
(“David G. Greene”), a registered broker or dealer and
an investment advisor in accordance with
Rule 13d-1(b)(1)(ii)(E) under the Securities Exchange Act
of 1934, with respect to shares of which clients of David G.
Greene have the right to receive dividends and proceeds of sale.
David G. Greene also reported shared voting power with respect
to 3,346,029 of the shares of Common Stock as to which it
reported shared dispositive power. |
| |
| (6) |
As reported in an Amendment to Schedule 13D dated
June 21, 2004 filed with the SEC by Glencore Finance AG on
behalf of (i) Glencore Finance AG, Glencore International
AG, and Glencore Holding AG, and (ii) Mizuho International
and Mizuho Securities Co., Ltd. (Glencore has disclaimed
beneficial ownership of the shares of Series B Preferred
Stock held by Mizuho). In the Amendment to Schedule 13D,
Glencore Finance AG also reported the sale on March 16,
2004 of an undivided 17.8571428% participation interest in its
holdings of our then outstanding Series A Notes and
Series B Notes to Triage Offshore Fund, Ltd. Glencore
states in the amended Schedule 13D that, as of the date
thereof, Triage Offshore, Ltd.’s participation interest is
equivalent to 62,500 shares of Series B Preferred
Stock. This interest is reflected in the holdings of both
Glencore and Triage in the table above. Steven N. Isaacs, the
Chairman and Managing Director of Glencore Finance AG, has the
right to direct dispositions and voting with respect to the
350,000 shares of Series B Preferred Stock
beneficially owned by Glencore Finance AG. See footnote 4
to the “Share Ownership of Directors, Nominees and Executive |
121
|
|
|
Officers” table for information regarding
Mr. Isaacs’s beneficial ownership of shares of
Series B Preferred Stock. |
| |
| (7) |
As reported in an Amendment to Schedule 13D dated
June 21, 2004 filed with the SEC by Glencore Finance AG on
behalf of Glencore and Mizuho (Mizuho has disclaimed beneficial
ownership of the shares of Series B Preferred Stock held by
Glencore). |
| |
| (8) |
As reported in Schedule 13D dated June 21, 2004 filed
with the SEC by Triage Advisors, L.L.C., TRIAGE Management LLC,
Triage Capital Management, L.P., Triage Capital Management B,
L.P., Triage Offshore Fund, Ltd., and Leonid Frenkel
(collectively, “Triage”), with respect to Triage
Offshore Fund, Ltd.’s purchase of an undivided 17.8571428%
participation interest from Glencore Finance AG in its holdings
of our then outstanding Series A Notes and Series B
Notes. Triage states in the Schedule 13D that as of the
date thereof, its participation interest is equivalent to
62,500 shares of Series B Preferred Stock. This
interest is reflected in the holdings of both Glencore Finance
AG and Triage in the table above (Triage has disclaimed any
group for purposes of Section 13(d) among itself, Glencore
and Mizuho that may be found as a result of the participation
agreement entered into March 16, 2004 between Triage
Offshore Fund, Ltd. and Glencore Finance AG). |
| |
| (9) |
Includes both the 3,323,459 shares of Common Stock and the
11,126 shares of 4% Cumulative Preferred Stock beneficially
owned by Mellon Trust of New England. |
Share Ownership of Directors and Executive Officers
The following table sets forth the beneficial ownership of
Common Stock, Series B Preferred Stock and 4% Cumulative
Preferred Stock as of March 8, 2005, for each of the
directors and for each of the executive officers named in the
Summary Compensation Table included in Item 11 of this
Form 10-K.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
4% | |
|
|
| |
|
|
|
Percent of | |
|
Series B | |
|
Percent of | |
|
Cumulative | |
|
Percent of | |
| |
|
Common | |
|
Class | |
|
Preferred | |
|
Class | |
|
Preferred | |
|
Class | |
| Name |
|
Stock(1) | |
|
Outstanding | |
|
Stock | |
|
Outstanding | |
|
Stock | |
|
Outstanding | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Darryl F. Allen(2)
|
|
|
26,012 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Sallie B. Bailey(2)
|
|
|
0 |
|
|
|
0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Ronald D. Brown(3)
|
|
|
1,247,830 |
|
|
|
2.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
David L. Burner(2)
|
|
|
21,560 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Barbara Hackman Franklin(2)
|
|
|
30,076 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Steven N. Isaacs(2)(4)
|
|
|
5,961 |
|
|
|
* |
|
|
|
350,000 |
|
|
|
70 |
|
|
|
— |
|
|
|
— |
|
|
Mark L. Segal(2)
|
|
|
2,000 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Joseph A. Steger(2)(3)
|
|
|
27,480 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Duane K. Stullich(2)
|
|
|
2,904 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Charles F. C. Turner(2)(3)
|
|
|
13,138 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
342 |
|
|
|
0.6 |
|
|
Larry D. Yost(2)
|
|
|
2,000 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Karlheinz Bourdon(2)
|
|
|
45,950 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Robert P. Lienesch
|
|
|
330,732 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Robert C. McKee
|
|
|
223,374 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Hugh C. O’Donnell
|
|
|
306,763 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
All directors and named executive officers as a Group(5)
|
|
|
2,285,780 |
|
|
|
4.6 |
|
|
|
350,000 |
|
|
|
70 |
|
|
|
342 |
|
|
|
0.6 |
|
|
|
| (1) |
The amounts shown include (a) the following shares that may
be acquired within 60 days pursuant to outstanding option
grants: Mr. Bourdon 45,950 shares, Mr. Brown
260,000 shares, Mr. Lienesch 113,000 shares,
Mr. McKee 78,050 shares, Mr. O’Donnell
85,000 shares, Mr. Allen 13,000 shares,
Mr. Burner 10,000 shares, Ms. Franklin
14,000 shares, Mr. Steger 15,000 shares,
Mr. Turner |
122
|
|
|
3,000 shares, and 694,650 shares for all directors and
executive officers as a group; (b) 350,000 shares of
Series B Preferred Stock acquired by Glencore Finance AG of
which Mr. Isaacs has the right to direct dispositions and
voting (Mr. Isaacs has disclaimed beneficial ownership of
the 150,000 shares of Series B Preferred Shares
acquired by Mizuho International plc in the same transaction);
(c) the following shares allocated to participant accounts
under the Milacron Retirement Savings Plan, according to
information furnished by the Plan Trustee: Mr. Brown
3,357 shares, Mr. McKee 538 shares,
Mr. O’Donnell 3,227 shares, and
17,825 shares for all directors and executive officers as a
group; and (d) the following shares held by certain members
of the individuals’ families as to which beneficial
ownership is disclaimed: Mr. Brown 145 shares,
Mr. Lienesch 82,732 shares and Mr. Turner
901 shares. |
| |
| (2) |
The amounts shown do not include: (a) 193,711 Phantom Stock
Units held by Mr. Bourdon pursuant to phantom stock
accounts which may be settled in cash or stock at the discretion
of the Company; (b) credits of stock units under the
Company’s deferred compensation plan for non-employee
directors as follows: Mr. Allen 52,403 units,
Ms. Bailey 345 units, Mr. Burner
37,116 units, Ms. Franklin 9,230 units,
Mr. Isaacs 1,412 units, Mr. Segal
1,266 units, Mr. Steger 15,418 units,
Mr. Stullich 1,266 units, Mr. Turner
6,821 units, and Mr. Yost 1,266 units; and
(c) 9,331 deferred shares each for Messrs. Allen,
Burner, Isaacs, Segal, Steger, Stullich, Turner, Yost and
Ms. Bailey and Ms. Franklin granted pursuant to the
Milacron Inc. 2004 Long-Term Incentive Plan. |
| |
| (3) |
The amounts shown do not include 3,913 shares of 4%
Cumulative Preferred Stock held by the Milacron Geier Foundation
(of which Messrs. Brown, Steger, and Turner are Trustees),
as to which shares beneficial ownership is disclaimed. |
| |
| (4) |
The amount shown, which is 70% of the outstanding Series B
Preferred Stock, represents the shares owned by Glencore of
which Mr. Isaacs has the right to direct dispositions and
voting (Mr. Isaacs has disclaimed beneficial ownership to
the 150,000 shares owned by Mizuho which were acquired in
the same transaction in which Glencore acquired its shares). See
footnotes 6 and 8 to the “Principal Holders of Voting
Securities” table for information about Glencore’s
sale of a participation interest in its investment in the
Series B Preferred Stock to a third party. |
| |
| (5) |
Directors’ and executive officers’ beneficial
ownership as a group is: 5.5% of the outstanding Common Stock
(17 persons), 70% of the outstanding Series B Preferred
Stock (1 person) and 0.6% of the outstanding 4% Cumulative
Preferred Stock (1 person). In the event of full conversion of
the Series B Common Stock held by Glencore and Mizuho,
directors and executive officers’ beneficial ownership as a
group of outstanding Common Stock would be 2.6% excluding
Mr. Isaacs’ interest in Glencore’s holdings and
40% including Mr. Isaacs’ interest in Glencore’s
holdings. |
|
|
| Item 13. |
Certain Relationships and Related Transactions |
During the year 2004 and through March 8, 2005, the Company
had outstanding loans in excess of $60,000.00 to one executive
officer under the Company’s employee stock loan program for
the purposes of exercising stock options and purchasing stock,
and for paying related withholding taxes due as a result of such
actions or the lapse of restrictions on restricted stock, all
under the Company’s long-term incentive plans.
Mr. Brown had loans with interest rates ranging from 5.17%
to 7.38%, with the largest aggregate amount of indebtedness
outstanding at any time during such period being $147,869.58,
and the principal balance of all such loans outstanding at the
end of the period being $121,423.02. In 2002 the Company
discontinued the employee stock loan program, allowing for the
repayment of existing loans in accordance with their respective
terms. Pursuant to the employee stock loan program, the loans
are to be repaid on terms of regular payments of not more than
10 years unless the related stock is divested by the
employee prior to such time, in which case all amounts owing
become payable. The interest rate for each loan was the
Applicable Federal Rate in effect under Section 1274(d) of
the Internal Revenue Code of 1986, as amended, as of the day on
which the loan was made.
On March 12, 2004, the company sold $100 million in
aggregate principal amount of Series A Notes and
Series B Notes to Glencore Finance AG (Glencore), of which
Mr. Isaacs, a director, is the Chairman and Managing
Director, and Mizuho International plc (Mizuho). Mr. Isaacs
was selected for nomination as a director at the 2004 annual
meeting of shareholders by Glencore and Mizuho as holders of the
Series A Notes
123
pursuant to the agreement governing the sale of such notes. In
addition, Glencore has informed the company that it held
$7.5 million of the company’s
83/8% Notes
due March 15, 2004, prior to their repayment,
and €11 million
of Milacron Capital Holdings B.V.’s
75/8%
Guaranteed Bonds, prior to consummation of the tender offer. On
April 15, 2004, Glencore and Mizuho converted the entire
$30 million principal amount of the Series A Notes
into 15 million shares of the company’s common stock.
On June 10, 2004, the common stock into which the
Series A Notes were converted and the Series B Notes
were exchanged for 500,000 shares of the company’s
Series B Preferred Stock. See footnotes 6 and 8 to the
“Principal Holders of Voting Securities” table in
Item 12 of this Form 10-K for information about
Glencore’s sale of a participation interest in its
investment in the Series B Preferred Stock to a third
party. Also on June 10, 2004, the company issued to
Glencore and Mizuho contingent warrants to purchase an aggregate
of one million shares of its common stock for $.01 per
share. These contingent warrants are exercisable only if a test
based on the company’s financial performance for 2005 is
not satisfied. As of December 31, 2004, Glencore and Mizuho
collectively owned 100% of the company’s Series B
Preferred Stock, with Glencore owning 70% and Mizuho owning 30%.
The Series B Preferred Stock represents approximately 51%
of the company’s fully diluted common equity (on an
as-converted basis) as of such date. For more information on
these transactions, see “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Liquidity and Sources of Capital”
and the note to the Consolidated Financial Statements captioned
“Shareholders’ Equity.” In addition, Glencore and
Mizuho purchased $9 million and $2 million,
respectively, in principal amount of the $225 million
aggregate principal amount of the company’s
111/2% Senior
Secured Notes sold in a private placement on May 26, 2004.
|
|
| Item 14. |
Principal Accountant Fees and Services |
The following table presents fees for professional services
rendered by Ernst & Young LLP, the company’s
independent auditors, for the years ended December 31, 2004
and 2003.
Principal Accountant Fees and Services
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Audit Fees(a)
|
|
$ |
4,377,000 |
|
|
$ |
1,408,000 |
|
|
Audit-related fees(b)
|
|
|
14,000 |
|
|
|
— |
|
|
Tax fees(c)
|
|
|
336,000 |
|
|
|
322,000 |
|
|
All other fees(d)
|
|
|
6,000 |
|
|
|
13,000 |
|
| |
|
|
|
|
|
|
|
Total
|
|
$ |
4,733,000 |
|
|
$ |
1,743,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
(a) |
|
For services related to the annual audit of the company’s
consolidated financial statements (including statutory audits of
subsidiaries or affiliates of the company), quarterly reviews of
Forms 10-Q, issuance of the attestation on the
company’s internal controls over financial reporting,
issuance of consents, issuance of comfort letters and assistance
with review of documents filed with the Securities and Exchange
Commission. |
| |
|
(b) |
|
For services related to the company’s March 2004
refinancing of debt. |
| |
|
(c) |
|
For services related to tax compliance, tax return preparation
and tax planning. |
| |
|
(d) |
|
For miscellaneous performed services in 2004 and 2003. |
The Audit Committee reviews and approves, prior to the annual
audit, the scope, general extent, and fees related to the
independent auditors’ audit examination. The Committee also
reviews the extent of non-audit services provided by the
independent auditors in relation to the objectivity and
independence needed in the audit. The Committee also
pre-approves all non-audit services performed by the independent
auditor and fees related thereto (this responsibility may be
delegated to the Chairperson when appropriate).
124
PART IV
|
|
| Item 15. |
Exhibits and Financial Statement Schedules |
Item 15(a) (1) & (2) — List of
Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Milacron Inc.
and subsidiaries are included in Item 8:
| |
|
|
|
|
| |
|
Page | |
| |
|
| |
|
Consolidated Statements of Operations — 2004, 2003 and
2002
|
|
|
43 |
|
|
Consolidated Balance Sheets — 2004 and 2003
|
|
|
44 |
|
|
Consolidated Statements of Comprehensive Income and
Shareholders’ Equity (Deficit) — 2004, 2003 and
2002
|
|
|
45 |
|
|
Consolidated Statements of Cash Flows — 2004, 2003 and
2002
|
|
|
46 |
|
|
Notes to Consolidated Financial Statements
|
|
|
47 |
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
105 |
|
|
Supplementary Financial Information
|
|
|
106 |
|
The following consolidated financial statement schedule of
Milacron Inc. and subsidiaries for the years ended 2004, 2003
and 2002 is filed herewith pursuant to Item 15(c):
| |
|
|
|
|
|
Schedule II — Valuation and Qualifying Accounts
and Reserves
|
|
|
133 |
|
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable, and therefore have been omitted.
|
|
| Item 15 |
(a)(3) — List of Exhibits |
| |
|
|
|
|
|
|
|
|
| Exhibit No. |
|
|
|
|
| |
|
|
|
|
| |
2 |
. |
|
Plan of Acquisition, Reorganization, Arrangement, Liquidation,
or Succession — not applicable. |
|
|
|
|
| |
3 |
|
|
Articles of Incorporation and By-Laws. |
|
|
|
|
| |
3 |
.1 |
|
Restated Certificate of Incorporation of Milacron Inc. |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-8 filed on June 11, 2004 |
|
|
|
|
| |
3 |
.2 |
|
Certificate of Designation of 6.0% Series B Convertible
Preferred Stock of Milacron Inc. |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-8 filed on June 11, 2004 |
|
|
|
|
| |
3 |
.3 |
|
Amended and restated By-Laws of Milacron Inc. |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-8 filed on June 11, 2004 |
|
|
|
|
| |
4 |
|
|
Instruments Defining the Rights of Security Holders, Including
Indentures: |
|
|
|
|
| |
4 |
.1 |
|
Indenture dated as of May 26, 2004, between Milacron Escrow
Corporation, to be merged with and into Milacron Inc., and
U.S. Bank National Association, as trustee, relating to the
111/2% Senior
Secured Notes due 2011 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.2 |
|
Supplemental Indenture dated as of June 10, 2004, among
Milacron Inc., the Guaranteeing Subsidiaries named therein and
U.S. Bank National Association, as trustee, relating to the
111/2% Senior
Secured Notes due 2011 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.3 |
|
Form of
111/2% Senior
Secured Notes due 2011 (included in Exhibit 4.1) |
|
|
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|
125
| |
|
|
|
|
|
|
|
|
| Exhibit No. | |
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|
|
|
| | |
|
|
|
|
| |
4 |
.4 |
|
Registration Rights Agreement dated as of May 26, 2004,
between Milacron Escrow Corporation and Credit Suisse First
Boston LLC, as representative of the several purchasers listed
therein, relating to the
111/2% Senior
Secured Notes due 2011 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
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|
| |
4 |
.5 |
|
Joinder to the Registration Rights Agreement dated June 10,
2004 by Milacron Inc. and the Guarantors listed therein |
|
|
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|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.6 |
|
Security Agreement dated June 10, 2004, made by each of the
Grantors listed therein in favor of U.S. Bank National
Association |
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|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
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|
| |
4 |
.7 |
|
Security Agreement (Canada) dated June 10, 2004, made by
each of the Grantors listed therein in favor of U.S. Bank
National Association |
|
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|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.8 |
|
Pledge and Security Agreement dated June 10, 2004, made by
each of the Pledgors listed therein in favor of U.S. Bank
National Association |
|
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|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.9 |
|
Intercreditor Agreement dated as of June 10, 2004, by and
between JPMorgan Chase Bank and U.S. Bank National
Association, acknowledged by Milacron Inc. and the subsidiaries
of Milacron Inc. listed therein |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.10 |
|
Mortgage, Assignment of Leases and Rents, Security Agreement and
Fixture Filing made by D-M-E Company in favor of U.S. Bank
National Association (1975 N. 17th Avenue, Melrose
Park, Illinois 60160), dated as of June 10, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.11 |
|
Mortgage made by D-M-E U.S.A. Inc. in favor of U.S. Bank
National Association (6328 Ferry Avenue, Charlevoix, Michigan
49720), dated as of June 10, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.12 |
|
Mortgage made by D-M-E U.S.A. Inc. in favor of U.S. Bank
National Association (29215 Stephenson Highway, Madison Heights,
Michigan 48071) dated as of June 10, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.13 |
|
Mortgage made by Oak International, Inc. in favor of
U.S. Bank National Association (1160 White Street, Sturgis,
Michigan 49091), dated as of June 10, 2004 |
|
|
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|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.14 |
|
Mortgage made by Milacron Industrial Products, Inc. in favor of
U.S. Bank National Association (31003 Industrial Road,
Livonia, Michigan 48150), dated as of June 10, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
126
| |
|
|
|
|
|
|
|
|
| Exhibit No. | |
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|
| | |
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|
| |
4 |
.15 |
|
Mortgage made by D-M-E U.S.A. Inc. in favor of U.S. Bank
National Association (29111 Stephenson Highway, Madison Heights,
Michigan 48071), dated as of June 10, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.16 |
|
Open-End Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing made by D-M-E Company in favor of
U.S. Bank National Association (558 Leo Street, Dayton,
Ohio 45404) dated as of June 10, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.17 |
|
Open-End Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing made by Milacron Inc. in favor of
U.S. Bank National Association (418 West Main Street, Mount
Orab, Ohio 45154) dated as of June 10, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.18 |
|
Open-End Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing made by Milacron Inc. in favor of
U.S. Bank National Association (3000 Disney Street,
Cincinnati, Ohio 45209) dated as of June 10, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.19 |
|
Open-End Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing made by Milacron Inc. in favor of
U.S. Bank National Association (3010 Disney Street,
Cincinnati, Ohio 45209) dated as of June 10, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.20 |
|
Open-End Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing made by D-M-E Company in favor of
U.S. Bank National Association (977 Loop road, Lewistown,
Pennsylvania) dated as of June 10, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
4 |
.21 |
|
Open-End Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing made by D-M-E Company in favor of
U.S. Bank National Association (70 East Hills Street,
Youngwood, Pennsylvania 15697) dated as of June 10, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-4 filed on June 25, 2004 (Registration
No. 333-116899) |
|
|
|
|
| |
9 |
. |
|
Voting Trust Agreement — not applicable |
|
|
|
|
| |
10 |
. |
|
Material Contracts: |
|
|
|
|
| |
10 |
.1 |
|
Milacron Supplemental Pension Plan, as amended |
|
|
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|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the fiscal year ended December 31, 1999
(File No. 001-08485) |
|
|
|
|
| |
10 |
.2 |
|
Milacron Supplemental Retirement Plan, as amended |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the fiscal year ended December 31, 1999
(File No. 001-08485) |
|
|
|
|
| |
10 |
.3 |
|
Milacron Supplemental Executive Retirement Plan, as amended |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the fiscal year ended December 31, 2002 |
|
|
|
|
| |
10 |
.4 |
|
Milacron Supplemental Retirement Plan Amended and Restated Trust
Agreement by and between Milacron Inc. Reliance Trust Company |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-Q for the quarter ended June 30, 2004 |
|
|
|
|
| |
10 |
.5 |
|
Milacron Supplemental Executive Pension Plan |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the fiscal year ended December 31, 1999
(File No. 001-08485) |
|
|
|
|
127
| |
|
|
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
|
| | |
|
|
|
|
| |
10 |
.6 |
|
Milacron Kunststoffmaschinen Europa GmbH Pension Plan for Senior
Managers and Executives |
|
|
|
|
| |
|
|
|
– Filed herewith |
|
|
|
|
| |
10 |
.7 |
|
Milacron Compensation Deferral Plan, as amended |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the fiscal year ended December 31, 1999 |
|
|
|
|
| |
10 |
.8 |
|
Milacron Compensation Deferral Plan, as amended
February 26, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the fiscal year ended December 31, 2003 |
|
|
|
|
| |
10 |
.9 |
|
Milacron Compensation Deferral Plan Trust Agreement by and
between Milacron Inc. And Reliance Trust Company |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the fiscal year ended December 31, 1999
(File No. 001-08485) |
|
|
|
|
| |
10 |
.10 |
|
Milacron Inc. Executive Life Insurance Plan |
|
|
|
|
| |
|
|
|
– Filed herewith |
|
|
|
|
| |
10 |
.11 |
|
Form of Tier I Executive Severance Agreement applicable to
R. D. Brown |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-Q for the quarter ended September 30, 2003 |
|
|
|
|
| |
10 |
.12 |
|
Form of Tier II Executive Severance Agreement applicable to
R. P. Lienesch and H. C. O’Donnell |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-Q for the quarter ended September 30, 2003 |
|
|
|
|
| |
10 |
.13 |
|
Form of Tier II Executive Severance Agreement applicable to
K. Bourdon and R. C. McKee |
|
|
|
|
| |
|
|
|
– Filed herewith |
|
|
|
|
| |
10 |
.14 |
|
Amendment to Tier 1 Executive Severance Agreement with R.
D. Brown and Tier II Executive Severance Agreements with R.
P. Lienesch and H. C. O’Donnell dated as of
February 10, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the fiscal year ended December 31, 2003 |
|
|
|
|
| |
10 |
.15 |
|
Temporary Enhanced Severance Plan applicable to R. D.
Brown, R. P. Lienesch, H. C. O’Donnell and R. C.
McKee |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-Q for the quarter ended September 30, 2003 |
|
|
|
|
| |
10 |
.16 |
|
Award Letter re. Temporary Enhanced Severance Plan to R. D.
Brown |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-Q for the quarter ended September 30, 2003 |
|
|
|
|
| |
10 |
.17 |
|
Award Letter re. Temporary Enhanced Severance Plan to R. P.
Lienesch |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-Q for the quarter ended September 30, 2003 |
|
|
|
|
| |
10 |
.18 |
|
Award Letter re. Temporary Enhanced Severance Plan to H. C.
O’Donnell |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-Q for the quarter ended September 30, 2003 |
|
|
|
|
| |
10 |
.19 |
|
Award Letter re. Temporary Enhanced Severance Plan to R. C.
McKee |
|
|
|
|
| |
|
|
|
– Filed herewith |
|
|
|
|
| |
10 |
.20 |
|
Employment Agreement with Karlheinz Bourdon dated March 30,
2005 |
|
|
|
|
| |
|
|
|
– Filed herewith |
|
|
|
|
| |
10 |
.21 |
|
Executive Medical Expense Reimbursement Plan, Amended as of
July 29, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-Q for the quarter ended September 30, 2004 |
|
|
|
|
128
| |
|
|
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
|
| | |
|
|
|
|
| |
10 |
.22 |
|
Milacron Inc. 2002 Short-Term Incentive Plan, as amended
February 10, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the fiscal year ended December 31, 2003 |
|
|
|
|
| |
10 |
.23 |
|
Milacron Inc. 1994 Long-Term Incentive Plan, as amended
July 29, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-Q for the quarter ended September 30, 2004 |
|
|
|
|
| |
10 |
.24 |
|
Milacron Inc. 1997 Long-Term Incentive Plan, as amended
July 29, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-Q for the quarter ended September 30, 2004 |
|
|
|
|
| |
10 |
.25 |
|
Milacron Inc. 2004 Long-Term Incentive Plan |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-1 filed on June 25, 2004 (Registration
No. 333-116892) |
|
|
|
|
| |
10 |
.26 |
|
Form of Performance Based Restricted Shares Award Agreement |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
8-K filed on February 17, 2005 |
|
|
|
|
| |
10 |
.27 |
|
Form of Restricted Shares Award Agreement |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
8-K filed on February 17, 2005 |
|
|
|
|
| |
10 |
.28 |
|
Form of Notice of Award of Deferred Shares for Directors |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
8-K filed on February 17, 2005 |
|
|
|
|
| |
10 |
.29 |
|
Form of Phantom Share Account Agreement: Performance |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
8-K filed on February 17, 2005 |
|
|
|
|
| |
10 |
.30 |
|
Form of Phantom Share Account Agreement |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
8-K filed on February 17, 2005 |
|
|
|
|
| |
10 |
.31 |
|
Milacron Inc. Plan for the Deferral of Director’s
Compensation, as amended |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the fiscal year ended December 31, 1998 (File
No. 001-08485) |
|
|
|
|
| |
10 |
.32 |
|
Milacron Inc. Retirement Plan for Non-Employee Directors, as
amended |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the for the fiscal year ended December 31, 1998
(File No. 001-08485) |
|
|
|
|
| |
10 |
.33 |
|
Milacron Retirement Plan for Non-Employee Directors, as amended
February 10, 2004 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the fiscal year ended December 31, 2003 |
|
|
|
|
| |
10 |
.34 |
|
Rights Agreement dated as of February 5, 1999, between
Milacron Inc. and ChaseMellon Shareholder Services, LLC, as
Rights Agent |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Registration Statement on Form 8-A (File No. 001-08485) |
|
|
|
|
| |
10 |
.35 |
|
Amendment No. 1 to Rights Agreement dated as of
March 11, 2004 among Milacron Inc. and Mellon Investor
Services LLC |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the fiscal year ended December 31, 2003 |
|
|
|
|
| |
10 |
.36 |
|
Amendment No. 2 to Rights Agreement dated as of
June 9, 2004 among Milacron Inc. and Mellon Investor
Services LLC |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-1 filed on June 25, 2004 (Registration
No. 333-116892) |
|
|
|
|
| |
10 |
.37 |
|
Financing Agreement dated as of June 10, 2004 by and among
Milacron Inc. and certain subsidiaries as Borrowers, certain
subsidiaries as Guarantors, the Lenders from time to time party
thereto, JPMorgan Chase Bank as Administrative and Collateral
Agent, Wells Fargo Foothill, LLC as Documentation Agent and
J.P. Morgan Business Credit Corp., as Sole Lead Arranger
and Book Manager |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-1 filed on June 25, 2004 (Registration
No. 333-116892) |
|
|
|
|
129
| |
|
|
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
|
| | |
|
|
|
|
| |
10 |
.38 |
|
First Amendment to Financing Agreement dated as of
September 28, 2004 among Milacron Inc., each subsidiary of
Milacron Inc. listed as a borrower or Guarantor, the Lenders and
JPMorgan Chase Bank as administrative agent and collateral agent |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
8-K dated September 28, 2004 |
|
|
|
|
| |
10 |
.39 |
|
Limited Waiver, Consent and Second Amendment to Financing
Agreement, dated as of November 8, 2004 among Milacron
Inc., each subsidiary of Milacron Inc. listed as a Borrower or a
guarantor, the Lenders and JPMorgan Chase Bank as administrative
agent and collateral agent |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-Q for the quarter ended September 30, 2004 |
|
|
|
|
| |
10 |
.40 |
|
Third Amendment to Financing Agreement dated as of
February 11, 2005 among Milacron Inc., each subsidiary
listed as a borrower or guarantor, the Lenders and JPMorgan
Chase Bank, National Association, as administrative agent and
collateral agent |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
8-K filed on February 17, 2005 |
|
|
|
|
| |
10 |
.41 |
|
Limited Waiver to Financing Agreement dated as of March 14,
2005 among Milacron Inc., each subsidiary of Milacron
listed as a borrower or a guarantor, the Lenders and JPMorgan
ChaseBank, National Association, as administrative agent and
collateral agent |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form 8-K filed on March 17, 2005 |
|
|
|
|
| |
10 |
.42 |
|
Limited Waiver No. 2 to Financing Agreement dated as of
March 16, 2005 among Milacron Inc., each subsidiary of
Milacron listed as a borrower or a guarantor, the Lenders and
JPMorgan ChaseBank, National Association, as administrative
agent and collateral agent |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form 8-K filed on March 17, 2005 |
|
|
|
|
| |
10 |
.43 |
|
ISDA 2002 Master Agreement dated as of July 28, 2004
between JPMorgan Chase Bank and Milacron Inc. and the schedule
and Swap Transaction letter agreement related thereto |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-Q for the quarter ended September 30, 2004 |
|
|
|
|
| |
10 |
.44 |
|
Registration Rights Agreement dated as of March 12, 2004
among Milacron Inc., Glencore Finance AG and Mizuho
International plc |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the fiscal year ended December 31, 2003 |
|
|
|
|
| |
10 |
.45 |
|
Note Purchase Agreement dated as of March 12, 2004 among
Milacron Inc., Glencore Finance AG and Mizuho International plc |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
10-K for the fiscal year ended December 31, 2003 |
|
|
|
|
| |
10 |
.46 |
|
Letter Amendment to Note Purchase Agreement dated April 5,
2004 among Milacron Inc., Glencore Finance AG and Mizuho
International plc |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-1 filed on June 25, 2004 (Registration
No. 333-116892) |
|
|
|
|
| |
10 |
.47 |
|
Letter Amendment to Note Purchase Agreement dated June 7,
2004 among Milacron Inc., Glencore Finance AG and Mizuho
International plc |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-1 filed on June 25, 2004 (Registration
No. 333-116892) |
|
|
|
|
| |
10 |
.48 |
|
Contingent Warrant Agreement dated March 12, 2003 by and
among Milacron Inc., Glencore Finance AG and Mizuho
International plc |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s
Form S-1 filed on June 25, 2004 (Registration
No. 333-116892) |
|
|
|
|
130
| |
|
|
|
|
|
|
|
|
| Exhibit No. | |
|
|
|
|
| | |
|
|
|
|
| |
10 |
.49 |
|
Financing Agreement dated as of March 12, 2004 among
Milacron Inc. and certain subsidiaries as Borrowers, certain
subsidiaries as Guarantors, the Lenders from time to time party
thereto, and Credit Suisse First Boston, Cayman Islands Branch,
as Administrative and Collateral Agent |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s form
10-K for the fiscal year end December 31, 2003 |
|
|
|
|
| |
10 |
.50 |
|
Amended and restated Financing Agreement dated as of
March 31, 2004 among Milacron Inc. and certain subsidiaries
as Borrowers, certain subsidiaries as Guarantors, the Lenders
from time to time party thereto, and Credit Suisse First Boston,
Cayman Islands Branch, as Administrative and Collateral Agent |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
8-K dated March 31, 2004 |
|
|
|
|
| |
10 |
.51 |
|
Asset Purchase Agreement dated as of January 23, 1996,
between Cincinnati Milacron Inc., a Delaware corporation, The
Fairchild Corporation, a Delaware Corporation, RHI Holdings,
Inc., a Delaware corporation, and the Designated Purchasers and
Sellers named therein |
|
|
|
|
| |
|
|
|
– Incorporated herein by reference to the
company’s Form 8-K dated January 26, 1996
(File No. 001-08485) |
|
|
|
|
| |
10 |
.52 |
|
Purchase and Sale Agreement between UNOVA, Inc., UNOVA
Industrial Automation Systems, Inc., UNOVA U.K. Limited and
Cincinnati Milacron Inc. dated August 20, 1998 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
8-K dated October 2, 1998 (File No. 001-08485) |
|
|
|
|
| |
10 |
.53 |
|
Purchase and Sale Agreement between Johnson Controls, Inc.,
Hoover Universal, Inc. and Cincinnati Milacron Inc., dated
August 3, 1998 |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
8-K dated September 20, 1998 (File No. 001-08485) |
|
|
|
|
| |
10 |
.54 |
|
Stock Purchase Agreement dated as of May 3, 2002 among
Milacron Inc., Milacron B.V., and Kennametal Inc. |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
8-K dated May 3, 2002 |
|
|
|
|
| |
10 |
.55 |
|
Stock Purchase Agreement dated as of June 17, 2002 between
Milacron Inc., and Sandvik AB |
|
|
|
|
| |
|
|
|
– Incorporated by reference to the company’s Form
8-K dated June 17, 2002 |
|
|
|
|
| |
11 |
. |
|
Statement Regarding Computation of Per-Share Earnings |
|
|
|
|
| |
15 |
. |
|
Letter Regarding Unaudited Interim Financial
Information — not applicable |
|
|
|
|
| |
18 |
. |
|
Letter Regarding Change in Accounting Principles |
|
|
|
|
| |
19 |
. |
|
Report Furnished to Security Holders — not applicable |
|
|
|
|
| |
21 |
. |
|
Subsidiaries of the Registrant |
|
|
|
|
| |
22 |
. |
|
Published Report Regarding Matters Submitted to Vote of Security
Holders |
|
|
|
|
| |
|
|
|
– not applicable |
|
|
|
|
| |
23 |
. |
|
Consent of Experts and Counsel — not applicable |
|
|
|
|
| |
24 |
. |
|
Power of Attorney — not applicable |
|
|
|
|
| |
31 |
. |
|
Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002: |
|
|
|
|
| |
31 |
.1 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act |
|
|
|
|
| |
31 |
.2 |
|
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act |
|
|
|
|
| |
32 |
. |
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
|
|
|
|
| |
99 |
. |
|
Additional Exhibits — not applicable |
|
|
|
|
Milacron Inc. hereby agrees to furnish to the Securities and
Exchange Commission, upon its request, the instruments with
respect to long-term debt for securities authorized thereunder
which do not exceed 10% of the registrant’s total
consolidated assets.
131
|
|
| Item 15 |
(b) — Index to Certain Exhibits and Financial
Statement Schedules Filed Herewith |
| |
|
|
|
Exhibit 10.6
|
|
Milacron Kunststoffmaschinen Europa GmbH Pension Plan for Senior
Managers and Executives |
|
Exhibit 10.10
|
|
Milacron Inc. Executive Life Insurance Plan |
|
Exhibit 10.13
|
|
Form of Tier II Executive Severance Agreement Applicable to
K. Bourdon and R.C. McKee |
|
Exhibit 10.19
|
|
Award Letter re. Temporary Enhanced Severance Plan to R.C. McKee |
|
Exhibit 10.20
|
|
Employment Agreement with Karlheinz Bourdon dated March 30,
2005 |
|
Exhibit 11
|
|
Statement Regarding Computation of Per-Share Earnings |
|
Exhibit 18
|
|
Letter Regarding Change in Accounting Principles |
|
Exhibit 21
|
|
Subsidiaries of the Registrant |
|
Exhibit 23
|
|
Consent of Experts and Counsel |
|
Exhibit 31.1
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act |
|
Exhibit 31.2
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act |
|
Exhibit 32
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 |
132
MILACRON INC. AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
Years ended 2004, 2003 and 2002
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Col. A |
|
Col. B | |
|
Col. C | |
|
Col. D | |
|
Col. E | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
Additions | |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
| |
|
Balance at | |
|
Charged to | |
|
|
|
|
|
Balance | |
| |
|
Beginning | |
|
Cost and | |
|
Other - | |
|
Deductions - | |
|
at End | |
| Description |
|
of Period | |
|
Expenses | |
|
Describe | |
|
Describe | |
|
of Period | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Year ended 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
15,087 |
|
|
$ |
1,742 |
|
|
$ |
327 |
(a) |
|
$ |
(5,096 |
)(b) |
|
$ |
12,060 |
|
| |
Restructuring and consolidation reserves
|
|
$ |
6,505 |
|
|
$ |
2,698 |
|
|
$ |
69 |
(a) |
|
$ |
(6,235 |
)(b) |
|
$ |
2,838 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199 |
)(c) |
|
|
|
|
| |
Allowance for inventory obsolescence
|
|
$ |
27,007 |
|
|
$ |
7,393 |
|
|
$ |
1,488 |
(a) |
|
$ |
(6,180 |
)(b) |
|
$ |
29,708 |
|
|
Year ended 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
12,354 |
|
|
$ |
4,610 |
|
|
$ |
1,261 |
(a) |
|
$ |
(3,138 |
)(b) |
|
$ |
15,087 |
|
| |
Restructuring and consolidation reserves
|
|
$ |
5,362 |
|
|
$ |
9,387 |
|
|
$ |
648 |
(a) |
|
$ |
(7,206 |
)(b) |
|
$ |
6,505 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,686 |
)(c) |
|
|
|
|
| |
Allowance for inventory obsolescence
|
|
$ |
24,169 |
|
|
$ |
5,416 |
|
|
$ |
2,738 |
(a) |
|
$ |
(5,316 |
)(b) |
|
$ |
27,007 |
|
|
Year ended 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for doubtful accounts
|
|
$ |
10,017 |
|
|
$ |
3,939 |
|
|
$ |
616 |
(a) |
|
$ |
(2,218 |
)(b) |
|
$ |
12,354 |
|
| |
Restructuring and consolidation reserves
|
|
$ |
12,365 |
|
|
$ |
3,629 |
|
|
$ |
519 |
(a) |
|
$ |
(10,622 |
)(b) |
|
$ |
5,362 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(529 |
)(c) |
|
|
|
|
| |
Allowance for inventory obsolescence
|
|
$ |
19,031 |
|
|
$ |
6,916 |
|
|
$ |
1,869 |
(a) |
|
$ |
(3,647 |
)(b) |
|
$ |
24,169 |
|
|
|
| (a) |
Represents foreign currency translation adjustments during the
year. |
|
|
|
|
(b) |
|
Represents amounts charged against the reserves during the year. |
| |
|
(c) |
|
Represents reversals of excess reserves. |
133
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
| |
|
| |
Ronald D. Brown;
|
| |
Chairman, President and Chief Executive Officer, |
| |
Director (Chief Executive Officer) |
|
|
|
| |
By: |
/s/ Robert P. Lienesch
|
|
|
| |
|
| |
Robert P. Lienesch; |
| |
Senior Vice President — Finance, Controller and
Chief Financial Officer (Chief Financial Officer and Chief
Accounting Officer) |
Date: March 30, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the registrant and in capacities and on the dates
indicated.
| |
|
|
| |
/s/ Darryl F. Allen
Darryl
F. Allen; March 30, 2005
(Director)
/s/ David L.
Burner
David
L. Burner; March 30, 2005
(Director)
/s/ Steven N.
Isaacs
Steven
N. Isaacs; March 30, 2005
(Director)
/s/ Dr. Joseph A.
Steger
Dr. Joseph
A. Steger; March 30, 2005
(Director)
/s/ Charles F. C.
Turner
Charles
F. C. Turner; March 30, 2005
(Director) |
|
/s/ Sallie B. Bailey
-----------------------------------
Sallie B. Bailey; March 30, 2005
(Director)
/s/ Barbara Hackman
Franklin
-----------------------------------
Barbara Hackman Franklin; March 30, 2005
(Director)
/s/ Mark L. Segal
-----------------------------------
Mark L. Segal; March 30, 2005
(Director)
/s/ Duane K.
Stullich
-----------------------------------
Duane K. Stullich; March 30, 2005
(Director)
/s/ Larry D. Yost
-----------------------------------
Larry D. Yost; March 30, 2005
(Director) |
134