============================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarter ended September 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the transition period from __________ to __________
Commission file number 1-8485
MILACRON INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1062125
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4701 Marburg Avenue
Cincinnati, Ohio 45209
(Address of principal executive offices)
(513)841-8100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [x] No [ ]
Number of shares of Common Stock, $1.00 par value,
outstanding as of November 10, 1998: 38,455,432
============================================================
Milacron Inc. and Subsidiaries
Index
Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Statement
of Earnings 3
Consolidated Condensed Balance Sheet 4
Consolidated Condensed Statement
of Cash Flows 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 15
PART II. Other Information
Item 1. Legal Proceedings 24
Item 6. (a) Exhibits 25
(b) Reports on Form 8-K 25
Signatures 26
Index to Exhibits 27
PART I. FINANCIAL INFORMATION
MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
(In millions, except share
and per-share amounts)
Quarter Ended Year-to-Date
---------------- ------------------
Sept. 30, Oct. 4, Sept. 30, Oct. 4,
1998 1997 1998 1997
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Sales $352.1 $431.2 $1,079.1 $1,065.8
Cost of products sold 252.2 316.3 779.2 780.5
------ ------ -------- --------
Manufacturing margin 99.9 114.9 299.9 285.3
------ ------ -------- --------
Other costs and expenses
Selling and administrative 64.5 79.8 194.2 195.3
Minority shareholders'
interests 1.1 1.4 2.2 1.9
Other - net 1.8 1.3 10.4 7.9
------ ------ -------- --------
Total other costs
and expenses 67.4 82.5 206.8 205.1
------ ------ -------- --------
Operating earnings 32.5 32.4 93.1 80.2
Interest
Income .6 .9 1.5 1.8
Expense (8.0) (9.1) (23.2) (22.2)
------ ------ -------- --------
Interest - net (7.4) (8.2) (21.7) (20.4)
------ ------ -------- --------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 25.1 24.2 71.4 59.8
Provision for income taxes 6.6 3.9 19.6 12.2
------ ------ -------- --------
EARNINGS FROM CONTINUING
OPERATIONS 18.5 20.3 51.8 47.6
Discontinued operations net
of income taxes
Earnings (loss) from operations (3.9) 2.3 1.3 6.2
Loss on sale (35.2) - (35.2) -
------ ------ -------- --------
Total discontinued
operations (39.1) 2.3 (33.9) 6.2
------ ------ -------- --------
NET EARNINGS (LOSS) $(20.6) $ 22.6 $ 17.9 $ 53.8
====== ====== ======== ========
EARNINGS (LOSS) PER COMMON SHARE
CONTINUING OPERATIONS
BASIC $ .47 $ .51 $ 1.32 $ 1.20
DILUTED $ .47 $ .51 $ 1.29 $ 1.19
DISCONTINUED OPERATIONS
BASIC (1.00) .06 (.87) .15
DILUTED (1.00) .05 (.84) .15
------ ------ -------- --------
NET EARNINGS (LOSS)
BASIC $ (.53) $ .57 $ .45 $ 1.35
====== ====== ======== ========
DILUTED $ (.53) $ .56 $ .45 $ 1.34
====== ====== ======== ========
Dividends per common share $ .12 $ .12 $ .36 $ .30
Weighted-average common shares
outstanding (in thousands) 38,951 39,563 39,102 39,612
Weighted-average common shares
outstanding assuming dilution
(in thousands) 39,149 40,037 39,532 39,922
</TABLE>
See notes to consolidated condensed financial statements.
MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
(In millions)
Sept. 30, Dec. 27,
1998 1997
--------- -------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 41.8 $ 25.7
Notes and accounts receivable, less
allowances of $12.0 in 1998 and
$13.0 in 1997 235.1 275.0
Receivable from sale of discontinued
machine tools segment 188.9 -
Inventories
Raw materials 26.9 26.5
Work-in-process and finished parts 183.6 217.7
Finished products 165.7 146.2
-------- --------
Total inventories 376.2 390.4
Other current assets 56.0 60.0
-------- --------
Total current assets 898.0 751.1
Property, plant and equipment 568.5 653.3
Less accumulated depreciation (240.4) (310.2)
-------- --------
Property, plant and equipment - net 328.1 343.1
Goodwill 394.4 231.1
Other noncurrent assets 69.9 67.2
-------- --------
TOTAL ASSETS $1,690.4 $1,392.5
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Amounts payable to banks and current
portion of long-term debt $ 333.3 $ 67.5
Trade accounts payable 124.1 153.7
Advance billings and deposits 31.4 35.7
Accrued and other current liabilities 190.6 168.5
-------- --------
Total current liabilities 679.4 425.4
Long-term accrued liabilities 196.5 191.0
Long-term debt 334.8 304.2
-------- --------
TOTAL LIABILITIES 1,210.7 920.6
-------- --------
Commitments and contingencies - -
SHAREHOLDERS' EQUITY
Preferred shares 6.0 6.0
Common shares (outstanding: 39.1 in
1998 and 39.6 in 1997) 402.2 417.4
Reinvested earnings 87.0 83.5
Accumulated other comprehensive
income (loss) (15.5) (35.0)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 479.7 471.9
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $1,690.4 $1,392.5
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In millions)
Quarter Ended Year-To-Date
----------------- ------------------
Sept. 30, Oct. 4, Sept. 30, Oct. 4,
1998 1997 1998 1997
-------- ------ -------- --------
<S> <C> <C> <C> <C>
INCREASE IN CASH AND
CASH EQUIVALENTS
OPERATING ACTIVITIES CASH FLOWS
Net earnings (loss) $ (20.6) $ 22.6 $ 17.9 $ 53.8
Operating activities providing
(using) cash:
Loss on sale of discontinued
machine tools segment 35.2 - 35.2 -
Depreciation and
amortization 14.6 16.1 43.8 40.0
Deferred income taxes .7 (4.1) (2.9) (17.6)
Working capital changes
Notes and accounts
receivable (14.4) (5.9) (5.8) 1.7
Inventories (10.1) (8.8) (50.9) (34.5)
Other current assets 3.2 (2.4) 1.0 (9.7)
Trade accounts payable (18.2) (4.6) (24.2) .7
Accrued and other
current liabilities (3.0) (.4) 18.1 20.5
Decrease (increase) in
Other noncurrent assets 1.5 1.8 (7.1) 2.6
Increase (decrease)in
long-term accrued
liabilities (2.2) 3.3 (.9) 6.7
Other - net (.2) (1.2) (1.5) (3.8)
-------- ------ -------- --------
Net cash provided (used)
by operating
activities (13.5) 16.4 22.7 60.4
-------- ------ -------- --------
INVESTING ACTIVITIES CASH FLOWS
Capital expenditures (22.9) (23.0) (52.3) (42.4)
Net disposals of property,
Plant and equipment .6 1.0 2.1 4.7
Acquisitions (192.7) (23.7) (213.2) (23.7)
-------- ------ -------- --------
Net cash used by
investing activities (215.0) (45.7) (263.4) (61.4)
-------- ------ -------- --------
FINANCING ACTIVITIES CASH FLOWS
Dividends paid (4.8) (4.8) (14.4) (12.1)
Issuance of long-term debt 18.5 11.4 23.0 12.8
Repayments of long-term debt (.1) (2.5) (.6) (4.8)
Increase in amounts
payable to banks 234.1 27.0 264.0 19.0
Issuance of common shares - .8 5.6 1.3
Purchase of treasury and other
common shares (7.7) (1.1) (20.8) (7.9)
-------- ------ -------- --------
Net cash provided by
financing activities 240.0 30.8 256.8 8.3
-------- ------ -------- --------
INCREASE IN CASH AND
CASH EQUIVALENTS 11.5 1.5 16.1 7.3
Cash and cash equivalents at
beginning of period 30.3 33.6 25.7 27.8
-------- ------ -------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 41.8 $ 35.1 $ 41.8 $ 35.1
======== ====== ======== ========
</TABLE>
See notes to consolidated condensed financial statements.
MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
- ---------------------
In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments, including only normal and recurring adjustments
except for the matters discussed in the note captioned
"Discontinued Operations", necessary to present fairly the
company's financial position, results of operations and cash
flows.
The Consolidated Condensed Balance Sheet at December 27,
1997, has been derived from the audited consolidated
financial statements at that date.
Except as described in the note captioned "Comprehensive
Income," the accounting policies followed by the company are
set forth in the "Summary of Significant Accounting
Policies" note to the consolidated financial statements
included in the company's Annual Report on Form 10-K for the
year ended December 27, 1997.
CHANGE IN FISCAL YEAR
- ---------------------
Beginning in the first quarter of 1998, the company changed
its fiscal year from a 52-53 week year ending on the
Saturday closest to December 31st to a calendar year ending
on December 31st of each year. In 1998, the transition
year, the company's fiscal year began December 28, 1997 and
will end December 31, 1998. The change is not expected to
have a material effect on financial condition, results of
operations or cash flows for the year 1998. However, this
change causes inconsistency between the 1997 and 1998
quarterly results for two reasons. First, the company's
previous calendar had 12 weeks each in quarters 1, 2 and 4,
and 16 weeks in quarter 3, while the calendar in 1998 has
three months in each quarter. Second, while the company's
historical quarter 1 traditionally ended in mid-March, two
recent acquisitions, Widia and Ferromatik, continued to
maintain their financial records on a monthly basis. As a
result, quarter 1 included their results for only January
and February, while March, April and May were included in
the company's second quarter. In quarter 3, Widia and
Ferromatik historically reported four complete months, and
in quarter 4, their final three complete months were
reported. As a result, quarter 3, 1998 includes one less
month of Widia and Ferromatik's results, which has the
effect of decreasing quarter 3, 1998 sales by approximately
$31 million. Given the number of subjective assumptions and
estimations that would be required, quarterly amounts for
1997 have not been restated because precise calculations
would be impracticable.
DISCONTINUED OPERATIONS
- -----------------------
On October 2, 1998, the company completed the sale of its
machine tools segment (MTG). The proceeds from the sale,
which are subject to post-closing adjustments, are
ultimately expected to be approximately $189 million, of
which $180 million was received on the closing date and used
to repay bank borrowings incurred for the acquisition of
Uniloy (see Acquisitions). The after-tax loss on the sale
of $35.2 million ($45.9 million before income taxes), or
$.90 per share, was recorded in the third quarter of 1998.
MTG largely consists of aerospace systems and stand-alone
machinery for general metalworking. The Consolidated
Condensed Statement of Earnings has been restated to present
the operating results of MTG through September 30, 1998, as
a discontinued operation. MTG's sales in the applicable
periods are as follows: $105.4 million in quarter 3, 1998;
$139.5 million in quarter 3, 1997; $346.4 million quarter 3
year-to-date in 1998; and $334.5 million quarter 3 year-to-
date in 1997.
ACQUISITIONS
- ------------
In the third quarter of 1997, the company acquired Minnesota
Twist Drill, Inc., a maker of high-speed twist drills, and
Data Flute CNC, Inc., a manufacturer of high-performance
solid carbide end mills. Each business has annual sales of
approximately $10 million. The total cost of these
acquisitions, which did not significantly affect the
company's financial position or results of operations, was
$27.4 million.
In February, 1998, the company made two additional
acquisitions: Wear Technology, which has annual sales of
approximately $10 million and serves the aftermarket for new
and rebuilt twin screws for extrusion systems, and Northern
Supply, a regional catalog distribution company offering
supplies to plastics processors for injection molding, blow
molding and extrusion with annual sales of approximately $5
million.
In May, 1998, the company acquired Autojectors, Inc., a
leading U.S. producer of vertical insert injection molding
machinery widely used to make medical, electrical and
automotive components. Autojectors has annual sales of
approximately $20 million.
In September, 1998, the company acquired Master Unit Die
Products, Inc., a leading North American manufacturer of
quick-change mold bases for the plastics industry. Master
Unit Die Products has annual sales in excess of $10 million.
Also, in September, 1998, the company acquired the assets of
the plastics machinery division of Johnson Controls, Inc.
(Uniloy) for approximately $190 million, subject to post-
closing adjustments. Uniloy, which is known for its Uniloy
brand of equipment, as well as various other brands, has
annual sales of approximately $190 million and is one of the
world's leading providers of blow molding machines, as well
as structural foam systems, aftermarket parts, services and
molds for blowmolding.
All of these acquisitions are being accounted for under the
purchase method and were financed through the use of
available cash and bank borrowings, including a new $135
million senior term bank loan that was used to partially
finance the acquisition of Uniloy. The aggregate cost of
the 1998 acquisitions, including professional fees and other
related costs, is expected to total approximately $227.1
million. The allocation of the aggregate cost of the 1998
acquisitions to the assets acquired and the liabilities
assumed is presented in the table that follows.
<TABLE>
<CAPTION>
(In millions)
Sept. 30,
1998
--------
<S> <C>
Cash and cash equivalents $ .6
Accounts receivable 29.2
Inventories 56.4
Other current assets 4.2
Property, plant and equipment 28.1
Goodwill 176.3
Other non-current assets .1
--------
Total assets 294.9
Current portion of long-term debt (1.2)
Trade accounts payable (40.1)
Current accrued liabilities (21.9)
Long-term debt (4.6)
--------
Total liabilities (67.8)
--------
Total acquisition cost $ 227.1
========
</TABLE>
Unaudited pro forma sales and earnings information for the
third quarters of 1998 and 1997, and for the first three
quarters of 1998 and 1997, reflecting the Uniloy acquisition
are presented in the following table. The amounts for 1998
assume that the acquisition had taken place at the beginning
of the year, while the amounts for 1997 assume that the
acquisition was completed on the first day of 1997. The
inclusion of the other 1998 acquisitions that are discussed
above would not have a material effect on the amounts
presented.
<TABLE>
<CAPTION>
(In millions, except share
and per-share amounts)
Quarter Ended Year-To-Date
---------------- ------------------
Sept. 30, Oct. 4, Sept. 30, Oct. 4,
1998 1997 1998 1997
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Sales $406.6 $483.6 $1,233.6 $1,207.2
====== ====== ======== ========
Earnings from continuing
operations $ 20.8 $ 22.6 $ 54.1 $ 47.8
Per common share:
Basic $ .53 $ .57 $ 1.38 $ 1.20
Diluted $ .53 $ .56 $ 1.37 $ 1.19
Net earnings (loss) $(18.4) $ 24.9 $ 20.2 $ 54.0
====== ====== ======== ========
Per common share:
Basic $ (.47) $ .63 $ .51 $ 1.36
====== ====== ======== ========
Diluted $ (.47) $ .62 $ .51 $ 1.35
====== ====== ======== ========
</TABLE>
As discussed more fully in the note captioned "Change in
Fiscal Year," the third quarter of 1998 consisted of three
calendar months, or approximately 13 weeks, while the third
quarter of 1997 consisted of 16 weeks. In addition, the
third quarter of 1998 includes three months of the operating
results of Widia and Ferromatik as compared to four months
in 1997. These differences have an adverse effect on the
company's third quarter, 1998 historical and pro forma
operating results in relation to the third quarter of 1997.
SEVERANCE EXPENSE
- -----------------
In the first half of 1998, the company recorded severance
expense of $5.3 million before tax ($3.7 million after tax)
related to a workforce reduction plan involving
approximately 125 employees at Widia, the company's European
cutting tool company. As a result of the workforce
reduction and other actions at Widia, the company expects to
achieve annual pretax cost savings of approximately $5.0
million, which are expected to begin phasing in during the
fourth quarter of 1998.
In the first quarter of 1997, the company recorded severance
expense of approximately $2.0 million ($1.6 million after
tax) for workforce reductions involving approximately 60
employees at its German injection molding machine business,
Ferromatik. As a result of the workforce reduction and
other actions at Ferromatik, the company is achieving annual
pretax cost savings of approximately $3.5 million, which
began to phase in during the second quarter of 1997.
INCOME TAXES
- ------------
In both 1998 and 1997, the provision for income taxes
consists of U.S. federal and state and local income taxes,
non-U.S. income taxes in certain jurisdictions, and the
effects of the reversal of certain non-U.S. valuation
allowances. The 1997 provision also includes the reversal
of U.S. valuation allowances.
The company entered 1997 with non-U.S. net operating loss
carryforwards related to continuing operations totaling $95
million, the deferred tax assets related to which had been
partially reserved through valuation allowances at year-end
1996. The company reviews the valuation of all deferred tax
assets on an ongoing basis and concluded in 1997 that it is
more likely than not that a portion of these assets would be
realized in the future. Accordingly, all remaining U.S.
valuation allowances were reversed, as were valuation
allowances in certain non-U.S. jurisdictions. As a result,
the 1997 effective tax rate was less than the U.S. statutory
rate.
At December 27, 1997, the company had non-U.S. net operating
loss carryforwards related to continuing operations totaling
$82 million, including $76 million in Germany. Most of
these net operating loss carryforwards have no expiration
dates. Valuation allowances, principally in Germany,
totaled $26 million. Due to the expectation of further net
operating loss carryforward utilization in 1998 and 1999,
the 1998 effective tax rate provides for the reversal of
additional valuation allowances and, as a result, is less
than the U.S. statutory rate.
RECEIVABLES
- -----------
In accordance with the company's receivables purchase
agreement with an independent party, the company sells on an
ongoing basis undivided percentage ownership interests of up
to $75 million in designated pools of accounts receivable.
The amounts of undivided interests that had been sold
remained unchanged at $75.0 million from year-end 1996
through June 30, 1998, but decreased to $61.3 million at
September 30, 1998 in connection with the sale of MTG. The
decrease in the amount sold is reported as a use of cash
from operating activities in the Consolidated Condensed
Statement of Cash Flows. Costs related to the sales are
included in other costs and expenses-net in the Consolidated
Condensed Statement of Earnings.
LIABILITIES
- -----------
The components of accrued and other current liabilities and
long-term accrued liabilities are shown in the following
tables.
<TABLE>
<CAPTION>
(In millions)
Sept. 30, Dec. 27,
1998 1997
-------- -------
<S> <C> <C>
Accrued and other current liabilities
Accrued salaries, wages and
other compensation $ 59.4 $ 50.4
Accrued and deferred income taxes 9.0 15.8
Other accrued expenses 122.2 102.3
-------- -------
$ 190.6 $ 168.5
======== =======
Long-term accrued liabilities
Accrued pension and other compensation $ 74.8 $ 73.2
Accrued postretirement health
care benefits 39.8 46.4
Accrued and deferred income taxes 25.8 31.5
Minority shareholders' interests 18.6 16.7
Other 37.5 23.2
-------- -------
$ 196.5 $ 191.0
======== =======
</TABLE>
Long-term Debt
- --------------
The components of long-term debt are shown in the following
table.
<TABLE>
<CAPTION>
(In millions)
Sept. 30, Dec. 27,
1998 1997
-------- -------
<S> <C> <C>
Long-term debt
7-7/8% Notes due 2000 $ 100.0 $ 100.0
8-3/8% Notes due 2004 115.0 115.0
Revolving credit facility 84.4 80.3
Other 36.6 10.5
-------- -------
Total long-term debt 336.0 305.8
Less current maturities (1.2) (1.6)
-------- -------
$ 334.8 $ 304.2
======== =======
</TABLE>
Outstanding borrowings under the company's revolving credit
facility of $10.0 million and DM 125 million ($74.4 million
at September 30, 1998 and $70.3 million at December 27,
1997) are included in long-term debt based on the
expectation that these borrowings will remain outstanding
for more than one year. These borrowings are at variable
interest rates, which had a weighted-average of 4.0% at
September 30, 1998 and 4.3% at December 27, 1997.
LINES OF CREDIT
- ---------------
At September 30, 1998, the company had lines of credit with
various U.S. and non-U.S. banks of approximately $628
million, including a $250 million committed revolving credit
facility and a $135 million senior term bank loan obtained
in connection with the Uniloy acquisition. These credit
facilities support letters of credit and leases in addition
to providing borrowings under varying terms. Under the
provisions of the revolving credit facility, the company's
additional borrowing capacity totaled approximately $86
million at September 30, 1998.
In October, 1998, the initial proceeds from the sale of MTG
of $180 million were utilized to repay bank borrowings,
including the $135 million senior term bank loan (see
Discontinued Operations). As a result of this reduction in
debt, the company's pro forma additional borrowing capacity
at September 30, 1998 under the provisions of the revolving
credit facility was approximately $266 million.
SHAREHOLDERS' EQUITY
- --------------------
During the first three quarters of 1998, the company
purchased a total of 839,900 treasury shares on the open
market at a cost of $19.7 million to partially meet current
and future needs of management incentive, employee benefit
and dividend reinvestment plans. An additional 38,303 shares
were purchased in the first three quarters of 1998 with
respect to current exercises of stock options in lieu of the
issuance of authorized but unissued shares or treasury
shares. A total of 341,542 shares were purchased in the
first three quarters of 1997 at a cost of $7.9 million.
Reissuances of treasury shares totaled 291,186 and 327,142
in the first three quarters of 1997 and 1998, respectively.
COMPREHENSIVE INCOME
- --------------------
Effective at the beginning of 1998, the company adopted
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." The statement establishes
standards for the reporting and display of total
comprehensive income and its components in financial
statements. The adoption of this statement has no effect on
the company's net earnings or total shareholders' equity.
Total comprehensive income represents the net change in
shareholders' equity during a period from sources other than
transactions with shareholders and as such, includes net
earnings. For the company, the only other component of
total comprehensive income is the change in the cumulative
foreign currency translation adjustments recorded in
shareholders' equity. Total comprehensive income and
changes in total shareholders' equity are as follows:
<TABLE>
<CAPTION>
(In millions)
Quarter Ended
-----------------------------------------
Sept. 30, 1998 Oct. 4, 1997
-------------------- -----------------
Total Total Total Total
Compre- Share- Compre- Share-
hensive holders' hensive holders'
Income Equity Income Equity
------- -------- ------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 487.2 $ 447.1
Net common share transactions (7.7) (.3)
Net earnings (loss) $ (20.6) (20.6) $ 22.6 22.6
Foreign currency translation
adjustments (a) 25.6 25.6 (6.3) (6.3)
------- ------
Total comprehensive income $ 5.0 $ 16.3
======= ======
Cash dividends (4.8) (4.8)
------- -------
Balance at end of period $ 479.7 $ 458.3
======= =======
</TABLE>
(a) For the quarter ended September 30, 1998, includes
$17.1 million related to the recognition of unfavorable
foreign currency translation adjustments in connection with
the sale of the company's machine tools segment (see
Discontinued Operations). This amount is included in the
loss in the sale of the segment.
<TABLE>
<CAPTION>
(In millions)
Year-to-date
-------------------------------------------
Sept. 30, 1998 Oct. 4, 1997
-------------------- -----------------
Total Total Total Total
Compre- Share- Compre- Share-
hensive holders' hensive holders'
Income Equity Income Equity
------- -------- ------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 471.9 $ 446.2
Net common share transactions (15.2) (6.7)
Net earnings $ 17.9 17.9 $ 53.8 53.8
Foreign currency translation
adjustments (a) 19.5 19.5 (22.9) (22.9)
------ ------
Total comprehensive income $ 37.4 $ 30.9
====== ======
Cash dividends (14.4) (12.1)
------- -------
Balance at end of period $ 479.7 $ 458.3
======= =======
</TABLE>
(a) For the three quarters ended September 30, 1998,
includes $17.1 million related to the recognition of
unfavorable foreign currency translation adjustments in
connection with the sale of the company's machine tools
segment (see Discontinued Operations). This amount is
included in the loss in the sale of the segment.
CONTINGENCIES
- -------------
The company is involved in remedial investigations and
actions at various locations, including former plant
facilities, and EPA Superfund sites where the company and
other companies have been designated as potentially
responsible parties. The company accrues remediation costs
in accordance with American Institute of Certified Public
Accountants Statement of Position No. 96-1 when it is
probable that a liability has been incurred and the amount
of the liability can be reasonably estimated. Environmental
costs have not been material in the past.
Various lawsuits arising during the normal course of
business are pending against the company and its
consolidated subsidiaries.
In the opinion of management, the ultimate liability, if
any, resulting from these matters will have no significant
effect on the company's consolidated financial position or
results of operations.
ORGANIZATION
- ------------
The company has two business segments: plastics technologies
and industrial products. Financial information for each of
these segments for the third quarter and the year-to-date as
of September 30, 1998 and October 4, 1997 is presented
below.
<TABLE>
<CAPTION>
(In millions)
Quarter Ended Year to Date
-------------------- -------------------
Sept. 30, Oct. 4, Sept. 30, Oct. 4,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales
Plastics technologies $ 178.6 $ 208.8 $ 548.1 $ 537.0
Industrial products 173.5 222.4 531.0 528.8
------- -------- -------- --------
$ 352.1 $ 431.2 $1,079.1 $1,065.8
======= ======== ======== ========
Operating earnings
Plastics technologies $ 21.2 $ 16.4 $ 57.1 $ 39.4
Industrial products 19.1 24.3 57.3 60.3
Corporate expenses (5.1) (4.9) (14.2) (12.6)
Other unallocated expenses (a) (2.7) (3.4) (7.1) (6.9)
------- -------- -------- --------
$ 32.5 $ 32.4 $ 93.1 $ 80.2
======= ======== ======== ========
New orders
Plastics technologies $ 188.6 $ 199.4 $ 555.1 $ 525.4
Industrial products 169.7 219.3 536.3 534.6
------- -------- -------- --------
$ 358.3 $ 418.7 $1,091.4 $1,060.0
======= ======== ======== ========
Ending backlog $ 261.1 $ 207.6 $ 261.1 $ 207.6
======= ======== ======== ========
</TABLE>
(a) Includes financing costs related to the sale of accounts
receivable and minority shareholders' interests in
earnings of 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.
Earnings per common share data are computed in accordance
with Statement of Financial Accounting Standards No. 128,
"Earnings per Share," which became effective for financial
statements issued after December 15, 1997. Amounts reported
prior to the effective date of this standard have been
restated to comply with its provisions.
RECENTLY ISSUED PRONOUNCEMENTS
- ------------------------------
During the second quarter of 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This standard is effective for the
company beginning in 2000 (although earlier application is
permitted). It establishes comprehensive accounting and
reporting requirements for the recognition and measurement
of derivative financial instruments and hedging activities
including a requirement that derivatives be measured at fair
value and recognized in the balance sheet. The company
enters into forward contracts, which are a form of
derivative instrument, to minimize the effect of foreign
currency exchange rate fluctuations. The company is
evaluating the effect of this statement on the financial
position and results of operations. However, management
currently believes that the effect will not be material.
SUBSEQUENT EVENTS
- -----------------
On October 2, 1998, the company completed the sale of its
machine tools segment (see Discontinued Operations). The
initial proceeds of $180 million were used to repay bank
incurred borrowings in connection with the acquisition of
Uniloy.
On October 26, 1998, the company announced its intention to
purchase up to two million of its outstanding common shares
on the open market. As of November 11, 1998, a total of
590,600 shares had been purchased.
Also in October, 1998, in conjunction with the sale of the
machine tools segment, the company changed its corporate
name from "Cincinnati Milacron Inc." to "Milacron Inc." and
its trading symbol on the New York Stock Exchange from "CMZ"
to "MZ."
MILACRON INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
RESULTS OF OPERATIONS
- ---------------------
The company operates in two business segments: plastics
technologies and industrial products.
DISCONTINUED OPERATIONS
On October 2, 1998, the company completed the sale of its
machine tools segment (MTG) for proceeds of approximately
$189 million, subject to post-closing adjustments. The
after tax loss on the sale of $35.2 million ($45.9 million
before income taxes), or $.90 per share, was recorded in the
third quarter of 1998. MTG largely consists of aerospace
systems and stand-alone machinery for general metalworking.
All comparisons of "results of operations" within this
management's discussion and analysis have been restated to
exclude the historical operations of MTG.
COMPARABILITY OF FINANCIAL STATEMENTS
Beginning in the first quarter of 1998, the company changed
its fiscal year from a 52-53 week year ending on the
Saturday closest to December 31st to a calendar year ending
on December 31st of each year. In 1998, the transition
year, the company's fiscal year began December 28, 1997 and
will end December 31, 1998. The change is not expected to
have a material effect on financial condition, results of
operations or cash flows for the year 1998. However, this
change causes inconsistency between the 1997 and 1998
quarterly results for two reasons. First, the company's
previous calendar had 12 weeks each in quarters 1, 2 and 4,
and 16 weeks in quarter 3, while the calendar in 1998 has
three months in each quarter. Second, while the company's
historical quarter 1 traditionally ended in mid-March, two
recent acquisitions: Widia and Ferromatik, continued to
maintain their financial records on a monthly basis. As a
result, quarter 1 included their results for only January
and February, while March, April and May were included in
the company's second quarter. In quarter 3, Widia and
Ferromatik historically reported four complete months, and
in quarter 4, their final three complete months were
reported. As a result, quarter 3, 1998 includes one less
month of Widia and Ferromatik's results, which has the
effect of decreasing quarter 3, 1998 sales by approximately
$31 million. The company has estimated additional effects
of the calendar change on new business, sales and earnings,
as described elsewhere in this section. Given the number of
subjective assumptions and estimations that would be
required, quarterly amounts for 1997 have not been restated
because precise calculations are impracticable.
In February, 1998, the company acquired Wear Technology and
Northern Supply. Wear Technology is a McPherson, Kansas
company with annual sales of approximately $10 million which
primarily serves the aftermarket for new and rebuilt twin
screws for extrusion systems used by the construction
industry. Northern Supply, with annual sales of
approximately $5 million, offers supplies to plastics
processors for injection molding, blow molding and extrusion
through distribution centers in Minneapolis, Minnesota and
Charlotte, North Carolina. In May, 1998, the company
acquired Autojectors, Inc., a leading U.S. producer of
vertical insert injection molding machinery widely used to
make medical, electrical and automotive components. With
annual sales of approximately $20 million, Autojectors
operates through two manufacturing facilities near Fort
Wayne, Indiana.
Effective September 30, 1998, the company acquired Master
Unit Die Products, Inc., the leading North American
manufacturer of quick-change mold bases for the plastics
industry. Master Unit Die Products has annual sales in
excess of $10 million. Also on September 30, 1998, the
company acquired the assets of the plastics machinery
division of Johnson Controls, Inc. (Uniloy) for
approximately $190 million, subject to post-closing
adjustments. Uniloy, which is know for its Uniloy brand of
equipment, as well as various other brands, has annual sales
of approximately $190 million and is one of the world's
leading providers of blow molding machines, as well as
structural foam systems, aftermarket parts, services and
molds for blowmolding. Because of the timing of the
acquisitions, these two acquisitions did not effect
consolidated results of operations for any period presented.
All of the acquisitions were financed by the use of
available cash and bank borrowings and have been accounted
for under the purchase method of accounting. All are
included as components of the company's plastics
technologies segment. As a result of these acquisitions, as
well as two smaller acquisitions in the industrial products
segment that were made in the third quarter of 1997, third
quarter 1998 consolidated new orders and sales increased by
$15 million, and year-to-date new orders and sales increased
by approximately $31 million. Earnings from continuing
operations increased by $1.7 million, or $.04 per share, for
the third quarter and $3.4 million, or $.08 per share, on a
year-to-date basis.
In recent years, the company's growth outside the U.S. has
allowed the company to become more globally balanced. For
the first three quarters of 1998, markets outside the U.S.
represented the following percentages of consolidated sales:
Europe - 31%; Asia 7%; Canada and Mexico 7%; and the rest of
the world 2%. As a result of the company's geographic mix,
foreign currency exchange rate fluctuations affect the
translation of sales and earnings, as well as consolidated
shareholders' equity. In 1997 and early 1998, the British
pound was somewhat stabile in relation to the U.S. dollar
while the German mark continued to weaken. However, during
the second quarter of 1998, the German mark also stabilized
and then strengthened slightly in the third quarter. As a
result, the company experienced favorable currency
translation effects on new orders and sales of about $1
million in the third quarter of 1998. In the first three
quarters of 1998, the company experienced negative currency
translation effects on new orders and sales of $7 million.
The effect on earnings from continuing operations was not
significant in either period. There was an $8 million
increase in shareholders' equity due to foreign currency
translation effects in the third quarter of 1998 which more
than offset a reduction of $6 million in the first half of
the year. These amounts exclude $17 million of unfavorable
currency translation effects that were charged to the loss
on the sale of MTG.
If non-U.S. currencies should weaken against the U.S. dollar
in future periods, the company will experience a negative
effect on translating its non-U.S. new orders, sales and,
possibly, net earnings in the future when compared with
historical results.
NEW ORDERS AND BACKLOG
New orders in the third quarter of 1998 were $358 million,
which represented a $61 million, or 15%, decrease from the
$419 million in the third quarter of 1997. However, taking
into account the effects of the change in calendar and the
effect of acquisitions, new orders were $7 million higher in
1998. Orders for plastics technologies products decreased
by $11 million, or 5%; excluding the calendar effect and
acquisitions, orders increased by approximately 5%. Orders
for industrial products decreased by $50 million, or 23%;
excluding the calendar change and the effect of the 1997
acquisitions, new orders decreased modestly due principally
to the General Motors strike.
For the first three quarters of 1998, new orders totaled
$1,091 million, up $31 million, or 3%, from $1,060 million
in the first three quarters of 1997. Excluding the effects
of the calendar change, acquisitions and negative currency
translation effects, new orders increased by approximately
2%. This increase principally is the result of stronger
orders in the plastics technologies segment.
U.S. export orders were $46 million and $137 million in the
third quarter and first three quarters of 1998,
respectively, representing a 12% decrease and 21% increase
from the prior year, with the former being due principally
to the calendar change.
The company's backlog of unfilled orders totaled $261
million at September 30, 1998. This compares to $198 million
at June 30, 1998, $200 million at March 31, 1998 and $208
million at October 4, 1997.
SALES
Sales in the third quarter of 1998 were $352 million, which
represented a $79 million, or 18%, decrease from $431
million in the third quarter of 1997. However, excluding
the effect of the calendar change and acquisitions,
consolidated sales decreased only modestly in relation to
1997. Sales of plastics technologies products decreased by
$30 million, or 15% due principally to the effect of the
calendar change. Excluding the calendar effect, the
segment's third quarter sales, which include an incremental
$15 million related to 1998 acquisitions, approximated the
level achieved in 1997. Sales of industrial products
decreased by $49 million, or 22%; excluding the calendar
change and the effect of the 1997 acquisitions, sales
decreased by approximately 3% due principally to the effects
of the General Motors strike.
For the first three quarters of 1998, sales totaled $1,079
million, up $13 million, or 1%, from $1,066 million in the
first three quarters of 1997. Excluding the calendar
change, acquisitions and currency translation effects, sales
in 1998 approximated the levels achieved in 1997.
Export sales were $48 million and $134 million in the third
quarter and first three quarters of 1998, respectively,
compared to $48 million and $121 million in the comparable
periods in 1997.
MARGINS, COSTS AND EXPENSES
The manufacturing margin percent of 28.4% in the third
quarter of 1998 increased from 26.6% in the third quarter of
1997. Margins for both segments showed improvement in both
the U.S. and in Europe. The manufacturing margin of 27.8%
in the first three quarters of 1998 also increased from
26.8% in the first three quarters of 1997. In 1997, margins
in the plastics technologies segment had been held back by
pricing pressure on U.S. built injection molding machines,
which began to ease in the third quarter of that year.
For the third quarter, total selling and administrative
expense decreased in amount in relation to 1997, due
principally to the change in the company's calendar. On a
year-to-date basis, selling and administrative expense
decreased modestly in 1998. These expenses also decreased
slightly in 1998 as a percentage of sales due to increased
sales volume.
Other expense-net, including amortization of goodwill,
increased to $1.8 million in the third quarter of 1998 from
$1.3 million in the third quarter of 1997. For the first
three quarters of 1998, other expense-net increased to $10.4
million from $7.9 million in the first three quarters of
1997. The 1998 year-to-date amount includes severance
expense of approximately $5.3 million relating to
approximately 125 employees at Widia, the company's European
cutting tool company. As a result of these and other
actions at Widia, the company expects to achieve annualized
pretax savings of approximately $5.0 million, which are
expected to begin to phase in during the fourth quarter of
1998. The 1997 year-to-date expense included severance
expenses of approximately $2.0 million relating to
Ferromatik, the company's German injection molding machine
subsidiary. Annual cost savings from this and other cost
reduction measures at Ferromatik are approximately $3.5
million.
Interest expense-net decreased for the third quarter of
1998, due largely to the calendar effect and increased for
the first three quarters of 1998 due primarily to higher
average debt levels.
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Earnings before income taxes of $25.1 million in the third
quarter of 1998 exceeded the $24.2 million earned in the
third quarter of 1997 by $.9 million, or 4%. The change in
calendar had the effect of reducing pretax earnings by
approximately $4.9 million, which substantially offset
increases resulting from higher operating margins and the
recent acquisitions. As a percentage of sales, pretax
earnings improved significantly from 5.6% to 7.1%. Earnings
before income taxes for the first three quarters of 1998
totaled $71.4 million, representing an $11.6 million, or 19%
increase over $59.8 million in the comparable period of
1997, which is largely the result of higher manufacturing
margins. Pretax earnings as a percentage of sales were 6.6%
in 1998 as compared to 5.6% in 1997.
INCOME TAXES
The provision for income taxes in 1998 and 1997 includes
U.S. federal and state and local income taxes and income
taxes in other jurisdictions outside the U.S.
The company entered both years with sizeable net operating
loss (NOL) carryforwards, along with valuation allowances in
certain jurisdictions against the NOL carryforwards and
other deferred tax assets. Valuation allowances are
evaluated annually and reversed when it is determined to be
more likely than not that the related deferred tax assets
will be realized. The reversal of these valuation
allowances, as described more fully in the notes to the
condensed consolidated financial statements, serves to
reduce the effective tax rate. Valuation allowances subject
to future reversal were $26 million at year-end 1997. The
company anticipates that these valuation allowances will
approximate $10 million at year-end 1998.
The effective tax rate for 1999 is expected to increase to a
range of approximately 33-35%. However, the tax rate will
ultimately be contingent on the mix of earnings between tax
jurisdictions and other factors that cannot be predicted
with certainty at this time.
EARNINGS FROM CONTINUING OPERATIONS
Earnings from continuing operations were $18.5 million, or
$.47 per share (diluted), in the third quarter of 1998
compared with $20.3 million, or $.51 per share (diluted), in
the third quarter of 1997. The slight decrease in earnings
is caused by improved operating margins offset by the
calendar effect and a higher effective tax rate. On a year-
to-date basis, earnings from continuing operations totaled
$51.8 million, or $1.29 per share (diluted), compared to
$47.6 million, or $1.19 per share (diluted), in 1997. Once
again, this amount reflects improved operating results
offset by a higher effective tax rate. The calendar change
did not significantly affect the year-to-date comparison.
DISCONTINUED OPERATIONS
In the third quarter of 1998, discontinued operations
includes a provision for the loss on the sale of MTG of
$35.2 million, or $.90 per share (diluted), and an after-tax
loss from the operations of MTG for the quarter of $3.9
million, or $.10 per share (diluted). The operating loss
for the quarter was caused principally by product line
liquidation costs, lower sales volume and shipment delays.
In the third quarter of 1997, MTG had after tax earnings of
$2.3 million, or $.05 per share (diluted). For the first
three quarters of 1998, the loss from discontinued
operations, including the loss on sale, totaled $33.9
million, or $.84 per share (diluted). For the first three
quarters of 1997, MTG had after tax earnings of $6.2
million, or $.15 per share (diluted).
NET EARNINGS
The company's net loss was $20.6 million, or $.53 per share
(diluted), in the third quarter of 1998 compared with net
earnings of $22.6 million, or $.56 per share (diluted), in
the third quarter of 1997. For the first three quarters of
1998, net earnings were $17.9 million, or $.45 per share
(diluted), compared to $53.8 million, or $1.34 per share
(diluted), for the first three quarters of 1997. The most
significant item affecting net earnings comparison between
years was the loss on the sale of MTG and its lower
operating earnings in 1998.
YEAR 2000
- ---------
The term "Year 2000 problem" (Y2K) refers to processing
difficulties that may occur in information technology (I.T.)
systems, and other equipment with embedded microprocessors,
that were designed without considering the distinction
between dates in the 1900s and the 2000s. If not corrected,
these systems could fail or miscalculate data when
processing date-sensitive information that includes a date
on or after January 1, 2000.
Each of the company's business units, as well as the
corporate headquarters, are responsible for developing and
executing comprehensive plans to minimize, and to the extent
possible, eliminate any major business interruptions that
could be caused by the Y2K issue. The company has
established an executive level Y2K Compliance Committee,
which is monitoring the company's progress toward Y2K
preparedness. This monitoring process includes verification
by internal auditors and review of reports from the
company's internal and external auditors to identify issues
requiring attention by the Compliance Committee.
The company's Y2K effort focuses primarily on three
important elements: 1) I.T. systems; 2) non-I.T. equipment
that includes embedded microprocessors; and 3) supplier
preparedness.
Most of the company's efforts to date have focused on its
most critical I.T. business systems (e.g., financial,
enterprise resource planning, or "ERP"). Each of the
company's nine major manufacturing locations operate unique
information technology systems which have been selected to
best serve that business's needs. Four of these businesses
operate systems that are licensed from independent third
party software providers and require third party updates to
be Y2K compliant. The company is cooperating with and
relying on these third parties to replace or upgrade its
software with Y2K compliant software on a timely basis. The
company is installing and testing the new software to
provide assurance that the updated systems will properly
process date-sensitive information. These systems either
have already been updated or are scheduled to be updated
around the end of 1998. Four other businesses are using the
Y2K compliance process as an opportunity to modernize their
systems by installing new ERP systems licensed from
independent software providers. One of the ERP system
installations is completed and the other three are expected
to be completed by March 31, 1999. Another business unit
operates its own proprietary business systems, which are
being reprogrammed to be Y2K compliant; over 90% of the
applications have already been remediated with the balance
expected to be remediated by early 1999.
In addition, the company is in the process of completing
inventories and assessments of non-I.T. systems (e.g.,
production equipment) which may contain imbedded chips,
which could malfunction with the approach of the year 2000.
Wherever critical systems are identified as not being
compliant, the company plans to remediate or replace these
non-compliant systems. This remediation effort is expected
to be substantially completed by June 30, 1999.
All business units are in the process of contacting key
vendors and service providers to obtain information about
their plans and progress on Y2K issues and to obtain their
assurances that they expect to be able to provide an
uninterrupted flow of product or service approaching and
into the year 2000. The company is following up on
significant concerns that are identified as a result of
these communications and, in some cases, may be arranging
alternative sources of that product or service.
In 1998 the company is focusing on the prevention of
significant Y2K failures, rather than preparing formal,
written contingency plans. However, in 1999 the company
intends to consider preparing contingency plans, if major
systems or suppliers are identified that represent a
significant risk of Y2K failure.
Many of the company's machinery products rely upon computer
controls and imbedded microprocessors to achieve optimum
performance. The company is making information available
publicly to its customers on the Y2K status of these
products, substantially all of which are Y2K compliant.
The company has captured the cost of major system
implementation and remediation efforts, while other costs
are being absorbed in departmental operating budgets. Based
on currently available information, the company estimates
that the incremental cost of these implementation and
remediation projects will be less than $13 million over
1997, 1998 and 1999, of which over 55% has been expended
through September 30, 1998. These costs are not expected to
have a material effect on the company's financial position,
results of operations, or cash flows.
The company recognizes that the Y2K issue could result in
the interruption or failure of certain normal business
operations which could materially and adversely affect the
company's results of operations, liquidity and financial
condition. Due to the general uncertainty inherent in the
Y2K problem, resulting in part from the uncertainty of the
Y2K preparedness of vendors, service providers and other
third parties, the company is unable to determine at this
time whether the consequences of the Y2K issue will have a
material impact on the company's results of operations,
liquidity or financial condition. However, as a result of
the company's past and future Y2K activities, management
believes that the risk of significant interruption of normal
operations should be reduced.
LIQUIDITY AND SOURCES OF CAPITAL
- --------------------------------
At September 30, 1998, the company had cash and cash
equivalents of $42 million, representing increases of $12
million in the third quarter and $16 million in the first
three quarters of 1998.
Operating activities used $14 million of cash in the third
quarter of 1998, compared with $16 million provided in the
third quarter of 1997. The decrease includes $14 million
related to a reduction in the amount of accounts receivable
sold under the company's receivables purchase agreement.
For the first three quarters of 1998, operating activities
provided $23 million, compared with $60 million in the first
three quarters of 1997. The decrease is largely the result
of the decrease in sold receivables and other working
capital requirements including higher inventory levels.
In the third quarter of 1998, investing activities resulted
in a $215 million use of cash, due to capital expenditures
of $23 million and acquisitions of $193 million, including
$190 million for the Uniloy acquisition. For the first
three quarters of 1998, net cash used by investing
activities totaled $263 million compared with $61 million in
the first three quarters of 1997. The increase in net cash
used in the first three quarters of 1998 primarily relates
to an increase in capital expenditures of $10 million and
the $190 million cost of the Uniloy acquisition.
Financing activities provided $240 million of cash in the
third quarter of 1998 due primarily to bank borrowings to
finance acquisitions, including a new $135 million senior
term loan obtained in connection with the Uniloy
acquisition. This loan and other bank borrowings were
repaid in October, 1998, using the $180 million of initial
proceeds from the sale of MTG. In the third quarter of
1997, financing activities provided $31 million of cash
due primarily to increased bank borrowings. In the first
three quarters of 1998, financing activities provided $257
million of cash primarily through increases in bank
borrowings, offset by $21 million to purchase approximately
878,000 common shares on the open market to partially meet
anticipated needs of management incentive, employee benefit
and dividend reinvestment plans.
As of September 30, 1998, the company's current ratio was
1.3, as compared to 1.7 at June 30, 1998 and March 31, 1998
and 1.8 at December 27, 1997 and October 4, 1997. The
decrease in the current ratio is principally the result of
the MTG sale and the Uniloy acquisition.
At September 30, 1998, the company had lines of credit with
various U.S. and non-U.S. banks of approximately $628
million, including a $250 million committed revolving credit
facility. Under the provisions of the facility, the
company's additional borrowing capacity totaled
approximately $86 million at September 30, 1998. In
October, 1998, the initial proceeds from the sale of MTG of
$180 million were utilized to repay bank borrowings incurred
to finance the acquisition of Uniloy. As a result of this
reduction in debt, the company's pro forma additional
borrowing capacity at September, 30, 1998, under the
provisions of the facility was approximately $266 million.
The company had a number of short-term intercompany loans
and advances denominated in various currencies totaling $28
million at September 30, 1998, that were subject to foreign
currency exchange risk. The company also enters into
various transactions, in the ordinary course of business,
for the purchase and sale of goods and services in various
currencies. The company hedges its exposure to currency
fluctuations related to short-term intercompany loans and
advances and the purchase and sale of goods under firm
commitments by entering into foreign currency exchange
contracts to minimize the effect of foreign currency
exchange rate fluctuations. The company is currently not
involved with any additional derivative financial
instruments.
The interest rates on the lines of credit and the financing
fees on the receivables purchase agreement fluctuate based
on changes in prevailing interest rates in the countries in
which amounts are borrowed or receivables are sold. At
September 30, 1998, approximately $504 million was subject
to the effects of fluctuations in interest rates under these
arrangements, including the $180 million of debt that was
repaid in October, 1998. Future changes in interest rates
will affect the company's interest expense and other
financing costs.
Total debt was $668 million at September 30, 1998,
representing increases of $260 million and $296 million from
June 30, 1998 and December 27, 1997, respectively. The
primary cause of the increases was to finance the Uniloy
acquisition. Total shareholders' equity was $480 million at
September 30, 1998, a decrease of $7 million from June 30,
1998 and an increase of $8 million from December 27, 1997.
The third quarter decrease resulted principally from the
loss from discontinued operations and the net purchase of
common shares, the effects of which more than offset
increases from earnings from continuing operations and
modestly favorable foreign currency translation effects.
The ratio of total debt to total capital (debt plus equity)
was 58% at September 30, 1998, compared with 46% at June 30,
1998 and 44% at December 27, 1997. With the reduction of
debt in October, 1998, the company's pro forma ratio of debt
to capital at September 30, 1998 was 50%.
Capital expenditures in 1998 are expected to approximate $80
million, including $10 million related to MTG prior to its
sale.
In October, 1998, subsequent to the completion of the MTG
sale, the company announced plans to purchase up to two
million of its outstanding common shares on the open market.
As of November 11, 1998, 590,000 shares had been purchased.
The company believes that its cash flow from operations and
its currently available credit lines are sufficient to
satisfy the share repurchase and to meet its operating and
capital requirements in the immediate future.
In November, 1998, the company entered into negotiations
with its bank group to increase the committed revolving
credit facility from $250 million to $375 million. Although
interest spreads on amounts borrowed under this agreement
are expected to increase by approximately fifty basis points
due to market conditions, some financial covenants are
expected to be eliminated or relaxed and the company expects
to achieve increased financial flexibility.
OUTLOOK
- -------
While North American and European markets have softened
somewhat in the second half compared to the first half of
1998, business has remained at good levels and the company
expects a solid fourth quarter which should show improvement
in both sales and earnings compared to 1997. Unless there
is further significant deterioration in world markets, the
company expects that with the addition of Uniloy, it can
also achieve solid increases in sales and earnings in 1999.
In the event of a major economic slowdown, the company
believes its recent acquisitions, the absence of the more
cyclical machine tools business, and its aggressive cost
cutting programs will help temper any adverse effects.
The above forward-looking statements involve risks and
uncertainties that could significantly impact expected
results, as described more fully in the Cautionary Statement
below.
CAUTIONARY STATEMENT
The company wishes to caution readers about all its forward-
looking statements in the "Outlook" section above and
elsewhere. These include all statements which speak about
the future or are based on the company's interpretation of
factors that might affect its businesses. The company
believes the following important factors, among others,
could affect its actual results for 1998 and beyond and
cause them to differ materially from those expressed in any
forward-looking statements:
* global and regional economic conditions, consumer
spending and industrial production particularly in
segments related to the level of automotive production
and spending in the aerospace and construction
industries;
* fluctuations in currency exchange rates of U.S. and
foreign countries, including countries in Europe and Asia
where the company has several principal manufacturing
facilities and where many of the company's competitors
and suppliers are based;
* fluctuations in domestic and non-U.S. interest rates
which affect the cost of borrowing under the company's
lines of credit and financing fees related to the sale of
domestic accounts receivable;
* production and pricing levels of important raw
materials, including plastic resins, which are a key
material used by purchasers of the company's plastics
technologies products, and steel, cobalt, tungsten and
industrial grains used in the production of metalworking
products;
* lower than anticipated levels of plant utilization
resulting in production inefficiencies and higher costs,
whether related to the delay of new product
introductions, improved production processes or
equipment, or labor relation issues;
* any major disruption in production at key customer or
supplier facilities;
* alterations in trade conditions in and between the U.S.
and non-U.S. countries where the company does business,
including export duties, import controls, quotas and
other trade barriers;
* changes in tax, environmental and other laws and
regulations in the U.S. and non-U.S. countries where the
company does business;
* unanticipated litigation, claims or assessments,
including but not limited to claims or problems related
to product liability, warranty or environmental issues;
and
* the failure of key vendors, software providers, public
utilities, financial institutions or other critical
suppliers to provide products or services that are Y2K
compliant.
PART II. OTHER INFORMATION
MILACRON INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
In the opinion of management and counsel, there are no
material pending legal proceedings to which the company or
any of its subsidiaries is a party or of which any of its
property is the subject.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
Exhibit (3) - Articles of Incorporation and
Bylaws
Exhibit (4) - Instruments Defining the Rights
of Security Holders, Including
Indentures
Exhibit (10) - Material Contracts
Exhibit (11) - Statement Regarding Computation
of Per Share Earnings - filed as
a part of Part I
Exhibit (27) - Financial Data Schedule - filed
as part of Part I
(b) Reports on Form 8-K
- A Current Report on Form 8-K, Item 5, dated August 3,
1998, was filed regarding the company's intention to
purchase the plastics machinery division of Johnson
Controls, Inc.
- A Current Report on Form 8-K, Item 5, dated August 20,
1998 was filed regarding the company's intention to sell its
machine tools segment to UNOVA, Inc.
- A Current Report on Form 8-K, Item 2, dated September
30, 1998, was filed regarding the closing of the acquisition
of the plastics machinery division of Johnson Controls,
Inc., and the terms thereof. Financial statements were not
required to be filed.
- A Current Report on Form 8-K, Items 2, 5 and 7, dated
October 2, 1998 was filed regarding the closing of the sale
of the company's machine tools segment to UNOVA, Inc. Pro
forma financial statements under Item 7 (b) were included in
this filing. The filing also disclosed the change of the
company's name to Milacron Inc. and its intention to
purchase up to two million shares of its outstanding common
stock.
Milacron Inc. and Subsidiaries
Signatures
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Milacron Inc.
Date: November 16, 1998 By:/s/Jerome L. Fedders
---------------------- --------------------
Jerome L. Fedders
Controller
Date: November 16, 1998 By:/s/Ronald D. Brown
---------------------- --------------------
Ronald D. Brown
Senior Vice President -
Finance and
Administration and Chief
Financial Officer
Milacron Inc. and Subsidiaries
Index to Exhibits
Exhibit No. Page No.
- -----------
2 Plan of Acquisition,
Reorganization, Arrangement,
Liquidation or Succession - Not
Applicable.
3 Articles of Incorporation and
By-laws
3.1 - Incorporated herein by
reference to the company's annual
report on Form 10-K for the
fiscal year ended December 27,
1997.
4 Instruments Defining the Rights
of Security Holders, Including
Indentures.
4.1 8-3/8% Notes due 2004
- Incorporated herein by
reference to the company's
Amendment No. 3 to Form S-4
Registration Statement
(Registration No. 33-53009).
4.2 7-7/8% Notes due 2000
- Incorporated herein by
reference to the company's
Registration Statement on Form S-
4 (Registration No. 33-60081).
4.3 Cincinnati Milacron Inc.
hereby agrees to furnish to the
Securities and Exchange Commission,
upon its request, the instruments
with respect to the long-term debt
for securities authorized
thereunder which do not exceed 10%
of the registrant's total
consolidated assets.
10 Material Contracts
10.1 - Incorporated herein by reference to the company's
annual report on Form 10-K for the fiscal year ended
December 27, 1997.
10.2 Purchase and Sale Agreement dated as of August 3, 1998,
among Johnson Controls, Inc., and Hoover Universal, Inc. and
the Sellers listed on Schedule 0.1 thereto as Seller and
Cincinnati Milacron Inc., as Purchaser. Incorporated herein
by reference to the company's Form 8-K filing dated
September 30, 1998.
10.3 First Amendment to Purchase and Sale Agreement dated as
of September 30, 1998 by and between Seller and Purchaser
(see 10.2). Incorporated herein by reference to the
company's Form 8-K filing dated September 30, 1998.
10.4 Purchase and Sale Agreement between UNOVA, Inc., UNOVA
Industrial Automation Systems, Inc. and UNOVA UK and
Cincinnati Milacron Inc. dated August 20, 1998.
Incorporated herein by reference to the company's Form 8-K
filing dated October 2, 1998.
10.5 First Amendment to Purchase and Sale Agreement between
UNOVA, Inc., UNOVA Industrial Automation Systems, Inc., and
UNOVA UK Limited and Cincinnati Milacron Inc. dated October
2, 1998. Incorporated herein by reference to the company's
Form 8-K filing dated October 2, 1998.
10.6 Amendment Number Six, Dated as of September 22, 1998, (Bound
to the Amended and Restated Revolving Credit Agreement Separately)
dated as of December 31, 1994, among Cincinnati
Milacron Inc., Cincinnati Milacron Kunststoffmaschinen
Europe GmbH, the lenders listed therein, and Bankers
Trust Company, as agent.
- Filed Herewith.
10.7 Amendment Number Seven, Dated as of September 29, 1998, (Bound
to the Amended and Restated Revolving Credit Separately)
Agreement dated as of December 31, 1994,
among Cincinnati Milacron Inc., Cincinnati
Milacron Kunststoffmaschinen Europe GmbH,
the lenders listed therein, and Bankers
Trust Company, as agent.
- Filed Herewith.
11 Statement Regarding Computation
of Per Share Earnings 29
15 Letter re: Unaudited Interim
Financial Information
- Not Applicable.
18 Letter Regarding Change in
Accounting Principles
- Not Applicable.
19 Report Furnished to Security
Holders
- Not Applicable.
22 Published Report Regarding
Matters Submitted To Vote of
Security Holders - Not Applicable.
23 Consents of Experts and Counsel
- Not Applicable.
24 Power of Attorney - Not
Applicable.
27 Financial Data Schedule - Filed
as part of EDGAR document
99 Additional Exhibits - Not
Applicable.
Milacron Inc. and Subsidiaries
Computation of Per Share Earnings
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per-share amounts)
Quarter Ended Year-to-Date
----------------- -----------------
Sept. 30, Oct. 4, Sept. 30, Oct. 4,
1998 1997 1998 1997
-------- ------- -------- ------
<S> <C> <C> <C> <C>
Net earnings (loss) $(20,623) $22,586 $17,873 $53,836
Less preferred dividends (60) (60) (180) (180)
-------- ------- ------- -------
Net earnings (loss) available
to common shareholders $(20,683) $22,526 $17,693 $53,656
======== ======= ======= =======
Basic Earnings Per Share:
Weighted-average common shares 38,951 39,563 39,102 39,612
======== ======= ======= =======
Per share amount $ (.53) $ .57 $ .45 $ 1.35
======== ======= ======= =======
Diluted Earnings Per Share:
Weighted-average common shares
outstanding 38,951 39,563 39,102 39,612
Dilutive effect of stock
options and restricted
shares based on treasury
stock method 198 474 430 310
-------- ------- ------- -------
Total 39,149 40,037 39,532 39,922
======== ======= ======= =======
Per share amount $ (.53) $ .56 $ .45 $ 1.34
======== ======= ======= =======
</TABLE>
Note: This computation is required by Regulation S-K,
Item 601, and is filed as an exhibit under Item 6 of
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 41,800
<SECURITIES> 0
<RECEIVABLES> 247,100
<ALLOWANCES> 12,000
<INVENTORY> 376,200
<CURRENT-ASSETS> 898,000
<PP&E> 568,500
<DEPRECIATION> 240,400
<TOTAL-ASSETS> 1,690,400
<CURRENT-LIABILITIES> 679,400
<BONDS> 0
<COMMON> 402,200
0
6,000
<OTHER-SE> 71,500
<TOTAL-LIABILITY-AND-EQUITY> 1,690,400
<SALES> 352,100
<TOTAL-REVENUES> 352,100
<CGS> 252,200
<TOTAL-COSTS> 252,200
<OTHER-EXPENSES> 67,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,400
<INCOME-PRETAX> 25,100
<INCOME-TAX> 6,600
<INCOME-CONTINUING> 18,500
<DISCONTINUED> (39,100)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,600)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
</TABLE>
Exhibit 10.6
AMENDMENT NUMBER SIX AND CONSENT, dated as
September 22, 1998 ("Amendment"), to the Amended and Restated
Revolving Credit Agreement dated as of December 31, 1994, as
amended by Amendment Number One, dated as of May 31, 1995,
Amendment Number Two, dated as of January 23, 1996 and Amendment
Number Three, dated as of April 26, 1996, Amendment Number Four
dated as of March 14, 1997 and Amendment Number Five dated as of
December 31, 1997 (the "Credit Agreement"), among CINCINNATI
MILACRON INC., a Delaware corporation (the "Borrower" and the
"Company"), CINCINNATI MILACRON KUNSTSTOFFMASCHINEN EUROPA GMBH,
a German corporation (the "German Borrower" and, collectively,
with the Company, the "Borrowers"), the lenders listed on
Schedule 2.1 thereto (each a "Lender" and collectively, the
("Lenders") and BANKERS TRUST COMPANY, a New York banking
corporation ("BTCo"), as a Lender and as agent for the Lenders
(in such capacity, including its successors and permitted
assigns, the "Agent"). Capitalized terms used and not otherwise
defined herein shall have the meanings assigned to them in the
Credit Agreement.
WHEREAS, the Borrowers have requested that the Agent and the
Lenders amend certain provisions of the Credit Agreement;
WHEREAS, the Agent and the Lenders have considered and
agreed to the Borrowers' requests, upon the terms and conditions
set forth in this Amendment;
WHEREAS, the consent of the Requisite Lenders is necessary
to effect this Amendment;
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION ONE - CONSENTS
(a) The Requisite Lenders hereby consent to, and agree to
waive compliance by the Borrowers with any provisions of the
Credit Agreement which otherwise might prohibit the consummation
of the Authorized Divestiture, including, without limitation,
Sections 5.4, 6.2 and 6.6 of the Credit Agreement.
(b) The Requisite Lenders hereby consent to, and agree to
waive compliance by the Borrowers of any provisions of the Credit
Agreement which otherwise might prohibit the consummation of
Authorized Acquisition No. 3, including, without limitation
Section 6.13 of the Credit Agreement.
SECTION TWO - AMDENDMENTS TO CREDIT AGREEMENT
The Credit Agreement is amended as hereinafter pro vided,
effective as of the date hereof.
2 .1. Amendments to Section 1 (Definitions) of the Credit
Agreement
(a) Section 1.1 shall be amended by adding the following new
definitions, in the appropriate alphabetical order;
"'Amendment No. 6' shall mean Amendment Number Six dated as
of September 22, 1998 to this Agreement."
"'Authorized Acquisition No. 3'" shall mean the
acquisition by the Company of the Uniloy plastics machinery
division of Johnson Controls, Inc. for an aggregate purchase
price of approximately $210 million in cash (exclusive of
commissions, other banking and investment fees, attorneys',
accountants', financial advisors' and investment bankers' fees
and other customary fees and costs associated therewith) subject
to post-closing adjustments."
"'Authorized Divestiture' shall mean the sale of the
Company's machine tool business (which includes both the U.S. and
U.K. manufacturing facilities and worldwide sales organization,
the headquarters building and shares of The Factory Power
Company) to UNOVA, Inc. for an aggregate sales price of
approximately $178 million in cash (exclusive of commissions,
other banking and investment fees, attorneys', accountants',
financial advisors' and investment bankers' fees and other
customary fees and costs associated therewith) subject to post
closing adjustments."
(b) Section 1.1 shall be further amended as follows:
provided, that with respect to the definition of "Consolidated
Tangible Net Worth", such definition shall not be deemed to be
amended as provided in this Amendment unless and until the
company shall have closed Authorized Acquisition No. 3.
"Consolidated Tangible Net Worth" shall be amended by
deleting the definition thereof and replacing it with the
following:
"'Consolidated Tangible Net Worth' shall mean, as at
any date at which the amount thereof shall be determined, the
amount by which the sum of (a) the par value (or value stated on
the books of the corporation) of the capital stock of all classes
(other than preferred stock redeemable at the option of the
holder thereof) of the Company, and (b) the amount of the
consolidated surplus, capital or earned, of the Company and its
Consolidated Subsidiaries exceeds the sum of (x) the amount of
any write-up in the book value of any assets of the Company and
its Consolidated Subsidiaries resulting from the revaluation
thereof or any write-up in excess of the cost of assets acquired,
and (y) the aggregate of all amounts appearing on the asset side
of the consolidated balance sheet of the Company for goodwill,
patents, patent rights, trademarks, trade names, copyrights,
franchises, bond discounts, underwriting expenses, treasury
stock, organizational expenses, and other similar items, if any,
all determined in accordance with GAAP applied on a consistent
basis with GAAP used in the preparation of the consolidated
financial statements for the year ended 12/31/94. Notwithstanding
any provision of this Agreement (i) goodwill (as defined by GAAP)
associated with the Acquisition of Widia, in an amount not to
exceed $35,000,000, shall be added back into and considered a
part of Consolidated Tangible Net Worth, (ii) goodwill (as
definitely by GAAP) associated with the first Authorized
Acquisition as approved by Amendment Number One, dated as of May
31, 1995, in an amount not to exceed $30,000,000, shall be added
back into and considered a part of Consolidated Tangible Net
Worth, (iii) goodwill (as defined by GAAP) associated with
Authorized Acquisition No. 2, in an amount not to exceed
$185,000,000, shall be added back into and considered a part of
Consolidated Tangible Net Worth (iv) goodwill (as defined by
GAAP) associated with Authorized Acquisition No. 3, in an amount
not to exceed $165,000,000, shall be added back into and
considered a part of Consolidated Tangible Net Worth and (v)
foreign currency translation gains (or losses) shall not be
deemed to increase (or decrease) Consolidated Tangible Net Worth
pursuant to Statement of Financial Accounting Standards No. 52 of
the Financial Accounting Standards Board or otherwise."
SECTION THREE - REPRESENTATIONS AND WARRANTIES
The Company hereby confirms, reaffirms and restates the
representations and warranties made by it in Section 8 of the
Credit Agreement and all such representations and warranties are
true and correct in all material respects as of the date hereof
except such representations and warranties need not be true and
correct to the extent that changes in the facts and conditions on
which such representations and warranties are based are required
or permitted under the Credit Agreement or such changes arise out
of events not prohibited by the covenants set forth in Sections 5
and 6 of the Credit Agreement. The Company further represents and
warrants (which representations and warranties shall survive the
execution and delivery hereof) to the Agent and each Lender that:
(a) The Company and the German Borrower each has the
corporate power, authority and legal right to execute, deliver
and perform this Amendment and has taken all corporate actions
necessary to authorize the execution, delivery and performance of
this Amendment;
(b) No consent of any person other than all of the Lenders,
and no consent, permit, approval or authorization of, exemption
by, notice or report to, or registration, filing or declaration
with, any governmental authority is required in connection with
the execution, delivery, performance, validity or enforceability
of this Amendment;
(c) This Amendment has been duly executed and delivered on
behalf of each of the Company and the German Borrower by a duly
authorized officer or attorney-in-fact of the Company and the
German Borrower, as the case may be, and constitutes a legal,
valid and binding obligation of the Company and the German
Borrower, as the case may be, enforceable in
accordance with its terms, except as the enforceability thereof
may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditor's
rights generally or by equitable principles relating to
enforceability; and
(d) The execution, delivery and performance of this
Amendment will not violate (i) any provision of law applicable to
the Company or the German Borrower or (ii) any contractual
obligation of either the Company or the German Borrower, except
in the case of clause (i) or (ii), such violations that would not
have, singly or in the aggregate, a Material Adverse Effect.
SECTION FOUR - MISCELLANEOUS
(a) Except as herein expressly amended, the Credit Agreement
and all other agreements, documents, instruments and certificates
executed in connection therewith, except as other wise provided
herein, are ratified and confirmed in all respects and shall
remain in full force and effect in accordance with their
respective terms.
(b) All references to the Credit Agreement shall mean the
Credit Agreement as amended as of the Amendment Effective Date,
and as the same may at any time be amended, amended and restated,
supplemented or otherwise modified from time to time and as in
effect.
(c) This Amendment may be executed by the parties hereto in
one or more counterparts, each of which shall be an original and
all of which shall constitute one and the same agreement.
(d) THIS AMENDMENT SHALL BE GOVERNED BY, CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
(e) This Amendment shall not constitute a consent or waiver
to or modification of any other provision, term or condition of
the Credit Agreement. All terms, provisions, covenants,
representations, warranties, agreements and conditions contained
in the Credit Agreement, as amended hereby, shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first above written.
CINCINNATI MILACRON INC.
By: Robert P. Lienesch
Title: Vice President and Treasurer
CINCINNATI MILACRON KUSTSTOFFMASCHINEN EUROPA GmbH
By: Ronald D. Brown
On the basis of power of attorney dated as of December 22, 1994
BANKERS TRUST COMPANY, as a Lender and as Agent
By:
Name: ANTHONY LoGRIPPO
Title: VICE PRESIDENT
COMERICA BANK,
as a Lender By:
Name: L.J. Santinoi
Title: First Vice President
CREDIT LYONNAIS
CHICAGO BRANCH,
as a Lender
By:
Name: Mary Ann Klemm
Title: Vice President
KEYBANK NATIONAL ASSOCIATION, as a Lender By:
Name: Thomas J. Purcell
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as a Lender
By:
Name: Raymond K. Otto
Title: Vice President
NATIONSBANK N.A., as a Lender By:
Name: Philip Durand
Title: VP
PNC BANK, National Association, as a Lender By:
Name: Bruce A. Kinter
Title: Vice President
NBD BANR, N.A.,
as a Lender
By :
Name: Edward C. Hathaway
Title: First Vice President
STAR BANR, N.A., as a Lender
By: Name: Thomas D. Gibbons
Title: Vice President
Exhibit 10.7
AMENDMENT NUMBER SEVEN, dated as of September
29, 1998 ("Amendment"), to the Amended and Restated
Revolving Credit Agreement dated as of December 31,
1994, as amended by Amendment Number One, dated as of
May 31, 1995, Amendment Number Two, dated as of
January 23, 1996 and Amendment Number Three, dated as
of April 26, 1996, Amendment Number Four dated as of
March 14, 1997, Amendment Number Five dated as of
December 31, 1997 and Amendment Number Six and
Consent, dated as of September 22, 1998 (the "Credit
Agreement"), among CINCINNATI MILACRON INC., (to be
Milacron, Inc. after October 5, 1998) a Delaware
corporation (the "Borrower" and the "Company"),
CINCINNATI MILACRON KUNSTSTOFFMASCHINEN EUROPA GMBH,
a German corporation (the "German Borrower" and,
collectively, with the Company, the "Borrowers"), the
lenders listed on Schedule 2.1 thereto (each a
"Lender" and collectively, the "Lenders") and BANKERS
TRUST COMPANY, a New York banking corporation
("BTCo"), as a Lender and as agent for the Lenders
(in such capacity, including its successors and
permitted assigns, the "Agent"). Capitalized terms
used and not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement.
WHEREAS, the Borrowers have requested that the
Agent and the Lenders amend certain provisions of the
Credit Agreement;
WHEREAS, the Agent and the Lenders have
considered and agreed to the Borrowers' requests,
upon the terms and conditions set forth in this
Amendment;
WHEREAS, the consent of the Requisite Lenders is
necessary to effect this Amendment;
NOW, THEREFORE, in consideration of the
foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby
agree as follows:
SECTION ONE - AMENMENTS TO CREDIT AGREEMENT
The Credit Agreement is amended as hereinafter
pro vided, effective as of the date hereof.
1.1. Amendments to Section 1 (Definitions) of
the Credit Agreement
(a) Section 1.1 shall be amended by adding the
following new definition, in the appropriate
alphabetical order:
"'Amendment No. 7' shall mean Amendment Number
Seven dated as of September 29, 1998 to this
Agreement."
(b) Section 1.1 shall be further amended as
follows:
"'Consolidated EBITDA' shall be amended by
deleting the definition thereof and replacing it with
the following:
"'Consolidated EBITDA' means, without
duplication, for any consecutive four fiscal quarter
period, the sum of the amounts for such period of (i)
the Company's Consolidated Net Income, excluding
therefrom any extraordinary nonrecurring items of
gain or loss, plus (ii) the aggregate amounts
deducted in determining Consolidated Net Income for
such period in respect of (a) the provision for taxes
based on income of the Company and its Subsidiaries,
(b) Interest Expense and (c) depreciation and
amortization expenses of the Company and its
Subsidiaries, all as determined on a consolidated
basis for the Company and its Subsidiaries for such
period in conformity with GAAP; provided, that for
purposes of calculating Consolidated EBITDA of the
Company for any rolling four quarters period that
includes any fiscal quarter of 1995, the
restructuring charges taken in fiscal 1995 relating
to the consolidation of certain Widia operations
shall be excluded from the determination of
Consolidated Net Income of the Company for the
relevant period, but only to the extent such
nonrecurring charges do not exceed $25,000,000.
Notwithstanding any provision of this Agreement, (x)
following the D-M-E Acquisition Date, Consolidated
EBITDA shall be calculated by adding $5,000,000 to
the Consolidated EBITDA for each quarter of fiscal
1995 and fiscal 1994 included in the period for which
Consolidated EBITDA is calculated and (y) for any
rolling four quarters period that includes the third
fiscal quarter of 1998, the non-recurring losses
relating to the machine tool business, including the
loss on its sale, shall be excluded from the
determination of Consolidated Net Income of the
Company for the relevant period, but only to the
extent such nonrecurring losses do not exceed
$40,000,000."
"Consolidated Tangible Net Worth' shall be
amended by deleting the definition thereof and
replacing it with the following:
"'Consolidated Tangible Net Worth' shall mean,
as at any date at which the amount thereof shall be
determined, the amount by which the sum of (a) the
par value (or value stated on the books of the
corporation) of the capital stock of all classes
(other than preferred stock redeemable at the option
of the holder thereof) of the Company, and (b) the
amount of the consolidated surplus, capital or
earned, of the Company and its Consolidated
Subsidiaries exceeds the sum of (x) the amount of any
write-up in the book value of any assets of the
Company and its Consolidated Subsidiaries resulting
from the revaluation thereof or any write-up in
excess of the cost of assets acquired, and (y) the
aggregate of all amounts appearing on the asset side
of the consolidated balance sheet of the Company for
goodwill, patents, patent rights, trademarks, trade
names, copyrights, franchises, bond discounts,
underwriting expenses, treasury stock, organizational
expenses, and other similar items, if any, all
determined in accordance with GAAP applied on a
consistent basis with GAAP used in the preparation of
the consolidated financial statements for the year
ended 12/31/94. Notwithstanding any provision of this
Agreement, (i) goodwill (as defined by GAAP)
associated with the Acquisition of Widia, in an
amount not to exceed $35,000,000, shall be added back
into and considered a part of Consolidated Tangible
Net Worth, (ii) goodwill (as definitely by GAAP)
associated with the first Authorized Acquisition as
approved by Amendment Number One, dated as of May 31,
1995, in an amount not to exceed $30,000,000, shall
be added back into and considered a part of
Consolidated Tangible Net Worth, (iii) goodwill (as
defined by GAAP) associated with Authorized
Acquisition No. 2, in an amount not to exceed
$185,000,000, shall be added back into and considered
a part of Consolidated Tangible Net Worth (iv)
goodwill (as defined by GAAP) associated with
Authorized Acquisition No. 3, in an amount not to
exceed $165,000,000, shall be added back into and
considered a part of Consolidated Tangible Net Worth,
(v) the goodwill (as defined by GAAP) associated with
the acquisition of Master Unit Dye, in an amount not
to exceed $8,000,000, shall be added back into and
considered a part of Consolidated Tangible Net Worth
(vi) foreign currency translation gains (or losses)
shall not be deemed to increase (or decrease)
Consolidated Tangible Net Worth pursuant to Statement
of Financial Accounting Standards No. 52 of the
Financial Accounting Standards Board or otherwise,
and (vii) the non-recurring losses relating to the
machine tool business, including the loss on its
sale, reported in the Company's financial statements
for the third fiscal quarter of 1998, shall be added
back into and considered a part of Consolidated Net
Worth."
"'EBIT' shall be amended by deleting the
definition thereof and replacing it with the
following:
"'EBIT' of the Company for any rolling four
quarters period (taken as one accounting period)
shall mean the following: the Consolidated Net Income
of the Company for such period, before interest
expense and interest income and provision for taxes
and without giving effect to any extraordinary
nonrecurring gains or losses for such period;
provided, that for purposes of calculating EBIT of
the Company for any period ending on or after the
first anniversary of the date of the consummation of
the Widia Acquisition, EBIT of Widia shall be
measured from and after the date of the consummation
of the Widia Acquisition; provided, further, that for
purposes of calculating EBIT of the Company for any
rolling four quarters period that includes the third
fiscal quarter of 1993, a nonrecurring charge
relating to the Company's blown film business shall
be excluded from the determination of Consolidated
Net Income of the Company for the relevant period,
but only to the extent that such non-recurring charge
did not exceed $18,000,000; provided, further, that
for purposes of calculating EBIT of the Company for
any rolling four quarters period that includes the
fourth fiscal quarter of 1993, a non recurring
restructuring charge taken in the fourth fiscal
quarter of 1993 relating to the Company's machine
tool business and disposal of the blown film systems
business shall be excluded from the determination of
Consolidated Net Income of the Company for the
relevant period, but only to the extent that such non
recurring charge did not exceed $51,800,000;
provided, further, that for purposes of calculating
EBIT of the Company for any rolling four quarters
period that includes the fourth fiscal quarter of
1994 or any fiscal quarter of 1995, the restructuring
charges taken in fiscal 1994 or 1995 relating to the
consolidation of certain Valenite and Widia
operations shall be excluded from the determination
of Consolidated Net Income of the Company for the
relevant period, but only to the extent such non
recurring charges do not exceed $25,000,000; and
provided, further, that for purposes of calculating
EBIT of the Company for any rolling four quarters
period that includes the third fiscal quarter of
1998, the non-recurring losses relating to the
Company's machine tool business shall be excluded
from the determination of Consolidated Net Income of
the Company for the relevant period, but only to the
extent such nonrecurring losses do not exceed
$40,000,000."
1.2. Amendment to Section 5 (Affirmative
Covenants) to the Credit Agreement
(a) Section 5.6. shall be amended by deleting
the text thereof in its entirety and replacing it
with the following:
"5.6 Consolidated Tangible Net Worth. The
Company shall maintain, at all times, Consolidated
Tangible Net Worth of at least $210,000,000 plus an
amount equal to 50% of Consolidated Net Income, with
no reduction for losses (except such nonrecurring
losses relating to the machine tool business,
including the loss on its sale, taken in the third
fiscal quarter of 1998, which losses may be deducted)
earned by the Company and its Subsidiaries from and
after December 30, 1995 through the date of the most
recent consolidated balance sheet furnished by the
Company pursuant to Section 5.1(a) or 5.l(b) plus
100% of the net proceeds of any issuance of shares of
capital stock of the Company (or rights, warrants or
options to subscribe for such capital stock) on or
after December 31, 1995."
SECTION TWO - REPRESENTATIONS AND WARRANTIES
The Company hereby confirms, reaffirms and
restates the representations and warranties made by
it in Section 8 of the Credit Agreement and all such
representations and warranties are true and correct
in all material respects as of the date hereof except
such representations and warranties need not be true
and correct to the extent that changes in the facts
and conditions on which such representations and
warranties are based are required or permitted under
the Credit Agreement or such changes arise out of
events not prohibited by the covenants set forth in
Sections 5 and 6 of the Credit Agreement. The Company
further represents and warrants (which
representations and warranties shall survive the
execution and delivery hereof) to the Agent and each
Lender that:
(a) The Company and the German Borrower each has
the corporate power, authority and legal right to
execute, deliver and perform this Amendment and has
taken all corporate actions necessary to authorize
the execution, delivery and performance of this
Amendment;
(b) No consent of any person other than all of
the Lenders, and no consent, permit, approval or
authorization of, exemption by, notice or report to,
or registration, filing or declaration with, any
governmental authority is required in connection with
the execution, delivery, performance, validity or
enforceability of this Amendment;
(c) This Amendment has been duly executed and
delivered on behalf of each of the Company and the
German Borrower by a duly authorized officer or
attorney-in-fact of the Company and the German
Borrower, as the case may be, and constitutes a
legal, valid and binding obligation of the Company
and the German Borrower, as the case may be,
enforceable in accordance with its terms, except as
the enforceability thereof may be limited by
applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditor's
rights generally or by equitable principles relating
to enforceability; and
(d) The execution, delivery and performance of
this Amendment will not violate (i) any provision of
law applicable to the Company or the German Borrower
or (ii) any contractual obligation of either the
Company or the German Borrower, except in the case of
clause (i) or (ii), such violations that would not
have, singly or in the aggregate, a Material Adverse
Effect.
SECTION THREE - MISCELLANEOUS
(a) Except as herein expressly amended, the
Credit Agreement and all other agreements, documents,
instruments and certificates executed in connection
therewith, except as other wise provided herein, are
ratified and confirmed in all respects and shall
remain in full force and effect in accordance with
their respective terms.
(b) All references to the Credit Agreement shall
mean the Credit Agreement as amended as of the
Amendment Effective Date, and as the same may at any
time be amended, amended and restated, supplemented
or otherwise modified from time to time and as in
effect.
(c) This Amendment may be executed by the
parties hereto in one or more counterparts, each of
which shall be an original and all of which shall
constitute one and the same agreement.
(d) THIS AMENDMENT SHALL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS.
(e) This Amendment shall not constitute a
consent or waiver to or modification of any other
provision, term or condition of the Credit Agreement.
All terms, provisions, covenants, representations,
warranties, agreements and conditions contained in
the Credit Agreement, as amended hereby, shall remain
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be duly executed as of the
date first above written.
CINCINNATI MILACRON INC.
By:
Name: Robert P. Lienesch
Title: Vice President and Treasurer
CINCINNATI MILACRON
KUNSTSTOFFMASCHINEN EUROPA GmbH
By:
Name: Ronald D. Brown
On the basis of power of attorney dated as of
December 22, 1994
BANKERS TRUST COMPANY, as a
Lender and as Agent
By:
Name: ANTHONY LoGRIPPO
Title: VICE PRESIDENT
COMERICA BANK,
as a Lender
By:
Name: L.J. Santinoi
Title: First Vice President
KEYBANK NATIONAL ASSOCIATION, as
a Lender
By:
Name: Thomas J. Purcell
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as a Lender
By:
Name: Raymond K. Otto
Title: Vice President
NATIONSBANK N.A.,
as a Lender
By:
Name: Philip Durand
Title: VP
NBD BANR, N.A.,
as a Lender
By :
Name: Edward C. Hathaway
Title: First Vice President
PNC BANK, National Association,
as a Lender
By:
Name: David F. Knuth
Title: Vice President
