============================================================
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 June 30, 1999
[ ] 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.)
2090 Florence Avenue
P.O. Box 63716
Cincinnati, Ohio 45206
(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 August 9, 1999: 37,012,138
============================================================
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 13
Item 3. Quantitative and Qualitative
Disclosures about Market Risk 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 4. Submission of Matters to
a Vote of Security Holders 24
Item 6. (a) Exhibits 24
(b) Reports on Form 8-K 24
Signatures 25
Index to Exhibits 26
PART I. FINANCIAL INFORMATION
MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
(In millions, except share
and per-share amounts)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $ 401.0 $ 370.5 $ 793.0 $727.0
Cost of products sold 298.7 266.8 587.1 526.7
------- ------- ------- -------
Manufacturing margins 102.3 103.7 205.9 200.3
------- ------- ------- -------
Other costs and expenses
Selling and administrative 68.4 65.8 138.8 129.9
Other - net 2.0 4.0 4.5 8.2
------- ------- ------- -------
Total other costs
and expenses 70.4 69.8 143.3 138.1
------- ------- ------- -------
Operating earnings 31.9 33.9 62.6 62.2
Interest
Income .3 .5 .7 .9
Expense (9.7) (8.0) (19.3) (15.8)
------- ------- ------- -------
Interest - net (9.4) (7.5) (18.6) (14.9)
------- ------- ------- -------
Earnings before income
taxes and minority
shareholders' interests 22.5 26.4 44.0 47.3
Provision for income taxes 6.7 7.1 13.0 12.9
------- ------- ------- -------
Earnings from continuing
operations before minority
shareholders' interests 15.8 19.3 31.0 34.4
Minority shareholders'
interests in earnings
of subsidiaries .5 1.0 .6 1.1
------- ------- ------- -------
Earnings from continuing
operations 15.3 18.3 30.4 33.3
Discontinued operations net of
income taxes - 2.6 - 5.2
------- ------- ------- -------
Net earnings $ 15.3 $ 20.9 $ 30.4 $ 38.5
======= ======= ======= =======
Earnings per common share
Basic
Continuing operations $ .42 $ .47 $ .82 $ .85
Discontinued operations - .06 - .13
------- ------- ------- -------
Net earnings $ .42 $ .53 $ .82 $ .98
======= ======= ======= =======
Diluted
Continuing operations $ .41 $ .45 $ .81 $ .82
Discontinued operations - .07 - .14
------- ------- ------- -------
Net earnings $ .41 $ .52 $ .81 $ .96
======= ======= ======= =======
Dividends per common share $ .12 $ .12 $ .24 $ .24
======= ======= ======= =======
Weighted average common shares
outstanding assuming dilution
(in thousands) 36,978 39,739 37,239 39,723
</TABLE>
See notes to consolidated condensed financial statements.
MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
(In millions)
June 30, Dec. 31,
1999 1998
-------- --------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 35.8 $ 48.9
Notes and accounts receivable, less
allowances of $ 12.2 in 1999 and
$ 12.1 in 1998 219.5 226.1
Receivable from sale of discontinued
machine tools segment - 10.8
Inventories
Raw materials 46.0 45.6
Work-in-process and finished parts 191.7 204.6
Finished products 157.4 150.8
-------- --------
Total inventories 395.1 401.0
Other current assets 46.7 43.7
-------- --------
Total current assets 697.1 730.5
Property, plant and equipment 594.2 605.2
Less accumulated depreciation (252.0) (254.3)
-------- --------
Property, plant and equipment - net 342.2 350.9
Goodwill 387.4 397.6
Other noncurrent assets 73.8 78.1
-------- --------
Total assets $1,500.5 $1,557.1
======== ========
Liabilities and shareholders' equity
Current liabilities
Amounts payable to banks and current
portion of long-term debt $ 209.0 $ 185.2
Trade accounts payable 128.8 155.2
Advance billings and deposits 27.2 31.7
Accrued and other current liabilities 161.0 178.8
-------- --------
Total current liabilities 526.0 550.9
Long-term accrued liabilities 185.4 193.9
Long-term debt 324.4 335.7
-------- --------
Total liabilities 1,035.8 1,080.5
-------- --------
Commitments and contingencies - -
Shareholders' equity
Preferred shares 6.0 6.0
Common shares (outstanding: 37.0
in 1999 and 37.8 in 1998) 365.4 379.0
Reinvested earnings 127.3 106.0
Accumulated other comprehensive
income (loss) (34.0) (14.4)
-------- --------
Total shareholders' equity 464.7 476.6
-------- --------
Total liabilities and shareholders' equity $1,500.5 $1,557.1
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In millions)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Increase (decrease) in cash
and cash equivalents
Operating activities cash flows
Net earnings $ 15.3 $ 20.9 $ 30.4 $ 38.5
Operating activities
providing(using) cash:
Depreciation and
amortization 14.1 14.8 28.8 29.2
Deferred income taxes 8.7 (.4) 9.4 (3.6)
Working capital changes
Notes and accounts
receivable (2.4) (12.8) (9.8) 8.6
Inventories (1.2) (21.7) (16.7) (40.8)
Other current assets (2.2) 2.5 (3.7) (2.2)
Trade accounts payable (5.6) (5.3) (20.2) (6.0)
Accrued and other
current liabilities (9.9) 10.3 (.9) 21.1
Decrease (increase) in
other noncurrent
assets (2.9) (5.9) 1.2 (8.6)
Increase (decrease) in
long-term accrued
liabilities (1.3) 6.6 (2.0) 1.3
Other - net (.4) (.5) (2.6) (1.3)
------- ------- ------- -------
Net cash provided by
operating activities 12.2 8.5 13.9 36.2
------- ------- ------- -------
Investing activities cash flows
Capital expenditures (13.6) (17.4) (28.8) (29.4)
Net disposals of property,
Plant and equipment .1 .4 .5 1.5
Acquisitions (.5) (8.0) (11.0) (20.5)
Divestitures 6.4 - 9.6 -
------- ------- ------- -------
Net cash used by
investing activities (7.6) (25.0) (29.7) (48.4)
------- ------- ------- -------
Financing activities cash flows
Dividends paid (4.5) (4.8) (9.1) (9.6)
Issuance of long-term debt - 3.0 - 4.5
Repayments of
long-term debt (.2) - (1.7) (.5)
Increase (decrease) in
Amounts payable to banks (.6) 8.4 32.3 29.9
Issuance of common shares .1 1.4 .1 5.6
Purchase of treasury and
Other common shares (1.2) (4.2) (18.9) (13.1)
------- ------- ------- -------
Net cash provided (used)
By financing activities (6.4) 3.8 2.7 16.8
------- ------- ------- -------
Increase (decrease) in cash
and cash equivalents (1.8) (12.7) (13.1) 4.6
Cash and cash equivalents at
beginning of period 37.6 43.0 48.9 25.7
------- ------- ------- -------
Cash and cash equivalents at
end of period $ 35.8 $ 30.3 $ 35.8 $ 30.3
======= ======= ======= =======
</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, all of which are normal and recurring,
necessary to present fairly the company's financial
position, results of operations and cash flows.
The Consolidated Condensed Balance Sheet at December 31,
1998, has been derived from the audited consolidated
financial statements at that date, but does not include all
of the information and footnotes required by generally
accepted accounting principles for complete financial
statements.
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 31, 1998.
DISCONTINUED OPERATIONS
- -----------------------
On October 2, 1998, the company completed the sale of its
machine tools group (MTG). The proceeds from the sale,
including post-closing adjustments, were approximately $187
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). MTG was largely
involved in the manufacture and sale of aerospace systems
and stand-alone machinery for general metalworking. The
Consolidated Condensed Statement of Earnings for 1998 has
been restated to present the operating results of MTG as a
discontinued operation. MTG's sales were $120.1 million in
the second quarter of 1998 and $241.0 million for the six
months ended June 30, 1998.
ACQUISITIONS
- ------------
In February, 1998, the company acquired Wear Technology,
which had annual sales of approximately $10 million as of
the acquisition date 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 had annual sales of
approximately $20 million as of the acquisition date.
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 $204 million. Uniloy, which is
known for its Uniloy brand of equipment, as well as various
other brands, had annual sales of more than $190 million for
its fiscal year ended September 30, 1998, 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 blow molding.
On December 30, 1998, the company acquired Werkzeugfabrik
GmbH Konigsee (Werko), a manufacturer of high-speed steel
drills. Located in eastern Germany, Werko has annual sales
of approximately $25 million.
All of the acquisitions are being accounted for under the
purchase method and were financed through the use of
available cash and bank borrowings. The aggregate cost of
the acquisitions, including professional fees and other
related costs, is expected to total approximately $246.3
million. The allocation of the aggregate cost of the
acquisitions to the assets acquired and liabilities assumed
is presented in the table that follows.
<TABLE>
<CAPTION>
(In millions)
1998
------
<S> <C>
Cash and cash equivalents $ 2.1
Accounts receivable 34.2
Inventories 69.5
Other current assets 3.8
Property, plant and equipment 30.4
Goodwill 186.5
Other noncurrent assets 9.5
------
Total assets 336.0
Current portion of long-term debt 7.0
Other current liabilities 70.4
Long-term accrued liabilities 1.4
Long-term debt 10.9
------
Total liabilities 89.7
------
Total acquisition cost $246.3
======
</TABLE>
Early in July, 1999, the company acquired Nickerson
Machinery Inc., Pliers International Inc., and Plastic
Moulding Supply LTD (collectively, Nickerson). With 1998
sales of $7 million, Nickerson sells supplies and equipment
for plastic processing through two catalog distribution
centers in the U.S. and one in the U.K. The operation in
the U.K. also manufactures and refurbishes screws and
barrels for small injection molding machines. Nickerson
will be included in the plastics technologies segment
beginning in the third quarter of 1999.
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. Of the total $5.3 million expense,
$3.3 million ($2.3 million after tax) was recorded in the
second quarter of 1998. 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 began to phase in during the fourth quarter
of 1998.
INCOME TAXES
- ------------
In both 1999 and 1998, the provision for income taxes
consists of U.S. federal and state and local income taxes as
well as non-U.S. income taxes. The provision also includes
the effects of adjustments of deferred tax assets and
related valuation allowances in certain non-U.S.
jurisdictions, as described below.
At December 31, 1998, certain of the company's non-U.S.
subsidiaries reported net operating loss carryforwards
aggregating approximately $120 million, substantially all of
which have no expiration dates. This amount included $39
million related to Werko (see Acquisitions), which was
acquired on December 30, 1998. The deferred tax assets
related to certain of these loss carryforwards were
partially reserved through valuation allowances which
totaled approximately $28 million. During the first half of
1999, the company reevaluated Werko's preacquisition profits
and losses. As a result of the reevaluation, the company's
calculation of Werko's net operating loss carryforwards has
been increased to approximately $74 million for German
federal tax purposes and $70 million for trade tax purposes.
The related valuation allowances have been increased by $10
million. The additional deferred tax assets and valuation
allowances have been recorded in 1999 in connection with the
allocation of the Werko acquisition cost.
Effective January 1, 1999, the German federal income tax
rate on undistributed earnings was reduced from 45% to 40%.
As a result, the net carrying value of the company's net
deferred assets in Germany, including valuation allowances,
was reduced by approximately $1.8 million. This increase in
the first quarter tax provision was substantially offset by
adjustments of certain other non-U.S. accrued and deferred
income tax balances.
The company reviews the valuation of all deferred tax assets
on an ongoing basis and concluded in 1998 that it was more
likely than not that a portion of these assets would be
realized in the future. Accordingly, certain non-U.S.
valuation allowances were reversed which caused the
effective tax rate for 1998 to be less than the U.S.
statutory rate. Similarly, the 1999 effective tax rate also
provides for the reversal of non-U.S. valuation allowances
due to the expectation of additional net operating loss
carryforward utilization. The 1999 rate also includes the
effect of tax reserve adjustments to more accurately reflect
actual expected liabilities. These benefits are offset to
some degree by a provision for the write down of the
company's net deferred tax assets in Germany from the
"without distribution" rate to the lower "with distribution"
rate of 30%.
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.
At June 30, 1999, December 31, 1998, June 30, 1998, and
December 31, 1997, the undivided interests in the company's
gross accounts receivable that had been sold to the
purchaser aggregated $72.9 million, $63.1 million, $75.0
million and $75.0 million, respectively. Increases and
decreases in the amount sold are reported as operating cash
flows 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)
June 30, Dec.31,
1999 1998
------- -------
<S> <C> <C>
Accrued and other current liabilities
Accrued salaries, wages and
other compensation $ 57.3 $ 49.1
Accrued and deferred income taxes 8.9 (.5)
Other accrued expenses 94.8 130.2
------- -------
$ 161.0 $ 178.8
======= =======
Long-term accrued liabilities
Accrued pension and other
compensation $ 63.2 $ 74.9
Accrued postretirement health
care benefits 39.6 40.6
Accrued and deferred income taxes 28.1 26.6
Minority shareholders' interests 20.2 19.9
Other 34.3 31.9
------- -------
$ 185.4 $ 193.9
======= =======
</TABLE>
LONG-TERM DEBT
- --------------
The components of long-term debt are shown in the following
table.
<TABLE>
<CAPTION>
(In millions)
June 30, Dec. 31,
1999 1998
------- -------
<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 178.7 84.8
Other 35.3 43.7
------- -------
Total long-term debt 429.0 343.5
Less current maturities (104.6) (7.8)
------- -------
$ 324.4 $ 335.7
======= =======
</TABLE>
Outstanding borrowings under the company's revolving credit
facility of $100.0 million and DM 149 million ($78.7
million) at June 30, 1999, and $10.0 million and DM 125
million ($74.8 million) at December 31, 1998 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 5.2% per year at June 30, 1999 and
4.8% per year at December 31, 1998. The June 30, 1999
amount includes $100.0 million that was reclassified to
long-term debt during the second quarter due to a change in
the company's expectations as to repayment.
As presented above, current maturities of long-term debt at
June 30, 1999 includes the 7-7/8% Notes due 2000 which are
payable on May 15, 2000.
LINES OF CREDIT
- ---------------
At June 30, 1999, the company had lines of credit with
various U.S. and non-U.S. banks of approximately $632
million, including a $375 million committed revolving
credit facility. 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 $206 million at June 30,
1999.
SHAREHOLDERS' EQUITY
- --------------------
On October 2, 1998, the company announced its intention to
repurchase up to two million of its outstanding common
shares on the open market, of which 1,239,700 were
repurchased during the fourth quarter of 1998. The
remaining 760,300 shares were repurchased in the first
quarter of 1999 at a cost of $13.1 million. In the first
two quarters of 1998, the company repurchased a total of
492,900 treasury shares on the open market at a cost of
$12.0 million to partially meet current and future needs of
management incentive, employee benefit and dividend
reinvestment programs. Additional shares totaling 103,168
and 38,303 were purchased in the first two quarters of 1999
and 1998, respectively, in connection with current
exercises of stock options and restricted share grants in
lieu of the use of authorized but unissued shares or
treasury shares.
COMPREHENSIVE INCOME
- --------------------
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)
Three Months Ended
-------------------------------------------
June 30, 1999 June 30, 1998
----------------- --------------------
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 $ 461.1 $ 477.7
Net common share
transactions - (2.8)
Net earnings $ 15.3 15.3 $ 20.9 20.9
Foreign currency
translation
adjustments (7.2) (7.2) (3.8) (3.8)
------- -------
Total comprehensive
income $ 8.1 $ 17.1
======= =======
Cash dividends (4.5) (4.8)
------- -------
Balance at end of period $ 464.7 $ 487.2
======= =======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------------
June 30, 1999 June 30, 1998
----------------- --------------------
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 $ 476.6 $ 471.9
Net common share
transactions (13.6) (7.5)
Net earnings $ 30.4 30.4 $ 38.5 38.5
Foreign currency
Translation
adjustments (19.6) (19.6) (6.1) (6.1)
------- -------
Total comprehensive
income $ 10.8 $ 32.4
======= =======
Cash dividends (9.1) (9.6)
------- -------
Balance at end of period $ 464.7 $ 487.2
======= =======
</TABLE>
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 operates in two business segments: plastics
technologies and cutting process technologies.
Descriptions of the products and services of these business
segments are included in the "Organization" note to the
consolidated financial statements included in the company's
Annual Report on Form 10-K for the year ended December 31,
1998. Operating results for the second quarter of 1999 and
for the six months ended June 30, 1999 are presented in the
following table.
<TABLE>
<CAPTION>
(In millions)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales
Plastics technologies $ 221.4 $ 189.2 $ 438.6 $ 369.5
Cutting process technologies 179.6 181.3 354.4 357.5
------- ------- ------- -------
$ 401.0 $ 370.5 $ 793.0 $ 727.0
======= ======= ======= =======
Operating earnings
Plastics technologies $ 20.5 $ 19.7 $ 40.6 $ 35.9
Cutting process technologies 16.3 19.6 32.4 38.2
Corporate expenses (3.6) (4.2) (7.8) (9.2)
Other unallocated expenses (a) (1.3) (1.2) (2.6) (2.7)
------- ------- ------- -------
Operating earnings 31.9 33.9 62.6 62.2
Interest expense-net (9.4) (7.5) (18.6) (14.9)
------- ------- ------- -------
Earnings from continuing operations before
income taxes and minority shareholders'
interests $ 22.5 $ 26.4 $ 44.0 $ 47.3
======= ======= ======= =======
New orders
Plastics technologies $ 222.8 $ 186.2 $ 429.3 $ 366.5
Cutting process technologies 173.9 183.9 355.4 366.6
------- ------- ------- -------
$ 396.7 $ 370.1 $ 784.7 $ 733.1
======= ======= ======= =======
</TABLE>
(a) Includes financing costs related to the sale of
accounts receivable.
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.
RECENTLY ISSUED PRONOUNCEMENTS
- ------------------------------
During the second quarter of 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities"(SFAS No. 133). This
standard was originally to have been effective for the
company beginning in 2000. However, in July 1999, the FASB
issued Statement of Financial Accounting Standards No. 137
which postpones the mandatory adoption of SFAS No. 133 by
the company until 2001. SFAS No. 133 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 statement of financial position. 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 SFAS No. 133 on its financial position and
results of operations. However, management currently
believes that the effect will not be material.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
RESULTS OF OPERATIONS
- ---------------------
Milacron operates in two business segments: plastics
technologies and cutting process technologies.
DISCONTINUED OPERATIONS
On October 2, 1998, we completed the sale of our machine
tools group (MTG) for proceeds of $187 million, including
post-closing adjustments. All comparisons of "results of
operations" in this Management's Discussion and Analysis
have been restated to exclude the historical operations of
MTG.
RECLASSIFICATION OF FINANCIAL STATEMENT
Beginning in the fourth quarter of 1998, expense for
minority shareholders' interests in the earnings of
subsidiaries, which was previously included as a component
of operating earnings in the Consolidated Condensed
Statement of Earnings, is presented as a separate
component of earnings from continuing operations after
income taxes. Also beginning in the fourth quarter of
1998, amortization expense related to deferred debt
issuance costs has been reclassified from other costs and
expenses-net to interest expense. Amounts for 1998 have
been reclassified to conform to these presentations.
ACQUISITIONS
In February, 1998, Milacron acquired Wear Technology and
Northern Supply. Wear Technology is a McPherson, Kansas
company with annual sales of approximately $10 million as
of the acquisition date which primarily serves the
aftermarket for new and rebuilt twin screws for extrusion
systems. 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, we 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 as of the acquisition date, Autojectors
operates through two manufacturing facilities near Fort
Wayne, Indiana.
Effective September 30, 1998, we 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 on September 30, 1998, we acquired the assets of
Uniloy, the plastics machinery division of Johnson
Controls, Inc., for approximately $204 million. Uniloy,
which is known for its Uniloy brand of equipment, as well
as various other brands, had sales of more than $190
million for its fiscal year ending on September 30, 1998,
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 blow molding.
On December 30, 1998, we acquired Werkzeugfabrik GmbH
Konigsee (Werko), a manufacturer of high-speed steel
drills. Located in eastern Germany, Werko has annual sales
of approximately $25 million.
With the exception of Werko, all of the businesses purchased
in 1998 are included in the plastics technologies segment
from the respective dates of acquisition. Werko is included
in the cutting process technologies segment beginning in
1999. In the aggregate, these acquisitions had the
effect of increasing second quarter 1999 new orders and
sales by $53 million and $52 million, respectively, in
relation to 1998. For the first two quarters of 1999, the
acquisitions resulted in increases in new orders and sales
of $108 million and $110 million, respectively, in relation
to the comparable period of 1998.
All of the acquisitions were financed through available
cash and bank borrowings and have been accounted for under
the purchase method of accounting.
PRESENCE OUTSIDE THE U.S.
In recent years, Milacron's growth outside the U.S. has
allowed it to become more globally balanced. In the first
six months of 1999, markets outside the U.S. represented
the following percentages of our consolidated sales:
Europe 28%; Asia 7%; Canada and Mexico 7%; and the rest of
the world 2%. As a result of this geographic mix, foreign
currency exchange rate fluctuations affect the translation
of our sales and earnings, as well as consolidated
shareholders' equity. During the first quarter of 1999,
the weighted-average exchange rates of most major European
currencies in relation to the U.S. dollar were slightly
stronger than in the comparable period of 1998. As a
result, Milacron experienced favorable translation effects
on new orders and sales of $2 million and $3 million,
respectively. However, the dollar continued to strengthen
against these currencies during the second quarter such
that the weighted-average rates for the first six months
of 1999 were unfavorable to the comparable period of 1998.
The effect during the second quarter of 1999 was to reduce
new orders by $4 million and sales by $5 million in
relation to 1998. The effect on earnings was not
significant for either the second quarter or the year-to-
date period. Between December 31, 1998 and June 30, 1999,
the new European currency, the euro, and the sovereign
currencies of the eleven participating countries weakened
against the dollar by approximately 12%. Various other
currencies, including the British pound, also weakened in
relation to the dollar during this period. This resulted
in a $20 million reduction in consolidated shareholders'
equity due to unfavorable foreign currency translation
adjustments.
The euro and the related currencies strengthened somewhat
in relation to the dollar during July, 1999. However, if
this trend were to reverse such that these and other
currencies weaken further against the dollar in future
periods, we will once again experience a negative effect
in translating our non-U.S. new orders, sales and,
possibly, net earnings when compared to historical
results.
NEW ORDERS AND BACKLOG
Consolidated new orders in the second quarter of 1999 were
$397 million, which represents a $27 million, or 7%,
increase from $370 million in the comparable period of
1998. Excluding the effects of the 1998 acquisitions, new
orders decreased by $26 million, or 7%. However, orders
for the company's base businesses (excluding acquisitions)
increased by 3% in relation to the first quarter of 1999.
In the plastics technologies segment, new orders increased
by $37 million, or 20%, which was more than accounted for
by the addition of Uniloy and the other 1998 acquisitions.
Orders for extrusion systems increased in the U.S. but
decreased in Europe. Orders for injection molding
machines also increased in the U.S. but decreased in
Europe due to softness in many capital goods markets.
Currency exchange rate fluctuations had the effect of
reducing orders by $2 million.
Orders for cutting process technologies products were $174
million, which represents a decrease of $10 million, or
5%, from $184 million in the second quarter of 1998.
Currency translation effects accounted for about $2
million of the decrease. Excluding the effects of the
Werko acquisition, new orders decreased by $16 million, or
9%. The decrease was due in part to lower North American
orders for round metalcutting tools and grinding wheels
that resulted from soft economic conditions in many of the
industrial markets served by these products. Orders for
Valenite and Widia products also decreased from the 1998
levels.
Consolidated new orders were $785 million in the first two
quarters of 1999, which represents an increase of $52
million, or 7%, in relation to 1998. Excluding the
effects of the 1998 acquisitions, new orders decreased by
$57 million, or 8%.
New orders increased by $63 million, or 17%, in the
plastics technologies segment due entirely to the 1998
acquisitions. Without the acquisitions, the segment's new
orders decreased by $35 million, or 10%, due principally
to lower orders for injection molding machines, especially
in Europe. However, orders for U.S. built extrusion
systems increased by more than 20%.
Orders for cutting process technologies products were $355
million in the first two quarters of 1999, a decrease of
$11 million, or 3%, in relation to the comparable period
of 1998. Excluding the effects of the Werko acquisition,
new orders decreased by $21 million. The decrease
resulted in part from lower North American orders for
grinding wheels and round metalcutting tools. Orders for
metalcutting inserts and tool holders also decreased,
particularly in Europe.
U.S. export orders were $40 million in the second quarter
of 1999, of which Uniloy accounted for approximately $9
million. In the second quarter of 1998, export orders
totaled $28 million. In addition to the Uniloy
acquisition, the increase resulted in part from higher
orders for Valenite products. For the first two quarters
of 1999, export orders totaled $65 million compared to $59
million in the same period of 1998. Uniloy accounted for
$15 million of export sales in 1999, the effects of which
were partially offset by lower exports of other plastics
machinery products in the first quarter of the year.
Milacron's backlog of unfilled orders totaled $250 million
at June 30, 1999, compared to $247 million at December 31,
1998, and $198 million at June 30, 1998. The increase in
relation to June 30, 1998 relates principally to the
Uniloy acquisition.
SALES
Sales in the second quarter of 1999 were $401 million,
which represents a $30 million, or 8%, increase from $371
million in 1998. Excluding the effect of the 1998
acquisitions, consolidated sales decreased by
approximately 6% due to ongoing weakness in most
industrial sectors worldwide. Currency exchange rate
fluctuations had the effect of reducing the 1999 amount by
$5 million in relation to 1998.
Sales of plastics technologies products increased by $32
million, or 17%. The segment's sales include an
incremental $46 million related to the 1998 acquisitions.
Shipments of injection molding machines decreased in the
U.S. and Europe due in part to low order levels in the
first quarter. Sales of extrusion systems increased
significantly in the U.S. but decreased somewhat in
Europe.
Second quarter, 1999 sales of cutting process technologies
products of $180 million approximated the 1998 amount
despite the effect of the Werko acquisition. Without
Werko, sales would have declined by 4%. Currency effects
reduced the segment's sales by approximately $3 million in
relation to 1998. North American shipments of round
metalcutting tools decreased due to softness in many
industrial markets. The exception was high-speed steel
drills, for which shipments increased. Sales of Widia
metalcutting products decreased due in part to currency
effects. Shipments of Valenite products and grinding
wheels in North America and metalcutting fluids worldwide
approximated the results achieved in 1998.
In the first six months of 1999, consolidated sales were
$793 million, an increase of $66 million, or 9%, in
relation to 1998. The 1998 acquisitions contributed $111
million of incremental sales.
Sales of the plastics technologies segment were $439
million in the first six monhts of 1999 compared to $370
million in 1998. The $69 million, or 19%, increase
resulted from the 1998 acquisitions. Sales of injection
molding machines decreased worldwide but sales of U.S.
built extrusion systems increased significantly in
relation to 1998.
Sales of cutting process technologies products were $354
million in the first two quarters of 1999 representing a
modest decrease from $358 million in 1998 despite the $10
million contributed by Werko in 1999. The segment's 1999
results reflect weakness in virtually all industrial
markets except automotive. Sales of round tools and
grinding wheels decreased in North America while Widia had
lower sales of metalcutting products in Europe due to
lower demand and currency effects.
Export sales were $40 million in the second quarter of
1999 compared to $27 million in 1998. The 1999 amount
includes $9 million for Uniloy. For the first two
quarters of 1999, export sales totaled $70 million
compared to $54 million in 1998. Uniloy contributed $20
million to the 1999 amount.
Sales of both segments to non-U.S. markets, including
exports, totaled $175 million in the second quarter of
1999, compared to $164 million of export sales in 1998.
Sales to non-U.S. markets totaled $343 million during the
first two quarters of 1999 compared to $319 million in
1998. For the first six months of 1999 and 1998, products
manufactured outside the U.S. approximated 40% and 41% of
sales, respectively, while products sold outside the U.S.
approximated 43% and 44% of sales, respectively.
MARGINS, COSTS AND EXPENSES AND OPERATING EARNINGS
Our consolidated manufacturing margin in the second
quarter of 1999 was 25.5% compared to 28.0% in 1998.
Margins in both segments were penalized by adverse shifts
in sales mix to lower-margin products and by production
cutbacks to control inventory levels which resulted in
unabsorbed capacity. The decrease in the plastics
technologies segment occurred principally in worldwide
injection molding and European extrusion. In the cutting
process technologies segment, the decrease occurred
principally in the round tools, Valenite and Widia
businesses.
For the first six months of 1999, the consolidated
manufacturing margin decreased from 27.6% to 26.0% due
principally to the aforementioned decreases experienced in
the second quarter.
In the second quarter of 1999, the plastics technologies
segment had operating earnings of $20.5 million, or 9.3%
of sales, compared to $19.7 million, or 10.4% of sales, in
1998. The acquisition of Uniloy contributed to the modest
increase in operating earnings, as did improved results in
the segment's U.S. extrusion business. However, earnings
for injection molding machines decreased due principally
to lower sales volume and the resulting effect on
manufacturing margins.
The cutting process technologies segment had operating
earnings of $16.3 million, or 9.1% of sales, in the second
quarter of 1999, which represents a decrease of $3.3
million from $19.6 million, or 10.8% of sales, in 1998.
The decrease resulted in part from softness in many of
the segment's markets worldwide, especially those served
by round metalcutting tools. In addition, the segment's
profitability was penalized by the effect of a shift in
sales mix to lower-margin products as shipments to the
automotive industry increased while sales to industrial
component manufacturers decreased. Widia also had
unabsorbed capacity costs as production levels were
adjusted to central inventory.
For the first six months of 1999, the plastics
technologies segment had operating earnings of $40.6
million, or 9.3% of sales, compared to $35.9 million, or
9.7% of sales, in 1998. The increase related almost
entirely to the addition of Uniloy. The segment expects
improved earnings in the second half of 1999 due to recent
cost-cutting measures, increasing synergies with Uniloy
and the other 1998 acquisitions, and the recent increase
in orders for injection molding machines both in North
America and Europe.
The cutting process technologies segment had operating
earnings of $32.4 million, or 9.1% of sales, in the first
two quarters of 1999, a decrease of $5.8 million from
$38.2 million, or 10.7% of sales, in the comparable period
of 1998. The decrease resulted principally from the
aforementioned softness in worldwide industrial markets
and lower manufacturing margins related to a shift in
sales mix. Anticipating only a modest recovery in
industrial markets, the segment expects to benefit from
recent cost-reduction measures in the second half of 1999
and achieve operating earnings comparable to those
reported for the same period of 1998.
For both the second quarter of 1999 and for the year to
date, total selling and administrative expense decreased
as a percentage of sales due to the company's aggressive
cost-cutting measures. For both periods, these expenses
increased in amount due to the inclusion of the 1998
acquisitions.
Other expense-net decreased to $2.0 million in the second
quarter of 1999 from $4.0 million in 1998. The 1999 amount
includes higher expense for goodwill amortization due
principally to the Uniloy acquisition which occurred in
the third quarter of 1998. The 1998 amount included
severance expense totaling approximately $3.3 million at
Widia, the company's European cutting tool business.
For the first two quarters of 1999, other expense-net was
$4.5 million compared to $8.2 million in the same period
of 1998. The decrease resulted from the absence of $5.3
million of Widia severance cost, the effects of which were
partially offset by higher goodwill amortization expense
in 1999. As a result of the 1998 severance cost and other
actions at Widia, we expect to achieve annualized pretax
savings of approximately $5.0 million, which began to
phase in during the fourth quarter of 1998.
Interest expense-net, including amortization of debt
issuance costs, increased in the second quarter of 1999
due to higher than average debt levels to finance working
capital requirements, acquisitions and the repurchase of
common shares in early 1999 and late 1998. Net interest
expense also increased for the first six months of 1999
for similar reasons.
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
MINORITY SHAREHOLDERS' INTERESTS
Earnings from continuing operations before income taxes
and minority shareholders' interests were $22.5 million in
the second quarter of 1999 compared to $26.4 million in
1998. The decrease results principally from increased
interest expense and lower operating earnings for round
cutting tools, certain Valenite product lines and
injection molding machines. These factors offset the
effects of $3.7 million of operating earnings from recent
acquisitions and reduced severance cost. As a percentage
of sales, pretax earnings decreased from 7.1% to 5.6%.
For the first six months of 1999, earnings from continuing
operations before income taxes and minority shareholders'
interests were $44.0 million, or 5.5% of sales, compared
to $47.3 million, or 6.5% of sales, in 1998. The decrease
relates principally to higher interest expense and the
effects of soft market conditions for certain product
lines. These factors more than offset the effects of
lower severance cost and $7.8 million of incremental
operating earnings related to the 1998 acquisitions.
INCOME TAXES
The 1999 and 1998 provisions for income taxes include U.S.
federal and state and local income taxes as well as non-
U.S. income taxes in jurisdictions outside the U.S.
As discussed more fully in the notes to the consolidated
condensed financial statements, Milacron entered both 1999
and 1998 with sizable net operating loss (NOL)
carryforwards in certain jurisdictions, along with
valuation allowances against the NOL carryforwards and
other deferred tax assets. Valuation allowances are
evaluated periodically and adjusted based on a "more
likely than not" assessment of whether the related
deferred tax assets will be realized. Increases or
decreases in these valuation allowances serve to
unfavorably or favorably affect our effective tax rate.
As a result of planned reductions in valuation allowances
and certain other factors described below, Milacron's
expected effective tax rate for 1999 is less than the U.S.
statutory rate, as was also the case in 1998.
In addition to the effects of reductions in valuation
allowances, the 1999 effective tax rate includes
adjustments of income tax reserves to more accurately
reflect actual expected liabilities. These benefits are
partially offset by the downward adjustment of the
carrying value of net deferred tax assets in Germany to
the lower "with distribution" rate. This change is being
made as a result of recent changes in Milacron's capital
structure in Europe.
The effective tax rates for 1999 and 2000 are expected to
be approximately 28-30%. However, the actual rates for
both years will ultimately be contingent on the mix of
earnings among tax jurisdictions and other factors that
cannot be predicted with certainty at this time.
EARNINGS FROM CONTINUING OPERATIONS
Earnings from continuing operations, net of minority
shareholders' interests, were $15.3 million, or $.41 per
share (diluted), in the second quarter of 1999 compared to
$18.3 million, or $.45 per share (diluted), in 1998. The
decrease resulted principally from higher interest expense
and lower operating earnings for injection molding
machines and round tools which offset the positive effects
of recent acquisitions. For the first two quarters of
1999, earnings from continuing operations were $30.4
million, or $.81 per share (diluted), compared to $33.3
million, or $.82 per share (diluted), in 1998. The year-
to-date decrease in 1999 resulted from the lower second
quarter earnings discussed previously.
DISCONTINUED OPERATIONS
In 1998, discontinued operations reflects the operating
results of the machine tools segment, which was sold on
October 2, 1998.
NET EARNINGS
For the second quarter of 1999, net earnings were $15.3
million, or $.41 per share (diluted), compared to $20.9
million, or $.52 per share (diluted), in 1998. The 1998
amount includes $2.6 million of earnings from the
discontinued machine tools segment. Net earnings for the
first two quarters of 1999 were $30.4 million, or $.81 per
share (diluted), compared to $38.5 million, or $.96 per
share (diluted), in 1998. The decrease results from the
absence of the 1998 earnings of the machine tools segment
combined with lower second quarter earnings from
continuing operations in 1999.
YEAR 2000
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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 information that includes a date on
or after January 1, 2000.
Each of Milacron's business units, as well as our
corporate headquarters, is 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. We
have established an executive level Y2K Compliance
Committee, which is monitoring our progress toward Y2K
preparedness. This monitoring process includes receiving
quarterly updates from our business units, testing by our
internal auditors, and reporting from limited reviews
conducted by outside consultants to identify issues
requiring attention by the Compliance Committee.
Milacron'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 our efforts to date have focused on our most
critical I.T. business systems (e.g., financial;
enterprise resource planning, or "ERP"). Each of our ten
major manufacturing locations operates a unique
information technology system which has 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. Milacron relied
on these third parties to replace or upgrade its software
with Y2K compliant software. We have installed and
continue to test the new software to provide assurance
that the updated systems will properly process date-
sensitive information. Five other businesses used the Y2K
compliance process as an opportunity to modernize their
systems by installing new ERP systems licensed from
independent software providers. All of the ERP system
installations have been completed. Another business unit
operates its own proprietary business systems, which have
been reprogrammed to be Y2K compliant. These major
business units will continue testing as needed during
Quarter 3, 1999.
In addition, Milacron is in the process of completing
inventories, assessments and testing of non-I.T. systems
(e.g., production equipment) which may contain embedded
chips that could malfunction with the approach of the year
2000. Wherever critical systems are identified as not
being compliant, Milacron plans to remediate or replace
these non-compliant systems. The remediation phase of
this effort is substantially completed.
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. We are 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, we focused on preventing significant Y2K failures,
rather than preparing formal, written contingency plans.
In the first half of 1999, many of our business units began
working on contingency plans. This effort will be
intensified in the third quarter of 1999.
Many of the machinery products we sell rely on computer
controls and embedded microprocessors to achieve optimum
performance. We are making information available publicly
to our customers on the Y2K status of these products.
Substantially all of them are Y2K compliant.
Milacron has estimated the cost of major system
implementation and remediation efforts. However, other
costs are being absorbed in departmental operating budgets.
Based on currently available information, we estimate that
the incremental cost of these major implementation and
remediation projects will be approximately $13 million over
1997, 1998 and 1999, of which over 84% has been expended
through June 30, 1999. These costs are not expected to
have a material effect on Milacron's financial position,
results of operations, or cash flows.
Milacron recognizes that the Y2K issue could result in the
interruption or failure of certain normal business
operations which could materially and adversely affect our
results of operations, liquidity and financial condition.
We believe that the reasonable worst-case scenario is that
Milacron could encounter production and shipment delays
caused in large part by vendors, service providers and
other third parties. Due to the general uncertainty
inherent in the Y2K problem, resulting in part from the
uncertainty of the Y2K preparedness of third parties, we
are unable to determine at this time whether the
consequences of the Y2K issue will have a material impact
on Milacron's results of operations, liquidity or financial
condition. However, as a result of our past and future Y2K
activities, we believe that the risk of significant
interruption of normal operations should be reduced.
MARKET RISK
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FOREIGN CURRENCY EXCHANGE RATE RISK
Milacron uses foreign currency forward exchange contracts
to hedge its exposure to adverse changes in foreign
currency exchange rates related to firm commitments arising
from international transactions. The company does not hold
or issue derivative instruments for trading purposes. At
June 30, 1999, Milacron had outstanding forward contracts
totaling $11.9 million compared to $19.1 million at
December 31, 1998, and $25.8 million at June 30, 1998.
The potential loss from a hypothetical 10% adverse change
in foreign currency rates on Milacron's foreign exchange
contracts at June 30, 1999 or June 30, 1998, would not
materially affect Milacron's consolidated financial
position, results of operations, or cash flows.
INTEREST RATE RISK
At June 30, 1999, Milacron had fixed interest rate debt of
$222 million, including $100 million of 7-7/8% Notes due May
15, 2000, and $115 million of 8-3/8% Notes due March 15,
2004. We also had floating rate debt totaling $312 million,
with interest fluctuating based primarily on changes in
LIBOR. At December 31, 1998 and June 30, 1998, fixed rate
debt totaled $228 million and $221 million, respectively,
and floating rate debt totaled $293 million and $186
million, respectively. We also sell up to $75 million of
accounts receivable under our receivables purchase
agreement, which results in financing fees that fluctuate
based on changes in commercial paper rates. As a result,
annual interest expense and financing fees fluctuate based
on fluctuations in short-term borrowing rates. The effect of
these fluctuations was not significant in the first half
of 1999 or 1998.
LIQUIDITY AND SOURCES OF CAPITAL
- --------------------------------
At June 30, 1999, Milacron had cash and cash equivalents
of $36 million, representing a decrease of $2 million
during the second quarter of 1999 and a decrease of $13
million during the first half of the year.
Operating activities provided $12 million of cash in the
second quarter of 1999, compared with $9 million provided
in 1998. The increase in cash provided resulted primarily
from improved working capital management. For the first
six months of 1999, operating activities provided $14
million of cash compared to $36 million in the comparable
period of 1998. The decrease resulted primarily from
lower earnings from continuing operations and a reduction
in trade accounts payable in the first half of 1999 that
resulted from reduced spending due to lower production
levles.
In the second quarter of 1999, investing activities
resulted in an $8 million use of cash due to capital
expenditures of $14 million partially offset by the
receipt of $6 million of purchase price adjustments
relating to the 1998 machine tools divestiture. In the
second quarter of 1998, investing activities used $25
million of cash, including capital expenditures of $17
million and acquisitions of $8 million. In the first two
quarters of 1999, investing activities resulted in a $30
million use of cash due almost entirely to capital
expenditures, as the additional proceeds from the machine
tools sale substantially offset payments of post-closing
adjustments totaling $11 million related to the 1998
acquisitions. In the first half of 1998, capital
expenditures of $29 million and acquisitions of $21
million contributed to a $48 million use of cash.
Financing activities used $6 million of cash in the second
quarter of 1999, compared to $4 million of cash provided
in 1998. The 1999 amount relates principally to dividends
and the completion of the two million common share
repurchase program (described below) that began in the
fourth quarter of 1998. In the second quarter of 1998,
additional borrowings provided $11 million of cash while
the repurchase of common shares and dividends payments
used $9 million. During the first two quarters of 1999,
financing activities provided $3 million of cash.
Additional borrowings, net of repayments, provided $31
million of cash while dividends and common share
repurchases used $28 million of cash. Financing
activities provided $17 million of cash in the first half
of 1998 due principally to incremental borrowings of $34
million, the effects of which were partially offset by
dividend requirements and the purchase of treasury shares.
In the fourth quarter of 1998, we announced a two million
common share repurchase program, of which 1.2 million
shares were repurchased through December 31, 1998. The
remainder of shares were repurchased in the first half of
1999. Including shares repurchased to meet the current
needs of management incentive plans, Milacron used $19
million of cash for share repurchases in the first half of
1999.
As of June 30, 1999 and December 31, 1998, Milacron's
current ratio was 1.3, compared to 1.7 at June 30, 1998.
The decrease in the current ratio was principally the
result of higher bank borrowings to finance the 1998
acquisitions and the share repurchase program.
As of June 30, 1999, Milacron had lines of credit with
various U.S. and non-U.S. banks of approximately $632
million, including a $375 million committed revolving
credit facility. Under the provisions of the facility, our
additional borrowing capacity totaled approximately $206
million at June 30, 1999.
Total debt was $533 million at June 30, 1999, representing
an increase of $12 million from December 31, 1998. Total
shareholders' equity was $465 million at June 30, 1999, a
decrease of $12 million from December 31, 1998. The
decrease resulted from $20 million of unfavorable foreign
currency translation effects and the share repurchase
program, which more than offset earnings net of dividends
paid. The ratio of total debt to total capital (debt plus
equity) was 53% at June 30, 1999, compared with 52% at
December 31, 1998.
We reduced the 1999 capital expenditures budget from an
original amount of $80 million to a revised budget of $60
million, a portion of which may be financed by leasing
programs. We made this reduction primarily as a result of
reduced production levels and capacity expansion needs in
some businesses.
Our $100 million of 7-7/8% Notes are due on May 15, 2000.
We are considering various alternatives available to us to
fund the repayment, including cash flow from operations,
the issuance of long-term debt in the public market or
drawing upon short-term lines of credit. We believe that
Milacron's cash flow from operations and currently
available credit lines are sufficient to meet our
operating and capital requirements in 1999.
OUTLOOK
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During 1999, we have reduced our capital spending plans
for the year by 25% and our employment by almost 5%. We
have also lowered our operating expenses, which will
benefit earnings in the future. Regarding economic
trends, we are optimistic because the positive signs of
recovery we observed in June have continued into July as
business levels slowly improve in a number of sectors and
markets around the world. This, combined with aggressive
cost cutting, points to better results in the second half
of 1999 compared to the first half. Consequently, we
expect that earnings from continuing operations in 1999
will equal or slightly exceed those of 1998.
We believe that industrial sectors in North America are
starting to recover. Economic indicators in Germany and
other parts of Europe have been positive and we have seen
improvement in Asia. With a return to healthier economic
conditions worldwide, improved operating efficiency and
the realization of full synergies from our recent
acquisitions, we expect to be able to meet our targets of
7% to 8% compound annual sales growth and 12% or greater
earnings per share growth over the long term.
CAUTIONARY STATEMENT
- --------------------
Milacron wishes to caution readers about all of the
forward-looking statements in the "Outlook" section above
and elsewhere. These include all statements that speak
about the future or are based on our interpretation of
factors that might affect our businesses. Milacron
believes the following important factors, among others,
could affect its actual results in 1999 and beyond and
cause them to differ materially from those expressed in
any of our 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 construction industry;
* fluctuations in currency exchange
rates of U.S. and non-U.S. countries,
including countries in Europe and Asia
where Milacron has several principal
manufacturing facilities and where many
of our competitors and suppliers are
based;
* fluctuations in domestic and non-
U.S. interest rates which affect the
cost of borrowing under Milacron'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 Milacron'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 Milacron does business,
including export duties, import
controls, quotas and other trade
barriers;
* changes in tax, environmental and
other laws and regulations in the U.S.
and non-U.S. countries where Milacron
does business;
* unanticipated litigation, claims or
assessments, including but not limited
to claims or problems related to product
liability, warranty, or environmental
issues;
* the failure of key vendors,
software providers, public utilities,
financial institutions or other critical
suppliers to provide products or
services that are Y2K compliant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The information required by Item 3 is included in Item 2 on
page 20 of this Form 10-Q.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders of Milacron Inc. was
held on April 27, 1999.
(b) All director nominees were elected.
(c) The shareholders voted on the following matters:
PROPOSALS AND VOTE TABULATIONS
<TABLE>
<CAPTION>
Votes Cast
-------------------------------
For Against Abstain Non-Votes
---------- --------- ------- ---------
<S> <C> <C> <C> <C>
Approval of the
appointment of
independent auditors 52,799,392 286,709 576,786 0
Approval of the Milacron Inc.
1999 Employee Stock
Purchase Plan 51,822,796 1,380,229 459,608 0
</TABLE>
<TABLE>
<CAPTION>
ELECTION OF DIRECTORS
Director Votes For Votes Withheld
-------- ---------- --------------
<S> <C> <C>
Neil A. Armstrong 52,871,571 791,228
David L. Burner 53,017,420 645,379
Barbara Hackman Franklin 52,828,306 834,493
Joseph A. Pichler 52,882,501 780,298
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit (3) - Certificate ofIncorporation 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
-There were no reports on Form 8-K filed during
the quarter ended June 30, 1999.
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: August 12, 1999 By:/s/Jerome L. Fedders
--------------------- --------------------
Jerome L. Fedders
Controller
Date: August 12, 1999 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 Certificate of Incorporation and By-Laws
3.1 Restated Certificate of Incorporation filed
with the Secretary of State of the State of
Delaware on November 17, 1998
-Incorporated herein by reference to the
company's Registration Statement on Form S-8
(Registration No. 333-70733)
3.4 By-laws, as amended
-Incorporated herein by reference to the company's
Registration Statement on Form S-8
(Registration No. 333-7733)
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
dated July 7, 1994 (File No. 33-53009)
4.2 7-7/8% Notes due 2000 - Incorporated by reference
to the company's Registration
Statement on Form S-4 dated July 21, 1995
(File No. 33-60081)
4.3 Milacron Inc. hereby agrees to furnish to the
Securities and Exchange Commission, upon its request,
the instruments with respect to long-term debt for
securities authorized thereunder which do not exceed
10% of the registrant's total consolidated assets
10 Material Contracts:
10.1 Milacron 1987 Long-Term Incentive Plan
-Incorporated herein by reference to the
company's Proxy Statement dated March 27, 1987.
10.2 Milacron 1991 Long-Term Incentive Plan
-Incorporated herein by reference to the company's
Proxy Statement dated March 22, 1991.
10.3 Milacron 1994 Long-Term Incentive Plan
-Incorporated herein by reference to the company's
Proxy Statement dated March 24, 1994.
10.4 Milacron 1997 Long-Term Incentive Plan, as amended
-Incorporated herein by reference to the company's
Form 10-K for the fiscal year ended
December 31, 1998.
10.5 Milacron 1996 Short-Term Management Incentive Plan
-Incorporated herein by reference to the company's
Form 10-K for the fiscal year ended
December 28, 1996.
10.6 Milacron Inc. Supplemental Pension Plan, as amended
-Incorporated herein by reference to the company's
Form 10-K for the fiscal year ended
December 31, 1998.
10.7 Milacron Inc. Supplemental Retirement Plan, as amended
-Incorporated herein by reference to the company's
Form 10-K for the fiscal year ended
December 31, 1998.
10.8 Milacron Inc. Plan for the Deferral of Directors'
Compensation, as amended
-Incorporated herein by reference to the company's
Form 10-K for the fiscal year ended
December 31, 1998.
10.9 Milacron Inc. Retirement Plan for Non-Employee Directors,
as amended
-Incorporated herein by reference to the company's
Form 10-K for the fiscal year ended
December 31, 1998.
10.10 Milacron Supplemental Executive Retirement Plan,
as amended
-Incorporated herein by reference to the company's
Form 10-K for the fiscal year ended
December 31, 1998.
10.11 Amended and Restated Revolving Credit Agreement dated
as of November 30, 1998 among Milacron Inc.,
Cincinnati Milacron Kunststoffmaschinen Europe GmbH,
the lenders listed therein and Bankers Trust Company,
as agent.
-Incorporated herein by reference to the company's
Form 10-K for the fiscal year ended
December 31, 1998.
10.12 Milacron Compensation Deferral Plan, as amended
-Incorporated herein by reference to the company's
Form 10-K for the fiscal year ended
December 31, 1998.
10.13 Rights Agreement dated as of February 5, 1999,
between Milacron, Inc. and Chase Mellon Shareholder
Services, L.L.C., as Rights Agent.
-Incorporated herein by reference to the company's
Registration Statement on Form 8-A
(File No.001-08485).
10.14 Purchase and Sale Agreement between UNOVA, Inc., UNOVA
Industrial Automation Systems, Inc., UNOVA U.K. Limited
and Cincinnati Milacron, Inc. dated August 20, 1998.
-Incorporated herein by reference to the company's
Form 8-K dated December 30, 1995.
10.15 Purchase and Sale Agreement between Johnson Controls,
Inc., Hoover Universal, Inc. and Cincinnati Milacron Inc.,
dated August 3, 1998.
-Incorporated herein by reference to the company's
Form 8-K dated September 30, 1998.
11 Statement Regarding Computation of Per-Share Earnings 29
15 Letter Regarding Unaudited Interim Financial
Information - Not Applicable
18 Letter Regarding Change in Accounting Principles
- Not Applicable
19 Report Furnished to Security Holders- Not Applicable
22 Published Report Regarding Matters Submitted to Vote
of Security Holders - Not Applicable
23 Consent of Experts and Counsel - Not Applicable
24 Power of Attorney - Not Applicable
27 Financial Data Schedule 30
99 Additional Exhibits - Not Applicable
MILACRON INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per-share amounts)
Three Months Ended Six Months Ended
-------------------- -------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings $15,340 $20,868 $30,415 $38,496
Less preferred dividends (60) (60) (120) (120)
------- ------- ------- -------
Net earnings available
to common shareholders $15,280 $20,808 $30,295 $38,376
======= ======= ======= =======
Basic earnings per share:
Weighted-average common shares
outstanding 36,729 39,199 37,014 39,178
======= ======= ======= =======
Per share amount $ .42 $ .53 $ .82 $ .98
======= ======= ======= =======
Diluted earnings per share:
Weighted-average common shares
outstanding 36,729 39,199 37,014 39,178
Dilutive effect of stock
options and restricted
shares based on the
treasury stock method 249 540 225 545
------- ------- ------- -------
Total 36,978 39,739 37,239 39,723
======= ======= ======= =======
Per share amount $ .41 $ .52 $ .81 $ .96
======= ======= ======= =======
</TABLE>
Note: This computation is required by Regulation S-K, Item 601,
and is filed as an exhibit under Item 6 of Form 10-Q.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 35,800
<SECURITIES> 0
<RECEIVABLES> 231,700
<ALLOWANCES> 12,200
<INVENTORY> 395,100
<CURRENT-ASSETS> 697,100
<PP&E> 594,200
<DEPRECIATION> 252,000
<TOTAL-ASSETS> 1,500,500
<CURRENT-LIABILITIES> 526,000
<BONDS> 0
0
6,000
<COMMON> 365,400
<OTHER-SE> 93,300
<TOTAL-LIABILITY-AND-EQUITY> 1,500,500
<SALES> 401,000
<TOTAL-REVENUES> 401,000
<CGS> 298,700
<TOTAL-COSTS> 298,700
<OTHER-EXPENSES> 70,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,400
<INCOME-PRETAX> 22,500
<INCOME-TAX> 6,700
<INCOME-CONTINUING> 15,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,300
<EPS-BASIC> .42
<EPS-DILUTED> .41
</TABLE>
