-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K9rvhqwEZ0SK6mo65LDj3HyLBjhLZJc348qQ9ovDM+p8YejgJf48tv/p/1++xGhb XfJORJIFQ7Ol/d8ZNjh6Rg== 0000716823-98-000012.txt : 19981118 0000716823-98-000012.hdr.sgml : 19981118 ACCESSION NUMBER: 0000716823-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MILACRON INC CENTRAL INDEX KEY: 0000716823 STANDARD INDUSTRIAL CLASSIFICATION: MACHINE TOOLS, METAL CUTTING TYPES [3541] IRS NUMBER: 311062125 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08485 FILM NUMBER: 98750549 BUSINESS ADDRESS: STREET 1: 4701 MARBURG AVE CITY: CINCINNATI STATE: OH ZIP: 45209 BUSINESS PHONE: 5138418100 MAIL ADDRESS: STREET 1: 4701 MARBURG AVE CITY: CINCINNATI STATE: OH ZIP: 45209 FORMER COMPANY: FORMER CONFORMED NAME: CINCINNATI MILACRON INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CINCINNATI MILACRON HOLDINGS INC DATE OF NAME CHANGE: 19830503 FORMER COMPANY: FORMER CONFORMED NAME: CINCINNATI MILLING MACHINE CO DATE OF NAME CHANGE: 19600201 10-Q 1 ============================================================ 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)
(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 -------- ------ -------- -------- 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
See notes to consolidated condensed financial statements. MILACRON INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
(In millions) Sept. 30, Dec. 27, 1998 1997 --------- ------- 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 ======== ========
See notes to consolidated condensed financial statements. MILACRON INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(In millions) Quarter Ended Year-To-Date ----------------- ------------------ Sept. 30, Oct. 4, Sept. 30, Oct. 4, 1998 1997 1998 1997 -------- ------ -------- -------- 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 ======== ====== ======== ========
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.
(In millions) Sept. 30, 1998 -------- 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 ========
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.
(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 -------- ------ -------- -------- 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 ====== ====== ======== ========
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.
(In millions) Sept. 30, Dec. 27, 1998 1997 -------- ------- 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 ======== =======
Long-term Debt - -------------- The components of long-term debt are shown in the following table.
(In millions) Sept. 30, Dec. 27, 1998 1997 -------- ------- 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 ======== =======
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:
(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 ------- -------- ------- -------- 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 ======= =======
(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.
(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 ------- -------- ------- -------- 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 ======= =======
(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.
(In millions) Quarter Ended Year to Date -------------------- ------------------- Sept. 30, Oct. 4, Sept. 30, Oct. 4, 1998 1997 1998 1997 -------- -------- -------- -------- 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 ======= ======== ======== ========
(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. EX-11 2 Milacron Inc. and Subsidiaries Computation of Per Share Earnings (Unaudited)
(In thousands, except per-share amounts) Quarter Ended Year-to-Date ----------------- ----------------- Sept. 30, Oct. 4, Sept. 30, Oct. 4, 1998 1997 1998 1997 -------- ------- -------- ------ 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 ======== ======= ======= =======
Note: This computation is required by Regulation S-K, Item 601, and is filed as an exhibit under Item 6 of EX-27 3
5 1,000 3-MOS DEC-31-1998 JUL-01-1998 SEP-30-1998 41,800 0 247,100 12,000 376,200 898,000 568,500 240,400 1,690,400 679,400 0 402,200 0 6,000 71,500 1,690,400 352,100 352,100 252,200 252,200 67,400 0 7,400 25,100 6,600 18,500 (39,100) 0 0 (20,600) (.53) (.53)
EX-10 4 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 EX-10 5 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 -----END PRIVACY-ENHANCED MESSAGE-----