Milacron Inc. leader Ronald Brown painted an optimistic picture of a manufacturing rebound as he issued year-end 2003 financial results Feb. 11, but Brown said the machinery maker still is not ready to detail plans to refinance $115 million in bonds coming due March 15.
For the first time, Milacron did say something about how the refinancing could change the largest U.S. plastics machinery maker - that the shareholder stake in the company probably will be reduced significantly.
Bond industry sources said Milacron is in ongoing negotiations with a committee of bondholders that wants some level of stock ownership in the Cincinnati-based company.
To owners of Milacron's stock, which has been trading between $3 and $4 so far this year on the New York Stock Exchange, the following paragraph stuck out in Milacron's earnings announcement: ``We continue to have discussions with both current and prospective lenders and investors with respect to our short- and long-term financing options. While each of these options is likely to result in significant dilution to the current holders of the company's equity, we are absolutely committed to seeking a solution that is in the best interest of all our stakeholders.''
Brown said Milacron's No. 1 priority is to create ``an appropriate capital structure'' that gives financial flexibility so the company can benefit from the industrial recovery. He said Milacron's most important market, the U.S. plastics machinery business, finally is beginning to recover from a crushing slump that began in mid-2000.
Milacron actually faces two bond-payback deadlines: the $115 million due March 15, followed in April 2005 by bonds totaling 115 million euros (currently $146 million).
With the clock winding down, Milacron officials stuck to their script during the Feb. 11 conference call: Don't say much until a refinancing is complete.
During the question-and-answer period, some analysts got antsy. ``This has to be decided now,'' said one. Right before taking questions, however, Brown tried to head off those comments by saying he would not talk in-depth about refinancing.
Brightening prospects
Milacron said sales increased in 2003 for three of its four businesses: plastics machinery in North America and Europe, and industrial fluids. Sales of mold technologies, which includes D-M-E, declined slightly from the 2002 level.
``We believe the manufacturing sector of the economy has finally started to turn around,'' Brown said. In December, plastics and rubber capacity utilization rates topped 81 percent, the highest level since 2000, he said, adding that broad-based machine buying should come when utilization hits 84 percent.
``At this point, we've witnessed five consecutive months of economic growth from September through January,'' he said.
Milacron is predicting its sales will increase about 7 percent this year.
The company generates half of its sales from the United States. Milacron said it is outperforming the overall U.S. market, issuing a side-by-side comparison of 2003 new machinery orders from the Society of the Plastics Industry Inc. in Washington. Milacron showed a 4 percent increase for injection presses, compared with a 4 percent decline in the SPI statistics. In extrusion, Milacron's orders increased by 8 percent, while the SPI number declined 13 percent. SPI-issued blow molding orders increased 18 percent in 2003, but Milacron said its orders skyrocketed 77 percent.
Milacron reported a loss of $191.7 million in 2003, but much of that was from a tax valuation adjustment and a write-down of impaired goodwill. Looking only at continuing operations before interest, taxes and the charges, the company said it made an operating profit of $3.9 million, up from an operating profit of $600,000 in 2002. Milacron's net loss in 2002 was $222.9 million.
Sales rebounded in 2003 to $739.7 million, up 6.7 percent from $693.2 million in 2002.
Cash flow was strong in the fourth quarter. Milacron's cash balance ended the year at $93 million, up from $63 million at the start of the quarter.
Business picked up as the year ended. The company said fourth-quarter sales from continuing operations were $197.7 million, up 16 percent from the third quarter.
Milacron lost $24.4 million in the fourth quarter, which included a noncash goodwill impairment charge of $13.3 million and $8.4 million worth of restructuring charges. Excluding those charges plus interest and taxes, the company said it earned $6.3 million in the quarter.
On the subject of machine prices, Brown told analysts prices are ``beginning to stabilize, but it's still extremely competitive. We're not counting on price increases for any kind of volume pickup in 2004.''
Brown said the firm does not intend to sell any businesses except for the discontinued grinding-wheel operations. Analysts had been predicting that Milacron would sell its metal-cutting fluids business to pay off the bonds. But in the conference call, Brown called fluids ``a solid performer [with] very good prospects for growth.''
The industrial fluids segment generated an operating profit of $15.7 million on sales of $104.2 million in 2003.
