MI 2009 10Q 2006 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended June 30, 2006


o		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		No. 31-1062125

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2090 Florence Avenue, Cincinnati, Ohio		45206

(Address of principal executive offices)		(Zip Code)


(513) 487-5000

(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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

Number of shares of Common Stock, $.01 par value, outstanding as of July 31, 2006: 51,412,414

Milacron Inc. and Subsidiaries
Index


		Page
PART I Financial Information

Item 1.	Financial Statements

	Consolidated Condensed Statements of Operations	3

	Consolidated Condensed Balance Sheets	4

	Consolidated Condensed Statements of Comprehensive Income and Shareholders’ Equity (Deficit)	5

	Consolidated Condensed Statements of Cash Flows	6

	Notes to Consolidated Condensed Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57

Item 4.	Controls and Procedures	57

PART II Other Information

Item 1.	Legal Proceedings	58

Item 1A.	Risk Factors	58

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59

Item 3.	Defaults Upon Senior Securities	59

Item 4.	Submission of Matters to a Vote of Security Holders	60

Item 6.	Exhibits	61

	Signatures	62

	Index to Exhibits	63
EX-11
EX-31.1
EX-31.2
EX-32

PART I Financial Information

Consolidated Condensed Statements of Operations
Milacron Inc. and Subsidiaries
(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions, except share and per-share amounts)	2006			2005			2006			2005


Sales	$	211.1		$	208.8		$	413.5		$	401.1
Cost of products sold		170.4			171.0			339.2			331.1
Cost of products sold related to restructuring		.4			—			.4			—

Total cost of products sold		170.8			171.0			339.6			331.1

Manufacturing margins		40.3			37.8			73.9			70.0
Other costs and expenses
Selling and administrative		38.3			33.7			72.5			67.2
Restructuring costs		8.4			.3			9.0			.7
Other (income) expense — net		(.9	)		.2			(1.0	)		(.8	)

Total other costs and expenses		45.8			34.2			80.5			67.1


Operating earnings (loss)		(5.5	)		3.6			(6.6	)		2.9
Interest
Income		.2			.4			.4			.9
Expense		(8.1	)		(7.4	)		(15.9	)		(16.1	)

Interest — net		(7.9	)		(7.0	)		(15.5	)		(15.2	)

Loss from continuing operations before income taxes		(13.4	)		(3.4	)		(22.1	)		(12.3	)
Provision for income taxes		.9			1.0			1.8			1.2

Loss from continuing operations		(14.3	)		(4.4	)		(23.9	)		(13.5	)
Discontinued operations net of income taxes		—			.6			—			.6

Net loss	$	(14.3	)	$	(3.8	)	$	(23.9	)	$	(12.9	)


Net loss applicable to common shareholders	$	(16.6	)	$	(5.3	)	$	(28.6	)	$	(15.9	)


Loss (income) per common share — basic and diluted
Continuing operations	$	(.34	)	$	(.12	)	$	(.59	)	$	(.34	)
Discontinued operations		—			.01			—			.01

Net loss	$	(.34	)	$	(.11	)	$	(.59	)	$	(.33	)


Weighted-average common shares outstanding assuming dilution (in thousands)		48,216			47,600			48,116			47,560

See notes to consolidated condensed financial statements.

Consolidated Condensed Balance Sheets
Milacron Inc. and Subsidiaries
(Unaudited)


	June 30,			Dec. 31,
(In millions, except par value)	2006			2005


Assets
Current assets
Cash and cash equivalents	$	41.9		$	45.7
Notes and accounts receivable, less allowances of $8.2 in 2006 and $9.0 in 2005		119.9			117.7
Inventories
Raw materials		10.0			8.2
Work-in-process and finished parts		93.0			83.6
Finished products		73.7			69.3

Total inventories		176.7			161.1
Other current assets		43.4			44.3

Total current assets		381.9			368.8
Property, plant and equipment — net		117.1			114.2
Goodwill		86.1			83.7
Other noncurrent assets		99.5			104.9


Total assets	$	684.6		$	671.6


Liabilities and Shareholders’ Deficit
Current liabilities
Short-term borrowings	$	10.3		$	4.1
Long-term debt and capital lease obligations due within one year		2.7			2.6
Trade accounts payable		83.8			76.4
Advance billings and deposits		19.1			22.6
Accrued and other current liabilities		84.1			76.3

Total current liabilities		200.0			182.0
Long-term accrued liabilities		271.6			261.4
Long-term debt		232.6			233.3


Total liabilities		704.2			676.7

Commitments and contingencies		—			—

Shareholders’ deficit
4% Cumulative Preferred shares		6.0			6.0
6% Series B Convertible Preferred Stock, $.01 par value (outstanding: .5 in both 2006 and 2005)		114.5			112.9
Common shares, $.01 par value (outstanding: 51.4 in 2006 and 50.1 in 2005)		.5			.5
Capital in excess of par value		350.2			348.0
Contingent warrants		.5			.5
Accumulated deficit		(361.4	)		(332.8	)
Accumulated other comprehensive loss		(129.9	)		(140.2	)


Total shareholders’ deficit		(19.6	)		(5.1	)


Total liabilities and shareholders’ deficit	$	684.6		$	671.6

See notes to consolidated condensed financial statements.

Consolidated Condensed Statements of Comprehensive Income and Shareholders’ Equity (Deficit)
Milacron Inc. and Subsidiaries
(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2006			2005			2006			2005
4% Cumulative Preferred Shares
Balance at beginning and end of the period	$	6.0		$	6.0		$	6.0		$	6.0
6% Series B Convertible Preferred Stock
Balance at beginning of period		113.7			112.9			112.9			112.9
Beneficial conversion feature		.8			—			1.6			—

Balance at end of period		114.5			112.9			114.5			112.9
Common shares
Balance at beginning of period		350.2			347.8			348.5			347.7
Transfer of restricted stock liability balances to equity in connection with adoption of a new accounting standard		—			—			1.3			—
Effect of change in method of accounting for restricted stock forfeitures		—			—			(.1	)		—
Restricted stock expense		.2			—			.5			—
Reissuance of treasury shares		—			.2			—			.3
Issuance of previously unissued shares		.3			—			.5			—

Balance at end of period		350.7			348.0			350.7			348.0
Contingent warrants
Balance at beginning and end of the period		.5			.5			.5			.5
Accumulated deficit
Balance at beginning of period		(344.8	)		(323.4	)		(332.8	)		(312.7	)
Net loss for the period		(14.3	)		(3.8	)		(23.9	)		(12.9	)
Beneficial conversion feature related to 6% Series B Convertible Preferred Stock		(.8	)		—			(1.6	)		—
Dividends declared or accrued
4% Cumulative Preferred shares		—			—			(.1	)		(.1	)
6% Series B Convertible Preferred Stock		(1.5	)		(1.4	)		(3.0	)		(2.9	)

Balance at end of period		(361.4	)		(328.6	)		(361.4	)		(328.6	)
Accumulated other comprehensive loss
Balance at beginning of the period		(137.0	)		(108.9	)		(140.2	)		(104.0	)
Foreign currency translation adjustments		7.3			(9.3	)		10.5			(14.2	)
Other		(.2	)		—			(.2	)		—

Balance at end of period		(129.9	)		(118.2	)		(129.9	)		(118.2	)

Total shareholders’ equity (deficit)	$	(19.6	)	$	20.6		$	(19.6	)	$	20.6


Net loss for the period	$	(14.3	)	$	(3.8	)	$	(23.9	)	$	(12.9	)
Change in accumulated other comprehensive loss		7.1			(9.3	)		10.3			(14.2	)

Total comprehensive loss	$	(7.2	)	$	(13.1	)	$	(13.6	)	$	(27.1	)

See notes to consolidated condensed financial statements.

Consolidated Condensed Statements of Cash Flows
Milacron Inc. and Subsidiaries
(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2006			2005			2006			2005

Increase (decrease) in cash and cash equivalents
Operating activities cash flows
Net loss	$	(14.3	)	$	(3.8	)	$	(23.9	)	$	(12.9	)
Operating activities providing (using) cash
Net gains on divestitures of discontinued operations		—			(.6	)		—			(.6	)
Depreciation and amortization		4.2			4.6			8.3			9.1
Restructuring costs		8.8			.3			9.4			.7
Deferred income taxes		.6			—			.5			.1
Working capital changes
Notes and accounts receivable		1.8			(1.9	)		.6			3.3
Inventories		(5.9	)		(2.4	)		(12.6	)		(11.4	)
Other current assets		1.8			(.6	)		1.7			2.0
Trade accounts payable		(3.0	)		2.5			5.5			(2.1	)
Other current liabilities		(13.8	)		(5.9	)		(8.0	)		(6.8	)
Decrease in other noncurrent assets		7.7			2.1			7.5			2.5
Increase in long-term accrued liabilities		3.7			2.9			6.3			7.1
Other-net		.4			.1			1.0			.1

Net cash used by operating activities		(8.0	)		(2.7	)		(3.7	)		(8.9	)
Investing activities cash flows
Capital expenditures		(3.9	)		(1.8	)		(7.6	)		(3.3	)
Net disposals of property, plant and equipment		—			1.9			—			2.1

Net cash provided (used) by investing activities		(3.9	)		.1			(7.6	)		(1.2	)
Financing activities cash flows
Repayments of long-term debt		(.4	)		(.4	)		(1.0	)		(4.2	)
Increase (decrease) in short-term borrowings		7.9			(.3	)		6.1			(10.5	)
Debt issuance costs		—			—			—			(.6	)
Costs of 2004 rights offering		—			—			—			(1.1	)
Dividends paid		(.1	)		(1.5	)		(.1	)		(3.1	)

Net cash provided (used) by financing activities		7.4			(2.2	)		5.0			(19.5	)
Effect of exchange rate fluctuations on cash and cash equivalents		1.8			(1.5	)		2.5			(2.2	)

Decrease in cash and cash equivalents		(2.7	)		(6.3	)		(3.8	)		(31.8	)
Cash and cash equivalents at beginning of period		44.6			43.7			45.7			69.2

Cash and cash equivalents at end of period	$	41.9		$	37.4		$	41.9		$	37.4

See notes to consolidated condensed financial statements.

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, which consist only of normal recurring adjustments except for the matters discussed in the note captioned “Restructuring Costs,” necessary to present fairly the company’s financial position, results of operations and cash flows.

The Consolidated Condensed Balance Sheet at December 31, 2005 has been derived from the audited Consolidated Financial Statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

Except as discussed in the note captioned “Change in Method of Accounting,” the accounting policies followed by the company are set forth in the “Summary of Significant Accounting Policies” note to the Consolidated Financial Statements included in the company’s Annual Report on Form 10-K for the year ended December 31, 2005.

Stock-Based Compensation

As further discussed below, prior to 2006 the company accounted for stock-based compensation, including stock options, under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and the related interpretations. The following table illustrates on a pro forma basis the effect on net loss and net loss per common share if the stock options granted from 1995 through 2004 had been accounted for based on their fair values as determined under the provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.”

Pro Forma Loss


	Three Months Ended			Six Months Ended
	June 30,			June 30,
(In millions, except per-share amounts)		2005			2005
Net loss as reported	$	(3.8	)	$	(12.9	)
Effect on reported loss of accounting for stock options at fair value		—			—

Pro forma net loss	$	(3.8	)	$	(12.9	)

Net loss per common share - basic and diluted
As reported	$	(.11	)	$	(.33	)

Pro forma	$	(.11	)	$	(.33	)

The conversion of $30.0 million of Series A Notes into 15.0 million common shares on April 15, 2004 (see Refinancing Transactions) resulted in a change in control under the provisions of the 1997 Long-Term Incentive Plan which triggered the early vesting of all stock options outstanding as of that date. In the second quarter of 2005 and for the six months ended June 30, 2005, the pro forma expense amount related to stock options granted subsequent to April 15, 2004 was less than $.1 million.

Change in Method of Accounting

Effective January 1, 2006, the company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (SFAS No. 123R), using the modified prospective transition method. Accordingly, amounts for prior periods have not been restated. The company had previously accounted for stock options and restricted stock awards under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and the related interpretations.

Prior to the adoption of SFAS No. 123R, no compensation expense related to stock options was recognized in earnings because all of the options granted under the company’s 1997 and 2004 Long-Term Incentive Plans and a predecessor plan had exercise prices equal to the fair market value of the underlying common shares at the respective grant dates. Under the provisions of SFAS No. 123R, expense related to stock options must be recognized in an entity’s primary financial statements over the vesting period or periods based on their fair value (as defined in the standard) as of the grant date. The conversion of $30.0 million of Series A notes into 15.0 million common shares on April 15, 2004 (see Refinancing Transactions) resulted in a change in control under the provisions of the 1997 Long-Term Incentive Plan

Notes to Consolidated Condensed Financial Statements
(Unaudited)

which triggered the vesting of all outstanding stock options. Since that date, only 14,000 additional stock options have been granted of which 10,500 were not fully vested as of January 1, 2006. The company began to include the expense related to these stock options in the Consolidated Condensed Statements of Operations in 2006 but the effect of doing so is de minimis based on their grant date fair value of $2.72 per share.

Under the provisions of SFAS No. 123R, the company continues to recognize expense related to restricted (unvested) stock and deferred shares over the respective vesting periods. The provisions of these awards and activity for the second quarter of 2006 and the six months ended June 30, 2006 are presented in the note captioned “Stock-Based Compensation.” Prior to 2006, the company had accounted for forfeitures of these awards as they occurred. However, SFAS No. 123R requires that estimates of future forfeitures be made as of the grant date and revised as necessary over the vesting period. Accordingly, the company has made estimates of future forfeitures for those awards outstanding as of January 1, 2006. The effect was to reduce the cumulative expense recognized to date by approximately $.1 million. This amount was included as income in other expense-net in the Consolidated Condensed Statement of Operations (rather than being reported as the cumulative effect of a change in method of accounting) based on its immateriality.

As was customary under APB Opinion No. 25, the company previously classified the offsets to the expense recognized for restricted stock and deferred shares as liabilities in the Consolidated Condensed Balance Sheets. The recorded liabilities were then transferred to shareholders’ equity when the awards vested. In connection with the adoption of SFAS No. 123R, liability balances as of December 31, 2005 totaling $1.3 million were reclassified to capital in excess of par value in shareholders’ equity as of January 1, 2006.

The adoption of SFAS No. 123R had the effect of decreasing the company’s loss before income taxes and net loss for the second quarter of 2006 by less than $.1 million. Excluding the first quarter adjustment for forfeitures, the effect of the change was to increase the applicable loss amounts for the six months ended June 30, 2006 by approximately $.1 million. Including the adjustment for forfeitures, the effect for the year-to-date period was de-minimis. In all cases, there was no effect on the applicable loss per common share amounts.

Recently Issued Pronouncements

In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (FIN No. 48). This interpretation of Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation, which is effective for fiscal years beginning after December 31, 2006, also provides guidance regarding the derecognition of tax positions, their classification in the statement of financial position and accounting for possible interest and penalties. The company is currently evaluating the provisions of FIN No. 48 but has not yet reached any conclusions regarding its possible effect.

Restructuring Costs

During 2001, the company’s management approved a plan to integrate the operations of EOC and Reform, two businesses acquired earlier in that year, with the company’s existing European mold base and components business. These businesses are included in the mold technologies segment. As approved by management, the plan involved the consolidation of the manufacturing operations of five facilities located in Germany and Belgium into three facilities, the reorganization of warehousing and distribution activities in Europe, and the elimination of approximately 230 manufacturing and administrative positions. The net cost of the integration was $11.1 million, of which $1.2 million was included in reserves for employee termination benefits and facility exit costs that were established in the allocations of the EOC and Reform acquisition costs. The remaining $9.9 million was charged to expense. This amount is net of gains of $.2 million in 2005 from the sale of two previously idled manufacturing facilities. Of the total cost of the plan, $4.4 million related to employee termination benefits, $2.7 million to facility exit costs and $4.0 million to other costs, including $3.1 million to relocate employees, inventory and machinery and equipment. The total cash cost of the integration through the end of 2006 will be approximately $8.9 million. Cash costs for all of 2006 will be approximately $.2 million, of which $.1 million was spent in the first two quarters. The non-cash costs of the integration related principally to write-downs of the idle facilities in 2003 and 2004. At June 30, 2006, reserves for employee termination benefits totaled $.7 million and relate to supplemental retirement benefits that will be paid to certain former employees in Belgium at a rate of approximately $.1 million per year for the next several years.

Notes to Consolidated Condensed Financial Statements
(Unaudited)

In November 2002, the company announced additional restructuring initiatives intended to improve operating efficiency and customer service. One of these actions involved the transfer of all manufacturing of container blow molding machines and structural foam systems from the plant in Manchester, Michigan to the company’s more modern and efficient facility near Cincinnati, Ohio. The mold making operation has also been moved to a smaller location near Manchester. These operations are included in the machinery technologies — North America segment. The relocations, which involved the elimination of 40 positions, are resulting in restructuring costs of $14.3 million, including $.6 million in the first two quarters of 2006 and $.5 million in the comparable period of 2005. The amount for 2006 includes a second quarter charge of $.4 million to further adjust the carrying value of the Manchester facility based on a revised estimate of its fair value. The facility is expected to be sold during the third quarter of 2006. Of the total cost of $14.3 million, $1.5 million relates to employee termination costs, $7.0 million to facility exit costs (including adjustments to the carrying values of the Manchester building and other assets to be disposed of), $1.9 million to inventory adjustments related to discontinued product lines and $3.9 million to other move-related costs, including employee, inventory and machinery and equipment relocation. Excluding any proceeds from the sale of the Manchester facility, the cash cost of the relocations will be approximately $6.5 million. This amount includes $1.7 million for severance and other termination benefits, $.4 million for plant clean-up costs and $4.4 million for other costs, principally to relocate inventory and machinery and equipment. The non-cash cost of $7.8 million relates principally to the previously discussed adjustments related to inventories of discontinued product lines and assets to be disposed of as a result of the plant closure.

In the second quarter of 2004, the company initiated actions to further enhance customer service while reducing the overhead cost structure of its machinery technologies — North America segment. These overhead reductions resulted in restructuring expense of $1.1 million in 2004 and $.4 million in 2005. Of the latter amount, $.3 million was recorded in the first two quarters. An additional $.1 million is expected to be expensed in 2006 in connection with these actions. Termination benefits account for $1.0 million of the total cost while facility exit costs represent a substantial majority of the remaining $.6 million. Total cash costs are expected to be approximately $1.3 million. In 2005, $.5 million was spent, including $.4 million in the first two quarters. An additional $.1 million will be spent in 2006. The cash costs include $.9 million for severance and $.4 million for facility exit and moving costs. These actions resulted in the elimination of 63 positions, a majority of which occurred during 2004.

In both 2003 and 2004, the company initiated actions to further reduce the overhead cost structure of its European mold base and components business. These actions were substantially completed in 2004 and 2005. However, the company incurred additional costs in the second quarter of 2006 of $.3 million. This amount relates principally to the resolution of legal issues related to earlier employee terminations.

In the fourth quarter of 2005, the company initiated the closure of a small metalworking fluids blending operation in Germany. The closure resulted in restructuring expense of $.2 million in 2005 and $.1 million in the second quarter of 2006. The cash cost of the closure will be less than $.2 million, all of which will be spent in 2006. Of this amount, $.1 million was spent in the second quarter.

In the fourth quarter of 2005, the company announced that it plans to further reduce its cost structure by consolidating certain operations in both North America and Europe. One such action — the consolidation of the European sales offices of the machinery technologies — Europe and mold technologies segments — was initiated in the fourth quarter of 2005 and is being continued in 2006. The 2005 actions involved the sale of a majority ownership interest in an injection molding machinery sales subsidiary in The Netherlands and the sale of a surplus warehouse in Denmark. Expense related to these actions totaled $.3 million in 2005 and approximately $3.7 million of additional expense related to other locations is expected to be incurred in 2006. Of the total amount for 2006, $.6 million was charged to expense in the first two quarters. The cost reduction measures announced in 2005 and implemented in 2006 also include the overall reorganization of European operations of the mold technologies segment, including product line rationalization and the streamlining of marketing and administrative functions. Expense related to these actions is expected to total approximately $1.4 million in 2006. Of this amount, $1.1 million was expensed in the first two quarters. In total, the net cash costs related to the sales office and mold base and components reorganizations are expected to be $4.9 million, a majority of which will be spent in 2006. In the first two quarters of 2006, $.5 million was spent. Severance and other termination benefits represent approximately 50% of both the total expense and cash cost of these initiatives.

In the first quarter of 2006, the company initiated a plan to reduce the cost structure of its injection molding machine manufacturing facility in Malterdingen, Germany. The business is being restructured based on a rationalized global product portfolio, thereby eliminating complexity and reducing the overall cost structure. The restructuring is expected to result in up to 90 headcount reductions, including 35 that occurred in the second quarter. The cost of the restructuring is

Notes to Consolidated Condensed Financial Statements
(Unaudited)

expected to be approximately $8.2 million, almost all of which relates to severance and other termination benefits. In the second quarter of 2006, $5.2 million was charged to expense and the remaining $3.0 million is expected to be recorded in the third quarter. The cash cost — all of which relates to termination benefits — will also be approximately $8.2 million. Of this amount, $4.1 million was spent in the second quarter of 2006 and a large majority of the remaining $4.1 million will be spent in the second half of the year.

In the second quarter of 2006, the company initiated a plan to reorganize and further downsize its special mold base machining facility in Fulda, Germany at an expected cost of $1.9 million. In the second quarter of 2006, a total of $1.5 million was charged to expense including $1.3 million for benefits related to the termination of 21 employees. The cash cost of the plant reorganization is expected to be approximately $1.8 million, including $1.5 million in 2006. Of the latter amount, $.8 million was spent in the second quarter.

Notes to Consolidated Condensed Financial Statements
(Unaudited)

The table that follows summarizes the costs of the various restructuring actions that are described above.

Restructuring Costs


	Three Months Ended					Six Months Ended
	June 30,					June 30,
(In millions)	2006			2005		2006			2005

EOC and Reform integration	$	(.1	)	$	—	$	(.1	)	$	(.1	)
Relocation of blow molding machinery and mold manufacturing		.5			.2		.6			.5
North America plastics machinery overhead reductions		—			.1		.1			.3
Additional European mold base reductions		.3			—		.3			—
Closure of metalworking fluids operation		.1			—		.1			—
Downsizing of Germany mold base facility		1.5			—		1.5			—
Reorganization of Germany injection molding machinery facility		5.2			—		5.2			—
Consolidation of European mold component operations		1.3			—		1.7			—


Total restructuring costs	$	8.8		$	.3	$	9.4		$	.7

The following table presents the components of the restructuring costs that are included in the Consolidated Condensed Statements of Operations for the second quarters of 2006 and 2005 and the six month periods ended June 30, 2006 and 2005.

Restructuring Costs


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2006			2005			2006			2005

Accruals for termination benefits and facility exit costs	$	6.7		$	—		$	6.7		$	.2
Adjustments of assets to realizable values and gains and losses on disposal		.5			(.1	)		.5			(.2	)
Other restructuring costs
Costs charged to expense as incurred
Inventory adjustments related to product line discontinuation		.4			—			.4			—
Inventory and machinery relocation		.1			.1			.1			.1
Severance and facility exit costs		1.5			.3			1.7			.7
Other		(.3	)		.1			.1			.1
Reserve reversals		—			(.1	)		—			(.1	)

		8.9			.3			9.5			.8
Costs related to EOC and Reform integration		(.1	)		—			(.1	)		(.1	)

Total restructuring costs	$	8.8		$	.3		$	9.4		$	.7

As presented in the above table, the costs under the line captioned “Costs charged to expense as incurred” do not meet the conditions for accrual under U.S. generally accepted accounting principles and are therefore expensed when the related contractual liabilities are incurred. Accordingly, no reserves related to these costs have been established.

Notes to Consolidated Condensed Financial Statements
(Unaudited)

The status of the reserves for the initiatives discussed above is summarized in the following tables.

Restructuring Reserves


	Three Months Ended									Six Months Ended
	June 30, 2006									June 30, 2006
					Usage									Usage
	Beginning		Addi-		and			Ending		Beginning		Addi-		and			Ending
(In millions)	Balance		tions		Other			Balance		Balance		tions		Other			Balance

EOC and Reform integration Termination benefits	$	.7	$	—	$	—		$	.7	$	.7	$	—	$	—		$	.7
Facility exit costs		—		—		—			—		.1		—		(.1	)		—

		.7		—		—			.7		.8		—		(.1	)		.7

Restructuring costs Termination benefits		.3		5.7		(4.0	)		2.0		.4		5.7		(4.1	)		2.0
Facility exit costs		.2		1.0		—			1.2		.2		1.0		—			1.2

		.5		6.7		(4.0	)		3.2		.6		6.7		(4.1	)		3.2


Total reserves	$	1.2	$	6.7	$	(4.0	)	$	3.9	$	1.4	$	6.7	$	(4.2	)	$	3.9

Restructuring Reserves


	Three Months Ended									Six Months Ended
	June 30, 2005									June 30, 2005
					Usage									Usage
	Beginning		Addi-		and			Ending		Beginning		Addi-		and			Ending
(In millions)	Balance		tions		Other			Balance		Balance		tions		Other			Balance

EOC and Reform integration Termination benefits	$	1.0	$	—	$	(.2	)	$	.8	$	1.0	$	—	$	(.2	)	$	.8
Facility exit costs		.3		—		—			.3		.3		—		—			.3

		1.3		—		(.2	)		1.1		1.3		—		(.2	)		1.1

Restructuring costs Termination benefits		.8		—		(.2	)		.6		1.3		.2		(.9	)		.6
Facility exit costs		.2		—		(.1	)		.1		.2		—		(.1	)		.1

		1.0		—		(.3	)		.7		1.5		.2		(1.0	)		.7


Total reserves	$	2.3	$	—	$	(.5	)	$	1.8	$	2.8	$	.2	$	(1.2	)	$	1.8

Approximately $2.0 million of the $3.9 million of reserves related to restructuring actions is expected to be utilized in the second half of 2006. An additional $.8 million is expected to be used in the first half of 2007. A large portion of the remaining $1.1 million represents supplemental retirement benefits for certain employees in Belgium that will be paid at a rate of approximately $.1 million per year for the next several years.

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Retirement Benefit Plans

The tables that follow present the components of expense for all defined benefit pension plans and income or expense for postretirement health care for the second quarters of 2006 and 2005 and the six month periods ended June 30, 2006 and 2005.

Pension Expense


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2006			2005			2006			2005


Service cost	$	1.3		$	1.1		$	2.6		$	2.3
Interest cost		8.3			8.4			16.6			16.7
Expected return on plan assets		(8.0	)		(8.1	)		(16.1	)		(16.4	)
Amortization of prior service cost		.2			.1			.4			.3
Amortization of unrecognized gains and losses		2.7			2.7			5.5			5.1

Expense for the period	$	4.5		$	4.2		$	9.0		$	8.0

Postretirement Health Care (Income) Expense


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2006			2005			2006			2005


Service cost	$	—		$	.1		$	—		$	.1
Interest cost		.1			.4			.2			.7
Amortization of effect of plan amendment		(.5	)		—			(.9	)		—
Amortization of unrecognized gains		—			(.1	)		(.1	)		(.1	)

Postretirement health care (income) expense	$	(.4	)	$	.4		$	(.8	)	$	.7

Under current law, the company is required to make cash contributions to the funded defined benefit pension plan for certain U.S. employees and retirees of approximately $2.7 million in 2006. During the first half of the year, $1.5 million was contributed. However, the company intends to make a voluntary contribution to the plan of approximately $30 million in September 2006. Credit for this prefunding will eliminate any required contributions payable in 2007 — previously estimated at approximately $50 million — and potentially reduce contributions required in 2008. Contributions required in 2008 and beyond will be based on recently passed legislation that is expected to be signed into law by the president in the near future. The company is currently working with its consulting actuaries to analyze the potential effects of this legislation. However, funding requirements for years beyond 2007 cannot be precisely estimated at this time. The company intends to fund the 2006 prepayment amount through the liquidation or sale of certain non-core, non-operating assets.

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was enacted. Among other things, the Act created a new federal prescription drug coverage program called Medicare Part D. Medicare Part D became available to eligible participants beginning January 1, 2006 and is being provided by employers and third-party insurance plans who meet certain qualifying criteria. As a result, the company’s plan was amended effective January 1, 2006 to move prescription drug coverage for retirees who are eligible for Medicare from the self-funded company plan to third-party insurers who offer qualifying Medicare Part D plans. The change is expected to result in cash savings to both eligible retirees and to the company. The company’s cash savings are estimated to be in excess of $1 million per year beginning in 2006. The reduction in the plan’s accumulated postretirement benefit obligation is expected to be as much as $14 million. Although the amount has not yet been precisely quantified, amortization of the effect of this reduction is expected to result in postretirement health care income in 2006. In contrast, expense for all of 2005 was approximately $1.3 million.

Income Taxes

At December 31, 2005, the company had non-U.S. net operating loss carryforwards — principally in The Netherlands, Germany, Italy and Belgium — totaling $185 million, of which $22 million will expire between 2007 and 2020. The remaining $163 million have no expiration dates. Deferred tax assets related to the non-U.S. loss carryforwards

Notes to Consolidated Condensed Financial Statements
(Unaudited)

totaled $57 million at December 31, 2005 and valuation allowances totaling $48 million had been provided with respect to these assets as of that date. The company believes that it is more likely than not that portions of the net operating loss carryforwards in these jurisdictions will be utilized. However, there is currently insufficient positive evidence in some non-U.S. jurisdictions — primarily Germany, Italy, and Belgium — to conclude that no valuation allowances are required.

At December 31, 2005, the company had a U.S. federal net operating loss carryforward of $116 million, which will expire between 2023 and 2026. Deferred tax assets related to this loss carryforward, as well as to federal tax credit carryforwards ($16 million) and additional state and local loss carryforwards ($10 million), totaled $66 million. Of the federal tax credit carryforwards, $5 million will expire between 2008 and 2019 and $11 million have no expiration dates. Approximately 90% of the state and local loss carryforwards will expire by 2010 and the remainder will expire by 2020. At December 31, 2005, additional deferred tax assets totaling approximately $117 million had also been provided for book deductions not currently deductible for tax purposes including the writedown of goodwill, postretirement health care benefit costs and accrued pension liabilities. The deductions for financial reporting purposes are expected to be deducted for income tax purposes in future periods, at which time they will have the effect of decreasing taxable income or increasing the net operating loss carryforward. The latter will have the effect of extending the ultimate expiration of the net operating loss carryforward beyond 2026.

Due to a change in Ohio income/franchise tax law signed by the governor on June 30, 2005, the corporate income/franchise tax will be phased out ratably over the years 2006 through 2010. As a result of this legislative change, the benefit of the company’s Ohio net operating loss carryforward will also be phased out. On April 1, 2006, additional guidance was issued by the Ohio Department of Taxation, which allows taxpayers, through an affirmative election made by July 1, 2006, to convert a portion of qualified Ohio net operating loss carryforwards into tax credits to be applied, pursuant to annual limitations, against the commercial activity tax beginning in 2010 and ending in 2030. On June 14, 2006, the company made the election to convert approximately $23 million of its $132 million of Ohio net operating loss carryforwards to commercial activity tax credits of approximately $4.2 million which has a net present value of $1.4 million. The commercial activity tax is a “gross receipts tax” which is accounted for as an item of income or expense before income taxes. Accordingly, the $1.4 million credit was recorded as non-cash income before income taxes in the second quarter of 2006.

The conversion of the Series A Notes into common stock and the exchange of such common stock and the Series B Notes for Series B Preferred Stock on June 10, 2004 (see Refinancing Transactions) triggered an “ownership change” for U.S. federal income tax purposes. As a consequence of this ownership change, the timing of the company’s utilization of its pre-change U.S. tax loss carryforwards and other tax attributes will be limited to an amount of approximately $23 million per year. The allowable limitation is cumulative for years in which it is not fully utilized. At December 31, 2005, the cumulative limitation amounts to approximately $35 million which consists of $12 million from 2004 and $23 million from 2005. This delay will increase tax expense and decrease available cash in future years. The above limitations do not apply to any net operating losses incurred after the change in control.

As of December 31, 2005, U.S. deferred tax assets net of deferred tax liabilities totaled $183 million and U.S. valuation allowances totaled $121 million. The company continues to rely on the availability of qualified tax planning strategies to conclude that valuation allowances are not required with respect to a portion of its U.S. deferred tax assets. Tax planning strategies represent prudent and feasible actions the company would take to create taxable income to keep a tax attribute from expiring during the carryforward period. Determinations of the amounts related to tax planning strategies assume hypothetical transactions, all of which involve the disposal of substantial business assets, and certain variables that are judgmental and subjective. At December 31, 2005, valuation allowances had not been recorded with respect to $62 million of U.S. deferred tax assets based on qualified tax planning strategies of $59 million and tax carrybacks of $3 million. The review of the company’s qualified tax planning strategies at June 30, 2006 resulted in no change to the amount thereof and therefore no change in the amount of valuation allowances otherwise required.

The company will continue to reassess its conclusions regarding qualified tax planning strategies and their effect on the amount of valuation allowances that are required on a quarterly basis. This could result in an increase in income tax expense and a corresponding increase in accumulated deficit in the period of the adjustment.

U.S. deferred tax assets and valuation allowances were both increased by an additional $2 million in the first half of 2006. Due to the lack of positive evidence as required by Statement of Financial Accounting Standards No. 109, the company was unable to record tax benefits with respect to its losses in the U.S. and certain other jurisdictions in 2006. However, results for the second quarter of 2006 and the six month period ended June 30, 2006 include tax expense related to operations in profitable non-U.S. jurisdictions. This resulted in a second quarter provision for income taxes of

Notes to Consolidated Condensed Financial Statements
(Unaudited)

$.9 million and a provision of $1.8 million for the six month period ended June 30, 2006. For the second quarter of 2005 and the first half of the year, the provisions for income taxes were $1.0 million and $1.2 million, respectively.

The American Jobs Creation Act of 2004 provides a deduction to arrive at taxable income for income from qualified domestic production activities, which will be phased in from 2005 through 2010. In return, the Act provides for a two-year phase-out of the existing extra-territorial income exclusion (ETI) for foreign sales that was viewed to be inconsistent with international trade protocols by the European Union. The company does not expect these provisions to have any impact on its effective tax rate for 2006 based on current earnings levels and the availability of substantial net operating loss carryforwards. In the long term, the company expects that the new deduction will result in a decrease of the annual effective tax rate. However, the timing and amount of the decrease are not determinable at this time.

Receivables

During the third quarter of 2005, one of the company’s non-U.S. subsidiaries entered into a factoring agreement with a third party financial institution under which it is able to sell without recourse up to€10.0 million of accounts receivable. The agreement, which is expected to be renewed for a one year period on August 31, 2006, replaced an arrangement with another institution under which sales of receivables were made with recourse. At June 30, 2006 and December 31, 2005, the gross amounts of accounts receivable that had been sold under the new agreement totaled $10.8 million and $8.4 million, respectively.

The company also periodically sells with recourse notes receivable arising from customer purchases of plastics processing machinery and, in a limited number of cases, guarantees the repayment of all or a portion of notes from its customers to third party lenders. At June 30, 2006 and December 31, 2005, the company’s maximum exposure under these arrangements totaled $5.7 million and $6.4 million, respectively. In the event a customer were to fail to repay a note, the company would generally regain title to the machinery for later resale as used equipment. Costs related to sales of notes receivable and to guarantees have not been material in the past.

Goodwill and Other Intangible Assets

The carrying value of goodwill totaled $86.1 million at June 30, 2006 and $83.7 million at December 31, 2005. The company’s other intangible assets, which are included in other noncurrent assets in the Consolidated Condensed Balance Sheets, are not significant.

Other Assets

The components of other current assets and other noncurrent assets are shown in the tables that follow.

Other Current Assets


	June 30,		Dec. 31,
(In millions)	2006		2005

Deferred income taxes	$	25.7	$	25.3
Recoverables from excess liability carriers		3.2		3.2
Refundable income taxes		.2		3.8
Other		14.3		12.0

	$	43.4	$	44.3

Other Noncurrent Assets


	June 30,		Dec. 31,
(In millions)	2006		2005

Deferred income taxes net of valuation allowances	$	62.6	$	60.2
Recoverables from excess liability carriers		4.4		4.2
Intangible assets other than goodwill		2.1		2.6
Other		30.4		37.9

	$	99.5	$	104.9

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Liabilities

The components of accrued and other current liabilities are shown in the following table.

Accrued and Other Current Liabilities


	June 30,		Dec. 31,
(In millions)	2006		2005

Accrued salaries, wages and other compensation	$	19.6	$	19.6
Taxes payable other than income taxes		9.3		8.1
Reserves for post-closing adjustments on divestitures		1.9		2.0
Accrued and deferred income taxes		8.4		8.3
Accrued insurance and self-insurance reserves		12.4		11.3
Other accrued expenses		32.5		27.0

	$	84.1	$	76.3

The following table summarizes changes in the company’s warranty reserves. These reserves are included in accrued and other current liabilities in the Consolidated Condensed Balance Sheets.

Warranty Reserves


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2006			2005			2006			2005

Balance at beginning of period	$	5.8		$	6.1		$	5.6		$	6.5
Accruals		.8			1.0			1.7			2.0
Payments		(.8	)		(.8	)		(1.4	)		(1.6	)
Warranty expirations		(.3	)		(.1	)		(.4	)		(.6	)
Foreign currency translation adjustments		.1			(.1	)		.1			(.2	)

Balance at end of period	$	5.6		$	6.1		$	5.6		$	6.1

The components of long-term accrued liabilities are shown in the following table.

Long-Term Accrued Liabilities


	June 30,		Dec. 31,
(In millions)	2006		2005

Accrued pensions and other compensation	$	41.0	$	39.8
Minimum pension liability		153.7		148.5
Accrued postretirement health care benefits		24.8		26.4
Self-insurance reserves		23.6		24.0
Accrued and deferred income taxes		12.3		10.2
Reserves for post-closing adjustments on divestitures		5.5		5.6
Other		10.7		6.9

	$	271.6	$	261.4

As presented in the above table, self-insurance reserves exclude expected recoveries from excess liability carriers and other third parties of $7.6 million in 2006 and $7.4 million in 2005. These amounts are included in other current assets and other noncurrent assets in the Consolidated Condensed Balance Sheets. Expected recoveries represent the excess of total reserves for known exposures and estimates of incurred but not reported claims over the limits on the policies the company’s wholly-owned insurance subsidiary issues to it. These amounts are classified as assets because the company (as the insured party) expects that it would first pay any indemnity claims and expenses in excess of the insurance subsidiary’s limits and then pursue reimbursement by the excess carriers unless other payment arrangements are negotiated.

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Refinancing Transactions

On March 12, 2004, the company entered into a definitive agreement whereby Glencore Finance AG and Mizuho International plc purchased $100 million in aggregate principal amount of the company’s new exchangeable debt securities. The proceeds from this transaction, together with existing cash balances, were used to repay the company’s then-outstanding 8⅜% Notes that were due March 15, 2004. The securities the company issued were $30 million of 20% Secured Step-Up Series A Notes due 2007 and $70 million of 20% Secured Step-Up Series B Notes due 2007. The $30 million of Series A Notes were convertible into shares of the company’s common stock at a conversion price of $2.00 per share. Glencore Finance AG and Mizuho International plc converted the entire principal amount of the Series A Notes into 15.0 million shares of common stock on April 15, 2004. The Series A Notes and Series B Notes initially bore a combination of cash and pay-in-kind interest at a total rate of 20% per annum. The rate was retroactively reset on June 10, 2004 to 6% per annum from the date of issuance, payable in cash.

On March 12, 2004, the company also reached a separate agreement with Credit Suisse First Boston for a $140 million credit facility having a term of approximately one year. This senior secured credit facility consisted of a $65 million revolving A facility and a $75 million term loan B facility. On March 12, 2004, extensions of credit under the facility in an aggregate amount of $84 million were utilized to repay and terminate the company’s then-existing revolving credit facility (in addition to replacing or providing credit support for outstanding letters of credit) and its then-existing receivables purchase program. As discussed below, all borrowings under the Credit Suisse First Boston facility were repaid on June 10, 2004.

On May 26, 2004, Milacron Escrow Corporation, a wholly-owned, direct subsidiary of the company created solely to issue notes and to merge with and into the company, issued $225 million in aggregate principal amount of 11⅝% Senior Secured Notes due 2011 in a private placement. The proceeds of this issuance were initially placed in escrow. On June 10, 2004, the conditions for release of the proceeds from escrow were satisfied, including the consummation of the merger of Milacron Escrow Corporation with and into the company.

On June 10, 2004, (i) the common stock into which the Series A Notes were converted and (ii) the Series B Notes were exchanged for 500,000 shares of Series B Preferred Stock, a new series of the company’s convertible preferred stock with a cumulative cash dividend rate of 6%. On June 10, 2004, the company also entered into an agreement for a new $75 million asset based revolving credit facility with JPMorgan Chase Bank as administrative agent and collateral agent.

On June 10, 2004, the company applied the proceeds of the issuance of the 11½% Senior Secured Notes due 2011, together with $7.3 million in borrowings under the asset based facility and approximately $10.3 million of cash on hand, to:

	•		purchase€114,990,000 of the€115 million aggregate outstanding principal amount of Milacron Capital Holdings B.V.’s 7⅝% Guaranteed Bonds due in April 2005 at the settlement of a tender offer therefor;

	•		terminate and repay $19 million of borrowings outstanding under the revolving A facility of the Credit Suisse First Boston facility, which included additional amounts borrowed subsequent to March 12, 2004. The company also used $17.4 million in availability under the asset based facility to replace or provide credit support for the outstanding letters of credit under the revolving A facility of the Credit Suisse First Boston facility;

	•		repay the $75 million term loan B facility of the Credit Suisse First Boston facility; and

	•		pay transaction expenses.

The conversion of the Series A Notes into common stock on April 15, 2004 and the exchange of such common stock and the Series B Notes for Series B Preferred Stock on June 10, 2004 triggered an “ownership change” for U.S. federal income tax purposes. As a consequence of the ownership change, timing of the company’s utilization of tax loss carryforwards and other tax attributes will be substantially delayed (see Income Taxes).

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Short-Term Borrowings

The components of short-term borrowings are shown in the table that follows.

Short-Term Borrowings


	June 30,		Dec. 31,
(In millions)	2006		2005

Asset based credit facility due 2008	$	8.0	$	2.2
Borrowings under other lines of credit		2.3		1.9

	$	10.3	$	4.1

Borrowings under the asset based facility are secured by a first priority security interest, subject to permitted liens, in, among other things, U.S. and Canadian accounts receivable, cash and cash equivalents, inventories and, in the U.S., certain related rights under contracts, licenses and other general intangibles, subject to certain exceptions. The asset based facility is also secured by a second priority security interest in the assets that secure the 11¹/2% Senior Secured Notes due 2011 on a first priority basis. The availability of loans under the facility is limited to a borrowing base equal to specified percentages of eligible U.S. and Canadian accounts receivable and U.S. inventories and is subject to other conditions and limitations, including an excess availability reserve (the minimum required availability) of $10 million and an additional $1 million hedging reserve as a result of an interest rate swap that was entered into on July 30, 2004 (see Long-Term Debt).

Pursuant to the terms of the asset based facility, the cash the company receives from collection of receivables is subject to an automatic “sweep” to repay any outstanding borrowings under the asset based facility on a daily basis. As a result, the company relies on borrowings under the asset based facility as the primary source of cash for use in its North American operations. The availability of borrowings under the asset based facility is subject to the borrowing base limitations, including the excess availability and hedging reserves, which may be adjusted from time to time by the administrative agent at its discretion, and the satisfaction of certain conditions to borrowing, including, among other things, conditions related to the continued accuracy of the company’s representations and warranties and the absence of any unmatured or matured defaults (including under financial covenants) or any material adverse change in the company’s business or financial condition.

The asset based facility originally contained, for the first five quarters, a financial covenant requiring the company to maintain a minimum level of cumulative consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) as defined in the facility, to be tested quarterly. The facility was amended on February 11, 2005 to modify these minimum requirements. The February 11, 2005 amendment established a minimum cumulative consolidated EBITDA requirement of $38.0 million for the twelve consecutive calendar months ending December 31, 2005 and also reduced the minimum cumulative consolidated EBITDA requirements for periods ending March 31, June 30 and September 30 of 2005. As discussed more fully below, the facility was further amended on February 10, 2006 to replace the previous covenant with a minimum cumulative total North America EBITDA requirement for 2006 that only becomes effective if borrowing availability falls below specified levels for specified periods.

In addition, the facility originally contained a limit on capital expenditures to be complied with on a quarterly basis through September 30, 2005 but the facility was amended on February 11, 2005 to extend the limit through December 31, 2005 and on February 10, 2006 to extend the limit through 2006 as described below. The company will also have to comply with a minimum fixed charge coverage ratio to be tested quarterly. This test was originally to be required beginning in the fourth quarter of 2005 but on February 11, 2005 the company reached an agreement with the lenders to delay it until the first quarter of 2006.

Notes to Consolidated Condensed Financial Statements
(Unaudited)

expenditure limitation through December 31, 2006. These two covenants, however, will apply during 2006 only if the company’s borrowing availability (net of reserves) falls below specified levels for specified periods and will not apply if the company’s borrowing availability (net of reserves) remains above $17.5 million. During the second quarter of 2006, the company’s average availability was greater than $17.5 million and the company was therefore not subject to these covenants. If these two covenants should become effective in future periods, they can subsequently cease to apply if the company’s borrowing availability remains above specified levels for specified periods.

The February 11, 2005 amendment also corrected a minor technical violation related to an investment and allowed for a change in the method of accounting for certain U.S. plastics machinery inventories from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. Concurrently with the February 11, 2005 amendment, the company made a $2.5 million prepayment of the facility from the proceeds of a rights offering (see Shareholders’ Equity). The company subsequently used additional proceeds to repay the remaining amounts drawn under the facility at that time.

The February 10, 2006 amendment allowed for certain adjustments to EBITDA for the twelve month period ended December 31, 2005. Although the company was in compliance with the EBITDA requirement as of that date without these adjustments, the agreement and limited waiver that was entered into with the lenders as of February 10, 2006 waived any potential noncompliance with this requirement that might have resulted without these adjustments.

The company’s ability to continue to meet the cumulative total North America EBITDA covenant, if it becomes effective, and the minimum fixed charge coverage ratio covenant when it becomes effective will be contingent on a number of factors. These include sustaining strong order levels from the plastics processing industry and the resulting increases in sales revenues and operating margins, the company’s ability to absorb raw material price increases or pass such price increases through to customers, and the company’s continued ability to realize the benefits of its cost reduction and process improvement initiatives. If the company is unable to meet or exceed the covenants and other conditions to borrowing of its asset based facility, it will attempt to further renegotiate this covenant with its lenders to assure compliance. However, the company cannot control its lenders’ actions and, if the negotiations are not successful, the company could be forced to seek alternative sources of liquidity. This may include, but is not necessarily limited to, seeking alternative lenders, sales of assets or business units and the issuance of additional indebtedness or equity. Failure to meet or exceed the covenants of the asset based facility would constitute an event of default under the facility, which would permit the lenders to accelerate indebtedness owed thereunder (if such indebtedness remained unpaid) and terminate their commitments to lend. The acceleration of the indebtedness under the asset based facility would also create a cross-default under the company’s 11¹/2% Senior Secured Notes due 2011 if the principal amount of indebtedness accelerated, together with the principal amount of any other such indebtedness under which there has been a payment default or the maturity has been so accelerated, aggregated $15 million or more. Such cross-default would permit the trustee under the indenture governing the 11¹/2% Senior Secured Notes due 2011 or the holders of at least 25% in principal amount of the then outstanding notes to declare the notes to be due and payable immediately. Events of default under the asset based facility and the 11¹/2% Senior Secured Notes due 2011 in addition to those described above, including, without limitation, the failure to make required payments in respect of such indebtedness in a timely manner, may result in the acceleration of indebtedness owed under these instruments. The acceleration of obligations under the company’s outstanding indebtedness would have a material adverse effect on its business, financial condition and results of operations.

At June 30, 2006, $16 million of the asset based credit facility was utilized, including borrowings of $8 million and letters of credit of $8 million. Under the terms of the facility, the company’s additional borrowing capacity based on the assets included in the borrowing base at June 30, 2006 was approximately $36 million after taking into account then-outstanding letters of credit and the minimum availability and existing reserve requirements. The effective interest rate for borrowings under the asset based credit facility at June 30, 2006 was 7.9%.

At June 30, 2006, the company had other lines of credit with various U.S. and non-U.S. banks totaling approximately $31 million. These credit facilities support the discounting of receivables, letters of credit, guarantees and leases in addition to providing borrowings under varying terms. Approximately $14 million was available to the company under these lines under certain circumstances.

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Long-Term Debt

The components of long-term debt are shown in the following table.

Long-Term Debt


	June 30,			Dec. 31,
(In millions)	2006			2005

11¹/2% Senior Secured Notes due 2011	$	220.9		$	220.6
Capital lease obligations		12.8			13.4
Other		1.6			1.9

		235.3			235.9
Less current maturities		(2.7	)		(2.6	)

	$	232.6		$	233.3

The 11¹/2% Senior Secured Notes due 2011 are jointly and severally guaranteed on a senior secured basis by substantially all of the company’s U.S. and Canadian subsidiaries and on a senior unsecured basis by Milacron Capital Holdings B.V., a Dutch subsidiary. The notes and guarantees are secured by a first priority security interest in certain of the company’s U.S. assets other than those securing the asset based credit facility on a first priority basis (see Short-Term Borrowings) as well as the capital stock of certain subsidiaries and a second priority security interest in all of the assets securing the company’s asset based credit facility on a first priority basis.

Subject to a number of important limitations, exceptions and qualifications, the indenture governing the 11¹/2% Senior Secured Notes due 2011 contains covenants that limit the ability of the company and its restricted subsidiaries to incur additional indebtedness, create liens, engage in sale and leaseback transactions, pay dividends or make other equity distributions, purchase or redeem capital stock, make investments, sell assets, engage in transactions with affiliates and effect a consolidation or merger.

As presented in the above table, the value of the 11¹/2% Senior Secured Notes due 2011 is net of the unamortized portion of a $5.1 million discount at issuance. As a result of this discount, the effective interest rate for financial reporting purposes is approximately 12%.

Based on recent trade prices, the fair value of the 11¹/2% Senior Secured Notes due 2011 was approximately $207.6 million as of June 30, 2006. The carrying amount of the company’s other long-term debt approximates fair value.

On July 30, 2004, the company entered into a $50 million (notional amount) interest rate swap that effectively converts a portion of fixed-rate debt into a floating-rate obligation. The swap, which was amended in the first quarter of 2005 to, among other things, extend its maturity from November 15, 2008 to November 15, 2009, is intended to achieve a better balance between fixed-rate and floating-rate debt. The floating rate is calculated based on six-month LIBOR set in arrears. The interest rate swap had the effect of increasing interest expense by $.3 million for the second quarter of 2006 and increasing interest expense by $.5 million for the six month period ended June 30, 2006. Any positive or negative effects in future periods cannot be determined at this time. The fair value of the swap, which is included in other noncurrent liabilities in the Consolidated Condensed Balance Sheets, can change dramatically based on a number of variables, including a significant change in the shape of the yield curve and the passage of time. Changes in the fair value of the swap are reported as non-cash increases or decreases in interest expense. At June 30, 2006 and December 31, 2005, the fair value of the swap was $1.2 million and $.7 million, respectively.

Certain of the company’s long-term debt obligations contain various restrictions and financial covenants, including those described above. The 11¹/2% Senior Secured Notes due 2011 and the asset based credit facility are secured as described above. Except for obligations under capital leases and as discussed above, no significant indebtedness is secured.

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Shareholders’ Equity

On June 9, 2004, the company’s shareholders, among other things, approved the following resolutions:

	•		an increase in the number of authorized common shares from 50.0 million to 165.0 million;

	•		a decrease in the par value of each common share from $1.00 per share to $.01 per share;

	•		the issuance of a new series of Series B Preferred Stock that is convertible into common shares; and

	•		the issuance of contingent warrants which will be exercisable to purchase additional shares of the company’s common stock.

On June 10, 2004, the 15.0 million common shares into which the Series A Notes were converted and the $70.0 million of Series B Notes (see Refinancing Transactions) were exchanged for 500,000 shares of Series B Preferred Stock having a par value of $.01 per share and a liquidation preference of $200 per share. The Series B Preferred Stock has a cash dividend rate of 6% per year. Dividends may also be paid in additional shares of Series B Preferred Stock at a rate of 8% per year if the company is prohibited by the terms of its certificate of incorporation or its financing agreements from paying dividends in cash. The company is currently precluded from paying either cash or pay-in-kind dividends under the terms of its asset based credit facility and the indenture governing its 11¹/₂% Senior Secured Notes due 2011 (see Short-Term Borrowings and Long-Term Debt). No dividends were declared with respect to the Series B Preferred Stock in the first two quarters of 2006. Consequently, dividends were accrued at the contractual (face) rate of 6% per annum. At June 30, 2006, accrued and unpaid dividends totaled $3.0 million. Accrued and unpaid dividends on the Series B Preferred Stock must be paid prior to any dividend or distribution with respect to common stock and at the time of the redemption of any Series B Preferred Stock. The 500,000 shares of Series B Preferred Stock were initially convertible into 50.0 million common shares of the company at a conversion price of $2.00 per common share. However, the conversion price was reset to $1.75 per share effective June 30, 2005 because a test based on the company’s financial performance for 2004 was not satisfied. The test required the company to achieve EBITDA, as defined, of at least $50 million in 2004. As a result of the reset, the 500,000 shares of Series B Preferred Stock are currently convertible into approximately 57.1 million common shares. As discussed further below, however, this amount has the potential to increase significantly in the future. To the extent not previously converted to common shares at the option of the holders or redeemed at the option of the company, the Series B Preferred Stock must be converted to common shares on the seventh anniversary of the date of its issuance. In the event of the liquidation of the company, the Series B Preferred Stock ranks junior to the company’s 4% Cumulative Preferred Stock. Portions of the Series B Preferred Stock may be redeemed at the company’s option beginning in 2008 at an initial redemption price of $224 per share that decreases to $216 per share by 2010.

Except as otherwise required by law or by the company’s certificate of incorporation or expressly provided for in the certification of designation governing the Series B Preferred Stock, the holders of record of shares of the Series B Preferred Stock have full voting rights and powers, and are entitled to vote on all matters put to a vote or consent of the company’s shareholders, voting together with the holders of the company’s common stock and its 4% Cumulative Preferred Stock as a single class, with each holder of shares of Series B Preferred Stock having the number of votes equal to the number of shares of common stock into which such shares of Series B Preferred Stock could be converted as of the record date for the vote or consent which is being taken. As of June 30, 2006, the outstanding Series B Preferred Stock represented approximately 52% of the voting power of the company’s outstanding equity securities. In addition, as holders of Series B Preferred Stock, such holders have special voting and approval rights, including the right to elect the number of directors to the company’s board proportionate to the percentage of the company’s fully diluted common stock represented by the Series B Preferred Stock on an as-converted basis, rounded up to the nearest whole number (up to a maximum equal to two-thirds of the total number of directors, less one).

Neither the Series B Preferred Stock nor the underlying common shares are currently registered for active trading in financial markets. However, any holder of the Series B Preferred Stock can demand registration of all or a part of its shares or the underlying common stock. Once notice is given, the company is required to promptly prepare and file a registration statement with the SEC. In the event of a demand for registration, the company has the right, but not the obligation, to select and use an underwriter and must pay all expenses incurred in the registration process other than underwriting or brokerage fees and commissions. If the company unilaterally elects to register and sell additional common shares, it must notify the holders of the Series B Preferred Stock. In such circumstances, the holders of the Series B Preferred Stock have the right to include their shares or any common shares into which their Series B Preferred Stock was previously converted in the same registration.

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Initially, Glencore Finance AG (Glencore) and Mizuho International plc (Mizuho) owned 100% of the Series B Preferred Stock. On June 1, 2005 Glencore transferred to Triage Offshore Funds, Ltd. (Triage) 62,500 shares of Series B Preferred Stock and 62,500 contingent warrants to acquire common shares of the company (as discussed below). After giving effect to the reset of the conversion price of the Series B Preferred Stock from $2.00 per share to $1.75 per share and the transfer of the 62,500 shares to Triage, the collective holdings of Series B Preferred Stock of Glencore and Mizuho at December 31, 2005 represented approximately 46.6% of the company’s as converted common equity with Triage’s ownership interest representing approximately 6.7%, in both cases assuming that no pay-in-kind dividends on the Series B Preferred Stock have been paid. However, during the first quarter of 2006, Triage sold its 62,500 shares of Series B Preferred Stock to an institutional investor and Mizuho sold its 150,000 shares of Series B Preferred Stock to four other such investors.

The Series B Preferred Stock is currently convertible into approximately 57.1 million common shares. However, if in the future the company has the ability to pay dividends in additional shares of Series B Preferred Stock and were to elect to do so beginning in the third quarter of 2006 and assuming no conversions of Series B Preferred Stock into common shares, the number of as converted shares could increase to as many as 84.9 million. Based on the common shares actually outstanding as of June 30, 2006, this would represent approximately 62% of the company’s as converted common equity.

The Series B Preferred Stock includes a beneficial conversion feature because it allows the holders thereof to acquire common shares of the company at an effective conversion price that is less than their fair value per common share of $2.40 on March 12, 2004. The beneficial conversion feature was initially valued at $15.9 million in 2004 based on an effective conversion price of approximately $2.08 per common share for 50.0 million shares. However, the reset of the conversion price from $2.00 per common share to $1.75 had the effect of lowering the effective conversion price to approximately $1.82 per common share for 57.1 million shares. This change resulted in an increase in the value of the beneficial conversion feature from $15.9 million to $33.1 million. The original value of the beneficial conversion feature was included in the carrying value of the Series B Preferred Stock in 2004 and applied as a direct increase in accumulated deficit. Based on the provisions of Emerging Issues Task Force Issue 00-27, the $17.2 million increase is being recorded ratably in a similar manner between 2006 and the mandatory conversion date of the Series B Preferred Stock in the second quarter of 2011. In the first two quarters of 2006, $1.6 million of the increase was recorded and an additional $1.5 million will be recognized during the remainder of the year. The change in the recorded value of the beneficial conversion feature in 2006 has been added to the net loss amounts for the second quarter of 2006 and the six month period ended June 30, 2006 in calculating the applicable loss per common share amounts.

On June 10, 2004, the company also issued to the holders of the Series B Preferred Stock contingent warrants to purchase an aggregate of one million shares of its common stock for $.01 per share. The warrants became exercisable in the first quarter of 2006 because the company’s consolidated cash flow (as defined in the contingent warrant agreement) for the year ended December 31, 2005 was less than $60 million. On March 31, 2006, the company delivered to the holders of the contingent warrants notice that they had become exercisable. The contingent warrants will now be exercisable through March 25, 2011. If they are exercised, their carrying value and the cash exercise proceeds will be included in the value of the newly issued common stock.

On June 25, 2004, as permitted by the terms of the agreement with Glencore and Mizuho, the company filed a registration statement with the SEC for additional common shares to be issued through a rights offering. The registration statement was declared effective by the SEC on October 6, 2004. Each right was exercisable for one share of common stock at an exercise price of $2.00 per full share. The rights offering, which expired on December 10, 2004, resulted in the reissuance of 12,716,175 treasury shares and net cash proceeds of $24.2 million after deducting the related costs, including $1.1 million that was paid in the first quarter of 2005. Of the total shares issued in the rights offering, 36,600 shares were cancelled to cover withholding taxes owed by certain holders of restricted stock who participated in the offering. As permitted under the terms of the agreement with Glencore and Mizuho, the company had the option of using the proceeds of the offering to redeem a portion of the Series B Preferred Stock. However, the company elected to use the proceeds to repay short-term borrowings and invest the surplus cash for the purpose of improving its liquidity and to provide increased financial flexibility to satisfy anticipated working capital needs and higher levels of capital spending.

In addition to the Series B Preferred Stock, at December 31, 2005 and December 31, 2004, the company had outstanding 60,000 shares of 4% Cumulative Preferred Stock (the 4% Preferred Stock) having a par value of $100 per share. Except as otherwise required by law or the company’s certificate of incorporation, the holders of the 4% Preferred Stock vote together with the holders of shares of the common stock and the holders of Series B Preferred Stock as a single class, with holders of shares of 4% Preferred Stock having 24 votes per share. Holders of the 4% Preferred Stock

Notes to Consolidated Condensed Financial Statements
(Unaudited)

are entitled to receive quarterly dividends in cash out of the net assets legally available for the payment of dividends at a rate of $4 per year. Dividends are cumulative, and they must be paid prior to the purchase or redemption of any 4% Preferred Stock, any Series B Preferred Stock or any common stock. Dividends must also be paid prior to any distribution in respect of the common stock or the Series B Preferred Stock. In addition, dividends or distributions on common stock may not be made unless “consolidated net current assets,” and “consolidated net tangible assets,” in both cases as defined in the company’s certificate of incorporation, exceed certain amounts per share of 4% Preferred Stock. In the event of any liquidation, dissolution or winding up of the company, the holders of the 4% Preferred Stock are entitled to receive out of the assets available for distribution to shareholders an amount equal to $105 per share if the action is voluntary and $100 per share if it is not voluntary, in each case in addition to an amount equal to all accrued dividends in arrears at the date of the distribution, before any distributions of assets shall be made to the holders of Series B Preferred Stock or common stock. The holders of the Series B Preferred Stock and the common stock would be entitled to share in any assets then remaining to the exclusion of the holders of 4% Preferred Stock.

The 4% Preferred stock may be redeemed, under certain conditions, at the company’s election, by resolution of the board of directors, for a redemption price of $105 per share plus all accrued and unpaid dividends to the date of redemption. At meetings of shareholders of the company, each shareholder of 4% Preferred Stock is entitled to 24 votes for each share of 4% Preferred Stock held except that in the event that a default in dividends on the 4% Preferred Stock is deemed to have occurred, the holders of the 4% Preferred Stock, voting separately as a class, have the right at each shareholders’ meeting thereafter (at which 35% of the 4% Preferred Stock is represented) to elect one-third of the members of the board of directors to be elected at that meeting. A default in preferred dividends would be deemed to have occurred if at any time dividends accrued or in arrears on the 4% Preferred Stock amounts to $4 per share or more.

In the first two quarters of 2006, a total of 1,369,852 previously unissued common shares were issued in connection with incentive compensation and employee benefit programs. A total of 70,628 restricted shares were cancelled during the first two quarters, of which 22,628 were added to the treasury share balance. After giving effect to the reissuance of 700 treasury shares during the first quarter, the treasury share balance at June 30, 2006 was 32,762 shares.

A total of 1,244,421 treasury shares were reissued in connection with grants of restricted stock and contributions to employee benefit plans in the first two quarters of 2005. This amount was offset by the cancellation of 6,780 restricted shares that were added to the treasury share balance. The treasury share balance at June 30, 2005 was 33,939 shares.

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Comprehensive Loss

Total comprehensive income or loss represents the net change in shareholders’ equity during a period from sources other than transactions with shareholders and, as such, includes net earnings or loss for the period. The components of total comprehensive loss are as follows:

Comprehensive Loss


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2006			2005			2006			2005

Net loss	$	(14.3	)	$	(3.8	)	$	(23.9	)	$	(12.9	)
Foreign currency translation adjustments		7.3			(9.3	)		10.5			(14.2	)
Change in fair value of foreign currency contracts		(.2	)		—			(.2	)		—

Total comprehensive loss	$	(7.2	)	$	(13.1	)	$	(13.6	)	$	(27.1	)

The components of accumulated other comprehensive loss are shown in the following table.

Accumulated Other Comprehensive Loss


	June 30,			Dec. 31,
(In millions)	2006			2005

Foreign currency translation adjustments	$	(16.5	)	$	(27.0	)
Minimum pension liability adjustment (a)		(113.2	)		(113.2	)
Change in fair value of foreign currency contracts		(.2	)		—

Accumulated other comprehensive loss	$	(129.9	)	$	(140.2	)


(a)		At both dates, the amount presented is net of a U.S. tax benefit of $51.4 million that was recorded in 2002.

Contingencies

The company is involved in remedial investigations and actions at various locations, including former plant facilities, and offsite disposal sites where the company and other companies have been designated as potentially responsible parties. The company accrues remediation costs, on an undiscounted basis, when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Accruals for estimated losses from environmental remediation obligations are generally recognized no later than the completion of a remediation feasibility study. The accruals are adjusted as further information becomes available or circumstances change. Environmental costs have not been material in the past.

Various lawsuits arising during the normal course of business are pending against the company and its consolidated subsidiaries. In several such lawsuits, some of which seek substantial dollar amounts, multiple plaintiffs allege personal injury involving products, including metalworking fluids and tools, supplied and/or managed by the company. The company is vigorously defending these claims and, based on current information, believes it has recorded appropriate reserves in addition to its excess carrier insurance coverage and indemnity claims against third parties. The projected availability under the company’s asset based credit facility is currently expected to be adequate to cover the company’s cash needs under these claims, assuming satisfaction or waiver of the conditions to borrowing thereunder (see Short-Term Borrowings for further information regarding those conditions to borrowing as well as the company’s dependence on its asset based credit facility for liquidity). It is possible that the company’s ultimate liability could substantially exceed its current reserves, but the amount of any such excess cannot reasonably be determined at this time. Were the company to have significant adverse judgments or determine as the cases progress that significant additional reserves should be recorded, the company’s future operating results and financial condition, particularly its liquidity, could be adversely affected.

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Stock-Based Compensation

The 2004 Long-Term Incentive Plan (2004 Plan) permits the company to grant awards of its common shares in the form of non-qualified stock options, incentive stock options, performance shares, restricted shares and deferred shares. The 2004 Plan also provides for the granting of appreciation rights, either in tandem with stock options or free-standing. Awards under the 2004 Plan may include “management objectives,” the attainment of which governs the extent to which the related awards vest or become exercisable. A predecessor plan, the 1997 Long-Term Incentive Plan (1997 Plan), also permits the granting of non-qualified stock options, incentive stock options and restricted stock.

Under the 2004 Plan and the 1997 Plan, non-qualified and incentive stock options are granted at market value, vest in increments over a four or five year period, and expire not more than ten years subsequent to the date of the award.

The tables that follow summarize stock options outstanding and stock option activity for the second quarter of 2006 and the six month period ended June 30, 2006.

Stock Options


	Three Months Ended
	June 30, 2006
				Weighted-		Weighted-
				Average		Average
				Exercise		Contractual
	Shares			Price		Term


Outstanding at March 31, 2006		2,766,150		$	18.27		2.4
Forfeitures		(18,250	)		17.70		2.6


Outstanding at June 30, 2006		2,747,900			18.27		2.2


Exercisable at June 30, 2006		2,736,900			18.32		2.2

Stock Options


	Six Months Ended
	June 30, 2006
				Weighted-		Weighted-
				Average		Average
				Exercise		Contractual
	Shares			Price		Term


Outstanding at December 31, 2005		3,180,700		$	19.22		2.4
Cancellations		(405,675	)		25.75		—
Forfeitures		(27,125	)		17.39		2.5


Outstanding at June 30, 2006		2,747,900			18.27		2.2


Exercisable at June 30, 2006		2,736,900			18.32		2.2

As of June 30, 2006, the exercise prices of all outstanding stock options were in excess of the market value of the company’s common shares at that date and the stock options therefore had no intrinsic value.

In the second quarter of 2004, 14,000 stock options having a weighted-average fair value of $2.72 were granted. No stock options have subsequently been granted. The fair value of the 2004 grants was determined using the Black-Scholes option pricing model. Beginning in the first quarter of 2006, the expense related to these stock options (which is de minimis) is being recorded in the company’s primary

Notes to Consolidated Condensed Financial Statements
(Unaudited)

financial statements rather than being disclosed on a pro forma basis. All other outstanding stock options are fully vested and therefore no further expense is being recorded.

Under the 2004 Plan, grants of restricted stock may include specific financial targets or objectives, the attainment of which governs the extent to which the shares ultimately vest. The 2004 Plan and the 1997 Plan also permit the granting of other restricted stock awards, the vesting of which depends solely on continuous service with the company. Both types of restricted stock have two or three year vesting periods. During the vesting period, restricted stock awards entitle the holder to all rights of a holder of common shares, including dividend and voting rights. Unvested shares are restricted as to disposition and subject to forfeiture under certain circumstances.

The 2004 Plan also provides for the granting of deferred shares to non-employee directors. These grants are similar in all respects to restricted stock as described above except that share certificates are not issued at the grant date. Rather, certificates are issued at the end of the three year vesting period or upon a director’s voluntary retirement from the board after having served for at least six full years or having attained the mandatory retirement age of 70.

In addition to grants of deferred shares to non-employee directors, the 2004 Plan permits the granting of awards denominated in shares of common stock to employees. As is the case for deferred shares granted to non-employee directors, share certificates are not issued at the grant date. Such awards may be settled through the issuance of share certificates at the vesting date or in cash based on the fair value of the underlying common shares at the vesting date. Similar to grants of restricted stock, deferred share grants to employees may include “management objectives,” the attainment of which governs the extent to which the related awards vest. The first employee grants under the provisions of the 2004 Plan were made in 2005. However similar awards were made in prior years.

Summaries of restricted stock and deferred share activity for the second quarter of 2006 and the six months ended June 30, 2006 are presented in the tables that follow.

Restricted Stock and Deferred Shares


	Three Months Ended
	June 30, 2006
				Weighted -
				Average
				Grant Date
	Shares			Fair Value

Balance at March 31, 2006 (a)		4,216,893		$	2.97
Vested		(45,373	)		1.84
Forfeited		(67,504	)		3.35

Balance at June 30, 2006 (a)		4,104,016			2.97

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Restricted Stock and Deferred Shares


	Six Months Ended
	June 30, 2006
				Weighted -
				Average
				Grant Date
	Shares			Fair Value

Balance at December 31, 2005 (a)		2,823,313		$	3.67
Granted		1,458,521			1.61
Vested		(88,707	)		2.31
Forfeited		(89,111	)		3.52

Balance at June 30, 2006 (a)		4,104,016			2.97


(a)		Restricted shares and deferred shares the vesting of which is contingent on the attainment of specified financial objectives totaled 1,990,000 at December 31, 2005, 1,975,000 at March 31, 2006 and 1,942,500 at June 30, 2006.

At June 30, 2006, there was a total of $2.4 million of unrecognized compensation cost related to restricted stock and deferred shares. This amount is expected to be recognized over a weighted-average period of 2.1 years, including approximately $.6 million in the last two quarters of 2006. The total fair value of the shares that vested in the first two quarters of 2006 was $.1 million.

The total cost charged to expense for share-based compensation was $.2 million in the second quarter of 2006 and $.7 million for the six months ended June 30, 2006. In the first six months of 2005, expense related to share-based compensation was $1.0 million. The amount for the second quarter of 2005 was de-minimis. The amounts for 2006 relate almost exclusively to restricted stock and deferred shares. No tax benefits were recognized in the Consolidated Condensed Statements of Operations in either 2006 or 2005 because any changes in the related deferred tax assets were fully offset by changes in valuation allowances (see Income Taxes).

Organization

The company has four business segments: machinery technologies — North America, machinery technologies — Europe, mold technologies and industrial fluids. Descriptions of the products and services of these business segments are included in the “Organization” note to the Consolidated Financial Statements included in the company’s Annual Report on Form 10-K for the year ended December 31, 2005. Operating results by segment for the second quarters of 2006 and 2005 and for the six month periods ended June 30, 2006 and 2005 are presented in the following tables.

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Total Sales by Segment


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2006			2005			2006			2005

Plastics technologies
Machinery technologies — North America	$	106.9		$	95.4		$	201.0		$	182.5
Machinery technologies — Europe		39.9			41.5			76.2			75.8
Mold technologies		38.9			44.4			83.3			88.6
Eliminations (a)		(3.9	)		(.6	)		(6.0	)		(.9	)

Total plastics technologies		181.8			180.7			354.5			346.0
Industrial fluids		29.3			28.1			59.0			55.1

Total sales	$	211.1		$	208.8		$	413.5		$	401.1


(a)		Represents the elimination of sales among plastics technologies segments.

Customer Sales by Segment


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In millions)	2006		2005		2006		2005

Plastics technologies
Machinery technologies — North America	$	106.7	$	95.4	$	200.7	$	182.5
Machinery technologies — Europe		36.2		40.9		70.5		74.9
Mold technologies		38.9		44.4		83.3		88.6

Total plastics technologies		181.8		180.7		354.5		346.0
Industrial fluids		29.3		28.1		59.0		55.1

Total sales	$	211.1	$	208.8	$	413.5	$	401.1

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Operating Information by Segment


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2006			2005			2006			2005

Operating profit (loss)
Plastics technologies
Machinery technologies — North America	$	4.5		$	4.9		$	5.9		$	6.8
Machinery technologies — Europe		(1.2	)		(.5	)		(3.6	)		(2.7	)
Mold technologies		.3			.7			2.2			3.0

Total plastics technologies		3.6			5.1			4.5			7.1
Industrial fluids		2.9			1.9			4.8			3.3
Restructuring costs (a)		(8.8	)		(.3	)		(9.4	)		(.7	)
Corporate expenses		(3.1	)		(3.0	)		(6.4	)		(6.6	)
Other unallocated expenses (b)		(.1	)		(.1	)		(.1	)		(.2	)

Operating earnings (loss)		(5.5	)		3.6			(6.6	)		2.9
Interest expense-net		(7.9	)		(7.0	)		(15.5	)		(15.2	)

Loss before income taxes	$	(13.4	)	$	(3.4	)	$	(22.1	)	$	(12.3	)


(a)		In the second quarter of 2006, $.5 million relates to machinery technologies — North America, $5.6 million relates to machinery technologies — Europe, $2.6 million relates to mold technologies and $.1 million to industrial fluids. In the second quarter of 2005, the entire amount relates to machinery technologies — North America. For the six months ended June 30, 2006, $.6 million relates to machinery technologies — North America, $5.8 million relates to machinery technologies — Europe, $2.9 million relates to mold technologies and $.1 million to industrial fluids. For the six months ended June 30, 2005, $.8 million relates to machinery technologies — North America and $(.1) million relates to mold technologies.

(b)		Represents financing costs.

Consistent with the company’s internal reporting methods, segment operating profit or loss excludes restructuring costs and certain unallocated corporate and financing expenses.

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. The common shares into which the Series B Preferred Stock and contingent warrants are convertible and potentially dilutive restricted shares are excluded from weighted-average common shares assuming dilution because their inclusion would result in a smaller loss per common share.

Notes to Consolidated Condensed Financial Statements
(Unaudited)

The table that follows presents the calculation of loss applicable to common shareholders.

Loss Applicable to Common Shareholders


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(In millions)	2006			2005			2006			2005

Net loss	$	(14.3	)	$	(3.8	)	$	(23.9	)	$	(12.9	)
Dividends on preferred shares		(1.5	)		(1.5	)		(3.1	)		(3.0	)
Beneficial conversion feature related to Series B PreferredStock (a)		(.8	)		—			(1.6	)		—

Loss applicable to common shareholders	$	(16.6	)	$	(5.3	)	$	(28.6	)	$	(15.9	)


(a)		Represents a beneficial conversion feature arising from the fact that the holders of the Series B Preferred Stock are able to acquire common shares of the company at an effective conversion price that is less than their fair value on March 12, 2004 (see Shareholders’ Equity).

Condensed Consolidating Financial Information

On May 26, 2004, 11¹/2% Senior Secured Notes due 2011 were issued by Milacron Escrow Corporation, a wholly-owned, direct subsidiary of Milacron Inc. created solely to issue the Senior Secured Notes and to merge with and into Milacron Inc. The merger of Milacron Escrow Corporation with and into Milacron Inc. was completed on June 10, 2004. Also on June 10, 2004, the Senior Secured Notes were jointly, severally, fully and unconditionally guaranteed by the company’s U.S. and Canadian restricted subsidiaries and by Milacron Capital Holdings B.V. Following are unaudited condensed consolidating financial statements of the company, including the guarantors.This information is provided pursuant to Rule 3-10 of Regulation S-X in lieu of separate financial statements of each subsidiary guaranteeing the Senior Secured Notes.The following condensed consolidating financial statements present the balance sheet, statement of operations and cash flows of (i) Milacron Inc. (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) the guarantor subsidiaries of Milacron Inc., (iii) the nonguarantor subsidiaries of Milacron Inc., and (iv) the eliminations necessary to arrive at the information for the company on a consolidated basis. The condensed consolidating financial statements should be read in conjunction with the accompanying unaudited consolidated condensed financial statements of the company.

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Consolidating Statement of Operations


	Three Months Ended June 30, 2006
				Guarantor			Nonguarantor			Eliminations &
(in millions)	Parent			Subsidiaries			Subsidiaries			Other			Milacron Inc.

Sales	$	—		$	141.0		$	76.5		$	(6.4	)	$	211.1
Cost of products sold		3.6			111.9			61.3			(6.4	)		170.4
Cost of products sold related to restructuring		—			—			.4			—			.4

Total costs of products sold		3.6			111.9			61.7			(6.4	)		170.8


Manufacturing margins		(3.6	)		29.1			14.8			—			40.3

Other costs and expenses
Selling and administrative		6.2			17.2			14.9			—			38.3
Restructuring costs		—			.5			7.9			—			8.4
Other expense — net		(.9	)		—			—			—			(.9	)


Total other costs and expenses		5.3			17.7			22.8			—			45.8


Operating earnings (loss)		(8.9	)		11.4			(8.0	)		—			(5.5	)
Other non-operating expense (income)
Intercompany management fees		(.8	)		.8			—			—			—
Intercompany interest		(8.4	)		9.0			(.6	)		—			—
Equity in (earnings) losses of subsidiaries		6.5			4.5			—			(11.0	)		—
Other intercompany transactions		(.1	)		.4			(.3	)		—			—


Total other non-operating expense (income)		(2.8	)		14.7			(.9	)		(11.0	)		—


Earnings (loss) before interest and income taxes		(6.1	)		(3.3	)		(7.1	)		11.0			(5.5	)
Interest expense — net		(8.1	)		.3			(.1	)		—			(7.9	)


Earnings (loss) before income taxes		(14.2	)		(3.0	)		(7.2	)		11.0			(13.4	)
Provision for income taxes		—			.2			.7			—			.9


Net earnings (loss)	$	(14.2	)	$	(3.2	)	$	(7.9	)	$	11.0		$	(14.3	)

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Consolidating Statement of Operations


	Six Months Ended June 30, 2006
				Guarantor			Nonguarantor			Eliminations &
(in millions)	Parent			Subsidiaries			Subsidiaries			Other			Milacron Inc.

Sales	$	—		$	273.6		$	150.5		$	(10.6	)	$	413.5
Cost of products sold		5.7			222.2			121.9			(10.6	)		339.2
Cost of products sold related to restructuring		—			—			.4			—			.4

Total cost of products sold		5.7			222.2			122.3			(10.6	)		339.6


Manufacturing margins		(5.7	)		51.4			28.2			—			73.9

Other costs and expenses
Selling and administrative		13.3			30.0			29.2			—			72.5
Restructuring costs		—			.6			8.4			—			9.0
Other expense — net		(1.0	)		.1			(.1	)		—			(1.0	)


Total other costs and expenses		12.3			30.7			37.5			—			80.5


Operating earnings (loss)		(18.0	)		20.7			(9.3	)		—			(6.6	)
Other non-operating expense (income)
Intercompany management fees		(3.9	)		3.9			—			—			—
Intercompany interest		(16.5	)		17.5			(1.0	)		—			—
Equity in (earnings) losses of subsidiaries		10.5			4.7			—			(15.2	)		—
Other intercompany transactions		(.1	)		1.0			(.9	)		—			—


Total other non-operating expense (income)		(10.0	)		27.1			(1.9	)		(15.2	)		—


Earnings (loss) before interest and income taxes		(8.0	)		(6.4	)		(7.4	)		15.2			(6.6	)
Interest expense — net		(15.8	)		.5			(.2	)		—			(15.5	)


Earnings (loss) before income taxes		(23.8	)		(5.9	)		(7.6	)		15.2			(22.1	)
Provision for income taxes		—			.5			1.3			—			1.8


Net earnings (loss)	$	(23.8	)	$	(6.4	)	$	(8.9	)	$	15.2		$	(23.9	)

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Consolidating Statement of Operations


	Three Months Ended June 30, 2005
				Guarantor			Nonguarantor			Eliminations &
(in millions)	Parent			Subsidiaries			Subsidiaries			Other			Milacron Inc.


Sales	$	—		$	137.2		$	76.5		$	(4.9	)	$	208.8
Cost of products sold		2.1			111.2			62.6			(4.9	)		171.0

Manufacturing margins		(2.1	)		26.0			13.9			—			37.8
Other costs and expenses
Selling and administrative		6.6			13.1			14.0			—			33.7
Restructuring costs		—			.3			—			—			.3
Other expense — net		.2			(.6	)		.6			—			.2

Total other costs and expenses		6.8			12.8			14.6			—			34.2

Operating earnings (loss)		(8.9	)		13.2			(.7	)		—			3.6
Other non-operating expense (income)
Intercompany management fees		(3.1	)		3.1			—			—			—
Intercompany interest		(7.1	)		7.4			(.3	)		—			—
Equity in (earnings) losses of subsidiaries		(1.1	)		(.5	)		—			1.6			—

Total other non-operating expense (income)		(11.3	)		10.0			(.3	)		1.6			—

Earnings (loss) before interest and income taxes		2.4			3.2			(.4	)		(1.6	)		3.6
Interest expense — net		(7.2	)		.2			—			—			(7.0	)

Earnings (loss) from continuing operations before income taxes		(4.8	)		3.4			(.4	)		(1.6	)		(3.4	)
Provision (benefit) for income taxes		(.4	)		.3			1.1			—			1.0

Earnings (loss) from continuing operations		(4.4	)		3.1			(1.5	)		(1.6	)		(4.4	)
Discontinued operations net of income taxes		.6			—			—			—			.6

Net earnings (loss)	$	(3.8	)	$	3.1		$	(1.5	)	$	(1.6	)	$	(3.8	)

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Consolidating Statement of Operations


	Six Months Ended June 30, 2005
				Guarantor			Nonguarantor			Eliminations &
(in millions)	Parent			Subsidiaries			Subsidiaries			Other			Milacron Inc.


Sales	$	—		$	266.6		$	144.3		$	(9.8	)	$	401.1
Cost of products sold		4.6			218.9			117.4			(9.8	)		331.1

Manufacturing margins		(4.6	)		47.7			26.9			—			70.0
Other costs and expenses
Selling and administrative		13.5			25.6			28.1			—			67.2
Restructuring costs		—			.8			(.1	)		—			.7
Other expense — net		.4			(1.8	)		.6			—			(.8	)

Total other costs and expenses		13.9			24.6			28.6			—			67.1

Operating earnings (loss)		(18.5	)		23.1			(1.7	)		—			2.9
Other non-operating expense (income)
Intercompany management fees		(6.2	)		6.2			—			—			—
Intercompany interest		(13.9	)		14.6			(.7	)		—			—
Equity in (earnings) losses of subsidiaries		.1			(1.2	)		—			1.1			—

Total other non-operating expense (income)		(20.0	)		19.6			(.7	)		1.1			—

Earnings (loss) from continuing operations before interest and income taxes		1.5			3.5			(1.0	)		(1.1	)		2.9
Interest expense — net		(15.4	)		.4			(.2	)		—			(15.2	)

Earnings (loss) from continuing operations before income taxes		(13.9	)		3.9			(1.2	)		(1.1	)		(12.3	)
Provision (benefit) for income taxes		(.4	)		.5			1.1			—			1.2

Earnings (loss) from continuing operations		(13.5	)		3.4			(2.3	)		(1.1	)		(13.5	)
Discontinued operations — net of income taxes		.6			—			—			—			.6

Net earnings (loss)	$	(12.9	)	$	3.4		$	(2.3	)	$	(1.1	)	$	(12.9	)

Notes to Consolidated Condensed Financial Statements
(Unaudited)


Consolidating Balance Sheet
	June 30, 2006
				Guarantor			Nonguarantor			Eliminations &
(in millions)	Parent			Subsidiaries			Subsidiaries			Other			Milacron Inc.


Assets

Current assets
Cash and cash equivalents	$	(1.0	)	$	6.2		$	36.7		$	—		$	41.9
Notes and accounts receivable (excluding intercompany receivables)		.4			69.9			49.6			—			119.9
Inventories		(.2	)		109.6			67.3			—			176.7
Other current assets		11.8			12.0			19.6			—			43.4
Intercompany receivables (payables)		(358.1	)		244.4			116.0			(2.3	)		—


Total current assets		(347.1	)		442.1			289.2			(2.3	)		381.9

Property, plant and equipment — net		1.2			55.7			60.2			—			117.1
Goodwill		—			53.4			32.7			—			86.1
Investment in subsidiaries		279.5			227.2			(15.8	)		(490.9	)		—
Intercompany advances — net		490.3			(523.3	)		33.0			—			—
Other noncurrent assets		27.5			49.8			22.2			—			99.5


Total assets	$	451.4		$	304.9		$	421.5		$	(493.2	)	$	684.6


Liabilities and Shareholders’ Equity (Deficit)

Current liabilities
Short-term Borrowings	$	8.0		$	—		$	2.3		$	—		$	10.3
Long-term debt and capital lease obligations due within one year		1.1			—			1.6			—			2.7
Trade accounts payable		4.2			45.2			34.4			—			83.8
Advance billings and deposits		—			13.0			6.1			—			19.1
Accrued and other current liabilities		16.6			31.1			36.4			—			84.1	��


Total current liabilities		29.9			89.3			80.8			—			200.0

Long-term accrued liabilities		213.6			4.1			53.9			—			271.6
Long-term debt		227.5			—			5.1			—			232.6


Total liabilities		471.0			93.4			139.8			—			704.2

Commitments and contingencies		—			—			—			—			—

Shareholders’ equity (deficit)
4% Cumulative Preferred shares		6.0			—			—			—			6.0
6% Series B Convertible Preferred stock		114.5			—			—			—			114.5
Common shares, $.01 par value		.5			25.4			12.7			(38.1	)		.5
Capital in excess of par value		350.2			316.4			80.2			(396.6	)		350.2
Contingent warrants		.5			—			—			—			.5
Reinvested earnings (accumulated deficit)		(361.4	)		(116.6	)		176.4			(59.8	)		(361.4	)
Other comprehensive income (accumulated other comprehensive loss)		(129.9	)		(13.7	)		12.4			1.3			(129.9	)


Total shareholders’ equity (deficit)		(19.6	)		211.5			281.7			(493.2	)		(19.6	)


Total liabilities and shareholders’ equity (deficit)	$	451.4		$	304.9		$	421.5		$	(493.2	)	$	684.6

Notes to Consolidated Condensed Financial Statements
(Unaudited)


Consolidating Balance Sheet
	December 31, 2005
				Guarantor			Nonguarantor			Eliminations &
(in millions)	Parent			Subsidiaries			Subsidiaries			Other			Milacron Inc.


Assets

Current assets
Cash and cash equivalents	$	(.6	)	$	10.8		$	35.5		$	—		$	45.7
Notes and accounts receivable (excluding intercompany receivables)		.5			65.0			52.2			—			117.7
Inventories		(.2	)		100.5			60.8			—			161.1
Other current assets		13.0			12.5			18.8			—			44.3
Intercompany receivables (payables)		(354.8	)		241.8			115.3			(2.3	)		—


Total current assets		(342.1	)		430.6			282.6			(2.3	)		368.8

Property, plant and equipment — net		1.3			55.9			57.0			—			114.2
Goodwill		—			53.0			30.7			—			83.7
Investment in subsidiaries		298.1			226.6			(15.8	)		(508.9	)		—
Intercompany advances — net		470.0			(503.0	)		33.0			—			—
Other noncurrent assets		33.8			52.2			18.9			—			104.9


Total assets	$	461.1		$	315.3		$	406.4		$	(511.2	)	$	671.6


Liabilities and Shareholders’ Equity (Deficit)

Current liabilities
Short-term borrowings	$	2.2		$	—		$	1.9		$	—		$	4.1
Long-term debt and capital lease obligations due within one year		1.1			—			1.5			—			2.6
Trade accounts payable		6.1			40.6			29.7			—			76.4
Advance billings and deposits		—			16.1			6.5			—			22.6
Accrued and other current liabilities		22.0			23.9			30.4			—			76.3


Total current liabilities		31.4			80.6			70.0			—			182.0

Long-term accrued liabilities		206.9			4.2			50.3			—			261.4
Long-term debt		227.9			—			5.4			—			233.3


Total liabilities		466.2			84.8			125.7			—			676.7

Commitments and contingencies		—			—			—			—			—

Shareholders’ equity (deficit)
4% Cumulative Preferred shares		6.0			—			—			—			6.0
6% Series B Convertible Preferred Stock		112.9			—			—			—			112.9
Common shares, $.01 par value		.5			25.4			12.8			(38.2	)		.5
Capital in excess of par value		348.0			316.4			80.3			(396.7	)		348.0
Contingent warrants		.5			—			—			—			.5
Reinvested earnings (accumulated deficit)		(332.8	)		(103.1	)		185.2			(82.1	)		(332.8	)
Other comprehensive income (accumulated other comprehensive loss)		(140.2	)		(8.2	)		2.4			5.8			(140.2	)


Total shareholders’ equity (deficit)		(5.1	)		230.5			280.7			(511.2	)		(5.1	)


Total liabilities and shareholders’ equity (deficit)	$	461.1		$	315.3		$	406.4		$	(511.2	)	$	671.6

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Consolidating Statement of Cash Flows


	Three Months Ended June 30, 2006
				Guarantor			Nonguarantor			Eliminations &
(in millions)	Parent			Subsidiaries			Subsidiaries			Other			Milacron Inc.

Increase (decrease) in cash and cash equivalents
Operating activities cash flows
Net earnings (loss)	$	(14.2	)	$	(3.2	)	$	(7.9	)	$	11.0		$	(14.3	)
Operating activities providing (using) cash
Depreciation and amortization		—			2.6			1.6			—			4.2
Restructuring costs		—			.5			8.3			—			8.8
Equity in (earnings) losses of subsidiaries		10.4			4.5			—			(14.9	)		—
Distributions from equity subsidiaries		—			(3.9	)		—			3.9			—
Deferred income taxes		—			—			.6			—			.6
Working capital changes
Notes and accounts receivable		.2			(2.6	)		4.2			—			1.8
Inventories		—			(4.0	)		(1.9	)		—			(5.9	)
Other current assets		.2			1.1			.5			—			1.8
Trade accounts payable		(.5	)		(1.1	)		(1.4	)		—			(3.0	)
Other current liabilities		(7.5	)		(1.1	)		(5.2	)		—			(13.8	)
Decrease (increase) in other noncurrent assets		7.5			.3			(.1	)		—			7.7
Increase (decrease) in long-term accrued liabilities		1.7			(.1	)		2.1			—			3.7
Other — net		.5			.3			(.4	)		—			.4

Net cash provided (used) by operating activities		(1.7	)		(6.7	)		.4			—			(8.0	)
Investing activities cash flows
Capital expenditures		—			(2.3	)		(1.6	)		—			(3.9	)
Net disposal of property, plant and equipment		—			—			—			—			—

Net cash used by investing activities		—			(2.3	)		(1.6	)		—			(3.9	)
Financing activities cash flows
Repayments of long-term debt		(.1	)		—			(.3	)		—			(.4	)
Increase (decrease) in short-term borrowings		8.0			—			(.1	)		—			7.9
Dividends paid		(.1	)		—			—			—			(.1	)

Net cash provided (used) by financing activities		7.8			—			(.4	)		—			7.4
Intercompany receivables and payables		(5.2	)		7.2			(2.0	)		—			—
Intercompany advances		.6			(1.3	)		.7			—			—
Effect of exchange rate fluctuations on cash and cash equivalents		—			.3			1.5			—			1.8

Increase (decrease) in cash and cash equivalents		1.5			(2.8	)		(1.4	)		—			(2.7	)
Cash and cash equivalents at beginning of period		(2.5	)		9.0			38.1			—			44.6

Cash and cash equivalents at end of period	$	(1.0	)	$	6.2		$	36.7		$	—		$	41.9

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Consolidating Statement of Cash Flows


	Six Months Ended June 30, 2006
				Guarantor			Nonguarantor			Eliminations &
(in millions)	Parent			Subsidiaries			Subsidiaries			Other			Milacron Inc.

Increase (decrease) in cash and cash equivalents
Operating activities cash flows
Net earnings (loss)	$	(23.8	)	$	(6.4	)	$	(8.9	)	$	15.2		$	(23.9	)
Operating activities providing (using) cash
Depreciation and amortization		.1			5.1			3.1			—			8.3
Restructuring costs		—			.6			8.8			—			9.4
Equity in (earnings) losses of subsidiaries		17.6			4.7			—			(22.3	)		—
Distributions from equity subsidiaries		—			(7.1	)		—			7.1			—
Deferred income taxes		—			—			.5			—			.5
Working capital changes
Notes and accounts receivable		.2			(4.8	)		5.2			—			.6
Inventories		—			(9.4	)		(3.2	)		—			(12.6	)
Other current assets		1.0			.6			.1			—			1.7
Trade accounts payable		(1.9	)		4.6			2.8			—			5.5
Other current liabilities		(7.5	)		5.3			(5.8	)		—			(8.0	)
Decrease (increase) in other noncurrent assets		7.8			.4			(.7	)		—			7.5
Increase (decrease) in long-term accrued liabilities		4.6			(.1	)		1.8			—			6.3
Other — net		1.0			.4			(.4	)		—			1.0

Net cash used by operating activities		(.9	)		(6.1	)		3.3			—			(3.7	)
Investing activities cash flows
Capital expenditures		—			(4.7	)		(2.9	)		—			(7.6	)
Net disposal of property, plant and equipment		—			—			—			—			—

Net cash used by investing activities		—			(4.7	)		(2.9	)		—			(7.6	)
Financing activities cash flows
Repayments of long-term debt		(.2	)		—			(.8	)		—			(1.0	)
Increase in short-term borrowings		5.8			—			.3			—			6.1
Dividends paid		(.1	)		—			—			—			(.1	)

Net cash provided (used) by financing activities		5.5			—			(.5	)		—			5.0
Intercompany receivables and payables		3.2			(1.5	)		(1.7	)		—			—
Intercompany advances		(8.2	)		7.4			.8			—			—
Effect of exchange rate fluctuations on cash and cash equivalents		—			.3			2.2			—			2.5

Increase (decrease) in cash and cash equivalents		(.4	)		(4.6	)		1.2			—			(3.8	)
Cash and cash equivalents at beginning of period		(.6	)		10.8			35.5			—			45.7

Cash and cash equivalents at end of period	$	(1.0	)	$	6.2		$	36.7		$	—		$	41.9

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Consolidating Statement of Cash Flows


	Three Months Ended June 30, 2005
				Guarantor			Nonguarantor			Eliminations &
(in millions)	Parent			Subsidiaries			Subsidiaries			Other			Milacron Inc.

Increase (decrease) in cash and cash equivalents
Operating activities cash flows
Net earnings (loss)	$	(3.8	)	$	3.1		$	(1.5	)	$	(1.6	)	$	(3.8	)
Operating activities providing (using) cash
Net gain on divestiture		(.6	)		—			—			—			(.6	)
Depreciation and amortization		.1			2.7			1.8			—			4.6
Restructuring costs		—			.3			—			—			.3
Equity in (earnings) losses of subsidiaries		2.5			(.5	)		—			(2.0	)		—
Distributions from equity subsidiaries		—			(3.6	)		—			3.6			—
Deferred income taxes		—			—			—			—			—
Working capital changes
Notes and accounts receivable		—			4.8			(6.7	)		—			(1.9	)
Inventories		—			(1.2	)		(1.2	)		—			(2.4	)
Other current assets		.2			(.6	)		(.2	)		—			(.6	)
Trade accounts payable		1.0			.6			.9			—			2.5
Other current liabilities		(18.9	)		12.1			.9			—			(5.9	)
Decrease (increase) in other noncurrent assets		1.4			(.1	)		.8			—			2.1
Increase (decrease) in long-term accrued liabilities		2.2			(.2	)		.9			—			2.9
Other — net		.2			—			(.1	)		—			.1

Net cash provided (used) by operating activities		(15.7	)		17.4			(4.4	)		—			(2.7	)
Investing activities cash flows
Capital expenditures		—			(1.3	)		(.5	)		—			(1.8	)
Net disposal of property, plant and equipment		—			—			1.9			—			1.9

Net cash provided (used) by investing activities		—			(1.3	)		1.4			—			.1
Financing activities cash flows
Repayments of long-term debt		(.2	)		—			(.2	)		—			(.4	)
Decrease in short-term borrowings		—			—			(.3	)		—			(.3	)
Debt issuance costs		—			—			—			—			—
Costs of 2004 rights offering		—			—			—			—			—
Dividends paid		(1.5	)		—			—			—			(1.5	)

Net cash used by financing activities		(1.7	)		—			(.5	)		—			(2.2	)
Intercompany receivables and payables		6.6			(9.7	)		3.1			—			—
Intercompany advances		3.0			(4.2	)		1.2			—			—
Effect of exchange rate fluctuations on cash and cash equivalents		—			(.1	)		(1.4	)		—			(1.5	)

Increase (decrease) in cash and cash equivalents		(7.8	)		2.1			(.6	)		—			(6.3	)
Cash and cash equivalents at beginning of period		2.0			11.3			30.4			—			43.7

Cash and cash equivalents at end of period	$	(5.8	)	$	13.4		$	29.8		$	—		$	37.4

Notes to Consolidated Condensed Financial Statements
(Unaudited)

Consolidating Statement of Cash Flows


	Six Months Ended June 30, 2005
				Guarantor			Nonguarantor			Eliminations &
(in millions)	Parent			Subsidiaries			Subsidiaries			Other			Milacron Inc.

Increase (decrease) in cash and cash equivalents
Operating activities cash flows
Net earnings (loss)	$	(12.9	)	$	3.4		$	(2.3	)	$	(1.1	)	$	(12.9	)
Operating activities providing (using) cash
Net gain on divestiture		(.6	)		—			—			—			(.6	)
Depreciation and amortization		.1			5.5			3.5			—			9.1
Restructuring costs		—			.8			(.1	)		—			.7
Equity in (earnings) losses of subsidiaries		6.7			(1.2	)		—			(5.5	)		—
Distributions from equity subsidiaries		—			(6.6	)		—			6.6			—
Deferred income taxes		—			—			.1			—			.1
Working capital changes
Notes and accounts receivable		.1			4.0			(.8	)		—			3.3
Inventories		—			(4.5	)		(6.9	)		—			(11.4	)
Other current assets		2.6			—			(.6	)		—			2.0
Trade accounts payable		(.9	)		.5			(1.7	)		—			(2.1	)
Other current liabilities		(17.6	)		15.5			(4.7	)		—			(6.8	)
Decrease (increase) in other noncurrent assets		2.0			(.2	)		.7			—			2.5
Increase (decrease) in long-term accrued liabilities		5.9			(.3	)		1.5			—			7.1
Other — net		.5			(.6	)		.2			—			.1

Net cash provided (used) by operating activities		(14.1	)		16.3			(11.1	)		—			(8.9	)
Investing activities cash flows
Capital expenditures		—			(2.1	)		(1.2	)		—			(3.3	)
Net disposal of property, plant and equipment		—			.2			1.9			—			2.1

Net cash provided (used) by investing activities		—			(1.9	)		.7			—			(1.2	)
Financing activities cash flows
Repayments of long-term debt		(.3	)		—			(3.9	)		—			(4.2	)
Increase (decrease) in short-term borrowings		(11.0	)		—			.5			—			(10.5	)
Debt issuance costs		(.6	)		—			—			—			(.6	)
Costs of 2004 rights offering		(1.1	)		—			—			—			(1.1	)
Dividends paid		(3.1	)		—			—			—			(3.1	)

Net cash used by financing activities		(16.1	)		—			(3.4	)		—			(19.5	)
Intercompany receivables and payables		(1.2	)		(4.2	)		5.4			—			—
Intercompany advances		2.6			(4.7	)		2.1			—			—
Effect of exchange rate fluctuations on cash and cash equivalents		—			—			(2.2	)		—			(2.2	)

Increase (decrease) in cash and cash equivalents		(28.8	)		5.5			(8.5	)		—			(31.8	)
Cash and cash equivalents at beginning of period		23.0			7.9			38.3			—			69.2

Cash and cash equivalents at end of period	$	(5.8)		$	13.4		$	29.8		$	—		$	37.4


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

Executive Summary

For a concise description of our products and markets, as well as a summary of business conditions and results over the past several years, see the Executive Summary that is included in the Management’s Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2005.

Operating Results

In the second quarter of 2006, we incurred a net loss of $14.3 million, or $.34 per share, compared to a net loss of $3.8 million, or $.11 per share, in the second quarter of 2005. The most recent quarter included $8.8 million in restructuring charges with no tax benefit, as well as $3.2 million in expenses for exhibiting at the triennial international plastics trade show, NPE-2006. Manufacturing margins in the second quarter improved to 19.1% from 18.1% in the year-ago quarter, primarily as a result of better pricing and cost-reduction initiatives.

Sales for the second quarter were $211 million, up slightly over last year’s $209 million. New orders of $200 million, versus $215 million in 2005, were held back in part by the effect of NPE, which was held at the end of June. Many buying decisions were delayed until the show, and most of the approximately $30 million in orders we received at NPE are expected to be confirmed and booked in the third quarter.

Cash on hand at the end of the quarter was $42 million, and the company had approximately $36 million available for borrowing under its asset-based revolving credit facility. Liquidity (cash plus borrowing availability) of $78 million was down from $86 million at the beginning of the quarter, partly due to almost $6 million in cash restructuring expenses as well as an inventory build of close to $6 million, which is expected to shrink in the third quarter.

Consolidation Measures

Our consolidation plan, first announced in November 2005, calls for streamlining the organization and reducing the overall cost structure, while allowing us to work more closely with customers. In total, the restructuring actions are expected to require approximately $13 million in cash, spread over 2006 and the first half of 2007, and to generate annualized cost savings of about $15 million, of which at least $4 million is expected to be realized in late 2006.

Pension Funding

In the August 3 release of second-quarter results, we also announced that we intend to make a voluntary contribution to our U.S. defined benefit plan of approximately $30 million in September 2006. Credit for this prefunding will eliminate required contributions payable in 2007, previously estimated at approximately $50 million, and potentially reduce contributions required in 2008. We intend to raise a majority of the prepayment amount through the liquidation of investments for nonqualified retirement plans for executives. We are also in the process of selling various non-core, non-operating assets made redundant through current and previous consolidations. If needed, cash on hand and borrowings under our revolving credit facility could supplement the cash provided by these actions.

Outlook

Milacron’s long-term outlook remains positive. Third and fourth quarter results are expected to show good sequential and year-over-year improvement, with a 4% to 5% sales increase projected for the year. Looking further ahead, despite the dampening effect on capital spending exerted by high energy and resin costs, plastic part production in North America continues to rise and capacity utilization rates among plastics processors have also risen to very high levels — 90% plus in recent months. Furthermore, the company’s sales outside its traditional markets of North America and Western Europe have been growing at a strong double-digit pace. Assuming these conditions persist, continued 4% to 5% top-line growth appears reasonable in 2007. Greater sales volume, along with improved pricing and incremental restructuring benefits, should lead to better margins, which may be offset partially by higher material and energy costs as well as expenses associated with the implementation of a new ERP (enterprise resource planning) system.

Presence Outside the U.S.

In the first six months of 2006, markets outside the U.S. represented the following percentages of our consolidated sales: Europe 25%; Canada and Mexico 7%; Asia 7%; and the rest of the world 3%. As a result of this geographic mix, foreign currency exchange rate fluctuations affect the translation of our sales and earnings, as well as consolidated shareholders’ equity. During the first six months of 2006, the weighted-average exchange rate of the euro was weaker in relation to the U.S. dollar than in the comparable period of 2005. As a result, we experienced unfavorable currency


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

translation effects on new orders and sales of $6 million and $5 million, respectively. The effect on earnings was not significant.

Between December 31, 2005 and June 30, 2006, the euro strengthened against the U.S. dollar by approximately 7% which caused the majority of an $11 million favorable adjustment to accumulated other comprehensive loss.

If the euro should weaken against the U.S. dollar in future periods, we could experience a negative effect in translating our non-U.S. sales, orders and earnings when compared to historical results.

Significant Accounting Policies and Judgments

The Consolidated Condensed Financial Statements discussed herein have been prepared in accordance with U.S. generally accepted accounting principles which require us to make estimates and assumptions that affect the amounts that are included therein. The “Management’s Discussion and Analysis” section of our Annual Report on Form 10-K for the year ended December 31, 2005 includes a summary of certain accounting policies, estimates and judgmental matters that we believe are significant to our reported financial position and results of operations. Additional accounting policies are described in the “Summary of Significant Accounting Policies” note to the Consolidated Financial Statements included in our Form 10-K. We regularly review our estimates and judgments and the assumptions regarding future events and economic conditions that serve as their basis. While we believe the estimates used in the preparation of the Consolidated Condensed Financial Statements to be reasonable in the circumstances, the recorded amounts could vary under different conditions or assumptions.

Deferred Tax Assets and Valuation Allowances

At December 31, 2005, we had significant deferred tax assets related to U.S. and non-U.S. net operating loss and tax credit carryforwards and related to charges that have been deducted for financial reporting purposes but which are not yet deductible for income tax reporting. These charges include the write-down of goodwill and a charge to equity related to minimum pension funding. At December 31, 2005, we had provided valuation allowances against all net deferred tax assets except $62 million in the U.S. that are offset by qualified tax planning strategies and available carrybacks and $9 million of non-U.S. assets to be realized through future income expectations and tax planning strategies. Valuation allowances serve to reduce the recorded deferred tax assets to amounts reasonably expected to be realized in the future. The establishment of valuation allowances and their subsequent adjustment requires a significant amount of judgment because expectations as to the realization of deferred tax assets — particularly those assets related to net operating loss carryforwards — are generally contingent on the generation of taxable income, the reversal of deferred tax liabilities in the future and the availability of qualified tax planning strategies. Tax planning strategies represent prudent and feasible actions that management would take to create taxable income to keep a tax attribute from expiring during the carryforward period. Determinations of the amounts related to tax planning strategies assume hypothetical transactions, some of which involve the disposal of substantial business assets, and certain variables which are judgmental and subjective. In determining the need for valuation allowances, FASB 109 requires that we evaluate all positive and negative evidence relating to future realization of our deferred tax assets including our most recent three year cumulative income or loss position. We also consider our short-term and long-range internal operating plans, which are based on the current economic conditions in the markets and countries in which we operate, and the effect of potential economic changes on our various operations.

At December 31, 2005, we had non-U.S. net operating loss carryforwards — principally in The Netherlands, Germany, Italy and Belgium — totaling $185 million and related deferred tax assets of $57 million. Valuation allowances totaling $48 million had been provided with respect to these assets. We believe that it is more likely than not that portions of the net operating loss carryforwards in these jurisdictions will be utilized. However, there is currently insufficient positive evidence in some non-U.S. jurisdictions — primarily Germany, Italy and Belgium — to conclude that no valuation allowances are required.

At December 31, 2005, we had a U.S. federal net operating loss carryforward of $116 million which will expire between 2023 and 2026. Deferred tax assets related to this loss carryforward, as well as to federal tax credit carryforwards ($16 million) and additional state and local loss carryforwards ($10 million), totaled $66 million. Additional deferred tax assets totaling approximately $117 million had also been provided for book deductions not currently deductible for tax purposes, including the writedown of goodwill, postretirement health care benefit costs and accrued pension liabilities. The deductions for financial reporting purposes are expected to be deducted for income tax purposes


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

in future periods, at which time they will have the effect of decreasing taxable income or increasing the net operating loss carryforward. The latter will have the effect of extending the ultimate expiration of the net operating loss carryforwards beyond 2026.

The transaction entered into with Glencore Finance AG and Mizuho International plc on June 10, 2004 (see Liquidity and Sources of Capital) caused an “ownership change” as defined by the Internal Revenue code and regulations and will substantially delay the timing of the utilization of certain of the pre-change U.S. loss carryforwards and other tax attributes that are discussed in the preceding paragraph. The company has calculated an annual limitation of approximately $23 million that can be used to offset post-change taxable income. This limitation is for each year and is cumulative for years in which the limitation is not fully utilized. Therefore, the cumulative limitation at the end of 2005 amounts to approximately $35 million which consisted of $12 million from 2004 and $23 million from 2005. This delay will increase tax expense and decrease available cash in future years. The limitations discussed above do not apply to any net operating losses incurred after the change in control.

As of December 31, 2005, U.S. deferred tax assets net of deferred tax liabilities totaled $183 million and U.S. valuation allowances totaled $121 million. We continue to rely on the availability of qualified tax planning strategies to conclude that valuation allowances are not required with respect to a portion of our U.S. deferred tax assets. At December 31, 2005, valuation allowances had not been recorded with respect to $62 million of U.S. deferred tax assets based on qualified tax planning strategies of $59 million and tax carrybacks of $3 million. The review of our qualified tax planning strategies at June 30, 2006 resulted in no change to the amount thereof and therefore no change in the amount of valuation allowances otherwise required.

We will continue to reassess our conclusions regarding qualified tax planning strategies and their effect on the amount of valuation allowances that are required on a quarterly basis. This could result in an increase or decrease in income tax expense and a corresponding decrease or increase in shareholders’ deficit in the period of the change.

U.S. deferred tax assets and valuation allowances were both increased by an additional $2 million in the first half of 2006. As a result, no U.S. tax benefit was recorded with respect to the loss incurred for the period. The provision for income taxes for the second quarter of 2006 in the amount of $.9 million relates primarily to operations in profitable non-U.S. jurisdictions.

Results of Operations

In an effort to help readers better understand the composition of our operating results, certain of the discussions that follow include references to restructuring costs and other items of income and expense. Those discussions should be read in connection with (i) the Consolidated Condensed Financial Statements and notes thereto that are included herein and (ii) the Consolidated Financial Statements and notes thereto that are included in our Annual Report on Form 10-K for the year ended December 31, 2005.

Pension Income and Pension Funding

As discussed in depth in our Annual Report on Form 10-K for the year ended December 31, 2005, the amount of annual expense recognized for our defined benefit pension plan for certain U.S. employees and retirees is dependent on a number of factors, including its funded status and the rate of return on assets and discount rate assumptions that are used. In 2005, we recorded expense related to this plan of $12.3 million, including $6.0 million in the first two quarters. For 2006, we currently expect to record expense for this plan of approximately $13.7 million, of which $6.8 million was recorded in the first half of the year. As discussed more fully below, the expense increase in 2006 is negatively affecting margins, selling and administrative expense and operating earnings.

Under current law, we will be required to make cash contributions to the plan in 2006 of at least $2.7 million. Of this amount, $1.5 million was contributed in the first two quarters. However, we intend to make a voluntary contribution of approximately $30 million in September 2006. A further discussion of our pension funding plans and possible funding obligations in future years is included in footnote (a) to the table captioned “Contractual Obligations” that is included elsewhere in this Item 2.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

New Orders and Sales

In the second quarter of 2006, consolidated new orders totaled $200 million compared to $215 million in 2005. Consolidated sales were $211 million in 2006 and $209 million in 2005. Currency effects on new orders and sales were not significant. Orders for the quarter were held back in part by the effect of the triennial National Plastics Exposition (NPE) that was held late in June. We believe many buying decisions for plastics processing machinery were delayed until the show. However, we also believe that most of the approximately $30 million in orders received at NPE will be confirmed and booked in the third quarter. Despite lower order levels, sales of injection molding machines, extrusion systems and related after-market products and services increased in North America. Sales of plastics processing machinery in Europe decreased modestly while sales of the mold technologies segment decreased in both North America and Europe.

In the first six months of 2006, consolidated new orders were $425 million while consolidated sales totaled $414 million. In the comparable period of 2005, new orders and sales were $417 million and $401 million, respectively. The increases were achieved despite unfavorable foreign currency translation effects that penalized new orders and sales as reported in U.S. dollars by $6 million and $5 million, respectively. The timing of NPE also negatively affected order levels for the period. The increases in orders and sales were due entirely to higher business levels for plastics processing machinery and after-market products and services in North America. Machinery orders in Europe increased while sales were essentially flat as measured in U.S. dollars. Order and sales levels for mold components and related parts and services both decreased in relation to 2005.

Export orders from the U.S. were $23 million in the second quarter of 2006 compared to $20 million in 2005. Export sales from the U.S. totaled $20 million in 2006 and $21 million in 2005. For the first six months of 2006, export orders totaled $41 million while export sales were $36 million. In the comparable period of 2005, export orders and sales were $36 million and $37 million, respectively. Sales of all segments to non-U.S. markets, including exports, totaled $89 million in the second quarter of 2006 compared to $94 million in 2005. Non-U.S. sales totaled $176 million in the first six months of 2006 and $174 million in the comparable period of 2005. For the first two quarters of 2006 and 2005, products sold outside the U.S. were approximately 42% and 43% of sales, respectively, while products manufactured outside the U.S. represented 38% of sales in both years.

Our backlog of unfilled orders at June 30, 2006 was $107 million, compared to $96 million at December 31, 2005 and $99 million at June 30, 2005.

Margins, Costs and Expenses

Including $.4 million of restructuring costs related to product line discontinuation, the manufacturing margins for the second quarter of 2006 and the six month period ended June 30, 2006 were 19.1% and 17.9%, respectively. Excluding these costs, the second quarter margin was 19.3% and the margin for the year-to-date period was 18.0%. The margins for the comparable periods of 2005 were 18.1% and 17.5%, respectively. The improvements were due principally to improved pricing that resulted from recent price increases and the effects of our cost reduction initiatives. Pension expense related to cost of products sold was $2.5 million in the second quarter of 2006 and $2.4 million in 2005. For the first two quarters of 2006, pension expense included in cost of products sold was $5.0 million compared to $4.6 million in 2005. For both the second quarter of 2006 and the first six months of the year, margins benefited from lower insurance costs for product liability.

In the second quarter of 2006, total selling and administrative expense was $38.3 million compared to $33.7 million in the equivalent period of 2005. Selling expense increased by $5.5 million due to $3.2 million of costs related to NPE, higher variable selling costs and a modest increase in pension expense. As a percentage of sales, selling expense increased from 12.1% to 14.6%. Administrative expense decreased by $.9 million. Costs related to compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (SOX-404), which are included in administrative expense, were $1.1 million in 2006 and $2.3 million in 2005. These costs are expected to increase in relation to 2005 in the third quarter but decrease significantly in the fourth quarter.

For the first six months of 2006, total selling and administrative expense was $72.5 million compared to $67.2 million in 2005. As a percentage of sales, selling expense was 13.7% in 2006 and 12.5% in 2005. Selling expense increased by $6.3 million due in part to NPE costs and increased pension expense. Administrative expense decreased by $1.0 million as a result of a $1.3 million reduction in SOX-404 costs.

Other expense-net was income of $.9 million in the second quarter of 2006 and expense of $.2 million in the comparable period of 2005. For the first six months of 2006 and 2005, other expense-net was income of $1.0 million


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

and income of $.8 million, respectively. The second quarter and year-to-date amounts for 2006 include $1.4 million related to recent changes in Ohio tax law. The year-to-date amount for 2005 includes first quarter income of $.9 million from the favorable settlement of litigation.

Interest expense net of interest income increased from $7.0 million in the second quarter of 2005 to $7.9 million in the comparable period of 2006. In the first six months of 2006, interest expense net of interest income was $15.5 million compared to $15.2 million in the equivalent period of 2005.

Restructuring Costs

The following paragraphs discuss some of the restructuring actions undertaken in recent years. These actions are discussed more fully in the note to the Consolidated Condensed Financial Statements captioned “Restructuring Costs” that is included in Item 1 of Part I of this Form 10-Q which should be read in connection with the discussion that follows.

In November 2002, we announced restructuring initiatives intended to improve operating efficiency and customer service. One of these actions involved the transfer of all manufacturing of container blow molding machines and structural foam systems from the plant in Manchester, Michigan to our more modern and efficient facility near Cincinnati, Ohio. The mold making operation has also been moved to a smaller, more cost-effective location near Manchester. The total cost of the relocations will be approximately $14.3 million, including $.6 million in the first two quarters of 2006 and $.5 million in the comparable period of 2005. The amount for 2006 includes a second quarter charge of $.4 million to further adjust the carrying value of the Manchester facility based on a revised estimate of its fair value.

In the second quarter of 2004, we initiated additional actions to further enhance customer service while reducing the overhead cost structure of our North American plastics machinery operations. These overhead reductions are resulting in restructuring expense of $1.6 million, including $.3 million in the first half of 2005. Expense related to these actions for all of 2006 is expected to be approximately $.1 million.

In the fourth quarter of 2005, we announced that we plan to further reduce our cost structure by consolidating certain operations in both North America and Europe. One of the actions involves the consolidation of the European sales offices of the machinery technologies — Europe and mold technologies segments. This initiative began in 2005 and is continuing in 2006. For all of 2006, the cost of the consolidation is expected to be approximately $3.7 million, of which $.6 million was recorded in the first two quarters. Cash costs for the year are expected to be approximately $2.5 million. In connection with the sales office consolidation and the downsizing of the Fulda facility (as discussed below), we have also initiated the overall reorganization of the European operations of the mold technologies segment, including product line rationalization and the streamlining of marketing and administrative functions. The cost of the reorganization is expected to be approximately $1.4 million in 2006, including $1.1 million in the first two quarters. The cash cost will be approximately $.9 million, all of which will be spent in 2006.

In the first quarter of 2006, we initiated a plan to reorganize our European injection molding machine manufacturing facility and reduce its cost structure at an estimated cost of approximately $8.2 million for the termination of up to 90 employees. In the second quarter, we initiated the reorganization and downsizing of a special mold base machining plant in Germany at an expected cost of approximately $1.9 million. In total, these actions resulted in restructuring expense of $6.7 million in the second quarter of 2006. Costs for the remainder of the year are expected to total $3.3 million.

In total, the actions that are discussed above as well as certain other actions that were initiated in 2003 through 2005 resulted in pretax restructuring costs of $9.4 million in the six months ended June 30, 2006 and $.7 million in the comparable period of 2005. Cash costs totaled $6.2 million in the first half of 2006. For the first half of 2005, cash costs were negligible due to the receipt of $2.0 million of proceeds from the sale of two previously idled manufacturing facilities in Germany.

Additional restructuring actions are expected to be implemented later in 2006, including initiatives that are intended to further reduce the cost structure of the mold technologies segment’s operations in North America and Europe. The total cost of the actions initiated in 2005 and 2006 is expected to be approximately $18 to $19 million. The cash costs are expected to be approximately $13 million spread over 2006 and the first half of 2007. We expect to generate annualized cost savings of up to $15 million, of which at least $4 million is expected to be realized in 2006.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

Results by Segment

The following sections discuss the operating results of our business segments which are presented in tabular form in Item 1 on Part I of this Form 10-Q.

Machinery technologies — North America —In the second quarter of 2006, the machinery technologies — North America segment had new orders and sales of $93 million and $107 million, respectively. In the comparable period of 2005, new orders totaled $101 million while sales were $95 million. The reduction in new orders was due principally to the NPE effect of orders being delayed until the show and not confirmed until the third quarter. Consequently, the segment’s third quarter new orders are expected to show significant improvement in relation to the second quarter of 2006 and the third quarter of 2005. The increase in sales resulted from higher shipment levels of injection molding machines, extrusion systems and related after-market products. Sales of blow molding machinery were essentially unchanged in relation to 2005. Despite the sales increase, the segment’s operating profit excluding restructuring costs decreased from $4.9 million in 2005 to $4.5 million in 2006. The reduction in profitability was due principally to $2.9 million of NPE costs. Pension expense increased modestly and higher materials costs continued to adversely affect the segment’s results. However, our cost reduction initiatives and improved pricing substantially offset these factors as well as the incremental show costs. The segment’s SOX-404 costs were $.3 million in 2006 and $.8 million in 2005. Restructuring costs were $.5 million in the second quarter of 2006 and $.3 million in 2005. The amount for 2006 includes a charge of $.4 million to further adjust the carrying value of the segment’s former blow molding machinery facility in Manchester, Michigan based on a revised estimate of its fair value. The facility is expected to be sold in the third quarter of 2006. The remainder of the 2006 amount and a majority of the 2005 expense relate to carrying costs for this facility pending its sale.

For the first six months of 2006, the machinery technologies — North America segment had new orders of $207 million and sales of $201 million compared to orders of $196 million and sales of $183 million in the comparable period of the prior year. Higher shipment levels for injection molding machines, extrusion systems and related after-market products were responsible for the sales increase. The segment’s operating profit excluding restructuring costs was $5.9 million in the six months ended June 30, 2006 compared to $6.8 million in 2005. The reduction in profitability was due principally to the previously mentioned NPE costs. Pension expense increased by $.5 million but costs related to SOX-404 compliance decreased by approximately the same amount. The segment’s profitability benefited from improved pricing that helped to offset material cost increases. In the first two quarters of 2006, restructuring costs were $.6 million compared to $.8 million in 2005. The amount for 2006 and a portion of the 2005 amount relate to the Manchester facility. The remainder of the 2005 expense relates to cost reduction initiatives that were implemented in the second half of 2004 and to costs to complete the relocation of the mold making business from Manchester to a more cost-effective location.

Machinery technologies — Europe —In the second quarter of 2006, the machinery technologies — Europe segment had new orders of $43 million, essentially unchanged from 2005. The segment’s sales were $40 million and $42 million in 2006 and 2005, respectively. Foreign currency translation effects with respect to new orders and sales were not significant. Due to lower sales volume and continued pricing pressure, the segment had an operating loss before restructuring costs of $1.2 million in the second quarter of 2006 compared to a loss of $.5 million in 2005. The segment’s SOX-404 costs were $.3 million in 2006 and $.6 million in 2005. As was previously discussed, the reorganization of the Malterdingen injection molding machine manufacturing facility was initiated in the second quarter of 2006 and the plan to consolidate the segment’s European sales offices continued. This resulted in restructuring expense of $5.6 million in the second quarter. Additional costs for these initiatives will be incurred in the third and fourth quarters.

The machinery technologies — Europe segment had new orders of $83 million in the first six months of 2006 compared to $78 million of orders in the equivalent period of 2005. The segment’s sales totaled $76 million in the first six months of both 2006 and 2005. Unfavorable foreign currency translation effects penalized new orders by $4 million and sales by $3 million. U.S. dollar orders for injection molding machines and blow molding systems both increased and sales of both product lines increased as measured in euros. As a result of pricing pressure and higher materials costs, the segment had an operating loss before restructuring costs of $3.6 million in the first six months of 2006 compared to a loss of $2.7 million in 2005. Costs for SOX-404 compliance were $.6 million in 2006 and $.9 million in 2005. Restructuring costs totaled $5.8 million in 2006 and resulted from the Malterdingen reorganization and sales office consolidation. While additional costs will be incurred with respect to these actions in 2006, the resultant improvement in the segment’s cost structure is expected to contribute to significantly improved profitability in the future beginning in the second half of 2006.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

Mold technologies —New orders in the mold technologies segment decreased from $43 million in the second quarter of 2005 to $39 million in 2006 while sales decreased from $44 million to $39 million. Orders and sales both benefited modestly from currency translation effects. The decreases in orders and sales related principally to the segment’s North American operations. Orders and sales also decreased in Europe but to a lesser degree. Due in part to lower sales, the segment’s operating profit before restructuring costs decreased from $.7 million in 2005 to $.3 million in 2006. Costs of SOX-404 compliance decreased by $.3 million. Restructuring expense of $2.6 million in 2006 relates to the previously discussed reorganization and downsizing of the mold base machining plant, the European sales office consolidation initiative and the general reorganization of the segment’s European operations.

The mold technologies segment had new orders of $82 million and sales of $83 million in the first six months of 2006. In the comparable period of 2005, orders totaled $88 million and sales were $89 million. Unfavorable currency translation effects penalized new orders and sales as measured in U.S. dollars by $1 million each. As was the case in the second quarter, reduced business volume in North America accounted for most of the decreases in orders and sales. Due in part to lower sales, the segment’s operating profit excluding restructuring costs decreased from $3.0 million in 2005 to $2.2 million in 2006. SOX-404 costs were $.8 million in 2006 and $1.0 million in 2005. In 2006, the segment’s restructuring costs related to the previously discussed initiatives were $2.9 million. In 2005, the segment realized $.1 million of income from restructuring activities as a result of the first quarter sales of two previously idled manufacturing facilities.

Industrial fluids —The industrial fluids segment had new orders and sales of $29 million each in the second quarter of 2006 and $28 million each in 2005. In 2006, orders and sales benefited modestly from foreign currency translation effects. Volume as measured in gallons or liters shipped declined in both North America and Europe but due to improved pricing, continued strong growth in China and other emerging markets and lower insurance costs for product liability, the segment’s operating profit before restructuring costs increased from $1.9 million in 2005 to $2.9 million in 2006. Pension expense increased modestly but the segment’s costs for SOX-404 compliance decreased from $.3 million in 2005 to $.1 million in 2006. In 2006, the segment recorded $.1 million of restructuring expense for termination benefits related to the closure of a fluids blending facility in Germany.

For the first six months of 2006, the industrial fluids segment had new orders and sales of $59 million each compared to $55 million each in 2005. The increases were achieved despite almost $1 million of unfavorable foreign currency translation effects and resulted principally from improved pricing. Units shipped decreased modestly in North America but increased by 4% in Europe. Before $.1 million of restructuring costs, the segment’s operating profit increased from $3.3 million in 2005 to $4.8 million in 2006. The improvement in profitability resulted from higher sales revenues as well as a significant decrease in insurance costs for product liability. Pension expense increased by $.3 million while SOX-404 compliance costs for the period decreased by $.3 million.

Loss Before Income Taxes

Our pretax loss for the second quarter of 2006 was $13.4 million which includes restructuring costs of $8.8 million. In the comparable period of 2005, our pretax loss was $3.4 million which includes restructuring costs of $.3 million. For the first six months of 2006, our pretax loss was $22.1 million which includes restructuring costs of $9.4 million. In the comparable period of 2005, our pretax loss was $12.3 million which includes restructuring costs of $.7 million.

Income Taxes

As was previously discussed (see Significant Accounting Policies and Judgments — Deferred Tax Assets and Valuation Allowances), we were unable to record tax benefits with respect to the losses in the U.S. and certain other jurisdictions in the second quarter of 2006. However, results for the quarter include tax expense related to operations in profitable non-U.S. jurisdictions. This resulted in a second quarter provision for income taxes of $.9 million. In the second quarter of 2005, we recorded a tax expense of $1.0 million.

For the first six months of 2006, the provision for income taxes was $1.8 million despite a pretax loss of $22.1 million. In the comparable period of 2005, the provision for income taxes was $1.2 million.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

Loss From Continuing Operations

In the second quarter of 2006, our loss from continuing operations was $14.3 million, or $.34 per share. In 2005, the loss from continuing operations was $4.4 million, or $.12 per share. For the six month period ended June 30, 2006, the loss from continuing operations was $23.9 million, or $.59 per share. Our loss for the equivalent period of 2005 was $13.5 million, or $.34 per share.

Discontinued Operations

In the second quarter of 2005 and for the six month period ended June 30, 2005, results of discontinued operations represents income of $.6 million, or $.01 per share, from adjustments of reserves related to prior divestitures. The adjustments resulted from the favorable resolution of certain tax and other contingencies.

Net Loss

Including restructuring costs, we had a net loss of $14.3 million, or $.34 per share, in the second quarter of 2006. In the second quarter of 2005, we had a net loss including restructuring costs and the income related to discontinued operations of $3.8 million, or $.11 per share. In the first two quarters of 2006, we had a net loss of $23.9 million, or $.59 per share, compared to a net loss of $12.9 million, or $.33 per share, in the comparable period of 2005. The loss per common share amounts for 2006 include the effect of a preferred stock beneficial conversion feature that is discussed in the notes to the Consolidated Condensed Financial Statements. In both years, the loss per common share amounts include the effect of preferred stock dividends.

Market Risk

Foreign Currency Exchange Rate Risk

We use foreign currency forward exchange contracts to hedge our exposure to adverse changes in foreign currency exchange rates related to firm or anticipated commitments arising from international transactions. We do not hold or issue derivative instruments for trading purposes. At June 30, 2006, we had outstanding forward contracts totaling $10.6 million. At December 31, 2005, outstanding forward contracts totaled $7.3 million and at June 30, 2005, we had outstanding forward contracts totaling $6.8 million. The annual potential loss from a hypothetical 10% adverse change in foreign currency rates on our foreign exchange contracts at June 30, 2006, December 31, 2005 and June 30, 2005 would not materially affect our consolidated financial position, results of operations or cash flows.

Interest Rate Risk

At June 30, 2006, we had fixed rate debt of $230 million, including $225 million face value of 11¹/2% Senior Secured Notes due 2011 that were issued on May 26, 2004, and floating rate debt of $16 million. At December 31, 2005 and June 30, 2005, fixed rate debt totaled $230 million and $231 million, respectively. Floating rate debt totaled $10 million at December 31, 2005 and $7 million at June 30, 2005. As a result of these factors, a portion of annual interest expense and financing fees fluctuate based on changes in short-term borrowing rates. However, before consideration of any adverse effects of the interest rate swap that is discussed in the following paragraph, the potential annual loss on floating rate debt from a hypothetical 10% increase in interest rates would not be significant at any of the aforementioned dates.

On July 30, 2004, we entered into a $50 million (notional amount) interest rate swap that effectively converts a portion of fixed-rate interest debt into a floating-rate obligation. The swap, which was amended in the first quarter of 2005 to, among other things, extend its maturity from November 15, 2008 to November 15, 2009, is intended to achieve a better balance between fixed-rate and floating-rate debt. The interest rate swap had the effect of increasing interest expense for the second quarter of 2006 by $.3 million and increasing interest expense by $.5 million for the six month period ended June 30, 2006. At June 30, 2006, the potential annual increase in interest expense from a hypothetical 10% increase in interest rates would be approximately $.3 million. Actual positive or negative effects in future periods cannot be determined at this time.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

Off-Balance Sheet Arrangements

Sales of Accounts Receivable

During the third quarter of 2005, one of our non-U.S. subsidiaries entered into a factoring agreement with a third party financial institution under which it is able to sell without recourse up to€10.0 million of accounts receivable. The agreement, which is expected to be renewed for a one year period on August 31, 2006, replaced an arrangement with another institution under which sales of receivables were made with recourse. At June 30, 2006 and December 31, 2005, the gross amounts of accounts receivable that had been sold under the new agreement totaled $10.8 million and $8.4 million, respectively.

Sales of Notes and Guarantees

Certain of our operations sell with recourse notes from customers for the purchase of plastics processing machinery. In certain other cases, we guarantee the repayment of all or a portion of notes payable from our customers to third party lenders. These arrangements are entered into for the purpose of facilitating sales of plastics processing machinery. In the event a customer fails to repay a note, we generally regain title to the machinery for later resale as used equipment. At June 30, 2006 and December 31, 2005, our maximum exposure under these guarantees totaled $5.7 million and $6.4 million, respectively. Losses related to sales of notes and guarantees have not been material in the past.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

Contractual Obligations

Our contractual obligations for the remainder of 2006 and beyond are shown in the table that follows. At June 30, 2006, obligations under operating leases are not significantly different from the amounts reported in our Annual Report on Form 10-K for the year ended December 31, 2005.

Contractual Obligations


					2007-			2009-			Beyond
(In millions)	Total		2006		2008			2010			2010

11¹/2% Senior Secured Notes due 2011	$	225.0	$	—	$	—		$	—		$	225.0
Other long-term debt		1.6		.5		.7			.4			—
Capital lease obligations		12.8		.9		4.3			5.5			2.1
Other long-term liabilities
Pension plan contributions (a)		1.2		1.2		(a	)		(a	)		(a	)
Unfunded pension benefits (b)(c)		140.1		1.4		5.4			5.4			127.9
Postretirement medical benefits (c)(d)		15.2		.6		1.8			1.3			11.5
Insurance reserves (c)		22.0		.5		13.2			6.5			1.8

Total	$	417.9	$	5.1	$	25.4		$	19.1		$	368.3


(a)		Under current law, we are required to make cash contributions to the funded defined benefit pension plan for certain U.S. employees and retirees of approximately $2.7 million in 2006. During the first half of the year, $1.5 million was contributed. However, we intend to make a voluntary contribution to the plan of approximately $30 million in September 2006. Credit for this prefunding will eliminate required contributions payable in 2007 — previously estimated at approximately $50 million — and potentially reduce contributions required in 2008. Contributions required in 2008 and beyond will be based on recently passed legislation that is expected to be signed into law by the president in the near future. We are currently working with our consulting actuaries to analyze the potential effects of this legislation. However, funding requirements for years beyond 2007 cannot be precisely estimated at this time. We intend to raise a majority of the prepayment amount through the liquidation of investments for nonqualified retirement plans for executives. We are also in the process of selling various non-core, non-operating assets such as land, facilities and equipment made redundant through current and previous consolidations. In the short term, these amounts could be supplemented by cash on hand and/or borrowings under our asset based credit facility.

(b)		Represents liabilities related to unfunded pension plans in the U.S. and Germany.

(c)		The amounts presented for unfunded pension benefits, other postretirement benefits and insurance reserves are estimates based on current assumptions and expectations. Actual annual payments related to these obligations can be expected to differ from the amounts shown. The amounts shown for insurance reserves are net of expected recoveries from excess liability carriers and other parties totaling $7.6 million.

(d)		As discussed more fully in the note to the Consolidated Condensed Financial Statements captioned “Retirement Benefit Plans,” we have moved prescription drug coverage for retirees who are eligible for Medicare from the self-funded company plan to third-party insurers effective January 1, 2006. This change is expected to result in cash savings in excess of $1 million per year. The amounts presented above include estimates of these benefits.

The above table excludes the contingent liabilities of up to $5.7 million related to the loan guarantees that are discussed above.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

Liquidity and Sources of Capital

At June 30, 2006, we had cash and cash equivalents of $42 million, a decrease of $4 million from December 31, 2005. Of the $42 million of cash, approximately 87% was held in foreign accounts in support of our non-U.S. operations outside of North America. Were this non-U.S. cash to be repatriated, it would trigger withholding taxes in foreign jurisdictions.

Operating activities used $8 million of cash in the second quarter of 2006 compared to a $3 million use of cash in 2005. The usage of cash in 2006 was due principally to the semi-annual interest payment on the 11¹/2% Senior Secured Notes due 2011, reductions in some of the other current liabilities and an increase in inventories in support of NPE. These factors were partially offset by a liquidation of some of the investments intended to fund nonqualified retirement benefits for executives in anticipation of an expected $30 million voluntary contribution to the qualified U.S. pension plan in September. The usage of cash in 2005 reflects increases in accounts receivable and inventories that resulted from higher shipment and order levels, the combined effects of which were partially offset by an increase in trade payables.

For the first six months of 2006, operating activities used $4 million of cash compared to a $9 million use of cash in the first half of 2005. The use of cash in 2006 was due principally to an increase in inventories in support of NPE and higher sales levels and to reductions in certain current liabilities. These factors were partially offset by the previously discussed liquidation of investments and by increases in certain current and non-current liabilities. The use of cash in 2005 was due principally to an increase in inventories that resulted from higher order levels.

Investing activities used $4 million of cash — entirely for capital expenditures — in the second quarter of 2006. Investing activities provided a negligible amount of cash in the second quarter of 2005 as proceeds from the sale of two idle manufacturing facilities offset capital expenditures of $2 million.

In the first six months of 2006, investing activities used $8 million of cash for capital expenditures. In the first six months of 2005, investing activities used $1 million of cash due to capital expenditures of $3 million, the effect of which was partially offset by the sale of the idle facilities.

We are in the process of implementing a new Enterprise Resource Planning (ERP) system that will ultimately be utilized by most of our major plastics technologies businesses in North America and Europe. Including capitalized internal costs, our total investment in the ERP system is expected to be approximately $16 million. Of this amount, $7.6 million was capitalized as property, plant and equipment in 2004 and 2005 and the remainder is expected to be capitalized in 2006. The North American operations of the mold technologies segment and our injection molding machine manufacturing operations in Europe will begin using the new ERP system for all data processing activities in the third quarter of 2006 and our plastics machinery operations in southwest Ohio will begin using the system early in 2007. No significant problems were encountered by the operations that converted to the new system at the start of the third quarter but we will continue to monitor the data it produces to ensure that it is accurate and compatible with the data produced by the systems that it replaced. The southwest Ohio conversion is being carefully planned and we believe that it can be successfully completed on a timely basis. While the implementation of a significant new financial system always involves a certain amount of risk, we believe that the conversions that have taken place to date and the anticipated southwest Ohio conversion can be accomplished and finalized without compromising the timeliness and quality of our financial reporting.

In the second quarter of 2006, financing activities provided $7 million of cash due principally to short-term borrowings. In the comparable period of 2005, financing activities used $2 million of cash due to preferred stock dividends and debt repayments.

For the first six months of 2006, financing activities provided $5 million of cash compared to a $20 million use of cash in 2005. The amount for 2006 includes $6 million of net additional short-term borrowings offset by $1 million of repayments of long-term debt. The amount for 2005 was due principally to debt repayments.

Our current ratio was 1.9 at June 30, 2006 compared to 2.0 at December 31, 2005. The current ratio was 2.0 at June 30, 2005.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

Total debt was $246 million at June 30, 2006 compared to $240 million at December 31, 2005. The increase was due to higher short-term borrowings.

Total shareholders’ equity was a deficit of $20 million at June 30, 2006, a decrease of $15 million from December 31, 2005. The decrease was due principally to the loss incurred for the period and preferred stock dividends, the effects of which were partially offset by favorable foreign currency translation adjustments that resulted from the increased strength of the euro.

On March 12, 2004, we entered into a definitive agreement whereby Glencore Finance AG (Glencore) and Mizuho International plc (Mizuho) purchased $100 million in aggregate principal amount of our new exchangeable debt securities. The proceeds from this transaction, together with existing cash balances, were used to repay our then-outstanding 8⅜% Notes that were due March 15, 2004. The securities we issued were $30 million of 20% Secured Step-Up Series A Notes due 2007 and $70 million of 20% Secured Step-Up Series B Notes due 2007. The $30 million of Series A Notes were convertible into shares of our common stock at a conversion price of $2.00 per share. Glencore and Mizuho converted the entire principal amount of the Series A Notes into 15 million shares of common stock on April 15, 2004. The Series A Notes and Series B Notes initially bore a combination of cash and pay-in-kind interest at a total rate of 20% per annum. The rate was retroactively reset on June 10, 2004 to 6% per annum from the date of issuance, payable in cash.

On March 12, 2004, we also reached a separate agreement with Credit Suisse First Boston for a $140 million senior secured credit facility having a term of approximately one year. This senior secured credit facility consisted of a $65 million revolving A facility and a $75 million term loan B facility. On March 12, 2004, we used extensions of credit under the revolving A facility and term loan B facility in an aggregate amount of $84 million to repay and terminate our then-existing revolving credit facility (in addition to replacing or providing credit support for outstanding letters of credit) and our then-existing receivables purchase program. All amounts borrowed under the Credit Suisse First Boston facility were repaid on June 10, 2004, as described below.

On June 10, 2004, (i) the common stock into which the Series A Notes were converted and (ii) the Series B Notes were exchanged for 500,000 shares of Series B Preferred Stock, a new series of our convertible preferred stock with a cumulative cash dividend rate of 6%. On June 10, 2004, we also satisfied the conditions to release to us from escrow the proceeds from the offering of $225 million of 11½% Senior Secured Notes due 2011 and entered into an agreement for a new $75 million asset based revolving credit facility with JPMorgan Chase Bank as administrative agent and collateral agent.

On June 10, 2004, we applied the proceeds from the issuance of the 11½% Senior Secured Notes due 2011, together with $7.3 million in borrowings under our asset based facility and approximately $10.3 million of cash on hand, to:

	•		purchase€114,990,000 of the€115 million aggregate outstanding principal amount of Milacron Capital Holdings B.V.’s 7⅝% Guaranteed Bonds due in April 2005 at the settlement of a tender offer therefor;

	•		terminate and repay $19 million of borrowings outstanding under the revolving A facility of the Credit Suisse First Boston facility, which included additional amounts borrowed subsequent to March 12, 2004. We also used $17.4 million of availability under our asset based facility to replace or provide credit support for the outstanding letters of credit under the revolving A facility of the Credit Suisse First Boston facility;

	•		repay the $75 million term loan B facility of the Credit Suisse First Boston facility; and

	•		pay transaction expenses.

The borrowings under our asset based facility entered into on June 10, 2004 are secured by a first priority security interest, subject to permitted liens, in, among other things, U.S. and Canadian accounts receivable, cash and cash equivalents, inventories and, in the U.S., certain related rights under contracts, licenses and other general intangibles, subject to certain exceptions. Our asset based facility is also secured by a second priority security interest on the assets that secure the 11½% Senior Secured Notes due 2011 on a first priority basis. The availability of loans under our asset based facility is limited to a borrowing base equal to specified percentages of eligible U.S. and Canadian accounts receivable and U.S. inventories and is subject to other conditions to borrowing and limitations, including an excess


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

availability reserve (the minimum required availability) of $10 million and an additional $1 million hedging reserve as a result of the interest rate swap that was entered into on July 30, 2004.

Based on the assets included in the borrowing base as of June 30, 2006 and without giving effect to reserves and issuances of letters of credit (in each case, as discussed below), we had approximately $55 million of borrowing availability, subject to the customary ability of the administrative agent for the lenders to reduce rates, impose or change collateral value limitations, establish reserves and declare certain collateral ineligible from time to time in its reasonable credit judgment, any of which could reduce our borrowing availability at any time. The terms of our asset based facility impose a daily cash “sweep” on cash received in our U.S. bank accounts from collections of our accounts receivable. This daily cash “sweep” is automatically applied to pay down any outstanding borrowings under our asset based facility. The terms of our asset based facility also provide for the administrative agent, at its option and at any time, to impose a daily cash “sweep” on cash received in our Canadian bank accounts from collections of our accounts receivable. Since the cash we receive from collection of receivables is subject to the automatic “sweep” to repay the borrowings under our asset based facility on a daily basis, we rely on borrowings under our asset based facility as our primary source of cash for use in our North American operations. Our liquidity could be materially affected if we have no additional availability or are unable to satisfy the borrowing conditions, including, among other things, conditions related to the continued accuracy of our representations and warranties and the absence of any unmatured or matured defaults (including under financial covenants) or any material adverse change in the company’s business or financial condition.

Our asset based facility contains customary conditions precedent to any borrowings, as well as customary covenants, including, but not limited to, maintenance of unused availability under the borrowing base after consideration of reserves (including the excess availability reserve and the hedging reserve) established by the administrative agent. As of June 30, 2006, after giving effect to then-outstanding letters of credit, our availability after deducting the $11 million of reserves was approximately $36 million.

Our asset based facility originally contained, for the first five quarters, a financial covenant requiring us to maintain a minimum level of cumulative consolidated EBITDA (as defined in the facility), to be tested quarterly. The facility was amended on February 11, 2005 to modify these minimum requirements. The February 11, 2005 amendment established a minimum cumulative consolidated EBITDA requirement of $38.0 million for the twelve consecutive calendar months ending December 31, 2005 and also reduced the minimum cumulative consolidated EBITDA requirements for periods ending March 31, June 30 and September 30 of 2005. As discussed more fully below, the facility was further amended on February 10, 2006 to replace the previous covenant with a minimum cumulative total North America EBITDA requirement for 2006 that only becomes effective if borrowing availability falls below specified levels for specified periods.

The facility also contains a limit on capital expenditures that was originally required to be complied with on a quarterly basis through September 30, 2005 but the facility was amended on February 11, 2005 to extend this test through December 31, 2005 and on February 10, 2006 to extend this test through 2006 as described below. We will also have to comply with a minimum fixed charge coverage ratio to be tested quarterly. This test was originally to have been effective for the fourth quarter of 2005 but was delayed by the February 11, 2005 amendment until the first quarter of 2006.

Under the February 10, 2006 amendment and limited waiver, the minimum fixed charge coverage ratio will not apply until 2007. Beginning with the quarter ending March 31, 2007, and for each quarter ending thereafter, we must maintain a minimum fixed charge coverage ratio of 1.25 to 1.00. In connection with delaying effectiveness of the minimum fixed charge coverage ratio, the February 10, 2006 amendment introduced a minimum cumulative total North America EBITDA requirement for the four quarters of fiscal year 2006 of $.90 million, $3.80 million, $10.56 million and $14.64 million, respectively. The February 10, 2006 amendment also extended the capital expenditure limitation through December 31, 2006. These two covenants, however, will apply during 2006 only if our borrowing availability (net of reserves) falls below specified levels for specified periods and will not apply if our borrowing availability (net of reserves) remains above $17.5 million. During the second quarter of 2006, our average availability was greater than $17.5 million and we were therefore not subject to these covenants. If these two covenants should become effective in future periods, they can subsequently cease to apply if our borrowing availability remains above specified levels for specified periods.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

million prepayment of the facility from the proceeds of our rights offering. We subsequently used additional proceeds to repay the remaining amounts drawn under the facility at that time.

The February 10, 2006 amendment allowed for certain adjustments to EBITDA for the twelve month period ended December 31, 2005. Although we were in compliance with the EBITDA requirement as of that date without these adjustments, the agreement and limited waiver we entered into with the lenders as of February 10, 2006 waived any potential noncompliance with this requirement that might have resulted without these adjustments.

Our ability to continue to meet the cumulative total North America EBITDA covenant, if it becomes effective, and the minimum fixed charge coverage ratio covenant when it becomes effective will be contingent on a number of factors. These include sustaining strong order levels from the plastics processing industry and the resulting increases in our sales revenues and operating margins, our ability to absorb raw material price increases or pass such price increases through to customers, and our continued ability to realize the benefits of our cost reduction and process improvement initiatives. If we are unable to meet or exceed the covenants of our asset based facility, we will attempt to further renegotiate this covenant with our lenders to assure compliance. However, we cannot control our lenders’ actions and, if the negotiations are not successful, we could be forced to seek alternative sources of liquidity. This may include, but is not necessarily limited to, seeking alternative lenders, sales of assets or business units and the issuance of additional indebtedness or equity. Failure to meet or exceed the covenants of our asset based facility would constitute an event of default under the facility, which would permit the lenders to accelerate the indebtedness owed thereunder (if such indebtedness remained unpaid) and terminate their commitments to lend. The acceleration of indebtedness under the asset based facility would also create a cross-default under our 11¹/2% Senior Secured Notes due 2011 if the principal amount of indebtedness accelerated, together with the principal amount of any other such indebtedness under which there was a payment default or the maturity had been so accelerated, aggregated $15 million or more, and such cross-default would permit the trustee under the indenture governing the 11¹/2% Senior Secured Notes due 2011 or the holders of at least 25% in principal amount of the then outstanding notes to declare the notes to be due and payable immediately. The acceleration of obligations under our outstanding indebtedness would have a material adverse effect on our business, financial condition and results of operations.

Borrowings under our asset based facility bear interest, at our option, at either (i) the LIBO Rate plus the applicable margin (as defined below) or (ii) an ABR plus the applicable margin (as defined below). The “applicable margin,” with respect to Eurodollar loans, is between 2.50% per annum and 3.25% per annum and, with respect to ABR loans, is between .75% per annum and 1.50% per annum, determined based on a calculation of the trailing average availability levels under our asset based facility. LIBO Rate means the rate at which Eurodollar deposits in the London interbank market are quoted. We may elect Eurodollar loan interest periods of one, two or three months. “ABR” means the higher of (i) the rate of interest publicly announced by the administrative agent as its prime rate in effect at its principal office in New York City and (ii) the federal funds effective rate from time to time plus .50%.

Our asset based facility provides that we will pay a monthly unused line fee equal to .50% per annum on the average daily unused portion of our credit commitment, as well as customary loan servicing and letter of credit issuance fees.

Our asset based facility provides that upon the occurrence and continuance of an event of default under our asset based facility, upon demand by the agent, we will have to pay (x) in the case of revolving credit loans, a rate of interest per annum equal to the rate of interest otherwise in effect (assuming the rate in effect is at the maximum applicable margin) pursuant to the terms of our asset based facility plus 2% and (y) in the case of other amounts, a rate of interest per annum equal to the ABR plus the maximum applicable margin plus 2%.

At June 30, 2006, we had other lines of credit with various U.S. and non-U.S. banks totaling approximately $31 million, of which approximately $14 million was available under certain circumstances.

Our debt and credit are rated by Standard & Poor’s (S&P) and Moody’s Investors Service (Moody’s). On December 29, 2005, S&P announced that it had lowered our corporate credit rating from B- with a “stable” outlook to CCC+ with a “negative” outlook. Our senior secured debt rating was lowered from CCC+ to CCC. On January 10, 2006, Moody’s reaffirmed the rating of our senior secured notes and our “corporate family” rating at Caa1 and changed its outlook from “positive” to “negative.”


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

None of our debt instruments include rating triggers that would accelerate maturity or increase interest rates in the event of a rating downgrade. Accordingly, any potential rating downgrades would have no significant short-term effect, although they could potentially affect the types and cost of credit facilities and debt instruments available to us in the future.

Including internal costs related to the implementation of the new ERP system, capital expenditures for the remainder of 2006 are expected to be $7 to $8 million. We believe that our current cash position, cash flow from operations and available credit lines, including our asset based revolving credit facility, will be sufficient to meet our operating and capital expenditure requirements for the year.

Cautionary Statement

We wish to caution readers about all of the forward-looking statements in the “Management’s Discussion and Analysis” section and elsewhere. These include all statements that speak about the future or are based on our interpretation of factors that might affect our businesses. We believe the following important factors, among others, could affect our actual results in 2006 and beyond and cause them to differ materially from those expressed in any of our forward-looking statements:

•		our ability to comply with financial and other covenants contained in the agreements governing our indebtedness, including our senior secured notes and asset based credit facility;

•		our ability to remediate or otherwise mitigate any material weaknesses in internal control over financial reporting or significant deficiencies that may be identified in the future;

•		global and regional economic conditions, consumer spending, capital spending levels and industrial production, particularly in segments related to the level of automotive production and spending in the plastics and construction industries;

•		fluctuations in currency exchange rates of U.S. and foreign countries, including countries in Europe and Asia where we have several principal manufacturing facilities and where many of our customers, competitors and suppliers are based;

•		fluctuations in interest rates which affect the cost of borrowing;

•		production and pricing levels of important raw materials, including plastic resins, which are a key material used by purchasers of our plastics technologies products, as well as steel, oil and chemicals;

•		lower than anticipated levels of our plant utilization resulting in production inefficiencies and higher costs, whether related to the delay of new product introductions, improved production processes or equipment, or labor relations issues;

•		customer acceptance of new products introduced during 2005 and products introduced and expected to be introduced in 2006;

•		any major disruption in production at key customer or supplier facilities or at our facilities;

•		disruptions in global or regional commerce due to wars, to social, civil or political unrest in the non-U.S. countries in which we operate and to acts of terrorism, continued threats of terrorism and military, political and economic responses (including heightened security measures) to terrorism;

•		alterations in trade conditions in and between the U.S. and non-U.S. countries where we do business, including export duties, import controls, quotas and other trade barriers;

•		changes in tax, environmental and other laws and regulations in the U.S. and non-U.S. countries where we do business;

•		litigation, claims or assessments, including but not limited to claims or problems related to product liability, warranty or environmental issues;


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited)

•		fluctuations in stock market valuations of pension plan assets or changes in interest rates that could result in increased pension expense and reduced shareholders’ equity and require us to make significant cash contributions in the future; and

•		our ability to fund our pension funding obligations when they become due.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information required by Item 3 is included in Item 2 of Part I of this Form 10-Q.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the company is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (SEC). As of the end of the company’s second quarter, management conducted an evaluation (under the supervision and with the participation of the chief executive officer and the chief financial officer), pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), of the effectiveness of the company’s disclosure controls and procedures. Based on this evaluation, the company’s chief executive officer and chief financial officer have concluded that the company’s disclosure controls and procedures were effective as of June 30, 2006.

Changes in Internal Control Over Financial Reporting

No change in internal control over financial reporting was made in the second quarter of 2006 that materially affected, or is likely to materially affect, the company’s internal control over financial reporting.

PART II Other Information

Item 1. Legal Proceedings

Various lawsuits arising during the normal course of business are pending against the company and its consolidated subsidiaries. In several such lawsuits, some of which seek substantial dollar amounts, multiple plaintiffs allege personal injury involving products, including metalworking fluids and tools, supplied and/or managed by the company. The company is vigorously defending these claims and, based on current information, believes it has recorded appropriate reserves in addition to its excess carrier insurance coverage and indemnity claims against third parties. The projected availability under the company’s asset based credit facility is currently expected to be adequate to cover the company’s cash needs under these claims, assuming satisfaction or waiver of the conditions to borrowing thereunder (see Liquidity and Sources of Capital for further information regarding those conditions to borrowing as well as the company’s dependence on its asset based credit facility for liquidity). It is possible that the company’s ultimate liability could substantially exceed its current reserves, but the amount of any such excess cannot reasonably be determined at this time. Were the company to have significant adverse judgments or determine as the cases progress that significant additional reserves should be recorded, the company’s future operating results and financial condition, particularly its liquidity, could be adversely affected.

Item 1A. Risk Factors

Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2005 contains a detailed listing of the risk factors related to our indebtedness and liquidity and to our business operations. Except as discussed below, there have been no material changes in the matters included in our From 10-K during the second quarter of 2006.

Our principal U.S. pension plan is underfunded, which we expect will require us to make cash contributions to the plan, which, in turn, will reduce the cash available for our business, and adverse equity market or interest rate conditions may increase our pension liability and expense.

As of December 31, 2005, the projected benefit obligation under our Milacron Retirement Plan exceeded the fair value of the plan’s assets by $165 million based on a discount rate of 5.75%. In 2004 and 2005, we were required to make contributions to this plan of $4.2 million and $2.4 million, respectively. We may be required to make significant additional contributions to the plan in the future in order to comply with minimum funding requirements imposed by the Employee Retirement Income Security Act of 1974, as currently amended, and the Internal Revenue Code of 1986, as currently amended. The amount of any such required contributions will be determined annually based on actuarial valuations of the plan as performed by the plan’s actuaries. Based on the most recent valuation and current law, we are required to make cash contributions to the plan of approximately $2.7 million in 2006. During the first half of the year, $1.5 million was contributed. However, we intend to make a voluntary contribution to the plan of approximately $30 million in September 2006. Credit for this prefunding will eliminate required contributions payable 2007 — previously estimated at approximately $50 million — and potentially reduce contributions required in 2008. Contributions required in 2008 and beyond will be based on recently passed legislation that is expected to be signed into law by the president in the near future. We are currently working with our consulting actuaries to analyze the potential effects of this legislation. However, funding requirements for years beyond 2007 cannot be precisely estimated at this time. We intend to raise a majority of the prepayment amount through the liquidation of investments for nonqualified retirement plans for executives. We are also in the process of selling various non-core, non-operating assets such as land, facilities and equipment made redundant through current and previous consolidations. In the short term, these amounts could be supplemented by cash on hand and/or borrowings under our asset based credit facility.

PART II Other Information

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes stock repurchases and reacquisitions for the quarter ended June 30, 2006.

(d) Maximum Number

(or Approximate

Shares (or Units)

Dollar Value) of

Purchased as Part

Shares (or Units)

of Publicly

that May Yet Be

(a) Total Number of

(b) Average Price

Announced Plans or

Purchased Under the

Shares (or Units)

Paid per Share

Programs

Plans or Programs

Period

Purchased

(or Unit)

⁽¹⁾

April 1— April 30, 2006

20,500

⁽²⁾

2.98

—

May 1— May 31, 2006

—

June 1 — June 30, 2006

27,500

⁽²⁾

3.88

—

Total

48,000

⁽²⁾

3.49

—


(1)		As of June 30, 2006, there were no publicly announced plans or programs to repurchase stock.

(2)		Represents a total of 48,000 restricted shares forfeited by the grantee due to termination of employment.

Item 3. Defaults Upon Senior Securities

The second paragraph of the “Shareholders’ Equity” note to the Consolidated Condensed Financial Statements is incorporated by reference herein.

PART II Other Information

Item 4. Submission of Matters to a Vote of Security Holders

(a)		The annual meeting of shareholders of Milacron Inc. was held May 3, 2006

(b)		All director nominees were elected

(c)		The shareholders voted on the following matters:

Proposal and Vote Tabulation


	Votes For		Votes Against		Abstain		Non-Votes


Approval of the appointment		81,638,665		497,428		3,920,499		—
of independent auditors Ernst & Young LLP

94.9% for (majority required) of the outstanding common and preferred votes of shareholders present in person or by proxy.

Election of Directors


	Votes For		Votes Withheld


Director
Sallie B. Bailey		84,863,067		1,193,527
Ronald D. Brown		78,985,964		7,070,630

In addition, the holders of the 6% Series B Convertible Preferred Stock, voting separately as a class, elected the following director: Mark L. Segal.

Each of the three nominees listed in the proxy statement has been elected by the shareholders for the term stated in the proxy. No director received less than 91.8% of the votes cast.

PART II Other Information

Item 6. Exhibits


Exhibit (3)	—	Certificate 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
Exhibit (31)	—	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit (32)	—	Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Milacron Inc.
Date: August 8, 2006	By:	/s/ Ronald D. Brown
		Ronald D. Brown
		Chairman, President and Chief Executive Officer


Date: August 8, 2006	By:	/s/ Ross A. Anderson
		Ross A. Anderson
		Vice President — Finance and Chief Financial Officer

Index to Exhibits


Exhibit No.					Page
10.	Material Contracts:
		10.1	Milacron Inc. Executive Retention/Separation Plan
			–	Incorporated by reference to the company’s Form 8-K dated May 3, 2006

11.	Statement Regarding Computation of Per-Share Earnings				64

15.	Letter Regarding Unaudited Interim Financial Information — not applicable

18.	Letter Regarding Change in Accounting Principles — not applicable

19.	Report Furnished to Security Holders — not applicable

22.	Published Report Regarding Matters Submitted to Vote of Security Holders — not applicable

23.	Consent of Experts and Counsel — not applicable

24.	Power of Attorney — not applicable

31.	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:
		31.1.	Certification pursuant to Section 302 of the Sarbanes-Oxley Act		65
		31.2.	Certification pursuant to Section 302 of the Sarbanes-Oxley Act		66

32.	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002				67

99.	Additional Exhibits – not applicable

Milacron Inc. hereby agrees to furnish to the Securities and Exchange Commission, upon its request, the instruments with respect to long-term debt for securities authorized thereunder which do not exceed 10% of Milacron Inc.’s total consolidated assets.

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. sophomore Avg

MI 2009 (MZIA) Inactive 10-Q2006 Q2 Quarterly report

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