MILACRON INC - MZIAP Registration Statement for securities to be issued in business combination transactions (S-4/A) MANAGEMENT'S DISCUSSION AND ANALYSIS OF

You should read the following discussion in connection with our consolidated financial statements and related notes included elsewhere in this prospectus.

We are a 120-year-old company, headquartered in Cincinnati, Ohio, and focused primarily on manufacturing and selling plastics processing equipment and supplies. We also manufacture and sell industrial fluids for metalworking applications. We operate both businesses on a global basis. With 3,500 employees, we have major manufacturing facilities in the United States, Germany, Italy, Belgium and India, and we maintain sales and service offices in over 100 countries around the world.

We operate in four business segments: Machinery Technologies — North America, Machinery Technologies — Europe, Mold Technologies and Industrial Fluids. Our Machinery Technologies segments manufacture and sell plastics processing equipment, including the three most common types: injection molding, blow molding and extrusion machinery, as well as related tooling, parts and services throughout the world. Our Mold Technologies segment is the leading North American and a leading global supplier of mold bases and components used in the plastics injection molding process. Our Industrial Fluids segment blends and sells metalworking fluids globally for machining, stamping, grinding and cleaning applications.

We have served the plastics processing industries since the late 1960s. Major customers for our plastics technologies are manufacturers of packaging, autos, building materials, industrial components, consumer goods, appliances and housewares, medical devices, and electrical products. The automotive industry is by far the largest customer of our industrial fluids, followed by makers of industrial components and machinery, off-road equipment, appliances and housewares, and aircraft. We have made and sold industrial fluids since the late 1940s.

Global consumption of plastics has grown steadily since the Second World War, as plastics and plastic composites continue to replace traditional materials such as metal, wood, glass and paper in an increasing number of manufactured products, particularly in the packaging, automotive, building materials, consumer goods, housewares, electrical and medical industries. From 1970 to 2002, global consumption of plastics grew at a compounded annual growth rate of 6%, compared with 1% for steel and 3% for aluminum (Source: BASF AG, Association of Plastics Manufacturers in Europe, International Iron & Steel Institute, U.S. Geological Survey).

Plastic part production, like industrial production in general, has historically shown solid, mildly cyclical growth. In every year from 1980 to 2000, plastic part production in the U.S. showed positive year-over-year increases, averaging 7% compound annual growth (Source: U.S. Federal Reserve Board). The increases in plastics consumption and corresponding plastic part production have historically created cyclical but growing demand for our plastics machinery and related supplies. In fact, between 1980 and 2000, our sales of plastics equipment and supplies in North America grew at 8% compounded annually excluding acquisitions or 11% including acquisitions.

In the 1990s, like many other U.S. companies, we benefited from a strong, growing economy. Our plastics technologies sales were approaching $1 billion with good profitability. In 2000, for example, on sales of $874 million, our plastics technologies businesses generated over $125 million in operating earnings before depreciation and amortization and approximately $97 million in operating earnings. However, beginning in late 2000 through the third quarter of 2003, the U.S. manufacturing sector experienced the most severe and prolonged downturn since the 1930s. U.S. industrial production, a key indicator of demand for our products, fell 6% from June 2000 to June 2003, a much steeper and longer decline than 4% in the prior downturn from June 1990 to March 1991 (Source: U.S. Federal Reserve Board). The plastics processing portion of the manufacturing sector was very severely impacted. As plastic part production slowed, capacity utilization rates of our customers, U.S. plastics processors, dropped from the previous peak of 86% to a low of 77% (Source:

U.S. Federal Reserve Board). Given the low capacity utilization rates, U.S. plastics processors did not have a need for additional processing capacity. Coupled with the fact that the earnings of these processors were under severe pressure during this period, the low capacity utilization rates caused U.S. plastics processors to drastically cut back their orders of new capital equipment. As a result, shipments of injection molding machines in North America fell over 40% from a peak of approximately $1.2 billion 12-month moving total in 2000 to under $700 million by the end of 2001 and through 2003 (Source: The Society of Plastics Industry).

During this deep recession in North America, with both European and Asian markets also in decline, albeit more modestly, demand for many of our plastics machinery lines declined by 40% to 50% or more, and our total global plastics technologies sales fell 27%. In addition, many companies in the plastics processing industry began outsourcing their manufacturing activities to lower-cost regions such as Asia and Eastern Europe. While we have sales channels and compete through exports in these developing markets, inevitably a portion of our business was lost due to these offshore migrations. Despite a series of responsive actions, including a number of plant closings, head-count reductions and a lowering of fixed costs by over $70 million annually, the sales volume declines, together with a downward trend in pricing caused by increased price competition due to the general economic downturn, resulted in three loss years in 2001, 2002 and 2003 and materially and adversely impacted our results of operations, financial condition and access to capital.

Manufacturing in North America started to recover in the fourth quarter of 2003 when total U.S. manufacturing orders finally returned to their previous peak levels of 2000. And in January 2004, the Institute for Supply Management’s manufacturing index, traditionally a very strong leading indicator, rose to its highest level in twenty years. In the plastics sector, U.S. plastics processors’ capacity utilization reached 81% for the first time since late 2000 and, in June 2004, reached 83.7%, the highest level in four years.

Historically, our experience has been that demand for machinery begins to grow two or three quarters after a pickup in production, when capacity utilization rates exceed 84%. In short, our customers need to return to sustained profitability before they can afford to significantly increase their investment in new equipment. So, while demand for our plastics machinery remained at depressed levels through the end of 2003, we are encouraged by recent economic developments and believe that the increase in U.S. plastics processors’ capacity utilization will motivate our customers to increase their capital expenditures for our plastics machinery.

During the manufacturing recession of 2000-2003, overall demand for our metalworking fluids declined by approximately 5% excluding currency effects, as our largest customer group, automakers, maintained reasonably good levels of production both in North America and worldwide. As reported in U.S. dollars, the sharp increase in sales in 2003 was due principally to currency effects related to operations in Europe. Profitability in this business, although impacted by lower sales volumes, held up fairly well throughout the recession, with earnings before interest and taxes in the range of 15% to 20% of sales.

An important accomplishment in the first six months of 2004 was the establishment of a new long-term capital structure, which addressed, among other things, approximately $200 million of debt and other obligations that were maturing, and that had been temporarily refinanced, at the end of the first quarter. Specifically, on March 12, 2004, we had entered into an agreement with Glencore and Mizuho whereby they jointly provided us with $100 million in new capital in the form of exchangeable securities. This new capital, together with existing cash balances, was used to repay our outstanding $115 million in senior U.S. notes. In addition, to replace our maturing revolving credit agreement with our bank group, we successfully negotiated with Credit Suisse First Boston a new $140 million agreement consisting of a $65 million revolving facility and a $75 million term loan facility. At close, $84 million of this new facility was drawn to retire our previous revolving bank credit facility and to terminate our receivables purchase program. On April 15, 2004, Glencore and Mizuho converted $30 million of our Series A Notes to 15 million shares of our common stock.

When we released our first quarter results on April 26, 2004, we also announced the second step in our plan to revitalize our capital structure: our intention to refinance the $75 million term loan with Credit Suisse

First Boston and to retire our € 115 million in Eurobonds due in 2005. The following day, we launched a tender offer for the Eurobonds and, at the time of the expiration of the offer, 99.99% of the Eurobonds had been validly tendered, accepted and not withdrawn. In May, we successfully issued $225 million of 11 1/2% Senior Secured Notes in a private placement to qualified purchasers pursuant to Rule 144A, contingent on shareholder approval of a number of key proposals. At our annual meeting on June 9, 2004, shareholders approved the proposals necessary to enable us to complete our refinancing. As a result, on June 10, 2004, we repurchased the Eurobonds and replaced our Credit Suisse First Boston term loan with a $75 million asset-based credit facility led by JPMorgan Chase Bank. Also on this day, we issued to Glencore and Mizuho $100 million of 6% convertible preferred stock in exchange for their 15 million shares of common stock and $70 million of Series B Notes.

For the first six months of 2004, we had sales of $381 million, up from $372 million in the first six months of 2003. Absent currency translation effects, however, 2004 sales were essentially flat with those of the year-ago period. For the first half of 2004, we had a net loss of $44.4 million, or $1.15 per share, compared to a net loss of $99.6 million, or $2.97 per share, a year ago. The net loss in 2004 included $21.0 million in one-time refinancing costs and $2.8 million for restructuring, while the year-ago loss included a $70.8 million writedown of deferred tax assets and $11.1 million for restructuring. As a result of restructuring actions taken in 2003 and our ongoing implementation of our Lean and Six Sigma manufacturing techniques, the combined operating earnings of our segments for the first six months improved to $12.4 million in 2004 from $5.6 million in 2003, in both cases excluding restructuring costs. See “Business — Cost Cutting and Efficiency Initiatives” for a description of our Lean and Six Sigma manufacturing techniques. The backlog of unfilled orders at the end of the first half of 2004 rose to $98 million, up from $85 million in the year-ago period.

Sales and new orders in 2003 were approximately even with those of 2002 after excluding currency translation effects, as the manufacturing recession continued in North America through the first three quarters of the year. Our net loss in 2003 was $192 million and included two noncash charges — a $66 million charge for goodwill impairment and a $71 million tax provision to establish valuation allowances against a portion of our deferred tax credits — as well as $27 million in restructuring costs.

Our outlook for 2004 remains positive, as the manufacturing sector of the economy — in particular, plastics processing — continues to rebound. U.S. plastics processors’ capacity utilization reached 83.7% in June, the highest level in almost four years. In the past, a capacity utilization rate of 84% or higher has generally triggered increases in new machine orders.

In the second quarter, sales in our non-machinery businesses — plastics supplies, mold components and services, as well as industrial fluids — picked up in North America. While Western Europe showed slow growth, Eastern European markets continued expanding, and Asian markets, particularly China and India, maintained a very rapid pace. Our new business in these geographic areas reflects that growth, validating our strategy to increase our presence in developing markets.

As demand continued to grow, we began to see some improvements in pricing for our products, which is helping to offset rising energy and raw material costs. Higher sales volumes in the second half of the year should also help us realize the full benefit of our recent restructuring actions and, coupled with better pricing, should enable us to return to profitability in the fourth quarter.

The biggest risk we still face is the possibility of a stall or setback in the economic recovery of the manufacturing sector in North America, perhaps as a result of geopolitical instability and/or rising energy prices.

As described more fully in the Notes to Consolidated Financial Statements, in the years 2001 through 2003 we completed a total of five acquisitions of smaller companies that are now included in our plastics technologies segments. The most significant were the 2001 acquisitions of Reform Flachstahl (Reform) and EOC Normalien (EOC), two businesses headquartered in Germany that manufacture and distribute mold bases and

components for injection molding. In the aggregate, the five newly acquired businesses had annual sales of approximately $63 million as of the respective acquisition dates. In 2003, we also purchased the remaining 25% of the shares of a consolidated subsidiary in Canada that also manufactures mold bases and components.

Beginning with the acquisition of Ferromatik in 1993, we have significantly expanded our presence outside the U.S. and have become more globally balanced. For each of 2003 and the first two quarters of 2004, markets outside the U.S. represented the following percentages of our consolidated sales: Europe 29%; Canada and Mexico 7%; Asia 7%; and the rest of the world 3% (except that, in the first two quarters of 2004, markets in the rest of the world represented 4% of our consolidated sales). 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 half of 2004, the weighted-average exchange rate of the euro was stronger in relation to the U.S. dollar than in the comparable period of 2003. As a result, we experienced favorable currency translation effects on sales and new orders of approximately $14 million and $13 million, respectively. The effect on earnings was not significant. During 2003, the weighted-average exchange rate of the euro was stronger in relation to the U.S. dollar than in 2002. As a result, we experienced favorable currency translation effects on new orders and sales of $40 million and $39 million, respectively. The effect on earnings was not material.

Between December 31, 2002 and December 31, 2003, the euro strengthened against the dollar by approximately 21% which caused the majority of a $9 million favorable adjustment to consolidated shareholders’ equity. Between December 31, 2003 and June 30, 2004, the euro weakened against the U.S. dollar by approximately 2.5%. If the euro should weaken further 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.

The Consolidated Financial Statements discussed herein have been prepared in accordance with generally accepted accounting principles in the United States, which require us to make estimates and assumptions that affect the amounts that are included therein. The following is 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 note captioned “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in this prospectus, which should be read in connection with the discussion that follows. We regularly review our estimates and judgments and the assumptions regarding future events and economic conditions that serve as their basis. While we believe that the estimates used in the preparation of the Consolidated Financial Statements are reasonable in the circumstances, the recorded amounts could vary under different conditions or assumptions.

At December 31, 2003, we had significant deferred tax assets related to U.S. and non-U.S. net operating loss and tax credit carryforwards and 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, 2003, we had provided valuation allowances against some of the non-U.S. assets. 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. In determining the need for valuation allowances, management considers its short-term and long-range internal operating plans, which are based on

At December 31, 2003, we had non-U.S. net operating loss carryforwards — principally in The Netherlands, Germany and Italy — totaling $190 million, of which $17 million will expire at the end of 2007. The remaining $173 million have no expiration dates. Deferred tax assets related to the non-U.S. loss carryforwards totaled $61 million at December 31, 2003 and valuation allowances totaling $51 million had been provided with respect to these assets as of that date. 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 and Italy — to conclude that no valuation allowances are required.

At December 31, 2003, we had a U.S. federal net operating loss carryforward of $63 million, of which $17 million and $46 million expire in 2022 and 2023, respectively. Deferred tax assets related to this loss carryforward, as well as to federal tax credit carryforwards ($13 million) and additional state and local loss carryforwards ($10 million), totaled $45 million. Of the federal tax credit carryforwards, $6 million expire between 2008 and 2014 and $7 million have no expiration dates. Approximately 40% of the state and local loss carryforwards will expire by 2010 and the remainder will expire by 2018. At December 31, 2003, 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 its ultimate expiration beyond 2023.

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 triggered an “ownership change” for U.S. federal income tax purposes. As a consequence of this ownership change, the timing of our utilization of tax loss carryforwards and other tax attributes will be substantially delayed. This delay will increase income tax expense and decrease available cash in future years, although the amounts are dependent upon a number of future events and are therefore not determinable at this time.

At March 31, 2003, no valuation allowances had been provided with respect to the U.S. deferred tax assets based on a “more likely than not” assessment of whether they would be realized. This decision was based on the availability of qualified tax planning strategies and the expectation of increased industrial production and capital spending in the U.S. plastics industry. Higher sales and order levels expected in 2003 and beyond, combined with the significant reductions in our cost structure that had been achieved in recent years, were expected to result in improved operating results in relation to the losses incurred in 2001 and 2002.

At June 30, 2003, however, we determined that valuation allowances were required for at least a portion of the U.S. deferred tax assets. This conclusion was based on the expectation that a recovery in the U.S. plastics industry and our return to profitability in the U.S. would be delayed longer than originally expected. As a result of these delays and the incremental costs of the restructuring initiatives announced in the third quarter of 2003, we expected to incur a cumulative loss in the U.S. for the three-year period ending December 31, 2003. In such situations, accounting principles generally accepted in the U.S. include a presumption that expectations of earnings in the future cannot be considered in assessing the need for valuation allowances. Due principally to the revised outlook for 2003, we recorded valuation allowances totaling $71 million in the second quarter.

During the second half of 2003, we increased U.S. deferred tax assets by approximately $18 million due to continued losses from operations and a goodwill impairment charge, the effects of which were partially offset by taxable income related to dividends from non-U.S. subsidiaries. Valuation allowances were also increased by $18 million. As of December 31, 2003, U.S. deferred tax assets net of deferred tax liabilities totaled $162 million and U.S. valuation allowances totaled $89 million. We continue to rely on the availability of qualified tax planning strategies and tax carryforwards to conclude that valuation allowances are not required with respect to U.S. deferred tax assets totaling approximately $73 million at December 31, 2003.

U.S. deferred tax assets and valuation allowances were both increased by an additional $7 million in the first half of 2004. 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 period relates to operations in profitable non-U.S. jurisdictions.

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

Our internal accounting policies require that each of our operations maintain appropriate reserves for uncollectible receivables, inventory obsolescence and warranty costs in accordance with generally accepted accounting principles. Because of the diversity of our customers and product lines, the specific procedures used to calculate these reserves vary by location but in all cases must conform to our company guidelines. Reserves are required to be reviewed and adjusted as necessary on a quarterly basis.

Allowances for doubtful accounts are generally established using specific percentages of the gross receivable amounts based on their age as of a particular balance sheet date. Because of the product line and customer diversity noted above, each business unit is required to base the percentages it applies to its aged receivables on its unique history of collection problems. The percentages used are reviewed for continued reasonableness on a quarterly basis. The amounts calculated based on these percentages are then adjusted, as necessary, for known credit risks and collection problems. Write-offs of accounts receivable for our continuing operations have averaged $2.8 million during the last three years. While we believe that our reserves for doubtful accounts are reasonable in the circumstances, adverse changes in general economic conditions or in the financial condition of our major customers could result in the need for additional reserves in the future.

Reserves for inventory obsolescence are generally calculated by applying specific percentages to inventory carrying values based on the level of usage and sales in recent years. As is the case for allowances for doubtful accounts, each business unit selects the percentage it applies based on its (i) unique history of inventory usage and obsolescence problems and (ii) forecasted usage. The preliminary calculations are then adjusted based on current economic trends, expected product line changes, changes in customer requirements and other factors. In 2003, our continuing operations recorded new inventory obsolescence reserves totaling $5.4 million and utilized $5.3 million of such reserves in connection with the disposal of obsolete inventory. We believe that our reserves are appropriate in light of our historical results and our assumptions regarding the future. However, adverse economic changes or changes in customer requirements could necessitate the recording of additional reserves through charges to earnings in the future.

Our warranty reserves are of two types — “normal” and “extraordinary.” Normal warranty reserves are intended to cover routine costs associated with the repair or replacement of products sold in the ordinary course of business during the warranty period. These reserves are accrued using a percentage-of-sales approach based on the ratio of actual warranty costs over a representative number of years to sales revenues from products sold with warranties over the same period. The percentages are required to be reviewed and adjusted as necessary at least annually. Extraordinary warranty reserves are intended to cover major problems related to a single machine or customer order or to problems related to a large number of machines or other type of product. These reserves are intended to cover the estimated costs of resolving the problems based on all relevant facts and circumstances. In recent years, costs related to extraordinary warranty problems have not been significant. In 2003, our continuing operations accrued warranty reserves totaling $4.9 million and incurred warranty-related costs totaling $3.0 million. While we believe that our warranty reserves are adequate in the circumstances, unforeseen problems related to unexpired warranty obligations could result in a requirement for additional reserves in the future.

In years prior to 2002, we reviewed the carrying value of goodwill annually using estimated undiscounted future cash flows. Using this approach in 2001, the maximum period of time to recover the carrying value of

recorded goodwill through undiscounted cash flows was determined to be approximately 12 years and the weighted-average recovery period was approximately 18% of the average remaining amortization period. However, effective January 1, 2002 we adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142), which requires that goodwill be tested for impairment using probability-weighted cash flows discounted at market interest rates, as described below. The change from undiscounted to discounted cash flows resulted in a pretax goodwill impairment charge of $247.5 million ($187.7 million after tax) that was recorded as the cumulative effect of a change in accounting method as of January 1, 2002.

SFAS No. 142 requires that the first phase of testing goodwill for impairment be based on a business’ “fair value”, which is generally best determined through market prices. Due to the absence of market prices for our businesses and as permitted by SFAS No. 142, we have elected to base our testing on probability- weighted cash flows discounted at market interest rates. The model we use in this process is the same model we use to evaluate the fair value of acquisition candidates and the fairness of offers to purchase businesses that we are considering for divestiture. The cash flows we generally use are derived from the annual long-range planning process that we complete in the third quarter of each year. In this process, each business unit is required to develop reasonable sales, earnings and cash flow forecasts for the next three years based on current and forecasted economic conditions. Each business unit’s plan is reviewed by corporate management and the entire plan is reviewed with our board of directors. The discount rates are obtained from an outside source based on the Standard Industrial Classification Codes in which our businesses operate. These discount rates are then judgmentally adjusted for “plan risk” (the risk that a business will fail to achieve its forecasted results) and “country risk” (the risk that economic or political instability in the non-U.S. countries in which we operate will cause a business unit’s projections to be inaccurate). Finally, a growth factor beyond the three-year period for which cash flows are planned is selected based on expectations of future economic conditions. Virtually all of the assumptions used are susceptible to change due to global and regional economic conditions as well as competitive factors in the industries in which we operate. In recent years, many of our cash flow forecasts have not been achieved due in large part to the unprecedented length and depth of the recession, particularly in the market for capital equipment in the plastics processing industry. Unanticipated changes in discount rates from one year to the next can also have a significant effect on the results of the calculations. While we believe the estimates and assumptions we use are reasonable in the circumstances, various economic factors could cause results to vary significantly.

SFAS No. 142 requires that goodwill be tested for impairment annually or whenever certain indicators of impairment are determined to be present. We conducted our first annual review of goodwill balances as of October 1, 2002. This review resulted in a pretax goodwill impairment charge related to the mold technologies segment of $1.0 million (with no tax benefit) that was recorded in the fourth quarter. In the third quarter of 2003, we tested the goodwill of the mold base and components and maintenance, repair and operating supplies (MRO) businesses that are included in the mold technologies segment for impairment due to the presence of certain indicators of impairment. Although these businesses failed to achieve the cash flow forecasts included in their annual business plans during the first half of the year, at the end of the second quarter of 2003 it was believed that a further economic recovery in both North America and Europe would result in improved cash flows for these businesses for the remainder of 2003 and for subsequent years. It was also anticipated that the restructuring actions undertaken in Europe in the years 2001 through 2003 would significantly improve the overall cash flow of the mold base and components business. During the third quarter of 2003, we completed our annual long-range planning process that focused on the years 2004 through 2006. This process revealed that the future cash flows expected to be generated by the two businesses would continue to be lower than the amounts anticipated a year earlier. The biggest decrease in expected cash flow related to the European mold base and components business due to the anticipation of continued softness in the markets it serves. Because of the change in expectations, we reviewed the goodwill of the mold base and components and MRO businesses for impairment during the third quarter of 2003 rather than waiting for the annual review that is conducted during the fourth quarter. This review resulted in a preliminary goodwill impairment charge of $52.3 million that was recorded in the third quarter and subsequently adjusted to $65.6 million in the fourth quarter after the completion of the independent appraisals of certain tangible and intangible assets that were required to determine their fair values.

Our annual review of goodwill impairment as of October 1, 2003 did not result in additional impairment charges.

We currently review the carrying values of our long-lived assets other than goodwill annually. These reviews are conducted by comparing the estimates of undiscounted future cash flows that are included in our long-range internal operating plans, which are described above, to the carrying values of the related assets. To be conservative, no growth in operating cash flows beyond the third year is assumed. Under this methodology, impairment would be deemed to exist if the carrying values exceeded the expected future cash flow amounts. In 2003, we reviewed the aggregate carrying values of selected groups of our long-lived assets under the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The assets included in these reviews consisted principally of property, plant and equipment and, where applicable, intangible assets other than goodwill. Based on these reviews, it was determined that the maximum period of time to recover the carrying values of the tested groups of assets through undiscounted cash flows is approximately 8 years and that the weighted-average recovery period is approximately 20% of the remaining average lives of the assets. Based on the results of the reviews, no impairment charges were recorded in 2003.

Through our wholly-owned insurance subsidiary, Milacron Assurance Ltd. (MAL), we are primarily self-insured for many types of risks, including general liability, product liability, environmental claims and worker’s compensation for certain domestic employees. MAL, which is incorporated in Bermuda and is subject to the insurance laws and regulations of that jurisdiction, establishes reserves commensurate with known or estimated exposures under the policies it issues to us. MAL’s exposure for general and product liability claims is limited by reinsurance coverage in some cases and by excess liability coverage in all policy years. Worker’s compensation claims in excess of certain limits are insured with commercial carriers. At December 31, 2003, MAL had reserves for known claims and incurred but not reported claims under all coverages totaling approximately $22.9 million. The majority of this amount is included in long-term accrued liabilities in the Consolidated Balance Sheet at that date.

MAL’s reserves are established based on known claims, including those arising from litigation, and our best estimates of the ultimate exposures thereunder (after consideration of excess carriers’ liabilities) and on estimates of the cost of incurred but not reported claims. For certain types of exposures, MAL and the company utilize actuarially calculated estimates prepared by outside consultants to ensure the adequacy of the reserves. Reserves are reviewed and adjusted quarterly based on all evidence available as of the respective balance sheet dates. While the ultimate amount of MAL’s exposure to claims is dependent on future events that cannot be predicted with certainty, we believe that the recorded reserves are adequate in the circumstances. However, claims in excess of the recorded amounts could adversely affect earnings in the future when additional information becomes available.

We maintain defined benefit and defined contribution pension plans that provide retirement benefits to substantially all U.S. employees and certain non-U.S. employees. The most significant of these plans is the principal defined benefit plan for certain U.S. employees, which is also the only defined benefit plan that is funded. Excluding charges of $4.7 million for temporary supplemental retirement benefits that were offered in connection with restructuring actions, we recorded pension income of $9.4 million related to this plan in 2002. In 2003, however, pension income decreased to $0.6 million, once again excluding charges for supplemental benefits of $3.2 million. Moreover, we currently expect to record pension expense related to this plan of approximately $7 million in 2004. Pension expense for 2005 and beyond is dependent on a number of factors including returns on plan assets and changes in the plan’s discount rate and therefore cannot be predicted with certainty at this time. The following paragraphs discuss the significant factors that affect the amount of recorded pension income or expense and the reasons for the reductions in income identified above.

A significant factor in determining the amount of income recorded for the funded U.S. plan is the expected long-term rate of return on plan assets. In 2002 and in several preceding years, we used an expected long-term rate of return of 9 1/2%. However, we began using a rate of return of 9% beginning in 2003 and will continue to do so in 2004. We develop the long-term rate of return assumption based on the current mix of equity and debt securities included in the plan’s assets and on the historical returns on those types of investments, judgmentally adjusted to reflect current expectations of future returns. In evaluating future returns on equity securities, the existing portfolio is stratified to separately consider large and small capitalization investments, as well as international securities. The change from the 9 1/2% rate of return assumption to the lower 9% rate had the effect of reducing the amount of pension income that would otherwise be reportable in 2003 by more than $2 million.

In determining the amount of pension income or expense to be recognized, the expected long-term rate of return is applied to a calculated value of plan assets that recognizes changes in fair value over a three-year period. This practice is intended to reduce year-to-year volatility in recorded pension income or expense but it can have the effect of delaying the recognition of differences between actual returns on assets and expected returns based on the long-term rate-of-return assumption. At December 31, 2003, the market value of our pension assets was $371 million whereas the calculated value of these assets was $389 million. The difference arises because the latter amount includes two-thirds of the asset-related loss incurred in 2002 but only one-third of the gain realized in 2003. If significant asset-related losses are incurred in 2004, it will have the effect of increasing the amount of pension expense to be recognized in future years beginning in 2005.

In addition to the expected rate of return on plan assets, recorded pension income or expense includes the effects of service cost — the actuarial cost of benefits earned during a period — and interest on the plan’s liabilities to participants. These amounts are determined actuarially based on current discount rates and assumptions regarding matters such as future salary increases and mortality. Differences in actual experience in relation to these assumptions are generally not recognized immediately but rather are deferred together with asset-related gains or losses. When cumulative asset-related and liability-related gains or losses exceed the greater of 10% of total liabilities or the calculated value of plan assets, the excess is amortized and included in pension income or expense. At December 31, 2001, the discount rate used to value the liabilities of the principal U.S. plan was reduced from 7 3/4% to 7 1/4%. The rate was further lowered to 6 1/2% at December 31, 2002 and to 6 1/4% at December 31, 2003. The combined effects of these changes and the variances in relation to the long-term rate of return assumption discussed above have resulted in cumulative losses in excess of the 10% corridor. Amortization of these losses adversely affected pension expense in 2003 by almost $3 million. Expense for amortization of previously unrecognized losses is expected to be in excess of $6 million in 2004.

Additional changes in the key assumptions discussed above would affect the amount of pension expense currently expected to be recorded for years subsequent to 2004. Specifically, a one-half percent increase in the rate of return on assets assumption would have the effect of decreasing pension expense by approximately $2 million. A comparable decrease in this assumption would have the opposite effect. In addition, a one-quarter percent increase or decrease in the discount rate would decrease or increase expense by approximately $0.8 million.

Because of the significant decrease in the value of the assets of the funded plan for U.S. employees during 2001 and 2002 and decreases in the plan’s discount rate, we recorded a minimum pension liability adjustment of $118 million effective December 31, 2002 and significantly reduced the carrying value of the pension asset related to the plan. This resulted in a $95 million after-tax reduction in shareholders’ equity. At December 31, 2003, shareholders’ equity was increased by $15 million (with no tax effect) due to an increase in plan assets in 2003 that was partially offset by an increase in liabilities that resulted from a lower discount rate. These adjustments were recorded as a component of accumulated other comprehensive loss and therefore did not affect reported earnings or loss. However, they resulted in $81 and $95 million after-tax reductions of shareholders’ equity at December 31, 2003 and December 31, 2002, respectively. As discussed below under “— Pension Income and Expense and Pension Funding,” the current funded status of the plan requires us to make contributions beginning in 2004.

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. Accordingly, those discussions should be read in connection with (i) the tables under the caption “Comparative Operating Results,” (ii) the Consolidated Condensed Financial Statements and notes thereto that are included in this prospectus and (iii) the Consolidated Financial Statements and notes thereto that are included in this prospectus.

As discussed more fully in the Notes to Consolidated Financial Statements, in the third quarter of 2002 we began to explore strategic alternatives for the sale of our round metalcutting tools and grinding wheels businesses. The round metalcutting tools business was sold in two separate transactions in the third quarter of 2003 and the grinding wheels business was sold on April 30, 2004. The round metalcutting tools business and the grinding wheels business (through the dates of the sales) are reported as discontinued operations in the Consolidated Financial Statements and the Consolidated Condensed Financial Statements. The comparisons of results of operations that follow exclude these businesses and relate solely to our continuing operations unless otherwise indicated.

In 2002 and prior years, we recorded significant amounts of income related to our defined benefit pension plan for certain U.S. employees. However, because of the significant decrease in the value of the plan’s assets and changes in the rate-of-return on assets and discount rate assumptions, pension income related to continuing operations was reduced to $0.5 million in 2003. For 2004, we currently expect to record pension expense of approximately $7 million, substantially all of which will be charged to continuing operations. See “Significant Accounting Policies and Judgments — Pensions.” As discussed further below, the fluctuation between years has negatively affected margins, selling and administrative expense and earnings.

Because of the funded status of the plan, we will be required to make cash contributions to the plan’s trust for the next several years, including $4.2 million in 2004. As of June 30, 2004, $0.5 million of this amount had been contributed. Estimated amounts applicable to future years are included in the table captioned “Contractual Obligations” and discussed in note (a) thereto. See “— Contractual Obligations.”

Six and Three Months Ended June 30, 2004 Compared to Six and Three Months Ended June 30, 2003

In the second quarter of 2004, consolidated new orders totaled $200 million compared to $190 million in 2003. Consolidated sales were $192 million in 2004 and $182 million in 2003. In 2004, new orders and sales benefited from favorable currency effects of $4 million.

In the first six months of 2004, consolidated new orders and sales were $387 million and $381 million, respectively. In the first six months of 2003, new orders totaled $377 million and sales were $372 million. Favorable currency effects, principally from the increased strength of the euro, contributed $13 million and $14 million of incremental orders and sales, respectively.

Export orders from the U.S. were $19 million in the second quarter of 2004 compared to $16 million in 2003. Export sales from the U.S. totaled $18 million in 2004 and $17 million in 2003. For the first six months of 2004, export orders totaled $36 million while export sales were $37 million. In the comparable period of 2003, export orders and sales were $34 million and $35 million, respectively. Sales of all segments to non-U.S. markets, including exports, totaled $86 million in the second quarter of 2004 compared to $84 million in 2003. Non-U.S. sales for the first six months of 2004 were $178 million compared to $164 million in 2003. For the first two quarters of 2004 and 2003, products sold outside the U.S. were approximately 47% and 44% of sales, respectively, while products manufactured outside the U.S. represented 42% and 40% of sales, respectively.

Our backlog of unfilled orders at June 30, 2004 was $98 million, the highest level since the first quarter of 2001. The backlog of unfilled orders was $92 million at December 31, 2003 and $85 million at June 30, 2003.

The consolidated manufacturing margin was 18.5% in the second quarter of 2004 and 17.9% in the first six months of the year. The margin for the second quarter of 2003 was 15.5% which includes the effects of $3.8 million of restructuring costs related to product line discontinuation. Excluding restructuring costs, the margin for the second quarter of 2003 was 17.6%. For the first six months of 2003, the consolidated manufacturing margin was 16.1% including restructuring costs and 17.1% excluding restructuring costs. The second quarter improvement was achieved despite higher pension expense which was $1.1 million in 2004 compared to income of $0.2 million in 2003. For the six months ended June 30, 2004 pension expense increased by $2.3 million while insurance costs increased by approximately $1.0 million. For the remainder of 2004, pension expense will continue to be higher than in the comparable period of 2003 but the extent of additional increases in insurance costs, if any, cannot be predicted at this time. Incremental cost savings related to the restructuring initiatives that are discussed below were approximately $4 million for the second quarter and more than $8 million for the year-to-date period. While precise quantification is impossible, we believe that results for 2004 also benefited from our recent process improvement initiatives.

Total selling and administrative expense decreased from $34.3 million in the second quarter of 2003 to $30.8 million in 2004 due primarily to a $1.4 million reduction in trade show costs and lower overhead costs. The reduction was achieved despite adverse currency effects of $0.7 million and $0.5 million of incremental pension expense. As a percentage of sales, selling expense decreased from 15.3% to 12.9%. Administrative expense decreased by $0.4 million as the benefits of our cost-cutting initiatives were partially offset by currency effects.

For the first six months of 2004 total selling and administrative expense was $61.7 million compared to $64.5 million in 2003. The reduction was due in part to lower trade show and overhead costs and achieved despite over $2 million of adverse currency effects and a $0.9 million increase in pension expense. As a percentage of sales, selling expense was 13.0% in 2004 and 13.9% in 2003. Administrative expense decreased by $0.4 million despite $0.6 million of adverse currency effects due principally to our cost-cutting and restructuring initiatives.

Other expense-net was income of $0.1 million in the second quarter of 2004 and expense of $1.6 million in the comparable period of 2003. The improvement was due in part to the favorable settlement of patent litigation and lower financing fees in 2004. For the first six months of 2004 and 2003, other expense-net was $1.3 million and $2.3 million, respectively. The reduction resulted from a patent settlement and a $0.7 million reduction in financing fees.

Interest expense increased from $5.8 million in the second quarter of 2003 to $15.3 million in the comparable period of 2004. Interest expense net of interest income was $23.2 million in the first six months of 2004 and $11.0 million in the comparable period of 2003. The increases were due in part to higher borrowing costs (including amortization of deferred financing fees) related to the new financing arrangements entered into on March 12, 2004 and June 10, 2004 which are described in detail in the “Liquidity and Sources of Capital” section that follows. The 2004 amounts also include a one-time, non-cash charge of $6.4 million from the write-off of a financial asset related to the Series A Notes issued on March 12, 2004. The asset resulted from a beneficial conversion feature that allowed the holders of the Series A Notes to acquire common shares at approximately $2.00 per share compared to a fair value of $2.40 per share on March 12, 2004. Quarterly interest expense is expected to range between $7 and $8 million for the remainder of 2004.

During the first quarter of 2004, we charged to expense $6.4 million of refinancing costs incurred in pursuing various alternatives to the March 12, 2004 refinancing of approximately $200 million in debt and other obligations. Our refinancing costs in the second quarter totaled $14.6 million, including $5.8 million for the tender offer premium for the 7 5/8% Eurobonds due 2005 and the related expenses. The second quarter amount also includes (i) a charge of $2.6 million related to the early vesting of 1,090,310 shares of restricted stock as a result of a change in control provision, (ii) charges of $4.7 million for the write-off of the deferred financing fees related to the Credit Suisse First Boston credit facility which we repaid on June 10, 2004 and for other refinancing-related costs and (iii) a $1.5 million prepayment penalty for the term loan included in the Credit Suisse First Boston credit facility.

The following paragraphs discuss the restructuring actions undertaken in recent years. These actions are discussed more fully in the note to the Consolidated Financial Statements captioned “Restructuring Costs”, which should be read in connection with the discussion that follows.

In November 2002, we 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 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. In another action, the manufacture of special mold bases for injection molding at the Monterey Park, California plant was discontinued and transferred to other facilities in North America.

Early in 2003, we initiated a plan for the further restructuring of our European blow molding machinery operations, including the discontinuation of the manufacture of certain product lines at the Magenta, Italy plant. The restructuring has resulted in the elimination of approximately 35 positions at Magenta and restructuring expense of $4.0 million. The cash cost totaled approximately $0.9 million, a majority of which was spent in 2003.

In the second quarter of 2003, we initiated a plan to close our special mold base machining operation in Mahlberg, Germany and relocate a portion of its manufacturing to another location. Certain other production was outsourced. The closure resulted in restructuring costs of $5.7 million — including $2.8 million in the second quarter of 2003 — and the elimination of approximately 65 positions. The total cash cost was $2.7 million, of which $2.6 million was spent in the second quarter. The annual cost savings are expected to be approximately $4 million.

In the third quarter of 2003, we began to implement additional restructuring initiatives that focus on further overhead cost reductions in each of our plastics technologies segments and at the corporate office. These actions, which involved the relocation of production, closure of sales offices, voluntary early retirement programs and general overhead reductions, have resulted in the elimination of approximately 300 positions worldwide and restructuring costs of $11.2 million that were recorded in the second half of 2003. Additional expense related to these initiatives was $0.5 million in the first two quarters of 2004. The related cash costs will be approximately $8 million, of which $3.4 million was spent in 2003. An additional $3.8 million was spent in the first two quarters of 2004.

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 resulted in restructuring expense of $0.8 million in the second quarter. An additional $0.7 million is expected to be expensed in the second half of the year. The overhead reductions are expected to result in annualized cost savings of more than $5 million. Cash costs are expected to be approximately $1.5 million during 2004.

In total, the actions initiated in 2002 through 2004 that are discussed above resulted in pretax restructuring costs of $2.8 million in the first six months of 2004 and $11.7 million in the comparable period of 2003. Cash costs totaled $5.5 million in the first two quarters of 2003 and $5.3 million in 2004. For the first half of 2003, restructuring costs also included $0.6 million related to the integration of EOC and Reform, two businesses acquired in 2001, with our existing mold base and components business in Europe.

The total annualized cost savings from all of the actions initiated in 2002 through 2004 that are discussed above is expected to be approximately $37 million. A portion of this amount was realized in 2003 and an incremental $23 million of savings is expected to be realized in 2004. Of the $37 million of cost savings, approximately $16 million (which includes savings related to corporate costs) was realized in the first two quarters of 2004. The incremental savings in relation to the second quarter of 2003 were approximately $6.5 million and $13.5 million for the year-to-date period. Including actions that were initiated in 2001, the pretax cost savings we expect to realize in 2004 are expected to be $72 million.

The following sections discuss the operating results of our business segments which are presented in tabular form in the Notes to Consolidated Condensed Financial Statements in this prospectus.

Machinery Technologies — North America — The machinery technologies — North America segment had new orders of $87 million in the second quarter of 2004, an increase of $3 million, or 3.6%, in relation to orders of $84 million in 2003. The increase reflects strong demand from several key markets, including packaging, construction, automotive, medical and consumer goods. Sales totaled $83 million and $75 million in the second quarters of 2004 and 2003, respectively. The segment’s pension expense increased by $1.6 million in relation to 2003. Despite the increase, the segment had operating earnings excluding restructuring costs of $3.4 million in 2004 compared to an operating loss excluding restructuring costs of $1.6 million in 2003. The improvement was due to incremental benefits of $2 million related to the restructuring and cost cutting initiatives that were undertaken in 2002 and 2003 and to approximately $1 million of favorable one-time items including the favorable settlement of patent litigation. The segment’s restructuring costs totaled $1.4 million in 2004 and $0.9 million in 2003.

For the first six months of 2004, the segment had new orders of $166 million and sales of $161 million compared to orders of $168 million and sales of $163 million in the comparable period of the prior year. The segment’s operating profit excluding $2.2 million of restructuring costs was $2.8 million in the first half of 2004, compared to $0.5 million in 2003, once again excluding $3.7 million of restructuring costs. The improved results in 2004 include the benefits related to recent restructuring actions and were achieved despite a $2.9 million increase in pension expense.

Machinery Technologies — Europe — The machinery technologies — Europe segment had new orders and sales of $46 million and $42 million, respectively, in the second quarter of 2004 compared to new orders and sales of $39 million in 2003. The increases were primarily export-driven and reflect strong demand in the packaging, consumer goods and medical markets. Currency effects also contributed about $2.5 million of incremental sales and new orders in 2004. The restructuring actions begun in 2003 resulted in almost $1.5 million of savings in 2004 in relation to the second quarter of 2003. As a result of the restructuring actions, the segment had an operating profit of $1.3 million in the second quarter of 2004 compared to a loss of $1.8 million in 2003. Both amounts exclude restructuring costs of $0.1 million in 2004 and $2.4 million in 2003.

The machinery technologies — Europe segment had new orders of $86 million in the first six months of 2004 compared to $72 million in the comparable period of 2003. The $14 million increase includes approximately $7 million that resulted from currency effects. The segment’s sales totaled $85 million in the first half of 2004 and $74 million in 2003. Currency effects contributed $8 million of incremental sales in 2004. Excluding restructuring costs, the segment had an operating profit of $2.4 million in the first half of 2004 compared to a loss of $2.5 million in 2003, once again excluding restructuring costs. The segment’s restructuring costs were $0.2 million in 2004 and $4.6 million in 2003.

Mold Technologies — Despite favorable currency effects of almost $1 million, new orders in the mold technologies segment decreased from $43 million in the second quarter of 2003 to $41 million in 2004. Sales also decreased from $43 million to $40 million despite $1 million of favorable currency effects. Orders and sales in North America were essentially flat in relation to 2003 but profitability improved despite a $0.8 million increase in insurance costs related principally to certain product liability claims. It is possible that North American insurance costs for the remainder of 2004 will be higher than in the comparable period of 2003, but this will depend on factors that cannot be predicted with certainty at this time. Orders and sales declined in Europe, due to weakness in the mold-making market in that region, which has experienced double-digit declines from the second quarter of 2003. Competitive pricing in Europe also prohibited passing on price increases for raw materials, especially steel, to customers. Due to lower sales volume, the segment had an operating loss of $0.1 million in the second quarter of 2004 compared to earnings of $0.1 million in 2003, in both cases excluding restructuring costs which were $0.2 million in 2004 and $3.0 million in 2003.

The mold technologies segment had new orders and sales of $84 million and $83 million, respectively, in the first six months of 2004. In the comparable period of 2003, orders totaled $87 million and sales were

$88 million. The decreases in new orders and sales occurred despite favorable currency effects. Despite lower sales and a $0.9 million increase in insurance costs, the segment’s operating profit excluding restructuring costs increased from $0.4 million in the first half of 2003 to $1.3 million in 2004 due to over $2 million of benefits from the restructuring actions. Restructuring costs were $0.4 million and $4.0 million in 2004 and 2003, respectively.

Industrial Fluids — The industrial fluids segment had new orders and sales of $28 million each in the second quarter of 2004 compared to $26 million in 2003 with the increases being due in part to favorable currency effects but also reflecting strength in the automotive industry and increasing industrial activity in North America. The segment’s operating profit was $3.4 million in 2004 compared to $3.7 million in 2003. The reduction in profitability was due principally to higher pension expense, which increased by $0.1 million, and $0.2 million of incremental insurance costs.

For the first six months of 2004, the industrial fluids segment had new orders and sales of $54 million compared to $52 million in 2003. Currency effects contributed a majority of the increases. The segment’s operating profit decreased from $7.2 million in 2003 to $5.9 million in 2004 due in part to higher pension and insurance costs. Pension expense increased by $0.2 million while insurance costs increased by $0.7 million. Pension costs will continue to be higher for the remainder of 2004. Future increases in insurance costs will depend on factors that cannot be predicted with certainty at this time.

Our pretax loss for the second quarter of 2004 was $26.8 million which includes refinancing costs of $14.6 million and restructuring costs of $1.7 million. In the comparable period of 2003, our pretax loss was $16.1 million which includes restructuring costs of $6.3 million. The pretax loss for 2004 includes incremental savings of approximately $6.5 million from the 2003 restructuring actions, partially offset by $1.6 million of expense related to the principal pension plan for U.S. employees. In 2003, pension income related to the plan was $0.2 million.

Including restructuring and refinancing costs of $21.0 million and $2.8 million, respectively, we had a pretax loss of $41.7 million in the first six months of 2004 compared to a loss of $26.4 million in the 2003 period. Restructuring costs totaled $12.3 million in 2003. The loss for 2004 includes incremental savings of more than $13 million arising from the actions taken in 2003. However, these benefits were partially offset by a $3.2 million increase in pension expense.

As was previously discussed (see Significant Accounting Policies and Judgments — Deferred Tax Assets and Valuation Allowances), we recorded a $71 million charge to the second quarter of 2003 provision for income taxes to establish valuation allowances against a portion of our U.S. deferred tax assets. Additional deferred tax assets and valuation allowances were recorded later in the year and in the first six months of 2004.

Due to the geographic mix of earnings, results for the second quarter of 2004 include tax expense in profitable non-U.S. jurisdictions. This resulted in tax expense of $1.1 million despite a pretax loss. In the second quarter of 2003, the provision for income taxes was $72.2 million which includes the previously mentioned $71 million charge to establish valuation allowances related to U.S. operations and income tax expense in certain non-U.S. jurisdictions.

For the first six months of 2004, the provision for income taxes was $2.2 million despite a pretax loss of $41.7 million. The $69.5 million provision for income taxes for the first six months of 2003 includes the $71 million charge related to U.S. operations, the effect of which was partially offset by tax benefits related to non-U.S. losses.

Our loss from continuing operations in the second quarter of 2004 was $27.9 million, or $0.64 per share, compared to a loss of $88.3 million, or $2.63 per share, in 2003. The loss for 2004 includes refinancing costs of $14.6 million and restructuring costs of $1.7 million, in both cases, with no tax benefit. The amount for 2003 includes the unfavorable tax adjustment of $71 million and after-tax restructuring costs of $6.3 million.

For the first two quarters of 2004, we had a loss from continuing operations of $43.9 million, or $1.14 per share, which includes after-tax restructuring costs of $2.8 million and refinancing costs of $21.0 million. Including after-tax restructuring costs of $11.1 million and the $71 million tax adjustment, our loss from continuing operations for the first half of 2003 was $95.9 million, or $2.86 per share.

In 2004, the loss from discontinued operations represents the operating results of our grinding wheels business. In 2003, the loss from discontinued operations includes the grinding wheels business as well as the round metalcutting tools business. The divestiture of the round metalcutting tools business was completed in the third quarter of 2003 and the grinding wheels business was sold on April 30, 2004.

Including refinancing costs, restructuring costs and the results of discontinued operations, we had a net loss of $27.8 million, or $.64 per share, in the second quarter of 2004. In the second quarter of 2003, we had a net loss including the $71 million tax adjustment, restructuring costs and discontinued operations of $91.3 million, or $2.72 per share. In the first two quarters of 2004, we had a net loss of $44.4 million, or $1.15 per share, compared to a loss of $99.6 million, or $2.97 per share, in the comparable period of 2003.

Consolidated new orders totaled $747 million in 2003 compared to $703 million in 2002. Currency translation effects resulting principally from the strength of the euro in relation to the U.S. dollar contributed substantially all of the $44 million increase. Consolidated sales increased from $693 million in 2002 to $740 million in 2003. As was the case with new orders, translation effects contributed most of the increase. Order and shipment levels showed improvement in the fourth quarter but continued to be penalized by low levels of industrial production in the U.S. and capital spending in the plastics processing industry.

Export orders totaled $73 million in 2003, an increase of $7 million from $66 million in 2002. Export sales increased from $71 million in 2002 to $73 million in 2003. Both increases related principally to higher export sales of U.S.-built blow molding systems. Total sales of all segments to non-U.S. markets, including exports, were $338 million, or 46% of consolidated sales, in 2003 compared to $296 million, or 43% of sales, in 2002. Sales of goods manufactured outside the U.S. totaled 41% in 2003 compared to 38% in 2002. The strength of the euro in relation to the dollar was a significant factor in both increases.

Our backlog of unfilled orders was $92 million at December 31, 2003 compared to $76 million at December 31, 2002. The increase reflects higher order levels for blow molding systems in the U.S. and injection molding machinery in Europe.

Including $3.3 million of restructuring costs related to product line discontinuation, the consolidated manufacturing margin was 17.7% in 2003. Excluding restructuring costs, the consolidated margin was 18.2%. In 2002, the consolidated manufacturing margin, including $1.9 million of restructuring costs, was 17.3%. Excluding restructuring costs, the 2002 margin was 17.5%. Margins remained low in relation to pre-recession historical levels due to reduced sales volume and the related underabsorption of manufacturing costs. Margins were also penalized by increased pricing pressure for plastics processing machinery in both North America and Europe and a $5.0 million decrease from 2002 in the amount of pension income included in the cost of products sold. However, margins benefited from the effects of our process improvement initiatives and our recent restructuring actions.

Total selling and administrative expense was $129 million in 2003 compared to $121 million in 2002. Selling expense increased from $93 million, or 13.4% of sales, in 2002 to $104 million, or 14.0% of sales, in 2003 due principally to variable selling costs associated with higher sales volume, a $3.5 million increase in bad debt expense and a $2.0 million reduction in pension income. The increase in bad debt expense resulted principally from increased delinquencies and business failures at certain of our plastics machinery customers in North America. Higher-than-normal bad debt expense is currently not expected to continue in the future.

Costs associated with the triennial National Plastics Exposition that was held in June of 2003 and currency effects of $2.7 million and more than $6 million, respectively, also contributed to the increase in selling expense. Conversely, administrative expense decreased by more than $2 million due principally to the effects of our restructuring actions and cost containment efforts despite almost $2 million in adverse currency effects.

Other expense — net increased from income of $1.0 million in 2002 to expense of $1.5 million in 2003. The amount for 2003 includes income of $3.5 million from the settlement of warranty claims against a supplier and $0.9 million of income from the licensing of patented technology. The 2002 amount includes income of $4.5 million from technology licensing.

In 2002 and 2003 we announced additional restructuring initiatives intended to further reduce our cost structure as well as to improve operating efficiency and customer service. In the aggregate, these actions will ultimately result in the elimination of approximately 500 positions worldwide. Cost savings related to these actions were in excess of $15 million in 2003. On an annualized basis, the savings are expected to be in excess of $35 million in 2004 and beyond. This is in addition to the savings we realized from the restructuring actions that were initiated in 2001.

In the fourth quarter of 2002, we initiated the transfer of all manufacturing of container blow molding machines and structural foam systems from the plant in Manchester, Michigan to our facility near Cincinnati, Ohio. The mold making operation has also been moved to a smaller, more cost-effective location near Manchester. In another action, the manufacture of special mold bases for injection molding at the Monterey Park, California plant was discontinued and transferred to other facilities in North America.

Early in 2003, we initiated a plan for the further restructuring of our European blow molding machinery operations, including the discontinuation of the manufacture of certain product lines at the Magenta, Italy plant. In the second quarter of 2003, we initiated a plan to close the special mold base machining operation in Mahlberg, Germany and relocate a portion of its manufacturing to another facility. Certain other production is being outsourced. In the third quarter of 2003, we began to implement additional restructuring initiatives that focus on further overhead cost reductions in each of our plastics technologies segments and at our corporate office. These actions involve the relocation of production, closure of sales offices, voluntary early retirement programs and general overhead reductions.

In 2003 and 2002, restructuring costs also include amounts for the integration of EOC and Reform, two businesses acquired in 2001, with our existing mold base and components business in Europe and costs associated with initiatives announced in 2001 and 2002 to consolidate manufacturing operations and reduce our cost structure.

The costs and related cash effects of the actions described above are summarized in the table that follows.

The composition of the restructuring costs charged to expense in the years 2001 through 2003 is presented in tabular form in the notes to the Consolidated Financial Statements.

The cash costs of the restructuring actions presented in the above table do not include approximately $4.8 million that will be spent in 2004 to complete the initiatives that were implemented in the second of half of 2003. The non-cash costs of the restructuring actions consist principally of $6.9 million for supplemental early retirement benefits that will be paid by our defined benefit pension plan for certain U.S. employees, $8.3 million to adjust inventories related to discontinued product lines to expected realizable values and $7.5 million to adjust the carrying values of facilities and machinery and equipment to be disposed of to expected realizable values.

The table that follows depicts the cost savings realized in 2002 and 2003 from the restructuring actions discussed above and the incremental savings of approximately $20 million that are expected to be realized in 2004.

In 2003, we recorded a goodwill impairment charge of $65.6 million (with no tax benefit) to adjust the carrying value of the goodwill of two businesses included in the mold technologies segment. The charge was calculated by discounting estimated future cash flows and resulted from a downward adjustment of the cash flows expected to be generated by these businesses due to the delay in the general economic recovery in both North America and Europe. The largest decrease in cash flow expectations related to our European mold base and components business due to continued weakness in the markets it serves.

The following sections discuss the operating results of our business segments which are presented in tabular form in the Notes to Consolidated Financial Statements in this prospectus. As presented, segment operating profit or loss excludes restructuring costs and goodwill impairment charges.

Machinery Technologies — North America — New orders in the machinery technologies — North America segment were $325 million compared to $321 million in 2002. The segment’s sales also increased modestly from $314 million in 2002 to $321 million in 2003. Despite signs of increased capacity utilization in U.S. plastics processing industries in the fourth quarter, orders and shipments remained at low levels for the third consecutive year due to depressed capital spending by our customers. In addition, the segment’s results were penalized by weaker price realization and reduced pension income but benefited from our restructuring and cost reduction initiatives. Excluding restructuring costs, the segment had operating earnings of $6.7 million in 2003 compared to $8.0 million in 2002. The decrease was due entirely to a $6.1 million reduction in pension income and the absence of $4.5 million of royalty income from the licensing of patented technology that was received in 2002. Restructuring costs for the segment were $7.7 million in 2003 and $6.7 million in 2002. In both years, most of these costs related to the relocation of the North American blow molding systems business and to supplemental retirement benefits offered for the purpose of reducing the cost structure of the segment’s injection molding and extrusion machinery businesses. The restructuring actions initiated in 2002 and 2003 resulted in cost savings in excess of $8 million in 2003 and are expected to produce savings of almost $14 million in 2004. Including the actions that began in 2001, the segment’s savings in 2004 are expected to be almost $34 million.

Machinery Technologies — Europe — The machinery technologies — Europe segment had new orders of $154 million and sales of $151 million in 2003 compared to orders of $122 million and sales of $117 million in 2002. Currency translation effects related to the strength of the euro in relation to the dollar contributed about two-thirds of both increases. Sales of blow molding systems were flat in relation to 2002 but orders and shipments of European-built injection molding machines increased as measured in local currency despite weaker price realization. The segment’s operating results improved significantly as a result of our recent restructuring of its blow molding systems business as its loss excluding restructuring costs decreased from $8.1 million in 2002 to $1.4 million in 2003. Restructuring costs totaled $6.5 million in 2003 and related principally to the restructuring of the blow molding business and the discontinuation of certain of its product lines and to overhead reductions in the segment’s injection molding machinery business. To date, these 2003 actions have resulted in savings in excess of $1 million but are expected to result in savings in excess of $6 million in 2004. Including the benefits of additional actions that began in 2001, the segment’s total savings in 2004 are expected to be approximately $14 million.

Mold Technologies — In 2003, the mold technologies segment had new orders and sales of $169 million compared to $175 million of orders and sales in 2002. The decreases occurred despite favorable currency effects of approximately $10 million. The segment’s profitability was adversely affected by low levels of industrial production and capacity utilization in both North America and Europe. Inefficiencies associated with the consolidation of the segment’s European operations continued into 2003 and adversely affected its results as did reduced profitability in North America. Excluding restructuring costs, the segment had operating earnings of $1.8 million in 2003 compared to earnings of $5.3 million in 2002. Restructuring costs totaled $12.6 million in 2003 and related principally to overhead reductions in North America and to the further consolidation of the segment’s European operations. The actions in Europe included the closure of two

manufacturing plants and the reorganization and consolidation of the European marketing and sales structure. Restructuring costs of $6.4 million in 2002 related principally to the closure of a manufacturing plant in the U.S. and to costs to integrate two businesses acquired in 2001 with the segment’s existing European operations. The actions initiated in 2002 and 2003 resulted in savings in excess of $4 million and are expected to produce savings in excess of $12 million in 2004. Including the effects of actions that began in 2001, the segment’s 2004 savings will be approximately $19 million.

Industrial Fluids — The industrial fluids segment had new orders and sales of $104 million compared to orders and sales of $96 million in 2002. Both increases were due principally to currency effects related to the segment’s operations in Europe. The segment’s operating profit increased from $14.4 million in 2002 to $15.7 million in 2003. The improvement occurred despite a $0.9 million reduction in pension income.

Our pretax loss was $111.8 million in 2003 compared to a loss of $36.6 million in 2002. The amount for 2003 includes restructuring costs of $27.1 million and the $65.6 million goodwill impairment charge. In 2002, restructuring costs were $13.9 million. The comparison between years was also adversely affected by a $7.1 million reduction in the amount of pension income related to continuing operations and the absence in 2003 of the previously discussed $4.5 million of royalty income.

As was previously discussed in “Significant Accounting Policies and Judgments — Deferred Tax Assets and Valuation Allowances,” we recorded a $71 million charge in the second quarter tax provision to establish valuation allowances against a portion of our U.S. deferred tax assets. Additional deferred tax assets and valuation allowances were recorded in the second half of the year. Due to the geographic mix of earnings and losses, the tax provision for 2003 also includes income tax expense related to profitable operations in non-U.S. jurisdictions. These factors resulted in a 2003 provision for income taxes of $72.7 million despite a pretax loss of $111.8 million.

In 2002, we recorded tax benefits related to losses in the U.S. at the federal statutory rate. We also had a favorable tax rate for non-U.S. operations due in part to permanent deductions in The Netherlands, the benefits of which were partially offset by increases in valuation allowances in Germany and Italy. The 2002 consolidated effective rate of almost 50% also benefited from the favorable resolution of tax contingencies in the U.S. and other jurisdictions.

Our 2003 loss from continuing operations was $184.5 million, or $5.49 per share, which includes after-tax restructuring costs of $25.5 million, the goodwill impairment charge of $65.6 million (with no tax benefit) and the $71 million tax adjustment to record U.S. valuation allowances. In 2002, our loss from continuing operations was $18.4 million, or $0.56 per share. The loss for 2002 includes after-tax restructuring costs and royalty income of $8.8 million and $2.8 million, respectively. After-tax pension income was $0.5 million in 2003 compared to $4.9 million in 2002.

In 2003 and 2002, the loss from discontinued operations includes our round metalcutting tools and grinding wheels businesses. The former was sold in two separate transactions in September 2003, and the grinding wheels business was sold on April 30, 2004. In 2002, discontinued operations also include the Valenite and Widia and Werkö metalcutting tools businesses that were sold in August of that year. The losses that were incurred in both years resulted from depressed levels of industrial production in North America and — in 2002 — Europe and India and from inefficiencies associated with managing businesses in the process of being sold.

As discussed more fully in the Notes to Consolidated Financial Statements, in 2002 we recorded a net gain of $8.4 million related to the divestitures of discontinued operations. In 2003, we recorded expense of $0.8 million to adjust sale-related accruals and reserves to reflect current expectations.

Effective January 1, 2002, we recorded a pretax goodwill impairment charge of $247.5 million ($187.7 million after tax or $5.61 per share) as the cumulative effect of a change in method of accounting in connection with the adoption of Statement of Financial Accounting Standards No. 142. Approximately 75% of the pretax charge related to our container blow molding and round metalcutting tools businesses, the latter of which was sold in 2003.

Our net loss for 2003 was $191.7 million, or $5.70 per share, compared to a loss of $222.9 million, or $6.67 per share, in 2002. The amount for 2003 includes the previously discussed restructuring costs, goodwill impairment charge, tax adjustment for valuation allowances and the losses from discontinued operations. The loss for 2002 includes restructuring costs, the net loss from discontinued operations and the cumulative effect adjustment.

In 2002, consolidated new orders for continuing operations totaled $703 million, a decrease of $19 million, or 3%, in relation to orders of $722 million in 2001. Sales decreased from $755 million to $693 million. The decreases occurred despite favorable currency effects and the contributions of the 2001 acquisitions. As was the case for much of 2001, low levels of industrial production and capital spending in the plastics processing industry penalized results in 2002. However, order levels and shipments increased modestly in the fourth quarter.

Export orders totaled $66 million in 2002 compared to $78 million in 2001 while export sales decreased from $82 million to $71 million. In both cases, the decreases resulted from reduced export volume for plastics processing machinery. Sales of all segments to non-U.S. customers, including exports, totaled $296 million, or 43% of sales, in 2002 compared to $307 million, or 41% of sales, in 2001. Sales of products manufactured outside the U.S. were $265 million in 2002 and $256 million in 2001.

Our backlog of unfilled orders was $76 million at December 31, 2002 and $61 million at December 31, 2001. The increase resulted principally from higher fourth quarter order levels for plastics processing machinery worldwide.

After deducting $1.9 million of restructuring costs related to product line discontinuation in 2002 and $3.1 million of such costs in 2001, the consolidated manufacturing margin increased modestly from 17.0% to 17.3%. Excluding these costs, margins were 17.5% in 2002 and 17.4% in 2001. Despite our aggressive cost reduction efforts, lower order and sales volume and reduced manufacturing cost absorption continued to depress the margins of certain segments as described below.

In 2002, total selling and administrative expense decreased in dollar amount due to our ongoing cost reduction initiatives and reduced variable selling costs that resulted from lower sales volume. As a percentage of sales, selling expense held steady at 13.4%. Administrative expense decreased by 5% in relation to 2001.

Other expense — net decreased from $12.9 million in 2001 to income of $1.0 million in 2002. The amount for 2002 includes $4.5 million of royalty income from the licensing of patented technology whereas the amount for 2001 includes goodwill amortization expense of $10.8 million and a gain of $2.6 million on the sale of surplus real estate.

In response to exceptionally low order levels, in the third and fourth quarters of 2001 we implemented plans to consolidate manufacturing operations and further reduce our cost structure. These plans resulted in pretax charges to earnings from continuing operations of $17.8 million, including $14.1 million in 2001 and $3.7 million in 2002. In 2001, we also initiated a plan to integrate the operations of EOC and Reform, both of which were acquired in the second quarter of that year, with our existing mold base and components business in Europe. The total cost of completing the integration was originally expected to be $9.2 million but was ultimately increased to $11.0 million due to unanticipated costs related to the integration and lower than expected realizable values for surplus assets. Of the total cost, $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 remainder was charged to expense, including $3.4 million in 2001 and $4.6 million in 2002.

In connection with the plans initiated in 2001, we recorded pretax restructuring costs related to continuing operations of $8.3 million in 2002 compared to $17.5 million in 2001. Cash costs for the restructuring actions and the integration of EOC and Reform were $13.2 million in 2002. In the aggregate, the actions initiated in 2001 are generating over $35 million in annualized cost savings, most of which were realized in 2002.

In the third quarter of 2002, we approved additional restructuring plans for the purpose of further reducing our cost structure in certain businesses and to reduce corporate costs as a result of the dispositions of Widia, Werkö and Valenite. These actions resulted in third quarter restructuring expenses of $1.3 million.

In November 2002, we announced additional restructuring initiatives intended to improve operating efficiency and customer service. The first action 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. In the second initiative, the manufacture of special mold bases for injection molding at the Monterey Park, California plant was phased out and transferred to various other facilities in North America. These additional actions were expected to result in incremental restructuring costs of $7 to $8 million, of which $4.3 million was charged to expense in 2002 with a majority of the remainder to be recorded in 2003. The total cash cost of these initiatives was expected to be approximately $6 million, most of which was to be spent in 2003. The pretax annualized cost savings were expected to exceed $4 million, most of which was realized in 2003.

Machinery Technologies — North America — In 2002, the machinery technologies — North America segment had orders and sales of $321 million and $314 million, respectively. In 2001, the segment’s orders totaled $337 million and sales were $362 million. While new business and shipment levels remained low for much of the year due to depressed capital spending levels in the plastics processing industry, volume increased modestly in the fourth quarter. Despite lower sales volume, the segment’s manufacturing margin improved in 2002 as a result of our cost reduction and restructuring efforts. Excluding restructuring costs of $6.7 million, the segment had operating earnings of $8.0 million in 2002 compared to a 2001 operating loss of $13.5 million which excludes $6.8 million of restructuring costs. The amount for 2002 includes the previously discussed $4.5 million of royalty income. Goodwill amortization expense included in the 2001 amount totaled $3.9 million.

Machinery Technologies — Europe — New orders were $122 million in 2002, an increase of $8 million in relation to the prior year that was due principally to favorable currency effects. Sales decreased from $123 million to $117 million despite favorable currency effects. Manufacturing margins also decreased slightly

in 2002 and the segment’s results continued to be penalized by operating problems related to the consolidation of the segment’s European blow molding systems business that was completed in 2001. The segment had an operating loss of $8.1 million in 2002 compared to a loss of $9.1 million in 2001. The amount for 2002 excludes a credit of $0.4 million related to the reversal of excess restructuring reserves that had been accrued in 2001 while the loss for 2001 excludes restructuring expense of $6.9 million. Goodwill amortization expense in 2001 was $1.4 million.

Mold Technologies — The mold technologies segment had new orders of $174 million in 2002, a decrease of $10 million in relation to orders of $184 million in 2001. Sales also decreased by $10 million from $185 million to $175 million. The decreases were due in part to low levels of industrial production and capacity utilization in the North American plastics industry but order levels and shipments also decreased in the segment’s European operations. Due to reduced volume, the segment’s manufacturing margin decreased by approximately one percentage point. Excluding restructuring costs of $6.4 million, the segment had operating earnings of $5.3 million in 2002 compared to earnings of $12.1 million in 2001 which excludes restructuring costs of $3.5 million. The margin decrease and reduction in profitability were due principally to costs and inefficiencies related to the integration of EOC and Reform with the segment’s existing European mold base business. See “Executive Summary — Acquisitions.” The amount for 2002 includes a fourth quarter goodwill impairment charge of $1.0 million related to a small business unit in the segment. Goodwill amortization expense in 2001 was $5.2 million.

Industrial Fluids — In the industrial fluids segment, new orders and sales both increased from $93 million in 2001 to $96 million in 2002. Approximately one-half of the increases resulted from favorable currency effects. The segment’s manufacturing margin decreased only modestly but its operating profit fell from $18.1 million, which excludes $0.3 million of restructuring costs, to $14.4 million in 2002. The profitability decrease resulted principally from the absence of one-time favorable adjustments in 2001 that did not recur in 2002. Expense for goodwill amortization in 2001 was $0.3 million.

Our pretax loss in 2002 was $36.6 million compared to a loss of $51.0 million in 2001. The 2002 amount includes restructuring costs of $13.9 million, partially offset by the previously discussed $4.5 million of royalty income. The amount for 2001 includes goodwill amortization expense of $10.8 million, $17.5 million of restructuring costs and the $2.6 million land sale gain.

During 2002, we recorded a net benefit related to income taxes due to the combined effects of operating losses in the U.S. and a favorable effective tax rate for non-U.S. operations. The losses incurred by our U.S. operations resulted in tax benefits based on the federal statutory rate and our effective tax rate for state and local tax purposes, in both cases adjusted for permanent differences and applicable credits. The favorable tax rate for non-U.S. operations was due in part to permanent deductions in The Netherlands partially offset by increases in valuation allowances (as discussed below) in Germany and Italy. The consolidated effective tax rate also benefited from the favorable resolution of tax contingencies related to the U.S. and other jurisdictions.

We entered both 2002 and 2001 with significant net operating loss carryforwards in certain jurisdictions along with valuation allowances against the carryforwards and other deferred tax assets. Valuation allowances are evaluated periodically and revised based on a “more likely than not” assessment of whether the related deferred tax assets will be realized. Increases or decreases in these valuation allowances serve to unfavorably or favorably impact our effective tax rate.

Our 2002 loss from continuing operations was $18.4 million, or $0.56 per share, compared to a loss of $28.7 million, or $0.87 per share, in 2001. The amount for 2002 includes after-tax restructuring costs of $8.8 million and after-tax royalty income of $2.8 million. The loss from continuing operations for 2001

Our discontinued operations — Valenite, Widia, Werkö, grinding wheels and round metalcutting tools — had combined losses from operations of $25.2 million, or $0.75 per share, in 2002 compared to losses of $7.0 million, or $0.21 per share, in 2001. The adverse comparison to 2001 resulted from depressed levels of industrial production in North America, Europe and India as well as inefficiencies associated with managing businesses in the process of being sold.

As described more fully in the Notes to Consolidated Financial Statements, in 2002 discontinued operations includes a net gain of $8.4 million that resulted from a gain of $31.3 million on the sale of Valenite and a benefit of $1.9 million from adjustments of reserves related to the 1998 divestiture of the machine tools segment. These amounts were partially offset by losses on the sale of Widia and Werkö of $14.9 million and on the planned dispositions of the round metalcutting tools and grinding wheels businesses totaling $9.9 million. The latter amount was recorded as a charge to earnings in the fourth quarter. The amounts for the Valenite and the Widia and Werkö transactions were revised in the fourth quarter from the amounts previously recognized to reflect final purchase price adjustments and to adjust reserves and tax effects to reflect more recent estimates of expected liabilities or benefits.

Including the effects of discontinued operations and the change in method of accounting, we had a net loss of $222.9 million, or $6.67 per share, in 2002 compared to a net loss of $35.7 million, or $1.08 per share, in 2001. The amount for 2002 includes the previously discussed restructuring costs and royalty income as well as losses from discontinued operations of $16.8 million and the $187.7 million cumulative effect adjustment. The net loss for 2001 includes the restructuring and goodwill amortization costs that are discussed above as well as $7.0 million of losses from discontinued operations.

The industrial fluids segment had no restructuring costs in the first six months of 2004 or 2003.

We use foreign currency forward exchange contracts to hedge our exposure to adverse changes in foreign currency exchange rates related to firm commitments arising from international transactions. We do not hold or issue derivative instruments for trading purposes. At June 30, 2004, we had outstanding forward contracts totaling $4.1 million. Forward contracts totaled $4.7 million at December 31, 2003, $0.2 million at June 30, 2003 and $5.0 million at December 31, 2002. The annual potential loss from a hypothetical 10% adverse change in foreign currency rates on our foreign exchange contracts at June 30, 2004, December 31, 2003, June 30, 2003 or December 31, 2002 would not materially affect our consolidated financial position, results of operations or cash flows.

At June 30, 2004, we had fixed rate debt of $232 million including $225 million face value of 11 1/2% Senior Secured Notes due 2011 that were issued on May 26, 2004 and floating rate debt of $11 million. At December 31, 2003 and June 30, 2003, fixed rate debt totaled $270 million and $260 million, respectively, and included the 8 3/8% Notes due 2004 that were repaid on March 15, 2004 and the 7 5/8% Eurobonds due 2005, substantially all of which were repurchased on June 10, 2004 pursuant to a tender offer therefor. Floating rate debt totaled $53 million at December 31, 2003 and $55 million at June 30, 2003. During 2003 and through March 12, 2004, we also had the ability to sell accounts receivable under our accounts receivable purchase agreement which resulted in financing fees that fluctuated based on changes in commercial paper rates. As a result of these factors, a portion of annual interest expense and financing fees fluctuate based on changes in

On July 30, 2004, we entered into a $50 million (notional amount) interest rate swap that will convert a portion of the fixed-rate interest on the 11 1/2% Senior Secured Notes due 2011 into a floating-rate obligation. The swap, which matures on November 15, 2008, is intended to achieve a better balance between fixed-rate and floating-rate debt.

As discussed more fully in the Notes to Consolidated Financial Statements, we had maintained a receivables purchase agreement with a third-party financial institution for the last several years. Under this arrangement we sold, on a revolving basis, an undivided percentage ownership interest in designated pools of accounts receivable. As existing receivables were collected, undivided interests in new eligible receivables were sold. Accounts that became 60 days past due were no longer eligible to be sold and we were at risk for any related credit losses. Credit losses have not been significant in the past and we maintained an allowance for doubtful accounts sufficient to cover our estimated exposures. At December 31, 2003, approximately $36 million of accounts receivable had been sold under this arrangement which expired on March 12, 2004. The average amount sold during 2003 was also approximately $36 million. On March 12, 2004 this facility was repaid and terminated. See “Liquidity and Sources of Capital — March 12 Transactions.”

Certain of our non-U.S. subsidiaries also sell accounts receivable on an ongoing basis for purposes of improving liquidity and cash flows. Some of these sales are made with recourse, in which case appropriate reserves for potential losses are provided. At June 30, 2004 and December 31, 2003, the gross amount of receivables sold totaled $3.9 million and $3.8 million, respectively. The average amount sold during 2003 was approximately $5 million. Financing fees related to these arrangements were not material.

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 machinery. In the event a customer fails to repay a note, we generally regain title to the machinery. At June 30, 2004 and December 31, 2003, our maximum exposure under these U.S. guarantees, as well as certain guarantees by certain of our non-U.S. subsidiaries, totaled $8.2 million and $11.6 million. Losses related to sales of notes and guarantees have not been material in the past.

Our contractual obligations for the remainder of 2004 and beyond are shown as of June 30, 2004 in the table that follows. At June 30, 2004, obligations under operating leases were not significantly different from the amounts reported in our Form 10-K for the year ended December 31, 2003.

The above table excludes the contingent liabilities of up to $12.1 million related to sales of receivables and loan guarantees that are discussed above.

At June 30, 2004, we had cash and cash equivalents of $42 million, a decrease of $51 million from December 31, 2003. The decrease was due principally to the repayment of debt and other obligations in connection with the refinancing transactions entered into on March 12, 2004 and June 10, 2004. Of the $42 million of cash, a substantial amount was held in foreign accounts in support of our non-U.S. operations. Were this non-U.S. cash to be repatriated, it would trigger withholding taxes in foreign jurisdictions. Approximately $3 million of the non-U.S. cash was being utilized to collateralize sales of certain non-U.S. receivables.

Operating activities used $4 million of cash in the second quarter of 2004 compared to $17 million of cash used in 2003. The usage of cash in 2004 includes the $10 million final annual interest payment on the 7 5/8% Eurobonds that were repurchased on June 10, 2004. The negative cash flow in 2003 was due in part to a significant reduction in trade accounts payable due to inventory reductions and the timing of inventory purchases during the quarter.

For the first six months of 2004, operating activities used $46 million of cash compared to a $22 million use of cash in the first half of 2003. In addition to the interest payment in the second quarter, the amount for 2004 includes a $33 million use of cash in the first quarter related to the termination and repayment of our receivables purchase agreement and $4 million of cash spent in the first half of the year in pursuing alternatives to the refinancing actions that are discussed below. The usage of cash in 2003 reflects the reduction of trade accounts payable discussed above as well as similar reductions in other current liabilities.

In the second quarter of 2004, investing activities provided $7 million of cash, principally from the sale of the grinding wheels business, compared to a negligible amount of cash provided in 2003. Including the divestiture proceeds, investing activities provided $5 million of cash in the first six months of 2004 compared to a $32 million use of cash in 2003. The amount for 2003 includes $24 million for post-closing adjustments related to the 2002 divestitures of our Valenite and Widia and Werkö metalcutting tools businesses and $7 million to increase our ownership interest in two affiliates.

In the second quarter of 2004, financing activities used $21 million of cash, whereas in the comparable period of 2003, financing activities used a negligible amount of cash. The amount for 2004 includes $220 million of net proceeds from the issuance of the 11 1/2% Senior Secured Notes due 2011, as discussed below. This amount was offset by the repayment of the Credit Suisse First Boston credit facility and the repurchase of substantially all of the 7 5/8% Eurobonds due 2005 pursuant to a tender offer — both of which took place on June 10, 2004 — and by $14 million of debt issuance costs. For the first six months of 2004, financing activities used $5 million of cash which includes the proceeds from the issuance of the 11 1/2% Senior Secured Notes due 2011 which were offset by the repurchase of the 7 5/8% Eurobonds and the repayment of $115 million of 8 3/8% Notes and our former revolving credit facility in March 2004. Cash flow from financing activities used $3 million of cash in the first half of 2003, primarily for repayments of debt.

Our current ratio was 1.8 at June 30, 2004. The current ratio excluding the assets and liabilities of discontinued operations was 1.0 at December 31, 2003 and 1.1 at June 30, 2003. The changes in relation to the prior dates are due to the effects of the March 12, 2004 and June 10, 2004 refinancing transactions that are discussed below.

Total debt was $243 million at June 30, 2004 compared to $323 million at December 31, 2003. The decrease is due to the results of the refinancing transactions.

Total shareholders’ equity was $21 million at June 30, 2004, an increase of $55 million from December 31, 2003. The increase is due principally to the issuance of the Series B Preferred Stock and convertible warrants (as discussed below) which was partially offset by the net loss for the period.

At December 31, 2003, we had cash and cash equivalents of $93 million, a decrease of $29 million from December 31, 2002. Approximately $24 million of the decrease resulted from the payment in 2003 of post-closing adjustments related to the divestitures for Valenite and Widia and Werkö which were sold in 2002. Of the $93 million of cash at December 31, 2003, approximately $3 million was used to collateralize sales of certain non-U.S. receivables. A substantial amount of the cash was held in foreign accounts in support of our non-U.S. operations. Were this non-U.S. cash to be repatriated, it could result in withholding taxes in foreign jurisdictions.

Operating activities provided $10 million of cash in 2003 due to reductions in inventories and trade receivables that resulted from our aggressive working capital management initiatives. Cash flows for 2003 also benefited from the receipt of $21 million of refunds of income taxes paid in prior years. These benefits were partially offset by reductions of certain current liabilities. In 2002, operating activities provided $36 million cash due principally to the results of our working capital management programs.

Investing activities used $31 million of cash in 2003, principally for post-closing adjustments related to the 2002 divestitures and for acquisitions and capital additions. In 2002, investing activities provided $301 million of cash due to the divestiture proceeds which were offset to some degree by capital expenditures and acquisition-related costs.

In 2003, financing activities used $6 million of cash, principally for debt repayments. In 2002, financing activities used $303 million of cash due to debt repayments using a portion of the divestiture proceeds.

Our current ratio related to continuing operations was 1.0 at December 31, 2003 compared to 1.6 at December 31, 2002. The change is due principally to the reclassification of $115 million of 8 3/8% Notes due March 15, 2004 from noncurrent liabilities at December 31, 2002 to current liabilities at December 31, 2003.

Total shareholders’ equity was a deficit of $34 million at December 31, 2003 a decrease of $168 million from December 31, 2002. The decrease resulted from the net loss incurred for the year which includes the effects of the $66 million goodwill impairment charge and the $71 million tax provision to establish U.S. valuation allowances.

Total debt was $323 million at December 31, 2003 compared to $302 million at December 31, 2002. The increase resulted entirely from currency effects and occurred despite $5 million of debt repayments during the year.

At December 31, 2003, we had lines of credit with various U.S. and non-U.S. banks totaling approximately $94 million, including a $65 million committed revolving credit facility. At December 31, 2003, $54 million of the revolving credit facility was utilized, including outstanding letters of credit of $12 million. The facility had a maturity date of March 15, 2004.

The revolving credit facility included a number of financial and other covenants, the most significant of which required us to achieve specified minimum levels of four quarter trailing cumulative consolidated EBITDA (earnings before interest, taxes, depreciation and amortization). At December 31, 2003, we were in compliance with all covenants.

On March 12, 2004, all amounts borrowed under our previous revolving credit facility were repaid and the commitments thereunder were terminated in connection with our agreement to enter into a new $140 million senior secured credit facility. See “Liquidity and Sources of Capital — March 12 Transactions.”

In addition to the senior secured credit facility, at June 30, 2004, we had other lines of credit with various U.S. and non-U.S. banks totaling approximately $28 million, of which approximately $15 million was available pursuant to the terms of the credit facilities. As of December 31, 2003, we had a number of credit lines in addition to our previous revolving credit facility totaling $29 million, of which approximately $15 million was available for use under various conditions. Under the terms of the previous revolving credit facility, increases in debt were primarily limited to current lines of credit and certain other indebtedness from other sources.

On June 10, 2004, all amounts borrowed under the $140 million senior secured credit facility were repaid and the commitments thereunder were terminated in connection with the refinancing transactions described below, which include our entering into of a new $75 million asset based revolving credit facility. See “Liquidity and Sources of Capital — June 10 Transactions.”

Our debt and credit are rated by Standard & Poor’s (S&P) and Moody’s Investors Service (Moody’s). On June 11, 2004, S&P announced that it had raised our corporate credit rating to B- with a “positive” outlook. On June 16, 2004, Moody’s reaffirmed our senior unsecured rating at Caa2 and our senior implied rating at Caa1 and raised the outlook to “positive.”

None of our debt instruments include rating triggers that would accelerate maturity or increase interest rates in the event of a ratings downgrade. Accordingly, any future 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.

Our accounts receivable purchase program with a third-party financial institution had been another important source of liquidity for the last several years. During the fourth quarter of 2003, the liquidity facility that supported the program was extended from the scheduled expiration date of December 31, 2003 to February 27, 2004. The receivables purchase agreement was also amended to mature at February 27, 2004. On February 27, 2004, the expiration of the liquidity facility and the maturity of the receivables purchase agreement were both extended to March 12, 2004. Including $2.9 million related to discontinued operations, $35.9 million of the $40.0 million facility was utilized at December 31, 2003.

On March 12, 2004, this facility was repaid. See “Liquidity and Sources of Capital — March 12 Transactions” below.

On March 12, 2004, we entered into a definitive agreement whereby Glencore and 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 8 3/8% Notes 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 (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, the common stock into which the Series A Notes were converted and 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 private placement of the 11 1/2% Senior Secured Notes 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. Our 11 1/2% Senior Secured Notes were issued at a discount to effectively yield 12% and the proceeds thereof were originally placed in escrow on May 26, 2004.

On June 10, 2004, we applied the proceeds of the 11 1/2% Senior Secured Notes, together with $7.3 million in borrowings under our asset based facility and approximately $10.3 million of cash on hand, to:

As of August 20, 2004, Glencore and Mizuho collectively owned 100% of the shares of our outstanding Series B Preferred Stock, which represents approximately 57% of our outstanding fully diluted equity (on an as-converted basis). Glencore has reported in a Schedule 13D filing with the SEC that it has sold an undivided participation interest in its investment in us to Triage Offshore Funds, Ltd. equivalent to 62,500 shares of Series B Preferred Stock, representing approximately 7.2% of our outstanding equity (on an as-converted basis), with Glencore remaining as the record holder of such shares. After we redeem a portion of Glencore’s and Mizuho’s shares of Series B Preferred Stock with the proceeds of the rights offering, Glencore’s and Mizuho’s collective holdings would represent approximately 40% of our outstanding equity, with Triage’s participation interest in Glencore’s holdings representing approximately 4.9% of our outstanding

equity, in each case on an as-converted basis and assuming full subscription in the rights offering. After seven years, the Series B Preferred Stock will automatically be converted into common stock at a conversion price of $2.00 per share but may be converted prior to that time at the option of the holders. The conversion price is subject to reset to $1.75 per share at the end of the second quarter of 2005 if a test based on our financial performance for 2004 is not satisfied. In addition, as part of the transaction we have issued to holders of the Series B Preferred Stock contingent warrants to purchase an aggregate of one million shares of our common stock, which contingent warrants are exercisable only if a test based on our financial performance for 2005 is not satisfied. Assuming that we do not complete this rights offering to our existing shareholders, and both the conversion price of the Series B Preferred Stock is reset to $1.75 and the contingent warrants are exercised, the holders of the Series B Preferred Stock would own approximately 60.9% of our fully diluted equity (on an as-converted basis).

The conversion of the Series A Notes into newly issued 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 this ownership change, the timing of our utilization of tax loss carryforwards and other tax attributes will be substantially delayed. This delay will increase income tax expense and decrease available cash in future years.

The holders of the Series B Preferred Stock, voting separately as a class, have the right to elect a number of directors to our Board of Directors in proportion to the percentage of fully diluted common stock represented by the outstanding 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).

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, inventory 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 in our assets that secure the 11 1/2% Senior Secured Notes 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. inventory and is subject to other conditions and limitations, including an excess availability reserve (the minimum required availability) of $10 million.

As of June 30, 2004 and without giving effect to issuances of letters of credit, we had approximately $58 million of borrowing availability, subject to the customary ability of the administrative agent for the lenders to reduce advance 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.

Our asset based facility contains customary conditions precedent to any borrowings, as well as customary affirmative and negative covenants, including, but not limited to, maintenance of $10.0 million of unused availability under the borrowing base. As of June 30, 2004, after giving effect to then-outstanding letters of credit, our availability after deducting the $10 million excess availability reserve was approximately $27 million. In addition, our asset based facility contains, for the first five quarters, a financial covenant requiring us to maintain a minimum level of cumulative consolidated EBITDA, to be tested quarterly. The EBITDA requirement for the third quarter of 2004 is $11.6 million and the cumulative fourth quarter requirement is $25.9 million. The facility also contains a limit on capital expenditures to be complied with on a quarterly basis, beginning with the third quarter of 2004. Thereafter, we will have to comply with a fixed charge coverage ratio to be tested quarterly.

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 0.75% 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 loans 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 0.5%.

Our asset based facility provides that we will pay a monthly unused line fee equal to 0.50% 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%. The other terms of our asset based facility are described under “Description of Certain Indebtedness — The Asset Based Facility.”

Since the cash we receive from collection of receivables is subject to an 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. The availability of borrowings under our asset based facility is subject to a borrowing base limitation, including an excess availability reserve, which may be adjusted by the administrative agent at its discretion, and the satisfaction of conditions to borrowing. If we have no additional availability or are unable to satisfy the borrowing conditions, our liquidity could be materially adversely affected.

Completion of the June 10 Transactions reduced our total debt from $362 million after completion of the March 12 Transactions to approximately $252 million. We expect these changes in our capital structure to leave us better-positioned to profit from the anticipated recovery of our markets and to pursue our growth and geographic diversification strategies.

We expect to generate positive cash flow from operating activities during 2004, which will be partially offset by up to $12 to $14 million for capital expenditures. 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 requirements for 2004.

However, during the year ended December 31, 2003, on a pro forma basis to give effect to the Refinancing Transactions, our earnings would have been inadequate to cover fixed charges by $122.2 million. We cannot assure you that our business will generate sufficient cash flow from operations to service our indebtedness and pay other expenses, that currently anticipated cost savings and operating improvements will be realized on schedule or at all or that future borrowings will be available to us under our asset based facility in an amount sufficient to enable us to make interest payments on the 11 1/2% Senior Secured Notes and our other indebtedness or to fund our other liquidity needs.

Our continued viability depends on realizing anticipated cost savings and operating improvements on schedule during 2004 and a significant improvement in demand levels in 2004 and beyond, the latter of which is largely beyond our control. Unless we realize anticipated cost savings and operating improvements on schedule and volume and pricing levels improve significantly, we may need to fund interest payments on the 11 1/2% Senior Secured Notes in part with the proceeds of borrowings under our asset based facility. However, our ability to borrow under our asset based facility is subject to borrowing base limitations, including an excess

availability reserve, which may be adjusted from time to time by the administrative agent for the lenders under our asset based facility at its discretion, and our satisfaction of certain conditions to borrowing under our asset based facility, 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 our business or financial condition. If we have no additional availability or are unable to satisfy the borrowing conditions, our liquidity would be impaired and we would need to sell assets, refinance debt or raise equity to service our debt and pay our expenses. We cannot assure you that we would be able to sell assets, refinance debt or raise equity on commercially acceptable terms or at all, which could cause us to default on our obligations under our indebtedness. Our inability to generate sufficient cash flow or draw sufficient amounts under our asset based facility to satisfy our debt obligations and pay our other expenses could cause us to default on our obligations and would have a material adverse effect on our business, financial condition and results of operations. See “Risk Factors — Risks Relating to Our Liquidity and Our Indebtedness.”

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