0000045370-95-000017.txt : 19950809 0000045370-95-000017.hdr.sgml : 19950809 ACCESSION NUMBER: 0000045370-95-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950808 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANNA M A CO/DE CENTRAL INDEX KEY: 0000045370 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 340232435 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05222 FILM NUMBER: 95559608 BUSINESS ADDRESS: STREET 1: SUITE 36 5000 STREET 2: 200 PUBLIC SQUARE CITY: CLEVELAND STATE: OH ZIP: 44114-2304 BUSINESS PHONE: 2165894000 FORMER COMPANY: FORMER CONFORMED NAME: HANNA MINING CO DATE OF NAME CHANGE: 19850523 10-Q 1 2ND QUARTER FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED June 30, 1995 COMMISSION FILE NUMBER 1-5222 M. A. HANNA COMPANY (Exact name of registrant as specified in its charter) STATE OF DELAWARE 34-0232435 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) SUITE 36-5000, 200 PUBLIC SQUARE, CLEVELAND, OHIO 44114-2304 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 216-589-4000 NOT APPLICABLE Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements forthe past 90 days. Yes X No Common Shares Outstanding, as of the close of the period covered by this report 35,495,642 M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES INDEX PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Statements of Income - Three Months and Six Months ended June 30, 1995 and 1994 2 Consolidated Balance Sheets - June 30, 1995 and December 31, 1994 3 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 1995 and 1994 4 Notes to Consolidated Financial Statements 5-6 Item 2. Management's Discussion and Analysis of Interim Financial Condition and Results of Operations. 7-9 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 10 -1- PART I M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 1995 1994 1995 1994 (Dollars in thousands except per share data) Net Sales $483,295 $422,516 $976,067 $811,036 Costs and Expenses Cost of goods sold 393,218 341,941 795,486 658,247 Selling, general and administrative 55,265 52,243 111,946 101,124 Other income (10,864) (569) (10,910) (1,047) Other expense 1,654 2,418 4,037 4,475 Interest on debt 7,216 6,777 14,153 14,343 Amortization 3,497 2,718 6,968 5,632 449,986 405,528 921,680 782,774 Income from Continuing Operations Before Extraordinary Item and Income Taxes 33,309 16,988 54,387 28,262 Income taxes 13,949 7,618 23,013 12,682 Income from Continuing Operations Before Extraordinary Item 19,360 9,370 31,374 15,580 Income from Discontinued Operations 42,406 2,573 45,337 4,620 Income Before Extraordinary Item 61,766 11,943 76,711 20,200 Extraordinary Item - (3,680) - (3,680) Net Income $ 61,766 $ 8,263 $ 76,711 $ 16,520 Net Income per Share of Common Stock Primary Continuing operations $ 0.62 $ 0.30 $ 1.01 $ 0.51 Discontinued operations 1.36 0.08 1.46 0.15 Extraordinary item - (0.12) - (0.12) Net income $ 1.98 $ 0.26 $ 2.47 $ 0.54 Fully diluted Continuing operations $ 0.61 $ 0.30 $ 0.99 $ 0.50 Discontinued operations 1.33 0.08 1.43 0.15 Extraordinary item - (0.12) - (0.12) Net income $ 1.94 $ 0.26 $ 2.42 $ 0.53 Dividends per common share $ 0.135 $ 0.125 $ 0.27 $ 0.25
-2- M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
June December 30, 1995 31, 1994 (Dollars in thousands) Assets Current Assets Cash and cash equivalents $ 102,626 $ 23,105 Short-term securities 40,139 - Receivables 276,246 247,116 Inventories: Finished products 135,404 116,718 Raw materials and supplies 48,442 44,542 183,846 161,260 Prepaid expenses 3,336 3,981 Deferred taxes 24,717 26,938 Net assets of discontinued operations - 103,215 Total current assets 630,910 565,615 Property, Plant and Equipment 373,968 342,543 Less allowances for depreciation and depletion 155,145 138,408 218,823 204,135 Other Assets Goodwill and other intangibles 330,641 330,757 Investments and other assets 65,505 79,803 Deferred taxes 30,729 34,850 426,875 445,410 $1,276,608 $1,215,160 Liabilities and Stockholders' Equity Current Liabilities Notes payable to banks $ 2,098 $ 931 Trade payables and accrued expenses 383,154 335,877 Current portion of long-term debt 643 683 Total current liabilities 385,895 337,491 Other Liabilities 172,324 173,888 Long-term Debt Senior notes 227,270 235,770 Other 5,192 53,099 232,462 288,869 Stockholders' Equity Preferred stock, without par value Authorized 5,000,000 shares Issued 132 shares - - Common stock, par value $1 Authorized 50,000,000 shares Issued 43,086,360 shares at June 30, 1995 and 43,015,494 shares at December 31, 1994 43,086 43,015 Capital surplus 311,305 299,725 Retained earnings 364,997 296,632 Associates ownership trust (118,589) (111,471) Cost of treasury stock (7,590,718 shares at June 30, 1995 and 7,321,400 shares at December 31, 1994) (110,743) (103,731) Minimum pension liability adjustment (7,262) (7,262) Accumulated translation adjustment 3,133 (1,996) 485,927 414,912 $1,276,608 $1,215,160
-3- M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED JUNE 30 1995 1994 (Dollars in thousands) Cash Provided from (Used for) Operations Net income $ 76,711 $16,520 Discontinued operations 4,797 6,422 Depreciation and amortization 23,608 19,653 Companies carried at equity: Income (2,789) (2,177) Dividends received 3,952 1,250 Changes in operating assets and liabilities: Receivables (26,101) (23,450) Inventories (28,516) (11,974) Prepaid expenses 324 (4,069) Trade payables and other accruals 37,553 25,711 Gain from sales of assets (84,427) - Restructuring obligations (5,835) (5,607) Extraordinary item - 6,034 Other 9,173 5,358 Net operating transactions 8,450 33,671 Cash Provided from (Used for) Investment Transactions Capital expenditures (29,000) (15,033) Acquisition of companies, less cash acquired - (1,875) Acquisition obligations (2,335) (3,176) Sales of assets 223,500 - Purchase of short-term securities (40,139) - Sale of short-term securities - 5,061 Other (6,051) (472) Net investment transactions 145,975 (15,495) Cash Provided from (Used for) Financing Transactions Cash dividends paid (8,346) (7,643) Proceeds from the sale of common stock 1,126 10,741 Purchase of shares for treasury (7,877) - Increase in debt 57,543 53,574 Reduction in debt (117,636) (85,822) Net financing transactions (75,190) (29,150) Effect of exchange rate changes on cash 286 (445) Cash and Cash Equivalents Increase (Decrease) 79,521 (11,419) Beginning of period 23,105 37,645 End of period $102,626 $26,226 Cash paid during period Interest $ 14,794 $16,253 Income taxes 22,065 8,843
-4- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1995 Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and in the opinion of the Company include all adjustments necessary to present fairly the results of operations, financial position, and changes in cash flow. Reference should be made to the footnotes included in the 1994 Annual Report. The results of operations for the interim periods are not necessarily indicative of the results expected for the full year. Discontinued Operations In December 1994, the Company adopted a plan to sell its Day International printing and textile business. The business consists of the manufacturing of printing blankets and other consumables for the printing industry and the manufacturing of engineered consumable supplies for the textile industry. In April 1995, the Company announced it had entered into an agreement to sell the business to American Industrial Partners Capital Fund. The sale consummated on June 6, 1995 with the Company realizing a gain from the sale of $40,254,000. Had the sale been consummated as of January 1, 1994, fully diluted earnings per share from continuing operations would have been $.64 and $.31 for the three months ended June 30, 1995 and 1994, respectively and $1.05 and $.52 for the six months ended June 30, 1995 and 1994, respectively. Net Income Per Share of Common Stock Primary net income per share of common stock is computed by dividing net income applicable to common stock by the average number of shares outstanding during the period (31,144,475 and 30,858,926 for the three month periods ended June 30, 1995 and 1994, respectively, and 31,097,721 and 30,750,684 for the six month periods ended June 30, 1995 and 1994, respectively). Shares of common stock held by the Associates Ownership Trust ("AOT") enter into the determination of the average number of shares outstanding as the shares are released from the AOT to fund a portion of the Company's obligations under certain of its employee compensation and benefit plans. The effect of assuming the exercise of stock options was not significant in 1995 and 1994. -5- The number of shares used to compute fully dilutive net income per share is based on the number of shares used for primary net income per share increased by the number of shares reserved under earnout provisions of purchase agreements and the common stock equivalents which would arise from the exercise of stock options and stock warrants. The average number of shares used in the computation were 31,792,339 and 31,478,730 for the three month periods ended June 30, 1995 and 1994, respectively, and 31,750,525 and 31,376,188 for the six month periods ended June 30, 1995 and 1994, respectively. -6- MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net sales increased $60.8 million in the second quarter of 1995 and $165.0 million in the first six months of 1995 as compared with the 1994 periods. Sales from processing businesses increased $23.3 million in the second quarter of 1995 and $78.4 million in the first six months of 1995 over comparable 1994 periods due to pricing, acquisitions made in 1994 and the impact of exchange, partially offset by lower volume. Sales from distribution businesses increased from $187.3 million in the second quarter of 1994 to $220.1 million in the comparable 1995 period and from $358.2 million in the first six months of 1994 to $439.1 million in the first six months of 1995 due to higher unit volumes and pricing. Sales from other operations were comparable with prior year levels. Gross margins were 18.6% in the second quarter of 1995 and 18.5% for the first six months compared with 19.1% and 18.8%, respectively, for the comparable 1994 periods. Absent the provision in 1995 for inventories valued by the last-in first-out cost method, gross margins would have been 19.1% and 19.0% in the second quarter and first six months of 1995, respectively. Selling, general and administrative costs increased $3.0 million in the second quarter of 1995 and $10.8 million in the first six months of 1995 due to acquisitions made in 1994 and higher sales activities from existing businesses. However, as a percentage of sales, selling, general and administrative expenses decreased from 12.4% and 12.5% in the 1994 periods to 11.4% and 11.5% in the comparable 1995 periods, reflecting the Company's ongoing efforts to manage these costs. Other income in the second quarter and first six months of 1995 includes a gain of $9.3 million from the sale of its 8% interest in Iron Ore Company of Canada. The Company will continue to receive fees as managing agent and from its interest in the sales agency through 1996. In December 1994, the Company adopted a plan to sell its Day International printing and textile business. Accordingly, the results of that business were reclassified as discontinued operations. In June 1995, the previously announced sale of the business to American Industrial Partners Capital Fund was consummated with the Company recognizing a gain of $40.3 million. The extraordinary item in 1994 of $3.7 million is the premium associated with the repurchase of $64 million of the Company's Senior Notes. -7- Liquidity and Sources of Capital Operating activities provided $8.5 million in the first half of 1995. This amount includes the use of $55.2 million for working capital and $5.8 million for the payment of obligations related to prior restructurings. Investment activities provided $146.0 million which includes $223.5 million from the sale of assets, partially offset by $29.0 million for capital expenditures and $40.1 million invested in short-term securities. Financing activities used $75.2 million and include $60.1 million in net reductions of long-term debt, $8.3 million for dividends and $7.9 million for the purchase of stock for treasury. The Company has a credit agreement which provides commitments for borrowings up to $200 million through June 1998. The agreement provides for interest rates to be determined at the time of borrowing based on a choice of formulas specified in the agreement. At June 30, 1995, there were no borrowings outstanding under this agreement. The current ratio was 1.6:1 at June 30, 1995 compared with 1.7:1 at December 31, 1994. Long-term debt to total capital was 32.4% at June 30, 1995 compared with 41.0% at December 31, 1994. Environmental Matters The Company is subject to various laws and regulations concerning environmental matters. The Company is committed to a long-term environmental protection program that reduces releases of hazardous materials into the environment as well as to the remediation of identified existing environmental concerns. The Company is involved in certain legal actions and claims arising in the ordinary course of business including lawsuits brought by the State of Idaho in 1983 and the United States government in 1993 seeking reimbursement from the Company and other defendants for alleged damages to the environment and clean-up costs for the area around the Blackbird Mine in Idaho. The Company and other principal defendants have entered into a settlement agreement among themselves allocating a minor share of responsibility to the Company. In turn, a Consent Decree was executed among the principal defendants and the State of Idaho and the United States government and was lodged with the Court on April 28, 1995. Assuming the Consent Decree is entered by the Court in its present form, all liability issues affecting the Company in these legal proceedings will have been settled without a material adverse effect on the results of operations or the financial position of the Company. Claims have also been made against a subsidiary of the Company for costs of environmental remediation measures taken or to be taken in connection with operations that have been sold or closed. These include the clean-up of -8- Superfund sites and participation with other companies in the clean-up of hazardous waste disposal sites, several of which have been designated as Superfund sites. In April 1994, the New Jersey Department of Environmental Protection and Energy finalized a Record of Decision, which incorporates the agreed upon remediation to be performed by the Company's subsidiary at its Wharton, New Jersey site. Reserves for such liabilities have been established and no insurance recoveries have been anticipated in the determination of reserves. In management's opinion, the aforementioned litigation and claims will be resolved without material adverse effect on the financial position of the Company. -9- PART II Item 6. Exhibits and Reports on Form 8-K a) During the quarter ended June 30, 1995, the Registrant filed Current Report on Form 8-K dated June 21, 1995 reporting that the Registrant had completed the previously announced disposition of its printing and textile businesses to Day International Group, Inc., a company newly organized by American Industrial Partners. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. M. A. HANNA COMPANY (Registrant) ________________________ /s/ Thomas E. Lindsey Controller (Principal Accounting Officer) Date: August 8, 1995 -10- EX-27 2
5 1,000 6-MOS DEC-31-1995 JUN-30-1995 102,626 40,139 288,219 11,973 183,846 630,910 373,968 155,145 1,276,608 385,895 232,462 43,086 0 0 442,841 1,276,608 976,067 976,067 795,486 795,486 0 1,805 14,153 54,387 23,013 31,374 45,337 0 0 76,711 2.47 2.42