-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D5KfJv035dYgIgQ0ewRfqHnULXQQxsTnFzwzkkjpS2Xy+ZSnN76w7H7G1QMDdPLt Pa4YG21GsOY3lE/16eqyOg== 0000045370-97-000005.txt : 19970512 0000045370-97-000005.hdr.sgml : 19970512 ACCESSION NUMBER: 0000045370-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970509 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANNA M A CO/DE CENTRAL INDEX KEY: 0000045370 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PLASTIC PRODUCTS [3080] 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: 97598818 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 1ST 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 March 31, 1997 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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No Common Shares Outstanding, as of the close of the period covered by this report 50,885,153. M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES INDEX PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Statements of Income - Three Months ended March 31, 1997 and 1996 2 Consolidated Balance Sheets - March 31, 1997 and December 31, 1996 3 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1997 and 1996 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Interim Financial Condition and Results of Operations. 6-7 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 8 Item 6. Exhibits and Reports on Form 8-K 8 -1- PART I M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) FIRST QUARTER 1997 1996 (Dollars in thousands except per share data) Net Sales $527,629 $497,451 Costs and Expenses Cost of goods sold 426,152 405,995 Selling, general and administrative 66,331 58,312 Interest on debt 5,132 6,036 Amortization of intangibles 3,588 3,499 Other - net 171 183 501,374 474,025 Income Before Income Taxes and Extraordinary Charge 26,255 23,426 Income taxes 11,027 10,073 Income Before Extraordinary Charge 15,228 13,353 Extraordinary charge - (1,575) Net Income $ 15,228 $ 11,778 Net Income per Share Primary Income before extraordinary charge $ .34 $ .29 Extraordinary charge - (.03) Net income $ .34 $ .26 Fully diluted Income before extraordinary charge $ .33 $ .28 Extraordinary charge - (.03) Net income $ .33 $ .25 Dividends per common share $ .105 $ .097 -2- M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
March December 31, 1997 31, 1996 (Dollars in thousands) Assets Current Assets Cash and cash equivalents $ 39,476 $ 30,028 Receivables 320,320 293,625 Inventories: Finished products 137,600 134,655 Raw materials and supplies 47,090 44,509 184,690 179,164 Prepaid expenses 8,739 7,679 Deferred income taxes 17,938 23,043 Total current assets 571,163 533,539 Property, Plant and Equipment 455,243 452,668 Less allowances for depreciation 205,666 198,261 249,577 254,407 Other Assets Goodwill and other intangibles 353,021 355,538 Investments and other assets 72,022 70,678 Deferred income taxes 40,300 36,617 465,343 462,833 $1,286,083 $1,250,779 Liabilities and Stockholders' Equity Current Liabilities Notes payable to banks $ 1,281 $ 2,304 Trade payables and accrued expenses 354,348 348,608 Current portion of long-term debt 956 1,027 Total current liabilities 356,585 351,939 Other Liabilities 179,589 182,852 Long-term Debt Senior notes 124,960 124,960 Other 114,850 82,745 239,810 207,705 Stockholders' Equity Preferred stock, without par value Authorized 5,000,000 shares Issued -0- shares - - Common stock, par value $1 Authorized 50,000,000 shares Issued 65,366,495 shares at March 31, 1997 and 65,261,907 shares at December 31, 1996 65,366 65,262 Capital surplus 328,640 329,543 Retained earnings 427,757 417,228 Associates ownership trust (131,040) (134,704) Cost of treasury stock (14,481,342 shares at March 31, 1997 and 14,272,092 shares at December 31, 1996) (171,653) (165,675) Minimum pension liability adjustment (5,018) (5,018) Accumulated translation adjustment (3,953) 1,647 510,099 508,283 $1,286,083 $1,250,779
-3- M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED MARCH 31 1997 1996 (Dollars in thousands) Cash Provided from (Used for) Operating Activities Net income $15,228 $11,778 Depreciation and amortization 13,273 12,370 Companies carried at equity: Income (967) (995) Dividends received 1,401 1,415 Changes in operating assets and liabilities: Receivables (30,051) (24,201) Inventories (6,361) 1,129 Prepaid expenses (1,146) 907 Trade payables and accrued expenses 4,030 3,953 Restructuring payments (1,654) (1,294) Gain on sale of assets (3,250) - Restructuring charges 3,050 - Other 2,086 2,711 Extraordinary charge - 2,582 Net operating activities (4,361) 10,355 Cash Provided from (Used for) Investing Activities Capital expenditures (8,449) (7,637) Acquisitions of businesses, less cash acquired (6,280) (45,812) Acquisition payments (12,896) (625) Sales of assets 6,361 - Other 5,130 1,174 Net investing activities (16,134) (52,900) Cash Provided from (Used for) Financing Activities Cash dividends paid (4,699) (4,403) Proceeds from the sale of common stock 1,379 941 Purchase of shares for treasury (7,928) (538) Increase in debt 43,500 11,787 Reduction in debt (1,215) (36,351) Net financing activities 31,037 (28,564) Effect of exchange rate changes on cash (1,094) 242 Cash and Cash Equivalents Increase (decrease) 9,448 (70,867) Beginning of period 30,028 111,235 End of period $39,476 $40,368 Cash paid during period Interest $ 7,605 $11,296 Income taxes 1,929 1,352
-4- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1997 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 1996 Annual Report. The results of operations for the interim periods are not necessarily indicative of the results expected for the full year. Acquisitions In February 1997, the Company purchased Enviro Care Compounds, a producer of halogen-free flame retardant plastic compounds based in Norway. The acquisition was accounted for using the purchase method of accounting. Had the acquisition been made at the beginning of 1996, reported pro forma results of operations for the first quarter of 1997 and 1996 would not be materially different. 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 (44,996,787 in 1997 and 45,723,759 in 1996). 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 1997 and 1996. The number of shares used to compute fully diluted net income per share is based on the number of shares used for primary net income per share increased by 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 was 46,014,396 in 1997 and 47,014,867 in 1996. In February 1997, the Financial Accounting Standards Board issued Statement No. 128 "Earnings Per Share". This statement simplifies the standards for computing earnings per share previously found in APB Opinion No. 15 "Earnings Per Share". The Company does not believe the new standard will have a material impact on previously reported earnings per share when adopted in the fourth quarter of 1997. Long-term Debt In 1996, the Company repurchased $34,650,000 principal amount of Senior Notes in the open market resulting in an extraordinary charge of $2,582,000 ($1,575,000 after tax). -5- MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net sales increased from $497.5 million in 1996 to $527.6 million in 1997. Sales from processing businesses were $297.2 million in 1997 compared with $270.7 million in 1996. Acquisitions accounted for $25.1 million of the increase in sales with increased volume accounting for the balance of the increase. Distribution sales increased $8.8 million to $231.9 million in 1997 due to higher volume. Sales from other operations decreased by $1.9 million from 1996 due to the expiration of the Company's management contract with Iron Ore Company of Canada as of December 31, 1996 and the sale of the Company's ownership interest in the sales agency in February 1997. Gross margins increased by $10.0 million from 18.4% in 1996 to 19.2% in 1997. Increased focus on operating efficiencies within the processing businesses resulted in margin improvements while volume increases in both segments resulted in improved absorption of fixed costs. Selling, general and administrative expenses increased $8.0 million as the result of acquisitions made in 1996, costs associated with the implementation and development of HannaLink TM and general economic cost increases. As a percentage of sales, selling, general and administrative expenses were 12.6% in 1997 and 11.7% in 1996. Interest on debt decreased from $6.0 million in 1996 to $5.1 million in 1997 due to the repurchase of $102.3 million of its Senior Notes in the first and second quarters of 1996. This debt was replaced with lower rate borrowings. Other income includes a gain of $3.3 million from the sale in February 1997 of the Company's remaining interest in the Iron Ore Company of Canada sales agency. Additionally, the Company recorded a $2.1 million provision for two plant closings and start-up cost for a new plant within its processing operations and a $1.0 million charge for the reengineering of the resin distribution business. The Company's effective tax rate decreased from 43% in the first quarter of 1996 to 42% in the first quarter of 1997, reflecting the Company's ongoing efforts to reduce its overall effective tax. Liquidity and Sources of Capital Operating activities utilized $4.4 million of cash during the first quarter of 1997, the result of $33.5 million of working capital requirements. Investing activities utilized $16.1 million of cash including $12.9 for acquisition payments and $8.4 for capital expenditures, -6- offset by the proceeds from the sale of the ownership interest in the Iron Ore Company of Canada sales agency. Financing activities provided $31.0 million of cash as a result of $43.5 million of borrowings offset by $7.9 million used to repurchase common stock and $4.7 million used to pay dividends. The Company entered into a new credit agreement during the quarter which provides commitments for borrowings up to $200 million through January 2002. The arrangement provides for interest rates to be determined at the time of borrowing based on a choice of formulas specified in the agreement. At March 31, 1997, there were no borrowings outstanding under this agreement. The current ratio was 1.6:1 at March 31, 1997 compared with 1.5:1 at December 31, 1996. Debt to total capital was 32.0% at March 31, 1997 and 29.0% at December 31, 1996. 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. Claims have been made against the Company and certain subsidiaries 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 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. 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 claims will be resolved without material adverse effect on the financial position or results of operations of the Company. Other Any forward-looking statements included in this quarterly report are based on current expectations. Any statements in this report that are not historical in nature are forward-looking statements. Actual results may differ materially depending on business conditions and growth in the plastics and rubber industries and general economy, foreign political and economic developments, availability and pricing of raw materials, changes in product mix, shifts in market demand, and changes in prevailing interest rates. -7- PART II Item 4. Submission of Matters to a Vote of Security Holders a.) Annual meeting of stockholders held May 7, 1997. b.) Proxies for the meeting were solicited pursurant to Regulation 14 under the Securities Exchange Act of 1934; there was no solicitation in opposition to management nominees as listed in the Proxy Statement; and ten directors were elected. c.) The appointment of Price Waterhouse LLP as the Company's independent public accountants for the year 1997 was ratified and approved. There were 45,424,500 shares voted in the affirmative, 132,395 shares voted in the negative and 960,223 shares abstained. d) The amendment to the 1988 Long-Term Incentive Plan to increase the number of shares of common stock that may be sold or delivered under the Plan by 1,500,000 shares was ratified and approved. There were 38,772,520 shares voted in the affirmative, 6,837,501 shares voted in the negative and 839,040 shares abstained. Item 6. Exhibits and Reports of Form 8-K a) No reports on Form 8-K were filed during the quarter for which this report is filed. 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 Thomas E. Lindsey Controller (Principal Accounting Officer) Date: May 9, 1997 -8- EX-27 2 1ST QUARTER FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 MAR-31-1997 39,476 0 327,089 6,769 184,690 571,163 455,243 205,666 1,286,083 356,585 239,810 0 0 65,366 444,733 1,286,083 527,629 527,629 426,152 426,152 0 708 5,132 26,255 11,027 15,228 0 0 0 15,228 .34 .33
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