-----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, JcgHhBpe3ALrQRgcaUBaulnmB/ICzhNJFQAHV8LeNXe+jdzd3KYU4HEUnLA+UpRs LjeXZXYgZFAiKjN4mUBvVg== 0000045370-97-000009.txt : 19970804 0000045370-97-000009.hdr.sgml : 19970804 ACCESSION NUMBER: 0000045370-97-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970801 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: 97650335 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, 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 50,972,654. 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, 1997 and 1996 2 Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 3 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1997 and 1996 4 Notes to Consolidated Financial Statements 5-6 Item 2. Management's Discussion and Analysis of Interim Financial Condition and Results of Operations. 7-8 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 9 -1- PART 1 M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended June 30 1997 1996 Net Sales $555,382 $537,348 Costs and Expenses Cost of goods sold 449,362 438,753 Selling, general and administrative 67,854 61,467 Interest on debt 5,399 5,195 Amortization of intangibles 3,564 3,576 Other - net (287) 887 525,892 509,878 Income Before Income Taxes and Extraordinary Charge 29,490 27,470 Income taxes 12,386 11,812 Income Before Extraordinary Charge 17,104 15,658 Extraordinary Charge - (3,777) Net Income $ 17,104 $ 11,881 Net Income per Share of Common Stock Primary Income before extraordinary charge $ .38 $ .34 Extraordinary charge - (.08) Net income $ .38 $ .26 Fully diluted Income before extraordinary charge $ .37 $ .33 Extraordinary charge - (.08) Net income $ .37 $ .25 Dividends per common share $ .105 $ .10 Six Months Ended June 30 1997 1996 (Dollars in thousands except per share data) Net Sales $1,083,011 $1,034,799 Costs and Expenses Cost of goods sold 875,514 844,748 Selling, general and administrative 134,185 119,779 Interest on debt 10,531 11,231 Amortization of intangibles 7,152 7,075 Other - net (116) 1,070 1,027,266 983,903 Income Before Income Taxes and Extraordinary Charge 55,745 50,896 Income taxes 23,413 21,885 Income Before Extraordinary Charge 32,332 29,011 Extraordinary Charge - (5,352) Net Income $ 32,332 $ 23,659 Net Income per Share of Common Stock Primary Income before extraordinary charge $ .72 $ .63 Extraordinary charge - (.11) Net income $ .72 $ .52 Fully diluted Income before extraordinary charge $ .69 $ .61 Extraordinary charge - (.11) Net income $ .69 $ .50 Dividends per common share $ .21 $ .197 -2- M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
June December 30, 1997 31, 1996 (Dollars in thousands) Assets Current Assets Cash and cash equivalents $ 42,719 $ 30,028 Receivables 332,276 293,625 Inventories: Finished products 145,426 134,655 Raw materials and supplies 48,733 44,509 194,159 179,164 Prepaid expenses 9,880 7,679 Deferred income taxes 20,588 23,043 Total current assets 599,622 533,539 Property, Plant and Equipment 465,411 452,668 Less allowances for depreciation 213,826 198,261 251,585 254,407 Other Assets Goodwill and other intangibles 348,341 355,538 Investments and other assets 72,749 70,678 Deferred income taxes 37,100 36,617 458,190 462,833 $1,309,397 $1,250,779 Liabilities and Stockholders' Equity Current Liabilities Notes payable to banks $ 1,971 $ 2,304 Trade payables and accrued expenses 368,281 348,608 Current portion of long-term debt 531 1,027 Total current liabilities 370,783 351,939 Other Liabilities 181,867 182,852 Long-term Debt Senior notes 124,960 124,960 Other 108,693 82,745 233,653 207,705 Stockholders' Equity Preferred stock, without par value Authorized 5,000,000 shares Issued -0- shares - - Common stock, par value $1 Authorized 100,000,000 shares Issued 65,462,696 shares at June 30, 1997 and 65,261,907 shares at December 31, 1996 65,463 65,262 Capital surplus 370,865 329,543 Retained earnings 440,150 417,228 Associates ownership trust (170,360) (134,704) Cost of treasury stock (14,498,335 shares at June 30, 1997 and 14,272,092 shares at December 31, 1996) (171,905) (165,675) Minimum pension liability adjustment (5,018) (5,018) Accumulated translation adjustment (6,101) 1,647 523,094 508,283 $1,309,397 $1,250,779
-3- M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) SIX MONTHS ENDED JUNE 30 1997 1996 (Dollars in thousands) Cash Provided from (Used for) Operating Activities Net income $ 32,332 $ 23,659 Depreciation and amortization 26,617 25,298 Companies carried at equity: Income (2,248) (2,017) Dividends received 3,322 3,191 Changes in operating assets and liabilities: Receivables (44,496) (37,592) Inventories (16,977) 7,861 Prepaid expenses (2,390) (840) Trade payables and accrued expenses 27,798 15,461 Restructuring payments (3,648) (5,618) Gain on sale of assets (3,250) - Restructuring charges 3,050 - Other 3,561 5,333 Extraordinary charge - 8,774 Net operating activities 23,671 43,510 Cash Provided from (Used for) Investing Activities Capital expenditures (18,029) (14,560) Acquisitions of businesses, less cash acquired (11,019) (48,803) Acquisition payments (12,900) (669) Sales of assets 6,361 11,820 Other 4,855 5,980 Net investing activities (30,732) (46,232) Cash Provided from (Used for) Financing Activities Cash dividends paid (9,409) (8,989) Proceeds from the sale of common stock 2,509 6,503 Purchase of shares for treasury (8,179) (2,759) Increase in debt 101,968 43,403 Reduction in debt (65,614) (110,735) Net financing activities 21,275 (72,577) Effect of exchange rate changes on cash (1,523) 315 Cash and Cash Equivalents Increase (decrease) 12,691 (74,984) Beginning of period 30,028 111,235 End of period $ 42,719 $ 36,251 Cash paid during period Interest $ 10,213 $ 14,234 Income taxes 11,970 12,279 -4- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 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. In June 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 130 "Reporting Comprehensive Income" and Statement No. 131 "Disclosures about Segments of an Enterprise and Related Information". The Company is currently analyzing the impact of these standards. Acquisitions In February 1997, the Company purchased Enviro Care Compounds, a producer of halogen-free flame retardant plastic compounds based in Norway. In May 1997, the Company purchased the former Sadolin Masterbatch, a plastic color and additive concentrate business based in Denmark. Both acquisitions were accounted for using the purchase method of accounting. Had the acquisitions been made at the beginning of 1996, reported pro forma results of operations for the second quarter or first six months 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 (45,334,290 in 1997 and 46,118,428 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 46,769,041 in 1997 and 47,280,171 in 1996. In February 1997, the FASB issued Statement No. 128 "Earnings Per Share". The Company expects that the new standard will not have an impact on previously reported earnings per share when adopted in the fourth quarter of 1997. -5- Long-term Debt During the second quarter of 1997, the Company issued $50 million of Medium Term Notes under its Shelf Registration Statement filed with the Securities and Exchange Commission in 1996. The notes bear interest at rates from 7.07% to 7.16%, are due between 2006 and 2008 and pay interest semi-annually. In 1996, the Company repurchased $102,310,000 principal amount of Senior Notes in the open market resulting in an extraordinary charge of $8,774,000 ($5,352,000 after tax). -6- MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net sales increased $18.0 million in the second quarter of 1997 and $48.2 million in the first six months of 1997 as compared with the 1996 periods. Sales in the processing segment increased by $9.0 million or 3.0% and $35.5 million or 6.3% for the second quarter and for the first six months of 1997 as compared to 1996. Acquisitions since 1996 contributed $8.6 million and $33.7 million to sales for the second quarter and first six months of 1997. Volume increases within the processing segment were offset by decreases in sales due to changes in pricing and product mix. Distribution sales increased by $15.8 million or 6.7% for the second quarter and by $24.6 or 5.4% for the six months ended June 30, 1997 as compared to the same periods in 1996. International volume increases drove revenue increases within this segment. Sales in both segments have been adversely impacted by the strengthening of the U.S. dollar. Overall, currency translation has reduced sales by 1%. Gross margins were 19.1% in the second quarter of 1997 and 19.2% for the first six months of 1997 compared with 18.3% and 18.4%, respectively, for the comparable 1996 periods. Margins have been positively impacted by a 1% decrease in average raw material costs for the quarter versus the second quarter of 1996. Operating efficiencies implemented in the processing businesses have driven higher margins as well as increased volumes have led to improved absorption of fixed costs. Selling, general and administrative expenses increased $6.4 million in the second quarter of 1997 and $14.4 million in the first six months of 1997 due in part to acquisitions made in 1996 and 1997. As a percentage of sales, selling, general and administrative costs were 12.2% in the second quarter of 1997 and 12.4% for the first six months of 1997 compared with 11.4% and 11.6% respectively, for the comparable 1996 periods. The increase in selling, general and administrative costs is attributable to acquisitions, general economic costs and the implementation of common business information systems. Interest on debt increased by $.2 million in the second quarter of 1997 and decreased by $.7 million in the first six months of 1997. The Company repurchased $102.3 million of its Senior Notes in the first six months of 1996, resulting in an after-tax extraordinary charge of $5.4 million. Interest expense decreased for the six months due to the replacement of the Senior Notes with lower rate borrowings; however, increased debt levels associated with acquisitions have begun to offset the savings from lower rates during the second quarter. Other net 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 its resin distribution business. -7- Liquidity and Sources of Capital Operating activities provided $23.7 million of cash during the first six months of 1997 after providing for working capital requirements of $36.1 million. The Company used $30.8 million of cash for investing activities including $18.0 million for capital expenditures and $11.0 million for the purchase of new businesses. Financing activities provided $21.3 million primarily as a result of increases in debt offset by dividend payments of $9.4 million and cash used to repurchase shares of $8.2 million. The Company has a credit agreement 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 June 30, 1997, there were no borrowings supported by this agreement. During the second quarter, the Company issued $50.0 million of Medium Term Notes under its Shelf Registration Statement filed with the Securities and Exchange Commission in 1996. The notes bear interest at rates from 7.07% to 7.16%, are due between 2006 and 2008 and pay interest semi-annually. The current ratio was 1.6:1 at June 30, 1997 compared with 1.5:1 at December 31, 1996. Debt to total capital was 30.9% at June 30, 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 principally 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, fluctuations in exchange rates, availability and pricing of raw materials, changes in product mix, shifts in market demand, and changes in prevailing interest rates. -8- PART II Item 6. Exhibits and Reports of Form 8-K a) During the quarter ended June 30, 1997, the Registrant filed Current Report on Form 8-K dated June 24, 1997 updating the exhibit to its Registration Statement on Form S-3 (File No. 333-5763), which was declared effective November 8, 1996. 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: August 1, 1997 -9- EX-27 2 2ND QUARTER FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JUN-30-1997 42,719 0 339,301 7,025 194,159 599,622 465,411 213,826 1,309,397 370,783 233,653 0 0 65,463 457,631 1,309,397 555,382 555,382 449,362 449,362 0 698 5,399 29,490 12,386 17,104 0 0 0 17,104 .38 .37
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