-----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, NGnPr3TUDo9+JgpvEJwRoMRijtXBaJ4OxytD+kvVmGIbKoeBpsc3hcEeQTYa8RbL 7BOHMH4UzeQYyal+bdgUrA== 0000045370-98-000004.txt : 19980512 0000045370-98-000004.hdr.sgml : 19980512 ACCESSION NUMBER: 0000045370-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980511 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: SEC FILE NUMBER: 001-05222 FILM NUMBER: 98615094 BUSINESS ADDRESS: STREET 1: STE 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, 1998 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 50,079,559. 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, 1998 and 1997 2 Consolidated Balance Sheets - March 31, 1998 and December 31, 1997 3 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1998 and 1997 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 4. Submission of Matters to a Vote of Security Holders 9 Item 6. Exhibits and Reports on Form 8-K 9 -1- M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) FIRST QUARTER 1998 1997 (Dollars in thousands except per share data) Net Sales $591,501 $527,629 Costs and Expenses Cost of goods sold 477,272 426,152 Selling, general and administrative 74,864 66,331 Interest on debt 8,272 5,132 Amortization of intangibles 4,057 3,588 Other - net 1,141 171 565,606 501,374 Income Before Income Taxes 25,895 26,255 Income taxes 10,488 11,027 Net Income $ 15,407 $ 15,228 Net Income per Share Basic $ .34 $ .34 Diluted $ .34 $ .33 Dividends per common share $ .1125 $ .1050 -2- M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
March December 31, 1998 31, 1997 (Dollars in thousands) Assets Current Assets Cash and cash equivalents $ 44,772 $ 41,430 Receivables 367,584 332,347 Inventories: Finished products 173,656 161,731 Raw materials and supplies 66,605 65,430 240,261 227,161 Prepaid expenses 10,697 10,976 Deferred income taxes 28,610 31,005 Total current assets 691,924 642,919 Property, Plant and Equipment 538,163 523,269 Less allowances for depreciation 243,504 234,956 294,659 288,313 Other Assets Goodwill and other intangibles 469,643 420,696 Investments and other assets 90,721 87,608 Deferred income taxes 30,697 29,469 591,061 537,773 $1,577,644 $1,469,005 Liabilities and Stockholders' Equity Current Liabilities Notes payable to banks $ 4,688 $ 2,919 Trade payables and accrued expenses 399,299 393,925 Current portion of long-term debt 714 2,149 Total current liabilities 404,701 398,993 Other Liabilities 209,686 205,480 Long-term Debt Senior notes 124,960 124,960 Medium-term notes 160,000 120,000 Other 133,695 80,267 418,655 325,227 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 65,875,056 shares at March 31, 1998 and 65,749,570 shares at December 31, 1997 65,875 65,750 Capital surplus 354,924 358,145 Retained earnings 473,027 462,653 Associates ownership trust (134,061) (144,213) Cost of treasury stock (15,795,497 shares at March 31, 1998 and 15,272,602 shares at December 31, 1997) (202,231) (191,066) Accumulated translation adjustment (12,932) (11,964) 544,602 539,305 $1,577,644 $1,469,005 -3- M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) THREE MONTHS ENDED MARCH 31 1998 1997 (Dollars in thousands) Cash Provided from (Used for) Operating Activities Net income $ 15,407 $ 15,228 Depreciation and amortization 14,393 13,273 Companies carried at equity: Income (891) (967) Dividends received 500 1,401 Changes in operating assets and liabilities: Receivables (32,190) (30,051) Inventories (10,730) (6,361) Prepaid expenses 242 (1,146) Trade payables and accrued expenses 9,067 4,030 Restructuring payments (656) (1,654) Gain on sale of assets - (3,250) Restructuring charges - 3,050 Other 4,104 2,086 Net operating activities (754) (4,361) Cash Provided from (Used for) Investing Activities Capital expenditures (15,937) (8,449) Acquisitions of businesses, less cash acquired (59,114) (6,280) Acquisition payments (207) (12,896) Sales of assets - 6,361 Other 1,306 5,130 Net investing activities (73,952) (16,134) Cash Provided from (Used for) Financing Activities Cash dividends paid (5,032) (4,699) Proceeds from the sale of common stock 1,498 1,379 Purchase of shares for treasury (6,113) (7,928) Increase in debt 94,397 43,500 Reduction in debt (6,185) (1,215) Net financing activities 78,565 31,037 Effect of exchange rate changes on cash (517) (1,094) Cash and Cash Equivalents Increase (decrease) 3,342 9,448 Beginning of period 41,430 30,028 End of period $ 44,772 $ 39,476 Cash paid during period Interest $ 8,688 $ 7,605 Income taxes 2,385 1,929 -4- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1998 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 1997 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 1998, the Company announced the acquisition of Melos Carl Bosch GmbH & Co. based in Melle, Germany. Melos produces rubber, thermoplastic elastomer and plastic compounds for the wire and cable, sport and recreation and automotive markets. In March 1998, the Company acquired a line of halogen free, low- smoke flame retardant compounds from Exxon. These products will compliment the compounds currently marketed by the Company's subsidiary, Enviro Care Compounds, based in Norway. These acquisitions were accounted for using the purchase method of accounting. Had the acquisitions been made at the beginning of 1997, reported pro forma results of operations for the first quarter of 1998 and 1997 would not be materially different. Net Income Per Share of Common Stock Basic net income per share is computed by dividing net income applicable to common stock by the average number of shares outstanding during the period (44,871,546 in 1998 and 44,996,787 in 1997). 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 number of shares used to compute diluted net income per share is based on the number of shares used for basic net income per share increased by the common stock equivalents which would arise from the exercise of stock options. The average number of shares used in the computation was 45,720,484 in 1998 and 46,014,396 in 1997. Comprehensive Income Comprehensive income for the first quarter of 1998 and 1997 was $14,439 and $9,628, respectively. Comprehensive income includes net income and foreign currency translation adjustments for the quarters ending March 31, 1998 and 1997. Long-term Debt During the first quarter of 1998, the Company issued $40 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 6.52% to 6.58%, are due in 2010 and 2011 and pay interest semi-annually. -5- Pending Accounting Changes In June 1997, the Financial Accounting Standards Board issued Statement No. 131 "Disclosures about Segments of an Enterprise and Related Information"; and in February 1998, Statement No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits" was issued. The Company is analyzing the impact of Statements No. 131 and 132 and will adopt these standards in 1998. -6- MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net sales increased to $591.5 million in 1998 from $527.6 million in 1997 representing a 12.1% increase. Processing sales were $362.6 million for the first quarter of 1998 compared to $297.2 million for the first quarter of 1997. Acquisitions accounted for $48.6 million of the year over year growth. The remaining increase in the processing segment of $16.8 million is attributable to volume increases in the international color and rubber processing businesses which were partially offset by the strengthening dollar and a negative impact from pricing and mix. Distribution sales increased by $1.6 million or 1% to $233.5 million for the first quarter of 1998. Volume increases in the distribution segment were offset by falling resin prices in the resin distribution business and the Asian currency devaluation in the shapes distribution business. Gross margins were 19.3% in 1998 compared to 19.2% in 1997. Acquisitions since the first quarter of 1997 increased gross margins seven-tenths of a percent point. This increase in gross margins from acquisitions was offset by decreased margins in the existing businesses caused by weakness in the domestic color and additive concentrates business and lower vendor rebates in the shapes distribution business. Management has undertaken a study of its domestic color and additive concentrates business to determine if a rationalization of its facilities is required. The study is in an early stage and no decisions have been reached with respect to this business. Selling, general and administrative costs increased by $8.5 million to $74.9 million for the first quarter of 1998 or 12.7% of sales as compared to 12.6% of sales during the first quarter of 1997. Acquisitions accounted for $6.5 million of the increase with the balance of the increase associated with business information systems implementations and the realignment of the sales and marketing organizations of several business units. Interest on debt increased to $8.3 million in the first quarter of 1998 from $5.1 million in the first quarter of 1997 as the result of interest on additional borrowings used primarily for acquisitions. These acquisitions have been funded primarily with the issuance of Medium-Term Notes under the Shelf Registration Statement filed with the Securities and Exchange Commission in 1996. The Medium- Term Notes bear interest at rates ranging from 6.52% to 7.16% and due between 2004 and 2011. Other - net for the first quarter of 1998 includes the minority interest's share of profit for the joint venture of Techmer PM LLC formed in November 1997. The Company's effective tax rate decreased to 40.5% in the first quarter of 1998 compared to 42.0% in the first quarter of 1997 due to continued implementation of tax planning strategies. -7- Liquidity and Sources of Capital Operating activities utilized $.8 million of cash during the quarter as the result of working capital requirements. Investing activities used $74.0 million of cash primarily for the acquisition of Melos and the halogen free compounds product line from Exxon and for capital expenditures. Financing activities provided $78.6 million of cash from increased borrowings of $88.2 million offset by $6.1 million used to repurchase 288,300 shares of the Company's common stock and $5.0 million used to pay dividends. During the quarter, the Company issued $40.0 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 6.52% to 6.58%, are due in 2010 and 2011 and pay interest semi-annually. The current ratio was 1.7:1 at March 31, 1998 compared with 1.6:1 at December 31, 1997. Debt to total capital was 43.5% at March 31, 1998 and 37.6% at December 31, 1997. 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, results of operations or cash flows 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. -8- PART II Item 4. Submission of Matters to a Vote of Security Holders a.) Annual meeting of stockholders held May 6, 1998. 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. The following nine directors were elected: Carol A. Cartwright, Wayne R. Embry, J. Trevor Eyton, Gordon D. Harnett, George D. Kirkham, David Baker Lewis, Marvin L. Mann, Douglas J. McGregor and Richard W. Pogue. c.) The appointment of Price Waterhouse LLP as the Company's independent public accountants for the year 1998 was ratified and approved. There were 44,273,267 shares voted in the affirmative, 221,840 shares voted in the negative and 357,846 shares abstained. Item 6. Exhibits and Reports of Form 8-K a.) During the quarter ended March 31, 1998, the Registrant filed Current Report on Form 8-K dated February 19, 1998, 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: May 11, 1998 -9-
EX-27 2
5 1,000 3-MOS DEC-31-1998 MAR-31-1998 44,772 0 376,728 9,144 240,261 691,924 538,163 243,504 1,577,644 404,701 418,655 0 0 65,875 478,727 1,577,644 591,501 591,501 477,272 477,272 0 586 8,272 25,895 10,488 15,407 0 0 0 15,407 .34 .34
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