-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, S8Z41mqbb38uGmr7TBwUufz71w21xpXj1/8etQ/CycSDF/GSpI+wOEp/Lgqw4ud3 n4X88aCRQgOGyHkW0rOLyQ== 0000045370-94-000004.txt : 19940615 0000045370-94-000004.hdr.sgml : 19940615 ACCESSION NUMBER: 0000045370-94-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANNA M A CO/DE CENTRAL INDEX KEY: 0000045370 STANDARD INDUSTRIAL CLASSIFICATION: 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: 94527207 BUSINESS ADDRESS: STREET 1: 1301 E 9TH ST STE 3600 CITY: CLEVELAND STATE: OH ZIP: 44114 BUSINESS PHONE: 2165894000 FORMER COMPANY: FORMER CONFORMED NAME: HANNA MINING CO DATE OF NAME CHANGE: 19850523 10-Q 1 1ST QUARTER 1994 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, 1994 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.) 1301 E. NINTH STREET, SUITE 3600, CLEVELAND, OHIO 44114-1860 (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 for the past 90 days. Yes X No Common Shares Outstanding, as of the close of the period covered by this report. 23,769,368 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, 1994 and 1993 2 Consolidated Balance Sheets - March 31, 1994 and December 31, 1993 3 Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 1994 and 1993 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 1994 1993 (Dollars in thousands except per share data) Net Sales $416,012 $362,465 Costs and Expenses Cost of goods sold 333,334 290,691 Selling, general and administrative 53,823 48,510 Provision for doubtful accounts 714 888 Other income (598) (1,073) Other expense 2,055 2,258 Interest on debt 7,566 8,515 Amortization 4,240 4,237 401,134 354,026 Income from Continuing Operations Before Income Taxes 14,878 8,439 Income taxes 6,621 3,943 Income from Continuing Operations 8,257 4,496 Income from Discontinued Operations - 1,344 Net Income $ 8,257 $ 5,840 Net Income per Share of Common Stock Primary Continuing operations $ .40 $ .22 Discontinued operations - .07 Net income $ .40 $ .29 Fully diluted Continuing operations $ .40 $ .21 Discontinued operations - .07 Net income $ .40 $ .28 Dividends per Common Share $ .1875 $ .175 -2- M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
MARCH DECEMBER 31, 1994 31, 1993 (Dollars in thousands) Assets Current Assets Cash and cash equivalents $ 38,276 $ 37,645 Short-term securities - 5,061 Receivables 224,198 211,242 Inventories: Finished products 105,247 104,399 Raw materials and supplies 37,458 34,123 142,705 138,522 Prepaid expenses 6,153 4,494 Deferred taxes 20,472 22,922 Total current assets 431,804 419,886 Property, Plant and Equipment 366,849 359,880 Less allowances for depreciation and depletion 156,606 147,318 210,243 212,562 Other Assets Goodwill and other intangibles 379,988 382,822 Investments and other assets 87,749 88,736 Deferred taxes 35,550 37,296 503,287 508,854 $1,145,334 $1,141,302 Liabilities and Stockholders' Equity Current Liabilities Notes payable to banks $ 3,528 $ 2,478 Trade payables and accrued expenses 273,826 270,566 Current portion of long-term debt 779 740 Total current liabilities 278,133 273,784 Other Liabilities 178,123 179,959 Long-term Debt Senior notes 300,000 300,000 Other 8,114 22,103 308,114 322,103 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 28,634,075 shares at March 31, 1994 and 28,605,722 shares at December 31, 1993 28,634 28,606 Capital surplus 312,998 299,389 Retained earnings 273,496 269,026 Associates ownership trust (117,665) (115,214) Cost of treasury stock (4,864,707 shares at March 31, 1994 and 4,864,707 shares at December 31, 1993) (102,794) (102,794) Minimum pension liability adjustment (8,577) (8,577) Accumulated translation adjustment (5,128) (4,980) 380,964 365,456 $1,145,334 $1,141,302
-3- M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) THREE MONTHS ENDED MARCH 31 1994 1993 (Dollars in thousands) Cash Provided from (Used for) Operations Net income $ 8,257 $ 5,840 Discontinued operations - (2,390) Depreciation and amortization 12,470 12,791 Companies carried at equity: Income (730) (754) Dividends received 750 212 Changes in operating assets and liabilities: Receivables (9,997) (19,632) Inventories (3,496) (1,814) Prepaid expenses (1,602) 823 Trade payables and other accruals 4,081 (21,186) Restructuring obligations (2,018) (3,625) Other 3,015 5,822 Net operating transactions 10,730 (23,913) Cash Provided from (Used for) Investment Transactions Expenditures for property, plant and equipment (4,657) (3,433) Acquisition of companies, less cash acquired (1,861) - Acquisition obligations (682) (2,361) Sale of assets - 3,390 Sale of short-term securities 5,061 15,768 Other 127 103 Net investment transactions (2,012) 13,467 Cash Provided from (Used for) Financing Transactions Cash dividends paid (3,791) (3,408) Proceeds from the sale of common stock 9,347 772 Increase in debt 919 9,438 Reduction in debt (14,249) (10,349) Net financing transactions (7,774) (3,547) Effect of exchange rate changes on cash (313) (565) Cash and Cash Equivalents Increase(decrease) 631 (14,558) Beginning of period 37,645 54,277 End of period $38,276 $39,719 Cash paid during period Interest $14,903 $16,554 Income taxes 1,968 2,944 -4- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1994 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 1993 Annual Report. The results of operations for the interim periods are not necessarily indicative of the results expected for the full year. Acquisitions On March 15, 1994, the Company acquired certain assets of North Coast Compounders, a producer of thermoplastic elastomers and other materials. The acquisition was accounted for using the purchase method of accounting. Had the acquisition been made at the beginning of 1993, reported results of operations would not be materially different. Discontinued Operations Discontinued operations in 1993 include $1.5 million from the sale of a former natural resources affiliate partially offset by $.2 million in operating losses related to the Company's elastomeric membrane roofing business. During the fourth quarter of 1993, the Company announced it had reached a preliminary agreement to sell the roofing business. The sale is expected to close in the second quarter of 1994. 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 (20,427,452 in 1994 and 20,272,151 in 1993). 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 1994. 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 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 20,815,338 in 1994 and 20,501,030 in 1993. On May 4, 1994, the Company announced a three-for-two stock split for shareholders of record on May 23, 1994 to be effected in the form of a stock dividend. -5- MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net sales increased from $362.5 million in 1993 to $416.0 million in 1994. Sales from polymer processing businesses increased $29.1 million due to higher unit volumes and acquisitions made in 1993. Resin distribution sales increased $15.6 million to $89.8 million in 1994 due to higher unit volumes. Polymer product sales increased from $103.7 million in 1993 to $112.8 million in 1994 due to higher unit volumes. Sales from other operations decreased from $3.5 million in 1993 to $1.7 million in 1994 due to the sale of a business in the fourth quarter of 1993. Cost of goods sold increased $42.6 million to $333.3 million in 1994 and corresponds with the sales increases. As a percentage of sales, cost of goods sold was 80.1% in 1994 and 80.2% in 1993. The overall margin percentage was negatively impacted by .5 points because of the resin distribution businesses, which have faster growth with lower gross margins and the polymer products businesses, which have higher gross margins and slower growth. Selling, general and administrative expenses increased $5.1 million in 1994 over 1993 levels due to acquisitions in polymer processing businesses in 1993 and higher sales activity from existing businesses. However, as a percentage of sales, selling, general and administrative expenses fell from 13.6% in 1993 to 13.1% in 1994, reflecting the Company's ongoing efforts to manage these costs. Interest expense decreased from $8.5 million in 1993 to $7.6 million in 1994 due to lower average borrowings and lower interest rates. Discontinued operations include $1.5 million from the sale of a former natural resources affiliate partially offset by $.2 million operating loss from the Company's elastomeric membrane roofing business. During the fourth quarter of 1993, the Company announced it had reached a preliminary agreement to sell the roofing business. The sale will close in the second quarter of 1994. Liquidity and Sources of Capital The Company's ability to generate significant cash flows from operations continued in the first quarter of 1994 with $10.7 million provided from operating activities. This amount includes the use of $11.0 million for working capital and $2.0 million for the payment of obligations related to prior restructurings. Investment transactions used $2.0 million and included $1.9 million related to acquisitions of businesses and $4.7 million for capital expenditures, partially offset by $5.1 million from sales of short-term securities. Financing activities used $7.8 million and include $3.8 million for dividends and $13.3 million for reductions in outstanding debt, partially offset by $9.3 million from proceeds from the sale of stock. The current ratio was 1.6:1 at March 31, 1994 compared with 1.5:1 at December 31, 1993. Long-term debt to total capital was 44.7% at March 31, 1994 compared with 46.8% at December 31, 1993. -6- The Company has a credit agreement which provided commitments for borrowings up to $150 million through March 1994. Beginning March 1994, the bank commitments will be reduced by 12.5% of the aggregate amount of borrowings outstanding under the agreement each quarter for eight consecutive quarters. Commitments for borrowings under this agreement were $131.2 million at March 31, 1994. The arrangement provides for interest rates to be determined at the time of the borrowing based on a choice of formulas specified in the agreement. No borrowings were outstanding under this agreement at March 31, 1994. The Company has repurchased a portion of its Senior Notes in the open market. As of May 10, the Company has repurchased Senior Notes with a face value of $64.0 million, which will result in an extraordinary after-tax charge to earnings in the second quarter of 1994 of approximately $4.0 million. Funds to repurchase the Senior Notes were obtained from existing cash flow as well as borrowings under the Company's credit agreements, which carry a lower rate of interest than the Senior Notes. The Company also has a credit agreement which provides commitments for borrowings of up to 150 million French francs through November 1996. The agreement provides for interest rates to be determined at the time of borrowing. At March 31, 1994, borrowings outstanding under this commitment were 25 million French francs, or an equivalent of $4.4 million. The Company believes that its ability to generate cash flows from operations and the availability of funds under existing credit facilities will be sufficient to meet anticipated capital expenditure programs, existing obligations arising from prior restructurings and acquisitions, dividend requirements and other planned financial commitments in 1994 throughout the term of the existing credit facilities. 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 emissions 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. Claims have 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 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 reflected in the determination of reserves. In management's opinion, such litigation and claims will be resolved without material adverse effect of the financial position of the Company. -7- PART II Item 4. Submission of Matters to a Vote of Security Holders. a) Annual meeting of stockholders held May 4, 1994. b) Proxies for the meeting were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934; there was no solicitation in opposition to management's nominees as listed in the proxy statement; and nine directors were elected. c) The appointment of Ernst & Young as the Company's independent public accountants for the year 1994 was ratified and approved. There were 20,297,832 shares voted in the affirmative, 37,837 shares voted in the negative and 100,737 shares abstained. d) The 1994 amendments to the Company's 1988 Long-Term Incentive Plan were ratified and approved. There were 18,281,983 shares voted in the affirmative, 1,750,918 shares voted in the negative and 403,505 shares abstained. e) The adoption of the M.A. Hanna Company Directors' Deferred Fee Plan was ratified and approved. There were 19,292,188 shares voted in the affirmative, 662,415 shares voted in the negative and 481,803 shares abstained. Item 6. Exhibits and Reports on 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 Comptroller (Principal Accounting Officer) Date: May 11, 1994 -8- -----END PRIVACY-ENHANCED MESSAGE-----