-----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, I6V/Vo3rNm3TWxOHgSHoslmZnZ8gcnAY5o+Faoz5HARqt5GamX6ICiLVADMTXVhU Q31V2NVUlDC+S+8WK+JaRg== 0000045370-96-000008.txt : 19961028 0000045370-96-000008.hdr.sgml : 19961028 ACCESSION NUMBER: 0000045370-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961025 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: 96647575 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 3RD 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 September 30, 1996 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 51,764,482. M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES INDEX PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Statements of Income - Nine Months ended September 30, 1996 and 1995 2 Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 3 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1996 and 1995 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 1 M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995
(Dollars in thousands except per share data) Net Sales $531,928 $464,078 $1,566,727 $1,440,145 Costs and Expenses Cost of goods sold 436,151 379,046 1,280,899 1,174,532 Selling, general and administrative 60,870 52,653 180,649 164,599 Interest on debt 4,351 6,142 15,582 20,295 Amortization of intangibles 3,585 3,505 10,660 10,473 Other - net 558 (620) 1,628 (7,493) 505,515 440,726 1,489,418 1,362,406 Income from Continuing Operations Before Extraordinary Item and Income Taxes 26,413 23,352 77,309 77,739 Income taxes 10,971 10,041 32,856 33,054 Income from Continuing Operations Before Extraordinary Item 15,442 13,311 44,453 44,685 Income from Discontinued Operations - - - 45,337 Income Before Extraordinary Item 15,442 13,311 44,453 90,022 Extraordinary Item - - (5,352) - Net Income $ 15,442 $ 13,311 $ 39,101 $ 90,022 Net Income per Share of Common Stock Primary Continuing operations $ .34 $ .28 $ .96 $ .96 Discontinued operations - - - .97 Extraordinary item - - (.11) - Net income $ .34 $ .28 $ .85 $ 1.93 Fully diluted Continuing operations $ .33 $ .28 $ .94 $ .93 Discontinued operations - - - .95 Extraordinary item - - (.11) - Net income $ .33 $ .28 $ .83 $ 1.88 Dividends per common share $ .100 $ .090 $ .297 $ .270
-2- M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) September December 30, 1996 31, 1995
(Dollars in thousands) Assets Current Assets Cash and cash equivalents $ 38,167 $ 111,235 Receivables 322,708 268,016 Inventories: Finished products 122,753 126,411 Raw materials and supplies 49,415 40,390 172,168 166,801 Prepaid expenses 7,810 5,693 Deferred income taxes 24,136 22,867 Total current assets 564,989 574,612 Property, Plant and Equipment 428,699 393,314 Less allowances for depreciation 195,881 166,293 232,818 227,021 Other Assets Goodwill and other intangibles 345,750 321,778 Investments and other assets 73,138 73,067 Deferred income taxes 36,047 35,118 454,935 429,963 $1,252,742 $1,231,596 Liabilities and Stockholders' Equity Current Liabilities Notes payable to banks $ 1,777 $ 1,328 Trade payables and accrued expenses 372,837 333,176 Current portion of long-term debt 648 747 Total current liabilities 375,262 335,251 Other Liabilities 179,798 179,580 Long-term Debt Senior notes 124,960 227,270 Other 60,913 4,717 185,873 231,987 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 65,186,623 shares at September 30, 1996 and 43,274,273 shares at December 31, 1995 65,186 43,274 Capital surplus 333,681 324,273 Retained earnings 407,258 381,709 Associates ownership trust (139,988) (121,363) Cost of treasury stock (13,422,141 shares at September 30, 1996 and 8,631,355 shares at December 31, 1995) (147,575) (137,181) Minimum pension liability adjustment (7,522) (7,522) Accumulated translation adjustment 769 1,588 511,809 484,778 $1,252,742 $1,231,596
-3- M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDED SEPTEMBER 30 1996 1995 (Dollars in thousands) Cash Provided from (Used for) Operating Activities Net income $ 39,101 $ 90,022 Discontinued operations - 4,797 Depreciation and amortization 38,067 35,581 Companies carried at equity: Income (3,889) (5,015) Dividends received 4,541 6,052 Changes in operating assets and liabilities: Receivables (28,468) (32,519) Inventories 6,423 (19,034) Prepaid expenses (1,613) (647) Trade payables and accrued expenses 12,383 8,901 Gain from sales of assets - (84,427) Restructuring payments (10,801) (13,806) Other 7,501 12,442 Extraordinary charge 8,774 - Net operating activities 72,019 2,347 Cash Provided from (Used for) Investing Activities Capital expenditures (24,529) (44,415) Acquisitions of businesses, less cash acquired (48,605) - Acquisition payments (712) (2,338) Sales of assets 11,820 223,500 Purchase of short-term securities - (69,703) Other 6,805 9,640 Net investing activities (55,221) 116,684 Cash Provided from (Used for) Financing Activities Cash dividends paid (13,552) (12,522) Proceeds from the sale of common stock 7,466 1,586 Purchase of shares for treasury (10,928) (9,021) Increase in debt 81,996 57,314 Reduction in debt (155,154) (118,039) Net financing activities (90,172) (80,682) Effect of exchange rate changes on cash 306 1,694 Cash and Cash Equivalents Increase (decrease) (73,068) 40,043 Beginning of period 111,235 23,105 End of period $ 38,167 $ 63,148 Cash paid during period Interest $ 21,546 $ 26,214 Income taxes 20,374 65,739 -4- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 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 1995 Annual Report. The results of operations for the interim periods are not necessarily indicative of the results expected for the full year. Acquisitions In January 1996, the Company announced the successful completion of its tender offer for the outstanding stock of CIMCO, Inc., a producer of thermoplastic compounds and plastic components. Consistent with its strategy as an intermediary between the polymer producer and the end product manufacturer, the Company announced that it would sell CIMCO's plastic components business, which has been reported as a discontinued operation in the accompanying financial statements. The sale of this business was consummated in the second quarter. In March 1996, the Company acquired Victor International Plastics Ltd., a leading producer of color masterbatch in the United Kingdom. Both acquisitions were accounted for using the purchase method of accounting. Had the acquisitions been made at the beginning of 1995, reported pro forma results of operations for 1996 and 1995 would not be materially different. Discontinued Operations Income from discontinued operations in 1995 includes earnings from Day International, a producer of end products for the printing and textiles industries, which was sold in the second quarter of 1995. 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 (45,885,704 and 46,861,770 for the three month periods ended September 30, 1996 and 1995, respectively, and 45,913,379 and 46,722,410 for the nine month periods ended September 30, 1996 and 1995, 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 -5- 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 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. The average number of shares used in the computation were 47,020,190 and 47,813,537 for the three month periods ended September 30, 1996 and 1995, respectively, and 47,092,914 and 47,770,262 for the nine month periods ended September 30, 1996 and 1995, respectively. The Company effected a three-for-two stock split for shareholders of record on May 24, 1996 in the form of a stock dividend. All per share amounts have been restated to reflect the three-for-two stock split. Long-term Debt 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 $67.9 million in the third quarter of 1996 and $126.6 million in the first nine months of 1996 as compared with the 1995 periods. Sales from processing businesses increased $42.5 million in the third quarter of 1996 and $79.2 million in the first nine months of 1996 due to acquisitions made in 1996 and higher pricing. Sales from distribution businesses increased from $211.7 million in the third quarter of 1995 to $239.0 million in the third quarter of 1996 and from $650.9 million in the first nine months of 1995 to $697.2 million in the first nine months of 1996 due to higher unit volumes, partially offset by lower pricing. Sales from other operations were comparable with prior year levels. Gross margins were 18.0% in the third quarter of 1996 and 18.2% for the first nine months of 1996 compared with 18.3% and 18.4%, respectively, for the comparable 1995 periods. Gross margins in 1995 were impacted by provisions for inventories valued by the last-in first-out cost method of $1.2 million and $5.7 million for the third quarter and first nine months, respectively. Absent these provisions, gross margins would have been 18.6% and 18.8% in the third quarter and first nine months of 1995, respectively. The deterioration in gross margins is due in part to the mix of sales between processing and distribution business, a lower absorption of fixed costs and the acquisitions made in 1996. Selling, general and administrative expenses increased $8.2 million in the third quarter of 1996 and $16.0 million in the first nine months of 1996 due in part to acquisitions made in 1996. However, as a percentage of sales, selling, general and administrative costs were 11.4% in the third quarter of 1996 and 11.5% for the first nine months of 1996 compared with 11.3% and 11.4% respectively, for the comparable 1995 periods. Interest on debt decreased $1.8 million in the third quarter of 1996 and $4.7 million in the first nine months of 1996 due to the repayment in 1995 of the financing for the 1994 acquisition of Th. Bergmann. In addition the Company repurchased $102.3 million of its Senior Notes in the first nine months of 1996, resulting in an after-tax extraordinary charge of $5.4 million. Other - net in the first nine 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. The effective tax rate for the nine month period ended September 30, 1996 and 1995 was 42.5%. During the third quarter of 1996, the Company lowered its effective tax rate to 42.5% from 43.0%, resulting in an effective tax rate in the third quarter of 1996 of 41.5%. -7- Income from discontinued operations in 1995 includes earnings from Day International, a producer of end products for the printing and textile industries. The business was sold in June 1995 with the Company recognizing a gain of $40.3 million. Liquidity and Sources of Capital Operating activities provided $72.9 million in the first nine months of 1996. This amount includes the use of $11.3 million for working capital and $10.8 million for the payment of obligations related to prior restructurings. Investment activities used $55.2 million, which includes $24.5 million for capital expenditures and $48.6 million for the acquisition of CIMCO and Victor International partially offset by proceeds from the sale of the molding business of CIMCO of $11.8 million. Financing activities used $90.2 million and include $73.2 million for the reduction of outstanding indebtedness, $13.6 million for dividends and $10.9 million for the purchase of shares for treasury, partially offset by proceeds from the sale of common stock of $7.5 million. The Company has a credit agreement which provides commitments for borrowings up to $200 million through June 1998. 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 September 30, 1996, there were $52.5 million of outstanding borrowings supported by this agreement. During the second quarter of 1996, the Company filed a shelf registration statement with the Securities and Exchange Commission to sell up to $300 million of debt securities. It is anticipated that the net proceeds from the sale would be used for general corporate purposes, which could include repayment of indebtedness, repurchase of the Company's common stock, additions to working capital, capital expenditures or acquisitions. At September 30, 1996, the Company has not sold any debt securities. The current ratio was 1.5:1 at September 30, 1996 compared with 1.7:1 at December 31, 1995. Debt to total capital was 26.6% at September 30, 1996 and 32.4% at December 31, 1995. 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 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. 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. -8- 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. -9- PART II Item 6. Exhibits and Reports on Form 8-K a.) Exhibits 12.1 Computation of Ratio of Earnings to Fixed Charges. b.) 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: October 25, 1996 -10- EX-12 2 RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12.1 M.A. Hanna Company Ratio of Earnings to Fixed Charges (in thousands) Nine Months Ended September 30 Year Ended December 31
1996 1995 1995 1994 1993 1992 1991 Consolidated pre-tax income from continuing operations $ 77,309 $ 77,739 $ 98,821 $ 66,222 $37,654 $27,005 $(16,195) Adjustments Fixed charges - excluding capitalized interest Consolidated interest expense 15,582 20,295 26,278 28,549 32,258 32,509 23,221 Interest portion of rental expense 4,856 4,410 5,942 5,624 5,281 4,729 4,905 Total fixed charges 20,438 24,705 32,220 34,173 37,539 37,238 28,126 Adjusted earnings $97,747 $102,444 $131,041 $100,395 $75,193 $64,243 $11,931 Ratio of earnings to fixed charges 4.78 4.15 4.07 2.94 2.00 1.73 0.42
EX-27 3 3RD QUARTER FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1996 SEP-30-1996 38,167 0 333,468 10,760 172,168 564,989 428,699 195,881 1,252,742 375,262 185,873 0 0 65,186 446,623 1,252,742 1,566,727 1,566,727 1,280,899 1,280,899 0 2,430 15,582 77,309 32,856 44,453 0 (5,352) 0 39,101 .85 .83
-----END PRIVACY-ENHANCED MESSAGE-----