-----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, Tr3MDfldXS42HY77CFkRRIFSCD8ZUBaVpHStRhRuOIzafRaVqRwCV8IMDQ9OsFi2 sJ8Vsv4QRhN/GrnZU0NqAA== 0000045370-97-000012.txt : 19971105 0000045370-97-000012.hdr.sgml : 19971105 ACCESSION NUMBER: 0000045370-97-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971104 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: 97707485 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, 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 50,722,270. M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES INDEX PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Statements of Income - Three Months and Nine Months ended September 30, 1997 and 1996 2 Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 3 Consolidated Statements of Cash Flows - Nine Months Ended September 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 Nine Months Ended September 30 September 30 1997 1996 1997 1996 (Dollars in thousands except per share data) Net Sales $561,418 $531,928 $1,644,429 $1,566,727 Costs and Expenses Cost of goods sold 457,511 436,151 1,333,025 1,280,899 Selling, general and administrative 66,109 60,870 200,294 180,649 Interest on debt 5,976 4,351 16,507 15,582 Amortization of intangibles 3,348 3,585 10,500 10,660 Other - net (200) 558 (316) 1,628 532,744 505,515 1,560,010 1,489,418 Income Before Income Taxes and Extraordinary Charge 28,674 26,413 84,419 77,309 Income taxes 12,043 10,971 35,456 32,856 Income Before Extraordinary Charge 16,631 15,442 48,963 44,453 Extraordinary Charge - - - (5,352) Net Income $ 16,631 $ 15,442 $ 48,963 $ 39,101 Net Income per Share of Common Stock Primary Income before extraordinary charge $ .37 $ .34 $ 1.08 $ .96 Extraordinary charge - - - (.11) Net income $ .37 $ .34 $ 1.08 $ .85 Fully diluted Income before extraordinary charge $ .36 $ .33 $ 1.05 $ .94 Extraordinary charge - - - (.11) Net income $ .36 $ .33 $ 1.05 $ .83 Dividends per common share $ .105 $ .100 $ .315 $ .297
-2- M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
September December 30, 1997 31, 1996 (Dollars in thousands) Assets Current Assets Cash and cash equivalents $ 33,696 $ 30,028 Receivables 354,595 293,625 Inventories: Finished products 153,403 134,655 Raw materials and supplies 50,899 44,509 204,302 179,164 Prepaid expenses 10,779 7,679 Deferred income taxes 22,155 23,043 Total current assets 625,527 533,539 Property, Plant and Equipment 484,609 452,668 Less allowances for depreciation 219,846 198,261 264,763 254,407 Other Assets Goodwill and other intangibles 416,660 355,538 Investments and other assets 70,939 70,678 Deferred income taxes 34,939 36,617 522,538 462,833 $1,412,828 $1,250,779 Liabilities and Stockholders' Equity Current Liabilities Notes payable to banks $ 2,922 $ 2,304 Trade payables and accrued expenses 373,085 348,608 Current portion of long-term debt 446 1,027 Total current liabilities 376,453 351,939 Other Liabilities 177,006 182,852 Long-term Debt Senior notes 124,960 124,960 Medium-term notes 100,000 20,000 Other 100,590 62,745 325,550 207,705 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 65,619,821 shares at September 30, 1997 and 65,261,907 shares at December 31, 1996 65,620 65,262 Capital surplus 363,421 329,543 Retained earnings 452,045 417,228 Associates ownership trust (152,654) (134,704) Cost of treasury stock (14,897,551 shares at September 30, 1997 and 14,272,092 shares at December 31, 1996) (181,249) (165,675) Minimum pension liability adjustment (5,018) (5,018) Accumulated translation adjustment (8,346) 1,647 533,819 508,283 $1,412,828 $1,250,779
-3- M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDED SEPTEMBER 30 1997 1996 (Dollars in thousands) Cash Provided from (Used for) Operating Activities Net income $ 48,963 $ 39,101 Depreciation and amortization 39,352 38,067 Companies carried at equity: Income (3,397) (3,889) Dividends received 4,367 4,541 Changes in operating assets and liabilities: Receivables (67,823) (28,468) Inventories (21,330) 6,423 Prepaid expenses (3,313) (1,613) Trade payables and accrued expenses 27,438 12,383 Restructuring payments (4,996) (10,801) Gain on sale of assets (3,250) - Restructuring charges 3,050 - Other 5,587 7,501 Extraordinary charge - 8,774 Net operating activities 24,648 72,019 Cash Provided from (Used for) Investing Activities Capital expenditures (29,827) (24,529) Acquisitions of businesses, less cash acquired (95,929) (48,605) Acquisition payments (14,959) (712) Sales of assets 6,361 11,820 Other 8,222 6,805 Net investing activities (126,132) (55,221) Cash Provided from (Used for) Financing Activities Cash dividends paid (14,146) (13,552) Proceeds from the sale of common stock 3,608 7,466 Purchase of shares for treasury (11,081) (10,928) Increase in debt 206,199 81,996 Reduction in debt (77,192) (155,154) Net financing activities 107,388 (90,172) Effect of exchange rate changes on cash (2,236) 306 Cash and Cash Equivalents Increase (decrease) 3,668 (73,068) Beginning of period 30,028 111,235 End of period $ 33,696 $ 38,167 Cash paid during period Interest $ 17,557 $ 21,546 Income taxes 27,266 20,374 -4- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 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 in accordance with generally accepted accounting principles. 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 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; and in September 1997, the Company acquired the manufacturing business of Harwick Chemical Manufacturing Corporation. Newly acquired Harwick supplies chemical dispersions, specialty colorants and other specialty products for the rubber industry, and specialty color pigment dispersions and dry colorants for plastics. These 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 third quarter or first nine months of 1997 and 1996 would not be materially different. On November 3, 1997, the Company announced that it had formed a joint venture alliance with Techmer PM to produce color and additive concentrates for the film and fiber markets. The Company owns a 51% interest in the joint venture. Net Income Per Share of Common Stock Primary net income per share of common stock was computed by dividing net income applicable to common stock by the average number of shares outstanding. The average number of shares outstanding for the quarters ended September 30, 1997 and 1996 was 45,323,323 and 45,885,704, respectively. The average number of shares outstanding for the nine months ended September 30, 1997 and 1996 was 45,220,381 and 45,913,379, 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 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. -5- 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 for the quarters ended September 30, 1997 and 1996 was 46,528,118 and 47,020,190, respectively. The average number of shares for the nine months ended September 30, 1997 and 1996 was 46,501,803 and 47,092,914, respectively. 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. Long-term Debt During the third quarter and first nine months of 1997, the Company issued $30 million and $80 million, respectively, 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 6.74% to 7.16%, are due between 2005 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 $29.5 million in the third quarter of 1997 and $77.7 million in the first nine months of 1997 as compared with the 1996 periods. Sales in the processing segment increased by $26.2 million or 9% and $61.6 million or 7.2% for the third quarter and for the first nine months of 1997 as compared to 1996. Acquisitions since 1996 contributed $13.9 million and $47.6 million to sales for the third quarter and first nine months of 1997. Volume increased by 11% and 6% within the processing businesses for the three and nine month periods ended September 30, 1997 as compared to the same periods in 1996. However, these increases were partially offset due to the strengthening of the U.S. dollar and unfavorable pricing and mix changes. Distribution sales increased by $9.7 million or 4.1% for the third quarter and by $34.4 or 4.9% for the nine months ended September 30, 1997 as compared to the same periods in 1996. International volume increases drove revenue increases within this segment which was also offset by adverse impacts of the strengthening dollar and pricing and mix changes. Overall, currency translation and pricing/mix changes have each adversely impacted sales by 2% in the third quarter and by 1% for the nine months ended September 30, 1997 as compared to the corresponding periods in 1996. Gross margins were 18.5% in the third quarter of 1997 and 18.9% for the first nine months of 1997 compared with 18.0% and 18.2%, respectively, for the comparable 1996 periods. Margins have been positively impacted by a decrease in average raw material costs for the quarter and the nine months ended September 30, 1997 versus the same periods in 1996. Operating efficiencies implemented in the processing businesses have driven higher margins and increased volumes have led to improved absorption of fixed costs. Selling, general and administrative expenses increased $5.2 million in the third quarter of 1997 and $19.6 million in the first nine months of 1997. As a percentage of sales, selling, general and administrative costs were 11.8% in the third quarter of 1997 and 12.2% for the first nine months of 1997 compared with 11.4% and 11.5% respectively, for the comparable 1996 periods. The increase in selling, general and administrative costs is attributable to acquisitions, general economic cost increases and the implementation of common business information systems. Interest on debt increased by $1.6 million in the third quarter of 1997 and increased by $.9 million in the first nine months of 1997. 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. Interest incurred on increased borrowings associated with acquisitions and working capital requirements have offset savings generated from lower rates on the borrowings which replaced the Senior Notes in 1996. Other net 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 its resin distribution business in the first quarter of 1997. -7- Liquidity and Sources of Capital Operating activities provided $24.6 million of cash during the first nine months of 1997 after providing for working capital requirements of $65.0 million. The Company used $126.1 million of cash for investing activities including $29.8 million for capital expenditures and $95.9 million for the purchase of new businesses. Financing activities provided $107.4 million primarily as a result of increases in debt offset by dividend payments of $14.1 million and cash used to repurchase shares of $11.1 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 September 30, 1997, there were no borrowings supported by this agreement. During the third quarter and first nine months of 1997, the Company issued $30 million and $80 million, respectively, 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 6.74% to 7.16%, are due between 2005 and 2008 and pay interest semi-annually. The current ratio was 1.7:1 at September 30, 1997 compared with 1.5:1 at December 31, 1996. Debt to total capital was 37.9% at September 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 on Form 8-K a) Exhibit 12.1 - Computation of Ratio of Earnings to Fixed Charges (revised to reflect the Company results as of September 30, 1997). b) During the quarter ended September 30, 1997, the Registrant filed Current Report on Form 8-K dated September 19, 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 Controller (Principal Accounting Officer) Date: November 4, 1997 -9- EX-12 2 Exhibit 12.1 M.A. Hanna Company Ratio of Earnings to Fixed Charges
Nine Months Ended September 30 Year Ended December 31 1997 1996 1996 1995 1994 1993 1992 Consolidated pretax income from continuing operations $ 84,419 $77,309 $102,891 $ 98,821 $ 66,222 $37,654 $27,005 Adjustments Fixed charges - excluding capitalized interest: Consolidated interest expense 16,507 15,582 20,033 26,278 28,549 32,258 32,509 Interest portion of rental expense 4,521 4,856 6,215 5,942 5,624 5,281 4,729 Total fixed charges 21,028 20,438 26,248 32,220 34,173 37,539 37,238 Adjusted earnings $105,447 $97,747 $129,139 $131,041 $100,395 $75,193 $64,243 Ratio of earnings to fixed charges 5.01 4.78 4.92 4.07 2.94 2.00 1.73
EX-27 3
5 1,000 9-MOS DEC-31-1997 SEP-30-1997 33,696 0 360,269 5,674 204,302 625,527 484,609 219,846 1,412,828 376,453 325,550 0 0 65,620 468,199 1,412,828 1,644,429 1,644,429 1,333,025 1,333,025 0 2,106 16,507 84,419 35,456 48,963 0 0 0 48,963 1.08 1.05
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