-----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, Emvwe8ntv5qi7dGljIKkF7Ob3sSTbGFBUsyZBJVOFJ2NA0lgnywD7ZD+FfuFxbN8 ZVAQD8odDmg2J7XcuGbHRA== 0000045370-99-000010.txt : 19990511 0000045370-99-000010.hdr.sgml : 19990511 ACCESSION NUMBER: 0000045370-99-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990510 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: 99616011 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 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 March 31, 1999 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 (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 49,639,214. 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, 1999 and 1998 2 Consolidated Balance Sheets - March 31, 1999 and December 31, 1998 3 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1999 and 1998 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 4. Submission of Matter to a Vote of Security Holders 10 Item 6. Exhibits and Reports on Form 8-K 10 PART I M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended March 31 1999 1998 (Dollars in thousands except per share data) Net Sales $ 580,559 $ 591,501 Costs and Expenses Cost of goods sold 475,478 477,272 Selling, general and administrative 78,717 74,864 Interest on debt 8,282 8,272 Amortization of intangibles 3,997 4,057 Other - net 1,075 1,141 567,549 565,606 Income Before Income Taxes and Cumulative Effect of a Change in Accounting Principle 13,010 25,895 Income taxes 5,269 10,488 Income Before Cumulative Effect of a Change in Accounting Principle 7,741 15,407 Cumulative effect of a change in accounting principle - (2,059) Net Income $ 7,741 $ 13,348 Net Income per Share Basic Income before cumulative effect of a change in accounting principle $ .17 $ .34 Cumulative effect of a change in accounting principle - (.05) Net income $ .17 $ .29 Diluted Income before cumulative effect of a change in accounting principle $ .17 $ .34 Cumulative effect of a change in accounting principle - (.05) Net income $ .17 $ .29 Dividends per common share $ .1200 $ .1125 M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) March December 31, 1999 31, 1998 (Dollars in thousands) Assets Current Assets Cash and cash equivalents $ 34,979 $ 32,322 Receivables 377,779 350,102 Inventories: Finished products 175,603 169,830 Raw materials and supplies 68,030 66,703 243,633 236,533 Prepaid expenses 14,064 9,937 Deferred income taxes 23,008 25,554 Total current assets 693,463 654,448 Property, Plant and Equipment 599,056 598,573 Less allowances for depreciation 266,713 258,986 332,343 339,587 Other Assets Goodwill and other intangibles 464,695 467,577 Investments and other assets 91,163 91,277 Deferred income taxes 39,469 41,008 595,327 599,862 $ 1,621,133 $ 1,593,897 Liabilities and Stockholders' Equity Current Liabilities Notes payable to banks $ 3,938 $ 3,391 Trade payables and accrued expenses 382,192 358,081 Current portion of long-term debt 1,751 2,611 Total current liabilities 387,881 364,083 Other Liabilities 207,293 210,476 Long-term Debt Senior notes 87,775 87,775 Medium-term notes 160,000 160,000 Other 239,852 233,111 487,627 480,886 Stockholders' Equity Preferred stock, without par value Authorized 5,000,000 shares Issued -0- shares in 1999 and 1998 - - Common stock, par value $1 Authorized 100,000,000 shares Issued 66,078,071 shares at March 31, 1999 and 66,059,298 shares at December 31, 1998 66,078 66,059 Capital surplus 295,880 293,613 Retained earnings 472,981 470,566 Accumulated translation adjustment (15,425) (12,327) Associates ownership trust (66,950) (65,255) Cost of treasury stock (16,438,857 shares at March 31, 1999 and 16,439,467 shares at December 31, 1998) (214,232) (214,204) 538,332 538,452 $ 1,621,133 $ 1,593,897 M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) THREE MONTHS ENDED MARCH 31 1999 1998 (Dollars in thousands) Cash Provided from (Used for) Operating Activities Net income $ 7,741 $ 13,348 Depreciation and amortization 16,196 14,393 Companies carried at equity: Income (1,035) (891) Dividends received 800 500 Changes in operating assets and liabilities: Receivables (31,848) (32,190) Inventories (10,532) (10,730) Prepaid expenses (2,671) 242 Trade payables and accrued expenses 27,461 7,666 Restructuring payments (2,699) (656) Cumulative effect of a change in accounting principle - 3,460 Other 7,299 4,104 Net operating activities 10,712 (754) Cash Provided from (Used for) Investing Activities Capital expenditures (10,141) (15,937) Acquisitions of businesses, less cash acquired (9,423) (59,114) Acquisition payments (233) (207) Sales of assets 300 - Investments in associated and other companies (200) - Return of cash from associated and other companies 512 - Other 1,852 1,306 Net investing activities (17,333) (73,952) Cash Provided from (Used for) Financing Activities Cash dividends paid (5,326) (5,032) Proceeds from the sale of common stock 221 1,498 Purchase of shares for treasury - (6,113) Increase in debt 51,405 94,397 Reduction in debt (35,718) (6,185) Net financing activities 10,582 78,565 Effect of exchange rate changes on cash (1,304) (517) Cash and Cash Equivalents Increase 2,657 3,342 Beginning of period 32,322 41,430 End of period $ 34,979 $ 44,772 Cash paid (received) during period Interest $ 6,306 $ 8,688 Income taxes paid (refunded), net (3,604) 2,385 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 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 1998 Annual Report. The results of operations for the interim periods are not necessarily indicative of the results expected for the full year. 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 of 44,483,690 and 44,871,546 for the quarters ended March 31, 1999 and 1998, 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 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 44,551,555 and 45,720,484 for the quarters ended March 31, 1999 and 1998, respectively. Comprehensive Income Comprehensive income for the first quarter of 1999 and 1998 was $4,643 and $12,399, respectively. Comprehensive income includes net income and foreign currency translation adjustments for the quarters ended March 31, 1999 and 1998. Pending Accounting Changes In June 1998 the Financial Accounting Standards Board issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities". The Company is analyzing the impact of Statement 133. Profit Improvement Plan During the first quarter of 1999, the Company continued to take actions under its Profit Improvement Plan announced during the third quarter of 1998. Details of the utilization of the profit improvement accruals during the first quarter of 1999 are as follows: Accrual Utilized Accrual balance first balance December 31,1998 quarter 1999 March 31, 1999 Associate costs $ 5,257 $ 1,005 $ 4,252 Asset write-downs 2,779 568 2,211 Plant closures 2,163 703 1,460 $ 10,199 $ 2,276 $ 7,923 Business Segments The Company has three reportable segments - rubber processing, plastic processing and distribution. The reportable segments are business units that offer different products and services. Additionally, the manufacturing processes for rubber processing and plastic processing are different. Rubber processing includes the manufacture of custom rubber compounds and additives. Plastic processing includes the production of custom plastic compounds and custom formulated colorants and additives. Distribution includes distribution of engineered plastic shapes and thermoplastic and thermoset resins and Fiberglas TM materials. Other operations include the Company's Diversified Polymer Products business and its marine operations. Rubber Plastic Distribu- Other Processing Processing ion Operating Corporate Total Quarter Ending March 31, 1999 Net sales from external customers $130,199 $225,449 $221,288 $3,623 $ - $580,559 Intersegment sales 717 5,358 1,662 - - 7,737 Operating income 11,366 13,926 2,517 236 (6,753) 21,292 Quarter Ending March 31, 1998 Net sales from external customers $138,789 $217,169 $231,719 $3,824 $ - $591,501 Intersegment sales 733 5,941 1,825 - - 8,499 Operating income 15,398 15,580 9,170 171 (6,152) 34,167 MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net sales decreased from $591.5 million in 1998 to $580.6 million in 1999, representing a decrease of 1.8 percent. Sales in the plastic processing businesses increased 3.4 percent to $230.8 million in 1999 compared with $223.1 million in 1998. Volume was down .6 percentage points, price/mix was a negative 2.7 percentage points and foreign exchange accounted for .7 percentage point increase. The acquisition of So.F.teR added 6 percentage points. Rubber processing sales decreased 6.2 percent to $130.9 million compared with $139.5 million in 1998. Volume decreased 3.9 percentage points while price/mix was a negative 2.2 percentage points. Foreign exchange accounted for .1 percentage point of the decline. Distribution sales were $223 million in 1999 compared with $233.5 million in 1999, a decrease of 4.5 percent. Foreign exchange had a negative impact of 1.3 percentage points while price/mix accounted for 2.7 percentage points of the decline. Volume had a negative .5 percentage point impact. Gross margins were 18.1 percent in 1999 compared with 19.3 percent in 1998. The decrease in gross margins is due to the year over year performance issues in our domestic plastic compounding business as well as our shapes distribution business. In addition, margins in our rubber processing business declined on a year over year basis due to lower volumes domestically, a shift in price/mix internationally and plant expansion costs. Our resin distribution business also continues to be impacted by pricing pressures. Selling, general and administrative costs increased $3.8 million to $78.7 million or 13.6 percent of sales in 1999 as compared with 12.7 percent of sales in 1998. Acquisitions accounted for $2.2 million of the increase with the balance of the increase attributable to costs associated with international plastics and the Techmer joint venture, both growing businesses in terms of sales and the search for a new chief executive officer. Liquidity and Sources of Capital Operating activities provided $10.7 million. Working capital used $17.6 million reflecting the increase in activity in the first quarter of 1999 as compared with the fourth quarter of 1998. Investing activities used $17.3 million and included $10.1 million for capital expenditures and $9.4 million for acquisitions. Financing activities provided $10.6 million from increased borrowings of $15.7 million offset by $5.3 million to pay dividends. The current ratio was 1.8:1 at March 31, 1999 and December 31, 1998. Debt to total capital was 47.5 percent at March 31, 1999 and 47.2 percent at December 31, 1998. Market Risk The Company is exposed to foreign currency exchange risk in the ordinary course of business. Management has examined the Company's exposure to this risk and has concluded that the Company's exposure in this area is not material to fair values, cash flows or earnings. The Company is exposed to foreign currency exchange risks in the ordinary course of its business operations due to the fact that the Company's products are provided in numerous countries around the world and collection of revenues and payment of certain expenses may give rise to currency exposure. The Company also enters into intercompany lending transactions and foreign exchange contracts related to this foreign currency exposure. 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 subsidiaries 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. While it is not possible to predict with certainty, management believes that the aforementioned claims will be resolved without material adverse effect on the financial position, results of operations or cash flows of the Company. Year 2000 Readiness Disclosure The Company is addressing the issue of computer programs and embedded computer chips being unable to distinguish between the year 1900 and the year 2000. It has undertaken various initiatives intended to ensure that its computer programs and embedded computer chips will perform as intended regardless of date and that all data including dates can be accessed and processed with expected results. The Company expects to be substantially year 2000 compliant by June 30, 1999. Beginning in 1995 the Company began a multi-year project to (i) replace 22 legacy systems which resulted from acquisitions made since 1986, (ii) introduce enterprise- wide information technology systems from SAP America, Inc., Oracle Corporation and J.D. Edwards in order to consolidate and standardize its information technology systems and (iii) install other enterprise-wide software in order to serve customers better and operate more efficiently. An important benefit of this project is that new systems and software will be year 2000 compliant. It is expected that the new systems and software will be installed, tested and operating no later than June 30, 1999. When installed the new systems and software will comprise at least 95% of the systems and software being operated by the Company worldwide. In connection with the introduction of the new systems and software, the Company has identified the legacy systems being retained which are not currently year 2000 compliant, and has put in place programs to bring them to a state of year 2000 compliance in 1999 through upgrading or replacement, as appropriate. In addition, the Company has implemented a program to identify and test date chips to ensure year 2000 functionality, with a formal monthly reporting procedure. The Company has also been engaged in the process of identifying and prioritizing critical suppliers and customers at the direct interface level, and communicating with respect to their state of year 2000 readiness. Evaluations of the most critical third parties has commenced and will be followed by the development of contingency plans. A significant portion of the costs to implement the new systems and software have already been incurred and are being amortized or charged to expense in current operations. The historical cost of remediating the non- complaint systems has been included in the Company's information technology cost reporting and are not material to its financial position, results of operations or cash flows. The Company does not believe that future costs associated with the new systems and software and the required modifications of the legacy systems to become year 2000 compliant will be material to its financial position, results of operations or cash flows. The Company has formulated a general contingency plan for dealing with the most serious year 2000 compliance failures as they may occur and expects to fund the contingency plan efforts from operating funds. During 1999 the Company will develop more detailed contingency plans. The failure to correct a material year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failure could materially and adversely affect the Company's results of operations, liquidity and financial condition or adversely affect the Company's relationships with its suppliers, customers or other third parties. Due to the general uncertainty inherent in the year 2000 problem, resulting in part from the uncertainty of the year 2000 readiness of suppliers and customers, the Company is unable to determine at this time whether the consequences of year 2000 failures will have a material impact on its financial position, results of operations or cash flows. The Company believes that the scheduled completion of the implementation of the new systems and software prior to June 30, 1999 should reduce the possibility of significant interruptions of normal operations. 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, general economy, foreign political and economic developments (including the Asian economic situation), availability and pricing of raw materials, changes in product mix, shifts in market demand, and changes in prevailing interest rates. PART II Item 4. Submission of Matters to a Vote of Security Holders a.) Annual meeting of stockholders held May 5, 1999. b.) Proxies for the meeting were solicited 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 eleven directors were elected: Carol A. Cartwright, Wayne R. Embry, J. Trevor Eyton, Robert A. Garda, Gordon D. Harnett, David H. Hoag, George D. Kirkham, David Baker Lewis, Marvin L. Mann, Richard W. Pogue and Martin D. Walker. c.) The appointment of PricewaterhouseCoopers LLP as the Company's independent public accountants for the year 1999 was ratified and approved. There were 44,692,685 shares voted in the affirmative, 524,523 shares voted in the negative and 259,696 shares abstained. Item 6. Exhibits and Reports of Form 8-K 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: May 10, 1999 EX-27 2
5 1,000 3-MOS DEC-31-1999 MAR-31-1999 34,979 0 387,964 10,185 243,633 693,463 599,056 266,713 1,621,133 387,881 487,627 0 0 66,078 472,254 1,621,133 580,559 580,559 475,478 475,478 0 665 8,282 13,010 5,269 7,741 0 0 0 7,741 .17 .17
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