-----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, Bej+73JMYZrXtFtcoxFfiIzKQxIdUC45Aw7znWvrfTCqeL4xWxdz44MT2mfZJ+pr vpvZFC4WGOuiEOE7Ksb4fA== 0000950152-00-003990.txt : 20000515 0000950152-00-003990.hdr.sgml : 20000515 ACCESSION NUMBER: 0000950152-00-003990 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 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: 628421 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 M.A. HANNA COMPANY 10-Q 1 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, 2000 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 48,970,291. 2 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, 2000 and 1999 2 Consolidated Balance Sheets - March 31, 2000 and December 31, 1999 3 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and 1999 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
-1- 3 PART I M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (Unaudited)
Three Months Ended March 31 ------------------------------------------------------- 2000 1999 ---- ---- (Dollars in thousands except per share data) Net Sales $ 612,682 $ 580,559 Costs and Expenses Cost of goods sold 504,265 475,478 Selling, general and administrative 79,065 78,717 Interest on debt 8,053 8,282 Amortization of intangibles 3,820 3,997 Other - net 324 1,075 ---------------------- ----------------------- 595,527 567,549 ---------------------- ----------------------- Income Before Income Taxes 17,155 13,010 Income taxes 6,948 5,269 ---------------------- ----------------------- Net Income $ 10,207 $ 7,741 ====================== ======================= Net Income Per Share - -------------------- Basic $ .23 $ .17 ====================== ======================= Diluted $ .23 $ .17 ====================== ======================= Dividends per common share $ .125 $ .120 ====================== =======================
-2- 4 M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- (Unaudited)
March December 31, 2000 31, 1999 -------------------- -------------------- (Dollars in thousands) Assets ------ Current Assets Cash and cash equivalents $ 34,622 $ 40,937 Receivables 397,427 356,029 Inventories: Finished products 177,820 182,861 Raw materials and supplies 71,166 69,190 -------------------- -------------------- 248,986 252,051 Other current assets 21,282 20,908 Deferred income taxes 23,010 27,593 -------------------- -------------------- Total current assets 725,327 697,518 Property, Plant and Equipment 622,265 618,140 Less allowances for depreciation 290,424 284,232 -------------------- -------------------- 331,841 333,908 Other Assets Goodwill and other intangibles 430,702 432,576 Investments and other assets 97,397 94,694 Deferred income taxes 31,833 31,862 -------------------- -------------------- 559,932 559,132 -------------------- -------------------- $1,617,100 $1,590,558 ==================== ==================== Liabilities and Stockholders' Equity ------------------------------------ Current Liabilities Notes payable to banks $ 3,546 $ 4,011 Trade payables and accrued expenses 395,342 404,293 Current portion of long-term debt 3,846 4,020 -------------------- -------------------- Total current liabilities 402,734 412,324 Other Liabilities 207,973 205,031 Long-term Debt Senior notes 87,775 87,775 Medium-term notes 160,000 160,000 Other 206,318 175,914 -------------------- -------------------- 454,093 423,689 Stockholders' Equity Preferred stock, without par value Authorized 5,000,000 shares Issued -0- shares in 2000 and 1999 - - Common stock, par value $1 Authorized 100,000,000 shares Issued 66,208,806 shares at March 31, 2000 and 66,193,985 shares at December 31, 1999 66,209 66,194 Capital surplus 290,582 289,292 Retained earnings 489,035 484,427 Accumulated translation adjustment (22,280) (17,763) Associates ownership trust (46,865) (48,203) Cost of treasury stock (17,238,515 shares at March 31, 2000 and 17,242,100 shares at December 31, 1999) (224,381) (224,433) -------------------- -------------------- 552,300 549,514 -------------------- -------------------- $1,617,100 $1,590,558 ==================== ====================
-3- 5 M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (Unaudited)
Three Months Ended March 31 ------------------------------------------------- 2000 1999 ---- ---- (Dollars in thousands) Cash Provided from (Used for) Operating Activities Net income $ 10,207 $ 7,741 Depreciation and amortization 16,514 16,196 Companies carried at equity: Income (1,018) (1,035) Dividends received - 800 Changes in operating assets and liabilities: Receivables (44,410) (31,848) Inventories 2,139 (10,532) Prepaid expenses (693) (2,671) Trade payables and accrued expenses (3,997) 27,461 Restructuring payments (1,503) (2,699) Other 7,513 7,299 ---------------------- ------------------------- Net operating activities (15,248) 10,712 Cash Provided from (Used for) Investing Activities Capital expenditures (11,950) (10,141) Acquisitions of businesses, less cash acquired (10,630) (9,423) Acquisition payments (100) (233) Sales of assets - 300 Investments in associated and other companies - (200) Return of cash from associated and other companies 294 512 Other 2,736 1,852 ---------------------- ------------------------- Net investing activities (19,650) (17,333) Cash Provided from (Used for) Financing Activities Cash dividends paid (5,599) (5,326) Proceeds from the sale of common stock 157 221 Increase in debt 64,108 51,405 Reduction in debt (29,396) (35,718) ---------------------- ------------------------- Net financing activities 29,270 10,582 Effect of exchange rate changes on cash (687) (1,304) ---------------------- ------------------------- Cash and Cash Equivalents Increase (decrease) (6,315) 2,657 Beginning of period 40,937 32,322 ---------------------- ------------------------- End of period $ 34,622 $ 34,979 ====================== ========================= Cash paid (received) during period Interest $ 7,383 $ 6,306 Income taxes paid (refunded), net 4,834 (3,604)
-4- 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ March 31, 2000 -------------- 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 1999 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 44,949,864 and 44,483,690 for the quarters ended March 31, 2000 and 1999, 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 44,991,378 and 44,551,555 for the three months ended March 31, 2000 and 1999, respectively. Comprehensive Income - -------------------- Comprehensive income for the first quarter of 2000 and 1999 was $5,690 and $4,643, respectively. Comprehensive income includes net income and foreign currency translation adjustments for the three months ended March 31, 2000 and 1999. Pending Accounting Changes - -------------------------- In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 137 which delays the effective date of SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", to fiscal years beginning after June 15, 2000. The company is analyzing the impact of SFAS 133 and will adopt it in 2001. Profit Improvement Plan - ----------------------- During the first quarter of 2000, 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 2000 are as follows:
Accrual Balance Utilized First Accrual Balance December 31, 1999 Quarter 2000 March 31, 2000 ----------------- -------------- --------------- Associate Costs $ 905 $ 161 $ 744 Asset Write-downs 1,228 613 615 Plant Closures 511 14 497 -------- ---------- -------- $ 2,644 $ 788 $ 1,856 ======== ========== ========
-5- 7 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 resins. Other operations include the Company's Diversified Polymer Products business and its marine operations. During the third quarter of 1999, the Company sold its thermoset resins and glass fiber materials business and the Company's management contract for dock operations expired. In April 2000, the Company completed the previously announced divestiture of its Diversified Polymer Products business.
Rubber Plastic Other Processing Processing Distribution Operations Corporate Total ---------- ---------- ------------ ---------- --------- ----- QUARTER ENDING MARCH 31, 2000 Net sales from external customers $ 137,565 $ 241,518 $ 229,209 $ 4,390 $ - $ 612,682 Intersegment sales 1,531 5,866 1,703 - - 9,100 Operating income 12,592 14,453 3,822 (118) (5,541) 25,208 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
SUBSEQUENT EVENTS On May 8, 2000, the Company announced that it and The Geon Company will consolidate into a new Ohio Corporation. The Geon Company is a leading Ohio-based polymer services and technology company with operations in vinyl compounds, specialty vinyl resins and formulations, engineered films and other value-added products and services. The consolidation will take place in the form of a cashless stock swap, and following the consolidation the shareholders of each company will hold approximately 50 percent of the new corporation. Consummation of the transaction is subject to approval by the shareholders of both companies and regulatory approvals and is expected to be consummated in the third quarter of 2000. On May 11, 2000, the Company announced it had signed a definitive agreement to sell a substantial component of its Cadillac Plastic shapes distribution and fabrication business to GE Plastics. The agreement includes substantially all the assets and leased facilities of Cadillac operations in North America, Asia, the United Kingdom, and the Netherlands. The sale is subject to government approvals and is targeted to close in the summer of 2000. Certain portions of Cadillac Plastic are not part of the sale agreement. These include the Richmond Aircraft unit, headquartered in the United States and three joint ventures located in Germany, France and Spain. Strategic alternatives for these businesses are being considered. -6- 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF --------------------------------------- INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS ----------------------------------------------------- Results of Operations - --------------------- Consolidated net sales for the quarter ending March 31, 2000 increased to $612.7 million from $580.6 million for the quarter ending March 31, 1999, representing an increase of 5.5 percent. Net sales in the plastic processing segment for the quarter increased 7.2 percent to $247.4 million in 2000 compared with $230.8 million in 1999. Increases in volume accounted for 5.3 percentage points, price/mix resulted in a favorable 3.6 percentage point effect and foreign exchange had a negative impact of 4.0 percentage points. Acquisitions contributed 2.3 percentage points to the plastic processing segment's net sales. The rubber processing segment's net sales increased 6.2 percent for the quarter to $139.1 million in 2000 compared with $130.9 million in 1999. Volume increased 14.3 percentage points, price/mix was a negative 7.6 percentage points, and foreign exchange resulted in a negative 0.5 percentage point impact. The distribution segment's net sales for the quarter were $230.9 million in 2000 compared with $223.0 million in 1999, an increase of 3.6 percent. Volume had a favorable 7.5 percentage point impact, price/mix accounted for an increase of 2.7 percentage points, and foreign exchange had a favorable impact of 0.1 percentage points. The divestiture of the thermoset resin distribution business in the third quarter of 1999 resulted in a 6.7 percentage point reduction in net sales of the distribution segment quarter over quarter. Gross margins declined 0.4 percentage points to 17.7 percent for the quarter ending March 31, 2000 compared with 18.1 percent for the comparable period in 1999. The rubber processing segment's margins increased slightly due to increased volume and benefits realized from lean manufacturing and supply chain management initiatives begun in 1999 and were partially offset by the start-up costs of a new facility in Mexico. Manufacturing inefficiencies in the plastic-processing segment negatively impacted gross margins. Gross margins in the distribution segment also declined from prior period levels as shapes distribution continues to rebuild its customer base. Selling, general and administrative expenses increased $0.4 million to $79.1 for the period ending March 31, 2000 compared with $78.7 million in the comparable period in 1999. As a percentage of net sales, selling, general and administrative expenses declined 0.7 percentage points to 12.9 percent in 2000 from 13.6 percent in 1999. The percentage decline is attributable to the divestiture of the thermoset resin distribution business in 1999 and better control of spending in the quarter. Other-net decreased $0.8 million for the period ending March 31, 2000 compared to the same period in 1999 due to reduced minority interest eliminations, and increased foreign currency exchange gains. -7- 9 During the quarter, the Company acquired Tekno Polimer, a leading Turkish compounder in the Middle East. In addition, the Company divested of its Diversified Polymer Products business. The Company recorded a $0.5 million pre-tax charge associated with the Diversified Polymer Products business sale in addition to the $10.9 million pre-tax charge taken in the fourth quarter of 1999 related to the write-down of goodwill and other intangibles related to this business. Liquidity and Sources of Capital - -------------------------------- Operating activities used $15.2 million. Working capital used $47.0 million reflecting the increase in activity in the first quarter of 2000 as compared with the fourth quarter of 1999. Investing activities used $19.7 million and included $12.0 million for capital expenditures and $10.7 million related to acquisitions. Financing activities provided $29.3 million from increased borrowings of $34.7 million offset by $5.6 million to pay dividends. The current ratio was 1.8:1 at March 31, 2000 and 1.7:1 at December 31, 1999. Debt to total capital was 45.1 percent at March 31, 2000 and 43.5 percent at December 31, 1999. 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 - --------------------- 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. -8- 10 YEAR 2000 ISSUE UPDATE The Company did not experience any significant malfunctions or errors in its operating or business systems when the date changed from 1999 to 2000. Based on operations since January 1, 2000, the Company does not expect any significant impact to its ongoing business as a result of the "Year 2000 issue". However, it is possible that the full impact of the date change, which was of concern due to computer programs that use two digits instead of four digits to define years, has not been fully recognized. For example, it is possible that Year 2000 issues may occur with billing, payroll, or financial closings at month, quarterly, or year-end. The Company believes that any such problems are likely to be minor and correctable. In addition, the Company could still be negatively affected if its customers or suppliers are adversely affected by the Year 2000 or similar issues. The Company currently is not aware of any significant Year 2000 or similar problems that have arisen for its customers and suppliers. SUBSEQUENT EVENTS On May 8, 2000, the Company announced that it and The Geon Company will consolidate into a new Ohio Corporation. The Geon Company is a leading Ohio-based polymer services and technology company with operations in vinyl compounds, specialty vinyl resins and formulations, engineered films and other value-added products and services. The consolidation will take place in the form of a cashless stock swap, and following the consolidation the shareholders of each company will hold approximately 50 percent of the new corporation. Consummation of the transaction is subject to approval by the shareholders of both companies and regulatory approvals and is expected to be consummated in the third quarter of 2000. On May 11, 2000, the Company announced it had signed a definitive agreement to sell a substantial component of its Cadillac Plastic shapes distribution and fabrication business to GE Plastics. The agreement includes substantially all the assets and leased facilities of Cadillac operations in North America, Asia, the United Kingdom, and the Netherlands. The sale is subject to government approvals and is targeted to close in the summer of 2000. Certain portions of Cadillac Plastic are not part of the sale agreement. These include the Richmond Aircraft unit, headquartered in the United States and three joint ventures located in Germany, France and Spain. Strategic alternatives for these businesses are being considered. 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. -9- 11 PART II ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a.) Annual meeting of stockholders held May 3, 2000. 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: Phillip D. Ashkettle, 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, and Martin D. Walker. c.) The appointment of PricewaterhouseCoopers LLP as the Company's independent public accountants for the year 2000 was ratified and approved. There were 44,249,605 shares voted in the affirmative, 404,023 shares voted in the negative and 206,807 shares abstained. d.) The approval of the M.A. Hanna Company Long-Term Incentive Plan, as amended and restated as of March 1, 2000 was ratified and approved. There were 42,124,715 shares voted in the affirmative, 2,202,378 voted in the negative and 533,342 shares abstained. ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K a.) On May 8, 2000, the Registrant filed a Current Report on Form 8-K, reporting its execution of an Agreement and Plan of Consolidation with The Geon Company (a Delaware Corporation) to form a new Ohio Corporation. b.) On May 11, 2000, the Registrant filed a Current Report on Form 8-K, reporting its execution of a definitive agreement to sell a substantial component of the Registrant's Cadillac Plastics shapes distribution and fabrication businesses to GE Plastics. The agreement includes substantially all the assets and leased facilities in North America, Asia, the United Kingdom, and the Netherlands. 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 12, 2000 -10- EX-27 2 EXHIBIT 27
5 1,000 3-MOS DEC-31-2000 MAR-31-2000 34,622 0 405,776 8,349 248,986 725,327 622,265 290,424 1,617,100 402,734 454,093 0 0 66,209 486,091 1,617,100 612,682 612,682 504,265 504,265 0 1,215 8,053 17,155 6,948 10,207 0 0 0 10,207 .23 .23
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