-----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, TYGMxMgcefekeYhKEmQhT7DewPlXxeGwYoAlp2fSbWK3gwGBXPWTfnsmOuV5Yz3L IdFYz+onC+3PcyNV9wqcJw== 0000950152-99-008912.txt : 19991115 0000950152-99-008912.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950152-99-008912 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99747367 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 FORM 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 SEPTEMBER 30, 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 (I) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the proceeding 12 months, and (2) has been subjected 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 48,900,355. 2 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, 1999 and 1998 2 Consolidated Balance Sheets - September 30, 1999 and December 31, 1998 3 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 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. 7-11 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 -1- 3
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------ CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 ---------------------------- ---------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Dollars in thousands except per share data) Net Sales $ 564,415 $ 564,539 $ 1,739,236 $ 1,751,653 Costs and Expenses Cost of goods sold 461,591 471,678 1,424,055 1,434,990 Selling, general and administrative 74,900 74,090 229,697 223,026 Interest on debt 7,473 8,595 24,006 25,636 Amortization of intangibles 3,611 4,341 11,580 12,627 Other - net (12,586) 22,045 (9,993) 23,893 ----------- ----------- ----------- ----------- 534,989 580,749 1,679,345 1,720,172 ----------- ----------- ----------- ----------- Income (Loss) Before Income Taxes and Cumulative Effect of Change in Accounting Principle 29,426 (16,210) 59,891 31,481 Income taxes (credit) 13,133 (16,065) 25,471 3,250 ----------- ----------- ----------- ----------- Income (Loss) Before Cumulative Effect of Change in Accounting Principle 16,293 (145) 34,420 28,231 Cumulative effect of change in accounting principle -- -- -- (2,059) ----------- ----------- ----------- ----------- Net Income (Loss) $ 16,293 $ (145) $ 34,420 $ 26,172 =========== =========== =========== =========== NET INCOME (LOSS) PER SHARE Basic Income (loss) before cumulative effect of change in accounting principle $ 0.37 $ -- $ 0.77 $ 0.63 Cumulative effect of change in accounting principle -- -- -- (.05) ----------- ----------- ----------- ----------- Net income (loss) $ 0.37 $ -- $ 0.77 $ 0.58 =========== =========== =========== =========== Diluted Income (loss) before cumulative effect of change in accounting principle $ 0.36 $ -- $ 0.77 $ 0.62 Cumulative effect of change in accounting principle -- -- -- (0.05) ----------- ----------- ----------- ----------- Net income (loss) $ 0.36 $ -- $ 0.77 $ 0.57 =========== =========== =========== =========== Dividends per common share $ 0.12 $ 0.1125 $ 0.36 $ 0.3375 =========== =========== =========== ===========
-2- 4
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------ CONSOLIDATED BALANCE SHEETS --------------------------- (Unaudited) September December 30,1999 31,1998 ------------ ------------ (Dollars in thousands) ASSETS Current Assets Cash and cash equivalents $ 47,560 $ 32,322 Receivables 378,808 350,102 Inventories: Finished products 168,112 169,830 Raw materials and supplies 62,665 66,703 ----------- ----------- 230,777 236,533 Prepaid expenses 12,860 9,937 Deferred income taxes 27,746 25,554 ----------- ----------- Total current assets 697,751 654,448 Property, Plant and Equipment 613,987 598,573 Less allowances for depreciation 283,914 258,986 ----------- ----------- 330,073 339,587 Other Assets Goodwill and other intangibles 453,879 467,577 Investments and other assets 89,969 91,277 Deferred income taxes 36,009 41,008 ----------- ----------- 579,857 599,862 ----------- ----------- $ 1,607,681 $ 1,593,897 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable to banks $ 5,160 $ 3,391 Trade payables and accrued expenses 410,690 358,081 Current portion of long-term debt 1,523 2,611 ----------- ----------- Total current liabilities 417,373 364,083 Other Liabilities 207,490 210,476 Long-term Debt Senior notes 87,775 87,775 Medium-term notes 160,000 160,000 Other 178,045 233,111 ----------- ----------- 425,820 480,886 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 66,130,335 shares at September 30, 1999 and 66,059,298 shares at December 31, 1998 66,130 66,059 Capital surplus 290,818 293,613 Retained earnings 488,992 470,566 Accumulated translation adjustment (13,737) (12,327) Associates ownership trust (51,033) (65,255) Cost of treasury stock 17,229,980 shares at September 30, 1999 and 16,439,467 shares at December 31, 1998) (224,172) (214,204) ----------- ----------- 556,998 538,452 ----------- ----------- $ 1,607,681 $ 1,593,897 =========== ===========
-3- 5 M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES ------------------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (Unaudited) NINE MONTHS ENDED SEPTEMBER 30 ------------------------ 1999 1998 ---- ---- (Dollars in thousands) Cash Provided from (Used for) Operating Activities Net income $ 34,420 $ 26,172 Depreciation and amortization 48,240 44,359 Companies carried at equity: Income (3,608) (3,437) Dividends received 3,677 2,744 Changes in operating assets and liabilities: Receivables (40,349) (29,177) Inventories (3,472) (9,933) Prepaid expenses (1,401) (1,776) Trade payables and accrued expenses 59,980 (5,245) Restructuring payments (7,252) (6,733) Gain on sale of assets (11,991) (1,009) Restructuring charges - 29,800 Other 9,173 (595) --------- --------- Net operating activities 87,417 45,170 Cash Provided from (Used for) Investing Activities Capital expenditures (38,185) (47,541) Acquisitions of businesses, less cash acquired (9,804) (59,164) Acquisition payments (233) (207) Sales of assets 28,729 4,887 Other 6,403 (7,318) --------- --------- Net investing activities (13,090) (109,343) Cash Provided from (Used for) Financing Activities Cash dividends paid (15,995) (15,053) Proceeds from the sale of common stock 776 2,634 Purchase of shares for treasury - (16,962) Increase in debt 65,704 203,183 Reduction in debt (109,220) (102,355) --------- --------- Net financing activities (58,735) 71,447 Effect of exchange rate changes on cash (354) 96 --------- --------- Cash and Cash Equivalents Increase 15,238 7,370 Beginning of period 32,322 41,430 --------- --------- End of period $ 47,560 $ 48,800 ========= ========= Cash paid during period Interest $ 22,565 $ 25,545 Income taxes 3,820 22,149 -4- 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ September 30, 1999 ------------------ Basis of Presentation - --------------------- The accompanying unaudited 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 44,635,961 and 44,428,180 for the quarters ended September 30, 1999 and 1998, respectively. Outstanding shares for the nine months ended September 30, 1999 and 1998 were 44,566,113 and 44,653,187. 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 44,807,782 and 44,589,156 for the quarters ended September 30, 1999 and 1998, respectively, and 44,723,715 and 45,228,411 for the nine months ended September 30, 1999 and 1998, respectively. Comprehensive Income - -------------------- Comprehensive income for the third quarter of 1999 and 1998 was $19,572 and $2,258, respectively. Comprehensive income for the nine months ended September 30, 1999 and 1998 was, $33,010 and $26,516, respectively. Comprehensive income includes net income and foreign currency translation adjustments for the quarters and nine months ending September 30, 1999 and 1998, respectively. Pending Accounting Changes - -------------------------- In June 1998, the Financial Accounting Standards Board issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" and on June 30, 1999, issued Statement No. 137, which delays the effective date of Statement No. 133 for one year to fiscal years beginning after June 15, 2000. The Company is analyzing the impact of Statement No. 133. Profit Improvement Plan - ----------------------- During the first nine months 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 nine months of 1999 are as follows:
Accrual balance Utilized first nine Accrual balance December 31, 1998 months of 1999 September 30, 1999 ----------------- -------------- ------------------ Associate costs $ 5,257 $ 3,158 $ 2,099 Asset write-downs 2,779 2,030 749 Plant closures 2,163 1,325 838 ------- ------- ------- $10,199 $ 6,513 $ 3,686 ======= ======= =======
-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 for the periods reported includes distribution of engineered plastic shapes and thermoplastic and thermoset resins and glass fiber materials. During the third quarter of 1999, the Company sold its thermoset resins and glass fiber materials business resulting in a pre tax gain of $11,991. Other operations include the Company's Diversified Polymer Products business and its marine operations.
Rubber Plastic Other Processing Processing Distribution Operations Corporate Total ---------- ---------- ------------ ---------- --------- ----- Quarter Ending September 30, 1999 - --------------------------------- Net sales from external customers $ 125,975 $ 219,392 $ 215,576 $ 3,472 $ -- $ 564,415 Intersegment sales 1,231 5,090 1,518 -- -- 7,839 Operating income 10,183 14,815 15,672(a) 1,614(b) (5,385) 36,899 Quarter Ending September 30, 1998 - --------------------------------- Net sales from external customers $ 129,771 $ 202,907 $ 228,900 $ 2,961 $ -- $ 564,539 Intersegment sales 600 5,772 2,327 -- -- 8,699 Operating income (loss) 6,686(c) (5,329)(d) (619)(e) 32 (8,385)(f) (7,615) Nine Months Ending September 30,1999 - ------------------------------------ Net sales from external customers $ 386,894 $ 672,567 $ 668,995 $ 10,780 $ -- $ 1,739,236 Intersegment sales 2,804 15,910 4,751 -- -- 23,465 Operating income 33,082 44,769 21,781(a) 2,193(b) (17,928) 83,897 Nine Months Ending September 30,1998 - ------------------------------------ Net sales from external customers $ 407,239 $ 637,866 $ 696,137 $ 10,411 $ -- $ 1,751,653 Intersegment sales 1,915 18,235 6,016 -- -- 26,166 Operating income 36,691(c) 23,302(d) 16,363(e) 482 (19,721)(f) 57,117
(a) Includes $11,991 gain from sale of thermoset resin and glass fiber materials business (b) Includes $1,219 reversal of reserve related to dock operations (c) Includes $4,251 provision for restructuring (d) Includes $16,400 provision for restructuring and $1,009 gain from the sale of Victor Distribution business (e) Includes $5,640 provision for restructuring (f) Includes $3,537 million provision for restructuring and $2,200 provision for retired executive -6- 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF --------------------------------------- INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS ----------------------------------------------------- Results of Operations - --------------------- Consolidated net sales of $564.4 million for the quarter ending September 30, 1999 were flat with 1998 consolidated net sales of $564.5 million. Increased volume, excluding the divested thermoset resin distribution business, of 6.7 percent was offset by an unfavorable price / mix variance of 6.6 percent, and unfavorable foreign exchange impact of 0.4 percent for the quarter ending September 30, 1999. The nine months ending September 30 experienced a 0.7 percent decrease in consolidated net sales from $1,751.7 million in 1998 to $1,739.2 million in 1999. Sales volume increased 1.6 percent, price / mix decreased 3.6 percent, and foreign exchange had an unfavorable 0.3 percent impact for the nine months ending September 30, 1999. Acquisitions net of divestitures had a favorable 0.3 percent impact on consolidated net sales for the quarter and a favorable 1.6 percent for the nine months ending September 30, 1999. Net sales for the quarter in the plastic processing segment increased 7.6 percent to $224.5 million in 1999 compared with $208.7 million in 1998. Quarterly volume increased 10.9 percent, price / mix was a negative 8.4 percent and the foreign exchange impact was an unfavorable 1.8 percent. Net sales increased 4.9 percent from $656.1 million for the nine months ending September 30, 1998 to $688.5 million for the nine months ending September 30, 1999. Volume increased 3.1 percent while price / mix variances were an unfavorable 3.9 percent coupled with an unfavorable foreign exchange impact of 0.6 percent for the nine months ending September 30, 1999. Acquisitions net of divestitures contributed 6.9 percent to net sales for the quarter and 6.3 percent for the nine months ending September 30, 1999. The domestic plastic compounding business, European compounding business, and domestic plastic color and additive systems business showed sales improvements in quarter to quarter comparisons. Sales were down in the European plastic colorant business due to continued weakness in the United Kingdom and softness in the wire and cable market. The Asian plastic colorant business improved sales as it continues to build its customer base. The rubber processing segment experienced a 2.4 percent decrease in net sales for the quarter to $127.2 million in 1999 compared with $130.4 million in 1998. A sales volume increase of 9.1 percent for the quarter was offset by an unfavorable price / mix variance of 10.9 percent and an unfavorable foreign exchange impact of 0.6 percent. Net sales decreased 4.8 percent from $409.2 million for the nine months ending September 30, 1998 to $389.7 million for nine months ending September 30, 1999. Sales volume increased 0.5 percent while the price / mix variance was an unfavorable 5.0 percent coupled with an unfavorable foreign exchange impact of 0.3 percent for the nine months ending September 30, 1999. While volume has increased both for the quarter and the nine months ending September 30, 1999, the mix includes a higher percentage of lower priced tolling business, negatively impacting sales and profitability. The distribution segment's net sales decreased 6.1 percent to $217.1 million for the quarter ending September 30, 1999 from $231.2 million for the comparable period in 1998. Net distribution sales -7- 9 declined 4.0 percent from $702.2 million to $673.7 million for the nine month period ending September 30, 1998 and 1999, respectively. Sales volume increased 0.8 percent for the quarter and 0.4 percent for the nine months ending September 30, 1999. The price / mix variances were an unfavorable 2.5 percent for both the quarter and the nine months ending September 30, 1999. The foreign exchange impact was as favorable 1.1 percent for the quarter and an unfavorable 0.1 percent for the nine month period ending September 30, 1999. The divestiture of the thermoset resin distribution business had a negative 5.5 percent impact on net sales for the quarter and a negative 1.8 percent impact for the nine months ending September 30, 1999. Resin distribution demonstrated good volume growth, but continues to feel the impact of lower average resin prices compared to a year ago. Shapes distribution continues to work to win back customers it lost due to customer service issues resulting from the implementation of a new distribution and customer service system along with the installation of a new information system. Gross margins increased 1.8 percentage points for the third quarter to 18.2 percent in 1999 compared with 16.4 percent in 1998 and was 18.1 percentage points for the nine month periods ending September 30, 1999 and 1998. The margins in the rubber processing business declined on a year over year basis due to an unfavorable shift in price and mix domestically, plant start up costs, and additional expenses associated with lean manufacturing initiatives. Shapes distribution continues to be negatively impacted by performance issues. Margins in the plastic processing segment improved both for the quarter and the nine months ending September 30, 1999 due to benefits achieved through the company's profit improvement plan initiated in the third quarter of 1998. Selling, general and administrative costs for the third quarter increased $0.8 million to $74.9 million, or 13.3 percent of sales in 1999 as compared with $74.1 million, or 13.1 percent of sales in 1998, and for the nine months ending September 30 increased $6.7 million to $229.7, or 13.2 percent of sales for 1999 compared to $223.0 million or 12.7 percent in 1998. The increase was attributable to expenses associated with acquisitions, selling and technical investments in the European plastics compounding business, and costs associated with the hiring of a new president and CEO. The sale of the thermoset resin business, a non-core portion of the Company's resin distribution business, was completed in the third quarter of 1999 generating a pre-tax gain of $12.0 million. During the quarter the Company's management contract for dock operations in Philadelphia expired, enabling the Company to reverse provisions made in prior periods resulting in a favorable pre-tax impact to earnings of $1.2 million. Other-net, excluding the thermoset gain and the dock operation provision reversal in 1999 and restructuring provisions and asset gains of $23.8 million and $1.0 million, respectively in 1998, increased $1.4 million for the quarter and $2.1 million for the nine months ended September 30, 1999, primarily due the increase in minority interest eliminations. The Company's effective tax rate, although higher due to non-deductible goodwill from the sale of the thermoset resin distribution business, remained at 40.5 percent on an operating basis for the quarter and nine months ending September 30, 1999. Liquidity and Sources of Capital - -------------------------------- Operating activities provided $87.4 million for the first nine months of 1999 including $14.8 million from working capital. Investing activities used $13.1 million and included $38.2 million for capital -8- 10 expenditures and $9.8 million for acquisitions less $28.7 million from the sale of assets. Financing activities used $58.7 million for debt reduction of $43.5 million and $16.0 million for dividend payments. The Company has a revolving credit facility, which provides for borrowing up to $200 million and expires in 2003. The agreement provides for interest rates to be determined at the time of borrowing based on a choice of formulas specified in the agreement. The current ratio was 1.7:1 at September 30, 1999 and 1.8:1 at December 31, 1998. Debt to total capital was 43.3 percent at September 30, 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 reviewed 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 chip computer chips will perform as intended regardless of date and that all data including dates can be accessed and processed with expected results. All of the Company's major business units are compliant based on testing to date. Management is aware that its customers and suppliers may be impacted if the Company is not year 2000 compliant on a timely basis. -9- 11 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 the new systems and software will be year 2000 compliant. New systems and software have been installed, tested and operating compliant as of June 30, 1999 at all major facilities. The new systems and software comprises 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 programs underway to bring them to a state of year 2000 compliance 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. Testing and remediation will continue through the end of the year and be completed on all critical systems by the year end. 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 have been completed and the Company will continue to review the readiness of all its key suppliers and customers. A significant portion of the costs to implement the new systems and software has already been incurred and is being amortized or charged to expense in current operations. The historical costs of remediating the non-compliant systems has been included in the Company's information technology cost reporting and are not material to its financial condition, 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 condition, results of operations or cash flows. The Company has in process a general contingency plan for dealing with any serious year 2000 compliance failures as they may occur and expects to fund the contingency plan efforts from operating funds. The plan will address both internal (staffing for the year 2000 rollover, computer systems and inventory) and external (suppliers, service providers and customers) risks. As part of the plan, the Company is identifying alternative sources or strategies where necessary if significant exposures are identified. 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, management is unable to determine at this time whether the consequences of year 2000 failures will have a material impact on its financial condition, results of operations or cash flows. Management believes that completion of the implementation of the new systems and software should reduce the possibility of significant interruptions of normal operations. While the Company is committed to, and has every expectation of being fully Year 2000 compliant, for -10- 12 the reasons stated above it cannot and will not guarantee to its customers and suppliers that it will achieve year 2000 compliance on a timely basis or that it will meet all of its customer and supplier requirements for year 2000 capability. 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, availability and pricing of supplies and raw materials, changes in product mix, shifts in market demand, the success of the Company's lean manufacturing and supply chain initiatives, the continuing improvement in the domestic plastic shapes distribution business, year 2000 compliance issues and changes in prevailing interest rates. -11- 13 PART II 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 Controller (Principal Accounting Officer) Date: November 9, 1999 EX-27 2 EXHIBIT 27
5 1,000 3-MOS DEC-31-1999 SEP-30-1999 47,560 0 388,519 9,711 230,777 697,751 613,987 283,914 1,607,681 417,373 425,820 0 0 66,130 490,868 1,607,681 564,415 564,415 461,591 461,591 0 775 7,473 29,426 13,133 16,293 0 0 0 16,293 .37 .36
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