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, 1996
COMMISSION FILE NUMBER 1-5222
M. A. HANNA COMPANY
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 34-0232435
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 36-5000, 200 PUBLIC SQUARE, CLEVELAND, OHIO 44114-2304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 216-589-4000
NOT APPLICABLE
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (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 34,761,983.
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, 1996 and 1995 2
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 3
Consolidated Statements of
Cash Flows - Three Months Ended
March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Interim Financial Condition and Results
of Operations. 7-8
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
PART I
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FIRST QUARTER
1996 1995
(Dollars in thousands
except per share data)
Net Sales $497,451 $492,772
Costs and Expenses
Cost of goods sold 405,995 402,268
Selling, general and administrative 58,312 56,681
Interest on debt 6,036 6,937
Amortization of intangibles 3,499 3,471
Other - net 183 2,337
474,025 471,694
Income from Continuing Operations Before
Income Taxes and Extraordinary Charge 23,426 21,078
Income taxes 10,073 9,064
Income from Continuing Operations Before
Extraordinary Charge 13,353 12,014
Income from discontinued operations - 2,931
Extraordinary charge (1,575) -
Net Income $ 11,778 $ 14,945
Net Income per Share
Primary
Continuing operations $ 0.29 $ 0.26
Discontinued operations - 0.06
Extraordinary charge (0.03) -
Net income $ 0.26 $ 0.32
Fully diluted
Continuing operations $ 0.28 $ 0.25
Discontinued operations - 0.06
Extraordinary charge (0.03) -
Net income $ 0.25 $ 0.31
Dividends per common share $ 0.097 $ 0.090
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March December
31, 1996 31, 1995
(Dollars in thousands)
Assets
Current Assets
Cash and cash equivalents $ 40,368 $ 111,235
Receivables 319,142 268,016
Inventories:
Finished products 130,143 126,411
Raw materials and supplies 46,971 40,390
177,114 166,801
Prepaid expenses 5,132 5,693
Deferred income taxes 22,281 22,867
Net assets of discontinued operations 16,918 -
Total current assets 580,955 574,612
Property, Plant and Equipment 416,608 393,314
Less allowances for depreciation 179,691 166,293
236,917 227,021
Other Assets
Goodwill and other intangibles 348,275 321,778
Investments and other assets 73,486 73,067
Deferred income taxes 35,030 35,118
456,791 429,963
$1,274,663 $1,231,596
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 2,069 $ 1,328
Trade payables and accrued expenses 372,396 333,176
Current portion of long-term debt 12,052 747
Total current liabilities 386,517 335,251
Other Liabilities 177,542 179,580
Long-term Debt
Senior notes 192,770 227,270
Other 22,798 4,717
215,568 231,987
Stockholders' Equity
Preferred stock, without par value
Authorized 5,000,000 shares
Issued -0- shares - -
Common stock, par value $1
Authorized 50,000,000 shares
Issued 43,341,217 shares at March 31, 1996 and
43,274,273 shares at December 31, 1995 43,341 43,274
Capital surplus 353,869 324,273
Retained earnings 389,083 381,709
Associates ownership trust (148,065) (121,363)
Cost of treasury stock (8,579,234 shares at March 31, 1996
and 8,631,355 shares at December 31, 1995) (136,571) (137,181)
Minimum pension liability adjustment (7,522) (7,522)
Accumulated translation adjustment 901 1,588
495,036 484,778
$1,274,663 $1,231,596
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
MARCH 31
1996 1995
(Dollars in thousands)
Cash Provided from (Used for) Operating Activities
Net income $ 11,778 $ 14,945
Discontinued operations - 2,794
Depreciation and amortization 12,370 11,609
Companies carried at equity:
Income (995) (281)
Dividends received 1,415 850
Changes in operating assets and liabilities:
Receivables (24,201) (36,943)
Inventories 1,129 (10,826)
Prepaid expenses 907 629
Trade payables and accrued expenses 3,953 4,077
Restructuring payments (1,294) (3,344)
Other 2,711 2,636
Extraordinary charge 2,582 -
Net operating activities 10,355 (13,854)
Cash Provided from (Used for) Investing Activities
Capital expenditures (7,637) (12,021)
Acquisitions of businesses, less cash acquired (45,812) -
Acquisition payments (625) (638)
Other 1,174 (1,766)
Net investing activities (52,900) (14,425)
Cash Provided from (Used for) Financing Activities
Cash dividends paid (4,403) (4,178)
Proceeds from the sale of common stock 941 381
Purchase of shares for treasury (538) (6,500)
Increase in debt 11,787 51,600
Reduction in debt (36,351) (8,575)
Net financing activities (28,564) 32,728
Effect of exchange rate changes on cash 242 256
Cash and Cash Equivalents
Increase (decrease) (70,867) 4,705
Beginning of period 111,235 23,105
End of period $ 40,368 $ 27,810
Cash paid during period
Interest $ 11,296 $ 12,387
Income taxes 1,352 9,940
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions
to Form 10-Q and in the opinion of the Company include all
adjustments necessary to present fairly the results of
operations, financial position, and changes in cash flow.
Reference should be made to the footnotes included in the 1995
Annual Report.
The results of operations for the interim periods are not
necessarily indicative of the results expected for the full year.
Acquisitions
In January 1996, the Company announced the successful completion
of its tender offer for the outstanding stock of CIMCO, Inc., a
producer of thermoplastic compounds and plastic components.
Consistent with its strategy as an intermediary between the
polymer producer and the end product manufacturer, the Company
intends to sell CIMCO's plastic components business, which has
been reported as a discontinued operation in the accompanying
financial statements. In March 1996, the Company acquired Victor
International Plastics Ltd., a leading producer of color
masterbatch in the United Kingdom. Both acquisitions were
accounted for using the purchase method of accounting. Had the
acquisitions been made at the beginning of 1995, reported pro
forma results of operations for the first quarter of 1996 and 1995
would not be materially different.
Discontinued Operations
Net assets of discontinued operations includes the net assets of
CIMCO's plastic components business. The recorded value for the
net assets represents the Company's estimate of net realizable
value and include a provision for operating losses until
disposition. The Company believes the sale of this business will
close late in the second quarter.
Income from discontinued operations in the first quarter of 1995
includes earnings from Day International, a producer of end
products for the printing and textiles industries, which was sold
in the second quarter of 1995.
Net Income Per Share of Common Stock
Primary net income per share of common stock is computed by
dividing net income applicable to common stock by the average
number of shares outstanding during the period (30,482,506 in
1996 and 31,053,936 in 1995). 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 1996 and 1995.
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
were 31,343,245 in 1996 and 31,678,640 in 1995.
On May 1, 1996, the Company announced a three-for-two stock split
for shareholders of record on May 24, 1996 to be effected in the
form of a stock dividend. All per share amounts have been restated
to reflect the three-for-two stock split.
Long-term Debt
In 1996, the Company repurchased $34,650,000 principal amount of
Senior Notes in the open market resulting in an extraordinary charge
pf $2,582,000 ($1,575,000 after tax).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales increased from $492.8 million in 1995 to $497.5
million in 1996. Sales from processing businesses were
$272.4 million in 1995 compared with $270.7 million in
1996. The decrease is due to lower unit volumes, partially
offset by acquisitions consummated in 1996. Distribution
sales increased $4.1 million to $223.1 million in 1996 due
to higher volume, partially offset by lower pricing. Sales
from other operations were comparable with prior year
levels.
Cost of goods sold increased $3.7 million to $406.0 million
in 1996 and corresponds with the increase in net sales.
Gross margins were 18.4% in both periods. Gross margins in
1995 were impacted by a $2.4 million provision for
inventories valued by the last-in first-out cost method.
Absent this provision, gross margins would have been 18.9%
in 1995. The deterioration in gross margins is due in part
to the mix of sales between processing and distribution
businesses and a lower absorption of fixed costs.
Selling, general and administrative expenses increased $1.6
million. As a percentage of sales, selling, general and
administrative expenses were 11.7% in 1996 and 11.5% in
1995.
Interest on debt decreased from $6.9 million in 1995 to
$6.0 million in 1996 due to the repayment in 1995 of the
financing for the 1994 acquisition of Th. Bergmann. In
addition, the Company repurchased $34.5 million of its 9%
Senior Notes in the first quarter of 1996, resulting in an
after-tax extraordinary charge of $1.6 million.
Income from discontinued operations in the first quarter of
1995 includes earnings from Day International, a producer
of end products for the printing and textiles industries,
which was sold in the second quarter of 1995.
Liquidity and Sources of Capital
Operating activities provided $10.4 million in the first
quarter of 1996. This amount includes the use of $18.2
million for working capital and $1.3 million for the
payment of obligations related to prior restructurings.
Investment activities used $52.9 million, which includes
$7.6 million for capital expenditures and $45.8 million for
the acquisition of CIMCO and Victor International.
Financing activities used $28.6 million and include $24.6
million for the reduction of outstanding indebtedness and
$4.4 million for dividends.
The Company has a credit agreement which provides
commitments for borrowings up to $200 million through June
1998. The arrangement provides for interest rates to be
determined at the time of borrowing based on a choice of
formulas specified in the agreement. At March 31, 1996,
there were $10.4 million of outstanding borrowings
supported by this agreement.
The current ratio was 1.5:1 at March 31, 1996 compared with
1.7:1 at December 31, 1995. Debt to total capital was 31.7%
at March 31, 1996 and 32.6% at December 31, 1995.
Environmental Matters
The Company is subject to various laws and regulations
concerning environmental matters. The Company is committed
to a long-term environmental protection program that
reduces releases of hazardous materials into the
environment as well as to the remediation of identified
existing environmental concerns.
Claims have been made against a subsidiary of the Company
for costs of environmental remediation measures taken or to
be taken in connection with operations that have been sold
or closed. These include the clean-up of Superfund sites
and participation with other companies in the clean-up of
hazardous waste disposal sites, several of which have been
designated as Superfund sites. Reserves for such
liabilities have been established and no insurance
recoveries have been anticipated in the determination of
reserves. In management's opinion, the aforementioned
claims will be resolved without material adverse effect on
the financial position or results of operations of the Company.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
a.) Annual meeting of stockholders held May 1, 1996.
b.) Proxies for the meeting were solicited pursuant
to Regulation 14 under the Securities
Exchange Act of 1934; there was no solicitation in
opposition to management nominees as listed in the
the Proxy Statement; and nine directors were
elected.
c.) The appointment of Price Waterhouse LLP as the
Company's independent public accountants for the year
1996 was ratified and approved. There were
28,938,559 shares voted in the affirmative, 25,545
shares voted in the negative and 89,621 shares abstained.
d.) The amendment to the amended Certification of Incorporation
to increase the authorized number of shares of the Company's
common stock from 50,000,000 to 100,000,000 was ratified
and approved. There were 27,143,550 shares voted in the
affirmative, 1,616,744 shares voted in the negative and
293,431 shares abstained.
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
(3)(i) Articles of Incorporation, Amendment dated
May 1, 1996 to Certificate of Incorporation and
complete copy of Amended Certificate of Incorporation
as currently in effect.
b.) No reports on Form 8-K were filed during the
quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
M. A. HANNA COMPANY (Registrant)
/s/ Thomas E. Lindsey
Thomas E. Lindsey
Controller
(Principal Accounting Officer)
Date: May 14, 1996