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, 1994
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.)
1301 E. NINTH STREET, SUITE 3600, CLEVELAND, OHIO 44114-1860
(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. 23,769,368
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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, 1994 and 1993 2
Consolidated Balance Sheets -
March 31, 1994 and December 31, 1993 3
Condensed Consolidated Statements of
Cash Flows - Three Months Ended
March 31, 1994 and 1993 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Interim Financial Condition and Results
of Operations. 6-7
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 8
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PART I
M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FIRST QUARTER
1994 1993
(Dollars in thousands
except per share data)
Net Sales $416,012 $362,465
Costs and Expenses
Cost of goods sold 333,334 290,691
Selling, general and administrative 53,823 48,510
Provision for doubtful accounts 714 888
Other income (598) (1,073)
Other expense 2,055 2,258
Interest on debt 7,566 8,515
Amortization 4,240 4,237
401,134 354,026
Income from Continuing Operations
Before Income Taxes 14,878 8,439
Income taxes 6,621 3,943
Income from Continuing Operations 8,257 4,496
Income from Discontinued Operations - 1,344
Net Income $ 8,257 $ 5,840
Net Income per Share of Common Stock
Primary
Continuing operations $ .40 $ .22
Discontinued operations - .07
Net income $ .40 $ .29
Fully diluted
Continuing operations $ .40 $ .21
Discontinued operations - .07
Net income $ .40 $ .28
Dividends per Common Share $ .1875 $ .175
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M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION> MARCH DECEMBER
31, 1994 31, 1993
(Dollars in thousands)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 38,276 $ 37,645
Short-term securities - 5,061
Receivables 224,198 211,242
Inventories:
Finished products 105,247 104,399
Raw materials and supplies 37,458 34,123
142,705 138,522
Prepaid expenses 6,153 4,494
Deferred taxes 20,472 22,922
Total current assets 431,804 419,886
Property, Plant and Equipment 366,849 359,880
Less allowances for depreciation and depletion 156,606 147,318
210,243 212,562
Other Assets
Goodwill and other intangibles 379,988 382,822
Investments and other assets 87,749 88,736
Deferred taxes 35,550 37,296
503,287 508,854
$1,145,334 $1,141,302
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 3,528 $ 2,478
Trade payables and accrued expenses 273,826 270,566
Current portion of long-term debt 779 740
Total current liabilities 278,133 273,784
Other Liabilities 178,123 179,959
Long-term Debt
Senior notes 300,000 300,000
Other 8,114 22,103
308,114 322,103
Stockholders' Equity
Preferred stock, without par value
Authorized 5,000,000 shares
Issued 132 shares - -
Common stock, par value $1
Authorized 50,000,000 shares
Issued 28,634,075 shares at March 31, 1994 and
28,605,722 shares at December 31, 1993 28,634 28,606
Capital surplus 312,998 299,389
Retained earnings 273,496 269,026
Associates ownership trust (117,665) (115,214)
Cost of treasury stock (4,864,707 shares at March 31,
1994 and 4,864,707 shares at December 31, 1993) (102,794) (102,794)
Minimum pension liability adjustment (8,577) (8,577)
Accumulated translation adjustment (5,128) (4,980)
380,964 365,456
$1,145,334 $1,141,302
</TABLE>
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M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
MARCH 31
1994 1993
(Dollars in thousands)
Cash Provided from (Used for) Operations
Net income $ 8,257 $ 5,840
Discontinued operations - (2,390)
Depreciation and amortization 12,470 12,791
Companies carried at equity:
Income (730) (754)
Dividends received 750 212
Changes in operating assets and liabilities:
Receivables (9,997) (19,632)
Inventories (3,496) (1,814)
Prepaid expenses (1,602) 823
Trade payables and other accruals 4,081 (21,186)
Restructuring obligations (2,018) (3,625)
Other 3,015 5,822
Net operating transactions 10,730 (23,913)
Cash Provided from (Used for) Investment Transactions
Expenditures for property, plant and equipment (4,657) (3,433)
Acquisition of companies, less cash acquired (1,861) -
Acquisition obligations (682) (2,361)
Sale of assets - 3,390
Sale of short-term securities 5,061 15,768
Other 127 103
Net investment transactions (2,012) 13,467
Cash Provided from (Used for) Financing Transactions
Cash dividends paid (3,791) (3,408)
Proceeds from the sale of common stock 9,347 772
Increase in debt 919 9,438
Reduction in debt (14,249) (10,349)
Net financing transactions (7,774) (3,547)
Effect of exchange rate changes on cash (313) (565)
Cash and Cash Equivalents
Increase(decrease) 631 (14,558)
Beginning of period 37,645 54,277
End of period $38,276 $39,719
Cash paid during period
Interest $14,903 $16,554
Income taxes 1,968 2,944
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1994
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 1993 Annual
Report.
The results of operations for the interim periods are not necessarily
indicative of the results expected for the full year.
Acquisitions
On March 15, 1994, the Company acquired certain assets of North Coast
Compounders, a producer of thermoplastic elastomers and other materials.
The acquisition was accounted for using the purchase method of accounting.
Had the acquisition been made at the beginning of 1993, reported results of
operations would not be materially different.
Discontinued Operations
Discontinued operations in 1993 include $1.5 million from the sale of a
former natural resources affiliate partially offset by $.2 million in
operating losses related to the Company's elastomeric membrane roofing
business. During the fourth quarter of 1993, the Company announced it had
reached a preliminary agreement to sell the roofing business. The sale is
expected to close in the second quarter of 1994.
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 (20,427,452 in 1994 and 20,272,151 in 1993).
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
1994.
The number of shares used to compute fully dilutive 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 was 20,815,338 in 1994 and 20,501,030 in 1993.
On May 4, 1994, the Company announced a three-for-two stock split for
shareholders of record on May 23, 1994 to be effected in the form of a
stock dividend.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales increased from $362.5 million in 1993 to $416.0 million in 1994.
Sales from polymer processing businesses increased $29.1 million due to
higher unit volumes and acquisitions made in 1993. Resin distribution sales
increased $15.6 million to $89.8 million in 1994 due to higher unit volumes.
Polymer product sales increased from $103.7 million in 1993 to $112.8
million in 1994 due to higher unit volumes. Sales from other operations
decreased from $3.5 million in 1993 to $1.7 million in 1994 due to the sale
of a business in the fourth quarter of 1993.
Cost of goods sold increased $42.6 million to $333.3 million in 1994 and
corresponds with the sales increases. As a percentage of sales, cost of
goods sold was 80.1% in 1994 and 80.2% in 1993. The overall margin
percentage was negatively impacted by .5 points because of the resin
distribution businesses, which have faster growth with lower gross margins
and the polymer products businesses, which have higher gross margins and
slower growth.
Selling, general and administrative expenses increased $5.1 million in 1994
over 1993 levels due to acquisitions in polymer processing businesses in
1993 and higher sales activity from existing businesses. However, as a
percentage of sales, selling, general and administrative expenses fell from
13.6% in 1993 to 13.1% in 1994, reflecting the Company's ongoing efforts to
manage these costs.
Interest expense decreased from $8.5 million in 1993 to $7.6 million in 1994
due to lower average borrowings and lower interest rates.
Discontinued operations include $1.5 million from the sale of a former
natural resources affiliate partially offset by $.2 million operating loss
from the Company's elastomeric membrane roofing business. During the fourth
quarter of 1993, the Company announced it had reached a preliminary
agreement to sell the roofing business. The sale will close in the second
quarter of 1994.
Liquidity and Sources of Capital
The Company's ability to generate significant cash flows from operations
continued in the first quarter of 1994 with $10.7 million provided from
operating activities. This amount includes the use of $11.0 million for
working capital and $2.0 million for the payment of obligations related to
prior restructurings. Investment transactions used $2.0 million and
included $1.9 million related to acquisitions of businesses and $4.7 million
for capital expenditures, partially offset by $5.1 million from sales of
short-term securities. Financing activities used $7.8 million and include
$3.8 million for dividends and $13.3 million for reductions in outstanding
debt, partially offset by $9.3 million from proceeds from the sale of stock.
The current ratio was 1.6:1 at March 31, 1994 compared with 1.5:1 at
December 31, 1993. Long-term debt to total capital was 44.7% at March 31,
1994 compared with 46.8% at December 31, 1993.
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The Company has a credit agreement which provided commitments for borrowings
up to $150 million through March 1994. Beginning March 1994, the bank
commitments will be reduced by 12.5% of the aggregate amount of borrowings
outstanding under the agreement each quarter for eight consecutive quarters.
Commitments for borrowings under this agreement were $131.2 million at March
31, 1994. The arrangement provides for interest rates to be determined at
the time of the borrowing based on a choice of formulas specified in the
agreement. No borrowings were outstanding under this agreement at March 31,
1994.
The Company has repurchased a portion of its Senior Notes in the open
market. As of May 10, the Company has repurchased Senior Notes with a face
value of $64.0 million, which will result in an extraordinary after-tax
charge to earnings in the second quarter of 1994 of approximately $4.0
million. Funds to repurchase the Senior Notes were obtained from existing
cash flow as well as borrowings under the Company's credit agreements, which
carry a lower rate of interest than the Senior Notes.
The Company also has a credit agreement which provides commitments for
borrowings of up to 150 million French francs through November 1996. The
agreement provides for interest rates to be determined at the time of
borrowing. At March 31, 1994, borrowings outstanding under this commitment
were 25 million French francs, or an equivalent of $4.4 million.
The Company believes that its ability to generate cash flows from operations
and the availability of funds under existing credit facilities will be
sufficient to meet anticipated capital expenditure programs, existing
obligations arising from prior restructurings and acquisitions, dividend
requirements and other planned financial commitments in 1994 throughout the
term of the existing credit facilities.
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 emissions of hazardous
materials into the environment as well as to the remediation of identified
existing environmental concerns.
The Company is involved in certain legal actions and claims arising in the
ordinary course of business including lawsuits brought by the State of Idaho
in 1983 and the United States government in 1993 seeking reimbursement from
the Company and other defendants for alleged damages to the environment and
clean-up costs for the area around the Blackbird Mine in Idaho.
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. In April 1994, the New Jersey Department of Environmental
Protection and Energy finalized a Record of Decision, which incorporates
the agreed upon remediation to be performed by the Company's subsidiary
at its Wharton, New Jersey site.
Reserves for such liabilities have been established and no insurance
recoveries have been reflected in the determination of reserves. In
management's opinion, such litigation and claims will be resolved without
material adverse effect of the financial position of the Company.
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PART II
Item 4. Submission of Matters to a Vote of Security Holders.
a) Annual meeting of stockholders held May 4, 1994.
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's nominees as listed in
the proxy statement; and nine directors were elected.
c) The appointment of Ernst & Young as the Company's independent
public accountants for the year 1994 was ratified and approved.
There were 20,297,832 shares voted in the affirmative, 37,837
shares voted in the negative and 100,737 shares abstained.
d) The 1994 amendments to the Company's 1988 Long-Term Incentive Plan
were ratified and approved. There were 18,281,983 shares voted in
the affirmative, 1,750,918 shares voted in the negative and 403,505
shares abstained.
e) The adoption of the M.A. Hanna Company Directors' Deferred Fee Plan
was ratified and approved. There were 19,292,188 shares voted in
the affirmative, 662,415 shares voted in the negative and 481,803
shares abstained.
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
Comptroller
(Principal Accounting Officer)
Date: May 11, 1994
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