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 June 30, 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 (1) 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. 35,712,313
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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 and Six Months Ended
June 30, 1994 and 1993 2
Consolidated Balance Sheets -
June 30, 1994 and December 31, 1993 3
Condensed Consolidated Statements of
Cash Flows - Six Months Ended
June 30, 1994 and 1993 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 6. Exhibits and Reports on Form 8-K 10
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PART 1
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Net Sales $452,503 $384,727 $868,515 $747,192
Costs and Expenses
Cost of goods sold 360,319 306,418 693,653 597,109
Selling, general and administrative 57,357 48,443 111,180 96,953
Provision for doubtful accounts 697 1,278 1,411 2,166
Other income (629) (892) (1,227) (1,965)
Other expense 2,421 2,198 4,476 4,456
Interest on debt 6,777 8,179 14,343 16,694
Amortization 4,043 4,239 8,283 8,476
430,985 369,863 832,119 723,889
Income from Continuing Operations Before
Extraordinary Item and Income Taxes 21,518 14,864 36,396 23,303
Income taxes 9,575 6,740 16,196 10,683
Income from Continuing Operations Before 11,943 8,124 20,200 12,620
Extraordinary Item
Income from Discontinued Operations - 220 - 1,564
Income Before Extraordinary Item 11,943 8,344 20,200 14,184
Extraordinary Item (3,680) - (3,680) -
Net Income $8,263 $8,344 $16,520 $14,184
Net Income per Share of Common Stock
Primary
Continuing operations $0.39 $0.26 $0.66 $0.41
Discontinued operations - 0.01 - 0.05
Extraordinary item (0.12) - (0.12) -
Net income $0.27 $0.27 $0.54 $0.46
Fully diluted
Continuing operations $0.38 $0.26 $0.65 $0.41
Discontinued operations - 0.01 - 0.05
Extraordinary item (0.12) - (0.12) -
Net income $0.26 $0.27 $0.53 $0.46
Dividends per common share $0.125 $0.117 $0.25 $0.233
</TABLE>
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M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June December
30, 1994 31, 1993
(Dollars in thousands)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $26,226 $37,645
Short-term securities - 5,061
Receivables 237,268 211,242
Inventories:
Finished products 112,008 104,399
Raw materials and supplies 39,475 34,123
151,483 138,522
Prepaid expenses 8,684 4,494
Deferred taxes 21,421 22,922
Total current assets 445,082 419,886
Property, Plant and Equipment 377,373 359,880
Less allowances for depreciation and depletion 164,680 147,318
212,693 212,562
Other Assets
Goodwill and other intangibles 378,378 382,822
Investments and other assets 88,707 88,736
Deferred taxes 35,550 37,296
502,635 508,854
$1,160,410 $1,141,302
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $1,406 $2,478
Trade payables and accrued expenses 293,386 270,566
Current portion of long-term debt 570 740
Total current liabilities 295,362 273,784
Other Liabilities 176,847 179,959
Long-term Debt
Senior notes 236,145 300,000
Other 61,155 22,103
297,300 322,103
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 42,968,698 shares at June 30, 1994 and
28,605,722 shares at December 31, 1993 42,968 28,606
Capital surplus 305,739 299,389
Retained earnings 277,902 269,026
Associates ownership trust (122,498) (115,214)
Cost of treasury stock ( 7,256,385 shares at June 30,
1994 and 4,864,707 shares at December 31, 1993) (102,221) (102,794)
Minimum pension liability adjustment (8,577) (8,577)
Accumulated translation adjustment (2,412) (4,980)
390,901 365,456
$1,160,410 $1,141,302
</TABLE>
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<PAGE>
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1994 1993
(Dollars in thousands)
<S> <C> <C>
Cash Provided from (Used for) Operations
Net income $16,520 $14,184
Discontinued operations - (1,069)
Depreciation and amortization 24,693 24,324
Companies carried at equity:
Income (2,177) (2,138)
Dividends received 1,250 1,431
Changes in operating assets and liabilities:
Receivables (23,450) (21,828)
Inventories (11,974) (2,506)
Prepaid expenses (4,069) 1,905
Trade payables and other accruals 25,711 (6,910)
Restructuring obligations (5,607) (10,898)
Extraordinary item 6,034 -
Other 6,740 8,988
Net operating transactions 33,671 5,483
Cash Provided from (Used for) Investment Transactions
Expenditures for property, plant and equipment (15,033) (7,382)
Acquisition of companies, less cash acquired (1,875) (27,900)
Acquisition obligations (3,176) (3,397)
Sale of assets - 3,390
Sale of short-term securities 5,061 25,702
Other (472) (2,672)
Net investment transactions (15,495) (12,259)
Cash Provided from (Used for) Financing Transactions
Cash dividends paid (7,643) (6,830)
Proceeds from the sale of common stock 10,741 1,915
Increase in debt 53,574 9,966
Reduction in debt (85,822) (12,452)
Net financing transactions (29,150) (7,401)
Effect of exchange rate changes on cash (445) (343)
Cash and Cash Equivalents
Decrease (11,419) (14,520)
Beginning of period 37,645 54,277
End of period $26,226 $39,757
Cash paid during period
Interest $16,253 $17,557
Income taxes 8,843 12,036
</TABLE>
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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.
On July 19, 1994, the Company announced an agreement to acquire
Th. Bergmann Kunststoffwerk GmbH, one of Germany's largest producers of
specialty and reinforced thermoplastic compounds. The acquisition, which
was completed in August, will be accounted for using the purchase method
of accounting.
Discontinued Operations
Discontinued operations in 1993 include $1.5 million from the sale of a
former natural resources affiliate and $.1 million in operating profits 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 closed on
August 8,1994.
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 (30,858,926 and 30,889,487 for the three
month periods ended June 30, 1994 and 1993, respectively, and 30,750,684
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and 30,651,267 for the six month periods ended June 30, 1994 and 1993,
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 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 number of shares reserved under earnout provisions of
purchase agreements and 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 31,478,730 and 31,039,484
for the three month period ended June 30, 1994 and 1993, respectively,
and 31,376,188 and 30,922,661 for the six month period ended June 30,
1994 and 1993, respectively.
All per share amounts have been adjusted for a three-for-two stock split
for shareholders of record on May 23, 1994 that was effected in the form
of a stock dividend.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales increased $67.8 million in the second quarter of 1994 and $121.3
million the first six months of 1994 compared with the 1993 periods. Sales
from polymer processing businesses increased $36.4 million and $65.5
million, respectively, due to higher unit volumes and acquisitions made in
both 1993 and 1994. Resin distribution sales increased $20.7 million in the
second quarter and $36.3 million in the first six months over the comparable
1993 periods due to higher unit volumes. Polymer product sales increased
from $116.2 million in second quarter of 1993 to $127.3 million in the
comparable 1994 period and from $219.9 million for the first six months of
1993 to $240.1 million in the first six months of 1994 due to higher unit
volumes. Sales from other operations decreased $1.6 million in the second
quarter and $3.4 million in the first six months compared with 1993 periods
due to the sale of a business in the fourth quarter of 1993.
Cost of goods sold increased $53.9 million in the second quarter of 1994
and $96.5 million for the first six months of 1994 compared with 1993
periods and corresponds with the level of sales.
Selling, general and administrative expenses increased $8.4 million in the
second quarter of 1994 and $13.5 million in the first six months of 1994
compared with 1993 periods due to acquisitions of polymer processing
businesses in 1993 and 1994 and higher sales activities from existing
businesses. However, as a percentage of sales, selling, general and
administrative costs decreased from 12.9% and 13.3% in the 1993 periods
to 12.8% and 13.0% in the comparable 1994 periods, reflecting the
Company's ongoing efforts to manage these costs.
Interest on debt decreased $1.4 million in the second quarter of 1994 and
$2.4 million in the first six months of 1994 compared with 1993 levels due
to lower average borrowings, lower interest rates and the repurchase of
$63.9 million of the Company's Senior Notes in the second quarter of 1994.
The repurchase of the Senior Notes resulted in an extraordinary after-tax
charge to earnings of $3.7 million in the second quarter of 1994.
Income from discontinued operations in 1993 consists of $1.5 million from
the sale of a former natural resources affiliate and $.1 million in operating
earnings 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 closed on
August 8, 1994.
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<PAGE>
Liquidity and Sources of Capital
The Company's ability to generate significant cash flows continued in the
first six months of 1994 with $33.7 million provided from operating activities.
This amount includes the use of $13.8 million for working capital and $5.6
million for the payment of obligations related to prior restructurings.
Investment transactions used $15.5 million and include $15.0 million for
capital expenditures, $5.1 million related to acquisitions of businesses,
partially offset by $5.1 million from the sale of short-term securities.
Financing activities used $29.2 million and include $7.6 million from
dividends, $32.2 million in net reductions of outstanding debt, partially
offset by $10.7 million from proceeds from the sale of stock.
The current ratio was 1.5:1 at June 30, 1994 and December 31, 1993.
Long-term debt to total capital was 43.2% at June 30, 1994 compared with
46.8% at December 31, 1993.
During the second quarter of 1994, the Company repurchased $63.9 million
of its Senior Notes in the open market, resulting in an extraordinary after-tax
charge of $3.7 million. Funds to repurchase the Senior Notes were
obtained from existing cash flows as well as borrowings under the
Company's credit agreements, which carry a lower rate of interest than the
Senior Notes.
On June 30, 1994, the Company entered into a new revolving credit
agreement, replacing an existing credit agreement which provided for a
reducing amount of credit availability. The new agreement 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.
Borrowings outstanding under this agreement were $53.6 million at June 30,
1994.
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 June 30, 1994, borrowings outstanding under this
commitment were 25 million French francs, or an equivalent of $4.6 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.
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<PAGE>
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 on the financial position of the Company.
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<PAGE>
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: August 11, 1994
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