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, 1995
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 (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 35,562,242
<PAGE>
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, 1995 and 1994 2
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 3
Consolidated Statements of
Cash Flows - Nine Months Ended
September 30, 1995 and 1994 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
-1-
<PAGE>
PART I
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Net Sales $464,078 $448,650 $1,440,145 $1,259,686
Costs and Expenses
Cost of goods sold 379,046 364,520 1,174,532 1,022,767
Selling, general and administrative 52,653 52,431 164,599 153,555
Other income (2,412) (726) (13,322) (1,773)
Other expense 1,792 1,997 5,829 6,472
Interest on debt 6,142 7,178 20,295 21,521
Amortization 3,505 3,383 10,473 9,015
440,726 428,783 1,362,406 1,211,557
Income from Continuing Operations Before
Extraordinary Item and Income Taxes 23,352 19,867 77,739 48,129
Income taxes 10,041 8,598 33,054 21,280
Income from Continuing Operations Before
Extraordinary Item 13,311 11,269 44,685 26,849
Income from Discontinued Operations - 1,625 45,337 6,245
Income Before Extraordinary Item 13,311 12,894 90,022 33,094
Extraordinary Item - - - (3,680)
Net Income $ 13,311 $ 12,894 $ 90,022 $ 29,414
Net Income per Share of Common Stock
Primary
Continuing operations $ 0.43 $ 0.36 $ 1.43 $ 0.87
Discontinued operations - 0.06 1.46 0.20
Extraordinary item - - - (0.12)
Net income $ 0.43 $ 0.42 $ 2.89 $ 0.95
Fully diluted
Continuing operations $ 0.42 $ 0.36 $ 1.40 $ 0.85
Discontinued operations - 0.05 1.43 0.20
Extraordinary item - - - (0.12)
Net income $ 0.42 $ 0.41 $ 2.83 $ 0.93
Dividends per common share $ 0.135 $ 0.125 $ 0.405 $ 0.375
</TABLE>
-2-
<PAGE>
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September December
30, 1995 31, 1994
(Dollars in thousands)
Assets
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 63,148 $ 23,105
Short-term securities 55,505 -
Receivables 281,576 247,116
Inventories:
Finished products 130,126 116,718
Raw materials and supplies 43,544 44,542
173,670 161,260
Prepaid expenses 4,329 3,981
Deferred taxes 28,312 26,938
Net assets of discontinued operations - 103,215
Total current assets 606,540 565,615
Property, Plant and Equipment 387,684 342,543
Less allowances for depreciation and depletion 163,118 138,408
224,566 204,135
Other Assets
Goodwill and other intangibles 325,975 330,757
Investments and other assets 68,961 79,803
Deferred taxes 33,056 34,850
427,992 445,410
$1,259,098 $1,215,160
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 1,981 $ 931
Trade payables and accrued expenses 358,130 335,877
Current portion of long-term debt 717 683
Total current liabilities 360,828 337,491
Other Liabilities 171,719 173,888
Long-term Debt
Senior notes 227,270 235,770
Other 4,589 53,099
231,859 288,869
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 43,240,514 shares at September 30, 1995 and
43,015,494 shares at December 31, 1994 43,241 43,015
Capital surplus 315,249 299,725
Retained earnings 374,131 296,632
Associates ownership trust (120,223) (111,471)
Cost of treasury stock (7,678,272 shares at September 30, 1995
and 7,321,400 shares at December 31, 1994) (113,196) (103,731)
Minimum pension liability adjustment (7,262) (7,262)
Accumulated translation adjustment 2,752 (1,996)
494,692 414,912
$1,259,098 $1,215,160
</TABLE>
-3-
<PAGE>
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30
1995 1994
(Dollars in thousands)
Cash Provided from (Used for) Operations
Net income $ 90,022 $ 29,414
Discontinued operations 4,797 11,102
Depreciation and amortization 35,581 30,749
Companies carried at equity:
Income (5,015) (4,383)
Dividends received 6,052 5,281
Changes in operating assets and liabilities:
Receivables (32,519) (41,955)
Inventories (19,034) (16,981)
Prepaid expenses (647) 382
Trade payables and other accruals 8,901 42,268
Gain from sales of assets (84,427) -
Restructuring obligations (13,806) (8,618)
Extraordinary item - 6,034
Other 12,442 9,175
Net operating transactions 2,347 62,468
Cash Provided from (Used for) Investment Transactions
Capital expenditures (44,415) (28,792)
Acquisition of companies, less cash acquired - (53,371)
Acquisition obligations (2,338) (3,302)
Sales of assets 223,500 13,874
Purchase of short-term securities (69,703) -
Sale of short-term securities 15,000 5,061
Other (5,360) 1,636
Net investment transactions 116,684 (64,894)
Cash Provided from (Used for) Financing Transactions
Cash dividends paid (12,522) (11,505)
Proceeds from the sale of common stock 1,586 13,856
Purchase of shares for treasury (9,021) -
Increase in debt 57,314 118,944
Reduction in debt (118,039) (135,269)
Net financing transactions (80,682) (13,974)
Effect of exchange rate changes on cash 1,694 332
Cash and Cash Equivalents
Increase (Decrease) 40,043 (16,068)
Beginning of period 23,105 37,645
End of period $ 63,148 $ 21,577
Cash paid during period
Interest $ 26,214 $ 28,423
Income taxes 65,739 11,947
-4-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
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 1994
Annual Report.
The results of operations for the interim periods are not necessarily
indicative of the results expected for the full year.
Discontinued Operations
In December 1994, the Company adopted a plan to sell its Day International
printing and textile business. The business consists of the manufacturing
of printing blankets and other consumables for the printing industry and
the manufacturing of engineered consumable supplies for the textile
industry. In April 1995, the Company announced it had entered into an
agreement to sell the business to American Industrial Partners Capital
Fund. The sale consummated on June 6, 1995 with the Company realizing a
gain from the sale of $40,254,000. Had the sale been consummated as of
January 1, 1994, fully diluted earnings per share from continuing
operations would have been $.42 and $.39 for the three months ended
September 30, 1995 and 1994, respectively, and $1.46 and $.91 for the nine
months ended September 30, 1995 and 1994, respectively.
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 (31,241,180 and 30,950,417 for the three
month periods ended September 30, 1995 and 1994, respectively, and
31,148,273 and 30,816,863 for the nine month periods ended September 30,
1995 and 1994, 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 1995 and 1994.
-5-
<PAGE>
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 were 31,875,691 and 31,596,388 for the
three month periods ended September 30, 1995 and 1994, respectively, and
31,846,841 and 31,471,482 for the nine month periods ended September 30,
1995 and 1994, respectively.
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales increased $15.4 million in the third quarter of 1995 and $180.4
million in the first nine months of 1995 as compared with 1994 periods.
Sales from processing businesses were up slightly in the third quarter
of 1995 compared with the third quarter of 1994 with pricing
substantially offset by lower unit volumes. Processing sales for the
nine months ended September 30, 1995 increased $81.4 million to $777.7
million as compared with the comparable 1994 period due to pricing,
acquisitions made in 1994 and the impact of exchange, partially offset
by lower volume. Sales from distribution businesses increased from
$199.8 million in the third quarter of 1994 to $211.7 million in the
comparable 1995 period and from $558.0 million in the first nine months
of 1994 to $650.9 million in the first nine months of 1995 due to
pricing, partially offset by lower unit volumes. Sales from other
operations were comparable with prior year periods.
Gross margins were 18.3% in the third quarter of 1995 and 18.4% for the
first nine months of 1995 compared with 18.8% in each of the comparable
1994 periods due to lower unit volumes and higher provisions for
inventories valued by the last-in first-out cost method.
Selling, general and administrative expenses in the third quarter of 1995
were comparable with the third quarter of 1994 and increased $11.0
million in the first nine months of 1995 due to acquisitions made in 1994
and higher sales activities from existing businesses, partially offset
by lower costs associated with pay for performance incentives.
Other income increased $1.7 million in the third quarter of 1995 and
$11.5 million in the first nine months of 1995 due to higher levels of
interest income from invested cash and marketable securities. The first
nine months of 1995 includes a gain of $9.3 million from the sale of the
Company's 8% interest in Iron Ore Company of Canada; the Company will
continue to receive fees as managing agent and from its interest in the
sales agency through 1996.
Interest expense decreased $1.0 million and $1.2 million in the third
quarter and first nine months of 1995, respectively, over comparable 1994
periods due to lower levels of outstanding indebtedness.
In December 1994, the Company adopted a plan to sell its Day
International printing and textile business. Accordingly, the results
of that business were reclassified as discontinued operations. In June
-7-
<PAGE>
1995, the previously announced sale of the business to American
Industrial Partners Capital Fund was consummated with the Company
recognizing a gain of $40.3 million.
The extraordinary item in 1994 of $3.7 million is the premium associated
with the repurchase of $64 million of the Company's Senior Notes.
Liquidity and Sources of Capital
Operating activities provided $2.3 million in the first nine months of
1995. This amount includes the use of $43.3 million for working capital,
including $28.6 million in estimated tax payments related to the sale of
Day International, and $13.8 million for the payment of obligations
related to prior restructurings. Investment activities provided $116.7
million which includes $223.5 million from the sale of assets, partially
offset by $44.4 million for capital expenditures and $54.7 million
invested in short-term securities. Financing activities used $80.7
million and include $60.7 million in net reductions of long-term debt,
$12.5 million for dividends and $9.0 million for the purchase of shares
for treasury.
The Company has a credit agreement which provides commitments for
borrowings up to $200 million through June 1998. The agreement provides
for interest rates to be determined at the time of borrowing based on a
choice of formulas specified in the agreement. At September 30, 1995,
there were no borrowings outstanding under this agreement.
The current ratio was 1.7:1 at September 30, 1995 and December 31, 1994.
Long-term debt to total capital was 31.9% at September 30, 1995 compared
with 41.0% at December 31, 1994.
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.
The Company has been 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. The Company and other principal defendants have entered
into a settlement agreement among themselves allocating a minor share of
responsibility to the Company. In turn, a Consent Decree among the
principal defendants and the State of Idaho and the United States
government was entered by the Court on September 1, 1995, settling all
-8-
<PAGE>
liability issues affecting the Company in these legal proceedings without
a material adverse effect on the results of operations or the financial
position of the Company.
Claims have also 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 of the Company.
-9-
<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: October 26, 1995
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 63,148
<SECURITIES> 55,505
<RECEIVABLES> 294,070
<ALLOWANCES> 12,494
<INVENTORY> 173,670
<CURRENT-ASSETS> 606,540
<PP&E> 387,684
<DEPRECIATION> 163,118
<TOTAL-ASSETS> 1,259,098
<CURRENT-LIABILITIES> 360,828
<BONDS> 231,859
<COMMON> 43,241
0
0
<OTHER-SE> 451,451
<TOTAL-LIABILITY-AND-EQUITY> 1,259,098
<SALES> 1,440,145
<TOTAL-REVENUES> 1,440,145
<CGS> 1,174,532
<TOTAL-COSTS> 1,174,532
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,771
<INTEREST-EXPENSE> 20,295
<INCOME-PRETAX> 77,739
<INCOME-TAX> 33,054
<INCOME-CONTINUING> 44,685
<DISCONTINUED> 45,337
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,022
<EPS-PRIMARY> 2.89
<EPS-DILUTED> 2.83
</TABLE>
