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, 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
1301 East Ninth Street, Suite 3600 Cleveland, Ohio 44114
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 35,504,053
<PAGE>
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, 1995 and 1994 2
Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994 3
Condensed Consolidated Statements of
Cash Flows - Three Months Ended
March 31, 1995 and 1994 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Interim Financial Condition and Results
of Operations. 6-8
PART II - OTHER INFORMATION
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 10
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<PAGE>
PART 1
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FIRST QUARTER
1995 1994
(Dollars in thousands
except per share data)
Net Sales $492,772 $388,520
Costs and Expenses
Cost of goods sold 402,268 316,306
Selling, general and administrative 56,681 48,881
Other income (46) (478)
Other expense 2,383 2,057
Interest on debt 6,937 7,566
Amortization 3,471 2,914
471,694 377,246
Income from Continuing Operations Before
Income Taxes 21,078 11,274
Income taxes 9,064 5,064
Income from Continuing Operations 12,014 6,210
Income from Discontinued Operations 2,931 2,047
Net Income $ 14,945 $ 8,257
Net Income per Share of Common Stock
Primary
Continuing operations $ 0.39 $ 0.20
Discontinued operations 0.09 0.07
Net income $ 0.48 $ 0.27
Fully diluted
Continuing operations $ 0.38 $ 0.19
Discontinued operations 0.09 0.07
Net income $ 0.47 $ 0.26
Dividends per common share $ 0.135 $ 0.125
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<PAGE>
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March December
31, 1995 31, 1994
(Dollars in thousands)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 27,810 $ 23,105
Receivables 285,975 247,116
Inventories:
Finished products 121,230 116,718
Raw materials and supplies 50,019 44,542
171,249 161,260
Prepaid expenses 3,502 3,981
Deferred taxes 23,480 26,938
Net assets of discontinued operations 104,518 103,215
Total current assets 616,534 565,615
Property, Plant and Equipment 357,691 342,543
Less allowances for depreciation and depletion 147,062 138,408
210,629 204,135
Other Assets
Goodwill and other intangibles 334,712 330,757
Investments and other assets 80,587 79,803
Deferred taxes 34,103 34,850
449,402 445,410
$1,276,565 $1,215,160
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 2,092 $ 931
Trade payables and accrued expenses 344,673 335,877
Current portion of long-term debt 724 683
Total current liabilities 347,489 337,491
Other Liabilities 169,650 173,888
Long-term Debt
Senior notes 227,270 235,770
Other 108,461 53,099
335,731 288,869
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 43,037,609 shares at March 31, 1995 and
43,015,494 shares at December 31, 1994 43,037 43,015
Capital surplus 306,834 299,725
Retained earnings 307,397 296,632
Associates ownership trust (117,078) (111,471)
Cost of treasury stock (7,533,556 shares at March 31, 1995
and 7,321,400 shares at December 31, 1994) (109,364) (103,731)
Minimum pension liability adjustment (7,262) (7,262)
Accumulated translation adjustment 131 (1,996)
423,695 414,912
$1,276,565 $1,215,160
</TABLE>
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<PAGE>
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
MARCH 31
1995 1994
(Dollars in thousands)
Cash Provided from (Used for) Operations
Net income $14,945 $ 8,257
Discontinued operations 2,794 3,035
Depreciation and amortization 11,609 9,932
Companies carried at equity:
Income (281) (730)
Dividends received 850 750
Changes in operating assets and liabilities:
Receivables (36,943) (9,997)
Inventories (10,826) (3,496)
Prepaid expenses 629 (1,602)
Trade payables and other accruals 4,077 4,081
Restructuring obligations (3,344) (2,018)
Other 2,636 2,518
Net operating transactions (13,854) 10,730
Cash Provided from (Used for) Investment Transactions
Capital expenditures (12,021) (4,657)
Acquisition of companies, less cash acquired - (1,861)
Acquisition obligations (638) (682)
Sale of short-term securities - 5,061
Other (1,766) 127
Net investment transactions (14,425) (2,012)
Cash Provided from (Used for) Financing Transactions
Cash dividends paid (4,178) (3,791)
Proceeds from the sale of common stock 381 9,347
Purchase of shares for treasury (6,500) -
Increase in debt 51,600 919
Reduction in debt (8,575) (14,249)
Net financing transactions 32,728 (7,774)
Effect of exchange rate changes on cash 256 (313)
Cash and Cash Equivalents
Increase 4,705 631
Beginning of period 23,105 37,645
End of period $27,810 $38,276
Cash paid during period
Interest $12,387 $14,903
Income taxes 9,940 1,968
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 agreement is
contingent on American Industrial Partners securing financing and regulatory
and other approvals. The Company believes the transaction will close late in
the second quarter.
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 (31,053,936 in 1995 and 30,641,178 in 1994).
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.
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 31,678,640 in 1995 and 31,223,007 in 1994.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales increased from $388.5 million in 1994 to $492.8 million in
1995, an increase of 26.8%. Sales from processing businesses
increased 25.3% over 1994 levels to $272.4 million. The increase is
due to acquisitions made in 1994, higher unit volumes and pricing.
Distribution sales increased $48.1 million to $219.0 million due to higher
unit volumes and pricing. Sales from other operations were comparable
with prior year levels.
Cost of goods sold increased $86.0 million to $402.3 million in 1995
and corresponds with the increase in net sales. Gross margins were
18.4% in 1995 compared with 18.6% in 1994. Impacting gross
margins in 1995 was 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.
Selling, general and administrative expenses increased $7.8 million over
1994 levels due to the higher level of sales and acquisitions made in
1994. As a percentage of sales, selling, general and administrative costs
were 11.5% in 1995 compared with 12.6% in 1994.
Interest on debt decreased from $7.6 million in 1994 to $6.9 million in
1995. During the second quarter of 1994, the Company repurchased
$64.2 million of its Senior Notes in the open market resulting in an after-
tax extraordinary 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 revolving credit facility, which carry a lower rate
of interest.
In December 1994, the Company adopted a plan to sell its Day
International printing and textile business. Accordingly, the operating
results of that business have been reclassified as discontinued
operations. In April 1995, the Company announced it had entered into
an agreement to sell the business to American Industrial Partners Capital
Fund. The Company believes the transaction will close late in the
second quarter.
Liquidity and Sources of Capital
Operating activities used $13.9 million in the first quarter of 1995. This
amount includes the use of $43.1 million for working capital and $3.3
million for the payment of obligations related to prior restructurings.
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<PAGE>
Investment activities used $14.4 million, which includes $12.0 million
for capital expenditures. Financing activities provided $32.7 million and
include $43.0 million from increases in outstanding debt, partially offset
by $4.2 million for dividends and $6.5 million used in the purchase of
stock for treasury.
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,
1995, there were $63.3 million of outstanding borrowings supported by
this agreement.
In April 1995 the Company announced it had entered into an agreement
to sell its Day International printing and textile business. The sale, which
is subject to the buyer securing financing and obtaining regulatory
approval, is expected to close late in the second quarter. Proceeds from
the sale will be used to pay down outstanding borrowings and make
further investment in the Company's processing and distribution
businesses.
The current ratio was 1.8:1 at March 31, 1995 compared with 1.7:1 at
December 31, 1994. Excluding the net assets of discontinued
operations, the current ratio was 1.5:1 at March 31, 1995 compared
with 1.4:1 at December 31, 1994. Long-term debt to total capital was
44.2% at March 31, 1995 and 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 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. 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 was executed among the principal defendants and the State of
Idaho and the United States government and was lodged with the Court
on April 28, 1995. Assuming the Consent Decree is entered by the
Court in its present form, all liability issues affecting the Company in
these legal proceedings will have been settled without a material adverse
effect on the results of operations or the financial position of the Company.
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<PAGE>
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. 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 anticipated in the determination of reserves. In
management's opinion, the aforementioned 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 3. Legal Proceedings
With respect to the legal proceedings by the State of Idaho and the
United States against the Registrant and other defendants involving
alleged damages to the environment at the Blackbird Mine in Idaho,
the Registrant and the other principal defendants have entered into
a settlement agreement among themselves allocating a minor share of
responsibility to the Registrant. In turn, a Consent Decree was
executed among the principal defendants and the state and federal
plaintiffs, and was lodged with the Court on April 28, 1995. It is
expected that after a public comment period, the Consent Decree will
be entered by the Court. Assuming that the Consent Decree is entered
in its present form, all of the liability issues affecting Registrant
in these legal proceedings will have been settled without a material
adverse effect on Registrant's business or financial position.
Item 4. Submission of Matters to a Vote of Security Holders
a.) Annual meeting of stockholders held May 3, 1995.
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
Proxy Statement; and nine directors were elected.
c.) The appointment of Price Waterhouse LLP as the Company's
independent public accountants for the year 1995 was ratified and
approved. There were 31,197,340 shares voted in the
affirmative, 117,842 shares voted in the negative and 240,493
shares abstained.
d.) The adoption of the M.A. Hanna Company Voluntary Non-
Qualified Deferred Compensation Plan was ratified and approved.
There were 29,115,106 shares voted in the affirmative,
1,785,891 shares voted in the negative and 654,678 shares
abstained.
e.) The 1995 amendments to the M.A. Hanna Company Directors'
Deferred Fee Plan was ratified and approved. There were
28,850,925 shares voted in the affirmative, 2,072,152 shares
voted in the negative and 632,599 shares abstained.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) During the quarter ended March 31, 1995, the Registrant filed
Current Report on From 8-K/A dated March 8, 1995 reporting that
the Registrant had appointed Price Waterhouse LLP, replacing
Ernst & Young LLP, who was dismissed, as its independent public
accounting firm.
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
Controller
(Principal Accounting Officer)
Date: May 10, 1995
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 27,810
<SECURITIES> 0
<RECEIVABLES> 298,235
<ALLOWANCES> 12,260
<INVENTORY> 171,249
<CURRENT-ASSETS> 616,534
<PP&E> 357,691
<DEPRECIATION> 147,062
<TOTAL-ASSETS> 1,276,565
<CURRENT-LIABILITIES> 347,489
<BONDS> 335,731
<COMMON> 43,037
0
0
<OTHER-SE> 380,658
<TOTAL-LIABILITY-AND-EQUITY> 1,276,565
<SALES> 492,772
<TOTAL-REVENUES> 492,772
<CGS> 402,268
<TOTAL-COSTS> 402,268
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 908
<INTEREST-EXPENSE> 6,937
<INCOME-PRETAX> 21,078
<INCOME-TAX> 9,064
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<DISCONTINUED> 2,931
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<EPS-PRIMARY> .48
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