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, 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 (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 52,109,074.
<PAGE>
M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Statements of Income -
Six Months ended June 30, 1996 and 1995 2
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 3
Consolidated Statements of
Cash Flows - Six Months Ended
June 30, 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. 7-9
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>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<CAPTION> (Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Net Sales $537,348 $483,295 $1,034,799 $976,067
Costs and Expenses
Cost of goods sold 438,753 393,218 844,748 795,486
Selling, general and administrative 61,467 55,265 119,779 111,946
Interest on debt 5,195 7,216 11,231 14,153
Amortization of intangibles 3,576 3,497 7,075 6,968
Other - net 887 (9,210) 1,070 (6,873)
509,878 449,986 983,903 921,680
Income from Continuing Operations Before
Extraordinary Item and Income Taxes 27,470 33,309 50,896 54,387
Income taxes 11,812 13,949 21,885 23,013
Income from Continuing Operations Before
Extraordinary Item 15,658 19,360 29,011 31,374
Income from Discontinued Operations - 42,406 - 45,337
Income Before Extraordinary Item 15,658 61,766 29,011 76,711
Extraordinary Item (3,777) - (5,352) -
Net Income $ 11,881 $ 61,766 $ 23,659 $ 76,711
Net Income per Share of Common Stock
Primary
Continuing operations $ 0.34 $ 0.41 $ 0.63 $ 0.67
Discontinued operations - 0.91 - 0.97
Extraordinary item (0.08) - (0.11) -
Net income $ 0.26 $ 1.32 $ 0.52 $ 1.64
Fully diluted
Continuing operations $ 0.33 $ 0.41 $ 0.61 $ 0.66
Discontinued operations - 0.89 - 0.95
Extraordinary item (0.08) - (0.11) -
Net income $ 0.25 $ 1.30 $ 0.50 $ 1.61
Dividends per common share $ 0.10 $ 0.09 $ 0.197 $ 0.18
-2-
</TABLE>
<PAGE>
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June December
30, 1996 31, 1995
(Dollars in thousands)
Assets
Current Assets
Cash and cash equivalents $ 36,251 $ 111,235
Receivables 332,206 268,016
Inventories:
Finished products 125,738 126,411
Raw materials and supplies 44,928 40,390
170,666 166,801
Prepaid expenses 7,034 5,693
Deferred income taxes 25,453 22,867
Total current assets 571,610 574,612
Property, Plant and Equipment 421,249 393,314
Less allowances for depreciation 187,139 166,293
234,110 227,021
Other Assets
Goodwill and other intangibles 342,539 321,778
Investments and other assets 67,265 73,067
Deferred income taxes 37,219 35,118
447,023 429,963
$1,252,743 $1,231,596
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 1,601 $ 1,328
Trade payables and accrued expenses 371,740 333,176
Current portion of long-term debt 685 747
Total current liabilities 374,026 335,251
Other Liabilities 179,341 179,580
Long-term Debt
Senior notes 124,960 227,270
Other 66,802 4,717
191,762 231,987
Stockholders' Equity
Preferred stock, without par value
Authorized 5,000,000 shares
Issued -0- shares
Common stock, par value $1
Authorized 100,000,000 shares
Issued 65,110,540 shares at June 30, 1996 and
43,274,273 shares at December 31, 1995 65,111 43,274
Capital surplus 321,502 324,273
Retained earnings 396,378 381,709
Associates ownership trust (128,704) (121,363)
Cost of treasury stock (13,001,466 shares
at June 30, 1996 and 8,631,355 shares
at December 31, 1995) (139,412) (137,181)
Minimum pension liability adjustment (7,522) (7,522)
Accumulated translation adjustment 261 1,588
507,614 484,778
$1,252,743 $1,231,596
-3-
<PAGE>
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30
1996 1995
(Dollars in thousands)
Cash Provided from (Used for) Operating Activities
Net income $ 23,659 $ 76,711
Discontinued operations - 4,797
Depreciation and amortization 25,298 23,608
Companies carried at equity:
Income (2,017) (2,789)
Dividends received 3,191 3,952
Changes in operating assets and liabilities:
Receivables (37,592) (26,101)
Inventories 7,861 (28,516)
Prepaid expenses (840) 324
Trade payables and accrued expenses 15,461 37,553
Gain from sales of assets - (84,427)
Restructuring payments (5,618) (5,835)
Other 5,333 9,173
Extraordinary charge 8,774 -
Net operating activities 43,510 8,450
Cash Provided from (Used for) Investing Activities
Capital expenditures (14,560) (29,000)
Acquisitions of businesses, less cash acquire (48,803) -
Acquisition payments (669) (2,335)
Sales of assets 11,820 223,500
Purchase of short-term securities - (40,139)
Other 5,980 (6,051)
Net investing activities (46,232) 145,975
Cash Provided from (Used for) Financing Activities
Cash dividends paid (8,989) (8,346)
Proceeds from the sale of common stock 6,503 1,126
Purchase of shares for treasury (2,759) (7,877)
Increase in debt 43,403 57,543
Reduction in debt (110,735) (117,636)
Net financing activities (72,577) (75,190)
Effect of exchange rate changes on cash 315 286
Cash and Cash Equivalents
Increase (decrease) (74,984) 79,521
Beginning of period 111,235 23,105
End of period $ 36,251 $ 102,626
Cash paid during period
Interest $ 14,234 $ 14,794
Income taxes 12,279 22,065
-4-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 announced that it would sell
CIMCO's plastic components business, which has been reported
as a discontinued operation in the accompanying financial
statements. The sale of this business was consummated in the
second quarter. 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 second quarter and
first six months of 1996 and 1995 would not be materially
different.
Discontinued Operations
Income from discontinued operations in 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 (46,118,428
and 46,716,713 for the three month periods ended June 30,
1996 and 1995, respectively, and 45,926,416 and 46,646,582
for the six month periods ended June 30, 1996 and 1995,
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
-5-
<PAGE>
benefit plans. The effect of assuming the exercise of stock
options was not significant in 1995.
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
47,280,171 and 47,688,509 for the three month periods ended
June 30, 1996 and 1995, respectively, and 47,153,754 and
47,625,788 for the six month periods ended June 30, 1996 and
1995, respectively.
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 $102,310,000 principal
amount of Senior Notes in the open market resulting in an
extraordinary charge of $8,774,000 ($5,352,000 after tax).
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales increased $54.1 million in the second quarter of
1996 and $58.7 million in the first six months of 1996 as
compared with the 1995 periods. Sales from processing
businesses increased $38.4 million in the second quarter of
1996 and $36.6 million in the first six months of 1996 due to
acquisitions made in 1996. Higher pricing was offset by
lower unit volumes. Sales from distribution businesses
increased from $220.1 million in the second quarter of 1995
to $235.2 million in the second quarter of 1996 and from
$439.1 million in the first six months of 1995 to $458.3
million in the first six months of 1996 due to higher unit
volumes, partially offset by lower pricing. Sales from other
operations were comparable with prior year levels.
Gross margins were 18.3% in the second quarter of 1996 and
18.4% for the first six months of 1996 compared with 18.6%
and 18.5%, respectively, for the comparable 1995 periods.
Gross margins in 1995 were impacted by provisions for
inventories valued by the last-in first-out cost method of
$2.0 million and $4.4 million for the second quarter and
first six months, respectively. Absent these provisions,
gross margins would have been 19.1% and 19.0% in the second
quarter and first six months of 1995, respectively. The
deterioration in gross margins is due in part to the mix of
sales between processing and distribution business, a lower
absorption of fixed costs and the acquisitions made in 1996.
Selling, general and administrative expenses increased $6.2
million in the second quarter of 1996 and $7.8 million in the
first six months of 1996 due in part to acquisitions made in
1996. However, as a percentage of sales, selling, general
and administrative costs were 11.4% in the second quarter of
1996 and 11.6% for the first six months of 1996 compared with
11.4% and 11.5% respectively, for the comparable 1995
periods, reflecting the Company's ongoing efforts to manage
these costs.
Interest in debt decreased $2.0 million in the second quarter
of 1996 and $2.9 million in the first six months of 1996 due
to the repayment in 1995 of the financing for the 1994
acquisition of Th. Bergmann. In addition the Company
repurchased $67.8 million of its Senior Notes in the second
quarter of 1996 ($102.3 million in the first six months of
1996), resulting in an after-tax extraordinary charge of $3.8
million and $5.4 million, respectively.
Other - net in the second quarter and first six months of
1995 includes a gain of $9.3 million from the sale of its 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.
Income from discontinued operations in 1995 includes earnings
from Day International, a producer of end products for the
printing and textile industries. The business was sold in
June 1995 with the Company recognizing a gain of $40.3
million.
-7-
<PAGE>
Liquidity and Sources of Capital
Operating activities provided $43.5 million in the first six
months of 1996. This amount includes the use of $15.1
million for working capital and $5.6 million for the payment
of obligations related to prior restructurings. Investment
activities used $46.2 million, which includes $14.6 million
for capital expenditures and $48.8 million for the
acquisition of CIMCO and Victor International partially
offset by proceeds from the sale of the molding business of
CIMCO of $11.8 million. Financing activities used $72.6
million and include $67.3 million for the reduction of
outstanding indebtedness, $9.0 million for dividends and $2.8
million for the purchase of shares for treasury, partially
offset by proceeds from the sale of common stock of $6.5
million.
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 June 30, 1996, there were $58.3 million
of outstanding borrowings supported by this agreement.
During the second quarter of 1996, the Company filed a shelf
registration statement with the Securities and Exchange
Commission to sell up to $300 million of debt securities. It
is anticipated that the net proceeds from the sale would be
used for general corporate purposes, which could include
repayment of indebtedness, repurchase of the Company's common
stock, additions to working capital, capital expenditures or
acquisitions. At June 30, 1996, the Company has not sold any
debt securities.
The current ratio was 1.5:1 at June 30, 1996 compared with
1.7:1 at December 31, 1995. Debt to total capital was 27.4%
at June 30, 1996 and 32.4% 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.
Other
Any forward-looking statements included in this quarterly report
are based on current expectations. Any statements in this report
that are not historical in nature are forward-looking statements.
-8-
<PAGE>
Actual results may differ materially depending on business conditions
and growth in the plastics and rubber industries and general economy,
foreign political and economic developments, availability and pricing
of raw materials, changes in product mix, shifts in market demand,
and changes in prevailing interest rates.
-9-
<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
12.1 Computation of Ratio of Earnings to Fixed
Charges.
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
Controller
(Principal Accounting Officer)
Date: August 9, 1996
-10-
Exhibit 12.1
M.A. Hanna Company
Ratio of Earnings to Fixed Charges
(in thousands)
<TABLE>
Six Months
Ended
June 30 Year Ended December 31
<CAPTION> 1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated pre-tax income
from continuing operations $50,896 $54,387 $ 98,821 $ 66,222 $37,654 $27,005 $(16,195)
Adjustments
Fixed charges - excluding
capitalized interest
Consolidated interest expense 11,231 14,153 26,278 28,549 32,258 32,509 23,221
Interest portion of rental expense 3,144 2,909 5,942 5,624 5,281 4,729 4,905
Total fixed charges 14,375 17,062 32,220 34,173 37,539 37,238 28,126
Adjusted earnings $65,271 $71,449 $131,041 $100,395 $75,193 $64,243 $11,931
Ratio of earnings to fixed charges 4.54 4.19 4.07 2.94 2.00 1.73 0.42
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 36,251
<SECURITIES> 0
<RECEIVABLES> 343,321
<ALLOWANCES> 11,115
<INVENTORY> 170,666
<CURRENT-ASSETS> 571,610
<PP&E> 421,249
<DEPRECIATION> 187,139
<TOTAL-ASSETS> 1,252,743
<CURRENT-LIABILITIES> 374,026
<BONDS> 191,762
0
0
<COMMON> 65,111
<OTHER-SE> 442,503
<TOTAL-LIABILITY-AND-EQUITY> 1,252,743
<SALES> 1,034,799
<TOTAL-REVENUES> 1,034,799
<CGS> 844,748
<TOTAL-COSTS> 844,748
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,420
<INTEREST-EXPENSE> 11,231
<INCOME-PRETAX> 50,896
<INCOME-TAX> 21,885
<INCOME-CONTINUING> 29,011
<DISCONTINUED> 0
<EXTRAORDINARY> (5,352)
<CHANGES> 0
<NET-INCOME> 23,659
<EPS-PRIMARY> .52
<EPS-DILUTED> .50
</TABLE>
