-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, O+nwhT7LtN70nVeH22aImqQCpBsRE1mYPHJ+3DZzEUzuPlju9ZW7UMNrtPf8Mpj5 4M4jNyBPVuTP5XEuMPwmYw== 0000045370-95-000004.txt : 19950616 0000045370-95-000004.hdr.sgml : 19950616 ACCESSION NUMBER: 0000045370-95-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950321 SROS: MSE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANNA M A CO/DE CENTRAL INDEX KEY: 0000045370 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 340232435 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05222 FILM NUMBER: 95522130 BUSINESS ADDRESS: STREET 1: SUITE 36-5000 STREET 2: 200 PUBLIC SQUARE CITY: CLEVELAND STATE: OH ZIP: 44114-2304 BUSINESS PHONE: 2165894000 FORMER COMPANY: FORMER CONFORMED NAME: HANNA MINING CO DATE OF NAME CHANGE: 19850523 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Fiscal year ended December 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.) 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 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock, $1 par value New York Stock Exchange Chicago Stock Exchange 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the voting stock held by nonaffiliates of the Registrant, computed by reference to the price at which the stock was sold as of March 6, 1995: $834,187,903.00. Common Shares outstanding as of March 6, 1995: 35,687,183. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference into the designated parts of this Form 10-K: (1) Registrant's definitive proxy statement distributed to stockholders dated March 20, 1995, filed with the Commission pursuant to Regulation 14A and incorporated by reference into Parts I and III of this Form 10-K; and (2) Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1994, incorporated by reference into Parts I and II of this Form 10-K. With the exception of the information specifically incorporated by reference, neither the Registrant's proxy statement nor the 1994 Annual Report to stockholders is deemed to be filed as part of this Form 10-K. Except as otherwise stated, the information contained in this report is given as of December 31, 1994, the end of the Registrant's last fiscal year. PART I ITEM 1. BUSINESS (a) Acquisitions and Dispositions In March 1994, the Registrant acquired North Coast Compounders, a producer of thermoplastic elastomers ("TPEs"), now called M. A. Hanna Thermoplastic Elastomers. Based in North Ridgeville, Ohio, with approximately 50 employees, M. A. Hanna Thermoplastic Elastomers produces proprietary TPEs, alloys and blends, and also engages in toll compounding. In July 1994 the Registrant announced the formation of its M. A. Hanna Resin Distribution business unit through the merger of its three regional resin distribution subsidiaries: Bruck Plastics Company, Fiberchem, Inc.; and Plastic Distributing Corp. Based in Lemont, Illinois, M. A. Hanna Resin Distribution in turn announced the establishment of the Engineering Services Group to provide product design, processing and technical support to customers, including a design center located in Richardson, Texas. In July 1994, the Registrant also announced the formation of the M. A. Hanna Company Engineered Materials Group, based in Dyersburg, Tennessee, to market specialty plastics compounds manufactured by the Registrant's Colonial Plastics division, Monmouth Plastics Company and Texapol Corporation. In July 1994 the Registrant acquired Theodor Bergmann GmbH & Co. Kunststoffwerk KG, one of Germany's largest producers of specialty and reinforced thermoplastic compounds. Based in Gaggenau, Germany, Bergmann has two processing facilities: one at the Gaggenau headquarters and a second facility at Barbastro, Spain. The Spanish business, Poliamidas Barbastro S.A., operates under the name Polibasa. In August 1994 the Registrant completed the sale of the single-ply roof membrane manufacturing assets of its Colonial Rubber Works, Inc. division located in Kingstree, South Carolina, to Firestone Building Products Company, a division of Bridgestone Firestone, Inc. In December 1994, the Registrant announced that it plans to sell its Day International, Inc. subsidiary, based in Dayton, Ohio. Day International, Inc., with annual sales of $120 million, produces highly engineered printing blankets for offset printing presses, as well as aprons, cots and other consumable parts used in the textile industry. (b) See the financial information regarding the Registrant's business segments set forth at page 27 of the Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1994, which page is incorporated herein by this reference. (c) (1)(i) Formulated Polymers (a) Processing The Registrant, through its Burton Rubber Processing, Inc., Bergmann, Colonial Rubber Works, Inc., Global Processing Company, Hanna Engineered Materials Group, MACH-I Compounding, M. A. Hanna Thermoplastic Elastomers, and Southwest Chemical Services, Inc., business units, engages in the custom compounding of plastic and rubber materials to the specifications of manufacturers of plastic and rubber products for customers located throughout the United States, Canada and Europe. Through its Allied Color Industries, Inc., PMS Consolidated, Inc., Hanna Polimeros, S.A. de C.V., Synthecolor S.A. and Wilson Color business units, the Registrant manufactures custom formulated colorants in the form of color concentrates, liquid dispersions, dry colorants, and additives for customers in the plastics industry throughout the United States, Canada, Mexico, Europe, South America and Asia. PMS Consolidated and Wilson Color also produce specialty colorants and additives for the automobile, vinyl siding and textile industries and for the wire and cable industry, respectively. (b) Distribution Through its M. A. Hanna Resin Distribution Company (formerly Bruck Plastics Company, Fiberchem, Inc. and Plastic Distributing Corporation) and M.A. Hanna de Mexico business units, the Registrant distributes polymer resins in North America. Through its Cadillac Plastic business unit, Registrant engages in the worldwide distribution of engineered plastic sheet, rod, tube, and film products to industrial and retail customers as well as cutting and machining plastic products to customers' specifications and thermoforming plastic into products such as skylights and signs. Other Operations Registrant, through its Day International Printing and Textile Products business unit, engages in the manufacture and worldwide sale of printing blankets and print rollers for the printing industry and aprons, cots, and other consumable supplies for the textile industry. In December 1994 the Registrant announced its plans to sell this business unit, which is reported as a discontinued operation in the Registrant's 1994 Annual Report. Through its Colonial Rubber Works, Inc. business unit, Registrant manufactures molded sponge automotive parts for customers located throughout the United States and Canada. Registrant also engages in the management of marine terminals, management of an iron ore mine in Quebec, Canada, and insurance services. Net sales and operating revenues from Registrant's operations outside the polymers industry do not individually constitute 10 percent or more of Registrant's consolidated revenues. (1)(iii) In Registrant's processing segment the primary raw materials required are natural and synthetic rubbers, plastics, and chemicals, all of which are available in adequate supply. The primary raw materials required by Registrant's colorant subsidiaries are plastics, chemicals, and organic and inorganic pigments, all of which are available in adequate supply. (1) (iv) Registrant's processing business units own numerous patents and registered trademarks, which are important in that they protect the Registrant's corresponding inventions and trademarks against infringement by others and thereby enhance Registrant's position in the marketplace. The patents vary in duration from 1 year to 17 years, and the trademarks have an indefinite life which is based upon continued use. (1)(x) The custom compounding of plastic and rubber materials is highly competitive, with product quality and service to customers being principal factors affecting competition. Registrant believes it is the largest independent custom compounder of rubber and a leading compounder of plastics in the United States in terms of pounds produced. The manufacture of custom formulated colorants for the plastics industry is highly competitive with product quality and service to customers being principal factors affecting competition. Registrant believes it is one of the leading producers of custom formulated colorants in the United States and Europe. The distribution of engineered plastic sheet, rod, tube, film products, and polymer resins is highly competitive with product quality and service to customers being principal factors affecting competition. Registrant believes it is one of the leading distributors of such products in the world. The manufacture of molded sponge automotive parts is highly competitive, with quality, price and service to customers being principal factors affecting competition. Information generally available indicates that Registrant is among the leading suppliers of such parts in the United States. The manufacture of printing blankets and rollers is highly competitive, with image quality and durability being principal factors affecting competition. Registrant believes it ranks as one of the world's leading producers of these products. The manufacture of aprons, cots, and other consumable supplies for the textile industry is highly competitive, with quality and price being the principal factors affecting competition. Registrant believes it ranks among the larger producers of such products in the United States. In December 1994 the Registrant announced its plans to sell its Day International, Inc. business unit, which manufactures these products and has been reported as a discontinued operation in Registrant's 1994 Annual Report. (1)(xii) At each of its operations the Registrant, its subsidiaries, and associated companies are governed by laws and regulations designed to protect the environment and in this connection Registrant has adopted a corporate policy which directs compliance with the various requirements of these laws and regulations. The Registrant believes that it, its subsidiaries and associated companies are in substantial compliance with all such laws and regulations, although it recognizes that these laws and regulations are constantly changing. There are presently no material estimated capital expenditures for further environmental control facilities projected by the Registrant, its subsidiaries and associated companies for any of its operations. (1)(xiii) Registrant employs 6,599 persons at its consolidated operations (6,334 in 1993) and manages operations for others that employ 2,245 persons (2,235 in 1993). (d)(1) See information regarding Registrant's international operations at page 27 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1994, which page is incorporated herein by this reference. (2) The international operations in which the Registrant and its subsidiaries have equity interests, and the investments of the Registrant and its subsidiaries in such companies, may be affected from time to time by foreign political and economic developments, laws and regulations, increases or decreases in costs in such countries and changes in the relative values of the various currencies involved. ITEM 2. PROPERTIES The table below sets forth the principal plants and properties owned or leased by the Registrant's formulated polymers business units. For properties which are leased, the date of expiration of the current term of the lease is indicated followed by an "R" if the lease is subject to renewal or a "P" if the property is subject to an option to purchase. Properties which are shown as owned are owned in fee simple, subject to any mortgages on the properties. In addition to mortgages, some properties are subject to minor encumbrances of a nature which do not materially affect the Registrant's operations. In addition, several business units of Registrant lease floor space at various locations within the United States. They are used by the regional branches for sales offices, for the distribution of Registrant's products, for fabrication, and for warehousing. These are short-term leases. Registrant and certain of its business units lease or own space in various locations outside the United States, including Australia, Belgium, Canada, the United Kingdom, France, Germany, Mexico, Spain and Sweden. Approximate Owned/ Size Location Facility Leased (sq. ft.) _____________________________________________________________________ Burton, Burton rubber Owned 160,000 Ohio compounding _____________________________________________________________________ Macedonia, Burton plastic Owned 87,000 Ohio compounding _____________________________________________________________________ Approximate Owned/ Size Location Facility Leased (sq. ft.) _____________________________________________________________________ Tillsonburg, Burton rubber Owned 60,000 Ontario compounding _____________________________________________________________________ Jonesboro, Burton rubber Owned 69,000 Tennessee compounding _____________________________________________________________________ Santa Fe Springs, Global rubber Leased 13,231 California compounding 1996 _____________________________________________________________________ Broadview Heights, Allied colorant Owned 61,000 Ohio manufacturing _____________________________________________________________________ Greenville, Allied colorant Owned 65,000 South Carolina manufacturing _____________________________________________________________________ Phoenix, Allied colorant Owned 20,500 Arizona manufacturing _____________________________________________________________________ Vonore, Allied colorant Owned 47,000 Tennessee manufacturing _____________________________________________________________________ North Kansas City, Allied colorant Leased 44,000 Missouri manufacturing 1998 _____________________________________________________________________ San Fernando, Allied colorant Leased 50,000 California manufacturing 1998 _____________________________________________________________________ Vancouver, Allied colorant Leased 35,000 Washington manufacturing 2002-R _____________________________________________________________________ Troy, Cadillac Plastic Leased 28,620 Michigan headquarters 1998-R _____________________________________________________________________ Lemont, Hanna resin Leased 103,000 Illinois distribution 2008-P _____________________________________________________________________ Approximate Owned/ Size Location Facility Leased (sq. ft.) _____________________________________________________________________ Seattle, Hanna resin Leased 79,000 Washington distribution 2005-R-P _____________________________________________________________________ Three Rivers, Day printing Owned 57,943 Michigan products manufacturing _____________________________________________________________________ Dundee, Day printing/ Owned 101,000 Scotland textile products manufacturing _____________________________________________________________________ Lerma, Day printing Owned 45,000 Mexico products manufacturing _____________________________________________________________________ Arden, Day printing/ Owned 240,580 North Carolina textile products manufacturing _____________________________________________________________________ Kingstree, Colonial rubber Owned 156,174 South Carolina compounding _____________________________________________________________________ Dyersburg, Colonial polymer Owned 862,399 Tennessee compounding and products manufacturing _____________________________________________________________________ Bethlehem, Texapol engineered Leased Pennsylvania thermoplastic 2004-P 82,000 compounding 1999 25,400 _____________________________________________________________________ Suwanee, PMS Consolidated, Owned 20,000 Georgia Inc., headquarters _____________________________________________________________________ Somerset, PMS colorant Owned 44,300 New Jersey manufacturing _____________________________________________________________________ Florence, PMS colorant Owned 30,000 Kentucky manufacturing _____________________________________________________________________ Approximate Owned/ Size Location Facility Leased (sq. ft.) _____________________________________________________________________ Gastonia, PMS colorant Leased 43,992 North Carolina manufacturing _____________________________________________________________________ Elk Grove Village, PMS colorant Owned 51,870 Illinois manufacturing _____________________________________________________________________ St. Peters, PMS colorant Owned 32,480 Missouri manufacturing _____________________________________________________________________ Fort Worth, PMS colorant Owned 75,080 Texas manufacturing _____________________________________________________________________ Norwalk, PMS colorant Owned 94,000 Ohio manufacturing _____________________________________________________________________ Gardena, PMS colorant Owned 46,652 California manufacturing ____________________________________________________________________ Carolina, PMS colorant Leased 12,600 Puerto Rico manufacturing 1999 _____________________________________________________________________ Buford, PMS colorant Leased 73,300 Georgia manufacturing 1997-R _____________________________________________________________________ Milford, PMS colorant Leased 20,600 New Hampshire manufacturing 1995-R _____________________________________________________________________ Coral Springs, PMS research & Leased 18,000 Florida development _____________________________________________________________________ Toluca, Hanna Polimeros Owned 22,000 Mexico colorant manufacturing _____________________________________________________________________ LaPorte, Southwest Chemical Owned 200,000 Texas polymer compounding _____________________________________________________________________ Approximate Owned/ Size Location Facility Leased (sq. ft.) _____________________________________________________________________ Ayer, Hanna Resin Leased 82,000 Massachusetts distribution 2000-R-P _____________________________________________________________________ Houston, PDC compounding & Leased Texas resin distribution 1997 88,000 1998 44,120 _____________________________________________________________________ Statesville, Hanna resin Leased 48,240 North Carolina distribution 1998 _____________________________________________________________________ Neshanic Station, Wilson headquarters Leased 123,000 New Jersey & colorant 1997-R-P manufacturing ____________________________________________________________________ North Ridgeville Thermoplastic Leased 40,750 Ohio Elastomers 1999-R-P manufacturing _____________________________________________________________________ Assesse, Wilson colorant Owned 120,976 Belgium manufacturing _____________________________________________________________________ Tossiat, Wilson colorant Owned 87,188 France manufacturing _____________________________________________________________________ Bendorf, Wilson colorant Owned 72,086 Germany manufacturing _____________________________________________________________________ Angered, Wilson colorant Owned 22,259 Sweden manufacturing _____________________________________________________________________ Paris, Synthecolor Owned 46,285 France colorant Leased 16,146 manufacturing _____________________________________________________________________ Gaggenau, Bergmann Owned 22,400 Germany plastic compounding sq. meters _____________________________________________________________________ Approximate Owned/ Size Location Facility Leased (sq. ft.) _____________________________________________________________________ Barbastro, Polibasa plastic Owned 6,600 Spain compounding sq. meters _____________________________________________________________________ Registrant's combined annual plastic and rubber compounding capacity and colorant manufacturing capacity, based on the estimated design capacities of Registrant's plants, amounts to at least 800 million pounds of compounded rubber products, 850 million pounds of compounded plastic products and over 235 million pounds of colorants. A variation in the mix of products produced at a given plant results in a corresponding increase or decrease in the quantity (in pounds) of products that can be produced at full capacity. Beyond these estimated capacities for Registrant's rubber and plastic compounding and colorant manufacturing properties, there are no comparative measurement units of production capacity that reasonably can be ascribed to Registrant's other properties in the processing segment. Registrant's 50 percent-owned partnership, DH Compounding Company, owns and operates an engineering plastics compounding plant in Clinton, Tennessee. The 150,000 square foot plant has an annual design capacity of 70 million pounds. ITEM 3. LEGAL PROCEEDINGS The State of Idaho filed suit in 1983 in the U.S. District Court of the District of Idaho against the Registrant and certain other named and unnamed defendants based on allegations of violation of the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 and state environmental law and upon allegations of strict liability and maintenance of public nuisance. The state filed amended complaints in 1990 and 1993. In 1993 the U.S. Government also sued the Registrant and the other defendants in the same court, advancing essentially the same theories of liability. Plaintiffs are seeking reimbursement from the defendants for damages to the environment and all costs for clean-up of the area around the Blackbird Mine, now owned by a limited partnership in which the Registrant is the limited partner. The general partner in the limited partnership is a major North American mining company which has been actively participating in the defense of this action. The Registrant and the other defendants filed answers asserting various defenses and served third-party complaints against former owners and operators of the Blackbird Mine and the U.S. Government and certain of its departments and agencies, alleging that such third-party defendants are legally responsible for the alleged natural resources damage. Registrant's primary insurance carrier has reserved its rights to deny coverage and has sued Registrant for declaratory judgement on this coverage issue, but is funding certain legal defense costs. In February 1995 an independent arbitrator ruled that, as between the Registrant and the general partner, the general partner is responsible for the costs of remediating the Blackbird Mine properties. In view of the fact that the amount of natural resources damage has not been finally determined, there has been no final allocation of liability among the parties and the insurance coverage has not been accepted by the carrier, it is not possible at this time to state the amount of Registrant's future costs or possible liabilities or the probability of insurance recoveries; however, Registrant believes that the matter will be resolved without a material adverse effect on Registrant's business or financial position. Registrant, through its indirect wholly-owned subsidiary, Cadillac Plastic Group, Inc. (formerly Day International Corporation), is obligated for costs of environmental remediation measures taken and to be taken in connection with certain of Cadillac's businesses related to operations that have been sold or discontinued. 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. Registrant has established reserves for Cadillac's liabilities for environmental remediation, which do not reflect potential insurance recoveries and which management believes are adequate to cover Cadillac's ultimate exposure. Registrant believes that these liabilities will not have a material adverse effect on the Registrant's business or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. _______ EXECUTIVE OFFICERS OF THE REGISTRANT The following table lists information as of March 1, 1995, as to each executive officer of the Registrant, including his position with the Registrant as of that date and other positions held by him during at least the past five years: M. D. Walker Chairman and Chief Executive Age - 62 Officer. Chairman and Chief Executive Officer, September 1986 to date; President, December 1988 - May 1989. D. J. McGregor President and Chief Operating Age - 54 Officer. Senior Vice President- Operations of the Registrant, March 1988 - September 1988; Executive Vice President, September 1988 - May 1989; President and Chief Operating Officer, May 1989 to date. S. P. Chong Vice President-Total Quality Age - 52 Planning & Technical Services. Vice President-Technical Services, 1986 - May 1990; Vice President Total Quality Planning & Technical Services, May 1990 to date. G. W. Henry Vice President - International Age - 49 Operations. Comptroller, 1985 - July 1990; Vice President, 1987 - July 1990; Vice President - Marine Services and Special Projects, July 1990 - February 1992; Vice President - Operations, February 1992 - October 1994; Vice President, International Operations, October 1994 to date. J. S. Pyke, Jr. Vice President, General Counsel Age - 56 and Secretary. Secretary, 1973 to date; Vice President, 1979 to date. D. R. Schrank Vice President and Chief Financial Age - 46 Officer. Senior Vice President and Chief Financial Officer, Sealy, Inc. (bedding manufacturer) 1989 to September 1993. Vice President and Chief Financial Officer of the Registrant, September 1993 to date. W. J. Tremblay Vice President - Taxes, Age - 62 1983 to date. M. S. Duffey Treasurer. Vice President and Age - 40 Treasurer, Outboard Marine Corporation (manufacturer of recreational boats and marine engines), 1986-1992; Vice President and Treasurer, Foote, Cone & Belding Communications, Inc. (world-wide advertising agency) 1992 - July 1994. Treasurer of the Registrant, July 1994 to date. T. E. Lindsey Controller. Assistant Controller Age - 44 of the Registrant 1987 to July 1990; Controller, July 1990 to date. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS See the tables regarding Registrant's Stock Price Data at page 32 and Stock Information at page 33 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1994, which tables and information are incorporated herein by this reference. ITEM 6. SELECTED FINANCIAL DATA See Selected Financial Data at page 33 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1994, which Selected Financial Data is incorporated herein by this reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See pages 34 through 35 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1994, which pages are incorporated herein by this reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See pages 19 through 36 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1994, which pages and section are incorporated herein by this reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE See Registrant's current report on Form 8-K/A dated March 8, 1995, which report is incorporated herein by this reference. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors See the table listing nominees for directors on page 2 of Registrant's definitive proxy statement distributed to stockholders dated March 20, 1995, filed with the Commission pursuant to Regulation 14A, which table is incorporated herein by this reference. Executive Officers See the item captioned "Executive Officers of the Registrant" in Part I of this Form 10-K, which item is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION See the section captioned "Executive Compensation" through the section captioned "Directors' Compensation" at pages 5 through 13 of Registrant's definitive proxy statement distributed to stockholders dated March 20, 1995, filed with the Commission pursuant to Regulation 14A, which sections are incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners: See the section captioned "Holdings of Shares of the Company's Common Stock" at pages 4 through 5 of Registrant's definitive proxy statement distributed to stockholders dated March 20, 1995 filed with the Commission pursuant to Regulation 14A, which section is incorporated herein by this reference. (b) Security Ownership by Management: See the table, and footnotes thereto, regarding beneficial ownership of the Registrant's Common Stock by management, at page 3 of Registrant's definitive proxy statement distributed to stockholders dated March 20, 1995 filed with the Commission pursuant to Regulation 14A, which table and footnotes are incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the section captioned "Transactions with Directors" at page 4 of Registrant's definitive proxy statement distributed to stockholders dated March 20, 1995 filed with the Commission pursuant to Regulation 14A, which section is incorporated herein by this reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. and 2. -- The response to this portion of Item 14 is submitted as a separate section commencing on page F-1 of this Form 10-K. 3. List of Exhibits. [Those documents listed below that are incorporated herein by reference to Registrant's earlier periodic reports were filed with the Commission under Registrant's File No. 1-5222.] (i) Exhibits filed pursuant to Regulation S-K (Item 601): (3) Articles of Incorporation and By-laws. (a) Registrant's Articles of Incorporation (as restated as of November 13, 1989, and currently in effect), filed as Exhibit 3(b) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated herein by this reference. (b) Registrant's By-laws (as amended and restated as of March 2, 1988, and currently in effect), filed as Exhibit 3(d) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987 and incorporated herein by this reference. (4) Instruments Defining the Rights of Security Holders: (a) Rights Agreement, dated December 4, 1991, between the Registrant and Ameritrust Company National Association, filed as Exhibit 4.1 to Registrant's Form 8-K dated December 4, 1991, and incorporated herein by this reference. (b) Credit Agreement, dated June 30, 1994 between the Registrant, Citibank, N.A. and the other banks signatory thereto, a copy of which will be provided to the Commission upon request. (c) Indenture dated September 15, 1991 between the Registrant and Ameritrust Company, National Association, Trustee relating to Registrant's $100,000,000 aggregate principal amount of 9% Senior Notes due 1998 and $150,000 aggregate principal amount of 9 3/8% Senior notes due 2003, filed as Exhibit 4 to the Registrant's Form S-3 filed on September 18, 1991, and incorporated herein by this reference. (d) Indenture dated September 26, 1991 between the Registrant and Ameritrust Texas, National Association, Trustee, relating to Registrant's $50,000,000 aggregate principal amount of 9% Notes due 1998, filed as Exhibit 4 to the Registrant's Form S- 3 filed on October 24, 1991, and incorporated herein by this reference. (e) Associates Ownership Trust Agreement dated September 12, 1991, between Registrant and Wachovia Bank of North Carolina, filed as Exhibit 28.3 to Registrant's Current Report on Form 8-K dated September 12, 1991, and incorporated herein by this reference. (10) Material Contracts: *(a) The Restated 1979 Executive Incentive Compensation Plan of the Registrant, filed as Exhibit 5 to the Form S-8 Registration Statement No. 2-70755 filed with the Commission on February 19, 1981 and incorporated herein by this reference, and amendment to the Plan, as ratified and approved by Registrant's stockholders on October 3, 1983, filed as Exhibit 10(c) to Registrant's Form 10-K for the fiscal year ended December 31, 1983 and incorporated herein by this reference. Also amendment to the Plan as approved by Registrant's stockholders on May 1, 1985, filed as Exhibit 10(c) to Registrant's Form 10-K for the fiscal year ended December 31, 1985 and incorporated herein by this reference. *(b) Forms of 1985 Stock Option Agreement, 1985 Grant of Appreciation Rights and 1985 Grant of Performance Rights under the 1979 Executive Incentive Compensation Plan, filed as Exhibit 10(g) to Registrant's Form 10-K for the fiscal year ended December 31, 1985 and incorporated herein by this reference. *(c) Forms of 1987 Stock Option Agreement, 1987 Grant of Appreciation Rights and 1987 Grant of Performance Rights under the 1979 Executive Incentive Compensation Plan, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986, and incorporated herein by this reference. *(d) 1988 Long-Term Incentive Plan, and forms of Grants of Stock Options, Grants of Appreciation Rights and Grants of Long-Term Incentive Units thereunder, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, and incorporated herein by this reference. Also forms of 1989 Stock Option Agreement, 1989 Grant of Appreciation Rights and 1989 Grant of Long-Term Incentive Units, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and incorporated herein by this reference. Also 1990 Amendment to the Plan, filed as Exhibit 10(e) to Registrant's Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by this reference and forms of 1990 Stock Option Agreement, 1990 Grant of Appreciation Rights and 1990 Grant of Long-Term Incentive Units, filed as Exhibit 10(e) to Registrant's Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by this reference. Also 1991 Amendment to the Plan, and forms of 1991 Stock Option Agreement, 1991 Grant of Appreciation Rights, 1991 Grant of Long Term Incentive Units, and 1991 Stock Option Agreement with non-employee directors of Registration, filed as Exhibit 10(f) to Registrant's Form 10-K for the fiscal year ended December 31, 1991, and incorporated herein by this reference. Also forms of 1992 Stock Option Agreement and 1992 Grant of Long Term Incentive Units, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated herein by this reference. Also 1994 Amendment to the Plan, filed as Exhibit A to Registrant's definitive proxy statement distributed to stockholders dated March 17, 1994 and incorporated herein by this reference. *(e) Form of Supplemental Deferred Compensation agreement in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by this reference. *(f) Form of Supplemental Death Benefits agreement in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10(f) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by this reference. *(g) Form of Employment Agreement dated as of February 17, 1989 between Registrant and certain of Registrant's executive officers filed as Exhibit 10(h) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 and incorporated herein by this reference. Also (i) Employment Agreement dated as of September 27, 1993, between D. R. Schrank and Registrant, filed as Exhibit (a) to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, and incorporated herein by this reference; and (ii) Employment Agreement dated March 1, 1993 between D. J. McGregor and Registrant, filed as Exhibit 10(g) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by this reference. *(h) Description of Directors' compensation and retirement plan, set forth in the section captioned "Directors' Compensation" on pages 12 and 13 of Registrant's definitive proxy statement dated March 20, 1995, as distributed to stockholders and filed with the Commission pursuant to Regulation 14A, which section is incorporated herein by this reference. *(i) Excess Benefit Plan in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by this reference. *(j) Supplemental Retirement Benefit Plan in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10 (k) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by this reference. [*- Identifies management contract or compensation plans or arrangements filed pursuant to Item 601(b)(10)(iii)(A)] (11) Computation of per share earnings, filed herewith. (13) Registrant's Annual Report as distributed to stockholders for the fiscal year ended December 31, 1994, filed herewith. (16) Letter regarding Change in Certifying Accountants, filed as Exhibit (16) to Registrant's current report on Form 8-K/A dated March 8, 1995 and incorporated herein by this reference. (21) Subsidiaries of the Registrant, filed herewith. (23) Consent of Independent Auditors, filed herewith. (24) Powers of Attorney of certain Directors of Registrant, filed herewith. (ii) Other exhibits: Financial statements (and consent of independent auditors) pursuant to Form 11-K and Rule 15d-21 for the year ended December 31, 1994, for the Capital Accumulation Plan for Salaried Employees of M. A. Hanna Company and Associated Companies, and for stock purchase/savings plans of Registrant's subsidiaries and divisions will be filed as exhibits to the Form 10-K under a Form 10-K/A amendment not later than June 30, 1995. (b) Since September 30, 1994, Registrant has filed two reports on Form 8-K, dated December 20, 1994, reporting the Registrant's plans to sell its Day International, Inc. business units, and February 17, 1995, as amended and replaced by Form 8-K/A dated March 8, 1995, reporting a change in Registrant's Certifying Accountants. (c) The response to this portion of Item 14 is submitted as a separate Section commencing on page X-1 of this Form 10-K. (d) The response to this portion of Item 14 is submitted as a separate section commencing on page F-1 of this Form 10-K. Pursuant to the requirements of Section 13 or 15(d) 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) Date: March 21, 1995 By /s/J. S. Pyke, Jr. J. S. Pyke, Jr. Vice President, General Counsel and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: March 21, 1995 By /s/M. D. Walker M. D. Walker, Chairman and Chief Executive Officer (Principal Executive Officer) and Director Date: March 21, 1995 By /s/D. R. Schrank D. R. Schrank, Vice President and Chief Financial Officer (Principal Financial Officer) Date: March 21, 1995 By /s/T. E. Lindsey T. E. Lindsey, Controller (Principal Accounting Officer) B. C. Ames, Director C. A. Cartwright, Director W. R. Embry, Director J. T. Eyton, Director By /s/T. E. Lindsey G. D. Kirkham, Director T. E. Lindsey Attorney-in-Fact M. L. Mann, Director Date: March 21, 1995 D. J. McGregor, Director R. W. Pogue, Director ITEM 14(C) EXHIBIT LIST Sequential Page No. (i) Exhibits filed pursuant to Regulation S-K (Item 601): (3) Articles of Incorporation and By-laws. (a) Registrant's Articles of Incorporation (as restated as of November 13, 1989, and currently in effect), filed as Exhibit 3(b) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, and incorporated herein by this reference. (b) Registrant's By-laws (as amended and restated as of March 2, 1988, and currently in effect), filed as Exhibit 3(d) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987 and incorporated herein by this reference. (4) Instruments Defining the Rights of Security Holders: (a) Rights Agreement, dated December 4, 1991, between the Registrant and Ameritrust Company National Association, filed as Exhibit 4.1 to Registrant's Form 8-K dated December 4, 1991, and incorporated herein by this reference. (b) Credit Agreement, dated June 30, 1994 between the Registrant, Citibank, N.A. and the other banks signatory thereto, a copy of which will be provided to the Commission upon request. (c) Indenture dated September 15, 1991 between the Registrant and Ameritrust Company, National Association, Trustee relating to Registrant's $100,000,000 aggregate principal amount of 9% Senior Notes due 1998 and $150,000 aggregate principal amount of 9 3/8% Senior notes due 2003, filed as Exhibit 4 to the Registrant's Form S-3 filed on September 18, 1991, and incorporated herein by this reference. (d) Indenture dated September 26, 1991 between the Registrant and Ameritrust Texas, National Association, Trustee, relating to Registrant's $50,000,000 aggregate principal amount of 9% Notes due 1998, filed as Exhibit 4 to the Registrant's Form S-3 filed on October 24, 1991, and incorporated herein by this reference. (e) Associates Ownership Trust Agreement dated September 12, 1991, between Registrant and Wachovia Bank of North Carolina, filed as Exhibit 28.3 to Registrant's Current Report on Form 8-K dated September 12, 1991, and incorporated herein by this reference. (10) Material Contracts: *(a) The Restated 1979 Executive Incentive Compensation Plan of the Registrant, filed as Exhibit 5 to the Form S-8 Registration Statement No. 2-70755 filed with the Commission on February 19, 1981 and incorporated herein by this reference, and amendment to the Plan, as ratified and approved by Registrant's stockholders on October 3, 1983, filed as Exhibit 10(c) to Registrant's Form 10-K for the fiscal year ended December 31, 1983 and incorporated herein by this reference. Also amendment to the Plan as approved by Registrant's stockholders on May 1, 1985, filed as Exhibit 10(c) to Registrant's Form 10-K for the fiscal year ended December 31, 1985 and incorporated herein by this reference. *(b) Forms of 1985 Stock Option Agreement, 1985 Grant of Appreciation Rights and 1985 Grant of Performance Rights under the 1979 Executive Incentive Compensation Plan, filed as Exhibit 10(g) to Registrant's Form 10-K for the fiscal year ended December 31, 1985 and incorporated herein by this reference. *(c) Forms of 1987 Stock Option Agreement, 1987 Grant of Appreciation Rights and 1987 Grant of Performance Rights under the 1979 Executive Incentive Compensation Plan, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986, and incorporated herein by this reference. *(d) 1988 Long-Term Incentive Plan, and forms of Grants of Stock Options, Grants of Appreciation Rights and Grants of Long- Term Incentive Units thereunder, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, and incorporated herein by this reference. Also forms of 1989 Stock Option Agreement, 1989 Grant of Appreciation Rights and 1989 Grant of Long-Term Incentive Units, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and incorporated herein by this reference. Also 1990 Amendment to the Plan, filed as Exhibit 10(e) to Registrant's Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by this reference and forms of 1990 Stock Option Agreement, 1990 Grant of Appreciation Rights and 1990 Grant of Long-Term Incentive Units, filed as Exhibit 10(e) to Registrant's Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by this reference. Also 1991 Amendment to the Plan, and forms of 1991 Stock Option Agreement, 1991 Grant of Appreciation Rights, 1991 Grant of Long Term Incentive Units, and 1991 Stock Option Agreement with non- employee directors of Registration, filed as Exhibit 10(f) to Registrant's Form 10- K for the fiscal year ended December 31, 1991, and incorporated herein by this reference. Also forms of 1992 Stock Option Agreement and 1992 Grant of Long Term Incentive Units, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated herein by this reference. Also 1994 Amendment to the Plan, filed as Exhibit A to Registrant's definitive proxy statement distributed to stockholders dated March 17, 1994 and incorporated herein by this reference. *(e) Form of Supplemental Deferred Compensation agreement in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10(e) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by this reference. *(f) Form of Supplemental Death Benefits agreement in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10(f) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by this reference. *(g) Form of Employment Agreement dated as of February 17, 1989 between Registrant and certain of Registrant's executive officers filed as Exhibit 10(h) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 and incorporated herein by this reference. Also (i) Employment Agreement dated as of September 27, 1993, between D. R. Schrank and Registrant, filed as Exhibit (a) to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, and incorporated herein by this reference; and (ii) Employment Agreement dated March 1, 1993 between D. J. McGregor and Registrant, filed as Exhibit 10(g) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, and incorporated herein by this reference. *(h) Description of Directors' compensation and retirement plan, set forth in the section captioned "Directors' Compensation" on pages 12 and 13 of Registrant's definitive proxy statement dated March 20, 1995, as distributed to stockholders and filed with the Commission pursuant to Regulation 14A, which section is incorporated herein by this reference. *(i) Excess Benefit Plan in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10(j) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by this reference. *(j) Supplemental Retirement Benefit Plan in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit 10 (k) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by this reference. [*- Identifies management contract or compensation plans or arrangements filed pursuant to Item 601(b)(10)(iii)(A)] (11) Computation of per share earnings, filed herewith. ________ (13) Registrant's Annual Report as distributed to stockholders for the fiscal year ended December 31, 1994, filed herewith. ________ (16) Letter regarding Change in Certifying Accountants, filed as Exhibit (16) to Registrant's current report on Form 8-K/A dated March 8, 1995 and incorporated herein by this reference. (21) Subsidiaries of the Registrant, filed herewith. ________ (23) Consent of Independent Auditors, filed herewith. ________ (24) Powers of Attorney of certain Directors of Registrant, filed herewith. ________ (ii) Other exhibits: Financial statements (and consent of independent auditors) pursuant to Form 11-K and Rule 15d-21 for the year ended December 31, 1994, for the Capital Accumulation Plan for Salaried Employees of M. A. Hanna Company and Associated Companies, and for stock purchase/savings plans of Registrant's subsidiaries and divisions will be filed as exhibits to the Form 10-K under a Form 10-K/A amendment not later than June 30, 1995. (b) Since September 30, 1994, Registrant has filed two reports on Form 8-K, dated December 20, 1994, reporting the Registrant's plans to sell itsDay International, Inc. business units,and February 17, 1995, as amended and replaced by Form 8-K/A dated March 8, 1995. (c) The response to this portion of Item 14 is submitted as a separate Section commencing on page X-1 of this Form 10-K. (d) The response to this portion of Item 14 is submitted as a separate section commencing on page F-1 of this Form 10-K. FORM 10-K ITEM 14(a) (1) and (2) FINANCIAL STATEMENTS AND SCHEDULES M.A. HANNA COMPANY The following consolidated financial statements of the Registrant and its consolidated subsidiaries, included in the annual report of the Registrant to its stockholders for the year ended December 31, 1994, are incorporated herein by reference in Item 8: Summary of accounting policies Consolidated balance sheets - December 31, 1994 and 1993 Consolidated statements of income, stockholders' equity and cash flows - years ended December 31, 1994, 1993 and 1992 Notes to financial statements The following consolidated financial information, together with the report of the independent accountants, are included in Item 14 (d): Schedule II - Valuation and qualifying accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. Financial statements of unconsolidated subsidiaries or 50% or less owned persons accounted for by the equity method have been omitted because they do not, considered individually or in the aggregate, constitute a significant subsidiary. F-1 Report of Independent Auditors Board of Directors M.A. Hanna Company We have audited the accompanying consolidated balance sheets of M.A. Hanna Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(1) and (2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of M.A. Hanna Company and subsidiaries at December 31, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP January 31, 1995 F-2 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
COL. A COL. B COL. C COL. D ADDITIONS Balance at Beginning (1) (2) DESCRIPTION of Period Charged to Costs Charged to Other Deductions - Describe and Expenses Accounts - Describe Year ended December 31, 1994: Deducted from asset accounts: Allowance for doubtful accounts $9,993,000 $3,250,000 $531,000 (a) $2,428,000 (c) Year ended December 31, 1993: Deducted from asset accounts: Allowance for doubtful accounts $7,233,000 $3,647,000 $188,000 (a) $2,396,000 (c) 1,321,000 (b) Year ended December 31, 1992: Deducted from asset accounts: Allowance for doubtful accounts $5,569,000 $2,151,000 $1,067,000 (a) $2,445,000 (c) 891,000 (b) COL. A COL. E Balance at End DESCRIPTION of Period Year ended December 31, 1994: Deducted from asset accounts: Allowance for doubtful accounts $11,346,000 Year ended December 31, 1993: Deducted from asset accounts: Allowance for doubtful accounts $ 9,993,000 Year ended December 31, 1992: Deducted from asset accounts: Allowance for doubtful accounts $ 7,233,000 (a) Reserves of companies acquired. (b) Charge included in income(loss) from discontinued operations. (c) Uncollectible amounts written off. F-3
EX-11 2 COMPUTATION EARNINGS PER SHARE EXHIBIT 11 M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31 1994 1993 1992 (Dollars in thousands except per share data) Primary Income from continuing operations before extraordinary charge and cumulative effect of changes in accounting principles $37,004 $21,297 $18,186 Income(loss) from discontinued operations 9,970 (19,279) 12,304 Extraordinary charge (3,680) - - Cumulative effect of changes in accounting principles - - (11,465) Net income $43,294 $2,018 $19,025 Average common shares outstanding 30,865,775 29,777,668 28,696,722 Net effect of dilutive stock options and stock warrants - based on treasury stock method using average market price - * 1,052,105 - * Total 30,865,775 30,829,773 28,696,722 Income(loss) per share Continuing operations $ 1.20 $ 0.69 $ 0.63 Discontinued operations 0.32 (0.62) 0.43 Extraordinary charge (0.12) - - Cumulative effect of changes in accounting principles - - (0.40) Net income $ 1.40 $ 0.07 $ 0.66 * Not significant in 1994 and 1992.
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31 1994 1993 1992 (Dollars in thousands except per share data) Fully Diluted Income from continuing operations before extraordinary charge and cumulative effect of changes in accounting principles $37,004 $21,297 $18,186 Income(loss) from discontinued operations 9,970 (19,279) 12,304 Extraordinary charge (3,680) - - Cumulative effect of changes in accounting principles - - (11,465) Net income $43,294 $2,018 $19,025 Average common shares outstanding 30,865,775 29,777,668 28,696,722 Net effect of dilutive stock options and stock warrants - based on treasury stock method using the year-end market price if higher than average market price 598,942 1,394,322 680,360 Shares reserved under earnout provisions of purchase agreements - - 285,616 Total 31,464,717 31,171,990 29,662,698 Income(loss) per share Continuing operations $ 1.18 $ 0.68 $ 0.61 Discontinued operations 0.32 (0.62) 0.42 Extraordinary charge (0.12) - - Cumulative effect of changes in accounting principles - - (0.39) Net income $ 1.38 $ 0.06 $ 0.64
EX-13 3 REPORT TO STOCKHOLDERS EXHIBIT 13 CONSOLIDATED STATEMENTS OF INCOME M.A. Hanna Company and Consolidated Subsidiaries
Year Ended December 31 Dollars in thousands except per share data 1994 1993 1992 Net Sales $1,719,356 $1,412,071 $1,188,541 Costs and Expenses Cost of goods sold 1,393,036 1,146,191 961,925 Selling, general and administrative 213,318 179,228 152,366 Other income (4,066) (5,016) (5,250) Other expense 9,839 9,750 8,917 Interest on debt 28,549 32,258 32,509 Amortization of intangibles 12,458 12,006 11,069 1,653,134 1,374,417 1,161,536 Income from Continuing Operations Before Income Taxes, Extraordinary Charge and Cumulative Effect of Changes in Accounting Principles 66,222 37,654 27,005 Income taxes 29,218 16,357 8,819 Income from Continuing Operations Before Extraordinary Charge and Cumulative Effect of Changes in Accounting Principles 37,004 21,297 18,186 Income(loss) from discontinued operations 9,970 (19,279) 12,304 Extraordinary charge (3,680) - - Cumulative effect of changes in accounting principles - - (11,465) Net Income $ 43,294 $ 2,018 $ 19,025 Net Income Per Share Primary Continuing operations $ 1.20 $ 0.69 $ 0.63 Discontinued operations 0.32 (0.62) 0.43 Extraordinary charge (0.12) - - Cumulative effect of changes in accounting principles - - (0.40) Net income $ 1.40 $ 0.07 $ 0.66 Fully diluted Continuing operations $ 1.18 $ 0.68 $ 0.61 Discontinued operations 0.32 (0.62) 0.42 Extraordinary charge (0.12) - - Cumulative effect of changes in accounting principles - - (0.39) Net income $ 1.38 $ 0.06 $ 0.64 See summary of accounting policies and notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS M. A. Hanna Company and Consolidated Subsidiaries
Year Ended December 31 Dollars in thousands 1994 1993 1992 CASH PROVIDED FROM (USED FOR) OPERATIONS Net income $ 43,294 $ 2,018 $19,025 Discontinued operations 13,910 41,345 9,117 Depreciation and amortization 41,904 38,182 35,421 Companies carried at equity: Income (6,112) (4,286) (3,812) Dividends received 7,033 5,729 1,355 Changes in operating assets and liabilities: Receivables (40,103) (10,531) (15,605) Inventories (31,145) (9,239) (2,301) Prepaid expenses 725 1,774 (1,881) Trade payables and other accruals 74,895 10,452 21,008 Gain from sales of assets - (1,730) (409) Restructuring payments (10,540) (16,594) (10,367) Other 12,664 10,730 1,935 Extraordinary charge 6,034 - - Cumulative effect of changes in accounting principles - - 11,465 Net operating activities 112,559 67,850 64,951 CASH PROVIDED FROM (USED FOR) INVESTMENT ACTIVITIES Capital expenditures (46,982) (23,379) (19,154) Acquisitions of companies, less cash acquired (53,331) (28,803) (55,354) Acquisition payments (4,106) (3,410) (7,268) Sales of assets 13,874 7,127 77,427 Investments in associated and other companies - - (1,200) Return of cash from associated and other companies 8,805 - - Purchase of short-term securities - (5,061) (25,702) Sale of short-term securities 5,061 25,702 - Other 445 (2,000) (6,581) Net investment activities (76,234) (29,824) (37,832) CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES Purchase of common stock warrants - (27,500) - Cash dividends paid (15,688) (14,003) (12,630) Proceeds from the sale of common stock 14,165 14,582 3,422 Purchase of shares for treasury (1,472) - - Increase in debt 131,649 12,228 47,367 Reduction in debt (179,879) (39,144) (35,974) Net financing activities (51,225) (53,837) 2,185 Effect of exchange rate changes on cash 360 (821) 495 CASH AND CASH EQUIVALENTS Increase(decrease) (14,540) (16,632) 29,799 Beginning of year 37,645 54,277 24,478 End of year $ 23,105 $37,645 $54,277 CASH PAID DURING YEAR Interest $ 30,114 $33,001 $31,097 Income taxes 19,927 19,165 13,900 See summary of accounting policies and notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS M. A. Hanna Company and Consolidated Subsidiaries
December 31 Dollars in thousands 1994 1993 ASSETS Current Assets Cash and cash equivalents $ 23,105 $ 37,645 Short-term securities - 5,061 Receivables: Trade 236,737 189,125 Other 10,379 8,145 247,116 197,270 Inventories: Finished products 116,718 97,098 Raw materials and supplies 44,542 27,236 161,260 124,334 Prepaid expenses 3,981 3,851 Deferred income taxes 26,938 21,501 Net assets (1994) and net current assets (1993) of discontinued operations 103,215 16,120 Total current assets 565,615 405,782 Property, Plant and Equipment Land 13,288 11,813 Buildings 78,289 69,943 Machinery and equipment 250,966 226,669 342,543 308,425 Less allowances for depreciation 138,408 124,129 204,135 184,296 Other Assets Goodwill and other intangibles 330,757 305,665 Investments and other assets 79,803 87,772 Deferred income taxes 34,850 45,191 Net long-term assets of discontinued operations - 94,904 445,410 533,532 $1,215,160 $1,123,610 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable to banks $ 931 $ 2,478 Trade payables and accrued expenses 335,877 256,479 Current portion of long-term debt 683 723 Total current liabilities 337,491 259,680 Other Liabilities 173,888 176,422 Long-term Debt Senior notes 235,770 300,000 Other 53,099 22,052 288,869 322,052 Stockholders' Equity Preferred stock, without par value: authorized 5,000,000 shares; issued 132 shares in 1994 and 1993 - - Common stock, par value $1.00 per share: authorized 50,000,000 shares; issued 43,015,494 shares in 1994 and 28,605,722 shares in 1993 43,015 28,606 Capital surplus 299,725 299,389 Retained earnings 296,632 269,026 Associates ownership trust (111,471) (115,214) Cost of treasury stock (7,321,400 shares in 1994 and 4,864,707 shares in 1993) (103,731) (102,794) Minimum pension liability adjustment (7,262) (8,577) Accumulated translation adjustment (1,996) (4,980) Total stockholders' equity 414,912 365,456 $1,215,160 $1,123,610 See summary of accounting policies and notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY M. A. Hanna Company and Consolidated Subsidiaries
Dollars in thousands except per share data Common Associates Preferred Common Stock Capital Retained Ownership Treasury Stock Stock Warrants Surplus Earnings Trust Stock Balance January 1, 1992 $- $28,039 $14,621 $250,686 $274,025 $(81,095) $(109,410) Net income 19,025 Cash dividends - $.4417 per share (12,630) Exercise of stock options 221 2,847 Sale of common stock (14,012 shares) 14 340 Payment of incentive compensation awards 95 4,207 636 Payment of additional consideration of acquisition 407 6,395 Adjustment to market value 34,333 (34,333) Translation adjustment Balance December 31, 1992 - 28,274 14,621 288,708 280,420 (111,221) (102,379) Net income 2,018 Cash dividends - $.475 per share (14,003) Exercise of stock options 311 8,813 (1,675) Sale of common stock (21,273 shares) 21 609 Purchase of common stock warrants (14,621) (12,879) Payment of incentive compensation awards and associate benefits 2,525 8,260 569 Acquisition of business (640) 591 691 Adjustment to market value 12,253 (12,253) Minimum pension adjustment Translation adjustment Balance December 31, 1993 - 28,606 - 299,389 269,026 (115,214) (102,794) Net income 43,294 Cash dividends - $.51 per share (15,688) Exercise of stock options 61 1,335 (38) Purchase of shares for treasury (1,472) Sale of common stock (25,383 shares) 25 706 Payment of incentive compensation awards and associate benefits 3,115 13,246 573 Three-for-two common stock split 14,323 (14,323) Adjustment to market value 9,503 (9,503) Minimum pension adjustment Translation adjustment Balance December 31, 1994 $- $43,015 $ - $299,725 $296,632 $(111,471) $(103,731) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY M. A. Hanna Company and Consolidated Subsidiaries Dollars in thousands except per share data Minimum Pension Accumulated Total Liability Translation Stockholders' Adjustment Adjustment Equity Balance January 1, 1992 $ - $3,592 $380,458 Net income 19,025 Cash dividends - $.4417 per share (12,630) Exercise of stock options 3,068 Sale of common stock (14,012 shares) 354 Payment of incentive compensation awards 4,938 Payment of additional consideration of acquisition 6,802 Adjustment to market value - Translation adjustment (4,072) (4,072) Balance December 31, 1992 - (480) 397,943 Net income 2,018 Cash dividends - $.475 per share (14,003) Exercise of stock options 7,449 Sale of common stock (21,273 shares) 630 Purchase of common stock warrants (27,500) Payment of incentive compensation awards and associate benefits 11,354 Acquisition of business 642 Adjustment to market value - Minimum pension adjustment (8,577) (8,577) Translation adjustment (4,500) (4,500) Balance December 31, 1993 (8,577) (4,980) 365,456 Net income 43,294 Cash dividends - $.51 per share (15,688) Exercise of stock options 1,358 Purchase of shares for treasury (1,472) Sale of common stock (25,383 shares) 731 Payment of incentive compensation awards and associate benefits 16,934 Three-for-two common stock split - Adjustment to market value - Minimum pension adjustment 1,315 1,315 Translation adjustment 2,984 2,984 Balance December 31, 1994 $(7,262) $(1,996) $414,912 See summary of accounting policies and notes to consolidated financial statements.
SUMMARY OF ACCOUNTING POLICIES M.A. Hanna Company and Consolidated Subsidiaries RESTATEMENTS Prior year financial statements have been restated to reflect the Company's Day International printing and textile business as a discontinued operation. In addition, all shares and per share amounts have been restated to give effect to the three-for-two stock split in May 1994. PRINCIPLES OF CONSOLIDATION Majority-owned subsidiaries are consolidated in the financial statements and all significant intercompany accounts and transactions have been eliminated. Investments in less than majority-owned companies are carried at cost adjusted for undistributed earnings and losses since acquisition, or at cost. NET INCOME PER SHARE Primary net income per share is computed by dividing net income by the average number of shares of common stock outstanding during the year. Shares of common stock held by the Associates Ownership Trust (AOT) enter into the determination of the average number of shares outstanding when the shares are released from the AOT to fund obligations under certain associate compensation and benefit plans. The effect of assuming the exercise of stock options and stock warrants (common stock equivalents) was not significant in 1994 and 1992. For fully-diluted net income per share, the number of shares used for primary net income per share are increased by the common stock equivalents which would arise from the exercise of stock options and stock warrants and, in 1992, by the number of shares of common stock reserved under earnout provisions of certain purchase agreements. CASH EQUIVALENTS AND SHORT-TERM SECURITIES Cash equivalents are highly liquid investments with a maturity of three months or less. Both cash equivalents and short-term securities are stated at cost. INVENTORIES Inventories are stated at the lower of cost or market. Domestic inventories ($119,644,000) are valued principally by the last-in, first-out (LIFO) cost method. Inventories of foreign subsidiaries are valued by the first-in, first-out (FIFO) method. The excess of current cost over LIFO cost was $9,937,000 at December 31, 1994 and $6,642,000 at December 31, 1993. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is computed principally by the straight-line method at rates sufficient to depreciate the cost of the assets over their estimated productive lives. Property items retired or otherwise disposed of are removed from the property and related allowance for depreciation accounts, and any profit or loss is included in operations. GOODWILL AND OTHER INTANGIBLES Goodwill is being amortized over 40 years by the straight-line method. Other intangibles ($25,857,000 net at December 31, 1994) are being amortized on a straight-line basis over 4 to 40 years. Accumulated amortization at December 31, 1994 and 1993 was $71,398,000 and $58,933,000, respectively. In 1993, net goodwill of $26,482,000 was written off in connection with the discontinuance of the elastomeric membrane roofing business. The carrying value of goodwill and other intangibles is evaluated if circumstances indicate a possible impairment in value. If undiscounted cash flows over the remaining amortization period indicate that goodwill and other intangibles may not be recoverable, the carrying value of goodwill and other intangibles will be reduced by the estimated shortfall of cash flows on a discounted basis. INCOME TAXES Effective January 1, 1992, Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" was adopted. This Statement requires companies to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. The cumulative effect of adopting Statement 109 increased net income for 1992 by $22,096,000 or $.74 per share. Under Statement 109, deferred tax liabilities and assets are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rate and laws that will be in effect when the differences are expected to reverse. NOTES TO FINANCIAL STATMENTS M.A. Hanna Company and Consolidated Subsidiaries ACQUISITIONS In March 1994, the Company acquired certain assets of North Coast Compounders, a producer of thermoplastic elastomers and other materials and in July 1994, acquired Th. Bergmann GmbH & Co. Kunststoffwerk, one of Germany's largest producers of specialty and reinforced compounds. Both acquisitions were accounted for using the purchase method of accounting and operations from the respective dates of acquisition are included in the Consolidated Statements of Income. Had the acquisitions been made at the beginning of 1993, reported pro forma results of operations for 1993 and 1994 would not be materially different. 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 consumable supplies for the printing industry and the manufacturing of engineered consumable supplies for the textile industry. The Company believes the business will be sold in 1995. In November 1993, the Company reached an agreement to sell its elastomeric membrane roofing business to Firestone Building Products Company, a division of Bridgestone/Firestone, Inc. The sale was consummated in the third quarter of 1994, resulting in an additional charge to earnings of $1,828,000 ($1,115,000 after tax) for costs incurred while obtaining government antitrust clearance for the sale. The Company recognized an after-tax charge of $30,000,000 in 1993 for the writeoff of goodwill and restructuring charges associated with the sale. The Company received $2,320,000 and $9,180,000 during 1993 and 1992, respectively, representing the recovery of a prepetition bankruptcy claim Colowyo Coal Company had against a customer. The Company sold its interest in Colowyo in 1991. Summary operating results of these discontinued businesses are as follows: Dollars in thousands 1994 1993 1992 Net sales $120,083 $148,699 $145,400 Income from operations before income taxes $ 18,891 $ 17,051 $ 14,617 Income taxes 7,806 7,812 6,581 11,085 9,239 8,036 Loss(gain) net of income taxes on disposal 1,115 28,518 (4,268) $ 9,970 $(19,279) $ 12,304 At December 31, 1994, net assets of discontinued operations consisted of current assets of $31,724,000, current liabilities of $18,015,000, net fixed assets of $26,942,000, other noncurrent assets of $72,155,000 and other noncurrent liabilities of $9,591,000. INCOME TAXES Income taxes from continuing operations consist of the following: Dollars in thousands 1994 1993 1992 Current: Federal $20,740 $ 9,205 $4,794 State 4,664 2,660 1,888 Foreign 4,809 2,907 1,697 30,213 14,772 8,379 Deferred: Federal 110 2,730 529 State (1,023) (319) 18 Foreign (82) (826) (107) (995) 1,585 440 $29,218 $16,357 $8,819 A graph depicting the following information appears at this point: BOOK VALUE Dollars per share 1990 1991 1992 1993 1994 14.21 11.11 11.34 10.26 11.62 The provision for income taxes from continuing operations differs from the amount computed by applying the U.S. statutory federal income tax rate as follows: Dollars in thousands 1994 1993 1992 Provision at statutory tax rate $23,178 $13,179 $ 9,195 State income taxes 2,367 1,528 1,258 Goodwill amortization 2,784 3,169 2,488 Change in income tax rate - (578) - Utilization of capital loss and tax credit carryforwards (1,820) (1,062) - Favorable adjustment of income tax liabilities - - (4,800) Other - net 2,709 121 678 $29,218 $16,357 $ 8,819 Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has not provided deferred taxes on undistributed earnings of foreign subsidiaries and joint ventures because it is not practical to estimate the amount of tax payable upon any future remittance of these earnings. Significant components of the Company's deferred tax assets (liabilities) for continuing operations are as follows: Dollars in thousands 1994 1993 Basis differences from purchase accounting $(13,705) $(15,694) Tax over book depreciation (13,665) (15,754) Other post-retirement benefits 32,467 31,637 Associate benefits 22,064 18,699 Restructuring and plant closedown costs 7,699 11,917 Environmental costs 7,353 8,012 Inventory and receivable reserves 6,734 8,026 Other 11,983 8,171 Tax credit carryforwards 858 13,751 Capital loss carryforwards 23,317 22,689 Valuation allowance (23,317) (24,762) $ 61,788 $ 66,692 A graph depicting the following information appears at this point: COMMON STOCK 1990 1991 1992 1993 1994 High 18.17 17.25 20.00 22.67 28.88 Low 9.83 11.83 13.17 17.17 21.42 Close 12.83 13.33 19.25 21.75 23.75 For financial reporting purposes, a valuation allowance has been recognized to offset the deferred tax asset related to capital loss carryforwards which expire in 1995 and 1998. During 1994, the valuation allowance was increased by $375,000 due to increases in capital loss carryforwards and reduced $1,820,000 due to the utilization of tax credit carryforwards. During 1993, the valuation allowance was increased $370,000 due to the tax law change and was reduced by $1,062,000 due to the utilization of capital loss carryforwards. Income before income taxes includes $12,624,000, $3,799,000 and $2,693,000 in 1994, 1993 and 1992, respectively, from foreign operations. LONG-TERM DEBT Long-term debt at December 31 consists of the following: Dollars in thousands 1994 1993 9% Senior Notes due 1998 $117,745 $150,000 9.375% Senior Notes due 2003 118,025 150,000 Credit agreements 12,650 17,787 Other 41,132 4,988 289,552 322,775 Less current portion 683 723 $288,869 $322,052 Annual maturities of long-term debt for the next five years are: 1995-- $683,000; 1996--$18,552,000; 1997--$18,452,000; 1998--$131,048,000 and 1999--$614,000. On June 30, 1994, the Company entered into a new revolving credit agreement with a group of financial institutions. The agreement provides for borrowings up to $200 million through June 1998 with interest rates determined at the time of the borrowing based on a choice of formulas specified in the agreement. At December 31, 1994, borrowings supported by this agreement were $12,650,000 at a rate of 6.70%. In 1993, the Company entered into a credit agreement which provided for borrowings up to 150 million French francs through November 1996. In 1994, borrowings under this agreement were repaid and the credit agreement was terminated. At December 31, 1993, borrowings outstanding under this agreement were $17,787,000. Other debt at December 31, 1994 and 1993 consists primarily of mortgages, industrial revenue bonds, and notes including $35.5 million of foreign borrowings related to an acquisition which will be refinanced in the first quarter of 1995. These obligations mature in various installments through December 2003 and are at interest rates ranging from 3.50% to 10.50%. The weighted average interest rate on short-term borrowings was 7.28% and 7.08% at December 31, 1994 and 1993, respectively. In 1994, the Company repurchased $64,230,000 principal amount of Senior Notes in the open market, resulting in an extraordinary charge of $6,034,000 ($3,680,000 after tax). The Senior Note agreements contain certain restrictions and conditions among which are limitations on cash dividends and other payments. Under the most restrictive of these agreements, approximately $114.4 million of retained earnings was free of such limitations at December 31, 1994. STOCKHOLDERS' EQUITY In May 1994, the Company issued 14,322,624 shares of common stock to effect a three-for-two stock split. The par value ($1 per share) of the additional shares issued was charged to capital surplus. The Associates Ownership Trust (AOT) acquired shares of common stock from the Company in 1991 for a promissory note in the amount of $100,049,000. The shares acquired are to fund a portion of the Company's obligations under certain of its associate compensation and associate benefit plans for the 15-year term of the AOT. At December 31, 1994 the AOT holds 4,693,518 shares of the Company's common stock. Such shares are adjusted at each balance sheet date to their respective market value with an offsetting adjustment to capital surplus. Under the Company's Stock Purchase Rights Plan each Right entitles the holder of common stock to buy from the Company one one-hundredth of a share of Cumulative Series A Preferred Stock, without par value for $95, subject to adjustment. The Rights become exercisable if certain triggering events occur, including the acquisition of 15% or more of the Company's common stock. The Company is entitled to redeem the Rights at $.01 per Right at any time until ten days after any person or group has acquired 20% of the Company's common stock and in certain circumstances thereafter. If a party owning 20% or more of the Company's common stock merges with the Company or engages in certain other transactions with the Company, each Right, other than the Rights held by the acquiring party, entitles the holder to purchase that number of additional common shares having a market value of two times the exercise price of the Right. The Rights expire on December 16, 2001. The Company's stock option plans provide for granting options, including options to non-associate directors, at the market value at date of grant. Options are exercisable for ten years from the date of grant. The following table summarizes the changes in the outstanding options for the three years ended December 31, 1994. SHARES PRICE RANGE Outstanding January 1, 1992 1,859,401 $ 8.167 - $16.833 Granted 172,200 18.833 Exercised (330,920) 8.167 - 16.833 Canceled or expired (6,430) 8.887 - 16.833 Outstanding December 31, 1992 1,694,251 8.167 - 18.833 Granted 375,465 19.833 - 20.50 Exercised (464,794) 8.167 - 16.833 Canceled or expired (25,275) 11.167 - 18.833 Outstanding December 31, 1993 1,579,647 8.167 - 20.50 Granted 342,913 22.125 - 27.125 Exercised (77,320) 8.889 - 20.50 Canceled or expired (3,667) 14.833 - 20.50 Outstanding December 31, 1994 1,841,573 8.167 - 27.125 At December 31, 1994, options were exercisable for 1,099,126 shares (905,796 shares at December 31, 1993) at prices from $8.167 to $20.50 and 1,126,055 shares were reserved for future grants. A graph depicting the following information appears at this point: INTERNATIONAL SALES In percent 1990 1991 1992 1993 1994 9.8 11.3 12.7 13.6 14.2 BUSINESS SEGMENTS The Company operates principally in the formulated polymers industry which consists of two major segments - processing and distribution. Processing includes production of custom plastic and rubber compounds and custom formulated colorants for the plastics industry. Distribution includes distributors of thermoplastic and thermoset resins and fiberglass materials and distributors of engineered plastic shapes. Sales are made through the Company's organization, distributors and representatives. Other operations include the Company's diversified polymer products business, its marine and insurance operations and management fees. The Company is Managing Agent for Iron Ore Company of Canada (IOC) and owns approximately 8% of IOC's common stock. IOC incurred commission and management expense of $3,064,000 in 1994 ($2,648,000 in 1993 and $2,628,000 in 1992) payable to the Company and $4,302,000 in 1994 ($3,317,000 in 1993 and $3,294,000 in 1992) payable to 50% owned companies carried at equity. In December 1992 the Company sold Midland SouthWest, an oil and gas business for $5,290,000. No gain or loss was recognized as a result of this transaction. A graph depicting the following information appears at this point: INTERNATIONAL OPERATING PROFITS In percent 1990 1991 1992 1993 1994 7.4 10.9 10.8 10.0 14.2 Net sales, operating profit and identifiable assets by geographic area are as follows: Dollars in thousands 1994 1993 1992 Net sales Domestic $1,475,277 $1,220,555 $1,037,995 International Europe 130,461 93,595 68,296 Other 113,618 97,921 82,250 $1,719,356 $1,412,071 $1,188,541 Operating profit Domestic $ 104,484 $ 83,104 $ 69,315 International Europe 10,565 4,172 4,526 Other 6,764 5,070 3,829 $ 121,813 $ 92,346 $ 77,670 Identifiable assets Domestic $ 868,201 $ 859,193 $ 845,406 International Europe 180,842 89,556 101,768 Other 62,902 49,087 42,007 Discontinued operations 103,215 125,774 163,384 $1,215,160 $1,123,610 $1,152,565
Depreciation Operating and Capital Identifiable (Dollars in thousands) Net Sales Profit Amortization Expenditures Assets 1994 Processing $ 942,999 $88,175 $34,254 $36,193 $ 615,715 Distribution 766,711 24,086 6,368 3,363 345,929 Other 32,129 9,552 823 - 16,751 Intersegment activity (22,483) - - - - Corporate - (27,042) 459 3,862 133,550 Discontinued operations - - - 3,564 103,215 $1,719,356 $94,771 $41,904 $46,982 $1,215,160 1993 Processing $ 784,951 $65,427 (1) $29,842 $15,494 $ 522,122 Distribution 628,887 19,409 6,930 3,185 296,449 Other 33,479 7,510 936 727 16,281 Intersegment activity (35,246) - - - - Corporate - (22,434)(2) 474 38 162,984 Discontinued operations - - - 3,935 125,774 $1,412,071 $69,912 $38,182 $23,379 $1,123,610 1992 Processing $ 655,584 $54,110 $25,987 $13,088 $ 489,900 Distribution 533,392 15,990 6,709 2,627 286,296 Other 36,201 7,570 2,182 363 24,101 Intersegment activity (36,636) - - - - Corporate - (18,156) 543 - 188,884 Discontinued operations - - - 3,076 163,384 $1,188,541 $59,514 $35,421 $19,154 $1,152,565 (1) Includes $1,300,000 of restructuring costs. (2) Includes $1,730,000 gain from sale of assets.
PENSION AND OTHER POST-RETIREMENT BENEFITS The Company has non-contributory defined benefit plans covering certain of its associates which comply with federal funding requirements. Benefits for these plans are based primarily on years of service and qualifying compensation during the final years of employment. Plan assets include marketable equity securities, money market funds and fixed income securities. The Company also sponsors defined contribution plans for certain of its associates, which provide for Company contributions of a specified percentage of each associate's total compensation. A summary of the components of net periodic pension cost for the defined benefit plans and the total contributions charged to expense for the defined contribution plans follows: Dollars in thousands 1994 1993 1992 Defined benefit plans: Service costs $ 743 $ 617 $ 650 Interest cost on projected benefit obligation 5,838 6,300 8,050 Return on plan assets (5,073) (6,258) (8,364) Net amortization and deferral 930 815 656 Net pension costs 2,438 1,474 992 Defined contribution plans 3,785 3,236 3,745 $6,223 $4,710 $4,737 The Company has recorded a minimum pension liability representing the excess of the accumulated benefit obligation over the fair value of plan assets and accrued pension liabilities. The liability has been offset by intangible assets to the extent possible. Because the asset recognized may not exceed the amount of unrecognized past service cost, the balance of the liability at the end of 1994 and 1993 is reported as a separate reduction of stockholders' equity, net of applicable deferred income taxes. The following table sets forth the funded status of the Company's defined benefit plans:
Accumulated Benefits Assets Exceed Exceed Assets Accumulated Benefits Dollars in thousands 1994 1993 1994 1993 Actuarial present value of benefit obligations: Accumulated benefit obligations including vested benefits of $73,428 in 1994 and $79,793 in 1993 $43,467 $66,528 $31,521 $16,000 Projected benefit obligation $44,414 $68,088 $31,981 $16,386 Plan assets at fair value 30,182 46,953 36,909 21,199 Projected benefits in excess of (less than) plan assets 14,232 21,135 (4,928) (4,813) Consisting of: Unrecognized net obligations (asset) 1,190 1,969 135 (441) Unrecognized net actuarial (gains) or losses 14,022 17,842 (1,389) (2,180) Adjustment to recognize minimum liability 14,265 18,251 - - Accrued(prepaid) pension cost recognized in balance sheet $13,285 $19,575 $(3,674) $(2,192)
The projected benefit obligation was determined using an assumed discount rate of 8.25% (7.25% in 1993) and an assumed long-term rate of increase in compensation of 5%. The assumed long-term rate of return on plan assets is 8.5% (10% in 1993). The change in the discount rate caused the accumulated benefit obligation to decrease approximately $6,500,000. In addition to providing pension benefits, the Company provides certain contributory and non-contributory health care and life insurance benefits for certain retired associates. Certain associates of the Company may become eligible for these post-retirement benefits if they reach retirement age while working for the Company. A graph depicitng the following information appears at this point: LONG-TERM DEBT/TOTAL CAPITAL In percent 1990 1991 1992 1993 1994 19.5 46.5 46.8 46.8 41.0 Effective January 1, 1992, Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" was adopted using the immediate recognition transition option. The standard requires recognition of the estimated future costs of providing health and other post-retirement benefits on an accrual basis. These benefits had previously been recognized as incurred. The cumulative effect of this accounting change reduced 1992 net income by $33,561,000 ($54,131,000 less related deferred income taxes of $20,570,000) or $1.13 per share. The status of the Company's plans at December 31, 1994 and 1993 is as follows: Dollars in thousands 1994 1993 Accumulated post-retirement benefit obligation Retirees $57,134 $65,905 Fully eligible active plan participants 3,747 5,167 Other active plan participants 9,732 13,193 70,613 84,265 Unrecognized actuarial gain(loss) 12,634 (3,146) Accrued post-retirement benefit obligation $83,247 $81,119 Net periodic post-retirement benefit cost includes the following components: Dollars in thousands 1994 1993 1992 Service cost $1,069 $1,201 $1,127 Interest cost 5,605 6,512 6,354 Net periodic post-retirement benefit cost $6,674 $7,713 $7,481 The weighted-average assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) is assumed to be 12.0% (14.0% in 1993) and decreasing gradually to 6.25% in 2007 (5.25% in 2009 in 1993) and remaining at that level thereafter. A one percentage point increase in the assumed health care cost trend rate would have increased the accumulated benefit obligation by $8,209,000 at December 31, 1994 and the aggregate service and interest costs components of net periodic post-retirement benefit costs for 1994 by $1,011,000. A discount rate of 8.25% (7.25% in 1993) was used in determining the accumulated benefit obligation. The change in the discount rate caused the accumulated benefit obligation to decrease approximately $9,600,000. A graph depicting the following information appears at this point: RETURN ON EQUITY In percent 1990 1991 1992 1993 1994 5.6 2.8 3.4 5.3 9.5 FINANCIAL INSTRUMENTS The Company conducts business in various foreign currencies. As a result, it is subject to transaction exposures that arise from foreign exchange movements between the date that the foreign currency transaction is recorded and the date it is consummated. The Company has a policy of entering into intercompany lending transactions and hedging the foreign exchange through foreign exchange forward contracts. Gains and losses on intercompany debt are recognized currently as a component of accumulative translation adjustment. The Company has entered into such cross-currency foreign exchange contracts with maturities of up to five years to protect the Company from the risk that the future intercompany cash flows will be adversely affected by changes in exchange rates. The Company does not hold or issue financial instruments for trading purposes. The table below summarizes by currency the contractual amounts of the Company's foreign exchange contracts at December 31, 1994. Foreign currency amounts are translated at exchange rates as of December 31, 1994. The "Buy" amounts represent the U.S. dollar equivalent of commitments to purchase foreign currencies, and the "Sell" amounts represent the U.S. dollar equivalent of commitments to sell foreign currencies. Dollars in thousands Buy Sell Currency: British pound sterling $10,650 $ - Canadian dollar 6,502 - French franc - 18,695 German deutschmark - 13,174 Other 1,543 - Total $18,695 $31,869 The Company is exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments. No counterparties are expected to fail to meet their obligations given their high credit ratings, so the Company usually does not obtain collateral for these instruments. There is no credit exposure from the foreign exchange contracts at December 31, 1994. The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments: Cash, Cash Equivalents and Short-Term Securities: The carrying amounts reported in the balance sheet approximate fair value. Long and Short-Term Debt: The carrying amount of the Company's short-term borrowings approximates fair value. The fair value of the Company's Senior Notes is based on quoted market prices. The carrying amount of the Company's borrowings under its long-term revolving credit agreements and other long-term borrowings approximates fair value. Foreign Exchange Contracts and Interest Rate Swaps: The fair value of short-term foreign exchange contracts is based on exchange rates at December 31, 1994. The fair value of long-term foreign exchange contracts and interest rate swaps is based on quoted market prices. The carrying amounts and fair values of the Company's financial instruments at December 31, 1994 and 1993 are as follows: 1994 1993 Carrying Fair Carrying Fair Dollars in thousands Amount Value Amount Value Cash and cash equivalents $ 23,105 $ 23,105 $ 37,645 $ 37,645 Short-term securities - - 5,061 5,061 Notes payable to banks 931 931 2,478 2,478 Long-term debt 9% Senior Notes 117,745 119,252 150,000 172,500 9.375% Senior Notes 118,025 122,002 150,000 180,000 Credit agreements 12,650 12,650 17,787 17,787 Other 41,132 41,132 4,988 4,988 Foreign exchange contracts - (1,681) - - Interest rate swaps - - - 365 LEASE COMMITMENTS Rental expense under operating leases for certain manufacturing facilities, warehouses, transportation equipment and data processing and office equipment was $16,890,000 in 1994, $15,859,000 in 1993 and $14,202,000 in 1992. Certain of the Company's leases have options to renew, and there are no significant contingent rentals. At December 31, 1994, future minimum lease commitments for noncancelable operating leases are: Dollars in thousands 1995 $10,585 1996 9,644 1997 8,825 1998 6,944 1999 5,325 Thereafter 17,903 $59,226 CONTINGENCIES 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 also been made against a subsidiary of the Company for the 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 the reserves. In management's opinion, the aforementioned litigation and claims will be resolved without material adverse effect on the financial position of the Company. A graph depicting the following information appears at this point: DIVIDENDS 1990 1991 1992 1993 1994 0.37 0.42 0.44 0.48 0.51 OTHER INCOME Other income includes the following: Dollars in thousands 1994 1993 1992 Interest and dividends $3,025 $1,680 $3,006 Gain on sales of assets - 1,730 409 Other 1,041 1,606 1,835 $4,066 $5,016 $5,250 OTHER EXPENSE Other expense includes the following: Dollars in thousands 1994 1993 1992 Expenses of closed facilities $5,930 $7,031 $7,091 Restructuring costs 865 1,300 - Other 3,044 1,419 1,826 $9,839 $9,750 $8,917 DETAIL OF CURRENT AND OTHER LIABILITIES Included in trade payables and accrued expenses and other liabilities at December 31 are: Dollars in thousands 1994 1993 Trade payables and accrued expenses: Trade payables $178,166 $132,151 Salaries and wages 14,744 10,992 Associate benefits 37,933 27,841 Restructuring and acquisition costs 19,808 16,018 Other liabilities: Plant closedown costs 13,460 14,318 Environmental costs 12,808 18,449 Associate benefits 17,605 11,816 Other post-retirement benefits 77,898 75,186 A graph depicting the following information appears at this point: CAPITAL EXPENDITURES As a percent of depreciation 1990 1991 1992 1993 1994 131.6 117.3 65.8 79.8 147.5 SUPPLEMENTAL CASH FLOW DATA The following is a summary of noncash investing and financing activities: Dollars in thousands 1994 1993 1992 Acquisition of businesses Assets acquired $70,456 $33,130 $106,447 Liabilities assumed 13,752 4,327 45,030 Cash paid 56,704 28,803 61,417 Less cash acquired 3,373 - 6,063 $53,331 $28,803 $ 55,354 Debt of companies acquired $ 4,692 $ 11,084 Payment of additional purchase price of acquired business with treasury stock $ 6,802 Payment of incentive compensation awards with treasury stock $ 990 $ 780 $ 731 Release of common stock held by Associates Ownership Trust $13,246 $ 8,260 $ 4,207 Payment of stock option exercised with shares of common stock $ 38 $ 1,675 Quarterly Financial and Stock Price Data M.A. Hanna Company and Consolidated Subsidiaries Summarized unaudited quarterly financial and stock price data for 1994 and 1993 are as follows:
First Second Third Fourth Dollars in thousands except per share data Quarter Quarter Quarter Quarter 1994 Net sales $388,520 $422,516 $448,650 $459,670 Gross margin 72,214 80,575 84,130 89,401 Income(loss) Continuing operations 6,210 9,370 11,269 10,155 Discontinued operations 2,047 2,573 1,625 3,725 Extraordinary charge - (3,680) - - Net income 8,257 8,263 12,894 13,880 Income(loss) per common share (fully diluted) Continuing operations 0.19 0.30 0.36 0.32 Discontinued operations 0.07 0.08 0.05 0.12 Extraordinary charge - (0.12) - - Net income 0.26 0.26 0.41 0.44 Price range High 25.58 26.50 28.88 26.00 Low 21.42 23.17 23.50 21.62 Cash dividends paid 0.125 0.125 0.125 0.135 1993 Net sales $337,324 $357,972 $361,993 $354,782 Gross margin 61,821 67,924 67,510 68,625 Income(loss) Continuing operations 2,743 6,057 6,569 5,928 Discontinued operations 3,097 2,287 2,295 (26,958) Net income(loss) 5,840 8,344 8,864 (21,030) Income(loss) per common share (fully diluted) Continuing operations 0.09 0.20 0.21 0.19 Discontinued operations 0.10 0.07 0.08 (0.87) Net income(loss) 0.19 0.27 0.29 (0.68) Price range High 20.50 22.17 21.42 22.67 Low 17.17 18.67 17.33 19.25 Cash dividends paid 0.117 0.117 0.117 0.125 During the fourth quarter of 1994, the Company adopted a plan to sell its Day International printing and textile business. The operating results of this business have been reclassified as discontinued operations which has decreased previously reported income from continuing operations in 1994 by $2,047,000 in the first quarter ($.07 per share), $2,573,000 in the second quarter ($.08 per share) and $2,740,000 in the third quarter ($.08 per share) and decreased previously reported income from continuing operations in 1993 by $1,753,000 in the first quarter ($.06 per share), $2,067,000 in the second quarter ($.06 per share), $2,009,000 in the third quarter ($.07 per share) and $2,922,000 in the fourth quarter ($.09 per share). Income per share calculations for each of the quarters are based on the weighted average number of shares outstanding for each period, and the sum of the quarters may not necessarily be equal to the full year income per share amount.
SELECTED FINANCIAL DATA M. A. Hanna Company and Consolidated Subsidiaries
Dollars in thousands except per share data 1994 1993 1992 1991 1990 1989 SUMMARY OF OPERATIONS Net sales $1,719,356 $1,412,071 $1,188,541 $1,006,638 $960,228 $918,276 Cost of goods sold 1,393,036 1,146,191 961,925 797,892 749,071 718,636 Selling, general and administrative 213,318 179,228 152,366 147,998 137,674 135,741 Amortization of intangibles 12,458 12,006 11,069 10,146 9,704 8,886 Interest on debt 28,549 32,258 32,509 23,221 18,301 21,128 Income(loss) from continuing operations before income taxes, extraordinary charge and cumulative effect of changes in accounting principles 66,222 37,654 27,005 (16,195) 44,023 44,797 Income taxes 29,218 16,357 8,819 8,225 12,830 7,608 Income(loss) from continuing operations before extraordinary charge and cumulative effect of changes in accounting principles 37,004 21,297 18,186 (24,420) 31,193 37,189 Net income 43,294 2,018 19,025 1,875 55,871 86,920 Per share of common stock Income(loss) from continuing operations 1.20 0.69 0.63 (0.72) 0.75 0.92 Net income 1.40 0.07 0.66 0.02 1.35 2.23 Dividends paid 0.51 0.48 0.44 0.42 0.37 0.30 Cash dividends paid on Common stock 15,688 14,003 12,630 15,267 15,175 11,812 Preferred stock - - - 1,031 - 2,125 BALANCE SHEET Current assets $565,615 $405,782 $416,739 $275,060 $276,711 $264,772 Current liabilities 337,491 259,680 229,327 195,610 181,471 167,272 Working capital 228,124 146,102 187,412 79,450 95,240 97,500 Property, plant and equipment - net 204,135 184,296 195,117 184,877 183,536 173,477 Other assets 445,410 438,628 440,873 443,702 458,394 444,479 Net long-term assets of discontinued operations - 94,904 99,836 121,374 129,869 137,304 Other liabilities (173,888) (176,422) (174,558) (118,082) (161,674) (175,310) Long-term debt (288,869) (322,052) (350,737) (330,863) (137,691) (134,834) Total stockholders' equity $414,912 $365,456 $397,943 $380,458 $567,674 $542,616 Shares of common stock outstanding 35,694,094 35,611,522 35,100,108 34,245,075 39,937,572 41,682,807 Book value per share of common stock $11.62 $10.26 $11.34 $11.11 $14.21 $13.02 SELECTED FINANCIAL DATA M. A. Hanna Company and Consolidated Subsidiaries Dollars in thousands except per share data 1988 (1) SUMMARY OF OPERATIONS Net sales $797,563 Cost of goods sold 614,465 Selling, general and administrative 128,573 Amortization of intangibles 6,456 Interest on debt 23,622 Income(loss) from continuing operations before income taxes, extraordinary charge and cumulative effect of changes in accounting principles 28,554 Income taxes 4,107 Income(loss) from continuing operations before extraordinary charge and cumulative effect of changes in accounting principles 24,447 Net income 83,223 Per share of common stock Income(loss) from continuing operations 0.49 Net income 2.32 Dividends paid 0.22 Cash dividends paid on Common stock 7,169 Preferred stock 8,501 BALANCE SHEET Current assets $240,029 Current liabilities 166,185 Working capital 73,844 Property, plant and equipment - net 154,477 Other assets 406,426 Net long-term assets of discontinued operations 141,552 Other liabilities (169,470) Long-term debt (137,725) Total stockholders' equity $469,104 Shares of common stock outstanding 32,331,271 Book value per share of common stock $11.41 (1) Prior to 1988, the Company was a natural resources company and not in the specialty chemicals business. Results for 1984 -1987 are excluded because they are not comparable to results for 1988 -1994. STOCK INFORMATION M. A. Hanna Company common stock is listed on the New York and Chicago stock exchanges under the symbol MAH. At December 31, 1994, the number of stockholders of record of the Company's common stock was 3,886.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS M.A. Hanna Company and Consolidated Subsidiaries RESULTS OF OPERATIONS 1994 Compared with 1993 Significant strategic and financial progress was made in 1994. The Company developed a capability in thermoplastic elastomers with the acquisition of North Coast Compounders and enhanced its capability in polymer processing with the acquisition of Th. Bergmann GmbH & Co. Kunststoffwerk, one of Germany's largest producers of specialty and reinforced compounds. Net sales were a record $1,719.4 million, an increase of 21.8% over net sales in 1993 of $1,412.1 million. Sales from processing businesses increased from $784.9 million in 1993 to $943.0 million in 1994 due to acquisitions in 1994 and 1993, higher unit volumes and pricing. Distribution sales increased $137.8 million to $766.7 million in 1994 due to higher unit volumes and pricing. Sales from other operations were comparable with 1993 levels. Cost of goods sold increased from $1,146.2 million in 1993 to $1,393.0 million in 1994 and corresponds with the increase in net sales. Gross margins were 19.0% in 1994 and 18.8% in 1993. Gross margin dollars in 1994 were $326.3 million compared with $265.9 million in 1993 or an increase of 22.7%, which exceeds the growth in sales of 21.8%. Gross margins were favorably impacted by higher volumes and productivity improvements, partially offset by the mix of sales between processing and distribution businesses. Distribution businesses, which had a higher growth rate in net sales than processing businesses, carry a lower gross margin. Also impacting gross margins in 1994 was a $3.3 million provision for inventories valued by the last-in first-out cost method. Selling, general and administrative expenses increased $34.1 million in 1994 to $213.3 million and is attributable to the higher level of sales, acquisitions made in 1994 and increased costs associated with the Company's incentive compensation programs due to the higher level of earnings. As a percentage of sales, selling, general and administrative expenses were 12.4% in 1994 compared with 12.7% in 1993. Interest on debt decreased from $32.3 million in 1993 to $28.5 million in 1994 due to lower average borrowings outstanding and lower effective interest rates. During 1994, the Company repurchased $64.2 million of its Senior Notes in the open market, resulting in an extraordinary charge of $6.0 million ($3.7 million after-tax). Funds to repurchase the Senior Notes were obtained from existing cash flows as well as borrowings under the Company's credit agreement, which carry a lower rate of interest. The Company's effective tax rate in 1994 was 44.1% compared with 43.4% in 1993. The tax rate in 1993 was favorably impacted by 1.6 percentage points from the enactment of a change in tax laws. Income from continuing operations increased from $21.3 million in 1993 to $37.0 million in 1994, an increase of 73.8% on an increase in net sales of 21.8%. In December 1994, the Company adopted a plan to sell its Day International printing and textile business. Accordingly, the operating results of the business have been reclassified as discontinued operations. Also included in 1994 amounts is a charge of $1.1 million related to the Company's elastomeric membrane roofing business for additional costs incurred while obtaining government antitrust clearance for the sale, which closed in the third quarter of 1994. The Company recognized an after-tax charge of $30.0 million in 1993 for the write-off of goodwill and restructuring charges associated with the sale. Also included in discontinued operations in 1993 is $1.5 million from the sale of a former natural resources affiliate. 1993 Compared with 1992 Net sales increased from $1,188.5 million in 1992 to $1,412.1 million in 1993. Sales from processing businesses increased $129.4 million from 1992 levels due to acquisitions made in both 1993 and 1992 and higher unit volumes. Distribution sales increased $95.5 million to $628.9 million in 1993 due to higher unit volumes and an acquisition made at the end of the third quarter in 1992. Sales from other operations decreased from $36.2 million in 1992 to $33.5 million in 1993 due to the sale of businesses in both years. Cost of goods sold increased $184.3 million to $1,146.2 million in 1993 and corresponds with the sales increase. As a percentage of sales, cost of goods sold was 81.2% in 1993 compared with 80.9% in 1992. The resultant decrease in gross margin is due to a higher percentage of sales from distribution businesses, which carry a lower gross margin. Selling, general and administrative expenses increased $26.9 million in 1993 over 1992 levels due to acquisitions in processing and distribution businesses. However, as a percentage of sales, selling, general and administrative expenses fell from 12.8% in 1992 to 12.7% in 1993, reflecting the Company's ongoing efforts to manage these costs. Amortization expense increased from $11.1 million in 1992 to $12.0 million in 1993 due to acquisitions made in both 1993 and 1992. The Company's effective tax rate in 1993 was 43.4% compared with 32.7% in 1992. The tax rate in both years was impacted by favorable tax adjustments. Tax expense in 1993 was reduced $.6 million from the enactment of a change in tax laws and tax expense in 1992 was reduced $4.8 million due to a favorable adjustment of income tax liabilities. During the fourth quarter of 1993, the Company announced it had reached an agreement to sell its elastomeric membrane roofing business. Accordingly, the operating results of this business were reclassified as discontinued operations. In addition, the Company recognized an after- tax charge of $30.0 million for the writeoff of goodwill and restructuring charges associated with the sale. Also included in discontinued operations is $1.5 million from the sale of a former natural resources affiliate. A graph depicting the following information appears at this point: WORKING CAPITAL EXCLUDING CASH Percent of sales 1990 1991 1992 1993 1994 6.2 4.7 8.4 6.2 5.9 Liquidity and Sources of Capital The Company generated significant cash flows in 1994 from operations with $112.6 million provided from operating activities. Included in this amount was $4.4 million from reductions in operating working capital on an increase in net sales of $307.3 million. Payments of obligations from prior restructurings used $10.5 million. Investment activities used $76.2 million and include $47.0 million for capital expenditures and $57.4 million for acquisitions and payment of acquisition-related obligations. The sale of assets and cash from associated companies provided cash of $13.9 million and $8.8 million, respectively. Sales of short-term securities also provided $5.1 million. Financing activities used $51.2 million and include $15.7 million for the payment of dividends, $48.2 million in net reductions of outstanding debt and $1.5 million for shares repurchased, partially offset by $14.2 million in proceeds from the sale of common stock. The Company repurchased $64.2 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. The Company entered into a new revolving credit agreement during 1994, 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. At December 31, 1994, there were $12.7 million of outstanding borrowings supported by this agreement. The Company also had a credit agreement which provided commitments for borrowings of up to 150 million French francs through November 1996. The agreement provided for interest rates to be determined at the time of borrowing. During the third quarter of 1994, borrowings under this agreement were repaid and the credit agreement was terminated. In July 1994, the Company acquired Th. Bergmann GmbH & Co. Kunststoffwerk. The Company entered into an acquisition financing agreement which provided for borrowings in German marks. It is the intent of the Company to refinance the acquisition financing in the first quarter of 1995. A graph depicting the following information appears at this point: RETURN ON WORKING ASSETS In percent 1990 1991 1992 1993 1994 18.8 14.9 19.6 23.5 30.7 The current ratio at December 31, 1994 was 1.7:1 compared with 1.6:1 at December 31, 1993. Excluding the net assets of discontinued operations reported as a current asset in 1994, the current ratio at December 31, 1994 was 1.4:1. Long-term debt to total capital was 41.0% at December 31, 1994 and 46.8% at December 31, 1993. 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, payment of obligations from prior restructurings, dividends and other planned financial commitments in 1995 and 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 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. 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. On behalf of M.A. Hanna Management, /s/ Douglas R. Schrank Douglas R. Schrank Vice President and Chief Financial Officer REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors M. A. Hanna Company Cleveland, Ohio We have audited the accompanying consolidated balance sheets of M. A. Hanna Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of M. A. Hanna Company and subsidiaries at December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Cleveland, Ohio January 31, 1995 EX-21 4 SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT: Where Incorporated Name (or formed) Allied Color Industries, Inc. Ohio Burton Rubber Compounding , L.P. Delaware (a limited partnership) Burton Rubber Processing, Ltd. Ontario Cadillac Plastic Group, Inc. Michigan Day International, Inc. Delaware DH Compounding Company Delaware (a general partnership) Erieview Insurance Company Limited Bermuda Global Processing Company California Hanac Corp. Delaware Hanna France SARL France Hanna Hamilton Holdings Company Delaware Hanna Holdings Company Delaware Hanna International Corporation Delaware Hanna Polimeros, S.A. de C.V. Mexico M. A. Hanna de Mexico, S.A. de C.V. Mexico M. A. Hanna Resin Distribution Company Delaware M. A. Hanna Company Thermoplastic Elastomers Delaware MAH Plastics Company Delaware Monmouth Plastics Company Delaware Poliamidas Barbastro, S.A. Spain Synthecolor, S.A. France Texapol Corporation Pennsylvania The Lower Lake Dock Company Ohio The Ohio & Western Pennsylvania Dock Company Ohio The Pennsylvania Tidewater Dock Company Delaware Theodor Bergmann GmbH & Co. Kunststoffwerk KG Germany Wilson Color S.A. Belgium Wilson Color GmbH Germany Wilson Color S.A. France Wilson Color AB Sweden The Registrant has other unconsolidated subsidiaries and 50 percent or less owned persons accounted for by the equity method, which in the aggregate do not constitute a significant subsidiary. EX-23 5 CONSENT OF AUDITORS EXHIBIT 23 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of M.A. Hanna Company of our report dated January 31, 1995, included in the 1994 Annual Report to Shareholders of M.A. Hanna Company. /s/ Ernst & Young LLP March 17, 1995 Consent of Independent Auditors We consent to the incorporation by reference in the following Registration Statements (Exhibit I) of M.A. Hanna Company of our report dated January 31, 1995, with respect to the consolidated financial statements and schedule of M.A. Hanna Company included in the Annual Report (Form 10-K) for the year ended December 31, 1994. /s/ Ernst & Young LLP March 17, 1995 Consent of Independent Auditors Exhibit I Form S-8 No. 2-70755 pertaining to the M.A. Hanna Company 1979 Executive Incentive Compensation Plan. Form S-8 No. 33-29622 pertaining to the M.A. Hanna Company 1988 Long-Term Incentive Plan. Form S-8 No. 33-35654 pertaining to the M.A. Hanna Company Restated 1979 Executive Compensation Plan and 1988 Long-Term Incentive Plan. Form S-8 No. 33-38938 pertaining to the M.A. Hanna Company Capital Accumulation Plan. Form S-8 No. 33-41461 pertaining to the M.A. Hanna Company Capital Accumulation and Savings Plan for Salaried Employees of Day International Corporation. Form S-8 No. 33-45420 pertaining to the M.A. Hanna Company Pay for Performance Plans. Form S-3 No. 33-29624 pertaining to the M.A. Hanna Company Dividend Reinvestment and Stock Purchase Plan. Form S-3 No. 33-46522 pertaining to various employee compensation and benefit plans of M.A. Hanna Company. Form S-3 No. 33-66128 pertaining to various employee compensation and benefit plans of M.A. Hanna Company. Form S-8 No. 33-51517 pertaining to Wilson Color Profit Sharing Plan. Form S-8 No. 33-51519 pertaining to Texapol Corporation Employees' 401(k) Savings Plan. Form S-8 No. 33-51555 pertaining to PMS Profit Sharing and Retirement Savings Plan. Form S-8 No. 33-51513 pertaining to Fiberchem, Inc. 401 (k) Plan. Form S-8 No. 33-51497 pertaining to DH Compounding Company Savings and Retirement Plan. Form S-8 No. 33-51499 pertaining to Dayton Plastics Profit Sharing Plan. Form S-8 No. 33-51491 pertaining to Burton Rubber Processing, Inc. Savings and Retirement Plan. Form S-8 No. 33-51507 pertaining to Bruck Plastics Company Profit Sharing Plan. Form S-8 No. 33-51503 pertaining to Allied Color Industries, Inc. Savings and Retirement Plan for Associates of the Vonore, TN, Kansas City, MO, San Fernando, CA and Vancouver, WA Operations, formerly the Avecor, Inc. Savings and Retirement Plan. Form S-8 No. 33-51501 pertaining to Allied Color Industries, Inc. Profit Sharing Plan for Associates of the Broadview Heights, OH, Greenville, SC, and Phoenix, AZ Operations formerly the Allied Color Industries, Inc. Profit Sharing Plan. Form S-8 No. 33-53093 pertaining to M.A. Hanna Company Directors' Deferred Fee Plan. Form S-8 No. 33-57021 pertaining to 401 (k) Savings and Retirement Plan for Polymer Associates. EX-24 6 POWERS OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and D. R. Schrank, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1994, being filed with the Securities and Exchange Commission by M. A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/ B. C. Ames Director of M. A. Hanna March 1, 1995 B. C. Ames Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite her signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and D. R. Schrank, or any of them, her attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1994, being filed with the Securities and Exchange Commission by M. A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/ Carol A.Cartwright Director of M. A. Hanna March 1, 1995 C. A. Cartwright Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and D. R. Schrank, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1994, being filed with the Securities and Exchange Commission by M. A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/ Wayne R. Embry Director of M. A. Hanna March 1, 1995 W. R. Embry Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and D. R. Schrank, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1994, being filed with the Securities and Exchange Commission by M. A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/ J. T. Eyton Director of M. A. Hanna March 1, 1995 J. T. Eyton Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and D. R. Schrank, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1994, being filed with the Securities and Exchange Commission by M. A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/ G. D. Kirkham Director of M. A. Hanna March 1, 1995 G. D. Kirkham Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and D. R. Schrank, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1994, being filed with the Securities and Exchange Commission by M. A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/ M. L. Mann Director of M. A. Hanna March 1, 1995 M. L. Mann Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and D. R. Schrank, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1994, being filed with the Securities and Exchange Commission by M. A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/ Richard W. Pogue Director of M. A. Hanna March 1, 1995 R. W. Pogue Company POWER OF ATTORNEY The undersigned, Director of the corporation named herein opposite his signature, hereby appoints T. E. Lindsey, J. S. Pyke, Jr., and D. R. Schrank, or any of them, his attorney or attorneys in fact, with full power of substitution, to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1994, being filed with the Securities and Exchange Commission by M. A. Hanna Company, and any and all amendments to such Annual Report, with full power and authority to take any and all such action as may be necessary or advisable in the premises. Capacity in which Annual Report on Form 10-K is to be signed Signature Date /s/ D. J. McGregor Director of M. A. Hanna March 1, 1995 D. J. McGregor Company EX-27 7 FINANCIAL DATA SCHEDULE
5 The schedule contains summary financial information extracted from the financial statements included in the Registrant's 1994 Annual Report distributed to stockholders and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1994 DEC-31-1994 23,105 0 258,462 11,346 161,260 565,615 342,543 138,408 1,215,160 337,491 288,869 43,015 0 0 371,897 1,215,160 1,719,356 1,719,356 1,393,036 1,393,036 0 3,250 28,549 66,222 29,218 37,004 9,970 (3,680) 0 43,294 1.40 1.38
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