-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K3uBzXqF27Mm+rBvEU+asMWDFWqGTUif3Lh6xRl7xA442d6ObVmMSW5kP1qOm4Ni Gb/D/uGi56udiqZoa7MoEA== 0000045370-97-000003.txt : 19970325 0000045370-97-000003.hdr.sgml : 19970325 ACCESSION NUMBER: 0000045370-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970324 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANNA M A CO/DE CENTRAL INDEX KEY: 0000045370 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PLASTIC PRODUCTS [3080] 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: 97561147 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, 1996 Commission file number 1-5222 M. A. HANNA COMPANY (Exact name of Registrant as specified in its charter) STATE OF DELAWARE 34-0232435 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) SUITE 36-5000, 200 PUBLIC SQUARE, CLEVELAND, OHIO 44114-2304 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code 216-589-4000 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. [ ] 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 February 18, 1997: $1,044,538,914.00. Common Shares outstanding as of February 18, 1997: 50,644,311. 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, 1997, 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, 1996, 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 1996 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, 1996, the end of the Registrant's last fiscal year. PART I ITEM 1. BUSINESS (a) Acquisitions and Dispositions In March 1996, the Registrant acquired Victor International Plastics, Ltd., a leading producer of color masterbatch in the United Kingdom, from Rexam, Plc. Victor International Plastics serves the injection and blow molding end markets from its two operations in Manchester and Coventry, England. On July 2, 1996, the Registrant announced that it had completed the sale of the molding operations of CIMCO, Inc. to InteSys Technologies, Inc. The molding operations and Compounding Technology, Inc. were part of CIMCO, Inc., which was acquired by the Registrant in January 1996. The compounding operations are being retained by the Registrant and operated under the name Compounding Technology, Inc. ("CTi"), with plants in Jurong, Singapore, Corona, California, Charlotte, North Carolina and Saint Etienne, France. In November 1996, the Registrant announced its acquisition of Chase Elastomer's U.S.-based custom rubber compounding operations. With annual sales of $22 million, Chase Elastomer has domestic operations in Dallas and Chicago. On February 6, 1997, the Registrant announced the construction of a manufacturing plant to produce color and additive concentrates in the Pu Dong district of Shanghai, China. The new plant will operate as Hanna Wilson Polymer (Shanghai) Limited, a wholly-owned subsidiary of the Registrant. Previously the Registrant also had announced an agreement for the formation of Hanna Su Xing Plastics Compounding (Suzhou) Co., Ltd., a joint venture to produce plastics compounds in Suzhou, China, which is about 60 miles from the color facility in the Pu Dong district. On February 11, 1997, the Registrant announced the sale of its 50 percent interest in IOC Ore Sales Company, a partnership that serves as sales agent for the Iron Ore Company of Canada ("IOC"). The sale marked the end of the Registrant's relationship with IOC, which extended back to 1949. (b) See the financial information regarding the Registrant's business segments set forth at page 29 of the Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1996, which page is incorporated herein by this reference. (c) (1) (i) Formulated Polymers (a) Processing The Registrant, through its plastic compounding businesses, Th. Bergmann, Compounding Technology, Inc. (CTi), M. A. Hanna Engineered Materials, M. A. Hanna Thermoplastic Elastomers, MACH-1 and Southwest Chemical Services business units, engages in the custom compounding of plastic materials to the specifications of manufacturers of molded plastic products for customers located throughout North America, Europe and Asia. Through its rubber compounding business, M. A. Hanna Rubber Compounding, Registrant engages in the custom compounding of rubber materials to the specifications of manufacturers of rubber products throughout North America. Through its color businesses, M. A. Hanna Color, Hanna Polimeros, Victor International Plastics and Wilson Color, 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 North America, Europe, South America and Asia. M. A. Hanna Color also produces specialty colorants and additives for the automobile, vinyl building products and textile industries and M. A. Hanna Color and Wilson Color also produce specialty colorants and additives for the wire and cable industry worldwide. (b) Distribution Through its M. A. Hanna Resin Distribution business unit, the Registrant distributes thermoplastic and thermoset resins and fiberglass materials in North America for major resin producers. 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 Through its Diversified Polymer Products 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. 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 plastic and rubber compounding businesses the primary raw materials required are natural and synthetic rubbers, resins, and chemicals, all of which are available in adequate supply. The primary raw materials required by Registrant's color businesses are resins, 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 trademarks, which are important in that they protect the Registrant's corresponding inventions and product names against infringement by others and thereby enhance Registrant's position in the marketplace. The patents vary in duration from 1 year to 20 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, price 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 North America in terms of pounds produced. The manufacture of custom-formulated color and additive concentrates for the plastics industry is highly competitive with product quality, price and service to customers being principal factors affecting competition. Registrant believes it is one of the leading producers of custom formulated color and additive concentrates 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, price and service to customers being principal factors affecting competition. Registrant believes it is one of the leading distributors of engineered shapes in the world and one of the leading distributors of plastic resins in North America. 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. (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 6,068 persons at its consolidated operations (5,695 in 1995). (d) (1) See information regarding Registrant's international operations at page 29 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1996, 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 business units. For properties which are leased, the date of expiration of the current term of the lease is indicated. Properties which are shown as owned are owned in fee simple. Some properties may be subject to minor encumbrances of a nature which do not materially affect the Registrant's operations. In addition, Registrant's Cadillac Plastic and M. A. Hanna Resin Distribution business units 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's Cadillac Plastic business unit also leases space for regional branches in various locations outside the United States, including Australia, Belgium, Canada, France, Germany, Hong Kong, Korea, Malaysia, Mexico, Netherlands, New Zealand, Singapore, Spain, Sweden, Taiwan and Vietnam. Location Facility Owned/Leased Approximate Size (sq. ft.) Burton, M. A. Hanna Rubber Owned 160,000 Ohio Compounding Macedonia, MACH-1 Compounding Owned 87,000 Ohio Tillsonburg, M. A. Hanna Rubber Owned 60,000 Ontario Compounding Jonesboro, M. A. Hanna Rubber Owned 69,000 Tennessee Compounding DeForest, M. A. Hanna Rubber Owned 130,000 Wisconsin Compounding Santa Fe Springs, M. A. Hanna Rubber Leased 13,231 California Compounding 1998 Chicago, M. A. Hanna Rubber Leased 31,000 Illinois (Chase Elastomer) 2001 Kennedale, M. A. Hanna Rubber Owned 80,000 Texas (Chase Elastomer) Broadview Heights, M. A. Hanna Color Owned 61,000 Ohio Phoenix, M. A. Hanna Color Owned 20,500 Arizona Vonore, M. A. Hanna Color Owned 47,000 Tennessee North Kansas City, M. A. Hanna Color Leased 44,000 Missouri 1998 San Fernando, M. A. Hanna Color Leased 45,000 California 1998 Vancouver, M. A. Hanna Color Leased 35,000 Washington 2002 Troy, Cadillac Plastic Leased 29,175 Michigan (headquarters) 1998 Coppell, Cadillac Plastic Leased 101,016 Texas (area distribution 2006 center) Fresno, Cadillac Plastic Leased 50,960 California (area distribution 2007 center) Lemont, M. A. Hanna Resin Leased 103,000 Illinois Distribution 2008 (headquarters) Seattle, M. A. Hanna Resin Leased 44,520 Washington Distribution 2005 Kingstree, Southwest Chemical Owned 156,174 South Carolina Services Dyersburg, M. A. Hanna Owned 862,399 Tennessee Engineered Materials, M. A. Hanna Rubber Compounding and Diversified Polymer Products Bethlehem, M. A. Hanna Leased Pennsylvania Engineered 2004 82,000 Materials 1999 25,400 Suwanee, M. A. Hanna Color Owned 20,000 Georgia (headquarters) Suwanee, M. A. Hanna Color Owned 44,022 Georgia (technical center) Somerset, M. A. Hanna Color Owned 44,300 New Jersey Florence, M. A. Hanna Color Owned 30,000 Kentucky Gastonia, M. A. Hanna Color Owned 43,992 North Carolina Elk Grove Village, M. A. Hanna Color Owned 51,870 Illinois St. Peters, M. A. Hanna Color Owned 32,480 Missouri Fort Worth, M. A. Hanna Color Owned 75,080 Texas Norwalk, M. A. Hanna Color Owned 94,000 Ohio Gardena, M. A. Hanna Color Owned 46,652 California Carolina, M. A. Hanna Color Leased 12,600 Puerto Rico 1999 Buford, M. A. Hanna Color Leased 73,300 Georgia 1997 Neshanic Station M. A. Hanna Color Leased 123,000 New Jersey 1997(closing 1997) Bethlehem, M. A. Hanna Color Owned 58,672 Pennsylvania (opening 1997) Milford, M. A. Hanna Color Leased 20,600 New Hampshire 2001 Toluca, Hanna Polimeros Owned 22,000 Mexico LaPorte, Southwest Chemical Owned 200,000 Texas Services Ayer, M. A. Hanna Resin Leased 53,250 Massachusetts Distribution 2002 Houston, M. A. Hanna Leased Texas Engineered 1997 88,000 Materials 1998 44,120 Statesville, M. A. Hanna Resin Leased 48,240 North Carolina Distribution 2002 North Ridgeville, M. A. Hanna Leased 40,750 Ohio Thermoplastic 1999 Elastomers Assesse, Wilson Color Owned 120,976 Belgium Tossiat, Wilson Color Owned 87,188 France Bendorf, Wilson Color Owned 72,086 Germany Angered, Wilson Color Owned 22,259 Sweden Saint Ouen, Wilson Color Owned 46,285 (Paris) France Coventry, Victor Leased 52,750 England International 2000 Manchester, Victor Owned 58,890 England International Gaggenau, Th. Bergmann Owned 241,114 Germany Barbastro, Polibasa Owned 71,042 Spain (Bergmann) Corona, Compounding Leased 32,000 California Technology, Inc. 2001 Charlotte, Compounding Leased 20,100 North Carolina Technology, Inc. 1997 Jurong, Compounding Leased 43,000 Singapore Technology, Inc. 1999 Saint Etienne, Compounding Owned 35,000 France Technology, Inc. Pu Dong Hanna Wilson Owned 30,400 (Shanghai), Polymer (opening China 1997) 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 approximately 716 million pounds of compounded rubber products, 921 million pounds of compounded plastic products and approximately 251 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 110 million pounds. ITEM 3. LEGAL PROCEEDINGS Registrant, directly and indirectly through a wholly-owned subsidiary, is obligated for costs of environmental remediation measures taken and to be taken in connection with certain operations that have been sold or discontinued. These include the clean-up of a Superfund site 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 these anticipated liabilities for environmental remediation, which do not reflect potential insurance recoveries and which management believes are adequate to cover Registrant's ultimate exposure. Registrant believes that these liabilities will not have a material adverse effect on the Registrant's liquidity, results of operations 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, 1997, 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. Chairman and Chief Age - 64 Executive Officer, September 1986 to December 31, 1996; Chairman, January 1, 1997 to date. D. J. McGregor President and Chief Executive Age - 56 Officer. President and Chief Operating Officer, May 1989 to December 31, 1996; President and Chief Executive Officer January 1, 1997 to date. L. L. Beach Vice President, Human Resources. Age - 52 Vice President, Human Resources of Kraft USA (1989-1991) and of Kraft Foods International (manufacturer and distributor of consumer products) 1991 to April 1995. Vice President, Human Resources of the Registrant, April 1995 to present. M. S. Duffey Vice President and Chief Age - 42 Financial Officer. Vice President and Treasurer, Outboard Marine Corporation (manufacturer of recreational boats and marine engines), 1986-1992; Vice President and Treasurer, Foote, Cone & Belding Communications, Inc. (advertising agency) 1992 - July 1994. Treasurer of the Registrant, July 1994 - April 1995; Vice President, Chief Financial Officer and Treasurer of Registrant, April 1995 to August, 1996. Vice President and Chief Financial Officer August 1996 to date. G. W. Henry Vice President, International Age - 51 Operations. Vice President - Marine Services and Special Projects, 1990 - 1992; Vice President - Operations, 1992 - 1994; Vice President, International Operations, 1994 to date. J. S. Pyke, Jr. Vice President, General Counsel Age - 58 and Secretary. Secretary, 1973 to date; Vice President, 1979 to date. D. R. Schrank Vice President, North American Age - 48 Plastics Operations. 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 - April 1995; Vice President, North American Plastics Operations, April 1995 to date. C. R. Sachs Treasurer. Treasurer Outboard Age - 44 Marine Corporation (manufacturer of recreational boats and marine engines) 1992-1996. Treasurer of the Registrant, August 1996 to date. T. E. Lindsey Controller. July 1990 to date. Age - 46 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 34 and Shareowner Information at the bottom of page 35 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1996, which tables and information are incorporated herein by this reference. ITEM 6. SELECTED FINANCIAL DATA See Selected Financial Data at page 35 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1996, 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 36 through 37 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1995, which pages are incorporated herein by this reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See pages 21 through 34 and page 38 of Registrant's Annual Report distributed to stockholders for the fiscal year ended December 31, 1996, which pages are incorporated herein by this reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 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, 1997, 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. Section 16(a) Beneficial Ownership Reporting Compliance See the paragraph bearing the foregoing caption on page 5 of Registrant's definitive proxy statement distributed to stockholders dated March 20, 1997, which paragraph is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION See the section captioned "Executive Compensation" at pages 5 through 14 of Registrant's definitive proxy statement distributed to stockholders dated March 20, 1997, filed with the Commission pursuant to Regulation 14A, which section is 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 page 5 of Registrant's definitive proxy statement distributed to stockholders dated March 20, 1997 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, 1997 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 None. 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 amended and restated as of May 1, 1996, and currently in effect), filed herewith. (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) Indenture dated November 9, 1996, between the Registrant and NBD Bank, as trustee, governing Registrant's Medium Term Notes, a form of which was filed as Exhibit 4.1 to Registrant's Form S-3 filed on June 12, 1996 and incorporated herein by this reference. (b) Credit and Guarantee Agreement, dated January 31, 1997 between the Registrant, Bank of America, N.T. & 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 $150,000,000 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% Senior 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) 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, 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 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. *(b) 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. *(c) 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. *(d) 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. *(e) Description of Directors' compensation and retirement plan, set forth in the section captioned "Directors' Compensation" on pages 12 through 13 of Registrant's definitive proxy statement dated March 20, 1996, as distributed to stockholders and filed with the Commission pursuant to Regulation 14A, which section is incorporated herein by this reference. Also, 1995 Amendments to Directors' Deferred Fee Plan, filed as Exhibit B to Registrant's definitive proxy statement distributed to stockholders dated March 20, 1995 filed with the Commission pursuant to Regulation 14A, which Exhibit B is incorporated herein by this reference. *(f) 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. *(g) 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. *(h) Voluntary Non-Qualified Deferred Compensation Plan in which any of the five most highly compensated executive officers of the Registrant participates, filed as Exhibit A to the Registrant's definitive proxy statement distributed to stockholders dated March 20, 1995 filed with the Commission pursuant to Regulation 14A, which Exhibit A is 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, 1996, filed herewith. (21) Subsidiaries of the Registrant, filed herewith. (23) Consents of Independent Accountants, filed herewith. (24) Powers of Attorney of certain Directors of Registrant, filed herewith. (27) Financial Data Schedule, filed herewith. (ii) Other exhibits: Financial statements (and consent of independent accountants) pursuant to Form 11-K and Rule 15D-21 for the year ended December 31, 1996, 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, 1997. (b) Since September 30, 1996, Registrant has filed no reports on Form 8-K. (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 20, 1997 By /s/J. S. Pyke, Jr. J. S. Pyke, Jr. Vice President, General Counsel and Secretary Pursuant to the requirements of the Securities and 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 20, 1997 By /s/D. J. McGregor D. J. McGregor President and Chief Executive Officer (Principal Executive Officer) and Director Date: March 20, 1997 By /s/M. S. Duffey M. S. Duffey Vice President and Chief Financial Officer (Principal Financial Officer) Date: March 20, 1997 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 T. E. Lindsey G. D. Kirkham, Director Attorney-In Fact M. L. Mann, Director R. W. Pogue, Director Date: March 20, 1997 M. D. Walker, Director 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, 1996, are incorporated herein by reference in Item 8: Summary of accounting policies Consolidated balance sheets - December 31, 1996 and 1995 Consolidated statements of income, stockholders' equity and cash flows - years ended Decmber 31, 1996, 1995 and 1994 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 Accountants on Financial Statement Schedule January 29, 1997 To the Board of Directors of M.A. Hanna Company Our audits of the consolidated financial statements referred to in our report dated January 29, 1997 appearing in the 1996 Annual Report to Shareholders of M.A. Hanna Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule as of December 31, 1996 and 1995 and for the years then ended listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ Price Waterhouse LLP F-2 Report of Independent Auditors Board of Directors M.A. Hanna Company We have audited the consolidated statements of income, stockholders' equity, and cash flows of M.A. Hanna Company and subsidiaries for the year ended December 31, 1994 listed in the Index of Item 14(a)(1) and (2). Our audit 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of M.A. Hanna Company and subsidiaries for the year 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 ERNST & YOUNG LLP Cleveland, Ohio January 31, 1995 F-3 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
COL. A COL. B COL. C COL. D ADDITIONS (1) (2) Balance at Beginning Charged to Costs Charged to Other DESCRIPTION of Period and Expenses Accounts - Describe Deductions - Describe Year ended December 31, 1996: Deducted from asset accounts: Allowance for doubtful accounts $11,034,000 $3,362,000 $934,000 (a) $7,758,000 (b) Year ended December 31, 1995: Deducted from asset accounts: Allowance for doubtful accounts $11,346,000 $2,480,000 $2,792,000 (b) 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 (b) COL. A COL. E Balance at End DESCRIPTION of Period Year ended December 31, 1996: Deducted from asset accounts: Allowance for doubtful accounts $ 7,572,000 Year ended December 31, 1995: Deducted from asset accounts: Allowance for doubtful accounts $11,034,000 Year ended December 31, 1994: Deducted from asset accounts: Allowance for doubtful accounts $11,346,000 (a) Reserves of companies acquired. (b) Uncollectible amounts written off.
F-4 EX-3 2 EXHIBIT 3(i) CERTIFICATE OF INCORPORATION OF M. A. HANNA COMPANY As restated and amended to and including May 1, 1996 FIRST: The name of this Corporation is M. A. Hanna Company. SECOND: The principal office and place of business of the Corporation in the State of Delaware is and shall be located at Number 1209 Orange Street in the City of Wilmington, County of New Castle, and the name and address of its Resident Agent is The Corporation Trust Company, Number 1209 Orange Street, Wilmington, Delaware 19801. THIRD: The nature of the business and the objects and purposes to be transacted, promoted or carried on by this Corporation are to do any or all the things herein mentioned as fully and to the same extent as natural persons might or could do, and in any part of the world, viz.: (a) To engage in exploring for, mining, quarrying, milling, concentrating, converting, smelting, treating, preparing for market, manufacturing, buying, selling, exchanging and otherwise producing and dealing in all kinds of ores, metals and minerals, and the products and by-products thereof of every kind and description and by whatsoever process the same can be or may hereafter be produced, and generally and without limit as to amount, to buy, sell, exchange, lease, acquire and deal in lands, mines and mineral rights and claims, and to conduct all business appertaining thereto. (b) To engage in a general transportation and navigation business and a general import and export business, and in connection therewith to construct, purchase, charter, lease or otherwise acquire, own, manage, operate and maintain, and to sell, charter, lease, mortgage or, otherwise dispose of or encumber, steam and motor ships, vessels and water craft of all kinds, surface transportation facilities of all kinds, and interests therein, and yards, docks, wharves and wharfage facilities, and all kinds of loading and unloading equipment and facilities. (c) To purchase, generate, create or otherwise acquire, use, sell or otherwise dispose of electric current and electric, steam and water power of every kind and description. (d) To acquire all or any part of the good will, rights, property and business of any person, firm, trust, association or corporation, heretofore or hereafter created, to pay for the same in cash or in stock or bonds of this Corporation or otherwise, hold, utilize and in any manner dispose of the whole or any part of the rights and property so acquired, assume in connection therewith any liabilities of any such person, firm, trust, association or corporation and conduct in any lawful manner the whole or any part of the business thus acquired. (e) To aid by loan, guaranty, subsidy or in any other manner whatsoever, in so far as may be permitted by law, any corporation or corporations, organized under the laws of the State of Delaware or of any other state, or of any country, nation or government, any shares of the capital stock, or voting trust certificates for shares of the capital stock or bonds, or other securities or evidences of indebtedness of which shall be held by or for the Corporation, or in which, or, in the welfare of which, the Corporation shall have any interest, and to do any acts or things designed to protect, preserve, improve or enhance the value of any such shares, voting trust certificates, bonds or other securities or evidences of indebtedness, and to do any and all acts designed to accomplish any such purpose. (f) To guarantee the payments of dividends upon, or any sinking fund payments in respect of, any shares of the capital stock, or the payment of the principal of, or interest on, or sinking fund payments in respect of, any bonds or other securities or evidences of indebtedness, or the performance of any contract, of any other corporation, trust or association in so far as and to the extent that a guaranty in respect thereof by the Corporation may be permitted by law. (g) To adopt, apply for, obtain, register, purchase, take on lease or otherwise acquire, and to maintain, protect, hold, use, own, exercise, develop, operate, and introduce, and to sell, grant licenses or other rights in respect of, assign, pledge or otherwise dispose of or turn to account any trademarks, trade names, patents, patent rights, copyrights and distinctive marks and rights analogous thereto, and inventions, improvements, processes, formulas and the like, including such thereof as may be covered by, used in connection with, or secured or received under, Letters Patent of the United States of America or elsewhere, or otherwise, which may be deemed capable of use in connection with any of the purposes of the Corporation herein stated; and to acquire, use, exercise or otherwise turn to account licenses in respect of any such trademarks, trade names, patents, patent rights, copyrights, inventions, improvements, processes, formulas and the like. (h) To enter into, make and perform contracts of every sort and description with any person, firm, trust, association, corporation, municipality, body politic, county, state or government or colony or dependency thereof. (i) To borrow or raise moneys for any of the purposes of the Corporation without limit as to amount; from time to time to draw, make, accept, endorse, execute and issue promissory notes, drafts, bills of exchange, and warrants, and to issue bonds, debentures, notes, or other obligations, negotiable or non- negotiable, secured or unsecured, of the Corporation for moneys so borrowed, or in payment for property acquired, or for any of the other objects or purposes of the Corporation or in connection with its business; to secure such bonds, debentures, notes and other obligations by mortgage or mortgages, or deed or deeds of trust, or pledge or other lien upon any or all of the property, rights, privileges or franchises of the Corporation wheresoever situated, acquired or to be acquired, and to pledge, sell or otherwise dispose of any or all of such bonds, debentures, notes and other obligations of the Corporation for its corporate purposes. (j) To manufacture, purchase or otherwise acquire, own, mortgage, pledge, sell, assign and transfer, or otherwise dispose of, to invest, trade, deal in and deal with goods, wares and merchandise and real and personal property of every class and description, and in any part of the world. (k) In general, to carry on any business not contrary to the laws of the State of Delaware. (l) To conduct its business, without restriction or limit as to amount, in all or any of its branches in the State of Delaware and in any or all other states, territories, possessions, colonies, and dependencies of the United States of America, and in the District of Columbia, and in any or all foreign countries (provided, always, that the Corporation shall not construct, maintain or operate any public utility within the State of Delaware); to have one or more offices within and outside the State of Delaware; and to purchase, take on lease or otherwise acquire, own, hold, develop, operate, lease, mortgage or pledge, sell, assign, transfer, exchange, or otherwise dispose of or turn to account, and convey real and personal property of every class and description or any interest therein, including without limitation developed or undeveloped mineral properties and any and all types of interests therein anywhere in the world. (m) To carry out all or any part of the foregoing objects and purposes as principal, agent, contractor, or otherwise, either alone or in conjunction with any person, firm, trust, association or other corporation, and in any part of the world; and, in carrying on its business and for the purpose of attaining or furthering any of its objects or purposes, to make and perform contracts of any kind and description, to do such acts and things, and to exercise any and all such powers, as a natural person could lawfully make, perform, do or exercise, provided that the same be not inconsistent with the laws of the State of Delaware. (n) To do any and all necessary, suitable, convenient or proper for, or in connection with, or incidental to, the accomplishment of any of the purposes, or the attainment of any one or more of the objects herein enumerated, or designed directly or indirectly to promote the interests of the Corporation, or to enhance the value of any of its properties; and in general to do any and all things and exercise any and all powers which it may now or hereafter be lawful for the Corporation to do or to exercise under the laws of the State of Delaware that may now or hereafter be applicable to the Corporation. It is the intention that, except where otherwise expressed in this Article THIRD, the objects and purposes specified in any of the foregoing clauses of this Article shall not in anywise be limited or restricted by reference to, or inference from, the terms of any other clause of this Article or of any other Article of this Certificate of Incorporation, but that the objects and purposes specified in each of the clauses of this Article shall be regarded as independent objects and purposes. It is also the intention that said clauses be construed as powers as well as objects and purposes; and, generally, that the Corporation shall be authorized to exercise and enjoy all other powers, rights and privileges granted by the laws of the State of Delaware to corporations organized thereunder, and the enumeration herein of certain powers is not intended as exclusive of, or a waiver of, any of the powers, rights or privileges granted or conferred by said laws now or hereafter in force; provided, however, that the Corporation shall not carry on the business of constructing, maintaining and operating public utilities in the State of Delaware, nor carry on any business or exercise any powers in any state, district, territory, possession or country which a corporation organized under the laws of such state, district, territory, possession or country could not carry on or exercise, except to the extent permitted or authorized by the laws of such state, district, territory, possession or country. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 105,000,000, consisting of 5,000,000 shares of Preferred Stock without par value (hereinafter called "Serial Preference Stock") and 100,000,000 shares of Common Stock, par value $1 each (hereinafter called "Common Shares"). The express terms of the shares of each class are as follows: Division A Express Terms of the Serial Preference Stock Section 1. Serial Preference Stock may be issued from time to time in one or more series. All shares of Serial Preference Stock shall be of equal rank, and except in respect of the matters that may be fixed by the Board of Directors as hereinafter provided, shall be identical, and each share of each series shall be identical with all other shares of such series, except as to the date from which dividends are cumulative. Subject to the provisions of this Division, which shall apply to all Serial Preference Stock, the Board of Directors hereby is authorized to provide for the issuance of shares of Serial Preference Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations and restrictions thereof. The authority of the Board of Directors with respect to each series shall include, but not limited to, determination of the following: (a) The designation of the series which may be by distinguishing number, letter and title. (b) The number of shares of the series, which number the Board of Directors may thereafter (except where otherwise provided in the creation of the series) increase or decrease (but not below the number of shares thereof then outstanding). (c) The quarterly dividend rate of the series. (d) The dates at which dividends, if declared, shall be payable, and the dates from which dividends shall be cumulative. (e) The redemption rights and price or prices, if any, for shares of the series. (f) The terms and amount of any sinking fund provided for the Purchase or redemption of shares of the series. (g) The amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation. (h) Whether the shares of the series shall be convertible into shares of any other class or series of shares of the Corporation, and, if so, the specification of such other class or series, the conversion price or prices or rate or rates, any adjustments thereof, the date or dates as of which such shares shall be convertible and all other terms and conditions upon which such conversion may be made. (i) Restrictions (in addition to those set forth in Section 6(b)of this Division)on the issuance of shares of the same series or of any other class or series. (j) The voting rights, if any, of the holders of such series in respect of matters other than those of which voting rights are specifically provided in Section 6 of this Division. Section 2. The holders of Serial Preference Stock of each series, in preference to the holders of Common Shares, shall be entitled to receive out of any funds legally available and when and as declared by the Board of Directors dividends in cash at the rate for such series fixed in accordance with the provisions of Section 1 of this Division and no more, payable quarterly on the dividend payment dates fixed for such series. Such dividends shall be cumulative, in the case of shares of each particular series, from and after the date or dates fixed with respect to such series. No dividends may be paid upon or set apart for any of the Serial Preference Stock for any quarterly dividend period unless (i) all dividends payable upon any then outstanding Serial Preference Stock on any dividend payment date occurring prior to such time shall have been paid or funds therefor set apart, and (ii) at the same time a like dividend, ratably in proportion to the respective quarterly dividend rates, shall be paid upon all shares of Serial Preference Stock then outstanding and entitled to receive such dividend or funds therefor set apart. Section 3. In no event, so long as any Serial Preference Stock shall be outstanding, shall any dividends, except a dividend payable in Common Shares, be paid or declared or any distribution be made on the Common Shares, nor shall any Common Shares be purchased, retired or otherwise acquired by the Corporation (except out of the proceeds of the sale of Common Shares received by the Corporation on or subsequent to the date on which shares of Serial Preference Stock are first issued), unless (i) all accrued dividends upon all Serial Preference Stock then outstanding payable on all dividend payment dates occurring on or prior to the date of such action shall have been paid or funds therefor set apart, and (ii) at the date of such action there shall be no arrearages with respect to the redemption of Serial Preference Stock of any series from any sinking fund provided for shares of such series in accordance with the provisions of Section 1 of this Division. Section 4. (a) Subject to the express terms of each series, the Corporation may from time to time redeem all or any part of the Serial Preference Stock of any series at the time outstanding (i) at the option of the Board of Directors at the applicable redemption price for such series fixed in accordance with the provisions of Section I of this Division, or (ii) in fulfillment of the requirements of any sinking fund provided for shares of such series at the applicable sinking fund redemption price fixed in accordance with the provisions of Section I of this Division, together in each case with (I) all the then unpaid dividends upon such shares payable on all dividend payment dates for such series occurring on or prior to the redemption date plus (II) if the redemption date is not a dividend payment date for such series, a proportionate dividend, based on the number of elapsed days, for the period from the day following the most recent such dividend payment date through the redemption date. (b) Notice of every such redemption shall be mailed, postage prepaid, to the holders of record of the Serial Preference Stock to be redeemed at their respective addresses then appearing on the books of the Corporation, not fewer than 30 days nor more than 60 days prior to the date fixed for such redemption. At any time before or after notice has been given as above provided, the Corporation may deposit the aggregate redemption price of the shares of Serial Preference Stock to be redeemed, together with an amount equal to the aggregate amount of dividends payable upon such redemption, with any bank in Cleveland, Ohio, or New York, New York, having capital and surplus of more than $5,000,000, named in such notice, and direct that such deposited amount be paid to the respective holders of the shares of Serial Preference Stock so to be redeemed upon surrender of the stock certificate or certificates held by such holders. Upon the giving of such notice and the making of such deposit, such holders shall cease to be stockholders with respect to such shares and shall have no interest in or claim against the Corporation with respect to such shares except only the right to receive such money from such bank without interest or to exercise, before the redemption date, any unexpired privileges of conversion. (c) In case fewer than all of the outstanding shares of any series of Serial Preference Stock are to be redeemed, the Corporation shall select pro rata or by lot the shares so to be redeemed in such manner as shall be prescribed by its Board of Directors. (d) If the holders of shares of Serial Preference Stock which shall have been called for redemption shall not, within six years after the notice prescribed in Section 4(b) above has been given, claim the amount deposited for the redemption thereof, any such bank shall, upon demand, pay over to the Corporation such unclaimed amounts and thereupon such bank and the Corporation shall be relieved of all responsibility in respect thereof and to such holders. (e) Any shares of Serial Preference Stock which are (i) redeemed by the Corporation pursuant to the provisions of this Section 4, (ii) purchased and delivered in satisfaction of any sinking fund requirements provided for shares of any series of Serial Preference Stock, (iii) converted in accordance with the express terms of any such series, or (iv) otherwise acquired, shall resume the status of authorized and unissued shares of Serial Preference Stock without serial designation. Section 5. (a) The holders of Serial Preference Stock of any series shall, in case of liquidation, dissolution or winding up of the affairs of the Corporation, be entitled to receive in full out of the assets of the Corporation, including its capital, before any amount shall be paid or distributed among the holders of the Common Shares, the amount fixed with respect to shares of such series in accordance with the provisions of Section I of this Division, plus an amount equal to (i) all then unpaid dividends upon such shares payable on all dividend payment dates for such series occurring on or prior to the date of payment of the amount due pursuant to such liquidation, dissolution or winding up, plus (ii) if such date is not a dividend payment date for such series, a proportionate dividend, based on the number of elapsed days, for the period from the day following the most recent such dividend payment date through such date of payment of the amount due pursuant to such liquidation, dissolution or winding up. In case the net assets of the Corporation legally available therefor are insufficient to permit the payment upon all outstanding shares of Serial Preference Stock of the full preferential amount to which they are respectively entitled, then such net assets shall be distributed ratably upon outstanding shares of Serial Preference Stock in proportion to the full preferential amount to which each such share is entitled. After payment to holders of Serial Preference Stock of the full preferential amounts as aforesaid, holders of Serial Preference Stock as such shall have no right or claim to any of the remaining assets of the Corporation. (b) The merger or consolidation of the Corporation into or with any other corporation, or the merger of any other corporation into it, or the sale, lease or conveyance of all or substantially all the property or business of the Corporation, shall not be deemed to be a dissolution, liquidation or winding up for the purposes of this Division. Section 6. (a) Except as specifically provided in this Division or by statute and except as may be provided by the Board of Directors in the express terms of any series of the Serial Preference Stock, the holders of outstanding Serial Preference Stock shall not be entitled to vote. If, and so often as, the Corporation shall be in default in the payment of dividends on any series of Serial Preference Stock at the time outstanding in an amount equivalent to six quarterly dividends on such series of Serial Preference Stock, whether or not earned or declared, the holders of Serial Preference Stock of all series voting separately as a class and in addition to any other rights which the shares of any series may have to vote for Directors, shall thereafter be able to elect, as hereinafter provided, two Directors of the Corporation who shall serve, except as hereinafter provided, until the next annual meeting of the stockholders and until their successors have been elected and qualified. When the special class voting rights provided for herein shall have become vested, they shall remain so vested until all accrued and unpaid dividends on the Serial Preference Stock of all series then outstanding shall have been paid or funds therefor set apart, whereupon the terms of Directors elected by the holders of Serial Preference Stock shall automatically terminate and the holders of Serial Preference Stock shall be divested of their special class voting rights in respect of subsequent elections of Directors, subject to the revesting of such special class voting rights in the event hereinabove specified in this paragraph. In the event of default entitling the holders of Serial Preference Stock to elect two Directors as above specified, a special meeting of the holders of Serial Preference Stock for the purpose of electing such Directors shall be called by the Secretary of the Corporation upon written request of, or upon prior written notice to the Secretary of the Corporation may be called by, the holders of record of at least 10% of the shares of Serial Preference Stock of all series at the time outstanding, and notice thereof shall be given in the same manner as that required for the annual meeting of stockholders; provided, however, that the Corporation shall not be required, and the holders of Serial Preference Stock shall not be entitled, to call such special meeting if the annual meeting of stockholders shall be held within 90 days after the date of receipt by the Secretary of the Corporation of the foregoing written request or notice from the holders of Serial Preference Stock. At any annual meeting of stockholders or special meeting called for such purpose at which the holders of Serial Preference Stock shall be entitled to elect Directors, the holders of 35% of the then outstanding shares of Serial Preference Stock of all series, present in person or by proxy, shall be sufficient to constitute a quorum for such purpose, and the vote of the holders of a majority of such shares so present at any such meeting at which there shall be a quorum shall be necessary and sufficient to elect the members of the Board of Directors which the holders of Serial Preference Stock are entitled to elect as hereinabove provided. If at any such meeting there shall be less than a quorum for such purpose present, the holders of a majority of the shares of Serial Preference Stock so present may adjourn the meeting for such purpose only from time to time without notice other than announcement at the meeting until a quorum shall attend. The two Directors who may be elected by the holders of Serial Preference Stock pursuant to the foregoing provisions shall be in addition to the whole authorized number of Directors of the Corporation fixed in the By-laws, and nothing in such provisions shall prevent any change otherwise permitted in such whole authorized number of Directors of the Corporation or require the resignation of any Director elected otherwise than pursuant to such provisions. (b) Except as hereinafter provided, the affirmative vote of the holders of at least two-thirds of the shares of Serial Preference Stock at the time outstanding, given in person or by proxy at a meeting called for the purpose at which the holders of Serial Preference Stock shall vote separately as a class, shall be necessary to effectuate or validate: (i) Any amendment, alteration or repeal of any provision of the Amended Certificate of Incorporation, or of the By-laws, of the Corporation, which affects adversely the voting powers, rights or preferences of the holders of Serial Preference Stock or reduces the time for any notice to which the holders of Serial Preference Stock may be entitled; provided, however, that if such amendment, alteration or repeal affects adversely the rights or preferences of one or more but not all series of Serial Preference Stock at the time outstanding, only the affirmative vote of the holders of at least two-thirds of each series so affected shall be required; and provided, further, that the amendment of the provisions of the Amended Certificate of Incorporation so as to authorize or to increase or decrease the authorized amount of any stock ranking junior to the Serial Preference Stock shall not be deemed to affect adversely the voting powers, rights or preferences of the holders of Serial Preference Stock; for the purpose of this subsection the reference to stock "ranking junior to the Serial Preference Stock" means and includes all stock of the Corporation in respect of which the rights of the holders thereof both as to the payment of dividends and as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation are junior and subordinate to the rights of the holders of the Serial Preference Stock; (ii) Any increase in the authorized amount of Serial Preference Stock or the authorization or creation, or any increase in the authorized amount, of any stock of any class or any security convertible into stock of any class, ranking prior to or on a parity with the Serial Preference Stock; (iii) The voluntary dissolution, liquidation or winding up of the affairs of the Corporation; (iv) The sale, lease or conveyance by the Corporation of all or substantially all its property or assets; or (v) The merger or consolidation of the Corporation with or into any other corporation, unless the corporation resulting from such merger or consolidation will have after such merger or consolidation no class of stock and no other securities either authorized or outstanding ranking prior to or on a parity with Serial Preference Stock, except the same number of shares of stock and the same amount of other securities with the same rights and preferences as the stock and securities of the Corporation respectively authorized and outstanding immediately preceding such merger or consolidation, and each holder of Serial Preference Stock immediately preceding such merger or consolidation shall receive the same number of shares, with substantially the same rights and preferences, of the resulting corporation; provided, however, that no such consent of the holders of Serial Preference Stock shall be required if, at or prior to the time when such amendment, alteration or repeal is to take effect or when the issuance of any such stock or convertible security ranking prior to or on a parity with, or any such additional shares of, the Serial Preference Stock is to be made, or when such consolidation or merger, voluntary dissolution, liquidation or winding up, sale, lease or conveyance, merger or consolidation is to take effect, as the case may be, provision is to be made for the redemption of all shares of Serial Preference Stock at the time outstanding or, in the case of any such amendment, alteration or repeal, as to which the consent of less than all series of Serial Preference Stock would otherwise be required, for the redemption of all shares of such series of Serial Preference Stock the affirmative vote of which otherwise would be required. Section 7. The holders of Serial Preference Stock shall have no preemptive right to purchase, or have offered to them for purchase, any shares or other securities of the Corporation, whether now or hereafter authorized. Section 8. If and to the extent that there are created series of Serial Preference Stock which are convertible (hereinafter called "convertible series") into Common Shares or into shares of any other class or series of the Corporation (hereinafter collectively called "conversion shares"), the following terms and provisions shall be applicable to all convertible series, except as may be otherwise expressly provided in the terms of any such series. (a) The holder of each share of a convertible series may exercise the conversion privilege in respect thereof by delivering to any transfer agent for the respective series the certificate for the share to be converted and written notice that the holder elects to convert such share. Conversion shall be deemed to have been effected immediately prior to the close of business on the date when such delivery is made, and such date is referred to in this Section as the "conversion date". On the conversion date or as promptly thereafter as practicable the Corporation shall deliver to the holder of the stock surrendered for conversion, or as otherwise directed by him in writing, a certificate for the number of full conversion shares deliverable upon the conversion of such stock and a check or cash in respect of any fraction of a share as provided in subsection (b) of this Section. The person in whose name the stock certificate is to be registered shall be deemed to have become a holder of the conversion shares of record on the conversion date. No adjustment shall be made for any dividends on shares of stock surrendered for conversion or for dividends on the conversion shares delivered on conversion. (b) The Corporation shall not be required to deliver fractional shares upon conversion of shares of a convertible series. If more than one share shall be surrendered for conversion at one time by the same holder, the number of full conversion shares delivered upon conversion thereof shall be computed on the basis of the aggregate number of shares so surrendered. If any fractional interest in a conversion share would otherwise be deliverable upon the conversion, the Corporation shall in lieu of delivering a fractional share therefor make an adjustment therefor in cash at the current market value thereof, computed (to the nearest cent) on the basis of the closing price of the conversion share on the last business day before the conversion date. For the purpose of this Section, the "closing price of the conversion share" on any business day shall be the last reported sales price regular way per share on such day, or, in case no such reported sales takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange, or, if the conversion shares are not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the conversion shares are listed or admitted to trading as determined by the Board of Directors, which determination shall be conclusive, or, if not listed or admitted to trading on any national securities exchange, the mean between the average bid and asked prices per conversion share in the over-the-counter market as furnished by any member of the National Association of Securities Dealers selected from time to time by the Board of Directors for that purpose; and "business day" shall be each day on which the New York Stock Exchange or other national securities exchange or over- the-counter market used for purposes of the above calculation is open for trading. (c) Upon conversion of any convertible series the stated capital of the conversion shares delivered upon such conversion shall be the aggregate par value of the shares so delivered having par value, or, in the case of shares without par value, shall be an amount equal to the stated capital represented by each such share outstanding at the time of such conversion. The stated capital of the Corporation shall be correspondingly increased or reduced to reflect the difference between the stated capital of the shares of the convertible series so converted and the stated capital of the shares delivered upon such conversion. (d) In case of any reclassification or change of outstanding conversion shares (except a split or combination, or a change in par value, or a change from par value to no par value, or a change from no par value to par value), provision shall be made as part of the terms of such reclassification or change that the holder of each share of each convertible series then outstanding shall have the right to receive upon the conversion of such share, at the conversion rate, or price which otherwise would be in effect at the time of conversion, with substantially the same protection against dilution as is provided in the terms of such convertible series, the same kind and amount of stock and other securities and property as he would have owned or have been entitled to receive upon the happening of any of the events described above had such share been converted immediately prior to the happening of the event. (e) In case the Corporation shall be consolidated with or shall merge into any other corporation, provision shall be made as a part of the terms of such consolidation or merger whereby the holder of each share of each convertible series outstanding immediately prior to such event shall thereafter be entitled to such conversion rights with respect to securities of the corporation resulting from such consolidation or merger as shall be substantially equivalent to the conversion rights specified in the terms of such convertible series; provided, however, that the provisions of this subsection (e) shall be deemed to be satisfied if such consolidation or merger shall be approved by the holders of Serial Preference Stock in accordance with the provisions of Section 6(b) of this Division. (f) The issue of stock certificates on conversions of shares of each convertible series shall be without charge to the converting stockholder for any tax in respect of the issue thereof. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the registration of shares in any name other than that of the holder of the shares converted, and the Corporation shall not be required to deliver any such stock certificate unless and until the person or persons requesting the delivery thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. (g) The Corporation hereby reserves and shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued shares or treasury shares, for the purpose of delivery upon conversion of shares as shall from time to time be sufficient to permit the conversion of all outstanding shares of all convertible series of Serial Preference Stock. Section 9. For the purpose of this Division, whenever reference is made to stock "ranking prior to the Serial Preference Stock," such reference shall mean and include all stock of the Corporation in respect of which the rights of the holders thereof either as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation are given preference over the rights of the holders of Serial Preference Stock; and whenever reference is made to stock "on a parity with the Serial Preference Stock," such reference shall mean and include all stock of the Corporation in respect of which the rights of the holders thereof (i) are not given preference over the rights of the holders of Serial Preference Stock either as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation and (ii) either as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation, or as to both, rank on an equality (except as to the amounts fixed therefor) with the rights of the holders of Serial Preference Stock. Division B Express Terms of the Common Shares The Common Shares shall be subject to the express terms of the Serial Preference Stock and any series thereof. Each Common Share shall be equal to each other Common Share. The holders of Common Shares shall be entitled to one vote for each such share upon all questions presented to the stockholders. FIFTH: [omitted] SIXTH: The Corporation is to have perpetual existence. SEVENTH: The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever. EIGHTH: In the absence of fraud, no contract or transaction between the Corporation and any other corporation, association or firm, and no act of the Corporation, shall in any way be affected or invalidated by the fact that any of the directors or officers of the Corporation is in anywise, pecuniarily or otherwise, interested in, or is a shareholder, director, officer or member of, or is otherwise connected with, such other corporation, association or firm. A director or officer of the Corporation shall not be disqualified by his office from dealing or contracting with the Corporation, either as vendor, purchaser or otherwise; and any director or officer of the Corporation, or any firm, corporation or association of which any director or officer is a member, shareholder, director or officer or with which he is otherwise connected, may, in the absence of fraud, be a party to, or pecuniarily or otherwise interested in, any contract or transaction of the Corporation; nor shall any such director or officer, in the absence of fraud, be liable to account to the Corporation for any profits realized by, from, through or as a result of any such contract or transaction. NINTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of Title 8, Section 291 of the Revised Code of 1953 of said State, or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of the General Corporation Law of the State of Delaware, order a meeting of the creditors or class of creditors and/or of the stockholders or class of stockholders, of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders, of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation. TENTH: The following provisions are hereby adopted for the regulation and management of the business and the conduct of the affairs of the Corporation and for the purpose of creating, limiting, defining and regulating the rights and powers of the directors and of the stockholders, viz.: (a) The Board of Directors shall have the power to make, alter, amend and repeal the By-laws of the Corporation, subject to the right of the stockholders entitled to vote with respect thereto to alter and repeal By-laws made by the Board of Directors. (b) The Board of Directors shall have power to fix, from time to time, the amount of the accumulated profits of the Corporation to be reserved as working capital or for any other lawful purpose. (c) The Board of Directors shall have the power to determine, from time to time, whether and to what extent and at which times and places and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by the laws of the State of Delaware, unless and until authorized so to do by resolution of the Board of Directors or stockholders of the Corporation. (d) The Board of Directors shall have power, without the assent or vote of the stockholders, to authorize and to cause to be executed mortgages and liens upon the real and personal property of the Corporation, including after-acquired property. (e) Shares of capital stock of the Corporation of any class or classes hereby or hereafter authorized, and any rights or options entitling the holders thereof to purchase from the Corporation any shares of its capital stock of any class or classes or of any series of any class or classes, may be issued by the Corporation from time to time for such consideration not less than the par value thereof or, if they are without par value, for such consideration as may be determined from time to time by the Board of Directors. The Board of Directors shall have authority, as provided by statute, to determine that only a part of the consideration which shall be received by the Corporation for any of the shares of its capital stock which it shall issue from time to time shall be capital. (f) In addition to the powers and authorities hereinbefore or by statute expressly conferred upon them, the Board of Directors may exercise all such powers and do all such acts and things as may be exercised or done by the Corporation; subject, nevertheless, to the provisions of the laws of the State of Delaware, of this Certificate and of the By-laws of the Corporation. ELEVENTH: The Corporation reserves the right to amend, alter, change or repeal any provisions contained in this Certificate of Incorporation in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. TWELFTH: No holder of any stock of this Corporation shall be entitled as a right to purchase or subscribe for any part of any additional issue of shares of capital stock of the Corporation authorized herein, or of any issue of any securities convertible into any of such shares, and such shares may be issued or disposed of by the Board of Directors to such persons, firms, corporations or associations, and upon such terms and conditions as the Board of Directors, in their discretion, may determine, without offering any thereof on the same terms or on any terms to the stockholders then of record or to any class of stockholders. THIRTEENTH: To the full extent permitted by the General Corporation Law of the State of Delaware or any other applicable laws as presently or hereafter in affect, no Director of the Corporation shall be personally liable to the Corporation or its stockholders for or with respect to any acts or omissions in the performance of his or her duties as a Director of the Corporation. No amendment to or repeal of this Article THIRTEENTH shall apply to or have any effect on the liability or alleged liability of any Director of the Corporation for or with respect to any acts or omissions of such Director occurring prior to such amendment. FOURTEENTH: Each person who is or was or had agreed to become a Director or officer of the Corporation, or each such person who is or was serving or had agreed to serve at the request of the Board of Directors or an officer of the Corporation as an employee or agent of the Corporation or as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified by the Corporation to the full extent permitted by the General Corporation Law of the State of Delaware or any other applicable laws as presently or hereafter in effect. Without limiting the generality or effect of the foregoing, the Corporation may enter into one or more agreements with any person which provide for indemnification greater or, different than that provided in this Article. No amendment to or repeal of this Article FOURTEENTH shall apply to or have hereunder for or with respect to claims asserted before or after such amendment or repeal arising from acts or omissions occurring in whole or in part before the effective date of such amendment or repeal. [End] EX-11 3 EXHIBIT 11 M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31 1996 1995 1994 (Dollars in thousands except per share data) Primary Income from continuing operations before extraordinary charge $ 59,162 $ 56,702 $ 37,004 Income(loss) from discontinued operations - 45,337 9,970 Extraordinary charge (5,352) - (3,680) Net income $ 53,810 $ 102,039 $ 43,294 Average common shares outstanding 45,789,136 46,511,966 46,298,663 Net effect of dilutive stock options and stock warrants - based on treasury stock method using average market price - * - * - * Total 45,789,136 46,511,966 46,298,663 Income(loss) per share Continuing operations $ 1.29 $ 1.22 $ .80 Discontinued operations - .97 .21 Extraordinary charge (.11) - (.08) Net income $ 1.18 $ 2.19 $ .93 Fully diluted Income from continuing operations before extraordinary charge $ 59,162 $ 56,702 $ 37,004 Income(loss) from discontinued operations - 45,337 9,970 Extraordinary charge (5,352) - (3,680) Net income $ 53,810 $ 102,039 $ 43,294 Average common shares outstanding 45,789,136 46,511,966 46,298,663 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 1,147,177 1,030,605 898,413 Total 46,936,313 47,542,571 47,197,076 Income(loss) per share Continuing operations $ 1.26 $ 1.19 $ .79 Discontinued operations - .95 .21 Extraordinary charge (.11) - (.08) $ 1.15 $ 2.14 $ .92 * Not significant in 1996, 1995 and 1994.
EX-13 4 EXHIBIT 13 CONSOLIDATED STATEMENTS OF INCOME M.A. Hanna Company and Consolidated Subsidiaries
Year Ended December 31 Dollars in thousands except per share data 1996 1995 1994 Net Sales $2,066,248 $1,901,954 $1,719,356 Costs and Expenses Cost of goods sold 1,685,167 1,552,643 1,393,036 Selling, general and administrative 243,505 218,823 213,318 Interest on debt 20,033 26,278 28,549 Amortization of intangibles 14,313 13,969 12,458 Other - net 339 (8,580) 5,773 1,963,357 1,803,133 1,653,134 Income from Continuing Operations Before Income Taxes and Extraordinary Charge 102,891 98,821 66,222 Income taxes 43,729 42,119 29,218 Income from Continuing Operations Before Extraordinary Charge 59,162 56,702 37,004 Income from discontinued operations - 45,337 9,970 Extraordinary charge (5,352) - (3,680) Net Income $ 53,810 $ 102,039 $ 43,294 Net Income Per Share Primary Continuing operations $ 1.29 $ 1.22 $ .80 Discontinued operations - .97 .21 Extraordinary charge (.11) - (.08) Net income $ 1.18 $ 2.19 $ .93 Fully diluted Continuing operations $ 1.26 $ 1.19 $ .79 Discontinued operations - .95 .21 Extraordinary charge (.11) - (.08) Net income $ 1.15 $ 2.14 $ .92 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 1996 1995 1994 Cash Provided from (Used for) Operating Activities Net income $ 53,810 $102,039 $ 43,294 Discontinued operations - 4,797 13,910 Depreciation and amortization 50,116 47,241 41,904 Companies carried at equity: Income (6,058) (6,459) (6,112) Dividends received 7,104 8,213 7,033 Changes in operating assets and liabilities: Receivables 3,743 (23,212) (40,103) Inventories 3,197 (10,934) (31,145) Prepaid expenses (2,450) (2,031) 725 Trade payables and accrued expenses (1,978) 4,066 74,895 Gain from sales of assets - (84,427) - Restructuring payments (13,157) (17,289) (10,540) Other 8,248 11,911 12,664 Extraordinary charge 8,774 - 6,034 Net operating activities 111,349 33,915 112,559 Cash Provided from (Used for) Investing Activities Capital expenditures (49,532) (55,885) (46,982) Acquisitions of businesses, less cash acquired (58,439) - (53,331) Acquisition payments (1,805) (2,969) (4,106) Sales of assets 11,928 223,500 13,874 Investments in associated and other companies (2,862) (4,775) - Return of cash from associated and other companies 8,170 1,367 8,805 Purchase of short-term securities - (69,703) - Sale of short-term securities - 69,703 5,061 Other 7 (7,211) 445 Net investing activities (92,533) 154,027 (76,234) Cash Provided from (Used for) Financing Activities Cash dividends paid (18,291) (16,962) (15,688) Proceeds from the sale of common stock 8,027 1,996 14,165 Purchase of shares for treasury (28,830) (24,969) (1,472) Increase in debt 110,872 57,458 131,649 Reduction in debt (172,218) (118,622) (179,879) Net financing activities (100,440) (101,099) (51,225) Effect of exchange rate changes on cash 417 1,287 360 Cash and Cash Equivalents Increase(decrease) (81,207) 88,130 (14,540) Beginning of year 111,235 23,105 37,645 End of year $ 30,028 $111,235 $ 23,105 Cash Paid During Year Interest $ 22,938 $ 26,724 $ 30,114 Income taxes 31,731 85,830 19,927 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 1996 1995 Assets Current Assets Cash and cash equivalents $ 30,028 $ 111,235 Receivables Trade (less allowance of $7,572 in 1996 and $11,034 in 1995) 284,132 258,274 Other 9,493 9,742 293,625 268,016 Inventories Finished products 134,655 126,411 Raw materials and supplies 44,509 40,390 179,164 166,801 Prepaid expenses 7,679 5,693 Deferred income taxes 23,043 22,867 Total current assets 533,539 574,612 Property, Plant and Equipment Land 18,040 14,655 Buildings 108,322 95,941 Machinery and equipment 326,306 282,718 452,668 393,314 Less allowances for depreciation 198,261 166,293 254,407 227,021 Other Assets Goodwill and other intangibles 355,538 321,778 Investments and other assets 70,678 73,067 Deferred income taxes 36,617 35,118 462,833 429,963 Total assets $1,250,779 $1,231,596 Liabilities and Stockholders' Equity Current Liabilities Notes payable to banks $ 2,304 $ 1,328 Trade payables and accrued expenses 348,608 333,176 Current portion of long-term debt 1,027 747 Total current liabilities 351,939 335,251 Other Liabilities 182,852 179,580 Long-Term Debt Senior notes 124,960 227,270 Other 82,745 4,717 207,705 231,987 Stockholders' Equity Preferred stock, without par value: authorized 5,000,000 shares: issued and outstanding 0 shares in 1996 and 1995 Common stock, par value $1.00 per share: authorized 100,000,000 shares (50,000,000 shares in 1995); issued 65,261,907 shares in 1996 and 43,274,273 shares in 1995 65,262 43,274 Capital surplus 329,543 324,273 Retained earnings 417,228 381,709 Associates ownership trust (5,997,347 shares in 1996 and 4,301,006 shares in 1995) (134,704) (121,363) Cost of treasury stock (14,272,092 shares in 1996 and 8,631,355 shares in 1995) (165,675) (137,181) Minimum pension liability adjustment (5,018) (7,522) Accumulated translation adjustment 1,647 1,588 Total stockholders' equity 508,283 484,778 Total liabilities and stockholders' equity $1,250,779 $1,231,596 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 Associates Preferred Common Capital Retained Ownership Stock Stock Surplus Earnings Trust Balance January 1, 1994 $ - $28,606 $299,389 $269,026 $(115,214) Net income 43,294 Cash dividends - $.34 per share (15,688) Exercise of stock options 61 1,335 Purchase of shares for treasury Sale of common stock (25,383 shares) 25 706 Payment of incentive compensation awards and associate benefits 3,115 13,246 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) Net income 102,039 Cash dividends - $.367 per share (16,962) Exercise of stock options 228 4,678 Purchase of shares for treasury Sale of common stock (30,502 shares) 31 755 Payment of incentive compensation awards and associate benefits 595 8,628 Adjustment to market value 18,520 (18,520) Minimum pension adjustment Translation adjustment Balance December 31, 1995 - 43,274 324,273 381,709 (121,363) Net income 53,810 Cash dividends - $.402 per share (18,291) Exercise of stock options 309 4,532 Purchase of shares for treasury Sale of common stock (193,058 shares) 42 2,005 4,041 Payment of incentive compensation awards and associate benefits 866 2,122 Three-for-two common stock split 21,637 (21,637) Adjustment to market value 19,504 (19,504) Minimum pension adjustment Translation adjustment Balance December 31, 1996 $ - $65,262 $329,543 $417,228 $(134,704) Minimum Pension Accumulated Total Treasury Liability Translation Stockholders' Stock Adjustment Adjustment Equity Balance January 1, 1994 $(102,794) $(8,577) $(4,980) $365,456 Net income 43,294 Cash dividends - $.34 per share (15,688) Exercise of stock options (38) 1,358 Purchase of shares for treasury (1,472) (1,472) Sale of common stock (25,383 shares) 731 Payment of incentive compensation awards and associate benefits 573 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 (103,731) (7,262) (1,996) 414,912 Net income 102,039 Cash dividends - $.367 per share (16,962) Exercise of stock options (1,483) 3,423 Purchase of shares for treasury (33,008) (33,008) Sale of common stock (30,502 shares) 786 Payment of incentive compensation awards and associate benefits 1,041 10,264 Adjustment to market value - Minimum pension adjustment (260) (260) Translation adjustment 3,584 3,584 Balance December 31, 1995 (137,181) (7,522) 1,588 484,778 Net income 53,810 Cash dividends - $.402 per share (18,291) Exercise of stock options (817) 3,286 Purchase of shares for treasury (28,830) (28,830) Sale of common stock (193,058 shares) 6,088 Payment of incentive compensation awards and associate benefits 1,153 4,879 Three-for-two common stock split - Adjustment to market value - Minimum pension adjustment 2,504 2,504 Translation adjustment 59 59 Balance December 31, 1996 $(165,675) $(5,018) $1,647 $508,283 See summary of accounting policies and notes to consolidated financial statements
SUMMARY OF ACCOUNTING POLICIES Dollars in thousands except per share data 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. REVENUE RECOGNITION Revenues are recognized when a product is shipped or a service is performed. 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 (common stock equivalents) was not significant. 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. Weighted average shares outstanding (fully diluted) for the years ended December 31, 1996, 1995 and 1994, restated for the June 1996 three-for-two stock split, were 46,936,313, 47,542,571 and 47,197,076, respectively. CASH EQUIVALENTS AND SHORT-TERM SECURITIES Cash equivalents are highly liquid investments with an original purchased maturity of three months or less. Both cash equivalents and short-term securities are stated at cost, which approximates fair value. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to credit risk are trade accounts receivable and foreign exchange contracts. Concentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers comprising the Company's customer base and their break down among many different industries and geographical locations. The Company is exposed to credit risk with respect to foreign exchange contracts in the event of nonperformance by the counterparties to these financial instruments, which are major financial institutions. Management believes the risk of incurring material losses related to this credit risk is remote. INVENTORIES Inventories are stated at the lower of cost or market. Domestic inventories of $124,551 are valued principally by the last-in, first-out (LIFO) cost method. Inventories of international subsidiaries are valued by the first-in, first- out (FIFO) method. The excess of current cost over LIFO cost was $11,690 at December 31, 1996 and $13,469 at December 31, 1995. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is computed principally by the straight-line method. Estimated asset lives are: Building and improvements 20 - 40 years Machinery and equipment 5 - 10 years Property items retired or otherwise disposed of are removed from the property and related allowance for depreciation accounts, and any gain or loss is included in operations. GOODWILL AND INTANGIBLES Goodwill is being amortized over 40 years by the straight- line method. Other intangibles, net, of $16,007 and $21,174 at December 31, 1996 and 1995, respectively, are being amortized on a straight-line basis over 4 to 40 years. Accumulated amortization at December 31, 1996 and 1995 was $99,505 and $85,845, respectively. 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 Deferred tax liabilities and assets are determined based on the differences between financial reporting and tax basis 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. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the reported financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FOREIGN CURRENCY TRANSLATIONS Assets and liabilities of international affiliates are translated at current exchange rates. Related translation adjustments are reported as a component of stockholders' equity. Revenues and expenses are translated at the average rates in effect during the period. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS M. A. Hanna Company and Consolidated Subsidiaries ACQUISITIONS In January 1996, the Company announced the successful completion of its tender offer for the outstanding stock of CIMCO, Inc., a producer of thermoplastic compounds and plastic components. Consistent with its strategy as an intermediary between the polymer producer and the end product manufacturer, the Company announced that it would sell CIMCO's plastic components business. Accordingly, the assets of the plastic components business were recorded at net realizable value and future operating losses were recorded within the purchase price accounting. The sale of the plastic components business was consummated in June 1996. In March 1996, the Company acquired Victor International Plastics Limited, a leading producer of color masterbatch in the United Kingdom. In addition, the Company acquired the United States based custom rubber mixing operations of Chase Elastomer in November 1996. These acquisitions were accounted for using the purchase method of accounting. Had the acquisitions been made at the beginning of 1995, reported pro forma results of operations for 1996 and 1995 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. In April 1995, the Company announced it had entered into an agreement to sell the business to American Industrial Partners Capital Fund. The sale consummated on June 6, 1995 with the Company realizing an after-tax gain of $40,254. Summary operating results of this discontinued business are as follows: 1995 1994 Net sales $55,454 $120,083 Income from operations before income taxes $ 9,075 $ 18,891 Income taxes 3,992 7,806 5,083 11,085 Gain(loss) net of income taxes on sale 40,254 (1,115) $45,337 $ 9,970 INCOME TAXES Income taxes from continuing operations consist of the following: 1996 1995 1994 Current: Federal $24,613 $26,311 $20,740 State 4,022 4,541 4,664 Foreign 8,505 6,311 4,809 37,140 37,163 30,213 Deferred: Federal 4,055 3,704 110 State 759 497 (1,023) Foreign 1,775 755 (82) 6,589 4,956 (995) $43,729 $42,119 $29,218 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:
1996 1995 1994 Amount Percent Amount Percent Amount Percent Provision at statutory tax rate $36,012 35.0% $34,587 35.0% $23,178 35.0% State income taxes 3,108 3.0 3,274 3.3 2,367 3.6 Goodwill amortization 2,811 2.7 2,613 2.6 2,784 4.2 Utilization of capital loss and tax credit carryforwards - - - - (1,820) (2.7) Other - net 1,798 1.8 1,645 1.7 2,709 4.0 $43,729 42.5% $42,119 42.6% $29,218 44.1%
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 international subsidiaries and joint ventures as these earnings are considered indefinitely reinvested. The Company may consider repatriating these earnings, if at some future time the distribution results in no incremental tax cost. Significant components of the Company's deferred tax assets (liabilities) are as follows: 1996 1995 Basis differences from purchase accounting $(5,481) $(9,359) Property, plant and equipment (13,769) (14,186) Other postretirement benefits 32,956 32,640 Associate benefits 17,121 21,152 Restructuring and plant closedown costs 4,611 4,483 Environmental costs 7,079 6,816 Inventory and receivable allowances 3,830 6,256 Other 13,313 10,183 $59,660 $57,985 Income from continuing operations before income taxes includes $26,980, $17,577 and $12,624 in 1996, 1995, and 1994, respectively, from international operations. LONG-TERM DEBT Long-term debt at December 31 consists of the following: 1996 1995 9% Senior notes due 1998 $ 37,185 $109,245 9.375% Senior notes due 2003 87,775 118,025 6.875% Medium-term notes due 2004 20,000 - Bank borrowings 55,148 - Other 8,624 5,464 208,732 232,734 Less current portion 1,027 747 $207,705 $231,987 Annual maturities of long-term debt for the next five years are: 1997--$1,027; 1998--$40,481; 1999--$694; 2000--$707 and 2001--$721. In June 1996, the Company filed a shelf registration statement with the Securities and Exchange Commission to sell up to $300 million of debt securities. On December 6, 1996, the Company issued $20 million of notes due in December 2004 at a rate of 6.875%. Interest is paid semi-annually. Subsequent to December 31, 1996, the Company entered into a new revolving credit agreement with a group of financial institutions replacing an existing facility which would have expired in June 1998. The new agreement provides for borrowings up to $200 million through January 2002 with interest rates determined at the time of the borrowing based on a choice of formulas specified in the agreement. There were no borrowings under these agreements at December 31, 1996 and 1995. At December 31, 1996, the Company had $55,148 of borrowings from uncommitted bank lines at interest rates ranging from 5.70% to 7.70% and a weighted average interest rate of 6.49%. Other debt at December 31, 1996 and 1995 consists primarily of mortgages, industrial revenue bonds, and notes. These obligations mature in various installments through September 2005 and are at interest rates ranging from 3.50% to 9.50%. The Company also had $2,304 and $1,328 of outstanding notes payable to banks at December 31, 1996 and 1995 at weighted average interest rates of 9.75% and 8.37%, respectively. In 1996, 1995 and 1994, the Company repurchased $102,310, $8,500 and $64,230, respectively, principal amount of Senior Notes in the open market, resulting in an extraordinary charge of $8,774 in 1996 and $6,034 in 1994 ($5,352 and $3,680 after tax, respectively). 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 $199,049 of retained earnings was free of such limitations at December 31, 1996. STOCKHOLDERS' EQUITY In June 1996, the Company issued 21,636,612 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. All share and per share amounts have been retroactively restated for the three-for-two stock split in 1996. 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. 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. 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 1988 Long-Term Incentive Plan provides for the granting of options, including options to nonassociate directors, up to 4,942,913 shares. The exercise price of each option equals the market price of the Company's stock on the date of grant; options have a life of ten years. Options vest according to a graded vesting schedule of one-third one year from the date of grant, one-third two years from the date of grant and one-third three years from the date of grant. The Company applies the intrinsic value based method of accounting prescribed by APB Opinion No. 25 for this plan. Accordingly, no compensation expense has been recognized for its fixed stock option plan as options are granted at fair market value. Had compensation expense for the Company's stock based compensation plan been determined based on the fair value at the grant dates for awards under that plan consistent with the method of FAS No. 123, the Company's 1996 net income, primary earnings per share and fully diluted earnings per share amounts would have been reduced to $53,065, $1.16 and $1.13, respectively. The effect on 1995 net income and earnings per share amounts was not material. The imputed fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: dividend yield of 2.08% and 2.56%; expected volatility of 22.6% and 27.4%; risk- free interest rate of 6.25% for all years and expected life of ten years for all years. The following table summarizes the changes in the outstanding options for the three years ended December 31, 1996:
1996 1995 1994 Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price Outstanding at beginning of year 2,821,484 $12.39 2,762,360 $11.05 2,369,471 $10.04 Granted 456,521 21.15 422,198 17.33 514,370 14.97 Exercised (309,131) 8.39 (342,416) 7.60 (115,980) 7.61 Canceled or expired (17,640) 15.49 (20,658) 14.23 (5,501) 13.39 Outstanding at end of year 2,951,234 14.14 2,821,484 12.39 2,762,360 11.05 Options exercisable at end of year 1,862,317 1,713,188 1,648,689 Weighted-average fair value of options granted during the year $7.54 $6.82
The following table summarizes information about options outstanding at December 31, 1996:
Options Outstanding Options Exercisable Weighted Average Weighted Weighted Range of Options Remaining Average Options Average Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price $ 5.963 to $ 8.500 367,256 1.8 years $ 7.70 367,256 $ 7.70 9.778 to 13.667 1,233,663 4.7 years 12.07 1,106,420 11.89 14.750 to 16.945 485,807 7.0 years 14.92 244,328 14.94 17.333 to 23.083 864,508 9.4 years 19.38 144,313 17.35 2,951,234 1,862,317 At December 31, 1996, 589,111 shares were available for grants.
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 was the Managing Agent for Iron Ore Company of Canada (IOC) through December 1996 and through May 1995 owned approximately 8% of IOC's common stock. The sale of the Company's investment in IOC resulted in a pre-tax gain of $9,334 in 1995. IOC incurred management expense of $3,061 in 1996 ($3,162 in 1995 and $3,064 in 1994) payable to the Company and commission expense of $6,035 in 1996 ($5,169 in 1995 and $4,302 in 1994) payable to 50% owned companies carried at equity. Net sales, operating profit and identifiable assets by geographic area are as follows: 1996 1995 1994 Net sales Domestic $1,637,252 $1,579,424 $1,475,277 International Europe 234,263 187,790 130,461 Other 194,733 134,740 113,618 $2,066,248 $1,901,954 $1,719,356 Operating profit Domestic $ 116,091 $ 112,919 $ 104,484 International Europe 16,154 13,982 10,565 Other 15,450 10,274 6,764 $ 147,695 $ 137,175 $ 121,813 Identifiable assets Domestic $ 950,441 $ 991,667 $ 868,201 International Europe 201,364 175,767 180,842 Other 98,974 64,162 62,902 Discontinued operations - - 103,215 $1,250,779 $1,231,596 $1,215,160
Depreciation Operating and Capital Identifiable Net Sales Profit Amortization Expenditures Assets 1996 Processing $1,129,962 $ 96,691 $42,660 $42,778 $ 758,314 Distribution 926,230 40,497 5,909 6,140 360,564 Other 32,473 10,507 746 157 7,926 Intersegment activity (22,417) - - - - Corporate - (24,771) 801 457 123,975 $2,066,248 $122,924 $50,116 $49,532 $1,250,779 1995 Processing $1,023,672 $ 92,404 $39,745 $49,542 $ 656,655 Distribution 862,077 35,509 5,991 3,804 354,599 Other 33,421 9,262 890 250 16,323 Intersegment activity (17,216) - - - - Corporate - (12,076)(1) 615 760 204,019 Discontinued operations - - - 1,529 - $1,901,954 $125,099 $47,241 $55,885 $1,231,596 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 (1) Includes $9,334 gain from sale of assets.
PENSION AND OTHER POSTRETIREMENT BENEFITS The Company has noncontributory 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 (including stock of the Company), 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 pension cost for the defined benefit plans and the total contributions charged to expense for the defined contribution plans follows: 1996 1995 1994 Defined benefit plans Service cost $ 430 $ 306 $ 743 Interest cost on projected benefit obligation 5,911 6,161 5,838 Return on plan assets (6,933) (6,215) (5,073) Net amortization and deferral 1,735 1,869 930 Net pension cost 1,143 2,121 2,438 Defined contribution plans 5,213 5,006 3,785 $6,356 $7,127 $6,223 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 intangible assets recognized may not exceed the amount of unrecognized prior service cost plus unrecognized obligations at transition that remain at December 31 each year, the balance of the liability at the end of 1996 and 1995 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 1996 1995 1996 1995 Actuarial present value of benefit obligations: Accumulated benefit obligations including vested benefits of $75,799 in 1996 and $80,996 in 1995 $46,155 $48,369 $31,540 $34,442 Projected benefit obligation $47,494 $49,617 $31,873 $34,966 Plan assets at fair value 44,455 37,804 42,251 41,198 Projected benefits in excess of (less than) plan assets 3,039 11,813 (10,378) (6,232) Consisting of: Unrecognized net transition obligation 797 994 150 143 Unrecognized net actuarial (gains) or losses 10,244 14,507 (5,861) (3,411) Adjustment to recognize minimum liability 9,870 14,334 - - Accrued(prepaid) pension cost recognized in balance sheet $ 1,868 $10,646 $(4,667) $(2,964)
The projected benefit obligation was determined using an assumed discount rate of 7.75% (7.25% in 1995) 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%. The 1996 change in the discount rate caused the accumulated benefit obligation to decrease approximately $3,605. In addition to providing pension benefits, the Company provides certain contributory and noncontributory health care and life insurance benefits for certain retired associates. Certain associates of the Company may become eligible for these postretirement benefits if they reach retirement age while working for the Company. The status of the Company's plans, which are unfunded, at December 31, 1996 and 1995 is as follows: 1996 1995 Accumulated postretirement benefit obligation Retirees $49,128 $53,924 Fully eligible active plan participants 4,931 4,421 Other active plan participants 9,425 10,528 63,484 68,873 Unrecognized actuarial gain 21,019 14,819 Accrued postretirement benefit obligation $84,503 $83,692 Net periodic postretirement benefit cost includes the following components: 1996 1995 1994 Service cost $1,060 $ 915 $1,069 Interest cost 4,863 5,196 5,605 Amortization of unrecognized actuarial gain (425) (799) - Net periodic postretirement benefit cost $5,498 $5,312 $6,674 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 9.0% at December 31, 1996 and 11.5% at December 31, 1995 and decreasing gradually to 5.25% in 2005 (5.25% in 2009 in 1995) 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 $9,377 at December 31, 1996 and the aggregate service and interest costs components of net periodic postretirement benefit costs for 1996 by $1,076. A discount rate of 7.75% (7.25% in 1995) was used in determining the accumulated benefit obligation. The change in the actuarial assumptions caused the accumulated benefit obligation to decrease approximately $5,900. 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. These foreign exchange contracts do not subject the Company's results to risk due to exchange rate movements because gains and losses on these contracts generally offset gains or losses on the assets and liabilities being hedged. The Company has a policy of entering into firm intercompany lending transactions and hedging the foreign exchange exposure through foreign exchange contracts. The Company has entered into such cross- currency foreign exchange contracts with maturities of up to three years to protect the Company from the risk that the future intercompany cash flows will be adversely affected by changes in exchange rates. Gains and losses on these positions are deferred and included in the basis of the transaction when it is completed. 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, 1996. Foreign currency amounts are translated at exchange rates as of December 31, 1996. 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. Buy Sell Currency German deutschmark $ - $44,312 French franc - 10,646 Australian dollar 3,833 - Belgian franc 3,370 - British pound sterling - 2,907 Other 2,902 993 $10,105 $58,858 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 and Medium-term Notes is based on quoted market prices. The carrying amount of the Company's borrowings under its variable interest rate long- term revolving credit agreements and other long-term borrowings approximates fair value. Foreign Exchange Contracts: The fair value of short-term foreign exchange contracts is based on exchange rates at December 31, 1996. The fair value of long-term foreign exchange contracts is based on quoted market prices. The carrying amounts and fair values of the Company's financial instruments at December 31, 1996 and 1995 are as follows: 1996 1995 Carrying Fair Carrying Fair Amount Value Amount Value Cash and cash equivalents $30,028 $30,028 $111,235 $111,235 Notes payable to banks 2,304 2,304 1,328 1,328 Long-term debt 9% Senior Notes 37,185 38,784 109,245 117,471 9.375% Senior Notes 87,775 98,958 118,025 138,951 6.875% Medium-Term Notes 20,000 19,762 - - Bank borrowings 55,148 55,148 - - Other 8,624 8,624 5,464 5,464 Foreign exchange contracts - 1,025 - (2,372) LEASE COMMITMENTS Rental expense under operating leases for certain manufacturing facilities, warehouses, transportation equipment and data processing and office equipment was $18,646 in 1996, $17,843 in 1995 and $16,890 in 1994. Certain of the Company's leases have options to renew, and there are no significant contingent rentals. At December 31, 1996, future minimum lease commitments for noncancelable operating leases are $13,644 in 1997, $10,629 in 1998, $8,227 in 1999, $5,573 in 2000, $4,559 in 2001 and $13,525 thereafter. CONTINGENCIES Claims have 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. 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 claims will be resolved without material adverse effect on the financial position, results of operations or cash flows of the Company. LITIGATION The Company is engaged in legal proceedings arising in the ordinary course of business. The Company believes that the ultimate outcome of these proceedings will not have material adverse impact on the Company's financial position, results of operations or cash flows. OTHER - NET Other - net includes the following: 1996 1995 1994 Interest and dividends $(1,578) $(4,809) $(3,025) Gain on sale of assets - (9,334) - Expenses of closed facilities 4,160 4,854 5,930 Restructuring costs - - 865 Other (2,243) 709 2,003 $ 339 $(8,580) $ 5,773 DETAIL OF CURRENT AND OTHER LIABILITIES Trade payables and accrued expenses and other liabilities at December 31 are comprised of the following items. Associate benefit accruals include employee health, life and disability insurance, profit sharing and incentive compensation, pension expense, workers' compensation costs and vacation pay. 1996 1995 Trade payables and accrued expenses: Trade payables $217,142 $188,265 Salaries and wages 14,760 16,288 Associate benefits 37,510 35,124 Restructuring and acquisition costs 11,803 13,540 Other postretirement benefits 4,970 4,532 Other liabilities: Plant closedown costs 12,933 11,864 Environmental costs 16,097 14,217 Associate benefits 28,036 32,891 Other postretirement benefits 79,533 79,160 SUPPLEMENTAL CASH FLOW DATA The following is a summary of noncash investing and financing activities. 1996 1995 1994 Acquisition of businesses Assets acquired $130,712 $70,456 Liabilities assumed 68,574 13,752 Cash paid 62,138 56,704 Less cash acquired 3,699 3,373 $ 58,439 $53,331 Debt of companies acquired $ 19,106 $ 4,692 Payment of incentive compensation awards with treasury stock $ 2,019 $ 1,636 $ 990 Payment of stock options exercised with shares of common stock $ 817 $ 1,483 $ 38 Release of common stock held by Associates Ownership Trust $ 2,122 $ 8,628 $13,246 Transfer of common stock released from Associates Ownership Trust to treasury stock $(8,039) Quarterly Financial and Stock Price Data M.A. Hanna Company and Consolidated Subsidiaries Summarized unaudited quarterly financial and stock price data for 1996 and 1995 are as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter 1996 Net sales $497,451 $537,348 $531,928 $499,521 Gross margin 91,456 98,595 95,777 95,253 Income Continuing operations 13,353 15,658 15,442 14,709 Extraordinary charge (1,575) (3,777) - - Net income 11,778 11,881 15,442 14,709 Income per common share (fully diluted) Continuing operations .28 .33 .33 .32 Extraordinary charge (.03) (.08) - - Net income .25 .25 .33 .32 Price range High 23.58 24.08 22.88 23.13 Low 17.75 20.13 18.38 20.75 Cash dividends paid .097 .10 .10 .105 1995 Net sales $492,772 $483,295 $464,078 $461,809 Gross margin 90,504 90,077 85,032 83,698 Income Continuing operations 12,014 19,360 13,311 12,017 Discontinued operations 2,931 42,406 - - Net income 14,945 61,766 13,311 12,017 Income per common share (fully diluted) Continuing operations .25 .41 .28 .26 Discontinued operations .06 .89 - - Net income .31 1.30 .28 .26 Price range High 17.25 18.33 20.00 18.67 Low 15.33 16.00 17.17 15.67 Cash dividends paid .09 .09 .09 .097 Income per share calculations for each of the quarters are based on the weighted average number of shares outstanding for each quarter, 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
1996 1995 1994 1993 1992 1991 Summary of Operations Net sales $ 2,066,248 $ 1,901,954 $ 1,719,356 $ 1,412,071 $ 1,188,541 $ 1,006,638 Cost of goods sold 1,685,167 1,552,643 1,393,036 1,146,191 961,925 797,892 Selling, general and administrative 243,505 218,823 213,318 179,228 152,366 147,998 Amortization of intangibles 14,313 13,969 12,458 12,006 11,069 10,146 Interest on debt 20,033 26,278 28,549 32,258 32,509 23,221 Income(loss) from continuing operations before income taxes, extraordinary charge and cumulative effect of changes in accounting principles 102,891 98,821 66,222 37,654 27,005 (16,195) Income taxes 43,729 42,119 29,218 16,357 8,819 8,225 Income(loss) from continuing operations before extraordinary charge and cumulative effect of changes in accounting principles 59,162 56,702 37,004 21,297 18,186 (24,420) Net income 53,810 102,039 43,294 2,018 19,025 1,875 Per share of common stock Income(loss) from continuing operations 1.29 1.22 .80 .46 .42 (.48) Net income 1.18 2.19 .93 .05 .44 .01 Dividends paid .40 .37 .34 .32 .29 .28 Cash dividends paid on Common stock 18,291 16,962 15,688 14,003 12,630 15,267 Preferred stock - - - - - 1,031 Balance Sheet Current assets $ 533,539 $ 574,612 $ 565,615 $ 405,782 $ 416,739 $ 275,060 Current liabilities 351,939 335,251 337,491 259,680 229,327 195,610 Working capital 181,600 239,361 228,124 146,102 187,412 79,450 Property, plant and equipment - net 254,407 227,021 204,135 184,296 195,117 184,877 Other assets 462,833 429,963 445,410 438,628 440,873 443,702 Net long-term assets of discontinued operations - - - 94,904 99,836 121,374 Other liabilities (182,852) (179,580) (173,888) (176,422) (174,558) (118,082) Long-term debt (207,705) (231,987) (288,869) (322,052) (350,737) (330,863) Total stockholders' equity $ 508,283 $ 484,778 $ 414,912 $ 365,456 $ 397,943 $ 380,458 Shares of common stock outstanding 50,989,815 51,964,377 53,541,141 53,417,283 52,650,162 51,367,613 Average fully diluted shares outstanding 46,936,313 47,542,571 47,197,076 46,757,985 44,494,047 54,479,369 Book value per share of common stock $ 9.97 $ 9.33 $ 7.75 $ 6.84 $ 7.56 $ 7.41 1990 1989 1988 Summary of Operations Net sales $ 960,228 $ 918,276 $ 797,563 Cost of goods sold 749,071 718,636 614,465 Selling, general and administrative 137,674 135,741 128,573 Amortization of intangibles 9,704 8,886 6,456 Interest on debt 18,301 21,128 23,622 Income(loss) from continuing operations before income taxes, extraordinary charge and cumulative effect of changes in accounting principles 44,023 44,797 28,554 Income taxes 12,830 7,608 4,107 Income(loss) from continuing operations before extraordinary charge and cumulative effect of changes in accounting principles 31,193 37,189 24,447 Net income 55,871 86,920 83,223 Per share of common stock Income(loss) from continuing operations .50 .61 .33 Net income .90 1.49 1.55 Dividends paid .25 .20 .15 Cash dividends paid on Common stock 15,175 11,812 7,169 Preferred stock - 2,125 8,501 Balance Sheet Current assets $ 276,711 $ 264,772 $ 240,029 Current liabilities 181,471 167,272 166,185 Working capital 95,240 97,500 73,844 Property, plant and equipment - net 183,536 173,477 154,477 Other assets 458,394 444,479 406,426 Net long-term assets of discontinued operations 129,869 137,304 141,552 Other liabilities (161,674) (175,310) (169,470) Long-term debt (137,691) (134,834) (137,725) Total stockholders' equity $ 567,674 $ 542,616 $ 469,104 Shares of common stock outstanding 59,906,358 62,524,211 48,496,907 Average fully diluted shares outstanding 63,121,700 63,498,519 62,772,741 Book value per share of common stock $ 9.47 $ 8.68 $ 7.61 Shareowner Information M.A. Hanna Company common stock is listed on the New York and Chicago stock exchanges under the symbol MAH. At December 31, 1996, the number of shareowners of record of the Company's common stock was 4,484.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenues in 1996 exceeded $2 billion and established a new record for your Company. The revenue increase of 8.6% in 1996 was leveraged into a 16.0% increase in earnings from continuing operations. Significant strategic objectives were also reached in 1996. Your Company consummated three acquisitions which expanded its product portfolio and increased its international presence. Your Company opened a new rubber compounding facility and currently has three additional facilities under construction - a domestic colorant facility and two facilities in China - one dedicated to colorants and one dedicated to plastic compounding. 1996 Compared with 1995 Net sales were a record $2,066.2 million, an increase of 8.6% over 1995. Sales from processing businesses increased from $1,023.7 million in 1995 to $1.130.0 million in 1996 or an increase of 10.4%. Excluding acquisitions, sales from processing businesses were $1,015.0 million, down .8% from 1995 due to lower volumes, particularly in rubber compounding which experienced a decline in spot tire and toll compounding. Distribution revenues increased 7.4% to $926.2 million in 1996 compared with $862.1 million in 1995 based on higher volumes, partially offset by lower pricing. Sales from other operations were comparable with 1995 levels. Included in other operations are $4.9 million in revenues from the management of Iron Ore Company of Canada and our ownership interest in a related sales agency. No revenues will be earned in 1997 from these activities due to the expiration of our management contract and the sale of our ownership interest in the sales agency, which will close in the first half of 1997. Cost of goods sold increased $132.5 million to $1,685.2 million in 1996 corresponding with the increase in sales. Gross margins in both years were 18.4%. Impacting gross margins was a reduction in LIFO reserves of $1.8 million in 1996 compared with a LIFO charge of $3.3 million in 1995. In addition, acquisitions in 1996 had a negative impact on gross margins of .5% points. Selling, general and administrative expenses increased $24.7 million in 1996 to $243.5 million. The increase is attributable to the higher level of sales, acquisitions made in 1996, increased costs associated with the development of HannaLinkTM, the Company's information system, and higher costs associated with the Company's incentive compensation programs. Selling, general and administrative expenses as a percentage of sales were 11.8% in 1996 compared with 11.5% in 1995. Interest on debt decreased from $26.3 million in 1995 to $20.0 million in 1996 due to lower average borrowings outstanding. During 1996, the Company repurchased $102.3 million of its Senior Notes in the open market, resulting in an extraordinary charge of $8.8 million ($5.4 million after- tax). Funds to repurchase the Senior Notes were obtained from existing cash flows as well as borrowings under uncommitted bank lines, which carry a lower rate of interest. Other income in 1995 includes a gain of $9.3 million from the sale of the Company's remaining interest in IOC and higher levels of interest income due to the funds invested from the sale of IOC and Day International. 1995 Compared with 1994 Sales from processing businesses increased $80.7 million from 1994 levels due to acquisitions consummated in 1994 and higher pricing partially offset by lower unit volumes. Distribution sales increased $95.4 million to $862.1 million in 1995 due to higher pricing and higher unit volumes. Sales from other operations were comparable with 1994 levels. Cost of goods sold increased from $1,393.0 million in 1994 to $1,552.6 million in 1995 due to higher raw material costs, partially offset by lower unit volumes. Gross margins were 18.4% in 1995 and 19.0% in 1994. The deterioration in gross margin is due in part to the mix of sales between processing and distribution businesses. Distribution businesses, which carry a lower gross margin, had a higher overall growth rate in sales than the processing businesses. In addition, although the Company was able to pass through most raw material price increases, it was not able to maintain the comparable historical gross margin relationship. Selling, general and administrative expenses, as a percentage of sales, were 11.5% in 1995 compared with 12.4% in 1994. Selling, general and administrative costs increased 2.6% or $5.5 million from 1994 levels due to a higher level of sales and acquisitions consummated in 1994, partially offset by lower costs associated with the Company's incentive compensation programs. Other - net in 1995 includes a gain of $9.3 million from the sale of the Company's remaining interest in IOC and higher levels of interest income due to the funds invested from the sale of IOC and Day International. Other - net in 1994 includes a $2.6 million charge related to the relocation of the Company's technical center and costs associated with the combination of the Company's resin distribution businesses. Interest on debt decreased $2.3 million to $26.3 million in 1995. During 1994, the Company repurchased $64.2 million of its Senior Notes in the open market. An additional $8.5 million of its Senior Notes were repurchased in 1995 and the financing for the 1994 acquisition of Th. Bergmann was repaid in 1995. The Company's effective tax rate was 42.6% in 1995 and 44.1% in 1994. The tax rate in 1995 was favorably impacted by 1.6% points due to the relationship of the level of nondeductible goodwill to pre-tax income. In December 1994, the Company adopted a plan to sell its Day International printing and textile business and, accordingly, the operating results of that business were reclassified as discontinued operations. The sale of the Day business was consummated in June 1995 with the Company recognizing a gain of $40.3 million. LIQUIDITY AND SOURCES OF CAPITAL Operating activities generated cash flows of $111.3 million in 1996. Working capital provided $2.5 million in 1996 reflecting higher inventory turns and days payable outstanding, partially offset by higher day sales outstanding. Payments of obligations related to prior restructurings used $13.2 million. Excluding the payments on the restructuring obligations, operating activities provided $124.5 million, more than two times earnings from continuing operations of $59.2 million. Investment activities used $92.5 million and include $49.5 million for capital expenditures and $58.4 million for acquisitions, partially offset by $11.5 million from the sale of the molding operations of CIMCO which were acquired in 1996. Financing activities utilized $100.4 million and include $18.3 million for the payment of dividends, $28.8 million for the purchase of shares for treasury which represents 1.4 million shares, and $61.3 million in the net reduction of debt, partially offset by $8.0 million from the sale of common stock. During 1996, the Company repurchased $102.3 million of its Senior Notes in the open market. Funds to repurchase the Senior Notes were obtained from existing cash flows and borrowings under uncommitted bank lines, which carry a lower rate of interest. During 1996, the Company filed a shelf registration statement with the Securities and Exchange Commission to sell up to $300 million in debt securities. It is anticipated that the net proceeds from the sale would be used for general corporate purposes, which could include repayment of indebtedness, repurchase of common stock, working capital, capital expenditures or acquisitions. At December 31, 1996 the Company had issued $20 million of medium-term notes. Subsequent to December 31, 1996, the Company entered into a new revolving credit facility, replacing an existing credit facility that would have expired in June 1998. The new facility provides for borrowings up to $200 million and expires in January 2002. The agreement provides for interest rates to be determined at the time of borrowing based on a choice of formulas specified in the agreement. The current ratio was 1.5:1 at December 31, 1996 compared with 1.7:1 at December 31, 1995. Debt to total capital was 29.0% at December 31, 1996 and 32.4% at December 31, 1995. The Company believes that its existing cash balances, its ability to generate cash flows from operations and the availability of funds under existing credit facilities will be sufficient to fund the cost of acquisitions, to meet anticipated capital expenditure programs, payment of obligations from prior restructurings, dividends and other planned financial commitments in 1997 and throughout the terms 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. Claims have been made against a subsidiary of the Company for costs of environmental remediation measures taken or to be taken in connection with operations that have been sold or closed. These include the clean-up of Superfund sites and participation with other companies in the clean-up of hazardous waste disposal sites, several of which have been designated as Superfund sites. Reserves for such liabilities have been established and no insurance recoveries have been anticipated in the determination of reserves. While it is not possible to predict with certainty, management believes that the aforementioned claims will be resolved without material adverse effect on the financial position, liquidity or results of operations of the Company. OUTLOOK Any forward looking statements included in this annual report are based on current expectations. Any statements in this annual report that are not historical in nature are forward looking statements. Actual results may differ materially depending on the business conditions and growth in the plastics and rubber industries and general economy, foreign, political and economic developments, availability and pricing of raw materials, changes in product mix, shifts in market demand and changes in prevailing interest rates. On behalf of M.A. Hanna Management, /s/ Michael S. Duffey Michael S. Duffey Vice President and Chief Financial Officer Report of Independent Accountants To the Board of Directors and Stockholders of M.A. Hanna Company In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of M.A. Hanna Company and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The consolidated financial statements of M.A. Hanna Company for the year ended December 31, 1994 were audited by other independent auditors whose report dated January 31, 1995 expressed an unqualified opinion on those statements. /s/ Price Waterhouse LLP Cleveland, Ohio January 29, 1997 EX-21 5 Exhibit 21 SUBSIDIARIES OF THE REGISTRANT: Where Incorporated Name (or formed) Burton Rubber Compounding, L.P. Delaware (a limited partnership) Burton Rubber Processing, Ltd. Ontario Cadillac Plastic Group, Inc. Michigan CIMCO, Inc., Delaware DH Compounding Company Delaware (a general partnership) Erieview Insurance Company Limited Bermuda Enviro Care Compounds AS Norway Global Processing Company California Hanna France SARL France Hanna Hamilton Holdings Company Delaware Hanna International Corporation Delaware Hanna Polimeros, S.A. de C.V. Mexico Hanna Su Xing Plastics Compounding (Suzhou) Company Limited China M. A. Hanna Export Services Company Barbados M. A. Hanna International Financial Services Company Ireland 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 Texapol Corporation Pennsylvania The Ohio & Western Pennsylvania Dock Company Ohio The Pennsylvania Tidewater Dock Company Delaware Theodor Bergmann GmbH & Co. Kunststoffwerk KG Germany Victor International Plastics, Ltd. England 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 6 EXHIBIT 23 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 and the Registration Statements on Form S-8 (appearing on Exhibit 1) of M.A. Hanna Company of our report dated January 29, 1997 appearing on page 38 of the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page F-2 of this Form 10-K. /s/ Price Waterhouse LLP Cleveland, Ohio March 20, 1997 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Exhibit 1) 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 for the year ended December 31, 1994 included in the Annual Report (Form 10-K) of M.A. Hanna Company for the year ended December 31, 1996. /s/ Ernst & Young LLP ERNST & YOUNG LLP Cleveland, Ohio March 20, 1997 Consent of Independent Auditors Exhibit 1 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. 33-66128 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 Francisco, CA and Vancouver, WA Operations, formerly the Avecor, Inc. Savings and Retirement Plan. Form S-8 No. 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 the 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 7 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 M. S. Duffey, 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, 1996, 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 5, 1997 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 M. S. Duffey, 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, 1996, 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/ C. A. Cartwright Director of M. A. Hanna March 5, 1997 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 M. S. Duffey, 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, 1996, 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/ W. R. Embry Director of M. A. Hanna March 5, 1997 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 M. S. Duffey, 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, 1996, 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 5, 1997 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 M. S. Duffey, 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, 1996, 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 5, 1997 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 M. S. Duffey, 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, 1996, 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 5, 1997 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 M. S. Duffey, 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, 1996, 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/ R. W. Pogue Director of M. A. Hanna March 5, 1997 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 M. S. Duffey, 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, 1996, 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 5, 1997 D. J. McGregor Company EX-27 8
5 1,000 12-MOS DEC-31-1996 DEC-31-1996 30,028 0 301,197 7,572 179,164 533,539 452,668 198,261 1,250,779 351,939 207,705 0 0 65,262 443,021 1,250,779 2,066,248 2,066,248 1,685,167 1,685,167 0 3,362 20,033 102,891 43,729 59,162 0 (5,352) 0 53,810 1.18 1.15
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