SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Fiscal year ended December 31, 1994 Commission file number 1-5222
M. A. HANNA COMPANY
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 34-0232435
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 36-5000, 200 PUBLIC SQUARE,CLEVELAND, OHIO 44114-2304
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 216-589-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $1 par value New York Stock Exchange
Chicago Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant, computed by reference to the price at which the stock was sold as
of March 6, 1995: $834,187,903.00.
Common Shares outstanding as of March 6, 1995: 35,687,183.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference into the designated parts of this Form 10-K: (1)
Registrant's definitive proxy statement distributed to stockholders
dated March 20, 1995, filed with the Commission pursuant to
Regulation 14A and incorporated by reference into Parts I and III
of this Form 10-K; and (2) Registrant's Annual Report distributed
to stockholders for the fiscal year ended December 31, 1994,
incorporated by reference into Parts I and II of this Form 10-K.
With the exception of the information specifically incorporated by
reference, neither the Registrant's proxy statement nor the 1994
Annual Report to stockholders is deemed to be filed as part of this
Form 10-K.
Except as otherwise stated, the information contained in this
report is given as of December 31, 1994, the end of the
Registrant's last fiscal year.
PART I
ITEM 1. BUSINESS
(a) Acquisitions and Dispositions
In March 1994, the Registrant acquired North Coast
Compounders, a producer of thermoplastic elastomers
("TPEs"), now called M. A. Hanna Thermoplastic
Elastomers. Based in North Ridgeville, Ohio, with
approximately 50 employees, M. A. Hanna Thermoplastic
Elastomers produces proprietary TPEs, alloys and blends,
and also engages in toll compounding.
In July 1994 the Registrant announced the formation
of its M. A. Hanna Resin Distribution business unit
through the merger of its three regional resin
distribution subsidiaries: Bruck Plastics Company,
Fiberchem, Inc.; and Plastic Distributing Corp. Based in
Lemont, Illinois, M. A. Hanna Resin Distribution in turn
announced the establishment of the Engineering Services
Group to provide product design, processing and technical
support to customers, including a design center located
in Richardson, Texas.
In July 1994, the Registrant also announced the
formation of the M. A. Hanna Company Engineered Materials
Group, based in Dyersburg, Tennessee, to market specialty
plastics compounds manufactured by the Registrant's
Colonial Plastics division, Monmouth Plastics Company and
Texapol Corporation.
In July 1994 the Registrant acquired Theodor
Bergmann GmbH & Co. Kunststoffwerk KG, one of Germany's
largest producers of specialty and reinforced
thermoplastic compounds. Based in Gaggenau, Germany,
Bergmann has two processing facilities: one at the
Gaggenau headquarters and a second facility at Barbastro,
Spain. The Spanish business, Poliamidas Barbastro S.A.,
operates under the name Polibasa.
In August 1994 the Registrant completed the sale of
the single-ply roof membrane manufacturing assets of its
Colonial Rubber Works, Inc. division located in
Kingstree, South Carolina, to Firestone Building Products
Company, a division of Bridgestone Firestone, Inc.
In December 1994, the Registrant announced that it
plans to sell its Day International, Inc. subsidiary,
based in Dayton, Ohio. Day International, Inc., with
annual sales of $120 million, produces highly engineered
printing blankets for offset printing presses, as well as
aprons, cots and other consumable parts used in the
textile industry.
(b) See the financial information regarding the
Registrant's business segments set forth at page 27 of
the Registrant's Annual Report distributed to
stockholders for the fiscal year ended December 31, 1994,
which page is incorporated herein by this reference.
(c)
(1)(i)
Formulated Polymers
(a) Processing
The Registrant, through its Burton Rubber
Processing, Inc., Bergmann, Colonial Rubber Works, Inc.,
Global Processing Company, Hanna Engineered Materials
Group, MACH-I Compounding, M. A. Hanna Thermoplastic
Elastomers, and Southwest Chemical Services, Inc.,
business units, engages in the custom compounding of
plastic and rubber materials to the specifications of
manufacturers of plastic and rubber products for
customers located throughout the United States, Canada
and Europe.
Through its Allied Color Industries, Inc., PMS
Consolidated, Inc., Hanna Polimeros, S.A. de C.V.,
Synthecolor S.A. and Wilson Color business units, the
Registrant manufactures custom formulated colorants in
the form of color concentrates, liquid dispersions, dry
colorants, and additives for customers in the plastics
industry throughout the United States, Canada, Mexico,
Europe, South America and Asia. PMS Consolidated and
Wilson Color also produce specialty colorants and
additives for the automobile, vinyl siding and textile
industries and for the wire and cable industry,
respectively.
(b) Distribution
Through its M. A. Hanna Resin Distribution Company
(formerly Bruck Plastics Company, Fiberchem, Inc. and
Plastic Distributing Corporation) and M.A. Hanna de
Mexico business units, the Registrant distributes polymer
resins in North America.
Through its Cadillac Plastic business unit,
Registrant engages in the worldwide distribution of
engineered plastic sheet, rod, tube, and film products to
industrial and retail customers as well as cutting and
machining plastic products to customers' specifications
and thermoforming plastic into products such as skylights
and signs.
Other Operations
Registrant, through its Day International Printing
and Textile Products business unit, engages in the
manufacture and worldwide sale of printing blankets and
print rollers for the printing industry and aprons, cots,
and other consumable supplies for the textile industry.
In December 1994 the Registrant announced its plans to
sell this business unit, which is reported as a
discontinued operation in the Registrant's 1994 Annual
Report.
Through its Colonial Rubber Works, Inc. business
unit, Registrant manufactures molded sponge automotive
parts for customers located throughout the United States
and Canada.
Registrant also engages in the management of marine
terminals, management of an iron ore mine in Quebec,
Canada, and insurance services.
Net sales and operating revenues from Registrant's
operations outside the polymers industry do not
individually constitute 10 percent or more of
Registrant's consolidated revenues.
(1)(iii) In Registrant's processing segment the primary raw
materials required are natural and synthetic rubbers,
plastics, and chemicals, all of which are available in
adequate supply. The primary raw materials required by
Registrant's colorant subsidiaries are plastics,
chemicals, and organic and inorganic pigments, all of
which are available in adequate supply.
(1) (iv) Registrant's processing business units own numerous
patents and registered trademarks, which are important in
that they protect the Registrant's corresponding
inventions and trademarks against infringement by others
and thereby enhance Registrant's position in the
marketplace. The patents vary in duration from 1 year to
17 years, and the trademarks have an indefinite life
which is based upon continued use.
(1)(x) The custom compounding of plastic and rubber
materials is highly competitive, with product quality and
service to customers being principal factors affecting
competition. Registrant believes it is the largest
independent custom compounder of rubber and a leading
compounder of plastics in the United States in terms of
pounds produced.
The manufacture of custom formulated colorants for
the plastics industry is highly competitive with product
quality and service to customers being principal factors
affecting competition. Registrant believes it is one of
the leading producers of custom formulated colorants in
the United States and Europe.
The distribution of engineered plastic sheet, rod,
tube, film products, and polymer resins is highly
competitive with product quality and service to customers
being principal factors affecting competition.
Registrant believes it is one of the leading distributors
of such products in the world.
The manufacture of molded sponge automotive parts is
highly competitive, with quality, price and service to
customers being principal factors affecting competition.
Information generally available indicates that Registrant
is among the leading suppliers of such parts in the
United States.
The manufacture of printing blankets and rollers is
highly competitive, with image quality and durability
being principal factors affecting competition.
Registrant believes it ranks as one of the world's
leading producers of these products. The manufacture of
aprons, cots, and other consumable supplies for the
textile industry is highly competitive, with quality and
price being the principal factors affecting competition.
Registrant believes it ranks among the larger producers
of such products in the United States. In December 1994
the Registrant announced its plans to sell its Day
International, Inc. business unit, which manufactures
these products and has been reported as a discontinued
operation in Registrant's 1994 Annual Report.
(1)(xii) At each of its operations the Registrant, its
subsidiaries, and associated companies are governed by
laws and regulations designed to protect the environment
and in this connection Registrant has adopted a corporate
policy which directs compliance with the various
requirements of these laws and regulations. The
Registrant believes that it, its subsidiaries and
associated companies are in substantial compliance with
all such laws and regulations, although it recognizes
that these laws and regulations are constantly changing.
There are presently no material estimated capital
expenditures for further environmental control facilities
projected by the Registrant, its subsidiaries and
associated companies for any of its operations.
(1)(xiii) Registrant employs 6,599 persons at its consolidated
operations (6,334 in 1993) and manages operations for
others that employ 2,245 persons (2,235 in 1993).
(d)(1) See information regarding Registrant's international
operations at page 27 of Registrant's Annual Report
distributed to stockholders for the fiscal year ended
December 31, 1994, which page is incorporated herein by
this reference.
(2) The international operations in which the Registrant
and its subsidiaries have equity interests, and the
investments of the Registrant and its subsidiaries in
such companies, may be affected from time to time by
foreign political and economic developments, laws and
regulations, increases or decreases in costs in such
countries and changes in the relative values of the
various currencies involved.
ITEM 2. PROPERTIES
The table below sets forth the principal plants and properties
owned or leased by the Registrant's formulated polymers business
units. For properties which are leased, the date of expiration of
the current term of the lease is indicated followed by an "R" if
the lease is subject to renewal or a "P" if the property is subject
to an option to purchase. Properties which are shown as owned are
owned in fee simple, subject to any mortgages on the properties.
In addition to mortgages, some properties are subject to minor
encumbrances of a nature which do not materially affect the
Registrant's operations.
In addition, several business units of Registrant lease floor
space at various locations within the United States. They are used
by the regional branches for sales offices, for the distribution of
Registrant's products, for fabrication, and for warehousing. These
are short-term leases.
Registrant and certain of its business units lease or own
space in various locations outside the United States, including
Australia, Belgium, Canada, the United Kingdom, France, Germany,
Mexico, Spain and Sweden.
Approximate
Owned/ Size
Location Facility Leased (sq. ft.)
_____________________________________________________________________
Burton, Burton rubber Owned 160,000
Ohio compounding
_____________________________________________________________________
Macedonia, Burton plastic Owned 87,000
Ohio compounding
_____________________________________________________________________
Approximate
Owned/ Size
Location Facility Leased (sq. ft.)
_____________________________________________________________________
Tillsonburg, Burton rubber Owned 60,000
Ontario compounding
_____________________________________________________________________
Jonesboro, Burton rubber Owned 69,000
Tennessee compounding
_____________________________________________________________________
Santa Fe Springs, Global rubber Leased 13,231
California compounding 1996
_____________________________________________________________________
Broadview Heights, Allied colorant Owned 61,000
Ohio manufacturing
_____________________________________________________________________
Greenville, Allied colorant Owned 65,000
South Carolina manufacturing
_____________________________________________________________________
Phoenix, Allied colorant Owned 20,500
Arizona manufacturing
_____________________________________________________________________
Vonore, Allied colorant Owned 47,000
Tennessee manufacturing
_____________________________________________________________________
North Kansas City, Allied colorant Leased 44,000
Missouri manufacturing 1998
_____________________________________________________________________
San Fernando, Allied colorant Leased 50,000
California manufacturing 1998
_____________________________________________________________________
Vancouver, Allied colorant Leased 35,000
Washington manufacturing 2002-R
_____________________________________________________________________
Troy, Cadillac Plastic Leased 28,620
Michigan headquarters 1998-R
_____________________________________________________________________
Lemont, Hanna resin Leased 103,000
Illinois distribution 2008-P
_____________________________________________________________________
Approximate
Owned/ Size
Location Facility Leased (sq. ft.)
_____________________________________________________________________
Seattle, Hanna resin Leased 79,000
Washington distribution 2005-R-P
_____________________________________________________________________
Three Rivers, Day printing Owned 57,943
Michigan products manufacturing
_____________________________________________________________________
Dundee, Day printing/ Owned 101,000
Scotland textile products
manufacturing
_____________________________________________________________________
Lerma, Day printing Owned 45,000
Mexico products manufacturing
_____________________________________________________________________
Arden, Day printing/ Owned 240,580
North Carolina textile products
manufacturing
_____________________________________________________________________
Kingstree, Colonial rubber Owned 156,174
South Carolina compounding
_____________________________________________________________________
Dyersburg, Colonial polymer Owned 862,399
Tennessee compounding and
products manufacturing
_____________________________________________________________________
Bethlehem, Texapol engineered Leased
Pennsylvania thermoplastic 2004-P 82,000
compounding 1999 25,400
_____________________________________________________________________
Suwanee, PMS Consolidated, Owned 20,000
Georgia Inc., headquarters
_____________________________________________________________________
Somerset, PMS colorant Owned 44,300
New Jersey manufacturing
_____________________________________________________________________
Florence, PMS colorant Owned 30,000
Kentucky manufacturing
_____________________________________________________________________
Approximate
Owned/ Size
Location Facility Leased (sq. ft.)
_____________________________________________________________________
Gastonia, PMS colorant Leased 43,992
North Carolina manufacturing
_____________________________________________________________________
Elk Grove Village, PMS colorant Owned 51,870
Illinois manufacturing
_____________________________________________________________________
St. Peters, PMS colorant Owned 32,480
Missouri manufacturing
_____________________________________________________________________
Fort Worth, PMS colorant Owned 75,080
Texas manufacturing
_____________________________________________________________________
Norwalk, PMS colorant Owned 94,000
Ohio manufacturing
_____________________________________________________________________
Gardena, PMS colorant Owned 46,652
California manufacturing
____________________________________________________________________
Carolina, PMS colorant Leased 12,600
Puerto Rico manufacturing 1999
_____________________________________________________________________
Buford, PMS colorant Leased 73,300
Georgia manufacturing 1997-R
_____________________________________________________________________
Milford, PMS colorant Leased 20,600
New Hampshire manufacturing 1995-R
_____________________________________________________________________
Coral Springs, PMS research & Leased 18,000
Florida development
_____________________________________________________________________
Toluca, Hanna Polimeros Owned 22,000
Mexico colorant
manufacturing
_____________________________________________________________________
LaPorte, Southwest Chemical Owned 200,000
Texas polymer compounding
_____________________________________________________________________
Approximate
Owned/ Size
Location Facility Leased (sq. ft.)
_____________________________________________________________________
Ayer, Hanna Resin Leased 82,000
Massachusetts distribution 2000-R-P
_____________________________________________________________________
Houston, PDC compounding & Leased
Texas resin distribution 1997 88,000
1998 44,120
_____________________________________________________________________
Statesville, Hanna resin Leased 48,240
North Carolina distribution 1998
_____________________________________________________________________
Neshanic Station, Wilson headquarters Leased 123,000
New Jersey & colorant 1997-R-P
manufacturing
____________________________________________________________________
North Ridgeville Thermoplastic Leased 40,750
Ohio Elastomers 1999-R-P
manufacturing
_____________________________________________________________________
Assesse, Wilson colorant Owned 120,976
Belgium manufacturing
_____________________________________________________________________
Tossiat, Wilson colorant Owned 87,188
France manufacturing
_____________________________________________________________________
Bendorf, Wilson colorant Owned 72,086
Germany manufacturing
_____________________________________________________________________
Angered, Wilson colorant Owned 22,259
Sweden manufacturing
_____________________________________________________________________
Paris, Synthecolor Owned 46,285
France colorant Leased 16,146
manufacturing
_____________________________________________________________________
Gaggenau, Bergmann Owned 22,400
Germany plastic compounding sq. meters
_____________________________________________________________________
Approximate
Owned/ Size
Location Facility Leased (sq. ft.)
_____________________________________________________________________
Barbastro, Polibasa plastic Owned 6,600
Spain compounding sq. meters
_____________________________________________________________________
Registrant's combined annual plastic and rubber compounding
capacity and colorant manufacturing capacity, based on the
estimated design capacities of Registrant's plants, amounts to at
least 800 million pounds of compounded rubber products, 850 million
pounds of compounded plastic products and over 235 million pounds
of colorants. A variation in the mix of products produced at a
given plant results in a corresponding increase or decrease in the
quantity (in pounds) of products that can be produced at full
capacity. Beyond these estimated capacities for Registrant's
rubber and plastic compounding and colorant manufacturing
properties, there are no comparative measurement units of
production capacity that reasonably can be ascribed to Registrant's
other properties in the processing segment.
Registrant's 50 percent-owned partnership, DH Compounding
Company, owns and operates an engineering plastics compounding
plant in Clinton, Tennessee. The 150,000 square foot plant has an
annual design capacity of 70 million pounds.
ITEM 3. LEGAL PROCEEDINGS
The State of Idaho filed suit in 1983 in the U.S. District
Court of the District of Idaho against the Registrant and certain
other named and unnamed defendants based on allegations of
violation of the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 and state environmental law
and upon allegations of strict liability and maintenance of public
nuisance. The state filed amended complaints in 1990 and 1993. In
1993 the U.S. Government also sued the Registrant and the other
defendants in the same court, advancing essentially the same
theories of liability. Plaintiffs are seeking reimbursement from
the defendants for damages to the environment and all costs for
clean-up of the area around the Blackbird Mine, now owned by a
limited partnership in which the Registrant is the limited partner.
The general partner in the limited partnership is a major North
American mining company which has been actively participating in
the defense of this action. The Registrant and the other
defendants filed answers asserting various defenses and served
third-party complaints against former owners and operators of the
Blackbird Mine and the U.S. Government and certain of its
departments and agencies, alleging that such third-party defendants
are legally responsible for the alleged natural resources damage.
Registrant's primary insurance carrier has reserved its rights to
deny coverage and has sued Registrant for declaratory judgement on
this coverage issue, but is funding certain legal defense costs.
In February 1995 an independent arbitrator ruled that, as between
the Registrant and the general partner, the general partner is
responsible for the costs of remediating the Blackbird Mine
properties. In view of the fact that the amount of natural
resources damage has not been finally determined, there has been no
final allocation of liability among the parties and the insurance
coverage has not been accepted by the carrier, it is not possible
at this time to state the amount of Registrant's future costs or
possible liabilities or the probability of insurance recoveries;
however, Registrant believes that the matter will be resolved
without a material adverse effect on Registrant's business or
financial position.
Registrant, through its indirect wholly-owned subsidiary,
Cadillac Plastic Group, Inc. (formerly Day International
Corporation), is obligated for costs of environmental remediation
measures taken and to be taken in connection with certain of
Cadillac's businesses related to operations that have been sold or
discontinued. These include the clean-up of Superfund sites and
participation with other companies in the clean-up of hazardous
waste disposal sites, several of which have been designated as
Superfund sites. Registrant has established reserves for
Cadillac's liabilities for environmental remediation, which do not
reflect potential insurance recoveries and which management
believes are adequate to cover Cadillac's ultimate exposure.
Registrant believes that these liabilities will not have a material
adverse effect on the Registrant's business or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
_______ EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists information as of March 1, 1995, as
to each executive officer of the Registrant, including his position
with the Registrant as of that date and other positions held by him
during at least the past five years:
M. D. Walker Chairman and Chief Executive
Age - 62 Officer. Chairman and Chief
Executive Officer, September 1986 to
date; President, December 1988 -
May 1989.
D. J. McGregor President and Chief Operating
Age - 54 Officer. Senior Vice President-
Operations of the Registrant, March
1988 - September 1988; Executive
Vice President, September 1988 -
May 1989; President and Chief
Operating Officer, May 1989 to date.
S. P. Chong Vice President-Total Quality
Age - 52 Planning & Technical Services. Vice
President-Technical Services, 1986 -
May 1990; Vice President Total
Quality Planning & Technical
Services, May 1990 to date.
G. W. Henry Vice President - International
Age - 49 Operations. Comptroller, 1985 -
July 1990; Vice President, 1987 -
July 1990; Vice President - Marine
Services and Special Projects, July
1990 - February 1992; Vice President
- Operations, February 1992 -
October 1994; Vice President,
International Operations, October
1994 to date.
J. S. Pyke, Jr. Vice President, General Counsel
Age - 56 and Secretary. Secretary, 1973 to
date; Vice President, 1979 to date.
D. R. Schrank Vice President and Chief Financial
Age - 46 Officer. Senior Vice President and
Chief Financial Officer, Sealy, Inc.
(bedding manufacturer) 1989 to
September 1993. Vice President and
Chief Financial Officer of the
Registrant, September 1993 to date.
W. J. Tremblay Vice President - Taxes,
Age - 62 1983 to date.
M. S. Duffey Treasurer. Vice President and
Age - 40 Treasurer, Outboard Marine
Corporation (manufacturer of
recreational boats and marine
engines), 1986-1992; Vice President
and Treasurer, Foote, Cone & Belding
Communications, Inc. (world-wide
advertising agency) 1992 - July
1994. Treasurer of the Registrant,
July 1994 to date.
T. E. Lindsey Controller. Assistant Controller
Age - 44 of the Registrant 1987 to July 1990;
Controller, July 1990 to date.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
See the tables regarding Registrant's Stock Price Data at
page 32 and Stock Information at page 33 of Registrant's
Annual Report distributed to stockholders for the fiscal
year ended December 31, 1994, which tables and
information are incorporated herein by this reference.
ITEM 6. SELECTED FINANCIAL DATA
See Selected Financial Data at page 33 of Registrant's
Annual Report distributed to stockholders for the fiscal
year ended December 31, 1994, which Selected Financial
Data is incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
See pages 34 through 35 of Registrant's Annual Report
distributed to stockholders for the fiscal year ended
December 31, 1994, which pages are incorporated herein by
this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages 19 through 36 of Registrant's Annual Report
distributed to stockholders for the fiscal year ended
December 31, 1994, which pages and section are
incorporated herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
See Registrant's current report on Form 8-K/A dated
March 8, 1995, which report is incorporated herein by
this reference.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
See the table listing nominees for directors on page 2 of
Registrant's definitive proxy statement distributed to
stockholders dated March 20, 1995, filed with the
Commission pursuant to Regulation 14A, which table is
incorporated herein by this reference.
Executive Officers
See the item captioned "Executive Officers of the
Registrant" in Part I of this Form 10-K, which item is
incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
See the section captioned "Executive Compensation"
through the section captioned "Directors' Compensation"
at pages 5 through 13 of Registrant's definitive proxy
statement distributed to stockholders dated March 20,
1995, filed with the Commission pursuant to Regulation
14A, which sections are incorporated herein by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners:
See the section captioned "Holdings of Shares of the
Company's Common Stock" at pages 4 through 5 of
Registrant's definitive proxy statement distributed to
stockholders dated March 20, 1995 filed with the
Commission pursuant to Regulation 14A, which section is
incorporated herein by this reference.
(b) Security Ownership by Management:
See the table, and footnotes thereto, regarding
beneficial ownership of the Registrant's Common Stock by
management, at page 3 of Registrant's definitive proxy
statement distributed to stockholders dated March 20,
1995 filed with the Commission pursuant to Regulation
14A, which table and footnotes are incorporated herein by
this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the section captioned "Transactions with Directors"
at page 4 of Registrant's definitive proxy statement
distributed to stockholders dated March 20, 1995 filed
with the Commission pursuant to Regulation 14A, which
section is incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. and 2. -- The response to this portion of Item 14 is
submitted as a separate section commencing on
page F-1 of this Form 10-K.
3. List of Exhibits. [Those documents listed below that are
incorporated herein by reference to Registrant's earlier
periodic reports were filed with the Commission under
Registrant's File No. 1-5222.]
(i) Exhibits filed pursuant to Regulation S-K (Item
601):
(3) Articles of Incorporation and By-laws.
(a) Registrant's Articles of Incorporation (as restated as of
November 13, 1989, and currently in effect), filed as Exhibit
3(b) to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1989, and incorporated herein by this
reference.
(b) Registrant's By-laws (as amended and restated as of
March 2, 1988, and currently in effect), filed as Exhibit 3(d)
to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987 and incorporated herein by this
reference.
(4) Instruments Defining the Rights of Security Holders:
(a) Rights Agreement, dated December 4, 1991, between the
Registrant and Ameritrust Company National Association, filed
as Exhibit 4.1 to Registrant's Form 8-K dated December 4,
1991, and incorporated herein by this reference.
(b) Credit Agreement, dated June 30, 1994 between the
Registrant, Citibank, N.A. and the other banks signatory
thereto, a copy of which will be provided to the Commission
upon request.
(c) Indenture dated September 15, 1991 between the Registrant
and Ameritrust Company, National Association, Trustee relating
to Registrant's $100,000,000 aggregate principal amount of 9%
Senior Notes due 1998 and $150,000 aggregate principal amount
of 9 3/8% Senior notes due 2003, filed as Exhibit 4 to the
Registrant's Form S-3 filed on September 18, 1991, and
incorporated herein by this reference.
(d) Indenture dated September 26, 1991 between the Registrant
and Ameritrust Texas, National Association, Trustee, relating
to Registrant's $50,000,000 aggregate principal amount of 9%
Notes due 1998, filed as Exhibit 4 to the Registrant's Form S-
3 filed on October 24, 1991, and incorporated herein by this
reference.
(e) Associates Ownership Trust Agreement dated September 12,
1991, between Registrant and Wachovia Bank of North Carolina,
filed as Exhibit 28.3 to Registrant's Current Report on Form
8-K dated September 12, 1991, and incorporated herein by this
reference.
(10) Material Contracts:
*(a) The Restated 1979 Executive Incentive Compensation Plan
of the Registrant, filed as Exhibit 5 to the Form S-8
Registration Statement No. 2-70755 filed with the Commission
on February 19, 1981 and incorporated herein by this
reference, and amendment to the Plan, as ratified and approved
by Registrant's stockholders on October 3, 1983, filed as
Exhibit 10(c) to Registrant's Form 10-K for the fiscal year
ended December 31, 1983 and incorporated herein by this
reference. Also amendment to the Plan as approved by
Registrant's stockholders on May 1, 1985, filed as Exhibit
10(c) to Registrant's Form 10-K for the fiscal year ended
December 31, 1985 and incorporated herein by this reference.
*(b) Forms of 1985 Stock Option Agreement, 1985 Grant of
Appreciation Rights and 1985 Grant of Performance Rights under
the 1979 Executive Incentive Compensation Plan, filed as
Exhibit 10(g) to Registrant's Form 10-K for the fiscal year
ended December 31, 1985 and incorporated herein by this
reference.
*(c) Forms of 1987 Stock Option Agreement, 1987 Grant of
Appreciation Rights and 1987 Grant of Performance Rights under
the 1979 Executive Incentive Compensation Plan, filed as
Exhibit 10(e) to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1986, and incorporated
herein by this reference.
*(d) 1988 Long-Term Incentive Plan, and forms of Grants of
Stock Options, Grants of Appreciation Rights and Grants of
Long-Term Incentive Units thereunder, filed as Exhibit 10(e)
to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988, and incorporated herein by this
reference. Also forms of 1989 Stock Option Agreement, 1989
Grant of Appreciation Rights and 1989 Grant of Long-Term
Incentive Units, filed as Exhibit 10(e) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1989 and incorporated herein by this reference. Also 1990
Amendment to the Plan, filed as Exhibit 10(e) to Registrant's
Form 10-K for the fiscal year ended December 31, 1990 and
incorporated herein by this reference and forms of 1990 Stock
Option Agreement, 1990 Grant of Appreciation Rights and 1990
Grant of Long-Term Incentive Units, filed as Exhibit 10(e) to
Registrant's Form 10-K for the fiscal year ended December 31,
1990 and incorporated herein by this reference. Also 1991
Amendment to the Plan, and forms of 1991 Stock Option
Agreement, 1991 Grant of Appreciation Rights, 1991 Grant of
Long Term Incentive Units, and 1991 Stock Option Agreement
with non-employee directors of Registration, filed as Exhibit
10(f) to Registrant's Form 10-K for the fiscal year ended
December 31, 1991, and incorporated herein by this reference.
Also forms of 1992 Stock Option Agreement and 1992 Grant of
Long Term Incentive Units, filed as Exhibit 10(e) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, and incorporated herein by this
reference. Also 1994 Amendment to the Plan, filed as Exhibit
A to Registrant's definitive proxy statement distributed to
stockholders dated March 17, 1994 and incorporated herein by
this reference.
*(e) Form of Supplemental Deferred Compensation agreement in
which any of the five most highly compensated executive
officers of the Registrant participates, filed as Exhibit
10(e) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, and incorporated herein
by this reference.
*(f) Form of Supplemental Death Benefits agreement in which
any of the five most highly compensated executive officers of
the Registrant participates, filed as Exhibit 10(f) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by this
reference.
*(g) Form of Employment Agreement dated as of February 17,
1989 between Registrant and certain of Registrant's executive
officers filed as Exhibit 10(h) to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988 and
incorporated herein by this reference. Also (i) Employment
Agreement dated as of September 27, 1993, between
D. R. Schrank and Registrant, filed as Exhibit (a) to
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993, and incorporated herein by this
reference; and (ii) Employment Agreement dated March 1, 1993
between D. J. McGregor and Registrant, filed as Exhibit 10(g)
to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by this
reference.
*(h) Description of Directors' compensation and retirement
plan, set forth in the section captioned "Directors'
Compensation" on pages 12 and 13 of Registrant's definitive
proxy statement dated March 20, 1995, as distributed to
stockholders and filed with the Commission pursuant to
Regulation 14A, which section is incorporated herein by this
reference.
*(i) Excess Benefit Plan in which any of the five most highly
compensated executive officers of the Registrant participates,
filed as Exhibit 10(j) to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992 and
incorporated herein by this reference.
*(j) Supplemental Retirement Benefit Plan in which any of the
five most highly compensated executive officers of the
Registrant participates, filed as Exhibit 10 (k) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by this
reference.
[*- Identifies management contract or compensation plans or
arrangements filed pursuant to Item 601(b)(10)(iii)(A)]
(11) Computation of per share earnings, filed herewith.
(13) Registrant's Annual Report as distributed to stockholders for
the fiscal year ended December 31, 1994, filed herewith.
(16) Letter regarding Change in Certifying Accountants, filed as
Exhibit (16) to Registrant's current report on Form 8-K/A dated
March 8, 1995 and incorporated herein by this reference.
(21) Subsidiaries of the Registrant, filed herewith.
(23) Consent of Independent Auditors, filed herewith.
(24) Powers of Attorney of certain Directors of Registrant, filed
herewith.
(ii) Other exhibits:
Financial statements (and consent of independent
auditors) pursuant to Form 11-K and Rule 15d-21 for the year ended
December 31, 1994, for the Capital Accumulation Plan for Salaried
Employees of M. A. Hanna Company and Associated Companies, and for
stock purchase/savings plans of Registrant's subsidiaries and
divisions will be filed as exhibits to the Form 10-K under a Form
10-K/A amendment not later than June 30, 1995.
(b) Since September 30, 1994, Registrant has filed two reports on
Form 8-K, dated December 20, 1994, reporting the Registrant's
plans to sell its Day International, Inc. business units, and
February 17, 1995, as amended and replaced by Form 8-K/A dated
March 8, 1995, reporting a change in Registrant's Certifying
Accountants.
(c) The response to this portion of Item 14 is submitted as a
separate Section commencing on page X-1 of this Form 10-K.
(d) The response to this portion of Item 14 is submitted as a
separate section commencing on page F-1 of this Form 10-K.
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto
duly authorized.
M. A. HANNA COMPANY
(Registrant)
Date: March 21, 1995 By /s/J. S. Pyke, Jr.
J. S. Pyke, Jr.
Vice President, General Counsel
and Secretary
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Date: March 21, 1995 By /s/M. D. Walker
M. D. Walker, Chairman and Chief
Executive Officer (Principal
Executive Officer) and Director
Date: March 21, 1995 By /s/D. R. Schrank
D. R. Schrank, Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: March 21, 1995 By /s/T. E. Lindsey
T. E. Lindsey, Controller
(Principal Accounting Officer)
B. C. Ames, Director
C. A. Cartwright, Director
W. R. Embry, Director
J. T. Eyton, Director
By /s/T. E. Lindsey G. D. Kirkham, Director
T. E. Lindsey
Attorney-in-Fact
M. L. Mann, Director
Date: March 21, 1995
D. J. McGregor, Director
R. W. Pogue, Director
ITEM 14(C)
EXHIBIT LIST
Sequential Page No.
(i) Exhibits filed pursuant to Regulation S-K
(Item 601):
(3) Articles of Incorporation and By-laws.
(a) Registrant's Articles of Incorporation
(as restated as of November 13, 1989, and
currently in effect), filed as Exhibit
3(b) to Registrant's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1989, and incorporated
herein by this reference.
(b) Registrant's By-laws (as amended and
restated as of March 2, 1988, and
currently in effect), filed as Exhibit
3(d) to Registrant's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1987 and incorporated herein
by this reference.
(4) Instruments Defining the Rights of Security Holders:
(a) Rights Agreement, dated December 4, 1991,
between the Registrant and Ameritrust
Company National Association, filed as
Exhibit 4.1 to Registrant's Form 8-K
dated December 4, 1991, and incorporated
herein by this reference.
(b) Credit Agreement, dated June 30, 1994
between the Registrant, Citibank, N.A.
and the other banks signatory thereto, a
copy of which will be provided to the
Commission upon request.
(c) Indenture dated September 15, 1991
between the Registrant and Ameritrust
Company, National Association, Trustee
relating to Registrant's $100,000,000
aggregate principal amount of 9% Senior
Notes due 1998 and $150,000 aggregate
principal amount of 9 3/8% Senior notes
due 2003, filed as Exhibit 4 to the
Registrant's Form S-3 filed on September
18, 1991, and incorporated herein by this
reference.
(d) Indenture dated September 26, 1991
between the Registrant and Ameritrust
Texas, National Association, Trustee,
relating to Registrant's $50,000,000
aggregate principal amount of 9% Notes
due 1998, filed as Exhibit 4 to the
Registrant's Form S-3 filed on October
24, 1991, and incorporated herein by
this reference.
(e) Associates Ownership Trust Agreement
dated September 12, 1991, between
Registrant and Wachovia Bank of North
Carolina, filed as Exhibit 28.3 to
Registrant's Current Report on Form 8-K
dated September 12, 1991, and
incorporated herein by this reference.
(10) Material Contracts:
*(a) The Restated 1979 Executive Incentive
Compensation Plan of the Registrant,
filed as Exhibit 5 to the Form S-8
Registration Statement No. 2-70755 filed
with the Commission on February 19, 1981
and incorporated herein by this
reference, and amendment to the Plan, as
ratified and approved by Registrant's
stockholders on October 3, 1983, filed as
Exhibit 10(c) to Registrant's Form 10-K
for the fiscal year ended December 31,
1983 and incorporated herein by this
reference. Also amendment to the Plan as
approved by Registrant's stockholders on
May 1, 1985, filed as Exhibit 10(c) to
Registrant's Form 10-K for the fiscal
year ended December 31, 1985 and
incorporated herein by this reference.
*(b) Forms of 1985 Stock Option Agreement,
1985 Grant of Appreciation Rights and
1985 Grant of Performance Rights under
the 1979 Executive Incentive Compensation
Plan, filed as Exhibit 10(g) to
Registrant's Form 10-K for the fiscal
year ended December 31, 1985 and
incorporated herein by this reference.
*(c) Forms of 1987 Stock Option Agreement,
1987 Grant of Appreciation Rights and
1987 Grant of Performance Rights under
the 1979 Executive Incentive Compensation
Plan, filed as Exhibit 10(e) to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1986, and incorporated herein by this
reference.
*(d) 1988 Long-Term Incentive Plan, and forms
of Grants of Stock Options, Grants of
Appreciation Rights and Grants of Long-
Term Incentive Units thereunder, filed as
Exhibit 10(e) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1988, and incorporated
herein by this reference. Also forms of
1989 Stock Option Agreement, 1989 Grant
of Appreciation Rights and 1989 Grant of
Long-Term Incentive Units, filed as
Exhibit 10(e) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1989 and incorporated
herein by this reference. Also 1990
Amendment to the Plan, filed as
Exhibit 10(e) to Registrant's Form 10-K
for the fiscal year ended December 31,
1990 and incorporated herein by this
reference and forms of 1990 Stock Option
Agreement, 1990 Grant of Appreciation
Rights and 1990 Grant of Long-Term
Incentive Units, filed as Exhibit 10(e)
to Registrant's Form 10-K for the fiscal
year ended December 31, 1990 and
incorporated herein by this reference.
Also 1991 Amendment to the Plan, and
forms of 1991 Stock Option Agreement,
1991 Grant of Appreciation Rights, 1991
Grant of Long Term Incentive Units, and
1991 Stock Option Agreement with non-
employee directors of Registration, filed
as Exhibit 10(f) to Registrant's Form 10-
K for the fiscal year ended December 31,
1991, and incorporated herein by this
reference. Also forms of 1992 Stock
Option Agreement and 1992 Grant of Long
Term Incentive Units, filed as Exhibit
10(e) to Registrant's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1992, and incorporated
herein by this reference. Also 1994
Amendment to the Plan, filed as Exhibit A
to Registrant's definitive proxy
statement distributed to stockholders
dated March 17, 1994 and incorporated
herein by this reference.
*(e) Form of Supplemental Deferred
Compensation agreement in which any of
the five most highly compensated
executive officers of the Registrant
participates, filed as Exhibit 10(e) to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1993, and incorporated herein by this
reference.
*(f) Form of Supplemental Death Benefits
agreement in which any of the five most
highly compensated executive officers of
the Registrant participates, filed as
Exhibit 10(f) to Registrant's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1993, and incorporated
herein by this reference.
*(g) Form of Employment Agreement dated as of
February 17, 1989 between Registrant and
certain of Registrant's executive
officers filed as Exhibit 10(h) to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1988 and incorporated herein by this
reference. Also (i) Employment
Agreement dated as of September 27, 1993,
between D. R. Schrank and Registrant,
filed as Exhibit (a) to Registrant's
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, and
incorporated herein by this reference;
and (ii) Employment Agreement dated March
1, 1993 between D. J. McGregor and
Registrant, filed as Exhibit 10(g) to
Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31,
1993, and incorporated herein by this
reference.
*(h) Description of Directors' compensation
and retirement plan, set forth in the
section captioned "Directors'
Compensation" on pages 12 and 13 of
Registrant's definitive proxy statement
dated March 20, 1995, as distributed to
stockholders and filed with the
Commission pursuant to Regulation 14A,
which section is incorporated herein by
this reference.
*(i) Excess Benefit Plan in which any of
the five most highly compensated
executive officers of the Registrant
participates, filed as Exhibit 10(j)
to Registrant's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1992 and incorporated
herein by this reference.
*(j) Supplemental Retirement Benefit Plan in
which any of the five most highly
compensated executive officers of the
Registrant participates, filed as Exhibit
10 (k) to Registrant's Annual Report on
Form 10-K for the fiscal year ended
December 31, 1992 and incorporated herein
by this reference.
[*- Identifies management contract or compensation
plans or arrangements filed pursuant to Item
601(b)(10)(iii)(A)]
(11) Computation of per share earnings, filed
herewith. ________
(13) Registrant's Annual Report as distributed to
stockholders for the fiscal year ended
December 31, 1994, filed herewith. ________
(16) Letter regarding Change in Certifying
Accountants, filed as Exhibit (16) to
Registrant's current report on Form 8-K/A
dated March 8, 1995 and incorporated herein by
this reference.
(21) Subsidiaries of the Registrant, filed
herewith. ________
(23) Consent of Independent Auditors, filed
herewith. ________
(24) Powers of Attorney of certain Directors of
Registrant, filed herewith. ________
(ii) Other exhibits:
Financial statements (and consent of
independent auditors) pursuant to Form 11-K
and Rule 15d-21 for the year ended
December 31, 1994, for the Capital
Accumulation Plan for Salaried Employees of
M. A. Hanna Company and Associated Companies,
and for stock purchase/savings plans of
Registrant's subsidiaries and divisions will
be filed as exhibits to the Form 10-K under a
Form 10-K/A amendment not later than June 30,
1995.
(b) Since September 30, 1994, Registrant
has filed two reports on Form 8-K,
dated December 20, 1994, reporting
the Registrant's plans to sell
itsDay International, Inc. business
units,and February 17, 1995, as
amended and replaced by Form 8-K/A
dated March 8, 1995.
(c) The response to this portion of Item
14 is submitted as a separate
Section commencing on page X-1 of
this Form 10-K.
(d) The response to this portion of Item
14 is submitted as a separate
section commencing on page F-1 of
this Form 10-K.
FORM 10-K
ITEM 14(a) (1) and (2)
FINANCIAL STATEMENTS AND SCHEDULES
M.A. HANNA COMPANY
The following consolidated financial statements of the
Registrant and its consolidated subsidiaries, included in the
annual report of the Registrant to its stockholders for the
year ended December 31, 1994, are incorporated herein by
reference in Item 8:
Summary of accounting policies
Consolidated balance sheets - December 31, 1994 and 1993
Consolidated statements of income, stockholders' equity
and cash flows - years ended December 31, 1994, 1993 and 1992
Notes to financial statements
The following consolidated financial information, together with
the report of the independent accountants, are included in Item
14 (d):
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable, and therefore have been omitted.
Financial statements of unconsolidated subsidiaries or 50% or
less owned persons accounted for by the equity method have been
omitted because they do not, considered individually or in the
aggregate, constitute a significant subsidiary.
F-1
Report of Independent Auditors
Board of Directors
M.A. Hanna Company
We have audited the accompanying consolidated balance sheets of
M.A. Hanna Company and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994. Our audits also
included the financial statement schedule listed in the Index
at Item 14(a)(1) and (2). These financial statements and
schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of M.A. Hanna Company and subsidiaries
at December 31, 1994 and 1993, and the consolidated results of
its operations and its cash flows for each of the three years
in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
January 31, 1995
F-2
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
<CAPTION>
COL. A COL. B COL. C COL. D
ADDITIONS
Balance at Beginning (1) (2)
DESCRIPTION of Period Charged to Costs Charged to Other Deductions - Describe
and Expenses Accounts - Describe
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $9,993,000 $3,250,000 $531,000 (a) $2,428,000 (c)
Year ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts $7,233,000 $3,647,000 $188,000 (a) $2,396,000 (c)
1,321,000 (b)
Year ended December 31, 1992:
Deducted from asset accounts:
Allowance for doubtful accounts $5,569,000 $2,151,000 $1,067,000 (a) $2,445,000 (c)
891,000 (b)
COL. A COL. E
Balance at End
DESCRIPTION of Period
<S> <C>
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $11,346,000
Year ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts $ 9,993,000
Year ended December 31, 1992:
Deducted from asset accounts:
Allowance for doubtful accounts $ 7,233,000
(a) Reserves of companies acquired.
(b) Charge included in income(loss) from discontinued operations.
(c) Uncollectible amounts written off.
F-3
</TABLE>
EXHIBIT 11
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION> Year Ended December 31
1994 1993 1992
(Dollars in thousands except per share data)
<S> <C> <C> <C>
Primary
Income from continuing operations
before extraordinary charge and cumulative
effect of changes in accounting principles $37,004 $21,297 $18,186
Income(loss) from discontinued operations 9,970 (19,279) 12,304
Extraordinary charge (3,680) - -
Cumulative effect of changes in
accounting principles - - (11,465)
Net income $43,294 $2,018 $19,025
Average common shares outstanding 30,865,775 29,777,668 28,696,722
Net effect of dilutive stock options
and stock warrants - based on treasury
stock method using average market price - * 1,052,105 - *
Total 30,865,775 30,829,773 28,696,722
Income(loss) per share
Continuing operations $ 1.20 $ 0.69 $ 0.63
Discontinued operations 0.32 (0.62) 0.43
Extraordinary charge (0.12) - -
Cumulative effect of changes in
accounting principles - - (0.40)
Net income $ 1.40 $ 0.07 $ 0.66
* Not significant in 1994 and 1992.
</TABLE>
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
(Dollars in thousands except per share data)
<S> <C> <C> <C>
Fully Diluted
Income from continuing operations
before extraordinary charge and cumulative
effect of changes in accounting principles $37,004 $21,297 $18,186
Income(loss) from discontinued operations 9,970 (19,279) 12,304
Extraordinary charge (3,680) - -
Cumulative effect of changes in
accounting principles - - (11,465)
Net income $43,294 $2,018 $19,025
Average common shares outstanding 30,865,775 29,777,668 28,696,722
Net effect of dilutive stock options
and stock warrants - based on treasury
stock method using the year-end market
price if higher than average market price 598,942 1,394,322 680,360
Shares reserved under earnout provisions
of purchase agreements - - 285,616
Total 31,464,717 31,171,990 29,662,698
Income(loss) per share
Continuing operations $ 1.18 $ 0.68 $ 0.61
Discontinued operations 0.32 (0.62) 0.42
Extraordinary charge (0.12) - -
Cumulative effect of changes in
accounting principles - - (0.39)
Net income $ 1.38 $ 0.06 $ 0.64
</TABLE>
EXHIBIT 13
CONSOLIDATED STATEMENTS OF INCOME
M.A. Hanna Company and Consolidated Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31
Dollars in thousands except per share data 1994 1993 1992
<S> <C> <C> <C>
Net Sales $1,719,356 $1,412,071 $1,188,541
Costs and Expenses
Cost of goods sold 1,393,036 1,146,191 961,925
Selling, general and administrative 213,318 179,228 152,366
Other income (4,066) (5,016) (5,250)
Other expense 9,839 9,750 8,917
Interest on debt 28,549 32,258 32,509
Amortization of intangibles 12,458 12,006 11,069
1,653,134 1,374,417 1,161,536
Income from Continuing Operations
Before Income Taxes, Extraordinary Charge
and Cumulative Effect of Changes in
Accounting Principles 66,222 37,654 27,005
Income taxes 29,218 16,357 8,819
Income from Continuing Operations
Before Extraordinary Charge and Cumulative
Effect of Changes in Accounting Principles 37,004 21,297 18,186
Income(loss) from discontinued operations 9,970 (19,279) 12,304
Extraordinary charge (3,680) - -
Cumulative effect of changes in
accounting principles - - (11,465)
Net Income $ 43,294 $ 2,018 $ 19,025
Net Income Per Share
Primary
Continuing operations $ 1.20 $ 0.69 $ 0.63
Discontinued operations 0.32 (0.62) 0.43
Extraordinary charge (0.12) - -
Cumulative effect of changes in
accounting principles - - (0.40)
Net income $ 1.40 $ 0.07 $ 0.66
Fully diluted
Continuing operations $ 1.18 $ 0.68 $ 0.61
Discontinued operations 0.32 (0.62) 0.42
Extraordinary charge (0.12) - -
Cumulative effect of changes in
accounting principles - - (0.39)
Net income $ 1.38 $ 0.06 $ 0.64
See summary of accounting policies and notes to consolidated financial statements.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
M. A. Hanna Company and Consolidated Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31
Dollars in thousands 1994 1993 1992
<S> <C> <C> <C>
CASH PROVIDED FROM (USED FOR) OPERATIONS
Net income $ 43,294 $ 2,018 $19,025
Discontinued operations 13,910 41,345 9,117
Depreciation and amortization 41,904 38,182 35,421
Companies carried at equity:
Income (6,112) (4,286) (3,812)
Dividends received 7,033 5,729 1,355
Changes in operating assets and liabilities:
Receivables (40,103) (10,531) (15,605)
Inventories (31,145) (9,239) (2,301)
Prepaid expenses 725 1,774 (1,881)
Trade payables and other accruals 74,895 10,452 21,008
Gain from sales of assets - (1,730) (409)
Restructuring payments (10,540) (16,594) (10,367)
Other 12,664 10,730 1,935
Extraordinary charge 6,034 - -
Cumulative effect of changes
in accounting principles - - 11,465
Net operating activities 112,559 67,850 64,951
CASH PROVIDED FROM (USED FOR) INVESTMENT
ACTIVITIES
Capital expenditures (46,982) (23,379) (19,154)
Acquisitions of companies, less cash acquired (53,331) (28,803) (55,354)
Acquisition payments (4,106) (3,410) (7,268)
Sales of assets 13,874 7,127 77,427
Investments in associated and other companies - - (1,200)
Return of cash from associated and other companies 8,805 - -
Purchase of short-term securities - (5,061) (25,702)
Sale of short-term securities 5,061 25,702 -
Other 445 (2,000) (6,581)
Net investment activities (76,234) (29,824) (37,832)
CASH PROVIDED FROM (USED FOR) FINANCING
ACTIVITIES
Purchase of common stock warrants - (27,500) -
Cash dividends paid (15,688) (14,003) (12,630)
Proceeds from the sale of common stock 14,165 14,582 3,422
Purchase of shares for treasury (1,472) - -
Increase in debt 131,649 12,228 47,367
Reduction in debt (179,879) (39,144) (35,974)
Net financing activities (51,225) (53,837) 2,185
Effect of exchange rate changes on cash 360 (821) 495
CASH AND CASH EQUIVALENTS
Increase(decrease) (14,540) (16,632) 29,799
Beginning of year 37,645 54,277 24,478
End of year $ 23,105 $37,645 $54,277
CASH PAID DURING YEAR
Interest $ 30,114 $33,001 $31,097
Income taxes 19,927 19,165 13,900
See summary of accounting policies and notes to consolidated financial statements.
</TABLE>
CONSOLIDATED BALANCE SHEETS
M. A. Hanna Company and Consolidated Subsidiaries
<TABLE>
<CAPTION>
December 31
Dollars in thousands 1994 1993
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 23,105 $ 37,645
Short-term securities - 5,061
Receivables:
Trade 236,737 189,125
Other 10,379 8,145
247,116 197,270
Inventories:
Finished products 116,718 97,098
Raw materials and supplies 44,542 27,236
161,260 124,334
Prepaid expenses 3,981 3,851
Deferred income taxes 26,938 21,501
Net assets (1994) and net current assets (1993)
of discontinued operations 103,215 16,120
Total current assets 565,615 405,782
Property, Plant and Equipment
Land 13,288 11,813
Buildings 78,289 69,943
Machinery and equipment 250,966 226,669
342,543 308,425
Less allowances for depreciation 138,408 124,129
204,135 184,296
Other Assets
Goodwill and other intangibles 330,757 305,665
Investments and other assets 79,803 87,772
Deferred income taxes 34,850 45,191
Net long-term assets of
discontinued operations - 94,904
445,410 533,532
$1,215,160 $1,123,610
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to banks $ 931 $ 2,478
Trade payables and accrued expenses 335,877 256,479
Current portion of long-term debt 683 723
Total current liabilities 337,491 259,680
Other Liabilities 173,888 176,422
Long-term Debt
Senior notes 235,770 300,000
Other 53,099 22,052
288,869 322,052
Stockholders' Equity
Preferred stock, without par value:
authorized 5,000,000 shares;
issued 132 shares in 1994 and 1993 - -
Common stock, par value $1.00 per share:
authorized 50,000,000 shares; issued
43,015,494 shares in 1994 and 28,605,722
shares in 1993 43,015 28,606
Capital surplus 299,725 299,389
Retained earnings 296,632 269,026
Associates ownership trust (111,471) (115,214)
Cost of treasury stock (7,321,400 shares
in 1994 and 4,864,707 shares in 1993) (103,731) (102,794)
Minimum pension liability adjustment (7,262) (8,577)
Accumulated translation adjustment (1,996) (4,980)
Total stockholders' equity 414,912 365,456
$1,215,160 $1,123,610
See summary of accounting policies and notes to consolidated financial statements.
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
M. A. Hanna Company and Consolidated Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands except per share data
Common Associates
Preferred Common Stock Capital Retained Ownership Treasury
Stock Stock Warrants Surplus Earnings Trust Stock
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1992 $- $28,039 $14,621 $250,686 $274,025 $(81,095) $(109,410)
Net income 19,025
Cash dividends - $.4417 per share (12,630)
Exercise of stock options 221 2,847
Sale of common stock (14,012 shares) 14 340
Payment of incentive compensation awards 95 4,207 636
Payment of additional
consideration of acquisition 407 6,395
Adjustment to market value 34,333 (34,333)
Translation adjustment
Balance December 31, 1992 - 28,274 14,621 288,708 280,420 (111,221) (102,379)
Net income 2,018
Cash dividends - $.475 per share (14,003)
Exercise of stock options 311 8,813 (1,675)
Sale of common stock (21,273 shares) 21 609
Purchase of common stock warrants (14,621) (12,879)
Payment of incentive compensation awards
and associate benefits 2,525 8,260 569
Acquisition of business (640) 591 691
Adjustment to market value 12,253 (12,253)
Minimum pension adjustment
Translation adjustment
Balance December 31, 1993 - 28,606 - 299,389 269,026 (115,214) (102,794)
Net income 43,294
Cash dividends - $.51 per share (15,688)
Exercise of stock options 61 1,335 (38)
Purchase of shares for treasury (1,472)
Sale of common stock (25,383 shares) 25 706
Payment of incentive compensation awards
and associate benefits 3,115 13,246 573
Three-for-two common stock split 14,323 (14,323)
Adjustment to market value 9,503 (9,503)
Minimum pension adjustment
Translation adjustment
Balance December 31, 1994 $- $43,015 $ - $299,725 $296,632 $(111,471) $(103,731)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
M. A. Hanna Company and Consolidated Subsidiaries
Dollars in thousands except per share data Minimum
Pension Accumulated Total
Liability Translation Stockholders'
Adjustment Adjustment Equity
<S> <C> <C> <C>
Balance January 1, 1992 $ - $3,592 $380,458
Net income 19,025
Cash dividends - $.4417 per share (12,630)
Exercise of stock options 3,068
Sale of common stock (14,012 shares) 354
Payment of incentive compensation awards 4,938
Payment of additional
consideration of acquisition 6,802
Adjustment to market value -
Translation adjustment (4,072) (4,072)
Balance December 31, 1992 - (480) 397,943
Net income 2,018
Cash dividends - $.475 per share (14,003)
Exercise of stock options 7,449
Sale of common stock (21,273 shares) 630
Purchase of common stock warrants (27,500)
Payment of incentive compensation awards
and associate benefits 11,354
Acquisition of business 642
Adjustment to market value -
Minimum pension adjustment (8,577) (8,577)
Translation adjustment (4,500) (4,500)
Balance December 31, 1993 (8,577) (4,980) 365,456
Net income 43,294
Cash dividends - $.51 per share (15,688)
Exercise of stock options 1,358
Purchase of shares for treasury (1,472)
Sale of common stock (25,383 shares) 731
Payment of incentive compensation awards
and associate benefits 16,934
Three-for-two common stock split -
Adjustment to market value -
Minimum pension adjustment 1,315 1,315
Translation adjustment 2,984 2,984
Balance December 31, 1994 $(7,262) $(1,996) $414,912
See summary of accounting policies and notes to consolidated financial statements.
</TABLE>
SUMMARY OF ACCOUNTING POLICIES
M.A. Hanna Company and Consolidated Subsidiaries
RESTATEMENTS
Prior year financial statements have been restated to reflect the
Company's Day International printing and textile business as a
discontinued operation. In addition, all shares and per share amounts
have been restated to give effect to the three-for-two stock split in
May 1994.
PRINCIPLES OF CONSOLIDATION
Majority-owned subsidiaries are consolidated in the financial statements
and all significant intercompany accounts and transactions have been
eliminated.
Investments in less than majority-owned companies are carried at cost
adjusted for undistributed earnings and losses since acquisition, or at
cost.
NET INCOME PER SHARE
Primary net income per share is computed by dividing net income by the
average number of shares of common stock outstanding during the year.
Shares of common stock held by the Associates Ownership Trust (AOT)
enter into the determination of the average number of shares outstanding
when the shares are released from the AOT to fund obligations under
certain associate compensation and benefit plans. The effect of
assuming the exercise of stock options and stock warrants (common stock
equivalents) was not significant in 1994 and 1992.
For fully-diluted net income per share, the number of shares used for
primary net income per share are increased by the common stock
equivalents which would arise from the exercise of stock options and
stock warrants and, in 1992, by the number of shares of common stock
reserved under earnout provisions of certain purchase agreements.
CASH EQUIVALENTS AND SHORT-TERM SECURITIES
Cash equivalents are highly liquid investments with a maturity of three
months or less. Both cash equivalents and short-term securities are
stated at cost.
INVENTORIES
Inventories are stated at the lower of cost or market. Domestic
inventories ($119,644,000) are valued principally by the last-in,
first-out (LIFO) cost method. Inventories of foreign subsidiaries are
valued by the first-in, first-out (FIFO) method. The excess of current
cost over LIFO cost was $9,937,000 at December 31, 1994 and $6,642,000
at December 31, 1993.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
computed principally by the straight-line method at rates sufficient to
depreciate the cost of the assets over their estimated productive lives.
Property items retired or otherwise disposed of are removed from the
property and related allowance for depreciation accounts, and any profit
or loss is included in operations.
GOODWILL AND OTHER INTANGIBLES
Goodwill is being amortized over 40 years by the straight-line method.
Other intangibles ($25,857,000 net at December 31, 1994) are being
amortized on a straight-line basis over 4 to 40 years. Accumulated
amortization at December 31, 1994 and 1993 was $71,398,000 and
$58,933,000, respectively. In 1993, net goodwill of $26,482,000 was
written off in connection with the discontinuance of the elastomeric
membrane roofing business.
The carrying value of goodwill and other intangibles is evaluated if
circumstances indicate a possible impairment in value. If undiscounted
cash flows over the remaining amortization period indicate that goodwill
and other intangibles may not be recoverable, the carrying value of
goodwill and other intangibles will be reduced by the estimated
shortfall of cash flows on a discounted basis.
INCOME TAXES
Effective January 1, 1992, Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" was adopted. This Statement
requires companies to recognize deferred tax liabilities and assets for
the expected future tax consequences of events that have been recognized
in the Company's financial statements or tax returns. The cumulative
effect of adopting Statement 109 increased net income for 1992 by
$22,096,000 or $.74 per share.
Under Statement 109, deferred tax liabilities and assets are determined
based on the differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rate and
laws that will be in effect when the differences are expected to
reverse.
NOTES TO FINANCIAL STATMENTS
M.A. Hanna Company and Consolidated Subsidiaries
ACQUISITIONS
In March 1994, the Company acquired certain assets of North Coast
Compounders, a producer of thermoplastic elastomers and other materials
and in July 1994, acquired Th. Bergmann GmbH & Co. Kunststoffwerk, one
of Germany's largest producers of specialty and reinforced compounds.
Both acquisitions were accounted for using the purchase method of
accounting and operations from the respective dates of acquisition are
included in the Consolidated Statements of Income. Had the acquisitions
been made at the beginning of 1993, reported pro forma results of
operations for 1993 and 1994 would not be materially different.
DISCONTINUED OPERATIONS
In December 1994, the Company adopted a plan to sell its Day
International printing and textile business. The business consists of
the manufacturing of printing blankets and other consumable supplies for
the printing industry and the manufacturing of engineered consumable
supplies for the textile industry. The Company believes the business
will be sold in 1995.
In November 1993, the Company reached an agreement to sell its
elastomeric membrane roofing business to Firestone Building Products
Company, a division of Bridgestone/Firestone, Inc. The sale was
consummated in the third quarter of 1994, resulting in an additional
charge to earnings of $1,828,000 ($1,115,000 after tax) for costs
incurred while obtaining government antitrust clearance for the sale.
The Company recognized an after-tax charge of $30,000,000 in 1993 for
the writeoff of goodwill and restructuring charges associated with the
sale.
The Company received $2,320,000 and $9,180,000 during 1993 and 1992,
respectively, representing the recovery of a prepetition bankruptcy
claim Colowyo Coal Company had against a customer. The Company sold its
interest in Colowyo in 1991.
Summary operating results of these discontinued businesses are as
follows:
Dollars in thousands 1994 1993 1992
Net sales $120,083 $148,699 $145,400
Income from operations
before income taxes $ 18,891 $ 17,051 $ 14,617
Income taxes 7,806 7,812 6,581
11,085 9,239 8,036
Loss(gain) net of income taxes
on disposal 1,115 28,518 (4,268)
$ 9,970 $(19,279) $ 12,304
At December 31, 1994, net assets of discontinued operations consisted of
current assets of $31,724,000, current liabilities of $18,015,000, net
fixed assets of $26,942,000, other noncurrent assets of $72,155,000 and
other noncurrent liabilities of $9,591,000.
INCOME TAXES
Income taxes from continuing operations consist of the following:
Dollars in thousands 1994 1993 1992
Current:
Federal $20,740 $ 9,205 $4,794
State 4,664 2,660 1,888
Foreign 4,809 2,907 1,697
30,213 14,772 8,379
Deferred:
Federal 110 2,730 529
State (1,023) (319) 18
Foreign (82) (826) (107)
(995) 1,585 440
$29,218 $16,357 $8,819
A graph depicting the following information appears at this point:
BOOK VALUE
Dollars per share
1990 1991 1992 1993 1994
14.21 11.11 11.34 10.26 11.62
The provision for income taxes from continuing operations differs from
the amount computed by applying the U.S. statutory federal income tax
rate as follows:
Dollars in thousands 1994 1993 1992
Provision at statutory tax rate $23,178 $13,179 $ 9,195
State income taxes 2,367 1,528 1,258
Goodwill amortization 2,784 3,169 2,488
Change in income tax rate - (578) -
Utilization of capital loss
and tax credit carryforwards (1,820) (1,062) -
Favorable adjustment of income
tax liabilities - - (4,800)
Other - net 2,709 121 678
$29,218 $16,357 $ 8,819
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
Company has not provided deferred taxes on undistributed earnings of
foreign subsidiaries and joint ventures because it is not practical to
estimate the amount of tax payable upon any future remittance of these
earnings. Significant components of the Company's deferred tax assets
(liabilities) for continuing operations are as follows:
Dollars in thousands 1994 1993
Basis differences from purchase accounting $(13,705) $(15,694)
Tax over book depreciation (13,665) (15,754)
Other post-retirement benefits 32,467 31,637
Associate benefits 22,064 18,699
Restructuring and plant closedown costs 7,699 11,917
Environmental costs 7,353 8,012
Inventory and receivable reserves 6,734 8,026
Other 11,983 8,171
Tax credit carryforwards 858 13,751
Capital loss carryforwards 23,317 22,689
Valuation allowance (23,317) (24,762)
$ 61,788 $ 66,692
A graph depicting the following information appears at this point:
COMMON STOCK
1990 1991 1992 1993 1994
High 18.17 17.25 20.00 22.67 28.88
Low 9.83 11.83 13.17 17.17 21.42
Close 12.83 13.33 19.25 21.75 23.75
For financial reporting purposes, a valuation allowance has been
recognized to offset the deferred tax asset related to capital loss
carryforwards which expire in 1995 and 1998. During 1994, the valuation
allowance was increased by $375,000 due to increases in capital loss
carryforwards and reduced $1,820,000 due to the utilization of tax
credit carryforwards. During 1993, the valuation allowance was
increased $370,000 due to the tax law change and was reduced by
$1,062,000 due to the utilization of capital loss carryforwards.
Income before income taxes includes $12,624,000, $3,799,000 and
$2,693,000 in 1994, 1993 and 1992, respectively, from foreign
operations.
LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
Dollars in thousands 1994 1993
9% Senior Notes due 1998 $117,745 $150,000
9.375% Senior Notes due 2003 118,025 150,000
Credit agreements 12,650 17,787
Other 41,132 4,988
289,552 322,775
Less current portion 683 723
$288,869 $322,052
Annual maturities of long-term debt for the next five years are: 1995--
$683,000; 1996--$18,552,000; 1997--$18,452,000; 1998--$131,048,000 and
1999--$614,000.
On June 30, 1994, the Company entered into a new revolving credit
agreement with a group of financial institutions. The agreement
provides for borrowings up to $200 million through June 1998 with
interest rates determined at the time of the borrowing based on a choice
of formulas specified in the agreement. At December 31, 1994,
borrowings supported by this agreement were $12,650,000 at a rate of
6.70%.
In 1993, the Company entered into a credit agreement which provided for
borrowings up to 150 million French francs through November 1996. In
1994, borrowings under this agreement were repaid and the credit
agreement was terminated. At December 31, 1993, borrowings outstanding
under this agreement were $17,787,000.
Other debt at December 31, 1994 and 1993 consists primarily of
mortgages, industrial revenue bonds, and notes including $35.5 million
of foreign borrowings related to an acquisition which will be refinanced
in the first quarter of 1995. These obligations mature in various
installments through December 2003 and are at interest rates ranging
from 3.50% to 10.50%. The weighted average interest rate on short-term
borrowings was 7.28% and 7.08% at December 31, 1994 and 1993,
respectively.
In 1994, the Company repurchased $64,230,000 principal amount of Senior
Notes in the open market, resulting in an extraordinary charge of
$6,034,000 ($3,680,000 after tax).
The Senior Note agreements contain certain restrictions and conditions
among which are limitations on cash dividends and other payments. Under
the most restrictive of these agreements, approximately $114.4 million
of retained earnings was free of such limitations at December 31, 1994.
STOCKHOLDERS' EQUITY
In May 1994, the Company issued 14,322,624 shares of common stock to
effect a three-for-two stock split. The par value ($1 per share) of the
additional shares issued was charged to capital surplus.
The Associates Ownership Trust (AOT) acquired shares of common stock
from the Company in 1991 for a promissory note in the amount of
$100,049,000. The shares acquired are to fund a portion of the
Company's obligations under certain of its associate compensation and
associate benefit plans for the 15-year term of the AOT. At December
31, 1994 the AOT holds 4,693,518 shares of the Company's common stock.
Such shares are adjusted at each balance sheet date to their respective
market value with an offsetting adjustment to capital surplus.
Under the Company's Stock Purchase Rights Plan each Right entitles the
holder of common stock to buy from the Company one one-hundredth of a
share of Cumulative Series A Preferred Stock, without par value for $95,
subject to adjustment. The Rights become exercisable if certain
triggering events occur, including the acquisition of 15% or more of the
Company's common stock. The Company is entitled to redeem the Rights at
$.01 per Right at any time until ten days after any person or group has
acquired 20% of the Company's common stock and in certain circumstances
thereafter. If a party owning 20% or more of the Company's common stock
merges with the Company or engages in certain other transactions with
the Company, each Right, other than the Rights held by the acquiring
party, entitles the holder to purchase that number of additional common
shares having a market value of two times the exercise price of the
Right. The Rights expire on December 16, 2001.
The Company's stock option plans provide for granting options, including
options to non-associate directors, at the market value at date of grant.
Options are exercisable for ten years from the date of grant.
The following table summarizes the changes in the outstanding options for the
three years ended December 31, 1994.
SHARES PRICE RANGE
Outstanding January 1, 1992 1,859,401 $ 8.167 - $16.833
Granted 172,200 18.833
Exercised (330,920) 8.167 - 16.833
Canceled or expired (6,430) 8.887 - 16.833
Outstanding December 31, 1992 1,694,251 8.167 - 18.833
Granted 375,465 19.833 - 20.50
Exercised (464,794) 8.167 - 16.833
Canceled or expired (25,275) 11.167 - 18.833
Outstanding December 31, 1993 1,579,647 8.167 - 20.50
Granted 342,913 22.125 - 27.125
Exercised (77,320) 8.889 - 20.50
Canceled or expired (3,667) 14.833 - 20.50
Outstanding December 31, 1994 1,841,573 8.167 - 27.125
At December 31, 1994, options were exercisable for 1,099,126 shares (905,796
shares at December 31, 1993) at prices from $8.167 to $20.50 and 1,126,055
shares were reserved for future grants.
A graph depicting the following information appears at this point:
INTERNATIONAL SALES
In percent
1990 1991 1992 1993 1994
9.8 11.3 12.7 13.6 14.2
BUSINESS SEGMENTS
The Company operates principally in the formulated polymers industry
which consists of two major segments - processing and distribution.
Processing includes production of custom plastic and rubber compounds
and custom formulated colorants for the plastics industry. Distribution
includes distributors of thermoplastic and thermoset resins and
fiberglass materials and distributors of engineered plastic shapes.
Sales are made through the Company's organization, distributors and
representatives.
Other operations include the Company's diversified polymer products
business, its marine and insurance operations and management fees. The
Company is Managing Agent for Iron Ore Company of Canada (IOC) and owns
approximately 8% of IOC's common stock. IOC incurred commission and
management expense of $3,064,000 in 1994 ($2,648,000 in 1993 and
$2,628,000 in 1992) payable to the Company and $4,302,000 in 1994
($3,317,000 in 1993 and $3,294,000 in 1992) payable to 50% owned
companies carried at equity. In December 1992 the Company sold Midland
SouthWest, an oil and gas business for $5,290,000. No gain or loss was
recognized as a result of this transaction.
A graph depicting the following information appears at this point:
INTERNATIONAL OPERATING PROFITS
In percent
1990 1991 1992 1993 1994
7.4 10.9 10.8 10.0 14.2
Net sales, operating profit and identifiable assets by geographic area
are as follows:
Dollars in thousands 1994 1993 1992
Net sales
Domestic $1,475,277 $1,220,555 $1,037,995
International
Europe 130,461 93,595 68,296
Other 113,618 97,921 82,250
$1,719,356 $1,412,071 $1,188,541
Operating profit
Domestic $ 104,484 $ 83,104 $ 69,315
International
Europe 10,565 4,172 4,526
Other 6,764 5,070 3,829
$ 121,813 $ 92,346 $ 77,670
Identifiable assets
Domestic $ 868,201 $ 859,193 $ 845,406
International
Europe 180,842 89,556 101,768
Other 62,902 49,087 42,007
Discontinued operations 103,215 125,774 163,384
$1,215,160 $1,123,610 $1,152,565
<TABLE>
<CAPTION> Depreciation
Operating and Capital Identifiable
(Dollars in thousands) Net Sales Profit Amortization Expenditures Assets
<S> <C> <C> <C> <C> <C>
1994
Processing $ 942,999 $88,175 $34,254 $36,193 $ 615,715
Distribution 766,711 24,086 6,368 3,363 345,929
Other 32,129 9,552 823 - 16,751
Intersegment activity (22,483) - - - -
Corporate - (27,042) 459 3,862 133,550
Discontinued operations - - - 3,564 103,215
$1,719,356 $94,771 $41,904 $46,982 $1,215,160
1993
Processing $ 784,951 $65,427 (1) $29,842 $15,494 $ 522,122
Distribution 628,887 19,409 6,930 3,185 296,449
Other 33,479 7,510 936 727 16,281
Intersegment activity (35,246) - - - -
Corporate - (22,434)(2) 474 38 162,984
Discontinued operations - - - 3,935 125,774
$1,412,071 $69,912 $38,182 $23,379 $1,123,610
1992
Processing $ 655,584 $54,110 $25,987 $13,088 $ 489,900
Distribution 533,392 15,990 6,709 2,627 286,296
Other 36,201 7,570 2,182 363 24,101
Intersegment activity (36,636) - - - -
Corporate - (18,156) 543 - 188,884
Discontinued operations - - - 3,076 163,384
$1,188,541 $59,514 $35,421 $19,154 $1,152,565
(1) Includes $1,300,000 of restructuring costs.
(2) Includes $1,730,000 gain from sale of assets.
</TABLE>
PENSION AND OTHER POST-RETIREMENT BENEFITS
The Company has non-contributory defined benefit plans covering certain
of its associates which comply with federal funding requirements.
Benefits for these plans are based primarily on years of service and
qualifying compensation during the final years of employment. Plan
assets include marketable equity securities, money market funds and
fixed income securities.
The Company also sponsors defined contribution plans for certain of its
associates, which provide for Company contributions of a specified
percentage of each associate's total compensation.
A summary of the components of net periodic pension cost for the defined
benefit plans and the total contributions charged to expense for the
defined contribution plans follows:
Dollars in thousands 1994 1993 1992
Defined benefit plans:
Service costs $ 743 $ 617 $ 650
Interest cost on projected
benefit obligation 5,838 6,300 8,050
Return on plan assets (5,073) (6,258) (8,364)
Net amortization and deferral 930 815 656
Net pension costs 2,438 1,474 992
Defined contribution plans 3,785 3,236 3,745
$6,223 $4,710 $4,737
The Company has recorded a minimum pension liability representing the
excess of the accumulated benefit obligation over the fair value of plan
assets and accrued pension liabilities. The liability has been offset
by intangible assets to the extent possible. Because the asset
recognized may not exceed the amount of unrecognized past service cost,
the balance of the liability at the end of 1994 and 1993 is reported as
a separate reduction of stockholders' equity, net of applicable deferred
income taxes.
The following table sets forth the funded status of the Company's
defined benefit plans:
<TABLE>
<CAPTION> Accumulated Benefits Assets Exceed
Exceed Assets Accumulated Benefits
Dollars in thousands 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations
including vested benefits of
$73,428 in 1994 and $79,793 in 1993 $43,467 $66,528 $31,521 $16,000
Projected benefit obligation $44,414 $68,088 $31,981 $16,386
Plan assets at fair value 30,182 46,953 36,909 21,199
Projected benefits in excess of
(less than) plan assets 14,232 21,135 (4,928) (4,813)
Consisting of:
Unrecognized net obligations (asset) 1,190 1,969 135 (441)
Unrecognized net actuarial (gains) or losses 14,022 17,842 (1,389) (2,180)
Adjustment to recognize minimum liability 14,265 18,251 - -
Accrued(prepaid) pension cost
recognized in balance sheet $13,285 $19,575 $(3,674) $(2,192)
</TABLE>
The projected benefit obligation was determined using an assumed
discount rate of 8.25% (7.25% in 1993) and an assumed long-term rate of
increase in compensation of 5%. The assumed long-term rate of return on
plan assets is 8.5% (10% in 1993). The change in the discount rate
caused the accumulated benefit obligation to decrease approximately
$6,500,000.
In addition to providing pension benefits, the Company provides certain
contributory and non-contributory health care and life insurance
benefits for certain retired associates. Certain associates of the
Company may become eligible for these post-retirement benefits if they
reach retirement age while working for the Company.
A graph depicitng the following information appears at this point:
LONG-TERM DEBT/TOTAL CAPITAL
In percent
1990 1991 1992 1993 1994
19.5 46.5 46.8 46.8 41.0
Effective January 1, 1992, Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions" was adopted using the immediate recognition transition option.
The standard requires recognition of the estimated future costs of
providing health and other post-retirement benefits on an accrual basis.
These benefits had previously been recognized as incurred. The
cumulative effect of this accounting change reduced 1992 net income by
$33,561,000 ($54,131,000 less related deferred income taxes of
$20,570,000) or $1.13 per share.
The status of the Company's plans at December 31, 1994 and 1993 is as
follows:
Dollars in thousands 1994 1993
Accumulated post-retirement benefit obligation
Retirees $57,134 $65,905
Fully eligible active plan participants 3,747 5,167
Other active plan participants 9,732 13,193
70,613 84,265
Unrecognized actuarial gain(loss) 12,634 (3,146)
Accrued post-retirement benefit obligation $83,247 $81,119
Net periodic post-retirement benefit cost includes the following
components:
Dollars in thousands 1994 1993 1992
Service cost $1,069 $1,201 $1,127
Interest cost 5,605 6,512 6,354
Net periodic post-retirement benefit cost $6,674 $7,713 $7,481
The weighted-average assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is assumed to be
12.0% (14.0% in 1993) and decreasing gradually to 6.25% in 2007 (5.25%
in 2009 in 1993) and remaining at that level thereafter. A one
percentage point increase in the assumed health care cost trend rate
would have increased the accumulated benefit obligation by $8,209,000 at
December 31, 1994 and the aggregate service and interest costs
components of net periodic post-retirement benefit costs for 1994 by
$1,011,000.
A discount rate of 8.25% (7.25% in 1993) was used in determining the
accumulated benefit obligation. The change in the discount rate caused
the accumulated benefit obligation to decrease approximately $9,600,000.
A graph depicting the following information appears at this point:
RETURN ON EQUITY
In percent
1990 1991 1992 1993 1994
5.6 2.8 3.4 5.3 9.5
FINANCIAL INSTRUMENTS
The Company conducts business in various foreign currencies. As a
result, it is subject to transaction exposures that arise from
foreign exchange movements between the date that the foreign currency
transaction is recorded and the date it is consummated. The Company
has a policy of entering into intercompany lending transactions and
hedging the foreign exchange through foreign exchange forward
contracts. Gains and losses on intercompany debt are recognized
currently as a component of accumulative translation adjustment. The
Company has entered into such cross-currency foreign exchange
contracts with maturities of up to five years to protect the Company
from the risk that the future intercompany cash flows will be
adversely affected by changes in exchange rates. The Company does
not hold or issue financial instruments for trading purposes.
The table below summarizes by currency the contractual amounts of the
Company's foreign exchange contracts at December 31, 1994. Foreign
currency amounts are translated at exchange rates as of December 31,
1994. The "Buy" amounts represent the U.S. dollar equivalent of
commitments to purchase foreign currencies, and the "Sell" amounts
represent the U.S. dollar equivalent of commitments to sell foreign
currencies.
Dollars in thousands
Buy Sell
Currency:
British pound sterling $10,650 $ -
Canadian dollar 6,502 -
French franc - 18,695
German deutschmark - 13,174
Other 1,543 -
Total $18,695 $31,869
The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to financial instruments. No
counterparties are expected to fail to meet their obligations given
their high credit ratings, so the Company usually does not obtain
collateral for these instruments. There is no credit exposure from
the foreign exchange contracts at December 31, 1994.
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments:
Cash, Cash Equivalents and Short-Term Securities: The carrying
amounts reported in the balance sheet approximate fair value.
Long and Short-Term Debt: The carrying amount of the Company's
short-term borrowings approximates fair value. The fair value of the
Company's Senior Notes is based on quoted market prices. The
carrying amount of the Company's borrowings under its long-term
revolving credit agreements and other long-term borrowings
approximates fair value.
Foreign Exchange Contracts and Interest Rate Swaps: The fair value
of short-term foreign exchange contracts is based on exchange rates
at December 31, 1994. The fair value of long-term foreign exchange
contracts and interest rate swaps is based on quoted market prices.
The carrying amounts and fair values of the Company's financial
instruments at December 31, 1994 and 1993 are as follows:
1994 1993
Carrying Fair Carrying Fair
Dollars in thousands Amount Value Amount Value
Cash and cash equivalents $ 23,105 $ 23,105 $ 37,645 $ 37,645
Short-term securities - - 5,061 5,061
Notes payable to banks 931 931 2,478 2,478
Long-term debt
9% Senior Notes 117,745 119,252 150,000 172,500
9.375% Senior Notes 118,025 122,002 150,000 180,000
Credit agreements 12,650 12,650 17,787 17,787
Other 41,132 41,132 4,988 4,988
Foreign exchange contracts - (1,681) - -
Interest rate swaps - - - 365
LEASE COMMITMENTS
Rental expense under operating leases for certain manufacturing
facilities, warehouses, transportation equipment and data processing and
office equipment was $16,890,000 in 1994, $15,859,000 in 1993 and
$14,202,000 in 1992. Certain of the Company's leases have options to
renew, and there are no significant contingent rentals.
At December 31, 1994, future minimum lease commitments for noncancelable
operating leases are:
Dollars in thousands
1995 $10,585
1996 9,644
1997 8,825
1998 6,944
1999 5,325
Thereafter 17,903
$59,226
CONTINGENCIES
The Company is involved in certain legal actions and claims arising in
the ordinary course of business including lawsuits brought by the State
of Idaho in 1983 and the United States government in 1993 seeking
reimbursement from the Company and other defendants for alleged damages
to the environment and clean-up costs for the area around the Blackbird
Mine in Idaho.
Claims have also been made against a subsidiary of the Company for the
costs of environmental remediation measures taken or to be taken in
connection with operations that have been sold or closed. These include
the clean-up of Superfund sites and participation with other companies
in the clean-up of hazardous waste disposal sites, several of which have
been designated as Superfund sites. In April 1994, the New Jersey
Department of Environmental Protection and Energy finalized a Record of
Decision, which incorporates the agreed upon remediation to be performed
by the Company's subsidiary at its Wharton, New Jersey site.
Reserves for such liabilities have been established and no insurance
recoveries have been anticipated in the determination of the reserves.
In management's opinion, the aforementioned litigation and claims will
be resolved without material adverse effect on the financial position of
the Company.
A graph depicting the following information appears at this point:
DIVIDENDS
1990 1991 1992 1993 1994
0.37 0.42 0.44 0.48 0.51
OTHER INCOME
Other income includes the following:
Dollars in thousands 1994 1993 1992
Interest and dividends $3,025 $1,680 $3,006
Gain on sales of assets - 1,730 409
Other 1,041 1,606 1,835
$4,066 $5,016 $5,250
OTHER EXPENSE
Other expense includes the following:
Dollars in thousands 1994 1993 1992
Expenses of closed facilities $5,930 $7,031 $7,091
Restructuring costs 865 1,300 -
Other 3,044 1,419 1,826
$9,839 $9,750 $8,917
DETAIL OF CURRENT AND OTHER LIABILITIES
Included in trade payables and accrued expenses and other liabilities at
December 31 are:
Dollars in thousands 1994 1993
Trade payables and accrued expenses:
Trade payables $178,166 $132,151
Salaries and wages 14,744 10,992
Associate benefits 37,933 27,841
Restructuring and acquisition costs 19,808 16,018
Other liabilities:
Plant closedown costs 13,460 14,318
Environmental costs 12,808 18,449
Associate benefits 17,605 11,816
Other post-retirement benefits 77,898 75,186
A graph depicting the following information appears at this point:
CAPITAL EXPENDITURES
As a percent of depreciation
1990 1991 1992 1993 1994
131.6 117.3 65.8 79.8 147.5
SUPPLEMENTAL CASH FLOW DATA
The following is a summary of noncash investing and financing activities:
Dollars in thousands 1994 1993 1992
Acquisition of businesses
Assets acquired $70,456 $33,130 $106,447
Liabilities assumed 13,752 4,327 45,030
Cash paid 56,704 28,803 61,417
Less cash acquired 3,373 - 6,063
$53,331 $28,803 $ 55,354
Debt of companies acquired $ 4,692 $ 11,084
Payment of additional purchase
price of acquired business
with treasury stock $ 6,802
Payment of incentive compensation
awards with treasury stock $ 990 $ 780 $ 731
Release of common stock held by
Associates Ownership Trust $13,246 $ 8,260 $ 4,207
Payment of stock option exercised
with shares of common stock $ 38 $ 1,675
<TABLE>
Quarterly Financial and Stock Price Data
M.A. Hanna Company and Consolidated Subsidiaries
Summarized unaudited quarterly financial and stock price data for 1994 and 1993 are as follows:
<CAPTION>
First Second Third Fourth
Dollars in thousands except per share data Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1994
Net sales $388,520 $422,516 $448,650 $459,670
Gross margin 72,214 80,575 84,130 89,401
Income(loss)
Continuing operations 6,210 9,370 11,269 10,155
Discontinued operations 2,047 2,573 1,625 3,725
Extraordinary charge - (3,680) - -
Net income 8,257 8,263 12,894 13,880
Income(loss) per common share (fully diluted)
Continuing operations 0.19 0.30 0.36 0.32
Discontinued operations 0.07 0.08 0.05 0.12
Extraordinary charge - (0.12) - -
Net income 0.26 0.26 0.41 0.44
Price range
High 25.58 26.50 28.88 26.00
Low 21.42 23.17 23.50 21.62
Cash dividends paid 0.125 0.125 0.125 0.135
1993
Net sales $337,324 $357,972 $361,993 $354,782
Gross margin 61,821 67,924 67,510 68,625
Income(loss)
Continuing operations 2,743 6,057 6,569 5,928
Discontinued operations 3,097 2,287 2,295 (26,958)
Net income(loss) 5,840 8,344 8,864 (21,030)
Income(loss) per common share (fully diluted)
Continuing operations 0.09 0.20 0.21 0.19
Discontinued operations 0.10 0.07 0.08 (0.87)
Net income(loss) 0.19 0.27 0.29 (0.68)
Price range
High 20.50 22.17 21.42 22.67
Low 17.17 18.67 17.33 19.25
Cash dividends paid 0.117 0.117 0.117 0.125
During the fourth quarter of 1994, the Company adopted a plan to sell its Day International
printing and textile business. The operating results of this business have been reclassified
as discontinued operations which has decreased previously reported income from continuing
operations in 1994 by $2,047,000 in the first quarter ($.07 per share), $2,573,000 in the second
quarter ($.08 per share) and $2,740,000 in the third quarter ($.08 per share) and decreased
previously reported income from continuing operations in 1993 by $1,753,000 in the first quarter
($.06 per share), $2,067,000 in the second quarter ($.06 per share), $2,009,000 in the third quarter
($.07 per share) and $2,922,000 in the fourth quarter ($.09 per share).
Income per share calculations for each of the quarters are based on the weighted average number of
shares outstanding for each period, and the sum of the quarters may not necessarily be equal to the
full year income per share amount.
</TABLE>
SELECTED FINANCIAL DATA
M. A. Hanna Company and Consolidated Subsidiaries
<TABLE>
<CAPTION>
Dollars in thousands except per share data 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $1,719,356 $1,412,071 $1,188,541 $1,006,638 $960,228 $918,276
Cost of goods sold 1,393,036 1,146,191 961,925 797,892 749,071 718,636
Selling, general and administrative 213,318 179,228 152,366 147,998 137,674 135,741
Amortization of intangibles 12,458 12,006 11,069 10,146 9,704 8,886
Interest on debt 28,549 32,258 32,509 23,221 18,301 21,128
Income(loss) from continuing operations before
income taxes, extraordinary charge and cumulative
effect of changes in accounting principles 66,222 37,654 27,005 (16,195) 44,023 44,797
Income taxes 29,218 16,357 8,819 8,225 12,830 7,608
Income(loss) from continuing operations before
extraordinary charge and cumulative effect
of changes in accounting principles 37,004 21,297 18,186 (24,420) 31,193 37,189
Net income 43,294 2,018 19,025 1,875 55,871 86,920
Per share of common stock
Income(loss) from continuing operations 1.20 0.69 0.63 (0.72) 0.75 0.92
Net income 1.40 0.07 0.66 0.02 1.35 2.23
Dividends paid 0.51 0.48 0.44 0.42 0.37 0.30
Cash dividends paid on
Common stock 15,688 14,003 12,630 15,267 15,175 11,812
Preferred stock - - - 1,031 - 2,125
BALANCE SHEET
Current assets $565,615 $405,782 $416,739 $275,060 $276,711 $264,772
Current liabilities 337,491 259,680 229,327 195,610 181,471 167,272
Working capital 228,124 146,102 187,412 79,450 95,240 97,500
Property, plant and equipment - net 204,135 184,296 195,117 184,877 183,536 173,477
Other assets 445,410 438,628 440,873 443,702 458,394 444,479
Net long-term assets of discontinued operations - 94,904 99,836 121,374 129,869 137,304
Other liabilities (173,888) (176,422) (174,558) (118,082) (161,674) (175,310)
Long-term debt (288,869) (322,052) (350,737) (330,863) (137,691) (134,834)
Total stockholders' equity $414,912 $365,456 $397,943 $380,458 $567,674 $542,616
Shares of common stock outstanding 35,694,094 35,611,522 35,100,108 34,245,075 39,937,572 41,682,807
Book value per share of common stock $11.62 $10.26 $11.34 $11.11 $14.21 $13.02
SELECTED FINANCIAL DATA
M. A. Hanna Company and Consolidated Subsidiaries
Dollars in thousands except per share data 1988 (1)
SUMMARY OF OPERATIONS
Net sales $797,563
Cost of goods sold 614,465
Selling, general and administrative 128,573
Amortization of intangibles 6,456
Interest on debt 23,622
Income(loss) from continuing operations before
income taxes, extraordinary charge and cumulative
effect of changes in accounting principles 28,554
Income taxes 4,107
Income(loss) from continuing operations before
extraordinary charge and cumulative effect
of changes in accounting principles 24,447
Net income 83,223
Per share of common stock
Income(loss) from continuing operations 0.49
Net income 2.32
Dividends paid 0.22
Cash dividends paid on
Common stock 7,169
Preferred stock 8,501
BALANCE SHEET
Current assets $240,029
Current liabilities 166,185
Working capital 73,844
Property, plant and equipment - net 154,477
Other assets 406,426
Net long-term assets of discontinued operations 141,552
Other liabilities (169,470)
Long-term debt (137,725)
Total stockholders' equity $469,104
Shares of common stock outstanding 32,331,271
Book value per share of common stock $11.41
(1) Prior to 1988, the Company was a natural resources company and not in the specialty chemicals business.
Results for 1984 -1987 are excluded because they are not comparable to results for 1988 -1994.
STOCK INFORMATION
M. A. Hanna Company common stock is listed on the New York and Chicago
stock exchanges under the symbol MAH. At December 31, 1994, the number
of stockholders of record of the Company's common stock was 3,886.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
M.A. Hanna Company and Consolidated Subsidiaries
RESULTS OF OPERATIONS
1994 Compared with 1993
Significant strategic and financial progress was made in 1994. The
Company developed a capability in thermoplastic elastomers with the
acquisition of North Coast Compounders and enhanced its capability in
polymer processing with the acquisition of Th. Bergmann GmbH & Co.
Kunststoffwerk, one of Germany's largest producers of specialty and
reinforced compounds. Net sales were a record $1,719.4 million, an
increase of 21.8% over net sales in 1993 of $1,412.1 million. Sales
from processing businesses increased from $784.9 million in 1993 to
$943.0 million in 1994 due to acquisitions in 1994 and 1993, higher unit
volumes and pricing. Distribution sales increased $137.8 million to
$766.7 million in 1994 due to higher unit volumes and pricing. Sales
from other operations were comparable with 1993 levels.
Cost of goods sold increased from $1,146.2 million in 1993 to $1,393.0
million in 1994 and corresponds with the increase in net sales. Gross
margins were 19.0% in 1994 and 18.8% in 1993. Gross margin dollars in
1994 were $326.3 million compared with $265.9 million in 1993 or an
increase of 22.7%, which exceeds the growth in sales of 21.8%. Gross
margins were favorably impacted by higher volumes and productivity
improvements, partially offset by the mix of sales between processing
and distribution businesses. Distribution businesses, which had a
higher growth rate in net sales than processing businesses, carry a
lower gross margin. Also impacting gross margins in 1994 was a $3.3
million provision for inventories valued by the last-in first-out cost
method.
Selling, general and administrative expenses increased $34.1 million in
1994 to $213.3 million and is attributable to the higher level of sales,
acquisitions made in 1994 and increased costs associated with the
Company's incentive compensation programs due to the higher level of
earnings. As a percentage of sales, selling, general and administrative
expenses were 12.4% in 1994 compared with 12.7% in 1993.
Interest on debt decreased from $32.3 million in 1993 to $28.5 million
in 1994 due to lower average borrowings outstanding and lower effective
interest rates. During 1994, the Company repurchased $64.2 million of
its Senior Notes in the open market, resulting in an extraordinary
charge of $6.0 million ($3.7 million after-tax). Funds to repurchase
the Senior Notes were obtained from existing cash flows as well as
borrowings under the Company's credit agreement, which carry a lower
rate of interest.
The Company's effective tax rate in 1994 was 44.1% compared with 43.4%
in 1993. The tax rate in 1993 was favorably impacted by 1.6 percentage
points from the enactment of a change in tax laws.
Income from continuing operations increased from $21.3 million in 1993
to $37.0 million in 1994, an increase of 73.8% on an increase in net
sales of 21.8%.
In December 1994, the Company adopted a plan to sell its Day
International printing and textile business. Accordingly, the operating
results of the business have been reclassified as discontinued
operations. Also included in 1994 amounts is a charge of $1.1 million
related to the Company's elastomeric membrane roofing business for
additional costs incurred while obtaining government antitrust clearance
for the sale, which closed in the third quarter of 1994. The Company
recognized an after-tax charge of $30.0 million in 1993 for the write-off
of goodwill and restructuring charges associated with the sale. Also
included in discontinued operations in 1993 is $1.5 million from the
sale of a former natural resources affiliate.
1993 Compared with 1992
Net sales increased from $1,188.5 million in 1992 to $1,412.1 million in
1993. Sales from processing businesses increased $129.4 million from
1992 levels due to acquisitions made in both 1993 and 1992 and higher
unit volumes. Distribution sales increased $95.5 million to $628.9
million in 1993 due to higher unit volumes and an acquisition made at
the end of the third quarter in 1992. Sales from other operations
decreased from $36.2 million in 1992 to $33.5 million in 1993 due to
the sale of businesses in both years.
Cost of goods sold increased $184.3 million to $1,146.2 million in 1993
and corresponds with the sales increase. As a percentage of sales, cost
of goods sold was 81.2% in 1993 compared with 80.9% in 1992. The
resultant decrease in gross margin is due to a higher percentage of
sales from distribution businesses, which carry a lower gross margin.
Selling, general and administrative expenses increased $26.9 million in
1993 over 1992 levels due to acquisitions in processing and distribution
businesses. However, as a percentage of sales, selling, general and
administrative expenses fell from 12.8% in 1992 to 12.7% in 1993,
reflecting the Company's ongoing efforts to manage these costs.
Amortization expense increased from $11.1 million in 1992 to $12.0
million in 1993 due to acquisitions made in both 1993 and 1992.
The Company's effective tax rate in 1993 was 43.4% compared with 32.7%
in 1992. The tax rate in both years was impacted by favorable tax
adjustments. Tax expense in 1993 was reduced $.6 million from the
enactment of a change in tax laws and tax expense in 1992 was reduced
$4.8 million due to a favorable adjustment of income tax liabilities.
During the fourth quarter of 1993, the Company announced it had reached
an agreement to sell its elastomeric membrane roofing business.
Accordingly, the operating results of this business were reclassified as
discontinued operations. In addition, the Company recognized an after-
tax charge of $30.0 million for the writeoff of goodwill and
restructuring charges associated with the sale. Also included in
discontinued operations is $1.5 million from the sale of a former
natural resources affiliate.
A graph depicting the following information appears at this point:
WORKING CAPITAL EXCLUDING CASH
Percent of sales
1990 1991 1992 1993 1994
6.2 4.7 8.4 6.2 5.9
Liquidity and Sources of Capital
The Company generated significant cash flows in 1994 from operations
with $112.6 million provided from operating activities. Included in
this amount was $4.4 million from reductions in operating working
capital on an increase in net sales of $307.3 million. Payments of
obligations from prior restructurings used $10.5 million. Investment
activities used $76.2 million and include $47.0 million for capital
expenditures and $57.4 million for acquisitions and payment of
acquisition-related obligations. The sale of assets and cash from
associated companies provided cash of $13.9 million and $8.8 million,
respectively. Sales of short-term securities also provided $5.1
million. Financing activities used $51.2 million and include $15.7
million for the payment of dividends, $48.2 million in net reductions of
outstanding debt and $1.5 million for shares repurchased, partially
offset by $14.2 million in proceeds from the sale of common stock. The
Company repurchased $64.2 million of its Senior Notes in the open
market, resulting in an extraordinary after-tax charge of $3.7 million.
Funds to repurchase the Senior Notes were obtained from existing cash
flows as well as borrowings under the Company's credit agreements, which
carry a lower rate of interest than the Senior Notes.
The Company entered into a new revolving credit agreement during 1994,
replacing an existing credit agreement which provided for a reducing
amount of credit availability. The new agreement provides commitments
for borrowings up to $200 million through June 1998. The arrangement
provides for interest rates to be determined at the time of borrowing
based on a choice of formulas specified in the agreement. At December
31, 1994, there were $12.7 million of outstanding borrowings supported
by this agreement.
The Company also had a credit agreement which provided commitments for
borrowings of up to 150 million French francs through November 1996.
The agreement provided for interest rates to be determined at the time
of borrowing. During the third quarter of 1994, borrowings under this
agreement were repaid and the credit agreement was terminated.
In July 1994, the Company acquired Th. Bergmann GmbH & Co.
Kunststoffwerk. The Company entered into an acquisition financing
agreement which provided for borrowings in German marks. It is the
intent of the Company to refinance the acquisition financing in the
first quarter of 1995.
A graph depicting the following information appears at this point:
RETURN ON WORKING ASSETS
In percent
1990 1991 1992 1993 1994
18.8 14.9 19.6 23.5 30.7
The current ratio at December 31, 1994 was 1.7:1 compared with 1.6:1 at
December 31, 1993. Excluding the net assets of discontinued operations
reported as a current asset in 1994, the current ratio at December 31,
1994 was 1.4:1. Long-term debt to total capital was 41.0% at December
31, 1994 and 46.8% at December 31, 1993.
The Company believes that its ability to generate cash flows from
operations and the availability of funds under existing credit
facilities will be sufficient to meet anticipated capital expenditure
programs, payment of obligations from prior restructurings, dividends
and other planned financial commitments in 1995 and throughout the term
of the existing credit facilities.
Environmental Matters
The Company is subject to various laws and regulations concerning
environmental matters. The Company is committed to a long-term
environmental protection program that reduces releases of hazardous
materials into the environment as well as to the remediation of
identified existing environmental concerns.
The Company is involved in certain legal actions and claims arising in
the ordinary course of business including lawsuits brought by the State
of Idaho in 1983 and the United States government in 1993 seeking
reimbursement from the Company and other defendants for alleged damages
to the environment and clean-up costs for the area around the Blackbird
Mine in Idaho.
Claims have also been made against a subsidiary of the Company for costs
of environmental remediation measures taken or to be taken in connection
with operations that have been sold or closed. These include the clean-
up of Superfund sites and participation with other companies in the
clean-up of hazardous waste disposal sites, several of which have been
designated as Superfund sites. In April 1994, the New Jersey Department
of Environmental Protection and Energy finalized a Record of Decision,
which incorporates the agreed upon remediation to be performed by the
Company's subsidiary at its Wharton, New Jersey site.
Reserves for such liabilities have been established and no insurance
recoveries have been anticipated in the determination of reserves. In
management's opinion, the aforementioned litigation and claims will be
resolved without material adverse effect on the financial position of
the Company.
On behalf of M.A. Hanna Management,
/s/ Douglas R. Schrank
Douglas R. Schrank
Vice President and Chief Financial Officer
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
M. A. Hanna Company
Cleveland, Ohio
We have audited the accompanying consolidated balance sheets of
M. A. Hanna Company and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
M. A. Hanna Company and subsidiaries at December 31, 1994 and 1993, and
the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 31, 1995
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT:
Where
Incorporated
Name (or formed)
Allied Color Industries, Inc. Ohio
Burton Rubber Compounding , L.P. Delaware
(a limited partnership)
Burton Rubber Processing, Ltd. Ontario
Cadillac Plastic Group, Inc. Michigan
Day International, Inc. Delaware
DH Compounding Company Delaware
(a general partnership)
Erieview Insurance Company Limited Bermuda
Global Processing Company California
Hanac Corp. Delaware
Hanna France SARL France
Hanna Hamilton Holdings Company Delaware
Hanna Holdings Company Delaware
Hanna International Corporation Delaware
Hanna Polimeros, S.A. de C.V. Mexico
M. A. Hanna de Mexico, S.A. de C.V. Mexico
M. A. Hanna Resin Distribution Company Delaware
M. A. Hanna Company Thermoplastic Elastomers Delaware
MAH Plastics Company Delaware
Monmouth Plastics Company Delaware
Poliamidas Barbastro, S.A. Spain
Synthecolor, S.A. France
Texapol Corporation Pennsylvania
The Lower Lake Dock Company Ohio
The Ohio & Western Pennsylvania
Dock Company Ohio
The Pennsylvania Tidewater
Dock Company Delaware
Theodor Bergmann GmbH & Co.
Kunststoffwerk KG Germany
Wilson Color S.A. Belgium
Wilson Color GmbH Germany
Wilson Color S.A. France
Wilson Color AB Sweden
The Registrant has other unconsolidated subsidiaries and 50
percent or less owned persons accounted for by the equity method,
which in the aggregate do not constitute a significant subsidiary.
<PAGE>
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of M.A. Hanna Company of our report dated
January 31, 1995, included in the 1994 Annual Report to
Shareholders of M.A. Hanna Company.
/s/ Ernst & Young LLP
March 17, 1995
Consent of Independent Auditors
We consent to the incorporation by reference in the following
Registration Statements (Exhibit I) of M.A. Hanna Company of our
report dated January 31, 1995, with respect to the consolidated
financial statements and schedule of M.A. Hanna Company included
in the Annual Report (Form 10-K) for the year ended December 31, 1994.
/s/ Ernst & Young LLP
March 17, 1995
Consent of Independent Auditors
Exhibit I
Form S-8 No. 2-70755 pertaining to the M.A. Hanna Company
1979 Executive Incentive Compensation Plan.
Form S-8 No. 33-29622 pertaining to the M.A. Hanna Company
1988 Long-Term Incentive Plan.
Form S-8 No. 33-35654 pertaining to the M.A. Hanna Company
Restated 1979 Executive Compensation Plan and 1988 Long-Term
Incentive Plan.
Form S-8 No. 33-38938 pertaining to the M.A. Hanna Company
Capital Accumulation Plan.
Form S-8 No. 33-41461 pertaining to the M.A. Hanna Company
Capital Accumulation and Savings Plan for Salaried Employees
of Day International Corporation.
Form S-8 No. 33-45420 pertaining to the M.A. Hanna Company
Pay for Performance Plans.
Form S-3 No. 33-29624 pertaining to the M.A. Hanna Company
Dividend Reinvestment and Stock Purchase Plan.
Form S-3 No. 33-46522 pertaining to various employee
compensation and benefit plans of M.A. Hanna Company.
Form S-3 No. 33-66128 pertaining to various employee
compensation and benefit plans of M.A. Hanna Company.
Form S-8 No. 33-51517 pertaining to Wilson Color Profit
Sharing Plan.
Form S-8 No. 33-51519 pertaining to Texapol Corporation
Employees' 401(k) Savings Plan.
Form S-8 No. 33-51555 pertaining to PMS Profit Sharing and
Retirement Savings Plan.
Form S-8 No. 33-51513 pertaining to Fiberchem, Inc. 401 (k)
Plan.
Form S-8 No. 33-51497 pertaining to DH Compounding Company
Savings and Retirement Plan.
Form S-8 No. 33-51499 pertaining to Dayton Plastics Profit
Sharing Plan.
Form S-8 No. 33-51491 pertaining to Burton Rubber Processing,
Inc. Savings and Retirement Plan.
Form S-8 No. 33-51507 pertaining to Bruck Plastics Company
Profit Sharing Plan.
Form S-8 No. 33-51503 pertaining to Allied Color Industries,
Inc. Savings and Retirement Plan for Associates of the
Vonore, TN, Kansas City, MO, San Fernando, CA and Vancouver,
WA Operations, formerly the Avecor, Inc. Savings and
Retirement Plan.
Form S-8 No. 33-51501 pertaining to Allied Color Industries,
Inc. Profit Sharing Plan for Associates of the Broadview
Heights, OH, Greenville, SC, and Phoenix, AZ Operations
formerly the Allied Color Industries, Inc. Profit Sharing
Plan.
Form S-8 No. 33-53093 pertaining to M.A. Hanna Company
Directors' Deferred Fee Plan.
Form S-8 No. 33-57021 pertaining to 401 (k) Savings and
Retirement Plan for Polymer Associates.
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, Director of the corporation named herein
opposite his signature, hereby appoints T. E. Lindsey,
J. S. Pyke, Jr., and D. R. Schrank, or any of them, his attorney or
attorneys in fact, with full power of substitution, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31,
1994, being filed with the Securities and Exchange Commission by
M. A. Hanna Company, and any and all amendments to such Annual
Report, with full power and authority to take any and all such
action as may be necessary or advisable in the premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature Date
/s/ B. C. Ames Director of M. A. Hanna March 1, 1995
B. C. Ames Company
POWER OF ATTORNEY
The undersigned, Director of the corporation named herein
opposite her signature, hereby appoints T. E. Lindsey,
J. S. Pyke, Jr., and D. R. Schrank, or any of them, her attorney or
attorneys in fact, with full power of substitution, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31,
1994, being filed with the Securities and Exchange Commission by
M. A. Hanna Company, and any and all amendments to such Annual
Report, with full power and authority to take any and all such
action as may be necessary or advisable in the premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature Date
/s/ Carol A.Cartwright Director of M. A. Hanna March 1, 1995
C. A. Cartwright Company
POWER OF ATTORNEY
The undersigned, Director of the corporation named herein
opposite his signature, hereby appoints T. E. Lindsey,
J. S. Pyke, Jr., and D. R. Schrank, or any of them, his attorney or
attorneys in fact, with full power of substitution, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31,
1994, being filed with the Securities and Exchange Commission by
M. A. Hanna Company, and any and all amendments to such Annual
Report, with full power and authority to take any and all such
action as may be necessary or advisable in the premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature Date
/s/ Wayne R. Embry Director of M. A. Hanna March 1, 1995
W. R. Embry Company
POWER OF ATTORNEY
The undersigned, Director of the corporation named herein
opposite his signature, hereby appoints T. E. Lindsey,
J. S. Pyke, Jr., and D. R. Schrank, or any of them, his attorney or
attorneys in fact, with full power of substitution, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31,
1994, being filed with the Securities and Exchange Commission by
M. A. Hanna Company, and any and all amendments to such Annual
Report, with full power and authority to take any and all such
action as may be necessary or advisable in the premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature Date
/s/ J. T. Eyton Director of M. A. Hanna March 1, 1995
J. T. Eyton Company
POWER OF ATTORNEY
The undersigned, Director of the corporation named herein
opposite his signature, hereby appoints T. E. Lindsey,
J. S. Pyke, Jr., and D. R. Schrank, or any of them, his attorney or
attorneys in fact, with full power of substitution, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31,
1994, being filed with the Securities and Exchange Commission by
M. A. Hanna Company, and any and all amendments to such Annual
Report, with full power and authority to take any and all such
action as may be necessary or advisable in the premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature Date
/s/ G. D. Kirkham Director of M. A. Hanna March 1, 1995
G. D. Kirkham Company
POWER OF ATTORNEY
The undersigned, Director of the corporation named herein
opposite his signature, hereby appoints T. E. Lindsey,
J. S. Pyke, Jr., and D. R. Schrank, or any of them, his attorney or
attorneys in fact, with full power of substitution, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31,
1994, being filed with the Securities and Exchange Commission by
M. A. Hanna Company, and any and all amendments to such Annual
Report, with full power and authority to take any and all such
action as may be necessary or advisable in the premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature Date
/s/ M. L. Mann Director of M. A. Hanna March 1, 1995
M. L. Mann Company
POWER OF ATTORNEY
The undersigned, Director of the corporation named herein
opposite his signature, hereby appoints T. E. Lindsey,
J. S. Pyke, Jr., and D. R. Schrank, or any of them, his attorney or
attorneys in fact, with full power of substitution, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31,
1994, being filed with the Securities and Exchange Commission by
M. A. Hanna Company, and any and all amendments to such Annual
Report, with full power and authority to take any and all such
action as may be necessary or advisable in the premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature Date
/s/ Richard W. Pogue Director of M. A. Hanna March 1, 1995
R. W. Pogue Company
POWER OF ATTORNEY
The undersigned, Director of the corporation named herein
opposite his signature, hereby appoints T. E. Lindsey,
J. S. Pyke, Jr., and D. R. Schrank, or any of them, his attorney or
attorneys in fact, with full power of substitution, to sign the
Annual Report on Form 10-K for the fiscal year ended December 31,
1994, being filed with the Securities and Exchange Commission by
M. A. Hanna Company, and any and all amendments to such Annual
Report, with full power and authority to take any and all such
action as may be necessary or advisable in the premises.
Capacity in which Annual Report
on Form 10-K is to be signed
Signature Date
/s/ D. J. McGregor Director of M. A. Hanna March 1, 1995
D. J. McGregor Company
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements included in the Registrant's 1994 Annual Report distributed to
stockholders and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 23,105
<SECURITIES> 0
<RECEIVABLES> 258,462
<ALLOWANCES> 11,346
<INVENTORY> 161,260
<CURRENT-ASSETS> 565,615
<PP&E> 342,543
<DEPRECIATION> 138,408
<TOTAL-ASSETS> 1,215,160
<CURRENT-LIABILITIES> 337,491
<BONDS> 288,869
<COMMON> 43,015
0
0
<OTHER-SE> 371,897
<TOTAL-LIABILITY-AND-EQUITY> 1,215,160
<SALES> 1,719,356
<TOTAL-REVENUES> 1,719,356
<CGS> 1,393,036
<TOTAL-COSTS> 1,393,036
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,250
<INTEREST-EXPENSE> 28,549
<INCOME-PRETAX> 66,222
<INCOME-TAX> 29,218
<INCOME-CONTINUING> 37,004
<DISCONTINUED> 9,970
<EXTRAORDINARY> (3,680)
<CHANGES> 0
<NET-INCOME> 43,294
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.38
</TABLE>
