Item 1. BUSINESS
Handleman Company, a Michigan corporation (herein referred to as the "Company" or "Handleman" or "Registrant"), which has its executive office in Troy, Michigan, is the successor to a proprietorship formed in 1934, and to a partnership formed in 1937.
DESCRIPTION OF BUSINESS: - ------------------------
Handleman Company is engaged in the sale and distribution of prerecorded music, video, hardcover and paperback books, and personal computer software primarily to mass merchants throughout the United States and Canada. In fiscal 1994 the Registrant established a distribution company with headquarters in Mexico City to supply music and video products to retail outlets throughout Mexico. In addition, the Company provides various services as a specialized merchandiser (rackjobber) to these accounts. The Company is also in the business of acquiring video licenses, giving it exclusive rights to manufacture and distribute certain video products.
The following table sets forth net sales, and the approximate percentage contribution to consolidated sales, for the fiscal years ended April 30, 1994, May 1, 1993 and May 2, 1992, for the prerecorded music, video, books, and personal computer software product lines of the Company.
Business Segments -----------------
The Company operates in one business segment, selling home entertainment software to mass merchant and specialty chain stores, drugstores and supermarkets. The Company has both United States and Canadian operations which are set forth below. Operations in Mexico were not material in fiscal 1994.
GENERAL -------
The Company is a link between manufacturers of home entertainment software products and mass merchant chain stores. Customers purchase from Handleman due to the value-added benefits the Company adds to the basic product, and due to the benefit of only dealing with one vendor. Manufacturers utilize the Company's services to avoid the necessity of distributing to thousands of individual stores throughout a vast geographic range. Information regarding the number of active vendors from which the Company purchases, number of titles the Company is currently distributing and number of retail departments presently serviced follows:
The Company is also engaged in acquiring licenses providing exclusive rights for the duplication and distribution of certain video products. These activities are conducted by Video Treasures, Inc., a wholly owned subsidiary of the Company. Video Treasures' fiscal 1994 sales, including $13.7 million in sales to Handleman Company, were $34.8 million, compared to $33.2 million in the prior year. Video Treasures currently has over 2,000 titles available for distribution in its catalog. Video Treasures is continuously seeking to expand its product catalog with budget and selected frontline titles.
Vendors -------
An important reason the Company's customers utilize its services is due to the multitude of vendors offering products for-sale, the complexity of vendor programs, the "hits" nature of the business, and the high risk of inventory obsolescence.
The Company must anticipate consumer demand for individual titles. In order to maximize sales, the Company must be able to immediately react to "breakout" titles, while simultaneously minimizing inventory exposure for artists or titles which do not sell. In addition, because the Company distributes throughout the U.S. and Canada, it must adapt selections it offers to local tastes. This is accomplished via a coordination of national and local purchasing responsibility, both monitored by inventory control programs.
The Company purchases from many different vendors. The volume of purchases from individual vendors fluctuates from year-to-year based upon the saleability of selections being offered by such vendor. Though within each product line a small number of major, financially sound vendors account for a high percentage of purchases, product must be selected from a variety of vendors in order to maintain an adequate selection for consumers. The Company must closely monitor its inventory exposure and accounts payable balances with smaller vendors which may not have the financial resources to honor their return commitments. At this time, the high risk vendors which require close monitoring tend to be concentrated in the video and software product lines.
Since the public's taste in prerecorded music, video, books, and personal computer software is broad and varied, Handleman is required to maintain large inventories to satisfy diverse tastes. The Company minimizes the effect of obsolescence through planned purchasing methods and computerized inventory controls. Since substantially all vendors from which the Company purchases product offer some level of return allowances and price protection, the Company's exposure to markdown risk is limited unless vendors are unable to fulfill their return obligation or non-saleable product purchases exceed vendor return limitations. It is possible that the Company may possess in its inventories certain product that it cannot utilize in the ordinary course of business and may only be returnable with cost penalties or may be non-returnable until the Company can comply with the provisions of the vendor's return policies. Vendors offer a variety of return programs, ranging from 100% returns to zero return allowance. Other vendors offer incentive and penalty arrangements to restrict returns.
Handleman generally does not have distribution contracts with manufacturers or suppliers; consequently, its relationships with them may be discontinued at any time by such manufacturers or suppliers, or by Handleman.
Customers ---------
Handleman Company's customers utilize its services for a variety of reasons. The Company selects products from a multitude of vendors offering numerous titles, different formats (e.g., cassettes, compact discs) and different payment and return arrangements. As a result, customers avoid most of the risks inherent in product selection and the risk of inventory obsolescence.
Handleman also offers its customers a variety of "value-added" services:
STORE SERVICE: Sales representatives visit individual retail stores and meet with store management to discuss upcoming promotions, special merchandising efforts, department changes, current programs, or breaking releases which will increase sales. They also monitor inventory levels, check merchandise displays, and install point-of-purchase advertising materials.
ADVERTISING: Handleman supplies point-of-purchase materials and assists customers in preparing radio, television and print advertisements.
FIXTURING: Handleman provides specially designed fixtures that emphasize product visibility and accessibility.
FREIGHT: Handleman coordinates delivery of product to each store.
PRODUCT EXCHANGE: Handleman protects its continuing customers against product markdowns by offering the privilege of exchanging slower-selling product for best sellers.
The nature of the Company's business lends itself to computerized ordering and distribution techniques, which the Company pioneered and implemented in the United States and Canada through development of its computerized system, known as Retail Inventory Management Systems (RIMS). RIMS is refined continuously to meet the more sophisticated needs of its customer base. RIMS captures consumer demand and integrates retail inventory control with ordering and distributing functions. RIMS can also accept transmissions of customer point-of-sale data so as to immediately react to store selling patterns. Using RIMS, the Company is able to tailor the inventories of individual stores to reflect the customer profile of each store and to adjust inventory levels, product mix and selections according to seasonal and current selling trends.
The Company determines the selections to be offered in its customers' retail stores, and ships these selections to the stores from one of its distribution centers located throughout North America. Slow selling items are removed from the stores by the Company and are recycled for redistribution or returned to the manufacturers. Returns from customer stores occur for a variety of reasons, including new releases which did not achieve their expected sales potential, ad product to be returned after the ad has run, regularly scheduled realignment pick-ups and customer directed returns. The Company provides a reserve for the gross profit margin impact of expected customer returns.
During the fiscal year ended April 30, 1994, one customer, Kmart Corporation, accounted for approximately 41% of the Company's consolidated sales, while a second customer, Wal-Mart, accounted for approximately 26%. Handleman may not have contracts with its customers, and such relationships may be discontinued at any time by the customers or Handleman; the discontinuance of the relationships with either of the two largest customers would have a materially adverse effect upon the Company's future sales and earnings.
Operations ----------
The Company distributes products from facilities throughout the U.S. and Canada. Besides economies of scale and through-put considerations in determining the number of facilities it operates, the Company must also consider freight costs to and from customers' stores and the importance of timely delivery of new releases. Due to the nature of the home entertainment software business, display of new releases close to authorized "street dates" is an important driver of both retail sales and customer satisfaction.
The Company also operates four regional return centers in the United States as a means to expedite the processing of customer returns. In order to minimize inventory investment, customer returns must be sorted and identified for either redistribution or return to vendors as expeditiously as possible. An item returned from one store may actually be required for shipment to another store. Therefore, timely recycling prevents purchasing duplicate product for a store whose order could be filled from returns from other stores.
The Registrant has established a distribution company, with its headquarters and warehouse in Mexico City, to supply music and video products to retail outlets throughout Mexico
On June 9, 1994, the Company announced that it was realigning its Western region by replacing certain distribution centers with a new automated distribution center ("ADC") to be located in Sparks, Nevada. The implementation of the ADC will reduce operating costs and decrease inventory levels, while improving the Company's speed and reliability in supplying products to its customers. See Note 4, Provision for Facility Realignment, on page 24 under Item 8, for additional information regarding the facility realignment.
The Company is installing a new proprietary inventory management system ("PRISM"). As of April 30, 1994, PRISM had been installed in three branches, and it is scheduled to be installed in the remaining U.S. and Canadian, music and video shipping branches and return centers during fiscal 1995. PRISM automates and integrates the functions of ordering product, receiving, warehousing, order fulfillment, ticket printing, perpetual inventory maintenance and accounts payable. PRISM also provides the basis to develop title specific billing to allow the Company to better serve its customers.
Competition -----------
Handleman is primarily a specialized merchandiser (rackjobber) of prerecorded music, video, books and personal computer software. The business of the Company is highly competitive as to both price and alternative supply arrangements in all of its product lines. The Company's customers compete with alternative sources from which consumers could purchase the same product, such as (1) record and book clubs, (2) video rental outlets, and (3) specialty retail outlets. The Company competes directly for sales to its customers with (1) manufacturers which bypass wholesalers and sell directly to retailers, (2) independent distributors, and (3) other specialized merchandisers. In addition, some large mass merchants have "vertically integrated" so as to provide their own rackjobbing. Some of these companies, however, also purchase from independent rackjobbers.
The Company believes that the distribution of home entertainment software will remain highly competitive. The Company believes that customer service and continual progress in operational efficiencies are the keys to growth in this competitive environment.
Industry Outlook ----------------
The following are some statistics from various industry sources.
. According to the Electronic Industries Association ("EIA"), compact disc hardware sales increased 27% to 20.5 million units in 1993 from 16.1 million units in 1992. As a result, penetration into U.S. households has reached 43%.
. Video cassette recorder ("VCR") penetration into U.S. households reached 82% in 1993, and is expected to grow to approximately 90% by 1997, according to Veronis, Suhler & Associates ("Veronis").
. According to the EIA, sales of personal computers increased 10% to 7.8 million units in 1993, and are expected to increase an additional 11% in 1994.
While Handleman does not market home electronic hardware, its business is closely correlated to the health of the consumer electronics market and developments within that industry. The Company's expertise lies in the selection of the best product available from the multitude of suppliers for each hardware format.
Information regarding industry outlook by product line follows:
Music - -----
According to the Recording Industry Association of America (RIAA), the U.S. music industry posted sales, at list price, of $10.0 billion in 1993, growing 11% from $9.0 billion in 1992. According to Veronis, the U.S. market is expected to grow at a 7.4% compound annual rate through 1997, to a total market size of approximately $13 billion, at list.
Compact discs ("CDs") remained the catalyst of music industry growth in 1993. In 1993, net revenues from CD sales increased over 22% to $6.5 billion for the year.
Despite the growing dominance of CDs, cassettes still remain a popular format. Industry-wide sales of cassettes, including cassette singles, were $3.2 billion in calendar 1993. Car stereos and portable systems, two areas where CDs have had very little impact, still rely almost entirely on the analog cassette. The size, cost and convenience of cassettes are also important factors in the continuing popularity of this music format.
The Canadian Recording Industry Association reported results similar to its U.S. counterpart. Net revenues rose 12% from $467 million in 1992 to $525 million in 1993. This increase is again due to the continued growth in CDs, sales of which increased 21% in 1993 to $368 million.
Video - -----
The continued success of VCR hardware has translated directly into increased sell-through revenues. According to Veronis, for-sale home video in the United States was a $4.2 billion business in 1993, at retail, growing 12% from 1992. Media analysts Paul Kagan Associates project industry video sales to be $7 billion by 1997, at retail.
The Company is monitoring developments within the Pay Per View (PPV) market, but does not perceive such developments as a near term threat to the sell-through video market. From a longer-term perspective, the Company believes PPV, in some way, shape or form, is probably inevitable. However, PPV replacing video sell- through is not believed to be inevitable. There are numerous reasons why the Company and many industry experts feel this way. First is cost. The cost of PPV systems will be high and for many consumers, prohibitive. Second, PPV is perceived to be a substitute for rental more than it is for sell-through. In fact, some feel that PPV will serve to increase the sell-through market by increasing consumer awareness of video product. Finally, PPV's impact on sell- through will be limited because PPV cannot replace the appealing characteristics of video sell-through. Sell-through offers consumers the shopping experience, the ability to collect and display, and the option to give a video as a gift.
Books - -----
Consumer interest in reading continues to remain strong according to industry sources. Book industry sales grew 7.0% in 1993 to $14.4 billion, according to Veronis. In addition, consumer books are projected to grow at a 7.4% compound annual rate to $19.2 billion by 1997.
The book industry is a more mature market, and thus a less volatile market, than either the music or video industry. However, mass media promotions have helped spur increased interest and consumer demand. Both paperbacks and hardcovers are being promoted via print and television advertising, and many talk show programs profile authors and their books. In addition, mega-star authors such as John Grisham, Stephen King and Danielle Steel continue to produce best sellers which are purchased by their loyal readers.
Software - --------
Approximately 7.8 million personal computers ("PCs") were sold to dealers in 1993, up 715,000 units from 1992, according to the EIA. This growth is expected to carry forward to 1994, with a further 12% increase in PC sales projected by the EIA. These growth rates are indicative of the strong demand for personal computers and the software to operate them.
One of the factors helping propel PC sales has been the steady decrease in PC per unit prices. For example, a state-of-the-art PC in January 1990 could have had a retail price up to $5,995. In June 1994, a comparable PC cost less than $1,000. The retail price of a PC is now in the price range where a typical mass merchant shopper is able to purchase a PC and this accordingly spurs sales of software products at the mass merchant outlet.
The vast majority of PC sales in the U.S. are IBM compatible units which utilize a DOS operating system. However, a new operating system, Windows, is quickly growing in popularity. The advent of this new technology is exciting for software manufacturers, distributors and retailers, because as PC owners switch to Windows, they often purchase the Windows version of their current software. This effect is similar to music buyers rebuilding their libraries with CDs.
* * * * *
See Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 2, Acquisition of Business, on page 24 under Item 8, for additional information regarding the Company's activities.
The Company's sales and earnings are of a seasonal nature. Note 10, Quarterly Financial Summary (Unaudited), on page 28 under Item 8 discloses quarterly results which indicate the seasonality of the Company's business.
The Company has approximately 3,742 employees, of whom approximately 490 are members of various local unions.
Item 2.

Item 2. PROPERTIES
The Company leases 6 warehouses in the United States and 3 in Canada. The U.S. leased warehouses are located in the states of Missouri, New York, Ohio, Oregon, Indiana, and Maryland. The Company also leases satellite sales offices in Massachusetts (381 sq. ft.) and Minnesota (6,000 sq. ft.). In Canada, leased warehouses are located in the provinces of Alberta, Ontario and Quebec. The Company owns warehouses in Sparks, Nevada; Brighton, Michigan; Chicago, Illinois; Dallas, Texas; Los Angeles, California; Atlanta, Georgia; Little Rock, Arkansas; Tampa, Florida; Baltimore, Maryland; Cincinnati, Ohio and Denver, Colorado. The Company owns two buildings in Troy, Michigan; one facility is the 130,000 square feet corporate office building, and the second facility is the 20,000 square feet building which houses the Company's print shop. The Atlanta, Little Rock and Troy buildings are encumbered by Economic Development Corporation Revenue Bonds as explained in Note 6 to Handleman's Consolidated Financial Statements under Item 8. The bonds were issued in connection with the construction of these buildings.
Item 3.

Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Registrant or any of its subsidiaries is a party other than ordinary routine litigation incidental to the business.
Item 4.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5.

Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange, Chicago Stock Exchange, and Pacific Stock Exchange.
Below is a summary of the market price of the Company's common stock as traded on the New York Stock Exchange:
As of July 15, 1994, the Company had 3,423 shareholders of record.
Below is a summary of the dividends declared during the past two fiscal years:
Item 6.

Item 6. SELECTED FINANCIAL DATA
HANDLEMAN COMPANY FIVE YEAR REVIEW (amounts in thousands except per share data and ratios) -----------------
* Inventory turnover ratio has been restated for prior years to conform with current year calculation method.
Note: See Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
COMPARISON OF 1994 WITH 1993 - ----------------------------
Net sales for fiscal 1994 were $1.07 billion versus $1.12 billion last year, a decrease of $55.1 million or 5%. Following is a discussion regarding each of the Company's four major product lines.
MUSIC - Sales for fiscal 1994 were $571.6 million, compared to $626.9 million in fiscal 1993, a decrease of $55.3 million or 9%. The Company attributes the decline in sales of music product to two primary factors. First was the impact of customer inventory concerns, which resulted in reduced sales volume and increased merchandise returns. The second factor was a reduction in the number of departments serviced.
Within the music category, the proportion of compact disc ("CD") sales to the overall sales mix continues to increase. According to the Recording Industry Association of America ("RIAA"), a music industry trade association, industry- wide CD shipments at list price reached 65% of total music revenue in calendar 1993. Handleman's CD sales for fiscal 1994 were $278.1 million, or 49% of its music sales. In fiscal 1993, CD's accounted for 46% of Handleman's music sales. CD sales growth, like any software product, is influenced by growth in the underlying hardware. In 1993, the installed base of CD players was 43% of U.S. households, according to the Electronic Industries Association ("EIA"). As CD hardware continues to be purchased by middle-income Americans, who tend to be shoppers at mass merchant outlets (the Company's primary customer), Handleman's sales of CDs should continue to grow.
The gross profit margin percentage on CD sales is lower than on cassette sales. As a result of CD unit sales prices, however, being greater than cassette unit sales prices, gross profit dollars per CD unit sold are higher than gross profit dollars per cassette unit sold.
Music sales are driven by a continuous supply of releases from popular artists, as well as emerging new artists. Below is a summary of Handleman's music sales by genre, as a percent to total music sales dollars.
MUSIC SALES BY GENRE YEAR ENDED _____________________
April April April 1994 1993 1992 ----- ----- -----
Country music continues to be popular. Mass merchant stores serviced by Handleman sell more country music as a percentage of total music volume than do specialty music stores. Rock music continues to be the largest sales category for both Handleman and the music industry.
A statistical overview of the U.S music industry as contained in the RIAA 1993 annual report showed that music buyers are continuing to spend more at mass merchant and discount stores than in past years. The mass merchant share of music sales increased to 24% in 1993, from 16% in 1989. During the same time period, the specialty music store market share decreased from 72% to 60%.
Veronis, Suhler & Associates ("Veronis"), an entertainment industry investment banker, forecasted in July 1993 that the U.S. music market will register sales growth at a 7.4% compounded annual rate through 1997.
VIDEO - Sales for fiscal 1994 were $389.5 million, compared to $378.6 million in fiscal 1993, a $10.9 million or 3% increase. This sales level of video product was the highest for any year in the Company's history.
Movies, including G-rated family oriented features, and children's product are the largest unit sales categories for Handleman, representing approximately 80% of unit sales. However, a full catalog assortment is necessary to achieve maximum sales. The Company maintains a commitment to its video program with approximately 5,700 titles in its catalog.
The continued penetration of video cassette recorders ("VCR") into U.S. households has helped increase sell-through video revenue. The VCR's penetration into U.S. households reached an estimated 82% in 1993; furthermore 20% of households with a VCR now own a second VCR. Much of this growth has been due to the steady decline of VCR prices. In 1979 the average price of a VCR was approximately $1,200. According to the EIA, the average retail price of a VCR dropped to $294 by 1987 and to $231 by 1993. Although growth is predictably slowing, Veronis forecasts that an installed base of 90% of U.S. households should be achieved by 1996. This penetration level represents a base capable of supporting expansion of the home video market through the 1990's.
The continual release of movie box office hits builds consumer awareness of for- sale videos, which drives sales not only for those titles but for other videos as well. Articles appearing in both Billboard and Video Store Magazine state that calendar 1994 will be an excellent year for direct-to-sell-through titles as movie studios are increasingly willing to by-pass the rental market as the first window of opportunity for a title. Further, instead of releasing the majority of titles for the Christmas selling season, studios are scheduling major titles for release throughout the year.
Veronis projects that calendar 1993 industry video sales hit a record high of $4.2 billion, at retail, a 12% increase over calendar 1992. According to media analysts Paul Kagan Associates, industry video sales are projected to be $7 billion by 1997, at retail.
BOOKS - Sales for fiscal year 1994 were $66.1 million, compared to $70.9 million last year, a decrease of $4.8 million or 7%. This decrease was primarily due to a reduction in the number of departments supplied.
Consumer interest in reading continues to remain strong according to industry sources. Book industry sales grew an estimated 7.0% to $14.4 billion at retail in 1993. According to Veronis, consumer books are projected to grow at a 7.4% compounded annual rate to $19.2 billion at retail by 1997. Much of this growth appears to be fueled by increased reading habits by a larger segment of the population, increasing literacy among Americans, and the ability of the book publishing industry to better define and target consumer markets.
PERSONAL COMPUTER SOFTWARE - Sales for fiscal 1994 were $39.4 million, compared to $45.3 million for fiscal 1993, a decrease of $5.9 million or 13%. The decline in sales was primarily due to the loss of two customers in the third quarter this year, who switched to suppliers that do not provide in-store service.
Personal computers ("PCs") continue to gain acceptance in U.S. households as computers become more user friendly. According to the EIA, the installed base of computers has increased from 7% in 1983 to 37% of households at the end of 1993. The installed base is expected to increase to 40% by 1995. Mass merchants increasingly play an important role in the growth of this market. Handleman is expected to benefit as more middle-income Americans, the typical shoppers at stores supplied by Handleman, purchase computers.
One of the factors helping propel PC sales has been a steady decrease in PC unit prices. For example, a state-of-the-art PC in January 1990 could have had a retail price up to $5,995. In June 1994, a comparable PC cost less than $1,000. The retail price of a PC is now in the price range where a typical mass merchant shopper is able to purchase a PC and this accordingly spurs sales of software products at the mass merchant outlet.
The retail price of PC software is rapidly declining due to strong competition among software companies trying to capture market share in their respective categories. For example, retail prices for many productivity software packages have fallen from an introductory price of $300 - $500 to less than $100. In fiscal 1994, over 70% of Handleman's unit sales were for software titles with suggested retail prices under $15. This trend should benefit mass merchants, as their shoppers are more likely to purchase the lower-priced software.
OTHER DATA - The gross profit margin percentage for fiscal year 1994 was 23.3%, compared to 24.8% for fiscal year 1993. The reduction in gross profit margin percentage was primarily due to an increase in mega-hit video sales, which carry lower gross profit margins than other products, and a decrease in music gross profit margin partially attributable to a decline in sales of high margin budget products and to an increasing percentage of sales of CDs.
Selling, general and administrative expenses for fiscal year 1994 declined $4.9 million, to $186.2 million or 17.5% of net sales, from $191.1 million or 17.0% of net sales last year. The decrease in selling, general and administrative expense dollars was primarily due to cost reductions initiated by Company management and the lower sales volume. Except for the first quarter of fiscal 1994, selling, general and administrative expenses, as a percent of net sales, were lower in each fiscal quarter compared to the corresponding quarter in fiscal 1993. Selling, general and administrative expenses exclude the amortization of costs associated with prior year acquisitions which amounted to $7,536,000 in fiscal 1994.
On June 9, 1994, the Company announced that it was realigning its Western region by replacing certain distribution centers with a new automated distribution center ("ADC") to be located in Sparks, Nevada. The Company recorded a $2.0 million pre-tax charge against fourth quarter fiscal 1994 results related to costs associated with the transition from the current distribution structure to the ADC. This charge included costs for disposal of certain facilities as well as relocation expenses and certain compensation costs. The implementation of the ADC will reduce operating costs and decrease inventory levels, while improving the Company's speed and reliability in supplying products to its customers.
Net interest expense for fiscal 1994 was $6,211,000, compared to $6,713,000 in fiscal 1993. The decline in net interest expense was primarily the result of lower interest rates in fiscal 1994 compared to fiscal 1993.
Net income for fiscal 1994 was $27.7 million or $.83 per share, compared to $43.7 million or $1.32 per share for fiscal 1993. The reduction in net income was primarily attributable to the reduction in sales and the decrease in gross profit margin percentage.
COMPARISON OF 1993 WITH 1992 - ----------------------------
Net sales for fiscal 1993 were $1.12 billion versus $1.02 billion in fiscal 1992, an increase of $101.5 million or 10%. The first quarter of fiscal 1993 included sales of approximately $40.0 million to customers gained following the July 26, 1991 purchase of assets from Lieberman Enterprises. The first quarter of fiscal 1992 did not include sales to such customers since the transaction did not occur until the end of the first quarter of fiscal 1992. The Company's fiscal year ends on the Saturday closest to April 30th; as a result, fiscal 1992 was a 53 week year while fiscal 1993 was a 52 week year. Following is a discussion regarding each of the Company's four major product lines.
MUSIC - Sales for fiscal 1993 were $626.9 million, compared to $542.3 million in fiscal 1992, an increase of $84.6 million or 16%. The increase in music sales was achieved primarily through increased sales of compact discs ("CD") and the continued popularity of country music. The Company benefits from the strength in country music sales since its market share of the country music segment of the industry exceeds its share of overall music industry sales.
The Company's fiscal 1993 CD sales of $287 million represented a 38% increase over the prior year's CD sales volume. CDs accounted for 46% of Handleman's music sales in fiscal 1993 versus 38% of the Company's music sales in fiscal 1992.
VIDEO - Sales for fiscal 1993 were $378.6 million, compared to $387.3 million in fiscal 1992, a decrease of 2%. The decline in video sales was primarily due to lower sales of Disney products. In July 1992, Disney began selling its video products directly to Handleman's largest customer. Excluding Disney, sales of other video products in fiscal 1993 would have increased approximately 5% over fiscal 1992 video sales. Pricing on Disney product is so competitive that such products have the lowest gross profit margin percentages of any Handleman- supplied video product.
BOOKS - Sales for fiscal 1993 were $70.9 million. The increase of $17.8 million or 33% over fiscal 1992 sales was primarily due to approximately 750 departments being added to the Company's book service program during fiscal 1993.
PERSONAL COMPUTER SOFTWARE - Sales for fiscal 1993 were $45.3 million, compared to $37.5 million in fiscal 1992, an increase of $7.8 million or 21%. Software sales continued to benefit from the penetration of personal computers into U.S. households.
OTHER DATA - The gross profit margin percentage for fiscal 1993 was 24.8%, compared to 25.3% for fiscal 1992. The gross profit margin percentage for the video product line improved in fiscal 1993 as a result of the decline in sales of low-margin Disney products. The music gross profit margin percentage declined slightly in fiscal 1993 as CDs (which carry lower gross profit margin percentages than cassettes) became a proportionately larger share of the Company's music sales mix. Declines during fiscal 1993 in book and personal computer software gross profit margin percentages were the primary reason for the overall decline in gross profit margin percentage in fiscal 1993, compared to fiscal 1992. The decline in book and personal computer software gross profit margin percentages was partially attributable to increased sales to certain customers with whom the Company earns a lower gross profit margin percentage because of the non-service nature of the sales arrangement. An increase in the proportion of book and personal computer software sales to total Company sales also contributed to the overall decline in gross profit margin percentage since these product lines carry gross profit margin percentages lower than the Company's overall margin percentage.
Selling, general and administrative expenses for fiscal 1993 were $191.1 million (17.0% of net sales), compared to $176.4 million (17.3% of net sales) in fiscal 1992. The dollar increase was primarily due to increases in variable expenses related to the higher sales level. However, the higher net sales provided the opportunity for efficiencies which lowered expenses as a percentage of net sales. Selling, general and administrative expenses exclude the amortization of costs associated with prior year acquisitions which amounted to $8,679,000 in fiscal 1993.
Net interest expense for fiscal 1993 was $6,713,000, compared to $7,340,000 for fiscal 1992. The decrease was the result of both lower average borrowings throughout the period and lower average interest rates in fiscal 1993 compared to fiscal 1992.
Net income for fiscal 1993 was $43.7 million, or $1.32 per share, compared to $40.0 million or $1.21 per share for fiscal 1992.
LIQUIDITY AND CAPITAL RESOURCES - Working capital at April 30, 1994 was $216 million, compared to $241 million at May 1, 1993, a decrease of $25 million or 10%. The decrease in working capital resulted primarily from a $16 million increase in the amount of senior notes classified as current liabilities. The working capital ratio was 1.8 to 1 at April 30, 1994 and 1.9 to 1 at May 1, 1993. The Company's capital assets consist primarily of display fixtures and facilities. The Company also acquires licenses for video, music and software products which it distributes. Purchases of these assets are expected to be funded primarily by cash flows from operations.
In July 1994, the Company replaced its $147 million revolving credit agreement with a five year, $250 million unsecured revolving credit agreement entered into with a group of banks. Under the new agreement, the Company may elect to pay interest under a variety of formulae tied principally to either prime or "LIBOR". During the first three years of the agreement, the Company may elect to enter into term loans with maturities not to exceed five years in length and having a final maturity not later than July 12, 2001 for amounts up to an aggregate of $150 million. Interest on these term loans will be based upon a pre-determined formula. The agreement also provides for issuance of standby letters of credit for maturities not to exceed one year. The Company expects to use proceeds from the new credit agreement to pay-off the $31 million of senior notes due on October 1, 1994 which bear an 8.44% annual interest rate.
EFFECTS OF INFLATION ON OPERATIONS - ----------------------------------
The Company's financial statements have reported amounts based on historical costs which represent dollars of varying purchasing power and do not measure the effects of inflation. If the financial statements had been restated for inflation, net income would have been lower because depreciation expense would have to be increased to reflect the most current costs.
Item 8.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are filed as a part of this report:
Report of Independent Accountants
Consolidated Balance Sheet at April 30, 1994, May 1, 1993 and May 2, 1992.
Consolidated Statement of Income - Years Ended April 30, 1994, May 1, 1993 and May 2, 1992.
Consolidated Statement of Shareholders' Equity - Years Ended April 30, 1994, May 1, 1993 and May 2, 1992.
Consolidated Statement of Cash Flows - Years Ended April 30, 1994, May 1, 1993 and May 2, 1992.
Notes to Consolidated Financial Statements
Report of Independent Accountants
To the Board of Directors and Shareholders of Handleman Company:
We have audited the consolidated financial statements and the financial statement schedules listed in Item 14(a) of this Form 10-K of Handleman Company and Subsidiaries. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules 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 Handleman Company and Subsidiaries as of April 30, 1994, May 1, 1993 and May 2, 1992, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
Coopers & Lybrand
Detroit, Michigan June 16, 1994
HANDLEMAN COMPANY CONSOLIDATED BALANCE SHEET APRIL 30, 1994, MAY 1, 1993 AND MAY 2, 1992 (amounts in thousands except share data) ----------------
The accompanying notes are an integral part of the consolidated financial statements.
HANDLEMAN COMPANY CONSOLIDATED STATEMENT OF INCOME YEARS ENDED APRIL 30, 1994, MAY 1, 1993 AND MAY 2, 1992 (amounts in thousands except per share data)
The accompanying notes are an integral part of the consolidated financial statements.
HANDLEMAN COMPANY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY YEARS ENDED APRIL 30, 1994, MAY 1, 1993 AND MAY 2, 1992 (amounts in thousands except per share data) ----------------
The accompanying notes are an integral part of the consolidated financial statements.
HANDLEMAN COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED APRIL 30, 1994, MAY 1, 1993 AND MAY 2, 1992 (amounts in thousands) ----------------
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------------
1. Accounting Policies: -------------------
Business
The Company operates principally in one business segment: selling prerecorded music, video, hardcover and paperback books and personal computer software products primarily to mass merchants, and also to specialty chain stores, drugstores and supermarkets.
Annual Closing Date
The Company's fiscal year ends on the Saturday closest to April 30th. Fiscal years 1994 and 1993 consisted of 52 weeks, whereas fiscal 1992 consisted of 53 weeks.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned domestic and Canadian subsidiaries. All material intercompany accounts and transactions have been eliminated.
Foreign Currency Translation
The Company utilizes the policies outlined in Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation", to convert the balance sheet and operations of its Canadian subsidiary to United States dollars.
Recognition of Revenue and Future Returns
Revenues are recognized upon shipment of the merchandise. The Company reduces gross sales and cost of sales for expected returns at the time the merchandise is sold.
Income Taxes
The Company employs the method required by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under this method, deferred taxes arise from differences between financial reporting and tax reporting.
Pension Plan
The Company has a noncontributory defined benefit pension plan covering substantially all hourly and salaried employees. Pension benefits are based upon length of service and average annual compensation for the five highest years of compensation in the last 10 years of employment. Net periodic pension cost is accrued on a current basis, and funded as permitted or required by applicable regulations.
Inventory Valuation
Merchandise inventories are stated at the lower of cost (first-in, first-out method) or market. The Company accounts for inventories using the full cost method which includes costs associated with acquiring and preparing inventory for distribution. Costs associated with acquiring and preparing inventory for distribution of $16,289,000, $17,618,000 and $15,942,000 were incurred during the years ended April 30, 1994, May 1, 1993 and May 2, 1992, respectively. Merchandise inventories as of April 30, 1994, May 1, 1993 and May 2, 1992 include $3,621,000, $3,503,000, and $3,127,000, respectively, of such costs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued) ----------------
1. Accounting Policies: (continued) -------------------
Property and Equipment
Property and equipment is recorded at cost. Upon retirement or disposal, the asset cost and related accumulated depreciation are eliminated from the respective accounts and the resulting gain or loss is included in the consolidated statement of income for the period. Repair costs are charged to expense as incurred. Display fixtures placed in customers' stores have minimum value, if any, outside of the store departments in which they are initially placed.
Depreciation
Depreciation is computed using primarily the straight-line method based on the following estimated useful lives:
Buildings and improvements 10-40 years Display fixtures, equipment, furniture and other 3-10 years Leasehold improvements Lesser of lease term or useful life
Licenses --------
The Company acquires video licenses giving it exclusive rights to manufacture and distribute certain prerecorded video products. The licenses are included in other assets in the consolidated balance sheet and are amortized over a period which is the lesser of the license agreement or its expected useful life. As of April 30, 1994, May 1, 1993 and May 2, 1992, licenses, net of amortization, amounted to $21,285,000, $7,474,000, and $8,299,000, respectively.
Intangible Assets
Intangible assets, included in other assets in the consolidated balance sheet, consist of excess cost over net assets of businesses acquired and non-competition and other ancillary agreements. These assets are amortized over periods ranging from 5 to 40 years using the straight-line method. As of April 30, 1994, the weighted average period remaining to be amortized was approximately 9 years.
Cash Flows
The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Financial Instruments
The Company has evaluated the fair value of those assets and liabilities identified as financial instruments by Statement of Financial Accounting Standards No. 107. As of April 30, 1994, the Company has determined that the fair value approximated the carrying values. Fair values have been determined through information obtained from market sources and management estimates.
Reclassifications
Certain 1993 and 1992 amounts have been reclassified to conform with presentations adopted in 1994.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
----------------
2. Acquisition of Business: -----------------------
On July 26, 1991, the Company acquired certain assets of Lieberman Enterprises, Inc. (Lieberman), a specialty merchandiser of prerecorded music and video. Assets acquired aggregating $74,655,000 consisted primarily of inventory and supplies, display fixtures, certain warehouse equipment and non-competition and other agreements (of the total purchase price, approximately $21,700,000 was allocated to non-competition and other agreements). Costs of $1,323,000 which were incurred in connection with the acquisition and integration of these assets were charged against results of operations during fiscal 1992.
3. Sales and Accounts Receivable: -----------------------------
The Company's customers are comprised mainly of mass merchant retail chains located in the United States and Canada. For the years ended April 30, 1994, May 1, 1993 and May 2, 1992, one customer accounted for approximately 41 percent, 38 percent and 37 percent of the Company's net sales, and a second customer accounted for approximately 26 percent, 24 percent and 23 percent of the Company's net sales, respectively. Collectively, these customers accounted for approximately 69 percent, 54 percent and 51 percent of accounts receivable at April 30, 1994, May 1, 1993 and May 2, 1992, respectively.
4. Provision for Facility Realignment ----------------------------------
The Company is realigning its Western region by replacing certain existing distribution centers with a new automated distribution center (ADC). The Company recorded a $2,000,000 pre-tax charge against fourth quarter fiscal 1994 results related to costs associated with the transition from the current distribution structure to the ADC. This charge included costs for disposal of certain existing facilities, as well as relocation expenses and certain compensation costs.
5. Pension Plan: ------------
The Handleman Company Pension Plan's funded status, the components of net pension expense, and the amount which is recorded in the Company's consolidated balance sheet at April 30, 1994, May 1, 1993 and May 2, 1992 are as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
----------------
5. Pension Plan (continued) ------------------------
Weighted average discount rates of 8.0 percent, 8.0 percent and 8.5 percent at April 30, 1994, May 1, 1993 and May 2, 1992, respectively, and a rate of increase in future compensation levels of 5.0 percent for all periods were used in determining the actuarial present value of the projected benefit obligation.
The expected long-term rate of return on assets was 8.5 percent for all years. The assets are invested in various pooled investment funds and mutual funds maintained by the Plan trustee and common stock of the Company.
6. Debt: ----
In November 1991, the Company entered into a $46,000,000 senior note agreement with a group of institutional lenders, of which $15,000,000 was repaid on October 1, 1993. The $31,000,000 balance of the note is due October 1, 1994 and bears an 8.44% annual interest rate.
In June 1991, the Company entered into a contractually-committed, four year, $175,000,000 revolving credit arrangement with a consortium of banks. In June 1993, the credit arrangement was amended and reduced to $147,000,000. As of April 30, 1994, $70,100,000 was outstanding under the revolving credit arrangement, at interest rates ranging from 4.44% to 6.75%. As the Company intends to extend the maturities of the outstanding balance beyond one year, and has the ability to do so, the debt has been classified as non-current. Borrowings outstanding are due on the termination date of the arrangement.
Scheduled maturities for the senior note, revolving credit arrangement, and Economic Development Corporation (EDC) limited obligation revenue bonds are as follows:
The EDC bonds, senior note and the borrowings under the revolving credit arrangement all contain certain restrictions, including working capital, debt limitations and net worth. The EDC bonds are collateralized by land, buildings and equipment with an aggregate net book value of approximately $16,333,000 at April 30, 1994.
Interest expense for the years ended April 30, 1994, May 1, 1993 and May 2, 1992, was $7,029,000, $8,004,000 and $8,871,000, respectively. Interest paid for the years ended April 30, 1994, May 1, 1993 and May 2, 1992 was $7,262,000, $8,514,000 and $7,992,000, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)
_______________
7. Income Taxes: ------------
The domestic and foreign components of income before income taxes for the years ended April 30, 1994, May 1, 1993 and May 2, 1992 are as follows:
Provisions for income taxes for the years ended April 30, 1994, May 1, 1993 and May 2, 1992 consist of the following:
The following table provides a reconciliation of the Company's effective income tax rate to the statutory federal income tax rate:
Items that gave rise to significant portions of the deferred tax accounts at April 30, 1994, May 1, 1993 and May 2, 1992 are as follows:
The undistributed earnings of the Canadian subsidiary for which no U.S. federal income tax liabilities have been recorded were $22,892,000 at April 30, 1994. The Company intends to reinvest indefinitely the undistributed earnings of its foreign subsidiary. Due to the availability of foreign tax credits, no significant U.S. federal income tax liabilities are expected to result if such earnings were distributed.
Income taxes paid in 1994, 1993 and 1992 were approximately $25,204,000, $26,095,000 and $17,018,000, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued) ----------
9. Stock Plans: -----------
The Company's shareholders approved the adoption of the Handleman Company 1992 Performance Incentive Plan (the "Plan"), which authorizes the granting of stock options, stock appreciation rights and restricted stock. At any given time, the maximum number of shares of stock which may be issued pursuant to restricted stock awards or granted pursuant to stock options or stock appreciation rights shall not exceed 5% of the number of shares of the Company's common stock outstanding as of the immediately preceding fiscal year end, less restricted stock, options and awards issued or granted under the Plan since adoption in September 1992. As of April 30, 1994, 1,217,420 shares of the Company's stock are available for use under the Plan.
Pursuant to the restricted stock provisions of the Plan, the Company issued, net of forfeitures, 185,521 shares of common stock during the year ended April 30, 1994. These restricted shares are held in the custody of the Company and vest only if specified performance goals are achieved. These shares are treated as outstanding for purpose of calculating earnings per share and payment of dividends. If the minimum performance goals under which an award is issued are not satisfied, the shares are forfeited. If performance goals are exceeded, a maximum of 144,875 additional shares can be issued. The number of shares which may vest will be prorated to the extent actual results are between minimum and maximum performance goals. The Company did not record any compensation expense related to the restricted stock in 1994 because minimum performance goals were not achieved.
Information with respect to options outstanding under the previous and current stock option plans for the years ended May 2, 1992, May, 1 1993 and April 30, 1994 is set forth below. Options were granted during such years at no less than fair market value at the date of grant.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued) ----------------
* Earnings per common share were improved by $.07, $.06 and $.05 for the fourth quarters of fiscal 1994, 1993 and 1992, respectively, resulting from various year-end adjustments to previous accrual estimates.
Item 9.

Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable
PART III.
Item 10.

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 10, with the exception of the following information regarding executive officers of the Registrant required by Item 10, is contained in the Handleman Company Definitive Proxy Statement for its 1994 Annual Meeting of Shareholders to be filed on or before August 18, 1994, and such information is incorporated herein by reference. All officers serve at the discretion of the Board of Directors.
1. Stephen Strome has served as President since March 1990. On May 1, 1991, Mr. Strome was named Chief Executive Officer. In September 1989 Mr. Strome was named Chief Operating Officer. In September of 1987, Mr. Strome was elected Executive Vice President.
2. Peter J. Cline has served as Executive Vice President/President of Distribution since joining the Company in April, 1994. Prior to joining Handleman Company, Mr. Cline was employed by the Snacks and International Consumer Products Division of Borden, Inc. from August 1990 until April 1994 where he served in various executive positions, most recently as Group Vice President - North American Snacks. Previously, Mr. Cline was employed by The Stroh Brewery Company from July 1986 to August 1990 where he served in a variety of executive positions, including Senior Vice President - Sales and Marketing from August 1989 to August 1990.
3. Lawrence R. Hicks has served as a Vice President since January 1982. Mr. Hicks was elected Senior Vice President in June 1988, and Executive Vice President in April 1994.
4. Louis A. Kircos was elected Executive Vice President in April 1994. Mr. Kircos was elected Senior Vice President - Corporate Development and Subsidiaries in March 1993. In March 1990, Mr. Kircos was elected Senior Vice President - Finance. Mr. Kircos was elected Vice President - Finance in September 1987. In July 1986, Mr. Kircos was elected Treasurer and Secretary, and served as Treasurer until February 1992, and as Secretary until August 1993.
5. Richard J. Morris has served as Vice President/Finance, Secretary and Chief Financial Officer since August 1993. In April 1994, Mr. Morris was elected Senior Vice President. Prior to joining Handleman Company, Mr. Morris was employed by PolyGram Holding, Inc., where he served as Senior Vice President, Finance from January 1983 until July 1993.
6. Mario DeFilippo has served as a Vice President since January 1983. In June 1988, Mr. DeFilippo was elected Senior Vice President. Mr. DeFilippo retired on June 30, 1994.
7. Samuel J. Milicia has served as Vice President since June 1990. In June 1988, Mr. Milicia was named Assistant Vice President - Eastern Region Branch Operations.
8. Jerry L. Lauer has served as Vice President since June 1986.
9. Thomas C. Braum, Jr. has served as Corporate Controller since June 1988. In February 1992, Mr. Braum was elected Vice President.
Item 11.

Item 11. EXECUTIVE COMPENSATION
Information required by this item is contained in the Handleman Company definitive Proxy Statement for its 1994 Annual Meeting of Shareholders, to be filed on or before August 18, 1994 and such information is incorporated herein by reference.
Item 12.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is contained in the Handleman Company definitive Proxy Statement for its 1994 Annual Meeting of Shareholders, to be filed on or before August 18, 1994 and such information is incorporated herein by reference.
Item 13.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is contained in the Handleman Company definitive Proxy Statement for its 1994 Annual Meeting of Shareholders, to be filed on or before August 18, 1994 and such information is incorporated herein by reference.
PART IV
Item 14.

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The following financial statements and supplementary data are filed as a part of this report under Item 8.:
Report of Independent Accountants
Consolidated Balance Sheet at April 30, 1994, May 1, 1993 and May 2, 1992.
Consolidated Statement of Income - Years Ended April 30, 1994, May 1, 1993 and May 2, 1992.
Consolidated Statement of Shareholders' Equity - Years Ended April 30, 1994, May 1, 1993 and May 2, 1992.
Consolidated Statement of Cash Flows - Years Ended April 30, 1994, May 1, 1993 and May 2, 1992.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
II. Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees Other Than Related Parties VIII. Valuation and Qualifying Accounts and Reserves IX. Short-term Borrowings
All other schedules for Handleman Company have been omitted since the required information is not present or not present in an amount sufficient to require submission of the schedule, or because the information required is included in the financial statements or the notes thereto.
3. Exhibits as required by Item 601 of Regulation S-K.
S-K Item 601 (3)
The Registrant's Restated Articles of Incorporation dated June 30, 1989 and Revised Bylaws adopted March 7, 1990 and Amendments to the Bylaws adopted June 16, 1993, were filed with the Form 10-K dated May 1, 1993, and are incorporated herein by reference.
S-K Item 601 (10)
Consulting contract for director Mr. Paul Handleman was filed with the Commission in the Form 10-K dated July 31, 1975, and is incorporated herein by reference. Such contract has been extended to December l, 1994. Mr. Paul Handleman retired from the Board of Directors on June 16, 1993.
The Registrant's 1975 Stock Option Plan was filed with the Commission in Form S-8, dated November 17, 1977, File No. 2-60162. The Registrant's 1983 Stock Option Plan was filed with the Commission in Form S-8 dated January 18, 1985, File No. 2-95421. The first amendment to the 1983 Stock Option Plan, adopted on March 11, 1987, was filed with the Commission with the Form 10-K for the year ended May 2, 1987. Both plans are incorporated herein by reference.
The Registrant's 1992 Performance Incentive Plan was filed with the Commission in Form S-8, dated March 5, 1993, File No. 33-59100.
The advisory agreement with David Handleman was filed with the Form 10-K for the year ended April 28, 1990.
The Credit Agreement among Handleman Company, Certain Banks And NBD Bank, N.A., As Agent dated June 24, 1991 was filed with the Form 10-K for the year ended May 2, 1992.
The Note Agreement dated October 1, 1991 was filed with the Form 10-K for the year ended May 2, 1992.
S-K Item 601 (21) - Subsidiaries of the Registrant:
Handleman Company of Canada Limited, an Ontario Corporation Video Treasures, Inc., a Michigan Corporation Entertainment Zone, Inc., a Michigan Corporation Scorpio Productions, Inc., a Texas Corporation Hanley Advertising Company, a Michigan Corporation Softprime, Inc., a Michigan Corporation Rackjobbing, S.A. de C.V. Rackjobbing Services, S.A. de C.V. New Licenses, S.A. de C.V. Handleman Technical Services, Inc., a Michigan Corporation
S-K Item 601 (23) - Consent of Independent Accountants: Filed with this report.
(b) No reports on Form 8-K have been filed during the last quarter of the period covered by this report.
Note: The Exhibits attached to this report will be furnished to requesting security holders upon payment of a reasonable fee to reimburse the Registrant for expenses incurred by Registrant in furnishing such Exhibits.
Exhibit (23)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of Handleman Company and Subsidiaries on Form S-3 (File Nos. 33-16553, 33-26456, 33-33797 and 33-42018) and Form S-8 (File Nos. 2-60162, 2-95421, 33-59100 and 33-69030) of our report dated June 16, 1994, on our audits of the consolidated financial statements and financial statement schedules of Handleman Company and Subsidiaries as of April 30, 1994, May 1, 1993 and May 2, 1992 and for the years then ended, which report is included in this Annual Report on Form 10-K.
Coopers & Lybrand
Detroit, Michigan July 27, 1994
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES YEARS ENDED MAY 2, 1992, MAY 1, 1993 AND APRIL 30, 1994
The Company is an equity participant in HGV Video Productions, Inc. (HGV), an Ontario, Canada corporation, which was established to manufacture and distribute licensed video product in Canada.
The Company is an equity participant in Mode Video Distribution, Inc. (Mode), a Quebec, Canada corporation engaged in the distribution of video products.
The Company is a partner in SRT Video, Ltd. (SRT), a partnership formed to purchase and resell cut-out or surplus video cassettes.
The Company is an equity participant in Sofsource, Inc., a U.S. based manufacturer and distributor of personal computer software products.
(1) The Company funds working capital requirements of HGV, Mode, SRT and Sofsource, and such advances accrue interest at various rates ranging from the prime rate to prime plus one percent.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES YEARS ENDED MAY 2, 1992, MAY 1, 1993 AND APRIL 30, 1994
SCHEDULE IX - SHORT-TERM BORROWINGS YEARS ENDED APRIL 30, 1994, MAY 1, 1993 AND May 2, 1992
(1) The average amount outstanding during the period represents total daily borrowings divided by the number of days such borrowings were outstanding.
(2) The weighted average interest rate represents the annualized effect of short-term interest expense divided by the average debt outstanding.
Short-term borrowings are unsecured borrowings under bank lines of credit at interest rates on an as offered basis not to exceed prime.
SIGNATURES
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.


ITEM 1. BUSINESS -------------------------
General -------
Registrant was incorporated under the laws of the State of Ohio in 1920. Registrant and its subsidiaries operate in one industry segment which consists of the manufacture, marketing, selling, and distribution of plastic and rubber products consumed primarily by the end-user in the consumer, commercial, industrial, agricultural, office, marine, automotive accessories, contract, and juvenile markets. They include such items as housewares; home horticulture products; decorative coverings; leisure and recreational products; infant and children's toys; furniture, office, and industrial products; and products used in food service, health care, and sanitary maintenance. Registrant's products are distributed through its own sales personnel and manufacturers' agents to a variety of retailers and wholesalers, including mass merchandisers, toy stores, catalog showrooms, and distributors serving institutional markets.
Registrant's basic philosophy is to offer products of high value and quality to the user. Value is that best combination of price, quality, service, timeliness and innovation as perceived by consumers and customers. The Corporate objectives, since the late-1970's, have been, and continue to be, to increase sales, earnings, and earnings per share 15% per year, compounded annually. This growth is expected to come from a combination of maximizing core businesses through product line and market extensions, new product introductions, global expansion of the business, and selective acquisitions.
Registrant's primary focus is to achieve its earnings and earnings per share growth objective of 15%, compounded annually. Initially, the sales growth objective was based on certain fundamental assumptions: an increase of 3-5% in U. S. Gross Domestic Product (GDP); inflation of 2-4% in Registrant's pricing; and, unit volume growth averaging around 11%. Since Gross Domestic Product increases have been below this assumption and Registrant's pricing was essentially flat for the past several years, sales growth was less than the 15% targeted increase although Registrant was successful in implementing cost reductions and productivity improvement programs to leverage the sales growth towards the earnings goals.
In 1994, in recognition of this changed macro-economic environment, Registrant announced two new strategic initiatives aimed at achieving above-GDP growth to reach its primary objectives of 15% sales and earnings growth; this, despite a forecast of price inflation averaging only 1-2% over the next five years. The first initiative is a value improvement process aimed at increasing value and productivity. The second initiative is to invest those value improvements and cost savings to accelerate Registrant's worldwide growth enhancements of accelerated new product introductions, quicker entry into new markets, increased competitiveness, new business development, and the globalization of core businesses.
Among the businesses acquired by Registrant are The Little Tikes Company (1984); Gott Corporation (1985); Seco Industries, Inc. (1986); MicroComputer Accessories, Inc. (1986); Viking Brush Limited (1987); EWU (AG) (1990); Eldon Industries, Inc. (1990); CIPSA (1992); Iron Mountain Forge Corporation (1992); Empire Brushes, Inc. (1994); Carex Inc. (1994); and Glenwood Systems Pty. Ltd (Ausplay)(1994).
The companies acquired by Registrant shared many common characteristics with Registrant including a high-quality image, emphasis on new product development and customer service, similar materials and/or manufacturing processes, and similar distribution channels.
CIPSA, the leading plastic housewares manufacturer and marketer in Mexico operates as Rubbermaid de Mexico and is a part of the Home Products Division.
Empire Brushes, Inc., now Rubbermaid Cleaning Products Inc., which reports to the Home Products Division is a leading manufacturer and marketer of brushes, brooms, and mops for home and commercial use resulting from the integration of Empire Brushes' products and facilities with Registrant's existing household cleaning products business.
In 1994, Registrant sold its 40% interest in the Curver Rubbermaid European housewares joint venture to DSM who held the remaining 60%. On March 1, 1995, Registrant acquired Injectaplastic S.A., a French manufacturer and marketer of plastic housewares and other products which will provide a vehicle for re-entry into the European housewares market.
Iron Mountain Forge Corporation, which reports to The Little Tikes Company, is a leading manufacturer and marketer of commercial playground equipment. Registrant expects that the synergy with Little Tikes will increase Iron Mountain Forge's strengths in the parks, schools and recreational areas and accelerate the development of the attractive growing child care market. Ausplay, a leading marketer and designer of commercial playground equipment in Australia expands the geographic distribution of commercial play structures and will enhance future growth capabilities in additional geographic markets and new products.
Carex is a growing manufacturer and marketer of bath safety products, personal care accessories, daily living aids, and other products designed to assist the aging and physically challenged. Registrant expects to stimulate further sales growth by integrating Carex to enhance product development and product line offerings.
In April 1994, Registrant completed a joint venture with Richell Corporation, a leading Japanese housewares manufacturer. The joint venture, Rubbermaid Japan Inc., develops, markets, and sells housewares, leisure, and specialty products for the Japanese market. Registrant initially held a 40% equity interest in the venture and, in October 1994, exercised an option to increase its equity interest to 51%.
In January, 1995, Registrant formed Royal Rubbermaid Structures Ltd., a joint venture with Royal Plastics Group Limited of Canada, for the manufacture and marketing of modular, plastic components, and kits for small structures, such as storage buildings and sheds, in consumer, industrial, commercial, and agricultural markets. Each partner owns 50% of the joint venture. Sale of joint venture products are expected to commence by mid-year 1995.
Additional expansion has come from new operations formed from existing businesses to focus on specific segments of their markets.
Rubbermaid Specialty Products Inc. was formed in 1988 to consolidate seasonal products with similar channels of distribution into one operation. The GOTT line of insulated products and BLUE ICE refreezable ice substitute were also integrated into this business and rebranded with the Rubbermaid name. This creates the opportunity to utilize seasonal product synergies which, coupled with the Rubbermaid brand, increase critical marketing mass at the trade level. In 1994, the casual outdoor resin furniture business of Specialty Products, including the
manufacturing facility in Stanley, North Carolina, was sold. This will allow Specialty Products to focus its resources and management more effectively on its core competencies.
During 1988 Registrant established an Office Products Division which combined the activities of home office products from the Home Products Division, commercial office products from Rubbermaid Commercial Products Inc., and MicroComputer Accessories, Inc. The Division enhanced service for traditional customers while capitalizing on the emerging distribution trends in the industry with concentrated marketing and distribution and a complete and diversified line of products. Early in 1991, the Office Products Division and Eldon Industries, Inc., were combined to form Rubbermaid Office Products Inc., located in Maryville, Tennessee, to capitalize on their many synergies and to improve support and service to customers. During 1994, Registrant sold the Davson Division of Rubbermaid Office Products Inc. because the Davson product line was not considered a long term strategic fit for the business and merged the MicroComputer Accessories, Inc. company into Rubbermaid Office Products Inc.
Raw Materials -------------
The principal raw materials used in the manufacture of Registrant's products are various plastic resins and synthetic rubber (all of which are derivatives of petroleum or natural gas liquids) and color concentrates. All of these items are available from numerous competitive sources. Even though a significant portion of Registrant's raw materials are derivatives of natural gas, the increase in crude oil costs during 1990 resulting from the Persian Gulf crisis was reflected in Registrant's costs of raw materials. As crude oil costs returned to lower levels, so did resin prices. From 1990 until 1994, resin costs remained at a more stable supply/demand level. In 1994, resin costs began to escalate rapidly late in the year, as demand for resin increased and supply tightened. Registrant expects to obtain adequate resins for its needs and has accelerated its continuing program of substituting available or reformulated resins where practical and consistent with quality considerations.
Patents and Trademarks ----------------------
There are no patents or licenses considered material to the business. Registrant is of the opinion that through sustained advertising and use, the trademark RUBBERMAID has become of value in the identification and acceptance of its products, especially in North America. In addition, Registrant has many well-known brands such as CON-TACT (pressure sensitive decorative coverings), ELDON (office products), LITTLE TIKES (toys), and SECO (floor maintenance products) that compete in domestic and international markets.
Seasonality -----------
Historically, the year-end holiday season records the highest sales volume for the toy industry; however, the Little Tikes spring and summer products have served to more evenly balance monthly shipments. Rubbermaid Specialty Products concentrates its efforts on product categories of a seasonal nature, including insulated products, planters, and bird feeders. Insulated product sales are highest during the first six months of the year, and inventories are built during the other periods of the year in order to more easily accommodate demand. No material portion of Registrant's other businesses is of a highly seasonal nature.
Working Capital ---------------
Working capital requirements of the business increase generally as sales volumes increase. There are normally no unusual working capital needs existent at any one time in the ordinary course of business. Dating programs offering extended terms are carried on by the various operating companies as part of their normal marketing activities.
Customers ---------
Sales are made to a broad range of customers, one of which accounted for 15%, 14%, and 13% of net sales in 1994, 1993, and 1992, respectively. Due in part to Registrant's perception that consumers are loyal to Registrant's brand names, Registrant does not believe that the loss of any one customer would have a materially adverse effect on its business.
Backlog -------
Registrant produces to and sells from inventory for the majority of its products. The amount of backlog existent at any one time is not a significant factor in the business.
Competition -----------
All markets served by Registrant and its subsidiaries are competitive as to price, service, and product performance. Most of Registrant's products compete not only with those of other manufacturers using similar raw materials but also with products manufactured from other materials. Many of the competitor companies are either closely held or are divisions of larger entities. Registrant is recognized as a strong competitive factor in the marketplace, but there is no reliable quantitative manner in which the aggregate competitive position of Registrant can be determined.
Research and Development ------------------------
Registrant expended approximately $27,747,000, $28,202,000, and $25,951,000 during 1994, 1993, and 1992, respectively, on research activities related to product, process and materials development, and mold design. These costs are charged to operations as incurred.
Environmental Matters ---------------------
Compliance with Federal, State, and local provisions, which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, is not expected to have an adverse effect upon the capital expenditures, earnings, or competitive position of Registrant and its subsidiaries. Reference is made to page 35 of the 1994 Annual Report to Shareholders, which is contained in Exhibit 13 hereof, concerning further information regarding Registrant's Environmental Program.
Employees ---------
The average number of persons employed by Registrant and its subsidiaries during 1994 was 12,939.
Foreign Operations ------------------
Reference is made to page 33 of the 1994 Annual Report to Shareholders, which is contained in Exhibit 13 hereof, for information concerning Registrant's operations in different geographical areas. Export sales are not material and are, therefore, not separately stated.
To accelerate international growth, foreign businesses were repositioned in January 1990 to provide direct line reporting relationships with their counterpart domestic operation. The management of Rubbermaid businesses around the world, plus the coordination of sales in foreign markets, are the responsibility of the respective core operating companies. The Corporate role is to develop and coordinate with the core businesses strategic plans, priorities, and global operations. To improve efficiencies in the new regions being developed, staff functions are centralized, while the line functions are decentralized to each core business.
Registrant uses a variety of approaches to expand and develop international markets. To initiate market development in certain geographic areas, particularly new and developing markets, emphasis is placed on exporting from existing manufacturing facilities. Where market size and economics justify, manufacturing facilities are established - for example, Canada, Europe and Mexico. In markets where it is deemed appropriate to gain immediate access to manufacturing facilities or distribution, Registrant may make selective acquisitions. Licensing arrangements are used in those markets where the costs of importing are prohibitive and where Company-owned manufacturing is not economically justified. In addition, Registrant may use a combination of any or all of these approaches. Today, Rubbermaid products are distributed worldwide.
No greater known significant risk is attendant to the foreign business than to the domestic business conducted by Registrant and its subsidiaries.
ITEM 2.

ITEM 2. PROPERTIES ---------------------------
Registrant and its subsidiaries have manufacturing and/or warehousing locations in 14 states and 9 foreign countries.
Major plant and warehouse locations of Registrant are as follows:
Home Products Division - Wooster and Akron, Ohio; Phoenix, Arizona; Sparks, Nevada (leased); Cortland, New York; Greenville, Robersonville, and Statesville, North Carolina; Cleburne and Greenville, Texas; Suffolk, Virginia (leased); Mississauga, Ontario and Montreal, Quebec (leased), Canada; Toyama, Japan; and Mexico City, Mexico.
Rubbermaid Specialty Products Inc. - Goddard and Winfield, Kansas.
The Little Tikes Company - Hudson and Sebring, Ohio; City of Industry, California (leased); Aurora and Farmington, Missouri; Shippensburg, Pennsylvania; Melbourne, Australia (leased); Guelph, Ontario, Canada (leased); Dublin, Ireland; and Differdange, Luxembourg.
Rubbermaid Commercial Products Inc. - Winchester, Virginia; Phoenix, Arizona (leased); Centerville, Iowa; Cleveland, Tennessee; Birmingham, England (leased); and Dietzenbach, Germany (leased).
Rubbermaid Office Products Inc. - Maryville, Tennessee; Carson, California (leased); Silverwater, Australia (leased); Markham, Ontario, Canada (leased); Shefford, England (leased); and Coignieres, France (leased).
Carex Inc. - Newark, New Jersey (leased)
Certain portions of the Cortland, New York facility are leased from Industrial Development Authorities pursuant to industrial development bond financing; however, Registrant will own the facilities upon repayment of such financing. Certain other facilities are subject to mortgages securing industrial revenue bond financing.
The properties and facilities of Registrant and its subsidiaries are modern and suitable to the requirements of the business. On an overall basis, these facilities, with certain exceptions due primarily to general economic slowdowns, have been operated near capacity. As a general rule, continuing capital expenditures are required each year to provide the necessary plant, equipment, and tooling to support the growth of the business. To supplement its own facilities, Registrant has followed a practice of sourcing a portion of its production and warehousing requirements from third parties.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS ----------------------------------
There are no material pending legal proceedings to which Registrant or any of its subsidiaries is a party.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------------------------
During the fourth quarter of the fiscal year covered by this Form 10-K, no matter was submitted to a vote of Registrant's shareholders, through the solicitation of proxies or otherwise.
All executive officers who are officers of Registrant are elected for a one-year term.
PART II -------
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER ------------------------------------------------------------------------------ MATTERS -------
Registrant's Common Shares are traded on the New York Stock Exchange under the symbol RBD. As of January 31, 1995, Registrant had approximately 31,000 shareholders of record. Reference is made to page 33 of the 1994 Annual Report to Shareholders, which is contained in Exhibit 13 hereof, for information concerning sales prices for and dividends paid on Registrant's Common Shares during 1994 and 1993.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA ----------------------------------------
Reference is made to pages 36 and 37 of the 1994 Annual Report to Shareholders, which are contained in Exhibit 13 hereof, which pages include the selected financial data for the five years ended December 31, 1994 as part of Registrant's "Consolidated Financial Summary", which information is incorporated by reference herein.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ---------------------------------------------------------------------------- AND RESULTS OF OPERATIONS -------------------------
Reference is made to pages 34 and 35 of the 1994 Annual Report to Shareholders, which are contained in Exhibit 13 hereto, which include "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the years 1994, 1993, and 1992, which information is incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------------------------
Reference is made to pages 25 through 33 of the 1994 Annual Report to Shareholders, which are contained in Exhibit 13 hereto, which include the consolidated financial statements and the notes thereto as of December 31, 1994 and 1993, and for each of the years in the three year period ended December 31, 1994, together with the independent auditors' report thereon of KPMG Peat Marwick LLP dated January 31, 1995, which information is incorporated herein by reference.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ---------------------------------------------------------------------------- AND FINANCIAL DISCLOSURE ------------------------
Registrant has not changed its independent auditors, and there have been no reportable disagreements with such auditors regarding accounting principles or practices or financial disclosure matters.
PART III --------
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT ---------------------------------------------------------------
Information regarding the directors of Registrant is included under the caption "Information as to Board of Directors and Nominees" in Registrant's proxy statement dated March 10, 1995, and is incorporated herein by reference. Information regarding the executive officers of Registrant is included under a separate caption in Part I hereof and is incorporated by reference, in accordance with General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION ---------------------------------------
Information regarding the above is included under the caption "Executive Compensation" in Registrant's proxy statement dated March 10, 1995, and is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------------------------
Information regarding the above is included under the captions "Security Ownership of Certain Beneficial Owners" and "Ownership By Management" in Registrant's proxy statement dated March 10, 1995, and is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------------------------
Information regarding the above is included under the caption "Security Ownership of Certain Beneficial Owners" in Registrant's proxy statement dated March 10, 1995, and is incorporated herein by reference.
PART IV -------
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM ----------------------------------------------------------------------------- 8-K ---
(a) The following documents are filed as part of this Form 10-K Report.
(1) The financial statements referred to in Item 8 above which are contained in Exhibit 13 hereto and which are incorporated by reference thereto.
(2) Exhibits 10(a) through 10(f) to this Item 14 constitute each executive compensation plan and arrangement of Registrant.
All schedules have been omitted because the material is not applicable, or is not required, or because the required information is shown in the consolidated financial statements or in the notes thereto, or is not otherwise material to the consolidated financial statements.
(b) There were no reports on Form 8-K filed for the quarter ended December 31, 1994.
(c) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
(3a, 4a) Amended Articles of Incorporation of Rubbermaid Incorporated. Incorporated by reference from Exhibits 3a and 4a to Form 10-K for the year ended December 31, 1992.
(3b, 4b) Regulations of Rubbermaid Incorporated. Incorporated by reference from Exhibits 3b and 4b to Form 10-K for the year ended December 31, 1992.
(4c) Amended and Restated Rights Agreement between Rubbermaid Incorporated and The First National Bank of Boston. Incorporated by reference from Exhibit 4 to Form 8 filed with the Commission on October 26, 1989.
(10a) Rubbermaid Incorporated Management Incentive Plan. Incorporated by reference from Exhibit 10a to Form 10-K for the year ended December 31, 1992.
(10b) Rubbermaid Incorporated Amended 1989 Restricted Stock Incentive and Option Plan. Incorporated by reference from Exhibit A to Proxy Statement for April 26, 1994 Annual Meeting of Shareholders.
(10c) Rubbermaid Incorporated Supplemental Executive Retirement Plan, as amended. Incorporated by reference from Exhibit 10(d) to Form 10-K for the year ended December 31, 1993.
(10d) Rubbermaid Incorporated Supplemental Retirement Plan. Incorporated by reference from Exhibit 10(e) to Form 10-K for the year ended December 31, 1991.
(10e) Change-Of-Control Employment Agreements - Identical agreements have been entered into with Charles A. Carroll, Richard D. Gates, Fred S. Grunewald, Lucius W. Hoffa, Jr., Gary E. Kleinjan, Gary F. Mattison, James A. Morgan, Michael E. Naylor, Joseph M. Ramos, David L. Robertson, Wolfgang R. Schmitt, Carol S. Troyer, and George C. Weigand. Incorporated by reference from Exhibit 10(i) to Form 10-K for the year ended December 31, 1991.
(10f) Rubbermaid Incorporated 1993 Deferred Compensation Plan. Incorporated by reference to Exhibit A to Proxy Statement for April 27, 1993 Annual Meeting of Shareholders.
(13) Consolidated financial statements and other data from pages 25 to 37 of 1994 Annual Report to Shareholders.
(21) Subsidiaries of Registrant.
(23) Consent of KPMG Peat Marwick LLP.
(24) Power of Attorney.
(27) Financial Data Schedule.
SIGNATURE ---------
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 24, 1995 RUBBERMAID INCORPORATED
By: /s/Wolfgang R. Schmitt ------------------------------- Wolfgang R. Schmitt Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in the capacities indicated on March 24, 1995.
/s/ Wolfgang R. Schmitt Director, Chairman of the Board and ---------------------------------- Chief Executive Officer Wolfgang R. Schmitt
/s/ George C. Weigand Senior Vice President and ---------------------------------- Chief Financial Officer George C. Weigand
/s/ John L. Theler Vice President and Corporate ---------------------------------- Controller John L. Theler (Principal Accounting Officer)
Tom H. Barrett Director
Charles A. Carroll Director
Zoe Coulson Director
Robert O. Ebert Director
Stanley C. Gault Director
Robert M. Gerrity Director By: /s/ James A. Morgan -------------------------- Karen N. Horn Director James A. Morgan Attorney-in-Fact William D. Marohn Director
Steven A. Minter Director
Jan Nicholson Director
Paul G. Schloemer Director