<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 31, 1994 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ____________
Commission file number: 2-45166
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A. Schulman, Inc. and its Consolidated Subsidiaries
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(Exact Name of Registrant as Specified in its Charter)
Delaware 34-0514850
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3550 West Market Street, Akron, Ohio 44333
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(Address of Principal Executive Offices) (Zip Code)
(216) 666-3751
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(Registrant's Telephone Number, including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Number of common shares outstanding
as of June 30, 1994 - 37,456,744
<PAGE> 2
<TABLE>
A. SCHULMAN, INC.
STATEMENT OF CONSOLIDATED INCOME (Notes 1 and 2)
<CAPTION>
For the three months ended For the nine months ended
-------------------------- -------------------------
May 31, May 31, May 31, May 31,
1994 1993 1994 1993
---- ---- ---- ----
Unaudited Unaudited
--------- ---------
<S> <C> <C> <C> <C>
Net sales $203,766,000 $185,115,000 $539,781,000 $526,783,000
Interest and other income 1,787,000 1,981,000 5,749,000 6,078,000
------------ ------------ ------------ ------------
205,553,000 187,096,000 545,530,000 532,861,000
------------ ------------ ------------ ------------
Costs and expenses:
Cost of goods sold 168,005,000 152,088,000 444,364,000 436,790,000
Selling, general and
administrative expenses 17,544,000 17,469,000 51,107,000 50,680,000
Interest expense 345,000 357,000 686,000 1,025,000
Foreign currency transaction
losses (gains) (66,000) (124,000) 48,000 168,000
Minority interest 88,000 62,000 249,000 159,000
------------ ------------ ------------ ------------
185,916,000 169,852,000 496,454,000 488,822,000
------------ ------------ ------------ ------------
Income before taxes and cumulative
effect of accounting changes 19,637,000 17,244,000 49,076,000 44,039,000
Provision for U.S. and foreign
income taxes 7,570,000 6,981,000 18,266,000 17,156,000
------------ ------------ ------------ ------------
Income before cumulative effect
of accounting changes 12,067,000 10,263,000 30,810,000 26,883,000
Cumulative effect of accounting
changes:
Postretirement benefits other
than pensions (Note 5) - - - (4,841,000)
Income taxes (Note 6) - - - 2,672,000
------------ ------------ ------------ ------------
Net income $ 12,067,000 $ 10,263,000 $ 30,810,000 $ 24,714,000
============ ============ ============ ============
Per share of common stock (Note 7):
Income before cumulative effect
of accounting changes $ .32 $ .27 $ .82 $ .72
Cumulative effect of accounting
changes:
Postretirement benefits other
than pensions (Note 5) - - - (.13)
Income taxes (Note 6) - - - .07
----- ----- ----- -----
Net income $ .32 $ .27 $ .82 $ .66
===== ===== ===== =====
Dividends $.075 $.064 $.211 $.184
===== ===== ===== =====
Average shares outstanding (Note 7) 37,456,544 37,388,565 37,431,450 37,304,541
</TABLE>
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<TABLE>
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<CAPTION>
May 31, August 31,
Assets 1994 1993
------------ ------------
Unaudited
---------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 3) $ 58,124,000 $ 69,690,000
Short-term investments, at cost 58,578,000 43,850,000
Accounts receivable, less allowance
for doubtful accounts of $4,627,000 at
May 31, 1994 and $3,974,000 at
August 31, 1993 121,497,000 93,653,000
Inventories, average cost or market,
whichever is lower 132,069,000 94,952,000
Prepaids, including tax effect of
temporary differences 8,707,000 10,596,000
------------ ------------
Total current assets 378,975,000 312,741,000
------------ ------------
Other assets:
Cash surrender value of life insurance 304,000 299,000
Deferred charges, etc., including tax effect
of temporary differences 12,806,000 9,869,000
------------ ------------
13,110,000 10,168,000
------------ ------------
Property, plant and equipment, at cost:
Land and improvements 5,263,000 4,674,000
Buildings and leasehold improvements 51,631,000 47,441,000
Machinery and equipment 129,781,000 118,302,000
Furniture and fixtures 14,259,000 13,001,000
Construction in progress 12,745,000 7,648,000
------------ ------------
213,679,000 191,066,000
Accumulated depreciation and investment grants
of $673,000 at May 31, 1994 and
$541,000 at August 31, 1993 119,303,000 106,110,000
------------ ------------
94,376,000 84,956,000
------------ ------------
$486,461,000 $407,865,000
============ ============
</TABLE>
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<TABLE>
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<CAPTION>
May 31, August 31,
Liabilities and Stockholders' Equity 1994 1993
------------ ------------
Unaudited
---------
<S> <C> <C>
Current liabilities:
Notes payable $ 7,100,000 $ -
Current portion of long-term debt 33,000 31,000
Accounts payable 65,618,000 36,433,000
U.S. and foreign income taxes payable 3,865,000 8,611,000
Accrued payrolls, taxes and related benefits 14,770,000 15,395,000
Other accrued liabilities 14,989,000 14,341,000
------------ ------------
Total current liabilites 106,375,000 74,811,000
------------ ------------
Long-term debt 23,129,000 10,149,000
Other long-term liabilities 26,458,000 23,971,000
Deferred income taxes 3,090,000 3,062,000
Minority interest 1,493,000 1,663,000
Stockholders' equity (Notes 4 and 7):
Preferred stock, 5% cumulative, $100
par value, authorized, issued and
outstanding - 10,707 shares 1,071,000 1,071,000
Special stock, 1,000,000 shares authorized,
none outstanding - -
Common stock, $1 par value
Authorized - 75,000,000 shares
Issued - 37,899,218 shares at May 31, 1994
and 30,353,526 shares at August 3l, 1993 37,899,000 30,354,000
Other capital 34,882,000 33,569,000
Cumulative foreign currency translation
adjustment 17,597,000 10,247,000
Retained earnings 245,891,000 230,529,000
Treasury stock, at cost, 442,674 shares (10,838,000) (10,838,000)
Unearned stock grant compensation (586,000) (723,000)
------------ ------------
Common stock equity 324,845,000 293,138,000
------------ ------------
Total stockholders' equity 325,916,000 294,209,000
------------ ------------
$486,461,000 $407,865,000
============ ============
</TABLE>
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<TABLE>
A. SCHULMAN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Notes 1 and 2)
<CAPTION>
Nine months ended
-----------------
May 31, May 31,
1994 1993
---- ----
Unaudited
---------
<S> <C> <C>
Provided (used in) operating activities:
Net income $30,810,000 $24,714,000
Items not requiring the current use of cash:
Cumulative effect of accounting changes:
Postretirement benefits other
than pensions (Note 5) - 4,841,000
Income taxes (Note 6) - (2,672,000)
Depreciation 11,320,000 11,407,000
Non-current deferred taxes 964,000 (198,000)
Foreign pension and other compensation 1,627,000 1,714,000
Postretirement benefit obligation 900,000 690,000
Changes in working capital:
Accounts receivable (24,543,000) (21,490,000)
Inventories (35,225,000) 13,843,000
Prepaids 2,007,000 1,726,000
Accounts payable 27,165,000 20,411,000
Income taxes (4,789,000) (1,270,000)
Accrued payrolls and other accrued liabilities (525,000) 5,601,000
Changes in other assets and other
long-term liabilities (4,035,000) (281,000)
----------- -----------
Net cash provided from operating activities 5,676,000 59,036,000
----------- -----------
Provided (used in) investing activities:
Expenditures for property, plant and equipment (19,907,000) (12,646,000)
Disposals of property, plant and equipment 227,000 283,000
Purchases of short-term investments (39,063,000) (41,246,000)
Proceeds from sales of short-term investments 26,076,000 20,564,000
----------- -----------
Net cash used for investing activities (32,667,000) (33,045,000)
----------- -----------
Provided (used in) financing activities:
Cash dividends paid (7,911,000) (6,865,000)
Increase (decrease) of notes payable 7,100,000 (3,800,000)
Increase of long-term debt 13,000,000 113,000
Reduction of long-term debt (23,000) (20,000)
Exercise of stock options 1,368,000 2,255,000
Increase (decrease) in minority interest (170,000) 159,000
Investment grants from foreign countries 239,000 -
----------- -----------
Net cash provided (used in) financing activities 13,603,000 (8,158,000)
----------- -----------
Effect of exchange rate changes on cash 1,822,000 (6,567,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents (11,566,000) 11,266,000
Cash and cash equivalents at beginning of year 69,690,000 73,952,000
----------- -----------
Cash and cash equivalents at end of period $58,124,000 $85,218,000
=========== ===========
</TABLE>
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A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
(1) The results of operations for the nine months ended May 31, 1994 are not
necessarily indicative of the results expected for the year ended August 31,
1994.
(2) The interim financial statements furnished reflect all adjustments
which are, in the opinion of management, necessary to a fair presentation of
the results of the interim periods presented. All such adjustments are of a
normal recurring nature.
(3) All highly liquid investments purchased with a maturity of three months
or less are considered to be cash equivalents. Such investments amounted to
$42,635,000 at May 31, 1994 and $61,498,000 at August 31, 1993. Investments
with maturities between three and twelve months are considered to be
short-term investments.
(4) A summary of the stockholders' equity accounts for the nine months ended
May 31, 1994 is as follows:
<CAPTION>
Foreign Unearned
Currency Stock
Common Other Retained Translation Grant
Stock Capital Earnings Adjustment Compensation
----------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance-September 1, 1993 $30,354,000 $33,569,000 $230,529,000 $10,247,000 $(723,000)
Net income 30,810,000
Dividends paid or accrued:
Preferred (40,000)
Common, $.211 per share (7,918,000)
Stock options exercised 55,000 1,313,000
Five-for-four stock split
paid as a 25% stock
dividend on April 15, 1994 7,490,000 (7,490,000)
Foreign currency
translation adjustment 7,350,000
Amortization of
restricted stock 137,000
----------- ----------- ------------ ----------- ---------
Balance-May 31, 1994 $37,899,000 $34,882,000 $245,891,000 $17,597,000 $(586,000)
=========== =========== ============ =========== =========
<FN>
(5) Effective September 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." This statement requires the expected cost of postretirement health care and life
insurance benefits to be recognized during the years that employees render service. The cumulative effect of this change to
September 1, 1992 was to decrease pretax income by $7.7 million and net income by $4.8 million or $.13 per share.
(6) Effective September 1, 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This statement requires the Company to adopt the liability method of accounting for income taxes. The cumulative effect of
this change to September 1, 1992 was to increase net income by $2.7 million or $.07 per share.
(7) On March 10, 1994, the Board of Directors declared a five-for-four stock split payable in the form of a 25% stock dividend on
April 15, 1994 to shareholders of record on March 25, 1994. The consolidated financial statements and all per share amounts,
where appropriate, have been adjusted to reflect the split.
</TABLE>
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<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
Material Changes in Results of Operations
- - -----------------------------------------
A comparison of net sales by classification for both the three month and
nine month periods ending May 31, 1994 and 1993 is as follows:
<CAPTION>
(In Thousands)
Three Months Ended May 31, Nine months ended May 31,
-------------------------- -------------------------
1994 1993 Increase 1994 1993 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing $122,014 $113,065 $ 8,949 $327,212 $315,307 $11,905
Merchant 40,319 35,890 4,429 105,364 104,592 772
Distribution 41,433 36,160 5,273 107,205 106,884 321
-------- -------- ------- -------- -------- -------
$203,766 $185,115 $18,651 $539,781 $526,783 $12,998
======== ======== ======= ======== ======== =======
</TABLE>
The translation effects from the stronger U.S. dollar decreased sales by
$5.7 million in the quarter and $23.6 million for the nine month period.
Volume increased in all classifications during 1994. Total volume was up
approximately 13% for the quarter and 8% for the nine month period. North
American volume increased approximately 19% for the quarter and 16% for
the nine month period. European volume also advanced approximately 9% for
the quarter and 2% for the nine month period.
Gross margins on sales for the quarter were 17.6% compared to 17.8% for
the same quarter of last year. The decrease in gross margins was due to
competitive market conditions, especially in Europe. Gross margins on
sales for the nine months ended May 31, 1994 were 17.7% compared with
17.1% for the comparable nine month period last year. A comparison of
gross profit by classification for both the three month and nine month
periods ending May 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended May 31, Nine months ended May 31,
-------------------------- -------------------------
1994 1993 Increase 1994 1993 Increase
(Decrease)
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing $24,549 $22,595 $ 1,954 $65,441 $59,658 $ 5,783
Merchant 5,800 5,347 453 15,748 15,712 36
Distribution 5,412 5,085 327 14,228 14,623 (395)
------- ------- ------- ------- ------- -------
$35,761 $33,027 $ 2,734 $95,417 $89,993 $ 5,424
======= ======= ======= ======= ======= =======
</TABLE>
Gross profits from manufacturing accounted for most of these increases due
to a higher volume of sales. However, merchant and distribution gross profit
margins are lower mainly because of market pricing conditions.
Selling, general and administrative expenses increased in 1994 due to
higher compensation levels and additional costs to support the increase in
sales volume. The strengthening of the U.S. dollar decreased these expenses
by $414,000 for the quarter and $2,328,000 for the nine month period.
Interest expense decreased in 1994 due to lower interest rates. Interest
expense for the 1994 quarter increased over preceding quarters due to the
purchase of ComAlloy International Corporation's assets.
Foreign currency transaction losses and gains are due to changes in the
value of currencies within the European Monetary System.
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<PAGE> 8
Other income is lower primarily due to lower interest income from
temporary investments, primarily because of lower European interest rates.
The effective tax rates for the three months ended May 31 were 38.5% in
1994 and 40.5% in 1993. For the nine months ended May 31, the effective tax
rates were 37.2% in 1994 and 38.9% in 1993. During 1994, the statutory tax
rate was reduced in Germany. This decrease was partially offset by the
imposition of a surtax in Belgium. Also, during the 1994 first quarter,
certain outstanding tax matters were settled in Europe which reduced the
effective tax rate for the nine months ended May 31, 1994.
The translation effect from the stronger U.S. dollar reduced net income
$484,000 or $.01 per share during the third quarter and $1,576,000 or $.04 per
share for the nine month period.
European net income was up 14% in the 1994 third quarter on a volume
increase of 9%. At present the European manufacturing facilities have a good
level of orders and pricing generally has stabilized or is increasing for
certain basic resins. In addition, there should be a positive translation
effect on sales and profits due to the recent sharp decline in the value of the
U.S. dollar. However, Europe's recovery from their recession appears to be
slow and gradual.
In North America, product demand remains strong, order levels are good,
and there has been a continued firming of resin prices.
Material Changes in Financial Condition
- - ---------------------------------------
As of May 31, 1994, the current ratio was 3.6 to 1 and working capital was
$273 million.
On March 31, 1994, the Company acquired the assets of ComAlloy
International Corporation, an affiliate of Exxon Chemical Company. ComAlloy is
based in Nashville, Tennessee and is a supplier of thermoplastic blends and
alloys, typically used in applications requiring high strength. Initial sales
for this business will be approximately $30 million annually.
The ratio of long-term liabilities to capital was 13.2% at May 31, 1994
and 10.4% at August 31, 1993. This ratio is calculated by dividing the sum of
long-term debt and other long-term liabilities by the sum of total
stockholders' equity, long-term debt and other long-term liabilities. In March
1994, the Company borrowed an additional $18 million under its revolving credit
agreement primarily to finance the acquisition of assets at ComAlloy
International Corporation.
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits," which requires the recognition by
employers of benefits provided to former or inactive employees after
employment but before retirement, has not yet been adopted by the Company. This
statement will be effective for the Company in fiscal 1995. A determination
has not been made at this time as to its impact on the Company.
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<PAGE> 9
Part II - Other Information
- - ---------------------------
Items 1 through 6 are not applicable or the answer to such items is
negative, therefore, the items have been omitted and no reference is required
in this report.
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