<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 February 28, 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 March 31, 1994 - 37,457,784 (after adjustment
for the five-for-four stock split to be paid in the
form of a 25% stock dividend on April 15, 1994)
<PAGE> 2
<TABLE>
A. SCHULMAN, INC.
STATEMENT OF CONSOLIDATED INCOME (Notes 1 and 2)
<CAPTION>
For the three months ended For the six months ended
-------------------------- ------------------------
February 28, February 28, February 28, February 28,
1994 1993 1994 1993
---- ---- ---- ----
Unaudited Unaudited
--------- ---------
<S> <C> <C> <C> <C>
Net sales $168,055,000 $159,936,000 $336,015,000 $341,668,000
Interest and other income 1,852,000 1,916,000 3,962,000 4,097,000
------------ ------------ ------------ ------------
169,907,000 161,852,000 339,977,000 345,765,000
------------ ------------ ------------ ------------
Costs and expenses:
Cost of goods sold 138,867,000 133,722,000 276,359,000 284,702,000
Selling, general and
administrative expenses 16,365,000 15,409,000 33,563,000 33,211,000
Interest expense 169,000 302,000 341,000 668,000
Foreign currency transaction
losses (gains) 131,000 (2,000) 114,000 292,000
Minority interest 83,000 34,000 161,000 97,000
------------ ------------ ------------ ------------
155,615,000 149,465,000 310,538,000 318,970,000
------------ ------------ ------------ ------------
Income before taxes and cumulative
effect of accounting changes 14,292,000 12,387,000 29,439,000 26,795,000
Provision for U.S. and foreign
income taxes 5,336,000 4,589,000 10,696,000 10,175,000
------------ ------------ ------------ ------------
Income before cumulative effect
of accounting changes 8,956,000 7,798,000 18,743,000 16,620,000
Cumulative effect of accounting
changes:
Postretirement benefits other
than pensions (Note 5) - - - (4,841,000)
Income taxes (Note 6) - - - 2,672,000
------------ ------------ ------------ ------------
Net income $ 8,956,000 $ 7,798,000 $ 18,743,000 $ 14,451,000
============ ============ ============ ============
Per share of common stock (Note 7):
Income before cumulative effect
of accounting changes $ .24 $ .21 $ .50 $ .45
Cumulative effect of accounting
changes:
Postretirement benefits other
than pensions (Note 5) - - - (.13)
Income taxes (Note 6) - - - .07
----- ----- ----- -----
Net income $ .24 $ .21 $ .50 $ .39
===== ===== ===== =====
Dividends $.072 $.064 $.136 $ .12
===== ===== ===== =====
<FN>
Average shares outstanding (Note 7) 37,436,690 37,385,752 37,418,904 37,262,528
</TABLE>
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<TABLE>
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<CAPTION>
February 28, August 31,
Assets 1994 1993
------------ ------------
Unaudited
---------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 3) $ 74,356,000 $ 69,690,000
Short-term investments, at cost 39,166,000 43,850,000
Accounts receivable, less allowance
for doubtful accounts of $4,256,000 at
February 28, 1994 and $3,974,000 at
August 31, 1993 112,922,000 93,653,000
Inventories, average cost or market,
whichever is lower 112,018,000 94,952,000
Prepaids, including tax effect of
temporary differences 8,460,000 10,596,000
------------ ------------
Total current assets 346,922,000 312,741,000
------------ ------------
Other assets:
Cash surrender value of life insurance 291,000 299,000
Deferred charges, etc., including tax effect
of temporary differences 9,119,000 9,869,000
------------ ------------
9,410,000 10,168,000
------------ ------------
Property, plant and equipment, at cost:
Land and improvements 4,672,000 4,674,000
Buildings and leasehold improvements 48,840,000 47,441,000
Machinery and equipment 121,942,000 118,302,000
Furniture and fixtures 13,467,000 13,001,000
Construction in progress 10,105,000 7,648,000
------------ ------------
199,026,000 191,066,000
Accumulated depreciation and investment grants
of $476,000 at February 28, 1994 and
$541,000 at August 31, 1993 113,577,000 106,110,000
------------ ------------
85,449,000 84,956,000
------------ ------------
$441,781,000 $407,865,000
============ ============
</TABLE>
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<TABLE>
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<CAPTION>
February 28, August 31,
Liabilities and Stockholders' Equity 1994 1993
------------ ------------
Unaudited
---------
<S> <C> <C>
Current liabilities:
Notes payable $ 3,800,000 $ -
Current portion of long-term debt 32,000 31,000
Accounts payable 57,091,000 36,433,000
U.S. and foreign income taxes payable 7,178,000 8,611,000
Accrued payrolls, taxes and related benefits 13,743,000 15,395,000
Other accrued liabilities 14,483,000 14,341,000
------------ ------------
Total current liabilites 96,327,000 74,811,000
------------ ------------
Long-term debt 5,134,000 10,149,000
Other long-term liabilities 25,267,000 23,971,000
Deferred income taxes 3,005,000 3,062,000
Minority interest 1,404,000 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 - 37,895,458 shares at February 28, 1994
and 30,353,526 shares at August 3l, 1993 37,895,000 30,354,000
Other capital 34,787,000 33,569,000
Cumulative foreign currency translation
adjustment 11,698,000 10,247,000
Retained earnings 236,662,000 230,529,000
Treasury stock, at cost, 442,674 shares (10,838,000) (10,838,000)
Unearned stock grant compensation (631,000) (723,000)
------------ ------------
Common stock equity 309,573,000 293,138,000
------------ ------------
Total stockholders' equity 310,644,000 294,209,000
------------ ------------
$441,781,000 $407,865,000
============ ============
</TABLE>
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<PAGE> 5
<TABLE>
A. SCHULMAN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Notes 1 and 2)
<CAPTION>
Six months ended
----------------
February 28, February 28,
1994 1993
---- ----
Unaudited
---------
<S> <C> <C>
Provided (used in) operating activities:
Net income $18,743,000 $14,451,000
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 7,637,000 7,583,000
Non-current deferred taxes 947,000 (142,000)
Foreign pension and other compensation 1,077,000 1,149,000
Postretirement benefit obligation 600,000 460,000
Changes in working capital:
Accounts receivable (18,814,000) (23,995,000)
Inventories (17,184,000) 12,617,000
Prepaids 2,141,000 2,140,000
Accounts payable 20,531,000 13,226,000
Income taxes (1,424,000) (2,186,000)
Accrued payrolls and other accrued liabilities (1,435,000) 1,742,000
Changes in other assets and other
long-term liabilities (428,000) (283,000)
----------- -----------
Net cash provided from operating activities 12,391,000 28,931,000
----------- -----------
Provided (used in) investing activities:
Expenditures for property, plant and equipment (8,356,000) (6,726,000)
Disposals of property, plant and equipment 251,000 367,000
Purchases of short-term investments (20,873,000) (28,444,000)
Proceeds from sales of short-term investments 25,796,000 17,417,000
----------- -----------
Net cash used for investing activities (3,182,000) (17,386,000)
----------- -----------
Provided (used in) financing activities:
Cash dividends paid (5,088,000) (4,472,000)
Increase (decrease) of notes payable 3,800,000 (4,800,000)
Increase of long-term debt - 113,000
Reduction of long-term debt (5,015,000) (12,000)
Exercise of stock options 1,269,000 2,255,000
Increase (decrease) in minority interest (259,000) 97,000
----------- -----------
Net cash used in financing activities (5,293,000) (6,819,000)
----------- -----------
Effect of exchange rate changes on cash 750,000 (8,765,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 4,666,000 (4,039,000)
Cash and cash equivalents at beginning of year 69,690,000 73,952,000
----------- -----------
Cash and cash equivalents at end of period $74,356,000 $69,913,000
=========== ===========
</TABLE>
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A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
(1) The results of operations for the six months ended February 28, 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
$63,863,000 at February 28, 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 six months ended
February 28, 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 18,743,000
Dividends paid or accrued:
Preferred (27,000)
Common, $.136 per share (5,093,000)
Stock options exercised 51,000 1,218,000
Five-for-four stock split
payable as a 25% stock
dividend on April 15, 1994 7,490,000 (7,490,000)
Foreign currency
translation adjustment 1,451,000
Amortization of
restricted stock 92,000
----------- ----------- ------------ ----------- ---------
Balance-February 28, 1994 $37,895,000 $34,787,000 $236,662,000 $11,698,000 $(631,000)
=========== =========== ============ =========== =========
</TABLE>
(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.
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<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Material Changes in Results of Operations
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<TABLE>
A comparison of net sales by classification for both the three month and six
month periods ending February 28, 1994 and 1993 is as follows:
<CAPTION>
(In Thousands)
Three Months Ended February 28, Six months ended February 28,
------------------------------- -----------------------------
Increase
1994 1993 Increase 1994 1993 (Decrease)
---- ---- -------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing $102,706 $ 96,650 $ 6,056 $205,198 $202,242 $ 2,956
Merchant 32,141 31,399 742 65,045 68,702 (3,657)
Distribution 33,208 31,887 1,321 65,772 70,724 (4,952)
-------- -------- ------- -------- -------- -------
$168,055 $159,936 $ 8,119 $336,015 $341,668 $(5,653)
======== ======== ======= ======== ======== =======
</TABLE>
The translation effects from the stronger U.S. dollar decreased sales by
$5.7 million in the quarter and $17.8 million for the six month period.
Total volume increased approximately 7% for the quarter and 5% for the six
month period. North American volume advanced 12% for the quarter and 15%
for the six month period. North American volume increased due to strong
demand from a broad range of markets, particularly the automotive industry.
European volume was up 3% for the quarter but declined 1% during the six month
period. European volume was aided by a higher level of manufacturing sales.
<TABLE>
Gross margins on sales for the quarter were 17.4% compared to 16.4% for
the same quarter of last year. Gross margins on sales for the six months
ended February 28, 1994 were 17.8% compared with 16.7% for the comparable
six month period last year. Gross profits from manufacturing accounted for
most of these increases due to higher levels of production. A comparison
of gross profit by classification for both the three month and six month
periods ending February 28, 1994 and 1993 is as follows:
<CAPTION>
(In Thousands)
Three Months Ended February 28, Six Months Ended February 28,
------------------------------- -----------------------------
Increase Increase
1994 1993 (Decrease) 1994 1993 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C>
Manufacturing $19,993 $17,146 $ 2,847 $40,892 $37,063 $ 3,829
Merchant 4,724 4,779 (55) 9,948 10,365 (417)
Distribution 4,471 4,289 182 8,816 9,538 (722)
------- ------- ------- ------- ------- -------
$29,188 $26,214 $ 2,974 $59,656 $56,966 $ 2,690
======= ======= ======= ======= ======= =======
</TABLE>
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 $956,000 for the quarter and $352,000 for the six month period.
Interest expense decreased in 1994 due to reduced borrowing levels and
lower interest rates.
Foreign currency transaction losses and gains are due to changes in the
value of currencies within the European Monetary System.
The effective tax rates for the three months ended February 28 were 37.3%
in 1994 and 37.0% in 1993. For the six months ended February 28, the
effective tax rates were
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<PAGE> 8
36.3% in 1994 and 38.0% in 1993. During the 1994 first quarter, certain
outstanding tax matters were settled in Europe which reduced the effective tax
rate for the six months ended February 28, 1994.
The translation effect from the stronger U.S. dollar reduced net income
$231,000 or $.01 per share during the second quarter and $1,093,000 or $.03
per share for the six month period.
European net income was up 9% in the 1994 second quarter mainly because of
a 3% improvement in tonnage and slightly better profit margins from
manufacturing operations. Margins were better in manufacturing due to higher
levels of production than last year when some of our European plants had
extended holiday shutdowns because of weak customer demand and inventory
reduction programs. At present, the European manufacturing facilities have a
good level of orders and some resin prices are increasing. However, the
European recession and competitive price pressures continue to slow the rate
of growth, especially in Germany.
Most of the increase in sales and approximately two thirds of the increase
in net income was from the North American operations. For the three months
ended February 28, 1994, sales were up $8.0 million on a volume increase of
12%. The North American operations have a solid level of orders for the next
few months.
Material Changes in Financial Condition
- ---------------------------------------
As of February 28, 1994, the current ratio was 3.6 to 1 and working
capital was $251 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 8.9% at February 28,
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. During the six months ended February 28, 1994, the Company
reduced the borrowing under its revolving credit agreement by $5 million.
However, in March 1994, the Company borrowed an additional $18 million
under this 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
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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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<PAGE> 10
SIGNATURES
Pursuant to the requirements 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.
Date April 14, 1994 A. Schulman, Inc.
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(Registrant)
-----------------------------------------
R. A. Stefanko, Executive Vice President-
Finance & Administration
(Signing on behalf of Registrant as a duly
authorized officer of Registrant and
signing as the Principal Financial Officer
of Registrant)
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