<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 November 30, 1993 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
----------
A. Schulman, Inc. and its Consolidated Subsidiaries
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 34-0514850
------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3550 West Market Street, Akron, Ohio 44333
- -----------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(216) 666-3751
- -----------------------------------------------------------------------
(Registrant's Telephone Number, including Area Code)
- ------------------------------------------------------------------------
(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 December 31, 1993 - 29,940,102
<PAGE> 2
<TABLE>
A. SCHULMAN, INC.
STATEMENT OF CONSOLIDATED INCOME (Notes 1 and 2)
<CAPTION>
For the three months ended
--------------------------
November 30, November 30,
1993 1992
---- ----
Unaudited
---------
<S> <C> <C>
Net sales $167,960,000 $181,732,000
Interest and other income 2,110,000 2,181,000
------------ ------------
170,070,000 183,913,000
------------ ------------
Costs and expenses:
Cost of goods sold 137,492,000 150,980,000
Selling, general and
administrative expenses 17,198,000 17,802,000
Interest expense 172,000 366,000
Foreign currency transaction
losses (gains) (17,000) 294,000
Minority interest 78,000 63,000
------------ ------------
154,923,000 169,505,000
------------ ------------
Income before taxes and cumulative
effect of accounting changes 15,147,000 14,408,000
Provision for U.S. and foreign
income taxes 5,360,000 5,586,000
------------ ------------
Income before cumulative effect
of accounting changes 9,787,000 8,822,000
Cumulative effect of accounting
changes:
Postretirement benefits other
than pensions (Note 5) - (4,841,000)
Income taxes (Note 6) - 2,672,000
------------ ------------
Net income $ 9,787,000 $ 6,653,000
Per share of common stock:
Income before cumulative effect
of accounting changes $ .33 $ .30
Cumulative effect of accounting
changes:
Postretirement benefits other
than pensions (Note 5) - (.16)
Income taxes (Note 6) - .09
----- -----
Net income $ .33 $ .23
===== =====
Dividends $ .08 $ .07
===== =====
Average shares outstanding 29,920,894 29,711,445
</TABLE>
- 2 -
<PAGE> 3
<TABLE>
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<CAPTION>
November 30, August 31,
Assets 1993 1993
------------ -----------
Unaudited
---------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 3) $ 59,294,000 $ 69,690,000
Short-term investments, at cost 58,033,000 43,850,000
Accounts receivable, less allowance
for doubtful accounts of $4,284,000 at
November 30, 1993 and $3,974,000 at
August 31, 1993 99,285,000 93,653,000
Inventories, average cost or market,
whichever is lower 105,763,000 94,952,000
Prepaids, including tax effect of
temporary differences 9,627,000 10,596,000
------------ ------------
Total current assets 332,002,000 312,741,000
------------ ------------
Other assets:
Cash surrender value of life insurance 284,000 299,000
Deferred charges, etc., including tax effect
of temporary differences 9,797,000 9,869,000
------------ ------------
10,081,000 10,168,000
------------ ------------
Property, plant and equipment, at cost:
Land and improvements 4,612,000 4,674,000
Buildings and leasehold improvements 47,959,000 47,441,000
Machinery and equipment 117,218,000 118,302,000
Furniture and fixtures 13,094,000 13,001,000
Construction in progress 10,871,000 7,648,000
------------ ------------
193,754,000 191,066,000
Accumulated depreciation and investment grants
of $500,000 at November 30, 1993 and
$541,000 at August 31, 1993 108,766,000 106,110,000
------------ ------------
84,988,000 84,956,000
------------ ------------
$427,071,000 $407,865,000
============ ============
</TABLE>
- 3 -
<PAGE> 4
<TABLE>
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<CAPTION>
November 30, August 31,
Liabilities and Stockholders' Equity 1993 1993
------------ -----------
Unaudited
---------
<S> <C> <C>
Current liabilities:
Notes payable $ 1,000,000 $ -
Current portion of long-term debt 31,000 31,000
Accounts payable 51,440,000 36,433,000
U.S. and foreign income taxes payable 11,077,000 8,611,000
Accrued payrolls, taxes and related benefits 14,229,000 15,395,000
Other accrued liabilities 13,776,000 14,341,000
------------- -------------
Total current liabilites 91,553,000 74,811,000
------------- -------------
Long-term debt 8,139,000 10,149,000
Other long-term liabilities 24,437,000 23,971,000
Deferred income taxes 2,973,000 3,062,000
Minority interest 1,321,000 1,663,000
Stockholders' equity (Note 4):
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 - 50,000,000 shares (Note 7)
Issued - 30,372,151 shares at November 30, 1993
and 30,353,526 shares at August 3l, 1993 30,372,000 30,354,000
Other capital 34,010,000 33,569,000
Cumulative foreign currency translation
adjustment 6,802,000 10,247,000
Retained earnings 237,908,000 230,529,000
Treasury stock, at cost, 442,674 shares (10,838,000) (10,838,000)
Unearned stock grant compensation (677,000) (723,000)
------------- -------------
Common stock equity 297,577,000 293,138,000
------------- -------------
Total stockholders' equity 298,648,000 294,209,000
------------- -------------
$427,071,000 $407,865,000
============= =============
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
A. SCHULMAN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Notes 1 and 2)
<CAPTION>
Three months ended
------------------
November 30, November 30,
1993 1992
-------- --------
Unaudited
---------
<S> <C> <C>
Provided (used in) operating activities:
Net income $ 9,787,000 $ 6,653,000
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 3,891,000 3,834,000
Non-current deferred taxes 979,000 (63,000)
Foreign pension and other compensation 544,000 591,000
Postretirement benefit obligation 300,000 230,000
Changes in working capital:
Accounts receivable (7,031,000) (13,835,000)
Inventories (11,840,000) 2,064,000
Prepaids 887,000 1,321,000
Accounts payable 15,989,000 15,720,000
Income taxes 2,559,000 1,585,000
Accrued payrolls and other accrued liabilities (1,362,000) 139,000
Changes in other assets and other
long-term liabilities (1,092,000) (177,000)
------------ ------------
Net cash provided from operating activities 13,611,000 20,231,000
------------ ------------
Provided (used in) investing activities:
Expenditures for property, plant and equipment (5,099,000) (3,417,000)
Disposals of property, plant and equipment 437,000 429,000
Purchases of short-term investments (19,413,000) (7,057,000)
Proceeds from sales of short-term investments 4,477,000 -
------------ ------------
Net cash used for investing activities (19,598,000) (10,045,000)
------------ ------------
Provided (used in) financing activities:
Cash dividends paid (2,393,000) (2,079,000)
Increase of notes payable 1,000,000 1,700,000
Reduction of long-term debt (2,008,000) (4,000)
Exercise of stock options 459,000 814,000
Increase (decrease) in minority interest (342,000) 63,000
------------ ------------
Net cash provided (used in) financing
activities (3,284,000) 494,000
------------ ------------
Effect of exchange rate changes on cash (1,125,000) (7,601,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents (10,396,000) 3,079,000
Cash and cash equivalents at beginning of year 69,690,000 73,952,000
------------ ------------
Cash and cash equivalents at end of period $59,294,000 $77,031,000
============ ===========
</TABLE>
- 5 -
<PAGE> 6
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The results of operations for the three months ended November 30, 1993 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 $52,542,000 at November 30, 1993 and $61,498,000 at August 31,
1993. Investments with maturities between three and twelve months are
considered to be short-term investments.
<TABLE>
(4) A summary of the stockholders' equity accounts for the three months
ended November 30, 1993 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 9,787,000
Dividends paid or accrued:
Preferred (13,000)
Common, $.08 per share (2,395,000)
Stock options exercised 18,000 441,000
Foreign currency
translation adjustment (3,445,000)
Amortization of
restricted stock 46,000
----------- ----------- ------------ ----------- ---------
Balance-November 30, 1993 $30,372,000 $34,010,000 $237,908,000 $ 6,802,000 $(677,000)
=========== =========== ============ =========== =========
</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 $.16 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 $.09 per share.
(7) On December 9, 1993, the shareholders approved an increase in the number
of authorized shares of common stock from 50,000,000 to 75,000,000.
- 6 -
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Material Changes in Results of Operations
- -----------------------------------------
Net sales for the three months ended November 30, 1993 were $168 million,
a decrease of 7.6% from sales of $181.7 million for the comparable period
in 1992. A comparison of net sales by classification for the three months
ended November 30, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended November 30,
-------------------------------
1993 1992 (Decrease)
---- ---- --------
<S> <C> <C> <C>
Manufacturing $102,492 $105,592 $ (3,100)
Merchant 32,904 37,303 (4,399)
Distribution 32,564 38,837 (6,273)
-------- -------- --------
$167,960 $181,732 $(13,772)
======== ======== ========
</TABLE>
The translation effects from the stronger U.S. dollar decreased sales
by $12.1 million.
Total volume increased 2%. North American volume increased 17%,
however, this was partially offset by a 6% decline in Europe. In addition,
lower selling prices due to a continuing oversupply in the plastic resin market
contributed to lower net sales.
Gross margins on sales for 1993 were 18.1% compared to 16.9% in 1992.
The largest portion of the increase occurred in manufacturing which was
approximately 61% of total sales in 1993 compared to 58% in 1992.
Manufacturing sales traditionally have higher profit margins than merchant and
distribution activities. A comparison of gross profit by classification for
the three months ended November 30, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended November 30,
-------------------------------
Increase
1993 1992 (Decrease)
---- ---- --------
<S> <C> <C> <C>
Manufacturing $ 20,899 $ 19,917 $ 982
Merchant 5,224 5,586 (362)
Distribution 4,345 5,249 (904)
------- ------- -------
$ 30,468 $ 30,752 $ (284)
======= ======= =======
</TABLE>
Selling, general and administrative expenses decreased $604,000 in
1993. The strengthening of the U.S. dollar decreased these expenses by
approximately $1.3 million.
Interest expense decreased in 1993 due to reduced borrowing levels and
lower interest rates.
Gains on foreign currency transactions were greater in 1993 due to the
changes in the value of currencies within the European Monetary System.
The effective tax rate was 35.4% in 1993 and 38.8% in 1992. The
reduction was due to lower taxes in Europe, resulting from the settlement of
certain outstanding tax matters. It is anticipated that the tax rates for
future quarters will return to more traditional levels.
Earnings in Europe improved slightly in 1993 over 1992 primarily
because of lower taxes and better margins. Sales were down $22 million on a
volume decline of 6%. The translation effect from the stronger value of the
U.S. dollar decreased revenues by
- 7 -
<PAGE> 8
$12.1 million and net income by $862,000 or $.03 per share. Although the
current recession makes it difficult to generate high levels of growth,
economic conditions appear to be showing some signs of modest improvement.
Most of the increase in earnings was from the North American
operations. Sales were up $8.8 million or 15% on a volume increase of 17%.
The North American operations have a solid level of orders for the next few
months.
Material Changes in Financial Condition
- ---------------------------------------
As of November 30, 1993, the current ratio was 3.6 to 1 and working
capital was $240 million.
Although net income per share was $.33, and cash dividends per share
were $.08 for the three months ended November 30, 1993, book value per share
only increased $.14 during this period. The translation effect of the stronger
U.S. dollar reduced stockholders' equity by $3.4 million, or $.11 per share
during this period.
The Company has entered into negotiations for the purchase of assets
from ComAlloy International Corporation, an affiliate of Exxon Chemical
Company. ComAlloy is based in Nashville, Tennessee and is a supplier of
application-engineered thermoplastic blends and alloys to a variety of
industries, including automotive, appliance, electrical and recreational goods
markets. Sales for this business would be approximately $30 million annually.
The purchase would be financed from cash generated from operations and current
credit lines.
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.
- 8 -
<PAGE> 9
Part II - Other Information
- ---------------------------
Items 1 through 3 and 5 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.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
(a) The Company's Annual Meeting of Shareholders was held December 9, 1993.
(c) (1) Shareholders elected the four Class I Directors nominated by the
Board of Directors:
<TABLE>
<CAPTION>
Affirmative Votes
Votes Cast Withheld
----------- ---------
<S> <C> <C>
Larry A. Kushkin 24,535,984 156,628
Franz A. Loehr 24,535,182 157,430
Alan L. Ockene 24,531,247 161,365
Robert G. Wallace 24,537,009 155,603
</TABLE>
(2) Shareholders approved a proposal to amend the Company's
Certificate of Incorporation to increase the number of authorized
shares of common stock from 50,000,000 to 75,000,000.
<TABLE>
<CAPTION>
Affirmative Negative Broker
Votes Cast Votes Cast Abstentions Non-Votes
----------- ---------- ----------- ---------
<S> <C> <C> <C>
23,233,557 1,085,387 373,668 -0-
</TABLE>
(3) Shareholders ratified the Board of Directors' selection of
independent accountants for fiscal year ending August 31, 1994.
<TABLE>
<CAPTION>
Affirmative Negative Broker
Votes Cast Votes Cast Abstentions Non-Votes
----------- ---------- ----------- ---------
<S> <C> <C> <C>
24,665,081 5,520 22,011 -0-
</TABLE>
Detailed information relating to the above is set forth in the
Company's Proxy Statement dated November 12, 1993.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(b) The Company filed a Current Report on Form 8-K dated November 30, 1993
pursuant to Item 5 of such Form. The following financial statements were
filed as Exhibits to such form:
(1) Restated Statement of Consolidated Income of the Company for
the three-month periods ended November 30, 1992, February 28,
1993 and May 31, 1993 and the nine-month period ended May 31,
1993 (unaudited);
(2) Restated Consolidated Balance Sheet of the Company as at
November 30, 1992, February 28, 1993 and May 31, 1993
(unaudited).
- 9 -
<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 January 14, 1994 A. Schulman, Inc.
------------------ ----------------------------------
(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)
- 10 -
