<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, 1995 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 June 30, 1995 - 37,579,568
<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,
1995 1994 1995 1994
---- ---- ---- ----
Unaudited Unaudited
--------- ---------
<S> <C> <C> <C> <C>
Net sales $284,535,000 $203,766,000 $785,413,000 $539,781,000
Interest and other income 1,956,000 1,787,000 5,244,000 5,749,000
------------ ------------ ------------ ------------
286,491,000 205,553,000 790,657,000 545,530,000
------------ ------------ ------------ ------------
Costs and expenses:
Cost of goods sold 238,870,000 168,005,000 656,786,000 444,364,000
Selling, general and
administrative expenses 19,617,000 17,544,000 60,100,000 51,107,000
Interest expense 1,679,000 345,000 3,191,000 686,000
Foreign currency transaction
losses (gains) 749,000 (66,000) 1,224,000 48,000
Minority interest 102,000 88,000 410,000 249,000
------------ ------------ ------------ ------------
261,017,000 185,916,000 721,711,000 496,454,000
------------ ------------ ------------ ------------
Income before taxes 25,474,000 19,637,000 68,946,000 49,076,000
Provision for income taxes:
U.S. 1,793,000 1,954,000 5,664,000 4,870,000
Foreign 8,442,000 5,616,000 21,711,000 13,396,000
------------ ------------ ------------ ------------
10,235,000 7,570,000 27,375,000 18,266,000
------------ ------------ ------------ ------------
Net income 15,239,000 12,067,000 41,571,000 30,810,000
Dividends on preferred stock (13,000) (13,000) (40,000) (40,000)
------------ ------------ ------------ ------------
Net income applicable to
common stock $ 15,226,000 $ 12,054,000 $ 41,531,000 $ 30,770,000
============ ============ ============ ============
Net income per share of
common stock $ .41 $ .32 $1.11 $ .82
===== ===== ===== =====
Cash dividends per share of
common stock $.085 $.075 $.245 $.211
===== ===== ===== =====
Average number of shares outstanding
which were used in computing net
income per common share 37,563,510 37,456,544 37,532,687 37,431,450
</TABLE>
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<PAGE> 3
<TABLE>
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<CAPTION>
May 31, August 31,
Assets 1995 1994
------------ ------------
Unaudited
---------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 3) $ 77,694,000 $ 60,062,000
Short-term investments, at cost 57,545,000 61,763,000
Accounts receivable, less allowance
for doubtful accounts of $5,442,000 at
May 31, 1995 and $4,111,000 at
August 31, 1994 164,548,000 129,010,000
Inventories, average cost or market,
whichever is lower 206,717,000 136,667,000
Prepaids, including tax effect of
temporary differences 12,038,000 11,870,000
------------ ------------
Total current assets 518,542,000 399,372,000
------------ ------------
Other assets:
Cash surrender value of life insurance 357,000 340,000
Deferred charges, etc., including tax effect
of temporary differences 14,444,000 12,604,000
------------ ------------
14,801,000 12,944,000
------------ ------------
Property, plant and equipment, at cost:
Land and improvements 9,047,000 5,813,000
Buildings and leasehold improvements 63,317,000 54,124,000
Machinery and equipment 173,894,000 141,365,000
Furniture and fixtures 18,197,000 15,227,000
Construction in progress 15,934,000 5,380,000
------------ ------------
280,389,000 221,909,000
Accumulated depreciation and investment grants
of $493,000 at May 31, 1995 and
$634,000 at August 31, 1994 144,192,000 123,806,000
------------ ------------
136,197,000 98,103,000
------------ ------------
$669,540,000 $510,419,000
============ ============
</TABLE>
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<PAGE> 4
<TABLE>
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<CAPTION>
May 31, August 31,
Liabilities and Stockholders' Equity 1995 1994
------------ ------------
Unaudited
---------
<S> <C> <C>
Current liabilities:
Notes payable $ 23,500,000 $ 12,300,000
Current portion of long-term debt 39,000 35,000
Accounts payable 75,851,000 54,286,000
U.S. and foreign income taxes payable 12,553,000 9,939,000
Accrued payrolls, taxes and related benefits 18,372,000 16,901,000
Other accrued liabilities 21,317,000 14,903,000
------------ ------------
Total current liabilities 151,632,000 108,364,000
------------ ------------
Long-term debt (Note 5) 75,107,000 23,126,000
Other long-term liabilities 31,766,000 27,547,000
Deferred income taxes 4,188,000 3,794,000
Minority interest 1,479,000 1,669,000
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 - 75,000,000 shares
Issued - 38,022,242 shares at May 31, 1995
and 37,902,043 shares at August 3l, 1994 38,022,000 37,902,000
Other capital 38,069,000 35,813,000
Cumulative foreign currency translation
adjustment 51,052,000 26,570,000
Retained earnings 289,146,000 256,826,000
Treasury stock, at cost, 442,674 shares (10,838,000) (10,838,000)
Unearned stock grant compensation (1,154,000) (1,425,000)
------------ ------------
Common stock equity 404,297,000 344,848,000
------------ ------------
Total stockholders' equity 405,368,000 345,919,000
------------ ------------
$669,540,000 $510,419,000
============ ============
</TABLE>
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<PAGE> 5
<TABLE>
A. SCHULMAN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Notes 1 and 2)
<CAPTION>
Nine months ended
-----------------
May 31, May 31,
1995 1994
---- ----
Unaudited
---------
<S> <C> <C>
Provided (used in) operating activities:
Net income $41,571,000 $30,810,000
Items not requiring the current use of cash:
Depreciation 13,091,000 11,320,000
Non-current deferred taxes 11,000 964,000
Foreign pension and other compensation 2,130,000 1,627,000
Postretirement benefit obligation 720,000 900,000
Changes in working capital:
Accounts receivable (23,817,000) (24,543,000)
Inventories (61,537,000) (35,225,000)
Prepaids 72,000 2,007,000
Accounts payable 14,312,000 27,165,000
Income taxes 1,959,000 (4,789,000)
Accrued payrolls and other accrued liabilities 5,380,000 (525,000)
Changes in other assets and other
long-term liabilities (1,461,000) (4,035,000)
----------- -----------
Net cash provided from (used in)
operating activities (7,569,000) 5,676,000
----------- -----------
Provided (used in) investing activities:
Expenditures for property, plant and equipment (47,445,000) (19,907,000)
Disposals of property, plant and equipment 88,000 227,000
Purchases of short-term investments (70,493,000) (39,063,000)
Proceeds from sales of short-term investments 80,742,000 26,076,000
----------- -----------
Net cash used in investing activities (37,108,000) (32,667,000)
----------- -----------
Provided from (used in) financing activities:
Cash dividends paid (9,194,000) (7,911,000)
Increase of notes payable 11,200,000 7,100,000
Increase of long-term debt 52,000,000 13,000,000
Reduction of long-term debt (27,000) (23,000)
Exercise of stock options 2,376,000 1,368,000
Decrease in minority interest (190,000) (170,000)
Investment grants from foreign countries - 239,000
----------- -----------
Net cash provided from financing activities 56,165,000 13,603,000
----------- -----------
Effect of exchange rate changes on cash 6,144,000 1,822,000
----------- -----------
Net increase (decrease) in cash and cash equivalents 17,632,000 (11,566,000)
Cash and cash equivalents at beginning of year 60,062,000 69,690,000
----------- -----------
Cash and cash equivalents at end of period $77,694,000 $58,124,000
=========== ===========
</TABLE>
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<PAGE> 6
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The results of operations for the nine months ended May 31, 1995 are not
necessarily indicative of the results expected for the year ended August 31,
1995.
(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
$67,949,000 at May 31, 1995 and $50,942,000 at August 31, 1994. 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, 1995 is as follows:
<TABLE>
<CAPTION>
Foreign Unearned
Currency Stock
Common Other Retained Translation Grant
Stock Capital Earnings Adjustment Compensation
----- ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance-September 1, 1994 $37,902,000 $35,813,000 $256,826,000 $26,570,000 $(1,425,000)
Net income 41,571,000
Dividends paid or accrued:
Preferred (40,000)
Common, $.245 per share (9,211,000)
Stock options exercised 120,000 2,256,000
Foreign currency
translation adjustment 24,482,000
Amortization of
restricted stock 271,000
----------- ----------- ------------ ----------- -----------
Balance-May 31, 1995 $38,022,000 $38,069,000 $289,146,000 $51,052,000 $(1,154,000)
=========== =========== ============ =========== ===========
</TABLE>
(5) In March 1995, the Company entered into a new $75,000,000 credit agreement
with several banks which replaced an existing $40,000,000 agreement. The new
agreement provides for borrowings of up to $75,000,000 on a revolving credit
basis through February 28, 2000. Interest rates will be either the London
Interbank Offered Rate (LIBOR) plus 1/4%, certificate of deposit rate plus
3/8%, or the prime rate. A facility fee of 1/8% must also be paid to the
banks.
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<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended May 31, Nine months ended May 31,
-------------------------- ------------------------
1995 1994 Increase 1995 1994 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing $164,890 $122,014 $42,876 $452,984 $327,212 $125,772
Merchant 64,856 40,319 24,537 176,264 105,364 70,900
Distribution 54,789 41,433 13,356 156,165 107,205 48,960
-------- -------- ------- -------- -------- --------
$284,535 $203,766 $80,769 $785,413 $539,781 $245,632
======== ======== ======= ======== ======== ========
</TABLE>
The translation effects from the weaker U.S. dollar increased sales by
$25.3 million in the quarter and $54.4 million for the nine month period.
Total tonnage increased approximately 6% for the quarter and 16% for the
nine month period. Although European manufacturing tonnage increased by 9% for
the quarter, total European tonnage decreased approximately 3% primarily due to
weaker merchant and distribution activities. For the nine month period,
European tonnage increased approximately 8%. North American tonnage increased
approximately 16% for the quarter and 28% for the nine month period. North
American manufacturing tonnage was up 37% for the quarter mainly due to the
acquisition of Texas Polymer Services on February 28, 1995. In addition,
higher selling prices contributed to greater net sales.
Gross margins on sales for the quarter were 16% compared to 17.6% for the
same quarter of last year. Gross margins on sales for the nine months ended
May 31, 1995 were 16.4% compared with 17.7% for the comparable nine month
period last year. Gross margins declined due to competitive price pressures
and the difficulty in passing on the increased cost of resins in the form of
higher selling prices. A comparison of gross profit by classification for both
the three month and nine month periods ending May 31, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended May 31, Nine months ended May 31,
-------------------------- ------------------------
1995 1994 Increase 1995 1994 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing $30,704 $24,549 $ 6,155 $ 84,870 $65,441 $19,429
Merchant 8,234 5,800 2,434 24,735 15,748 8,987
Distribution 6,727 5,412 1,315 19,022 14,228 4,794
------- ------- ------- -------- ------- -------
$45,665 $35,761 $ 9,904 $128,627 $95,417 $33,210
======= ======= ======= ======= ======= =======
</TABLE>
Selling, general and administrative expenses increased in 1995 due to the
April 1994 acquisition of ComAlloy International, higher compensation levels
and additional costs to support the increase in sales volume. In addition, the
weakening of the U.S. dollar increased these expenses by $1,878,000 for the
quarter and $4,351,000 for the nine month period.
Interest expense increased in 1995 due to greater levels of borrowing and
higher interest rates mainly in the United States.
Losses on foreign currency transactions were greater in 1995 due to the
changes in the value of currencies within and outside the European Monetary
System.
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<PAGE> 8
The effective tax rates for the three months ended May 31 were 40.2% in
1995 and 38.5% in 1994. For the nine months ended May 31, the effective tax
rates were 39.7% in 1995 and 37.2% in 1994. In 1994, certain tax matters were
settled in Europe which lowered the tax rate. Also, the 1995 tax rate is
higher because of greater earnings in Germany which has a higher tax rate than
the other countries where the Company operates.
The translation effect from the weaker U.S. dollar increased net income by
$1,615,000 or $.04 per share for the quarter and $3,454,000 or $.09 per share
for the nine month period.
Earnings in Europe increased approximately 50% for both the quarter and
nine month periods. Over 60% of the profit increases were generated by
manufactured products whose tonnage grew by 9% for the quarter and 16% for the
nine month period. Income from European merchant and distribution sales was
also up, primarily because of stronger prices.
North American income was down 17% in the 1995 third quarter but was up 9%
for the nine month period. Lower margins and higher interest expense were the
primary reasons for the decline in profits during the third quarter.
During the 1995 third quarter, there was some reduction in backlogs due to
increases in capacity and a reduction of inventories by customers in
anticipation of improving supplies of plastic resins and stabilization of resin
pricing. It has become increasingly difficult to obtain satisfactory profit
margins, especially in North America. Recently, European backlogs have
improved. However, although resin pricing has stabilized, there is concern in
the marketplace of potential softening which would result in continuing
pressure on profit margins.
Material Changes in Financial Condition
- ---------------------------------------
As of May 31, 1995, the current ratio was 3.4 to 1 and working capital was
$367 million.
On February 28, 1995, the Company acquired the assets of the Polymer
Service Division of J.M. Huber Corporation. This 143,000 square foot facility,
located in Orange, Texas, has an annual capacity of approximately 140 million
pounds. The primary function at this location is tolling services.
The Company also purchased the polypropylene compounding business of
Eastman Chemical Company on February 28, 1995. This transaction will broaden
the Company's line of polypropylene products, particularly for the automotive
industry. Manufacturing assets were not included.
In March 1995, the Company entered into a new $75,000,000 credit agreement
with several banks which replaced an existing $40,000,000 agreement. The new
agreement provides for borrowings on a revolving credit basis through February
28, 2000.
The ratio of long-term liabilities to capital was 20.9% at May 31, 1995
and 12.8% at August 31, 1994. 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. This
ratio increased during the nine months ended May 31, 1995 because the Company
borrowed an additional $52 million under its revolving credit agreement to
finance its greater working capital requirements and the acquisition of assets
from J.M. Huber Corporation.
On June 30, 1995, the Company sold the assets of its East St. Louis,
Illinois plant. This facility produced rubber shims and tie pads.
Strategically, this business did not fit the Company's future growth plans.
The financial impact of this transaction is not significant.
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<PAGE> 9
Part II - Other Information
- ---------------------------
Items 1 through 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 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibit
Number Exhibit
------- -------
27 Financial Data Schedule*
(b) No Reports on Form 8-K have been filed during the quarter for which
this report is filed.
_____
* Filed only in electronic format pursuant to Item 601(b)(27) of
Regulation S-K.
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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 July 14, 1995 A. Schulman, Inc.
--------------- --------------------------------------
(Registrant)
/s/ R. A. Stefanko
--------------------------------------
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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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet as of May 31, 1995 and Aug. 31, 1994 and the
statement of consolidated income for the three months ended May 31, 1995 and May
31, 1994 and for the nine months ended May 31, 1995 and May 31, 1994 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-START> SEP-01-1994
<PERIOD-END> MAY-31-1995
<CASH> 77,694
<SECURITIES> 57,545
<RECEIVABLES> 164,548
<ALLOWANCES> 5,442
<INVENTORY> 206,717
<CURRENT-ASSETS> 518,542
<PP&E> 280,389
<DEPRECIATION> 144,192
<TOTAL-ASSETS> 669,540
<CURRENT-LIABILITIES> 151,632
<BONDS> 75,107
<COMMON> 38,022
0
1,071
<OTHER-SE> 366,275
<TOTAL-LIABILITY-AND-EQUITY> 699,540
<SALES> 785,413
<TOTAL-REVENUES> 790,657
<CGS> 656,786
<TOTAL-COSTS> 721,711
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,191
<INCOME-PRETAX> 68,946
<INCOME-TAX> 27,375
<INCOME-CONTINUING> 41,571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,571
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
</TABLE>
