<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, 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
-------
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, 1994 - 37,536,906
<PAGE> 2
A. SCHULMAN, INC.
STATEMENT OF CONSOLIDATED INCOME (Notes 1 and 2)
<TABLE>
<CAPTION>
For the three months ended
----------------------------
November 30, November 30,
1994 1993
---- ----
Unaudited
---------
<S> <C> <C>
Net sales $251,241,000 $167,960,000
Interest and other income 1,664,000 2,110,000
------------ ------------
252,905,000 170,070,000
------------ ------------
Costs and expenses:
Cost of goods sold 209,577,000 137,492,000
Selling, general and administrative expenses 21,037,000 17,198,000
Interest expense 581,000 172,000
Foreign currency transaction gains (106,000) (17,000)
Minority interest 166,000 78,000
------------ ------------
231,255,000 154,923,000
------------ ------------
Income before taxes 21,650,000 15,147,000
Provision for income taxes:
U.S. 1,767,000 1,357,000
Foreign 6,648,000 4,003,000
------------ ------------
8,415,000 5,360,000
------------ ------------
Net income 13,235,000 9,787,000
Dividends on preferred stock (13,000) (13,000)
------------ ------------
Net income applicable to common stock $ 13,222,000 $ 9,774,000
============ ============
Net income per share of common stock (Note 5) $ .35 $ .26
===== =====
Cash dividends per share of common stock (Note 5) $.075 $.064
===== =====
Average number of shares outstanding which were used in
computing net income per common share (Note 5) 37,492,959 37,401,118
</TABLE>
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<PAGE> 3
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<TABLE>
<CAPTION>
November 30, August 31,
Assets 1994 1994
---- ----
Unaudited
---------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 3) $ 74,823,000 $ 60,062,000
Short-term investments, at cost 49,462,000 61,763,000
Accounts receivable, less allowance for doubtful accounts of $5,364,000
at November 30, 1994 and $4,111,000 at August 31, 1994 152,057,000 129,010,000
Inventories, average cost or market, whichever is lower 160,523,000 136,667,000
Prepaids, including tax effect of temporary differences 12,740,000 11,870,000
------------ ------------
Total current assets 449,605,000 399,372,000
------------ ------------
Other assets:
Cash surrender value of life insurance 328,000 340,000
Deferred charges, etc., including tax effect of temporary differences 12,545,000 12,604,000
------------ ------------
12,873,000 12,944,000
------------ ------------
Property, plant and equipment, at cost:
Land and improvements 5,837,000 5,813,000
Buildings and leasehold improvements 54,964,000 54,124,000
Machinery and equipment 141,707,000 141,365,000
Furniture and fixtures 15,850,000 15,227,000
Construction in progress 11,178,000 5,380,000
------------ ------------
229,536,000 221,909,000
Accumulated depreciation and investment grants of $581,000
at November 30, 1994 and $634,000 at August 31, 1994 128,179,000 123,806,000
------------ ------------
101,357,000 98,103,000
------------ ------------
$563,835,000 $510,419,000
============ ============
</TABLE>
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<PAGE> 4
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<TABLE>
<CAPTION>
November 30, August 31,
Liabilities and Stockholders' Equity 1994 1994
---- ----
Unaudited
---------
<S> <C> <C>
Current liabilities:
Notes payable $ 6,400,000 $ 12,300,000
Current portion of long-term debt 35,000 35,000
Accounts payable 81,402,000 54,286,000
U.S. and foreign income taxes payable 15,290,000 9,939,000
Accrued payrolls, taxes and related benefits 16,849,000 16,901,000
Other accrued liabilities 15,792,000 14,903,000
------------ ------------
Total current liabilites 135,768,000 108,364,000
------------ ------------
Long-term debt 35,118,000 23,126,000
Other long-term liabilities 28,439,000 27,547,000
Deferred income taxes 3,806,000 3,794,000
Minority interest 1,235,000 1,669,000
Stockholders' equity (Notes 4 and 5):
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 - 37,979,580 shares at November 30, 1994
and 37,902,043 shares at August 31, 1994 37,980,000 37,902,000
Other capital 37,270,000 35,813,000
Cumulative foreign currency translation
adjustment 28,089,000 26,570,000
Retained earnings 267,232,000 256,826,000
Treasury stock, at cost, 442,674 shares (10,838,000) (10,838,000)
Unearned stock grant compensation (1,335,000) (1,425,000)
------------ ------------
Common stock equity 358,398,000 344,848,000
------------ ------------
Total stockholders' equity 359,469,000 345,919,000
------------ ------------
$563,835,000 $510,419,000
============ ============
</TABLE>
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<PAGE> 5
A. SCHULMAN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Notes 1 and 2)
<TABLE>
<CAPTION>
Three months ended
----------------------------
November 30, November 30,
1994 1993
---- ----
Unaudited
---------
<S> <C> <C>
Provided (used in) operating activities:
Net income $13,235,000 $ 9,787,000
Items not requiring the current use of cash:
Depreciation 4,028,000 3,891,000
Non-current deferred taxes (18,000) 979,000
Foreign pension and other compensation 687,000 544,000
Postretirement benefit obligation 240,000 300,000
Changes in working capital:
Accounts receivable (22,681,000) (7,031,000)
Inventories (23,631,000) (11,840,000)
Prepaids (830,000) 887,000
Accounts payable 27,304,000 15,989,000
Income taxes 5,350,000 2,559,000
Accrued payrolls and other accrued liabilities 722,000 (1,362,000)
Changes in other assets and other
long-term liabilities 55,000 (1,092,000)
----------- -----------
Net cash provided from operating activities 4,461,000 13,611,000
----------- -----------
Provided (used in) investing activities:
Expenditures for property, plant and equipment (7,767,000) (5,099,000)
Disposals of property, plant and equipment 837,000 437,000
Purchases of short-term investments (3,194,000) (19,413,000)
Proceeds from sales of short-term investments 16,035,000 4,477,000
----------- -----------
Net cash provided (used) in investing activities 5,911,000 (19,598,000)
----------- -----------
Provided from (used in) financing activities:
Cash dividends paid (2,811,000) (2,393,000)
Increase (decrease) of notes payable (5,900,000) 1,000,000
Increase of long-term debt 12,000,000 -
Reduction of long-term debt (9,000) (2,008,000)
Exercise of stock options 1,535,000 459,000
Decrease in minority interest (434,000) (342,000)
----------- -----------
Net cash provided (used) in financing activities 4,381,000 (3,284,000)
----------- -----------
Effect of exchange rate changes on cash 8,000 (1,125,000)
----------- -----------
Net increase (decrease) in cash
and cash equivalents 14,761,000 (10,396,000)
Cash and cash equivalents at beginning of year 60,062,000 69,690,000
----------- -----------
Cash and cash equivalents at end of period $74,823,000 $59,294,000
=========== ===========
</TABLE>
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<PAGE> 6
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The results of operations for the three months ended November 30, 1994 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
$63,571,000 at November 30, 1994 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 three months ended
November 30, 1994 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 13,235,000
Dividends paid or accrued:
Preferred (13,000)
Common, $.075 per share (2,816,000)
Stock options exercised 78,000 1,457,000
Foreign currency
translation adjustment 1,519,000
Amortization of
restricted stock 90,000
----------- ----------- ------------ ----------- -----------
Balance-November 30, 1994 $37,980,000 $37,270,000 $267,232,000 $28,089,000 $(1,335,000)
=========== =========== ============ =========== ===========
</TABLE>
(5) 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
Net sales for the three months ended November 30, 1994 were $251.2
million, an increase of 49.6% from sales of $168 million for the comparable
period in 1993. A comparison of net sales by classification for the three
months ended November 30, 1994 and 1993 is a follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended November 30,
-------------------------------
1994 1993 Increase
---- ---- --------
<S> <C> <C> <C>
Manufacturing $146,200 $102,492 $ 43,708
Merchant 53,292 32,904 20,388
Distribution 51,749 32,564 19,185
-------- -------- --------
$251,241 $167,960 $ 83,281
======== ======== ========
</TABLE>
The translation effects from the weaker U.S. dollar increased sales by
$12.9 million.
Volume or tonnage increased in all classifications during 1994. North
American tonnage increased 42% and European tonnage was up 22%. The tonnage
increases were generated by strong worldwide economic conditions and higher
production capacities provided primarily by last year's additions of a new
manufacturing line in Belgium and the ComAlloy International acquisition. In
addition, higher selling prices contributed to greater net sales.
Gross margins on sales for 1994 were 16.6% compared to 18.1% in 1993. The
decline in gross profit margins was primarily due to higher resin prices for
feedstocks and continuing worldwide competitive price pressures. A comparison
of gross profit by classification for the three months ended November 30, 1994
and 1993 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended November 30,
-------------------------------
1994 1993 Increase
---- ---- --------
<S> <C> <C> <C>
Manufacturing $ 27,317 $ 20,899 $ 6,418
Merchant 8,237 5,224 3,013
Distribution 6,110 4,345 1,765
-------- -------- --------
$ 41,664 $ 30,468 $ 11,196
======== ======== ========
</TABLE>
Selling, general and administrative expenses increased in 1994 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 $1,132,000 in 1994.
Interest expense increased in 1994 due to greater levels of borrowing and
higher interest rates mainly in the United States.
Gains on foreign currency transactions were greater in 1994 due to the
changes in the value of currencies within the European Monetary System.
The effective tax rate was 38.9% in 1994 and 35.4% in 1993. The tax rate
was lower in 1993 primarily due to a reduction from the settlement of certain
tax matters in Europe.
Interest income declined in 1994 primarily due to lower interest rates in
Europe.
Earnings in Europe increased approximately 37% due to the continuing
improvement
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<PAGE> 8
in their economies and the positive effect of translation from the weaker U.S.
dollar. Net income was increased by $930,000 or $.02 per share due to the
translation effect from the lower value of the U.S. dollar.
In North America, business remained strong and profits were up 32%.
Currently, both the European and North American operations are
experiencing strong product demand and pricing of resins remains firm.
Accordingly, it is anticipated that earnings for 1995 will exceed last year's
results.
MATERIAL CHANGES IN FINANCIAL CONDITION
As of November 30, 1994, the current ratio was 3.3 to 1 and working
capital was $314 million.
The Company has entered into negotiations to purchase the assets of the
Polymer Service Division of J.M. Huber Corporation. This 143,000 square foot
facility is located in Orange, Texas and has an annual capacity of
approximately 150 million pounds. Presently, the major business of this
Division is tolling services. It also manufactures and markets various
types of engineered plastic compounds. This transaction should be completed
in the first half of 1995 and will be financed from cash generated from
operations and credit lines.
The ratio of long-term liabilities to capital was 15% at November 30,
1994 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. During
the three months ended November 30, 1994, the Company borrowed an additional
$12 million under its revolving credit agreement primarily to finance its
greater working capital requirements.
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<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 8, 1994.
(b) The following Directors were elected at such annual meeting, each for a
three-year term expiring in 1997:
Robert A. Stefanko
Dr. Peggy Gordon Elliott
Gordon E. Heffern
(c) The following matters were voted on at the annual meeting of stockholders:
(1) ELECTION OF CLASS II DIRECTORS:
<TABLE>
<CAPTION>
Director Name Votes For Abstensions
------------- --------- -----------
<S> <C> <C>
Robert A. Stefanko 32,195,995 168,139
Dr. Peggy Gordon Elliott 32,183,664 180,470
Gordon E. Heffern 32,198,680 165,454
</TABLE>
(2) Ratification of selection of independent accountants for the fiscal
year ending August 31, 1995:
<TABLE>
<CAPTION>
Broker
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
<S> <C> <C> <C>
32,287,275 50,615 26,244 -0-
</TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Number Exhibits
-------------- --------
27 Financial Data Schedule
(b) No Reports on Form 8-K have been filed during the quarter for which this
report is filed.
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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 January 13, 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)
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from consolidated
balance sheet as of November 30, 1994 and August 31, 1994 and the statement of
consolidated income for the three months ended November 30, 1994 and
November 30, 1993 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000087565
<NAME> A. SCHULMAN, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> NOV-30-1994
<CASH> 74,823
<SECURITIES> 49,462
<RECEIVABLES> 152,057
<ALLOWANCES> 5,364
<INVENTORY> 160,523
<CURRENT-ASSETS> 449,605
<PP&E> 229,536
<DEPRECIATION> 128,179
<TOTAL-ASSETS> 563,835
<CURRENT-LIABILITIES> 135,768
<BONDS> 35,118
<COMMON> 37,980
0
1,071
<OTHER-SE> 320,418
<TOTAL-LIABILITY-AND-EQUITY> 563,835
<SALES> 251,241
<TOTAL-REVENUES> 252,905
<CGS> 209,577
<TOTAL-COSTS> 231,255
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 581
<INCOME-PRETAX> 21,650
<INCOME-TAX> 8,415
<INCOME-CONTINUING> 13,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,235
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
