<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, 1996 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)
(330) 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, 1996 - 37,625,435
<PAGE> 2
A. SCHULMAN, INC.
STATEMENT OF CONSOLIDATED INCOME (Notes 1 and 2)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
-------------------------- -------------------------
May 31, May 31, May 31, May 31,
1996 1995 1996 1995
---- ---- ---- ----
Unaudited Unaudited
--------- ---------
<S> <C> <C> <C> <C>
Net sales $ 254,432,000 $ 284,535,000 $ 737,598,000 $ 785,413,000
Interest and other income 1,299,000 1,956,000 4,469,000 5,244,000
------------- ------------- ------------- -------------
255,731,000 286,491,000 742,067,000 790,657,000
------------- ------------- ------------- -------------
Costs and expenses:
Cost of goods sold 213,690,000 238,870,000 627,258,000 656,786,000
Selling, general and
administrative expenses 20,845,000 19,617,000 63,964,000 60,100,000
Interest expense 983,000 1,679,000 3,584,000 3,191,000
Foreign currency transaction
losses 63,000 749,000 27,000 1,224,000
Minority interest 73,000 102,000 171,000 410,000
------------- ------------- ------------- -------------
235,654,000 261,017,000 695,004,000 721,711,000
------------- ------------- ------------- -------------
Income before taxes 20,077,000 25,474,000 47,063,000 68,946,000
Provision for income taxes:
U.S 762,000 1,793,000 618,000 5,664,000
Foreign 7,211,000 8,442,000 18,255,000 21,711,000
------------- ------------- ------------- -------------
7,973,000 10,235,000 18,873,000 27,375,000
------------- ------------- ------------- -------------
Net income 12,104,000 15,239,000 28,190,000 41,571,000
Dividends on preferred stock (13,000) (13,000) (40,000) (40,000)
------------- ------------- ------------- -------------
Net income applicable to
common stock $ 12,091,000 $ 15,226,000 $ 28,150,000 $ 41,531,000
============= ============= ============= =============
Net income per share of
common stock $ .32 $ .41 $ .75 $ 1.11
============= ============= ============= =============
Cash dividends per share of
common stock $ .095 $ .085 $ .275 $ .245
============= ============= ============= =============
Average number of shares outstanding
which were used in computing net
income per common share 37,546,186 37,563,510 37,546,335 37,532,687
</TABLE>
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<PAGE> 3
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<TABLE>
<CAPTION>
May 31, August 31,
Assets 1996 1995
------------ ------------
Unaudited
---------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 3) $ 57,612,000 $ 83,997,000
Short-term investments, at cost 82,019,000 60,275,000
Accounts receivable, less allowance
for doubtful accounts of $5,848,000 at
May 31, 1996 and $4,859,000 at
August 31, 1995 157,582,000 143,183,000
Inventories, average cost or market,
whichever is lower 158,893,000 190,946,000
Prepaids, including tax effect of
temporary differences 12,033,000 12,705,000
------------ ------------
Total current assets 468,139,000 491,106,000
------------ ------------
Other assets:
Cash surrender value of life insurance 399,000 377,000
Deferred charges, etc., including tax effect
of temporary differences 16,724,000 14,506,000
------------ ------------
17,123,000 14,883,000
------------ ------------
Property, plant and equipment, at cost:
Land and improvements 8,770,000 8,909,000
Buildings and leasehold improvements 66,655,000 62,362,000
Machinery and equipment 183,255,000 173,325,000
Furniture and fixtures 19,627,000 19,054,000
Construction in progress 12,843,000 19,471,000
------------ ------------
291,150,000 283,121,000
Accumulated depreciation and investment grants
of $316,000 at May 31, 1996 and
$415,000 at August 31, 1995 152,196,000 141,944,000
------------ ------------
138,954,000 141,177,000
------------ ------------
$624,216,000 $647,166,000
============ ============
</TABLE>
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<PAGE> 4
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<TABLE>
<CAPTION>
May 31, August 31,
Liabilities and Stockholders' Equity 1996 1995
----------- ----------
Unaudited
---------
<S> <C> <C>
Current liabilities:
Notes payable $ 2,950,000 $ 17,800,000
Current portion of long-term debt 40,000 39,000
Accounts payable 64,521,000 60,204,000
U.S. and foreign income taxes payable 9,065,000 15,009,000
Accrued payrolls, taxes and related benefits 17,046,000 16,820,000
Other accrued liabilities 23,385,000 18,194,000
------------- -------------
Total current liabilites 117,007,000 128,066,000
------------- -------------
Long-term debt (Note 6) 54,064,000 75,096,000
Other long-term liabilities 32,827,000 31,230,000
Deferred income taxes 6,471,000 5,973,000
Minority interest 1,754,000 1,583,000
Stockholders' equity (Note 4):
Preferred stock, 5% cumulative, $100
par value, authorized, issued and
outstanding - 10,705 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 - 38,077,859 shares at May 31, 1996
and 38,022,242 shares at August 3l, 1995 38,078,000 38,022,000
Other capital 39,111,000 38,069,000
Cumulative foreign currency translation
adjustment 30,905,000 41,979,000
Retained earnings 315,785,000 297,979,000
Treasury stock, at cost, 502,674 shares at
May 31, 1996 and 442,674 shares at
August 31, 1995 (Note 5) (12,063,000) (10,838,000)
Unearned stock grant compensation (794,000) (1,064,000)
------------- -------------
Common stock equity 411,022,000 404,147,000
------------- -------------
Total stockholders' equity 412,093,000 405,218,000
------------- -------------
$ 624,216,000 $ 647,166,000
============= =============
</TABLE>
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<PAGE> 5
A. SCHULMAN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Notes 1 and 2)
<TABLE>
<CAPTION>
Nine months ended
-----------------
May 31, May 31,
1996 1995
---- ----
Unaudited
---------
<S> <C> <C>
Provided (used in) operating activities:
Net income $ 28,190,000 $ 41,571,000
Items not requiring the current use of cash:
Depreciation 14,605,000 13,091,000
Non-current deferred taxes 645,000 11,000
Foreign pension and other compensation 2,122,000 2,130,000
Postretirement benefit obligation 612,000 720,000
Changes in working capital:
Accounts receivable (18,474,000) (23,817,000)
Inventories 29,124,000 (61,537,000)
Prepaids 365,000 72,000
Accounts payable 6,940,000 14,312,000
Income taxes (5,820,000) 1,959,000
Accrued payrolls and other accrued liabilities 6,324,000 5,380,000
Changes in other assets and other
long-term liabilities (1,735,000) (1,461,000)
------------- ------------
Net cash provided from (used in)
operating activities 62,898,000 (7,569,000)
------------- ------------
Provided (used in) investing activities:
Expenditures for property, plant and equipment (15,498,000) (47,445,000)
Disposals of property, plant and equipment 361,000 88,000
Purchases of short-term investments (153,449,000) (70,493,000)
Proceeds from sales of short-term investments 128,773,000 80,742,000
------------- ------------
Net cash used in investing activities (39,813,000) (37,108,000)
------------- ------------
Provided from (used in) financing activities:
Cash dividends paid (10,325,000) (9,194,000)
Increase (decrease) of notes payable (14,850,000) 11,200,000
Increase of long-term debt -- 52,000,000
Reduction of long-term debt (21,029,000) (27,000)
Purchase of treasury stock (1,226,000) --
Exercise of stock options 1,098,000 2,376,000
Increase (decrease) in minority interest 171,000 (190,000)
------------- ------------
Net cash provided from (used in)
financing activities (46,161,000) 56,165,000
------------- ------------
Effect of exchange rate changes on cash (3,309,000) 6,144,000
------------- ------------
Net increase (decrease) in cash and cash equivalents (26,385,000) 17,632,000
Cash and cash equivalents at beginning of year 83,997,000 60,062,000
------------- ------------
Cash and cash equivalents at end of period $ 57,612,000 $ 77,694,000
============= ============
</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, 1996 are not
necessarily indicative of the results expected for the year ended August 31,
1996.
(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
$55,388,000 at May 31, 1996 and $56,198,000 at August 31, 1995. 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, 1996 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, 1995 $ 38,022,000 $38,069,000 $297,979,000 $41,979,000 $(1,064,000)
Net income 28,190,000
Dividends paid or accrued:
Preferred (40,000)
Common, $.275 per share (10,344,000)
Stock options exercised 56,000 1,042,000
Foreign currency
translation adjustment (11,074,000)
Amortization of
restricted stock 270,000
------------ ----------- ------------ ----------- -----------
Balance-May 31, 1996 $ 38,078,000 $39,111,000 $315,785,000 $30,905,000 $ (794,000)
============ =========== ============ =========== ============
</TABLE>
(5) During November 1995, the Company repurchased 60,000 shares of its common
stock for $1,226,000. The Board of Directors of the Company has authorized the
repurchase of up to 3,940,000 additional shares. The timing of any purchases
will depend on the price of the stock and value it provides to the Company.
(6) In February 1996, the Company amended its revolving credit agreement to
extend the term one additional year. The termination date of the credit
agreement is now February 28, 2001.
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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 for both the three month and nine month
periods ending May 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended May 31, Nine months ended May 31,
-------------------------- -------------------------
1996 1995 (Decrease) 1996 1995 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing $157,983 $ 164,890 $ (6,907) $449,422 $ 452,984 $ (3,562)
Merchant 54,409 64,856 (10,447) 153,963 176,264 (22,301)
Distribution 42,040 54,789 (12,749) 134,213 156,165 (21,952)
-------- --------- --------- -------- --------- --------
$254,432 $ 284,535 $ (30,103) $737,598 $ 785,413 $(47,815)
======== ========= ========= ======== ========= ========
</TABLE>
A major factor contributing to the decline in sales was lower resin prices.
The translation effects from the weaker U.S. dollar reduced sales by $9.9
million for the quarter, but increased sales by $3.6 million for the nine month
period.
Worldwide tonnage increased approximately 3% for the quarter but was up
only slightly for the nine month period. Tonnage for the quarter was
approximately the same in Europe and was up 6% in North America. European
tonnage declined approximately 3% during the nine month period while North
American tonnage increased 4%. The increase in North American tonnage for the
nine month period was primarily due to the acquisition of Texas Polymer Services
on February 28, 1995.
Gross margins on sales for the quarter were approximately unchanged from
the same quarter of last year. Gross margins on sales for the nine months ended
May 31, 1996 were 15% compared with 16.4% for the comparable nine month period
last year. Although margins on sales for the quarter were about the same as
last year, profits were down because of lower prices. A comparison of gross
profit for both the three month and nine month periods ending May 31, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended May 31, Nine Months Ended May 31,
-------------------------- --------------------------
Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing $27,713 $ 30,704 $ (2,991) $ 72,585 $ 84,870 $(12,285)
Merchant 6,793 8,234 (1,441) 18,184 24,735 (6,551)
Distribution 6,236 6,727 (491) 19,571 19,022 549
------- -------- --------- -------- --------- --------
$40,742 $ 45,665 $ (4,923) $110,340 $ 128,627 $(18,287)
======= ======== ========= ======== ========= ========
</TABLE>
Selling, general and administrative expenses increased in 1996 due to the
acquisition of Texas Polymer Services on February 28, 1995, higher compensation
and additional costs to support current and future requirements of the Company.
In addition, the translation effects from the U.S. dollar reduced these expenses
by $914,000 for the quarter, but increased them by $403,000 for the nine month
period.
Interest expense for the quarter declined $696,000 due to lower levels of
borrowing. This trend is expected to continue in the fourth quarter.
Foreign currency transaction losses were primarily due to changes in the
value of currencies within the European Monetary System as well as the Mexican
peso.
The minority interest represents a 30% equity position of MKV America Inc.,
an
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<PAGE> 8
affiliate of Mitsubishi Chemical MKV Company, in a partnership with the Company.
Earnings of the partnership declined during 1996 due to lower sales and profit
margins.
The effective tax rates for the respective three month periods were 39.7%
in 1996 and 40.2% in 1995. For the nine months ended May 31, the effective tax
rates were 40.1% in 1996 and 39.7% in 1995. Lower earnings in Germany reduced
the effective tax rate in the quarter. However, a lower level of anticipated
foreign tax credits as well as reduced earnings in North America increased the
effective tax rate for the nine months ended May 31, 1996.
Earnings in Europe decreased $2.7 million in the 1996 third quarter and
$5.3 million for the nine month period. The earnings decline was attributable
primarily to Germany which continued to be affected by lackluster general
economic conditions. European sales were down 15% for the quarter due to lower
plastic resin prices and the translation effect of foreign currencies.
North American income was down $400,000 in the 1996 third quarter and $8
million for the nine month period. In the third quarter, margins were slightly
higher but income was down primarily due to lower selling prices.
Order levels are currently at a good level and the pricing of resins should
be reasonably firm throughout the fiscal 1996 fourth quarter. However, earnings
in Germany will be off from last year's level and the effect of the stronger
U.S. dollar will have some small adverse effect on earnings.
Material Changes in Financial Condition
- ---------------------------------------
As of May 31, 1996, the current ratio was 4.0 to 1 and working capital was
approximately $351 million. A major factor in the improvement of the current
ratio over August 31, 1995 was the $14.9 million reduction of notes payable
during the nine months ended May 31, 1996.
In February 1996, the Company amended its $75 million revolving credit
agreement to extend the term one additional year. The termination date of the
credit agreement is now February 28, 2001.
The ratio of long-term liabilities to capital was 17.4% at May 31, 1996 and
20.8% at August 31, 1995. 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 decreased
during the nine months ended May 31, 1996 due to the $21 million reduction in
the outstanding debt under the revolving credit agreement.
During November 1995, the Company repurchased 60,000 shares of its common
stock for $1,226,000. The Board of Directors of the Company has authorized the
repurchase of up to 3,940,000 additional shares. The timing of any purchases
will depend on the price of the stock and value it provides to the Company.
The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars using current exchange rates. Income statement
items are translated at average exchange rates prevailing during the period. The
resulting translation adjustments are recorded in the "cumulative foreign
currency translation adjustment" account in stockholders' equity. The
strengthening of the U.S. dollar at May 31, 1996 as compared to its value at
August 31, 1995 decreased this account by $11,074,000.
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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 12, 1996 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, 1996 AND AUGUST 31, 1995 AND THE
STATEMENT OF CONSOLIDATED INCOME FOR THE THREE MONTHS ENDED MAY 31, 1996 AND MAY
31, 1995, AND FOR THE NINE MONTHS ENDED MAY 31, 1996 AND MAY 31, 1995 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> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 57,612
<SECURITIES> 82,019
<RECEIVABLES> 157,582
<ALLOWANCES> 5,848
<INVENTORY> 158,893
<CURRENT-ASSETS> 468,139
<PP&E> 291,150
<DEPRECIATION> 152,196
<TOTAL-ASSETS> 624,216
<CURRENT-LIABILITIES> 117,007
<BONDS> 54,064
<COMMON> 38,078
0
1,071
<OTHER-SE> 372,944
<TOTAL-LIABILITY-AND-EQUITY> 624,216
<SALES> 737,598
<TOTAL-REVENUES> 742,067
<CGS> 627,258
<TOTAL-COSTS> 695,004
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,584
<INCOME-PRETAX> 47,063
<INCOME-TAX> 18,873
<INCOME-CONTINUING> 28,190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,190
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
</TABLE>
