<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, 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 December 31, 1996 - 37,763,631
<PAGE> 2
A. SCHULMAN, INC.
STATEMENT OF CONSOLIDATED INCOME (Notes 1 and 2)
<TABLE>
<CAPTION>
For the three months ended
--------------------------
November 30, November 30,
1996 1995
---- ----
Unaudited
---------
<S> <C> <C>
Net sales $ 257,807,000 $ 249,541,000
Interest and other income 1,534,000 1,751,000
------------- -------------
259,341,000 251,292,000
------------- -------------
Costs and expenses:
Cost of goods sold 215,564,000 213,486,000
Selling, general and
administrative expenses 22,447,000 21,865,000
Interest expense 776,000 1,478,000
Foreign currency transaction
losses 364,000 59,000
Minority interest 241,000 72,000
------------- -------------
239,392,000 236,960,000
------------- -------------
Income before taxes 19,949,000 14,332,000
Provision for income taxes:
U.S 622,000 (58,000)
Foreign 7,345,000 5,916,000
------------- -------------
7,967,000 5,858,000
------------- -------------
Net income 11,982,000 8,474,000
Dividends on preferred stock (13,000) (13,000)
------------- -------------
Net income applicable to
common stock $ 11,969,000 $ 8,461,000
============= =============
Net income per share of
common stock $ .32 $ .23
===== =====
Cash dividends per share of
common stock $.095 $ .085
===== ======
Average number of shares outstanding
which were used in computing net
income per common share 37,791,964 37,565,318
</TABLE>
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<PAGE> 3
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<TABLE>
<CAPTION>
November 30, August 31,
Assets 1996 1996
------------ ------------
Unaudited
---------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 3) $146,122,000 $113,555,000
Short-term investments, at cost 12,619,000 36,925,000
Accounts receivable, less allowance
for doubtful accounts of $6,558,000 at
November 30, 1996 and $5,903,000 at
August 31, 1996 163,628,000 152,342,000
Inventories, average cost or market,
whichever is lower 159,349,000 150,363,000
Prepaids, including tax effect of
temporary differences 13,483,000 13,618,000
------------ ------------
Total current assets 495,201,000 466,803,000
------------ ------------
Other assets:
Cash surrender value of life insurance 397,000 411,000
Deferred charges, etc., including tax effect
of temporary differences 17,614,000 17,128,000
------------ ------------
18,011,000 17,539,000
------------ ------------
Property, plant and equipment, at cost:
Land and improvements 10,917,000 9,312,000
Buildings and leasehold improvements 71,082,000 70,907,000
Machinery and equipment 196,318,000 193,190,000
Furniture and fixtures 20,550,000 20,446,000
Construction in progress 3,809,000 1,969,000
------------ ------------
302,676,000 295,824,000
Accumulated depreciation and investment grants
of $533,000 at November 30, 1996 and
$551,000 at August 31, 1996 159,077,000 156,788,000
------------ ------------
143,599,000 139,036,000
------------ ------------
$656,811,000 $623,378,000
============ ============
</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 1996 1996
------------ -----------
Unaudited
---------
<S> <C> <C>
Current liabilities:
Notes payable $ 6,600,000 $ 7,000,000
Current portion of long-term debt 40,000 41,000
Accounts payable 70,319,000 51,816,000
U.S. and foreign income taxes payable 12,993,000 10,898,000
Accrued payrolls, taxes and related benefits 17,327,000 17,921,000
Other accrued liabilities 20,664,000 18,281,000
------------- -------------
Total current liabilites 127,943,000 105,957,000
------------- -------------
Long-term debt 50,042,000 40,054,000
Other long-term liabilities 33,733,000 33,642,000
Deferred income taxes 8,600,000 8,677,000
Minority interest 2,179,000 1,938,000
Stockholders' equity (Note 4):
Preferred stock, 5% cumulative, $100
par value, authorized, issued and
outstanding - 10,689 shares at November 30,
1996 and 10,705 shares at August 31, 1996 1,069,000 1,071,000
Special stock, 1,000,000 shares authorized,
none outstanding
Common stock, $1 par value - -
Authorized - 75,000,000 shares
Issued - 38,308,805 shares at November 30, 1996
and August 31, 1996 38,309,000 38,309,000
Other capital 44,474,000 44,474,000
Cumulative foreign currency translation
adjustment 30,280,000 36,862,000
Retained earnings 334,537,000 326,171,000
Treasury stock, at cost, 535,174 shares at
November 30, 1996 and 502,674 shares at
August 31, 1996 (Note 5) (12,784,000) (12,063,000)
Unearned stock grant compensation (1,571,000) (1,714,000)
------------- -------------
Common stockholders' equity 433,245,000 432,039,000
------------- -------------
Total stockholders' equity 434,314,000 433,110,000
------------- -------------
$ 656,811,000 $ 623,378,000
============= =============
</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,
1996 1995
---- ----
Unaudited
---------
<S> <C> <C>
Provided (used in) operating activities:
Net income $ 11,982,000 $ 8,474,000
Items not requiring the current use of cash:
Depreciation 4,777,000 4,853,000
Non-current deferred taxes 40,000 232,000
Foreign pension and other compensation 743,000 721,000
Postretirement benefit obligation 249,000 204,000
Changes in working capital:
Accounts receivable (14,088,000) (12,058,000)
Inventories (10,935,000) 14,513,000
Prepaids 15,000 1,024,000
Accounts payable 20,391,000 (3,874,000)
Income taxes 2,044,000 301,000
Accrued payrolls and other accrued liabilities 2,519,000 1,715,000
Changes in other assets and other
long-term liabilities (878,000) 298,000
------------- ------------
Net cash provided from
operating activities 16,859,000 16,403,000
------------- ------------
Provided (used in) investing activities:
Expenditures for property, plant and equipment (11,200,000) (6,736,000)
Disposals of property, plant and equipment 577,000 750,000
Purchases of short-term investments (5,210,000) (31,462,000)
Proceeds from sales of short-term investments 28,617,000 48,117,000
------------- ------------
Net cash provided from investing activities 12,784,000 10,669,000
------------- ------------
Provided from (used in) financing activities:
Cash dividends paid (3,591,000) (3,195,000)
Decrease of notes payable (400,000) (17,800,000)
Increase of long-term debt 10,000,000 --
Reduction of long-term debt (9,000) (10,000)
Purchase of treasury stock (721,000) (1,226,000)
Exercise of stock options -- 123,000
Increase in minority interest 241,000 72,000
Redemption of preferred stock (2,000) --
------------- ------------
Net cash provided from (used in)
financing activities 5,518,000 (22,036,000)
------------- ------------
Effect of exchange rate changes on cash (2,594,000) (177,000)
------------- ------------
Net increase in cash and cash equivalents 32,567,000 4,859,000
Cash and cash equivalents at beginning of period 113,555,000 83,997,000
------------- ------------
Cash and cash equivalents at end of period $ 146,122,000 $ 88,856,000
============= ============
</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, 1996 are
not necessarily indicative of the results expected for the year ended August 31,
1997.
(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
$140,971,000 at November 30, 1996 and $102,040,000 at August 31, 1996.
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, 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, 1996 $ 38,309,000 $44,474,000 $326,171,000 $36,862,000 $(1,714,000)
Net income 11,982,000
Dividends paid or accrued:
Preferred (13,000)
Common, $.095 per share (3,603,000)
Foreign currency
translation adjustment (6,582,000)
Amortization of
restricted stock 143,000
------------ ----------- ------------ ----------- -----------
Balance-November 30, 1996 $ 38,309,000 $44,474,000 $334,537,000 $30,280,000 $(1,571,000)
============ =========== ============ =========== ===========
</TABLE>
(5) During the three months ended November 30, 1996, the Company repurchased
32,500 shares of its common stock for $721,000. The Board of Directors of the
Company has authorized the repurchase of up to 3,907,500 additional shares. The
timing of any purchases will depend on the price of the stock and value it
provides to the Company.
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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, 1996 were $257.8 million,
an increase of 3.3% from sales of $249.5 million for the comparable period in
1995. A comparison of net sales by classification for the three months ended
November 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended November 30,
-------------------------------
Increase
1996 1995 (Decrease)
---- ---- ---------
<S> <C> <C> <C>
Manufacturing $159,836 $148,419 $11,417
Merchant 55,413 52,399 3,014
Distribution 42,558 48,723 (6,165)
-------- -------- --------
$257,807 $249,541 $ 8,266
======== ======== ========
</TABLE>
Sales were up due to a 12.6% increase in tonnage which was partially offset
by a 3.5% adverse foreign currency translation effect and a 5.8% reduction
resulting from lower prices and product mix. Tonnage increased in all
classifications during 1996.
Gross margins on sales for 1996 were 16.4% compared with 14.4% in 1995. The
increase in gross profit margins was derived primarily from manufacturing. A key
factor in this margin improvement was increasing the plant utilization rate from
79% in 1995 to 85% in 1996. Margins for merchant activities were flat compared
with last year, but distribution declined due to lower margins in Europe. A
comparison of gross profit by classification for the three months ended November
30, 1996 and 1995 is as follows:
(In Thousands)
Three Months Ended November 30,
-------------------------------
Increase
1996 1995 (Decrease)
---- ---- --------
Manufacturing $ 30,324 $ 23,380 $ 6,944
Merchant 6,368 6,021 347
Distribution 5,551 6,654 (1,103)
-------- -------- --------
$ 42,243 $ 36,055 $ 6,188
======== ======== ========
Selling, general and administrative expenses increased $582,000 in 1996 due
to higher compensation and additional costs to support the increase in sales
volume. The strengthening of the U.S. dollar decreased these expenses by
$836,000 in 1996.
Interest expense decreased $702,000 in 1996 due to lower levels of
borrowing.
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 and Canadian dollar.
Minority interest represents a 30% equity position of MKV America Inc., an
affiliate of Mitsubishi Chemical MKV Company, in a partnership with the Company.
Earnings of the partnership increased during 1996 due to the addition of a
second manufacturing line.
Other income declined because of lower interest income resulting from a
decline in European interest rates on temporary investments.
- 7 -
<PAGE> 8
The effective tax rate was 39.9% in 1996 and 40.9% in 1995. The decrease
was primarily due to a greater level of earnings in the United States where the
tax rates are lower than in Europe.
The strengthening in the value of the U.S. dollar decreased net income by
approximately $501,000 or $.01 per share in 1996.
Earnings in Europe increased approximately 23% on a volume increase of 14%.
Tonnage from manufacturing operations advanced 18% enabling the Company's plants
to operate at near capacity levels.
North American earnings increased sharply over 1995's depressed levels,
primarily due to higher utilization rates and better profit margins from
manufacturing operations. Total tonnage was up 11% with 75% of the increase
generated by manufacturing operations where tonnage was up 13%.
The Company currently has a solid level of orders and, overall, business is
relatively good. However, continuing pressure on profit margins continues to be
one of the Company's concerns in the North American automotive market.
Nevertheless, quarterly earnings should continue to improve from the year ago
periods.
Material Changes in Financial Condition
- ---------------------------------------
As of November 30, 1996, the current ratio was 3.9:1 and working capital
was $367 million.
On November 7, 1996, the Company purchased the business and assets of the
Specialty Compounding Division of Laurel Industries Inc. This facility, located
in Sharon Center, Ohio, has four manufacturing lines with an annual capacity of
approximately 15 million pounds.
During the three months ended November 30, 1996, the Company repurchased
32,500 shares of its common stock for $720,000. The Board of Directors of the
Company has authorized the repurchase of up to 3,907,500 additional shares. The
timing of any purchases will depend on the price of the stock and value it
provides to the Company.
The ratio of long-term liabilities to capital was 16.2% at November 30,
1996 and 14.5% at August 31, 1996. 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 three months ended November 30, 1996 due to the Company
borrowing an additional $10 million under its revolving credit agreement.
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 during the three months ended November 30, 1996
decreased this account by $6,582,000.
- 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 stockholders was held on December 5, 1996.
(b) The following Directors were elected at such annual meeting, each for a
three-year term expiring in 1999:
Larry A. Kushkin
Franz A. Loehr
Alan L. Ockene
Robert G. Wallace
Willard R. Holland
(c) The following matters were voted on at the annual meeting of stockholders:
(1) Election of Class I Directors:
------------------------------
Director Name Votes For Abstensions
------------- --------- -----------
Larry A. Kushkin 33,684,363 43,561
Franz A. Loehr 33,679,182 48,742
Alan L. Ockene 33,680,029 47,895
Robert G. Wallace 33,660,620 67,304
Willard R. Holland 33,667,946 59,978
(2) Ratification of selection of independent accountants for the fiscal
year ending August 31, 1997:
Broker
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
33,679,867 41,952 6,105 -0-
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.
- 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, 1997 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 THE
CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 30, 1996 AND AUGUST 31, 1996
AND THE STATEMENT OF CONSOLIDATED INCOME FOR THE THREE MONTHS ENDED
NOVEMBER 30, 1996 AND NOVEMBER 30, 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> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 146,122
<SECURITIES> 12,619
<RECEIVABLES> 163,628
<ALLOWANCES> 6,558
<INVENTORY> 159,349
<CURRENT-ASSETS> 495,201
<PP&E> 302,676
<DEPRECIATION> 159,077
<TOTAL-ASSETS> 656,811
<CURRENT-LIABILITIES> 127,943
<BONDS> 50,042
<COMMON> 38,309
0
1,069
<OTHER-SE> 394,936
<TOTAL-LIABILITY-AND-EQUITY> 656,811
<SALES> 257,807
<TOTAL-REVENUES> 259,341
<CGS> 215,564
<TOTAL-COSTS> 239,392
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 776
<INCOME-PRETAX> 19,949
<INCOME-TAX> 7,967
<INCOME-CONTINUING> 11,982
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,982
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
