<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, 1997 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, 1997 - 36,346,131
<PAGE> 2
<TABLE>
<CAPTION>
A. SCHULMAN, INC.
STATEMENT OF CONSOLIDATED INCOME (Notes 1 and 2)
For the three months ended For the nine months ended
-------------------------- -------------------------
May 31, May 31, May 31, May 31,
1997 1996 1997 1996
---- ---- ---- ----
Unaudited Unaudited
--------- ---------
<S> <C> <C> <C> <C>
Net sales $ 259,231,000 $ 254,432,000 $ 758,163,000 $ 737,598,000
Interest and other income 1,075,000 1,299,000 3,980,000 4,469,000
------------- ------------- ------------- -------------
260,306,000 255,731,000 762,143,000 742,067,000
------------- ------------- ------------- -------------
Costs and expenses:
Cost of goods sold 215,362,000 213,690,000 635,153,000 627,258,000
Selling, general and
administrative expenses 21,578,000 20,845,000 63,915,000 63,964,000
Interest expense 809,000 983,000 2,546,000 3,584,000
Foreign currency transaction
losses (gains) (659,000) 63,000 (490,000) 27,000
Minority interest 255,000 73,000 681,000 171,000
------------- ------------- ------------- -------------
237,345,000 235,654,000 701,805,000 695,004,000
------------- ------------- ------------- -------------
Income before taxes 22,961,000 20,077,000 60,338,000 47,063,000
Provision for income taxes (Note 6):
U.S. 939,000 762,000 2,206,000 618,000
Foreign 8,301,000 7,211,000 22,681,000 18,255,000
------------- ------------- ------------- -------------
9,240,000 7,973,000 24,887,000 18,873,000
------------- ------------- ------------- -------------
Net income 13,721,000 12,104,000 35,451,000 28,190,000
Dividends on preferred stock (13,000) (13,000) (40,000) (40,000)
------------- ------------- ------------- -------------
Net income applicable to
common stock $ 13,708,000 $ 12,091,000 $ 35,411,000 $ 28,150,000
============= ============= ============= =============
Net income per share of
common stock (Note 6) $ .37 $ .32 $ .95 $ .75
======== ======== ======== ========
Cash dividends per share of
common stock $ .105 $ .095 $ .305 $ .275
======== ======== ======== ========
Average number of shares outstanding
which were used in computing net
income per common share 36,759,131 37,546,186 37,401,853 37,546,335
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
May 31, August 31,
Assets 1997 1996
------------ ------------
Unaudited
---------
Current assets:
<S> <C> <C>
Cash and cash equivalents (Note 3) $ 92,266,000 $113,555,000
Short-term investments, at cost 4,058,000 36,925,000
Accounts receivable, less allowance
for doubtful accounts of $6,078,000 at
May 31, 1997 and $5,903,000 at
August 31, 1996 160,309,000 152,342,000
Inventories, average cost or market,
whichever is lower 169,392,000 150,363,000
Prepaids, including tax effect of
temporary differences 12,781,000 13,618,000
------------ ------------
Total current assets 438,806,000 466,803,000
------------ ------------
Other assets:
Cash surrender value of life insurance 424,000 411,000
Deferred charges, etc., including tax effect
of temporary differences 18,332,000 17,128,000
------------ ------------
18,756,000 17,539,000
------------ ------------
Property, plant and equipment, at cost:
Land and improvements 10,524,000 9,312,000
Buildings and leasehold improvements 69,221,000 70,907,000
Machinery and equipment 190,112,000 193,190,000
Furniture and fixtures 20,651,000 20,446,000
Construction in progress 7,354,000 1,969,000
------------ ------------
297,862,000 295,824,000
Accumulated depreciation and investment grants
of $440,000 at May 31, 1997 and
$551,000 at August 31, 1996 158,256,000 156,788,000
------------ ------------
139,606,000 139,036,000
------------ ------------
$597,168,000 $623,378,000
============ ============
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
May 31, August 31,
Liabilities and Stockholders' Equity 1997 1996
------------- -------------
Unaudited
---------
Current liabilities:
<S> <C> <C>
Notes payable $ 2,000,000 $ 7,000,000
Current portion of long-term debt 38,000 41,000
Accounts payable 67,999,000 51,816,000
U.S. and foreign income taxes payable 5,236,000 10,898,000
Accrued payrolls, taxes and related benefits 17,139,000 17,921,000
Other accrued liabilities 22,039,000 18,281,000
------------- -------------
Total current liabilities 114,451,000 105,957,000
------------- -------------
Long-term debt 40,019,000 40,054,000
Other long-term liabilities 33,333,000 33,642,000
Deferred income taxes 8,305,000 8,677,000
Minority interest 3,843,000 1,938,000
Stockholders' equity (Note 4):
Preferred stock, 5% cumulative, $100
par value, authorized, issued and
outstanding - 10,689 shares at May 31,
1997 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 May 31, 1997
and August 31, 1996 38,309,000 38,309,000
Other capital 44,474,000 44,474,000
Cumulative foreign currency translation
adjustment 4,493,000 36,862,000
Retained earnings 350,138,000 326,171,000
Treasury stock, at cost, 1,922,674 shares at
May 31, 1997 and 502,674 shares at
August 31, 1996 (Note 5) (39,979,000) (12,063,000)
Unearned stock grant compensation (1,287,000) (1,714,000)
------------- -------------
Common stockholders' equity 396,148,000 432,039,000
------------- -------------
Total stockholders' equity 397,217,000 433,110,000
------------- -------------
$ 597,168,000 $ 623,378,000
============= =============
</TABLE>
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<PAGE> 5
A. SCHULMAN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Notes 1 and 2)
<TABLE>
<CAPTION>
Nine months ended
----------------------
May 31, May 31,
1997 1996
---- ----
Unaudited
---------
<S> <C> <C>
Provided from (used in) operating activities:
Net income $ 35,451,000 $ 28,190,000
Items not requiring the current use of cash:
Depreciation 14,153,000 14,605,000
Non-current deferred taxes 190,000 645,000
Foreign pension and other compensation 2,138,000 2,122,000
Postretirement benefit obligation 748,000 612,000
Changes in working capital:
Accounts receivable (22,027,000) (18,474,000)
Inventories (28,625,000) 29,124,000
Prepaids 330,000 365,000
Accounts payable 24,602,000 6,940,000
Income taxes (5,152,000) (5,820,000)
Accrued payrolls and other accrued liabilities 5,942,000 6,324,000
Changes in other assets and other
long-term liabilities (2,581,000) (1,735,000)
------------- -------------
Net cash provided from
operating activities 25,169,000 62,898,000
------------- -------------
Provided from (used in) investing activities:
Expenditures for property, plant and equipment (21,496,000) (15,498,000)
Disposals of property, plant and equipment 1,243,000 361,000
Purchases of short-term investments (10,959,000) (153,449,000)
Proceeds from sales of short-term investments 41,056,000 128,773,000
------------- -------------
Net cash provided from (used in)
investing activities 9,844,000 (39,813,000)
------------- -------------
Provided from (used in) financing activities:
Cash dividends paid (11,411,000) (10,325,000)
Decrease of notes payable (5,000,000) (14,850,000)
Reduction of long-term debt (29,000) (21,029,000)
Purchase of treasury stock (27,916,000) (1,226,000)
Exercise of stock options -- 1,098,000
Increase in minority interest 1,905,000 171,000
------------- -------------
Net cash used in
financing activities (42,451,000) (46,161,000)
------------- -------------
Effect of exchange rate changes on cash (13,851,000) (3,309,000)
------------- -------------
Net decrease in cash and cash equivalents (21,289,000) (26,385,000)
Cash and cash equivalents at beginning of period 113,555,000 83,997,000
------------- -------------
Cash and cash equivalents at end of period $ 92,266,000 $ 57,612,000
============= =============
</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, 1997 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
$88,744,000 at May 31, 1997 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 nine months ended May
31, 1997 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 35,451,000
Dividends paid or accrued:
Preferred (40,000)
Common, $.305 per share (11,444,000)
Foreign currency
translation adjustment (32,369,000)
Amortization of
restricted stock 427,000
----------- ----------- ------------ ----------- -----------
Balance-May 31, 1997 $38,309,000 $44,474,000 $350,138,000 $ 4,493,000 $(1,287,000)
=========== =========== ============ =========== ===========
</TABLE>
(5) During the nine months ended May 31, 1997, the Company repurchased 1,420,000
shares of its common stock for $27,916,000. The Company's purchase plan provides
that an additional 1,580,000 shares may be repurchased during the next 15
months. The timing of any purchases depend on the price of the stock and value
it provides to the Company.
(6) Net income was reduced in the 1997 second fiscal quarter by $900,000 or $.02
per share for foreign withholding taxes on dividends from affiliates outside the
United States.
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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, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended May 31, Nine months ended May 31,
-------------------------- -------------------------
Increase Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing $161,454 $157,983 $ 3,471 $467,649 $449,422 $18,227
Merchant 58,170 54,409 3,761 169,034 153,963 15,071
Distribution 39,607 42,040 (2,433) 121,480 134,213 (12,733)
-------- -------- ------- -------- -------- -------
$259,231 $254,432 $ 4,799 $758,163 $737,598 $20,565
======== ======== ======= ======== ======== =======
</TABLE>
The translation effects from the stronger U.S. dollar decreased sales by
$15.2 million in the quarter and $35.3 million for the nine month period.
Total tonnage increased approximately 10% for the quarter and 9% for the
nine month period. Tonnage for the quarter was up approximately 11% in Europe
and 9% in North America. European tonnage increased 9% during the nine month
period and North American tonnage increased approximately 10%.
Gross margins on sales for the quarter were 16.9% compared to 16% for the
same quarter last year. Gross margins on sales for the nine months ended May 31,
1997 were 16.2% compared with 15% for the comparable nine month period last
year. The increase in fiscal 1997 gross profit margins was derived from
manufacturing which experienced better capacity utilization. The improvement in
manufacturing operations was partially offset by lower margins for distribution
activities. A comparison of gross profit by classification for both the three
month and nine month periods ending May 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended May 31, Nine months ended May 31,
-------------------------- -------------------------
Increase Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing $ 31,816 $ 27,713 $ 4,103 $ 87,794 $ 72,585 $ 15,209
Merchant 7,031 6,793 238 19,619 18,184 1,435
Distribution 5,022 6,236 (1,214) 15,597 19,571 (3,974)
--------- --------- --------- --------- --------- ---------
$ 43,869 $ 40,742 $ 3,127 $ 123,010 $ 110,340 $ 12,670
========= ========= ========= ========= ========= =========
</TABLE>
The strengthening of the U.S. dollar decreased selling, general and
administrative expenses by $1,351,000 for the quarter and $3,322,000 for the
nine month period. In addition, expenses increased due to higher compensation
levels and additional costs to support the increase in sales volume.
Interest expense decreased in 1997 due to lower levels of borrowing.
Foreign currency transaction gains in 1997 resulted primarily from the
payment of dividends from affiliates outside the United States.
The minority interest on the Statement of Consolidated Income 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 1997
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<PAGE> 8
due to the addition of a second manufacturing line.
The effective tax rates for the respective three month periods were 40.2%
in 1997 and 39.7% in 1996. For the nine months ended May 31, the effective tax
rates were 41.2% in 1997 and 40.1% in 1996. The effective tax rate for the nine
months ended May 31, 1997 was higher due to the provision of $900,000 in the
second quarter for foreign withholding taxes on dividends from affiliates
outside the United States.
The strengthening in the value of the U.S. dollar decreased net income by
approximately $911,000 or $.02 per share for the quarter and $2,021,000 or $.05
per share for the nine month period.
Earnings in Europe increased approximately $1,227,000 or up 14% for the
quarter and $4,469,000 higher for the nine month period. European manufacturing
operations continue to operate at capacity levels and gross margins were up,
mainly in manufacturing and merchant activities.
North American earnings were approximately $391,000 higher or up 12% for
the quarter and $2,792,000 higher for the nine month period after deducting
$900,000 of foreign withholding taxes on dividends paid from foreign affiliates.
Plant capacity utilization was 81% for the quarter and 75% for the nine month
period which contributed to higher gross margins on manufacturing activities.
The European operations currently have a strong level of orders. Prices of
plastic resins are relatively stable and economic conditions in the European
marketplace are anticipated to moderately improve. However, the strength of the
U.S. dollar will continue to have an adverse impact in the months ahead.
Volume in North America is good and plant utilization has improved during
the year. However, the automotive industry is experiencing softer sales and
labor disruptions which have affected the quarter just ended. These factors,
plus automotive summer model changeovers, will also influence the fourth fiscal
quarter.
Material Changes in Financial Condition
- ---------------------------------------
As of May 31, 1997, the current ratio was 3.8:1 and working capital was
$324 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.
In March 1997, gross dividends of $56 million were paid from foreign
affiliates to the U.S. Parent Company. It is anticipated that further funds will
be received prior to the end of fiscal 1997.
During the nine months ended May 31, 1997, the Company repurchased
1,420,000 shares of its common stock for $27,916,000. The Company's purchase
plan provides that an additional 1,580,000 shares may be repurchased during the
next 15 months. 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 during the nine months ended May 31, 1997
decreased this account by $32,369,000.
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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 11, 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)
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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, 1997 AND AUGUST 31, 1996 AND THE
STATEMENT OF CONSOLIDATED INCOME FOR THE THREE MONTHS ENDED MAY 31, 1997 AND
MAY 31, 1996 AND FOR THE NINE MONTHS ENDED MAY 31, 1997 AND MAY 31, 1996 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-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 92,266
<SECURITIES> 4,058
<RECEIVABLES> 160,309
<ALLOWANCES> 6,078
<INVENTORY> 169,392
<CURRENT-ASSETS> 438,806
<PP&E> 297,862
<DEPRECIATION> 158,256
<TOTAL-ASSETS> 597,168
<CURRENT-LIABILITIES> 114,451
<BONDS> 40,019
<COMMON> 38,309
0
1,069
<OTHER-SE> 357,839
<TOTAL-LIABILITY-AND-EQUITY> 597,168
<SALES> 758,163
<TOTAL-REVENUES> 762,143
<CGS> 635,153
<TOTAL-COSTS> 701,805
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,546
<INCOME-PRETAX> 60,338
<INCOME-TAX> 24,887
<INCOME-CONTINUING> 35,451
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,451
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
