<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 February 28, 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 March 31, 1997 - 37,115,131
<PAGE> 2
A. SCHULMAN, INC.
STATEMENT OF CONSOLIDATED INCOME (Notes 1 and 2)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
-------------------------- ------------------------
February 28, February 29, February 28, February 29,
1997 1996 1997 1996
---- ---- ---- ----
Unaudited Unaudited
--------- ---------
<S> <C> <C> <C> <C>
Net sales $ 241,125,000 $ 233,625,000 $ 498,932,000 $ 483,166,000
Interest and other income 1,371,000 1,419,000 2,905,000 3,170,000
------------- ------------- ------------- -------------
242,496,000 235,044,000 501,837,000 486,336,000
------------- ------------- ------------- -------------
Costs and expenses:
Cost of goods sold 204,227,000 200,082,000 419,791,000 413,568,000
Selling, general and
administrative expenses 19,890,000 21,254,000 42,337,000 43,119,000
Interest expense 961,000 1,123,000 1,737,000 2,601,000
Foreign currency transaction
losses (gains) (194,000) (95,000) 169,000 (36,000)
Minority interest 185,000 26,000 426,000 98,000
------------- ------------- ------------- -------------
225,069,000 222,390,000 464,460,000 459,350,000
------------- ------------- ------------- -------------
Income before taxes 17,427,000 12,654,000 37,377,000 26,986,000
Provision for income taxes (Note 6):
U.S. 645,000 (86,000) 1,267,000 (144,000)
Foreign 7,035,000 5,128,000 14,380,000 11,044,000
------------- ------------- ------------- -------------
7,680,000 5,042,000 15,647,000 10,900,000
------------- ------------- ------------- -------------
Net income 9,747,000 7,612,000 21,730,000 16,086,000
Dividends on preferred stock (13,000) (13,000) (27,000) (27,000)
------------- ------------- ------------- -------------
Net income applicable to
common stock $ 9,734,000 $ 7,599,000 $ 21,703,000 $ 16,059,000
============= ============= ============= =============
Net income per share of
common stock (Note 6) $ .26 $ .20 $ .58 $ .43
============= ============= ============= =============
Cash dividends per share of
common stock $ .105 $ .095 $ .20 $ .18
============= ============= ============= =============
Average number of shares outstanding
which were used in computing net
income per common share 37,654,464 37,527,501 37,723,214 37,546,410
</TABLE>
-2-
<PAGE> 3
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<TABLE>
<CAPTION>
February 28, August 31,
Assets 1997 1996
----------- ----------
Unaudited
---------
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 3) $139,232,000 $113,555,000
Short-term investments, at cost 7,586,000 36,925,000
Accounts receivable, less allowance
for doubtful accounts of $6,763,000 at
February 28, 1997 and $5,903,000 at
August 31, 1996 159,796,000 152,342,000
Inventories, average cost or market,
whichever is lower 165,678,000 150,363,000
Prepaids, including tax effect of
temporary differences 13,331,000 13,618,000
------------ ------------
Total current assets 485,623,000 466,803,000
------------ ------------
Other assets:
Cash surrender value of life insurance 405,000 411,000
Deferred charges, etc., including tax effect
of temporary differences 17,862,000 17,128,000
------------ ------------
18,267,000 17,539,000
------------ ------------
Property, plant and equipment, at cost:
Land and improvements 10,475,000 9,312,000
Buildings and leasehold improvements 68,108,000 70,907,000
Machinery and equipment 190,744,000 193,190,000
Furniture and fixtures 19,603,000 20,446,000
Construction in progress 6,295,000 1,969,000
------------ ------------
295,225,000 295,824,000
Accumulated depreciation and investment grants
of $471,000 at February 28, 1997 and
$551,000 at August 31, 1996 155,513,000 156,788,000
------------ ------------
139,712,000 139,036,000
------------ ------------
$643,602,000 $623,378,000
============ ============
</TABLE>
-3-
<PAGE> 4
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1 and 2)
<TABLE>
<CAPTION>
February 28, August 31,
Liabilities and Stockholders' Equity 1997 1996
----------- ----------
<S> <C> <C>
Unaudited
---------
Current liabilities:
Notes payable $ 11,600,000 $ 7,000,000
Current portion of long-term debt 37,000 41,000
Accounts payable 66,661,000 51,816,000
U.S. and foreign income taxes payable 9,277,000 10,898,000
Accrued payrolls, taxes and related benefits 15,202,000 17,921,000
Other accrued liabilities 20,098,000 18,281,000
------------- -------------
Total current liabilites 122,875,000 105,957,000
------------- -------------
Long-term debt 65,029,000 40,054,000
Other long-term liabilities 32,765,000 33,642,000
Deferred income taxes 8,259,000 8,677,000
Minority interest 2,364,000 1,938,000
Stockholders' equity (Note 4):
Preferred stock, 5% cumulative, $100
par value, authorized, issued and
outstanding - 10,689 shares at February 28,
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 February 28, 1997
and August 31, 1996 38,309,000 38,309,000
Other capital 44,474,000 44,474,000
Cumulative foreign currency translation
adjustment 7,334,000 36,862,000
Retained earnings 340,302,000 326,171,000
Treasury stock, at cost, 772,674 shares at
February 28, 1997 and 502,674 shares at
August 31, 1996 (Note 5) (17,749,000) (12,063,000)
Unearned stock grant compensation (1,429,000) (1,714,000)
------------- -------------
Common stockholders' equity 411,241,000 432,039,000
------------- -------------
Total stockholders' equity 412,310,000 433,110,000
------------- -------------
$ 643,602,000 $ 623,378,000
============= =============
</TABLE>
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<PAGE> 5
A. SCHULMAN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Notes 1 and 2)
<TABLE>
<CAPTION>
Six months ended
----------------
February 28, February 29,
1997 1996
---- ----
Unaudited
---------
<S> <C> <C>
Provided from (used in) operating activities:
Net income $ 21,730,000 $ 16,086,000
Items not requiring the current use of cash:
Depreciation 9,583,000 9,745,000
Non-current deferred taxes 100,000 493,000
Foreign pension and other compensation 1,453,000 1,426,000
Postretirement benefit obligation 499,000 408,000
Changes in working capital:
Accounts receivable (20,235,000) (13,770,000)
Inventories (24,058,000) 25,916,000
Prepaids (218,000) 986,000
Accounts payable 22,478,000 8,749,000
Income taxes (1,316,000) (8,813,000)
Accrued payrolls and other accrued liabilities 1,878,000 2,069,000
Changes in other assets and other
long-term liabilities (1,895,000) (782,000)
------------- -------------
Net cash provided from
operating activities 9,999,000 42,513,000
------------- -------------
Provided from (used in) investing activities:
Expenditures for property, plant and equipment (15,858,000) (11,528,000)
Disposals of property, plant and equipment 446,000 537,000
Purchases of short-term investments (11,071,000) (97,301,000)
Proceeds from sales of short-term investments 38,229,000 90,441,000
------------- -------------
Net cash provided from (used in)
investing activities 11,746,000 (17,851,000)
------------- -------------
Provided from (used in) financing activities:
Cash dividends paid (7,549,000) (6,760,000)
Increase (decrease) of notes payable 4,600,000 (11,500,000)
Increase of long-term debt 25,000,000 -
Reduction of long-term debt (19,000) (18,019,000)
Purchase of treasury stock (5,686,000) (1,226,000)
Exercise of stock options - 186,000
Increase in minority interest 426,000 98,000
Redemption of preferred stock (2,000) -
------------- -------------
Net cash provided from (used in)
financing activities 16,770,000 (37,221,000)
------------- -------------
Effect of exchange rate changes on cash (12,838,000) (509,000)
------------- -------------
Net increase (decrease) in cash and cash equivalents 25,677,000 (13,068,000)
Cash and cash equivalents at beginning of period 113,555,000 83,997,000
------------- -------------
Cash and cash equivalents at end of period $ 139,232,000 $ 70,929,000
============= =============
</TABLE>
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<PAGE> 6
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The results of operations for the six months ended February 28, 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
$123,042,000 at February 28, 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 six months ended
February 28, 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 21,730,000
Dividends paid or accrued:
Preferred (27,000)
Common, $.20 per share (7,572,000)
Foreign currency
translation adjustment (29,528,000)
Amortization of
restricted stock 285,000
----------- ----------- ------------ ----------- -----------
Balance-February 28, 1997 $38,309,000 $44,474,000 $340,302,000 $ 7,334,000 $(1,429,000)
=========== =========== ============ =========== ===========
</TABLE>
(5) During the six months ended February 28, 1997, the Company repurchased
270,000 shares of its common stock for $5,686,000. The Board of Directors of the
Company has authorized the repurchase of up to 3,670,000 additional shares. The
timing of any purchases will depend on the price of the stock and value it
provides to the Company.
(6) The provision for income taxes for the three months ended February 28, 1997
includes $900,000 or $.02 per share for foreign withholding taxes on dividends
to be paid from affiliates outside the United States.
-6-
<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 six month periods ending February 28, 1997 and February 29, 1996
is as follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended Six Months Ended
------------------ ----------------
Feb. 28, Feb. 29, Increase Feb. 28, Feb. 29, Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing $ 146,359 $ 143,021 $ 3,338 $ 306,195 $ 291,439 $ 14,756
Merchant 55,451 47,155 8,296 110,864 99,554 11,310
Distribution 39,315 43,449 (4,134) 81,873 92,173 (10,300)
--------- --------- --------- --------- --------- ---------
$ 241,125 $ 233,625 $ 7,500 $ 498,932 $ 483,166 $ 15,766
========= ========= ========= ========= ========= =========
</TABLE>
The translation effects from the stronger U.S. dollar
decreased sales by $11.4 million in the quarter and $20.1 million for the six
month period.
Total tonnage increased approximately 5% for the quarter and 9% for the
six month period. Tonnage for the quarter was up approximately 2% in Europe and
10% in North America. European tonnage increased 8% during the six month period
and North American tonnage increased approximately 10%.
Gross margins on sales for the quarter were 15.3% compared to 14.4% for
the same quarter last year. Gross margins on sales for the six months ended
February 28, 1997 were 15.9% compared with 14.4% for the comparable six month
period last year. Margins and utilization levels were down slightly from the
first quarter, primarily because of the traditional holiday shutdowns in
December. The increase in fiscal 1997 gross profit margins was derived from
manufacturing. Plant utilization was 78% for the quarter and 82% for the six
month period. 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 six month periods ending February
28, 1997 and February 29, 1996 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended Six Months Ended
------------------ ----------------
Feb. 28, Feb. 29, Increase Feb. 28, Feb. 29, Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
---- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing $ 25,654 $ 21,492 $ 4,162 $ 55,978 $ 44,872 $ 11,106
Merchant 6,220 5,370 850 12,588 11,391 1,197
Distribution 5,024 6,681 (1,657) 10,575 13,335 (2,760)
-------- -------- -------- -------- -------- --------
$ 36,898 $ 33,543 $ 3,355 $ 79,141 $ 69,598 $ 9,543
======== ======== ======== ======== ======== ========
</TABLE>
Selling, general and administrative expenses decreased in 1997
primarily because of the strengthening of the U.S. dollar. The strengthening of
the U.S. dollar decreased these expenses by $1,135,000 for the quarter and
$1,971,000 for the six month period.
Interest expense decreased in 1997 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.
-7-
<PAGE> 8
Earnings of the partnership increased during 1997 due to the addition of a
second manufacturing line.
The effective tax rates for the respective three month periods were
44.1% in 1997 and 39.8% in 1996. For the six months ended February 28, the
effective tax rates were 41.9% in 1997 and 40.4% in 1996. The 1997 effective tax
rates are higher due to the provision of $900,000 for foreign withholding taxes
on $56 million in dividends to be paid from affiliates outside the United
States.
The strengthening in the value of the U.S. dollar decreased net income
by approximately $609,000 or $.02 per share for the quarter and $1,110,000 or
$.03 per share for the six month period.
Earnings in Europe increased approximately $1,453,000 or 21% for the
quarter and $3,242,000 or 22% for the six month period. Capacity utilization was
95% and profit margins were up, mainly in manufacturing and merchant activities.
North American earnings were approximately $682,000 higher for
the quarter and $2,401,000 for the six month period after deducting $900,000 of
foreign withholding taxes on dividends to be paid from foreign affiliates.
Profit margins improved on plant utilization levels approximately the same as
last year.
The Company currently has a solid level of orders. Prices of resins
have stabilized and overall, economic conditions are good. It is anticipated
that third quarter earnings should continue to improve from the year ago period.
Material Changes in Financial Condition
- ---------------------------------------
As of February 28, 1997, the current ratio was 4.0:1 and working
capital was $363 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.
The ratio of long-term liabilities to capital was 19.2% at February 28,
1997 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 1997 due to the Company borrowing an additional $25
million under its revolving credit agreement.
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. Subject to market conditions, this
cash will fund a 3,000,000 share repurchase program. The Company has repurchased
over 900,000 shares since August 31, 1996 and the balance will be acquired over
the next eighteen months.
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 six months ended February 28, 1997
decreased this account by $29,528,000.
-8-
<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.
-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 April 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)
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF FEBRUARY 28, 1997 AND AUGUST 31, 1996 AND THE
STATEMENT OF CONSOLIDATED INCOME FOR THE THREE MONTHS ENDED FEBRUARY 28, 1997
AND FEBRUARY 29, 1996 AND FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997 AND
FEBRUARY 29, 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> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 139,232
<SECURITIES> 7,586
<RECEIVABLES> 159,796
<ALLOWANCES> 6,763
<INVENTORY> 165,678
<CURRENT-ASSETS> 485,623
<PP&E> 295,225
<DEPRECIATION> 155,513
<TOTAL-ASSETS> 643,602
<CURRENT-LIABILITIES> 122,875
<BONDS> 65,029
<COMMON> 38,309
0
1,069
<OTHER-SE> 372,932
<TOTAL-LIABILITY-AND-EQUITY> 643,602
<SALES> 498,932
<TOTAL-REVENUES> 501,837
<CGS> 419,791
<TOTAL-COSTS> 464,460
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,737
<INCOME-PRETAX> 37,377
<INCOME-TAX> 15,647
<INCOME-CONTINUING> 21,730
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,730
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
