<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-K
(Mark One)
[x] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended August 31, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ___________ to _____________.
Commission File No. 0-7459
A. SCHULMAN, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 34-0514850
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(State of Incorporation) (I.R.S. Employer Identification No.)
3550 West Market Street, Akron, Ohio 44333
- -------------------------------------------------- -----------------------
(Address of Principal Executive Offices) (ZIP Code)
Registrant's telephone number, including area code: (330)666-3751
-------------
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
-----------------------------
(Title of Class)
Special Stock Purchase Rights
-----------------------------
(Title of Class)
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 at least the past 90 days. Yes X No
[Cover continued on following page]
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[Cover Continued From Previous Page]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of
the Registrant on October 16, 1998: $517,123,577.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practical date:
33,112,505 Shares of Common Stock, $1.00 Par Value, at October 16, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Document in Which Incorporated
- -------- ---------------------
Portions of the Registrant's Notice
of Annual Meeting and Proxy Statement
Dated November 9, 1998 III and IV
Portions of the Registrant's 1998
Annual Report to Stockholders I and II
Neither the Report of the Compensation Committee on Executive Compensation nor
the Performance Graph contained in the Registrant's Notice of Annual Meeting and
Proxy Statement dated November 9, 1998 shall be deemed incorporated by reference
herein.
<PAGE> 3
PART I
------
ITEM 1. BUSINESS
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A. Schulman, Inc. (the "Company") was organized as an Ohio
corporation in 1928 and changed its state of incorporation to
Delaware in 1969.
The Company operates in one industry segment which is the sale of
plastic resins to customers who use the products as raw materials in their
manufacturing operations. For informative purposes, the Company classifies its
activities within its only industry segment as manufacturing, merchant or
distribution. These activities are carried on in all markets and geographic
areas in which the Company operates. The Company purchases plastic resins and
other materials which either can be sold directly to customers or used by the
Company in the manufacture of other products for sale to customers. Because of
their interchangeable nature, inventories are not segregated as to
manufacturing, merchant or distribution activities. All of the products which
the Company sells are used for the same purpose--as raw material to be molded or
extruded by the Company's customers. The Company has one sales force for all of
its products and materials.
The first classification, manufacturing, involves primarily the
formulation and manufacture of proprietary plastic compounds engineered to
fulfill the application requirements of the Company's customers. These
compounds, also known as engineered products, are formulated in the Company's
laboratories and are
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manufactured in the Company's thirteen plastics compounding plants in North
America, Europe and Asia. The Company combines basic resins purchased from
plastic resin producers with various additives in accordance with formulae and
specifications developed in the Company's laboratories. Customers for the
Company's proprietary plastic compounds include manufacturers, custom molders
and extruders of a wide variety of plastic products and parts. Proprietary
compounds are produced by the Company generally on the basis of customer
commitments. When necessary, compounds are produced for future delivery and are
stored in Company and public warehouses.
The Company's proprietary plastic compounds are sold to manufacturers
and suppliers in various markets such as packaging, automotive, consumer
products, electrical/electronics, office equipment, and agriculture. For
example, these compounds are used in the packaging industry for such products as
plastic bags and labels and packaging materials for food, soap, fragrances,
flowers, gardening supplies and various household necessities; in the automotive
industry for such products as grills, body side moldings, bumper protective
strips, window seals, valance panels, bumper guards, air ducts, steering wheels,
fan shrouds and other interior and exterior components; in the consumer products
industry for such items as writing instruments, shelving, soft drink coolers,
video tape cassettes, batteries, outdoor furniture, lawn sprinklers, artificial
turf, skateboards, toys, games and plastic parts for various household
appliances; in the
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electrical/electronics industry for such products as outdoor lighting, parts for
telephones, connector blocks, transformers, capacitor housings and wire and
cable insulation for power generation, distribution and control systems; in the
office equipment industry for such products as cases and housings for computers,
folders and binders, stack trays and panels and drawers for copying machines;
and in the agriculture industry for such products as greenhouse coverings,
protective film for plants and agricultural mulch.
The Company manufactures various flame retardant engineered compounds,
including Polyman(R), Polyflam(R) and Polyvin(R). These compounds are used in
applications such as telephone system terminal blocks, parts for color
televisions, electrical components and housings for household appliances and
outdoor products.
Papermatch(R), one of the Company's newer product lines, is a plastic
alternative to paper used for packaging, menus, maps and other products.
Papermatch(R) is printable and resistant to tearing, moisture and chemicals.
Schulamid(R), a nylon compound, can be unfilled, reinforced or
impact-modified and is used in applications which require good impact strength
and resistance to high temperatures and chemicals. Typical applications include
under-the-hood automotive components and various building and consumer products.
The Company manufactures Superohm(R), a specialized elastomer-based
compound for use as insulation for high and medium voltage
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wire and cable which may be either flame retardant or resistant to high
temperatures. The Company also manufactures Formion(R), a specialized compound
which has good impact strength, is resistant to abrasion and has performance
characteristics which do not decrease in low temperatures. This product is sold
principally to the transportation industry for use in bumper blocks and
protective rub strips.
In addition, the Company manufactures Polytrope(R), a thermoplastic
elastomer which has high resiliency and good impact resistance. Presently, the
principal market for this product is the domestic automotive industry. Typical
applications are valance panels, body side moldings, grills and bumper rub
strips. Parts molded from Polytrope(R) weigh less than equivalent metal parts,
are impact-resistant and may be painted to match adjoining exterior body parts.
Polypur(R), a polyurethane-based compound manufactured by the Company,
has good thermal stability, is easy to mold and can be finished with only one
coat of paint. It presently is used for automotive exterior body components and
trim parts such as body side moldings.
The Company also manufactures Polyfort(R), a reinforced polypropylene
compound for applications which require stiffness and resistance to heat
distortion. Examples of such applications are coffee makers, binders for
computer printouts, seatbacks and under-the-hood products for automobiles.
Schulink(R), a crosslink
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polyethylene-based compound, is used in rotational molding applications
requiring high strength and chemical resistance.
The Company's plastics compounding operations include the manufacture
of Polybatch(R), an additive or color concentrate used for modifying various
plastic resins. An additive concentrate provides various physical properties
required by customers. These properties include slip, anti-slip, UV stabilizers,
etc. A color concentrate is a clear or natural plastic resin into which a
substantial amount of color pigment is incorporated or dispersed. The Company
manufactures its proprietary concentrates using its formulae and purchased prime
natural resins. These concentrates are sold to manufacturers of plastic
products. The Company also manufactures Polyblak(R), a line of black
concentrates. In addition, the Company performs tolling of plastic compounds and
concentrates using resins and formulae supplied by customers.
Concentrates provide specific color and/or other physical properties
used in the manufacture of film for packaging, household goods, toys, automotive
parts, mechanical goods and other plastic items. Black concentrates, which are
resistant to weather and sunlight, are used by wire and cable manufacturers for
insulation coating and in the production of plastic pipe, black film and other
black plastic items.
Tolling, which accounted for less than 5% of the Company's revenues
from manufacturing in its latest fiscal year, involves the use of resins and
formulae provided by customers. Tolling is
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done principally for major plastic resin producers. The Company is compensated
on the basis of an agreed price per pound plus an additional charge for any
additives and packaging supplied by the Company.
In the second classification within its plastics industry segment, the
Company acts as a merchant which buys prime and off-grade plastic resins and
resells these commodities, without further processing, to a variety of users.
The plastic resins generally are purchased from major producers. Prime resins
are purchased from these producers and usually are sold to small and
medium-sized customers. In addition to prime resins, the Company also purchases
supplies of resins resulting from overruns, changes in customers' specifications
and failure to meet rigid prime specifications. Historically, these materials
have been in continuous supply, generally in proportion to the total industry
production of plastic resins.
In the third classification within its plastics industry segment, the
Company, through its European operations, acts as a distributor for several
major resin producers which include BASF, Exxon Chemical, Elf ATOCHEM, Solvay,
BP Chemicals and Vestolit GmbH.
The Company acts as United States and Canadian distributor of
Escorene(R) polypropylene resins and, in the United States, Escorene(R) roto
molding resins, both manufactured by Exxon Chemical. The Company also is a
distributor in the United States and Canada for Exxon Chemical of polyethylene
used in injection
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molding, EMA and EVA. The Company also acts as a distributor of K-Resin(R) in
the United States for Phillips Petroleum and of polypropylene in Canada for
Epsilon Products Company.
Supplemental information regarding net sales and gross profit of the
Company's three classifications within its sole industry segment is set forth on
page 30 of the Company's 1998 Annual Report to Stockholders, which information
is incorporated herein by reference.
The Company's operations outside the United States are an important
part of its business. The Company's foreign subsidiaries manufacture additives,
concentrates, flame retardants and other proprietary and custom plastic
compounds, act as merchants of plastic resins, and distribute certain plastic
resins for prime producers.
Information regarding the amount of sales, operating income and
identifiable assets attributable to each of the Company's geographic areas and
the amount of inter-geographic area sales for the last three years is set forth
in Note 13 of the Notes to Consolidated Financial Statements in the Company's
1998 Annual Report to Stockholders, which information is incorporated herein by
reference.
The Company's foreign subsidiaries are as follows:
N.V. A. Schulman Plastics, S.A., a Belgian subsidiary
located in Bornem, manufactures proprietary and custom
concentrates and compounds. These products principally are sold
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in Germany, France, the Benelux countries, Italy and the Far East.
A. Schulman International Services N.V., located in Bornem, Belgium, is
a subsidiary of N.V. A. Schulman Plastics, S.A. and N.V. A. Schulman, S.A. This
company provides financing and administrative services to the Company's other
European subsidiaries.
A. Schulman, Inc., Limited, a United Kingdom subsidiary located in
South Wales, manufactures proprietary and custom plastic concentrates which are
sold primarily in the United Kingdom.
A. Schulman GmbH, a German subsidiary located in Sindorf, manufactures
proprietary and custom plastic compounds. In addition, a major portion of the
sales volume of this subsidiary is derived from distribution and merchant
activities. The merchant activities consist of the purchase and sale of prime
and off-grade plastic resins from major European producers. During the fiscal
year ended August 31, 1998, this subsidiary purchased approximately 27% of the
compounds manufactured in the Bornem, Belgium plant. Approximately 29% of the
sales volume of A. Schulman GmbH during the same period was derived from its
distribution activity of selling plastic resins and compounds of Vestolit GmbH,
BP Chemical, Exxon Chemical, Hoechst and Solvay.
A. Schulman Canada Ltd., a Canadian subsidiary located in St. Thomas,
Ontario, manufactures proprietary and custom plastic compounds, acts as a
merchant of prime and off-grade plastic resins and distributes for Exxon
Chemical, Escorene polypropylene
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resin and polyethylene for injection molding. These products are sold primarily
in Canada. Its principal sales office is located in Toronto.
A. Schulman AG, a Swiss subsidiary located in Zurich, is
engaged as a merchant of plastic resins and sells plastic compounds and
concentrates manufactured by other European subsidiaries of the Company.
A. Schulman, S.A., a French subsidiary, has four sales offices in
France and is a distributor in France for Elf Atochem and Appryl. A. Schulman,
S.A. also acts as a merchant of plastic resins, and sells compounds manufactured
by the Company's subsidiaries in Bornem, Belgium, Sindorf, Germany and Givet,
France. Diffusion Plastique is also a Paris-based distributor of plastic
materials. Both A. Schulman, S.A. and Diffusion Plastique are distributors in
France for BASF and Solvay.
A. Schulman Plastics, S.A., another French subsidiary, is located in
Givet, France. This subsidiary produces plastic concentrates for the Company's
European market.
Through its Mexican subsidiary, A. Schulman de Mexico, S.A. de C.V.,
the Company manufactures concentrates for the packaging industry and compounds
for the automotive, construction, appliance and consumer products markets.
A. Schulman Polska Sp. z 0.0., located in Warsaw, Poland, is
a wholly-owned subsidiary of A. Schulman GmbH. This Company acts
as distributor and merchant of plastic resins and compounds in
Poland.
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A. Schulman Plastics SpA, located in Italy, is a wholly-owned
subsidiary of N.V. A. Schulman, S.A. This subsidiary primarily sells
manufactured products of N.V. A. Schulman Plastics, S.A. and acts as a merchant
of plastic resins in Italy.
The Company owns a 70% partnership interest in The Sunprene Company,
which manufactures a line of PVC thermoplastic elastomers and compounds
primarily for the North American automotive market. The other partner is an
indirect wholly-owned subsidiary of Mitsubishi Chemical MKV Co., one of the
largest chemical companies in Japan. This partnership has two manufacturing
lines at the Company's Bellevue, Ohio facility. The Company's partner provides
technical and manufacturing expertise.
The Company owns a 65% interest in PT. A. Schulman Plastics,
Indonesia, an Indonesian joint venture. This joint venture has a
manufacturing facility with one production line in Surabaya,
Indonesia. The other partner is P.T. Prima Polycon Indah.
As of August 31, 1998, the Company had approximately 1,022 employees in
the United States and approximately 1,228 employees in its foreign operations.
More than 90% of the Company's hourly production employees are represented by
various unions under collective bargaining agreements.
The Company has laboratory facilities at each of its plastics
compounding plants staffed by approximately 250 technical personnel. The
Company's plastic compounding business is, to a degree, dependent on its ability
to hire and retain
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qualified technical personnel. These personnel are involved in activities
relating to the development of new compounds and the testing and sampling of
material for conformity with product specifications. The Company has experienced
no difficulty in hiring or retaining such personnel.
A large part of the Company's technical activities relates to the
development of compounds for specific applications of customers. Research
activities relating to the development of new products and the improvement of
existing products are important to the Company; however, the amounts spent
during the last three fiscal years have not been material.
Management believes that compliance with Federal, state and local
provisions regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, have not had a material
effect upon the capital expenditures, earnings or competitive position of the
Company.
During the year ended August 31, 1998, the Company's five largest
customers accounted in the aggregate for less than 10% of total sales. In
management's opinion, the Company is not dependent upon any single customer and
the loss of any one customer would not have a materially adverse effect on the
Company's business other than on a temporary basis.
The raw materials required by the Company readily are available from
major plastic resin producers or other suppliers. The principal types of plastic
resins used in the manufacture of the Company's proprietary plastic compounds
are polypropylene,
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PVC (polyvinyl chloride), polyethylene, polystyrene, ABS (acrylonitrile
butadiene styrene) and polyurethane.
The Company's business is highly competitive. In its manufacturing
classification, the Company competes with producers of the basic plastic resins,
many of which also operate compounding plants, and also competes with other
independent plastic compounders. The producers of basic plastic resins generally
are large producers of petroleum and chemicals, which are much larger than the
Company and have greater financial resources. Although no industry statistics
are available, the Company believes that it is one of the largest of the ten to
fifteen manufacturers of plastic compounds in the United States and Europe which
is not also engaged in the petrochemical industry or as a basic producer of
plastic resins. Certain of these competitors compete with the Company generally
in each such competitor's own local market area, while other competitors compete
with the Company on a global basis.
The Company also competes with other merchants and distributors of
plastic resins and other products. No accurate information is available to the
Company as to the extent of its competitors' sales and earnings in these
classifications, but management believes that the Company has only a small
fraction of the total market.
The principal methods of competition in plastics
manufacturing and distribution are innovation, quality, service
and price. In the Company's merchant classification, the
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principal methods of competition are service and price. The primary competitive
advantages of the Company arise from its financial capabilities, its excellent
supplier relationships and its ability to provide quality plastic compounds at
competitive prices.
The Company uses various trademarks and trade names in its business.
These trademarks and trade names protect names of certain of the Company's
products and are significant to the extent they provide a certain amount of
goodwill and name recognition in the industry. Although these trademarks and
trade names contribute to profitability, the Company does not consider a
material part of its business to be dependent on such trademarks and trade
names. The Company also holds some patents in various parts of the world for
certain of its products. The products covered by these patents do not constitute
a material part of the Company's business.
ITEM 2. PROPERTIES
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The Company owns and operates eight plastics compounding plants in
North America, four in Europe and one in Asia. The following Table indicates the
location of each plastics compounding plant and the approximate annual plastics
compounding capacity and approximate floor area, including warehouse space:
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<TABLE>
<CAPTION>
Approximate Approximate
Capacity Floor Area
Location (lbs.)(1) (Square Feet)
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<S> <C> <C>
Akron, Ohio 73,000,000 164,000
Bellevue, Ohio 80,000,000(2) 160,000
Sharon Center, Ohio 14,000,000 115,000
Orange, Texas 64,000,000 145,000
Orange, Texas--Texas
Polymer Services, Inc. 145,000,000 182,000
Nashville, Tennessee 70,000,000 131,000
San Luis Potosi, Mexico 40,000,000 78,000
Bornem, Belgium 136,000,000 371,000
Crumlin Gwent, South Wales 70,000,000 99,000
Givet, France(3) 52,000,000 74,000
St. Thomas, Ontario, Canada 74,000,000 111,000
Kerpen, Germany 90,000,000 325,000
Surabaya, Indonesia 8,000,000 68,000
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916,000,000
===========
</TABLE>
(1) The approximate annual plastics compounding capacity set
forth in this table is based upon several factors, including
the daily and shift operating schedules which are customary
in the area where each facility is located. Another factor
is the approximate historical mix of specific types of
plastic compounds manufactured at each plant. A plant
operating at full capacity will produce a greater or lesser
quantity (in pounds) depending upon the specific plastic
compound then being manufactured. The annual poundage of
plastic compounds manufactured does not, in itself, reflect
the extent of utilization of the Company's plants or the
profitability of the plastic compounds produced.
(2) Includes capacity of approximately 29 million pounds from two
manufacturing lines owned by The Sunprene Company, a partnership in
which the Company has a 70% partnership interest.
(3) Excludes a new manufacturing line being added to the facility in
Givet. This line will have an annual capacity of approximately
60 million pounds. This project also will add approximately
22,000 square feet of plant space and 65,000 square feet of
new warehouse space. This project is projected to cost $11
million and is scheduled to commence operations in fiscal year
1999.
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The Company considers each of the foregoing facilities to be in good
condition and suitable for its purposes.
Public warehouses are used wherever needed to store the Company's
products conveniently for shipment to customers. The number of public warehouses
in use varies from time to time, but a yearly average approximates 30.
The Company owns its corporate headquarters which is located
in Akron, Ohio and which contains approximately 48,000 square
feet of usable floor space. The Company leases sales offices in
various locations in the United States, Canada, Mexico, the
United Kingdom, Europe and Asia.
ITEM 3. PENDING LEGAL PROCEEDINGS
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The Company is not a party to any material pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended August 31, 1998.
EXECUTIVE OFFICERS OF THE COMPANY
---------------------------------
The age (as of October 16, 1998), business experience during
the past five years and offices presently held by each of the
Company's Executive Officers are reported below. The Company's
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By-Laws provide that officers shall hold office until their successors are
elected and qualified.
Terry L. Haines: Age 52; President and Chief Executive Officer of the
Company since January, 1991; formerly Chief Operating Officer, 1990-1991 and
Vice President--North American Sales, 1989-1990.
Robert A. Stefanko: Age 55; Chairman of the Board since January, 1991;
Executive Vice President--Finance and Administration of the Company since 1989;
and Chief Financial Officer of the Company since 1979.
Larry A. Kushkin: Age 58; Executive Vice President-- International
Automotive Operations of the Company since 1989. Mr. Kushkin will be retiring
effective August 31, 1999.
Brian R. Colbow: Age 51; Treasurer of the Company since 1984.
Alain C. Adam: Age 50; Vice President--Automotive Marketing from 1990
until November 1998. Commencing November 1998, Mr. Adam will serve as Vice
President--International Automotive Operations.
Leonard E. Emge: Age 68; Vice President--Manufacturing since 1993 and
prior to that time General Plant Manager--North America since 1985.
Gordon L. Trimmer: Age 54; Vice President--North American Sales and
Marketing since April 1997 and prior to that time Managing Director of A.
Schulman.
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John M. Myles: Age 55; Vice President--North American Purchasing since
October 1997 and prior to that time General Manager-Operations of Laurel
Industries since 1992.
PART II
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ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
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STOCKHOLDER MATTERS
-------------------
The Company's Common Stock is traded in the over-the-counter market and
is quoted through the NASDAQ National Market System.
Additional information in response to this Item is set forth on page 1
of the Company's 1998 Annual Report to Stockholders, which information is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
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Information in response to this Item is set forth on pages
30 and 31 of the Company's 1998 Annual Report to Stockholders,
which information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Information in response to this Item is set forth on pages
28 and 29 of the Company's 1998 Annual Report to Stockholders,
which information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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(a) Financial Statements
The financial statements, together with the report thereon of
PricewaterhouseCoopers LLP dated October 15, 1998, appearing on pages 16
through 27 of the Company's 1998 Annual Report to Stockholders, are incorporated
herein by reference.
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(b) Supplementary Data
------------------
Information in response to this Item is set forth in
the financial statement schedules set forth on pages F-1 through
F-2 of this Form 10-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
- ------- -----------------------------------------------------
None.
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
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The information required in response to this Item in respect
of Directors is set forth under the captions "Election of
Directors" and "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the Company's proxy statement dated
November 9, 1998, previously filed with the Commission, which
information is incorporated herein by reference. The information
required by this Item in respect of Executive Officers is set
forth on pages 15 through 17 of this Form 10-K and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
Information in response to this Item is set forth under the caption
"Compensation of Executive Officers" in the Company's proxy statement dated
November 9, 1998, previously filed with the Commission, which information is
incorporated herein by reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- -------- ---------------------------------------------------
MANAGEMENT
----------
Information in response to this Item is set forth under the
caption "Security Ownership of Management" in the Company's proxy
statement dated November 9, 1998, previously filed with the
Commission, which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Information in response to this Item is set forth under the caption
"Compensation Committee Interlocks and Insider Participation" in the Company's
proxy statement dated November 9, 1998, previously filed with the Commission,
which information is
incorporated herein by reference.
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
- -------- ------------------------------------------------------
FORM 8-K
--------
(a) The following documents are filed as part of this
report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
(1) Financial Statements:
---------------------
Report of Independent Accountants 27*
Consolidated Statement of Income for
the three years ended August 31, 1998 16*
Consolidated Balance Sheet at August 31,
1998 and 1997 18*
Consolidated Statement of Cash Flows for
the three years ended August 31, 1998 20*
Consolidated Statement of Stockholders'
Equity for the three years ended
August 31, 1998 17*
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Notes to Consolidated Financial
Statements 21*
- --------------------
</TABLE>
*Incorporated by reference from the indicated page of the Company's
1998 Annual Report to Stockholders. With the exception of this information and
the information incorporated in Items 1, 5, 6, 7 and 8, the 1998 Annual Report
to Stockholders is not deemed filed as part of this report.
<TABLE>
<CAPTION>
(2) Financial Statement Schedules:
------------------------------
<S> <C>
Report of Independent Accountants
on Financial Statement Schedule F-1
II-Valuation and Qualifying Accounts F-2
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(3) Exhibits:
---------
Exhibit
Number
------
3(a) Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3(a) to the Company's Form
10-K for fiscal year ended August 31, 1990).
3(b) Certificate of Amendment of Certificate of
Incorporation dated December 12, 1985 (incorporated
by reference to Exhibit 2(b) of the Company's
Registration Statement on Form 8-A dated January 15,
1996).
3(c) Certificate of Amendment of Certificate of
Incorporation dated January 9, 1987 (incorporated by
reference to Exhibit 3(b) to the Company's Form 10-K
for fiscal year ended August 31, 1994).
3(d) Certificate of Amendment of Certificate of
Incorporation dated December 10, 1987 (incorporated
by reference to Exhibit 3(c) to the Company's Form
10-K for fiscal year ended August 31, 1991).
3(e) Certificate of Amendment of Certificate of
Incorporation dated December 6, 1990 (incorporated by
reference to Exhibit 3(d) to the Company's Form 10-K
for fiscal year ended August 31, 1991).
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3(f) Certificate of Amendment of Certificate of
Incorporation dated December 9, 1993 (incorporated by
reference to Exhibit 2(f) to the Company's
Registration Statement on Form 8-A dated January 15,
1996).
3(g) By-Laws dated December 8, 1983 (incorporated by
reference to Exhibit 3(c) to the Company's Form 10-K
for fiscal year ended August 31, 1990).
3(h) Amendment to By-Laws dated October 20, 1986
(incorporated by reference to Exhibit 3(f) to the
Company's Form 10-K for fiscal year ended August 31,
1991).
3(i) Amendment to By-Laws dated January 11, 1996
(incorporated by reference to Exhibit 3.3 to the
Company's Report on Form 8-K dated January 15, 1996).
4(a) Rights Agreement dated as of January 12, 1996,
between the Company and Society National Bank, as
Rights Agent, which includes as Exhibit B thereto the
Form of Rights Certificate (incorporated by reference
to Exhibit 1 to the Company's Registration Statement
on Form 8-A, dated January 15, 1996).
4(b) Amendment No. 1 to Rights Agreement dated as of
November 21, 1997 between the Company, KeyBank
National Association (as successor by merger to
Society National Bank) and First Chicago Trust
Company of New York as successor Rights Agent
(incorporated by reference to Exhibit 1(b) to the
Company's Amendment No. 1 to Registration Statement
on Form 8-A/A).
10(a)* A. Schulman, Inc. 1991 Stock Incentive Plan
(incorporated by reference to Exhibit 10(b) to the
Company's Form 10-K for fiscal year ended August 31,
1991).
10(b)* Amendment to A. Schulman, Inc. 1991 Stock Incentive
Plan (incorporated by reference to Exhibit 10.9 to
the Company's Form 10-Q for the fiscal quarter ended
February 29, 1996).
10(c)* A. Schulman, Inc. 1992 Non-Employee Directors' Stock
Option Plan (incorporated by reference to Exhibit A
to the Company's Proxy Statement dated November 12,
1992 filed as Exhibit 28 to the Company's Form 10-K
for fiscal year ended August 31, 1992).
-21-
<PAGE> 24
10(d)* Amendment to A. Schulman, Inc. 1992 Non-Employee
Directors' Stock Option Plan (incorporated by
reference to Exhibit 10.10 to the Company's Form 10-Q
for the fiscal quarter ended February 29, 1996).
10(e)* Second Amendment to A. Schulman, Inc. 1992 Non-
Employee Directors' Stock Option Plan.
10(f)* Non-Qualified Profit Sharing Plan (incorporated by
reference to Exhibit 10(d) to the Company's Form 10-K
for the fiscal year ended August 31, 1995).
10(g)* Amendment to A. Schulman, Inc. Nonqualified Profit
Sharing Plan (incorporated by reference to Exhibit
10.8 to the Company's Form 10-Q for the fiscal
quarter ended February 29, 1996).
10(h)* A. Schulman, Inc. Directors' Deferred Compensation
Plan
10(i)* Employment Agreement between the Company and Robert
A. Stefanko dated January 31, 1996 (incorporated by
reference to Exhibit 10.2 to the Company's Form 10-Q
for fiscal quarter ended February 29, 1996).
10(j)* Employment Agreement between the Company and Terry L.
Haines dated January 31, 1996 (incorporated by
reference to Exhibit 10.3 to the Company's Form 10-Q
for fiscal quarter ended February 29, 1996).
10(k)* Employment Agreement between the Company and Larry A.
Kushkin dated January 31, 1996 (incorporated by
reference to Exhibit 10.4 to the Company's Form 10-Q
for fiscal quarter ended February 29, 1996).
10(l)* Employment Agreement between the Company and Leonard
E. Emge dated January 31, 1996 (incorporated by
reference to Exhibit 10.5 to the Company's Form 10-Q
for fiscal quarter ended February 29, 1996).
10(m)* Employment Agreement between the Company and Brian R.
Colbow, effective as of May 14, 1997 (incorporated by
reference to Exhibit 10(K) to the Company's Form 10-K
for the fiscal year ended August 31, 1997).
10(n)* Employment Agreement between the Company and Alain C.
Adam dated January 31, 1996 (incorporated by
reference to Exhibit 10.6 to the Company's Form 10-Q
for fiscal quarter ended February 29, 1996).
10(o)* Employment Agreement between the Company and Gordon
L. Trimmer dated May 14, 1997 (incorporated by
-22-
<PAGE> 25
reference to Exhibit 10(a) to the Company's Form 10-K
for the fiscal year ended August 31, 1997).
10(p)* Employment Agreement between the Company and John M.
Myles dated as of July 8, 1998.
10(q)* Agreement between the Company and Robert A. Stefanko
dated as of August 1, 1985 (incorporated by reference
to Exhibit 10(h) to the Company's Form 10-K for
fiscal year ended August 31, 1991).
10(r)* Agreement between the Company and Larry A. Kushkin
dated as of August 31, 1985 (incorporated by
reference to Exhibit 10(i) of the Company's Form 10-K
for fiscal year ended August 31, 1991).
10(s)* Agreement between the Company and Robert A. Stefanko
dated as of March 21, 1991 (incorporated by reference
to Exhibit 10(l) to the Company's Form 10-K for
fiscal year ended August 31, 1992).
10(t*) Agreement between the Company and Terry L. Haines
dated as of March 21, 1991 (incorporated by reference
to Exhibit 10(m) to the Company's Form 10-K for
fiscal year ended August 31, 1992).
10(u)* Agreement between the Company and Larry A. Kushkin
dated as of August 31, 1993 (incorporated by
reference to Exhibit 10(n) to the Company's Form 10-K
for fiscal year ended August 31, 1993).
10(v)* Form of Amendment to Deferred Compensation Agreements
between the Company and Robert A. Stefanko, Terry L.
Haines and Larry A. Kushkin (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q
for the fiscal quarter ended February 29, 1996).
10(w) Credit Agreement between the Company, The Banks and
Society National Bank, individually and as Agent,
dated as of March 13, 1995 (incorporated by reference
to Exhibit 10 of the Company's Form 10-Q for fiscal
quarter ended February 28, 1995).
10(x) First Amendment to Credit Agreement dated February
26, 1996, among the Company and Society National
Bank, individually and as Agent, First National Bank
of Ohio, Union Bank of Switzerland and The First
National Bank of Chicago (incorporated by reference
to Exhibit 10.11 to the Company's Form 10-Q for the
fiscal quarter ended February 29, 1996).
10(y) Second Amendment to Credit Agreement dated as of
August 14, 1997, among the Company, KeyBank National
-23-
<PAGE> 26
Association, individually and as Agent, The First
National Bank of Chicago, National City Bank,
Northeast and Morgan Guaranty Trust Company of New
York (incorporated by reference to Exhibit 10(x)
to the Company's Form 10-K for fiscal year ended
August 31, 1997).
11 Computation of Basic and Diluted Earnings Per Common
Share
13 Company's 1998 Annual Report to Stockholders
21 Subsidiaries of the Company
23 Consent of Independent Accountants
24 Powers of Attorney
27** Financial Data Schedule
99 Notice of Annual Meeting and Proxy Statement Dated
November 9, 1998
*Management contract or compensatory plan or arrangement
required to be filed as an Exhibit hereto.
**Filed only in electronic format pursuant to Item 601(b)(27) of
Regulation S-K.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of the Company's
fiscal year ended August 31, 1998.
-24-
<PAGE> 27
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
A. SCHULMAN, INC.
By: /s/Robert A. Stefanko
----------------------------
Robert A. Stefanko
Chairman of the Board of
Directors and Executive Vice
President - Finance and
Administration
Dated: November 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Terry L. Haines Director and Principal November 24, 1998
- ------------------ Executive Officer
Terry L. Haines
/s/Robert A. Stefanko Director, Principal November 24, 1998
- --------------------- Financial Officer and
Robert A. Stefanko Principal Accounting Officer
Alan L. Ockene* Director
Paul Craig Roberts* Director
Rene C. Rombouts* Director
Robert G. Wallace* Director
Peggy Gordon Elliott* Director
Willard R. Holland* Director
James A. Karman* Director
James S. Marlen* Director
*By: /s/Robert A. Stefanko November 24, 1998
---------------------
Robert A. Stefanko
Attorney-in-Fact
</TABLE>
*Powers of attorney authorizing Robert A. Stefanko to sign this annual
report on Form 10-K on behalf of certain Directors of the Company are being
filed with the Securities and Exchange Commission herewith.
-25-
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of A. Schulman, Inc.
Our audits of the consolidated financial statements referred to in our report
dated October 15, 1998, appearing on page 27 of the 1998 Annual Report to the
Stockholders of A. Schulman, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
November 24, 1998
F-1
<PAGE> 29
SCHEDULE II
A. SCHULMAN, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Net Balance at
beginning of cost and write Translation close of
period expenses offs adjustment Other period
------------- ----------- ----- ------------ ----- ------------
Reserve for doubtful account
<S> <C> <C> <C> <C> <C> <C>
Year ended August 31, 1998 $ 5,304,000 $ 1,806,000 $ (2,300,000) $ (32,000) $ -- $ 4,778,000
Year ended August 31, 1997 5,903,000 1,098,000 (1,357,000) (340,000) -- $ 5,304,000
Year ended August 31, 1996 4,859,000 2,490,000 (1,425,000) (21,000) -- 5,903,000
<CAPTION>
Valuation allowance - deferred tax assets
<S> <C> <C> <C> <C> <C> <C>
Year ended August 31, 1998 5,937,000 -- -- -- 31,000 5,968,000
Year ended August 31, 1997 3,155,000 -- -- -- 2,782,000 5,937,000
Year ended August 31, 1996 4,820,000 -- -- -- (1,665,000) 3,155,000
</TABLE>
Note:
(1) Represents current year change in valuation allowance for foreign tax
credit carryforward benefits which are not likely to be utilized.
F-2
<PAGE> 1
Exhibit 10(e)
SECOND AMENDMENT
TO
A. SCHULMAN, INC.
1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
----------------------------------------------
1. PURPOSE OF AMENDMENT
--------------------
The A. Schulman, Inc. 1992 Non-Employee Directors' Stock Option Plan
(the "Plan") provides that each Eligible Director (this term and all other
capitalized terms which are not defined herein shall have the meanings ascribed
to such terms in the Plan) shall receive an annual grant of an Option to
purchase 875 Shares (700 shares adjusted for the April 15, 1994, 5 for 4 stock
dividend). The purpose of this Amendment is to increase the number of Shares
subject to such annual Option grants to One Thousand (1,000) Shares.
2. AMENDMENT
---------
Pursuant to the power reserved by the Board in Section 10.2 of the
Plan, Section 5.1 of the Plan is hereby amended and restated in its entirety as
follows:
"5.1 NONDISCRETIONARY ANNUAL GRANTS. Each Eligible Director
shall receive an annual grant of an Option to purchase 1,000
Shares on each Grant Date subsequent to his or her election as a
director of the Company."
3. EFFECTIVE DATE
--------------
The effective date of this Amendment is December 3, 1997, the date of
its adoption by the Board.
<PAGE> 1
Exhibit 10(h)
A. SCHULMAN, INC.
DIRECTORS' DEFERRED COMPENSATION PLAN
ARTICLE I
ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT OF PLAN. A. Schulman, Inc., a Delaware corporation
(the "Company"), hereby establishes a deferred compensation plan to be known as
the "A. Schulman, Inc. Directors' Deferred Compensation Plan" (the "Plan") as
set forth in this document.
ARTICLE II
DEFINITIONS
"Board" means the Board of Directors of the Company.
"Company" means A. Schulman, Inc. or any successor thereto.
"Participant" means a Director of the Company who elects to defer
payment of any portion of his or her compensation for service in the capacity as
a Director of the Company.
ARTICLE III
ELECTION TO PARTICIPATE AND PLAN UNITS
3.1 ELECTION TO PARTICIPATE. On or before January 1st of each year, a
Director shall have the option to defer twenty-five percent (25%), fifty percent
(50%), seventy-five percent (75%) or one hundred percent (100%) of his or her
total compensation for service in the capacity as a Director for such year (the
"Deferral Percentage"). Such election shall be made by delivery of a written
notice to the Assistant Secretary of the Company, setting forth the desired
Deferral Percentage.
3.2 DETERMINATION OF UNITS. In lieu of the deferred amount of
Director's fees to be paid to a Participant, the Participant shall receive a
number of units equal to the quotient of (i) the product of (a) the amount of
Director's fees to be paid to the Participant, TIMES (b) the Deferral
Percentage; DIVIDED BY (ii) the closing price of the Company's common stock on
the last business day of the year immediately preceding the year in question. By
way of example, if the amount deferred was $1,000 and the Company's stock price
applicable for the year in question was $25.00, then 40 units would be accrued
in lieu of the $1,000 payment.
<PAGE> 2
3.3 DIVIDENDS. In the event the Company pays a dividend on its common
stock, the number of units in each Participant's account shall be adjusted by an
amount equal to the quotient of (i) the product of (a) the number of units in
the Participant's account on the dividend payment date, TIMES (b) the amount of
the dividend payable per share; DIVIDED BY (ii) the closing price of the
Company's common stock on the last business day of the calendar year immediately
preceding the year in question. By way of example, if the Company should pay a
dividend of $.10 per share, then the units then in a Participant's account shall
be increased by an amount equal to the number of units times $.10, divided by
the Company's stock price applicable for the year in question.
ARTICLE IV
SURRENDER OF UNITS
4.1 SURRENDER OF UNITS. Each Participant's units shall not be
transferrable and shall be surrendered upon such Participant's death, permanent
disability (as determined by the Board of Directors), retirement from the Board
of Directors, or removal from the Board of Directors.
4.2 PAYMENT. In exchange for the surrender of the Units, the Company
shall pay to the Participant, in cash, an amount equal to the product of (i)
number of units in such Participant's account times (ii) the closing price of
the Company's common stock on the date immediately preceding the date of the
event giving rise to the surrender.
ARTICLE V
ADMINISTRATION
5.1 PARTICIPANT ACCOUNTS. The Company shall cause a memorandum account
to be kept in the name of each Participant, which account shall set forth such
Participant's units accrued pursuant to the Plan.
5.2 APPLICABLE PRICE. The Company annually shall determine the closing
price of the Company's common stock on the last business day of each calendar
year, which price shall be applicable to all calculations made pursuant to the
Plan in respect of the next succeeding calendar year.
ARTICLE VI
EFFECTIVE DATE AND AMENDMENT
6.1 EFFECTIVE DATE. The Plan shall be effective as of January 1, 1998.
<PAGE> 3
6.2 AMENDMENT AND TERMINATION. The Plan may be amended or terminated by
the Board at any time. Notice of any such action shall be given to each
Participant.
A. SCHULMAN, INC.
By: /s/ Robert A. Stefanko
---------------------------------------
Robert A. Stefanko, Chairman
of the Board
And: /s/ James H. Berick
---------------------------------------
James H. Berick, Secretary
<PAGE> 1
Exhibit 10(p)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of this 8th day of July, 1998, by and between A. SCHULMAN, INC., a Delaware
corporation (the "Employer"), and JOHN M. MYLES (the "Employee").
WHEREAS, the Board of Directors of the Employer desires to provide for
the continued employment of the Employee as a member of the Employer's
management, in the best interest of the Employer and its stockholders. The
Employee is willing to commit himself continue to serve the Employer, on the
terms and conditions herein provided;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, the parties hereto agree as follows:
1. DEFINED TERMS
The definitions of capitalized terms used in this Agreement (unless
stated where first used) are provided in the last Section hereof.
2. EMPLOYMENT
The Employer hereby continues to employ the Employee as Vice
President-North American Purchasing for the Employer, and the Employee hereby
accepts such continued employment upon the terms and conditions herein
contained.
3. DUTIES AND CONDITIONS OF EMPLOYMENT
3.1 DUTIES. The Employee shall devote his entire business time,
attention and energies to the Employer and shall not engage in any conduct which
shall reflect adversely upon the Companies. The Employee shall perform such
duties for the Companies as may be assigned to one in his executive status and
capacity by the Board. The Employee shall serve diligently and to the best of
his ability.
During his employment by the Employer, the Employee shall not, without
the Employer's prior written consent, be
<PAGE> 2
engaged in any other business activity, whether or not such business activity is
pursued for gain, profit or other pecuniary advantage, except that
notwithstanding the foregoing, he may invest his personal funds for his own
account; provided that such investment shall be passive and not controlling in
any such investment and subject to the provisions of Section 13.2 hereof and
provided further that he will not be required to provide any substantial
services on behalf of such enterprise. Notwithstanding the foregoing, the
Employee may serve on the Boards of Directors of other corporations during the
Term as long as such service does not interfere with the performance of his
duties hereunder.
3.2 CONDITIONS. The Employee shall be provided with suitable office
space, furnishings, secretarial and administrative assistance. Without the
Employee's consent, the Employee shall not be required to report principally to
an office located more than five hundred (500) miles from his principal office
at the date of this Agreement.
4. TERM OF AGREEMENT; TERMINATION OF EMPLOYMENT; ESCROW DURING DISPUTE
4.1 TERM OF AGREEMENT. The Employer hereby employs the Employee for a
Term commencing as of the date hereof and ending July 8, 2001. At the end of
August 1998 and at the end of each calendar month thereafter up to and including
the end of the calendar month in which the Employee's 62nd birthday occurs, this
Agreement shall automatically be extended for one (1) month unless either party
shall give notice to the other of non-extension prior to the end of such
calendar month; provided, however, if a Change in Control shall have occurred
during the Term of this Agreement, Sections 7 and 8 and 10 through 20 of this
Agreement shall continue in effect until at least the end of the
Change-in-Control Protective Period (whether or not the Term of the Agreement
shall have expired for other purposes).
4.2 TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE IN CONTROL. Prior to
any Change in Control, the Employer may terminate the employment of the Employee
for Cause pursuant to this Agreement. Prior to any Change in Control, the
Employee may terminate his employment pursuant to this Agreement if the Employer
fails to make full and timely payments of all sums provided for in Sections 5
and 6 hereof (subject to Section 7.2 hereof), or otherwise shall breach its
covenants hereunder in any material respect.
2
<PAGE> 3
4.3 ESCROW DURING A TERMINATION DISPUTE. Prior to any Change in
Control, if the Employee shall be terminated for Cause, and, within 30 days of
such termination, shall notify the Employer of his intention to adjudicate such
termination as improper, the Employer agrees that it will deposit with KeyBank
National Association, Cleveland, Ohio, as Escrow Agent the installments of the
Employee's Base Salary (as provided in Section 5 below) as the same would have
become payable but for such termination. In the event of a final adjudication by
a tribunal of competent jurisdiction that such termination was not for Cause,
then the amounts so deposited in escrow, plus any interest earned by the Escrow
Agent thereon, shall be delivered promptly to the Employee. If such adjudication
shall be in favor of the Employer, the Escrow Agent shall return the sums so
deposited, plus such interest, to the Employer.
The escrowed salary shall not be deemed to be liquidated damages but
the Employer shall be entitled to a credit against any such award to the extent
of the sums so delivered to the Employee.
5. COMPENSATION
The Employer agrees to pay to the Employee as compensation for his
services hereunder a Base Salary initially equal to the fixed annual salary
currently being paid to the Employee as shown on the Employer's employment
records, payable in substantially equal weekly, biweekly, bimonthly or monthly
installments, as the case may be, in the manner currently being paid to the
Employee. The Base Salary may be discretionarily increased by the Board from
time to time as the Board deems appropriate in its reasonable business judgment.
The Base Salary in effect from time to time shall not be decreased during the
Term (except as provided in Section 7.2).
It is understood and agreed that the Employee's compensation may not be
limited to his Base Salary and that the Employee may receive an annual bonus in
the amount, if any, determined annually by the Employer.
The Employee shall also participate in employee compensation and
benefit plans available generally to executives of the Employer (including,
without limitation, any tax-qualified profit sharing plan, nonqualified profit
sharing plan, life insurance plan and health insurance plan) on a level
appropriate to his position and shall receive the employee fringe benefits
available generally to executives of the
3
<PAGE> 4
Employer (including, without limitation, the use of a company car).
6. EXPENSES
The Employee is authorized to incur reasonable expenses for promoting
the business of the Employer, including expenses for entertainment, travel and
similar items. The Employer shall reimburse the Employee for all such expenses
upon the presentation by the Employee, from time to time, of an itemized account
of such expenditures.
7. PRE-TERMINATION COMPENSATION; DISABILITY
7.1 NORMAL PRE-TERMINATION COMPENSATION. If the Employee's employment
shall be terminated for any reason during the Term (or, if later, prior to the
end of the Change-in-Control Protective Period), the Employer shall pay the
Employee's Base Salary to the Employee through the Date of Termination at the
rate in effect at the time the Notice of Termination is given (subject to
Section 7.2 hereof), together with all compensation and benefits payable to the
Employee through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Employer during such
period. Subject to Sections 8, 9, 10 and 11 hereof, after completing the expense
reimbursements required by Section 6 hereof and making the payments and
providing the benefits required by this Section 7, the Employer shall have no
further obligations to the Employee under this Agreement.
7.2 DISABILITY ADJUSTMENT TO BASE SALARY PAYMENTS. During the Term (or,
if later, at any time prior to the end of the Change-in-Control Protective
Period), during any period that the Employee fails to perform the Employee's
full-time duties with the Employer as a result of incapacity due to physical or
mental illness (but in no event for more than twenty-four (24) months), the
Employer shall pay only sixty percent (60%) of the Employee's Base Salary to the
Employee at the rate in effect at the commencement of any such period (less
amounts, if any, payable to the Employee at or prior to the time of any such
Base Salary payment under disability benefit plans of the Employer or under the
Social Security disability insurance program). After six (6) months of
Disability, the Employer shall have the right to terminate the Employee's
employment pursuant to this Agreement and all Base Salary payments (except the
sixty percent (60%) payments pursuant to the foregoing sentence) shall cease.
Except to the extent
4
<PAGE> 5
provided in this Section 7.2, all Base Salary payments to the Employee shall be
abated during the period of Disability. Subject to Sections 8, 9, 10 and 11
hereof, after completing the expense reimbursements required by Section 6 hereof
and making the payments and providing the benefits required by this Section 7,
the Employer shall have no further obligations to the Employee under this
Agreement.
8. NORMAL POST-TERMINATION PAYMENTS; CONTINUATION PAY; TERMINATION PAY;
PROMPT PAYMENT
8.1 NORMAL POST-TERMINATION PAYMENTS. If the Employee's employment
shall be terminated for any reason during the Term of this Agreement (or, if
later, prior to the end of the Change-in-Control Protective Period), the
Employer shall pay the Employee's normal post-termination compensation and
benefits to the Employee as such payments become due. Subject to Section 10
hereof, such post-termination compensation and benefits shall be determined
under, and paid in accordance with, the Employer's retirement, insurance and
other compensation or benefit plans, programs and arrangements (other than this
Agreement).
8.2 CONTINUATION PAY; TERMINATION PAY. Notwithstanding anything to the
contrary in Section 7.2, 9.1 or 10.1(A) hereof, if the laws governing this
Agreement shall require that the Employer continue to pay or otherwise
compensate the Employee for any period of time following termination of the
Employee's employment ("Continuation Pay") or if such laws require certain
amounts of severance pay, termination compensation or the like (collectively,
"Termination Pay"), then to the fullest extent permitted by law any payments to
the Employee pursuant to Section 7.2, 9.1 or 10.1(A) hereof shall be included in
the calculation of Continuation Pay and Termination Pay and such payments shall
be deducted from the amount of Continuation Pay or Termination Pay due the
Employee.
8.3 PROMPT PAYMENT. Any payments due under Section 5, 6, 7 or 9 hereof
or this Section 8 shall be made promptly after the event giving rise to the
obligation and shall be made to the Employee or in accordance with Section 14.2
hereof, as the case may be.
5
<PAGE> 6
9. POST-TERMINATION PAYMENTS UPON TERMINATION (PRIOR TO A CHANGE IN
CONTROL) BY DEATH OR BY THE EMPLOYER WITHOUT CAUSE
9.1 DEATH BENEFIT. If the Employee's employment shall be terminated by
death during the Term (or, if later, prior to the end of the Change-in-Control
Protective Period), then, in addition to the compensation and benefits provided
by Sections 7.1 and 8 hereof, the Employer shall pay a lump sum amount equal to
sixty percent (60%) of the Base Salary for twenty-four (24) months in accordance
with Section 14.2.
9.2 TERMINATION BY THE EMPLOYER WITHOUT CAUSE. If the Employer shall
terminate the Employee's employment during the Term and prior to a Change in
Control, without Cause (and not for Disability or in connection with the
Employee's death), the Employer shall pay the Employee his Base Salary
throughout the remaining Term and annual bonuses during the remaining Term, each
of which bonuses shall be equal to one-half (1/2) times the average annual bonus
paid to the Employee during the most recent five (5) calendar years of the
Employee's employment by any of the Companies (prorated for any partial years in
the remaining Term).
10. SEVERANCE PAYMENTS; DEDUCTIBILITY.
10.1 SEVERANCE PAYMENTS.
Subject to Section 10.2 hereof, the Employer shall pay the Employee the
payments described in this Section 10.1 (the "Severance Payments") upon the
termination of the Employee's employment following a Change in Control and prior
to the end of the Change-in-Control Protective Period, in addition to any
payments and benefits to which the Employee is entitled under Sections 5, 6, 7
and 8.1 hereof, unless such termination is (i) by the Employer for Cause, (ii)
by reason of death or Disability, or (iii) by the Employee without Good Reason.
For purposes of this Agreement, the Employee's employment shall be deemed to
have been terminated by the Employer without Cause following a Change in Control
or by the Employee with Good Reason following a Change in Control, as the case
may be, if (i) the Employee's employment is terminated without Cause prior to a
Change in Control and such termination was at the request or direction of a
Person who has entered into an agreement with the Employer the consummation of
which would constitute a Change in Control, (ii) the Employee terminates his
employment with Good Reason prior to a Change in Control and the circum-
6
<PAGE> 7
stance or event which constitutes Good Reason occurs at the request or direction
of such Person, or (iii) the Employee's employment is terminated by the Employer
without Cause prior to a Change in Control (but following a Potential Change in
Control) and such termination is otherwise in connection with or in anticipation
of a Change in Control which actually occurs. For purposes of any determination
regarding the applicability of the immediately preceding sentence, any position
taken by the Employee shall be presumed to be correct unless the Employer
establishes to the Committee by clear and convincing evidence that such position
is not correct.
(A) In lieu of any further salary payments to the Employee
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Employee, the Employer shall
pay to the Employee a lump sum severance payment, in cash, equal to
three (3) times the sum of (i) the higher of the Employee's Base Salary
in effect immediately prior to the occurrence of the event or
circumstance upon which the Notice of Termination is based or the
Employee's Base Salary in effect immediately prior to the Change in
Control, and (ii) the higher of the annual bonus earned by the Employee
in respect of the Employer's fiscal year immediately preceding that in
which the Date of Termination occurs or the average annual bonus so
earned in respect of the three fiscal years immediately preceding that
in which the Change in Control occurs.
(B) Notwithstanding any provision of any annual incentive
plan to the contrary, the Employer shall pay to the Employee a lump sum
amount, in cash, equal to the sum of (i) any annual incentive
compensation which has been allocated or awarded to the Employee for a
completed fiscal year preceding the Date of Termination and which, as of
the Date of Termination, is contingent only upon the continued
employment of the Employee to a subsequent date, and (ii) a pro rata
portion to the Date of Termination of a deemed annual bonus for the
Employer's fiscal year in which the Date of Termination occurs,
calculated by multiplying (i) the higher of the annual bonus earned by
the Employee with respect to the immediately preceding fiscal year or
the average annual bonus earned by the Employee with respect to the
immediately preceding three fiscal years of the Employer by (ii) the
fraction obtained by dividing the number of days in the fiscal year of
the
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Employer in which termination occurs up to and including the Date of
Termination by 365.
(C) For the thirty-six (36) month period immediately
following the Date of Termination, the Employer shall arrange to provide
the Employee with life, disability, accident and health insurance
benefits substantially similar to those which the Employee is receiving
immediately prior to the Notice of Termination (without giving effect to
any amendment to such benefits made subsequent to a Change in Control,
which amendment adversely affects in any manner the Employee's
entitlement to or the amount of such benefits); PROVIDED, HOWEVER, that,
unless the Employee consents to a different method (after taking into
account the effect of such method on the calculation of "parachute
payments" pursuant to Section 10.2 hereof), such health insurance
benefits shall be provided through a third-party insurer. Benefits other
wise receivable by the Employee pursuant to this Section 10.1(C) shall
be reduced to the extent comparable benefits are actually received by or
made available to the Employee without cost during the thirty-six (36)
month period following the Employee's termination of employment (and any
such benefits actually received by or made available to the Employee
shall be reported to the Employer by the Employee). If the Severance
Payments shall be decreased pursuant to Section 10.2 hereof, and the
Section 10.1(C) benefits which remain payable after the application of
Section 10.2 hereof are thereafter reduced pursuant to the immediately
preceding sentence because of the receipt or availability of comparable
benefits, the Employer shall, at the time of such reduction, pay to the
Employee the least of (a) the amount of the decrease made in the
Severance Payments pursuant to Section 10.2 hereof, (b) the amount of
the subsequent reduction in these Section 10.1(C) benefits, or (c) the
maximum amount which can be paid to the Employee without being, or
causing any other payment to be, nondeductible by reason of section 280G
of the Code.
10.2 DEDUCTIBILITY.
(A) Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by the Employee in
connection with a Change in Control or the termination of the Employee's
employment (whether pursuant to the terms of this Agreement or any other plan,
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<PAGE> 9
arrangement or agreement with the Employer, any Person whose actions result in a
Change in Control or any Person affiliated with the Employer or such Person)
(all such payments and benefits, including the Severance Payments, being
hereinafter called "Total Payments") would not be deductible (in whole or part),
by the Employer, an affiliate or Person making such payment or providing such
benefit as a result of section 280G of the Code, then, to the extent necessary
to make such portion of the Total Payments deductible (and after taking into
account any reduction in the Total Payments provided by reason of section 280G
of the Code in such other plan, arrangement or agreement), the cash Severance
Payments shall first be reduced (if necessary, to zero), and the noncash
Severance Payments shall thereafter be reduced (if necessary, to zero);
PROVIDED, HOWEVER, that the Employee may elect (at any time prior to the
delivery of a Notice of Termination hereunder) to have the noncash Severance
Payments reduced (or eliminated) prior to any reduction of the cash Severance
Payments.
(B) For purposes of this limitation, (i) no portion of the Total
Payments the receipt or enjoyment of which the Employee shall have effectively
waived in writing prior to the delivery of a Notice of Termination shall be
taken into account, (ii) no portion of the Total Payments shall be taken into
account which in the opinion of tax counsel (the "Tax Counsel") reasonably
acceptable to the Employee and selected by the accounting firm which was,
immediately prior to the Change in Control, the Employer's independent auditor
(the "Auditor") does not constitute a "parachute payment" within the meaning of
section 280G(b)(2) of the Code, including by reason of section 280G(b)(4)(A) of
the Code, (iii) the Severance Payments shall be reduced only to the extent
necessary so that the Total Payments (other than those referred to in clauses
(i) or (ii)) in their entirety constitute reasonable compensation for services
actually rendered within the meaning of section 280G(b)(4)(B) of the Code or are
otherwise not subject to disallowance as deductions by reason of section 280G of
the Code, in the opinion of the Tax Counsel, and (iv) the value of any noncash
benefit or any deferred payment or benefit included in the Total Payments shall
be determined by the Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code.
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(C) If it is established pursuant to a final determination of a court
or an Internal Revenue Service proceeding that, notwithstanding the good faith
of the Employee and the Employer in applying the terms of this Section 10.2, the
aggregate "parachute payments" paid to or for the Employee's benefit are in an
amount that would result in any portion of such "parachute payments" not being
deductible by reason of section 280G of the Code, then the Employee shall have
an obligation to pay the Employer upon demand an amount equal to the sum of (i)
the excess of the aggregate "parachute payments" paid to or for the Employee's
benefit over the aggregate "parachute payments" that could have been paid to or
for the Employee's benefit without any portion of such "parachute payments" not
being deductible by reason of section 280G of the Code; and (ii) interest on the
amount set forth in clause (i) of this sentence at one hundred twenty percent
(120%) of the rate provided in section 1274(b)(2)(B) of the Code from the date
of the Employee's receipt of such excess until the date of such payment.
10.3 The payments provided in Sections 10.1(A) and (B) hereof shall be
made not later than the fifth day following the Date of Termination; PROVIDED,
HOWEVER, that if the amounts of such payments, and the limitation on such
payments set forth in Section 10.2 hereof, cannot be finally determined on or
before such day, the Employer shall pay to the Employee on such day an estimate,
as determined in good faith by the Employer, in accordance with Section 10.2
hereof, of the minimum amount of such payments to which the Employee is clearly
entitled and shall pay the remainder of such payments (together with interest at
one hundred twenty percent (120%) of the rate provided in section 1274(b)(2)(B)
of the Code) as soon as the amount thereof can be determined but in no event
later than the thirtieth (30th) day after the Date of Termination. In the event
that the amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the Employer
to the Employee, payable on the fifth (5th) business day after demand by the
Employer (together with interest at one hundred twenty percent (120%) of the
rate provided in section 1274(b)(2)(B) of the Code). At the time that payments
are made under this Section, the Employer shall provide the Employee with a
written statement setting forth the manner in which such payments were
calculated and the basis for such calculations including, without limitation,
any opinions or other advice the Employer has received from outside counsel,
auditors or consultants (and any such opinions or advice which are in writing
shall be
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attached to the statement). In the event the Employer should fail to pay when
due the amounts described in Sections 10.1(A), (B) and (C) hereof or in Section
10.2 hereof, the Employee shall also be entitled to receive from the Employer an
amount representing interest on any such unpaid amounts from the due date, as
determined under this Section 10.3 (without regard to any extension of the Date
of Termination pursuant to Section 11.3 hereof), to the date of payment at one
hundred twenty percent (120%) of the rate provided in section 1274(b)(2)(B) of
the Code.
10.4 The Employer also shall pay to the Employee all legal fees and
expenses incurred by the Employee (i) in disputing in good faith any issue
relating to the termination of the Employee's employment following a Change in
Control and prior to the end of the Change-in-Control Protective Period, (ii) in
seeking in good faith to obtain or enforce any benefit or right provided by this
Agreement, or (iii) in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5) business
days after delivery of the Employee's written requests for payment accompanied
with such evidence of fees and expenses incurred as the Employer reasonably may
require.
11. TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE.
11.1 NOTICE OF TERMINATION. During the Term (and, if longer, until the
end of the Change-in-Control Protective Period), any purported termination of
the Employee's employment (other than by reason of death) shall be communicated
by written Notice of Termination from one party hereto to the other party hereto
in accordance with Section 15 hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated.
Further, with respect to any purported termination of the Employee's employment
after a Change in Control and prior to the end of the Change-in-Control
Protective Period, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a meeting of the
Board which was called and held for the purpose of considering such termi-
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nation (after reasonable notice to the Employee and an opportunity for the
Employee, together with the Employee's counsel, to be heard before the Board)
finding that, in the good faith opinion of the Board, the Employee was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
11.2 DATE OF TERMINATION. "Date of Termination," with respect to any
purported termination of the Employee's employment during the Term (and, if
longer, prior to the end of the Change-in-Control Protective Period), shall mean
(i) if the Employee's employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Employee shall not have
returned to the full-time performance of the Employee's duties during such
thirty (30) day period), and (ii) if the Employee's employment is terminated for
any other reason, the date specified in the Notice of Termination (which, in the
case of a termination by the Employer, shall not be less than thirty (30) days
(except in the case of a termination for Cause) and, in the case of a
termination by the Employee, shall not be less than fifteen (15) days nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given).
11.3 DISPUTE CONCERNING TERMINATION. With respect to any purported
termination of the Employee's employment after a Change in Control and prior to
the end of the Change-in-Control Protective Period, if within fifteen (15) days
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 11.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be extended
until the date on which the dispute is finally resolved, either by mutual
written agreement of the parties or by a final judgment, order or decree of a
court of competent jurisdiction (which is not appealable or with respect to
which the time for appeal therefrom has expired and no appeal has been
perfected); PROVIDED, HOWEVER, that the Date of Termination shall be ex tended
by a notice of dispute given by the Employee only if such notice is given in
good faith and the Employee pursues the resolution of such dispute with
reasonable diligence.
11.4 COMPENSATION DURING DISPUTE. If a purported termination occurs
following a Change in Control and prior to the end of the Change-in-Control
Protective Period and the Date of Termination is extended in accordance with
Section 11.3
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hereof, the Employer shall continue to pay the Employee the full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, salary) and continue the Employee as a participant in all
compensation, benefit and insurance plans in which the Employee was
participating when the notice giving rise to the dispute was given, until the
Date of Termination, as determined in accordance with Section 11.3 hereof.
Amounts paid under this Section 11.4 are in addition to all other amounts due
under this Agreement (other than those due under Section 7.1 hereof) and shall
not be offset against or reduce any other amounts due under this Agreement.
12. NO MITIGATION
The Employer agrees that, if the Employee's employment with the
Employer terminates following a Change in Control and prior to the end of the
Change-in-Control Protective Period, the Employee is not required to seek other
employment or to attempt in any way to reduce any amounts payable to the
Employee by the Employer pursuant to Section 10 hereof or Section 11.4 hereof.
Further, the amount of any payment or benefit provided for in this Agreement
(other than Section 10.1(C) hereof) shall not be reduced by any compensation
earned by the Employee as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by the
Employee to the Employer, or other wise.
13. CONFIDENTIALITY; NON-COMPETITION AND NON-SOLICITATION
13.1 CONFIDENTIALITY. The Companies' methods, plans for doing business,
processes, pricing, compounds, customers and supplies are vital to the Companies
and, to the extent not made public by the Companies, constitute confidential
information subject to the Companies' proprietary rights therein. The Employee
covenants and agrees that during the Term and at all times thereafter, the
Employee will not, directly or indirectly, make known, divulge, furnish, make
available or use, otherwise than in the regular course of the Employee's
employment by the Employer, any invention, product, process, apparatus or design
of any of the Companies, or any knowledge or information in respect thereof
(including, but not limited to, business methods and techniques), or any other
confidential or so-called "insider" information of any of the Companies. This
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covenant shall apply without regard to the time or circumstances of any
termination of the Employee's employment.
13.2 NON-COMPETITION AND NON-SOLICITATION. The Employee covenants and
agrees that during the period of one (1) year following any termination of the
Employee's employment which occurs prior to a Change in Control, the Employee
will not, directly or indirectly, either as an individual for the Employee's own
account or as an investor, or other participant in, or as an employee, agent, or
representative of, any other business enterprise:
(i) solicit, employ, entice, take away or interfere with, or
attempt to solicit, employ, entice, take away or interfere
with, any employee of the Employer or the Companies; or
(ii) engage or participate in or finance, aid or be connected with
any enterprise which competes with the business of the
Companies, or any of them.
The geographical limitations of the foregoing shall include any country in which
the Companies or any of them shall be doing business as of such date of such
termination. This covenant shall apply without regard to the circumstances of
any termination of the Employee's employment which occurs prior to a Change in
Control.
13.3 The Employee acknowledges that the covenants contained in this
Section 13 are of the essence of this Agreement and said covenants shall be
construed as independent of any other provisions of this Agreement. Recognizing
the irreparable nature of the injury that could result from the Employee's
violation of any of the covenants and agreement to be performed and/or observed
by the Employee pursuant to the provisions of this Section 13, and that damages
would be inadequate compensation, it is agreed that any violations by the
Employee of the provisions of this Section 13, shall be the proper subject for
immediate injunctive and other equitable relief to the Employer.
14. SUCCESSORS; BINDING AGREEMENT
14.1 In addition to any obligations imposed by law upon any successor
to the Employer, the Employer will require any successor (whether direct or
indirect, by purchase, merger,
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consolidation or otherwise) to all or substantially all of the business and/or
assets of the Employer to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Employer would be required to
perform it if no such succession had taken place. Failure of the Employer to
obtain such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Employee to
compensation from the Employer in the same amount and on the same terms as the
Employee would be entitled to hereunder if the Employee were to terminate the
Employee's employment for Good Reason after a Change in Control, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. Except as
provided in this Section 14.1, this Agreement shall not be assignable by either
party without the written consent of the other party hereto.
14.2 This Agreement shall inure to the benefit of and be enforceable by
the Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Employee shall
die while any amount would still be payable to the Employee hereunder (other
than amounts which, by their terms, terminate upon the death of the Employee) if
the Employee had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
executors, personal representatives or administrators of the Employee's estate.
15. NOTICES
For purposes of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States registered mail,
return receipt requested, postage prepaid, addressed, if to the Employee, to the
address shown for the Employee in the personnel records of the Employer and, if
to the Employer, to the address set forth below, or to such other address as
either party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon actual
receipt:
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To the Employer:
Robert A. Stefanko
Chief Financial Officer and Executive
Vice President-Finance and Administration
A. Schulman, Inc.
P. O. Box 1710
Akron, Ohio 44309-1710
With a copy to:
James H. Berick, Esq.
Berick, Pearlman & Mills Co., L.P.A.
1350 Eaton Center
1111 Superior Avenue
Cleveland, Ohio 44114-2569
16. MISCELLANEOUS
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by the Employee and such officer as may be specifically designated by the Board.
No waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. This Agreement supersedes the Employment Agreement between the Employer
and the Employee dated as of December 28, 1990 and any other agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof which have been made by either party, except as expressly
set forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Ohio. All references to sections of the Exchange Act or the Code shall be deemed
also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law and any additional withholding to which the
Employee has agreed. The obligations of the Employer and the Employee under this
Agreement which by their nature may require (partial or total) performance after
the expiration of the Term or the Change-in-Control Protective Period
(including, without limitation, those under Sections 5 through 11 and Section 13
hereof) shall survive such expiration.
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17. VALIDITY
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
18. COUNTERPARTS
This Agreement may be executed in several counter parts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
19. SETTLEMENT OF DISPUTES AFTER CHANGE IN CONTROL; ARBITRATION
After a Change in Control and prior to the end of the Change-in-Control
Protective Period, all claims by the Employee for benefits under this Agreement
shall be directed to and determined by the Committee and shall be in writing.
Any denial by the Committee of a claim for benefits under this Agreement shall
be delivered to the Employee in writing and shall set forth the specific reasons
for the denial and the specific provisions of this Agreement relied upon. The
Commit tee shall afford a reasonable opportunity to the Employee for a review of
the decision denying a claim and shall further allow the Employee to appeal to
the Committee a decision of the Committee within sixty (60) days after
notification by the Committee that the Employee's claim has been denied. Any
further dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Akron, Ohio, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Notwithstanding any provision of this Agreement to the contrary,
the Employee shall be entitled to seek specific performance of the Employee's
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
20. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings indicated below:
(A) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
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(B) "Board" shall mean the Board of Directors of the Employer.
(C) "Cause" for termination by the Employer of the Employee's
employment shall mean the following:
(I) with respect to a termination as to which the Notice of
Termination is duly given prior to a Change in Control, the Employee's
breach of his covenants herein contained, the Employee's gross neglect
of his duties hereunder, the Employee's knowingly committing
misfeasance or knowingly permitting nonfeasance of his duties in any
material respect, or the Employee's committing a felony; and
(II) with respect to a termination as to which the Notice of
Termination is duly given following a Change in Control, (i) the
willful and continued failure by the Employee to substantially perform
the Employee's duties with the Employer (other than any such failure
resulting from the Employee's incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of
a Notice of Termination for Good Reason by the Employee pursuant to
Section 11.1 hereof) after a written demand for substantial performance
is delivered to the Employee by the Board, which demand specifically
identifies the manner in which the Board believes that the Employee has
not substantially performed the Employee's duties, or (ii) the willful
engaging by the Employee in conduct which is demonstrably and
materially injurious to the Employer or its subsidiaries, monetarily or
otherwise. For purposes of clauses (i) and (ii) of this definition, (x)
no act, or failure to act, on the Employee's part shall be deemed
"willful" unless done, or omitted to be done, by the Employee not in
good faith and without reason able belief that the Employee's act, or
failure to act, was in the best interest of the Employer and (y) in the
event of a dispute concerning the application of this provision, no
claim by the Employer that Cause exists shall be given effect unless
the Employer establishes to the Committee by clear and convincing
evidence that Cause exists.
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(D) A "Change in Control" shall be deemed to have occurred if the event
set forth in any one of the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Employer (not including in the
securities beneficially owned by such Person any securities acquired
directly from the Employer or its affiliates other than in connection
with the acquisition by the Employer or its affiliates of a business)
representing 25% or more of either the then outstanding shares of
common stock of the Employer or the combined voting power of the
Employer's then outstanding securities; or
(II) the following individuals cease for any reason to
constitute a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board and any new
director (other than a director whose initial assumption of office is
in connection with an actual or threatened election contest, including
but not limited to a consent solicitation, relating to the election of
directors of the Employer) whose appointment or election by the Board
or nomination for election by the Employer's stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in
office who either were directors on the date hereof or whose
appointment, election or nomination for election was previously so
approved; or
(III) the stockholders of the Employer approve a merger or
consolidation of the Employer with any other corporation or approve the
issuance of voting securities of the Employer in connection with a
merger or consolidation of the Employer (or any direct or indirect
subsidiary of the Employer) pursuant to applicable stock exchange
requirements, other than (i) a merger or consolidation which would
result in the voting securities of the Employer outstanding immediately
prior to such merger or consolidation continuing to represent (either
by remaining out standing or by being converted into voting securities
of the surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee
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benefit plan of the Employer or any subsidiary of the Employer, at
least 75% of the combined voting power of the voting securities of the
Employer or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a re capitalization of the Employer
(or similar transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Employer
(not including in the securities Beneficially Owned by such Person any
securities acquired directly from the Employer or its subsidiaries
other than in connection with the acquisition by the Employer or its
subsidiaries of a business) representing 25% or more of either the then
outstanding shares of common stock of the Employer or the combined
voting power of the Employer's then outstanding securities; or
(IV) the stockholders of the Employer approve a plan of
complete liquidation or dissolution of the Employer or an agreement for
the sale or disposition by the Employer of all or substantially all of
the Employer's assets, other than a sale or disposition by the Employer
of all or substantially all of the Employer's assets to an entity, at
least 75% of the combined voting power of the voting securities of
which are owned by stockholders in substantially the same proportions
as their ownership of the Employer immediately prior to such sale.
Notwithstanding the foregoing, no "Change in Control" shall be deemed
to have occurred if there is consummated any transaction or series of integrated
transactions immediately following which the record holders of the common stock
of the Employer immediately prior to such transaction or series of transactions
continue to have substantially the same proportionate ownership in an entity
which owns all or substantially all of the assets of the Employer immediately
following such transaction or series of transactions.
Further, notwithstanding the foregoing, any event or transaction which
would otherwise constitute a Change in Control (a "Transaction") shall not
constitute a Change in Control for purposes of this Agreement if, in connection
with the Transaction, the Employee participates as an equity investor in the
acquiring entity or any of its affiliates (the
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"Acquiror"). For purposes of the preceding sentence, the Employee shall not be
deemed to have participated as an equity investor in the Acquiror by virtue of
(i) obtaining beneficial ownership of any equity interest in the Acquiror as a
result of the grant to the Employee of an incentive compensation award under one
or more incentive plans of the Acquiror (including, but not limited to, the
conversion in connection with the Transaction of incentive compensation awards
of the Employer into incentive compensation awards of the Acquiror), on terms
and conditions substantially equivalent to those applicable to other executives
of the Employer immediately prior to the Transaction, after taking into account
normal differences attributable to job responsibilities, title and similar
matters, (ii) obtaining beneficial ownership of any equity interest in the
Acquiror on terms and conditions substantially equivalent to those obtained in
the Transaction by all other stockholders of the Employer, or (iii) passive
ownership of less than three percent (3%) of the stock of the Acquiror.
(E) "Change-in-Control Protective Period" shall mean the period from
the occurrence of a Change in Control until the later of the second anniversary
of such Change in Control or, if such Change in Control shall be caused by the
stockholder approval of a merger or consolidation described in Section
20(E)(III) hereof, the second anniversary of the consummation of such merger or
consolidation.
(F) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(G) "Committee" shall mean (i) the individuals (not fewer than three in
number) who, immediately prior to a Potential Change in Control, constitute the
Compensation Committee of the Board, plus (ii) in the event that fewer than
three individuals are available from the group specified in clause (i) above for
any reason, such individuals as may be appointed by the individual or
individuals so available (including for this purpose any individual or
individuals previously so appointed under this clause (ii)); provided, however,
that the maximum number of individuals constituting the Committee shall not
exceed five.
(H) "Companies" shall mean, collectively, the Employer and each
corporation which is now and hereafter shall become a subsidiary of, or a parent
of, the Employer, together with their respective successors and assigns.
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(I) "Continuation Pay" shall mean those payments so described in
Section 8.2 hereof.
(J) "Date of Termination" shall have the meaning stated in Section 11.2
hereof.
(K) "Disability" shall be deemed the reason for the termination by the
Employer of the Employee's employment, if, as a result of the Employee's
incapacity due to physical or mental illness, the Employee shall have been
absent from the full-time performance of the Employee's duties with the Employer
for a period of six (6) consecutive months, the Employer shall have given the
Employee a Notice of Termination for Disability, and, within thirty (30) days
after such Notice of Termination is given, the Employee shall not have returned
to the full-time performance of the Employee's duties.
(L) "Employee" shall mean the individual named in the first paragraph
of this Agreement.
(M) "Employer" shall mean A. Schulman, Inc. and, except in determining
under Section 20(E) hereof whether or not any Change in Control of the Employer
has occurred, any successor to its business and/or assets which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
(N) "Exchange Act" shall mean the Securities Ex change Act of 1934, as
amended from time to time.
(O) "Good Reason" for termination by the Employee of the Employee's
employment shall mean the occurrence (without the Employee's express prior
written consent) after any Change in Control, or after any Potential Change in
Control under the circumstances described in the second sentence of Section 10.1
hereof (treating all references in paragraphs (I) through (VII) below to a
"Change in Control" as references to a "Potential Change in Control"), of any
one of the following acts by the Employer, or failures by the Employer to act,
unless, in the case of any act or failure to act described in paragraph (I),
(V), (VI) or (VII) below, such act or failure to act is corrected prior to the
Date of Termination specified in the Notice of Termination given in respect
thereof:
(I) the assignment to the Employee of any duties inconsistent
with the Employee's status as an executive officer of the Employer or a
substantial adverse alteration in the nature or status of the
22
<PAGE> 23
Employee's responsibilities from those in effect immediately prior to
the Change in Control (other than any such alteration primarily
attributable to the fact that the Employer may no longer be a public
company);
(II) a reduction by the Employer in the Employee's annual base
salary as in effect on the date hereof or as the same may be increased
from time to time except for across-the-board salary reductions
similarly affecting all executives of the Employer and all executives
of any Person in control of the Employer;
(III) the relocation of the Employer's principal executive
offices to a location more than fifty (50) miles from the location of
such offices immediately prior to the Change in Control or the
Employer's requiring the Employee to be based any where other than the
Employer's principal executive offices except for required travel on
the Employer's business to an extent substantially consistent with the
Employee's present business travel obligations;
(IV) the failure by the Employer, without the Employee's
consent, to pay to the Employee any portion of the Employee's current
compensation, or to pay to the Employee any portion of an installment
of deferred compensation under any deferred compensation program of the
Employer, within seven (7) days of the date such compensation is due;
(V) the failure by the Employer to continue in effect any
compensation plan in which the Employee participates immediately prior
to the Change in Control which is material to the Employee's total
compensation, including but not limited to the Employer's 1991 Stock
Incentive Plan and Nonqualified Profit Sharing Plan or any substitute
plans adopted prior to the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has
been made with respect to such plan, or the failure by the Employer to
continue the Employee's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of the
Employee's
23
<PAGE> 24
participation relative to other participants, as existed at the time of
the Change in Control;
(VI) the failure by the Employer to continue to provide the
Employee with benefits substantially similar to those enjoyed by the
Employee under any of the Employer's pension, life insurance, medical,
health and accident, or disability plans in which the Employee was
participating at the time of the Change in Control, the taking of any
action by the Employer which would directly or indirectly materially
reduce any of such benefits or deprive the Employee of any material
fringe benefit enjoyed by the Employee at the time of the Change in
Control, or the failure by the Employer to provide the Employee with
the number of paid vacation days to which the Employee is entitled on
the basis of years of service with the Employer in accordance with the
Employer's normal vacation policy in effect at the time of the Change
in Control; or
(VII) any purported termination of the Employee's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 11.1 hereof; for purposes of this
Agreement, no such purported termination shall be effective.
The Employee's right to terminate the Employee's employment for Good
Reason shall not be affected by the Employee's incapacity due to physical or
mental illness. The Employee's continued employment shall not constitute consent
to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Employee that Good Reason exists shall be presumed to
be correct unless the Employer establishes to the Committee by clear and
convincing evidence that Good Reason does not exist.
(P) "Notice of Termination" shall have the meaning stated in Section
11.1 hereof.
(Q) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not
24
<PAGE> 25
include (i) the Employer or any of its subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of the Employer or
any of its subsidiaries, (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities, or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Employer in substantially the
same proportions as their ownership of stock of the Employer.
(R) "Potential Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(1) the Employer enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(2) the Employer or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(3) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Employer representing 15% or more of
either the then outstanding shares of common stock of the Employer or
the combined voting power of the Employer's then out standing
securities; or
(4) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(S) "Severance Payments" shall mean those payments described in Section
10.1 hereof.
(T) "Term" shall mean the period of time described in Section 4.1
hereof (including any extension or continuation described therein).
25
<PAGE> 26
(U) "Termination Pay" shall mean those payments so described in Section
8.2 hereof.
(V) "Total Payments" shall mean those payments described in Section
10.2 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed (the corporate signatory by the respective officer duly authorized)
as of the day and year first above written.
/s/ John M. Myles
-----------------------------------------
John M. Myles
A. SCHULMAN, INC.
By /s/ James H. Berick
----------------------------------------
James H. Berick, Secretary
26
<PAGE> 1
Exhibit 11
A. SCHULMAN, INC.
COMPUTATION OF BASIC AND DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Year ended August 31,
---------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income $50,143,000 $5O,744,000 $42,177,000
Dividends on preferred stock 53,000 53,000 53,000
----------- ----------- -----------
Net income applicable to
common stock $50,090,000 $50,691,000 $42,124,000
=========== =========== ===========
Number of shares on which
basic earnings per share is
calculated:
Average outstanding during
period 35,236,098 37,l25,l345 37,584,561
Add - Incremental shares under
stock compensation plans 39,229 24,250 7,l86
----------- ----------- -----------
Number of shares on which
diluted earnings per share
is calculated 35,275,327 37,149,595 37,59l,747
=========== =========== ===========
Basic earnings per share $1.42 $1.37 $1.12
Diluted earnings per share $1.42 $1.37 $1.12
</TABLE>
<PAGE> 1
Exhibit 13
Company's 1998 Annual Report to Shareholders.
<PAGE> 2
A. SCHULMAN INC. 1998 ANNUAL REPORT
[PHOTO OF PLASTIC BOTTLES WITH A. SCHULMAN LOGO AND COMPANY NAME]
[OUTSIDE FRONT COVER]
<PAGE> 3
COMPOUNDING YOUR SUCCESS
ON THE COVER: Bottles from A. Schulman's
blow molding line at its new Product
Development Center in Akron, Ohio. The
Center contains state-of-the-art [PHOTO OF MAN INSPECTING PLASTIC RESIN]
equipment, enabling A. Schulman to
significantly expand its ability to
analyze and develop new materials in
North America.
[LOGO - "COMPOUNDING YOUR SUCCESS"
IMPRINTED ON PLASTIC BOTTLE]
RIGHT: The Product Development Center
contains all the latest equipment
necessary for customer product [PHOTO OF MAN LOOKING THROUGH MICROSCOPE]
development and analysis. Included are
physical testing, wet chemistry and
flame testing laboratories.
A. Schulman is a leading international supplier of high-performance plastic
compounds and resins. These materials are fabricated into a wide variety of end
products by manufacturers around the world.
The Company's principal product lines consist of proprietary and
custom-formulated engineered plastic compounds matched to customer product
specifications. A. Schulman also produces specialty color concentrates and
additive masterbatches used in products such as films for plastic packaging,
fibers and other applications.
In addition, the Company's worldwide marketing organization serves as a
distributor and merchant for plastic materials manufactured by major polymer
producers.
A. Schulman's business is highly service oriented, providing timely and
effective response to challenging technical, product performance and customer
delivery requirements.
Headquartered in Akron, Ohio, A. Schulman currently has 13 manufacturing
plants in North America, Europe, Mexico and the Asia-Pacific region. The Company
employs approximately 2,300 people. A. Schulman stock is quoted through the
NASDAQ National Market System (Symbol: SHLM).
[INSIDE FRONT COVER]
<PAGE> 4
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended August 31,
============ ============ ============
1998 1997 1996
<S> <C> <C> <C>
Net sales ................................................ $993,394,000 $996,376,000 $976,694,000
Net income ............................................... $ 50,143,000 $ 50,744,000 $ 42,177,000
Diluted earnings per share of common stock ............... $1.42 $1.37 $1.12
Capital expenditures ..................................... $ 30,987,000 $ 27,201,000 $ 18,542,000
Long-term debt and other non-current liabilities ......... $ 75,704,000 $ 44,318,000 $ 73,696,000
Long-term liabilities to capital ......................... 17.1% 10.1% 14.5%
Stockholders' equity ..................................... $366,271,000 $393,401,000 $433,110,000
Book value per common share .............................. $10.97 $10.83 $11.43
Number of stockholders ................................... 1,066 1,178 1,278
CASH DIVIDENDS PER SHARE
1st Quarter .............................................. $.105 $.095 $.085
2nd Quarter .............................................. .115 .105 .095
3rd Quarter .............................................. .115 .105 .095
4th Quarter .............................................. .115 .105 .095
------------ ------------ ------------
$.450 $.410 $.370
============ ============ ============
COMMON STOCK PRICE RANGE ................................. HIGH -- LOW HIGH -- LOW HIGH -- LOW
1st Quarter .............................................. 24 3/4 -- 19 1/2 25 -- 19 1/2 27 3/4 -- 17 1/4
2nd Quarter .............................................. 26 1/2 -- 22 3/8 25 1/8 -- 19 24 1/2 -- 17 1/2
3rd Quarter .............................................. 26 1/8 -- 19 7/8 22 3/8 -- 18 26 1/4 -- 20
4th Quarter .............................................. 21 1/2 -- 15 11/16 25 -- 21 1/4 26 1/2 -- 20 1/8
</TABLE>
<TABLE>
NET SALES NET INCOME CAPITAL EXPENDITURES
(Dollars in Billions) (Dollars in Millions) (Dollars in Millions)
<S> <C> <C> <C> <C> <C>
Fiscal Year 1989 .6 Fiscal Year 1989 30.8 Fiscal Year 1989 26.0
Fiscal Year 1990 .7 Fiscal Year 1990 36.1 Fiscal Year 1990 17.7
Fiscal Year 1991 .7 Fiscal Year 1991 42.3 Fiscal Year 1991 18.0
Fiscal Year 1992 .7 Fiscal Year 1992 43.8 Fiscal Year 1992 15.8
Fiscal Year 1993 .7 Fiscal Year 1993 36.7 Fiscal Year 1993 18.2
Fiscal Year 1994 .7 Fiscal Year 1994 44.6 Fiscal Year 1994 25.3
Fiscal Year 1995 1.0 Fiscal Year 1995 53.6 Fiscal Year 1995 58.5
Fiscal Year 1996 1.0 Fiscal Year 1996 42.2 Fiscal Year 1996 18.5
Fiscal Year 1997 1.0 Fiscal Year 1997 50.7 Fiscal Year 1997 27.2
Fiscal Year 1998 1.0 Fiscal Year 1998 50.1 Fiscal Year 1998 31.0
</TABLE>
1
<PAGE> 5
TO OUR STOCKHOLDERS:
We are pleased to report record net income per share for the fourth quarter
ended August 31, 1998. Per share earnings for fiscal 1998 were also an all time
high prior to recognizing the cumulative effect of an accounting change.
Net income per share for the fourth quarter ended August 31, 1998 was $.44,
a 5% increase over last year's record of $.42. Net income was $15,099,000 for
1998 compared with $15,293,000 for the 1997 fourth quarter. Net income for the
fourth quarter was off slightly due to a 2% decline in European profits and the
negative effect from the General Motors strike. Sales totaled $232.5 million
compared with $238.2 million in the 1997 quarter. Sales were down due to the
General Motors strike, lower prices and a $2.8 million adverse translation
effect from a stronger U.S. dollar. These factors offset overall volume gains of
3%.
For the year ended August 31, 1998, per share earnings before the
cumulative effect of an accounting change were a record $1.48, or 8% higher than
1997 per share earnings of $1.37. Income before the cumulative effect of an
accounting change increased to $52,150,000 compared with $50,744,000 in fiscal
1997. Sales for fiscal 1998 were $993.4 million compared with $996.4 million for
the 1997 fiscal year. The translation effect from the stronger U.S. dollar
reduced sales by $45.8 million and more than offset annual tonnage gains of 7%.
There was a positive impact on per share earnings due to the lower
number of outstanding shares. During the last two fiscal years, we completed
two share repurchase plans aggregating 4.5 million shares. In August 1998, the
Board authorized a plan for an additional six million shares. Since the
announcement of that plan, we have been aggressive buyers and have repurchased
approximately 1.2 million shares. We believe that at current market prices,
these purchases are an excellent investment and are an affirmation of
management's commitment to enhance shareholder value. Currently, there are 32.3
million outstanding shares.
We are pleased to attain record per share earnings before the cumulative
effect of accounting changes, especially in such a difficult competitive
environment which also included the adverse effect of translation and the
General Motors strike.
We are redesigning our North American business processes. This project,
BETT (Business Enhancement for Today & Tomorrow), includes new software which
also addresses the required changes for the year 2000.
BETT is a major corporate initiative and is planned for installation at
many of our North American facilities in fiscal 1999. This redesign will enable
us to better serve our customers, increase efficiencies and productivity, and
provide us with timely information necessary to effectively manage our business
in today's competitive environment.
In November 1997, the FASB issued a new ruling requiring the write-off of
business process re-engineering costs. Accordingly, in our first quarter, we
wrote off $3,237,000 of such costs that were capitalized as of August 31, 1997.
This write-off, net of income taxes, amounted to $2,007,000 or $.06 per common
share and has been accounted for as a cumulative effect of an accounting change.
After deducting this charge, net income for the year was $50,143,000 or $1.42
per common share compared with $50,744,000 or $1.37 per share in fiscal 1997. In
addition, charges to income in 1998 for the redesign of our business processes
in North America, net of tax, were $1,500,000. Such charges had been capitalized
prior to fiscal 1998.
We are also currently installing new software at our facilities in Germany,
France and the United Kingdom. This software, already being utilized at our
Belgium operations, has been upgraded for the Year 2000 requirements. In
addition, this software will enhance our capabilities to serve our customers
throughout Europe. It will also enable us to adopt our business practices to the
Euro. Installation of this software is scheduled to be completed during 1999.
Profits in our European operations were down for the fourth quarter, mainly
because of lower profit margins which more than offset volume gains of 12%.
During the fourth quarter, the translation effect from foreign currencies
increased net income by $382,000 or $.01 per share. Income in our European
operations was off 3% for fiscal 1998 due to lower profit margins and the
adverse effect of translation from the strength of the U.S. dollar. During the
first three quarters of fiscal 1998, the U.S. dollar strengthened against the
currencies of the countries where the Company operates. The stronger U.S. dollar
reduced net income for the year by $2,180,000 or $.06 per share.
Profits in North America before the cumulative effect of the accounting
change improved 26% for the year. Fourth quarter profits for 1998 were
approximately the same as in 1997, mainly due to the General Motors strike,
which reduced sales by approximately $15 million and net income by about $.03
to $.04 per share.
Worldwide gross profit margins for the year were 17.1% compared with 16.4%
in fiscal 1997. The higher margins are the result of lower resin prices and
capacity utilization which improved year to year from 83% to 90% for fiscal
1998. Europe operated at close to capacity throughout the year and North
American utilization improved significantly from 77% to 86% in the current year.
Capital expenditures for 1998 were $31 million, the second highest in the
history of the Company. These expenditures cover a number of projects throughout
our worldwide operations. We recently completed the
2
<PAGE> 6
replacement of a manufacturing line in
our United Kingdom plant. This line cost
approximately $4 million and will
increase our 1999 fiscal year capacity
by approximately 16 million pounds.
Also, a second manufacturing line in our [PHOTO OF ROBERT A. STEFANKO
Mexican facility was placed in service AND TERRY L. HAINES]
in September 1998. This line, with a
cost of $5.8 million, has a capacity of
15 million pounds and will broaden our
manufacturing capabilities for Latin
America.
We are also adding additional capacities to our Canadian and Givet, France
facilities. These projects will cost approximately $15 million and will increase
worldwide capacities by 45 million pounds. Both projects will commence operation
during fiscal 1999.
We will be spending $10 million in our German operation for a major
warehouse facility. This project will enable us to better serve our customers,
increase our efficiencies and centralize the logistics of our German business.
This project should be completed in fiscal 2000.
We have recently completed a new Product Development Center in Akron, Ohio.
This project cost $1.6 million and will provide us with additional capabilities
to penetrate new business opportunities. We have also invested $3 million at our
Specialty Compounding division. This project, which included new warehouse space
and modifications of our manufacturing lines, will improve our productivity and
overall efficiencies.
We are confident on the outlook for A. Schulman. Our European
operations have a good level of orders and stabilization of the U.S. dollar at
current levels will have a positive impact on earnings.
Last year's acquisition in Poland is now profitable and the Company has
recently opened an office in Hungary. We plan on increasing our presence in
other Eastern European countries.
We recently purchased the assets of Isopolymer, Inc., a distributor of
Schulman products in Italy, the second largest plastic market in Europe. Annual
sales of this unit are approximately $30 million. We anticipate this unit will
be accretive to earnings in fiscal 1999 although the amount will not be
material. This is a strategic acquisition that will provide us with an expanded
market for our products.
We commenced production at our new Indonesian facility in January 1998.
This facility, with a capacity of 12 million pounds, will serve the Asia-Pacific
region. Although the economic situation is difficult at the present time, we
believe this region offers many growth opportunities and it is important for us
to have a facility in this area of the world.
In North America, our order level has improved since the settlement of the
General Motors strike. However, there has been some moderating of business
activity. During the year, we have closed certain high cost manufacturing lines
in the United States. These steps and overall production and operating
efficiencies provide us with a solid base to meet the challenges in today's
competitive environment.
Fiscal 1998 has been an important year. Earnings per share before
accounting changes were a new record. We have aggressively repurchased our
shares which will enable us to improve per share earnings in the years ahead. We
have maintained a strong balance sheet and have repatriated over $120 million
from Europe during the last two years. We have made a number of capital
investments throughout the world and have improved our return on equity to
approximately 13.2%. Also, in January 1998, we increased the annual cash
dividend by 10%, from $.42 to $.46 per share, for the sixteenth consecutive year
of increased dividends.
Though there are a number of economic uncertainties throughout the world,
we have taken many actions over the past year which provide us with the
capability to operate successfully in the year ahead. Unless global economic
conditions weaken, we anticipate an improvement in earnings for the 1999 fiscal
year.
/s/ Terry L. Haines /s/ Robert A. Stefanko
Terry L. Haines Robert A. Stefanko
President and Chairman
Chief Executive Officer
November 5, 1998
3
<PAGE> 7
CLEVELAND PLASTICS FILM, A LONG-TIME CUSTOMER OF A.
SCHULMAN, IS USING OUR POLYBATCH(R) MATERIAL FOR
PRODUCING BANNERS. "WE'VE BEEN BUYING A. SCHULMAN
MATERIALS FOR OVER FIVE YEARS NOW, AND WE'VE BEEN
EXTREMELY SATISFIED," NOTED CLEVELAND PLASTICS FILM
PRESIDENT JIM HENDERSHOT. "IN FACT, MY QUALITY MANAGER
REFUSES TO LET ME BUY ANYTHING ELSE."
[PHOTO OF THREE MEN IN CONVERSATION NEAR PRESS]
<PAGE> 8
COMPOUNDING YOUR SUCCESS
In 1998, A. Schulman established several programs designed to enhance
revenues, control costs and increase earnings. Global sales and
procurement alliances, product innovation and development, and
strategic improvement programs will enable the Company to maximize
future business opportunities.
GLOBAL ALLIANCES
A. Schulman has established several global arrangements in sales and
procurement. Due to increasing worldwide competition, strong alliances
with leading edge international organizations are important factors
for success.
SALES. A. Schulman reached an agreement with Procter & Gamble to
become a global single-source supplier of white concentrates for
packaging applications. The Company's innovative, comprehensive
approach, as well as its international technical and service
capabilities were major reasons for the selection. Under the
arrangement, A. Schulman will also provide Procter & Gamble with
engineering and technical consulting services.
The Company also has agreements to distribute products for
various resin manufacturers in North America. In the United Kingdom,
A. Schulman recently signed a contract to distribute Appryl
polypropylene and special grades of Aspell HDPE for blow molding and
injection molding.
In the years ahead, the Company's strategy will continue to focus
on pursuing global contracts with international organizations.
5
<PAGE> 9
[PHOTO OF PRODUCT BANNERS PRODUCED USING A.
SCHULMAN'S POLYBATCH(R) MATERIALS]
<PAGE> 10
PICTURED ARE BANNERS
PRODUCED BY
CLEVELAND PLASTICS
FILM USING A.
SCHULMAN MATERIAL.
THIS CUSTOMER USES
A. SCHULMAN'S
POLYBATCH(R) IN A
VARIETY OF OTHER
APPLICATIONS,
INCLUDING FLORAL
SLEEVES, CARRY-OUT
BAGS, FOOD PACKAGING
AND AUTOMOTIVE
PRODUCTS.
PROCUREMENT. Strong procurement capabilities are extremely important in today's
competitive environment. A. Schulman is establishing a supply chain management
system that will result in significant savings and enhanced product quality.
This program will result in a reduction of inventory complexities and
quantities, while upgrading the quality required for today's demanding
applications.
Inventory complexity. The Company is simplifying and reducing the number of
products used in manufacturing. By combining the purchasing requirements of
various facilities and consolidating the products used, overall procurement
costs will decrease. Worldwide, A. Schulman plans to increase its purchases from
suppliers who can provide the quality, skills and capabilities that fulfill the
requirements of A. Schulman.
Inventory quantities. An example of the Company's efforts to reduce quantities
is the establishment of a supplier managed inventory system for packaged raw
materials in North America. This "best practices" system will lower costs and
working capital.
Inventory quality. Consistent raw materials mean superior products. The Company
is using suppliers who not only have the capability to deliver the highest
quality products, but who can also provide technical support in product
innovation. Procurement on a worldwide basis enables A. Schulman to partner with
the most advanced and sophisticated suppliers.
7
<PAGE> 11
[PHOTO OF TWO MEN STANDING NEAR BED OF A TRUCK]
<PAGE> 12
A. SCHULMAN IS
WIDELY KNOWN
THROUGHOUT THE
AUTOMOTIVE INDUSTRY
FOR ITS TECHNICAL
SERVICE AND
EXPERTISE IN
DEVELOPING MATERIALS
FOR SPECIFIC
APPLICATIONS. THIS
GMC TRUCK UTILIZES
A. SCHULMAN'S
FORMION(R) IN ITS
BED RAIL CAPS.
FORMION(R) IS USED
FOR ITS TOUGHNESS,
MAR RESISTANCE AND
DIMENSIONAL
STABILITY.
PRODUCT INNOVATION AND DEVELOPMENT
Product innovation has always been a major strength of A. Schulman. The
Company's ability to develop materials for specific applications sets it apart
from the competition. For example, Chrysler required a new material for a
steering wheel used in its Jeep Cherokee. A. Schulman created a unique solution
from its Polyvin(R) product line. The Jeep Cherokee now offers a steering wheel
that is not only comfortable to grip, but significantly reduces hand fatigue.
For European customers, the Company is widely known for its superior technology
and innovative solutions, especially for packaging applications.
Product innovation is the key to sales growth. Customer satisfaction
and excellent product research are necessary for effective innovation and
development. During the first half of fiscal year 1999, the Company will open
the following two facilities in North America that will significantly enhance
its position in product innovation.
PRODUCT DEVELOPMENT CENTER
The Company's new state-of-the-art development center in Akron, Ohio will be a
valuable resource for customers, providing both technical support and joint
product development opportunities. This center will provide A. Schulman with the
capability to more effectively penetrate targeted markets, particularly the
packaging sector, where technical service is of paramount importance.
The Product Development Center offers film and blow molding equipment
that will become operational during the first half of fiscal 1999. This facility
will provide new testing capabilities including a lab for analysis and
development of flame-retardant materials. Future plans include the addition of
laboratory injection molding and compounding lines.
9
<PAGE> 13
Currently, many film and packaging customers conduct costly
developmental work using their own production machinery. By utilizing A.
Schulman's equipment, particularly the cast film and blow molding lines,
customers can effectively work with us to create new materials. Once product
development is complete, customers will be able to conduct trials and tests at
the Center. The Center will enable A. Schulman to respond effectively to
technical issues.
At the Product Development Center, A. Schulman has invested not only in
technology but also in industry expertise in the development of products. The
Company is confident that this facility will provide opportunities to expand its
position in the North American film and packaging market.
COLOR TECHNOLOGY CENTER
In Europe, A. Schulman is known as a customer-responsive color concentrate
supplier. To establish this position in the North American market, the Company
is constructing a Color Technology Center in Sharon Center, Ohio. Expected to be
operational during the first half of fiscal year 1999, the facility will enable
A. Schulman to provide unique color services to customers including color
matches, timely samples and quick production turnarounds.
The Company can build on its solid foundation to make important inroads
in the color market. A. Schulman has strong relationships with key suppliers,
including resin manufacturers, and can readily supply color in any form --
pre-colored, blends and concentrates. Additionally, the Company employs some of
the top color experts in the industry.
Along with the ability to serve customers better, the Color Technology
Center will increase the efficiency of A. Schulman's North American plants.
Manufacturing facilities will be supplied with color concentrates, eliminating
time-consuming color matching and lengthy pigment cleanups.
10
<PAGE> 14
THE PRODUCT DEVELOPMENT CENTER'S
BLOW MOLDING LINE OFFERS THE LATEST
TECHNOLOGY IN BLOW MOLDING
MACHINERY. THIS LINE PRODUCES THE
BOTTLES PICTURED ON THE COVER OF
THIS ANNUAL REPORT.
[PHOTO OF BLOW MOLDING APPARATUS AND FEMALE TECHNICIAN HOLDING BOTTLE]
<PAGE> 15
[PHOTO OF TWO WOMEN WORKING AT COMPUTER TERMINAL]
<PAGE> 16
IN NORTH AMERICA, A.
SCHULMAN IS
CENTRALIZING ITS
CUSTOMER SERVICE
DEPARTMENT TO
PROVIDE MORE
EFFICIENT, TIMELY
INFORMATION WHILE
RETAINING A HIGH
LEVEL OF PERSONAL
SERVICE.
STRATEGIC IMPROVEMENT PROGRAMS
North America. A. Schulman has developed a number of plans to aggressively
target North American industrial and consumer sectors, while maintaining its
strong presence with automotive manufacturers. This course of action will be
accomplished through a variety of programs.
Business Enhancement for Today and Tomorrow (BETT). This program is a complete
redesign of A. Schulman's business processes. Its major objective is to better
serve the customer and increase productivity and efficiency throughout the
organization. A large portion of the redesign will be implemented during fiscal
year 1999. Benefits will include the following:
- Better customer support due to more efficient order processing,
- Higher operating profits through enhanced production planning,
scheduling, execution and control, and
- Reduced supply side lead time via better logistics, sourcing and
distribution.
Customer Sales Support Center (CSSC). An important aspect of BETT is the design
of a corporate Customer Sales Support Center. This department will simplify and
provide more efficient order processing for customers. Sales representatives
will partner with customer service associates to provide the highest level of
service possible.
Product Realignment. Manufactured products have been organized into five
families: Polyolefins, color concentrates/additive masterbatches, PVC,
engineered materials, and merchant/distribution. This restructuring will allow
for more efficient sales and production strategies.
Europe. A. Schulman continues to expand its strength and market share throughout
the European continent. During the past two years,
13
<PAGE> 17
[PHOTO OF COLORFUL FOREIGN CANDY BAR WRAPPERS]
<PAGE> 18
A. SCHULMAN PLASTIC
MATERIALS ARE USED
IN THE PACKAGING
MARKET FOR THEIR
PERFORMANCE AS WELL
AS AESTHETIC
PROPERTIES.
the Company has increased activity in Western Europe by opening an office in
Spain and acquiring a business in Italy. Today, a wide variety of A. Schulman
products are sold and distributed through the office in Barcelona, Spain, now in
its third year of operation. In Italy, the Company purchased a former
distributor of its products, Isopolymer S.p.a. Sales are expected to be $30
million per year, and future growth looks promising in the second largest
European market for plastics.
Eastern Europe continues to present opportunities for expansion. Last
year, A. Schulman acquired a distributor/merchant business in Poland. A.
Schulman Polybatch(R) products and engineered compounds, along with
distribution and merchant materials, are sold throughout the country. The
Company opened an office in Budapest, Hungary during the summer of 1998.
Customers in the Hungarian market require a local presence for technical
assistance and service.
The Company's German operation will consolidate its warehouse and
logistics functions. This project, with a cost of $10 million, includes a new
warehouse which will offer better material handling, lower costs and increased
efficiencies. It is scheduled for completion in 2000.
Asia. In Indonesia, A. Schulman began operations in January 1998. Materials
produced from this plant are supplied to customers who previously were sourced
from A. Schulman Europe. The Company's Asian sales team has added new customers
in Indonesia, China, India, Thailand, Malaysia, Singapore and Taiwan.
Through global partnerships and programs, product innovation, product
development, and strategic improvement programs, the Company has established a
firm foundation to improve growth and earnings. Both now and in the future, A.
Schulman remains committed to "Compounding Your Success."
15
<PAGE> 19
A. Schulman, Inc.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended August 31,
============== =================================
1998 1997 1996
<S> <C> <C> <C>
NET SALES ............................................................... $ 993,394,000 $ 996,376,000 $ 976,694,000
INTEREST AND OTHER INCOME ............................................... 3,072,000 4,998,000 6,075,000
-------------- -------------- --------------
TOTAL ............................................................. 996,466,000 1,001,374,000 982,769,000
-------------- -------------- --------------
COSTS AND EXPENSES:
Cost of sales ........................................................ 823,856,000 833,345,000 826,076,000
Selling, general and administrative expenses ......................... 85,293,000 78,500,000 81,118,000
Interest expense ..................................................... 1,933,000 3,143,000 4,192,000
Foreign currency transaction (gains) losses .......................... (1,669,000) (756,000) 57,000
Minority interest .................................................... 724,000 860,000 354,000
-------------- -------------- --------------
910,137,000 915,092,000 911,797,000
-------------- -------------- --------------
INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE .......... 86,329,000 86,282,000 70,972,000
PROVISION FOR U.S. AND FOREIGN INCOME TAXES ............................. 34,179,000 35,538,000 28,795,000
-------------- -------------- --------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE .................... 52,150,000 50,744,000 42,177,000
CUMULATIVE EFFECT OF ACCOUNTING CHANGE .................................. (2,007,000) -- --
-------------- -------------- --------------
NET INCOME .............................................................. $ 50,143,000 $ 50,744,000 $ 42,177,000
============== ============== ==============
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic ................................................................ 35,236,098 37,125,345 37,584,561
Diluted .............................................................. 35,275,327 37,149,595 37,591,747
BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK:
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE ................. $1.48 $1.37 $1.12
CUMULATIVE EFFECT OF ACCOUNTING CHANGE ............................... (0.06) -- --
-------------- -------------- --------------
NET INCOME ........................................................... $1.42 $1.37 $1.12
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE> 20
A. Schulman, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative
Foreign Unearned
Currency Stock
Common Other Retained Translation Grant
Stock Capital Earnings Adjustment Compensation
============================================================================
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1995 ........................ $38,022,000 $38,069,000 $297,979,000 $41,979,000 $ (1,064,000)
Net income for 1996 ............................... 42,177,000
Cash dividends paid or accrued:
Preferred stock, $5 per share .................. (54,000)
Common stock, $.37 per share ................... (13,931,000)
Foreign currency translation adjustment ........... (5,117,000)
Stock options exercised ........................... 287,000 5,369,000
Grant of restricted stock ......................... 1,036,000 (1,036,000)
Amortization of restricted stock .................. 386,000
----------- ----------- ------------ ------------ ------------
Balance at August 31, 1996 ........................ 38,309,000 44,474,000 326,171,000 36,862,000 (1,714,000)
Net income for 1997 ............................... 50,744,000
Cash dividends paid or accrued:
Preferred stock, $5 per share .................. (53,000)
Common stock, $.41 per share ................... (15,271,000)
Foreign currency translation adjustment ........... (43,435,000)
Issue of restricted stock ......................... 34,000 (62,000)
Amortization of restricted stock .................. 562,000
----------- ----------- ------------ ------------ ------------
Balance at August 31, 1997 ........................ 38,343,000 44,412,000 361,591,000 (6,573,000) (1,152,000)
Net income for 1998 ............................... 50,143,000
Cash dividends paid or accrued:
Preferred stock, $5 per share .................. (53,000)
Common stock, $.45 per share ................... (15,935,000)
Foreign currency translation adjustment ........... (2,344,000)
Stock options exercised ........................... 4,000 97,000
Grant of restricted stock ......................... 1,269,000 (1,269,000)
Amortization of restricted stock .................. 427,000
----------- ----------- ------------ ------------ ------------
Balance at August 31, 1998 ........................ $38,347,000 $45,778,000 $395,746,000 $ (8,917,000) $ (1,994,000)
=========== =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE> 21
A. Schulman, Inc.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
August 31, August 31,
1998 1997
============ ============
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................................... $ 60,766,000 $ 69,147,000
Short-term investments, at cost ................................................. -- 2,762,000
Accounts receivable, less allowance for doubtful accounts of $4,778,000 in 1998
and $5,304,000 in 1997 ........................................................ 148,838,000 150,192,000
Inventories, average cost or market, whichever is lower ......................... 165,661,000 164,432,000
Prepaids, including tax effect of temporary differences ......................... 20,220,000 17,181,000
------------ ------------
TOTAL CURRENT ASSETS .......................................................... 395,485,000 403,714,000
------------ ------------
OTHER ASSETS:
Cash surrender value of life insurance .......................................... 500,000 447,000
Deferred charges, etc., including tax effect of temporary differences ........... 17,752,000 19,389,000
------------ ------------
18,252,000 19,836,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and improvements ........................................................... 9,253,000 9,995,000
Buildings and leasehold improvements ............................................ 69,178,000 67,129,000
Machinery and equipment ......................................................... 202,199,000 188,777,000
Furniture and fixtures .......................................................... 22,422,000 20,358,000
Construction in progress ........................................................ 18,854,000 9,158,000
------------ ------------
321,906,000 295,417,000
Accumulated depreciation and investment grants of $355,000 in 1998
and $395,000 in 1997 .......................................................... 173,723,000 156,022,000
------------ ------------
148,183,000 139,395,000
------------ ------------
$561,920,000 $562,945,000
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE> 22
<TABLE>
<CAPTION>
August 31, August 31,
1998 1997
============ ============
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable ................................................................... $ 4,000,000 $ 3,000,000
Current portion of long-term debt ............................................... -- 36,000
Accounts payable ................................................................ 58,640,000 63,095,000
U.S. and foreign income taxes payable ........................................... 9,865,000 12,244,000
Accrued payrolls, taxes and related benefits .................................... 18,073,000 17,139,000
Other accrued liabilities ....................................................... 16,607,000 16,227,000
------------ ------------
TOTAL CURRENT LIABILITIES .................................................... 107,185,000 111,741,000
------------ ------------
LONG-TERM DEBT .................................................................. 40,000,000 12,009,000
OTHER LONG-TERM LIABILITIES ..................................................... 35,704,000 32,309,000
DEFERRED INCOME TAXES ........................................................... 9,852,000 9,462,000
MINORITY INTEREST ............................................................... 2,908,000 4,023,000
STOCKHOLDERS' EQUITY:
Preferred stock, 5% cumulative, $100 par value, authorized,
issued and outstanding - 10,689 shares in 1998 and 1997 ...................... 1,069,000 1,069,000
Special stock, 1,000,000 shares authorized, none outstanding .................... -- --
Common stock, $1 par value
Authorized - 75,000,000 shares
Issued - 38,347,367 shares in 1998 and 38,342,867 shares in 1997 ............. 38,347,000 38,343,000
Other capital ................................................................... 45,778,000 44,412,000
Cumulative foreign currency translation adjustment .............................. (8,917,000) (6,573,000)
Retained earnings ............................................................... 395,746,000 361,591,000
Treasury stock, at cost, 5,068,862 shares in 1998 and 2,112,674 shares in 1997 .. (103,758,000) (44,289,000)
Unearned stock grant compensation ............................................... (1,994,000) (1,152,000)
------------ ------------
COMMON STOCKHOLDERS' EQUITY ..................................................... 365,202,000 392,332,000
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ................................................... 366,271,000 393,401,000
------------ ------------
$561,920,000 $562,945,000
============ ============
</TABLE>
19
<PAGE> 23
A. Schulman, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31,
============= ================================
1998 1997 1996
<S> <C> <C> <C>
Provided from (used in) operating activities:
Net income $ 50,143,000 $ 50,744,000 $ 42,177,000
Items not requiring the current use of cash:
Cumulative effect of accounting change 2,007,000 -- --
Depreciation 17,817,000 17,800,000 18,130,000
Non-current deferred taxes 192,000 1,266,000 2,410,0000
Foreign pension and other deferred compensation 2,129,000 2,284,000 2,654,000
Postretirement benefit obligation 814,000 774,000 820,000
Changes in working capital:
Accounts receivable 1,531,000 (16,753,000) (10,190,000)
Inventories (3,180,000) (27,794,000) 39,603,000
Prepaids (3,209,000) (4,417,000) (1,126,000)
Accounts payable (2,517,000) 21,849,000 (8,015,000)
Income taxes (1,306,000) 2,385,000 (4,058,000)
Accrued payrolls and other accrued liabilities 721,000 1,199,000 1,381,000
Changes in other assets and other long-term liabilities (1,341,000) (3,791,000) (161,000)
------------ ------------ ------------
Net cash provided from operating activities 63,801,000 45,546,000 83,625,000
------------ ------------ ------------
Provided from (used in) investing activities:
Expenditures for property, plant and equipment (30,987,000) (27,201,000) (18,542,000)
Disposals of property, plant and equipment 812,000 1,428,000 529,000
Purchases of short-term investments (8,160,000) (10,893,000) (173,573,000)
Proceeds from sales of short-term investments 10,957,000 41,504,000 196,446,000
------------ ------------ ------------
Net cash provided from (used in) investing activities (27,378,000) 4,838,000 4,860,000
------------ ------------ ------------
Provided from (used in) financing activities:
Cash dividends paid (15,946,000) (15,335,000) (13,958,000)
Increase (decrease) of notes payable 1,000,000 (4,000,000) (10,800,000)
Reduction of long-term debt (45,000) (28,037,000) (35,039,000)
Increase of long-term debt 28,000,000 -- --
Exercise of stock options 101,000 -- 5,656,000
Investment grants from foreign countries 70,000 -- 255,000
Increase (decrease) in minority interest, net of distributions (326,000) 2,085,000 355,000
Purchase of treasury stock (59,469,000) (32,226,000) (1,225,000)
Redemption of preferred stock -- (2,000) --
------------ ------------ ------------
Net cash used in financing activities (46,615,000) (77,515,000) (54,756,000)
------------ ------------ ------------
Effect of exchange rate changes on cash 1,811,000 (17,277,000) (4,171,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (8,381,000) (44,408,000) 29,558,000
Cash and cash equivalents at beginning of year 69,147,000 113,555,000 83,997,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 60,766,000 $ 69,147,000 $113,555,000
============ ============ ============
Cash paid during the year for:
Interest $ 1,842,000 $ 3,388,000 $ 4,795,000
Income Taxes $ 36,069,000 $ 30,760,000 $ 32,227,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 24
A. Schulman, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of A. Schulman,
Inc. and its domestic and foreign subsidiaries. All significant intercompany
transactions have been eliminated.
Minority interest represents a 30% equity position of Mitsubishi Chemical MKV
Co. in a partnership with the Company and a 35% equity position of P.T. Prima
Polycon Indah in an Indonesian joint venture with the Company.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
All highly liquid investments purchased with a maturity of three months or
less are considered to be cash equivalents. Such investments amounted to
$40,036,000 at August 31, 1998 and $61,679,000 at August 31, 1997. Investments
with maturities between three and twelve months are considered to be short-term
investments. Investments are placed with numerous financial institutions having
good credit ratings. The recorded amount of these investments approximates fair
value.
DEPRECIATION
It is the Company's policy to depreciate the cost of property, plant and
equipment over the estimated useful lives of the assets generally using the
straight-line method. The estimated useful lives used in the computation of
depreciation are as follows:
Buildings and leasehold improvements 10 to 40 years
Machinery and equipment 5 to 10 years
Furniture and fixtures 10 years
The cost of property sold or otherwise disposed of is eliminated from the
property accounts and the related reserve accounts, with recognition of gain or
loss.
Maintenance and repair costs are charged against income. The cost of renewals
and betterments is capitalized in the property accounts.
INVENTORIES
The Company and its subsidiaries do not distinguish between raw materials and
finished goods because numerous products which can be sold as finished goods are
also used as raw materials in the production of other inventory items.
GOODWILL
Net goodwill of $6,636,000 is being amortized over 5 to 25 years using the
straight-line method and is included in deferred charges.
INCOME TAXES
Income taxes are recognized during the year in which transactions enter into
the determination of financial statement income. Accordingly, deferred taxes are
provided for temporary differences between the book and tax bases of assets and
liabilities.
RETIREMENT PLANS
The Company has several pension plans covering hourly employees in the U.S.
and certain employees in foreign countries. For certain plans in the U.S.,
pension funding is based on an amount paid to trust funds at an agreed rate for
each hour for which employees are paid. For other U.S. plans, the policy is to
fund amounts to cover current cost and amortize prior service costs over
approximately 30 years.
Generally, the foreign plans accrue the current and prior service costs
annually. In certain countries, funding is not required and the liability for
such pensions is included in other long-term liabilities.
The Company also has deferred profit sharing plans for its North American
salaried employees for which contributions are determined at the discretion of
the Board of Directors.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's foreign
subsidiaries, except those subsidiaries located in highly inflationary
economies, are measured using local currency as the functional currency. Assets
and liabilities of these subsidiaries are translated at the exchange rate in
effect at each year-end. Income statement accounts are translated at the average
rate of exchange prevailing during the year. The cumulative foreign currency
translation adjustment account in stockholders' equity includes primarily
translation adjustments arising from the use of different exchange rates on the
balance sheet from period to period. For subsidiaries operating in highly
inflationary economies, any translation adjustments are included in net income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
STOCK BASED COMPENSATION
Effective September 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"). As provided for under this statement, the Company has elected to continue
to account for stock based compensation under the provisions of Accounting
Principles Boards Opinion No. 25, "Accounting for Stock Issued to Employees."
Compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. Refer to Note 8.
NOTE 2 -- INVESTMENT GRANTS
The Company has received investment grants from various European countries.
These grants have been provided to subsidize a portion of the Company's European
manufacturing facilities. The total cost of the facilities has been included in
plant and equipment and the amount of the grants has been included with
accumulated depreciation in the financial statements. The entire cost of the
facilities is depreciated over their estimated useful life and the investment
grants are amortized against the related depreciation charges. The amortization
of these grants amounted to $123,000 in 1998, $123,000 in 1997 and $119,000 in
1996.
21
<PAGE> 25
NOTE 3 -- LONG-TERM DEBT AND CREDIT ARRANGEMENTS
<TABLE>
<CAPTION>
August 31,
1998 1997
=========== ===========
<S> <C> <C>
A. Schulman, Inc.:
Revolving credit loan, 5.82% in 1998
and 1997 ............................ $40,000,000 $12,000,000
Notes payable of foreign subsidiary:
5% payable in French Franc ............ -- 45,000
----------- -----------
40,000,000 12,045,000
Less current portion ..................... -- 36,000
----------- -----------
$40,000,000 $12,009,000
=========== ===========
</TABLE>
The revolving credit agreement, as amended on August 14, 1997, provides for
borrowings of up to $100,000,000 on a revolving credit basis through August 14,
2002. A facility fee of 7 1/2 basis points must be paid to the banks. Under the
terms of this agreement, approximately $58,000,000 of retained earnings was
available for the payment of cash dividends at August 31, 1998.
The Company has $34,000,000 of unsecured short-term lines of credit from
various domestic banks. Short-term borrowings of $4,000,000 with a weighted
average interest rate of 6.23% at August 31, 1998 and $3,000,000 with a weighted
average interest rate of 5.98% at August 31, 1997 were outstanding under these
domestic lines.
The Company has $30,848,000 of unsecured short-term foreign lines of credit
available to its subsidiaries at August 31, 1998. No foreign short-term
borrowings were outstanding at August 31, 1998 or 1997.
NOTE 4 -- FOREIGN CURRENCY FORWARD CONTRACTS
The Company enters into forward foreign exchange contracts as a hedge against
amounts due or payable in foreign currencies. These contracts limit the
Company's exposure to fluctuations in foreign currency exchange rates. Any gains
or losses associated with these contracts as well as the offsetting gains or
losses from the underlying assets or liabilities hedged are recognized on the
foreign currency transaction line in the Consolidated Statement of Income. The
Company does not hold or issue foreign exchange contracts for trading purposes.
The following table presents a summary of foreign exchange contracts
outstanding as of August 31, 1998 and August 31, 1997:
<TABLE>
<CAPTION>
1998 1997
=========================== ===========================
Contract Fair Contract Fair
Amount Value Amount Value
=========== =========== =========== ===========
<S> <C> <C> <C> <C>
Buy Currency:
German mark.... $ 1,339,000 $ 1,339,000 $ 1,265,000 $ 1,131,000
All other...... 418,000 419,000 1,371,000 1,398,000
----------- ----------- ----------- -----------
$ 1,757,000 $ 1,758,000 $ 2,636,000 $ 2,529,000
=========== =========== =========== ===========
Sell Currency:
German mark.... $27,874,000 $27,731,000 $34,724,000 $34,143,000
Italian lira... 8,641,000 8,601,000 6,041,000 6,123,000
British pound.. 9,584,000 8,994,000 658,000 643,000
French franc... 10,397,000 10,395,000 4,891,000 4,907,000
U.S. dollar.... 2,516,000 2,508,000 3,902,000 3,966,000
All other...... 1,080,000 1,079,000 531,000 533,000
----------- ----------- ----------- -----------
$60,092,000 $59,308,000 $50,747,000 $50,315,000
=========== =========== =========== ===========
</TABLE>
The fair value of foreign exchange contracts was estimated by obtaining
quotes from banks. Foreign exchange contracts are entered into with several
financial institutions having good credit ratings and generally have maturities
of less than nine months.
NOTE 5 -- INCOME TAXES
Income before taxes and cumulative effect of accounting change is as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
1998 1997 1996
=========== =========== ===========
<S> <C> <C> <C>
Domestic .............. $11,308,000 $ 8,470,000 $ 4,876,000
Foreign ............... 75,021,000 77,812,000 66,096,000
----------- ----------- -----------
$86,329,000 $86,282,000 $70,972,000
=========== =========== ===========
</TABLE>
The provisions for U.S. and foreign income taxes consist of the following:
Year Ended August 31,
<TABLE>
<CAPTION>
1998 1997 1996
============ ============ ============
<S> <C> <C> <C>
Current taxes:
U.S ............... $ 4,255,000 $ 3,402,000 $ 1,764,000
Foreign ........... 30,986,000 32,812,000 26,946,000
------------ ------------ ------------
35,241,000 36,214,000 28,710,000
------------ ------------ ------------
Deferred taxes:
U.S ............... (405,000) (1,357,000) 72,000
Foreign ........... (657,000) 681,000 13,000
------------ ------------ ------------
(1,062,000) (676,000) 85,000
------------ ------------ ------------
$ 34,179,000 $ 35,538,000 $ 28,795,000
============ ============ ============
</TABLE>
A reconciliation of the statutory U.S. federal income tax rate with the
effective tax rates of 39.6% in 1998, 41.2% in 1997 and 40.6% in 1996 is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
% of % of % of
Pretax Pretax Pretax
(in thousands) Amount Income Amount Income Amount Income
============== ===============================
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S.
tax rate ............... $ 30,215 35.0% $30,199 35.0% $24,840 35.0%
Amount of
foreign
income taxes
in excess of
U.S. taxes at
statutory rate ........ 2,452 2.8 4,751 5.5 4,208 5.9
Other, net .............. 1,512 1.8 588 .7 (253) (.3)
-------------- ------------------------------
$ 34,179 39.6% $35,538 41.2% $28,795 40.6%
============== ==============================
</TABLE>
22
<PAGE> 26
Deferred tax assets and (liabilities) consist of the following at August 31,
1998 and August 31, 1997:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
======== ========
<S> <C> <C>
Pensions ..................................... $ 2,559 $ 2,450
Inventory reserves ........................... 2,585 2,259
Bad debt reserves ............................ 848 1,217
Accruals ..................................... 4,044 3,181
Dividends to be received ..................... 888 709
Postretirement benefits other than pensions .. 4,501 4,216
Foreign tax credit carryforwards ............. 5,968 5,937
Alternative minimum tax carryforwards ........ 1,828 1,684
Other ........................................ 2,998 2,715
-------- --------
Gross deferred tax assets .................... 26,219 24,368
Valuation allowance .......................... (5,968) (5,937)
-------- --------
Total deferred tax assets .................... 20,251 18,431
-------- --------
Depreciation ................................. (16,272) (15,365)
Other ........................................ -- (143)
-------- --------
Gross deferred tax liabilities ............... (16,272) (15,508)
-------- --------
$ 3,979 $ 2,923
======== ========
</TABLE>
The valuation allowance is for foreign tax credit carryforward benefits which
are not likely to be utilized. The foreign tax credit carryforwards will expire
in periods from 2001 to 2002.
The tax effect of temporary differences included in prepaids was $11,282,000
and $9,996,000 at August 31, 1998 and 1997 respectively. Deferred charges also
included $2,549,000 and $2,389,000 from the tax effect of temporary differences
at August 31, 1998 and 1997 respectively.
At August 31, 1998, no taxes have been provided on the undistributed earnings
of certain foreign subsidiaries amounting to $180,192,000 because the Company
intends to reinvest these earnings.
NOTE 6 -- RETIREMENT PLANS
The total expense for all retirement plans was $6,845,000 in 1998, $6,191,000
in 1997 and $6,009,000 in 1996.
The components of pension expense are as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
=========== =========== ===========
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Defined Benefit Plans:
Service cost-benefits earned
during the period ............ $ 1,376,000 $ 1,372,000 $ 1,402,000
Interest accrued on projected
benefit obligation ........... 1,757,000 1,675,000 1,783,000
Actual return on assets ...... (393,000) (681,000) (414,000)
Net amortization and deferral 39,000 268,000 242,000
----------- ----------- -----------
2,779,000 2,634,000 3,013,000
Defined contribution plans ..... 4,066,000 3,557,000 2,996,000
----------- ----------- -----------
Net periodic pension cost ...... $ 6,845,000 $ 6,191,000 $ 6,009,000
=========== =========== ===========
</TABLE>
The following table presents the funded status of the defined benefit plans as
of August 31, 1998 and August 31, 1997:
<TABLE>
<CAPTION>
1998 1997
========================== ============================
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation .................................... $ 752,000 $ 21,145,000 $4,551,000 $ 13,765,000
Non-vested benefit obligation ................................ 79,000 2,221,000 -- 1,929,000
---------- ------------ ---------- ------------
Accumulated benefit obligation. .............................. $ 831,000 $ 23,366,000 $4,551,000 $ 15,694,000
========== ============ ========== ============
Projected benefit obligation ................................... $1,455,000 $ 27,645,000 $6,165,000 $ 17,668,000
Plan assets at fair value ...................................... 848,000 6,095,000 4,576,000 1,148,000
---------- ------------ ---------- ------------
Projected benefit obligation in excess of plan assets .......... (607,000) (21,550,000) (1,589,000) (16,520,000)
Unrecognized net liability at date of adoption of SFAS No. 87 .. 348,000 1,167,000 342,000 1,341,000
Unrecognized prior service cost ................................ -- 646,000 49,000 399,000
Unrecognized net loss (gain) ................................... 32,000 40,000 1,055,000 (2,447,000)
Adjustment required to recognize minimum liability ............. -- (915,000) -- (716,000)
---------- ------------ ---------- ------------
Accrued pension cost ........................................... $ (227,000) $(20,612,000) $ (143,000) $(17,943,000)
========== ============ ========== ============
Significant Assumptions: ....................................... U.S.-1998 Foreign-1998 U.S.-1997 Foreign-1997
---------- ------------ ---------- ------------
Discount rate .................................................. 7.0% 6.0% - 7.0% 7.5% 7.0%- 8.0%
Expected rate of return on assets .............................. 9.5% 0.0% - 9.5% 9.5% 0.0%-11.0%
Rate of increase in compensation levels -- 3.0% - 5.0% -- 3.0%- 7.0%
</TABLE>
23
<PAGE> 27
In respect to multiemployer plans in the U.S., ERISA extends the Company's
liability for benefit obligations in the event of termination or withdrawal. The
extent of any potential unfunded liability is not determinable at this time.
The Company has agreements with three current employees that upon
retirement, or death or disability prior to retirement, it shall make ten
payments of $100,000 each to two employees or their beneficiaries for a ten year
period and $75,000 to one employee or his beneficiary for a ten year period.
Under these agreements, $2,000,000 is vested and $750,000 will vest over the
next three to five years. However, vesting and payments may be accelerated under
certain conditions. The Company has provided $131,000 in 1998, 1997 and 1996 to
cover the current cost for such agreements. In connection with such agreements,
the Company owns and is the beneficiary of life insurance policies amounting to
$3,500,000. The amounts provided are included in other long-term liabilities.
NOTE 7 -- POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The Company provides postretirement health care and life insurance benefits
to certain domestic employees. The postretirement benefit cost includes the
following components:
<TABLE>
<CAPTION>
Year Ended August 31,
==========================================
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned
during the period ........... $ 653,000 $ 542,000 $ 550,000
Interest cost on projected
benefit obligation .......... 697,000 607,000 572,000
Net amortization .............. (133,000) (152,000) (135,000)
---------- --------- ---------
$1,217,000 $ 997,000 $ 987,000
========== ========= =========
</TABLE>
The Company's postretirement health care and life insurance plans are not
funded. The status of the plans at August 31, 1998 and August 31, 1997 is as
follows:
<TABLE>
<CAPTION>
1998 1997
=========== ===========
Actuarial present value of accumulated
postretirement benefit obligation:
<S> <C> <C>
Retirees ........................................ $ 1,900,000 $ 2,089,000
Fully eligible active plan participants ......... 1,934,000 1,708,000
Other active plan participants .................. 7,450,000 5,030,000
----------- -----------
11,284,000 8,827,000
Unrecognized net gain ............................. 510,000 1,447,000
Unrecognized prior service cost ................... 1,067,000 1,773,000
----------- -----------
Net postretirement benefit liability .............. $12,861,000 $12,047,000
=========== ===========
</TABLE>
The net postretirement benefit liability is included in other long-term
liabilities.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9.5% in 1998, 10% in 1997 and 10.5% in
1996, gradually declining to 6% in 2005 and remaining at that level thereafter.
A one-percentage-point increase in the assumed health care cost trend rate for
each year would increase the accumulated postretirement benefit obligation by
$1,474,000 at August 31, 1998 and the postretirement benefit cost by $158,000
for the year then ended.
The discount rate used in determining the accumulated postretirement benefit
obligation at August 31 was 7.0% in 1998 and 7.5% in 1997.
NOTE 8 -- INCENTIVE STOCK PLANS
Effective in December 1991, the Company adopted the 1991 Stock Incentive Plan
and authorized 1,875,000 shares for future grants. The 1991 Plan provides for
the grant of incentive stock options, nonqualified stock options and restricted
stock awards. The option price of incentive stock options is the fair market
value of the common shares on the date of grant. In the case of nonqualified
stock options, the Company intends to grant options at fair market value on the
date of grant. However, the Plan does provide that the option price may not be
less than 50% of the fair market value of the common shares on the date of
grant. Stock options may be exercised as determined by the Company, but in no
event prior to six months following the date of grant or after the tenth
anniversary date of grant. At August 31, 1998, there were 466,531 shares
available for issuance under the 1991 Plan.
Effective in October 1992, the Company adopted the 1992 Non-Employee
Directors' Stock Option Plan and authorized 125,000 shares for future grants.
The 1992 Plan provides for the grant of 875 nonqualified stock options to each
non-employee director on the first business day of February of each year. The
option price is the fair market value of the common shares on the first business
day immediately preceding the date of grant. All options become exercisable at
the rate of 25% per year, commencing on the first anniversary of the date of
grant of the option. Each option expires five years from the date of grant. At
August 31, 1998, there were 87,125 shares available for issuance under the 1992
Plan.
The following is a summary with respect to option activity for all of the
plans:
<TABLE>
<CAPTION>
Year Ended August 31,
=======================================
1998 1997
-------------------- -----------------
Weighted Weighted
Shares Average Shares Average
Under Exercise Under Exercise
Option Price Option Price
--------- ----- ------- -----
<S> <C> <C> <C> <C>
Outstanding at beginning
of year ........................ 915,695 $22.94 768,658 $24.86
Granted during the year .......... 307,600 19.07 261,450 18.58
Exercised during the year ........ (4,500) 22.50 --
Cancelled during the year ........ (161,870) 24.43 (114,413) 25.87
--------- -------
Outstanding at end of year ....... 1,056,925 21.59 915,695 22.94
========= =======
Exercisable at end of year ....... 416,996 24.10 387,221 25.01
========= =======
</TABLE>
24
<PAGE> 28
Under the 1991 Plan, 35,125 shares of restricted stock were granted on August
18, 1992, 34,000 shares were granted on August 19, 1994, 43,150 shares were
granted on July 11, 1996 and 67,100 shares were granted on July 8, 1998. The
fair market value on the date of grant in 1992 was $26 per share, 1994 was
$26.25 per share, 1996 was $23 per share and in 1998 was $18.91 per share. These
shares vest five years following the date of grant so long as the holder remains
employed by the Company. Unearned compensation representing the fair market
value of the shares at the date of grant is charged to income over the five year
vesting period. Compensation expense for restricted stock was $428,000 in 1998,
$533,000 in 1997 and $387,000 in 1996.
The following table summarizes information about options outstanding at
August 31, 1998:
<TABLE>
<CAPTION>
Weighted Average
------------------------
Grant Options Options Exercise Remaining
Date Outstanding Exercisable Price Life (Years)
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
8/94 126,350 126,350 $26.25 1
8/95 159,550 119,663 25.50 2
7/96 189,000 94,500 23.00 3
4/97 248,175 62,044 18.50 3.7
7/98 298,600 -- 18.91 5
All other 35,250 14,439 24.00 2.8
</TABLE>
No expense has been charged to income relating to stock options. If the fair
value method of accounting for stock options under SFAS 123 had been used, the
after tax expense relating to the stock options would have been $405,000, or
$.01 per share, in 1998, $249,000, or $.01 per share, in 1997 and $28,000, or no
impact on earnings per share, in 1996. Pro forma net income would have been
$49,738,000 in 1998, $50,495,000 in 1997 and $42,149,000 in 1996. The pro forma
amounts listed above do not take into consideration the pro forma compensation
expense related to grants made prior to fiscal 1996. The weighted average fair
value at the date of grant was $5.31, $5.84 and $7.22 for options granted in
1998, 1997 and 1996.
Under SFAS 123, the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option- pricing model. The following weighted
average assumptions were used for grants:
<TABLE>
<CAPTION>
Year Ended August 31,
-----------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected life (years) ... 5 5 5
Interest rate ........... 5.4% 6.7% 6.7%
Volatility .............. 23.7% 26.9% 27.1%
Dividend yield .......... 1.25% 1.33% 1.33%
</TABLE>
NOTE 9 -- EARNINGS PER COMMON SHARE
Effective February 28, 1998, The Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." This statement requires two
presentations of earnings per share -- "basic" and "diluted." Basic earnings per
share is computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if common
stock equivalents were exercised and then shared in the earnings of the Company.
Under both the basic and diluted earnings per share calculations, reported
net income is reduced by preferred dividends of $53,000. The weighted-average
number of common shares used is as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
===================================
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Basic ............. 35,236,098 37,125,345 37,584,561
Diluted ........... 35,275,327 37,149,595 37,591,747
</TABLE>
The difference between basic and diluted weighted-average common shares
results from the assumed exercise of outstanding stock options and grants of
restricted stock, calculated using the treasury stock method.
The following stock equivalents are not included in the diluted earnings per
share calculation because their effects are antidilutive:
<TABLE>
<CAPTION>
Year Ended August 31,
===================================
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Stock equivalents ...... 1,158,096 968,595 873,747
</TABLE>
The Company repurchased approximately one million shares of its common stock
subsequent to August 31, 1998.
NOTE 10 -- CAPITAL STOCK AND STOCKHOLDER RIGHTS PLAN
The Special Stock of 1,000,000 shares was authorized with such preferences or
special terms and for such consideration as may be determined at the discretion
of the Board of Directors.
In January 1996, the Company adopted a Shareholder Rights Plan, and reserved
100,000 shares of Special Stock for use under such Plan. Under this Plan, one
Right shall be attached to each share of Common Stock of the Company. Initially,
the Rights are not exercisable and automatically trade with the Common Stock.
However, 10 days after a person or group acquires 15% or more of the Company's
Common Stock, or 10 business days after a person or group commences a tender or
exchange offer that would result in such person or group owning 15% or more of
the outstanding shares of Common Stock of the Company (even if no purchases
actually occur), whichever is earlier, the Rights will become exercisable.
25
<PAGE> 29
When the Rights first become exercisable, each Right will entitle the holder
thereof to buy from the Company one share of Special Stock for $85.00 (subject
to adjustment thereafter). However, if any person or entity acquires 15% or more
of the Company's Common Stock, each Right not owned by a 15%-or-more stockholder
would become exercisable for a certain number of shares of Common Stock of the
Company in lieu of one share of Special Stock. The number of shares of Common
Stock would be that having at that time, a market value of two times the then
current exercise price of the Right. If the Company is involved in a merger or
other business combination with or into another person or entity in which the
Company's Common Stock is changed into or exchanged for common stock of such
other person or entity, or if the Company sells 50% or more of its assets or
earning power to another person or entity, at any time after the Rights become
exercisable, each Right will entitle the holder thereof to buy such number of
shares of common stock of such other person or entity as have a market value of
twice the then current exercise price of each Right.
The Company may redeem the Rights at a price of $.01 per Right at any time
prior to the 10th business day after public announcement of the acquisition by
any person or entity of 15% or more of the Company's Common Stock. The Rights
will expire on January 25, 2006 unless earlier redeemed by the Company. At no
time will the Rights have any voting power.
NOTE 11 - CUMULATIVE EFFECT OF ACCOUNTING CHANGE
On November 20, 1997, the FASB Emerging Issues Task Force issued a new ruling
which requires the write-off of business process re-engineering costs. The
cumulative effect of this change to September 1, 1997 was to decrease the pretax
income by $3,237,000 and net income by $2,007,000 or $.06 per share and is
accounted for as a cumulative effect of a change in accounting method.
NOTE 12 -- LEASES
Total rental expense was $3,398,000 in 1998, $3,021,000 in 1997 and
$2,847,000 in 1996. The future minimum rental commitments for non-cancellable
leases excluding obligations for taxes, insurance, etc. are as follows:
<TABLE>
<CAPTION>
Year ended August 31, Minimum rental
===============================================================
<S> <C>
1999 $2,320,000
2000 2,465,000
2001 1,637,000
2002 802,000
2003 352,000
Later years 39,000
----------
$7,615,000
==========
</TABLE>
NOTE 13 -- BUSINESS SEGMENT INFORMATION
The Company is engaged in the sale of plastic resins in various forms which
are used as raw materials by its customers. The Company considers its business
to be a single industry segment.
A summary of operating information by geographic area for the three years
ended August 31, 1998 is as follows:
<TABLE>
<CAPTION>
Adjust-
ments and
North Europe, Elimina- Consoli-
(in thousands) America etc. tions dated
-------- -------- ------- ---------
<S> <C> <C> <C>
AUGUST 31, 1998
Sales to unaffiliated
customers ....................... $421,188 $572,206 -- $ 993,394
Inter-geographic sales ............ 693 612 $(1,305) --
-------- -------- ------- ---------
Total sales ....................... $421,881 $572,818 $(1,305) $ 993,394
======== ======== ======= =========
Operating income .................. $ 36,247 $ 64,945 -- $ 101,192
======== ======== =======
Interest expense .................. (1,933)
Corporate expense less revenues ... (14,599)
Foreign currency transaction gains 1,669
---------
Income before taxes ............... $ 86,329
=========
Identifiable assets ............... $268,734 $290,884 $(1,162) $ 558,456
======== ======== =======
Corporate assets .................. 3,464
---------
Total assets ...................... $561,920
=========
AUGUST 31, 1997
Sales to unaffiliated
customers ....................... $446,832 $549,544 -- $ 996,376
Inter-geographic sales ............ 3,253 497 $(3,750) --
-------- -------- ------- ---------
Total sales ................... $450,085 $550,041 $(3,750) $ 996,376
======== ======== ======= =========
Operating income .................. $ 31,676 $ 66,495 -- $ 98,171
======== ======== =======
Interest expense .................. (3,143)
Corporate expense less revenues ... (9,502)
Foreign currency transaction gains 756
---------
Income before taxes ............... $ 86,282
=========
Identifiable assets ............... $280,344 $282,533 $ (945) $ 561,932
======== ======== =======
Corporate assets .................. 1,013
---------
Total assets ...................... $ 562,945
=========
AUGUST 31, 1996
Sales to unaffiliated
customers ....................... $415,322 $561,372 -- $ 976,694
Inter-geographic sales ............ 2,440 334 $(2,774) --
-------- -------- ------- ---------
Total sales .................... $417,762 $561,706 $(2,774) $ 976,694
======== ======== ======= =========
Operating income .................. $ 26,511 $ 55,823 -- $ 82,334
======== ======== =======
Interest expense .................. (4,192)
Corporate expense less revenues ... (7,113)
Foreign currency transaction losses (57)
---------
Income before taxes ............... $ 70,972
=========
Identifiable assets ............... $261,942 $361,302 $ (573) $ 622,671
======== ======== =======
Corporate assets .................. 707
---------
Total assets ...................... $ 623,378
=========
</TABLE>
26
<PAGE> 30
The North American geographic area includes operations in the United States,
Canada and Mexico. The Company's European area includes operations conducted in
Belgium, France, Germany, Poland, Hungary, Indonesia, Switzerland and the United
Kingdom.
Inter-geographic sales are based on selling prices which are negotiated at
the time of the transaction. These sales have no significant effect on the
operating income of any geographic segment.
Operating income is total revenues less operating expenses, gains on
disposals of properties and excludes corporate expense and revenues, interest
expense, loss or gain on foreign currency transactions, and income taxes.
General corporate expense and revenue are primarily domestic central office
administrative expenses less other income.
Assets of geographic segments represent those assets identified with the
operation of each segment. Corporate assets consist mainly of cash and other
miscellaneous investments.
NOTE 14 -- CONTINGENCIES
The Company is engaged in various legal proceedings arising in the ordinary
course of business. The ultimate outcome of these proceedings is not expected to
have a material adverse effect on the Company's financial condition.
NOTE 15 -- QUARTERLY FINANCIAL HIGHLIGHTS (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter ended Year ended
------------------------------------------------ ----------
Nov. 30, Feb. 28, May 31, Aug. 31, Aug. 31,
1997 1998 1998 1998 1998
================================================ ==========
<S> <C> <C> <C> <C> <C>
Net Sales .......... $264,208 $239,840 $256,810 $232,536 $993,394
Gross Profit ....... 43,819 40,878 43,989 40,852 169,538
Income Before
Cumulative Effect
of Accounting
Change ............ 12,533 10,985 13,533 15,099 52,150
Cumulative Effect
of Accounting
Change ............ (2,007) -- -- -- (2,007)
------- ------- ------- ------- -------
Net Income ......... $10,526 $10,985 $13,533 $15,099 $50,143
======= ======= ======= ======= =======
Basic and Diluted
Earnings Per Share
of Common Stock:
Income Before
Cumulative Effect
of Accounting
Change .......... $.35 $.31 $.38 $.44 $1.48
Cumulative Effect
of Accounting
Change .......... (.06) -- -- -- (.06)
------- ------- ------- ------- -------
Net Income ...... $.29 $.31 $.38 $.44 $1.42
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Quarter ended Year ended
------------------------------------------------ ----------
Nov. 30, Feb. 28, May 31, Aug. 31, Aug. 31,
1996 1997 1997 1997 1997
================================================ ==========
<S> <C> <C> <C> <C> <C>
Net Sales .......... $257,807 $241,125 $259,231 $238,213 $996,376
Gross Profit ....... 42,243 36,898 43,869 40,021 163,031
Net Income ......... 11,982 9,747 13,722 15,293 50,744
Basic and Diluted
Earnings Per Share
of Common Stock .. $.32 $.26 $.37 $.42 $1.37
</TABLE>
A. Schulman, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
[PricewaterhouseCoopers Logo]
To the Board of Directors and Stockholders
of A. Schulman, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of A. Schulman, Inc.
and its subsidiaries at August 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
October 15, 1998
27
<PAGE> 31
A. Schulman, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1998
Net sales were $993.4 million in 1998, a decrease of $3.0 million over 1997
sales of $996.4 million. A comparison of net sales is as follows:
<TABLE>
<CAPTION>
(In Thousands)
======== ==================
Increase
1998 1997 (Decrease)
<S> <C> <C> <C>
Manufacturing ....... $661,280 $661,152 $ 128
Merchant ............ 178,482 176,120 2,362
Distribution ........ 153,632 159,104 (5,472)
-------- -------- -------
$993,394 $996,376 $(2,982)
======== ======== =======
</TABLE>
Certain items previously reported have been reclassified to conform with the
1998 presentation.
The translation effect from the stronger U.S. dollar reduced sales by $45.8
million in 1998.
Worldwide tonnage was 7% higher than in 1997. European tonnage increased 14%
while North American tonnage was approximately the same as in 1997. North
American tonnage declined during the 1998 fourth quarter due to the General
Motors strike.
Gross margins on sales were 17.1% in 1998 compared with 16.4% in 1997. The
higher margins were the result of lower resin prices and capacity utilization
which improved year to year from 83% to 90% for fiscal 1998. A comparison of
gross profit is as follows:
<TABLE>
<CAPTION>
(In Thousands)
======== ==================
Increase
1998 1997 (Decrease)
<S> <C> <C> <C>
Manufacturing ....... $128,995 $120,400 $ 8,595
Merchant ............ 21,333 22,421 (1,088)
Distribution ........ 19,210 20,210 (1,000)
-------- -------- -------
$169,538 $163,031 $ 6,507
======== ======== =======
</TABLE>
Certain items previously reported have been reclassified to conform with the
1998 presentation.
Selling, general and administrative expenses increased $6.8 million in 1998.
During 1998, the Company incurred $2.4 million of business process
re-engineering costs related to the redesign of its business processes in North
America. These types of charges had been capitalized prior to fiscal 1998. In
addition, higher compensation levels and additional costs were incurred in 1998
to support the increase in sales volume.
Interest expense decreased approximately $1.2 million in 1998 due to lower
levels of borrowing.
Foreign currency transaction gains were primarily due to changes in the value
of currencies within the European Monetary System, as well as the U.S. dollar,
Canadian dollar, Mexican peso and Indonesian rupiah.
Minority interest represents a 30% equity position of Mitsubishi Chemical MKV
Company in a partnership with the Company and a 35% equity position of P.T.
Prima Polycon Indah in an Indonesian joint venture with the Company.
Other income was down because of lower interest income resulting from a
decline in European temporary investments.
The effective tax rate in 1998 was 39.6% compared with 41.2% in 1997. The
1998 tax rate was lower primarily because of greater North American earnings
which generally incur a lower tax rate than earnings generated in Europe and a
lower overall effective tax rate in Europe.
The strengthening in the value of the U.S. dollar decreased net income by
approximately $2,180,000 or $.06 per share in 1998.
On November 20, 1997, the FASB Emerging Issues Task Force issued a new ruling
which requires the write-off of business process re-engineering costs.
Accordingly, the Company wrote off, in fiscal 1998, $3,237,000 of such costs
which were capitalized as of August 31, 1997. This write-off, net of income
taxes, amounted to $2,007,000 or $.06 per share and is accounted for as a
cumulative effect of a change in accounting method for fiscal 1998.
Earnings in Europe were off 3% for 1998 due to lower profit margins and the
adverse effect of translation from the strength of the U.S. dollar.
Profits in North America before the cumulative effect of the accounting
change improved 26% for 1998. Profit margins in North America were higher due
to a number of factors, including an increase in plant utilization from 77% to
86% in the current year. Certain high cost manufacturing lines in the United
States were closed during 1998.
The European operations currently have a good level of orders and
stabilization of the U.S. dollar at current levels should have a positive impact
on earnings.
In North America, although order levels have improved since the settlement of
the General Motors strike, there has been some moderating of business activity.
1997
Net sales for 1997 were $996.4 million or 2% higher than 1996 sales of $976.7
million. A comparison of net sales is as follows:
<TABLE>
<CAPTION>
(In Thousands)
======== =================
Increase
1997 1996 (Decrease)
<S> <C> <C> <C>
Manufacturing ....... $661,152 $634,414 $26,738
Merchant ............ 176,120 165,678 10,442
Distribution ........ 159,104 176,602 (17,498)
-------- -------- -------
$996,376 $976,694 $19,682
======== ======== =======
</TABLE>
Certain items previously reported have been reclassified to conform with the
1998 presentation.
The translation effect from the stronger U.S. dollar decreased 1997 sales by
$57.5 million.
Worldwide tonnage for 1997 was 8.8% higher than 1996. Tonnage was up
approximately 10% in Europe and 7% in North America.
Gross margins on sales were 16.4% in 1997 compared with 15.4% in 1996. The
increase in 1997 gross profit margins was primarily derived from manufacturing.
The improvement in manufacturing margins was partially offset by lower margins
for distribution activities. A comparison of gross profit is as follows:
<TABLE>
<CAPTION>
(In Thousands)
======== ==================
Increase
1997 1996 (Decrease)
<S> <C> <C> <C>
Manufacturing ....... $120,400 $104,682 $15,718
Merchant ............ 22,421 20,206 2,215
Distribution ........ 20,210 25,730 (5,520)
-------- -------- -------
$163,031 $150,618 $12,413
======== ======== =======
</TABLE>
Certain items previously reported have been reclassified to conform with the
1998 presentation.
Selling, general and administrative expenses decreased $2.6 million in 1997.
The strengthening of the U.S. dollar decreased these expenses by $4.9 million in
1997. In addition, bad debt provisions were lower in 1997. These reductions were
partially offset by higher compensation levels and additional costs to support
the increase in sales volume.
Interest expense decreased in 1997 due to lower levels of borrowing.
Other income was down because of lower interest income resulting from a
decline in European temporary investments.
Foreign currency transaction gains in 1997 resulted primarily from the
payment of dividends from affiliates outside the United States.
The minority interest on the Consolidated Statement of 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 due to the addition of a second manufacturing line.
28
<PAGE> 32
The effective tax rate was 41.2% in 1997 and 40.6% in 1996. The 1997 tax rate
was higher primarily because of greater provisions for various international
issues.
The strengthening in the value of the U.S. dollar decreased net income by
approximately $3.8 million or $.10 per share in 1997.
Earnings in Europe increased $4.6 million or 13% in 1997 despite the adverse
translation effect from the stronger U.S. dollar. Overall, tonnage was up 10%
with especially strong results in the manufacturing operations where volume
increased 14%. European profit margins were up due to utilization rates close to
capacity.
North American earnings increased $4 million or 61% in 1997. Total tonnage
grew 7% and plant capacity utilization was approximately 77%.
FINANCIAL CONDITION
Historically, the Company's primary source of funds has been from operations.
It is expected that this source of cash flow will continue to provide a
substantial portion of the Company's future needs.
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 fiscal year decreased this account
by approximately $2.3 million during 1998.
The following represent key measurements of the capital structure and
profitability of the Company:
<TABLE>
<CAPTION>
(Dollars in Thousands
except per share data)
========= ======================
1998 1997 1996
<S> <C> <C> <C>
Net worth ................................ $366,271 $393,401 $433,110
Book value per share ..................... $10.97 $10.83 $11.43
Ratio of long-term liabilities to capital 17.1% 10.1% 14.5%
Return on average net worth .............. 13.2% 12.3% 10.1%
Net income as a percent of sales ......... 5.0% 5.1% 4.3%
</TABLE>
The ratio of long-term liabilities to capital is computed by dividing
long-term debt and other long-term liabilities by the sum of total stockholders'
equity plus long-term debt and other long-term liabilities. This ratio was
higher in 1998 primarily due to a $28 million increase in the outstanding debt
under the revolving credit agreement.
The return on average net worth is computed by dividing net income by the
average of the total stockholders' equity during the year. This ratio increased
in 1998 due to a reduction in net worth.
During 1998, the Company repurchased 2,956,188 shares of its common stock for
$59,469,000. In August 1998, the Board of Directors of the Company approved the
repurchase of an additional six million shares. The Company repurchased
approximately one million shares of its common stock subsequent to August 31,
1998. Subject to market conditions, the Company intends to continue repurchasing
its common stock in 1999.
Working capital and the current ratio are as follows:
<TABLE>
<CAPTION>
(In Thousands)
======== ===================
1998 1997 1996
<S> <C> <C> <C>
Working capital ....... $288,300 $291,973 $360,846
Current ratio ......... 3.7:1 3.6:1 4.4:1
</TABLE>
The Company has a revolving credit agreement which provides for borrowings up
to $100 million through August 14, 2002. At August 31, 1998, $40 million was
outstanding under this facility. Also, short-term lines of credit are maintained
with various domestic and foreign banks. The unused commitment under these lines
was $60.8 million at August 31, 1998.
The Company's unfunded pension liability is approximately $22.2 million at
August 31, 1998. This amount is primarily due to a book reserve plan maintained
by the Company's German subsidiary. Under such plans, there is no separate
vehicle to accumulate assets to provide for the payment of benefits. The
benefits are paid directly by the Company to the participants. It is anticipated
that the German subsidiary will generate sufficient funds from operations to pay
these benefits in the future.
The Company enters into forward foreign exchange contracts as a hedge against
amounts due or payable in foreign currencies. These contracts limit the
Company's exposure to fluctuations in foreign currency exchange rates. Any gains
or losses associated with these contracts as well as the offsetting gains or
losses from the underlying assets or liabilities hedged are recognized on the
foreign currency transaction line in the Consolidated Statement of Income. The
Company estimates that a 10% change in foreign exchange rates at August 31, 1998
would have changed the fair value of the contracts by approximately $5.8
million. Changes in the fair value of forward exchange contracts are
substantially offset by changes in the fair value of the hedged positions. The
Company does not hold or issue foreign exchange contracts for trading purposes
or utilize any other types of derivative instruments.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define a specific year. Any computer program that
has date sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a temporary inability to process
transactions or engage in other business activities.
The Company has been redesigning its North American business processes.
Hardware and software purchased and installed in connection with this project
will provide both Year 2000 readiness and significant additional functionality.
Installation is scheduled to be completed during 1999.
New software is also being installed at the Company's facilities in Germany,
France and the United Kingdom. This software, already being utilized at the
Company's Belgium operations, has been upgraded for the Year 2000 requirements.
In addition, this software will provide the Company significant other benefits,
including the adoption of business practices to the Euro in the years ahead.
Installation of this software is scheduled to be completed during 1999.
Information system maintenance or modification costs are expensed as
incurred, while the cost of new software and equipment is capitalized and
amortized over the assets' useful lives. The Year 2000 cost of the software
being installed cannot be specifically identified. Other costs of achieving Year
2000 compliance are not expected to be material to operations or financial
position.
The Company could potentially experience disruptions to some aspects of its
operations as a result of noncompliant systems utilized by unrelated third party
governmental and business entities. The Company is communicating with its
significant suppliers to determine the extent to which the Company may be
vulnerable to their failure to correct their own Year 2000 issues. The Company
has not received sufficient responses to its inquiries to form an accurate
assessment of the Year 2000 readiness of its suppliers.
At the present time, the Company has not yet established a formal contingency
plan. The Company has commenced contingency planning and expects to formalize a
plan during 1999, although in certain cases, especially infrastructure failures,
there may be no practical alternative course of action available to the Company.
CAUTIONARY STATEMENTS
Statements in this report which are not historical facts are forward looking
statements which involve risks and uncertainties and actual events or results
could differ materially from those expressed or implied in this report. These
"forward-looking statements" are based on currently available information. They
are also inherently uncertain, and investors must recognize that events could
turn out to be significantly different from what the Company had expected.
Examples of such uncertainties include, but are not limited to, the following:
- - Worldwide and regional economic, business and political conditions
- - Fluctuations in the value of currencies within the European Monetary
System, as well as the U.S. dollar, Canadian dollar, Mexican peso and
Indonesian rupiah
- - Fluctuations in the prices of plastic resins and other raw materials
- - Changes in customer demand and requirements
29
<PAGE> 33
A. Schulman, Inc.
TEN YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended August 31,
========== ======================================
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Net sales .......................................................... $ 993,394 $ 996,376 $ 976,694 $1,027,458
Interest and other income .......................................... 3,072 4,998 6,075 7,099
---------- ---------- ---------- ----------
996,466 1,001,374 982,769 1,034,557
---------- ---------- ---------- ----------
Cost of sales ...................................................... 823,856 833,345 826,076 863,409
Other costs, expenses, etc ......................................... 86,281 81,747 85,721 81,336
---------- ---------- ---------- ----------
910,137 915,092 911,797 944,745
---------- ---------- ---------- ----------
Income before taxes and cumulative effect of accounting changes .... 86,329 86,282 70,972 89,812
Provision for U.S. and foreign income taxes ........................ 34,179 35,538 28,795 36,194
---------- ---------- ---------- ----------
Income before cumulative effect of accounting changes .............. 52,150 50,744 42,177 53,618
Cumulative effect of accounting changes (1) (2) .................... (2,007) -- -- --
---------- ---------- ---------- ----------
Net income ......................................................... $ 50,143 $ 50,744 $ 42,177 $ 53,618
========== ======================================
Total assets ....................................................... $ 561,920 $ 562,945 $ 623,378 $ 647,166
Long-term debt ..................................................... $ 40,000 $ 12,009 $ 40,054 $ 75,096
Total stockholders' equity ......................................... $ 366,271 $ 393,401 $ 433,110 $ 405,218
Average number of common shares outstanding, net of treasury shares:
Basic ........................................................ 35,236,098 37,125,345 37,584,561 37,544,408
Diluted ...................................................... 35,275,327 37,149,595 37,591,747 37,703,820
Diluted earnings per share:
Before cumulative effect of accounting changes ............... $ 1.48 $ 1.37 $ 1.12 $ 1.42
Cumulative effect of accounting changes (1) (2) .............. (0.06) -- -- --
Net income ................................................... $ 1.42 $ 1.37 $ 1.12 $ 1.42
Cash dividends per common share .................................... $ .45 $ .41 $ .37 $ .33
Book value per common share ........................................ $10.97 $10.83 $11.43 $10.75
<CAPTION>
</TABLE>
(1) Effective September 1, 1992, the Company adopted SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and SFAS 109,
"Accounting for Income Taxes."
(2) On November 20,1997, The FASB Emerging Issues Task Force issued a new
ruling which requires the write-off of business process re-engineering
costs. Accordingly, $3,237,000 of such costs capitalized as of August 31,
1997 were written off in the quarter ending November 30, 1997. This
write-off, net of income taxes, amounted to $2,007,000 or $.06 per common
share and was accounted for as a change in accounting.
(3) Includes a gain of $887,000 or $.02 per share from life insurance proceeds
and a tax benefit of $945,000 or $.03 per share from a new U.S./German tax
treaty. This tax benefit included $466,000 or $.01 per share applicable to
1990 and $479,000 or $.01 per share applicable to prior years.
SUPPLEMENTAL INFORMATION
(In thousands of dollars)
<TABLE>
<CAPTION>
Year Ended August 31,
================= ==========================================================================
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES
Manufacturing ..... $ 661,280 67% $ 661,152 66% $ 634,414 65% $ 624,917 61% $ 449,085 60%
Merchant Activities 178,482 18% 176,120 18% 165,678 17% 198,891 19% 149,798 20%
Distribution ...... 153,632 15% 159,104 16% 176,602 18% 203,650 20% 149,895 20%
----------------- --------------------------------------------------------------------------
Total ............. $ 993,394 100% $ 996,376 100% $ 976,694 100% $1,027,458 100% $ 748,778 100%
================= ==========================================================================
GROSS PROFIT
Manufacturing ..... $ 128,995 76% $ 120,400 74% $ 104,682 70% $ 109,537 66% $ 88,609 68%
Merchant Activities 21,333 13% 22,421 14% 20,206 13% 29,082 18% 22,582 17%
Distribution ...... 19,210 11% 20,210 12% 25,730 17% 25,430 16% 19,732 15%
----------------- --------------------------------------------------------------------------
Total ............. $ 169,538 100% $ 163,031 100% $ 150,618 100% $ 164,049 100% $ 130,923 100%
================= ==========================================================================
</TABLE>
Certain items previously reported have been reclassified to conform with the
1998 presentation.
30
<PAGE> 34
<TABLE>
<CAPTION>
Year Ended August 31,
====================================
1994 1993 1992
<S> <C> <C> <C>
Net sales ..........................................................$ 748,778 $ 685,112 $ 732,170
Interest and other income .......................................... 7,456 8,103 6,778
---------- ---------- ----------
756,234 693,215 738,948
---------- ---------- ----------
Cost of sales ...................................................... 617,855 565,284 599,009
Other costs, expenses, etc ......................................... 67,939 65,480 66,838
---------- ---------- ----------
685,794 630,764 665,847
---------- ---------- ----------
Income before taxes and cumulative effect of accounting changes .... 70,440 62,451 73,101
Provision for U.S. and foreign income taxes ........................ 25,869 23,544 29,341
---------- ---------- ----------
Income before cumulative effect of accounting changes .............. 44,571 38,907 43,760
Cumulative effect of accounting changes (1) (2) .................... -- (2,169) --
---------- ---------- ----------
Net income .........................................................$ 44,571 $ 36,738 $ 43,760
=========== =======================
Total assets .......................................................$ 510,419 $ 407,865 $ 427,966
Long-term debt .....................................................$ 23,126 $ 10,149 $ 10,108
Total stockholders' equity .........................................$ 345,919 $ 294,209 $ 307,576
Average number of common shares outstanding, net of treasury shares:
Basic ........................................................37,438,118 37,325,547 37,024,548
Diluted ......................................................37,540,391 37,411,527 37,340,053
Diluted earnings per share:
Before cumulative effect of accounting changes ............... $1.19 $1.04 $1.17
Cumulative effect of accounting changes (1) (2) .............. -- (.06) --
Net income ................................................... $1.19 $ .98 $1.17
Cash dividends per common share .................................... $.286 $.248 $.216
Book value per common share ........................................ $9.21 $7.84 $8.26
<CAPTION>
======================================
1991 1990 1989
<S> <C> <C> <C>
Net sales .......................................................... $ 736,007 $ 678,644 $ 624,410
Interest and other income .......................................... 4,083 2,409 1,675
---------- ---------- ----------
740,090 681,053 626,085
---------- ---------- ----------
Cost of sales ...................................................... 614,001 566,872 528,296
Other costs, expenses, etc ......................................... 55,876 50,644 43,000
---------- ---------- ----------
669,877 617,516 571,296
---------- ---------- ----------
Income before taxes and cumulative effect of accounting changes .... 70,213 63,537 54,789
Provision for U.S. and foreign income taxes ........................ 27,864 27,441 23,977
---------- ---------- ----------
Income before cumulative effect of accounting changes .............. 42,349 36,096 30,812
Cumulative effect of accounting changes (1) (2) .................... -- -- --
---------- ---------- ----------
Net income ......................................................... $ 42,349(3) $ 36,096 $ 30,812
============== ======================
Total assets ....................................................... $ 344,273 $ 328,210 $ 257,687
Long-term debt ..................................................... $ 9,000 $ 7,000 $ 10,000
Total stockholders' equity ......................................... $ 232,567 $ 223,973 $ 166,640
Average number of common shares outstanding, net of treasury shares:
Basic ........................................................ 36,963,010 37,699,043 37,674,290
Diluted ...................................................... 37,239,413 37,927,662 37,840,157
Diluted earnings per share:
Before cumulative effect of accounting changes ............... $1.14 $ .95 $ .81
Cumulative effect of accounting changes (1) (2) .............. -- -- --
Net income ................................................... $1.14(3) $ .95 $ .81
Cash dividends per common share .................................... $.186 $.153 $.135
Book value per common share ........................................ $6.26 $5.91 $4.39
</TABLE>
CORPORATE HEADQUARTERS
3550 West Market Street
Akron, Ohio 44333
(330) 666-3751
www.aschulman.com
ANNUAL MEETING
of Stockholders will be held on
Thursday, December 10, 1998,
at 10 AM E.S.T., at the Fairlawn Country Club,
200 North Wheaton Road
Akron, Ohio 44313
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
BP Tower
27th Floor
200 Public Square
Cleveland, Ohio 44114-2301
STOCK LISTING
The common stock of
A. Schulman, Inc. is traded
and quoted through the
NASDAQ National Market
System. Symbol: SHLM
TRANSFER AGENT
First Chicago Trust Company
P.O. Box 2500
Jersey City NJ 07303-2500
Any questions regarding shareholder
records should be directed to:
First Chicago Trust Company
800-317-4445
http://www.fctc.com
[email protected]
The annual report to the Securities
and Exchange Commission,
Form 10-K, will be made available
upon request without charge.
Write:
Robert A. Stefanko,
Chairman and
Chief Financial Officer
A. Schulman, Inc.
3550 West Market Street
Akron, Ohio 44333
31
<PAGE> 35
A. Schulman, Inc.
THE BOARD OF DIRECTORS
ROBERT A. STEFANKO
Chairman
TERRY L. HAINES
President and Chief Executive Officer
DR. PEGGY GORDON ELLIOTT
President, South Dakota State University
WILLARD R. HOLLAND
Chairman and Chief Executive Officer,
FirstEnergy Corp.
JAMES A. KARMAN
President, RPM, Inc.
JAMES S. MARLEN
Chairman, President and
Chief Executive Officer,
Ameron International Corporation
ALAN L. OCKENE
Former President and
Chief Executive Officer,
General Tire, Inc.
DR. PAUL CRAIG ROBERTS
Chairman,
The Institute for Political Economy
RENE C. ROMBOUTS
General Manager-Europe
ROBERT G. WALLACE
Former Executive Vice President
and Director,
Phillips Petroleum Company
EXECUTIVE OFFICERS
TERRY L. HAINES
President and Chief Executive Officer
ROBERT A. STEFANKO
Chairman and Chief Financial Officer
LARRY A. KUSHKIN
Executive Vice President --
International Automotive Operations
GORDON L. TRIMMER
Vice President --
North American Sales and Marketing
ALAIN C. ADAM
Vice President -- Automotive Marketing
LEONARD E. EMGE
Vice President -- Manufacturing
JOHN M. MYLES
Vice President --
North American Purchasing
BRIAN R. COLBOW
Treasurer
JAMES H. BERICK
Secretary
EUROPEAN OPERATIONS
RENE C. ROMBOUTS
General Manager -- Europe
GERALD M. WEINBERGER
Managing Director -- Germany
OTTO H. BRUDER
Managing Director -- France
RITSON D. GILLINGS
Managing Director -- United Kingdom
CORPORATE HEADQUARTERS
A. SCHULMAN, INC.
3550 West Market Street
Akron, OH 44333
(330) 666-3751
DOMESTIC OFFICES
NORTHEAST REGIONAL SALES OFFICE
367 Ghent Road, Suite 3C
Akron, OH 44333
(330) 666-3751
INTERNATIONAL AUTOMOTIVE
MARKETING CENTER
2100 East Maple Road
Birmingham, MI 48009-6524
(248) 643-6100
SOUTHEAST REGIONAL SALES OFFICE
424 B Gallimore Dairy Road
Greensboro, NC 27409
(336) 668-8081
MIDWEST REGIONAL SALES OFFICE
Embassy Plaza
1933 N. Meacham Road
Schaumburg, IL 60173
(847) 397-3973
WESTERN REGIONAL SALES OFFICE
600 South Lake Avenue, Suite 506
Pasadena, CA 91106
(626) 792-0053
NASHVILLE, TENNESSEE 37211-3333
ComAlloy International Company
481 Allied Drive
(615) 333-3453
ORANGE, TEXAS 77632
Texas Polymer Services, Inc.
6522 Interstate Highway 10 West
(409) 883-4331
32
<PAGE> 36
A. Schulman, Inc.
REPRESENTATIVE OFFICES
BARCELONA, SPAIN
Oficina de representacion
BCIN - Pol. Ind Les Guixeres s/n
08915 Barcelona
34-3-464-8043
SINGAPORE
Singapore Representative Office
Contact Address:
311 Bukit Timah Road
07-01, Rich Mansions
Singapore - 259709
65-235-7675
FOREIGN OFFICES
BORNEM, BELGIUM
N.V.A. Schulman Plastics, S.A.
Pedro Colomalaan 25 Industriepark
2880 Bornem
32-3-890-4211
KERPEN, GERMANY
A. Schulman GmbH
HYttenstrassBe 211
D-50170 Kerpen
49-2273-5610
PARIS, FRANCE
A. Schulman, S.A.
Diffusion Plastique
Immeuble Dynasteur
10/12 rue Andras Beck
92360 Meudon-la-Foret
33-1-4107-7500
CRUMLIN, SOUTH WALES (U.K.)
A. Schulman Inc. Limited
Croespenmaen Industrial Estate
Crumlin, Newport
Gwent NP1 4AG
44-1495-244090
ZURICH, SWITZERLAND
A. Schulman AG
Kernstrasse 10
CH 8004 Zurich
41-1-241-6030
WARSAW, POLAND
A. Schulman Polska Sp. z o.o.
ul. Instalatorow 9
02-237 Warsaw
48-22-868-2682
BUDAPEST, HUNGARY
A. Schulman Hungary Kft.
XI. Bezirk, Bartfai u. 54
H-1115 Budapest
36-1-203-4264
MILAN, ITALY
A. Schulman Plastics, S.p.A.
Via Siviglia, 11
I-20093 Cologno Monzese (Mi)
39-02-25-391-912
MISSISSAUGA, ONTARIO, CANADA
L5R 3G5
A. Schulman Canada Ltd.
5770 Hurontario Street, Suite 602
(905) 568-8470
MEXICO CITY, MEXICO
A. Schulman de Mexico, S.A. de C.V.
Manuel E. Izaguirre #13
Despacho 304 - Ciudad Satelite
Naucalpan, Edo. de Mexico 53100
(525) 393-1216
MONTERREY, MEXICO
A. Schulman de Mexico, S.A. de C.V.
Camino del Lago #4517, Sector 4
Colonia Cortijo del Rio
Monterrey, N.L. 64890
(5283) 655-505
SAN LUIS POTOSI, MEXICO
A. Schulman de Mexico, S.A. de C.V.
Avenida CFE, 730
Entre Eje 134 y Eje 136
Zona Industrial del Potosi
San Luis Potosi, S.L.P. 78090
(5248) 240-708
PLANTS
AKRON, OHIO 44310
790 E. Tallmadge Ave.
(330) 633-8164
BELLEVUE, OHIO 44811
350 North Buckeye Street
(419) 483-2931
ORANGE, TEXAS 77630
(Dispersion Plant)
3007 Burnett
(409) 883-9371
SHARON CENTER, OHIO 44274
(Specialty Compounding Division)
1475 Wolf Creek Trail
(330) 239-0101
NASHVILLE, TENNESSEE 37211-3333
ComAlloy International Company
481 Allied Drive
(615) 333-3453
ORANGE, TEXAS 77632
Texas Polymer Services, Inc.
6522 Interstate Highway 10 West
(409) 883-4331
BORNEM, BELGIUM
N.V.A. Schulman Plastics, S.A.
Pedro Colomalaan 25
Industriepark
2880 Bornem
32-3-890-4211
KERPEN, GERMANY
A. Schulman GmbH
HYttenstrass.e 211
D-50170 Kerpen
49-2273-5610
CRUMLIN, SOUTH WALES (U.K.)
A. Schulman Inc. Limited
Croespenmaen Industrial Estate
Crumlin, Newport
Gwent NP1 4AG
44-1495-244090
GIVET, FRANCE
A. Schulman Plastics S.A.
Rue Alex Schulman
F-08600 Givet
33-24-427161
EAST JAVA, INDONESIA
PT A. Schulman Plastics
Desa Ngerong - Gempol
Kab. Pasuruan
62-343-854-232
ST. THOMAS, ONTARIO, CANADA
N5P 3Z5
A. Schulman Canada Ltd.
400 S. Edgeware Road
(519) 633-3451
SAN LUIS POTOSI, MEXICO
A. Schulman de Mexico, S.A. de C.V.
Avenida CFE, 730
Entre Eje 134 y Eje 136
Zona Industrial del Potosi
San Luis Potosi, S.L.P. 78090
(5248) 240-708
[INSIDE BACK COVER]
33
<PAGE> 37
[A. Schulman Inc. Logo]
3550 West Market Street, Akron, Ohio 44333 - 330/666-3751
www.aschulman.com
[OUTSIDE BACK COVER]
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF A. SCHULMAN, INC.
---------------------------------
<TABLE>
<CAPTION>
Jurisdiction
Name of Incorporation/Organization
- ---- -----------------------------
<S> <C>
N.V. A. Schulman, Plastics, S.A. Belgium
N.V. A. Schulman, S.A. Belgium
A. Schulman, S.A. (1) France
A. Schulman Plastics, S.A. (5) France
Diffusion Plastique (2) France
A. Schulman GmbH Germany
A. Schulman, Inc., Limited United Kingdom
A. Schulman Canada Ltd. Ontario, Canada
A. Schulman Foreign Sales Corporation Virgin Islands
Master Grip, Inc. Ohio
Gulf Coast Plastics, Inc. Texas
A. Schulman AG Switzerland
ASI Investments Holding Co. Delaware
ASI Akron Land Co. Delaware
ComAlloy International Company Ohio
A. Schulman International, Inc. Delaware
A. Schulman de Mexico, S.A. de C.V. (3) Mexico
ASI Employment, S.A. de C.V. (3) Mexico
AS Mex Hold, S.A. de C.V. (3) Mexico
Texas Polymer Services, Inc. Ohio
Polyvin GmbH (4) Germany
A. Schulman Polska Sp. z 0.0. (4) Poland
A. Schulman Plastics SpA (1) Italy
A. Schulman International Services N.V. (1) Belgium
A. Schulman Hungary Kft. Hungary
PTA. Schulman Plastics, Indonesia (3) Indonesia
The Sunprene Company _________
- -------------------
</TABLE>
(1) Owned by N.V. A. Schulman, S.A.
(2) Owned by A. Schulman, S.A.
(3) Owned by A. Schulman International, Inc.
(4) Owned by A. Schulman GmbH
(5) Owned by N.V. A. Schulman, Plastics, S.A.
21-1
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-69042) of A. Schulman, Inc. of our report dated
October 15, 1998 appearing on page 27 of the Annual Report to Stockholders which
is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule,
which appears on page F-1 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Cleveland, Ohio
November 24, 1998
<PAGE> 1
Exhibit 24
Powers of Attorney.
<PAGE> 2
POWER OF ATTORNEY
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1998, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1998.
/s/ Alan L. Ockene
---------------------------
Alan L. Ockene
<PAGE> 3
POWER OF ATTORNEY
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1998, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1998.
/s/ Dr. Peggy Gordon Elliott
----------------------------
Dr. Peggy Gordon Elliott
<PAGE> 4
POWER OF ATTORNEY
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1998, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1998.
/s/ Robert G. Wallace
---------------------------
Robert G. Wallace
<PAGE> 5
POWER OF ATTORNEY
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1998, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1998.
/s/ Dr. Paul Craig Roberts
---------------------------
Dr. Paul Craig Roberts
<PAGE> 6
POWER OF ATTORNEY
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1998, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1998.
/s/ Rene C. Rombouts
---------------------------
Rene C. Rombouts
<PAGE> 7
POWER OF ATTORNEY
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1998, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1998.
/s/ Willard R. Holland
---------------------------
Willard R. Holland
<PAGE> 8
POWER OF ATTORNEY
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1998, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1998.
/s/ James A. Karman
---------------------------
James A. Karman
<PAGE> 9
POWER OF ATTORNEY
The undersigned Director of A. Schulman, Inc. (the "Corporation"), a
Delaware corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Corporation's
fiscal year ended August 31, 1998, hereby constitutes and appoints TERRY L.
HAINES, JAMES H. BERICK and ROBERT A. STEFANKO, and each of them, with full
power of substitution and resubstitution, as attorneys or attorney to sign for
the undersigned and in my name, place and stead, as Director of said
Corporation, said Annual Report and any and all amendments and exhibits thereto,
and any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of
October, 1998.
/s/ James S. Marlen
---------------------------
James S. Marlen
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 1998 AND 1997 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR EACH OF THE THREE YEARS ENDED AUGUST 31, 1998 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> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<CASH> 60,766
<SECURITIES> 0
<RECEIVABLES> 148,838
<ALLOWANCES> 4,778
<INVENTORY> 165,661
<CURRENT-ASSETS> 395,485
<PP&E> 321,906
<DEPRECIATION> 173,723
<TOTAL-ASSETS> 561,920
<CURRENT-LIABILITIES> 107,185
<BONDS> 40,000
0
1,069
<COMMON> 38,347
<OTHER-SE> 326,855
<TOTAL-LIABILITY-AND-EQUITY> 561,920
<SALES> 993,394
<TOTAL-REVENUES> 996,466
<CGS> 823,856
<TOTAL-COSTS> 910,137
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,933
<INCOME-PRETAX> 86,329
<INCOME-TAX> 34,179
<INCOME-CONTINUING> 52,150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,007<F1>
<NET-INCOME> 50,143
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
<FN>
<F1>On November 20, 1997, the FASB Emerging Issues Task Force issued a new ruling
which requires the write-off of business process re-engineering costs. The
cumulative effect of this change to September 1, 1997 was to decrease pretax
income by $3,237,000 and cut income by $2,007,000 or $.06 per share and is
accounted for as a cumulative effect of a change in accounting method.
</FN>
</TABLE>
<PAGE> 1
Exhibit 99
Notice of Annual Meeting and Proxy Statement Dated November 9, 1998.
<PAGE> 2
[LOGO] A. SCHULMAN INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the Annual Meeting of Stockholders of A.
Schulman, Inc. will be held at the Fairlawn Country Club, 200 North Wheaton
Road, Akron, Ohio, on Thursday, December 10, 1998 at 10:00 A.M., local time, for
the purpose of considering and acting upon:
1. The election of three (3) Directors for a three-year term expiring in
2001;
2. The ratification of the selection by the Board of Directors of
PricewaterhouseCoopers LLP as independent accountants for the fiscal
year ending August 31, 1999;
3. A stockholder proposal to declassify the Board of Directors;
4. A stockholder proposal that the Board of Directors consider the prompt
sale of the Corporation; and
5. The transaction of any other business which properly may come before the
meeting and any adjournments thereof.
Stockholders of A. Schulman, Inc. of record at the close of business on
October 16, 1998 are entitled to vote at the Annual Meeting and any adjournments
thereof.
By order of the Board of Directors
JAMES H. BERICK
Secretary
Akron, Ohio
November 9, 1998
YOUR VOTE IS IMPORTANT. STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
<PAGE> 3
[LOGO] A. SCHULMAN INC.
3550 West Market Street
Akron, Ohio 44333
PROXY STATEMENT
November 9, 1998
The accompanying proxy is solicited by the Board of Directors of the
Corporation for use at the Annual Meeting of Stockholders to be held on December
10, 1998, and any adjournments thereof.
Stockholders of record at the close of business on October 16, 1998 (the
record date) will be entitled to vote at the Annual Meeting. At that date the
Corporation had issued and outstanding 33,112,505 shares of Common Stock, $1.00
par value. Each such share is entitled to one vote on all matters properly
coming before the Annual Meeting. At least 16,556,253 shares of Common Stock of
the Corporation must be represented at the meeting in person or by proxy in
order to constitute a quorum for the transaction of business.
This Proxy Statement and the accompanying form of proxy were first mailed
to stockholders on November 9, 1998.
ELECTION OF DIRECTORS
The Board of Directors of the Corporation presently is comprised of ten
Directors. The Directors of the Corporation are divided into three classes;
presently, Classes I and III each consist of three Directors and Class II
consists of four Directors. At the Annual Meeting, three Directors of Class III
are to be elected to serve for three-year terms expiring in 2001 and until their
respective successors are duly elected and qualified.
Unless a stockholder requests that voting of the proxy be withheld for any
one or more of the nominees for Director in accordance with the instructions set
forth on the proxy, it presently is intended that shares represented by proxies
will be voted for the election as Directors of the three Class III nominees
named in the table below.
<PAGE> 4
All nominees have consented to being named in this Proxy Statement and to
serve if elected. Should any nominee subsequently decline or be unable to accept
such nomination to serve as a Director, an event which the Board of Directors
does not now expect, the persons voting the shares represented by proxies
solicited hereby may vote such shares for a reduced number of nominees. For
election as a Director, a nominee must receive the affirmative vote of the
holders of a majority of shares of Common Stock represented at the meeting in
person or by proxy. Neither abstentions nor broker non-votes will be counted as
votes cast, although both will count toward the determination of the presence of
a quorum and both will have the same effect as a vote cast against the nominee.
The following information concerning each nominee and each Director
continuing in office is based in part on information received from the
respective nominees and Directors and in part on the Corporation's records:
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATION DURING
PAST FIVE YEARS FIRST
NAME OF AND AGE AS OF BECAME
NOMINEE OR DIRECTOR OCTOBER 16, 1998 DIRECTOR
------------------- ----------------- --------
<S> <C> <C>
NOMINEES TO SERVE UNTIL 2001 ANNUAL MEETING OF STOCKHOLDERS (CLASS III)
Terry L. Haines(1) President and Chief Executive Officer of the 1990
Corporation since 1991; formerly, Chief Operating
Officer, 1990-1991; Age 52
Dr. Paul Craig Roberts(2) Columnist for The Washington Times since 1988 and for 1992
Investor's Business Daily since 1998; Chairman of
Institute for Political Economy since 1985;
nationally syndicated Columnist for Creators
Syndicate since March 1997; formerly, Distinguished
Fellow, Cato Institute, 1993-1996; Columnist for
Business Week, 1982-1998; William E. Simon Chair in
Political Economy at Center for Strategic and
International Studies, 1982-1993; and Assistant
Secretary of Treasury for Economic Policy,
1981-1982; Age 59
James A. Karman(2) President and Chief Operating Officer, RPM, Inc. 1995
(coatings, sealants and specialty chemicals) since
1978; formerly, Chief Financial Officer, RPM, Inc.
1982-1993; Age 61
</TABLE> 2
<PAGE> 5
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATION DURING
PAST FIVE YEARS FIRST
NAME OF AND AGE AS OF BECAME
NOMINEE OR DIRECTOR OCTOBER 16, 1998 DIRECTOR
------------------- ----------------- --------
<S> <C> <C>
CONTINUING DIRECTORS SERVING UNTIL 1999 ANNUAL MEETING OF STOCKHOLDERS (CLASS I)
Alan L. Ockene(3)(4) Member, Executive Committee of Akron Regional 1992
Development Board; prior thereto, Chairman, Akron
Regional Development Board, 1995-1997; formerly,
President and Chief Executive Officer of General
Tire, Inc. 1991-1994; and Vice President of
Goodyear Tire & Rubber Company -- International,
1985-1991; Age 67
Robert G. Wallace(2)(3)(4) Retired; formerly Executive Vice President, Phillips 1988
Petroleum Company and
President of Phillips 66 Company; Age 72
Willard R. Holland(4) Chairman of the Board of FirstEnergy Corp. (electric 1995
utility) since November 1, 1996; President and
Chief Executive Officer, FirstEnergy Corp. since
1993; Chairman of the Board and Chief Executive
Officer of FirstEnergy Corp.'s subsidiary,
Pennsylvania Power Company, since 1993; formerly,
Chief Operating Officer, Ohio Edison Company, 1991-
1993; prior thereto Senior Vice President, Detroit
Edison Company (electric utility), 1988-1991; Age
62
CONTINUING DIRECTORS SERVING UNTIL 2000 ANNUAL MEETING OF STOCKHOLDERS (CLASS II)
Robert A. Stefanko(1) Chairman of the Board of the Corporation since 1991; 1980
Executive Vice President -- Finance and
Administration of the Corporation since 1989; Age
55
Rene C. Rombouts General Manager of the Corporation's European 1992
subsidiaries since 1993 and Director of European
Marketing -- Manufactured Products of the
Corporation since 1983; Age 60
Dr. Peggy Gordon Elliott(2)(4) President, South Dakota State University since 1994
January 1998; prior thereto, Senior Fellow,
National Center for Higher Education 1996-1998;
President, The University of Akron 1992-1996, and
Chancellor and Chief Executive Officer, Indiana
University Northwest, 1984-1992; Age 61
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
PRINCIPAL
OCCUPATION DURING
PAST FIVE YEARS FIRST
NAME OF AND AGE AS OF BECAME
NOMINEE OR DIRECTOR OCTOBER 16, 1998 DIRECTOR
------------------- ----------------- --------
<S> <C> <C>
James S. Marlen(2) Chairman of the Board of Ameron International 1995
Corporation (construction and industrial
manufacturing) since January, 1995; President and
Chief Executive Officer of Ameron International
Corporation since June, 1993; formerly, Vice
President, GenCorp., Inc. (aerospace, automotive,
chemical and plastics) and President, GenCorp.
Polymer Products, a subsidiary of GenCorp., Inc.,
1988-1993; Age 57
- ---------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Nominating Committee
(4) Member of Compensation Committee
</TABLE>
Mr. Haines is a Director of FirstMerit Corporation and Ameron International
Corporation. Dr. Roberts is a Director of 12 of the Value Line Mutual Funds. Mr.
Wallace is a Director of Valmont Industries, Inc. Dr. Elliott is a Director of
The Lubrizol Corporation. Mr. Marlen is a Director of Ameron International
Corporation. Mr. Karman is a Director of RPM, Inc., Shiloh Industries, Inc. and
Metropolitan Financial Corporation. Mr. Holland is a Director of FirstEnergy
Corp. Mr. Ockene is a Director of Ameron International Corporation.
The Board of Directors has established the following committees: Executive
Committee, Audit Committee, Compensation Committee and Nominating Committee.
The functions performed by the Audit Committee of the Board of Directors
include: (i) recommending to the Board of Directors the appointment of a firm of
independent accountants to examine the books and accounts of the Corporation and
its subsidiaries; (ii) reviewing with the independent accountants the scope of
their work, prior to their examination; (iii) reviewing with the independent
accountants the scope of their examination after it has been completed, as well
as any recommendations made by the independent accountants; (iv) reviewing with
the independent accountants and approving each non-audit service performed or
proposed to be performed by the independent accountants, as well as the
relationship of audit to non-audit fees; and (v) considering the possible effect
of the non-audit services upon the independence of the accountants. The Audit
Committee held two meetings during the year ended August 31, 1998.
The functions performed by the Compensation Committee of the Board of
Directors include making recommendations to the Board of Directors concerning
compensation policies, salaries, grants of stock options and other forms of
compensation for management and certain other employees of the Corporation. The
Compensation Committee held one meeting during the year ended August 31, 1998.
4
<PAGE> 7
The functions performed by the Nominating Committee include identifying
potential directors and making recommendations as to the size, functions and
composition of the Board and its committees. The Nominating Committee has no
formal procedures for consideration of nominees recommended by stockholders. The
Nominating Committee did not meet during the year ended August 31, 1998.
The Board of Directors held ten meetings during the year ended August 31,
1998. All incumbent Directors attended at least 75% of the meetings of the Board
of Directors and any committees thereof on which they served during the year,
except Dr. Peggy Gordon Elliott.
COMPENSATION OF DIRECTORS
Each Director of the Corporation who is not an employee of the Corporation
receives an annual Director's fee of $25,000 plus $1,000 for each Board or
committee meeting attended. Further, any Director serving as a Chairman of a
committee receives an additional annual fee of $2,000. Each Director has the
option to defer payment of all or a specified portion of his or her Director's
fees and to receive, in lieu thereof, a number of units equivalent to the amount
to be paid, divided by the closing price of the Corporation's Common Stock on
the last business day of the year next preceding the year in question. Upon
surrender of the units, the Director will receive a cash payment in an amount
determined by multiplying the number of units times the market price of the
Common Stock on the date immediately preceding the surrender date. In addition,
on the first business day of February of each year, each non-employee Director
of the Corporation receives a grant of an option to purchase 1,000 shares of the
Common Stock of the Corporation, at an option price equal to the fair market
value of such shares on the first business day immediately preceding the date of
grant.
CERTAIN RELATED TRANSACTIONS; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
James H. Berick, Secretary and a former Director and member of the
Corporation's Compensation Committee, is the Chairman of Berick, Pearlman &
Mills Co., L.P.A., which is retained by the Corporation as legal counsel.
Gordon L. Trimmer, Vice President-North American Sales and Marketing,
received a non-interest bearing bridge loan from the Corporation in connection
with his transfer from Canada to the United States. The largest amount of such
indebtedness to the Corporation outstanding during the fiscal year was $88,000.
Mr. Trimmer has repaid this loan in full.
5
<PAGE> 8
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report describes the Corporation's executive compensation programs and
the basis on which fiscal year 1998 compensation determinations were made by the
Corporation's Compensation Committee in respect of the executive officers of the
Corporation, including the Chief Executive Officer and the other executive
officers named in the compensation tables in this proxy statement.
To ensure that the compensation program is administered in an objective
manner, the Compensation Committee is comprised entirely of independent
Directors. The duties of the Compensation Committee include determining the base
salary level and bonus for the Chief Executive Officer and for all other
executive officers, and approving the design and awards of all other elements of
the executive pay program. The Compensation Committee further evaluates
executive performance and addresses other matters related to executive
compensation.
COMPENSATION POLICY AND OVERALL OBJECTIVES
In determining the amount and composition of executive compensation, the
Compensation Committee's goal is to provide a compensation package that will
enable the Corporation to attract and retain talented executives, reward
outstanding performance and link the interests of the Corporation's executives
to the interests of the Corporation's shareholders. In determining actual
compensation levels, the Compensation Committee considers all elements of the
program in total, rather than any one element in isolation.
The Compensation Committee members believe that each element of the
compensation program should target compensation levels at rates that are
reflective of current market practices. Offering market-comparable pay
opportunities allows the Corporation to maintain a stable, successful management
team.
Competitive market data is provided periodically by an independent
compensation consultant. The data provided compares the Corporation's
compensation practices to those of a group of comparison companies. The
Corporation's market data for compensation comparison purposes is comprised of a
group of diversified manufacturing companies that have national and
international business operations. The Compensation Committee reviews and
approves the selection of companies used for compensation comparison purposes.
In establishing a comparison group for compensation purposes, the
Compensation Committee neither bases its decisions on quantitative relative
weights of various factors, nor follows mathematical formulae. Rather, the
Compensation Committee exercises its discretion and makes its judgment after
considering the factors it deems relevant.
The key elements of the Corporation's executive compensation are base
salary, annual bonuses and long-term incentives. These key elements are
addressed separately below. In determining compensation, the Compensation
Committee considers all elements of an executive's total compensation package.
BASE SALARIES
The Compensation Committee regularly reviews each executive's base salary.
Base salaries for executives initially are determined by evaluating executives'
levels of responsibility, prior
6
<PAGE> 9
experience, breadth of knowledge, internal equity issues and external pay
practices. Increases to base salaries are driven by individual performance and
Corporation profitability. Individual performance is evaluated based on
sustained levels of individual contribution to the Corporation.
In determining Mr. Haines' base salary in 1998, the Compensation Committee
considered the Corporation's financial performance for the prior year, Mr.
Haines' individual performance and his long-term contributions to the success of
the Corporation. The Compensation Committee also compares Mr. Haines' base
salary to the base salaries of other chief executive officers.
ANNUAL BONUSES
The Corporation's bonus program promotes the Corporation's
pay-for-performance philosophy by providing executives with direct financial
incentives in the form of annual cash bonuses based on individual performance.
Annual bonus opportunities allow the Corporation to communicate specific goals
that are of primary importance during the coming year and motivate executives to
achieve these goals.
Effective September 1, 1997, the Corporation instituted a new bonus program
for the determination of executive officer bonus payouts. Under the new program,
the Corporation established a total target award for each officer approximately
equal to the average award provided to persons holding similar positions at
comparable companies. The award was measured by stated threshold, target, and
maximum percentages of salary. The officer's actual award was increased or
decreased from the total target award based upon both Corporation and individual
performance. Approximately one-half of the total target award potential was
determined by the financial performance of the Corporation. This financial
performance portion of the bonus was based upon (i) the world-wide performance
of the Corporation for Mr. Haines, the President and Chief Executive Officer,
and for the Chairman and Chief Financial Officer and (ii) the Corporation's
performance in North America for all other officers. The remaining one-half of
the total target award level was based upon each officer's individual
performance. Mr. Haines' 1998 bonus award is reported in the Summary
Compensation Table, below.
LONG-TERM INCENTIVES
Long-term incentives are provided pursuant to the Corporation's 1991 Stock
Incentive Plan (the "1991 Plan").
In keeping with the Corporation's commitment to provide a total
compensation package which includes at-risk components of pay, the Compensation
Committee makes annual decisions regarding appropriate stock-based grants for
each executive. When determining these awards, the Compensation Committee
considers the Corporation's financial performance in the prior year, executives'
levels of responsibility, prior experience, historical award data, and
compensation practices at the comparison companies.
Stock options were granted in 1998 at an option price equal to the fair
market value of the Corporation's common stock on the date of grant.
Accordingly, stock options granted in 1998 have value only if the stock price
appreciates following the date the options are granted. This design focuses
executives on the creation of shareholder value over the long term and
encourages equity ownership of the Corporation. These stock options become
exercisable at the rate of
7
<PAGE> 10
25% per year commencing on the first anniversary of the date of grant of the
option, so long as the holder remains employed by the Corporation or a
subsidiary.
In 1998, Mr. Haines received options to purchase 40,000 shares at the fair
market value ($18.90625) of such shares on the date of grant. These grants were
established after comparison to the averages of long-term incentive grants at
the comparison companies. The Compensation Committee believes that this equity
interest provides a strong link to the interests of shareholders.
RESTRICTED STOCK
Shares of restricted stock were awarded to certain executives in 1998.
Restricted stock awarded to executives vests five years after the date awarded.
Because of its vesting requirements, restricted stock enhances the Corporation's
ability to maintain a stable executive team, focused on the Corporation's
long-term success. Restricted stock provides executives with an immediate link
to shareholder interests. Dividends are accrued until the lapse of restrictions
on the restricted stock and are paid out thereafter. In 1998, Mr. Haines
received an award of 10,000 shares of restricted stock.
The Compensation Committee:
Willard R. Holland, Chairman
Robert G. Wallace
Alan L. Ockene
Dr. Peggy Gordon Elliott
8
<PAGE> 11
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid or to be paid by the
Corporation and its subsidiaries in respect of services rendered during the
Corporation's last three fiscal years to the Corporation's Chief Executive
Officer and each of the four most highly compensated executive officers (as
measured by salary and bonus) whose aggregate salary and bonus during the fiscal
year ended August 31, 1998, exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------
ANNUAL COMPENSATION(1) AWARDS
-------------------------------- --------------------
OTHER RESTRICTED
ANNUAL STOCK ALL OTHER
FISCAL COMPENSA- AWARD(S) OPTIONS COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS TION(2) (3) (#) SATION(4)
- ------------------------------ ------ -------- -------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Terry L. Haines 1998 $380,000 $228,000 $ 0 $189,063 40,000 $132,011(5)
President & Chief 1997 $360,000 $165,000 $ 0 $ 0 37,000 $139,328
Executive Officer 1996 $360,000 $145,000 $29,491 $184,000 30,000 $137,049
Robert A. Stefanko 1998 $315,000 $189,000 $ 0 $151,250 35,000 $ 87,981(5)
Chairman of the Board 1997 $300,000 $165,000 $ 0 $ 0 31,000 $ 93,950
of Directors, Chief 1996 $300,000 $145,000 $ 7,976 $149,500 25,000 $ 92,904
Financial Officer and
Executive Vice President--
Finance and Administration
Larry A. Kushkin 1998 $225,000 $117,000 $ 0 $ 0 0 $ 42,375(5)
Executive Vice President-- 1997 $215,000 $145,000 $ 0 $ 0 22,000 $ 43,215
International Automotive 1996 $215,000 $130,000 $29,206 $ 75,900 18,000 $ 41,942
Operations
Leonard E. Emge 1998 $157,500 $ 81,000 $ 0 $ 0 0 $ 16,860(5)
Vice President-- 1997 $150,000 $ 55,000 $ 0 $ 0 9,000 $ 16,110
Manufacturing 1996 $150,000 $ 50,000 $ 3,399 $ 41,400 7,000 $ 16,110
Gordon L. Trimmer 1998 $135,000 $ 70,000 $ 0 $ 47,266 10,000 $ 63,642(5)
Vice President-- 1997 $ 88,537(6) $ 52,000 $ 0 $ 0 8,000 $ 11,006
North American 1996 $ 66,183(6) $ 40,728(6) $ 7,065 $ 50,600 6,000 $ 5,692
Sales and Marketing
</TABLE>
- ---------------
(1) Includes amounts earned in fiscal year, whether or not deferred.
(2) Represents the net value (market value less exercise price) realized in
respect of Common Shares purchased from the Corporation pursuant to exercise
of stock options.
(3) The total number of restricted shares and the aggregate market value at
August 31, 1998 (based upon the fair market value at August 31, 1998 of
$15.875): Mr. Haines held 24,000 shares valued at $381,000; Mr. Stefanko
held 19,500 shares valued at $309,563; Mr. Kushkin held 6,300 shares valued
at $100,013; Mr. Emge held 3,300 shares valued at $52,388; and Mr. Trimmer
held 4,300 shares valued at $68,263. Dividends accrue but are not paid on
the restricted shares until the restrictions thereon lapse.
(4) Represents the following compensation: Corporation contributions to Profit
Sharing Plan; amounts accrued by the Corporation for the fiscal year under
non-qualified profit sharing plan; Corporation payments of term life
insurance premiums; amounts accrued by the Corporation for the fiscal year
under deferred compensation agreements; reimbursement of moving expenses;
and Director's fees received from the Corporation's Belgian subsidiary.
9
<PAGE> 12
(5) Amounts shown include the following: Corporation contributions to Profit
Sharing Plan -- $16,000 for each of Messrs. Haines, Stefanko, and Kushkin,
$15,750 for Mr. Emge, and $13,500 for Mr. Trimmer; amounts accrued by the
Corporation for the fiscal year ended August 31, 1998 under non-qualified
profit sharing plan -- $22,000 for Mr. Haines, $15,500 for Mr. Stefanko, and
$6,500 for Mr. Kushkin; Corporation payments of term life insurance premiums
-- $1,110 for each named executive officer; amounts accrued by the
Corporation under deferred compensation agreements for the fiscal year ended
August 31, 1998 -- $75,061 for Mr. Haines ($22,518 of which was not vested),
$37,531 for Mr. Stefanko ($11,259 of which was not vested), and $18,765 for
Mr. Kushkin ($9,383 of which was not vested); moving expenses reimbursement
-- $49,032 for Mr. Trimmer; and Director's fees received from the
Corporation's Belgian subsidiary -- $17,840 for each of Messrs. Haines and
Stefanko.
(6) All of Mr. Trimmer's compensation in respect of 1996, and a portion of his
compensation in respect of 1997, was paid in Canadian dollars. The amounts
shown reflect the currency exchange ratios at August 31, 1996 and August 31,
1997, which were $1 CN to $.6788 US and $1 CN to $.6038 US, respectively.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options during fiscal year 1998 to the named executive officers. The amounts
shown for each of the named executive officers as potential realizable values
are based on arbitrarily assumed annualized rates of stock appreciation of five
percent and ten percent over the full five-year term of the options, which would
result in stock prices of approximately $24.13 and $30.49, respectively. No gain
to the optionees is possible without an increase in stock price which will
benefit all stockholders proportionately. Actual gains, if any, on an option
exercise are dependent upon future performance of the Corporation's Common Stock
and overall market conditions. There can be no assurance that the potential
realizable values shown in this table will be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS IN 1998 VALUE AT ASSUMED
-------------------------------------------------------- ANNUAL RATES OF STOCK
% OF TOTAL PRICE APPRECIATION FOR
OPTIONS EXERCISE 5-YEAR OPTION TERM
GRANTED TO OR BASE ----------------------
OPTIONS EMPLOYEES IN PRICE(3) EXPIRATION 5% ($) 10% ($)
NAME (#)GRANTED(1) FISCAL YEAR(2) ($/SH) DATE (4) (4)
---- ------------- -------------- ------ ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
Terry L. Haines 40,000 13.40% $18.90625 7/7/03 $208,950 $461,750
Robert A. Stefanko 35,000 11.72% $18.90625 7/7/03 $182,831 $404,031
Larry A. Kushkin 0 0% N/A N/A N/A N/A
Leonard E. Emge 0 0% N/A N/A N/A N/A
Gordon L. Trimmer 10,000 3.35% $18.90625 7/7/03 $ 52,238 $115,438
</TABLE>
- ---------------
(1) All options for common shares were granted pursuant to the 1991 Plan. Such
options become exercisable at the rate of 25% per year commencing on the
first anniversary of the date of grant of the option, so long as the
optionee remains employed by the Corporation.
(2) Based on 298,600 options granted to all employees.
(3) Fair market value on the date of grant.
(4) The share price represents the price of the Common Stock if the assumed
annual rates of stock price appreciation are achieved. If the named
executive officers realize these values, the Corporation's shareholders will
realize aggregate appreciation in the price of the 33,112,505 shares of
Common Stock outstanding of $173.0 million or $382.2 million, respectively,
over the five-year term of the options.
10
<PAGE> 13
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of October 16, 1998 in
respect of beneficial ownership of shares of the Corporation's Common Stock by
each Director, by each named executive officer, and by all Directors and
executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OWNERSHIP(1)(2)(3) OUTSTANDING
---- ------------------ -----------
<S> <C> <C>
Robert A. Stefanko 163,662 *
Dr. Peggy Gordon Elliott 2,311 *
Terry L. Haines 129,575 *
Dr. Paul Craig Roberts 4,591(4) *
Rene C. Rombouts 121,490 *
Larry A. Kushkin 46,923 *
Alan L. Ockene 6,761 *
Robert G. Wallace 9,811 *
James S. Marlen 4,655 *
Willard R. Holland 3,655 *
James A. Karman 1,655 *
Leonard E. Emge 44,219 *
Gordon L. Trimmer 16,950 *
All Directors and
Executive Officers as a
group (16 persons) 624,771 1.9%
</TABLE>
- ---------------
* Less than 1% of the shares outstanding
(1) Includes the following number of shares which are not owned, but can be
purchased within 60 days upon the exercise of options granted under the
Corporation's 1991 Stock Incentive Plan: 69,875 by Terry L. Haines; 37,000
by Larry A. Kushkin; 57,500 by Robert A. Stefanko; 16,000 by Leonard E.
Emge; 46,500 by Rene C. Rombouts; 12,750 by Gordon L. Trimmer and 256,675 by
all Directors and executive officers as a group.
(2) Includes the following number of shares which are not owned but can be
purchased within 60 days upon the exercise of options granted under the
Corporation's 1992 Non-Employee Directors' Stock Option Plan: 2,186 by each
of Alan L. Ockene, Robert G. Wallace, and Dr. Paul Craig Roberts; 1,311 by
Dr. Peggy Gordon Elliott; 655 by each of Willard R. Holland, James A.
Karman, and James S. Marlen; and 9,834 shares by all Directors and executive
officers as a group.
(3) Includes the following number of restricted shares of Common Stock awarded
under the Corporation's 1991 Stock Incentive Plan: 24,000 for Terry L.
Haines, 19,500 for Robert A. Stefanko, 6,300 for Larry A. Kushkin, 13,000
for Rene C. Rombouts, 3,300 for Leonard E. Emge, 4,200 for Gordon L. Trimmer
and 79,000 for all Directors and executive officers as a group.
(4) Includes 100 shares held by Dr. Roberts as trustee for his son, the
beneficial ownership of which Dr. Roberts disclaims.
11
<PAGE> 14
PERFORMANCE GRAPH
The following graph compares total stockholder returns in respect of the
Corporation's Common Shares over the last five fiscal years (i.e. the cumulative
changes over the past five-year period of $100 invested) to the Standard &
Poor's 500 Stock Index ("S&P 500") and the Standard and Poor's Specialty
Chemical Group ("S&P Specialty Chemicals"). Total return values for the
Corporation's Common Shares, S&P 500 and S&P Specialty Chemicals were calculated
based upon market weighting at the beginning of the period and include
reinvestment of dividends on a quarterly basis. The stockholder returns shown on
the graph below are not necessarily indicative of future performance.
The following graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent the Corporation specifically incorporates this
information by reference and otherwise shall not be deemed filed under such
Acts.
<TABLE>
<CAPTION>
'A. Schulman, S&P Specialty
Inc.' S&P 500 Chemicals
<S> <C> <C> <C>
Aug-93 100.00 100.00 100.00
Aug-94 114.53 105.45 96.77
Aug-95 115.89 127.97 121.75
Aug-96 96.72 151.89 120.92
Aug-97 99.13 213.45 143.78
Aug-98 73.55 230.78 115.72
</TABLE>
12
<PAGE> 15
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Corporation has employment agreements with Messrs. Haines, Stefanko,
Kushkin, Trimmer, and certain other senior personnel. The employment agreements
of Messrs. Haines, Stefanko, Kushkin and Trimmer have an initial three-year
term. Such agreements automatically will be extended at the end of each month
for an additional month unless prior notice of termination is given, to
constitute at all times a three-year agreement; provided, however, that no such
monthly extension shall occur after August 31, 2008, January 31, 2005, or July
31, 2002, or June 23, 2006, respectively. The employment agreements provide that
in the event employment is terminated as a result of a merger, consolidation,
liquidation, or change in control (collectively, "Change in Control") of the
Corporation, or for any other reason except for death, disability or for cause,
the employee shall be paid a lump sum amount equal to a multiple (equal to the
initial term of such agreement) of the sum of (i) the higher of his annual
salary payable prior to the event causing the termination or salary payable
prior to the Change in Control, plus (ii) an amount equal to the higher of his
bonus earned in the preceding fiscal year or the average bonus earned in the
most recent three fiscal years. In addition, upon a Change in Control, each of
the employment agreements provides that the employee also will continue to
receive certain insurance benefits not provided to the employee by another
source after termination, for a period of time equal to the original term of
such employee's employment agreement, and the employee will be paid a lump sum
amount equal to the sum of (i) any unpaid annual incentive compensation
previously awarded to the employee, the payment of which was contingent only
upon continued employment, and (ii) a pro rata portion of his bonus for the
fiscal year in which the termination occurred. If the Corporation terminates an
employee's employment without cause prior to the expiration of the term of the
employment agreement or prior to a Change in Control, the employee shall receive
his salary for the remaining term of his employment agreement, plus a bonus each
year for the remaining term of his agreement in an amount equal to fifty percent
of his average annual bonus during the most recent five calendar years of
employment. If the employee's employment is terminated by reason of death, the
Corporation shall pay a lump sum amount equal to sixty percent of the employee's
salary for twenty-four months. In addition, the amounts described above payable
under the employment agreements for Messrs. Haines, Stefanko and Kushkin shall
be "grossed up" to cover certain taxes payable by the employee on certain of the
amounts paid to such employee in respect of a Change in Control of the
Corporation. Notwithstanding the foregoing, in respect of the employment
agreement of Mr. Trimmer, the Corporation is not obligated to pay any amount
which is in excess of the maximum amount which it can deduct for federal income
tax purposes. These employment agreements may tend to discourage a takeover
attempt of the Corporation inasmuch as a Change in Control of the Corporation
could result in increased compensation expense.
The Corporation has a qualified Profit Sharing Plan (the "Profit Sharing
Plan") which provides that in any year the Corporation's Board of Directors, in
its discretion, may authorize the payment of contributions to the Corporation's
Profit-Sharing Trust, which contributions are allocated among participants. The
maximum amount which may be allocated to a participant generally is limited to
the lesser of (i) $30,000 or (ii) 25% of the participant's compensation.
Participation in the Profit Sharing Plan is available to all salaried employees
of the Corporation (and participating subsidiaries) who are employed on the last
day of the Profit Sharing Plan Year. Benefits under the Profit Sharing Plan vest
in accordance with a specified formula which provides for partial vesting
starting after three years of employment with the Corporation and
13
<PAGE> 16
full vesting after seven years of employment with the Corporation. The assets of
the Profit-Sharing Trust are invested, and each participant's account reflects
the aggregate investment performance of the Trust assets. For the fiscal year
ended August 31, 1998, the amounts contributed to the Profit Sharing Plan
accounts of the persons listed in the Summary Compensation Table were: $16,000
for each of Messrs. Haines, Stefanko, and Kushkin, $15,750 for Mr. Emge and
$13,500 for Mr. Trimmer.
The Corporation also has a non-qualified Profit Sharing Plan (the
"Non-Qualified Plan") which provides that in any year the Corporation's Board of
Directors, in its discretion, may authorize the accrual by the Corporation of
certain amounts for the benefit of the Non-Qualified Plan's participants, in
order to restore to such participants amounts not available to them under the
Profit Sharing Plan due to certain limitations thereunder. Benefits under the
Non-Qualified Plan vest in accordance with a specified formula which provides
for partial vesting starting after three years of employment with the
Corporation and full vesting after seven years of employment with the
Corporation. In addition, upon a Change in Control of the Corporation, benefits
become fully vested. Amounts accrued by the Corporation under the Non-Qualified
Plan for the benefit of each participant reflect the investment performance
which would have been realized had a corresponding amount been invested for the
benefit of such participant during such year in the Profit Sharing Trust
pursuant to the Profit Sharing Plan. For the fiscal year ended August 31, 1998,
the amounts accrued by the Corporation pursuant to the Non-Qualified Plan for
the benefit of the persons listed in the Summary Compensation Table were: Mr.
Haines, $22,000; Mr. Stefanko, $15,500; and Mr. Kushkin $6,500.
The Corporation also has deferred compensation agreements with Messrs.
Haines, Stefanko and Kushkin, providing for the payment of benefits for ten
years following retirement, disability or death in the annual amount of $100,000
for Mr. Haines, $100,000 (under two agreements for $50,000 each) for Mr.
Stefanko and $75,000 (under two agreements for $50,000 and $25,000,
respectively) for Mr. Kushkin, except that any amounts payable at retirement
will be reduced proportionately to the extent that Messrs. Haines, Stefanko and
Kushkin are employed by the Corporation for less than ten years from the date of
their agreements. The effective dates of Mr. Haines' Agreement is 1991, of Mr.
Stefanko's two agreements are 1985 and 1991, and of Mr. Kushkin's two agreements
are 1985 and 1992. No additional benefits are payable under the agreements upon
a Change in Control of the Corporation; however, payment of all of the benefits
of Messrs. Haines, Stefanko and Kushkin will be accelerated in the event of a
termination of employment following certain Changes in Control. The Corporation
owns and is the beneficiary of life insurance policies upon the lives of Messrs.
Haines, Stefanko and Kushkin, in the amount of $1,000,000, $1,000,000 and
$500,000, respectively.
SELECTION OF ACCOUNTANTS
Upon the recommendation of its Audit Committee, the Board of Directors of
the Corporation has selected PricewaterhouseCoopers LLP as independent
accountants to examine the books, records and accounts of the Corporation and
its subsidiaries for the fiscal year ending August 31, 1999. In accordance with
past practice, this selection is being presented to stockholders for
ratification or rejection at this Annual Meeting. The Board of Directors
recommends that such selection be ratified. PricewaterhouseCoopers LLP was the
independent accountant of the Corporation for the fiscal year ended August 31,
1998, and is considered by the Board of
14
<PAGE> 17
Directors to be well qualified. Representatives of PricewaterhouseCoopers LLP
will be present at the Annual Meeting to make a statement if they desire to do
so and will be available to respond to appropriate questions.
For ratification, this proposal will require the affirmative vote of the
holders of a majority of the shares of Common Stock represented at the meeting
in person or by proxy. If the resolution is rejected, or if
PricewaterhouseCoopers LLP declines to act or becomes incapable of action, or if
its employment is discontinued, the Board will appoint other public accountants
whose continued employment after the following Annual Meeting of Stockholders
will be subject to ratification by stockholders.
STOCKHOLDER PROPOSAL NO. 1
The following proposal was submitted by William Steiner, a stockholder of
the Corporation. Mr. Steiner has informed the Corporation that his address is 4
Radcliff Drive, Great Neck, New York 11024 and that he is the owner of 1,300
shares of the Corporation's Common Stock.
"RESOLVED, that the stockholders of the Company request that the Board
of Directors take the necessary steps, in accordance with state law, to
declassify the Board of Directors so that all directors are elected
annually, such declassification to be effected in a manner that does not
affect the unexpired terms of directors previously elected."
SUPPORTING STATEMENT SUBMITTED BY MR. STEINER:
"The election of directors is the primary avenue for stockholders to
influence corporate governance policies and to hold management accountable
for it's implementation of those policies. I believe that the
classification of the Board of Directors, which results in only a portion
of the Board being elected annually, is not in the best interests of the
Company and it's stockholders.
I believe that the Company's classified Board of Directors maintains
the incumbency of the current Board and therefore of current management,
which in turn limits management's accountability to stockholders.
The elimination of the Company's classified Board would require each
new director to stand for election annually and allow stockholders an
opportunity to register their views on the performance of the Board
collectively and each director individually. I believe this is one of the
best methods available to stockholders to insure that the Company will be
managed in a manner that is in the best interests of the stockholders.
I believe that concerns expressed by Companies with classified boards
that the annual election of all directors could leave companies without
experienced directors in the event that all incumbents are voted out by
stockholders, are unfounded. In my view, in the unlikely event that
stockholders vote to replace all directors, this decision would express
stockholder dissatisfaction with the incumbent directors and reflect the
need for change.
I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION"
15
<PAGE> 18
STATEMENT OF THE BOARD OF DIRECTORS RECOMMENDING A VOTE AGAINST STOCKHOLDER
PROPOSAL NO. 1:
The Board of Directors believes that the present system of electing
Directors of the Corporation in three classes is in the best interests of the
Corporation and its stockholders and should not be changed.
Mr. Steiner points out that the election of Directors is the primary avenue
for stockholders to influence corporate governance policy and to hold management
accountable for its implementation of those policies. However, corporate
accountability depends upon responsible and experienced individuals diligently
fulfilling their obligations to the stockholders, not upon whether Directors
serve terms of one year or three years. A classified board in no way diminishes
or affects the fiduciary and legal obligations owed to stockholders by
Directors. The Corporation's classified board structure permits stockholders
annually to review corporate decision-making and affords them the opportunity to
change approximately one-third of the Directors each year. Thus, the
stockholders have the power, in any given year, to change substantially the
Board of Directors' composition and character. This system permits significant
annual changes in the Board of Directors, if desired by the stockholders, while
avoiding the risk of sudden and disruptive changes in corporate business
strategy and policies that could arise if even a majority of new Directors were
elected in a single year.
In addition, a classified board protects stockholders against potentially
coercive takeover tactics by which a party might attempt to acquire control on
terms that do not offer the greatest value to all stockholders. For example,
throughout the 1980s, there were a number of attempts by individuals and
entities to acquire significant minority positions in companies with the intent
of obtaining actual control by electing their own slate of directors, or of
achieving some other goal, such as the repurchase of their shares at a premium,
by threatening to obtain control. Such attempts can seriously disrupt the
conduct of business of a company and cause it to incur substantial expense to
the detriment of its stockholders. A classified board discourages such actions
because it prevents the immediate removal of all directors. A classified board
is intended to encourage a person seeking to obtain control of the Corporation
to negotiate with the Directors. In general, at least two stockholders' meetings
would be necessary to effect a change in control of the Board of Directors. The
classified system thus ensures that the Board of Directors will have sufficient
time to review any takeover proposal and to develop an appropriate response
without operating under the threat of its complete removal, thereby enhancing
the Board of Directors' ability to negotiate the best result for all of the
Corporation's stockholders.
Further, the adoption of this stockholder proposal would not in itself
declassify the Board of Directors and result in the annual election of
Directors. If approved by the stockholders, Mr. Steiner's proposal would only
require the Board of Directors to consider taking the necessary steps to
declassify the Board of Directors. To effect the declassification of the Board
of Directors, the relevant provisions of the Corporation's Restated Certificate
of Incorporation would be required to be amended. Such an amendment would
require the approval of the Board of Directors and the affirmative vote of
holders of 80% of the outstanding shares of Common Stock of the Corporation.
16
<PAGE> 19
REQUIRED VOTE
The approval of Mr. Steiner's proposal requires the affirmative vote of a
majority of the shares of Common Stock of the Corporation represented at the
meeting in person or by proxy. Neither abstentions nor broker non-votes will be
counted as votes cast, although both will count toward the determination of the
presence of a quorum and both will have the same effect as a vote cast against
the proposal.
THE BOARD OF DIRECTORS HAS CONCLUDED THAT A CLASSIFIED BOARD IS IN THE
BEST INTERESTS OF THE CORPORATION AND ITS STOCKHOLDERS AND RECOMMENDS A
VOTE AGAINST THE ADOPTION OF STOCKHOLDER PROPOSAL NO. 1. PROXIES SOLICITED
BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS OTHERWISE
SPECIFY IN THEIR PROXIES.
STOCKHOLDER PROPOSAL NO. 2
The following proposal was submitted by Charles Miller, a stockholder of
the Corporation. Mr. Miller has informed the Corporation that his address is 23
Park Circle, Great Neck, New York 11021 and that he is the owner of 400 shares
of the Corporation's Common Stock.
"Resolved that the shareholders of A. Schulman Inc. Corporation urge
the A. Schulman Inc. Board of Directors to arrange for the prompt sale of
A. Schulman Inc. to the highest bidder."
SUPPORTING STATEMENT SUBMITTED BY MR. MILLER
"The purpose of the Maximize Value Resolution is to give all A.
Schulman Inc. shareholders the opportunity to send a message to the A.
Schulman Inc. Board that they support the prompt sale of A. Schulman Inc.
to the highest bidder. A strong and or majority vote by the shareholders
would indicate to the board the displeasure felt by the shareholders of the
shareholder returns over many years and the drastic action that should be
taken. Even if it is approved by the majority of the A. Schulman Inc.
shares represented and entitled to vote at the annual meeting, the Maximize
Value Resolution will not be binding on the A. Schulman Inc. Board. The
proponent however believes that if this resolution receives substantial
support from the shareholders, the board may choose to carry out the
request set forth in the resolution:
The prompt auction of A. Schulman Inc. should be accomplished by any
appropriate process the board chooses to adopt including a sale to the
highest bidder whether in cash, stock, or a combination of both. It is
expected that the board will uphold its fiduciary duties to the utmost
during the process.
The proponent further believes that if the resolution is adopted, the
management and the board will interpret such adoption as a message from the
company's stockholders that it is no longer acceptable for the board to
continue with its current management plan and strategies.
I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION"
17
<PAGE> 20
STATEMENT OF THE BOARD OF DIRECTORS RECOMMENDING A VOTE AGAINST STOCKHOLDER
PROPOSAL NO. 2
The Board of Directors and management of the Corporation are committed to
increasing stockholder value and at all times are willing to consider
alternative strategies to accomplish this goal. The Board of Directors, together
with management and outside advisors, regularly evaluate the Corporation's
strategies for maximizing stockholder value and continue to concentrate on
improving the Corporation's earnings on a long-term, sustained basis.
The Board of Directors consists of experienced individuals who are familiar
with the Corporation's businesses and the markets in which the Corporation
operates. The Board of Directors believes that, at present, the interests of the
stockholders are best served by the Corporation focusing primarily on increasing
operating earnings. Therefore, the Corporation will attempt to improve its
long-term prospects by continuing its efforts to increase growth, expand its
global markets and increase market penetration, explore acquisitions and
alliances which will complement the Corporation's businesses, and continue
improvement in operating efficiencies. Further, the Board of Directors believes
that, at present, public market valuations of specialty chemical companies in
general, including the Corporation, are extremely low compared to other periods.
Accordingly, the Board of Directors believes it is not in the best interests of
the Corporation's stockholders to arrange for a sale of the Corporation in the
present market environment.
The Board of Directors believes that continued focus on the Corporation's
increased growth, global market expansion, acquisition strategies and improved
operating efficiencies will enhance stockholder value over the long term. The
Board of Directors believes that this proposal could seriously prejudice and
jeopardize the financial interests of the Corporation's stockholders. Although
the proposal only requests and does not obligate the Board of Directors to take
the recommended action, the Board of Directors believes that an announcement
that such proposal has been adopted could severely damage the Corporation's
relationships with its customers, joint venture partners, independent sales
agents and employees. Such results could have an adverse impact on the
Corporation's ability to compete effectively in the short and long term, leading
to a potential decline in revenues, profits, and stockholder value.
Regardless of the outcome of the vote on this proposal, the Board of
Directors has and will continue to consider all reasonable avenues to increase
stockholder value. However, the Board of Directors believes it is in the best
interests of the stockholders to allow the Board of Directors to maintain the
flexibility of determining the appropriate courses of action. Therefore, for all
of the reasons stated above, the Board of Directors urges stockholders to reject
this proposal.
REQUIRED VOTE
The approval of Mr. Miller's proposal requires the affirmative vote of a
majority of the shares of Common Stock of the Corporation represented at the
meeting in person or by proxy. Neither abstentions nor broker non-votes will be
counted as votes cast, although both will count toward the determination of the
presence of a quorum and both will have the same effect as a vote cast against
the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ADOPTION OF
STOCKHOLDER PROPOSAL NO. 2. PROXIES SOLICITED BY THE BOARD OF DIRECTORS
WILL BE SO VOTED UNLESS STOCKHOLDERS OTHERWISE SPECIFY IN THEIR PROXIES.
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COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers and Directors, and persons who own more than 10% of the
Corporation's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. John M. Myles, an officer
of the Corporation, filed his initial statement of beneficial ownership on Form
3 subsequent to the due date for such filing. Peggy Gordon Elliott, James A.
Karman and Willard R. Holland, each a Director of the Corporation, and James H.
Berick, a former Director of the Corporation, each filed his or her annual
report of beneficial ownership on Form 5 subsequent to the due date for such
filing. Such Forms 5 reported six, five, six and four transactions,
respectively, in connection with units received pursuant to the Corporation's
Directors' Deferred Compensation Plan.
OTHER MATTERS
The Board of Directors knows of no matters to be presented for action at
the Annual Meeting other than those described in this Proxy Statement. Should
other matters come before the meeting, the shares represented by proxies
solicited hereby will be voted in respect thereof in accordance with the best
judgment of the proxy holders.
GENERAL INFORMATION
VOTING OF PROXIES
Shares represented by properly executed proxies will be voted at the
meeting, and if a stockholder has specified how the shares represented thereby
are to be voted, they will be voted in accordance with such specification. It is
intended that shares represented by proxies on which no specification has been
made will be voted for the election of Directors and the ratification of the
selection of the independent accountants and against stockholder proposal No. 1
and stockholder proposal No. 2.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the next Annual
Meeting of Stockholders, presently scheduled for December 1999, must be received
by the Corporation no later than July 13, 1999 for consideration for inclusion
in the proxy statement and form of proxy for that meeting.
REVOCATION OF PROXIES
A proxy may be revoked at any time before a vote is taken or the authority
granted is otherwise exercised. Revocation may be accomplished by the execution
of a later proxy with regard to the same shares or by giving notice in writing
or in open meeting.
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SOLICITATION OF PROXIES
The cost of soliciting the accompanying proxies will be borne by the
Corporation. The Corporation may reimburse brokers, nominees, fiduciaries and
custodians their reasonable expenses for sending proxy material to principals
and obtaining their instructions. In addition to solicitation by mail, proxies
may be solicited in person, by telephone or telegraph or by officers, Directors
and regular employees of the Corporation. Further, the Corporation has retained
Corporate Investor Communications to perform solicitation services in connection
with this proxy statement. For such services, Corporate Investor Communications
will receive a fee of approximately $6,000 and will be reimbursed for certain
out-of-pocket expenses and indemnified against certain liabilities incurred in
connection with this proxy solicitation.
By order of the Board of Directors
JAMES H. BERICK
Secretary
November 9, 1998
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