<PAGE>
[OUTSIDE FRONT COVER PHOTO 1: Chemist with glass test tubes and beekers]
A Schulman Inc.
2000
Annual Report
CREATING
GLOBAL
SOLUTIONS
THROUGH
TECHNOLOGY
<PAGE>
ABOUT THE THEME
---------------
A. Schulman develops, deploys and uses leading-edge technology to provide
solutions for the requirements of today's markets. The Company specializes
its products to meet customer specifications for performance and color. It is
proactive in uncovering opportunities for new-product development.
ABOUT THE COMPANY
-----------------
A. SCHULMAN IS A LEADING INTERNATIONAL SUPPLIER OF HIGH-PERFORMANCE PLASTIC
COMPOUNDS AND RESINS, WHICH ARE USED AS A RAW MATERIAL TO BE MOLDED OR
EXTRUDED BY THE COMPANY'S CUSTOMERS. THE COMPANY'S PRINCIPAL PRODUCT LINES
CONSIST OF PROPRIETARY AND CUSTOM-FORMULATED ENGINEERED PLASTIC COMPOUNDS,
COLOR CONCENTRATES AND ADDITIVES THAT IMPROVE THE APPEARANCE AND PERFORMANCE
OF PLASTICS IN A NUMBER OF SPECIALIZED APPLICATIONS.
END-USE MARKETS INCLUDE AGRICULTURE; APPLIANCES, ELECTRONICS AND
TELECOMMUNICATIONS; AUTOMOTIVE/TRANSPORTATION; BUILDING/CONSTRUCTION; FILM,
FIBER AND PACKAGING; FURNITURE AND HOUSEWARES; LAWN AND GARDEN; MEDICAL AND
HYGIENE; SPORTS AND LEISURE; TOYS; AND A VARIETY OF OTHER INDUSTRIAL AND
CONSUMER PRODUCTS.
A. SCHULMAN IS A TECHNOLOGY-FOCUSED COMPANY, WITH INNOVATIVE CENTERS
DEVOTED TO NEW PRODUCT DEVELOPMENT AND COLOR RESEARCH. THE COMPANY'S
MANUFACTURING FACILITIES HAVE PRODUCT TESTING AND QUALITY CONTROL
LABORATORIES TO ENSURE TIMELY DELIVERY OF HIGH-QUALITY PRODUCTS TO A.
SCHULMAN'S GLOBAL CUSTOMER BASE.
HEADQUARTERED IN AKRON, OHIO, A. SCHULMAN EMPLOYS APPROXIMATELY 2,500
PEOPLE AND HAS 14 MANUFACTURING FACILITIES IN NORTH AMERICA, EUROPE AND THE
ASIA-PACIFIC REGION. A. SCHULMAN STOCK IS QUOTED THROUGH THE NASDAQ NATIONAL
MARKET SYSTEM UNDER THE SYMBOL SHLM. ADDITIONAL INFORMATION ABOUT A. SCHULMAN
CAN BE FOUND ON THE WORLD WIDE WEB AT WWW.ASCHULMAN.COM.
TABLE OF CONTENTS
-----------------
1 FINANCIAL HIGHLIGHTS
3 A. SCHULMAN MARKETS AT A GLANCE
4 LETTER TO STOCKHOLDERS
7 CREATING GLOBAL SOLUTIONS THROUGH TECHNOLOGY
9 DELIVERING FILM, FIBER AND PACKAGING SOLUTIONS WORLDWIDE
11 CONCENTRATING ON COLOR
13 POLYMER APPLICATIONS FOR TRANSPORTATION
14 CONSOLIDATED FINANCIAL STATEMENTS
27 MANAGEMENT'S DISCUSSION AND ANALYSIS
30 SELECTED FINANCIAL DATA
32 CORPORATE INFORMATION
[PHOTO 2: Young man and woman in white lab coats examining sheets of colored
plastic]
<PAGE>
A. Schulman
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended August 31,
2000 1999 1998
-------------- ------------ ------------
<S> <C> <C> <C>
Net sales..................................... $1,032,519,000 $985,623,000 $993,394,000
Net income.................................... $ 37,704,000* $ 47,789,000 $ 50,143,000
Diluted earnings per share of common stock.... $1.25* $1.51 $1.42**
Capital expenditures.......................... $ 32,452,000 $ 35,082,000 $ 30,987,000
Long-term debt and other
non-current liabilities..................... $ 123,086,000 $102,696,000 $ 75,704,000
Long-term liabilities to capital.............. 27.6% 22.4% 17.1%
Stockholders' equity.......................... $ 323,461,000 $356,246,000 $366,271,000
Book value per common share................... $10.99 $11.41 $10.97
Number of stockholders........................ 822 971 1,066
</TABLE>
* Net income includes $2,535,000 or $.07 per share of income from
demutualization of an insurance company and the settlement of an insurance
claim resulting from equipment problems at a North American facility.
** After deducting cumulative effect of accounting change amounting to $.06
per commmon share.
<TABLE>
<CAPTION>
CASH DIVIDENDS PER SHARE
<S> <C> <C> <C>
1st Quarter............................. $.125 $.115 $.105
2nd Quarter............................. .135 .125 .115
3rd Quarter............................. .135 .125 .115
4th Quarter............................. .135 .125 .115
-------------- ------------ ------------
$.530 $.490 $.450
============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK PRICE RANGE High -- Low High -- Low High -- Low
<S> <C> <C> <C>
1st Quarter............................. 19.00 -- 14.44 23.00 -- 13.44 24.75 -- 19.50
2nd Quarter............................. 16.88 -- 12.19 22.75 -- 16.25 26.50 -- 22.38
3rd Quarter............................. 14.38 -- 11.13 18.00 -- 13.00 26.13 -- 19.88
4th Quarter............................. 13.13 -- 10.63 20.25 -- 16.06 21.00 -- 15.69
</TABLE>
<TABLE>
<CAPTION>
NET SALES NET INCOME CAPITAL EXPENDITURES
(Dollars in Billions) (Dollars in Millions) (Dollars in Millions)
[GRAPH] [GRAPH] [GRAPH]
<S> <C> <C> <C>
Fiscal Year 2000 $1.033 $37.704 $32.452
Fiscal Year 1999 $ .986 $47.789 $35.082
Fiscal Year 1998 $ .993 $50.143 $30.987
Fiscal Year 1997 $ .996 $50.744 $27.201
Fiscal Year 1996 $ .997 $42.177 $18.542
Fiscal Year 1995 $1.028 $53.618 $58.533
Fiscal Year 1994 $ .749 $44.571 $25.302
Fiscal Year 1993 $ .685 $36.738 $18.158
Fiscal Year 1992 $ .732 $43.760 $15.827
Fiscal Year 1991 $ .736 $42.349 $17.997
</TABLE>
1
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[PHOTO 3: Miscellaneous items containing the Company's products, including
multi-colored plastic plates, toothbrushes, cotton swabs, orange
electrical outlet, red helmet, dart board with darts, soda bottle,
plastic connecting blocks, model of a silver car, etc.]
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A. SCHULMAN MARKETS AT A GLANCE
<TABLE>
<CAPTION>
MARKET DESCRIPTION APPLICATIONS
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<S> <C> <C>
AGRICULTURE Additive and color Greenhouses, tunnels, mulch and
masterbatches/ concentrates for insect-repellent films for a
films that increase plant wide range of plants. Modified
yields, control ripening, atmosphere films for improving
protect against pests and the shelf life of fruits and
moderate soil temperatures in vegetables. Anti-fogging films
extreme climates. Color for packaging fresh-cut leafy
concentrates that enhance the vegetables.
pigmentation of fruits and
vegetables and increase nutrient
values.
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APPLIANCES/ELECTRONICS/ Specialty compounds that Kitchen and household
TELECOM withstand high temperature, are appliances, power tools, and
impact resistant, meet flame packaging for semiconductors and
retardancy and electrical safety other electronic components.
standards, or have anti-static
or semi-conductive properties.
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AUTOMOTIVE/ Polymer resins and compounds, Exterior, interior and under the
TRANSPORTATION reinforcements, modifiers and hood of cars, trucks,
additives to reduce vehicle motorcycles, watercraft and
weight and improve durability other modes of transportation.
and performance. Color, style,
weatherability and impact
resistance are important
considerations.
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BUILDING/CONSTRUCTION Application-specific color Gas pipes, pipes for
concentrates and additives that transporting potable water, air
are used in installed parts in conditioner ducts, water storage
residential and commercial tanks, protective films for
building projects, or during welders, roofing compounds,
project work. building construction nets, and
colored, wood-like building
materials.
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GENERAL FILM, FIBER AND Concentrates and masterbatches Packaging for soft drinks, meat,
PACKAGING to address specialty packaging fruits and vegetables, snack
needs for anti-static, foods, cheese, bread, foods in
durability, color, product plastic containers, detergents
protection, breathability, and shampoos, medical products,
anti-bacterial applications, and industrial packaging such as
food freshness and anti-fogging. plastic sacks, and stretch and
shrink films; fiber in
carpeting; and breathable films.
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FURNITURE AND HOUSEWARES Compounds that meet stringent Plastic dinnerware, plastic
consumer standards for chairs and benches, furniture
durability, color and gloss. fibers, coatings for flashlight
casings.
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LAWN AND GARDEN Compounds for rotational Plastic lawn and deck furniture,
molding, blow molding, injection and plastic colorants and
molding and extrusion grades. additives for lawn and garden
equipment such as tractors and
lawnmowers.
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MEDICAL/HYGIENE Breathable films and materials Baby diapers, hygiene products,
for disposable and reusable and disposable surgical/medical
applications. garments and masks.
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SPORTS AND LEISURE Rotational molding to make ATVs and motorcycles, kayaks and
large, hollow parts that address boats, swim lane markers,
weatherability; abrasion, heat baseball batting helmets, and
and water resistance; and golf carts.
high-gloss, low-gloss or matte
finish.
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TOYS Child-safe compounds and Plastic playhouses and swing
elastomers that are durable and sets, and children's action
soft, and rotational molding figures and accessories.
compounds for larger toys.
</TABLE>
3
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TO OUR STOCKHOLDERS:
Net income for our fourth quarter ended August 31, 2000 was $6,676,000 or $.23
per common share, compared with $15,034,000 or $.48 per share, a fourth quarter
record last year. Sales for the final quarter of fiscal 2000 were $235.5
million, off 2.4% from last year's fourth quarter sales of $241.3 million.
For the fiscal year ended August 31, 2000, net income was $37,704,000 or
$1.25 per common share compared with last year's earnings of $47,789,000 or
$1.51 per share, the highest per share earnings in the history of A. Schulman.
Net income for fiscal 2000 includes $2,535,000 or $.07 per share of income in
the first half of the year from demutualization of an insurance company and the
settlement of an insurance claim resulting from equipment problems at a North
American facility.
Basic and diluted per share earnings are the same for all reported periods.
Sales of $1.032 billion for fiscal 2000 were A. Schulman's highest ever, an
increase of 4.8% over 1999 sales of $985.6 million. Total volume for the year
was up 3.4%, primarily due to a 9% increase in tonnage for manufactured
products.
The translation effect of currencies, primarily the Euro, reduced sales by
$17.6 million for the quarter and $71.4 million for the year. Net income was
adversely impacted by $1.3 million or $.05 for the quarter and $4.2 million or
$.14 per share for the year.
Fiscal 2000 has been a challenging year. There were significant increases
in resin prices throughout most of the year, and competitive price pressures
resulted in less than satisfactory profit margins. The weakening of the Euro
also had a large adverse effect on sales and profits. Nevertheless, there have
been a number of accomplishments.
Sales were a new record for fiscal 2000 due to the efforts of our sales
team throughout the world. An important factor was the successful integration of
a new large manufacturing line in Givet, France, which commenced operation in
the final quarter of fiscal 1999. Our new business processes and information
systems are now in operation at all major locations and have enhanced our
operating capabilities. We have a strong financial position with good cash flow.
REVIEW OF FOURTH QUARTER AND FULL YEAR RESULTS
The major reasons for the decline in profits for the quarter ended August
31, 2000 were lower profit margins due to the higher cost of plastic feedstocks,
weaker than anticipated volume and deterioration in the value of the Euro. In
addition, the Company was unable to utilize anticipated tax benefits, which
resulted in higher than expected income taxes.
Demand softened in the fourth quarter of fiscal 2000 due to broad-based
inventory reductions by customers who were anticipating stabilization of plastic
resin prices. Volume declined 2.6%, mainly due to 4% lower tonnage in our
European business.
Gross profit margins for the fourth quarter declined from 19.2% last year
to 15.6% in 2000. Profit margins in North America were up approximately 100
basis points, but this was more than offset by a sharp decline in Europe, where
margins dropped to 16% from 23% last year.
For the fiscal year, gross profit margins were off approximately 200 basis
points in both Europe and North America. Margins were 16.2% in fiscal 2000
compared with 18.3% in the 1999 fiscal year. Margins declined due to the higher
cost of plastic resins and competitive price pressures.
Taxes were approximately $3 million higher than the expected rate for the
quarter and fiscal year. The higher taxes occurred because the Company was
unable to utilize anticipated tax benefits, primarily foreign tax credits.
CAPITAL INVESTMENTS
Capital expenditures were $32 million for fiscal 2000. These expenditures
included the July 2000 acquisition of a manufacturing facility in Milan, Italy.
This facility, with an annual capacity of approximately 25 million pounds, cost
$5.6 million and provides the capability to increase our value added business in
Italy, an important part of our European growth strategy.
A new line was installed in our Nashville, Tennessee location and commenced
production in September 2000. We are adding another line to our Mexican
facility, which should begin production in early spring 2001. We will also add a
line to the Sunprene operation, a joint venture with MKV. This line is scheduled
to commence production in spring 2001.
SPAIN
We increased our presence in Spain by purchasing several small distribution
businesses. We also added to our customer base and now have offices in
Barcelona, Madrid and Valencia. We believe that Spain is an important market and
offers many new opportunities for our global business.
SHARE REPURCHASE PROGRAM
During the year ended August 31, 2000, we repurchased 1,799,333 of our common
shares for $24.1 million, an average cost of $13.39 per share. We currently have
<PAGE>
1,893,000 shares remaining under a 6 million-share repurchase authorization
approved by the Board in August 1998. As of August 31, 2000, there were
29,330,822 shares outstanding, a 5.8% decrease from the shares outstanding at
the end of fiscal 1999.
DIVIDENDS
In January 2000, for the eighteenth consecutive year, we increased the cash
dividends from $.50 to $.54 per share on an annual basis. This increase,
amounting to 8%, reflects the financial stability of A. Schulman and our
confidence for the future.
MANAGEMENT TEAM
During the year, we strengthened our management team with the appointment of
Ronald G. Andres as Vice President of North American Manufacturing. We also
appointed Dr. Rengarajan Ramesh to a new corporate position, Vice President of
Technology. Both of these individuals have been with us for a number of years
serving in various positions throughout our worldwide operations.
BOARD OF DIRECTORS
In April 2000, we added two new directors to our Board, which now has eleven
members. Joseph M. Gingo is a Senior Vice President for Technology and Global
Products Planning for The Goodyear Tire & Rubber Company. John B. Yasinsky is
Chairman and Chief Executive Officer of OMNOVA Solutions, Inc. These directors
have extensive international and polymer experience that will benefit us in the
years ahead.
RATIONALIZATION OF PRODUCTS AND SHUTDOWN OF SELECTED MANUFACTURING LINES
During the year, we reviewed our overall product offerings and, where necessary,
rationalized products where profits were below our expectations. We also shut
down certain manufacturing lines in our Orange, Texas; Nashville, Tennessee; and
Bellevue, Ohio facilities. These lines provided capacity no longer required or
products with income less than required under our overall plan. Total capacity
from the closure of these lines was approximately 38 million pounds.
PLANT CLOSING
We announced in October 2000 our intention to terminate manufacturing at our
plant in Akron, Ohio. This facility currently represents about 13% of our North
American capacity. A combination of plastics industry economic and financial
factors led to the decision to end manufacturing at the facility, our oldest and
most expensive to operate. The production of compounds from this plant will be
transferred to our other manufacturing facilities. Manufacturing will be
terminated in approximately 90 days. The building will be retained for product
sampling and as a warehouse and logistics center.
BUSINESS OUTLOOK
We currently have a good level of orders, especially in Europe. However, there
are a number of signs that demand and economic activity may be slowing, which
will make it difficult to achieve the level of earnings projected in our
financial plan.
The months ahead will provide continuing challenges. We anticipate more
margin pressures, further softening in demand and no significant improvement in
the Euro, which by itself at today's rates could adversely impact quarterly
earnings by $.05 per share. Currently, we anticipate that fiscal 2001
first-quarter profits could be off at least 25% from last year's first-quarter
profit of $11,942,000 or $.38 per share.
Although the quarters ahead present a number of challenges, we remain
optimistic about the outlook for A. Schulman.o
[PHOTO 4: Terry L. Haines, on the left, and Robert A. Stefanko, on the right,
in a laboratory]
/s/ Terry L. Haines
Terry L. Haines (left)
President and
Chief Executive Officer
/s/ Robert A. Stefanko
Robert A. Stefanko (right)
Chairman
November 6, 2000
5
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[PHOTO 5: Inset photo of a multi-colored
model of a molecule over a printout
of a graph]
<PAGE>
CREATING GLOBAL SOLUTIONS THROUGH TECHNOLOGY
A. Schulman specializes in the timely development of polymer solutions that
address market needs or customer specifications for performance and color. The
Company deploys advanced technology at all levels of the organization -- from
its industry-leading product development capabilities to its state-of-the-art
manufacturing facilities. The technology is designed to bring excellence and
efficiency to every customer interaction.
In recent years, the Company has made significant investments in its
technical capabilities. The impact of these investments provides new products, a
wider range of applications and an enhanced ability to serve diverse global
markets, including agriculture, automotive, electronics and telecommunications,
medical and hygiene, packaging, sports and leisure products, and toys.
At the product development stage, two technology centers in the U.S. and
similar facilities in Europe develop polymer technology to address product
performance criteria such as color, weatherability, flexibility, dimensional
stability, printability, strength, and resistance to chemicals, heat and
moisture. The centers develop and test various plastic resins, concentrates,
additives and blends on a small scale, and then help the Company's plants and
customers scale up to full production.
[PHOTO 6: Portion of a spinning globe]
The Company also has state-of-the-art manufacturing technology. Twelve of
its 14 manufacturing facilities are ISO 9001-registered. In the last year, A.
Schulman has added capacity and/or capabilities through investments in process
automation and robotics in plants in North America, Europe and Asia. In
addition, during the year, A. Schulman acquired a manufacturing facility in
Italy, one of the largest and fastest-growing plastics markets in Europe.
A. Schulman's technology is strategically deployed globally to capitalize
on growth markets and core competencies in various parts of the world. For
example, A. Schulman has a strong presence in the film, fiber and packaging
markets in Europe and Asia, while in North America, it is an important supplier
to the automotive industry. A. Schulman has the distinct ability to share
technology across its various locations for the film and packaging, and
automotive markets. This strategy enables the Company to bring existing products
to new markets and to introduce new products quickly and efficiently.
A. Schulman has deployed a number of technology tools to deliver
outstanding customer service in an efficient manner. These customer relationship
management tools include new information systems, redesigned business processes,
the centralized Customer Sales Support Center, electronic access to information,
and enhanced warehousing and logistics capabilities.
A. Schulman is known as a specialty plastics market leader that deploys
technology solutions that are customer-focused and market-driven.-
------------------------
A. Schulman specializes in applying polymer technology to address a wide variety
of product performance criteria. It has particular expertise in color
applications. With a large and growing presence throughout North America, Europe
and Asia, the Company is able to share technology across its various locations
and markets.
7
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[PHOTO 7: Inset photo of lettuce, three
red tomatoes, scallions, sliced
onions, and a yellow bell pepper
on a white cutting board with
knife over photo of a circuit board]
8
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DELIVERING FILM, FIBER AND PACKAGING SOLUTIONS WORLDWIDE
A. Schulman serves the growing film, fiber and packaging markets by providing
expertise in technology and product innovation.
A. Schulman specializes in developing customized concentrates and
masterbatches that customers can run reliably and efficiently. The Company's
applications provide for flexible packaging for foods, detergents, diapers,
toothpaste and for industrial packaging solutions such as heavy duty plastic
sacks, and stretch and shrink films for pallet packaging. In addition, A.
Schulman produces anti-static concentrates that are used in the packaging of
semiconductors and printed circuit boards to protect sensitive electronics from
static charge.
The Company's film solutions are used in numerous markets around the world,
including building construction, food and agriculture, and medical and hygiene.
The Company also provides color concentrates and performance additives for use
in carpet fibers.
A. Schulman serves the appliance industry with specialty compounds that can
withstand high temperature, are impact resistant, and meet applicable standards
for flame retardancy and electrical safety. The Company's proprietary solutions
are designed to meet strict customer criteria for household appliances and power
tools. A. Schulman has been an important supplier to U.S. and European appliance
and power tool producers for more than two decades. The Company also supplies
materials to China, South America and Eastern Europe, where many of the parts
are made and assembled today.
[PHOTO 8: A portion of a circuit board]
In building construction, A. Schulman has developed several flame-resistant
building materials for roofing laminate structures that help control indoor
environments even in very hot, dry climates.
Food and agriculture are important, growing market opportunities for A.
Schulman, especially in areas of the world that have trouble feeding the
population or face extreme weather conditions. The Company's agricultural
solutions include providing the color concentrate solution for red plastic mulch
that increases the yield of tomato plants, and an insect-repellent film used on
bananas as an environmentally friendly alternative to pesticides. The Company
also produces materials for food-approved packaging that improves the shelf life
of foods such as bread and pre-packaged salad mix. The films not only prevent
mold growth and premature wilting or over-ripening but also have anti-fogging
and transparent properties that drive consumer sales.
The Company is also a major supplier of color concentrates and additive
masterbatches used in breathable films for baby diapers, hygiene products,
medical face masks, and disposable surgical and emergency room garments. A
steady stream of product development in breathable films enables A. Schulman to
meet these markets' strict demands for comfort and protection.
Film, fiber and packaging is a significant and growing portion of A.
Schulman's business. The Company deploys its technology and product innovation
capabilities quickly to capitalize on new opportunities as they arise throughout
the world.-
---------------------
Film, fiber and packaging is an important part of A. Schulman's business. As
shown on the left, the Company's products are used for antibacterial films for
cutting boards and for food packaging that help fruits and vegetables grow and
ripen. On the right is a printed circuit board, which utilizes A. Schulman
concentrates that are used in protective packaging of these sensitive
electronics.
9
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[PHOTO 9: Inset photo of various white
consumer products bottles and
tubes over a red and blue
background photo]
10
<PAGE>
CONCENTRATING ON COLOR
Color is one of the most important performance characteristics for any plastic
material. It is also paramount to A. Schulman's customers, an essential
component in their marketing and brand identity programs.
A. Schulman's development of colors is both a science and an art -- a
science of color spectrum analysis and chemical compounding, and an art of
achieving the right color scheme.
The Company's expertise lies in the development of solutions that are
color-matched. The colors are then combined with various base resins to meet
customer specifications. The Company also ensures that manufacturing will
provide consistently high-quality concentrates and additives throughout its
worldwide operations.
For several decades, A. Schulman has been a specialty plastics industry
leader in color, and has continued to upgrade its capabilities. The Company's
color program covers all of the technical aspects of product development,
prototyping and testing. For example, A. Schulman technicians address the
intricacies of how certain color solutions will appear, depending on the shape
of the end product, surface quality and environmental conditions such as
actual-use lighting.
[PHOTO 10: Rolls of red, yellow, brown,
black and green carpet fibers]
A. Schulman's Color Technology Center features the latest equipment for
colored plastics research -- including spectrophotometers and color-matching
software, which enable technicians to complete exact color matches in just a few
hours. In addition, A. Schulman has expanded capabilities to develop products
with metallic, fluorescent or phosphorescent looks. The center also has a
production-quality prototyping area to demonstrate and test manufacturing
processes before they are implemented at A. Schulman plants or by customers.
A. Schulman provides color solutions in virtually all of its target markets
-- from automotive/transportation to the wide spectrum of film, fiber and
packaging applications. For example, A. Schulman has worked with a major U.S.
automaker to create the color palette for its vehicles that are produced around
the world. In addition, the Company has helped consumer products companies and
soft drink producers, among other companies, standardize their color choices for
product packaging.
Once exact color requirements are determined, A. Schulman technicians work
with the plants and the customer's facilities to ensure that the color solution
can be reliably replicated everywhere it is needed. If a customer needs help, A.
Schulman offers its expertise in pigments, resin sourcing, and production
control methods. Such expertise is one of the reasons that A. Schulman has a
global contract to produce the pure-white concentrate for a major consumer
products company.
Having a core competency in color development and color-matching is one
indication of A. Schulman's technological capabilities. It is also one of the
areas of expertise that customers value most when they choose A. Schulman as a
supplier.-
-----------------------
From its Color Technology Center to its manufacturing lines, a core
competency of A. Schulman is the science and art of developing color
solutions. For example, A. Schulman has a global contract to produce the
pure-white concentrate for Procter & Gamble's consumer products bottles
(left). -C- The Procter & Gamble Company, used by permission. Carpet fibers
(right) are another area where the Company's expertise in color creates high
value for customers.
11
<PAGE>
[PHOTO 11: Inset photo of the front of
a red Chrysler PT Cruiser over
a photo of a green chalkboard
upon which math equations are
written]
12
<PAGE>
POLYMER APPLICATIONS FOR TRANSPORTATION
Plastics are a material of choice in the automotive/transportation industry,
where reducing vehicle weight and improving durability and appearance are
paramount. A. Schulman provides the industry's engineers and designers with a
broad diversity of specialty plastics products for exterior, interior and
under-the-hood applications for cars, trucks, motorcycles, watercraft and other
modes of transportation. The automotive/transportation industry is a significant
market for A. Schulman in North America and offers growth opportunities in
Europe and Asia.
A. Schulman has an intimate understanding of its customers in this market
and the ability to help them select the ideal products for specific
applications. At its Product Technology Center, technicians develop and test
various combinations of resins, reinforcements, modifiers and additives for
strength, stiffness, tear resistance, printability and other properties. A.
Schulman's goal is to help customers find the optimal solution, whether it is
injection molding, blow molding, compression molding or thermoforming
applications.
Materials from A. Schulman are used in a wide variety of exterior
components, including bumper fascias, body side moldings and grilles. A.
Schulman products are designed to meet specific customer requirements for
cost, gloss, weatherable colors, and scratch and mar resistance. For example,
the Surlyn-Registered Trademark- Reflection Series-TM- resins, which are
manufactured by DuPont and color-styled by A. Schulman, duplicate the
high-gloss appearance of a painted part, thus eliminating the costly final
step of painting. The product is being used for bumper covers on current
models of the Dodge Neon and on Harley-Davidson's Buell Blast motorcycle.
[PHOTO 12: Photo of young woman wearing
black and riding a red Harley-
Davidson Buell Blast motorcycle]
For vehicle interiors, A. Schulman products are used in door trim,
armrests, instrument panels and overhead components. In recent years, the
Company has developed a number of soft-touch materials to meet customer
requirements for durability and scratch resistance even after several years of
use. For example, the interiors of Chrysler's new PT Cruiser and Pontiac's new
Aztek -- including the doors, armrests and seats -- feature a number of A.
Schulman products.
With A. Schulman's core competency in color technology, the Company is able
to match exact color specifications and help customers devise attractive,
durable color schemes for vehicle interiors and exteriors. From its Color
Technology Center to its plant-level quality assurance labs and production
floor, A. Schulman has the ability to deliver consistent, high-quality color
solutions to its transportation/automotive customers.
Under the hood, engineered resins and compounds from A. Schulman reduce
weight and noise, improve design flexibility and styling, and increase chemical
and heat resistance. Applications include engine covers, fans, air intake
manifolds, thermostat housings, transmission covers, radiator inlets/outlets,
and power steering fluid reservoirs.
A. Schulman serves the automotive/transportation industry by developing
products that offer unique properties and customer benefits. The Company works
directly with customers to develop problem-specific solutions, as well as
pursuing internal ideas that could lead to new products and market
opportunities.-
----------------------
A. Schulman specialty plastics products are used for vehicle interiors,
exteriors and under-the-hood applications. On the left, the distinctively
retro-looking Chrysler PT Cruiser uses A. Schulman materials for the interior
panels and arm rests. On the right, the sporty Buell Blast, made by
Harley-Davidson, features highly durable engineered resins that create a
high-gloss, bright-red look and eliminates the need for painting.
13
<PAGE>
A. Schulman, Inc.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------
2000 1999 1998
---------------- -------------- --------------
<S> <C> <C> <C>
NET SALES..................................................... $ 1,032,519,000 $ 985,623,000 $ 993,394,000
INTEREST AND OTHER INCOME..................................... 6,703,000 2,712,000 3,072,000
---------------- -------------- --------------
TOTAL.................................................... 1,039,222,000 988,335,000 996,466,000
---------------- -------------- --------------
COSTS AND EXPENSES:
Cost of sales............................................... 865,357,000 805,030,000 823,856,000
Selling, general and administrative expenses................ 97,893,000 99,317,000 85,293,000
Interest expense............................................ 6,235,000 3,716,000 1,933,000
Foreign currency transaction (gains) losses................. (500,000) 480,000 (1,669,000)
Minority interest........................................... 2,138,000 1,836,000 724,000
---------------- -------------- --------------
971,123,000 910,379,000 910,137,000
---------------- -------------- --------------
INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGE...................................................... 68,099,000 77,956,000 86,329,000
PROVISION FOR U.S. AND FOREIGN INCOME TAXES................... 30,395,000 30,167,000 34,179,000
---------------- -------------- --------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE.......... 37,704,000 47,789,000 52,150,000
CUMULATIVE EFFECT OF ACCOUNTING CHANGE........................ -- -- (2,007,000)
---------------- -------------- --------------
NET INCOME.................................................... $ 37,704,000 $ 47,789,000 $ 50,143,000
================ ============== ==============
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic....................................................... 30,224,433 31,671,768 35,236,098
Diluted..................................................... 30,224,433 31,679,614 35,275,327
BASIC AND DILUTED EARNINGS PER SHARE OF COMMON STOCK:
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE........ $ 1.25 $ 1.51 $ 1.48
CUMULATIVE EFFECT OF ACCOUNTING CHANGE...................... -- -- (0.06)
---------------- -------------- --------------
NET INCOME.................................................. $ 1.25 $ 1.51 $ 1.42
================ ============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE>
A. Schulman, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED UNEARNED
OTHER STOCK TOTAL
OTHER RETAINED COMPREHENSIVE GRANT COMPREHENSIVE
COMMON STOCK CAPITAL EARNINGS INCOME COMPENSATION INCOME
------------ ------------ ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 31,
1997................. $ 38,343,000 $ 44,412,000 $ 361,591,000 $ (6,573,000) $(1,152,000)
Comprehensive income
for 1998:
Net income for
1998............... 50,143,000
Foreign currency
translation loss... (2,344,000)
Total comprehensive
income........... $ 47,799,000
============
Cash dividends paid or
accrued:
Preferred stock, $5
per share.......... (53,000)
Common stock, $.45
per share.......... (15,935,000)
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)
Comprehensive income
for 1999:
Net income for
1999............... 47,789,000
Foreign currency
translation loss... (8,274,000)
Total comprehensive
income........... $ 39,515,000
============
Cash dividends paid or
accrued:
Preferred stock, $5
per share.......... (53,000)
Common stock, $.49
per share.......... (15,602,000)
Issue of restricted
stock................ 34,000 (50,000)
Grant of restricted
stock................ 966,000 (966,000)
Amortization of
restricted stock..... 664,000
------------ ------------ ------------- ------------ -----------
Balance at August 31,
1999................. 38,381,000 46,694,000 427,880,000 (17,191,000) (2,296,000)
Comprehensive income
for 2000:
Net income for
2000............... 37,704,000
Foreign currency
translation
loss............. (30,260,000)
Minimum pension
liability
adjustment......... (552,000)
Total comprehensive
income........... $ 6,892,000
============
Cash dividends paid or
accrued:
Preferred stock, $5
per share.......... (53,000)
Common stock, $.53
per share.......... (16,163,000)
Grant of restricted
stock................ 958,000 (958,000)
Amortization of
restricted stock..... 651,000
------------ ------------ ------------- ------------ -----------
Balance at August 31,
2000................. $ 38,381,000 $ 47,652,000 $ 449,368,000 $(48,003,000) $(2,603,000)
============ ============ ============= ============ ===========
</TABLE>
15
<PAGE>
A. Schulman, Inc.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 26,866,000 $ 56,836,000
Accounts receivable, less allowance for doubtful accounts of $4,535,000 in 2000 and
$3,678,000 in 1999................................................................ 162,074,000 159,840,000
Inventories, average cost or market, whichever is lower............................. 184,768,000 171,454,000
Prepaids, including tax effect of temporary differences............................. 16,122,000 19,966,000
------------- -------------
TOTAL CURRENT ASSETS.............................................................. 389,830,000 408,096,000
------------- -------------
OTHER ASSETS:
Cash surrender value of life insurance.............................................. 594,000 484,000
Deferred charges, etc., including tax effect of temporary differences............... 22,555,000 22,604,000
------------- -------------
23,149,000 23,088,000
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and improvements............................................................... 10,849,000 9,982,000
Buildings and leasehold improvements................................................ 79,545,000 78,038,000
Machinery and equipment............................................................. 221,664,000 228,803,000
Furniture and fixtures.............................................................. 23,296,000 24,162,000
Construction in progress............................................................ 11,631,000 7,838,000
------------- -------------
346,985,000 348,823,000
Accumulated depreciation and investment grants of $921,000 in 2000 and $230,000 in
1999.............................................................................. 187,074,000 188,480,000
------------- -------------
159,911,000 160,343,000
------------- -------------
$ 572,890,000 $ 591,527,000
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE>
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
2000 1999
-------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable...................................................................... $ 7,960,000 $ 10,721,000
Accounts payable................................................................... 61,628,000 64,402,000
U.S. and foreign income taxes payable.............................................. 9,456,000 6,721,000
Accrued payrolls, taxes and related benefits....................................... 17,243,000 19,180,000
Other accrued liabilities.......................................................... 16,337,000 16,792,000
-------------- -------------
TOTAL CURRENT LIABILITIES........................................................ 112,624,000 117,816,000
-------------- -------------
LONG-TERM DEBT..................................................................... 83,638,000 65,000,000
OTHER LONG-TERM LIABILITIES........................................................ 39,448,000 37,696,000
DEFERRED INCOME TAXES.............................................................. 8,788,000 11,375,000
MINORITY INTEREST.................................................................. 4,931,000 3,394,000
STOCKHOLDERS' EQUITY:
Preferred stock, 5% cumulative, $100 par value, authorized, issued and outstanding
- 10,567 shares in 2000 and 10,689 in 1999....................................... 1,057,000 1,069,000
Special stock, 1,000,000 shares authorized, none outstanding....................... -- --
Common stock, $1 par value
Authorized - 75,000,000 shares
Issued - 38,381,017 shares in 2000 and 1999...................................... 38,381,000 38,381,000
Other capital...................................................................... 47,652,000 46,694,000
Accumulated other comprehensive income............................................. (48,003,000) (17,191,000)
Retained earnings.................................................................. 449,368,000 427,880,000
Treasury stock, at cost, 9,050,195 shares in 2000 and 7,250,862 shares in 1999..... (162,391,000) (138,291,000)
Unearned stock grant compensation.................................................. (2,603,000) (2,296,000)
-------------- -------------
COMMON STOCKHOLDERS' EQUITY........................................................ 322,404,000 355,177,000
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY....................................................... 323,461,000 356,246,000
-------------- -------------
$ 572,890,000 $ 591,527,000
============== =============
</TABLE>
17
<PAGE>
A. Schulman, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------
2000 1999 1998
<S> <C> <C> <C>
Provided from (used in) operating activities:
Net income..................................................... $ 37,704,000 $ 47,789,000 $ 50,143,000
Items not requiring the current use of cash:
Cumulative effect of accounting change....................... -- -- 2,007,000
Depreciation................................................. 21,585,000 20,773,000 17,817,000
Non-current deferred taxes................................... (3,179,000) 775,000 192,000
Foreign pension and other deferred compensation.............. 2,506,000 2,321,000 2,129,000
Postretirement benefit obligation............................ 1,657,000 1,325,000 814,000
Changes in working capital:
Accounts receivable.......................................... (30,226,000) (17,808,000) 1,531,000
Inventories.................................................. (28,083,000) (9,388,000) (3,180,000)
Prepaids..................................................... 2,685,000 (43,000) (3,209,000)
Accounts payable............................................. 17,322,000 10,412,000 (2,517,000)
Income taxes................................................. 3,452,000 (3,014,000) (1,306,000)
Accrued payrolls and other accrued liabilities............... 811,000 2,531,000 721,000
Changes in other assets and other long-term liabilities........ (264,000) (3,847,000) (1,341,000)
-------------- -------------- --------------
Net cash provided from operating activities................ 25,970,000 51,826,000 63,801,000
-------------- -------------- --------------
Provided from (used in) investing activities:
Expenditures for property, plant and equipment................. (32,452,000) (35,082,000) (30,987,000)
Disposals of property, plant and equipment..................... 1,941,000 432,000 812,000
Purchases of short-term investments............................ -- -- (8,160,000)
Proceeds from sales of short-term investments.................. -- -- 10,957,000
-------------- -------------- --------------
Net cash used in investing activities (30,511,000) (34,650,000) (27,378,000)
-------------- -------------- --------------
Provided from (used in) financing activities:
Cash dividends paid............................................ (16,216,000) (15,648,000) (15,946,000)
Increase (decrease) of notes payable........................... (1,989,000) 6,831,000 1,000,000
Reduction of long-term debt.................................... -- (25,000,000) (45,000)
Increase of long-term debt..................................... 19,075,000 50,000,000 28,000,000
Exercise of stock options...................................... -- -- 101,000
Investment grants from foreign countries....................... 875,000 -- 70,000
Increase (decrease) in minority interest, net of
distributions................................................ 1,538,000 486,000 (326,000)
Purchase of treasury stock..................................... (24,100,000) (34,533,000) (59,469,000)
Redemption of preferred stock.................................. (12,000) -- --
-------------- -------------- --------------
Net cash used in financing activities...................... (20,829,000) (17,864,000) (46,615,000)
-------------- -------------- --------------
Effect of exchange rate changes on cash.......................... (4,600,000) (3,242,000) 1,811,000
-------------- -------------- --------------
Net decrease in cash and cash equivalents........................ (29,970,000) (3,930,000) (8,381,000)
Cash and cash equivalents at beginning of year................... 56,836,000 60,766,000 69,147,000
-------------- -------------- --------------
Cash and cash equivalents at end of year......................... $ 26,866,000 $ 56,836,000 $ 60,766,000
============== ============== ==============
Cash paid during the year for:
Interest....................................................... $ 6,063,000 $ 3,470,000 $ 1,842,000
Income Taxes................................................... $ 26,583,000 $ 31,621,000 $ 36,069,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
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
$6,003,000 at August 31, 2000 and $39,705,000 at August 31, 1999. 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.
REVENUE RECOGNITION
Revenue is recognized when product is shipped.
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:
<TABLE>
<S> <C>
Buildings and leasehold improvements 10 to 40 years
Machinery and equipment 5 to 10 years
Computer equipment 3 to 5 years
Furniture and fixtures 10 years
</TABLE>
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 $5,557,000 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.
Accumulated other comprehensive income in stockholders' equity includes
translation adjustments arising from the use of different exchange rates 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.
19
<PAGE>
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 7.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is
effective for the Company beginning September 1, 2000. SFAS 133 requires that
all derivative instruments are recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. Management of the Company anticipates that, due to
its limited use of derivative instruments, the adoption of SFAS 133 will not
have a significant effect on the Company's results of operations or its
financial position.
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 $79,000 in 2000,
$109,000 in 1999 and $123,000 in 1998.
NOTE 3 -- LONG-TERM DEBT AND CREDIT ARRANGEMENTS
<TABLE>
<CAPTION>
August 31,
2000 1999
=========== ===========
<S> <C> <C>
A. Schulman, Inc.:
Revolving credit loan, 6.89% in 2000
and 5.43% in 1999....................... $32,000,000 $15,000,000
Senior notes, 7.27% due 2009:............. 50,000,000 50,000,000
Capital lease obligations and other....... 1,638,000 --
----------- -----------
$83,638,000 $65,000,000
=========== ===========
</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 71/2 basis points must be paid to the
banks.
On August 17, 1999, the company completed a private placement agreement
for $50,000,000 of Senior Notes due in 2009. The interest rate is fixed at
7.27% and is payable quarterly with principal due upon maturity in 2009. In
1999, a fixed rate swap was used covering the $50,000,000 private placement
debt to reduce the Company's risk of increased interest costs during a period
of rising interest rates.
Proceeds from this swap totaling $630,000 have been deferred and will be
amortized over the life of the loan effectively reducing the annual interest
rate from 7.27% to 7.14%. The financial institution that participated in the
contract has a good credit rating.
Under the most restrictive covenants of the revolving credit agreement
and the Senior Notes, approximately $43,186,000 of retained earnings was
available for the payment of cash dividends at August 31, 2000.
The Company has $34,000,000 of unsecured short-term lines of credit from
various domestic banks. Short-term borrowings under these facilities were
$1,800,000 at August 31, 2000 and $3,000,000 at August 31, 1999 at weighted
average interest rates of 7.04% and 6.13% respectively.
The Company had $44,180,000 of unsecured short-term foreign lines of
credit available to its subsidiaries at August 31, 2000 and had $41,423,000
available at August 31, 1999. Borrowings under these lines of credit were
$6,160,000 at August 31, 2000 and $7,721,000 at August 31, 1999 at weighted
average interest rates of 5.05% and 6.00% respectively.
The Company leases certain buildings with a net carrying value of
$1,300,000 for its European segment under a capital lease. Interest charges
on the lease are calculated semi-annually at a rate of 5.85%, with the net
carrying value classified as building in the consolidated balance sheet.
Aggregate maturities of long-term debt including capital lease
obligations subsequent to August 31, 2000 were as follows: 2002-$32,260,000,
2003-$373,000, 2004-$373,000, 2005-$372,000, 2006-$260,000; and
2009-$50,000,000.
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
20
<PAGE>
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, 2000 and August 31, 1999:
<TABLE>
<CAPTION>
2000 1999
========================== ===========================
Contract Fair Contract Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Buy Currency:
Euro.............. $ 5,497,000 $ 5,465,000 $ -- $ --
German mark....... -- -- 1,028,000 1,031,000
All other......... 192,000 185,000 512,000 513,000
----------- ----------- ----------- -----------
$ 5,689,000 $ 5,650,000 $ 1,540,000 $ 1,544,000
=========== =========== =========== ===========
Sell Currency:
Euro.............. $ 4,138,000 $ 4,138,000 $ -- $ --
German mark....... -- -- 5,123,000 4,854,000
British pound..... 6,346,000 6,509,000 300,000 300,000
U.S. dollar....... 411,000 435,000 577,000 611,000
----------- ----------- ----------- -----------
$10,895,000 $11,082,000 $ 6,000,000 $ 5,765,000
=========== =========== =========== ===========
</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 (loss) before taxes is as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
2000 1999 1998
=========== =========== ===========
<S> <C> <C> <C>
Domestic.... $(4,231,000) $ 596,000 $11,308,000
Foreign..... 72,330,000 77,360,000 75,021,000
----------- ----------- -----------
$68,099,000 $77,956,000 $86,329,000
=========== =========== ===========
</TABLE>
The provisions for U.S. and foreign income taxes consist of the following:
<TABLE>
<CAPTION>
Year Ended August 31,
2000 1999 1998
=========== =========== ===========
<S> <C> <C> <C>
Current taxes:
U.S. ........... $ 856,000 $ 28,000 $ 4,255,000
Foreign......... 27,862,000 31,224,000 30,986,000
----------- ----------- -----------
28,718,000 31,252,000 35,241,000
----------- ----------- -----------
Deferred taxes:
U.S. .......... 564,000 (489,000) (405,000)
Foreign........ 1,113,000 (596,000) (657,000)
----------- ----------- -----------
1,677,000 (1,085,000) (1,062,000)
----------- ----------- -----------
$30,395,000 $30,167,000 $34,179,000
=========== =========== ===========
</TABLE>
A reconciliation of the statutory U.S. federal income tax rate with the
effective tax rates of 44.6% in 2000, 38.7% in 1999 and 39.6% in 1998 is as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
% 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...... $23,835 35.0% $27,285 35.0% $30,215 35.0%
Amount of
foreign
income taxes
in excess of
U.S. taxes at
statutory rate. 5,655 8.3 3,274 4.2 2,452 2.8
Loss with no
benefit........ 1,481 2.2 -- -- -- --
Other, net........ (576) (.9) (392) (.5) 1,512 1.8
----------------- -------------- ---------------
$30,395 44.6% $30,167 38.7% $34,179 39.6%
================= ============== ===============
</TABLE>
Deferred tax assets and (liabilities) consist of the following at August
31, 2000 and August 31, 1999:
<TABLE>
<CAPTION>
(in thousands) 2000 1999
========== =========
<S> <C> <C>
Pensions.......................................................... $ 2,581 $ 2,512
Inventory reserves................................................ 1,432 2,409
Bad debt reserves................................................. 905 657
Accruals.......................................................... 3,419 3,513
Dividends to be received.......................................... -- 1,364
Postretirement benefits other than pensions....................... 5,545 4,965
Foreign tax credit carryforwards.................................. 15,134 8,129
Alternative minimum tax carryforwards............................. 3,033 2,149
Other............................................................. 2,436 4,966
---------- ----------
Gross deferred tax assets......................................... 34,485 30,664
Valuation allowance............................................... (15,134) (8,129)
---------- ----------
Total deferred tax assets......................................... 19,351 22,535
---------- ----------
Depreciation...................................................... (15,099) (17,315)
Other............................................................. (1,032) (214)
---------- ----------
Gross deferred tax liabilities.................................... (16,131) (17,529)
---------- ----------
$ 3,220 $ 5,006
========== ==========
</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 2005.
The tax effect of temporary differences included in prepaids was
$7,879,000 and $12,633,000 at August 31, 2000 and 1999 respectively. Deferred
charges also included $4,521,000 and $3,748,000 from the tax effect of
temporary differences at August 31, 2000 and 1999 respectively.
At August 31, 2000, no taxes have been provided on the undistributed
earnings of certain foreign subsidiaries amounting to $233,131,000 because
the Company intends to reinvest these earnings.
21
<PAGE>
NOTE 6 -- PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company has defined benefit pension plans and other postretirement
benefit plans, primarily health care and life insurance. Benefits for the
defined benefit plans are based primarily on years of service and qualifying
compensation during the final years of employment. Postretirement health care
and life insurance benefits are provided to certain domestic employees if
they reach retirement age while working for the Company.
Components of the plan obligations and assets, and the recorded
liability at August 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER POST RETIREMENT BENEFITS
------------------------------ ------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Benefit obligation at beginning of year.......... $ (32,635,000) $ (29,100,000) $ (12,506,000) $ (11,284,000)
Service cost..................................... (1,591,000) (1,503,000) (989,000) (924,000)
Interest cost.................................... (1,929,000) (1,908,000) (864,000) (755,000)
Participant contributions........................ (170,000) (154,000) -- --
Actuarial (gain) loss............................ 2,202,000 (2,565,000) 3,406,000 301,000
Benefits paid.................................... 641,000 1,108,000 223,000 156,000
Translation adjustment........................... 4,235,000 1,487,000 -- --
-------------- -------------- -------------- --------------
Benefit obligation at end of year................ $ (29,247,000) $ (32,635,000) $ (10,730,000) $ (12,506,000)
============== ============== ============== ==============
Fair value of plan assets at beginning of year... $ 8,193,000 $ 6,943,000 $ -- $ --
Actual return on assets.......................... 797,000 1,008,000 -- --
Employer contributions........................... 1,288,000 913,000 223,000 156,000
Participant contributions........................ 170,000 154,000 -- --
Benefits paid.................................... (641,000) (548,000) (223,000) (156,000)
Translation adjustment........................... (794,000) (277,000) -- --
-------------- -------------- -------------- --------------
Fair value of plan assets at end of year......... $ 9,013,000 $ 8,193,000 $ -- $ --
============== ============== ============== ==============
Funded Status.................................... $ (20,235,000) $ (24,442,000) $ (10,730,000) $ (12,506,000)
Unrecognized:
Net liability.................................. 968,000 1,296,000 -- --
Net (gain) loss................................ (69,000) 1,995,000 (4,527,000) (1,121,000)
Prior year service cost........................ 539,000 552,000 (585,000) (671,000)
-------------- -------------- -------------- --------------
Net amount unrecognized.......................... $ (18,797,000) $ (20,599,000) $ (15,842,000) $ (14,298,000)
============== ============== ============== ==============
Amounts recognized in the statement of financial
position consist of:
Prepaid benefit cost........................... $ 96,000 $ -- $ -- $ --
Accrued benefit liability...................... (980,000) (270,000) -- --
Intangible asset............................... 741,000 1,360,000 -- --
Other long term liabilities.................... (19,503,000) (21,649,000) (15,842,000) (14,298,000)
Deferred income taxes.......................... 297,000 -- -- --
Accumulated other comprehensive income......... 552,000 -- -- --
-------------- -------------- -------------- --------------
$ (18,797,000) $ (20,559,000) $ (15,842,000) $ (14,298,000)
============== ============== ============== ==============
The components of net periodic benefit cost of the
years ended August 31 are as follows:
Service cost..................................... $ 1,591,000 $ 1,503,000 $ 989,000 $ 924,000
Interest cost.................................... 1,929,000 1,908,000 864,000 755,000
Expected return on plan assets................... (629,000) (889,000) -- --
Amortization of transition obligation............ 188,000 62,000 -- --
Amortization of prior service cost............... 52,000 53,000 (85,000) (85,000)
Deferred asset gain.............................. -- 441,000 -- --
Recognized net actuarial loss.................... 145,000 53,000 -- (1,000)
-------------- -------------- -------------- --------------
$ 3,276,000 $ 3,131,000 $ 1,768,000 $ 1,593,000
============== ============== ============== ==============
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for the pension plan with accumulated benefit
obligations in excess of plan assets were $29,247,000, $20,235,000 and
$9,013,000 respectively as of August 31, 2000, $32,635,000, $24,442,000 and
$8,193,000 respectively as of August 31, 1999. The total pension
contributions for multiemployer pension plans was $196,000 in 2000, $193,000
in 1999 and $307,000 in 1998.
22
<PAGE>
Actuarial assumptions used in the calculation of the recorded liability
are as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Weighted-average assumptions
as of August 31
Discount rate......................... 6.4% 6.2%
Return on pension plan assets......... 8.7% 8.7%
Rate of compensation increase......... 2.4% 3.0%
Projected health care cost trend rate. 8.5% 9.5%
Ultimate health care rate............. 6.0% 6.0%
Year ultimate health care trend rate
is achieved................... 2005 2005
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage point change in
assumed health care cost trend rates would have the following effects at
August 31, 2000:
<TABLE>
<CAPTION>
One-Percentage- One-Percentage-
Point increase Point decrease
--------------- ---------------
<S> <C> <C>
Effect on total of service and
interest cost components.............. $ 249,000 $ (206,000)
Effect on postretirement obligation........ $1,431,000 $(1,253,000)
</TABLE>
The Company has agreements with two 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. Under these agreements, $1,912,000 is vested and $88,000
will vest over the next year. However, vesting and payments may be
accelerated under certain conditions. The Company has provided $180,000 in
2000 and $131,000 in 1999, and 1998 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 $2,000,000. The amounts
provided are included in other long-term liabilities.
NOTE 7 -- INCENTIVE STOCK PLANS
Effective in December 1991, the Company adopted the 1991 Stock Incentive
Plan and authorized 1,875,000 shares for future grants. In October 1999, the
plan was amended to authorize an additional 2,000,000 shares. 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, 2000, there were
2,024,314 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 1,000 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, 2000, there were 92,531 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,
==================================================
2000 1999
----------------------- -------------------------
Weighted Weighted
Shares Average Shares Average
Under Exercise Under Exercise
Option Price Option Price
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........ 1,311,375 $20.10 1,056,925 $21.59
Granted during the year................. 568,200 12.15 400,600 18.30
Cancelled during the year............... (233,006) 23.66 (146,150) 25.91
--------- ---------
Outstanding at end of year.............. 1,646,569 16.85 1,311,375 20.10
========= =========
Exercisable at end of year.............. 588,673 19.99 507,645 22.12
========= =========
</TABLE>
Under the 1991 Plan, 43,150 shares were granted on July 11, 1996, 67,100
shares were granted on July 8, 1998, 52,800 shares were granted on July 8,
1999 and 79,000 shares were granted on August 30, 2000. The fair market value
on the date of grant in 1996 was $23.00 per share, 1998 was $18.91 per share,
1999 was $18.31 per share and in 2000 was $12.13 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 $650,000 in
2000, $648,000 in 1999 and $428,000 in 1998.
The following table summarizes information about options outstanding at
August 31, 2000:
<TABLE>
<CAPTION>
Weighted Average
---------------------
Grant Options Options Exercise Remaining
Date Outstanding Exercisable Price Life (Years)
--------------------------------------------------------------
<S> <C> <C> <C> <C>
7/96 173,900 173,900 23.00 1
4/97 218,350 163,763 18.50 2
7/98 282,575 141,288 18.91 2.7
7/99 379,700 94,925 18.31 4
8/00 562,200 -- 12.13 5
All other 29,844 14,797 22.02 2.8
</TABLE>
23
<PAGE>
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
$761,000 or $.03 per share in 2000, $617,000 or $.02 per share in 1999 and
$405,000 or $.01 per share in 1998. Pro forma net income would have been
$36,943,000 in 2000, $47,172,000 in 1999 and $49,738,000 in 1998. 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 $4.01, $5.53, and $5.31
for options granted in 2000, 1999, and 1998.
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,
=======================================
2000 1999 1998
----------- ----------- --------
<S> <C> <C> <C>
Expected life (years)..... 5 5 5
Interest rate............. 5.9 - 6.7% 4.6 - 5.9% 5.4%
Volatility................ 30% 26% 24%
Dividend yield............ 1.32% 1.33% 1.25%
</TABLE>
NOTE 8 -- EARNINGS PER COMMON SHARE
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,
===========================================
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Basic.......... 30,224,433 31,671,768 35,236,098
Diluted........ 30,224,433 31,679,614 35,275,327
</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,
=========================================
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Stock equivalents.............. 1,646,569 1,465,225 1,158,096
</TABLE>
NOTE 9 -- 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.
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.
24
<PAGE>
NOTE 10 -- 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
for the year ended August 31, 1998.
NOTE 11 -- LEASES
Total rental expense was $4,217,000 in 2000, $4,580,000 in 1999 and
$3,398,000 in 1998. The future minimum rental commitments for non-cancelable
leases excluding obligations for taxes, insurance, etc. are as follows:
<TABLE>
<CAPTION>
Year ended August 31, Minimum rental
==================================================
<S> <C>
2001 $3,168,000
2002 2,828,000
2003 1,852,000
2004 822,000
2005 117,000
Later years 82,000
----------
$8,869,000
==========
</TABLE>
NOTE 12 -- SEGMENT INFORMATION
The Company is engaged in the sale of plastic resins in various forms,
which are used, as raw materials by its customers. To identify reportable
segments, the Company considered its operating structure and the types of
information subject to regular review by executive management. On this basis,
the Company operates primarily in two geographic business segments, North
America and Europe.
The North American segment includes operations in the United States,
Canada, and Mexico. The Company's European segment includes operations
conducted in Belgium, France, Germany, Poland, Hungary, Indonesia, Italy,
Spain, Switzerland and the United Kingdom. The accounting policies of each
business segment are consistent with those described in the "Summary of
Significant Accounting Policies".
Operating income includes all items except for interest income and
expense. North American corporate expenses have not been allocated. Assets of
geographic segments represent those assets identified with the operation of
each segment.
<TABLE>
<CAPTION>
NORTH
(IN THOUSANDS) AMERICA EUROPE OTHER CONSOLIDATED
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
AUGUST 31, 2000
Sales to unaffiliated customers.................................... $ 438,482 $ 594,037 $ -- $1,032,519
--------- --------- --------- ----------
Gross profit....................................................... $ 61,041 $ 106,121 $ -- $ 167,162
--------- --------- --------- ----------
Operating income
(Note 15)........................................................ $ 14,429 $ 58,336 $ -- $ 72,765
Interest expense, net.............................................. -- -- (4,666) (4,666)
--------- --------- --------- ----------
Income before taxes................................................ $ 14,429 $ 58,336 $ (4,666) $ 68,099
========= ========= ========= ==========
Identifiable assets................................................ $ 297,790 $ 275,100 $ -- $ 572,890
--------- --------- --------- ----------
Depreciation expense............................................... $ 13,141 $ 8,444 $ -- $ 21,585
--------- --------- --------- ----------
Capital expenditures............................................... $ 16,416 $ 16,036 $ -- $ 32,452
--------- --------- --------- ----------
AUGUST 31, 1999
Sales to unaffiliated customers.................................... $ 424,133 $ 561,490 $ -- $ 985,623
--------- --------- --------- ----------
Gross profit....................................................... $ 68,006 $ 112,587 $ -- $ 180,593
--------- --------- --------- ----------
Operating income................................................... $ 17,145 $ 62,696 $ -- $ 79,841
Interest expense, net.............................................. -- -- (1,885) (1,885)
Income before taxes................................................ $ 17,145 $ 62,696 $ (1,885) $ 77,956
========= ========= ========= ==========
Identifiable assets................................................ $ 289,459 $ 303,841 $ (1,773) $ 591,527
--------- --------- --------- ----------
Depreciation expense............................................... $ 13,148 $ 7,625 $ -- $ 20,773
--------- --------- --------- ----------
Capital expenditures............................................... $ 16,155 $ 18,927 $ -- $ 35,082
--------- --------- --------- ----------
AUGUST 31, 1998
Sales to unaffiliated customers.................................... $ 421,188 $ 572,206 $ -- $ 993,394
--------- --------- --------- ----------
Gross profit....................................................... $ 65,388 $ 104,150 $ -- $ 169,538
--------- --------- --------- ----------
Operating income................................................... $ 20,845 $ 64,592 $ -- $ 85,437
Interest income, net............................................... -- -- 892 892
--------- --------- --------- ----------
Income before taxes and cummulative effect of an accounting
change........................................................... $ 20,845 $ 64,592 $ 892 $ 86,329
========= ========= ========= ==========
Identifiable assets................................................ $ 272,198 $ 290,884 $ (1,162) $ 561,920
--------- --------- --------- ----------
Depreciation expense............................................... $ 11,203 $ 6,614 $ -- $ 17,817
--------- --------- --------- ----------
Capital expenditures............................................... $ 17,520 $ 13,467 $ -- $ 30,987
--------- --------- --------- ----------
</TABLE>
25
<PAGE>
Below is a summary of sales point of origin and assets by location:
<TABLE>
<CAPTION>
(in thousands) 2000 1999 1998
---------- --------- ---------
<S> <C> <C> <C>
Net Sales
United States........ $ 350,717 $336,792 $346,370
Germany.............. 264,557 256,035 283,288
Other International.. 417,245 392,796 363,736
---------- -------- --------
$1,032,519 $985,623 $993,394
========== ======== ========
Long Lived Assets
United States........ $ 79,846 $ 80,966 $ 80,009
Other International.. 80,065 79,377 68,174
---------- -------- --------
$ 159,911 $160,343 $148,183
========== ======== ========
</TABLE>
NOTE 13 -- 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 14 -- QUARTERLY FINANCIAL HIGHLIGHTS (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter ended Year ended
---------------------------------------------- -----------
Nov. 30, Feb. 29, May 31, Aug. 31, Aug. 31,
1999 2000 2000 2000 2000
============================================== ===========
<S> <C> <C> <C> <C> <C>
Net Sales........... $273,685 $248,088 $275,265 $235,481 $1,032,519
Gross Profit........ 46,877 40,931 42,586 36,769 167,163
Net Income.......... 11,942 9,734 9,352 6,676 37,704
Basic and Diluted
Earnings Per
Share of
Common Stock....... $.38 $.32 $.32 $.23 $1.25
</TABLE>
Net income for the quarter ended November 30, 1999 included a one-time
gain of $787,000 or $.02 per share from the settlement of an insurance claim
resulting from equipment problems at one of the North American manufacturing
facilities. Net income for the quarter ended February 29, 2000 included
$1,748,000 or $.05 per share from demutualization of an insurance company.
<TABLE>
<CAPTION>
Quarter ended Year ended
--------------------------------------------------------- ----------
Nov. 30, Feb. 28, May 31, Aug. 31, Aug. 31,
1998 1999 1999 1999 1999
========================================================= ==========
<S> <C> <C> <C> <C> <C>
Net Sales.......... $258,646 $235,198 $250,450 $241,329 $985,623
Gross Profit....... 49,450 39,492 45,264 46,387 180,593
Net Income......... 12,818 8,640 11,297 15,034 47,789
Basic and Diluted
Earnings Per
Share of
Common Stock...... $.40 $.27 $.36 $.48 $1.51
</TABLE>
NOTE 15 - INTEREST AND OTHER INCOME
Interest and other income for the year ended August 31, 2000, includes
$2,689,000 in North America from consideration received due to the
demutualization of an insurance carrier and $1,211,000 from the settlement of
an insurance claim resulting from equipment problems at a facility in North
America. Net income includes $2,535,000 or $.07 per share related to these
events.
NOTE 16 - SUBSEQUENT EVENTS
In October 2000, the Company announced its intention to terminate
manufacturing at its plant in Akron, Ohio. The plant employs 91 hourly and 38
salaried workers. The plan provides for termination in approximately 90 days.
The Company plans to utilize the building for product sampling and as a
warehousing and logistics center.
A combination of plastics industry economic and financial factors led to
the decision to end manufacturing at this facility. These factors include
increased margin pressures and lower- than-expected customer demand for
products produced at the plant. The Akron plant is the oldest and one of the
Company's most expensive facilities to operate among the six plants in the
United States. The Company has available manufacturing capacity at other A.
Schulman plants. Production of the Akron plant's compounds that are used in
the film, packaging and rotational molding markets are being transferred to
those other manufacturing facilities.
26
<PAGE>
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, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years
in the period ended August 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. 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
auditing standards generally accepted in the United States of America, 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 over-all financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
October 19, 2000
A. Schulman, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
2000
Net sales for 2000 were $1,032.5 million or 4.8% higher than 1999 sales of
$985.6 million. A comparison of net sales is as follows:
<TABLE>
<CAPTION>
(In Thousands)
========== =======================
2000 1999 Increase
<S> <C> <C> <C>
North America..... $ 438,482 $424,133 $14,349
Europe............ 594,037 561,490 32,547
---------- -------- -------
$1,032,519 $985,623 $46,896
========== ======== =======
</TABLE>
The translation effect from primarily, the weaker Euro, decreased 2000
sales by $71.4 million.
Worldwide tonnage was 3.4% higher than in 1999. Tonnage was up 5.3% in
Europe and down approximately 1% in North America. Tonnage in manufacturing
was up approximately 9% for the year. A new manufacturing line in France,
which commenced operation in the final quarter of 1999, was the major reason
for the increase in tonnage.
Gross profit margins on sales were 16.2% in 2000 and 18.3% in 1999. A
comparison of gross profit is as follows:
<TABLE>
<CAPTION>
(In Thousands)
=============== ==============================
2000 1999 (Decrease)
<S> <C> <C> <C> <C> <C>
North America..... $ 61,041 13.9% $ 68,006 16.0% $ (6,965)
Europe............ 106,112 17.9% 112,587 20.1% (6,475)
--------------- ------------------------------
$167,153 16.2% $180,593 18.3% $(13,440)
=============== ==============================
</TABLE>
The decrease in gross profit margins in 2000 were due to the higher cost
of plastic resins and competitive price pressures.
A comparison of capacity utilization levels is as follows:
<TABLE>
<CAPTION>
Increase
2000 1999 (Decrease)
<S> <C> <C> <C>
North America..... 86% 81% 6%
Europe............ 86% 88% (2%)
Worldwide......... 86% 84% 2%
</TABLE>
The increase in North American capacity utilization was mainly due to the
removal of manufacturing lines in Nashville, Tennessee, Bellevue, Ohio and
Orange, Texas. These lines represented 38 million pounds of North American
manufacturing capacity. European utilization declined, primarily due to the
first year of operation of a new large manufacturing line in Givet, France. This
line has an annual capacity of 60 million pounds.
Selling, general and administrative expenses decreased $1.4 million in
2000. The translation effect from primarily the weak Euro, decreased these
expenses by $6.4 million. This more than offset higher compensation costs and
other increases in expenses.
Interest expense was up in 2000 due to increased levels of borrowing and
higher interest rates.
Foreign currency transaction gains were primarily due to changes in the
value of currencies in major areas where the Company operates. The major
currencies are the U.S. dollar, Euro, U.K. pound sterling, Canadian dollar and
Mexican peso.
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.
Interest and other income for the year ended August 31, 2000, includes
$2,689,000 in North America from consideration received due
27
<PAGE>
to the demutualization of an insurance carrier and $1,211,000 from the
settlement of an insurance claim resulting from equipment problems at a facility
in North America. Net income includes $2,535,000 or $.07 per share related to
these events.
The effective tax rate was 44.6% in 2000 and 38.7% in 1999. The 2000 tax
rate was higher primarily because the Company was unable to utilize
anticipated tax benefits, primarily foreign tax credits.
The strengthening in the value of the U.S. dollar primarily resulting
from the weaker Euro, decreased net income by approximately $4.2 million or
$.14 per share in 2000.
North American operating income was down for the year because of a
reduction in gross profits of $7.0 million, and a $2.0 million increase in
selling, general and administrative expense.
In October 2000, the Company announced its intention to terminate
manufacturing at its plant in Akron, Ohio. The plant employs 91 hourly and 38
salaried workers. The plan provides for termination in approximately 90 days.
The Company plans to utilize the building for product sampling and as a
warehousing and logistics center.
A combination of plastics industry economic and financial factors led to
the decision to end manufacturing at this facility. These factors include
increased margin pressures and lower-than-expected customer demand for
products produced at the plant. The Akron plant is the oldest and one of the
Company's most expensive facilities to operate among the six plants in the
United States. The Company has available manufacturing capacity at other A.
Schulman plants. Production of the Akron plant's compounds that are used in
the film, packaging and rotational molding markets are being transferred to
those other manufacturing facilities.
European operating income decreased $4.4 million in 2000. Sales in
Europe were up $32.6 million due to 5.3% tonnage increase and higher sales
prices from increased costs of plastic resins. The adverse effects of
translation reduced sales by approximately $73.8 million. European gross
profit declined $6.5 million from 1999. Selling, general and administrative
expenses in Europe were down $3.4 million over the previous year primarily
due to the effects of the translation.
Currently, the Company has a good level of orders, especially in Europe.
However, there are a number of signs that economic activity may be slowing,
which will make it difficult to achieve the level of earnings projected in
its financial plan. The months ahead will provide continuing challenges. The
Company anticipates more margin pressures, further softening in demand and no
significant improvement in the Euro.
1999
Net sales for 1999 were $985.6 million or 0.8% lower than 1998 sales of
$993.4 million. A comparison of net sales is as follows:
<TABLE>
<CAPTION>
(In Thousands)
======== =====================
Increase
1999 1998 (Decrease)
<S> <C> <C> <C>
North America..... $424,133 $421,188 $ 2,945
Europe............ 561,490 572,206 (10,716)
-------- ---------------------
$985,623 $993,394 $ (7,771)
======== =====================
</TABLE>
The translation effect from the stronger U.S. dollar decreased 1999 sales
by $4.4 million.
Worldwide tonnage for 1999 was 2.2% higher than 1998. Tonnage was up
4.7% in Europe and down approximately 1% in North America. Tonnage in
manufacturing was off approximately 2% for the year, but merchant volume was
up strongly.
Although the pricing of resins has firmed during the past several
months, the low level of pricing in the worldwide plastics market adversely
affected sales in 1999.
Gross profit margins on sales were 18.3% in 1999 and 17.1% in 1998. A
comparison of gross profit is as follows:
<TABLE>
<CAPTION>
(In Thousands)
=============== ==========================
1999 1998 Increase
<S> <C> <C> <C> <C> <C>
North America..... $ 68,006 16.0% $ 65,388 15.5% $ 2,618
Europe............ 112,587 20.1% 104,150 18.2% 8,437
--------------- --------------------------
$180,593 18.3% $169,538 17.1% $11,055
=============== ==========================
</TABLE>
The improvement in gross profit margins in 1999 was achieved despite a
lower level of capacity utilization. The better margins were primarily due to
improving trends in resin prices. Utilization was down in Europe, mainly due
to the startup of a new large manufacturing line in the Givet, France
operation. Utilization in North America declined due to additional capacity
in the Canadian and Mexican facilities as well as equipment problems at a
Texas tolling facility during the fourth quarter. A comparison of capacity
utilization levels is as follows:
<TABLE>
<CAPTION>
1999 1998 (Decrease)
<S> <C> <C> <C>
North America..... 81% 86% (6%)
Europe............ 88% 96% (8%)
Worldwide......... 84% 90% (7%)
</TABLE>
Selling, general and administrative expenses increased $14 million in
1999. During 1999, the Company incurred $4.3 million of costs associated with
redesigning its business processes and installing new systems at a majority
of its worldwide facilities. In addition, expenses were higher due to $2.1
million from new operations in Italy and Hungary, increased compensation for
additional personnel, annual salary adjustments and a major plastic trade
show held every three years.
Interest expense increased in 1999 due to higher levels of borrowing.
Foreign currency transaction losses were primarily due to changes in the
value of currencies in major areas where the Company operates, including the
U.S. dollar, Euro, U.K. pound sterling, Canadian dollar and Mexican peso.
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 declined due to lower interest income resulting from a
reduction in European temporary investments. This decline more than offset a
settlement arising from the termination of a supplier arrangement in Europe
during the 1999 second quarter.
The effective tax rate was 38.7% in 1999 and 39.6% in 1998. The 1999 tax
rate was lower primarily because of a reduction in certain tax rates in
Europe and lower provisions for international issues.
The strengthening in the value of the U.S. dollar decreased net income
by approximately $189,000 or $.01 per share in 1999.
North American income before taxes was down $3.7 million for the year.
Volume in North America was down approximately 1%, but higher operating
expenses offset an improvement in gross profit and margins.
28
<PAGE>
European income before taxes decreased $1.9 million in 1999. Sales in
Europe declined $10.7 million due to the adverse effects of translation and
lower prices of plastics, which more than offset tonnage gains of 4.7%.
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 "accumulated other
comprehensive income" account in stockholders' equity. During the 2000 fiscal
year the strengthening of the U.S. dollar decreased this account by
approximately $30.3 million.
The following represent key measurements of the capital structure and
profitability of the Company:
<TABLE>
<CAPTION>
(Dollars in Thousands
except per share data)
======== ======================
2000 1999 1998
<S> <C> <C> <C>
Net worth................................... $323,461 $356,246 $366,271
Book value per common share................. $ 10.99 $ 11.41 $ 10.97
Ratio of long-term liabilities to capital... 27.6% 22.4% 17.1%
Return on average net worth................. 11.1% 13.2% 13.2%
Net income as a percentage of sales......... 3.7% 4.8% 5.0%
</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 2000 primarily due to a $18.6 million increase in
the outstanding debt resulting from the Company's stock repurchase program,
capital expenditures and dividends.
The return on average net worth is computed by dividing net income by
the average of the total common stockholders' equity during the year.
During 1999, the Company repurchased 1,799,000 shares of its common
stock for $24,100,000. Approximately 1.9 million shares remain under a six
million-share authorization approved by the Board of Directors in August
1998. Subject to market conditions, the company intends to continue
repurchasing its common stock in 2001.
Working capital and the current ratio are as follows:
<TABLE>
<CAPTION>
(In Thousands)
======== =====================
2000 1999 1998
<S> <C> <C> <C>
Working capital........ $277,206 $290,280 $288,300
Current ratio.......... 3.5:1 3.5:1 3.7:1
</TABLE>
Accounts receivable increased $2.2 million since August 31, 1999,
primarily due to price increases implemented to partially offset higher raw
material costs. The number of days sales in accounts receivable improved to
57 days at August 31, 2000 compared with 59 days at August 31, 1999. The days
sales outstanding ratio is computed by dividing the ending accounts
receivable balance by the average daily net sales for the year.
During 2000, the Company expended $32 million for fixed assets. These
expenditures included the July 2000 acquisition of a manufacturing facility
in Milan, Italy. This facility, with an annual capacity of approximately 25
million pounds, cost $5.6 million and provides the capability to increase
value added sales in Italy. A new line was installed in the Nashville,
Tennessee location and commenced production in September 2000. Two other
manufacturing lines were under construction during the year ended August 31,
2000, one in the Company's Mexican facility and one at the Sunprene Company,
a joint venture. Both lines are expected to be completed and commence
production in the spring of 2001.
The Company has a revolving credit agreement, which provides for
borrowings up to $100 million through August 14, 2002. At August 31, 2000,
$32.0 million was outstanding under this facility. On August 17, 1999, the
Company completed a private placement agreement for $50,000,000 of Senior
Notes with an interest rate of 7.27% due in 2009. Also, short-term lines of
credit are maintained with various domestic and foreign banks. The unused
commitment under these lines was $44.4 million at August 31, 2000.
The Company's unfunded pension liability is approximately $20.2 million
at August 31, 2000 and primarily relates to the 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, 2000 would have changed the fair value of the
contracts by approximately $0.5 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 financial
instruments for trading purposes or utilize any other types of derivative
instruments.
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is
effective for the Company beginning September 1, 2000. SFAS 133 requires that
all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. Management of the Company anticipates that, due to
its limited use of derivative instruments, the adoption of SFAS 133 will not
have a significant effect on the Company's results of operations or its
financial position.
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 we 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 in major areas where the Company
operates, i.e. the U.S. dollar, Euro, U.K. pound sterling, Canadian dollar,
Mexican peso and Indonesian rupiah, etc.
- Fluctuations in prices of plastic resins and other raw materials
- Changes in customer demand and requirements
29
<PAGE>
A. Schulman, Inc.
ELEVEN YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended August 31,
============ ===========================================
2000 1999 1998 1997
<S> <C> <C> <C> <C>
Net sales ..................................................... $ 1,032,519 $ 985,623 $ 993,394 $ 996,376
Interest and other income ..................................... 6,703(1) 2,712 3,072 4,998
------------ ------------ ------------ ------------
1,039,222 988,335 996,466 1,001,374
------------ ------------ ------------ ------------
Cost of sales ................................................. 865,357 805,030 823,856 833,345
Other costs, expenses, etc. ................................... 105,766 105,349 86,281 81,747
------------ ------------ ------------ ------------
971,123 910,379 910,137 915,092
------------ ------------ ------------ ------------
Income before taxes and cumulative effect of accounting changes 68,099 77,956 86,329 86,282
Provision for U.S. and foreign income taxes ................... 30,395 30,167 34,179 35,538
------------ ------------ ------------ ------------
Income before cumulative effect of accounting changes ......... 37,704 47,789 52,150 50,744
Cumulative effect of accounting changes (2) (3) ............... -- -- (2,007) --
------------ ------------ ------------ ------------
Net income .................................................... $ 37,704 $ 47,789 $ 50,143 $ 50,744
============ ===========================================
Total assets .................................................. $ 572,890 $ 591,527 $ 561,920 $ 562,945
Long-term debt ................................................ $ 83,638 $ 65,000 $ 40,000 $ 12,009
Total stockholders' equity .................................... $ 323,461 $ 356,246 $ 366,271 $ 393,401
Average number of common shares outstanding,
net of treasury shares:
Basic .................................................. 30,224,433 31,671,768 35,236,098 37,125,345
Diluted ................................................ 30,224,433 31,679,614 35,275,327 37,149,595
Diluted earnings per share:
Before cumulative effect of accounting changes ......... $ 1.25 $ 1.51 $ 1.48 $ 1.37
Cumulative effect of accounting changes (2) (3) ........ -- -- $ (0.06) --
Net income ............................................. $ 1.25 $ 1.51 $ 1.42 $ 1.37
Cash dividends per common share ............................... $ .53 $ .49 $ .45 $ .41
Book value per common share ................................... $ 10.99 $ 11.41 $ 10.97 $ 10.83
<CAPTION>
Year Ended August 31,
============================================================
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Net sales ..................................................... $ 976,694 $ 1,027,458 $ 748,778 $ 685,112
Interest and other income ..................................... 6,075 7,099 7,456 8,103
------------ ------------ ------------ ------------
982,769 1,034,557 756,234 693,215
------------ ------------ ------------ ------------
Cost of sales ................................................. 826,076 863,409 617,855 565,284
Other costs, expenses, etc .................................... 85,721 81,336 67,939 65,480
------------ ------------ ------------ ------------
911,797 944,745 685,794 630,764
------------ ------------ ------------ ------------
Income before taxes and cumulative effect of accounting changes 70,972 89,812 70,440 62,451
Provision for U.S. and foreign income taxes ................... 28,795 36,194 25,869 23,544
------------ ------------ ------------ ------------
Income before cumulative effect of accounting changes ......... 42,177 53,618 44,571 38,907
Cumulative effect of accounting changes (2) (3) ............... -- -- -- (2,169)
------------ ------------ ------------ ------------
Net income .................................................... $ 42,177 $ 53,618 $ 44,571 $ 36,738
============================================================
Total assets .................................................. $ 623,378 $ 647,166 $ 510,419 $ 407,865
Long-term debt ................................................ $ 40,054 $ 75,096 $ 23,126 $ 10,149
Total stockholders' equity .................................... $ 433,110 $ 405,218 $ 345,919 $ 294,209
Average number of common shares outstanding,
net of treasury shares:
Basic .................................................. 37,584,561 37,544,408 37,438,118 37,325,547
Diluted ................................................ 37,591,747 37,703,820 37,540,391 37,411,527
Diluted earnings per share:
Before cumulative effect of accounting changes ......... $ 1.12 $ 1.42 $ 1.19 $ 1.04
Cumulative effect of accounting changes (2) (3) ........ -- -- -- $ (0.06)
Net income ............................................. $ 1.12 $ 1.42 $ 1.19 $ .98
Cash dividends per common share ............................... $ .37 $ .33 $ .286 $ .248
Book value per common share ................................... $ 11.43 $ 10.75 $ 9.21 $ 7.84
<CAPTION>
Year Ended August 31,
==============================================
1992 1991 1990
<S> <C> <C> <C>
Net sales ..................................................... $ 732,170 $ 736,007 $ 678,644
Interest and other income ..................................... 6,778 4,083 2,409
------------ ------------ ------------
738,948 740,090 681,053
------------ ------------ ------------
Cost of sales ................................................. 599,009 614,001 566,872
Other costs, expenses, etc .................................... 66,838 55,876 50,644
------------ ------------ ------------
665,847 669,877 617,516
------------ ------------ ------------
Income before taxes and cumulative effect of accounting changes 73,101 70,213 63,537
Provision for U.S. and foreign income taxes ................... 29,341 27,864 27,441
------------ ------------ ------------
Income before cumulative effect of accounting changes ......... 43,760 42,349 36,096
Cumulative effect of accounting changes (2) (3) ............... -- -- --
------------ ------------ ------------
Net income .................................................... $ 43,760 $ 42,349(4) $ 36,096
==============================================
Total assets .................................................. $ 427,966 $ 344,273 $ 328,210
Long-term debt ................................................ $ 10,108 $ 9,000 $ 7,000
Total stockholders' equity .................................... $ 307,576 $ 232,567 $ 223,973
Average number of common shares outstanding,
net of treasury shares:
Basic .................................................. 37,024,548 36,963,010 37,699,043
Diluted ................................................ 37,340,053 37,239,413 37,927,662
Diluted earnings per share:
Before cumulative effect of accounting changes ......... $ 1.17 $ 1.14 $ .95
Cumulative effect of accounting changes (2) (3) ........ -- -- --
Net income ............................................. $ 1.17 $ 1.14(4) $ .95
Cash dividends per common share ............................... $ .216 $ .186 $ .153
Book value per common share ................................... $ 8.26 $ 6.26 $ 5.91
</TABLE>
(1) Includes $3,900,000 in North America from consideration received due to the
demutualization of an insurance carrier and the settlement of an insurance
claim resulting from equipment problems at a facility in North America. Net
income includes $2,535,000 or $.07 per share related to these events.
(2) Effective September 1, 1992, the Company adopted SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and SFAS 109,
"Accounting for Income Taxes."
(3) 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.
(4) 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.
30
<PAGE>
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 7, 2000,
at 10 AM E.S.T., at the Hilton Inn West
3180 West Market Street
Akron, Ohio 44333
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
A Division of EquiServe
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.equiserve.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>
A. SCHULMAN, INC.
<TABLE>
<S> <C> <C>
THE BOARD OF DIRECTORS EXECUTIVE OFFICERS CORPORATE HEADQUARTERS
ROBERT A. STEFANKO TERRY L. HAINES A. SCHULMAN, INC.
Chairman President and Chief Executive Officer 3550 West Market Street
Akron, OH 44333
TERRY L. HAINES ROBERT A. STEFANKO (330) 666-3751
President and Chief Executive Officer Chairman, Chief Financial Officer
and Treasurer
DR. PEGGY GORDON ELLIOTT DOMESTIC OFFICES
President, South Dakota State University GORDON L. TRIMMER
Vice President -- INTERNATIONAL AUTOMOTIVE
JOSEPH M. GINGO North American Sales and Marketing MARKETING CENTER
Senior Vice President, 2100 East Maple Road
Technology and Global Products Planning, ALAIN C. ADAM Birmingham, MI 48009-6524
The Goodyear Tire and Rubber Company Vice President -- (248) 643-6100
International Automotive Operations
WILLARD R. HOLLAND SOUTHEAST REGIONAL SALES OFFICE
Former Chairman JOHN M. MYLES 7029 Albert Pick Road, Suite 101
FirstEnergy Corp. Vice President -- Greensboro, NC 27409
North American Purchasing (336) 668-8081
JAMES A. KARMAN
Vice Chairman, RPM, Inc. RONALD G. ANDRES MIDWEST REGIONAL SALES OFFICE
Vice President -- Embassy Plaza
JAMES S. MARLEN North American Manufacturing 1933 N. Meacham Road, Suite 500
Chairman, President and Schaumburg, IL 60173
Chief Executive Officer, DR. RENGARAJAN RAMESH (847) 397-3973
Ameron International Corporation Vice President -- Technology
WESTERN REGIONAL SALES OFFICE
ALAN L. OCKENE JAMES H. BERICK 600 South Lake Avenue, Suite 506
Former President and Secretary Pasadena, CA 91106
Chief Executive Officer, (626) 792-0053
General Tire, Inc. EUROPEAN OPERATIONS
DR. PAUL CRAIG ROBERTS TECHNOLOGY CENTERS
Chairman, RENE C. ROMBOUTS
The Institute for Political Economy General Manager -- Europe A. SCHULMAN INC.
Product Technology Center
RENE C. ROMBOUTS GERALD M. WEINBERGER 1183 Home Avenue
General Manager-Europe Managing Director -- Germany Akron, Ohio 44310
(330) 630-3315
JOHN B. YASINSKY OTTO H. BRUDER
Chairman and Chief Executive Officer, Managing Director -- France A. SCHULMAN INC.
OMNOVA Solutions, Inc. Color Technology Center
RITSON D. GILLINGS 1475 Wolf Creek Trail
Managing Director -- United Kingdom Sharon Center, Ohio 44274
(330) 239-0101
</TABLE>
32
<PAGE>
A. SCHULMAN, INC.
<TABLE>
<S> <C> <C>
FOREIGN OFFICES BARCELONA, SPAIN NASHVILLE, TENNESSEE 37211-3333
BCIN - Pol. Ind Les Guixeres s/n 481 Allied Drive
08915 Barcelona (615) 333-3453
WURSELEN, GERMANY 34-93-464-8043
A. Schulman Europe GmbH ORANGE, TEXAS 77632
Monnetstrasse 7 MISSISSAUGA, ONTARIO, CANADA Texas Polymer Services, Inc.
52146 Wurselen L5R 3G5 6522 Interstate Highway 10 West
49-2405-45270 A. Schulman Canada Ltd. (409) 883-4331
5770 Hurontario Street, Suite 602
BORNEM, BELGIUM (905) 568-8470 BORNEM, BELGIUM
N.V.A. Schulman Plastics, S.A. N.V.A. Schulman Plastics, S.A.
Pedro Colomalaan 25 MEXICO CITY, MEXICO Pedro Colomalaan 25
Industriepark A. Schulman de Mexico, S.A. de C.V. Industriepark
2880 Bornem Manuel E. Izaguirre #13 2880 Bornem
32-3-890-4211 Despacho 304 - Ciudad Satelite 32-3-890-4211
Naucalpan, Edo. de Mexico 53100
KERPEN, GERMANY (525) 393-1216 KERPEN, GERMANY
A. Schulman GmbH A. Schulman GmbH
Huttenstra(beta)e 211 MONTERREY, MEXICO Huttenstra(beta)e 211
50170 Kerpen A. Schulman de Mexico, S.A. de C.V. 50170 Kerpen
49-2273-5610 Avenida Lazaro Cardenas 2400 PTE 49-2273-5610
Condominio los Soles Office PB -- 17
PARIS, FRANCE Colonia Reas San Agustin CRUMLIN, SOUTH WALES (U.K.)
A. Schulman, S.A./ San Pedro Garza Garcia, N.L. Mexico 66220 A. Schulman Inc. Limited
Diffusion Plastique (528) 363-5072 Croespenmaen Industrial Estate
Immeuble Dynasteur Crumlin, Newport
10/12 rue Andras Beck SAN LUIS POTOSI, MEXICO Gwent NP1 4AG
92360 Meudon-la-Foret A. Schulman de Mexico, S.A. de C.V. 44-1495-244090
33-1-4107-7500 Avenida CFE, 730
Entre Eje 134 y Eje 136 GIVET, FRANCE
CRUMLIN, SOUTH WALES (U.K.) Zona Industrial del Potosi A. Schulman Plastics S.A.
A. Schulman Inc. Limited San Luis Potosi, S.L.P. 78090 Rue Alex Schulman
Croespenmaen Industrial Estate (524) 824-0708 08600 Givet
Crumlin, Newport 33-24-427161
Gwent NP1 4AG
44-1495-244090 GORLA MAGGIORE, ITALY
REPRESENTATIVE OFFICES A. Schulman Plastics S.p.A.
ZURICH, SWITZERLAND Via Baragiola 6
A. Schulman AG 21050 Gorla Maggiore (VA)
Kernstra(beta)e 10 KUALA LUMPUR, MALAYSIA 39-0331-60-35-47
8004 Zurich A. Schulman Plastics NV
41-1-241-6030 Representative Office EAST JAVA, INDONESIA
Level 36, Menara Lion 165 PT A. Schulman Plastics
WARSAW, POLAND Jalan Ampang Desa Ngerong - Gempol
A. Schulman Polska Sp. z o.o. 50450 Kuala Lumpur Kab. Pasuruan
ul. Instalatorow 9 60-3-651-74-60 62-343-854-232
02-237 Warsaw
48-22-868-2682 ST. THOMAS, ONTARIO, CANADA
N5P 3Z5
BUDAPEST, HUNGARY PLANTS A. Schulman Canada Ltd.
A. Schulman Hungary Kft. 400 S. Edgeware Road
XI. Bezirk, Bartfai u. 54 (519) 633-3451
1115 Budapest AKRON, OHIO 44310
36-1-203-4264 790 E. Tallmadge Ave. SAN LUIS POTOSI, MEXICO
(330) 633-8164 A. Schulman de Mexico, S.A. de C.V.
PRAGUE, CZECH REPUBLIC Avenida CFE, 730
A. Schulman GmbH BELLEVUE, OHIO 44811 Entre Eje 134 y Eje 136
Branch Prague 350 North Buckeye Street Zona Industrial del Potosi
Jeremenkova 43 (419) 483-2931 San Luis Potosi, S.L.P. 78090
14700 Prague 4 (524) 824-0708
420-2-61090100 ORANGE, TEXAS 77630
(Dispersion Plant)
MILAN, ITALY 3007 Burnett
A. Schulman Plastics, S.p.A. (409) 883-9371
Via Siviglia, 11
20093 Cologno Monzese (Mi) SHARON CENTER, OHIO 44274
39-02-25-391-912 (Specialty Compounding Division)
1475 Wolf Creek Trail
(330) 239-0101
</TABLE>
33
<PAGE>
[LOGO -Registered Trademark- A.SCHULMAN]
3550 WEST MARKET STREET, AKRON, OHIO 44333 - 330/666-3751
www.aschluman.com
