SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended May 31, 2002 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ___________________________ to ___________________________
Commission file number: 0-7459
| A. Schulman, Inc. |
| (Exact Name of Registrant as Specified in its Charter) |
| Delaware | 34-0514850 | |
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| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
| 3550 West Market Street, Akron, Ohio | 44333 | |
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| (Address of Principal Executive Offices) | (Zip Code) |
| (330) 666-3751 |
| (Registrant’s Telephone Number, including Area Code) |
| (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Number of common
shares outstanding
as of June 30, 2002 — 29,400,747
- 1 -
PART I — FINANCIAL INFORMATION
ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS
A. SCHULMAN, INC.
(In thousands except per share data)
| For the three months ended May 31, | For the nine months ended May 31, | ||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
| Unaudited | Unaudited | ||||||||||||||||||
Net sales |
$ | 259,617 | $ | 252,588 | $ | 711,319 | $ | 748,077 | |||||||||||
Interest and other income |
580 | 579 | 1,595 | 1,428 | |||||||||||||||
| 260,197 | 253,167 | 712,914 | 749,505 | ||||||||||||||||
Cost and expenses: |
|||||||||||||||||||
Cost of goods sold |
211,745 | 217,887 | 595,999 | 648,209 | |||||||||||||||
Cost of plant closure (Note 9) |
— | — | — | 4,635 | |||||||||||||||
Selling, general and
administrative expense |
27,310 | 24,664 | 77,631 | 76,724 | |||||||||||||||
Interest expense |
1,399 | 1,915 | 4,153 | 5,504 | |||||||||||||||
Foreign currency transaction
(gain) loss |
1,737 | (424 | ) | 749 | (1,333 | ) | |||||||||||||
Minority interest |
469 | 273 | 901 | 792 | |||||||||||||||
| 242,660 | 244,315 | 679,433 | 734,531 | ||||||||||||||||
Income before taxes |
17,537 | 8,852 | 33,481 | 14,974 | |||||||||||||||
Provision for income taxes
(Note 10) |
5,833 | 2,366 | 12,110 | 7,793 | |||||||||||||||
Net income |
11,704 | 6,486 | 21,371 | 7,181 | |||||||||||||||
Less: Preferred stock dividends |
(13 | ) | (13 | ) | (40 | ) | (40 | ) | |||||||||||
Net income applicable to
common stock |
$ | 11,691 | $ | 6,473 | $ | 21,331 | $ | 7,141 | |||||||||||
Weighted average number of
shares outstanding (Note 6): |
|||||||||||||||||||
Basic |
29,340 | 29,170 | 29,259 | 29,181 | |||||||||||||||
Fully diluted |
29,924 | 29,170 | 29,563 | 29,181 | |||||||||||||||
Earnings per share (Note 6): |
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Basic |
$ | 0.40 | $ | 0.22 | $ | 0.73 | $ | 0.24 | |||||||||||
Fully diluted |
$ | 0.39 | $ | 0.22 | $ | 0.72 | $ | 0.24 | |||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
- 2 -
A. SCHULMAN, INC.
(In thousands except per share data)
| May 31, | August 31, | |||||||||
| 2002 | 2001 | |||||||||
| Assets | Unaudited | |||||||||
Current assets: |
||||||||||
Cash and cash equivalents (Note 4) |
$ | 77,996 | $ | 52,586 | ||||||
Accounts receivable, less allowance
for doubtful accounts of $7,880 at
May 31, 2002 and $6,458 at
August 31, 2001 |
176,298 | 162,131 | ||||||||
Inventories, average cost or market,
whichever is lower |
156,282 | 159,808 | ||||||||
Prepaids, including tax effect of
temporary differences |
16,622 | 15,023 | ||||||||
Total current assets |
427,198 | 389,548 | ||||||||
Other assets: |
||||||||||
Deferred charges, etc., including tax effect
of timing differences |
10,835 | 11,886 | ||||||||
Goodwill (Note 11) |
6,448 | 6,520 | ||||||||
Intangible assets (Note 11) |
915 | 1,110 | ||||||||
| 18,198 | 19,516 | |||||||||
Property, plant and equipment, at cost: |
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Land and improvements |
11,048 | 10,978 | ||||||||
Buildings and leasehold improvements |
101,375 | 83,039 | ||||||||
Machinery and equipment |
247,549 | 222,554 | ||||||||
Furniture and fixtures |
24,780 | 23,828 | ||||||||
Construction in progress |
5,687 | 26,415 | ||||||||
| 390,439 | 366,814 | |||||||||
Accumulated depreciation and investment grants
of $905 at May 31, 2002 and
$884 at August 31, 2001 |
215,352 | 197,207 | ||||||||
| 175,087 | 169,607 | |||||||||
| $ | 620,483 | $ | 578,671 | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
- 3 -
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1, 2 and 3)
(In thousands except per share data)
| May 31, | August 31, | ||||||||||
| 2002 | 2001 | ||||||||||
| Liabilities and Stockholders' Equity | Unaudited | ||||||||||
Current liabilities: |
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Notes payable |
$ | — | $ | 313 | |||||||
Current portion of long-term debt |
391 | 267 | |||||||||
Accounts payable |
70,109 | 55,426 | |||||||||
U.S. and foreign income taxes payable |
7,389 | 7,097 | |||||||||
Accrued payrolls, taxes and related benefits |
23,060 | 19,036 | |||||||||
Other accrued liabilities |
20,960 | 18,121 | |||||||||
Total current liabilities |
121,909 | 100,260 | |||||||||
Long-term debt |
104,056 | 105,415 | |||||||||
Other long-term liabilities |
42,971 | 39,242 | |||||||||
Deferred income taxes |
6,445 | 6,115 | |||||||||
Minority interest |
5,787 | 5,560 | |||||||||
Stockholders’ equity (Note 5): |
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Preferred stock, 5% cumulative, $100
par value, authorized, issued and
outstanding - 10,567 shares at May 31,
2002 and August 31, 2001 |
1,057 | 1,057 | |||||||||
Special stock 1,000,000 shares authorized
none outstanding |
— | — | |||||||||
Common stock, $1 par value |
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Authorized - 75,000,000 shares |
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Issued - 38,610,592 shares at May 31, 2002
and 38,423,967 at August 31, 2001 |
38,611 | 38,424 | |||||||||
Other capital |
51,664 | 48,504 | |||||||||
Accumulated other comprehensive income |
(40,964 | ) | (44,945 | ) | |||||||
Retained earnings |
455,507 | 446,142 | |||||||||
Treasury stock, at cost, 9,211,095 shares at
May 31, 2002 and August 31, 2001 |
(164,231 | ) | (164,231 | ) | |||||||
Unearned stock grant compensation |
(2,329 | ) | (2,872 | ) | |||||||
Common stockholders’ equity |
338,258 | 321,022 | |||||||||
Total stockholders’ equity |
339,315 | 322,079 | |||||||||
| $ | 620,483 | $ | 578,671 | ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
- 4 -
A. SCHULMAN, INC.
(In thousands)
| For the nine months ended May 31, | |||||||||||
| 2002 | 2001 | ||||||||||
| Unaudited | |||||||||||
Provided from (used in) operations: |
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Net income |
$ | 21,371 | $ | 7,181 | |||||||
Items not requiring the current use of cash: |
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Depreciation |
16,911 | 16,128 | |||||||||
Non-current deferred taxes |
(667 | ) | 34 | ||||||||
Pension and other deferred compensation |
2,423 | 3,760 | |||||||||
Postretirement benefit obligation |
1,357 | (893 | ) | ||||||||
Write-off of assets — plant closure |
— | 3,230 | |||||||||
Changes in working capital: |
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Accounts receivable |
(9,536 | ) | (19,534 | ) | |||||||
Inventories |
4,772 | 1,676 | |||||||||
Prepaids |
(1,520 | ) | (5,025 | ) | |||||||
Accounts payable |
11,355 | 15,465 | |||||||||
Income taxes |
351 | (4,218 | ) | ||||||||
Accrued payrolls and other accrued liabilities |
6,231 | 9,870 | |||||||||
Changes in other assets and other
long-term liabilities |
2,373 | (1,842 | ) | ||||||||
Net cash provided from operating activities |
55,421 | 25,832 | |||||||||
Provided from (used in) investing activities: |
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Expenditures for property, plant and equipment |
(21,810 | ) | (26,241 | ) | |||||||
Disposals of property, plant and equipment |
280 | 715 | |||||||||
Net cash used in investing activities |
(21,530 | ) | (25,526 | ) | |||||||
Provided from (used in) financing activities: |
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Cash dividends paid |
(12,007 | ) | (11,957 | ) | |||||||
Notes payable |
(313 | ) | (7,988 | ) | |||||||
Increase in long-term debt |
— | 25,739 | |||||||||
Reduction in long-term debt |
(1,261 | ) | — | ||||||||
Minority interest |
226 | 267 | |||||||||
Exercise of stock options |
3,247 | — | |||||||||
Purchase of treasury stock |
— | (1,840 | ) | ||||||||
Investment grants from foreign countries |
46 | — | |||||||||
Net cash provided from (used in) financing activities |
(10,062 | ) | 4,221 | ||||||||
Effect of exchange rate changes on cash |
1,581 | 194 | |||||||||
Net increase in cash and cash equivalents |
25,410 | 4,721 | |||||||||
Cash and cash equivalents at beginning of period |
52,586 | 26,866 | |||||||||
Cash and cash equivalents at end of period |
$ | 77,996 | $ | 31,587 | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
- 5 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
For the nine months ended May 31, 2002 and 2001
| (1) | The Company’s accounting policy regarding revenue recognition is to recognize revenue when products are shipped to unaffiliated customers. | |
| The Company provides tolling services as a fee for processing of material provided and owned by customers. On some occasions, the Company is required to provide certain amounts of its materials, such as additives or packaging. These materials are charged to the customer as an addition to the tolling fees. The only amounts recorded as revenue related to tolling are the processing fees and the charges related to materials provided by the Company. | ||
| The accounting policies for the periods presented are the same as described in Note 1 — Summary of Significant Accounting Policies to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2001. | ||
| (2) | The results of operations for the nine months ended May 31, 2002 are not necessarily indicative of the results expected for the year ended August 31, 2002. | |
| (3) | The interim financial statements furnished reflect all adjustments, which are, in the opinion of management, necessary to a fair presentation of the results of the interim period presented. All such adjustments are of a normal recurring nature. | |
| (4) | All highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents. Such investments amounted to $45,115,000 at May 31, 2002 and $20,991,000 at August 31, 2001. |
- 6 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended May 31, 2002 and 2001
| (5) | A summary of the stockholders’ equity section for the nine months ended May 31, 2002 and 2001 is as follows: |
(In thousands)
(Unaudited)
| Accumulated | Total | ||||||||||||||||||||||||||||
| Other | Unearned | Comprehen- | |||||||||||||||||||||||||||
| Commn | Other | Retained | Comprehensive | Stock Grant | sive | ||||||||||||||||||||||||
| Stock | Capital | Earnings | Income | Compensation | Income | ||||||||||||||||||||||||
Balance-September 1, 2001 |
$ | 38,424 | $ | 48,504 | $ | 446,142 | $ | (44,945 | ) | $ | (2,872 | ) | |||||||||||||||||
Comprehensive income |
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Net income |
— | — | 21,371 | — | — | ||||||||||||||||||||||||
Foreign currency
translation adjustment |
— | — | — | 3,981 | — | ||||||||||||||||||||||||
Total Comprehensive
income |
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