SECURITIES AND EXCHANGE COMMISSION
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, 2003 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.
| Delaware | 34-0514850 | |
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| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| 3550 West Market Street, Akron, Ohio | 44333 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
(330) 666-3751
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
Number of common shares outstanding as of June 30, 2003 - 29,514,947
PART I - FINANCIAL INFORMATION
ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS
A. SCHULMAN, INC.
CONSOLIDATED STATEMENT OF INCOME (Notes 1, 2 and 3)
(In thousands except per share data)
| For the three months | For the nine months | ||||||||||||||||
| ended May 31, | ended May 31, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
| Unaudited | Unaudited | ||||||||||||||||
Net sales |
$ | 298,402 | $ | 259,617 | $ | 833,453 | $ | 711,319 | |||||||||
Interest and other income |
419 | 580 | 1,526 | 1,595 | |||||||||||||
| 298,821 | 260,197 | 834,979 | 712,914 | ||||||||||||||
Cost and expenses: |
|||||||||||||||||
Cost of sales |
253,542 | 211,745 | 707,857 | 595,999 | |||||||||||||
Selling, general and
administrative expense |
29,038 | 27,310 | 83,714 | 77,631 | |||||||||||||
Interest expense |
1,149 | 1,399 | 3,533 | 4,153 | |||||||||||||
Foreign currency transaction loss |
2,189 | 1,737 | 2,032 | 749 | |||||||||||||
Restructuring expense (Note 14) |
4,093 | — | 4,093 | — | |||||||||||||
Minority interest |
204 | 469 | 606 | 901 | |||||||||||||
| 290,215 | 242,660 | 801,835 | 679,433 | ||||||||||||||
Income before taxes |
8,606 | 17,537 | 33,144 | 33,481 | |||||||||||||
Provision for U.S. and
foreign income taxes
(Note 10) |
6,226 | 5,833 | 17,747 | 12,110 | |||||||||||||
Net income |
2,380 | 11,704 | 15,397 | 21,371 | |||||||||||||
Less: Preferred stock dividends |
(13 | ) | (13 | ) | (40 | ) | (40 | ) | |||||||||
Net income applicable to
common stock |
$ | 2,367 | $ | 11,691 | $ | 15,357 | $ | 21,331 | |||||||||
Weighted-average number of
shares outstanding (Note 6): |
|||||||||||||||||
Basic |
29,496 | 29,340 | 29,478 | 29,259 | |||||||||||||
Diluted |
29,737 | 29,924 | 29,842 | 29,563 | |||||||||||||
Earnings per share (Note 6): |
|||||||||||||||||
Basic |
$ | 0.08 | $ | 0.40 | $ | 0.52 | $ | 0.73 | |||||||||
Diluted |
$ | 0.08 | $ | 0.39 | $ | 0.51 | $ | 0.72 | |||||||||
The accompanying notes are an integral part of the consolidated financial statements.
- 2 -
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEET (Notes 1, 2 and 3)
(In thousands)
| May 31, | August 31, | |||||||||
| 2003 | 2002 | |||||||||
| Assets | Unaudited | |||||||||
Current assets: |
||||||||||
Cash and cash equivalents (Note 4) |
$ | 42,273 | $ | 63,984 | ||||||
Accounts receivable, less allowance
for doubtful accounts of $8,783 at
May 31, 2003 and $6,912 at
August 31, 2002 |
209,130 | 172,327 | ||||||||
Inventories, average cost or market,
whichever is lower |
217,750 | 169,719 | ||||||||
Prepaids, including tax effect of
temporary differences |
18,727 | 13,257 | ||||||||
Total current assets |
487,880 | 419,287 | ||||||||
Other assets: |
||||||||||
Deferred charges, etc., including tax effect
of temporary differences |
11,170 | 8,826 | ||||||||
Goodwill (Note 11) |
6,984 | 6,558 | ||||||||
Intangible assets (Note 11) |
476 | 545 | ||||||||
| 18,630 | 15,929 | |||||||||
Property, plant and equipment, at cost: |
||||||||||
Land and improvements |
12,533 | 11,408 | ||||||||
Buildings and leasehold improvements |
117,554 | 103,536 | ||||||||
Machinery and equipment |
277,007 | 254,431 | ||||||||
Furniture and fixtures |
31,041 | 26,811 | ||||||||
Construction in progress |
6,756 | 6,625 | ||||||||
| 444,891 | 402,811 | |||||||||
Accumulated depreciation and investment grants
of $1,060 at May 31, 2003 and
$937 at August 31, 2002 |
261,364 | 225,695 | ||||||||
| 183,527 | 177,116 | |||||||||
| $ | 690,037 | $ | 612,332 | |||||||
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)
| May 31, | August 31, | |||||||||
| 2003 | 2002 | |||||||||
| Liabilities and Stockholders’ Equity | Unaudited | |||||||||
Current liabilities: |
||||||||||
Current portion of long-term debt |
$ | 494 | $ | 413 | ||||||
Accounts payable |
77,597 | 71,107 | ||||||||
U.S. and foreign income taxes payable |
11,434 | 6,751 | ||||||||
Accrued payrolls, taxes and related benefits |
24,026 | 22,688 | ||||||||
Other accrued liabilities |
24,605 | 17,373 | ||||||||
Total current liabilities |
138,156 | 118,332 | ||||||||
Long-term debt |
76,838 | 81,038 | ||||||||
Other long-term liabilities |
51,960 | 43,471 | ||||||||
Deferred income taxes |
9,185 | 6,957 | ||||||||
Minority interest |
5,179 | 6,173 | ||||||||
Stockholders’ equity (Note 5): |
||||||||||
Preferred stock, 5% cumulative, $100
par value, authorized, issued and
outstanding - 10,567 shares at May 31,
2003 and August 31, 2002 |
1,057 | 1,057 | ||||||||
Special stock, 1,000,000 shares authorized,
none outstanding |
— | — | ||||||||
Common stock, $1 par value
Authorized - 75,000,000 shares Issued - 38,717,092 shares at May 31, 2003 and 38,629,967 at August 31, 2002 |
38,717 | 38,630 | ||||||||
Other capital |
55,525 | 51,974 | ||||||||
Accumulated other comprehensive income (Note 7) |
14,940 | (31,230 | ) | |||||||
Retained earnings |
465,550 | 462,270 | ||||||||
Treasury stock, at cost, 9,211,095 shares at
May 31, 2003 and August 31, 2002 |
(164,231 | ) | (164,231 | ) | ||||||
Unearned stock grant compensation |
(2,839 | ) | (2,109 | ) | ||||||
Common stockholders’ equity |
407,662 | 355,304 | ||||||||
Total stockholders’ equity |
408,719 | 356,361 | ||||||||
| $ | 690,037 | $ | 612,332 | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
- 4 -
A. SCHULMAN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Notes 1, 2 and 3)
(In thousands)
| For the nine months | |||||||||||
| ended May 31, | |||||||||||
| 2003 | 2002 | ||||||||||
| Unaudited | |||||||||||
Provided from (used in) operating activities: |
|||||||||||
Net income |
$ | 15,397 | $ | 21,371 | |||||||
Items not requiring the current use of cash: |
|||||||||||
Depreciation |
19,062 | 16,911 | |||||||||
Non-current deferred taxes |
(235 | ) | (667 | ) | |||||||
Foreign pension and other deferred compensation |
3,839 | 2,423 | |||||||||
Postretirement benefit obligation |
597 | 1,357 | |||||||||
Minority interest in net income of subsidiaries |
606 | 901 | |||||||||
Restructuring charge |
3,448 | — | |||||||||
Changes in working capital: |
|||||||||||
Accounts receivable |
(16,928 | ) | (9,536 | ) | |||||||
Inventories |
(27,223 | ) | 4,772 | ||||||||
Prepaids |
(315 | ) | (1,520 | ) | |||||||
Accounts payable |
(560 | ) | 11,355 | ||||||||
Income taxes |
(112 | ) | 351 | ||||||||
Accrued payrolls and other accrued liabilities |
2,920 | 6,231 | |||||||||
Changes in other assets and other
long-term liabilities |
1,341 | 2,374 | |||||||||
Net cash provided from operating activities |
1,837 | 56,323 | |||||||||
Provided from (used in) investing activities: |
|||||||||||
Expenditures for property, plant and equipment |
(13,598 | ) | (21,810 | ) | |||||||
Disposals of property, plant and equipment |
200 | 280 | |||||||||
Net cash used in investing activities |
(13,398 | ) | (21,530 | ) | |||||||
Provided from (used in) financing activities: |
|||||||||||
Cash dividends paid |
(12,117 | ) | (12,006 | ) | |||||||
Notes payable |
— | (314 | ) | ||||||||
Reduction in long-term debt |
(4,362 | ) | (1,261 | ) | |||||||
Cash distributions to minority shareholders |
(1,600 | ) | (675 | ) | |||||||
Investment grants from foreign countries |
— | 46 | |||||||||
Exercise of stock options |
1,167 | 3,247 | |||||||||
Net cash used in financing activities |
(16,912 | ) | (10,963 | ) | |||||||
Effect of exchange rate changes on cash |
6,762 | 1,580 | |||||||||
Net increase (decrease) in cash and cash equivalents |
(21,711 | ) | 25,410 | ||||||||
Cash and cash equivalents at beginning of period |
63,984 | 52,586 | |||||||||
Cash and cash equivalents at end of period |
$ | 42,273 | $ | 77,996 | |||||||
The accompanying notes are an integral part of the consolidated financial statements.
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A. SCHULMAN, INC.
| (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, 2002. | ||
| The intrinsic value method is used to measure compensation cost for stock-based compensation plans. Compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s common stock at the date of the grant over the amount the employee would pay to acquire the shares. | ||
| The following table represents the impact on net income and earnings per share had the fair value based method been applied to measure compensation cost: |
- 6 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended May 31, 2003 and 2002
| (In thousands, except per share data) | |||||||||||||||||
| For the three months | For the nine months | ||||||||||||||||
| ended May 31, | ended May 31, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net income applicable to common stock,
as reported |
$ | 2,367 | $ | 11,691 | $ | 15,357 | $ | 21,331 | |||||||||
Add: Stock-based employee
compensation included in reported
net income, net of tax |
775 | 150 | 1,741 | 410 | |||||||||||||
Deduct: Total stock-based employee
compensation determined under the
fair value method, net of tax |
(598 | ) | (286 | ) | (1,794 | ) | (780 | ) | |||||||||
Net income applicable to common stock,
as adjusted |
$ | 2,544 | $ | 11,555 | $ | 15,304 | $ | 20,961 | |||||||||
Earnings per share: |
|||||||||||||||||
Basic |
- as reported | $ | 0.08 | $ | 0.40 | $ | 0.52 | $ | 0.73 | ||||||||
- as adjusted |
$ | 0.09 | $ | 0.40 | $ | 0.52 | $ | 0.72 | |||||||||
Diluted |
- as reported | $ | 0.08 | $ | 0.39 | $ | 0.51 | $ | 0.72 | ||||||||
- as adjusted |
$ | 0.08 | $ | 0.39 | $ | 0.51 | $ | 0.71 | |||||||||
| (2) | The results of operations for the nine months ended May 31, 2003 are not necessarily indicative of the results expected for the year ended August 31, 2003. | |
| (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. Certain items previously reported in specific financial statement captions have been reclassified to conform to the 2003 presentation. | |
| (4) | All highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents. Such investments amounted to $13,920,000 at May 31, 2003 and $35,824,000 at August 31, 2002. |
- 7 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended May 31, 2003 and 2002
| (5) | A summary of the stockholders’ equity section for the nine months ended May 31, 2003 and 2002 is as follows: |
(In thousands)
(Unaudited)