þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 34-0514850 | |
(State or Other Jurisdiction | (I.R.S. Employer Identification No.) | |
of Incorporation or Organization) | ||
3550 West Market Street, Akron, Ohio | 44333 | |
(Address of Principal Executive Offices) | (ZIP Code) |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Three months ended November 30, | ||||||||
2008 | 2007 | |||||||
Unaudited | ||||||||
(In thousands except per share data) | ||||||||
Net sales |
$ | 388,405 | $ | 496,575 | ||||
Cost of sales |
347,352 | 440,985 | ||||||
Selling, general and administrative expenses |
34,914 | 39,308 | ||||||
Minority interest |
158 | 245 | ||||||
Interest expense |
1,250 | 1,611 | ||||||
Interest income |
(849 | ) | (482 | ) | ||||
Foreign currency transaction (gains) losses |
(7,306 | ) | 133 | |||||
Other (income) expense |
(222 | ) | 332 | |||||
Restructuring expense |
601 | 6 | ||||||
375,898 | 482,138 | |||||||
Income before taxes |
12,507 | 14,437 | ||||||
Provision for U.S. and foreign income taxes |
4,335 | 4,412 | ||||||
Net income |
8,172 | 10,025 | ||||||
Less: Preferred stock dividends |
(13 | ) | (13 | ) | ||||
Net income applicable to common stock |
$ | 8,159 | $ | 10,012 | ||||
Weighted-average number of shares outstanding: |
||||||||
Basic |
25,808 | 27,521 | ||||||
Diluted |
26,026 | 27,770 | ||||||
Earnings per share of common stock: |
||||||||
Basic |
$ | 0.32 | $ | 0.36 | ||||
Diluted |
$ | 0.31 | $ | 0.36 | ||||
- 2 -
November 30, | August 31, | |||||||
2008 | 2008 | |||||||
Unaudited | ||||||||
(In thousands except share data) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 115,763 | $ | 97,728 | ||||
Accounts receivable, less allowance for doubtful accounts of $7,518 at
November 30, 2008 and $8,316 at August 31, 2008 |
244,365 | 320,926 | ||||||
Inventories, average cost or market, whichever is lower |
182,214 | 224,964 | ||||||
Prepaid expenses and other current assets |
20,494 | 18,499 | ||||||
Total current assets |
562,836 | 662,117 | ||||||
Other assets: |
||||||||
Cash surrender value of life insurance |
2,662 | 2,665 | ||||||
Deferred charges and other assets |
19,932 | 23,017 | ||||||
Goodwill |
9,160 | 10,679 | ||||||
Intangible assets |
153 | 195 | ||||||
31,907 | 36,556 | |||||||
Property, plant and equipment, at cost: |
||||||||
Land and improvements |
15,460 | 17,026 | ||||||
Buildings and leasehold improvements |
140,463 | 156,465 | ||||||
Machinery and equipment |
311,562 | 346,999 | ||||||
Furniture and fixtures |
36,558 | 41,272 | ||||||
Construction in progress |
17,804 | 9,726 | ||||||
521,847 | 571,488 | |||||||
Accumulated depreciation and investment grants of $935 at November 30, 2008 and
$1,123 at August 31, 2008 |
342,407 | 379,740 | ||||||
Net property, plant and equipment |
179,440 | 191,748 | ||||||
$ | 774,183 | $ | 890,421 | |||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Notes payable |
$ | 9,661 | $ | 9,540 | ||||
Accounts payable |
138,632 | 174,226 | ||||||
U.S. and foreign income taxes payable |
2,487 | 3,212 | ||||||
Accrued payrolls, taxes and related benefits |
31,398 | 37,686 | ||||||
Other accrued liabilities |
32,420 | 34,566 | ||||||
Total current liabilities |
214,598 | 259,230 | ||||||
Long-term debt |
99,221 | 104,298 | ||||||
Other long-term liabilities |
77,358 | 88,235 | ||||||
Deferred income taxes |
4,768 | 5,544 | ||||||
Minority interest |
5,691 | 5,533 | ||||||
Commitments and contingencies |
| | ||||||
Stockholders equity: |
||||||||
Preferred stock, 5% cumulative, $100 par value, authorized, issued and
outstanding
10,564 shares at November 30, 2008 and August 31, 2008 |
1,057 | 1,057 | ||||||
Special stock, 1,000,000 shares authorized, none outstanding |
| | ||||||
Common stock
$1 par value, authorized 75,000,000 shares, issued
42,234,194 shares at November 30, 2008 and 42,231,341 shares at August 31, 2008 |
42,234 | 42,231 | ||||||
Other capital |
112,670 | 112,105 | ||||||
Accumulated other comprehensive income |
21,297 | 79,903 | ||||||
Retained earnings |
517,672 | 513,451 | ||||||
Treasury stock, at cost, 16,174,011 shares at November 30, 2008 and
16,095,491 shares at August 31, 2008 |
(322,383 | ) | (321,166 | ) | ||||
Common stockholders equity |
371,490 | 426,524 | ||||||
Total stockholders equity |
372,547 | 427,581 | ||||||
$ | 774,183 | $ | 890,421 | |||||
- 3 -
Three months ended November 30, | ||||||||
2008 | 2007 | |||||||
Unaudited | ||||||||
(In thousands) | ||||||||
Provided from (used in) operating activities: |
||||||||
Net income |
$ | 8,172 | $ | 10,025 | ||||
Adjustments to reconcile net income to net cash
provided from (used in) operating activities: |
||||||||
Depreciation and amortization |
5,871 | 7,079 | ||||||
Deferred tax provision |
683 | 85 | ||||||
Pension and other deferred compensation |
(1,252 | ) | 2,710 | |||||
Postretirement benefit obligation |
(48 | ) | 304 | |||||
Net gains on asset sales |
(152 | ) | (20 | ) | ||||
Minority interest in net income of subsidiaries |
158 | 245 | ||||||
Restructuring charges |
601 | 6 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
34,926 | (13,367 | ) | |||||
Inventories |
17,224 | (14,577 | ) | |||||
Accounts payable |
(15,658 | ) | 12,445 | |||||
Restructuring payments |
(452 | ) | (71 | ) | ||||
Income taxes |
(2,711 | ) | (873 | ) | ||||
Accrued payrolls and other accrued liabilities |
(677 | ) | 3,377 | |||||
Changes in other assets and other long-term liabilities |
(2,416 | ) | 1,397 | |||||
Net cash provided from operating activities |
44,269 | 8,765 | ||||||
Provided from (used in) investing activities: |
||||||||
Expenditures for property, plant and equipment |
(11,294 | ) | (8,157 | ) | ||||
Proceeds from the sale of assets |
213 | 158 | ||||||
Net cash used in investing activities |
(11,081 | ) | (7,999 | ) | ||||
Provided from (used in) financing activities: |
||||||||
Cash dividends paid |
(3,951 | ) | (4,063 | ) | ||||
Increase (decrease) in notes payable |
12 | (1,229 | ) | |||||
Borrowings on revolving credit facilities |
15,000 | 34,628 | ||||||
Repayments on revolving credit facilities |
(10,000 | ) | (32,073 | ) | ||||
Cash distributions to minority shareholders |
| (300 | ) | |||||
Common stock issued |
65 | 861 | ||||||
Purchase of treasury stock |
(1,217 | ) | | |||||
Net cash used in financing activities |
(91 | ) | (2,176 | ) | ||||
Effect of exchange rate changes on cash |
(15,062 | ) | 141 | |||||
Net increase (decrease) in cash and cash equivalents |
18,035 | (1,269 | ) | |||||
Cash and cash equivalents at beginning of period |
97,728 | 43,045 | ||||||
Cash and cash equivalents at end of period |
$ | 115,763 | $ | 41,776 | ||||
- 4 -
(1) | GENERAL |
|
The interim financial statements included reflect all adjustments, which are, in the opinion
of management, necessary for a fair presentation of the results of the interim period
presented. All such adjustments are of a normal recurring nature. |
||
The year-end balance sheet data was derived from audited financial statements, but does not
include all disclosures required by accounting principles generally accepted in the United
States of America. |
||
The results of operations for the three months ended November 30, 2008 are not necessarily
indicative of the results expected for the year ending August 31, 2009. |
||
To identify reportable segments, A. Schulman, Inc. (the Company) considers its operating
structure and the types of information subject to regular review by its President and Chief
Executive Officer (CEO), who is the Chief Operating Decision Maker (CODM). Effective
September 1, 2008, the Company named a general manager of Asia and a general manager of
Europe. This change separated the responsibilities that were previously combined under the
general manager of Europe, which then included Asia. Based on the Companys new management
structure and an evaluation of how the CODM reviews performance and allocates resources, the
Company redefined its European segment to separate the Asian operations from the European
operations beginning in the first quarter of fiscal 2009. The Company historically
identified and presented the European segment to include Asia, based on how the CODM
regularly reviewed information and allocated resources. Prior periods have been restated to
reflect the current presentation. The Companys segments are Europe, North America Polybatch
(NAPB) (which comprises the masterbatch line of business), North America Engineered
Plastics (NAEP), North America Distribution Services (NADS), Asia and A. Schulman
Invision, Inc. (Invision). The segments are discussed further in footnote 10. |
||
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 Companys Annual Report on Form 10-K for the fiscal year ended August 31,
2008, except for new accounting pronouncements which includes the adoption of Financial
Accounting Standards Board (FASB) Statement No. 157, (SFAS 157), Fair Value Measurement
and FASB Statement No. 159, (SFAS 159), The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115. The adoption of
SFAS 157 and SFAS 159 is discussed in footnote 7. |
||
Certain items previously reported in specific financial statement captions have been
reclassified to conform to the fiscal 2009 presentation. |
||
(2) | CASH AND CASH EQUIVALENTS |
|
All highly liquid investments purchased with an original maturity of three months or less
are considered to be cash equivalents. Such investments amounted to $74.3 million at
November 30, 2008 and $44.0 million at August 31, 2008. Investments with maturities between
three and twelve months are considered to be short-term investments. The Companys cash
equivalents and investments are diversified with numerous financial institutions which
management believes to have acceptable credit ratings. These investments are primarily
money-market funds. Management continues to monitor the placement of its cash given the
current credit market. The recorded amount of these investments approximates fair value. |
- 5 -
(3) | PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANS |
|
The components of the Companys net periodic benefit cost (income) for defined benefit
pension plans and other postretirement benefits are shown below. |
Three months ended November 30, | ||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Net periodic pension cost (income) recognized
included the following components: |
||||||||
Service cost |
$ | 441 | $ | 603 | ||||
Interest cost |
1,140 | 1,153 | ||||||
Expected return on plan assets |
(254 | ) | (321 | ) | ||||
Net actuarial loss and net amortization of
prior service cost and transition obligation |
88 | 198 | ||||||
Net periodic benefit cost |
$ | 1,415 | $ | 1,633 | ||||
Postretirement benefit cost (income) included
the following components: |
||||||||
Service cost |
$ | 14 | $ | 167 | ||||
Interest cost |
222 | 311 | ||||||
Net amortization of prior service
cost (credit) and unrecognized loss |
(212 | ) | (121 | ) | ||||
Net periodic benefit cost |
$ | 24 | $ | 357 | ||||
(4) | 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 Companys financial condition, results of operations or cash flows. |
- 6 -
(5) | STATEMENTS OF SHAREHOLDERS EQUITY |
|
A summary of the stockholders equity section for the three months ended November 30, 2008
and 2007 is as follows: |
Accumulated Other | Total | |||||||||||||||||||||||||||
Preferred | Common | Other | Comprehensive | Retained | Treasury | Stockholders | ||||||||||||||||||||||
Stock | Stock | Capital | Income (Loss) | Earnings | Stock | Equity | ||||||||||||||||||||||
Balance at September 1, 2008 |
$ | 1,057 | $ | 42,231 | $ | 112,105 | $ | 79,903 | $ | 513,451 | $ | (321,166 | ) | $ | 427,581 | |||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||||||
Net income |
| | | | 8,172 | | ||||||||||||||||||||||
Foreign currency translation loss |
| | | (58,481 | ) | | | |||||||||||||||||||||
Amortization of unrecognized transition
obligations, actuarial losses and prior
service costs (credits), net |
| | | (125 | ) | | | |||||||||||||||||||||
Total comprehensive income (loss) |
(50,434 | ) | ||||||||||||||||||||||||||
Cash dividends paid or accrued: |
||||||||||||||||||||||||||||
Preferred stock, $1.25 per share |
| | | | (13 | ) | | (13 | ) | |||||||||||||||||||
Common stock, $0.15 per share |
| | | | (3,938 | ) | | (3,938 | ) | |||||||||||||||||||
Stock options exercised |
| 7 | 114 | | | | 121 | |||||||||||||||||||||
Redemption of common stock to cover
tax withholdings |
| (4 | ) | (52 | ) | | | | (56 | ) | ||||||||||||||||||
Purchase of treasury stock |
| | | | | (1,217 | ) | (1,217 | ) | |||||||||||||||||||
Non-cash stock based
compensation |
| | (23 | ) | | | | (23 | ) | |||||||||||||||||||
Amortization of restricted stock |
| | 526 | | | | 526 | |||||||||||||||||||||
Balance at November 30, 2008 |
$ | 1,057 | $ | 42,234 | $ | 112,670 | $ | 21,297 | $ | 517,672 | $ | (322,383 | ) | $ | 372,547 | |||||||||||||
Balance at September 1, 2007 |
$ | 1,057 | $ | 41,785 | $ | 103,828 | $ | 50,092 | $ | 509,415 | $ | (279,164 | ) | $ | 427,013 | |||||||||||||
Impact due to adoption of FIN 48 |
| | | | 2,078 | | 2,078 | |||||||||||||||||||||
Adjusted balance at September 1, 2007 |
$ | 1,057 | $ | 41,785 | $ | 103,828 | $ | 50,092 | $ | 511,493 | $ | (279,164 | ) | $ | 429,091 | |||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||
Net income |
| | | | 10,025 | | ||||||||||||||||||||||
Foreign currency translation gain |
| | | 19,751 | | | ||||||||||||||||||||||
Amortization of unrecognized transition
obligations, actuarial losses and prior
service costs (credits), net |
| | | 77 | | | ||||||||||||||||||||||
Total comprehensive income |
29,853 | |||||||||||||||||||||||||||
Cash dividends paid or accrued: |
||||||||||||||||||||||||||||
Preferred stock, $1.25 per share |
| | | | (13 | ) | | (13 | ) | |||||||||||||||||||
Common stock, $0.145 per share |
| | | | (4,050 | ) | | (4,050 | ) | |||||||||||||||||||
Stock options exercised |
| 44 | 817 | | | | 861 | |||||||||||||||||||||
Restricted stock issued, net of forfeitures |
| 240 | (240 | ) | | | | | ||||||||||||||||||||
Non-cash stock based
compensation |
| | 259 | | | | 259 | |||||||||||||||||||||
Amortization of restricted stock |
| | 766 | | | | 766 | |||||||||||||||||||||
Balance at November 30, 2007 |
$ | 1,057 | $ | 42,069 | $ | 105,430 | $ | 69,920 | $ | 517,455 | $ | (279,164 | ) | $ | 456,767 | |||||||||||||
- 7 -
(6) | ACCUMULATED OTHER COMPREHENSIVE INCOME |
|
The components of Accumulated Other Comprehensive Income are as follows: |
Foreign Currency | Unrecognized Losses and | Total Accumulated | ||||||||||
Translation | Prior Service Costs (credits), | Other Comprehensive | ||||||||||
Gain (Loss) | Net | Income | ||||||||||
(In thousands) | ||||||||||||
Balance as of August 31, 2008 |
$ | 76,112 | $ | 3,791 | $ | 79,903 | ||||||
Current period change |
(58,481 | ) | (125 | ) | (58,606 | ) | ||||||
Balance as of November 30, 2008 |
$ | 17,631 | $ | 3,666 | $ | 21,297 | ||||||
Foreign currency translation gains do not have a tax effect, as such gains are considered
permanently reinvested. Accumulated other comprehensive income adjustments related to
pensions and other postretirement benefit plans are recorded net of tax using the applicable
effective tax rate. |
||
(7) | FAIR VALUE MEASUREMENT |
|
On September 15, 2006 the FASB issued SFAS 157 which addresses standardizing the measurement
of fair value for companies who are required to use a fair value measure for recognition or
disclosure purposes. The FASB defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measure date. The Companys adoption of the required portions of SFAS
157 as of September 1, 2008 did not have a material impact on the Companys financial
position, results of operations and cash flows. In February 2008, the FASB issued Staff
Position (FSP) No. FAS 157-2, Effective Date of FASB Statement No.157, which delayed the
required adoption of portions of SFAS 157 related to nonfinancial assets and nonfinancial
liabilities, except for items recognized or disclosed at fair value on a recurring basis.
Accordingly, the Company will adopt the provisions of SFAS 157 related to nonfinancial
assets and nonfinancial liabilities recognized or disclosed at fair value on a nonrecurring
basis in fiscal 2010. The Company is currently evaluating the impact, if any, of the
adoption of this portion of SFAS 157 on its financial position, results of operations and
cash flows. |
||
SFAS 157 establishes a fair value hierarchy to prioritize the inputs used in valuation
techniques into three levels as follows: |
| Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical
assets or liabilities in active markets; |
||
| Level 2: Inputs other than quoted prices included in Level 1 that are observable
for the asset or liability either directly or indirectly; and |
||
| Level 3: Unobservable inputs which reflect an entitys own assumptions. |
- 8 -
The following table presents information about the Companys assets and liabilities recorded
at fair value as of November 30, 2008 in the Companys consolidated balance sheet: |
Quoted Prices in | Significant | |||||||||||||||
Active Markets for | Significant Other | Unobservable | ||||||||||||||
Total Measured at | Identical Assets | Observable Inputs | Inputs | |||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
(In thousands) | ||||||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 74,264 | $ | 74,264 | $ | | $ | | ||||||||
Derivative assets |
366 | | 366 | | ||||||||||||
Total assets at fair value |
$ | 74,630 | $ | 74,264 | $ | 366 | $ | | ||||||||
Liabilities: |
||||||||||||||||
Derivative liabilities |
$ | (84 | ) | $ | | $ | (84 | ) | $ | | ||||||
Total liabilities at fair value |
$ | (84 | ) | $ | | $ | (84 | ) | $ | | ||||||
The fair value of cash equivalents, by their nature, is determined utilizing Level 1 inputs.
The Company measures the fair value of the forward foreign exchange contracts using Level 2
inputs through observable market transactions in active markets provided by banks. The
forward foreign exchange contracts are entered into with creditworthy multinational banks. |
||
The following information presents the supplemental fair value information about long-term
fixed-rate debt at November 30, 2008. The Companys long-term fixed-rate debt was issued in
euros. |
November 30, 2008 | August 31, 2008 | |||||||||||||||
(In millions of $) | (In millions of ) | (In millions of $) | (In millions of ) | |||||||||||||
Carrying value of long-term fixed-rate
debt |
$ | 63.9 | | 50.3 | $ | 73.8 | | 50.3 | ||||||||
Fair value of long-term fixed-rate debt |
$ | 48.8 | | 38.4 | $ | 63.7 | | 43.4 |
The fair value was calculated using discounted future cash flows. The decline in fair value
is primarily related to the decline in quoted market interest rates. |
||
In February 2007, the FASB issued SFAS 159 which permits companies to choose, at specified
election dates, to measure many financial instruments and certain other items at fair value
that are not currently measured at fair value. Unrealized gains and losses on items for
which the fair value option has been elected would be reported in earnings at each
subsequent reporting date. Upfront costs and fees related to items for which the fair value
option is elected shall be recognized in earnings as incurred and not deferred. The Company
did not elect the fair value option for any of its existing financial instruments other than
those already measured at fair value. Therefore, the Companys adoption of SFAS 159 as of
September 1, 2008 did not have an impact on the Companys financial position, results of
operations and cash flows. |
||
(8) | INCENTIVE STOCK PLANS |
|
Effective in December 2002, the Company adopted the 2002 Equity Incentive Plan which
provided for the grant of incentive stock options, nonqualified stock options, restricted
stock awards and director deferred units for employees and non-employee directors. The
option price of incentive stock options is the fair market value of the common shares on the
date of the grant. In the case of nonqualified options, the Company grants options at 100%
of the fair market value of the common shares on the date of the grant. All options become
exercisable at the rate of 33 1/3% per year, commencing on the first anniversary date of the
grant. Each option expires ten years from the date of the grant. Restricted stock awards under the 2002 Equity Incentive
Plan vest ratably over four years following the date of grant. |
- 9 -
On December 7, 2006, the Company adopted the 2006 Incentive Plan which provides for the
grant of incentive stock options, nonqualified stock options, whole shares, restricted stock
awards, restricted stock units, stock appreciation rights, performance shares, performance
units, cash-based awards, dividend equivalents and performance-based awards. Upon adoption
of the 2006 Incentive Plan, all remaining shares eligible for award under the 2002 Equity
Incentive Plan were added to the 2006 Incentive Plan and no further awards could be made
from the 2002 Equity Incentive Plan. The time-based nonqualified stock options granted under
the 2006 Incentive Plan become exercisable at the rate of 33 1/3% per year, commencing on
the first anniversary date of the grant. It has been the Companys practice to issue new
common shares upon stock option exercise. On November 30, 2008, there were approximately 2.7
million shares available for grant pursuant to the Companys 2006 Incentive Plan. |
||
A summary of stock options is as follows: |
Three months ended November 30, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Outstanding | Outstanding | |||||||||||||||
Shares Under | Weighted-Average | Shares Under | Weighted-Average | |||||||||||||
Option | Exercise Price | Option | Exercise Price | |||||||||||||
Outstanding at beginning of period |
567,247 | $ | 19.12 | 813,710 | $ | 19.10 | ||||||||||
Granted |
| | | | ||||||||||||
Exercised |
(6,567 | ) | 18.39 | (44,333 | ) | 19.43 | ||||||||||
Forfeited and expired |
(2,000 | ) | 18.41 | (667 | ) | 19.20 | ||||||||||
Outstanding at end of period |
558,680 | 19.13 | 768,710 | 19.08 | ||||||||||||
Exercisable at the end of the period |
538,680 | 18.92 | 603,146 | 18.69 | ||||||||||||
The intrinsic value of a stock option is the amount by which the market value of the
underlying stock exceeds the exercise price of the option. The total intrinsic value of
stock options exercised during the three months ended November 30, 2008 was insignificant
and was approximately $0.1 million for the same period prior year. The intrinsic value for
stock options exercisable at November 30, 2008 was $0.3 million with a remaining term for
options exercisable of approximately 4.3 years. For stock options outstanding at November
30, 2008, exercise prices range from $11.62 to $24.69. The weighted average remaining
contractual life for options outstanding at November 30, 2008 was approximately 4.4 years.
Stock options vested and expected to vest at November 30, 2008 were approximately 558,562
with a remaining contractual term of approximately 4.4 years and a weighted-average exercise
price of $19.13. The aggregate intrinsic value of stock options vested and expected to vest
was $0.3 million at November 30, 2008. There were no grants of stock options during the
first quarter of fiscal 2009 or fiscal 2008. |
||
Restricted stock awards under the 2002 Equity Incentive Plan vest over four years following
the date of grant. Restricted stock awards under the 2006 Incentive Plan can vest over
various periods. The restricted stock grants outstanding under the 2006 Incentive Plan have
service vesting periods of three years following the date of grant. The following table
summarizes the outstanding time-based restricted stock awards and weighted-average fair
market value: |
Weighted-Average | ||||||||
Outstanding Restricted | Fair Market Value | |||||||
Stock Awards | (per share) | |||||||
Outstanding at August 31, 2008 |
232,757 | $ | 20.81 | |||||
Granted |
| | ||||||
Vested |
(34,667 | ) | 20.20 | |||||
Forfeited |
(417 | ) | 21.09 | |||||
Outstanding at November 30, 2008 |
197,673 | 20.91 | ||||||
No restricted stock was granted during the first quarter of fiscal 2009 or fiscal 2008. |
- 10 -
The Company also grants awards with market performance vesting criteria under the 2006
Incentive Plan. In the table below, the Company summarizes all performance-based awards
which include performance-based restricted stock awards and Performance Shares. |
Weighted-Average | ||||||||
Outstanding | Fair Market Value | |||||||
Performance-Based Awards | (per share) | |||||||
Outstanding at August 31, 2008 |
286,256 | $ | 15.50 | |||||
Granted |
| | ||||||
Vested |
| | ||||||
Forfeited |
(625 | ) | 16.10 | |||||
Outstanding at November 30, 2008 |
285,631 | 15.50 | ||||||
There were no grants of performance-based awards during the first quarter of fiscal 2009 or
fiscal 2008. Performance share awards (Performance Shares) are awards for which the
vesting will occur based on both service and market performance criteria and do not have
voting rights. Included in the outstanding performance-based awards at November 30, 2008 are
131,608 Performance Shares which earn dividends throughout the vesting period and
approximately 65,803 Performance Shares which do not earn dividends. Also included in the
balance are 88,220 awards of performance-based restricted stock awards from the fiscal 2007
grant with vesting based on both service and market performance criteria. The
performance-based restricted stock awards have voting rights and earn dividends. At the
vesting date of these performance-based restricted stock awards, approximately 44,110
additional shares could be issued and released if certain market conditions are met which
are not included in the table. The additional shares do not earn dividends and do not have
voting rights. |
||
The valuation for the awards included in the performance-based awards table above was based
upon a Monte Carlo simulation, which is a binomial model that represents the characteristics
of these grants. Vesting of the ultimate number of shares underlying performance awards, if
any, will be dependent upon the Companys total shareholder return in relation to the total
shareholder return of a select group of peer companies over a three-year period. The
probability of meeting the market criteria was considered when calculating the estimated
fair market value on the date of grant using a Monte Carlo simulation. These awards were
accounted for as awards with market conditions in accordance with FASB Statement No. 123(R),
Share-Based Payment. |
||
Total unrecognized compensation cost, including a provision for forfeitures, related to
nonvested share-based compensation arrangements at November 30, 2008 was approximately $4.7
million. This cost is expected to be recognized over a weighted-average period of
approximately 1.6 years. |
||
The Company had approximately 209,000 restricted stock units and approximately 244,000
restricted stock units outstanding with various vesting periods and criteria at November 30,
2008 and 2007, respectively. Each restricted stock unit is equivalent to one share of the
Companys common stock on the vesting date. The Company did not grant any restricted stock units during the first quarter of fiscal 2009 or
fiscal 2008. Certain restricted stock units earn dividends during the vesting period.
Restricted stock units are settled only in cash at the vesting date and therefore are
treated as a liability award. The Company records a liability for these restricted stock
units in an amount equal to the total of (a) the mark-to-market adjustment of the units
vested to date, and (b) accrued dividends on the units. As a result of these mark-to-market
adjustments, these restricted stock units introduce volatility into the Companys
consolidated income statements. The Company has recorded approximately $1.4 million of
income and $0.4 million of expense related to restricted stock units for the three months
ended November 30, 2008 and 2007, respectively. The first quarter of fiscal 2009 experienced
a significant decline in the expense due to the decline in the Companys common stock price
compared to the previous quarters price. |
- 11 -
The following table summarizes the impact to the Companys consolidated statements of income
from stock-based compensation: |
Three months ended November 30, | ||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Stock Options |
$ | (23 | ) | $ | 259 | |||
Restricted Stock Awards and
Performance-Based Awards |
526 | 766 | ||||||
Restricted Stock Units |
(1,393 | ) | 383 | |||||
Total stock-based compensation |
$ | (890 | ) | $ | 1,408 | |||
(9) | EARNINGS PER 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 the impact of restricted stock and performance-based awards expected to vest,
which would then share in the earnings of the Company. |
||
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 presents the number of incremental
weighted-average shares used in computing diluted per share amounts: |
Three months ended November 30, | ||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Weighted-average shares outstanding: |
||||||||
Basic |
25,808 | 27,521 | ||||||
Incremental shares from stock options |
14 | 73 | ||||||
Incremental shares from restricted stock |
204 | 176 | ||||||
Diluted |
26,026 | 27,770 | ||||||
For the three months ended November 30, 2008 and 2007, there were approximately 0.5 million
and 0.1 million, respectively, equivalent shares related to stock options that were excluded
from diluted weighted-average shares outstanding because inclusion would have been
anti-dilutive. |
||
(10) | SEGMENT INFORMATION |
|
To identify reportable segments, the Company considers its operating structure and the types
of information subject to regular review by its President and CEO, who is the CODM.
Globally, the Company operates primarily in three lines of business: engineered plastics,
masterbatch and distribution services. In North America, there is a general manager of each
of these lines of business each of who report directly to the Companys CEO. Also, in North
America the Company operates in a specialty sheet line of business called Invision which
has its own general manager who also reports to the CEO. Effective September 1, 2008, the
Company named a general manager of Asia and a general manager of Europe. This change
separated the responsibilities that were previously combined under the general manager of
Europe, which then included Asia. Based on the Companys new management structure and an
evaluation of how the CODM reviews performance and allocates resources, the Company
redefined its European segment to separate the Asian operations from the European operations
beginning in the first quarter of fiscal 2009. The Company historically identified and
presented the European segment to include Asia, based on how the CODM regularly reviewed
information and allocated resources. Prior periods have been restated to reflect the current
presentation. The Companys Europe and Asia segments have managers of each line of business,
who report to general managers of the respective segments who then report to the CEO.
Currently, the Companys CEO does not directly manage the business line level when reviewing
performance and allocating resources for the
Europe and Asia segments. The Companys segments are Europe, NAPB (which comprises the
masterbatch line of business), NAEP, NADS, Asia and Invision. |
- 12 -
Certain portions of the Companys North American operations are not managed separately and
are included in All Other North America. The Company also includes in All Other North
America any administrative costs that are not directly related or allocated to a North
America business unit such as North American information technology, human resources,
accounting and purchasing. The North American administrative costs are directly related to
the four North American segments. |
||
The CODM uses net sales to unaffiliated customers, gross profit and operating income in
order to make decisions, assess performance and allocate resources to each segment.
Operating income does not include interest income or expense, other income or expense,
restructuring expense or foreign currency transaction gains or losses. In some cases, the
Company may choose to exclude from a segments results certain non-recurring items as
determined by management. These items are included in the Corporate and Other section in the
table below. Corporate expenses include the compensation of certain personnel, certain audit
expenses, board of directors related costs, certain insurance costs and other miscellaneous
legal and professional fees. |
||
Below the Company presents net sales, gross profit and operating income by segment. Also
included is a reconciliation of operating income (loss) by segment to consolidated income
before taxes. |
Three months ended November 30, | ||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Net Sales to Unaffiliated Customers |
||||||||
Europe |
$ | 280,847 | $ | 357,266 | ||||
NAPB |
28,044 | 34,975 | ||||||
NAEP |
44,268 | 59,112 | ||||||
NADS |
25,971 | 34,395 | ||||||
Asia |
9,187 | 10,739 | ||||||
Invision |
88 | 88 | ||||||
Total Net Sales to Unaffiliated Customers |
$ | 388,405 | $ | 496,575 | ||||
Segment Gross Profit |
||||||||
Europe |
$ | 34,395 | $ | 45,313 | ||||
NAPB |
2,290 | 3,610 | ||||||
NAEP |
2,757 | 5,040 | ||||||
NADS |
1,845 | 2,413 | ||||||
Asia |
714 | 777 | ||||||
Invision |
(948 | ) | (1,563 | ) | ||||
Total Segment Gross Profit |
$ | 41,053 | $ | 55,590 | ||||
- 13 -
Three months ended November 30, | ||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Segment Operating Income |
||||||||
Europe |
$ | 14,032 | $ | 22,789 | ||||
NAPB |
692 | 1,919 | ||||||
NAEP |
(941 | ) | (480 | ) | ||||
NADS |
924 | 1,391 | ||||||
Asia |
(290 | ) | (211 | ) | ||||
Invision |
(1,067 | ) | (1,885 | ) | ||||
All other North America |
(3,009 | ) | (4,105 | ) | ||||
Total Segment Operating Income |
$ | 10,341 | $ | 19,418 | ||||
Corporate and other |
(4,360 | ) | (3,381 | ) | ||||
Interest expense, net |
(401 | ) | (1,129 | ) | ||||
Foreign currency transaction gains (losses) |
7,306 | (133 | ) | |||||
Other income (expense) |
222 | (332 | ) | |||||
Restructuring |
(601 | ) | (6 | ) | ||||
Income Before Taxes |
$ | 12,507 | $ | 14,437 | ||||
The majority of the Companys sales for the three months ended November 30, 2008 and 2007
can be classified into five primary product families. The amount and percentage of
consolidated sales for these product families are as follows: |
Three months ended November 30, | ||||||||||||||||
Product Family | 2008 | 2007 | ||||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Color and additive
concentrates |
$ | 149,378 | 39 | % | $ | 178,955 | 36 | % | ||||||||
Polyolefins |
121,372 | 31 | 160,312 | 32 | ||||||||||||
Engineered compounds |
86,050 | 22 | 106,814 | 22 | ||||||||||||
Polyvinyl chloride (PVC) |
12,692 | 3 | 14,698 | 3 | ||||||||||||
Tolling |
2,571 | 1 | 5,958 | 1 | ||||||||||||
Other |
16,342 | 4 | 29,838 | 6 | ||||||||||||
$ | 388,405 | 100 | % | $ | 496,575 | 100 | % | |||||||||
(11) | INCOME TAXES |
|
At November 30, 2008, the Companys gross unrecognized tax benefits totaled $3.4 million.
If recognized, approximately $1.7 million of the total unrecognized tax benefits would
favorably affect the Companys effective tax rate. The Company reports interest and
penalties related to income tax matters in income tax expense. At November 30, 2008, the
Company had $0.8 million of accrued interest and penalties on unrecognized tax benefits. |
||
The Company is open to potential income tax examinations in the U.S. from fiscal 2005 onward
and generally from fiscal year 2002 onward for most foreign jurisdictions. The Company is
currently under examination in the U.S. for fiscal 2006 and in Belgium for fiscal 2006 and
2007. In addition, the Company is currently under examination in Germany for years 2001
through 2004. |
||
The amount of unrecognized tax benefits is expected to change in the next 12 months;
however, the change is not expected to have a significant impact on the financial position
of the Company. |
- 14 -
A reconciliation of the statutory U.S. federal income tax rate of 35% with the effective tax
rate is as follows: |
Three months ended | Three months ended | |||||||||||||||
November 30, 2008 | November 30, 2007 | |||||||||||||||
(In thousands except for %s) | ||||||||||||||||
Statutory U.S. tax rate |
$ | 4,377 | 35.0 | % | $ | 5,053 | 35.0 | % | ||||||||
Amount of foreign taxes at
less than U.S. statutory tax
rate |
(3,811 | ) | (30.5 | ) | (3,150 | ) | (21.8 | ) | ||||||||
U.S. losses with no tax benefit |
3,523 | 28.2 | 2,271 | 15.7 | ||||||||||||
Other |
246 | 2.0 | 238 | 1.7 | ||||||||||||
Total income tax expense |
$ | 4,335 | 34.7 | % | $ | 4,412 | 30.6 | % | ||||||||
The effective tax rate of 34.7% for the three months ended November 30, 2008 is slightly
below the U.S. statutory rate of 35.0% primarily because of the Companys overall foreign
rate being less than the U.S. statutory rate. This favorable effect on the Companys tax
rate was offset by no tax benefits being recognized for losses in the U.S. As compared to
the effective rate of 30.6% for the three months ended November 30, 2007, the current
quarters effective rate is driven by an increase in the U.S. pre-tax loss from continuing
operations and other U.S. charges for which no tax benefit was recognized. This unfavorable
effect on the Companys tax rate was partially offset by a decrease in the overall foreign
rate driven by an increase in foreign pre-tax income in lower rate jurisdictions. |
||
(12) | RESTRUCTURING OF OPERATIONS |
|
Fiscal 2009 Plan |
||
In November 2008, management decided to take certain actions in a strategic effort to
realign resources and reduce expenses within the Europe segment. As a result, the Company
recorded charges of approximately $0.3 million for employee related costs for approximately
30 employees in the European segment which are included in restructuring expenses for the
three months ended November 30, 2008. |
||
On December 10, 2008, the Company announced actions to restructure its operations and
eliminate costs throughout the Company. These actions are part of the Companys ongoing
strategic plan to realign its resources, control costs and improve efficiency to profitably
serve key growth markets. |
||
In the NAEP segment, the Company will reduce production capacity by temporarily idling one
manufacturing line in addition to permanently shutting down two lines at the plant in
Bellevue, Ohio. The Company also plans to temporarily idle one line and reduce shifts from
seven to five days at its Nashville, Tennessee plant. The actions will reduce production
capacity by approximately 50% in this segment and reduce headcount by 60 between these two
facilities. The Company is also realigning its NAEP sales, marketing and technical customer
service teams to focus its customer support on core markets, which will reduce headcount on
those teams by approximately 15. |
||
The Company also plans to reduce its Akron-based North American administrative staff by six
full-time employees and three contract positions. These actions are expected to begin in
the second quarter of fiscal 2009 with completion by the end of the third quarter of fiscal
2009. |
||
In Europe, the Company is rationalizing its overall operations to better align its
production capabilities with evolving customer needs and to address the increasingly
deteriorating economic conditions in those markets. The Company is in the process of
reducing its current capacity in Europe by 7% to 10%. Accordingly, the Company reduced
related headcount by approximately 20 employees in November 2008 and will eliminate
approximately an additional 30 full-time employees and 30 contract positions in the second
quarter of fiscal 2009. The Companys major European locations also plan to implement a
short work schedule. |
- 15 -
Fiscal 2008 Plan |
||
In January 2008, the Company announced two steps in its continuing effort to improve the
profitability of its North American operations. The Company announced it would shut down its
manufacturing facility in St. Thomas, Ontario, Canada and would pursue a sale of its
manufacturing facility in Orange, Texas. All the restructuring costs related to the sale of
the Orange, Texas and the St. Thomas, Ontario, Canada facilities are related to the NAEP
reportable segment. |
||
The St. Thomas, Ontario, Canada facility primarily produced engineered plastics for the
automotive market, with a capacity of approximately 74 million pounds per year and employed
approximately 120 individuals. The facility was shutdown at the end of June 2008. The
Company continues to finalize closing procedures into fiscal 2009. |
||
The Orange, Texas facility provided primarily North American third-party tolling services in
which the Company processed customer-owned materials for a fee. Total annual capacity at the
Orange, Texas facility was approximately 135 million pounds and employed approximately 100
employees. The Company completed the sale of this facility in March 2008 for total
consideration of $3.7 million. |
||
The Company recorded charges related to the fiscal 2008 initiatives of approximately $0.2
million for employee related costs and $0.1 million for contract termination and other
related restructuring costs during the three months ended November 30, 2008. The charges
recorded in fiscal 2009 are related to the NAEP segment. Approximately $0.3 million remains
accrued for employee related costs at November 30, 2008 related to the fiscal 2008
initiatives, which the Company anticipates the majority of the accrued balance for
restructuring charges to be paid throughout fiscal 2009. No charges related to this plan
were recorded in the first quarter of fiscal 2008. |
||
The following table summarizes the liabilities as of November 30, 2008 related to the
announced restructuring plans in fiscal 2008 and fiscal 2009. |
Accrual Balance | Fiscal 2009 | Fiscal 2009 | Accrual Balance | |||||||||||||
August 31, 2008 | Charges | Paid | November 30, 2008 | |||||||||||||
(In thousands) | ||||||||||||||||
Employee related
costs |
$ | 507 | $ | 497 | $ | (348 | ) | $ | 656 | |||||||
Other costs |
| 104 | (104 | ) | | |||||||||||
Translation effect |
(22 | ) | | | (68 | ) | ||||||||||
Restructuring charges |
$ | 485 | $ | 601 | $ | (452 | ) | $ | 588 | |||||||
Fiscal 2007 Plan |
||
During fiscal 2007, the Company announced multiple phases of a restructuring plan to restore
its NAEP segment to profitability. The Company recorded minimal charges in fiscal 2008
related to the fiscal 2007 initiatives as the plan was primarily completed in fiscal 2007.
The total charge for this plan was approximately $2.1 million recorded primarily in fiscal
2007. The Company recorded insignificant restructuring charges and paid approximately
$71,000 for employee related costs related to the fiscal 2007 plan in the three months ended
November 30, 2007. |
- 16 -
(13) | ACCOUNTING PRONOUNCEMENTS |
|
In December 2007, the FASB issued FASB Statement No. 141(R), Business Combinations
(SFAS 141R). SFAS 141R replaces FASB Statement No. 141 and provides greater consistency in
the accounting and financial reporting of business combinations. SFAS 141R requires the
acquiring entity in a business combination to recognize all assets acquired and liabilities
assumed in the transaction and any non-controlling interest in the acquiree at the
acquisition date, measured at the fair value as of that date. This includes the measurement
of the acquirer shares issued in consideration for a business combination, the recognition
of contingent consideration, the accounting for pre-acquisition gain and loss contingencies,
the recognition of
capitalized in-process research and development, the accounting for acquisition-related
restructuring cost accruals, the treatment of acquisition related transaction costs and the
recognition of changes in the acquirers income tax valuation allowance and deferred taxes.
SFAS 141R is effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after December 15,
2008. Early adoption is not permitted. The Company is required to adopt SFAS 141R in fiscal
year 2010. The Company is assessing the impact that SFAS 141R may have on its financial
position, results of operations and cash flows. |
||
In December 2007, the FASB issued FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160). SFAS 160
clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated financial
statements. SFAS 160 is effective for the Company for the fiscal year 2010, with early
adoption being prohibited. The Company is assessing the impact that SFAS 160 may have on its
financial position, results of operations and cash flows. |
||
(14) | SHARE REPURCHASE PROGRAM |
|
The Company has approximately 2.9 million shares authorized by the Board of Directors to be
repurchased under the Companys current share repurchase program. The Company did not
repurchase any shares of its common stock during the three months ended November 30, 2007.
During the three months ended November 30, 2008, the Company repurchased 78,520 shares of
common stock at an average price of $15.50 per share. |
- 17 -
- 18 -
% Due to | ||||||||||||||||||||||||||||
Total increase | % Due to | % Due to | price/ | |||||||||||||||||||||||||
Three months ended November 30, | (decrease) | tonnage | translation | product mix | ||||||||||||||||||||||||
Sales | 2008 | 2007 | $ | % | ||||||||||||||||||||||||
(In thousands, except for %s) | ||||||||||||||||||||||||||||
Europe |
$ | 280,847 | $ | 357,266 | $ | (76,419 | ) | -21.4 | % | -20.8 | % | -4.4 | % | 3.8 | % | |||||||||||||
NAPB |
28,044 | 34,975 | (6,931 | ) | -19.8 | % | -29.8 | % | -4.1 | % | 14.1 | % | ||||||||||||||||
NAEP |
44,268 | 59,112 | (14,844 | ) | -25.1 | % | -51.6 | % | -2.0 | % | 28.5 | % | ||||||||||||||||
NADS |
25,971 | 34,395 | (8,424 | ) | -24.5 | % | -39.9 | % | -0.4 | % | 15.8 | % | ||||||||||||||||
Asia |
9,187 | 10,739 | (1,552 | ) | -14.5 | % | -36.3 | % | 2.5 | % | 19.3 | % | ||||||||||||||||
Invision |
88 | 88 | | | | | | |||||||||||||||||||||
$ | 388,405 | $ | 496,575 | $ | (108,170 | ) | -21.8 | % | -27.8 | % | -3.7 | % | 9.7 | % | ||||||||||||||
Three months ended November 30, | ||||||||
2008 | 2007 | |||||||
Packaging |
40 | % | 38 | % | ||||
Automotive |
15 | % | 16 | % | ||||
Other |
45 | % | 46 | % | ||||
100 | % | 100 | % | |||||
Three months ended November 30, | ||||||||||||||||
Product Family | 2008 | 2007 | ||||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Color and additive
concentrates |
$ | 149,378 | 39 | % | $ | 178,955 | 36 | % | ||||||||
Polyolefins |
121,372 | 31 | 160,312 | 32 | ||||||||||||
Engineered compounds |
86,050 | 22 | 106,814 | 22 | ||||||||||||
Polyvinyl chloride (PVC) |
12,692 | 3 | 14,698 | 3 | ||||||||||||
Tolling |
2,571 | 1 | 5,958 | 1 | ||||||||||||
Other |
16,342 | 4 | 29,838 | 6 | ||||||||||||
$ | 388,405 | 100 | % | $ | 496,575 | 100 | % | |||||||||
- 19 -
Three months ended November 30, | Increase (decrease) | |||||||||||||||
2008 | 2007 | $ | % | |||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Gross profit $ |
||||||||||||||||
Europe |
$ | 34,395 | $ | 45,313 | $ | (10,918 | ) | (24.1 | )% | |||||||
NAPB |
2,290 | 3,610 | (1,320 | ) | (36.6 | ) | ||||||||||
NAEP |
2,757 | 5,040 | (2,283 | ) | (45.3 | ) | ||||||||||
NADS |
1,845 | 2,413 | (568 | ) | (23.5 | ) | ||||||||||
Asia |
714 | 777 | (63 | ) | (8.1 | ) | ||||||||||
Invision |
(948 | ) | (1,563 | ) | 615 | 39.3 | ||||||||||
Consolidated |
$ | 41,053 | $ | 55,590 | $ | (14,537 | ) | (26.2 | )% | |||||||
Gross profit % |
||||||||||||||||
Europe |
12.2 | % | 12.7 | % | ||||||||||||
NAPB |
8.2 | % | 10.3 | % | ||||||||||||
NAEP |
6.2 | % | 8.5 | % | ||||||||||||
NADS |
7.1 | % | 7.0 | % | ||||||||||||
Asia |
7.8 | % | 7.2 | % | ||||||||||||
Invision |
| | ||||||||||||||
Consolidated |
10.6 | % | 11.2 | % |
- 20 -
Three months ended November 30, | ||||||||
2008 | 2007 | |||||||
Europe |
73 | % | 102 | % | ||||
NAPB |
87 | % | 114 | % | ||||
NAEP |
89 | % | 82 | % | ||||
Asia |
45 | % | 60 | % | ||||
Worldwide |
74 | % | 95 | % |
Three months ended November 30, 2008 | ||||||||
$ Increase (decrease) | % Increase (decrease) | |||||||
(In thousands, except for %s) | ||||||||
Total change in selling, general and
administrative expenses |
$ | (4,394 | ) | (11.2 | )% | |||
Less the effect of foreign currency translation |
(1,358 | ) | (3.5 | ) | ||||
Total change in selling, general and administrative
expenses, excluding the effect of foreign
currency translation |
$ | (3,036 | ) | (7.7 | )% | |||
- 21 -
- 22 -
Accrual Balance | Fiscal 2009 | Fiscal 2009 | Accrual Balance | |||||||||||||
August 31, 2008 | Charges | Paid | November 30, 2008 | |||||||||||||
(In thousands) | ||||||||||||||||
Employee related costs |
$ | 507 | $ | 497 | $ | (348 | ) | $ | 656 | |||||||
Other costs |
| 104 | (104 | ) | | |||||||||||
Translation effect |
(22 | ) | | | (68 | ) | ||||||||||
Restructuring charges |
$ | 485 | $ | 601 | $ | (452 | ) | $ | 588 | |||||||
- 23 -
Three months ended November 30, | ||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Europe |
$ | 14,032 | $ | 22,789 | ||||
NAPB |
692 | 1,919 | ||||||
NAEP |
(941 | ) | (480 | ) | ||||
NADS |
924 | 1,391 | ||||||
Asia |
(290 | ) | (211 | ) | ||||
Invision |
(1,067 | ) | (1,885 | ) | ||||
All other North America |
(3,009 | ) | (4,105 | ) | ||||
Corporate and other |
(4,360 | ) | (3,381 | ) | ||||
Interest expense, net |
(401 | ) | (1,129 | ) | ||||
Foreign currency transaction gains (losses) |
7,306 | (133 | ) | |||||
Other income (expense) |
222 | (332 | ) | |||||
Restructuring expense |
(601 | ) | (6 | ) | ||||
Income before taxes |
$ | 12,507 | $ | 14,437 | ||||
Three months ended | Three months ended | |||||||||||||||
November 30, 2008 | November 30, 2007 | |||||||||||||||
(In thousands except for %s) | ||||||||||||||||
Statutory U.S. tax rate |
$ | 4,377 | 35.0 | % | $ | 5,053 | 35.0 | % | ||||||||
Amount of foreign taxes at less than U.S.
statutory tax rate |
(3,811 | ) | (30.5 | ) | (3,150 | ) | (21.8 | ) | ||||||||
U.S. losses with no tax benefit |
3,523 | 28.2 | 2,271 | 15.7 | ||||||||||||
Other |
246 | 2.0 | 238 | 1.7 | ||||||||||||
Total income tax expense |
$ | 4,335 | 34.7 | % | $ | 4,412 | 30.6 | % | ||||||||
- 24 -
Three months ended | Three months ended | |||||||||||||||
November 30, 2008 | November 30, 2007 | |||||||||||||||
Diluted EPS | Diluted EPS | |||||||||||||||
Net Income and Earnings Per Share Reconciliation | Income (loss) | Impact | Income (loss) | Impact | ||||||||||||
(In thousands except share data) | ||||||||||||||||
Net income applicable to common stock |
$ | 8,159 | $ | 0.31 | $ | 10,012 | $ | 0.36 | ||||||||
Adjustments, net of tax, per diluted share: |
||||||||||||||||
Restructuring expense |
436 | 0.02 | 6 | | ||||||||||||
Other employee termination costs |
101 | | 674 | 0.02 | ||||||||||||
Insurance claim settlement adjustment |
| | 368 | 0.01 | ||||||||||||
Net income applicable to common stock before unusual items |
$ | 8,696 | $ | 0.33 | $ | 11,060 | $ | 0.39 | ||||||||
Weighted-average number of shares outstanding Diluted |
26,026 | 27,770 |
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November 30, | August 31, | |||||||||||
2008 | 2008 | % Change | ||||||||||
(In millions, except for %s) | ||||||||||||
Cash and cash equivalents |
$ | 115.8 | $ | 97.7 | 18.5 | % | ||||||
Working capital, excluding cash |
232.5 | 305.2 | (23.8 | ) | ||||||||
Long-term Debt |
99.2 | 104.3 | (4.9 | ) | ||||||||
Stockholders equity |
372.5 | 427.6 | (12.9 | ) |
| $30.0 million of Senior Notes in the United States, maturing on March 1, 2013, with a
variable interest rate of LIBOR plus 80 bps (Dollar Notes). Although there are no plans
to do so, the Company may, at its option, prepay all or part of the Dollar Notes. |
| 50.3 million of Senior Notes in Germany, maturing on March 1, 2016, with a fixed
interest rate of 4.485% (Euro Notes). The Euro Notes approximate $63.9 million at
November 30, 2008. The fair market value of the Euro Notes is
approximately 38.4
million at November 30, 2008, which approximates $48.8 million. |
- 26 -
As of November 30, | As of August 31, | |||||||
2008 | 2008 | |||||||
(In millions) | ||||||||
Total gross available funds from credit lines and notes |
||||||||
Credit Facility |
$ | 260.0 | $ | 260.0 | ||||
Uncollateralized short-term lines of credit U.S. |
$ | 8.5 | $ | 8.5 | ||||
Uncollateralized short-term lines of credit Foreign |
$ | 47.7 | $ | 51.0 | ||||
Borrowings outstanding |
||||||||
Credit Facility |
5.0 | 7.0 | ||||||
Uncollateralized short-term lines of credit U.S. |
7.1 | | ||||||
Uncollateralized short-term lines of credit Foreign |
2.6 | 2.5 | ||||||
Total net available funds from credit lines and notes |
||||||||
Credit Facility |
$ | 255.0 | $ | 253.0 | ||||
Uncollateralized short-term lines of credit U.S. |
$ | 1.4 | $ | 8.5 | ||||
Uncollateralized short-term lines of credit Foreign |
$ | 45.1 | $ | 48.5 |
| Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets
or liabilities in active markets; |
| Level 2: Inputs other than quoted prices included in Level 1 that are observable for the
asset or liability either directly or indirectly; and |
| Level 3: Unobservable inputs which reflect an entitys own assumptions. |
- 27 -
- 28 -
| Worldwide and regional economic, business and political conditions, including continuing
economic uncertainties in some or all of the Companys major product markets; |
| Fluctuations in the value of currencies in major areas where the Company operates,
including the U.S. dollar, euro, U.K. pound sterling, Canadian dollar, Mexican peso, Chinese
yuan and Indonesian rupiah; |
| Fluctuations in the prices of sources of energy or plastic resins and other raw materials; |
| Changes in customer demand and requirements; |
| Escalation in the cost of providing employee health care; |
| Outcome of any legal claims known or unknown; |
| Performance of the North American automotive market; |
| Global financial market turbulence; and |
| Global or regional economic slowdown or recession. |
- 29 -
- 30 -
Total number of shares | Maximum number of | |||||||||||||||
Total number of shares | Average price | purchased as part of a | shares that may yet be | |||||||||||||
repurchased | paid per share | publicly announced plan | purchased under the plan | |||||||||||||
Beginning shares
available |
3,018,486 | |||||||||||||||
September 1-30, 2008 |
9,520 | $ | 24.00 | 9,520 | 3,008,966 | |||||||||||
October 1-31, 2008 |
| $ | | | 3,008,966 | |||||||||||
November 1-30, 2008 |
69,000 | $ | 14.33 | 69,000 | 2,939,966 | |||||||||||
Total |
78,520 | $ | 15.50 | 78,520 | 2,939,966 | |||||||||||
Exhibit Number | Exhibit | |||
3.1 | Amended and Restated Certificate of Incorporation of the Company (for purposes of
Commission reporting compliance only) (filed herewith). |
|||
3.2 | Amended and Restated Bylaws of the Company (for purposes of Commission reporting
compliance only) (incorporated by reference to Exhibit 3.2 to the Companys
Quarterly Report on Form 10-Q for fiscal quarter ended May 31, 2007). |
|||
10.1 | First Amendment to 2007 Agreement by and among the Company and the Barington Group,
dated October 10, 2008 (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed with the Commission on October 10, 2008). |
|||
10.2 | Agreement by and among the Company and the Ramius Group, dated November 11, 2008
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed with the Commission on November 12, 2008). |
|||
10.3 | Advisory Agreement, by and between the Company and Dr. Peggy G. Miller, dated
November 7, 2008 (incorporated by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K filed with the Commission on November 12, 2008). |
|||
10.4 | First Amendment to Employment Agreement of Joseph M. Gingo, dated December 17, 2008
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed with the Commission on December 23, 2008). |
- 31 -
Exhibit Number | Exhibit | |||
10.5 | Amended and Restated Employment Agreement of Paul F. DeSantis, dated December 17,
2008 (incorporated by reference to Exhibit 10.2 to the Companys Current Report on
Form 8-K filed with the Commission on December 23, 2008). |
|||
10.6 | A. Schulman, Inc. Second Amended and Restated Directors Deferred Units Plan (filed
herewith). |
|||
10.7 | First Amendment to Indemnification Agreement (filed herewith). |
|||
10.8 | A. Schulman, Inc. Amended and Restated Nonqualified Profit Sharing Plan (filed
herewith). |
|||
10.9 | First Amendment to the A. Schulman, Inc. 2002 Equity Incentive Plan (filed herewith). |
|||
10.10 | A. Schulman, Inc. Amended and Restated 2006 Incentive Plan (filed herewith). |
|||
10.11 | First Amendment to the 2009 Cash Bonus Plan of A. Schulman, Inc. (filed herewith). |
|||
10.12 | Amended and Restated A. Schulman, Inc. Supplemental Executive Retirement Plan (filed
herewith). |
|||
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). |
|||
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). |
|||
32 | Certifications of Principal Executive and Principal Financial Officers pursuant to
18 U.S.C. 1350. |
- 32 -
Date: January 9, 2009 | A. Schulman, Inc. (Registrant) |
|||
/s/ Paul F. DeSantis | ||||
Paul F. DeSantis, Chief Financial Officer, Vice President and |
||||
Treasurer of A. Schulman, Inc. (Signing on behalf of Registrant as a duly authorized officer of Registrant and signing as the Principal Financial Officer of Registrant) |
- 33 -
Exhibit Number | Exhibit | |||
3.1 | Amended and Restated Certificate of Incorporation of the Company (for purposes of
Commission reporting compliance only) (filed herewith). |
|||
3.2 | Amended and Restated Bylaws of the Company (for purposes of Commission reporting
compliance only) (incorporated by reference to Exhibit 3.2 to the Companys
Quarterly Report on Form 10-Q for fiscal quarter ended May 31, 2007). |
|||
10.1 | First Amendment to 2007 Agreement by and among the Company and the Barington Group,
dated October 10, 2008 (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed with the Commission on October 10, 2008). |
|||
10.2 | Agreement by and among the Company and the Ramius Group, dated November 11, 2008
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed with the Commission on November 12, 2008). |
|||
10.3 | Advisory Agreement, by and between the Company and Dr. Peggy G. Miller, dated
November 7, 2008 (incorporated by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K filed with the Commission on November 12, 2008). |
|||
10.4 | First Amendment to Employment Agreement of Joseph M. Gingo, dated December 17, 2008
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed with the Commission on December 23, 2008). |
|||
10.5 | Amended and Restated Employment Agreement of Paul F. DeSantis, dated December 17,
2008 (incorporated by reference to Exhibit 10.2 to the Companys Current Report on
Form 8-K filed with the Commission on December 23, 2008). |
|||
10.6 | A. Schulman, Inc. Second Amended and Restated Directors Deferred Units Plan (filed
herewith). |
|||
10.7 | First Amendment to Indemnification Agreement (filed herewith). |
|||
10.8 | A. Schulman, Inc. Amended and Restated Nonqualified Profit Sharing Plan (filed
herewith). |
|||
10.9 | First Amendment to the A. Schulman, Inc. 2002 Equity Incentive Plan (filed herewith). |
|||
10.10 | A. Schulman, Inc. Amended and Restated 2006 Incentive Plan (filed herewith). |
|||
10.11 | First Amendment to the 2009 Cash Bonus Plan of A. Schulman, Inc. (filed herewith). |
|||
10.12 | Amended and Restated A. Schulman, Inc. Supplemental Executive Retirement Plan (filed
herewith). |
|||
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). |
|||
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). |
|||
32 | Certifications of Principal Executive and Principal Financial Officers pursuant to
18 U.S.C. 1350. |
- 34 -