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 February 28, |
Six months ended February 28, |
|||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Unaudited | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Net sales |
$ | 331,023 | $ | 272,648 | $ | 693,883 | $ | 660,964 | ||||||||
Cost of sales |
279,686 | 243,375 | 579,389 | 589,689 | ||||||||||||
Selling, general and administrative expenses |
48,764 | 37,448 | 89,515 | 72,244 | ||||||||||||
Interest expense |
1,136 | 1,146 | 2,190 | 2,395 | ||||||||||||
Interest income |
(198 | ) | (582 | ) | (451 | ) | (1,431 | ) | ||||||||
Foreign currency transaction (gains) losses |
(180 | ) | (1,342 | ) | (77 | ) | (8,648 | ) | ||||||||
Other (income) expense |
(659 | ) | (790 | ) | (1,886 | ) | (1,012 | ) | ||||||||
Curtailment gain |
| (2,609 | ) | | (2,609 | ) | ||||||||||
Asset impairment |
5,281 | 2,179 | 5,331 | 2,179 | ||||||||||||
Restructuring expense |
1,218 | 4,648 | 1,647 | 5,249 | ||||||||||||
335,048 | 283,473 | 675,658 | 658,056 | |||||||||||||
Income (loss) from continuing operations before taxes |
(4,025 | ) | (10,825 | ) | 18,225 | 2,908 | ||||||||||
Provision for U.S. and foreign income taxes |
2,794 | (982 | ) | 7,906 | 3,353 | |||||||||||
Income (loss) from continuing operations |
(6,819 | ) | (9,843 | ) | 10,319 | (445 | ) | |||||||||
Income (loss) from discontinued operations, net of tax of $0 |
12 | (980 | ) | 9 | (2,047 | ) | ||||||||||
Net income (loss) |
(6,807 | ) | (10,823 | ) | 10,328 | (2,492 | ) | |||||||||
Noncontrolling interests |
32 | 308 | (70 | ) | 150 | |||||||||||
Net income (loss) attributable to A. Schulman, Inc. |
(6,775 | ) | (10,515 | ) | 10,258 | (2,342 | ) | |||||||||
Preferred stock dividends |
| (13 | ) | | (26 | ) | ||||||||||
Net income (loss) attributable to A. Schulman, Inc.
common stockholders |
$ | (6,775 | ) | $ | (10,528 | ) | $ | 10,258 | $ | (2,368 | ) | |||||
Weighted-average number of shares outstanding: |
||||||||||||||||
Basic |
25,916 | 25,753 | 25,880 | 25,781 | ||||||||||||
Diluted |
25,916 | 25,753 | 26,346 | 25,781 | ||||||||||||
Earnings (losses) per share of common stock attributable to
A. Schulman, Inc. Basic: |
||||||||||||||||
Income (loss) from continuing operations |
$ | (0.26 | ) | $ | (0.37 | ) | $ | 0.40 | $ | (0.01 | ) | |||||
Income (loss) from discontinued operations |
| (0.04 | ) | | (0.08 | ) | ||||||||||
Net income (loss) attributable to common stockholders |
$ | (0.26 | ) | $ | (0.41 | ) | $ | 0.40 | $ | (0.09 | ) | |||||
Earnings (losses) per share of common stock attributable to
A. Schulman, Inc. Diluted: |
||||||||||||||||
Income (loss) from continuing operations |
$ | (0.26 | ) | $ | (0.37 | ) | $ | 0.39 | $ | (0.01 | ) | |||||
Income (loss) from discontinued operations |
| (0.04 | ) | | (0.08 | ) | ||||||||||
Net income (loss) attributable to common stockholders |
$ | (0.26 | ) | $ | (0.41 | ) | $ | 0.39 | $ | (0.09 | ) | |||||
-2-
February 28, | August 31, | |||||||
2010 | 2009 | |||||||
Unaudited | ||||||||
(In thousands, except share data) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 215,603 | $ | 228,674 | ||||
Accounts receivable, less allowance for doubtful accounts of $15,678 at
February 28, 2010 and $10,279 at August 31, 2009 |
210,769 | 206,450 | ||||||
Inventories, average cost or market, whichever is lower |
160,392 | 133,536 | ||||||
Prepaid expenses and other current assets |
15,713 | 20,779 | ||||||
Total current assets |
602,477 | 589,439 | ||||||
Other assets: |
||||||||
Cash surrender value of life insurance |
3,509 | 3,101 | ||||||
Deferred charges and other assets |
22,710 | 23,715 | ||||||
Goodwill |
11,282 | 11,577 | ||||||
Intangible assets |
291 | 217 | ||||||
37,792 | 38,610 | |||||||
Property, plant and equipment, at cost: |
||||||||
Land and improvements |
15,029 | 16,236 | ||||||
Buildings and leasehold improvements |
136,990 | 147,121 | ||||||
Machinery and equipment |
324,430 | 345,653 | ||||||
Furniture and fixtures |
38,111 | 39,581 | ||||||
Construction in progress |
6,924 | 4,546 | ||||||
521,484 | 553,137 | |||||||
Accumulated depreciation and investment grants of $863 at February 28, 2010 and
$988 at August 31, 2009 |
364,786 | 383,697 | ||||||
Net property, plant and equipment |
156,698 | 169,440 | ||||||
Total assets |
$ | 796,967 | $ | 797,489 | ||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Revolver and notes payable |
$ | 7,520 | $ | 2,519 | ||||
Accounts payable |
153,277 | 147,476 | ||||||
U.S. and foreign income taxes payable |
10,596 | 8,858 | ||||||
Accrued payrolls, taxes and related benefits |
32,448 | 36,207 | ||||||
Other accrued liabilities |
38,624 | 32,562 | ||||||
Total current liabilities |
242,465 | 227,622 | ||||||
Long-term debt |
98,350 | 102,254 | ||||||
Other long-term liabilities |
88,950 | 92,688 | ||||||
Deferred income taxes |
4,807 | 3,954 | ||||||
Commitments and contingencies |
| | ||||||
Stockholders equity: |
||||||||
Preferred stock, 5% cumulative, $100 par value, authorized, issued and outstanding -
15 shares at February 28, 2010 and August 31, 2009 |
2 | 2 | ||||||
Common stock $1 par value, authorized -75,000,000 shares, issued -
42,435,098 shares at February 28, 2010 and 42,295,492 shares at August 31, 2009 |
42,435 | 42,295 | ||||||
Other capital |
117,805 | 115,358 | ||||||
Accumulated other comprehensive income |
25,177 | 38,714 | ||||||
Retained earnings |
494,817 | 492,513 | ||||||
Treasury stock, at cost, 16,207,011 shares at February 28, 2010 and August 31, 2009 |
(322,812 | ) | (322,812 | ) | ||||
Total A. Schulman, Inc. stockholders equity |
357,424 | 366,070 | ||||||
Noncontrolling interests |
4,971 | 4,901 | ||||||
Total equity |
362,395 | 370,971 | ||||||
Total liabilities and equity |
$ | 796,967 | $ | 797,489 | ||||
-3-
Six months ended February 28, | ||||||||
2010 | 2009 | |||||||
Unaudited | ||||||||
(In thousands) | ||||||||
Provided from (used in) operating activities: |
||||||||
Net income (loss) |
$ | 10,328 | $ | (2,492 | ) | |||
Adjustments to reconcile net income to net cash |
||||||||
provided from (used in) operating activities: |
||||||||
Depreciation and amortization, including $69 and $474 of accelerated depreciation
related to restructuring in fiscal 2010 and 2009, respectively |
11,281 | 12,292 | ||||||
Deferred tax provision |
(379 | ) | 143 | |||||
Pension and other deferred compensation |
3,366 | (228 | ) | |||||
Postretirement benefit obligation |
(61 | ) | 68 | |||||
Net (gains) losses on asset sales |
(298 | ) | 176 | |||||
Curtailment gain |
| (2,609 | ) | |||||
Asset impairment |
5,331 | 2,179 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
(11,495 | ) | 77,545 | |||||
Inventories |
(33,281 | ) | 63,002 | |||||
Accounts payable |
11,457 | (52,518 | ) | |||||
Restructuring accrual |
(181 | ) | 2,152 | |||||
Income taxes |
3,681 | 4,796 | ||||||
Accrued payrolls and other accrued liabilities |
4,929 | (8,429 | ) | |||||
Changes in other assets and other long-term liabilities |
3,427 | (1,344 | ) | |||||
Net cash provided from operating activities |
8,105 | 94,733 | ||||||
Provided from (used in) investing activities: |
||||||||
Expenditures for property, plant and equipment |
(8,608 | ) | (17,051 | ) | ||||
Proceeds from the sale of assets |
1,415 | 349 | ||||||
Net cash used in investing activities |
(7,193 | ) | (16,702 | ) | ||||
Provided from (used in) financing activities: |
||||||||
Cash dividends paid |
(7,954 | ) | (7,899 | ) | ||||
Increase (decrease) in notes payable |
(48 | ) | (7,208 | ) | ||||
Borrowings on revolving credit facilities |
10,000 | 19,000 | ||||||
Repayments on revolving credit facilities |
(5,000 | ) | (19,000 | ) | ||||
Common stock issued, net |
252 | 12 | ||||||
Purchase of treasury stock |
| (1,646 | ) | |||||
Net cash used in financing activities |
(2,750 | ) | (16,741 | ) | ||||
Effect of exchange rate changes on cash |
(11,233 | ) | (17,764 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
(13,071 | ) | 43,526 | |||||
Cash and cash equivalents at beginning of period |
228,674 | 97,728 | ||||||
Cash and cash equivalents at end of period |
$ | 215,603 | $ | 141,254 | ||||
-4-
(1) | GENERAL |
|
The interim consolidated financial statements included for A. Schulman, Inc. (the Company)
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 consolidated 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 (U.S. GAAP). |
||
The results of operations for the three and six months ended February 28, 2010 are not
necessarily indicative of the results expected for the year ending August 31, 2010. |
||
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,
2009, except for the adoption of new accounting pronouncements related to business
combinations, noncontrolling interests and the codification of authoritative U.S. GAAP. The
adoption of these accounting pronouncements are discussed in Note 16. |
||
The Company evaluated subsequent events for the six months ended February 28, 2010.
Subsequent events requiring recognition and disclosure are described in Note 18. |
||
Certain items previously reported in specific financial statement captions have been
reclassified to conform to the fiscal 2010 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 $61.9 million at
February 28, 2010 and $130.0 million at August 31, 2009. 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 and
short-term time deposits. The money-market funds are primarily AAA rated by third parties.
Management continues to monitor the placement of its cash given the current credit market.
The recorded amount of these investments approximates fair value. Investments with
maturities between three and twelve months are considered to be short-term investments. As
of February 28, 2010 and August 31, 2009, the Company did not hold any short-term
investments. |
(3) | ICO ACQUISITION |
|
On December 2, 2009, the Company announced that it had signed the Agreement and Plan of
Merger (the Merger Agreement) by and among the Company, ICO Inc. (ICO) and Wildcat
Spider, LLC, a wholly-owned subsidiary of the Company, to acquire all of ICOs outstanding
shares of common stock and equity interests, including ICO stock options, pending approval
of the transaction by ICO shareholders. The Company has received the necessary regulatory
approvals. Under the terms of the Merger Agreement, the total consideration to be paid to
ICO shareholders is comprised of $105.0 million in cash and 5.1 million shares of A.
Schulman common stock. The Merger Agreement was filed as an exhibit to the Companys Form
8-K dated December 3, 2009. In the event that ICO shareholders approve of the Merger
Agreement and the merger closes, ICO shareholders will own approximately 16% of the combined
company. The transaction is not subject to a financing contingency. The Company intends to
pay the cash portion of the purchase price out of its available liquidity. |
-5-
(4) | GOODWILL |
|
The Company is required to review goodwill and indefinite-lived intangible assets at least
annually for impairment. Goodwill impairment is tested at the reporting unit level on an
annual basis and between annual tests if an event occurs or circumstances change that would
more likely than not reduce the fair value of a reporting unit below its carrying value. |
||
The Company completed its annual impairment review of goodwill as of February 28, 2010,
which is related to the Europe segment and noted no impairment. The fair value used in the
analysis was estimated using a market approach based on average earnings before interest,
taxes, depreciation and amortization and cash flow multiples, which contains significant
unobservable inputs. The Company has been consistent with its method of estimating fair
value when an indication of fair value from a buyer or similar specific transactions is not
available. |
||
The carrying amount of goodwill for the European segment was $11.3 million at February 28,
2010 and $11.6 million at August 31, 2009. The change in the Companys carrying value of
goodwill of $0.3 million during the six months ended February 28, 2010 was the result of
foreign currency translation. |
(5) | DISCONTINUED OPERATIONS |
|
During fiscal 2010, the Company completed the closing of the Invision manufacturing
operation at its Sharon Center, Ohio manufacturing facility. The operating results of
Invision were previously included in the Companys former Invision segment. The Company
reflected the results of this segment as discontinued operations for all of the periods
presented. The remaining assets of Invision, including a facility in Findlay, Ohio, which
was a dedicated building for the Invision business, and machinery and equipment at the
Sharon Center, Ohio facility are considered held for sale as of February 28, 2010. These
assets are included in the Companys consolidated balance sheet in property, plant and
equipment. The Company recorded minimal charges during the final shutdown of the equipment
and facility in fiscal 2010. |
||
The following summarizes the results for discontinued operations for the three and six
months ended February 28, 2010 and 2009. The income (loss) from discontinued operations does
not include any income tax effect as the Company was not in a taxable position due to its
continued U.S. losses and a full valuation allowance. |
Three months ended | Six months ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Net sales |
$ | | $ | 40 | $ | 9 | $ | 129 | ||||||||
Income (loss) from operations |
$ | 12 | (980 | ) | $ | 8 | $ | (2,047 | ) | |||||||
Other income (expense) |
| | 1 | | ||||||||||||
Income (loss) from discontinued operations |
$ | 12 | $ | (980 | ) | $ | 9 | $ | (2,047 | ) | ||||||
-6-
(6) | 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 | Six months ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Net periodic pension cost (income) recognized
included the following components: |
||||||||||||||||
Service cost |
$ | 531 | $ | 418 | $ | 1,081 | $ | 859 | ||||||||
Interest cost |
1,118 | 1,080 | 2,276 | 2,219 | ||||||||||||
Expected return on plan assets |
(235 | ) | (224 | ) | (475 | ) | (478 | ) | ||||||||
Net actuarial loss and net amortization of
prior service cost and transition obligation |
93 | 77 | 188 | 165 | ||||||||||||
Net periodic benefit cost |
$ | 1,507 | $ | 1,351 | $ | 3,070 | $ | 2,765 | ||||||||
Postretirement benefit cost (income) included
the following components: |
||||||||||||||||
Service cost |
$ | 7 | $ | 14 | $ | 15 | $ | 28 | ||||||||
Interest cost |
191 | 223 | 382 | 445 | ||||||||||||
Net amortization of prior service
cost (credit) and unrecognized loss |
(139 | ) | (212 | ) | (278 | ) | (425 | ) | ||||||||
Curtailment gain |
| (2,609 | ) | | (2,609 | ) | ||||||||||
Net periodic benefit cost |
$ | 59 | $ | (2,584 | ) | $ | 119 | $ | (2,561 | ) | ||||||
During the second quarter of fiscal 2009, the Company recorded a curtailment gain of $2.6
million as a result of a significant reduction in the expected years of future service,
primarily due to the U.S. restructuring plan for NAEP that was announced in December 2008.
This restructuring is further discussed in Note 15. |
(7) | 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. |
-7-
(8) | CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY |
|
A summary of the stockholders equity section for the six months ended February 28, 2010 is
as follows: |
Accumulated | ||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||
Preferred | Common | Other | Comprehensive | Retained | Treasury | Noncontrolling | ||||||||||||||||||||||||||
Stock | Stock | Capital | Income (Loss) | Earnings | Stock | Interests | Total Equity | |||||||||||||||||||||||||
Balance at September 1, 2009 |
$ | 2 | $ | 42,295 | $ | 115,358 | $ | 38,714 | $ | 492,513 | $ | (322,812 | ) | $ | 4,901 | $ | 370,971 | |||||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||||||||||
Net income |
| | | | 10,258 | | 70 | |||||||||||||||||||||||||
Foreign currency translation gain (loss) |
| | | (13,448 | ) | | | | ||||||||||||||||||||||||
Amortization of unrecognized transition
obligations, actuarial losses and prior
service costs (credits), net |
| | | (89 | ) | | | | ||||||||||||||||||||||||
Total comprehensive income (loss) |
(3,209 | ) | ||||||||||||||||||||||||||||||
Cash dividends paid or accrued: |
||||||||||||||||||||||||||||||||
Common stock, $0.30 per share |
| | | | (7,954 | ) | | | (7,954 | ) | ||||||||||||||||||||||
Stock options exercised |
| 42 | 663 | | | | | 705 | ||||||||||||||||||||||||
Restricted stock issued, net of forfeitures |
| 118 | (118 | ) | | | | | | |||||||||||||||||||||||
Redemption of common stock to cover
tax withholdings |
| (20 | ) | (433 | ) | | | | | (453 | ) | |||||||||||||||||||||
Amortization of restricted stock |
| | 2,335 | | | | | 2,335 | ||||||||||||||||||||||||
Balance at February 28, 2010 |
$ | 2 | $ | 42,435 | $ | 117,805 | $ | 25,177 | $ | 494,817 | $ | (322,812 | ) | $ | 4,971 | $ | 362,395 | |||||||||||||||
(9) | COMPREHENSIVE INCOME (LOSS) |
|
Comprehensive income (loss) for the three and six months ended February 28, 2010 and 2009
was as follows: |
Three months ended | Six months ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Comprehensive income (loss): |
||||||||||||||||
Net income (loss) |
$ | (6,807 | ) | $ | (10,823 | ) | $ | 10,328 | $ | (2,492 | ) | |||||
Foreign currency translation gain (loss) |
(26,323 | ) | (11,072 | ) | (13,448 | ) | (69,553 | ) | ||||||||
Recognition of negative plan amendment
related to curtailment of postretirement
benefit plan |
| (3,018 | ) | | (3,018 | ) | ||||||||||
Amortization of unrecognized transition
obligations, actuarial losses and prior
services costs (credits), net |
(45 | ) | (111 | ) | (89 | ) | (236 | ) | ||||||||
Total comprehensive income (loss) |
(33,175 | ) | (25,024 | ) | (3,209 | ) | (75,299 | ) | ||||||||
Comprehensive (income) loss attributable to
noncontrolling interests |
32 | 308 | (70 | ) | 150 | |||||||||||
Comprehensive income (loss) attributable to
A. Schulman, Inc. |
$ | (33,143 | ) | $ | (24,716 | ) | $ | (3,279 | ) | $ | (75,149 | ) | ||||
-8-
The assets and liabilities of the Companys 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 gains or losses are recorded as other comprehensive income (loss)
and accumulated in the Companys stockholders equity. Foreign currency translation losses
totaled $26.3 million and $13.4 million for the three and six months ended February 28,
2010, respectively, and were due to the decreases in the value of the Euro and other
currencies against the U.S. dollar. Foreign currency translation gains or losses do not have
a tax effect, as such gains or losses are considered permanently reinvested. Other
comprehensive income adjustments related to pensions and other postretirement benefit plans
are recorded net of tax using the applicable effective tax rate. |
(10) | FAIR VALUE MEASUREMENT |
|
Fair value is defined 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 Financial Accounting Standards Board (FASB) provides accounting rules that
establish 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. |
On September 1, 2009, the Company adopted FASB accounting rules relating to fair value
measurement of non-financial assets and liabilities that are not recognized or disclosed at
fair value in the consolidated financial statements on a recurring basis. |
||
The following table presents information about the Companys assets and liabilities recorded
at fair value as of February 28, 2010 in the Companys consolidated balance sheet: |
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||||||
Total Measured | Identical Assets | Observable Inputs | Unobservable | |||||||||||||
at Fair Value | (Level 1) | (Level 2) | Inputs (Level 3) | |||||||||||||
(In thousands) | ||||||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 215,603 | $ | 215,603 | $ | | $ | | ||||||||
Total assets at fair value |
$ | 215,603 | $ | 215,603 | $ | | $ | | ||||||||
Liabilities: |
||||||||||||||||
Derivative liabilities |
$ | 58 | $ | | $ | 58 | $ | | ||||||||
Total liabilities at fair value |
$ | 58 | $ | | $ | 58 | $ | | ||||||||
The fair value of cash equivalents, by their nature, is determined utilizing Level 1 inputs.
The Company measures the fair value of forward foreign exchange contracts using Level 2
inputs through observable market transactions in active markets provided by banks. |
||
The Company enters into forward foreign exchange contracts to reduce its exposure for
amounts due or payable in foreign currencies. These contracts limit the Companys exposure
to fluctuations in foreign currency exchange rates. The total contract value of forward
foreign exchange contracts outstanding as of February 28, 2010 was $8.6 million. Any gains
or losses associated with these contracts as well as the offsetting gains or losses from the
underlying assets or liabilities are included in the foreign currency transaction line in
the Companys consolidated statements of operations. The Company does not hold or issue
forward foreign exchange contracts for trading purposes. There were no foreign currency
contracts designated as hedging instruments at February 28, 2010. The forward foreign
exchange contracts are entered into with creditworthy
multinational banks. The fair value of the Companys forward foreign exchange contracts was
$0.1 million as of February 28, 2010 and as of August 31, 2009 and was recognized in other
accrued liabilities. |
-9-
The following information presents the supplemental fair value information about long-term
fixed-rate debt at February 28, 2010. The Companys long-term fixed-rate debt was issued in
euros. |
February 28, 2010 | August 31, 2009 | |||||||||||||||
(In millions of $) | (In millions of ) | (In millions of $) | (In millions of ) | |||||||||||||
Carrying value of long-term fixed-rate debt |
$ | 68.3 | | 50.3 | $ | 72.2 | | 50.3 | ||||||||
Fair value of long-term fixed-rate debt |
$ | 72.0 | | 53.1 | $ | 65.6 | | 45.8 |
The fair value was calculated using discounted future cash flows. The increase in fair value
is primarily related to the decrease in quoted market interest rates. |
||
A long-lived asset held for sale was written down to its estimated fair value of $1.1
million resulting in an impairment charge of $0.3 million, which was included in earnings
for the second quarter of 2010. The assets estimated fair value is determined as the
estimated sales value of the asset less associated costs to sell the asset and was
determined based on Level 3 inputs obtained from a third-party purchase offer. |
||
Assets held and used associated with the closure of the Companys Polybatch Color Center
located in Sharon Center, Ohio, with a carrying value of $11.3 million, were written down to
their fair value of $6.3 million, resulting in impairment charges of $5.0 million. The
impaired assets include real estate and certain machinery and equipment. The fair value of
the real estate, which includes land, building and related improvements, is determined as
the estimated sales value of the assets less the costs to sell and was determined using
Level 3 inputs based on information provided by a third-party real estate valuation source.
The fair value of the machinery and equipment, which will be sold as scrap when the Company
ceases production, was determined using Level 3 inputs based on projected cash flows from
operations and estimated salvage value. |
(11) | 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 shares of common
stock 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 shares of common stock on the date of the
grant. All options become exercisable at the rate of 33% 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. |
||
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. It has been the Companys practice to issue new shares
of common stock upon stock option exercise and other equity grants. On February 28, 2010,
there were approximately 0.8 million shares available for grant pursuant to the Companys
2006 Incentive Plan. |
-10-
A summary of stock options is as follows: |
Outstanding Shares | Weighted-Average | |||||||
Under Option | Exercise Price | |||||||
Outstanding at August 31, 2009 |
492,455 | $ | 19.25 | |||||
Granted |
| $ | | |||||
Exercised |
(42,203 | ) | $ | 16.71 | ||||
Forfeited and expired |
(12,166 | ) | $ | 17.00 | ||||
Outstanding at February 28, 2010 |
438,086 | $ | 19.56 | |||||
Exercisable at February 28, 2010 |
438,086 | $ | 19.56 | |||||
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 six months ended February 28, 2010 was $0.1 million. The
Company received cash totaling $0.7 million from the exercise of options for the six months
ended February 28, 2010. The intrinsic value for stock options exercisable at February 28,
2010 was $0.6 million with a remaining term for options exercisable of approximately 3.2
years. For stock options outstanding at February 28, 2010, exercise prices range from $11.62
to $24.69. The weighted-average remaining contractual life for options outstanding at
February 28, 2010 was approximately 3.2 years. All 438,086 outstanding and exercisable stock
options are fully vested at February 28, 2010. There were no grants of stock options during
the six months ended February 28, 2010 and 2009. |
||
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, 2009 |
180,429 | $ | 19.48 | |||||
Granted |
83,176 | $ | 21.72 | |||||
Vested |
(84,323 | ) | $ | 19.93 | ||||
Forfeited |
| $ | | |||||
Outstanding at February 28, 2010 |
179,282 | $ | 20.30 | |||||
During the six months ended February 28, 2010 and 2009, the Company granted 83,176 and
62,111 time-based restricted shares, respectively. Restrictions on these shares underlying
the restricted stock awards will lapse ratably over a three-year period and were valued at
the fair market value on the date of grant. |
||
The Company also grants awards with market and performance vesting conditions. In the table
below, the Company summarizes all awards which include market-based and performance-based
restricted stock awards and performance shares (Performance Shares). |
Weighted-Average | ||||||||
Outstanding | Fair Market Value | |||||||
Performance-Based Awards | (per share) | |||||||
Outstanding at August 31, 2009 |
516,681 | $ | 12.72 | |||||
Granted |
272,568 | $ | 18.22 | |||||
Vested |
| $ | | |||||
Forfeited |
| $ | | |||||
Outstanding at February 28, 2010 |
789,249 | $ | 14.62 | |||||
-11-
The Company granted 272,568 and 236,475 Performance Shares during the six months ended
February 28, 2010 and 2009, respectively. Performance Shares are awards for which the
vesting will occur based on market
or performance conditions and do not have voting rights. Included in the outstanding
performance-based awards at February 28, 2010 are 383,978 Performance Shares which earn
dividends throughout the vesting period and approximately 321,551 Performance Shares which
do not earn dividends. Also included in the balance are 83,720 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 in April 2010, approximately 41,860 additional shares could be issued which are not
included in the table if certain market conditions are met. The additional shares do not
earn dividends and do not have voting rights. |
||
The performance-based awards in the table above include 652,965 shares which are valued
based upon a Monte Carlo simulation, which is a valuation model that represents the
characteristics of these grants. Vesting of the ultimate number of shares underlying
performance-based awards, if any, will be dependent upon the Companys total stockholder
return in relation to the total stockholder 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, which are
recognized over the service period, regardless of whether the market conditions are achieved
and the awards ultimately vest. The fair value of the remaining 136,284 Performance Shares
in the table above is based on the closing price of the Companys common stock on the date
of the grant. |
||
The fair value of the Performance Shares granted during the six months ended February 28,
2010 using a Monte Carlo simulation used the following weighted-average assumptions: |
Six months ended | ||||
Weighted-average Assumption | February 28, 2010 | |||
Dividend yield |
2.68 | % | ||
Expected volatility |
46.00 | % | ||
Risk-free interest rate |
1.54 | % | ||
Correlation |
59.00 | % |
Total unrecognized compensation cost, including a provision for forfeitures, related to
nonvested share-based compensation arrangements at February 28, 2010 was approximately $9.9
million. This cost is expected to be recognized over a weighted-average period of
approximately 1.8 years. |
||
As of February 28, 2010, the Company had 25,000 stock-settled restricted stock units
outstanding which were fully vested as of the grant date. There are no service requirements
for vesting for this grant. These restricted stock units will be settled in shares of the
Companys common stock, on a one-to-one basis, no later than 60 days after the third
anniversary of the award grant date. These awards do earn dividends during the restriction
period; however, they do not have voting rights until released from restriction. These
awards are treated as equity awards and have a grant date fair value based on the award
grant date of $13.61 per award. There were no grants of stock-settled restricted stock units
during the six months ended February 28, 2010 or 2009. |
||
The Company had approximately 184,000 and 287,000 cash-settled restricted stock units
outstanding with various vesting periods and criteria at February 28, 2010 and 2009,
respectively. The Company granted approximately 60,000 cash-settled restricted stock units
during both the six months ended February 28, 2010 and 2009. The cash-settled restricted
stock units outstanding have either time-based vesting or performance-based vesting, similar
to the Companys restricted stock awards and Performance Shares. Each cash-settled
restricted stock unit is equivalent to one share of the Companys common stock on the
vesting date. Certain cash-settled restricted stock units earn dividends during the vesting
period. Cash-settled 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. In addition, the
liability is adjusted for the estimated payout factor for the performance-based cash-settled
restricted stock units. As a result of these mark-to-market adjustments, these restricted
stock units introduce volatility into the Companys consolidated statements of operations. |
-12-
The Company had approximately $3.9 million cash-based awards, which are treated as liability
awards, outstanding at February 28, 2010. These awards were granted to foreign employees.
Such awards include approximately $0.7 million which have service vesting periods of three
years following the date of grant and the remaining $3.2 million is performance-based. The
performance-based awards are based on the same conditions utilized for the Performance
Shares. The Company records a liability for these cash-based awards equal to the amount of
the award vested to date and adjusts the performance-based awards based on expected payout. |
||
In January 2010, the Company granted non-employee directors 35,000 shares of unrestricted
common stock. The Company recorded compensation expense for this grant of approximately
$0.8 million for the three and six months ended February 28, 2010. |
||
The following table summarizes the impact to the Companys consolidated statements of
operations from stock-based compensation, which is primarily included in selling, general
and administrative expenses in the accompanying consolidated statements of operations: |
Three months ended | Six months ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Stock options |
$ | | $ | 38 | $ | | $ | 16 | ||||||||
Restricted stock awards, unrestricted stock
awards and performance-based awards |
1,677 | 1,027 | 2,335 | 1,553 | ||||||||||||
Cash-settled restricted stock units |
1,390 | 488 | 810 | (905 | ) | |||||||||||
Cash-based awards |
486 | 60 | 288 | 60 | ||||||||||||
Total stock-based compensation |
$ | 3,553 | $ | 1,613 | $ | 3,433 | $ | 724 | ||||||||
(12) | EARNINGS PER SHARE |
|
Basic earnings per share is computed by dividing income available to common stockholders by
the weighted-average number of shares of common stock 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 shares of common stock 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 | Six months ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Weighted-average shares outstanding: |
||||||||||||||||
Basic |
25,916 | 25,753 | 25,880 | 25,781 | ||||||||||||
Incremental shares from stock options |
| | 32 | | ||||||||||||
Incremental shares from restricted stock |
| | 434 | | ||||||||||||
Diluted |
25,916 | 25,753 | 26,346 | 25,781 | ||||||||||||
For the three months ended February 28, 2010 and 2009, respectively, there were
approximately 0.7 million and 0.2 million equivalent shares related to stock options and
restricted stock that were excluded from diluted
weighted-average shares outstanding because inclusion would have been anti-dilutive.
Additionally, there were approximately 0.1 million and 0.2 million equivalent shares related
to stock options and restricted stock that were excluded from diluted weighted-average
shares outstanding for the six months ended February 28, 2010 and 2009, respectively,
because inclusion would have been anti-dilutive. |
-13-
(13) | SEGMENT INFORMATION |
|
The Companys segments are Europe, North America Masterbatch (NAMB), North America
Engineered Plastics (NAEP), North America Distribution Services (NADS) (which includes
rotomolding) and Asia. To identify reportable segments, 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). Globally, the
Company operates primarily in three lines of business: (1) engineered plastics, (2)
masterbatch and (3) 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. The
Companys European and Asian segments have managers of each line of business, who report to
a general manager who reports 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. |
||
During fiscal 2010, the Company completed the closing of its Invision sheet manufacturing
operation at its Sharon Center, Ohio manufacturing facility. This business comprised the
former Invision segment of the Companys business. The Company reflected the results of
these operations as discontinued operations for all periods presented and are not included
in the segment information. |
||
The Companys European segment is the largest segment for the Company. The segment is
managed by the General Manager of Europe. Managers of each line of business for engineered
plastics, masterbatch and distribution services in Europe report to the European General
Manager. The Company has a global research and development center in Bornem, Belgium, which
primarily focuses on the masterbatch business, and has a technology center in Sindorf,
Germany, which primarily focuses on the engineered plastics business. |
||
The North America Masterbatch segment includes color and additive concentrates which improve
the appearance and performance of resins targeted at the film and packaging markets. The
North America Engineered Plastics segment includes multi-component blends of ionomers,
urethanes and nylons, generally for the durable goods market, formulated to meet customers
specific performance requirements, regardless of the base resin. The North America
Distribution Services segment provides bulk and packaged plastic materials used in a variety
of applications and supports the North America Masterbatch and North America Engineered
Plastics segments. The Company includes in All Other North America any administrative costs
that are not directly related or allocated to a North America segment such costs as North
American information technology, human resources, accounting and purchasing. The North
American administrative costs are directly related to the three North American segments. |
||
The Companys Asia segment is managed by the General Manager of Asia. This segment
primarily provides masterbatch applications in the packaging market. The operations for the
Asia segment are currently located in China and Indonesia. |
||
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, asset impairment, curtailment gain 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 to unaffiliated customers, gross profit and operating
income by segment. Also included is a reconciliation of operating income (loss) by segment
to consolidated income (loss) from continuing operations before taxes. |
-14-
Three months ended | Six months ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Net sales to unaffiliated customers |
||||||||||||||||
Europe |
$ | 247,374 | $ | 198,646 | $ | 519,317 | $ | 479,492 | ||||||||
NAMB |
26,869 | 23,245 | 54,703 | 51,290 | ||||||||||||
NAEP |
28,778 | 25,379 | 63,420 | 69,646 | ||||||||||||
NADS |
13,581 | 16,384 | 27,434 | 42,355 | ||||||||||||
Asia |
14,421 | 8,994 | 29,009 | 18,181 | ||||||||||||
Total net sales to unaffiliated customers |
$ | 331,023 | $ | 272,648 | $ | 693,883 | $ | 660,964 | ||||||||
Segment gross profit |
||||||||||||||||
Europe |
$ | 41,525 | $ | 26,552 | $ | 92,057 | $ | 60,950 | ||||||||
NAMB |
3,141 | 230 | 6,643 | 2,520 | ||||||||||||
NAEP |
2,916 | 572 | 7,612 | 3,328 | ||||||||||||
NADS |
1,637 | 1,300 | 3,401 | 3,145 | ||||||||||||
Asia |
2,118 | 619 | 4,781 | 1,332 | ||||||||||||
Total segment gross profit |
$ | 51,337 | $ | 29,273 | $ | 114,494 | $ | 71,275 | ||||||||
Segment operating income (loss) |
||||||||||||||||
Europe |
9,235 | 4,795 | 34,390 | 18,827 | ||||||||||||
NAMB |
1,419 | (835 | ) | 3,909 | (143 | ) | ||||||||||
NAEP |
538 | (3,386 | ) | 2,710 | (4,311 | ) | ||||||||||
NADS |
932 | 15 | 1,810 | 938 | ||||||||||||
Asia |
564 | (315 | ) | 1,678 | (462 | ) | ||||||||||
All other North America |
(2,673 | ) | (2,699 | ) | (5,342 | ) | (5,708 | ) | ||||||||
Total segment operating income (loss) |
$ | 10,015 | $ | (2,425 | ) | $ | 39,155 | $ | 9,141 | |||||||
Corporate and other |
(7,442 | ) | (5,750 | ) | (14,176 | ) | (10,110 | ) | ||||||||
Interest expense, net |
(938 | ) | (564 | ) | (1,739 | ) | (964 | ) | ||||||||
Foreign currency transaction gains (losses) |
180 | 1,342 | 77 | 8,648 | ||||||||||||
Other income (expense) |
659 | 790 | 1,886 | 1,012 | ||||||||||||
Curtailment gain |
| 2,609 | | 2,609 | ||||||||||||
Asset impairment |
(5,281 | ) | (2,179 | ) | (5,331 | ) | (2,179 | ) | ||||||||
Restructuring expense |
(1,218 | ) | (4,648 | ) | (1,647 | ) | (5,249 | ) | ||||||||
Income (loss) from continuing operations
before taxes |
$ | (4,025 | ) | $ | (10,825 | ) | $ | 18,225 | $ | 2,908 | ||||||
The majority of the Companys sales for the three and six months ended February 28, 2010 and
2009 can be classified into five primary product families. The amount and percentage of
consolidated sales for these product families are as follows: |
-15-
Three months ended February 28, | ||||||||||||||||
Product Family | 2010 | 2009 | ||||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Color and additive concentrates |
$ | 145,630 | 44 | % | $ | 118,999 | 44 | % | ||||||||
Polyolefins |
92,491 | 28 | 78,295 | 29 | ||||||||||||
Engineered compounds |
69,533 | 21 | 52,913 | 19 | ||||||||||||
Polyvinyl chloride (PVC) |
8,727 | 2 | 8,155 | 3 | ||||||||||||
Tolling |
2,334 | 1 | 3,891 | 1 | ||||||||||||
Other |
12,308 | 4 | 10,395 | 4 | ||||||||||||
$ | 331,023 | 100 | % | $ | 272,648 | 100 | % | |||||||||
Six months ended February 28, | ||||||||||||||||
Product Family | 2010 | 2009 | ||||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Color and additive concentrates |
$ | 305,512 | 44 | % | $ | 268,377 | 41 | % | ||||||||
Polyolefins |
186,220 | 27 | 199,633 | 30 | ||||||||||||
Engineered compounds |
152,532 | 22 | 138,908 | 21 | ||||||||||||
Polyvinyl chloride (PVC) |
18,510 | 2 | 20,847 | 3 | ||||||||||||
Tolling |
5,040 | 1 | 6,462 | 1 | ||||||||||||
Other |
26,069 | 4 | 26,737 | 4 | ||||||||||||
$ | 693,883 | 100 | % | $ | 660,964 | 100 | % | |||||||||
(14) | INCOME TAXES |
|
At February 28, 2010, the Companys gross unrecognized tax benefits totaled $1.4 million.
If recognized, approximately $0.5 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 February 28, 2010, the
Company had $0.4 million of accrued interest and penalties on unrecognized tax benefits. |
||
The Company is open to potential income tax examinations in the U.S. and Belgium from fiscal
2007 onward. The Company is open to potential examinations in Germany from fiscal 2005
onward and generally from fiscal 2003 onward for most foreign jurisdictions. |
||
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. |
||
The loss from discontinued operations does not include any income tax effect as the Company
was not in a taxable position due to its continued U.S. losses and a full valuation
allowance. |
-16-
A reconciliation of the statutory U.S. federal income tax rate with the effective tax rates
for the three months ended February 28, 2010 and 2009 is as follows: |
Three months ended | Three months ended | |||||||||||||||
February 28, 2010 | February 28, 2009 | |||||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Statutory U.S. tax rate |
$ | (1,409 | ) | 35.0 | % | $ | (3,789 | ) | 35.0 | % | ||||||
Amount of foreign taxes at less than U.S.
statutory tax rate |
(3,300 | ) | 82.0 | (2,241 | ) | 20.7 | ||||||||||
U.S. and foreign losses with no tax benefit |
3,813 | (94.7 | ) | 4,560 | (42.1 | ) | ||||||||||
U.S. restructuring and other U.S. unusual
charges with no benefit |
2,529 | (62.8 | ) | 517 | (4.8 | ) | ||||||||||
Italy valuation allowance |
984 | (24.5 | ) | | | |||||||||||
Establishment (resolution) of uncertain
tax positions |
23 | (0.6 | ) | 15 | (0.1 | ) | ||||||||||
Other |
154 | (3.8 | ) | (44 | ) | 0.4 | ||||||||||
Total income tax expense (benefit) |
$ | 2,794 | (69.4 | )% | $ | (982 | ) | 9.1 | % | |||||||
A reconciliation of the statutory U.S. federal income tax rate with the effective tax rates
for the six months ended February 28, 2010 and 2009 is as follows: |
Six months ended | Six months ended | |||||||||||||||
February 28, 2010 | February 28, 2009 | |||||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Statutory U.S. tax rate |
$ | 6,379 | 35.0 | % | $ | 1,018 | 35.0 | % | ||||||||
Amount of foreign taxes at less than U.S.
statutory tax rate |
(8,639 | ) | (47.4 | ) | (6,107 | ) | (210.1 | ) | ||||||||
U.S. and foreign losses with no tax benefit |
5,532 | 30.4 | 7,709 | 265.1 | ||||||||||||
U.S. restructuring and other U.S. unusual
charges with no benefit |
3,351 | 18.4 | 543 | 18.7 | ||||||||||||
Italy valuation allowance |
984 | 5.4 | | | ||||||||||||
Establishment (resolution) of uncertain
tax positions |
23 | 0.1 | 98 | 3.4 | ||||||||||||
Other |
276 | 1.5 | 92 | 3.2 | ||||||||||||
Total income tax expense |
$ | 7,906 | 43.4 | % | $ | 3,353 | 115.3 | % | ||||||||
The effective tax rate for the three months ended February 28, 2010 is less than the U.S.
statutory rate primarily because no tax benefits were recognized for U.S. and certain
foreign losses from continuing operations and other U.S. charges. These unfavorable effects
on the Companys effective tax rate were partially offset by the Companys overall foreign
rate being less than the U.S. statutory rate. As compared with the effective tax rate for
the three months ended February 28, 2009, the current quarters effective tax rate is driven
by an increase in the effective tax rate impact of U.S. and certain foreign losses from
continuing operations and other U.S. charges with no tax benefit. |
||
The effective tax rate for the six months ended February 28, 2010 is greater than the U.S.
statutory rate primarily because no tax benefits were recognized for U.S. and certain
foreign losses from continuing operations and other U.S. charges. These unfavorable effects
on the Companys effective tax rate were partially offset by the Companys overall foreign
rate being less than the U.S. statutory rate. As compared with the effective tax rate for
the six months ended February 28, 2009, the current periods effective tax rate is
driven by a decrease in the effective tax rate impact of U.S. and certain foreign losses
from continuing operations and other U.S. charges with no tax benefit. |
||
During the quarter, the Company established a valuation allowance against the deferred tax
assets of its Italian entity due to the recent losses in that jurisdiction. The impact of
recording the valuation allowance was approximately $2.3 million of additional tax expense.
The Company will continue to maintain a valuation allowance against these deferred tax
assets until it is more-likely than not that the Company will realize a benefit through the
reduction of future tax liabilities. |
-17-
(15) | RESTRUCTURING OF OPERATIONS |
|
On March 1, 2010, the Company announced the closure of the Companys Polybatch Color Center
located in Sharon Center, Ohio. The
Company recorded estimated restructuring expenses related to the closure of $0.8 million
which was included in the Companys statement of operations for the three and six months
ended February 28, 2010. The Company expects additional charges related to this initiative
to range from approximately $0.5 million to $1.0 million, before income tax, to be
recognized primarily during the remainder of fiscal 2010 and early fiscal 2011. |
||
Fiscal 2009 Plan |
||
During fiscal 2009, the Company announced various plans to realign its domestic and
international operations to strengthen the Companys performance and financial position. The
Company initiated these proactive actions to address the then weak global economic
conditions and improve the Companys competitive position. The actions included a reduction
in capacity and workforce reductions in manufacturing, selling and administrative positions
throughout Europe and North America. In addition, in fiscal 2010, the Company completed the
previously announced consolidation of its back-office operations in Europe, which include
finance and accounting functions, to a shared service center located in Belgium. |
||
The Company reduced its workforce by approximately 190 positions worldwide during fiscal
2009, primarily as a result of the actions taken in early fiscal 2009 to realign the
Companys operations and back-office functions. In addition, to further manage costs during
a period of significant declines in demand primarily in the second quarter of fiscal 2009,
the Companys major European locations implemented a short work schedule when necessary
and the NAEP segment reduced shifts from seven to five days at its Nashville, Tennessee
plant. Also in the NAEP segment, the Company reduced production capacity by temporarily
idling one manufacturing line, while permanently shutting down another line at its plant in
Bellevue, Ohio. The Company also completed the majority of the right-sizing and redesign of
its Italian plant, which resulted in less than $0.1 million of accelerated depreciation on
certain fixed assets during the first quarter of fiscal 2010. |
||
The Company recorded approximately $0.3 million for employee-related costs and $0.1 million
for contract termination and other restructuring costs during the three months ended
February 28, 2010. The Company recorded approximately $0.5 million for employee-related
costs and $0.3 million for contract termination and other restructuring costs related to the
fiscal 2009 initiatives during the six months ended February 28, 2010. Accelerated
depreciation included in cost of sales of $0.1 million was also recorded for the six months
ended February 28, 2010. Nearly all restructuring charges recorded for the Fiscal 2009 Plan
during the three and six months ended February 28, 2010 were related to the Europe segment;
however, minimal charges were also recorded related the NAEP segment. |
||
At February 28, 2010, approximately $1.3 million remains accrued for employee-related costs,
including estimated severance payments and medical insurance, and contract termination costs
related to the fiscal 2009 initiatives. The Company anticipates the remaining accrued
balance for restructuring charges will be paid throughout fiscal 2010. |
||
The Company expects additional charges to continue into fiscal 2010 related to the plans
initiated in fiscal 2009 to reduce capacity and headcount at certain international
locations. These plans are expected to be completed primarily in fiscal 2010. In total, the
Company expects charges related to these initiatives, and other remaining 2009 initiatives
to range from approximately $2.0 million to $3.0 million, before income tax, to be
recognized primarily during the remainder of fiscal 2010 or early fiscal 2011. |
||
Fiscal 2008 Plan |
||
In January 2008, the Company announced actions in its continuing effort to improve the
profitability of its North American operations which included the shut down of its
manufacturing facility in St. Thomas, Ontario, Canada. 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 and the Company finalized closing procedures |
-18-
in fiscal 2010. The Company recorded minimal charges related to the fiscal 2008 initiatives
during the six months ended February 28, 2010. Approximately $0.2 million remains accrued
for employee-related costs at
February 28, 2010 related to the fiscal 2008 initiatives. The Company recorded approximately
$0.2 million for employee-related costs and $0.1 million for contract termination and other
restructuring costs during the six months ended February 28, 2009. The charges recorded in
fiscal 2010 and 2009 were related to the NAEP segment. |
||
The following table summarizes the liabilities as of February 28, 2010 related to the
Companys restructuring plans. This includes a $2.4 million withdrawal liability related to
fiscal 2004 and 2007 restructuring plans, which the Company expects to pay during the
remainder of fiscal 2010. |
Accrual Balance | Fiscal 2010 | Fiscal 2010 | Accrual Balance | |||||||||||||
August 31, 2009 | Charges | Paid | February 28, 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Employee-related costs |
$ | 4,448 | $ | 1,280 | $ | (1,451 | ) | $ | 4,277 | |||||||
Other costs |
390 | 367 | (376 | ) | 381 | |||||||||||
Translation effect |
42 | | | (6 | ) | |||||||||||
Restructuring charges |
$ | 4,880 | $ | 1,647 | $ | (1,827 | ) | $ | 4,652 | |||||||
(16) | ACCOUNTING PRONOUNCEMENTS |
|
In December 2007, the FASB issued new accounting rules related to business combinations.
The new accounting rules require 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. These
accounting rules are 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 was not permitted. The Company adopted the new accounting
rules related to business combinations, effective September 1, 2009, and recorded $1.4
million and $3.7 million during the three and six months ended February 28, 2010,
respectively, of transaction costs for the proposed acquisition of ICO, Inc. (ICO) and the
subsequent acquisition of McCann Color, Inc. See Note 3 ICO Acquisition and Note 18
Subsequent Events. |
||
In December 2007, the FASB issued new accounting rules on noncontrolling interests. The new
accounting rules clarify 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. The implementation of new accounting rules related to noncontrolling
interests, effective September 1, 2009, did not have a material impact on the Companys
financial position, results of operations and cash flows but did change the consolidated
financial statement presentation related to noncontrolling interests. The presentation
requirement was reflected in the consolidated financial statements and accompanying notes
and has been applied retrospectively for all periods presented. |
||
In June 2009, the FASB issued new accounting rules that establish the Accounting Standards
Codification (Codification) as the source of authoritative Generally Accepted Accounting
Principles (GAAP) recognized by the FASB to be applied by nongovernmental entities.
Subsequent to the issuance of these accounting rules, the FASB will not issue new standards
in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts.
Instead, it will issue Accounting Standards Updates. All guidance contained in the
Codification carries an equal level of authority. The GAAP hierarchy was modified to include
only two levels of GAAP: authoritative and nonauthoritative. All nongrandfathered non-SEC
accounting literature not included in the Codification are nonauthoritative. These new
accounting rules are effective for interim or annual financial periods ending after
September 15, 2009. The Companys adoption of these new
accounting rules, effective September 1, 2009, impacted the references in its consolidated
financial statements to technical accounting literature. |
-19-
In January 2010, the FASB issued amended accounting rules to require disclosure of transfers
into and out of Level 1 and Level 2 fair value measurements, and also require more detailed
disclosure about the activity within Level 3 fair value measurements. The changes are
effective for annual and interim reporting periods beginning after December 15, 2009, except
for requirements related to Level 3 disclosures, which are effective for annual and interim
reporting periods beginning after December 15, 2010. This guidance requires new disclosures
only, and is not expected to impact the Companys consolidated financial statements. |
(17) | 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 six months ended February 28, 2010.
During the six months ended February 28, 2009, the Company repurchased 111,520 shares of
common stock at an average price of $14.77 per share. |
(18) | SUBSEQUENT EVENTS |
|
On March 1, 2010, the Company announced the purchase of McCann Color, Inc. (McCann Color),
a producer of high-quality color concentrates, based in North Canton, Ohio, for less than
$10 million in cash. McCann Color provides specially formulated color concentrates to match
precise customer specifications. Other products and services include UV absorbers, dry
color, toll compounding and blending, and flame retardant compounds. Its products are used
in end markets such as packaging, lawn and garden, furniture, consumer products and
appliances. McCann Color serves customers from its 48,000-square-foot, expandable North
Canton facility, which was built in 1998 exclusively to manufacture color concentrates. The
facility will complement the Companys existing masterbatch manufacturing and product
development facilities in Akron, Ohio, and San Luis Potosi, Mexico. |
||
On March 1, 2010, the Company also announced the closure of the Companys Polybatch Color
Center located in Sharon Center, Ohio and will consolidate production to the McCann Color
facility in North Canton. The closure and consolidation of production are expected to be
completed by the end of the Companys current fiscal year, August 31, 2010. The closure is
considered a recognized subsequent event; therefore, estimated restructuring expenses of
$0.8 million were accrued as of February 28, 2010 and impairment charges of $5.0 million
related to the Polybatch Color Center assets were recorded in earnings for the three and six
months ended February 28, 2010. Additional information regarding restructuring expenses and
asset impairments related to this action is in Note 10 and Note 15. |
-20-
-21-
Three months ended | Total increase | % Due to | ||||||||||||||||||||||||||
February 28, | (decrease) | % Due to | % Due to | price/ product | ||||||||||||||||||||||||
Sales | 2010 | 2009 | $ | % | tonnage | translation | mix | |||||||||||||||||||||
(In thousands, except for %s) | ||||||||||||||||||||||||||||
Europe |
$ | 247,374 | $ | 198,646 | $ | 48,728 | 24.5 | % | 1.1 | % | 8.1 | % | 15.3 | % | ||||||||||||||
NAMB |
26,869 | 23,245 | 3,624 | 15.6 | % | 12.2 | % | 6.1 | % | -2.7 | % | |||||||||||||||||
NAEP |
28,778 | 25,379 | 3,399 | 13.4 | % | 3.8 | % | 3.4 | % | 6.2 | % | |||||||||||||||||
NADS |
13,581 | 16,384 | (2,803 | ) | -17.1 | % | -33.0 | % | 0.1 | % | 15.8 | % | ||||||||||||||||
Asia |
14,421 | 8,994 | 5,427 | 60.3 | % | 51.1 | % | 0.1 | % | 9.1 | % | |||||||||||||||||
$ | 331,023 | $ | 272,648 | $ | 58,375 | 21.4 | % | 0.5 | % | 6.8 | % | 14.1 | % | |||||||||||||||
-22-
Six months ended | Total increase | % Due to | ||||||||||||||||||||||||||
February 28, | (decrease) | % Due to | % Due to | price/ product | ||||||||||||||||||||||||
Sales | 2010 | 2009 | $ | % | tonnage | translation | mix | |||||||||||||||||||||
(In thousands, except for %s) | ||||||||||||||||||||||||||||
Europe |
$ | 519,317 | $ | 479,492 | $ | 39,825 | 8.3 | % | -1.0 | % | 6.5 | % | 2.8 | % | ||||||||||||||
NAMB |
54,703 | 51,290 | 3,413 | 6.7 | % | 9.0 | % | -1.8 | % | -0.5 | % | |||||||||||||||||
NAEP |
63,420 | 69,646 | (6,226 | ) | -8.9 | % | -10.6 | % | 0.2 | % | 1.5 | % | ||||||||||||||||
NADS |
27,434 | 42,355 | (14,921 | ) | -35.2 | % | -33.1 | % | 0.1 | % | -2.2 | % | ||||||||||||||||
Asia |
29,009 | 18,181 | 10,828 | 59.6 | % | 68.2 | % | 0.1 | % | -8.7 | % | |||||||||||||||||
$ | 693,883 | $ | 660,964 | $ | 32,919 | 5.0 | % | -2.1 | % | 4.6 | % | 2.5 | % | |||||||||||||||
Three months ended | Six months ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Packaging |
43 | % | 43 | % | 42 | % | 41 | % | ||||||||
Automotive |
13 | % | 10 | % | 13 | % | 13 | % | ||||||||
Other |
44 | % | 47 | % | 45 | % | 46 | % | ||||||||
100 | % | 100 | % | 100 | % | 100 | % | |||||||||
Three months ended February 28, | ||||||||||||||||
Product Family | 2010 | 2009 | ||||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Color and additive concentrates |
$ | 145,630 | 44 | % | $ | 118,999 | 44 | % | ||||||||
Polyolefins |
92,491 | 28 | 78,295 | 29 | ||||||||||||
Engineered compounds |
69,533 | 21 | 52,913 | 19 | ||||||||||||
Polyvinyl chloride (PVC) |
8,727 | 2 | 8,155 | 3 | ||||||||||||
Tolling |
2,334 | 1 | 3,891 | 1 | ||||||||||||
Other |
12,308 | 4 | 10,395 | 4 | ||||||||||||
$ | 331,023 | 100 | % | $ | 272,648 | 100 | % | |||||||||
-23-
Six months ended February 28, | ||||||||||||||||
Product Family | 2010 | 2009 | ||||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Color and additive concentrates |
$ | 305,512 | 44 | % | $ | 268,377 | 41 | % | ||||||||
Polyolefins |
186,220 | 27 | 199,633 | 30 | ||||||||||||
Engineered compounds |
152,532 | 22 | 138,908 | 21 | ||||||||||||
Polyvinyl chloride (PVC) |
18,510 | 2 | 20,847 | 3 | ||||||||||||
Tolling |
5,040 | 1 | 6,462 | 1 | ||||||||||||
Other |
26,069 | 4 | 26,737 | 4 | ||||||||||||
$ | 693,883 | 100 | % | $ | 660,964 | 100 | % | |||||||||
Three months ended February 28, | Increase (decrease) | |||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Gross profit $ |
||||||||||||||||
Europe |
$ | 41,525 | $ | 26,552 | $ | 14,973 | 56.4 | % | ||||||||
NAMB |
3,141 | 230 | 2,911 | 1,265.7 | ||||||||||||
NAEP |
2,916 | 572 | 2,344 | 409.8 | ||||||||||||
NADS |
1,637 | 1,300 | 337 | 25.9 | ||||||||||||
Asia |
2,118 | 619 | 1,499 | 242.2 | ||||||||||||
Consolidated |
$ | 51,337 | $ | 29,273 | $ | 22,064 | 75.4 | % | ||||||||
Gross profit % |
||||||||||||||||
Europe |
16.8 | % | 13.4 | % | ||||||||||||
NAMB |
11.7 | % | 1.0 | % | ||||||||||||
NAEP |
10.1 | % | 2.3 | % | ||||||||||||
NADS |
12.1 | % | 7.9 | % | ||||||||||||
Asia |
14.7 | % | 6.9 | % | ||||||||||||
Consolidated |
15.5 | % | 10.7 | % |
-24-
Six months ended February 28, | Increase (decrease) | |||||||||||||||
2010 | 2009 | $ | % | |||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Gross profit $ |
||||||||||||||||
Europe |
$ | 92,057 | $ | 60,950 | $ | 31,107 | 51.0 | % | ||||||||
NAMB |
6,643 | 2,520 | 4,123 | 163.6 | ||||||||||||
NAEP |
7,612 | 3,328 | 4,284 | 128.7 | ||||||||||||
NADS |
3,401 | 3,145 | 256 | 8.1 | ||||||||||||
Asia |
4,781 | 1,332 | 3,449 | 258.9 | ||||||||||||
Consolidated |
$ | 114,494 | $ | 71,275 | $ | 43,219 | 60.6 | % | ||||||||
Gross profit % |
||||||||||||||||
Europe |
17.7 | % | 12.7 | % | ||||||||||||
NAMB |
12.1 | % | 4.9 | % | ||||||||||||
NAEP |
12.0 | % | 4.8 | % | ||||||||||||
NADS |
12.4 | % | 7.4 | % | ||||||||||||
Asia |
16.5 | % | 7.3 | % | ||||||||||||
Consolidated |
16.5 | % | 10.8 | % |
-25-
Three months ended | Six months ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Europe |
87 | % | 65 | % | 92 | % | 69 | % | ||||||||
NAMB |
66 | % | 49 | % | 68 | % | 66 | % | ||||||||
NAEP |
65 | % | 45 | % | 74 | % | 66 | % | ||||||||
Asia |
74 | % | 44 | % | 80 | % | 44 | % | ||||||||
Worldwide |
82 | % | 59 | % | 86 | % | 67 | % |
Three months ended February 28, 2010 | ||||||||
$ Increase (decrease) | % Increase (decrease) | |||||||
(In thousands, except for %s) | ||||||||
Total change in selling, general and
administrative expenses |
$ | 11,316 | 30.2 | % | ||||
Less the effect of foreign currency translation |
2,173 | 5.8 | ||||||
Total change in selling, general and administrative
expenses, excluding the effect of foreign
currency translation |
$ | 9,143 | 24.4 | % | ||||
-26-
Six months ended February 28, 2010 | ||||||||
$ Increase (decrease) | % Increase (decrease) | |||||||
(In thousands, except for %s) | ||||||||
Total change in selling, general and
administrative expenses |
$ | 17,271 | 23.9 | % | ||||
Less the effect of foreign currency translation |
3,723 | 5.2 | ||||||
Total change in selling, general and administrative
expenses, excluding the effect of foreign
currency translation |
$ | 13,548 | 18.7 | % | ||||
-27-
-28-
Accrual Balance | Fiscal 2010 | Fiscal 2010 | Accrual Balance | |||||||||||||
August 31, 2009 | Charges | Paid | February 28, 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Employee-related costs |
$ | 4,448 | $ | 1,280 | $ | (1,451 | ) | $ | 4,277 | |||||||
Other costs |
390 | 367 | (376 | ) | 381 | |||||||||||
Translation effect |
42 | | | (6 | ) | |||||||||||
Restructuring charges |
$ | 4,880 | $ | 1,647 | $ | (1,827 | ) | $ | 4,652 | |||||||
Three months ended | Six months ended | |||||||||||||||||||||||
February 28, | Increase | February 28, | Increase | |||||||||||||||||||||
2010 | 2009 | (decrease) | 2010 | 2009 | (decrease) | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Europe |
$ | 9,235 | $ | 4,795 | $ | 4,440 | $ | 34,390 | $ | 18,827 | $ | 15,563 | ||||||||||||
NAMB |
1,419 | (835 | ) | 2,254 | 3,909 | (143 | ) | 4,052 | ||||||||||||||||
NAEP |
538 | (3,386 | ) | 3,924 | 2,710 | (4,311 | ) | 7,021 | ||||||||||||||||
NADS |
932 | 15 | 917 | 1,810 | 938 | 872 | ||||||||||||||||||
Asia |
564 | (315 | ) | 879 | 1,678 | (462 | ) | 2,140 | ||||||||||||||||
All other North America |
(2,673 | ) | (2,699 | ) | 26 | (5,342 | ) | (5,708 | ) | 366 | ||||||||||||||
Corporate and other |
(7,442 | ) | (5,750 | ) | (1,692 | ) | (14,176 | ) | (10,110 | ) | (4,066 | ) | ||||||||||||
Interest expense, net |
(938 | ) | (564 | ) | (374 | ) | (1,739 | ) | (964 | ) | (775 | ) | ||||||||||||
Foreign currency transaction
gains (losses) |
180 | 1,342 | (1,162 | ) | 77 | 8,648 | (8,571 | ) | ||||||||||||||||
Other income (expense) |
659 | 790 | (131 | ) | 1,886 | 1,012 | 874 | |||||||||||||||||
Curtailment gain |
| 2,609 | (2,609 | ) | | 2,609 | (2,609 | ) | ||||||||||||||||
Asset impairment |
(5,281 | ) | (2,179 | ) | (3,102 | ) | (5,331 | ) | (2,179 | ) | (3,152 | ) | ||||||||||||
Restructuring expense |
(1,218 | ) | (4,648 | ) | 3,430 | (1,647 | ) | (5,249 | ) | 3,602 | ||||||||||||||
Income (loss) from continuing operations before taxes |
$ | (4,025 | ) | $ | (10,825 | ) | $ | 6,800 | $ | 18,225 | $ | 2,908 | $ | 15,317 | ||||||||||
-29-
Three months ended | Six months ended | |||||||||||||||
February 28, | February 28, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands) | ||||||||||||||||
Segment operating income (loss) |
||||||||||||||||
NAMB |
$ | 1,419 | $ | (835 | ) | $ | 3,909 | $ | (143 | ) | ||||||
NAEP |
538 | (3,386 | ) | 2,710 | (4,311 | ) | ||||||||||
NADS |
932 | 15 | 1,810 | 938 | ||||||||||||
All other North America |
(2,673 | ) | (2,699 | ) | (5,342 | ) | (5,708 | ) | ||||||||
Discontinued operations |
12 | (980 | ) | 9 | (2,047 | ) | ||||||||||
$ | 228 | $ | (7,885 | ) | $ | 3,096 | $ | (11,271 | ) | |||||||
-30-
Three months ended | Three months ended | |||||||||||||||
February 28, 2010 | February 28, 2009 | |||||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Statutory U.S. tax rate |
$ | (1,409 | ) | 35.0 | % | $ | (3,789 | ) | 35.0 | % | ||||||
Amount of foreign taxes at less than U.S.
statutory tax rate |
(3,300 | ) | 82.0 | (2,241 | ) | 20.7 | ||||||||||
U.S. and foreign losses with no tax benefit |
3,813 | (94.7 | ) | 4,560 | (42.1 | ) | ||||||||||
U.S. restructuring and other U.S. unusual
charges with no benefit |
2,529 | (62.8 | ) | 517 | (4.8 | ) | ||||||||||
Italy valuation allowance |
984 | (24.5 | ) | | | |||||||||||
Establishment (resolution) of uncertain
tax positions |
23 | (0.6 | ) | 15 | (0.1 | ) | ||||||||||
Other |
154 | (3.8 | ) | (44 | ) | 0.4 | ||||||||||
Total income tax expense (benefit) |
$ | 2,794 | (69.4 | )% | $ | (982 | ) | 9.1 | % | |||||||
Six months ended | Six months ended | |||||||||||||||
February 28, 2010 | February 28, 2009 | |||||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Statutory U.S. tax rate |
$ | 6,379 | 35.0 | % | $ | 1,018 | 35.0 | % | ||||||||
Amount of foreign taxes at less than U.S.
statutory tax rate |
(8,639 | ) | (47.4 | ) | (6,107 | ) | (210.1 | ) | ||||||||
U.S. and foreign losses with no tax benefit |
5,532 | 30.4 | 7,709 | 265.1 | ||||||||||||
U.S. restructuring and other U.S. unusual
charges with no benefit |
3,351 | 18.4 | 543 | 18.7 | ||||||||||||
Italy valuation allowance |
984 | 5.4 | | | ||||||||||||
Establishment (resolution) of uncertain
tax positions |
23 | 0.1 | 98 | 3.4 | ||||||||||||
Other |
276 | 1.5 | 92 | 3.2 | ||||||||||||
Total income tax expense |
$ | 7,906 | 43.4 | % | $ | 3,353 | 115.3 | % | ||||||||
-31-
-32-
Three months ended | Three months ended | |||||||||||||||
February 28, 2010 | February 28, 2009 | |||||||||||||||
Diluted EPS | Diluted EPS | |||||||||||||||
Net Income (loss) and Earnings Per Share Reconciliation | Income (loss) | impact | Income (loss) | impact | ||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Net income (loss) attributable to A. Schulman, Inc.
common stockholders |
$ | (6,775 | ) | $ | (0.26 | ) | $ | (10,528 | ) | $ | (0.41 | ) | ||||
Adjustments, net of tax, per diluted share: |
||||||||||||||||
Asset impairment |
5,187 | 1,863 | ||||||||||||||
Tax valuation allowance |
2,252 | | ||||||||||||||
Costs related to proposed acquisitions |
1,421 | | ||||||||||||||
Restructuring expense |
1,083 | 4,070 | ||||||||||||||
Accelerated depreciation, included in cost of sales |
| 474 | ||||||||||||||
Curtailment gain |
| (2,609 | ) | |||||||||||||
Net income (loss) attributable to A. Schulman, Inc.
common stockholders before certain items |
$ | 3,168 | $ | 0.12 | $ | (6,730 | ) | $ | (0.26 | ) | ||||||
Weighted-average number of shares outstanding diluted |
25,916 | 25,753 |
Six months ended | Six months ended | |||||||||||||||
February 28, 2010 | February 28, 2009 | |||||||||||||||
Diluted EPS | Diluted EPS | |||||||||||||||
Net Income (loss) and Earnings Per Share Reconciliation | Income (loss) | impact | Income (loss) | impact | ||||||||||||
(In thousands, except per share data) | ||||||||||||||||
Net income (loss) attributable to A. Schulman, Inc. common stockholders |
$ | 10,258 | $ | 0.39 | $ | (2,368 | ) | $ | (0.09 | ) | ||||||
Adjustments, net of tax, per diluted share: |
||||||||||||||||
Asset impairment |
5,237 | 1,863 | ||||||||||||||
Costs related to proposed acquisitions |
3,687 | | ||||||||||||||
Tax valuation allowance |
2,252 | | ||||||||||||||
Restructuring expense |
1,382 | 4,505 | ||||||||||||||
Accelerated depreciation, included in cost of sales |
48 | 474 | ||||||||||||||
Curtailment gain |
| (2,609 | ) | |||||||||||||
Other employee termination costs |
| 101 | ||||||||||||||
Net income (loss) attributable to A. Schulman, Inc.
common stockholders before certain items |
$ | 22,864 | $ | 0.87 | $ | 1,966 | $ | 0.07 | ||||||||
Weighted-average number of shares outstanding diluted |
26,346 | 25,781 |
-33-
February 28, | August 31, | February 28, | ||||||||||
2010 | 2009 | 2009 | ||||||||||
Days in receivables |
57 | 58 | 65 | |||||||||
Days in inventory |
53 | 46 | 52 | |||||||||
Days in payables |
43 | 44 | 33 | |||||||||
Total working capital days |
67 | 60 | 83 |
February 28, | August 31, | |||||||||||||||
2010 | 2009 | $ Change | % Change | |||||||||||||
(In millions, except for %s) | ||||||||||||||||
Cash and cash equivalents |
$ | 215.6 | $ | 228.7 | $ | (13.1 | ) | -6 | % | |||||||
Working capital, excluding cash |
$ | 144.4 | $ | 133.1 | $ | 11.3 | 8 | % | ||||||||
Long-term debt |
$ | 98.4 | $ | 102.3 | $ | (3.9 | ) | -4 | % | |||||||
Total debt |
$ | 105.9 | $ | 104.8 | $ | 1.1 | 1 | % | ||||||||
Net debt (net cash)* |
$ | (109.7 | ) | $ | (123.9 | ) | $ | 14.2 | -11 | % | ||||||
Total A. Schulman, Inc.
stockholders equity |
$ | 357.4 | $ | 366.1 | $ | (8.7 | ) | -2 | % |
* | Total debt less cash and cash equivalents |
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| $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 $68.3 million at
February 28, 2010. The fair market value of the Euro Notes is approximately 53.1 million
at February 28, 2010, which approximates $72.0 million. |
February 28, 2010 | August 31, 2009 | |||||||
(In millions) | ||||||||
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 |
$ | 24.0 | $ | 41.3 | ||||
Total gross available funds from credit lines |
$ | 292.5 | $ | 309.8 | ||||
Credit Facility |
5.0 | | ||||||
Uncollateralized short-term lines of credit U.S. |
| | ||||||
Uncollateralized short-term lines of credit Foreign |
2.5 | 2.5 | ||||||
Total borrowings outstanding |
$ | 7.5 | $ | 2.5 | ||||
Credit Facility |
$ | 255.0 | $ | 260.0 | ||||
Uncollateralized short-term lines of credit U.S. |
$ | 8.5 | $ | 8.5 | ||||
Uncollateralized short-term lines of credit Foreign |
$ | 21.5 | $ | 38.8 | ||||
Total net available funds from credit lines |
$ | 285.0 | $ | 307.3 | ||||
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| 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. |
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| 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; |
|
| Global or regional economic slowdown or recession; and |
|
| Risks associated with the proposed merger between the Company and ICO including that the
businesses will not be integrated successfully and that the cost savings and any other
synergies from the transaction may not be fully realized or may take longer to realize than
expected. |
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Total number of shares | Maximum number of | |||||||||||||||
Total number of shares | Average price paid | purchased as part of a | shares that may yet be | |||||||||||||
repurchased | per share | publicly announced plan | purchased under the plan | |||||||||||||
Beginning shares
available |
2,906,966 | |||||||||||||||
December 1-31, 2009 |
| $ | | | 2,906,966 | |||||||||||
January 1-31, 2010 |
| $ | | | 2,906,966 | |||||||||||
February 1-28, 2010 |
| $ | | | 2,906,966 | |||||||||||
Total |
| $ | | | 2,906,966 | |||||||||||
(1) | Election of Directors: |
Broker | ||||||||||||
Director Name | Votes For | Votes Withheld | Non-Votes | |||||||||
David G. Birney |
24,006,331 | 738,243 | | |||||||||
Howard R. Curd |
23,791,158 | 953,416 | | |||||||||
Michael A. McManus |
22,666,908 | 2,077,666 | | |||||||||
Ernest J. Novak |
23,690,809 | 1,053,765 | | |||||||||
Dr. Irvin D. Reid |
24,183,361 | 561,213 | | |||||||||
John B. Yasinsky |
22,766,007 | 1,978,567 | |
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(2) | The ratification of the selection of PricewaterhouseCoopers LLP as A. Schulmans
independent registered public accounting firm for the fiscal year ending August 31,
2010: |
Broker | ||||||||||||
Votes For | Votes Against | Abstentions | Non-Votes | |||||||||
23,985,534 |
730,636 | 28,404 | |
(3) | The adoption and approval of the A. Schulmans 2009 Employee Stock Purchase
Plan: |
Broker | ||||||||||||
Votes For | Votes Against | Abstentions | Non-Votes | |||||||||
21,767,699 |
264,587 | 1,043,698 | 1,668,590 |
(a) | Exhibits |
Exhibit Number | Exhibit | |
2
|
Agreement and Plan of Merger, dated as of December 2, 2009, by and between the Company, Wildcat Spider, LLC and ICO, Inc. (incorporated by reference from Exhibit 2.1 to the Companys Current Report on Form 8-K filed with the SEC on December 3, 2009). | |
3.1
|
Amended and Restated Certificate of Incorporation of the Company (for purposes of Commission reporting compliance only) (incorporated by reference from Exhibit 3(a) to the Companys Annual Report on Form 10-K for the fiscal year ended August 31, 2009). | |
3.2
|
Amended and Restated By-laws of A. Schulman (incorporated by reference from Exhibit 3.2 to the Companys Current Report on Form 8-K filed with the SEC on October 19, 2009). | |
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. |
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Date: March 31, 2010 | 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) |
||||
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