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 | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Item 1 Consolidated Financial Statements |
Three months ended | ||||||||
November 30, | ||||||||
2011 | 2010 | |||||||
Unaudited | ||||||||
(In thousands, except per share data) | ||||||||
Net sales |
$ | 517,289 | $ | 495,383 | ||||
Cost of sales |
447,793 | 426,382 | ||||||
Selling, general and administrative expenses |
47,415 | 52,905 | ||||||
Restructuring expense |
3,244 | 551 | ||||||
Operating income |
18,837 | 15,545 | ||||||
Interest expense, net |
1,894 | 1,085 | ||||||
Foreign currency transaction (gains) losses |
499 | 670 | ||||||
Other (income) expense, net |
(170 | ) | (4 | ) | ||||
Income before taxes |
16,614 | 13,794 | ||||||
Provision (benefit) for U.S. and foreign income
taxes |
2,651 | 4,418 | ||||||
Net income |
13,963 | 9,376 | ||||||
Noncontrolling interests |
(381 | ) | (133 | ) | ||||
Net income attributable to A. Schulman, Inc. |
$ | 13,582 | $ | 9,243 | ||||
Weighted-average number of shares outstanding: |
||||||||
Basic |
29,418 | 31,333 | ||||||
Diluted |
29,514 | 31,530 | ||||||
Earnings per share of common
stock attributable to A. Schulman, Inc.: |
||||||||
Basic |
$ | 0.46 | $ | 0.29 | ||||
Diluted |
$ | 0.46 | $ | 0.29 | ||||
Cash dividends per common share |
$ | 0.170 | $ | 0.155 |
- 2 -
November 30, 2011 | August 31, 2011 | |||||||
Unaudited | ||||||||
(In thousands) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 105,681 | $ | 155,753 | ||||
Accounts receivable, less allowance for doubtful accounts of $9,125 at
November 30, 2011 and $9,475 at August 31, 2011 |
308,847 | 347,036 | ||||||
Inventories, average cost or market, whichever is lower |
272,425 | 264,747 | ||||||
Prepaid expenses and other current assets |
32,981 | 34,376 | ||||||
Total current assets |
719,934 | 801,912 | ||||||
Property, plant and equipment, at cost: |
||||||||
Land and improvements |
29,384 | 30,826 | ||||||
Buildings and leasehold improvements |
156,558 | 165,267 | ||||||
Machinery and equipment |
367,138 | 382,828 | ||||||
Furniture and fixtures |
39,844 | 41,860 | ||||||
Construction in progress |
17,561 | 12,967 | ||||||
Gross property, plant and equipment |
610,485 | 633,748 | ||||||
Accumulated depreciation and investment grants of $725 at November 30, 2011
and $815 at August 31, 2011 |
385,865 | 399,448 | ||||||
Net property, plant and equipment |
224,620 | 234,300 | ||||||
Other assets: |
||||||||
Deferred charges and other noncurrent assets |
35,270 | 35,947 | ||||||
Goodwill |
89,740 | 91,753 | ||||||
Intangible assets |
71,710 | 76,075 | ||||||
Total other assets |
196,720 | 203,775 | ||||||
Total assets |
$ | 1,141,274 | $ | 1,239,987 | ||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 208,548 | $ | 254,405 | ||||
U.S. and foreign income taxes payable |
6,844 | 11,072 | ||||||
Accrued payrolls, taxes and related benefits |
42,405 | 44,560 | ||||||
Other accrued liabilities |
49,391 | 50,608 | ||||||
Short-term debt |
9,525 | 11,550 | ||||||
Total current liabilities |
316,713 | 372,195 | ||||||
Long-term debt |
192,484 | 184,598 | ||||||
Pension plans |
79,745 | 84,673 | ||||||
Other long-term liabilities |
21,803 | 24,161 | ||||||
Deferred income taxes |
17,618 | 20,055 | ||||||
Total liabilities |
628,363 | 685,682 | ||||||
Commitments and contingencies |
| | ||||||
Stockholders equity: |
||||||||
Common stock, $1 par value, authorized - 75,000 shares, issued - 47,818
shares at November 30, 2011 and 47,816 shares at August 31, 2011 |
47,818 | 47,816 | ||||||
Other capital |
254,854 | 254,184 | ||||||
Accumulated other comprehensive income (loss) |
20,313 | 50,007 | ||||||
Retained earnings |
549,777 | 541,256 | ||||||
Treasury stock, at cost, 18,414 shares at November 30, 2011 and 17,207 shares at
August 31, 2011 |
(366,008 | ) | (344,759 | ) | ||||
Total A. Schulman, Inc.s stockholders equity |
506,754 | 548,504 | ||||||
Noncontrolling interests |
6,157 | 5,801 | ||||||
Total equity |
512,911 | 554,305 | ||||||
Total liabilities and equity |
$ | 1,141,274 | $ | 1,239,987 | ||||
- 3 -
Three months ended November 30, | ||||||||
2011 | 2010 | |||||||
Unaudited | ||||||||
(In thousands) | ||||||||
Operating: |
||||||||
Net income |
$ | 13,963 | $ | 9,376 | ||||
Adjustments to reconcile net income to net cash provided
from (used in) operating activities: |
||||||||
Depreciation and amortization |
9,064 | 9,654 | ||||||
Deferred tax provision |
(2,790 | ) | (711 | ) | ||||
Pension, postretirement benefits and other deferred compensation |
1,547 | 2,153 | ||||||
Net (gains) losses on asset sales |
(29 | ) | 88 | |||||
Changes in assets and liabilities, net of acquisitions: |
||||||||
Accounts receivable |
15,731 | (15,431 | ) | |||||
Inventories |
(24,349 | ) | (27,579 | ) | ||||
Accounts payable |
(30,888 | ) | (6,454 | ) | ||||
Income taxes |
(4,240 | ) | 1,622 | |||||
Accrued payrolls and other accrued liabilities |
2,086 | 4,314 | ||||||
Other assets and long-term liabilities |
(1,360 | ) | (2,084 | ) | ||||
Net cash provided from (used in) operating activities |
(21,265 | ) | (25,052 | ) | ||||
Investing: |
||||||||
Expenditures for property, plant and equipment |
(9,072 | ) | (5,000 | ) | ||||
Proceeds from the sale of assets |
724 | 300 | ||||||
Business acquisitions, net of cash acquired |
| (15,071 | ) | |||||
Net cash provided from (used in) investing activities |
(8,348 | ) | (19,771 | ) | ||||
Financing: |
||||||||
Cash dividends paid |
(5,061 | ) | (4,942 | ) | ||||
Increase (decrease) in notes payable |
(1,553 | ) | (3,987 | ) | ||||
Borrowings on revolving credit facilities |
40,750 | 53,500 | ||||||
Repayments on revolving credit facilities |
(28,000 | ) | (25,000 | ) | ||||
Repayments on long-term debt |
(4 | ) | (26 | ) | ||||
Cash distributions to noncontrolling interests |
| (700 | ) | |||||
Issuances (purchases) of treasury stock, net |
(21,249 | ) | 49 | |||||
Net cash provided from (used in) financing activities |
(15,117 | ) | 18,894 | |||||
Effect of exchange rate changes on cash |
(5,342 | ) | 2,205 | |||||
Net increase (decrease) in cash and cash equivalents |
(50,072 | ) | (23,724 | ) | ||||
Cash and cash equivalents at beginning of period |
155,753 | 122,754 | ||||||
Cash and cash equivalents at end of period |
$ | 105,681 | $ | 99,030 | ||||
- 4 -
(1) | GENERAL |
The unaudited 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 fiscal 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. The unaudited
consolidated financial information should be read in conjunction with the consolidated
financial statements and notes thereto incorporated in the Companys Annual Report on Form
10-K for the fiscal year ended August 31, 2011. |
The results of operations for the three months ended November 30, 2011 are not necessarily
indicative of the results expected for the fiscal year ending August 31, 2012. |
The accounting policies for the periods presented are the same as described in Note 1
Business and 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, 2011. |
Certain items previously reported in specific financial statement captions have been
reclassified to conform to the fiscal 2012 presentation. |
(2) | BUSINESS ACQUISITIONS |
In fiscal 2011, the Company acquired a business in Brazil and entered into an agreement to
become the majority equity holder of an Argentinean venture. The consolidated statements of
operations include the results of these transactions from the dates of acquisition or
formation. These transactions are summarized below: |
Purchase | |||||||
Consideration | |||||||
Transaction Description | Date of Transaction | (In millions) | Segment | ||||
Mash Indústria e
Comércio de Compostos
Plásticos LTDA
|
November 3, 2010 | $ | 15.2 | Americas | |||
A Brazilian
masterbatch
additive producer
and engineered
plastics compounder
whose products are
used in end markets
such as film and
packaging,
automotive and
appliances. |
|||||||
Surplast S.A.
|
June 30, 2011 | $ | 1.1 | Americas | |||
A 51%
ownership interest
in an Argentinean
venture, further
expanding the
Companys specialty
powders presence in
South America. |
(3) | GOODWILL AND OTHER INTANGIBLE ASSETS |
The carrying amount of goodwill by segment for the Company as of November 30, 2011 and
August 31, 2011 is as follows: |
Europe, Middle | ||||||||||||
East and Africa | Americas | Total | ||||||||||
(In thousands) | ||||||||||||
Balance as of August 31, 2011 |
$ | 30,949 | $ | 60,804 | $ | 91,753 | ||||||
Acquisitions |
| | | |||||||||
Translation and other |
(1,480 | ) | (533 | ) | (2,013 | ) | ||||||
Balance as of November 30, 2011 |
$ | 29,469 | $ | 60,271 | $ | 89,740 | ||||||
- 5 -
Goodwill impairment is tested at the reporting unit level on an annual basis in the
fourth quarter 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 is not aware of any triggering events which would require a goodwill
impairment test as of November 30, 2011. |
The following table summarizes intangible assets with determinable useful lives by major
category as of November 30, 2011 and August 31, 2011: |
November 30, 2011 | August 31, 2011 | |||||||||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Customer related intangibles |
$ | 57,796 | $ | (8,491 | ) | $ | 49,305 | $ | 59,948 | $ | (7,428 | ) | $ | 52,520 | ||||||||||
Developed technology |
13,477 | (2,506 | ) | 10,971 | 13,522 | (2,273 | ) | 11,249 | ||||||||||||||||
Registered
trademarks and tradenames |
13,075 | (1,641 | ) | 11,434 | 13,751 | (1,445 | ) | 12,306 | ||||||||||||||||
Total
finite-lived intangible assets
|
$ | 84,348 | $ | (12,638 | ) | $ | 71,710 | $ | 87,221 | $ | (11,146 | ) | $ | 76,075 | ||||||||||
Amortization expense of intangible assets was approximately $1.9 million and $2.0 million
for the three months ended November 30, 2011 and 2010, respectively. |
(4) | FAIR VALUE MEASUREMENT |
For a discussion of the Companys fair value measurement policies under the fair value
hierarchy, refer to Note 6 in the Companys Annual Report on Form 10-K for the fiscal year
ended August 31, 2011. The Company has not changed its valuation techniques for measuring
the fair value of any financial assets or liabilities during fiscal 2012, and transfers
between levels within the fair value hierarchy, if any, are recognized at the end of each
quarter. |
The following table presents information about the Companys assets and liabilities recorded
at fair value in the Companys consolidated balance sheet as of November 30, 2011 and August
31, 2011: |
November 30, 2011 | August 31, 2011 | |||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||||||||||
Cash |
$ | 96,566 | $ | 96,566 | $ | | $ | | $ | 139,525 | $ | 139,525 | $ | | $ | | ||||||||||||||||
Cash equivalents |
9,115 | 9,115 | | | 16,228 | 16,228 | | | ||||||||||||||||||||||||
Foreign
exchange forward contracts |
115 | | 115 | | 82 | | 82 | | ||||||||||||||||||||||||
Total assets at fair value |
$ | 105,796 | $ | 105,681 | $ | 115 | $ | | $ | 155,835 | $ | 155,753 | $ | 82 | $ | | ||||||||||||||||
Liabilities: |
||||||||||||||||||||||||||||||||
Foreign
exchange forward contracts |
$ | 129 | $ | | $ | 129 | $ | | $ | 50 | $ | | $ | 50 | $ | | ||||||||||||||||
Total liabilities at fair value |
$ | 129 | $ | | $ | 129 | $ | | $ | 50 | $ | | $ | 50 | $ | | ||||||||||||||||
Cash and cash equivalents are recorded at cost, which approximates fair value. |
- 6 -
The total contract value of foreign exchange forward contracts outstanding was approximately
$21.0 million and $18.4 million as of November 30, 2011 and August 31, 2011, respectively.
The amount of foreign exchange forward contracts outstanding as of the end of the period is
indicative of the level of the activity during the period. Any gains or losses associated
with these contracts as well as the offsetting gains or losses from the underlying assets or
liabilities are included in the foreign currency transaction line in the Companys
consolidated statements of operations. The fair value of the Companys foreign exchange
forward contracts is recognized in other current assets or other accrued liabilities in the
consolidated balance sheets based on the net settlement value. The foreign exchange forward
contracts are entered into with creditworthy multinational banks, and the Company does not
hold or issue foreign exchange forward contracts for trading purposes. There were no foreign
exchange forward contracts designated as hedging instruments as of November 30, 2011 and
August 31, 2011. |
The following information presents the supplemental fair value of the Companys long-term
fixed-rate debt issued in Euros as of November 30, 2011 and August 31, 2011: |
November 30, 2011 | August 31, 2011 | |||||||||||||||
($ in thousands) | ( in thousands) | ($ in thousands) | ( in thousands) | |||||||||||||
Carrying value of long-term fixed-rate debt |
$ | 67,540 | | 50,336 | $ | 72,735 | | 50,336 | ||||||||
Fair value of long-term fixed-rate debt |
$ | 70,411 | | 52,475 | $ | 76,093 | | 52,659 |
The decrease in fair value is primarily related to a decrease in the value of the Euro
against the U.S. dollar. The carrying value of the Companys variable-rate debt approximates
fair value. |
(5) | INCOME TAXES |
As of November 30, 2011, the Companys gross unrecognized tax benefits totaled approximately
$4.6 million. If recognized, approximately $3.2 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. As of November
30, 2011, the Company had approximately $0.5 million of accrued interest and penalties on
unrecognized tax benefits. |
The Company is open to potential income tax examinations in Germany from fiscal 2005 onward,
in the U.S. from fiscal 2008 onward and in Belgium from fiscal 2009 onward. The Company is
open to potential examinations from fiscal 2006 onward for most other 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. |
- 7 -
A reconciliation of the statutory U.S. federal income tax rate with the effective tax rates
for the three months ended November 30, 2011 and 2010 is as follows: |
Three months ended | Three months ended | |||||||||||||||
November 30, 2011 | November 30, 2010 | |||||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Statutory U.S. tax rate |
$ | 5,815 | 35.0 | % | $ | 4,828 | 35.0 | % | ||||||||
Amount of foreign taxes at less than U.S.
statutory tax rate |
(3,317 | ) | (20.0 | ) | (2,956 | ) | (21.4 | ) | ||||||||
U.S. and foreign losses with no tax benefit |
659 | 4.0 | 1,967 | 14.2 | ||||||||||||
U.S. restructuring and other U.S. unusual
charges with no benefit |
110 | 0.7 | 375 | 2.7 | ||||||||||||
Italian tax law change |
(747 | ) | (4.5 | ) | | | ||||||||||
Establishment (resolution) of uncertain tax
positions |
31 | 0.2 | 11 | 0.1 | ||||||||||||
Other |
100 | 0.6 | 193 | 1.4 | ||||||||||||
Total income tax expense (benefit) |
$ | 2,651 | 16.0 | % | $ | 4,418 | 32.0 | % | ||||||||
The effective tax rates for the three months ended November 30, 2011 and 2010 are less
than the U.S. statutory rate 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
partially offset by no tax benefits being recognized for U.S. and certain foreign losses.
As compared with the effective rate of 32.0% for the three months ended November 30, 2010,
the current quarters effective rate is driven by a decrease in the U.S. and foreign losses
with no tax benefit. |
(6) | PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS |
The components of the Companys net periodic benefit cost for defined benefit pension plans
and other postretirement benefits for the three months ended November 30, 2011 and 2010 are
shown below: |
Three months ended November 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Net periodic pension cost included the following components: |
||||||||
Service cost |
$ | 719 | $ | 845 | ||||
Interest cost |
1,315 | 1,161 | ||||||
Expected return on plan assets |
(325 | ) | (297 | ) | ||||
Net actuarial loss and net amortization of prior service cost |
114 | 412 | ||||||
Net periodic benefit cost |
$ | 1,823 | $ | 2,121 | ||||
Postretirement benefit cost included the following components: |
||||||||
Service cost |
$ | 7 | $ | 8 | ||||
Interest cost |
152 | 186 | ||||||
Net actuarial loss and net amortization of prior service cost (credit) |
(140 | ) | (86 | ) | ||||
Net periodic benefit cost |
$ | 19 | $ | 108 | ||||
- 8 -
(7) | CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY |
A summary of the changes in stockholders equity for the three months ended November 30,
2011 is as follows: |
Accumulated | ||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||
Common | Comprehensive | Retained | Treasury | Noncontrolling | ||||||||||||||||||||||||
Stock | Other Capital | Income (Loss) | Earnings | Stock | Interests | Total Equity | ||||||||||||||||||||||
Unaudited | ||||||||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||||||
Balance as of September 1, 2011 |
$ | 47,816 | $ | 254,184 | $ | 50,007 | $ | 541,256 | $ | (344,759 | ) | $ | 5,801 | $ | 554,305 | |||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||||||
Net income |
13,582 | 381 | ||||||||||||||||||||||||||
Foreign currency translation gain (loss) |
(29,670 | ) | (25 | ) | ||||||||||||||||||||||||
Actuarial loss and amortization of |
(24 | ) | ||||||||||||||||||||||||||
prior service costs, net |
||||||||||||||||||||||||||||
Total comprehensive income (loss) |
(15,756 | ) | ||||||||||||||||||||||||||
Cash dividends paid, $0.17 per share |
(5,061 | ) | (5,061 | ) | ||||||||||||||||||||||||
Purchase of treasury stock |
(21,474 | ) | (21,474 | ) | ||||||||||||||||||||||||
Issuance of treasury stock |
(2 | ) | 225 | 223 | ||||||||||||||||||||||||
Stock options exercised |
2 | 31 | 33 | |||||||||||||||||||||||||
Amortization of restricted stock |
641 | 641 | ||||||||||||||||||||||||||
Balance as of November 30, 2011 |
$ | 47,818 | $ | 254,854 | $ | 20,313 | $ | 549,777 | $ | (366,008 | ) | $ | 6,157 | $ | 512,911 | |||||||||||||
(8) | COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
Comprehensive income (loss) for the three months ended November 30, 2011 and 2010 is as
follows: |
Three months ended November 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Net income (loss) |
$ | 13,963 | $ | 9,376 | ||||
Foreign currency translation gain (loss) |
(29,695 | ) | 7,257 | |||||
Unrecognized losses and prior sevice costs
(credits), net |
(24 | ) | 706 | |||||
Total comprehensive income (loss) |
(15,756 | ) | 17,339 | |||||
Comprehensive (income) loss attributable
to noncontrolling interests |
(356 | ) | (133 | ) | ||||
Comprehensive income (loss) attributable
to A. Schulman, Inc. |
$ | (16,112 | ) | $ | 17,206 | |||
The fiscal 2012 first quarter foreign currency translation loss was primarily due to the
decrease in the value of the Euro 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 (loss) adjustments related to pensions and other
postretirement benefit plans are recorded net of tax using the applicable effective tax
rate. |
(9) | 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 granted
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. |
- 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. It has been the Companys practice to issue new shares
of common stock upon stock option exercise and other equity grants. On November 30, 2011,
there were approximately 0.5 million shares available for grant pursuant to the Companys
2006 Incentive Plan. |
On December 9, 2010, the Companys stockholders approved the adoption of the A. Schulman,
Inc. 2010 Value Creations Rewards Plan (2010 Rewards Plan) which provides for the grant of
non-qualified stock options, incentive stock options, stock appreciation rights, restricted
stock awards, restricted stock units, whole shares and performance-based awards. A total of
1,375,000 shares of common stock may be issued under the 2010 Rewards Plan. There have been
no grants made from the 2010 Rewards Plan. |
A summary of stock option activity for the three months ended November 30, 2011 is as
follows: |
Outstanding Shares | Weighted-Average | |||||||
Under Option | Exercise Price | |||||||
Outstanding at August 31, 2011 |
138,141 | $ | 18.34 | |||||
Granted |
| $ | | |||||
Exercised |
(2,000 | ) | $ | 16.69 | ||||
Forfeited and expired |
| $ | | |||||
Outstanding at November 30, 2011 |
136,141 | $ | 18.37 | |||||
Exercisable at November 30, 2011 |
136,141 | $ | 18.37 | |||||
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 for
stock options outstanding and exercisable as of November 30, 2011 was approximately $0.3
million with a remaining term for options outstanding and exercisable of approximately 2.6
years. For stock options outstanding as of November 30, 2011, exercise prices range from
$13.99 to $19.85. All outstanding and exercisable stock options are fully vested as of
November 30, 2011. The Company did not grant stock options during the three months ended
November 30, 2011 and 2010. |
Restricted stock awards under the 2006 Incentive Plan can vest over various periods, and
restricted stock awards earn dividends throughout the vesting period which are subject to
the same vesting terms as the underlying stock award. The restricted stock awards
outstanding under the 2006 Incentive Plan have service vesting periods of three years
following the date of grant. Also, the Company grants awards with market and performance
vesting conditions. The following table summarizes the activity of time-based restricted
stock awards and performance-based awards for the three months ended November 30, 2011: |
Weighted-Average | ||||||||||||||||
Fair Market Value | ||||||||||||||||
Awards Outstanding | (per share) | |||||||||||||||
Restricted | Performance- | Restricted | Performance- | |||||||||||||
Stock | Based | Stock | Based | |||||||||||||
Outstanding at August 31, 2011 |
117,891 | 800,193 | $ | 20.98 | $ | 14.44 | ||||||||||
Granted |
| | $ | | $ | | ||||||||||
Vested |
| | $ | | $ | | ||||||||||
Forfeited |
| | $ | | $ | | ||||||||||
Outstanding at November 30, 2011 |
117,891 | 800,193 | $ | 20.98 | $ | 14.44 | ||||||||||
- 10 -
The Company did not grant restricted stock awards and performance-based awards during the
three months ended November 30, 2011 and 2010. |
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 as of November 30, 2011 are 436,314 performance shares, which earn
dividends throughout the vesting period and 363,879 performance shares which do not earn
dividends. Earned dividends are subject to the same vesting terms as the underlying
performance share awards. |
The performance-based awards in the table above include 566,058 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 such
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 234,135 performance shares
in the table above is based on the closing price of the Companys common stock on the date
of the grant. |
Total unrecognized compensation cost, including a provision for forfeitures, related to
nonvested stock-based compensation arrangements as of November 30, 2011 was approximately
$4.9 million. This cost is expected to be recognized over a weighted-average period of
approximately 1.2 years. |
As of November 30, 2011 and August 31, 2011, the Company had 20,000 stock-settled restricted
stock units outstanding. 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 earn dividends during the restriction period; however, they do not have voting
rights until released from restriction. There were no additional grants of these
stock-settled restricted stock units during the three months ended November 30, 2011 or
2010. |
The Company had approximately $3.6 million cash-based awards, which are treated as liability
awards, outstanding as of November 30, 2011 and August 31, 2011. These awards were granted
to foreign employees. Such awards include approximately $0.4 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 fiscal 2010, the Companys board of directors and stockholders approved adoption of an
Employee Stock Purchase Plan (ESPP) whereby employees may purchase Company stock through a
payroll deduction plan. Purchases are made from the plan and credited to each participants
account at the end of each calendar quarter (the Investment Date). The purchase price of
the stock is 85% of the fair market value on the Investment Date. The plan is compensatory
and the 15% discount is expensed ratably over the three month offering period. All
employees, including officers, are eligible to participate in this plan. An employee whose
stock ownership of the Company exceeds five percent of the outstanding common stock is not
eligible to participate in this plan. The Company recorded minimal expense related to the
ESPP during the three months ended November 30, 2011 and 2010. It is the Companys current
practice to use treasury shares for the share settlement on the Investment Date. |
- 11 -
The following table summarizes the impact to the Companys consolidated statements of
operations from stock-based compensation for the three months ended November 30, 2011 and
2010, which is primarily included in selling, general and administrative expenses in the
accompanying consolidated statements of operations: |
Three months ended November 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Restricted stock awards and performance-based awards |
$ | 641 | $ | 904 | ||||
Cash-settled restricted stock units |
| 375 | ||||||
Cash-based awards |
265 | 88 | ||||||
Total stock-based compensation |
$ | 906 | $ | 1,367 | ||||
(10) | EARNINGS PER SHARE |
Basic earnings per share is computed by dividing income available to common stockholders by
the weighted-average number of 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 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 for the three months ended November 30,
2011 and 2010: |
Three months ended November 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Weighted-average shares outstanding: |
||||||||
Basic |
29,418 | 31,333 | ||||||
Incremental shares from equity awards |
96 | 197 | ||||||
Diluted |
29,514 | 31,530 | ||||||
(11) | SEGMENT INFORMATION |
The Company considers its operating structure and the types of information subject to
regular review by its President and Chief Executive Officer, who is the Chief Operating
Decision Maker (CODM), to identify reportable segments. The CODM makes decisions, assesses
performance and allocates resources by the following regions, which are also the Companys
reportable segments: Europe, Middle East and Africa (EMEA), the Americas, and Asia Pacific
(APAC). Each reportable segment has a General Manager/Chief Operating Officer who reports
to the CODM. |
The CODM uses net sales to unaffiliated customers, gross profit and operating income before
certain items in order to make decisions, assess performance and allocate resources to each
segment. Segment operating income does not include items such as interest income or expense,
other income or expense, foreign currency transaction gains or losses, restructuring related
expenses, asset write-downs, costs related to business acquisitions and inventory step-up
charges related to business acquisitions. Corporate expenses include the compensation of
certain personnel, certain audit expenses, board of directors related costs, certain
insurance costs, costs associated with being a publicly traded entity and other
miscellaneous legal and professional fees. |
- 12 -
Below the Company presents net sales to unaffiliated customers by segment for the three
months ended November 30, 2011 and 2010: |
Three months ended November 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
EMEA |
$ | 352,891 | $ | 346,683 | ||||
Americas |
127,980 | 115,120 | ||||||
APAC |
36,418 | 33,580 | ||||||
Total net sales to unaffiliated customers |
$ | 517,289 | $ | 495,383 | ||||
Below the Company presents gross profit by segment for the three months ended November 30,
2011 and 2010: |
Three months ended November 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
EMEA |
$ | 44,238 | $ | 48,086 | ||||
Americas |
19,879 | 16,474 | ||||||
APAC |
5,379 | 4,562 | ||||||
Total segment gross profit |
69,496 | 69,122 | ||||||
Inventory step-up |
| (121 | ) | |||||
Total gross profit |
$ | 69,496 | $ | 69,001 | ||||
Below is a reconciliation of segment operating income to operating income and income before
taxes for the three months ended November 30, 2011 and 2010: |
Three months ended November 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
EMEA |
$ | 19,235 | $ | 19,402 | ||||
Americas |
6,111 | 3,859 | ||||||
APAC |
2,533 | 1,808 | ||||||
Total segment operating income |
27,879 | 25,069 | ||||||
Corporate and other |
(5,580 | ) | (7,971 | ) | ||||
Costs related to acquisitions |
(218 | ) | (881 | ) | ||||
Restructuring related |
(3,244 | ) | (551 | ) | ||||
Inventory step-up |
| (121 | ) | |||||
Operating income |
18,837 | 15,545 | ||||||
Interest expense, net |
(1,894 | ) | (1,085 | ) | ||||
Foreign currency transaction gains (losses) |
(499 | ) | (670 | ) | ||||
Other income (expense), net |
170 | 4 | ||||||
Income before taxes |
$ | 16,614 | $ | 13,794 | ||||
- 13 -
Globally, the Company operates primarily in four product families: (1) masterbatch, (2)
engineered plastics, (3) specialty powders and (4) distribution services. The amount and
percentage of consolidated net sales for these product families for the three months ended
November 30, 2011 and 2010 are as follows: |
Three months ended November 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Masterbatch |
$ | 210,268 | 41 | % | $ | 200,299 | 41 | % | ||||||||
Engineered plastics |
140,297 | 27 | 124,038 | 25 | ||||||||||||
Specialty powders |
84,599 | 16 | 90,076 | 18 | ||||||||||||
Distribution services |
82,125 | 16 | 80,970 | 16 | ||||||||||||
$ | 517,289 | 100 | % | $ | 495,383 | 100 | % | |||||||||
(12) | RESTRUCTURING |
EMEA Operations and Back-Office Plan |
In November 2011, the Company initiated a restructuring plan of EMEAs operations and
back-office functions to better leverage savings from its Shared Service Center located in
Belgium. As part of this plan, the Company will reduce headcount in EMEA by approximately
40, of which approximately half of the reductions occurred in the first quarter of fiscal
2012. The Company recorded approximately $2.7 million of pretax employee-related
restructuring costs during the first quarter of fiscal 2012, and the Company anticipates
recognizing approximately $2.0 million to $3.0 million of additional pretax employee-related
cash charges during the remainder of fiscal 2012 as it completes the plan. |
Americas Engineered Plastics Plan |
On August 25, 2011, the Company announced that it will close the Nashville, Tennessee
facility no later than February 29, 2012, in order to optimize the use of existing capacity
and capitalize on growth opportunities. As a result of this plan, the Company will reduce headcount by
approximately 60 at the Nashville facility. The Company
recorded approximately $0.2 million of pretax employee-related restructuring expense
associated with this plan during the first quarter of fiscal 2012, and approximately $1.1
million of pretax employee-related restructuring expense during the fourth quarter of fiscal
2011. As of November 30, 2011, the Company has a balance of approximately $0.9 million
accrued for employee-related costs related to this plan. The Company anticipates recognizing
additional pretax employee-related cash charges and other restructuring expenses of
approximately $1.0 million to $3.0 million during the remainder of fiscal 2012 as it
completes the plan. |
Italy and Australia Plans |
On February 8, 2011, the Company announced that it is relocating its operations from its
manufacturing facility in Verolanuova, Italy to its existing facility in Gorla Maggiore,
Italy. Production lines at the Verolanuova facility were relocated in the first quarter of
fiscal 2012 to the Gorla facility. As a result of this relocation, the Company will reduce
headcount by approximately 30 by the end of June 2012. Also on February 8, 2011, as a result
of the ongoing deterioration of the Australian rotomolding market, the Company announced
plans to consolidate operations in Australia by moving production from its Braeside,
Australia facility to its Brisbane, Australia facility. As part of this consolidation, the
Company reduced headcount in Australia by approximately 20, and the majority of the
reduction occurred in the second and third quarters of fiscal 2011. The region continues to
be served by the Companys Brisbane facility and facilities in Malaysia, Indonesia, China
and a future India plant. |
The Company recorded pretax restructuring expense of approximately $0.3 million during the
first quarter of fiscal 2012 primarily related to other restructuring costs as part of the
Italy plan. In fiscal 2011, the Company recorded pretax restructuring expense of
approximately $6.0 million primarily for employee-related costs and other restructuring
charges related to the Australia and Italy restructuring plans. As of November 30, 2011, the
Company has a balance of approximately $1.9 million accrued for employee-related costs
related to the Italy plan. In regards to the Italy plan, the Company anticipates additional
pretax charges of approximately $5.0 million to $7.0 million in the remainder of fiscal
2012, of which approximately 50% are expected to be non-cash charges. As of November 30,
2011, the Company has a balance of approximately $0.3 million accrued for the Australia plan
related to a future settlement of a contractual obligation and expects minimal charges
related to this plan in the remainder of fiscal 2012. |
- 14 -
ASI United Kingdom Plan |
On August 31, 2010, management announced restructuring plans for its operations at its
Crumlin, South Wales (U.K.) facility. The plans include moving part of the plants capacity
to two other, larger facilities in Europe, and several production lines will be shut down.
As a result, the Company will reduce headcount at this location by approximately 30.
Approximately half of the reductions occurred in the second quarter of fiscal 2011 and the
remaining headcount reductions are expected to occur in the second quarter of fiscal 2012.
The Company recorded minimal charges in the first quarter of fiscal 2012 and no charges in
the first quarter of fiscal 2011. As of November 30, 2011, the Company has a balance of
approximately $0.2 million accrued for employee-related costs. The Company expects minimal
charges related to this plan in the remainder of fiscal 2012 as the realignment of capacity
is finalized. |
ICO Merger Plan |
In conjunction with the acquisition of ICO, Inc. (ICO) in fiscal 2010, the Company reduced
the workforce in the Houston, Texas office by 17 employees. ICO had preexisting arrangements
regarding change-in-control payments and severance pay which were based on pre-merger
service. The Company assumed approximately $2.1 million in liabilities as a result of the
merger related to these agreements, of which approximately $2.0 million was paid by the
Company during fiscal 2010. Since the merger, the Company announced the exit of certain
senior managers in Europe in connection with the Companys ongoing integration of ICO
operations. The Company recorded approximately $0.5 million primarily in pretax
employee-related costs during fiscal 2011 of which approximately $0.3 million were recorded
in the first quarter of fiscal 2011. The Company had no charges in the first quarter of
fiscal 2012 and has no remaining accrual as of November 30, 2011 related to this plan as it
is considered complete. |
North America Masterbatch Fiscal 2010 Plan |
On March 1, 2010, the Company announced the closure of its Polybatch Color Center located in
Sharon Center, Ohio. The Company recorded approximately $0.5 million pretax restructuring
expenses during fiscal 2011, of which approximately $0.1 million was recorded in the first
quarter of fiscal 2011, primarily for employee-related costs associated with the closure.
The Company ceased production at the Polybatch Color Center on August 31, 2010, and sold the
facility in June 2011. The Company had no charges in the first quarter of fiscal 2012 and
has no remaining accrual as of November 30, 2011 related to this plan as it is considered
complete. |
The following table summarizes the activity during fiscal 2012 related to the Companys
restructuring plans: |
Accrual Balance | Fiscal 2012 | Fiscal 2012 | Accrual Balance | |||||||||||||
August 31, 2011 | Charges | Paid | November 30, 2011 | |||||||||||||
(In thousands) | ||||||||||||||||
Employee-related costs |
$ | 3,322 | $ | 2,930 | $ | (533 | ) | $ | 5,719 | |||||||
Other costs |
403 | 314 | (302 | ) | 415 | |||||||||||
Translation effect |
70 | | | (107 | ) | |||||||||||
Restructuring charges |
$ | 3,795 | $ | 3,244 | $ | (835 | ) | $ | 6,027 | |||||||
- 15 -
Restructuring costs are excluded from segment operating income but are attributable to the
reportable segments as follows: |
Three months ended November 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
EMEA |
$ | 3,061 | $ | 278 | ||||
Americas |
178 | 273 | ||||||
APAC |
5 | | ||||||
Total |
$ | 3,244 | $ | 551 | ||||
(13) | CONTINGENCIES AND CLAIMS |
In the normal course of business, the Company is at times subject to pending and threatened
legal actions, some for which the relief or damages sought may be substantial. Although the
Company is not able to predict the outcome of such actions, after reviewing all pending and
threatened actions with counsel and based on information currently available, management
believes that the outcome of such actions, individually or in the aggregate, will not have a
material adverse effect on the results of operations or financial position of the Company.
However, it is possible that the ultimate resolution of such matters, if unfavorable, may be
material to the results of operations in a particular future period as the time and amount
of any resolution of such actions and its relationship to the future results of operations
are not currently known. |
Reserves are established for legal claims only when losses associated with the claims are
judged to be probable, and the loss can be reasonably estimated. In many lawsuits and
arbitrations, it is not possible to determine whether a liability has been incurred or to
estimate the ultimate or minimum amount of that liability until the case is close to
resolution, in which case no reserve would be recognized until that time. |
(14) | SHARE REPURCHASE PROGRAM |
On May 13, 2011, the Board of Directors approved a new share repurchase program under which
the Company is authorized to repurchase up to $100 million of its common stock in the open
market or in privately negotiated transactions, subject to market and other conditions
(2011 Repurchase Program). The 2011 Repurchase Program replaces the Companys previous
share repurchase program which was approved in fiscal 2008 (2008 Repurchase Program). |
As part of the 2011 Repurchase Program, on May 13, 2011, the Company entered into a $30
million share repurchase plan established under Rule 10b5-1 of the Securities Exchange Act
of 1934, as amended (the Repurchase Plan). Under the Repurchase Plan, the Companys
designated broker repurchased 1,218,429 shares of its common stock under the 2011 Repurchase
Program in the first quarter of fiscal 2012 at an average price of approximately $17.60 per
share. As of October 10, 2011, the Company fulfilled the Repurchase Plan by repurchasing a
cumulative 1,603,979 shares of its common stock in fiscal 2011 and the first quarter of
fiscal 2012 at an average price of approximately $18.70 per share. Shares valued at
approximately $70 million remained authorized under the 2011 Repurchase Program for
repurchase as of November 30, 2011. The Company did not repurchase any shares of its common
stock during the first quarter of fiscal 2011. |
On November 29, 2011, the Company entered into a new $30 million repurchase plan established
under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, and repurchases under
this plan are subject to specific parameters and contain certain price and volume
constraints. |
(15) | ACCOUNTING PRONOUNCEMENTS |
In June 2011, the Financial Accounting Standards Board (FASB) issued new accounting
guidance related to the presentation of comprehensive income in consolidated financial
statements. The new accounting guidance requires the presentation of the components of net
income and other comprehensive income either in a single continuous financial statement, or
in two separate but consecutive financial statements. The accounting standard eliminates the
option to present other comprehensive income and its components as part of the statement of
stockholders equity. This standard is effective for fiscal years beginning after December
15, 2011, including interim periods. |
- 16 -
In September 2011, the FASB issued new accounting guidance related to the testing of
goodwill for impairment. The new accounting guidance permits an entity to first assess
qualitative factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount as a basis for determining whether it is
necessary to perform the two-step goodwill impairment test. Previous guidance required an
entity to test goodwill for impairment quantitatively, on at least an annual basis, by
comparing the fair value of a reporting unit with its carrying amount (step one). If the
fair value of a reporting unit was less than its carrying amount, the second step of the
test was required to be performed to measure the amount of the impairment loss, if any. This
standard is effective for annual and interim goodwill impairment tests performed for fiscal
years beginning after December 15, 2011, and early adoption is permitted. |
- 17 -
| Overview: From managements point of view, we discuss the following: |
| Summary of our business and the markets of the industry in which we participate; |
||
| Key trends, developments and challenges; and |
||
| Significant events from the period. |
| Results of Operations: An analysis of our results of operations as reflected in our
consolidated financial statements. |
||
| Liquidity and Capital Resources: An analysis of our cash flows, working capital, debt
structure, contractual obligations and other commercial commitments. |
| Europe, Middle East and Africa (EMEA), |
||
| Americas, and |
||
| Asia Pacific (APAC). |
| Continuous Improvement. We are focused on improving our operations worldwide. As we
continue to further integrate our recent acquisitions, we are constantly examining certain
synergies that can be utilized to optimize our processes and performance. We are also
controlling our selling, general and administrative expenses, especially in developed
markets. |
||
| Development of New Products. In each of our product families, we are dedicated to the
development of new, higher-margin products and applications that optimize the appearance,
performance, and processing of plastics to meet the most demanding requirements. We strive
to maintain a balanced position between low-cost production and technological leadership
with focused research and development. We are also committed to continuing our growth in
high value-added markets and reducing our exposure to commodity markets. |
- 18 -
| Purchasing and Pricing. We are seeking opportunities to continue our savings on
purchasing and to establish smart pricing strategies to align with our purchasing
strategies. We continue to leverage our global volume base to enhance savings and are
searching for alternate sourcing from the Middle East and Asia. |
||
| Volume Improvement. We remain focused on organic and geographic growth including
acquisitions to deliver steady volume improvement. |
1. | Increase in dividend. On October 14, 2011, the Company increased its regular quarterly
cash dividend by approximately 10% to $0.17 per common share from the prior quarters
dividend of $0.155 per common share, which represented an annual yield of approximately
3.5%. This reflects our confidence in strong cash generation and long-term growth
prospects, along with a continued commitment to our shareholders. |
||
2. | Share Repurchases. The Company repurchased approximately 1.2 million shares of its
common stock under the 2011 Repurchase Program in the first quarter of fiscal 2012 at an
average price of $17.60 per share for a total cost of approximately $21.4 million. |
||
3. | India Plant. The Company continues with the construction of its plant in India with
expected completion by the end of calendar year 2012. |
||
4. | Worldwide Production Expansion. To address increasing regional demand, the Company
strategically added new engineered plastics manufacturing lines in China and Mexico, a new
masterbatch line in Brazil and a new specialty powders line in Mexico. The Company plans to
invest approximately $7 million in its Akron, Ohio plant to add engineered plastics
compounding capabilities to the facility as part of the optimization of capacity in the
United States. |
||
5. | EMEA and Americas Restructuring. In November 2011,
the Company initiated a restructuring plan of
EMEAs operations and back-office functions to better leverage savings from its Shared
Service Center located in Belgium. Additionally, the Americas is continuing its closing procedures
at the Nashville, Tennessee facility and continues to optimize the use of existing capacity and capitalize on growth opportunities. |
Three months ended November 30, | ||||||||||||||||
2011 | 2010 | Increase (decrease) | ||||||||||||||
(In thousands, except for %s and per pound data) | ||||||||||||||||
Net sales |
$ | 352,891 | $ | 346,683 | $ | 6,208 | 1.8 | % | ||||||||
Segment gross profit |
$ | 44,238 | $ | 48,086 | $ | (3,848 | ) | (8.0 | %) | |||||||
Segment operating income |
$ | 19,235 | $ | 19,402 | $ | (167 | ) | (0.9 | %) | |||||||
Pounds sold |
286,297 | 316,481 | (30,184 | ) | (9.5 | %) | ||||||||||
Price per pound |
$ | 1.233 | $ | 1.095 | $ | 0.138 | 12.6 | % | ||||||||
Gross profit per pound |
$ | 0.155 | $ | 0.152 | $ | 0.003 | 2.0 | % | ||||||||
Gross profit percentage |
12.5 | % | 13.9 | % |
- 19 -
Three months ended November 30, | ||||||||||||||||
2011 | 2010 | Increase (decrease) | ||||||||||||||
(In thousands, except for %s and per pound data) | ||||||||||||||||
Net sales |
$ | 127,980 | $ | 115,120 | $ | 12,860 | 11.2 | % | ||||||||
Segment gross profit |
$ | 19,879 | $ | 16,474 | $ | 3,405 | 20.7 | % | ||||||||
Segment operating income |
$ | 6,111 | $ | 3,859 | $ | 2,252 | 58.4 | % | ||||||||
Pounds sold |
140,501 | 152,223 | (11,722 | ) | (7.7 | %) | ||||||||||
Price per pound |
$ | 0.911 | $ | 0.756 | $ | 0.155 | 20.5 | % | ||||||||
Gross profit per pound |
$ | 0.141 | $ | 0.108 | $ | 0.033 | 30.6 | % | ||||||||
Gross profit percentage |
15.5 | % | 14.3 | % |
- 20 -
Three months ended November 30, | ||||||||||||||||
2011 | 2010 | Increase (decrease) | ||||||||||||||
(In thousands, except for %s and per pound data) | ||||||||||||||||
Net sales |
$ | 36,418 | $ | 33,580 | $ | 2,838 | 8.5 | % | ||||||||
Segment gross profit |
$ | 5,379 | $ | 4,562 | $ | 817 | 17.9 | % | ||||||||
Segment operating income |
$ | 2,533 | $ | 1,808 | $ | 725 | 40.1 | % | ||||||||
Pounds sold |
29,484 | 33,897 | (4,413 | ) | (13.0 | %) | ||||||||||
Price per pound |
$ | 1.235 | $ | 0.991 | $ | 0.244 | 24.6 | % | ||||||||
Gross profit per pound |
$ | 0.182 | $ | 0.135 | $ | 0.047 | 34.8 | % | ||||||||
Gross profit percentage |
14.8 | % | 13.6 | % |
Three months ended November 30, | ||||||||||||||||
2011 | 2010 | Increase (decrease) | ||||||||||||||
(In thousands, except for %s and per pound data) | ||||||||||||||||
Net sales |
$ | 517,289 | $ | 495,383 | $ | 21,906 | 4.4 | % | ||||||||
Total segment gross profit |
$ | 69,496 | $ | 69,122 | $ | 374 | 0.5 | % | ||||||||
Total segment operating income |
$ | 27,879 | $ | 25,069 | $ | 2,810 | 11.2 | % | ||||||||
Pounds sold |
456,282 | 502,601 | (46,319 | ) | (9.2 | %) | ||||||||||
Price per pound |
$ | 1.134 | $ | 0.986 | $ | 0.148 | 15.0 | % | ||||||||
Gross profit per pound |
$ | 0.152 | $ | 0.138 | $ | 0.014 | 10.1 | % | ||||||||
Gross profit percentage |
13.4 | % | 14.0 | % |
- 21 -
Three months ended November 30, 2011 | Three months ended November 30, 2010 | |||||||||||||||||||||||
Packaging | Automotive | Other | Packaging | Automotive | Other | |||||||||||||||||||
EMEA |
36 | % | 11 | % | 53 | % | 32 | % | 9 | % | 59 | % | ||||||||||||
Americas |
21 | % | 19 | % | 60 | % | 19 | % | 20 | % | 61 | % | ||||||||||||
APAC |
47 | % | 0 | % | 53 | % | 43 | % | 0 | % | 57 | % | ||||||||||||
Worldwide |
33 | % | 12 | % | 55 | % | 30 | % | 11 | % | 59 | % |
- 22 -
Three months ended November 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Masterbatch |
$ | 210,268 | 41 | % | $ | 200,299 | 41 | % | ||||||||
Engineered plastics |
140,297 | 27 | 124,038 | 25 | ||||||||||||
Specialty powders |
84,599 | 16 | 90,076 | 18 | ||||||||||||
Distribution services |
82,125 | 16 | 80,970 | 16 | ||||||||||||
$ | 517,289 | 100 | % | $ | 495,383 | 100 | % | |||||||||
Three months ended | ||||||||
November 30, | ||||||||
2011 | 2010 | |||||||
EMEA |
83 | % | 80 | % | ||||
Americas |
63 | % | 63 | % | ||||
APAC |
86 | % | 88 | % | ||||
Worldwide |
74 | % | 74 | % |
- 23 -
- 24 -
Accrual Balance | Fiscal 2012 | Fiscal 2012 | Accrual Balance | |||||||||||||
August 31, 2011 | Charges | Paid | November 30, 2011 | |||||||||||||
(In thousands) | ||||||||||||||||
Employee-related costs |
$ | 3,322 | $ | 2,930 | $ | (533 | ) | $ | 5,719 | |||||||
Other costs |
403 | 314 | (302 | ) | 415 | |||||||||||
Translation effect |
70 | | | (107 | ) | |||||||||||
Restructuring charges |
$ | 3,795 | $ | 3,244 | $ | (835 | ) | $ | 6,027 | |||||||
Three months ended | Three months ended | |||||||||||||||
November 30, 2011 | November 30, 2010 | |||||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Statutory U.S. tax rate |
$ | 5,815 | 35.0 | % | $ | 4,828 | 35.0 | % | ||||||||
Amount of foreign taxes at less than U.S.
statutory tax rate |
(3,317 | ) | (20.0 | ) | (2,956 | ) | (21.4 | ) | ||||||||
U.S. and foreign losses with no tax benefit |
659 | 4.0 | 1,967 | 14.2 | ||||||||||||
U.S. restructuring and other U.S. unusual
charges with no benefit |
110 | 0.7 | 375 | 2.7 | ||||||||||||
Italian tax law change |
(747 | ) | (4.5 | ) | | | ||||||||||
Establishment (resolution) of uncertain tax
positions |
31 | 0.2 | 11 | 0.1 | ||||||||||||
Other |
100 | 0.6 | 193 | 1.4 | ||||||||||||
Total income tax expense (benefit) |
$ | 2,651 | 16.0 | % | $ | 4,418 | 32.0 | % | ||||||||
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Costs Related | Restructuring | Inventory Step- | Tax Benefits | Before Certain | ||||||||||||||||||||
As Reported | to Acquisitions | Related | up | (Charges) | Items | |||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||
Three months ended November 30, 2011 |
||||||||||||||||||||||||
Net sales |
$ | 517,289 | $ | | $ | | $ | | $ | | $ | 517,289 | ||||||||||||
Cost of sales |
447,793 | | | | | 447,793 | ||||||||||||||||||
Selling, general and administrative expenses |
47,415 | (218 | ) | | | | 47,197 | |||||||||||||||||
Restructuring expense |
3,244 | | (3,244 | ) | | | | |||||||||||||||||
Operating income |
18,837 | 218 | 3,244 | | | 22,299 | ||||||||||||||||||
Interest expense, net |
1,894 | | | | | 1,894 | ||||||||||||||||||
Foreign currency transaction (gains) losses |
499 | | | | | 499 | ||||||||||||||||||
Other (income) expense, net |
(170 | ) | | | | | (170 | ) | ||||||||||||||||
Income before taxes |
16,614 | 218 | 3,244 | | | 20,076 | ||||||||||||||||||
Provision
(benefit) for U.S. and foreign income taxes |
2,651 | 28 | 964 | | 747 | 4,390 | ||||||||||||||||||
Net income |
13,963 | 190 | 2,280 | | (747 | ) | 15,686 | |||||||||||||||||
Noncontrolling interests |
(381 | ) | | | | | (381 | ) | ||||||||||||||||
Net
income (loss) attributable to A. Schulman, Inc. |
$ | 13,582 | $ | 190 | $ | 2,280 | $ | | $ | (747 | ) | $ | 15,305 | |||||||||||
Diluted EPS |
$ | 0.46 | $ | 0.52 | ||||||||||||||||||||
Weighted-average number of shares
outstanding diluted |
29,514 | 29,514 |
Costs Related | Restructuring | Inventory Step- | Tax Benefits | Before Certain | ||||||||||||||||||||
As Reported | to Acquisitions | Related | up | (Charges) | Items | |||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||
Three months ended November 30, 2010 |
||||||||||||||||||||||||
Net sales |
$ | 495,383 | $ | | $ | | $ | | $ | | $ | 495,383 | ||||||||||||
Cost of sales |
426,382 | | | (121 | ) | | 426,261 | |||||||||||||||||
Selling, general and administrative expenses |
52,905 | (881 | ) | | | | 52,024 | |||||||||||||||||
Restructuring expense |
551 | | (551 | ) | | | | |||||||||||||||||
Operating income |
15,545 | 881 | 551 | 121 | | 17,098 | ||||||||||||||||||
Interest expense, net |
1,085 | | | | | 1,085 | ||||||||||||||||||
Foreign currency transaction (gains) losses |
670 | | | | | 670 | ||||||||||||||||||
Other (income) expense, net |
(4 | ) | | | | | (4 | ) | ||||||||||||||||
Income before taxes |
13,794 | 881 | 551 | 121 | | 15,347 | ||||||||||||||||||
Provision (benefit) for U.S. and foreign income taxes |
4,418 | | 113 | 43 | 65 | 4,639 | ||||||||||||||||||
Net income |
9,376 | 881 | 438 | 78 | (65 | ) | 10,708 | |||||||||||||||||
Noncontrolling interests |
(133 | ) | | | | | (133 | ) | ||||||||||||||||
Net income (loss) attributable to A. Schulman, Inc. |
$ | 9,243 | $ | 881 | $ | 438 | $ | 78 | $ | (65 | ) | $ | 10,575 | |||||||||||
Diluted EPS |
$ | 0.29 | $ | 0.34 | ||||||||||||||||||||
Weighted-average number of shares
outstanding diluted |
31,530 | 31,530 |
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November 30, 2011 | August 31, 2011 | November 30, 2010 | ||||||||||
Days in receivables |
54 | 54 | 56 | |||||||||
Days in inventory |
56 | 48 | 53 | |||||||||
Days in payables |
39 | 42 | 38 | |||||||||
Total working capital days |
71 | 60 | 71 |
November 30, 2011 | August 31, 2011 | $ Change | % Change | |||||||||||||
(In thousands, except for %s) | ||||||||||||||||
Cash and cash equivalents |
$ | 105,681 | $ | 155,753 | $ | (50,072 | ) | (32.1 | %) | |||||||
Working capital, excluding cash |
$ | 297,540 | $ | 273,964 | $ | 23,576 | 8.6 | % | ||||||||
Long-term debt |
$ | 192,484 | $ | 184,598 | $ | 7,886 | 4.3 | % | ||||||||
Total debt |
$ | 202,009 | $ | 196,148 | $ | 5,861 | 3.0 | % | ||||||||
Net debt* |
$ | 96,328 | $ | 40,395 | $ | 55,933 | 138.5 | % | ||||||||
Total A. Schulman, Inc.s
Stockholders equity |
$ | 506,754 | $ | 548,504 | $ | (41,750 | ) | (7.6 | %) |
* | Total debt less cash and cash equivalents |
- 27 -
| $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). 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 $67.5 million as of
November 30, 2011. |
November 30, 2011 | August 31, 2011 | |||||||
(In thousands) | ||||||||
Credit Facility |
$ | 300,000 | $ | 300,000 | ||||
Foreign uncollateralized short-term lines of credit |
57,037 | 65,436 | ||||||
Total gross available funds from credit lines and notes |
$ | 357,037 | $ | 365,436 | ||||
Credit Facility |
$ | 200,336 | $ | 213,121 | ||||
Foreign uncollateralized short-term lines of credit |
50,949 | 58,437 | ||||||
Total net available funds from credit lines and notes |
$ | 251,285 | $ | 271,558 | ||||
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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 or countries
where the Company has operations; |
||
| the effectiveness of the Companys efforts to improve operating margins through sales
growth, price increases, productivity gains, and improved purchasing techniques; |
||
| competitive factors, including intense price competition; |
||
| fluctuations in the value of currencies in major areas where the Company operates; |
||
| volatility of prices and availability of the supply of energy and raw materials that are
critical to the manufacture of the Companys products, particularly plastic resins derived
from oil and natural gas; |
||
| changes in customer demand and requirements; |
||
| effectiveness of the Company to achieve the level of cost savings, productivity
improvements, growth and other benefits anticipated from acquisitions and restructuring
initiatives; |
||
| escalation in the cost of providing employee health care; |
||
| uncertainties regarding the resolution of pending and future litigation and other
claims; |
||
| the performance of the global automotive market; and |
||
| further adverse changes in economic or industry conditions, including global supply and
demand conditions and prices for products. |
- 30 -
- 31 -
Dollar value of shares | Maximum dollar value 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 |
$ | 91,448,460 | ||||||||||||||
September 1-30, 2011 |
861,076 | $ | 17.65 | $ | 15,196,444 | $ | 76,252,016 | |||||||||
October 1-31, 2011 |
357,353 | $ | 17.50 | $ | 6,252,016 | $ | 70,000,000 | |||||||||
November 1-30, 2011 |
| $ | | $ | | $ | 70,000,000 | |||||||||
Total |
1,218,429 | $ | 17.60 | $ | 21,448,460 | $ | 70,000,000 | |||||||||
- 32 -
Exhibit Number | Exhibit | |||
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 the Company (incorporated by reference from
Exhibit 3.2 to the Companys Current Report on Form 8-K filed with the Commission
on June 27, 2011). |
|||
10.1 | A. Schulman, Inc. Executives and Directors Stock Ownership Guidelines Compliance
Program (incorporated by reference from Exhibit 99.1 to the Companys
Registration Statement on Form S-8 filed with the Commission on November 23,
2011). |
|||
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 Officer pursuant to
18 U.S.C. 1350. |
|||
*101.INS | XBRL Instance Document. |
|||
*101.SCH | XBRL Taxonomy Extension Schema Document. |
|||
*101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. |
|||
*101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
|||
*101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
* | In accordance with Rule 406T of Regulation S-T, the XBRL (Extensible Business
Reporting Language) information in these exhibits shall not be deemed to be
filed for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, or otherwise subject to liability under that section, and shall not be
incorporated by reference into any registration statement or other document filed
under the Securities Act of 1933, as amended, except as expressly set forth by
specific reference in such filing. |
- 33 -
/s/ Joseph J. Levanduski
Officer, 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) |
||
Date: January 5, 2012 |
- 34 -