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A. Schulman Reports Fiscal 2009 Second-Quarter Results; Excellent Liquidity Position Improves
-- Sales and earnings severely impacted by weak markets
-- Cash on hand exceeds
-- Cash flow from operations of
-- Dividend sustained at
Net sales for the fiscal second quarter, were
Reported net loss for the fiscal 2009 second quarter was
Reported net loss for the fiscal 2009 second quarter also included approximately
Reported net loss for the fiscal 2008 second quarter included after-tax charges of
"The demand slowdown we experienced in
Gingo continued, "In North America, our restructuring and cost-reduction actions were able to almost completely offset the gross profit decline, despite tonnage losses in excess of 45% in
As announced in the press releases of
"Our cash generation remained strong during the quarter," Gingo added. "Cash flow from operations for the six months ended
Year-to-date Results
Net sales for the fiscal 2009 first six months were
Reported net loss for the fiscal 2009 first half was
Reported net loss for the first six months of fiscal 2009 also included approximately
Reported net income for the fiscal 2008 first six months included after-tax charges of
Selling, General and Administrative (SG&A) Expense
Fiscal 2009 second-quarter SG&A expense was
Year-to-date SG&A expense was
Cash Flow From Operations
Cash flow from operations was
Days of inventory increased slightly to 52 days at
Sales in A. Schulman's
Gross profit for the fiscal 2009 second quarter was
Operating income for the fiscal 2009 second quarter was
Total
North America Masterbatch (NAMB, previously referred to as North America Polybatch or NAPB) reported sales of
North America Engineered Plastics (NAEP) reported sales of
North America Distribution Services reported sales of
Invision recorded operating losses of
Asian Operations
Reflecting the current downward trends in the global markets, sales for this segment were
Foreign Currency Transaction Gains
The Company experienced an incremental
Strategic Plan
In addition to managing its business to strengthen its position during the global economic downturn, A. Schulman has developed a long-term strategy to deliver superior shareholder value going forward. Key elements of this strategy include:
- Capitalizing on the Company's number-one position in its
Europe and Mexican Masterbatch businesses to become number-one globally; - Expanding the Company's strong U.S. position in Rotomolding compounding;
- Leveraging the Company's successful German Engineered Plastics business model globally to be the number-one niche player in Engineered Plastics;
- Using the Company's Distribution business to support Masterbatch, Rotomolding compounding and Engineered Plastics;
- Actively seeking a strategic partner for Invision's leading-edge technology.
Business Outlook
"The economic environment we are now experiencing is definitely the most severe I have seen over my 40 plus years in business," Gingo said. "Although, demand appears to have now stabilized, it is still far below the levels of a year ago. The actions we have taken will help us maintain a healthy liquidity position as we anticipate a slow but steady climb to appropriate levels of profitability."
Gingo added, "We will continue to move forward with our strategic plan and we strongly believe we can become the leading global player in both the masterbatch and rotomolding compounding markets. We are already number-one in masterbatch in
"We will continue to invest in new product development to address specific customer needs in all of our markets. At the same time, if the economy continues to deteriorate, we will use our cash position to support further restructuring as required to achieve profitable levels of performance. We reaffirm our commitment to the goal of delivering superior returns in any economic environment. Therefore, as announced earlier, and as part of that commitment, we expect to continue with our quarterly dividend distribution of
Conference Call on the Web
A live Internet broadcast of A. Schulman's conference call regarding fiscal 2009 second-quarter earnings can be accessed at
Use of Non-GAAP Financial Measures
This earnings release includes the use of both GAAP (generally accepted accounting principles) and non-GAAP financial measures. The non-GAAP financial measures are net income excluding unusual items and net income per diluted share excluding unusual items. The most directly comparable GAAP financial measures are net income and net income per diluted share. A table included in this news release reconciles each non-GAAP financial measure with the most directly comparable GAAP financial measure.
A. Schulman uses these financial measures to monitor and evaluate the ongoing performance of the Company and to allocate resources, and believes that the additional non-GAAP measures are useful to investors for financial analysis. In addition, the Company believes that providing this information is in the best interest of our investors so that they can accurately consider the non-GAAP financial information. However, non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures.
While management believes that these non-GAAP financial measures provide useful supplemental information to investors, there are limitations associated with the use of these measures. These non-GAAP financial measures are not prepared in accordance with GAAP, may not be reported by all of the Company's competitors and may not be directly comparable to similarly titled measures of the Company's competitors due to potential differences in the exact method of calculation. The Company compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.
The Company's non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.
About A. Schulman, Inc.
Headquartered in
Forward-Looking Statements
Certain statements in this release may constitute forward-looking statements within the meaning of the Federal securities laws. These statements can be identified by the fact that they do not relate strictly to historic or current facts. They use such words as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. These forward-looking statements are based on currently available information, but are subject to a variety of uncertainties, unknown risks and other factors concerning the Company's operations and business environment, which are difficult to predict and are beyond the control of the Company. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements, and that could adversely affect the Company's future financial performance, include, but are not limited to, the following:
- Worldwide and regional economic, business and political conditions, including continuing economic uncertainties in some or all of the Company's 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;
- The outcome of any legal claims known or unknown;
- The performance of the global auto market;
- The global financial market turbulence; and
- The global or regional economic slowdown or recession.
Additional risk factors that could affect the Company's performance are set forth in the Company's Annual Report on Form 10-K. In addition, risks and uncertainties not presently known to the Company or that it believes to be immaterial also may adversely affect the Company. Should any known or unknown risks or uncertainties develop into actual events, or underlying assumptions prove inaccurate, these developments could have material adverse effects on the Company's business, financial condition and results of operations.
This release contains time-sensitive information that reflects management's best analysis only as of the date of this release. A. Schulman does not undertake an obligation to publicly update or revise any forward-looking statements to reflect new events, information or circumstances, or otherwise. Further information concerning issues that could materially affect financial performance related to forward-looking statements can be found in A. Schulman's periodic filings with the Securities and Exchange Commission.
A. SCHULMAN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Three months ended Six months ended
February 28, February 29, February 28, February 29,
2009 2008 2009 2008
Unaudited Unaudited
Net sales $272,688 $479,811 $661,093 $976,385
Cost of sales 244,254 424,423 591,606 865,407
Selling, general
and administrative
expenses 37,589 46,398 72,503 85,707
Minority interest (308) 131 (150) 376
Interest expense 1,146 2,008 2,395 3,619
Interest income (582) (421) (1,431) (903)
Foreign currency
transaction (gains)
losses (1,342) 463 (8,648) 597
Other (income)
expense (790) (334) (1,012) (2)
Curtailment gain (2,609) - (2,609) -
Goodwill
impairment - 964 - 964
Asset impairment 2,179 5,219 2,179 5,219
Restructuring expense 4,648 2,616 5,249 2,622
284,185 481,467 660,082 963,606
Income (loss)
before taxes (11,497) (1,656) 1,011 12,779
Provision for U.S.
and foreign income
taxes (982) 2,118 3,353 6,530
Net income (loss) $(10,515) $(3,774) $(2,342) $6,249
Less: Preferred
stock dividends (13) (13) (26) (26)
Net income (loss)
applicable to
common stock $(10,528) $(3,787) $(2,368) $6,223
Weighted average
number of shares
outstanding:
Basic 25,753 27,223 25,781 27,372
Diluted 25,753 27,223 25,781 27,618
Earnings (losses) per
share of common stock:
Basic $(0.41) $(0.13) $(0.09) $0.23
Diluted $(0.41) $(0.13) $(0.09) $0.23
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEETS
February 28, August 31,
2009 2008
Unaudited
(In thousands except
ASSETS share data)
Current assets:
Cash and cash equivalents $141,254 $97,728
Accounts receivable, less allowance for
doubtful accounts of $8,758 at February
28, 2009 and $8,316 at August 31, 2008 195,575 320,926
Inventories, average cost or
market, whichever is lower 134,555 224,964
Prepaid expenses and other current assets 15,193 18,499
Total current assets 486,577 662,117
Other assets:
Cash surrender value of life insurance 3,074 2,665
Deferred charges and other assets 19,004 23,017
Goodwill 9,777 10,679
Intangible assets 136 195
31,991 36,556
Property, plant and equipment, at cost:
Land and improvements 15,022 17,026
Buildings and leasehold improvements 137,081 156,465
Machinery and equipment 320,864 346,999
Furniture and fixtures 35,579 41,272
Construction in progress 6,606 9,726
515,152 571,488
Accumulated depreciation and investment
grants of $956 at February 28, 2009 and
$1,123 at August 31, 2008 341,843 379,740
Net property, plant and equipment 173,309 191,748
$691,877 $890,421
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $2,529 $9,540
Accounts payable 100,397 174,226
U.S. and foreign income taxes payable 5,946 3,212
Accrued payrolls, taxes and related benefits 25,582 37,686
Other accrued liabilities 31,628 34,566
Total current liabilities 166,082 259,230
Long-term debt 93,993 104,298
Other long-term liabilities 77,301 88,235
Deferred income taxes 4,651 5,544
Minority interest 5,383 5,533
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, 5% cumulative, $100 par
value, authorized, issued and outstanding
- 10,564 shares at February 28, 2009 and
August 31, 2008 1,057 1,057
Special stock, 1,000,000 shares
authorized, none outstanding - -
Common stock, $1 par value, authorized -
75,000,000 shares, issued - 42,279,444 shares
at February 28, 2009 and 42,231,341 shares at
August 31, 2008 42,279 42,231
Other capital 113,637 112,105
Accumulated other comprehensive income 7,096 79,903
Retained earnings 503,210 513,451
Treasury stock, at cost, 16,207,011
shares at February 28, 2009 and
16,095,491 shares at August 31, 2008 (322,812) (321,166)
Common stockholders' equity 343,410 426,524
Total stockholders' equity 344,467 427,581
$691,877 $890,421
A. SCHULMAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
February 28, February 29,
2009 2008
Unaudited
(In thousands)
Provided from (used in) operating activities:
Net income (loss) $(2,342) $6,249
Adjustments to reconcile net income to net cash
provided from (used in) operating activities:
Depreciation and amortization 11,818 14,040
Deferred tax provision 143 (1,263)
Pension and other deferred compensation (228) 5,247
Postretirement benefit obligation 68 569
Net gains on asset sales 176 9
Minority interest in net income (loss) of
subsidiaries (150) 376
Restructuring charges, including $474 and $0
of accelerated depreciation in fiscal 2009
and 2008, respectively 5,723 2,622
Curtailment gain (2,609) -
Goodwill impairment - 964
Asset impairment 2,179 5,219
Changes in assets and liabilities:
Accounts receivable 77,545 (10,681)
Inventories 63,002 (10,947)
Accounts payable (52,518) (2,972)
Restructuring payments (3,097) (80)
Income taxes 4,796 (5,733)
Accrued payrolls and other accrued liabilities (8,429) 967
Changes in other assets and other long-term
liabilities (1,344) 883
Net cash provided from operating activities 94,733 5,469
Provided from (used in) investing activities:
Expenditures for property, plant and equipment (17,051) (13,187)
Proceeds from the sale of assets 349 465
Net cash used in investing activities (16,702) (12,722)
Provided from (used in) financing activities:
Cash dividends paid (7,899) (8,123)
Increase (decrease) in notes payable (7,208) (554)
Borrowings on revolving credit facilities 19,000 81,502
Repayments on revolving credit facilities (19,000) (52,569)
Cash distributions to minority shareholders - (300)
Common stock issued 12 1,083
Purchases of treasury stock (1,646) (13,284)
Net cash provided from (used in) financing
activities (16,741) 7,755
Effect of exchange rate changes on cash (17,764) 1,103
Net increase (decrease) in cash and cash
equivalents 43,526 1,605
Cash and cash equivalents at beginning of period 97,728 43,045
Cash and cash equivalents at end of period $141,254 $44,650
A. SCHULMAN, INC.
SUPPLEMENTAL SEGMENT INFORMATION
Three months ended
February 28, 2009 February 29, 2008
Unaudited
(In thousands, except for %)
Net Sales to Unaffiliated Customers
Europe $198,646 $353,118
NAMB 23,245 31,901
NAEP 25,379 53,544
NADS 16,384 29,208
Asia 8,994 11,917
Invision 40 123
Total Net Sales to Unaffiliated
Customers $272,688 $479,811
Segment Gross Profit
Europe $26,552 $47,109
NAMB 230 4,080
NAEP 572 2,229
NADS 1,300 1,810
Asia 619 1,363
Invision (839) (1,203)
Total Segment Gross Profit $28,434 $55,388
Segment Operating Income (Loss)
Europe $4,795 $23,503
NAMB (835) 2,386
NAEP (3,240) (3,053)
NADS 15 596
Asia (153) 378
Invision (980) (1,809)
All other North America (2,699) (4,348)
Total Segment Operating Income
(Loss) $(3,097) $17,653
Corporate and other (5,750) (8,794)
Interest expense, net (564) (1,587)
Foreign currency transaction gains (losses) 1,342 (463)
Other income (expense) 790 334
Curtailment gain 2,609 -
Goodwill impairment - (964)
Asset impairment (2,179) (5,219)
Restructuring expense (4,648) (2,616)
Income (Loss) Before Taxes $(11,497) $(1,656)
Capacity Utilization
Europe 65% 87%
NAMB 49% 99%
NAEP 45% 67%
Asia 44% 67%
Worldwide 59% 81%
Six months ended
February 28, 2009 February 29, 2008
----------------- -----------------
Unaudited
---------
(In thousands, except for %)
Net Sales to Unaffiliated Customers
Europe $479,492 $710,384
NAMB 51,290 66,876
NAEP 69,646 112,656
NADS 42,355 63,602
Asia 18,181 22,656
Invision 129 211
Total Net Sales to Unaffiliated
Customers $661,093 $976,385
Segment Gross Profit
Europe $60,950 $92,422
NAMB 2,520 7,689
NAEP 3,328 7,270
NADS 3,145 4,223
Asia 1,332 2,140
Invision (1,788) (2,766)
Total Segment Gross Profit $69,487 $110,978
Segment Operating Income (Loss)
Europe $18,827 $46,292
NAMB (143) 4,305
NAEP (4,180) (3,534)
NADS 938 1,987
Asia (443) 167
Invision (2,047) (3,694)
All other North America (5,708) (8,452)
Total Segment Operating Income
(Loss) $7,244 $37,071
Corporate and other (10,110) (12,176)
Interest expense, net (964) (2,716)
Foreign currency transaction gains (losses) 8,648 (597)
Other income (expense) 1,012 2
Curtailment gain 2,609 -
Goodwill impairment - (964)
Asset impairment (2,179) (5,219)
Restructuring expense (5,249) (2,622)
Income (Loss) Before Taxes $1,011 $12,779
Capacity Utilization
Europe 69% 95%
NAMB 66% 106%
NAEP 66% 75%
Asia 44% 64%
Worldwide 67% 88%
A. Schulman, Inc.
Reconciliation of Non-GAAP Financial Measures
Net Income (Loss) and Earnings (Losses) Per Share Reconciliation
Three months ended Three months ended
February 28, 2009 February 29, 2008
Unaudited
(In thousands except per share data)
Diluted EPS Diluted EPS
Income (loss) Impact Income (loss) Impact
Net income (loss)
applicable
to common stock $(10,528) $(0.41) $(3,787) $(0.13)
Adjustments, net of
tax, per diluted
share:
Restructuring
expense 4,070 0.16 2,025 0.07
Accelerated
Depreciation,
included in
cost of sales 474 0.02 - -
Asset impairment 1,863 0.07 4,370 0.16
Curtailment Gain (2,609) (0.10) - -
Goodwill impairment - - 964 0.04
Termination of lease
for an airplane - - 640 0.02
CEO transition
costs - - 3,582 0.13
Other employee
termination costs - - 132 -
Net income (loss)
applicable to common
stock before unusual
items $(6,730) $(0.26) $7,926 $0.29
Weighted-average
number of shares
outstanding -Diluted 25,753 27,223
Six months ended Six months ended
February 28, 2009 February 29, 2008
Diluted EPS Diluted EPS
Income (loss) Impact Income (loss) Impact
Unaudited
(In thousands except per share data)
Net income (loss)
applicable
to common stock $(2,368) $(0.09) $6,223 $0.23
Adjustments, net of tax,
per diluted share:
Restructuring expense 4,505 0.17 2,031 0.07
Accelerated
Depreciation,
included in
cost of sales 474 0.02 - -
Asset impairment 1,863 0.07 4,370 0.16
Curtailment Gain (2,609) (0.10) - -
Goodwill impairment - - 964 0.03
Termination of lease
for an airplane - - 640 0.02
CEO transition
costs - - 3,582 0.13
Other employee
termination costs 101 - 806 0.03
Insurance claim
settlement
adjustment - - 368 0.01
Net income (loss)
applicable to common
stock before unusual
items $1,966 $0.07 $18,984 $0.68
Weighted-average number
of shares outstanding
-Diluted 25,781 27,618
SOURCE A. Schulman, Inc.