SHLM A. Schulman, Inc. (delisted)

AKRON, Ohio, July 6, 2015 /PRNewswire/ -- A. Schulman, Inc. (Nasdaq: SHLM) announced today earnings for the fiscal 2015 third quarter ended May 31, 2015.

Bernard Rzepka, president and chief executive officer, said, "I am excited to report another quarter of improved operating profitability at A. Schulman, a clear sign that our strategic initiatives to transform our Company into a specialty plastics materials leader are bearing fruit. In 2010 we set a challenging target of 6.2 cents of operating profit per pound by the end of fiscal 2015 to reflect our commitment to this transformational process. In the third quarter we achieved adjusted operating profit per pound of 6 cents, and if we held the Euro to USD currency rate at the same level that was in place when the target was established this metric would have been 7 cents. We continue to overcome the slow growth and foreign exchange environment by controlling what we can control and by focusing on our strategic initiatives, and as a result we were able to sequentially boost our gross margins across nearly every segment to deliver near record results. The steady performance improvement that we've accomplished this year, despite the many external challenges, gives us considerable confidence that our dedicated team will execute our strategy, deliver further profitable growth, and achieve our long term earnings goals.

"We are excited to have completed the acquisition of Citadel on June 1, and welcome their 1,200 talented associates to the A. Schulman team. This strategic acquisition greatly enhances our product scope, regional scale and efficiencies, and provides balance to our geographic footprint. With Citadel on board we are focused on leveraging the strength of the combined business, and expanding our growth potential," added Rzepka.

Joseph Levanduski, executive vice president & chief financial officer, said, "We have put in place a new capital structure that provides flexibility, while taking advantage of the favorable conditions that currently exist in the financial markets. This structure puts us in a leverage environment that will be higher than we have experienced in the recent past, but we are confident in our ability to de-lever in a prudent and timely fashion. By combining two organizations that generate strong cash flow from operations, while driving synergies and executing our Smart Savings program, we will not only be able to de-lever to our stated goal of 2.5x net leverage within a reasonable period of time, but we will also be able to support our strategic and organic growth initiatives."

Fiscal Third-Quarter Results
Consolidated net sales for the fiscal 2015 third quarter were $560.9 million, compared with $645.7 million in the same prior-year quarter. Of the $84.8 million change, foreign currency translation accounted for $91.4 million of the decrease. Net sales from plants acquired in 2014, which includes A. Schulman's legacy volume consolidated during the integration process, contributed $33.9 million of revenue during the quarter. Adjusted gross margin in the third quarter as a percent of net sales improved to 16.2% compared with 14.3% in the prior-year period.

The Company reported a net loss from continuing operations of $0.34 per diluted share. On an adjusted basis, excluding financing, restructuring and acquisitions-related costs, the Company generated net income of $0.72 per diluted share.

Europe, Middle East and Africa ('EMEA") net sales were $326.3 million compared with $413.8 million in the same prior-year period. Excluding the unfavorable impact of foreign currency translation of $79.7 million, net sales declined by 1.9%, primarily due to lower volumes in the engineered plastics and distribution services product families, partially offset by double digit volume growth in the masterbatch solutions product family. EMEA adjusted gross profit was $51.7 million. Excluding the negative impact of foreign currency translation of $11.3 million, adjusted gross profit increased by $6.2 million, or 10.9%, primarily due to improved product mix as well as the incremental contribution of the Specialty Plastics acquisition.

Net sales for the U.S. and Canada ("USCAN") were $137.1 million, an increase of 4.1% in the third quarter compared with the same prior-year period. The incremental net sales were partially offset by lower net sales of $11.6 million in the specialty powders product family as a result of weaker oilfield services demand. The Specialty Plastics acquisition contributed $19.6 million of net sales growth during the quarter. USCAN adjusted gross profit was $22.1 million, a decrease of $1.7 million from the same prior-year period. The benefits of the recent Specialty Plastics acquisition and related integration were more than offset by unfavorable product mix.

Latin America's ("LATAM") net sales for the quarter were $44.8 million, a decrease of $4.9 million compared with the same prior-year period. Excluding the unfavorable impact of foreign currency translation of $8.5 million, net sales increased 7.2%. LATAM adjusted gross profit was $9.3 million, an increase of $4.9 million or 108.5% from the comparable period last year primarily due to the benefits of improved product mix and operating cost.

Asia Pacific ("APAC") net sales were $52.7 million, an increase of $2.2 million or 4.3% compared with the same prior-year period. Incremental sales from the 2014 Compco acquisition were offset by the negative impact from foreign currency translation. APAC adjusted gross profit was $7.8 million, an increase of $0.7 million compared with the prior-year period. Gross profit benefited from the positive contribution of the Compco acquisition and increased organic volume.

Working Capital/Cash Flow
Cash provided from operations was $56.3 million in the nine months ended May 31, 2015, an improvement of $21.2 million or 60.6% over the comparable prior year period. Working capital days decreased by one day to 59 days in the third quarter of fiscal 2015 versus the comparable period in the prior year, and representing an 8-day improvement from the end of the second quarter of fiscal 2015.

Capital expenditures for the nine months ended May 31, 2015 were $32.7 million compared with $24.1 million last year. These expenditures were primarily related to strategic investments in the Company's global manufacturing facilities and technical innovation and collaboration centers focused on organic growth and new product development. During the nine months ended May 31, 2015, the Company declared and paid quarterly cash dividends of $18.1 million, or $0.615 per common share consistent with its ongoing strategy of providing an attractive yield to shareholders in addition to share price appreciation.

Year-to-Date Results
Net sales for the nine months ended May 31, 2015 were $1.7 billion, compared with $1.8 billion for the same prior-year period. Of the $101.4 million decrease in net sales, foreign currency translation accounted for $177.3 million of this change. Acquisitions contributed $130.0 million in net sales during the nine month period.

Operating income was $49.7 million, a decrease of $9.4 million compared with the same prior-year period. Total operating income before certain items was $79.8 million, an increase of $7.6 million or 10.6% compared with last year. Excluding the negative impact of foreign currency translation, total operating income before certain items increased 23.5% versus the comparable period. The growth in total operating income before certain items included the contribution from recent acquisitions of $12.4 million and the strategic focus on improving operating profit per pound, partially offset by the negative impact of foreign currency translation of $9.3 million.

Citadel and Refinancing Actions
On June 1, 2015, A. Schulman completed the previously announced acquisition of HGGC Citadel Plastics Holdings, Inc. for approximately $800 million. The Company anticipates the transaction will be accretive in the first 12 months of ownership and expects to realize approximately $25 million in synergies within the next 18 months. The Company financed the acquisition, with a component of this financing occurring in the third quarter in anticipation of the June 1 close. The third quarter of fiscal 2015 included interest expense of approximately $0.4 million or a $0.01 per diluted share impact resulting from the issuance of $375 million of Senior Notes. The cash raised during the third quarter from the Senior Notes is reflected as restricted cash on the Company's balance sheet as of May 31, 2015.

Additionally, the Company elected to restructure its capital structure in tandem with this acquisition financing.  As a component of this action, on May 4, 2015, the Company issued $125 million of convertible special stock bearing a 6% dividend rate. Earnings per diluted share for the third quarter of fiscal 2015 included $0.6 million of dividends or approximately $0.02 per diluted share impact related to the convertible special stock.

Business Outlook
Rzepka stated, "Our fiscal 2015 adjusted net income guidance previously provided of $2.50 to $2.55 per diluted share represented significant growth over our fiscal 2014 results, excluding any impact from the then pending acquisition of Citadel. While the Citadel acquisition has occurred, and related financing actions taken, it is important to take note that the previous guidance range is achievable excluding the dilution expected in our fourth quarter related to these strategic long-term actions.

"We believe that the fiscal 2015 dilution related to the Citadel acquisition, including the $0.01 per diluted share negative impact on our third quarter results, will be approximately $0.05 per diluted share. Additionally, the dividend on the convertible special stock will impact the calculation of diluted earnings per share by approximately $0.08 per share in fiscal 2015, including the $0.02 impact on our third quarter results," he noted.

"The combination of our previous guidance, updated for the fiscal 2015 dilution from the Citadel acquisition and convertible special stock dividend results in our adjusted guidance range of $2.37 to $2.42 per diluted share.

"Our team is committed to profitable growth and achieving our fiscal 2018 targets. As we integrate Citadel, and meet or exceed our $25 million synergy target, we are confident that the accretive nature of this acquisition, combined with our operating income growth, will provide a significant return to our shareholders. We look forward to reporting our fiscal 2015 results, and providing fiscal 2016 earnings guidance, at the end of October. We are focused and committed to achieving our long-term strategic goals," Rzepka added.

Conference Call on the Web
A live Internet broadcast of A. Schulman's conference call regarding fiscal 2015 third-quarter earnings can be accessed at 10:00 a.m. Eastern Time on Tuesday, July 7, 2015, on the Company's website, www.aschulman.com. An archived replay of the call will also be available on the website.

Investor Presentation Materials
Senior executives of the Company may participate in meetings with analysts and investors throughout the fiscal year. The Company has posted presentation materials, portions of which may be used during such meetings, in the Investors section of its website at www.aschulman.com. The presentation will remain on the website as long as it is in use.

About A. Schulman, Inc.
A. Schulman, Inc. is a leading international supplier of high-performance plastic compounds and resins headquartered in Akron, Ohio. Since 1928, the Company has been providing innovative solutions to meet its customers' demanding requirements. The Company's customers span a wide range of markets such as packaging, mobility, building & construction, electronics & electrical, agriculture, personal care & hygiene, sports, leisure & home, custom services and others. The Company employs approximately 5,000 people and has 60 manufacturing facilities globally. A. Schulman reported net sales of approximately $2.5 billion for the fiscal year ended August 31, 2014. Additional information about A. Schulman can be found at www.aschulman.com.

Use of Non-GAAP Financial Measures
This release includes certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States ("GAAP"). These non-GAAP financial measures include segment gross profit, SG&A expenses excluding certain items, segment operating income, operating income before certain items, net income excluding certain items, net income per diluted share excluding certain items and adjusted EBITDA, as discussed further in the Reconciliation of GAAP and Non-GAAP Financial Measures below. These non-GAAP financial measures are considered relevant to aid analysis and understanding of the Company's results and business trends. However, non-GAAP measures are not in accordance with, nor are they a substitute for, GAAP measures, and tables included in this release reconcile each non-GAAP financial measure with the most directly comparable GAAP financial measure. The most directly comparable GAAP financial measures for these purposes are gross profit, SG&A expenses, operating income, net income and net income per diluted share. 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.

While the Company believes that these non-GAAP financial measures provide useful supplemental information to investors, there are very significant limitations associated with their use. 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.

Cautionary Statements
A number of the matters discussed in this document that are not historical or current facts deal with potential future circumstances and developments and may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historic or current facts and relate to future events and expectations. Forward-looking statements contain 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. Forward-looking statements are based on management's current expectations and include known and unknown risks, uncertainties and other factors, many of which management is unable to predict or control, that may cause actual results, performance or achievements to differ materially from those expressed or implied in the forward-looking statements. 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 or countries where the Company has operations;
• the effectiveness of the Company's 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 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 Company's 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, joint ventures and restructuring initiatives;
• escalation in the cost of providing employee health care and retirement benefits;
• uncertainties regarding the resolution of pending and future litigation and other claims;
• the performance of the global automotive market as well as other markets served;
• further adverse changes in economic or industry conditions, including global supply and demand conditions and prices for products;
• operating problems with our information systems as a result of system security failures such as viruses, cyber-attacks or other causes;
• the impact of the indebtedness incurred to finance the transaction;
• integration of the business of Citadel with our existing business, including the risk that the integration will be more costly or more time consuming and complex than anticipated;
• our ability to achieve the anticipated synergies, cost savings and other benefits from the acquisition of Citadel;
• transaction and acquisition-related costs incurred in connection with the acquisition of Citadel and related transactions; and
• substantial time devoted by management to the integration of the Citadel acquisition.

The risks and uncertainties identified above are not the only risks the Company faces. Additional risk factors that could affect the Company's performance are set forth in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company's Current Report on Form 8-K filed on April 27, 2015. 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.

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