A. Schulman, Inc. (Nasdaq:SHLM) today announced its financial
results for the fiscal 2018 second quarter ended February 28, 2018.
The Company reported quarterly net income available to common
stockholders of $3.5 million, or $0.12 per diluted share. Last year
the Company reported second quarter comparable net income of $3.2
million, or $0.11 per diluted share.
Consolidated net sales for the three months ended February 28,
2018 were $650.1 million, a 14.3% increase compared with $568.7
million for the prior period. Excluding the favorable impact of
foreign currency of $43.1 million, net sales increased by 6.7% with
positive contributions from all segments primarily due to improved
mix and efforts to offset increased raw material prices.
Working Capital/Cash Flow
Net cash used in operations was $12.6 million for the six months
ended February 28, 2018, compared to a source of $40.1 million for
the six months ended February 28, 2017. Working capital days were
54 at the end of the second quarter compared with 45 days at the
end of fiscal 2017, driven by inventory build, higher raw material
prices, and the impact of foreign currency translation.
Capital expenditures for the six months ended February 28, 2018
were $13.1 million compared with $24.5 million in the prior year
period. Additionally, the Company declared and paid quarterly cash
dividends to common stockholders of $6.0 million, or $0.205 per
common share, and also paid quarterly dividends of $1.9 million to
holders of the convertible special stock. Total debt rose by $33
million since the end of fiscal 2017.
Income Taxes
As a result of U.S. Tax Reform, the Company will be subject to a
U.S. federal statutory tax rate of 25.7% for its fiscal year ending
August 31, 2018, which reflects a blended federal statutory rate of
35% for its first four months and 21% for the remaining eight
months.
For the quarter, the Company's effective tax rate was
significantly lower than the blended U.S. federal statutory rate of
25.7% primarily due to the discrete impacts of U.S. Tax Reform. In
the second quarter of fiscal 2018, as a result of U.S. Tax Reform,
the Company recorded a discrete non-cash tax benefit of $6.8
million due to the remeasurement of U.S deferred tax assets and
liabilities.
In addition, the Company analyzed the impact of the one-time
transition tax on deemed repatriated earnings of certain non-U.S.
subsidiaries, which should be fully offset by foreign tax credits
carried forward from prior years and the related release of
valuation allowance previously recorded against those credits.
Additional detail is available in the Form 10-Q for the quarterly
period ended February 28, 2018.
Pending Merger
On February 15, 2018, LyondellBasell (NYSE:LYB), and A.
Schulman, Inc. announced that they have entered into a definitive
agreement under which LyondellBasell will purchase 100 percent of
A. Schulman common stock for (i) $42.00 per share in cash, without
interest and subject to any applicable withholding taxes (the
"Per-Share Amount"), and (ii) one contractual contingent value
right per share without interest and less applicable withholding
taxes (a "CVR"), which will represent the right to receive certain
net proceeds, if any, resulting from the Lucent matter (in each
case subject to the terms and conditions of the CVR agreement to be
entered into in accordance with the Merger Agreement). There is no
guaranty that any payment will be received with respect to the
contingent value rights. The proposed acquisition, which has been
unanimously approved by the respective boards of LyondellBasell and
A. Schulman, is subject to customary closing conditions, including
regulatory approvals and approval by A. Schulman stockholders. The
acquisition is expected to close in the second half of calendar
year 2018.
Additional Information
In light of the pending merger, the Company has suspended its
fiscal 2018 guidance. The Company will not host an investor
conference call this quarter. For additional information, including
the recently-filed Form 10-Q, please refer to the Company’s
website, www.aschulman.com.
About A. Schulman
A. Schulman, Inc. is a leading international supplier of
high-performance plastic compounds, composites 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 5,200 people and has 54
manufacturing facilities globally. A. Schulman reported net sales
of approximately $2.5 billion for the fiscal year ended August 31,
2017. Additional information about A. Schulman can be found at
www.aschulman.com.
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,” “forecast,”
“foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,”
“will,” “could,” “predict,” “continue,” 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;
- risks and uncertainties posed by international operations,
including foreign currency fluctuations;
- the business cyclicality of the chemical, polymers and refining
industries;
- 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;
- the supply/demand balances for our and our joint ventures’
products, and the related effects of industry production capacities
and operating rates;
- effectiveness of the Company to achieve the level of cost
savings, productivity improvements, growth and other benefits
anticipated from acquisitions and the integration thereof, joint
ventures and restructuring initiatives;
- labor conditions;
- our ability to attract and retain key personnel;
- escalation in the cost of providing employee health care;
- uncertainties and unanticipated developments regarding
contingencies, such as pending and future litigation and other
claims, including legal and environmental proceedings, potential
governmental regulatory actions, tax rulings and developments that
would require increases in our costs and/or reserves for such
contingencies;
- 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;
- operating interruptions (including leaks, explosions, fires,
weather-related incidents, mechanical failure, unscheduled
downtime, supplier disruptions, labor shortages, strikes, work
stoppages or other labor difficulties, transportation
interruptions, spills and releases and other environmental
risks);
- our current debt position could adversely affect our financial
health and prevent us from fulfilling our financial
obligations;
- failure of counterparties to perform under the terms and
conditions of contractual arrangements, including suppliers,
customers, buyers and sellers of a business and other third parties
with which the Company contracts; and
- the announcement and pendency of the LyondellBasell merger,
including risks arising from the effect thereof on our business
relationships (including employees, customers and suppliers),
operating results, business generally, and the diversion of
management’s attention from our ongoing business operations, risks
of failing to consummate the merger in a timely manner, if at all,
and risks related to obtaining the requisite consents to the merger
could have an adverse effect on our business.
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, 2017.
These risks, as well as other risks associated with the proposed
merger, are more fully discussed in the preliminary proxy
statement, dated March 26, 2018, that the Company filed with the
Securities and Exchange Commission (the “SEC”) in connection with
the proposed transaction. The list of factors presented here is,
and the list of factors presented in the preliminary proxy
statement should not be considered to be a complete statement of
all potential risks and uncertainties. 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. The
Company is under no obligation, and expressly disclaims any
obligation, to update, alter, or otherwise revise any
forward-looking statements, whether written or oral, that may be
made from time to time, whether as a result of new information,
future events or otherwise. Persons reading this communication are
cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof.
Additional Information and Where to Find It
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval. This communication may be deemed to be
solicitation material in respect of the proposed merger between
LyondellBasell and A. Schulman. In connection with the proposed
transaction, A. Schulman has filed a preliminary proxy statement on
Schedule 14A with the SEC. STOCKHOLDERS ARE URGED TO READ
THE PRELIMINARY PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR
SUPPLEMENTS THERETO ANY DOCUMENTS INCORPORATED BY REFERENCE
THEREIN) AND OTHER RELEVANT DOCUMENTS FILED
OR TO BE FILED WITH THE SEC (INCLUDING THE DEFINITIVE PROXY
STATEMENT) WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION AND THE
PARTIES TO THE TRANSACTION. Stockholders and investors
will be able to obtain free copies of these documents at the SEC’s
web site at www.sec.gov. Copies of the definitive proxy statement
(when they become available) and the filings that will be
incorporated by reference therein may also be obtained, without
charge, from A. Schulman’s website, www.aschulman.com, under the
heading “Investors”, or by contacting A. Schulman’s Investor
Relations at 330-668-7346 or jennifer.beeman@aschulman.com.
Participants in the Solicitation
LyondellBasell, A. Schulman, their directors, executive officers
and certain employees may be deemed, under SEC rules, to be
participants in the solicitation of proxies in respect of the
proposed merger. Information regarding LyondellBasell’s directors
and executive officers is available in its proxy statement filed
with the SEC on April 6, 2017. Information regarding A. Schulman’s
directors and executive officers is available in its proxy
statement filed with the SEC on October 27, 2017. Other information
regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security
holdings or otherwise, is contained in the preliminary proxy
statement and other relevant materials filed with the SEC in
connection with the proposed merger. These documents can be
obtained free of charge from the sources indicated above.
SHLM_ALL
Contact
Jennifer K. BeemanVice President, Corporate Communications &
Investor RelationsA. Schulman, Inc. 3637 Ridgewood Road Fairlawn,
Ohio 44333 Tel: 330-668-7346Email: Jennifer.Beeman@aschulman.com
www.aschulman.com
A. SCHULMAN, INC. |
CONSOLIDATED STATEMENTS OF
OPERATIONS |
(Unaudited) |
|
|
Three months ended February 28, |
|
Six months ended February 28, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
Net
sales |
$ |
650,098 |
|
|
$ |
568,678 |
|
|
$ |
1,324,721 |
|
|
$ |
1,168,678 |
|
Cost of sales |
558,403 |
|
|
479,492 |
|
|
1,127,941 |
|
|
978,477 |
|
Selling, general and
administrative expenses |
78,356 |
|
|
65,967 |
|
|
153,483 |
|
|
138,342 |
|
Restructuring
expense |
124 |
|
|
1,878 |
|
|
591 |
|
|
11,422 |
|
(Gain) loss on sale of
assets |
— |
|
|
— |
|
|
(3,077 |
) |
|
— |
|
Operating income (loss) |
13,215 |
|
|
21,341 |
|
|
45,783 |
|
|
40,437 |
|
Interest expense |
13,435 |
|
|
13,107 |
|
|
26,876 |
|
|
26,271 |
|
Foreign currency
transaction (gains) losses |
483 |
|
|
1,081 |
|
|
1,270 |
|
|
1,643 |
|
Other (income) expense,
net |
(849 |
) |
|
674 |
|
|
(1,746 |
) |
|
(459 |
) |
Income (loss) before taxes |
146 |
|
|
6,479 |
|
|
19,383 |
|
|
12,982 |
|
Provision (benefit) for
U.S. and foreign income taxes |
(5,530 |
) |
|
1,143 |
|
|
(1,373 |
) |
|
4,462 |
|
Net income (loss) |
5,676 |
|
|
5,336 |
|
|
20,756 |
|
|
8,520 |
|
Noncontrolling
interests |
(289 |
) |
|
(306 |
) |
|
(654 |
) |
|
(547 |
) |
Net income (loss) attributable to A. Schulman,
Inc. |
5,387 |
|
|
5,030 |
|
|
20,102 |
|
|
7,973 |
|
Convertible special
stock dividends |
1,875 |
|
|
1,875 |
|
|
3,750 |
|
|
3,750 |
|
Net income (loss) available to A. Schulman, Inc. common
stockholders |
$ |
3,512 |
|
|
$ |
3,155 |
|
|
$ |
16,352 |
|
|
$ |
4,223 |
|
|
|
|
|
|
|
|
|
Weighted-average number of shares
outstanding: |
|
|
|
|
|
|
|
Basic |
29,487 |
|
|
29,394 |
|
|
29,473 |
|
|
29,378 |
|
Diluted |
29,661 |
|
|
29,503 |
|
|
29,657 |
|
|
29,470 |
|
|
|
|
|
|
|
|
|
Net income
(loss) per common share available to A. Schulman, Inc. common
stockholders |
|
|
|
|
|
|
|
Basic |
$ |
0.12 |
|
|
$ |
0.11 |
|
|
$ |
0.55 |
|
|
$ |
0.14 |
|
Diluted |
$ |
0.12 |
|
|
$ |
0.11 |
|
|
$ |
0.55 |
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
Cash dividends
per common share |
$ |
0.205 |
|
|
$ |
0.205 |
|
|
$ |
0.410 |
|
|
$ |
0.410 |
|
Cash dividends
per share of convertible special stock |
$ |
15.00 |
|
|
$ |
15.00 |
|
|
$ |
30.00 |
|
|
$ |
30.00 |
|
A. SCHULMAN, INC. |
CONSOLIDATED BALANCE SHEETS |
(Unaudited) |
|
|
February 28, 2018 |
|
August 31, 2017 |
|
|
|
|
|
|
|
|
|
(In thousands) |
ASSETS |
Current
assets: |
|
|
|
Cash and cash
equivalents |
$ |
51,475 |
|
|
$ |
53,251 |
|
Restricted cash |
169 |
|
|
768 |
|
Accounts receivable,
less allowance for doubtful accounts of $10,419 at February28, 2018
and $11,171 at August 31, 2017 |
439,454 |
|
|
408,439 |
|
Inventories |
345,381 |
|
|
276,459 |
|
Prepaid expenses and
other current assets |
40,538 |
|
|
36,712 |
|
Assets held for
sale |
2,671 |
|
|
5,676 |
|
Total current assets |
879,688 |
|
|
781,305 |
|
Property, plant, and
equipment, less accumulated depreciation of $474,073 atFebruary 28,
2018 and $444,481 at August 31, 2017 |
292,977 |
|
|
298,703 |
|
Deferred charges and
other noncurrent assets |
78,612 |
|
|
77,847 |
|
Goodwill |
265,253 |
|
|
263,735 |
|
Intangible assets,
net |
318,332 |
|
|
332,190 |
|
Total assets |
$ |
1,834,862 |
|
|
$ |
1,753,780 |
|
LIABILITIES AND EQUITY |
Current
liabilities: |
|
|
|
Accounts payable |
$ |
351,430 |
|
|
$ |
318,820 |
|
U.S. and foreign income
taxes payable |
6,405 |
|
|
4,900 |
|
Accrued payroll, taxes
and related benefits |
46,922 |
|
|
46,951 |
|
Other accrued
liabilities |
65,961 |
|
|
61,761 |
|
Short-term debt |
19,492 |
|
|
32,013 |
|
Total current liabilities |
490,210 |
|
|
464,445 |
|
Long-term debt |
930,632 |
|
|
885,178 |
|
Pension plans |
140,353 |
|
|
135,691 |
|
Deferred income
taxes |
26,015 |
|
|
37,699 |
|
Other long-term
liabilities |
23,569 |
|
|
23,735 |
|
Total liabilities |
1,610,779 |
|
|
1,546,748 |
|
Commitments and
contingencies |
|
|
|
Stockholders’
equity: |
|
|
|
Convertible special
stock, no par value |
120,289 |
|
|
120,289 |
|
Common stock, $1 par
value, authorized - 75,000 shares, issued - 48,585 shares
atFebruary 28, 2018 and 48,529 shares at August 31, 2017 |
48,585 |
|
|
48,529 |
|
Additional paid-in
capital |
280,331 |
|
|
279,207 |
|
Accumulated other
comprehensive income (loss) |
(77,601 |
) |
|
(88,523 |
) |
Retained earnings |
224,794 |
|
|
220,357 |
|
Treasury stock, at
cost, 19,060 shares at February 28, 2018 and 19,063 shares atAugust
31, 2017 |
(382,807 |
) |
|
(382,841 |
) |
Total A. Schulman, Inc.’s stockholders’
equity |
213,591 |
|
|
197,018 |
|
Noncontrolling
interests |
10,492 |
|
|
10,014 |
|
Total equity |
224,083 |
|
|
207,032 |
|
Total liabilities and equity |
$ |
1,834,862 |
|
|
$ |
1,753,780 |
|
A. SCHULMAN, INC. |
CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(Unaudited) |
|
|
Six months ended February 28, |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
(In thousands) |
Operating
activities: |
|
|
|
Net
income |
$ |
20,756 |
|
|
$ |
8,520 |
|
Adjustments to reconcile net income to net cash provided
from (used in)operating activities: |
|
|
|
Depreciation |
21,218 |
|
|
22,215 |
|
Amortization |
17,283 |
|
|
17,644 |
|
Deferred
tax provision (benefit) |
(12,794 |
) |
|
(4,493 |
) |
Pension,
postretirement benefits and other compensation |
3,694 |
|
|
3,361 |
|
(Gain)
loss on sale of assets |
(3,077 |
) |
|
— |
|
Changes
in assets and liabilities, net of acquisitions: |
|
|
|
Accounts
receivable |
(24,780 |
) |
|
(15,866 |
) |
Inventories |
(62,198 |
) |
|
(24,670 |
) |
Accounts
payable |
25,665 |
|
|
40,363 |
|
Income
taxes |
2,154 |
|
|
(4,639 |
) |
Accrued
payroll and other accrued liabilities |
3,049 |
|
|
(4,311 |
) |
Other
assets and long-term liabilities |
(3,587 |
) |
|
2,025 |
|
Net cash provided from (used in) operating activities |
(12,617 |
) |
|
40,149 |
|
Investing
activities |
|
|
|
Expenditures for property, plant and equipment |
(13,083 |
) |
|
(24,505 |
) |
Proceeds
from the sale of assets |
6,420 |
|
|
478 |
|
Distributions from equity investees |
125 |
|
|
125 |
|
Net
cash provided from (used in) investing activities |
(6,538 |
) |
|
(23,902 |
) |
Financing
activities: |
|
|
|
Cash
dividends paid to special stockholders |
(3,750 |
) |
|
(3,750 |
) |
Cash
dividends paid to common stockholders |
(12,242 |
) |
|
(12,057 |
) |
Increase
(decrease) in short-term debt |
(15,144 |
) |
|
5,153 |
|
Borrowings on long-term debt |
399,923 |
|
|
238,543 |
|
Repayments on long-term debt including current portion |
(353,597 |
) |
|
(237,034 |
) |
Noncontrolling interests' distributions |
(27 |
) |
|
— |
|
Issuances
of stock, common and treasury |
58 |
|
|
93 |
|
Redemptions of common stock |
(1,225 |
) |
|
(620 |
) |
Net
cash provided from (used in) financing activities |
13,996 |
|
|
(9,672 |
) |
Effect of
exchange rate changes on cash |
2,784 |
|
|
(494 |
) |
Net increase
(decrease) in cash, cash equivalents, and restricted
cash |
(2,375 |
) |
|
6,081 |
|
Cash, cash
equivalents, and restricted cash at beginning of
period |
54,019 |
|
|
43,403 |
|
Cash, cash
equivalents, and restricted cash at end of period |
$ |
51,644 |
|
|
$ |
49,484 |
|
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