June 28, 2016

A. Schulman Reports Fiscal 2016 Third Quarter Results

- Consolidated gross profit and operating income increased by 20.6% and 35.8%, respectively, versus the prior year period
- Strong cash flow and aggressive debt reduction during the quarter
- Lucent matter addressed operationally; lawsuit filed against sellers to recoup damages
- Maintains fiscal 2016 adjusted earnings guidance of $2.40 to $2.45 per diluted share

AKRON, Ohio, June 28, 2016 /PRNewswire/ -- A. Schulman, Inc. (Nasdaq: SHLM) announced today earnings for the fiscal 2016 third quarter ended May 31, 2016 of $0.53 per diluted share, compared to a loss of ($0.34) per share in the prior year period. On an adjusted basis, reported earnings per share were $0.79 compared with $0.72 in the prior year period. 

Consolidated net sales for the fiscal 2016 third quarter were $650.4 million, compared with $560.9 million in the same prior-year quarter. After adjusting for negative foreign currency translation of $6.2 million, and net sales from the Citadel acquisition of $112.4 million during the quarter, legacy revenues declined 3%, approximately the same as in the prior quarter due to the reduction of our commodity portfolio embedded within the Company's Distribution Services and Specialty Powders product families. As a result of the Company's relentless focus on growing value-added products, the Company improved its product mix. Adjusted gross margin in the fiscal third quarter increased to 17.4% compared with 16.2% in the prior year period and adjusted operating income increased to 7% compared with 5.9% in the prior year period. Both Citadel and legacy portfolios contributed to these improved adjusted gross and operating margins.

"We are encouraged by the continued improvement in our adjusted margins which validates our strategy to provide superior value to a vast array of market leading customers," said Bernard Rzepka, President and Chief Executive Officer. "Much of this profit improvement was a result of our Smart Sales, Savings and Safety initiative that is entrenched within our businesses and is positioning us as the preferred premier materials solutions provider."

Europe, Middle East and Africa ("EMEA") net sales were $322.4 million, compared with $326.3 million in the same prior-year period. Excluding the favorable impact of foreign currency translation of $4.3 million, revenues fell 2.5% primarily related to commodity products in the Specialty Powders and Distribution Services product families. This decrease was partially offset by increased activity in the Masterbatch solutions product family. Adjusted gross profit for the segment fell 30 basis points to 15.5% when compared to the same prior year period.

Net sales for United States and Canada ("USCAN") were $183.3 million, compared with $137.1 million in the third quarter of fiscal 2015. The incremental contribution from the Citadel acquisition was $57.9 million in net sales in the Company's Engineered Product family. Excluding the contribution of Citadel's Engineered Plastics sales, legacy revenues declined 8.5% in the third quarter of fiscal 2016. Softness in the agricultural and sports & leisure markets, and continued focus to replace commodity product offerings contributed to the sales decline. The combination of improved mix of product sales; lower production costs and the contribution of Citadel Engineered Plastic revenues resulted in adjusted gross margin improving to 17.8% compared with 16.1% in the prior year period.

"While we are in no way satisfied with the results in these regions, our teams have done a good job controlling what they could control as evidenced by the USCAN adjusted gross margin improvement," said Rzepka. "With the claims and operational issues at Lucent largely identified and addressed, we can now focus on realizing our full growth potential. As we enter our fiscal fourth quarter, our priorities will be to further deepen our engagement with existing customers, increase our share in attractive target markets, and continue to invest smartly in R&D while aggressively managing our costs through productivity initiatives and supply chain efficiencies."

LATAM net sales for the quarter were $43.4 million, compared with $44.8 million a year ago. Excluding the unfavorable impact of foreign currency translation of $7.3 million, revenues increased 13.1%.  Excluding a $1.5 million negative impact of foreign currency, gross profit rose 13% over the prior year period yielding an adjusted gross margin of 20.9%.

"This marks our fourth consecutive quarter of double-digit growth in this region," Rzepka said. "We saw strength in the agricultural market in the LATAM region. Our business also increased in packaging and we experienced improved product mix in our Engineered Plastics business related to the strong automotive markets. Lastly, our export business in Brazil increased roughly 18% during the quarter to further improve our performance in the region."  

Asia Pacific ("APAC") net sales were $46.9 million, compared with $52.7 million in the third quarter of fiscal 2015. Adjusting for a negative foreign exchange impact of $2.9 million, revenues fell 5.5% primarily related to lower sales in Specialty Powders due to the transfer of our rotational molded product line into a minority owned joint venture during fiscal 2016. APAC adjusted gross profit margin was 17.2%, up 250 basis points from the prior period due to improved product mix.  

Engineered Composites ("EC") net sales for the quarter were $54.5 million, compared with $56.9 million in the year-ago comparable period, prior to the June 1 acquisition. On a year-over-year comparison, revenues from the Citadel business declined 4.2% due to the impact of weak oil and gas customer activity. On the lower volumes, gross margin fell 110 basis points to 25.2%, but operating margin increased considerably to 9.2% as restructuring and integration synergies begin to impact the operating performance. 

Lucent Update
As previously reported, the Company identified quality reporting issues affecting certain product lines at two former Citadel manufacturing facilities that were once part of Lucent Polymers, which was acquired as part of the Citadel acquisition. Specifically, the Company discovered discrepancies between laboratory data and certifications provided by Lucent to customers with respect to certain products using recycled or reclaimed raw materials.

"The fact that we were able to identify and address this matter as quickly as we did without the need for any product recalls speaks volumes to the strength of our team and culture. As a result of the tireless efforts and excellent work of our team, we are now focusing our attention toward organic growth instead of resolving issues of the past," said Rzepka. "We thank our customers for their patience and support as we addressed this critical matter."

The Company incurred costs of $1.8 million in the quarter related to the Lucent remediation matter, including $1.1 million of recurring production and material costs down from the prior quarter and $0.7 million of other costs including settlement of claims and dedicated internal personnel costs.

A. Schulman believes that the sellers are responsible to compensate A. Schulman for the Lucent losses that the Company has experienced or may incur. Therefore, on June 15, 2016, the Company filed a lawsuit against the sellers of Citadel Plastics in the Court of Chancery of the State of Delaware. Among other things, the suit seeks indemnification and damages for the fraudulent business practices within the Lucent subsidiary. Previously, the Company provided a written claim notice to this effect to the sellers and to the escrow agent with respect to the $31 million indemnity escrow established. During the fiscal third quarter, the Company incurred $1.2 million of legal costs associated with this lawsuit.

In accordance with the Company's policy, it will make no further comments on this ongoing legal matter, nor will it speculate to the timing or potential outcome of this matter. A. Schulman can make no assurances it will be able to recoup funds sufficient enough to offset the substantial costs it has incurred - and will incur - to investigate, isolate and mitigate these fraudulent practices.

Working Capital/Cash Flow 
Cash provided from operations was $95.7 million in the nine months ended May 31, 2016, an improvement compared to $56.3 million in the comparable prior year period. Net working capital days were 61 at May 31, compared to 71 days on February 29, 2016. Both metrics were favorably impacted by a focus on supply chain leading to significant improvements in days of inventory on hand.  

During the quarter, the Company reduced its debt position by approximately $40 million. This brings net debt to $937 million, which equates to an adjusted net leverage ratio of 3.96 at quarter-end.

Capital expenditures for the nine months ended May 31, 2016 were $34.6 million, compared with $32.7 million last year.  During the three months ended May 31, 2016, the Company declared and paid quarterly cash dividends of $6.1 million, or $0.205 per quarter per common share in accordance to its ongoing goal to provide an attractive yield to shareholders. In addition, a quarterly cash dividend of $15.00 per share was declared and paid on the 125,000 shares of the Company's convertible special stock, representing a $1.9 million cash outflow.

Business Update and Outlook
"Despite the continued volatility in the global marketplace, our outlook for the full year remains unchanged," said Rzepka. "We continue to anticipate full-year fiscal 2016 adjusted earnings to be in the range of $2.40 to $2.45 per diluted share."

Rzepka noted that the Company is positioning itself for accelerating earnings growth in fiscal 2017 and beyond. "We have organic growth programs as well as cost and productivity initiatives underway, and with the distraction of addressing the Lucent matter largely behind us, we fully expect that these focused efforts will continue to improve our operating margins. We are actively pursuing different avenues to further advance our strategy and drive value through additional investments in profitable growth."

As is customary, the Company will provide fiscal 2017 earnings and other financial metrics guidance at the end of October when it releases results for the full year.

Conference Call on the Web
A live Internet broadcast of A. Schulman's conference call regarding fiscal 2016 third-quarter earnings can be accessed at 10:00 a.m. Eastern Time on June 29, 2016, 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 4,900 people and has 57 manufacturing facilities globally. A. Schulman reported net sales of approximately $2.4 billion for the fiscal year ended August 31, 2015. 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 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 could 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;
  • uncertainties and unanticipated developments regarding contingencies, such as pending and future litigation and other claims, including 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;
  • our current debt position could adversely affect our financial health and prevent us from fulfilling our financial obligations;
  • integration of acquisitions, including most recently Citadel, with our existing business, including the risk that the integration will be more costly or more time consuming and complex or simply less effective than anticipated;
  • our ability to achieve the anticipated synergies, cost savings and other benefits from the Citadel acquisition;
  • substantial time devoted by management to the integration of the Citadel acquisition; and
  • 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.

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, 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.

SHLM_ALL

 


A. SCHULMAN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)






Three months ended May 31,


Nine months ended May 31,


2016


2015


2016


2015


(In thousands, except per share data)

Net sales

$

650,439



$

560,858



$

1,891,419



$

1,718,206


Cost of sales

540,965



470,101



1,587,192



1,462,531


Selling, general and administrative expenses

73,641



64,842



222,482



195,482


Restructuring expense

4,245



2,649



8,005



10,530


Operating income

31,588



23,266



73,740



49,663


Interest expense

13,557



2,618



40,965



7,288


Bridge financing fees



18,750





18,750


Foreign currency transaction (gains) losses

392



857



2,071



3,097


Other (income) expense, net

(229)



(335)



(246)



(900)


Gain on early extinguishment of debt







(1,290)


Income (loss) from continuing operations before taxes

17,868



1,376



30,950



22,718


Provision (benefit) for U.S. and foreign income taxes

312



10,344



4,076



18,801


Income (loss) from continuing operations

17,556



(8,968)



26,874



3,917


Income (loss) from discontinued operations, net of tax

82



(18)



283



(86)


Net income (loss)

17,638



(8,986)



27,157



3,831


Noncontrolling interests

(241)



(343)



(1,075)



(890)


Net income (loss) attributable to A. Schulman, Inc.

17,397



(9,329)



26,082



2,941


Convertible special stock dividends

1,875



563



5,625



563


Net income (loss) available to A. Schulman, Inc. common stockholders

$

15,522



$

(9,892)



$

20,457



$

2,378










Weighted-average number of shares outstanding:








Basic

29,339



29,219



29,284



29,125


Diluted

29,474



29,219



29,459



29,547










Basic earnings per share available to A. Schulman, Inc. common stockholders








Income (loss) from continuing operations

$

0.53



$

(0.34)



$

0.69



$

0.08


Income (loss) from discontinued operations





0.01




Net income (loss) available to A. Schulman, Inc. common stockholders

$

0.53



$

(0.34)



$

0.70



$

0.08










Diluted earnings per share available to A. Schulman, Inc. common stockholders








Income (loss) from continuing operations

$

0.53



$

(0.34)



$

0.68



$

0.08


Income (loss) from discontinued operations





0.01




Net income (loss) available to A. Schulman, Inc. common stockholders

$

0.53



$

(0.34)



$

0.69



$

0.08










Cash dividends per common share

$

0.205



$

0.205



$

0.615



$

0.615


Cash dividends per share of convertible special stock

$

15.00



$



$

45.00



$


 


A. SCHULMAN, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)






May 31,
 2016


August 31,
 2015


(In thousands)

ASSETS








Current assets:




Cash and cash equivalents

$

47,019



$

96,872


Restricted Cash

2,407




Accounts receivable, less allowance for doubtful accounts of $11,367 at May 31, 2016 and $10,777 at August 31, 2015

405,118



413,943


Inventories

289,656



317,328


Prepaid expenses and other current assets

72,767



60,205


Total current assets

816,967



888,348


Property, plant and equipment, at cost:




Land and improvements

33,160



31,674


Buildings and leasehold improvements

177,748



164,759


Machinery and equipment

440,631



427,183


Furniture and fixtures

34,537



34,393


Construction in progress

24,032



23,866


Gross property, plant and equipment

710,108



681,875


Accumulated depreciation

394,605



367,381


Net property, plant and equipment

315,503



314,494


Deferred charges and other noncurrent assets

89,652



90,749


Goodwill

620,649



623,583


Intangible assets, net

405,539



434,537


Total assets

$

2,248,310



$

2,351,711


LIABILITIES AND EQUITY








Current liabilities:




Accounts payable

$

296,308



$

305,385


U.S. and foreign income taxes payable



4,205


Accrued payroll, taxes and related benefits

47,017



56,192


Other accrued liabilities

81,636



70,824


Short-term debt

24,515



20,710


Total current liabilities

449,476



457,316


Long-term debt

961,569



1,045,349


Pension plans

118,034



117,889


Deferred income taxes

109,428



115,537


Other long-term liabilities

22,525



22,885


Total liabilities

1,661,032



1,758,976


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 - 48,506 shares at May 31, 2016 and 48,369 shares at August 31, 2015

48,506



48,369


Additional paid-in capital

275,361



274,319


Accumulated other comprehensive income (loss)

(93,144)



(83,460)


Retained earnings

610,135



607,690


Treasury stock, at cost, 19,071 shares at May 31, 2016 and 19,077 shares at August 31, 2015

(382,999)



(383,121)


Total A. Schulman, Inc.'s stockholders' equity

578,148



584,086


Noncontrolling interests

9,130



8,649


Total equity

587,278



592,735


Total liabilities and equity

$

2,248,310



$

2,351,711


 


A. SCHULMAN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)




Nine months ended May 31,


2016


2015


(In thousands)

Operating from continuing and discontinued operations:




Net income

$

27,157



$

3,831


Adjustments to reconcile net income to net cash provided from (used in) operating activities:




Depreciation

37,347



26,481


Amortization

30,163



11,899


Bridge financing fees



18,750


Deferred tax provision (benefit)

(2,395)



(1,143)


Pension, postretirement benefits and other compensation

3,161



8,318


Restricted stock compensation - CEO transition costs, net of cash



4,789


Changes in assets and liabilities, net of acquisitions:




Accounts receivable

2,574



(13,610)


Inventories

19,900



(13,309)


Accounts payable

(8,145)



9,599


Income taxes

(9,955)



2,598


Accrued payroll and other accrued liabilities

2,583



4,776


Other assets and long-term liabilities

(6,718)



(6,698)


Net cash provided from (used in) operating activities

95,672



56,281


Investing from continuing and discontinued operations:




Expenditures for property, plant and equipment

(34,618)



(32,662)


Investment in equity investees



(12,456)


Proceeds from the sale of assets

1,184



1,411


Restricted cash

(2,407)



(3,509)


Business acquisitions, net of cash



(6,698)


Net cash provided from (used in) investing activities

(35,841)



(53,914)


Financing from continuing and discontinued operations:




Cash dividends paid to special stockholders

(5,625)




Cash dividends paid to common stockholders

(18,012)



(18,058)


Increase (decrease) in short-term debt

2,780



(12,995)


Borrowings on long-term debt

124,671



255,196


Repayments on long-term debt including current portion

(210,448)



(353,647)


Noncontrolling interests' contributions (distributions)



(1,750)


Issuances of convertible special stock, net



120,296


Issuances of stock, common and treasury

213



231


Redemptions of common stock

(1,077)



(4,999)


Purchases of treasury stock



(3,335)


Net cash provided from (used in) financing activities

(107,498)



(19,061)


Effect of exchange rate changes on cash

(2,186)



(11,756)


Net increase (decrease) in cash and cash equivalents

(49,853)



(28,450)


Cash and cash equivalents at beginning of period

96,872



135,493


Cash and cash equivalents at end of period

$

47,019



$

107,043






Non-cash Activity:




Senior Notes funding held in restricted cash

$



$

375,000


Unpaid debt issuance costs

$



$

11,116


 

A. SCHULMAN, INC.

Reconciliation of GAAP and Non-GAAP Financial Measures

Unaudited






















Three months ended May 31, 2016


Cost of

Sales


Gross Margin


SG&A


Restructuring Expense


Operating

Income


Operating

Income

per Pound


Non

Operating

(Income)

Expense


Income

Tax

Expense

(Benefit)


Net Income

Available to

ASI Common Stockholders


Diluted

EPS



(In thousands, except for %'s, per pound and per share data)

As reported


$

540,965



16.8

%


$

73,641



$

4,245



$

31,588



$

0.048



$

13,720



$

312



$

15,522



$

0.53


Convertible special stock dividends (9)


















1,875



0.03


Certain items:





















Accelerated depreciation (1)


(1,283)





(3)





1,286







243



1,043



0.03


Costs related to acquisitions and integrations (2)


(423)





(1,020)





1,443







235



1,208



0.04


Restructuring and related costs (3)


(1,647)





(3,628)



(4,245)



9,520





(209)



2,099



7,630



0.23


Lucent costs (4)


(466)





(1,485)





1,951







385



1,566



0.05


Accelerated amortization of deferred financing fees (5)














(163)



34



129




Tax (benefits) charges (6)
















3,664



(3,664)



(0.12)


Loss (income) from discontinued operations


















(82)




Total certain items


(3,819)



0.6

%


(6,136)



(4,245)



14,200



0.022



(372)



6,660



7,830



0.26


As Adjusted


$

537,146



17.4

%


$

67,505



$



$

45,788



$

0.070



$

13,348



$

6,972



$

25,227



$

0.79























Percentage of Revenue






10.4

%




7.0

%








3.9

%
























Effective Tax Rate
















21.5

%















































Three months ended May 31, 2015


Cost of

Sales


Gross Margin


SG&A


Restructuring Expense


Operating

Income


Operating

Income

per Pound


Non

Operating

(Income)

Expense


Income

Tax

Expense

(Benefit)


Net Income

Available to

ASI Common Stockholders


Diluted

EPS



(In thousands, except for %'s, per pound and per share data)

As reported


$

470,101



16.2

%


$

64,842



$

2,649



$

23,266



$

0.043



$

21,890



$

10,344



$

(9,892)



$

(0.34)


Certain items:





















Accelerated depreciation (1)


(29)









29









29




Costs related to acquisitions and integrations (2)


(59)





(3,531)





3,590







29



3,561



0.12


Restructuring and related costs (3)


(49)





(3,239)



(2,649)



5,937







1,144



4,793



0.16


Acquisition related interest expense (11)














(19,134)





19,134



0.66


Tax (benefits) charges (6)
















(3,559)



3,559



0.12


Loss (income) from discontinued operations


















18




Total certain items


(137)



%


(6,770)



(2,649)



9,556



0.017



(19,134)



(2,386)



31,094



1.06


As Adjusted


$

469,964



16.2

%


$

58,072



$



$

32,822



$

0.060



$

2,756



$

7,958



$

21,202



$

0.72























Percentage of Revenue






10.4

%




5.9

%








3.8

%
























Effective Tax Rate
















26.5

%


























Nine months ended May 31, 2016


Cost of

Sales


Gross Margin


SG&A


Restructuring Expense


Operating

Income


Operating

Income

per Pound


Non

Operating

(Income)

Expense


Income

Tax

Expense

(Benefit)


Net Income

Available to

ASI Common Stockholders


Diluted

EPS




(In thousands, except for %'s, per pound and per share data)

As reported


$

1,587,192



16.1

%


$

222,482



$

8,005



$

73,740



$

0.039



$

42,790



$

4,076



$

20,457



$

0.69


Certain items:





















Accelerated depreciation (1)


(4,779)





(17)





4,796







1,127



3,669



0.12


Costs related to acquisitions and integrations (2)


(2,522)





(5,048)





7,570







1,779



5,791



0.20


Restructuring and related costs (3)


(2,532)





(9,422)



(8,005)



19,959





(771)



4,872



15,858



0.54


Lucent costs (4)


(1,844)





(4,424)





6,268







1,473



4,795



0.17


Accelerated amortization of deferred financing fees (5)














(437)



103



334



0.01


Tax (benefits) charges (6)
















3,197



(3,197)



(0.11)


Loss (income) from discontinued operations


















(283)



(0.01)


Total certain items


(11,677)



0.6

%


(18,911)



(8,005)



38,593



0.021



(1,208)



12,551



26,967



0.92


As Adjusted


$

1,575,515



16.7

%


$

203,571



$



$

112,333



$

0.060



$

41,582



$

16,627



$

47,424



$

1.61























Percentage of Revenue






10.8

%




5.9

%








2.5

%
























Effective Tax Rate
















23.5

%















































Nine months ended May 31, 2015


Cost of

Sales


Gross Margin


SG&A


Restructuring Expense


Operating

Income


Operating

Income

per Pound


Non

Operating

(Income)

Expense


Income

Tax

Expense

(Benefit)


Net Income

Available to

ASI Common Stockholders


Diluted

EPS



(In thousands, except for %'s, per pound and per share data)

As reported


$

1,462,531



14.9

%


$

195,482



$

10,530



$

49,663



$

0.031



$

26,945



$

18,801



$

2,378



$

0.08


Certain items:





















Accelerated depreciation (1)


(327)









327









327



0.01


Costs related to acquisitions and integrations (2)


(174)





(7,798)





7,972







307



7,665



0.26


Restructuring and related costs (3)


(347)





(4,426)



(10,530)



15,303







3,146



12,157



0.41


CEO transition costs (8)






(6,167)





6,167









6,167



0.21


Inventory step-up (7)


(341)









341







102



239



0.01


Gain on early extinguishment of debt (10)














1,290



(428)



(862)



(0.03)


Acquisition related interest expense (11)














(19,134)





19,134



0.65


Tax (benefits) charges (6)
















(3,841)



3,841



0.13


Loss (income) from discontinued operations


















86




Total certain items


(1,189)



%


(18,391)



(10,530)



30,110



0.019



(17,844)



(714)



48,754



1.65


As Adjusted


$

1,461,342



14.9

%


$

177,091



$



$

79,773



$

0.050



$

9,101



$

18,087



$

51,132



$

1.73























Percentage of Revenue






10.3

%




4.6

%








3.0

%
























Effective Tax Rate
















25.6

%


























 

1 - Accelerated depreciation is related to restructuring plans in the Company's USCAN and EMEA segments. Refer to Note 14 in the Company's Quarterly Report on Form 10-Q for further discussion.

2 - Costs related to acquisitions and integrations primarily include third party professional, legal, IT and other expenses associated with successful and unsuccessful full or partial acquisition and divestiture/dissolution transactions, as well as certain employee-related expenses such as travel, bonuses and post-acquisition severance separate from a formal restructuring plan.

3 - Restructuring and related costs include items such as employee severance charges, lease termination charges, curtailment gains/losses, other employee termination costs, and professional fees related to the reorganization of the Company's legal entity structure and facility operations.

4 - Lucent costs primarily represent legal and investigation costs related to resolving the Lucent matter, product manufacturing costs for reworking existing Lucent inventory, obsolete Lucent inventory reserve costs, and dedicated internal personnel costs that would have otherwise been focused on normal operations.

5 - Write off of deferred financing costs related to the €79.0 million prepayment of the Euro Term Loan B.

6 - Tax (benefits) charges represent the Company's quarterly non-GAAP tax based on the overall estimated annual non-GAAP effective tax rates.

7 - Inventory step-up costs represent the amortization of adjustments to fair value of inventory acquired for acquisition purchase accounting.

8 - CEO transition costs represent a charge for the modification and accelerated vesting upon retirement of the outstanding equity compensation awards granted to Joseph M. Gingo in 2013 and 2014.

9 - Convertible special stock dividends have been added back as the 2.4 million shares of convertible special stock were considered dilutive to the third quarter of fiscal 2016.

10 - Represents a pre-tax net gain of $1.3 million on the early extinguishment of debt.

11 - Primarily relates to $18.8 million in bridge financing fees.

 


 

A. SCHULMAN, INC.

ADJUSTED EBITDA RECONCILIATION

(Unaudited)






Three months ended May 31,


Nine months ended May 31,


2016


2015


2016


2015


(In thousands)









Net income available to A. Schulman, Inc. common stockholders

$

15,522



$

(9,892)



$

20,457



$

2,378


Interest expense and bridge financing fees

13,557



21,368



40,965



26,038


Provision for U.S. and foreign income taxes

312



10,344



4,076



18,801


Depreciation and Amortization

22,409



12,145



67,510



38,444


Noncontrolling interests

241



343



1,075



890


Convertible special stock dividends

1,875



563



5,625



563


Other (1)

163



522



1,825



907


EBITDA, as calculated

$

54,079



$

35,393



$

141,533



$

88,021


Non-GAAP adjustments (2)

12,832



9,812



33,501



29,857


EBITDA, as adjusted

$

66,911



$

45,205



$

175,034



$

117,878










 

(1) - Other includes Foreign currency transaction (gains) losses, Other (income) expense, net, and Gain on early extinguishment of debt.

(2) - For details on Non-GAAP adjustments, refer to "Reconciliation of GAAP and Non-GAAP Financial Measures", items (2) - (11) and Loss (income) from discontinued operations.  Amounts are included in Non Operating (Income) Expense, Income Tax Expense (Benefit) and Net Income Available to ASI Common Stockholders.  Accelerated depreciation on the "Reconciliation of GAAP and Non-GAAP Financial Measures" has been excluded as it is already included in Depreciation and Amortization above. The three months ended May 31, 2015 and nine months ended May 31, 2016 and May 31, 2015 also include additional amortization expense which is in SG&A in the "Reconciliation of GAAP and Non-GAAP Financial Measures".  This expense has been added back to adjusted EBITDA.


 

A. SCHULMAN, INC.

SUPPLEMENTAL SEGMENT INFORMATION

(Unaudited)








Net Sales


Pounds Sold



Three months ended May 31,

EMEA


2016


2015


$ Change


% Change


2016


2015


Lbs.

Change


% Change



(In thousands, except for %'s)

Custom performance colors


$

33,378



$

33,800



$

(422)



(1.2)

%


13,902



13,924



(22)



(0.2)

%

Masterbatch solutions


107,774



102,188



5,586



5.5

%


108,291



104,355



3,936



3.8

%

Engineered plastics


92,560



95,403



(2,843)



(3.0)

%


72,091



71,926



165



0.2

%

Specialty powders


36,711



37,903



(1,192)



(3.1)

%


43,698



46,997



(3,299)



(7.0)

%

Distribution services


51,945



56,961



(5,016)



(8.8)

%


79,816



85,689



(5,873)



(6.9)

%

Total EMEA


$

322,368



$

326,255



$

(3,887)



(1.2)

%


317,798



322,891



(5,093)



(1.6)

%




















Net Sales


Pounds Sold



Three months ended May 31,

USCAN


2016


2015


$ Change


% Change


2016


2015


Lbs.

Change


% Change



(In thousands, except for %'s)

Custom performance colors


$

10,840



$

11,209



$

(369)



(3.3)

%


4,004



3,925



79



2.0

%

Masterbatch solutions


33,575



37,077



(3,502)



(9.4)

%


50,433



51,659



(1,226)



(2.4)

%

Engineered plastics


101,836



48,172



53,664



111.4

%


100,897



31,897



69,000



216.3

%

Specialty powders


22,426



22,914



(488)



(2.1)

%


33,689



33,563



126



0.4

%

Distribution services


14,661



17,708



(3,047)



(17.2)

%


18,024



21,437



(3,413)



(15.9)

%

Total USCAN


$

183,338



$

137,080



$

46,258



33.7

%


207,047



142,481



64,566



45.3

%





































Net Sales


Pounds Sold



Three months ended May 31,

LATAM


2016


2015


$ Change


% Change


2016


2015


Lbs.

Change


% Change



(In thousands, except for %'s)

Custom performance colors


$

1,242



$

1,054



$

188



17.8

%


468



395



73



18.5

%

Masterbatch solutions


23,103



23,769



(666)



(2.8)

%


17,657



16,789



868



5.2

%

Engineered plastics


11,221



11,889



(668)



(5.6)

%


9,058



9,196



(138)



(1.5)

%

Specialty powders


7,811



8,109



(298)



(3.7)

%


9,445



7,177



2,268



31.6

%

Distribution services








N/A









N/A


Total LATAM


$

43,377



$

44,821



$

(1,444)



(3.2)%



36,628



33,557



3,071



9.2

%




















Net Sales


Pounds Sold



Three months ended May 31,

APAC


2016


2015


$ Change


% Change


2016


2015


Lbs.

Change


% Change



(In thousands, except for %'s)

Custom performance colors


$

3,113



$

2,567



$

546



21.3

%


2,513



1,615



898



55.6

%

Masterbatch solutions


19,705



21,375



(1,670)



(7.8)

%


22,457



22,331



126



0.6

%

Engineered plastics


23,328



26,454



(3,126)



(11.8)

%


18,938



19,479



(541)



(2.8)

%

Specialty powders


713



2,207



(1,494)



(67.7)

%


693



2,617



(1,924)



(73.5)

%

Distribution services


21



99



(78)



(78.8)

%


43



135



(92)



(68.1)

%

Total APAC


$

46,880



$

52,702



$

(5,822)



(11.0)

%


44,644



46,177



(1,533)



(3.3)

%





































Net Sales


Pounds Sold



Nine months ended May 31,

EMEA


2016


2015


$ Change


% Change


2016


2015


Lbs.

Change


% Change



(In thousands, except for %'s)

Custom performance colors


$

96,572



$

102,312



$

(5,740)



(5.6)

%


39,424



38,320



1,104



2.9

%

Masterbatch solutions


305,688



311,708



(6,020)



(1.9)

%


304,893



292,602



12,291



4.2

%

Engineered plastics


279,435



295,212



(15,777)



(5.3)

%


214,407



207,141



7,266



3.5

%

Specialty powders


104,513



114,637



(10,124)



(8.8)

%


124,470



134,043



(9,573)



(7.1)

%

Distribution services


154,586



188,723



(34,137)



(18.1)

%


237,880



276,101



(38,221)



(13.8)

%

Total EMEA


$

940,794



$

1,012,592



$

(71,798)



(7.1)

%


921,074



948,207



(27,133)



(2.9)

%




















Net Sales


Pounds Sold



Nine months ended May 31,

USCAN


2016


2015


$ Change


% Change


2016


2015


Lbs.

Change


% Change



(In thousands, except for %'s)

Custom performance colors


$

30,012



$

31,524



$

(1,512)



(4.8)

%


10,923



10,742



181



1.7

%

Masterbatch solutions


98,646



119,514



(20,868)



(17.5)

%


145,098



160,352



(15,254)



(9.5)

%

Engineered plastics


294,921



140,840



154,081



109.4

%


290,379



89,950



200,429



222.8

%

Specialty powders


65,495



71,574



(6,079)



(8.5)

%


92,010



111,383



(19,373)



(17.4)

%

Distribution services


43,363



51,769



(8,406)



(16.2)

%


56,547



56,487



60



0.1

%

Total USCAN


$

532,437



$

415,221



$

117,216



28.2

%


594,957



428,914



166,043



38.7

%




















Net Sales


Pounds Sold



Nine months ended May 31,

LATAM


2016


2015


$ Change


% Change


2016


2015


Lbs.

Change


% Change



(In thousands, except for %'s)

Custom performance colors


$

3,698



$

3,457



$

241



7.0

%


1,382



1,347



35



2.6

%

Masterbatch solutions


68,149



65,971



2,178



3.3

%


52,958



46,316



6,642



14.3

%

Engineered plastics


32,170



34,857



(2,687)



(7.7)

%


26,463



25,775



688



2.7

%

Specialty powders


22,721



27,850



(5,129)



(18.4)

%


25,891



23,456



2,435



10.4

%

Distribution services








N/A









N/A


Total LATAM


$

126,738



$

132,135



$

(5,397)



(4.1)

%


106,694



96,894



9,800



10.1

%




















Net Sales


Pounds Sold



Nine months ended May 31,

APAC


2016


2015


$ Change


% Change


2016


2015


Lbs.

Change


% Change



(In thousands, except for %'s)

Custom performance colors


$

8,653



$

8,500



$

153



1.8

%


7,066



5,809



1,257



21.6

%

Masterbatch solutions


58,187



61,038



(2,851)



(4.7)

%


65,022



60,900



4,122



6.8

%

Engineered plastics


68,052



79,196



(11,144)



(14.1)

%


56,326



55,809



517



0.9

%

Specialty powders


2,351



8,661



(6,310)



(72.9)

%


2,510



9,084



(6,574)



(72.4)

%

Distribution services


392



863



(471)



(54.6)

%


603



1,062



(459)



(43.2)

%

Total APAC


$

137,635



$

158,258



$

(20,623)



(13.0)

%


131,527



132,664



(1,137)



(0.9)

%


















 




Net Sales


Pounds Sold



Three months ended May 31,

Consolidated


2016


2015


$ Change


% Change


2016


2015


Lbs.

Change


% Change



(In thousands, except for %'s)

Custom performance colors


$

48,573



$

48,630



$

(57)



(0.1)

%


20,887



19,859



1,028



5.2

%

Engineered composites


54,476





54,476



N/A



45,417





45,417



N/A


Masterbatch solutions


184,157



184,409



(252)



(0.1)

%


198,838



195,134



3,704



1.9

%

Engineered plastics


228,945



181,918



47,027



25.9

%


200,984



132,498



68,486



51.7

%

Specialty powders


67,661



71,133



(3,472)



(4.9)

%


87,525



90,354



(2,829)



(3.1)

%

Distribution services


66,627



74,768



(8,141)



(10.9)

%


97,883



107,261



(9,378)



(8.7)

%

Total Consolidated


$

650,439



$

560,858



$

89,581



16.0

%


651,534



545,106



106,428



19.5

%




















Net Sales


Pounds Sold



Nine months ended May 31,

Consolidated


2016


2015


$ Change


% Change


2016


2015


Lbs.

Change


% Change



(In thousands, except for %'s)

Custom performance colors


$

138,935



$

145,793



$

(6,858)



(4.7)

%


58,795



56,218



2,577



4.6

%

Engineered composites


153,815





153,815



N/A



130,338





130,338



N/A


Masterbatch solutions


530,670



558,231



(27,561)



(4.9)

%


567,971



560,170



7,801



1.4

%

Engineered plastics


674,578



550,105



124,473



22.6

%


587,575



378,675



208,900



55.2

%

Specialty powders


195,080



222,722



(27,642)



(12.4)

%


244,881



277,966



(33,085)



(11.9)

%

Distribution services


198,341



241,355



(43,014)



(17.8)

%


295,030



333,650



(38,620)



(11.6)

%

Total Consolidated


$

1,891,419



$

1,718,206



$

173,213



10.1

%


1,884,590



1,606,679



277,911



17.3

%


















 


A. SCHULMAN, INC.

SUPPLEMENTAL SEGMENT INFORMATION

(Unaudited)






Three months ended May 31,


Nine months ended May 31,


2016


2015


2016


2015


(In thousands, except for %'s)

Segment gross profit








EMEA

$

49,852



$

51,695



$

136,489



$

145,908


USCAN

32,560



22,104



90,095



66,478


LATAM

9,055



9,324



27,226



22,075


APAC

8,080



7,771



24,153



22,403


EC

13,746





37,941




     Total segment gross profit

113,293



90,894



315,904



256,864


Inventory step-up







(341)


Accelerated depreciation and restructuring related costs

(2,930)



(78)



(7,311)



(674)


Costs related to acquisitions and integrations

(423)



(59)



(2,522)



(174)


Lucent costs

(466)





(1,844)




     Total gross profit

$

109,474



$

90,757



$

304,227



$

255,675










Segment operating income








EMEA

$

23,382



$

24,716



$

59,147



$

61,032


USCAN

15,576



7,982



38,166



25,299


LATAM

4,748



4,654



14,581



7,531


APAC

4,540



3,972



13,517



10,903


EC

5,031





10,583




Total segment operating income

53,277



41,324



135,994



104,765


Corporate

(7,489)



(8,502)



(23,661)



(24,992)


Costs related to acquisitions and integrations

(1,443)



(3,590)



(7,570)



(7,972)


Restructuring and related costs

(9,520)



(5,937)



(19,959)



(15,303)


Accelerated depreciation

(1,286)



(29)



(4,796)



(327)


Lucent costs

(1,951)





(6,268)




Inventory step-up







(341)


CEO transition costs







(6,167)


Operating income

31,588



23,266



73,740



49,663


Interest expense

(13,557)



(2,618)



(40,965)



(7,288)


Bridge financing fees



(18,750)





(18,750)


Foreign currency transaction gains (losses)

(392)



(857)



(2,071)



(3,097)


Other income (expense), net

229



335



246



900


Gain on early extinguishment of debt







1,290


Income from continuing operations before taxes

$

17,868



$

1,376



$

30,950



$

22,718










Capacity utilization








EMEA

88

%


94

%


82

%


88

%

USCAN

67

%


62

%


67

%


63

%

LATAM

73

%


76

%


72

%


71

%

APAC

68

%


67

%


66

%


65

%

EC

72

%


%


69

%


%

Worldwide

75

%


78

%


73

%


75

%

 

A. SCHULMAN, INC.

Sales by Geographical Region

(Unaudited)






Three months ended May 31, 2016



(In thousands, except for %'s)

 



Thermoplastics


Engineered Composites


Total

Geographical Region


Sales by

Region


% of TP


Sales by Region


% of EC


Total Sales


Total %

United States / Canada


$

183,338



30.8

%


$

39,030



71.6

%


$

222,368



34.2

%

Europe


322,368



54.0

%


5,841



10.8

%


328,209



50.5

%

Mexico / South America


43,377



7.3

%


9,605



17.6

%


52,982



8.1

%

Asia Pacific


46,880



7.9

%




%


46,880



7.2

%

Total


$

595,963



100.0

%


$

54,476



100.0

%


$

650,439



100.0

%
















Three months ended May 31, 2015



(In thousands, except for %'s)

 



Thermoplastics


Engineered Composites


Total

Geographical Region


Sales by

Region


% of TP


Sales by Region


% of EC


Total Sales


Total %

United States / Canada


$

137,080



24.4

%


$



%


$

137,080



24.4

%

Europe


326,255



58.2

%




%


326,255



58.2

%

Mexico / South America


44,821



8.0

%




%


44,821



8.0

%

Asia Pacific


52,702



9.4

%




%


52,702



9.4

%

Total


$

560,858



100.0

%


$



%


$

560,858



100.0

%
















Nine months ended May 31, 2016



(In thousands, except for %'s)

 



Thermoplastics


Engineered Composites


Total

Geographical Region


Sales by

Region


% of TP


Sales by Region


% of EC


Total Sales


Total %

United States / Canada


$

532,437



30.6

%


$

110,199



71.6

%


$

642,636



34.0

%

Europe


940,794



54.2

%


17,289



11.2

%


958,083



50.7

%

Mexico / South America


126,738



7.3

%


26,327



17.2

%


153,065



8.0

%

Asia Pacific


137,635



7.9

%




%


137,635



7.3

%

Total


$

1,737,604



100.0

%


$

153,815



100.0

%


$

1,891,419



100.0

%
















Nine months ended May 31, 2015



(In thousands, except for %'s)

 



Thermoplastics


Engineered Composites


Total

Geographical Region


Sales by

Region


% of TP


Sales by Region


% of EC


Total Sales


Total %

United States / Canada


$

415,221



24.2

%


$



%


$

415,221



24.2

%

Europe


1,012,592



58.8

%




%


1,012,592



58.9

%

Mexico / South America


132,135



7.7

%




%


132,135



7.7

%

Asia Pacific


158,258



9.3

%




%


158,258



9.2

%

Total


$

1,718,206



100.0

%


$



%


$

1,718,206



100.0

%














 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/a-schulman-reports-fiscal-2016-third-quarter-results-300291690.html

SOURCE A. Schulman, Inc.

News Provided by Acquire Media


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