e10vk
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended August 31, 2009
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission File
No. 0-7459
A. SCHULMAN, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
(State or Other Jurisdiction
of Incorporation or Organization)
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34-0514850
(I.R.S. Employer
Identification No.)
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3550 West Market Street,
Akron, Ohio
(Address of Principal Executive Offices)
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44333
(ZIP Code)
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Registrants telephone number, including area code:
(330) 666-3751
Securities Registered Pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, $1.00 Par Value
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The NASDAQ Stock Market LLC
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Securities Registered Pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of February 28, 2009, the aggregate market value of the
registrants common stock held by non-affiliates of the
registrant was approximately $346,000,000 based on the closing
sale price as reported on the NASDAQ Global Select Market.
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date 26,094,481 Shares of Common Stock,
$1.00 Par Value, at October 19, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
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Part of Form 10-K
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Document
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In Which Incorporated
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Portions of the registrants Proxy Statement for the 2009
Annual Meeting of
Stockholders
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III
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PART I
ITEM 1.
BUSINESS
A. Schulman, Inc. (the Company, A.
Schulman, we, our,
ours and us) was organized as an
Ohio corporation in 1928 and changed its state of incorporation
to Delaware in 1969.
Founded in 1928 by Alex Schulman, the Akron, Ohio based company
began as a processor of rubber compounds. During those early
days, when Akron, Ohio was known as the rubber capital of the
world, Mr. Schulman saw opportunity in taking existing
rubber products and compounding new formulations to meet
under-served market needs. As the newly emerging science of
polymers began to make market strides in the early 1950s, A.
Schulman was there to advance the possibilities of the
technology, leveraging its compounding expertise into developing
solutions to meet exact customer application requirements. The
Company later expanded into Europe, Latin America and most
recently Asia, establishing manufacturing plants, technology
centers and sales offices in numerous countries. In 1972 the
Company went public. Today, A. Schulman is recognized as one of
the leading global plastics compounders.
The Company has at least five unique competitive advantages:
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The Companys sales and marketing teams partner with
customers to understand needs and provide tailored solutions
that maximize success through its extremely broad and
well-rounded product line.
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The Companys procurement teams are critical to its success
as its global purchasing power positions the Company to
formulate and sell products competitively.
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The Company has 16 manufacturing facilities worldwide allowing
it to be an ideal partner for key global customers.
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The Company has a solid reputation in product innovation and
development driven by its customer relationships and global
technology centers.
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The Companys strong financial position enables it to
effectively compete in the current economic environment.
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The Company leverages these five unique competitive advantages
to develop and maintain strong customer relationships and drive
continued profitable growth.
BUSINESS
SEGMENTS
To identify reportable segments, the Company considers its
operating structure and the types of information subject to
regular review by its President and Chief Executive Officer
(CEO), who is the Chief Operating Decision Maker
(CODM). Effective September 1, 2008, the
Company named a general manager of Asia and a general manager of
Europe. This change separated the responsibilities that were
previously combined under the general manager of Europe, which
then included Asia. Based on the Companys new management
structure and an evaluation of how the CODM reviews performance
and allocates resources, the Company redefined its European
segment to separate the Asian operations from the European
operations beginning in the first quarter of fiscal 2009. Prior
periods have been restated to reflect the current presentation.
The Companys segments are Europe, North America
Masterbatch (NAMB) (previously, referred to as North
America Polybatch or NAPB), North America Engineered Plastics
(NAEP), North America Distribution Services
(NADS) (which includes rotomolding) and Asia.
During fiscal 2009, the Company announced that its board of
directors approved a plan to cease the operation of its
Invision®
sheet production line at its Sharon Center, Ohio manufacturing
facility. This shutdown was substantially complete by the end of
the fourth quarter of fiscal year 2009. The operating results of
Invision were previously included in the Companys former
Invision segment. The Company reflected the results of these
operations as discontinued operations for all periods presented.
The
3
Company expects minimal additional charges as final shutdown of
the equipment and facility continues into fiscal 2010.
The Companys European segment is the largest segment for
the Company. The segment is managed by the General Manager of
Europe. Managers of each line of business for engineered
plastics, masterbatch and distribution services in Europe report
to the European General Manager. The Company has a global
research and development center in Bornem, Belgium, which
primarily focuses on masterbatch business, and it has a
technology center in Sindorf, Germany, which primarily focuses
on engineered plastics business.
The North America Masterbatch segment includes color and
additive concentrates which improve the appearance and
performance of resins targeted at the film and packaging
markets. The North America Distribution Services segment
includes rotomolding and provides bulk and packaged plastic
materials used in a variety of applications. The North America
Engineered Plastics segment includes multi-component blends of
ionomers, urethanes and nylons, generally for the durable goods
market, formulated to meet customers specific performance
requirements, regardless of the base resin. The Company has
certain administrative costs that are not directly related or
allocated to a North America segment, such as North American
information technology, human resources, accounting and
purchasing, which are included in a section called All Other
North America. The North American administrative costs are
directly related to the three North American segments.
The Companys Asia segment is managed by the General
Manager of Asia, which was a recently created position at the
beginning of fiscal 2009. This segment primarily provides
masterbatch applications in the packaging market. The operations
for the Asia segment are currently located in China and
Indonesia.
Below the Company has described the lines of business listed
above.
Engineered
Plastics
A. Schulman has been a supplier of engineered plastics for
more than 50 years. The Company began formulating a variety
of olefinic and non-olefinic compounds in the early 1950s,
meeting the needs of a newly forming industry. Today, A.
Schulman is a leader in multi-component blends that include
polyolefins, nylons, polyesters, elastomers, ionomers,
acrylonitrile butadiene styrene (ABS), polyvinyl
chloride (PVC) and highly customized cross-linked
resins. Engineered plastics are commonly defined by their unique
performance characteristics by combining base polymer resin with
various fillers, additives and pigments, which result in a
compound tailored to meet stringent customer requirements. The
Companys engineered plastics products typically comprise
100% of material used by our customers in their end products. A.
Schulmans products are often developed to replace other
polymeric materials or non-polymers such as metal.
The engineered plastics business line uses its
state-of-the-art
technology centers to drive technology and innovation. The
primary research and development centers are in Sindorf, Germany
and Akron, Ohio. The centers are keenly focused on developing
niche solutions that meet the needs of existing and developing
markets alike. Examples of recent developments include the
introduction of a family of high-performance
Invision®
enhanced polyolefin resins for sheet and profile producers and
the expansion of two series of
Sunprene®
Elastomers to serve the specific needs of the industrial,
specialty wire and cable, and heavy truck markets.
The result of this innovation forms a pipeline of products being
produced in A. Schulman facilities around the world. The
Companys offers an extensive portfolio based on a variety
of polymers within the
4
engineered plastics line of business, allowing customers to
tailor solutions that meet their exact performance needs. The
following products focus on the ability to develop enhanced
polymer solutions:
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Invision®
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Thermoplastic Elastomers and Vulcanizates
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Schulamid®
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Filled and Unfilled Nylon Compounds
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Schuladur®
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Filled and Unfilled PBT Compounds
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Schulablend
M/MK®
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Nylon/ABS Alloys
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Formion®
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Formulated Ionomer Compounds
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Clarix®
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Thermoplastic Ionomer Resins
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Polyflam®
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Flame-Retardant Thermoplastic Compounds and Concentrates
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Polyfort®
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Polypropylene, Polyethylene, EVA Compounds
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Polytrope®
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TPO (Thermoplastic Olefins)
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Polyvin®
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Flexible Thermoplastic PVC Compounds
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Vinika®
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High-Quality PVC Compounds
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Sunprene®
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PVC-Based Thermoplastic Elastomers
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Sunfrost®
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Low-Gloss PVC Thermoplastic Elastomers
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Engineered plastics supplies several markets and applications.
Consumer and industrial applications are target growth areas,
with durable goods markets such as industrial packaging,
appliances, electrical, tools, recreational and lawn/garden
leading the way. The Company supplies materials into every major
vehicle segment and across all of the largest manufacturers. In
recent years, the Company has tempered its exposure to the North
American automotive market as necessary. Key growth segments for
this market are European and Asian manufacturers, who continue
to gain market share. In North America, the Company is seeing
growth and construction of new facilities by Asian and European
automotive manufacturers.
Masterbatch
Masterbatches (or concentrates as they are also referred to) are
often the key ingredient to a successful application formula.
These highly concentrated compounds are introduced at the
point-of-process
to provide a material solution that meets several combinations
of performance and aesthetic requirements.
The Company first began supplying masterbatch through its
technology center in Bornem, Belgium in the early 1960s. By the
end of the decade, the Companys presence in this area had
grown to the Americas, primarily in Mexico, and later in Asia.
Close synergy between development and production is especially
important to the Company, as well as its customers, concerning
masterbatch, as quick and quality turnaround is critical. The
Company has manufacturing and research facilities strategically
located globally to ensure that orders are shipped on-spec and
on time.
From performance to aesthetic requirements or combinations
thereof, the masterbatch product portfolio is designed to offer
better solutions faster, and includes:
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Polybatch®
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Additive Compounds Color and White Concentrates for Film and
Molding
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Polyblak®
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Carbon Black Color Concentrates
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AquaSol®
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Water Soluble Compounds
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Papermatch®
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Masterbatch for the production of synthetic paper
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Additive solutions are available to achieve many enhanced
performance properties, including (but not limited to):
antibacterial, UV, anti-static, barrier, foaming agents,
antioxidants, slip, process aids, release agents, antiblocking,
and optical brighteners. In addition, the Companys
products are also designed with efficiency in mind, allowing
parts to be produced faster, while maintaining the highest
performance levels. The Companys offering of colorant
solutions is also expansive, including a wide spectrum of
standard and high-chroma colors, as well as special effects
including (but not limited to):
5
metallics, pearlescents (shimmer), thermochromic (heat
sensitive), photochromic (light sensitive), fluorescent,
phosphorescent
(glow-in-the-dark)
and interference (color shift) technologies.
Film and packaging applications continue to be a primary focus
for these products. For over 20 years, A. Schulman has been
providing solutions for agriculture films, offering additives
that provide UV control, barrier (optimal heat and light
transmittance), and anti-fog solutions among others. The
Companys film additives are internationally renowned for
their performance and cost benefits, and are commonly used in
biaxially oriented films which are critical for the packaging of
snack foods, candy, tobacco products, and lamination film. The
Companys color concentrates excel in this market as well,
where they are a trusted source for the worlds largest
consumer product companies, providing aesthetic solutions for a
wide range of bottles, caps and closures.
The Companys masterbatch product offerings play a key role
in commercializing solutions that have a reduced impact on the
environment. The Companys line of bio-degradation
promoting additives assists in the molecular breakdown of films
allowing them to be bioassimilated. A. Schulman continues to
advance pigment and additive loadings, which reduce the amount
of total polymer required in the manufacturing process. Micro-
and nano-particle technology continues to make advancements.
These particles, when used as pigments, fillers and additives,
result in greater dispersion and a reduction in the amount of
total polymer used in end application.
Distribution
Services
As a distributor, the Company works with leading global polymer
producers. A. Schulmans role is to service a market
segment that is either not easily accessible to the producer, or
does not fit into the producers core customer segment or
size. As a merchant, A. Schulman buys, repackages into A.
Schulman labeled packaging, and re-sells producer grade polymers
to its own customer segment, providing sales, marketing and
technical services where required.
A. Schulman leverages its global supply relationships to
fill customer needs around the world through a variety of
olefinic and non-olefinic resins and provides producer grade
offerings to the markets and customers that it serves. This
leverage also helps support the customers of the engineered
plastics and masterbatch lines of business by both keeping costs
down through higher purchasing volume and providing convenient
access to bulk resin supplies to these customers.
The Companys distribution offering includes polymers for
all processing types, including injection molding, blow molding,
thermoforming and extrusion. Offering various compliant grades,
the Company has products to meet the most stringent of needs.
The Company offers both prime and wide-spec grades, allowing
customers to maximize their cost:performance ratio. Most grades
can be supplied in carton, bulk truck and rail car quantities,
thus helping customers manage inventory levels. The
Companys products are supplied into every major market
segment, including automotive, building and construction, lawn
and garden, film and packaging, and household and consumer goods.
The distribution line of business also includes rotomolding
activities. The Companys rotomolding includes compounded
resins for rotationally-molded products, such as gas and water
tanks, kayaks, playground slides, and other large applications.
The Company can leverage technical ability and service for new
product development from both the masterbatch and engineered
plastics business lines. Rotomolding includes a broad product
portfolio of base resins, custom colors, and proprietary
cross-linked polyethylene formulations.
Each of these lines of business has a successful presence in the
global market place, providing tailored solutions for customers.
The result is a product portfolio that is unique to the industry
allowing the Company to bring new and enhanced products to the
market faster and more consistently. With first-class research
and development centers strategically positioned around the
globe, A. Schulman has the ability to act fast against market
needs. Producing and supplying product is also imperative. The
Companys 16 manufacturing facilities are geographically
positioned, allowing the Company to quickly service target
markets and customers. The Company generally produces compounds
on the basis of
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customer commitments and expectations. Of course, proximity
means little without quality. A. Schulman has a long and proud
history of consistently supplying products of the highest
standards, which is evidenced by the Companys numerous
certifications and accreditations.
Information regarding the amount of sales, operating income and
identifiable assets attributable to each of the Companys
geographic business segments for the last three years is set
forth in the Notes to Consolidated Financial Statements of the
Company appearing in ITEM 8 of this Report.
Product
Families
The Companys activities in each of its business segments
can be classified into five major product families: color and
additive concentrates; engineered compounds; polyolefins; PVC;
and tolling.
Color and Additive Concentrates: The Companys
color and additive concentrates business consists of the
compounding of resins that provide plastic with specific color
and/or
physical properties, such as conductivity, flexibility,
viscosity and textures. A color concentrate is a clear or
natural plastic resin into which a substantial amount of color
pigment is incorporated or dispersed. The Company manufactures
its concentrates using its formulae and purchased natural
resins. These concentrates are sold to manufacturers of plastic
products, such as film for packaging, household goods, toys,
automotive parts, mechanical goods and other plastic items. The
Companys concentrates are sold under various trade names,
including the following:
Polybatch®,
Papermatch®,
Aqua-Sol®,
and
Polyblak®.
Engineered Compounds: The Companys engineered
compounds are products designed to have and maintain
characteristics such as chemical resistance, electrical
conductivity, heat resistance
and/or high
strength-to-weight
ratios. The engineered compounds manufactured by the Company
include the following:
Polyflam®,
Schulamid®,
Formion®,
Polypur®
and
Clarix®.
Polyolefins: The Companys polyolefin business
consists of numerous polypropylene and polyethylene resins and
compounds. Polyolefins are used for interior trim, fascias and
bumper covers in automotive applications; for toys, small
appliances, sporting goods, and agricultural and watercraft
products in rotomolding applications; and for office supplies in
industrial/commercial applications. The polyolefin products
manufactured by the Company include the following:
Polytrope®,
Polyfort®,
Schulink®,
Invision®
and
Polyaxis®.
PVC: The Companys PVC business, under the name
Polyvin®,
involves the formulation of compounds and elastomers to
introduce a variety of product attributes, including
weatherability, consistency, ease of processing, material
flexibility, and high-gloss or low-gloss finish. The
Companys thermoplastic PVC compounds are available in blow
molding, injection molding and extrusion grades for application
in the manufacture of automotive, furniture, architectural and
consumer products. The Companys
Sunprene®
compound serves as a replacement for rubber and other
thermoplastic elastomers in automotive applications. The
Companys PVC business is mainly supported by The Sunprene
Company, in which the Company owns a 70% partnership interest.
The partnership is discussed below in Joint Ventures.
Tolling: The Company provides tolling services,
primarily in Europe, as a fee for processing of material
provided and owned by customers. On some occasions, the Company
is required to provide certain amounts of its materials, such as
additives or packaging. These materials are charged to the
customer in addition to the tolling fees. The Company recognizes
revenues from tolling services and related materials when such
services are performed. The only amounts recorded as revenue
related to tolling are the processing fees and the charges
related to materials provided by the Company.
7
The approximate amount and percentage of consolidated net sales
for each of the Companys product families for each fiscal
year in the three-year period ended August 31, 2009 are as
follows:
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2009
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2008
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2007
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Product Family
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Amount
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%
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Amount
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%
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Amount
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%
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(In thousands, except for %s)
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Color and additive concentrates
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$
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566,363
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44
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$
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714,770
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36
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$
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627,268
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35
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Polyolefins
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351,532
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27
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663,925
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34
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543,748
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30
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Engineered compounds
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268,084
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21
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418,652
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21
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426,344
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24
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PVC
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36,768
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3
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59,174
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3
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64,658
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4
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Tolling
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13,361
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1
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19,466
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1
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21,450
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1
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Other
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43,140
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4
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107,608
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5
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103,424
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6
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$
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1,279,248
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100
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$
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1,983,595
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100
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$
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1,786,892
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100
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Principal
Subsidiaries
The Companys principal subsidiaries are as follows:
NVA Schulman Plastics S.A., a subsidiary located in Bornem,
Belgium, manufactures color and additive concentrates and
compounds. These products principally are sold in Germany,
France, the Benelux countries, Italy and Asia.
A. Schulman International Services BVBA, another subsidiary
located in Belgium, provides financing and administrative
services to the Companys European operations. In fiscal
2009, this subsidiary established the Companys European
shared service center to consolidate the European back-office
functions.
A. Schulman, Inc., Limited, a subsidiary located in
Crumlin, South Wales (U.K.), primarily manufactures color and
additive plastic concentrates, which are sold in the United
Kingdom and to various A. Schulman European locations.
A. Schulman GmbH, a subsidiary located in Kerpen, Germany,
manufactures engineered and flame-retardant plastic compounds.
In addition, this subsidiary purchases and sells prime and
off-grade plastic resins from major European producers. This
subsidiary also distributes plastic resins and compounds for
companies, including several large resin producers.
A. Schulman Canada Ltd., a Canadian subsidiary which had
operations in St. Thomas, Ontario, Canada, closed the St.
Thomas, Ontario plant in June 2008. The Company continues to
sell to the Canadian marketplace through this subsidiary as a
distributor for major resin producers for injection molding.
A. Schulman AG, a subsidiary located in Zurich,
Switzerland, sells plastic compounds and concentrates
manufactured by other European subsidiaries of the Company and
also acts as a merchant of plastic resins.
A. Schulman, S.A.S., a French subsidiary, has sales offices
in Paris, France and is a distributor in France for Total
Petrochemicals and other large suppliers. A. Schulman, S.A.S.
also acts as a merchant of plastic resins and sells compounds
manufactured by the Companys subsidiaries in Belgium,
Germany and France.
A. Schulman Plastics, S.A.S., another French subsidiary, is
located in Givet, France. This subsidiary produces plastic
concentrates for the Companys European market.
A. Schulman de Mexico, S.A. de C.V., a subsidiary located
in San Luis Potosi, Mexico, manufactures concentrates for
the packaging industry and compounds for the automotive,
construction, appliance and consumer products markets. This
subsidiary has sales offices in Monterrey and Mexico City,
Mexico.
8
A. Schulman Polska Sp. z o.o., is a subsidiary located in
Poland with offices in Warsaw, Poland and Prague, Czech
Republic. In addition, this subsidiary has a plant in Nowa
Biala, Poland. The subsidiary primarily sells products
manufactured by the Companys subsidiaries and acts as a
distributor and merchant of plastic resins and compounds in
Poland.
A. Schulman Plastics SpA is a subsidiary located in Gorla
Maggiore, Italy. This subsidiary manufactures and sells
engineered compounds and concentrates to the Italian market
using its new
state-of-the-art
small batch flexible manufacturing equipment. It sells products
manufactured by A. Schulman Plastics, BVBA, A. Schulman
Plastics, S.A.S., A. Schulman GmbH and A. Schulman, Inc.,
Limited and acts as a merchant of plastic resins in Italy.
A. Schulman Plastics S.L., a subsidiary located in
Barcelona, Spain, is primarily a distributor of plastic resins
to the Spanish market. This subsidiary also engages in merchant
activities in Spain and sells certain products manufactured by
A. Schulman GmbH, and A. Schulman Plastics, BVBA.
A. Schulman Hungary Kft., a subsidiary located in Budapest,
Hungary, sells engineered compounds manufactured by A. Schulman
GmbH and concentrates manufactured by A. Schulman Plastics,
BVBA, A. Schulman Plastics, S.A.S., and A. Schulman, Inc.,
Limited. This subsidiary has a small manufacturing facility to
serve the Hungary marketplace. It also acts as a merchant of
plastic resins in Hungary.
A. Schulman Plastics (Dongguan) Ltd., a subsidiary located
in Guangdong Province, China, manufactures concentrates for sale
in the local Chinese markets. This subsidiary produces material
for customers in the packaging markets and for the
Companys engineered compounds product family.
A. Schulman Europe & Co. KG, a German subsidiary
that provides support in the areas of sales, procurement,
logistics and financing for the European operations.
A. Schulman S.ár.l. et Cie SCS, A. Schulman
S.ár.l. and A. Schulman Holdings S.ár.l. are
Luxembourg subsidiaries that provide financing and other
administrative services for the European group.
A. Schulman Invision, Inc. is a U.S. subsidiary for
which operations were terminated in fiscal 2009.
Deltaplast AB, a subsidiary located in Astrop, Sweden, which
produces specialized color masterbatch. Deltaplast BVBA, a
subsidiary located in Opglabbeek, Belgium, also produces color
masterbatch.
A. Schulman Plastik Sanayi Ve Ticaret, a subsidiary located
in Istanbul, Turkey, is primarily a distributor of plastic
resins in the Turkish market.
A. Schulman Plastics s.r.o., a subsidiary located in
Bratislava, Slovakia, is a distributor of plastic resins
primarily in the Czech Republic and Slovakia.
Joint
Ventures
ASI Investments Holding Co., is a wholly-owned subsidiary which
owns a 70% partnership interest in The Sunprene Company, which
manufactures a line of PVC thermoplastic elastomers and
compounds primarily for the North American automotive market.
The other partner is an indirect wholly-owned subsidiary of
Mitsubishi Chemical MKV Co., one of the largest chemical
companies in Japan. This partnership has two manufacturing lines
at the Companys Bellevue, Ohio facility. The
Companys partner provides technical and manufacturing
expertise.
A. Schulman International, Inc., is a wholly-owned
subsidiary which owns a 65% interest in PT. A. Schulman
Plastics, Indonesia, an Indonesian joint venture. This joint
venture has a manufacturing facility with two production lines
in Surabaya, Indonesia. P.T. Prima Polycon Indah owns the
remaining 35% interest in this joint venture.
Employee
Information
As of August 31, 2009, the Company had approximately
2,000 employees. Approximately 50% of all of the
Companys employees are represented by various unions under
collective bargaining agreements.
9
Research and
Development
The research and development of new products and the improvement
of existing products are important to the Company to
continuously improve its product offerings. In fiscal 2008, the
Company organized a team of varied background individuals to
lead a New Product Engine initiative to put an
aggressive global focus on the Companys research and
development activities. The Company conducts these activities at
its various technical centers and laboratories. Research and
development expenditures were approximately $3.6 million,
$5.9 million and $7.8 million in fiscal years 2009,
2008 and 2007, respectively. The research and development
expenditures decline in fiscal 2009 compared to previous years
was primarily a result of the closing of the Companys
Invision sheet manufacturing operation, which occurred in the
fourth quarter of fiscal 2009. The Company continues to invest
in research and development activities as management believes it
is important to the future of the Company.
Compliance with
Environmental Regulations
The Companys operations on and ownership of real property
are subject to extensive environmental, health and safety laws
and regulations at the national, state and local governmental
levels. The nature of the Companys business exposes it to
risks of liability under these laws and regulations due to the
production, storage, transportation, recycling or disposal
and/or sale
of materials that can cause contamination or personal injury if
they are released into the environment or workplace.
Environmental laws may have a significant effect on the costs of
these activities involving raw materials, finished products and
wastes. The Company may incur substantial costs, including
fines, damages, criminal or civil sanctions, remediation costs,
or experience interruptions in its operations for violations of
these laws.
Also, national and state environmental statutes impose strict,
and under some circumstances, joint and several liability for
the cost of investigations and remedial actions on any company
that generated the waste, arranged for disposal of the waste,
transported the waste to the disposal site or selected the
disposal site, as well as on the owners and operators of these
sites. Any or all of the responsible parties may be required to
bear all of the costs of clean up, regardless of fault or
legality of the waste disposal or ownership of the site, and may
also be subject to liability for natural resource damages. It is
possible that the Company could be identified as a potential
responsible party at various sites in the future, which could
result in the Company being assessed substantial investigation
or clean-up
costs.
Management believes that compliance with national, state and
local provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the
environment, does not currently have a material effect upon the
capital expenditures, financial position, earnings or
competitive position of the Company.
Dependence on
Customers
During the year ended August 31, 2009, the Companys
five largest customers accounted in the aggregate for less than
10% of total sales. In managements opinion, the Company is
not dependent upon any single customer and the loss of any one
customer would not have a materially adverse effect on the
Companys business.
Availability of
Raw Materials
The raw materials required by the Company are readily available
from major plastic resin producers or other suppliers. The
Company does not distinguish between raw materials and finished
goods because numerous products that can be sold as finished
goods are also used as raw materials in the production of other
inventory items. The principal types of plastic resins used in
the manufacture of the Companys proprietary plastic
compounds are polypropylene, PVC, polyethylene, polystyrene,
nylon, ABS and polyurethane. For additional information on the
availability of raw materials, see ITEM 1A. RISK FACTORS,
Price increases in raw materials and energy costs could
adversely affect operating results and financial condition,
in this Report.
10
Working Capital
Practices
The nature of the Companys business does not require
significant amounts of inventories to be held to meet rapid
delivery requirements of its products or services or ensure the
Company of a continuous allotment of goods from suppliers. The
Companys manufacturing processes are generally performed
with a short turnaround time. The Company does not generally
offer extended payment terms to its customers. The Company
employs quality assurance practices that minimize customer
returns; however, the Company generally allows its customers to
return merchandise for failure to meet pre-agreed quality
standards or specifications.
Competition
The Companys business is highly competitive. The Company
competes with producers of basic plastic resins, many of which
also operate compounding plants, as well as other independent
plastic compounders. The producers of basic plastic resins
generally are large producers of petroleum and chemicals, which
are much larger than the Company and have greater financial
resources. Some of these producers compete with the Company
principally in such competitors own respective local
market areas, while other producers compete with the Company on
a global basis.
The Company also competes with other merchants and distributors
of plastic resins and other products. Limited information is
available to the Company as to the extent of its
competitors sales and earnings in respect of these
activities, but management believes that the Company has only a
small fraction of the total market.
The principal methods of competition in plastics manufacturing
are innovation, price, availability of inventory, quality and
service. The principal methods of competition in respect of
merchant and distribution activities are price, availability of
inventory and service. Management believes it has strong
financial capabilities, excellent supplier relationships and the
ability to provide quality plastic compounds at competitive
prices.
Trademarks and
Trade Names
The Company uses various trademarks and trade names in its
business. These trademarks and trade names protect names of
certain of the Companys products and are significant to
the extent they provide a certain amount of goodwill and name
recognition in the industry. The Company also holds patents in
various parts of the world for certain of its products. These
trademarks, trade names and patents, including those which are
pending, contribute to profitability; however, the Company does
not consider its business to be dependent on such trademarks and
trade names.
Available
Information
The Companys Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
and Current Reports on
Form 8-K,
together with any amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities and
Exchange Act of 1934, will be made available free of charge on
the Companys web site, www.aschulman.com, as soon as
reasonably practicable after they are electronically filed with
or furnished to the Securities and Exchange Commission.
ITEM 1A.
RISK FACTORS
The following are certain risk factors that could affect our
business, results of operations, cash flows and financial
condition. These risk factors should be considered in connection
with evaluating the forward-looking statements contained in this
Annual Report on
Form 10-K
because these factors could cause our actual results or
financial condition to differ materially from those projected in
forward-looking statements. Before you invest in us, you should
know that making such an investment involves some risks,
including the risks we describe below. The risks that are
discussed below are not the only ones we face. If
11
any of the following risks occur, our business, results of
operations, cash flows or financial condition could be
negatively affected.
Our sales,
profitability, operating results and cash flows are sensitive to
the turbulent global economic conditions, financial markets and
cyclicality, and could be adversely affected during economic
downturns or financial market instability.
The business of most of our customers, particularly our
industrial, automotive, construction and electronics customers,
can be cyclical in nature and sensitive to changes in general
economic conditions. Financial deterioration in our customers
will adversely affect our sales and profitability. Historically,
downturns in general economic conditions have resulted in
diminished product demand, excess manufacturing capacity and
lower average selling prices, and we may experience similar
problems in the future. The recent global economic crisis,
especially in North America and Europe, has caused, among other
things, significant reductions in available capital and
liquidity from banks and other providers of credit, substantial
reductions and fluctuations in equity and currency values
worldwide, and concerns that the worldwide economy may enter
into a prolonged recessionary period, each of which may
materially adversely affect our customers access to
capital. A limit on our customers access to capital could
inhibit their willingness or ability to purchase our products or
affect their ability to pay for products that they have already
purchased from us. In addition, downturns in our customers
industries, even during periods of strong general economic
conditions, could adversely affect our sales, profitability,
operating results and cash flows.
Although no one customer currently makes up a significant
portion of our sales, we are exposed to industries such as
automotive, appliances and construction. Bankruptcies by major
original equipment manufacturers (OEM) for the automotive market
could have a cascading effect on a group of our customers who
supply to OEMs, directly affecting their ability to pay.
Similar to our customers situation, the turbulent global
economic conditions may materially adversely affect our
suppliers access to capital and liquidity with which they
maintain their inventories, production levels and product
quality, causing them to raise prices or lower production
levels. An increase in prices could adversely affect our
profitability, operating results and cash flows.
The future of the current global financial crisis is difficult
to forecast and mitigate, and therefore our operating results
for a particular period are difficult to predict. Any of the
foregoing effects could have a material adverse effect on our
business, results of operations and financial condition.
The inability
to achieve, delays in achieving or achievement of less than the
anticipated financial benefit from initiatives related to cost
reductions and improving efficiencies could adversely affect our
profitability.
We have announced multiple major plans and initiatives since
January 2008 that are expected to reduce costs and improve
efficiencies. We could be unable to achieve, or may be delayed
in achieving, all the benefits from such initiatives because of
limited resources or uncontrollable economic conditions. If
these initiatives are not as successful as planned, the result
could negatively impact our results of operations or financial
condition. Additionally, even if we achieve these goals, we may
not receive the expected benefits of the initiatives, or the
costs of implementing these initiatives could exceed the related
benefits.
An
unanticipated increase in demand may result in the inability to
meet customer needs and loss of sales.
If we experience an unforeseen increase in demand, we may have
difficulties meeting our supply obligations to our customers due
to limited capacity or delays from our suppliers. We may lose
sales as a result of not meeting the demands of our customers in
the timeline required and our results of operations may be
adversely affected. We may be required to change suppliers or
may need to outsource our operations where possible and, if so,
we will be required to verify that the new manufacturer
maintains
12
facilities and procedures that comply with our high quality
standards and with all applicable regulations and guidelines.
The negative
global credit market conditions may significantly affect our
access to capital, cost of capital and ability to meet liquidity
needs.
Unstable conditions in the credit markets or sustained poor
financial performance may adversely impact our ability to access
credit already arranged and the availability and cost of credit
to us in the future. A volatile credit market may limit our
ability to replace maturing credit facilities and access the
capital necessary to grow and maintain our business.
Accordingly, we may be forced into credit agreements that have
terms that we do not prefer, which could require us to pay
unattractive interest rates or limit our ability to use credit
for share repurchases or payment of dividends. This could
increase our interest expense, decrease our profitability and
significantly reduce our financial flexibility. There can be no
assurances that government responses to disruptions in the
financial markets will stabilize markets or increase liquidity
and the availability of credit. Long term disruptions in the
capital and credit markets as a result of uncertainty, changing
or increased regulation, reduced alternatives or failures of
significant financial institutions could adversely affect our
access to liquidity needed for our business. Any disruption
could require us to take measures to conserve cash until markets
stabilize or until alternative credit arrangements or other
funding sources can be arranged. Such measures could include
deferring, eliminating or reducing capital expenditures,
dividends, future share repurchases or other discretionary uses
of cash. Overall, our results of operations, financial condition
and cash flows could be materially adversely affected by
disruptions in the credit markets.
If we fail to
develop and commercialize new products, our business operations
would be adversely affected.
One driver of our anticipated growth is dependent upon the
successful development and commercialization of new products.
The development and commercialization of new products requires
significant investments in research and development, production,
and marketing costs. The successful production and
commercialization of these products is uncertain as is the
acceptance of the new products in the marketplace. If we fail to
successfully develop and commercialize new products, or if
customers decline to purchase the new products, we will not be
able to recover our development investment and the growth
prospects for our products will be adversely affected.
If we are
unable to retain key personnel or attract new skilled personnel,
it could have an adverse effect on our business.
The unanticipated departure of any key member of our management
team or employee base could have an adverse effect on our
business. In addition, because of the specialized and technical
nature of our business, our future performance is dependent on
the continued service of, and on our ability to attract and
retain, qualified management, scientific, technical, marketing
and support personnel. Competition for such personnel is
intense, and we may be unable to continue to attract or retain
such personnel.
Price
increases in raw materials and energy costs could adversely
affect operating results and financial condition.
We purchase various plastic resins to produce our proprietary
plastic compounds. These resins, derived from petroleum or
natural gas, have been subject to periods of rapid and
significant movements in price. These fluctuations in price may
be caused or aggravated by a number of factors, including
inclement weather, political instability or hostilities in
oil-producing countries and supply and demand changes. We may
not be able to pass on increases in the prices of raw materials
and energy to our customers. As a result, higher petroleum or
natural gas costs could lead to declining margins, operating
results and financial conditions.
13
A major
failure of our information systems could harm our
business.
We depend upon several regionally integrated information systems
to process orders, respond to customer inquiries, manage
inventory, purchase, sell and ship goods on a timely basis,
maintain
cost-efficient
operations, prepare financial information and reports, and
operate our website. We may experience operating problems with
our information systems as a result of system failures, viruses,
computer hackers or other causes. Any significant
disruption or slowdown of our systems could cause orders to be
lost or delayed and could damage our reputation with our
customers or cause our customers to cancel orders, which could
adversely affect our results of operations.
Our
manufacturing operations are subject to hazards and other risks
associated with polymer production and the related storage and
transportation of inventories, products and
wastes.
Our manufacturing operations are subject to the potential
hazards and risks associated with polymer production and the
related storage and transportation of inventories and wastes,
including explosions, fires, inclement weather, natural
disasters, mechanical failure, unscheduled downtime,
transportation interruptions, remediation, chemical spills,
discharges or releases of toxic or hazardous substances or gases
and other risks. These hazards can cause personal injury and
loss of life, severe damage to, or destruction of, property and
equipment and environmental contamination. In addition, the
occurrence of material operating problems at our facilities due
to any of these hazards may diminish our ability to meet our
output goals. Accordingly, these hazards, and their consequences
could have a material adverse effect on our operations as a
whole, including our results of operations and cash flows, both
during and after the period of operational difficulties.
Extensive
environmental, health and safety laws and regulations impact our
operations and assets, and compliance, or lack of compliance,
with these regulations could adversely affect our results of
operations.
Our operations on and ownership of real property are subject to
extensive environmental, health and safety laws and regulations
at the national, state and local governmental levels. The nature
of our business exposes us to risks of liability under these
laws and regulations due to the production, storage,
transportation, recycling or disposal
and/or sale
of materials that can cause contamination or personal injury if
they are released into the environment or workplace.
Environmental laws may have a significant effect on the costs of
these activities involving inventory and wastes. We may incur
substantial costs, including fines, damages, criminal or civil
sanctions, remediation costs, or experience interruptions in our
operations for violations of these laws.
Also, national and state environmental statutes impose strict,
and under some circumstances, joint and several liability for
the cost of investigations and remedial actions on any company
that generated the waste, arranged for disposal of the waste,
transported the waste to the disposal site or selected the
disposal site, as well as on the owners and operators of these
sites. Any or all of the responsible parties may be required to
bear all of the costs of clean up, regardless of fault or
legality of the waste disposal or ownership of the site, and may
also be subject to liability for natural resource damages. It is
possible that we could be identified as a potentially
responsible party at various sites in the future, which could
result in being assessed substantial investigation or
clean-up
costs.
Accruals for estimated costs, including, among other things, the
ranges associated with our accruals for future environmental
compliance and remediation may be too low or we may not be able
to quantify the potential costs. We may be subject to additional
environmental liabilities or potential liabilities that have not
been identified. We expect that we will continue to be subject
to increasingly stringent environmental, health and safety laws
and regulations. We believe that compliance with these laws and
regulations may, but does not currently, require significant
capital expenditures and operating costs, which could adversely
affect our results of operations or financial condition.
14
We face
competition from other polymer companies, which could adversely
affect our sales and financial condition.
We operate in a highly competitive marketplace, competing
against a number of domestic and foreign polymer producers.
Competition is based on several key criteria, including product
performance and quality, product price, product availability and
security of supply, responsiveness of product development in
cooperation with customers and customer service. Some of our
competitors are larger than we are and may have greater
financial resources. These competitors may also be able to
maintain significantly greater operating and financial
flexibility than we do. As a result, these competitors may be
better able to withstand changes in conditions within our
industry, changes in the prices of raw materials and energy and
in general economic conditions. Additionally, competitors
pricing decisions could compel us to decrease our prices, which
could adversely affect our margins and profitability. Our
ability to maintain or increase our profitability is, and will
continue to be, dependent upon our ability to offset decreases
in the prices and margins of our products by improving
production efficiency and volume, shifting to higher margin
products and improving existing products through innovation and
research and development. If we are unable to do so or to
otherwise maintain our competitive position, we could lose
market share to our competitors.
We expect that our competitors will continue to develop and
introduce new and enhanced products, which could cause a decline
in the market acceptance of our products. In addition, our
competitors could cause a reduction in the selling prices of
some of our products as a result of intensified price
competition. Competitive pressures can also result in the loss
of major customers. An inability to compete successfully could
have an adverse effect on our results of operations, financial
condition and cash flows. We may also experience increased
competition from companies that offer products based on
alternative technologies and processes that may be more
competitive or better in price or performance, causing us to
lose customers and result in a decline in our sales volume and
earnings.
We may incur
significant charges in the event we close all or part of a
manufacturing plant or facility.
We periodically assess our manufacturing operations in order to
manufacture and distribute our products in the most efficient
manner. Based on our assessments, we may make capital
improvements to modernize certain units, move manufacturing or
distribution capabilities from one plant or facility to another
plant or facility, discontinue manufacturing or distributing
certain products or close all or part of a manufacturing plant
or facility. We also have shared services agreements at several
of our plants and if such agreements are terminated or revised,
we would assess and potentially adjust our manufacturing
operations. The closure of all or part of a manufacturing plant
or facility could result in future charges which could be
significant.
Our
substantial international operations subject us to risks of
doing business in foreign countries, which could adversely
affect our business, financial condition and results of
operations.
We conduct more than 75% of our business outside of the United
States. We and our joint ventures currently have 12
manufacturing facilities located outside the United States. We
have facilities and offices located in Mexico, Belgium, France,
Germany, Poland, Hungary, Indonesia, Italy, Spain, Switzerland,
China, Luxembourg, Sweden, Turkey, South Korea, Czech Republic,
Slovakia and the United Kingdom. We expect sales from
international markets to continue to represent a significant
portion of our net sales. Accordingly, our business is subject
to risks related to the differing legal, political, social and
regulatory requirements and economic conditions of many
jurisdictions. Risks inherent in international operations
include the following:
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fluctuations in exchange rates may affect product demand and may
adversely affect the profitability in U.S. dollars of
products and services we provide in international markets where
payment for our products and services is made in the local
currency;
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intellectual property rights may be more difficult to enforce;
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foreign countries may impose additional withholding taxes or
otherwise tax our foreign income, or adopt other restrictions on
foreign trade or investment, including currency exchange
controls;
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unexpected adverse changes in foreign laws or regulatory
requirements may occur;
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agreements may be difficult to enforce and receivables difficult
to collect;
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compliance with a variety of foreign laws and regulations may be
burdensome;
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unexpected adverse changes may occur in export duties, quotas
and tariffs and difficulties in obtaining export licenses;
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general economic conditions in the countries in which we operate
could have an adverse effect on our earnings from operations in
those countries;
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foreign operations may experience staffing difficulties and
labor disputes;
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foreign governments may nationalize private enterprises;
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our business and profitability in a particular country could be
affected by political or economic repercussions on a domestic,
country specific or global level from terrorist activities and
the response to such activities; and
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unanticipated events, such as geopolitical changes, could result
in a write-down of our investment in the affected joint venture
in Indonesia.
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Our success as a global business will depend, in part, upon our
ability to succeed in differing legal, regulatory, economic,
social and political conditions by developing, implementing and
maintaining policies and strategies that are effective in each
location where we and our joint ventures do business.
Although the majority of our international business operations
are currently in regions where the risk level and established
legal systems are similar to that in the United States, our
international business also includes projects in countries where
governmental corruption has been known to exist. We emphasize
compliance with the law and have policies in place, procedures
and certain ongoing training of employees with regard to
business ethics and key legal requirements such as the
U.S. Foreign Corrupt Practices Act (FCPA);
however, there can be no assurances that our employees will
adhere to our code of business conduct, other Company policies
or the FCPA. Additionally, in such high risk regions, our
competitors who may not be subject to U.S. laws and
regulations, such as the FCPA, can gain competitive advantages
over us by securing business awards, licenses or other
preferential treatment in those jurisdictions using methods that
U.S. law and regulations prohibit us from using. We may be
subject to competitive disadvantages to the extent that our
competitors are able to secure business, licenses or other
preferential treatment by making payments to government
officials and others in positions of influence. If we fail to
enforce our policies and procedures properly or maintain
internal accounting practices to accurately record our
international transactions, we may be subject to regulatory
sanctions. Violations of these laws could result in significant
monetary or criminal penalties for potential violations of the
FCPA or other laws or regulations which, in turn, could
negatively affect our results of operations, damage our
reputation and, therefore, our ability to do business.
Other
increases in operating costs could affect our
profitability.
Scheduled or unscheduled maintenance programs could cause
significant production outages, higher costs
and/or
reduced production capacity at our suppliers due to the industry
in which they operate. These events could also affect our future
profitability.
Our business
depends upon good relations with our employees.
We may experience difficulties in maintaining appropriate
relations with unions and employees in certain locations. About
50% of our employees are represented by labor unions. In
addition, problems or changes affecting employees in certain
locations may affect relations with our employees at other
locations. The risk of labor disputes, work stoppages or other
disruptions in production could adversely
16
affect us. If we cannot successfully negotiate or renegotiate
collective bargaining agreements or if negotiations take an
excessive amount of time, there may be a heightened risk of a
prolonged work stoppage. Any work stoppage could have a material
adverse effect on the productivity and profitability of a
manufacturing facility or on our operations as a whole.
Our business
and financial condition could be adversely affected if we are
unable to protect our material trademarks and other proprietary
information.
We have numerous patents, trade secrets and know-how, domain
names, trademarks and trade names, which are discussed under
Item 1 of this Annual Report. Despite our efforts to
protect our trademarks and other proprietary rights from
unauthorized use or disclosure, other parties, including our
former employees or consultants, may attempt to disclose, obtain
or use our proprietary information or marks without our
authorization. Unauthorized use of our trademarks, or
unauthorized use or disclosure of our other intellectual
property, could negatively impact our business and financial
condition.
Although our
pension and postretirement plans currently meet all applicable
minimum funding requirements, events could occur that would
require us to make significant contributions to the plans and
reduce the cash available for our business.
We have several defined benefit pension and postretirement plans
around the world covering most of our employees. We are required
to make cash contributions to our pension plans to the extent
necessary to comply with minimum funding requirements imposed by
the various countries benefit and tax laws. The amount of
any such required contributions will be determined annually
based on an actuarial valuation of the plans as performed by the
Companys outside actuaries and as required by law. The
amount we may elect or be required to contribute to our pension
plans in the future may increase significantly. Specifically, if
year-end accumulated obligations exceed assets, we may elect to
make a voluntary contribution, over and above the minimum
required, in order to avoid charges to our balance sheet and
consequent reductions to shareholders equity. These
contributions could be substantial and would reduce the cash
available for our business.
Increasing
cost of employee healthcare may decrease our
profitability.
The cost of providing healthcare coverage for our employees is
continually increasing. If healthcare costs continue to rise at
a rapid pace, the Company may not be able to or willing to pass
on those costs to employees. Therefore, if we are unable to
offset continued rising healthcare costs through improved
operating efficiencies and reduced expenditures, the increased
costs of employee healthcare may result in declining margins and
operating results.
Changes in tax
laws could have an adverse impact on our earnings.
Changes to tax laws, rules and regulations, including changes in
the interpretation or implementation of tax laws, rules and
regulations by the Internal Revenue Service or other domestic or
foreign governmental bodies, could affect us in substantial and
unpredictable ways. Such changes could subject us to additional
compliance costs and tax liabilities which could have an adverse
impact on our earnings. Recently, several proposals to reform
U.S. tax laws to effectively increase the
U.S. taxation of income with respect to foreign operations
have been announced. Whether any such initiatives will win
Congressional or executive approval and become law is presently
unknown; however, if any such initiatives were to become law and
apply to our international operations, then there could be a
material impact on our financial condition and results of
operations.
Specific acts
of terrorism may disrupt operations and cause increased costs
and liabilities.
The threat of terrorist attacks or actual terrorist events in
the United States or abroad could affect us in unpredictable
ways. Terrorist threats or events could create political or
economic instability, affecting our business in general. The
increased costs related to heightened security could also have a
negative impact on our financial condition. We insure our
properties for acts of terrorism. Such threats or events
17
could also result in operational disruption, including
difficulty in obtaining raw materials, difficulty in delivering
products to customers, or general delay and inefficiencies in
our supply chain. Additionally, our manufacturing facilities,
both within the United States and those located abroad, may
become direct targets or indirect casualties of terrorist
attacks, leading to severe damage including loss of life and
loss of property.
Increased
indebtedness could restrict growth and adversely affect our
financial health.
As of August 31, 2009, our debt on a consolidated basis was
approximately $104.8 million. An increase in the level of
indebtedness could have significant consequences. For example,
it could:
|
|
|
|
|
limit our ability to satisfy current debt obligations;
|
|
|
|
increase interest expense due to the change in interest rates
and increase in debt levels;
|
|
|
|
require us to dedicate a significant portion of cash flow to
repay principal and pay interest on the debt, reducing the
amount of funds that would be available to finance operations
and other business activities;
|
|
|
|
impair our ability to obtain financing in the future for working
capital, capital expenditures, research and development, or
acquisitions;
|
|
|
|
make us vulnerable to economic downturns or adverse developments
in our business or markets; and
|
|
|
|
place us at a competitive disadvantage compared to competitors
with less debt.
|
We expect to pay expenses and to pay principal and interest on
current and future debt from cash provided by operating
activities. Therefore, our ability to meet these payment
obligations will depend on future financial performance, which
is subject in part to numerous economic, business and financial
factors beyond our control. If our cash flow and capital
resources are insufficient to fund our increased debt, we may be
forced to reduce or delay expansion plans and capital
expenditures, limit payment of dividends, sell material assets
or operations, obtain additional capital or restructure our debt.
Litigation
from customers, employees or others could adversely affect our
financial condition.
From time to time, we may be subject to claims or legal action
from customers, employees
and/or
others. Whether these claims and legal actions are founded or
unfounded, if these claims and legal actions are not resolved in
our favor, they may result in significant financial liability
and/or
adversely affect market perception of the Company and our
products. Any financial liability or reputation damage could
have a material adverse effect on our business, which, in turn,
could have a material adverse effect on our financial condition
and results of operations.
We are
dependent upon good relationships with our various suppliers,
vendors and distributors.
We rely upon good relationships with a number of different
suppliers, vendors and distributors. If our relationships with
these parties were to deteriorate or if a number of these
parties should elect to discontinue doing business with us, our
business operations could be adversely affected.
We may
experience difficulties in integrating acquired businesses, or
acquisitions may not perform as expected.
We may acquire other businesses intended to complement or expand
our business. The successful integration of these acquisitions
will depend on our ability to integrate the assets and personnel
acquired. We may encounter obstacles when incorporating the
acquired operations with our operations and management. The
acquired operations may not perform or provide the results
expected when we first entered into the transaction. If such
acquisitions are not integrated successfully or they do not
perform as well as anticipated, this could adversely affect our
results of operations and financial condition.
18
We may be
required to adopt International Financial Reporting Standards
(IFRS), or other accounting or financial reporting standards,
the ultimate adoption of such standards could negatively impact
our business, financial condition or results of
operations.
Although not yet required, we could be required to adopt IFRS or
other accounting or financial reporting standards different than
accounting principles generally accepted in the United States of
America for our accounting and reporting standards. The
implementation and adoption of new standards could favorably or
unfavorably impact our business, financial condition or results
of operations.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
The following table indicates the location of each of the
Companys plastics compounding plants, the approximate
annual plastics compounding capacity for fiscal 2009 and
approximate floor area, including warehouse and office space and
the segment that is principally supported by such plants. The
following locations are owned by the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
Approximate
|
|
|
Floor Area
|
|
Location
|
|
Capacity (lbs.)(1)
|
|
|
(Square Feet)
|
|
|
|
(In thousands)
|
|
|
Akron, Ohio
|
|
|
15,500
|
|
|
|
38
|
|
Sharon Center, Ohio, Polybatch Color Center
|
|
|
11,000
|
|
|
|
113
|
|
San Luis Potosi, Mexico
|
|
|
89,000
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
Total North America Masterbatch segment
|
|
|
115,500
|
|
|
|
338
|
|
Bellevue, Ohio
|
|
|
44,400
|
(2)
|
|
|
160
|
|
Nashville, Tennessee
|
|
|
41,500
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
Total North America Engineered Plastics segment
|
|
|
85,900
|
|
|
|
298
|
|
Bornem, Belgium
|
|
|
147,000
|
|
|
|
455
|
|
Opglabbeek, Belgium
|
|
|
5,500
|
|
|
|
22
|
|
Givet, France
|
|
|
243,000
|
|
|
|
222
|
|
Kerpen, Germany
|
|
|
154,500
|
|
|
|
543
|
|
Budapest, Hungary
|
|
|
500
|
|
|
|
29
|
|
Gorla Maggiore, Italy
|
|
|
39,000
|
|
|
|
115
|
|
Nowa Biala, Poland
|
|
|
2,000
|
|
|
|
49
|
|
Crumlin Gwent, South Wales, United Kingdom
|
|
|
74,000
|
|
|
|
106
|
|
Astorp, Sweden
|
|
|
9,000
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
Total Europe Segment
|
|
|
674,500
|
|
|
|
1,568
|
|
Guangdong Province, China
|
|
|
37,000
|
|
|
|
112
|
|
East Java, Indonesia (Joint Venture)
|
|
|
27,500
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
Total Asia Segment
|
|
|
64,500
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
940,400
|
|
|
|
2,452
|
|
|
|
|
|
|
|
|
|
|
The Company considers each of the foregoing facilities to be in
good condition and suitable for its purposes. Approximate annual
capacity amounts may fluctuate as a result of capital
expenditures to increase capacity, a shutdown of certain
equipment to reduce capacity or permanent changes in mix which
could increase or decrease capacity.
|
|
(1) |
The approximate annual plastics compounding capacity set forth
in this table is an estimate and is based upon several factors,
including the daily and shift operating schedules that are
customary in
|
19
|
|
|
the area where each facility is located. Another factor is the
approximate historical mix of specific types of plastic
compounds manufactured at each plant. A plant operating at full
capacity will produce a greater or lesser quantity (in pounds)
depending upon the specific plastic compound then being
manufactured. The annual poundage of plastic compounds
manufactured does not, in itself, reflect the extent of
utilization of the Companys plants or the profitability of
the plastic compounds produced.
|
|
|
(2) |
Includes capacity of approximately 20 million pounds from
two manufacturing lines owned by The Sunprene Company, a
partnership in which the Company has a 70% partnership interest.
|
Public warehouses are used wherever needed to store the
Companys products to best service the needs of customers.
The number of public warehouses in use varies from time to time.
Currently, usage approximates 43 warehouses for the Company
worldwide. The Company believes an adequate supply of suitable
public warehouse facilities is available to it.
The Company owns its corporate headquarters, which is located in
Akron, Ohio and which contains approximately 48,000 square
feet of office space. The Company leases sales offices in
various locations globally.
The Company also owns a 158,000 square foot facility in
Akron, Ohio that, until December 31, 2000, was a
manufacturing operation. The facility was then used for
warehousing, logistics, product sampling and product
development. During fiscal 2009, the Company began using a
portion of the Akron, Ohio facility for North America
Masterbatch production for which the approximate dedicated
square footage for this production is included in the table
above. The remaining square footage is still used for warehouse
space.
The Company owns three facilities, including a facility in
Findlay, Ohio, a warehouse in Orange, Texas and a facility in
St. Thomas, Ontario, Canada, which are considered held for sale
as of August 31, 2009. Collectively, these locations have a
net book value of approximately $4.5 million at
August 31, 2009, which is included in property, plant and
equipment in the Companys consolidated balance sheets.
ITEM 3.
LEGAL PROCEEDINGS
The Company is engaged in various legal proceedings arising in
the ordinary course of business. The ultimate outcome of these
proceedings is not expected to have a material adverse effect on
the Companys financial condition, results of operations or
cash flows.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year ended August 31, 2009.
EXECUTIVE
OFFICERS OF THE COMPANY
The following information is set forth pursuant to Item 401
(b) of
Regulation S-K.
The age, business experience during the past five years and
offices held by each of the Companys Executive Officers
are reported below. The Companys By-Laws provide that
officers shall hold office until their successors are elected
and qualified.
Joseph M. Gingo: Age 64; President and Chief
Executive Officer of the Company since January 2008. Previously,
Mr. Gingo served as Executive Vice President, Quality
Systems and Chief Technical Officer for The Goodyear
Tire & Rubber Company since 2003. Prior to that,
Mr. Gingo held numerous leadership roles in both technology
and business positions in his 41 year tenure at The
Goodyear Tire & Rubber Company.
Paul F. DeSantis: Age 45; Chief Financial
Officer and Treasurer of the Company since April 2006.
Mr. DeSantis joined the Company as Vice President of
Finance in January 2006; prior to that time, he was
20
with Scotts Miracle-Gro where he held various financial
roles since 1997 before becoming Vice President and Corporate
Treasurer of the Company in 2003.
Walter Belderbos: Age 51; Chief Financial
Officer of Europe and Asia since July 2007. Mr. Belderbos
previously served as the European Finance and IT Director since
September 1989 when he joined the Company.
Paul R. Boulier: Age 56; Senior Vice President
of Marketing of the Company since October 2008. Mr. Boulier
previously served as the Vice President, Marketing and Sales at
Core Molding Technologies for one year and previous to that he
was with Avery Dennison where he held various roles.
Gary A. Miller: Age 63; Vice President Global
Supply Chain and Chief Procurement Officer of the Company since
April 2008. Since 1992, Mr. Miller served as Vice President
and Chief Procurement Officer for The Goodyear Tire &
Rubber Company.
David C. Minc: Age 60; Vice President, General
Counsel and Secretary of the Company since May 2008. Previously,
Mr. Minc served as General Counsel, Americas, for Flexsys
America L.P. since 1996.
Bernard Rzepka: Age 49; General Manager and
Chief Operating Officer Europe of the Company since
September 1, 2008. Previously, Mr. Rzepka served as
the Business Unit Manger of the Europe masterbatch line of
business since February 2008. Prior to that time,
Mr. Rzepka served as the Associate General
Manager Europe from 2007 to 2008. Prior to that, he
served as the Managing Director of Germany from 2004 to 2007.
Prior to that, Mr. Rzepka served as the head of the
engineered plastics line of business in Europe from 2003 to
2004. He has been with the Company for 16 years, serving in
a variety of technology and commercial management positions.
Jack Taylor: Age 63; General Manager and Chief
Operating Officer Asia of the Company since
September 1, 2008. Previously, Mr. Taylor served as
the General Manager Europe and Asia from 2003 to
2008. He has been an employee of the Company for more than
30 years and has held a number of management positions.
Kim L. Whiteman: Age 52; Vice President, Global
Human Resources of the Company since June 2009. Previously,
Mr. Whiteman held various roles at The Goodyear Tire and
Rubber Company since 1979.
21
PART II
|
|
ITEM 5.
|
MARKET
FOR THE COMPANYS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
The Companys Common Stock is traded on the NASDAQ Global
Select Market under the symbol SHLM. At
October 19, 2009, there were 529 holders of record of the
Companys Common Stock. This figure does not include
beneficial owners who hold shares in nominee name. The closing
stock price on October 19, 2009 was $20.23.
The quarterly high and low closing stock prices for fiscal 2009
and 2008 are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009
|
|
|
Fiscal 2008
|
|
Common Stock Price Range
|
|
High - Low
|
|
|
High - Low
|
|
|
1st Quarter
|
|
$
|
24.10 - 12.02
|
|
|
$
|
23.92 - 19.53
|
|
2nd Quarter
|
|
$
|
18.16 - 12.65
|
|
|
$
|
22.78 - 19.03
|
|
3rd Quarter
|
|
$
|
15.69 - 12.08
|
|
|
$
|
22.59 - 19.75
|
|
4th Quarter
|
|
$
|
22.01 - 14.45
|
|
|
$
|
24.41 - 21.32
|
|
The quarterly cash dividends declared for fiscal 2009 and 2008
are presented in the table below.
|
|
|
|
|
|
|
|
|
Cash Dividends per Share
|
|
Fiscal 2009
|
|
|
Fiscal 2008
|
|
|
1st Quarter
|
|
$
|
0.150
|
|
|
$
|
0.145
|
|
2nd Quarter
|
|
|
0.150
|
|
|
|
0.145
|
|
3rd Quarter
|
|
|
0.150
|
|
|
|
0.150
|
|
4th Quarter
|
|
|
0.150
|
|
|
|
0.150
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.600
|
|
|
$
|
0.590
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2008, as part of an agreement reached with the
Barington Capital Group, L.P. (the Barington Group)
the Board of Directors agreed to increase to five million the
remaining number of shares authorized for repurchase under the
Companys 2006 share repurchase program, under which
the Board of Directors had previously authorized the repurchase
of up to 6.75 million shares of common stock. At the time
of the increase to five million shares, approximately
4.0 million shares remained authorized for repurchase. In
addition, as part of the agreement with the Barington Group, the
Company agreed to repurchase 2.0 million shares of common
stock prior to August 31, 2008. The Company completed its
2.0 million share repurchase commitment during the fourth
quarter of fiscal 2008.
The Companys purchases of its common stock under the 2008
repurchase program during the fourth quarter of fiscal 2009 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Maximum
|
|
|
|
|
|
|
Average
|
|
|
Purchased
|
|
|
Number of
|
|
|
|
|
|
|
Price Paid
|
|
|
as Part of a
|
|
|
Shares That
|
|
|
|
Total Number
|
|
|
per Share
|
|
|
Publicly
|
|
|
May Yet be
|
|
|
|
of Shares
|
|
|
(Excluding
|
|
|
Announced
|
|
|
Purchased
|
|
|
|
Repurchased
|
|
|
Commissions)
|
|
|
Plan
|
|
|
Under the Plan
|
|
|
Beginning shares available
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,906,966
|
|
June 1-30, 2009
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
2,906,966
|
|
July 1-31, 2009
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
2,906,966
|
|
August 1-31, 2009
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
2,906,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
2,906,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
|
|
2009(1)(2)
|
|
|
2008(1)(2)
|
|
|
2007(1)(2)
|
|
|
2006(2)
|
|
|
2005(2)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Net sales
|
|
$
|
1,279,248
|
|
|
$
|
1,983,595
|
|
|
$
|
1,786,892
|
|
|
$
|
1,616,380
|
|
|
$
|
1,433,196
|
|
Cost of sales
|
|
|
1,109,211
|
|
|
|
1,749,065
|
|
|
|
1,578,213
|
|
|
|
1,397,453
|
|
|
|
1,240,557
|
|
Other costs, expenses, etc.
|
|
|
156,100
|
|
|
|
188,265
|
|
|
|
160,355
|
|
|
|
159,622
|
|
|
|
145,697
|
|
Interest and other income
|
|
|
(4,174
|
)
|
|
|
(2,347
|
)
|
|
|
(4,138
|
)
|
|
|
(5,202
|
)
|
|
|
(2,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,261,137
|
|
|
|
1,934,983
|
|
|
|
1,734,430
|
|
|
|
1,551,873
|
|
|
|
1,383,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes
|
|
|
18,111
|
|
|
|
48,612
|
|
|
|
52,462
|
|
|
|
64,507
|
|
|
|
49,336
|
|
Provision for U.S. and foreign income taxes
|
|
|
6,931
|
|
|
|
17,944
|
|
|
|
24,655
|
|
|
|
29,485
|
|
|
|
17,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
11,180
|
|
|
|
30,668
|
|
|
|
27,807
|
|
|
|
35,022
|
|
|
|
32,093
|
|
Loss from discontinued operations, net of tax of $0
|
|
|
(13,956
|
)
|
|
|
(12,619
|
)
|
|
|
(5,738
|
)
|
|
|
(2,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,776
|
)
|
|
$
|
18,049
|
|
|
$
|
22,069
|
|
|
$
|
32,662
|
|
|
$
|
32,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
797,489
|
|
|
$
|
890,421
|
|
|
$
|
874,115
|
|
|
$
|
843,245
|
|
|
$
|
784,362
|
|
Long-term debt
|
|
$
|
102,254
|
|
|
$
|
104,298
|
|
|
$
|
123,080
|
|
|
$
|
120,730
|
|
|
$
|
63,158
|
|
Total stockholders equity
|
|
$
|
366,070
|
|
|
$
|
425,231
|
|
|
$
|
424,663
|
|
|
$
|
401,692
|
|
|
$
|
460,303
|
|
Average number of common shares outstanding, net of treasury
shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,790,421
|
|
|
|
26,794,923
|
|
|
|
27,032,348
|
|
|
|
29,961,580
|
|
|
|
30,619,780
|
|
Diluted
|
|
|
26,069,631
|
|
|
|
27,097,896
|
|
|
|
27,369,408
|
|
|
|
30,394,210
|
|
|
|
31,049,790
|
|
Diluted earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.43
|
|
|
$
|
1.13
|
|
|
$
|
1.01
|
|
|
$
|
1.15
|
|
|
$
|
1.03
|
|
Loss from discontinued operations
|
|
|
(0.54
|
)
|
|
|
(0.47
|
)
|
|
|
(0.21
|
)
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.11
|
)
|
|
$
|
0.66
|
|
|
$
|
0.80
|
|
|
$
|
1.07
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share
|
|
$
|
0.60
|
|
|
$
|
0.59
|
|
|
$
|
0.58
|
|
|
$
|
0.58
|
|
|
$
|
0.57
|
|
|
|
|
(1) |
|
See Managements Discussion and Analysis of Financial
Condition and Results of Operations. |
|
(2) |
|
The Company revised the consolidated financial information for
fiscal years 2004 and 2007 to reflect the correction of an
immaterial error identified in fiscal 2009 that related to prior
periods. The Company reflected a change of $1.8 million in
total stockholders equity at August 31, 2005 and a
change of $0.6 million in fiscal 2007 income from
continuing operations, net income and total stockholders
equity. The fiscal 2007 change of $0.6 million is included
in the restructuring expense line item in the Companys
consolidated statements of operations. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations for more detailed
discussion regarding the revision of previous years consolidated
financial information. |
23
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
OVERVIEW OF THE
BUSINESS AND RECENT DEVELOPMENTS
A. Schulman, Inc. (the Company, we,
our, ours and us) is a
leading international supplier of high-performance plastic
compounds and resins headquartered in Akron, Ohio. The
Companys customers span a wide range of markets including
consumer products, industrial, automotive and packaging. The
Company has approximately 2,000 employees and 16 plants in
countries in North America, Europe and Asia.
The Company sells such products as color and additive
concentrates, polyolefins, engineered compounds and polyvinyl
chloride (PVC) used in packaging, durable goods and
commodity products. The Company also offers a limited amount of
tolling service to customers through its Europe operations.
To identify reportable segments, the Company considers its
operating structure and the types of information subject to
regular review by its President and Chief Executive Officer
(CEO), who is the Chief Operating Decision Maker
(CODM). Globally, the Company operates primarily in
three lines of business: engineered plastics, masterbatch and
distribution services. In North America, there is a general
manager of each of these lines of business each of who report
directly to the Companys CEO. Effective September 1,
2008, the Company named a general manager of Asia and a general
manager of Europe. This change separated the responsibilities
that were previously combined under the general manager of
Europe, which then included Asia. Based on the Companys
new management structure and an evaluation of how the CODM
reviews performance and allocates resources, the Company
redefined its European segment to separate the Asian operations
from the European operations beginning in the first quarter of
fiscal 2009. Prior periods have been restated to reflect the
current presentation. The reportable segments are Europe, North
America Masterbatch (NAMB) (previously, referred to
as North America Polybatch or NAPB), North America Engineered
Plastics (NAEP), North America Distribution Services
(NADS) and Asia.
The Company experienced a challenging fiscal year 2009 as a
result of the economic slowdown, particularly in the
Companys second quarter when global demand declined
dramatically. The slowdown led to lower revenues for the Company
resulting from a significant decline in demand. The Company
initiated various actions throughout fiscal 2009 in order to
proactively address the global economic state and efficiently
manage the slowdown. Despite poor conditions in the marketplace,
the Company was able to significantly improve its liquidity
position during fiscal 2009 and maintain a strong balance sheet.
On June 29, 2009, the Company announced that its board of
directors approved a plan to cease the operation of its
Invision®
sheet production line at its Sharon Center, Ohio manufacturing
facility. The Company completed the majority of the closing of
its Invision sheet manufacturing facility during the fourth
quarter of fiscal 2009. This business comprised the former
Invision segment of the Companys business. The results of
the Invision sheet business are reported as discontinued
operations in the Companys consolidated statements of
operations for all periods presented.
The remaining assets of the Invision business, including a
facility in Findlay, Ohio, which was a dedicated building for
the Invision business, and machinery and equipment at the Sharon
Center, Ohio facility are considered held for sale as of
August 31, 2009. The results of discontinued operations for
the year ended August 31, 2009 included approximately
$10.3 million of asset impairments for the Findlay, Ohio
facility and certain equipment at the Sharon Center, Ohio
facility. In addition, the Company recorded less than
$0.1 million of cash charges related to employee
termination costs. The results for the year ended
August 31, 2008 include an impairment of $6.3 million
related to the Findlay, Ohio building. The Company expects
minimal additional charges as final shutdown of the equipment
and facility continues into fiscal 2010.
24
The following summarizes the results for discontinued operations
for the years ended August 31, 2009, 2008 and 2007. The
loss from discontinued operations does not include any income
tax effect as the Company was not in a taxable position due to
its continued U.S. losses and full valuation allowance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
217
|
|
|
$
|
416
|
|
|
$
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(3,619
|
)
|
|
$
|
(6,376
|
)
|
|
$
|
(5,738
|
)
|
Asset impairment
|
|
|
(10,317
|
)
|
|
|
(6,300
|
)
|
|
|
|
|
Restructuring expense
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(13,956
|
)
|
|
$
|
(12,619
|
)
|
|
$
|
(5,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2009, the Company announced actions to restructure
its operations and eliminate costs throughout the Company. These
actions are part of the Companys ongoing strategic plan to
realign its resources, control costs and improve efficiency to
profitably serve key growth markets. These actions included a
reduction in capacity and workforce reductions in manufacturing,
selling and administrative positions throughout Europe and North
America. The Company has taken these proactive actions to
address the current global economic conditions and improve the
Companys competitive position. The Company recorded
restructuring charges of $8.7 million for the year ended
August 31, 2009, which are primarily related to the actions
taken in fiscal 2009. Related to the announcements, management
initiated actions that were substantially complete by the end of
fiscal 2009; however, the Company expects between approximately
$2.0 million to $3.0 million, before income tax, of
expense to be recognized primarily in the first half of fiscal
2010.
The Company also recorded $2.6 million of asset impairment
charges, excluding the asset impairment charges included in
discontinued operations. These impairments relate to assets held
for sale.
During fiscal 2009, the Company received notification from a
U.S. multi-employer pension plan that it was being assessed
for partial and complete withdrawal liabilities from the plan.
This plan covered the Companys employees who previously
worked at the Companys Orange, Texas warehouse. The
Company terminated over 70% of this locations workforce in
fiscal 2004, and then terminated the remaining workforce in
fiscal 2007. In accordance with the Employee Retirement Income
Security Act (ERISA) guidelines these workforce
reductions qualified as partial and complete withdrawals from
the plan. Accordingly, the plan assessed the Company for
withdrawal liabilities of $1.8 million for the fiscal 2004
partial withdrawal and $0.6 million for the fiscal 2007
complete withdrawal for its share of the underfunded
multi-employer plan. The Company revised the consolidated
financial information for the fiscal years 2004 and 2007 to
reflect the correction of an immaterial error identified in
fiscal 2009 that related to prior periods. The Company reflected
in its consolidated statements of stockholders equity a
change of $1.8 million to the August 31, 2006 ending
retained earnings balance and a change of $0.6 million to
fiscal 2007 income from continuing operations, net income and
total stockholders equity. The fiscal 2007 change of
$0.6 million was included in the restructuring expense line
item in the Companys consolidated statements of
operations. In addition, the Company reflected a change of
$2.4 million as a liability in the consolidated balance
sheets as of August 31, 2009 and 2008.
See the Results of Operations section of this Managements
Discussion and Analysis and Results of Operations for additional
discussion regarding the Companys fiscal 2009 performance.
25
RESULTS OF
OPERATIONS 2009
The year ended August 31, 2009 was a year of global
economic crisis which caused a significant decline in demand for
the Companys product and sales declined 35.5%. Overall
tonnage was down 26.6% driven by low demand primarily in the
second quarter of fiscal 2009.
A comparison of consolidated net sales by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
|
|
|
% Due to
|
|
|
% Due to
|
|
|
% Due to
|
|
Sales
|
|
2009
|
|
|
2008
|
|
|
Amount
|
|
|
%
|
|
|
Tonnage
|
|
|
Translation
|
|
|
Price/product Mix
|
|
|
Europe
|
|
$
|
935,895
|
|
|
$
|
1,454,635
|
|
|
$
|
(518,740
|
)
|
|
|
(35.7
|
)
|
|
|
(21.3
|
)
|
|
|
(8.0
|
)
|
|
|
(6.4
|
)
|
NAMB
|
|
|
108,474
|
|
|
|
136,124
|
|
|
|
(27,650
|
)
|
|
|
(20.3
|
)
|
|
|
(22.1
|
)
|
|
|
(12.0
|
)
|
|
|
13.8
|
|
NAEP
|
|
|
121,701
|
|
|
|
211,259
|
|
|
|
(89,558
|
)
|
|
|
(42.4
|
)
|
|
|
(53.3
|
)
|
|
|
(3.2
|
)
|
|
|
14.1
|
|
NADS
|
|
|
67,920
|
|
|
|
131,811
|
|
|
|
(63,891
|
)
|
|
|
(48.5
|
)
|
|
|
(42.1
|
)
|
|
|
(0.2
|
)
|
|
|
(6.2
|
)
|
Asia
|
|
|
45,258
|
|
|
|
49,766
|
|
|
|
(4,508
|
)
|
|
|
(9.1
|
)
|
|
|
(10.5
|
)
|
|
|
1.7
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,279,248
|
|
|
$
|
1,983,595
|
|
|
$
|
(704,347
|
)
|
|
|
(35.5
|
)
|
|
|
(26.6
|
)
|
|
|
(7.0
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the difficult economic conditions experienced in fiscal
2009, management believes segment performance in each of the
quarters to be an important comparison between 2009 and 2008.
The individual segments all experienced a decline in sales over
fiscal 2008. The second quarter of fiscal 2009 was especially
low for the Company, as the economic downturn worsened. However,
the Europe, Asia and NAMB segments were each able to start to
rebuild sales in the third and fourth quarters through
sequential improvement.
A portion of the NAEP decline was planned due to the
Companys fiscal 2008 actions to sell the Companys
Orange, Texas manufacturing business in March 2008 and to close
the Companys St. Thomas, Ontario, Canada manufacturing
facility in June 2008, both NAEP facilities. These actions were
a result of a strategic decision to reduce the Companys
exposure to certain unprofitable markets, such as North American
automotive and North American tolling, and focus its effort on
more profitable market opportunities.
The Companys NADS segment experienced lower sales as a
result of a decline in demand of large volume sales. However,
the NADS segment began to see some recovery in sales in the
fourth quarter of fiscal 2009.
The Companys Asia segment, while it experienced a 10.5%
decline in tonnage, was impacted to a lesser extent by the
global decline in demand compared to the other Company segments.
The Asia segment was able to exceed fourth quarter 2008 sales in
the fourth quarter of fiscal 2009.
The two largest markets served by the Company are the packaging
and automotive markets. Other markets include agriculture,
appliances, medical, consumer products, electrical/electronics
and office equipment. The approximate percentage of consolidated
net sales by market for 2009 compared to 2008 is as follows:
|
|
|
|
|
|
|
|
|
Market
|
|
Fiscal 2009
|
|
|
Fiscal 2008
|
|
|
Packaging
|
|
|
43
|
%
|
|
|
38
|
%
|
Automotive
|
|
|
12
|
|
|
|
15
|
|
Other
|
|
|
45
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The North America segments include sales to customers in the
automotive market amounting to approximately 28% and 33% for the
years ended August 31, 2009 and 2008, respectively. The
Company has strategically decreased its exposure to the
U.S. automotive market, as this market continues to be
under severe stress. For the Europe segment, sales to customers
in the packaging market amounted to approximately 45% and 40%
for the years ended August 31, 2009 and 2008, respectively.
The Companys
26
Asia segment had approximately 86% and 93% of its sales from the
packaging market for the years ended August 31, 2009 and
2008, respectively.
The majority of the Companys consolidated net sales can be
classified into five primary product families. The approximate
amount and percentage of consolidated net sales for these
product families compared to the previous year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Product Family
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(In thousands, except for %s)
|
|
|
Color and additive concentrates
|
|
$
|
566,363
|
|
|
|
44
|
|
|
$
|
714,770
|
|
|
|
36
|
|
Polyolefins
|
|
|
351,532
|
|
|
|
27
|
|
|
|
663,925
|
|
|
|
34
|
|
Engineered compounds
|
|
|
268,084
|
|
|
|
21
|
|
|
|
418,652
|
|
|
|
21
|
|
Polyvinyl chloride (PVC)
|
|
|
36,768
|
|
|
|
3
|
|
|
|
59,174
|
|
|
|
3
|
|
Tolling
|
|
|
13,361
|
|
|
|
1
|
|
|
|
19,466
|
|
|
|
1
|
|
Other
|
|
|
43,140
|
|
|
|
4
|
|
|
|
107,608
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,279,248
|
|
|
|
100
|
|
|
$
|
1,983,595
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A comparison of gross profit dollars and percentages by business
segment for 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
|
|
Gross Profit $
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
|
(In thousands, except for %s)
|
|
|
Europe
|
|
$
|
141,051
|
|
|
$
|
192,910
|
|
|
$
|
(51,859
|
)
|
|
|
(26.9
|
)
|
North America Masterbatch
|
|
|
8,279
|
|
|
|
12,231
|
|
|
|
(3,952
|
)
|
|
|
(32.3
|
)
|
North America Engineered Plastics
|
|
|
7,665
|
|
|
|
13,846
|
|
|
|
(6,181
|
)
|
|
|
(44.6
|
)
|
North America Distribution Services
|
|
|
6,670
|
|
|
|
10,013
|
|
|
|
(3,343
|
)
|
|
|
(33.4
|
)
|
Asia
|
|
|
6,372
|
|
|
|
5,530
|
|
|
|
842
|
|
|
|
15.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
170,037
|
|
|
$
|
234,530
|
|
|
$
|
(64,493
|
)
|
|
|
(27.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit %
|
|
2009
|
|
|
2008
|
|
|
Europe
|
|
|
15.1
|
%
|
|
|
13.3
|
%
|
North America Masterbatch
|
|
|
7.6
|
%
|
|
|
9.0
|
%
|
North America Engineered Plastics
|
|
|
6.3
|
%
|
|
|
6.6
|
%
|
North America Distribution Services
|
|
|
9.8
|
%
|
|
|
7.6
|
%
|
Asia
|
|
|
14.1
|
%
|
|
|
11.1
|
%
|
Consolidated
|
|
|
13.3
|
%
|
|
|
11.8
|
%
|
The Company generally experienced sequential improvement in
gross profit dollars and percentages in its segments from second
quarter through the fourth quarter of fiscal 2009. The
Companys Asia segment declined only slightly in gross
profit dollars and percentages in the fourth quarter of fiscal
2009 compared to third quarter of fiscal 2009, but increased
significantly over fourth quarter of fiscal 2008. The
Companys NAMB segment gross profit increased 60% in the
fourth quarter of fiscal 2009 over the fourth quarter of fiscal
2008 as the effects of the Companys initiatives to reduce
costs were realized.
The gross profit percentages for Europe for the year ended
August 31, 2009 increased to 15.1% compared with 13.3% in
the prior year. The Company was able to increase gross profit
percentage in the Europe segment primarily through favorable
product mix and cost reduction programs initiated throughout
fiscal 2009. The Company was also encouraged by these results
considering they were achieved during a period of significant
decline in demand resulting in lower gross profits. In addition,
European gross profits were negatively impacted by foreign
currency translation losses of $16.3 million for the year
ended August 31, 2009. The Company implemented measures to
reduce fixed manufacturing costs by
27
temporarily reducing capacity and headcount during the second
quarter of fiscal 2009 and scheduling some manufacturing
facilities on a
four-day
work week as necessary.
The gross profit dollars for the NAMB business declined
$4.0 million for the year ended August 31, 2009
compared with the prior year. The decrease in gross profit
dollars for NAMB is primarily the result of demand declines. In
addition, the effect of foreign currency translation losses
decreased NAMB gross profit by $2.9 million in fiscal 2009.
The NAMB gross profit percentage declined to 7.6% for fiscal
2009 from 9.0% in the prior year. The Company was not able to
reduce manufacturing costs as quickly as the decline in demand,
which negatively impacted the gross profit primarily in the
second quarter of fiscal 2009. The gross profit for NAMB also
includes approximately $0.9 million of
start-up
costs for the year ended August 31, 2009 related to the
Companys new masterbatch facility in Akron, Ohio. These
costs were recognized primarily in the first six months of
fiscal 2009.
The gross profit dollars for the NAEP business have declined
$6.2 million, or 44.6%, for the year ended August 31,
2009, compared with fiscal 2008. A portion of this decline was
planned as a result of the restructuring announced in fiscal
2008 which included the shutdown of the St. Thomas, Ontario,
Canada facility and the sale of the Orange, Texas facility. The
decline in gross profit dollars for NAEP are primarily related
to significant declines in demand as well as the planned tonnage
declines. The lower demand resulted in the inability to absorb
the majority of overhead costs. The NAEP gross profit percentage
declined slightly to 6.3% in fiscal 2009 from 6.6% in fiscal
2008 driven by weakness in the first and second quarters of
fiscal 2009. The Company was encouraged that the NAEP segment
was able to maintain gross profit percentages during a
significant decline in demand as experienced in fiscal 2009.
This was achieved through focusing on higher-value-added
products and improving utilization of the NAEP facilities,
primarily in the latter half of fiscal 2009. In order to offset
the effects of weakening markets, in December 2008, the Company
announced further restructuring efforts that reduced capacity
and headcount in this segment. These restructuring plans
included the closing of a production line in the NAEP segment
which resulted in $1.2 million in fiscal 2009 of
accelerated depreciation which is included in cost of sales.
This contributed to the decline in gross profit for NAEP.
The gross profit dollars for the NADS business have declined
$3.3 million, or 33.4%, for the year ended August 31,
2009 compared with last year. However, the NADS segment was able
to increase margins in the weak market primarily as a result of
favorable product mix.
The Companys Asia segment gross profit dollars increased
15.2% for the year ended August 31, 2009. The increase in
gross profit dollars and percentage is primarily a result of
reduced manufacturing costs and improved supply chain management.
A comparison of capacity utilization levels is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Europe
|
|
|
75
|
%
|
|
|
89
|
%
|
North America Masterbatch
|
|
|
67
|
%
|
|
|
101
|
%
|
North America Engineered Plastics
|
|
|
63
|
%
|
|
|
75
|
%
|
Asia
|
|
|
61
|
%
|
|
|
66
|
%
|
Worldwide
|
|
|
72
|
%
|
|
|
85
|
%
|
The Companys overall worldwide utilization declined
compared with the prior year due to a dramatic decrease in
demand resulting from the challenging marketplace. Worldwide
capacity utilization, although having suffered earlier in fiscal
2009, rebounded in the fourth quarter of fiscal 2009 to exceed
earlier fiscal 2009 quarters and the prior year fourth quarter
as the Company realized some increase in demand later in the
year. Each of the Companys segments experienced sequential
quarterly improvement in their capacity utilizations after the
second quarter of fiscal 2009. Capacity utilization is
calculated by dividing actual production pounds by practical
capacity at each plant.
Europe capacity utilization declined for the 2009 fiscal year
compared with the prior year primarily as a result of the
significant global economic slowdown and the Companys
working capital initiatives to reduce inventory. The volumes
were especially low during the second quarter of fiscal 2009 as
some
28
customers reduced production for extended periods of time. The
capacity utilization for Europe increased in the fourth quarter
compared with earlier fiscal 2009 quarters and the prior year
fourth quarter as the Company experienced an increase in demand.
The capacity utilization for NAMB declined significantly during
fiscal 2009 compared with the prior year due to the weak North
America marketplace. In addition, the
start-up of
the Akron, Ohio plant in the second quarter of fiscal 2009 and
efforts to reduce inventory impacted the utilization of the
plants for NAMB. Capacity utilization for the NAEP segment
decreased for fiscal 2009 compared with prior year as a result
of the weak marketplace. However, the restructuring efforts
announced in fiscal 2008 and fiscal 2009 to close the
Companys St. Thomas, Ontario, Canada facility, the sale of
the Companys Orange, Texas facility and a line shutdown in
the Bellevue, Ohio facility helped mitigate the decline. As a
result of the reductions, annual capacity in the North America
segments declined 134.4 million pounds. In addition, the
fourth quarter of fiscal 2009 showed improved capacity
utilization levels as compared with prior year fourth quarter
and earlier fiscal 2009 quarters.
The Companys Asia segment experienced lower capacity
utilization in the earlier quarters of fiscal 2009, as a result
of the weakened global markets and initiatives to reduce
inventory. However, the Asia segment significantly increased its
capacity utilization levels in the fourth quarter compared with
earlier fiscal 2009 quarters and the prior year fourth quarter
as a result of a slight rebound in the Asia economy.
The changes in selling, general and administrative expenses are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31, 2009
|
|
|
|
$ Decrease
|
|
|
% Decrease
|
|
|
|
(In thousands, except
|
|
|
|
for %s)
|
|
|
Total change in selling, general and administrative expenses
|
|
$
|
(21,132
|
)
|
|
|
(12.5
|
)%
|
Effect of foreign currency translation
|
|
|
(12,521
|
)
|
|
|
(7.4
|
)
|
|
|
|
|
|
|
|
|
|
Total change in selling, general and administrative expenses,
excluding the effect of foreign currency translation
|
|
$
|
(8,611
|
)
|
|
|
(5.1
|
)%
|
|
|
|
|
|
|
|
|
|
The Companys decline in selling, general and
administrative expenses was generally a result of the
restructuring initiatives put in place over fiscal years 2008
and 2009, primarily in the Companys North America
segments. The Companys Europe segment selling, general and
administrative expenses for the year ended August 31, 2009
increased approximately $5.5 million, excluding the effect
of foreign currency translation, compared to the previous year.
This increase is primarily attributable to increased bad debt
expense of approximately $1.6 million due to certain
increased customer financial difficulties. The increase in
Europe selling, general and administrative expenses also
includes costs to implement the Companys European shared
service center to consolidate back-office operations during
fiscal 2009.
Minority interest represents a 30% equity position of Mitsubishi
Chemical MKV Company in a partnership with the Company and a 35%
equity position of P.T. Prima Polycon Indah in an
Indonesian joint venture with the Company.
Interest expense was $4.8 million and $7.8 million for
the years ended August 31, 2009 and 2008, respectively. The
decrease of $3.0 million is primarily related to the lower
borrowing levels and interest rates as compared to the prior
year.
Foreign currency transaction gains or losses represent changes
in the value of currencies in major areas where the Company
operates. The Company experienced $5.6 million in foreign
currency transaction gains for the year ended August 31,
2009 as compared with foreign currency transaction losses of
$1.1 million for the year ended August 31, 2008. The
foreign currency transaction gains or losses primarily relate to
the changes in the value of the U.S. dollar compared with
the Canadian dollar, the Mexican peso and to a lesser extent the
euro. The Company enters into forward foreign exchange contracts
to reduce the impact of changes in foreign exchange rates on the
consolidated statements of operations. These contracts reduce
exposure to currency movements affecting existing foreign
currency denominated
29
assets and liabilities resulting primarily from trade
receivables and payables. Any gains or losses associated with
these contracts as well as the offsetting gains or losses from
the underlying assets or liabilities are recognized on the
foreign currency transaction line in the consolidated statements
of operations.
Fiscal 2009
Restructuring Plan
During fiscal 2009, the Company announced various plans to
realign its domestic and international operations to strengthen
the Companys performance and financial position. The
Company initiated these proactive actions to address the current
global economic conditions and improve the Companys
competitive position. The actions included a reduction in
capacity and workforce reductions in manufacturing, selling and
administrative positions throughout Europe and North America. In
addition, the Company is in the process of eliminating certain
positions related to the previously announced consolidation of
back-office operations to the Companys European shared
service center located in Belgium.
The Company reduced its workforce by approximately 190 positions
worldwide during fiscal 2009, primarily as a result of the
actions taken in early fiscal 2009 to realign the Companys
operations and back-office functions. In addition, to further
manage costs during a period of significant declines in demand
primarily in the second quarter of fiscal 2009, the
Companys major European locations implemented a
short work schedule when necessary and the NAEP
segment reduced shifts from seven to five days at its Nashville,
Tennessee plant. Also in the NAEP segment, the Company reduced
production capacity by temporarily idling one manufacturing
line, while permanently shutting down another line at its plant
in Bellevue, Ohio. This resulted in $1.2 million of
accelerated depreciation on certain fixed assets. The
Companys Italy plant also began a right-sizing and
redesign of the plant which also resulted in $0.1 million
of accelerated depreciation on certain fixed assets.
The following table summarizes the charges related to the fiscal
2009 initiatives by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
and Other
|
|
|
Accelerated
|
|
|
|
|
|
|
|
|
|
Related
|
|
|
Depreciation
|
|
|
|
|
|
|
Employee-
|
|
|
Restructuring
|
|
|
included in
|
|
|
|
|
Fiscal 2009 Charges
|
|
Related Costs
|
|
|
Costs
|
|
|
Cost of Sales
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
3.3
|
|
|
$
|
0.7
|
|
|
$
|
0.1
|
|
|
$
|
4.1
|
|
North America Masterbatch
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
North America Engineered Plastics
|
|
|
2.4
|
|
|
|
1.7
|
|
|
|
1.2
|
|
|
|
5.3
|
|
All other North America
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring related charges for the fiscal 2009 actions
|
|
$
|
5.9
|
|
|
$
|
2.4
|
|
|
$
|
1.3
|
|
|
$
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At August 31, 2009, approximately $2.3 million remains
accrued for employee-related costs, including estimated
severance payments and medical insurance and contract
termination costs related to the fiscal 2009 initiatives. The
Company anticipates the remaining accrued balance for
restructuring charges will be paid throughout fiscal 2010.
The Company expects additional charges to continue into fiscal
2010 related to the plans initiated in fiscal 2009. The
implementation of the Companys European shared service
center will continue into early fiscal 2010. In addition, in
July 2009 the Company initiated further plans to reduce capacity
and headcount at certain international locations. These plans
are expected to result in the reduction of approximately 10 to
20 positions and reduce working hours for remaining workers as
appropriate. As a result of these plans, the Company expects to
recognize before-tax costs of approximately $1.0 million to
$2.3 million, including employee termination costs,
estimated employee retirement benefits and accelerated
depreciation of fixed assets at the impacted locations. These
plans are expected to be completed primarily in fiscal 2010. In
total, the Company expects charges related to these initiatives,
and other
30
remaining 2009 initiatives to range from approximately
$2.0 million to $3.0 million, before income tax, to be
recognized primarily during the first half of fiscal 2010.
Fiscal 2008
Restructuring Plan
In January 2008, the Company announced two steps in its
continuing effort to improve the profitability of its North
American operations. The Company announced it would shut down
its manufacturing facility in St. Thomas, Ontario, Canada and
would pursue a sale of its manufacturing facility in Orange,
Texas. All the restructuring costs related to the sale of the
Orange, Texas and the St. Thomas, Ontario, Canada facilities are
related to the NAEP segment.
The St. Thomas, Ontario, Canada facility primarily produced
engineered plastics for the automotive market, with a capacity
of approximately 74 million pounds per year and employed
approximately 120 individuals. The facility was shutdown at the
end of June 2008. The Company continued to finalize closing
procedures into fiscal 2009.
The Orange, Texas facility primarily provided North American
third-party tolling services in which the Company processed
customer-owned materials for a fee. Total annual capacity at the
Orange, Texas facility was approximately 135 million pounds
and employed approximately 100 employees. The Company
completed the sale of this facility in March 2008 for total
consideration of $3.7 million.
The Company recorded charges related to the fiscal 2008
initiatives of approximately $0.2 million for
employee-related costs and $0.1 million for contract
termination and other related restructuring costs during the
year ended August 31, 2009. These charges recorded in
fiscal 2009 are related to the NAEP segment. Approximately
$0.2 million remains accrued for employee-related costs at
August 31, 2009 related to the fiscal 2008 initiatives,
which the Company anticipates the majority of the accrued
balance for restructuring charges to be paid throughout fiscal
2010. During the year ended August 31, 2008, the Company
recorded approximately $6.4 million in employee-related
costs, which include estimated severance payments and medical
insurance for approximately 135 employees, whose positions
were eliminated at the Orange, Texas and St. Thomas, Ontario,
Canada facilities.
The following table summarizes the restructuring liabilities as
of August 31, 2009 related to the Companys
restructuring plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual
|
|
|
|
|
|
|
|
|
Accrual
|
|
|
|
|
|
|
|
|
Accrual
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
August 31,
|
|
|
Fiscal 2008
|
|
|
Fiscal 2008
|
|
|
August 31,
|
|
|
Fiscal 2009
|
|
|
Fiscal 2009
|
|
|
August 31,
|
|
|
|
2007
|
|
|
Charges
|
|
|
Paid
|
|
|
2008
|
|
|
Charges
|
|
|
Paid
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Employee related costs
|
|
$
|
2,424
|
|
|
$
|
6,383
|
|
|
$
|
(5,950
|
)
|
|
$
|
2,857
|
|
|
$
|
6,012
|
|
|
$
|
(4,421
|
)
|
|
$
|
4,448
|
|
Other costs
|
|
|
|
|
|
|
434
|
|
|
|
(434
|
)
|
|
|
|
|
|
|
2,653
|
|
|
|
(2,263
|
)
|
|
|
390
|
|
Translation effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,424
|
|
|
$
|
6,817
|
|
|
$
|
(6,384
|
)
|
|
$
|
2,835
|
|
|
$
|
8,665
|
|
|
$
|
(6,684
|
)
|
|
$
|
4,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects to pay between $6.9 million and
$7.9 million of restructuring related payments primarily in
the first half of fiscal 2010. This includes the remaining
accrual balance of $4.9 million from the table above, which
includes a $2.4 million withdrawal liability related to
fiscal 2004 and 2007 restructuring plans, and the expected
fiscal 2010 restructuring charges between $2.0 million to
$3.0 million related to the fiscal 2009 initiatives.
The Company recorded approximately $2.6 million and
$5.4 million in asset impairments during the years ended
August 31, 2009 and 2008, respectively, excluding
impairments recorded in discontinued operations. The
Companys $2.6 million in impairments for fiscal 2009
in continuing operations were primarily related to properties
which are considered held for sale including the St. Thomas,
Ontario, Canada facility and the Orange, Texas warehouse. The
asset impairments in fiscal 2009 were based on third party
appraisals. The Company recorded $10.3 million and
$6.3 million of asset impairments for the
31
years ended August 31, 2009 and 2008, respectively, for
certain Invision assets included in discontinued operations.
In connection with the closure of the St. Thomas, Ontario,
Canada facility, the Company evaluated the property, plant and
equipment of the St. Thomas, Ontario, Canada facility and
recorded an impairment charge of $2.7 million recorded
during fiscal 2008. The Canada asset impairment was based on the
estimated fair market value of the long-lived assets which was
determined using the Companys estimate of future
undiscounted cash flows for these assets. This charge is
included in the asset impairment line item in the Companys
consolidated statement of operations. The impairment of the
assets for the Canadian facility is related to the NAEP segment.
As a result of the restructuring initiatives in fiscal 2008, the
Company evaluated the inventory and property, plant and
equipment of the Orange, Texas facility and recorded an
impairment related to the long-lived assets of the Orange
facility during fiscal 2008 of approximately $2.7 million.
The Orange asset impairment was based on the estimated fair
market value of the long-lived assets which was determined using
the total consideration received for this facility and related
assets when it was sold in March 2008. This charge is included
in the asset impairment line item in the consolidated statements
of operations. The impairment of the assets for the Orange,
Texas facility is related to the NAEP segment.
As of August 31, 2009, the Companys Findlay, Ohio
facility, the St. Thomas, Ontario, Canada facility, the Orange,
Texas warehouse, and certain equipment related to Invision are
considered held for sale. The net book value of these assets
held for sale after impairment is approximately
$6.5 million which is included in the property, plant and
equipment line item in the Companys consolidated balance
sheet as of August 31, 2009. Of the assets held for sale,
only Invision is included in discontinued operations on the
Companys consolidated statements of operations.
During the second quarter of fiscal 2009, the Company recorded a
curtailment gain of $2.6 million as a result of a
significant reduction in the expected years of future service,
primarily due to the U.S. restructuring plan for the NAEP
segment that was announced in December 2008. During the fourth
quarter of fiscal 2009, the Company recorded a curtailment gain
of $0.2 million as a result of a significant reduction in
the expected years of future service, primarily due to the
European restructuring plan which included the elimination of
certain positions in the Companys Paris, France subsidiary
as a result of the consolidation of back-office operations to
the Companys European shared service center.
Other income for fiscal 2009 includes $1.8 million of
income from the cancellation of a European supplier distribution
agreement.
The CODM uses net sales to unaffiliated customers, gross profit
and operating income in order to make decisions, assess
performance and allocate resources to each segment. Operating
income does not include interest income or expense, other income
or expense, restructuring expense, asset impairments,
curtailment gains, goodwill impairment or foreign currency
transaction gains or losses. In some cases, the Company may
choose to exclude from a segments results certain
non-recurring items as determined by management. These items are
included in the Corporate and Other section in the table below.
Corporate expenses include the compensation of certain
personnel, certain audit expenses, board of directors related
costs, certain insurance costs and other miscellaneous legal and
professional fees.
32
A reconciliation of operating income (loss) by segment to
consolidated income from continuing operations before taxes is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Difference
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Segment operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
48,725
|
|
|
$
|
95,105
|
|
|
$
|
(46,380
|
)
|
NAMB
|
|
|
2,809
|
|
|
|
5,507
|
|
|
|
(2,698
|
)
|
NAEP
|
|
|
(5,562
|
)
|
|
|
(6,865
|
)
|
|
|
1,303
|
|
NADS
|
|
|
3,082
|
|
|
|
5,288
|
|
|
|
(2,206
|
)
|
Asia
|
|
|
2,195
|
|
|
|
1,507
|
|
|
|
688
|
|
All Other North America
|
|
|
(11,266
|
)
|
|
|
(15,061
|
)
|
|
|
3,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
$
|
39,983
|
|
|
$
|
85,481
|
|
|
$
|
(45,498
|
)
|
Corporate and other
|
|
|
(18,438
|
)
|
|
|
(21,098
|
)
|
|
|
2,660
|
|
Interest expense, net
|
|
|
(2,437
|
)
|
|
|
(5,476
|
)
|
|
|
3,039
|
|
Foreign currency transaction (gains) losses
|
|
|
5,645
|
|
|
|
(1,133
|
)
|
|
|
6,778
|
|
Other income
|
|
|
1,826
|
|
|
|
9
|
|
|
|
1,817
|
|
Curtailment gains
|
|
|
2,805
|
|
|
|
4,009
|
|
|
|
(1,204
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
(964
|
)
|
|
|
964
|
|
Asset impairment
|
|
|
(2,608
|
)
|
|
|
(5,399
|
)
|
|
|
2,791
|
|
Restructuring expense
|
|
|
(8,665
|
)
|
|
|
(6,817
|
)
|
|
|
(1,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes
|
|
$
|
18,111
|
|
|
$
|
48,612
|
|
|
$
|
(30,501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European operating income decreased $46.4 million or 48.8%,
for the year ended August 31, 2009 compared with the prior
year. The decrease was primarily due to the recessionary global
marketplace, which significantly reduced demand and resulted in
a decline in gross profit. The Europe segment selling, general
and administrative costs increased approximately
$5.5 million compared with prior year, excluding the
translation effect of foreign currencies. The Europe selling,
general and administrative costs for fiscal 2009 include
approximately $4.2 million of incremental costs related to
the consolidation of back-office operations to the
Companys European shared service center which were offset
by a decline of $1.2 million in stock-based compensation
costs. The Europe selling, general and administrative costs also
include $1.6 million of incremental bad debt expense,
$0.9 million of non-restructuring employee termination
costs and $0.5 million of contract termination charges
related to the Companys 2007 purchase of the Delta Plast
Group. During fiscal 2009, the Company reduced certain selling,
general and administrative costs in its international operations
through headcount reductions and capacity reductions. These
actions are expected to be completed primarily during the first
half of fiscal 2010.
Operating income for NAMB decreased $2.7 million for the
year ended August 31, 2009, compared with the prior year.
The NAMB operating income was negatively impacted by the
translation effect of foreign currencies of $2.6 million.
The remaining decrease was primarily a result of the decline in
gross profit due to a decline in demand. The NAMB segment
decreased selling, general and administrative costs by
$0.8 million, excluding the translation effect of foreign
currencies. This decline was primarily a result of actions taken
in fiscal 2009 to realign the Companys international
operations, which include some operations in the NAMB segment,
through headcount reductions and shortened work weeks as
necessary.
The operating loss for the NAEP segment, which is the segment
most exposed to the automotive market, decreased by
$1.3 million for the year ended August 31, 2009
compared with the prior year. The operating losses were
primarily a result of a significant decline in demand; however,
the impact of this decline was lessened due to the
Companys restructuring initiatives in fiscal years 2008
and 2009. The selling, general and administrative costs for the
NAEP segment declined $6.9 million, which offset the gross
profit decrease of $6.2 million. The decrease in selling,
general and administrative costs was primarily due to the
closing of the Companys St. Thomas, Ontario, Canada plant
and the sale of the
33
Orange, Texas facility, both of which occurred in fiscal 2008.
In addition, the decline included decreased stock-based
compensation costs and other employee compensation and benefits
compared with last year. Unprecedented declines in demand
resulted in additional planned capacity reductions that were
announced in December 2008.
The decline in the operating income for NADS in fiscal 2009 was
due to the decline in gross profit dollars as a result of the
decline in demand. The declines in gross profits were partially
offset by $1.1 million lower selling, general and
administrative costs compared with prior year. The decrease in
selling, general and administrative costs was primarily due to a
decline in stock-based compensation costs and a reduction in the
Companys qualified retirement plan costs compared with
last year.
The Asia segment experienced an increase in operating income for
the year ended August 31, 2009. The increase was a result
of improved gross profit from reduced manufacturing costs and
improved supply chain management.
The decline in the costs associated with All Other North America
of $3.8 million include a reduction in the Companys
qualified retirement plan costs and a decline of
$1.2 million in stock-based compensation costs compared
with last year.
A reconciliation of the statutory U.S. federal income tax
rate with the effective tax rates of 38.3% in 2009 and 36.9% in
2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Pretax
|
|
|
|
|
|
Pretax
|
|
|
|
Amount
|
|
|
Income
|
|
|
Amount
|
|
|
Income
|
|
|
|
(In thousands, except for %s)
|
|
|
Statutory U.S. tax rate
|
|
$
|
6,339
|
|
|
|
35.0
|
%
|
|
$
|
17,014
|
|
|
|
35.0
|
%
|
Amount of foreign income taxes less than U.S. taxes at statutory
rate
|
|
|
(12,043
|
)
|
|
|
(66.5
|
)
|
|
|
(12,457
|
)
|
|
|
(25.6
|
)
|
U.S. losses with no tax benefit
|
|
|
13,042
|
|
|
|
72.0
|
|
|
|
10,669
|
|
|
|
21.9
|
|
U.S. restructuring and other U.S. unusual charges with no benefit
|
|
|
1,003
|
|
|
|
5.5
|
|
|
|
2,572
|
|
|
|
5.3
|
|
Provision for repatriated earnings
|
|
|
|
|
|
|
|
|
|
|
1,054
|
|
|
|
2.2
|
|
Establishment (resolution) of uncertain tax positions
|
|
|
(1,584
|
)
|
|
|
(8.7
|
)
|
|
|
(1,363
|
)
|
|
|
(2.8
|
)
|
Other, net
|
|
|
174
|
|
|
|
1.0
|
|
|
|
455
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,931
|
|
|
|
38.3
|
%
|
|
$
|
17,944
|
|
|
|
36.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rates of 38.3% and 36.9% for the years ended
August 31, 2009 and 2008, respectively, were greater than
the U.S. statutory tax rate of 35% primarily because no tax
benefits were recognized for U.S. losses from continuing
operations. These unfavorable effects on the Companys
effective tax rates for both fiscal 2009 and fiscal 2008 were
partially offset by the overall foreign tax rate being less than
the U.S. statutory tax rate in both years.
The translation effect of foreign currencies, primarily the Euro
and Mexican peso, decreased net income by $7.3 million for
the year ended August 31, 2009.
The Company uses the following non-GAAP financial measure of net
income excluding unusual items and net income per diluted share
excluding unusual items. These financial measures are used by
management to monitor and evaluate the ongoing performance of
the Company and to allocate resources. They believe that the
additional measures are useful to investors for financial
analysis. However, non-GAAP measures are not in accordance with,
nor are they a substitute for, GAAP measures. The table
34
below reconciles net income excluding unusual items and net
income per diluted share excluding unusual items to net income
(loss) and net income (loss) per diluted share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
August 31, 2009
|
|
|
August 31, 2008
|
|
|
|
Income
|
|
|
Diluted EPS
|
|
|
Income
|
|
|
Diluted EPS
|
|
Net Income (Loss) and Earnings (Losses) per Share
Reconciliation
|
|
(Loss)
|
|
|
Impact
|
|
|
(Loss)
|
|
|
Impact
|
|
|
|
(In thousands except per share data)
|
|
|
Net income from continuing operations applicable to common stock
|
|
$
|
11,127
|
|
|
$
|
0.43
|
|
|
$
|
30,615
|
|
|
$
|
1.13
|
|
Loss from discontinued operations
|
|
|
(13,956
|
)
|
|
|
(0.54
|
)
|
|
|
(12,619
|
)
|
|
|
(0.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stock
|
|
$
|
(2,829
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
17,996
|
|
|
$
|
0.66
|
|
Adjustments, net of tax, per diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring expense
|
|
|
7,254
|
|
|
|
0.28
|
|
|
|
5,524
|
|
|
|
0.20
|
|
Accelerated depreciation, included in cost of sales
|
|
|
1,243
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
Asset impairment
|
|
|
12,472
|
|
|
|
0.48
|
|
|
|
10,815
|
|
|
|
0.40
|
|
Curtailment gain
|
|
|
(2,737
|
)
|
|
|
(0.10
|
)
|
|
|
(4,009
|
)
|
|
|
(0.15
|
)
|
Other employee termination costs
|
|
|
999
|
|
|
|
0.04
|
|
|
|
1,245
|
|
|
|
0.05
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
964
|
|
|
|
0.04
|
|
Termination of lease for an airplane
|
|
|
|
|
|
|
|
|
|
|
640
|
|
|
|
0.02
|
|
CEO transition costs
|
|
|
|
|
|
|
|
|
|
|
3,582
|
|
|
|
0.13
|
|
Insurance claim settlement adjustment
|
|
|
|
|
|
|
|
|
|
|
368
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock before unusual items
|
|
$
|
16,402
|
|
|
$
|
0.64
|
|
|
$
|
37,125
|
|
|
$
|
1.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding Diluted
|
|
|
|
|
|
|
26,070
|
|
|
|
|
|
|
|
27,098
|
|
RESULTS OF
OPERATIONS 2008
Consolidated net sales for fiscal 2008 were $2.0 billion,
an increase of $196.7 million or 11.0% over fiscal
2007s net sales of $1.8 billion. The translation
effect of foreign currencies, primarily the euro, increased net
consolidated sales by approximately $175.8 million, or
9.8%, in fiscal 2008.
A comparison of consolidated net sales by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Due to
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
|
|
|
% Due to
|
|
|
% Due to
|
|
|
Price/Product
|
|
Sales
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
%
|
|
|
Tonnage
|
|
|
Translation
|
|
|
Mix
|
|
|
Europe
|
|
$
|
1,454,635
|
|
|
$
|
1,270,226
|
|
|
$
|
184,409
|
|
|
|
14.5
|
|
|
|
(0.7
|
)
|
|
|
13.2
|
|
|
|
2.0
|
|
NAMB
|
|
|
136,124
|
|
|
|
128,691
|
|
|
|
7,433
|
|
|
|
5.8
|
|
|
|
1.5
|
|
|
|
2.3
|
|
|
|
2.0
|
|
NAEP
|
|
|
211,259
|
|
|
|
219,730
|
|
|
|
(8,471
|
)
|
|
|
(3.9
|
)
|
|
|
(20.7
|
)
|
|
|
1.0
|
|
|
|
15.8
|
|
NADS
|
|
|
131,811
|
|
|
|
128,496
|
|
|
|
3,315
|
|
|
|
2.6
|
|
|
|
(8.9
|
)
|
|
|
0.6
|
|
|
|
10.9
|
|
Asia
|
|
|
49,766
|
|
|
|
39,749
|
|
|
|
10,017
|
|
|
|
25.2
|
|
|
|
12.9
|
|
|
|
3.5
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,983,595
|
|
|
$
|
1,786,892
|
|
|
$
|
196,703
|
|
|
|
11.0
|
|
|
|
(3.9
|
)
|
|
|
9.8
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe sales tonnage decreases were more than offset by price
and mix as it exited some lower margin business as well as
announced price increases.
The NAMB segment sales experienced an increase in volume,
primarily during the early part of fiscal 2008. Pricing
increases were announced later in the year for this segment as
well as the NAEP segment.
The Company sold its Orange, Texas facility in March 2008 and
shutdown its St. Thomas, Ontario, Canada facility in June 2008.
Both facilities were part of the NAEP segment. These actions
decreased sales through decreased tonnage for this segment in
fiscal 2008 as compared to the prior year. In addition, weaker
markets and the elimination of lower-margin products drove lower
sales in the NAEP segment.
The NADS sales increased through increased prices and exiting
lower margin business.
The Asia segment increased sales approximately
$10.0 million as the segments business steadily
increased through increased tonnage and pricing/mix.
35
The two largest markets served by the Company are the packaging
and automotive markets. Other markets include appliances,
medical, consumer products, electrical/electronics, office
equipment and agriculture. The approximate percentage of net
consolidated sales by market for 2008 compared to 2007 is as
follows:
|
|
|
|
|
|
|
|
|
Market
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
Packaging
|
|
|
38
|
%
|
|
|
37
|
%
|
Automotive
|
|
|
15
|
|
|
|
17
|
|
Other
|
|
|
47
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The North America segments include sales to customers in the
automotive market accounting for 33% for the year ended
August 31, 2008 and 38% for the year ended August 31,
2007. The U.S. automotive market is a special challenge for
the Company. The automotive market accounts for approximately
61% of the NAEP business in fiscal 2008. For the Europe segment,
sales to customers in the packaging market accounted for
approximately 40% and 41% for the years ended August 31,
2008 and 2007, respectively. The Companys Asia segment had
approximately 93% and 97% of its sales from the packaging market
for the years ended August 31, 2008 and 2007, respectively.
The majority of the Companys consolidated net sales can be
classified into five primary product families. The approximate
amount and percentage of consolidated net sales for these
product families compared to the previous year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
Product Family
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(In thousands, except for %s)
|
|
|
Color and additive concentrates
|
|
$
|
714,770
|
|
|
|
36
|
|
|
$
|
627,268
|
|
|
|
35
|
|
Polyolefins
|
|
|
663,925
|
|
|
|
34
|
|
|
|
543,748
|
|
|
|
30
|
|
Engineered compounds
|
|
|
418,652
|
|
|
|
21
|
|
|
|
426,344
|
|
|
|
24
|
|
Polyvinyl chloride (PVC)
|
|
|
59,174
|
|
|
|
3
|
|
|
|
64,658
|
|
|
|
4
|
|
Tolling
|
|
|
19,466
|
|
|
|
1
|
|
|
|
21,450
|
|
|
|
1
|
|
Other
|
|
|
107,608
|
|
|
|
5
|
|
|
|
103,424
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,983,595
|
|
|
|
100
|
|
|
$
|
1,786,892
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A comparison of gross profit dollars and percentages by business
segment for 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
|
|
Gross Profit $
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
|
(In thousands, except for %s)
|
|
|
Europe
|
|
$
|
192,910
|
|
|
$
|
160,849
|
|
|
$
|
32,061
|
|
|
|
19.9
|
|
North America Masterbatch
|
|
|
12,231
|
|
|
|
15,223
|
|
|
|
(2,992
|
)
|
|
|
(19.7
|
)
|
North America Engineered Plastics
|
|
|
13,846
|
|
|
|
17,843
|
|
|
|
(3,997
|
)
|
|
|
(22.4
|
)
|
North America Distribution Services
|
|
|
10,013
|
|
|
|
10,431
|
|
|
|
(418
|
)
|
|
|
(4.0
|
)
|
Asia
|
|
|
5,530
|
|
|
|
4,333
|
|
|
|
1,197
|
|
|
|
27.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
234,530
|
|
|
$
|
208,679
|
|
|
$
|
25,851
|
|
|
|
12.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit %
|
|
2008
|
|
2007
|
|
Europe
|
|
|
13.3
|
%
|
|
|
12.7
|
%
|
North America Masterbatch
|
|
|
9.0
|
%
|
|
|
11.8
|
%
|
North America Engineered Plastics
|
|
|
6.6
|
%
|
|
|
8.1
|
%
|
North America Distribution Services
|
|
|
7.6
|
%
|
|
|
8.1
|
%
|
Asia
|
|
|
11.1
|
%
|
|
|
10.9
|
%
|
Consolidated
|
|
|
11.8
|
%
|
|
|
11.7
|
%
|
36
The gross profit dollars increased for Europe for the year ended
August 31, 2008 primarily due to the foreign currency
translation effect which had a positive impact on gross profit
of $23.0 million followed by favorable pricing and mix.
Excluding the impact of foreign currency translation, gross
profit for Europe increased $9.1 million. In fiscal 2007,
the Company recorded a favorable adjustment related to a change
in the estimate for its European customer claims reserve, which
increased European sales $2.4 million for the year ended
August 31, 2007, without an impact on cost of sales.
Therefore, excluding the impact of foreign currency translation,
gross profit increased $11.5 million for the year ended
August 31, 2008. The European gross profit percentage
increased for the year ended August 31, 2008. Contributions
to the increase in gross profit dollars and percentage include
increased selling prices and a better mix of product. Europe
gross profit for fiscal year 2008 was negatively impacted by
approximately $1.5 million for employee termination costs.
The gross profits for the NAMB business declined to
$12.2 million for the year ended August 31, 2008 from
$15.2 million in the prior year. The decrease in gross
profits was partially a result of increases in raw material
costs, which were not completely offset by increases in pricing.
In fiscal 2008, the Company announced two price increases of up
to 20% for the NAMB business. In addition, certain restructuring
efforts have been put in place primarily during the fourth
quarter of fiscal 2008 to more efficiently utilize capacity and
resources and reduce expenses. The Company announced in fiscal
2008 the opening of a North America Masterbatch plant in the
Companys Akron, Ohio warehouse location to allow the
Company to better serve the U.S. markets more efficiently
with local production capacity. This will also free up capacity
in the Mexican plant to allow the Company to more efficiently
serve the South American markets.
Gross profits for the NAEP business declined to
$13.8 million for the year ended August 31, 2008 from
$17.8 million in the prior year. The decline was primarily
related to volume decreases in the broad business, particularly
in automotive, as well as increases in raw material costs which
have not been completely offset by increases in pricing. In
fiscal 2008, the Company announced two price increases of up to
20% for the NAEP business. The fiscal 2007 gross profits
for NAEP include accelerated depreciation related to the
Companys fiscal 2007 restructuring plan of approximately
$1.1 million, which negatively impacted gross profit. In
order to offset the effects of the weakening North American
markets, the Company accelerated the Canadian plant closure to
June 30, 2008.
Gross profits for the NADS business have declined to
$10.0 million in fiscal 2008 from $10.4 million in
fiscal 2007, as increases in pricing helped to somewhat mitigate
the sales tonnage decline.
The Companys Asia segment gross profits increased by
$1.2 million due to favorable volume and pricing as the
Asia segments business steadily increased during fiscal
2008.
A comparison of capacity utilization levels is as follows:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
Europe
|
|
|
89
|
%
|
|
|
97
|
%
|
North America Masterbatch
|
|
|
101
|
%
|
|
|
100
|
%
|
North America Engineered Plastics
|
|
|
75
|
%
|
|
|
79
|
%
|
Asia
|
|
|
66
|
%
|
|
|
61
|
%
|
Worldwide
|
|
|
85
|
%
|
|
|
90
|
%
|
Europe capacity utilization declined primarily as a result of
working capital initiatives to reduce inventory as well as some
softening in the European markets. Additionally, the Company
consciously reduced some of its lower margin business in the
European segment.
Capacity utilization for the NAEP segment declined as a result
of further weakness primarily in the domestic automotive market
as compared to the prior year. As a result of the closure of the
St. Thomas, Ontario, Canada facility, the Company moved a
limited amount of capacity to other North America facilities.
37
Overall worldwide utilization declined compared to the prior
year reflecting the challenging marketplace facing the Company
as well as efforts to reduce inventory. Pounds in inventory have
declined almost 25% from August 31, 2007 to August 31,
2008. The capacity utilization figures exclude production for
the Invision product as this business is in a
start-up
phase. Capacity utilization is calculated by dividing actual
production pounds by practical capacity at each plant.
The changes in selling, general and administrative expenses are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended August 31, 2008
|
|
|
|
$ Increase
|
|
|
% Increase
|
|
|
|
(In thousands, except
|
|
|
|
for %s)
|
|
|
Total change in selling, general and administrative expenses
|
|
$
|
19,882
|
|
|
|
13.3
|
%
|
Effect of foreign currency translation
|
|
|
11,475
|
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
Total change in selling, general and administrative expenses,
excluding the effect of foreign currency translation
|
|
$
|
8,407
|
|
|
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses for fiscal 2008
include $0.6 million in costs associated with the
termination of the lease of an airplane and CEO transition costs
of $3.6 million. The Company also incurred approximately
$0.7 million of fees in fiscal 2008 related to a proxy
contest and $1.8 million of consulting costs relating to
the development of a strategic plan, both which were not
incurred in the previous year. Excluding these items, selling,
general and administrative expenses as a percent of sales
declined to approximately 8.2%, compared to 8.4% in fiscal 2007.
The increase excluding these items and the foreign currency
translation effect of $11.5 million, was $1.7 million
all of which occurred in Europe. All Other North America costs
declined 11.5% from fiscal 2007. Also included in fiscal 2008
selling, general and administrative expenses is additional bad
debt expense as a result of customer bankruptcies.
A large part of the Companys technical activities relate
to the continuous refinement of compounds for specific customer
applications. Activities relating to the research and
development of new products and the improvement of existing
products are important to the Company. These activities are
conducted at the Companys various technical centers and
laboratories. Research and development expenditures were
approximately $5.9 million and $7.8 million in fiscal
years 2008 and 2007, respectively. These activities were
primarily related to the Invision sheet product and to support
new consumer packaging and automotive applications. The Company
continues to invest in research and development activities as
management believes it is important to the future of the Company.
Minority interest represents a 30% equity position of Mitsubishi
Chemical MKV Company in a partnership with the Company and a 35%
equity position of P.T. Prima Polycon Indah in an
Indonesian joint venture with the Company.
Interest expense was $7.8 million and $8.1 million for
the years ended August 31, 2008 and 2007, respectively.
This slight decrease of $0.3 million is primarily related
to the lower borrowing levels as compared to the prior year.
Foreign currency transaction gains or losses represent changes
in the value of currencies in major areas where the Company
operates. The Company experienced a $1.1 million foreign
currency transaction loss for the year ended August 31,
2008 as compared with a foreign currency transaction loss of
$0.2 million for the year ended August 31, 2007. The
foreign currency transaction gains or losses primarily relate to
the changes in the value of the U.S. dollar compared with
the Canadian dollar, the Mexican peso and to a lesser extent the
euro. The Company enters into forward foreign exchange contracts
to reduce the impact of changes in foreign exchange rates on the
consolidated statements of operations. These contracts reduce
exposure to currency movements affecting existing foreign
currency denominated assets and liabilities resulting primarily
from trade receivables and payables. Any gains or losses
associated with these contracts as well as the offsetting gains
or losses from the underlying assets or liabilities are
recognized on the foreign currency transaction line in the
consolidated statements of operations.
38
During fiscal 2008, the Company recorded curtailment gains of
$4.0 million. The curtailment gains included
$2.3 million related to its U.S. postretirement health
care coverage plan as a result of a significant reduction in the
expected years of future service primarily due to the sale of
the Orange, Texas facility and a change in the executive
management. In addition, the Company recorded a curtailment gain
of $1.7 million as a result of the elimination of post
retirement life insurance benefits under the
U.S. postretirement health care coverage plan which
eliminated the defined benefit for some or all of the future
services of a significant number of plan participants.
Impairment
Related Charges
As a result of the announcement in February 2008 to pursue a
sale of the Companys Orange, Texas facility, management
deemed that a trigger to evaluate goodwill in North America had
occurred. The goodwill in North America related only to the
tolling reporting unit of which the Orange, Texas facility was
the only facility. The tolling reporting unit is included in the
Companys North America Engineered Plastics segment. The
reporting units for purposes of goodwill did not change as a
result of the change in reportable segments made in the third
quarter of fiscal 2008. In accordance with Financial Accounting
Standards Board (FASB) Statement No. 142,
Goodwill and Other Intangible Assets
(SFAS 142), the Companys analysis
indicated an impairment of goodwill related to this tolling
reporting unit which resulted in a charge of approximately
$1.0 million recorded during the second quarter of fiscal
2008.
The Company also evaluated the inventory and property, plant and
equipment of the Orange, Texas and St. Thomas, Ontario, Canada
facilities, as a result of the announcement to shut down the
Companys manufacturing facility in St. Thomas, Ontario,
Canada and to pursue a sale of the Companys Orange, Texas
facility. The Company recorded an impairment related to the
long-lived assets of the Orange facility during the second
quarter of fiscal 2008 of approximately $2.7 million. The
Orange asset impairment was based on the estimated fair market
value of the long-lived assets which was determined using the
total consideration received for this facility and related
assets when it was sold in March 2008. This charge is included
in the asset impairment line item in the Companys
consolidated statement of operations. The impairment of the
assets for the Orange, Texas facility is related to the North
American Engineered Plastics segment. All assets were sold
during March 2008.
In connection with the closure of the St. Thomas, Ontario,
Canada facility, the analysis of the possible impairment of the
property, plant and equipment resulted in an impairment charge
of $2.7 million recorded during fiscal 2008. The Canada
asset impairment was based on the estimated fair market value of
the long-lived assets which was determined using the
Companys estimate of future undiscounted cash flows for
these assets. This charge is included in the asset impairment
line item in the Companys consolidated statement of
operations. The impairment of the assets for the Canadian
facility is related to the North American Engineered Plastics
segment.
The Company announced in fiscal 2008 that it would suspend
further capital expenditures on Invision until the marketing
strategy had been refined. The Company considered use of the
Findlay, Ohio facility for other purposes; however, as of
August 31, 2008 the Company considered all assets
associated with this property as held for sale. The Company
recorded an impairment of its Findlay, Ohio facility of
$6.3 million during fiscal 2008 which is included in
discontinued operations in the Companys consolidated
statement of operations. The Findlay, Ohio facility impairment
was based on the estimated fair market value of the property
which was determined using independent third party appraisals.
The impairment recorded for the Findlay, Ohio facility is
related to the Invision sheet business.
As of August 31, 2008, the land, building and related
improvements of the St. Thomas, Ontario, Canada facility, the
Findlay, Ohio facility and a building the Company owns in
Orange, Texas are considered held for sale. The net book value
of these assets held for sale after impairment is approximately
$10.5 million which is included in the property, plant and
equipment line item in the Companys consolidated balance
sheet as of August 31, 2008.
39
Restructuring
Related Charges
The St. Thomas, Ontario, Canada facility primarily produced
engineered plastics for the automotive market, with a capacity
of approximately 74 million pounds per year and employed
approximately 120 individuals. Production related to low-margin
business at the St. Thomas facility was discontinued and the
remaining higher margin business is primarily being absorbed by
the Companys Nashville, Tennessee and Bellevue, Ohio
manufacturing facilities. The facilitys production was
shutdown at the end of June 2008.
The Orange, Texas facility provided primarily North American
third-party tolling services in which the Company processed
customer-owned materials for a fee. The Company decided to exit
the North American tolling business to concentrate on higher
value-added products. Total annual capacity at the Orange, Texas
facility was approximately 135 million pounds and employed
approximately 100 employees. The Company completed the sale
of this facility in March 2008 to Alloy Polymers, Inc. for total
consideration of $3.7 million. The Company recorded a loss
on the sale of the Orange, Texas facility of approximately
$0.3 million in the third quarter of fiscal 2008 which is
included in other income in the Companys consolidated
statement of operations. In connection with this sale, the
Company entered into a tolling agreement with Alloy Polymers,
Inc. to have specified minimum quantities of products tolled
over a period of four years.
During fiscal 2008, the Company recorded approximately
$6.8 million in employee related costs which included
estimated severance payments and medical insurance for
approximately 170 employees whose positions have been or
will be eliminated throughout the North American operations and
administrative support. All the restructuring costs related to
the sale of the Orange, Texas and the St. Thomas, Ontario,
Canada facilities are related to the North America Engineered
Plastics segment. In the third quarter of fiscal 2008 in
continuation of its initiatives, the Company announced it has
changed its organizational reporting structure related to its
North America operations. This change also resulted in the
elimination of approximately 21 positions at the Sharon Center,
Ohio plant which is included in the North America Master
Polybatch segment. Costs not specifically connected to these
events are related to All Other North America.
At August 31, 2008, the Company estimated it would incur
additional charges for employee related costs, contract
termination costs and other related costs of approximately $0.5
to $0.7 million related to these fiscal 2008 initiatives of
the Company. The Company anticipated the majority of the accrued
balance for restructuring charges to be paid during the first
quarter of fiscal 2009.
During fiscal 2007, the Company announced multiple phases of a
restructuring plan to restore its North American segment to
profitability. In November 2006, in order to balance capacity
with demand, reduce costs and improve efficiencies in the North
American segment, the Company announced a plan to close two of
its manufacturing lines at its Orange, Texas plant, close a
warehouse also located in Orange, Texas and reduce the workforce
at its Bellevue, Ohio plant. Due to unanticipated customer
demand on certain lines, the two manufacturing lines at the
Orange, Texas plant continued production through the sale of the
facility in March 2008. The Orange, Texas warehouse was closed
during the third quarter of fiscal 2007. The warehouse and
related assets were considered held for sale and are included in
the Companys consolidated balance sheet in property, plant
and equipment and therefore the Company ceased depreciation on
those assets. In connection with this plan, the Company reduced
its workforce by 65 positions at various facilities including
the Bellevue, Ohio plant.
In February 2007, the Company announced the second phase of its
restructuring plan which implemented several initiatives to
improve the Companys operations and profitability in North
America. This restructuring plan includes savings from the
following initiatives:
|
|
|
|
|
Reduction in the Companys North American workforce by
approximately 30 positions, primarily in the sales and
administrative functions;
|
|
|
|
Reduction in the Companys United States retiree healthcare
coverage plan;
|
|
|
|
Greater cost sharing of employee and retiree medical plan costs;
|
|
|
|
Broad discretionary selling, general and administrative cost
reductions;
|
40
|
|
|
|
|
Savings from improved purchasing processes; and
|
|
|
|
Improved logistics efficiencies.
|
As a result of the initiatives announced in fiscal 2007, the
Company recorded approximately $1.1 million of accelerated
depreciation for the year ended August 31, 2007, which
represents a change in estimate for the reduced life of
equipment. The employee related costs include severance payments
and medical insurance for employees whose positions were
eliminated in North America. The Company recorded minimal
charges in fiscal 2008 related to the fiscal 2007 initiatives.
At August 31, 2008, the Company believes the charges
related to this restructuring plan are complete and it will not
incur additional cash out-flows related to the announced
initiatives in 2007. The total charge for this plan was
approximately $2.7 million recorded primarily in fiscal
2007.
The following table summarizes the restructuring liabilities as
of August 31, 2008 related to the Companys
restructuring plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual
|
|
|
|
|
|
|
|
|
Accrual
|
|
|
|
|
|
|
|
|
Accrual
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
August 31,
|
|
|
Fiscal 2007
|
|
|
Fiscal 2007
|
|
|
August 31,
|
|
|
Fiscal 2008
|
|
|
Fiscal 2008
|
|
|
August 31,
|
|
|
|
2006
|
|
|
Charges
|
|
|
Paid
|
|
|
2007
|
|
|
Charges
|
|
|
Paid
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Employee related costs
|
|
$
|
1,800
|
|
|
$
|
1,530
|
|
|
$
|
(906
|
)
|
|
$
|
2,424
|
|
|
$
|
6,383
|
|
|
$
|
(5,950
|
)
|
|
$
|
2,857
|
|
Other costs
|
|
|
|
|
|
|
68
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
434
|
|
|
|
(434
|
)
|
|
|
|
|
Translation effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,800
|
|
|
$
|
1,598
|
|
|
$
|
(974
|
)
|
|
$
|
2,424
|
|
|
$
|
6,817
|
|
|
$
|
(6,384
|
)
|
|
$
|
2,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The CODM uses net sales to unaffiliated customers, gross profit
and operating income in order to make decisions, assess
performance and allocate resources to each segment. Operating
income does not include interest income or expense, other income
or expense, restructuring expense or foreign currency
transaction gains or losses. In some cases, the Company may
choose to exclude from a segments results certain
non-recurring items as determined by management. These items are
included in the Corporate and Other section in the table below.
Corporate expenses include the compensation of certain
personnel, certain audit expenses, board of directors related
costs, certain insurance costs and other miscellaneous legal and
professional fees.
A reconciliation of operating income (loss) by segment to
consolidated income from continuing operations before taxes is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$ Difference
|
|
|
|
(In thousands)
|
|
|
Segment operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
95,105
|
|
|
$
|
77,773
|
|
|
$
|
17,332
|
|
North America Masterbatch
|
|
|
5,507
|
|
|
|
8,716
|
|
|
|
(3,209
|
)
|
North America Engineered Plastics
|
|
|
(6,865
|
)
|
|
|
(3,315
|
)
|
|
|
(3,550
|
)
|
North America Distribution Services
|
|
|
5,288
|
|
|
|
5,309
|
|
|
|
(21
|
)
|
Asia
|
|
|
1,507
|
|
|
|
1,015
|
|
|
|
492
|
|
All Other North America
|
|
|
(15,061
|
)
|
|
|
(17,023
|
)
|
|
|
1,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
$
|
85,481
|
|
|
$
|
72,475
|
|
|
$
|
13,006
|
|
Corporate and other
|
|
|
(21,098
|
)
|
|
|
(14,216
|
)
|
|
|
(6,882
|
)
|
Interest expense, net
|
|
|
(5,476
|
)
|
|
|
(5,812
|
)
|
|
|
336
|
|
Foreign currency transaction losses
|
|
|
(1,133
|
)
|
|
|
(219
|
)
|
|
|
(914
|
)
|
Other income
|
|
|
9
|
|
|
|
1,832
|
|
|
|
(1,823
|
)
|
Curtailment gains
|
|
|
4,009
|
|
|
|
|
|
|
|
4,009
|
|
Goodwill impairment
|
|
|
(964
|
)
|
|
|
|
|
|
|
(964
|
)
|
Asset impairment
|
|
|
(5,399
|
)
|
|
|
|
|
|
|
(5,399
|
)
|
Restructuring expense
|
|
|
(6,817
|
)
|
|
|
(1,598
|
)
|
|
|
(5,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes
|
|
$
|
48,612
|
|
|
$
|
52,462
|
|
|
$
|
(3,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
European operating income increased approximately
$17.3 million, or 22.3% for the year ended August 31,
2008 compared to the prior year primarily due to the favorable
translation effect of foreign currencies on European operating
income of approximately $11.4 million. The remaining
increase of approximately $5.9 million is primarily a
result of the increase in gross profit of $9.1 million
discussed previously, which excludes the translation effect of
foreign currencies, offset by increased European selling,
general and administrative costs. In fiscal 2007, the Company
recorded a favorable adjustment related to a change in the
estimate for its European customer claims reserve, which
increased European sales $2.4 million for the year ended
August 31, 2007, without an impact on cost of sales.
The decline in operating income for NAMB for fiscal 2008 as
compared to prior year was primarily due to the decline in gross
profit of $3.0 million, discussed previously, and the
selling, general and administrative costs directly related to
NAMB which have increased slightly compared to the prior year.
The NAEP operating loss increased $3.6 million compared to
prior year primarily due to the decline in gross profit, as
discussed previously. The decline in gross profit was partially
offset by savings in selling, general and administrative costs
related directly to NAEP resulting from Company initiatives.
NADS operating income was flat for fiscal 2008 as compared to
fiscal 2007 despite a decline in gross profit of
$0.4 million, discussed previously, due to decreased direct
NADS selling, general and administrative costs.
The Asia segment increased approximately $0.5 million
during fiscal 2008 primarily due to increased gross profits
which were partially offset by an increase in selling general
and administrative expenses in Asia.
A reconciliation of the statutory U.S. federal income tax
rate with the effective tax rates of 36.9% in 2008 and 47.0% in
2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Pretax
|
|
|
|
|
|
Pretax
|
|
|
|
Amount
|
|
|
Income
|
|
|
Amount
|
|
|
Income
|
|
|
|
(In thousands, except for %)
|
|
|
Statutory U.S. tax rate
|
|
$
|
17,014
|
|
|
|
35.0
|
%
|
|
$
|
18,362
|
|
|
|
35.0
|
%
|
Amount of foreign income taxes less than U.S. taxes at statutory
rate
|
|
|
(12,457
|
)
|
|
|
(25.6
|
)
|
|
|
(2,951
|
)
|
|
|
(5.6
|
)
|
U.S. losses with no tax benefit
|
|
|
10,669
|
|
|
|
21.9
|
|
|
|
6,697
|
|
|
|
12.8
|
|
U.S. restructuring and other U.S. unusual charges with no benefit
|
|
|
2,572
|
|
|
|
5.3
|
|
|
|
342
|
|
|
|
0.7
|
|
Provision for repatriated earnings
|
|
|
1,054
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
Establishment (resolution) of uncertain tax positions
|
|
|
(1,363
|
)
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
Reduction of German tax rate
|
|
|
|
|
|
|
|
|
|
|
1,335
|
|
|
|
2.5
|
|
Other, net
|
|
|
455
|
|
|
|
0.9
|
|
|
|
870
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,944
|
|
|
|
36.9
|
%
|
|
$
|
24,655
|
|
|
|
47.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate of 36.9% for the year ended
August 31, 2008 is greater than the U.S. statutory
rate of 35% primarily because no tax benefits were recognized
for U.S. losses from continuing operations, charges
incurred for the sale of the Orange, Texas plant, employee
termination costs, lease termination costs and CEO transition
costs. This unfavorable effect on the Companys effective
tax rate was partially offset by the overall foreign tax rate
being less than the U.S. statutory rate. As compared to the
effective rate of 47.0% for the year ended August 31, 2007,
the current years effective tax rate is driven by
increases in the U.S. pre-tax loss from operations and
other U.S. charges for which no tax benefit was recognized.
This unfavorable impact on the rate is partially offset by an
increase in foreign pre-tax income in lower rate jurisdictions,
recently implemented tax planning strategies, recently enacted
tax legislation in Germany which reduced the German statutory
rate by approximately 10 percentage points, and the
resolution of uncertain tax positions.
42
The Company uses the following non-GAAP financial measure of net
income excluding unusual items and net income per diluted share
excluding unusual items. These financial measures are used by
management to monitor and evaluate the ongoing performance of
the Company and to allocate resources. They believe that the
additional measures are useful to investors for financial
analysis. However, non-GAAP measures are not in accordance with,
nor are they a substitute for, GAAP measures. The table below
reconciles net income excluding unusual items and net income per
diluted share excluding unusual items to net income and net
income per diluted share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
August 31, 2008
|
|
|
August 31, 2007
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
Diluted
|
|
|
|
Income
|
|
|
EPS
|
|
|
Income
|
|
|
EPS
|
|
Net Income and Earnings per Share Reconciliation
|
|
(Loss)
|
|
|
Impact
|
|
|
(Loss)
|
|
|
Impact
|
|
|
|
(In thousands except per share data)
|
|
|
Net income from continuing operations applicable to common stock
|
|
$
|
30,615
|
|
|
$
|
1.13
|
|
|
$
|
27,754
|
|
|
$
|
1.01
|
|
Loss from discontinued operations
|
|
|
(12,619
|
)
|
|
|
(0.47
|
)
|
|
|
(5,738
|
)
|
|
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock
|
|
$
|
17,996
|
|
|
$
|
0.66
|
|
|
$
|
22,016
|
|
|
$
|
0.80
|
|
Adjustments, net of tax, per diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring expense
|
|
|
5,524
|
|
|
|
0.20
|
|
|
|
1,598
|
|
|
|
0.06
|
|
Accelerated depreciation, included in cost of sales
|
|
|
|
|
|
|
|
|
|
|
1,071
|
|
|
|
0.04
|
|
Asset impairment
|
|
|
10,815
|
|
|
|
0.40
|
|
|
|
|
|
|
|
|
|
Curtailment gain
|
|
|
(4,009
|
)
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
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
|
|
|
1,245
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
Insurance claim settlement adjustment
|
|
|
368
|
|
|
|
0.01
|
|
|
|
(1,500
|
)
|
|
|
(0.05
|
)
|
Legal fees related to potential European acquisition
|
|
|
|
|
|
|
|
|
|
|
628
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock before unusual items
|
|
$
|
37,125
|
|
|
$
|
1.36
|
|
|
$
|
23,813
|
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding Diluted
|
|
|
|
|
|
|
27,098
|
|
|
|
|
|
|
|
27,369
|
|
CRITICAL
ACCOUNTING POLICIES
The Company has identified critical accounting policies that, as
a result of the judgments, uncertainties, and the operations
involved, could result in material changes to its financial
condition or results of operations under different conditions or
using different assumptions. The Companys most critical
accounting policies relate to the allowance for doubtful
accounts, inventory reserve, restructuring charges, purchase
accounting and goodwill, long-lived assets, income taxes,
pension and other postretirement benefits and stock-based
compensation.
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
Management records an allowance for doubtful accounts receivable
based on the current and projected credit quality of the
Companys customers, historical experience, customer
payment history, expected trends and other factors that affect
collectability. Changes in these factors or changes in economic
circumstances could result in changes to the allowance for
doubtful accounts.
INVENTORY
RESERVE
Management establishes an inventory reserve based on historical
experience and amounts expected to be realized for slow-moving
and obsolete inventory. The Company continuously monitors its
slow-
43
moving and obsolete inventory and makes adjustments as
considered necessary. The proceeds from the sale or dispositions
of these inventories may differ from the net recorded amount.
RESTRUCTURING
CHARGES
Restructuring charges are recorded in accordance with FASB
Statement No. 112, Employers Accounting for
Postemployment Benefits, an amendment of FASB Statements
No. 5 and 43 (SFAS 112), or FASB Statement
No. 146, Accounting for Costs Associated with Exit or
Disposal Activities (SFAS 146), as applicable.
Employee related restructuring charges are recorded in
accordance with SFAS 112 if the benefits are based on an
existing benefit arrangement and are recorded in accordance with
SFAS 146 if the benefits are based on a one-time
termination benefit arrangement. All other costs associated with
an exit or disposal activity are recognized when the liability
is incurred in accordance with SFAS 146.
PURCHASE
ACCOUNTING AND GOODWILL
Business acquisitions are accounted for using the purchase
method of accounting. This method requires the Company to record
assets and liabilities of the business acquired at their
estimated fair market values as of the acquisition date. Any
excess of the cost of the acquisition over the fair value of the
net assets acquired is recorded as goodwill. The Company uses
valuation specialists to perform appraisals and assist in the
determination of the fair values of the assets acquired and
liabilities assumed. These valuations require management to make
estimates and assumptions that are critical in determining the
fair values of the assets and liabilities. Goodwill is not
amortized. The Company conducts a formal impairment test of
goodwill at the reporting unit level on an annual basis and
between annual tests if an event occurs or circumstances change
that would more likely than not reduce the fair value of a
reporting unit below its carrying value.
LONG-LIVED
ASSETS
Long-lived assets, except goodwill and indefinite-lived
intangible assets, are reviewed for impairment when
circumstances indicate the carrying value of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the asset to
future net cash flows estimated by the Company to be generated
by such assets. Fair value is the basis for the measurement of
any asset write-downs that are recorded in accordance with FASB
Statement No. 144, Accounting for Impairment or Disposal of
Long-lived Assets (SFAS 144). Estimated
remaining useful lives are used in the measurement of any
adjustments that are reflected as accelerated depreciation in
cost of sales in accordance with SFAS 144.
INCOME
TAXES
The Companys provision for income taxes involves a
significant amount of judgment by management. This provision is
impacted by the income and tax rates of the countries where the
Company operates. A change in the geographical source of the
Companys income can have a significant effect on the tax
rate. No taxes are provided on earnings which are permanently
reinvested.
In June 2006, the FASB issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109, Accounting for Income Taxes, which is
effective for fiscal years beginning after December 15,
2006. FIN 48 prescribes a comprehensive model for how a
company should recognize, measure, present, and disclose in its
financial statements uncertain tax positions that the company
has taken or expects to take on a tax return. The Company
adopted FIN 48 on September 1, 2007 resulting in an
increase to the opening balance of retained earnings of
$2.1 million for unrecognized tax benefits not previously
recognized under historical practice.
44
Various taxing authorities periodically audit the Companys
tax returns. These audits may include questions regarding the
Companys tax filing positions, including the timing and
amount of deductions and the allocation of income to various tax
jurisdictions. In evaluating the exposures associated with these
various tax filing positions, the Company records tax
liabilities for uncertain tax positions where the likelihood of
sustaining the position is not more-likely-than-not based on its
technical merits. A significant period of time may elapse before
a particular matter, for which the Company has recorded a tax
liability, is audited and fully resolved.
The establishment of the Companys tax liabilities relies
on the judgment of management to estimate the exposures
associated with its various filing positions. Although
management believes those estimates and judgments are
reasonable, actual results could differ, resulting in gains or
losses that may be material to the Companys consolidated
statements of operations.
To the extent that the Company prevails in matters for which tax
liabilities have been recorded, or are required to pay amounts
in excess of these tax liabilities, the Companys effective
tax rate in any given financial statement period could be
materially affected. An unfavorable tax settlement could result
in an increase in the Companys effective tax rate in the
financial statement period of resolution. A favorable tax
settlement could be recognized as a reduction in the
Companys effective tax rate in the financial statement
period of resolution.
The Company records a valuation allowance to reduce its deferred
tax assets if it is more likely than not that some portion or
all of the deferred tax assets will not be realized. In
accordance with the provisions of SFAS 109,
Accounting for Income Taxes, all available evidence,
both positive and negative, is considered to determine whether a
valuation allowance is needed. Evidence, such as the results of
operations for the current and preceding years, is given more
weight than projections of future income, which is inherently
uncertain. The Companys losses in the U.S. in recent
periods provide sufficient negative evidence to require a full
valuation allowance against its net deferred tax assets in the
U.S. The Company intends to maintain a valuation allowance
against its net deferred tax assets in the U.S. until
sufficient positive evidence exists to support realization of
such assets.
PENSION AND OTHER
POSTRETIREMENT BENEFITS
Defined pension plans and other postretirement benefit plans are
a significant cost of doing business that represents obligations
that will be ultimately settled far into the future and
therefore subject to estimation. Pension and postretirement
benefit accounting is intended to reflect the recognition of
future benefit costs over the employees approximate period
of employment based on the terms of the plans and the investment
and funding decisions made by the Company. While management
believes the Companys assumptions are appropriate,
significant differences in the Companys actual experience
or significant changes in the Companys assumptions,
including the discount rate used and the expected long-term rate
of return on plan assets, may materially affect the
Companys pension and postretirement obligations and future
expenses.
The Company has several postretirement benefit plans worldwide.
These plans consist primarily of defined benefit and defined
contribution pension plans and other postretirement benefit
plans. For financial statements prepared in conformity with
accounting principles generally accepted in the United States of
America, many assumptions are required to be made in order to
value the plans liabilities on a projected and accumulated
basis, as well as to determine the annual expense for the plans.
The assumptions chosen take into account historical experience,
the current economic environment and managements best
judgment regarding future experience. Assumptions include the
discount rate, the expected long-term rate of return on assets,
future salary increases, health care escalation rates, cost of
living increases, turnover, retirement ages and mortality. Based
on FASB Statement No. 158, Employers Accounting for
Defined Benefit Pension and Postretirement Plans
(SFAS 158), the full unfunded liability has to
be recognized on the balance sheet. The cumulative difference
between actual experience and assumed experience is included in
accumulated other comprehensive income. For most of the plans,
these gains or losses are recognized in expense over the average
future working lifetime of employees to
45
the extent that they exceed 10% of the greater of the Projected
Benefit Obligation (or Accumulated Post-retirement Benefit
Obligation for other postretirement benefits) and assets. The
effects of any plan changes are also included as a component of
accumulated other comprehensive income and then recognized in
expense over the average future working lifetime of the affected
plan.
For the majority of the Companys pension plans, the
Company consults with various actuaries at least annually when
reviewing and selecting the discount rates to be used. The
discount rates used by the Company are based on yields of
various corporate and governmental bond indices with varying
maturity dates. The discount rates are also reviewed in
comparison with current benchmark indices, economic market
conditions and the movement in the benchmark yield since the
previous fiscal year. The liability weighted-average discount
rate for the defined benefit pension plans is 5.4% for fiscal
2009, compared with 6.3% in fiscal 2008. For the other
postretirement benefit plan, the rate is 5.5% for fiscal 2009,
compared with 7.0% for fiscal 2008 and is obtained from the
Citigroup Pension Liability Index and Discount Curve. This rate
represents the higher interest rates generally available in the
United States, which is the Companys only country with
other postretirement benefit liabilities. Another assumption
that affects the Companys pension expense is the expected
long-term rate of return on assets. Some of the Companys
plans are funded. The weighted-average expected long-term rate
of return on assets assumption is 7.7% for fiscal 2009. In
consultation with its actuaries, the Company estimates its
pension expense to increase by approximately $0.8 million
in fiscal 2010 compared with fiscal 2009 primarily as a result
of the decreased weighted-average discount rate assumption.
The Companys principal objective is to ensure that
sufficient funds are available to provide benefits as and when
required under the terms of the plans. The Company utilizes
investments that provide benefits and maximizes the long-term
investment performance of the plans without taking on undue risk
while complying with various legal funding requirements. The
Company, through its investment advisors, has developed detailed
asset and liability models to aid in implementing optimal asset
allocation strategies. Equity securities are invested in equity
indexed funds, which minimizes concentration risk while offering
market returns. The debt securities are invested in a long-term
bond indexed fund which provides a stable low risk return. The
guaranteed investment certificates allow the Company to closely
match a portion of the liability to the expected payout of
benefit with little risk. The Company, in consultation with its
actuaries, analyzes current market trends, the current plan
performance and expected market performance of both the equity
and bond markets to arrive at the expected return on each asset
category over the long term.
The following table illustrates the sensitivity to a change in
the assumed discount rate and expected long-term rate of return
on assets for the Companys pension plans and other
postretirement plans as of August 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on
|
|
|
|
|
Impact on
|
|
August 31, 2009
|
|
|
Impact on
|
|
August 31, 2009
|
|
Projected Benefit
|
|
|
2009
|
|
Projected Benefit
|
|
Obligation for
|
|
|
Benefits
|
|
Obligation for
|
|
Postretirement
|
Change in Assumption
|
|
Expense
|
|
Pension Plans
|
|
Plans
|
|
|
|
|
(In thousands)
|
|
|
|
25 basis point decrease in discount rate
|
|
$
|
160
|
|
|
$
|
3,481
|
|
|
$
|
366
|
|
25 basis point increase in discount rate
|
|
$
|
(153
|
)
|
|
$
|
(3,313
|
)
|
|
$
|
(351
|
)
|
25 basis point decrease in expected long-term rate of
return on assets
|
|
$
|
31
|
|
|
$
|
|
|
|
$
|
|
|
25 basis point increase in expected long- term rate of
return on assets
|
|
$
|
(31
|
)
|
|
$
|
|
|
|
$
|
|
|
STOCK-BASED
COMPENSATION
Stock-based compensation requires the use of a valuation model.
The Company currently uses a Black-Scholes option pricing model
to calculate the fair value of its stock options. The
Black-Scholes model requires assumptions based on
managements judgment regarding, among others, the
volatility of the Companys stock, the expected forfeiture
rate, the expected life of the stock award and the
46
Companys dividend yield. The Company primarily uses
historical data to determine the assumptions to be used in the
Black-Scholes model and has no reason to believe that future
data is likely to differ from historical data. However, changes
in the assumptions to reflect future stock price volatility,
future dividend payments and future stock award exercise
experience may result in a material change to the fair value
calculation of share-based awards. While management believes the
Companys assumptions used are appropriate, significant
differences in the Companys actual experience or
significant changes in the Companys assumptions, including
the volatility of the Companys stock, the expected
forfeiture rate, the expected life of the stock award and the
dividend yield, may materially affect the Companys future
stock-based compensation expense.
The Company grants certain types of equity grants which involve
market conditions for determining vesting. These awards vest
based on total shareholder return over a certain period compared
to the shareholder return of other peer companies. The concept
of modeling is used with such awards because observable market
prices for these types of awards are not available. The modeling
technique that is generally considered to most appropriately
value this type of award is the Monte Carlo simulation. These
models are considered to be a more refined estimate of fair
value for awards with market conditions than the Black-Scholes
model. The Monte Carlo simulation requires assumptions based on
managements judgment regarding, among others, the
volatility of the Companys stock, the expected forfeiture
rate, the correlation rate of the Companys stock price
compared to peer companies and the Companys dividend
yield. The Company uses historical data to determine the
assumptions to be used in the Monte Carlo simulation and has no
reason to believe that future data is likely to differ from
historical data. However, changes in the assumptions to reflect
future stock price volatility, future dividend payments, future
forfeitures and future correlation experience may result in a
material change to the fair value calculation of share-based
awards. While management believes the Companys assumptions
used are appropriate, significant differences in the
Companys actual experience or significant changes in the
Companys assumptions, including the volatility of the
Companys stock, the expected forfeiture rate, the expected
life of the stock award, the correlation rate and the dividend
yield, may materially affect the Companys future
stock-based compensation expense.
LIQUIDITY AND
CAPITAL RESOURCES
The following table summarizes certain key balances on the
Companys balance sheet and related metrics.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
August 31,
|
|
|
|
|
|
|
2009
|
|
2008
|
|
$ change
|
|
% Change
|
|
|
(In millions, except for %s)
|
|
Cash and cash equivalents
|
|
$
|
228.7
|
|
|
$
|
97.7
|
|
|
$
|
131.0
|
|
|
|
134
|
%
|
Working capital, excluding cash
|
|
$
|
133.1
|
|
|
$
|
305.2
|
|
|
$
|
(172.1
|
)
|
|
|
(56
|
)%
|
Long-term debt
|
|
$
|
102.3
|
|
|
$
|
104.3
|
|
|
$
|
(2.0
|
)
|
|
|
(2
|
)%
|
Total debt
|
|
$
|
104.8
|
|
|
$
|
113.8
|
|
|
$
|
(9.0
|
)
|
|
|
(8
|
)%
|
Net debt (net cash)*
|
|
$
|
(123.9
|
)
|
|
$
|
16.1
|
|
|
$
|
(140.0
|
)
|
|
|
(870
|
)%
|
Stockholders equity
|
|
$
|
366.1
|
|
|
$
|
425.2
|
|
|
$
|
(59.1
|
)
|
|
|
(14
|
)%
|
|
|
|
* |
|
Total debt less cash and cash equivalents |
The Companys working capital, excluding cash, declined
significantly compared to previous year primarily as a result of
the Companys long-term working capital reduction program.
The fiscal year 2009 ended with the Companys net cash
(total debt less cash and cash equivalents) position at
$123.9 million, an improvement of $140.0 million since
August 31, 2008.
The Companys cash and cash equivalents were
$228.7 million at August 31, 2009, an increase of
$131.0 million from August 31, 2008. Net cash provided
from operations was $181.5 million in 2009 compared with
$155.8 million in 2008. The improvement from last year was
due to a substantial reduction of inventory and accounts
receivable driven by reduced sales and the Companys
efforts to reduce overall working capital. Cash used in
investing activities was consistent with prior year at
$23.8 million in 2009
47
compared with $22.4 million in 2008. The Companys
cash used in financing activities decreased $48.2 million
due primarily to fiscal 2008 activity including repayments of
the Companys revolving credit line and purchases of
approximately 2.0 million shares of its common stock.
The Companys approximate working capital days are
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
August 31, 2009
|
|
August 31, 2008
|
|
Days in receivables
|
|
|
58
|
|
|
|
58
|
|
Days in inventory
|
|
|
46
|
|
|
|
48
|
|
Days in payables
|
|
|
44
|
|
|
|
34
|
|
Total working capital days
|
|
|
60
|
|
|
|
72
|
|
Accounts receivable decreased by $114.5 million, or 35.7%,
primarily due to decreased sales and partially due to the
translation effect of foreign currencies, primarily the euro,
which accounted for a decrease of $16.6 million in accounts
receivable. Days in accounts receivable remained stable at
58 days at August 31, 2009 and 2008. This was achieved
during a difficult economic period where some customers
struggled to make payments and stay in business.
Inventory decreased approximately $91.4 million in fiscal
2009 or 40.6%. The translation effect of foreign currencies
decreased inventory by $7.6 million. The Companys
inventory pounds declined 33.2% in fiscal 2009. The
Companys days sales in inventory improved two days to
46 days at August 31, 2009 from 48 days at
August 31, 2008. This improvement is driven by efforts to
reduce inventory across the Company.
Accounts payable decreased $26.8 million from
August 31, 2008, however the translation effect of foreign
currencies, primarily the euro accounted for $8.5 million
of the decrease. Days payable increased 10 days to
44 days at August 31, 2009. The Company has continued
to renegotiate terms with vendors in order to be more consistent
with the Companys terms for customers.
Capital expenditures for the years ended August 31, 2009
and 2008 were $24.8 million and $26.1 million,
respectively. The major component of the capital expenditures
included additions related to the new Akron, Ohio plant and
adding a new smaller line, which is replacing an older
inefficient line, in the Nashville, Tennessee plant. The Company
anticipates approximately $25 million to $35 million
in capital expenditures in fiscal 2010.
The Company has a credit facility that consists of
$260.0 million of revolving credit lines (Credit
Facility) of which the U.S. dollar equivalent of
$160.0 million is available to certain of the
Companys foreign subsidiaries for borrowings in euros or
other currencies. The Credit Facility, which was put in place on
February 28, 2006 and matures on February 28, 2011,
contains certain covenants that, among other things, limit the
Companys ability to incur indebtedness and enter into
certain transactions beyond specified limits. The Company must
also maintain a minimum interest coverage ratio and may not
exceed a maximum net debt leverage ratio. As of the year ended
August 31, 2009, the Company was not in violation of any of
its covenants relating to the Credit Facility.
Interest rates on the Credit Facility are based on LIBOR or
EURIBOR (depending on the borrowing currency) plus a spread
determined by the Companys total leverage ratio. The
Company also pays a facility fee on the commitments whether used
or unused. The Credit Facility allows for a provision which
provides a portion of the funds available as a short-term
swing-line loan. The swing-line loan interest rate varies based
on a mutually agreed upon rate between the bank and the Company.
There was $7.0 million outstanding on the Credit Facility
as of August 31, 2008 which is considered short-term. This
amount is included in notes payable in the Companys
consolidated balance sheets. As of August 31, 2008 there
were no long-term borrowings under the Credit Facility. There
were no short-term or long-term borrowings on the credit
facility at August 31, 2009.
48
On March 1, 2006, the Company issued senior guaranteed
notes (Senior Notes) in the private placement market
consisting of the following:
|
|
|
|
|
$30.0 million of Senior Notes in the United States,
maturing on March 1, 2013, with a variable interest rate of
LIBOR plus 80 bps (Dollar Notes). Although
there are no plans to do so, the Company may, at its option,
prepay all or part of the Dollar Notes.
|
|
|
|
50.3 million of Senior Notes in Germany, maturing on
March 1, 2016, with a fixed interest rate of 4.485%
(Euro Notes). The Euro Notes approximate
$72.2 million at August 31, 2009.
|
The Senior Notes are guaranteed by the Companys
wholly-owned domestic subsidiaries and contain covenants
substantially identical to those in the $260.0 million
revolving credit facility. As of the year ended August 31,
2009, the Company was not in violation of any of its covenants
relating to the Senior Notes.
Both the Credit Facility and the Senior Notes are supported by
up to 65% of the capital stock of certain of the Companys
directly owned foreign subsidiaries.
The Company had approximately $8.5 million of
uncollateralized short-term lines of credit available from
various domestic banks at August 31, 2009 and 2008. There
were no borrowings at August 31, 2009 and 2008 under these
lines of credit.
The Company had approximately $41.3 million and
$51.0 million of uncollateralized short-term foreign lines
of credit available to its subsidiaries at August 31, 2009
and August 31, 2008, respectively. The Company had
approximately $2.5 million outstanding under these lines of
credit at August 31, 2009 and 2008.
Below summarizes the Companys available funds as of
August 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
As of August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Credit Facility
|
|
$
|
260.0
|
|
|
$
|
260.0
|
|
Uncollateralized short-term lines of credit
U.S.
|
|
$
|
8.5
|
|
|
$
|
8.5
|
|
Uncollateralized short-term lines of credit Foreign
|
|
$
|
41.3
|
|
|
$
|
51.0
|
|
|
|
|
|
|
|
|
|
|
Total gross available funds from credit lines and notes
|
|
$
|
309.8
|
|
|
$
|
319.5
|
|
Credit Facility
|
|
|
|
|
|
|
7.0
|
|
Uncollateralized short-term lines of credit
U.S.
|
|
|
|
|
|
|
|
|
Uncollateralized short-term lines of credit Foreign
|
|
|
2.5
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
Total borrowings outstanding
|
|
|
2.5
|
|
|
|
9.5
|
|
Credit Facility
|
|
$
|
260.0
|
|
|
$
|
253.0
|
|
Uncollateralized short-term lines of credit
U.S.
|
|
$
|
8.5
|
|
|
$
|
8.5
|
|
Uncollateralized short-term lines of credit Foreign
|
|
$
|
38.8
|
|
|
$
|
48.5
|
|
|
|
|
|
|
|
|
|
|
Total net available funds from credit lines and notes
|
|
$
|
307.3
|
|
|
$
|
310.0
|
|
|
|
|
|
|
|
|
|
|
The Company has approximately $0.4 million in capital lease
obligations as of August 31, 2009, of which
$0.3 million is current. The current portion of capital
lease obligations was $0.4 million in fiscal 2008. The
Companys current portion of capital lease obligations is
included in other accrued liabilities on the Companys
consolidated balance sheets.
49
The Companys unfunded pension liability is approximately
$72.7 million at August 31, 2009. This amount is
primarily due to an unfunded plan of $57.6 million
maintained by the Companys German subsidiary. Under this
plan, no separate vehicle is required to accumulate assets to
provide for the payment of benefits. The benefits are paid
directly by the Company to the participants. It is anticipated
that the German subsidiary will generate sufficient funds from
operations to pay these benefits in the future.
The Company adopted the required portions of FASB Statement
No. 157, (SFAS 157), Fair Value
Measurement, as of September 1, 2008. The adoption did not
have a material impact on the Companys financial position,
results of operations and cash flows. In accordance with FASB
Staff Position (FSP)
No. FAS 157-2,
Effective Date of FASB Statement No. 157, the
Company delayed the adoption of portions of SFAS 157
related to nonfinancial assets and nonfinancial liabilities,
except for items recognized or disclosed at fair value on a
recurring basis. Accordingly, the Company will adopt the
provisions of SFAS 157 related to nonfinancial assets and
nonfinancial liabilities recognized or disclosed at fair value
on a nonrecurring basis in fiscal 2010. The Company is currently
evaluating the impact, if any, of the adoption of this portion
of SFAS 157 on its financial position, results of
operations and cash flows.
SFAS 157 establishes a fair value hierarchy to prioritize
the inputs used in valuation techniques into three levels as
follows:
|
|
|
|
|
Level 1: Observable inputs that reflect quoted
prices (unadjusted) for identical assets or liabilities in
active markets;
|
|
|
|
Level 2: Inputs other than quoted prices
included in Level 1 that are observable for the asset or
liability either directly or indirectly; and
|
|
|
|
Level 3: Unobservable inputs which reflect an
entitys own assumptions.
|
The fair value of cash equivalents, by their nature, is
determined utilizing Level 1 inputs.
The Company enters into forward foreign exchange contracts to
reduce its exposure for amounts due or payable in foreign
currencies. The Company measures the fair value of the forward
foreign exchange contracts using Level 2 inputs through
observable market transactions in active markets provided by
banks. The forward foreign exchange contracts are entered into
with creditworthy multinational banks. These contracts limit the
Companys exposure to fluctuations in foreign currency
exchange rates. Any gains or losses associated with these
contracts as well as the offsetting gains or losses from the
underlying assets or liabilities are recognized on the foreign
currency transaction line in the Companys consolidated
statements of operations. The Company estimates that a 10%
change in foreign exchange rates at August 31, 2009 would
have changed the fair value of the contracts by approximately
$0.5 million. Changes in the fair value of forward foreign
exchange contracts are substantially offset by changes in the
fair value of the hedged positions. The Company does not hold or
issue financial instruments for trading purposes or utilize any
other types of derivative instruments.
The Company adopted FASB Statement No. 159,
(SFAS 159), The Fair Value Option for Financial
Assets and Financial Liabilities Including an
Amendment of FASB Statement No. 115. However, the Company
did not elect the fair value option for any of its existing
financial instruments other than those already measured at fair
value. Therefore, the Companys adoption of SFAS 159
as of September 1, 2008 did not have a material impact on
the Companys financial position, results of operations and
cash flows.
During the year ended August 31, 2009, the Company paid
cash dividends aggregating to $0.60 per share. The total amount
of these dividends was $15.8 million. Cash flow has been
sufficient to fund the payment of these dividends.
For the year ended August 31, 2009, the Company issued
approximately 34,000 common shares upon the exercise of employee
stock options and approximately 66,000 common shares were issued
to employees under the restricted stock plan. The total amount
received from the issuance of common stock was $0.4 million.
50
On April 25, 2006, the Company announced that its Board of
Directors authorized the repurchase of up to 6.75 million
shares of its outstanding common stock (the Repurchase
Program) representing approximately 23.3% of the
Companys outstanding shares at the authorization date. The
Repurchase Program replaced the Companys prior repurchase
authorization, under which approximately 1.7 million shares
had remained authorized for repurchase. As a part of an
agreement reached with the Barington Group during fiscal 2008,
the Board has agreed to increase to five million the remaining
number of shares authorized to be repurchased under the
Repurchase Program (2008 Repurchase Program). The
Company announced its intent to repurchase at least
2.0 million shares under the 2008 Repurchase Program in the
fiscal year ended August 31, 2008, subject to market
conditions, materially relevant capital considerations of the
Company and compliance with applicable laws. During fiscal 2008,
the Company repurchased approximately 2.0 million shares of
common stock at an average price of $21.20 per share. During the
year ended August 31, 2009, the Company repurchased
approximately 0.1 million shares of its common stock at an
average price of $14.77 per share. The Company may continue
repurchasing common stock under the Companys 2008
Repurchase Program through open market repurchases from time to
time, subject to market conditions, capital considerations of
the Company and compliance with applicable laws. As of
August 31, 2009, approximately 2.9 million shares
remain available to be repurchased under the Companys
repurchase program.
The assets and liabilities of the Companys foreign
subsidiaries are translated into U.S. dollars using current
exchange rates. Income statement items are translated at average
exchange rates prevailing during the period. The resulting
translation adjustments are recorded as a component of
accumulated other comprehensive income in
stockholders equity. The pressured global economy and
strengthening of the U.S. dollar during the year ended
August 31, 2009 decreased this account by
$30.8 million.
Based on past performance and current expectations, Management
believes the Companys cash and cash equivalents,
investments, and cash generated from operations will satisfy the
Companys working capital needs, capital expenditures,
contractual obligations and other liquidity requirements
associated with operations through at least the next
12 months. Additional common stock repurchases would
generally be funded through incremental borrowing.
A summary of the Companys future obligations subsequent to
August 31, 2009 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
|
|
|
1 year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Short Term Debt
|
|
$
|
2,519
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,519
|
|
Long Term Debt
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
72,161
|
|
|
|
102,161
|
|
Capital Lease Obligations
|
|
|
332
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
424
|
|
Operating Lease Obligations(b)
|
|
|
3,513
|
|
|
|
3,672
|
|
|
|
1,400
|
|
|
|
834
|
|
|
|
9,419
|
|
Purchase Obligations(a)
|
|
|
39,575
|
|
|
|
13,408
|
|
|
|
6,750
|
|
|
|
|
|
|
|
59,733
|
|
Pension Obligations
|
|
|
3,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500
|
|
Postretirement Benefit Obligations
|
|
|
879
|
|
|
|
1,939
|
|
|
|
2,056
|
|
|
|
5,296
|
|
|
|
10,170
|
|
Deferred Compensation Obligations
|
|
|
3,137
|
|
|
|
7,089
|
|
|
|
400
|
|
|
|
575
|
|
|
|
11,201
|
|
Interest payments
|
|
|
4,273
|
|
|
|
7,863
|
|
|
|
6,182
|
|
|
|
5,198
|
|
|
|
23,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
57,728
|
|
|
$
|
34,063
|
|
|
$
|
46,788
|
|
|
$
|
84,064
|
|
|
$
|
222,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Purchase obligations include purchase contracts and purchase
orders for inventory. |
|
(b) |
|
Operating lease information is provided in the Notes to the
Consolidated Financial Statements appearing in ITEM 8 of
this Report. |
The Company had no FIN 48 liabilities for uncertain tax
positions as of August 31, 2009 for which it could
reasonably estimate the timing and amount of future payments;
therefore, no amounts were included in the Companys future
obligations table.
51
The Companys outstanding commercial commitments at
August 31, 2009 are not material to the Companys
financial position, liquidity or results of operations except as
discussed in the Notes to the Consolidated Financial Statements
appearing in ITEM 8 of this Report.
OFF-BALANCE SHEET
ARRANGEMENTS
The Company does not have any off-balance sheet arrangements.
NEW ACCOUNTING
PRONOUNCEMENTS
In December 2007, the FASB issued FASB Statement
No. 141(R), Business Combinations
(SFAS 141R). SFAS 141R replaces FASB
Statement No. 141. SFAS 141R requires the acquiring
entity in a business combination to recognize all assets
acquired and liabilities assumed in the transaction and any
non-controlling interest in the acquiree at the acquisition
date, measured at the fair value as of that date. This includes
the measurement of the acquirer shares issued in consideration
for a business combination, the recognition of contingent
consideration, the accounting for pre-acquisition gain and loss
contingencies, the recognition of capitalized in-process
research and development, the accounting for acquisition-related
restructuring cost accruals, the treatment of
acquisition-related transaction costs and the recognition of
changes in the acquirers income tax valuation allowance
and deferred taxes. SFAS 141R is effective for business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008. Early adoption is not permitted.
The Company is required to adopt SFAS 141R in fiscal year
2010. The Company is assessing the impact that SFAS 141R
may have on its financial position, results of operations and
cash flows.
In December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements,
an amendment of ARB No. 51 (SFAS 160).
SFAS 160 clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial
statements. SFAS 160 is effective for the Company for the
fiscal year 2010, with early adoption being prohibited. The
Company is assessing the impact that SFAS 160 may have on
its financial position, results of operations and cash flows.
In May 2009, the FASB issued FASB Statement No. 165,
Subsequent Events (SFAS 165). SFAS 165 is
intended to establish general standards of accounting for and
disclosures of events that occur after the balance sheet date
but before financial statements are issued or are available to
be issued. SFAS 165 requires disclosure of the date through
which an entity has evaluated subsequent events and the basis
for that date, and is effective for interim and annual periods
ending after June 15, 2009. The Company reflected the
provisions and disclosures of SFAS 165 in its footnotes and
financial statements for its year ended August 31, 2009.
In June 2009, the FASB issued FASB Statement No. 168, The
FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles a
Replacement of FASB Statement No. 162
(SFAS 168). SFAS 168 establishes the
Codification as the source of authoritative Generally Accepted
Accounting Principles (GAAP) recognized by the FASB
to be applied by nongovernmental entities. Subsequent to the
issuance of SFAS 168, the FASB will not issue new standards
in the form of Statements, FASB Staff Positions, or Emerging
Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates. All guidance contained in the Codification
carries an equal level of authority. The GAAP hierarchy will be
modified to include only two levels of GAAP: authoritative and
nonauthoritative. All nongrandfathered non-SEC accounting
literature not included in the Codification will become
nonauthoritative. SFAS 168 is effective for interim or
annual financial periods ending after September 15, 2009.
The Company is required to adopt SFAS 168 in fiscal year
2010. The Company expects its adoption of SFAS 168 to only
impact the references in its financial statements to technical
accounting literature.
52
CAUTIONARY
STATEMENTS
Certain statements in this Annual Report 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 Companys
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 Companys 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 Companys 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;
|
|
|
|
Performance of the global automotive market;
|
|
|
|
Global financial market turbulence; and
|
|
|
|
Global or regional economic slowdown or recession.
|
Additional risk factors are set forth in ITEM 1A of this
Report. The risks and uncertainties identified above are not the
only risks the Company faces. Additional 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
Companys business, financial condition and results of
operations.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The Company conducts business on a multinational basis in a
variety of foreign currencies. The Companys exposure to
market risk for changes in foreign currency exchange rates
arises from anticipated transactions from international trade
and repatriation of foreign earnings. The Companys
principle foreign currency exposures relate to the euro, U. K.
pound sterling, Canadian dollar, Mexican peso, Chinese yuan, and
Indonesian rupiah.
The Company enters into forward foreign exchange contracts to
reduce its exposure to fluctuations in related foreign
currencies. These contracts are with major financial
institutions and the risk of loss is considered remote. The
total value of open contracts and any risk to the Company as a
result of these arrangements is not material to the
Companys financial position, liquidity or results of
operations.
The Companys exposure to market risk from changes in
interest rates relates primarily to its debt obligations.
Interest on the Revolving Facility is based on the London
Inter-Bank Offered Rate (LIBOR) for U.S. dollar borrowings
and the Euro Interbank Offered Rate (EURIBOR) for euro
borrowings. At August 31, 2009, the Company had no
long-term borrowings against its Revolving Facility. Borrowing
costs may fluctuate depending upon the volatility of LIBOR,
EURIBOR and amounts borrowed.
53
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
A. SCHULMAN,
INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
54
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of A. Schulman, Inc.
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of A. Schulman,
Inc. and its subsidiaries at August 31, 2009 and 2008, and
the results of their operations and their cash flows for each of
the three years in the period ended August 31, 2009 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under
Item 15(a)(2) presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
August 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for these financial statements and financial statement schedule,
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying Managements Report On Internal Control Over
Financial Reporting under Item 9A. Our responsibility is to
express opinions on these financial statements, on the financial
statement schedule, and on the Companys internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As discussed in the notes to the consolidated financial
statements, the Company changed the manner in which it accounts
for uncertainty in income taxes as of September 1, 2007
(Note 1).
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Cleveland, Ohio
October 26, 2009
55
A. SCHULMAN,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands except share and per share data)
|
|
|
Net sales
|
|
$
|
1,279,248
|
|
|
$
|
1,983,595
|
|
|
$
|
1,786,892
|
|
Cost of sales
|
|
|
1,109,211
|
|
|
|
1,749,065
|
|
|
|
1,578,213
|
|
Selling, general and administrative expenses
|
|
|
148,143
|
|
|
|
169,275
|
|
|
|
149,393
|
|
Minority interest
|
|
|
349
|
|
|
|
872
|
|
|
|
1,027
|
|
Interest expense
|
|
|
4,785
|
|
|
|
7,814
|
|
|
|
8,118
|
|
Interest income
|
|
|
(2,348
|
)
|
|
|
(2,338
|
)
|
|
|
(2,306
|
)
|
Foreign currency transaction (gains) losses
|
|
|
(5,645
|
)
|
|
|
1,133
|
|
|
|
219
|
|
Other income
|
|
|
(1,826
|
)
|
|
|
(9
|
)
|
|
|
(1,832
|
)
|
Curtailment gains
|
|
|
(2,805
|
)
|
|
|
(4,009
|
)
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
964
|
|
|
|
|
|
Asset impairment
|
|
|
2,608
|
|
|
|
5,399
|
|
|
|
|
|
Restructuring expense
|
|
|
8,665
|
|
|
|
6,817
|
|
|
|
1,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,261,137
|
|
|
|
1,934,983
|
|
|
|
1,734,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes
|
|
|
18,111
|
|
|
|
48,612
|
|
|
|
52,462
|
|
Provision for U.S. and foreign income taxes
|
|
|
6,931
|
|
|
|
17,944
|
|
|
|
24,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
11,180
|
|
|
|
30,668
|
|
|
|
27,807
|
|
Loss from discontinued operations, net of tax of $0
|
|
|
(13,956
|
)
|
|
|
(12,619
|
)
|
|
|
(5,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,776
|
)
|
|
$
|
18,049
|
|
|
$
|
22,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,790,421
|
|
|
|
26,794,923
|
|
|
|
27,032,348
|
|
Diluted
|
|
|
26,069,631
|
|
|
|
27,097,896
|
|
|
|
27,369,408
|
|
Earnings (losses) per share of common stock
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.43
|
|
|
$
|
1.14
|
|
|
$
|
1.02
|
|
Loss from discontinued operations
|
|
|
(0.54
|
)
|
|
|
(0.47
|
)
|
|
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.11
|
)
|
|
$
|
0.67
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) per share of common stock
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.43
|
|
|
$
|
1.13
|
|
|
$
|
1.01
|
|
Loss from discontinued operations
|
|
|
(0.54
|
)
|
|
|
(0.47
|
)
|
|
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.11
|
)
|
|
$
|
0.66
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
56
A. SCHULMAN,
INC.
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
228,674
|
|
|
$
|
97,728
|
|
Accounts receivable, less allowance for doubtful accounts of
$10,279 in 2009 and $8,316 in 2008
|
|
|
206,450
|
|
|
|
320,926
|
|
Inventories, average cost or market, whichever is lower
|
|
|
133,536
|
|
|
|
224,964
|
|
Prepaid expenses and other current assets
|
|
|
20,779
|
|
|
|
18,499
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
589,439
|
|
|
|
662,117
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Cash surrender value of life insurance
|
|
|
3,101
|
|
|
|
2,665
|
|
Deferred charges and other assets
|
|
|
23,715
|
|
|
|
23,017
|
|
Goodwill
|
|
|
11,577
|
|
|
|
10,679
|
|
Intangible assets
|
|
|
217
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,610
|
|
|
|
36,556
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, at cost:
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
|
16,236
|
|
|
|
17,026
|
|
Buildings and leasehold improvements
|
|
|
147,121
|
|
|
|
156,465
|
|
Machinery and equipment
|
|
|
345,653
|
|
|
|
346,999
|
|
Furniture and fixtures
|
|
|
39,581
|
|
|
|
41,272
|
|
Construction in progress
|
|
|
4,546
|
|
|
|
9,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
553,137
|
|
|
|
571,488
|
|
Accumulated depreciation and investment grants of $988 in 2009
and $1,123 in 2008
|
|
|
383,697
|
|
|
|
379,740
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
|
169,440
|
|
|
|
191,748
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
797,489
|
|
|
$
|
890,421
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
2,519
|
|
|
$
|
9,540
|
|
Accounts payable
|
|
|
147,476
|
|
|
|
174,226
|
|
U.S. and foreign income taxes payable
|
|
|
8,858
|
|
|
|
3,212
|
|
Accrued payrolls, taxes and related benefits
|
|
|
36,207
|
|
|
|
37,686
|
|
Other accrued liabilities
|
|
|
32,562
|
|
|
|
34,566
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
227,622
|
|
|
|
259,230
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
102,254
|
|
|
|
104,298
|
|
Other long-term liabilities
|
|
|
92,688
|
|
|
|
90,585
|
|
Deferred income taxes
|
|
|
3,954
|
|
|
|
5,544
|
|
Minority interest
|
|
|
4,901
|
|
|
|
5,533
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, 5% cumulative, $100 par value, authorized,
issued and outstanding 15 shares in 2009 and
10,564 shares in 2008
|
|
|
2
|
|
|
|
1,057
|
|
Common stock, $1 par value, authorized
75,000,000 shares, issued
42,295,492 shares in 2009 and 42,231,341 shares in 2008
|
|
|
42,295
|
|
|
|
42,231
|
|
Other capital
|
|
|
115,358
|
|
|
|
112,105
|
|
Accumulated other comprehensive income
|
|
|
38,714
|
|
|
|
79,903
|
|
Retained earnings
|
|
|
492,513
|
|
|
|
511,101
|
|
Treasury stock, at cost, 16,207,011 shares in 2009 and
16,095,491 shares in 2008
|
|
|
(322,812
|
)
|
|
|
(321,166
|
)
|
|
|
|
|
|
|
|
|
|
Common stockholders equity
|
|
|
366,068
|
|
|
|
424,174
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
366,070
|
|
|
|
425,231
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
797,489
|
|
|
$
|
890,421
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
57
A. SCHULMAN,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Other
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Stock
|
|
|
Equity
|
|
|
|
(In thousands except per share data)
|
|
|
Balance at August 31, 2006
|
|
$
|
1,057
|
|
|
$
|
40,707
|
|
|
$
|
86,894
|
|
|
$
|
32,893
|
|
|
$
|
501,198
|
|
|
$
|
(261,057
|
)
|
|
$
|
401,692
|
|
Comprehensive income for 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,069
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustment (net of tax of $263)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,070
|
|
Adjustment to initially apply SFAS 158 (net of tax of
$2,585)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,802
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,802
|
)
|
Cash dividends paid or accrued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $5 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
(53
|
)
|
Common stock, $0.58 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,149
|
)*
|
|
|
|
|
|
|
(16,149
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,107
|
)
|
|
|
(18,107
|
)
|
Stock options exercised
|
|
|
|
|
|
|
743
|
|
|
|
13,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,916
|
|
Restricted stock issued, net of forfeitures
|
|
|
|
|
|
|
335
|
|
|
|
(335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash stock based compensation
|
|
|
|
|
|
|
|
|
|
|
1,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,851
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
2,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2007
|
|
|
1,057
|
|
|
|
41,785
|
|
|
|
103,828
|
|
|
|
50,092
|
|
|
|
507,065
|
|
|
|
(279,164
|
)
|
|
|
424,663
|
|
Impact due to adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,078
|
|
|
|
|
|
|
|
2,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted balance at September 1, 2007
|
|
|
1,057
|
|
|
|
41,785
|
|
|
|
103,828
|
|
|
|
50,092
|
|
|
|
509,143
|
|
|
|
(279,164
|
)
|
|
|
426,741
|
|
Comprehensive income for 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,049
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net actuarial losses (net of tax of $1,709)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in prior service costs (credit) (net of tax of $138)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrecognized transition obligations (net of tax of
$0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,860
|
|
Cash dividends paid or accrued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $5 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
(53
|
)
|
Common stock, $0.59 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,038
|
)
|
|
|
|
|
|
|
(16,038
|
)
|
Stock options exercised
|
|
|
|
|
|
|
206
|
|
|
|
3,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,922
|
|
Restricted stock issued, net of forfeitures
|
|
|
|
|
|
|
245
|
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of common stock to cover tax withholdings
|
|
|
|
|
|
|
(5
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,002
|
)
|
|
|
(42,002
|
)
|
Non-cash stock based compensation
|
|
|
|
|
|
|
|
|
|
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
743
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
4,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2008
|
|
|
1,057
|
|
|
|
42,231
|
|
|
|
112,105
|
|
|
|
79,903
|
|
|
|
511,101
|
|
|
|
(321,166
|
)
|
|
|
425,231
|
|
Comprehensive income for 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,776
|
)
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net actuarial losses (net of tax of $1,567)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in prior service costs (credit) (net of tax of $523)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrecognized transition obligations (net of tax of
$0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43,965
|
)
|
Cash dividends paid or accrued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $5 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
(53
|
)
|
Common stock, $0.60 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,759
|
)
|
|
|
|
|
|
|
(15,759
|
)
|
Stock options exercised
|
|
|
|
|
|
|
34
|
|
|
|
552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
586
|
|
Restricted stock issued, net of forfeitures
|
|
|
|
|
|
|
45
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of common stock to cover tax withholdings
|
|
|
|
|
|
|
(15
|
)
|
|
|
(201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(216
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,646
|
)
|
|
|
(1,646
|
)
|
Redemption of preferred stock
|
|
|
(1,055
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,055
|
)
|
Non-cash stock based compensation
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
2,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2009
|
|
$
|
2
|
|
|
$
|
42,295
|
|
|
$
|
115,358
|
|
|
$
|
38,714
|
|
|
$
|
492,513
|
|
|
$
|
(322,812
|
)
|
|
$
|
366,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes approximately $0.3 million related to the
redemption of the special stock purchase rights which were paid
at a price of $0.01 per share for shareholders of record on
January 19, 2007. This $0.01 is not included in the $0.58
per share for common stock dividends. |
The accompanying notes are an integral part of the consolidated
financial statements.
58
A. SCHULMAN,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Provided from (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,776
|
)
|
|
$
|
18,049
|
|
|
$
|
22,069
|
|
Adjustments to reconcile net income (loss) to net cash provided
from (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
23,632
|
|
|
|
27,721
|
|
|
|
25,802
|
|
Deferred tax provision
|
|
|
(2,974
|
)
|
|
|
(2,597
|
)
|
|
|
(1,865
|
)
|
Pension and other deferred compensation
|
|
|
3,955
|
|
|
|
3,259
|
|
|
|
11,347
|
|
Postretirement benefit obligation
|
|
|
773
|
|
|
|
2,839
|
|
|
|
(2,837
|
)
|
Net losses on asset sales
|
|
|
740
|
|
|
|
318
|
|
|
|
68
|
|
Minority interest in net income of subsidiaries
|
|
|
349
|
|
|
|
872
|
|
|
|
1,027
|
|
Restructuring charges, including accelerated depreciation of
$1,326, $0 and $1,071 in 2009, 2008 and 2007, respectively
|
|
|
10,011
|
|
|
|
6,817
|
|
|
|
2,669
|
|
Goodwill impairment
|
|
|
|
|
|
|
964
|
|
|
|
|
|
Asset impairment
|
|
|
12,925
|
|
|
|
11,699
|
|
|
|
|
|
Curtailment gains
|
|
|
(2,805
|
)
|
|
|
(4,009
|
)
|
|
|
|
|
Proceeds of insurance settlements
|
|
|
|
|
|
|
|
|
|
|
750
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
91,218
|
|
|
|
16,614
|
|
|
|
(29,088
|
)
|
Inventories
|
|
|
78,756
|
|
|
|
54,682
|
|
|
|
37,942
|
|
Accounts payable
|
|
|
(17,856
|
)
|
|
|
25,838
|
|
|
|
(3,018
|
)
|
Restructuring payments
|
|
|
(6,684
|
)
|
|
|
(6,384
|
)
|
|
|
(974
|
)
|
Income taxes
|
|
|
3,720
|
|
|
|
(5,247
|
)
|
|
|
(2,006
|
)
|
Accrued payrolls and other accrued liabilities
|
|
|
(1,582
|
)
|
|
|
1,704
|
|
|
|
789
|
|
Changes in other assets and other long-term liabilities
|
|
|
(9,905
|
)
|
|
|
2,646
|
|
|
|
2,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided from operating activities
|
|
|
181,497
|
|
|
|
155,785
|
|
|
|
64,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provided from (used in) investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for property, plant and equipment
|
|
|
(24,787
|
)
|
|
|
(26,070
|
)
|
|
|
(29,379
|
)
|
Proceeds from the sale of assets
|
|
|
950
|
|
|
|
3,700
|
|
|
|
1,284
|
|
Business acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(11,277
|
)
|
Proceeds of insurance settlements
|
|
|
|
|
|
|
|
|
|
|
1,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(23,837
|
)
|
|
|
(22,370
|
)
|
|
|
(38,077
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provided from (used in) financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
(15,812
|
)
|
|
|
(16,091
|
)
|
|
|
(16,202
|
)
|
Increase (decrease) in notes payable
|
|
|
(7,344
|
)
|
|
|
5,997
|
|
|
|
(9,372
|
)
|
Borrowings on revolving credit facilities
|
|
|
19,000
|
|
|
|
119,557
|
|
|
|
63,076
|
|
Repayments on revolving credit facilities
|
|
|
(19,000
|
)
|
|
|
(145,112
|
)
|
|
|
(66,871
|
)
|
Cash distributions to minority shareholders
|
|
|
(980
|
)
|
|
|
(900
|
)
|
|
|
(1,250
|
)
|
Preferred stock redemption
|
|
|
(1,055
|
)
|
|
|
|
|
|
|
|
|
Common stock issued
|
|
|
370
|
|
|
|
3,828
|
|
|
|
13,916
|
|
Purchases of treasury stock
|
|
|
(1,646
|
)
|
|
|
(42,002
|
)
|
|
|
(18,107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(26,467
|
)
|
|
|
(74,723
|
)
|
|
|
(34,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(247
|
)
|
|
|
(4,009
|
)
|
|
|
373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
130,946
|
|
|
|
54,683
|
|
|
|
(7,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
97,728
|
|
|
|
43,045
|
|
|
|
50,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
228,674
|
|
|
$
|
97,728
|
|
|
$
|
43,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
4,445
|
|
|
$
|
7,531
|
|
|
$
|
7,829
|
|
Income Taxes
|
|
$
|
7,243
|
|
|
$
|
27,405
|
|
|
$
|
31,230
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
59
A. SCHULMAN,
INC.
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
A. Schulman, Inc. (the Company) is a leading
international supplier of high-performance plastic compounds and
resins. These materials are used in a variety of consumer,
industrial, automotive and packaging applications. The Company
employs about 2,000 people and has 16 manufacturing
facilities in North America, Europe and Asia.
To identify reportable segments, the Company considers its
operating structure and the types of information subject to
regular review by its President and Chief Executive Officer
(CEO), who is the Chief Operating Decision Maker
(CODM). Globally, the Company operates primarily in
three lines of business: engineered plastics, masterbatch and
distribution services. In North America, there is a general
manager of each of these lines of business each of who report
directly to the Companys CEO. Effective September 1,
2008, the Company named a general manager of Asia and a general
manager of Europe. This change separated the responsibilities
that were previously combined under the general manager of
Europe, which then included Asia. Based on the Companys
new management structure and an evaluation of how the CODM
reviews performance and allocates resources, the Company
redefined its European segment to separate the Asian operations
from the European operations beginning in the first quarter of
fiscal 2009. Prior periods have been restated to reflect the
current presentation. The reportable segments are Europe, North
America Masterbatch (NAMB) (previously, referred to
as North America Polybatch or NAPB), North America Engineered
Plastics (NAEP), North America Distribution Services
(NADS) and Asia. See Note 14 for more
information on the Companys segments.
During the fourth quarter of fiscal 2009, the Company completed
the majority of the closing of its Invision sheet manufacturing
operation at its Sharon Center, Ohio manufacturing facility.
This business comprised the former Invision segment of the
Companys business. The Company reflected the results of
these operations as discontinued operations for all periods
presented in the Companys consolidated statements of
operations. See Note 2 for further information regarding
the Companys discontinued operations.
During fiscal 2009, the Company received notification from a
U.S. multi-employer pension plan that it was being assessed
for partial and complete withdrawal liabilities from the plan.
This plan covered the Companys employees who previously
worked at the Companys Orange, Texas warehouse. The
Company terminated over 70% of this locations workforce in
fiscal 2004, and then terminated the remaining workforce in
fiscal 2007. In accordance with the Employee Retirement Income
Security Act (ERISA) guidelines these workforce
reductions qualified as partial and complete withdrawals from
the plan. Accordingly, the plan assessed the Company for
withdrawal liabilities of $1.8 million for the fiscal 2004
partial withdrawal and $0.6 million for the fiscal 2007
complete withdrawal for its share of the underfunded
multi-employer plan. The Company revised the consolidated
financial information for the fiscal years 2004 and 2007 to
reflect the correction of an immaterial error identified in
fiscal 2009 that related to prior periods. The Company reflected
in its consolidated statements of stockholders equity a
change of $1.8 million to the August 31, 2006 ending
retained earnings balance and a change of $0.6 million to
fiscal 2007 income from continuing operations, net income and
total stockholders equity. The fiscal 2007 change of
$0.6 million was included in the restructuring expense line
item in the Companys consolidated statements of
operations. In addition, the Company reflected a change of
$2.4 million as a liability in the consolidated balance
sheets as of August 31, 2009 and 2008.
60
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
PRINCIPLES OF
CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and its domestic and foreign subsidiaries in which a
controlling interest is maintained. All significant intercompany
transactions have been eliminated.
Minority interest represents a 30% equity position of Mitsubishi
Chemical MKV Co. in a partnership with the Company and a 35%
equity position of P.T. Prima Polycon Indah in an
Indonesian joint venture with the Company.
USE OF
ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
CASH EQUIVALENTS
AND SHORT-TERM INVESTMENTS
All highly liquid investments purchased with an original
maturity of three months or less are considered to be cash
equivalents. Such investments amounted to $130.0 million at
August 31, 2009 and $44.0 million at August 31,
2008. The Companys cash equivalents and investments are
diversified with numerous financial institutions which
management believes to have acceptable credit ratings. These
investments are primarily money-market funds and short-term time
deposits. The money-market funds are primarily AAA rated by
third parties. Management continues to monitor the placement of
its cash given the current credit market. The recorded amount of
these investments approximates fair value. Investments with
maturities between three and twelve months are considered to be
short-term investments. As of August 31, 2009 and
August 31, 2008, the Company did not hold any short-term
investments.
ACCOUNTS
RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Trade accounts receivable are recorded at the invoiced amount
and do not bear interest. Management records an allowance for
doubtful accounts receivable based on the current and projected
credit quality of the Companys customers, historical
experience, customer payment history, expected trends and other
factors that affect collectability. Changes in these factors or
changes in economic circumstances could result in changes to the
allowance for doubtful accounts. The Company reviews its
allowance for doubtful accounts on a periodic basis. Trade
accounts receivables are charged off against the allowance for
doubtful accounts when the Company determines it is probable the
account receivable will not be collected. Trade accounts
receivables, less allowance for doubtful accounts, reflect the
net realizable value of receivables, and approximate fair value.
The Company does not have any off-balance sheet exposure related
to its customers.
REVENUE
RECOGNITION
The Companys accounting policy regarding revenue
recognition is to recognize revenue when products are shipped to
unaffiliated customers and both title and the risks and rewards
of ownership are transferred.
The Company provides tolling services primarily in Europe as a
fee for processing of material provided and owned by customers.
On some occasions, the Company is required to provide certain
61
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amounts of its materials, such as additives or packaging. These
materials are charged to the customer as an addition to the
tolling fees. The Company recognizes revenues from tolling
services and related materials when such services are performed.
The only amounts recorded as revenue related to tolling are the
processing fees and the charges related to materials provided by
the Company.
PROPERTY, PLANT
AND EQUIPMENT AND DEPRECIATION
It is the Companys policy to depreciate the cost of
property, plant and equipment over the estimated useful lives of
the assets, or for leasehold improvements over the applicable
lease term, using the straight-line method. The estimated useful
lives used in the computation of depreciation are as follows:
|
|
|
|
|
Buildings and leasehold improvements
|
|
|
7 to 40 years
|
|
Machinery and equipment
|
|
|
5 to 10 years
|
|
Furniture and fixtures
|
|
|
5 to 10 years
|
|
The cost of property sold or otherwise disposed of is eliminated
from the property accounts and the related reserve accounts.
Gains or losses are recognized as appropriate when sales of
property occur.
Maintenance and repair costs are charged against income. The
cost of renewals and betterments is capitalized in the property
accounts.
As of August 31, 2009, the Companys Findlay, Ohio
facility, the St. Thomas, Ontario, Canada facility, the Orange,
Texas warehouse, and certain equipment related to Invision are
considered held for sale. The net book value of these assets
held for sale after impairment is approximately
$6.5 million which is included in the property, plant and
equipment line item in the Companys consolidated balance
sheet as of August 31, 2009. Of the assets held for sale,
only Invision is included in discontinued operations on the
Companys consolidated statements of operations.
INVENTORIES
The Company and its subsidiaries do not distinguish between raw
materials and finished goods because numerous products that can
be sold as finished goods are also used as raw materials in the
production of other inventory items. Management establishes an
inventory reserve based on historical experience and amounts
expected to be realized for slow-moving and obsolete inventory.
GOODWILL
The Company does not amortize goodwill. However, the Company
conducts a formal impairment test of goodwill at the reporting
unit level on an annual basis and between annual tests if an
event occurs or circumstances change that would more likely than
not reduce the fair value of a reporting unit below its carrying
value. The Company completed its annual goodwill impairment
review as of February 28, 2009, which is all related to the
Europe segment, and no impairment charges were necessary. In
addition, the Company is not aware of any triggers which would
require a goodwill impairment test as of August 31, 2009.
LONG-LIVED
ASSETS
Long-lived assets, except goodwill and indefinite-lived
intangible assets, are reviewed for impairment when
circumstances indicate the carrying value of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the asset to
future net cash flows estimated by the Company to be generated
by such assets. If such assets are considered to be impaired,
the impairment to be recognized is the amount by which the
carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are recorded at the lower of
carrying
62
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
value or estimated net realizable value. The Company recorded
approximately $2.6 million and $5.4 million in asset
impairments during the years ended August 31, 2009 and
2008, respectively, excluding impairments recorded in
discontinued operations. The Company recorded $10.3 million
and $6.3 million of asset impairments included in
discontinued operations for the years ended August 31, 2009
and 2008, respectively, for certain Invision assets. See
Note 2 and Note 16 for further discussion on the asset
impairments.
INCOME
TAXES
Income taxes are recognized during the period in which
transactions enter into the determination of financial statement
income. Accordingly, deferred taxes are provided for temporary
differences between the book and tax bases of assets and
liabilities. A valuation allowance is established when it is
more likely than not that all or a portion of a deferred tax
asset will not be realized. No taxes are provided on earnings
which are permanently reinvested.
On September 1, 2007, the Company adopted Financial
Accounting Standards Board (FASB) interpretation
No. 48, (FIN 48), Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109, Accounting for Income Taxes.
FIN 48 prescribes a comprehensive model for how a company
should recognize, measure, present and disclose in its financial
statements uncertain tax positions that the company has taken or
expects to take on a tax return. FIN 48 requires the
Company to recognize a financial statement benefit for a
position taken or expected to be taken in a tax return when it
is more likely than not that the position will be sustained.
RETIREMENT
PLANS
The Company has several defined benefit and defined contribution
pension plans, and a few retirement plans for which
contributions are determined at the discretion of the Board of
Directors, covering certain employees in the U.S. and in
foreign countries. For selected plans in the U.S., pension
funding is based on an amount paid to funds held in trust at an
agreed rate for each hour for which employees are paid.
Generally, the defined benefit pension plans accrue the current
and prior service costs annually and funding is not required for
all plans.
FOREIGN CURRENCY
TRANSLATION
The financial position and results of operations of the
Companys foreign subsidiaries are generally measured using
local currency as the functional currency. Assets and
liabilities of these subsidiaries are translated at the exchange
rate in effect at each reporting period end. Income statement
accounts are translated at the average rate of exchange
prevailing during the year. Accumulated other comprehensive
income in stockholders equity includes translation
adjustments arising from the use of different exchange rates
from period to period.
RECLASSIFICATION
Certain items previously reported in specific financial
statement captions have been reclassified to conform to the 2009
presentation.
As a result of the Companys decision in fiscal 2009 to
cease operation of its Invision sheet production, the Invision
segment has been accounted for as a discontinued operation and
the prior periods have been reclassified on the Companys
consolidated statements of operations to conform to the current
period presentation (refer to Note 2 Discontinued
Operations).
63
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES
The Company accounts for derivatives under Statement of
Financial Accounting Standard (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities
(SFAS 133) as amended and interpreted.
SFAS 133 requires all derivatives, whether designated in
hedging relationships or not, to be recorded on the balance
sheet at fair value. The forward foreign exchange contracts are
adjusted to their fair market value through the statement of
operations. Gains or losses on forward foreign exchange
contracts that hedge specific transactions are recognized in the
consolidated statement of operations offsetting the underlying
foreign currency gains or losses. Currently, the Company does
not designate any of these contracts as hedges.
STOCK-BASED
COMPENSATION
On September 1, 2005, the Company adopted
SFAS No. 123 (Revised 2004), Share-Based Payment
(SFAS 123R), which requires the Company to
measure all employee stock-based compensation awards using a
fair value method and record the related expense in the
consolidated financial statements. The Company elected to use
the modified prospective transition method. The modified
prospective transition method requires that compensation cost be
recognized in the consolidated financial statements for all
awards granted after the date of adoption as well as for
existing awards for which the requisite service has not been
rendered as of the date of adoption and requires that prior
periods not be restated.
FAIR VALUE
MEASUREMENT
On September 1, 2008, the Company adopted
SFAS No. 157, Fair Value Measurements
(SFAS 157) for financial assets and
liabilities. SFAS 157 defines fair value as the price that
would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants
at the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to
be recorded at fair value, the Company considers the principal
or most advantageous market in which it would transact and the
Company considers assumptions that market participants would use
when pricing the asset or liability, such as inherent risk,
transfer restrictions, and risk of nonperformance. See
Note 6 for further discussion on fair value measurement.
NEW ACCOUNTING
PRONOUNCEMENTS
In December 2007, the FASB issued FASB Statement
No. 141(R), Business Combinations
(SFAS 141R). SFAS 141R replaces FASB
Statement No. 141. SFAS 141R requires the acquiring
entity in a business combination to recognize all assets
acquired and liabilities assumed in the transaction and any
non-controlling interest in the acquiree at the acquisition
date, measured at the fair value as of that date. This includes
the measurement of the acquirer shares issued in consideration
for a business combination, the recognition of contingent
consideration, the accounting for pre-acquisition gain and loss
contingencies, the recognition of capitalized in-process
research and development, the accounting for acquisition-related
restructuring cost accruals, the treatment of acquisition
related transaction costs and the recognition of changes in the
acquirers income tax valuation allowance and deferred
taxes. SFAS 141R is effective for business combinations for
which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after
December 15, 2008. Early adoption is not permitted. The
Company is required to adopt SFAS 141R in fiscal year 2010.
The Company is assessing the impact that SFAS 141R may have
on its financial position, results of operations and cash flows.
64
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2007, the FASB issued FASB Statement No. 160,
Noncontrolling Interests in Consolidated Financial Statements,
an amendment of ARB No. 51 (SFAS 160).
SFAS 160 clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial
statements. SFAS 160 is effective for the Company for the
fiscal year 2010, with early adoption being prohibited. The
Company is assessing the impact that SFAS 160 may have on
its financial position, results of operations and cash flows.
In May 2009, the FASB issued FASB Statement No. 165,
Subsequent Events (SFAS 165). SFAS 165 is
intended to establish general standards of accounting for and
disclosures of events that occur after the balance sheet date
but before financial statements are issued or are available to
be issued. SFAS 165 requires disclosure of the date through
which an entity has evaluated subsequent events and the basis
for that date, and is effective for interim and annual periods
ending after June 15, 2009. The Company reflected the
provisions and disclosures of SFAS 165 in its footnotes and
financial statements for the year ended August 31, 2009.
The Company evaluated subsequent events through October 26,
2009 for the year ended August 31, 2009.
In June 2009, the FASB issued FASB Statement No. 168, The
FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles a
Replacement of FASB Statement No. 162
(SFAS 168). SFAS 168 establishes the
Codification as the source of authoritative Generally Accepted
Accounting Principles (GAAP) recognized by the FASB
to be applied by nongovernmental entities. Subsequent to the
issuance of SFAS 168, the FASB will not issue new standards
in the form of Statements, FASB Staff Positions, or Emerging
Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates. All guidance contained in the Codification
carries an equal level of authority. The GAAP hierarchy will be
modified to include only two levels of GAAP: authoritative and
nonauthoritative. All nongrandfathered non-SEC accounting
literature not included in the Codification will become
nonauthoritative. SFAS 168 is effective for interim or
annual financial periods ending after September 15, 2009.
The Company is required to adopt SFAS 168 in fiscal year
2010. The Company expects its adoption of SFAS 168 to only
impact the references in its financial statements to technical
accounting literature.
|
|
NOTE 2
|
DISCONTINUED
OPERATIONS
|
During the fourth quarter of fiscal 2009, the Company completed
the majority of the closing of the Invision manufacturing
operation at its Sharon Center, Ohio manufacturing facility. The
operating results of Invision were previously included in the
Companys former Invision segment. The Company reflected
the results of this segment as discontinued operations for all
of the periods presented. The remaining assets of Invision,
including a facility in Findlay, Ohio, which was a dedicated
building for the Invision business, and machinery and equipment
at the Sharon Center, Ohio facility are considered held for sale
as of August 31, 2009. These assets are included in the
Companys balance sheet in property, plant and equipment.
Included in the results of discontinued operations for the year
ended August 31, 2009 was approximately $10.3 million
of asset impairments for the Findlay, Ohio facility and certain
assets at the Sharon Center, Ohio facility. The asset
impairments were based on the estimated fair market value of the
long-lived assets which was determined through third party
appraisals. In addition, the Company recorded less than
$0.1 million of cash charges related to employee
termination costs. The results for the year ended
August 31, 2008 include an impairment of $6.3 million
related to the Findlay, Ohio facility. The Findlay, Ohio
facility impairment was based on the estimated fair market value
of the property which was determined using independent third
party appraisals. The Company expects minimal charges as final
shutdown of the equipment and facility continues into fiscal
2010.
65
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following summarizes the results for discontinued operations
for the years ended August 31, 2009, 2008 and 2007. The
loss from discontinued operations does not include any income
tax effect as the Company was not in a taxable position due to
its continued U.S. losses and a full valuation allowance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
217
|
|
|
$
|
416
|
|
|
$
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
$
|
(3,619
|
)
|
|
$
|
(6,376
|
)
|
|
$
|
(5,738
|
)
|
Asset impairment
|
|
|
(10,317
|
)
|
|
|
(6,300
|
)
|
|
|
|
|
Restructuring expense
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(13,956
|
)
|
|
$
|
(12,619
|
)
|
|
$
|
(5,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 3
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The changes in the Companys allowance for doubtful
accounts during the years ended August 31, 2009 and 2008
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
8,316
|
|
|
$
|
9,056
|
|
Provision
|
|
|
4,821
|
|
|
|
3,116
|
|
Write-offs, net of recoveries
|
|
|
(2,604
|
)
|
|
|
(4,181
|
)
|
Translation effect
|
|
|
(254
|
)
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
10,279
|
|
|
$
|
8,316
|
|
|
|
|
|
|
|
|
|
|
NOTE 4
GOODWILL AND OTHER INTANGIBLE ASSETS
In accordance with FASB Statement No. 142
(SFAS 142), Goodwill and Other Intangible
Assets, the Company is required to review goodwill and
indefinite-lived intangible assets at least annually for
impairment. Goodwill impairment is tested at the reporting unit
level on an annual basis and between annual tests if an event
occurs or circumstances change that would more likely than not
reduce the fair value of a reporting unit below its carrying
value.
The Company completed its annual goodwill impairment review as
of February 28, 2009, which is all related to the Europe
segment, and no impairment charges were necessary. In addition,
the Company assessed that there were no triggers which would
require a goodwill impairment test as of August 31, 2009.
Although the Company redefined its Europe segment to separate
the Asia operations from the Europe operations beginning in
fiscal 2009, the reporting units used for the testing of
goodwill did not change. The fair value used in the analysis was
based on average earnings before interest, taxes, depreciation
and amortization and cash flow multiples. The Company has been
consistent with its method of estimating fair value when an
indication of fair value from a buyer or similar specific
transactions is not available.
During the second quarter of fiscal 2008, as a result of the
Companys announcement in February 2008 to pursue a sale of
its Orange, Texas facility, the Company noted a trigger event to
test for impairment of goodwill in the NAEP segment. The
analysis of goodwill in the NAEP segment related to the tolling
reporting unit resulted in an impairment charge of approximately
$1.0 million in fiscal 2008. The fair value was based on
estimated future cash flows including potential sale proceeds.
During fiscal 2007, the Company acquired the Delta Plast Group,
a European color masterbatch manufacturer with operations in
Sweden and Belgium. In connection with the acquisition, the
Company recorded approximately $3.8 million of goodwill.
The purchase price also included potential deferred
66
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
payments that could be paid over a three year period based on
certain terms in the purchase agreement. During fiscal 2008, the
Company paid the first deferred payment related to this purchase
agreement of approximately $1.6 million, which increased
goodwill by the same amount. In addition, during the fourth
quarter of fiscal 2008, the Company made a $0.1 million
final purchase price accounting adjustment related to the Delta
Plast Group acquisition, which increased goodwill. The Company
paid approximately $1.4 million in fiscal 2009 related to
the second deferred payment in accordance with the purchase
agreement, which increased goodwill by the same amount. The
Company has completed its obligation for deferred payments
related to this acquisition; therefore, no further payments will
be made. See Note 17 for further discussion on the business
acquisition.
The changes in the Companys carrying value of goodwill
during the years ended August 31, 2009 and 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
NAEP
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance as of August 31, 2007
|
|
$
|
8,386
|
|
|
$
|
964
|
|
|
$
|
9,350
|
|
Goodwill impairment
|
|
|
|
|
|
|
(964
|
)
|
|
|
(964
|
)
|
Deferred payment and purchase price adjustment related to
business acquisition in fiscal 2007
|
|
|
1,676
|
|
|
|
|
|
|
|
1,676
|
|
Translation effect
|
|
|
617
|
|
|
|
|
|
|
|
617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of August 31, 2008
|
|
|
10,679
|
|
|
|
|
|
|
|
10,679
|
|
Deferred payment related to business acquisition in fiscal 2007
|
|
|
1,415
|
|
|
|
|
|
|
|
1,415
|
|
Translation effect
|
|
|
(517
|
)
|
|
|
|
|
|
|
(517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of August 31, 2009
|
|
$
|
11,577
|
|
|
$
|
|
|
|
$
|
11,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets were $0.2 million at August 31, 2009
and 2008.
NOTE 5
LONG-TERM DEBT AND CREDIT ARRANGEMENTS
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Notes payable, due within one year
|
|
$
|
2,519
|
|
|
$
|
2,540
|
|
Revolving credit loan, due within one year
|
|
|
|
|
|
|
7,000
|
|
Revolving credit loan, LIBOR plus applicable spread, due 2011
|
|
|
|
|
|
|
|
|
Euro notes, 4.485%, due 2016
|
|
|
72,161
|
|
|
|
73,847
|
|
Senior notes, LIBOR plus 80 bps, due 2013
|
|
|
30,000
|
|
|
|
30,000
|
|
Capital lease obligations
|
|
|
424
|
|
|
|
894
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
105,104
|
|
|
$
|
114,281
|
|
|
|
|
|
|
|
|
|
|
The Company has a credit facility that consists of
$260.0 million of revolving credit lines (Credit
Facility) of which the U.S. dollar equivalent of
$160.0 million is available to certain of the
Companys foreign subsidiaries for borrowings in euros or
other currencies. The Credit Facility, which was put in place on
February 28, 2006 and matures on February 28, 2011,
contains certain covenants that, among other things, limit the
Companys ability to incur indebtedness and enter into
certain transactions beyond specified limits. The Company must
also maintain a minimum interest coverage ratio and may not
exceed a maximum net debt leverage ratio.
Interest rates on the Credit Facility are based on LIBOR or
EURIBOR (depending on the borrowing currency) plus a spread
determined by the Companys total leverage ratio. The
Company also pays a facility fee on the commitments whether used
or unused. The Credit Facility allows for a provision which
67
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provides a portion of the funds available as a short-term
swing-line loan. The swing-line loan interest rate varies based
on a mutually agreed upon rate between the bank and the Company.
There were no short-term borrowings at August 31, 2009. At
August 31, 2008, there was $7.0 million outstanding on
the Credit Facility which is considered short-term. This amount
is included in notes payable in the Companys consolidated
balance sheets. There were no long-term borrowings under the
Credit Facility as of August 31, 2009 and 2008.
On March 1, 2006, the Company issued senior guaranteed
notes (Senior Notes) in the private placement market
consisting of the following:
|
|
|
|
|
$30.0 million of Senior Notes in the United States,
maturing on March 1, 2013, with a variable interest rate of
LIBOR plus 80 bps (Dollar Notes). Although
there are no plans to do so, the Company may, at its option,
prepay all or part of the Dollar Notes.
|
|
|
|
50.3 million of Senior Notes in Germany, maturing on
March 1, 2016, with a fixed interest rate of 4.485%
(Euro Notes). The Euro Notes approximate
$72.2 million at August 31, 2009.
|
The Senior Notes are guaranteed by the Companys
wholly-owned domestic subsidiaries and contain covenants
substantially identical to those in the $260.0 million
revolving Credit Facility.
Both the Credit Facility and the Senior Notes are supported by
up to 65% of the capital stock of certain of the Companys
directly owned foreign subsidiaries.
The Company had approximately $8.5 million of
uncollateralized short-term lines of credit available from
various domestic banks at August 31, 2009 and 2008. There
were no borrowings at August 31, 2009 and 2008 under these
lines of credit.
The Company had approximately $41.3 million and
$51.0 million of uncollateralized short-term foreign lines
of credit available to its subsidiaries at August 31, 2009
and August 31, 2008, respectively. There was approximately
$2.5 million outstanding under these lines of credit at
August 31, 2009 and 2008.
The Companys short-term debt of $2.5 million as of
August 31, 2009 had a weighted average interest rate of
approximately 4.9% and approximately 7.7% for the
$9.5 million outstanding as of August 31, 2008.
Below summarizes the Companys available funds as of
August 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
As of August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Credit Facility
|
|
$
|
260.0
|
|
|
$
|
260.0
|
|
Uncollateralized short-term lines of credit
U.S.
|
|
$
|
8.5
|
|
|
$
|
8.5
|
|
Uncollateralized short-term lines of credit Foreign
|
|
$
|
41.3
|
|
|
$
|
51.0
|
|
|
|
|
|
|
|
|
|
|
Total gross available funds from credit lines and notes
|
|
$
|
309.8
|
|
|
$
|
319.5
|
|
Credit Facility
|
|
|
|
|
|
|
7.0
|
|
Uncollateralized short-term lines of credit
U.S.
|
|
|
|
|
|
|
|
|
Uncollateralized short-term lines of credit Foreign
|
|
|
2.5
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
Total borrowings outstanding
|
|
|
2.5
|
|
|
|
9.5
|
|
Credit Facility
|
|
$
|
260.0
|
|
|
$
|
253.0
|
|
Uncollateralized short-term lines of credit
U.S.
|
|
$
|
8.5
|
|
|
$
|
8.5
|
|
Uncollateralized short-term lines of credit Foreign
|
|
$
|
38.8
|
|
|
$
|
48.5
|
|
|
|
|
|
|
|
|
|
|
Total net available funds from credit lines and notes
|
|
$
|
307.3
|
|
|
$
|
310.0
|
|
|
|
|
|
|
|
|
|
|
68
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has approximately $0.4 million in capital lease
obligations, of which $0.3 million is current. The current
portion of capital lease obligations was $0.4 million in
fiscal 2008. The Companys current portion of capital lease
obligations is included in other accrued liabilities on the
Companys consolidated balance sheets.
Aggregate maturities of debt including capital lease obligations
subsequent to August 31, 2009 are as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Fiscal 2010
|
|
$
|
2,851
|
|
2011
|
|
|
88
|
|
2012
|
|
|
4
|
|
2013
|
|
|
30,000
|
|
2014
|
|
|
|
|
2015 and thereafter
|
|
|
72,161
|
|
|
|
|
|
|
Total
|
|
$
|
105,104
|
|
|
|
|
|
|
NOTE 6
FAIR VALUE MEASUREMENT
On September 15, 2006, the FASB issued SFAS 157, which
addresses standardizing the measurement of fair value for
companies who are required to use a fair value measure for
recognition or disclosure purposes. The FASB defines fair value
as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measure date. The
Companys adoption of the required portions of
SFAS 157 as of September 1, 2008 did not have a
material impact on the Companys financial position,
results of operations and cash flows. In February 2008, the FASB
issued Staff Position (FSP)
No. FAS 157-2,
Effective Date of FASB Statement No. 157, which
delayed the required adoption of portions of SFAS 157
related to nonfinancial assets and nonfinancial liabilities,
except for items recognized or disclosed at fair value on a
recurring basis. Accordingly, the Company will adopt the
provisions of SFAS 157 related to nonfinancial assets and
nonfinancial liabilities recognized or disclosed at fair value
on a nonrecurring basis in fiscal 2010. The Company is currently
evaluating the impact, if any, of the adoption of this portion
of SFAS 157 on its financial position, results of
operations and cash flows.
SFAS 157 establishes a fair value hierarchy to prioritize
the inputs used in valuation techniques into three levels as
follows:
|
|
|
|
|
Level 1: Observable inputs that reflect quoted
prices (unadjusted) for identical assets or liabilities in
active markets;
|
|
|
|
Level 2: Inputs other than quoted prices
included in Level 1 that are observable for the asset or
liability either directly or indirectly; and
|
|
|
|
Level 3: Unobservable inputs which reflect an
entitys own assumptions.
|
69
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents information about the
Companys assets and liabilities recorded at fair value as
of August 31, 2009 in the Companys consolidated
balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
Total
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Measured at
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
129,993
|
|
|
$
|
129,993
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
129,993
|
|
|
$
|
129,993
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
107
|
|
|
$
|
|
|
|
$
|
107
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
107
|
|
|
$
|
|
|
|
$
|
107
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of cash equivalents, by their nature, is
determined utilizing Level 1 inputs. The Company measures
the fair value of its forward foreign exchange contracts using
Level 2 inputs through observable market transactions in
active markets provided by banks. The forward foreign exchange
contracts are entered into with creditworthy multinational banks.
The Company enters into forward foreign exchange contracts to
reduce its exposure for amounts due or payable in foreign
currencies. These contracts limit the Companys exposure to
fluctuations in foreign currency exchange rates. Any gains or
losses associated with these contracts as well as the offsetting
gains or losses from the underlying assets or liabilities are
included in the foreign currency transaction line in the
Companys consolidated statements of operations. The
Company does not hold or issue forward foreign exchange
contracts for trading purposes. The following table presents a
summary of forward foreign exchange contracts outstanding as of
August 31, 2009 and August 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2009
|
|
|
August 31, 2008
|
|
|
|
Contract
|
|
|
Fair
|
|
|
Contract
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Foreign currency exchange contracts Buy
|
|
$
|
6,266
|
|
|
$
|
6,143
|
|
|
$
|
9,801
|
|
|
$
|
9,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange contracts Sell
|
|
$
|
1,407
|
|
|
$
|
1,391
|
|
|
$
|
18,514
|
|
|
$
|
18,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of forward foreign exchange contracts was
estimated by obtaining quotes from banks. Forward foreign
exchange contracts are entered into with substantial and
creditworthy multinational banks. Generally these contracts have
maturities of less than twelve months and have no hedging
designation in accordance with SFAS 133.
The following information presents the supplemental fair value
information about long-term fixed-rate debt at August 31,
2009. The Companys long-term fixed-rate debt was issued in
Euros.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2009
|
|
August 31, 2008
|
|
|
(In millions of $)
|
|
(In millions of )
|
|
(In millions of $)
|
|
(In millions of )
|
|
Carrying value of long-term fixed-rate debt
|
|
$
|
72.2
|
|
|
|
50.3
|
|
|
$
|
73.8
|
|
|
|
50.3
|
|
Fair value of long-term fixed-rate debt
|
|
$
|
65.6
|
|
|
|
45.8
|
|
|
$
|
63.7
|
|
|
|
43.4
|
|
The fair value was calculated using discounted future cash
flows. The increase in fair value compared with August 31,
2008 is primarily related to a decrease in
yield-to-maturity,
caused by lower market interest rates, and a shorter average
life to maturity, offset partially by a weaker Euro.
70
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In February 2007, the FASB issued SFAS 159 which permits
companies to choose, at specified election dates, to measure
many financial instruments and certain other items at fair value
that are not currently measured at fair value. Unrealized gains
and losses on items for which the fair value option has been
elected would be reported in earnings at each subsequent
reporting date. Upfront costs and fees related to items for
which the fair value option is elected shall be recognized in
earnings as incurred and not deferred. The Company did not elect
the fair value option for any of its existing financial
instruments other than those already measured at fair value.
Therefore, the Companys adoption of SFAS 159 as of
September 1, 2008 did not have an impact on the
Companys financial position, results of operations and
cash flows.
NOTE 7
INCOME TAXES
Income (loss) before taxes from continuing operations is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
U.S.
|
|
$
|
(40,130
|
)
|
|
$
|
(37,832
|
)
|
|
$
|
(20,110
|
)
|
Foreign
|
|
|
58,241
|
|
|
|
86,444
|
|
|
|
72,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,111
|
|
|
$
|
48,612
|
|
|
$
|
52,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The loss from discontinued operations does not include any
income tax effect as the Company was not in a taxable position
due to its continued U.S. losses and a full valuation
allowance.
The provisions for U.S. and foreign income taxes consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Current taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
91
|
|
|
$
|
133
|
|
|
$
|
107
|
|
Foreign
|
|
|
9,814
|
|
|
|
20,408
|
|
|
|
26,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,905
|
|
|
|
20,541
|
|
|
|
26,520
|
|
Deferred taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
(483
|
)
|
|
|
(145
|
)
|
|
|
31
|
|
Foreign
|
|
|
(2,491
|
)
|
|
|
(2,452
|
)
|
|
|
(1,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,974
|
)
|
|
|
(2,597
|
)
|
|
|
(1,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,931
|
|
|
$
|
17,944
|
|
|
$
|
24,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the statutory U.S. federal income tax
rate with the effective tax rates of 38.3% in 2009, 36.9% in
2008, and 47.0% in 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Pretax
|
|
|
|
|
|
Pretax
|
|
|
|
|
|
Pretax
|
|
|
|
Amount
|
|
|
Income
|
|
|
Amount
|
|
|
Income
|
|
|
Amount
|
|
|
Income
|
|
|
|
(In thousands, except for %s)
|
|
|
Statutory U.S. tax rate
|
|
$
|
6,339
|
|
|
|
35.0
|
%
|
|
$
|
17,014
|
|
|
|
35.0
|
%
|
|
$
|
18,362
|
|
|
|
35.0
|
%
|
Amount of foreign income taxes less than U.S. taxes at statutory
rate
|
|
|
(12,043
|
)
|
|
|
(66.5
|
)
|
|
|
(12,457
|
)
|
|
|
(25.6
|
)
|
|
|
(2,951
|
)
|
|
|
(5.6
|
)
|
U.S. losses with no tax benefit
|
|
|
13,042
|
|
|
|
72.0
|
|
|
|
10,669
|
|
|
|
21.9
|
|
|
|
6,697
|
|
|
|
12.8
|
|
U.S. restructuring and other U.S. unusual charges with no benefit
|
|
|
1,003
|
|
|
|
5.5
|
|
|
|
2,572
|
|
|
|
5.3
|
|
|
|
342
|
|
|
|
0.7
|
|
Provision for repatriated earnings
|
|
|
|
|
|
|
|
|
|
|
1,054
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
Establishment (resolution) of uncertain tax positions
|
|
|
(1,584
|
)
|
|
|
(8.7
|
)
|
|
|
(1,363
|
)
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
Reduction of German tax rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,335
|
|
|
|
2.5
|
|
Other, net
|
|
|
174
|
|
|
|
1.0
|
|
|
|
455
|
|
|
|
0.9
|
|
|
|
870
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,931
|
|
|
|
38.3
|
%
|
|
$
|
17,944
|
|
|
|
36.9
|
%
|
|
$
|
24,655
|
|
|
|
47.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and (liabilities) consist of the following
at August 31, 2009 and August 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Pensions
|
|
$
|
5,961
|
|
|
$
|
4,302
|
|
Inventory reserves
|
|
|
345
|
|
|
|
870
|
|
Bad debt reserves
|
|
|
1,681
|
|
|
|
2,115
|
|
Accruals
|
|
|
2,385
|
|
|
|
2,660
|
|
Postretirement benefits other than pensions
|
|
|
8,279
|
|
|
|
7,194
|
|
Depreciation
|
|
|
6,079
|
|
|
|
4,610
|
|
Net operating loss carryforwards
|
|
|
1,100
|
|
|
|
|
|
Foreign tax credit carryforwards
|
|
|
42,790
|
|
|
|
36,295
|
|
Alternative minimum tax carryforwards
|
|
|
6,392
|
|
|
|
6,835
|
|
Other
|
|
|
17,686
|
|
|
|
12,640
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
92,698
|
|
|
|
77,521
|
|
Valuation allowance
|
|
|
(74,426
|
)
|
|
|
(60,426
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
18,272
|
|
|
|
17,095
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(5,663
|
)
|
|
|
(5,684
|
)
|
Other
|
|
|
(2,040
|
)
|
|
|
(4,835
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
(7,703
|
)
|
|
|
(10,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,569
|
|
|
$
|
6,576
|
|
|
|
|
|
|
|
|
|
|
The valuation allowance covers benefits which are not likely to
be utilized for foreign tax credit carryforwards and other
deferred tax assets in the United States.
The Company has $45 million in foreign tax credit
carryforwards that will expire in periods from 2010 to 2019. The
amount of foreign tax credit carryforwards shown in the table
above has been reduced by unrealized stock compensation
attributes of approximately $2.2 million.
72
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In recent years, the Companys U.S. operations have
generated federal tax net operating losses, before considering
dividend income from foreign subsidiaries. Such net operating
losses are offset against the foreign dividend income, which
would otherwise generate U.S. taxable income. The dividend
income from foreign subsidiaries also generates foreign tax
credits, which either offset the tax on any U.S. taxable
income remaining after the offset of the net operating losses,
or are carried forward. Therefore, the net effect of foreign
dividends received from foreign countries is to place the
Company into a position in which it does not generate net
operating loss carryforwards for its U.S. operating losses.
The tax effect of temporary differences included in prepaids was
$4.2 million and $4.9 million at August 31, 2009
and 2008, respectively. Deferred charges included
$10.6 million and $8.6 million from the tax effect of
temporary differences at August 31, 2009 and 2008,
respectively. The tax effect of temporary differences included
in other accrued liabilities was $0.3 million and
$1.4 million at August 31, 2009 and 2008, respectively.
As of August 31, 2009, the Companys gross
unrecognized tax benefits totaled $1.5 million. If
recognized, approximately $0.5 million of the total
unrecognized tax benefits would favorably affect the
Companys effective tax rate. The Company elects to report
interest and penalties related to income tax matters in income
tax expense. At August 31, 2009, the Company had
$0.4 million of accrued interest and penalties on
unrecognized tax benefits.
At August 31, 2008, the Company had $0.8 million of
accrued interest and penalties on unrecognized tax benefits.
The Company is open to potential income tax examinations in the
U.S. and Belgium from fiscal 2007 onward. The Company is
open to potential examinations in Germany from fiscal 2005
onward and generally from fiscal 2003 onward for most foreign
jurisdictions. Additionally, the expiration of the statute of
limitations in various foreign jurisdictions during fiscal 2009
resulted in tax benefits of approximately $1.6 million
related to the reversal of tax and interest previously accrued
for under FIN 48.
During fiscal 2008, the expiration of certain statutes of
limitation in foreign jurisdictions and the completion of
certain transfer pricing documentation resulted in tax benefits
of approximately $1.7 million relating to the reversal of
tax and interest previously accrued for under FIN 48.
The amount of unrecognized tax benefits is expected to change in
the next 12 months; however the change is not expected to
have a significant impact on the financial position of the
Company.
Reconciliation of Unrecognized Tax Benefits:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
3,781
|
|
|
$
|
5,392
|
|
Decreases related to prior year tax positions
|
|
|
(1,322
|
)
|
|
|
(600
|
)
|
Increases related to prior year tax positions
|
|
|
26
|
|
|
|
|
|
Increases related to current year tax positions
|
|
|
650
|
|
|
|
148
|
|
Settlements
|
|
|
(74
|
)
|
|
|
(984
|
)
|
Laspse of statute of limitations
|
|
|
(1,301
|
)
|
|
|
(660
|
)
|
Foreign currency impact
|
|
|
(211
|
)
|
|
|
485
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,549
|
|
|
$
|
3,781
|
|
|
|
|
|
|
|
|
|
|
As August 31, 2009, no taxes have been provided on the
undistributed earnings of certain foreign subsidiaries amounting
to $330.3 million because the Company intends to
permanently reinvest these earnings. Quantification of the
deferred tax liability associated with these undistributed
earnings is not practical.
73
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the fiscal 2008, the Company revised its earnings
repatriation plan for its Canadian subsidiary and recognized an
income tax provision of approximately $1.0 million for
withholding taxes on the repatriation of these retained earnings
to the U.S.
NOTE 8
PENSIONS
The Company has defined benefit pension plans and other
postretirement benefit plans, primarily health care and life
insurance. Benefits for the defined benefit pension plans are
based primarily on years of service and qualifying compensation
during the final years of employment. A supplemental
non-qualified, non-funded pension plan for certain retired
officers was adopted as of January 1, 2004. Charges to
earnings are provided to meet the projected benefit obligation.
The pension cost for this plan is based on substantially the
same actuarial methods and economic assumptions as those used
for the defined benefit pension plans. In connection with this
plan, the Company owns and is the beneficiary of life insurance
policies that cover the estimated total cost of this plan. The
cash surrender value of this insurance was approximately
$2.3 million and $1.9 million at August 31, 2009
and 2008, respectively. Postretirement health care and life
insurance benefits are provided to certain U.S. employees
if they meet certain age and length of service requirements
while working for the Company. Effective January 1, 2004,
the Company amended the plan to require co-payments and
participant contribution. Effective April 1, 2007, the
Company amended the plan which eliminated retiree health care
benefits for certain employees and increased retiree
contributions for health care benefits. Effective July 1,
2008, the Company amended the plan which eliminated retiree life
insurance benefits for all nonunion employees and retirees. The
measurement date for all plans is August 31.
74
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Components of the plan obligations and assets, and the recorded
liability at August 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Benefit obligation at beginning of year
|
|
$
|
(78,222
|
)
|
|
$
|
(80,969
|
)
|
|
$
|
(13,161
|
)
|
|
$
|
(20,293
|
)
|
Service cost
|
|
|
(1,742
|
)
|
|
|
(2,492
|
)
|
|
|
(42
|
)
|
|
|
(385
|
)
|
Interest cost
|
|
|
(4,429
|
)
|
|
|
(4,640
|
)
|
|
|
(847
|
)
|
|
|
(1,077
|
)
|
Participant contributions
|
|
|
(202
|
)
|
|
|
(284
|
)
|
|
|
|
|
|
|
|
|
Actuarial gain (loss)
|
|
|
(7,836
|
)
|
|
|
8,262
|
|
|
|
(1,849
|
)
|
|
|
39
|
|
Benefits paid
|
|
|
3,044
|
|
|
|
2,548
|
|
|
|
1,042
|
|
|
|
790
|
|
Plan amendments
|
|
|
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
4,661
|
|
Curtailment gain
|
|
|
249
|
|
|
|
1,398
|
|
|
|
513
|
|
|
|
3,104
|
|
Translation adjustment
|
|
|
3,134
|
|
|
|
(1,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
(86,004
|
)
|
|
$
|
(78,222
|
)
|
|
$
|
(14,344
|
)
|
|
$
|
(13,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
14,109
|
|
|
$
|
15,690
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on assets
|
|
|
166
|
|
|
|
(1,441
|
)
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
3,252
|
|
|
|
3,359
|
|
|
|
1,042
|
|
|
|
790
|
|
Participant contributions
|
|
|
202
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(3,044
|
)
|
|
|
(2,548
|
)
|
|
|
(1,042
|
)
|
|
|
(790
|
)
|
Translation adjustment
|
|
|
(1,368
|
)
|
|
|
(1,235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
13,317
|
|
|
$
|
14,109
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underfunded
|
|
$
|
(72,687
|
)
|
|
$
|
(64,113
|
)
|
|
$
|
(14,344
|
)
|
|
$
|
(13,161
|
)
|
Unamortized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
|
|
13,003
|
|
|
|
5,027
|
|
|
|
1,388
|
|
|
|
53
|
|
Net prior year service cost (credit)
|
|
|
756
|
|
|
|
893
|
|
|
|
(4,598
|
)
|
|
|
(7,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(58,928
|
)
|
|
$
|
(58,151
|
)
|
|
$
|
(17,554
|
)
|
|
$
|
(20,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
$
|
4,034
|
|
|
$
|
1,944
|
|
|
$
|
|
|
|
$
|
|
|
Accrued payrolls, taxes and related benefits
|
|
|
(2,858
|
)
|
|
|
(2,092
|
)
|
|
|
(880
|
)
|
|
|
(880
|
)
|
Other long-term liabilities
|
|
|
(69,888
|
)
|
|
|
(62,021
|
)
|
|
|
(13,464
|
)
|
|
|
(12,281
|
)
|
Accumulated other comprehensive income
|
|
|
9,784
|
|
|
|
4,018
|
|
|
|
(3,210
|
)
|
|
|
(7,809
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(58,928
|
)
|
|
$
|
(58,151
|
)
|
|
$
|
(17,554
|
)
|
|
$
|
(20,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amounts recognized in Accumulated Other Comprehensive Income,
net of tax, as of August 31, 2009 and 2008 include:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Prior service credit
|
|
$
|
3,842
|
|
|
$
|
6,969
|
|
Actuarial loss
|
|
|
(14,450
|
)
|
|
|
(5,080
|
)
|
Net transition obligation
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
Gross amount
|
|
|
(10,608
|
)
|
|
|
1,847
|
|
Less income tax effect
|
|
|
4,034
|
|
|
|
1,944
|
|
|
|
|
|
|
|
|
|
|
Net amount
|
|
$
|
(6,574
|
)
|
|
$
|
3,791
|
|
|
|
|
|
|
|
|
|
|
The components of net periodic benefit cost of the years ended
August 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Postretirement Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
1,742
|
|
|
$
|
2,492
|
|
|
$
|
2,486
|
|
|
$
|
42
|
|
|
$
|
385
|
|
|
$
|
1,306
|
|
Interest cost
|
|
|
4,429
|
|
|
|
4,640
|
|
|
|
3,728
|
|
|
|
847
|
|
|
|
1,077
|
|
|
|
1,509
|
|
Expected return on plan assets
|
|
|
(957
|
)
|
|
|
(1,250
|
)
|
|
|
(1,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of transition obligation
|
|
|
39
|
|
|
|
42
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
48
|
|
|
|
279
|
|
|
|
497
|
|
|
|
(654
|
)
|
|
|
(647
|
)
|
|
|
(293
|
)
|
Deferred asset gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134
|
|
Recognized gains due to plan curtailments
|
|
|
(188
|
)
|
|
|
(114
|
)
|
|
|
|
|
|
|
(2,609
|
)
|
|
|
(3,895
|
)
|
|
|
|
|
Recognized net actuarial loss
|
|
|
250
|
|
|
|
189
|
|
|
|
582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,363
|
|
|
$
|
6,278
|
|
|
$
|
6,274
|
|
|
$
|
(2,374
|
)
|
|
$
|
(3,080
|
)
|
|
$
|
2,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the second quarter of fiscal 2009, the Company recorded a
curtailment gain of $2.6 million as a result of a
significant reduction in the expected years of future service,
primarily due to its North American restructuring plan that was
announced in December 2008. During the fourth quarter of fiscal
2009, the Company recorded a curtailment gain of
$0.2 million as a result of a significant reduction in the
expected years of future service, primarily due to the European
restructuring plan which included the elimination of certain
positions in the Companys Paris, France subsidiary as a
result of the consolidation of back-office operations to the
European shared service center.
During the second quarter of fiscal 2008, the Company announced
that it planned to amend its U.S. postretirement health
care coverage plan by eliminating post-65 retiree coverage as of
March 24, 2008. During the second quarter of fiscal 2008,
the Company reduced its postretirement health care benefit
liability by approximately $5.0 million with a
corresponding increase in accumulated other comprehensive income
due to the negative plan amendment. During the third quarter of
fiscal 2008, the Company recorded curtailment gains of
$2.3 million related to its U.S. postretirement health
care coverage plan as a result of a significant reduction in the
expected years of future service primarily due to the sale of
the Orange, Texas facility and a change in the executive
management. During the fourth quarter of fiscal 2008, the
Company recorded a curtailment gain of $1.7 million as a
result of the elimination of post retirement life insurance
benefits under the U.S. postretirement health care coverage
plan which eliminated the defined benefit for some or all of the
future services of a significant number of plan participants.
This U.S. postretirement health care benefit liability is
included in accrued payrolls, taxes and related benefits and
other long-term liabilities on the Companys consolidated
balance sheet.
76
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Selected information regarding the Companys pension and
other postretirement benefit plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Pension Plans:
|
|
|
|
|
|
|
|
|
All plans:
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
77,536
|
|
|
$
|
69,840
|
|
Plans with projected benefit obligations in excess of plan
assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
85,926
|
|
|
$
|
78,222
|
|
Accumulated benefit obligation
|
|
$
|
77,462
|
|
|
$
|
69,840
|
|
Fair value of plan assets
|
|
$
|
13,181
|
|
|
$
|
14,109
|
|
Plans with projected benefit obligations less than plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
78
|
|
|
$
|
|
|
Accumulated benefit obligation
|
|
$
|
74
|
|
|
$
|
|
|
Fair value of plan assets
|
|
$
|
136
|
|
|
$
|
|
|
Other Postretirement Benefit Plans:
|
|
|
|
|
|
|
|
|
All plans:
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
14,344
|
|
|
$
|
13,161
|
|
Plans with projected benefit obligations in excess of plan
assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
14,344
|
|
|
$
|
13,161
|
|
Accumulated benefit obligation
|
|
$
|
14,344
|
|
|
$
|
13,161
|
|
Fair value of plan assets
|
|
$
|
|
|
|
$
|
|
|
The under funded position is primarily related to the
Companys German and United Kingdom pension plans where
funding is not required.
All salaried employees in the U.S. are eligible to
participate in a defined contribution savings plan. Employees
may contribute a percentage of their salary to the plan subject
to statutory limits. The plan has a matching feature whereas the
Company will match a participants contribution up to a
pre-approved amount of the participants annual salary. The
plans assets are self-directed by plan participants. The
total expense for defined contribution plans was approximately
$1.9 million, $3.3 million and $4.1 million in
2009, 2008 and 2007, respectively. The total pension
contributions for multi-employer pension plans were
approximately $0 in 2009 and 2008 and $3,000 in 2007.
Actuarial assumptions used in the calculation of the recorded
liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Assumptions as of
August 31:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Discount rate on pension plans
|
|
|
5.4
|
%
|
|
|
6.3
|
%
|
|
|
5.5
|
%
|
Discount rate on postretirement obligation
|
|
|
5.50
|
%
|
|
|
7.00
|
%
|
|
|
6.25
|
%
|
Return on pension plan assets
|
|
|
7.7
|
%
|
|
|
7.8
|
%
|
|
|
7.8
|
%
|
Rate of compensation increase
|
|
|
2.7
|
%
|
|
|
2.5
|
%
|
|
|
2.5
|
%
|
Projected health care cost trend rate
|
|
|
8.0
|
%
|
|
|
8.5
|
%
|
|
|
9.0
|
%
|
Ultimate health care rate
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
Year ultimate health care trend rate is achieved
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2011
|
|
The Company, in consultation with its actuaries, annually, or as
needed for interim remeasurements, reviews and selects the
discount rates to be used in connection with its defined benefit
pension plans. The discount rates used by the Company are based
on yields of various corporate bond indices with varying
maturity dates. For countries in which there are no deep
corporate bond markets, discount rates used by the Company are
based on yields of various government bond indices with varying
maturity dates. The
77
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
discount rates are also reviewed in comparison with current
benchmark indices, economic market conditions and the movement
in the benchmark yield since the previous fiscal year.
The Company, in consultation with its actuaries, annually, or as
needed for interim remeasurements, reviews and selects the
discount rate to be used in connection with its postretirement
obligation. When selecting the discount rate the Company uses a
model that considers the Companys demographics of the
participants and the resulting expected benefit payment stream
over the participants lifetime.
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plan. A
one-percentage point change in assumed health care cost trend
rates would have the following effects at August 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
One-Percentage
|
|
One-Percentage
|
|
|
Point Increase
|
|
Point Decrease
|
|
|
(In thousands)
|
|
Effect on aggregate of service and interest cost components of
net periodic postretirement benefit cost
|
|
$
|
94
|
|
|
$
|
(82
|
)
|
Effect on accumulated postretirement benefit obligation
|
|
$
|
1,462
|
|
|
$
|
(1,264
|
)
|
The Companys pension plan weighted-average asset
allocation at August 31, 2009 and 2008, and target
allocation, by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assets at
|
|
|
|
|
|
|
August 31,
|
|
|
Target
|
|
Asset Category
|
|
2009
|
|
|
2008
|
|
|
Allocation
|
|
|
Equity securities
|
|
|
66.8
|
%
|
|
|
65.6
|
%
|
|
|
70.0
|
%
|
Debt securities
|
|
|
17.8
|
%
|
|
|
17.0
|
%
|
|
|
15.0
|
%
|
Guaranteed investment certificates
|
|
|
14.1
|
%
|
|
|
11.3
|
%
|
|
|
10.0
|
%
|
Cash
|
|
|
1.3
|
%
|
|
|
6.1
|
%
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys principal objective is to ensure that
sufficient funds are available to provide benefits as and when
required under the terms of the plans. The Company utilizes
investments that provide benefits and maximizes the long-term
investment performance of the plans without taking on undue risk
while complying with various legal funding requirements. The
Company, through its investment advisors, has developed detailed
asset and liability models to aid in implementing optimal asset
allocation strategies. The Equity securities are invested in
equity indexed funds, which minimizes concentration risk while
offering market returns. The debt securities are invested in a
long-term bond indexed fund which provides a stable low risk
return. The guaranteed investment certificates allow the Company
to closely match a portion of the liability to the expected
payout of benefit with little risk. The Company, in consultation
with its actuaries, analyzes current market trends, the current
plan performance and expected market performance of both the
equity and bond markets to arrive at the expected return on each
asset category over the long term.
78
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company expects to contribute approximately
$3.5 million for its pension obligations and approximately
$0.9 million to its other postretirement plan in 2010. The
benefit payments, which reflect expected future service, offset
by the expected Medicare Prescription Drug subsidies, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
|
Pension
|
|
|
Gross
|
|
|
Medicare
|
|
|
Net
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
Reimbursement
|
|
|
Benefits
|
|
|
|
(In thousands)
|
|
|
2010
|
|
$
|
2,856
|
|
|
$
|
975
|
|
|
$
|
96
|
|
|
$
|
879
|
|
2011
|
|
|
2,935
|
|
|
|
1,040
|
|
|
|
103
|
|
|
|
937
|
|
2012
|
|
|
3,990
|
|
|
|
1,110
|
|
|
|
108
|
|
|
|
1,002
|
|
2013
|
|
|
3,446
|
|
|
|
1,131
|
|
|
|
118
|
|
|
|
1,013
|
|
2014
|
|
|
3,694
|
|
|
|
1,167
|
|
|
|
124
|
|
|
|
1,043
|
|
Years 2015 2019
|
|
|
21,916
|
|
|
|
5,977
|
|
|
|
681
|
|
|
|
5,296
|
|
The Company has agreements with two individuals that upon
retirement, death or disability prior to retirement, it shall
make ten payments of $0.1 million each to the two
individuals or their beneficiaries for a ten-year period and are
100% vested. The liability required for these agreements was
fully accrued and is included in other long-term liabilities as
of August 31, 2009 and 2008. In connection with these
agreements, the Company owns and is the beneficiary of life
insurance policies amounting to $2.0 million.
NOTE 9
ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of Accumulated Other Comprehensive Income are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
|
|
|
Total
|
|
|
|
|
|
|
Losses and
|
|
|
Accumulated
|
|
|
|
Foreign
|
|
|
Prior Service
|
|
|
Other
|
|
|
|
Currency
|
|
|
Costs
|
|
|
Comprehensive
|
|
|
|
Translation Gain
|
|
|
(Credits), Net
|
|
|
Income
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Balance as of August 31, 2007
|
|
$
|
55,397
|
|
|
$
|
(5,305
|
)
|
|
$
|
50,092
|
|
Current period change
|
|
|
20,715
|
|
|
|
9,096
|
|
|
|
29,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of August 31, 2008
|
|
|
76,112
|
|
|
|
3,791
|
|
|
|
79,903
|
|
Current period change
|
|
|
(30,824
|
)
|
|
|
(10,365
|
)
|
|
|
(41,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of August 31, 2009
|
|
$
|
45,288
|
|
|
$
|
(6,574
|
)
|
|
$
|
38,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gains do not have a tax effect as
such gains are considered permanently reinvested. The decrease
in this component of accumulated other comprehensive income in
2009 was primarily due to the decline in the value of the Euro
and other currencies against the U.S. dollar.
Accumulated other comprehensive income adjustments related to
pensions and other postretirement benefit plans are recorded net
of tax using the applicable effective tax rate. The decrease in
this component of accumulated other comprehensive income in 2009
was primarily due to an increase in unrecognized losses from a
decrease in the discount rates used when measuring the
Companys pension and other postretirement benefit plan
liabilities and the recognition of a $2.6 million
curtailment gain related to the U.S. postretirement benefit
plan.
79
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 10
INCENTIVE STOCK PLANS
Effective in December 2002, the Company adopted the 2002 Equity
Incentive Plan, which provided for the grant of incentive stock
options, nonqualified stock options, restricted stock awards and
director deferred units for employees and non-employee
directors. The option price of incentive stock options is the
fair market value of the common shares on the date of the grant.
In the case of nonqualified options, the Company grants options
at 100% of the fair market value of the common shares on the
date of the grant. All options become exercisable at the rate of
33% per year, commencing on the first anniversary date of the
grant. Each option expires ten years from the date of the grant.
Restricted stock awards under the 2002 Equity Incentive Plan
vest ratably over four years following the date of grant.
On December 7, 2006, the Company adopted the 2006 Incentive
Plan, which provides for the grant of incentive stock options,
nonqualified stock options, whole shares, restricted stock
awards, restricted stock units, stock appreciation rights,
performance shares, performance units, cash-based awards,
dividend equivalents and performance-based awards. Upon adoption
of the 2006 Incentive Plan, all remaining shares eligible for
award under the 2002 Equity Incentive Plan were added to the
2006 Incentive Plan and no further awards could be made from the
2002 Equity Incentive Plan. It has been the Companys
practice to issue new common shares upon stock option exercise
and other equity grants. On August 31, 2009, there were
approximately 1.7 million shares available for grant
pursuant to the Companys 2006 Incentive Plan.
A summary of stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Outstanding
|
|
|
Weighted-
|
|
|
Outstanding
|
|
|
Weighted-
|
|
|
Outstanding
|
|
|
Weighted-
|
|
|
|
Shares
|
|
|
Average
|
|
|
Shares
|
|
|
Average
|
|
|
Shares
|
|
|
Average
|
|
|
|
Under
|
|
|
Exercise
|
|
|
Under
|
|
|
Exercise
|
|
|
Under
|
|
|
Exercise
|
|
|
|
Option
|
|
|
Price
|
|
|
Option
|
|
|
Price
|
|
|
Option
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
567,247
|
|
|
$
|
19.12
|
|
|
|
813,710
|
|
|
$
|
19.10
|
|
|
|
1,568,276
|
|
|
$
|
18.93
|
|
Granted
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Exercised
|
|
|
(33,619
|
)
|
|
$
|
17.33
|
|
|
|
(206,290
|
)
|
|
$
|
19.01
|
|
|
|
(742,528
|
)
|
|
$
|
18.74
|
|
Forfeited and expired
|
|
|
(41,173
|
)
|
|
$
|
18.87
|
|
|
|
(40,173
|
)
|
|
$
|
19.37
|
|
|
|
(12,038
|
)
|
|
$
|
19.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
492,455
|
|
|
$
|
19.25
|
|
|
|
567,247
|
|
|
$
|
19.12
|
|
|
|
813,710
|
|
|
$
|
19.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
492,455
|
|
|
$
|
19.25
|
|
|
|
492,523
|
|
|
$
|
18.88
|
|
|
|
394,915
|
|
|
$
|
18.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of a stock option is the amount by which the
market value of the underlying stock exceeds the exercise price
of the option. The total intrinsic value of stock options
exercised during the year ended August 31, 2009 was
insignificant due to the small number of options exercised. The
total intrinsic value of options exercised during the years
ended August 31, 2008 and 2007 was approximately
$0.5 million and $2.9 million, respectively. The
intrinsic value for stock options exercisable at August 31,
2009 was $0.1 million with a remaining term for options
exercisable of 3.7 years. For stock options outstanding at
August 31, 2009, exercise prices range from $11.62 to
$24.69. The weighted average remaining contractual life for
options outstanding at August 31, 2009 was 3.7 years.
All 492,455 outstanding and exercisable stock options are fully
vested as of August 31, 2009. The Company did not grant
stock options in fiscal years 2009, 2008 or 2007.
Restricted stock awards under the 2002 Equity Incentive Plan
vest over four years following the date of grant. Restricted
stock awards under the 2006 Incentive Plan can vest over various
periods. The restricted stock grants outstanding under the 2006
Incentive Plan have service vesting periods of three
80
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
years following the date of grant. The following table
summarizes the outstanding time-based restricted stock awards
and weighted-average fair market value:
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Weighted-Average
|
|
|
|
Restricted
|
|
|
Fair Market Value
|
|
|
|
Stock Awards
|
|
|
(per Share)
|
|
|
Outstanding at August 31, 2008
|
|
|
232,757
|
|
|
$
|
20.81
|
|
Granted
|
|
|
66,211
|
|
|
$
|
16.62
|
|
Vested
|
|
|
(100,066
|
)
|
|
$
|
20.47
|
|
Forfeited
|
|
|
(18,473
|
)
|
|
$
|
20.71
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 31, 2009
|
|
|
180,429
|
|
|
$
|
19.48
|
|
|
|
|
|
|
|
|
|
|
During the year ended August 31, 2009, the Company granted
66,211 time-based restricted shares. Restrictions on these
shares underlying the restricted stock awards will lapse ratably
over a three-year period and were valued at the fair market
value on the date of grant. The Company granted time-based
restricted stock awards for 111,650 shares with a
weighted-average grant date fair value of $20.66 and
90,375 shares with a weighted-average grant date fair value
of $22.06 during the years ended August 31, 2008 and 2007,
respectively.
The Company also grants awards with market performance vesting
criteria. In the table below, the Company summarizes all
performance-based awards, which include performance-based
restricted stock awards and performance shares
(Performance Shares).
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Weighted-Average
|
|
|
|
Performance-Based
|
|
|
Fair Market Value
|
|
|
|
Awards
|
|
|
(per Share)
|
|
|
Outstanding at August 31, 2008
|
|
|
286,256
|
|
|
$
|
15.50
|
|
Granted
|
|
|
252,275
|
|
|
$
|
9.64
|
|
Vested
|
|
|
|
|
|
$
|
|
|
Forfeited
|
|
|
(21,850
|
)
|
|
$
|
13.69
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 31, 2009
|
|
|
516,681
|
|
|
$
|
12.72
|
|
|
|
|
|
|
|
|
|
|
Performance Shares are awards for which the vesting will occur
based on both service and market performance criteria and do not
have voting rights. Included in the outstanding
performance-based awards at August 31, 2009 are 247,694
Performance Shares that earn dividends throughout the vesting
period and 185,267 Performance Shares that do not earn
dividends. Also included in the balance are 83,720 shares
of performance-based restricted stock awards from the fiscal
2007 grant with vesting based on both service and market
performance criteria. The performance-based restricted stock
awards have voting rights and earn dividends. At the vesting
date of these performance-based restricted stock awards in April
2010, approximately 41,860 additional shares could be issued
which are not included in the table if certain market conditions
are met. The additional shares do not earn dividends and do not
have voting rights.
During the years ended August 31, 2009 and 2008, the
Company granted performance-based awards for 252,275 shares
and 222,475 shares, respectively. Included in the fiscal
2009 grants are approximately 126,136 Performance Shares that
earn dividends throughout the vesting period and approximately
126,139 Performance Shares that do not earn dividends. The
weighted-average grant date fair value of the Performance Shares
with market conditions granted in January 2009 was $9.66 per
share and $9.36 for those granted in June 2009. The fiscal 2008
performance-based award grants had a weighted-average grant date
fair value of $13.23. In fiscal 2007, the Company granted
137,875 performance-based restricted stock awards with a
weighted-average grant date fair value of $20.55.
81
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The valuation for the awards included in the performance-based
awards table above are based upon a Monte Carlo simulation,
which is a valuation model that represents the characteristics
of these grants. Vesting of the ultimate number of shares
underlying performance-based awards, if any, will be dependent
upon the Companys total shareholder return in relation to
the total shareholder return of a select group of peer companies
over a three-year period. The probability of meeting the market
criteria was considered when calculating the estimated fair
market value on the date of grant using a Monte Carlo
simulation. These awards were accounted for as awards with
market conditions in accordance with FASB Statement
No. 123(R), Share-Based Payment.
The fair value of the Performance Shares granted during the year
ended August 31, 2009 was estimated using a Monte Carlo
simulation model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Assumptions
|
|
Fiscal 2009
|
|
|
Fiscal 2008
|
|
|
Fiscal 2007
|
|
|
Dividend yield
|
|
|
3.60
|
%
|
|
|
2.84
|
%
|
|
|
2.63
|
%
|
Expected volatility
|
|
|
36.00
|
%
|
|
|
30.00
|
%
|
|
|
26.00
|
%
|
Risk-free interest rate
|
|
|
1.09
|
%
|
|
|
1.97
|
%
|
|
|
4.45
|
%
|
Correlation
|
|
|
52.00
|
%
|
|
|
32.00
|
%
|
|
|
30.00
|
%
|
The expected volatility assumption was calculated using a
historical range to correlate with the awards vesting
period. The Company used the weekly volatility for each company
in the peer group to determine a reasonable assumption for the
valuation. In using the Monte Carlo simulation method with this
type of grant, a correlation rate of the Companys stock
price and each of the peer companies is calculated. The Company
determined a correlation percentage based on all correlation
rates. The risk-free interest rate is based on zero coupon
treasury bond rates corresponding to the expected life of the
awards. The expected dividend yield of common stock is based on
the Companys historical dividend yield. The Company has no
reason to believe that future stock volatility, correlation or
the expected dividend yield is likely to differ from historical
patterns.
Total unrecognized compensation cost, including a provision for
forfeitures, related to nonvested share-based compensation
arrangements at August 31, 2009 was approximately
$4.3 million. This cost is expected to be recognized over a
weighted-average period of approximately 1.6 years.
During the year ended August 31, 2009, the Company granted
27,500 stock-settled restricted stock units which were fully
vested as of the grant date. There are no service requirements
for vesting for this grant. These restricted stock units will be
settled in shares of the Companys common stock, on a
one-to-one
basis, no later than 60 days after the third anniversary of
the award grant date. These awards do earn dividends during the
restriction period; however, they do not have voting rights
until released from restriction. These awards are treated as
equity awards and have a grant date fair value based on the
award grant date of $13.61.
The Company had approximately 242,000, 318,000 and 245,000
cash-settled restricted stock units outstanding with various
vesting periods and criteria at August 31, 2009, 2008 and
2007, respectively. The Company granted approximately 60,000,
114,000 and 108,000 cash-settled restricted stock units during
the years ended August 31, 2009, 2008 and 2007,
respectively. The cash-settled restricted stock units
outstanding have either time-based vesting or performance-based
vesting, similar to the Companys restricted stock awards
and performance shares. Each cash-settled restricted stock unit
is equivalent to one share of the Companys common stock on
the vesting date. Certain cash-settled restricted stock units
earn dividends during the vesting period. Cash-settled
restricted stock units are settled only in cash at the vesting
date and therefore are treated as a liability award. The Company
records a liability for these restricted stock units in an
amount equal to the total of (a) the
mark-to-market
adjustment of the units vested to date, and (b) accrued
dividends on the units. In addition, the liability is adjusted
for the estimated payout factor for the performance-based
cash-settled restricted stock units.
82
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a result of these
mark-to-market
and performance related adjustments, these restricted stock
units introduce volatility into the Companys consolidated
statements of operations.
During the year ended August 31, 2009, the Company granted
approximately $2.4 million cash-based awards which are
treated as liability awards. These awards were granted to
foreign employees. Such awards include approximately
$0.5 million which have service vesting periods of three
years following the date of grant and the remaining
$1.9 million is performance-based. The performance-based
awards are based on the same market conditions utilized for the
Performance Shares. The Company records a liability for these
cash-based awards equal to the amount of the award vested to
date and adjusts the performance-based awards based on expected
payout.
The following table summarizes the impact to the Companys
consolidated statements of operations from stock-based
compensation, which is primarily included in selling, general
and administrative expenses in the accompanying consolidated
statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Stock options
|
|
$
|
|
|
|
$
|
0.8
|
|
|
$
|
1.9
|
|
Restricted stock awards and Performance-based awards
|
|
|
2.9
|
|
|
|
4.2
|
|
|
|
2.2
|
|
Cash-settled restricted stock units
|
|
|
1.0
|
|
|
|
2.8
|
|
|
|
0.9
|
|
Cash-based awards
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
$
|
4.4
|
|
|
$
|
7.8
|
|
|
$
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 11
EARNINGS PER SHARE
Basic earnings per share is computed by dividing income
available to common shareholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if
common stock equivalents were exercised, and the impact of
restricted stock and performance-based awards expected to vest,
which would then share in the earnings of the Company.
The difference between basic and diluted weighted-average common
shares results from the assumed exercise of outstanding stock
options and grants of restricted stock, calculated using the
treasury stock method. The following presents the number of
incremental weighted-average shares used in computing diluted
per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,790,421
|
|
|
|
26,794,923
|
|
|
|
27,032,348
|
|
Incremental shares from stock options
|
|
|
9,219
|
|
|
|
77,689
|
|
|
|
149,649
|
|
Incremental shares from restricted stock
|
|
|
269,991
|
|
|
|
225,284
|
|
|
|
187,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
26,069,631
|
|
|
|
27,097,896
|
|
|
|
27,369,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For fiscal years 2009, 2008, and 2007, there were approximately
480,000, 63,000 and 65,000, respectively, of equivalent shares
related to stock options that were excluded from diluted
weighted-average shares outstanding because inclusion would have
been anti-dilutive.
83
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following presents the computation of net income from
continuing operations used in computing net income from
continuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
11,180
|
|
|
$
|
30,668
|
|
|
$
|
27,807
|
|
Less: Preferred stock dividends
|
|
|
(53
|
)
|
|
|
(53
|
)
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations applicable to common stock
|
|
$
|
11,127
|
|
|
$
|
30,615
|
|
|
$
|
27,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,776
|
)
|
|
$
|
18,049
|
|
|
$
|
22,069
|
|
Less: Preferred stock dividends
|
|
|
(53
|
)
|
|
|
(53
|
)
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stock
|
|
$
|
(2,829
|
)
|
|
$
|
17,996
|
|
|
$
|
22,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 12
CAPITAL STOCK AND STOCKHOLDER RIGHTS PLAN
The Board of Directors approved 1,000,000 shares of special
stock with special designations, preferences and relative,
participating, optional or other special rights, and
qualifications, limitations or restrictions as determined by the
Board of Directors.
On January 26, 2006, the Board of Directors adopted a
Shareholder Rights Plan and, on February 9, 2006,
distributed Rights to each record holder of the Companys
Common Stock on that date. Each Right was attached to each share
of Common Stock and entitled the registered holder to purchase
from the Company a unit consisting of one one-thousandth of a
share of Series A Junior Participating Special Stock, a
series of the Special Stock, at a Purchase Price of $85.00 per
unit (the Purchase Price), subject to adjustment.
The Company paid $0.01 per common share on February 1,
2007, to shareholders of record on January 19, 2007, in
redemption of the special stock purchase rights previously
issued to the Companys shareholders pursuant to the Rights
Agreement dated as of January 26, 2006 between the Company
and National City Bank as Rights Agent, thereby redeeming in
full and canceling all such rights and terminating the Rights
Agreement. The amount of this redemption was $0.3 million,
which is included in the total amount of dividends paid during
fiscal 2007.
NOTE 13
LEASES
The Company leases certain equipment, buildings, transportation
vehicles and computer equipment. Total rental expense was
$6.2 million in 2009, $7.7 million in 2008 and
$6.7 million in 2007. The future minimum rental commitments
for operating non-cancelable leases excluding obligations for
taxes, insurance, etc. are as follows:
|
|
|
|
|
|
|
Minimum Rental
|
|
Year Ended August 31,
|
|
Commitments
|
|
|
|
(In thousands)
|
|
|
2010
|
|
$
|
3,513
|
|
2011
|
|
|
2,463
|
|
2012
|
|
|
1,209
|
|
2013
|
|
|
725
|
|
2014
|
|
|
675
|
|
2015 and thereafter
|
|
|
834
|
|
|
|
|
|
|
|
|
$
|
9,419
|
|
|
|
|
|
|
84
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 14
SEGMENT INFORMATION
To identify reportable segments, the Company considers its
operating structure and the types of information subject to
regular review by its President and CEO, who is the CODM.
Globally, the Company operates primarily in three lines of
business: engineered plastics, masterbatch and distribution
services. In North America, there is a general manager of each
of these lines of business each of who report directly to the
Companys CEO. Effective September 1, 2008, the
Company named a general manager of Asia and a general manager of
Europe. This change separated the responsibilities that were
previously combined under the general manager of Europe, which
then included Asia. Based on the Companys new management
structure and an evaluation of how the CODM reviews performance
and allocates resources, the Company redefined its European
segment to separate the Asian operations from the European
operations beginning in the first quarter of fiscal 2009. Prior
periods have been restated to reflect the current presentation.
The reportable segments are Europe, NAMB, NAEP, NADS and Asia.
During the fourth quarter of fiscal 2009, the Company completed
the majority of the closing of its Invision sheet manufacturing
operation at its Sharon Center, Ohio manufacturing facility.
This business comprised the former Invision segment of the
Companys business. The Company reflected the results of
these operations as discontinued operations for all periods
presented and are not included in the segment information,
except for asset data.
The Companys European segment has managers of each line of
business, who report to a general manager of Europe who reports
to the CEO. Currently, the Companys CEO reviews
performance and allocates resources for the European segment as
a whole not at the business line level. The Companys
European segment is the largest segment for the Company. The
Company created a European shared service center in Belgium in
fiscal 2009 in order to consolidate the Companys European
back-office operations. The Company anticipates completion of
this transition in the second quarter of fiscal 2010.
The North America Masterbatch segment includes color and
additive concentrates which improve the appearance and
performance of resins targeted at the film and packaging
markets. The North America Distribution Services segment
provides bulk and packaged plastic materials used in a variety
of applications. The North America Engineered Plastics segment
includes multi-component blends of ionomers, urethanes and
nylons, generally for the durable goods market, formulated to
meet customers specific performance requirements,
regardless of the base resin. The Company includes in All Other
North America any administrative costs that are not directly
related or allocated to a North America segment such costs as
North American information technology, human resources,
accounting and purchasing. The North American administrative
costs are directly related to the three North American segments.
The CODM uses net sales to unaffiliated customers, gross profit
and operating income in order to make decisions, assess
performance and allocate resources to each segment. Operating
income does not include interest income or expense, other income
or expense, restructuring expense, asset impairments,
curtailment gains, goodwill impairment or foreign currency
transaction gains or losses. In some cases, the Company may
choose to exclude from a segments results certain
non-recurring items as determined by management. These items are
included in the Corporate and Other section in the table below.
Corporate expenses include the compensation of certain
personnel, certain audit expenses, board of directors related
costs, certain insurance costs and other miscellaneous legal and
professional fees.
85
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of operating income (loss) by segment to
consolidated income from continuing operations before taxes is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2009
|
|
|
August 31, 2008
|
|
|
August 31, 2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Net sales to unaffiliated customers
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
935,895
|
|
|
$
|
1,454,635
|
|
|
$
|
1,270,226
|
|
NAMB
|
|
|
108,474
|
|
|
|
136,124
|
|
|
|
128,691
|
|
NAEP
|
|
|
121,701
|
|
|
|
211,259
|
|
|
|
219,730
|
|
NADS
|
|
|
67,920
|
|
|
|
131,811
|
|
|
|
128,496
|
|
Asia
|
|
|
45,258
|
|
|
|
49,766
|
|
|
|
39,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,279,248
|
|
|
$
|
1,983,595
|
|
|
$
|
1,786,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
141,051
|
|
|
$
|
192,910
|
|
|
$
|
160,849
|
|
NAMB
|
|
|
8,279
|
|
|
|
12,231
|
|
|
|
15,223
|
|
NAEP
|
|
|
7,665
|
|
|
|
13,846
|
|
|
|
17,843
|
|
NADS
|
|
|
6,670
|
|
|
|
10,013
|
|
|
|
10,431
|
|
Asia
|
|
|
6,372
|
|
|
|
5,530
|
|
|
|
4,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment gross profit
|
|
$
|
170,037
|
|
|
$
|
234,530
|
|
|
$
|
208,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
48,725
|
|
|
$
|
95,105
|
|
|
$
|
77,773
|
|
NAMB
|
|
|
2,809
|
|
|
|
5,507
|
|
|
|
8,716
|
|
NAEP
|
|
|
(5,562
|
)
|
|
|
(6,865
|
)
|
|
|
(3,315
|
)
|
NADS
|
|
|
3,082
|
|
|
|
5,288
|
|
|
|
5,309
|
|
Asia
|
|
|
2,195
|
|
|
|
1,507
|
|
|
|
1,015
|
|
All Other North America
|
|
|
(11,266
|
)
|
|
|
(15,061
|
)
|
|
|
(17,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
$
|
39,983
|
|
|
$
|
85,481
|
|
|
$
|
72,475
|
|
Corporate and other
|
|
|
(18,438
|
)
|
|
|
(21,098
|
)
|
|
|
(14,216
|
)
|
Interest expense, net
|
|
|
(2,437
|
)
|
|
|
(5,476
|
)
|
|
|
(5,812
|
)
|
Foreign currency transaction gains (losses)
|
|
|
5,645
|
|
|
|
(1,133
|
)
|
|
|
(219
|
)
|
Other income
|
|
|
1,826
|
|
|
|
9
|
|
|
|
1,832
|
|
Curtailment gains
|
|
|
2,805
|
|
|
|
4,009
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
(964
|
)
|
|
|
|
|
Asset impairment
|
|
|
(2,608
|
)
|
|
|
(5,399
|
)
|
|
|
|
|
Restructuring expense
|
|
|
(8,665
|
)
|
|
|
(6,817
|
)
|
|
|
(1,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before taxes
|
|
$
|
18,111
|
|
|
$
|
48,612
|
|
|
$
|
52,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Below summarizes identifiable assets, depreciation and
amortization expense and capital expenditures by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2009
|
|
|
August 31, 2008
|
|
|
August 31, 2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Identifiable assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
570,392
|
|
|
$
|
591,755
|
|
|
$
|
553,852
|
|
NAMB
|
|
|
73,022
|
|
|
|
87,398
|
|
|
|
89,890
|
|
NAEP
|
|
|
52,471
|
|
|
|
78,650
|
|
|
|
107,736
|
|
NADS
|
|
|
11,797
|
|
|
|
34,773
|
|
|
|
34,512
|
|
Asia
|
|
|
34,099
|
|
|
|
37,197
|
|
|
|
32,782
|
|
All Other North America
|
|
|
55,708
|
|
|
|
60,648
|
|
|
|
55,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets
|
|
$
|
797,489
|
|
|
$
|
890,421
|
|
|
$
|
874,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
13,395
|
|
|
$
|
16,111
|
|
|
$
|
13,827
|
|
NAMB
|
|
|
2,834
|
|
|
|
3,236
|
|
|
|
3,606
|
|
NAEP
|
|
|
5,318
|
|
|
|
4,498
|
|
|
|
5,013
|
|
NADS
|
|
|
124
|
|
|
|
243
|
|
|
|
271
|
|
Asia
|
|
|
1,567
|
|
|
|
1,589
|
|
|
|
1,559
|
|
All Other North America
|
|
|
301
|
|
|
|
418
|
|
|
|
465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization expense for continuing
operations
|
|
$
|
23,539
|
|
|
$
|
26,095
|
|
|
$
|
24,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
7,197
|
|
|
$
|
8,652
|
|
|
$
|
11,669
|
|
NAMB
|
|
|
10,888
|
|
|
|
5,798
|
|
|
|
5,580
|
|
NAEP
|
|
|
5,400
|
|
|
|
2,194
|
|
|
|
2,292
|
|
NADS
|
|
|
97
|
|
|
|
82
|
|
|
|
86
|
|
Asia
|
|
|
831
|
|
|
|
369
|
|
|
|
570
|
|
All Other North America
|
|
|
242
|
|
|
|
188
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures for continuing operations
|
|
$
|
24,655
|
|
|
$
|
17,283
|
|
|
$
|
20,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below is a summary of net sales by point of origin and assets by
location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
192,541
|
|
|
$
|
334,266
|
|
|
$
|
347,068
|
|
Germany
|
|
|
408,168
|
|
|
|
675,778
|
|
|
|
608,536
|
|
Other International
|
|
|
678,539
|
|
|
|
973,551
|
|
|
|
831,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,279,248
|
|
|
$
|
1,983,595
|
|
|
$
|
1,786,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Lived Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
60,050
|
|
|
$
|
67,086
|
|
|
$
|
71,593
|
|
Germany
|
|
|
26,359
|
|
|
|
29,548
|
|
|
|
30,350
|
|
Other International
|
|
|
83,031
|
|
|
|
95,114
|
|
|
|
98,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
169,440
|
|
|
$
|
191,748
|
|
|
$
|
200,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The majority of the Companys consolidated net sales for
the years ended August 31, 2009, 2008 and 2007 can be
classified into five primary product families. The approximate
amount and percentage of consolidated net sales for these
product families are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
Product Family
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
|
(In thousands, except for %s)
|
|
Color and additive concentrates
|
|
$
|
566,363
|
|
|
|
44
|
|
|
$
|
714,770
|
|
|
|
36
|
|
|
$
|
627,268
|
|
|
|
35
|
|
Polyolefins
|
|
|
351,532
|
|
|
|
27
|
|
|
|
663,925
|
|
|
|
34
|
|
|
|
543,748
|
|
|
|
30
|
|
Engineered compounds
|
|
|
268,084
|
|
|
|
21
|
|
|
|
418,652
|
|
|
|
21
|
|
|
|
426,344
|
|
|
|
24
|
|
Polyvinyl chloride (PVC)
|
|
|
36,768
|
|
|
|
3
|
|
|
|
59,174
|
|
|
|
3
|
|
|
|
64,658
|
|
|
|
4
|
|
Tolling
|
|
|
13,361
|
|
|
|
1
|
|
|
|
19,466
|
|
|
|
1
|
|
|
|
21,450
|
|
|
|
1
|
|
Other
|
|
|
43,140
|
|
|
|
4
|
|
|
|
107,608
|
|
|
|
5
|
|
|
|
103,424
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,279,248
|
|
|
|
100
|
|
|
$
|
1,983,595
|
|
|
|
100
|
|
|
$
|
1,786,892
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 15
RESTRUCTURING
FISCAL 2009
PLAN
During fiscal 2009, the Company announced various plans to
realign its domestic and international operations to strengthen
the Companys performance and financial position. The
Company initiated these proactive actions to address the current
global economic conditions and improve the Companys
competitive position. The actions included a reduction in
capacity and workforce reductions in manufacturing, selling and
administrative positions throughout Europe and North America. In
addition, the Company is in the process of eliminating certain
positions related to the previously announced consolidation of
back-office operations to the Companys European shared
service center located in Belgium.
The Company reduced its workforce by approximately 190 positions
worldwide during fiscal 2009, primarily as a result of the
actions taken in early fiscal 2009 to realign the Companys
operations and back-office functions. In addition, to further
manage costs during a period of significant declines in demand
primarily in the second quarter of fiscal 2009, the
Companys major European locations implemented a
short work schedule when necessary and the NAEP
segment reduced shifts from seven to five days at its Nashville,
Tennessee plant. Also in the NAEP segment, the Company reduced
production capacity by temporarily idling one manufacturing
line, while permanently shutting down another line at its plant
in Bellevue, Ohio. This resulted in $1.2 million of
accelerated depreciation on certain fixed assets. The
Companys Italy plant also began a right-sizing and
redesign of the plant which also resulted in $0.1 million
of accelerated depreciation on certain fixed assets.
The following table summarizes the charges related to the fiscal
2009 initiatives by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
Accelerated
|
|
|
|
|
|
|
|
|
|
Termination and
|
|
|
Depreciation
|
|
|
|
|
|
|
Employee-
|
|
|
Other Related
|
|
|
Included in
|
|
|
|
|
Fiscal 2009 Charges
|
|
Related Costs
|
|
|
Restructuring Costs
|
|
|
Cost of Sales
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
|
|
|
Europe
|
|
$
|
3.3
|
|
|
$
|
0.7
|
|
|
$
|
0.1
|
|
|
$
|
4.1
|
|
NAMB
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
NAEP
|
|
|
2.4
|
|
|
|
1.7
|
|
|
|
1.2
|
|
|
|
5.3
|
|
All other North America
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring related charges for the fiscal 2009 actions
|
|
$
|
5.9
|
|
|
$
|
2.4
|
|
|
$
|
1.3
|
|
|
$
|
9.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At August 31, 2009, approximately $2.3 million remains
accrued for employee-related costs, including estimated
severance payments and medical insurance, and contract
termination costs related to the fiscal 2009 initiatives. The
Company anticipates the remaining accrued balance for
restructuring charges will be paid throughout fiscal 2010.
The Company expects additional charges to continue into fiscal
2010 related to the plans initiated in fiscal 2009. The
implementation of the Companys European shared service
center will continue into early fiscal 2010. In addition, in
July 2009 the Company initiated further plans to reduce capacity
and headcount at certain international locations. These plans
are expected to result in the reduction of approximately 10 to
20 positions and reduce working hours for remaining workers as
appropriate. As a result of these plans, the Company expects to
recognize before-tax costs of approximately $1.0 million to
$2.3 million, including employee termination costs,
estimated employee retirement benefits and accelerated
depreciation of fixed assets at the impacted locations. These
plans are expected to be completed primarily in fiscal 2010. In
total, the Company expects charges related to these initiatives,
and other remaining 2009 initiatives to range from approximately
$2.0 million to $3.0 million, before income tax, to be
recognized primarily during the first half of fiscal 2010.
FISCAL 2008
PLAN
In January 2008, the Company announced two steps in its
continuing effort to improve the profitability of its North
American operations. The Company announced it would shut down
its manufacturing facility in St. Thomas, Ontario, Canada and
would pursue a sale of its manufacturing facility in Orange,
Texas. All the restructuring costs related to the sale of the
Orange, Texas and the St. Thomas, Ontario, Canada facilities are
related to the NAEP segment.
The St. Thomas, Ontario, Canada facility primarily produced
engineered plastics for the automotive market, with a capacity
of approximately 74 million pounds per year and employed
approximately 120 individuals. The facility was shutdown at the
end of June 2008. The Company continued to finalize closing
procedures into fiscal 2009.
The Orange, Texas facility primarily provided North American
third-party tolling services in which the Company processed
customer-owned materials for a fee. Total annual capacity at the
Orange, Texas facility was approximately 135 million pounds
and employed approximately 100 employees. The Company
completed the sale of this facility in March 2008 for total
consideration of $3.7 million.
The Company recorded charges related to the fiscal 2008
initiatives of approximately $0.2 million for
employee-related costs and $0.1 million for contract
termination and other related restructuring costs during the
year ended August 31, 2009. These charges recorded in
fiscal 2009 are related to the NAEP segment. Approximately
$0.2 million remains accrued for employee-related costs at
August 31, 2009 related to the fiscal 2008 initiatives,
which the Company anticipates the majority of the accrued
balance for restructuring charges to be paid throughout fiscal
2010. During the year ended August 31, 2008, the Company
recorded approximately $6.4 million in employee-related
costs, which include estimated severance payments and medical
insurance for approximately 135 employees, whose positions
were eliminated at the Orange, Texas and St. Thomas, Ontario,
Canada facilities.
FISCAL 2007
PLAN
During fiscal 2007, the Company announced multiple phases of a
restructuring plan to restore its NAEP segment to profitability.
The Company recorded minimal charges in fiscal 2008 related to
the fiscal 2007 initiatives as the plan was primarily completed
in fiscal 2007. The total charge for this plan was approximately
$2.7 million recorded primarily in fiscal 2007.
89
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the restructuring liabilities as
of August 31, 2009 related to the Companys
restructuring plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual
|
|
|
|
|
|
|
|
|
Accrual
|
|
|
|
|
|
|
|
|
Accrual
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
August 31,
|
|
|
Fiscal 2008
|
|
|
Fiscal 2008
|
|
|
August 31,
|
|
|
Fiscal 2009
|
|
|
Fiscal 2009
|
|
|
August 31,
|
|
|
|
2007
|
|
|
Charges
|
|
|
Paid
|
|
|
2008
|
|
|
Charges
|
|
|
Paid
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Employee related costs
|
|
$
|
2,424
|
|
|
$
|
6,383
|
|
|
$
|
(5,950
|
)
|
|
$
|
2,857
|
|
|
$
|
6,012
|
|
|
$
|
(4,421
|
)
|
|
$
|
4,448
|
|
Other costs
|
|
|
|
|
|
|
434
|
|
|
|
(434
|
)
|
|
|
|
|
|
|
2,653
|
|
|
|
(2,263
|
)
|
|
|
390
|
|
Translation effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
$
|
2,424
|
|
|
$
|
6,817
|
|
|
$
|
(6,384
|
)
|
|
$
|
2,835
|
|
|
$
|
8,665
|
|
|
$
|
(6,684
|
)
|
|
$
|
4,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects to pay between $6.9 million and
$7.9 million of restructuring related payments primarily in
the first half of fiscal 2010. This includes the remaining
accrual balance of $4.9 million from the table above, which
includes a $2.4 million withdrawal liability related to
fiscal 2004 and 2007 restructuring plans, and the expected
fiscal 2010 restructuring charges between $2.0 million to
$3.0 million related to the fiscal 2009 initiatives.
NOTE 16
ASSET IMPAIRMENTS
The Company recorded approximately $2.6 million and
$5.4 million in asset impairments during the years ended
August 31, 2009 and 2008, respectively, excluding
impairments recorded in discontinued operations. The
Companys $2.6 million in impairments in fiscal 2009
in continuing operations were primarily related to properties
which are considered held for sale including the St. Thomas,
Ontario, Canada facility and the Orange, Texas warehouse. The
asset impairments in fiscal 2009 were based on third party
appraisals. The Company recorded $10.3 million and
$6.3 million of asset impairments included in discontinued
operations for the years ended August 31, 2009 and 2008,
respectively, for certain Invision assets.
In connection with the closure of the St. Thomas, Ontario,
Canada facility, the analysis of the possible impairment of the
property, plant and equipment resulted in an impairment charge
of $2.7 million recorded during fiscal 2008. The Canada
asset impairment was based on the estimated fair market value of
the long-lived assets which was determined using the
Companys estimate of future undiscounted cash flows for
these assets. This charge was included in the asset impairment
line item in the Companys consolidated statements of
operations. The impairment of the assets for the Canadian
facility was related to the NAEP segment.
As a result of the restructuring initiatives in fiscal 2008, the
Company evaluated the inventory and property, plant and
equipment of the Orange, Texas facility and recorded an
impairment related to the long-lived assets of the Orange
facility during fiscal 2008 of approximately $2.7 million.
The Orange asset impairment was based on the estimated fair
market value of the long-lived assets which was determined using
the total consideration received for this facility and related
assets when it was sold in March 2008. This charge was included
in the asset impairment line item in the consolidated statements
of operations. The impairment of the assets for the Orange,
Texas facility was related to the NAEP segment.
As of August 31, 2009, the Companys Findlay, Ohio
facility, the St. Thomas, Ontario, Canada facility, the Orange,
Texas warehouse, and certain equipment related to Invision are
considered held for sale. The net book value of these assets
held for sale after impairment is approximately
$6.5 million which is included in the property, plant and
equipment line item in the Companys consolidated balance
sheet as of August 31, 2009. Of the assets held for sale,
only Invision is included in discontinued operations on the
Companys consolidated statements of operations.
90
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 17
BUSINESS ACQUISITIONS
On June 21, 2007, the Company acquired the Delta Plast
Group, a European color masterbatch manufacturer with operations
in Sweden and Belgium. The acquisition included the purchase of
100% of the common shares of the Belgian operations of Delta
Plast and certain assets and liabilities of the Sweden
operations. The Company organized the two operational locations
as two separate wholly-owned subsidiaries of A. Schulman
Plastics, BVBA in its European segment, Deltaplast BVBA
(formerly Deltaplast NV) for the Belgium company and Deltaplast
AB for the Sweden operations. The acquisition expanded the
Companys offerings of color masterbatch in its European
segment.
The purchase price included an initial payment upon closing as
well as a potential deferred payment that could be paid over a
three year period which is based on certain terms in the
purchase agreement. Upon closing of the acquisition, the Company
paid approximately 81.3 million Swedish Krona
(approximately $11.8 million at the acquisition date) which
was paid primarily in cash. The initial purchase price
allocation included in the accompanying fiscal 2007 consolidated
financial statements for this acquisition was subject to normal
course working capital adjustments and was adjusted subsequently
as finalized. The total cost included direct acquisition costs.
During fiscal 2008, the Company paid the first deferred payment
related to this purchase agreement of approximately
$1.6 million, which increased goodwill by the same amount.
In addition, the Company recorded final purchase price
accounting adjustments related to the acquisitions of
$0.1 million during fiscal 2008. During fiscal 2009, the
Company paid the second deferred payment related to this
purchase agreement of approximately $1.4 million, which
increased goodwill by the same amount. In connection with the
early termination of the deferred payment provision in the
purchase agreement, the Company paid approximately
$0.5 million during fiscal 2009, which is included in
selling, general and administrative expenses in the
Companys 2009 consolidated statement of operations.
The goodwill for these subsidiaries at August 31, 2009 was
approximately $6.8 million. See Note 4 for further
discussion regarding the goodwill of the Delta Plast Group. The
results of operations and financial position for the acquired
companies are included in the consolidated financial statements
of the Company for fiscal years 2007, 2008 and 2009.
NOTE 18
RESEARCH AND DEVELOPMENT
The research and development of new products and the improvement
of existing products are important to the Company to
continuously improve its product offerings. In fiscal 2008, the
Company has organized a team of varied background individuals to
lead a New Product Engine initiative to put an
aggressive global focus on the Companys research and
development activities. The Company conducts these activities at
its various technical centers and laboratories. Research and
development expenditures were approximately $3.6 million,
$5.9 million and $7.8 million in fiscal years 2009,
2008 and 2007, respectively. These activities are primarily
related to support the Companys engineered plastics,
masterbatch and rotomolding applications. The decline in
research and development expenditures compared to previous years
was primarily a result of the closing of the Companys
Invision sheet manufacturing operation, which occurred during
the fourth quarter of fiscal 2009. The Company continues to
invest in research and development activities as management
believes it is important to the future of the Company.
NOTE 19
CONTINGENCIES
The Company is engaged in various legal proceedings arising in
the ordinary course of business. The ultimate outcome of these
proceedings is not expected to have a material adverse effect on
the Companys financial condition, results of operations or
cash flows.
91
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE 20
QUARTERLY FINANCIAL HIGHLIGHTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Year Ended
|
|
|
|
Nov. 30,
|
|
|
Feb. 28,
|
|
|
May 31,
|
|
|
Aug. 31,
|
|
|
Aug. 31,
|
|
|
|
2008(a)
|
|
|
2009(b)
|
|
|
2009(c)
|
|
|
2009(d)
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
388,317
|
|
|
$
|
272,648
|
|
|
$
|
297,644
|
|
|
$
|
320,639
|
|
|
$
|
1,279,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
42,001
|
|
|
$
|
29,273
|
|
|
$
|
46,533
|
|
|
$
|
52,230
|
|
|
$
|
170,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
9,239
|
|
|
$
|
(9,535
|
)
|
|
$
|
8,272
|
|
|
$
|
3,204
|
|
|
$
|
11,180
|
|
Loss from discontinued operations, net of tax of $0
|
|
|
(1,067
|
)
|
|
|
(980
|
)
|
|
|
(823
|
)
|
|
|
(11,086
|
)
|
|
|
(13,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
8,172
|
|
|
$
|
(10,515
|
)
|
|
$
|
7,449
|
|
|
$
|
(7,882
|
)
|
|
$
|
(2,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) per share of common stock Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.36
|
|
|
$
|
(0.37
|
)
|
|
$
|
0.32
|
|
|
$
|
0.12
|
|
|
$
|
0.43
|
|
Loss from discontinued operations
|
|
|
(0.04
|
)
|
|
|
(0.04
|
)
|
|
|
(0.03
|
)
|
|
|
(0.43
|
)
|
|
|
(0.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.32
|
|
|
$
|
(0.41
|
)
|
|
$
|
0.29
|
|
|
$
|
(0.31
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) per share of common stock Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.35
|
|
|
$
|
(0.37
|
)
|
|
$
|
0.32
|
|
|
$
|
0.12
|
|
|
$
|
0.43
|
|
Loss from discontinued operations
|
|
|
(0.04
|
)
|
|
|
(0.04
|
)
|
|
|
(0.03
|
)
|
|
|
(0.42
|
)
|
|
|
(0.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.31
|
|
|
$
|
(0.41
|
)
|
|
$
|
0.29
|
|
|
$
|
(0.30
|
)
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Year Ended
|
|
|
|
Nov. 30,
|
|
|
Feb. 29,
|
|
|
May 31,
|
|
|
Aug. 31,
|
|
|
Aug. 31,
|
|
|
|
2007(e)
|
|
|
2008(f)
|
|
|
2008(g)
|
|
|
2008(h)
|
|
|
2008
|
|
|
Net sales
|
|
$
|
496,487
|
|
|
$
|
479,688
|
|
|
$
|
511,668
|
|
|
$
|
495,752
|
|
|
$
|
1,983,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
57,153
|
|
|
$
|
56,591
|
|
|
$
|
61,006
|
|
|
$
|
59,780
|
|
|
$
|
234,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
11,909
|
|
|
$
|
(1,965
|
)
|
|
$
|
12,142
|
|
|
$
|
8,582
|
|
|
$
|
30,668
|
|
Loss from discontinued operations, net of tax of $0
|
|
|
(1,884
|
)
|
|
|
(1,809
|
)
|
|
|
(5,010
|
)
|
|
|
(3,916
|
)
|
|
|
(12,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
10,025
|
|
|
$
|
(3,774
|
)
|
|
$
|
7,132
|
|
|
$
|
4,666
|
|
|
$
|
18,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) per share of common stock Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.43
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.44
|
|
|
$
|
0.33
|
|
|
$
|
1.14
|
|
Loss from discontinued operations
|
|
|
(0.07
|
)
|
|
|
(0.07
|
)
|
|
|
(0.18
|
)
|
|
|
(0.15
|
)
|
|
|
(0.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.36
|
|
|
$
|
(0.13
|
)
|
|
$
|
0.26
|
|
|
$
|
0.18
|
|
|
$
|
0.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) per share of common stock Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.43
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.44
|
|
|
$
|
0.32
|
|
|
$
|
1.13
|
|
Loss from discontinued operations
|
|
|
(0.07
|
)
|
|
|
(0.07
|
)
|
|
|
(0.18
|
)
|
|
|
(0.15
|
)
|
|
|
(0.47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.36
|
|
|
$
|
(0.13
|
)
|
|
$
|
0.26
|
|
|
$
|
0.17
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Net income for the quarter ended November 30, 2008 included
costs of $0.3 million related to the European restructuring
and a charge of $0.1 million related to the North America
restructuring. |
|
(b) |
|
Net loss for the quarter ended February 28, 2009 included a
curtailment gain of $2.6 million due to a reduction in
future working years from the announced U.S. workforce
reduction, charges of $1.1 million related to the European
restructuring, $2.9 million and $0.5 million related
to the North |
92
A. SCHULMAN,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
America restructuring and accelerated depreciation,
respectively, and charges of $1.9 million for impairment
related to the facilities in Orange, Texas and St. Thomas,
Ontario, Canada. |
|
(c) |
|
Net income for the quarter ended May 31, 2009 included
costs of $0.6 million related to the European
restructuring, $0.1 million and $0.7 million related
to the North America restructuring and accelerated depreciation,
respectively, and a charge of $0.2 million for impairment
related to the facility in St. Thomas, Ontario, Canada. |
|
(d) |
|
Net loss for the quarter ended August 31, 2009 included
charges of $10.4 million for impairment related to assets
in Sharon Center, Ohio, Findlay, Ohio and Europe
($10.3 million of which is included in discontinued
operations), costs of $0.8 million related to the European
restructuring, costs of $1.2 million related to the North
America restructuring and charges of $0.9 million of other
employee termination costs in Europe. |
|
(e) |
|
Net income for the quarter ended November 30, 2007 included
costs of $0.7 million related to the European employee
termination costs and a charge of $0.4 million related to
the final settlement of an insurance claim related to Hurricane
Rita. |
|
(f) |
|
Net loss for the quarter ended February 29, 2008 included
charges of $4.4 million for impairments related to assets
in St. Thomas, Ontario, Canada and Orange, Texas, costs of
$3.6 million related to the CEO transition, costs of
$2.0 million related to North America restructuring, a
charge of $1.0 million for goodwill impairment related to
the tolling reporting unit and a charge of $0.6 million
related to the termination of the lease of an airplane. |
|
(g) |
|
Net income for the quarter ended May 31, 2008 included
costs of $3.6 million for impairments related primarily to
assets in Findlay, Ohio, which is included in discontinued
operations, costs of $3.0 million related to North America
restructuring, and a curtailment gain of $2.3 million
related to the reduction in the expected years of future service
related primarily to a reduction in the U.S. workforce. |
|
(h) |
|
Net income for the quarter ended August 31, 2008 included a
charge of $2.9 million for impairment related to assets in
Findlay, Ohio which is included in discontinued operations, and
a curtailment gain of $1.7 million related to the
elimination of life insurance for certain future and current
U.S. retirees. |
93
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
|
None.
The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed
in the Companys reports under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the
Commissions rules and forms and that such information is
accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow for timely decisions regarding
required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls
and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives, and management is required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
The Company carries out a variety of on-going procedures, under
the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer
and Chief Financial Officer, to evaluate the effectiveness of
the design and operation of the Companys disclosure
controls and procedures. Based on the foregoing, the
Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls
and procedures were effective at a reasonable assurance level as
of the end of the period covered by this report.
During fiscal 2009, the Company began the consolidation of the
Companys European back-office operations to the European
shared service center located in Belgium. The majority of the
larger European Company entities were implemented during the
fourth quarter of fiscal 2009. As a result of this
consolidation, internal controls and procedures over financial
reporting have changed.
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined
in Exchange Act
Rule 13a-15(f).
The Companys internal control over
financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with accounting principles
generally accepted in the United States of America.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management,
including the Chief Executive Officer and Chief Financial
Officer, the Company conducted an evaluation of the
effectiveness of the Companys internal control over
financial reporting based on the framework in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management has concluded
that the internal control over financial reporting was effective
as of August 31, 2009.
Managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
August 31, 2009 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm, as stated
in their report included herein.
ITEM 9B.
OTHER INFORMATION
None.
94
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required in response to this Item in respect of
Directors is set forth in the Companys proxy statement for
its 2009 Annual Meeting (the Proxy Statement) under
the captions Election of Directors and
Section 16(a) Beneficial Ownership Reporting
Compliance in the Proxy Statement. The information
required by this Item in respect of Executive Officers is set
forth in Part I of this Annual Report under the caption
Executive Officers of the Corporation and in the
Proxy Statement under the caption Section 16(a)
Beneficial Ownership Reporting Compliance. The information
required by this Item in respect to the Corporations Code
of Conduct is set forth in the Proxy Statement under the caption
Corporate Governance Code of Conduct.
The information required in response to this Item in respect to
changes to the procedures by which security holders may
recommend nominees to the Board of Directors is set forth under
the caption Corporate Governance Board
Committees Nominating and Corporation Governance
Committee in the Proxy Statement. The information required
in response to this Item in respect to the Audit Committee and
the Audit Committee financial expert is set under the caption
Corporate Governance Board
Committees Audit Committee in the Proxy
Statement. The referenced information appearing in the indicated
captions in the Proxy Statement is incorporated herein by
reference.
ITEM 11.
EXECUTIVE COMPENSATION
Information in response to this Item in is set forth under the
captions Compensation Discussion and Analysis,
Compensation Tables, Compensation Committee
Report and Compensation Committee Interlocks and
Insider Participation in the Proxy Statement for which
information is incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information in response to this Item in respect to the ownership
of securities is set forth under the caption Security
Ownership of Management and Certain Beneficial Owners in
the Proxy Statement and is incorporated herein by reference.
Information in response to this Item in respect to securities
authorized for issuance under equity compensation plans is set
forth under the caption Equity Compensation Plan
Information in the Proxy Statement and is incorporated by
reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Information in response to this Item in respect to certain
relationships and related transactions is set forth in the Proxy
Statement under the caption Certain Relationships and
Related Transactions for which information is incorporated
herein by reference. Information in response to this Item in
respect to director independence is set forth in the Proxy
Statement under the caption Corporate
Governance Director Independence for which
information is incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information for this Item is included under the captions
Fees Incurred by Independent Registered Public Accounting
Firm and Pre-Approval of Fees in the Proxy
Statement for which information is incorporated herein by
reference.
95
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) The following documents are filed as a part of this
report:
(1) Financial Statements
The consolidated financial statements filed as part of this
Form 10-K
are as follows:
|
|
|
|
|
Consolidated Statements of Operations for the three years ended
August 31, 2009
|
|
|
56
|
|
Consolidated Balance Sheets at August 31, 2009 and 2008
|
|
|
57
|
|
Consolidated Statements of Stockholders Equity for the
three years ended August 31, 2009
|
|
|
58
|
|
Consolidated Statements of Cash Flows for the three years ended
August 31, 2009
|
|
|
59
|
|
Notes to Consolidated Financial Statements
|
|
|
60
|
|
(2) Financial Statement Schedules:
|
|
|
|
|
Valuation and Qualifying Accounts
|
|
|
F-1
|
|
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
(3) Exhibits:
|
|
|
3(a)
|
|
Amended and Restated Certificate of Incorporation of the Company
(for purposes of Commission reporting compliance only) (filed
herewith).
|
3(b)
|
|
Amended and Restated Bylaws of the Company (for purposes of
Commission reporting compliance only) (incorporated by reference
to Exhibit 3.2 to the Companys Current Report on Form 8-K
dated October 19, 2009).
|
10(a)
|
|
ISDA (International Swap Dealers Association, Inc.) Master
Agreement among A. Schulman, Inc. and KeyBank National
Association, dated January 13, 2004 (incorporated by reference
to Exhibit 10(ff) to the Companys Annual Report on Form
10-K for the fiscal year ended August 31, 2004).
|
10(b)
|
|
Credit Agreement, dated as of February 28, 2006, among A.
Schulman, Inc., A. Schulman Europe GmbH, A. Schulman Plastics,
S.A., and A. Schulman International Services NV, with JPMorgan
Chase Bank, N.A., as administrative agent, J.P. Morgan
Europe Limited, as European agent, J.P. Morgan Securities
Inc., as Sole Bookrunner and Sole Lead Arranger and the lenders
party to the Credit Agreement (incorporated by reference to
Exhibit 99.1 to the Companys Current Report on Form 8-K
dated February 28, 2006).
|
10(c)
|
|
Note Purchase Agreement among A. Schulman Europe GmbH, A.
Schulman, Inc. and the Purchasers and Guarantors named therein,
dated March 1, 2006, (incorporated by reference to Exhibit 99.2
to the Companys Current Report on Form 8-K dated February
28, 2006).
|
10(d)*
|
|
A. Schulman, Inc. 1992 Non-Employee Directors Stock Option
Plan (incorporated by reference to Exhibit A to the
Companys Proxy Statement dated November 12, 1992, filed as
Exhibit 28 to the Companys Annual Report on Form 10-K for
the fiscal year ended August 31, 1992).
|
10(e)*
|
|
Amendment to A. Schulman, Inc. 1992 Non-Employee Directors
Stock Option Plan (incorporated by reference to Exhibit 10.10 to
the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended February 29, 1996).
|
10(f)*
|
|
Second Amendment to A. Schulman, Inc. 1992 Non-Employee
Directors Stock Option Plan (incorporated by reference to
Exhibit 10(e) to the Companys Annual Report on Form 10-K
for the fiscal year ended August 31, 1998).
|
10(g)*
|
|
Third Amendment to A. Schulman, Inc. 1992
Non-Employee Directors Stock Option Plan (incorporated by
reference to Exhibit 4(p) to the Companys Registration
Statement on
Form S-8,
dated December 20, 1999, Registration No. 333-93093).
|
10(h)*
|
|
Fourth Amendment to A. Schulman, Inc. 1992 Non-Employee
Directors Stock Option Plan (incorporated by reference to
Exhibit 4.1 to the Companys Quarterly Report on Form 10-Q
for the fiscal quarter ended November 30, 2000).
|
96
|
|
|
10(i)*
|
|
A. Schulman, Inc. 2002 Equity Incentive Plan (incorporated by
reference to Exhibit 4(l) to the Companys Registration
Statement on Form S-8, dated January 24, 2003, Registration No.
333-102718).
|
10(j)*
|
|
Non-Employee Directors Compensation (incorporated by reference
to Exhibit 10(gg) to the Companys Annual Report on Form
10-K for the fiscal year ended August 31, 2006).
|
10(k)*
|
|
Form of Indemnification Agreement for all Executive Officers and
Directors of the Company (incorporated by reference to Exhibit
99.2 to the Companys Current Report on Form 8-K dated
October 16, 2006).
|
10(l)*
|
|
A. Schulman, Inc. 2006 Incentive Plan Form of Restricted Stock
Agreement (Employee Performance- Based) (incorporated by
reference to Exhibit 10.2 to the Companys Quarterly Report
on Form 10-Q for the fiscal quarter ended May 31, 2007).
|
10(m)*
|
|
The Companys 2008 Bonus Plan (incorporated by reference to
the Companys Current Report on Form 8-K dated October 17,
2007).
|
10(n)*
|
|
A. Schulman, Inc. 2006 Incentive Plan Form of Restricted Stock
Agreement (Employee Time-Based) (incorporated by reference to
Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q
for the fiscal quarter ended February 29, 2008).
|
10(o)*
|
|
A. Schulman, Inc. 2006 Incentive Plan Form of Performance Share
Agreement (incorporated by reference to Exhibit 10.4 to the
Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended February 29, 2008).
|
10(p)*
|
|
A. Schulman, Inc. 2006 Incentive Plan Form of Restricted Stock
Unit Agreement (Employees in Mexico, Canada and Europe)
(incorporated by reference to Exhibit 10.6 to the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended
February 29, 2008.)
|
10(q)*
|
|
Employment Agreement between the Company and Jack B. Taylor,
dated May 28, 2003 (incorporated by reference to Exhibit 10(ee)
to the Companys Annual Report on Form 10-K for the fiscal
year ended August 31, 2008).
|
10(r)*
|
|
Agreement between the Company and Walter Belderbos, dated
November 30, 2005 (incorporated by reference to Exhibit 10(ff)
to the Companys Annual Report on Form 10-K for the fiscal
year ended August 31, 2008).
|
10(s)*
|
|
Agreement between the Company and Bernard Rzepka, dated January
19, 2006 (incorporated by reference to Exhibit 10(hh) to the
Companys Annual Report on Form 10-K for the fiscal year
ended August 31, 2008).
|
10(t)*
|
|
Employment Agreement between the Company and Joseph M. Gingo,
dated December 17, 2007 (incorporated by reference to Exhibit
99.1 to the Companys Current Report on Form 8-K dated
December 18, 2007).
|
10(u)*
|
|
Transition Agreement between the Company and Terry L. Haines,
dated March 14, 2008 (incorporated by reference to Exhibit 99.1
to the Companys Current Report on Form 8-K dated March 20,
2008).
|
10(v)*
|
|
Separation Agreement between the Company and Barry A. Rhodes,
dated April 8, 2008 (incorporated by reference to Exhibit 99.1
to the Companys Current Report on Form 8-K dated April 9,
2008).
|
10(w)*
|
|
Change-in-Control Agreement between the Company and Gary A.
Miller, dated April 21, 2008 (incorporated by reference to
Exhibit 10(mm) to the Companys Annual Report on Form 10-K
for the fiscal year ended August 31, 2008).
|
10(x)*
|
|
Change-in-Control Agreement between the Company and David C.
Minc, dated May 19, 2008 (incorporated by reference to Exhibit
10(nn) to the Companys Annual Report on Form 10-K for the
fiscal year ended August 31, 2008).
|
10(y)*
|
|
Amendment to the Employment Agreement between the Company and
Jack B. Taylor, dated August 31, 2008 (incorporated by reference
to Exhibit 10(oo) to the Companys Annual Report on Form
10-K for the fiscal year ended August 31, 2008).
|
10(z)
|
|
Agreement among the Company, Barington Capital Group, L.P. and
others, dated October 21, 2005 (incorporated by reference to
Exhibit 99.2 to the Companys Current Report on Form 8-K
dated October 21, 2005).
|
10(aa)
|
|
Agreement among the Company, Barington Capital Group, L.P. and
others, dated October 25, 2006 (incorporated by reference to
Exhibit 99.2 to the Companys Current Report on Form 8-K
dated October 25, 2006).
|
97
|
|
|
10(bb)
|
|
Agreement among the Company, Barington Capital Group, L.P. and
others, dated November 15, 2007 (incorporated by reference to
Exhibit 99.1 to the Companys Current Report on Form 8-K
dated November 21, 2007).
|
10(cc)
|
|
First Amendment to the November 15, 2007 Agreement among the
Company, Barington Capital Group, L.P. and others, dated October
10, 2008 (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K dated October 10,
2008).
|
10(dd)*
|
|
The Companys 2009 Bonus Plan (incorporated by reference to
the Companys Current Report on Form 8-K dated October 22,
2008).
|
10(ee)
|
|
Agreement by and among the Company, Ramius LLC and others, dated
November 11, 2008 (incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K filed with the
Commission on November 12, 2008).
|
10(ff)*
|
|
Advisory Agreement, by and between the Company and
Dr. Peggy G. Miller, dated November 7, 2008 (incorporated
by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K filed with the Commission on November 12,
2008).
|
10(gg)*
|
|
First Amendment to Employment Agreement of Joseph M. Gingo,
dated December 17, 2008 (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed with
the Commission on December 23, 2008).
|
10(hh)*
|
|
Amended and Restated Employment Agreement of Paul F. DeSantis,
dated December 17, 2008 (incorporated by reference to Exhibit
10.2 to the Companys Current Report on Form 8-K filed with
the Commission on December 23, 2008).
|
10(ii)*
|
|
A. Schulman, Inc. Second Amended and Restated Directors Deferred
Units Plan (incorporated by reference to Exhibit 10.6 to the
Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 2008).
|
10(jj)*
|
|
First Amendment to Form of Indemnification Agreement for all
Executive Officers and Directors of the Company (incorporated by
reference to Exhibit 10.7 to the Companys Quarterly Report
on Form 10-Q for the fiscal quarter ended November 30, 2008).
|
10(kk)*
|
|
A. Schulman, Inc. Amended and Restated Nonqualified Profit
Sharing Plan (incorporated by reference to Exhibit 10.8 to the
Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 2008).
|
10(ll)*
|
|
First Amendment to the A. Schulman, Inc. 2002 Equity Incentive
Plan (incorporated by reference to Exhibit 10.9 to the
Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 2008).
|
10(mm)*
|
|
A. Schulman, Inc. Amended and Restated 2006 Incentive Plan
(incorporated by reference to Exhibit 10.10 to the
Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 2008).
|
10(nn)*
|
|
First Amendment to the 2009 Cash Bonus Plan of A. Schulman, Inc.
(incorporated by reference to Exhibit 10.11 to the
Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 2008).
|
10(oo)*
|
|
Amended and Restated A. Schulman, Inc. Supplemental Executive
Retirement Plan (incorporated by reference to Exhibit 10.12 to
the Companys Quarterly Report on
Form 10-Q
for the fiscal quarter ended November 30, 2008).
|
10(pp)*
|
|
Second Amendment to Employment Agreement of Joseph M. Gingo,
dated January 9, 2009 (incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K filed with the
Commission on January 13, 2009).
|
10(qq)*
|
|
A. Schulman, Inc. 2006 Incentive Plan Form of Performance Share
Award Agreement for Employees (incorporated by reference to
Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q
for the fiscal quarter ended February 28, 2009).
|
10(rr)*
|
|
A. Schulman, Inc. 2006 Incentive Plan Form of Time-Based and
Performance-Based Cash Award Agreement for Employees in Mexico,
Canada and Europe (incorporated by reference to Exhibit 10.6 to
the Companys Quarterly Report on Form 10-Q for the fiscal
quarter ended February 28, 2009).
|
10(ss)*
|
|
A. Schulman, Inc. 2006 Incentive Plan Form of Restricted Stock
Unit Award Agreement (Gingo) (incorporated by reference to
Exhibit 10.12 to the Companys Quarterly Report on Form
10-Q for the fiscal quarter ended February 28, 2009).
|
10(tt)
|
|
Second Amendment to the November 15, 2007 Agreement among the
Company, Barington Capital Group, L.P. and others, dated June 1,
2009. (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K filed with the
Commission on June 4, 2009).
|
98
|
|
|
10(uu)*
|
|
Form of Restricted Stock Unit Agreement (Non-Employee Directors)
(incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ended May
31, 2009).
|
10(vv)*
|
|
Second Amendment to the Employment Agreement between the Company
and Jack B. Taylor, dated August 31, 2009 (filed herewith).
|
11
|
|
Statement re Computation of Per Share Earnings.**
|
21
|
|
Subsidiaries of the Company (filed herewith).
|
23
|
|
Consent of Independent Registered Public Accounting Firm (filed
herewith).
|
24
|
|
Powers of Attorney (filed herewith).
|
31
|
|
Certifications of Principal Executive and Principal Financial
Officers pursuant to Rule
13a-14(a)/15d-14(a)
(filed herewith).
|
32
|
|
Certifications of Principal Executive and Principal Financial
Officers pursuant to 18 U.S.C. 1350 (filed herewith).
|
|
|
|
* |
|
Management contract or compensatory plan or arrangement required
to be filed as an Exhibit hereto. |
|
** |
|
Information required to be presented in Exhibit 11 is
provided in Note 11 of the Notes to Consolidated Financial
Statements under Part II, ITEM 8 of this
Form 10-K
in accordance with the provisions of FASB Statement of Financial
Accounting Standards No. 128, Earnings per Share. |
See subparagraph (a)(3) above
|
|
|
|
(c)
|
Financial Statement Schedules.
|
See subparagraph (a)(2) above
99
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
A. SCHULMAN, INC.
Paul F. DeSantis
Chief Financial Officer, Vice President and
Treasurer of A. Schulman, Inc.
Dated: October 26, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Company and in the capacities and on the date
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Joseph
M. Gingo
Joseph
M. Gingo
|
|
Director and Principal Executive Officer
|
|
October 26, 2009
|
|
|
|
|
|
/s/ Paul
F. DeSantis
Paul
F. DeSantis
|
|
Principal Financial Officer and Principal Accounting Officer
|
|
October 26, 2009
|
|
|
|
|
|
David G.
Birney*
|
|
Director
|
|
|
|
|
|
|
|
Michael Caporale,
Jr.*
|
|
Director
|
|
|
|
|
|
|
|
Howard R.
Curd*
|
|
Director
|
|
|
|
|
|
|
|
Michael A.
McManus, Jr.*
|
|
Director
|
|
|
|
|
|
|
|
Lee D.
Meyer*
|
|
Director
|
|
|
|
|
|
|
|
James A.
Mitarotonda*
|
|
Director
|
|
|
|
|
|
|
|
Ernest J. Novak,
Jr.*
|
|
Director
|
|
|
|
|
|
|
|
Dr. Irvin D.
Reid*
|
|
Director
|
|
|
100
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
Joseph M. Gingo
Attorney-in-Fact
October 26, 2009
|
|
|
* |
|
Powers of attorney authorizing Joseph M. Gingo to sign this
Annual Report on
Form 10-K
on behalf of certain Directors of the Company are being filed
with the Securities and Exchange Commission herewith. |
101
A. SCHULMAN,
INC.
VALUATION AND
QUALIFYING ACCOUNTS
SCHEDULE F-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charges to
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
Cost and
|
|
|
Net
|
|
|
Translation
|
|
|
Close of
|
|
|
|
of Period
|
|
|
Expenses
|
|
|
Write-Offs
|
|
|
Adjustment
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
Reserve for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, 2009
|
|
$
|
8,316
|
|
|
$
|
4,821
|
|
|
$
|
(2,604
|
)
|
|
$
|
(254
|
)
|
|
$
|
10,279
|
|
Year ended August 31, 2008
|
|
$
|
9,056
|
|
|
$
|
3,116
|
|
|
$
|
(4,181
|
)
|
|
$
|
325
|
|
|
$
|
8,316
|
|
Year ended August 31, 2007
|
|
$
|
9,409
|
|
|
$
|
2,019
|
|
|
$
|
(2,713
|
)
|
|
$
|
341
|
|
|
$
|
9,056
|
|
Inventory Reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, 2009
|
|
$
|
7,043
|
|
|
$
|
(2,723
|
)
|
|
$
|
(113
|
)
|
|
$
|
(155
|
)
|
|
$
|
4,052
|
|
Year ended August 31, 2008
|
|
$
|
8,237
|
|
|
$
|
(760
|
)
|
|
$
|
(822
|
)
|
|
$
|
388
|
|
|
$
|
7,043
|
|
Year ended August 31, 2007
|
|
$
|
8,538
|
|
|
$
|
385
|
|
|
$
|
(948
|
)
|
|
$
|
262
|
|
|
$
|
8,237
|
|
Valuation allowance deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, 2009
|
|
$
|
60,426
|
|
|
$
|
14,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
74,426
|
|
Year ended August 31, 2008
|
|
$
|
51,251
|
|
|
$
|
9,175
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
60,426
|
|
Year ended August 31, 2007
|
|
$
|
44,602
|
|
|
$
|
6,649
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
51,251
|
|
102