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2007 |
Safe Harbor Certain statements in this presentation may constitute forward-looking statements within the meaning of the Federal securities laws. These statements can be identified by the fact that they do not relate strictly to historic or current facts. They use such words as "anticipate", "estimate", "expect", "project", "intend", "plan", "believe", and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. These forward-looking statements are based on currently available information, but are subject to a variety of uncertainties, unknown risks and other factors concerning the Company's operations and business environment, which are difficult to predict and are beyond the control of the Company. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements, and that could adversely affect the Company's future financial performance, include, but are not limited to, the following: Worldwide and regional economic, business and political conditions, including continuing economic uncertainties in some or all of the Company's major product markets; Fluctuations in the value of currencies in major areas where the Company operates, including the U.S. dollar, euro, U.K. pound sterling, Canadian dollar, Mexican peso, Chinese yuan and Indonesian rupiah; Fluctuations in the prices of sources of energy or plastic resins and other raw materials; Changes in customer demand and requirements; Escalation in the cost of providing employee health care; The outcome of any legal claims known or unknown; and The performance of the North American auto market. 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 Company's business, financial condition and results of operations. This presentation contains time-sensitive information that reflects management's best analysis only as of the date of this presentation. A. Schulman does not undertake an obligation to publicly update or revise any forward- looking statements to reflect new events, information or circumstances, or otherwise. Further information concerning issues that could materially affect financial performance related to forward-looking statements can be found in A. Schulman's periodic filings with the Securities and Exchange Commission. |
Background A. Schulman is in the process of transforming itself - working with the Barington group successfully since 2005 The Company has instituted a number of cost-cutting and restructuring efforts. Recent commercial launch of a key new product, Invision, will provide additional high growth opportunities in many markets globally. Joseph M. Gingo, former Goodyear Chief Technical Officer to become President and CEO, succeeding Terry Haines, who is retiring. Schulman's diverse, experienced, highly qualified, and independent Board of Directors has listened to shareholder concerns (including Ramius') and taken a number of significant actions to address them over the last two years. These actions include adding additional independent directors to the Board and establishing a special committee to consider all strategic options for the company. The Special Committee is currently interviewing potential advisors. |
Background 11 of the 12 A. Schulman Board nominees are independent outsiders. Since 2005 the board has added 4 outside independent directors and has a fifth on the current slate - all of whom have been reviewed by the Barington group Despite these significant steps, Ramius has nominated a competing slate of directors to stand for election at the 2008 annual meeting. The Board believes it has the right operational strategy, cost structure, strategic review process, management team and Board in place to create significant value for all shareholders and Ramius' actions will only distract from this process. |
A. Schulman Overview Founded in 1928, global presence since the mid-1950s International supplier of designed and engineered compounds, color concentrates and resins, which are used in a variety of consumer, industrial, automotive and packaging applications Corporate headquarters in Akron, Ohio; NASDAQ : SHLM 17 manufacturing facilities: 10 in Europe and Asia 6 in North America 1 Invision (Sharon Center, Ohio) facility Full scale Invision production facility planned for Findlay, OH (2008 - 2009) 2,500 employees: 1,000 North America 1,500 Europe & Asia Approximately 75% of sales in Europe & Asia, 25% in North America |
The company operates within three distinct markets in each of its two segments (North America and Europe) Polybatch Film and packaging, for food and wrapping, masterbatches for colors and properties such as fade resistance Generate rapid increase in sales and profits by leveraging global technical capabilities in high value applications, with key investments Engineered Compounds Compounded products for durable goods, automotive, appliances, toys Provide steady and growing base of volume and cash flow by building on existing strong relationships through enhanced technical and selling efforts and competitively superior speed in all functions Merchant, Distribution and Rotomolding Distribute large producers bulk commodity resins Generate increasing sales and profits by capitalizing on global polyolefin producers shift to distribution Increase ASI purchasing power to improve availability and cost of base resins |
Competitive Advantages Extensive global footprint enables locally based service to global customers Multiple technology centers to support customer needs Broad product lines allow "one-stop shopping" for customers Quality culture delivers top-quality products Financial strength allows us to invest for profitable growth |
Focused Plan for Value Creation Return North America to profitability Restructure to create business units focused on specific market segments Create 3 fully functional and fully resourced business units Leverage competitive advantages including speed to market, technologies and global reach Realize cost reduction targets. Expect to save annual $18 million through cost reductions effecting practically all lines of the Schulman P&L Maximize successful launch of Invision Broad customer base targeted beyond automotive Grow Europe and Asia profitably Maintain vigilance on cost controls Integration of Deltaplast Color Business Continued growth in Asia and Eastern Europe Commencing operations in Turkey Driving increased growth in China |
North American Achievements to Date New organizations In new physical locations with new leaders and management teams New market and segment focused strategies targeting growing or profitable segments Change of organizational mindset to be "Market In" Decision making power pushed down into business units for speed New comp plan being developed linked to performance metrics Quicker response time for customers Implementing "Make to Order" production in all facilities Construction of US Polybatch facility to relieve pressure on Mexican operations Shift capacity closer to current and target customers Narrow focus and increase speed of product and application development to target application segments New system development - new data warehouse Visibility to profit and cost issues at very detailed levels. Clear and accurate customer/pricing information Variable cost detailed financial data |
North American Cost Reductions Cost Savings from 2007 plans: $18 million annually |
Improving Margins in North America Q1 Q2 Q3 Q4 North America gross margin by quarter have continued to improve Excluding Invision, Q4 07 reached $13.4 million |
Invision |
Building for Future Growth: Invision Invision is a new multi-layered sheet product leveraging Schulman's manufacturing base and technical abilities Major innovation resulting from Product Technology Center and Color Technology Center collaboration Leverages compounding and color-matching capabilities A cost-competitive, higher performance and more environmentally friendly alternative to painted plastic and film materials Potential high-growth markets include automotive, recreational vehicles, lawn care and appliances 4 patents pending: strong IP position provides barrier to entry and secures royalty flow Commercial production started in late spring 2007 Greenfield manufacturing plant being built in Findlay, OH |
Invision sheet has been thoroughly tested by multiple OEMs and is viewed as a qualified and attractive paint replacement 0 = Meets minimum requirements for painted plastics vehicle exterior + = Exceeds minimum requirements ++ + 0 Environmental Impact 0* + ++ High Temperature Performance ++ + 0 Low Temperature Performance (Impact etc.) + + + Weatherability (UV etc.) + + + Chemical/ Stain Resistance ++ + 0 Stone Impingement Resistance Invision Sheet Paint Film Paint on Plastic Evaluation Factor * For vertical panel requirements 0 + + Orange Peel Invision Advantages Clearly Demonstrated by OEM Testing |
Capital Structure and Financials |
Focused on Implementing Optimal Capital Structure Completed a number of enhancements to corporate capital structure Authorized and implemented multiple open-market share repurchase programs Renegotiated credit agreements, gaining flexibility to appropriately lever the company Concluded modified Dutch Auction share repurchase program in April 2006 Continuing to make progress toward appropriate leverage for the company Ongoing share repurchase program - recently agreed to increase to 5 million the number of shares authorized to be repurchased Judicious investment in capital spending Balance sheet optimization Evaluating global cash pooling opportunities Driving inventory levels down dramatically - Cash flow from operations reached $65 million in 2006 up from $19 million in 2005. |
Financial Summary for '07 Earnings were $22.6 million or $0.82 per share - high end of our range of $17-23 million and flat to analyst expectations in tough year Cash flow from operations reached $65 million, up from $19 million in 2006 Formed special board committee to study the business plan and recommend changes, as a result Realized targeted cost savings for '07 and are on track to realize the remainder in '08 North America continued to have sequential GM% improvement (6.8% / 8.8% / 9.2% / 10.1%) North America Operating Profit (excluding Invision and corporate spending) was positive in both Q3 and Q4 |
Strong Earnings Growth Expected in '08 |
Schulman has outperformed its closest publically traded competitors since it began its restructuring efforts in 2000 Source: Yahoo Finance |
Taken Significant Steps to Improve Corporate Governance and Address Shareholder Concerns Created Lead Independent Director position. Discontinued shareholder rights program in 2007. Linked management bonuses to key performance metrics of cash flow and asset utilization. Adopted new internal management standards and initiated a new Internal audit function. Have been working cooperatively with Barington since 2005. Recently announced establishment of special committee to consider all strategic options for the company, addressing Ramius' primary concern. First committee meeting took place in mid-December. Shareholder representation already on the board - 11 of the 12 proposed directors are independent outsiders, four named since 2005 with a fifth on the current company slate (as recommended by Barington). |
Schulman Board of Directors Schulman has a talented, diverse, engaged and independent Board Schulman believes shareholders benefit from broad perspective on the Board After the shareholder meeting, it is anticipated that 11 of 12 Board seats will be held by independent outsiders Four outside directors recommended by shareholders and added to BOD since 2005, fifth on current slate |
A. Schulman Director Nominees Current slate reflects addition of new outside director proposed by Barington and accepted by the nominating committee: Joseph M. Gingo (President and CEO effective January 1, 2008): Most recently served as Chief Technical Officer of Goodyear. Over the course of 41-year career with Goodyear, held numerous leadership roles in both technology and business. Key member of Goodyear's turnaround team and brings strong international, technical and business skills to the Board. James A. Karman: Former Vice Chairman of RPM International, Inc. (coatings, sealants and specialty chemicals). Relevant industry expertise, having formerly served as President and CFO of RPM. |
A. Schulman Director Nominees James A. Mitarotonda: Chairman of the Board, President and CEO of Barington Capital Group, L.P., A. Schulman's third-largest shareholder. Extensive background as public corporation Board member. Stanley W. Silverman: President of Horizon Venture Group LLC (private company investor). Formerly, President, CEO and director of PQ Corporation (global chemical and engineered glass materials). Served as business advisor to private equity firms, performing due diligence on acquisition targets in the manufacturing and manufacturing service industries. Director, C&D Technologies, Inc. (NYSE-CHP) |
Management and Board Focused on Enhancing Shareholder Value Reinvigorated Company leadership, with Joseph Gingo assuming the President and CEO position - significant operational and strategic turn around experience. Schulman's Board is pursuing best course of action to deliver value for shareholders: Special committee formed to consider all strategic alternatives Share repurchase program increased to 5 million Positioned to turn around financial performance in North America Completing restructuring and cost-cutting initiatives Maximizing value of Invision 11 of the 12 Board nominees are independent outsiders. Schulman's Board has engaged with Ramius and addressed the vast majority of their concerns in areas from strategy to governance. Schulman's Board Recommends Shareholders Vote AGAINST Ramius Slate |
Summary Company positioned for growth, already beginning to see results of restructuring efforts. New CEO, Mr. Gingo, has significant operational and strategic turnaround experience and is the right person to lead Company to next level. Board has formed a special committee to explore all strategic alternatives, thereby addressing Ramius' request. Board already has outside, activist shareholder representation. Ramius is not offering a different strategy for the Company - it is simply distracting from our ongoing value-creating process |
| In North America, we have successfully streamlined our business units to focus on three growth areas: polybatch; engineered compounds; and merchant, distribution and rotomolding. For the last quarter of 2007, excluding the investment costs for Invision and corporate spending, our North American business generated operating profit. |
| In Europe, we are working on the integration of the Deltaplast Color Business and are continuing to grow our business in Asia. We will also continue to maintain vigilance on cost controls while growing in strategic markets worldwide. | |
| Inventory reduction initiatives helped drive cash flow from operations to $65 million in 2006, up from $19 million in 2005. | |
| We recently launched Invision, a new multi-layered sheet product that leverages A. Schulmans manufacturing base and technical abilities. It already shows strong promise of providing high-growth opportunities in many markets globally, and we believe that Invision will add significant value going forward as customer acceptance grows. |
| Improved North American operations by eliminating 35% of manufacturing capacity and 33% of headcount. | |
| Closed 10 sales offices and consolidated order management in Akron. | |
| Consolidated all freight and warehousing with a single service provider. |
| Added four outside independent directors to the Board since 2005. | |
| Nominating an additional independent director, Stanley W. Silverman, as recommended by our third largest shareholder, Barington, for election at this annual meeting, bringing the total number of outside directors to 11, of which 5 have either been directly recommended or approved by Barington. Mr. Silverman will bring valuable expertise to the board, as he has served as President and CEO of PQ Corporation, then a private company, which is a leading global producer of specialty chemicals and engineered glass materials. He also has served as a business advisor to private equity firms, performing due diligence on acquisition |
targets in the manufacturing and manufacturing services industries, and currently serves on the board of directors of C&D Technologies, Inc. (NYSE: CHP) and as executive in residence at the Krall Center for Corporate and Executive Education at the Lebow College of Business of Drexel University. | ||
| Created a Lead Independent Director position. | |
| Terminated a poison pill in 2007 and adopted a policy consistent with ISS guidelines. | |
| Amended the corporate certificate of incorporation to remove supermajority voting for approval of business combinations. | |
| Linked management bonuses to key performance metrics of cash flow, return on invested capital and operating profit. | |
| Adopted new internal management standards and initiated a new internal audit function. | |
| Established a new special committee of the board, including Mr. Mitarotonda and two of the recently added independent directors, to consider all strategic options for the company, addressing Ramius primary concerns as expressed in its shareholder proposal. |
| Special committee formed to consider all strategic alternatives | |
| Share repurchase program approval increased to 5 million | |
| Positioned to turn around financial performance in North America | |
| Completing restructuring and cost-cutting initiatives | |
| Maximizing value of Invision |
| If the A. Schulman slate is elected, 11 of 12 board seats will be held by independent outside directors. | |
| James Karman has extensive experience in the specialty chemical industry, including service as Vice-Chairman of RPM International, Inc., a manufacturer of coatings, sealants, and specialty chemicals with more than $3.4 billion in revenue. | |
| As CEO, Mr. Gingo will provide reinvigorated Company leadership. Mr. Gingo has excellent knowledge of all aspects of the polymer business, as well as the workings of A. Schulman, particularly the Invision technology, and will be instrumental in taking this Company to the next level. Mr. Gingo has operated four public company divisions (of which three were global) with revenues of up to $1.2 billion, and played a key role as part of a strategic turnaround team for a $20 billion public company which ultimately resulted in the divestiture of significant business lines. |
Ramius and its nominees are not offering a different strategy for the company they are simply distracting from our ongoing value-creating process. |
| 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; and | |
| The performance of the North American auto market. |