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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 ______________________________
FORM 10-Q
 ______________________________
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2017
OR 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                     .
Commission File No. 0-7459
 ______________________________
A. SCHULMAN, INC.
(Exact Name of Registrant as Specified in its Charter)
 ______________________________ 
Delaware
 
34-0514850
(State or Other Jurisdiction
of Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
3637 Ridgewood Road, Fairlawn, Ohio
 
44333
(Address of Principal Executive Offices)
 
(ZIP Code)
Registrant’s telephone number, including area code: (330) 666-3751
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ     No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, "smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
þ
 
Accelerated filer
o
 
Emerging growth company
o
Non-accelerated filer
 
o
 
Smaller reporting company
o
 
 
 
 (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
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o 
Number of shares of common stock, $1.00 par value, outstanding as of January 4, 201829,501,346





TABLE OF CONTENTS

 
 
PAGE
Legal Proceedings
 
 
 
 
 
Exhibit 31.1

 
Exhibit 31.2
 
Exhibit 32
 
EX-101 INSTANCE DOCUMENT
 
EX-101 SCHEMA DOCUMENT
 
EX-101 CALCULATION LINKBASE DOCUMENT
 
EX-101 DEFINITION LINKBASE DOCUMENT
 
EX-101 LABEL LINKBASE DOCUMENT
 
EX-101 PRESENTATION LINKBASE DOCUMENT
 




PART I—FINANCIAL INFORMATION
Item 1—Financial Statements
A. SCHULMAN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three months ended November 30,
 
2017
 
2016
 
(In thousands, except per share data)
Net sales
$
674,623


$
600,000

Cost of sales
569,539

 
498,985

Selling, general and administrative expenses
75,127

 
72,374

Restructuring expense
467

 
9,544

(Gain) loss on sale of assets
(3,077
)
 

Operating income (loss)
32,567


19,097

Interest expense
13,441

 
13,164

Foreign currency transaction (gains) losses
787

 
562

Other (income) expense, net
(898
)
 
(1,132
)
Income (loss) before taxes
19,237


6,503

Provision (benefit) for U.S. and foreign income taxes
4,157

 
3,319

Net income (loss)
15,080


3,184

Noncontrolling interests
(365
)
 
(241
)
Net income (loss) attributable to A. Schulman, Inc.
14,715

 
2,943

Convertible special stock dividends
1,875

 
1,875

Net income (loss) available to A. Schulman, Inc. common stockholders
$
12,840

 
$
1,068

 
 
 
 
Weighted-average number of shares outstanding:
 
 
 
Basic
29,459


29,363

Diluted
29,643


29,477

 
 
 
 
Net income (loss) per common share available to A. Schulman, Inc. common stockholders
 
 
 
Basic
$
0.44

 
$
0.04

Diluted
$
0.43

 
$
0.04

 
 
 
 
Cash dividends per common share
$
0.205

 
$
0.205

Cash dividends per share of convertible special stock
$
15.00

 
$
15.00



The accompanying notes are an integral part of the consolidated financial statements
- 1 -




A. SCHULMAN, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three months ended November 30,
 
2017
 
2016
 
(In thousands)
Net income (loss)
$
15,080

 
$
3,184

Other comprehensive income (loss):
 
 
 
Foreign currency translation gains (losses)
980

 
(15,316
)
Defined benefit retirement plans, net of tax
378

 
594

Other comprehensive income (loss)
1,358

 
(14,722
)
Comprehensive income (loss)
16,438

 
(11,538
)
Less: comprehensive income (loss) attributable to noncontrolling interests
370

 
171

Comprehensive income (loss) attributable to A. Schulman, Inc.
$
16,068

 
$
(11,709
)


The accompanying notes are an integral part of the consolidated financial statements
- 2 -




A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
November 30,
2017
 
August 31,
2017
 
(In thousands)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
47,669

 
$
53,251

Restricted cash
468

 
768

Accounts receivable, less allowance for doubtful accounts of $10,053 at November 30, 2017 and $11,171 at August 31, 2017
430,070

 
408,439

Inventories
327,783

 
276,459

Prepaid expenses and other current assets
38,587

 
36,712

Assets held for sale
2,677

 
5,676

Total current assets
847,254


781,305

Property, plant, and equipment, less accumulated depreciation of $454,841 at November 30, 2017 and $444,481 at August 31, 2017
293,185

 
298,703

Deferred charges and other noncurrent assets
77,126

 
77,847

Goodwill
263,615

 
263,735

Intangible assets, net
324,845

 
332,190

Total assets
$
1,806,025

 
$
1,753,780

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Accounts payable
$
375,286

 
$
318,820

U.S. and foreign income taxes payable
4,585

 
4,900

Accrued payroll, taxes and related benefits
53,351

 
46,951

Other accrued liabilities
68,142

 
61,761

Short-term debt
26,094

 
32,013

Total current liabilities
527,458

 
464,445

Long-term debt
865,781

 
885,178

Pension plans
136,545

 
135,691

Deferred income taxes
36,719

 
37,699

Other long-term liabilities
23,672

 
23,735

Total liabilities
1,590,175

 
1,546,748

Commitments and contingencies


 


Stockholders’ equity:
 
 
 
Convertible special stock, no par value
120,289

 
120,289

Common stock, $1 par value, authorized - 75,000 shares, issued - 48,561 shares at November 30, 2017 and 48,529 shares at August 31, 2017
48,561

 
48,529

Additional paid-in capital
279,262

 
279,207

Accumulated other comprehensive income (loss)
(87,170
)
 
(88,523
)
Retained earnings
227,361

 
220,357

Treasury stock, at cost, 19,061 shares at November 30, 2017 and 19,063 shares at August 31, 2017
(382,807
)
 
(382,841
)
Total A. Schulman, Inc.’s stockholders’ equity
205,496

 
197,018

Noncontrolling interests
10,354

 
10,014

Total equity
215,850

 
207,032

Total liabilities and equity
$
1,806,025

 
$
1,753,780


The accompanying notes are an integral part of the consolidated financial statements
- 3 -




A. SCHULMAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three months ended November 30,
 
2017
 
2016
 
(In thousands)
Operating activities:
 
 
 
Net income
$
15,080

 
$
3,184

Adjustments to reconcile net income to net cash provided from (used in) operating activities:
 
 
 
Depreciation
10,461

 
11,172

Amortization
8,718

 
8,817

Deferred tax provision (benefit)
(829
)
 
(2,429
)
Pension, postretirement benefits and other compensation
2,280

 
1,893

(Gain) loss on sale of assets
(3,077
)
 

Changes in assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable
(21,537
)
 
(12,947
)
Inventories
(51,271
)
 
(21,639
)
Accounts payable
55,445

 
16,404

Income taxes
(564
)
 
(2,723
)
Accrued payroll and other accrued liabilities
12,918

 
27,623

Other assets and long-term liabilities
(2,106
)
 
(3,046
)
Net cash provided from (used in) operating activities
25,518

 
26,309

Investing activities
 
 
 
Expenditures for property, plant and equipment
(5,448
)
 
(12,972
)
Proceeds from the sale of assets
6,192

 
375

Distributions from equity investees
125

 
125

Net cash provided from (used in) investing activities
869

 
(12,472
)
Financing activities:
 
 
 
Cash dividends paid to special stockholders
(1,875
)
 
(1,875
)
Cash dividends paid to common stockholders
(6,163
)
 
(6,060
)
Increase (decrease) in short-term debt
(7,242
)
 
14,546

Borrowings on long-term debt
151,289

 
133,985

Repayments on long-term debt including current portion
(169,760
)
 
(149,301
)
Noncontrolling interests' distributions
(30
)
 

Issuances of stock, common and treasury
58

 
51

Redemptions of common stock
(996
)
 
(229
)
Net cash provided from (used in) financing activities
(34,719
)
 
(8,883
)
Effect of exchange rate changes on cash
2,450

 
(816
)
Net increase (decrease) in cash, cash equivalents, and restricted cash
(5,882
)
 
4,138

Cash, cash equivalents, and restricted cash at beginning of period
54,019

 
43,403

Cash, cash equivalents, and restricted cash at end of period
$
48,137

 
$
47,541


The accompanying notes are an integral part of the consolidated financial statements
- 4 -



Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



(1)
GENERAL
The unaudited interim consolidated financial statements included for A. Schulman, Inc. (the “Company”) reflect all adjustments, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods presented. All such adjustments are of a normal recurring nature. The fiscal year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited consolidated financial information should be read in conjunction with the consolidated financial statements and notes thereto incorporated in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2017.
The results of operations for the three months ended November 30, 2017 are not necessarily indicative of the results expected for the fiscal year ending August 31, 2018.
The accounting policies for the periods presented are the same as described in Note 1 – Business and Summary of Significant Accounting Policies to the consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2017.
Restricted Cash
Restricted cash of $0.5 million and $0.8 million as of November 30, 2017 and August 31, 2017 represents cash and cash equivalents held in an escrow account for the cash settlement of a commitment to a local government.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amount shown in the consolidated statements of cash flows:
 
November 30, 2017
 
August 31, 2017
 
November 30, 2016
 
August 31, 2016
 
(In thousands)
Cash and cash equivalents
47,669

 
53,251

 
39,285

 
35,260

Restricted cash
468

 
768

 
8,256

 
8,143

Total cash, cash equivalents, and restricted cash shown in the statements of cash flows
48,137

 
54,019

 
47,541

 
43,403

Assets Held for Sale
During fiscal 2017, the Company began actively marketing for sale certain properties and machinery and equipment at recently closed plants in the U.S. and Europe. As of November 30, 2017 and August 31, 2017, the Company had $2.7 million and $5.7 million, respectively, of assets held for sale classified on the consolidated balance sheet that represents the net book value of these properties along with certain machinery and equipment. In the first quarter of fiscal 2018, the Company sold two facilities in USCAN and received total cash proceeds of $6.1 million and recognized a gain on sale of $3.1 million. The gain on sale has been recorded within (gain) loss on sale of assets in the consolidated statements of operations. We expect the sale of the remaining assets held for sale to be completed within the next twelve months and have, accordingly, presented the held for sale assets as current. Proceeds from the sale of the assets will be used for general Corporate purposes. Based on the present real estate market and discussions with the Company's real estate adviser, no impairment of the recorded amounts has occurred as of November 30, 2017.
Certain items previously reported in specific financial statement captions have been reclassified to conform to the fiscal 2018 presentation.


- 5 -

Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(2)
GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the Company's carrying value of goodwill are as follows:
 
EMEA
 
USCAN
 
LATAM
 
APAC
 
EC
 
Total
 
(In thousands)
Balance as of August 31, 2017
$
58,180

 
$
116,369

 
$
13,528

 
$
934

 
$
74,724

 
$
263,735

Translation
419

 

 
(508
)
 
4

 
(35
)
 
(120
)
Balance as of November 30, 2017
$
58,599

 
$
116,369

 
$
13,020

 
$
938

 
$
74,689

 
$
263,615


The following table summarizes intangible assets with finite useful lives by major category:
 
November 30, 2017
 
August 31, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
(In thousands)
Customer related
$
359,791

 
$
(98,476
)
 
$
261,315

 
$
359,227

 
$
(91,910
)
 
$
267,317

Developed technology
73,131

 
(19,744
)
 
53,387

 
73,171

 
(18,574
)
 
54,597

Registered trademarks and tradenames
18,576

 
(8,433
)
 
10,143

 
18,347

 
(8,071
)
 
10,276

Total finite-lived intangible assets
$
451,498

 
$
(126,653
)
 
$
324,845

 
$
450,745

 
$
(118,555
)
 
$
332,190

Amortization expense of intangible assets was $7.7 million and $8.0 million for the three months ended November 30, 2017 and 2016, respectively.

(3)
LONG-TERM DEBT AND CREDIT ARRANGEMENTS

The following table summarizes short-term and long-term debt:
 
November 30, 2017
 
August 31, 2017
 
(In thousands)
Notes payable and other, due within one year
$
10,094

 
$
17,263

Current portion of long-term debt
16,000

 
14,750

Short-term debt
$
26,094

 
$
32,013

 
 
 
 
Revolving credit facility, LIBOR plus applicable spread, due June 2020
$
36,548

 
$
51,250

Term Loan A, LIBOR plus applicable spread, due June 2020
162,500

 
166,250

U.S. Term Loan B, LIBOR plus applicable spread, due June 2022
297,267

 
298,115

Senior notes, 6.875%, due June 2023
375,000

 
375,000

Capital leases and other long-term debt
3,078

 
3,276

Unamortized debt issuance costs
(8,612
)
 
(8,713
)
Long-term debt
$
865,781

 
$
885,178

For a detailed discussion of the Company's long-term debt and credit arrangements, refer to Note 5 in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2017.
In October 2017, the Company amended the 2015 Credit Agreement and increased the net leverage ratio covenant to provide the Company additional financial flexibility to execute on its growth strategy. The Company is in compliance with its debt covenants as of November 30, 2017.


- 6 -

Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(4) FAIR VALUE MEASUREMENT
The following table presents information about the Company’s assets and liabilities measured at fair value:
 
November 30, 2017
 
August 31, 2017
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets recorded at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
147

 
$

 
$
147

 
$

 
$
286

 
$

 
$
286

 
$

Liabilities recorded at fair value:
 
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
109

 
$

 
$
109

 
$

 
$
268

 
$

 
$
268

 
$

The Company's cash and cash equivalents are recorded at cost, which approximates fair value. The carrying value of the Company's variable-rate debt approximates fair value. The fair value of the Company’s long-term fixed-rate debt, based on quoted market prices, was $394.1 million and $389.5 million as of November 30, 2017 and August 31, 2017, respectively. The carrying value of this debt was $375.0 million as of November 30, 2017 and August 31, 2017, respectively.
The Company measures the fair value of its foreign exchange forward contracts using an internal model. The model maximizes the use of Level 2 market observable inputs including interest rate curves, currency forward and spot prices, and credit spreads. The aggregate notional amount of foreign exchange forward contracts outstanding was $26.4 million and $92.7 million as of November 30, 2017 and August 31, 2017, respectively. The amount of foreign exchange forward contracts outstanding as of the end of the period is indicative of the exposure of current balances and the forecasted change in exposures for the following quarter. 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 (gains) losses line in the Company’s consolidated statements of operations. The fair value of the Company’s foreign exchange forward contracts is recognized in other current assets or other accrued liabilities in the consolidated balance sheets based on the net settlement value. The foreign exchange forward contracts are entered into with creditworthy financial institutions, generally have a term of three months or less, and the Company does not hold or issue foreign exchange forward contracts for trading purposes. There were no foreign exchange forward contracts designated as hedging instruments as of November 30, 2017 and August 31, 2017.
For a discussion of the Company’s fair value measurement policies under the fair value hierarchy, refer to Note 1 in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2017. The Company has not changed its valuation techniques for measuring the fair value of any financial assets or liabilities during fiscal 2018, and transfers between levels within the fair value hierarchy, if any, are recognized at the end of each quarter. There were no transfers between levels during the period presented.
Additionally, the Company remeasures certain assets to fair value, using Level 3 measurements, as a result of the occurrence of triggering events. There were no significant assets or liabilities that were remeasured at fair value on a non-recurring basis during the period presented.
(5) INCOME TAXES
The effective tax rate was 21.6% and 51.0% for the three months ended November 30, 2017 and 2016, respectively. The decrease in the effective tax rate as compared with the same period last year is primarily related to higher uncertain tax positions recorded in the prior year.
We record quarterly taxes based on overall estimated annual effective tax rates. The difference between our effective tax rate and the U.S. statutory federal income tax rate in the current year is primarily attributable to our overall foreign rate being less than the U.S. statutory federal income tax rate.
As of November 30, 2017, the Company's gross unrecognized tax benefits totaled $4.3 million. If recognized, $3.3 million of the total unrecognized tax benefits would favorably affect the Company's effective tax rate. 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. The Company reports interest and penalties related to income tax matters in income tax expense. As of November 30, 2017, the Company had $1.4 million of accrued interest and penalties on unrecognized tax benefits.

- 7 -

Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The Company’s statute of limitations is open in various jurisdictions as follows: Germany - from 2005 onward, France - from 2010 onward, U.S. - from 2014 onward, Belgium - from 2015 onward, other foreign jurisdictions - from 2011 onward.
(6) PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The components of the Company’s net periodic benefit cost for defined benefit pension plans are shown below:
 
Three months ended November 30,
 
2017
 
2016
 
(In thousands)
Defined benefit pension plans:
 
 
 
Service cost
$
1,298

 
$
1,395

Interest cost
771

 
587

Expected return on plan assets
(396
)
 
(376
)
Amortization of actuarial loss (gain)
700

 
997

Net periodic pension benefit cost
$
2,373

 
$
2,603


In fiscal 2018, there have been no significant charges incurred related to the Company's other postretirement benefit plan. For discussion of the Company's other postretirement benefit plan, refer to Note 8 in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2017.

(7) CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
A summary of the changes in stockholders’ equity is as follows:
 
Convertible Special Stock
 
Common
Stock ($1 par value)
 
Additional Paid-In Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Treasury
Stock
 
Non-controlling
Interests
 
Total
Equity
 
(In thousands, except per share data)
Balance as of August 31, 2017
$
120,289

 
$
48,529

 
$
279,207

 
$
(88,523
)
 
$
220,357

 
$
(382,841
)
 
$
10,014

 
$
207,032

Comprehensive income (loss)
 
 
 
 

 
1,353

 
14,715

 

 
370

 
16,438

Cash dividends paid on convertible special stock, $15.00 per share
 
 
 
 
 
 
 
 
(1,875
)
 
 
 
 
 
(1,875
)
Cash dividends paid on common stock, $0.205 per share
 
 
 
 

 

 
(6,163
)
 

 

 
(6,163
)
Cash distributions to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
(30
)
 
(30
)
Issuance of treasury stock
 
 
 
 
24

 

 

 
34

 

 
58

Restricted stock issued, net of forfeitures
 
 
61

 
(61
)
 
 
 
 
 
 
 
 
 

Redemption of common stock to cover tax withholdings
 
 
(29
)
 
(967
)
 
 
 
 
 
 
 
 
 
(996
)
Cumulative effect adjustment upon adoption of ASU 2016-09
 
 
 
 
 
 
 
 
327

 
 
 
 
 
327

Share-based compensation plans
 
 
 
 
1,059

 

 

 

 

 
1,059

Balance as of November 30, 2017
$
120,289

 
$
48,561

 
$
279,262

 
$
(87,170
)
 
$
227,361

 
$
(382,807
)
 
$
10,354

 
$
215,850

For a detailed discussion of the Company's convertible special stock, refer to Note 9 in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2017. There have been no fundamental changes in the Company's convertible special stock as of November 30, 2017 or August 31, 2017.

- 8 -

Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(8) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (loss) are as follows(1):

 
Foreign Currency Translation Gain (Loss)
 
Pension and Other Retiree Benefits
 
Total Accumulated Other Comprehensive Income (Loss)
 
(In thousands)
Balance as of August 31, 2017
$
(52,191
)
 
$
(36,332
)
 
$
(88,523
)
Other comprehensive income (loss) before reclassifications
980

 

 
980

Amounts reclassified to earnings

 
378

(2) 
378

Net current period other comprehensive income (loss)
980

 
378

 
1,358

Less: comprehensive income (loss) attributable to
noncontrolling interests
5

 

 
5

Net current period other comprehensive income (loss) attributable to A. Schulman, Inc.
975

 
378

 
1,353

Balance as of November 30, 2017
$
(51,216
)
 
$
(35,954
)
 
$
(87,170
)

 
Foreign Currency Translation Gain (Loss)
 
Pension and Other Retiree Benefits
 
Total Accumulated Other Comprehensive Income (Loss)
 
(In thousands)
Balance as of August 31, 2016
$
(69,717
)
 
$
(51,004
)
 
$
(120,721
)
Other comprehensive income (loss) before reclassifications
(15,316
)
 

 
(15,316
)
Amounts reclassified to earnings

 
594

(2) 
594

Net current period other comprehensive income (loss)
(15,316
)
 
594

 
(14,722
)
Less: comprehensive income (loss) attributable to
noncontrolling interests
(70
)
 

 
(70
)
Net current period other comprehensive income (loss) attributable to A. Schulman, Inc.
(15,246
)
 
594

 
(14,652
)
Balance as of November 30, 2016
$
(84,963
)
 
$
(50,410
)
 
$
(135,373
)

(1) All amounts presented are net of tax. All tax amounts are related to pension and other retiree benefits.
(2) Amounts represent amortization of net actuarial loss and prior service costs and are reclassified from accumulated other comprehensive income into cost of sales and selling, general & administrative expenses on the consolidated statements of operations. These components are included in the computation of net periodic pension cost. Refer to Note 6 of this Form 10-Q for further details.

(9) SHARE-BASED INCENTIVE COMPENSATION PLANS

For a discussion of the Company's share-based incentive compensation plans, refer to Note 11 in the Company's Annual Report
on Form 10-K for the fiscal year ended August 31, 2017. During the first quarter of fiscal 2018, the Company granted non-employee directors and to the Senior Advisor to the Board of Directors a total of 2,553 shares of unrestricted common stock.
The following table summarizes the impact to the Company’s consolidated statements of operations from share-based incentive compensation plans, which is primarily included in selling, general and administrative expenses in the accompanying consolidated statements of operations:

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Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
Three months ended November 30,
 
2017
 
2016
 
(In thousands)
Time-based and performance-based restricted stock awards
$
1,107

 
$
901

Stock options
128

 

Unrestricted awards
78

 
722

Total share-based incentive compensation
$
1,313

 
$
1,623


(10) EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if common stock equivalents are exercised as well as the impact of restricted stock awards expected to vest, which combined would then share in the earnings of the Company.
Dividends on convertible special stock that an issuer has paid or intends to pay are deducted from net income or added to the amount of a net loss in computing income available to common stockholders.
The difference between basic and diluted weighted-average shares results from the assumed exercise of outstanding stock options and vesting of restricted stock awards, calculated using the treasury stock method, and the inclusion of the convertible special stock dividends, calculated using the if-converted method.
The Company computes income available to common stockholders by deducting dividends accumulated on the convertible special stock from net income attributable to A. Schulman, Inc. The convertible special stock does not impact the denominator of basic EPS. The dilutive effect of convertible special stock is reflected in diluted EPS by application of the if-converted method. In applying the if-converted method, conversion shall not be assumed for purposes of computing diluted EPS if the effect would be anti-dilutive. The convertible special stock is anti-dilutive whenever the amount of the dividend declared in or accumulated for the current period per share on conversion exceeds basic EPS. For the three months ended November 30, 2017 and 2016, the accumulated dividend per share on conversion exceeded basic EPS, therefore the 2,388,913 shares related to the convertible special stock were considered anti-dilutive.
The following table presents the number of incremental weighted-average shares used in computing diluted per share amounts:
 
Three months ended November 30,
 
2017
 
2016
 
(In thousands)
Weighted-average shares outstanding:
 
 
 
Basic
29,459

 
29,363

Incremental shares from equity awards
184

 
114

Incremental shares from convertible special stock

 

Diluted
29,643

 
29,477

For the three months ended November 30, 2017 there were 172,000 anti-dilutive shares related to share-based compensation plans that were excluded from diluted weighted-average shares outstanding. For the three months ended November 30, 2016, there were no anti-dilutive shares related to share-based compensation plans that were excluded from diluted weighted-average shares outstanding.

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Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(11) SEGMENT INFORMATION
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”), to identify reportable segments. The CODM makes decisions, assesses performance and allocates resources by the following current reportable segments: Europe, Middle East and Africa (“EMEA”), United States & Canada (“USCAN”), Latin America (“LATAM”), Asia Pacific (“APAC”), and Engineered Composites ("EC").
The CODM uses net sales to unaffiliated customers, segment gross profit and segment operating income in order to make decisions, assess performance and allocate resources to each segment. Segment operating income does not include items such as interest income or expense, other income or expense, foreign currency transaction gains or losses, restructuring and related costs including accelerated depreciation, asset impairments, or costs and inventory step-up charges related to business acquisitions. Corporate expenses include the compensation of certain personnel, certain audit expenses, Board of Directors related costs, certain insurance costs, costs associated with being a publicly traded entity and other miscellaneous legal and professional fees.
The following table summarizes net sales to unaffiliated customers by segment:
 
Three months ended November 30,
 
2017
 
2016
 
(In thousands)
EMEA
$
347,419


$
296,072

USCAN
159,236


156,418

LATAM
48,413

 
42,216

APAC
60,164


50,737

EC
59,391

 
54,557

Total net sales to unaffiliated customers
$
674,623

 
$
600,000

Below the Company presents gross profit by segment:
 
Three months ended November 30,
 
2017
 
2016
 
(In thousands)
EMEA
$
46,445

 
$
44,658

USCAN
24,628

 
24,516

LATAM
10,203

 
9,417

APAC
9,911

 
9,126

EC
13,980

 
13,968

Total segment gross profit
105,167

 
101,685

Accelerated depreciation and restructuring related costs
(83
)
 
(528
)
Costs related to acquisitions and integrations

 
(57
)
Lucent costs (1)

 
(85
)
Total gross profit
$
105,084

 
$
101,015


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Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Below is a reconciliation of segment operating income to operating income (loss) and income (loss) before taxes:
 
Three months ended November 30,
 
2017
 
2016
 
(In thousands)
EMEA
$
21,075

 
$
19,768

USCAN
8,141

 
8,496

LATAM
5,957

 
5,435

APAC
5,761

 
5,013

EC
5,282

 
5,111

Total segment operating income
46,216

 
43,823

Corporate
(9,401
)
 
(8,816
)
Costs related to acquisitions and integrations

 
(605
)
Restructuring and restructuring related costs (2)
(4,371
)
 
(13,273
)
Accelerated depreciation
(178
)
 
(356
)
Lucent costs (1)
(2,776
)
 
(809
)
Asset impairment

 
(678
)
Gain (loss) on sale of assets
3,077



CEO transition costs

 
(189
)
Operating income (loss)
32,567

 
19,097

Interest expense
(13,441
)
 
(13,164
)
Foreign currency transaction gains (losses)
(787
)
 
(562
)
Other income (expense), net
898

 
1,132

Income (loss) before taxes
$
19,237

 
$
6,503

 (1) Refer to Note 13, Contingencies and Claims, for additional discussion on this matter. Lucent costs in cost of sales include additional product and manufacturing operational costs for reworking inventory. Lucent costs in selling, general and administrative expenses include legal and investigative costs.
(2) Restructuring related costs for the three months ended November 30, 2017 and 2016 of $3.9 million and $3.7 million, respectively, primarily included in selling, general and administrative expenses in the Company’s statements of operations, are costs associated with professional fees for outside strategic consultants regarding actions to improve the profitability of the organization, improve efficiency of its operations or comply with new legislation, costs associated with reorganizations of the legal entity structure of the Company, and costs associated with new software implementation that are not eligible for capitalization. Restructuring expenses for the three months ended November 30, 2017 and 2016 of $0.5 million and $9.5 million, respectively, included in restructuring expense in the Company’s statements of operations include costs permitted under ASC 420, Exit or Disposal Obligations, such as severance costs, outplacement services and contract termination costs.
Globally, the Company operates in three product families: Engineered Composites, Custom Concentrates and Services, and Performance Materials. The amount and percentage of consolidated net sales for these product families are as follows:
 
Three months ended November 30,
 
2017
 
2016
 
(In thousands, except for %'s)
Engineered Composites
$
59,391

 
9
%
 
$
54,557

 
9
%
Custom Concentrates and Services
321,201

 
47

 
275,921

 
46

Performance Materials
294,031

 
44

 
269,522

 
45

Total consolidated net sales
$
674,623

 
100
%
 
$
600,000

 
100
%


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Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(12) RESTRUCTURING
In fiscal 2018, no new restructuring plans have been announced and no significant charges have been incurred in fiscal 2018 related to prior year plans. For discussion of the Company's previous restructuring plans, refer to Note 16 in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2017.
The following table summarizes the activity related to the Company’s restructuring plans:
 
Employee-related Costs
 
Other Costs
 
Total Restructuring Costs
 
(In thousands)
Accrual balance as of August 31, 2017
$
2,988

 
$
90

 
$
3,078

Fiscal 2018 charges
181

 
286

 
467

Fiscal 2018 payments
(1,232
)
 
(291
)
 
(1,523
)
Translation
3

 
5

 
8

Accrual balance as of November 30, 2017
$
1,940

 
$
90

 
$
2,030

Restructuring expenses are excluded from segment operating income but are attributable to the reportable segments as follows:
 
Three months ended November 30,
 
2017
 
2016
 
(In thousands)
EMEA
$
259

 
$
8,014

USCAN
188

 
1,467

LATAM
20

 
59

APAC

 
4

Total restructuring expense
$
467

 
$
9,544


(13) CONTINGENCIES AND CLAIMS
In the normal course of business, the Company is at times subject to pending and threatened legal actions, some for which the relief or damages sought may be substantial. Although the Company is not able to predict the outcome of such legal actions, after reviewing all pending and threatened legal actions with counsel and based on information currently available, management believes that the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on the results of operations, financial position or cash flows of the Company. However, it is possible, that the ultimate resolution of such matters, if unfavorable, may be material to the results of operations in a particular future period as the time and amount of any resolution of such legal actions and its relationship to the future results of operations are not currently known.
Reserves are established for legal claims only when losses associated with the claims are judged to be probable, and the loss can be reasonably estimated. In many lawsuits and arbitrations, it is not considered probable that a liability has been incurred or it is not possible to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case no reserve would be recognized until that time.
There were no material changes to the Company’s future contractual obligations as previously reported in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2017.

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Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Lucent Matter
As previously reported by the Company in its filings with the U.S. Securities and Exchange Commission ("SEC"), on June 1, 2015, the Company completed the acquisition of Citadel and its subsidiaries, including its indirect wholly owned subsidiary Lucent Polymers, Inc. In August 2015, the Company discovered discrepancies between laboratory data and certifications provided by Lucent to customers and also discovered inaccuracies in materials and information provided by Lucent employees to an independent certification organization. The Company took immediate decisive actions following its initial discoveries, including, but not limited to, remediation measures, notifications to affected customers, and notification to Underwriter Laboratories. The Company also commenced an internal investigation, which revealed that the discrepancies and inaccuracies initially identified were due to practices at Lucent under its prior ownership. As a result, the Company has reformulated and rebranded its products and ceased the use of certain tradenames associated with Citadel, which resulted in the impairment of certain finite-lived intangible assets during the fourth quarter of fiscal 2016. In addition, the Engineered Plastics business, which is now part of the Performance Materials product family, did not meet volume and revenue expectations in fiscal 2016 and the product had lower margins than planned due primarily to the remediation and changes in business practices undertaken to address the Lucent quality matter.  The deterioration of results due to the aforementioned factors and economic conditions soon after the acquisition resulted in the impairment of the acquired goodwill during the fourth quarter of fiscal 2016. For a discussion of the goodwill and intangible asset impairments, refer to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2017.
To date, no customers or other parties have initiated recalls or have made material claims against the Company. Although to date, no significant customers have terminated their relationships with the Company or its subsidiaries because of the Lucent quality matter, the matter has resulted in decreased volume and revenue, including reductions by certain significant customers. Additionally, the Company continues to incur recurring additional costs to produce product to customer specification.
As no customer or other parties have initiated recalls, or have made material claims against the Company or its subsidiaries from the date we identified this issue in August 2015 through the date of filing, we are currently unable to conclude that losses related to recalls or claims are probable or to estimate the potential range of losses. The Company is currently unable to determine whether such issues will have any future material adverse effect on our financial position, liquidity, or results of operations.
In addition, the Company previously provided a written claim notice to the sellers and to the escrow agent with respect to the indemnity escrow established in connection with the stock purchase agreement pursuant to which the Company acquired Citadel and its subsidiaries. As of November 30, 2017, approximately $31.0 million remained in such indemnity escrow.
As Lucent was effectively acquired by Citadel in December of 2013, the Company also submitted written claim notices pursuant to the Agreement and Plan of Merger, dated December 6, 2013, among The Matrixx Group, Incorporated, LPI Merger Sub, Inc., LPI Holding Company, River Associates Investments, LLC and certain stockholders of LPI Holding Company, pursuant to which Citadel initially acquired Lucent. The Company also submitted written claim notices pursuant to a $3.8 million representations and warranties insurance policy issued in connection with that acquisition.
In June 2016, the Company filed a complaint in the Delaware Chancery Court against Citadel Plastics (the “Citadel Complaint”), as well as certain funds affiliated with the sellers and other former executives of Citadel and Lucent (the “Citadel Defendants”). In January 2017, the Court denied the defendants motion to dismiss seventeen of twenty claims. The Court's ruling sustained claims for breach of contract, fraudulent inducement, civil conspiracy and violations of blue sky laws in Illinois, Ohio, California and Indiana. On February 16, 2017, the Court entered a stipulated order establishing an equitable lien over all pre-closing tax refunds payable by the Company to Citadel Plastics under the stock purchase agreement until resolution of litigation. The funds currently subject to the equitable lien are $7.5 million. The Company is seeking rescission, damages, rescissory damages, disgorgement or any other remedy deemed proper for the alleged violations as well as seeking attorneys’ fees for bringing suit. The case has been scheduled for trial in April 2018.
In November 2016, the Company, through its Matrixx subsidiary, filed a separate Complaint in the Delaware Chancery Court against River Associates (the “River Complaint”), as well as certain funds affiliated with the sellers and other former executives of Lucent (the “River Defendants”). In general, the River Complaint alleges similar theories (except securities violations) and seeks similar relief (except rescission) and the River Defendants filed a similar motion to dismiss as in the Citadel litigation. On August 23, 2017, the Court ruled on River Defendants’ Motions to Dismiss and Motions for Summary Judgment. The Court dismissed certain claims pertaining to one Defendant and all other motions to dismiss parties or claims were denied. In addition, the Court ruled against the Citadel Defendants’ Motions to (in effect) combine the Citadel Holdings litigation with the River litigation. Therefore, the River litigation will proceed as a separate lawsuit on a schedule months behind the Citadel Holdings Litigation. No trial date has yet been scheduled.

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Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


There are ongoing parallel investigations being undertaken by the United States Attorneys' Office for the Southern District of Indiana ("USAO") and the SEC that we understand relate to the allegations made by the Company in the Citadel Complaint arising out of the Company's acquisition of Citadel (including Citadel's subsidiary, Lucent). On September 6, 2017, the Federal Bureau of Investigation, Indianapolis division, notified the Company's counsel that the Company was a potential victim of a crime. We are cooperating fully with the USAO and the SEC in their investigations.
(14) ACCOUNTING PRONOUNCEMENTS
Accounting Standards Adopted In The Current Period
In March 2016, the FASB issued Accounting Standards Update 2016-09 to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification on the statement of cash flows, and accounting for forfeitures. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods. Upon adoption, the Company reversed deferred tax liabilities of $0.3 million for all excess tax deficiencies or benefits that had not been previously recognized. This was accomplished through a cumulative-effect adjustment to retained earnings. The Company will continue to estimate forfeitures as part of recording equity-based compensation expense. The adoption of this accounting standard did not impact the Company's consolidated statements of operations or consolidated statements of cash flows for the periods presented.
Accounting Standards Issued, To Be Adopted By The Company In Future Periods
In March 2017, the FASB issued an accounting standard update requiring that an employer report the pension service cost component in the same line items as compensation costs, but report all other components of net periodic pension cost in a line below operating income. This amendment is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods. Early adoption is permitted. The Company had pension service cost of $1.3 million and $1.4 million during the three months ended November 30, 2017 and 2016, respectively. Total net periodic pension cost was $2.4 million and $2.6 million for the three months ended November 30, 2017 and 2016, respectively. The Company plans to adopt this standard on September 1, 2018.
In February 2016, the FASB issued new accounting guidance which requires companies to recognize a lease liability and right-of-use asset on the balance sheet for operating leases with a term greater than one year. The standard is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company regularly enters into operating leases which previously did not require recognition on the balance sheet. The Company is currently evaluating the effects this standard will have on its consolidated financial statements and plans to adopt this standard September 1, 2019.
In May 2014, and as subsequently updated, the FASB issued new accounting guidance that creates a single revenue recognition model, while clarifying the principles for recognizing revenue. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods. The Company will adopt the new guidance on September 1, 2018. The new revenue standard may be adopted using either of the following transition methods: (1) a full retrospective approach reflecting the adoption of the standard in each prior reporting period with the option to elect certain practical expedients, or (2) a modified retrospective approach with the cumulative effect of initially adopting the standard recognized at the date of adoption (which includes additional footnote disclosures). The Company preliminarily expects to use the modified retrospective method. However, the Company is continuing to evaluate the impact of the standard, and the planned adoption method is subject to change. Currently, the Company is in the process of reviewing historical sales contracts to analyze the impact that the adoption of the standard may have, if any, on the consolidated financial statements.
No other new accounting pronouncements issued or with effective dates during fiscal 2018 had or are expected to have a material impact on the Company's consolidated financial statements.

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Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(15) CONSOLIDATING FINANCIAL INFORMATION
Certain of our subsidiaries have guaranteed our obligations under the $375.0 million outstanding principal amount of 6.875% Senior Notes due June 2023 (the "Notes"). The following presents the condensed consolidating financial information separately for:

(i) A. Schulman Inc. (“Parent”), the issuer of the guaranteed obligations;
(ii) Guarantor subsidiaries (“Guarantors”), on a combined basis, as specified in the indentures related to the Company’s obligations under the Notes;
(iii) Non-guarantor subsidiaries (“Non-Guarantors”), on a combined basis;
(iv) Eliminations representing adjustments to (a) eliminate intercompany transactions between or among Parent, Guarantors and Non-Guarantors and (b) eliminate the investments in our subsidiaries;
(v) A. Schulman, Inc. and Subsidiaries on a consolidated basis (“Consolidated”).
Each Guarantor is 100% owned by Parent for each period presented. The Notes are fully and unconditionally guaranteed on a joint and several basis by each Guarantor. The guarantees of the Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions. Each entity in the consolidating financial information follows the same accounting policies as described in the notes to the consolidated financial statements, except for the use by Parent and Guarantors of the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation. Changes in intercompany receivables and payables related to operations, such as intercompany sales or service charges, are included in cash flows from operating activities. Intercompany transactions reported as investing or financing activities include the sale of the capital stock of various subsidiaries, loans and other capital transactions between members of the consolidated group.
Certain Non-Guarantors are limited in their ability to remit funds to Parent by means of dividends, advances or loans due to required foreign government and/or currency exchange board approvals or limitations in credit agreements or other debt instruments of those subsidiaries.
During the first quarter of fiscal 2018, certain Guarantors merged with Parent in conjunction with simplification of the Company's legal entity structure. As required, the Company has changed the prior year consolidating financial statement presentation to conform to the current legal entity structure. As a result, Parent's total assets increased by $11.4 million, and Guarantor total assets decreased by $224.5 million, with corresponding offsetting adjustments presented on the same line items in the eliminations column as of August 31, 2017. Parent's total liabilities increased by $11.4 million, Guarantor total liabilities decreased by $25.7 million, and Guarantor total stockholders' equity decreased $198.8 million, with corresponding offsetting adjustments presented on the same line items in the eliminations column as of August 31, 2017. Guarantor net income decreased $7.0 million for the three months ended November 30, 2016, with corresponding offsetting adjustments presented on the same line item in the eliminations column. There were no material adjustments made to the Non-Guarantors, other than intercompany balances, which eliminate in consolidation.

- 16 -

Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
Condensed Consolidating Balance Sheet
 
November 30, 2017
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In thousands)
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
173

 
$

 
$
47,496

 
$

 
$
47,669

Restricted cash

 

 
468

 

 
468

Accounts receivable, net
51,376

 
52,855

 
325,839

 

 
430,070

Accounts receivable, intercompany
24,282

 
5,495

 
28,271

 
(58,048
)
 

Inventories
50,598

 
42,161

 
235,024

 

 
327,783

Prepaid expenses and other current assets
4,470

 
2,613

 
31,504

 

 
38,587

Assets held for sale

 
2,677

 

 

 
2,677

Total current assets
130,899

 
105,801

 
668,602

 
(58,048
)
 
847,254

Net property, plant and equipment
61,216

 
50,045

 
181,924

 

 
293,185

Deferred charges and other noncurrent assets
93,371

 
4,078

 
56,552

 
(76,875
)
 
77,126

Intercompany loans receivable
14,264

 
17,678

 

 
(31,942
)
 

Investment in subsidiaries
785,408

 
114,900

 

 
(900,308
)
 

Goodwill
55,534

 
81,617

 
126,464

 

 
263,615

Intangible assets, net
39,279

 
171,200

 
114,366

 

 
324,845

Total assets
$
1,179,971

 
$
545,319

 
$
1,147,908

 
$
(1,067,173
)
 
$
1,806,025

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
56,399

 
$
40,603

 
$
278,284

 
$

 
$
375,286

Accounts payable, intercompany
9,759

 
36,868

 
11,421

 
(58,048
)
 

U.S. and foreign income taxes payable

 
330

 
4,255

 

 
4,585

Accrued payroll, taxes and related benefits
10,775

 
6,866

 
35,710

 

 
53,351

Other accrued liabilities
27,649

 
4,657

 
35,836

 

 
68,142

Short-term debt
16,154

 
36

 
9,904

 

 
26,094

Total current liabilities
120,736

 
89,360

 
375,410

 
(58,048
)
 
527,458

Long-term debt
839,163

 
62

 
26,556

 

 
865,781

Intercompany debt

 

 
31,942

 
(31,942
)
 

Pension plans
2,234

 
1,271

 
133,040

 

 
136,545

Deferred income taxes

 
65,991

 
47,603

 
(76,875
)
 
36,719

Other long-term liabilities
12,342

 
1,093

 
10,237

 

 
23,672

Total liabilities
974,475

 
157,777

 
624,788

 
(166,865
)
 
1,590,175

Commitments and contingencies
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
Convertible special stock, no par value
120,289

 

 

 

 
120,289

Common stock
48,561

 

 

 

 
48,561

Other equity
36,646

 
387,542

 
512,766

 
(900,308
)
 
36,646

Total A. Schulman, Inc.’s stockholders’ equity
205,496

 
387,542

 
512,766

 
(900,308
)
 
205,496

Noncontrolling interests

 

 
10,354

 

 
10,354

Total equity
205,496

 
387,542

 
523,120

 
(900,308
)
 
215,850

Total liabilities and equity
$
1,179,971

 
$
545,319

 
$
1,147,908

 
$
(1,067,173
)
 
$
1,806,025



- 17 -

Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
Condensed Consolidating Balance Sheet
 
August 31, 2017
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In thousands)
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
614

 
$

 
$
52,637

 
$

 
$
53,251

Restricted cash

 

 
768

 

 
768

Accounts receivable, net
56,354

 
52,640

 
299,445

 

 
408,439

Accounts receivable, intercompany
26,690

 
7,203

 
26,188

 
(60,081
)
 

Inventories
41,862

 
32,667

 
201,930

 

 
276,459

Prepaid expenses and other current assets
7,662

 
2,221

 
26,829

 

 
36,712

Assets held for sale
2,764

 
2,912

 

 

 
5,676

Total current assets
135,946

 
97,643

 
607,797

 
(60,081
)
 
781,305

Net property, plant and equipment
63,150

 
51,072

 
184,481

 

 
298,703

Deferred charges and other noncurrent assets
95,287

 
4,198

 
59,609

 
(81,247
)
 
77,847

Intercompany loans receivable
16,564

 
17,460

 

 
(34,024
)
 

Investment in subsidiaries
769,813

 
117,617

 

 
(887,430
)
 

Goodwill
55,534

 
81,617

 
126,584

 

 
263,735

Intangible assets, net
40,416

 
174,748

 
117,026

 

 
332,190

Total assets
$
1,176,710

 
$
544,355

 
$
1,095,497

 
$
(1,062,782
)
 
$
1,753,780

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
43,429

 
$
34,612

 
$
240,779

 
$

 
$
318,820

Accounts payable, intercompany
13,191

 
33,370

 
13,520

 
(60,081
)
 

U.S. and foreign income taxes payable

 
597

 
4,303

 

 
4,900

Accrued payroll, taxes and related benefits
7,752

 
6,044

 
33,155

 

 
46,951

Other accrued liabilities
21,373

 
4,699

 
35,689

 

 
61,761

Short-term debt
14,912

 
29

 
17,072

 

 
32,013

Total current liabilities
100,657

 
79,351

 
344,518

 
(60,081
)
 
464,445

Long-term debt
858,446

 
41

 
26,691

 

 
885,178

Intercompany debt

 

 
34,024

 
(34,024
)
 

Pension plans
2,266

 
1,308

 
132,117

 

 
135,691

Deferred income taxes
5,593

 
65,991

 
47,362

 
(81,247
)
 
37,699

Other long-term liabilities
12,730

 
1,067

 
9,938

 

 
23,735

Total liabilities
979,692

 
147,758

 
594,650

 
(175,352
)
 
1,546,748

Commitments and contingencies
 
 
 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
 
 
Convertible special stock, no par value
120,289

 

 

 

 
120,289

Common stock
48,529

 

 

 

 
48,529

Other equity
28,200

 
396,597

 
490,833

 
(887,430
)
 
28,200

Total A. Schulman, Inc.’s stockholders’ equity
197,018

 
396,597

 
490,833

 
(887,430
)
 
197,018

Noncontrolling interests

 

 
10,014

 

 
10,014

Total equity
197,018

 
396,597

 
500,847

 
(887,430
)
 
207,032

Total liabilities and equity
$
1,176,710

 
$
544,355

 
$
1,095,497

 
$
(1,062,782
)
 
$
1,753,780




- 18 -

Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



 
Consolidating Statement of Operations
 
Three months ended November 30, 2017
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In thousands)
Net sales
$
98,507

 
$
90,054

 
$
498,489

 
$
(12,427
)
 
$
674,623

Cost of sales
82,735

 
78,688

 
420,543

 
(12,427
)
 
569,539

Selling, general and administrative expenses
16,828

 
13,165

 
45,134

 

 
75,127

Restructuring expense
188

 

 
279

 

 
467

(Gain) loss on sale of assets
(3,004
)
 
(73
)
 

 

 
(3,077
)
Operating income (loss)
1,760

 
(1,726
)
 
32,533

 

 
32,567

Interest expense
12,317

 
1

 
1,419

 
(296
)
 
13,441

Intercompany charges
17

 

 
3,200

 
(3,217
)
 

Intercompany income
(1,948
)
 
(1,256
)
 
(13
)
 
3,217

 

Foreign currency transaction (gains) losses
132

 
(6
)
 
661

 

 
787

Other (income) expense, net
39

 
(307
)
 
(926
)
 
296

 
(898
)
(Gain) loss on intercompany investments
(19,942
)
 
(2,645
)
 

 
22,587

 

Income (loss) before taxes
11,145

 
2,487

 
28,192

 
(22,587
)
 
19,237

Provision (benefit) for U.S. and foreign income taxes
(3,570
)
 
(144
)
 
7,871

 

 
4,157

Net income (loss)
14,715

 
2,631

 
20,321

 
(22,587
)
 
15,080

Noncontrolling interests

 

 
(365
)
 

 
(365
)
Net income (loss) attributable to A. Schulman, Inc.
14,715

 
2,631

 
19,956

 
(22,587
)
 
14,715

Convertible special stock dividends
1,875

 

 

 

 
1,875

Net income (loss) available to A. Schulman, Inc. common stockholders
$
12,840

 
$
2,631

 
$
19,956

 
$
(22,587
)
 
$
12,840

Comprehensive income (loss)
$
16,068

 
$
1,904

 
$
21,594

 
$
(23,128
)
 
$
16,438

Less: comprehensive income (loss) attributable to noncontrolling interests

 

 
370

 

 
370

Comprehensive income (loss) attributable to A. Schulman, Inc.
$
16,068

 
$
1,904

 
$
21,224

 
$
(23,128
)
 
$
16,068


- 19 -

Table of Contents
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 
Consolidating Statement of Operations
 
Three months ended November 30, 2016
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In thousands)
Net sales
$
90,756

 
$
88,060

 
$
432,021

 
$
(10,837
)
 
$
600,000

Cost of sales
77,096

 
76,562

 
356,164

 
(10,837
)
 
498,985

Selling, general and administrative expenses
14,497

 
12,948

 
44,929

 

 
72,374

Restructuring expense
1,198

 
166

 
8,180

 

 
9,544

Operating income (loss)
(2,035
)
 
(1,616
)
 
22,748

 

 
19,097

Interest expense
11,927

 
5

 
1,492

 
(260
)
 
13,164

Intercompany charges
2

 

 
1,853

 
(1,855
)
 

Intercompany income
(544
)
 
(1,306
)
 
(5
)
 
1,855

 

Foreign currency transaction (gains) losses
982

 
(33
)
 
(387
)
 

 
562

Other (income) expense, net
(263
)
 
(281
)
 
(848
)
 
260

 
(1,132
)
(Gain) loss on intercompany investments
(1,208
)
 
(2,045
)
 

 
3,253

 

Income (loss) before taxes
(12,931
)
 
2,044

 
20,643

 
(3,253
)
 
6,503

Provision (benefit) for U.S. and foreign income taxes
(15,874
)
 
2,999

 
16,194

 

 
3,319

Net income (loss)
2,943

 
(955
)
 
4,449

 
(3,253
)
 
3,184

Noncontrolling interests

 

 
(241
)
 

 
(241
)
Net income (loss) attributable to A. Schulman, Inc.
2,943

 
(955
)
 
4,208

 
(3,253
)
 
2,943

Convertible special stock dividends
1,875

 

 

 

 
1,875

Net income (loss) available to A. Schulman, Inc. common stockholders
$
1,068

 
$
(955
)
 
$
4,208

 
$
(3,253
)
 
$
1,068

Comprehensive income (loss)
$
(11,709
)
 
$
(1,302
)
 
$
(10,212
)
 
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