Quarterly Report




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, 2016
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 or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
þ
 
  
Accelerated filer
 
o
Non-accelerated filer
 
o
 (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
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
Number of shares of common stock, $1.00 par value, outstanding as of January 5, 2017 29,458,567





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,
 
2016
 
2015
 
(In thousands, except per share data)
Net sales
$
600,000


$
649,219

Cost of sales
498,985

 
544,290

Selling, general and administrative expenses
72,374

 
77,237

Restructuring expense
9,544

 
1,546

Operating income (loss)
19,097


26,146

Interest expense
13,164

 
13,618

Foreign currency transaction (gains) losses
562

 
729

Other (income) expense, net
(1,132
)
 
51

Income (loss) before taxes
6,503


11,748

Provision (benefit) for U.S. and foreign income taxes
3,319

 
4,251

Net income (loss)
3,184


7,497

Noncontrolling interests
(241
)
 
(404
)
Net income (loss) attributable to A. Schulman, Inc.
2,943

 
7,093

Convertible special stock dividends
1,875

 
1,875

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

 
$
5,218

 
 
 
 
Weighted-average number of shares outstanding:
 
 
 
Basic
29,363


29,223

Diluted
29,477


29,462

 
 
 
 
Net income (loss) per common share available to A. Schulman, Inc. common stockholders
 
 
 
Basic
$
0.04

 
$
0.18

Diluted
$
0.04

 
$
0.18

 
 
 
 
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,
 
2016
 
2015
 
(In thousands)
Net income (loss)
$
3,184

 
$
7,497

Other comprehensive income (loss):
 
 
 
Foreign currency translation gains (losses)
(15,316
)
 
(10,776
)
Defined benefit retirement plans, net of tax
594

 
1,015

Other comprehensive income (loss)
(14,722
)
 
(9,761
)
Comprehensive income (loss)
(11,538
)
 
(2,264
)
Less: comprehensive income (loss) attributable to noncontrolling interests
171

 
335

Comprehensive income (loss) attributable to A. Schulman, Inc.
$
(11,709
)
 
$
(2,599
)


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




A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
November 30,
2016
 
August 31,
2016
 
(In thousands)
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
39,285

 
$
35,260

Restricted cash
8,256

 
8,143

Accounts receivable, less allowance for doubtful accounts of $11,106 at November 30, 2016 and $11,341 at August 31, 2016
376,138

 
376,786

Inventories
275,663

 
263,617

Prepaid expenses and other current assets
44,516

 
40,263

Total current assets
743,858


724,069

Property, plant and equipment, at cost:
 
 
 
Land and improvements
32,423

 
32,957

Buildings and leasehold improvements
179,274

 
184,291

Machinery and equipment
435,993

 
447,932

Furniture and fixtures
33,615

 
34,457

Construction in progress
23,095

 
20,431

Gross property, plant and equipment
704,400

 
720,068

Accumulated depreciation
401,151

 
405,246

Net property, plant and equipment
303,249

 
314,822

Deferred charges and other noncurrent assets
84,995

 
88,161

Goodwill
256,878

 
257,773

Intangible assets, net
352,046

 
362,614

Total assets
$
1,741,026

 
$
1,747,439

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
Accounts payable
$
281,056

 
$
280,060

U.S. and foreign income taxes payable
6,707

 
8,985

Accrued payroll, taxes and related benefits
52,517

 
47,569

Other accrued liabilities
87,113

 
67,704

Short-term debt
37,659

 
25,447

Total current liabilities
465,052

 
429,765

Long-term debt
904,352

 
919,349

Pension plans
139,108

 
145,108

Deferred income taxes
57,636

 
59,013

Other long-term liabilities
24,599

 
25,844

Total liabilities
1,590,747

 
1,579,079

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 - 48,526 shares at November 30, 2016 and 48,510 shares at August 31, 2016
48,526

 
48,510

Additional paid-in capital
276,456

 
275,115

Accumulated other comprehensive income (loss)
(135,373
)
 
(120,721
)
Retained earnings
214,047

 
219,039

Treasury stock, at cost, 19,067 shares at November 30, 2016 and 19,069 shares at August 31, 2016
(382,928
)
 
(382,963
)
Total A. Schulman, Inc.’s stockholders’ equity
141,017

 
159,269

Noncontrolling interests
9,262

 
9,091

Total equity
150,279

 
168,360

Total liabilities and equity
$
1,741,026

 
$
1,747,439


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,
 
2016
 
2015
 
(In thousands)
Operating activities:
 
 
 
Net income
$
3,184

 
$
7,497

Adjustments to reconcile net income to net cash provided from (used in) operating activities:
 
 
 
Depreciation
11,172

 
12,013

Amortization
8,817

 
10,039

Deferred tax provision (benefit)
(2,429
)
 
1,306

Pension, postretirement benefits and other compensation
1,893

 
1,217

Changes in assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable
(12,947
)
 
7,345

Inventories
(21,639
)
 
(8,671
)
Accounts payable
16,404

 
377

Income taxes
(2,723
)
 
1,432

Accrued payroll and other accrued liabilities
27,623

 
18,614

Other assets and long-term liabilities
(3,046
)
 
(11,144
)
Net cash provided from (used in) operating activities
26,309

 
40,025

Investing activities
 
 
 
Expenditures for property, plant and equipment
(12,972
)
 
(7,402
)
Proceeds from the sale of assets
375

 
361

Other investing activities
12

 

Net cash provided from (used in) investing activities
(12,585
)
 
(7,041
)
Financing activities:
 
 
 
Cash dividends paid to special stockholders
(1,875
)
 
(1,875
)
Cash dividends paid to common stockholders
(6,060
)
 
(6,024
)
Increase (decrease) in short-term debt
14,546

 
1,926

Borrowings on long-term debt
133,985

 

Repayments on long-term debt including current portion
(149,301
)
 
(24,946
)
Issuances of stock, common and treasury
51

 
90

Redemptions of common stock
(229
)
 

Net cash provided from (used in) financing activities
(8,883
)
 
(30,829
)
Effect of exchange rate changes on cash
(816
)
 
(3,465
)
Net increase (decrease) in cash and cash equivalents
4,025

 
(1,310
)
Cash and cash equivalents at beginning of period
35,260

 
96,872

Cash and cash equivalents at end of period
$
39,285

 
$
95,562


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



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, 2016 .
The results of operations for the three months ended November 30, 2016 are not necessarily indicative of the results expected for the fiscal year ending August 31, 2017 .
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, 2016 .
Certain items previously reported in specific financial statement captions have been reclassified to conform to the fiscal 2017 presentation.

(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, 2016
$
54,031

 
$
116,369

 
$
11,928

 
$
936

 
$
74,509

 
$
257,773

Translation
(869
)
 

 
(104
)
 
(48
)
 
126

 
(895
)
Balance as of November 30, 2016
$
53,162

 
$
116,369

 
$
11,824

 
$
888

 
$
74,635

 
$
256,878

The following table summarizes intangible assets with finite useful lives by major category:
 
November 30, 2016
 
August 31, 2016
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
(In thousands)
Customer related
$
356,760

 
$
(72,662
)
 
$
284,098

 
$
359,713

 
$
(67,207
)
 
$
292,506

Developed technology
72,135

 
(14,835
)
 
57,300

 
72,657

 
(13,864
)
 
58,793

Registered trademarks and tradenames
17,485

 
(6,837
)
 
10,648

 
18,097

 
(6,782
)
 
11,315

Total finite-lived intangible assets
$
446,380

 
$
(94,334
)
 
$
352,046

 
$
450,467

 
$
(87,853
)
 
$
362,614

Amortization expense of intangible assets was $8.0 million for the three months ended November 30, 2016 , and $9.3 million for the three months ended November 30, 2015 .

- 5 -

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



(3)
LONG-TERM DEBT AND CREDIT ARRANGEMENTS

The following table summarizes short-term and long-term debt:
 
November 30, 2016
 
August 31, 2016
 
(In thousands)
Notes payable and other, due within one year
$
24,159

 
$
10,333

Current portion of long-term debt
13,500

 
15,114

Short-term debt
$
37,659

 
$
25,447

 
 
 
 
Revolving credit facility, LIBOR plus applicable spread, due June 2020
$
59,808

 
$
17,279

Term Loan A, LIBOR plus applicable spread, due June 2020
175,000

 
177,500

U.S. Term Loan B, LIBOR plus applicable spread, due June 2022
300,660

 
341,407

Euro Term Loan B, LIBOR plus applicable spread, due June 2022

 
14,678

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

 
375,000

Capital leases and other long-term debt
3,633

 
3,727

Unamortized debt issuance costs
(9,749
)
 
(10,242
)
Long-term debt
$
904,352

 
$
919,349

On May 26, 2015, the Company issued  $375.0 million  aggregate principal amount of 6.875%  Senior Notes due 2023 (the “Notes”) in a private transaction exempt from the registration requirements of the Securities Act of 1933 (the “Securities Act”). In connection with the sale of the Notes, the Company entered into a Registration Rights Agreement with the representatives of the initial purchasers of the Notes (the “Registration Rights Agreement”) that, among other things, provides for the consummation by the Company of an offer to exchange the Notes for a new issue of substantially identical exchange notes (the “Exchange Offer”) within 540 days of issuance, or November 16, 2016, in a transaction registered under the Securities Act. The Registration Rights Agreement provides for certain increases to the interest rate on the Notes in the event that the Exchange Offer is not consummated prior to November 16, 2016. As of November 30, 2016, the Company had not consummated the Exchange Offer. The Company filed a registration statement for the Exchange Offer shortly after the filing of the fiscal 2016 Annual Report on Form 10-K, but the Company must complete the SEC review process before such registration statement is declared effective.
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, 2016 .
The Company is in compliance with its debt covenants as of November 30, 2016 .
The Company prepaid $56.0 million on its term debt, in addition to normal required payments of $3.4 million , during the three months ended November 30, 2016 .


- 6 -

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, 2016
 
August 31, 2016
 
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
$
2,668

 
$

 
$
2,668

 
$

 
$
487

 
$

 
$
487

 
$

Liabilities recorded at fair value:
 
 
 
 
 
 
 
 
 
 
Foreign exchange forward contracts
$
3,368

 
$

 
$
3,368

 
$

 
$
951

 
$

 
$
951

 
$

Liabilities not recorded at fair value:
 
 
 
 
 
 
 
 
 
 
Long-term fixed-rate debt
$
385,313

 
$

 
$
385,313

 
$

 
$
378,750

 
$

 
$
378,750

 
$

Cash and cash equivalents are recorded at cost, which approximates fair value. Additionally, the carrying value of the Company's variable-rate debt approximates fair value.
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 total contract value of foreign exchange forward contracts outstanding was $134.6 million and $115.9 million as of November 30, 2016 and August 31, 2016 , 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, 2016 and August 31, 2016 .
Long-term fixed-rate debt as of November 30, 2016 and August 31, 2016 represents the Senior Notes, due 2023, recorded at cost and presented at fair value for disclosure purposes. The Level 2 fair value of the Company's fixed-rate debt was estimated using prevailing market interest rates on debt with similar creditworthiness, terms and maturities. As of November 30, 2016 and August 31, 2016 , the carrying value of the Company's long-term fixed-rate debt recorded on the consolidated balance sheets was $375.0 million .
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, 2016 . The Company has not changed its valuation techniques for measuring the fair value of any financial assets or liabilities during fiscal 2017 , 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.

- 7 -

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


(5) INCOME TAXES
The effective tax rate was 51.0% for the three months ended November 30, 2016 , and 36.2% for the three months ended November 30, 2015 . The increase in the effective tax rate for the three months ended November 30, 2016 as compared with the same period last year was driven primarily by an increase in uncertain tax positions.
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 an increase in the amount of uncertain tax positions recorded partially offset by our overall foreign rate being less than the U.S. statutory federal income tax rate.
As of November 30, 2016 , the Company's gross unrecognized tax benefits totaled $4.5 million . If recognized, $3.4 million of the total unrecognized tax benefits would favorably affect the Company's effective tax rate. The Company reports interest and penalties related to income tax matters in income tax expense. As of November 30, 2016 , the Company had $1.1 million of accrued interest and penalties on unrecognized tax benefits.
The Company’s statute of limitations is open in various jurisdictions as follows: Germany - from 2005 onward, France - from 2010 onward, U.S. - from 2013 onward, Belgium - from 2013 onward, other foreign jurisdictions - from 2010 onward.
The increase in uncertain tax positions during the three months ended November 30, 2016 relates to various ongoing examinations in the EMEA region. In connection with these examinations, it is reasonably possible that the amount of unrecognized tax benefits could change by approximately $1.0 million in the next 12 months.

(6) PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The components of the Company’s net periodic benefit cost for defined benefit pension and other postretirement benefit plans are shown below:
 
Three months ended November 30,
 
2016
 
2015
 
(In thousands)
Defined benefit pension plans:
 
 
 
Service cost
$
1,395

 
$
1,294

Interest cost
587

 
1,063

Expected return on plan assets
(376
)
 
(504
)
Amortization of actuarial loss (gain)
997

 
724

Net periodic pension benefit cost
$
2,603

 
$
2,577

 
 
 
 
Other postretirement benefit plan:
 
 
 
Service cost
$
1

 
$
1

Interest cost
63

 
97

Prior service cost (credit)
(136
)
 
(149
)
Net periodic postretirement benefit cost (credit)
$
(72
)
 
$
(51
)

- 8 -

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


(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, 2016
$
120,289

 
$
48,510

 
$
275,115

 
$
(120,721
)
 
$
219,039

 
$
(382,963
)
 
$
9,091

 
$
168,360

Comprehensive income (loss)
 
 
 
 

 
(14,652
)
 
2,943

 

 
171

 
(11,538
)
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
 
 
 
 

 

 
(6,060
)
 

 

 
(6,060
)
Issuance of treasury stock
 
 
 
 
16

 

 

 
35

 

 
51

Restricted stock issued, net of forfeitures
 
 
24

 
(24
)
 
 
 
 
 
 
 
 
 

Redemption of common stock to cover tax withholdings
 
 
(8
)
 
(221
)
 
 
 
 
 
 
 
 
 
(229
)
Amortization of restricted stock
 
 
 
 
1,570

 

 

 

 

 
1,570

Balance as of November 30, 2016
$
120,289

 
$
48,526

 
$
276,456

 
$
(135,373
)
 
$
214,047

 
$
(382,928
)
 
$
9,262

 
$
150,279

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, 2016 . There have been no fundamental changes in the Company's convertible special stock as of November 30, 2016 or August 31, 2016 .

(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, 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
)




- 9 -

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


 
Foreign Currency Translation Gain (Loss)
 
Pension and Other Retiree Benefits
 
Total Accumulated Other Comprehensive Income (Loss)
 
(In thousands)
Balance as of August 31, 2015
$
(49,562
)
 
$
(33,898
)
 
$
(83,460
)
Other comprehensive income (loss) before reclassifications
(10,776
)
 

 
(10,776
)
Amounts reclassified to earnings

 
1,015

(2)  
1,015

Net current period other comprehensive income (loss)
(10,776
)
 
1,015

 
(9,761
)
Less: comprehensive income (loss) attributable to
noncontrolling interests
(69
)
 

 
(69
)
Net current period other comprehensive income (loss) attributable to A. Schulman, Inc.
(10,707
)
 
1,015

 
(9,692
)
Balance as of November 30, 2015
$
(60,269
)
 
$
(32,883
)
 
$
(93,152
)

(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

During the first quarter of fiscal 2017, the Company granted 192,700 shares of time-based restricted stock awards, with a weighted-average grant date fair value of $28.80 per share. Additionally, the Company granted 25,000 shares of unrestricted common stock to Joseph M. Gingo related to the terms and conditions of his new employment agreement as the Chief Executive Officer and President of the Company.
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:
 
Three months ended November 30,
 
2016
 
2015
 
(In thousands)
Time-based and performance-based restricted stock awards
$
901

 
$
425

Unrestricted awards
722

 

Total share-based incentive compensation
$
1,623

 
$
425

Total unrecognized compensation cost, including a provision for estimated forfeitures, related to non-vested stock-based compensation arrangements as of November 30, 2016 was $5.5 million . This cost is expected to be recognized over a weighted-average period of 1.3 years.
As of November 30, 2016 , there were 704,578 shares of common stock available for grant pursuant to the Company’s 2006 Incentive Plan, 395,987 shares of common stock available for grant pursuant to the Company's 2010 Rewards Plan and 1,573,164 shares of common stock available for grant pursuant to the Company's 2014 Equity Incentive Plan. For further 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, 2016 .


- 10 -

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


(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 income (loss) from continuing operations and net income (loss). 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, 2016 and 2015 , 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,
 
2016
 
2015
 
(In thousands)
Weighted-average shares outstanding:
 
 
 
Basic
29,363

 
29,223

Incremental shares from equity awards
114

 
239

Incremental shares from convertible special stock

 

Diluted
29,477

 
29,462

There were no anti-dilutive shares related to equity awards for the three months ended November 30, 2016 . Diluted weighted-average shares outstanding for the three months ended November 30, 2015 exclude 8,661 shares related to equity awards, as their inclusion would have been anti-dilutive.

(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.

- 11 -

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


The following table summarizes net sales to unaffiliated customers by segment:
 
Three months ended November 30,
 
2016
 
2015
 
(In thousands)
EMEA
$
296,072


$
328,096

USCAN
156,418


178,282

LATAM
42,216

 
45,203

APAC
50,737


45,692

EC
54,557

 
51,946

Total net sales to unaffiliated customers
$
600,000

 
$
649,219

Below the Company presents gross profit by segment:
 
Three months ended November 30,
 
2016
 
2015
 
(In thousands)
EMEA
$
44,658

 
$
47,684

USCAN
24,516

 
30,294

LATAM
9,417

 
9,705

APAC
9,126

 
7,874

EC
13,968

 
13,208

Total segment gross profit
101,685

 
108,765

Accelerated depreciation and restructuring related costs
(528
)
 
(1,877
)
Costs related to acquisitions and integrations
(57
)
 
(129
)
Lucent costs (1)
(85
)
 
(1,830
)
Total gross profit
$
101,015

 
$
104,929


- 12 -

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,
 
2016
 
2015
 
(In thousands)
EMEA
$
19,768

 
$
20,153

USCAN
8,496

 
12,163

LATAM
5,435

 
5,604

APAC
5,013

 
4,307

EC
5,111

 
4,102

Total segment operating income
43,823

 
46,329

Corporate
(8,816
)
 
(8,488
)
Costs related to acquisitions and integrations
(605
)
 
(1,866
)
Restructuring and related costs (2)
(13,273
)
 
(4,670
)
Accelerated depreciation
(356
)
 
(1,453
)
Lucent costs (1)
(809
)
 
(3,706
)
Asset impairment
(678
)
 

CEO transition costs
(189
)
 

Operating income (loss)
19,097

 
26,146

Interest expense
(13,164
)
 
(13,618
)
Foreign currency transaction gains (losses)
(562
)
 
(729
)
Other income (expense), net
1,132

 
(51
)
Income (loss) before taxes
$
6,503

 
$
11,748

  (1) Refer to Note 13, Commitments and Contingencies, for additional discussion on this matter. Lucent costs in cost of sales in the three months ended November 30, 2016 and 2015 include additional product and manufacturing operational costs for reworking inventory. In the three months ended November 30, 2016 and 2015, additional Lucent costs in selling, general and administrative expenses include legal and investigative costs. In the three months ended November 30, 2015, Lucent costs in SG&A also include dedicated internal personnel costs that would have otherwise been focused on normal operations.
(2) Restructuring related costs for the three months ended November 30, 2016 and November 30, 2015 of $3.7 million and $3.1 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 and efficiency of its operations, and costs associated with reorganizations of the legal entity structure of the Company. Restructuring expenses 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,
 
2016
 
2015
 
(In thousands, except for %'s)
Engineered Composites
$
54,557

 
9
%
 
$
51,946

 
8
%
Custom Concentrates and Services
275,921

 
46

 
295,837

 
46

Performance Materials
269,522

 
45

 
301,436

 
46

Total consolidated net sales
$
600,000


100
%

$
649,219


100
%


- 13 -

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


(12) RESTRUCTURING
Fiscal 2017 Restructuring Plans
Global Product Family Simplification Plan
During the first quarter of fiscal 2017, the Company announced plans to reduce middle management and consolidate the number of product families from six to three. This action will simplify the management structure and processes of the product families while also allowing the Company to refocus on the priority of sales growth. The Company anticipates eliminating approximately 60 positions during fiscal 2017, primarily in EMEA and USCAN. The Company recorded $7.0 million of pre-tax employee-related costs during the first quarter of fiscal 2017 and has a balance of $6.8 million accrued for this plan. The Company anticipates recording between $2.0 million and $3.0 million of additional pre-tax employee-related charges through fiscal 2017. Cash payments associated with this plan are expected to occur through fiscal 2017 as the plan is completed.
EMEA Plan
In the first quarter of fiscal 2017, the Company approved plans to further streamline EMEA operations and back-office functions. The Company plans to reduce headcount in EMEA by approximately 30 as a result of this plan. The Company recorded $2.1 million of pre-tax employee-related costs during the first quarter of fiscal 2017 and has a balance of $2.0 million accrued for this plan. The Company anticipates recording between $2.0 million to $3.0 million of additional pre-tax employee-related charges during the remainder of fiscal 2017 for this plan. Cash payments associated with this plan are expected to occur through fiscal 2017 as the plan is completed.
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, 2016 .
The following table summarizes the activity related to the Company’s restructuring plans:
 
Employee-related Costs
 
Other Costs
 
Translation Effect
 
Total Restructuring Costs
 
(In thousands)
Accrual balance as of August 31, 2016
$
4,452

 
$
402

 
$
(910
)
 
$
3,944

Fiscal 2017 charges
9,330

 
214

 

 
9,544

Fiscal 2017 payments
(1,620
)
 
(226
)
 

 
(1,846
)
Translation

 

 
(234
)
 
(234
)
Accrual balance as of November 30, 2016
$
12,162

 
$
390

 
$
(1,144
)
 
$
11,408

Restructuring expenses are excluded from segment operating income but are attributable to the reportable segments as follows:
 
Three months ended November 30,
 
2016
 
2015
 
(In thousands)
EMEA
$
8,014

 
$
1,211

USCAN
1,467

 
234

LATAM
59

 
70

APAC
4

 
31

Total restructuring expense
$
9,544

 
$
1,546



- 14 -

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


(13) COMMITMENTS AND CONTINGENCIES
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, 2016 .
Lucent Matter
As previously reported by the Company in its filings with the 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. For a discussion of the intangible asset impairment, refer to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2016.
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.
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 these matters 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, 2016 , 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, and pursuant to the 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”). The complaint alleges breach of contract, indemnification, breach of the implied covenant of good faith and fair dealing, fraudulent inducement, unjust enrichment and violations of blue sky laws in Illinois, Ohio, California and Indiana. All defendants are accused of civil conspiracy. 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.  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

- 15 -

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


(the “River Defendants”). In general, the River Complaint alleges similar theories (except securities violations) and seeks similar relief (except rescission) as the Citadel Complaint.
(14) ACCOUNTING PRONOUNCEMENTS
Accounting Standards Adopted In The Current Period
In April 2015, and as subsequently updated, the Financial Accounting Standards Board ("FASB") issued new accounting guidance that requires entities to present debt issuance costs related to a recognized debt liability as a deduction from the carrying amounts of that debt liability. Debt issuance costs incurred in connection with line of credit arrangements will continue to be presented as an asset. Previous guidance classified all debt issuance costs as an asset. The standard is effective for fiscal years beginning after December 15, 2015. The Company has adopted this standard effective September 1, 2016 and applied it retrospectively. The amount of debt issuance costs related to term notes retrospectively reclassified from the deferred charges and other noncurrent assets line to the long-term debt line in the consolidated balance sheet was $10.2 million at August 31, 2016.
In August 2014, the FASB issued new accounting guidance regarding how a company considers its ability to continue as a going concern, regardless of the Company's performance or financial position. In connection with preparing financial statements for each annual and interim reporting period, an entity's management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. The Company has adopted this standard effective September 1, 2016 and noted no additional disclosures.
Accounting Standards Issued, To Be Adopted By The Company In Future Periods
In November 2016, the FASB issued an accounting standard update requiring that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash would be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amendment is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods. Early adoption is permitted. The Company has $8.3 million and $8.1 million of restricted cash on its consolidated balance sheet as of November 30, 2016 and August 31, 2016 , respectively, whose cash flow statement classification will change to align with the new guidance upon adoption of the accounting standard update. The Company is currently evaluating its plans regarding the adoption date.
In March 2016, the FASB issued new guidance which is intended 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. Early application is permitted. The Company is currently evaluating the effects this standard will have on its consolidated financial statements together with evaluating the adoption date.
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 application 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 Company is currently evaluating the effects, if any, that the adoption of this guidance will have on its consolidated financial statements.
No other new accounting pronouncements issued or with effective dates during fiscal 2017 had or are expected to have a material impact on the Company's consolidated financial statements.


- 16 -

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 it 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.

- 17 -

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


 
Condensed Consolidating Balance Sheet
 
November 30, 2016
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In thousands)
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
39,285

 
$

 
$
39,285

Restricted cash
679

 

 
7,577

 

 
8,256

Accounts receivable, net
39,686

 
59,328

 
277,124

 

 
376,138

Accounts receivable, intercompany
21,624

 
1,615

 
21,907

 
(45,146
)
 

Inventories
37,592

 
45,259

 
192,812

 

 
275,663

Prepaid expenses and other current assets
9,232

 
3,585

 
31,699

 

 
44,516

Total current assets
108,813

 
109,787

 
570,404

 
(45,146
)
 
743,858

Net property, plant and equipment
51,246

 
77,031

 
174,972

 

 
303,249

Deferred charges and other noncurrent assets
80,405

 
3,680

 
62,724

 
(61,814
)
 
84,995

Intercompany loans receivable
2,593

 
33,253

 
200

 
(36,046
)
 

Investment in subsidiaries
812,429

 
242,811

 

 
(1,055,240
)
 

Goodwill
36,533

 
110,289

 
110,056

 

 
256,878

Intangible assets, net
29,643

 
199,877

 
122,526

 

 
352,046

Total assets
$
1,121,662

 
$
776,728

 
$
1,040,882

 
$
(1,198,246
)
 
$
1,741,026

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
41,905

 
$
39,322

 
$
199,829

 
$

 
$
281,056

Accounts payable, intercompany
8,724

 
20,693

 
15,729

 
(45,146
)
 

U.S. and foreign income taxes payable
47

 
163

 
6,497

 

 
6,707

Accrued payroll, taxes and related benefits
12,594

 
6,581

 
33,342

 

 
52,517

Other accrued liabilities
27,686

 
15,534

 
43,893

 

 
87,113

Short-term debt
13,674

 

 
23,985

 

 
37,659

Total current liabilities
104,630

 
82,293

 
323,275

 
(45,146
)
 
465,052

Long-term debt
859,022

 
91

 
45,239

 

 
904,352

Intercompany debt

 
200

 
35,846

 
(36,046
)
 

Pension plans
2,412

 
1,412

 
135,284

 

 
139,108

Deferred income taxes

 
71,847

 
47,603

 
(61,814
)
 
57,636

Other long-term liabilities
14,581

 
1,039

 
8,979

 

 
24,599

Total liabilities
980,645

 
156,882

 
596,226

 
(143,006
)
 
1,590,747

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

 

 

 

 
120,289

Common stock
48,526

 

 

 

 
48,526

Other equity
(27,798
)
 
619,846

 
435,394

 
(1,055,240
)
 
(27,798
)
Total A. Schulman, Inc.’s stockholders’ equity
141,017

 
619,846

 
435,394

 
(1,055,240
)
 
141,017

Noncontrolling interests

 

 
9,262

 

 
9,262

Total equity
141,017

 
619,846

 
444,656

 
(1,055,240
)
 
150,279

Total liabilities and equity
$
1,121,662

 
$
776,728

 
$
1,040,882

 
$
(1,198,246
)
 
$
1,741,026



- 18 -

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


 
Condensed Consolidating Balance Sheet
 
August 31, 2016
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In thousands)
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$

 
$
35,260

 
$

 
$
35,260

Restricted cash
4,400

 

 
3,743

 

 
8,143

Accounts receivable, net
40,017

 
56,995

 
279,774

 

 
376,786

Accounts receivable, intercompany
16,245

 
9,906

 
26,839

 
(52,990
)
 

Inventories
33,702

 
41,895

 
188,020

 

 
263,617

Prepaid expenses and other current assets
6,874

 
4,006

 
29,383

 

 
40,263

Total current assets
101,238

 
112,802

 
563,019

 
(52,990
)
 
724,069

Net property, plant and equipment
52,653

 
77,800

 
184,369

 

 
314,822

Deferred charges and other noncurrent assets
74,463

 
4,205

 
66,038

 
(56,545
)
 
88,161

Intercompany loans receivable
2,593

 
33,015

 
200

 
(35,808
)
 

Investment in subsidiaries
871,441

 
245,202

 

 
(1,116,643
)
 

Goodwill
36,533

 
110,289

 
110,951

 

 
257,773

Intangible assets, net
30,316

 
204,026

 
128,272

 

 
362,614

Total assets
$
1,169,237

 
$
787,339

 
$
1,052,849

 
$
(1,261,986
)
 
$
1,747,439

LIABILITIES AND EQUITY
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
36,671

 
$
36,157

 
$
207,232

 
$

 
$
280,060

Accounts payable, intercompany
17,886

 
20,050

 
15,054

 
(52,990
)
 

U.S. and foreign income taxes payable
1,242

 
100

 
7,643

 

 
8,985

Accrued payroll, taxes and related benefits
10,326

 
5,980

 
31,263

 

 
47,569

Other accrued liabilities
17,684

 
14,195

 
35,825

 

 
67,704

Short-term debt
13,626

 

 
11,821

 

 
25,447

Total current liabilities
97,435

 
76,482

 
308,838

 
(52,990
)
 
429,765

Long-term debt
894,441

 

 
24,908

 

 
919,349

Intercompany debt

 
200

 
35,608

 
(35,808
)
 

Pension plans
2,444

 
1,450

 
141,214

 

 
145,108

Deferred income taxes

 
77,507

 
38,051

 
(56,545
)
 
59,013

Other long-term liabilities
15,648

 
1,037

 
9,159

 

 
25,844

Total liabilities
1,009,968

 
156,676

 
557,778

 
(145,343
)
 
1,579,079

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

 

 

 

 
120,289

Common stock
48,510

 

 

 

 
48,510

Other equity
(9,530
)
 
630,663

 
485,980

 
(1,116,643
)
 
(9,530
)
Total A. Schulman, Inc.’s stockholders’ equity
159,269

 
630,663

 
485,980

 
(1,116,643
)
 
159,269

Noncontrolling interests

 

 
9,091

 

 
9,091

Total equity
159,269

 
630,663

 
495,071

 
(1,116,643
)
 
168,360

Total liabilities and equity
$
1,169,237

 
$
787,339

 
$
1,052,849

 
$
(1,261,986
)
 
$
1,747,439



- 19 -

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
$
76,175

 
$
102,955

 
$
432,021

 
$
(11,151
)
 
$
600,000

Cost of sales
63,083

 
90,889

 
356,164

 
(11,151
)
 
498,985

Selling, general and administrative expenses
12,558

 
14,887

 
44,929

 

 
72,374

Restructuring expense
1,084

 
280

 
8,180

 

 
9,544

Operating income (loss)
(550
)
 
(3,101
)
 
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
952

 
(3
)
 
(387
)
 

 
562

Other (income) expense, net
(255
)
 
(289
)
 
(848
)
 
260

 
(1,132
)
(Gain) loss on intercompany investments
(9,127
)
 
(1,144
)
 

 
10,271

 

Income (loss) before taxes
(3,505
)
 
(364
)
 
20,643

 
(10,271
)
 
6,503

Provision (benefit) for U.S. and foreign income taxes
(6,448
)
 
(6,427
)
 
16,194

 

 
3,319

Net income (loss)
2,943

 
6,063

 
4,449

 
(10,271
)
 
3,184

Noncontrolling interests

 

 
(241
)
 

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

 
6,063

 
4,208

 
(10,271
)
 
2,943

Convertible special stock dividends
1,875

 

 

 

 
1,875

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

 
$
6,063

 
$
4,208

 
$
(10,271
)
 
$
1,068

Comprehensive income (loss)
$
(11,709
)
 
$
4,216

 
$
(10,212
)
 
$
6,167

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

 

 
171

 

 
171

Comprehensive income (loss) attributable to A. Schulman, Inc.
$
(11,709
)
 
$
4,216

 
$
(10,383
)
 
$
6,167

 
$
(11,709
)


- 20 -

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


 
Consolidating Statement of Operations
 
Three months ended November 30, 2015
 
Parent
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In thousands)
Net sales
$
81,187

 
$
119,908

 
$
460,081

 
$
(11,957
)
 
$
649,219