UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended November 30, 2008
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
.
Commission File No. 0-7459
A. SCHULMAN, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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34-0514850
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(State or Other Jurisdiction
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(I.R.S. Employer Identification No.)
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of Incorporation or Organization)
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3550 West Market Street, Akron, Ohio
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44333
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(Address of Principal Executive Offices)
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(ZIP Code)
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Registrants 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 is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of accelerated filer, large
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
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No
þ
Number of shares of common stock, $1.00 par value, outstanding as of December 31, 2008 26,015,163
PART I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements
A. SCHULMAN, INC.
CONSOLIDATED STATEMENTS OF INCOME
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Three months ended November 30,
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2008
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2007
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Unaudited
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(In thousands except per share data)
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Net sales
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$
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388,405
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$
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496,575
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Cost of sales
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347,352
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440,985
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Selling, general and administrative expenses
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34,914
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39,308
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Minority interest
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158
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245
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Interest expense
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1,250
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1,611
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Interest income
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(849
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(482
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Foreign currency transaction (gains) losses
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(7,306
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133
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Other (income) expense
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(222
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)
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332
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Restructuring expense
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601
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6
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375,898
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482,138
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Income before taxes
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12,507
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14,437
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Provision for U.S. and foreign income taxes
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4,335
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4,412
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Net income
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8,172
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10,025
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Less: Preferred stock dividends
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(13
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(13
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Net income applicable to common stock
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$
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8,159
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$
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10,012
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Weighted-average number of shares outstanding:
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Basic
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25,808
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27,521
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Diluted
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26,026
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27,770
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Earnings per share of common stock:
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Basic
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$
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0.32
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$
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0.36
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Diluted
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$
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0.31
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$
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0.36
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The accompanying notes are an integral part of the consolidated financial statements.
- 2 -
A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEETS
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November 30,
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August 31,
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2008
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2008
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Unaudited
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(In thousands except share data)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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115,763
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$
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97,728
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Accounts receivable, less allowance for doubtful accounts of $7,518 at
November 30, 2008 and $8,316 at August 31, 2008
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244,365
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320,926
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Inventories, average cost or market, whichever is lower
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182,214
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224,964
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Prepaid expenses and other current assets
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20,494
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18,499
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Total current assets
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562,836
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662,117
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Other assets:
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Cash surrender value of life insurance
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2,662
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2,665
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Deferred charges and other assets
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19,932
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23,017
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Goodwill
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9,160
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10,679
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Intangible assets
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153
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195
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31,907
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36,556
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Property, plant and equipment, at cost:
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Land and improvements
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15,460
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17,026
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Buildings and leasehold improvements
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140,463
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156,465
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Machinery and equipment
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311,562
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346,999
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Furniture and fixtures
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36,558
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41,272
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Construction in progress
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17,804
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9,726
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521,847
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571,488
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Accumulated depreciation and investment grants of $935 at November 30, 2008 and
$1,123 at August 31, 2008
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342,407
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379,740
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Net property, plant and equipment
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179,440
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191,748
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$
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774,183
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$
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890,421
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Notes payable
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$
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9,661
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$
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9,540
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Accounts payable
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138,632
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174,226
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U.S. and foreign income taxes payable
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2,487
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3,212
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Accrued payrolls, taxes and related benefits
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31,398
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37,686
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Other accrued liabilities
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32,420
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34,566
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Total current liabilities
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214,598
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259,230
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Long-term debt
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99,221
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104,298
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Other long-term liabilities
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77,358
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88,235
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Deferred income taxes
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4,768
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5,544
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Minority interest
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5,691
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5,533
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Commitments and contingencies
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Stockholders equity:
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Preferred stock, 5% cumulative, $100 par value, authorized, issued and
outstanding
10,564 shares at November 30, 2008 and August 31, 2008
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1,057
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1,057
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Special stock, 1,000,000 shares authorized, none outstanding
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Common stock
$1 par value, authorized 75,000,000 shares, issued
42,234,194 shares at November 30, 2008 and 42,231,341 shares at August 31, 2008
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42,234
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42,231
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Other capital
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112,670
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112,105
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Accumulated other comprehensive income
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21,297
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79,903
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Retained earnings
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517,672
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513,451
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Treasury stock, at cost, 16,174,011 shares at November 30, 2008 and
16,095,491 shares at August 31, 2008
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(322,383
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(321,166
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Common stockholders equity
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371,490
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426,524
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Total stockholders equity
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372,547
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427,581
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$
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774,183
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$
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890,421
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The accompanying notes are an integral part of the consolidated financial statements.
- 3 -
A. SCHULMAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three months ended November 30,
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2008
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2007
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Unaudited
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(In thousands)
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Provided from (used in) operating activities:
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Net income
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$
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8,172
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$
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10,025
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Adjustments to reconcile net income to net cash
provided from (used in) operating activities:
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Depreciation and amortization
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5,871
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7,079
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Deferred tax provision
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683
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85
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Pension and other deferred compensation
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(1,252
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2,710
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Postretirement benefit obligation
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(48
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304
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Net gains on asset sales
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(152
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(20
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Minority interest in net income of subsidiaries
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158
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245
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Restructuring charges
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601
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6
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Changes in assets and liabilities:
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Accounts receivable
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34,926
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(13,367
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Inventories
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17,224
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(14,577
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Accounts payable
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(15,658
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12,445
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Restructuring payments
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(452
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)
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(71
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Income taxes
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(2,711
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)
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(873
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Accrued payrolls and other accrued liabilities
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(677
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)
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3,377
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Changes in other assets and other long-term liabilities
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(2,416
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1,397
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Net cash provided from operating activities
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44,269
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8,765
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Provided from (used in) investing activities:
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Expenditures for property, plant and equipment
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(11,294
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(8,157
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)
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Proceeds from the sale of assets
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213
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158
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Net cash used in investing activities
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(11,081
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(7,999
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Provided from (used in) financing activities:
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Cash dividends paid
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(3,951
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(4,063
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Increase (decrease) in notes payable
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12
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(1,229
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)
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Borrowings on revolving credit facilities
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15,000
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34,628
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Repayments on revolving credit facilities
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(10,000
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(32,073
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Cash distributions to minority shareholders
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(300
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Common stock issued
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65
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861
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Purchase of treasury stock
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(1,217
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)
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Net cash used in financing activities
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(91
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(2,176
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)
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Effect of exchange rate changes on cash
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(15,062
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141
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Net increase (decrease) in cash and cash equivalents
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18,035
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(1,269
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)
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Cash and cash equivalents at beginning of period
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97,728
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43,045
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Cash and cash equivalents at end of period
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$
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115,763
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$
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41,776
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The accompanying notes are an integral part of the consolidated financial statements.
- 4 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
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GENERAL
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The interim financial statements included reflect all adjustments, which are, in the opinion
of management, necessary for a fair presentation of the results of the interim period
presented. All such adjustments are of a normal recurring nature.
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The year-end 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.
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The results of operations for the three months ended November 30, 2008 are not necessarily
indicative of the results expected for the year ending August 31, 2009.
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To identify reportable segments, A. Schulman, Inc. (the Company) considers its operating
structure and the types of information subject to regular review by its President and Chief
Executive Officer (CEO), who is the Chief Operating Decision Maker (CODM). Effective
September 1, 2008, the Company named a general manager of Asia and a general manager of
Europe. This change separated the responsibilities that were previously combined under the
general manager of Europe, which then included Asia. Based on the Companys new management
structure and an evaluation of how the CODM reviews performance and allocates resources, the
Company redefined its European segment to separate the Asian operations from the European
operations beginning in the first quarter of fiscal 2009. The Company historically
identified and presented the European segment to include Asia, based on how the CODM
regularly reviewed information and allocated resources. Prior periods have been restated to
reflect the current presentation. The Companys segments are Europe, North America Polybatch
(NAPB) (which comprises the masterbatch line of business), North America Engineered
Plastics (NAEP), North America Distribution Services (NADS), Asia and A. Schulman
Invision, Inc. (Invision). The segments are discussed further in footnote 10.
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The accounting policies for the periods presented are the same as described in Note 1 -
Summary of Significant Accounting Policies to the consolidated financial statements
contained in the Companys Annual Report on Form 10-K for the fiscal year ended August 31,
2008, except for new accounting pronouncements which includes the adoption of Financial
Accounting Standards Board (FASB) Statement No. 157, (SFAS 157), Fair Value Measurement
and FASB Statement No. 159, (SFAS 159), The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115. The adoption of
SFAS 157 and SFAS 159 is discussed in footnote 7.
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Certain items previously reported in specific financial statement captions have been
reclassified to conform to the fiscal 2009 presentation.
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(2)
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CASH AND CASH EQUIVALENTS
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All highly liquid investments purchased with an original maturity of three months or less
are considered to be cash equivalents. Such investments amounted to $74.3 million at
November 30, 2008 and $44.0 million at August 31, 2008. Investments with maturities between
three and twelve months are considered to be short-term investments. The Companys cash
equivalents and investments are diversified with numerous financial institutions which
management believes to have acceptable credit ratings. These investments are primarily
money-market funds. Management continues to monitor the placement of its cash given the
current credit market. The recorded amount of these investments approximates fair value.
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- 5 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3)
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PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANS
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The components of the Companys net periodic benefit cost (income) for defined benefit
pension plans and other postretirement benefits are shown below.
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Three months ended November 30,
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2008
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|
2007
|
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(In thousands)
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Net periodic pension cost (income) recognized
included the following components:
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Service cost
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$
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441
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$
|
603
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Interest cost
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1,140
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1,153
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Expected return on plan assets
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(254
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)
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|
|
(321
|
)
|
Net actuarial loss and net amortization of
prior service cost and transition obligation
|
|
|
88
|
|
|
|
198
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
1,415
|
|
|
$
|
1,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefit cost (income) included
the following components:
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
14
|
|
|
$
|
167
|
|
Interest cost
|
|
|
222
|
|
|
|
311
|
|
Net amortization of prior service
cost (credit) and unrecognized loss
|
|
|
(212
|
)
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
24
|
|
|
$
|
357
|
|
|
|
|
|
|
|
|
(4)
|
|
CONTINGENCIES
|
|
|
|
The Company is engaged in various legal proceedings arising in the ordinary course of
business. The ultimate outcome of these proceedings is not expected to have a material
adverse effect on the Companys financial condition, results of operations or cash flows.
|
- 6 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5)
|
|
STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
A summary of the stockholders equity section for the three months ended November 30, 2008
and 2007 is as follows:
|
(In thousands except per share data)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Other
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Stock
|
|
|
Equity
|
|
Balance at September 1, 2008
|
|
$
|
1,057
|
|
|
$
|
42,231
|
|
|
$
|
112,105
|
|
|
$
|
79,903
|
|
|
$
|
513,451
|
|
|
$
|
(321,166
|
)
|
|
$
|
427,581
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,172
|
|
|
|
|
|
|
|
|
|
Foreign currency translation loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized transition
obligations, actuarial losses and prior
service costs (credits), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,434
|
)
|
Cash dividends paid or accrued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $1.25 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(13
|
)
|
Common stock, $0.15 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,938
|
)
|
|
|
|
|
|
|
(3,938
|
)
|
Stock options exercised
|
|
|
|
|
|
|
7
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
|
|
Redemption of common stock to cover
tax withholdings
|
|
|
|
|
|
|
(4
|
)
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,217
|
)
|
|
|
(1,217
|
)
|
Non-cash stock based
compensation
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2008
|
|
$
|
1,057
|
|
|
$
|
42,234
|
|
|
$
|
112,670
|
|
|
$
|
21,297
|
|
|
$
|
517,672
|
|
|
$
|
(322,383
|
)
|
|
$
|
372,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 1, 2007
|
|
$
|
1,057
|
|
|
$
|
41,785
|
|
|
$
|
103,828
|
|
|
$
|
50,092
|
|
|
$
|
509,415
|
|
|
$
|
(279,164
|
)
|
|
$
|
427,013
|
|
Impact due to adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,078
|
|
|
|
|
|
|
|
2,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted balance at September 1, 2007
|
|
$
|
1,057
|
|
|
$
|
41,785
|
|
|
$
|
103,828
|
|
|
$
|
50,092
|
|
|
$
|
511,493
|
|
|
$
|
(279,164
|
)
|
|
$
|
429,091
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,025
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized transition
obligations, actuarial losses and prior
service costs (credits), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,853
|
|
Cash dividends paid or accrued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $1.25 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(13
|
)
|
Common stock, $0.145 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,050
|
)
|
|
|
|
|
|
|
(4,050
|
)
|
Stock options exercised
|
|
|
|
|
|
|
44
|
|
|
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
861
|
|
Restricted stock issued, net of forfeitures
|
|
|
|
|
|
|
240
|
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash stock based
compensation
|
|
|
|
|
|
|
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
259
|
|
Amortization of restricted stock
|
|
|
|
|
|
|
|
|
|
|
766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2007
|
|
$
|
1,057
|
|
|
$
|
42,069
|
|
|
$
|
105,430
|
|
|
$
|
69,920
|
|
|
$
|
517,455
|
|
|
$
|
(279,164
|
)
|
|
$
|
456,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 7 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6)
|
|
ACCUMULATED OTHER COMPREHENSIVE INCOME
|
|
|
|
The components of Accumulated Other Comprehensive Income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
|
|
|
Unrecognized Losses and
|
|
|
Total Accumulated
|
|
|
|
Translation
|
|
|
Prior Service Costs (credits),
|
|
|
Other Comprehensive
|
|
|
|
Gain (Loss)
|
|
|
Net
|
|
|
Income
|
|
|
|
(In thousands)
|
|
Balance as of August 31, 2008
|
|
$
|
76,112
|
|
|
$
|
3,791
|
|
|
$
|
79,903
|
|
Current period change
|
|
|
(58,481
|
)
|
|
|
(125
|
)
|
|
|
(58,606
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance as of November 30, 2008
|
|
$
|
17,631
|
|
|
$
|
3,666
|
|
|
$
|
21,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gains do not have a tax effect, as such gains are considered
permanently reinvested. Accumulated other comprehensive income adjustments related to
pensions and other postretirement benefit plans are recorded net of tax using the applicable
effective tax rate.
|
|
(7)
|
|
FAIR VALUE MEASUREMENT
|
|
|
|
On September 15, 2006 the FASB issued SFAS 157 which addresses standardizing the measurement
of fair value for companies who are required to use a fair value measure for recognition or
disclosure purposes. The FASB defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measure date. The Companys adoption of the required portions of SFAS
157 as of September 1, 2008 did not have a material impact on the Companys financial
position, results of operations and cash flows. In February 2008, the FASB issued Staff
Position (FSP) No. FAS 157-2,
Effective Date of FASB Statement No.157
, which delayed the
required adoption of portions of SFAS 157 related to nonfinancial assets and nonfinancial
liabilities, except for items recognized or disclosed at fair value on a recurring basis.
Accordingly, the Company will adopt the provisions of SFAS 157 related to nonfinancial
assets and nonfinancial liabilities recognized or disclosed at fair value on a nonrecurring
basis in fiscal 2010. The Company is currently evaluating the impact, if any, of the
adoption of this portion of SFAS 157 on its financial position, results of operations and
cash flows.
|
|
|
|
SFAS 157 establishes a fair value hierarchy to prioritize the inputs used in valuation
techniques into three levels as follows:
|
|
|
|
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical
assets or liabilities in active markets;
|
|
|
|
|
Level 2: Inputs other than quoted prices included in Level 1 that are observable
for the asset or liability either directly or indirectly; and
|
|
|
|
|
Level 3: Unobservable inputs which reflect an entitys own assumptions.
|
- 8 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
The following table presents information about the Companys assets and liabilities recorded
at fair value as of November 30, 2008 in the Companys consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
Total Measured at
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
Fair Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
74,264
|
|
|
$
|
74,264
|
|
|
$
|
|
|
|
$
|
|
|
Derivative assets
|
|
|
366
|
|
|
|
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
74,630
|
|
|
$
|
74,264
|
|
|
$
|
366
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
(84
|
)
|
|
$
|
|
|
|
$
|
(84
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
(84
|
)
|
|
$
|
|
|
|
$
|
(84
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of cash equivalents, by their nature, is determined utilizing Level 1 inputs.
The Company measures the fair value of the forward foreign exchange contracts using Level 2
inputs through observable market transactions in active markets provided by banks. The
forward foreign exchange contracts are entered into with creditworthy multinational banks.
|
|
|
|
The following information presents the supplemental fair value information about long-term
fixed-rate debt at November 30, 2008. The Companys long-term fixed-rate debt was issued in
euros.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2008
|
|
|
August 31, 2008
|
|
|
|
(In millions of $)
|
|
|
(In millions of
)
|
|
|
(In millions of $)
|
|
|
(In millions of
)
|
|
Carrying value of long-term fixed-rate
debt
|
|
$
|
63.9
|
|
|
|
50.3
|
|
|
$
|
73.8
|
|
|
|
50.3
|
|
Fair value of long-term fixed-rate debt
|
|
$
|
48.8
|
|
|
|
38.4
|
|
|
$
|
63.7
|
|
|
|
43.4
|
|
|
|
The fair value was calculated using discounted future cash flows. The decline in fair value
is primarily related to the decline in quoted market interest rates.
|
|
|
|
In February 2007, the FASB issued SFAS 159 which permits companies to choose, at specified
election dates, to measure many financial instruments and certain other items at fair value
that are not currently measured at fair value. Unrealized gains and losses on items for
which the fair value option has been elected would be reported in earnings at each
subsequent reporting date. Upfront costs and fees related to items for which the fair value
option is elected shall be recognized in earnings as incurred and not deferred. The Company
did not elect the fair value option for any of its existing financial instruments other than
those already measured at fair value. Therefore, the Companys adoption of SFAS 159 as of
September 1, 2008 did not have an impact on the Companys financial position, results of
operations and cash flows.
|
|
(8)
|
|
INCENTIVE STOCK PLANS
|
|
|
|
Effective in December 2002, the Company adopted the 2002 Equity Incentive Plan which
provided for the grant of incentive stock options, nonqualified stock options, restricted
stock awards and director deferred units for employees and non-employee directors. The
option price of incentive stock options is the fair market value of the common shares on the
date of the grant. In the case of nonqualified options, the Company grants options at 100%
of the fair market value of the common shares on the date of the grant. All options become
exercisable at the rate of 33 1/3% per year, commencing on the first anniversary date of the
grant. Each option expires ten years from the date of the grant. Restricted stock awards under the 2002 Equity Incentive
Plan vest ratably over four years following the date of grant.
|
- 9 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
On December 7, 2006, the Company adopted the 2006 Incentive Plan which provides for the
grant of incentive stock options, nonqualified stock options, whole shares, restricted stock
awards, restricted stock units, stock appreciation rights, performance shares, performance
units, cash-based awards, dividend equivalents and performance-based awards. Upon adoption
of the 2006 Incentive Plan, all remaining shares eligible for award under the 2002 Equity
Incentive Plan were added to the 2006 Incentive Plan and no further awards could be made
from the 2002 Equity Incentive Plan. The time-based nonqualified stock options granted under
the 2006 Incentive Plan become exercisable at the rate of 33 1/3% per year, commencing on
the first anniversary date of the grant. It has been the Companys practice to issue new
common shares upon stock option exercise. On November 30, 2008, there were approximately 2.7
million shares available for grant pursuant to the Companys 2006 Incentive Plan.
|
|
|
|
A summary of stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Outstanding
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
Shares Under
|
|
|
Weighted-Average
|
|
|
Shares Under
|
|
|
Weighted-Average
|
|
|
|
Option
|
|
|
Exercise Price
|
|
|
Option
|
|
|
Exercise Price
|
|
Outstanding at beginning of period
|
|
|
567,247
|
|
|
$
|
19.12
|
|
|
|
813,710
|
|
|
$
|
19.10
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,567
|
)
|
|
|
18.39
|
|
|
|
(44,333
|
)
|
|
|
19.43
|
|
Forfeited and expired
|
|
|
(2,000
|
)
|
|
|
18.41
|
|
|
|
(667
|
)
|
|
|
19.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
558,680
|
|
|
|
19.13
|
|
|
|
768,710
|
|
|
|
19.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the period
|
|
|
538,680
|
|
|
|
18.92
|
|
|
|
603,146
|
|
|
|
18.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of a stock option is the amount by which the market value of the
underlying stock exceeds the exercise price of the option. The total intrinsic value of
stock options exercised during the three months ended November 30, 2008 was insignificant
and was approximately $0.1 million for the same period prior year. The intrinsic value for
stock options exercisable at November 30, 2008 was $0.3 million with a remaining term for
options exercisable of approximately 4.3 years. For stock options outstanding at November
30, 2008, exercise prices range from $11.62 to $24.69. The weighted average remaining
contractual life for options outstanding at November 30, 2008 was approximately 4.4 years.
Stock options vested and expected to vest at November 30, 2008 were approximately 558,562
with a remaining contractual term of approximately 4.4 years and a weighted-average exercise
price of $19.13. The aggregate intrinsic value of stock options vested and expected to vest
was $0.3 million at November 30, 2008. There were no grants of stock options during the
first quarter of fiscal 2009 or fiscal 2008.
|
|
|
|
Restricted stock awards under the 2002 Equity Incentive Plan vest over four years following
the date of grant. Restricted stock awards under the 2006 Incentive Plan can vest over
various periods. The restricted stock grants outstanding under the 2006 Incentive Plan have
service vesting periods of three years following the date of grant. The following table
summarizes the outstanding time-based restricted stock awards and weighted-average fair
market value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Outstanding Restricted
|
|
|
Fair Market Value
|
|
|
|
Stock Awards
|
|
|
(per share)
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 31, 2008
|
|
|
232,757
|
|
|
$
|
20.81
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(34,667
|
)
|
|
|
20.20
|
|
Forfeited
|
|
|
(417
|
)
|
|
|
21.09
|
|
|
|
|
|
|
|
|
|
Outstanding at November 30, 2008
|
|
|
197,673
|
|
|
|
20.91
|
|
|
|
|
|
|
|
|
|
|
|
No restricted stock was granted during the first quarter of fiscal 2009 or fiscal 2008.
|
- 10 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
The Company also grants awards with market performance vesting criteria under the 2006
Incentive Plan. In the table below, the Company summarizes all performance-based awards
which include performance-based restricted stock awards and Performance Shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Outstanding
|
|
|
Fair Market Value
|
|
|
|
Performance-Based Awards
|
|
|
(per share)
|
|
|
Outstanding at August 31, 2008
|
|
|
286,256
|
|
|
$
|
15.50
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(625
|
)
|
|
|
16.10
|
|
|
|
|
|
|
|
|
|
Outstanding at November 30, 2008
|
|
|
285,631
|
|
|
|
15.50
|
|
|
|
|
|
|
|
|
|
|
|
There were no grants of performance-based awards during the first quarter of fiscal 2009 or
fiscal 2008. Performance share awards (Performance Shares) are awards for which the
vesting will occur based on both service and market performance criteria and do not have
voting rights. Included in the outstanding performance-based awards at November 30, 2008 are
131,608 Performance Shares which earn dividends throughout the vesting period and
approximately 65,803 Performance Shares which do not earn dividends. Also included in the
balance are 88,220 awards of performance-based restricted stock awards from the fiscal 2007
grant with vesting based on both service and market performance criteria. The
performance-based restricted stock awards have voting rights and earn dividends. At the
vesting date of these performance-based restricted stock awards, approximately 44,110
additional shares could be issued and released if certain market conditions are met which
are not included in the table. The additional shares do not earn dividends and do not have
voting rights.
|
|
|
|
The valuation for the awards included in the performance-based awards table above was based
upon a Monte Carlo simulation, which is a binomial model that represents the characteristics
of these grants. Vesting of the ultimate number of shares underlying performance awards, if
any, will be dependent upon the Companys total shareholder return in relation to the total
shareholder return of a select group of peer companies over a three-year period. The
probability of meeting the market criteria was considered when calculating the estimated
fair market value on the date of grant using a Monte Carlo simulation. These awards were
accounted for as awards with market conditions in accordance with FASB Statement No. 123(R),
Share-Based Payment.
|
|
|
|
Total unrecognized compensation cost, including a provision for forfeitures, related to
nonvested share-based compensation arrangements at November 30, 2008 was approximately $4.7
million. This cost is expected to be recognized over a weighted-average period of
approximately 1.6 years.
|
|
|
|
The Company had approximately 209,000 restricted stock units and approximately 244,000
restricted stock units outstanding with various vesting periods and criteria at November 30,
2008 and 2007, respectively. Each restricted stock unit is equivalent to one share of the
Companys common stock on the vesting date. The Company did not grant any restricted stock units during the first quarter of fiscal 2009 or
fiscal 2008. Certain restricted stock units earn dividends during the vesting period.
Restricted stock units are settled only in cash at the vesting date and therefore are
treated as a liability award. The Company records a liability for these restricted stock
units in an amount equal to the total of (a) the mark-to-market adjustment of the units
vested to date, and (b) accrued dividends on the units. As a result of these mark-to-market
adjustments, these restricted stock units introduce volatility into the Companys
consolidated income statements. The Company has recorded approximately $1.4 million of
income and $0.4 million of expense related to restricted stock units for the three months
ended November 30, 2008 and 2007, respectively. The first quarter of fiscal 2009 experienced
a significant decline in the expense due to the decline in the Companys common stock price
compared to the previous quarters price.
|
- 11 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
The following table summarizes the impact to the Companys consolidated statements of income
from stock-based compensation:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
Stock Options
|
|
$
|
(23
|
)
|
|
$
|
259
|
|
Restricted Stock Awards and
Performance-Based Awards
|
|
|
526
|
|
|
|
766
|
|
Restricted Stock Units
|
|
|
(1,393
|
)
|
|
|
383
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
$
|
(890
|
)
|
|
$
|
1,408
|
|
|
|
|
|
|
|
|
(9)
|
|
EARNINGS PER SHARE
|
|
|
|
Basic earnings per share is computed by dividing income available to common shareholders by
the weighted-average number of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if common stock equivalents were
exercised, and the impact of restricted stock and performance-based awards expected to vest,
which would then share in the earnings of the Company.
|
|
|
|
The difference between basic and diluted weighted-average common shares results from the
assumed exercise of outstanding stock options and grants of restricted stock, calculated
using the treasury stock method. The following presents the number of incremental
weighted-average shares used in computing diluted per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,808
|
|
|
|
27,521
|
|
Incremental shares from stock options
|
|
|
14
|
|
|
|
73
|
|
Incremental shares from restricted stock
|
|
|
204
|
|
|
|
176
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
26,026
|
|
|
|
27,770
|
|
|
|
|
|
|
|
|
|
|
For the three months ended November 30, 2008 and 2007, there were approximately 0.5 million
and 0.1 million, respectively, equivalent shares related to stock options that were excluded
from diluted weighted-average shares outstanding because inclusion would have been
anti-dilutive.
|
|
(10)
|
|
SEGMENT INFORMATION
|
|
|
|
To identify reportable segments, the Company considers its operating structure and the types
of information subject to regular review by its President and CEO, who is the CODM.
Globally, the Company operates primarily in three lines of business: engineered plastics,
masterbatch and distribution services. In North America, there is a general manager of each
of these lines of business each of who report directly to the Companys CEO. Also, in North
America the Company operates in a specialty sheet line of business called Invision which
has its own general manager who also reports to the CEO. Effective September 1, 2008, the
Company named a general manager of Asia and a general manager of Europe. This change
separated the responsibilities that were previously combined under the general manager of
Europe, which then included Asia. Based on the Companys new management structure and an
evaluation of how the CODM reviews performance and allocates resources, the Company
redefined its European segment to separate the Asian operations from the European operations
beginning in the first quarter of fiscal 2009. The Company historically identified and
presented the European segment to include Asia, based on how the CODM regularly reviewed
information and allocated resources. Prior periods have been restated to reflect the current
presentation. The Companys Europe and Asia segments have managers of each line of business,
who report to general managers of the respective segments who then report to the CEO.
Currently, the Companys CEO does not directly manage the business line level when reviewing
performance and allocating resources for the
Europe and Asia segments. The Companys segments are Europe, NAPB (which comprises the
masterbatch line of business), NAEP, NADS, Asia and Invision.
|
- 12 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Certain portions of the Companys North American operations are not managed separately and
are included in All Other North America. The Company also includes in All Other North
America any administrative costs that are not directly related or allocated to a North
America business unit such as North American information technology, human resources,
accounting and purchasing. The North American administrative costs are directly related to
the four North American segments.
|
|
|
|
The CODM uses net sales to unaffiliated customers, gross profit and operating income in
order to make decisions, assess performance and allocate resources to each segment.
Operating income does not include interest income or expense, other income or expense,
restructuring expense or foreign currency transaction gains or losses. In some cases, the
Company may choose to exclude from a segments results certain non-recurring items as
determined by management. These items are included in the Corporate and Other section in the
table below. Corporate expenses include the compensation of certain personnel, certain audit
expenses, board of directors related costs, certain insurance costs and other miscellaneous
legal and professional fees.
|
|
|
|
Below the Company presents net sales, gross profit and operating income by segment. Also
included is a reconciliation of operating income (loss) by segment to consolidated income
before taxes.
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
Net Sales to Unaffiliated Customers
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
280,847
|
|
|
$
|
357,266
|
|
NAPB
|
|
|
28,044
|
|
|
|
34,975
|
|
NAEP
|
|
|
44,268
|
|
|
|
59,112
|
|
NADS
|
|
|
25,971
|
|
|
|
34,395
|
|
Asia
|
|
|
9,187
|
|
|
|
10,739
|
|
Invision
|
|
|
88
|
|
|
|
88
|
|
|
|
|
|
|
|
|
Total Net Sales to Unaffiliated Customers
|
|
$
|
388,405
|
|
|
$
|
496,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Gross Profit
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
34,395
|
|
|
$
|
45,313
|
|
NAPB
|
|
|
2,290
|
|
|
|
3,610
|
|
NAEP
|
|
|
2,757
|
|
|
|
5,040
|
|
NADS
|
|
|
1,845
|
|
|
|
2,413
|
|
Asia
|
|
|
714
|
|
|
|
777
|
|
Invision
|
|
|
(948
|
)
|
|
|
(1,563
|
)
|
|
|
|
|
|
|
|
Total Segment Gross Profit
|
|
$
|
41,053
|
|
|
$
|
55,590
|
|
|
|
|
|
|
|
|
- 13 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
Segment Operating Income
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
14,032
|
|
|
$
|
22,789
|
|
NAPB
|
|
|
692
|
|
|
|
1,919
|
|
NAEP
|
|
|
(941
|
)
|
|
|
(480
|
)
|
NADS
|
|
|
924
|
|
|
|
1,391
|
|
Asia
|
|
|
(290
|
)
|
|
|
(211
|
)
|
Invision
|
|
|
(1,067
|
)
|
|
|
(1,885
|
)
|
All other North America
|
|
|
(3,009
|
)
|
|
|
(4,105
|
)
|
|
|
|
|
|
|
|
Total Segment Operating Income
|
|
$
|
10,341
|
|
|
$
|
19,418
|
|
|
|
|
|
|
|
|
|
|
Corporate and other
|
|
|
(4,360
|
)
|
|
|
(3,381
|
)
|
Interest expense, net
|
|
|
(401
|
)
|
|
|
(1,129
|
)
|
Foreign currency transaction gains (losses)
|
|
|
7,306
|
|
|
|
(133
|
)
|
Other income (expense)
|
|
|
222
|
|
|
|
(332
|
)
|
Restructuring
|
|
|
(601
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
Income Before Taxes
|
|
$
|
12,507
|
|
|
$
|
14,437
|
|
|
|
|
|
|
|
|
|
|
The majority of the Companys sales for the three months ended November 30, 2008 and 2007
can be classified into five primary product families. The amount and percentage of
consolidated sales for these product families are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30,
|
|
Product Family
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
(In thousands, except for %s)
|
|
|
|
|
|
Color and additive
concentrates
|
|
$
|
149,378
|
|
|
|
39
|
%
|
|
$
|
178,955
|
|
|
|
36
|
%
|
Polyolefins
|
|
|
121,372
|
|
|
|
31
|
|
|
|
160,312
|
|
|
|
32
|
|
Engineered compounds
|
|
|
86,050
|
|
|
|
22
|
|
|
|
106,814
|
|
|
|
22
|
|
Polyvinyl chloride (PVC)
|
|
|
12,692
|
|
|
|
3
|
|
|
|
14,698
|
|
|
|
3
|
|
Tolling
|
|
|
2,571
|
|
|
|
1
|
|
|
|
5,958
|
|
|
|
1
|
|
Other
|
|
|
16,342
|
|
|
|
4
|
|
|
|
29,838
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
388,405
|
|
|
|
100
|
%
|
|
$
|
496,575
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11)
|
|
INCOME TAXES
|
|
|
|
At November 30, 2008, the Companys gross unrecognized tax benefits totaled $3.4 million.
If recognized, approximately $1.7 million of the total unrecognized tax benefits would
favorably affect the Companys effective tax rate. The Company reports interest and
penalties related to income tax matters in income tax expense. At November 30, 2008, the
Company had $0.8 million of accrued interest and penalties on unrecognized tax benefits.
|
|
|
|
The Company is open to potential income tax examinations in the U.S. from fiscal 2005 onward
and generally from fiscal year 2002 onward for most foreign jurisdictions. The Company is
currently under examination in the U.S. for fiscal 2006 and in Belgium for fiscal 2006 and
2007. In addition, the Company is currently under examination in Germany for years 2001
through 2004.
|
|
|
|
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.
|
- 14 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
A reconciliation of the statutory U.S. federal income tax rate of 35% with the effective tax
rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Three months ended
|
|
|
|
November 30, 2008
|
|
|
November 30, 2007
|
|
|
|
(In thousands except for
%s)
|
|
Statutory U.S. tax rate
|
|
$
|
4,377
|
|
|
|
35.0
|
%
|
|
$
|
5,053
|
|
|
|
35.0
|
%
|
Amount of foreign taxes at
less than U.S. statutory tax
rate
|
|
|
(3,811
|
)
|
|
|
(30.5
|
)
|
|
|
(3,150
|
)
|
|
|
(21.8
|
)
|
U.S. losses with no tax benefit
|
|
|
3,523
|
|
|
|
28.2
|
|
|
|
2,271
|
|
|
|
15.7
|
|
Other
|
|
|
246
|
|
|
|
2.0
|
|
|
|
238
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
4,335
|
|
|
|
34.7
|
%
|
|
$
|
4,412
|
|
|
|
30.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate of 34.7% for the three months ended November 30, 2008 is slightly
below the U.S. statutory rate of 35.0% primarily because of the Companys overall foreign
rate being less than the U.S. statutory rate. This favorable effect on the Companys tax
rate was offset by no tax benefits being recognized for losses in the U.S. As compared to
the effective rate of 30.6% for the three months ended November 30, 2007, the current
quarters effective rate is driven by an increase in the U.S. pre-tax loss from continuing
operations and other U.S. charges for which no tax benefit was recognized. This unfavorable
effect on the Companys tax rate was partially offset by a decrease in the overall foreign
rate driven by an increase in foreign pre-tax income in lower rate jurisdictions.
|
|
(12)
|
|
RESTRUCTURING OF OPERATIONS
|
|
|
|
Fiscal 2009 Plan
|
|
|
|
In November 2008, management decided to take certain actions in a strategic effort to
realign resources and reduce expenses within the Europe segment. As a result, the Company
recorded charges of approximately $0.3 million for employee related costs for approximately
30 employees in the European segment which are included in restructuring expenses for the
three months ended November 30, 2008.
|
|
|
|
On December 10, 2008, the Company announced actions to restructure its operations and
eliminate costs throughout the Company. These actions are part of the Companys ongoing
strategic plan to realign its resources, control costs and improve efficiency to profitably
serve key growth markets.
|
|
|
|
In the NAEP segment, the Company will reduce production capacity by temporarily idling one
manufacturing line in addition to permanently shutting down two lines at the plant in
Bellevue, Ohio. The Company also plans to temporarily idle one line and reduce shifts from
seven to five days at its Nashville, Tennessee plant. The actions will reduce production
capacity by approximately 50% in this segment and reduce headcount by 60 between these two
facilities. The Company is also realigning its NAEP sales, marketing and technical customer
service teams to focus its customer support on core markets, which will reduce headcount on
those teams by approximately 15.
|
|
|
|
The Company also plans to reduce its Akron-based North American administrative staff by six
full-time employees and three contract positions. These actions are expected to begin in
the second quarter of fiscal 2009 with completion by the end of the third quarter of fiscal
2009.
|
|
|
|
In Europe, the Company is rationalizing its overall operations to better align its
production capabilities with evolving customer needs and to address the increasingly
deteriorating economic conditions in those markets. The Company is in the process of
reducing its current capacity in Europe by 7% to 10%. Accordingly, the Company reduced
related headcount by approximately 20 employees in November 2008 and will eliminate
approximately an additional 30 full-time employees and 30 contract positions in the second
quarter of fiscal 2009. The Companys major European locations also plan to implement a
short work schedule.
|
- 15 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Fiscal 2008 Plan
|
|
|
|
In January 2008, the Company announced two steps in its continuing effort to improve the
profitability of its North American operations. The Company announced it would shut down its
manufacturing facility in St. Thomas, Ontario, Canada and would pursue a sale of its
manufacturing facility in Orange, Texas. All the restructuring costs related to the sale of
the Orange, Texas and the St. Thomas, Ontario, Canada facilities are related to the NAEP
reportable segment.
|
|
|
|
The St. Thomas, Ontario, Canada facility primarily produced engineered plastics for the
automotive market, with a capacity of approximately 74 million pounds per year and employed
approximately 120 individuals. The facility was shutdown at the end of June 2008. The
Company continues to finalize closing procedures into fiscal 2009.
|
|
|
|
The Orange, Texas facility provided primarily North American third-party tolling services in
which the Company processed customer-owned materials for a fee. Total annual capacity at the
Orange, Texas facility was approximately 135 million pounds and employed approximately 100
employees. The Company completed the sale of this facility in March 2008 for total
consideration of $3.7 million.
|
|
|
|
The Company recorded charges related to the fiscal 2008 initiatives of approximately $0.2
million for employee related costs and $0.1 million for contract termination and other
related restructuring costs during the three months ended November 30, 2008. The charges
recorded in fiscal 2009 are related to the NAEP segment. Approximately $0.3 million remains
accrued for employee related costs at November 30, 2008 related to the fiscal 2008
initiatives, which the Company anticipates the majority of the accrued balance for
restructuring charges to be paid throughout fiscal 2009. No charges related to this plan
were recorded in the first quarter of fiscal 2008.
|
|
|
|
The following table summarizes the liabilities as of November 30, 2008 related to the
announced restructuring plans in fiscal 2008 and fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual Balance
|
|
|
Fiscal 2009
|
|
|
Fiscal 2009
|
|
|
Accrual Balance
|
|
|
|
August 31, 2008
|
|
|
Charges
|
|
|
Paid
|
|
|
November 30, 2008
|
|
|
|
(In thousands)
|
|
Employee related
costs
|
|
$
|
507
|
|
|
$
|
497
|
|
|
$
|
(348
|
)
|
|
$
|
656
|
|
Other costs
|
|
|
|
|
|
|
104
|
|
|
|
(104
|
)
|
|
|
|
|
Translation effect
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
$
|
485
|
|
|
$
|
601
|
|
|
$
|
(452
|
)
|
|
$
|
588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 Plan
|
|
|
|
During fiscal 2007, the Company announced multiple phases of a restructuring plan to restore
its NAEP segment to profitability. The Company recorded minimal charges in fiscal 2008
related to the fiscal 2007 initiatives as the plan was primarily completed in fiscal 2007.
The total charge for this plan was approximately $2.1 million recorded primarily in fiscal
2007. The Company recorded insignificant restructuring charges and paid approximately
$71,000 for employee related costs related to the fiscal 2007 plan in the three months ended
November 30, 2007.
|
- 16 -
A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13)
|
|
ACCOUNTING PRONOUNCEMENTS
|
|
|
|
In December 2007, the FASB issued FASB Statement No. 141(R), Business Combinations
(SFAS 141R). SFAS 141R replaces FASB Statement No. 141 and provides greater consistency in
the accounting and financial reporting of business combinations. SFAS 141R requires the
acquiring entity in a business combination to recognize all assets acquired and liabilities
assumed in the transaction and any non-controlling interest in the acquiree at the
acquisition date, measured at the fair value as of that date. This includes the measurement
of the acquirer shares issued in consideration for a business combination, the recognition
of contingent consideration, the accounting for pre-acquisition gain and loss contingencies,
the recognition of
capitalized in-process research and development, the accounting for acquisition-related
restructuring cost accruals, the treatment of acquisition related transaction costs and the
recognition of changes in the acquirers income tax valuation allowance and deferred taxes.
SFAS 141R is effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after December 15,
2008. Early adoption is not permitted. The Company is required to adopt SFAS 141R in fiscal
year 2010. The Company is assessing the impact that SFAS 141R may have on its financial
position, results of operations and cash flows.
|
|
|
|
In December 2007, the FASB issued FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160). SFAS 160
clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated financial
statements. SFAS 160 is effective for the Company for the fiscal year 2010, with early
adoption being prohibited. The Company is assessing the impact that SFAS 160 may have on its
financial position, results of operations and cash flows.
|
|
(14)
|
|
SHARE REPURCHASE PROGRAM
|
|
|
|
The Company has approximately 2.9 million shares authorized by the Board of Directors to be
repurchased under the Companys current share repurchase program. The Company did not
repurchase any shares of its common stock during the three months ended November 30, 2007.
During the three months ended November 30, 2008, the Company repurchased 78,520 shares of
common stock at an average price of $15.50 per share.
|
- 17 -
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview of the Business and Recent Developments
A. Schulman, Inc. (the Company) is a leading international supplier of high-performance plastic
compounds and resins headquartered in Akron, Ohio. The Companys customers span a wide range of
markets including consumer products, industrial, automotive and packaging. The Company has
approximately 2,100 employees and 16 plants in countries in North America, Europe and Asia.
The Company sells such products as color and additive concentrates, polyolefins, engineered
compounds and polyvinyl chloride (PVC) used in packaging, durable goods and commodity products.
The Company also offers a limited amount of tolling service to customers through its European
operations. The Company offers an Invision
®
sheet product which is a replacement for painted
plastic.
To identify reportable segments, the Company considers its operating structure and the types of
information subject to regular review by its President and Chief Executive Officer (CEO), who is
the Chief Operating Decision Maker (CODM). Globally, the Company operates primarily in three
lines of business: engineered plastics, masterbatch and distribution services. In North America,
there is a general manager of each of these lines of business each of who report directly to the
Companys CEO. Also, in North America the Company operates in a specialty sheet line of business
called Invision which has its own general manager who also reports to the CEO. The Companys
European segment has managers of each line of business, who report to a general manager of Europe
who reports to the CEO. Effective September 1, 2008, the Company named a general manager of Asia
and a general manager of Europe. This change separated the responsibilities that were previously
combined under the general manager of Europe, which then included Asia. Based on the Companys new
management structure and an evaluation of how the CODM reviews performance and allocates resources,
the Company redefined its European segment to separate the Asian operations from the European
operations beginning in the first quarter of fiscal 2009. The Company historically identified and
presented the European segment to include Asia, based on how the CODM regularly reviewed
information and allocated resources. Prior periods have been restated to reflect the current
presentation. The segments are Europe, North America Polybatch (NAPB) (which comprises the
masterbatch line of business), North America Engineered Plastics (NAEP), North America
Distribution Services (NADS), Asia and A. Schulman Invision, Inc. (Invision).
On December 10, 2008, the Company announced actions to restructure its operations and eliminate
costs throughout the Company. These actions are part of the Companys ongoing strategic plan to
realign its resources, control costs and improve efficiency to profitably serve key growth markets.
The plans primarily impact the Companys NAEP segment and other North American administrative
staff. In addition, in Europe, the Company is rationalizing its overall operations to better align
its production capabilities with evolving customer needs and to address the increasingly
deteriorating economic conditions in those markets. These actions are expected to begin in the
second quarter of fiscal 2009 with completion by the end of the third quarter of fiscal 2009. See
the Results of Operations section of Managements Discussion and Analysis and Results of Operations
for additional discussion.
Results of Operations
Net sales for the three months ended November 30, 2008 were $388.4 million, a decrease of $108.2
million or 21.8% compared to last years first-quarter sales of $496.6 million. The translation
effect of foreign currencies, primarily the euro, decreased sales by $18.2 million for the three
months ended November 30, 2008. The decline in sales, excluding the translation effect, was
primarily a result of the deterioration of the global markets resulting in a significant decline in
volume as well as the effect of the plant closures and capacity reductions primarily in North
America. Capacity in North America declined from approximately 107.1 million pounds for the three
months ended November 30, 2007 to approximately 50.2 million pounds for the three months ended
November 20, 2008. The Companys volume decline in November was especially significant as,
globally, the effect of the recession was more severe.
- 18 -
A comparison of consolidated sales by segment for the three months ended November 30, 2008 and 2007
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Due to
|
|
|
|
|
|
|
|
|
|
|
|
Total increase
|
|
|
% Due to
|
|
|
% Due to
|
|
|
price/
|
|
|
|
Three months ended November 30,
|
|
|
(decrease)
|
|
|
tonnage
|
|
|
translation
|
|
|
product mix
|
|
Sales
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except for
%s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
280,847
|
|
|
$
|
357,266
|
|
|
$
|
(76,419
|
)
|
|
|
-21.4
|
%
|
|
|
-20.8
|
%
|
|
|
-4.4
|
%
|
|
|
3.8
|
%
|
NAPB
|
|
|
28,044
|
|
|
|
34,975
|
|
|
|
(6,931
|
)
|
|
|
-19.8
|
%
|
|
|
-29.8
|
%
|
|
|
-4.1
|
%
|
|
|
14.1
|
%
|
NAEP
|
|
|
44,268
|
|
|
|
59,112
|
|
|
|
(14,844
|
)
|
|
|
-25.1
|
%
|
|
|
-51.6
|
%
|
|
|
-2.0
|
%
|
|
|
28.5
|
%
|
NADS
|
|
|
25,971
|
|
|
|
34,395
|
|
|
|
(8,424
|
)
|
|
|
-24.5
|
%
|
|
|
-39.9
|
%
|
|
|
-0.4
|
%
|
|
|
15.8
|
%
|
Asia
|
|
|
9,187
|
|
|
|
10,739
|
|
|
|
(1,552
|
)
|
|
|
-14.5
|
%
|
|
|
-36.3
|
%
|
|
|
2.5
|
%
|
|
|
19.3
|
%
|
Invision
|
|
|
88
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
388,405
|
|
|
$
|
496,575
|
|
|
$
|
(108,170
|
)
|
|
|
-21.8
|
%
|
|
|
-27.8
|
%
|
|
|
-3.7
|
%
|
|
|
9.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The two largest markets served by the Company are the packaging and automotive markets. Other
markets include appliances, construction, medical, consumer products, electrical/electronics,
office equipment and agriculture
.
The approximate percentage of net consolidated sales by market
for the three months ended November 30, 2008 compared to the same periods last year are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Packaging
|
|
|
40
|
%
|
|
|
38
|
%
|
Automotive
|
|
|
15
|
%
|
|
|
16
|
%
|
Other
|
|
|
45
|
%
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
The majority of the Companys sales for the three months ended November 30, 2008 and 2007 can be
classified into five primary product families. The amount and percentage of consolidated sales for
these product families are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30,
|
|
Product Family
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except for
%s)
|
|
Color and additive
concentrates
|
|
$
|
149,378
|
|
|
|
39
|
%
|
|
$
|
178,955
|
|
|
|
36
|
%
|
Polyolefins
|
|
|
121,372
|
|
|
|
31
|
|
|
|
160,312
|
|
|
|
32
|
|
Engineered compounds
|
|
|
86,050
|
|
|
|
22
|
|
|
|
106,814
|
|
|
|
22
|
|
Polyvinyl chloride (PVC)
|
|
|
12,692
|
|
|
|
3
|
|
|
|
14,698
|
|
|
|
3
|
|
Tolling
|
|
|
2,571
|
|
|
|
1
|
|
|
|
5,958
|
|
|
|
1
|
|
Other
|
|
|
16,342
|
|
|
|
4
|
|
|
|
29,838
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
388,405
|
|
|
|
100
|
%
|
|
$
|
496,575
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 19 -
A comparison of gross profit dollars and percentages by segment for the three months ended November
30, 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30,
|
|
|
Increase (decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
|
(In thousands, except for
%s)
|
|
Gross profit $
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
34,395
|
|
|
$
|
45,313
|
|
|
$
|
(10,918
|
)
|
|
|
(24.1
|
)%
|
NAPB
|
|
|
2,290
|
|
|
|
3,610
|
|
|
|
(1,320
|
)
|
|
|
(36.6
|
)
|
NAEP
|
|
|
2,757
|
|
|
|
5,040
|
|
|
|
(2,283
|
)
|
|
|
(45.3
|
)
|
NADS
|
|
|
1,845
|
|
|
|
2,413
|
|
|
|
(568
|
)
|
|
|
(23.5
|
)
|
Asia
|
|
|
714
|
|
|
|
777
|
|
|
|
(63
|
)
|
|
|
(8.1
|
)
|
Invision
|
|
|
(948
|
)
|
|
|
(1,563
|
)
|
|
|
615
|
|
|
|
39.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
41,053
|
|
|
$
|
55,590
|
|
|
$
|
(14,537
|
)
|
|
|
(26.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
12.2
|
%
|
|
|
12.7
|
%
|
|
|
|
|
|
|
|
|
NAPB
|
|
|
8.2
|
%
|
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
NAEP
|
|
|
6.2
|
%
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
NADS
|
|
|
7.1
|
%
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
Asia
|
|
|
7.8
|
%
|
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
Invision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
10.6
|
%
|
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
The gross profit dollars decreased for Europe for the three months ended November 30, 2008 by $10.9
million, or 24.1%, compared to the same period in the prior year. European gross profits were
negatively impacted by foreign currency translation losses of $1.7 million for the three months
ended November 30, 2008. Excluding the foreign currency translation loss, gross profit for the
three months ended November 30, 2008 for Europe decreased $9.2 million. The decline in Europe was
caused by two primary factors (1) declining selling prices combined with a write-down of inventory
related to decreasing market values, and (2) fixed manufacturing costs which were not aligned with
lower production volumes. As a result of these factors, the Company announced on December 10, 2008
its initial measures to address the fixed manufacturing cost issue including reducing capacity and
headcount and scheduling some manufacturing facilities on a four-day work week.
The gross profit dollars for the NAPB business have declined by $1.3 million, or 36.6%, for the
three months ended November 30, 2008 compared to the same period last year. The decrease in gross
profit dollars and percentages for NAPB are primarily the result of tonnage decreases of
approximately 29.8%, reflecting the general business conditions, offset by the price increases
realized of approximately 14.1%. In addition, the gross profit for NAPB includes approximately
$0.4 million of start-up costs without sales related to the Companys new masterbatch facility in
Akron, Ohio.
The gross profit dollars for the NAEP business have declined by $2.3 million, or 45.3%, for the
three months ended November 30, 2008 compared to the same period last year. The decline in gross
profit dollars and percentages for NAEP are primarily related to significant declines in tonnage,
which was mostly a result of the Companys closure of its St. Thomas, Ontario, Canada facility and
the sale of the Orange, Texas facility. These reductions in capacity and headcount provided
benefit for the NAEP segment; however these savings were offset by weaker economic conditions. In
order to offset the effects of weakening markets, in December 2008, the Company announced further
restructuring efforts that plan to reduce capacity and headcount in this segment.
Gross profits dollars for the NADS business have declined to $1.8 million for the three months
ended November 30, 2008, from $2.4 million for the comparable period last year. The NADS segment
was able to maintain consistent margins in a weak market.
- 20 -
The Companys Asia segment gross profit dollars decreased 8.1% but gross profit percentage
increased. The decline in gross profit dollars is also a result of the global economic downturn.
The Asia segment is primarily in the packaging market.
The Invision gross profit loss is due to the start-up nature of this business line. The Company
has reduced spending on Invision as it refocuses the business to non-automotive markets and also
considers strategic alternatives for the segment.
A comparison of capacity utilization levels for the three months ended November 30, 2008 and 2007
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
Europe
|
|
|
73
|
%
|
|
|
102
|
%
|
NAPB
|
|
|
87
|
%
|
|
|
114
|
%
|
NAEP
|
|
|
89
|
%
|
|
|
82
|
%
|
Asia
|
|
|
45
|
%
|
|
|
60
|
%
|
Worldwide
|
|
|
74
|
%
|
|
|
95
|
%
|
Europe capacity utilization declined primarily as a result of the significant global economic
slowdown and working capital initiatives to reduce inventory.
The capacity utilization for NAPB declined significantly due to the weak North America marketplace.
In addition, one of the NAPB plants experienced maintenance issues, which reduced capacity amounts
for a short period of time resulting in lower production levels. Capacity utilization for the NAEP
segment increased as a result of the restructuring efforts announced in fiscal 2008 to close the
Companys St. Thomas, Ontario, Canada facility and the sale of the Companys Orange, Texas facility
which was completed in March 2008.
The Companys Asia segment is experiencing lower capacity utilization as a result of the weakened
global markets and the start-up nature of a line in the Companys China facility.
Overall worldwide utilization declined compared to the prior year reflecting the challenging
marketplace facing the Company. The capacity utilization figures exclude production for the
Invision product as this business is in a start-up phase. Capacity utilization is calculated by
dividing actual production pounds by practical capacity at each plant.
The changes in selling, general and administrative expenses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30, 2008
|
|
|
|
$ Increase (decrease)
|
|
|
% Increase (decrease)
|
|
|
|
(In thousands, except for %s)
|
|
Total change in selling, general and
administrative expenses
|
|
$
|
(4,394
|
)
|
|
|
(11.2
|
)%
|
Less the effect of foreign currency translation
|
|
|
(1,358
|
)
|
|
|
(3.5
|
)
|
|
|
|
|
|
|
|
Total change in selling, general and administrative
expenses, excluding the effect of foreign
currency translation
|
|
$
|
(3,036
|
)
|
|
|
(7.7
|
)%
|
|
|
|
|
|
|
|
Selling, general and administrative expenses for the three months ended November 30, 2008 were down
by $3.0 million, excluding the effect of foreign currency exchange, compared to the same period
last fiscal year. As a percent of sales, selling, general and administrative expenses for the three
months ended November 30, 2008 increased to 9.0% from 7.9% in the prior year comparable period.
Costs are generally lower as a result of restructuring activities that have taken place over the
past year. In addition, the decrease includes a benefit of $1.8 million from the mark-to-mark
adjustments of restricted stock units and deferred directors units which were partially offset by
$1.6 million of costs related to consulting for the development of a strategic plan.
- 21 -
Minority interest represents a 30% equity position of Mitsubishi Chemical MKV Company in a
partnership with the Company and a 35% equity position of P.T. Prima Polycon Indah in an Indonesian
joint venture with the Company.
Interest expense declined by approximately $0.4 million for the three months ended November 30,
2008, as compared to the same period last year, due to lower borrowing rates and overall lower debt
levels.
Foreign currency transaction gains or losses represent changes in the value of currencies in major
areas where the Company operates. The Company experienced $7.3 million in foreign currency
transaction gains for the three months ended November 30, 2008. This included gains of $2.5
million and $4.1 million related to the changes in the value of the U.S. dollar compared to the
Canadian dollar and Mexican peso, respectively. The Company experienced a foreign currency
transaction loss of $0.1 million for the three months ended November 30, 2007. Generally, the
foreign currency transaction gains or losses relate to the changes in the value of the U.S. dollar
compared with the Canadian dollar and the Mexican peso and changes between the euro and other
non-euro European currencies. From time to time, the Company enters into forward foreign exchange
contracts to reduce the impact of changes in foreign exchange rates on the consolidated statements
of income. These contracts reduce exposure to currency movements affecting existing foreign
currency denominated assets and liabilities resulting primarily from trade receivables and
payables. Any gains or losses associated with these contracts, as well as the offsetting gains or
losses from the underlying assets or liabilities, are recognized on the foreign currency
transaction line in the consolidated statements of operations. During the first quarter of fiscal
2009, while the U.S. dollar was strengthening, the Company was not completely hedged.
Restructurings
In November 2008, management decided to take certain actions in a strategic effort to realign
resources and reduce expenses within the Europe segment. As a result, the Company recorded charges
of approximately $0.3 million for employee related costs for approximately 30 employees in the
European segment which are included in restructuring expenses for the three months ended November
30, 2008.
On December 10, 2008, the Company announced actions to restructure its operations and eliminate
costs throughout the Company. These actions are part of the Companys ongoing strategic plan to
realign its resources, control costs and improve efficiency to profitably serve key growth markets.
In the NAEP segment, the Company will reduce production capacity by temporarily idling one
manufacturing line in addition to permanently shutting down two lines at the plant in Bellevue,
Ohio. The Company also plans to temporarily idle one line and reduce shifts from seven to five
days at its Nashville, Tennessee plant. The actions will reduce production capacity by
approximately 50% in this segment and reduce headcount by 60 between these two facilities. The
Company is also realigning its NAEP sales, marketing and technical customer service teams to focus
its customer support on core markets, which will reduce headcount on those teams by approximately
15.
The Company also plans to reduce its Akron-based North American administrative staff by six
full-time employees and three contract positions. The Company expects cost savings from all of its
actions related to NAEP and North America administrative expenses to total approximately $10
million to $12 million, after tax, on an annualized basis. These actions are expected to begin in
the second quarter of fiscal 2009 with completion by the end of the third quarter of fiscal 2009.
In Europe, the Company is rationalizing its overall operations to better align its production
capabilities with evolving customer needs and to address the increasingly deteriorating economic
conditions in those markets. The Company is in the process of reducing its current capacity in
Europe by 7% to 10%. Accordingly, the Company reduced related headcount by approximately 20
employees in November 2008 and will eliminate approximately an additional 30 full-time employees
and 30 contract positions in the second quarter of fiscal 2009. The Companys major European
locations also plan to implement a short work schedule. The actions in the Europe segment are
expected to result in total annualized cost savings of $4 million to $6 million, after tax.
In January 2008, the Company announced two steps in its continuing effort to improve the
profitability of its North American operations. The Company announced it would shut down its
manufacturing facility in St. Thomas, Ontario, Canada and would pursue a sale of its manufacturing
facility in Orange, Texas. All the restructuring costs related to the sale of the Orange, Texas and
the St. Thomas, Ontario, Canada facilities are related to the NAEP reportable segment.
- 22 -
The St. Thomas, Ontario, Canada facility primarily produced engineered plastics for the automotive
market, with a capacity of approximately 74 million pounds per year and employed approximately 120
individuals. The facility was shutdown at the end of June 2008. The Company continues to finalize
closing procedures into fiscal 2009.
The Orange, Texas facility provided primarily North American third-party tolling services in which
the Company processed customer-owned materials for a fee. Total annual capacity at the Orange,
Texas facility was approximately 135 million pounds and employed approximately 100 employees. The
Company completed the sale of this facility in March 2008 for total consideration of $3.7 million.
The Company recorded charges related to the fiscal 2008 initiatives of approximately $0.2 million
for employee related costs and $0.1 million for contract termination and other related
restructuring costs during the three months ended November 30, 2008. The charges recorded in fiscal 2009 are related to the NAEP segment. Approximately $0.3 million
remains accrued for employee related costs at November 30, 2008 related to the fiscal 2008
initiatives, which the Company anticipates the majority of the accrued balance for restructuring
charges to be paid throughout fiscal 2009. No charges related to this plan were recorded in the first
quarter of fiscal 2008.
The following table summarizes the liabilities as of November 30, 2008 related to the announced
restructuring plans in fiscal 2008 and fiscal 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual Balance
|
|
|
Fiscal 2009
|
|
|
Fiscal 2009
|
|
|
Accrual Balance
|
|
|
|
August 31, 2008
|
|
|
Charges
|
|
|
Paid
|
|
|
November 30, 2008
|
|
|
|
(In thousands)
|
|
Employee related costs
|
|
$
|
507
|
|
|
$
|
497
|
|
|
$
|
(348
|
)
|
|
$
|
656
|
|
Other costs
|
|
|
|
|
|
|
104
|
|
|
|
(104
|
)
|
|
|
|
|
Translation effect
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
$
|
485
|
|
|
$
|
601
|
|
|
$
|
(452
|
)
|
|
$
|
588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal 2007, the Company announced multiple phases of a restructuring plan to restore its
NAEP segment to profitability. The Company recorded minimal charges in fiscal 2008 related to the
fiscal 2007 initiatives as the plan was primarily completed in fiscal 2007. The total charge for
this plan was approximately $2.1 million recorded primarily in fiscal 2007. The Company recorded
insignificant restructuring charges and paid approximately $71,000 for employee related costs
related to the fiscal 2007 plan in the three months ended November 30, 2007.
Certain portions of the Companys North American operations are not managed separately and are
included in All Other North America. The Company also includes in All Other North America any
administrative costs that are not directly related or allocated to a North America business unit
such as North American information technology, human resources, accounting and purchasing. The
North American administrative costs are directly related to the four North American segments.
The CODM uses net sales to unaffiliated customers, gross profit and operating income in order to
make decisions, assess performance and allocate resources to each segment. Operating income does
not include interest income or expense, other income or expense, restructuring expense or foreign
currency transaction gains or losses. In some cases, the Company may choose to exclude from a
segments results certain non-recurring items as determined by management. These items are included
in the Corporate and Other section in the table below. Corporate expenses include the compensation
of certain personnel, certain audit expenses, board of directors related costs, certain insurance
costs and other miscellaneous legal and professional fees.
- 23 -
A reconciliation of operating income (loss) by segment to consolidated income before taxes is
presented below:
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Europe
|
|
$
|
14,032
|
|
|
$
|
22,789
|
|
NAPB
|
|
|
692
|
|
|
|
1,919
|
|
NAEP
|
|
|
(941
|
)
|
|
|
(480
|
)
|
NADS
|
|
|
924
|
|
|
|
1,391
|
|
Asia
|
|
|
(290
|
)
|
|
|
(211
|
)
|
Invision
|
|
|
(1,067
|
)
|
|
|
(1,885
|
)
|
All other North America
|
|
|
(3,009
|
)
|
|
|
(4,105
|
)
|
Corporate and other
|
|
|
(4,360
|
)
|
|
|
(3,381
|
)
|
Interest expense, net
|
|
|
(401
|
)
|
|
|
(1,129
|
)
|
Foreign currency transaction gains (losses)
|
|
|
7,306
|
|
|
|
(133
|
)
|
Other income (expense)
|
|
|
222
|
|
|
|
(332
|
)
|
Restructuring expense
|
|
|
(601
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
$
|
12,507
|
|
|
$
|
14,437
|
|
|
|
|
|
|
|
|
European operating income decreased approximately $8.8 million, or 38.4%, for the three months
ended November 30, 2008. The decrease was primarily due to the recessionary global marketplace
impacting volume as well as the gross profit reductions resulting from rapid declines in pricing
not completely offset by cost of goods sold declines. The decline in gross profit of $10.9 million
was partially offset by a decline in selling, general and administrative expenses of $2.2 million.
Operating income for NAPB declined $1.2 million compared to same period in the prior year. The
decline was primarily a result of the decline in gross profit and was partially offset by a
decrease in selling, general and administrative costs.
The operating loss for the NAEP segment, which is the segment most exposed to the automotive
market, increased by $0.5 million due to the decline in gross profit of $2.3 million. The decline
of selling, general and administrative costs of $1.7 million for the NAEP segment partially offset
the gross profit decrease. The NAEP segment experienced cost reductions initiated primarily in the
prior year which almost completely offset the decline in volume. Unpredicted declines in volume
resulted in another series of planned capacity reductions which were announced in December 2008.
The decline in operating income for NADS for the three months ended November 30, 2008 was due to
the decline in gross profit of $0.6 million. A decline in NADS selling, general and administrative
costs slightly offset the decline in gross profit.
A reconciliation of the statutory U.S. federal income tax rate of 35% with the effective tax rate
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Three months ended
|
|
|
|
November 30, 2008
|
|
|
November 30, 2007
|
|
|
|
(In thousands except for %s)
|
|
Statutory U.S. tax rate
|
|
$
|
4,377
|
|
|
|
35.0
|
%
|
|
$
|
5,053
|
|
|
|
35.0
|
%
|
Amount of foreign taxes at less than U.S.
statutory tax rate
|
|
|
(3,811
|
)
|
|
|
(30.5
|
)
|
|
|
(3,150
|
)
|
|
|
(21.8
|
)
|
U.S. losses with no tax benefit
|
|
|
3,523
|
|
|
|
28.2
|
|
|
|
2,271
|
|
|
|
15.7
|
|
Other
|
|
|
246
|
|
|
|
2.0
|
|
|
|
238
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
4,335
|
|
|
|
34.7
|
%
|
|
$
|
4,412
|
|
|
|
30.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 24 -
The effective tax rate of 34.7% for the three months ended November 30, 2008 is slightly below the
U.S. statutory rate of 35.0% primarily because of the Companys overall foreign rate being less
than the U.S. statutory rate. This favorable effect on the Companys tax rate was offset by no tax
benefits being recognized for losses in the U.S. As compared to the effective rate of 30.6% for
the three months ended November 30, 2007, the current quarters effective rate is driven by an
increase in the U.S. pre-tax loss from continuing operations and other U.S. charges, for which no
tax benefit was recognized. This unfavorable effect on the Companys tax rate was partially offset
by a decrease in the overall foreign rate driven by an increase in foreign pre-tax income in lower
rate jurisdictions.
The translation effect of foreign currencies decreased net income by $1.2 million for the three
months ended November 30, 2008.
The Company uses the following non-GAAP financial measures of net income excluding unusual items
and net income per diluted share excluding unusual items. These financial measures are used by
management to monitor and evaluate the ongoing performance of the Company and to allocate
resources. The Company believes that the additional measures are useful to investors for financial
analysis. However, non-GAAP measures are not in accordance with, nor are they a substitute for,
GAAP measures. The table below reconciles net income excluding unusual items and net income per
diluted share excluding unusual items to net income and net income per diluted share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Three months ended
|
|
|
|
November 30, 2008
|
|
|
November 30, 2007
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
Diluted EPS
|
|
Net Income and Earnings Per Share Reconciliation
|
|
Income (loss)
|
|
|
Impact
|
|
|
Income (loss)
|
|
|
Impact
|
|
|
|
(In thousands except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock
|
|
$
|
8,159
|
|
|
$
|
0.31
|
|
|
$
|
10,012
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments, net of tax, per diluted share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring expense
|
|
|
436
|
|
|
|
0.02
|
|
|
|
6
|
|
|
|
|
|
Other employee termination costs
|
|
|
101
|
|
|
|
|
|
|
|
674
|
|
|
|
0.02
|
|
Insurance claim settlement adjustment
|
|
|
|
|
|
|
|
|
|
|
368
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock before unusual items
|
|
$
|
8,696
|
|
|
$
|
0.33
|
|
|
$
|
11,060
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding Diluted
|
|
|
|
|
|
|
26,026
|
|
|
|
|
|
|
|
27,770
|
|
Liquidity and Capital Resources
The major source of cash inflows is generally net income. The primary uses of cash for other than
operations are generally cash dividends, common share repurchases and capital expenditures.
Presently, the Company anticipates that cash flow from operations and availability under credit
arrangements will be sufficient to meet its short and long-term operational requirements.
- 25 -
The Company has improved its liquidity position in the first quarter of fiscal 2009. Net cash
provided from operations was $44.3 million and $8.8 million for the three months ended November 30,
2008 and 2007, respectively. The increase from last year was due to a decline in inventory and
accounts receivable, compared to the increases in these areas in the prior year, primarily driven
by lower sales and the Companys efforts to reduce working capital. Days in receivables were 57
days at November 30, 2008 and 58 days at August 31, 2008 and 63 days at November 30, 2007. Days in
inventory were 49 days at November 30, 2008 and 48 days at August 31, 2008 and 62 days at November
30, 2007. Days in payables at November 30, 2008 were 34 days, 34 days at August 31, 2008 and 31
days at November 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
August 31,
|
|
|
|
|
|
|
2008
|
|
|
2008
|
|
|
% Change
|
|
|
|
(In millions, except for %s)
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
115.8
|
|
|
$
|
97.7
|
|
|
|
18.5
|
%
|
Working capital, excluding cash
|
|
|
232.5
|
|
|
|
305.2
|
|
|
|
(23.8
|
)
|
Long-term Debt
|
|
|
99.2
|
|
|
|
104.3
|
|
|
|
(4.9
|
)
|
Stockholders equity
|
|
|
372.5
|
|
|
|
427.6
|
|
|
|
(12.9
|
)
|
The Companys cash and cash equivalents increased approximately $18.1 million from August 31, 2008.
Working capital, excluding cash, was $232.5 million, a decrease of $72.7 million from August 31,
2008. The primary reason for the decrease in working capital was the decrease in accounts
receivable of $76.6 million and the decrease in inventory of $42.8 million. The translation effect
of foreign currencies, primarily the euro, decreased accounts receivable by $39.8 million and
decreased inventory by $24.3 million. Excluding the impact of translation of foreign currencies,
inventory decreased approximately $18.5 million, or 8.2%, and accounts receivable decreased $36.8
million, or 11.5%. The decreases are also attributable to the Companys long-term working capital
reduction program. Accounts payable decreased $35.6 million due primarily to the translation
effect of foreign currencies of $19.0 million. The decrease in accounts payable is also
attributable to the decrease in sales and sales volume which resulted in lower purchases.
The Company decreased total long-term debt by $5.1 million during the three months ended November
30, 2008. The translation effect of foreign currencies decreased long-term debt by approximately
$9.9 million. The remaining increase of $4.8 million in borrowings was primarily a result of cash
dividends and purchase of treasury stock.
Capital expenditures for the three months ended November 30, 2008 were $11.3 million compared with
$8.2 million last year. The major component of the capital expenditures included additions related
to the new Akron, Ohio plant and adding a new smaller line in the Nashville, Tennessee plant which
is replacing an older inefficient line.
The Company has a $260.0 million credit facility (Credit Facility) which consists of credit lines
of which the U.S. dollar equivalent of $160.0 million is available to certain of the Companys
foreign subsidiaries for borrowings in euros or other currencies. The Credit Facility, which
matures on February 28, 2011, contains certain covenants that, among other things, limit the
Companys ability to incur indebtedness and enter into certain transactions beyond specified
limits. The Company must also maintain a minimum interest coverage ratio and may not exceed a
maximum net debt leverage ratio. As of November 30, 2008, the Company was not in violation of any
of its covenants relating to the Credit Facility.
Interest rates on the Credit Facility are based on LIBOR or EURIBOR (depending on the borrowing
currency) plus a spread determined by the Companys total leverage ratio. The Company also pays a
facility fee on the commitments whether used or unused. The Credit Facility allows for a provision
which provides a portion of the funds available as a short-term swing-line loan. The swing-line
loan interest rate varies based on a mutually agreed upon rate between the bank and the Company. At
November 30, 2008, there were no borrowings on the Credit Facility which are considered short-term.
At November 30, 2008, the Company had $5.0 million of long-term borrowings outstanding under the
Credit Facility.
The Company has senior guaranteed notes outstanding (Senior Notes) in the private placement
market consisting of the following:
|
|
|
$30.0 million of Senior Notes in the United States, maturing on March 1, 2013, with a
variable interest rate of LIBOR plus 80 bps (Dollar Notes). Although there are no plans
to do so, the Company may, at its option, prepay all or part of the Dollar Notes.
|
|
|
|
50.3 million of Senior Notes in Germany, maturing on March 1, 2016, with a fixed
interest rate of 4.485% (Euro Notes). The Euro Notes approximate $63.9 million at
November 30, 2008. The fair market value of the Euro Notes is
approximately 38.4
million at November 30, 2008, which approximates $48.8 million.
|
- 26 -
The Senior Notes are guaranteed by the Companys wholly-owned domestic subsidiaries and contain
covenants substantially identical to those in the $260.0 million revolving Credit Facility. As of
November 30, 2008, the Company was not in violation of any of its covenants relating to the Senior
Notes.
Both the Credit Facility and the Senior Notes are supported by up to 65% of the capital stock of
certain of the Companys directly owned foreign subsidiaries.
The Company had approximately $8.5 million of uncollateralized short-term lines of credit from
various domestic banks at November 30, 2008. At November 30, 2008, there were borrowings of $7.1
million outstanding under these lines of credit.
The Company had approximately $47.7 million of uncollateralized short-term foreign lines of credit
available to its subsidiaries at November 30, 2008. There was approximately $2.6 million
outstanding under these lines of credit at November 30, 2008.
Below summarizes the Companys available funds as of November 30, 2008 and August 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
As of November 30,
|
|
|
As of August 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
|
(In millions)
|
|
Total gross available funds from credit lines and notes
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
$
|
260.0
|
|
|
$
|
260.0
|
|
Uncollateralized short-term lines of credit U.S.
|
|
$
|
8.5
|
|
|
$
|
8.5
|
|
Uncollateralized short-term lines of credit Foreign
|
|
$
|
47.7
|
|
|
$
|
51.0
|
|
Borrowings outstanding
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
|
5.0
|
|
|
|
7.0
|
|
Uncollateralized short-term lines of credit U.S.
|
|
|
7.1
|
|
|
|
|
|
Uncollateralized short-term lines of credit Foreign
|
|
|
2.6
|
|
|
|
2.5
|
|
Total net available funds from credit lines and notes
|
|
|
|
|
|
|
|
|
Credit Facility
|
|
$
|
255.0
|
|
|
$
|
253.0
|
|
Uncollateralized short-term lines of credit U.S.
|
|
$
|
1.4
|
|
|
$
|
8.5
|
|
Uncollateralized short-term lines of credit Foreign
|
|
$
|
45.1
|
|
|
$
|
48.5
|
|
The Companys net debt, defined as debt minus cash, was in a net cash position of $6.9 million at
November 30, 2008 which was an improvement of $23.0 million compared to the August 31, 2008 net
debt of $16.1 million as a result of earnings and working capital reductions.
The Company adopted the required portions of FASB Statement No. 157, (SFAS 157), Fair Value
Measurement, as of September 1, 2008. The adoption did not have a material impact on the Companys
financial position, results of operations and cash flows. In accordance with FASB issued Staff
Position (FSP) No. FAS 157-2,
Effective Date of FASB Statement No.157
, the Company delayed the
adoption of portions of SFAS 157 related to nonfinancial assets and nonfinancial liabilities,
except for items recognized or disclosed at fair value on a recurring basis. Accordingly, the
Company will adopt the provisions of SFAS 157 related to nonfinancial assets and nonfinancial
liabilities recognized or disclosed at fair value on a nonrecurring basis in fiscal 2010. The
Company is currently evaluating the impact, if any, of the adoption of this portion of SFAS 157 on
its financial position, results of operations and cash flows.
SFAS 157 establishes a fair value hierarchy to prioritize the inputs used in valuation techniques
into three levels as follows:
|
|
|
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets
or liabilities in active markets;
|
|
|
|
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the
asset or liability either directly or indirectly; and
|
|
|
|
Level 3: Unobservable inputs which reflect an entitys own assumptions.
|
The fair value of cash equivalents, by their nature, is determined utilizing Level 1 inputs. The
Company measures the fair value of the forward foreign exchange contracts using Level 2 inputs
through observable market transactions in active markets provided by banks. The forward foreign
exchange contracts are entered into with creditworthy multinational banks.
- 27 -
The Company adopted FASB Statement No. 159, (SFAS 159), The Fair Value Option for Financial
Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115. However, the
Company did not elect the fair value option for any of its existing financial instruments other
than those already measured at fair value. Therefore, the Companys adoption of SFAS 159 as of
September 1, 2008 did not have a material impact on the Companys financial position, results of
operations and cash flows.
During the three months ended November 30, 2008, the Company has declared and paid quarterly cash
dividends totaling $0.15 per common share. The total amount of these dividends was $3.9 million.
Cash has been sufficient to
fund the payment of these dividends. On January 7, 2009, the Companys Board of Directors declared
a regular cash dividend of $0.15 per common share payable February 2, 2009 to stockholders of
record on January 19, 2009.
During the three months ended November 30, 2008, the Company repurchased 78,520 million shares of
common stock at an average price of $15.50 per share. No shares were repurchased during the three
months ended November 30, 2007. It is anticipated that the Company will continue repurchasing
common stock under the Companys current repurchase program through open market repurchases from
time to time, subject to market conditions, capital considerations of the Company and compliance
with applicable laws. Approximately 2.9 million shares remain available to be repurchased under the
Companys repurchase program
For the three months ended November 30, 2008, 6,567 common shares were issued upon the exercise of
employee stock options. The total amount received from the exercise of these options was $0.1
million.
The assets and liabilities of the Companys foreign subsidiaries are translated into U.S. dollars
using current exchange rates. Income statement items are translated at average exchange rates
prevailing during the period. The resulting translation adjustments are recorded in the Accumulated
Other Comprehensive Income (Loss) account in stockholders equity. The change in the value of the
U.S. dollar during the three months ended November 30, 2008 decreased this account by $58.5
million.
Contractual Obligations
As of November 30, 2008, there were no material changes to the Companys future contractual
obligations as previously reported in the Companys 2008 Annual Report.
Operating lease information is provided in Footnote 12 to the Consolidated Financial Statements in
the Companys 2008 Annual Report on Form 10-K as there has been no significant changes.
The Companys outstanding commercial commitments at November 30, 2008 are not material to the
Companys financial position, liquidity or results of operations.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements as of November 30, 2008.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. Management bases its estimates on historical experience and
other factors it believes to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results could differ from those estimates. The following
critical accounting policy should be read in conjunction with the critical accounting policies
discussed in the Companys 2008 Annual Report on Form 10-K.
- 28 -
New Accounting Pronouncements
In December 2007, the FASB issued FASB Statement No. 141(R), Business Combinations (SFAS 141R).
SFAS 141R replaces FASB Statement No. 141 and provides greater consistency in the accounting and
financial reporting of business combinations. SFAS 141R requires the acquiring entity in a business
combination to recognize all assets acquired and liabilities assumed in the transaction and any
non-controlling interest in the acquiree at the acquisition date, measured at the fair value as of
that date. This includes the measurement of the acquirer shares issued in consideration for a
business combination, the recognition of contingent consideration, the accounting for
pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and
development, the accounting for acquisition-related restructuring cost accruals, the treatment of
acquisition related transaction costs and the recognition of changes in the acquirers income tax
valuation allowance and deferred taxes. SFAS 141R is effective for business combinations for which
the acquisition date is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. Early adoption is not permitted. The Company is required to adopt SFAS
141R in fiscal year 2010. The Company is assessing the impact that SFAS 141R may have on its
financial position, results of operations and cash flows.
In December 2007, the FASB issued FASB Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51 (SFAS 160). SFAS 160 clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that
should be reported as equity in the consolidated financial statements. SFAS 160 is effective for
the Company for the fiscal year 2010, with early adoption being prohibited. The Company is
assessing the impact that SFAS 160 may have on its financial position, results of operations and
cash flows.
Cautionary Statements
Certain statements in this report may constitute forward-looking statements within the meaning of
the Federal securities laws. These statements can be identified by the fact that they do not relate
strictly to historic or current facts. They use such words as anticipate, estimate, expect,
project, intend, plan, believe, and other words and terms of similar meaning in connection
with any discussion of future operating or financial performance. These forward-looking statements
are based on currently available information, but are subject to a variety of uncertainties,
unknown risks and other factors concerning the Companys operations and business environment, which
are difficult to predict and are beyond the control of the Company. Important factors that could
cause actual results to differ materially from those suggested by these forward-looking statements,
and that could adversely affect the Companys future financial performance are disclosed in the
Companys Annual Report on Form 10-K for the year ended August 31, 2008, include, but are not
limited to, the following:
|
|
Worldwide and regional economic, business and political conditions, including continuing
economic uncertainties in some or all of the Companys major product markets;
|
|
|
Fluctuations in the value of currencies in major areas where the Company operates,
including the U.S. dollar, euro, U.K. pound sterling, Canadian dollar, Mexican peso, Chinese
yuan and Indonesian rupiah;
|
|
|
Fluctuations in the prices of sources of energy or plastic resins and other raw materials;
|
|
|
Changes in customer demand and requirements;
|
|
|
Escalation in the cost of providing employee health care;
|
|
|
Outcome of any legal claims known or unknown;
|
|
|
Performance of the North American automotive market;
|
|
|
Global financial market turbulence; and
|
|
|
Global or regional economic slowdown or recession.
|
The risks and uncertainties identified above are not the only risks the Company faces. Additional
risks and uncertainties not presently known to the Company or that it believes to be immaterial
also may adversely affect the Company. Should any known or unknown risks or uncertainties develop
into actual events, or underlying assumptions prove inaccurate, these developments could have
material adverse effects on the Companys business, financial condition and results of operations.
- 29 -
Item 3 Quantitative and Qualitative Disclosure about Market Risk
The Company conducts business on a multinational basis in a variety of foreign currencies. The
Companys exposure to market risk for changes in foreign currency exchange rates arises from
anticipated transactions from international trade and repatriation of foreign earnings. The
Companys principal foreign currency exposures relate to the euro, U. K. pound sterling, Canadian
dollar, Mexican peso, Chinese yuan, and Indonesian rupiah.
The Company enters into forward exchange contracts to reduce its exposure to fluctuations in
related foreign currencies. These contracts are with major financial institutions and the risk of
loss is considered remote. The total value of open contracts and any risk to the Company as a
result of these arrangements is not material to the Companys financial position, liquidity or
results of operations.
The Companys exposure to market risk from changes in interest rates relates primarily to its debt
obligations. Interest on the Revolving Facility is based on the London Inter-Bank Offered Rate
(LIBOR) for U.S. dollar borrowings and the Euro Interbank Offered Rate (EURIBOR) for euro
borrowings. At November 30, 2008, the Company had $5.0 million borrowed against its Credit
Facility. Borrowing costs may fluctuate depending upon the volatility of LIBOR and amounts
borrowed.
Item 4 Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Companys reports under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the time periods specified
in the Commissions rules and forms and that such information is accumulated and communicated to
the Companys management, including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow for timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
The Company carries out a variety of on-going procedures, under the supervision and with the
participation of the Companys management, including the Companys Chief Executive Officer and
Chief Financial Officer, to evaluate the effectiveness of the design and operation of the Companys
disclosure controls and procedures. Based on the foregoing, the Companys Chief Executive Officer
and Chief Financial Officer concluded that the Companys disclosure controls and procedures were
effective at a reasonable assurance level as of the end of the period covered by this report.
There has been no change in the Companys internal controls over financial reporting during the
Companys most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Companys internal controls over financial reporting.
PART II OTHER INFORMATION
Items 1, 3, 4 and 5 are not applicable or the answer to such items is negative; therefore, the
items have been omitted and no reference is required in this Report.
Item 1A Risk Factors
There are no material changes from the risk factors previously disclosed in the Companys Annual
Report on Form 10-K for the year ended August 31, 2008.
- 30 -
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On April 25, 2006, the Company announced that its Board of Directors authorized the repurchase of
up to 6.75 million shares of its outstanding common stock (the Repurchase Program), representing
approximately 23.3% of the Companys outstanding shares at the authorization date. The Repurchase
Program replaced the Companys prior repurchase authorization, under which approximately 1.7
million shares had remained authorized for repurchase. On November 16, 2007, as a part of an
agreement reached with the Barington Group, the Board agreed to increase to five million the number
of shares authorized to be repurchased under the Repurchase Program. The Company repurchased two
million shares under the program in the fiscal year ended August 31, 2008. It is anticipated that
the Company will complete the remainder of the Repurchase Program through open market repurchases
from time to time. The number of shares to be repurchased and the timing of repurchases will depend
upon the prevailing market prices and any other considerations that may, in the opinion of the
Board of Directors or management, affect the advisability of repurchasing shares. The Companys
purchases of its common stock under the Repurchase Program during the first quarter of fiscal 2009
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of shares
|
|
|
Maximum number of
|
|
|
|
Total number of shares
|
|
|
Average price
|
|
|
purchased as part of a
|
|
|
shares that may yet be
|
|
|
|
repurchased
|
|
|
paid per share
|
|
|
publicly announced plan
|
|
|
purchased under the plan
|
|
Beginning shares
available
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,018,486
|
|
September 1-30, 2008
|
|
|
9,520
|
|
|
$
|
24.00
|
|
|
|
9,520
|
|
|
|
3,008,966
|
|
October 1-31, 2008
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
3,008,966
|
|
November 1-30, 2008
|
|
|
69,000
|
|
|
$
|
14.33
|
|
|
|
69,000
|
|
|
|
2,939,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
78,520
|
|
|
$
|
15.50
|
|
|
|
78,520
|
|
|
|
2,939,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 6 Exhibits
(a)
Exhibits
|
|
|
|
|
Exhibit Number
|
|
Exhibit
|
|
|
|
|
|
|
3.1
|
|
|
Amended and Restated Certificate of Incorporation of the Company (for purposes of
Commission reporting compliance only) (filed herewith).
|
|
|
|
|
|
|
3.2
|
|
|
Amended and Restated Bylaws of the Company (for purposes of Commission reporting
compliance only) (incorporated by reference to Exhibit 3.2 to the Companys
Quarterly Report on Form 10-Q for fiscal quarter ended May 31, 2007).
|
|
|
|
|
|
|
10.1
|
|
|
First Amendment to 2007 Agreement by and among the Company and the Barington Group,
dated October 10, 2008 (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed with the Commission on October 10, 2008).
|
|
|
|
|
|
|
10.2
|
|
|
Agreement by and among the Company and the Ramius Group, dated November 11, 2008
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed with the Commission on November 12, 2008).
|
|
|
|
|
|
|
10.3
|
|
|
Advisory Agreement, by and between the Company and Dr. Peggy G. Miller, dated
November 7, 2008 (incorporated by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K filed with the Commission on November 12, 2008).
|
|
|
|
|
|
|
10.4
|
|
|
First Amendment to Employment Agreement of Joseph M. Gingo, dated December 17, 2008
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed with the Commission on December 23, 2008).
|
- 31 -
|
|
|
|
|
Exhibit Number
|
|
Exhibit
|
|
|
|
|
|
|
10.5
|
|
|
Amended and Restated Employment Agreement of Paul F. DeSantis, dated December 17,
2008 (incorporated by reference to Exhibit 10.2 to the Companys Current Report on
Form 8-K filed with the Commission on December 23, 2008).
|
|
|
|
|
|
|
10.6
|
|
|
A. Schulman, Inc. Second Amended and Restated Directors Deferred Units Plan (filed
herewith).
|
|
|
|
|
|
|
10.7
|
|
|
First Amendment to Indemnification Agreement (filed herewith).
|
|
|
|
|
|
|
10.8
|
|
|
A. Schulman, Inc. Amended and Restated Nonqualified Profit Sharing Plan (filed
herewith).
|
|
|
|
|
|
|
10.9
|
|
|
First Amendment to the A. Schulman, Inc. 2002 Equity Incentive Plan (filed herewith).
|
|
|
|
|
|
|
10.10
|
|
|
A. Schulman, Inc. Amended and Restated 2006 Incentive Plan (filed herewith).
|
|
|
|
|
|
|
10.11
|
|
|
First Amendment to the 2009 Cash Bonus Plan of A. Schulman, Inc. (filed herewith).
|
|
|
|
|
|
|
10.12
|
|
|
Amended and Restated A. Schulman, Inc. Supplemental Executive Retirement Plan (filed
herewith).
|
|
|
|
|
|
|
31.1
|
|
|
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
|
|
|
|
|
|
|
31.2
|
|
|
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
|
|
|
|
|
|
|
32
|
|
|
Certifications of Principal Executive and Principal Financial Officers pursuant to
18 U.S.C. 1350.
|
- 32 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
Date: January 9, 2009
|
A. Schulman, Inc. (Registrant)
|
|
|
/s/ Paul F. DeSantis
|
|
|
Paul F. DeSantis,
Chief Financial Officer, Vice President and
|
|
|
Treasurer of A. Schulman, Inc. (Signing on behalf of Registrant as a
duly authorized officer of Registrant and signing as the Principal
Financial Officer of Registrant)
|
|
- 33 -
EXHIBIT INDEX
|
|
|
|
|
Exhibit Number
|
|
Exhibit
|
|
|
|
|
|
|
3.1
|
|
|
Amended and Restated Certificate of Incorporation of the Company (for purposes of
Commission reporting compliance only) (filed herewith).
|
|
|
|
|
|
|
3.2
|
|
|
Amended and Restated Bylaws of the Company (for purposes of Commission reporting
compliance only) (incorporated by reference to Exhibit 3.2 to the Companys
Quarterly Report on Form 10-Q for fiscal quarter ended May 31, 2007).
|
|
|
|
|
|
|
10.1
|
|
|
First Amendment to 2007 Agreement by and among the Company and the Barington Group,
dated October 10, 2008 (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed with the Commission on October 10, 2008).
|
|
|
|
|
|
|
10.2
|
|
|
Agreement by and among the Company and the Ramius Group, dated November 11, 2008
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed with the Commission on November 12, 2008).
|
|
|
|
|
|
|
10.3
|
|
|
Advisory Agreement, by and between the Company and Dr. Peggy G. Miller, dated
November 7, 2008 (incorporated by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K filed with the Commission on November 12, 2008).
|
|
|
|
|
|
|
10.4
|
|
|
First Amendment to Employment Agreement of Joseph M. Gingo, dated December 17, 2008
(incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed with the Commission on December 23, 2008).
|
|
|
|
|
|
|
10.5
|
|
|
Amended and Restated Employment Agreement of Paul F. DeSantis, dated December 17,
2008 (incorporated by reference to Exhibit 10.2 to the Companys Current Report on
Form 8-K filed with the Commission on December 23, 2008).
|
|
|
|
|
|
|
10.6
|
|
|
A. Schulman, Inc. Second Amended and Restated Directors Deferred Units Plan (filed
herewith).
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10.7
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First Amendment to Indemnification Agreement (filed herewith).
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10.8
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A. Schulman, Inc. Amended and Restated Nonqualified Profit Sharing Plan (filed
herewith).
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10.9
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First Amendment to the A. Schulman, Inc. 2002 Equity Incentive Plan (filed herewith).
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10.10
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A. Schulman, Inc. Amended and Restated 2006 Incentive Plan (filed herewith).
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10.11
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First Amendment to the 2009 Cash Bonus Plan of A. Schulman, Inc. (filed herewith).
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10.12
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Amended and Restated A. Schulman, Inc. Supplemental Executive Retirement Plan (filed
herewith).
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31.1
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Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
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31.2
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Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
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32
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Certifications of Principal Executive and Principal Financial Officers pursuant to
18 U.S.C. 1350.
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- 34 -
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
A. SCHULMAN, INC.
(Reflecting Amendments as of December 18, 2008)
[For Purposes of SEC Reporting Compliance Only]
A. Schulman, Inc., a corporation organized and existing under the laws of the State of
Delaware, hereby certifies as follows:
1. The name of the Corporation is A. Schulman, Inc. The date of filing its original
Certificate of Incorporation with the Secretary of State was August 20, 1969.
2. The Restated Certificate of Incorporation only restates and integrates and does not further
amend the provisions of the Certificate of incorporation of this Corporation as heretofore amended
or supplemented and there is no discrepancy between those provisions and the provisions of this
Restated Certificate of Incorporation.
3. The text of the Certificate of Incorporation as amended or supplemented heretofore is
hereby restated without further amendments or charges to read as herein set forth in full:
FIRST.
The name of the Corporation is A. Schulman, Inc.
SECOND.
The registered office of the Corporation in the State of Delaware located at
No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The name and address
of its registered agent therein is The Corporation Trust Company, No. 100 West Tenth Street,
Wilmington, Delaware 19801.
THIRD.
The nature of the business, or objects or purposes to be transacted, promoted, or
carried on by the Corporation is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware, including the following:
(1) To manufacture, fabricate, buy, sell, export, import and generally trade
and deal in and with all types of plastics, rubber, resins and related materials.
(2) To manufacture, purchase or otherwise acquire, invest in, own, mortgage, pledge,
sell, lease, assign and transfer or otherwise dispose of, trade, deal in and deal
with goods, wares and merchandise and personal property of every class and
description and to render services of all kinds.
(3) To acquire, and pay for in cash, stock or bonds of this Corporation or
otherwise, the good will, rights, assets and property, and to undertake or assume
the whole or any part of the obligations or liabilities of any person, firm,
association or corporation; to aid in any lawful manner, by loan, subsidy, guarantee
or otherwise, any corporation whose stocks, bonds, notes, debentures or
other securities are held or controlled directly or indirectly by the Corporation,
and to do any and all lawful acts or things necessary or advisable to protect,
preserve, improve or enhance the value of any such stocks, bonds, notes, debentures,
or other securities or obligations; and to endorse or guarantee the payment of
principal or interest or both, or dividends upon any stocks, bonds, obligations or
other securities or evidences of indebtedness, and to guarantee the performance of
any contracts or other undertakings in which the Corporation is or becomes
interested of any corporation, association, partnership, firm, individual or others,
or any country, nation or governmental or political authority.
(4) To acquire, hold, use, sell, assign, lease, grant licenses in respect of,
mortgage or otherwise dispose of letters patent of the United States or any foreign
country, patent rights, licenses and privileges, inventions, improvements and
processes, copyrights, trade-marks and trade names, relating to or useful in
connection with any business of this Corporation.
(5) To acquire by purchase, subscription or otherwise, and to receive, hold,
own, guarantee, sell, assign, exchange, transfer, mortgage, pledge or otherwise
dispose of or deal in and with any of the shares of the capital stock, or any voting
trust certificates in respect of the shares of capital stock, scrip, warrants,
rights, bonds, debentures, notes, trust receipts, and other securities, obligations,
chooses in action and evidences of indebtedness or interest issued or created by any
corporations, joint stock companies, syndicates, associations, firms, trust or
persons, public or private, or by the government of the United States of America, or
by any foreign government, or by any state, territory, province, municipality or
other political subdivision or by any governmental agency or instrumentality, and as
owner thereof to possess and exercise all the rights, powers and privileges and
ownership, including the right to execute consents and vote thereon, and to do any
and all acts and things necessary or advisable for the preservation, protection,
improvement and enhancement in value thereof.
(6) To enter into, make and perform contracts of every kind and description with any
person, firm, association, corporation, municipality, county, state, body politic or
government or colony or dependency thereof.
(7) To make, enter into and carry out any arrangements which may be deemed to
be for the benefit of the Corporation, with any domestic or foreign governmental,
municipal or public authority, or with any corporation, partnership, association,
combination, organization, entity or person; to obtain therefrom or otherwise to
acquire by purchase, lease, assignment or otherwise, any powers, rights, privileges,
immunities, franchises, guaranties, grants and concessions; to hold, own, exercise,
exploit, dispose of and realize upon the same, and to undertake and prosecute any
business dependent thereon which may lawfully be undertaken by a corporation
organized under the laws of the State of Delaware; and to cause to be formed, to
promote and to aid in any way in the formation of, any corporation, domestic or
foreign, for any such purpose.
2
(8) To act in any and all parts of the world, in any capacity whatsoever as agent,
general or special, for domestic and foreign corporations, individuals,
partnerships, associations, combinations, organizations, entities, states,
governments, and other public and private bodies.
(9) To borrow or raise moneys for any of the purposes of the Corporation and, from
time to time without limit as to amount, to draw, make, accept, endorse, execute and
issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and
other negotiable or non-negotiable instruments and evidences of indebtedness, and to
secure the payment of any thereof and of the interest thereon by mortgage upon or
pledge, conveyance or assignment in trust of or lien upon the whole or any part of
the property of the Corporation, whether at the time owned or thereafter acquired,
and to sell, pledge or otherwise dispose of such bonds, debentures or other
obligations of the Corporation for its corporate purposes; to confer upon the
holders of any bonds, debentures or obligations of the Corporation, secured or
unsecured, the right to convert the principal thereof into stock of the Corporation
upon such terms and conditions as may be deemed advisable; to create, issue, sell
and otherwise dispose of, for money, property or other considerations deemed useful
for the purpose of the Corporation, certificates entitling the holder to an interest
in all or any part of the securities from time to time held by the Corporation; to
permit the holders of any bonds, debentures or obligations of the Corporation,
secured by specific securities, to share in the income of such securities in lieu of
or in addition to, a fixed return on their investment; and to issue certificates for
partly-paid stock of the Corporation.
(10) To the extent permitted by law, to lend to any person, firm or corporation any
of its uninvested funds, either with or without security.
(11) To purchase or otherwise acquire, hold, sell and transfer the shares of its own
capital stock; provided it shall not use its funds or property for the purchase or
acquisition of its own shares of capital stock when such use would cause any
impairment of its capital except as otherwise permitted by law, and provided further
that shares of its own capital stock belonging to it shall not be voted upon
directly or indirectly.
(12) To have one or more offices, to carry on all or any of its operations and
business and without restriction or limit as to amount to purchase or otherwise
acquire, hold, own, mortgage, sell, convey or otherwise dispose of, real and
personal property of every class and description in any of the states, districts,
territories or colonies of the United States, and in any and all foreign countries,
subject to the laws of such state, district, territory, colony or country.
3
(13) To acquire in whole or in part the business, good will, rights, property and
assets of all kinds of any corporation, association, partnership, combination,
organization, entity, or individual, domestic or foreign; and to pay for the same in
cash, stocks, bonds, notes, debentures or other securities or obligations of the
Corporation or otherwise; and to hold, possess and improve such properties and to
conduct in any legal manner the whole or any part of the business so acquired; and
to pledge, mortgage, sell or otherwise dispose of the same.
(14) To endorse or guarantee the payment of principal or interest, or both, or
dividends upon any stocks, bonds, obligations or other securities or evidences of
indebtedness issued or created by any other corporation of the State of Delaware or
any other state, or of any country, nation or government, or political authority so
far as the same may be permitted by law.
(15) To enter into any legal arrangement for sharing profits, union of interest,
reciprocal concession, or cooperation with any person, partnership, association,
combination, organization, entity or corporation carrying on or proposing to carry
on any business which the Corporation is authorized to carry on, or any business
transaction deemed necessary, convenient, or incidental to carrying out any of the
object of the Corporation.
(16) The object and purposes specified in the foregoing clauses shall, except where
otherwise expressed, be in nowise limited or restricted by reference to, or
inference from, the terms of any other clause herein contained, but the objects and
purposes specified in each of the foregoing clauses of this article, shall be
regarded as independent objects and purposes.
FOURTH.
The total number of, shares of stock which the Corporation shall have authority to
issue is 76,010,707 shares, consisting of 1,000,000 shares of special stock without par value,
10,707 shares of preferred stock of the par value of $100.00 per share and 75,000,000 of common
stock of the par value of $1.00 per share.
The designations and the powers, preferences and rights, and the qualifications, limitations
and restrictions thereof are as follows:
The Board of Directors of the Corporation shall have the authority from time to
time, in a resolution or resolutions duly adopted by it, to cause the issuance of
the special stock for such lawful consideration as it shall deem appropriate. Such
special stock shall have such voting powers, full or limited, or no voting powers,
and such designations, preferences, and relative, participating, optional or other
special rights and qualifications, limitations or restrictions as shall be stated in
the resolution or resolutions providing for the issuance of such stock.
4
The holders of the preferred shares shall be entitled to receive, when and as
declared by the Board of Directors of the Corporation, cumulative dividends at the
rate of Five Dollars ($5.00) per share per annum, and no more, payable as the Board
of Directors may from time to time determine, in each year to shareholders of record
at the close of business on such dates respectively preceding the
payment thereof as may be fixed by the Board of Directors in declaring any such
dividend. Such dividend shall be cumulative from the date of issue, so that if
dividends on the outstanding preferred shares at said rate shall not have been paid
or declared and set apart for payment for all past dividend periods, and payment of,
or provision for the payment of all dividends thereon for the current dividend
period shall not have been made, dividends to the amount of such deficiency, but
without interest thereon, shall be paid or declared and set apart for payment before
any dividends on the common shares shall be paid or declared and set apart for
payment.
After full cumulative dividends as aforesaid upon the outstanding preferred
shares shall have been paid for all past dividend periods, and after full dividends
on the preferred shares for the current dividend period shall have been paid or
declared and set apart for payment, then and not otherwise, dividends in cash,
property or shares may be declared and paid upon the common shares to the exclusion
of the holders of preferred shares. The preferred shares shall be preferred as to
assets as well as dividends. Upon any dissolution, liquidation or winding up of the
Corporation, the holders of preferred shares shall be entitled to receive in cash,
before any payment shall be made to the holders of common shares, the sum of One
Hundred Dollars ($100.00) per share, together with an amount equal to all accrued
and unpaid dividends thereon to the date of payment. The consolidation or merger of
the Corporation at any time or from time to time, with any other corporation or
corporations, or a sale of all or substantially all of the assets of the
Corporation, shall not be construed as a dissolution, liquidation or winding up of
the Corporation within the meaning thereof.
After payment of the full preferential amounts aforesaid, the holders of
preferred shares shall not be entitled to any further participation in any
distribution of the assets or funds of the Corporation, and the remaining assets and
funds of the Corporation shall be divided and distributed among the holders of the
common shares then outstanding according to their respective interests.
The term accrued and unpaid dividends used with reference to the preferred
shares shall mean an amount equal to Five Dollars ($5.00) per share per annum from
the date on which the dividends thereon become cumulative to the date of
computation, less the aggregate amount of dividends paid.
5
The preferred shares at any time outstanding may be redeemed by the
Corporation, in whole or in part, at any time or from time to time, at its election
expressed by resolution of the Board of Directors upon not less than thirty
(30) days prior notice to the holders of record of the preferred share to be
redeemed, given as hereinafter provided, at One Hundred Dollars ($100.00) per share
plus an amount equal to the accrued and unpaid dividends thereon to the redemption
date. If less than all of the outstanding preferred shares are to be redeemed, the
redemption may be made either by lot or pro rata or by such
other equitable method
as the Board of Directors in its discretion may determine. Notice of such redemption, stating the redemption date and the redemption price and
the place of payment thereof shall be given to the respective holders of the
preferred shares to be redeemed by mailing the same first-class, postage prepaid, to
such holders at their respective addresses as shown on the books of the corporation.
Such notice shall be so mailed not less than thirty (30) days and not more than
sixty (60) days prior to the redemption date specified therein. If such notice of
redemption shall have been duly given and if, on or before the redemption date
specified in such notice all funds necessary for such redemption shall have been set
aside so as to be available therefor, then, notwithstanding that any certificate for
preferred shares so called for redemption shall not have been surrendered for
cancellation, the shares represented thereby shall no longer be deemed outstanding,
the right to receive dividends thereon shall cease to accrue from and after the date
of redemption so fixed, and all rights with respect to such preferred shares so
called for redemption shall forthwith on such redemption date cease and terminate
except only the right of the holders thereof to receive the amount payable upon
redemption thereof, but without interest.
Subject to the provisions and limitations herein contained, the Board of
Directors shall have full power and authority to prescribe the manner in which and
the terms and conditions upon which preferred shares shall be redeemed.
The Corporation shall have the right to purchase preferred shares for the
purpose or in anticipation of redemption at not to exceed the redemption price
thereof. Preferred shares which have been redeemed or purchased by the Corporation
shall be cancelled and not reissued.
Except as otherwise provided by statute, the holders of the preferred shares
shall have no voting power and no holder thereof shall be entitled to receive notice
of any meeting of shareholders.
6
Of the 1,000,000 shares of special stock without par value, the Board of Directors of the
Corporation created, by resolution adopted January 11, 1996, a series of 100,000 shares of Special
Stock designated as Series A Junior Participating Special Stock with the voting powers,
preferences, special rights, qualifications, limitations or restrictions as follows:
Section 1.
Dividends and Distributions.
(A) The holders of shares of Series A Junior Participating Special Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the last day of March, June, September and December
in each year (each such date being referred to herein as a Quarterly Dividend Payment Date),
commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Participating Special Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $0.01 or (b) subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends,
and 1,000 times the aggregate per share amount (payable in kind) of all non-
cash dividends or other distributions. other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock, par value $1.00 per share, of the Corporation (the Common Stock) since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A
Junior Participating Special Stock. In the event the Corporation shall at any time after
January 11, 1996 (the Rights Declaration Date) (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case the amount to
which holders of shares of Series A Junior Participating Special Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series A Junior
Participating Special Stock as provided in Paragraph (A) above immediately after it declares a
dividend or distribution on the Common Stock (other than a dividend payable in shares of Common
Stock); provided that, in the event no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $0.01 per share on the Series A Junior Participating
Special Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior
Participating Special Stock from the Quarterly Dividend Payment Date next preceding the date of
issue of such shares of Series A Junior Participating Special Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Junior Participating Special Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of
Series A Junior Participating Special Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of shares of Series A Junior Participating Special
Stock entitled to receive payment of a dividend or distribution declared thereon, which record date
shall be no more than 30 days prior to the date fixed for the payment thereof.
7
Section 2.
Voting Rights.
The holders of shares of Series A Junior Participating
Special Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each share of Series A
Junior Participating Special Stock shall entitle the holder thereof to 1,000 votes on all matters
submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at
any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series A Junior Participating Special Stock were
entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction
the numerator of which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares of Series A Junior
Participating Special Stock and the holders of shares of Common Stock shall vote together as one
class on all matters submitted to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior Participating Special Stock shall be
in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such
contingency shall mark the beginning of a period (herein called a default period) which shall
extend until such time when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of Series A Junior
Participating Special Stock then outstanding shall have been declared and paid or set apart for
payment. During each default period, all holders of Special Stock (including holders of the
Series A Junior Participating Special Stock) with dividends in arrears in an amount equal to six
(6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to
elect two (2) Directors.
(ii) During any default period, such voting right of the holders of Series A
Junior Participating Special Stock may be exercised initially at a special meeting
called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting
of stockholders, and thereafter at annual meetings of stockholders, provided that
such voting right shall not be exercised unless the holders of ten percent (10%) in
number of shares of Special Stock outstanding shall be present in person or by
proxy. The absence of a quorum of the holders of Common Stock shall not affect the
exercise by the holders of Special Stock of such voting right. At any meeting at
which the holders of Special Stock shall exercise such voting right initially during
an existing default period, they shall have the right, voting as a class, to elect
Directors to fill such vacancies, if any, in the Board of Directors as may then
exist up to two (2) Directors or, if such right is exercised at an annual meeting,
to elect two (2) Directors. If the number which may be so elected at any special
meeting does not amount to the required number, the holders of the Special Stock
shall have the right to make such increase in the number of Directors as shall be
necessary to permit the election by them of the required number. After the holders
of the Special Stock shall have exercised their right to elect Directors in any
default period and during the continuance of such period, the number of Directors
shall not be increased or decreased except by vote of the holders of
Special Stock as herein provided or pursuant to the rights of any equity securities
ranking senior to or pari passu with the Series A Junior Participating Special
Stock.
8
(iii) Unless the holders of Special Stock shall, during an existing default
period, have previously exercised their right to elect Directors, the Board of
Directors may order, or any stockholder or stockholders owning in the aggregate not
less than ten percent (10%) of the total number of shares of Special Stock
outstanding, irrespective of series, may request, the calling of special meeting of
the holders of Special Stock, which meeting shall thereupon be called by the
President, a Vice-President or the Secretary of the Corporation. Notice of such
meeting and of any annual meeting at which holders of Special Stock are entitled to
vote pursuant to this Paragraph (C)(iii) shall be given to each holder of record of
Special Stock by mailing a copy of such notice to him or her at his or her last
address as the same appears on the books of the Corporation. Such meeting shall be
called for a time not earlier than 20 days and not later than 60 days after such
order or request or in default of the calling of such meeting within 60 days after
such order or request, such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than ten percent (10%)
of the total number of shares of Special Stock outstanding. Notwithstanding the
provisions of this Paragraph (C)(iii), no such special meeting shall be called
during the period within 60 days immediately preceding the date fixed for the next
annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and other classes of
stock of the Corporation if applicable, shall continue to be entitled to elect the
whole number of Directors until the holders of Special Stock shall have exercised
their right to elect two (2) Directors voting as a class, after the exercise of
which right (x) the Directors so elected by the holders of Special Stock shall
continue in office until their successors shall have been elected by such holders or
until the expiration of the default period, and (y) any vacancy in the Board of
Directors may (except as provided in Paragraph (C)(ii) of this Section 3) be filled
by vote of a majority of the remaining Directors theretofore elected by the holders
of the class of stock which elected the Director whose office shall have become
vacant. References in this Paragraph (C) to Directors elected by the holders of a
particular class of stock shall include Directors elected by such Directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right of the
holders of Special Stock as a class to elect Directors shall cease, (y) the term of
any Directors elected by the holders of Special Stock as a class shall terminate,
and (z) the number of Directors shall be such number as may be provided for in the
certificate of incorporation or by-laws irrespective of any increase made pursuant
to the provisions of Paragraph (C)(ii) of this Section 3 (such number being subject,
however, to change thereafter in any manner provided by law or in the certificate of
incorporation or by-laws). Any vacancies in the Board of
Directors effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining Directors.
9
(D) Except as set forth herein, holders of Series A Junior Participating Special Stock shall
have no special voting rights and their consent shall not be required (except to the extent they
are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 3.
Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions payable on the Series A
Junior Participating Special Stock as provided in Section 2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A
Junior Participating Special Stock outstanding shall have been paid in full, the Corporation shall
not
(i) declare or pay dividends on, make any other distributions on, or redeem or
purchase or otherwise acquire for consideration any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating special Stock;
(ii) declare or pay dividends on or make any other distributions on any shares
of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior Participating Special Stock,
except dividends paid ratably on the Series A Junior Participating Special Stock and
all such parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to dividends or upon liquidation, dissolution
or winding up) with the Series A Junior Participating Special Stock, provided that
the Corporation may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up) to
the Series A Junior Participating Special Stock; or
(iv) purchase or otherwise acquire for consideration any shares of Series A
Junior Participating Special Stock, or any shares of stock ranking on a parity with
the Series A Junior Participating Special Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
10
(B) The Corporation shall not permit any subsidiary of the Corporation to purchase or
otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation
could, under Paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 4.
Reacquired Shares.
Any shares of Series A Junior Participating Special
Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Special Stock and may be reissued as part of
a new series of Special Stock to be created by resolution or resolutions of the Board of Directors,
subject to the conditions and restrictions on issuance set forth herein.
Section 5.
Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior
Participating Special Stock unless, prior thereto, the holders of shares of Series A Junior
Participating Special Stock shall have received an amount equal to 1,000 times the Exercise Price,
plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the Series A Liquidation Preference). Following the
payment of the full amount of the Series A Liquidation Preference, no additional distributions
shall be made to the holders of shares of Series A junior Participating Special Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per share (the Common
Adjustment) equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by
(ii) 1,000 (as appropriately adjusted as set forth in subparagraph (C) below to reflect such events
as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the Adjustment Number). Following the payment of the full amount of the
Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of
Series A Junior Participating Special Stock and Common Stock, respectively, holders of Series A
Junior Participating Special Stock and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed in the ratio of the
Adjustment Number to 1 with respect to such Special Stock and Common Stock, on a per share basis,
respectively.
(B) In the event, however, that there are not sufficient assets available to permit payment in
full of the Series A Liquidation Preference and the liquidation preferences, of all other series of
special stock, if any, which rank on a parity with the Series A Junior Participating Special Stock,
then such remaining assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the Common Adjustment, then such remaining
assets shall be distributed ratably to the holders of Common Stock.
11
(C) In the event the Corporation shall at any time after the Rights Declaration Date (i)
declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which
is the number of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 6.
Consolidation, Merger, etc.
In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other property, then in
any such case the shares of Series A Junior Participating Special Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series A Junior Participating Special Stock
shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such event.
Section 7.
No Redemption.
The shares of Series A Junior Participating Special Stock
shall not be redeemable.
Section 8.
Amendment.
The Restated Certificate of Incorporation of the Corporation
shall not be further amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Junior Participating Special Stock so as to affect
them adversely without the affirmative vote of the holders of a majority or more of the outstanding
shares of Series A Junior Participating Special Stock, voting separately as a class.
Section 9.
Fractional Shares.
Series A Junior Participating Special Stock may be
issued in fractions of a share which shall entitle the holder, in proportion to such holders
fractional shares, to exercise voting rights, receive dividends, participate in distributions and
to have the benefit of all other rights of holders of Series A Junior Participating Special Stock.
FIFTH.
No holder of shares of the Corporation of any class shall be entitled as of right
to subscribe for, purchase, or receive any part of any new or additional issue of stock of any
class, whether now or hereafter authorized, or of any bonds, debentures, or other securities
convertible into stock of any class, and all such additional shares of stock, bonds, debentures or
other securities convertible into stock may be issued and disposed of by the Board of Directors to
such person or persons and on such terms and for such consideration (so far as may be permitted by
law) as the Board of Directors, in their absolute discretion, may deem advisable.
12
SIXTH.
The minimum amount of capital with which the Corporation will commence business is
$1,000.00.
SEVENTH.
The Corporation is to have perpetual existence.
EIGHTH.
(A) The number of Directors shall be fixed from time to time exclusively by the Board of
Directors pursuant to resolution adopted by a majority of the Directors then in office, provided,
however, that the number of Directors shall not be less than three.
(B) Directors of the Corporation shall be elected annually and shall hold office until the
next annual meeting of stockholders (provided, however, that the foregoing shall not have the
effect of shortening the term of any Director to which they have been previously elected) and their
successors are elected, or until earlier resignation, removal from office or death.
(C) Subject to the rights of holders of any special stock, vacancies in the Board of
Directors, however caused, and newly created directorships shall be filled solely by a majority
vote of the Directors then in office, whether or not a quorum, or by a sole remaining Director, and
any Director so chosen shall hold office for a term expiring at the next annual meeting of
stockholders.
(D) Subject to the rights of holders of any special stock, any Director or the entire Board of
Directors may be removed, with or without cause, by the affirmative vote of the holders of a
majority of the shares of Common Stock of the Corporation outstanding and entitled to vote for the
election of Directors at an annual meeting of stockholders
NINTH.
The private property of the stockholders shall not be subject to the payment
of corporate debts to any extent whatever.
TENTH.
In furtherance and not in limitation of the powers conferred by statute, the
board of directors is expressly authorized:
(1) To make, alter or repeal the by-laws of the Corporation.
(2) To authorize and cause to be executed mortgages and liens upon the real and
personal property of the Corporation.
(3) To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to reduce or abolish any
such reserve in the manner in which it was created.
13
(4) By resolution passed by a majority of the whole board, to designate one or more
committees, each committee to consist of two or more of the directors of the
Corporation which to the extent provided in the resolution or in the by-laws of the
Corporation, shall have and may exercise the powers of the Board of Directors in
the management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be stated in the
by-laws of the Corporation or as may be determined from time to time by resolution
adopted by the Board of Directors.
(5) When and as authorized by the affirmative vote of the holders of a majority of
the stock issued and outstanding having voting power given at a stockholders
meeting duly called for that purpose, or when authorized by the written consent of
the holders of a majority of the voting stock issued and, outstanding, to sell,
lease or exchange all of the property and assets of the Corporation, including its
good will and its corporate franchises, on such terms and conditions and for such
consideration, which may be in whole or in part shares of stock in, or other
securities of, or both, any other corporation or corporations, as the Board of
Directors shall deem expedient and for the best interests of the Corporation.
ELEVENTH.
Whenever a compromise or arrangement is proposed between this Corporation and
its creditors or any class of them and/or between this Corporation and its stockholders or any
class of them, any court of equitable jurisdiction within the State of Delaware may, on the
application in a summary way of this Corporation or of any creditor or stockholder thereof, or on
the application of any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of Title B of the Delaware Code, or on the application of trustees in dissolution or of
any receiver or receivers appointed for this Corporation under the provisions of Section 279 of
Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing three-fourths in value
of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization
of this Corporation as consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the, creditors or class of creditors, and/or on all
the stockholders or class of stockholders, of this Corporation, as the case may be, and also on
this Corporation.
TWELFTH.
In the absence of fraud, no contract or other transaction between this
Corporation and any other person, firm or corporation or any partnership or association shall be
affected or invalidited by the fact that any director or officer of this Corporation is pecuniarily
or otherwise interested in or is a director, member or officer of such other corporation or of such
person, firm, association or partnership or is a party to or is a pecuniarily or otherwise
interested in such contract or other transaction or in any way connected with any person or
persons, firm, association, partnership or corporation pecuniarily or otherwise interested therein;
any director so interested may be counted in determining the existence of a quorum at any meeting
of the Board of Directors of this Corporation for the purpose of authorizing any such contract or
transaction with like force and effect as if he were not so interested, or were not a director,
member or officer of such other corporation, firm, association or partnership. Any director whose
interest in any such contract or transaction arises solely by reason of the fact that he is a
stockholder, officer
or creditor of such other corporation (or solely by reason of the fact that he is a director of
such other corporation or partner in such firm where such dealing, contract or arrangement is made
by officers or employees of the Corporation in the ordinary performance of their duties and without
the actual participation of such director) shall not be deemed interested in such contract or other
transaction under any of the provisions of this article, nor shall any such contract or transaction
be void or voidable, nor shall any such director be liable to account because of such interest nor
need any such interest be disclosed.
14
Apart from and in addition to the other provisions of this section, no contract or other
transaction between the Corporation and any other corporation or firm which provides for the
purchase or sale of securities by such other corporation or firm upon terms not less favorable to
the Corporation than offered by such other corporation or firm to others, shall in any case be void
or voidable because of the fact that directors of the Corporation are directors of such other
corporation or partners in such firm, nor shall any such director be deemed interested in such
contract or other transaction under any of the provisions of this article, nor shall any such
director be liable to account in respect thereof.
No contract or other transaction between the Corporation and any other corporation, at least a
majority of the stock of which having voting power is owned or controlled by the Corporation or
which owns or controls at least a majority of the stock having voting power of the Corporation,
shall in any case be void or voidable because of the fact that directors of the Corporation are
directors of such other corporation, nor shall any such director be deemed interested in such
contract or other transaction under any of the provisions of this article, nor shall any such
director be liable to account because of such interest nor need any such interest be disclosed.
Any contract or act that shall be approved or ratified by the vote of the holders of a
majority of the capital stock of the Corporation having power which is represented in person or by
proxy at any annual meeting of stockholders or at any special meeting called for the purpose, among
others, of considering the approval the ratification of the acts of officers or directors (provided
that a lawful quorum of stockholders be there represented in person or by proxy) shall be as valid
and as binding upon the Corporation and upon all its stockholders as though it had been approved or
ratified by every stockholder of the Corporation.
THIRTEENTH.
The Corporation shall indemnify to the full extent authorized by law any
person made or threatened to be made a party to an action, suit or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation or serves or served any other enterprise as a
director, officer, employee or agent at the request of the Corporation.
15
FOURTEENTH.
(A) Meetings of stockholders may be held outside of the State of Delaware, if the by-laws so
provide. The books of the Corporation may be kept (subject to any provision contained in the
statutes) outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the by-laws of the Corporation. Elections of
Directors need not be by ballot unless the by-laws of the Corporation shall so provide.
(B) No action required to be taken or which may be taken at any annual or special meeting of
the stockholders of the Corporation may be taken without a meeting and the power of stockholders to
consent in writing, without a meeting, is specifically denied. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called only by the president or by the Board of Directors
pursuant to a resolution adopted by a majority of the Directors then in office. The affirmative
vote of the holders of not less than 80 percent of the outstanding voting shares of capital stock
of the Corporation entitled to vote generally in the election of Directors, voting together as a
single class, shall be required to alter, amend or repeal this Paragraph (B) of Article FOURTEENTH,
provided, however, that this sentence shall not apply to, and such 80 percent vote shall not be
required for, any alteration, amendment or repeal recommended by the affirmative vote of at least
two-thirds of the Directors then in office.
FIFTEENTH.
The Corporation reserves the right to amend, alter, charge or repeal any
provision herein contained in the manner now or hereafter prescribed by statute, and all rights
conferred upon stockholders herein are granted subject to the reservation.
SIXTEENTH.
Notwithstanding that a lesser vote or no vote may be specified by law, the
Certificate of Incorporation or the By-Laws of the Corporation, Section 5 of Article II, Section 1
and 2 of Article III and Article IX of the By-Laws and this Article SIXTEENTH may be amended,
altered or repealed only by (1) the affirmative vote of the holders of 80 percent or more of the
outstanding shares of capital stock of the Corporation entitled to vote in the election of
Directors, voting together as a single class, or (2) the vote of at least two-thirds of the
Directors then in office.
SEVENTEENTH.
Repealed 12/08/2005
EIGHTEENTH.
No Director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability
(i) for any breach of the Directors duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the Director derived an improper personal benefit.
16
Exhibit 10.6
A. SCHULMAN, INC.
DIRECTORS DEFERRED UNITS PLAN
Second Amended and Restated Effective December 18, 2008
1.00 Background and Purpose
Effective December 5, 2002 and as part of the A. Schulman, Inc. 2002 Equity Incentive Plan, A.
Schulman, Inc. adopted a procedure through which its non-employee directors could defer receipt of
their board and committee fees. Effective October 17, 2006 (Effective Date), that procedure is
amended and restated in the form of the A. Schulman, Inc. Directors Deferred Units Plan. The Plan
is intended to be an unfunded, nonqualified program of deferred compensation within the meaning of
Title I of ERISA. The Plan is hereby amended and restated in its entirety effective December 18,
2008 (the Restatement Effective Date) for compliance with Code §409A.
2.00 Definitions
Whenever used in this Plan, the following words, terms and phrases will have the meanings given to
them in this section, unless another meaning is expressly provided elsewhere in this document or
clearly is required by the context. Also, the form of any defined term or of any word, term or
phrase will include all of its other forms.
Account:
The Account established under Section 4.01 for each Participant.
Beneficiary:
The person a Member designates to receive any Plan benefit that is undistributed (or
unexercised) when the Member dies. A Beneficiary may be designated only by following the procedures
described in Section 11.06.
Board:
The Companys board of directors.
Change in Control:
The occurrence of any one of the following actions or events:
[1]
The acquisition by any person (as defined under Code §409A), or more
than one person acting as a group (as defined under Code §409A), of stock of the Company
that, together with the stock of the Company held by such person or group, constitutes more
than 50 percent of the total fair market value or total voting power of the stock of the
Company;
[2]
The acquisition by any person, or more than one person acting as a group, within any
12-month period, of stock of the Company possessing 30 percent or more of the total voting
power of the stock of the Company;
[3]
A majority of the members of the Board is replaced during any 12-month period by
directors whose appointment or election is not endorsed by a majority of the members of the
Board prior to the date of the appointment or election; or
[4]
The acquisition by any person, or more than one person acting as a group, within any
12-month period, of assets from the Company that have a total gross fair market value equal
to or more than 40 percent of the total gross fair market value of all of the assets of the
Company immediately prior to such acquisition or acquisitions.
This definition of Change in Control shall be interpreted in a manner that is consistent with the
definition of change in control event under Code §409A and the Treasury Regulations promulgated
thereunder.
Code:
The Internal Revenue Code of 1986, as amended, and all pertinent regulations and rulings
directly related to the Plan and published Internal Revenue Service rulings of general application
issued under the Code.
Committee:
The administrative committee described in Section 7.00.
Company:
A. Schulman, Inc., a Delaware corporation.
Deferred Unit or Unit:
A notional Share.
Director:
A person who
[1]
is an elected member of the Board or of the board of directors of a
Related Entity (or has been appointed to the Board or to the board of directors of a Related Entity
to fill an unexpired term and will continue to serve at the expiration of that term only if elected
by shareholders) and
[2]
is not an employee of the Company or any Related Entity.
Director Fees:
The cash compensation each Director is entitled to receive in exchange for his or
her services as a Director.
Disability:
The Participant is
[1]
unable to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment that can be expected to result in death
or can be expected to last for a continuous period of not less than twelve (12) months; or
[2]
the
Participant is determined to be totally disabled by the Social Security Administration or the
Railroad Retirement Board.
ERISA:
The Employee Retirement Income Security Act of 1974, as amended.
Fair Market Value:
The value of one Share on any relevant date, determined under the following
rules:
[1]
If the Shares are traded on an exchange, the reported closing price on the relevant
date, if it is a trading day, otherwise on the next trading day;
- 2 -
[2]
If the Shares are traded over-the-counter with no reported closing price, the mean
between the highest and lowest selling prices on the relevant date, if it is a trading day,
otherwise on the next trading day; or
[3]
If neither subsections [1] or [2] of this definition apply, the fair market value as
determined by the Committee in good faith and consistent with any applicable provisions
under the Code.
Grandfathered Amount: T
he portion, if any, of a Participants Account that was earned and vested
(within the meaning of Code §409A) under the Plan before January 1, 2005 and any earnings (whether
actual or notional) attributable to such portion of the Participants Account and any earnings
(whether actual or notional) thereon.
Inactive Participant:
A person who
[1]
is serving as a Director but who no longer is deferring
Director Fees into the Plan or
[2]
has Terminated but has not received a complete distribution of
his or her Plan Benefit.
Member:
Collectively,
[1]
a Participant,
[2]
an Inactive Participant and
[3]
as appropriate, the
Beneficiary of a dead Member.
Participant:
A Director who meets the conditions described in Section 3.00.
Participation Agreement:
The agreement that each Director must complete and return to the Committee
as a condition of becoming a Participant.
Plan:
The A. Schulman, Inc. Directors Deferred Units Plan, as described in this document and any
amendments to it.
Plan Benefit:
The balance of a Members Account as of any Valuation Date.
Plan Year:
Each calendar year during which the Plan is in effect.
Related Entity:
Any person who would be considered a single employer with the Company under Code
§414(b) or (c).
Section 409A Amount:
The portion, if any, of a Participants Account that is not a Grandfathered
Amount.
Share:
A share of common stock, par value $1.00 per share, of the Company or any security of the
Company issued in substitution, exchange or in place of these shares.
Termination:
A separation from service as defined under Code §409A from the Company and all
Related Entities.
Valuation Date:
The last day of each calendar quarter and the date of a Directors Termination or
Disability or a Change in Control.
- 3 -
3.00 Eligibility and Participation
3.01 Participation.
Any Director may become a Participant by returning a completed Participation
Agreement to the Committee as described in Section 3.03. Notwithstanding the foregoing, each
Director who was a Participant as of the Restatement Effective Date shall remain a Participant.
3.02 Duration of Participation.
A Director who complies with Section 3.01 will continue to be a
Participant until the earlier of the date he or she
[1]
no longer is a Director or
[2]
revokes his
or her election to defer Director Fees, subject to Section 3.03[1].
3.03 Participation Agreement.
[1]
Each Director may become a Participant by returning a completed Participation Agreement to the
Committee specifying the amount of his or her Director Fees to be deferred and providing any other
information the Committee requires to administer that election. This deferral election will be
effective
[a]
on the first day of the calendar year beginning after the Committee receives the
completed Participation Agreement or
[b]
upon receipt of a completed Participation Agreement by the
Committee within 30 days after he or she first becomes a Director (although this election will
apply only to Director Fees paid with respect to services to be performed after the Committee
receives the completed Participation Agreement). For purposes of this subsection, a Director is
first eligible to participate in this Plan only if the Director is not eligible to participate in
any other arrangement that, along with this Plan, would be treated as a single nonqualified
deferred compensation plan under Treasury Regulation Section 1.409A-1(c)(2).
[2]
A Participation Agreement will remain in effect until amended or revoked under the rules
described in this subsection. A Director may amend his or her Participation Agreement by returning
a new Participation Agreement to the Committee specifying the changes made. Any change to a
previously filed Participation Agreement that does affect the amount of Director Fees deferred
(including a complete revocation of an election to defer Director Fees) will be effective no
earlier than the first day of the calendar year that begins after the Committee receives the new
Participation Agreement.
4.00 Credits to Accounts
4.01 Members Accounts.
Subject to the rules described in this section and elsewhere in the Plan,
the Committee will establish one or more Accounts for each Participant to which it will credit
[1]
the number of Units and dividends credited under the Plan before the Effective Date and
[2]
the
number of additional Units determined under Section 4.02.
- 4 -
4.02 Establishing/Valuing Units.
[1]
As of each Valuation Date, the Committee will
[a]
calculate the number of Units to be credited
to each Participants Account attributable to deferrals described in Section 4.01[2] by dividing
the amount of Director Fees deferred since the preceding Valuation Date (without adjustment for the
time value of money) by the Fair Market Value of a Share on the Valuation Date to produce the
number of whole and fractional Units (calculated to the nearest hundredth of the Fair Market Value
of a Share on the Valuation Date) and
[b]
add the number of Units calculated under
Section 4.02[1][a] to the Units credited to the Directors Account as of the preceding Valuation
Date.
[2]
As of each Valuation Date, the Committee also will credit each Members Account with the amount
of any dividends that would have been paid to the Member had he or she actually owned a number of
Shares equal to the number of Units credited to his or her Account, although no dividends will be
credited with respect to any cash amounts held in a Members Account (including any Director Fees
credited between Valuation Dates). Simultaneously, these amounts will be converted to whole and
fractional Units (with a fractional Units calculated to the nearest hundredth of the Fair Market
Value of a Share on the Valuation Date).
4.03 Vesting.
A Member will always be 100 percent vested in the amount credited to his or her
Accounts.
5.00 Distribution of Plan Benefits
5.01 Time, Schedule and Form of Payment.
Grandfathered Amounts will be distributed in a single cash
payment equal to the Members entire Account and will be made no later than March 15 of the
calendar year that begins after the calendar year during which the earliest of any of the following
occurs: a Change in Control, the Members Termination or Disability or as provided in Section 9.02.
Section 409A Amounts will be distributed in a single cash payment equal to the Members entire
Account and will be made within 90 days following the earliest of any of the following to occur: a
Change in Control, the Members Termination or Disability or as provided in Section 9.02. A Member
may change the time and/or form of distribution of the Members Section 409A Amount; provided that
(i) such change may not take effect until at least 12 months after the date on which such change is
made and (ii) the distribution with respect to which such change is made must be deferred (other
than a distribution upon death) for at least five years from the date the amount otherwise would
have been distributed.
5.02 Full Discharge.
Once a Members Account has been fully distributed, none of the Company, any
Related Entity, the Committee or the Plan will have any further liability to the Member.
- 5 -
6.00 Taxes
Each Member is responsible for payment of any federal, state and local income, employment and wage
taxes associated with his or her participation in the Plan and neither the Company nor any Related
Entity will withhold any amounts in advance payment of these taxes.
7.00 Administration
7.01 Committee
. The Board will designate the members of the Committee that administer this Plan.
Any action by the Committee under the Plan may be taken by resolution of the Committee, by an
officer of the Company or by any other person or persons duly authorized by resolution of the
Committee.
7.02 Committee Duties.
The Committee is responsible for the general administration and management
of the Plan and has all powers and duties necessary to fulfill its responsibilities, including the
following:
[1]
To determine all questions relating to the eligibility of a Director to become a
Participant;
[2]
To determine, compute and certify the amount and kind of benefits payable to Members;
[3]
To authorize payment of Plan Benefits;
[4]
To maintain all records necessary for the administration of the Plan, other than those
maintained by each Related Entity;
[5]
To provide for disclosure of all information and filings or provision of all reports
and statements to Members or governmental bodies that are required by the Code, ERISA or
any other applicable law;
[6]
To adopt or modify rules for the regulation or application of the Plan;
[7]
To delegate any power or duty to any firm or person in accordance with Section 7.03;
[8]
To decide all other questions or disputes arising from the operation of the Plan;
[9]
To exercise all other powers or duties granted to the Committee by other Plan
provisions; and
[10]
At least annually, apprise the Board of the Plans operation, including the value of
Plan Benefits.
- 6 -
7.03 Delegation of Administrative Responsibility
[1]
The Committee may delegate all or any portion of its administrative responsibilities with
respect to the Plan, subject to the terms of this section.
[2]
A delegation under this section may be made only through a written instrument signed by the
Committee that specifies the responsibilities delegated to that delegate. Any delegation of
responsibilities will be effective upon the date specified in the delegation, subject to written
acceptance by the delegate. At least annually, any delegate must report to the Committee any
information necessary to fully inform the Committee of the status and operation of the Plan and of
the delegates discharge of the responsibilities delegated.
7.04 Compensation, Expenses and Indemnity
[1]
The Committee and any delegate under Section 7.03 who is an employee of the Company or any
Related Entity will serve without compensation for services to the Plan. The Company will furnish
the Committee and any delegate under Section 7.03 with all clerical or other assistance necessary
to perform his or her duties. The Committee is authorized to employ any legal counsel and advisors
as it may deem advisable to assist in the performance of its duties hereunder.
[2]
The Company will pay all expenses of administering the Plan.
[3]
Each individual who is or was a member of the Committee (or to whom any duties have been
delegated under Section 7.03) is entitled, in good faith, to rely on or to act upon any report or
other information furnished by any executive officer, other officer or other employee of the
Company or any Related Entity, the Companys independent auditors, consultants or any other agents
assisting in the administration of the Plan. Committee members (and any person to whom any duties
have been delegated under Section 7.03) and any officer of the Company or any Related Entity acting
at the direction or in behalf of the Committee or a delegee will not be personally liable for any
action or determination taken or made in good faith with respect to the Plan and will, to the
extent permitted by law, be fully indemnified and protected by the Company with respect to any act
or determination just described.
7.05 Effect of Committee Action.
[1]
All actions taken and all determinations made by the Committee in good faith will be final and
binding upon all Members, the Company, each Related Entity and any other person interested in the
Plan. To the extent the Committee has been granted discretionary authority under the Plan, its
prior exercise of this authority will not subsequently obligate the Committee to exercise its
authority in a like fashion.
[2]
The Plan will be interpreted by the Committee in accordance with its terms and their intended
meaning. The construction and interpretation of Plan provisions are vested with
the Committee, in its absolute discretion, including the determination of Plan Benefits,
eligibility and interpretation of Plan provisions. All decisions, determinations and
interpretations will be final, conclusive and binding upon all parties having an interest in the
Plan.
- 7 -
8.00 Amendments
8.01 Companys Right to Amend Plan.
The Company reserves the right to make, from time to time, any
amendment or amendments to the Plan. By adopting this Plan, each Related Entity delegates to the
Company the authority described in this section. Without the affected Members written consent, no
amendment to the Plan will be effective to the extent that it retroactively decreases a Members
Plan Benefit. However, nothing in this section will restrict the Companys right to amend the Plan
without any additional consideration to affected Participants to the extent necessary to avoid
penalties arising under Code §409A, even if those amendments reduce, restrict or eliminate rights
vested or accrued under the Plan before those amendments are adopted.
8.02 Amendment of Vesting Rights.
If any amendment to the Plan changes the basis for calculating a
Members nonforfeitable rights to Plan Benefits, that amendment will be applied only to amounts
credited to the Participants Account after the date the amendment is adopted and each Member
credited with at least three years of service may elect, during the period beginning on the date
the amendment is adopted and ending no earlier than the latest of
[1]
60 days after the amendments
adoption,
[2]
60 days after the amendments effective date or
[3]
60 days after the Member is
issued a written notice of the amendment, to have his or her nonforfeitable rights calculated
without regard to the amendment. If this election is made, a Members nonforfeitable right to his
or her Plan Benefit will be not less than his or her nonforfeitable right before that election.
8.03 Action by Company.
Any action by the Company under this Section 8.00 may be taken by
resolution of the Board, by an officer of the Company or by any other person or persons duly
authorized by resolution of the Board.
9.00 Termination/Withdrawal
9.01 Right to Terminate.
The Company may terminate the Plan at any time with respect to some or all
Members and no further Plan Benefits will accrue after the effective date of that termination. By
adopting this Plan, each Related Entity delegates to the Company the authority described in this
section.
9.02 Distribution of Plan Benefits After Plan Termination.
Except as otherwise permitted by Code
§409A, termination of the Plan will not accelerate the distribution of any Plan Benefits. Instead,
Plan Benefits will be distributed on the date the Plan Benefits would have been distributed had the
Plan not been terminated.
9.03 Withdrawal.
By action of its board of directors or other governing entity, any Related Entity
may withdraw from the Plan. However, this withdrawal
[1]
will not be effective until the first day
of the Plan Year beginning after the date of that action and
[2]
will not result in the accelerated
liquidation or payment of Plan Benefits earned by the withdrawing Directors. Instead, these amounts
will be distributed according to the terms of this document without regard to that withdrawal.
- 8 -
10.00 Funding
The Plan is an unfunded, unsecured promise, within the meaning of Title I of ERISA, to pay only
those Plan Benefits that are accrued by Members while Directors under the terms of the Plan.
Neither the Company nor any Related Entity is required to segregate any assets into a fund
established exclusively to pay Plan Benefits unless the Company, in its sole discretion,
establishes a trust for this purpose. Neither the Company nor any Related Entity will be liable for
the payment of Plan Benefits that are actually distributed from a trust established for that
purpose. Also, Members have only the rights of a general unsecured creditor and do not have any
interest in or right to any specific asset of the Company or any Related Entity. Nothing in this
Plan constitutes a guarantee by the Company or any Related Entity or any other entity or person
that its assets will be sufficient to pay Plan Benefits.
11.00 Miscellaneous
11.01 Mistakes and Misstatements.
In the event of a mistake or a misstatement by a Member as to any
item of information that is furnished pursuant to the terms of the Plan that has an effect on the
amount distributed or to be distributed to that Member, or a mistake by the Plan as to the amount
distributed or to be distributed to a Member, the Committee will take any action which in its
judgment will result in the payment to which the Member is properly entitled under the Plan. The
actions to be taken by the Committee may include the reduction of future payments to the Member,
the restatement of the Members Plan Benefit, a demand that the Member repay the amounts
distributed in error or any other action the Committee believes appropriate.
11.02 No Contract.
The adoption and maintenance of this Plan is no guarantee that any Director will
be nominated for or elected to the Board or the board of directors of any Related Entity.
11.03 Service of Process.
The Companys Secretary is designated as agent for the service of legal
process on the Plan.
11.04 Merger or Consolidation.
Subject to other terms of the Plan, in case of any merger or
consolidation with, or transfer of assets or liabilities to, any other plan, each Member will be
entitled to receive immediately after the merger, consolidation or transfer a Plan Benefit that is
equal to, or greater than, the Plan Benefit he or she would have been entitled to receive
immediately before the merger, consolidation or transfer.
- 9 -
11.05 No Alienation.
The right of a Member or any other person to receive Plan Benefits may not be
assigned, transferred, pledged or encumbered except as provided in the Members designation of a
Beneficiary, by will or by applicable laws of descent and distribution. Any attempt to assign,
transfer, pledge or encumber a Plan Benefit will be null and void and of no legal effect. Any
attempted action contrary to this section will be null and void and of no effect whatsoever; the
Company, each Related Entity and the Committee (and each member of the Committee) may disregard
that action and will not be in any manner bound by it; and they, and each of them, will suffer no
liability by reason of it. Consistent with Code §409A, if any Member or other person attempts to
take any action contrary to this section, the Company, each Related Entity and the Committee (and
each member of the Committee) will be reimbursed and indemnified on demand out of the interest of
that Member in the Plan for any loss, cost or expense incurred as a result of disregarding or of
acting in disregard of that action.
11.06 Beneficiary Designation.
Each Member may name a Beneficiary or Beneficiaries (who may be
named contingently or successively) to receive any vested Plan Benefit that is undistributed at the
Members death. Unless otherwise provided in the Beneficiary designation, each designation made
will revoke all earlier designations made by the same Member, must be made on a form prescribed by
the Committee and will be effective only when filed in writing with the Committee. If a Member has
not made an effective Beneficiary designation, the deceased Members Beneficiary will be his or her
surviving spouse or, if none, the deceased Members estate. The identity of a Members designated
Beneficiary will be based only on the information included in the latest Beneficiary designation
form completed by the Member and will not be inferred from any other evidence.
11.07 Applicable Law.
The Plan, and all agreements hereunder, will be construed in accordance with
and governed by the laws (other than laws governing conflicts of laws) of the State of Ohio except
to the extent that the Delaware General Corporation Law is mandatorily applicable.
11.08 Headings.
Headings and subheadings in this document are inserted for convenience of reference
only. They constitute no part of the Plan.
11.09 Invalid Provision.
If any provision of this Plan is held to be illegal or invalid for any
reason, the Plan will be construed and enforced as if the offending provision had not been included
in the Plan. However, that determination will not affect the legality or validity of the remaining
parts of this Plan.
11.10 One Plan.
This Plan may be executed in any number of counterparts, each of which will be
deemed to be an original.
11.11 Coordination with Other Plans.
Members rights to any Plan Benefits will be determined solely
by reference to the terms of this Plan document and will be unaffected by any other document or
agreement between Members, the Company or any Related Entity.
- 10 -
11.12 Offset.
Regardless of any other Plan provision but only to the extent permitted under Code
§409A, the Company may offset any Plan Benefit payable to any Member against any other amounts the
Member may owe to the Company or any Related Entity, whether or not that obligation originated
under the terms of the Plan or elsewise.
11.13 Extension of Plan to Related Entities.
By action of its Board, the Company may extend this
Plan to a Related Entity, but only if the board of directors or governing body of the Related
Entity accepts participation in the Plan, agrees to the terms of the Plan and delegates to the
Company and the Committee the authority to amend, terminate and administer the Plan according to
its terms.
11.14 Successors.
The Plan will be binding on all successors and assigns of the Company and a
Participant, including without limitation, the estate of the Participant and the executor,
administrator or trustee of the estate, or any receiver or trustee in bankruptcy or representative
of the Participants creditors.
11.15 No Guarantee of Continuing Services.
Except as otherwise specified in the Plan, nothing in
the Plan may be construed as:
[1]
Conferring on any Participant any right to continue as a Director;
[2]
Guaranteeing that amount (if any) of any Director Fees; or
[3]
Guaranteeing that the Company will pay any dividends.
11.16 Compliance with Code §409A.
It is intended that the Section 409A Amounts comply with Code
§409A and the Treasury Regulations promulgated thereunder, and the Plan will be interpreted,
administered and operated accordingly. Nothing herein shall be construed as an entitlement to or
guarantee of any particular tax treatment to a Member, and none of the Company, any of its
Subsidiaries, the Board or the Committee shall have any liability with respect to any failure to
comply with the requirements of Code §409A.
5.6 Payments Upon Income Inclusion under Code §409a.
The Company may accelerate the time or
schedule of a distribution of Section 409A Amounts to a Member at any time the Plan fails to meet
the requirements of Code §409A and the Treasury Regulations promulgated thereunder. Such
distribution may not exceed the amount required to be included in income as a result of the failure
to comply with the requirements of Code §409A and the Treasury Regulations promulgated thereunder.
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A. SCHULMAN, INC.
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By:
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/s/ Paul F. DeSantis
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Title:
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Vice President, Chief Financial Officer and Treasurer
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- 11 -
Exhibit 10.10
A. SCHULMAN, INC.
AMENDED AND RESTATED
2006 INCENTIVE PLAN
1.00 PURPOSE AND EFFECTIVE DATE
1.01 Purpose.
The Plan is intended to foster and promote the long-term financial success of the
Company and Related Entities and to increase stockholder value by
[1]
providing Participants an
opportunity to acquire and maintain an ownership interest in the Company and
[2]
enabling the
Company and Related Entities to attract and retain the services of outstanding individuals upon
whose judgment and special efforts the successful conduct of the Groups business is largely
dependent.
1.02 Effective Date.
The Plan was originally adopted effective October 17, 2006 (the Effective
Date). The Plan is amended and restated in its entirety effective December 18, 2008.
2.00 DEFINITIONS
When used in the Plan, the following words, terms and phrases have the meanings given to them in
this section unless another meaning is expressly provided elsewhere in this document or clearly
required by the context. When applying these definitions and any other word, term or phrase used in
the Plan, the form of any defined term or of any word, term or phrase will include any and all of
its other forms.
Act.
The Securities Exchange Act of 1934, as amended, or any successor statute of similar effect
even if the Company is not subject to the Act.
Annual Meeting.
The annual meeting of the Companys stockholders.
Award.
Any Dividend Equivalent, Cash-Based Award, Incentive Stock Option, Nonqualified Stock
Option, Performance Share, Performance Unit, Restricted Stock, Restricted Stock Unit, Stock
Appreciation Right or Whole Share granted under the Plan.
Award Agreement.
The written or electronic agreement between the Company and each Participant that
describes the terms and conditions of each Award. If there is a conflict between the terms of the
Plan and the terms of any Award Agreement, the terms of the Plan will govern.
Beneficial Owner.
A beneficial owner as defined in Rule 13d-3 under the Act.
Board.
The Companys board of directors.
Business Combination.
With respect to the payment, exercise or settlement of any Award that is
subject to Code §409A, the occurrence of any one of the following actions or events:
[1]
The acquisition by any person (as defined under Code §409A), or more
than one person acting as a group (as defined under Code §409A), of stock of the Company
that, together with the stock of the Company held by such person or group, constitutes more
than 50 percent of the total fair market value or total voting power of the stock of the
Company;
[2]
The acquisition by any person, or more than one person acting as a group, within any
12-month period, of stock of the Company possessing 30 percent or more of the total voting
power of the stock of the Company;
[3]
A majority of the members of the Board is replaced during any 12-month period by
directors whose appointment or election is not endorsed by a majority of the members of the
Board prior to the date of the appointment or election; or
[4]
The acquisition by any person, or more than one person acting as a group, within any
12-month period, of assets from the Company that have a total gross fair market value equal
to or more than 40 percent of the total gross fair market value of all of the assets of the
Company immediately prior to such acquisition or acquisitions.
This definition of Business Combination shall be interpreted in a manner that is consistent with
the definition of change in control event under Code §409A and the Treasury Regulations
promulgated thereunder.
Cash-Based Award.
An Award granted under Section 13.00.
Cause.
Unless otherwise specified in the associated Award Agreement or in any employment agreement
between the Participant and the Company or any Related Entity or in any change in control agreement
between the Participant and the Company or any Related Entity (but only within the context of the
events contemplated by the employment agreement or change in control agreement, as applicable):
[1]
Gross neglect of duties the Participant owes to the Company or to the Participants
Service Recipient;
[2]
The Participant knowingly committing misfeasance or knowingly permitting nonfeasance of
duties in any material respect; or
[3]
The Participant commits a felony.
2
Change in Control.
With respect to the payment, exercise or settlement of any Award not subject to
Code §409A and unless otherwise specified in the associated Award Agreement or in any employment
agreement between the Participant and the Company or any Related Entity or in any change in control
agreement between the Participant and the
Company or any Related Entity (but only within the context of the events contemplated by the
employment agreement or change in control agreement, as applicable):
[1]
Any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of
the Company (not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its Affiliates other than in connection
with the acquisition by the Company or its Affiliates of a business) representing
25 percent or more of either the then outstanding Shares of common stock of the Company or
the combined voting power of the Companys then outstanding securities; or
[2]
The following individuals cease for any reason to constitute a majority of the number
of persons then serving on the Board (Board Members): individuals who, on the date
hereof, constitute the Board and any new Board Member (other than a Board Member whose
initial assumption of office is in connection with an actual or threatened election
contest, including, but not limited to, a consent solicitation relating to the election of
Board Members) whose appointment or election by the Board or nomination for election by the
Companys stockholders was approved by a vote of at least two-thirds of the Board Members
then still in office who either were Board Members on the date hereof or whose appointment,
election or nomination for election was previously so approved; or
[3]
The stockholders of the Company approve a merger or consolidation of the Company with
any other corporation or approve the issuance of voting securities of the Company in
connection with a merger or consolidation of the Company (or any direct or indirect
subsidiary of the Company) pursuant to applicable stock exchange requirements, other than
[a]
a merger or consolidation which would result in the voting securities of the Company
outstanding immediately prior to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into voting securities of the
surviving entity or any parent thereof), in combination with the ownership of any trustee
or other fiduciary holding securities under an employee benefit plan of the Company or any
subsidiary of the Company, at least 75 percent of the combined voting power of the voting
securities of the Company or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation or
[b]
a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no Person is
or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not
including in the securities Beneficially Owned by such Person any securities acquired
directly from the Company or its Subsidiaries other than in connection with the acquisition
by the Company or its Subsidiaries of a business) representing 25 percent or more of either
the then outstanding shares of common stock of the Company or the combined voting power of
the Companys then outstanding securities; or
3
[4]
The stockholders of the Company approve a plan of complete liquidation or dissolution
of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Companys assets, other than a sale or
disposition by the Company of all or substantially all of the Companys assets, other than
a sale or disposition by the Company of all or substantially all of the Companys assets to
an entity, at least 75 percent of the combined voting power of the voting securities of
which are owned by stockholders in substantially the same proportions as their ownership of
the Company immediately prior to such sale.
Notwithstanding the foregoing, no Change in Control shall be deemed to have occurred if
there is consummated any transaction or series of integrated transactions immediately following
which the record holders of the common Shares of the Company immediately prior to such transaction
or series of transactions continue to have substantially the same proportionate ownership in an
entity which owns all or substantially all of the assets of the Company immediately following such
transaction or series of transactions.
Further, notwithstanding the foregoing, any event or transaction which would otherwise
constitute a Change in Control (a Transaction) shall not constitute a Change in Control for
purposes of this Plan if, with respect to a Participant, the Participant participates as an equity
investor in the acquiring entity or any of its Affiliates (the Acquiror). For purposes of the
preceding sentence, such Participant shall not be deemed to have participated as an equity investor
in the Acquiror by virtue of
[a]
obtaining Beneficial Ownership of any equity interest in the
Acquiror as a result of the grant to the Participant of an incentive compensation award under one
or more incentive plans of the Acquiror (including, but not limited to, the conversion in
connection with the Transaction of incentive compensation awards of the Company into incentive
compensation awards of the Acquiror), on terms and conditions substantially equivalent to those
applicable to other executives of the Company immediately prior to the Transaction, after taking
into account normal differences attributable to job responsibilities, title and similar matters,
[b]
obtaining Beneficial Ownership of any equity interest in the Acquiror on terms and conditions
substantially equivalent to those obtained in the Transaction by all other stockholders of the
Company or
[c]
passive ownership of less than 3 percent of the stock of the Acquiror.
For purposes of this definition, Person has the meaning given in Section 3(a)(9) of the Act, as
modified and used in Sections 13(d) and 14(d) thereof, except that the term will not include
[a]
the Company or any Related Entity,
[b]
a trustee or other fiduciary holding securities under any
employee benefit plan of the Company or any Related Entity,
[c]
an underwriter temporarily holding
securities pursuant to an offering of those securities, or
[d]
a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
Code.
The Internal Revenue Code of 1986, as amended or superseded, and all pertinent regulations
and rulings directly related to the Plan and published IRS rulings of general application issued
under the Code.
4
Committee.
[1] In the case of Awards to Directors, the entire Board; and [2] in the case of all
other Awards, the Boards Compensation Committee which also constitutes a compensation committee
within the meaning of Treas. Reg. §1.162-27(c)(4). The Committee will be comprised of at least
three persons
[1]
each of whom is
[a]
an outside director, as defined in Treas. Reg.
§1.162-27(e)(3)(i) and
[b]
a non-employee director within the meaning of Rule 16b-3 under the Act
and
[2]
none of whom may receive remuneration from the Company or any Related Entity in any
capacity other than as a director, except as permitted under Treas. Reg. §1.162-27(e)(3)(ii).
Company.
A. Schulman, Inc., a Delaware corporation, and any and all successors to it.
Consultant.
Any person who performs services for the Company or any Related Entity other than an
Employee or a Director. A persons status as a Consultant will be determined as of the Grant Date
of each Award made to that person.
Covered Officer.
Those Employees whose compensation is (or likely will be) subject to limited
deductibility under Code §162(m) as of the last day of any calendar year.
Director.
A person who, on an applicable Grant Date,
[1]
is an elected member of the Board or of a
Related Board (or has been appointed to the Board or to a Related Board to fill an unexpired term
and will continue to serve at the expiration of that term only if elected by stockholders) and
[2]
is not an Employee. A persons status as a Director will be determined as of the Grant Date of each
Award made to that person.
Disability.
Unless otherwise specified in the associated Award Agreement or in any employment
agreement between the Participant and the Company or any Related Entity or in any change in control
agreement between the Participant and the Company or any Related Entity (but only within the
context of the events contemplated by the employment agreement or change in control agreement, as
applicable):
[1]
With respect to the payment, exercise or settlement of any Award that is (or becomes)
subject to Code §409A,
[a]
the Participant is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period of not less
than twelve (12) months;
[b]
the Participant is, by reason of any medically determinable
physical or mental impairment that can be expected to result in death or can be expected to
last for a continuous period of not less than twelve (12) months, receiving income
replacement benefits for a period of not less than three (3) months under an accident and
health plan covering Employees of the Participants employer; or
[c]
the Participant is
determined to be totally disabled by the Social Security Administration or the Railroad
Retirement Board; and
[2]
With respect to any Award not described in subsection [1] of this definition,
disability as defined in Code §22(e)(3).
5
Disability will be determined by the Committee in good faith upon receipt of sufficient
medical advice from one or more individuals, selected by the Committee, who are qualified to give
professional medical advice.
Dividend Equivalents.
An Award granted under Section 14.00.
Employee.
Any person who performs services for the Company or any Related Entity as a common-law
employee. A persons status as an Employee will be determined as of the Grant Date of each Award
made to that person. A worker who is classified as other than a common law employee but who is
subsequently reclassified as a common-law employee of the Company or any Related Entity for any
reason and on any basis will be treated as a common-law employee only from the date that
reclassification occurs and will not retroactively be reclassified as an Employee for any purpose
under the Plan.
Exercise Price.
The amount, if any, a Participant must pay to exercise an Option or the amount upon
which the value of a Stock Appreciation Right is based.
Expiration Date.
The last date that an Option or Stock Appreciation Right may be exercised.
Fair Market Value.
The value of one Share on any relevant date, determined under the following
rules:
[1]
If the Shares are traded on an exchange, the reported closing price on the relevant
date, if it is a trading day, otherwise on the next trading day;
[2]
If the Shares are traded over-the-counter with no reported closing price, the mean
between the highest and lowest selling prices on the relevant date, if it is a trading day,
otherwise on the next trading day; or
[3]
If neither subsection [1] nor [2] of this definition apply,
[a]
with respect to any
Nonqualified Stock Option or Stock Appreciation Right, the value as determined by the
Committee through the reasonable application of a reasonable valuation method, taking into
account all information material to the value of the Company, within the meaning of Code
§409A and the Treasury Regulations promulgated thereunder; and
[b]
with respect to any
other Award, the fair market value as determined by the Committee in good faith and
consistent with any applicable provisions under the Code.
Full Value Award.
Performance Shares, Performance Units, Restricted Stock, Restricted Stock Units
and Whole Shares.
Grant Date.
The date an Award is granted.
Group.
The Company and all Related Entities. The composition of the Group will be determined as of
any relevant date.
6
Group Member.
Each entity that is a member of the Group.
Incentive Stock Option.
An Option that, on the Grant Date, meets the conditions imposed under Code
§422 and is not subsequently modified in a manner inconsistent with Code §422.
Key Employee.
A specified employee within the meaning of Treasury Regulation §1.409A-1(i) and as
determined under the Companys policy for determining specified employees.
Nonqualified Stock Option.
Any Option that is not an Incentive Stock Option.
Option.
An Award granted under Section 6.00. An Option may be either
[1]
an Incentive Stock Option
or
[2]
a Nonqualified Stock Option.
Participant.
Any Employee, Consultant or Director to whom an Award has been granted and which is
still outstanding.
Performance-Based Award.
An Award granted subject to Section 15.00.
Performance Criteria.
The criteria described in Section 15.02.
Performance Period.
The period over which the Committee will determine if applicable Performance
Criteria have been met.
Performance Share.
An Award granted under Section 11.00.
Performance Unit.
An Award granted under Section 12.00.
Plan.
The A. Schulman, Inc. Amended and Restated 2006 Incentive Plan.
Plan Year.
The Companys fiscal year.
Prior Plan.
The A. Schulman, Inc. 2002 Equity Incentive Plan. Upon approval of the Plan by the
Companys stockholders, no more awards were granted under the Prior Plan, although awards may be
granted under the Prior Plan up to the date the Companys stockholders approve the Plan, and the
Prior Plan will remain in effect after the Companys stockholders approve the Plan for purposes of
determining any grantees right to awards issued under the Prior Plan before that date. If the
Companys stockholders do not approve the Plan, the Prior Plan will remain in effect until the
expiration date specified in its governing documents.
Related Board.
The board of directors of any incorporated Related Entity or the governing body of
any unincorporated Related Entity.
7
Related Entity.
Any entity with whom the Company would be considered a single employer under Code
§414(b) or (c), but modified as permitted under rules issued under any Code section relevant to the
purpose for which the definition is applied.
Restricted Stock.
An Award granted under Section 8.00.
Restricted Stock Unit.
An Award granted under Section 9.00.
Restriction Period.
The period over which the Committee will determine if a Participant has met
conditions placed on Restricted Stock or Restricted Stock Units.
Retirement.
Unless otherwise specified in the associated Award Agreement or in any employment
agreement between the Participant and the Company or any Related Entity or in any change in control
agreement between the Participant and the Company or any Related Entity (but only within the
context of the events contemplated in any employment agreement or change in control agreement, if
applicable):
[1]
With respect to Participants who are Employees, Termination after age 60;
and
[2]
With respect to Participants who are Directors, Termination of service as a Director
[a]
after serving one full term as an elected Director and
[b]
being nominated for election
to a second consecutive full term.
Separation from Service.
A separation from service within the meaning of Treasury Regulation §
1.409A-1(h) by the Participant from the Group.
Service Recipient.
The Group Member with whom an Employee, Consultant or Director has a direct
service relationship.
Shares.
Shares of common stock, par value $1.00 per share, of the Company or any security of the
Company issued in substitution, exchange or in place of these shares.
Stock Appreciation Right (SAR).
An Award granted under Section 10.00.
Subsidiary.
A subsidiary corporation as defined under Code §424(f).
8
Termination.
[1]
If a Participant is an Employee, a termination of the Employees common-law employment
relationship with the Company and all Related Entities for any reason, although a
Termination will not occur if the Employee becomes a Consultant who provides bona fide
services to the Company or any Related Entity;
[2]
If a Participant is a Consultant, a termination of the Consultants service
relationship with the Company and all Related Entities for any reason; and
[3]
If a Participant is a Director, a termination of the Directors service on the Board
and any Related Board for any reason.
Whole Share.
An Award granted under Section 7.00.
3.00 PARTICIPATION
3.01 Awards.
[1]
Consistent with the terms of the Plan and subject to Section 3.02, the Committee will
[a]
decide which Employees, Consultants and Directors will be granted Awards and
[b]
establish the
types of Awards to be granted and the terms and conditions relating to those Awards.
[2]
The Committee may establish different terms and conditions
[a]
for each type of Award granted,
[b]
for each Participant receiving the same type of Award and
[c]
for the same Participant for each
Award received, whether or not those Awards are granted at different times.
[3]
In the sole discretion of the Committee, and consistent with applicable law, Awards also may be
made, subject to the restrictions set forth in 4.04 and in connection with a corporate
transaction as defined under Code §424, in assumption of, or in substitution for, outstanding
awards previously granted by the Company or any Related Entity or a company acquired by the Company
or with which the Company combines.
3.02 Conditions of Participation.
By accepting an Award, each Participant agrees:
[1]
To be bound by the terms of the Award Agreement and the Plan and to comply with other
terms and conditions imposed on the Award; and
[2]
That the Board or the Committee, as appropriate, may amend the Plan and any Award
Agreement without any additional consideration to the extent necessary to avoid penalties
arising under Code §409A, even if those amendments reduce, restrict or eliminate rights
granted under the Plan or an outstanding Award Agreement.
9
4.00 ADMINISTRATION
4.01 Duties.
The Committee is responsible for administering the Plan and has all powers appropriate
and necessary to that purpose. Consistent with the Plans objectives, the Committee may adopt,
amend and rescind rules and regulations relating to the Plan and has complete discretion to make
all other decisions necessary or advisable for the
administration and interpretation of the Plan. Any action by the Committee will be final, binding
and conclusive for all purposes and upon all persons.
4.02 Delegation of Duties.
In its sole discretion, the Committee may delegate any ministerial
duties associated with the Plan to any person that it deems appropriate and the authority to grant
Awards covering up to 25,000 Shares quarterly to Participants (or prospective Participants) who are
not Covered Officers. However, and except to the extent provided in the preceding sentence, the
Committee may not delegate any discretionary duties assigned to it or any duty that the Committee
is required to discharge to comply with Code §162(m) or other applicable laws.
4.03 Award Agreement.
As soon as administratively feasible after the Grant Date, the Committee will
prepare and deliver or cause to be prepared and delivered an Award Agreement to each affected
Participant. The Award Agreement will describe:
[1]
The terms of the Award, including, to the extent applicable,
[a]
the type of Award,
[b]
when and how the Award may be exercised,
[c]
any Exercise Price associated with the Award
and
[d]
how the Award will or may be settled; and
[2]
To the extent different from the terms of the Plan, any other terms and conditions
affecting the Award.
4.04 Restriction on Repricing.
No Award (including Options and SARs) may be repriced. For
purposes of this restriction, repricing means any of the following or any other action that has
the same effect:
[1]
lowering the Exercise Price of an Option or SAR after it is granted,
[2]
any
other action that is treated as a repricing under generally accepted accounting principles or
[3]
canceling an Option at a time when its Exercise Price exceeds the Fair Market Value of the
underlying stock, in exchange for another Option, Restricted Stock or other Award, unless the
cancellation and exchange occurs in connection with a merger, acquisition, spin-off or other
similar corporate transaction.
5.00 LIMITS ON STOCK SUBJECT TO AWARDS
5.01 Number of Authorized Shares of Stock.
Subject to Section 5.03, the aggregate number of Shares
reserved and available for Awards or which may be used to provide a basis of measurement for or to
determine the value of an Award may not be more than the sum of:
[1]
The number of Shares that, on the date the Plan was approved by the Companys
stockholders, was authorized to be granted under the Prior Plan but which are not then
subject to outstanding awards under the Prior Plan; plus
[2]
The number of Shares that, on the date the Plan was approved by the Companys
stockholders, was subject to awards issued under the Prior Plan but which were or are
subsequently forfeited under the terms of the Prior Plan; plus
[3]
1,750,000.
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Any Shares described in this section, including those described in Sections 5.01[1] and [2],
may be subject to Awards issued under the terms and conditions described in the Plan and Award
Agreements issued under the Plan.
The Shares to be delivered under the Plan may consist, in whole or in part, of Treasury Shares
or authorized but unissued Shares not reserved for any other purpose.
5.02 Reduction Ratio.
As appropriate, the limits imposed under Sections 5.01, 5.04 and 5.05 will
be:
[1]
Conditionally reduced by the number of Shares underlying each Award (including SARs)
that is not a Full Value Award and by 1.77 times the number of Shares underlying each Award
that is a Full Value Award; and
[2]
Absolutely reduced by
[a]
the number of Shares underlying any exercised or settled
Award (including SARs) that is not a Full Value Award and
[b]
1.77 times the number of
Shares underlying any settled Full Value Award; and
[3]
Increased by the number of Shares by which the limits imposed under Sections 5.01, 5.04
and 5.05 were conditionally reduced when any Award (including SARs) was granted that is
forfeited, cancelled, terminated, relinquished, exchanged or otherwise settled without
issuing Shares or without the payment of cash or a cash equivalent.
The number of Shares (if any) withheld to pay any Exercise Price or to satisfy any tax
withholding obligation associated with the exercise or settlement of an Award (or part of an Award)
will not be recredited to the number of authorized Shares.
5.03 Adjustment in Capitalization.
If, after the Effective Date, there is a Share dividend or Share
split, recapitalization (including payment of an extraordinary dividend), merger, consolidation,
combination, spin-off, distribution of assets to stockholders, exchange of Shares or other similar
corporate change affecting Shares, the Committee will appropriately adjust
[1]
the number of Shares
that may be issued subject to Awards that may or will be granted to Participants during any period,
[2]
the aggregate number of Shares available for Awards or subject to outstanding Awards (as well
as any share-based limits imposed under the Plan),
[3]
the respective Exercise Price, number of
Shares and other limitations applicable to outstanding or subsequently granted Awards and
[4]
any
other factors, limits or terms affecting any outstanding or subsequently granted Awards.
Notwithstanding the foregoing, an adjustment pursuant to this Section 5.03 shall be made only to
the extent such adjustment complies, to the extent applicable, with Code §409A.
5.04 Limits on Incentive Stock Options.
Subject to Section 5.03, of the Shares authorized under
Section 5.01, up to 500,000 may be issued subject to Incentive Stock Options.
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5.05 Limits on Awards to Covered Officers.
Subject to Section 5.03, during any Plan Year, no
Covered Officer may be granted
[1]
Options covering more than 250,000 Shares
,
including Awards that
are deemed to have been cancelled under Treas. Reg. §1.162-27(e)(2)(vi)(B),
[2]
SARs covering more
than 250,000 Shares
,
including Awards that are deemed to have been cancelled under Treas. Reg.
§1.162-27(e)(2)(vi)(B),
[3]
Performance-Based Awards that are to be settled in Shares covering more
than 100,000 Shares and
[4]
more than $2,500,000 in cash paid in settlement of Performance-Based
Awards.
6.00 OPTIONS
6.01 Nature of Award.
An Option gives a Participant the right to purchase a specified number of
Shares if the terms and conditions described in the Plan and the associated Award Agreement
(including paying the Exercise Price) are met before the Expiration Date. However, an Option will
be forfeited to the extent that applicable terms and conditions have not been met before the
Expiration Date or to the extent that the Option is not exercised before the Expiration Date.
6.02 Granting Options.
At any time during the term of the Plan, the Committee may grant
[1]
Incentive Stock Options to employees of the Company or of any Subsidiary and
[2]
Nonqualified Stock
Options to Employees, Consultants and Directors. The Award Agreement associated with each Option
grant will describe the Exercise Price, the Expiration Date (which may never be later than the
tenth anniversary of the Grant Date), the first date that the Option may be exercised, procedures
for exercising the Option and any other terms and conditions affecting the Option and may specify
that the Option is a Performance-Based Award under Section 15.00.
6.03 Exercise Price.
Except as provided in Section 6.04[4] or to the extent necessary to implement
Section 3.01[3], each Option will bear an Exercise Price at least equal to the Fair Market Value of
a Share on the Grant Date.
6.04 Special Rules Affecting Incentive Stock Options.
Regardless of any other Plan provision:
[1]
No provision of the Plan relating to Incentive Stock Options will be interpreted,
amended or altered, nor will any discretion or authority granted under the Plan be
exercised, in a manner that is inconsistent with Code §422.
[2]
The aggregate Fair Market Value of the Shares (determined as of the Grant Date) with
respect to which Incentive Stock Options are exercisable for the first time by any
Participant during any calendar year (under all option plans of the Company and all Related
Entities) may not be greater than $100,000 [or other amount specified in Code §422(d)], as
calculated under Code §422.
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[3]
No Incentive Stock Option may be exercised after the tenth anniversary of its Grant
Date [or the fifth anniversary of its Grant Date in the case of an Incentive Stock Option
granted to a 10% Owner (as defined below)].
[4]
The Exercise Price of an Incentive Stock Option may never be less than 100 percent (110
percent in the case of a 10% Owner) of the Fair Market Value of a Share underlying the
Incentive Stock Option, measured as of the Grant Date.
For purposes of this section, a 10% Owner means any Employee who, at the time an Incentive
Stock Option is granted, owns (or is treated as owning) [as defined in Code §424(d)] more than ten
percent of the total combined voting power of all classes of stock of the Company or of any
Subsidiary.
6.05 Exercising Options.
An Option may be exercised only if all applicable terms and conditions
have been met before the Expiration Date and only by sending to the Committee (or its designee) a
completed exercise notice (in the form prescribed by the Committee) along with payment of the
Exercise Price in accordance with the method or methods described in the associated Award
Agreement. Options may be exercised only to purchase whole Shares; the portion of any Option to
purchase a fractional Share will be cancelled without any consideration to the affected
Participant.
6.06 Rights Associated With Options.
Unless otherwise specified in the associated Award Agreement,
a Participant will have no voting or dividend rights with respect to the Shares underlying an
unexercised Option.
7.00 WHOLE SHARES
At any time during the term of the Plan, the Committee may grant Whole Shares to Employees,
Consultants and Directors, although no more than 250,000 Shares may be issued as Whole Shares.
Whole Shares may be granted on any basis and subject to any terms and conditions that the Committee
or the Board, as the case may be, believes to be appropriate.
8.00 RESTRICTED STOCK
8.01 Nature of Award.
Restricted Stock are Shares issued on the Awards Grant Date which are
subject to specified restrictions on transferability and forfeitability. Any restrictions on
transferability and forfeitability will lapse at the end of the associated Restriction Period only
if the terms and conditions specified in the Plan and the associated Award Agreement are met during
the Restriction Period. However, Restricted Stock will be forfeited to the extent that applicable
terms and conditions have not been met before the end of the Restriction Period.
8.02 Granting Restricted Stock.
At any time during the term of the Plan, the Committee may grant
Restricted Stock to Employees, Consultants and Directors. The Award Agreement associated with each
Restricted Stock grant will describe the terms and
conditions that must be met during the Restriction Period if the Award is to be earned and settled
and any other terms and conditions affecting the Restricted Stock and may specify that the
Restricted Stock is a Performance-Based Award under Section 15.00.
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8.03 Earning Restricted Stock.
Restricted Stock will be held by the Company as escrow agent and
will be:
[1]
Forfeited, if the applicable terms and conditions have not been met; or
[2]
Released from escrow and distributed to the Participant as soon as administratively
feasible after the last day of the Restriction Period, if the applicable terms and
conditions have been met.
Unless specifically provided otherwise in this Plan, the Award Agreement relating to
Restricted Stock that is not a Performance-Based Award may not provide that the Restricted Stock
will be earned more rapidly than 33-1/3 percent annually beginning on the first anniversary of the
Grant Date.
Any fractional Share of Restricted Stock will be cancelled without any consideration to the
affected Participant.
8.04 Rights Associated With Restricted Stock.
During the Restriction Period and unless otherwise
specified in the associated Award Agreement, each Participant to whom Restricted Stock has been
issued:
[1]
May exercise full voting rights associated with that Restricted Stock; and
[2]
Will be entitled to receive all dividends and other distributions paid with respect to
that Restricted Stock, although any dividends or other distributions paid in Shares will be
subject to the same restrictions on transferability and forfeitability as the Shares of
Restricted Stock with respect to which they were issued.
9.00 RESTRICTED STOCK UNITS
9.01 Nature of Award.
Restricted Stock Units give a Participant the right to receive a specified
number of Shares (or cash equal to the Fair Market Value of those Shares) if the terms and
conditions described in the Plan and the associated Award Agreement are met during the Restriction
Period. However, Restricted Stock Units will be forfeited to the extent that applicable terms and
conditions have not been met before the end of the Restriction Period.
9.02 Granting Restricted Stock Units.
At any time during the term of the Plan, the Committee may
grant Restricted Stock Units to Employees, Consultants and Directors. The Award Agreement
associated with each Restricted Stock Unit grant will describe the terms and conditions that must
be met during the Restriction Period if the Award is to be
earned and settled, the form in which the Award will be settled if it is earned and any other terms
and conditions affecting the Restricted Stock Units and may specify that the Restricted Stock Units
are a Performance-Based Award under Section 15.00.
14
9.03 Earning Restricted Stock Units.
Restricted Stock Units will be:
[1]
Forfeited, if the applicable terms and conditions have not been met; or
[2]
Settled in the manner described in Section 9.04, if the applicable terms and conditions
have been met.
Unless specifically provided otherwise in this Plan, the Award Agreement relating to
Restricted Stock Units that are not a Performance-Based Award may not provide that the Restricted
Stock Units will be earned more rapidly than 33-1/3 percent annually beginning on the first
anniversary of the Grant Date.
9.04 Settling Restricted Stock Units.
As soon as administratively feasible, but no later than 60
days, after the applicable terms and conditions have been met, Restricted Stock Units will be
settled
[1]
in full Shares equal to the number of Restricted Stock Units to be settled and all
Restricted Stock Units relating to fractional Shares will be cancelled without any consideration to
the affected Participant,
[2]
for cash equal to the whole number of Restricted Stock Units to be
settled, multiplied by the Fair Market Value of a Share on the settlement date and all Restricted
Stock Units relating to fractional Shares will be cancelled without any consideration to the
affected Participant or
[3]
in a combination of Shares and cash computed under Sections 9.04[1] and
[2].
The method of settling Restricted Stock Units will be described in the associated Award
Agreement.
9.05 Rights Associated With Restricted Stock Units.
During the Restriction Period and unless
specified otherwise in the associated Award Agreement, a Participant will have no voting or
dividend rights with respect to the Shares underlying Restricted Stock Units.
10.00 STOCK APPRECIATION RIGHTS
10.01 Nature of Award.
A SAR gives a Participant the right to receive the difference between the
SARs Exercise Price and the Fair Market Value of a Share on the date the SAR is exercised, but
only if the terms and conditions described in the Plan and the associated Award Agreement are met
before the Expiration Date. However, a SAR will be forfeited to the extent that applicable terms
and conditions have not been met before the Expiration Date or to the extent that the SAR is not
exercised before the Expiration Date.
15
10.02 Granting SARs.
At any time during the term of the Plan, the Committee may grant SARs to
Employees, Consultants and Directors. The Award Agreement associated with each SAR grant will
describe the Exercise Price, the Expiration Date (which may never
be later than the tenth anniversary of the Grant Date), the first date that the SAR may be
exercised, procedures for exercising the SAR, the form in which the SAR will be settled if the SAR
is earned and any other terms and conditions affecting the SAR and may specify that the SAR is a
Performance-Based Award under Section 15.00.
10.03 Exercise Price.
Except to the extent necessary to implement Section 3.01[3], each SAR will
bear an Exercise Price at least equal to the Fair Market Value of a Share on the Grant Date.
10.04 Exercising and Settling SARs.
SARs may be exercised only if all applicable terms and
conditions have been met before the Expiration Date and only by sending to the Committee (or its
designee) a completed exercise notice (in the form prescribed by the Committee). As soon as
administratively feasible after the SARs are exercised, SARs will be settled in
[1]
full Shares
equal to the difference between the Fair Market Value of a Share on the date the SARs are exercised
and the Exercise Price, multiplied by
[a]
the number of SARs being exercised, and divided by
[b]
the Fair Market Value of a Share on the date the SARs are exercised,
[2]
cash equal to
[a]
the
difference between the Fair Market Value of a Share on the date the SARs are exercised and the
Exercise Price, multiplied by
[b]
the whole number of SARs being exercised or
[3]
a combination of
full Shares and cash computed under Sections 10.04[1] and [2]. The method of settling SARs will be
specified in the associated Award Agreement. However, in no case may SARs relating to fractional
Shares be exercised; any SAR relating to a fractional Share will be automatically cancelled without
any consideration to the affected Participant.
10.05 Rights Associated With SARs.
Unless specified otherwise in the associated Award Agreement, a
Participant will have no voting or dividend rights with respect to the Shares underlying an
unexercised SAR.
11.00 PERFORMANCE SHARES
11.01 Nature of Award.
Performance Shares give a Participant the right to receive a specified
number of Shares if the terms and conditions described in the Plan and the associated Award
Agreement (including those based on Performance Criteria) are met at the end of the Performance
Period. However, Performance Shares will be forfeited to the extent that applicable terms and
conditions have not been met at the end of the Performance Period.
11.02 Granting Performance Shares.
The Committee may grant Performance Shares to Employees,
Consultants and Directors. The Award Agreement associated with each Performance Share grant will
describe the terms and conditions that must be met at the end of the Performance Period if the
Award is to be earned and settled (including any performance objectives), the duration of the
Performance Period, the number of Performance Shares subject to the Award and any other terms and
conditions affecting the Performance Shares and may specify that the Performance Shares are a
Performance-Based Award under Section 15.00.
16
11.03 Earning Performance Shares.
After the end of a Performance Period, the Committee will certify
the extent to which each Participant has or has not met applicable performance objectives and other
terms and conditions specified in the associated Award Agreement. Performance Shares will be
settled or forfeited depending on the extent to which the applicable performance objectives have
been met at the end of the Performance Period. As soon as administratively feasible after the
Committees certification (but no later than 60 days following the last day of the Performance
Period), a Participant will receive one Share for each Performance Share earned, and any fractional
Share relating to an earned Performance Share will be cancelled without any consideration to the
affected Participant.
11.04 Rights Associated With Performance Shares.
During the Performance Period and unless specified
otherwise in the associated Award Agreement, a Participant will have no voting or dividend rights
with respect to Shares underlying the Performance Shares.
12.00 PERFORMANCE UNITS
12.01 Nature of Award.
Performance Units give a Participant the right to receive cash equal to the
Fair Market Value of a specified number of Shares if the terms and conditions described in the Plan
and the associated Award Agreement (including those based on Performance Criteria) are met at the
end of the Performance Period. However, Performance Units will be forfeited to the extent that
applicable terms and conditions have not been met at the end of the Performance Period.
12.02 Granting Performance Units.
The Committee may grant Performance Units to Employees,
Consultants and Directors. The Award Agreement associated with each Performance Unit grant will
describe the terms and conditions that must be met at the end of the Performance Period if the
Award is to be earned and settled (including any performance objectives), the duration of the
Performance Period, the number of Performance Units subject to the Award and any other terms and
conditions affecting the Performance Units and may specify that the Performance Units are a
Performance-Based Award under Section 15.00.
12.03 Earning Performance Units.
After the end of a Performance Period, the Committee will certify
the extent to which each Participant has or has not met applicable performance objectives and other
terms and conditions specified in the associated Award Agreement. Performance Units will be settled
or forfeited depending on the extent to which the applicable performance objectives have been met
at the end of the Performance Period. As soon as administratively feasible after the Committees
certification (but no later than 60 days following the last day of the Performance Period), each
Participant will receive cash equal to the number of Performance Units to be settled, multiplied by
the Fair Market Value of a Share on the settlement date.
12.04 Rights Associated With Performance Units.
During the Performance Period and unless specified
otherwise in the associated Award Agreement, a Participant will have no
voting or dividend rights with respect to the Performance Units or the Shares underlying the
Performance Units.
17
13.00 CASH-BASED AWARDS
The Committee may grant Cash-Based Awards to Employees, Consultants and Directors. The Award
Agreement associated with each Cash-Based Award grant will describe the terms and conditions
affecting the Cash-Based Award and may specify that the Cash-Based Award is a Performance-Based
Award under Section 15.00.
14.00 DIVIDEND EQUIVALENTS
14.01 Nature of Award.
Dividend Equivalents give a Participant the right to receive the same
dividends the Participant would have received had he or she actually owned the Shares underlying
the Dividend Equivalent Award but only if the terms and conditions described in the associated
Award Agreement are met. If those conditions are not met, the Dividend Equivalent will be
forfeited.
14.02 Granting Dividend Equivalents.
At any time during the term of the Plan, the Committee may
grant Dividend Equivalents to Employees, Consultants and Directors. The Award Agreement associated
with each Dividend Equivalent grant will describe the terms and conditions that must be met if the
Award is to be earned and settled, the form in which the Award will be settled if it is earned and
any other terms and conditions affecting the Dividend Equivalents and may specify that the Dividend
Equivalents are a Performance-Based Award under Section 15.00.
14.03 Earning Dividend Equivalents.
Dividend Equivalents will be:
[1]
Forfeited, if the applicable terms and conditions have not been met; or
[2]
Settled in the manner described in Section 14.04, if the applicable terms and
conditions have been met.
14.04 Settling Dividend Equivalents.
If the terms and conditions specified in the associated Award
Agreement are met, Dividend Equivalents will be settled in cash without any adjustment to reflect
the time-value of money during the period beginning on the date that the dividend would have been
paid had the Participant actually owned the underlying Shares and the date the Dividend Equivalents
are settled. The date Dividend Equivalents are settled will be specified in the associated Award
Agreement.
15.00 PERFORMANCE-BASED AWARDS
15.01 Nature of the Award.
A Performance-Based Award may be granted to any Participant in any form
of Award, and the associated Award Agreement may specify that the Award is intended to be qualified
performance-based compensation under Code §162(m). As determined by the Committee in its sole
discretion, the grant, vesting,
exercisability and/or settlement of any Performance-Based Award will be conditioned on the
attainment of performance objectives derived from one or more Performance Criteria over a
Performance Period.
18
15.02 Performance Criteria.
[1]
The performance objectives relating to a Performance-Based Award will be derived from one or
more of the following Performance Criteria:
[a]
Net earnings;
[b]
Earnings per Share;
[c]
Net sales;
[d]
Net income (before and after taxes);
[e]
Net income;
[f]
Net operating profit;
[g]
Return measures (including return on assets, capital, equity or sales);
[h]
Cash flow (including operating cash flow and free cash flow);
[i]
Cash flow return on capital;
[j]
Earnings before and after taxes, interest, depreciation and/or amortization;
[k]
Gross or operating margins;
[l]
Productivity ratios;
[m]
Share price (including total stockholder return);
[n]
Expense targets; and
[o]
Margins.
[2]
Different Performance Criteria may be applied to individual Participants or to groups of
Participants and, as specified by the Committee, may be based on the results achieved
[a]
separately by the Company and/or any Related Entity,
[b]
by any combination of the Company and its
Related Entities or
[c]
by any combination of segments, products or divisions of the Company and
Related Entities. In addition, the performance objectives may be measured on an absolute or
cumulative basis or measured relative to selected peer companies or a market index.
19
15.03 Establishing Performance Objectives.
[1]
With respect to Participants who are Covered Officers, the Committee will establish in writing
[a]
the performance objectives to be applied to each Performance-Based Award granted to a Covered
Officer and the Performance Period over which their attainment will be measured,
[b]
the method for
computing the Performance-Based Award that will be granted, vested, exercisable and/or settled if
(and to the extent that) the Covered Officer meets those performance objectives and
[c]
the Covered
Officer or class of Covered Officers meets to which the performance objectives apply.
[2]
Performance objectives relating to Covered Officers must be established in writing
[a]
while
the outcome for that Performance Period is substantially uncertain and
[b]
no later than 90 days
after the beginning of the applicable Performance Period or, if earlier, after 25 percent of the
applicable Performance Period has elapsed.
[3]
The Committee may grant Performance-Based Awards to Participants who are not Covered Officers
either by
[a]
following the procedures described in Sections 15.03[1] and [2] or
[b]
by following
any other procedure the Committee believes is appropriate.
15.04 Certification of Performance.
The Committee will certify in writing whether the performance
objectives and other terms and conditions imposed on a Performance-Based Award granted to a Covered
Officer have been met at the end of the related Performance Period and no Performance-Based Award
will be granted, vested, exercisable and/or settled to or with respect to a Covered Officer until
the Committee makes this certification. The Committee may adopt this same procedure (or apply
another procedure it believes to be appropriate) to establish whether the terms and conditions
associated with Performance-Based Awards granted to Participants who are not Covered Officers have
been met.
15.05 Modifying Performance-Based Awards.
Once established, the Committee may not revise any
performance objectives associated with a Performance-Based Award granted to a Covered Officer or
increase the amount of the Performance-Based Award that may be granted, vested, exercisable and/or
settled to or with respect to a Covered Officer if those performance objectives are met. However,
to the extent consistent with Code §162(m), performance objectives affecting Covered Officers may
be calculated without regard to extraordinary items or unforeseen events. In addition, the
Committee may reduce or eliminate the amount of any Cash-Based Award that may be granted, vested,
exercisable and/or settled if the performance objectives are met.
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16.00 TERMINATION/OTHER LIMITS ON EXERCISABILITY
16.01 Effect of Termination on Awards Other Than Performance-Based Awards.
Unless specified
otherwise in the associated Award Agreement or the Plan (including Section 16.03), the following
treatment will apply to Awards other than Performance-Based Awards upon a Termination:
[1] Retirement.
If a Participant Terminates due to Retirement:
[a]
All Options and SARs then held by the Participant (whether or not then
exercisable) will be fully exercisable on the Retirement date and may be exercised
at any time before the earlier of
[i]
the Expiration Date specified in the Award
Agreement or
[ii]
24 months after the Retirement date. However, an Incentive Stock
Option that is not exercised within three months after the Retirement date will be
treated as a Nonqualified Stock Option.
[b]
A prorata portion of all Dividend Equivalents, Restricted Stock and Restricted
Stock Units granted to the Participant will be vested on the Retirement date. The
amount vested will equal the number of Restricted Stock, Restricted Stock Units and
Dividend Equivalents that are, by their terms, unvested at Retirement multiplied by
the number of whole months between the Grant Date and the Retirement date and
divided by the number of whole months specified in the Award Agreement over which
the Award otherwise would vest.
[c]
All Whole Shares will vest or be forfeited as provided in the Award Agreement.
[d]
All other Awards granted to the Participant that have not been designated as
Performance-Based Awards and which are unvested or have not been earned or settled
when the Participant Retires will be forfeited on the Retirement date.
[2] Death or Disability.
If a Participant Terminates due to death or Disability:
[a]
All Options and SARs then held by the Participant (whether or not then
exercisable) will be fully exercisable on the Termination date and may be exercised
at any time before the earlier of
[i]
the Expiration Date specified in the Award
Agreement or
[ii]
24 months after Termination due to death or Disability. However,
an Incentive Stock Option that is not exercised within 12 months after Termination
due to death or Disability will be treated as a Nonqualified Stock Option.
[b]
All outstanding Dividend Equivalents, Restricted Stock and Restricted Stock
Units granted to the Participant will be vested on the Termination date.
21
[c]
All Whole Shares will vest or be forfeited as provided in the Award Agreement.
[d]
All other Awards granted to the Participant that have not been designated as
Performance-Based Awards and which are unvested or have not been earned or settled
when the Participant dies or Terminates due to Disability will be forfeited on the
Termination date.
[3] Cause.
When (and if) a Participant commits an act that constitutes Cause, all Awards
that are outstanding (whether or not then exercisable) will be forfeited on the date of
that occurrence.
[4] Termination for any Other Reason.
If a Participant Terminates for any reason not
described in Section 16.01[1], [2] or [3],
[a]
all outstanding unvested Awards that have
not been designated as Performance-Based Awards will be forfeited on the Termination date
and
[b]
all vested Options and SARs then held by a Terminating Participant and that have
not been designated as Performance-Based Awards may be exercised before the earlier of
[i]
90 days after Termination or
[ii]
the Expiration Date specified in the associated Award
Agreement.
16.02 Effect of Termination on Performance-Based Awards.
Unless specified otherwise in the
associated Award Agreement and subject to Section 16.03:
[1]
A Participant who Terminates due to death, Disability or Retirement will receive a
prorata portion of all Performance-Based Awards then held by the Participant that are then
subject to a pending Performance Period will be settled at the end of that Performance
Period but only if at the end of the pending Performance Period, the Committee certifies
that the associated performance objectives have been met. The portion of the Award to be
settled under this section will be the amount of the Award that would have been due if the
Participant had not Terminated due to death, Disability or Retirement multiplied by the
number of whole months between the Grant Date and the Termination date and divided by the
number of whole months specified in the Award Agreement over which the Award otherwise will
be earned.
[2]
A Participant who Terminates for any reason other than death, Disability or Retirement
during a pending Performance Period will forfeit any Award that otherwise might have been
earned during that Performance Period, whether or not the performance objectives
established for that Performance Period are met at any time during that Performance Period.
16.03 Code §409A.
Regardless of any other provision in the Plan or any Award Agreement:
[1]
Subject to Section 16.03[2], if a Participant becomes entitled to the payment, exercise
or settlement of any Award that is subject to Code §409A upon the Participants
Termination, the payment, exercise, or settlement of such Award will not be made or
permitted before the Participant Separates from Service.
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[2]
If a Participant is a Key Employee and becomes entitled to the payment, exercise or
settlement of any Award that is subject to Code §409A upon the Participants Separation
from Service, such payment, exercise or settlement of any Award shall not be made until the
first day of the seventh month following such Separation from Service or, if earlier, the
Participants death.
16.04 Other Limits on Exercisability.
Unless otherwise specified in the associated Award Agreement
or other written agreement between an Employee or a Consultant and the Company or any Related
Entity and regardless of any other Plan provision, all Awards granted to an Employee or a
Consultant that have not been exercised or settled will be forfeited if the Employee or Consultant:
[1]
Without the Committees written consent, which may be withheld for any reason or for no
reason, serves (or agrees to serve) as an officer, director, consultant or employee of any
proprietorship, partnership, corporation or limited liability company or becomes the owner
of a business or a member of a partnership that competes with any portion of the Companys
or a Related Entitys business or renders any service to entities that compete with any
portion of the Companys or a Related Entitys business;
[2]
Refuses or fails to consult with, supply information to, or otherwise cooperate with,
the Company or any Related Entity after having been requested to do so; or
[3]
Deliberately engages in any action that the Committee concludes could harm the Company
or any Related Entity.
17.00 EFFECT OF BUSINESS COMBINATION OR CHANGE IN CONTROL
17.01 Exercise and Settlement.
Upon, as appropriate and depending on whether the Award is or is not
subject to Code §409A, the occurrence of a Change in Control and, unless specified otherwise in the
associated Award Agreement or in a separate change in control agreement (or written agreement of
similar import),
[1]
All of a Participants Awards will be fully vested;
[2]
All performance objectives relating to a Participants Awards will be deemed to have
been met as of the date of such Change in Control;
[3]
All Options and SARs will be fully exercisable; and
[4]
All Awards other than Options and SARs will be paid or settled, as the case may be,
within 60 days following the date of such Change in Control; provided, however, that any
such Awards that are subject to Code §409A will not be paid or settled pursuant to this
Section 17.01 unless the Change in Control constitutes a Business Combination.
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17.02 Effect of Code §280G.
Unless specified otherwise in the associated Award Agreement or in
another written agreement between the Participant and the Company or a Related Entity, if the
Company concludes that any payment or benefit due to a Participant under the Plan, when combined
with any other payment or benefit due to the Participant from the Company or any other entity
(collectively, the Payor), would be subject to the excise tax imposed by Code §4999:
[1]
The Payor will consider the feasibility of offering substitute awards that would not
constitute parachute payments under Code §280G and that would not generate penalties
under Code §409A; and
[2]
To the extent that a substitution is not feasible or that the payments and benefits due
to the Participant still would be subject to the excise tax imposed by Code §4999, the
Payor will reduce the payments and benefits due to the Participant under the Plan to the
greater of $0.00 or an amount that is $1.00 less than the amount that otherwise would
generate the excise tax under Code §4999. Any reduction pursuant to this Section 17.02[2]
shall be made in accordance with Code §409A and the Treasury Regulations promulgated
thereunder.
18.00 TERMINATION, SUSPENSION AND AMENDMENT OF PLAN AND AWARD AGREEMENTS
18.01 Termination, Suspension or Amendment of the Plan.
The Board may terminate, suspend or amend
the Plan at any time without stockholder approval except to the extent that stockholder approval is
required to satisfy applicable requirements imposed by
[1]
applicable requirements of the law or
[2]
any securities exchange, market or other quotation system on or through which the Companys
securities are listed or traded. Also, no Plan amendment may
[3]
result in the loss of a Committee
members status as a non-employee director as defined in Rule 16b-3 under the Act with respect to
any employee benefit plan of the Company, or
[4]
without the consent of the affected Participant
(and except as specifically provided in the Plan or the Award Agreement), adversely affect any
Award granted before the termination, suspension or amendment. However, nothing in this section
will restrict the Boards right to amend the Plan without any additional consideration to affected
Participants to the extent necessary to avoid penalties arising under Code §409A, even if those
amendments reduce, restrict or eliminate rights granted under the Plan or any Award Agreement
before those amendments are adopted.
18.02 Amendment and Termination of Award Agreements.
Without the mutual written consent of both the
Company and the affected Participant, once issued, an Award Agreement may not be amended except as
specifically provided in the Plan or the Award Agreement. However, nothing in this section will
restrict the Committees right to amend an Award Agreement without additional consideration to the
affected Participant to the extent necessary to avoid penalties arising under Code §409A, even if
those amendments reduce, restrict or eliminate rights granted under the Award Agreement before
those amendments are adopted.
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19.00 MISCELLANEOUS
19.01 Assignability.
Except as described in this section or as provided in Section 19.02, an Award
may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, except by
will or the laws of descent and distribution and, during a Participants lifetime, may be exercised
only by the Participant or the Participants guardian or legal representative. However, with the
permission of the Committee, a Participant or a specified group of Participants may transfer Awards
(other than Incentive Stock Options) to a revocable inter vivos trust of which the Participant is
the settlor, or may transfer Awards (other than Incentive Stock Options) to any member of the
Participants immediate family, any trust, whether revocable or irrevocable, established solely for
the benefit of the Participants immediate family, any partnership or limited liability company
whose only partners or members are members of the Participants immediate family or an organization
described in Code §501(c)(3) (Permissible Transferees). Any Award transferred to a Permissible
Transferee will continue to be subject to all of the terms and conditions that applied to the Award
before the transfer and to any other rules prescribed by the Committee. A Permissible Transferee
may not retransfer an Award except by will or the laws of descent and distribution and then only to
another Permissible Transferee.
19.02 Beneficiary Designation.
Each Participant may name a beneficiary or beneficiaries (who may be
named contingently or successively) to receive or to exercise any vested Award that is unpaid or
unexercised at the Participants death. Unless otherwise provided in the beneficiary designation,
each designation made will revoke all prior designations made by the same Participant, must be made
on a form prescribed by the Committee and will be effective only when filed in writing with the
Committee. If a Participant has not made an effective beneficiary designation, the deceased
Participants beneficiary will be his or her surviving spouse or, if none, the deceased
Participants estate. The identity of a Participants designated beneficiary will be based only on
the information included in the latest beneficiary designation form completed by the Participant
and will not be inferred from any other evidence.
19.03 No Guarantee of Continuing Services.
Except as otherwise specified in the Plan, nothing in
the Plan may be construed as:
[1]
Interfering with or limiting the right of the Company or any Service Provider to
Terminate any Employee or Consultant at any time;
[2]
Conferring on any Participant any right to continue as an Employee, Consultant or
Director;
[3]
Guaranteeing that any Employee, Consultant or Director will be selected to be a
Participant; or
[4]
Guaranteeing that any Participant will receive any future Awards.
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19.04 Tax Withholding.
The Service Recipient or other responsible person will withhold or collect
any amount required to be remitted in advance payment of any taxes associated with the exercise or
settlement of any Award. This amount may be
[1]
withheld from other amounts due to the Participant,
[2]
withheld from the value of any Award being settled or any Shares being transferred in
connection with the exercise or settlement of an Award or
[3]
collected directly from the
Participant.
19.05 Indemnification.
Each individual who is or was a member of the Committee (or to whom any
duties have been delegated under Section 4.02) is entitled, in good faith, to rely on or to act
upon any report or other information furnished by any executive officer, other officer or other
employee of the Company or any Related Entity, the Companys independent auditors, consultants or
any other agents assisting in the administration of the Plan. Committee members (and any person to
whom any duties have been delegated under Section 4.02) and any officer of the Company or any
Related Entity acting at the direction or in behalf of the Committee or a delegee will not be
personally liable for any action or determination taken or made in good faith with respect to the
Plan and will, to the extent permitted by law, be fully indemnified and protected by the Company
with respect to any act or determination just described.
19.06 No Limitation on Compensation.
Nothing in the Plan is to be construed to limit the right of
the Company or any Related Entity to establish other plans or to pay compensation to its employees,
consultants or directors, in cash or property, in a manner not expressly authorized under the Plan.
19.07 Requirements of Law.
The grant of Awards and the issuance of Shares will be subject to all
applicable laws, rules and regulations (including applicable federal and state securities laws) and
to all required approvals of any governmental agencies or national securities exchange, market or
other quotation system. Certificates for Shares delivered under the Plan may be subject to any
stock transfer orders and other restrictions that the Committee believes to be advisable under the
rules, regulations and other requirements of the Securities and Exchange Commission, any stock
exchange or other recognized market or quotation system upon which the Shares are then listed or
traded, or any other applicable federal or state securities law. The Committee may cause a legend
or legends to be placed on any certificates issued under the Plan to make appropriate reference to
restrictions within the scope of this section.
19.08 Governing Law.
The Plan, and all agreements hereunder, will be construed in accordance with
and governed by the laws (other than laws governing conflicts of laws) of the State of Ohio except
to the extent that the Delaware General Corporation Law is mandatorily applicable.
19.09 No Impact on Benefits.
Awards are not compensation for purposes of calculating a
Participants rights under any employee benefit plan that does not specifically require the
inclusion of Awards in calculating benefits.
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19.10 Term of the Plan.
The Plan will be effective on the Effective Date. Subject to Section 18.00,
the Plan will continue until the tenth anniversary of the Effective Date. However, the Committees
authority to issue any Performance-Based Awards to Covered Officers will expire no later than the
first Annual Meeting that occurs in the fifth year following the year in which the Companys
stockholders approve the Plan.
19.11 Rights as Stockholders.
Unless otherwise specified in the associated Award Agreement or as
otherwise specifically provided in the Plan, Shares acquired through an Award
[1]
will bear all
dividend and voting rights associated with all Shares and
[2]
will be transferable, subject to
applicable federal securities laws, the requirements of any national securities exchange or system
on which Shares are then listed or traded or any blue sky or state securities laws.
19.12 Successors.
The Plan will be binding on all successors and assigns of the Company and a
Participant, including without limitation, the estate of the Participant and the executor,
administrator or trustee of the estate, or any receiver or trustee in bankruptcy or representative
of the Participants creditors.
19.13 International Employees.
To provide the same motivation to materially increase stockholder
value and to enable the Company to attract and retain the services of outstanding managers at its
international locations, the Company will adopt incentives for its foreign locations that provide,
as closely as possible, the same motivational effect as Awards provided to domestic Participants.
Also, the Committee may grant Awards to Employees who are subject to the tax laws of nations other
than the United States under terms and conditions that differ from other Awards granted under the
Plan but which are required to comply with applicable foreign tax laws.
19.14 Compliance with Code §409A.
It is intended that the Awards granted under the Plan be exempt
from, or comply with, Code §409A and the Treasury Regulations promulgated thereunder, and the Plan
shall be interpreted, administered and operated accordingly. Nothing herein shall be construed as
an entitlement to or guarantee of any particular tax treatment to a Participant. None of the
Company, the Board, the Committee or any Related Entity shall have any liability with respect to
any failure to comply with the requirements of Code §409A.
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