Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. SCHULMAN A INC (87565) 10-Q published on Jun 28, 2018 at 7:52 am
Reporting Period: May 30, 2018
The Merger Agreement contains certain termination rights. In the following circumstances, the Company will be required to pay LYB a cash termination fee of $50.0 million: (i) (a) either party has terminated the Merger Agreement because the Merger was not consummated by the nine month anniversary of the date of the Merger Agreement, subject to possible extensions in circumstances specified in the Merger Agreement or (b) LYB has terminated the Merger Agreement because there was an uncured material breach of the Merger Agreement by the Company that resulted in a failure of certain conditions obligating LYB to close the Merger, and (ii) at or prior to such a termination, a takeover proposal (as defined in the Merger Agreement for such purpose) for the Company was publicly announced or made known to the Company management or board and not publicly withdrawn, and then (iii) within nine months following such termination, the Company or any of its subsidiaries enters into a definitive acquisition agreement with respect to any takeover proposal, a takeover proposal is consummated, or the Company or its board of directors approves or recommends any takeover proposal.
The proposed Merger, has been unanimously approved by the respective boards of LYB and the Company. The Company and LYB continue to target closing the transaction in the third quarter of calendar year 2018. On June 14, 2018, at a special meeting of the Company's stockholders, the Company's stockholders approved the proposal to adopt the Merger Agreement. The closing of the Merger remains subject to the satisfaction of customary closing conditions. As of the date of this filing, the outstanding regulatory approvals are Russia and the Committee on Foreign Investment in the United States ("CFIUS").
During fiscal 2018, certain Guarantors merged with Parent in conjunction with simplification of the Company's legal entity structure and certain Non-Guarantors became Guarantors due to bank requirements. As required, the Company has changed the prior year consolidating financial statement presentation to conform to the current legal entity structure. As a result, Parent's total assets increased by $11.7 million, Guarantor total assets decreased by $211.0 million, and Non-Guarantor total assets decreased by $58.0 million, with corresponding offsetting adjustments presented on the same line items in the eliminations column as of August 31, 2017. Parent's total liabilities increased by $11.7 million, Guarantor total liabilities decreased by $11.6 million, and Non-Guarantor total liabilities decreased $13.9 million, with corresponding adjustments presented on the same line items in the eliminations column as of August 31, 2017. Guarantor total stockholders' equity decreased $199.5 million and Non-Guarantor total stockholders' equity decreased $44.1 million, with corresponding offsetting adjustments presented on the same line items in the eliminations column as of August 31, 2017. Guarantor net income increased $2.3 million and decreased $3.0 million for the three and nine months ended May 31, 2017, respectively, and Non-Guarantor net income decreased $3.3 million and $6.8 million for the three and nine months ended May 31, 2017, respectively, with corresponding offsetting adjustments presented on the same line item in the eliminations column.
EMEA gross profit was $42.4 million for the three months ended May 31, 2018, essentially flat compared with the prior year period. Excluding the favorable impact of foreign currency translation of $5.0 million, segment gross profit decreased 12.0% During the quarter ending May 31, 2018, the Company’s NSSPC joint venture became fully operational. As of May 31, 2018, the Company estimates that it will not fulfill its entire purchase commitment for the period ending December 31, 2018 and as a result, recorded a $3.1 million charge within cost of goods sold in the consolidated statement of operations per the terms of the venture agreement. As of May 31, 2018, the Company expects to meet its calendar year 2019 and 2020 purchase commitments from NSSPC. The remaining 4.7% gross profit decrease when compared to the prior period was primarily due to higher production costs associated with recent capital investment, increased raw materials costs, additional capacity, rising freight costs through all industries in Europe and increased costs associated with the establishment of a central distribution center.
In the third quarter of fiscal year 2018, the Company’s USCAN Performance Materials reporting unit results were lower than expectations due to decreased customer demand. We are in the normal process of preparing our annual long-term budget and strategic plan. We use the targets, resource allocations, and strategic decisions made in this process as the inputs for the associated cash flows based on the long-term financial forecast and valuations in our annual impairment test. Given the USCAN Performance Materials' recent financial performance and the fair value exceeding its carrying value by 5% as of June 1, 2017, the reporting unit is at an elevated risk of impairment. The Company will continue to monitor this reporting unit's short-term financial results to determine if they are indicative of long-term trends. As of May 31, 2018, the USCAN Performance Materials reporting unit had $47.1 million of goodwill.