A. Schulman (SHLM) Tops Q3 EPS by 1c; Offers Lucent Update

A. Schulman (NASDAQ: SHLM) reported Q3 EPS of $0.79, versus the analyst estimate of $0.78. Revenue for the quarter came in at $650.4 million versus the consensus estimate of $648.77 million.A. Schulman reaffirmed FY2016 guidance.

Lucent Update

As previously reported, the Company identified quality reporting issues affecting certain product lines at two former Citadel manufacturing facilities that were once part of Lucent Polymers, which was acquired as part of the Citadel acquisition. Specifically, the Company discovered discrepancies between laboratory data and certifications provided by Lucent to customers with respect to certain products using recycled or reclaimed raw materials.

"The fact that we were able to identify and address this matter as quickly as we did without the need for any product recalls speaks volumes to the strength of our team and culture. As a result of the tireless efforts and excellent work of our team, we are now focusing our attention toward organic growth instead of resolving issues of the past," said Rzepka. "We thank our customers for their patience and support as we addressed this critical matter."

The Company incurred costs of $1.8 million in the quarter related to the Lucent remediation matter, including $1.1 million of recurring production and material costs down from the prior quarter and $0.7 million of other costs including settlement of claims and dedicated internal personnel costs.

A. Schulman believes that the sellers are responsible to compensate A. Schulman for the Lucent losses that the Company has experienced or may incur. Therefore, on June 15, 2016, the Company filed a lawsuit against the sellers of Citadel Plastics in the Court of Chancery of the State of Delaware. Among other things, the suit seeks indemnification and damages for the fraudulent business practices within the Lucent subsidiary. Previously, the Company provided a written claim notice to this effect to the sellers and to the escrow agent with respect to the $31 million indemnity escrow established. During the fiscal third quarter, the Company incurred $1.2 million of legal costs associated with this lawsuit.

In accordance with the Company's policy, it will make no further comments on this ongoing legal matter, nor will it speculate to the timing or potential outcome of this matter. A. Schulman can make no assurances it will be able to recoup funds sufficient enough to offset the substantial costs it has incurred – and will incur – to investigate, isolate and mitigate these fraudulent practices.

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