A. Schulman, Inc. History

Company Perspectives:

As an international supplier of high-performance plastic compounds and resins, we are committed to providing our customers with innovative products, technical expertise, and design solutions. We strive to meet the requirements of our diverse customer base by providing unparalleled service and continual improvement, while managing our resources to deliver the highest possible return to our shareholders.

Key Dates:

1928:

Alex Schulman founds A. Schulman as a rubber brokerage in Akron, Ohio.

Mid-1940s:[fs22]A. Schulman expands into scrap plastic.

1950s:Company begins manufacturing plastic compounds.

1962:

Alex Schulman dies; William Zekan assumes company leadership.

1972:

Company goes public.

1991:

Zekan dies; Terry Haines takes over as CEO.

1998:

Company opens its Product Technology Center in Akron, Ohio, and its Color Technology Center in Sharon Center, Ohio.

2000:

Company ends production at its Akron plant.

Company History:

A relatively small plastics manufacturer, A. Schulman, Inc. is something of an anomaly in an industry dominated by huge diversified companies. The company concentrates on producing special plastic resins and compounds, color concentrates, and various specialty additives. Unlike its larger competitors, which derive profit from small margins on massive production runs of common plastics, A. Schulman produces high margin, special use plastics that demand the employment of special technologies and production methods. The company's plastic compounds are used in a variety of applications, including plastic bags and packaging materials for household products; automotive parts, such as steering wheels and bumper guards; consumer items, such as pens, soft drink coolers, and skateboards; office equipment, such as computer cases and trim for office chair arms; and agricultural products, such as greenhouse coverings and plastic mulch. A. Schulman also acts as a merchant, purchasing production overruns and surplus stocks of plastic materials and reselling them directly to customers through its marketing operations as a broker. Finally, as a distributor, A. Schulman, mainly through its European operations, sells plastic products of other companies, including ATOFINA, BASF Aktiengesellschaft, BP p.l.c., Exxon Chemical Ltd., Solvay S.A., and Vestolit GmbH & Co. KG. A. Schulman has very extensive operations in Europe, and 59 percent of its sales originated on that continent during fiscal 2001.

Roots in Rubber

The company was founded by Alex Schulman, who established a rubber brokerage in Akron, Ohio, in 1928. Working out of a small shop, Schulman purchased and resold wholesale and scrap rubber, which his customers would refashion into a variety of rubber products. While Schulman cultivated a clientele, the business remained small. The largest consumers of rubber were tire makers, automobile companies, and hose manufacturers. These companies purchased raw virgin rubber on a huge scale, providing few large sales opportunities for Schulman's enterprise.

In 1930, just as Schulman's business became stable, the nation was plunged into the Great Depression. Demand for most products, including rubber, fell precipitously. Before rubber stocks were depleted, prices nosedived, eliminating demand for used rubber. A few years later, when rubber became scarce, this demand recovered, providing some support to Schulman's business and enabling him to realize a small margin on his sales. The A. Schulman Company recovered from the Depression slowly, as Alex Schulman's business depended almost entirely on the successes and resources of his customers. Fortunately, Schulman was not crushed by fluctuations in the broader rubber market or larger final markets, as were many tire, automobile, and hose manufacturers.

By the late 1930s and early 1940s, the onset of war in Europe and then in the Pacific caused industrial demand for rubber to increase. Rubber was an important war commodity, and sources of rubber were limited. As a result, a premium was placed on companies that could recycle scrap rubber, producing a useful product from waste. A. Schulman and several other companies in the scrap rubber business were placed under the authority of a war production board that had responsibility for coordinating efficient production of essential commodities and setting prices. Often Schulman did not know who his customers ultimately were. While it took a few months to gain footing, Schulman's company went into full production, supplying mulched rubber for recasting into tires, window seals, and numerous other products.

1940s and 1950s: Expanding into Scrap Plastic and Then Plastics Manufacturing

The scarcity of rubber during the war helped to accelerate the development of substitute and synthetic rubber products. The most important of these is what we know today as plastic, which was extremely useful in small castings, exhibiting many of the same resilient and durable qualities as rubber. Although the primary ingredient in plastic was petroleum, also a crucial and limited war commodity, plastic like rubber could be recycled. As the war progressed, A. Schulman began to accept scrap plastic for chipping and shipment to casting mills. By the end of the war, A. Schulman had doubled its product line to include scrap rubber and scrap plastic. In 1950, having heard some convincing arguments from a young salesman named William Zekan, Schulman realized he stood on the threshold of a new industry.

Schulman hired Zekan in 1937 after meeting him on the golf course of the Rosemont Country Club, where the 18-year-old Zekan worked as a caddie. Although Zekan started at A. Schulman as an office boy, earning less than he could as a caddie, he stayed with the business and was promoted to salesman just before he enlisted in the army at the outbreak of the war. Zekan returned to the company after his tour, and in 1947 he was tapped by Schulman to head his New York sales office. Here the shy and reserved Zekan learned the art of sales. He honed his skills of persuasion, and later told Chemical Week, "The customer is going to buy, everything being equal, from the guy that he likes the best." Zekan performed exceptionally well in New York, and when he was called back to Akron in 1953, it was to take the number two position under Alex Schulman.

Schulman and Zekan developed a new strategy during this period to abandon the scrap markets and move the company into the plastics manufacturing business. Rather than molding its own products, A. Schulman would draw on its substantial reputation as a raw product supplier and concentrate on making plastic compounds. This product is manufactured in the form of pellets, smaller than peanuts. By applying heat, these pellets could be extruded or molded into many types of finished products.

The company grew considerably during the 1950s, mostly on the strength of cheap oil as well as the increasing number of applications for plastic. For the first time, automobile manufacturers began molding plastic parts for cars, including dashboards, interior side panel trim, and window insulation.

Searching for new growth markets, Schulman established a network of small plants in Britain, France, and Germany. There he hoped to get in on the ground floor of emerging industries in postwar Europe. The company later established a plant in Canada that served various plastics consumers in that country, including the automotive industry.

1960s Through 1980s: The Zekan Era

Alex Schulman died in 1962, and his will specified that Zekan should succeed him as president of the company. For his part, Zekan had become so deeply involved with executive decisions under Schulman that, despite the founder's sudden death, the transition to new leadership was smooth.

The 1960s were a period of strong growth for A. Schulman. It was during the decade after Schulman's death that the company began to really define its place in the industry. The company began to produce plastics, albeit in smaller quantities than competitors, with special characteristics. Often the tolerances of these products were specified in advance of manufacture by the customer. The company then instructed its laboratories to design a plastic to meet those specifications. Thus, with the employment of technology, A. Schulman was able to offer a limited quantity of plastics that could outperform other plastics.

As a major player in this vital niche market, A. Schulman was somewhat insulated from the competition elsewhere in the industry. Because A. Schulman dealt in a unique family of products, it was able to sell on quality and not price. This produced a new sales philosophy which, Zekan later told Forbes, was "We don't talk price, we talk quality."

The company's ability to build such a strong position in the market led Zekan to consider expansion. Rather than just the addition of production facilities, Zekan was concerned with innovations in his product line. Unable to adequately fund technological research internally, he went forward with plans to take the company public in 1972.

In 1973 an Arab-Israeli war triggered an oil embargo against the United States that caused the price of petroleum to skyrocket. For plastics producers like A. Schulman, this meant temporary shortages of raw materials and necessary price increases. While these price increases were ultimately passed along to the consumer, the net effect was a serious recession that forced many companies in the plastics industry to go out of business. A. Schulman remained insulated from much of this activity because it produced a product defined by quality and technology rather than simply by price. Nonetheless, the company did suffer some reverses because of the onset of recession.

By 1977 inflationary pressure had stabilized, but a second oil crisis two years later caused additional price shocks that continued to cut into demand. By 1982, automobile manufacturers had entered a prolonged period of serious financial trouble. Because they were large consumers of specialty plastics, A. Schulman's growth continued to lag. Hoping to tie its products to growing companies in the automotive industry, A. Schulman began cultivating relationships with Japanese plastics manufacturers, with the intention of gaining supply contracts with Japanese car makers.

The timing was perfect. Several companies, including Honda and Toyota, began building large production facilities in the United States during this time. In 1988, A. Schulman established a joint venture with Japan's largest chemical company, the Mitsubishi Kasei Vinyl Company, and set up a new plastics plant at Bellevue, Ohio. With the help of Mitsubishi Kasei, A. Schulman concluded numerous supply contracts with Honda, Nissan, and Toyota.

The addition of new customers forced A. Schulman to modernize and expand its production facilities. The company spent $33 million to increase worldwide capacity by 25 percent. Still, the company avoided becoming overly reliant on only a few customers in a single industry. The company's five largest accounts comprised less than 10 percent of sales.

More Acquisitive Under Haines in the 1990s

Zekan had a hands-on leadership style and a genuine love of selling. He kept the reins of the company tightly in his hands, prompting some critics to fear that this concentration of power could leave a void in management. But A. Schulman had a highly capable second tier of management that would be put to the test and would ultimately rise to the challenge in 1989, when Zekan, aged 69, underwent surgery for treatment of cancer. It was at this juncture that Zekan promoted three senior managers in preparation for his retirement. One of these was Terry Haines, who was named president, while Zekan remained chairperson and CEO.

Retirement, however, never came. Zekan remained in charge of the company until his death in January 1991. Haines remained president and took on the duties of CEO as well. Robert Stefanko, who ran the finance department, was elected chairperson. With the death of Bill Zekan, A. Schulman, Inc. lost the last link to its founder. But it also marked the beginning of a new era.

While the company had shunned growth by acquisition for nearly its entire existence, A. Schulman took over the French plastics company Diffusion Plastique in August 1991. Initial integration of the business was difficult but ultimately successful. In addition, the company's joint venture with Mitsubishi Kasei posted its first profit in 1992. That year A. Schulman posted its tenth consecutive record for annual net income and was ranked 12th on the Fortune 500 list of companies with highest total return over ten years, averaging 37.2 percent.

The run of earnings increases ended in 1993, however, as economic weakness in Europe and unfavorable exchange rates led to declines in both sales and earnings, the latter falling by 12 percent. Seeking new markets for growth, A. Schulman had earlier in the decade earmarked Mexico as a key market, opening an office in Mexico City in 1990. Around the same time of the passage of the North American Free Trade Agreement (NAFTA) in late 1993, A. Schulman announced plans to build a $15 million plant in Mexico. In September 1995 the compounding plant, located in San Luis Potosi, began operation, with a focus on serving the automotive and packaging sectors in Mexico. This was A. Schulman's 11th plant worldwide and its first in Latin America.

Domestically, A. Schulman turned to acquisitions to fuel growth in the mid-1990s. In 1994 the company acquired Nashville, Tennessee-based ComAlloy International Corp., an affiliate of Exxon Corporation's Exxon Chemical Company. Generating about $30 million in annual revenue, ComAlloy specialized in thermoplastics used in high-strength applications for the electrical, appliance, and automotive sectors. During 1995 Eastman Chemical Company sold its compound polypropylene business to A. Schulman. This unit produced colored and filled polypropylene and foam products that were used primarily in the manufacturing of injection-molded plastic automotive parts. A second acquisition in 1995 was that of Texas Polymer Service Inc., a division of J.M. Huber Corporation with annual revenues of $15 million. Based in Orange, Texas, the division supplied custom compounding, tolling services, and engineered plastics compounding. In November 1996 A. Schulman acquired the business and assets of a manufacturing plant in Sharon Center, Ohio, which became the location of the company's new Specialty Compounding Division. Both revenues and profits fell during fiscal 1996--with the latter tumbling by 21 percent--because of a steep drop in plastic resin prices, which led customers to reduce inventories, and also due to high start-up costs associated with the company's new initiatives in Mexico and elsewhere. Despite major auto strikes, the company recovered during fiscal 1997 thanks to improving market conditions, as profits increased from $42.2 million to $50.7 million.

Continuing its overseas expansion in the last years of the century, A. Schulman acquired the assets of a distributor and merchant in Warsaw, Poland, in August 1997; this business became the basis for a new Polish subsidiary. Later that year, the company acquired Isopolymer, Inc., which had been the distributor of A. Schulman products in Italy and which had annual sales of about $30 million. In January 1998, production began at a new plastics compounding plant in Surabaya, Indonesia, that had been built through a joint venture to serve the Asia-Pacific region. This was the firm's seventh plant located outside the United States. Also during 1998 the company opened an office in Hungary. Back home, the firm opened its Product Technology Center in Akron, Ohio, and its Color Technology Center in Sharon Center, Ohio, that same year. At the Product Technology Center, A. Schulman employees could work with customers to formulate custom compounds and, at the center's laboratories, create trial runs of customized products both to test the manufacturing process and to evaluate the end product. Similarly, the Color Technology Center was designed to provide customers with a full range of color services, aided by the staff and by a variety of equipment for analysis, color formulation, and testing. Similar technology centers were opened in Europe as well.

Partly in reaction to the company's difficulties during 1996, a powerful activist pension fund, the California Public Employees' Retirement System (CALPERS), identified A. Schulman as one of several "underperforming" public companies in a report issued in early 1998. CALPERS accused the company of speculating on resin prices, a criticism firmly denied by the company, and of failing to articulate a strategic plan for the company. The pension fund also called on the company to add more independent directors to the company board and to change the way the board was elected so that the entire board had to stand for election each year--the latter being one way to make a company takeover easier. Although A. Schulman refused to change the election rules, the firm did reduce the size of the board from 13 to 10, with the three departing members being company insiders; this gave a bigger percentage of seats to outsiders. The company also announced that it was working on a strategic plan and said that neither of the moves was in response to the pressure from CALPERS. Later in 1998, during the firm's annual meeting, shareholders approved a nonbinding resolution asking the board to consider adopting the annual election of all board members, but shareholders rejected a resolution that urged the board to "arrange for the prompt sale of A. Schulman, Inc. to the highest bidder." Such pressure from shareholders was inevitable given the poor performance of the company's stock over most of the bullish 1990s; one response of the company's board was to initiate an aggressive stock repurchasing plan to improve per share earnings.

A. Schulman continued an ongoing program of renovating and upgrading its manufacturing facilities, spending $35 million on capital expenditures in 1999, $32 million in 2000, and $33.4 million in 2001. During this period new manufacturing lines were added to the firm's plants in Givet, France; Nashville, Tennessee; and San Luis Potosi, Mexico. Additional capacity was gained through the purchase of a plant in Gorla Maggiore, Italy, in July 2000.

Early 21st-Century Struggles

After achieving record per share earnings of $1.51 in 1999, A. Schulman began faltering. The company recorded per share earnings of $1.25 and $0.43 in 2000 and 2001, respectively. Demand was down because of slowdowns in the world's economies, particularly the U.S. economy; profit margins were affected by the higher cost of plastic feedstocks; and A. Schulman, with its extensive European operations, was also being hit hard by the weakness of the euro. The company responded with an effort to save $15 million a year by cutting jobs, manufacturing lines (at least temporarily), and other operations. In December 2000 production was ended at the plant in Akron, Ohio, although the facility continued to be used for other functions, including warehousing, logistics, and the Product Technology Center. This was the biggest cost-cutting move, and it involved the elimination of 129 jobs. The company also closed six district sales offices, centralizing such operations at the company headquarters. Also during 2001, product innovation continued at A. Schulman with the introduction of Invision, which the company called "a lightweight, soft-to-the-touch, environmentally friendly alternative to polyvinyl chloride."

With the more uncertain economic and political climate that followed in the wake of the events of September 11, 2001, the challenges facing A. Schulman were on the increase. Despite this, early encouraging results from fiscal 2002 led the company to make plans for renewed growth. Thus, in early 2002, the firm announced that it was in the early stages of planning for the establishment of manufacturing plants in Poland and China. With its history of innovation, a unique line of products, and a diversified customer base, A. Schulman was well positioned to begin a new era of steady growth.

Principal Subsidiaries: N.V. A. Schulman, Plastics, S.A. (Belgium); N.V. A. Schulman, S.A. (Belgium); A. Schulman, S.A. (France); A. Schulman Plastics, S.A. (France); Diffusion Plastique (France); A. Schulman GmbH (Germany); A. Schulman, Inc., Limited (U.K.); A. Schulman Canada Ltd.; A. Schulman Foreign Sales Corporation (U.S. Virgin Islands); Master Grip, Inc.; Gulf Coast Plastics, Inc.; A. Schulman AG (Switzerland); ASI Investments Holding Co.; ASI Akron Land Co.; A. Schulman International, Inc.; A. Schulman de Mexico, S.A. de C.V.; ASI Employment, S.A. de C.V. (Mexico); AS Mex Hold, S.A. de C.V. (Mexico); Texas Polymer Services, Inc.; Polyvin GmbH (Germany); A. Schulman Aschersleben GmbH (Germany); A. Schulman Polska Sp. z o.o. (Poland); A. Schulman Plastics S.p.A. (Italy); A. Schulman International Services N.V. (Belgium); A. Schulman Hungary Kft. (Hungary); PT A. Schulman Plastics, Indonesia (65%); The Sunprene Company (70%); A. Schulman Plastics S.L. (Spain); A. Schulman Europe GmbH (Germany).

Principal Competitors: Cabot Corporation; Ampacet Corporation; BASF Aktiengesellschaft; Imperial Chemical Industries PLC; ATOFINA; Hercules Incorporated; Rohm and Haas Company.

Further Reading:

• Brammer, Rhonda, "Ready to Roll?," Barron's, October 13, 1997, pp. 21-22.
• Brockinton, Langdon, "Zekan's Rise from Office Boy to Chief Executive," Chemical Week, July 13, 1988, pp. 29+.
• Byrne, Harlan S., "A. Schulman Inc.: Plastics Supplier Profits from Foreign Affairs," Barron's, November 19, 1990, pp. 53+.
• Flint, Troy, "Schulman Sale Idea Gets Cool Response," Cleveland Plain Dealer, December 11, 1998, p. 1C.
• Gleisser, Marcus, "A. Schulman Denies Calpers Charge of Underperformance," Cleveland Plain Dealer, February 25, 1998, p. 1C.
• Higgs, Richard, "Mexican Market Keeps A. Schulman Growing," Crain's Cleveland Business, October 23, 1995, p. 14.
• Lappen, Alyssa A., "You Just Work Your Heart Out," Forbes, March 5, 1990, pp. 74+.
• Maturi, Richard J., "Pssst! Plastics Is the Word for Growth at A. Schulman, Where Profits Are Compounding," Barron's, April 7, 1986, pp. 50+.
• McFadden, Michael, "A Plastics Play on the Dollar's Dip," Fortune, November 11, 1985, pp. 158+.
• Slakter, Ann, and Homer Starr, "Schulman: A Timely Switch to Plastics," Chemical Week, July 9, 1986, pp. 34+.
• Yerak, Rebecca, "A. Schulman Inc.'s Worst Days Passed, Bullish Analysts Say," Cleveland Plain Dealer, June 9, 1996, p. 3I.
• ------, "Akron Firm Eyes Major Acquisition," Cleveland Plain Dealer, December 10, 1993, p. 1E.
• ------, "Schulman Planning to Revamp Its Board," Cleveland Plain Dealer, April 15, 1998, p. 1C.

Source: International Directory of Company Histories, Vol. 49. St. James Press, 2003.

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