UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-7459

A. SCHULMAN, INC.

Delaware		34-0514850
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
3550 West Market Street, Akron, Ohio		44333
(Address of Principal Executive Offices)		(ZIP Code)

Registrant’s telephone number, including area code: (330) 666-3751

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o 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.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Number of shares of common stock, $1.00 par value, outstanding as of December 31, 2009 — 26,102,352

 

 

PART I — FINANCIAL INFORMATION

Item 1 — Consolidated Financial Statements

A. SCHULMAN, INC.

CONSOLIDATED STATEMENTS OF INCOME

		Three months ended November 30,
		2009				2008
		Unaudited
		(In thousands, except per share data)
Net sales		$	362,861			$	388,317
Cost of sales			299,703				346,316
Selling, general and administrative expenses			40,752				34,795
Interest expense			1,054				1,250
Interest income			(253	)			(849	)
Foreign currency transaction (gains) losses			103				(7,306	)
Other (income) expense			(1,177	)			(222	)
Restructuring expense			429				601
			340,611				374,585
Income from continuing operations before taxes			22,250				13,732
Provision for U.S. and foreign income taxes			5,112				4,335
Income from continuing operations			17,138				9,397
Loss from discontinued operations, net of tax of $0			(3	)			(1,067	)
Net income			17,135				8,330
Noncontrolling interests			(102	)			(158	)
Net income attributable to A. Schulman, Inc.			17,033				8,172
Preferred stock dividends			—				(13	)
Net income attributable to A. Schulman, Inc. common stockholders		$	17,033			$	8,159
Weighted-average number of shares outstanding:
Basic			25,843				25,808
Diluted			26,056				26,026
Earnings (losses) per share of common stock attributable to A. Schulman, Inc. — Basic:
Income from continuing operations		$	0.66			$	0.36
Loss from discontinued operations			—				(0.04	)
Net income attributable to common stockholders		$	0.66			$	0.32
Earnings (losses) per share of common stock attributable to A. Schulman, Inc. — Diluted:
Income from continuing operations		$	0.65			$	0.35
Loss from discontinued operations			—				(0.04	)
Net income attributable to common stockholders		$	0.65			$	0.31

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

A. SCHULMAN, INC.

CONSOLIDATED BALANCE SHEETS

		November 30,				August 31,
		2009				2009
		Unaudited
		(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents		$	237,021			$	228,674
Accounts receivable, less allowance for doubtful accounts of $11,473 at November 30, 2009 and $10,279 at August 31, 2009			229,319				206,450
Inventories, average cost or market, whichever is lower			164,568				133,536
Prepaid expenses and other current assets			20,742				20,779
Total current assets			651,650				589,439
Other assets:
Cash surrender value of life insurance			3,098				3,101
Deferred charges and other assets			23,961				23,715
Goodwill			11,913				11,577
Intangible assets			265				217
			39,237				38,610
Property, plant and equipment, at cost:
Land and improvements			16,656				16,236
Buildings and leasehold improvements			151,782				147,121
Machinery and equipment			356,954				345,653
Furniture and fixtures			41,182				39,581
Construction in progress			5,366				4,546
			571,940				553,137
Accumulated depreciation and investment grants of $990 at November 30, 2009 and $988 at August 31, 2009			400,117				383,697
Net property, plant and equipment			171,823				169,440
Total assets		$	862,710			$	797,489
LIABILITIES AND EQUITY
Current liabilities:
Notes payable		$	2,520			$	2,519
Accounts payable			170,370				147,476
U.S. and foreign income taxes payable			11,547				8,858
Accrued payrolls, taxes and related benefits			37,017				36,207
Other accrued liabilities			38,257				32,562
Total current liabilities			259,711				227,622
Long-term debt			105,651				102,254
Other long-term liabilities			95,360				92,688
Deferred income taxes			4,401				3,954
Commitments and contingencies			—				—
Stockholders’ equity:
Preferred stock, 5% cumulative, $100 par value, authorized, issued and outstanding — 15 shares at November 30, 2009 and August 31, 2009			2				2
Common stock $1 par value, authorized -75,000,000 shares, issued — 42,309,363 shares at November 30, 2009 and 42,295,492 shares at August 31, 2009			42,309				42,295
Other capital			115,952				115,358
Accumulated other comprehensive income			51,545				38,714
Retained earnings			505,588				492,513
Treasury stock, at cost, 16,207,011 shares at November 30, 2009 and August 31, 2009			(322,812	)			(322,812	)
Total A. Schulman, Inc. stockholders’ equity			392,584				366,070
Noncontrolling interests			5,003				4,901
Total equity			397,587				370,971
Total liabilities and equity		$	862,710			$	797,489

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

A. SCHULMAN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three months ended November 30,
		2009				2008
		Unaudited
		(In thousands)
Provided from (used in) operating activities:
Net income		$	17,135			$	8,330
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation and amortization			5,750				5,871
Deferred tax provision			(1,262	)			683
Pension and other deferred compensation			594				(1,252	)
Postretirement benefit obligation			(22	)			(48	)
Net gains on asset sales			(39	)			(152	)
Changes in assets and liabilities:
Accounts receivable			(15,467	)			34,926
Inventories			(25,945	)			17,224
Accounts payable			17,617				(15,658	)
Restructuring accrual			(316	)			149
Income taxes			2,755				(2,711	)
Accrued payrolls and other accrued liabilities			4,908				(677	)
Changes in other assets and other long-term liabilities			1,503				(2,416	)
Net cash provided from operating activities			7,211				44,269
Provided from (used in) investing activities:
Expenditures for property, plant and equipment			(4,367	)			(11,294	)
Proceeds from the sale of assets			435				213
Net cash used in investing activities			(3,932	)			(11,081	)
Provided from (used in) financing activities:
Cash dividends paid			(3,958	)			(3,951	)
Increase (decrease) in notes payable			(33	)			12
Borrowings on revolving credit facilities			—				15,000
Repayments on revolving credit facilities			—				(10,000	)
Common stock issued, net			(50	)			65
Purchase of treasury stock			—				(1,217	)
Net cash used in financing activities			(4,041	)			(91	)
Effect of exchange rate changes on cash			9,109				(15,062	)
Net increase (decrease) in cash and cash equivalents			8,347				18,035
Cash and cash equivalents at beginning of period			228,674				97,728
Cash and cash equivalents at end of period		$	237,021			$	115,763

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

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)		GENERAL
		The interim consolidated financial statements included for A. Schulman, Inc. (the “Company”) reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of the interim period presented. All such adjustments are of a normal recurring nature.
		The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).
		The results of operations for the three months ended November 30, 2009 are not necessarily indicative of the results expected for the year ending August 31, 2010.
		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 Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2009, except for the adoption of new accounting pronouncements related to business combinations, noncontrolling interests and the codification of authoritative U.S. GAAP. The adoption of these accounting pronouncements are discussed in Note 14.
		The Company evaluated subsequent events through January 6, 2010 for the three months ended November 30, 2009. During this period, there were no recognized subsequent events requiring recognition in the consolidated financial statements. The subsequent events requiring disclosure are described in Note 16.
		Certain items previously reported in specific financial statement captions have been reclassified to conform to the fiscal 2010 presentation.

(2)		CASH AND CASH EQUIVALENTS
		All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. Such investments amounted to $121.2 million at November 30, 2009 and $130.0 million at August 31, 2009. The Company’s 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 and short-term time deposits. The money-market funds are primarily AAA rated by third parties. Management continues to monitor the placement of its cash given the current credit market. The recorded amount of these investments approximates fair value. Investments with maturities between three and twelve months are considered to be short-term investments. As of November 30, 2009 and August 31, 2009, the Company did not hold any short-term investments.

(3)		DISCONTINUED OPERATIONS
		During the fourth quarter of fiscal 2009, the Company completed the majority of the closing of the Invision manufacturing operation at its Sharon Center, Ohio manufacturing facility. The operating results of Invision were previously included in the Company’s former Invision segment. The Company reflected the results of this segment as discontinued operations for all of the periods presented. The remaining assets of Invision, including a facility in Findlay, Ohio, which was a dedicated building for the Invision business, and machinery and equipment at the Sharon Center, Ohio facility are considered held for sale as of November 30, 2009. These assets are included in the Company’s consolidated balance sheet in property, plant and equipment. The Company expects minimal charges as final shutdown of the equipment and facility continues into fiscal 2010.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following summarizes the results for discontinued operations for the three months ended November 30, 2009 and 2008. The loss from discontinued operations does not include any income tax effect as the Company was not in a taxable position due to its continued U.S. losses and a full valuation allowance.

		Three months ended November 30,
		2009				2008
		(In thousands)
Net sales		$	9			$	88
Loss from operations		$	(2	)		$	(1,067	)
Other expense			(1	)			—
Loss from discontinued operations		$	(3	)		$	(1,067	)

(4)		PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANS
		The components of the Company’s net periodic benefit cost (income) for defined benefit pension plans and other postretirement benefits are shown below.

		Three months ended November 30,
		2009				2008
		(In thousands)
Net periodic pension cost (income) recognized included the following components:
Service cost		$	550			$	441
Interest cost			1,157				1,140
Expected return on plan assets			(240	)			(254	)
Net actuarial loss and net amortization of prior service cost and transition obligation			95				88
Net periodic benefit cost		$	1,562			$	1,415
Postretirement benefit cost (income) included the following components:
Service cost		$	7			$	14
Interest cost			191				222
Net amortization of prior service cost (credit) and unrecognized loss			(139	)			(212	)
Net periodic benefit cost		$	59			$	24

(5)		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 Company’s financial condition, results of operations or cash flows.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6)		CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
		A summary of the stockholders’ equity section for the three months ended November 30, 2009 and 2008 is as follows:

(In thousands, except per share data)
Unaudited

														Accumulated
														Other
		Preferred				Common								Comprehensive				Retained				Treasury				Noncontrolling
		Stock				Stock				Other Capital				Income (Loss)				Earnings				Stock				Interests				Total Equity
Balance at September 1, 2009		$	2			$	42,295			$	115,358			$	38,714			$	492,513			$	(322,812	)		$	4,901			$	370,971
Comprehensive income (loss):
Net income			—				—				—				—				17,033				—				102
Foreign currency translation gain (loss)			—				—				—				12,875				—				—				—
Amortization of unrecognized transition obligations, actuarial losses and prior service costs (credits), net			—				—				—				(44	)			—				—				—
Total comprehensive income (loss)																															29,966
Cash dividends paid or accrued:
Common stock, $0.15 per share			—				—				—				—				(3,958	)			—				—				(3,958	)
Stock options exercised			—				6				81				—				—				—				—				87
Restricted stock issued, net of forfeitures			—				15				(15	)			—				—				—				—				—
Redemption of common stock to cover tax withholdings			—				(7	)			(130	)			—				—				—				—				(137	)
Amortization of restricted stock			—				—				658				—				—				—				—				658
Balance at November 30, 2009		$	2			$	42,309			$	115,952			$	51,545			$	505,588			$	(322,812	)		$	5,003			$	397,587
Balance at September 1, 2008		$	1,057			$	42,231			$	112,105			$	79,903			$	511,101			$	(321,166	)		$	5,533			$	430,764
Comprehensive income (loss):
Net income			—				—				—				—				8,172				—				158
Foreign currency translation gain (loss)			—				—				—				(58,481	)			—				—				—
Amortization of unrecognized transition obligations, actuarial losses and prior service costs (credits), net			—				—				—				(125	)			—				—				—
Total comprehensive income (loss)																															(50,276	)
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			$	515,322			$	(322,383	)		$	5,691			$	375,888

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7)		COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME
		Comprehensive income for the three months ended November 30, 2009 and 2008, respectively, was as follows:

		For the Three Months Ended November 30
		2009				2008
		(In thousands)
Comprehensive income (loss):
Net income		$	17,135			$	8,330
Foreign currency translation gain (loss)			12,875				(58,481	)
Amortization of unrecognized transition obligations, actuarial losses and prior services costs (credits), net			(44	)			(125	)
Total comprehensive income (loss)			29,966				(50,276	)
Comprehensive income attributable to noncontrolling interests			(102	)			(158	)
Comprehensive income (loss) attributable to A. Schulman, Inc.		$	29,864			$	(50,434	)

		The components of Accumulated Other Comprehensive Income are as follows:

		Foreign Currency				Unrecognized Losses and				Total Accumulated
		Translation				Prior Service Costs				Other Comprehensive
		Gain (Loss)				(Credits), Net				Income
		(In thousands)
Balance as of August 31, 2009		$	45,288			$	(6,574	)		$	38,714
Current period change			12,875				(44	)			12,831
Balance as of November 30, 2009		$	58,163			$	(6,618	)		$	51,545

Foreign currency translation gains do not have a tax effect, as such gains are considered permanently reinvested. The increase in the accumulated other comprehensive income account is primarily due to the increase in the value of the Euro and other currencies against the U.S. dollar. Accumulated other comprehensive income adjustments related to pensions and other postretirement benefit plans are recorded net of tax using the applicable effective tax rate.

(8)		FAIR VALUE MEASUREMENT
		Fair value is defined 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 Financial Accounting Standards Board (“FASB”) provides accounting rules that establish 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 entity’s own assumptions.

On September 1, 2009, the Company adopted FASB accounting rules relating to fair value measurement of non-financial assets and liabilities that are not recognized or disclosed at fair value in the consolidated financial statements on a recurring basis.

The following table presents information about the Company’s assets and liabilities recorded at fair value as of November 30, 2009 in the Company’s consolidated balance sheet:

						Quoted Prices in
						Active Markets for				Significant Other				Significant
		Total Measured at				Identical Assets				Observable Inputs				Unobservable
		Fair Value				(Level 1)				(Level 2)				Inputs (Level 3)
		(In thousands)
Assets:
Cash equivalents		$	121,203			$	121,203			$	—			$	—
Total assets at fair value		$	121,203			$	121,203			$	—			$	—
Liabilities:
Derivative liabilities		$	23			$	—			$	23			$	—
Total liabilities at fair value		$	23			$	—			$	23			$	—

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value of cash equivalents, by their nature, is determined utilizing Level 1 inputs. The Company measures the fair value of forward foreign exchange contracts using Level 2 inputs through observable market transactions in active markets provided by banks.

The Company enters into forward foreign exchange contracts to reduce its exposure for amounts due or payable in foreign currencies. These contracts limit the Company’s exposure to fluctuations in foreign currency exchange rates. The total contract value of forward foreign exchange contracts outstanding as of November 30, 2009 was $8.2 million. Any gains or losses associated with these contracts as well as the offsetting gains or losses from the underlying assets or liabilities are included in the foreign currency transaction line in the Company’s consolidated statements of income. The Company does not hold or issue forward foreign exchange contracts for trading purposes. There were no foreign currency contracts designated as hedging instruments at November 30, 2009. The forward foreign exchange contracts are entered into with creditworthy multinational banks. The fair value of the Company’s forward foreign exchange contracts was less than $0.1 million as of November 30, 2009 and $0.1 million as of August 31, 2009 and was recognized in other accrued liabilities.

The following information presents the supplemental fair value information about long-term fixed-rate debt at November 30, 2009. The Company’s long-term fixed-rate debt was issued in euros.

		November 30, 2009								August 31, 2009
		(In millions of $)				(In millions of € )				(In millions of $)				(In millions of € )
Carrying value of long-term fixed-rate debt		$	75.6			€	50.3			$	72.2			€	50.3
Fair value of long-term fixed-rate debt		$	76.3			€	50.8			$	65.6			€	45.8

The fair value was calculated using discounted future cash flows. The increase in fair value is primarily related to the decrease in quoted market interest rates.

(9)		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 shares of common stock 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 shares of common stock on the date of the grant. All options become exercisable at the rate of 33% 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.
		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. It has been the Company’s practice to issue new shares of common stock upon stock option exercise and other equity grants. On November 30, 2009, there were approximately 1.6 million shares available for grant pursuant to the Company’s 2006 Incentive Plan.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of stock options is as follows:

		Outstanding Shares Under				Weighted-Average
		Option				Exercise Price
Outstanding at August 31, 2009			492,455			$	19.25
Granted			—			$	—
Exercised			(6,000	)		$	14.57
Forfeited and expired			(8,500	)		$	16.73
Outstanding at November 30, 2009			477,955			$	19.35
Exercisable at November 30, 2009			477,955			$	19.35

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, 2009 was insignificant due to the small number of options exercised. The intrinsic value for stock options exercisable at November 30, 2009 was $0.3 million with a remaining term for options exercisable of approximately 3.5 years. For stock options outstanding at November 30, 2009, exercise prices range from $11.62 to $24.69. The weighted-average remaining contractual life for options outstanding at November 30, 2009 was approximately 3.5 years. All 477,955 outstanding and exercisable stock options are fully vested at November 30, 2009. There were no grants of stock options during the first quarter of fiscal 2010 or fiscal 2009.

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, 2009			180,429			$	19.48
Granted			15,000			$	18.57
Vested			(26,650	)		$	19.20
Forfeited			—			$	—
Outstanding at November 30, 2009			168,779			$	19.44

During the three months ended November 30, 2009, the Company granted 15,000 time-based restricted shares. Restrictions on these shares underlying the restricted stock awards will lapse ratably over a three-year period and were valued at the fair market value on the date of grant. No restricted stock was granted during the first quarter of fiscal 2009.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company also grants awards with market performance vesting. In the table below, the Company summarizes all performance-based awards which include performance-based restricted stock awards and performance shares (“Performance Shares”).

						Weighted-Average
		Outstanding				Fair Market Value
		Performance-Based Awards				(per share)
Outstanding at August 31, 2009			516,681			$	12.72
Granted			—			$	—
Vested			—			$	—
Forfeited			—			$	—
Outstanding at November 30, 2009			516,681			$	12.72

There were no grants of performance-based awards during the first quarters of fiscal 2010 or fiscal 2009. 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, 2009 are 247,694 Performance Shares which earn dividends throughout the vesting period and approximately 185,267 Performance Shares which do not earn dividends. Also included in the balance are 83,720 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 in April 2010, approximately 41,860 additional shares could be issued which are not included in the table if certain market conditions are met. 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 valuation model that represents the characteristics of these grants. Vesting of the ultimate number of shares underlying performance-based awards, if any, will be dependent upon the Company’s total stockholder return in relation to the total stockholder 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, which are recognized over the service period, regardless of whether the market conditions are achieved and the awards ultimately vest.

Total unrecognized compensation cost, including a provision for forfeitures, related to nonvested share-based compensation arrangements at November 30, 2009 was approximately $3.9 million. This cost is expected to be recognized over a weighted-average period of approximately 1.4 years.

As of November 30, 2009, the Company had 27,500 stock-settled restricted stock units outstanding which were fully vested as of the grant date. There are no service requirements for vesting for this grant. These restricted stock units will be settled in shares of the Company’s common stock, on a one-to-one basis, no later than 60 days after the third anniversary of the award grant date. These awards do earn dividends during the restriction period; however, they do not have voting rights until released from restriction. These awards are treated as equity awards and have a grant date fair value based on the award grant date of $13.61. There were no grants of stock-settled restricted stock units during the three months ended November 30, 2009 or 2008.

The Company had approximately 115,000 and 209,000 cash-settled restricted stock units outstanding with various vesting periods and criteria at November 30, 2009 and 2008, respectively. The Company did not grant any cash-settled restricted stock units during the first quarter of fiscal 2010 or fiscal 2009. The cash-settled restricted stock units outstanding have either time-based vesting or performance-based vesting, similar to the Company’s restricted stock awards and performance shares. Each cash-settled restricted stock unit is equivalent to one share of the Company’s common stock on the vesting date. Certain cash-settled restricted stock units earn dividends during the vesting period. Cash-settled 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. In addition, the liability is adjusted for the estimated payout factor for the performance-based cash-settled restricted stock units. As a result of these mark-to-market adjustments, these restricted stock units introduce volatility into the Company’s consolidated statements of income.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company had approximately $2.4 million cash-based awards, which are treated as liability awards, outstanding at November 30, 2009. These awards were granted to foreign employees. Such awards include approximately $0.5 million which have service vesting periods of three years following the date of grant and the remaining $1.9 million is performance-based. The performance-based awards are based on the same market conditions utilized for the Performance Shares. The Company records a liability for these cash-based awards equal to the amount of the award vested to date and adjusts the performance-based awards based on expected payout.

The following table summarizes the impact to the Company’s consolidated statements of income from stock-based compensation, which is primarily included in selling, general and administrative expenses in the accompanying consolidated statements of income:

		Three months ended November 30,
		2009				2008
		(In thousands)
Stock options		$	—			$	(23	)
Restricted stock awards and performance-based awards			658				526
Cash-settled restricted stock units			(580	)			(1,393	)
Cash-based awards			(198	)			—
Total stock-based compensation		$	(120	)		$	(890	)

(10)		EARNINGS PER SHARE
		Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock 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 shares of common stock 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,
		2009				2008
		(In thousands)
Weighted-average shares outstanding:
Basic			25,843				25,808
Incremental shares from stock options			18				14
Incremental shares from restricted stock			195				204
Diluted			26,056				26,026

For the three months ended November 30, 2009 and 2008, there were approximately 0.4 million and 0.5 million, respectively, equivalent shares related to stock options that were excluded from diluted weighted-average shares outstanding because inclusion would have been anti-dilutive.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11)		SEGMENT INFORMATION
		The Company’s segments are Europe, North America Masterbatch (“NAMB”), North America Engineered Plastics (“NAEP”), North America Distribution Services (“NADS”) (which includes rotomolding) and Asia. 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: (1) engineered plastics, (2) masterbatch and (3) distribution services. In North America, there is a general manager of each of these lines of business each of who report directly to the Company’s CEO. The Company’s European and Asian segments have managers of each line of business, who report to a general manager who reports to the CEO. Currently, the Company’s CEO does not directly manage the business line level when reviewing performance and allocating resources for the Europe and Asia segments.
		During the fourth quarter of fiscal 2009, the Company completed the majority of the closing of its Invision sheet manufacturing operation at its Sharon Center, Ohio manufacturing facility. This business comprised the former Invision segment of the Company’s business. The Company reflected the results of these operations as discontinued operations for all periods presented and are not included in the segment information.
		The Company’s European segment is the largest segment for the Company. The segment is managed by the General Manager of Europe. Managers of each line of business for engineered plastics, masterbatch and distribution services in Europe report to the European General Manager. The Company has a global research and development center in Bornem, Belgium, which primarily focuses on the masterbatch business, and has a technology center in Sindorf, Germany, which primarily focuses on the engineered plastics business.
		The North America Masterbatch segment includes color and additive concentrates which improve the appearance and performance of resins targeted at the film and packaging markets. The North America Distribution Services segment provides bulk and packaged plastic materials used in a variety of applications. The North America Engineered Plastics segment includes multi-component blends of ionomers, urethanes and nylons, generally for the durable goods market, formulated to meet customer’s specific performance requirements, regardless of the base resin. The Company includes in All Other North America any administrative costs that are not directly related or allocated to a North America segment such costs as North American information technology, human resources, accounting and purchasing. The North American administrative costs are directly related to the three North American segments.
		The Company’s Asia segment is managed by the General Manager of Asia. This segment primarily provides masterbatch applications in the packaging market. The operations for the Asia segment are currently located in China and Indonesia.
		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 segment’s 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.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Below the Company presents net sales to unaffiliated customers, gross profit and operating income by segment. Also included is a reconciliation of operating income (loss) by segment to consolidated income from continuing operations before taxes.

		Three months ended November 30,
		2009				2008
		(In thousands)
Net sales to unaffiliated customers
Europe		$	271,943			$	280,847
NAMB			27,835				28,044
NAEP			34,643				44,268
NADS			13,853				25,971
Asia			14,587				9,187
Total net sales to unaffiliated customers		$	362,861			$	388,317
Segment gross profit
Europe		$	50,533			$	34,395
NAMB			3,502				2,290
NAEP			4,695				2,757
NADS			1,764				1,845
Asia			2,664				714
Total segment gross profit		$	63,158			$	42,001
Segment operating income (loss)
Europe		$	25,155			$	14,032
NAMB			2,490				692
NAEP			2,172				(926	)
NADS			879				924
Asia			1,114				(147	)
All other North America			(2,670	)			(3,009	)
Total segment operating income		$	29,140			$	11,566
Corporate and other			(6,734	)			(4,360	)
Interest expense, net			(801	)			(401	)
Foreign currency transaction gains (losses)			(103	)			7,306
Other income (expense)			1,177				222
Restructuring expense			(429	)			(601	)
Income from continuing operations before taxes		$	22,250			$	13,732

The majority of the Company’s sales for the three months ended November 30, 2009 and 2008 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		2009								2008
		(In thousands, except for %’s)
Color and additive concentrates		$	159,882				44	%		$	149,378				39	%
Polyolefins			93,729				26				121,339				31
Engineered compounds			82,999				23				85,995				22
Polyvinyl chloride (PVC)			9,783				2				12,692				3
Tolling			2,706				1				2,571				1
Other			13,762				4				16,342				4
		$	362,861				100	%		$	388,317				100	%

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(12)		INCOME TAXES
		At November 30, 2009, the Company’s gross unrecognized tax benefits totaled $1.4 million. If recognized, approximately $0.6 million of the total unrecognized tax benefits would favorably affect the Company’s effective tax rate. The Company reports interest and penalties related to income tax matters in income tax expense. At November 30, 2009, the Company had $0.4 million of accrued interest and penalties on unrecognized tax benefits.
		The Company is open to potential income tax examinations in the U.S. and Belgium from fiscal 2007 onward. The Company is open to potential examinations in Germany from fiscal 2005 onward and generally from fiscal 2003 onward for most foreign jurisdictions.
		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.
		The loss from discontinued operations does not include any income tax effect as the Company was not in a taxable position due to its continued U.S. losses and a full valuation allowance.
		A reconciliation of the statutory U.S. federal income tax rate of 35.0% with the effective tax rates of 23.0% and 31.6% for the three months ended November 30, 2009 and 2008, respectively, is as follows:

		Three months ended								Three months ended
		November 30, 2009								November 30, 2008
		(In thousands, except for %’s)
Statutory U.S. tax rate		$	7,792				35.0	%		$	4,806				35.0	%
Amount of foreign taxes at less than U.S. statutory tax rate			(5,339	)			(24.0	)			(3,866	)			(28.1	)
U.S. losses with no tax benefit			1,714				7.7				3,149				22.9
U.S. restructuring and other U.S. unusual charges with no benefit			822				3.7				26				0.2
Establishment (resolution) of uncertain tax positions			—				—				83				0.6
Other			123				0.6				137				1.0
Total income tax expense		$	5,112				23.0	%		$	4,335				31.6	%

The effective tax rate of 23.0% for the three months ended November 30, 2009 is below the U.S. statutory rate of 35.0% primarily because of the Company’s overall foreign rate being less than the U.S. statutory rate. This favorable effect on the Company’s tax rate was partially offset by no tax benefits being recognized for losses in the U.S. As compared with the effective rate of 31.6% for the three months ended November 30, 2008, the current quarter’s effective rate is driven by a decrease in the U.S. pre-tax loss from continuing operations.

In December 2009, tax legislation was passed in Mexico, which will generally be effective starting January 1, 2010. The legislation includes an increase of 2% points in the Mexican corporate income tax rate for calendar years 2010 through 2013 before the rate increase is completely phased out by calendar year 2014. Additionally, tax legislation was passed in Germany in December 2009. The Company is currently evaluating the passed legislation in Mexico and Germany to determine the impact the legislation will have on its financial condition.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13)		RESTRUCTURING OF OPERATIONS
		Fiscal 2009 Plan
		During fiscal 2009, the Company announced various plans to realign its domestic and international operations to strengthen the Company’s performance and financial position. The Company initiated these proactive actions to address the then global economic conditions and improve the Company’s competitive position. The actions included a reduction in capacity and workforce reductions in manufacturing, selling and administrative positions throughout Europe and North America. In addition, the Company substantially completed the previously announced consolidation of its back-office operations in Europe, which include finance and accounting functions, to a shared service center located in Belgium.
		The Company reduced its workforce by approximately 190 positions worldwide during fiscal 2009, primarily as a result of the actions taken in early fiscal 2009 to realign the Company’s operations and back-office functions. In addition, to further manage costs during a period of significant declines in demand primarily in the second quarter of fiscal 2009, the Company’s major European locations implemented a “short work” schedule when necessary and the NAEP segment reduced shifts from seven to five days at its Nashville, Tennessee plant. Also in the NAEP segment, the Company reduced production capacity by temporarily idling one manufacturing line, while permanently shutting down another line at its plant in Bellevue, Ohio. The Company also completed the majority of the right-sizing and redesign of its Italian plant, which resulted in less than $0.1 million of accelerated depreciation on certain fixed assets during the first quarter of fiscal 2010.
		The following table summarizes the charges related to the fiscal 2009 initiatives by segment:

										Accelerated
						Contract Termination				Depreciation
		Employee-				and Other Related				Included in Cost of
		related Costs				Restructuring Costs				Sales				Total
		(In thousands)
Three months ended November 30, 2009
Europe		$	154			$	234			$	69			$	457
NAEP			—				14				—				14
Total restructuring related charges for the fiscal 2009 actions		$	154			$	248			$	69			$	471

At November 30, 2009, approximately $2.0 million remains accrued for employee-related costs, including estimated severance payments and medical insurance, and contract termination costs related to the fiscal 2009 initiatives. The Company anticipates the remaining accrued balance for restructuring charges will be paid throughout fiscal 2010.

The Company expects additional charges to continue into fiscal 2010 related to the plans initiated in fiscal 2009 including implementation of the Company’s European shared service center and plans to reduce capacity and headcount at certain international locations. These plans are expected to be completed primarily in fiscal 2010. In total, the Company expects charges related to these initiatives, and other remaining 2009 initiatives to range from approximately $2.0 million to $3.0 million, before income tax, to be recognized primarily during the remainder of fiscal 2010.

Fiscal 2008 Plan

In January 2008, the Company announced actions in its continuing effort to improve the profitability of its North American operations which included the shut down of its manufacturing facility in St. Thomas, Ontario, Canada. 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 and the Company substantially finalized closing procedures in fiscal 2010. The Company recorded minimal charges related to the fiscal 2008 initiatives during the three months ended November 30, 2009. Approximately $0.2 million remains accrued for employee-related costs at November 30, 2009 related to the fiscal 2008 initiatives. The Company recorded approximately $0.2 million for employee-related costs and $0.1 million for contract termination and other restructuring costs during the three months ended November 30, 2008. The charges recorded in fiscal 2010 and 2009 were related to the NAEP segment.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the liabilities as of November 30, 2009 related to the Company’s restructuring plans. This includes a $2.4 million withdrawal liability related to fiscal 2004 and 2007 restructuring plans, which the Company expects to pay during the remainder of fiscal 2010. Fiscal 2010 charges include less than $0.1 million of amortization of prepaid expenses related to restructuring charges paid in advance.

		Accrual Balance				Fiscal 2010				Fiscal 2010				Accrual Balance
		August 31, 2009				Charges				Paid				November 30, 2009
		(In thousands)
Employee-related costs		$	4,448			$	154			$	(540	)		$	4,062
Other costs			390				275				(205	)			460
Translation effect			42				—				—				127
Restructuring charges		$	4,880			$	429			$	(745	)		$	4,649

(14)		ACCOUNTING PRONOUNCEMENTS
		In December 2007, the FASB issued new accounting rules related to business combinations. The new accounting rules require 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 acquirer’s income tax valuation allowance and deferred taxes. These accounting rules are 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 adopted the new accounting rules related to business combinations, effective September 1, 2009, and recorded $2.3 million of transaction costs for the proposed acquisition of ICO, Inc (“ICO”) during the three months ended November 30, 2009. See Note 16 — Subsequent Events.
		In December 2007, the FASB issued new accounting rules on noncontrolling interests. The new accounting rules clarify 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. The implementation of new accounting rules related to noncontrolling interests, effective September 1, 2009, did not have a material impact on the Company’s financial position, results of operations and cash flows but did change the consolidated financial statement presentation related to noncontrolling interests. The presentation requirement was reflected in the consolidated financial statements and accompanying notes and has been applied retrospectively for all periods presented.
		In June 2009, the FASB issued new accounting rules that establish the Accounting Standards Codification (“Codification”) as the source of authoritative Generally Accepted Accounting Principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Subsequent to the issuance of these accounting rules, the FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates. All guidance contained in the Codification carries an equal level of authority. The GAAP hierarchy was modified to include only two levels of GAAP: authoritative and nonauthoritative. All nongrandfathered non-SEC accounting literature not included in the Codification are nonauthoritative. These new accounting rules are effective for interim or annual financial periods ending after September 15, 2009. The Company’s adoption of these new accounting rules, effective September 1, 2009, impacted the references in its consolidated financial statements to technical accounting literature.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(15)		SHARE REPURCHASE PROGRAM
		The Company has approximately 2.9 million shares authorized by the Board of Directors to be repurchased under the Company’s current share repurchase program. The Company did not repurchase any shares of its common stock during the three months ended November 30, 2009. 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.

(16)		SUBSEQUENT EVENTS
		On December 2, 2009, the Company announced that it had signed the Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, ICO and Wildcat Spider, LLC, a wholly-owned subsidiary of the Company, to acquire all of ICO’s outstanding shares of common stock and equity interests, including ICO stock options, pending approval of the transaction by ICO shareholders and receipt of customary regulatory approvals. Under the terms of the Merger Agreement, the total consideration to be paid to ICO shareholders is comprised of $105.0 million in cash and 5.1 million shares of A. Schulman common stock. The Merger Agreement was filed as an exhibit to the Company’s Form 8-K dated December 3, 2009. In the event that ICO shareholders approve of the Merger Agreement and the merger closes, ICO shareholders will own approximately 16% of the combined company. The transaction is not subject to a financing contingency. The Company intends to pay the cash portion of the purchase price out of its available liquidity.
		After unsuccessful negotiations of a new collective bargaining agreement, union members at the Company’s Bellevue, Ohio facility voted to strike on December 6, 2009 after the previous collective bargaining agreement expired. This facility supports the NAEP segment. As a result, the Company enacted contingency plans to continue operations in that facility at a reduced capacity level. A federal mediator was contacted to facilitate the negotiation process with the union representatives to work toward a fair and equitable solution for all parties. On December 23, 2009, the union ratified a three year agreement ending the strike. The Company was able to mitigate the impact of the strike through contingency actions and operations were not significantly impacted. The affect on the Company’s and the NAEP segment’s results of operations, liquidity and financial condition was not material.

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview of the Business and Recent Developments

A. Schulman, Inc. (the “Company”, “we”, “our”, “ours” and “us”) is a leading international supplier of high-performance plastic compounds and resins headquartered in Akron, Ohio. The Company’s customers span a wide range of markets including consumer products, industrial, automotive and packaging. The Company has approximately 2,000 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.

During fiscal 2009, the Company announced actions to restructure its operations and eliminate costs throughout the Company. These actions were part of the Company’s ongoing strategic plan to realign its resources, control costs and improve efficiency to profitably serve key growth markets. These actions included a reduction in capacity and workforce reductions in manufacturing, selling and administrative positions throughout Europe and North America. The Company took these proactive actions to address the then global economic conditions and improve the Company’s competitive position. The Company recorded restructuring charges of $0.4 million for the three months ended November 30, 2009. Related to the announcements, management initiated actions that were substantially complete by the end of fiscal 2009; however, the Company expects between approximately $2.0 million to $3.0 million, before income tax, of expense to be recognized primarily during the remainder of fiscal 2010.

On December 2, 2009, the Company announced that it had signed the Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, ICO and Wildcat Spider, LLC, a wholly-owned subsidiary of the Company, to acquire all of ICO’s outstanding shares of common stock and equity interests, including ICO stock options, pending approval of the transaction by ICO shareholders and receipt of customary regulatory approvals.

Under the terms of the Merger Agreement, the total consideration to be paid to ICO shareholders is comprised of $105.0 million in cash and 5.1 million shares of A. Schulman common stock. The Merger Agreement was filed as an exhibit to the Company’s Form 8-K dated December 3, 2009. In the event that ICO shareholders approve of the Merger Agreement and the merger closes, ICO shareholders will own approximately 16% of the combined company. The transaction is not subject to a financing contingency. The Company intends to pay the cash portion of the purchase price out of its available liquidity.

ICO is a global manufacturer of specialty resins and concentrates, and provides specialty polymer services, including size reduction, compounding and other related services. The proposed acquisition of ICO presents the Company with an opportunity to expand its global presence substantially, especially in rotomolding. ICO’s business is complementary to the Company’s business across markets, product lines and geographies. The proposed acquisition of ICO’s operations will increase the Company’s presence in the U.S. masterbatch market, gain plants in the high-growth market of Brazil and expand the Company’s Asia presence with the addition of several ICO facilities in that region. In Europe, the proposed acquisition will allow the Company to add rotomolding and size reduction to the Company’s capabilities. It also will enable growth in countries where the Company currently has a limited presence, such as France, Italy and Holland, as well as further leverage facilities serving high-growth markets such as Poland, Hungary and Sweden.

Results of Operations

Although the Company continues to face challenging industry conditions, net income attributable to the Company’s stockholders was $17.0 million for the first quarter of fiscal 2010 versus $8.2 million for the first quarter of fiscal 2009, an increase of $8.9 million. The increase in net income was primarily the result of a focus on sales of higher margin products, reduced raw material costs through global purchasing measures, limited improvement in customer demand in certain segments and initiatives to right-size capacity in certain markets.

Net sales for the three months ended November 30, 2009 were $362.9 million, a decrease of $25.4 million or 6.6% compared with last year’s first-quarter sales of $388.3 million. The decline in sales compared with the prior year was partially a result of a decline in volume due to decreased customer demand in certain markets as well as a strategic decision to reduce the Company’s exposure to certain unprofitable markets. The translation effect of foreign currencies, primarily the euro, increased sales by $11.8 million for the three months ended November 30, 2009 compared with the first quarter of fiscal 2009. The Company experienced a sequential increase in customer demand in the Europe and NAEP segments since the fourth quarter of fiscal 2009 and overall sales growth.

A comparison of consolidated sales by segment for the three months ended November 30, 2009 and 2008 is as follows:

																										% Due to
										Total increase								% Due to				% Due to				price/
		Three months ended November 30,								(decrease)								tonnage				translation				product mix
Sales		2009				2008				$				%
		(In thousands, except for %’s)
Europe		$	271,943			$	280,847			$	(8,904	)			-3.2	%			-2.9	%			5.3	%			-5.6	%
NAMB			27,835				28,044				(209	)			-0.7	%			6.0	%			-8.3	%			1.6	%
NAEP			34,643				44,268				(9,625	)			-21.7	%			-19.4	%			-1.7	%			-0.7	%
NADS			13,853				25,971				(12,118	)			-46.7	%			-33.2	%			0.0	%			-13.5	%
Asia			14,587				9,187				5,400				58.8	%			89.3	%			0.2	%			-30.6	%
		$	362,861			$	388,317			$	(25,456	)			-6.6	%			-4.5	%			3.0	%			-5.1	%

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, 2009 compared with the same periods last year are as follows:

		Three months ended November 30,
		2009				2008
Packaging			42	%			40	%
Automotive			13	%			14	%
Other			45	%			46	%
			100	%			100	%

The majority of the Company’s sales for the three months ended November 30, 2009 and 2008 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		2009								2008
		(In thousands, except for %’s)
Color and additive concentrates		$	159,882				44	%		$	149,378				39	%
Polyolefins			93,729				26				121,339				31
Engineered compounds			82,999				23				85,995				22
Polyvinyl chloride (PVC)			9,783				2				12,692				3
Tolling			2,706				1				2,571				1
Other			13,762				4				16,342				4
		$	362,861				100	%		$	388,317				100	%

A comparison of gross profit dollars and percentages by segment for the three months ended November 30, 2009 and 2008 is as follows:

		Three months ended November 30,								Increase (decrease)
		2009				2008				$				%
		(In thousands, except for %’s)
Gross profit $
Europe		$	50,533			$	34,395			$	16,138				46.9	%
NAMB			3,502				2,290				1,212				52.9
NAEP			4,695				2,757				1,938				70.3
NADS			1,764				1,845				(81	)			(4.4	)
Asia			2,664				714				1,950				273.1
Consolidated		$	63,158			$	42,001			$	21,157				50.4	%
Gross profit %
Europe			18.6	%			12.2	%
NAMB			12.6	%			8.2	%
NAEP			13.6	%			6.2	%
NADS			12.7	%			7.1	%
Asia			18.3	%			7.8	%
Consolidated			17.4	%			10.8	%

The gross profit percentage for Europe for the three months ended November 30, 2009 increased to 18.6% compared with 12.2% for the same period in the prior year while gross profit dollars increased by $16.1 million, or 46.9%. The Company was able to increase its gross profit dollars and percentage in the European segment in the first quarter of fiscal 2010 primarily through favorable product mix and the realization of cost-reduction initiatives implemented in fiscal 2009 which resulted in improved gross profit compared with the prior year. The European segment gross profit for fiscal 2009 was negatively impacted by inventory write-downs of approximately $3.0 million. European gross profits were positively impacted by foreign currency translation gains of $3.2 million for the three months ended November 30, 2009.

The gross profit dollars for the NAMB business have increased by $1.2 million, or 52.9%, for the three months ended November 30, 2009 compared with the same period last year. Excluding the negative effect of foreign currency translation of $0.4 million, gross profit dollars for NAMB increased by $1.6 million. The increase was the result of tonnage increases of approximately 6.0%, reflecting improvement in customer demand as compared with the prior year. In addition, fiscal 2009 gross profit for NAMB includes approximately $0.4 million of startup costs without sales related to the Company’s new masterbatch facility in Akron, Ohio.

The gross profit dollars for the NAEP business have increased by $1.9 million, or 70.3%, for the three months ended November 30, 2009 compared with the same period last year. The increase in gross profit dollars and percentages for NAEP are primarily the result of improved utilization of the NAEP facilities due to restructuring efforts to reduce capacity and headcount in this segment and the focus on higher-value-added products. These reductions in capacity and headcount improved the segment’s cost structure enabling NAEP to increase gross profit dollars and percentages despite a 19.4% decrease in tonnage due to continued weak economic conditions. Customer demand for NAEP products was positively affected in the first quarter by temporary initiatives enacted by the government of the United States to stimulate sales activity in the automotive industry during the quarter.

Gross profits dollars for the NADS business were about flat at approximately $1.8 million for the three months ended November 30, 2009 and 2008, respectively, despite a decline in sales volume of 46.7%. The NADS segment was able to increase margins in the weak market as a result of a favorable product mix.

Overall, gross profit for the North American businesses, including NAMB, NAEP and NADS, increased $3.1 million or 44.5% to $10.0 million for the three months ended November 30, 2009.

The Company’s Asia segment gross profit dollars increased $2.0 million and gross profit percentage increased 10.5%. The increase in gross profit dollars in the first quarter of fiscal 2010 is attributable to increased customer demand in the Asian marketplace, which resulted in a 41% improvement in capacity utilization compared with the prior year. Gross profit in the Asia segment was also positively impacted by reduced manufacturing costs and increased use of locally sourced raw materials. The Asia segment is primarily in the packaging market.

A comparison of capacity utilization levels for the three months ended November 30, 2009 and 2008 is as follows:

		Three months ended November 30,
		2009				2008
Europe			96	%			73	%
NAMB			70	%			87	%
NAEP			81	%			89	%
Asia			86	%			45	%
Worldwide			91	%			74	%

Europe capacity utilization increased primarily as a result of a more consistent level of customer demand during the quarter compared with the same period last year and as a result of the Company’s fiscal 2009 initiative to right-size the capacity in this segment. The capacity utilization for NAMB decreased as a result of the Akron, Ohio plant, which did not start producing until the third quarter of fiscal 2009, becoming fully operational. Although volumes increased for NAMB compared with the same period last year, this segment still experienced lower levels of customer demand. Capacity utilization for the NAEP segment was unchanged from fiscal 2009 as reductions in capacity helped offset the decline in demand levels. The Company’s Asia segment experienced significantly higher capacity utilization as a result of a rebound in the local Asian markets. Overall worldwide utilization increased compared with the prior year reflecting a slightly improved marketplace and successful capacity right-sizing actions taken during the second and third quarters of fiscal 2009. 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, 2009
		$ Increase (decrease)				% Increase (decrease)
		(In thousands, except for %’s)
Total change in selling, general and administrative expenses		$	5,957				17.1	%
Less the effect of foreign currency translation			1,550				4.5
Total change in selling, general and administrative expenses, excluding the effect of foreign currency translation		$	4,407				12.6	%

Selling, general and administrative expenses for the three months ended November 30, 2009 increased $4.4 million, excluding the effect of foreign currency exchange, compared with the same period last fiscal year. As a percent of sales, selling, general and administrative expenses for the three months ended November 30, 2009 increased to 11.2% from 9.0% in the prior year comparable period. The increase was due to $2.3 million of costs associated with the proposed ICO acquisition, a $1.3 million increase in accrued incentive compensation expense as a result of improved operating results and a $1.0 million increase in bad debt expense due to certain customer financial difficulties. In addition, selling, general and administrative expenses were impacted by a decrease of $0.8 million in the benefit recorded related to stock-based compensation primarily as a result of mark-to-market adjustments of restricted stock units.

Interest expense declined by approximately $0.2 million for the three months ended November 30, 2009, as compared with the same period last year, due to lower borrowing rates.

The decrease in interest income for the three months ended November 30, 2009 as compared to the same period in 2008 was due primarily to lower average interest rates for the Company’s cash and cash equivalent accounts.

Foreign currency transaction gains or losses represent changes in the value of currencies in major areas where the Company operates. The Company experienced foreign currency transaction losses of $0.1 million for the three months ended November 30, 2009 compared with $7.3 million in foreign currency transaction gains for the three months ended November 30, 2008. The foreign currency transaction gains in fiscal 2009 included gains of $2.5 million and $4.1 million related to the changes in the value of the U.S. dollar compared with the Canadian dollar and Mexican peso, respectively. During the first quarter of fiscal 2009, while the U.S. dollar was strengthening, the Company was not completely hedged. The Company has since taken actions which have effectively reduced the Company’s exposure to this volatility. 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. 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 income.

Other income for the three months ended November 30, 2009 includes approximately $1.0 million of income from the cancellation of European supplier distribution agreements.

Restructurings

During fiscal 2009, the Company announced various plans to realign its domestic and international operations to strengthen the Company’s performance and financial position. The Company initiated these proactive actions to address the then global economic conditions and improve the Company’s competitive position. The actions included a reduction in capacity and workforce reductions in manufacturing, selling and administrative positions throughout Europe and North America. In addition, the Company substantially completed the previously announced consolidation of its back-office operations in Europe, which include finance and accounting functions, to a shared service center located in Belgium.

The Company reduced its workforce by approximately 190 positions worldwide during fiscal 2009, primarily as a result of the actions taken in early fiscal 2009 to realign the Company’s operations and back-office functions. In addition, to further manage costs during a period of significant declines in demand primarily in the second quarter of fiscal 2009, the Company’s major European locations implemented a “short work” schedule when necessary and the NAEP segment reduced shifts from seven to five days at its Nashville, Tennessee plant. Also in the NAEP segment, the Company reduced production capacity by temporarily idling one manufacturing line, while permanently shutting down another line at its plant in Bellevue, Ohio. The Company also completed the majority of the right-sizing and redesign of its Italian plant, which resulted in less than $0.1 million of accelerated depreciation on certain fixed assets during the first quarter of fiscal 2010.

The following table summarizes the charges related to the fiscal 2009 initiatives by segment:

										Accelerated
						Contract Termination				Depreciation
		Employee-				and Other Related				Included in Cost of
		related Costs				Restructuring Costs				Sales				Total
		(In thousands)
Three months ended November 30, 2009
Europe		$	154			$	234			$	69			$	457
NAEP			—				14				—				14
Total restructuring related charges for the fiscal 2009 actions		$	154			$	248			$	69			$	471