Form 8-K SCHULMAN A INC For: Apr 27

Form 8-K SCHULMAN A INC For: Apr 27

Sign up for StreetInsider Free!

Sign up for StreetInsider Free!

Create E-mail Alert Related Categories

You May Also Be Interested In

Create E-mail Alert Related Categories

Free News Feed

FREE Breaking News Alerts from StreetInsider.com!

StreetInsider.com Top Tickers, 4/25/2024

1. META
2. CMG
3. LRCX
4. IBM
5. SPY

6. HCP
7. BSX
8. PI
9. NOW
10. CNMD

Top News Most Read Special Reports

April 27, 2015 4:31 PM EDT

E-mail

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): April 27, 2015

A. SCHULMAN, INC.

(Exact name of registrant as specified in its charter)

Delaware

0-7459

34-0514850

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

3637 Ridgewood Road

Fairlawn, Ohio

44333

(Address of principal

executive offices)

(Zip Code)

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

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01.

Other Events.

Historically, A. Schulman, Inc. (the “Company”) disclosed the following three reportable segments: Europe, Middle East and Africa; the Americas; and Asia Pacific. Beginning with the second quarter of fiscal 2015, the Company now discloses the following four reportable segments: Europe, Middle East and Africa; United States and Canada; Latin America; and Asia Pacific. This change corresponds with the January 1, 2015 appointment of the Company’s new President and CEO who assumed the role of Chief Operating Decision Maker (“CODM”) at that time, and how the new CODM makes decisions, assesses performance and allocates resources. There has been no change in the Company’s total consolidated financial condition or results of operations previously reported as a result of the change in segment structure.

As a result of this change, the Company has revised certain portions of its Annual Report on Form 10-K for the fiscal year ended August 31, 2014 (the “Form 10-K”) and certain portions of its Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2014 (the “Form 10-Q”). Exhibit 99.1 of this Current Report on Form 8-K updates the information contained in Part I, Item 1, “Business,” Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Part II, Item 8, “Financial Statements and Supplementary Data” of the Form 10-K to reflect the business segment realignments. In addition, Exhibit 99.2 of this Current Report on Form 8-K updates the information contained in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Form 10-Q to reflect the business segment realignments.

Except as noted above, no attempt has been made in this Current Report on Form 8-K to modify or update disclosures presented in the Form 10-K or Form 10-Q to reflect events or occurrences after the date of the filing of the Form 10-K or Form 10-Q, respectively. As such, this Current Report on Form 8-K should be read in conjunction with the Form 10-K, the Form 10-Q and the Company’s filings made with the Securities and Exchange Commission subsequent to the filing of the Form 10-K and Form 10-Q, including the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2015.

Item 9.01.

Financial Statements and Exhibits.

(d) Exhibits.


Exhibit Number		Description

23		Consent of Independent Registered Public Accounting Firm

99.1		Revised Portions of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014

99.2		Revised Portions of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2014

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibit Index


Exhibit Number		Description

23		Consent of Independent Registered Public Accounting Firm

99.1		Revised Portions of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014

99.2		Revised Portions of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2014

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-93093, 333-102718, 333-139236, 333-164366, 333-171649, 333-178159, 333-201419) of A. Schulman, Inc. of our report dated October 22, 2014, except with respect to our opinion on the consolidated financial statements insofar as it relates to the effects of the business segment reclassification discussed in Note 13 as to which the date is April 27, 2015, relating to the consolidated financial statements, financial statement schedule, and the effectiveness of internal control over financial reporting, which appears in this Current Report on Form 8-K of A Schulman, Inc. dated April 27, 2015.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Cleveland, Ohio

April 27, 2015

Exhibit 99.1

ITEM 1.

BUSINESS

Introduction

A. Schulman, Inc., a Delaware corporation (“A. Schulman,” the “Company,” the “Issuer,” “we,” “us” or “our”), was founded as an Ohio corporation in 1928 by Alex Schulman in Akron, Ohio as a processor of rubber compounds. During those early days, when Akron, Ohio was known as the rubber capital of the world, Mr. Schulman saw opportunity in taking existing rubber products and compounding new formulations to meet underserved market needs. As the newly emerging science of polymers began to make market strides in the early 1950s, A. Schulman was there to advance the possibilities of the technology, leveraging its compounding expertise into developing solutions to meet exact customer application requirements. The Company later expanded into Europe, Latin America and Asia, establishing manufacturing plants, innovation centers and sales offices in numerous countries. The Company changed its state of incorporation to Delaware in 1969 and went public in 1972. Today, A. Schulman, Inc. is an international supplier of high-performance plastic formulations, resins, and services and provides innovative solutions to meet its customers’ demanding requirements through proprietary and custom-formulated products. The Company’s customers span a wide range of markets such as packaging, mobility, building & construction, electronics & electrical, agriculture, personal care & hygiene, custom services, and sports, home & leisure. Recent acquisitions have strengthened the Company’s core businesses serving its custom performance colors, masterbatch solutions, engineered plastics and specialty powders customers.

The Company leverages the following competitive advantages to develop and maintain strong customer relationships and drive continued profitable growth:

•

The Company’s sales and marketing teams partner with customers to understand needs and provide tailored solutions that enhance success through its broad and diverse product line.

•

The Company has a solid reputation in product innovation and application development driven by its market knowledge and insights, customer relationships and research and development capabilities. To further enhance these capabilities, the Company continues to leverage its four global innovation centers located in Belgium, Germany, Mexico and the United States. These centers combine research and innovation in plastics engineering and application technology with specific product developments. They manage the development of collaborative business projects through networks comprised of customers, suppliers, and in some instances, academic institutions and research centers. In addition, the Company also has over a dozen application development centers located within existing facilities. The Company has a long history of successful application development and these dedicated resources further the Company’s advancement with customers and new markets.

•

The Company’s procurement teams are critical to its success as its global purchasing leverage strategy positions the Company to formulate and manufacture products competitively.

•

The Company has manufacturing facilities worldwide allowing it to be an ideal partner by quickly servicing target markets for its local and global customers.

•

The Company’s strong financial position provides the resources to effectively grow in the current economic environment as well as aggressively pursue growth through acquisitions.

The Company has successfully created a strong presence in the global market place, providing new and enhanced product solutions that result in a product portfolio that is strongly positioned in the markets we serve. With world-class innovation centers and manufacturing facilities that host application development centers strategically positioned around the world, A. Schulman is able to anticipate and respond to changing market and customer needs. Accordingly, the Company’s collaboration between development and production is especially important to the Company and its customers, as a quick response to meet their needs is critical. Of course, a quick response means little without quality. A. Schulman has a long and proud history of consistently supplying products of the highest standards, which is evidenced by the Company’s numerous certifications and accreditations as well as supplier awards.

Business Segments

The Company considers its operating structure and the types of information subject to regular review by its President and Chief Executive Officer, or CEO, who is the Chief Operating Decision Maker, or CODM, to identify reportable segments. The CODM makes decisions, assesses performance and allocates resources by the following regions, which are also the Company’s reportable segments: Europe, Middle East and Africa, or EMEA, United States & Canada, or USCAN, Latin America, or LATAM, and Asia Pacific, or APAC.

The CODM uses net sales to unaffiliated customers, segment gross profit, and segment operating income in order to make decisions, assess performance and allocate resources to each segment. Segment operating income does not include items such as interest income or expense, other income or expense, foreign currency transaction gains or losses, restructuring and related costs including accelerated depreciation, asset impairments, or costs and inventory step-up charges related to business acquisitions. Corporate expenses include the compensation of certain personnel, certain audit expenses, Board of Directors related costs, certain insurance costs, costs associated with being a publicly traded entity and other miscellaneous legal and professional fees.

Information regarding the amount of net sales to unaffiliated customers, segment operating income and identifiable assets attributable to each of the Company’s business segments for the last three years is set forth in the Notes to Consolidated Financial Statements of the Company appearing in the Company’s audited consolidated financial statements for the year ended August 31, 2014 included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

Recent Business Transactions

On September 2, 2013, the Company acquired the Perrite Group, or Perrite, a thermoplastics manufacturing business with operations in Malaysia, the United Kingdom and France for $51.3 million, net of cash. Perrite has manufactured and distributed thermoplastic compounds for the household, electrical, automotive and industrial markets for more than 35 years, offering a broad portfolio of standard and custom compounded polymer products. Perrite employs approximately 200 people among the three facilities. Additionally, Perrite competes in attractive target markets such as electronics, appliances and niche automotive, and offers well-established and respected brands to global customers while maintaining a strong track record of profitable growth. The Perrite acquisition provides the opportunity to expand the custom performance colors and engineered plastics business in the APAC region and the manufacturing facility in Malaysia will enhance the Company’s ability to serve key customers in the region, as well as globally. Additionally, the acquisition provides an opportunity to leverage the Company’s broader portfolio of products through our successful color and niche engineered plastics business in the EMEA region.

On December 2, 2013, the Company completed the acquisition of Network Polymers, Inc., a niche engineered plastics compounding business with operations in Akron, Ohio for $49.2 million. The acquisition expands A. Schulman’s product offerings with a broad spectrum of custom resins and alloys to meet customer-specific product design and manufacturing requirements. The acquisition also provides greater penetration in key markets such as building and construction, agricultural products, and lawn and garden, as well as the opportunity to leverage existing A. Schulman products and technology to a wider customer base.

On December 31, 2013 the Company acquired Prime Colorants, a manufacturer of custom color and additive concentrates in Franklin, Tennessee for $15.1 million. The acquisition grew the Company’s custom color capabilities in the U.S., as well as further transformed the U.S. operations from commodity products to a business focused on niche products and services. This acquisition also provides an entry point for A. Schulman in the liquid color market.

On July 1, 2014, the Company acquired the majority of the assets of the specialty plastics business from Ferro Corporation for $91 million. The acquisition strategically expands the Company’s geographic footprint with four facilities located in the U.S. and one facility located in Spain, diversifies the Company’s product mix and strengthens its position in a broad range of attractive product markets. Additionally, the business offers a broad portfolio of proprietary products and recognized brand names serving a wide range of end markets including packaging, transportation, construction, appliances and agriculture. Approximately 300 employees support the five acquired facilities.

On September 2, 2014, the Company acquired Compco Pty. Ltd., a manufacturer of specialty masterbatches and custom colors in Melbourne, Australia for $6.7 million. The acquisition expands the capabilities of the Company’s APAC operations and marks its first entry into the growing pipe and highly regulated wire and cable markets. This acquisition also provides additional growth into key markets that include packaging.

On March 15, 2015, the Company entered into a definitive Stock Purchase Agreement, or Acquisition Agreement, to acquire all of the issued and outstanding shares of privately held HGGC Citadel Plastics Holdings, Inc., or Citadel, a portfolio company of certain private equity firms, for $800 million. The purchase price will be reduced by the amount of Citadel’s indebtedness and unpaid transaction expenses on the closing date, increased by the amount of Citadel’s cash and cash equivalents on the closing date, and may be increased or decreased, as applicable, based on the company’s working capital on the closing date relative to target working capital, among other adjustments. Citadel is a leading North American specialty engineered plastics company that produces thermoset composites and thermoplastic compounds for specialty product applications spanning multiple industries including transportation, industrial & construction, consumer, electrical, energy and healthcare & safety. The transaction is expected to close in the third quarter of the Company’s fiscal 2015. In the event the Company fails to close the acquisition when required due to its failure to secure the financing necessary to complete the acquisition, then, subject to certain exceptions and requirements, either party may terminate the Purchase Agreement and the Company would be required to pay a financing failure fee of $40 million as liquidated damages.

Product Families

Globally, the Company operates in five product families: (1) custom performance colors, (2) masterbatch solutions, (3) engineered plastics, (4) specialty powders and (5) distribution services. The Company offers tolling services to customers primarily in the specialty powders product family.

Custom Performance Colors

Custom Performance Colors, or CPC, offers powdered or pelletized color concentrates custom-designed to enhance virtually all thermoplastic resins. These concentrates are available separately, or can be combined with additives as a complete package providing additional functionality such as weather resistance. In many instances, the Company’s products are designed to deliver multiple attributes to meet customer needs. During fiscal 2014, the CPC product family provided 8% of the Company’s consolidated net sales.

The Company’s expansive offering of color solutions includes:

•

a wide spectrum of standard and customized colors;

•

organic and inorganic pigments;

•

high chroma colors in translucent or opaque formats; and

•

special effects including but not limited to: metallic, pearlescent (shimmer), thermochromatic (heat sensitive), photochromatic (light sensitive), fluorescent, phosphorescent (glow-in-the-dark) and interference (color shift) technologies.

The Company first began expanding color concentrates through its European acquisition of Deltaplast in 2007. Since then, the Company aggressively grew its global network of custom performance colors capabilities through acquisitions as well as strategic investment in key markets. CPC provides customers with a solution-based approach driven by technical understanding, responsive service, and consistent quality to address evolving market needs. The Company’s color business engages with customers at every stage of their product cycle, from color selection to product delivery and ongoing support. Color products are suitable for numerous processes, such as injection molding, blow molding, compression molding, profile extrusion, blown film, cast film, oriented film, rotational molding, sheet and thermoforming, among others.

The Company’s color concentrates excel in many of the same markets as its masterbatch solutions product family (food packaging, industrial packaging, consumer products, etc.) and its engineered plastics product family, which provides an excellent platform for cross utilization of technology. They have become a trusted source for many of the world’s largest consumer products companies, providing aesthetic solutions for a wide range of bottles, caps and closures.

Masterbatch Solutions

Masterbatches, which are also referred to as concentrates, are often the key ingredient in a successful application product formula. These highly concentrated compounds are combined with polymer resins by the Company’s customers at the point-of-process to provide a unique property portfolio that meets needed performance criteria for a given product application. During fiscal 2014, the masterbatch solutions product family provided 31% of the Company’s consolidated net sales.

The Company first began supplying masterbatches through its application development center in Bornem, Belgium in the early 1960s. Since then, the Company has expanded its presence in masterbatch globally. Recent acquisitions have broadened the Company’s product offerings in the high-quality masterbatch markets, provided capacity, flexibility and efficiency to advance our growth in targeted markets, and reduced dependence on large volume, commodity-type automotive applications. The Company’s manufacturing facilities and innovation centers are strategically positioned around the world to ensure that orders are shipped within specification and on time.

The Company’s masterbatch solutions product offerings include:

•

concentrates designed to improve the performance, appearance, and processing of plastics for intended applications such as white color, absorptive, anti-fog, anti-static and carbon black, among others;

•

additive solutions to enhance performance such as antibacterial, flame retardants, ultra-violet, or UV, anti-static, barrier (optimal heat and light transmittance), antioxidants (protection of foods) and processing (foaming agents, slip, process aids, release agents, and anti-blocking) properties; and

•

application solutions that have a reduced impact on the environment such as those that minimize the use of plastics or incorporate the use of either recycled plastics or renewable-based polymers.

Film for agricultural and packaging applications continues to be a primary focus for these products. The Company’s film additives for food packaging are valued for their performance and cost benefits, and are commonly used in biaxially oriented films which are critical for protective packaging of shelf ready foods, snack foods, candy, as well as various consumer products and industrial applications. The Company also provides solutions for agriculture films, offering additives that provide UV control, barrier, and anti-fog solutions among others.

Many of the Company’s masterbatch product offerings contain proprietary technology that plays a key role in providing application solutions that have a reduced impact on the environment. The Company’s technical team works with customers to design and develop products that assist customers in meeting their sustainability goals. The Company continues to advance its additive technologies to support its customer development of more sustainable solutions from packaging to durable goods.

Engineered Plastics

Engineered plastics provide unique performance characteristics by combining high-performance polymer resins with various modifiers, reinforcements, additives and pigments, which result in a compound tailored to meet stringent customer specifications for durable applications. The Company’s products are often developed to replace metal or other traditional materials. During fiscal 2014, the engineered plastics product family provided 31% of the Company’s consolidated net sales.

The Company’s engineered plastics products typically comprise 100% of the plastics material used by its customers in their end products. The Company began formulating a variety of compounds in the early 1950s, meeting the needs of a newly forming plastics industry and has evolved into its current market leader position.

The result of this innovation forms a pipeline of products being produced in A. Schulman facilities around the world. The Company offers an extensive portfolio based on a variety of polymers within the engineered plastics product family, allowing customers to tailor solutions that meet their exact performance needs.

The Company focuses on the ability to develop enhanced polymer solutions that provide:

•

structural integrity such as strength, stiffness, low distortion, among others;

•

multi-component blends that include polyolefins, nylons, polyesters and elastomers, among others; and

•

formulating know-how with fiber reinforcements such as glass and carbon, nano-reinforcements, flame retardants, impact modifiers, and UV stabilization.

The engineered plastics product family uses the Company’s state-of-the-art innovation centers to drive technology and innovation. These centers are highly focused on developing niche solutions that meet the needs of existing and developing markets.

The Company’s engineered plastics product family supplies numerous markets and applications. Durable consumer products and industrial applications are core markets where continued growth is planned, including such applications as building and construction materials, household appliances, electrical connectors, power tools, recreational items, and lawn and garden equipment. The Company also supplies materials for major, high-end, or specified automotive applications, working closely with major global manufacturers.

Specialty Powders

Specialty powders includes size reduction and resins for the injection, blow molding and rotational molding markets. During fiscal 2014, the specialty powders product family provided 14% of the Company’s consolidated net sales.

Size reduction, or grinding, is a major component of the Company’s specialty powders product family and is a specialized process whereby polymer resins produced by chemical manufacturers in pellet form are reduced to a specified powder size and form, depending on the customer’s specifications. The majority of the Company’s size reduction services involve ambient grinding, a mechanical attrition milling process suitable for products which do not require ultrafine particle size and are not highly heat sensitive. The Company also provides jet milling services used for products requiring very fine particle size such as additives for printing ink, adhesives, waxes and cosmetics. Jet milling uses high velocity compressed air to reduce materials to sizes between 0.5 and 150 microns. For materials with specific thermal characteristics (such as heat sensitive materials) or which are soft and difficult to manage, the Company provides cryogenic milling services, which use liquid nitrogen to chill materials to extremely low temperatures to enable grinding and classification. The Company’s cryogenic and jet milling capabilities are highly specialized in the grinding industry and give the Company a competitive advantage that customers value.

The Company supplies customers in the rotational molding market, while utilizing its compounding expertise and global footprint to add value in specialty powders (which includes custom size reduction service applications such as powder coatings, oil field services, cosmetic applications and additive manufacturing/3D printing). Specialty powders products for the injection, blow molding and rotational molding markets include compounded resin powders, such as gas and storage tanks, kayaks, playground slides, and other large applications.

The Company’s specialty powders product portfolio includes:

•

compound colors offered in customized colors and specialty effects;

•

compounds and cross-linkable resins developed specifically for the rotational molding process; and

•

specialty powders for the oil and gas industry.

Distribution Services

As a distributor, the Company works with leading global polymer producers to assist in servicing market segments that are not easily accessible to these producers, or does not fit into these producers’ core customer segment or supply chain. As a merchant, the Company buys, repackages into A. Schulman labeled packaging, and resells producer grade polymers to our customers, providing sales, marketing and technical services where required. During fiscal 2014, the distribution services product family provided 16% of the Company’s consolidated net sales.

A. Schulman leverages its global supply relationships to fill customer needs around the world for a variety of olefinic and non-olefinic resins, as well as selected styrenics and engineering plastics. This consumption of large quantities of base resins also helps support the customers of our other product families by providing purchasing leverage to help keep costs down and providing reliable, convenient access to bulk resin supplies to customers.

The Company’s distribution services offerings include specialty polymers for all processing types, including injection molding, blow molding, thermoforming and film and sheet extruding. Offering various compliant grades, the Company has products that meet the most stringent of needs while allowing customers to optimize their cost-to-performance ratio. Most grades can be supplied in carton, bulk truck and rail car quantities, thus helping customers manage inventory levels and their working capital. The Company’s products are supplied into every major plastics market segment such as packaging, mobility, building and construction, electronics and electrical, and agriculture, among others.

Non Wholly-owned Subsidiaries

A. Schulman International, Inc. is a wholly-owned subsidiary which owns a 65% interest in PT. A. Schulman Plastics, Indonesia, an Indonesian joint venture. This joint venture has a manufacturing facility in East Java, Indonesia, focusing on the masterbatch solutions and custom performance colors product families. The remaining 35% interest in this joint venture is owned by P.T. Prima Polycon Indah.

A. Schulman International, Inc. also owns a 63% interest in Surplast S.A., or Surplast, an Argentinean venture, with Alta Plastica S.A., one of the largest distributors of resins in Argentina. Surplast has one manufacturing facility in Buenos Aires, Argentina, focusing on rotational molded specialty powders.

Prior to December 31, 2011, ASI Investments Holding Co., a wholly-owned subsidiary, owned a 70% partnership interest in The Sunprene Company in Bellevue, Ohio. Effective December 31, 2011, the Company’s partnership with Mitsubishi Chemical MKV Company was dissolved by a vote of the partners.

On June 11, 2012, A. Schulman International, Inc. entered into a 50-50 joint venture with National Petrochemical Industrial Company (NATPET) of Jeddah, Saudi Arabia, a subsidiary of Alujain Corporation, a Saudi Stock Exchange listed company to form Natpet Schulman Specialty Plastic Compounds Co. The venture will produce and globally sell polypropylene compounds from a compounding plant in Yanbu, Saudi Arabia.

On September 6, 2013, A. Schulman Plastics Malaysia and SCG Chemicals Company, Ltd. formed a venture, SCG ICO Polymers Co., Ltd. in which A. Schulman owns a 13% interest. The venture was formed in Thailand to manufacture rotomolding powders and rotomolding compound granules and market and sell these products in the Asia Pacific region.

Employee Information

As of February 28, 2015, the Company had approximately 3,900 employees. Approximately 45% of all of the Company’s employees are represented by various unions under collective bargaining agreements, primarily outside of the United States.

Research and Development

The research and development of new products and the improvement of existing products are important for the Company to continuously improve its product offerings. New product innovation is a term used to describe the new product development process, beginning with the generation of new innovative ideas through their development into new products which are commercialized into the market. The Company has teams of dedicated individuals with varied backgrounds to lead its new product innovation, putting an aggressive global focus on the Company’s research and development activities. New product innovation is a key component of the Company’s organic growth strategy.

Research and development expenses totaled $16.9 million, $8.7 million, and $6.1 million in fiscal years 2014, 2013, and 2012, respectively, related to certain activities performed by manufacturing facilities, innovation and application centers, and analytical laboratories that contribute to the development and significant enhancement of the Company’s current and new products and processes. The $8.2 million increase in research and development expense in fiscal 2014 is further evidence of the Company’s commitment to innovation and belief that research and development is important to our organic growth strategy. Fiscal 2014 investments included improvements in our color matching capabilities within our custom performance colors product family, development of solutions for the mobility market within our engineered plastics product family, product development at manufacturing facilities acquired during the year and an increase in personnel dedicated to research and development efforts.

The Company focuses on its organic growth strategy which is aimed at increasing the Company’s ability to leverage new and existing products into new geographic markets, further explore adjacent markets and improve the profitability of the Company’s product mix. Creating new and collaborative innovation models is key to the growth strategy; therefore, the Company has four global innovation centers located in Belgium, Germany, Mexico and the United States that create faster, focused solutions for customers and partners. The expansion of these critical relationships helps to align the Company’s global technology and product development efforts with the current requirements and emerging needs of its customers and end-markets. The Company also has over a dozen application development centers located within its manufacturing facilities that assist in the discovery of new applications for existing technologies.

The Company utilizes a stage gate process globally for new product and technology development initiatives. A stage gate development process is valued as an effective and efficient method to conduct new product development. The stage gate method is a development process that manages risk in new product development, so the Company’s valuable resources of people and capital are invested to improve the success rate and accelerate the time to market for the Company’s products. The stage gate process can be thought of as a blueprint that maps out the development process and helps to manage risk by the use of gate reviews at critical investment points in the project. Gate reviews ensure that only those projects with the highest probability of success are afforded investment resources during the product development process.

Compliance with Environmental Regulations

The Company believes that its stewardship responsibilities include attention to environmental concerns. The Company addresses its environmental responsibilities on a global basis and senior management regularly reports the Company’s performance to the Board of Directors. Management believes that the Company is in material compliance with the national, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, and such compliance activity does not currently have a material effect upon the capital expenditures, results of operations, financial position or competitive position of the Company.

Dependence on Customers

During the year ended August 31, 2014, the Company’s five largest customers accounted in the aggregate for less than 10% of net sales. In management’s opinion, the Company is not dependent upon any single customer and the loss of any one customer would not have a materially adverse effect on the Company’s business.

Availability of Raw Materials

The raw materials required by the Company are available from a number of major plastic resin producers or other suppliers. The Company does not distinguish between raw materials and finished goods because numerous products that can be sold as finished goods are also used as raw materials in the production of other inventory items. The principal materials used in the manufacture of the Company’s proprietary plastic compounds are polypropylene, polyethylene, polystyrene, nylon and titanium dioxide.

Working Capital Practices

The nature of the Company’s business does not require significant amounts of inventories to be held to meet rapid delivery requirements of its products or services or ensure the Company of a continuous allotment of materials from suppliers. The Company’s manufacturing processes are generally performed with a short response time. The Company generally offers payment terms to its customers that factor in credit risk and industry practices. For additional information relating to the Company’s working capital items, see “Management’s Discussion And Analysis of Financial Condition and Results of Operations,” of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

Competition

The Company’s business is highly competitive. The Company competes with producers of basic plastic resins, many of which also operate compounding plants, as well as other independent plastic compounders. The producers of basic plastic resins generally are large producers of petroleum and chemicals, which are much larger than the Company. Some of these producers compete with the Company principally in such competitors’ own respective local market areas, while other producers compete with the Company on a global basis.

The Company also competes with other merchants and distributors of plastic resins and other products. Limited information is available to the Company as to the extent of its competitors’ sales and earnings in respect of these activities, but management believes that the Company has a fraction of the highly-fragmented distribution market.

Management believes the principal methods of competition in plastics manufacturing are innovation and development of proprietary formulations, application and processing know-how, price, availability of inventory, quality, quick delivery and service. Management believes the principal methods of competition for merchant and distribution activities are price, availability of inventory and service. Management believes it has strong financial capabilities, excellent supplier relationships and the ability to provide quality plastic compounds at competitive prices. In addition, A. Schulman has a strong global footprint which allows the Company to effectively serve multi-national customers globally while maintaining a solid local presence to quickly address changing markets, shorten delivery cycles and local customer demands.

Intellectual Property

The Company uses various trademarks and tradenames in its business. These trademarks and tradenames protect certain names of the Company’s products and are significant to the extent they provide a certain amount of goodwill and name recognition in the industry. The Company also holds patents in various parts of the world for certain of its products. Additionally, the Company utilizes proprietary formulas in its product manufacturing and benefits from intangible assets acquired through acquisitions. Collectively, the Company’s intellectual property, including other intangible assets, contribute to profitability.

International Operations

The Company has facilities and offices positioned throughout the world. Financial information related to the Company’s geographic areas for the three-year period ended August 31, 2014 appears in Note 13 of the Company’s audited consolidated financial statements for the year ended August 31, 2014, included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help investors understand our results of operations, financial condition and current business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015. The MD&A is organized as follows:

•

Overview: From management’s point of view, we discuss the following:

•

Summary of our business and the markets in which we operate;

•

Key trends, developments and challenges; and

•

Significant events during the current fiscal year.

•

Results of Operations: An analysis of our results of operations as reflected in our consolidated financial statements. Throughout this MD&A, the Company provides operating results for continuing operations exclusive of certain items such as costs related to acquisitions, restructuring and related expenses and asset write-downs, which are considered relevant to aid analysis and understanding of the Company’s results and business trends.

•

Critical Accounting Policies: An overview of accounting policies identified by the Company as critical that, as a result of the judgments, uncertainties, and the operations involved, could result in material changes to its financial condition or results of operations under different conditions or using different assumptions.

•

Liquidity and Capital Resources: An analysis of our cash flows, working capital, debt structure, contractual obligations and other commercial commitments.

Overview

Business Summary

A. Schulman, Inc. is an international supplier of high-performance plastic compounds and resins headquartered in Fairlawn, Ohio. The Company’s customers span a wide range of markets such as packaging, mobility, building & construction, electronics & electrical, agriculture, personal care & hygiene, custom services, and sports, home & leisure. The Chief Operating Decision Maker makes decisions, assesses performance and allocates resources by the following regions which represent our reportable segments effective January 1, 2015:

•

Europe, Middle East and Africa (“EMEA”),

•

United States & Canada (“USCAN”),

•

Latin America (“LATAM”), and

•

Asia Pacific (“APAC”).

The Company has approximately 3,900 employees and 42 manufacturing facilities worldwide. Globally, the Company operates in five product families: (1) custom performance colors, (2) masterbatch solutions, (3) engineered plastics, (4) specialty powders and (5) distribution services. The Company offers tolling services to customers primarily in the specialty powders product family.

Key Trends, Developments and Challenges

We continue the execution of our growth strategy, which is a set of initiatives aimed at increasing our ability to leverage our innovative products into different geographic markets and explore adjacent markets and applications in order to improve the profitability of the Company’s product mix and sales volume.

The following present opportunities and challenges as we work toward our goal of providing attractive returns for all of our stakeholders:

•

Cross Selling. We engage in the cross selling of our products through the collaborative efforts and training of our sales teams. We encourage cross selling between different product families and promote cross regional sales to better service our valued customers.

•

Development of New Products. We are dedicated to the development of new, higher-margin products and applications that optimize the appearance, performance, and processing of plastics to meet our customers’ specifications. We strive to maintain a balanced position between low-cost production and technological leadership with focused application development. We are also committed to continuing our growth in high value-added markets and reducing our exposure to commodity markets. We look to enhance our efforts through strategic collaborations with leading innovators in key markets.

•

Innovation Centers. We have four global innovation centers located in Belgium, Germany, Mexico and the United States which promote collaborative partnerships between A. Schulman and our customers, suppliers, universities and other technical organizations. These innovation centers enable us to undertake research and development activities that align our technical and product development capabilities with the emerging needs of our customers and end markets.

•

Adjacent Markets. We are committed to identifying and pursuing adjacent markets, such as personal care and cosmetics, for our products that have sustainable growth opportunities.

•

Purchasing and Pricing. We pursue opportunities to continue our savings on purchasing and to optimize pricing strategies and vendor payment terms. We continue to leverage our global volume base to enhance savings and identify alternate supply sources.

•

Continuous Improvement. The Company’s Six Sigma Black Belt and Green Belt associates continue to look for ways to improve our processes and optimize our performance. We remain determined to control and manage our selling, general and administrative expenses, especially in developed markets.

•

Acquisitions and Joint Ventures. We continue to seek acquisitions and joint ventures that are within our specialty plastics business to leverage our product innovation, technical know-how and market knowledge. We will also continue to explore opportunities for transformational acquisitions that will transition us into a premier specialty chemical company.

Significant Events

The following items represent significant events during fiscal year 2014:

Share Repurchases. On April 3, 2014, the Board of Directors approved a new share repurchase program under which the Company is authorized to repurchase up to $55 million of its common stock. During fiscal 2014, the Company did not repurchase any shares of common stock under this new Program. Under the previous share repurchase program, the Company repurchased 40,327 shares of common stock at an average price of $27.68 per share for a total cost of $1.1 million in fiscal 2014.

Business Acquisitions. On September 2, 2013, the Company acquired the Perrite Group, a thermoplastics manufacturer with business in niche engineered plastics and custom color with operations in Malaysia, the United Kingdom and France, for $51.3 million, net of cash.

On December 2, 2013, the Company completed the acquisition of Network Polymers, a niche engineered plastics compounding business with operations in Akron, Ohio for $49.2 million.

On December 31, 2013, the Company acquired Prime Colorants, a manufacturer of custom color and additive concentrates in Franklin, Tennessee, for $15.1 million.

On July 1, 2014, the Company acquired the majority of the assets of the specialty plastics business from Ferro Corporation (“Specialty Plastics” acquisition) for $91 million which includes four facilities located in the U.S. and one facility located in Spain.

Sale of Australia Business. The Company completed the sale of its rotational compounding business in Australia on September 3, 2013. The operating results for this business were previously included in the Company’s specialty powders product family within the APAC segment and are reported as discontinued operations.

Credit Agreement. On September 24, 2013, the Company entered into a new $500 million Credit Agreement. The agreement consists of a $300 million Revolving Facility and a $200 million Term Loan Facility, replacing a previous $300 million revolving credit facility, and offers increased borrowing capacity and improved terms and covenants. The agreement expires in September 2018.

Long-term Growth Targets. On April 10, 2014, the Company hosted an Investor Day where the Company introduced several new long-term financial targets, which are based largely on the Company’s expectations for continued success with its organic growth initiatives and acquisition strategy, combined with our financial strength and the growth potential of our global markets. The adjusted earnings per share target for fiscal 2018 is $4.50 to $4.75 per diluted share.

Appointment of President and Chief Executive Officer. On June 19, 2014, the Company’s Board of Directors named Bernard Rzepka as President and Chief Executive Officer of the Company, effective January 2015. In addition, the Board nominated Joseph M. Gingo to continue as the Chairman of the Board after his retirement as President and Chief Executive Officer. The nomination of Mr. Gingo as Chairman of the Board is subject to his re-election as a director by shareholders at the Company’s annual meeting in December 2014.

The following items represent significant events during early fiscal 2015:

Business Acquisition. On September 2, 2014, the Company acquired Compco Pty. Ltd., a manufacturer of masterbatches and custom colors in Melbourne, Australia for $6.7 million.

Dividend Activities. In October 2014, the Company increased its regular quarterly cash dividend by 2.5% to $0.205 per common share. This reflected the Company’s confidence in its ability to generate cash and its long-term growth prospects, along with a continued commitment to shareholders.

Restructuring Plan. In October 2014, the Company announced actions to optimize the back-office and support functions in EMEA. The Company expects to reduce headcount by approximately 40 and realize annual savings of approximately $4 million on completion of these actions.

Results of Operations

FISCAL YEAR 2014 COMPARED WITH FISCAL YEAR 2013

The Company uses net sales to unaffiliated customers, gross profit and operating income before certain items in order to make decisions, assess performance and allocate resources to each segment. The following discussion regarding the Company’s segment gross profit and operating income does not include items such as interest income or expense, other income or expense, foreign currency transaction gains or losses, restructuring and related expenses including accelerated depreciation, asset impairments, or costs and inventory step-up charges related to business acquisitions. Corporate expenses include the compensation of certain personnel, certain audit expenses, Board of Directors related costs, certain insurance costs, costs associated with being a publicly traded entity and other miscellaneous legal and professional fees. For a reconciliation of segment operating income to operating income and income from continuing operations before taxes, please refer to Note 13 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

Segment Information


	Year Ended August 31,
											Favorable (unfavorable)
EMEA	2014			2013			Increase (decrease)				FX Impact		Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		1,262,027			1,167,603			94,424	8.1	%
Net sales	$	1,577,867		$	1,405,882		$	171,985	12.2	%	$	53,072		8.5	%
Segment gross profit	$	206,268		$	179,242		$	27,026	15.1	%	$	6,890		11.2	%
Segment gross profit percentage		13.1	%		12.7	%
Segment operating income	$	80,690		$	67,320		$	13,370	19.9	%	$	2,556		16.1	%
Price per pound	$	1.250		$	1.204		$	0.046	3.8	%	$	0.042		0.3	%
Segment operating income per pound	$	0.064		$	0.058		$	0.006	10.3	%	$	0.002		6.9	%

EMEA net sales for the year ended August 31, 2014 were $1,577.9 million, an increase of $172.0 million or 12.2%, compared with the prior year. Excluding the favorable impact of foreign currency translation of $53.1 million, net sales increased $118.9 million. During fiscal 2014, the incremental contribution of the Perrite and Specialty Plastics acquisitions was $93.2 million and 60.8 million pounds in net sales and volume, respectively. Excluding acquisitions and foreign currency translation, organic sales increased $25.7 million, primarily driven by volume increases in all product families.

EMEA gross profit was $206.3 million for the year ended August 31, 2014, an increase of $27.0 million over prior year. The improvement over prior year was due to the positive contribution of the Perrite and Specialty Plastics acquisitions combined with the favorable impact of foreign currency translation of $6.9 million and organic growth across nearly all product families.

EMEA operating income for the year ended August 31, 2014 was $80.7 million, an increase of $13.4 million compared with the prior year. The increase in segment operating income in fiscal 2014 was primarily due to the aforementioned increase in segment gross profit, benefits from prior restructuring activities of $3.8 million and a reduction of bad debt expense of $1.8 million. Partially offsetting these items were incremental SG&A expenses from acquisitions of $5.0 million and increased variable incentive compensation and a government regulated increase in annual salaries of $5.4 million, and increased promotional trade show activities of $0.9 million. Foreign currency translation negatively impacted EMEA SG&A expense by $4.3 million. Segment operating income per pound increased $0.006 to $0.064 per pound primarily due to increased price per pound, partially offset by increased SG&A expense.


	Year Ended August 31,
											Favorable (unfavorable)
USCAN	2014			2013			Increase (decrease)				FX Impact			Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		526,845			501,640			25,205	5.0	%
Net sales	$	475,050		$	400,449		$	74,601	18.6	%	$	(1,036	)		18.9	%
Segment gross profit	$	73,278		$	52,906		$	20,372	38.5	%	$	(166	)		38.8	%
Segment gross profit percentage		15.4	%		13.2	%
Segment operating income	$	30,418		$	16,643		$	13,775	82.8	%	$	(165	)		83.8	%
Price per pound	$	0.902		$	0.798		$	0.104	13.0	%	$	(0.002	)		13.3	%
Segment operating income per pound	$	0.058		$	0.033		$	0.025	75.8	%	$	—			75.8	%

Net sales for USCAN for the years ended August 31, 2014 and 2013 were $475.1 million and $400.4 million, respectively, an increase of $74.6 million or 18.6%. Incremental net sales and volume from the Network Polymers, Prime Colorants and the Specialty Plastics acquisitions were $70.2 million and 46.7 million pounds for the year ended August 31, 2014, respectively. Excluding acquisitions, selling price per pound increased in all product families, while volume declined across nearly all product families partially driven by the continued execution of the Company’s strategy to increase specialty product sales and shift away from less profitable commodity sales.

USCAN gross profit was $73.3 million for the year ended August 31, 2014, an increase of $20.4 million from the prior year primarily due to the benefits of improved product mix and recent acquisitions. Prior restructuring initiatives improved gross profit by $0.7 million while variable incentive compensation increased by $1.4 million.

USCAN operating income for the year ended August 31, 2014 was $30.4 million compared with $16.6 million the prior year. Segment operating income benefited from the increase in segment gross profit, offset by increases in SG&A expense from recent acquisitions of $4.8 million and higher variable incentive compensation expense of $1.2 million.


	Year Ended August 31,
												Favorable (unfavorable)
LATAM	2014			2013			Increase (decrease)					FX Impact			Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		142,172			152,274			(10,102	)	(6.6	)%
Net sales	$	198,313		$	200,375		$	(2,062	)	(1.0	)%	$	(13,322	)		5.6	%
Segment gross profit	$	26,239		$	28,409		$	(2,170	)	(7.6	)%	$	(1,512	)		(2.3	)%
Segment gross profit percentage		13.2	%		14.2	%
Segment operating income	$	8,388		$	11,708		$	(3,320	)	(28.4	)%	$	(357	)		(25.3	)%
Price per pound	$	1.395		$	1.316		$	0.079		6.0	%	$	(0.094	)		13.1	%
Segment operating income per pound	$	0.059		$	0.077		$	(0.018	)	(23.4	)%	$	(0.003	)		(19.5	)%

Net sales for LATAM for the years ended August 31, 2014 and 2013 were $198.3 million and $200.4 million, respectively, a decrease of $2.1 million or 1.0%. Excluding the negative impact of foreign currency exchange of $13.3 million, net sales increased by 5.6%. Volumes declined particularly in the specialty powders product family.

LATAM gross profit was $26.2 million for the year ended August 31, 2014, a decrease of $2.2 million from the prior year. Foreign currency translation negatively impacted gross profit by $1.5 million, partially offset by the benefits of prior restructuring initiatives of $0.8 million.

LATAM operating income for the year ended August 31, 2014 was $8.4 million compared with $11.7 million the prior year. Segment operating income decreased due to the above mentioned decrease in segment gross profit and increases in SG&A expense of $1.1 million. SG&A expenses increased primarily due to increased variable compensation expense of $0.9 million. Foreign currency translation negatively impacted the LATAM operating income by $0.4 million.


	Year Ended August 31,
												Favorable (unfavorable)
APAC	2014			2013			Increase (decrease)					FX Impact			Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		153,899			95,994			57,905		60.3	%
Net sales	$	195,768		$	126,696		$	69,072		54.5	%	$	(649	)		55.0	%
Segment gross profit	$	26,767		$	22,345		$	4,422		19.8	%	$	(57	)		20.0	%
Segment gross profit percentage		13.7	%		17.6	%
Segment operating income	$	12,527		$	12,108		$	419		3.5	%	$	131			2.4	%
Price per pound	$	1.272		$	1.320		$	(0.048	)	(3.6	)%	$	(0.004	)		(3.3	)%
Segment operating income per pound	$	0.081		$	0.126		$	(0.045	)	(35.7	)%	$	—			(35.7	)%

Net sales for APAC for the year ended August 31, 2014 were $195.8 million, an increase of $69.1 million or 54.5%. During fiscal 2014, the Perrite acquisition in APAC provided net sales and volume of $53.6 million and 40.3 million pounds, respectively. Excluding the Perrite acquisition, volumes increased across all product families, partially offset by decreased price per pound driven by competitive pricing pressures primarily in the masterbatch solutions product family. Foreign currency translation unfavorably impacted net sales by $0.6 million.

APAC gross profit for the year ended August 31, 2014 was $26.8 million, an increase of $4.4 million compared with the prior year. Segment gross profit benefited from the positive contribution of the Perrite acquisition. The APAC gross profit percentage declined as a result of product mix and the competitive pricing pressures, as noted above.

APAC operating income for the year ended August 31, 2014 was $12.5 million, compared with $12.1 million the prior year. The increase in segment operating income was primarily due to the increased segment gross profit and favorable foreign currency translation, partially offset by incremental SG&A expenses from the Perrite acquisition of $2.3 million.


	Year Ended August 31,
									Favorable (unfavorable)
Consolidated	2014		2013		Increase (decrease)				FX Impact		Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		2,084,943		1,917,511		167,432	8.7	%
Net sales	$	2,446,998	$	2,133,402	$	313,596	14.7	%	$	38,065		12.9	%
Operating income	$	82,321	$	63,103	$	19,218	30.5	%	$	2,135		27.1	%
Total operating income before certain items*	$	99,853	$	82,853	$	17,000	20.5	%	$	2,165		17.9	%
Price per pound	$	1.174	$	1.113	$	0.061	5.5	%	$	0.019		3.8	%
Total operating income per pound before certain items*	$	0.048	$	0.043	$	0.005	11.6	%	$	0.001		9.3	%

Total operating income before certain items represents segment operating income combined with Corporate and other operating expenses. For a reconciliation of segment operating income to operating income and income from continuing operations before taxes, refer to Note 13 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

Consolidated net sales for the year ended August 31, 2014 were $2,447.0 million, an increase of $313.6 million, or 14.7%, compared with the same prior year period. Incremental net sales and volume from the Company’s recent acquisitions contributed $217.0 million and 147.8 million pounds, respectively, for the year ended August 31, 2014. Excluding the impact of recent acquisitions, net sales were positively impacted by a 3.5% increase in price per pound and 1.0% increase in volume. Foreign currency translation favorably impacted net sales for the year ended August 31, 2014 by $38.1 million.

Operating income increased $19.2 million for the year ended August 31, 2014 compared to the prior year. Total operating income, before certain items, for the year ended August 31, 2014 was $99.9 million, an increase of $17.0 million compared with last fiscal year. The increase in both operating income and total operating income, before certain items, was primarily due to increased gross profit across all segments, partially offset by the increased SG&A expense noted below. Recent acquisitions contributed $12.3 million of operating income, before certain items.

Excluding $9.8 million and $5.4 million of acquisition and restructuring related costs for the years ended August 31, 2014 and 2013, respectively, the Company’s SG&A expenses increased $32.7 million for the year ended August 31, 2014 compared with the prior year. The increase was primarily attributable to incremental SG&A expense of $12.1 million from recent acquisitions, higher variable incentive compensation expense of $11.5 million and unfavorable foreign currency translation of $3.0 million. The increase in variable incentive compensation expense consists of $6.2 million of annual performance-based cash bonus primarily impacting the regions and $5.3 million of long-term incentive compensation primarily impacting Corporate.

Additional consolidated results

Interest expense, net of interest income, increased $1.1 million for the year ended August 31, 2014, as compared with the prior year primarily related to increased borrowings for recent acquisitions.

Generally, the foreign currency transaction gains or losses relate to the changes in the value of the U.S. dollar compared with the Euro and other local currencies throughout all regions, and also changes between the Euro and other non-Euro European currencies. The Company may enter into foreign exchange forward contracts to reduce the impact of changes in foreign exchange rates on the consolidated statements of operations. These contracts reduce exposure to currency movements affecting the remeasurement of foreign currency denominated assets and liabilities primarily related to trade receivables and payables, as well as intercompany activities. Any gains or losses associated with these contracts, as well as the offsetting gains or losses from the underlying assets or liabilities, are recognized on the foreign currency transaction line in the consolidated statements of operations. There were no foreign exchange forward contracts designated as hedging instruments as of August 31, 2014 and 2013.

Other income for the year ended August 31, 2014 was $0.4 million, compared with other income of $0.2 million for the year ended August 31, 2013. In both fiscal 2014 and 2013, there were no individually significant transactions.

Noncontrolling interests represent a 37% equity position of Alta Plastica S.A. in an Argentinean venture with the Company and a 35% equity position of P.T. Prima Polycon Indah in an Indonesian joint venture with the Company.

Net income attributable to the Company’s common stockholders was $56.2 million and $26.1 million for the years ended August 31, 2014 and 2013, respectively. Foreign currency translation had a favorable impact on net income of $3.0 million for the year ended August 31, 2014.

Product Family

The consolidated net sales for the Company’s five product families are as follows:


	Year Ended August 31,
	2014				2013
	(In thousands, except for %’s)
Custom performance colors	$	186,667	8	%	$	164,128	8	%
Masterbatch solutions		768,723	31			743,846	35
Engineered plastics		753,347	31			559,462	26
Specialty powders		350,510	14			308,620	14
Distribution services		387,751	16			357,346	17

Total consolidated net sales	$	2,446,998	100	%	$	2,133,402	100	%

Fiscal 2013 and 2014 includes a reclassification of revenue between product families to better reflect the way the businesses are managed.

Capacity

The Company’s practical capacity is not based on a theoretical 24-hour, seven-day operation, rather it is determined as the production level at which the manufacturing facilities can operate with an acceptable degree of efficiency, taking into consideration factors such as longer term customer demand, permanent staffing levels, operating shifts, holidays, scheduled maintenance and mix of product. Capacity utilization is calculated by dividing actual production pounds by practical capacity at each plant. A comparison of capacity utilization levels is as follows:


	Years ended August 31,
	2014			2013
EMEA		82	%		77	%
USCAN		63	%		64	%
LATAM		76	%		79	%
APAC		70	%		68	%
Worldwide		73	%		72	%

Restructuring

Consolidated Restructuring Summary

The following table summarizes the activity related to the Company’s restructuring plans:


	Employee- related Costs			Other Costs			Translation Effect			Total Restructuring Costs
	(In thousands)
Accrual balance as of August 31, 2012	$	3,524		$	381		$	(539	)	$	3,366
Fiscal 2013 charges		8,669			1,831			—			10,500
Fiscal 2013 payments		(6,747	)		(1,812	)		—			(8,559	)
Translation		—			—			42			42

Accrual balance as of August 31, 2013	$	5,446		$	400		$	(497	)	$	5,349
Fiscal 2014 charges		2,223			2,660			—			4,883
Fiscal 2014 payments		(5,924	)		(2,689	)		—			(8,613	)
Translation		—			—			193			193

Accrual balance as of August 31, 2014	$	1,745		$	371		$	(304	)	$	1,812

See Note 15 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further details regarding the Company’s restructuring activities.

Asset Impairment

The Company recorded $0.1 million and $1.9 million in pretax asset impairment charges during the years ended August 31, 2014 and 2013, respectively.

During fiscal 2014 and 2013, the Company recorded asset impairment charges of $0.1 million and $0.5 million, respectively, related to a reduction in the carrying value of one of the Company’s facilities in Oyonnax, France, which was held for sale as of August 31, 2014 and 2013. The impairment charges were determined based on the estimated sales value of the facility less the estimated costs to sell utilizing information provided by a third-party real estate valuation source using the market approach. During early fiscal 2015, the Company sold this facility to a third-party for $0.6 million, which approximated its carrying value.

During fiscal 2013 and 2012, the Company recorded asset impairment charges of $1.4 million and $2.7 million related to a reduction in the carrying value of the Company’s facility in Verolanuova, Italy using comparable prices for similar facilities provided by a third-party real estate valuation source using the market approach. During fiscal 2014, the Company sold this facility to a third-party for $1.5 million, which approximated its carrying value.

Refer to Note 19 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for the discussion on impairment charges included in discontinued operations.

Income Tax

A reconciliation of the statutory U.S. federal income tax rate with the effective tax rates is as follows:


	Year Ended August 31,
	2014					2013
	(In thousands, except for %’s)
U.S. statutory federal income tax rate	$	25,316		35.0	%	$	18,806		35.0	%
Amount of foreign taxes at less than U.S. statutory federal income tax rate		(13,602	)	(18.8	)		(9,189	)	(17.1	)
U.S. and foreign losses with no tax benefit		4,899		6.8			5,826		10.8
U.S. restructuring and other U.S. charges with no benefit		3,010		4.2			1,704		3.2
Valuation allowance charges		—		—			2,361		4.4
Establishment (resolution) of uncertain tax positions		(121	)	(0.2	)		(84	)	(0.2	)
Other		(960	)	(1.3	)		309		0.6

Provision (benefit) for U.S. and foreign income taxes	$	18,542		25.7	%	$	19,733		36.7	%

The effective tax rate for the year ended August 31, 2014 was less than the U.S. statutory federal income tax rate primarily because of the Company’s overall foreign rate being less than the U.S. statutory federal income tax rate. This favorable effect of the Company’s tax rate was partially offset by no tax benefits being recognized for U.S. restructuring and other U.S. charges and certain foreign losses. The change in the effective tax rate compared with the same period the prior year was driven primarily by lower U.S. and foreign losses with no benefit in fiscal 2014 as well as the valuation allowance established in the second quarter of fiscal 2013 against the net operating loss deferred tax asset of the Company’s Brazilian entity due to the uncertainty in the realization of this asset.

FISCAL YEAR 2013 COMPARED WITH FISCAL YEAR 2012

Segment Information


	Year ended August 31,
												Favorable (unfavorable)
EMEA	2013			2012			Increase (decrease)					FX Impact		Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		1,167,603			1,174,515			(6,912	)	(0.6	)%
Net sales	$	1,405,882		$	1,403,151		$	2,731		0.2	%	$	4,226		(0.1	)%
Segment gross profit	$	179,242		$	175,669		$	3,573		2.0	%	$	359		1.8	%
Segment gross profit percentage		12.7	%		12.5	%
Segment operating income	$	67,320		$	71,849		$	(4,529	)	(6.3	)%	$	39		(6.4	)%
Price per pound	$	1.204		$	1.195		$	0.009		0.8	%	$	0.004		0.4	%
Segment operating income per pound	$	0.058		$	0.061		$	(0.003	)	(4.9	)%	$	—		(4.9	)%

EMEA net sales for the year ended August 31, 2013 were $1,405.9 million, an increase of $2.7 million or 0.2%, compared with the prior year. Excluding the favorable impact of foreign currency translation of $4.2 million, net sales decreased $1.5 million which was impacted by reduced volume, primarily in the specialty powders and engineered plastics product families due to the weak economic environment in Europe. During fiscal 2013, the incremental contribution of the Elian acquisition was $18.5 million and 5.9 million pounds in net sales and volume, respectively.

EMEA gross profit was $179.2 million for the year ended August 31, 2013, an increase of $3.6 million over prior year. The positive contribution of the Elian acquisition combined with the favorable impact of foreign currency translation of $0.4 million was partially offset by the challenging economic environment in Europe.

EMEA operating income for the year ended August 31, 2013 was $67.3 million, a decrease of $4.5 million compared with the prior year. The decrease in segment operating income in fiscal 2013 was primarily due to an $8.1 million increase in selling, general and administrative expenses (“SG&A”). The increase in SG&A expense was primarily driven by increased compensation and benefits expense of $3.8 million, excluding Elian, which includes increased pension expense and annual government regulated compensation increases. SG&A expense was also impacted by increased bad debt expense of $1.0 million, increased information technology expense of $0.8 million, and incremental expenses of $2.5 million from Elian. These expenses were partially offset by savings from successful restructuring initiatives. Segment operating income per pound decreased $0.003 to $0.058 per pound primarily due to the aforementioned economic environment in Europe and increased SG&A expenses.


	Year ended August 31,
											Favorable (unfavorable)
USCAN	2013			2012			Increase (decrease)				FX Impact			Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		501,640			473,066			28,574	6.0	%
Net sales	$	400,449		$	375,521		$	24,928	6.6	%	$	(28	)		6.6	%
Segment gross profit	$	52,906		$	51,548		$	1,358	2.6	%	$	(12	)		2.7	%
Segment gross profit percentage		13.2	%		13.7	%
Segment operating income	$	16,643		$	15,441		$	1,202	7.8	%	$	(13	)		7.9	%
Price per pound	$	0.798		$	0.794		$	0.004	0.5	%	$	—			0.5	%
Segment operating income per pound	$	0.033		$	0.033		$	—	—	%	$	—			—	%

Net sales for USCAN for the years ended August 31, 2013 and 2012 were $400.4 million, and $375.5 million, respectively, an increase of $24.9 million or 6.6%. Incremental net sales and volume from the ECM Plastics, Inc. acquisition were $37.9 million and 33.8 million pounds for the year ended August 31, 2013, respectively. Excluding the impact of ECM Plastics, Inc., net sales and volume decreased primarily in the engineered plastics product family.

USCAN gross profit was $52.9 million for the year ended August 31, 2013, an increase of $1.4 million from the prior year. The contribution from the ECM Plastics, Inc. acquisition was partially offset by decreases primarily in the specialty powders product family.

USCAN operating income for the year ended August 31, 2013 was $16.6 million compared with $15.4 million the prior year. Segment operating income increased as a result of the aforementioned increase in segment gross profit, decreased variable incentive compensation expense of $2.2 million and savings from successful restructuring initiatives, partially offset by the incremental expenses from the ECM Plastics, Inc. acquisition of $4.7 million.


	Year ended August 31,
												Favorable (unfavorable)
LATAM	2013			2012			Increase (decrease)					FX Impact			Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		152,274			137,352			14,922		10.9	%
Net sales	$	200,375		$	183,389		$	16,986		9.3	%	$	(652	)		9.6	%
Segment gross profit	$	28,409		$	32,734		$	(4,325	)	(13.2	)%	$	192			(13.8	)%
Segment gross profit percentage		14.2	%		17.8	%
Segment operating income	$	11,708		$	13,431		$	(1,723	)	(12.8	)%	$	733			(18.3	)%
Price per pound	$	1.316		$	1.335		$	(0.019	)	(1.4	)%	$	(0.004	)		(1.1	)%
Segment operating income per pound	$	0.077		$	0.098		$	(0.021	)	(21.4	)%	$	0.005			(26.5	)%

Net sales for LATAM for the years ended August 31, 2013 and 2012 were $200.4 million, and $183.4 million, respectively, an increase of $17.0 million or 9.3%. Net sales and volume increased primarily in the specialty powders and engineered plastics product families. Foreign currency translation negatively impacted net sales by $0.7 million.

LATAM gross profit was $28.4 million for the year ended August 31, 2013, a decrease of $4.3 million from the prior year. Gross profit decreased primarily due to increased costs in Mexico to meet customer demand in Brazil as a result of the shortfall in production caused by the facility consolidation. Additional expenses were incurred as the Company increased capacity in Mexico to address anticipated improvement in local market demand that did not materialize. During the fourth quarter of fiscal 2013, the Company initiated restructuring activities to address these issues as discussed below.

LATAM operating income for the year ended August 31, 2013 was $11.7 million compared with $13.4 million the prior year. Segment operating income decreased as a result of the aforementioned decrease in segment gross profit, offset primarily by the favorable impact of $0.7 million from foreign currency translation and a $2.6 million decrease in SG&A expenses. The decrease in SG&A expenses was primarily due to successful restructuring initiatives and cost control efforts combined with reduced incentive compensation expense of $1.2 million.


	Year ended August 31,
												Favorable (unfavorable)
APAC	2013			2012			Increase (decrease)					FX Impact		Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		95,994			96,893			(899	)	(0.9	)%
Net sales	$	126,696		$	119,211		$	7,485		6.3	%	$	1,151		5.3	%
Segment gross profit	$	22,345		$	19,969		$	2,376		11.9	%	$	253		10.6	%
Segment gross profit percentage		17.6	%		16.8	%
Segment operating income	$	12,108		$	10,908		$	1,200		11.0	%	$	211		9.1	%
Price per pound	$	1.320		$	1.230		$	0.090		7.3	%	$	0.012		6.3	%
Segment operating income per pound	$	0.126		$	0.113		$	0.013		11.5	%	$	0.002		9.7	%

Net sales for APAC for the year ended August 31, 2013 were $126.7 million, an increase of $7.5 million or 6.3% primarily due to improved selling price per pound and product mix. Decreased volumes in the masterbatch solutions and specialty powders product families were largely offset by the increased volumes in the engineered plastics product family. Foreign currency translation favorably impacted net sales by $1.2 million.

APAC gross profit for the year ended August 31, 2013 was $22.3 million, an increase of $2.4 million compared with the prior year. The increase in segment gross profit was primarily due to the 7.3% increase in price per pound combined with a continued focus on products with higher technical requirements, partially offset by increased plant costs in China and India associated with the start-up of new production lines.

APAC operating income for the year ended August 31, 2013 was $12.1 million, compared with $10.9 million the prior year. The increase in profitability was principally due to the increase in segment gross profit offset by an increase of $1.2 million in SG&A expenses mainly related to increased compensation expense to support growth in the region and the establishment of the APAC regional office in Hong Kong.


	Year ended August 31,
										Favorable (unfavorable)
Consolidated	2013		2012		Increase (decrease)					FX Impact		Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		1,917,511		1,881,826		35,685		1.9	%
Net sales	$	2,133,402	$	2,081,272	$	52,130		2.5	%	$	4,697		2.3	%
Operating income	$	63,103	$	73,403	$	(10,300	)	(14.0	)%	$	965		(15.3	)%
Total operating income before certain items*	$	82,853	$	87,843	$	(4,990	)	(5.7	)%	$	971		(6.8	)%
Price per pound	$	1.113	$	1.106	$	0.007		0.6	%	$	0.003		0.4	%
Total operating income per pound before certain items*	$	0.043	$	0.047	$	(0.004	)	(8.5	)%	$	—		(8.5	)%

The increase of $52.1 million in consolidated net sales for the year ended August 31, 2013 compared with the prior fiscal year was primarily a result of incremental net sales and volume from the Elian and ECM Plastics, Inc. acquisitions of $56.4 million and 39.7 million pounds, respectively. Net sales were positively impacted by the $4.7 million favorable impact of foreign currency translation. Excluding the positive impact of acquisitions and foreign currency translation, net sales and volume decreased primarily due to the aforementioned economic environment in Europe.

The Company’s SG&A expenses increased $7.9 million for the year ended August 31, 2013 compared with the prior year, excluding acquisition-related transaction costs of $2.7 million and restructuring related costs of $2.7 million for fiscal 2013 and $1.4 million of acquisition-related transaction costs for fiscal 2012. The increase was primarily attributable to incremental SG&A expense of $7.1 million from recent acquisitions, bad debt expense of $1.0 million and an increase in pension expense of $2.2 million. In addition, the Company invested in global marketing related initiatives, strategic planning in the APAC region, the establishment of the APAC regional headquarters in Hong Kong and the global ERP project. This was partially offset by savings from successful restructuring initiatives and cost control efforts, including $3.6 million related to the EMEA restructuring plans. Foreign currency translation favorably impacted SG&A expense by $0.2 million.

Operating income decreased $10.3 million for the year ended August 31, 2013 compared to the prior year. Total operating income, before certain items, for the year ended August 31, 2013 was $82.9 million, a decrease of $5.0 million compared with the prior year. The decrease in both operating income and total operating income, before certain items, was primarily due to the aforementioned increase in SG&A expense.

Additional consolidated results

Interest expense, net of interest income, decreased $0.5 million for the year ended August 31, 2013, as compared with the prior year primarily due to decreased borrowings.

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 $2.4 million and $0.2 million for the years ended August 31, 2013 and 2012, respectively. Foreign currency transaction losses during fiscal 2013 were primarily related to increased import activity in Brazil. Generally, the foreign currency transaction gains or losses relate to the changes in the value of the U.S. dollar compared with the Euro and other local currencies throughout all regions, and also changes between the Euro and other non-Euro European currencies. The Company may enter into foreign exchange forward contracts to reduce the impact of changes in foreign exchange rates on the consolidated statements of operations. These contracts reduce exposure to currency movements affecting the remeasurement of foreign currency denominated assets and liabilities primarily related to trade receivables and payables, as well as intercompany activities. Any gains or losses associated with these contracts, as well as the offsetting gains or losses from the underlying assets or liabilities, are recognized on the foreign currency transaction line in the consolidated statements of operations. There were no foreign exchange forward contracts designated as hedging instruments as of August 31, 2013 and 2012.

Other income for the year ended August 31, 2013 was $0.2 million, compared with other income of $1.3 million for the year ended August 31, 2012. In both fiscal 2013 and 2012, there were no individually significant transactions.

Noncontrolling interests represent a 49% equity position of Alta Plastica S.A. in an Argentinean venture with the Company and a 35% equity position of P.T. Prima Polycon Indah in an Indonesian joint venture with the Company. Effective December 31, 2011, the Company’s partnership with Mitsubishi Chemical MKV Company, which held a 30% equity position in The Sunprene Company in Bellevue, Ohio, was dissolved by a vote of the partners.

Net income attributable to the Company’s common stockholders was $26.1 million and $50.9 million for the years ended August 31, 2013 and 2012, respectively. Foreign currency translation had a positive impact on net income of $0.6 million for the year ended August 31, 2013.

Product Family

The consolidated net sales for the Company’s five product families are as follows:


	Year ended August 31,
	2013				2012
	(In thousands, except for %’s)
Custom performance colors	$	164,128	8	%	$	125,595	6	%
Masterbatch solutions		743,846	35			750,531	36
Engineered plastics		559,462	26			547,090	26
Specialty powders		308,620	14			314,965	16
Distribution services		357,346	17			343,091	16

Total consolidated net sales	$	2,133,402	100	%	$	2,081,272	100	%

Fiscal 2013 includes a reclassification of revenue between product families to better reflect the way the businesses are managed.

Capacity


	Years ended August 31,
	2013			2012
EMEA		77	%		79	%
USCAN		64	%		66	%
LATAM		79	%		90	%
APAC		68	%		81	%
Worldwide		72	%		76	%

During fiscal 2013, the Company’s new facility in India became operational. Additionally, the Company’s APAC segment experienced lower capacity utilization as additional manufacturing capacity was added to existing facilities to meet anticipated demand in the region.

Restructuring

Consolidated Restructuring Summary

The following table summarizes the activity related to the Company’s restructuring plans:


	Employee- related Costs			Other Costs			Translation Effect			Total Restructuring Costs
	(In thousands)
Accrual balance as of August 31, 2011	$	3,322		$	403		$	70		$	3,795
Fiscal 2012 charges		7,581			1,675			—			9,256
Fiscal 2012 payments		(7,379	)		(1,697	)		—			(9,076	)
Translation		—			—			(609	)		(609	)

Accrual balance as of August 31, 2012	$	3,524		$	381		$	(539	)	$	3,366
Fiscal 2013 charges		8,669			1,831			—			10,500
Fiscal 2013 payments		(6,747	)		(1,812	)		—			(8,559	)
Translation		—			—			42			42

Accrual balance as of August 31, 2013	$	5,446		$	400		$	(497	)	$	5,349

For discussion on the Company’s restructuring plans, refer to Note 15 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

Asset Impairment

The Company recorded $1.9 million and $3.4 million in pretax asset impairment charges during the years ended August 31, 2013 and 2012, respectively.

During fiscal 2013, the Company recorded $0.4 million in asset impairments related to the reduction of the carrying value of its facility in Oyonnax, France. Additionally, the Company reduced the carrying value of its facility in Verolanuova, Italy and recorded pretax impairment charges of $1.4 million and $2.7 million in fiscal 2013 and 2012, respectively. Refer to the fiscal 2014 asset impairment discussion above for further details on these two facilities.

In fiscal 2012, as a result of the former Americas Engineered Plastics restructuring initiative, the Company reduced the carrying value of its facility, machinery and equipment in Nashville, Tennessee to its combined fair value of $3.8 million. The disposal value of the facility was determined as the estimated sales value of the assets less the costs to sell based on information provided by a third-party real estate valuation source. The disposal value of machinery and equipment to be sold or disposed of was determined based on estimated salvage value. The Company recorded pretax impairment charges of $0.5 million in fiscal 2012, primarily related to real estate, machinery and equipment at the Nashville, Tennessee facility. During fiscal 2013, the Company sold the Nashville, Tennessee facility which resulted in a minimal impact on the Company’s consolidated financial results.

Income Tax

A reconciliation of the statutory U.S. federal income tax rate with the effective tax rates is as follows:


	Year Ended August 31,
	2013					2012
	(In thousands, except for %’s)
U.S. statutory federal income tax rate	$	18,806		35.0	%	$	23,389		35.0	%
Amount of foreign taxes at less than U.S. statutory federal income tax rate		(9,189	)	(17.1	)		(11,373	)	(17.0	)
U.S. and foreign losses with no tax benefit		5,826		10.8			1,291		1.9
U.S. restructuring and other U.S. charges with no benefit		1,704		3.2			1,029		1.5
Valuation allowance charges		2,361		4.4			(2,380	)	(3.6	)
Establishment (resolution) of uncertain tax positions		(84	)	(0.2	)		1,718		2.6
Other		309		0.6			244		0.4

Provision (benefit) for U.S. and foreign income taxes	$	19,733		36.7	%	$	13,918		20.8	%

The effective tax rate for the year ended August 31, 2013 is greater than the U.S. statutory rate primarily because of no tax benefits being recognized for U.S. and certain foreign losses, realization of tax charges due to changes in valuation allowances, and U.S. restructuring and other U.S. charges with no benefit. These unfavorable effects on the Company tax rate were partially offset by the Company’s overall foreign rate being less than the U.S. statutory rate. The change in the effective tax rate compared with the same prior year period was driven primarily by the valuation allowance established in the second quarter of fiscal 2013 against the net operating loss deferred tax asset of the Company’s Brazilian entity due to the uncertainty in the realization of this asset and the adjustment to the Italian valuation allowance in fiscal 2012.

The effective tax rate for the year ended August 31, 2012 was less than the U.S. statutory rate primarily because of the Company’s overall foreign rate being less than the U.S. statutory rate and an adjustment to the Italian valuation allowance. These favorable effects on the Company’s tax rate were partially offset by no tax benefits being recognized for U.S. and certain foreign losses as well as the establishment of a liability for uncertain tax positions.

CRITICAL ACCOUNTING POLICIES

The Company has identified critical accounting policies that, as a result of the judgments, uncertainties, and the operations involved, could result in material changes to its financial condition or results of operations under different conditions or using different assumptions. The Company’s critical accounting policies relate to the allowance for doubtful accounts, inventory reserve, restructuring charges, purchase accounting and goodwill, long-lived assets, income taxes, pension and other postretirement benefits and stock-based compensation.

Allowance for Doubtful Accounts

Management records an allowance for doubtful accounts receivable based on the current and projected credit quality of the Company’s customers, customer payment history, and other factors that affect collectability. Changes in these factors or changes in economic circumstances could result in changes to the allowance for doubtful accounts.

Inventory Reserve

Management establishes an inventory reserve based on historical experience and amounts expected to be realized for slow-moving and obsolete inventory. The Company continuously monitors its slow-moving and obsolete inventory and makes adjustments as considered necessary. The proceeds from the sale or dispositions of these inventories may differ from the net recorded amount.

Restructuring Charges

The Company’s policy is to recognize restructuring costs in accordance with the accounting rules related to exit or disposal activities and compensation and non-retirement post-employment benefits. Detailed contemporaneous documentation is maintained and updated to ensure that accruals are properly supported. If management determines that there is a change in estimate, the accruals are adjusted to reflect this change.

Purchase Accounting and Goodwill

Business combinations are accounted for using the purchase method of accounting. This method requires the Company to record assets and liabilities of the business acquired at their estimated fair market values as of the acquisition date. Any excess of the cost of the acquisition over the fair value of the net assets acquired is recorded as goodwill. The Company generally uses valuation specialists to perform appraisals and assist in the determination of the fair values of the assets acquired and liabilities assumed. These valuations require management to make estimates and assumptions.

Goodwill is tested for impairment annually as of June 1. If circumstances change during interim periods between annual tests that would more likely than not reduce the fair value of a reporting unit below its carrying value, the Company would test goodwill for impairment. Factors which would necessitate an interim goodwill impairment assessment include a sustained decline in the Company’s stock price, prolonged negative industry or economic trends, and significant underperformance relative to expected historical or projected future operating results.

Management uses judgment to determine whether to use a qualitative analysis or a quantitative fair value measurement for its goodwill impairment testing. The Company’s fair value measurement approach combines the income and market valuation techniques for each of the Company’s reporting units that carry goodwill. These valuation techniques use estimates and assumptions including, but not limited to, the determination of appropriate market comparables, projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and projected future economic and market conditions.

Effective September 1, 2012, the masterbatch product family was split into two separate product families, custom performance colors and masterbatch solutions. Consequently, the related goodwill was allocated to the custom performance colors and masterbatch solutions reporting units in EMEA, USCAN and LATAM based on the relative fair value of these reporting units. Additional goodwill was recorded in fiscal 2013 as a result of the ECM Plastics, Inc. acquisition and in fiscal 2014 due to the Perrite Group, Network Polymers, Inc., Prime Colorants and Specialty Plastics acquisitions. All acquired goodwill was allocated to appropriate reporting units based on relative fair values.

2014 Annual Goodwill Impairment Test

As of June 1, 2014, the annual goodwill impairment test date for fiscal 2014, goodwill exists in five of the Company’s reporting units in EMEA (masterbatch solutions, engineered plastics, specialty powders, custom performance colors and distribution services), four of the reporting units in the former Americas segment (masterbatch solutions, custom performance colors, engineered plastics and specialty powders) and one reporting unit in APAC (engineered plastics).

Qualitative Analysis

The Company applied the qualitative goodwill impairment accounting guidance to its EMEA masterbatch, EMEA distribution services, former Americas masterbatch and former Americas custom performance colors reporting units as of June 1, 2014. Qualitative trends and factors considered in the Company’s analysis included overall economic conditions, access to capital markets, industry projections, competitive environment, actual and forecast operating results, business strategy, stock price and market capitalization, and other relevant qualitative trends and factors. These trends and factors were both compared to, and based on, the assumptions used in the quantitative assessment performed in fiscal 2013. As of June 1, 2014, the Company concluded that there were no indicators of impairment to the goodwill for the Company’s EMEA masterbatch, EMEA distribution services, former Americas masterbatch and former Americas custom performance colors reporting units.

Quantitative Analysis

Management used the quantitative fair value measurement for its annual goodwill impairment test as of June 1, 2014 for the EMEA engineered plastics, EMEA specialty powders, EMEA custom performance colors, former Americas engineered plastics, former Americas specialty powders and APAC engineered plastics reporting units. The fair values of all these reporting units were established using a combination of the income and market approaches. These valuation methodologies use estimates and assumptions, as noted above.

Based on this quantitative analysis, management concluded that as of June 1, 2014, the EMEA engineered plastics, EMEA custom performance colors, the former Americas specialty powders and APAC engineered plastics reporting units had fair values that substantially exceeded their carrying values.

Management also concluded, based on the quantitative fair value measurements performed, that as of June 1, 2014, the fair values of the EMEA specialty powders and former Americas engineered plastics reporting units exceeded their carrying values by 13% in each instance. As of August 31, 2014, the EMEA specialty powders reporting unit had goodwill of $19.0 million while goodwill in the former Americas engineered plastics reporting unit was $28.4 million. The goodwill associated with these reporting units is primarily the result of the acquisitions made within the last few years. Generally, goodwill recorded in business combinations is more susceptible to risk of impairment soon after the acquisition primarily because the business combination is recorded at fair value based on operating plans and economic conditions present at the time of the acquisition. If operating results or economic conditions deteriorate soon after an acquisition, it could result in the impairment of the acquired goodwill. A change in macroeconomic conditions in the former Americas and EMEA regions, as well as future changes in the judgments, assumptions and estimates that were used in the Company’s goodwill impairment testing for these two reporting units, including the discount rate and future cash flow projections, could result in a significantly different estimate of the fair value.

As of January 1, 2015, the goodwill that was previously allocated to four reporting units within the former Americas reportable segment was split into seven reporting units within the Company’s two new reportable segments, USCAN and LATAM. The Company now reports goodwill in four new reporting units in USCAN (masterbatch solutions, custom performance colors, engineered plastics and specialty powders) and three new reporting units in LATAM (masterbatch solutions, custom performance colors and specialty plastics.).

The Company reviewed goodwill allocated to each of the reporting units within the former Americas segment and newly created USCAN and LATAM segments immediately before and after the reallocation and concluded no interim impairment tests were necessary.

See Note 4 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further discussion on goodwill.

Long-lived Assets

Long-lived assets, except goodwill and indefinite-lived intangible assets, are reviewed for impairment when circumstances indicate the carrying value of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of the asset group to future undiscounted net cash flows estimated by the Company to be generated by such asset groups. Fair value is the basis for the measurement of any asset write-downs that are recorded. Adjustments to the estimated remaining useful lives may result in accelerated depreciation, which is included in cost of sales.

Income Taxes

The Company’s provision for income taxes involves a significant amount of judgment by management. This provision is impacted by the income and tax rates of the countries where the Company operates. A change in the geographical source of the Company’s income can have a significant effect on the tax rate. No taxes are provided on certain foreign earnings which are permanently reinvested.

Various taxing authorities periodically audit the Company’s tax returns. These audits may include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures associated with these various tax filing positions, the Company records tax liabilities for uncertain tax positions where the likelihood of sustaining the position is not more-likely-than-not based on its technical merits. A significant period of time may elapse before a particular matter, for which the Company has recorded a tax liability, is audited and fully resolved.

The establishment of the Company’s tax liabilities relies on the judgment of management to estimate the exposures associated with its various filing positions. Although management believes those estimates and judgments are reasonable, actual results could differ, resulting in gains or losses that may be material to the Company’s consolidated statements of operations.

To the extent that the Company prevails in matters for which tax liabilities have been recorded, or are required to pay amounts in excess of these tax liabilities, the Company’s effective tax rate in any given financial statement period could be materially affected. An unfavorable tax settlement could result in an increase in the Company’s effective tax rate in the financial statement period of resolution. A favorable tax settlement could be recognized as a reduction in the Company’s effective tax rate in the financial statement period of resolution.

The Company records a valuation allowance to reduce its deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is considered to determine whether a valuation allowance is needed. Evidence, such as the results of operations for the current and preceding years, is given more weight than projections of future income, which is inherently uncertain. The Company’s losses in the U.S. in recent periods provide sufficient negative evidence to require a full valuation allowance against its net deferred tax assets in the U.S. The Company intends to maintain a valuation allowance against its net deferred tax assets in the U.S. until sufficient positive evidence exists to support realization of such assets.

Pension and Other Postretirement Benefits

The Company has several postretirement benefit plans worldwide. These plans consist primarily of defined benefit and defined contribution pension plans and other postretirement benefit plans. These benefit plans are a significant cost of doing business that represents obligations that will be ultimately settled far into the future. Pension and postretirement benefit accounting is intended to reflect the recognition of future benefit costs over the employee’s approximate period of employment based on the terms of the plans and the investment and funding decisions made by the Company.

For financial statements prepared in conformity with accounting principles generally accepted in the United States of America, management is required to make many assumptions in order to value the plans’ liabilities on a projected and accumulated basis, as well as to determine the annual expense for the plans. The assumptions chosen take into account historical experience, the current economic environment and management’s best judgment regarding future experience. Assumptions include the discount rate, the expected long-term rate of return on assets, future salary increases, health care escalation rates, cost of living increases, turnover, retirement ages and mortality. While management believes the Company’s assumptions are appropriate, significant differences in the Company’s actual experience or significant changes in the Company’s assumptions, including the discount rate used and the expected long-term rate of return on plan assets, may materially affect the Company’s pension and postretirement obligations and future expenses.

Accounting guidance requires the full unfunded liability to be recognized on the consolidated balance sheet. The cumulative difference between actual experience and assumed experience is included in accumulated other comprehensive income (loss). For most of the plans, these gains or losses are recognized in expense over the average future service period of employees to the extent that they exceed 10% of the greater of the Projected Benefit Obligation (or Accumulated Postretirement Benefit Obligation for other postretirement benefits) and assets. The effects of any plan changes are also included as a component of accumulated other comprehensive income (loss) and then recognized in expense over the average future service period of the affected plan.

The Company consults with various actuaries at least annually when reviewing and selecting the discount rates to be used. The discount rates used by the Company are based on yields of various local corporate and governmental bond indices with actual maturity dates that approximate the estimated benefit payment streams of the related pension plans. The discount rates are also reviewed in comparison with current benchmark indices, economic market conditions and the movement in the benchmark yield since the previous fiscal year. The liability weighted-average discount rate for the defined benefit pension plans is 2.8% as of August 31, 2014, compared with 4.0% as of August 31, 2013. For the other postretirement benefit plan, the rate is 3.8% as of August 31, 2014 and 4.5% as of August 31, 2013. This rate represents the interest rates generally available in the United States, which is the Company’s only country with other postretirement benefit liabilities. Another assumption that affects the Company’s pension expense is the expected long-term rate of return on assets. Some of the Company’s plans are funded. The weighted-average expected long-term rate of return on assets assumption is 5.2% for fiscal 2014. In consultation with its actuaries, the Company estimates its pension expense will increase by $2.5 million in fiscal 2015 compared with fiscal 2014 primarily as a result of a decrease in the weighted-average discount rate assumption.

The following table illustrates the sensitivity to a change in the assumed discount rate and expected long-term rate of return on assets for the Company’s pension plans and other postretirement plans as of August 31, 2014:


Change in Assumption	Impact on Fiscal 2014 Benefits Expense			Impact on August 31, 2014 Projected Benefit Obligation for Pension Plans			Impact on August 31, 2014 Projected Benefit Obligation for Postretirement Plans
	(In thousands)
25 basis point decrease in discount rate	$	489		$	8,422		$	306
25 basis point increase in discount rate	$	(456	)	$	(7,887	)	$	(293	)
25 basis point decrease in expected long-term rate of return on assets	$	82		$	—		$	—
25 basis point increase in expected long- term rate of return on assets	$	(82	)	$	—		$	—

Share-based Compensation

The Company grants certain types of equity awards as part of its long-term incentive compensation strategy. All such awards are expensed based on the fair value of the respective award. Fair value for awards that involve service or performance conditions for vesting is determined based on the market price on the grant date, while fair value for awards which include market conditions for vesting requires the use of a valuation model. The concept of modeling is used with such awards because observable market prices for these types of awards are not available. The modeling technique that is generally considered to most appropriately value this type of award is the Monte Carlo valuation model.

The Monte Carlo valuation model requires assumptions based on management’s judgment regarding, among others, the volatility of the Company’s stock, the correlation between the Company’s stock price and that of its peer companies and the expected rate of interest. The Company uses historical data, corresponding to the vesting period, to determine the assumptions to be used in the Monte Carlo valuation model and has no reason to believe that future data is likely to materially differ from historical data. However, changes in the assumptions to reflect future stock price volatility, future correlation experience and future interest rates may result in a material change to the fair value of such awards. While management believes the Company’s assumptions used are appropriate, significant differences in the Company’s actual experience or significant changes in the Company’s assumptions, including the volatility of the Company’s stock, the correlation rate and the interest rate, may materially affect the Company’s future share-based compensation expense.

The awards with a market condition granted prior to fiscal 2013 are accounted for as equity awards given that recipients receive shares of stock upon vesting, and expense for these awards is recognized over the service period regardless of whether the market condition is achieved and the awards ultimately vest. Awards with a market condition granted in fiscal 2014 and 2013 provide recipients an option to receive cash or shares of common stock upon vesting. Consequently, such awards are accounted for as liability awards and the Company remeasures these awards at fair value on a quarterly basis over the service period. Expense for these awards is recognized only to the extent the market conditions are achieved and the awards ultimately vest.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided from operations was $113.1 million, $83.7 million and $99.5 million for the years ended August 31, 2014, 2013 and 2012, respectively. The increase of $29.4 million in cash provided by operations was primarily due to the increase in net income in fiscal 2014 as compared with 2013. The Company has generated $296.4 million in net cash from operations in fiscal 2014, 2013 and 2012 combined.

The Company’s cash and cash equivalents increased $1.4 million since August 31, 2013. This increase was driven primarily by cash provided from operations in fiscal 2014, coupled with proceeds from the sale of assets of $6.0 million and increased net borrowings of $141.6 million to fund the fiscal 2014 acquisitions. This was offset by the fiscal 2014 acquisitions for $206.6 million in cash consideration, expenditures for capital projects of $35.1 million and dividend payments of $23.7 million.

The Company’s approximate working capital days are summarized as follows:


	August 31, 2014		August 31, 2013
Days in receivables		55		53
Days in inventory		50		53
Days in payables		48		48
Total working capital days		57		58

The following table summarizes certain key balances on the Company’s consolidated balance sheets and related metrics:


	August 31, 2014		August 31, 2013		$ Change		% Change
	(In thousands, except for %’s)
Cash and cash equivalents	$	135,493	$	134,054	$	1,439		1.1	%
Working capital, excluding cash	$	263,715	$	243,910	$	19,805		8.1	%
Long-term debt	$	339,546	$	207,435	$	132,111		63.7	%
Total debt	$	371,294	$	215,808	$	155,486		72.0	%
Net debt *	$	235,801	$	81,754	$	154,047		188.4	%
Total A. Schulman, Inc.’s Stockholders’ equity	$	527,043	$	507,377	$	19,666		3.9	%

Net debt, a non-GAAP financial measure, represents total debt less cash and cash equivalents. The Company believes that net debt provides useful supplemental liquidity information to investors.

As of August 31, 2014 and August 31, 2013, 95% of the Company’s cash and cash equivalents were held by its foreign subsidiaries. The majority of these foreign cash balances are associated with earnings that we have asserted are permanently reinvested and which we plan to use to support continued growth plans outside the U.S. through funding of capital expenditures, acquisitions, operating expenses or other similar cash needs of foreign operations. From time to time, we repatriate cash from foreign subsidiaries to the U.S. through intercompany dividends for normal operating needs and service outstanding debt. These dividends are typically paid out of current year earnings. In addition, excess cash in the U.S. is generally used to repay outstanding debt.

Working capital, excluding cash, was $263.7 million as of August 31, 2014, an increase of $19.8 million from August 31, 2013. The fiscal 2014 acquisitions contributed $42 million to working capital. The translation effect of foreign currencies, primarily the Euro, increased working capital by $5.9 million. Excluding the impact of fiscal 2014 acquisitions, working capital decreased $20.8 million largely due to decreases in inventory and other current assets of $9.3 million and $3.3 million, respectively.

Capital expenditures for the year ended August 31, 2014 were $35.1 million compared with $26.6 million the prior year. Capital expenditures for fiscal year 2014 primarily related to the regular and ongoing investment in the Company’s manufacturing facilities.

In the first quarter of fiscal 2014, the Company and certain of its wholly-owned subsidiaries entered into an amended and restated Credit Agreement, dated September 24, 2013, and containing a maturity date of September 24, 2018, with JPMorgan Chase Bank, N.A., as administrative agent, J.P. Morgan Europe Limited, as global agent, the lenders named in the Credit Agreement and J.P. Morgan Securities LLC, Wells Fargo Securities, LLC and PNC Capital Markets LLC as lead arrangers (“the Credit Agreement”). The Credit Agreement provides for:

•

a multicurrency revolving credit facility in the aggregate principal amount of up to $300 million (the “Revolving Facility”);

•

a $200 million term loan facility (the “Term Loan Facility”) with quarterly payments due until maturity; and

•

an expansion feature allowing the Company to incur, subject to certain terms and conditions, up to an additional $250 million of revolving loans and/or term loans (“the Incremental Facility” and, together with the Revolving Facility and the Term Loan Facility, the “Credit Facility”).

The Credit Facility is jointly and severally guaranteed by certain material domestic subsidiaries. The Credit Agreement contains certain covenants that, among other things, restrict the Company’s ability to incur indebtedness and grant liens other than certain types of permitted indebtedness and permitted liens. The Company is also required to maintain a minimum interest coverage ratio and cannot exceed a maximum net debt leverage ratio. The Company was in compliance with these covenants and does not believe a subsequent covenant violation is reasonably possible as of August 31, 2014.

Interest rates under the Credit Agreement are based on LIBOR or EURIBOR (depending on the borrowing currency) plus a spread determined by the Company’s total leverage ratio. The Company is also required to pay a facility fee on the commitments, whether used or unused. The Revolving Facility provides for a portion of the funds to be made available as a short-term swing-line loan. The swing-line loan interest rate varies based on a mutually agreed upon rate between the bank and the Company. As of August 31, 2014, the amount available under the Credit Facility was reduced by outstanding letters of credit of $0.7 million and borrowings of $296.0 million. Outstanding letters of credit and borrowings under the previous credit agreement as of August 31, 2013 were $1.0 million and $150.0 million, respectively.

On February 14, 2014, the Company obtained a $15.0 million uncommitted line of credit from a regional financial institution, available until September 24, 2018. The interest rate is based upon the 30-day LIBOR index that is 10 basis points below the applicable spread on the Revolving Facility, noted above. The Company has $15.0 million of outstanding borrowings under this line of credit as of August 31, 2014 which are included in short-term debt on the Company’s consolidated balance sheet.

On March 1, 2006, the Company issued €50.3 million of senior guaranteed notes in Germany in the private placement market maturing on March 1, 2016, with a fixed interest rate of 4.485% (the “Euro Notes”). The Euro Notes require annual principal payments of €2.5 million beginning in fiscal 2012. As of August 31, 2014, the amount of Euro Notes outstanding approximated €42.8 million, or $56.4 million. Repayment of the Euro Notes prior to maturity would cost approximately $7.1 million in early termination fees as of August 31, 2014.

The Euro Notes are guaranteed by certain material domestic subsidiaries and contain covenants similar to those in the Credit Agreement discussed above. The Company was in compliance with its covenants relating to the Euro Notes and does not believe a subsequent covenant violation is reasonably possible as of August 31, 2014.

The Company’s interest bearing short-term debt of $31.7 million as of August 31, 2014 had a weighted-average interest rate of approximately 3.1%. Interest bearing short-term debt as of August 31, 2013 was $8.4 million with a weighted-average interest rate of approximately 10.1%.

Below summarizes the Company’s available funds:


	As of August 31,
	2014		2013
	(In thousands)
Existing capacity:
Revolving Facility	$	300,000	$	300,000
Term Loan Facility		190,625		—
Domestic short-term lines of credit		15,000		—
Foreign short-term lines of credit		53,520		56,178

Total capacity from credit lines and notes	$	559,145	$	356,178

Availability:
Revolving Facility	$	193,909	$	149,024
Foreign short-term lines of credit		49,250		49,302

Total available funds from credit lines and notes	$	243,159	$	198,326

Total available funds from credit lines and notes represents the total capacity from credit lines and notes less outstanding borrowings of $315.3 million and $156.9 million as of August 31, 2014 and 2013, respectively, and issued letters of credit of $0.7 million and $1.0 million as of August 31, 2014 and 2013, respectively.

The Company’s underfunded pension liability is $133.1 million as of August 31, 2014. This amount is primarily due to an underfunded plan of $107.4 million maintained by the Company’s German subsidiary. Under this plan, no separate vehicle is required to accumulate assets to provide for the payment of benefits. The benefits are paid directly by the Company to the participants. It is anticipated that the German subsidiary will generate sufficient funds from operations to pay these benefits in the future.

During the year ended August 31, 2014, the Company paid cash dividends aggregating to $0.80 per share. The total amount of these dividends was $23.7 million. Cash flow has been sufficient to fund the payment of these dividends.

On April 3, 2014, the Board of Directors approved a new share repurchase program under which the Company is authorized to repurchase up to $55 million of its common stock in the open market or in privately negotiated transactions, subject to market and other conditions (the “Program”). Repurchases under the Program may take place over a three-year period ending April 2, 2017, when the Program is scheduled to expire. During fiscal 2014, the Company did not repurchase any shares of common stock under the Program, which may be modified, suspended or terminated by the Company at any time. The Program replaces the Company’s previous share repurchase program, which was authorized on April 1, 2011 and expired on March 31, 2014.

In fiscal 2014, the Company repurchased 40,327 shares of common stock under the previous share repurchase program at an average price of $27.68 per share for a total cost of $1.1 million. In total under the previous program, the Company acquired 2,192,612 shares at an average price of $20.33 per share.

The Company has foreign currency exposures primarily related to the Euro, British pound sterling, Polish zloty, Mexican peso, Brazilian real, and Argentine peso, among others. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using current exchange rates. Income statement items are translated at average exchange rates prevailing during the period. The resulting translation adjustments are recorded in the accumulated other comprehensive income (loss) account in stockholders’ equity. A significant portion of the Company’s operations uses the Euro as its functional currency. The change in the value of various foreign currencies, primarily the Euro, during the year ended August 31, 2014 increased the accumulated other comprehensive income (loss) account by $5.0 million which was primarily the result of a 4.1% increase in the twelve-month average value of the Euro from 1.308 Euros to 1 U.S. dollar in fiscal 2013 to 1.361 Euros to 1 U.S. dollar in fiscal 2014. Overall, the value of the Euro decreased 0.4% from 1.324 Euros to 1 U.S. dollar as of August 31, 2013 to 1.319 as of August 31, 2014.

Cash flow from operations, borrowing capacity under the credit facilities and current cash and cash equivalents are expected to provide sufficient liquidity to maintain the Company’s current operations and capital expenditure requirements, pay dividends, repurchase shares, pursue acquisitions and service outstanding debt.

A summary of the Company’s future obligations subsequent to August 31, 2014 is presented below:


	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
	(In thousands)
Short-Term Debt^(a)	$	31,646	$	—	$	—	$	—	$	31,646
Long-Term Debt^(a),(h)		—		75,665		263,525		—		339,190
Capital Lease Obligations^(a)		102		216		137		3		458
Operating Lease Obligations^(b)		11,378		14,078		8,128		18,227		51,811
Purchase Obligations^(c)		123,801		27,790		12,723		—		164,314
Pension Obligations^(d)		5,636		—		—		—		5,636
Postretirement Benefit Obligations^(e)		890		1,719		1,697		4,001		8,307
Deferred Compensation Obligations^(f)		200		350		—		—		550
Interest Payments^(g)		8,618		13,908		5,829		—		28,355
NATPET Investment⁽ⁱ⁾		12,792		—		—		—		12,792

	$	195,063	$	133,726	$	292,039	$	22,231	$	643,059

^(a)	Short-term debt, long-term debt and capital lease information is provided in the Notes to the Consolidated Financial Statements. Short-term debt and long-term debt in the table above exclude capital lease obligations.

^(b)	Operating lease information is provided in the Notes to the Consolidated Financial Statements.

^(c)	Purchase obligations include purchase contracts and purchase orders for inventory.

^(d)	Pension obligations represent future estimated pension payments to comply with local funding requirements, as well as estimated benefit payments. The projected payments beyond fiscal year 2015 are not currently determinable.

^(e)	Postretirement benefit obligations represent the estimated benefit payments of the U.S. postretirement benefit plan using the plan provisions in effect as of August 31, 2014.

^(f)	Deferred compensation obligations represent payments in accordance with agreements for two individuals for a ten-year period through fiscal 2018.

^(g)	Interest obligations on the Company’s short and long-term debt are included assuming the outstanding debt levels and interest rates will be consistent with those as of August 31, 2014.

^(h)	The Company’s long-term debt was refinanced in September 2013 and matures in September 2018.

⁽ⁱ⁾	The NATPET investment represents the Company’s commitment for an investment of €9.7 million in a joint venture agreement with NATPET of Jeddah, Saudi Arabia.

The Company had $3.8 million of gross unrecognized tax benefits and $0.9 million of accrued interest and penalties on unrecognized tax benefits as of August 31, 2014, for which it could not reasonably estimate the timing and amount of future payments; therefore, no amounts were included in the Company’s future obligations table. Additional information on unrecognized tax benefits is provided in the Notes to the Consolidated Financial Statements.

The Company’s outstanding commercial commitments as of August 31, 2014 are not material to the Company’s financial position, liquidity or results of operations except as discussed in the Notes to the Consolidated Financial Statements.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements.

NEW ACCOUNTING PRONOUNCEMENTS

For a discussion of new accounting pronouncements, see Note 1 to the consolidated financial statements in ITEM 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

Cautionary Statements

A number of the matters discussed in this document that are not historical or current facts deal with potential future circumstances and developments and may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historic or current facts and relate to future events and expectations. Forward-looking statements contain such words as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. Forward-looking statements are based on management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which management is unable to predict or control, that may cause actual results, performance or achievements to differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements, and that could adversely affect the Company’s future financial performance, include, but are not limited to, the following:

•

worldwide and regional economic, business and political conditions, including continuing economic uncertainties in some or all of the Company’s major product markets or countries where the Company has operations;

•

the effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques;

•

competitive factors, including intense price competition;

•

fluctuations in the value of currencies in major areas where the Company operates;

•

volatility of prices and availability of the supply of energy and raw materials that are critical to the manufacture of the Company’s products, particularly plastic resins derived from oil and natural gas;

•

changes in customer demand and requirements;

•

effectiveness of the Company to achieve the level of cost savings, productivity improvements, growth and other benefits anticipated from acquisitions, joint ventures and restructuring initiatives;

•

escalation in the cost of providing employee health care;

•

uncertainties regarding the resolution of pending and future litigation and other claims;

•

the performance of the global automotive market as well as other markets served;

•

further adverse changes in economic or industry conditions, including global supply and demand conditions and prices for products; and

•

operating problems with our information systems as a result of system security failures such as viruses, computer “hackers” or other causes.

The risks and uncertainties identified above are not the only risks the Company faces. Additional risk factors that could affect the Company’s performance are set forth in ITEM 1A, RISK FACTORS, of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015. In addition, risks and uncertainties not presently known to the Company or that it believes to be immaterial also may adversely affect the Company. Should any known or unknown risks or uncertainties develop into actual events, or underlying assumptions prove inaccurate, these developments could have material adverse effects on the Company’s business, financial condition and results of operations.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The Company’s exposure to market risk from changes in interest rates relates primarily to variable rate debt obligations which include the Revolving Facility, Term Loan Facility, foreign short-term lines of credit and other floating rate debt. As of August 31, 2014, the Company had $315.0 million outstanding against these facilities. Borrowing costs may fluctuate depending upon the volatility of interest rates and amounts borrowed. There would be an estimated $0.5 million impact on annual interest expense from a 10% increase or decrease in market rates of interest on outstanding variable rate borrowings as of August 31, 2014. The terms of the new credit facility entered into on September 24, 2013 include a 50 basis point rate improvement over the prior agreement in effect as of August 31, 2013.

Foreign Currency Exchange Risk

The Company conducts business on a multinational basis in a variety of foreign currencies. The Company’s exposure to market risk for changes in foreign currency exchange rates arises from anticipated transactions from international trade and repatriation of foreign earnings. The Company’s principal foreign currency exposures relate to the Euro, British pound sterling, Polish zloty, Mexican peso, Brazilian real and Argentine peso, among others.

The Company enters into forward exchange contracts to reduce its exposure to fluctuations in related foreign currencies. These contracts are with major financial institutions and the risk of loss is considered remote. The total value of open contracts and any risk to the Company as a result of these arrangements is not material to the Company’s financial position, liquidity or results of operations. The potential change in fair value as of August 31, 2014 for such financial instruments from an increase or decrease of 10% in quoted foreign currency exchange rates would be $0.1 million.

Commodity Price Risk

The Company uses certain commodities, primarily plastic resins, in its manufacturing processes. The cost of operations can be affected as the market for these commodities changes. As the price of resin increases or decreases, market prices for the Company’s products will also generally increase or decrease. This will typically lead to higher or lower average selling prices and will impact the Company’s gross profit and operating income. The impact on operating income is due to a lag in matching the change in raw material cost of sales and the change in product sales prices. The Company attempts to minimize its exposure to resin price changes by monitoring and carefully managing the quantity of its inventory on hand and product sales prices.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

A. Schulman, Inc.

Index to the Consolidated Financial Statements


	Page
Report of Independent Registered Public Accounting Firm		35

Consolidated Statements of Operations for the three years ended August 31, 2014		36

Consolidated Statements of Comprehensive Income for the three years ended August 31, 2014		37

Consolidated Balance Sheets as of August 31, 2014 and 2013		38

Consolidated Statements of Stockholders’ Equity for the three years ended August 31, 2014		39

Consolidated Statements of Cash Flows for the three years ended August 31, 2014		40

Notes to Consolidated Financial Statements		41

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of A. Schulman, Inc.

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of A. Schulman, Inc. and its subsidiaries at August 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 1992. The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, management has excluded the Perrite Group, Network Polymers, Inc., Prime Colorants, and the specialty plastics business of Ferro Corporation from its assessment of internal control over financial reporting as of August 31, 2014, because they were acquired by the Company in purchase business combinations during fiscal 2014. We have also excluded the above acquisitions from our audit of internal control over financial reporting. All of the acquisitions are wholly-owned subsidiaries. The total assets for the Perrite Group, Network Polymers, Inc., Prime Colorants and the specialty plastics business of Ferro Corporation represent 6.5%, 3.2%, 1.2%, and 7.4% respectively, of the related consolidated financial statement amounts as of August 31, 2014. The total revenue for the Perrite Group, Network Polymers, Inc., Prime Colorants and the specialty plastics business of Ferro Corporation represent 5.8%, 1.9%, 0.3%, and 1.0% respectively, of the related consolidated financial statement amounts for the year ended August 31, 2014.

/s/ PricewaterhouseCoopers LLP

Cleveland, Ohio

October 22, 2014 (except with respect to our opinion on the consolidated financial statements insofar as it relates to the effects of the business segment reclassification discussed in Note 13 as to which the date is April 27, 2015)

A. SCHULMAN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended August 31,
	2014			2013			2012
	(In thousands, except per share data)
Net sales	$	2,446,998		$	2,133,402		$	2,081,272
Cost of sales		2,116,990			1,852,223			1,802,029
Selling, general and administrative expenses		242,486			205,370			193,502
Restructuring expense		4,883			10,500			9,256
Asset impairment		104			1,873			3,392
Curtailment and settlement (gains) losses		214			333			(310	)

Operating income		82,321			63,103			73,403
Interest expense		8,503			7,657			8,351
Interest income		(286	)		(495	)		(676	)
Foreign currency transaction (gains) losses		2,206			2,426			243
Other (income) expense, net		(434	)		(217	)		(1,342	)

Income from continuing operations before taxes		72,332			53,732			66,827
Provision (benefit) for U.S. and foreign income taxes		18,542			19,733			13,918

Income from continuing operations		53,790			33,999			52,909
Income (loss) from discontinued operations, net of tax		3,202			(6,671	)		(860	)

Net income		56,992			27,328			52,049
Noncontrolling interests		(799	)		(1,229	)		(1,162	)

Net income attributable to A. Schulman, Inc.	$	56,193		$	26,099		$	50,887

Weighted-average number of shares outstanding:
Basic		29,061			29,260			29,389
Diluted		29,362			29,337			29,549
Basic earnings per share attributable to A. Schulman, Inc.
Income from continuing operations	$	1.82		$	1.12		$	1.76
Income (loss) from discontinued operations		0.11			(0.23	)		(0.03	)

Net income attributable to A. Schulman, Inc.	$	1.93		$	0.89		$	1.73

Diluted earnings per share attributable to A. Schulman, Inc.
Income from continuing operations	$	1.80		$	1.12		$	1.75
Income (loss) from discontinued operations		0.11			(0.23	)		(0.03	)

Net income attributable to A. Schulman, Inc.	$	1.91		$	0.89		$	1.72

Cash dividends per common share	$	0.80		$	0.78		$	0.72

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

A. SCHULMAN, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Year Ended August 31,
	2014			2013			2012
	(In thousands)
Net Income	$	56,992		$	27,328		$	52,049
Other comprehensive income (loss):
Foreign currency translation gains (losses), net of tax of $0		4,987			4,174			(46,647	)
Net change in net actuarial gains (losses), net of tax of $8,262 in 2014, $55 in 2013 and $4,204 in 2012		(21,813	)		2,710			(6,200	)
Net change in prior service (costs) credits, net of tax of $0		(634	)		(436	)		(3,171	)

Other comprehensive income (loss)		(17,460	)		6,448			(56,018	)

Comprehensive income (loss)		39,532			33,776			(3,969	)
Less: comprehensive income (loss) attributable to noncontrolling interests		712			1,074			1,072

Comprehensive income (loss) attributable to A. Schulman, Inc.	$	38,820		$	32,702		$	(5,041	)

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

A. SCHULMAN, INC.

CONSOLIDATED BALANCE SHEETS


	August 31, 2014			August 31, 2013
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	135,493		$	134,054
Accounts receivable, net		384,444			310,749
Inventories		292,141			261,658
Prepaid expenses and other current assets		40,473			41,224

Total current assets		852,551			747,685

Property, plant and equipment, at cost:
Land and improvements		28,439			27,954
Buildings and leasehold improvements		160,858			146,647
Machinery and equipment		398,563			356,144
Furniture and fixtures		41,255			39,065
Construction in progress		16,718			7,149

Gross property, plant and equipment		645,833			576,959
Accumulated depreciation		391,912			366,438

Net property, plant and equipment		253,921			210,521

Deferred charges and other noncurrent assets		65,079			48,723
Goodwill		202,299			139,526
Intangible assets, net		138,634			91,887

Total assets	$	1,512,484		$	1,238,342

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	314,957		$	265,477
U.S. and foreign income taxes payable		6,385			6,423
Accrued payroll, taxes and related benefits		54,199			40,759
Other accrued liabilities		46,054			48,689
Short-term debt		31,748			8,373

Total current liabilities		453,343			369,721
Long-term debt		339,546			207,435
Pension plans		129,949			98,599
Deferred income taxes		23,826			20,873
Other long-term liabilities		29,369			26,970

Total liabilities		976,033			723,598

Commitments and contingencies
Stockholders’ equity:
Common stock, $1 par value, authorized—75,000 shares, issued— 48,185 shares in 2014 and 48,094 shares in 2013		48,185			48,094
Additional paid-in capital		268,545			263,158
Accumulated other comprehensive income (loss)		(16,691	)		682
Retained earnings		606,898			574,370
Treasury stock, at cost, 18,973 shares in 2014 and 18,940 shares in 2013		(379,894	)		(378,927	)

Total A. Schulman, Inc.’s stockholders’ equity		527,043			507,377

Noncontrolling interests		9,408			7,367

Total equity		536,451			514,744

Total liabilities and equity	$	1,512,484		$	1,238,342

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

A. SCHULMAN, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Common Stock ($1 par value)			Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Non-controlling Interests			Total Equity
	(In thousands, except per share data)
Balance at August 31, 2011	$	47,816		$	254,184		$	50,007		$	541,256		$	(344,759	)	$	5,801		$	554,305
Comprehensive income (loss)								(55,928	)		50,887						1,072			(3,969	)
Cash dividends paid, $0.72 per share											(20,938	)								(20,938	)
Noncontrolling interests’ contributions (distributions)																	(580	)		(580	)
Purchase 1,463 shares of treasury stock														(26,752	)					(26,752	)
Issuance of treasury stock					20									412						432
Stock options exercised		51			864															915
Restricted stock issued, net of forfeitures		108			(108	)														—
Redemption of common stock to cover tax withholdings		(17	)		(365	)														(382	)
Amortization of restricted stock					4,658															4,658

Balance at August 31, 2012		47,958			259,253			(5,921	)		571,205			(371,099	)		6,293			507,689
Comprehensive income (loss)								6,603			26,099						1,074			33,776
Cash dividends paid, $0.78 per share											(22,934	)								(22,934	)
Purchase 304 shares of treasury stock														(8,091	)					(8,091	)
Issuance of treasury stock					93									263						356
Stock options exercised		64			1,141															1,205
Restricted stock issued, net of forfeitures		93			(93	)														—
Redemption of common stock to cover tax withholdings		(21	)		(375	)														(396	)
Amortization of restricted stock					3,139															3,139

Balance at August 31, 2013		48,094			263,158			682			574,370			(378,927	)		7,367			514,744
Comprehensive income (loss)								(17,373	)		56,193						712			39,532
Noncontrolling interests’ contributions (distributions)																	600			600
Change in ownership interest					(729	)											729			—
Cash dividends paid, $0.80 per share											(23,665	)								(23,665	)
Purchase 40 shares of treasury stock														(1,116	)					(1,116	)
Issuance of treasury stock					105									149						254
Stock options exercised		13			220															233
Restricted stock issued, net of forfeitures		88			(88	)														—
Redemption of common stock to cover tax withholdings		(10	)		(351	)														(361	)
Amortization of restricted stock					6,230															6,230

Balance at August 31, 2014	$	48,185		$	268,545		$	(16,691	)	$	606,898		$	(379,894	)	$	9,408		$	536,451

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

A. SCHULMAN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended August 31,
	2014			2013			2012
	(In thousands)
Operating from continuing and discontinued operations:
Net income	$	56,992		$	27,328		$	52,049
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation		33,697			29,982			29,176
Amortization		14,207			11,469			9,608
Deferred tax provision		(3,007	)		(1,194	)		(10,867	)
Pension, postretirement benefits and other compensation		10,802			6,282			6,410
Asset impairment		104			5,873			3,392
Curtailment and settlement (gains) losses		214			333			(310	)
Gain on sale of assets from discontinued operations		(3,365	)		—			—
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		(5,875	)		1,790			16,788
Inventories		7,099			(6,376	)		(6,222	)
Accounts payable		(3,497	)		8,924			9,584
Income taxes		(1,372	)		(320	)		(4,832	)
Accrued payroll and other accrued liabilities		5,189			5,415			(11,563	)
Other assets and long-term liabilities		1,954			(5,793	)		6,284

Net cash provided from (used in) operating activities		113,142			83,713			99,497

Investing from continuing and discontinued operations:
Expenditures for property, plant and equipment		(35,089	)		(26,568	)		(34,003	)
Proceeds from the sale of assets		6,004			13,886			1,581
Business acquisitions, net of cash		(206,625	)		(36,805	)		(64,918	)

Net cash provided from (used in) investing activities		(235,710	)		(49,487	)		(97,340	)

Financing from continuing and discontinued operations:
Cash dividends paid		(23,665	)		(22,934	)		(20,938	)
Increase (decrease) in short-term debt		13,774			3,324			(6,339	)
Borrowings on long-term debt		795,745			264,908			188,832
Repayments on long-term debt including current portion		(653,894	)		(264,613	)		(159,323	)
Payment of debt issuance costs		(1,782	)		—			—
Noncontrolling interests’ contributions (distributions)		600			—			(580	)
Issuances of stock, common and treasury		487			1,561			1,347
Redemptions of common stock		(361	)		(396	)		(382	)
Purchases of treasury stock		(1,116	)		(8,091	)		(26,752	)

Net cash provided from (used in) financing activities		129,788			(26,241	)		(24,135	)

Effect of exchange rate changes on cash		(5,781	)		2,038			(9,744	)

Net increase (decrease) in cash and cash equivalents		1,439			10,023			(31,722	)

Cash and cash equivalents at beginning of year		134,054			124,031			155,753

Cash and cash equivalents at end of year	$	135,493		$	134,054		$	124,031

Cash paid during the year for:
Interest	$	7,578		$	5,487		$	7,472
Income taxes	$	21,720		$	15,598		$	26,964

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

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

A. Schulman, Inc. (the “Company”) is an international supplier of high-performance plastic compounds and resins. The Company’s customers span a wide range of markets such as packaging, mobility, building & construction, electronics & electrical, agriculture, personal care & hygiene, custom services, and sports, home & leisure. The Company employs approximately 3,900 people and has 42 manufacturing facilities in the U.S. and Canada (“USCAN”), Latin America (“LATAM”), Europe, Middle East and Africa (“EMEA”) and Asia Pacific (“APAC”).

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries in which a controlling interest is maintained. All significant intercompany transactions have been eliminated.

The financial position and results of operations of the Company’s foreign subsidiaries are generally recorded using local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each reporting period end. Income statement accounts are translated each month at the average rate of exchange during the month. Other comprehensive income and accumulated other comprehensive income (loss) in stockholders’ equity include translation adjustments arising from the use of different exchange rates from period to period.

Certain items previously reported in specific financial statement captions have been reclassified to conform to the 2014 presentation. All previously reported segment disclosures have also been reclassified to reflect the Company’s new reportable segments as discussed in Note 13 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

Use of Estimates

The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. Actual results could differ from those estimates. Such estimates include the value of purchase consideration, valuation of accounts receivables, inventories, goodwill, other intangible assets, other long-lived assets, contingencies, and assumptions used in the calculation of income taxes, pension and other postretirement benefits, stock-based compensation, and restructuring, among others. These estimates and assumptions are based on management’s judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors. Management monitors any factors which may have an impact and adjusts such estimates and assumptions when required. Changes in those estimates are reflected in the consolidated financial statements in the period of change.

Revenue Recognition

The Company’s accounting policy regarding revenue recognition is to recognize revenue when there is persuasive evidence of a sales agreement, the delivery of goods has occurred where both title and the risks and rewards of ownership are transferred, the sales price is fixed or determinable and collection of related billings is reasonably assured. A provision for payment discounts is recorded as a reduction of sales in the same period that the revenue is recognized.

The Company provides tolling services for a fee to process materials provided and owned by customers. While providing these services, the Company may provide certain amounts of its materials, such as additives. These materials are charged to the customer as an addition to the tolling fees. The Company records revenues from tolling services and related materials when such services are performed.

Cost of Sales

Cost of sales is primarily comprised of direct materials and supplies consumed in the manufacturing, distribution and tolling of product, as well as related labor, depreciation and overhead expense necessary to acquire and convert the purchased materials and supplies into finished products. Cost of sales also includes freight, packaging and warehousing.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Share-based Compensation

The Company accounts for share-based compensation expense based on the fair value of the awards granted in accordance with applicable accounting guidance. The fair value of awards with service and performance conditions is based on quoted market prices of the Company’s stock on the respective grant date. The fair value of awards that include market conditions for vesting is estimated using the Monte Carlo valuation model.

The Monte Carlo valuation model requires assumptions based on management’s judgment regarding the volatility of the Company’s stock, the correlation between the Company’s stock price and that of its peer companies and the expected rates of interest. The Company uses historical data, corresponding to the vesting period, to determine all of the assumptions used in the Monte Carlo valuation model. The expected volatility assumption is based on historical volatility. The Company used the daily stock prices in fiscal 2014 and 2013 and weekly stock prices in fiscal 2012 to determine historical volatility. The correlation between the Company’s stock price and each of the peer companies is determined based on historical daily stock prices of the Company and each of the peer companies. The risk-free interest rate is based on zero coupon treasury bond rates corresponding to the expected life of the awards.

Awards that are expected to settle through the issuance of the Company’s common stock are accounted for as equity-classified awards and related compensation expense is recognized based on grant date fair value over the related service period. Awards that may be settled in cash, at the election of the recipient, are accounted for as liability-classified awards. The fair value of such awards is remeasured at the end of each reporting period and expense is recognized over the requisite service period. The Company uses an estimate of expected forfeitures in the recognition of all share-based compensation expense that is based on historical experience. See Note 10 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further discussion on share-based compensation.

Restructuring

The Company records restructuring costs related to the actions implemented to reduce excess and high-cost manufacturing capacity, and to reduce associate headcount. Employee-related costs include severance, supplemental unemployment compensation and benefits, medical benefits, pension curtailments and settlements, and other termination benefits. For ongoing benefit arrangements, a liability is recognized when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated. These conditions are generally met when the restructuring plan is approved by management. For one-time benefit arrangements, a liability is incurred and accrued at the date the plan is communicated to employees, unless they will be retained beyond a minimum retention period. In this case, the liability is estimated at the date the plan is communicated to employees and is accrued ratably over the future service period. Other costs generally include non-cancelable lease costs, contract terminations, and relocation costs. A liability for these costs is recognized in the period in which the liability is incurred. Restructuring charges related to accelerated depreciation and asset impairments are recorded separately within the consolidated statements of operations. See Note 15 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further discussion on restructuring charges.

Asset Impairment

Long-lived assets, except goodwill, are reviewed for impairment when circumstances indicate the carrying value of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of the asset group to future undiscounted net cash flows estimated by the Company to be generated by such asset groups. If such asset groups are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the asset group exceeds the fair value. Assets held for sale are recorded at the lower of carrying value or fair value less costs to sell. See Note 16 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further discussion on asset impairments.

Income Taxes

The Company recognizes income taxes during the period in which transactions enter into the determination of financial statement income. Accordingly, deferred taxes are provided for temporary differences between the book and tax bases of assets and liabilities. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. No taxes are provided on certain foreign earnings which are permanently reinvested. Accruals for uncertain tax positions are provided for in accordance with accounting rules related to uncertainty in income taxes. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense. See Note 7 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further discussion on income taxes.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash Equivalents and Short-Term Investments

All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. The Company’s cash equivalents are diversified with numerous financial institutions which management believes to have acceptable credit ratings. These cash equivalents are primarily money-market funds and short-term time deposits. The money-market funds are rated primarily A or higher by third parties. Management monitors the placement of its cash given the current credit market. The recorded amount of these cash equivalents approximates fair value. Investments with maturities between three and twelve months are considered to be short-term investments. As of August 31, 2014 and 2013, the Company did not hold any short-term investments.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Management records an allowance for doubtful accounts receivable based on the current and projected credit quality of the Company’s customers, customer payment history and other factors that affect collectability. Changes in these factors or changes in economic circumstances could result in changes to the allowance for doubtful accounts. The Company reviews its allowance for doubtful accounts on a periodic basis. Trade accounts receivables are charged off against the allowance for doubtful accounts when the Company determines it is probable the account receivable will not be collected. Trade accounts receivables, less allowance for doubtful accounts, reflect the net realizable value of receivables, and approximate fair value. The Company does not have any off-balance sheet exposure related to its customers. See Note 3 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further discussion on the allowance for doubtful accounts.

Inventories

Inventories are recorded at lower of average cost or market. The Company generally does not distinguish between raw materials and finished goods because numerous products that can be sold as finished goods are also used as raw materials in the production of other inventory items. Management establishes an estimated excess and obsolete inventory reserve based on historical experience and amounts expected to be realized for slow-moving and obsolete inventory.

Property, Plant and Equipment and Depreciation

Property, plant and equipment is recorded at cost. The cost of renewals and betterments is capitalized in the property accounts. Capital expenditures exclude related accruals of $4.4 million, $1.9 million and $3.4 million in fiscal 2014, 2013 and 2012, respectively.

It is the Company’s policy to depreciate the cost of property, plant and equipment over the estimated useful lives of the assets, and for leasehold improvements over the shorter of the applicable lease term or the estimated useful life of the asset, using the straight-line method. The estimated useful lives used in the computation of depreciation are as follows:


Buildings and leasehold improvements			7 to 40 years
Machinery and equipment			5 to 10 years
Furniture and fixtures			5 to 10 years

Estimated useful lives are reviewed when certain events occur or operating conditions change and when appropriate, changes are made prospectively.

The cost of assets sold or otherwise disposed of is eliminated from the related accounts. Gains or losses are recognized when sales or disposals occur. Maintenance and repair costs are expensed as incurred.

Purchase Accounting, Goodwill and Other Intangible Assets

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill is tested for impairment annually as of June 1 for all reporting units. If circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value, the Company would test goodwill for impairment during interim periods between annual tests. The fair value used in the analysis is established using a combination of the income and market approaches. These valuation methodologies use estimates and assumptions including, but not limited to, the determination of appropriate market comparables, projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and projected future economic and market conditions.

Other intangible assets with finite useful lives, which consist primarily of registered trademarks and tradenames, customer related intangibles, and developed technology, are amortized over their estimated useful lives on either a straight-line or double-declining basis, reflective of the pattern of economic benefits consumed. The estimated useful lives for each major category of intangible assets with finite useful lives are:


Registered trademarks and tradenames			3 to 25 years
Customer related intangibles			9 to 20 years
Developed technology			10 to 15 years

Retirement Plans

The Company has several defined benefit and defined contribution pension plans, covering certain employees in the U.S. and in foreign countries. The pension and postretirement benefit accounting reflects the recognition of future benefit costs over the employee’s approximate period of employment based on the terms of the plans and the investment and funding decisions made by the Company. Generally, the defined benefit pension plans accrue the current and prior service costs annually and funding is not required for all plans. See Note 8 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further discussion on retirement plans.

Derivative Instruments and Hedging Activities

The Company accounts for its derivative instruments in accordance with the applicable accounting guidance which requires all derivatives, whether designated in hedging relationships or not, to be recorded on the consolidated balance sheet at fair value. The Company’s foreign exchange forward contracts are adjusted to their fair market value through the consolidated statement of operations. Gains or losses on foreign exchange forward contracts that hedge specific transactions are recognized in the consolidated statement of operations offsetting the underlying foreign currency gains or losses. Currently, the Company does not designate any of these contracts as hedges. See Note 6 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further discussion on derivative instruments and hedging activities.

Fair Value Measurement

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value under accounting principles generally accepted in the United States. This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value 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.

See Note 6 and Note 16 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further discussion on fair value measurements.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

New Accounting Pronouncements

In May 2014, the FASB issued new accounting guidance that creates a single revenue recognition model, while clarifying the principles for recognizing revenue. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods, and the Company will adopt the new guidance on September 1, 2017. Early adoption is not permitted. The Company will evaluate the effects, if any, that the adoption of this guidance will have on its consolidated financial statements.

In April 2014, the FASB issued new accounting guidance related to reporting discontinued operations that changes the criteria for determining which disposals can be presented as discontinued operations and modifies the related disclosure requirements. The standard is effective for fiscal years beginning on or after December 15, 2014 on a prospective basis, including interim periods, with early adoption permitted. The Company will evaluate the effects, if any, that the adoption of this guidance will have on its consolidated financial statements.

In February 2013, the FASB issued new accounting guidance related to the reporting of the amounts reclassified out of accumulated other comprehensive income in the consolidated financial statements. The new accounting guidance requires all companies to report the effect of items reclassified out of accumulated other comprehensive income on the respective line items of net income either on the face of the financial statements where net income is presented or in a tabular format in the notes to the financial statements. This standard was effective on a prospective basis for fiscal years beginning after December 15, 2012, including interim periods. The Company adopted this standard for the first quarter of fiscal 2014.

No other new accounting pronouncements issued or with effective dates during fiscal 2014 had or are expected to have a material impact on the Company’s consolidated financial statements.

NOTE 2 — BUSINESS ACQUISITIONS

Specialty Plastics Business of Ferro Corporation

On July 1, 2014, the Company acquired the majority of the assets of the specialty plastics business of Ferro Corporation (“Specialty Plastics” acquisition) for $91.0 million. The results of operations for this business have been included in the consolidated financial statements since the date of acquisition.

The acquisition strategically expands the Company’s geographic reach with four facilities located in the U.S. and one facility located in Spain and diversifies the Company’s product mix and strengthens its position in a broad range of attractive product markets. Additionally, the business offers a broad portfolio of proprietary products and recognized brand names serving a wide range of end markets including packaging, transportation, construction, appliances and agriculture.

The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of assets acquired and liabilities assumed which were determined with the assistance of independent valuations using discounted cash flow and comparative market multiple approaches, quoted market prices and estimates made by management. The purchase price allocation is subject to further adjustment until all pertinent information regarding the inventory, intangible assets, property, plant & equipment, accounts receivable, other long-term liabilities, and deferred income tax assets and liabilities acquired are fully evaluated by the Company.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the preliminary estimated fair value of the assets acquired and liabilities assumed from the Specialty Plastics acquisition at the date of acquisition:


	As of July 1, 2014
	(In thousands)
Accounts receivable	$	27,870
Inventories		12,800
Prepaid expenses and other current assets		415
Property, plant and equipment		21,025
Intangible assets		26,985

Total assets acquired	$	89,095
Accounts payable		15,327
Accrued payroll, taxes and related benefits		1,552
Other accrued liabilities		638
Other long-term liabilities		181

Total liabilities assumed	$	17,698

Identifiable net assets acquired	$	71,397
Goodwill		19,603

Net assets acquired	$	91,000

The Company preliminarily recorded acquired intangible assets of $27.0 million, all of which are customer related intangibles with an estimated weighted-average useful life of 13.6 years.

Goodwill is calculated as the excess of the purchase price over the estimated fair values of the assets acquired and the liabilities assumed in the acquisition, and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The amount allocated to goodwill associated with the Specialty Plastics acquisition is primarily the result of anticipated synergies and market expansion.

The estimated fair value of accounts receivable acquired was $27.9 million with the gross contractual amount being $28.1 million.

Net sales, income before taxes and net income attributable to A. Schulman, Inc. from the Specialty Plastics acquisition included in the Company’s results since the July 1, 2014 acquisition are as follows:


	July 1, 2014 to August 31, 2014
	(In thousands)
Net sales	$	25,351
Income before taxes	$	1,644
Net income attributable to A. Schulman, Inc.	$	1,475

Income before taxes for the Specialty Plastics acquisition from July 1, 2014 to August 31, 2014 includes pretax depreciation and amortization costs of $0.6 million due to the increased estimated fair value of fixed assets and intangibles, and $0.6 million of pretax purchase accounting inventory step-up charges.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following pro forma information represents the consolidated results of the Company as if the Specialty Plastics acquisition occurred as of September 1, 2012:


	For the Years Ended August 31,
	2014		2013
	Unaudited
	(In thousands, except per share data)
Net sales	$	2,580,646	$	2,289,719
Net income attributable to A. Schulman, Inc.	$	65,639	$	33,480
Net income per share of common stock attributable to A. Schulman, Inc.—diluted	$	2.24	$	1.14

The pro forma results reflect certain adjustments related to the acquisition, such as increased depreciation and amortization expense on assets included in the Specialty Plastics acquisition resulting from the valuation of assets acquired and increased interest expense due to additional borrowings to fund the acquisition. The pro forma results do not include any anticipated cost synergies or other effects of the planned integration of the acquired business. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed as of September 1, 2012, nor are they indicative of the future operating results of the Company.

Elian SAS

On January 31, 2012, the Company acquired all of the issued share capital of Elian SAS (“Elian”), a French portfolio company of British Vita plc, for $66.5 million, which included the repayment of $4.3 million in debt. The results of Elian’s operations have been included in the consolidated financial statements since the date of acquisition.

Elian provides specialty formulated color concentrates to over 1,000 customers in end markets such as packaging, cosmetics, personal hygiene, healthcare, and pipes and tubing products that require demanding specifications. Elian offers superior quality, technology and responsiveness to its diversified customer base. The acquisition of Elian moved the Company into France’s color masterbatch market and improved the Company’s product mix in the EMEA region.

Net sales, income before taxes and net income attributable to A. Schulman, Inc. from Elian included in the Company’s results in the year of acquisition are as follows:


	January 31, 2012 to August 31, 2012
	(In thousands)
Net sales	$	20,306
Income before taxes	$	640
Net income attributable to A. Schulman, Inc.	$	402

Income before taxes for Elian from January 31, 2012 to August 31, 2012 includes pretax depreciation and amortization costs of $2.3 million due to the increased value of fixed assets and intangibles, and $0.7 million of pretax purchase accounting inventory step-up charges.

The following pro forma information represents the consolidated results of the Company as if the acquisition of Elian occurred as of September 1, 2011:


	Year ended August 31, 2012
	Unaudited (In thousands, except per share data)
Net sales	$	2,097,043
Net income attributable to A. Schulman, Inc.	$	52,423
Net income per share of common stock attributable to A. Schulman, Inc.—diluted	$	1.77

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The pro forma results reflect certain adjustments related to the acquisition, such as increased depreciation and amortization expense on assets acquired from Elian resulting from the valuation of assets acquired, increased interest expense due to additional borrowings to fund the acquisition of Elian partially offset by the repayment of Elian debt, and decreased interest income from lower cash levels which were also used to fund the acquisition. The pro forma results do not include any anticipated cost synergies or other effects of the planned integration of Elian. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed as of September 1, 2011, nor are they indicative of the future operating results of the consolidated Company.

Other Business Transactions

The following table summarizes the Company’s other business transactions for the periods presented as well as the Compco Pty. Ltd. acquisition completed in the first quarter of fiscal 2015:


Transaction Description	Date of Transaction	Purchase Consideration (In millions)		Segment
ECM Plastics, Inc.	September 4, 2012	$	36.8	USCAN
A Massachusetts producer of custom color, specialty additive masterbatch and niche engineered plastics products, with a strong presence in personal care and cosmetics
Perrite Group	September 2, 2013	$	51.3	EMEA and APAC
A thermoplastics manufacturer with business in niche engineered plastics and custom color with operations in Malaysia, the United Kingdom and France
Network Polymers, Inc.	December 2, 2013	$	49.2	USCAN
An Ohio niche engineered plastics compounding business that is a leading single source provider of thermoplastic resins and alloys
Prime Colorants	December 31, 2013	$	15.1	USCAN
A Tennessee manufacturer of custom color and additive concentrates
Compco Pty. Ltd.	September 2, 2014	$	6.7	APAC
A manufacturer of masterbatches and custom color with operations in Australia.

The Company incurred $6.0 million and $2.7 million of acquisition related costs, primarily included in selling, general & administrative expenses, during fiscal 2014 and 2013, respectively.

NOTE 3 — ALLOWANCE FOR DOUBTFUL ACCOUNTS

The changes in the Company’s allowance for doubtful accounts are as follows:


	For the Year Ended August 31,
	2014			2013			2012
	(In thousands)
Beginning balance	$	10,434		$	9,190		$	9,475
Provision		907			2,441			1,724
Write-offs, net of recoveries		(491	)		(1,481	)		(1,007	)
Translation effect		(6	)		284			(1,002	)

Ending balance	$	10,844		$	10,434		$	9,190

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 — GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the Company’s carrying value of goodwill are as follows:


	EMEA		USCAN		LATAM			APAC		Total
	(In thousands)
Balance as of August 31, 2012	$	68,540	$	46,525	$	13,288		$	—	$	128,353
Acquisitions		—		9,921		—			—		9,921
Translation and other		1,726		—		(474	)		—		1,252

Balance as of August 31, 2013		70,266		56,446		12,814			—		139,526
Acquisitions		14,015		46,289		—			637		60,941
Translation and other		1,676		—		130			26		1,832

Balance as of August 31, 2014	$	85,957	$	102,735	$	12,944		$	663	$	202,299

The increase in goodwill during fiscal 2014 is due to the Perrite Group, Network Polymers, Inc., Prime Colorants and Specialty Plastics acquisitions. Goodwill associated with the Perrite Group transaction is included in the EMEA and APAC segments and none of the goodwill is deductible for income tax purposes. Goodwill associated with both the Network Polymers and Prime Colorants transactions is included in the USCAN segment and is deductible for income tax purposes. The goodwill associated with the Specialty Plastics acquisition is included in the USCAN and EMEA segments and is deductible for income tax purposes. The increase in goodwill during fiscal 2013 was due to the acquisition of ECM Plastics, Inc. in the USCAN segment and the goodwill is deductible for income tax purposes.

The Company completed its annual impairment review of goodwill as of June 1, 2014 and noted no impairment. The Company is not aware of any triggers which would require a goodwill impairment test as of August 31, 2014.

The following table summarizes intangible assets with finite useful lives by major category:


	As of August 31, 2014							As of August 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(In thousands)
Customer related	$	139,990	$	(29,088	)	$	110,902	$	85,129	$	(19,605	)	$	65,524
Developed technology		19,603		(6,914	)		12,689		19,641		(5,156	)		14,485
Registered trademarks and tradenames		20,945		(5,902	)		15,043		15,991		(4,113	)		11,878

Total finite-lived intangible assets	$	180,538	$	(41,904	)	$	138,634	$	120,761	$	(28,874	)	$	91,887

The increase in intangible assets from August 31, 2013 is due to the fiscal 2014 acquisitions. Amortization expense for intangible assets was $13.0 million, $10.3 million and $8.7 million for fiscal 2014, 2013 and 2012, respectively. The weighted-average useful life of our finite-lived intangible assets as of August 31, 2014 is 12.5 years.

Estimated future amortization expense for intangible assets is as follows:


	Estimated Future Amortization Expense
	(In thousands)
Year ended August 31,
2015	$	16,594
2016		15,301
2017		14,615
2018		14,028
2019		13,123

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 — LONG-TERM DEBT AND CREDIT ARRANGEMENTS

The following table summarizes short-term and long-term debt obligations outstanding:


	As of August 31,
	2014		2013
	(In thousands)
Notes payable and other, due within one year	$	18,429	$	5,042
Current portion of long-term debt		13,319		3,331

Short-term debt	$	31,748	$	8,373


Revolving credit loan, LIBOR plus applicable spread, due January 2016	$	—	$	150,000
Revolving credit loan, LIBOR plus applicable spread, due September 2018		105,400		—
Term loan, due September 2018		180,625		—
Euro notes, 4.485%, due March 2016		53,106		56,626
Capital leases and other long-term debt		415		809

Long-term debt	$	339,546	$	207,435

•

a multicurrency revolving credit facility in the aggregate principal amount of up to $300 million (the “Revolving Facility”);

•

a $200 million term loan facility (the “Term Loan Facility”) with quarterly payments due until maturity; and

•

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The table below summarizes the Company’s available funds:


	As of August 31,
	2014		2013
	(In thousands)
Existing capacity:
Revolving Facility	$	300,000	$	300,000
Term Loan Facility		190,625		—
Domestic short-term lines of credit		15,000		—
Foreign short-term lines of credit		53,520		56,178

Total capacity from credit lines and notes	$	559,145	$	356,178

Availability:
Revolving Facility	$	193,909	$	149,024
Foreign short-term lines of credit		49,250		49,302

Total available funds from credit lines and notes	$	243,159	$	198,326

Aggregate maturities of debt, including capital lease obligations, subsequent to August 31, 2014 are as follows (in thousands):


Fiscal 2015	$	31,748
2016		63,275
2017		12,606
2018		15,091
2019		248,574

NOTE 6 — FAIR VALUE MEASUREMENT

The following table presents information about the Company’s assets and liabilities measured at fair value:


	August 31, 2014								August 31, 2013
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(In thousands)
Assets recorded at fair value:
Foreign exchange forward contracts	$	713	$	—	$	713	$	—	$	151	$	—	$	151	$	—
Liabilities recorded at fair value:
Foreign exchange forward contracts	$	557	$	—	$	557	$	—	$	1,224	$	—	$	1,224	$	—
Liabilities not recorded at fair value:
Long-term fixed-rate debt	$	58,882	$	—	$	58,882	$	—	$	63,460	$	—	$	63,460	$	—

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and cash equivalents are recorded at cost, which approximates fair value. Additionally, the carrying value of the Company’s variable-rate debt approximates fair value.

The Company measures the fair value of its foreign exchange forward contracts using an internal model. The model maximizes the use of Level 2 market observable inputs including interest rate curves, currency forward and spot prices, and credit spreads. The total contract value of foreign exchange forward contracts outstanding was $118.0 million and $138.0 million as of August 31, 2014 and 2013, respectively. The amount of foreign exchange forward contracts outstanding as of the end of the period is indicative of the exposure of current balances and the forecasted change in exposures for the following quarter. 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 (gains) losses line in the Company’s consolidated statements of operations. The fair value of the Company’s foreign exchange forward contracts is recognized in other current assets or other accrued liabilities in the consolidated balance sheets based on the net settlement value. The foreign exchange forward contracts are entered into with credit-worthy financial institutions, generally have a term of three months or less, and the Company does not hold or issue foreign exchange forward contracts for trading purposes. There were no foreign exchange forward contracts designated as hedging instruments as of August 31, 2014 and 2013.

Long-term fixed-rate debt issued in Euros is recorded at cost and is presented at fair value for disclosure purposes as shown in the table above. The Level 2 fair value of the Company’s long-term fixed-rate debt was estimated using prevailing market interest rates on debt with similar creditworthiness, terms and maturities. As of August 31, 2014 and 2013, the carrying value of the Company’s long-term fixed-rate debt recorded on the consolidated balance sheets was $56.4 million and $60.0 million, respectively.

The Company has not changed its valuation techniques for measuring the fair value of any financial assets or liabilities during fiscal 2014, and transfers between levels within the fair value hierarchy, if any, are recognized at the end of each quarter. There were no transfers between levels during the years presented.

Additionally, the Company remeasures assets to fair value, using Level 3 measurements, as a result of the occurrence of triggering events, generally in conjunction with restructuring initiatives. For further discussion on asset impairments, refer to Note 16 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

There were no additional significant assets or liabilities that were remeasured at fair value on a non-recurring basis during the periods presented.

NOTE 7 — INCOME TAXES

Income (loss) from continuing operations before taxes is as follows:


	Year Ended August 31,
	2014			2013			2012
	(In thousands)
U.S.	$	(2,426	)	$	(8,334	)	$	(4,637	)
Foreign		74,758			62,066			71,464

Income from continuing operations before taxes	$	72,332		$	53,732		$	66,827

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provisions for U.S. and foreign income taxes consist of the following:


	Year Ended August 31,
	2014			2013			2012
	(In thousands)
Current taxes:
U.S.	$	435		$	214		$	228
Foreign		19,794			23,210			22,927

Total current tax expense (benefit)		20,229			23,424			23,155
Deferred taxes:
U.S.		589			213			16
Foreign		(2,276	)		(3,904	)		(9,253	)

Total deferred tax expense (benefit)		(1,687	)		(3,691	)		(9,237	)

Total income tax expense (benefit)	$	18,542		$	19,733		$	13,918

A reconciliation of the statutory U.S. federal income tax rate with the effective tax rates of 25.7% in 2014, 36.7% in 2013, and 20.8% in 2012 is as follows:


	Year Ended August 31,
	2014						2013						2012
	Amount			% of Pretax Income			Amount			% of Pretax Income			Amount			% of Pretax Income
	(In thousands, except for %s)
U.S. statutory federal income tax rate	$	25,316			35.0	%	$	18,806			35.0	%	$	23,389			35.0	%
Amount of foreign taxes at less than U.S. statutory federal income tax rate		(13,602	)		(18.8	)		(9,189	)		(17.1	)		(11,373	)		(17.0	)
U.S. and foreign losses with no tax benefit		4,899			6.8			5,826			10.8			1,291			1.9
U.S. restructuring and other U.S. charges with no benefit		3,010			4.2			1,704			3.2			1,029			1.5
Valuation allowance charges		—			—			2,361			4.4			(2,380	)		(3.6	)
Establishment (resolution) of uncertain tax positions		(121	)		(0.2	)		(84	)		(0.2	)		1,718			2.6
Other		(960	)		(1.3	)		309			0.6			244			0.4

Provision (benefit) for U.S. and foreign income taxes	$	18,542			25.7	%	$	19,733			36.7	%	$	13,918			20.8	%

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred tax assets and (liabilities) consist of the following:


	As of August 31,
	2014			2013
	(In thousands)
Pensions	$	20,890		$	12,751
Inventory reserves		1,549			1,136
Bad debt reserves		1,337			1,040
Accruals		7,095			4,831
Postretirement benefits other than pensions		6,185			5,293
Depreciation		2,733			2,036
Foreign net operating loss carryforwards		16,417			14,396
Foreign tax credit carryforwards		502			28,111
Alternative minimum tax carryforwards		3,893			4,452
Interest carryforwards		3,214			10,113
Other		17,929			13,898

Gross deferred tax assets		81,744			98,057
Valuation allowance		(21,716	)		(23,252	)

Total deferred tax assets		60,028			74,805

Depreciation		(19,897	)		(17,232	)
Intangibles		(25,927	)		(25,465	)
Unremitted foreign earnings		—			(26,050	)
Other		(1,554	)		(1,245	)

Gross deferred tax liabilities		(47,378	)		(69,992	)

Net deferred tax assets (liabilities)	$	12,650		$	4,813

The valuation allowance covers benefits which are not likely to be utilized for foreign tax credit carryforwards and other deferred tax assets primarily in the United States, Brazil and Germany.

As of August 31, 2014, the Company has foreign net operating loss carryforwards of $50.4 million resulting in a deferred tax asset of $16.4 million, primarily from countries with unlimited carryforward periods.

As of August 31, 2014, the Company has domestic state and local net operating loss carryforwards of $33.5 million resulting in a deferred tax asset of $1.3 million offset by a corresponding valuation allowance. These net operating loss carryforwards expire in years 2015 to 2023.

The Company has $3.7 million in foreign tax credit carryforwards that will expire in 2019. The amount of foreign tax credit carryforwards shown in the table above has been reduced by unrealized stock compensation attributes of $3.2 million. During 2014, the Company utilized approximately $27.6 million in foreign tax credit carryforwards primarily related to a large distribution from Europe. In 2013, a deferred tax liability of $25.5 million was recorded for the expected tax impact of this 2014 distribution along with a corresponding reduction in the valuation allowance of $25.5 million against the foreign tax credit carryforwards.

In recent years, the Company’s U.S. operations have generated federal tax net operating losses, before considering dividend income from foreign subsidiaries. Such net operating losses are offset against the foreign dividend income, which would otherwise generate U.S. taxable income. The dividend income from foreign subsidiaries also generates foreign tax credits, which either partially offset the tax on any U.S. taxable income remaining after the offset of the net operating losses, or are carried forward. The net effect of foreign dividends received from foreign countries is to place the Company into a position in which it does not generate net operating loss carryforwards for its U.S. operating losses.

The tax effect of temporary differences included in prepaid expenses and other current assets was $8.4 million and $5.7 million at August 31, 2014 and 2013, respectively. Deferred charges included $29.3 million and $22.0 million from the tax effect of temporary differences at August 31, 2014 and 2013, respectively. The tax effect of temporary differences included in other accrued liabilities was $1.2 million and $1.7 million at August, 31, 2014 and 2013, respectively.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of August 31, 2014, the Company’s gross unrecognized tax benefits totaled $3.8 million. If recognized $3.0 million of the total unrecognized tax benefits would favorably affect the Company’s effective tax rate. The company elects to report interest and penalties related to income tax matters in income tax expense. At August 31, 2014, the Company had $0.9 million of accrued interest and penalties on unrecognized tax benefits.

The Company’s statute of limitations is open in various jurisdictions as follows: Germany—from 2005 onward, U.S.—from 2011 onward, Belgium—from 2012 onward, other foreign jurisdictions—from 2009 onward.

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.

A reconciliation of unrecognized tax benefits is as follows:


	Year Ended August 31,
	2014			2013			2012
	(In thousands)
Beginning balance	$	4,986		$	6,877		$	4,716
Decreases related to prior year tax positions		(576	)		(1,165	)		(390	)
Increases related to prior year tax positions		—			11			2,360
Increases related to current year tax positions		512			308			627
Settlements		(38	)		(1,077	)		—
Lapse of statute of limitations		(1,040	)		(228	)		4
Foreign currency impact		1			260			(440	)

Ending balance	$	3,845		$	4,986		$	6,877

As of August 31, 2014, no taxes have been provided on the undistributed earnings of certain foreign subsidiaries amounting to $442.6 million because the Company intends to permanently reinvest these earnings. Quantification of the deferred tax liability associated with these undistributed earnings is not practicable.

NOTE 8 — PENSION AND POSTRETIREMENT BENEFIT PLANS

The Company has defined benefit pension plans that cover employees primarily in its foreign subsidiaries, and other postretirement benefit plans that primarily include health care and life insurance plans in the U.S. Benefits for the defined benefit pension plans are based primarily on years of service and qualifying compensation during the final years of employment. The measurement date for all plans is August 31.

Postretirement health care and life insurance benefits are provided to certain U.S. employees that have met certain age and length of service requirements while working for the Company. The U.S. postretirement health care and life insurance (“OPEB”) plan is closed to new participants.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Components of the plan obligations and assets, the recorded liability and accumulated other comprehensive income (loss) (“AOCI”) are as follows:


	Pension Benefits						Other Postretirement Benefits
	2014			2013			2014			2013
	(In thousands)
Benefit obligation at beginning of year	$	(133,866	)	$	(124,948	)	$	(11,372	)	$	(13,556	)
Service cost		(3,795	)		(3,838	)		(5	)		(14	)
Interest cost		(5,413	)		(4,779	)		(491	)		(450	)
Participant contributions		(228	)		(246	)		(62	)		(105	)
Actuarial gains (losses)		(34,191	)		448			(1,271	)		1,994
Settlement (gains) losses		328			—			—			—
Benefits paid		3,928			3,921			1,010			1,059
Business combinations		(131	)		—			—			—
Curtailment gains (losses)		—			—			—			(358	)
Contractual termination benefits		—			—			—			—
Plan amendments		(117	)		(459	)		—			58
Translation adjustment		(498	)		(3,965	)		—			—

Benefit obligation at end of year	$	(173,983	)	$	(133,866	)	$	(12,191	)	$	(11,372	)

Fair value of plan assets at beginning of year	$	32,417		$	30,190		$	—		$	—
Actual return on assets		6,009			1,043			—			—
Employer contributions		5,073			4,601			948			954
Participant contributions		228			246			62			105
Benefits paid		(3,928	)		(3,921	)		(1,010	)		(1,059	)
Translation adjustment		1,105			258			—			—

Fair value of plan assets at end of year	$	40,904		$	32,417		$	—		$	—

Underfunded	$	(133,079	)	$	(101,449	)	$	(12,191	)	$	(11,372	)

Classification of net amount recognized:
Accrued payroll, taxes and related benefits	$	(3,130	)	$	(2,850	)	$	(880	)	$	(880	)
Long-term liabilities		(129,949	)		(98,599	)		(11,311	)		(10,492	)

Net amount recognized	$	(133,079	)	$	(101,449	)	$	(12,191	)	$	(11,372	)

Amounts recognized in AOCI:
Net actuarial (gain) loss	$	57,632		$	29,434		$	(79	)	$	(1,368	)
Net prior service cost (credit)		430			323			(1,982	)		(2,523	)

Net amount recognized in AOCI	$	58,062		$	29,757		$	(2,061	)	$	(3,891	)

Change in plan assets and benefit obligations recognized in AOCI:
Net actuarial (gain) loss	$	30,002		$	(101	)	$	1,271		$	(1,994	)
Prior service cost (credit)		117			459			—			(58	)
Amortization of net actuarial loss		(1,373	)		(1,438	)		18			—
Amortization of prior service (cost) credit		(24	)		(505	)		541			540
Settlement/curtailment gains (losses)		(214	)		—			—			25
Translation adjustment		(203	)		853			—			—

Total change in AOCI	$	28,305		$	(732	)	$	1,830		$	(1,487	)

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of net periodic benefit cost are as follows:


	Pension Benefits									Other Postretirement Benefits
	Year Ended August 31,									Year Ended August 31,
	2014			2013			2012			2014			2013			2012
	(In thousands)
Service cost	$	3,795		$	3,838		$	2,759		$	5		$	14		$	28
Interest cost		5,413			4,779			5,099			491			450			607
Expected return on plan assets		(1,819	)		(1,485	)		(1,298	)		—			—			—
Amortization of prior service cost (credit)		24			505			48			(541	)		(540	)		(731	)
Recognized losses due to plan settlements		214			—			—			—			—			—
Contractual termination benefits		—			—			79			—			—			—
Recognized (gains) losses due to plan curtailments		—			—			(310	)		—			333			—
Recognized net actuarial loss		1,373			1,438			468			(18	)		—			171

Total net periodic benefit cost	$	9,000		$	9,075		$	6,845		$	(63	)	$	257		$	75

Amounts expected to be amortized from AOCI and included in total net periodic benefit cost during the year ended August 31, 2015, are as follows:


	Pension Benefits		Other Postretirement Benefits
	(In thousands)
Net actuarial loss (gain)	$	3,225	$	—
Prior service cost (credit)		38		(541	)

Total	$	3,263	$	(541	)

Selected information regarding the Company’s pension and OPEB plans is as follows:


	As of August 31,
	2014		2013
	(In thousands)
Pension Plans:
All plans:
Accumulated benefit obligation	$	154,788	$	119,761
Plans with projected benefit obligations in excess of plan assets:
Projected benefit obligation	$	173,983	$	133,806
Accumulated benefit obligation	$	154,788	$	119,717
Fair value of plan assets	$	40,904	$	32,353
Plans with projected benefit obligations less than plan assets:
Projected benefit obligation	$	—	$	60
Accumulated benefit obligation	$	—	$	44
Fair value of plan assets	$	—	$	64
OPEB Plan:
Accumulated benefit obligation	$	12,191	$	11,372
Plans with projected benefit obligations in excess of plan assets:
Projected benefit obligation	$	12,191	$	11,372
Accumulated benefit obligation	$	12,191	$	11,372
Fair value of plan assets	$	—	$	—

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The underfunded position of the pension plans is primarily related to the Company’s German and United Kingdom pension plans. As of August 31, 2014, the Company’s German and United Kingdom pension plans are underfunded by $120.0 million. In Germany, there are no statutory requirements for funding while in the United Kingdom there are certain statutory minimum funding requirements.

Actuarial assumptions used in the calculation of the recorded liability are as follows:


Weighted — Average Assumptions as of August 31 :	2014			2013			2012
Discount rate on pension plans		2.8	%		4.0	%		3.8	%
Discount rate on other postretirement obligation		3.8	%		4.5	%		3.5	%
Rate of compensation increase		2.4	%		2.4	%		2.2	%

Actuarial assumptions used in the calculation of the recorded benefit expense are as follows:


Weighted — Average Assumptions for the year ended August 31 :	2014			2013			2012
Discount rate on pension plans		4.0	%		3.8	%		4.9	%
Discount rate on other postretirement obligation		4.5	%		3.5	%		4.5	%
Return on pension plan assets		5.2	%		5.1	%		6.4	%
Rate of compensation increase		2.4	%		2.2	%		2.5	%
Projected health care cost trend rate		7.5	%		8.0	%		8.0	%
Ultimate health care rate		5.0	%		5.0	%		5.0	%
Year ultimate health care trend rate is achieved		2019			2019			2019

The Company, in consultation with its actuaries, annually, or as needed for interim remeasurements, reviews and selects the discount rates to be used in connection with its defined benefit pension plans. The discount rates used by the Company are based on the yields of various corporate bond indices with actual maturity dates that approximate the estimated benefit payment streams of the related pension plans. For countries in which there are no deep corporate bond markets, discount rates used by the Company are based on yields of various government bond indices with varying maturity dates. The discount rates are also reviewed in comparison with current benchmark indices, economic market conditions and the movement in the benchmark yield since the previous fiscal year.

The Company, in consultation with its actuaries, annually, or as needed for interim remeasurements, reviews and selects the discount rate to be used in connection with its postretirement obligation. When selecting the discount rate the Company uses a model that considers the demographics of the participants and the resulting expected benefit payment stream over the participants’ lifetime.

For fiscal 2015, the Company, in consultation with its actuaries, has selected a weighted-average discount rate of 2.8%, expected long-term return on plan assets of 4.7% and rate of compensation increase of 2.4% for its defined benefit pension plans. For its postretirement benefit plan, the Company, in consultation with its actuaries, has selected a discount rate of 3.8% for fiscal 2015.

Assumed health care cost trend rates have a significant effect on the amounts reported for the OPEB plan. A one-percentage point change in assumed health care cost trend rates would have the following effects as of August 31, 2014:


	One-Percentage - Point Increase		One-Percentage - Point Decrease
	(In thousands)
Effect on aggregate of service and interest cost components of net periodic postretirement benefit cost	$	48	$	(41	)
Effect on accumulated postretirement benefit obligation	$	1,209	$	(1,045	)

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s pension plan weighted-average asset allocation and target allocation, by asset category are as follows:


	Plan Assets						Target Allocation
	As of August 31,						As of August 31,
Asset Category	2014			2013			2014			2013
Equity securities		27	%		25	%		22	%		23	%
Debt securities		24	%		15	%		12	%		13	%
Fixed insurance contracts		45	%		39	%		58	%		31	%
Cash		4	%		21	%		8	%		33	%

Total		100	%		100	%		100	%		100	%

The Company’s principal objective is to ensure that sufficient funds are available to provide benefits as and when required under the terms of the plans. The Company utilizes investments that provide benefits and maximizes the long-term investment performance of the plans without taking on undue risk while complying with various legal funding requirements. The Company, through its investment advisors, has developed detailed asset and liability models to aid in implementing optimal asset allocation strategies. The equity securities are invested in equity indexed funds, which minimizes concentration risk while offering market returns. The debt securities are invested in a long-term bond indexed fund which provides a stable low risk return. The fixed insurance contracts allow the Company to closely match a portion of the liability to the expected payout of benefit with little risk. The Company, in consultation with its actuaries, analyzes current market trends, the current plan performance and expected market performance of both the equity and bond markets to arrive at the expected return on each asset category over the long term. The Company’s plan assets which are invested in equity and debt securities are valued utilizing Level 1 and Level 2 inputs. In consultation with the Company’s actuaries, plan assets invested in fixed insurance contracts are valued utilizing Level 3 inputs primarily based on the present value of discounted future cash flows taking into account the estimated future benefits of a profit sharing arrangement with an insurance company. The Company believes there is not a significant concentration of risk within its plan assets. During fiscal 2014, the Company determined that Level 2 was a more appropriate classification for $10.3 million of certain securities which were previously classified as Level 1. Accordingly, we have revised the presentation in the asset level table below to correct the 2013 classification.

The fair values of the Company’s pension plan assets, all of which are for foreign plans, are as follows:


	As of August 31, 2014								As of August 31, 2013
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(In thousands)
Equity securities	$	11,081	$	6,607	$	4,474	$	—	$	8,080	$	1,328	$	6,752	$	—
Debt securities		9,646		1,563		8,083		—		5,007		1,457		3,550		—
Fixed insurance contracts		18,399		—		—		18,399		12,435		—		—		12,435
Cash		1,611		1,611		—		—		6,822		6,822		—		—
Other		167		—		—		167		73		—		—		73

Total	$	40,904	$	9,781	$	12,557	$	18,566	$	32,417	$	9,607	$	10,302	$	12,508

The change in fair value of the Company’s pension plan assets classified as Level 3, all of which are for foreign plans, is as follows:


	2014			2013
	(In thousands)
Balance, beginning of fiscal year	$	12,508		$	12,013
Actual return on plan assets		5,466			(533	)
Purchases, sales, issuances, and settlements, net		711			440
Foreign currency translation		(119	)		588

Balance, end of fiscal year	$	18,566		$	12,508

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company expects to contribute $5.6 million for its pension obligations and $0.9 million to its other postretirement plan in 2015. The benefit payments, which reflect expected future service, are as follows:


Year Ended August 31,	Pension Benefits		OPEB Benefits
	(In thousands)
2015	$	4,263	$	890
2016		4,335		859
2017		5,214		860
2018		4,837		839
2019		5,244		858
Years 2020 — 2024		29,849		4,001

The Company maintains several defined contribution plans that cover domestic and foreign employees. The plan in which each employee is eligible to participate depends upon the subsidiary for which the employee works. Certain plans have eligibility requirements related to age and period of service with the Company. Certain plans have salary deferral features that enable participating employees to contribute up to a certain percentage of their earnings, subject to statutory limits and certain foreign plans require the Company to match employee contributions in cash. Employee contributions to the Company’s U.S. 401(k) plans have matching features whereas the Company will match a participant’s contribution up to a pre-approved amount of the participant’s annual salary. The total expense for defined contribution plans was $3.0 million, $2.7 million and $3.3 million in 2014, 2013 and 2012, respectively.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of accumulated other comprehensive income (loss) are as follows⁽¹⁾:


	Foreign Currency Translation Gain (Loss)			Pension and Other Retiree Benefits⁽²⁾			Total Accumulated Other Comprehensive Income (Loss)
	(In thousands)
Balance, August 31, 2012	$	13,383		$	(19,304	)	$	(5,921	)

Other comprehensive income (loss) before reclassifications, net of tax of $21		4,174			862			5,036
Amounts reclassified to earnings, net of tax of $34		—			1,412			1,412
Net current period other comprehensive income (loss)		4,174			2,274			6,448
Less: comprehensive income (loss) attributable to noncontrolling interests		(155	)		—			(155	)

Net current period other comprehensive income (loss) attributable to A. Schulman, Inc.		4,329			2,274			6,603

Balance, August 31, 2013		17,712			(17,030	)		682

Other comprehensive income (loss) before reclassifications, net of tax of $8,718		5,872			(23,043	)		(17,171	)
Amounts reclassified to earnings, net of tax of ($456)		(885	)⁽³⁾		596	⁽⁴⁾		(289	)
Net current period other comprehensive income (loss)		4,987			(22,447	)		(17,460	)
Less: comprehensive income (loss) attributable to noncontrolling interests		(87	)		—			(87	)

Net current period other comprehensive income (loss) attributable to A. Schulman, Inc.		5,074			(22,447	)		(17,373	)

Balance, August 31, 2014	$	22,786		$	(39,477	)	$	(16,691	)

⁽¹⁾	All amounts presented are net of tax. All tax amounts are related to pension and other retiree benefits.

⁽²⁾

Reclassified from accumulated other comprehensive income into cost of sales and selling, general & administrative expenses on the consolidated statements of operations. These components are included in the computation of net periodic pension cost. Refer to Note 8 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further details.

⁽³⁾

Reclassified from accumulated other comprehensive income into income (loss) from discontinued operations on the consolidated statements of operations on the sale of the rotational compounding business in Australia. Refer to Note 19 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further details.

⁽⁴⁾	Represents amortization of net actuarial loss and prior service costs, including settlement charges of $214.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 — SHARE-BASED INCENTIVE COMPENSATION PLANS

On December 7, 2006, the Company adopted the 2006 Incentive Plan, which provides for the grant of various stock-based incentive compensation awards. Upon adoption of the 2006 Incentive Plan, all remaining shares eligible for award under a previous plan were added to the 2006 Incentive Plan. On December 9, 2010, the Company’s stockholders approved the adoption of the A. Schulman, Inc. 2010 Value Creation Rewards Plan (“2010 Rewards Plan”) which also provides for similar grants. It has been the Company’s practice to issue new shares of common stock upon stock option exercise and the vesting of awards under these plans. As of August 31, 2014, there were 524,749 shares and 22,949 shares of common stock available for grant pursuant to the Company’s 2006 Incentive Plan and the 2010 Rewards Plan, respectively. The restricted stock awards outstanding under these plans have service vesting periods of three years following the date of grant. Also, certain of these awards have market or performance vesting conditions.

The following table summarizes the activity of time-based and performance-based restricted stock awards:


	Awards Outstanding						Weighted-Average Fair Market Value (per share)
	Time- Based			Performance- Based			Time- Based		Performance- Based
Outstanding at August 31, 2013		133,359			1,081,585		$	25.20	$	20.41
Granted		42,138			315,941		$	34.42	$	34.42
Vested		(19,405	)		(30,366	)	$	21.63	$	11.62
Forfeited		—			(265,723	)	$	—	$	15.21

Outstanding at August 31, 2014		156,092			1,101,437		$	28.14	$	25.93

Time-based awards are valued at the fair market value on the date of grant, have voting rights and earn dividends throughout the vesting period which are subject to the same vesting terms as the underlying restricted stock awards. The weighted-average grant date fair value of time-based awards granted during the years ended August 31, 2014, 2013 and 2012 were $34.42, $29.18 and $22.64, respectively.

Performance-based awards vest based on market or performance conditions and do not have voting rights. Included in the outstanding performance-based awards as of August 31, 2014 are 485,065 performance-based awards, which earn dividends throughout the vesting period, and the remaining performance-based awards which do not earn dividends. Earned dividends are subject to the same vesting terms as the underlying performance-based awards.

The performance-based awards in the table above include 441,282 shares which vest based on market conditions and are valued based upon a Monte Carlo valuation model. Vesting of the ultimate number of shares underlying such 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 is considered when calculating the estimated fair market value using a Monte Carlo valuation model. Such awards granted prior to fiscal 2013 are accounted for as equity awards with market conditions given that recipients receive shares of stock upon vesting, and expense for these awards is recognized over the service period regardless of whether the market condition is achieved and the awards ultimately vest. Awards granted in fiscal 2013 and 2014 provide recipients an option to receive cash or shares of common stock upon vesting. As such, the fiscal 2013 and 2014 awards are accounted for as liability awards with a market condition, and the Company remeasures these awards at fair value on a quarterly basis over the service period. Expense for these awards is recognized only to the extent the market conditions are achieved and the awards ultimately vest.

The fair values of the performance-based awards with market conditions were estimated using a Monte Carlo valuation model using the following assumptions:


	2014^(a)			2013^(a)			2012^(b)
Dividend yield		—	%		—	%		3.00	%
Expected volatility		31.00	%		35.00	%		43.00	%
Risk-free interest rate		1.03	%		0.77	%		0.42	%
Correlation		53.00	%		56.00	%		61.00	%

^(a)	Assumptions as of August 31 for the respective years related to liability classified awards

^(b)	Weighted average grant date assumptions related to equity classified awards

The fair value of the remaining 660,155 performance-based awards in the table above is based on the closing price of the Company’s common stock on the date of the grant. Vesting of the ultimate number of shares underlying such performance-based awards, if any, will be dependent upon the Company’s return on invested capital (“ROIC”) in relation to an internal targeted ROIC over a three-year period.

The weighted-average grant date fair value of the performance-based awards granted in fiscal 2014, 2013 and 2012 were $34.42, $29.08 and $17.71 per share, respectively.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of stock option activity is as follows:


	Outstanding Shares Under Option			Weighted-Average Exercise Price
Outstanding at August 31, 2013		19,002		$	19.13
Exercised		(12,167	)	$	19.06
Forfeited and expired		(1,834	)	$	19.16

Outstanding at August 31, 2014		5,001		$	19.29

Exercisable at August 31, 2014		5,001		$	19.29

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 for stock options outstanding and exercisable as of August 31, 2014 was $0.1 million with a remaining term for options outstanding and exercisable of 1 year. The total intrinsic value of options exercised for the years ended August 31, 2014, 2013, and 2012 was $0.2 million, $0.6 million and $0.4 million, respectively. All outstanding and exercisable stock options are fully vested as of August 31, 2014. The Company did not grant stock options in fiscal years 2014, 2013 or 2012.

Total unrecognized compensation cost, including a provision for estimated forfeitures, related to nonvested stock-based compensation arrangements as of August 31, 2014 was $11.6 million. This cost is expected to be recognized over a weighted-average period of 1.3 years.

The Company made no cash payments for cash-settled restricted stock units and cash-based awards during fiscal 2014. During fiscal 2013 and 2012, the Company made payments of $0.2 million and $0.3 million for cash-settled restricted stock units and cash-based awards, respectively.

During fiscal 2014 and 2013, the Company granted non-employee directors 23,150 shares and 27,860 shares of unrestricted common stock, respectively.

The Company has an Employee Stock Purchase Plan (“ESPP”) whereby employees may purchase Company stock through a payroll deduction plan. Purchases are made from the plan and credited to each participant’s account at the end of each calendar quarter (the “Investment Date”). The purchase price of the stock is 85% of the fair market value on the Investment Date. The plan is compensatory and the 15% discount is expensed ratably over the three month offering period. All employees, including officers, are eligible to participate in this plan. An employee whose stock ownership of the Company exceeds five percent of the outstanding common stock is not eligible to participate in this plan. The Company recorded minimal expense related to the ESPP during fiscal 2014, 2013 and 2012. It is the Company’s current practice to use treasury shares for the share settlement on the Investment Date.

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


	Year Ended August 31,
	2014		2013		2012
	(In thousands)
Time-based and performance-based restricted stock awards	$	7,105	$	2,454	$	3,813
Board of Directors unrestricted awards		797		850		845

Total share-based incentive compensation	$	7,902	$	3,304	$	4,658

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 — EARNINGS PER SHARE

Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if common stock equivalents are exercised as well as the impact of restricted stock awards expected to vest, which combined would then share in the earnings of the Company.

The difference between basic and diluted weighted-average shares results from the assumed exercise of outstanding stock options and vesting of restricted stock awards, calculated using the treasury stock method. The following table presents the number of incremental weighted-average shares used in computing diluted per share amounts:


	Year Ended August 31,
	2014		2013		2012
	(In thousands)
Weighted-average shares outstanding:
Basic		29,061		29,260		29,389
Incremental shares from equity awards		301		77		160

Diluted		29,362		29,337		29,549

During fiscal year 2014, there were no anti-dilutive shares related to share-based incentive compensation plans that were excluded from diluted weighted-average shares outstanding. In fiscal years 2013 and 2012, there were 21,000, and 36,000, respectively, of equivalent shares related to share-based incentive compensation plans that were excluded from diluted weighted-average shares outstanding because inclusion of these shares would have been anti-dilutive.

The Company’s Amended and Restated Certificate of Incorporation authorizes 1,000,000 shares of special stock. The Board of Directors may designate these shares of special stock with special designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions prior to issuance. As of August 31, 2014, no shares of special stock were issued and outstanding.

NOTE 12 — LEASES

The Company leases certain equipment, buildings, vehicles and computer equipment. Total rental expense was $16.6 million in 2014, $12.7 million in 2013 and $10.4 million in 2012. The approximate future minimum rental commitments for non-cancelable operating leases, excluding obligations for taxes and insurance, are as follows:


Year Ended August 31,	Minimum Rental Commitments
	(In thousands)
2015	$	11,378
2016		7,862
2017		6,217
2018		4,501
2019		3,627
2020 and thereafter		18,227

Total minimum rental commitments	$	51,812

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 — SEGMENT INFORMATION

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”), to identify reportable segments. The CODM makes decisions, assesses performance and allocates resources by the following regions, which are the Company’s reportable segments effective January 1, 2015: Europe, Middle East and Africa (“EMEA”), United States & Canada (“USCAN”), Latin America (“LATAM”), and Asia Pacific (“APAC”).

The CODM uses net sales to unaffiliated customers, segment gross profit and segment operating income in order to make decisions, assess performance and allocate resources to each segment. Segment operating income does not include items such as interest income or expense, other income or expense, foreign currency transaction gains or losses, restructuring and related costs including accelerated depreciation, asset impairments, or costs and inventory step-up charges related to business acquisitions. Corporate expenses include the compensation of certain personnel, certain audit expenses, Board of Directors related costs, certain insurance costs, costs associated with being a publicly traded entity and other miscellaneous legal and professional fees.

On January 1, 2015, the Company’s new President and CEO assumed the role of CODM. Based on the new management structure and an evaluation of how the new CODM makes decisions, assesses performance and allocates resources, the Company discloses the following four reportable segments from the second quarter of fiscal 2015: EMEA, USCAN, LATAM and APAC.

The following table summarizes net sales to unaffiliated customers by segment:


	Year Ended August 31,
	2014		2013		2012
	(In thousands)
EMEA	$	1,577,867	$	1,405,882	$	1,403,151
USCAN		475,050		400,449		375,521
LATAM		198,313		200,375		183,389
APAC		195,768		126,696		119,211

Total net sales to unaffiliated customers	$	2,446,998	$	2,133,402	$	2,081,272

Below the Company presents gross profit by segment:


	Year Ended August 31,
	2014			2013			2012
	(In thousands)
EMEA	$	206,268		$	179,242		$	175,669
USCAN		73,278			52,906			51,548
LATAM		26,239			28,409			32,734
APAC		26,767			22,345			19,969

Total segment gross profit		332,552			282,902			279,920
Inventory step-up		(1,468	)		(138	)		(677	)
Accelerated depreciation and restructuring related costs		(1,076	)		(1,585	)		—

Total gross profit	$	330,008		$	281,179		$	279,243

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Below is a reconciliation of segment operating income to operating income and income from continuing operations before taxes:


	Year Ended August 31,
	2014			2013			2012
	(In thousands)
EMEA	$	80,690		$	67,320		$	71,849
USCAN		30,418			16,643			15,441
LATAM		8,388			11,708			13,431
APAC		12,527			12,108			10,908

Total segment operating income		132,023			107,779			111,629
Corporate		(32,170	)		(24,926	)		(23,786	)
Costs related to acquisitions		(6,021	)		(2,661	)		(1,425	)
Restructuring and related costs		(9,618	)		(13,687	)		(9,256	)
Accelerated depreciation		(107	)		(1,058	)		—
Asset impairment		(104	)		(1,873	)		(3,392	)
Curtailment and settlement gains (losses)		(214	)		(333	)		310
Inventory step-up		(1,468	)		(138	)		(677	)

Operating income		82,321			63,103			73,403
Interest expense, net		(8,217	)		(7,162	)		(7,675	)
Foreign currency transaction gains (losses)		(2,206	)		(2,426	)		(243	)
Other income (expense), net		434			217			1,342

Income from continuing operations before taxes	$	72,332		$	53,732		$	66,827

The following table summarizes identifiable assets by segment:


	As of August 31,
	2014		2013		2012
	(In thousands)
Identifiable assets:
EMEA	$	809,670	$	735,684	$	677,066
USCAN		458,109		303,553		313,935
LATAM		111,126		109,885		113,028
APAC		133,579		89,220		89,738

Total identifiable assets	$	1,512,484	$	1,238,342	$	1,193,767

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize depreciation and amortization and capital expenditures by segment:


	Year Ended August 31,
	2014		2013		2012
	(In thousands)
Depreciation and amortization expense:
EMEA	$	21,832	$	18,072	$	17,534
USCAN		16,522		14,471		13,800
LATAM		4,128		5,010		3,731
APAC		5,422		3,898		3,719

Total depreciation and amortization expense	$	47,904	$	41,451	$	38,784

Capital expenditures:
EMEA	$	13,199	$	9,157	$	11,383
USCAN		12,235		10,373		11,548
LATAM		4,380		4,665		6,177
APAC		5,275		2,373		4,895

Total capital expenditures	$	35,089	$	26,568	$	34,003

Below is a summary of net sales by point of origin and long-lived assets by location:


	Year Ended August 31,
	2014		2013		2012
	(In thousands)
Net sales:
United States	$	457,225	$	383,964	$	358,376
Germany		548,454		536,833		571,876
France		238,029		221,521		196,103
Other international		1,203,290		991,084		954,917

Total net sales	$	2,446,998	$	2,133,402	$	2,081,272


	As of August 31,
	2014		2013		2012
	(In thousands)
Long lived assets:
United States	$	95,349	$	70,197	$	76,699
Germany		22,716		23,316		23,020
France		22,758		21,854		22,832
Other international		113,098		95,154		103,325

Total long lived assets	$	253,921	$	210,521	$	225,876


	Year Ended August 31,
	2014				2013				2012
	(In thousands, except for %’s)
Custom performance colors	$	186,667	8	%	$	164,128	8	%	$	125,595	6	%
Masterbatch solutions		768,723	31			743,846	35			750,531	36
Engineered plastics		753,347	31			559,462	26			547,090	26
Specialty powders		350,510	14			308,620	14			314,965	16
Distribution services		387,751	16			357,346	17			343,091	16

Total consolidated net sales	$	2,446,998	100	%	$	2,133,402	100	%	$	2,081,272	100	%

Fiscal 2013 and 2014 include a reclassification of revenue between product families to better reflect the way the businesses are managed.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 — RESEARCH AND DEVELOPMENT

Research and development expenditures were $16.9 million, $8.7 million and $6.1 million in fiscal years 2014, 2013 and 2012, respectively. The increase in research and development expense in fiscal 2014 is further evidence of the Company’s commitment to innovation and belief that research and development is important to our organic growth strategy.

NOTE 15 — RESTRUCTURING

Fiscal 2015 Restructuring Plans

EMEA Reorganization Plan

Fiscal 2013 Restructuring Plans

Americas Reorganization Plan

In the fourth quarter of fiscal 2013, the Company conducted restructuring activities primarily in Mexico and Grand Junction, Tennessee to better align capacity with demand. As part of this restructuring, the Company reduced headcount in the former Americas segment by approximately 85, of which the majority of reductions occurred during fiscal 2013. The Company recorded $0.7 million and $1.5 million of pretax employee-related restructuring costs during fiscal 2014 and 2013, respectively. As of August 31, 2014, the Company expects no further charges and has no remaining accrual related to this plan as it is considered complete.

Brazil Consolidation Plan

During fiscal 2013, the Company initiated restructuring activities to consolidate two of its three existing leased manufacturing facilities in Brazil. In fiscal 2014, manufacturing activities at two facilities in the State of Sao Paulo, Brazil were relocated to a new facility. The Company offered eligible associates the ability to transfer from the two existing manufacturing facilities to the new facility. As a result of this consolidation, the Company reduced headcount in Brazil by approximately 55 in fiscal 2013, partially offset by the addition of approximately 35 associates at the Company’s new manufacturing facility, including associate transfers and new hires. The Company recorded $3.1 million and $1.6 million of pretax employee-related and other restructuring costs during fiscal 2014 and 2013, respectively. Additionally, the Company recorded $0.1 million and $0.7 million of accelerated depreciation included in cost of sales during fiscal 2014 and 2013, respectively. As of August 31, 2014, the Company has a balance of $0.1 million related to this plan and expects to recognize minimal additional pretax employee-related and other cash charges during fiscal 2015. Cash payments associated with this plan are expected to occur through fiscal 2015 as the plan is completed.

EMEA Reorganization Plan

In fiscal 2013, the Company executed restructuring activities to better reflect its current business footprint and customer needs in the challenging economic environment in Europe. As part of this restructuring, the EMEA regional team reduced headcount by approximately 45, of which the majority of the reductions occurred in fiscal 2013. The Company recorded $0.6 million and $6.4 million of pretax employee-related restructuring costs during fiscal 2014 and 2013, respectively. As of August 31, 2014, the Company has a balance of $0.3 million accrued for employee-related costs related to this plan. The Company expects to recognize minimal additional pretax employee-related cash charges during fiscal 2015. Cash payments associated with this plan are expected to occur through fiscal 2016 as the plan is completed.

Bellevue, Ohio Facility Plan

In the first quarter of fiscal 2013, the Company sold its Bellevue, Ohio facility to continue its focus on higher-value technical products. As part of this sale, the Company recorded minimal charges related to this plan during fiscal 2014 and $0.3 million of pretax employee-related costs and other restructuring expenses in fiscal 2013. Additionally, the Company recorded $0.4 million of accelerated depreciation associated with this plan during fiscal 2013. The Company expects no further charges and has no remaining accrual as of August 31, 2014 related to this plan as it is considered complete.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal 2012 Restructuring Plans

Masterbatch Reorganization Plan

Effective September 1, 2012 the masterbatch product family was split into two separate product families, Custom Performance Colors and Masterbatch Solutions. As a result, the Company reduced headcount in the EMEA and APAC segments in the fourth quarter of fiscal 2012. The Company recorded $0.4 million in fiscal 2014, minimal charges related to this plan during fiscal 2013 and $2.3 million of pretax employee-related restructuring costs in fiscal 2012, of which the majority was related to the EMEA segment. As of August 31, 2014, the Company has a balance of $1.2 million accrued related to the EMEA segment for employee-related costs and expects minimal charges related to this plan to be recognized in fiscal 2015. Cash payments associated with this plan are expected to occur through fiscal 2016 as the plan is completed.

EMEA Operations and Back-Office Plan

In November 2011, the Company initiated a restructuring plan of EMEA’s operations and back-office functions to better leverage savings from its Shared Service Center located in Belgium. As part of this plan, the Company reduced headcount in EMEA by approximately 50, and the majority of the reductions occurred in the first and second quarters of fiscal 2012. The Company recorded minimal charges during fiscal 2014 and $0.3 million and $4.7 million of pretax employee-related restructuring expense during fiscal 2013 and 2012, respectively. As of August 31, 2014, the Company has a balance of $0.1 million accrued for employee-related costs related to this plan and expects minimal employee-related charges during fiscal 2015. Cash payments associated with this plan are expected to occur through fiscal 2015 as the plan is completed.

Fiscal 2011 Restructuring Plans

During fiscal 2012, the Company recognized charges of $1.6 million and $0.5 million related to the former Americas Engineered Plastics and Italy plans, respectively, which are considered complete.

Consolidated Restructuring Summary

The following table summarizes the activity related to the Company’s restructuring plans:


	Employee- related Costs			Other Costs			Translation Effect			Total Restructuring Costs
	(In thousands)
Accrual balance as of August 31, 2012		3,524			381			(539	)		3,366
Fiscal 2013 charges		8,669			1,831			—			10,500
Fiscal 2013 payments		(6,747	)		(1,812	)		—			(8,559	)
Translation		—			—			42			42

Accrual balance as of August 31, 2013	$	5,446		$	400		$	(497	)	$	5,349
Fiscal 2014 charges		2,223			2,660			—			4,883
Fiscal 2014 payments		(5,924	)		(2,689	)		—			(8,613	)
Translation		—			—			193			193

Accrual balance as of August 31, 2014	$	1,745		$	371		$	(304	)	$	1,812

Restructuring costs are excluded from segment operating income but are attributable to the reportable segments as follows:


	Year Ended August 31,
	2014		2013		2012
	(In thousands)
EMEA	$	1,000	$	6,704	$	7,531
USCAN		754		1,376		1,603
LATAM	$	3,053	$	2,240	$	—
APAC		76		180		122

Total	$	4,883	$	10,500	$	9,256

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 — ASSET IMPAIRMENTS

The Company recorded $0.1 million, $1.9 million and $3.4 million in pretax asset impairment charges during the years ended August 31, 2014, 2013 and 2012, respectively.

In fiscal 2012, as a result of a restructuring initiative in the former Americas Engineered Plastics product family, the Company reduced the carrying value of its facility, machinery and equipment in Nashville, Tennessee to its combined fair value of $3.8 million. The disposal value of the facility was determined as the estimated sales value of the assets less the costs to sell based on information provided by a third-party real estate valuation source. The disposal value of machinery and equipment to be sold or disposed of was determined based on estimated salvage value. The Company recorded pretax impairment charges of $0.5 million in fiscal 2012, primarily related to real estate, machinery and equipment at the Nashville, Tennessee facility. During fiscal 2013, the Company sold the Nashville, Tennessee facility which resulted in a minimal impact on the Company’s consolidated financial results.

See Note 19 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further discussion on impairment charges included in discontinued operations.

NOTE 17 — CONTINGENCIES AND CLAIMS

In the normal course of business, the Company is at times subject to pending and threatened legal actions, some for which the relief or damages sought may be substantial. Although the Company is not able to predict the outcome of such legal actions, after reviewing all pending and threatened legal actions with counsel and based on information currently available, management believes that the outcome of such actions, individually or in the aggregate, will not have a material adverse effect on the results of operations or financial position of the Company. However, it is possible that the ultimate resolution of such matters, if unfavorable, may be material to the results of operations in a particular future period as the time and amount of any resolution of such legal actions and its relationship to the future results of operations are not currently known.

Reserves are established for legal claims only when losses associated with the claims are judged to be probable, and the loss can be reasonably estimated. In many lawsuits and arbitrations, it is not considered probable that a liability has been incurred or not possible to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case no reserve would be recognized until that time.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 — SHARE REPURCHASE PROGRAM

NOTE 19 — DISCONTINUED OPERATIONS

The Company completed the sale of all of the fixed and intangible assets of its rotational compounding business in Australia for $3.0 million on September 3, 2013. The operating results for this business were previously included in the Company’s specialty powders product family within the APAC segment. The assets and liabilities of this business were classified as held for sale in the Company’s consolidated balance sheet as of August 31, 2013 and included in prepaid expenses and other current assets and other accrued liabilities, respectively.

The following summarizes select financial information included in net earnings from discontinued operations:


	Year ended August 31,
	2014		2013			2012
	(In thousands)
Net sales	$	1,372	$	30,009		$	25,482
Income (loss) from discontinued operations, net of tax	$	3,202	$	(6,671	)	$	(860	)

During fiscal 2014, the Company recorded a gain on the sale of assets of $3.4 million. The results for fiscal 2013 include an impairment charge of $4.0 million which represented the difference between the estimated fair market value and the carrying value of the net assets. The estimated fair value was determined based on expected sale price. Income taxes were minimal for all periods presented.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 — QUARTERLY FINANCIAL HIGHLIGHTS (UNAUDITED)


	Quarter Ended												Year Ended
	Nov 30, 2013			Feb 28, 2014			May 31, 2014			Aug 31, 2014			Aug 31, 2014
	Unaudited
	(In thousands, except per share data)
Net sales	$	585,397		$	588,508		$	645,735		$	627,358		$	2,446,998

Gross profit	$	79,108		$	74,299		$	91,964		$	84,637		$	330,008

Income (loss) from continuing operations	$	12,631		$	6,648		$	19,347		$	15,164		$	53,790
Income (loss) from discontinued operations, net of tax		2,655			347			(23	)		223			3,202

Net income (loss)		15,286			6,995			19,324			15,387			56,992
Noncontrolling interests		(215	)		(136	)		(233	)		(215	)		(799	)

Net income (loss) attributable to A. Schulman, Inc.	$	15,071		$	6,859		$	19,091		$	15,172		$	56,193

Basic earnings per share attributable to A. Schulman, Inc.^(a)
Income (loss) from continuing operations	$	0.43		$	0.23		$	0.66		$	0.51		$	1.82
Income (loss) from discontinued operations		0.09			0.01			—			0.01			0.11

Net income attributable to A. Schulman, Inc.	$	0.52		$	0.24		$	0.66		$	0.52		$	1.93

Diluted earnings per share attributable to A. Schulman, Inc.^(a)
Income (loss) from continuing operations	$	0.43		$	0.22		$	0.65		$	0.51		$	1.80
Income (loss) from discontinued operations		0.09			0.01			—			0.01			0.11

Net income (loss) attributable to A. Schulman, Inc.	$	0.52		$	0.23		$	0.65		$	0.52		$	1.91


Certain items included in income from continuing operations, net of tax are as follows:
Asset write-downs^(b)	$	107		$	70		$	—		$	—		$	177
Costs related to acquisitions^(c)		546			1,822			872			2,635			5,875
Restructuring and related costs^(d)		3,340			2,513			1,840			1,463			9,156
Inventory step-up^(e)		319			782			—			323			1,424
Tax charges (benefits)		—			(426	)		—			110			(316	)

Total	$	4,312		$	4,761		$	2,712		$	4,531		$	16,316

^(a)	The sum of the four quarters does not equal the earnings per share amount calculated for the year due to rounding.

^(b)

Asset write-downs include charges primarily related to the write-down of the facility in Oyonnax, France. Refer to Note 16 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further discussion.

^(c)	Costs related to acquisitions include professional, legal and other expenses associated with the Perrite Group, Network Polymers, Inc., Prime Colorants and the Specialty Plastics acquisitions, along with other potential acquisitions.

^(d)

Restructuring and related costs include items such as employee severance charges, lease termination charges, curtailment gains/losses, other employee termination costs and charges related to the reorganization of the legal entity structure. Refer to Note 15 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further discussion.

^(e)	Inventory step-up relates to the fiscal 2014 acquisitions noted above.

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Quarter Ended												Year Ended
	Nov 30, 2012			Feb 28, 2013			May 31, 2013			Aug 31, 2013			Aug 31, 2013
	Unaudited
	(In thousands, except per share data)
Net sales	$	532,085		$	515,440		$	548,589		$	537,288		$	2,133,402

Gross profit	$	71,667		$	63,199		$	74,044		$	72,269		$	281,179

Income (loss) from continuing operations	$	12,142		$	12,306		$	10,313		$	(762	)	$	33,999
Income (loss) from discontinued operations, net of tax		3			(282	)		(4,821	)		(1,571	)		(6,671	)

Net income (loss)		12,145			12,024			5,492			(2,333	)		27,328
Noncontrolling interests		(366	)		(239	)		(275	)		(349	)		(1,229	)

Net income (loss) attributable to A. Schulman, Inc.	$	11,779		$	11,785		$	5,217		$	(2,682	)	$	26,099

Basic earnings per share attributable to A. Schulman, Inc.^(f)
Income (loss) from continuing operations	$	0.40		$	0.41		$	0.34		$	(0.04	)	$	1.12
Income (loss) from discontinued operations		—			(0.01	)		(0.16	)		(0.05	)		(0.23	)

Net income attributable to A. Schulman, Inc.	$	0.40		$	0.40		$	0.18		$	(0.09	)	$	0.89

Diluted earnings per share attributable to A. Schulman, Inc.^(f)
Income (loss) from continuing operations	$	0.40		$	0.41		$	0.34		$	(0.04	)	$	1.12
Income (loss) from discontinued operations		—			(0.01	)		(0.16	)		(0.05	)		(0.23	)

Net income attributable to A. Schulman, Inc.	$	0.40		$	0.40		$	0.18		$	(0.09	)	$	0.89


Certain items included in income from continuing operations, net of tax are as follows:
Asset write-downs^(g)	$	628		$	404		$	1,386		$	365		$	2,783
Costs related to acquisitions^(h)		313			596			890			736			2,535
Restructuring and related costs⁽ⁱ⁾		1,762			1,320			2,472			5,577			11,131
Inventory step-up^(j)		138			—			—			—			138
Tax charges (benefits)^(k)		—			(6,160	)		(17	)		10,595			4,418

Total	$	2,841		$	(3,840	)	$	4,731		$	17,273		$	21,005

^(f)	The sum of the four quarters does not equal the earnings per share amount calculated for the year due to rounding.

^(g)

Asset write-downs include charges primarily related to the write-down of the facility in Oyonnax, France and the facility in Verolanuova, Italy during fiscal 2013. Refer to Note 16 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further discussion.

^(h)	Costs related to acquisitions include professional, legal and other expenses associated with the acquisitions of ECM, the Perrite Group and other potential acquisitions.

⁽ⁱ⁾

^(j)	Inventory step-up relates to the ECM acquisition.

^(k)	Tax charges (benefits) include the effect of the adjustment to the German and Brazilian valuation allowances in fiscal 2013.

Exhibit 99.2

PART I—FINANCIAL INFORMATION

Item 1—Financial Statements

A. SCHULMAN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three months ended November 30,
	2014			2013
	Unaudited
	(In thousands, except per share data)
Net sales	$	615,053		$	585,397
Cost of sales		528,209			506,289
Selling, general and administrative expenses		60,547			57,398
Restructuring expense		5,219			1,778

Operating income		21,078			19,932
Interest expense		2,359			2,191
Interest income		(95	)		(62	)
Foreign currency transaction (gains) losses		1,099			682
Other (income) expense, net		(159	)		(78	)

Income from continuing operations before taxes		17,874			17,199
Provision (benefit) for U.S. and foreign income taxes		4,486			4,568

Income from continuing operations		13,388			12,631
Income (loss) from discontinued operations, net of tax		(10	)		2,655

Net income		13,378			15,286
Noncontrolling interests		(220	)		(215	)

Net income attributable to A. Schulman, Inc.	$	13,158		$	15,071

Weighted-average number of shares outstanding:
Basic		29,017			29,017
Diluted		29,468			29,205
Basic earnings per share attributable to A. Schulman, Inc.
Income from continuing operations	$	0.45		$	0.43
Income (loss) from discontinued operations		—			0.09

Net income attributable to A. Schulman, Inc.	$	0.45		$	0.52

Diluted earnings per share attributable to A. Schulman, Inc.
Income from continuing operations	$	0.45		$	0.43
Income (loss) from discontinued operations		—			0.09

Net income attributable to A. Schulman, Inc.	$	0.45		$	0.52

Cash dividends per common share	$	0.205		$	0.200

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

- 1 -

A. SCHULMAN, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three months ended November 30,
	2014			2013
	Unaudited
	(In thousands)
Net income	$	13,378		$	15,286
Other comprehensive income (loss):
Foreign currency translation gains (losses)		(25,615	)		11,868
Defined benefit retirement plans, net of tax		336			119

Other comprehensive income (loss)		(25,279	)		11,987

Comprehensive income (loss)		(11,901	)		27,273
Less: comprehensive income (loss) attributable to noncontrolling interests		196			185

Comprehensive income (loss) attributable to A. Schulman, Inc.	$	(12,097	)	$	27,088

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

- 2 -

A. SCHULMAN, INC.

CONSOLIDATED BALANCE SHEETS


	November 30, 2014			August 31, 2014
	Unaudited (In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	132,109		$	135,493
Accounts receivable, less allowance for doubtful accounts of $10,674 at November 30, 2014 and $10,844 at August 31, 2014		376,486			384,444
Inventories		296,539			292,141
Prepaid expenses and other current assets		47,591			40,473

Total current assets		852,725			852,551

Property, plant and equipment, at cost:
Land and improvements		27,155			28,439
Buildings and leasehold improvements		154,656			160,858
Machinery and equipment		394,884			398,563
Furniture and fixtures		39,785			41,255
Construction in progress		17,676			16,718

Gross property, plant and equipment		634,156			645,833
Accumulated depreciation		384,143			391,912

Net property, plant and equipment		250,013			253,921

Deferred charges and other noncurrent assets		63,376			65,079
Goodwill		198,649			202,299
Intangible assets, net		131,488			138,634

Total assets	$	1,496,251		$	1,512,484

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	314,315		$	314,957
U.S. and foreign income taxes payable		6,075			6,385
Accrued payroll, taxes and related benefits		47,661			54,199
Other accrued liabilities		52,270			46,054
Short-term debt		32,012			31,748

Total current liabilities		452,333			453,343
Long-term debt		353,262			339,546
Pension plans		123,923			129,949
Deferred income taxes		23,222			23,826
Other long-term liabilities		28,704			29,369

Total liabilities		981,444			976,033

Commitments and contingencies
Stockholders’ equity:
Common stock, $1 par value, authorized—75,000 shares, issued—48,186 shares at November 30, 2014 and 48,185 shares at August 31, 2014		48,186			48,185
Additional paid-in capital		269,818			268,545
Accumulated other comprehensive income (loss)		(41,946	)		(16,691	)
Retained earnings		614,094			606,898
Treasury stock, at cost, 19,081 shares at November 30, 2014 and 18,973 shares at August 31, 2014		(383,199	)		(379,894	)

Total A. Schulman, Inc.’s stockholders’ equity		506,953			527,043

Noncontrolling interests		7,854			9,408

Total equity		514,807			536,451

Total liabilities and equity	$	1,496,251		$	1,512,484

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

- 3 -

A. SCHULMAN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three months ended November 30,
	2014			2013
	Unaudited (In thousands)
Operating from continuing and discontinued operations:
Net income	$	13,378		$	15,286
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation		8,963			7,865
Amortization		4,066			3,244
Deferred tax provision (benefit)		633			(693	)
Pension, postretirement benefits and other compensation		2,452			2,550
Gain on sale of assets from discontinued operations		—			(3,028	)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		(4,731	)		(12,681	)
Inventories		(16,341	)		(25,936	)
Accounts payable		8,200			24,826
Income taxes		463			765
Accrued payroll and other accrued liabilities		2,846			1,239
Other assets and long-term liabilities		(9,670	)		(3,618	)

Net cash provided from (used in) operating activities		10,259			9,819

Investing from continuing and discontinued operations:
Expenditures for property, plant and equipment		(10,324	)		(9,601	)
Proceeds from the sale of assets		904			3,087
Business acquisitions, net of cash		(6,698	)		(51,322	)

Net cash provided from (used in) investing activities		(16,118	)		(57,836	)

Financing from continuing and discontinued operations:
Cash dividends paid		(5,962	)		(5,915	)
Increase (decrease) in short-term debt		870			3,294
Borrowings on long-term debt		27,500			457,000
Repayments on long-term debt including current portion		(10,915	)		(444,649	)
Payment of debt issuance costs		—			(1,731	)
Noncontrolling interests’ contributions (distributions)		(1,750	)		—
Issuances of stock, common and treasury		71			211
Purchases of treasury stock		(3,335	)		(1,116	)

Net cash provided from (used in) financing activities		6,479			7,094

Effect of exchange rate changes on cash		(4,004	)		1,672

Net increase (decrease) in cash and cash equivalents		(3,384	)		(39,251	)

Cash and cash equivalents at beginning of period		135,493			134,054

Cash and cash equivalents at end of period	$	132,109		$	94,803

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

- 4 -

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)

GENERAL

The unaudited 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 periods presented. All such adjustments are of a normal recurring nature. The fiscal 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. The unaudited consolidated financial information should be read in conjunction with the consolidated financial statements and notes thereto incorporated in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

The results of operations for the three months ended November 30, 2014 are not necessarily indicative of the results expected for the fiscal year ending August 31, 2015.

The accounting policies for the periods presented are the same as described in Note 1 – Business and 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, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

Certain items previously reported in specific financial statement captions have been reclassified to conform to the fiscal 2015 presentation. All previously reported segment disclosures have also been reclassified to reflect the Company’s new reportable segments as discussed in Note 11 the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

(2)	BUSINESS ACQUISITIONS

Specialty Plastics Business of Ferro Corporation

On July 1, 2014, the Company acquired the majority of the assets of the specialty plastics business of Ferro Corporation(“Specialty Plastics” acquisition) for $91.0 million. The results of operations for this business have been included in the consolidated financial statements since the date of acquisition.

The acquisition strategically expands the Company’s geographic reach with multiple facilities located in the U.S. and one facility located in Spain, diversifies the Company’s product mix and strengthens its position in a broad range of attractive product markets. Additionally, the business offers a broad portfolio of proprietary products and recognized brand names serving a wide range of end markets including packaging, transportation, construction, appliances and agriculture.

The information included herein has been prepared based on the preliminary allocation of the purchase price using estimates of the fair value and useful lives of assets acquired and liabilities assumed which were determined with the assistance of independent valuations using discounted cash flow and comparative market multiple approaches, quoted market prices and estimates made by management. The purchase price allocation is subject to further adjustment until all pertinent information regarding the acquired accounts receivable, inventory, intangible assets, property, plant & equipment, other current and long-term liabilities, and deferred income tax assets and liabilities are fully evaluated by the Company.

- 5 -

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the preliminary estimated fair value of the assets acquired and liabilities assumed from the Specialty Plastics acquisition at the date of acquisition:


	As of July 1, 2014
	(In thousands)
Accounts receivable	$	27,850
Inventories		12,800
Prepaid expenses and other current assets		415
Property, plant and equipment		20,049
Intangible assets		26,985

Total assets acquired	$	88,099
Accounts payable		15,247
Accrued payroll, taxes and related benefits		1,552
Other accrued liabilities		706
Other long-term liabilities		181

Total liabilities assumed	$	17,686

Identifiable net assets acquired	$	70,413
Goodwill		20,587

Net assets acquired	$	91,000

The Company preliminarily recorded acquired intangible assets of $27.0 million, all of which are customer related intangibles with an estimated weighted-average useful life of 13.6 years. In addition, the estimated fair value of accounts receivable acquired was $27.9 million with the gross contractual amount being $28.0 million.

The following pro forma information represents the consolidated results of the Company as if the Specialty Plastics acquisition occurred as of September 1, 2013:


	Three months ended November 30,
	2013
	Unaudited
	(In thousands, except per share data)
Net sales	$	624,872
Net income attributable to A. Schulman, Inc.	$	16,075
Net income per share of common stock attributable to A. Schulman, Inc. - diluted	$	0.55

- 6 -

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the Company’s other business acquisitions for the periods presented:

Transaction Description

Date of Transaction

Purchase
Consideration
(In millions)

Segment

Perrite Group

September 2, 2013

51.3

EMEA and APAC

A thermoplastics manufacturer with business in niche engineered plastics and custom color with operations in Malaysia, the United Kingdom and France

Network Polymers, Inc.

December 2, 2013

49.2

USCAN

An Ohio niche engineered plastics compounding business that is a leading single source provider of thermoplastic resins and alloys

Prime Colorants

December 31, 2013

15.1

USCAN

A Tennessee manufacturer of custom color and additive concentrates

Compco Pty. Ltd.

September 2, 2014

6.7

APAC

A manufacturer of masterbatches and custom color with operations in Australia

The Company incurred $1.1 million and $0.6 million of acquisition and integration related costs, primarily included in selling, general & administrative expenses, during the three months ended November 30, 2014 and 2013, respectively.

(3)	GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the Company’s carrying value of goodwill are as follows:


	EMEA			USCAN		LATAM			APAC			Total
	(In thousands)
Balance as of August 31, 2014	$	85,957		$	102,735	$	12,944		$	663		$	202,299
Acquisitions		(80	)		1,064		—			407			1,391
Translation and other		(4,556	)		—		(404	)		(81	)		(5,041	)

Balance as of November 30, 2014	$	81,321		$	103,799	$	12,540		$	989		$	198,649

Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

The Company completed its annual impairment review of goodwill as of June 1, 2014 and noted no impairment. Management uses judgment to determine whether to use a qualitative analysis or a quantitative fair value measurement approach that combines the income and market valuation techniques for each of the Company’s reporting units that carry goodwill. These valuation techniques use estimates and assumptions including, but not limited to, the determination of appropriate market comparables, projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and projected future economic and market conditions.

The Company is not aware of any triggers which would require a goodwill impairment test as of November 30, 2014.

- 7 -

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes intangible assets with finite useful lives by major category:


	November 30, 2014							August 31, 2014
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(In thousands)
Customer related	$	136,295	$	(30,741	)	$	105,554	$	139,990	$	(29,088	)	$	110,902
Developed technology		19,106		(7,191	)		11,915		19,603		(6,914	)		12,689
Registered trademarks and tradenames		20,061		(6,042	)		14,019		20,945		(5,902	)		15,043

Total finite-lived intangible assets	$	175,462	$	(43,974	)	$	131,488	$	180,538	$	(41,904	)	$	138,634

Foreign currency translation reduced the gross carrying amount of intangible assets by $5.1 million from August 31, 2014 to November 30, 2014. Amortization expense of intangible assets was $3.4 million and $3.0 million for the three months ended November 30, 2014 and 2013, respectively.

(4)	FAIR VALUE MEASUREMENT

The following table presents information about the Company’s assets and liabilities measured at fair value:


	November 30, 2014								August 31, 2014
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(In thousands)
Assets recorded at fair value:
Foreign exchange forward contracts	$	1,610	$	—	$	1,610	$	—	$	713	$	—	$	713	$	—
Liabilities recorded at fair value:
Foreign exchange forward contracts	$	1,718	$	—	$	1,718	$	—	$	557	$	—	$	557	$	—
Liabilities not recorded at fair value:
Long-term fixed-rate debt	$	55,201	$	—	$	55,201	$	—	$	58,882	$	—	$	58,882	$	—

Cash and cash equivalents are recorded at cost, which approximates fair value. Additionally, the carrying value of the Company’s variable-rate debt approximates fair value.

The Company measures the fair value of its foreign exchange forward contracts using an internal model. The model maximizes the use of Level 2 market observable inputs including interest rate curves, currency forward and spot prices, and credit spreads. The total contract value of foreign exchange forward contracts outstanding was $161.4 million and $118.0 million as of November 30, 2014 and August 31, 2014, respectively. The amount of foreign exchange forward contracts outstanding as of the end of the period is indicative of the exposure of current balances and the forecasted change in exposures for the following quarter. 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 (gains) losses line in the Company’s consolidated statements of operations. The fair value of the Company’s foreign exchange forward contracts is recognized in other current assets or other accrued liabilities in the consolidated balance sheets based on the net settlement value. The foreign exchange forward contracts are entered into with credit worthy financial institutions, generally have a term of three months or less, and the Company does not hold or issue foreign exchange forward contracts for trading purposes. There were no foreign exchange forward contracts designated as hedging instruments as of November 30, 2014 and August 31, 2014.

Long-term fixed-rate debt issued in Euros is recorded at cost and is presented at fair value for disclosure purposes as shown in the table above. The Level 2 fair value of the Company’s long-term fixed-rate debt was estimated using prevailing market interest rates on debt with similar creditworthiness, terms and maturities. As of November 30, 2014 and August 31, 2014, the carrying value of the Company’s long-term fixed-rate debt recorded on the consolidated balance sheets was $53.4 million and $56.4 million, respectively.

For a discussion of the Company’s fair value measurement policies under the fair value hierarchy, refer to Note 1 of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

- 8 -

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company has not changed its valuation techniques for measuring the fair value of any financial assets or liabilities during fiscal 2015, and transfers between levels within the fair value hierarchy, if any, are recognized at the end of each quarter. There were no transfers between levels during the periods presented.

Additionally, the Company remeasures certain assets to fair value, using Level 3 measurements, as a result of the occurrence of triggering events. There were no significant assets or liabilities that were remeasured at fair value on a non-recurring basis during the periods presented.

(5)	INCOME TAXES

A reconciliation of the U.S. statutory federal income tax rate with the effective tax rates for the respective periods is as follows:


	Three months ended November 30,
	2014					2013
	(In thousands, except for %’s)
U.S. statutory federal income tax rate	$	6,256		35.0	%	$	6,019		35.0	%
Amount of foreign taxes at less than U.S. statutory federal income tax rate		(2,034	)	(11.4	)		(3,794	)	(22.1	)
U.S. and foreign losses with no tax benefit		1,430		8.0			1,785		10.4
U.S. restructuring and other U.S. charges with no benefit		539		3.0			473		2.8
U.S. income with no tax		(2,091	)	(11.7	)		—		—
Establishment (resolution) of uncertain tax positions		49		0.3			56		0.3
Other		337		1.9			29		0.2

Provision (benefit) for U.S. and foreign income taxes	$	4,486		25.1	%	$	4,568		26.6	%

The effective tax rates for the three months ended November 30, 2014 and 2013 are less than the U.S. statutory federal income tax rate primarily because of the Company’s overall foreign tax rates being less than the U.S. statutory federal income tax rate. The decrease in the effective tax rate for the three months ended November 30, 2014 as compared with the same period in the prior year was driven primarily by a decrease in U.S. and foreign losses with no tax benefit combined with U.S. income in the current period with no tax as a result of an offsetting decrease in the U.S. valuation allowance.

As of November 30, 2014, the Company’s gross unrecognized tax benefits totaled $3.6 million. If recognized, $2.8 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. As of November 30, 2014, the Company had $0.9 million of accrued interest and penalties on unrecognized tax benefits.

The Company’s statute of limitations is open in various jurisdictions as follows: Germany—from 2005 onward, France—from 2010 onward, U.S.—from 2011 onward, Belgium—from 2012 onward, other foreign jurisdictions—from 2009 onward.

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.

- 9 -

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(6)	PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The components of the Company’s net periodic benefit cost for defined benefit pension and other postretirement benefit plans are shown below:


	Three months ended November 30,
	2014			2013
	(In thousands)
Defined benefit pension plans:
Service cost	$	1,254		$	948
Interest cost		1,168			1,334
Expected return on plan assets		(471	)		(444	)
Actuarial loss (gain) and amortization of prior service cost (credit), net		786			349

Net periodic pension benefit cost	$	2,737		$	2,187

Other postretirement benefit plan:
Service cost	$	1		$	1
Interest cost		110			123
Actuarial loss (gain) and amortization of prior service cost (credit), net		(135	)		(139	)

Net periodic postretirement benefit cost (credit)	$	(24	)	$	(15	)

(7)	CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

A summary of the changes in stockholders’ equity is as follows:


	Common Stock ($1 par value)		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Non-controlling Interests			Total Equity
	(In thousands, except per share data)
Balance as of September 1, 2014	$	48,185	$	268,545	$	(16,691	)	$	606,898		$	(379,894	)	$	9,408		$	536,451
Comprehensive income (loss)						(25,255	)		13,158						196			(11,901	)
Cash dividends paid, $0.205 per share									(5,962	)								(5,962	)
Cash distributions to noncontrolling interests															(1,750	)		(1,750	)
Purchase of treasury stock												(3,335	)					(3,335	)
Issuance of treasury stock				24								30						54
Stock options exercised		1		16														17
Amortization of restricted stock				1,233														1,233

Balance as of November 30, 2014	$	48,186	$	269,818	$	(41,946	)	$	614,094		$	(383,199	)	$	7,854		$	514,807

- 10 -

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(8)	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of accumulated other comprehensive income (loss) are as follows⁽¹⁾:


	Foreign Currency Translation Gain (Loss)			Pension and Other Retiree Benefits⁽²⁾			Total Accumulated Other Comprehensive Income (Loss)
	(In thousands)
Balance as of August 31, 2014	$	22,786		$	(39,477	)	$	(16,691	)

Other comprehensive income (loss) before reclassifications		(25,615	)		—			(25,615	)
Amounts reclassified to earnings		—			336	⁽³⁾		336

Net current period other comprehensive income (loss)		(25,615	)		336			(25,279	)
Less: comprehensive income (loss) attributable to noncontrolling interests		(24	)		—			(24	)

Net current period other comprehensive income (loss) attributable to A. Schulman, Inc.		(25,591	)		336			(25,255	)

Balance as of November 30, 2014	$	(2,805	)	$	(39,141	)	$	(41,946	)


	Foreign Currency Translation Gain (Loss)			Pension and Other Retiree Benefits⁽²⁾			Total Accumulated Other Comprehensive Income (Loss)
	(In thousands)
Balance as of August 31, 2013	$	17,712		$	(17,030	)	$	682

Other comprehensive income (loss) before reclassifications		12,753			—			12,753
Amounts reclassified to earnings		(885	)⁽⁴⁾		119	⁽³⁾		(766	)

Net current period other comprehensive income (loss)		11,868			119			11,987
Less: comprehensive income (loss) attributable to noncontrolling interests		(30	)		—			(30	)

Net current period other comprehensive income (loss) attributable to A. Schulman, Inc.		11,898			119			12,017

Balance as of November 30, 2013	$	29,610		$	(16,911	)	$	12,699

⁽¹⁾

All amounts presented are net of tax. All tax amounts are related to pension and other retiree benefits.

⁽²⁾

Reclassified from accumulated other comprehensive income into cost of sales and selling, general & administrative expenses on the consolidated statements of operations. These components are included in the computation of net periodic pension cost. Refer to Note 6 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K as filed on April 27, 2015 for further details.

⁽³⁾

Represents amortization of net actuarial loss and prior service costs.

⁽⁴⁾

Reclassified from accumulated other comprehensive income into income (loss) from discontinued operations on the consolidated statements of operations on the sale of the rotational compounding business in Australia. Refer to Note 19 of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015 for further details.

(9)	SHARE-BASED INCENTIVE COMPENSATION PLANS

For a discussion of the Company’s share-based incentive compensation plans, refer to Note 10 of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015. The Company did not grant any restricted stock awards during the three months ended November 30, 2014 and 2013.

The Company recorded share-based incentive compensation expense of $1.3 million during each of the three months ended November 30, 2014 and 2013. These amounts are primarily included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

- 11 -

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On December 12, 2014, both the Compensation Committee and all of the independent members of the Board of Directors of the Company unanimously approved the accelerated vesting upon retirement of the outstanding equity compensation awards previously granted to Joseph M. Gingo in 2013 and 2014 in lieu of the pro rata vesting otherwise required under the terms of the awards. As a result, the Company expects to recognize a one-time charge of approximately $5.8 million during the second quarter of fiscal 2015 for such accelerated vesting. Awards granted in 2012 will vest pursuant to their grant terms and conditions on January 12, 2015.

(10)	EARNINGS PER SHARE


	Three months ended November 30,
	2014		2013
	(In thousands)
Weighted-average shares outstanding:
Basic		29,017		29,017
Incremental shares from equity awards		451		188

Diluted		29,468		29,205

(11)	SEGMENT INFORMATION

The CODM uses net sales to unaffiliated customers, segment gross profit and segment operating income in order to make decisions, assess performance and allocate resources to each segment. Segment operating income does not include items such as interest income or expense, other income or expense, foreign currency transaction gains or losses, restructuring and related costs including accelerated depreciation, asset impairments, or costs and inventory step-up charges related to business acquisitions and integration. Corporate expenses include the compensation of certain personnel, certain audit expenses, Board of Directors related costs, certain insurance costs, costs associated with being a publicly traded entity and other miscellaneous legal and professional fees.

- 12 -

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes net sales to unaffiliated customers by segment:


	Three months ended November 30,
	2014		2013
	(In thousands)
EMEA	$	371,191	$	392,462
USCAN		144,707		95,940
LATAM		46,181		50,587
APAC		52,974		46,408

Total net sales to unaffiliated customers	$	615,053	$	585,397

Below the Company presents gross profit by segment:


	Three months ended November 30,
	2014			2013
	(In thousands)
EMEA	$	49,706		$	51,940
USCAN		24,629			13,750
LATAM		5,650			7,683
APAC		7,250			6,623

Total segment gross profit		87,235			79,996
Inventory step-up		(341	)		(417	)
Accelerated depreciation, restructuring and related costs		—			(471	)
Costs related to acquisitions and integrations		(50	)		—

Total gross profit	$	86,844		$	79,108

Below is a reconciliation of segment operating income to operating income and income from continuing operations before taxes:


	Three months ended November 30,
	2014			2013
	(In thousands)
EMEA	$	20,039		$	20,417
USCAN		11,393			3,859
LATAM		595			3,505
APAC		3,508			3,366

Total segment operating income		35,535			31,147
Corporate		(7,484	)		(6,683	)
Costs related to acquisitions and integrations		(1,053	)		(635	)
Restructuring and related costs		(5,579	)		(3,372	)
Accelerated depreciation		—			(108	)
Inventory step-up		(341	)		(417	)

Operating income		21,078			19,932
Interest expense, net		(2,264	)		(2,129	)
Foreign currency transaction gains (losses)		(1,099	)		(682	)
Other income (expense), net		159			78

Income from continuing operations before taxes	$	17,874		$	17,199

- 13 -

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Three months ended November 30,
	2014				2013
	(In thousands, except for %’s)
Custom performance colors	$	48,078	8	%	$	44,941	8	%
Masterbatch solutions		202,030	33			182,903	31
Engineered plastics		194,516	32			180,698	31
Specialty powders		82,357	13			86,947	15
Distribution services		88,072	14			89,908	15

Total consolidated net sales	$	615,053	100	%	$	585,397	100	%

The three months ended November 30, 2013 include a reclassification of revenue between product families to better reflect the way the businesses are managed.

(12)	RESTRUCTURING

Fiscal 2015 Restructuring Plans

EMEA Reorganization Plan

In October 2014, the Company announced actions to optimize the back-office and support functions in EMEA. The Company plans to reduce headcount in EMEA by approximately 40, with the majority of reductions expected to occur during the first half of fiscal 2015. During the three months ended November 30, 2014, the Company recorded $4.2 million of pretax employee-related costs and expects to recognize additional pretax employee-related costs of $2.7 million throughout the remainder of fiscal 2015 for this plan. As of November 30, 2014, the Company has a balance of $3.2 million accrued for this plan. Cash payments associated with this plan are expected to occur during fiscal 2015 as the plan is completed.

North American Production Facilities Consolidation Plan

In November 2014, the Company announced plans to consolidate its North American production facilities. As part of the ongoing review of its manufacturing footprint, the Company will close its plant in Stryker, Ohio in the third quarter of fiscal 2015 and shift the plant’s production to other North American facilities. The Company expects to reduce headcount by approximately 70 by the end of fiscal 2015. The Company recorded $0.6 million of pretax employee-related costs during the three months ended November 30, 2014 and expects to recognize additional pretax employee-related costs of $1.9 million throughout the remainder of fiscal 2015. As of November 30, 2014, the Company has a balance of $0.6 million accrued for this plan. Cash payments associated with this plan are expected to occur during fiscal 2015 as the plan is completed.

North American SG&A Reduction Plan

In November 2014, the Company announced plans to reduce headcount by approximately 10, primarily in North America selling, general and administrative functions as part of its ongoing effort to drive further synergies from recent acquisitions. The Company recorded $0.2 million of pretax employee-related costs during the three months ended November 30, 2014 and expects to recognize additional pretax employee-related costs of $0.3 million throughout the remainder of fiscal 2015. As of November 30, 2014, the Company has a balance of $0.1 million accrued for this plan. Cash payments associated with this plan are expected to occur during fiscal 2015 as the plan is completed.

For discussion of the Company’s previous restructuring plans, refer to Note 15 of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

- 14 -

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the activity related to the Company’s restructuring plans:


	Employee - related Costs			Other Costs			Translation Effect			Total Restructuring Costs
	(In thousands)
Accrual balance as of August 31, 2014	$	1,745		$	371		$	(304	)	$	1,812
Fiscal 2015 charges		4,907			312			—			5,219
Fiscal 2015 payments		(1,419	)		(328	)		—			(1,747	)
Translation		—			—			(133	)		(133	)

Accrual balance as of November 30, 2014	$	5,233		$	355		$	(437	)	$	5,151

Restructuring expenses are excluded from segment operating income but are attributable to the reportable segments as follows:


	Three months ended November 30,
	2014		2013
	(In thousands)
EMEA	$	4,274	$	501
USCAN		762		67
LATAM		183		1,145
APAC		—		65

Total restructuring expense	$	5,219	$	1,778

(13)	COMMITMENTS AND CONTINGENCIES

Reserves are established for legal claims only when losses associated with the claims are judged to be probable, and the loss can be reasonably estimated. In many lawsuits and arbitrations, it is not considered probable that a liability has been incurred or it is not possible to estimate the ultimate or minimum amount of that liability until the case is close to resolution, in which case no reserve would be recognized until that time.

There were no material changes to the Company’s future contractual obligations as previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014.

(14)	SHARE REPURCHASE PROGRAM

For a discussion of the Company’s Share Repurchase programs, refer to Note 18 of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

During the first quarter of fiscal 2015, the Company repurchased 109,422 shares of common stock at an average price of $30.46 per share for a total cost of $3.3 million. As of November 30, 2014, shares valued at $51.7 million remain authorized for repurchase. In the first quarter of fiscal 2014, the Company repurchased 40,327 shares of common stock at an average price of $27.68 per share for a total cost of $1.1 million.

(15)	ACCOUNTING PRONOUNCEMENTS

In August 2014, the Financial Accounting Standards Board (“the FASB”) issued new accounting guidance that requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The standard is effective for fiscal years ending after December 15, 2016, including interim periods. Early application is permitted. The standard is not anticipated to have an impact on the Company’s consolidated financial statements.

- 15 -

A. SCHULMAN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

No other new accounting pronouncements issued or with effective dates during fiscal 2015 had or are expected to have a material impact on the Company’s consolidated financial statements.

(16)	DISCONTINUED OPERATIONS

The following summarizes select financial information included in income (loss) from discontinued operations:


	Three months ended November 30,
	2014			2013
	(In thousands)
Net sales	$	—		$	1,288
Income (loss) from discontinued operations, net of tax	$	(10	)	$	2,655

During the three months ended November 30, 2013, the Company recorded a gain on the sale of assets of $3.0 million. Income taxes were minimal for all periods presented.

- 16 -

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help investors understand our results of operations, financial condition and current business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited consolidated financial statements and related notes included elsewhere in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2014, and the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, both as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015. The MD&A is organized as follows:

•

Overview: From management’s point of view, we discuss the following:

•

Summary of our business and the markets in which we operate; and

•

Significant events during the current fiscal year.

•

Results of Operations: An analysis of our results of operations as reflected in our consolidated financial statements. Throughout this MD&A, the Company provides operating results for continuing operations exclusive of certain items such as costs related to acquisitions and integration, restructuring and related expenses, and asset write-downs, which are considered relevant to aid analysis and understanding of the Company’s results and business trends.

•

Liquidity and Capital Resources: An analysis of our cash flows, working capital, debt structure, contractual obligations and other commercial commitments.

Overview

Business Summary

A. Schulman, Inc. is an international supplier of high-performance plastic compounds and resins headquartered in Fairlawn, Ohio. The Company’s customers span a wide range of markets such as packaging, mobility, building & construction, electronics & electrical, agriculture, personal care & hygiene, custom services, and sports, leisure & home. The Chief Operating Decision Maker (“CODM”) makes decisions, assesses performance and allocates resources by the following regions which represent our reportable segments effective January 1, 2015:

•

Europe, Middle East and Africa (“EMEA”),

•

United States & Canada (“USCAN”),

•

Latin America (“LATAM”),

•

Asia Pacific (“APAC”).

The Company has approximately 3,900 employees and 43 manufacturing facilities worldwide. Globally, the Company operates in five product families: (1) custom performance colors, (2) masterbatch solutions, (3) engineered plastics, (4) specialty powders and (5) distribution services. The Company offers tolling services to customers primarily in the specialty powders product family.

Fiscal Year 2015 Significant Events

The following represent significant events during fiscal year 2015:

Business Acquisition. On September 2, 2014, the Company acquired Compco Pty. Ltd. (“Compco”), a manufacturer of masterbatches and custom colors in Melbourne, Australia for $6.7 million.

Dividend Activities. In October 2014, the Company increased its regular quarterly cash dividend by 2.5% to $0.205 per common share which reflects the Company’s confidence in its ability to generate cash and its long-term growth prospects, along with a continued commitment to shareholders. This continues the Company’s history of annual dividend payments that began in 1972.

China Expansion. In December 2014, the Company announced that it has added equipment in its manufacturing facility in Dongguan, China to accommodate an increase in demand in the masterbatch solutions product family. This new production line will double the current masterbatch solutions production capacity at the facility.

- 17 -

Restructuring Plans. In the first quarter of fiscal 2015, the Company announced three restructuring actions that will further optimize its back-office and support functions as well as consolidate its manufacturing footprint. The Company expects to reduce headcount by approximately 120 and realize annual savings of approximately $8 million on completion of these activities.

Share Repurchases. The Company repurchased 109,422 shares of its common stock during the first quarter of fiscal 2015 at an average price of $30.46 per share for a total cost of $3.3 million.

CEO Transition. On January 1, 2015, Joseph M. Gingo retired as the Company’s President and Chief Executive Officer, succeeded by Bernard Rzepka. On December 12, 2014, Mr. Gingo was re-elected as the Chairman of the Company’s Board of Directors and Bernard Rzepka was elected to the Board.

Results of Operations

Segment Information


	Three months ended November 30,
												Favorable (unfavorable)
EMEA	2014			2013			Increase (decrease)					FX Impact			Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		316,458			312,220			4,238		1.4	%
Net sales	$	371,191		$	392,462		$	(21,271	)	(5.4	)%	$	(21,485	)		0.1	%
Segment gross profit	$	49,706		$	51,940		$	(2,234	)	(4.3	)%	$	(3,008	)		1.5	%
Segment gross profit percentage		13.4	%		13.2	%
Segment operating income	$	20,039		$	20,417		$	(378	)	(1.9	)%	$	(1,203	)		4.0	%
Price per pound	$	1.173		$	1.257		$	(0.084	)	(6.7	)%	$	(0.068	)		(1.3	)%
Segment operating income per pound	$	0.063		$	0.065		$	(0.002	)	(3.1	)%	$	(0.004	)		3.1	%

Three months ended November 30, 2014

EMEA net sales for the three months ended November 30, 2014 were $371.2 million, a decrease of $21.3 million or 5.4%, compared with the prior-year period. Foreign currency translation negatively impacted net sales by $21.5 million. Organic sales declined across all product families, primarily due to lower volumes in the engineered plastics and specialty powders product families. During the first quarter of fiscal 2015, the incremental contribution of the Ferro Specialty Plastics (“Specialty Plastics”) acquisition in EMEA was $11.0 million and 7.3 million pounds in net sales and volume, respectively.

EMEA gross profit was $49.7 million for the three months ended November 30, 2014, a decrease of $2.2 million compared with the same prior-year period. The decrease in gross profit was mainly attributed to the unfavorable foreign currency translation impact of $3.0 million, lower organic volumes and higher pension expense of $0.2 million, partially offset by the incremental contribution of the Specialty Plastics acquisition.

EMEA operating income for the three months ended November 30, 2014 was $20.0 million, a decrease of $0.4 million compared with the same period in the prior year. Operating income declined due to lower gross profit as noted above, partially offset by lower selling, general and administrative (“SG&A”) expense of $1.9 million. SG&A expense decreased primarily due to foreign currency translation of $1.8 million and lower variable incentive compensation of $1.3 million, partially offset by incremental SG&A expenses from the Specialty Plastics acquisition of $0.9 million and higher pension expense of $0.2 million.

- 18 -


	Three months ended November 30,
											Favorable (unfavorable)
USCAN	2014			2013			Increase (decrease)				FX Impact			Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		152,964			119,784			33,180	27.7	%
Net sales	$	144,707		$	95,940		$	48,767	50.8	%	$	(348	)		51.2	%
Segment gross profit	$	24,629		$	13,750		$	10,879	79.1	%	$	(51	)		79.5	%
Segment gross profit percentage		17.0	%		14.3	%
Segment operating income	$	11,393		$	3,859		$	7,534	195.2	%	$	(52	)		196.6	%
Price per pound	$	0.946		$	0.801		$	0.145	18.1	%	$	(0.002	)		18.4	%
Segment operating income per pound	$	0.074		$	0.032		$	0.042	131.3	%	$	(0.001	)		134.4	%

Three months ended November 30, 2014

USCAN net sales for the three months ended November 30, 2014 were $144.7 million, an increase of $48.8 million or 50.8% compared with the prior-year period. During the first quarter of fiscal 2015, the incremental contribution of the Network Polymers, Prime Colorants and Specialty Plastics acquisitions was $44.8 million and 29.1 million pounds in net sales and volume, respectively. Excluding the impact of foreign currency translation and acquisitions, price per pound increased principally driven by improved product mix. Foreign currency translation negatively impacted net sales by $0.3 million.

USCAN gross profit was $24.6 million for the three months ended November 30, 2014, an increase of $10.9 million from the comparable period in the prior year. The benefits of recent acquisitions and related integration, along with improved mix were partially offset by unfavorable foreign currency translation.

USCAN operating income for the three months ended November 30, 2014 was $11.4 million compared with $3.9 million in the same quarter of fiscal 2014. Operating income increased due to the above noted increase in gross profit, partially offset by incremental SG&A expenses from recent acquisitions of $3.3 million and unfavorable foreign currency translation.


	Three months ended November 30,
												Favorable (unfavorable)
LATAM	2014			2013			Increase (decrease)					FX Impact			Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		32,944			35,450			(2,506	)	(7.1	)%
Net sales	$	46,181		$	50,587		$	(4,406	)	(8.7	)%	$	(3,867	)		(1.1	)%
Segment gross profit	$	5,650		$	7,683		$	(2,033	)	(26.5	)%	$	(545	)		(19.4	)%
Segment gross profit percentage		12.2	%		15.2	%
Segment operating income	$	595		$	3,505		$	(2,910	)	(83.0	)%	$	(273	)		(75.2	)%
Price per pound	$	1.402		$	1.427		$	(0.025	)	(1.8	)%	$	(0.117	)		6.4	%
Segment operating income per pound	$	0.018		$	0.099		$	(0.081	)	(81.8	)%	$	(0.008	)		(73.7	)%

Three months ended November 30, 2014

LATAM net sales for the three months ended November 30, 2014 were $46.2 million, a decrease of $4.4 million or 8.7% compared with the prior-year period. Excluding the unfavorable impact of foreign currency translation, which decreased net sales by $3.9 million, price per pound increased principally driven by improved product mix. Volumes decreased primarily in the specialty powders product family.

LATAM gross profit was $5.7 million for the three months ended November 30, 2014, a decrease of $2.0 million from the comparable period in the prior year. The benefits of improved product mix were offset by unfavorable foreign currency translation of $0.5 million and volume decreases as mentioned above.

LATAM operating income for the three months ended November 30, 2014 was $0.6 million compared with $3.5 million in the same quarter of fiscal 2014. Operating income decreased primarily due to the decrease in gross profit as noted above as well as increased SG&A and unfavorable foreign currency translation.

- 19 -


	Three months ended November 30,
												Favorable (unfavorable)
APAC	2014			2013			Increase (decrease)					FX Impact			Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		42,230			35,262			6,968		19.8	%
Net sales	$	52,974		$	46,408		$	6,566		14.1	%	$	(505	)		15.2	%
Segment gross profit	$	7,250		$	6,623		$	627		9.5	%	$	(59	)		10.4	%
Segment gross profit percentage		13.7	%		14.3	%
Segment operating income	$	3,508		$	3,366		$	142		4.2	%	$	(33	)		5.2	%
Price per pound	$	1.254		$	1.316		$	(0.062	)	(4.7	)%	$	(0.012	)		(3.8	)%
Segment operating income per pound	$	0.083		$	0.095		$	(0.012	)	(12.6	)%	$	(0.001	)		(11.6	)%

Three months ended November 30, 2014

APAC net sales for the three months ended November 30, 2014 were $53.0 million, an increase of $6.6 million compared with the same prior-year period. During the first quarter of fiscal 2015, the Compco acquisition in Australia contributed net sales and volume of $3.4 million and 2.3 million pounds, respectively. Excluding the Compco acquisition, organic volume increased across nearly all product families, partially offset by decreased price per pound driven by competitive pricing pressures primarily in the masterbatch solutions product family and unfavorable product mix in the engineered plastics product family.

APAC gross profit for the three months ended November 30, 2014 was $7.3 million, an increase of $0.6 million compared with the prior-year period. Gross profit benefited from the positive contribution of the Compco acquisition and increased organic volume. The gross profit percentage declined primarily due to the combined impact of competitive pricing pressures and unfavorable product mix noted above.

APAC operating income for the three months ended November 30, 2014 was $3.5 million compared with $3.4 million in the prior-year comparable quarter. The increase in operating income was primarily due to the aforementioned increase in gross profit, partially offset by incremental SG&A expenses from the Compco acquisition of $0.3 million.


	Three months ended November 30,
										Favorable (unfavorable)
Consolidated	2014		2013		Increase (decrease)					FX Impact			Excluding FX
	(In thousands, except for %’s and per pound data)
Pounds sold		544,596		502,716		41,880		8.3	%
Net sales	$	615,053	$	585,397	$	29,656		5.1	%	$	(26,205	)		9.5	%
Operating income	$	21,078	$	19,932	$	1,146		5.7	%	$	(1,477	)		13.2	%
Total operating income before certain items*	$	28,051	$	24,464	$	3,587		14.7	%	$	(1,561	)		21.0	%
Price per pound	$	1.129	$	1.164	$	(0.035	)	(3.0	)%	$	(0.048	)		1.1	%
Total operating income per pound before certain items*	$	0.052	$	0.049	$	0.003		6.1	%	$	(0.002	)		10.2	%

Total operating income before certain items, a non-GAAP measurement, represents segment operating income combined with Corporate expenses. For a reconciliation of segment operating income to operating income and income from continuing operations before taxes, refer to Note 11 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

Three months ended November 30, 2014

Consolidated net sales for the three months ended November 30, 2014 were $615.1 million, an increase of $29.7 million or 5.1%, compared with the same prior-year period. Incremental net sales and volume in the first quarter of fiscal 2014 from the Company’s recent acquisitions contributed $59.2 million and 38.7 million pounds, respectively. Foreign currency translation unfavorably impacted net sales for the three months ended November 30, 2014 by $26.2 million.

Operating income increased $1.1 million for the three months ended November 30, 2014 compared to the same prior year period. Total operating income before certain items for the three months ended November 30, 2014 was $28.1 million, an increase of $3.6 million compared with the prior year. The increase in total operating income before certain items was primarily due to the contribution from recent acquisitions of $6.3 million partially offset by the negative impact of foreign currency translation of $1.6 million.

- 20 -

Excluding $1.4 million and $1.9 million of acquisition, integration, restructuring and related costs for the three months ended November 30, 2014 and 2013, respectively, the Company’s SG&A expenses increased by $3.7 million for the three months ended November 30, 2014 compared with the same period in the prior year. The increase was primarily attributable to incremental SG&A expense of $3.7 million from recent acquisitions.

Additional consolidated results

Interest expense, net of interest income, increased $0.1 million for the three months ended November 30, 2014 as compared with the same period in the prior year.

The Company experienced foreign currency losses of $1.1 million and $0.7 million for the three months ended November 30, 2014 and 2013, respectively. Generally, the foreign currency transaction gains or losses relate to the changes in the value of the U.S. dollar compared with the Euro and other local currencies throughout all regions, and changes between the Euro and other non-Euro European currencies. The Company may enter into foreign exchange forward contracts to reduce the impact of changes in foreign exchange rates on the consolidated statements of operations. These contracts reduce exposure to currency movements affecting the remeasurement of foreign currency denominated assets and liabilities primarily related to trade receivables and payables, as well as intercompany activities. Any gains or losses associated with these contracts, as well as the offsetting gains or losses from the underlying assets or liabilities, are recognized on the foreign currency transaction line in the consolidated statements of operations. There were no foreign exchange forward contracts designated as hedging instruments as of November 30, 2014 and August 31, 2014.

Noncontrolling interests represent a 37% equity position of Alta Plastica S.A. in an Argentinean venture and a 35% equity position of P.T. Prima Polycon Indah in an Indonesian joint venture.

Net income attributable to the Company’s stockholders was $13.2 million and $15.1 million for the three months ended November 30, 2014 and 2013, respectively. Foreign currency translation had a minimal impact on net income for the three months ended November 30, 2014.

Product Families


	Three months ended November 30,
	2014				2013
	(In thousands, except for %’s)
Custom performance colors	$	48,078	8	%	$	44,941	8	%
Masterbatch solutions		202,030	33			182,903	31
Engineered plastics		194,516	32			180,698	31
Specialty powders		82,357	13			86,947	15
Distribution services		88,072	14			89,908	15

Total consolidated net sales	$	615,053	100	%	$	585,397	100	%

The three months ended November 30, 2013 include a reclassification of revenue between product families to better reflect the way the businesses are managed.

- 21 -

Capacity


	Three months ended November 30,
	2014			2013
EMEA		87	%		87	%
USCAN		66	%		63	%
LATAM		72	%		85	%
APAC		65	%		67	%
Worldwide		76	%		77	%

Restructuring

The following table summarizes the activity related to the Company’s restructuring plans:


	Employee- related Costs			Other Costs			Translation Effect			Total Restructuring Costs
	(In thousands)
Accrual balance as of August 31, 2014	$	1,745		$	371		$	(304	)	$	1,812
Fiscal 2015 charges		4,907			312			—			5,219
Fiscal 2015 payments		(1,419	)		(328	)		—			(1,747	)
Translation		—			—			(133	)		(133	)

Accrual balance as of November 30, 2014	$	5,233		$	355		$	(437	)	$	5,151

For discussion of the Company’s fiscal 2015 restructuring plans, refer to Note 12 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

Income Tax

A reconciliation of the U.S. statutory federal income tax rate with the effective tax rates for the respective periods is as follows:


	Three months ended November 30,
	2014					2013
	(In thousands, except for %’s)
U.S. statutory federal income tax rate	$	6,256		35.0	%	$	6,019		35.0	%
Amount of foreign taxes at less than U.S. statutory federal income tax rate		(2,034	)	(11.4	)		(3,794	)	(22.1	)
U.S. and foreign losses with no tax benefit		1,430		8.0			1,785		10.4
U.S. restructuring and other U.S. charges with no benefit		539		3.0			473		2.8
U.S. income with no tax		(2,091	)	(11.7	)		—		—
Establishment (resolution) of uncertain tax positions		49		0.3			56		0.3
Other		337		1.9			29		0.2

Provision (benefit) for U.S. and foreign income taxes	$	4,486		25.1	%	$	4,568		26.6	%

The effective tax rates for the three months ended November 30, 2014 and 2013 are less than the U.S. statutory federal income tax rate primarily because of the Company’s overall foreign tax rates being less than the U.S. statutory federal income tax rate. The decrease in the effective tax rate for the three months ended November 30, 2014 as compared with the same prior-year period was driven primarily by a decrease in U.S. and foreign losses with no tax benefit combined with U.S. income in the current period with no tax as a result of an offsetting decrease in the U.S. valuation allowance.

- 22 -

Goodwill

Goodwill is tested for impairment annually as of June 1. Management uses judgment to determine whether to use a qualitative analysis or a quantitative fair value measurement approach that combines the income and market valuation techniques for each of the Company’s reporting units that carry goodwill. These valuation techniques use estimates and assumptions including, but not limited to, the determination of appropriate market comparables, projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and projected future economic and market conditions.

If circumstances change between annual tests that would more likely than not reduce the fair value of a reporting unit below its carrying value, the Company would test goodwill for impairment. Factors which would necessitate an interim goodwill impairment assessment include a sustained decline in the Company’s stock price, prolonged negative industry or economic trends, and significant under-performance relative to historical or projected future operating results.

As of June 1, 2014, the annual goodwill impairment test date for fiscal 2014, goodwill was included in five of the Company’s reporting units in EMEA (masterbatch solutions, engineered plastics, specialty powders, custom performance colors and distribution services), four reporting units in the former Americas region (masterbatch solutions, custom performance colors, engineered plastics and specialty powders) and one reporting unit in APAC (engineered plastics). In the first quarter of fiscal 2015, additional goodwill was recorded as a result of the Compco acquisition and allocated to the APAC custom performance colors reporting unit.

Management concluded, based on the quantitative fair value measurements performed, that as of June 1, 2014, the fair values of the EMEA specialty powders and the former Americas engineered plastics reporting units exceeded their carrying values by 13% in each instance. As of November 30, 2014, the EMEA specialty powders reporting unit had goodwill of $18.0 million while goodwill in the former Americas engineered plastics reporting unit was $34.5 million. The goodwill associated with these reporting units is primarily the result of the acquisitions made within the last few years. Generally, goodwill recorded in business combinations is more susceptible to risk of impairment soon after the acquisition primarily because the business combination is recorded at fair value based on operating plans and economic conditions present at the time of the acquisition. If operating results or economic conditions deteriorate soon after an acquisition, it could result in the impairment of the acquired goodwill. A change in macroeconomic conditions in the former Americas and EMEA regions, as well as future changes in the judgments, assumptions and estimates that were used in the Company’s goodwill impairment testing for these two reporting units, including the discount rate and future cash flow projections, could result in a significantly different estimate of the fair value.

As of November 30, 2014, the Company concluded there were no triggering events which would have required a goodwill impairment test.

Liquidity and Capital Resources

Net cash provided from operations was $10.3 million and $9.8 million for the three months ended November 30, 2014 and 2013, respectively. The Company’s cash and cash equivalents decreased $3.4 million from August 31, 2014. This decrease was driven primarily by capital expenditures of $10.3 million, the Compco acquisition of $6.7 million, dividend payments of $6.0 million, foreign currency translation of $4.0 million and share repurchases of $3.3 million. These items were funded by net borrowings of $17.5 million and cash generated from operations of $10.3 million.

The Company’s approximate working capital days are summarized as follows:


	November 30, 2014		August 31, 2014		November 30, 2013
Days in receivables		55		55		55
Days in inventory		52		50		57
Days in payables		49		48		54
Total working capital days		58		57		58

- 23 -

The following table summarizes certain key balances on the Company’s consolidated balance sheets and related metrics:


	November 30, 2014		August 31, 2014		$ Change			% Change
	(In thousands, except for %’s)
Cash and cash equivalents	$	132,109	$	135,493	$	(3,384	)		(2.5	)%
Working capital, excluding cash	$	268,283	$	263,715	$	4,568			1.7	%
Long-term debt	$	353,262	$	339,546	$	13,716			4.0	%
Total debt	$	385,274	$	371,294	$	13,980			3.8	%
Net debt*	$	253,165	$	235,801	$	17,364			7.4	%
Total A. Schulman, Inc.’s stockholders’ equity	$	506,953	$	527,043	$	(20,090	)		(3.8	)%

* Net debt, a non-GAAP financial measure, represents total debt less cash and cash equivalents. The Company believes that net debt provides useful supplemental liquidity information to investors.

As of November 30, 2014, 94% of the company’s cash and cash equivalents were held by its foreign subsidiaries, compared to 95% as of August 31, 2014. The majority of these foreign cash balances are associated with earnings that we have asserted are permanently reinvested and which we plan to use to support continued growth plans outside the U.S. through funding of capital expenditures, acquisitions, operating expenses or other similar cash needs of foreign operations. From time to time, we repatriate cash from foreign subsidiaries to the U.S. through intercompany dividends for normal operating needs and service of outstanding debt. These dividends are typically paid out of current year earnings. In addition, excess cash in the U.S. is generally used to repay outstanding debt.

Working capital, excluding cash, was $268.3 million as of November 30, 2014, an increase of $4.6 million from August 31, 2014. The primary reasons for the increase in working capital from August 31, 2014 included increases of $7.1 million in prepaid expenses and other current assets and $4.4 million in inventory and a decrease in accrued payroll, taxes and related benefits of $6.5 million. These increases were partially offset by a decrease in accounts receivable of $8.0 million and an increase in other accrued liabilities of $6.2 million. The translation effect of foreign currencies, primarily the Euro, decreased working capital by $11.9 million.

Capital expenditures for the three months ended November 30, 2014 were $10.3 million compared with $9.6 million in the prior year. The Company continued regular and ongoing investments in its global manufacturing facilities and technical innovation centers.

For a discussion of the Company’s credit arrangements, refer to Note 5 of the Company’s Annual Report on Form 10-K for the fiscal year-ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015. As of November 30, 2014, the Company was in compliance with its debt covenants and does not believe a subsequent covenant violation is reasonably possible.

The carrying value of the Company’s Euro Notes approximates €42.8 million, or $53.4 million, as of November 30, 2014. Repayment of the Euro Notes prior to maturity would cost approximately $3.5 million in early termination fees as of November 30, 2014.

Below summarizes the Company’s available funds:


	November 30, 2014		August 31, 2014
	(In thousands)
Existing capacity:
Revolving Facility	$	300,000	$	300,000
Term Loan Facility		188,125		190,625
Domestic short-term lines of credit		15,000		15,000
Foreign short-term lines of credit		50,352		53,520

Total capacity from credit lines and notes	$	553,477	$	559,145

Availability:
Revolving Facility	$	174,809	$	193,909
Foreign short-term lines of credit		45,082		49,250

Total available funds from credit lines and notes	$	219,891	$	243,159

- 24 -

Total available funds from credit lines and notes represent the total capacity from credit lines and notes less outstanding borrowings of $332.9 million and $315.3 million as of November 30, 2014 and August 31, 2014, respectively, and issued letters of credit of $0.7 million each, as of November 30, 2014 and August 31, 2014.

The Company was in a net debt position of $253.2 million and $235.8 million as of November 30, 2014 and August 31, 2014, respectively. The change of $17.4 million was a result of an increase in total debt of $14.0 million and a decrease in cash and cash equivalents of $3.4 million as previously discussed.

During the three months ended November 30, 2014, the Company declared and paid quarterly cash dividends of $0.205 per common share. The total amount of these dividends was $6.0 million.

For a discussion of the Company’s share repurchase programs, refer to Note 18 of the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

The Company has foreign currency exposures primarily related to the Euro, British pound sterling, Polish zloty, Mexican peso, Brazilian real, and Argentine peso, among others. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using current exchange rates. Income statement items are translated at average exchange rates prevailing during the period. The resulting translation adjustments are recorded in the accumulated other comprehensive income (loss) account in stockholders’ equity. A significant portion of the Company’s operations uses the Euro as its functional currency. Accumulated other comprehensive income decreased by $25.6 million during the three months ended November 30, 2014 due to the strengthening of the U.S. dollar against various foreign currencies, most significantly the Euro which declined by 5.3% from 1.319 U.S. dollars to 1 Euro as of August 31, 2014 to $1.248 as of November 30, 2014.

Cash flow from operations, borrowing capacity under the credit facilities and cash and cash equivalents are expected to provide sufficient liquidity to maintain the Company’s current operations and capital expenditure requirements, pay dividends, repurchase shares, pursue acquisitions and service outstanding debt.

Contractual Obligations

As of November 30, 2014, there were no material changes to the Company’s future contractual obligations as previously reported in the Company’s 2014 Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

The Company’s outstanding commercial commitments as of November 30, 2014 are not material to the Company’s financial position, liquidity or results of operations.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements as of November 30, 2014.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Management bases its estimates on historical experience and other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. The Company’s critical accounting policies are the same as discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

Accounting Pronouncements

For a discussion of accounting pronouncements, refer to Note 15 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015.

- 25 -

Cautionary Statements

•

the effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques;

•

competitive factors, including intense price competition;

•

fluctuations in the value of currencies in areas where the Company operates;

•

changes in customer demand and requirements;

•

effectiveness of the Company to achieve the level of cost savings, productivity improvements, growth and other benefits anticipated from acquisitions, joint ventures and restructuring initiatives;

•

escalation in the cost of providing employee health care;

•

uncertainties regarding the resolution of pending and future litigation and other claims;

•

the performance of the global automotive market as well as other markets served;

•

further adverse changes in economic or industry conditions, including global supply and demand conditions and prices for products; and

•

operating problems with our information systems as a result of system security failures such as viruses, computer “hackers” or other causes.

The risks and uncertainties identified above are not the only risks the Company faces. Additional risk factors that could affect the Company’s performance are set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014, as amended and superseded in part by the Company’s Current Report on Form 8-K filed on April 27, 2015. In addition, risks and uncertainties not presently known to the Company or that it believes to be immaterial also may adversely affect the Company. Should any known or unknown risks or uncertainties develop into actual events, or underlying assumptions prove inaccurate, these developments could have material adverse effects on the Company’s business, financial condition and results of operations.

- 26 -

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

SEC Filings

Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!

A. Schulman, Inc.

April 27, 2015

/s/ David C. Minc

David C. Minc

Vice President, Chief Legal Officer and Secretary