UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended May 31, 2010

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

For the transition period from                      to                     .

A. SCHULMAN, INC.

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

Number of shares of common stock, $1.00 par value, outstanding as of June 30, 2010 — 31,483,097.

 

 

PART I — FINANCIAL INFORMATION

Item 1 — Consolidated Financial Statements

A. SCHULMAN, INC.

CONSOLIDATED STATEMENTS OF INCOME

		Three months ended								Nine months ended
		May 31,								May 31,
		2010				2009				2010				2009
		Unaudited
		(In thousands, except per share data)
Net sales		$	420,335			$	297,644			$	1,114,218			$	958,609
Cost of sales			361,450				251,111				940,839				840,801
Selling, general and administrative expenses			43,531				32,861				133,046				105,106
Interest expense			1,159				1,192				3,349				3,587
Interest income			(201	)			(530	)			(652	)			(1,961	)
Foreign currency transaction (gains) losses			468				2,430				389				(6,218	)
Other (income) expense			(269	)			(1,218	)			(2,155	)			(2,231	)
Curtailment gain			—				—				—				(2,609	)
Asset impairment			300				283				5,631				2,462
Restructuring expense			862				981				2,509				6,230
			407,300				287,110				1,082,956				945,167
Income from continuing operations before taxes			13,035				10,534				31,262				13,442
Provision for (benefit from) U.S. and foreign income taxes			(12,890	)			1,971				(4,984	)			5,324
Income from continuing operations			25,925				8,563				36,246				8,118
Income (loss) from discontinued operations, net of tax of $0			(23	)			(823	)			(14	)			(2,870	)
Net income			25,902				7,740				36,232				5,248
Noncontrolling interests			(141	)			(291	)			(211	)			(141	)
Net income attributable to A. Schulman, Inc.			25,761				7,449				36,021				5,107
Preferred stock dividends			—				(13	)			—				(40	)
Net income attributable to A. Schulman, Inc. common stockholders		$	25,761			$	7,436			$	36,021			$	5,067
Weighted-average number of shares outstanding:
Basic			27,896				25,789				26,552				25,783
Diluted			28,275				25,939				26,901				25,962
Earnings (losses) per share of common stock attributable to A. Schulman, Inc. — Basic:
Income from continuing operations		$	0.92			$	0.32			$	1.36			$	0.31
Income (loss) from discontinued operations			—				(0.03	)			—				(0.11	)
Net income attributable to common stockholders		$	0.92			$	0.29			$	1.36			$	0.20
Earnings (losses) per share of common stock attributable to A. Schulman, Inc. — Diluted:
Income from continuing operations		$	0.91			$	0.32			$	1.34			$	0.31
Income (loss) from discontinued operations			—				(0.03	)			—				(0.11	)
Net income attributable to common stockholders		$	0.91			$	0.29			$	1.34			$	0.20

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

A. SCHULMAN, INC.

CONSOLIDATED BALANCE SHEETS

		May 31,				August 31,
		2010				2009
		Unaudited
		(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents		$	91,777			$	228,674
Accounts receivable, less allowance for doubtful accounts of $14,319 at May 31, 2010 and $10,279 at August 31, 2009			287,694				206,450
Inventories, average cost or market, whichever is lower			216,195				133,536
Prepaid expenses and other current assets			28,007				20,779
Total current assets			623,673				589,439
Other assets:
Cash surrender value of life insurance			3,546				3,101
Deferred charges and other assets			22,490				23,715
Goodwill			81,753				11,577
Intangible assets			77,859				217
			185,648				38,610
Property, plant and equipment, at cost:
Land and improvements			31,300				16,236
Buildings and leasehold improvements			156,664				147,121
Machinery and equipment			355,146				345,653
Furniture and fixtures			36,273				39,581
Construction in progress			9,307				4,546
			588,690				553,137
Accumulated depreciation and investment grants of $756 at May 31, 2010 and $988 at August 31, 2009			346,140				383,697
Net property, plant and equipment			242,550				169,440
Total assets		$	1,051,871			$	797,489
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt and notes payable		$	50,219			$	2,519
Accounts payable			198,892				147,476
U.S. and foreign income taxes payable			7,270				8,858
Accrued payrolls, taxes and related benefits			43,517				36,207
Other accrued liabilities			47,252				32,562
Total current liabilities			347,150				227,622
Long-term debt			95,741				102,254
Other long-term liabilities			84,471				92,688
Deferred income taxes			27,610				3,954
Commitments and contingencies			—				—
Stockholders’ equity:
Preferred stock, 5% cumulative, $100 par value, authorized, issued and outstanding — 15 shares at May 31, 2010 and August 31, 2009			2				2
Common stock $1 par value, authorized — 75,000,000 shares, issued — 47,692,355 shares at May 31, 2010 and 42,295,492 shares at August 31, 2009			47,692				42,295
Other capital			248,860				115,358
Accumulated other comprehensive income			1,481				38,714
Retained earnings			516,564				492,513
Treasury stock, at cost, 16,207,011 shares at May 31, 2010 and August 31, 2009			(322,812	)			(322,812	)
Total A. Schulman, Inc. stockholders’ equity			491,787				366,070
Noncontrolling interests			5,112				4,901
Total equity			496,899				370,971
Total liabilities and equity		$	1,051,871			$	797,489

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

A. SCHULMAN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Nine months ended May 31,
		2010				2009
		Unaudited
		(In thousands)
Provided from (used in) operating activities:
Net income		$	36,232			$	5,248
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation and amortization, including $69 and $1,185 of accelerated depreciation related to restructuring in fiscal 2010 and 2009, respectively			17,492				19,111
Deferred tax provision			(21,486	)			(307	)
Pension, postretirement benefits and other deferred compensation			3,083				923
Net (gains) losses on asset sales			(230	)			162
Curtailment gain			—				(2,609	)
Asset impairment			5,635				2,462
Changes in assets and liabilities:
Accounts receivable			(40,703	)			85,259
Inventories			(56,429	)			82,381
Accounts payable			29,237				(38,229	)
Restructuring accrual			(1,870	)			2,381
Income taxes			3,433				4,768
Accrued payrolls and other accrued liabilities			1,342				(9,153	)
Changes in other assets and other long-term liabilities			(779	)			(1,772	)
Net cash provided from (used in) operating activities			(25,043	)			150,625
Provided from (used in) investing activities:
Expenditures for property, plant and equipment			(13,890	)			(21,951	)
Proceeds from the sale of assets			1,713				744
Business acquisitions, net of cash acquired			(99,223	)			—
Net cash used in investing activities			(111,400	)			(21,207	)
Provided from (used in) financing activities:
Cash dividends paid			(11,970	)			(11,855	)
Increase (decrease) in notes payable			5,995				(7,156	)
Repayments on long-term debt			(19,260	)			—
Borrowings on revolving credit facilities			65,500				19,000
Repayments on revolving credit facilities			(27,500	)			(19,000	)
Cash distributions to noncontrolling interest shareholders			—				(980	)
Common stock issued, net			3,100				(34	)
Purchase of treasury stock			—				(1,646	)
Net cash provided from (used in) financing activities			15,865				(21,671	)
Effect of exchange rate changes on cash			(16,319	)			(2,958	)
Net increase (decrease) in cash and cash equivalents			(136,897	)			104,789
Cash and cash equivalents at beginning of period			228,674				97,728
Cash and cash equivalents at end of period		$	91,777			$	202,517

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

A. SCHULMAN, INC.

(1)

GENERAL

The interim consolidated financial statements included for A. Schulman, Inc. (the “Company”) reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of the interim period presented. All such adjustments are of a normal recurring nature.

The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).

The results of operations for the three and nine months ended May 31, 2010 are not necessarily indicative of the results expected for the year ending August 31, 2010.

The accounting policies for the periods presented are the same as described in Note 1 – Summary of Significant Accounting Policies to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2009, except for the adoption of new accounting pronouncements related to business combinations, noncontrolling interests and the codification of authoritative U.S. GAAP. The adoption of these accounting pronouncements is discussed in Note 17.

Certain items previously reported in specific financial statement captions have been reclassified to conform to the fiscal 2010 presentation.

(2)

CASH AND CASH EQUIVALENTS

All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. Such investments amounted to $91.8 million as of May 31, 2010 and $228.7 million as of August 31, 2009. The Company’s cash equivalents and investments are diversified with numerous financial institutions which management believes to have acceptable credit ratings. These investments are primarily money-market funds and short-term time deposits. The money-market funds are primarily AAA rated by third parties. Management continues to monitor the placement of its cash given the current credit market. The recorded amount of these investments approximates fair value. Investments with maturities between three and twelve months are considered to be short-term investments. As of May 31, 2010 and August 31, 2009, the Company did not hold any short-term investments.

(3)

ACQUISITIONS

McCann Color, Inc.

On March 1, 2010, the Company completed the purchase of McCann Color, Inc. (“McCann Color”), a producer of high-quality color concentrates, based in North Canton, Ohio, for $8.8 million in cash. The business provides specially formulated color concentrates to match precise customer specifications. Its products are used in end markets such as packaging, lawn and garden, furniture, consumer products and appliances. The operations serve customers from its 48,000-square-foot, expandable North Canton facility, which was built in 1998 exclusively to manufacture color concentrates. The facility complements the Company’s existing North American masterbatch manufacturing and product development facilities in Akron, Ohio, San Luis Potosi, Mexico, and La Porte, Texas. The results of operations from the McCann Color acquisition are included in the accompanying consolidated financial statements for the period from the acquisition date, March 1, 2010, and are reported in the North America Masterbatch segment.

The acquisition was accounted for in accordance with the Financial Accounting Standards Board’s (“FASB”) revised accounting standard for business combinations, which the Company adopted as of the beginning of fiscal 2010. The accounting guidance for business combinations results in a new basis of accounting reflecting the estimated fair values for assets acquired and liabilities assumed. The transaction was financed with available cash. Tangible assets acquired and liabilities assumed were recorded at their estimated fair values of $2.0 million and $0.5 million, respectively. The estimated fair values of finite-lived intangible assets acquired of $4.0 million related to intellectual property and customer relationships are being amortized over their estimated useful lives. Goodwill of $3.3 million represents the excess of cost over the estimated fair value of net tangible and intangible assets acquired. 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, quoted market prices and estimates made by management. The purchase price allocations are subject to further adjustment until all pertinent information regarding the property, plant and equipment, intangible assets and goodwill acquired are fully evaluated by the Company and independent valuations are complete.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ICO, Inc.

On April 30, 2010, the Company acquired ICO, Inc. (“ICO”) through a merger by and among the Company, ICO and Wildcat Spider, LLC, a wholly-owned subsidiary of the Company, and which is now known as ICO-Schulman, LLC, pursuant to the terms of the December 2, 2009 Agreement and Plan of Merger (“Merger Agreement”). The results of ICO’s operations have been included in the consolidated financial statements since the date of acquisition, April 30, 2010.

The acquisition of ICO presents the Company with an opportunity to expand its presence substantially, especially in the global rotomolding and U.S. masterbatch markets. ICO’s business is complementary to the Company’s business across markets, product lines and geographies. The acquisition of ICO’s operations increases the Company’s presence in the U.S. masterbatch market, gains plants in the high-growth market of Brazil and expands the Company’s Asia presence with the addition of several ICO facilities in that region. In Europe, the acquisition allows the Company to add rotomolding and size reduction to the Company’s capabilities. It also enables growth in countries where the Company currently has a limited presence, such as France, Italy and Holland, as well as leverages its existing facilities serving high-growth markets such as Poland, Hungary and Sweden.

Under the terms of the Merger Agreement, each share of ICO common stock outstanding immediately prior to the merger was converted into the right to receive a pro rata portion of the total consideration of $105.0 million in cash and 5.1 million shares of the Company’s common stock. All unvested stock options and shares of restricted stock of ICO became fully vested immediately prior to the merger. Unexercised stock options were exchanged for cash equal to their “in the money” value, which reduced the cash pool available to ICO’s stockholders. The following table summarizes the calculation of the estimated fair value of the total consideration transferred:

Estimated fair value of consideration transferred: (In thousands, except share price)
A. Schulman, Inc. common shares issued			5,100
Closing price per share of A. Schulman, Inc. common stock, as of April 30, 2010		$	26.01
Consideration attributable to common stock		$	132,651
Cash paid, including cash paid to settle ICO, Inc.’s outstanding equity awards		$	105,000
Total consideration transferred		$	237,651

The merger was accounted for in accordance with the FASB revised accounting standard for business combinations. The accounting guidance for business combinations results in a new basis of accounting reflecting the estimated fair values for assets acquired and liabilities assumed. 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, quoted market prices and estimates made by management. The purchase price allocations are subject to further adjustment until all pertinent information regarding the accounts receivable, inventory, property, plant and equipment, intangible assets, other long-term assets, goodwill, contingent consideration liabilities, long-term debt, other long-term liabilities and deferred income tax assets and liabilities acquired are fully evaluated by the Company and independent valuations are complete.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the preliminary estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Assets acquired and liabilities assumed:
Cash and cash equivalents		$	14,577
Accounts receivable			66,743
Inventories			46,569
Prepaid expenses and other current assets			10,596
Property, plant and equipment			97,705
Intangible assets			75,684
Other long-term assets			3,166
Total assets acquired		$	315,040
Current maturites of long-term debt and notes payable		$	12,732
Accounts payable			39,506
Other accrued liabilities			31,503
Long-term debt			14,494
Deferred income taxes			44,085
Other long-term liabilities			3,068
Total liabilities assumed		$	145,388
Net identifiable assets acquired		$	169,652
Goodwill			67,999
Net assets acquired		$	237,651

The Company preliminarily recorded acquired intangible assets of $75.7 million. These intangible assets include customer related intangibles of $50.5 million, developed technology of $10.0 million, and trademarks and trade names of $15.2 million. As noted earlier, the fair values and assigned useful lives of the acquired identifiable intangible assets are provisional pending receipt of the final valuations for those assets.

Goodwill represents the excess of the purchase price over the estimated fair values of the assets acquired and the liabilities assumed in the acquisition. Goodwill largely consists of expected synergies resulting from the acquisition. The Company anticipates that the transaction will produce run-rate synergies by the end of fiscal 2011, resulting from the consolidation and centralization of global purchasing activities, tax benefits, and elimination of duplicate corporate administrative costs. The Company is in the process of allocating the goodwill to its operating segments. None of the goodwill associated with this transaction will be deductible for income tax purposes.

The estimated fair value of accounts receivables acquired was $66.7 million with the gross contractual amount being $70.3 million.

Net sales, income (loss) from continuing operations before taxes and net income (loss) from the ICO acquired businesses included in the Company’s results since the April 30, 2010 acquisition are as follows (in thousands):

		April 30 to
		May 31, 2010
Net sales		$	31,928
Income (loss) from continuing operations before taxes		$	(1,783	)
Net income (loss) attributable to A. Schulman, Inc. common stockholders		$	(1,257	)

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The loss from continuing operations before taxes for ICO from April 30, 2010 to May 31, 2010 includes pretax depreciation and amortization costs of approximately $1.1 million, of which $0.6 million is additional due to the increased value of fixed assets and intangibles, and approximately $2.5 million of pretax amortization of purchase accounting inventory step-up adjustments.

The following unaudited, pro forma information represents the consolidated results of the Company as if the ICO acquisition occurred at the beginning of the periods presented:

		Three months ended								Nine months ended
		May 31,								May 31,
		2010				2009				2010				2009
		Unaudited
		(in thousands, except per share data)
Net sales		$	488,813			$	363,754			$	1,357,212			$	1,187,117
Net income attributable to A. Schulman, Inc. common stockholders		$	18,648			$	4,054			$	32,093			$	1,553
Net income per share of common stock attributable to common stockholders — diluted		$	0.66			$	0.14			$	1.14			$	0.05

The unaudited pro forma results reflect certain adjustments related to the acquisition, such as increased depreciation and amortization expense on assets acquired from ICO resulting from the valuation of assets acquired, decreased interest expense due to the repayment of debt and the impact of the issuance of the Company’s common stock.

Previously, the Company had a full valuation allowance against the U.S. deferred tax assets because it was not more-likely-than-not that they would be realized. Certain U.S. deferred tax assets that existed prior to the acquisition can now be realized as a result of future reversals of the deferred tax liabilities of ICO. It is now more-likely-than-not that certain deferred tax assets will be realized, therefore, a significant reduction in the U.S. valuation allowance was recorded. The reduction in the valuation allowance resulted in a non-cash tax benefit of approximately $19.5 million included in the net income above.

(4)

GOODWILL

The Company is required to review goodwill and indefinite-lived intangible assets at least annually for impairment. Goodwill impairment is tested at the reporting unit level on an annual basis 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 February 28, 2010, which was related to the Europe segment and noted no impairment. In addition, the Company is not aware of any triggers which would require a goodwill impairment test as of May 31, 2010. The fair value used in the analysis was estimated using a market approach, which contains significant unobservable inputs, based on average earnings before interest, taxes, depreciation and amortization and cash flow multiples. The Company has been consistent with its method of estimating fair value when an indication of fair value from a buyer or similar specific transactions is not available.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The carrying amount of goodwill by segment for the Company was as follows:

						North America
		Europe				Masterbatch				Unallocated				Consolidated
		(In thousands)
Balance as of August 31, 2009		$	11,577			$	—			$	—			$	11,577
Acquisitions			—				3,321				67,999				71,320
Translation effect			(1,144	)			—				—				(1,144	)
Balance as of May 31, 2010		$	10,433			$	3,321			$	67,999			$	81,753

(5)

DISCONTINUED OPERATIONS

During fiscal 2010, the Company completed the closure of the Invision manufacturing operation at its Sharon Center, Ohio manufacturing facility. The operating results of Invision were previously included in the Company’s former Invision segment and are now reflected as discontinued operations for the periods presented. The remaining assets of Invision, including a facility in Findlay, Ohio, which was a dedicated building for the Invision business, and machinery and equipment at the Sharon Center, Ohio facility are considered held for sale as of May 31, 2010. These assets are included in the Company’s consolidated balance sheet in property, plant and equipment. The Company recorded minimal charges during the final shutdown of the equipment and facility in fiscal 2010.

The following summarizes the results for discontinued operations for the three and nine months ended May 31, 2010 and 2009. The income (loss) from discontinued operations does not include any income tax effect as the Company was not in a taxable position due to its continued U.S. losses and a full valuation allowance.

		Three months ended								Nine months ended
		May 31,								May 31,
		2010				2009				2010				2009
		(In thousands)
Net sales		$	—			$	55			$	10			$	183
Income (loss) from operations		$	(23	)		$	(823	)		$	(15	)		$	(2,870	)
Other income (expense)			—				—				1				—
Income (loss) from discontinued operations		$	(23	)		$	(823	)		$	(14	)		$	(2,870	)

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6)

PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANS

The components of the Company’s net periodic benefit cost (income) for defined benefit pension plans and other postretirement benefits are shown below.

		Three months ended								Nine months ended
		May 31,								May 31,
		2010				2009				2010				2009
		(In thousands)
Net periodic pension cost (income) recognized included the following components:
Service cost		$	499			$	429			$	1,580			$	1,289
Interest cost			1,055				1,105				3,331				3,325
Expected return on plan assets			(220	)			(230	)			(695	)			(708	)
Net actuarial loss and net amortization of prior service cost and transition obligation			89				79				277				244
Net periodic benefit cost		$	1,423			$	1,383			$	4,493			$	4,150
Postretirement benefit cost (income) included the following components:
Service cost		$	7			$	14			$	22			$	41
Interest cost			191				222				574				668
Net amortization of prior service cost (credit) and unrecognized loss			(139	)			(212	)			(418	)			(637	)
Curtailment gain			—				—				—				(2,609	)
Net periodic benefit cost		$	59			$	24			$	178			$	(2,537	)

As part of the ICO acquisition, the Company assumed three defined benefit pension plans with a liability of approximately $1.3 million as of May 31, 2010.

During the second quarter of fiscal 2009, the Company recorded a curtailment gain of $2.6 million as a result of a significant reduction in the expected years of future service, primarily due to the U.S. restructuring plan for North America Engineered Plastics that was announced in December 2008. This restructuring is further discussed in Note 16.

(7)

CONTINGENCIES

The Company is engaged in various legal proceedings arising in the ordinary course of business. The ultimate outcome of these proceedings is not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

A summary of the stockholders’ equity section for the nine months ended May 31, 2010 is as follows:

(In thousands, except per share data)
Unaudited

														Accumulated
														Other
		Preferred				Common								Comprehensive				Retained				Treasury				Noncontrolling
		Stock				Stock				Other Capital				Income (Loss)				Earnings				Stock				Interests				Total Equity
Balance at September 1, 2009		$	2			$	42,295			$	115,358			$	38,714			$	492,513			$	(322,812	)		$	4,901			$	370,971
Comprehensive income (loss):
Net income																			36,021								211
Foreign currency translation gain (loss)															(36,555	)
Amortization of unrecognized transition obligations, actuarial losses and prior service costs (credits), net															(678	)
Total comprehensive income (loss)																															(1,001	)
Cash dividends paid or accrued:
Common stock, $0.45 per share																			(11,970	)											(11,970	)
Acquistion of ICO							5,100				127,551																				132,651
Stock options exercised							214				3,796																				4,010
Restricted stock issued, net of forfeitures							123				(123	)																			—
Redemption of common stock to cover tax withholdings							(40	)			(870	)																			(910	)
Amortization of restricted stock											3,148																				3,148
Balance at May 31, 2010		$	2			$	47,692			$	248,860			$	1,481			$	516,564			$	(322,812	)		$	5,112			$	496,899

(9)

COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME

Comprehensive income (loss) for the three and nine months ended May 31, 2010 and 2009 was as follows:

		Three months ended								Nine months ended
		May 31,								May 31,
		2010				2009				2010				2009
		(In thousands)
Comprehensive income (loss):
Net income		$	25,902			$	7,740			$	36,232			$	5,248
Foreign currency translation gain (loss)			(23,107	)			33,295				(36,555	)			(36,258	)
Recognition of negative plan amendment related to curtailment of postretirement benefit plan			—				—				—				(3,018	)
Amortization of unrecognized transition obligations, actuarial losses and prior services costs (credits), net			(589	)			(92	)			(678	)			(328	)
Total comprehensive income (loss)			2,206				40,943				(1,001	)			(34,356	)
Comprehensive (income) loss attributable to noncontrolling interests			(141	)			(291	)			(211	)			(141	)
Comprehensive income (loss) attributable to A. Schulman, Inc.		$	2,065			$	40,652			$	(1,212	)		$	(34,497	)

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 gains or losses are recorded as other comprehensive income (loss) and accumulated in the Company’s stockholders’ equity. Foreign currency translation losses totaled $23.1 million and $36.6 million for the three and nine months ended May 31, 2010, respectively, and were due primarily to the significant decrease in the value of the euro as well as decreases in other currencies against the U.S. dollar. Foreign currency translation gains or losses do not have a tax effect, as such gains or losses are considered permanently reinvested. Other comprehensive income adjustments related to pensions and other postretirement benefit plans are recorded net of tax using the applicable effective tax rate.

(10)

FAIR VALUE MEASUREMENT

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measure date. The FASB provides accounting rules that establish a fair value hierarchy to prioritize the inputs used in valuation techniques into three levels as follows:

•

Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;

•

Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly; and

•

Level 3: Unobservable inputs which reflect an entity’s own assumptions.

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

The following table presents information about the Company’s assets and liabilities recorded at fair value as of May 31, 2010 in the Company’s consolidated balance sheet:

						Quoted Prices in
						Active Markets for				Significant Other				Significant
		Total Measured				Identical Assets				Observable Inputs				Unobservable
		at Fair Value				(Level 1)				(Level 2)				Inputs (Level 3)
		(In thousands)
Assets:
Cash and cash equivalents		$	91,777			$	91,777			$	—			$	—
Total assets at fair value		$	91,777			$	91,777			$	—			$	—
Liabilities:
Derivative liabilities, net		$	75			$	—			$	75			$	—
Total liabilities at fair value		$	75			$	—			$	75			$	—

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

The Company enters into forward foreign exchange contracts to reduce its exposure for amounts due or payable in foreign currencies. These contracts limit the Company’s exposure to fluctuations in foreign currency exchange rates. The total contract value of forward foreign exchange contracts outstanding as of May 31, 2010 was $25.6 million. Any gains or losses associated with these contracts as well as the offsetting gains or losses from the underlying assets or liabilities are included in the foreign currency transaction line in the Company’s consolidated statements of income. The Company does not hold or issue forward foreign exchange contracts for trading purposes. There were no foreign currency contracts designated as hedging instruments as of May 31, 2010. The forward foreign exchange contracts are entered into with creditworthy multinational banks. The fair value of the Company’s forward foreign exchange contracts was $0.1 million as of May 31, 2010 and August 31, 2009 and was recognized in other accrued liabilities.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following information presents the supplemental fair value information about long-term fixed-rate debt as of May 31, 2010. The Company’s long-term fixed-rate debt was primarily issued in euros.

		May 31, 2010				August 31, 2009
		(In millions)
Carrying value of long-term fixed-rate debt		$	68.4			$	72.2
Fair value of long-term fixed-rate debt		$	71.9			$	65.6

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

(11)

ASSET IMPAIRMENT

The Company recorded asset impairment charges of $0.3 million and $5.6 million for the three and nine months ended May 31, 2010, respectively.

A long-lived asset held for sale was written down to its estimated fair value of $1.1 million resulting in an asset impairment charge of $0.3 million, which was recorded in the second quarter of fiscal 2010. The asset’s estimated fair value was determined as the estimated sales value of the asset less associated costs to sell the asset and was determined based on Level 3 inputs obtained from a third-party purchase offer.

During the three months and nine months ended May 31, 2010, the Company recorded approximately $0.3 million and $5.3 million, respectively, of asset impairment charges related to assets held and used associated with the closure of the Company’s Polybatch Color Center located in Sharon Center, Ohio. The impaired assets include real estate and certain machinery and equipment. The fair value of the real estate, which includes land, building and related improvements, was determined as the estimated sales value of the assets less the costs to sell and was determined using Level 3 inputs based on information provided by a third-party real estate valuation source. The fair value of the machinery and equipment, which will be sold or disposed of after the Company ceases production, was determined using Level 3 inputs based on projected cash flows from operations and estimated salvage value.

(12)

INCENTIVE STOCK PLANS

Effective in December 2002, the Company adopted the 2002 Equity Incentive Plan, which provided for the grant of incentive stock options, nonqualified stock options, restricted stock awards and director deferred units for employees and non-employee directors. The option price of incentive stock options is the fair market value of the shares of common stock on the date of the grant. In the case of nonqualified options, the Company grants options at 100% of the fair market value of the shares of common stock on the date of the grant. All options become exercisable at the rate of 33% per year, commencing on the first anniversary date of the grant. Each option expires ten years from the date of the grant. Restricted stock awards under the 2002 Equity Incentive Plan vest ratably over four years following the date of grant.

On December 7, 2006, the Company adopted the 2006 Incentive Plan, which provides for the grant of incentive stock options, nonqualified stock options, whole shares, restricted stock awards, restricted stock units, stock appreciation rights, performance shares, performance units, cash-based awards, dividend equivalents and performance-based awards. Upon adoption of the 2006 Incentive Plan, all remaining shares eligible for award under the 2002 Equity Incentive Plan were added to the 2006 Incentive Plan and no further awards could be made from the 2002 Equity Incentive Plan. It has been the Company’s practice to issue new shares of common stock upon stock option exercise and other equity grants. On May 31, 2010, there were approximately 0.8 million shares available for grant pursuant to the Company’s 2006 Incentive Plan.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of stock options is as follows:

		Outstanding Shares				Weighted-Average
		Under Option				Exercise Price
Outstanding at August 31, 2009			492,455			$	19.25
Granted			—			$	—
Exercised			(214,027	)		$	18.74
Forfeited and expired			(12,166	)		$	17.00
Outstanding at May 31, 2010			266,262			$	19.77
Exercisable at May 31, 2010			266,262			$	19.77

The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. The total intrinsic value of stock options exercised during the nine months ended May 31, 2010 was $0.6 million. The Company received cash totaling $4.0 million from the exercise of options for the nine months ended May 31, 2010. The intrinsic value for stock options exercisable as of May 31, 2010 was $0.7 million with a remaining term for options exercisable of approximately 4.3 years. For stock options outstanding as of May 31, 2010, exercise prices range from $11.62 to $24.69. The weighted-average remaining contractual life for options outstanding as of May 31, 2010 was approximately 4.3 years. All 266,262 outstanding and exercisable stock options are fully vested as of May 31, 2010. There were no grants of stock options during the nine months ended May 31, 2010 and 2009.

Restricted stock awards under the 2002 Equity Incentive Plan vest over four years following the date of grant. Restricted stock awards under the 2006 Incentive Plan can vest over various periods. The restricted stock grants outstanding under the 2006 Incentive Plan have service vesting periods of three years following the date of grant. The following table summarizes the outstanding time-based restricted stock awards and weighted-average fair market value:

						Weighted-Average
		Outstanding Restricted				Fair Market Value
		Stock Awards				(per share)
Outstanding at August 31, 2009			180,429			$	19.48
Granted			83,176			$	21.72
Vested			(104,139	)		$	20.33
Forfeited			—			$	—
Outstanding at May 31, 2010			159,466			$	20.08

During the nine months ended May 31, 2010 and 2009, the Company granted 83,176 and 62,111 time-based restricted shares, respectively. Restrictions on these restricted stock awards will lapse ratably over a three-year period and were valued at the fair market value on the date of grant.

The Company also grants awards with market and performance vesting conditions. In the table below, the Company summarizes all awards which include market-based and performance-based restricted stock awards and performance shares.

						Weighted-Average
		Outstanding				Fair Market Value
		Performance-Based Awards				(per share)
Outstanding at August 31, 2009			516,681			$	12.72
Granted			272,568			$	18.22
Vested			(83,720	)		$	20.55
Forfeited			—			$	—
Outstanding at May 31, 2010			705,529			$	13.91

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company granted 272,568 and 236,475 performance shares during the nine months ended May 31, 2010 and 2009, respectively. Performance shares are awards for which the vesting will occur based on market or performance conditions and do not have voting rights. Included in the outstanding performance-based awards as of May 31, 2010 are 383,978 performance shares which earn dividends throughout the vesting period and approximately 321,551 performance shares which do not earn dividends. Performance-based restricted stock awards from the fiscal 2007 grant totaling 83,720 which had vesting terms based on both service and market performance criteria vested in April 2010. At the vesting date, these performance-based restricted stock awards did not meet certain market conditions targets which would have required approximately 41,860 additional shares to be issued.

The performance-based awards in the table above include 569,245 shares which are valued based upon a Monte Carlo simulation, which is a valuation model that represents the characteristics of these grants. Vesting of the ultimate number of shares underlying performance-based awards, if any, will be dependent upon the Company’s total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period. The probability of meeting the market criteria was considered when calculating the estimated fair market value on the date of grant using a Monte Carlo simulation. These awards were accounted for as awards with market conditions, which are recognized over the service period, regardless of whether the market conditions are achieved and the awards ultimately vest. The fair value of the remaining 136,284 performance shares in the table above is based on the closing price of the Company’s common stock on the date of the grant.

The fair value of the performance shares granted during the nine months ended May 31, 2010 using a Monte Carlo simulation used the following weighted-average assumptions:

Weighted-Average Assumptions
Dividend yield			2.68	%
Expected volatility			46.00	%
Risk-free interest rate			1.54	%
Correlation			59.00	%

Total unrecognized compensation cost, including a provision for forfeitures, related to nonvested share-based compensation arrangements as of May 31, 2010 was approximately $8.6 million. This cost is expected to be recognized over a weighted-average period of approximately 1.7 years.

As of May 31, 2010, the Company had 25,000 stock-settled restricted stock units outstanding which were fully vested as of the grant date. There are no service requirements for vesting for this grant. These restricted stock units will be settled in shares of the Company’s common stock, on a one-to-one basis, no later than 60 days after the third anniversary of the award grant date. These awards do earn dividends during the restriction period; however, they do not have voting rights until released from restriction. These awards are treated as equity awards and have a grant date fair value based on the award grant date of $13.61 per award. There were no grants of stock-settled restricted stock units during the nine months ended May 31, 2010 or 2009.

The Company had approximately 176,000 and 277,000 cash-settled restricted stock units outstanding with various vesting periods and criteria as of May 31, 2010 and 2009, respectively. The Company granted approximately 60,000 cash-settled restricted stock units during both the nine months ended May 31, 2010 and 2009. The cash-settled restricted stock units outstanding have either time-based vesting or performance-based vesting, similar to the Company’s restricted stock awards and performance shares. Each cash-settled restricted stock unit is equivalent to one share of the Company’s common stock on the vesting date. Certain cash-settled restricted stock units earn dividends during the vesting period. Cash-settled restricted stock units are settled only in cash at the vesting date and therefore are treated as a liability award. The Company records a liability for these restricted stock units in an amount equal to the total of (a) the mark-to-market adjustment of the units vested to date; and (b) accrued dividends on the units. In addition, the liability is adjusted for the estimated payout factor for the performance-based cash-settled restricted stock units. As a result of these mark-to-market adjustments, these restricted stock units introduce volatility into the Company’s consolidated statements of income.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company had approximately $3.9 million cash-based awards, which are treated as liability awards, outstanding as of May 31, 2010. These awards were granted to foreign employees. Such awards include approximately $0.7 million which have service vesting periods of three years following the date of grant and the remaining $3.2 million is performance-based. The performance-based awards are based on the same conditions utilized for the performance shares. The Company records a liability for these cash-based awards equal to the amount of the award vested to date and adjusts the performance-based awards based on expected payout.

During fiscal 2010, the Company granted non-employee directors approximately 40,000 shares of unrestricted common stock. The Company recorded compensation expense for these grants of approximately $0.1 million and $0.9 million for the three and nine months ended May 31, 2010, respectively.

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

		Three months ended								Nine months ended
		May 31,								May 31,
		2010				2009				2010				2009
		(In thousands)
Stock options		$	—			$	—			$	—			$	16
Restricted stock awards, unrestricted stock awards and performance-based awards			812				496				3,148				2,049
Cash-settled restricted stock units			202				419				1,013				(486	)
Cash-based awards			(152	)			58				135				118
Total stock-based compensation		$	862			$	973			$	4,296			$	1,697

(13)

EARNINGS PER SHARE

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

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

		Three months ended								Nine months ended
		May 31,								May 31,
		2010				2009				2010				2009
		(In thousands)
Weighted-average shares outstanding:
Basic			27,896				25,789				26,552				25,783
Incremental shares from stock options			61				1				52				8
Incremental shares from restricted stock			318				149				297				171
Diluted			28,275				25,939				26,901				25,962

For the three months ended May 31, 2010 and 2009, respectively, there were approximately 0.1 million and 0.5 million equivalent shares related to stock options and restricted stock that were excluded from diluted weighted-average shares outstanding because inclusion would have been anti-dilutive. Additionally, there were approximately 0.1 million and 0.5 million equivalent shares related to stock options and restricted stock that were excluded from diluted weighted-average shares outstanding for the nine months ended May 31, 2010 and 2009, respectively, because inclusion would have been anti-dilutive.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(14)

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.

As a result of the April 30, 2010 acquisition of ICO, the Company updated its reportable segments to reflect the Company’s current reporting structure. The Company now has six reportable segments based on the regions in which they operate and the products and services they provide. The six reportable segments are Europe, North America Masterbatch (“NAMB”), North America Engineered Plastics (“NAEP”), North America Rotomolding (“NARM”), Asia Pacific and Bayshore. The following table describes the components of the Company’s and ICO’s former reportable segments which make up the current reportable segments:

Current A. Schulman, Inc.		Former A. Schulman, Inc.		Former ICO, Inc.
Europe		Europe		ICO Europe
North America Masterbatch		North America Masterbatch		ICO Brazil
North America Engineered Plastics		North America Engineered Plastics		—
North America Rotomolding		North America Distribution Services		ICO Polymers North America
Asia Pacific		Asia		ICO Asia Pacific
Bayshore		—		Bayshore Industrial

Globally, the Company operates primarily in four lines of business: (1) engineered plastics, (2) masterbatch, (3) rotomolding and (4) distribution. In North America, there is a general manager of each of these lines of business each of who report directly to the Company’s CEO. The Company’s Europe and Asia Pacific segments have managers of each line of business, who report to a general manager who reports to the CEO. Currently, the Company’s CEO does not directly manage the business line level when reviewing performance and allocating resources for the Europe and Asia Pacific segments.

During fiscal 2010, the Company completed the closure of its Invision sheet manufacturing operation at its Sharon Center, Ohio manufacturing facility. This business comprised the former Invision segment of the Company’s business. The Company reflected the results of these operations as discontinued operations for all periods presented and are not included in the segment information.

The CODM uses net sales to unaffiliated customers, gross profit and operating income in order to make decisions, assess performance and allocate resources to each segment. Operating income does not include interest income or expense, other income or expense, restructuring expense, asset impairment, curtailment gain or foreign currency transaction gains or losses. Certain portions of the Company’s North American operations are not managed separately and are included in All Other North America. The Company includes in All Other North America any administrative costs that are not directly related or allocated to a North America business unit such as North American information technology, human resources, accounting and purchasing. The North American administrative costs are directly related to the four North American segments. In some cases, the Company may choose to exclude from a segment’s results certain non-recurring items as determined by management. These items are included in the Corporate and Other section in the table below. Corporate expenses include the compensation of certain personnel, certain audit expenses, board of directors related costs, certain insurance costs and other miscellaneous legal and professional fees.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

		Three months ended								Nine months ended
		May 31,								May 31,
		2010				2009				2010				2009
		(In thousands)
Net sales to unaffiliated customers
Europe		$	304,790			$	220,337			$	824,106			$	699,829
NAMB			35,164				26,922				89,867				78,212
NAEP			31,535				26,137				94,957				95,783
NARM			20,209				11,443				47,643				53,798
Asia Pacific			22,904				12,805				51,912				30,987
Bayshore			5,733				—				5,733				—
Total net sales to unaffiliated customers		$	420,335			$	297,644			$	1,114,218			$	958,609

		Three months ended								Nine months ended
		May 31,								May 31,
		2010				2009				2010				2009
		(In thousands)
Segment gross profit
Europe		$	46,320			$	38,634			$	138,377			$	99,582
NAMB			4,588				2,167				11,231				4,687
NAEP			3,304				1,540				10,916				4,869
NARM			1,884				1,634				5,285				4,779
Asia Pacific			2,099				2,558				6,880				3,891
Bayshore			690				—				690				—
Total segment gross profit		$	58,885			$	46,533			$	173,379			$	117,808

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		Three months ended								Nine months ended
		May 31,								May 31,
		2010				2009				2010				2009
		(In thousands)
Segment operating income (loss)
Europe		$	21,333			$	16,544			$	55,724			$	35,371
NAMB			3,394				1,026				7,304				883
NAEP			267				(802	)			2,977				(5,113	)
NARM			320				1,027				2,130				1,965
Asia Pacific			196				1,880				1,874				1,418
Bayshore			161				—				161				—
All other North America			(3,186	)			(2,534	)			(8,529	)			(8,243	)
Total segment operating income		$	22,485			$	17,141			$	61,641			$	26,281
Corporate and other			(7,131	)			(3,469	)			(21,308	)			(13,579	)
Interest expense, net			(958	)			(662	)			(2,697	)			(1,626	)
Foreign currency transaction gains (losses)			(468	)			(2,430	)			(389	)			6,218
Other income (expense)			269				1,218				2,155				2,231
Curtailment gain			—				—				—				2,609
Asset impairment			(300	)			(283	)			(5,631	)			(2,462	)
Restructuring expense			(862	)			(981	)			(2,509	)			(6,230	)
Income from continuing operations before taxes		$	13,035			$	10,534			$	31,262			$	13,442

The following table summarizes identifiable assets by segment:

		May 31, 2010				August 31, 2009
		(In thousands)
Identifiable assets
Europe		$	573,518			$	570,392
NAMB			83,709				73,022
NAEP			65,902				52,471
NARM			64,074				11,797
Asia Pacific			93,105				34,099
Bayshore			64,099				—
All other North America			39,465				55,708
Unallocated goodwill			67,999				—
Total identifiable assets		$	1,051,871			$	797,489

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The majority of the Company’s sales for the three and nine months ended May 31, 2010 and 2009 can be classified into four primary product families. The amount and percentage of consolidated sales for these product families are as follows:

		Three months ended May 31,
		2010								2009
		(In thousands, except for %’s)
Engineered Plastics		$	115,993				28	%		$	84,258				28	%
Masterbatch			182,707				43				149,007				50
Rotomolding			32,514				8				5,853				2
Distribution			89,121				21				58,526				20
		$	420,335				100	%		$	297,644				100	%

		Nine months ended May 31,
		2010								2009
		(In thousands, except for %’s)
Engineered Plastics		$	342,180				31	%		$	289,200				30	%
Masterbatch			488,711				44				421,538				44
Rotomolding			44,883				4				23,174				2
Distribution			238,444				21				224,697				24
		$	1,114,218				100	%		$	958,609				100	%

(15)

INCOME TAXES

At May 31, 2010, the Company’s gross unrecognized tax benefits totaled $2.7 million. If recognized, approximately $1.8 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. At May 31, 2010, the Company had $0.5 million of accrued interest and penalties on unrecognized tax benefits.

The unrecognized tax benefits increased by approximately $1.4 million during the quarter due to an uncertain tax position taken on a tax return filed during the quarter. This item had no impact on tax expense during the quarter because a tax benefit had never been recorded for this uncertain tax position.

The Company is open to potential income tax examinations in the U.S. and Belgium from fiscal 2007 onward. The Company is open to potential examinations in Germany from fiscal 2005 onward and generally from fiscal 2003 onward for most other international jurisdictions.

The amount of unrecognized tax benefits is expected to change in the next 12 months; however, the change is not expected to have a significant impact on the financial position of the Company.

The loss from discontinued operations does not include any income tax effect as the Company was not in a taxable position due to its continued U.S. losses and a full valuation allowance.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of the statutory U.S. federal income tax rate with the effective tax rates for the three months ended May 31, 2010 and 2009 is as follows:

		Three months ended								Three months ended
		May 31, 2010								May 31, 2009
		(In thousands, except for %’s)
Statutory U.S. tax rate		$	4,562				35.0	%		$	3,687				35.0	%
Amount of foreign taxes at less than U.S. statutory tax rate			(4,476	)			(34.3	)			(3,215	)			(30.5	)
U.S. and foreign losses with no tax benefit			2,601				19.9				2,724				25.8
U.S. restructuring and other U.S. unusual charges with no benefit			835				6.4				41				0.4
Establishment (resolution) of uncertain tax positions			43				0.3				(1,268	)			(12.0	)
ICO historical tax attributes			2,733				21.0				—				—
U.S. valuation allowance reversal			(19,466	)			(149.3	)			—				—
Other			278				2.1				2				—
Total income tax expense (benefit)		$	(12,890	)			(98.9	)%		$	1,971				18.7	%

A reconciliation of the statutory U.S. federal income tax rate with the effective tax rates for the nine months ended May 31, 2010 and 2009 is as follows:

		Nine months ended								Nine months ended
		May 31, 2010								May 31, 2009
		(In thousands, except for %’s)
Statutory U.S. tax rate		$	10,942				35.0	%		$	4,705				35.0	%
Amount of foreign taxes at less than U.S. statutory tax rate			(13,116	)			(41.9	)			(9,260	)			(68.9	)
U.S. and foreign losses with no tax benefit			8,133				26.0				10,371				77.2
U.S. restructuring and other U.S. unusual charges with no benefit			4,187				13.4				584				4.3
Italy valuation allowance			984				3.2				—				—
Establishment (resolution) of uncertain tax positions			66				0.2				(1,170	)			(8.7	)
ICO historical tax attributes			2,733				8.7				—				—
U.S. valuation allowance reversal			(19,466	)			(62.3	)			—				—
Other			553				1.8				94				0.7
Total income tax expense (benefit)		$	(4,984	)			(15.9	)%		$	5,324				39.6	%