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 February 29, 2008

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.

(Exact Name of Registrant as Specified in its Charter)

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

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

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

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

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 March 31, 2008 — 27,096,969

 

 

PART I — FINANCIAL INFORMATION

ITEM 1 Consolidated Financial Statements

A. SCHULMAN, INC.
Consolidated Statements of Operations

(In thousands except per share data)

		Three months ended								Six months ended
		February 29,				February 28,				February 29,				February 28,
		2008				2007				2008				2007
		Unaudited								Unaudited
Net sales		$	479,811			$	412,767			$	976,385			$	855,494
Cost of sales			422,774				365,333				862,178				759,230
Selling, general and administrative expenses			48,047				39,092				88,936				78,631
Minority interest			131				196				376				428
Interest expense			2,008				2,031				3,619				3,861
Interest income			(421	)			(527	)			(903	)			(888	)
Foreign currency transaction (gains) losses			463				(784	)			597				(1,298	)
Other (income) expense			(334	)			(106	)			(2	)			(81	)
Goodwill impairment — North America			964				—				964				—
Asset impairment — North America			5,219				—				5,219				—
Restructuring expense — North America			2,616				810				2,622				928
			481,467				406,045				963,606				840,811
Income (loss) before taxes			(1,656	)			6,722				12,779				14,683
Provision for U.S. and foreign income taxes			2,118				5,082				6,530				10,671
Net income (loss)			(3,774	)			1,640				6,249				4,012
Less: Preferred stock dividends			(13	)			(13	)			(26	)			(26	)
Net income (loss) applicable to common stock		$	(3,787	)		$	1,627			$	6,223			$	3,986
Weighted-average number of shares outstanding:
Basic			27,223				26,952				27,372				26,916
Diluted			27,223				27,212				27,618				27,256
Earnings (losses) per share of common stock:
Basic		$	(0.13	)		$	0.06			$	0.23			$	0.15
Diluted		$	(0.13	)		$	0.06			$	0.23			$	0.15

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

A. SCHULMAN, INC.
Consolidated Balance Sheets

		February 29,				August 31,
		2008				2007
		Unaudited
		(In thousands except share data)
ASSETS
Current assets:
Cash and cash equivalents		$	44,650			$	43,045
Accounts receivable, less allowance for doubtful accounts of $9,667 at February 29, 2008 and $9,056 at August 31, 2007			354,654				317,774
Inventories, average cost or market, whichever is lower			295,898				263,047
Prepaid expenses and other current assets			19,208				16,163
Total current assets			714,410				640,029
Other assets:
Cash surrender value of life insurance			2,639				2,231
Deferred charges and other assets			24,398				21,784
Goodwill			10,933				9,350
Intangible assets			186				174
			38,156				33,539
Property, plant and equipment, at cost:
Land and improvements			17,662				16,768
Buildings and leasehold improvements			156,579				145,952
Machinery and equipment			377,787				352,044
Furniture and fixtures			43,127				38,955
Construction in progress			14,263				13,035
			609,418				566,754
Accumulated depreciation and investment grants of $1,250 at February 29, 2008 and $1,322 at August 31, 2007			403,775				366,207
			205,643				200,547
		$	958,209			$	874,115
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable		$	2,650			$	2,762
Accounts payable			148,876				141,838
U.S. and foreign income taxes payable			4,918				11,544
Accrued payrolls, taxes and related benefits			35,389				32,249
Other accrued liabilities			38,247				33,112
Total current liabilities			230,080				221,505
Long-term debt			162,723				123,080
Other long-term liabilities			100,608				91,316
Deferred income taxes			5,857				5,640
Minority interest			5,637				5,561
Commitments and contingencies			—				—
Stockholders’ equity:
Preferred stock, 5% cumulative, $100 par value, authorized, issued and outstanding — 10,564 shares at February 29, 2008 and August 31, 2007			1,057				1,057
Special stock, 1,000,000 shares authorized, none outstanding			—				—
Common stock $1 par value, authorized — 75,000,000 shares, issued — 42,171,226 shares at February 29, 2008 and 41,784,640 shares at August 31, 2007			42,171				41,785
Other capital			106,987				103,828
Accumulated other comprehensive income			85,918				50,092
Retained earnings			509,619				509,415
Treasury stock, at cost, 14,776,980 shares at February 29, 2008 and 14,113,977 shares at August 31, 2007			(292,448	)			(279,164	)
Common stockholders’ equity			452,247				425,956
Total stockholders’ equity			453,304				427,013
		$	958,209			$	874,115

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

A. SCHULMAN, INC.
Consolidated Statements of Cash Flows

		Six months ended
		February 29, 2008				February 28, 2007
		Unaudited
		(In thousands)
Provided from (used in) operating activities:
Net income		$	6,249			$	4,012
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation and amortization			14,040				12,487
Deferred tax provision			(1,263	)			(1,931	)
Pension and other deferred compensation			5,247				2,900
Postretirement benefit obligation			569				1,626
Minority interest in net income of subsidiaries			376				428
Restructuring charges, including $0 and $949 of accelerated depreciation in fiscal 2008 and 2007, respectively			2,622				1,686
Goodwill impairment — North America			964				—
Asset impairment — North America			5,219				—
Changes in assets and liabilities:
Accounts receivable			(10,681	)			(9,498	)
Inventories			(10,947	)			42,369
Accounts payable			(2,972	)			(12,285	)
Income taxes			(5,733	)			(6,639	)
Restructuring payments			(80	)			(191	)
Accrued payrolls and other accrued liabilities			967				4,150
Changes in other assets and other long-term liabilities			883				611
Net cash provided from (used in) operating activities			5,460				39,725
Provided from (used in) investing activities:
Expenditures for property, plant and equipment			(13,187	)			(12,113	)
Disposals of property, plant and equipment			474				312
Proceeds of insurance settlements			—				545
Net cash used in investing activities			(12,713	)			(11,256	)
Provided from (used in) financing activities:
Cash dividends paid			(8,123	)			(8,149	)
Increase (decrease) in notes payable			(554	)			(4,508	)
Borrowings on revolving credit facilities			81,502				51,576
Repayments on revolving credit facilities			(52,569	)			(23,877	)
Cash distributions to minority shareholders			(300	)			(300	)
Exercise of stock options			1,083				4,907
Purchase of treasury stock			(13,284	)			(18,107	)
Net cash provided from (used in) financing activities			7,755				1,542
Effect of exchange rate changes on cash			1,103				(667	)
Net increase (decrease) in cash and cash equivalents			1,605				29,344
Cash and cash equivalents at beginning of period			43,045				50,662
Cash and cash equivalents at end of period		$	44,650			$	80,006

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

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)		The interim financial statements furnished 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 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 results of operations for the six months ended February 29, 2008 are not necessarily indicative of the results expected for the year ending August 31, 2008.
		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, 2007 except for new accounting pronouncements and accounting for uncertain tax positions which are described in the footnotes.
		Certain items previously reported in specific financial statement captions have been reclassified to conform to the fiscal 2008 presentation.
(2)		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 common shares 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 common shares on the date of the grant. All options become exercisable at the rate of 33 1/3% 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. The time-based nonqualified stock options granted under the 2006 Incentive Plan become exercisable at the rate of 33 1/3% per year, commencing on the first anniversary date of the grant. It has been the Company’s practice to issue new common shares upon stock option exercise. On February 29, 2008, there were approximately 2.7 million shares available for grant pursuant to the Company’s 2006 Incentive Plan.
		A summary of stock options is as follows:

		Six months ended								Six months ended
		February 29, 2008								February 28, 2007
		Outstanding								Outstanding
		shares				Weighted-average				shares				Weighted-average
		under option				exercise price				under option				exercise price
Outstanding at beginning of period			813,710			$	19.10				1,568,276			$	18.93
Granted			—				—				—				—
Exercised			(57,216	)			18.93				(264,461	)			18.55
Forfeited and expired			(4,169	)			19.23				(6,036	)			19.30
Outstanding at end of period			752,325				19.11				1,297,779				19.01
Exercisable at the end of the period			614,597				18.92				854,980				18.55

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 six months ended February 29, 2008 and February 28, 2007 was approximately $0.1 million and $1.0 million, respectively. The intrinsic value for stock options exercisable at February 29, 2008 was $1.5 million with a remaining term for

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

options exercisable of approximately 5.8 years. For stock options outstanding at February 29, 2008, exercise prices range from $11.63 to $24.69. The weighted average remaining contractual life for options outstanding at February 29, 2008 was approximately 6.1 years. Stock options vested and expected to vest at February 29, 2008 were approximately 747,000 with a remaining contractual term of approximately 6.1 years and a weighted-average exercise price of $19.10. The aggregate intrinsic value of stock options vested and expected to vest was $1.7 million at February 29, 2008. There were no grants of stock options during the six months ended February 29, 2008 or in the comparable period last fiscal year.

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 restricted stock awards and weighted-average fair market value:

		Outstanding				Weighted-Average
		Restricted Stock				Fair Market Value
		Awards				(per share)
Outstanding at August 31, 2007			330,775			$	20.01
Granted			99,150				20.44
Released			(102,088	)			18.16
Forfeited			(6,962	)			20.52
Outstanding at February 29, 2008			320,875				20.71

During the three months ended February 29, 2008, the Company granted 99,150 time-based restricted shares. Restrictions on these shares underlying the restricted stock awards will lapse ratably over a three year period and were valued at the fair market value on the date of grant. There were no other grants of restricted stock awards during the six months ended February 29, 2008. The Company did not grant any restricted stock during the six months ended February 28, 2007.

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

		Outstanding				Weighted-Average
		Performance-based				Fair Market Value
		Awards				(per share)
Outstanding at August 31, 2007			137,525			$	20.55
Granted			203,725				13.13
Released			—				—
Forfeited			(3,568	)			20.55
Outstanding at February 29, 2008			337,682				16.07

During the three months ended February 29, 2008, the Company granted 203,725 performance share awards. Performance share awards (“Performance Shares”) are awards for which the vesting will occur based on both service and market performance criteria and do not have voting rights. There were no other grants of Performance Shares during the six months ended February 29, 2008. The Company did not grant any Performance Shares during the six months ended February 28, 2007. Included in the fiscal 2008 grant are approximately 136,000 Performance Shares which earn dividends throughout the vesting period and approximately 68,000 Performance Shares which do not earn dividends. The weighted-average grant date fair value of the Performance Shares based on market conditions granted during the three months ended February 29, 2008 was $13.13 per share. The valuation for these awards granted during the period ended February 29, 2008 which vest based on market performance criteria was based upon the Monte Carlo simulation, which is a

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

binomial model that represents the characteristics of these grants. Vesting of the ultimate number of shares underlying performance awards, if any, will be dependent upon the Company’s total shareholder return in relation to the total shareholder return of a select group of peer companies over a three year period. These awards were accounted for as awards with market conditions in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 123(R), Share-Based Payment.

As of February 29, 2008, approximately 134,000 awards of the outstanding performance-based awards in the table above are performance-based restricted stock awards from the fiscal 2007 grant with vesting based on both service and market performance criteria. The performance-based restricted stock awards have voting rights. At the vesting date of these performance-based restricted stock awards, approximately 67,000 additional shares could be issued and released if certain market conditions are met which are not included in the table. 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 as explained below.

The fair value of the Performance Shares awards granted during the six months ended February 29, 2008 was estimated using a Monte Carlo simulation binomial model with the following weighted-average assumptions:

		Six months ended
Weighted-Average Assumptions		February 29, 2008
Dividend yield			2.84	%
Expected volatility			30.00	%
Risk-free interest rate			1.97	%
Correlation			32.00	%

		Total unrecognized compensation cost, including a provision for forfeitures, related to nonvested share-based compensation arrangements at February 29, 2008 was approximately $8.0 million. This cost is expected to be recognized over a weighted-average period of approximately 2 years.
		At February 29, 2008, the Company had approximately 358,000 restricted stock units outstanding with various vesting periods and criteria. Each restricted stock unit is equivalent to one share of A. Schulman, Inc. stock on the vesting date. The Company granted approximately 114,000 restricted stock units during the three months ended February 29, 2008. There were no other grants of restricted stock units during the six months ended February 29, 2008. The Company did not grant any restricted stock units during the six months ended February 28, 2007. Certain restricted stock units earn dividends during the vesting period. 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. The Company has recorded approximately $0.4 million and $0.1 million of expense related to restricted stock units for the three months ended February 29, 2008 and February 28, 2007, respectively. The Company has recorded approximately $0.8 million and $0.3 million of expense related to restricted stock units for the six months ended February 29, 2008 and February 28, 2007, respectively.
(3)		All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. Such investments amounted to $14.1 million at February 29, 2008 and $11.0 million at August 31, 2007.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4)

A summary of the stockholders’ equity section for the six months ended February 29, 2008 and February 28, 2007 is as follows:

(In thousands except per share data)
(Unaudited)

														Accumulated
														Other												Total
		Preferred				Common				Other				Comprehensive				Retained				Treasury				Stockholders’
		Stock				Stock				Capital				Income (Loss)				Earnings				Stock				Equity
Balance at September 1, 2007		$	1,057			$	41,785			$	103,828			$	50,092			$	509,415			$	(279,164	)		$	427,013
Impact due to adoption of FIN 48			—				—				—				—				2,078				—				2,078
Adjusted balance at September 1, 2007			1,057				41,785				103,828				50,092				511,493				(279,164	)			429,091
Comprehensive income:
Net income			—				—				—				—				6,249				—
Foreign currency translation gain (loss)			—				—				—				30,711				—				—
Amortization of unrecognized transition obligations, actuarial losses and prior service costs (credits), net			—				—				—				5,115				—				—
Total comprehensive income																											42,075
Cash dividends paid or accrued:
Preferred stock, $2.50 per share			—				—				—				—				(26	)			—				(26	)
Common stock, $0.29 per share			—				—				—				—				(8,097	)			—				(8,097	)
Stock options exercised			—				57				1,026				—				—				—				1,083
Restricted stock issued			—				329				(329	)			—				—				—				—
Purchase of treasury stock			—				—				—				—				—				(13,284	)			(13,284	)
Non-cash stock based compensation			—				—				428				—				—				—				428
Amortization of restricted stock			—				—				2,034				—				—				—				2,034
Balance at February 29, 2008		$	1,057			$	42,171			$	106,987			$	85,918			$	509,619			$	(292,448	)		$	453,304
Balance at September 1, 2006		$	1,057			$	40,707			$	86,894			$	32,893			$	502,998			$	(261,057	)		$	403,492
Comprehensive income:
Net income			—				—				—				—				4,012				—
Foreign currency translation gain (loss)			—				—				—				4,845				—				—
Total comprehensive income																											8,857
Cash dividends paid or accrued:
Preferred stock, $2.50 per share			—				—				—				—				(26	)			—				(26	)
Common stock, $0.29 per share			—				—				—				—				(8,123	)*			—				(8,123	)
Stock options exercised			—				265				4,642				—				—				—				4,907
Restricted stock issued			—				102				(102	)			—				—				—				—
Purchase of treasury stock			—				—				—				—				—				(18,107	)			(18,107	)
Non-cash stock based compensation			—				—				1,115				—				—				—				1,115
Amortization of restricted stock			—				—				765				—				—				—				765
Balance at February 28, 2007		$	1,057			$	41,074			$	93,314			$	37,738			$	498,861			$	(279,164	)		$	392,880

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5)		Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares 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 common shares 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								Six Months Ended
		February 29,				February 28,				February 29,				February 28,
		2008				2007				2008				2007
		(in thousands)
Weighted-average shares outstanding:
Basic			27,223				26,952				27,372				26,916
Incremental shares from stock options			—				100				65				154
Incremental shares from restricted stock			—				160				181				186
Diluted			27,223				27,212				27,618				27,256

		For the three months ended February 29, 2008, any stock options and restricted stock were excluded from the calculation of diluted net loss per common share, because they would have had an anti-dilutive effect due to the Company’s net loss. For the six months ended February 29, 2008, there were approximately 0.1 million equivalent shares related to stock options that were excluded from diluted weighted-average shares outstanding because inclusion would have been anti-dilutive.
(6)		The components of Accumulated Other Comprehensive Income are as follows:

						Unrecognized
						transition
						obligations,
						actuarial				Total
		Foreign				losses				Accumulated
		Currency				and prior				Other
		Translation				service costs				Comprehensive
		Gain				(credits), net				Income
		(in thousands)
Balance as of August 31, 2007		$	55,397			$	(5,305	)		$	50,092
Current period change			30,711				5,115				35,826
Balance as of February 29, 2008		$	86,108			$	(190	)		$	85,918

		Foreign currency translation gains are not tax effected as such gains are considered permanently reinvested.
(7)		To identify reportable segments, the Company considered its operating structure and the types of information subject to regular review by its President and Chief Executive Officer, who is the Chief Operating Decision Maker (“CODM”). The Company historically identified and presented two geographical operating segments, North America and Europe, based on how the CODM regularly reviewed information and allocated resources. In addition, the Company presented other financial information separately representing items below operating income, which were not managed at a segment level. During the first quarter of fiscal 2008, management began excluding corporate from the segment results and other charges such as foreign currency transaction gains or losses and other expenses which are not under full control of segment management. Management believed this better reflects the actual operating performance of the segments. Prior to fiscal 2008, the Company allocated certain corporate expenses to the operating segments. Prior periods were recast to reflect the current presentation.
		The CODM uses net sales to unaffiliated customers, gross profit and operating income in order to make decisions and assess performance of each segment. Operating income does not include interest income or

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

expense, other income or expense, restructuring expense, impairment charges or foreign currency transaction gains or losses. In some cases, the Company may choose to exclude from a segment’s results certain non-recurring items as determined by management. These items are included in the Corporate and Other section in the table below. Corporate expenses include the compensation of certain personnel, certain audit expenses, board of directors related costs, and other miscellaneous legal and professional fees.

A reconciliation of operating income (loss) by segment to consolidated income (loss) before taxes is presented below:

		North								Corporate
		America				Europe				and Other				Consolidated
		Unaudited
		(In thousands)
Three months ended February 29, 2008
Net sales to unaffiliated customers		$	114,776			$	365,035			$	—			$	479,811
Gross profit		$	6,916			$	50,121			$	—			$	57,037
Operating income (loss)		$	(6,228	)		$	23,881			$	(8,794	)		$	8,859
Interest expense, net			—				—				(1,587	)			(1,587	)
Foreign currency transaction gains (losses)			—				—				(463	)			(463	)
Other income (expense)			—				—				334				334
Goodwill impairment — North America			—				—				(964	)			(964	)
Asset impairment — North America			—				—				(5,219	)			(5,219	)
Restructuring expense — North America			—				—				(2,616	)			(2,616	)
Income (loss) before taxes		$	(6,228	)		$	23,881			$	(19,309	)		$	(1,656	)
Three months ended February 28, 2007
Net sales to unaffiliated customers		$	111,751			$	301,016			$	—			$	412,767
Gross profit		$	9,088			$	38,346			$	—			$	47,434
Operating income (loss)		$	(4,378	)		$	16,107			$	(3,583	)		$	8,146
Interest expense, net			—				—				(1,504	)			(1,504	)
Foreign currency transaction gains (losses)			—				—				784				784
Other income (expense)			—				—				106				106
Restructuring expense — North America			—				—				(810	)			(810	)
Income (loss) before taxes		$	(4,378	)		$	16,107			$	(5,007	)		$	6,722

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		North								Corporate
		America				Europe				and Other				Consolidated
		Unaudited
		(In thousands)
Six months ended February 29, 2008
Net sales to unaffiliated customers		$	243,345			$	733,040			$	—			$	976,385
Gross profit		$	16,416			$	97,791			$	—			$	114,207
Operating income (loss)		$	(9,388	)		$	46,459			$	(12,176	)		$	24,895
Interest expense, net			—				—				(2,716	)			(2,716	)
Foreign currency transaction gains (losses)			—				—				(597	)			(597	)
Other income (expense)			—				—				2				2
Goodwill impairment — North America			—				—				(964	)			(964	)
Asset impairment — North America			—				—				(5,219	)			(5,219	)
Restructuring expense — North America			—				—				(2,622	)			(2,622	)
Income (loss) before taxes		$	(9,388	)		$	46,459			$	(24,292	)		$	12,779
Six months ended February 28, 2007
Net sales to unaffiliated customers		$	230,045			$	625,449			$	—			$	855,494
Gross profit		$	16,445			$	79,819			$	—			$	96,264
Operating income (loss)		$	(10,615	)		$	34,924			$	(7,104	)		$	17,205
Interest expense, net			—				—				(2,973	)			(2,973	)
Foreign currency transaction gains (losses)			—				—				1,298				1,298
Other income (expense)			—				—				81				81
Restructuring expense — North America			—				—				(928	)			(928	)
Income (loss) before taxes		$	(10,615	)		$	34,924			$	(9,626	)		$	14,683

North America gross profit for the three and six months ended February 28, 2007 include $0.7 million and $0.9 million of accelerated depreciation expense, respectively, related to the restructuring plan announced in fiscal 2007. For the three months ended February 29, 2008 and February 28, 2007, North American gross profit includes expense of $1.2 million and $1.1 million, respectively, related to the Invision^® product. For the six months ended February 29, 2008 and February 28, 2007, North American gross profit includes expense of $2.8 million and $2.0 million, respectively, related to the Invision product. Europe gross profit for the six months ended February 29, 2008 was negatively impacted by $0.8 million for employee termination costs.

Depreciation expense was $4.3 million and $2.6 million for Europe and North America, respectively, for the three months ended February 29, 2008. Depreciation expense was $8.8 million and $5.3 million for Europe and North America, respectively, for the six months ended February 29, 2008. For the three months ended February 28, 2007, depreciation expense was $3.7 million and $3.3 million for Europe and North America, respectively, and $7.4 million and $6.1 million for Europe and North America, respectively, for the six months ended February 28, 2007. The fiscal 2007 amounts include the accelerated depreciation mentioned previously for North America.

The majority of the Company’s sales for the three and six months ended February 29, 2008 and February 28, 2007 can be classified into five primary product families. The approximate amount and percentage of consolidated sales for these product families are as follows:

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		Three months ended
Product Family		February 29, 2008								February 28, 2007
		(In thousands, except for %’s)
Color and additive concentrates		$	167,041				35	%		$	140,555				34	%
Polyolefins			163,061				34				128,711				31
Engineered compounds			101,873				21				105,452				26
Polyvinyl chloride (PVC)			13,923				3				15,036				4
Tolling			6,218				1				6,271				1
Other			27,695				6				16,742				4
		$	479,811				100	%		$	412,767				100	%

		Six months ended
Product Family		February 29, 2008								February 28, 2007
		(In thousands, except for %’s)
Color and additive concentrates		$	345,996				35	%		$	298,044				35	%
Polyolefins			323,374				33				264,645				31
Engineered compounds			208,686				22				213,736				25
Polyvinyl chloride (PVC)			28,621				3				31,046				4
Tolling			12,175				1				10,809				1
Other			57,533				6				37,214				4
		$	976,385				100	%		$	855,494				100	%

(8)		In June 2006, the FASB issued FASB interpretation No. 48, (“FIN 48”), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 clarifies the accounting for uncertain income tax positions that are recognized in a company’s financial statements. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. FIN 48 requires a company to recognize a financial statement benefit for a position taken or expected to be taken in a tax return when it is more-likely-than-not that the position will be sustained.
		The Company adopted FIN 48 on September 1, 2007, as required. As a result of the implementation, the Company recognized an increase in the opening balance of retained earnings of $2.1 million for unrecognized tax benefits not previously recognized under historical practice.
		As of February 29, 2008, the Company’s gross unrecognized tax benefits totaled $5.6 million. If recognized, approximately $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 February 29, 2008, the Company had $1.3 million of accrued interest and penalties on unrecognized tax benefits.
		The Company is open to potential income tax examinations in the U.S. from fiscal 2004 onward and generally from fiscal year 2001 onward for most foreign jurisdictions. Specifically, in Belgium the Company is open for examination from 2005 onward. In addition, the Company is currently under examination in Germany for years 2000 through 2004. The expiration of certain statutes of limitation in foreign jurisdictions during the second quarter resulted in a tax benefit of approximately $0.6 million relating to the reversal of tax and interest previously accrued for under FIN 48.
		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.
		In October 2007, significant tax legislation was passed in Mexico, which was generally effective starting January 1, 2008. Of particular importance is the law’s introduction of a flat tax, which will apply to taxpaying

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		entities along with Mexico’s regular income tax. The new legislation is not expected to have a material effect on the Company’s current financial condition, results of operations or cash flows.
		In December 2007, tax legislation was passed in Italy, which was effective January 1, 2008 and includes a reduction in the combined corporate and local income tax rate by approximately six percentage points. The new legislation did not have a material effect on the Company’s current financial position, results of operations or cash flows.
		A reconciliation of the statutory U.S. federal income tax rate of 35% with the effective tax rate is as follows:

		For the three months ended								For the three months ended
		February 29, 2008								February 28, 2007
		(in thousands except for %’s)
Statutory U.S. tax rate		$	(580	)			35.0	%		$	2,353				35.0	%
Domestic losses with no benefit			3,742				(225.8	)			2,836				42.2
Amount of foreign taxes at less than statutory U.S. tax rate			(3,717	)			224.2				(620	)			(9.2	)
U.S. restructuring and other U.S. unusual charges with no tax benefit			3,073				(185.4	)			230				3.4
FIN 48			(567	)			34.2				—				—
Other			167				(10.0	)			283				4.2
Total income tax expense (benefit)		$	2,118				(127.8	)%		$	5,082				75.6	%

		For the six months ended								For the six months ended
		February 29, 2008								February 28, 2007
		(in thousands except for %’s)
Statutory U.S. tax rate		$	4,473				35.0	%		$	5,139				35.0	%
Domestic losses with no benefit			6,013				47.1				6,394				43.6
Amount of foreign taxes at less than statutory U.S. tax rate			(6,867	)			(53.8	)			(1,561	)			(10.6	)
U.S. restructuring and other U.S. unusual charges with no tax benefit			3,073				24.1				271				1.8
FIN 48			(459	)			(3.6	)			—				—
Other			297				2.3				428				2.9
Total income tax expense (benefit)		$	6,530				51.1	%		$	10,671				72.7	%

		The negative effective tax rate of (127.8%) for the three months ended February 29, 2008 is less than the U.S. statutory rate of 35.0% primarily because no tax benefits were recognized for U.S losses from continuing operations, charges incurred for the sale of the Orange, Texas plant, lease termination costs, and CEO transition costs. This unfavorable effect on the Company’s effective tax rate was partially offset by the overall foreign tax rate being less than the U.S. statutory rate. As compared to the effective rate of 75.6% for the three months ended February 28, 2007, the current quarter’s negative effective rate is driven by increases in the U.S. pre-tax loss from operations and other U.S. charges for which no tax benefit was recognized. This unfavorable impact on the rate is partially offset by an increase in foreign pre-tax income in lower rate jurisdictions, recently implemented tax planning strategies, recently enacted tax legislation in Germany which reduced the German statutory rate by approximately 10 percentage points, and the reduction of the FIN 48 reserve.
		The effective tax rate of 51.1% for the six months ended February 29, 2008 is greater than the U.S. statutory rate of 35.0% primarily because no tax benefits were recognized for U.S losses from continuing operations,

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		charges incurred for the sale of the Orange, Texas plant, lease termination costs, and CEO transition costs. This unfavorable effect on the Company’s effective tax rate was partially offset by the overall foreign tax rate being less than the U.S. statutory rate. As compared to the effective rate of 72.7% for the six months ended February 28, 2007, the current period’s effective rate is driven by increases in the U.S. pre-tax loss from operations and other U.S. charges for which no tax benefit was recognized. This unfavorable impact on the rate is partially offset by an increase in foreign pre-tax income in lower rate jurisdictions, recently implemented tax planning strategies, recently enacted tax legislation in Germany which reduced the German statutory rate by approximately 10 percentage points, and the reduction of the FIN 48 reserve.
(9)		In January 2008, the Company’s CEO announced a 100 day plan which included many initiatives to improve profitability and drive growth. On February 6, 2008, the Company announced two steps in its continuing effort to improve the profitability of its North American operations. The Company announced it will shut down its manufacturing facility in St. Thomas, Ontario, Canada and will pursue a sale of its manufacturing facility in Orange, Texas.
		As a result of the announcement made in February 2008, management deemed that a trigger to evaluate goodwill in North America had occurred. The goodwill in North America relates only to the tolling reporting unit of which the Orange, Texas facility is the only facility. In accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), the Company’s analysis resulted in an impairment of goodwill related to this tolling reporting unit in the amount of approximately $1.0 million.
		As a result of the announcement in February 2008, the Company considered the inventory and property, plant and equipment of the Orange, Texas facility to be held for sale and therefore ceased depreciating the fixed assets on February 6, 2008. The Company determined that an analysis of impairment related to the long-lived assets of the Orange facility was necessary based on the announced intentions of management to sell the facility. As a result of the analysis, during the second quarter of fiscal 2008 the property, plant and equipment of the Orange, Texas facility was determined to be impaired and the Company recorded an impairment charge of approximately $2.7 million. The net book value of the assets held for sale after impairment is approximately $3.7 million which is included in the inventory and property, plant and equipment line items in the Company’s consolidated balance sheet as of February 29, 2008.
		As of February 29, 2008, the Company considered the assets of the St. Thomas, Ontario, Canada facility to be held and used as the facility is not available for immediate sale. In connection with the planned closure of this facility, the analysis of the possible impairment of the property, plant and equipment resulted in an impairment charge of $2.5 million recorded in the second quarter of fiscal 2008.
		The St. Thomas, Ontario, Canada facility primarily produces engineered plastics for the automotive market, with a capacity of 74 million pounds per year and approximately 120 employees. Production related to low-margin business at the St. Thomas facility will be discontinued and the remaining higher margin business is expected to be absorbed by the Company’s Nashville, Tennessee manufacturing facility and the Bellevue, Ohio manufacturing facility. The shutdown is expected to be completed no later than the end of fiscal 2008.
		The Orange, Texas facility has primarily provided North American third-party tolling services in which the Company processes customer-owned materials for a fee. The Company has decided to exit the North American tolling business to concentrate on higher value-added products. Total annual capacity at the Orange, Texas facility is approximately 135 million pounds and employs approximately 100 employees. The Company completed the sale of this facility in March 2008 to Alloy Polymers, Inc. for total consideration of $3.7 million. In connection with this sale, the Company entered into a tolling agreement with Alloy Polymers, Inc. to have specified minimum quantities of products tolled over a period of four years.
		During the second quarter of fiscal 2008, the Company recorded approximately $2.6 million in employee related costs which include estimated severance payments and medical insurance for approximately 135 employees whose positions have been or will be eliminated at the Orange, Texas and St. Thomas, Ontario, Canada facilities. Any additional severance to be paid in excess of the amounts recorded will be charged to restructuring expense when finalized and communicated to the employees.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		At February 29, 2008, the Company estimated it will incur additional charges for employee related costs, contract termination costs and other related costs of approximately $4.0 to $7.0 million related to the announcements made in January and February. The Company anticipates the majority of the accrued balance for restructuring charges to be paid during the third and fourth quarters of fiscal 2008.
		During fiscal 2007, the Company announced multiple phases of a restructuring plan to restore its North American segment to profitability. In November 2006, in order to balance capacity with demand, reduce costs and improve efficiencies in the North American segment, the Company announced a plan to close two of its manufacturing lines at its Orange, Texas plant, close a warehouse also located in Orange, Texas and reduce the workforce at its Bellevue, Ohio plant. Due to unanticipated customer demand on certain lines, the two manufacturing lines at the Orange, Texas plant continued production through the sale of the facility in March 2008. The Orange, Texas warehouse was closed during the third quarter of fiscal 2007. The warehouse and related assets were considered held for sale and are included in the Company’s consolidated balance sheet in property, plant and equipment and therefore the Company ceased depreciation on those assets. In connection with this plan, the Company reduced its workforce by 65 positions at various facilities including the Bellevue, Ohio plant.
		In February 2007, the Company announced the second phase of its restructuring plan which implements several initiatives that will improve the Company’s operations and profitability in North America. This restructuring plan includes savings from the following initiatives:

	•		Reduction in the Company’s North American workforce by approximately 30 positions, primarily in the sales and administrative functions,
	•		Reduction in the Company’s United States retiree healthcare coverage plan,
	•		Greater cost sharing of employee and retiree medical plan costs,
	•		Broad discretionary selling, general and administrative cost reductions,
	•		Savings from improved purchasing processes, and
	•		Improved logistics efficiencies.

		As a result of the initiatives announced in fiscal 2007, the Company recorded approximately $0.9 million of accelerated depreciation for the six months ended February 28, 2007, which represents a change in estimate for the reduced life of equipment. The employee related costs include severance payments and medical insurance for employees whose positions have been eliminated in North America. The Company recorded minimal charges in fiscal 2008 related to the fiscal 2007 initiatives. At February 29, 2008, the Company believes the charges related to this restructuring plan are complete and it will not incur additional cash out-flows related to the announced initiatives in 2007. The total charge for this plan was approximately $2.1 million recorded primarily in fiscal 2007.
		In connection with the announced plans in fiscal 2007 and fiscal 2008, the Company recorded the following restructuring charges.

		Fiscal 2007				Paid Fiscal				Accrual Balance				Fiscal 2008				Paid Fiscal				Accrual Balance
		Charges				2007				August 31, 2007				Charges				2008				February 29, 2008
										(In thousands)
Employee related costs		$	980			$	(906	)		$	74			$	2,622			$	(80	)		$	2,616
Other costs			68				(68	)			—				—				—				—
Restructuring			1,048			$	(974	)		$	74			$	2,622			$	(80	)		$	2,616
Accelerated depreciation, included in North America cost of sales in 2007			1,071
		$	2,119

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In March 2008, in continuation of its initiatives the Company announced it has changed its organizational reporting structure related to its North America operations. Any related termination costs will be reflected in results of the third quarter for fiscal 2008.

(10)

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

		Three Months Ended								Six Months Ended
		February 29,				February 28,				February 29,				February 28,
		2008				2007				2008				2007
		(In thousands)
Net periodic pension cost recognized included the following components:
Service cost		$	617			$	616			$	1,220			$	1,217
Interest cost			1,173				924				2,326				1,826
Expected return on plan assets			(311	)			(264	)			(632	)			(520	)
Net actuarial loss and net amortization of prior service cost and transition obligation			196				255				394				506
Net periodic benefit cost		$	1,675			$	1,531			$	3,308			$	3,029
Postretirement benefit cost included the following components:
Service cost		$	167			$	460			$	333			$	921
Interest cost			311				441				623				882
Net amortization of prior service cost and unrecognized loss			(121	)			40				(242	)			79
Net periodic benefit cost		$	357			$	941			$	714			$	1,882

		On February 21, 2008, the Company announced that it planned to amend its U.S. postretirement health care coverage plan by eliminating post-65 retiree coverage as of March 24, 2008. As of February 29, 2008, the Company reduced its postretirement health care benefit liability by approximately $5.0 million with a corresponding increase in accumulated other comprehensive income due to the negative plan amendment. This postretirement health care benefit liability is included in other long-term liabilities on the Company’s consolidated balance sheet.
(11)		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.
(12)		One of the Company’s manufacturing facilities in Orange, Texas was closed for a two-week period in September 2005 because of Hurricane Rita. In addition, a warehouse in Texas also incurred damage from Hurricane Rita. The claim for this hurricane was filed with the insurance carriers, and the final settlement amount was agreed upon in November 2007. The Company recorded a charge of approximately $0.4 million during the three months ended November 30, 2007 as a result of an adjustment to its claim receivable during the final settlement negotiations. This amount was recorded in other (income) expense in the Consolidated Statements of Operations. The settlement amount was received during the second quarter of fiscal 2008.
(13)		On September 15, 2006 the FASB issued FASB Statement No. 157, (“SFAS 157”), Fair Value Measurement. SFAS 157 addresses standardizing the measurement of fair value for companies who are required to use a fair value measure of recognition for recognition or disclosure purposes. The FASB defines fair value 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 Company is required to adopt SFAS 157 in fiscal year 2009. The

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		Company is currently evaluating the impact, if any, of SFAS 157 on its financial position, results of operations and cash flows.
(14)		In February 2007, the FASB issued FASB Statement No. 159, (“SFAS 159”), The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115. SFAS 159 permits companies to choose, at specified election dates, to measure many financial instruments and certain other items at fair value that are not currently measured at fair value. Unrealized gains and losses on items for which the fair value option has been elected would be reported in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. The Company is required to adopt SFAS 159 in fiscal year 2009. The Company is currently evaluating the impact, if any, of SFAS 159 on its financial position, results of operations and cash flows.
(15)		In December 2007, the FASB issued FASB Statement No. 141(R), Business Combinations (“SFAS 141R”). SFAS 141R replaces FASB Statement No. 141 and provides greater consistency in the accounting and financial reporting of business combinations. SFAS 141R requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction and any non-controlling interest in the acquiree at the acquisition date, measured at the fair value as of that date. This includes the measurement of the acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the acquirer’s income tax valuation allowance and deferred taxes. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is not permitted. The Company is required to adopt SFAS 141R in fiscal year 2010. The Company will assess the impact that SFAS 141R may have on its financial position, results of operations and cash flows.
(16)		In December 2007, the FASB issued FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 is effective for the Company for the fiscal year 2010, with early adoption being prohibited. The Company will assess the impact that SFAS 160 may have on its financial position, results of operations, debt covenants and cash flows.
(17)		The Company announced on November 16, 2007 that it reached an agreement with a group of investors led by Barington Capital Group, L.P. (“the Barington Group”) on matters relating to the Company’s 2007 annual meeting of stockholders which occurred on January 10, 2008. The Company agreed to form a special committee of the Board, to include Mr. James Mitarotonda, director, along with other directors, to consider all strategic alternatives available to the Company to maximize stockholder value, including, without limitation, a strategic acquisition, merger or sale of the Company. The Board also agreed to increase to five million the number of shares authorized to be repurchased under the Company’s current share repurchase program. The Company intends to repurchase at least two million shares under the program in the fiscal year ending August 31, 2008, subject to market conditions, materially relevant capital considerations of the Company and compliance with applicable laws. During the fiscal 2008 second quarter, the Company repurchased 0.7 million shares of common stock at an average price of $20.04 per share.
(18)		The Company entered into a transition agreement with the Company’s former President and Chief Executive Officer, Terry L. Haines, in March 2008. Costs under this agreement include, among other things, a lump sum payment of approximately $2.4 million, additional vesting related to existing equity awards and miscellaneous perquisites. During the quarter ended February 29, 2008, the Company recorded a charge of approximately $3.0 million coincident with communication of the agreement terms.
(19)		During the three months ended February 29, 2008, the Company recorded approximately $0.6 million in expense related to the termination of an operating lease for an airplane which is included in selling, general and administrative expense.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(20)		In accordance with SFAS 142, 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. As discussed in Footnote 9, as a result of the Company’s announcement in February 2008 to pursue a sale of its Orange, Texas facility and close the St. Thomas, Ontario, Canada facility the Company noted a trigger to test for impairment of goodwill in North America. The analysis of goodwill in North America related to the tolling reporting unit resulted in an impairment charge of approximately $1.0 million. The fair value was based on estimated future cash flows including potential sale proceeds. The Company also completed its annual impairment review as of February 29, 2008 of the remaining goodwill which is related to the European segment and noted no impairment. The fair value used in the analysis was based on average earnings before interest, taxes, depreciation and amortization and cash flow multiples. The Company has been consistent with their method of estimating fair value where an indication of fair value from a buyer or similar specific transactions is not available.
		During fiscal 2007, the Company acquired the Delta Plast Group, a European color masterbatch manufacturer with operations in Sweden and Belgium. In connection with the acquisition, the Company recorded approximately $3.8 million of goodwill. The purchase price also included a potential deferred payment that could be paid over a three year period based on certain terms in the purchase agreement. During the three months ended February 29, 2008, the Company recorded a liability for a payment related to this purchase agreement of approximately $1.6 million, which increased goodwill.
		The following table includes a rollforward of the carrying amount of the Company’s goodwill from August 31, 2006:

		Europe				North America				Total
		(In thousands)
Balance as of August 31, 2006		$	4,428			$	964			$	5,392
Goodwill recognized from business acquisition			3,780				—				3,780
Translation effect			178				—				178
Balance as of August 31, 2007		$	8,386			$	964			$	9,350
Goodwill impairment			—				(964	)			(964	)
Additional purchase price			1,578				—				1,578
Translation effect			969				—				969
Balance as of February 29, 2008		$	10,933			$	—			$	10,933

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview of the Business and Recent Developments

A. Schulman, Inc. is a leading international supplier of high-performance plastic compounds and resins headquartered in Akron, Ohio. The Company’s customers span a wide range of markets including consumer products, industrial, automotive and packaging. The Company has approximately 2,400 employees and 16 plants in countries in North America, Europe and Asia. The Company operates within two segments, North America and Europe (which includes Asia). Both segments also include distributors which service some of the largest chemical companies in the world.

The Company offers such products as color and additive concentrates, polyolefins, engineered compounds and polyvinyl chloride (PVC) used in packaging, durable goods and commodity products. The Company also offers a tolling service to customers from its European operations. Recently, the Company introduced its new Invision^® sheet product. Invision is a revolutionary product based on cutting-edge technology and the Company is exploring potential market opportunities.

Joseph M. Gingo was appointed as President and Chief Executive Officer (CEO) effective January 1, 2008. On March 21, 2008, the Company’s former Chairman, President and CEO, Terry L. Haines, retired from the Company. The Company recorded approximately $3.6 million in connection with the CEO transition during the second quarter of fiscal 2008, which includes costs for both Mr. Gingo and Mr. Haines. On February 26, 2008, the Company announced that its Board of Directors appointed Mr. Gingo as Chairman of the Board.

The Company’s CEO, Mr. Gingo, announced a 100-day plan in January 2008 to improve profitability and drive growth. This plan focuses on six primary areas:

	•		More efficient and effective utilization of the Company’s North American manufacturing facilities;
	•		Enhanced focus on value-added products;
	•		Re-assessment of the Company’s North American automotive business;
	•		Suspension of capital expenditures for Invision until marketing strategy has been refined;
	•		Identification of additional efficiencies in the sales and administrative structure of European operations; and
	•		Ensuring the best leadership team is in place to execute the strategy.