UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

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

Commission File No. 0-7459

A. SCHULMAN, INC.

(Exact Name of Registrant as Specified in its Charter)

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 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 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 December 28, 2011 – 29,405,079

 

 

PART I — FINANCIAL INFORMATION

Item 1 — Consolidated Financial Statements

A. SCHULMAN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

		Three months ended
		November 30,
		2011				2010
		Unaudited
		(In thousands, except per share data)
Net sales		$	517,289			$	495,383
Cost of sales			447,793				426,382
Selling, general and administrative expenses			47,415				52,905
Restructuring expense			3,244				551
Operating income			18,837				15,545
Interest expense, net			1,894				1,085
Foreign currency transaction (gains) losses			499				670
Other (income) expense, net			(170	)			(4	)
Income before taxes			16,614				13,794
Provision (benefit) for U.S. and foreign income taxes			2,651				4,418
Net income			13,963				9,376
Noncontrolling interests			(381	)			(133	)
Net income attributable to A. Schulman, Inc.		$	13,582			$	9,243
Weighted-average number of shares outstanding:
Basic			29,418				31,333
Diluted			29,514				31,530
Earnings per share of common stock attributable to A. Schulman, Inc.:
Basic		$	0.46			$	0.29
Diluted		$	0.46			$	0.29
Cash dividends per common share		$	0.170			$	0.155

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

A. SCHULMAN, INC.
CONSOLIDATED BALANCE SHEETS

		November 30, 2011				August 31, 2011
		Unaudited
		(In thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	105,681			$	155,753
Accounts receivable, less allowance for doubtful accounts of $9,125 at November 30, 2011 and $9,475 at August 31, 2011			308,847				347,036
Inventories, average cost or market, whichever is lower			272,425				264,747
Prepaid expenses and other current assets			32,981				34,376
Total current assets			719,934				801,912
Property, plant and equipment, at cost:
Land and improvements			29,384				30,826
Buildings and leasehold improvements			156,558				165,267
Machinery and equipment			367,138				382,828
Furniture and fixtures			39,844				41,860
Construction in progress			17,561				12,967
Gross property, plant and equipment			610,485				633,748
Accumulated depreciation and investment grants of $725 at November 30, 2011 and $815 at August 31, 2011			385,865				399,448
Net property, plant and equipment			224,620				234,300
Other assets:
Deferred charges and other noncurrent assets			35,270				35,947
Goodwill			89,740				91,753
Intangible assets			71,710				76,075
Total other assets			196,720				203,775
Total assets		$	1,141,274			$	1,239,987
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	208,548			$	254,405
U.S. and foreign income taxes payable			6,844				11,072
Accrued payrolls, taxes and related benefits			42,405				44,560
Other accrued liabilities			49,391				50,608
Short-term debt			9,525				11,550
Total current liabilities			316,713				372,195
Long-term debt			192,484				184,598
Pension plans			79,745				84,673
Other long-term liabilities			21,803				24,161
Deferred income taxes			17,618				20,055
Total liabilities			628,363				685,682
Commitments and contingencies			—				—
Stockholders’ equity:
Common stock, $1 par value, authorized - 75,000 shares, issued - 47,818 shares at November 30, 2011 and 47,816 shares at August 31, 2011			47,818				47,816
Other capital			254,854				254,184
Accumulated other comprehensive income (loss)			20,313				50,007
Retained earnings			549,777				541,256
Treasury stock, at cost, 18,414 shares at November 30, 2011 and 17,207 shares at August 31, 2011			(366,008	)			(344,759	)
Total A. Schulman, Inc.’s stockholders’ equity			506,754				548,504
Noncontrolling interests			6,157				5,801
Total equity			512,911				554,305
Total liabilities and equity		$	1,141,274			$	1,239,987

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

A. SCHULMAN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three months ended November 30,
		2011				2010
		Unaudited
		(In thousands)
Operating:
Net income		$	13,963			$	9,376
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation and amortization			9,064				9,654
Deferred tax provision			(2,790	)			(711	)
Pension, postretirement benefits and other deferred compensation			1,547				2,153
Net (gains) losses on asset sales			(29	)			88
Changes in assets and liabilities, net of acquisitions:
Accounts receivable			15,731				(15,431	)
Inventories			(24,349	)			(27,579	)
Accounts payable			(30,888	)			(6,454	)
Income taxes			(4,240	)			1,622
Accrued payrolls and other accrued liabilities			2,086				4,314
Other assets and long-term liabilities			(1,360	)			(2,084	)
Net cash provided from (used in) operating activities			(21,265	)			(25,052	)
Investing:
Expenditures for property, plant and equipment			(9,072	)			(5,000	)
Proceeds from the sale of assets			724				300
Business acquisitions, net of cash acquired			—				(15,071	)
Net cash provided from (used in) investing activities			(8,348	)			(19,771	)
Financing:
Cash dividends paid			(5,061	)			(4,942	)
Increase (decrease) in notes payable			(1,553	)			(3,987	)
Borrowings on revolving credit facilities			40,750				53,500
Repayments on revolving credit facilities			(28,000	)			(25,000	)
Repayments on long-term debt			(4	)			(26	)
Cash distributions to noncontrolling interests			—				(700	)
Issuances (purchases) of treasury stock, net			(21,249	)			49
Net cash provided from (used in) financing activities			(15,117	)			18,894
Effect of exchange rate changes on cash			(5,342	)			2,205
Net increase (decrease) in cash and cash equivalents			(50,072	)			(23,724	)
Cash and cash equivalents at beginning of period			155,753				122,754
Cash and cash equivalents at end of period		$	105,681			$	99,030

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

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)

GENERAL

The unaudited interim consolidated financial statements included for A. Schulman, Inc. (the “Company”) reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of the results of the interim period presented. All such adjustments are of a normal recurring nature. The fiscal year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited consolidated financial information should be read in conjunction with the consolidated financial statements and notes thereto incorporated in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2011.

The results of operations for the three months ended November 30, 2011 are not necessarily indicative of the results expected for the fiscal year ending August 31, 2012.

The accounting policies for the periods presented are the same as described in Note 1 – Business and Summary of Significant Accounting Policies to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2011.

Certain items previously reported in specific financial statement captions have been reclassified to conform to the fiscal 2012 presentation.

(2)

BUSINESS ACQUISITIONS

In fiscal 2011, the Company acquired a business in Brazil and entered into an agreement to become the majority equity holder of an Argentinean venture. The consolidated statements of operations include the results of these transactions from the dates of acquisition or formation. These transactions are summarized below:

				Purchase
				Consideration
Transaction Description		Date of Transaction		(In millions)			Segment
Mash Indústria e Comércio de Compostos Plásticos LTDA		November 3, 2010		$	15.2		Americas
A Brazilian masterbatch additive producer and engineered plastics compounder whose products are used in end markets such as film and packaging, automotive and appliances.
Surplast S.A.		June 30, 2011		$	1.1		Americas
A 51% ownership interest in an Argentinean venture, further expanding the Company’s specialty powders presence in South America.

(3)

GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying amount of goodwill by segment for the Company as of November 30, 2011 and August 31, 2011 is as follows:

		Europe, Middle
		East and Africa				Americas				Total
						(In thousands)
Balance as of August 31, 2011		$	30,949			$	60,804			$	91,753
Acquisitions			—				—				—
Translation and other			(1,480	)			(533	)			(2,013	)
Balance as of November 30, 2011		$	29,469			$	60,271			$	89,740

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill impairment is tested at the reporting unit level on an annual basis in the fourth quarter and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company is not aware of any triggering events which would require a goodwill impairment test as of November 30, 2011.

The following table summarizes intangible assets with determinable useful lives by major category as of November 30, 2011 and August 31, 2011:

		November 30, 2011												August 31, 2011
		Gross								Net				Gross								Net
		Carrying				Accumulated				Carrying				Carrying				Accumulated				Carrying
		Amount				Amortization				Amount				Amount				Amortization				Amount
		(In thousands)
Customer related intangibles		$	57,796			$	(8,491	)		$	49,305			$	59,948			$	(7,428	)		$	52,520
Developed technology			13,477				(2,506	)			10,971				13,522				(2,273	)			11,249
Registered trademarks and tradenames			13,075				(1,641	)			11,434				13,751				(1,445	)			12,306
Total finite-lived intangible assets		$	84,348			$	(12,638	)		$	71,710			$	87,221			$	(11,146	)		$	76,075

Amortization expense of intangible assets was approximately $1.9 million and $2.0 million for the three months ended November 30, 2011 and 2010, respectively.

(4)

FAIR VALUE MEASUREMENT

For a discussion of the Company’s fair value measurement policies under the fair value hierarchy, refer to Note 6 in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2011. The Company has not changed its valuation techniques for measuring the fair value of any financial assets or liabilities during fiscal 2012, and transfers between levels within the fair value hierarchy, if any, are recognized at the end of each quarter.

The following table presents information about the Company’s assets and liabilities recorded at fair value in the Company’s consolidated balance sheet as of November 30, 2011 and August 31, 2011:

		November 30, 2011																August 31, 2011
		Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
		(In thousands)
Assets:
Cash		$	96,566			$	96,566			$	—			$	—			$	139,525			$	139,525			$	—			$	—
Cash equivalents			9,115				9,115				—				—				16,228				16,228				—				—
Foreign exchange forward contracts			115				—				115				—				82				—				82				—
Total assets at fair value		$	105,796			$	105,681			$	115			$	—			$	155,835			$	155,753			$	82			$	—
Liabilities:
Foreign exchange forward contracts		$	129			$	—			$	129			$	—			$	50			$	—			$	50			$	—
Total liabilities at fair value		$	129			$	—			$	129			$	—			$	50			$	—			$	50			$	—

Cash and cash equivalents are recorded at cost, which approximates fair value.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The total contract value of foreign exchange forward contracts outstanding was approximately $21.0 million and $18.4 million as of November 30, 2011 and August 31, 2011, respectively. The amount of foreign exchange forward contracts outstanding as of the end of the period is indicative of the level of the activity during the period. 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 operations. The fair value of the Company’s foreign exchange forward contracts is recognized in other current assets or other accrued liabilities in the consolidated balance sheets based on the net settlement value. The foreign exchange forward contracts are entered into with creditworthy multinational banks, and the Company does not hold or issue foreign exchange forward contracts for trading purposes. There were no foreign exchange forward contracts designated as hedging instruments as of November 30, 2011 and August 31, 2011.

The following information presents the supplemental fair value of the Company’s long-term fixed-rate debt issued in Euros as of November 30, 2011 and August 31, 2011:

		November 30, 2011								August 31, 2011
		($ in thousands)				(€ in thousands)				($ in thousands)				(€ in thousands)
Carrying value of long-term fixed-rate debt		$	67,540			€	50,336			$	72,735			€	50,336
Fair value of long-term fixed-rate debt		$	70,411			€	52,475			$	76,093			€	52,659

The decrease in fair value is primarily related to a decrease in the value of the Euro against the U.S. dollar. The carrying value of the Company’s variable-rate debt approximates fair value.

(5)

INCOME TAXES

As of November 30, 2011, the Company’s gross unrecognized tax benefits totaled approximately $4.6 million. If recognized, approximately $3.2 million of the total unrecognized tax benefits would favorably affect the Company’s effective tax rate. The Company reports interest and penalties related to income tax matters in income tax expense. As of November 30, 2011, the Company had approximately $0.5 million of accrued interest and penalties on unrecognized tax benefits.

The Company is open to potential income tax examinations in Germany from fiscal 2005 onward, in the U.S. from fiscal 2008 onward and in Belgium from fiscal 2009 onward. The Company is open to potential examinations from fiscal 2006 onward for most other foreign jurisdictions.

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

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 November 30, 2011 and 2010 is as follows:

		Three months ended								Three months ended
		November 30, 2011								November 30, 2010
		(In thousands, except for %’s)
Statutory U.S. tax rate		$	5,815				35.0	%		$	4,828				35.0	%
Amount of foreign taxes at less than U.S. statutory tax rate			(3,317	)			(20.0	)			(2,956	)			(21.4	)
U.S. and foreign losses with no tax benefit			659				4.0				1,967				14.2
U.S. restructuring and other U.S. unusual charges with no benefit			110				0.7				375				2.7
Italian tax law change			(747	)			(4.5	)			—				—
Establishment (resolution) of uncertain tax positions			31				0.2				11				0.1
Other			100				0.6				193				1.4
Total income tax expense (benefit)		$	2,651				16.0	%		$	4,418				32.0	%

The effective tax rates for the three months ended November 30, 2011 and 2010 are less than the U.S. statutory rate primarily because of the Company’s overall foreign rate being less than the U.S. statutory rate. This favorable effect on the Company’s tax rate was partially offset by no tax benefits being recognized for U.S. and certain foreign losses. As compared with the effective rate of 32.0% for the three months ended November 30, 2010, the current quarter’s effective rate is driven by a decrease in the U.S. and foreign losses with no tax benefit.

(6)

PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The components of the Company’s net periodic benefit cost for defined benefit pension plans and other postretirement benefits for the three months ended November 30, 2011 and 2010 are shown below:

		Three months ended November 30,
		2011				2010
		(In thousands)
Net periodic pension cost included the following components:
Service cost		$	719			$	845
Interest cost			1,315				1,161
Expected return on plan assets			(325	)			(297	)
Net actuarial loss and net amortization of prior service cost			114				412
Net periodic benefit cost		$	1,823			$	2,121
Postretirement benefit cost included the following components:
Service cost		$	7			$	8
Interest cost			152				186
Net actuarial loss and net amortization of prior service cost (credit)			(140	)			(86	)
Net periodic benefit cost		$	19			$	108

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

A summary of the changes in stockholders’ equity for the three months ended November 30, 2011 is as follows:

										Accumulated
										Other
		Common								Comprehensive				Retained				Treasury				Noncontrolling
		Stock				Other Capital				Income (Loss)				Earnings				Stock				Interests				Total Equity
		Unaudited
		(In thousands, except per share data)
Balance as of September 1, 2011		$	47,816			$	254,184			$	50,007			$	541,256			$	(344,759	)		$	5,801			$	554,305
Comprehensive income (loss):
Net income															13,582								381
Foreign currency translation gain (loss)											(29,670	)											(25	)
Actuarial loss and amortization of											(24	)
prior service costs, net
Total comprehensive income (loss)																											(15,756	)
Cash dividends paid, $0.17 per share															(5,061	)											(5,061	)
Purchase of treasury stock																			(21,474	)							(21,474	)
Issuance of treasury stock							(2	)											225								223
Stock options exercised			2				31																				33
Amortization of restricted stock							641																				641
Balance as of November 30, 2011		$	47,818			$	254,854			$	20,313			$	549,777			$	(366,008	)		$	6,157			$	512,911

(8)

COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) for the three months ended November 30, 2011 and 2010 is as follows:

		Three months ended November 30,
		2011				2010
		(In thousands)
Net income (loss)		$	13,963			$	9,376
Foreign currency translation gain (loss)			(29,695	)			7,257
Unrecognized losses and prior sevice costs (credits), net			(24	)			706
Total comprehensive income (loss)			(15,756	)			17,339
Comprehensive (income) loss attributable to noncontrolling interests			(356	)			(133	)
Comprehensive income (loss) attributable to A. Schulman, Inc.		$	(16,112	)		$	17,206

The fiscal 2012 first quarter foreign currency translation loss was primarily due to the decrease in the value of the Euro 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 (loss) adjustments related to pensions and other postretirement benefit plans are recorded net of tax using the applicable effective tax rate.

(9)

INCENTIVE STOCK PLANS

Effective in December 2002, the Company adopted the 2002 Equity Incentive Plan, which provided for the grant of incentive stock options, nonqualified stock options, restricted stock awards and director deferred units for employees and non-employee directors. The option price of incentive stock options is the fair market value of the shares of common stock on the date of the grant. In the case of nonqualified options, the Company granted 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.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 7, 2006, the Company adopted the 2006 Incentive Plan, which provides for the grant of incentive stock options, nonqualified stock options, whole shares, restricted stock awards, restricted stock units, stock appreciation rights, performance shares, performance units, cash-based awards, dividend equivalents and performance-based awards. Upon adoption of the 2006 Incentive Plan, all remaining shares eligible for award under the 2002 Equity Incentive Plan were added to the 2006 Incentive Plan and no further awards could be made from the 2002 Equity Incentive Plan. It has been the Company’s practice to issue new shares of common stock upon stock option exercise and other equity grants. On November 30, 2011, there were approximately 0.5 million shares available for grant pursuant to the Company’s 2006 Incentive Plan.

On December 9, 2010, the Company’s stockholders approved the adoption of the A. Schulman, Inc. 2010 Value Creations Rewards Plan (“2010 Rewards Plan”) which provides for the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, whole shares and performance-based awards. A total of 1,375,000 shares of common stock may be issued under the 2010 Rewards Plan. There have been no grants made from the 2010 Rewards Plan.

A summary of stock option activity for the three months ended November 30, 2011 is as follows:

		Outstanding Shares				Weighted-Average
		Under Option				Exercise Price
Outstanding at August 31, 2011			138,141			$	18.34
Granted			—			$	—
Exercised			(2,000	)		$	16.69
Forfeited and expired			—			$	—
Outstanding at November 30, 2011			136,141			$	18.37
Exercisable at November 30, 2011			136,141			$	18.37

The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. The total intrinsic value for stock options outstanding and exercisable as of November 30, 2011 was approximately $0.3 million with a remaining term for options outstanding and exercisable of approximately 2.6 years. For stock options outstanding as of November 30, 2011, exercise prices range from $13.99 to $19.85. All outstanding and exercisable stock options are fully vested as of November 30, 2011. The Company did not grant stock options during the three months ended November 30, 2011 and 2010.

Restricted stock awards under the 2006 Incentive Plan can vest over various periods, and restricted stock awards earn dividends throughout the vesting period which are subject to the same vesting terms as the underlying stock award. The restricted stock awards outstanding under the 2006 Incentive Plan have service vesting periods of three years following the date of grant. Also, the Company grants awards with market and performance vesting conditions. The following table summarizes the activity of time-based restricted stock awards and performance-based awards for the three months ended November 30, 2011:

										Weighted-Average
										Fair Market Value
		Awards Outstanding								(per share)
		Restricted				Performance-				Restricted				Performance-
		Stock				Based				Stock				Based
Outstanding at August 31, 2011			117,891				800,193			$	20.98			$	14.44
Granted			—				—			$	—			$	—
Vested			—				—			$	—			$	—
Forfeited			—				—			$	—			$	—
Outstanding at November 30, 2011			117,891				800,193			$	20.98			$	14.44

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company did not grant restricted stock awards and performance-based awards during the three months ended November 30, 2011 and 2010.

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 November 30, 2011 are 436,314 performance shares, which earn dividends throughout the vesting period and 363,879 performance shares which do not earn dividends. Earned dividends are subject to the same vesting terms as the underlying performance share awards.

The performance-based awards in the table above include 566,058 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 such performance-based awards, if any, will be dependent upon the Company’s total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period. The probability of meeting the market criteria 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 234,135 performance shares in the table above is based on the closing price of the Company’s common stock on the date of the grant.

Total unrecognized compensation cost, including a provision for forfeitures, related to nonvested stock-based compensation arrangements as of November 30, 2011 was approximately $4.9 million. This cost is expected to be recognized over a weighted-average period of approximately 1.2 years.

As of November 30, 2011 and August 31, 2011, the Company had 20,000 stock-settled restricted stock units outstanding. 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 earn dividends during the restriction period; however, they do not have voting rights until released from restriction. There were no additional grants of these stock-settled restricted stock units during the three months ended November 30, 2011 or 2010.

The Company had approximately $3.6 million cash-based awards, which are treated as liability awards, outstanding as of November 30, 2011 and August 31, 2011. These awards were granted to foreign employees. Such awards include approximately $0.4 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.

In fiscal 2010, the Company’s board of directors and stockholders approved adoption of an Employee Stock Purchase Plan (“ESPP”) whereby employees may purchase Company stock through a payroll deduction plan. Purchases are made from the plan and credited to each participant’s account at the end of each calendar quarter (the “Investment Date”). The purchase price of the stock is 85% of the fair market value on the Investment Date. The plan is compensatory and the 15% discount is expensed ratably over the three month offering period. All employees, including officers, are eligible to participate in this plan. An employee whose stock ownership of the Company exceeds five percent of the outstanding common stock is not eligible to participate in this plan. The Company recorded minimal expense related to the ESPP during the three months ended November 30, 2011 and 2010. It is the Company’s current practice to use treasury shares for the share settlement on the Investment Date.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the impact to the Company’s consolidated statements of operations from stock-based compensation for the three months ended November 30, 2011 and 2010, which is primarily included in selling, general and administrative expenses in the accompanying consolidated statements of operations:

		Three months ended November 30,
		2011				2010
		(In thousands)
Restricted stock awards and performance-based awards		$	641			$	904
Cash-settled restricted stock units			—				375
Cash-based awards			265				88
Total stock-based compensation		$	906			$	1,367

(10)

EARNINGS PER SHARE

Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if common stock equivalents 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 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 for the three months ended November 30, 2011 and 2010:

		Three months ended November 30,
		2011				2010
		(In thousands)
Weighted-average shares outstanding:
Basic			29,418				31,333
Incremental shares from equity awards			96				197
Diluted			29,514				31,530

(11)

SEGMENT INFORMATION

The Company considers 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”), to identify reportable segments. The CODM makes decisions, assesses performance and allocates resources by the following regions, which are also the Company’s reportable segments: Europe, Middle East and Africa (“EMEA”), the Americas, and Asia Pacific (“APAC”). Each reportable segment has a General Manager/Chief Operating Officer who reports to the CODM.

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

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Below the Company presents net sales to unaffiliated customers by segment for the three months ended November 30, 2011 and 2010:

		Three months ended November 30,
		2011				2010
		(In thousands)
EMEA		$	352,891			$	346,683
Americas			127,980				115,120
APAC			36,418				33,580
Total net sales to unaffiliated customers		$	517,289			$	495,383

Below the Company presents gross profit by segment for the three months ended November 30, 2011 and 2010:

		Three months ended November 30,
		2011				2010
		(In thousands)
EMEA		$	44,238			$	48,086
Americas			19,879				16,474
APAC			5,379				4,562
Total segment gross profit			69,496				69,122
Inventory step-up			—				(121	)
Total gross profit		$	69,496			$	69,001

Below is a reconciliation of segment operating income to operating income and income before taxes for the three months ended November 30, 2011 and 2010:

		Three months ended November 30,
		2011				2010
		(In thousands)
EMEA		$	19,235			$	19,402
Americas			6,111				3,859
APAC			2,533				1,808
Total segment operating income			27,879				25,069
Corporate and other			(5,580	)			(7,971	)
Costs related to acquisitions			(218	)			(881	)
Restructuring related			(3,244	)			(551	)
Inventory step-up			—				(121	)
Operating income			18,837				15,545
Interest expense, net			(1,894	)			(1,085	)
Foreign currency transaction gains (losses)			(499	)			(670	)
Other income (expense), net			170				4
Income before taxes		$	16,614			$	13,794

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Globally, the Company operates primarily in four product families: (1) masterbatch, (2) engineered plastics, (3) specialty powders and (4) distribution services. The amount and percentage of consolidated net sales for these product families for the three months ended November 30, 2011 and 2010 are as follows:

		Three months ended November 30,
		2011								2010
		(In thousands, except for %’s)
Masterbatch		$	210,268				41	%		$	200,299				41	%
Engineered plastics			140,297				27				124,038				25
Specialty powders			84,599				16				90,076				18
Distribution services			82,125				16				80,970				16
		$	517,289				100	%		$	495,383				100	%

(12)

RESTRUCTURING

EMEA Operations and Back-Office Plan

In November 2011, the Company initiated a restructuring plan of EMEA’s operations and back-office functions to better leverage savings from its Shared Service Center located in Belgium. As part of this plan, the Company will reduce headcount in EMEA by approximately 40, of which approximately half of the reductions occurred in the first quarter of fiscal 2012. The Company recorded approximately $2.7 million of pretax employee-related restructuring costs during the first quarter of fiscal 2012, and the Company anticipates recognizing approximately $2.0 million to $3.0 million of additional pretax employee-related cash charges during the remainder of fiscal 2012 as it completes the plan.

Americas Engineered Plastics Plan

On August 25, 2011, the Company announced that it will close the Nashville, Tennessee facility no later than February 29, 2012, in order to optimize the use of existing capacity and capitalize on growth opportunities. As a result of this plan, the Company will reduce headcount by approximately 60 at the Nashville facility. The Company recorded approximately $0.2 million of pretax employee-related restructuring expense associated with this plan during the first quarter of fiscal 2012, and approximately $1.1 million of pretax employee-related restructuring expense during the fourth quarter of fiscal 2011. As of November 30, 2011, the Company has a balance of approximately $0.9 million accrued for employee-related costs related to this plan. The Company anticipates recognizing additional pretax employee-related cash charges and other restructuring expenses of approximately $1.0 million to $3.0 million during the remainder of fiscal 2012 as it completes the plan.

Italy and Australia Plans

On February 8, 2011, the Company announced that it is relocating its operations from its manufacturing facility in Verolanuova, Italy to its existing facility in Gorla Maggiore, Italy. Production lines at the Verolanuova facility were relocated in the first quarter of fiscal 2012 to the Gorla facility. As a result of this relocation, the Company will reduce headcount by approximately 30 by the end of June 2012. Also on February 8, 2011, as a result of the ongoing deterioration of the Australian rotomolding market, the Company announced plans to consolidate operations in Australia by moving production from its Braeside, Australia facility to its Brisbane, Australia facility. As part of this consolidation, the Company reduced headcount in Australia by approximately 20, and the majority of the reduction occurred in the second and third quarters of fiscal 2011. The region continues to be served by the Company’s Brisbane facility and facilities in Malaysia, Indonesia, China and a future India plant.

The Company recorded pretax restructuring expense of approximately $0.3 million during the first quarter of fiscal 2012 primarily related to other restructuring costs as part of the Italy plan. In fiscal 2011, the Company recorded pretax restructuring expense of approximately $6.0 million primarily for employee-related costs and other restructuring charges related to the Australia and Italy restructuring plans. As of November 30, 2011, the Company has a balance of approximately $1.9 million accrued for employee-related costs related to the Italy plan. In regards to the Italy plan, the Company anticipates additional pretax charges of approximately $5.0 million to $7.0 million in the remainder of fiscal 2012, of which approximately 50% are expected to be non-cash charges. As of November 30, 2011, the Company has a balance of approximately $0.3 million accrued for the Australia plan related to a future settlement of a contractual obligation and expects minimal charges related to this plan in the remainder of fiscal 2012.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASI United Kingdom Plan

On August 31, 2010, management announced restructuring plans for its operations at its Crumlin, South Wales (U.K.) facility. The plans include moving part of the plant’s capacity to two other, larger facilities in Europe, and several production lines will be shut down. As a result, the Company will reduce headcount at this location by approximately 30. Approximately half of the reductions occurred in the second quarter of fiscal 2011 and the remaining headcount reductions are expected to occur in the second quarter of fiscal 2012. The Company recorded minimal charges in the first quarter of fiscal 2012 and no charges in the first quarter of fiscal 2011. As of November 30, 2011, the Company has a balance of approximately $0.2 million accrued for employee-related costs. The Company expects minimal charges related to this plan in the remainder of fiscal 2012 as the realignment of capacity is finalized.

ICO Merger Plan

In conjunction with the acquisition of ICO, Inc. (“ICO”) in fiscal 2010, the Company reduced the workforce in the Houston, Texas office by 17 employees. ICO had preexisting arrangements regarding change-in-control payments and severance pay which were based on pre-merger service. The Company assumed approximately $2.1 million in liabilities as a result of the merger related to these agreements, of which approximately $2.0 million was paid by the Company during fiscal 2010. Since the merger, the Company announced the exit of certain senior managers in Europe in connection with the Company’s ongoing integration of ICO operations. The Company recorded approximately $0.5 million primarily in pretax employee-related costs during fiscal 2011 of which approximately $0.3 million were recorded in the first quarter of fiscal 2011. The Company had no charges in the first quarter of fiscal 2012 and has no remaining accrual as of November 30, 2011 related to this plan as it is considered complete.

North America Masterbatch Fiscal 2010 Plan

On March 1, 2010, the Company announced the closure of its Polybatch Color Center located in Sharon Center, Ohio. The Company recorded approximately $0.5 million pretax restructuring expenses during fiscal 2011, of which approximately $0.1 million was recorded in the first quarter of fiscal 2011, primarily for employee-related costs associated with the closure. The Company ceased production at the Polybatch Color Center on August 31, 2010, and sold the facility in June 2011. The Company had no charges in the first quarter of fiscal 2012 and has no remaining accrual as of November 30, 2011 related to this plan as it is considered complete.

Consolidated Restructuring Summary

The following table summarizes the activity during fiscal 2012 related to the Company’s restructuring plans:

		Accrual Balance				Fiscal 2012				Fiscal 2012				Accrual Balance
		August 31, 2011				Charges				Paid				November 30, 2011
		(In thousands)
Employee-related costs		$	3,322			$	2,930			$	(533	)		$	5,719
Other costs			403				314				(302	)			415
Translation effect			70				—				—				(107	)
Restructuring charges		$	3,795			$	3,244			$	(835	)		$	6,027

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

		Three months ended November 30,
		2011				2010
		(In thousands)
EMEA		$	3,061			$	278
Americas			178				273
APAC			5				—
Total		$	3,244			$	551

(13)

CONTINGENCIES AND CLAIMS

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

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

(14)

SHARE REPURCHASE PROGRAM

On May 13, 2011, the Board of Directors approved a new share repurchase program under which the Company is authorized to repurchase up to $100 million of its common stock in the open market or in privately negotiated transactions, subject to market and other conditions (“2011 Repurchase Program”). The 2011 Repurchase Program replaces the Company’s previous share repurchase program which was approved in fiscal 2008 (“2008 Repurchase Program”).

As part of the 2011 Repurchase Program, on May 13, 2011, the Company entered into a $30 million share repurchase plan established under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Repurchase Plan”). Under the Repurchase Plan, the Company’s designated broker repurchased 1,218,429 shares of its common stock under the 2011 Repurchase Program in the first quarter of fiscal 2012 at an average price of approximately $17.60 per share. As of October 10, 2011, the Company fulfilled the Repurchase Plan by repurchasing a cumulative 1,603,979 shares of its common stock in fiscal 2011 and the first quarter of fiscal 2012 at an average price of approximately $18.70 per share. Shares valued at approximately $70 million remained authorized under the 2011 Repurchase Program for repurchase as of November 30, 2011. The Company did not repurchase any shares of its common stock during the first quarter of fiscal 2011.

On November 29, 2011, the Company entered into a new $30 million repurchase plan established under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, and repurchases under this plan are subject to specific parameters and contain certain price and volume constraints.

(15)

ACCOUNTING PRONOUNCEMENTS

In June 2011, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance related to the presentation of comprehensive income in consolidated financial statements. The new accounting guidance requires the presentation of the components of net income and other comprehensive income either in a single continuous financial statement, or in two separate but consecutive financial statements. The accounting standard eliminates the option to present other comprehensive income and its components as part of the statement of stockholders’ equity. This standard is effective for fiscal years beginning after December 15, 2011, including interim periods.

A. SCHULMAN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In September 2011, the FASB issued new accounting guidance related to the testing of goodwill for impairment. The new accounting guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Previous guidance required an entity to test goodwill for impairment quantitatively, on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount (step one). If the fair value of a reporting unit was less than its carrying amount, the second step of the test was required to be performed to measure the amount of the impairment loss, if any. This standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and early adoption is permitted.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help investors understand our results of operations, financial condition and present business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report and the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2011. The MD&A is organized as follows:

•

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

	•		Summary of our business and the markets of the industry in which we participate;
	•		Key trends, developments and challenges; and
	•		Significant events from the period.

	•		Results of Operations: An analysis of our results of operations as reflected in our consolidated financial statements.
	•		Liquidity and Capital Resources: An analysis of our cash flows, working capital, debt structure, contractual obligations and other commercial commitments.

Overview

Business Summary

A. Schulman, Inc. is 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 such as packaging, consumer products, industrial and automotive, among others. The Chief Operating Decision Maker makes decisions, assesses performance and allocates resources by the following regions which represent our reportable segments:

	•		Europe, Middle East and Africa (“EMEA”),
	•		Americas, and
	•		Asia Pacific (“APAC”).

The Company has approximately 3,000 employees and 35 manufacturing facilities worldwide. Globally, the Company operates primarily in four product families: (1) masterbatch, (2) engineered plastics, (3) specialty powders, and (4) distribution services. The Company also offers tolling services to customers.

Throughout this Management’s Discussion and Analysis, the Company provides operating results by segment exclusive of certain items such as costs related to acquisitions, restructuring related expenses and asset write-downs, which are considered relevant to aid analysis and understanding of the Company’s results. Aside from the material impact of these items, these measures are utilized by management to understand business trends.

Key Trends, Developments and Challenges

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

	•		Continuous Improvement. We are focused on improving our operations worldwide. As we continue to further integrate our recent acquisitions, we are constantly examining certain synergies that can be utilized to optimize our processes and performance. We are also controlling our selling, general and administrative expenses, especially in developed markets.
	•		Development of New Products. In each of our product families, we are dedicated to the development of new, higher-margin products and applications that optimize the appearance, performance, and processing of plastics to meet the most demanding requirements. We strive to maintain a balanced position between low-cost production and technological leadership with focused research and development. We are also committed to continuing our growth in high value-added markets and reducing our exposure to commodity markets.

	•		Purchasing and Pricing. We are seeking opportunities to continue our savings on purchasing and to establish smart pricing strategies to align with our purchasing strategies. We continue to leverage our global volume base to enhance savings and are searching for alternate sourcing from the Middle East and Asia.
	•		Volume Improvement. We remain focused on organic and geographic growth including acquisitions to deliver steady volume improvement.

Fiscal Year 2012 Significant Events

In addition to the items discussed above, the following items represent significant events during fiscal year 2012:

	1.		Increase in dividend. On October 14, 2011, the Company increased its regular quarterly cash dividend by approximately 10% to $0.17 per common share from the prior quarter’s dividend of $0.155 per common share, which represented an annual yield of approximately 3.5%. This reflects our confidence in strong cash generation and long-term growth prospects, along with a continued commitment to our shareholders.
	2.		Share Repurchases. The Company repurchased approximately 1.2 million shares of its common stock under the 2011 Repurchase Program in the first quarter of fiscal 2012 at an average price of $17.60 per share for a total cost of approximately $21.4 million.
	3.		India Plant. The Company continues with the construction of its plant in India with expected completion by the end of calendar year 2012.
	4.		Worldwide Production Expansion. To address increasing regional demand, the Company strategically added new engineered plastics manufacturing lines in China and Mexico, a new masterbatch line in Brazil and a new specialty powders line in Mexico. The Company plans to invest approximately $7 million in its Akron, Ohio plant to add engineered plastics compounding capabilities to the facility as part of the optimization of capacity in the United States.
	5.		EMEA and Americas Restructuring. In November 2011, the Company initiated a restructuring plan of EMEA’s operations and back-office functions to better leverage savings from its Shared Service Center located in Belgium. Additionally, the Americas is continuing its closing procedures at the Nashville, Tennessee facility and continues to optimize the use of existing capacity and capitalize on growth opportunities.

Results of Operations

Segment Information

EMEA

		Three months ended November 30,
		2011				2010				Increase (decrease)
		(In thousands, except for %’s and per pound data)
Net sales		$	352,891			$	346,683			$	6,208				1.8	%
Segment gross profit		$	44,238			$	48,086			$	(3,848	)			(8.0	%)
Segment operating income		$	19,235			$	19,402			$	(167	)			(0.9	%)
Pounds sold			286,297				316,481				(30,184	)			(9.5	%)
Price per pound		$	1.233			$	1.095			$	0.138				12.6	%
Gross profit per pound		$	0.155			$	0.152			$	0.003				2.0	%
Gross profit percentage			12.5	%			13.9	%

EMEA net sales for the three months ended November 30, 2011 were approximately $352.9 million, an increase of approximately $6.2 million, or 1.8%, compared with the prior-year period. The increase in net sales was primarily related to an increase of approximately 12.6% in price per pound and the favorable impact of foreign currency translation of approximately $7.2 million. The masterbatch and specialty powders product families experienced a decline in volume due to a reduction in demand which partially offset the increase in net sales.

EMEA gross profit was approximately $44.2 million for the three months ended November 30, 2011, a decrease from approximately $48.1 million for the same three-month period last year. The decrease in gross profit was primarily related to decreased volumes in the masterbatch and specialty powders product families, offset by a positive price effect and lower production costs in the masterbatch product family. Despite the volume decrease, gross profit per pound increased approximately 2.0%. Foreign currency translation favorably impacted EMEA gross profit by approximately $1.0 million.

EMEA operating income for the three months ended November 30, 2011 was approximately $19.2 million, a decrease of approximately $0.2 million compared with the same period last year. The decrease in operating income was primarily due to the decrease in gross profit partially offset by a decrease in selling, general and administrative expenses of approximately $3.7 million compared with the prior year. Selling, general and administrative expenses were favorably impacted by continued actions to reduce various employee-related expenses and control costs.

Americas

		Three months ended November 30,
		2011				2010				Increase (decrease)
		(In thousands, except for %’s and per pound data)
Net sales		$	127,980			$	115,120			$	12,860				11.2	%
Segment gross profit		$	19,879			$	16,474			$	3,405				20.7	%
Segment operating income		$	6,111			$	3,859			$	2,252				58.4	%
Pounds sold			140,501				152,223				(11,722	)			(7.7	%)
Price per pound		$	0.911			$	0.756			$	0.155				20.5	%
Gross profit per pound		$	0.141			$	0.108			$	0.033				30.6	%
Gross profit percentage			15.5	%			14.3	%

Net sales for the Americas for the three months ended November 30, 2011 were approximately $128.0 million, an increase of approximately $12.9 million or 11.2% compared with the prior-year period. The increase in net sales was a result of approximately $8.2 million of incremental fiscal 2012 net sales from fiscal 2011 acquisitions and the approximate 20.5% increase in price per pound, which was spread across all product families. The decrease in volume of approximately 11.7 million pounds was primarily related to the masterbatch product family. Foreign currency translation negatively impacted net sales by approximately $1.7 million.

Gross profit for the Americas was approximately $19.9 million for the three months ended November 30, 2011, an increase of approximately $3.4 million from the comparable period last year. The increases in gross profit and gross profit per pound of approximately 20.7% and 30.6%, respectively, were primarily due to higher net sales in the masterbatch and engineered plastics product families. The Company was able to improve margins in light of rising raw material costs by implementing operational efficiencies. The fiscal 2011 acquisitions contributed approximately $1.3 million of incremental fiscal 2012 gross profit. Foreign currency translation negatively impacted gross profit by approximately $0.4 million.

Operating income for the Americas for the three months ended November 30, 2011 was approximately $6.1 million compared with approximately $3.9 million last year. Operating income increased primarily due to improved gross profit per pound offset by a slight increase in selling, general and administrative expenses.

APAC

		Three months ended November 30,
		2011				2010				Increase (decrease)
		(In thousands, except for %’s and per pound data)
Net sales		$	36,418			$	33,580			$	2,838				8.5	%
Segment gross profit		$	5,379			$	4,562			$	817				17.9	%
Segment operating income		$	2,533			$	1,808			$	725				40.1	%
Pounds sold			29,484				33,897				(4,413	)			(13.0	%)
Price per pound		$	1.235			$	0.991			$	0.244				24.6	%
Gross profit per pound		$	0.182			$	0.135			$	0.047				34.8	%
Gross profit percentage			14.8	%			13.6	%

Net sales for APAC for the three months ended November 30, 2011 were approximately $36.4 million, an increase of approximately $2.8 million compared with the same prior-year period. Net sales increased as a result of an increase of approximately 24.6% in selling price per pound offset by a decrease in volume of approximately 13.0%. Foreign currency translation favorably impacted net sales by approximately $1.1 million. The increase in net sales is primarily related to the masterbatch and engineered plastics product families offset by decreased net sales in the specialty powders product family. The reduction in volume is partially a result of a decline in APAC export net sales to Europe.

Gross profit for APAC for the three months ended November 30, 2011 was approximately $5.4 million, an increase of approximately $0.8 million compared with last year. Gross profit increased primarily due to improved net sales in the masterbatch and engineered plastics product families offset by a decrease in net sales in the specialty powders product family. Foreign currency translation did not have a significant impact on gross profit for the three months ended November 30, 2011.

APAC operating income for the three months ended November 30, 2011 was approximately $2.5 million compared with approximately $1.8 million last year. The increase in profitability was principally due to the increase in gross profit.

Consolidated Results of Operations

		Three months ended November 30,
		2011				2010				Increase (decrease)
		(In thousands, except for %’s and per pound data)
Net sales		$	517,289			$	495,383			$	21,906				4.4	%
Total segment gross profit		$	69,496			$	69,122			$	374				0.5	%
Total segment operating income		$	27,879			$	25,069			$	2,810				11.2	%
Pounds sold			456,282				502,601				(46,319	)			(9.2	%)
Price per pound		$	1.134			$	0.986			$	0.148				15.0	%
Gross profit per pound		$	0.152			$	0.138			$	0.014				10.1	%
Gross profit percentage			13.4	%			14.0	%

The increase of approximately $21.9 million in consolidated net sales for the three months ended November 30, 2011 compared with the prior-year period was primarily a result of increased average selling price per pound of approximately 15.0% offset by a decrease in volume of approximately 9.2%. Foreign currency translation favorably impacted consolidated net sales by approximately $6.5 million.

Total segment gross profit, excluding certain items as described in the Reconciliation of GAAP and Non-GAAP Financial Measures below, for the three months ended November 30, 2011 was approximately $69.5 million, compared with approximately $69.1 million last year. Foreign currency translation favorably impacted gross profit by approximately $0.7 million.

Total segment operating income, excluding certain items as described in the Reconciliation of GAAP and Non-GAAP Financial Measures below, for the three months ended November 30, 2011 and 2010 was approximately $27.9 million and $25.1 million, respectively, an increase of $2.8 million. Foreign currency translation did not have a significant impact on operating income for the three months ended November 30, 2011.

The Company’s selling, general and administrative expenses decreased approximately $5.5 million for the three months ended November 30, 2011 compared with the same period in the prior year. The decrease is primarily attributable to the Company realizing selling, general and administrative expense synergies in connection with the continued integration of acquisitions. Additionally, incentive compensation expense decreased approximately $0.9 million. Foreign currency translation negatively impacted selling, general and administrative expense by approximately $0.6 million.

Interest expense, net increased approximately $0.8 million for the three months ended November 30, 2011, as compared with the same period in the prior year due primarily to increases in average outstanding principal balances and higher average interest rates.

Foreign currency transaction gains or losses represent changes in the value of currencies in major areas where the Company operates. The Company experienced foreign currency transaction losses of approximately $0.5 million and $0.7 million for the three months ended November 30, 2011 and 2010, respectively. Generally, the foreign currency transaction gains or losses relate to the changes in the value of the U.S. dollar compared with the Euro and other local currencies throughout the America’s, EMEA, and APAC regions, and also changes between the Euro and other non-Euro European currencies. The Company enters into foreign exchange forward contracts to reduce the impact of changes in foreign exchange rates on the consolidated statements of operations. These contracts reduce exposure to currency movements affecting existing foreign currency denominated assets and liabilities resulting primarily from trade receivables and payables. Any gains or losses associated with these contracts, as well as the offsetting gains or losses from the underlying assets or liabilities, are recognized on the foreign currency transaction line in the consolidated statements of operations.

Noncontrolling interests represent a 49% equity position of Alta Plastica S.A. in an Argentinean venture with the Company, 30% equity position of Mitsubishi Chemical MKV Company in a partnership with the Company and a 35% equity position of P.T. Prima Polycon Indah in an Indonesian joint venture with the Company.

Net income attributable to the Company’s stockholders was approximately $13.6 million and $9.2 million for the three months ended November 30, 2011 and 2010, respectively. Foreign currency translation did not have a significant impact on net income for the three months ended November 30, 2011.

Product Markets

The largest markets served by the Company are the packaging and automotive markets. Other markets include appliances, construction, medical, consumer products, electrical/electronics, office equipment and agriculture. The approximate percentage of consolidated net sales by market for the three months ended November 30, 2011 as compared with the same period last year are as follows:

		Three months ended November 30, 2011												Three months ended November 30, 2010
		Packaging				Automotive				Other				Packaging				Automotive				Other
EMEA			36	%			11	%			53	%			32	%			9	%			59	%
Americas			21	%			19	%			60	%			19	%			20	%			61	%
APAC			47	%			0	%			53	%			43	%			0	%			57	%
Worldwide			33	%			12	%			55	%			30	%			11	%			59	%

Product Families

Globally, the Company operates primarily in four product families: (1) masterbatch, (2) engineered plastics, (3) specialty powders, and (4) distribution services. The amount and percentage of consolidated net sales for these product families for the three months ended November 30, 2011 and 2010 are as follows:

		Three months ended November 30,
		2011								2010
		(In thousands, except for %’s)
Masterbatch		$	210,268				41	%		$	200,299				41	%
Engineered plastics			140,297				27				124,038				25
Specialty powders			84,599				16				90,076				18
Distribution services			82,125				16				80,970				16
		$	517,289				100	%		$	495,383				100	%

Capacity

The Company’s practical capacity is not based on a theoretical 24-hour, seven-day operation, rather it is determined as the production level at which the manufacturing facilities can operate with an acceptable degree of efficiency, taking into consideration factors such as longer term customer demand, permanent staffing levels, operating shifts, holidays, scheduled maintenance and mix of product. Capacity utilization is calculated by dividing actual production pounds by practical capacity at each plant. A comparison of capacity utilization levels for the three months ended November 30, 2011 and 2010 is as follows:

		Three months ended
		November 30,
		2011				2010
EMEA			83	%			80	%
Americas			63	%			63	%
APAC			86	%			88	%
Worldwide			74	%			74	%

EMEA capacity utilization increased as a result of successful capacity right-sizing actions taken through restructuring plans. The Company’s APAC segment experienced lower capacity utilization for the three-month period ended November 30, 2011 as a result of a decline in demand during the period related to the specialty powders product family.

Restructurings

EMEA Operations and Back-Office Plan

In November 2011, the Company initiated a restructuring plan of EMEA’s operations and back-office functions to better leverage savings from its Shared Service Center located in Belgium. As part of this plan, the Company will reduce headcount in EMEA by approximately 40, of which approximately half of the reductions occurred in the first quarter of fiscal 2012. The Company recorded approximately $2.7 million of pretax employee-related restructuring costs during the first quarter of fiscal 2012, and the Company anticipates recognizing approximately $2.0 million to $3.0 million of additional pretax employee-related cash charges during the remainder of fiscal 2012 as it completes the plan.

Americas Engineered Plastics Plan

On August 25, 2011, the Company announced that it will close the Nashville, Tennessee facility no later than February 29, 2012, in order to optimize the use of existing capacity and capitalize on growth opportunities. As a result of this plan, the Company will reduce headcount by approximately 60 at the Nashville facility. The Company recorded approximately $0.2 million of pretax employee-related restructuring expense associated with this plan during the first quarter of fiscal 2012, and approximately $1.1 million of pretax employee-related restructuring expense during the fourth quarter of fiscal 2011. As of November 30, 2011, the Company has a balance of approximately $0.9 million accrued for employee-related costs related to this plan. The Company anticipates recognizing additional pretax employee-related cash charges and other restructuring expenses of approximately $1.0 million to $3.0 million during the remainder of fiscal 2012 as it completes the plan.

Italy and Australia Plans

On February 8, 2011, the Company announced that it is relocating its operations from its manufacturing facility in Verolanuova, Italy to its existing facility in Gorla Maggiore, Italy. Production lines at the Verolanuova facility were relocated in the first quarter of fiscal 2012 to the Gorla facility. As a result of this relocation, the Company will reduce headcount by approximately 30 by the end of June 2012. Also on February 8, 2011, as a result of the ongoing deterioration of the Australian rotomolding market, the Company announced plans to consolidate operations in Australia by moving production from its Braeside, Australia facility to its Brisbane, Australia facility. As part of this consolidation, the Company reduced headcount in Australia by approximately 20, and the majority of the reduction occurred in the second and third quarters of fiscal 2011. The region continues to be served by the Company’s Brisbane facility and facilities in Malaysia, Indonesia, China and a future India plant.

The Company recorded pretax restructuring expense of approximately $0.3 million during the first quarter of fiscal 2012 primarily related to other restructuring costs as part of the Italy plan. In fiscal 2011, the Company recorded pretax restructuring expense of approximately $6.0 million primarily for employee-related costs and other restructuring charges related to the Australia and Italy restructuring plans. As of November 30, 2011, the Company has a balance of approximately $1.9 million accrued for employee-related costs related to the Italy plan. In regards to the Italy plan, the Company anticipates additional pretax charges of approximately $5.0 million to $7.0 million in the remainder of fiscal 2012, of which approximately 50% are expected to be non-cash charges. As of November 30, 2011, the Company has a balance of approximately $0.3 million accrued for the Australia plan related to a future settlement of a contractual obligation and expects minimal charges related to this plan in the remainder of fiscal 2012.

ASI United Kingdom Plan

On August 31, 2010, management announced restructuring plans for its operations at its Crumlin, South Wales (U.K.) facility. The plans include moving part of the plant’s capacity to two other, larger facilities in Europe, and several production lines will be shut down. As a result, the Company will reduce headcount at this location by approximately 30. Approximately half of the reductions occurred in the second quarter of fiscal 2011 and the remaining headcount reductions are expected to occur in the second quarter of fiscal 2012. The Company recorded minimal charges in the first quarter of fiscal 2012 and no charges in the first quarter of fiscal 2011. As of November 30, 2011, the Company has a balance of approximately $0.2 million accrued for employee-related costs. The Company expects minimal charges related to this plan in the remainder of fiscal 2012 as the realignment of capacity is finalized.

ICO Merger Plan

In conjunction with the acquisition of ICO, Inc. (“ICO”) in fiscal 2010, the Company reduced the workforce in the Houston, Texas office by 17 employees. ICO had preexisting arrangements regarding change-in-control payments and severance pay which were based on pre-merger service. The Company assumed approximately $2.1 million in liabilities as a result of the merger related to these agreements, of which approximately $2.0 million was paid by the Company during fiscal 2010. Since the merger, the Company announced the exit of certain senior managers in Europe in connection with the Company’s ongoing integration of ICO operations. The Company recorded approximately $0.5 million primarily in pretax employee-related costs during fiscal 2011 of which approximately $0.3 million were recorded in the first quarter of fiscal 2011. The Company had no charges in the first quarter of fiscal 2012 and has no remaining accrual as of November 30, 2011 related to this plan as it is considered complete.

North America Masterbatch Fiscal 2010 Plan

On March 1, 2010, the Company announced the closure of its Polybatch Color Center located in Sharon Center, Ohio. The Company recorded approximately $0.5 million pretax restructuring expenses during fiscal 2011, of which approximately $0.1 million was recorded in the first quarter of fiscal 2011, primarily for employee-related costs associated with the closure. The Company ceased production at the Polybatch Color Center on August 31, 2010, and sold the facility in June 2011. The Company had no charges in the first quarter of fiscal 2012 and has no remaining accrual as of November 30, 2011 related to this plan as it is considered complete.

Consolidated Restructuring Summary

The following table summarizes the activity during fiscal 2012 related to the Company’s restructuring plans:

		Accrual Balance				Fiscal 2012				Fiscal 2012				Accrual Balance
		August 31, 2011				Charges				Paid				November 30, 2011
		(In thousands)
Employee-related costs		$	3,322			$	2,930			$	(533	)		$	5,719
Other costs			403				314				(302	)			415
Translation effect			70				—				—				(107	)
Restructuring charges		$	3,795			$	3,244			$	(835	)		$	6,027