BUSINESS ACQUISITIONS

Citadel

On June 1, 2015, the Company acquired all of the issued and outstanding shares of Citadel, a privately held portfolio company of certain private equity firms, for $801.6 million. Citadel is a plastics materials science business that produces engineered composites and engineered plastics for specialty product applications spanning multiple industries including transportation, industrial & construction, consumer, electrical, energy and healthcare & safety. The acquisition expands the Company's presence substantially, especially in the North America engineered plastics markets as well as balancing the global geographic footprint, and gives A. Schulman a second growth platform with its industry-leading, added-value specialty engineered composites business. The business enhances the Company's existing portfolio and presents attractive expansion opportunities in other fast-growing sectors such as aerospace, medical, LED lighting and oil & gas. Through this acquisition the Company's portfolio becomes more highly specialized, which will enable the Company to better serve its global customer base.

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

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



	As of June 1, 2015
	(In thousands)
Accounts receivable	$	71,534
Inventories	44,623
Prepaid expenses and other current assets	15,586
Property, plant and equipment	78,266
Intangible assets	325,000
Other long-term assets	3,593
Total assets acquired	$	538,602

Accounts payable	29,500
Accrued liabilities	19,710
Deferred income taxes, long-term	116,102
Other long-term liabilities	3,121
Total liabilities assumed	$	168,433
Identifiable net assets acquired	$	370,169
Goodwill	431,391
Net assets acquired	$	801,560

The Company preliminarily recorded acquired intangible assets of $325.0 million, with an estimated weighted-average useful life of 14.1 years. These intangible assets include customer related intangibles of $230.5 million, developed technology of $75.3 million, and trademarks and trade names of $19.2 million, with estimated weighted-average useful lives of 14.0 years, 16.3 years and 8.1 years, respectively. In addition, the estimated fair value of accounts receivable acquired was $71.5 million with the gross contractual amount being $72.2 million.

Goodwill is calculated as the excess of the purchase price over the estimated fair values of the assets acquired and the liabilities assumed in the acquisition, and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The amount allocated to goodwill associated with the Citadel acquisition is primarily the result of anticipated synergies resulting from the consolidation and centralization of manufacturing and global purchasing activities, insurance savings, and elimination of duplicate corporate administrative costs and the previously discussed market expansion. The Company allocated goodwill to its USCAN engineered plastics and global engineered composites reporting units.

Net sales, income before taxes and net income attributable to A. Schulman, Inc. from the Citadel acquisition included in the Company’s results since the June 1, 2015 acquisition are as follows:



	June 1, 2015 to August 31, 2015
	(In thousands)
Net sales	$	116,659
Income before taxes	$	4,999
Net income attributable to A. Schulman Inc.	$	4,304

Income before taxes for the Citadel acquisition from June 1, 2015 to August 31, 2015 includes $2.7 million of pretax purchase accounting inventory step-up charges.

A. Schulman's fiscal year ends on August 31 while Citadel's fiscal year ended on December 31. The pro forma information in the table below for the year ended August 31, 2015 includes A. Schulman's twelve months ended August 31, 2015 and Citadel's nine months ended March 31, 2015. The pro forma information in the table below for the year ended August 31, 2014 includes A. Schulman’s twelve months ended August 31, 2014 and Citadel's twelve months ended June 30, 2014. The following pro forma information represents the consolidated results of the Company as if the Citadel acquisition occurred as of September 1, 2013:



	For the Years Ended August 31,
	2015		2014
	Unaudited
	(In thousands, except per share data)
Net sales	$	2,769,560	$	2,877,891
Net income available to A. Schulman, Inc. common stockholders	$	23,870	$	(1,516	)
Net income per share of common stock attributable to A. Schulman, Inc. - diluted	$	0.81	$	(0.05	)

The unaudited pro forma information has been adjusted with respect to certain aspects of the acquisition to reflect the following:


•	Citadel acquired The Composites Group (“TCG”) in November of 2014. For purposes of the pro forma information disclosed above, the TCG acquisition was included as if the acquisition date was as of the earliest presented period.


•	Additional depreciation and amortization expenses that would have been recognized assuming fair value adjustments to the existing Citadel assets acquired and liabilities assumed, including intangible assets, fixed assets and expense associated with the fair value step-up of inventory acquired.


•	Increased interest expense due to additional borrowings to fund the acquisition.


•	Adjustment of valuation allowances associated with US deferred tax assets.


•	To push back acquisition-related costs of $14.1 million to the earliest period presented. These costs were included in the Company’s results of operations for the year ended August 31, 2015.


•	To push back costs associated with the Bridge Financing discussed in Note 5 of this Form 10-K of $18.8 million to the earliest period presented. These costs were expensed during the third quarter of fiscal 2015.

The pro forma results do not include any anticipated cost synergies or other effects of the planned integration of the acquired business. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed as of September 1, 2013, nor are they indicative of the future operating results of the Company.

Specialty Plastics Business of Ferro Corporation

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

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

The information included herein has been prepared based on the allocation of the purchase price using the fair value and useful lives of assets acquired and liabilities assumed which were determined with the assistance of independent valuations using discounted cash flow and comparative market multiple approaches, quoted market prices and estimates made by management.

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



	As of July 1, 2014
	(In thousands)
Accounts receivable	$	27,850
Inventories	12,781
Prepaid expenses and other current assets	553
Property, plant and equipment	20,049
Intangible assets	26,985
Total assets acquired	$	88,218

Accounts payable	15,192
Accrued payroll, taxes and related benefits	1,690
Other accrued liabilities	951
Other long-term liabilities	181
Total liabilities assumed	$	18,014
Identifiable net assets acquired	$	70,204
Goodwill	20,796
Net assets acquired	$	91,000

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

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



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

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

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



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

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

Other Business Transactions

The following table summarizes the Company's other business transactions for the periods presented:



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

The Company incurred $17.3 million, $6.0 million and $2.7 million of acquisition related costs, primarily included in selling, general & administrative expenses, during fiscal 2015, 2014 and 2013, respectively.