##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 Form 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended February 3, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For
the transition period from
 to
 1-5911  (Commission File Number)
 SPARTECH CORPORATION
 (Exact name of Registrant as specified in its charter)
 
 Delaware
    
    43-0761773(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 120 S. Central Avenue, Suite 1700
Clayton, Missouri 63105
(314) 721-4242  (Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)
  Common Stock, $.75 par value
    
    New York Stock ExchangeTitle of Each Class
    
    Name of Exchange of Which Registered
 None
 þ o
  þ o o
 o þ
  Common stock, $.75 par value per share
    
    31,971,254




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##### 



SPARTECH CORPORATION
FORM 10-Q FOR THE QUARTER ENDED FEBRUARY 3, 2007
TABLE OF CONTENTS
 PART I FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated
Condensed Balance Sheets  As of:February 3, 2007 and October 28, 2006
    
    
    1Consolidated Condensed Statements of Operations  For the three months ended February 3, 2007 and January 28, 2006
    
    
    2Consolidated Condensed Statements of Cash Flows  For the three months ended February 3, 2007 and January 28, 2006
    
    
    3Notes To Consolidated Condensed Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    8Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    14Item 4. Controls and Procedures
    
    
    14PART II OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    15Item 6. Exhibits
    
    
    15Signatures
    
    
    16Certifications
    
    
    17Form of Performance Share AwardForm of Restricted Stock Award for DirectorsSection 302 Certification of CEOSection 302 Certification of CFOSection 1350 Certification of CEOSection 1350 Certification of CFO




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 SPARTECH CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
  February 3,2007
    
    
    October 28,(Unaudited)
    
    
    2006AssetsCurrent assetsCash and cash equivalents
    
    $
    6,240
    
    
    $
    5,372Receivables, net
    
    
    180,596
    
    
    
    200,728Inventories
    
    
    128,071
    
    
    
    122,329Prepaids and other
    
    
    16,016
    
    
    
    14,193Total current assets
    
    
    330,923
    
    
    
    342,622Property, plant and equipment, net
    
    
    302,769
    
    
    
    304,779Goodwill
    
    
    350,399
    
    
    
    350,399Other intangible assets, net
    
    
    35,537
    
    
    
    36,582Other assets
    
    
    7,585
    
    
    
    7,412Total assets
    
    $
    1,027,213
    
    
    $
    1,041,794Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    6,872
    
    
    $
    6,898Accounts payable
    
    
    139,961
    
    
    
    149,520Accrued liabilities
    
    
    45,773
    
    
    
    51,186Total current liabilities
    
    
    192,606
    
    
    
    207,604Long-term debt, less current maturities
    
    
    291,673
    
    
    
    282,325Deferred taxes
    
    
    98,023
    
    
    
    97,681Other long-term liabilities
    
    
    5,600
    
    
    
    11,491Total long-term liabilities
    
    
    395,296
    
    
    
    391,497Shareholders equityCommon stock, 33,131,846 shares issued in 2007 and 2006
    
    
    24,849
    
    
    
    24,849Contributed capital
    
    
    200,273
    
    
    
    198,661Retained earnings
    
    
    244,139
    
    
    
    240,398Treasury stock, at cost, 1,160,592 shares in 2007;
1,007,766 shares in 2006
    
    
    (29,355
    )
    
    
    (22,845
    )Accumulated other comprehensive (loss) income
    
    
    (595
    )
    
    
    1,630Total shareholders equity
    
    
    439,311
    
    
    
    442,693Total liabilities and shareholders equity
    
    $
    1,027,213
    
    
    $
    1,041,794
 See accompanying notes to consolidated condensed financial statements.
 1




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SPARTECH CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
  Three Months EndedFebruary 3,
    
    
    January 28,2007
    
    
    2006Net sales
    
    $
    347,254
    
    
    $
    343,591Cost and expensesCost of sales
    
    
    308,328
    
    
    
    309,819Selling, general and administrative
    
    
    20,360
    
    
    
    17,731Amortization of intangibles
    
    
    1,138
    
    
    
    1,170329,826
    
    
    
    328,720Operating earnings
    
    
    17,428
    
    
    
    14,871Interest expense, (net of interest income: 2007 $120; 2006 $67)
    
    
    4,763
    
    
    
    5,752Earnings before income taxes
    
    
    12,665
    
    
    
    9,119Income taxes
    
    
    4,600
    
    
    
    3,463Net earnings
    
    $
    8,065
    
    
    $
    5,656Net earnings per common shareBasic
    
    $
    .25
    
    
    $
    .18Diluted
    
    $
    .25
    
    
    $
    .18Dividends declared per common share
    
    $
    .135
    
    
    $
    .125
 See accompanying notes to consolidated condensed financial statements.
 2




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SPARTECH CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
  Three Months EndedFebruary 3,
    
    
    January 28,2007
    
    
    2006Cash flows from operating activitiesNet earnings
    
    $
    8,065
    
    
    $
    5,656Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization
    
    
    10,387
    
    
    
    10,049Stock-based compensation expense
    
    
    1,125
    
    
    
    939Restructuring and exit costs
    
    
    188
    
    
    
    Change in current assets and liabilities
    
    
    (3,824
    )
    
    
    (3,735
    )Other, net
    
    
    1,222
    
    
    
    1,907Net cash provided by operating activities
    
    
    17,163
    
    
    
    14,816Cash flows from investing activitiesCapital expenditures
    
    
    (10,240
    )
    
    
    (4,012
    )Net cash used for investing activities
    
    
    (10,240
    )
    
    
    (4,012
    )Cash flows from financing activitiesBank credit facility borrowings (payments), net
    
    
    4,127
    
    
    
    (3,283
    )Payments on bonds and leases
    
    
    (319
    )
    
    
    (328
    )Cash dividends on common stock
    
    
    (4,015
    )
    
    
    (3,851
    )Stock options exercised
    
    
    4,127
    
    
    
    1,780Treasury stock acquired
    
    
    (10,413
    )
    
    
    (1,541
    )Excess tax benefits from stock-based compensation
    
    
    265
    
    
    
    172Net cash used for financing activities
    
    
    (6,228
    )
    
    
    (7,051
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    173
    
    
    
    (3
    )Increase (decrease) in cash and cash equivalents
    
    
    868
    
    
    
    3,750Cash and cash equivalents at beginning of year
    
    
    5,372
    
    
    
    4,601Cash and cash equivalents at end of quarter
    
    $
    6,240
    
    
    $
    8,351
 See accompanying notes to consolidated condensed financial statements.
 3




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SPARTECH CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited and dollars in thousands, except per share amounts)
 1) Basis of Presentation
   2) Inventories
  2007
    
    
    2006Raw materials
    
    $
    69,203
    
    
    $
    61,872Production supplies
    
    
    8,907
    
    
    
    8,982Finished goods
    
    
    49,961
    
    
    
    51,475$
    128,071
    
    
    $
    122,329
 3) Stock-Based Compensation
  Three Months EndedFebruary 3,
    
    
    January 28,2007
    
    
    2006Cost of sales
    
    $
    63
    
    
    $
    57Selling, general and administrative
    
    
    1,062
    
    
    
    882Total stock-based compensation expense included in operating earnings
    
    
    1,125
    
    
    
    939Income taxes
    
    
    346
    
    
    
    247Effect on net earnings
    
    $
    779
    
    
    $
    692Effect on basic and diluted earnings per share
    
    $
    .02
    
    
    $
    .02
 4




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
 4) Restructuring
  2006 Restructuring Plan
  Three MonthsEnded
    
    
    Cumulative2006
    
    
    February 3, 2007
    
    
    to DateAccelerated depreciation
    
    $
    126
    
    
    $
    113
    
    
    $
    239Facility restructuring and exit costs
    
    
    75
    
    
    
    28
    
    
    
    103Total
    
    $
    201
    
    
    $
    141
    
    
    $
    342
  2005 Restructuring Plan
  5) Earnings Per Share
  Three Months EndedFebruary 3,
    
    
    January 28,2007
    
    
    2006Net earnings:Basic and diluted net earnings
    
    $
    8,065
    
    
    $
    5,656Weighted average shares outstanding:Basic weighted average common shares outstanding
    
    
    32,076
    
    
    
    32,039Add: Dilutive shares
    
    
    321
    
    
    
    149Diluted weighted average shares outstanding
    
    
    32,397
    
    
    
    32,188Net earnings per share:Basic
    
    $
    .25
    
    
    $
    .18Diluted
    
    $
    .25
    
    
    $
    .18
 5




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
 6) Commitments and Contingencies
    7) Segment Information
  Three Months EndedFebruary 3,
    
    
    January 28,2007
    
    
    2006Net SalesCustom Sheet and Rollstock
    
    $
    223,267
    
    
    $
    218,295Color and Specialty Compounds
    
    
    105,538
    
    
    
    106,408Engineered Products
    
    
    18,449
    
    
    
    18,888Net Sales*
    
    $
    347,254
    
    
    $
    343,591Operating Earnings (Loss)Custom Sheet and Rollstock
    
    $
    15,972
    
    
    $
    12,701Color and Specialty Compounds
    
    
    3,992
    
    
    
    4,472Engineered Products
    
    
    1,585
    
    
    
    990Corporate / Other
    
    
    (4,121
    )
    
    
    (3,292
    )Operating Earnings
    
    $
    17,428
    
    
    $
    14,871
 
 *
    
    Excludes inter-segment sales of $12,908 and $13,435 in the first quarter of 2007 and 2006,
respectively, primarily from the Color and Specialty Compounds segment. 6




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
 8) Comprehensive Income
  Three Months EndedFebruary 3,
    
    
    January 28,2007
    
    
    2006Net earnings
    
    $
    8,065
    
    
    $
    5,656Foreign currency translation adjustments
    
    
    (2,225
    )
    
    
    854Total comprehensive income
    
    $
    5,840
    
    
    $
    6,510
 7




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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Executive Summary
   Consolidated Results
  Underlying volume
    
    
    (4
    )%Volume from additional week
    
    
    7Price/Mix
    
    
    (2
    )1
    %
   8




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Three Months EndedFebruary 3,
    
    
    January 28,2007
    
    
    2006Dollars and Pounds (in millions)Net sales
    
    $
    347.3
    
    
    $
    343.6Material costs
    
    
    225.0
    
    
    
    225.4Material margin
    
    
    122.3
    
    
    
    118.2Conversion costs
    
    
    83.4
    
    
    
    84.4Gross margin
    
    $
    38.9
    
    
    $
    33.8Pounds Sold
    
    
    346.8
    
    
    
    335.4Dollars per Pound SoldNet sales
    
    $
    1.001
    
    
    $
    1.024Material costs
    
    
    .648
    
    
    
    .672Material margin
    
    
    .353
    
    
    
    .352Conversion costs
    
    
    .241
    
    
    
    .251Gross margin
    
    $
    .112
    
    
    $
    .101
       9




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Segment Results
 Custom Sheet and Rollstock Segment
  Underlying volume
    
    
    (3
    )%Volume from additional week
    
    
    7Price/Mix
    
    
    (2
    )2
    %
   Color and Specialty Compounds Segment
  Underlying volume
    
    
    (4
    )%Volume from additional week
    
    
    7Price/Mix
    
    
    (4
    )(1
    )%
   10




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Engineered Products Group
  Underlying volume
    
    
    (5
    )%Volume from additional week
    
    
    8Price/Mix
    
    
    (5
    )(2
    )%
   Corporate
  Liquidity and Capital Resources
 Cash Flow
  2007
    
    
    2006Cash Flows (in millions)Net cash provided by operating activities
    
    $
    17.2
    
    
    $
    14.8Net cash used for investing activities
    
    
    (10.2
    )
    
    
    (4.0
    )Net cash used for financing activities
    
    
    (6.2
    )
    
    
    (7.0
    )Effect of exchange rate changes
    
    
    0.1
    
    
    
    Increase in cash and equivalents
    
    $
    0.9
    
    
    $
    3.8
  11




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Financing Arrangements
   Outlook
  12




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Cautionary Statements Concerning Forward-Looking Statements
   (a)
    
    adverse changes in economic or industry conditions including global supply and demand
conditions and prices for products of the types we produce;(b)
    
    the ability to compete effectively on product performance, quality, price, availability,
product development, and customer service;(c)
    
    material adverse changes in the markets we serve, including the packaging,
transportation, building and construction, recreation and leisure, and other markets, some
of which tend to be cyclical;(d)
    
    our inability to achieve the level of cost savings, productivity improvements, synergies,
growth or other benefits anticipated from acquired businesses and their integration;(e)
    
    volatility of prices and availability of supply of energy and of the raw materials that
are critical to the manufacture of our products, particularly plastic resins derived from
oil and natural gas, including future effects of natural disasters;(f)
    
    our inability to manage or pass through an adequate level of increases to customers in
the costs of materials, freight, utilities, or other conversion costs;(g)
    
    our inability to predict accurately the costs to be incurred or savings to be achieved in
connection with announced production plant restructurings;(h)
    
    adverse findings in significant legal or environmental proceedings or our inability to
comply with applicable environmental laws and regulations;(i)
    
    adverse developments with work stoppages or labor disruptions, particularly in the
automotive industry;(j)
    
    our inability to achieve operational efficiency goals or cost reduction initiatives;(k)
    
    our inability to develop and launch new products successfully,(l)
    
    restrictions imposed on us by instruments governing our indebtedness, and the possible
inability to comply with requirements of those instruments;(m)
    
    possible weaknesses in our internal controls; and(n)
    
    our ability to successfully complete the implementation of a new enterprise resource
planning computer system.
  13




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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Controls
  14




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PART II  OTHER INFORMATION
 
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 (c) Issuer Purchases of Equity Securities
  Total NumberOf Shares
    
    
    Average PricePeriod
    
    Purchased
    
    
    Paid per ShareNovember 2006
    
    
    
    
    
    $
    December 2006
    
    
    400,000
    
    
    
    26.035January 2007
    
    
    
    
    
    
    Total
    
    
    400,000
    
    
    $
    26.035
  
 Item 6. EXHIBITS
 (a) Exhibits (listed by numbers corresponding to the Exhibit Table of Item 601 of Regulation S-K)
 3.1
    
    Restated Certificate of Incorporation of Registrant, as amended and
restated effective March 9, 2006, incorporated by reference to
Exhibit 3.1 to the Companys Form 10-Q for the quarterly period ended
April 29, 2006, filed with the Commission on June 8, 2006.3.2
    
    Bylaws of Registrant, as amended and restated March 7, 2006,
incorporated by reference to Exhibit 3.1 of Form 8-K filed with the
Commission on March 9, 2006.10.1
    
    Spartech Corporation Long-Term Equity Incentive Program, incorporated
by reference to Exhibit 5.02(1) to the Companys Form 8-K filed with
the Commission on December 7, 2006.10.2
    
    Spartech Corporation 2004 Equity Compensation Plan, as amended,
incorporated by reference to Exhibit 5.02(2) to the Companys Form
8-K filed with the Commission on December 7, 2006.10.3
    
    Form of Restricted Stock Award, incorporated by reference to Exhibit
5.02(1) to the Companys Form 8-K filed with the Commission on
December 7, 2006.10.4
    
    Form of Stock-Settled Stock Appreciation Right Award, incorporated by
reference to Exhibit 5.02(2) to the Companys Form 8-K filed with the
Commission on December 7, 2006.10.5
    
    Form of Performance Share Award.10.6
    
    Performance Criteria for 2007-2009 Performance Period: incorporated
by reference to Exhibit 5.02(4) to the Companys Form 8-K filed with
the Commission on December 7, 2006.10.7
    
    Form of Restricted Stock Award for directors.31.1
    
    Section 302 Certification of CEO31.2
    
    Section 302 Certification of CFO32.1
    
    Section 1350 Certification of CEO32.2
    
    Section 1350 Certification of CFO
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SIGNATURES
  SPARTECH CORPORATION
                (Registrant)Date: March 12, 2007
    /s/ George A. AbdGeorge A. AbdPresident and Chief Executive Officer
(Principal Executive Officer) /s/ Randy C. MartinRandy C. MartinExecutive Vice President Corporate
Development and Chief Financial Officer
(Principal Financial and Accounting Officer) 16