##### 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 2, 2008
 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)
 (SPARTECH LOGO)Delaware(State or
other jurisdictionof incorporation or organization)

    43-0761773(I.R.S.
EmployerIdentification 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
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ
  Common stock, $.75 par value per share
    
    
    30,558,765




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##### 



SPARTECH CORPORATION
FORM 10-Q FOR THE QUARTER ENDED FEBRUARY 2, 2008
TABLE OF CONTENTS
 PART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Consolidated Condensed Balance Sheets  As of:February 2, 2008 and November 3, 2007
    
    
    1Consolidated Condensed Statements of Operations  For the
three months ended February 2, 2008 and February 3, 2007
    
    
    2Consolidated Condensed Statements of Cash Flows  For the
three months ended February 2, 2008 and February 3, 2007
    
    
    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
    
    
    17Section 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 2,2008
    
    
    November 3,(Unaudited)
    
    
    2007AssetsCurrent assetsCash and cash equivalents
    
    $
    5,710
    
    
    $
    3,409Receivables, net
    
    
    191,659
    
    
    
    212,221Inventories
    
    
    126,243
    
    
    
    116,076Prepaids and other current assets
    
    
    21,967
    
    
    
    20,570Total current assets
    
    
    345,579
    
    
    
    352,276Property, plant and equipment, net
    
    
    316,579
    
    
    
    324,025Goodwill
    
    
    384,255
    
    
    
    383,988Other intangible assets, net
    
    
    43,940
    
    
    
    45,151Other assets
    
    
    5,250
    
    
    
    5,431Total assets
    
    $
    1,095,603
    
    
    $
    1,110,871Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    515
    
    
    $
    448Accounts payable
    
    
    161,622
    
    
    
    167,713Accrued liabilities
    
    
    39,563
    
    
    
    49,319Total current liabilities
    
    
    201,700
    
    
    
    217,480Long-term debt, less current maturities
    
    
    347,374
    
    
    
    333,835Other long-term liabilitiesDeferred taxes
    
    
    112,408
    
    
    
    111,997Other liabilities
    
    
    8,281
    
    
    
    8,279Total long-term liabilities
    
    
    468,063
    
    
    
    454,111Shareholders equityCommon stock, 33,131,846 shares issued in 2008 and 2007
    
    
    24,849
    
    
    
    24,849Contributed capital
    
    
    200,414
    
    
    
    200,485Retained earnings
    
    
    249,378
    
    
    
    257,111Treasury stock, at cost, 2,573,081 shares in 2008;
2,566,900 shares in 2007
    
    
    (56,370
    )
    
    
    (52,531
    )Accumulated other comprehensive income
    
    
    7,569
    
    
    
    9,366Total shareholders equity
    
    
    425,840
    
    
    
    439,280Total liabilities and shareholders equity
    
    $
    1,095,603
    
    
    $
    1,110,871
 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 2,
    
    
    February 3,2008
    
    
    2007Net sales
    
    $
    335,106
    
    
    $
    347,254Cost and expensesCost of sales
    
    
    312,221
    
    
    
    308,328Selling, general and administrative
    
    
    23,139
    
    
    
    20,360Amortization of intangibles
    
    
    1,333
    
    
    
    1,138336,693
    
    
    
    329,826Operating (loss) earnings
    
    
    (1,587
    )
    
    
    17,428Interest expense, (net of interest income: 2008 $121; 2007 $120)
    
    
    5,146
    
    
    
    4,763(Loss) earnings before income taxes
    
    
    (6,733
    )
    
    
    12,665Income tax (benefit) expense
    
    
    (3,243
    )
    
    
    4,600Net (loss) earnings
    
    $
    (3,490
    )
    
    $
    8,065Net (loss) earnings per common shareBasic
    
    $
    (.12
    )
    
    $
    .25Diluted
    
    $
    (.12
    )
    
    $
    .25Dividends declared per common share
    
    $
    .135
    
    
    $
    .135
 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 2,
    
    
    February 3,2008
    
    
    2007Cash flows from operating activitiesNet (loss) earnings
    
    $
    (3,490
    )
    
    $
    8,065Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation and amortization
    
    
    11,885
    
    
    
    10,387Stock-based compensation expense
    
    
    1,383
    
    
    
    1,125Change in current assets and liabilities
    
    
    (3,896
    )
    
    
    (3,824
    )Other, net
    
    
    655
    
    
    
    1,410Net cash provided by operating activities
    
    
    6,537
    
    
    
    17,163Cash flows from investing activitiesCapital expenditures
    
    
    (5,241
    )
    
    
    (10,240
    )Business acquisitions
    
    
    (708
    )
    
    
    Net cash used for investing activities
    
    
    (5,949
    )
    
    
    (10,240
    )Cash flows from financing activitiesBank credit facility borrowings, net
    
    
    12,376
    
    
    
    4,127Borrowings / (payments) on bonds and leases
    
    
    177
    
    
    
    (319
    )Cash dividends on common stock
    
    
    (4,144
    )
    
    
    (4,015
    )Issuance of common stock
    
    
    2,812
    
    
    
    Stock options exercised
    
    
    15
    
    
    
    4,127Treasury stock acquired
    
    
    (9,667
    )
    
    
    (10,413
    )Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    265Net cash provided by (used for) financing activities
    
    
    1,569
    
    
    
    (6,228
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    144
    
    
    
    173Increase in cash and cash equivalents
    
    
    2,301
    
    
    
    868Cash and cash equivalents at beginning of year
    
    
    3,409
    
    
    
    5,372Cash and cash equivalents at end of quarter
    
    $
    5,710
    
    
    $
    6,240
 See accompanying notes to consolidated condensed financial statements.
 3




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1) Basis of Presentation
   2) Inventories
  2008
    
    
    2007Raw materials
    
    $
    68,501
    
    
    $
    60,218Production supplies
    
    
    9,349
    
    
    
    9,204Finished goods
    
    
    48,393
    
    
    
    46,654$
    126,243
    
    
    $
    116,076
 3) Stock-Based Compensation
  Three Months EndedFebruary 2,
    
    
    February 3,2008
    
    
    2007Cost of sales
    
    $
    67
    
    
    $
    63Selling, general and administrative
    
    
    1,316
    
    
    
    1,062Total stock-based compensation expense included in operating (loss) earnings
    
    
    1,383
    
    
    
    1,125Income taxes
    
    
    476
    
    
    
    346Effect on net (loss) earnings
    
    $
    907
    
    
    $
    779Effect on basic and diluted (loss) earnings per share
    
    $
    .03
    
    
    $
    .02
 4




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4) Restructuring
  Cumulative
    
    
    Three MonthsThrough
    
    
    Ended
    
    
    Cumulative2007
    
    
    February 2, 2008
    
    
    to DateAccelerated depreciation
    
    $
    627
    
    
    $
    
    
    
    $
    627Facility restructuring and exit costs
    
    
    636
    
    
    
    224
    
    
    
    860Total
    
    $
    1,263
    
    
    $
    224
    
    
    $
    1,487
   5) Long-Term Debt
  6) Commitments and Contingencies
   5




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7) Income Taxes
     8) Earnings Per Share
   Three Months EndedFebruary 2,
    
    
    February 3,2008
    
    
    2007Net (loss) earnings:Basic and diluted net (loss) earnings
    
    $
    (3,490
    )
    
    $
    8,065Weighted average shares outstanding:Basic weighted average common shares outstanding
    
    
    30,138
    
    
    
    32,076Add: Dilutive shares
    
    
    
    
    
    
    321Diluted weighted average shares outstanding
    
    
    30,138
    
    
    
    32,397Net (loss) earnings per share:Basic
    
    $
    (.12
    )
    
    $
    .25Diluted
    
    $
    (.12
    )
    
    $
    .25
 6




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9) Segment Information
   Three Months EndedFebruary 2,
    
    
    February 3,2008
    
    
    2007Net salesCustom Sheet and Rollstock
    
    $
    147,350
    
    
    $
    161,956Packaging Technologies
    
    
    65,745
    
    
    
    61,311Color and Specialty Compounds
    
    
    104,816
    
    
    
    105,538Engineered Products
    
    
    17,195
    
    
    
    18,449Net sales*
    
    $
    335,106
    
    
    $
    347,254Operating (loss) earningsCustom Sheet and Rollstock
    
    $
    (1,804
    )
    
    $
    10,801Packaging Technologies
    
    
    4,787
    
    
    
    6,590Color and Specialty Compounds
    
    
    2,169
    
    
    
    4,086Engineered Products
    
    
    1,629
    
    
    
    2,1526,781
    
    
    
    23,629Gain on foreign exchange
    
    
    130
    
    
    
    361Corporate expenses
    
    
    (8,498
    )
    
    
    (6,562
    )Operating (loss) earnings
    
    $
    (1,587
    )
    
    $
    17,428
 
 *
    
    Excludes inter-segment sales of $14,311 and $12,908 in the first quarter of 2008 and 2007,
respectively, primarily from the Color and Specialty Compounds segment. 10) Comprehensive Income
  Three Months EndedFebruary 2,
    
    
    February 3,2008
    
    
    2007Net (loss) earnings
    
    $
    (3,490
    )
    
    $
    8,065Foreign currency translation adjustments
    
    
    (1,797
    )
    
    
    (2,225
    )Total comprehensive (loss) income
    
    $
    (5,287
    )
    
    $
    5,840
 11) Related Parties
  7




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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Executive Summary
   Outlook
  Consolidated Results
  Underlying volume
    
    
    (3
    )%Volume loss from additional week in prior year
    
    
    (7
    )Creative Forming acquisition
    
    
    3Price/Mix
    
    
    4(3
    )%
   8




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Three Months EndedFebruary 2,
    
    
    February 3,2008
    
    
    2007Dollars and Pounds (in millions)Net sales
    
    $
    335.1
    
    
    $
    347.3Material costs
    
    
    229.0
    
    
    
    225.0Material margin
    
    
    106.1
    
    
    
    122.3Conversion costs
    
    
    83.2
    
    
    
    83.4Gross margin
    
    $
    22.9
    
    
    $
    38.9Pounds Sold
    
    
    315.5
    
    
    
    346.8Dollars per Pound SoldNet sales
    
    $
    1.062
    
    
    $
    1.001Material costs
    
    
    .726
    
    
    
    .648Material margin
    
    
    .336
    
    
    
    .353Conversion costs
    
    
    .263
    
    
    
    .241Gross margin
    
    $
    .073
    
    
    $
    .112
       9




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Segment Results
  Custom Sheet and Rollstock Segment
  Underlying volume
    
    
    (4
    )%Volume loss from additional week in prior year
    
    
    (7
    )Price/Mix
    
    
    2(9
    )%
   Packaging Technologies
  Underlying volume
    
    
    (1
    )%Volume loss from additional week in prior year
    
    
    (7
    )Creative Forming acquisition
    
    
    13Price/Mix
    
    
    27
    %
   10




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Color and Specialty Compounds Segment
  Underlying volume
    
    
    (4
    )%Volume loss from additional week in prior year
    
    
    (7
    )Price/Mix
    
    
    10(1
    )%
   Engineered Products Group
  Underlying volume
    
    
    (1
    )%Volume loss from additional week in prior year
    
    
    (7
    )Price/Mix
    
    
    1(7
    )%
   Corporate
 11




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Liquidity and Capital Resources
 Cash Flow
  2008
    
    
    2007Cash Flows (in millions)Net cash provided by operating activities
    
    $
    6.5
    
    
    $
    17.2Net cash used for investing activities
    
    
    (5.9
    )
    
    
    (10.2
    )Net cash provided by (used for) financing activities
    
    
    1.6
    
    
    
    (6.2
    )Effect of exchange rate changes
    
    
    0.1
    
    
    
    0.1Increase in cash and equivalents
    
    $
    2.3
    
    
    $
    0.9
    Financing Arrangements
   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
 (a) Recent Sales of Unregistered Securities; Use of proceeds from Registered Securities
   (c) Issuer Purchases of Equity Securities
   Total Number of
    
    
    MaximumShares
    
    
    Number ofPurchased as
    
    
    Shares That May YetTotal Number
    
    
    
    
    
    
    Part of Publicly
    
    
    Be Purchased UnderOf Shares
    
    
    Average Price
    
    
    Announced Plans or
    
    
    the Plans orPeriod
    
    Purchased
    
    
    Paid per Share
    
    
    Programs
    
    
    ProgramsNovember 2007
    
    
    524,000
    
    
    $
    15.52
    
    
    
    524,000
    
    
    
    19,300December 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,300January 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,300Total
    
    
    524,000
    
    
    $
    15.52
    
    
    
    524,000
    
    
    
    19,300
 
 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
    
    
    Offer letter from Spartech Corporation to Myles S. Odaniell dated
December 20, 2007, incorporated by reference to Exhibit 99.2 to the
Companys Form 8-K filed with the commission on January 3, 2008.31.1
    
    
    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 10, 2008
    /s/ Myles S. OdaniellMyles S. OdaniellPresident 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