##### 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 April 29, 2006
 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(State or other jurisdiction
of incorporation or organization)
    
    (SPARTECH LOGO)
    
    43-0761773(I.R.S. Employer
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 valueTitle of Each Class
    
    New York Stock ExchangeName of Exchange of Which Registered
 None
 þ o
  o þ o
 o þ
  Common stock, $.75 par value per share
    
    32,076,293




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##### 



SPARTECH CORPORATION
FORM 10-Q FOR THE QUARTER ENDED APRIL 29, 2006
TABLE OF CONTENTS
 PART I FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Condensed Balance Sheets  As of: April 29,
2006 and October 29, 2005
    
    
    2Consolidated Condensed Statements of Operations  For the
three months and six months ended: April 29, 2006 and April
30, 2005
    
    
    3Consolidated Condensed Statements of Cash Flows  For the six
months ended: April 29, 2006 and April 30, 2005
    
    
    4Notes To Consolidated Condensed Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 6. Exhibits
    
    
    23Signatures
    
    
    24Certifications
    
    
    25Exhibit 3.1Letter re Change in Accounting PrincipleSection 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
  April 29,2006
    
    
    October 29,(unaudited)
    
    
    2005AssetsCurrent assetsCash and equivalents
    
    $
    2,613
    
    
    $
    4,601Receivables, net
    
    
    213,572
    
    
    
    213,996Inventories
    
    
    127,770
    
    
    
    119,401Prepaids and other
    
    
    19,760
    
    
    
    16,970Total current assets
    
    
    363,715
    
    
    
    354,968Property, plant and equipment, net
    
    
    306,597
    
    
    
    307,386Goodwill
    
    
    352,405
    
    
    
    352,405Other intangible assets
    
    
    38,865
    
    
    
    40,710Other assets
    
    
    11,886
    
    
    
    18,926Total assets
    
    $
    1,073,468
    
    
    $
    1,074,395Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    6,893
    
    
    $
    11,175Accounts payable
    
    
    130,607
    
    
    
    121,682Accrued liabilities
    
    
    57,313
    
    
    
    57,226Total current liabilities
    
    
    194,813
    
    
    
    190,083Convertible subordinated debentures
    
    
    154,639
    
    
    
    154,639Other long-term debt, less current maturities
    
    
    190,554
    
    
    
    214,141Total long-term debt
    
    
    345,193
    
    
    
    368,780Deferred taxes
    
    
    94,289
    
    
    
    91,605Other long-term liabilities
    
    
    10,368
    
    
    
    10,881Total long-term liabilities
    
    
    449,850
    
    
    
    471,266Shareholders equityCommon stock, 33,131,846 shares issued in 2006 and 2005
    
    
    24,849
    
    
    
    24,849Contributed capital
    
    
    197,774
    
    
    
    196,811Retained earnings
    
    
    228,478
    
    
    
    216,928Treasury stock, at cost, 1,055,553 shares in 2006 and 1,143,701 shares in 2005
    
    
    (23,889
    )
    
    
    (26,019
    )Accumulated other comprehensive income
    
    
    1,593
    
    
    
    477Total shareholders equity
    
    
    428,805
    
    
    
    413,046Total liabilities and shareholders equity
    
    $
    1,073,468
    
    
    $
    1,074,395
 See accompanying notes to consolidated condensed financial statements.
 2




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SPARTECH CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
  Three Months Ended
    
    
    Six Months EndedApril 29,
    
    
    April 30,
    
    
    April 29,
    
    
    April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    389,278
    
    
    $
    377,658
    
    
    $
    732,869
    
    
    $
    682,170Cost and expensesCost of sales
    
    
    341,127
    
    
    
    333,046
    
    
    
    650,480
    
    
    
    609,142Selling, general and administrative
    
    
    18,403
    
    
    
    18,941
    
    
    
    36,134
    
    
    
    35,816Amortization of intangibles
    
    
    1,205
    
    
    
    1,414
    
    
    
    2,375
    
    
    
    2,672Fixed asset charge
    
    
    
    
    
    
    10,386
    
    
    
    
    
    
    
    10,386Restructuring and exit costs
    
    
    496
    
    
    
    7,619
    
    
    
    962
    
    
    
    7,619361,231
    
    
    
    371,406
    
    
    
    689,951
    
    
    
    665,635Operating earnings
    
    
    28,047
    
    
    
    6,252
    
    
    
    42,918
    
    
    
    16,535Interest (net of interest income
of $214, $359, $281 and $450,
respectively)
    
    
    5,591
    
    
    
    6,378
    
    
    
    11,343
    
    
    
    12,852Earnings (loss) before income taxes
    
    
    22,456
    
    
    
    (126
    )
    
    
    31,575
    
    
    
    3,683Income taxes
    
    
    8,547
    
    
    
    (46
    )
    
    
    12,010
    
    
    
    945Net earnings (loss)
    
    $
    13,909
    
    
    $
    (80
    )
    
    $
    19,565
    
    
    $
    2,738Net earnings (loss) per common shareBasic
    
    $
    .43
    
    
    $
    (
    )
    
    $
    .61
    
    
    $
    .09Diluted
    
    $
    .42
    
    
    $
    (
    )
    
    $
    .61
    
    
    $
    .08Dividends declared per common share
    
    $
    .125
    
    
    $
    .120
    
    
    $
    .250
    
    
    $
    .240
 See accompanying notes to consolidated condensed financial statements.
 3




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SPARTECH CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
  Six Months EndedApril 29,
    
    
    April 30,2006
    
    
    2005Cash flows from operating activitiesNet earnings
    
    $
    19,565
    
    
    $
    2,738Adjustments to reconcile net earnings to net cash provided by (used for)
operating activities:Fixed asset charge
    
    
    
    
    
    
    10,386Restructuring and exit costs
    
    
    
    
    
    
    7,163Depreciation and amortization
    
    
    20,168
    
    
    
    20,739Stock compensation expense
    
    
    1,555
    
    
    
    210Change in current assets and liabilities
    
    
    (3,208
    )
    
    
    (24,118
    )Other, net
    
    
    2,846
    
    
    
    (3,713
    )Net cash provided by operating activities
    
    
    40,926
    
    
    
    13,405Cash flows from investing activitiesCapital expenditures
    
    
    (9,388
    )
    
    
    (23,233
    )Business acquisitions
    
    
    
    
    
    
    (1,224
    )Sale of assets
    
    
    2,371
    
    
    
    Net cash used for investing activities
    
    
    (7,017
    )
    
    
    (24,457
    )Cash flows from financing activitiesNet payments on notes and revolving credit facilities
    
    
    (28,480
    )
    
    
    (9,830
    )Payments on bonds and leases
    
    
    (373
    )
    
    
    (579
    )Cash dividends on common stock
    
    
    (7,863
    )
    
    
    (7,713
    )Stock options exercised
    
    
    2,134
    
    
    
    970Treasury stock acquired
    
    
    (1,541
    )
    
    
    (6,846
    )Excess tax benefits from stock based compensation
    
    
    224
    
    
    
    Net cash used for financing activities
    
    
    (35,899
    )
    
    
    (23,998
    )Effect of exchange rate changes on cash and equivalents
    
    
    2
    
    
    
    69Decrease in cash and equivalents
    
    
    (1,988
    )
    
    
    (34,981
    )Cash and equivalents at beginning of year
    
    
    4,601
    
    
    
    41,272Cash and equivalents at end of quarter
    
    $
    2,613
    
    
    $
    6,291
 See accompanying notes to consolidated condensed financial statements.
 4




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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) Restructuring
  Six MonthsEndedFiscal Year
    
    
    April 29,
    
    
    Cumulative2005
    
    
    2006
    
    
    to DateCustom Sheet and Rollstock
    
    $
    6
    
    
    $
    (7
    )
    
    $
    (1
    )Color and Specialty Compounds
    
    
    7,388
    
    
    
    969
    
    
    
    8,357Engineered Products
    
    
    1,944
    
    
    
    
    
    
    
    1,944Corporate
    
    
    750
    
    
    
    
    
    
    
    750Total
    
    $
    10,088
    
    
    $
    962
    
    
    $
    11,050
   5




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
  3) Inventories
  2006
    
    
    2005Raw materials
    
    $
    70,396
    
    
    $
    64,262Production supplies
    
    
    9,460
    
    
    
    9,479Finished goods
    
    
    47,914
    
    
    
    45,660$
    127,770
    
    
    $
    119,401
 4) Other Intangible Assets
  Gross Carrying Amount
    
    
    Accumulated Amortization2006
    
    
    2005
    
    
    2006
    
    
    2005Non-compete agreements
    
    $
    3,691
    
    
    $
    3,680
    
    
    $
    2,378
    
    
    $
    2,122Customer contracts/relationships
    
    
    21,603
    
    
    
    21,571
    
    
    
    6,847
    
    
    
    5,321Product formulations
    
    
    17,955
    
    
    
    17,476
    
    
    
    4,059
    
    
    
    3,474Total
    
    $
    43,249
    
    
    $
    42,727
    
    
    $
    13,284
    
    
    $
    10,917
  IntangibleFiscal Year-Ended
    
    AmortizationRemaining in 2006
    
    $
    2,3292007
    
    
    4,1992008
    
    
    3,1722009
    
    
    2,7282010
    
    
    2,155$
    14,583
 5) Stock-Based Compensation
  6




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedApril 29,
    
    
    April 29,2006
    
    
    2006Cost of sales
    
    $
    72
    
    
    $
    129Selling, general and administrative
    
    
    544
    
    
    
    1,426Total stock based compensation expense included in operating earnings
    
    
    616
    
    
    
    1,555Income taxes
    
    
    136
    
    
    
    383Effect on net earnings
    
    $
    480
    
    
    $
    1,172Effect on basic and diluted earnings per share
    
    $
    .01
    
    
    $
    .03
   2006
    
    
    2005Weighted Average Fair Value
    
    $
    7.78
    
    
    $
    8.13Assumptions Used:Expected Dividend Yield
    
    
    2
    %
    
    
    2
    %Expected Volatility
    
    
    40
    %
    
    
    35
    %Risk-Free Interest Rates
    
    
    4.5
    %
    
    
    3.6
    %Expected Lives
    
    5.5 Years
    
    5.5 Years
  WeightedAverage
    
    
    Aggregate
    
    
    Average(in 000s)
    
    
    Exercise
    
    
    Intrinsic
    
    
    ContractualShares
    
    
    Price
    
    
    Value
    
    
    LifeOutstanding, beginning of the year
    
    
    2,177
    
    
    $
    21.21Granted
    
    
    367
    
    
    
    21.51Exercised
    
    
    (130
    )
    
    
    16.47Forfeited
    
    
    (8
    )
    
    
    21.96Outstanding, end of quarter
    
    
    2,406
    
    
    $
    21.42
    
    
    $
    5,318
    
    
    6.6 yearsExercisable, end of quarter
    
    
    1,475
    
    
    $
    21.00
    
    
    $
    3,877
    
    
    5.2 years
 7




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
   WeightedAverage(in 000s)
    
    
    FairShares
    
    
    ValueNonvested stock options, beginning of the year
    
    
    864
    
    
    $
    8.05Granted
    
    
    367
    
    
    
    7.78Vested
    
    
    (294
    )
    
    
    6.84Forfeited
    
    
    (6
    )
    
    
    7.30Nonvested stock options, end of quarter
    
    
    931
    
    
    $
    6.48
   Three Months
    
    
    Six MonthsEnded
    
    
    EndedApril 30,
    
    
    April 30,2005
    
    
    2005Net earnings (loss) as reported
    
    $
    (80
    )
    
    $
    2,738Add: Stock-based compensation included in net earnings as reported, net of tax
    
    
    
    
    
    
    130Deduct: Total stock-based compensation, net of tax
    
    
    (540
    )
    
    
    (1,211
    )Pro forma net earnings (loss)
    
    $
    (620
    )
    
    $
    1,657Earnings (Loss) Per ShareAs Reported:Basic
    
    $
    (
    )
    
    $
    .09Diluted
    
    $
    (
    )
    
    $
    .08Pro Forma:Basic
    
    $
    (.02
    )
    
    $
    .05Diluted
    
    $
    (.02
    )
    
    $
    .05
 8




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
 6) Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedApril 29,
    
    
    April 30,
    
    
    April 29,
    
    
    April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net earnings (loss):Basic net earnings (loss)
    
    $
    13,909
    
    
    $
    (80
    )
    
    $
    19,565
    
    
    $
    2,738Add: Interest on convertible securities, net of tax
    
    
    1,588
    
    
    
    
    
    
    
    
    
    
    
    Diluted net earnings (loss)
    
    $
    15,497
    
    
    $
    (80
    )
    
    $
    19,565
    
    
    $
    2,738Weighted average shares outstanding:Basic weighted average common shares outstanding
    
    
    32,095
    
    
    
    32,085
    
    
    
    32,067
    
    
    
    32,143Add: Shares issuable from assumed exercise of options
    
    
    204
    
    
    
    212
    
    
    
    175
    
    
    
    354Add: Shares issuable from assumed conversion of
convertible      securities
    
    
    4,578
    
    
    
    
    
    
    
    
    
    
    
    Diluted weighted average shares outstanding
    
    
    36,877
    
    
    
    32,297
    
    
    
    32,242
    
    
    
    32,497Net earnings (loss) per share:Basic
    
    $
    .43
    
    
    $
    (
    )
    
    $
    .61
    
    
    $
    .09Diluted
    
    $
    .42
    
    
    $
    (
    )
    
    $
    .61
    
    
    $
    .08
 7) Commitments and Contingencies
  9




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
   8) Segment Information
  Three Months Ended
    
    
    Six Months EndedApril 29,
    
    
    April 30,
    
    
    April 29,
    
    
    April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net SalesCustom Sheet and Rollstock
    
    $
    240,891
    
    
    $
    238,144
    
    
    $
    459,186
    
    
    $
    427,783Color and Specialty Compounds
    
    
    122,288
    
    
    
    113,429
    
    
    
    228,696
    
    
    
    210,532Engineered Products
    
    
    26,099
    
    
    
    26,085
    
    
    
    44,987
    
    
    
    43,855Total Net Sales*
    
    $
    389,278
    
    
    $
    377,658
    
    
    $
    732,869
    
    
    $
    682,170Operating Earnings (Loss)Custom Sheet and Rollstock
    
    $
    20,502
    
    
    $
    9,810
    
    
    $
    33,203
    
    
    $
    17,468Color and Specialty Compounds
    
    
    8,051
    
    
    
    2,785
    
    
    
    12,523
    
    
    
    8,484Engineered Products
    
    
    3,380
    
    
    
    (1,712
    )
    
    
    4,370
    
    
    
    (1,095
    )Corporate / Other
    
    
    (3,886
    )
    
    
    (4,631
    )
    
    
    (7,178
    )
    
    
    (8,322
    )Total Operating Earnings
    
    $
    28,047
    
    
    $
    6,252
    
    
    $
    42,918
    
    
    $
    16,535
 
 *
    
    Excludes inter-segment sales of $16,623, $17,030, $30,058 and $27,715, respectively,
primarily from the Color and Specialty Compounds segment.
 9) Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedApril 29,
    
    
    April 30,
    
    
    April 29,
    
    
    April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net earnings (loss)
    
    $
    13,909
    
    
    $
    (80
    )
    
    $
    19,565
    
    
    $
    2,738Foreign currency translation adjustments
    
    
    262
    
    
    
    (1,364
    )
    
    
    1,116
    
    
    
    (157
    )Cash flow hedge adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81Total comprehensive income (loss)
    
    $
    14,171
    
    
    $
    (1,444
    )
    
    $
    20,681
    
    
    $
    2,662
 10




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
 10) Subsequent Events
   11




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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 Executive Summary
   Consolidated Results
  Three Months
    
    Six MonthsUnderlying volume
    
    (1)%
    
    (1)%Disposition of business
    
    
    
    (1)Price/Mix
    
    4
    
    93 %
    
    7 %
   12




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Three Months Ended
    
    
    Six Months EndedApril 29,
    
    
    April 30,
    
    
    April 29,
    
    
    April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Dollars and Pounds (in millions)Net sales
    
    $
    389.3
    
    
    $
    377.7
    
    
    $
    732.9
    
    
    $
    682.2Material costs
    
    
    251.5
    
    
    
    245.9
    
    
    
    476.9
    
    
    
    438.2Material margin
    
    
    137.8
    
    
    
    131.8
    
    
    
    256.0
    
    
    
    244.0Conversion costs
    
    
    89.6
    
    
    
    87.2
    
    
    
    173.6
    
    
    
    171.0Gross margin
    
    $
    48.2
    
    
    $
    44.6
    
    
    $
    82.4
    
    
    $
    73.0Pounds Sold
    
    
    384.2
    
    
    
    388.3
    
    
    
    719.6
    
    
    
    728.1Dollars per Pound SoldNet sales
    
    $
    1.013
    
    
    $
    .973
    
    
    $
    1.019
    
    
    $
    .937Material costs
    
    
    .655
    
    
    
    .633
    
    
    
    .663
    
    
    
    .602Material margin
    
    
    .358
    
    
    
    .340
    
    
    
    .356
    
    
    
    .335Conversion costs
    
    
    .233
    
    
    
    .225
    
    
    
    .241
    
    
    
    .235Gross margin
    
    $
    .125
    
    
    $
    .115
    
    
    $
    .115
    
    
    $
    .100
    13




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Three Months Ended April 29, 2006
    
    
    Six Months Ended April 29, 2006Restructuring
    
    
    
    
    
    
    
    
    
    
    Restructuringand
    
    
    Fixed Asset
    
    
    
    
    
    
    and
    
    
    Fixed AssetExit Costs
    
    
    Charge
    
    
    Total
    
    
    Exit Costs
    
    
    Charge
    
    
    TotalCustom Sheet and Rollstock
    
    $
    (0.1
    )
    
    $
    
    
    
    $
    (0.1
    )
    
    $
    
    
    
    $
    
    
    
    $
    Color and Specialty Compounds
    
    
    0.6
    
    
    
    
    
    
    
    0.6
    
    
    
    1.0
    
    
    
    
    
    
    
    1.0Engineered Products
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.5
    
    
    $
    
    
    
    $
    0.5
    
    
    $
    1.0
    
    
    $
    
    
    
    $
    1.0
 Three Months Ended April 30, 2005
    
    
    Six Months Ended April 30, 2005Restructuring
    
    
    
    
    
    
    
    
    
    
    Restructuringand
    
    
    Fixed Asset
    
    
    
    
    
    
    and
    
    
    Fixed AssetExit Costs
    
    
    Charge
    
    
    Total
    
    
    Exit Costs
    
    
    Charge
    
    
    TotalCustom Sheet and Rollstock
    
    $
    3.0
    
    
    $
    6.5
    
    
    $
    9.5
    
    
    $
    3.0
    
    
    $
    6.5
    
    
    $
    9.5Color and Specialty Compounds
    
    
    2.7
    
    
    
    1.7
    
    
    
    4.4
    
    
    
    2.7
    
    
    
    1.7
    
    
    
    4.4Engineered Products
    
    
    1.9
    
    
    
    1.6
    
    
    
    3.5
    
    
    
    1.9
    
    
    
    1.6
    
    
    
    3.5Corporate
    
    
    
    
    
    
    0.6
    
    
    
    0.6
    
    
    
    
    
    
    
    0.6
    
    
    
    0.6$
    7.6
    
    
    $
    10.4
    
    
    $
    18.0
    
    
    $
    7.6
    
    
    $
    10.4
    
    
    $
    18.0
 14




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##### Table of Contents



Adoption of SFAS 123(R)
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedApril 29,
    
    
    April 29,2006
    
    
    2006Custom Sheet and Rollstock
    
    $
    0.2
    
    
    $
    0.4Color and Specialty Compounds
    
    
    0.1
    
    
    
    0.3Engineering Products
    
    
    
    
    
    
    0.1Corporate
    
    
    0.3
    
    
    
    0.5$
    0.6
    
    
    $
    1.3
    Segment Results
 Custom Sheet and Rollstock Segment
  Three Months
    
    Six MonthsUnderlying volume
    
    (2)%
    
    3%Disposition of business
    
    (1)
    
    (1)Price/Mix
    
    4
    
    51 %
    
    7 %
 15




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##### Table of Contents



Color and Specialty Compounds Segment
  Three Months
    
    Six MonthsUnderlying volume
    
    1  %
    
    (4  )%Price/Mix
    
    7
    

138 %
    
    9 %
  Quarter Ended
    
    
    Six Months EndedApril 29,
    
    
    April 30,
    
    
    %
    
    
    April 29,
    
    
    April 30,
    
    
    %2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangePounds Sold (in millions)Proprietary products
    
    
    133.9
    
    
    
    132.5
    
    
    
    1
    %
    
    
    249.4
    
    
    
    252.9
    
    
    
    (1
    )%Tolling and resale products
    
    
    43.7
    
    
    
    42.8
    
    
    
    2
    
    
    
    82.2
    
    
    
    91.7
    
    
    
    (10
    )Total pounds sold
    
    
    177.6
    
    
    
    175.3
    
    
    
    1
    %
    
    
    331.6
    
    
    
    344.6
    
    
    
    (4
    )%
  16




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##### Table of Contents



Engineered Products Segment
  Three Months
    
    Six MonthsUnderlying volume
    
    (6  )%
    
    (5  )%Price/Mix
    
    6
    
    8   %
    
    3 %
   Corporate Segment
  17




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##### Table of Contents



Liquidity and Capital Resources
 Cash Flow
  Six Months EndedApril 29,
    
    
    April 30,2006
    
    
    2005Cash Flows (in millions)Net cash used by operating activities
    
    $
    40.9
    
    
    $
    13.4Net cash used for investing activities
    
    
    (7.0
    )
    
    
    (24.5
    )Net cash used for financing activities
    
    
    (35.9
    )
    
    
    (24.0
    )Effect of exchange rate changes
    
    
    
    
    
    
    0.1Decrease in cash and equivalents
    
    $
    (2.0
    )
    
    $
    (35.0
    )
     18




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##### Table of Contents



Financing Arrangements
   Subsequent Events
   Outlook
  Other Matters
  19




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20




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##### Table of Contents



Cautionary Statements Concerning Forward-Looking Statements
   (a)
    
    adverse changes in economic or industry conditions generally, including global supply and
demand conditions and prices for products of the types we produce;(b)
    
    material adverse changes in the markets we serve, including the transportation,
packaging, building and construction, recreation and leisure, and other markets, some of
which tend to be cyclical;(c)
    
    our inability to achieve the level of cost savings, productivity improvements, synergies,
growth or other benefits anticipated from acquired businesses and their integration;(d)
    
    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;(e)
    
    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;(f)
    
    our inability to predict accurately the costs to be incurred or savings to be achieved in
connection with announced production plant restructurings;(g)
    
    adverse findings in significant legal or environmental proceedings or our inability to
comply with applicable environmental laws and regulations;(h)
    
    adverse developments with work stoppages or labor disruptions, particularly in the
automotive industry;(i)
    
    our inability to achieve operational efficiency goals or cost reduction initiatives;(j)
    
    our inability to develop and launch new products successfully;(k)
    
    restrictions imposed on us by instruments governing our indebtedness, and the possible
inability to comply with requirements of those instruments; and(l)
    
    weaknesses in internal controls.
  21




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##### Table of Contents



Non-GAAP Reconciliation
  April 29,
    
    
    October 29,
    
    
    
    April 30,
    
    
    October 30,2006
    
    
    2005
    
    
    
    2005
    
    
    2004Current maturities of long-term debt
    
    $
    6.9
    
    
    $
    11.2
    
    
    
    $
    18.3
    
    
    $
    18.0Long-term debt
    
    
    345.2
    
    
    
    368.8
    
    
    
    
    445.9
    
    
    
    456.1Total debt
    
    
    352.1
    
    
    
    380.0
    
    
    
    
    464.2
    
    
    
    474.1Less: Cash and equivalents
    
    
    (2.6
    )
    
    
    (4.6
    )
    
    
    
    (6.3
    )
    
    
    (41.3
    )Net debt
    
    $
    349.5
    
    
    $
    375.4
    
    
    
    $
    457.9
    
    
    $
    432.8First six months of fiscal year change
    
    $
    (25.9
    )
    
    
    
    
    
    
    $
    25.1
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
    22




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 (c) Issuer Purchases of Equity Securities
  Total Number of
    
    
    MaximumShares Purchased
    
    
    Number ofas Part of
    
    
    Shares That MayPublicly
    
    
    Yet Be PurchasedTotal Number
    
    
    
    
    
    
    Announced Plans
    
    
    Under the PlansOf Shares
    
    
    Average Price
    
    
    or
    
    
    orPeriod
    
    Purchased
    
    
    Paid per Share
    
    
    Programs
    
    
    ProgramsFebruary 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    512,800March 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    512,800April 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    512,800Total
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    512,800
  
 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, 20063.2
    
    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, 200610.1
    
    Executive Severance and Noncompetition Policy, as adopted March 7,
2006, including forms of Severance and Noncompetition Agreements
entered into with the Registrants Executive Officers, incorporated
by reference to Exhibit 10.1 of Form 8-K filed with the Commission on
March 9, 200618
    
    Letter re change in accounting principle31.1
    
    Section 302 Certification of CEO31.2
    
    Section 302 Certification of CFO32.1
    
    Section 1350 Certification of CEO32.2
    
    Section 1350 Certification of CFO
 23




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##### Table of Contents



SIGNATURES
  SPARTECH CORPORATION
 Date: June 8, 2006/s/
George A. AbdGeorge A. AbdPresident and Chief Executive Officer(Principal Executive Officer)/s/
Randy C. MartinRandy C. MartinExecutive Vice President CorporateDevelopment and Chief Financial Officer(Principal Financial and Accounting Officer)
 24