##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 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 January 29, 2011
 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  (Address of principal executive offices) (Zip Code)
 (314) 721-4242  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o o þ




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##### 



SPARTECH CORPORATION
FORM 10-Q For the Three Months Ended January 29, 2011
Table of Contents
   
 Page
No.PART I  Financial InformationItem 1.
    
    Financial StatementsConsolidated Condensed Balance Sheets:As of January 29, 2011 (Unaudited) and October 30, 2010
    
    
    1Unaudited Consolidated Condensed Statements of Operations:For the Three Months Ended January 29, 2011 and January 30, 2010
    
    
    2Unaudited Consolidated Condensed Statement of Cash Flows:For the Three Months Ended January 29, 2011 and January 30, 2010
    
    
    3Notes to Unaudited Consolidated Condensed Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 4.
    
    Controls and Procedures
    
    
    20PART II  Other InformationItem 1.
    
    Legal Proceedings
    
    
    20Item 6.
    
    Exhibits
    
    
    21Signatures
    
    
    21Certifications
    
    
    22EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



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)
    
    Our ability to compete effectively on product performance, quality, price,
availability, product development, and customer service(c)
    
    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)
    
    Volatility of prices and availability of supply of energy and raw materials that are
critical to the manufacture of our products, particularly plastic resins derived from oil
and natural gas, including future impacts of natural disasters(e)
    
    Our inability to manage or pass through to customers an adequate level of increases in
the costs of materials, freight, utilities, or other conversion costs(f)
    
    Our inability to achieve and sustain the level of cost savings, productivity
improvements, gross margin enhancements, growth or other benefits anticipated from our
improvement initiatives(g)
    
    Our inability to collect all or a portion of our receivables with large customers or a
number of customers(h)
    
    Loss of business with a limited number of customers that represent a significant
percentage of our revenues(i)
    
    Restrictions imposed on us by instruments governing our indebtedness, the possible
inability to comply with requirements of those instruments and inability to access capital
markets(j)
    
    Possible asset impairments(k)
    
    Our inability to predict accurately the costs to be incurred, time taken to complete,
operating disruptions therefrom, potential loss of business or savings to be achieved in
connection with announced production plant consolidations and line moves(l)
    
    Adverse findings in significant legal or environmental proceedings or our inability to
comply with applicable environmental laws and regulations(m)
    
    Our inability to develop and launch new products successfully(n)
    
    Possible weaknesses in internal controls




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##### Table of Contents



PART I  Financial Information
 
 Item 1.
    
    Financial Statements
 
 Spartech Corporation and Subsidiaries  Consolidated Condensed Balance Sheets
 (Unaudited)January 29,
    
    
    October 30,(Dollars in thousands, except share data)
    
    2011
    
    
    2010AssetsCurrent assets:Cash and cash equivalents
    
    $
    3,535
    
    
    $
    4,900Trade receivables, net of allowances of $3,359 and $3,404, respectively
    
    
    129,094
    
    
    
    134,902Inventories, net of inventory reserves of $7,689 and $6,539, respectively
    
    
    90,048
    
    
    
    79,691Prepaid expenses and other current assets, net
    
    
    30,282
    
    
    
    35,789Assets held for sale
    
    
    3,256
    
    
    
    3,256Total current assets
    
    
    256,215
    
    
    
    258,538Property, plant, and equipment, net
    
    
    210,904
    
    
    
    211,844Goodwill
    
    
    87,921
    
    
    
    87,921Other intangible assets, net
    
    
    14,136
    
    
    
    14,559Other long-term assets
    
    
    4,741
    
    
    
    4,279Total assets
    
    $
    573,917
    
    
    $
    577,141Liabilities and shareholders equityCurrent liabilities:Current maturities of long-term debt
    
    $
    876
    
    
    $
    880Accounts payable
    
    
    119,317
    
    
    
    129,037Accrued liabilities
    
    
    38,472
    
    
    
    34,112Total current liabilities
    
    
    158,665
    
    
    
    164,029Long-term debt, less current maturities
    
    
    172,283
    
    
    
    171,592Other long-term liabilities:Deferred taxes
    
    
    41,514
    
    
    
    42,648Other long-term liabilities
    
    
    6,291
    
    
    
    5,866Total liabilities
    
    
    378,753
    
    
    
    384,135Shareholders equityPreferred stock (authorized: 4,000,000 shares, par value $1.00)
Issued: None
    
    
    
    
    
    
    Common stock (authorized: 55,000,000 shares, par value $0.75)
Issued: 33,131,846 shares; outstanding: 30,865,820
and 30,884,503 shares, respectively
    
    
    24,849
    
    
    
    24,849Contributed capital
    
    
    204,793
    
    
    
    204,966Retained earnings
    
    
    11,069
    
    
    
    10,036Treasury stock, at cost, 2,266,026 and 2,247,343 shares, respectively
    
    
    (51,844
    )
    
    
    (52,730
    )Accumulated other comprehensive income
    
    
    6,297
    
    
    
    5,885Total shareholders equity
    
    
    195,164
    
    
    
    193,006Total liabilities and shareholders equity
    
    $
    573,917
    
    
    $
    577,141
 See accompanying notes to consolidated condensed financial statements.
 1




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Spartech Corporation and Subsidiaries
Consolidated Condensed Statements of Operations
 Three Months EndedJanuary 29,
    
    
    January 30,(Unaudited and dollars in thousands, except per share data)
    
    2011
    
    
    2010Net sales
    
    $
    234,783
    
    
    $
    225,164Costs and expensesCost of sales
    
    
    216,377
    
    
    
    198,332Selling, general and administrative expenses
    
    
    18,974
    
    
    
    18,416Amortization of intangibles
    
    
    422
    
    
    
    966Restructuring and exit costs
    
    
    828
    
    
    
    671Total costs and expenses
    
    
    236,601
    
    
    
    218,385Operating (loss) earnings
    
    
    (1,818
    )
    
    
    6,779Interest, net of interest income
    
    
    2,571
    
    
    
    3,516(Loss) earnings from continuing operations before income taxes
    
    
    (4,389
    )
    
    
    3,263Income tax benefit
    
    
    (2,551
    )
    
    
    (1,473
    )Net (loss) earnings from continuing operations
    
    
    (1,838
    )
    
    
    4,736Net earnings from discontinued operations, net of tax
    
    
    2,871
    
    
    
    8Net earnings
    
    $
    1,033
    
    
    $
    4,744Basic (loss) earnings per share:(Loss) earnings from continuing operations
    
    $
    (0.06
    )
    
    $
    0.16Earnings from discontinued operations, net of tax
    
    
    0.09
    
    
    
    Net earnings per share
    
    $
    0.03
    
    
    $
    0.16Diluted (loss) earnings per share:(Loss) earnings from continuing operations
    
    $
    (0.06
    )
    
    $
    0.15Earnings from discontinued operations, net of tax
    
    
    0.09
    
    
    
    Net earnings per share
    
    $
    0.03
    
    
    $
    0.15
 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 EndedJanuary 29,
    
    
    January 30,(Unaudited and dollars in thousands)
    
    2011
    
    
    2010Cash flows from operating activitiesNet earnings
    
    $
    1,033
    
    
    $
    4,744Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation and amortization
    
    
    8,101
    
    
    
    9,555Stock-based compensation expense
    
    
    893
    
    
    
    1,081Goodwill impairment
    
    
    
    
    
    
    275Restructuring and exit costs
    
    
    76
    
    
    
    97Gain (loss) on disposition of assets, net
    
    
    124
    
    
    
    (895
    )Provision for bad debt expense
    
    
    207
    
    
    
    (298
    )Deferred taxes
    
    
    (2,531
    )
    
    
    125Change in current assets and liabilities
    
    
    (1,329
    )
    
    
    (5,214
    )Other, net
    
    
    1,137
    
    
    
    (522
    )Net cash provided by operating activities
    
    
    7,711
    
    
    
    8,948Cash flows from investing activitiesCapital expenditures
    
    
    (7,986
    )
    
    
    (3,368
    )Proceeds from the disposition of assets
    
    
    
    
    
    
    2,876Net cash used by investing activities
    
    
    (7,986
    )
    
    
    (492
    )Cash flows from financing activitiesBank credit facility borrowings (payments), net
    
    
    800
    
    
    
    Payments on notes and bank term loan
    
    
    
    
    
    
    (17,185
    )Payments on bonds and leases
    
    
    (119
    )
    
    
    (131
    )Debt issuance costs
    
    
    (1,595
    )
    
    
    Stock-based compensation exercised
    
    
    (180
    )
    
    
    Net cash used by financing activities
    
    
    (1,094
    )
    
    
    (17,316
    )Effect of exchnage rates on cash and cash equivalents
    
    
    4
    
    
    
    21Decrease in cash and cash equivalents
    
    
    (1,365
    )
    
    
    (8,839
    )Cash and cash equivalents at beginning of year
    
    
    4,900
    
    
    
    26,925Cash and cash equivalents at end of year
    
    $
    3,535
    
    
    $
    18,086
 See accompanying notes to consolidated condensed financial statements.
 3




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Notes to Consolidated Condensed Financial Statement
   Discontinued Operations
      4




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Three Months EndedJanuary 29,
    
    
    January 30,2011
    
    
    2010Net sales
    
    $
    
    
    
    $
    Earnings from discontinued operations before income taxes
    
    
    4,634
    
    
    
    12Provision for income taxes
    
    
    1,763
    
    
    
    4Earnings from discontinued operations, net of tax
    
    $
    2,871
    
    
    $
    8
   January 29,
    
    
    October 30,2011
    
    
    2010Raw materials
    
    $
    54,997
    
    
    $
    50,258Production supplies
    
    
    6,601
    
    
    
    6,547Finished goods
    
    
    36,139
    
    
    
    29,425Inventory reserves
    
    
    (7,689
    )
    
    
    (6,539
    )Total inventories, net
    
    $
    90,048
    
    
    $
    79,691
   Three Months EndedJanuary 29,
    
    
    January 30,2011
    
    
    2010Restructuring and exit costs:Custom Sheet and Rollstock
    
    $
    350
    
    
    $
    84Packaging Technologies
    
    
    116
    
    
    
    (729
    )Color and Specialty Compounds
    
    
    356
    
    
    
    1,316Corporate
    
    
    6
    
    
    
    Total restructuring and exit costs
    
    
    828
    
    
    
    671Income tax benefit
    
    
    (315
    )
    
    
    (249
    )Impact on net earnings from continuing operations
    
    $
    513
    
    
    $
    422
 5




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2008 Restructuring Plan
   Three MonthsEndedCumulative
    
    
    January 29,
    
    
    Cumulativethrough 2010
    
    
    2011
    
    
    To-DateEmployee severance
    
    $
    5,798
    
    
    $
    473
    
    
    $
    6,271Facility consolidation and shut-down costs
    
    
    5,311
    
    
    
    279
    
    
    
    5,590Fixed asset valuation adjustments, net
    
    
    3,167
    
    
    
    76
    
    
    
    3,243Total
    
    $
    14,276
    
    
    $
    828
    
    
    $
    15,104
      January 29,
    
    
    October 30,2011
    
    
    20102004 Senior Notes
    
    $
    113,972
    
    
    $
    113,972Credit facility
    
    
    46,700
    
    
    
    45,900Other
    
    
    12,487
    
    
    
    12,600Total debt
    
    
    173,159
    
    
    
    172,472Less current maturities
    
    
    876
    
    
    
    880Total long-term debt
    
    $
    172,283
    
    
    $
    171,592
   6




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7




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Fair Value Measurements and Disclosures Fair Value Measurements and Disclosures
       January 29, 2011
    
    
    October 30, 2010Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueTotal debt (including credit facilities)
    
    $
    173,159
    
    
    $
    178,071
    
    
    $
    172,472
    
    
    $
    176,631
      8




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9




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Three Months EndedJanuary 29,
    
    
    January 30,2011
    
    
    2010Antidilutive shares:SSARs
    
    
    831
    
    
    
    948Stock options
    
    
    694
    
    
    
    955Unvested restricted stock
    
    
    165
    
    
    
    88Total antidilutive shares excluded from diluted earnings per share
    
    
    1,690
    
    
    
    1,991
  Three Months EndedJanuary 29,
    
    
    January 30,2011
    
    
    2010Basic and diluted net earnings:Net (loss) earnings from continuing operations
    
    $
    (1,838
    )
    
    $
    4,736Less: net (loss) earnings from continuing operations
allocated to participating securities
    
    
    (4
    )
    
    
    13Net (loss) earnings from continuing operations attributable
to common shareholders
    
    
    (1,834
    )
    
    
    4,723Net earnings from discontinued operations, net of tax
    
    
    2,871
    
    
    
    8Less: net earnings from discontinued operations
allocated to participating securities
    
    
    6
    
    
    
    Net earnings from discontinued operations attributable
to common shareholders
    
    
    2,865
    
    
    
    8Net earnings attributable to common shareholders
    
    $
    1,031
    
    
    $
    4,731Weighted average shares outstanding:Basic weighted average common shares outstanding
    
    
    30,586
    
    
    
    30,544Add: dilutive shares from equity instruments
    
    
    
    
    
    
    175Diluted weighted average shares outstanding
    
    
    30,586
    
    
    
    30,719Basic earnings per share attributable
to common stockholders:Net (loss) earnings from continuing operations
    
    $
    (0.06
    )
    
    $
    0.16Net earnings from discontinued operations, net of tax
    
    
    0.09
    
    
    
    Net earnings per share
    
    $
    0.03
    
    
    $
    0.16Diluted earnings per share attributable
to common shareholders:Net (loss) earnings from continuing operations
    
    $
    (0.06
    )
    
    $
    0.15Net earnings from discontinued operations, net of tax
    
    
    0.09
    
    
    
    Net earnings per share
    
    $
    0.03
    
    
    $
    0.15
 10




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Custom Sheet and Rollstock
  Packaging Technologies
  Color and Specialty Compounds
  11




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Three Months EndedJanuary 29,
    
    
    January 30,2011
    
    
    2010Net sales: (a)(b)Custom Sheet and Rollstock
    
    $
    125,144
    
    
    $
    125,170Packaging Technologies
    
    
    51,743
    
    
    
    48,102Color and Specialty Compounds
    
    
    57,896
    
    
    
    51,892$
    234,783
    
    
    $
    225,164Operating earnings (loss): (b)Custom Sheet and Rollstock
    
    $
    4,483
    
    
    $
    8,291Packaging Technologies
    
    
    4,642
    
    
    
    6,004Color and Specialty Compounds
    
    
    (2,598
    )
    
    
    898Corporate
    
    
    (8,345
    )
    
    
    (8,414
    )$
    (1,818
    )
    
    $
    6,779
 
 Notes to table:(a)
    
    Excludes intersegment sales of $10,758 and $10,144 in the first three months of 2011 and
2010, respectively.(b)
    
    Excludes discontinued operations.   Three Months EndedJanuary 29,
    
    
    January 30,2011
    
    
    2010Net earnings
    
    $
    1,033
    
    
    $
    4,744Foreign currency translation adjustments
    
    
    412
    
    
    
    1,235Total comprehensive income
    
    $
    1,445
    
    
    $
    5,979
  12




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis of the Companys financial condition and results of
operations contains forward-looking statements. The following discussion of the Companys
financial condition and results of operations should be read in conjunction with Spartechs
condensed consolidated financial statements and accompanying notes. The Company has based its
forward-looking statements about its markets and demand for its products and future results on
assumptions that the Company considers reasonable. Actual results may differ materially from those
suggested by such forward-looking statements for various reasons including those discussed in
Cautionary Statements Concerning Forward-Looking Statements. Unless otherwise noted, all amounts
and analyses are based on continuing operations.
 Non-GAAP Financial Measures
   Business Overview
    Results
   13




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Outlook
  Consolidated Results
  Q1 2011 vs. Q1 2010Underlying volume
    
    
    -3
    %Price/Mix
    
    
    7
    %Total
    
    
    4
    %
   Three Months EndedJanuary 29,
    
    
    January 30,2011
    
    
    2010Dollars and Pounds(in millions)Net sales
    
    $
    234.8
    
    
    $
    225.2Cost of sales
    
    
    216.4
    
    
    
    198.3Gross margin
    
    $
    18.4
    
    
    $
    26.9Pounds sold
    
    
    203.9
    
    
    
    210.6Dollars per Pound SoldNet sales
    
    $
    1.152
    
    
    $
    1.069Cost of sales
    
    
    1.061
    
    
    
    0.941Gross margin
    
    $
    0.091
    
    
    $
    0.128
  14




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Segment Results
  Custom Sheet and Rollstock Segment
  Q1 2011 vs. Q1 2010Underlying volume
    
    
    -9
    %Price/Mix
    
    
    9
    %Total
    
    
    0
    %
   15




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Packaging Technologies
  Q1 2011 vs. Q1 2010Underlying volume
    
    
    -2
    %Price/Mix
    
    
    10
    %Total
    
    
    8
    %
   Color and Specialty Compounds Segment
  Q1 2011 vs. Q1 2010Underlying volume
    
    
    5
    %Price/Mix
    
    
    7
    %Total
    
    
    12
    %
   Corporate
   Cash Flow
  16




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Three Months EndedJanuary 29,
    
    
    January 30,2011
    
    
    2010Cash Flows (in thousands)Net cash provided by operating activities
    
    $
    7,711
    
    
    $
    8,948Net cash used by investing activities
    
    
    (7,986
    )
    
    
    (492
    )Net cash used by financing activities
    
    
    (1,094
    )
    
    
    (17,316
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    4
    
    
    
    21Decrease in cash and cash equivalents
    
    $
    (1,365
    )
    
    $
    (8,839
    )
    Financing Arrangements
     17




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Three Months EndedJanuary 29,
    
    
    January 30,(unaudited and in thousands, except per share data)
    
    2011
    
    
    2010Operating (loss) earnings (GAAP)
    
    $
    (1,818
    )
    
    $
    6,779Restructuring and exit costs
    
    
    828
    
    
    
    671Operating (loss) earnings excluding special items (Non-GAAP)
    
    $
    (990
    )
    
    $
    7,450Net (loss) earnings from continuing operations (GAAP)
    
    $
    (1,838
    )
    
    $
    4,736Restructuring and exit costs, net of tax
    
    
    513
    
    
    
    422Tax benefits from restructuring of foreign operations
    
    
    
    
    
    
    (2,770
    )Net (loss) earnings from continuing operations excluding special items (Non-GAAP)
    
    $
    (1,325
    )
    
    $
    2,388Net (loss) earnings from continuing operations
per diluted share (GAAP)
    
    $
    (0.06
    )
    
    $
    0.15Restructuring and exit costs, net of tax
    
    
    0.02
    
    
    
    0.02Tax benefit on restructuring of foreign operations
    
    
    
    
    
    
    (0.09
    )Net (loss) earnings from continuing operations per diluted share excluding
special items (Non-GAAP)
    
    $
    (0.04
    )
    
    $
    0.08
  Three Months Ended January 29, 2011
    
    Three Months Ended January 30, 2010Operating
    
    
    
    
    
    
    
    
    
    Operating(Loss)
    
    
    
    
    
    
    
    
    
    (Loss)Operating
    
    
    
    
    
    Earnings
    
    Operating
    
    
    
    
    
    Earnings(Loss)
    
    
    
    
    
    Excluding
    
    (Loss)
    
    
    
    
    
    ExcludingEarnings
    
    Special
    
    Special Items
    
    Earnings
    
    Special
    
    Special ItemsSegment
    
    (GAAP)
    
    Items
    
    (Non-GAAP)
    
    (GAAP)
    
    Items
    
    (Non-GAAP)Custom Sheet and
Rollstock
    
    $
    4,483
    
    
    $
    350
    
    
    $
    4,833
    
    
    $
    8,291
    
    
    $
    84
    
    
    $
    8,375Packaging Technologies
    
    
    4,642
    
    
    
    116
    
    
    
    4,758
    
    
    
    6,004
    
    
    
    (729
    )
    
    
    5,275Color & Specialty
Compounds
    
    
    (2,598
    )
    
    
    356
    
    
    
    (2,242
    )
    
    
    898
    
    
    
    1,316
    
    
    
    2,214Corporate
    
    
    (8,345
    )
    
    
    6
    
    
    
    (8,339
    )
    
    
    (8,414
    )
    
    
    
    
    
    
    (8,414
    )Total
    
    $
    (1,818
    )
    
    $
    828
    
    
    $
    (990
    )
    
    $
    6,779
    
    
    $
    671
    
    
    $
    7,450
 19




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##### Table of Contents



Item 4.
    
    Controls and Procedures
    
 PART II  Other Information
 
 Item 1.
    
    Legal Proceedings
    20




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##### Table of Contents



Item 6.
    
    Exhibits
 Exhibits (listed by numbers corresponding to the Exhibit Table of Item 601 of Regulation S-K)
 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
 
   SPARTECH CORPORATION
(Registrant)Date:      March 7, 2011
    By:
    /s/ Victoria M. HoltVictoria M. HoltPresident and Chief Executive Officer
(Principal Executive Officer)/s/ Randy C. MartinRandy C. MartinExecutive Vice President and Chief Financial Officer
(Principal Financial Officer)/s/ Michael G. MarcelyMichael G. MarcelySenior Vice President of
Finance
(Principal Accounting Officer) 21