##### 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 May 5, 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
 Number of shares outstanding as of May 5, 2007:Common stock, $.75 par value per share
    
    32,130,257




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##### 



SPARTECH CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MAY 5, 2007
TABLE OF CONTENTS
 PART I            FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Condensed Balance Sheets  As of:May 5, 2007 and October 28, 2006
    
    
    1Consolidated Condensed Statements of Operations  For the
three and six months ended May 5, 2007 and April 29, 2006
    
    
    2Consolidated Condensed Statements of Cash Flows  For the six
months ended May 5, 2007 and April 29, 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
    
    
    15Item 4. Controls and Procedures
    
    
    15PART II            OTHER INFORMATIONItem 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 4. Submission of Matters to a Vote of Security Holders
    
    
    16Item 6. Exhibits
    
    
    16Signatures
    
    
    17Certifications
    
    
    18Section 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
 May 5, 2007
    
    
    October 28,(Unaudited)
    
    
    2006AssetsCurrent assetsCash and cash equivalents
    
    $
    8,251
    
    
    $
    5,372Receivables, net
    
    
    205,358
    
    
    
    200,728Inventories
    
    
    120,927
    
    
    
    122,329Prepaids and other
    
    
    13,653
    
    
    
    14,193Total current assets
    
    
    348,189
    
    
    
    342,622Property, plant and equipment, net
    
    
    305,308
    
    
    
    304,779Goodwill
    
    
    350,399
    
    
    
    350,399Other intangible assets, net
    
    
    34,529
    
    
    
    36,582Other assets
    
    
    8,035
    
    
    
    7,412Total assets
    
    $
    1,046,460
    
    
    $
    1,041,794Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    6,875
    
    
    $
    6,898Accounts payable
    
    
    155,126
    
    
    
    149,520Accrued liabilities
    
    
    42,887
    
    
    
    51,186Total current liabilities
    
    
    204,888
    
    
    
    207,604Long-term debt, less current maturities
    
    
    278,378
    
    
    
    282,325Deferred taxes
    
    
    99,241
    
    
    
    97,681Other long-term liabilities
    
    
    6,988
    
    
    
    11,491Total long-term liabilities
    
    
    384,607
    
    
    
    391,497Shareholders equityCommon stock, 33,131,846 shares issued in 2007 and 2006
    
    
    24,849
    
    
    
    24,849Contributed capital
    
    
    200,480
    
    
    
    198,661Retained earnings
    
    
    255,513
    
    
    
    240,398Treasury stock, at cost, 1,001,589 shares in 2007;
1,007,766 shares in 2006
    
    
    (25,625
    )
    
    
    (22,845
    )Accumulated other comprehensive income
    
    
    1,748
    
    
    
    1,630Total shareholders equity
    
    
    456,965
    
    
    
    442,693Total liabilities and shareholders equity
    
    $
    1,046,460
    
    
    $
    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 Ended
    
    
    Six Months EndedMay 5,
    
    
    April 29,
    
    
    May 5,
    
    
    April 29,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    377,368
    
    
    $
    389,278
    
    
    $
    724,622
    
    
    $
    732,869Cost and expensesCost of sales
    
    
    326,832
    
    
    
    341,623
    
    
    
    635,160
    
    
    
    651,442Selling, general and administrative
    
    
    19,849
    
    
    
    18,403
    
    
    
    40,209
    
    
    
    36,134Amortization of intangibles
    
    
    1,134
    
    
    
    1,205
    
    
    
    2,272
    
    
    
    2,375347,815
    
    
    
    361,231
    
    
    
    677,641
    
    
    
    689,951Operating earnings
    
    
    29,553
    
    
    
    28,047
    
    
    
    46,981
    
    
    
    42,918Interest (net of interest income
of $109, $214, $229 and $281,
respectively)
    
    
    4,291
    
    
    
    5,591
    
    
    
    9,054
    
    
    
    11,343Earnings before income taxes
    
    
    25,262
    
    
    
    22,456
    
    
    
    37,927
    
    
    
    31,575Income taxes
    
    
    9,552
    
    
    
    8,547
    
    
    
    14,152
    
    
    
    12,010Net earnings
    
    $
    15,710
    
    
    $
    13,909
    
    
    $
    23,775
    
    
    $
    19,565Net earnings per common shareBasic
    
    $
    .49
    
    
    $
    .43
    
    
    $
    .74
    
    
    $
    .61Diluted
    
    $
    .49
    
    
    $
    .42
    
    
    $
    .73
    
    
    $
    .61Dividends declared per common share
    
    $
    .135
    
    
    $
    .125
    
    
    $
    .270
    
    
    $
    .250
 See accompanying notes to consolidated condensed financial statements.
 2




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##### Table of Contents



SPARTECH CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 Six Months EndedMay 5,
    
    
    April 29,2007
    
    
    2006Cash flows from operating activitiesNet earnings
    
    $
    23,775
    
    
    $
    19,565Adjustments to reconcile net earnings to net cash
provided by (used for) operating activities:Restructuring and exit costs
    
    
    327
    
    
    
    236Depreciation and amortization
    
    
    20,943
    
    
    
    20,168Stock compensation expense
    
    
    1,956
    
    
    
    1,555Other, net
    
    
    2,568
    
    
    
    3,414Change in current assets and liabilities
    
    
    (6,336
    )
    
    
    (4,012
    )Net cash provided by operating activities
    
    
    43,233
    
    
    
    40,926Cash flows from investing activitiesCapital expenditures
    
    
    (18,454
    )
    
    
    (9,388
    )Sale of assets
    
    
    77
    
    
    
    2,371Net cash used for investing activities
    
    
    (18,377
    )
    
    
    (7,017
    )Cash flows from financing activitiesNet payments on notes and revolving credit facilities
    
    
    (10,373
    )
    
    
    (28,480
    )Payments on bonds and leases
    
    
    (430
    )
    
    
    (373
    )Cash dividends on common stock
    
    
    (8,331
    )
    
    
    (7,863
    )Stock options exercised
    
    
    6,692
    
    
    
    2,134Treasury stock acquired
    
    
    (10,413
    )
    
    
    (1,541
    )Excess tax benefits from stock based compensation
    
    
    752
    
    
    
    224Net cash used for financing activities
    
    
    (22,103
    )
    
    
    (35,899
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    126
    
    
    
    2Increase (decrease) in cash and cash equivalents
    
    
    2,879
    
    
    
    (1,988
    )Cash and cash equivalents at beginning of year
    
    
    5,372
    
    
    
    4,601Cash and cash equivalents at end of quarter
    
    $
    8,251
    
    
    $
    2,613
 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
    
    $
    60,439
    
    
    $
    61,872Production supplies
    
    
    9,119
    
    
    
    8,982Finished goods
    
    
    51,369
    
    
    
    51,475$
    120,927
    
    
    $
    122,329
 3) Stock-Based Compensation
  Three Months Ended
    
    
    Six Months EndedMay 5,
    
    
    April 29,
    
    
    May 5,
    
    
    April 29,2007
    
    
    2006
    
    
    2007
    
    
    2006Cost of sales
    
    $
    72
    
    
    $
    72
    
    
    $
    135
    
    
    $
    129Selling, general and administrative
    
    
    759
    
    
    
    544
    
    
    
    1,821
    
    
    
    1,426Total stock based
compensation expense
included in operating
earnings
    
    
    831
    
    
    
    616
    
    
    
    1,956
    
    
    
    1,555Income taxes
    
    
    243
    
    
    
    136
    
    
    
    589
    
    
    
    383Effect on net earnings
    
    $
    588
    
    
    $
    480
    
    
    $
    1,367
    
    
    $
    1,172Effect on basic and diluted
earnings per share
    
    $
    .02
    
    
    $
    .01
    
    
    $
    .04
    
    
    $
    .03
 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
  Six MonthsEnded
    
    
    Cumulative2006
    
    
    May 5, 2007
    
    
    to DateAccelerated depreciation
    
    $
    126
    
    
    $
    223
    
    
    $
    349Facility restructuring and exit costs
    
    
    75
    
    
    
    56
    
    
    
    131Total
    
    $
    201
    
    
    $
    279
    
    
    $
    480
  2005 Restructuring Plan
  5




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
 5) Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedMay 5,
    
    
    April 29,
    
    
    May 5,
    
    
    April 29,2007
    
    
    2006
    
    
    2007
    
    
    2006Net earnings:Basic net earnings
    
    $
    15,710
    
    
    $
    13,909
    
    
    $
    23,775
    
    
    $
    19,565Add: Interest on convertible securities,
net of tax
    
    
    
    
    
    
    1,588
    
    
    
    
    
    
    
    Diluted net earnings
    
    $
    15,710
    
    
    $
    15,497
    
    
    $
    23,775
    
    
    $
    19,565Weighted average shares outstanding:Basic weighted average common shares outstanding
    
    
    32,010
    
    
    
    32,095
    
    
    
    32,044
    
    
    
    32,067Add: Dilutive shares from equity instruments
    
    
    324
    
    
    
    204
    
    
    
    321
    
    
    
    175Add: Dilutive shares from convertible
securities
    
    
    
    
    
    
    4,578
    
    
    
    
    
    
    
    Diluted weighted average shares outstanding
    
    
    32,334
    
    
    
    36,877
    
    
    
    32,365
    
    
    
    32,242Net earnings per share:Basic
    
    $
    .49
    
    
    $
    .43
    
    
    $
    .74
    
    
    $
    .61Diluted
    
    $
    .49
    
    
    $
    .42
    
    
    $
    .73
    
    
    $
    .61
 6) Commitments and Contingencies
    6




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
 7) Segment Information
  Three Months Ended
    
    
    Six Months EndedMay 5,
    
    
    April 29,
    
    
    May 5,
    
    
    April 29,2007
    
    
    2006
    
    
    2007
    
    
    2006Net salesCustom Sheet and Rollstock
    
    $
    238,964
    
    
    $
    240,891
    
    
    $
    462,231
    
    
    $
    459,186Color and Specialty Compounds
    
    
    111,640
    
    
    
    122,288
    
    
    
    217,178
    
    
    
    228,696Engineered Products
    
    
    26,764
    
    
    
    26,099
    
    
    
    45,213
    
    
    
    44,987Total net sales*
    
    $
    377,368
    
    
    $
    389,278
    
    
    $
    724,622
    
    
    $
    732,869Operating earnings (loss)Custom Sheet and Rollstock
    
    $
    21,378
    
    
    $
    20,502
    
    
    $
    37,350
    
    
    $
    33,203Color and Specialty Compounds
    
    
    9,041
    
    
    
    8,051
    
    
    
    13,033
    
    
    
    12,523Engineered Products
    
    
    4,927
    
    
    
    3,380
    
    
    
    6,512
    
    
    
    4,370Corporate / Other
    
    
    (5,793
    )
    
    
    (3,886
    )
    
    
    (9,914
    )
    
    
    (7,178
    )Total operating earnings
    
    $
    29,553
    
    
    $
    28,047
    
    
    $
    46,981
    
    
    $
    42,918
 
 *
    
    Excludes inter-segment sales of $15,534, $16,623, $28,442 and $30,058, respectively,
primarily from the Color and Specialty Compounds segment. 8) Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedMay 5,
    
    
    April 29,
    
    
    May 5,
    
    
    April 29,2007
    
    
    2006
    
    
    2007
    
    
    2006Net earnings
    
    $
    15,710
    
    
    $
    13,909
    
    
    $
    23,775
    
    
    $
    19,565Foreign currency translation adjustments
    
    
    2,343
    
    
    
    262
    
    
    
    118
    
    
    
    1,116Total comprehensive income
    
    $
    18,053
    
    
    $
    14,171
    
    
    $
    23,893
    
    
    $
    20,681
 7




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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
    )%
    
    
    (3
    )%Volume from additional week
    
    
    
    
    
    
    4Price/Mix
    
    
    (2
    )
    
    
    (2
    )(3
    )%
    
    
    (1
    )%
   8




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Three Months Ended
    
    
    Six Months EndedMay 5,
    
    
    April 29,
    
    
    May 5,
    
    
    April 29,2007
    
    
    2006
    
    
    2007
    
    
    2006Dollars and Pounds (in millions)Net sales
    
    $
    377.4
    
    
    $
    389.3
    
    
    $
    724.6
    
    
    $
    732.9Material costs
    
    
    240.6
    
    
    
    251.5
    
    
    
    465.5
    
    
    
    476.9Material margin
    
    
    136.8
    
    
    
    137.8
    
    
    
    259.1
    
    
    
    256.0Conversion costs
    
    
    86.3
    
    
    
    90.1
    
    
    
    169.6
    
    
    
    174.6Gross margin
    
    $
    50.5
    
    
    $
    47.7
    
    
    $
    89.5
    
    
    $
    81.4Pounds Sold
    
    
    379.1
    
    
    
    384.2
    
    
    
    725.9
    
    
    
    719.6Dollars per Pound SoldNet sales
    
    $
    .996
    
    
    $
    1.013
    
    
    $
    .998
    
    
    $
    1.019Material costs
    
    
    .635
    
    
    
    .655
    
    
    
    .641
    
    
    
    .663Material margin
    
    
    .361
    
    
    
    .358
    
    
    
    .357
    
    
    
    .356Conversion costs
    
    
    .228
    
    
    
    .234
    
    
    
    .234
    
    
    
    .243Gross margin
    
    $
    .133
    
    
    $
    .124
    
    
    $
    .123
    
    
    $
    .113
      9




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Segment Results
 Custom Sheet and Rollstock Segment
  Three Months
    
    Six MonthsUnderlying volume
    
    
    3
    %
    
    
    
    %Volume from additional week
    
    
    
    
    
    
    4Price/Mix
    
    
    (4
    )
    
    
    (3
    )(1
    )%
    
    
    1
    %
   10




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Color and Specialty Compounds Segment
  Three Months
    
    Six MonthsUnderlying volume
    
    
    (6
    )%
    
    
    (6
    )%Volume from additional week
    
    
    
    
    
    
    4Price/Mix
    
    
    (3
    )
    
    
    (3
    )(9
    )%
    
    
    (5
    )%
   Engineered Products Group
  Three Months
    
    Six MonthsUnderlying volume
    
    
    8
    %
    
    
    2
    %Volume from additional week
    
    
    
    
    
    
    4Price/Mix
    
    
    (5
    )
    
    
    (5
    )3
    %
    
    
    1
    %
   11




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Corporate
  Liquidity and Capital Resources
 Cash Flow
  2007
    
    
    2006Cash Flows (in millions)Net cash provided by operating activities
    
    $
    43.2
    
    
    $
    40.9Net cash used for investing activities
    
    
    (18.3
    )
    
    
    (7.0
    )Net cash used for financing activities
    
    
    (22.1
    )
    
    
    (35.9
    )Effect of exchange rate changes
    
    
    0.1
    
    
    
    Increase (decrease) in cash and cash equivalents
    
    $
    2.9
    
    
    $
    (2.0
    )
     12




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Financing Arrangements
   Outlook
  13




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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)
    
    our 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.
  14




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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
  15




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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
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Election of Directors
 Nominee
    
    Votes For
    
    Authority WithheldGeorge A. Abd
    
    
    26,295,225
    
    
    
    2,807,842Edward J. Dineen
    
    
    26,291,071
    
    
    
    2,811,996Pamela F. Lenehan
    
    
    26,287,823
    
    
    
    2,815,244
 Ratification of Independent Registered Public Accounting Firm:
 Votes For
    

Votes Against
    
   Abstentions29,038,826
    
    
    50,860
    
    
    
    13,383
  
 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, 2006.31.1 Section 302 Certification of CEO31.2 Section 302 Certification of CFO32.1 Section 1350 Certification of CEO32.2 Section 1350 Certification of CFO
 16




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##### Table of Contents



SIGNATURES
  SPARTECH CORPORATION(Registrant)Date: June 13, 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) 17