##### 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 January 31, 2009
 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
    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
  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 QUARTER ENDED JANUARY 31, 2009
TABLE OF CONTENTS
 PART I FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Condensed Balance Sheets  As of:
January 31, 2009 and November 1, 2008
    
    
    1Consolidated Condensed Statements of Operations  For the
three months ended January 31, 2009 and February 2, 2008
    
    
    2Consolidated Condensed Statements of Cash Flows  For the
three months ended January 31, 2009 and February 2, 2008
    
    
    3Notes To Consolidated Condensed Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    9Cautionary Statements Concerning Forward-Looking Statements
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15PART II OTHER INFORMATIONItem 5. Other Information
    
    
    16Item 6. Exhibits
    
    
    16Signatures
    
    
    16Certifications
    
    
    17EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
  Item 1. FINANCIAL STATEMENTS
 SPARTECH CORPORATION AND SUBSIDIARIES
  CONSOLIDATED CONDENSED BALANCE SHEETS
  January 31, 2009
    
    
    November 1,(Unaudited)
    
    
    2008AssetsCurrent assetsCash and cash equivalents
    
    $
    2,159
    
    
    $
    2,118Trade receivables, net of allowances of $5,820 and $4,550, respectively
    
    
    131,512
    
    
    
    176,108Inventories
    
    
    90,968
    
    
    
    96,721Prepaid expenses and other current assets
    
    
    27,214
    
    
    
    24,665Total current assets
    
    
    251,853
    
    
    
    299,612Property, plant and equipment, net of accumulated depreciation of
$307,271 and $297,876, respectively
    
    
    272,211
    
    
    
    280,202Goodwill
    
    
    145,498
    
    
    
    145,498Other intangible assets, net of accumulated amortization of
$14,288 and $13,148, respectively
    
    
    31,588
    
    
    
    32,722Other long-term assets
    
    
    4,145
    
    
    
    4,385Total assets
    
    $
    705,295
    
    
    $
    762,419Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    20,076
    
    
    $
    20,428Accounts payable
    
    
    106,207
    
    
    
    155,594Accrued liabilities
    
    
    34,892
    
    
    
    42,676Total current liabilities
    
    
    161,175
    
    
    
    218,698Long-term debt, less current maturities
    
    
    261,341
    
    
    
    254,226Other long-term liabilitiesDeferred taxes
    
    
    56,373
    
    
    
    56,516Other long-term liabilities
    
    
    6,074
    
    
    
    6,189Total liabilities
    
    
    484,963
    
    
    
    535,629Shareholders equityPreferred stock (authorized: 4,000,000, par value $1.00)
Issued: None
    
    
    
    
    
    
    Common stock (authorized: 55,000,000, par value $0.75)
Issued: 33,131,846;
Outstanding: 30,562,027 and 30,563,605, respectively
    
    
    24,849
    
    
    
    24,849Contributed capital
    
    
    203,381
    
    
    
    202,656Retained earnings
    
    
    46,968
    
    
    
    53,588Treasury stock, at cost, 2,569,819 shares and 2,568,241, respectively
    
    
    (56,389
    )
    
    
    (56,389
    )Accumulated other comprehensive income
    
    
    1,523
    
    
    
    2,086Total shareholders equity
    
    
    220,332
    
    
    
    226,790Total liabilities and shareholders equity
    
    $
    705,295
    
    
    $
    762,419
 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 31,
    
    
    February 2,2009
    
    
    2008Net sales
    
    $
    249,150
    
    
    $
    335,106Costs and expensesCost of sales
    
    
    226,668
    
    
    
    311,997Selling, general and administrative expenses
    
    
    23,089
    
    
    
    23,139Amortization of intangibles
    
    
    1,168
    
    
    
    1,333Restructuring and exit costs
    
    
    827
    
    
    
    224Total costs and expenses
    
    
    251,752
    
    
    
    336,693Operating loss
    
    
    (2,602
    )
    
    
    (1,587
    )Interest, net of interest income of $37 and $121, respectively
    
    
    4,712
    
    
    
    5,146Loss before income taxes
    
    
    (7,314
    )
    
    
    (6,733
    )Income tax benefit
    
    
    (2,222
    )
    
    
    (3,243
    )Net loss
    
    $
    (5,092
    )
    
    $
    (3,490
    )Net loss per common shareBasic
    
    $
    (.17
    )
    
    $
    (.12
    )Diluted
    
    $
    (.17
    )
    
    $
    (.12
    )Dividends declared per common share
    
    $
    .050
    
    
    $
    .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 EndedJanuary 31,
    
    
    February 2,2009
    
    
    2008Cash flows from operating activitiesNet loss
    
    $
    (5,092
    )
    
    $
    (3,490
    )Adjustments to reconcile net loss to cash (used for)
provided by operating activities:Depreciation and amortization expense
    
    
    11,143
    
    
    
    11,885Provision for bad debt expense
    
    
    2,492
    
    
    
    1,614Deferred taxes
    
    
    (1,832
    )
    
    
    (1,153
    )Stock-based compensation expense
    
    
    725
    
    
    
    1,383Other, net
    
    
    392
    
    
    
    194Change in current assets and liabilities
    
    
    (9,875
    )
    
    
    (3,896
    )Net cash (used for) provided by operating activities
    
    
    (2,047
    )
    
    
    6,537Cash flows from investing activitiesCapital expenditures
    
    
    (2,895
    )
    
    
    (5,241
    )Business acquisitions
    
    
    
    
    
    
    (708
    )Net cash used for investing activities
    
    
    (2,895
    )
    
    
    (5,949
    )Cash flows from financing activitiesBank credit facility borrowings, net
    
    
    6,360
    
    
    
    12,376Borrowings on bonds and leases, net
    
    
    155
    
    
    
    177Cash dividends on common stock
    
    
    (1,529
    )
    
    
    (4,144
    )Issuance of common stock
    
    
    
    
    
    
    2,812Stock options exercised
    
    
    
    
    
    
    15Treasury stock acquired
    
    
    
    
    
    
    (9,667
    )Net cash provided by financing activities
    
    
    4,986
    
    
    
    1,569Effect of exchange rate changes on cash and cash equivalents
    
    
    (3
    )
    
    
    144Increase in cash and cash equivalents
    
    
    41
    
    
    
    2,301Cash and cash equivalents at beginning of year
    
    
    2,118
    
    
    
    3,409Cash and cash equivalents at end of quarter
    
    $
    2,159
    
    
    $
    5,710
 See accompanying notes to consolidated condensed financial statements.
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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
  January 31,
    
    
    November 1,2009
    
    
    2008Raw materials
    
    $
    50,153
    
    
    $
    54,052Production supplies
    
    
    8,655
    
    
    
    8,725Finished goods
    
    
    32,160
    
    
    
    33,944$
    90,968
    
    
    $
    96,721
 3) Restructuring and Exit Costs
  Three Months EndedJanuary 31,
    
    
    February 2,2009
    
    
    2008Restructuring and exit costs:Custom Sheet and Rollstock
    
    $
    182
    
    
    $
    224Packaging Technologies
    
    
    336
    
    
    
    Color and Specialty Compounds
    
    
    292
    
    
    
    Corporate
    
    
    17
    
    
    
    Total restructuring and exit costs
    
    
    827
    
    
    
    224Impact on income tax benefit
    
    
    (295
    )
    
    
    (68
    )Impact on net loss
    
    $
    532
    
    
    $
    156
  4




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
 3) Restructuring and Exit Costs (continued)
 Subsequent Events
  Three MonthsCumulative
    
    
    Ended
    
    
    Cumulativethrough 2008
    
    
    January 31, 2009
    
    
    to DateAccelerated depreciation
    
    $
    667
    
    
    $
    198
    
    
    $
    865Facility restructuring and exit costs
    
    
    1,175
    
    
    
    629
    
    
    
    1,804Total
    
    $
    1,842
    
    
    $
    827
    
    
    $
    2,669
   4) Long-Term Debt
  January 31,
    
    
    November 1,2009
    
    
    20082006 Senior Notes
    
    $
    50,000
    
    
    $
    50,0002004 Senior Notes
    
    
    150,000
    
    
    
    150,000Bank credit facilities
    
    
    48,000
    
    
    
    41,600Bank term loan
    
    
    19,310
    
    
    
    19,113Other
    
    
    14,107
    
    
    
    13,941281,417
    
    
    
    274,654Less current maturities
    
    
    20,076
    
    
    
    20,428$
    261,341
    
    
    $
    254,226
    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) Income Taxes
  6) Fair Value of Financial Instruments
 Fair Value Measurements Effective Date of Statement 157
 The Fair Value
Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement
No. 115 .
 7) Commitments and Contingencies
   8) Net Loss Per Share
  6




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
 8) Net Loss Per Share (continued)
  Three Months EndedJanuary 31,
    
    
    February 2,2009
    
    
    2008Basic and diluted net loss
    
    $
    (5,092
    )
    
    $
    (3,490
    )Basic and diluted weighted average common shares outstanding
    
    
    30,306
    
    
    
    30,138Basic and diluted net loss per share
    
    $
    (.17
    )
    
    $
    (.12
    )
 9) Segment Information
    Three Months EndedJanuary 31,
    
    
    February 2,2009
    
    
    2008Net salesCustom Sheet and Rollstock
    
    $
    113,616
    
    
    $
    147,350Packaging Technologies
    
    
    55,029
    
    
    
    65,745Color and Specialty Compounds
    
    
    68,356
    
    
    
    104,816Engineered Products
    
    
    12,149
    
    
    
    17,195Net sales (1)
    
    $
    249,150
    
    
    $
    335,106Operating earnings (loss)Custom Sheet and Rollstock
    
    $
    (38
    )
    
    $
    (1,804
    )Packaging Technologies
    
    
    6,178
    
    
    
    4,787Color and Specialty Compounds
    
    
    (378
    )
    
    
    2,169Engineered Products
    
    
    1,112
    
    
    
    1,629Corporate expenses
    
    
    (9,476
    )
    
    
    (8,368
    )Operating loss
    
    $
    (2,602
    )
    
    $
    (1,587
    )
 
 (1)
    
    Excludes inter-segment sales of $8,563 and $14,311, respectively,
primarily from the Color and Specialty Compounds segment. 7




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
 10) Comprehensive Loss
  Three Months EndedJanuary 31,
    
    
    February 2,2009
    
    
    2008Net loss
    
    $
    (5,092
    )
    
    $
    (3,490
    )Foreign currency translation adjustments
    
    
    (563
    )
    
    
    (1,797
    )Total comprehensive loss
    
    $
    (5,655
    )
    
    $
    (5,287
    )
 11) Subsequent Events
  8




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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
    
    
    (32
    )%Price/Mix
    
    
    6(26
    )%
   9




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Three Months EndedJanuary 31,
    
    
    February 2,2009
    
    
    2008Dollars and Pounds (in millions)Net sales
    
    $
    249.2
    
    
    $
    335.1Cost of sales
    
    
    226.7
    
    
    
    312.0Gross margin
    
    $
    22.5
    
    
    $
    23.1Pounds Sold
    
    
    213.7
    
    
    
    315.5Dollars per Pound SoldNet sales
    
    $
    1.166
    
    
    $
    1.062Cost of sales
    
    
    1.061
    
    
    
    .989Gross margin
    
    $
    .105
    
    
    $
    .073
        10




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Segment Results
 Custom Sheet and Rollstock Segment
  Underlying volume
    
    
    (27
    )%Price/Mix
    
    
    4(23
    )%
   Packaging Technologies
  Underlying volume
    
    
    (21
    )%Price/Mix
    
    
    5(16
    )%
   Color and Specialty Compounds Segment
  Underlying volume
    
    
    (40
    )%Price/Mix
    
    
    5(35
    )%
  11




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Engineered Products Group
  Underlying volume
    
    
    (36
    )%Price/Mix
    
    
    7(29
    )%
   Corporate
  Liquidity and Capital Resources
 Cash Flow
  Three Months EndedJanuary 31,
    
    
    February 2,2009
    
    
    2008Cash Flows (in millions)Net cash (used for) provided by operating activities
    
    $
    (2.0
    )
    
    $
    6.5Net cash used for investing activities
    
    
    (3.0
    )
    
    
    (5.9
    )Net cash provided by financing activities
    
    
    5.0
    
    
    
    1.6Effect of exchange rate changes
    
    
    0.0
    
    
    
    0.1Increase in cash and cash equivalents
    
    $
    0.0
    
    
    $
    2.3
  12




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Financing Arrangements
         
 13




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Cautionary Statements Concerning Forward-Looking Statements
  (a)
    
    further 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)
    
    further adverse changes in the domestic automotive markets, including potential
bankruptcies of one or more of the major domestic automobile manufacturers or suppliers.(e)
    
    our inability to achieve the level of cost savings, productivity improvements, gross
margin enhancements, growth or other benefits anticipated from our planned improvement
initiatives;(f)
    
    our inability to achieve the level of productivity improvements, synergies, growth or
other benefits anticipated from acquired businesses and their integration;(g)
    
    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;(h)
    
    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;(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 impairment charges;(k)
    
    our inability to predict accurately the costs to be incurred, time taken to complete,
operating disruptions therefrom, or savings to be achieved in connection with production
plant restructurings;(l)
    
    adverse findings in significant legal or environmental proceedings or our inability to
comply with applicable environmental laws and regulations;(m)
    
    adverse developments with work stoppages or labor disruptions, particularly in the
automotive industry;(n)
    
    our inability to develop and launch new products successfully;(o)
    
    possible weaknesses in internal controls; and(p)
    
    our ability to successfully complete the implementation of a new enterprise resource
planning computer system and to obtain expected benefits from our 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 Control Over Financial Reporting
  15




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PART II  OTHER INFORMATION
  Item 5. OTHER INFORMATION
   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
  SIGNATURES
  SPARTECH CORPORATION(Registrant)Date: March 3, 2009
    
    /s/ Myles S. Odaniell
Myles S. OdaniellPresident 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)
 16