##### 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 30, 2010
 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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



SPARTECH CORPORATION
FORM 10-Q FOR THE THREE MONTHS ENDED JANUARY 30, 2010
TABLE OF CONTENTS
 PART I   FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Condensed Balance Sheets  As of: January 30,
 2010 (Unaudited) and October 31, 2009
    
    
    1Unaudited Consolidated Condensed Statements of Operations  For
the three months ended January 30, 2010 and January 31, 2009
    
    
    2Unaudited Consolidated Condensed Statements of Cash Flows  For
the three months ended January 30, 2010 and January 31, 2009
    
    
    3Unaudited Notes To Consolidated Condensed Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    10Cautionary Statements Concerning Forward-Looking Statements
    
    
    14Item 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 30, 2010
    
    
    October 31,(Unaudited)
    
    
    2009AssetsCurrent assets:Cash and cash equivalents
    
    $
    18,086
    
    
    $
    26,925Trade receivables, net of allowances of $1,964, and $2,470, respectively
    
    
    129,277
    
    
    
    130,355Inventories
    
    
    65,139
    
    
    
    62,941Prepaids and other current assets
    
    
    18,349
    
    
    
    24,916Assets held for sale
    
    
    2,002
    
    
    
    2,907Total current assets
    
    
    232,853
    
    
    
    248,044Property, plant and equipment, net of accumulated depreciation of
$311,587 and $304,424, respectively
    
    
    222,958
    
    
    
    229,003Goodwill
    
    
    144,070
    
    
    
    144,345Other intangible assets, net of accumulated amortization of
$18,679 and $17,733, respectively
    
    
    27,379
    
    
    
    28,404Other long-term assets
    
    
    3,587
    
    
    
    3,892Total assets
    
    $
    630,847
    
    
    $
    653,688Liabilities and Shareholders EquityCurrent liabilities:Current maturities of long-term debt
    
    $
    493
    
    
    $
    36,079Accounts payable
    
    
    96,905
    
    
    
    103,484Accrued liabilities
    
    
    26,984
    
    
    
    31,122Total current liabilities
    
    
    124,382
    
    
    
    170,685Long-term debt, less current maturities
    
    
    197,226
    
    
    
    180,355Other long-term liabilities:Deferred taxes
    
    
    58,908
    
    
    
    58,736Other long-term liabilities
    
    
    6,393
    
    
    
    7,033Total liabilities
    
    
    386,909
    
    
    
    416,809Shareholders 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; Outstanding: 30,916,674 and
30,719,277 shares, respectively
    
    
    24,849
    
    
    
    24,849Contributed capital
    
    
    203,952
    
    
    
    204,183Retained earnings
    
    
    65,155
    
    
    
    60,411Treasury stock, at cost, 2,215,172 and 2,412,569 shares, respectively
    
    
    (53,549
    )
    
    
    (54,860
    )Accumulated other comprehensive income
    
    
    3,531
    
    
    
    2,296Total shareholders equity
    
    
    243,938
    
    
    
    236,879Total liabilities and shareholders equity
    
    $
    630,847
    
    
    $
    653,688
 See accompanying notes to consolidated condensed financial statements.
 1




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##### Table of Contents



SPARTECH CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
  Three Months EndedJanuary 30,
    
    
    January 31,2010
    
    
    2009Net sales
    
    $
    225,164
    
    
    $
    237,301Costs and expenses:Cost of sales
    
    
    198,332
    
    
    
    216,246Selling, general and administrative expenses
    
    
    18,416
    
    
    
    22,051Amortization of intangibles
    
    
    966
    
    
    
    1,168Restructuring and exit costs
    
    
    671
    
    
    
    824218,385
    
    
    
    240,289Operating earnings (loss)
    
    
    6,779
    
    
    
    (2,988
    )Interest, net of interest income of $0, and $37, respectively
    
    
    3,516
    
    
    
    4,335Earnings (loss) from continuing operations before income taxes
    
    
    3,263
    
    
    
    (7,323
    )Income tax benefit
    
    
    (1,473
    )
    
    
    (2,380
    )Net earnings (loss) from continuing operations
    
    
    4,736
    
    
    
    (4,943
    )Earnings (loss) from discontinued operations, net of tax
    
    
    8
    
    
    
    (149
    )Net earnings (loss)
    
    $
    4,744
    
    
    $
    (5,092
    )Basic earnings (loss) per share:Earnings (loss) from continuing operations
    
    $
    .16
    
    
    $
    (.16
    )Earnings (loss) of discontinued operations
    
    
    
    
    
    
    (.01
    )Net earnings (loss)
    
    $
    .16
    
    
    $
    (.17
    )Diluted earnings (loss) per share:Earnings (loss) from continuing operations
    
    $
    .15
    
    
    $
    (.16
    )Earnings (loss) of discontinued operations
    
    
    
    
    
    
    (.01
    )Net earnings (loss)
    
    $
    .15
    
    
    $
    (.17
    )Dividends declared per share
    
    $
    
    
    
    $
    .05
 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 30,
    
    
    January 31,2010
    
    
    2009Cash flows from operating activitiesNet earnings (loss)
    
    $
    4,744
    
    
    $
    (5,092
    )Adjustments to reconcile net earnings to cash provided by
operating activities:Depreciation and amortization expense
    
    
    9,555
    
    
    
    11,143Provision for bad debt expense
    
    
    (298
    )
    
    
    2,492Deferred taxes
    
    
    125
    
    
    
    (1,832
    )Stock-based compensation expense
    
    
    1,081
    
    
    
    725Gain (loss) on disposition of assets
    
    
    (895
    )
    
    
    4Other, net
    
    
    (150
    )
    
    
    388Change in current assets and liabilities
    
    
    (5,214
    )
    
    
    (9,875
    )Net cash provided by (used for) operating activities
    
    
    8,948
    
    
    
    (2,047
    )Cash flows from investing activitiesCapital expenditures
    
    
    (3,368
    )
    
    
    (2,895
    )Proceeds from disposition of assets
    
    
    2,876
    
    
    
    Net cash used for investing activities
    
    
    (492
    )
    
    
    (2,895
    )Cash flows from financing activitiesBorrowings on bank credit facility, net
    
    
    
    
    
    
    6,360Payments on notes and bank term loan
    
    
    (17,185
    )
    
    
    (Payments) / borrowings on bonds and leases, net
    
    
    (131
    )
    
    
    155Cash dividends on common stock
    
    
    
    
    
    
    (1,529
    )Net cash (used for) provided by financing activities
    
    
    (17,316
    )
    
    
    4,986Effect of exchange rate changes on cash and cash equivalents
    
    
    21
    
    
    
    (3
    )Increase (decrease) in cash and cash equivalents
    
    
    (8,839
    )
    
    
    41Cash and cash equivalents at beginning of year
    
    
    26,925
    
    
    
    2,118Cash and cash equivalents at end of period
    
    $
    18,086
    
    
    $
    2,159
 See accompanying notes to consolidated condensed financial statements.
 3




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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited and Dollars in thousands, except per share amounts)
 1) Basis of Presentation
    2) Discontinued Operations
  Three Months EndedJanuary 30,
    
    
    January 31,2010
    
    
    2009Net sales
    
    $
    
    
    
    $
    11,849Earnings of discontinued operations before
income taxes
    
    
    12
    
    
    
    8Income tax expense
    
    
    4
    
    
    
    157Earnings (loss) of discontinued operations, net of tax
    
    $
    8
    
    
    $
    (149
    )
 3) Inventories
  January 30,
    
    
    October 31,2010
    
    
    2009Raw materials
    
    $
    35,207
    
    
    $
    34,288Production supplies
    
    
    6,962
    
    
    
    7,055Finished goods
    
    
    22,970
    
    
    
    21,598Total inventories
    
    $
    65,139
    
    
    $
    62,941
 4




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##### Table of Contents



4) Restructuring and Exit Costs
  Three Months EndedJanuary 30,
    
    
    January 31,2010
    
    
    2009Restructuring and exit costs:Custom Sheet and Rollstock
    
    $
    84
    
    
    $
    182Packaging Technologies
    
    
    (729
    )
    
    
    336Color and Specialty Compounds
    
    
    1,316
    
    
    
    289Corporate
    
    
    
    
    
    
    17Total Restructuring and exit costs
    
    
    671
    
    
    
    824Income tax benefit
    
    
    (249
    )
    
    
    (303
    )Impact on net earnings from continuing operations
    
    $
    422
    
    
    $
    521
   Three MonthsCumulative
    
    
    Ended
    
    
    Cumulativethrough 2009
    
    
    January 30, 2010
    
    
    To-DateEmployee severance
    
    $
    3,977
    
    
    $
    571
    
    
    $
    4,548Facility consolidation and shut-down costs
    
    
    1,925
    
    
    
    715
    
    
    
    2,640Accelerated depreciation, net
    
    
    1,084
    
    
    
    (615
    )
    
    
    469Total
    
    $
    6,986
    
    
    $
    671
    
    
    $
    7,657
   5




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5) Long-Term Debt
  January 30,
    
    
    October 31,2010
    
    
    20092006 Senior Notes
    
    $
    41,819
    
    
    $
    45,6842004 Senior Notes
    
    
    125,452
    
    
    
    137,054Bank credit facilities
    
    
    
    
    
    
    Euro Bank term loan
    
    
    17,454
    
    
    
    20,292Other
    
    
    12,994
    
    
    
    13,404197,719
    
    
    
    216,434Less current maturities
    
    
    493
    
    
    
    36,079$
    197,226
    
    
    $
    180,355
  6) Income Taxes
  7) Fair Value of Financial Instruments
  January 30, 2010
    
    October 31, 2009Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair ValueLong-term debt
(including bank
credit facilities)
    
    $
    197,719
    
    
    $
    193,133
    
    
    $
    216,434
    
    
    $
    205,776
   6




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8) Commitments and Contingencies
   9) Net Earnings (Loss) Per Share
    7




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Three Months EndedJanuary 30,
    
    
    January 31,2010
    
    
    2009Basic and diluted net earnings:Net earnings (loss) from continuing operations
    
    $
    4,736
    
    
    $
    (4,943
    )Earnings (loss) of discontinued operations
    
    
    8
    
    
    
    (149
    )Net earnings (loss)
    
    $
    4,744
    
    
    $
    (5,092
    )Weighted average shares outstanding:Basic weighted average common and participating shares outstanding
    
    
    30,544
    
    
    
    30,306Add: Dilutive shares from equity instruments
    
    
    175
    
    
    
    Diluted weighted average shares outstanding
    
    
    30,719
    
    
    
    30,306Basic earnings (loss) per share:Earnings (loss) from continuing operations
    
    $
    .16
    
    
    $
    (.16
    )Earnings (loss) of discontinued operations
    
    
    
    
    
    
    (.01
    )Net earnings (loss)
    
    $
    .16
    
    
    $
    (.17
    )Diluted earnings (loss) per share:Earnings (loss) from continuing operations
    
    $
    .15
    
    
    $
    (.16
    )Earnings (loss) of discontinued operations
    
    
    
    
    
    
    (.01
    )Net earnings (loss)
    
    $
    .15
    
    
    $
    (.17
    )
 10) Segment Information
   Three Months EndedJanuary 30,
    
    
    January 31,2010
    
    
    2009Net sales(a):Custom Sheet and Rollstock
    
    $
    116,130
    
    
    $
    114,595Packaging Technologies
    
    
    48,623
    
    
    
    55,029Color and Specialty Compounds
    
    
    60,411
    
    
    
    67,677Net sales
    
    $
    225,164
    
    
    $
    237,301Operating earnings (loss) from continuing operations:Custom Sheet and Rollstock
    
    $
    7,287
    
    
    $
    838Packaging Technologies
    
    
    6,706
    
    
    
    6,178Color and Specialty Compounds
    
    
    1,200
    
    
    
    (565
    )Corporate expenses
    
    
    (8,414
    )
    
    
    (9,439
    )Operating earnings (loss)
    
    $
    6,779
    
    
    $
    (2,988
    )
 Notes to table
 8




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(a)
    
    Excludes intersegment sales of $10,144 and $8,563 in the
first three months of 2010 and 2009, respectively, primarily from the Color and
Specialty Compounds segment. 11) Comprehensive Income (Loss)
  Three Months EndedJanuary 30,
    
    
    January 31,2010
    
    
    2009Net earnings (loss)
    
    $
    4,744
    
    
    $
    (5,092
    )Foreign currency translation adjustments
    
    
    1,235
    
    
    
    (563
    )Total comprehensive income (loss)
    
    $
    5,979
    
    
    $
    (5,655
    )
 9




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Highlights
    Outlook
  Consolidated Results
  Underlying volume
    
    
    3
    %Price/Mix
    
    
    (8
    )(5
    )%
   10




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Three Months EndedJanuary 30,
    
    
    January 31,2010
    
    
    2009Dollars and Pounds (in millions)Net sales
    
    $
    225.2
    
    
    $
    237.3Cost of sales
    
    
    198.4
    
    
    
    216.2Gross margin
    
    $
    26.8
    
    
    $
    21.1Pounds Sold
    
    
    210.6
    
    
    
    204.1Dollars per Pound SoldNet sales
    
    $
    1.069
    
    
    $
    1.163Cost of sales
    
    
    .942
    
    
    
    1.060Gross margin
    
    $
    .127
    
    
    $
    .103
        11




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Segment Results
 Custom Sheet and Rollstock Segment
  Underlying volume
    
    
    13
    %Price/Mix
    
    
    (12
    )1
    %
  Packaging Technologies
  Underlying volume
    
    
    
    %Price/Mix
    
    
    (12
    )(12
    )%
  Color and Specialty Compounds Segment
  Underlying volume
    
    
    (6
    )%Price/Mix
    
    
    (5
    )(11
    )%
  12




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Corporate
  Liquidity and Capital Resources
 Cash Flow
  Three Months EndedJanuary 30,
    
    
    January 31,Cash Flows (in millions)
    
    2010
    
    
    2009Net cash provided by (used for) operating activities
    
    $
    9.0
    
    
    $
    (2.0
    )Net cash used for investing activities
    
    
    (0.5
    )
    
    
    (3.0
    )Net cash provided by (used for) financing activities
    
    
    (17.3
    )
    
    
    5.0Decrease in cash and cash equivalents
    
    $
    (8.8
    )
    
    $
    
  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)
    
    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, gross
margin enhancements, growth or other benefits anticipated from our planned improvement
initiatives;(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 to customers an adequate level of increases in
the costs of materials, freight, utilities, or other conversion costs;(g)
    
    loss of business with a limited number of customers that represent a significant
percentage of the Companys revenues;(h)
    
    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;(i)
    
    possible asset impairment charges;(j)
    
    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 announced
production plant restructurings;(k)
    
    adverse findings in significant legal or environmental proceedings or our inability to
comply with applicable environmental laws and regulations;(l)
    
    our inability to develop and launch new products successfully; and(m)
    
    possible weaknesses in internal controls.
  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, 2010
    /s/ Myles S. OdaniellMyles S. OdaniellPresident 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 Planning and
Controller
(Principal Accounting Officer) 16