##### 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 July 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
    
    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
  o þ o
 o þ
  Common stock, $.75 par value per share
    
    
    32,081,695




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##### 



SPARTECH CORPORATION
 FORM 10-Q FOR THE QUARTER ENDED JULY 29, 2006
TABLE OF CONTENTS
 PART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Consolidated Condensed Balance Sheets  As of: July 29, 2006 and October 29, 2005
    
    
    2Consolidated
Condensed Statements of Operations  For the three months and
nine months ended:  July 29, 2006 and July 30, 2005
    
    
    3Consolidated Condensed Statements of Cash Flows  For the nine months ended:  July 29, 2006 and July 30, 2005
    
    
    4Notes To Consolidated Condensed Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    25PART II
    
    OTHER INFORMATIONItem 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 6.
    
    Exhibits
    
    
    26Signatures
    
    
    27CertificationsSection 302 Certification of CEOSection 302 Certification of CFOSection 906 Certification of CEOSection 906 Certification of CFO
  Explanatory Note
 Spartech Corporation (the Company) is restating its fiscal 2005 results in this Quarterly
Report on Form 10-Q . The Form 10-Q for the quarter ended July 30, 2005, which contained the
original fiscal 2005 results, was filed with the Securities and Exchange Commission (SEC) on
September 8, 2005. The Company has determined that the fixed asset charge reported in its fiscal
2005 results should have been reported in prior periods. As more fully described in Note 1 to the
Consolidated Condensed Financial Statements, the purpose of this restatement is to exclude the
fixed asset charge and related depreciation and tax impacts previously reported in the three and
nine month periods ended July 30, 2005. In conjunction with this change, the Company will also
restate its fiscal 2005 and prior years results when it files its Amendment on Form 10-K/A for the
fiscal year ended 2005, expected to be filed as promptly as possible in the Companys fourth
quarter of fiscal 2006. All amounts referenced in this filing reflect the relevant amounts on a
restated basis.




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 SPARTECH CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
 July 29,2006
    
    
    October 29,(Unaudited)
    
    
    2005AssetsCurrent assetsCash and equivalents
    
    $
    6,057
    
    
    $
    4,601Receivables, net
    
    
    197,958
    
    
    
    213,996Inventories
    
    
    131,024
    
    
    
    119,401Prepaids and other
    
    
    18,116
    
    
    
    16,970Total current assets
    
    
    353,155
    
    
    
    354,968Property, plant and equipment, net
    
    
    302,459
    
    
    
    307,386Goodwill
    
    
    352,405
    
    
    
    352,405Other intangible assets
    
    
    37,735
    
    
    
    40,710Other assets
    
    
    6,070
    
    
    
    18,926Total assets
    
    $
    1,051,824
    
    
    $
    1,074,395Liabilities and Shareholders EquityCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    6,896
    
    
    $
    11,175Accounts payable
    
    
    136,413
    
    
    
    121,682Accrued liabilities
    
    
    57,668
    
    
    
    57,226Total current liabilities
    
    
    200,977
    
    
    
    190,083Convertible subordinated debentures
    
    
    
    
    
    
    154,639Other long-term debt, less current maturities
    
    
    309,207
    
    
    
    214,141Total long-term debt
    
    
    309,207
    
    
    
    368,780Deferred taxes
    
    
    95,561
    
    
    
    91,605Other long-term liabilities
    
    
    10,298
    
    
    
    10,881Total long-term liabilities
    
    
    415,066
    
    
    
    471,266Shareholders equityCommon stock, 33,131,846 shares issued in 2006 and 2005
    
    
    24,849
    
    
    
    24,849Contributed capital
    
    
    198,368
    
    
    
    196,811Retained earnings
    
    
    235,081
    
    
    
    216,928Treasury stock, at cost, 1,050,151 shares in 2006 and 1,143,701 shares in 2005
    
    
    (23,782
    )
    
    
    (26,019
    )Accumulated other comprehensive income
    
    
    1,265
    
    
    
    477Total shareholders equity
    
    
    435,781
    
    
    
    413,046Total liabilities and shareholders equity
    
    $
    1,051,824
    
    
    $
    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
    
    
    Nine Months EndedJuly 29,
    
    
    July 30,
    
    
    July 29,
    
    
    July 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Restated)
    
    
    
    
    
    
    (Restated)Net sales
    
    $
    377,709
    
    
    $
    348,672
    
    
    $
    1,110,578
    
    
    $
    1,030,842Cost and expensesCost of sales
    
    
    329,265
    
    
    
    308,839
    
    
    
    979,745
    
    
    
    916,913Selling, general and administrative
    
    
    19,309
    
    
    
    16,923
    
    
    
    55,443
    
    
    
    52,615Amortization of intangibles
    
    
    1,192
    
    
    
    1,264
    
    
    
    3,567
    
    
    
    3,936Restructuring and exit costs
    
    
    352
    
    
    
    4,639
    
    
    
    1,314
    
    
    
    12,258Former CEO retirement
    
    
    
    
    
    
    3,645
    
    
    
    
    
    
    
    3,645Fixed asset charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,870350,118
    
    
    
    335,310
    
    
    
    1,040,069
    
    
    
    991,237Operating earnings
    
    
    27,591
    
    
    
    13,362
    
    
    
    70,509
    
    
    
    39,605Interest (net of interest income
of $247, $43, $528 and $445,
respectively)
    
    
    5,039
    
    
    
    6,362
    
    
    
    16,382
    
    
    
    19,214Early debt extinguishment costs
    
    
    5,505
    
    
    
    
    
    
    
    5,505
    
    
    
    10,544
    
    
    
    6,362
    
    
    
    21,887
    
    
    
    19,214Earnings before income taxes
    
    
    17,047
    
    
    
    7,000
    
    
    
    48,622
    
    
    
    20,391Income taxes
    
    
    6,433
    
    
    
    2,583
    
    
    
    18,443
    
    
    
    7,221Net earnings
    
    $
    10,614
    
    
    $
    4,417
    
    
    $
    30,179
    
    
    $
    13,170Net earnings per common shareBasic
    
    $
    .33
    
    
    $
    .14
    
    
    $
    .94
    
    
    $
    .41Diluted
    
    $
    .33
    
    
    $
    .14
    
    
    $
    .94
    
    
    $
    .41Dividends declared per common share
    
    $
    .125
    
    
    $
    .120
    
    
    $
    .375
    
    
    $
    .360
 See accompanying notes to consolidated condensed financial statements.
 3




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SPARTECH CORPORATION AND SUBSIDIARIES
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 Nine Months EndedJuly 29,
    
    
    July 30,2006
    
    
    2005(Restated)Cash flows from operating activitiesNet earnings
    
    $
    30,179
    
    
    $
    13,170Adjustments to reconcile net earnings to net cash provided by (used for)
operating activities:Depreciation and amortization
    
    
    30,429
    
    
    
    29,441Stock compensation expense
    
    
    2,165
    
    
    
    210Early debt extinguishment costs
    
    
    5,505
    
    
    
    Restructuring and exit costs
    
    
    30
    
    
    
    10,764Fixed asset charge
    
    
    
    
    
    
    1,870Former CEO retirement
    
    
    
    
    
    
    831Change in current assets and liabilities
    
    
    16,927
    
    
    
    6,975Other, net
    
    
    3,429
    
    
    
    1,298Net cash provided by operating activities
    
    
    88,664
    
    
    
    64,559Cash flows from investing activitiesCapital expenditures
    
    
    (14,385
    )
    
    
    (31,267
    )Business acquisitions
    
    
    
    
    
    
    (1,224
    )Sale of assets
    
    
    2,393
    
    
    
    89Net cash used for investing activities
    
    
    (11,992
    )
    
    
    (32,402
    )Cash flows from financing activitiesBank credit facility borrowings (payments), net
    
    
    39,922
    
    
    
    (48,020
    )Issuance of senior notes
    
    
    50,000
    
    
    
    Payment of convertible subordinated debentures
    
    
    (150,000
    )
    
    
    Payments on bonds and leases
    
    
    (421
    )
    
    
    (624
    )Early payment premiums on convertible subordinated debentures
    
    
    (3,780
    )
    
    
    Cash dividends on common stock
    
    
    (11,873
    )
    
    
    (11,547
    )Stock options exercised
    
    
    2,202
    
    
    
    1,980Treasury stock acquired
    
    
    (1,541
    )
    
    
    (6,846
    )Excess tax benefits from stock based compensation
    
    
    237
    
    
    
    Net cash used for financing activities
    
    
    (75,254
    )
    
    
    (65,057
    )Effect of exchange rate changes on cash and equivalents
    
    
    38
    
    
    
    1Increase (decrease) in cash and equivalents
    
    
    1,456
    
    
    
    (32,899
    )Cash and equivalents at beginning of year
    
    
    4,601
    
    
    
    41,272Cash and equivalents at end of quarter
    
    $
    6,057
    
    
    $
    8,373
 See accompanying notes to consolidated condensed financial statements.
 4




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SPARTECH CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  1) Restatement of Historical Financial Statements
    Impact on Consolidated Condensed Statement of Operations  Three Months
 Three Months EndedAs Reported
    
    
    
    
    
    
    RestatedJuly 30,
    
    
    
    
    
    
    July 30,2005
    
    
    Adjustments
    
    
    2005Fixed asset charge
    
    $
    206
    
    
    $
    (206
    )
    
    $
    Operating earnings
    
    
    13,156
    
    
    
    206
    
    
    
    13,362Earnings before income taxes
    
    
    6,794
    
    
    
    206
    
    
    
    7,000Income taxes
    
    
    2,505
    
    
    
    78
    
    
    
    2,583Net earnings
    
    $
    4,289
    
    
    
    128
    
    
    $
    4,417Net earnings per common shareBasic
    
    $
    .13
    
    
    $
    .01
    
    
    $
    .14Diluted
    
    $
    .13
    
    
    $
    .01
    
    
    $
    .14
 5




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Impact on Consolidated Condensed Statement of Operations  Nine Months
 Nine Months EndedAs Reported
    
    
    
    
    
    
    RestatedJuly 30,
    
    
    
    
    
    
    July 30,2005
    
    
    Adjustments
    
    
    2005Cost of sales
    
    $
    917,981
    
    
    $
    (1,068
    )
    
    $
    916,913Selling, general and administrative
    
    
    52,739
    
    
    
    (124
    )
    
    
    52,615Fixed asset charge
    
    
    10,592
    
    
    
    (8,722
    )
    
    
    1,870Operating earnings
    
    
    29,691
    
    
    
    9,914
    
    
    
    39,605Earnings before income taxes
    
    
    10,477
    
    
    
    9,914
    
    
    
    20,391Income taxes
    
    
    3,450
    
    
    
    3,771
    
    
    
    7,221Net earnings
    
    $
    7,027
    
    
    
    6,143
    
    
    $
    13,170Net earnings per common shareBasic
    
    $
    .22
    
    
    $
    .19
    
    
    $
    .41Diluted
    
    $
    .22
    
    
    $
    .19
    
    
    $
    .41
 Impact on Consolidated Condensed Statement of Cash Flows
 Nine Months EndedAs Reported
    
    
    
    
    
    
    RestatedJuly 30,
    
    
    
    
    
    
    July 30,2005
    
    
    Adjustments
    
    
    2005Cash flows from operating activitiesNet earnings
    
    $
    7,027
    
    
    $
    6,143
    
    
    $
    13,170Adjustments to reconcile net earnings to net cash
provided by (used for) operating activities:Depreciation and amortization
    
    
    30,633
    
    
    
    (1,192
    )
    
    
    29,441Stock compensation expense
    
    
    210
    
    
    
    
    
    
    
    210Early debt extinguishment costs
    
    
    
    
    
    
    
    
    
    
    Restructuring and exit costs
    
    
    10,764
    
    
    
    
    
    
    
    10,764Fixed asset charge
    
    
    10,592
    
    
    
    (8,722
    )
    
    
    1,870Former CEO retirement
    
    
    831
    
    
    
    
    
    
    
    831Change in current assets and liabilities
    
    
    6,975
    
    
    
    
    
    
    
    6,975Other, net
    
    
    (2,473
    )
    
    
    3,771
    
    
    
    1,298Net cash provided by operating activities
    
    $
    64,559
    
    
    $
    
    
    
    $
    64,559
 2) Basis of Presentation
   6




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Goodwill and Other Intangible Assets
 3) Restructuring
 2005 Restructuring Plan
   NineMonthsJuly 29,Fiscal Year
    
    
    2006
    
    
    Cumulative2005
    
    
    Charges
    
    
    to DateCustom Sheet and Rollstock
    
    $
    6
    
    
    $
    (7
    )
    
    $
    (1
    )Color and Specialty Compounds
    
    
    7,388
    
    
    
    1,275
    
    
    
    8,663Engineered Products
    
    
    1,944
    
    
    
    
    
    
    
    1,944Corporate
    
    
    750
    
    
    
    
    
    
    
    750Total
    
    $
    10,088
    
    
    $
    1,268
    
    
    $
    11,356
   Greenville Plant Consolidation
  7




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 4) Fixed Asset Charge
   5) Inventories
  2006
    
    
    2005Raw materials
    
    $
    71,932
    
    
    $
    64,262Production supplies
    
    
    9,168
    
    
    
    9,479Finished goods
    
    
    49,924
    
    
    
    45,660$
    131,024
    
    
    $
    119,401
 6) Other Intangible Assets
  Gross Carrying Amount
    
    
    Accumulated Amortization2006
    
    
    2005
    
    
    2006
    
    
    2005Non-compete agreements
    
    $
    3,694
    
    
    $
    3,680
    
    
    $
    2,525
    
    
    $
    2,122Customer contracts/relationships
    
    
    21,612
    
    
    
    21,571
    
    
    
    7,521
    
    
    
    5,321Product formulations
    
    
    18,007
    
    
    
    17,476
    
    
    
    4,432
    
    
    
    3,474Total
    
    $
    43,313
    
    
    $
    42,727
    
    
    $
    14,478
    
    
    $
    10,917
  IntangibleFiscal Year-Ended
    
    AmortizationRemaining in 2006
    
    $
    1,1512007
    
    
    4,2042008
    
    
    3,1862009
    
    
    2,7352010
    
    
    2,158$
    13,434
 8




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 7) Stock-Based Compensation
 Share-Based Payment Statement of Cash
Flows
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedJuly 29,
    
    
    July 29,2006
    
    
    2006Cost of sales
    
    $
    72
    
    
    $
    201Selling, general and administrative
    
    
    538
    
    
    
    1,964Total stock based compensation expense included in operating earnings
    
    
    610
    
    
    
    2,165Income taxes
    
    
    135
    
    
    
    518Effect on net earnings
    
    $
    475
    
    
    $
    1,647Effect on basic and diluted earnings per share
    
    $
    .01
    
    
    $
    .05
   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
  9




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Weighted(in
    
    
    Average
    
    
    Aggregate
    
    
    Average000s)
    
    
    Exercise
    
    
    Intrinsic
    
    
    ContractualShares
    
    
    Price
    
    
    Value
    
    
    LifeOutstanding, beginning of the year
    
    
    2,177
    
    
    $
    21.21Granted
    
    
    367
    
    
    
    21.51Exercised
    
    
    (136
    )
    
    
    16.35Forfeited
    
    
    (86
    )
    
    
    22.22Outstanding, end of quarter
    
    
    2,322
    
    
    $
    21.40
    
    
    $
    5,549
    
    
    4.9 yearsExercisable, end of quarter
    
    
    1,443
    
    
    $
    20.84
    
    
    $
    4,255
    
    
    4.8 years
   WeightedAverage(in 000s)
    
    
    FairShares
    
    
    ValueNonvested stock options, beginning of the year
    
    
    864
    
    
    $
    8.05Granted
    
    
    367
    
    
    
    7.78Vested
    
    
    (316
    )
    
    
    6.84Forfeited
    
    
    (36
    )
    
    
    7.64Nonvested stock options, end of quarter
    
    
    879
    
    
    $
    6.12
    Three Months
    
    
    Nine MonthsEnded
    
    
    EndedJuly 30,
    
    
    July 30,2005
    
    
    2005Net earnings (Restated)
    
    $
    4,417
    
    
    $
    13,170Add: Stock-based compensation included in net earnings as reported, net of tax
    
    
    515
    
    
    
    645Deduct: Total stock-based compensation, net of tax
    
    
    (917
    )
    
    
    (2,129
    )Pro forma net earnings (Restated)
    
    $
    4,015
    
    
    $
    11,686Earnings Per Share (Restated)As Reported:Basic
    
    $
    .14
    
    
    $
    .41Diluted
    
    $
    .14
    
    
    $
    .41Pro Forma:Basic
    
    $
    .13
    
    
    $
    .36Diluted
    
    $
    .13
    
    
    $
    .36
 10




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 8) Convertible Subordinated Debentures and Other Long-Term Debt
   9) Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedJuly 29,
    
    
    July 30,
    
    
    July 29,
    
    
    July 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Restated)
    
    
    
    
    
    
    (Restated)Net earnings:Basic and diluted net earnings
    
    $
    10,614
    
    
    $
    4,417
    
    
    $
    30,179
    
    
    $
    13,170Weighted average shares outstanding:Basic weighted average common shares outstanding
    
    
    32,109
    
    
    
    31,943
    
    
    
    32,081
    
    
    
    32,086Add: Shares issuable from assumed exercise of
options
    
    
    179
    
    
    
    142
    
    
    
    182
    
    
    
    274Diluted weighted average shares outstanding
    
    
    32,288
    
    
    
    32,085
    
    
    
    32,263
    
    
    
    32,360Net earnings per share:Basic
    
    $
    .33
    
    
    $
    .14
    
    
    $
    .94
    
    
    $
    .41Diluted
    
    $
    .33
    
    
    $
    .14
    
    
    $
    .94
    
    
    $
    .41
 10) Commitments and Contingencies
  11




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    11) Segment Information
  Three Months Ended
    
    
    Nine Months EndedJuly 29,
    
    
    July 30,
    
    
    July 29,
    
    
    July 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Restated)
    
    
    
    
    
    
    (Restated)Net SalesCustom Sheet and Rollstock
    
    $
    239,956
    
    
    $
    221,815
    
    
    $
    699,142
    
    
    $
    649,597Color and Specialty Compounds
    
    
    118,726
    
    
    
    106,577
    
    
    
    347,422
    
    
    
    317,109Engineered Products
    
    
    19,027
    
    
    
    20,280
    
    
    
    64,014
    
    
    
    64,136Net Sales*
    
    $
    377,709
    
    
    $
    348,672
    
    
    $
    1,110,578
    
    
    $
    1,030,842Operating Earnings (Loss)Custom Sheet and Rollstock
    
    $
    22,147
    
    
    $
    18,714
    
    
    $
    55,350
    
    
    $
    42,724Color and Specialty Compounds
    
    
    7,711
    
    
    
    2,851
    
    
    
    20,234
    
    
    
    12,780Engineered Products
    
    
    1,840
    
    
    
    25
    
    
    
    6,210
    
    
    
    (113
    )Corporate / Other
    
    
    (4,107
    )
    
    
    (8,228
    )
    
    
    (11,285
    )
    
    
    (15,786
    )Operating Earnings
    
    $
    27,591
    
    
    $
    13,362
    
    
    $
    70,509
    
    
    $
    39,605
 
 *
    
    Excludes inter-segment sales of $14,310, $11,315, $44,368 and $39,030, respectively,
primarily from the Color and Specialty Compounds segment. 12




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SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12) Comprehensive Income
  Three
Months Ended
    
    
Nine
Months EndedJuly 29,
    
    
    July 30,
    
    
    July 29,
    
    
    July 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Restated)
    
    
    
    
    
    
    (Restated)Net earnings
    
    $
    10,614
    
    
    $
    4,417
    
    
    $
    30,179
    
    
    $
    13,170Foreign currency translation adjustments
    
    
    (328
    )
    
    
    824
    
    
    
    788
    
    
    
    667Cash flow hedge adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81Total comprehensive income
    
    $
    10,286
    
    
    $
    5,241
    
    
    $
    30,967
    
    
    $
    13,918
 13




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##### Table of Contents



Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Restatement of Historical Financial Statements
  Executive Summary
    Consolidated Results
  Three
    
    NineMonths
    
    MonthsUnderlying volume
    
    
    2
    %
    
    
    
    %Disposition of business
    
    
    (1
    )
    
    
    (1
    )Price/Mix
    
    
    7
    
    
    
    98
    %
    
    
    8
    %
  14




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedJuly 29,
    
    
    July 30,
    
    
    July 29,
    
    
    July 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Restated)Dollars and Pounds (in millions)Net sales
    
    $
    377.7
    
    
    $
    348.7
    
    
    $
    1,110.6
    
    
    $
    1,030.8Material costs
    
    
    246.4
    
    
    
    225.1
    
    
    
    723.3
    
    
    
    663.4Material margin
    
    
    131.3
    
    
    
    123.6
    
    
    
    387.3
    
    
    
    367.4Conversion costs
    
    
    82.9
    
    
    
    83.7
    
    
    
    256.5
    
    
    
    253.5Gross margin
    
    $
    48.4
    
    
    $
    39.9
    
    
    $
    130.8
    
    
    $
    113.9Pounds Sold
    
    
    372.5
    
    
    
    365.5
    
    
    
    1,092.1
    
    
    
    1,093.5Dollars per Pound SoldNet sales
    
    $
    1.014
    
    
    $
    .954
    
    
    $
    1.017
    
    
    $
    .943Material costs
    
    
    .662
    
    
    
    .616
    
    
    
    .662
    
    
    
    .607Material margin
    
    
    .352
    
    
    
    .338
    
    
    
    .355
    
    
    
    .336Conversion costs
    
    
    .222
    
    
    
    .229
    
    
    
    .235
    
    
    
    .232Gross margin
    
    $
    .130
    
    
    $
    .109
    
    
    $
    .120
    
    
    $
    .104
    15




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16




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Three Months Ended
    
    
    Nine Months EndedJuly 29,
    
    
    July 30,
    
    
    July 29,
    
    
    July 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Restructuring and Exit CostsCustom Sheet & Rollstock
    
    $
    0.1
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    3.1Color & Specialty Compounds
    
    
    0.3
    
    
    
    3.8
    
    
    
    1.3
    
    
    
    6.5Engineered Products
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.9Corporate
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    0.8TOTAL
    
    $
    0.4
    
    
    $
    4.7
    
    
    $
    1.3
    
    
    $
    12.3Former CEO RetirementCustom Sheet & Rollstock
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Color & Specialty Compounds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Engineered Products
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    
    
    
    
    
    3.6
    
    
    
    
    
    
    
    3.6TOTAL
    
    $
    
    
    
    $
    3.6
    
    
    $
    
    
    
    $
    3.6Fixed Asset Charge (Restated)Custom Sheet & Rollstock
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0.6Color & Specialty Compounds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.5Engineered Products
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.8Corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TOTAL
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1.9Subtotal  Special ItemsCustom Sheet & Rollstock
    
    $
    0.1
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    3.7Color & Specialty Compounds
    
    
    0.3
    
    
    
    3.8
    
    
    
    1.3
    
    
    
    7.0Engineered Products
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.7Corporate
    
    
    
    
    
    
    4.4
    
    
    
    
    
    
    
    4.4TOTAL
    
    $
    0.4
    
    
    $
    8.3
    
    
    $
    1.3
    
    
    $
    17.8
 Adoption of SFAS 123(R)
 Share-Based Payment
 Three Months
    
    
    Nine MonthsEnded
    
    
    EndedJuly 29,
    
    
    July 29,2006
    
    
    2006Custom Sheet and Rollstock
    
    $
    0.2
    
    
    $
    0.6Color and Specialty Compounds
    
    
    0.1
    
    
    
    0.4Engineering Products
    
    
    
    
    
    
    0.1Corporate
    
    
    0.3
    
    
    
    0.8$
    0.6
    
    
    $
    1.9
  17




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Segment Results
 Custom Sheet and Rollstock Segment
  Three Months
    
    Nine MonthsUnderlying volume
    
    
    8
    %
    
    
    5
    %Disposition of business
    
    
    (1
    )
    
    
    (1
    )Price/Mix
    
    
    1
    
    
    
    48
    %
    
    
    8
    %
   18




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Color and Specialty Compounds Segment
  Three Months
    
    Nine MonthsUnderlying volume
    
    
    (3
    )%
    
    
    (3
    )%Price/Mix
    
    
    14
    
    
    
    1311
    %
    
    
    10
    %
   Engineered Products Segment
  Three Months
    
    Nine MonthsUnderlying volume
    
    
    (15
    )%
    
    
    (8
    )%Price/Mix
    
    
    9
    
    
    
    8(6)
    %
    
    
    
    %
   19




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##### Table of Contents



Corporate
  Liquidity and Capital Resources
 Cash Flow
  Nine Months EndedJuly 29,
    
    
    July 30,2006
    
    
    2005Cash Flows (in millions)Net cash provided by operating activities
    
    $
    88.7
    
    
    $
    64.6Net cash used for investing activities
    
    
    (12.0
    )
    
    
    (32.4
    )Net cash used for financing activities
    
    
    (75.2
    )
    
    
    (65.1
    )Effect of exchange rate changes
    
    
    
    
    
    
    Increase (decrease) in cash and equivalents
    
    $
    1.5
    
    
    $
    (32.9
    )
   20




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Financing Arrangements
     Outlook
  21




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Other Matters
    22




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Significant Accounting Policies, Estimates and Judgments
  Valuation of Goodwill
 23




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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)
    
    our failure to compete effectively with companies offering products based on alternative
technologies and processes that may be more competitive in price or better in performance;(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; and(m)
    
    weaknesses in internal controls.
  24




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##### Table of Contents



Non-GAAP Reconciliation
  July 29,
    
    
    October 29,
    
    
    
    July 30,
    
    
    October 30,2006
    
    
    2005
    
    
    
    2005
    
    
    2004Current maturities of long-term debt
    
    $
    6.9
    
    
    $
    11.2
    
    
    
    $
    18.3
    
    
    $
    18.0Long-term debt
    
    
    309.2
    
    
    
    368.8
    
    
    
    
    407.9
    
    
    
    456.1Total debt
    
    
    316.1
    
    
    
    380.0
    
    
    
    
    426.2
    
    
    
    474.1Less: Cash and equivalents
    
    
    (6.1
    )
    
    
    (4.6
    )
    
    
    
    (8.4
    )
    
    
    (41.3
    )Net debt
    
    $
    310.0
    
    
    $
    375.4
    
    
    
    $
    417.8
    
    
    $
    432.8First nine months of fiscal year change
    
    $
    (65.4
    )
    
    
    
    
    
    
    $
    (15.0
    )
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  Restatement of Prior Year Financial Statements
   25




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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
  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
    
    
    ProgramsMay 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    512,800June 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    512,800July 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)
 10.1
    
    
    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, 200610.2
    
    
    Note Purchase Agreement, incorporated by reference to Exhibit 10.1 of
Form 8-K filed with the Commission on June 8, 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
 26




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SIGNATURES
  SPARTECH CORPORATION(Registrant)
 Date: September 6, 2006
    /s/ George A. AbdGeorge A. AbdPresident and Chief Executive Officer
(Principal Executive Officer)/s/ Randy C. MartinRandy C. MartinExecutive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer) 27