UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

1-5911

SPARTECH CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)				43-0761773 (I.R.S. Employer 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)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $.75 par value Series Z Preferred Stock, $1.00 par value		New York Stock Exchange
Title of each class		Name of each exchange on which registered

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o      NO þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o      NO þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ      NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o      NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o      NO þ

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter (May 2, 2009): approximately $121.9 million.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 30,717,582 shares of Common Stock, $0.75 par value per share, outstanding as of January 13, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement for the 2010 Annual Meeting of Shareholders (Part III of this Annual Report on Form 10-K).

 

 

SPARTECH CORPORATION
FORM 10-K FOR THE YEAR ENDED OCTOBER 31, 2009
TABLE OF CONTENTS

Cautionary Statements Concerning Forward-Looking Statements				1
PART I
Item 1.		Business		2
Item 1A.		Risk Factors		5
Item 1B.		Unresolved Staff Comments		6
Item 2.		Properties		6
Item 3.		Legal Proceedings		7
Item 4.		Submission of Matters to a Vote of Security Holders		7
PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		8
Item 6.		Selected Financial Data		8
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk		20
Item 8.		Financial Statements and Supplementary Data		21
		Management’s Responsibilities for Financial Statements and Management’s Report on Internal Control over Financial Reporting		21
		Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements		22
		Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting		23
		Consolidated Balance Sheets		24
		Consolidated Statements of Operations		25
		Consolidated Statements of Shareholders’ Equity		26
		Consolidated Statements of Cash Flows		27
		Notes to Consolidated Financial Statements		28
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		48
Item 9A.		Controls and Procedures		48
Item 9B.		Other Information		48
PART III
Item 10.		Directors, Executive Officers and Corporate Governance		49
Item 11.		Executive Compensation		51
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		51
Item 13.		Certain Relationships and Related Transactions, and Director Independence		51
Item 14.		Principal Accounting Fees and Services		51
PART IV
Item 15.		Exhibits, Financial Statement Schedules		52
SIGNATURES				56
FINANCIAL STATEMENT SCHEDULE
		Schedule II — Valuation and Qualifying Accounts		F-1
EX-10.34
EX-21
EX-23
EX-24.1
EX-24.2
EX-24.3
EX-24.4
EX-24.5
EX-24.6
EX-24.7
EX-24.8
EX-31.1
EX-31.2
EX-32.1
EX-32.2

CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS

     Statements in this Form 10-K that are not purely historical, including statements which express Spartech Corporation’s (the “Company’s”) belief, anticipation or expectation about future events, are forward-looking statements. “Forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 relate to future events and expectations and include statements containing such words as “anticipates,” “believes,” “estimates,” “expects,” “would,” “should,” “will,” “will likely result,” “forecast,” “outlook,” “projects,” and similar expressions. Forward-looking statements are based on management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which management is unable to predict or control, that may cause actual results, performance or achievements to differ materially from those expressed or implied in the forward-looking statements. Important factors which could cause actual results to differ from our forward looking statements include, but are not limited to:

	(a)		further adverse changes in economic or industry conditions, including global supply and demand conditions and prices for products of the types the Company produces;
	(b)		the Company’s ability to compete effectively on product performance, quality, price, availability, product development, and customer service;
	(c)		adverse changes in the markets the Company serves, including the packaging, transportation, building and construction, recreation and leisure, and other markets, some of which tend to be cyclical;
	(d)		adverse changes in the domestic automotive markets, including the bankruptcy filings by the automobile original equipment manufacturers which could have a cascading effect on the Company’s customers and adversely impact the Company’s business;
	(e)		the Company’s inability to achieve the level of cost savings, productivity improvements, gross margin enhancements, growth or other benefits anticipated from the Company’s planned improvement initiatives;
	(f)		volatility of prices and availability of supply of energy and of the raw materials that are critical to the manufacture of the Company’s products, particularly plastic resins derived from oil and natural gas, including future effects of natural disasters;
	(g)		the Company’s inability to manage or pass through to customers an adequate level of increases in the costs of materials, freight, utilities, or other conversion costs;
	(h)		restrictions imposed on the Company by instruments governing its indebtedness, the possible inability to comply with requirements of those instruments, and inability to access capital markets;
	(i)		possible asset impairment charges;
	(j)		the Company’s 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 the Company’s inability to comply with applicable environmental laws and regulations;
	(l)		the Company’s inability to develop and launch new products successfully; and
	(m)		possible weaknesses in internal controls.

The Company assumes no responsibility to update forward-looking statements, except as required by law.

PART I

Item 1. BUSINESS

General

     Spartech Corporation (the “Company” or “Spartech”) was incorporated in the state of Delaware in 1968, succeeding a business which had commenced operations in 1960. The Company, together with its subsidiaries, is an intermediary processor of engineered thermoplastics, polymeric compounds and concentrates. The Company converts base polymers or resins purchased from commodity suppliers into extruded plastic sheet and rollstock, thermoformed packaging, specialty film laminates, acrylic products, specialty plastic alloys, color concentrates and blended resin compounds. Its products are sold to original equipment manufacturers and other customers in a wide range of end markets.

     In 2009, the Company sold its wheels and profiles businesses and closed and liquidated three businesses including a manufacturer of boat components sold to the marine market, and one compounding and one sheet business which previously serviced single customers. These businesses are classified as discontinued operations and all amounts presented within Item 1 are presented on a continuing basis, unless otherwise noted. See Note 2 to the consolidated financial statements for further details of these divestitures and closures. The wheels, profiles and marine businesses were previously reported in the Engineered Products group and due to these dispositions, the Company no longer has this reporting group.

     Spartech is organized into three reportable segments based on its operating structure and products manufactured. The three reportable segments are Custom Sheet and Rollstock, Packaging Technologies and Color and Specialty Compounds. Net sales, operating earnings (loss), total assets, depreciation and amortization and capital expenditures are disclosed in Note 17 to the consolidated financial statements. The percent of consolidated net sales by segment for 2009 were as follows: Custom Sheet and Rollstock (51%), Packaging Technologies (23%) and Color and Specialty Compounds (26%). A description of the reportable segments, including their principal products and markets, is summarized below.

     Custom Sheet and Rollstock

     The Custom Sheet and Rollstock segment primarily manufactures plastic sheet, custom rollstock, laminates and cell cast acrylic. The principal raw materials used in manufacturing sheet and rollstock are plastic resins in pellet form. The segment sells sheet and rollstock products principally through its own sales force, but it also uses a limited number of independent sales representatives. This segment produces and distributes its products from facilities in the United States, Canada and Mexico. Finished products are formed by customers that use plastic components in their products. The Company’s custom sheet and rollstock is utilized in several end markets including packaging, transportation, building and construction, recreation and leisure, electronics and appliances, sign and advertising, aerospace and numerous other end markets.

     Packaging Technologies

     The Packaging Technologies segment manufactures custom-designed plastic packages and custom rollstock primarily used in the food and consumer product markets. The principal raw materials used in manufacturing packaging are plastic resins in pellet form which are extruded into rollstock or thermoformed into an end product. The segment sells packaging products principally through its own sales force and produces and distributes the products from facilities in the United States. In 2009, approximately 80% of this segment’s total sales volume was to packaging-related end markets.

     Color and Specialty Compounds

     The Color and Specialty Compounds segment consists of operating segments that are aggregated into a reportable segment based on the nature of the products manufactured. This segment manufactures custom-designed plastic alloys, compounds, color concentrates, and calendered film for use by a large group of manufacturing customers servicing the transportation (mostly automotive), building and construction, food, medical and industrial packaging, lawn and garden, electronics and appliances, and numerous other end markets. The principal raw materials used in manufacturing specialty plastic compounds and color concentrates are plastic resins in powder and pellet form. This segment also uses colorants, mineral and glass reinforcements and other additives to impart specific performance and appearance characteristics to the compounds. The Color and Specialty Compounds segment sells its products principally through its own sales force, but it also uses independent sales representatives. This segment produces and distributes its products from facilities in the United States, Canada, Mexico and France.

Raw Materials

     The principal raw materials used in the Company’s production processes are plastic resins which are derivatives of crude oil or natural gas and are readily available from a number of suppliers. The Company has multiple sources of supply for its

raw materials and is not significantly dependent on any one or a few suppliers. For additional information on the availability of raw materials and volatility in raw materials and energy costs, see Item 1A.

Production

     Spartech utilizes various types of production processes and methods. The principal production processes are extrusion, casting, compounding, calendering, printing, and lamination. Management believes that the machinery, equipment and tooling used in these processes are of modern design and are well maintained.

Intellectual Property and Trademarks

     Spartech has various intellectual property and trademarks. The intellectual property includes certain product formulations. The trademarks protect names of certain of the Company’s products. These assets are significant to the extent that they provide a certain amount of goodwill and name recognition in the industry. While proprietary intellectual property and trademarks are important to the Company, management believes the loss or expiration of any intellectual property right or trademark would not materially impact the Company or any of its segments.

Customer Base

     The Company’s top five and 25 customers represented 24% and 44%, respectively, of 2009 sales dollars, and over 82% of the Company’s sales dollars are to companies operating in the United States. Based on the Company’s classification of end markets, packaging is its largest single market, accounting for approximately 34% of its 2009 sales dollars. Sales to the packaging end market as defined by the Company includes (i) rollstock and thermoformed packages sold from the Packaging Technology reporting segment for use in food and consumer packages, (ii) extruded sheet sold from the Custom Sheet and Rollstock reporting segment for material handling applications and (iii) films, color concentrates and compounds sold from the Color and Specialty Compounds segment for food, medical and industrial applications. The packaging market historically has experienced higher growth and less cyclicality than other markets serviced by plastic processors. In management’s opinion, the Company is not dependent upon any single customer and the loss of any one customer would not have a material adverse impact on its business other than, potentially, on a short-term basis. However, the loss of several significant customers could adversely impact the Company’s operating results, cash flows and financial condition. The following table presents the Company’s sales dollars mix by end market in 2009 and 2008:

		2009				2008
Packaging			34	%			28	%
Building and construction			18				18
Transportation			16				20
Recreation and leisure			8				10
Sign and advertising			8				8
Appliance and electronics			7				7
Lawn and garden			2				3
Other			7				6
			100	%			100	%

Distribution

     Generally, the Company sells products through its own sales force, but also uses a limited number of independent sales representatives and wholesale distributors.

Backlog

     The Company estimates that the total dollar value of backlog of firm orders as of October 31, 2009 and November 1, 2008 was approximately $88.6 million and $100.2 million, respectively, all of which the Company expects to ship within one year. The estimated backlog by segment at October 31, 2009 and November 1, 2008 follows (in millions):

		2009				2008
Custom Sheet and Rollstock		$	51.9			$	45.1
Packaging Technologies			18.9				26.9
Color and Specialty Compounds			17.8				28.2
		$	88.6			$	100.2

Competition

     Spartech operates in markets that are highly competitive and that environment is expected to continue. The Company experiences substantial competition in each of its segments and in each of the geographic areas in which it operates. Generally, the Company competes on the basis of quality, price, product availability and security of supply, product development and

customer service. Important competitive factors include the ability to manufacture consistently to required quality levels, meet demanding delivery times, provide technical support, exercise skill in raw material purchasing, achieve production efficiencies to make products cost effective for customers, and provide new product solutions to customer applications. Although no single company competes directly with Spartech in all of its product lines, various companies compete in one or more product lines. Some of these companies have substantially greater sales and assets than Spartech, and Spartech also competes with many smaller companies.

Seasonality

     The Company’s sales are seasonal in nature. Fewer orders are placed and less manufacturing activity occurs during the November through January period which represents the Company’s first quarter. This seasonal variation is caused by the manufacturing activities of the Company’s customers.

Environment

     The Company’s operations are subject to extensive environmental, health and safety laws and regulations at the federal, state and local governmental levels and foreign laws. The nature of the Company’s business exposes it to risks of liability under these laws and regulations due to the production, storage, transportation, recycling or disposal and/or sale of materials that can cause contamination or personal injury if they are released into the environment or workplace. Compliance with laws regulating the discharge of materials into the environment or otherwise relating to the protection of the environment has not had a material effect upon the Company’s capital expenditures, earnings or competitive position. It is not anticipated that the Company will have material capital expenditures for environmental control facilities during the next year. For additional information regarding risks due to regulations relating to the protection of the environment as well as the Company’s participation in the Lower Passaic River environmental study, see Item 1A.

Employees

     Spartech had approximately 2,350 employees at the end of 2009 and management believes that the Company’s employee relations are favorable. Some of the Company’s employees are represented under collective bargaining agreements, but none of these agreements are considered significant.

Geographic Areas

     The Company operates in 31 manufacturing facilities in North America and one in France. Information regarding the Company’s operations in various geographic segments is discussed in Note 17 to the consolidated financial statements. The Company’s Canadian, French and Mexican operations may be affected periodically by foreign political and economic developments, laws and regulations, and currency fluctuations.

Available Information

     The Company provides information without charge about its business, including news releases and other supplemental information, on its Website. The Website address is www.spartech.com. In addition, the Company makes available through its Website, free of charge, the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after they have been filed with or furnished to the Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Forms 3, 4 and 5 filed with respect to the Company’s equity securities under Section 16(a) of the Securities Exchange Act are also available as soon as reasonably practicable after they have been filed with or furnished to the SEC. All of these materials can be found under the “Investor Relations” tab on the Company’s Website. The Website also includes the following corporate governance materials, under the “Investor Relations” tab in the section, “Corporate Governance”: the Code of Business Conduct & Ethics for Directors, Officers, & Employees; the Code of Ethics for Chief Executive Officer and Senior Financial Officers; the Corporate Governance Guidelines; and charters of the Board of Director committees. These materials are also available on paper. Shareholders may request any of these documents by contacting the Company’s principal executive office. Information on the Company’s Website does not constitute part of this report.

     The Company’s principal executive office is located at 120 South Central Avenue, Suite 1700, Clayton, Missouri 63105-1705. The Company’s telephone number is (314) 721-4242.

Item 1A. RISK FACTORS

     The factors listed below represent the Company’s principal risks. These factors may or may not occur and the Company is not in a position to express a view on the likelihood of any such factor occurring. Other factors may exist that the Company does not consider significant based on information that is currently available. Additional risks may exist that the Company is not currently able to anticipate.

Recessions, adverse market conditions or downturns in the end markets served by the Company may negatively impact the Company’s sales, profitability, operating results and cash flows.

     The Company’s sales profitability, operating results and cash flows may be exposed to significant volatility in the future due to changes in general economic conditions, recessions or adverse conditions in the end markets the Company serves. These changes in turn could also trigger impairment of goodwill or other long-lived assets due to the fair value of such assets falling below the Company’s carrying value. In addition, during economic downturns the Company may undertake more extensive restructuring actions and therefore incur higher restructuring and exit costs during such periods. If the Company’s restructuring actions are not adequate or if it incurs more restructuring and exit costs than anticipated, the Company may not be able to achieve its anticipated operating results.

Price increases in raw materials and energy costs could adversely affect the Company’s operating results and financial condition.

     In 2009, material costs represented 63% of net sales. The Company purchases various raw material resins derived from crude oil or natural gas to produce its products. The cost of these resins has been highly volatile in the last few years. This volatility of resin costs is expected to continue and may be affected by a number of factors including the base cost of oil and natural gas, political instability or hostilities in oil-producing countries, vendor consolidations, exchange rates between the U.S. dollar and other currencies and changes in supply and demand. The direction and degree of future resin cost changes and the Company’s ability to manage such changes is uncertain and large rapid increases in resin costs could lead to declining margins, operating results, cash flows and financial condition.

The Company’s credit facility, senior notes and term loan agreements contain a number of restrictive covenants; breaches of these covenants are events of default and cause the acceleration of debt beyond the Company’s ability to fund such debt.

     The Company’s credit facility, senior notes and term loan agreements contain a number of restrictive covenants as described in more detail in Note 9 to the consolidated financial statements. If one of these covenants is breached, the Company would be required to negotiate with our debt holders to waive the covenant and, if denied, the Company may not have the ability to fund the debt which would adversely impact management’s ability to operate the business.

Access to funding through capital markets is essential to execution of the Company’s future business plans. If the Company is unable to maintain such access, it could have a material adverse effect on its business and financial results.

     The ability to invest in the Company’s businesses and refinance maturing debt obligations requires access to the capital markets and sufficient bank credit lines to support short-term borrowing needs. The capital markets have been volatile and credit markets have been disrupted, which has reduced the availability of investment capital and credit. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could materially and adversely affect the Company’s business, financial condition, results of operations and its ability to obtain and manage liquidity. The extent of this impact will depend on several factors, including the Company’s operating cash flows, the duration of tight credit conditions and volatile equity markets, the Company’s credit rating and credit capacity, the cost of financing, and other general economic and business conditions.

The Company operates in a highly competitive marketplace, which could adversely affect its sales and financial condition.

     The Company competes on the basis of quality, price, product availability and security of supply, product development and customer service. Some competitors in certain markets are larger than Spartech and may have greater financial resources that allow them to be better positioned to withstand changes in such industries. The Company’s competitors may introduce new products based on alternative technologies that may be more competitive which would result in a decline in sales volume and earnings. The Company’s customers demand high quality and low cost products and services. The cost and availability of energy and strategic raw materials may continue to deteriorate domestically while improving in the international market. Given the global marketplace in which the Company competes, competition could cause the Company to lose market share, exit certain lines of business, increase expenditures or reduce pricing, each of which could have an adverse effect on its results of operations, cash flows and financial condition.

A limited number of customers account for a significant percentage of the Company’s revenues and the loss of several significant customers could adversely impact the Company’s sales, operating results and cash flows.

     In 2009, the Company’s five largest customers represented 24% of sales dollars and its financial results may continue to depend in part upon a small number of large customers. Changes in the business of several significant customers or changes in the relationship between several significant customers and the Company could adversely impact the Company’s sales, operating results and cash flows.

A major failure to the Company’s information systems could harm its business.

     Over the past few years, the Company has invested in a company-wide Oracle information system and business intelligence reporting capabilities. Most of the Company is integrated into these information systems which are required to process orders, respond to customer inquiries, manage inventory, purchase, sell and ship product on a timely basis, and provide daily, weekly and monthly key performance indicators to decision makers. The Company may experience operating problems with its information systems as a result of system failures, viruses, computer hackers or other causes. Any significant disruption or slowdown of the Company’s information systems could cause orders to be lost, delayed or cancelled or data to become temporarily unavailable, which could adversely impact the Company’s business.

The Company’s foreign operations subject it to economic risk because results of operations are affected by foreign currency fluctuations, changes in local government regulations and other political, economic and social conditions.

     The Company sells, manufactures and purchases products in foreign markets as well as holds assets and liabilities in these jurisdictions. Changes in the relative value of foreign currencies to U.S. dollars to which the Company is exposed, specifically the Canadian dollar, euro and Mexican peso, occur from time to time and could have an adverse impact on the Company’s operating results and the book values of net assets within these jurisdictions. Exposures to local social unrest, including acts of violence, in the foreign countries in which the Company operates could have an adverse effect on the results of operations in those countries.

The Company is part of an environmental investigation initiated by the New Jersey Department of Environmental Protection (“NJDEP”) and the United States Environmental Protection Agency (“USEPA”) as well as associated litigation initiated by the NJDEP, and if the Company’s liability is materially different from the amount accrued, it could impact the Company’s results of operations.

     The Company operates under various laws and regulations governing employee safety and the quantities of specified substances that may be emitted into the air, discharged into waterways, or otherwise disposed of on and off the Company’s properties. In September 2003, the NJDEP issued a directive and the USEPA initiated an investigation related to over 70 companies, including one of the Company’s subsidiaries, regarding the Lower Passaic River. The subsidiary subsequently agreed to participate in a group of over 40 companies in funding an environmental study by the USEPA to determine the extent and source of contamination at this site. In 2006, the USEPA asked the group to assume the responsibility for completing the study. In 2005, the NJDEP initiated civil litigation in the Superior Court of New Jersey, Law Division — Essex County against Occidental Chemical Corporation and affiliated entities, including Tierra Solutions, Inc. (“Tierra”), regarding environmental degradation of the Lower Passaic River and other areas. In 2009, Tierra filed a third party complaint against other companies doing business in the Lower Passaic River area, including a former owner of the Company’s Kearny, New Jersey facility. The Company assumed certain environmental liability of such former owner when it acquired the facility. The litigation is in the early stages with respect to the third party defendants. As of October 31, 2009, the Company had approximately $0.9 million accrued related to its share of the funding and related legal expenses of the study and litigation. Due to uncertainties inherent in this matter, the Company is unable to estimate its potential exposure, including possible remediation or other environmental responsibilities that may result from this matter. These uncertainties primarily include the completion and outcome of the environmental study, the percentage of contamination attributable to the subsidiary and other parties and the outcome of the litigation. It is possible that the Company’s ultimate liability resulting from this matter could materially differ from the October 31, 2009 accrual balance. In the event of one or more adverse determinations related to this matter, the impact on the Company’s results of operations could be material to any specific period.

Item 1B. UNRESOLVED STAFF COMMENTS

     None.

Item 2. PROPERTIES

     As of October 31, 2009, the Company operates in 32 manufacturing facilities located in the United States, Canada, France and Mexico, with 17 facilities in the Custom Sheet and Rollstock segment, five in the Packaging Technologies segment and 10 facilities in the Color and Specialty Compounds segment. The Company’s manufacturing locations are owned or occupied under operating or capital leases. Additional information regarding the Company’s operations within the various geographic segments is discussed in Note 17 to the consolidated financial statements. In addition, the Company leases office facilities for its corporate headquarters in St. Louis, Missouri and administrative offices in Washington, Pennsylvania.

     In 2008, the Company announced a financial improvement plan which included reducing costs, building a low cost-to-serve model and disposing of noncore assets. This resulted in the consolidation, shutdown or sale of underperforming and noncore facilities. Over the last two years, the total number of the Company’s facilities has been reduced by nine to 32 and

will be reduced by an additional two upon completion of the announced consolidations of its Lockport, New York and Kearny, New Jersey compounding facilities into existing operations. Within the Company’s core sheet, packaging and compounding operations, production lines have been moved from consolidated facilities into existing facilities with an objective of reducing the fixed portion of its cost structure without reducing production capacity.

     Use of the Company’s manufacturing facilities may vary with seasonal, economic and other business conditions. Management believes that the present facilities are sufficient and adequate for the manufacture and distribution of Spartech’s products and generally have sufficient capacity for existing needs and expected near-term growth.

Item 3. LEGAL PROCEEDINGS

     In addition to the Lower Passaic River matter described in Item 1A, the Company is subject to various other claims, lawsuits and administrative proceedings arising in the ordinary course of business with respect to environmental, commercial, product liability, employment and other matters, several of which claim substantial amounts of damages. While it is not possible to estimate with certainty the ultimate legal and financial liability with respect to these claims, lawsuits and administrative proceedings, the Company’s management believes that the outcome of these matters will not have a material adverse effect on the Company’s capital expenditures, financial position or competitive position.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of the Company’s security holders during the fourth quarter of 2009.

PART II

Item 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

     Spartech Corporation’s common stock is listed for trading on the New York Stock Exchange (“NYSE”) under the symbol “SEH”. There were approximately 1,200 shareholders of record at January 13, 2010. The following table sets forth the high and low prices of the common stock and cash dividends per common share for each quarter of 2009 and 2008:

Common Stock Data (per share)		1st Qtr.				2nd Qtr.				3rd Qtr.				4th Qtr.
2009
High		$	7.37			$	4.35			$	12.93			$	14.17
Low			3.16				1.29				3.91				9.22
Dividends declared		$	.05			$	—			$	—			$	—
2008
High		$	16.35			$	16.43			$	11.89			$	14.51
Low			9.90				7.51				8.27				4.34
Dividends declared		$	.135			$	.135			$	.05			$	.05

     As discussed in Note 9 to the consolidated financial statements, the Company is prohibited from paying dividends in excess of $1,650 per quarter. The Company’s Board of Directors periodically reviews the dividend policy based upon the Company’s financial results and cash flow projections. There were no purchases of equity securities during 2009 and repurchases of equity securities are not allowed under the Company’s debt agreements discussed in further detail in Note 9 to the consolidated financial statements.

Item 6. SELECTED FINANCIAL DATA

     The selected financial and other data below present consolidated financial information of Spartech Corporation and subsidiaries for the last five years and has been derived from the Company’s audited consolidated financial statements, except as otherwise noted. The selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Company’s consolidated financial statements and the notes thereto.

		Year Ended
		2009				2008				2007 (a)				2006				2005
		(in thousands, except per share, per pound, and employee data)
Statement of Operations Data:
Net Sales:
In Dollars		$	926,777			$	1,321,169			$	1,363,931			$	1,395,190			$	1,307,572
In Volume (pounds) (b)			860,437				1,166,282				1,346,916				1,373,368				1,380,474
Gross Margin (c)		$	116,308			$	116,237			$	150,117			$	165,114			$	148,399
Depreciation and Amortization			41,302				43,279				39,050				36,830				35,621
Operating Earnings (Loss) (d)			26,135				(206,234	)			63,750				87,911				62,893
Interest Expense			15,379				19,403				16,393				19,339				23,162
Net Earnings (Loss) from continuing operations (d) (e)			3,305				(171,649	)			28,765				37,238				24,310
Net Earnings (Loss) from discontinued operations			5,046				(20,463	)			5,081				1,560				(6,047	)
Net Earnings (Loss) (f)			8,351				(192,112	)			33,846				38,798				18,263

		Year Ended
		2009				2008				2007 (a)				2006				2005
Per Share Information:
Earnings (Loss) per Share-Diluted from continuing operations		$	.11			$	(5.67	)		$	.89			$	1.15			$	.75
Earnings (Loss) per Share-Diluted from discontinued operations			.16				(0.68	)			.16				.05				(.18	)
Earnings (Loss) per Share-Diluted			.27				(6.35	)			1.05				1.20				.57
Dividends Declared per Share			.05				.37				.54				.50				.48
Book Value per Share (b)			7.71				7.42				14.37				13.78				12.93
Balance Sheet Data:
Working Capital (g)		$	86,513			$	99,224			$	131,835			$	136,544			$	171,459
Working Capital as a percentage of Net Sales (b)			9.3	%			7.5	%			9.7	%			9.8	%			13.1	%
Total Debt		$	216,434			$	274,654			$	334,283			$	289,223			$	379,955
Total Assets			653,688				762,419				1,110,871				1,041,794				1,071,826
Shareholders’ Equity			236,879				226,790				439,280				442,693				413,760
Ratios/Other Data:
Cash Flow from Operations		$	65,265			$	96,612			$	104,011			$	127,543			$	105,018
Capital Expenditures			8,098				17,276				34,743				23,966				39,265
Operating Earnings (Loss) per pound sold (b)			3.0 ¢				(17.7) ¢				4.7 ¢				6.4 ¢				4.6 ¢
Total Debt to Total Debt and Equity (b)			47.7	%			54.8	%			43.2	%			39.5	%			47.9	%
Number of Employees (b)			2,350				3,150				3,600				3,425				3,500
Common Shares:
Outstanding at Year-End			30,719				30,564				30,565				32,124				31,988
Weighted Average-Diluted			30,470				30,264				32,180				32,297				32,311

Notes to table:

(a)		The Company’s fiscal year ends on the Saturday closest to October 31. Because of this convention, every fifth or sixth fiscal year has an additional week, and 2007 was reported as a 53-week year. On September 14, 2007, the Company acquired Creative Forming, Inc., (“Creative”) based in Ripon, Wisconsin. See Note 3 to the consolidated financial statements for further details on this acquisition.
(b)		Amounts are unaudited.
(c)		Calculated as net sales less cost of sales. Gross margin excludes the impact of amortization expense.
(d)		2009 operating earnings were impacted by fixed asset impairments of $2.6 million ($2.4 million net of tax) and restructuring and exit costs of $5.2 million ($3.2 million net of tax). 2008 operating loss and net loss were impacted by charges of $229.2 million ($176.5 million net of tax) relating to goodwill impairments of $218.0 million ($168.8 million net of tax), fixed asset and other intangible asset impairments of $9.0 million ($6.2 million net of tax), and restructuring and exit costs of $2.2 million ($1.5 million net of tax). 2007 operating earnings and net earnings were impacted by charges of $4.7 million ($2.9 million net of tax) relating to a separation agreement with the Company’s former Chief Executive Officer of $1.9 million ($1.1 million net of tax), an intangible asset impairment of $1.6 million ($1.0 million net of tax) and restructuring and exit costs of $1.3 million ($0.8 million net of tax). 2006 operating earnings and net earnings were reduced by restructuring and exit costs of $1.9 million ($1.2 million net of tax) and goodwill impairment of $3.2 million ($3.2 million net of tax). 2005 operating earnings and net earnings were reduced by charges of $15.0 million ($10.1 million net of tax) related to restructuring and exit costs of $8.2 million ($5.0 million net of tax), a retirement settlement with the Company’s former Chief Executive Officer of $3.6 million ($2.3 million net of tax), fixed asset charges of $1.2 million ($0.8 million net of tax) and goodwill impairment of $2.0 million ($2.0 million net of tax).
(e)		2006 net earnings were reduced by a $5.5 million ($3.4 million net of tax) charge related to the early extinguishment of the Company’s convertible subordinated debentures.
(f)		2009 net earnings includes a gain of $6.2 million relating to the sale of the wheels and profiles businesses.
(g)		Calculated as total current assets excluding cash and cash equivalents less total current liabilities excluding current maturities of long-term debt.

Item 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion and analysis of our financial condition and results of operations contains “forward-looking statements”. You should read the following discussion of our financial condition and results of operations with “Selected Financial Data” and our consolidated financial statements and related notes thereto. We have based our forward-looking statements about our markets and demand for our products and future results on assumptions that we consider reasonable. Actual results may differ materially from those suggested by our forward-looking statements for various reasons including those discussed in “Cautionary Statements Concerning Forward-Looking Statements” and Item 1A.

Business Overview

     Spartech is an intermediary processor of engineered thermoplastics, polymeric compounds and concentrates. The Company converts base polymers or resins purchased from commodity suppliers into extruded plastic sheet and rollstock, thermoformed packaging, specialty film laminates, acrylic products, specialty plastic alloys, color concentrates and blended resin compounds for customers in a wide range of markets. We have facilities located throughout the United States, Canada, Mexico and France that are organized into three segments as follows:

		% of
		2009 Sales
Custom Sheet and Rollstock			51	%
Packaging Technologies			23
Color and Specialty Compounds			26

     In 2009, the Company sold its wheels and profiles businesses and closed and liquidated three businesses including a manufacturer of boat components sold to the marine market, and one compounding and one sheet business which previously serviced single customers. These businesses are classified as discontinued operations and all amounts presented within Item 7 are presented on a continuing basis, unless otherwise noted. See Note 2 to the consolidated financial statements for further details of these divestitures and closures. The wheels, profiles and marine businesses were previously reported in the Engineered Products group and due to these dispositions, the Company no longer has this reporting group.

     We assess net sales changes using three major drivers: underlying volume, the impact of business acquisitions or divestitures and price/mix. Underlying volume is calculated as the change in pounds sold exclusive of the impact on pounds sold from business acquisitions or divestitures and for a comparable number of days in the reporting period. Our fiscal year ends on the Saturday closest to October 31 and generally contains 52 weeks or 364 calendar days. Because of this convention, every fifth or sixth fiscal year has an additional week and fiscal 2007 was reported as a 53-week fiscal year containing 371 days of activity.

Executive Summary

     We operated in a weak end-market demand environment in 2009 due to significant declines in spending in the economy. Our sales volume decreased 26% from 2008 and most of this decrease occurred in end markets that are more sensitive to discretionary spending levels including the transportation, recreation and leisure, and building and construction markets. While we experienced challenging volume comparisons in 2009, demand in many of our markets appeared to have stabilized by the end of the year, albeit at lower levels. During the year, we executed improvement initiatives directed at reducing our cost structure, improving efficiency and increasing our organizational capabilities to manage through the challenging economy and position the Company to benefit from leveraging a more efficient cost footprint upon sales growth. The positive impact of these improvement initiatives led to an increase in earnings in 2009 in spite of our volume decrease and allowed us to pay down debt which positioned us at the end of the year with the resources available to fund future growth.

Outlook

     Sales volumes to most of our end markets have stabilized, albeit at lower levels of demand. We are cautiously optimistic by this general stabilization and improved customer sentiment, but our operating plans assume the lower demand levels will continue through 2010. In addition, we continue to manage through a volatile raw material pricing environment. We continue to execute our improvement initiatives and focus on maximizing cash flows. We believe we are emerging from this recessionary environment as a stronger company that is better able to leverage its cost structure and better positioned to generate profitable growth and enhanced shareholder returns.

Results of Operations

Comparison of 2009 and 2008

Consolidated Summary

     Net sales were $926.8 million and $1,321.2 million in 2009 and 2008, respectively, representing a 30% decrease in 2009. The decrease was caused by:

Underlying volume			(26	)%
Price/mix			(4	)
			(30	)%

     Underlying volume decreased 26% due to lower demand across a broad group of markets including the transportation, building and construction, and recreation and leisure markets which decreased 45%, 34%, and 37%, respectively. The price/mix decline was primarily due to lower raw material costs which were passed through to customers as lower selling prices.

     The following table presents net sales, cost of sales, and the resulting gross margin in dollars and on a per pound sold basis for 2009 and 2008. Cost of sales presented in the consolidated statements of operations includes material and conversion costs but excludes amortization of intangible assets. We have not presented cost of sales and gross margin as a percentage of net sales because a comparison of this measure is distorted by changes in resin costs that are typically passed through to customers as changes to selling prices. These changes can materially affect the percentages but do not present complete performance measures of the business.

		2009				2008
Dollars and Pounds (in millions)
Net sales		$	926.8			$	1,321.2
Cost of sales			810.5				1,205.0
Gross margin		$	116.3			$	116.2
Pounds sold			860				1,166
Dollars per Pound Sold
Net sales		$	1.077			$	1.133
Cost of sales			0.942				1.033
Gross margin		$	0.135			$	0.100

     The decrease in net sales per pound in the 2009 was caused by lower resin prices that were passed through to customers as lower selling prices. The 3.5 cent increase in gross margin per pound sold in 2009 reflects the favorable impact of improvement initiatives including operational improvements, cost reductions and a decrease in mix of lower-margin sales to the automotive sector of the transportation market. Conversion costs decreased $71.5 million, or 24%, in 2009 due to the impact of our cost reductions and the lower sales volume. These cost reductions included a one-time change in our vacation policy and temporary compensation reductions that approximated a $4.0 million total benefit in 2009. We expect the one-time and temporary reductions to be replaced by additional structural cost reductions going forward.

     Selling, general and administrative expenses were $77.9 million in 2009, representing a $10.2 million decrease versus the prior year. The decrease was due to benefits from our structural cost reductions, $3.9 million of lower Oracle-related costs, $1.0 million of lower bad debts expense and approximately $2.0 million from temporary compensation reductions.

     Amortization of intangibles was $4.5 million in 2009 compared to $5.2 million in 2008 due to assets that became fully amortized by the end of 2008.

     We recorded $2.6 million and $9.0 million of fixed asset and other intangible asset impairments in 2009 and 2008, respectively, and $218.0 million of goodwill impairments in 2008. Additional details regarding these impairment charges are discussed in Notes 5 and 6 to the consolidated financial statements.

     Restructuring and exit costs were $5.2 million in 2009 and $2.2 million in 2008. The costs in both periods primarily consist of employee severance, facility consolidation and shutdown costs and accelerated depreciation resulting from

improvement initiatives which include an objective of reducing the Company’s fixed portion of its cost structure without reducing production capacity. In 2010, we expect to incur approximately $2.0 million of additional restructuring and exit costs for initiatives announced through October 31, 2009 which will mostly comprise employee severance and facility consolidation and shutdown costs. In the future, we may announce additional cost reduction activities to support our strategy of reducing our cost footprint and attaining a cost structure that can be leveraged.

     Operating earnings for 2009 were $26.1 million compared to a loss of $206.2 million in the prior year. Operating earnings included asset impairments and restructuring and exit costs totaling $7.8 million and $229.2 million in 2009 and 2008, respectively. Excluding the impact of these items, operating earnings increased $11.0 million from the benefits of our improvement initiatives which more than offset the impact of our lower sales volume.

     Interest expense, net was $15.4 million in 2009 and $19.4 million in 2008. The lower expense in 2009 was due to reductions in our debt levels and interest rates.

     Our effective tax rate of 69% in 2009 was impacted by recording an allowance on a deferred tax asset, operating losses from our operations in France for which we have not reflected a tax benefit and other nondeductible items. Our effective tax rate in 2008 was impacted by the significant goodwill impairments, some of which were not tax deductible. Excluding the goodwill impairments, our effective tax rate was 63% in 2008 which was negatively impacted by operating losses from our operations in France for which we have not reflected a tax benefit partially offset by the positive impact of domestic state and foreign tax law changes in the first quarter of 2008. We estimate our 2010 tax rate to approximate 39% and this assumes that we achieve break-even results in France.

     We reported net earnings from continuing operations of $3.3 million in 2009 and a net loss of $171.6 million in 2008. These amounts reflect the impact of the items previously discussed.

     Earnings from discontinued operations, net of tax were $5.0 million in 2009 which compared to a $20.5 million loss in 2008. The earnings in 2009 resulted from a $6.2 million gain on the sales of our wheels and profiles businesses and the loss in 2008 mostly reflected asset impairments.

Custom Sheet and Rollstock Segment

     Net sales were $472.5 million and $636.3 million in 2009 and 2008, respectively, representing a 26% decrease in 2009. This decrease was caused by:

Underlying volume			(17	)%
Price/mix			(9	)
			(26	)%

     Most of our underlying volume decreases in this segment occurred in the transportation, building and construction, and recreation and leisure markets. The price/mix declines were primarily due to lower resin costs that were passed through to customers as lower selling prices.

     This segment’s operating earnings were $25.0 million in 2009 compared to an operating loss of $89.8 million in 2008. This comparison reflects restructuring and exit costs of $2.7 million in 2009 and $0.6 million in 2008, respectively, and $113.4 million of asset impairments in 2008. Excluding the impact of these items, operating earnings increased approximately $3.5 million in 2009 due to the benefits of improvement initiatives which more than offset the impact from the volume decline.

Packaging Technologies Segment

     Net sales were $212.7 million and $274.4 million in 2009 and 2008, respectively, representing a 22% decrease in 2009. This decrease was caused by:

Underlying volume			(16	)%
Price/mix			(6	)
			(22	)%

     The decrease in underlying volume reflected an 8% decline to our packaging-related end markets which represents approximately 80% of this segment’s total sales volume. The remaining decline in underlying volume was attributable to the

portion of this segment which sells to non-packaging related markets. The price/mix declines were primarily due to lower resin costs that were passed through to customers as lower selling prices.

     This segment’s operating earnings were $30.6 million in 2009 compared to $18.8 million in 2008. The increase in operating earnings was due to the positive benefits of a higher mix of food packaging products and the benefits of improvement initiatives, including the Mankato, Minnesota facility consolidation.

Color and Specialty Compounds Segment

     Net sales were $241.6 million and $410.5 million in 2009 and 2008, respectively, representing a 41% decrease in 2009. This decrease was caused by:

Underlying volume			(38	)%
Price/mix			(3	)
			(41	)%

     Most of the sales volume decline in this segment occurred from lower sales to the transportation (mostly automotive) and building and construction markets. Volumes sold to these markets were lower by 45% and 35%, respectively, from 2008. The price/mix declines were primarily due to lower resin costs that were passed through to customers as lower selling prices.

     This segment’s operating earnings were $7.4 million in 2009 compared to an operating loss of $99.5 million in 2008. This comparison reflects $1.8 million and $112.7 million of asset impairments in 2009 and 2008, respectively, and restructuring and exit costs of $1.6 million in 2009 and $0.8 million in 2008. Excluding the impact of these items, operating earnings decreased approximately $3.2 million in 2009 due to the decrease in sales volumes, partially offset by benefits from our improvement initiatives.

Corporate

     Corporate expenses are reported as selling, general and administrative expenses in the consolidated condensed statement of operations and include corporate office expenses, information technology costs, costs of the shared services center, professional fees and the impact of foreign currency exchange. Corporate expenses were $36.8 million in 2009 compared to $35.7 million in 2008. Excluding the impact of foreign currency exchange, corporate expenses were essentially flat in both period comparisons reflecting temporary compensation reductions and lower costs associated with the company-wide Oracle information systems implementation, offset by costs from the Company’s shared services functions, functions which previously occurred in the Company’s reporting segments.

Comparison of 2008 and 2007

Consolidated Summary

     Net sales were $1,321.2 million and $1,363.9 million in 2008 and 2007, respectively, representing a 3% decrease in 2008. The decrease was caused by:

Underlying volume			(13	)%
Prior year additional week			(2	)
Creative acquisition			4
Price/mix			8
			(3	)%

     Underlying volume decreased 13% because of lower end-market demand and decreases in discretionary spending in the economy. Our volume sold to the transportation market declined 26% from the prior year due mostly to lower volumes to the automotive sector. Volume sold to the recreation and leisure market was lower by 21%, reflecting decreases in sales to recreational vehicles, pools, spas and marine sectors of this market. Most of the remaining underlying volume decrease occurred in the packaging market which declined 8% from the prior year and our building and construction market which was lower by 8% from the prior year. The decrease in the packaging market was caused by lower purchases in the industrial and food packaging sectors of this market, and the decrease in the building and construction market reflected lower sales to the residential sector which were partially offset by an increase in volume sold to the commercial sector of this market.

     The decrease in volume from the additional week reflects 53 weeks of sales activity in 2007 compared to 52 weeks in 2008. The increase from the Creative acquisition represents the full-year impact of sales dollars from this acquisition which

occurred in September 2007. Our sales comparison benefited from price/mix due mostly to increases in sales dollars from the pass-through of resin cost increases.

     The following table presents net sales, cost of sales, and the resulting gross margin in dollars and on a per pound sold basis for 2008 and 2007. Cost of sales presented in the consolidated statements of operations includes material and conversion costs and excludes amortization of intangible assets. We have not presented cost of sales and gross margin as a percentage of net sales because a comparison of this measure is distorted by changes in resin costs that are typically passed through to customers as changes to selling prices. These changes can materially affect the percentages but do not present complete performance measures of the business.

		2008				2007
Dollars and Pounds (in millions)
Net sales		$	1,321.2			$	1,363.9
Cost of sales			1,205.0				1,213.8
Gross margin		$	116.2			$	150.1
Pounds sold			1,166				1,347
Dollars per Pound Sold
Net sales		$	1.133			$	1.013
Cost of sales			1.033				0.902
Gross margin		$	0.100			$	0.111

     The increase in net sales per pound sold in 2008 was caused by significant increases in our resin costs during the year which were passed along to customers as higher selling prices. The 1.1 cent per pound decrease in gross margin in 2008 reflects the decrease in our sales volume which exceeded our conversion cost dollar decline. Excluding the Creative acquisition, conversion cost dollars decreased 8% due to the volume decline and the impact of improvement initiatives which included reducing our labor-related costs.

     Selling, general and administrative expenses were $88.1 million in 2008, representing a $9.0 million increase over the prior year. The increase was caused by the full-year impact of our Creative acquisition, higher information technology expenses to support our company-wide Oracle information system implementation, higher professional fees to support our improvement initiatives and higher bad debts expense, the impacts of which were partially offset by the extra week and a charge associated with the resignation of the Company’s former President and Chief Executive Officer in 2007.

     Amortization of intangibles was $5.2 million in 2008 compared to $4.5 million in 2007. The increase was primarily due to the prior year Creative acquisition.

     The $218.0 million of goodwill impairments and $9.0 million of fixed asset and other intangible asset impairments in 2008 reflect non-cash charges which were incurred in our Custom Sheet and Rollstock and Color and Specialty Compounds segments. Additional details regarding these impairment charges are discussed in Notes 5 and 6 to the consolidated financial statements.

     Restructuring and exit costs were $2.2 million in 2008 and $1.3 million in 2007. The 2008 costs mostly comprise employee severance, equipment moving expenses and accelerated depreciation resulting from the Company’s improvement initiatives. The 2007 costs primarily represent employee severance, equipment moving expenses and accelerated depreciation associated with the shutdown of three former sheet production facilities and the movement of the business into the Company’s newly constructed facility in Greenville, Ohio.

     The Company reported a $206.2 million operating loss in 2008 which compared to $63.8 million of operating income in 2007. The $270.0 million decrease reflected $218.0 million goodwill impairments in 2008, $7.5 million increase in fixed asset and other intangible asset impairments and $1.0 million increase in restructuring and exit costs. The remaining $43.5 million decrease was caused by the decrease in sales volume which was mitigated somewhat by the impact of improvement initiatives.

     Interest expense was $19.4 million in 2008 and $16.4 million in 2007. The higher expense in 2008 was due to the increase in debt to fund the Creative acquisition and stock repurchases during the fourth quarter of 2007 and the first quarter of 2008.

     Our effective tax rate in 2008 was impacted by the significant goodwill impairments, some of which were not tax deductible. Excluding the goodwill impairments, our effective tax rate was 63% in 2008 which compared to 39% in 2007. Our 2008 effective tax rate was negatively impacted by operating losses from non-U.S. operations for which we have not reflected a tax benefit partially offset by the positive impact of domestic state and foreign tax law changes in the first quarter of 2008.

     Net loss from continuing operations was $171.6 million in 2008 versus $28.8 million of net earnings from continuing operations in 2007. These amounts reflect the impact of the items previously discussed.

     Loss from discontinued operations, net of tax was $20.5 million in 2008 which compared to $5.1 million of earnings in 2007. The loss in 2008 resulted from impairments on businesses which have been sold or liquidated.

Custom Sheet and Rollstock Segment

     Net sales were $636.3 million and $668.4 million in 2008 and 2007, respectively, representing a 5% decrease in 2008. This decrease was caused by:

Underlying volume			(11	)%
Prior year additional week			(2	)
Price/mix			8
			(5	)%

     Most of our underlying volume decrease in this segment occurred in the transportation, recreation and leisure, and building and construction markets. Volume sold to the transportation market decreased 19% and occurred within the automotive and heavy truck sectors of this market. The segment’s volume to the recreation and leisure market was lower by 23% reflecting lower sales of recreational vehicles, spas, pools and marine products. We experienced a 19% decline in volume to the building and construction market from decreases in sales of residential construction-related products. The price/mix benefit was mostly from sales dollar increases from the pass-through of resin cost increases.

     This segment reported an operating loss of $89.8 million in 2008 and operating income of $46.9 million in 2007. This comparison reflects $113.4 million of asset impairments in 2008. The remaining $23.3 million decrease in operating earnings was caused by the lower volume and lower material margins in the early portion of 2008 because of a significant increase in resin costs that were not passed along to customers in a timely manner. These adverse factors were partially offset by lower costs from our manufacturing cost optimization initiative and higher margins from improvement initiatives in the latter portion of 2008.

Packaging Technologies Segment

     Net sales were $274.4 million and $253.7 million in 2008 and 2007, respectively, representing an 8% increase in 2008. This increase was caused by:

Underlying volume			(8	)%
Prior year additional week			(2	)
Creative acquisition			13
Price/mix			5
			8	%

     The decrease in underlying volume reflected a 7% decline to our packaging-related end markets, which represent approximately three-fourths of this segment’s total sales, and a 13% decline in the remaining portion of this segment sold to non-packaging related markets. Our Creative acquisition provided additional sales of $34.1 million in 2008 versus 2007. The price/mix benefit was mostly from sales dollar increases from the pass-through of resin cost increases.

     Operating earnings were $18.8 million in 2008 compared to $26.1 million in 2007. This decrease was caused by the decline in volume and lower underlying material margins from significant increases in resin costs in 2008 that were not passed along to customers in a timely manner due largely to indexed pricing arrangements. These factors were partially offset by additional earnings contributed from Creative and benefits from improvement initiatives.

Color and Specialty Compounds Segment

     Net sales were $410.5 million and $441.8 million in 2008 and 2007, respectively, representing a 7% decrease in 2008. This decrease was caused by:

Underlying volume			(16	)%
Prior year additional week			(2	)
Price/mix			11
			(7	)%

     Approximately three-fourths of the sales volume decline in this segment occurred from lower sales of compounds to the automotive and industrial packaging markets. These sectors of our end markets represented about half of this segment’s sales volume and were lower by 29% and 22% for automotive and industrial packaging, respectively, from 2007. These losses were somewhat mitigated by an increase in volumes sold to the commercial construction market. The price/mix benefit was mostly from sales dollar increases from the pass-through of resin cost increases.

     This segment reported an operating loss of $99.5 million in 2008 and operating income of $21.3 million in 2007. This comparison reflects $112.7 million of asset impairments in 2008. The remaining $8.1 million decrease in operating earnings was caused by the lower volume which was offset somewhat by higher margins from improved mix and the impact of improvement initiatives.

Corporate

     Corporate expenses are reported as selling, general and administrative expenses in the consolidated statements of operations and include corporate office expenses, information technology costs, professional fees and the impact of foreign currency exchange. Corporate expenses were $35.7 million in 2008 compared to $30.6 million in the prior year. Corporate expenses increased in 2008 from higher depreciation expense, information technology-related costs associated with the company-wide Oracle information system implementation and higher professional fees to support improvement initiatives.

Liquidity and Capital Resources

Cash Flow

     Our primary sources of liquidity have been cash flows from operating activities and borrowings from third parties. Historically, our principal uses of cash have been to support our operating activities, invest in capital improvements, reduce outstanding indebtedness, finance strategic business acquisitions, acquire treasury shares and pay dividends on our common stock. The following summarizes the major categories of our changes in cash and cash equivalents in 2009, 2008 and 2007:

		2009				2008				2007
Cash Flows (in millions)
Net cash provided by operating activities		$	65.3			$	96.6			$	104.0
Net cash provided by (used for) investing activities			24.5				(17.5	)			(96.0	)
Net cash used for financing activities			(65.0	)			(80.4	)			(10.0	)
Increase (decrease) in cash and cash equivalents		$	24.8			$	(1.3	)		$	(2.0	)

     Net cash provided by operating activities was $65.3 million in 2009 compared to $96.6 million in the prior year. The decrease in 2009 reflects higher generation of cash in the prior year from net working capital reductions. Reductions in net working capital funded $3.7 million and $37.6 million in 2009 and 2008, respectively.

     Our primary investing activities in 2009 were the $32.7 million of proceeds from the sales of our wheels and profiles businesses partially offset by capital expenditures. We incurred $7.1 million of income taxes on the sales proceeds. Capital expenditures are primarily incurred to enhance our facilities for safety, to improve productivity, and to modernize and expand facilities. Capital expenditures in 2009 were $8.1 million compared to $17.3 million in 2008. The $9.2 million decrease in 2009 was largely attributable to our focus on cash management in the current year. We expect our capital expenditures in 2010 to approximate $25.0 to $28.0 million.

     Net cash used for financing activities totaled $65.0 million in 2009 and $80.4 million in 2008. The net cash used for financing activities in 2009 included $61.7 million to pay down debt and $3.1 million to fund dividends. Financing activities during 2008 included $57.2 million to pay down debt, $13.9 million to fund dividends, $9.7 million for treasury share

purchases. Financing activities in 2008 also included $2.8 million received from our Chairman of the Board to purchase treasury shares and $2.4 million to pay fees associated with our debt refinancing.

     As of October 31, 2009, we had $26.9 million of cash of which $22.3 million related to unremitted earnings in Canada. We can use this cash on a temporary basis to fund short-term financing needs; however, a permanent distribution of this cash to the United States would result in approximately $6.5 million of income taxes which has not been accrued. See Note 11 to the consolidated financial statements for further details of the Company’s total accumulated earnings of its foreign subsidiaries of which the cash held in Canada is a significant portion.

Financing Arrangements

     As of October 31, 2009, we had $216.4 million of outstanding debt with a weighted average interest rate of 6.0%, of which 87% represented fixed rate instruments with a weighted average interest rate of 6.6%.

     As of October 31, 2009, we had $81.6 million of borrowing availability under our most restrictive financial covenant. While we were in compliance with our covenants during 2009 and currently expect to be in compliance with our covenants in the next twelve months, our failure to comply with our covenants or other requirements of our financing arrangements is an event of default and could, among other things, accelerate the payment of indebtedness, which could have a material adverse impact on our business, financial condition and results of operations.

     In accordance with our debt agreements, we are required to offer early principal payments to our senior note and term loan holders based on a ratable percentage of our previous fiscal year’s excess cash flow or extraordinary receipts such as proceeds from the sale of businesses. We made early principal payments of $18.9 million in the second quarter of 2009 related to our 2008 excess cash flow and $17.2 million in December 2009 related to proceeds from sales of our profiles and wheels businesses. We will offer $15.3 million for our 2009 excess cash flow and if accepted, this payment would be made in the second quarter of 2010.

     Our Euro bank term loan matures on February 16, 2010 and, accordingly, 13.7 million euros ($20.3 million U.S.) have been included in the current maturities of long-term debt at October 31, 2009. Other than the 13.7 million Euro bank term loan and the $15.3 million 2009 excess cash flow payment discussed above, we are not required to make any other principal payments on our bank credit facility or senior notes in the next 12 months.

     Our bank credit facility, senior notes and bank term loan are secured with collateral, which includes our accounts receivable, inventory, machinery and equipment, and intangible assets. As of October 31, 2009, capacity under the revolving credit agreement was $135.1 million, of which $81.6 million was available under our most restrictive covenant. Our revolver capacity is permanently reduced by its pro rata share of early principal payments made to our senior note and term loan holders, and our capacity was reduced to $126.2 million after the December 2009 extraordinary receipt payment and would be reduced to $117.4 million upon acceptance of the 2009 excess cash flow payment. In addition to the outstanding loans, the bank credit facility was also partially utilized by several standby letters of credit totaling $14.2 million at October 31, 2009.

     We anticipate that cash flows from operations, together with the financing and borrowings under our bank credit facilities, will provide the resources necessary for reinvestment in our existing business and managing our capital structure on a short and long-term basis.

Contractual Obligations

     The following table summarizes our contractual obligations as of October 31, 2009 and the estimated payments due by period:

(in millions)						Less Than				Years				Years				Greater than
Contractual Obligations		Total				1 Year				2 and 3				4 and 5				5 Years
Long-term debt		$	270.2			$	48.6			$	88.6			$	64.7			$	68.3
Capital lease obligations			5.5				0.7				1.4				1.3				2.1
Operating lease obligations			9.3				3.8				3.6				1.3				0.6
Purchase obligations			59.2				58.6				0.6				—				—
Other obligations			0.3				0.3				—				—				—
Total		$	344.5			$	112.0			$	94.2			$	67.3			$	71.0

     Amounts included in long-term debt include principal and interest payments. Interest on debt with variable rates was calculated using the current rate of that particular debt instrument at October 31, 2009. As discussed above, certain of our

long-term debt agreements are subject to mandatory prepayments, which include prepayments based on amounts of excess cash flow and from the net cash proceeds of asset sales. Because mandatory prepayments are based on future operating results and events, we cannot predict the amount or timing of such prepayments other than the $15.3 million recorded as a current maturity of long-term debt. This mandatory prepayment was based on our excess cash flow during 2009 and would be paid during the second quarter of 2010 if accepted by the senior note and term loan holders. Actual amounts of interest may vary depending on principal prepayments and changes in variable interest rates. Purchase obligations primarily consist of inventory purchases made in the normal course of business to meet operational requirements. The table does not include long-term contingent liabilities, deferred compensation obligations and liabilities related to deferred taxes because the Company is not certain when these liabilities will become due.

Critical Accounting Policies and Estimates

     In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States, we must select and apply various accounting policies. Our most significant accounting policies are described in Note 1 to our consolidated financial statements. In order to apply our accounting policies, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, shareholders’ equity, revenues and expenses, and disclosures of contingent assets and liabilities at the date of the financial statements. In making such estimates, we rely on historical experience, market and other conditions, and on assumptions that we believe to be reasonable. Accounting policies, estimates and judgments which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

     Revenue Recognition — We recognize revenue as product is shipped and title passes to the customer. We manufacture our products either to standard specifications or to custom specifications agreed upon with the customer in advance, and we inspect our products prior to shipment to ensure that these specifications are met. We monitor and track product returns, which have historically been within our expectations and the provisions established. Despite our efforts to improve our quality and service to customers, we cannot guarantee that we will continue to experience the same or better return rates than we have in the past. Any significant increase in returns could have a material negative impact on our operating results.

     Allowance for Doubtful Trade Receivables — We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s creditworthiness, as determined by our review of their current credit information. We monitor market and economic conditions as well as collections and payments from our customers. We maintain a provision for estimated credit losses based upon any specific customer collection issues identified, including market and economic conditions. While such credit losses have historically been within our expectations and the provisions established, actual credit loss rates may differ from our estimates. Any significant increase in credit losses in excess of our expectations could have a material negative impact on the value of our trade receivables and operating results.

     Inventory Valuation and Obsolescence — We value inventories at the lower of (i) cost to purchase or manufacture the inventory or (ii) the current estimated market value of the inventory. We also buy scrap and recyclable material (including regrind material) to be used in future production. We record these inventories initially at purchase price, and based on the inventory aging and other considerations for realizable value, we write down the carrying value to market value where appropriate. We review inventory on-hand and record provisions for obsolete inventory. A significant increase in the demand for our raw materials could result in a short-term increase in the cost of inventory purchases, while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. In addition, most of our business involves the manufacture of custom products, where the loss of a specific customer could increase the amount of excess or obsolete inventory on hand. Although we make efforts to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand could have a significant impact on the value of our inventory and operating results.

     Goodwill — Our formal annual impairment testing date for goodwill is the first day of the Company’s fourth quarter. In addition, a goodwill impairment assessment is performed if an event occurs or circumstances change that would make it more likely than not that the fair value of a reporting unit is below its carrying amount. The goodwill impairment test is a two-step process which requires us to make assumptions regarding fair value. The first step consists of estimating the fair value of each reporting unit using a number of factors, including projected future operating results and business plans, economic projections, anticipated future cash flows, discount rates, the allocation of shared or corporate items, and comparable marketplace fair value data from within a comparable industry grouping. We compare the estimated fair values of each reporting unit to the respective carrying values, which includes allocated goodwill. If the estimated fair value is less than the carrying value, the second step is completed to compute the impairment amount by determining the “implied fair value” of goodwill. This determination requires the allocation of the estimated fair value of the reporting unit to the assets and liabilities of the reporting

unit. Any remaining unallocated fair value represents the “implied fair value” of goodwill, which is compared to the corresponding carrying value to compute the goodwill impairment amount. Although we believe our estimates of fair value are reasonable, many of the factors used in assessing fair value are outside the control of management, and it is reasonably likely that assumptions and estimates can change in future periods. These changes can result in future impairments that may materially affect the carrying value of our assets and our operating results. Note 6 to the consolidated financial statements discloses the impact of charges taken to recognize the impairment of goodwill in 2008 and the factors which led to changes in estimates and assumptions.

     Long-Lived Assets — We review the carrying amounts of property, plant and equipment, other intangible assets and other long-lived assets for potential impairment if an event occurs or circumstances change that indicates the carrying amount may not be recoverable. In evaluating the recoverability of a long-lived asset, such assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets, and we compare the carrying value of each asset group with the corresponding estimated undiscounted future operating cash flows. In the event the carrying value of an asset group is not recoverable by future undiscounted operating cash flows, impairment may exist. In the event of impairment, an impairment charge would be measured as the amount by which the carrying value of the long-lived asset group exceeds its fair value. Notes 5 and 6 to the consolidated financial statements disclose the impact of charges taken to recognize the impairments of fixed assets and other intangible assets and the factors which led to these impairments.

     Income Taxes — Deferred tax assets and liabilities are determined based on temporary differences between financial statement carrying amounts and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. Deferred tax assets are recognized for credit carryforwards and then assessed to determine the likelihood of realization. Valuation allowances are established to the extent we believe it is more likely than not that deferred tax assets will not be realized. Expectations of future earnings, the scheduled reversal of deferred tax liabilities, the ability to carryback losses and credits to offset taxable income in a prior year, and tax planning strategies are the primary drivers underlying our evaluation of valuation allowances. Deferred tax amounts recorded may materially differ from the amounts that are ultimately payable and expensed if our estimates of future earnings and outcomes of tax planning strategies are ultimately inaccurate.

     Deferred income taxes are not provided for undistributed earnings on foreign consolidated subsidiaries to the extent that such earnings are reinvested for an indefinite period of time. If those undistributed foreign earnings were not considered indefinitely reinvested, we would be required to recognize approximately $7.5 million to $9.5 million of additional income tax expense.

     We are required to recognize the impact of a tax position, if that position is more likely than not to be sustained on examination, based on the technical merits of the position. The benefit is calculated as the largest amount that is more than 50 percent likely to be ultimately realized. Tax authorities examine the Company’s tax returns in the jurisdictions in which the Company does business. The Company assesses the tax risk of the Company’s return filing positions and has concluded its accruals for uncertain tax benefits are adequate as of October 31, 2009.

     Contingencies — We are involved in litigation in the ordinary course of business, including environmental matters. Our policy is to record expense for contingencies when it is both probable that a liability has been incurred and the amount can be reasonably estimated. Estimating probable losses requires assessment of multiple outcomes that often depends on management’s judgments regarding, but not limited to, potential actions by third parties such as regulators. The final resolution of these contingencies could result in expenses different from current accruals and, therefore, have a material impact on our consolidated financial results in a future reporting period.

     For additional information regarding our significant accounting policies, as well as the impact of recently issued accounting standards, see Note 1 to our consolidated financial statements.

Item 7A.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to changes in interest rates primarily as a result of our borrowing activities. Our earnings and cash flows are subject to fluctuations in interest rates on our floating rate debt facilities. At October 31, 2009, we had $28.3 million of debt subject to variable short-term interest rates and $188.1 million of fixed rate debt outstanding. Based upon the October 31, 2009 balance of the floating rate debt, a hypothetical ten-percent increase in interest rates would cause an immaterial change in future net earnings, fair values and cash flows. We are not currently engaged in any interest rate derivative instruments to manage our exposure to interest rate fluctuations. The fair value of our fixed rate debt is subject to changes in interest rates and the October 31, 2009 fair values of such instruments are disclosed in Note 15 to our consolidated financial statements.

     We are also exposed to market risk through changes in foreign currency exchange rates, including the Canadian dollar, euro and Mexican peso. Based upon our October 31, 2009 currency exposures, a hypothetical ten-percent weakening of the U.S. dollar against the Canadian dollar would cause an approximate $3.0 million decrease in future earnings, fair values and cash flows and have an immaterial impact against the euro and Mexican peso.

     See Item 1A for additional disclosures about market risk.

Item 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Responsibility for Financial Statements

     The Company’s management is responsible for the integrity and accuracy of the financial statements. Management believes that the financial statements for the three years ended October 31, 2009, November 1, 2008 and November 3, 2007 have been prepared in accordance with accounting principles generally accepted in the United States. In preparing the financial statements, management makes informed judgments and estimates when necessary to reflect the expected effects of events and transactions that have not been completed. The Company’s disclosure controls and procedures ensure that material information required to be disclosed is recorded, processed, summarized and communicated with management and reported within the required time periods.

     In meeting its responsibility for the reliability of the financial statements, management relies on a system of internal controls. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management’s authorization and recorded properly to allow the preparation of financial statements in accordance with accounting principles generally accepted in the United States. The design of this system recognizes that errors or irregularities may occur and that estimates and judgments are required to assess the relative cost and expected benefits of the controls. Management believes the Company’s accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected in a timely period.

     The Company’s Board of Directors is responsible for ensuring the independence and qualifications of Audit Committee members under applicable New York Stock Exchange and Securities and Exchange Commission standards. The Audit Committee consists of three independent directors and oversees the Company’s financial reporting and internal controls system. The Audit Committee meets with management, the independent registered public accounting firm and internal auditors periodically to review auditing, financial reporting and internal control matters. The Audit Committee held 11 meetings during 2009.

     The Company’s independent registered public accounting firm, Ernst & Young LLP, is engaged to express an opinion on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting. Their opinions are based on procedures which they believe to be sufficient to provide reasonable assurance that the financial statements contain no material errors and that the Company’s internal controls are effective.

Management’s Report on Internal Control over Financial Reporting

     The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. With the participation of the Chief Executive Officer and Chief Financial Officer, management conducted an assessment of the effectiveness of its internal control over financial reporting based on the framework set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of October 31, 2009.

     The Company’s independent registered public accounting firm, Ernst & Young LLP, has issued an audit report on their assessment of the Company’s internal control over financial reporting.

Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Spartech Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Spartech Corporation and subsidiaries (the Company) as of October 31, 2009, and November 1, 2008, and the related consolidated statements of operations, shareholders’ equity, and cash flows of the Company for each of the three years in the period ended October 31, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Spartech Corporation and subsidiaries at October 31, 2009, and November 1, 2008, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 31, 2009, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Spartech Corporation and subsidiaries’ internal control over financial reporting as of October 31, 2009, based on criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated January 14, 2010, expressed an unqualified opinion thereon.

Ernst & Young LLP

St. Louis, Missouri
January 14, 2010

Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Spartech Corporation and Subsidiaries

We have audited Spartech Corporation and subsidiaries’ (the Company) internal control over financial reporting as of October 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of October 31, 2009 and November 1, 2008, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended October 31, 2009, and our report dated January 14, 2010, expressed an unqualified opinion thereon.

Ernst & Young LLP

St. Louis, Missouri
January 14, 2010

SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

		October 31,				November 1,
		2009				2008
ASSETS
Current Assets:
Cash and cash equivalents		$	26,925			$	2,118
Trade receivables, net of allowance of $2,470 and $4,550, respectively			130,355				176,108
Inventories			62,941				96,721
Prepaids and other current assets			24,916				22,970
Assets held for sale			2,907				1,695
Total Current Assets			248,044				299,612
Property, plant and equipment, net			229,003				280,202
Goodwill			144,345				145,498
Other intangible assets, net			28,404				32,722
Other long-term assets			3,892				4,385
Total Assets		$	653,688			$	762,419
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt		$	36,079			$	20,428
Accounts payable			103,484				155,594
Accrued liabilities			31,122				42,676
Total Current Liabilities			170,685				218,698
Long-Term Debt:
Long-term debt, less current maturities			180,355				254,226
Other Long-Term Liabilities:
Deferred taxes			58,736				56,516
Other long-term liabilities			7,033				6,189
Total Liabilities			416,809				535,629
Shareholders’ equity:
Preferred stock (authorized: 4,000,000 shares, par value $1.00)
Issued: None			—				—
Common stock (authorized: 55,000,000 shares, par value $0.75)
Issued: 33,131,846 shares;
Outstanding: 30,719,277 and 30,563,605 shares, respectively			24,849				24,849
Contributed capital			204,183				202,656
Retained earnings			60,411				53,588
Treasury stock, at cost, 2,412,569 and 2,568,241 shares, respectively			(54,860	)			(56,389	)
Accumulated other comprehensive income			2,296				2,086
Total Shareholders’ Equity			236,879				226,790
Total Liabilities and Shareholders’ Equity		$	653,688			$	762,419

See accompanying notes to consolidated financial statements.

SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)

		2009				2008				2007
Net Sales		$	926,777			$	1,321,169			$	1,363,931
Costs and Expenses:
Cost of sales			810,469				1,204,932				1,213,814
Selling, general, and administrative expenses			77,868				88,082				79,092
Amortization of intangibles			4,479				5,163				4,463
Goodwill impairments			—				217,965				—
Fixed asset and other intangible asset impairments			2,592				9,031				1,550
Restructuring and exit costs			5,234				2,230				1,262
			900,642				1,527,403				1,300,181
Operating Earnings (Loss)			26,135				(206,234	)			63,750
Interest expense (net of interest income: 2009, $28; 2008, $395; 2007, $501)			15,379				19,403				16,393
Earnings (loss) from continuing operations before income taxes			10,756				(225,637	)			47,357
Income tax expense (benefit)			7,451				(53,988	)			18,592
Net earnings (loss) from continuing operations			3,305				(171,649	)			28,765
Earnings (loss) of discontinued operations, net of tax			5,046				(20,463	)			5,081
Net earnings (loss)		$	8,351			$	(192,112	)		$	33,846
Basic earnings (loss) per share:
Earnings (loss) from continuing operations		$	.11			$	(5.67	)		$	.90
Earnings (loss) of discontinued operations			.16				(.68	)			.16
Net earnings (loss)		$	.27			$	(6.35	)		$	1.06
Diluted earnings (loss) per share:
Earnings (loss) from continuing operations		$	.11			$	(5.67	)		$	.89
Earnings (loss) of discontinued operations			.16				(.68	)			.16
Net earnings (loss)		$	.27			$	(6.35	)		$	1.05

See accompanying notes to consolidated financial statements.

SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands)

																		Accumulated
																		Other
																		Comprehensive				Total
		Common				Contributed				Retained				Treasury				Income				Shareholders’
		Stock				Capital				Earnings				Stock				(Loss)				Equity
Balance, October 28, 2006		$	24,849			$	198,661			$	240,398			$	(22,845	)		$	1,630			$	442,693
Comprehensive income:
Net earnings			—				—				33,846				—				—				33,846
Other comprehensive income:
Translation adjustments			—				—				—				—				7,736				7,736
Comprehensive income																							41,582
Stock-based compensation			—				1,824				—				10,225				—				12,049
Dividends declared			—				—				(17,133	)			—				—				(17,133	)
Treasury stock purchases			—				—				—				(39,911	)			—				(39,911	)
Balance, November 3, 2007		$	24,849			$	200,485			$	257,111			$	(52,531	)		$	9,366			$	439,280
Comprehensive loss:
Net loss			—				—				(192,112	)			—				—				(192,112	)
Other comprehensive loss:
Translation adjustments			—				—				—				—				(7,280	)			(7,280	)
Comprehensive loss																							(199,392	)
Issuance of common stock			—				(1,282	)			—				4,094				—				2,812
Stock-based compensation			—				3,453				—				178				—				3,631
Dividends declared			—				—				(11,291	)			—				—				(11,291	)
Treasury stock purchases			—				—				—				(8,130	)			—				(8,130	)
Adjustment to initially apply FASB guidance for income tax uncertainties			—				—				(120	)			—				—				(120	)
Balance, November 1, 2008		$	24,849			$	202,656			$	53,588			$	(56,389	)		$	2,086			$	226,790
Comprehensive income:
Net earnings			—				—				8,351				—				—				8,351
Other comprehensive income:
Translation adjustments			—				—				—				—				210				210
Comprehensive income																							8,561
Stock-based compensation			—				1,527				—				1,529				—				3,056
Dividends declared			—				—				(1,528	)			—				—				(1,528	)
Balance, October 31, 2009		$	24,849			$	204,183			$	60,411			$	(54,860	)		$	2,296			$	236,879

See accompanying notes to consolidated financial statements.

SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

		2009				2008				2007
Cash Flows From Operating Activities
Net earnings (loss)		$	8,351			$	(192,112	)		$	33,846
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization			44,030				47,201				43,069
Stock-based compensation expense			3,070				3,634				2,884
Goodwill impairment			—				238,641				—
Fixed asset and other intangible asset impairments			2,592				15,846				1,550
Restructuring and exit costs			2,114				659				573
Net gain on the disposition of assets			(6,242	)			—				—
Provision for bad debt expense			4,321				4,763				2,099
Deferred taxes			2,499				(59,100	)			2,792
Changes in current assets and liabilities, net of effects of acquisitions and divestitures:
Trade receivables			36,271				31,326				(6,172	)
Inventories			29,354				19,026				10,291
Prepaid expenses and other current assets			(4,879	)			1,727				(664	)
Accounts payable			(47,506	)			(11,691	)			16,761
Accrued liabilities			(9,509	)			(2,766	)			(6,078	)
Other, net			799				(542	)			3,060
Net cash provided by operating activities			65,265				96,612				104,011
Cash Flows From Investing Activities
Capital expenditures			(8,098	)			(17,276	)			(34,743	)
Business acquisitions			—				(792	)			(61,371	)
Proceeds from dispositions of assets			32,677				584				94
Net cash provided by (used for) investing activities			24,579				(17,484	)			(96,020	)
Cash Flows From Financing Activities
Bank credit facility borrowings (payments), net			(41,600	)			(49,903	)			36,823
Payments on notes and bank term loan			(18,936	)			(7,876	)			—
Borrowings (payments) on bonds and leases			(1,183	)			573				(580	)
Debt issuance costs			(215	)			(2,424	)			—
Cash dividends on common stock			(3,057	)			(13,926	)			(17,006	)
Issuance of common stock			—				2,812				—
Stock-based compensation exercised			(15	)			16				8,449
Treasury stock acquired			—				(9,667	)			(38,374	)
Excess tax benefits from stock-based compensation			—				—				716
Net cash used by financing activities			(65,006	)			(80,395	)			(9,972	)
Effect of exchange rate changes on cash and cash equivalents			(31	)			(24	)			18
Increase (decrease) in cash and cash equivalents			24,807				(1,291	)			(1,963	)
Cash and cash equivalents at beginning of year			2,118				3,409				5,372
Cash and cash equivalents at end of year		$	26,925			$	2,118			$	3,409

See accompanying notes to consolidated financial statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

1) Significant Accounting Policies

     Basis of Presentation — The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation.

     In 2009, the Company sold its wheels and profiles businesses and closed and liquidated three businesses including a manufacturer of boat components sold to the marine market, and one compounding and one sheet business which previously serviced single customers. These businesses are classified as discontinued operations in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 205-20 (Discontinued Operations). Accordingly, for all periods presented herein, the consolidated statements of operations conform to this presentation. The wheels, profiles and marine businesses were previously reported in the Engineered Products group and due to these dispositions, the Company no longer has this reporting group. See Notes 2 and 17 for further details.

     The Company’s fiscal year ends on the Saturday closest to October 31, and fiscal years generally contain 52 weeks or 364 calendar days. Because of this convention, every fifth or sixth fiscal year has an additional week, and 2007 was reported as a 53-week fiscal year containing 371 days of activity.

     Principles of Consolidation — The accompanying consolidated financial statements include the accounts of Spartech Corporation and its controlled affiliates. All intercompany transactions and balances have been eliminated.

     Segments — Spartech is organized into three reportable segments based on its operating structure and the products manufactured. The three reportable segments are Custom Sheet and Rollstock, Packaging Technologies and Color and Specialty Compounds. The Color and Specialty Compounds segment consists of three operating segments that are aggregated into a reportable segment based on the nature of the products manufactured. See Note 17 for further details.

     Revenue Recognition — The Company manufactures products for specific customer orders and for standard stock inventory. Revenues are recognized as the product is shipped to the customer in accordance with generally accepted accounting principles in the United States as well as the Securities and Exchange Commission’s Staff Accounting Bulletin 104, Revenue Recognition. Shipping and handling costs associated with the shipment of goods are recorded as costs of sales in the consolidated statement of operations.

     Cash Equivalents — Cash equivalents consist of highly liquid investments with original maturities of three months or less.

     Allowance for Doubtful Accounts — The Company performs ongoing credit evaluations of customers, including reviewing creditworthiness from third-party reporting agencies, monitoring market and economic conditions, monitoring payment histories, and adjusting credit limits as necessary. The Company continually monitors collections and payments from customers and maintains a provision for estimated credit losses based on specifically identified customer collection issues.

     Inventories — Inventories are valued at the lower of cost or market. Inventory values are primarily based on either actual or standard costs which approximate average cost. Standard costs are revised at least once annually, the effect of which is allocated between inventories and cost of sales. Finished goods include the costs of material, labor, and overhead.

     Property, Plant and Equipment — Property, plant and equipment are carried at cost less accumulated depreciation. Major additions and improvements are capitalized. Maintenance and repairs are expensed as incurred. Depreciation expense is recorded on a straight-line basis over the estimated useful lives of the related assets as shown below and totaled $36,824, $38,115 and $34,587 in years 2009, 2008, and 2007, respectively.

		Years
Buildings and leasehold improvements			20-25
Machinery and equipment			12-16
Furniture and fixtures			5-10
Computer equipment and software			3-7

     Goodwill — Assets and liabilities acquired in business combinations are accounted for using the purchase method and recorded at their respective fair values. Goodwill is assigned to the reporting unit that benefits from the acquired business.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Dollars in thousands, except per share amounts)

The Company’s annual goodwill impairment testing date is the first day of the Company’s fourth quarter. In addition, a goodwill impairment assessment is performed if an event occurs or circumstances change that would make it more likely than not that the fair value of a reporting unit is below its carrying amount. The goodwill impairment test is a two-step process which requires the Company to make assumptions regarding fair value. The first step consists of estimating the fair value of each reporting unit using a number of factors including projected future operating results and business plans, economic projections, anticipated future cash flows, discount rates, the allocation of shared or corporate items and comparable marketplace fair value data from within a comparable industry grouping. The estimated fair values of each reporting unit are compared to the respective carrying values, which includes allocated goodwill. If the estimated fair value is less than the carrying value, the second step is completed to compute the impairment amount by determining the “implied fair value” of goodwill. This determination requires the allocation of the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any remaining unallocated fair value represents the “implied fair value” of goodwill, which is compared to the corresponding carrying value to compute the goodwill impairment amount. Management believes the estimates of the underlying components of fair value are reasonable.

     Other Intangible Assets — Costs allocated to customer contracts, product formulations and other intangible assets are based on their fair value at the date of acquisition. The cost of other intangible assets is amortized on a straight-line basis over the assets’ estimated useful life ranging from 3 to 20 years.

     Long-Lived Assets — The Company reviews the carrying amounts of property, plant and equipment, other intangible assets and other long-lived assets for potential impairment if an event occurs or circumstances change that indicates the carrying amount may not be recoverable. In evaluating the recoverability of long-lived assets, such assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets, and management compares the carrying value of each asset group with the corresponding estimated undiscounted future operating cash flows. In the event the carrying value of an asset group is not recoverable by future undiscounted operating cash flows, impairment may exist. In the event of impairment, an impairment charge would be measured as the amount by which the carrying value of the long-lived asset group exceeds its fair value.

     Fair Values of Financial Instruments — The Company uses the following methods and assumptions in estimating the fair value of financial instruments:

	•		Cash, accounts receivable, accounts payable, and accrued liabilities — The carrying value of these instruments approximates fair value due to their short-term nature;
	•		Long-term debt (including bank credit facilities) — The estimated fair value of the long-term debt is based on estimated borrowing rates to discount the cash flows to their present value as provided by a broker, or otherwise, quoted, current market prices for same or similar issues. See Note 15 for further details.

     Stock-Based Compensation — The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. See Note 8 for further details.

     Foreign Currency Translation — Assets and liabilities of the Company’s non-U.S. operations are translated from their functional currency to U.S. dollars using exchange rates in effect at the balance sheet date, and adjustments resulting from the translation process are included in accumulated other comprehensive income. Transactional gains and losses arising from receivable and payable balances, including intercompany balances, in the normal course of business that are denominated in a currency other than the functional currency of the operation are recorded in the statements of operations when they occur. The Company’s foreign currency net loss from continuing operations totaled $1,968, $901 and $2,817 in 2009, 2008 and 2007, respectively and is included in selling, general and administrative expenses in the consolidated statements of income.

     Income Taxes — Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets are also recognized for credit carryforwards and then assessed (including the anticipation of future income) to determine the likelihood of realization. A valuation allowance is established to the extent management believes that it is more likely than not that a deferred tax asset will not be realized. Deferred tax assets and liabilities are measured using the rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse and the credits are expected to be used. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Deferred income taxes are not provided for undistributed earnings on foreign consolidated subsidiaries to the extent such earnings are reinvested for an indefinite period of time.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Dollars in thousands, except per share amounts)

     The Company recognizes the impact of a tax position, if that position is more likely than not to be sustained on examination, based on the technical merits of the position. The benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the benefit. Tax authorities regularly examine the Company’s tax returns in the jurisdictions in which the Company does business. The Company regularly assesses the tax risk of the Company’s return filing positions and has concluded its accruals for uncertain tax benefits are adequate as of October 31, 2009.

     Comprehensive Income — Comprehensive income is the Company’s change in equity during the period related to transactions, events, and circumstances from non-owner sources. At October 31, 2009 and November 1, 2008 accumulated other comprehensive income consisted of cumulative foreign currency translation adjustments.

     Recently Adopted Accounting Pronouncements — In June 2009, the FASB issued the ASC to serve as the single source of authoritative GAAP. The Company adopted this in the fourth quarter of fiscal 2009. Adoption did not have an impact on the Company’s financial position, results of operations or cash flows.

     In May 2009, the FASB issued guidance in ASC 855 (Subsequent Events). ASC 855 establishes general standards for accounting and disclosure of events occurring subsequent to the balance sheet date but prior to issuance of the financial statements. The Company adopted ASC 855 in the third quarter of fiscal 2009. The adoption of ASC 855 did not impact the Company’s financial position, results of operations or cash flows.

     In September 2006, the FASB issued guidance in ASC 820 (Fair Value Measurements and Disclosures) that defines fair value, establishes a framework for measuring fair value, expands disclosure about fair value measurements, and introduces the fair value option for certain financial assets and liabilities. ASC 820 was adopted by the Company in the first quarter of fiscal 2009. The Company did not elect to value any existing assets or liabilities at fair value upon adoption, nor did it apply the fair value option to any eligible assets acquired or liabilities incurred. The Company will adopt the nonfinancial asset and liability fair value provisions in fiscal year 2010 which is not expected to have a material impact on the Company’s financial position, results of operations or cash flows. See Note 15 for additional information related to fair value measurements.

     Recently Issued Accounting Standards — In June 2008, the FASB issued guidance on determining whether instruments granted in share-based payment transactions are participating securities which requires unvested share-payment awards that contain rights to receive nonforfeitable dividends or dividend equivalents to be included in the two-class method of computing earnings per share. This guidance is effective for the Company in fiscal year 2010. This guidance is not expected to materially impact the Company’s financial position, results of operations or cash flows.

     In December 2007, the FASB issued guidance on business combinations (“ASC 805”). Under ASC 805, an entity is required to recognize the assets acquired, liabilities assumed, contractual contingencies and contingent consideration measured at their fair value at the acquisition date. It further requires that acquisition-related costs are to be recognized separately from the acquisition and expensed as incurred. In addition, acquired in-process research and development is capitalized at fair value as an intangible asset and amortized over its estimated useful life. ASC 805 is effective for the Company’s business combinations beginning in fiscal year 2010 and this has no impact on the Company’s historical consolidated financial statements.

2) Discontinued Operations

     Wheels Business Divestiture — On October 27, 2009, the Company sold its wheels business, a manufacturer of PVC tire and plastic wheel assemblies primarily for the lawn and garden and medical markets. The sales price was $34,500, including $6,000 of contingent payments, which are based on performance of the wheels business over the next three years. To date, the Company has not recognized any of the contingent consideration from this transaction. The wheels business has been segregated from continuing operations and presented as discontinued operations. The wheels business was previous reported as a part of the Engineered Products group.

     Profiles Business Divestiture — Effective October 3, 2009, the Company sold its profiles extrusion business located in Winnipeg, Manitoba, Canada. The profiles business is principally engaged in the manufacturing of profile window frames and fencing for the building and construction market. The sales price for the business was $7,000 Canadian (approximately $6,486 U.S). As a result, the profiles business has been segregated from continuing operations and presented as discontinued operations. The profiles business was previous reported as a part of the Engineered Products group.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Dollars in thousands, except per share amounts)

     Other Closures — During 2009, the Company closed and liquidated its marine business in Rockledge, Florida, closed its sheet business in Donchery, France and closed a compounding business located in Arlington, Texas. These businesses have been separated from continuing operations and presented as discontinued operations.

     A summary of the net sales and the net earnings (loss) from discontinued operations is as follows:

		2009				2008				2007
Net sales		$	48,857			$	77,724			$	88,052
Costs and expenses			50,495				100,993				80,599
			(1,638	)			(23,269	)			7,453
Gain on the sale of discontinued operations			10,768				—				—
Earnings (loss) of discontinued operations before income taxes			9,130				(23,269	)			7,453
Provision (benefit) for income taxes			4,084				(2,806	)			2,372
Earnings (loss) of discontinued operations, net of tax		$	5,046			$	(20,463	)		$	5,081