UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~August~~February 42, ~~2012~~2013



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

For the transition period from ______________ to _______________

1-5911

(Commission File Number)

SPARTECH CORPORATION

(Exact name of Registrant as specified in its charter)



Delaware	43-0761773
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

120 S. Central Avenue, Suite 1700

Clayton, Missouri 63105

(Address of principal executive offices) (Zip Code)

(314) 721-4242

(Registrant’s telephone number, including area code)

Indicate by checkmark 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 Web site, 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 þ NO o

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.



Large accelerated filer o	Accelerated filer R	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 3031,~~794~~203,~~111~~605 shares of Common Stock, $.75 par value per share, outstanding as of ~~September~~March 1, ~~2012~~2013.

SPARTECH CORPORATION

FORM 10-Q For the Three ~~and Nine~~ Months Ended ~~August~~February 42, ~~2012~~2013 and ~~July~~February 304, ~~2011~~2012

Table of Contents

Cautionary Statements Concerning Forward-Looking Statements

PART I — Financial Information		Page No.
Item 1.	Financial Statements
	Consolidated Condensed Balance Sheets:
	As of August 4, 2012 (Unaudited) and October 29, 2011	1
	As of February 2, 2013 (Unaudited) and November 3, 2012	1
	Unaudited Consolidated Condensed Statements of Operations:
	For the Three and Nine Months Ended August 4, 2012 and July 30, 2011	2
	For the Three Months Ended February 2, 2013 and February 4, 2012	2
	Unaudited Consolidated Condensed Statement of Cash Flows:
	Unaudited Consolidated Statements of Comprehensive Income:
	For the Nine Months Ended August 4, 2012 and July 30, 2011	3
	For the Three Months Ended February 2, 2013 and February 4, 2012	3
	Notes to Unaudited Consolidated Condensed Financial Statements	4
	Unaudited Consolidated Condensed Statement of Cash Flows:
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	For the Three Months Ended February 2, 2013 and February 4, 2012	4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
	Notes to Unaudited Consolidated Condensed Financial Statements	5
Item 4.	Controls and Procedures	23
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
PART II — Other Information
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 1.	Legal Proceedings	23
Item 4.	Controls and Procedures	22
Item 6.	Exhibits	25
PART II — Other Information
	Signatures	26
Item 1.	Legal Proceedings	23
	Certifications	25
Item 6.	Exhibits	26
EX-31.1
	Signatures	27
EX-31.2
	Certifications	26
EX-32.1
EX-10.1
EX-32.2
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Table of Contents

Cautionary Statements Concerning Forward-Looking Statements

Statements in this Form 10-Q that are not purely historical, including statements that express 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 that could cause actual results to differ from our forward-looking statements are as follows:

(a) The ~~Adverse~~announced ~~changes~~pending inmerger ~~economic~~with orPolyOne ~~industry~~could ~~conditions,~~cause ~~including~~disruptions ~~global~~in ~~supply and demand conditions and prices for products of~~ the ~~types we produce;~~business

(b) Uncertainty ~~Restrictions~~of ~~imposed~~the onmerger usmay bycause ~~instruments~~customers, ~~governing~~suppliers, ~~our indebtedness~~employees, ~~the~~or ~~possible~~strategic ~~inability~~partners to ~~comply~~delay ~~with~~or ~~requirements~~make ~~and~~different ~~covenants~~decisions ofabout ~~those~~their ~~instruments~~relationship ~~and~~with ~~inability~~the ~~to access capital markets;~~Company

(c) Required ~~Our~~approvals ~~ability~~and tolawsuits ~~compete~~challenging ~~effectively~~the onmerger ~~product~~could ~~performance,~~delay ~~quality,~~or ~~price,~~prevent ~~availability,~~the ~~product~~closing ~~development,~~of ~~and~~the ~~customer service;~~merger

(d) Problems ~~Adverse~~may ~~changes~~arise in the ~~markets~~integration weof ~~serve, including~~ the ~~packaging,~~businesses ~~transportation,~~of ~~building~~PolyOne and ~~construction,~~the ~~recreation~~Company ~~and~~or ~~leisure,~~the ~~and~~transaction ~~other~~may ~~markets,~~result ~~some~~in ofunexpected ~~which~~costs ~~tend~~ to bemerge ~~cyclical;~~the two companies

(e) ~~Volatility~~Adverse ofchanges ~~prices~~in ~~and~~economic ~~availability~~or ofindustry ~~supply of energy and raw materials that are critical to the manufacture of our products~~conditions, ~~particularly~~including ~~plastic~~global ~~resins~~supply ~~derived~~and ~~from~~demand ~~oil~~conditions and ~~natural~~prices ~~gas,~~for ~~including~~products ~~future~~of ~~impacts~~the oftypes ~~natural~~we ~~disasters;~~produce

(f) Our ~~inability~~ability to ~~manage~~compete oreffectively ~~pass~~on ~~through~~product toperformance, ~~customers an adequate level of increases in the costs of materials~~quality, ~~freight~~price, ~~utilities~~availability, orproduct ~~other~~development, ~~conversion~~and ~~costs;~~customer service

(g) ~~Our~~Adverse ~~inability~~changes toin ~~achieve~~the ~~and~~markets ~~sustain~~we ~~the~~serve, ~~level~~including ofthe ~~cost~~packaging, ~~savings~~transportation, ~~productivity~~building ~~improvements~~and construction, ~~gross~~recreation ~~margin~~and ~~enhancements~~leisure, ~~growth~~and or other ~~benefits~~markets, ~~anticipated~~some ~~from~~of ~~our~~which ~~improvement~~tend ~~initiatives;~~to be cyclical

(h) ~~Our~~Volatility ~~inability~~of toprices ~~collect~~and ~~all~~availability orof asupply ~~portion~~of energy and raw materials that are critical to the manufacture of our ~~receivables~~products, ~~with~~particularly ~~large~~plastic ~~customers~~resins orderived afrom ~~number~~oil and natural gas, including future impacts of ~~customers;~~natural disasters

(i) ~~Loss~~Our ofinability ~~business~~to ~~with~~manage aor ~~limited~~pass ~~number~~through ofto customers ~~that~~an ~~represent~~adequate alevel ~~significant~~of ~~percentage~~increases in the costs of ~~our~~materials, ~~revenues;~~freight, utilities, or other conversion costs

(j) ~~Significant~~Our ~~changes~~inability into orachieve ~~termination~~and sustain the level of ~~major~~cost ~~contracts~~savings, ~~with~~productivity ~~customers~~improvements, gross margin enhancements, growth or ~~suppliers;~~other benefits anticipated from our improvement initiatives

(k) ~~Possible~~Our ~~asset~~inability ~~impairments;~~to collect all or a portion of our receivables with large customers or a number of customers

(l) ~~Our~~Loss ~~inability to predict accurately the costs to be incurred, time taken to complete, operating disruptions therefrom, potential loss~~ of business orwith ~~savings~~a tolimited benumber ~~achieved~~of incustomers ~~connection~~that ~~with~~represent ~~announced~~a ~~production~~significant ~~plant~~percentage ~~consolidations~~of ~~and~~our ~~line moves;~~revenues

(m) ~~Adverse~~Restrictions ~~findings~~imposed inon ~~significant~~us ~~legal~~by orinstruments ~~environmental~~governing ~~proceedings~~our orindebtedness, ~~our~~the possible inability to comply with ~~applicable~~requirements ~~environmental~~of ~~laws~~those instruments and ~~regulations;~~inability to access capital markets

(n) ~~Our~~Possible ~~inability~~asset ~~to develop and launch new products successfully;~~impairments

(o) ~~Possible~~Our ~~weaknesses~~inability to predict accurately the costs to be incurred, time taken to complete, operating disruptions therefrom, potential loss of business or savings to be achieved in ~~internal~~connection ~~controls;~~with production plant consolidations and line moves


(p)	Adverse findings in significant legal or environmental proceedings or our inability to comply with applicable environmental laws and regulations


(q)	Our inability to develop and launch new products successfully or without extensive additional costs


(r)	Possible weaknesses in internal controls

We assume no responsibility to update our forward-looking statements.

Table of Contents

PART I — Financial Information

Item 1. Financial Statements

Spartech Corporation and Subsidiaries

Consolidated Condensed Balance Sheets

	(Unaudited)
	August 4,			October 29,
	February 2,			November 3,
(Dollars in thousands, except share data)	~~2012~~2013			~~2011~~2012
Assets
Current assets:
Cash and cash equivalents	$	~~933~~2,964		$	~~877~~1,092
Trade receivables, net of allowances of $2,955 and $2,437, respectively	146,857			156,432
Trade receivables, net of allowances of $2,494 and $3,341, respectively	136,235			150,566
Inventories, net of inventory reserves of $9,461 and $9,152, respectively	98,248			91,186
Inventories, net of inventory reserves of $9,941 and $9,534, respectively	114,980			105,099
Prepaid expenses and other current assets, net	2731,~~122~~138			2624,~~367~~855
Assets held for sale	2,~~624~~614			2,~~744~~614
Total current assets	~~275~~287,~~784~~931			~~277~~284,~~606~~226
Property, plant and equipment, net	~~197~~195,~~722~~694			~~208~~197,~~074~~373
Goodwill	47,466			47,466
Other intangible assets, net	1110,~~604~~760			1211,~~872~~182
Other long-term assets	4,~~566~~174			34,~~684~~386
Total assets	$	~~537~~546,~~142~~025		$	~~549~~544,~~702~~633
Liabilities and shareholders’ equity
Current liabilities:
Current maturities of long-term debt	$	22,~~610~~645		$	2522,~~211~~636
Accounts payable	~~134~~124,~~210~~300			~~140~~141,~~628~~937
Accrued liabilities	3436,~~482~~789			3039,~~919~~088
Total current liabilities	~~191~~183,~~302~~734			~~196~~203,~~758~~661
Long-term debt, less current maturities	~~119~~134,~~931~~357			~~132~~112,~~000~~288
Other long-term liabilities:
Deferred taxes	41,~~668~~960			41,~~676~~960
Other long-term liabilities	67,~~800~~007			6,~~336~~739
Total liabilities	~~359~~367,~~701~~058			~~376~~364,~~770~~648
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: 30,795,692 and 30,831,919 shares, respectively	24,849			24,849
Common stock (authorized: 55,000,000 shares, par value $0.75)Issued: 33,131,846 shares; outstanding: 31,210,911 and 30,801,994 shares, respectively	24,849			24,849
Contributed capital	~~202~~193,~~172~~089			~~201~~203,~~945~~092
Accumulated losses	(78,~~770~~901		)	(118,~~031~~435		)
Treasury stock, at cost, 2,336,154 and 2,299,927 shares, respectively	(48,210		)	(49,286		)
Treasury stock, at cost, 1,920,935 and 2,329,852 shares, respectively	(34,921		)	(44,481		)
Accumulated other comprehensive income	64,~~400~~851			64,~~455~~960
Total shareholders’ equity	~~177~~178,~~441~~967			~~172~~179,~~932~~985
Total liabilities and shareholders’ equity	$	~~537~~546,~~142~~025		$	~~549~~544,~~702~~633

See accompanying notes to consolidated condensed financial statements.

Table of Contents

Spartech Corporation and Subsidiaries

Consolidated Condensed Statements of Operations

	Three Months Ended						~~Nine Months Ended~~
	August 4,			July 30,			August 4,		July 30,
	February 2,			February 4,
(Unaudited and dollars in thousands, except per share data)	~~2012~~2013			~~2011~~2012			~~2012~~		~~2011~~
Net sales	$	~~282~~263,~~447~~993		$	~~291~~281,~~716~~781		$	~~862,551~~	$	~~809,050~~
Costs and expenses
Cost of sales	~~255~~237,~~315~~017			~~265~~260,~~051~~075			~~783,924~~		~~736,902~~
Selling, general and administrative expenses	2022,~~673~~155			1721,~~744~~760			~~63,302~~		~~55,730~~
Amortization of intangibles	422			422			1,267		1,265
Foreign exchange (gains)/losses	(425		)	16
Restructuring and exit costs	897			174			897		1,550
Amortization of intangibles	422			422
Total costs and expenses	277,307			283,391			849,390		795,447
Merger and transaction costs	2,060			—
Operating earnings	5,140			8,325			13,161		13,603
Restructuring and exit costs	1,132			—
Interest expense, net of interest income	3,181			2,784			9,129		8,041
Total costs and expenses	262,361			282,273
Earnings from continuing operations before income taxes	1,959			5,541			4,032		5,562
Operating earnings (loss)	1,632			(492		)
Income tax expense	121			2,553			791		1,566
Interest expense, net of interest income	2,592			3,020
Net earnings from continuing operations	1,838			2,988			3,241		3,996
Loss before income taxes	(960		)	(3,512		)
Net earnings from discontinued operations, net of tax	—			19			18		2,664
Income tax benefit	(493		)	(1,263		)
Net earnings	$	1,838		$	3,007		$	3,259	$	6,660
Net loss	$	(467	)	$	(2,249	)
Basic earnings per share:
Basic loss per share:
Earnings from continuing operations	$	0.06		$	0.10		$	0.10	$	0.13
Net Loss	$	(0.01	)	$	(0.07	)
Earnings from discontinued operations, net of tax	—			—			—		0.09
Diluted loss per share:
Net earnings per share	$	0.06		$	0.10		$	0.10	$	0.22
Net Loss	$	(0.01	)	$	(0.07	)
Diluted earnings per share:
Earnings from continuing operations	$	0.06		$	0.10		$	0.10	$	0.13
Earnings from discontinued operations, net of tax	—			—			—		0.08
Net earnings per share	$	0.06		$	0.10		$	0.10	$	0.21

See accompanying notes to consolidated condensed financial statements.

Table of Contents

Spartech Corporation and Subsidiaries

Consolidated ~~Condensed~~ Statements of ~~Cash~~Comprehensive ~~Flows~~Income

	Nine Months Ended
	Three Months Ended
	August 4,			July 30,
	February 2,			February 4,
(Unaudited and dollars in thousands)	2012			2011
(Unaudited and dollars in thousands, except per share data)	2013			2012
Cash flows from operating activities
Net loss	$	(467	)	$	(2,249	)
Net earnings	$	3,259		$	6,660
Other comprehensive income (loss)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Foreign currency translation (losses) gains	(109		)	55
Depreciation and amortization	23,838			23,868
Total comprehensive loss	(576		)	(2,194		)
Stock-based compensation expense	1,406			2,200
Restructuring and exit costs	897			510
Loss on disposition of assets, net	161			67
Provision for bad debt expense	627			(1,154		)
Change in current assets and liabilities	(1,479		)	(8,938		)
Other, net	388			1,998
Net cash provided by operating activities	29,097			25,211
Cash flows from investing activities
Capital expenditures	(13,281		)	(19,191		)
Proceeds from the disposition of assets	115			420
Net cash used by investing activities	(13,166		)	(18,771		)
Cash flows from financing activities
Bank credit facility (payments) borrowings, net	(11,345		)	(7,504		)
Payments on notes and bank term loan	(2,467		)	(378		)
Payments on bonds and leases	(372		)	(395		)
Debt issuance costs	(1,597		)	(1,558		)
Sale of treasury stock	2			—
Stock-based compensation exercised	(103		)	(299		)
Net cash used by financing activities	(15,882		)	(10,134		)
Effect of exchange rates on cash and cash equivalents	7			2
Increase (decrease) in cash and cash equivalents	56			(3,692		)
Cash and cash equivalents at beginning of period	877			4,900
Cash and cash equivalents at end of period	$	933		$	1,208

See accompanying notes to consolidated condensed financial statements.

Table of Contents

Spartech Corporation and Subsidiaries

Consolidated Condensed Statements of Cash Flows



	Three Months Ended
	February 2,			February 4,
(Unaudited and dollars in thousands)	2013			2012
Cash flows from operating activities
Net loss	$	(467	)	$	(2,249	)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	7,462			8,227
Stock-based compensation expense	456			943
Restructuring and exit costs	593			—
Loss on disposition of assets, net	34			53
Provision for bad debt expense	77			282
Change in current assets and liabilities	(22,010		)	(13,793		)
Other, net	(39		)	(177		)
Net cash used by operating activities	(13,894		)	(6,714		)
Cash flows from investing activities
Capital expenditures	(5,121		)	(3,884		)
Proceeds from the disposition of assets	4			105
Net cash used by investing activities	(5,117		)	(3,779		)
Cash flows from financing activities
Bank credit facility borrowings, net	22,030			11,009
Payments on bonds and leases	(112		)	(122		)
Debt issuance costs	—			(485		)
Tax payments for employee stock exercises	(1,028		)	(62		)
Net cash provided by financing activities	20,890			10,340
Effect of exchange rates on cash and cash equivalents	(7		)	4
Increase (decrease) in cash and cash equivalents	1,872			(149		)
Cash and cash equivalents at beginning of period	1,092			877
Cash and cash equivalents at end of period	$	2,964		$	728

See accompanying notes to consolidated condensed financial statements.

Table of Contents

Notes to Consolidated Condensed Financial Statements

(Unaudited and Dollars in thousands, except per share amounts)

1. Basis of Presentation

The consolidated financial statements include the accounts of Spartech Corporation and its consolidated subsidiaries (“Spartech” or the “Company”). These financial statements have been prepared on a condensed basis, and accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, these consolidated condensed financial statements contain all adjustments (consisting of normal recurring adjustments) and disclosures necessary to make the information presented herein not misleading. These financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes thereto included in the Company's ~~October~~November 293, ~~2011~~2012 Annual Report on Form 10-K.

InOn ~~2009~~October 23, ~~the~~2012, ~~Company~~PolyOne ~~sold~~Corporation ~~its~~(“PolyOne”), ~~wheels~~2012 ~~and~~Redhawk, ~~profiles~~Inc., ~~businesses~~a ~~and~~wholly ~~closed~~owned ~~and~~subsidiary ~~liquidated~~of ~~three~~PolyOne ~~businesses~~(“Merger Sub”), ~~including~~PolyOne Designed Structures and Solutions, LLC, a ~~manufacturer~~wholly owned subsidiary of ~~boat~~PolyOne ~~components~~(“Merger ~~sold~~LLC”), toand ~~the~~Spartech ~~marine~~Corporation ~~market~~(“Spartech”) ~~and~~entered ~~one~~into ~~compounding~~an Agreement and ~~one~~Plan ~~sheet~~of ~~business~~Merger ~~that~~(the ~~previously~~“Merger ~~serviced~~Agreement”) ~~single~~pursuant ~~customers. These~~to ~~businesses~~which ~~are~~Spartech ~~classified~~will asbe ~~discontinued~~merged ~~operations~~with ~~based~~and oninto Merger Sub (the ~~Financial~~“Merger”), ~~Accounting~~with ~~Standards~~Spartech ~~Board~~to be the surviving corporation in the merger (the “~~FASB~~Surviving Corporation”) ~~Accounting~~and ~~Standards~~a ~~Codification~~wholly owned subsidiary of PolyOne, which is expected to be immediately followed by a merger of the Surviving Corporation with and into Merger LLC (the “~~ASC~~Subsequent Merger”) ~~topic~~, ~~Discontinued~~with ~~Operations~~Merger LLC to be the surviving entity in the Subsequent Merger and conduct business as PolyOne Designed Structures and Solutions. ~~Accordingly,~~At ~~for~~a ~~all~~special ~~periods~~meeting ~~presented~~of ~~herein~~stockholders of Spartech Corporation on March 12, 2013, the ~~consolidated~~stockholders ~~statements~~voted ofto ~~operations~~approve ~~conform~~the tomerger ~~this~~agreement ~~presentation~~between Spartech and PolyOne Corporation. ~~See~~Pursuant ~~Notes~~to 3the ~~and~~merger, 11stockholders will receive, in exchange for ~~further~~each ~~discussion~~share of ~~the~~Spartech ~~Company's~~common ~~discontinued~~stock, ~~operations~~(1) ~~and~~$2.67 ~~segments~~in cash, ~~respectively~~without interest, and (2) 0.3167 of a PolyOne common share. The merger will be effective on March 13, 2013.

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. The Company reorganized its internal reporting structure and management responsibilities for the Passaic matter and the associated closed facility during the third quarter of 2012 as a result of developments with the environmental matters, as described in Note 98. These costs were previously reported under the Color & Specialty Compounds segment, but ~~will~~are now be reported in Corporate. ~~Historical~~ ~~results have been reclassified to conform to these changes.~~

During the fourth quarter of 2011, the Company reorganized its internal reporting structure and management responsibilities for a specific product line from its Color and Specialty Compounds segment to its Custom Sheet and Rollstock segment to better align its management of this product line with end markets. These management and reporting changes resulted in a reorganization of the Company's reportable segments, and historical segment results have been reclassified to conform to these changes.

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. Operating results for any quarter are historically seasonal in nature and are not necessarily indicative of the results expected for the full year. Dollars presented are in thousands except per share data, unless otherwise indicated.

The Company's fiscal year ends on the Saturday closest to October 31st and fiscal years generally contain 52 weeks. However, because of this accounting convention, every fifth or sixth fiscal year has an additional week, and 2012 ~~will~~was be reported as a 53 week fiscal year. The Company's first quarter ~~ended February 4~~, ~~2012~~which ~~and nine months~~ ended ~~August~~February 42, ~~2012~~2013, included 1413 weeks ~~and 40 weeks respectively,~~ compared to 1314 weeks ~~and 39 weeks~~ in the first quarter ~~and nine months~~ of the prior year. Years presented are fiscal unless noted otherwise.

Table of Contents

2. Newly Adopted Accounting Standards

In ~~May~~ June 2011, the FASB issued aan ~~new~~amendment ~~accounting~~to ~~standard~~ASC ~~update~~220, ~~that~~Comprehensive ~~amends~~Income. This ~~ASC~~amendment ~~820,~~eliminates ~~Fair~~the ~~Value~~option ~~Measurement,~~to ~~and~~present ~~includes~~the ~~certain~~components ~~enhanced~~of ~~disclosure~~other ~~requirements. The~~comprehensive ~~most~~income ~~significant~~as ~~change~~part of the statement of changes in ~~disclosures~~shareholders' isequity. In anaddition, ~~expansion~~items of other comprehensive income that may be reclassified to profit or loss in the ~~information~~future are required ~~for~~to ~~Level~~be 3presented ~~measurements~~separately ~~based~~from onthose ~~unobservable~~that ~~inputs~~would never be reclassified. The amendment ~~became~~is effective for ~~interim~~fiscal ~~and~~years ~~annual periods~~ beginning after December 15, 2011~~. For~~, ~~a description of how the Company estimates fair value~~ and ~~the~~interim ~~process~~periods ~~for~~within ~~reviewing~~that ~~fair~~year. Accordingly, ~~value~~this ~~measurements~~amendment ~~classified~~was asadopted ~~Level 3~~ in the ~~fair~~first ~~value~~quarter ~~hierarchy,~~fiscal ~~refer~~year ~~to Note 8~~2013. Adoption of this ~~amendment~~guidance did not have ana ~~effect~~material impact on ~~the~~our ~~Company's~~ financial ~~position, results of operations or cash flows~~statements.

3. Discontinued Operations

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 that previously serviced single customers. These businesses are classified as discontinued operations. 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.

During 2009, the Company filed a proof of claim in Chemtura's Chapter 11 case, alleging losses for breach of contract, fixed asset write-offs, severance and other related facility closure costs. In the first quarter of 2011, the Company reached a final settlement agreement with Chemtura and obtained the approval of the Bankruptcy Court overseeing Chemtura's bankruptcy proceedings for the settlement of the claim for $4,188 in cash and equity in the newly reorganized Chemtura, which was subsequently sold, resulting in $4,844 of total cash proceeds. Chemtura was the sole customer at our closed Arlington, Texas, facility and closure and related expenses were accounted for as discontinued operations. A summary of the net sales and the net earnings from discontinued operations is as follows:

	Three Months Ended				Nine Months Ended
	August 4, 2012		July 30, 2011		August 4, 2012		July 30, 2011
Earnings from discontinued operations before income taxes	$	3	$	30	$	33	$	4,301
Provision for income taxes	3		11		15		1,637
Earnings from discontinued operations, net of tax	$	—	$	19	$	18	$	2,664

4. Inventories, net

Inventories are valued at the lower of cost or market. Inventory reserves reduce the cost basis of inventory. Inventory values are primarily based on either actual or standard costs, which approximates average cost. Finished goods include the costs of material, labor and overhead. Inventories at August 4, 2012, and October 29, 2011, consisted of the following:

	August 4, 2012			October 29, 2011
Raw materials	$	60,666		$	52,270
Production supplies	7,068			6,843
Finished goods	39,975			41,225
Inventory reserves	(9,461		)	(9,152		)
Total inventories, net	$	98,248		$	91,186

Table of Contents

53. ~~Restructuring~~Inventories, ~~and Exit Costs~~net

Inventories are valued at the lower of cost or market. Inventory reserves reduce the cost basis of inventory. Inventory values are primarily based on either actual or standard costs, which approximates average cost. Finished goods include the costs of material, labor and overhead. Inventories at February 2, 2013, and November 3, 2012, consisted of the following:



	February 2, 2013			November 3, 2012
Raw materials	$	66,568		$	58,107
Production supplies	7,233			7,129
Finished goods	51,120			49,397
Inventory reserves	(9,941		)	(9,534		)
Total inventories, net	$	114,980		$	105,099

4. Restructuring and Exit Costs

Restructuring and exit costs were recorded in the consolidated statements of operations as follows:

	Three Months Ended						~~Nine Months Ended~~
	August 4, 2012			July 30, 2011			August 4, 2012			July 30, 2011
	February 2, 2013			February 4, 2012
Restructuring and exit costs:
Custom Sheet and Rollstock	$	~~897~~434		$	~~(86~~—	)	$	~~897~~		$	~~372~~
Packaging Technologies	—			—			—			~~247~~
Color and Specialty Compounds	—766			~~260~~—			—			~~925~~
Corporate	—(68		)	—			—			6
Total restructuring and exit costs	~~897~~1,132			~~174~~—			~~897~~			~~1,550~~
Income tax benefit	(~~269~~286		)	~~(64~~—		)	~~(269~~		)	~~(574~~		)
Impact on net earnings from continuing operations	$	628		$	110		$	628		$	976
Impact on net earnings	$	846		$	—

2012 Restructuring Actions

OnThe ~~May 15, 2012, the~~ Company initiated restructuring actions to reduce costs and reposition its portfolio to more specialty and higher-value products. ~~The~~On May 15, 2012, the Company announced a plan ~~includes~~calling for the consolidation of two Custom Sheet and Rollstock facilities in Canada into the Granby, Quebec location. On October 16, 2012, the Company announced a plan calling for the consolidation of the Color and Specialty Compounds facility in Stratford, Ontario into the Cape Girardeau, MO and Manitowoc, WI locations. These actions were done in order to reduce fixed costs and better leverage equipment and resources ~~within one operation~~. The Company expects to incur approximately $1,~~700~~568 in restructuring costs over the next 12 months, which will be comprised of employee severance, facility consolidation and shut-down costs and fixed asset valuation adjustments.

The following table summarizes the cumulative restructuring and exit costs incurred under the 2012 restructuring ~~plan~~plans:

	Three & Nine Months Ended August 4, 2012		Cumulative To-Date
	Three Months Ended February 2, 2013		Cumulative To-Date
Employee severance and other exit costs	$	~~808~~539	$	~~808~~2,768
Fixed asset valuation adjustments, net	89593		89885
Total	$	~~897~~1,132	$	~~897~~3,653

~~2008~~Employee ~~Restructuring~~severance ~~Plan~~and other exit costs include costs associated with job eliminations and the reduction in jobs resulting from facility consolidations. Facility consolidation and shutdown costs primarily include costs associated with shutting down production facilities, terminating leases and relocating production lines to continuing production facilities. Fixed asset valuation adjustments, net represents the effect from accelerated depreciation for reduced lives on property, plant and equipment and adjustments to the carrying value of assets held-for-sale to fair value, net of gains or losses on the ultimate sales of the assets.

In 2008, the Company announced a restructuring plan to address declines in end-market demand and build a low cost-to-serve model. The plan included the consolidation of production facilities, shutdown of underperforming and non-core operations and reductions in the number of manufacturing and administrative jobs. Since the plan was initiated, the Company has closed a packaging facility in Mankato, Minnesota; compounding facilities in St. Clair, Michigan, and Kearny, New Jersey; and sheet facilities in Richmond, Indiana, Atlanta, Georgia, and Arlington, Texas. The Company does not expect to incur any further significant restructuring and exit costs from the 2008 restructuring plan because all of its initiatives announced in conjunction with this plan have been substantially finalized.

The following table summarizes the cumulative restructuring and exit costs incurred under the 2008 restructuring plan:

	Cumulative
Employee severance	$	6,292
Facility consolidation and shut-down costs	6,943
Fixed asset valuation adjustments, net	3,225
Total	$	16,460

Employee severance includes costs associated with job eliminations and the reduction in jobs resulting from facility consolidations and plant shut downs. Facility consolidation and shut-down costs primarily include costs associated with shutting down production facilities, terminating leases and relocating production lines to continuing production facilities. Fixed asset valuation adjustments, net represents the effect from accelerated depreciation for reduced lives on property, plant and equipment and adjustments to the carrying value of assets held-for-sale to fair value, net of gains or losses on the ultimate sales of the assets.

Table of Contents

As of ~~August~~February 42, ~~2012~~2013, the Company had $2,~~624~~614 of assets held-for-sale. The estimated fair value of assets held for sale, which falls within Level 3 of the fair value hierarchy, represents management's best estimate of fair value upon sale and is determined based on broker analyses of prevailing market prices for similar assets.

The Company's total restructuring liability, representing severance, consolidation and shut-down costs was $~~822~~1,718 and $~~382~~2,027 at ~~August~~February 42, ~~2012~~2013, and ~~October~~November 293, ~~2011~~2012, respectively. Cash payments for restructuring activities ~~of continuing operations~~ were $11624 and $~~232~~221 for the three ~~and nine~~ months ended ~~August~~February 42, ~~2012~~2013 and ~~$227 and $1,026 for the three and nine months ended July~~February 304, ~~2011~~2012 respectively.

65. Debt

Debt at ~~August~~February 42, ~~2012~~2013, and ~~October~~November 293, ~~2011~~2012, consisted of the following:

	August 4, 2012		October 29, 2011
	February 2, 2013		November 3, 2012
2004 Senior Notes	$	~~111~~88,~~127~~901	$	~~113~~88,~~594~~901
Credit facility	2056,~~356~~456		3134,~~707~~426
Other	11,~~058~~645		11,~~910~~597
Total debt	~~142~~157,~~541~~002		~~157~~134,~~211~~924
Less current maturities	22,~~610~~645		2522,~~211~~636
Total long-term debt	$	~~119~~134,~~931~~357	$	~~132~~112,~~000~~288

On September 14, 2004 the Company completed a $150 million private placement of Senior Notes over a term of twelve (12) years (2004 Senior Notes). On June 9, 2010, the Company entered into a new credit facility agreement and amended its 2004 Senior Notes. The new credit facility agreement has a borrowing capacity of $150 million with an optional $50.0 million accordion feature, has a term of four (4) years, bears interest at either Prime or LIBOR plus a borrowing margin ~~and initially required a maximum Leverage Ratio of 3~~.~~5 to 1 and a minimum Fixed Charge Coverage Ratio of 2.25 to 1 (which was scheduled to decrease to 1.4 to 1 in the fourth quarter of 2012).~~ The credit facility and amended 2004 Senior Notes are secured with collateral including accounts receivable, inventory, machinery and equipment and intangible assets.

On December 6, 2011, the Company entered into concurrent amendments (collectively, the “December 2011 Amendments”) to its Amended and Restated Credit and 2004 Senior Note agreements (collectively, the “Agreements”) in order to provide covenant flexibility. Under the December 2011 Amendments, the Company's minimum Fixed Charge Coverage Ratio was amended to 1.2 to 1 at the end of the fourth quarter of 2012 and first quarter of 2013 and increases to 1.3 to 1 at the end of the second quarter of 2013, and the covenant definition was changed to exclude 50% of scheduled installment payments (previously included 100%) in the denominator of the calculation. Under the December 2011 Amendments, the Company's maximum Leverage Ratio was amended to 3.0 to 1 at the end of the third quarter of 2012. Consistent with the previous agreement, the Company's maximum Leverage Ratio continues at 3.0 to 1 at the end of the fourth quarter of 2012 through the third quarter of 2013 and decreases to 2.75 to 1 at the end of fourth quarter of 2013. Under the December 2011 Amendments, the Company's annual capital expenditures will be limited to $30.0 million when the Company's Leverage Ratio exceeds 2.5 to 1. In addition, the Company will be subject to certain restrictions in its ability to complete acquisitions, pay dividends or buy back stock. The interest rate increased on the 2004 Senior Notes by 50 basis points to 7.08%. Capitalized fees incurred in the first quarter of 2012 for the December 2011 Amendments were $0.5 million. During the term of the Agreements, the Company was subject to an additional fee of 100 basis points in the event the Company's credit profile rating decreased to a defined level. Such a decrease occurred during the second quarter of 2012 and the Company incurred an additional fee of $1.1 million to its Senior Note holders, which was capitalized and will be amortized over the remaining life of the Notes as an adjustment to interest expense.

The ~~agreements~~Agreements require the Company to offer early principal payments to Senior Note holders and credit facility investors (only in the event of default) based on a ratable percentage of each fiscal year's excess cash flow and extraordinary receipts, such as the proceeds from the sale of businesses. Under the Agreements, if the Company sells a business, it is required to offer a percentage (which varies based on the Company's Leverage Ratio) of the after tax proceeds (defined as “extraordinary receipts”) to its Senior Note holders and credit facility investors in excess of a $1.0 million threshold. The excess cash flow definition in the Agreements follows a standard free cash flow calculation. The Company is only required to offer the excess cash flow and extraordinary receipts if the Company ends its fiscal year with a Leverage Ratio in excess of 2.5 to 1. The Senior Note holders are not required to accept their allotted portion and to the extent individual holders reject their portion, other holders are entitled to accept the rejected proceeds. Early principal payments made to Senior Note holders reduce the principal balance outstanding. No excess cash flow payment is required to be made in 2013 as the Company's fiscal year 2012 Leverage

Table of Contents

~~holders~~Ratio ~~are~~was ~~entitled~~not toin ~~accept~~excess ~~the~~of ~~rejected proceeds~~2. ~~Early~~5 ~~principal payments made~~ to ~~Senior~~1 ~~Note~~as ~~holders~~defined ~~reduce~~in the ~~principal balance outstanding~~agreement. The Company made excess cash flow payments to the Senior Note holders ~~of $2.5 million and $0.4 million~~ in the second ~~quarters~~quarter of 2012 ~~and~~of ~~2011,~~$2.5 ~~respectively~~million.

At ~~August~~February 42, ~~2012~~2013, the Company had $~~118~~82.32 million of total capacity and $2056.45 million of outstanding loans under the credit facility at a weighted average interest rate of 13.7732%. In addition to the outstanding loans, the credit facility borrowing capacity was reduced by several standby letters of credit totaling $11.3 million. ~~Under~~The ~~the~~ Company's ~~most~~average ~~restrictive~~net ~~covenant,~~revolver outstanding (average revolver borrowings net of cash) was approximately $61.8 million for the ~~Leverage~~three ~~Ratio~~months ended February 2, ~~the~~2013. The Company is restricted to certain levels of expenditures relating to dividends and capital expenditures. The Company had $1823.90 million of availability on its credit facility as of ~~August~~February 42, ~~2012~~2013. We primarily have used the borrowings on our revolving credit facility for working capital purposes and capital expenditures.

Interest on the amended 2004 Senior Notes is 7.08% and is payable semiannually on March 15 and September 15 of each year. The ~~Company may, at its option and upon notice, prepay at any time all or any part of the~~ amended 2004 Senior Notes, together with accrued interest plus a make-whole amount. As of August 4, 2012, if the Company were to prepay the full principal outstanding on the amended 2004 Senior Notes, the make-whole amount would have been $13.4 million. The amended 2004 Senior Notes require equal annual principal payments of $22.2 million that ~~commence~~commenced on September 15, 2012, and that are ratably reduced by required early principal payments based on a percentage of annual excess cash flow or extraordinary receipts as defined in the Agreements. The ~~first~~Company ~~principal~~may, ~~payment~~at isits tooption beand ~~paid~~upon ~~in the fourth quarter of 2012~~notice, ~~and~~prepay ~~the~~at ~~amounts~~any ~~associated~~time ~~with~~all ~~these~~or ~~payments~~any ~~are~~part ~~classified as current maturities~~ of ~~long~~the ~~term~~amended ~~debt. This~~2004 ~~payment~~Senior isNotes, ~~expected~~together towith beaccrued ~~made~~interest ~~from~~plus a ~~combination~~make-whole ofamount. Effective ~~cash~~on ~~flows~~the ~~from~~closing ~~operations~~date ~~and~~of ~~amounts available under~~ the ~~credit facility. Excluding these payments~~merger, ~~borrowings~~an ~~under~~amount ~~these~~related ~~facilities~~to ~~are~~the ~~classified as long~~make-~~term~~whole ~~because~~on the Company's ~~has~~Senior ~~the~~Notes ~~ability~~of ~~and~~$10.3 ~~intent~~million towill ~~keep~~be ~~the~~paid ~~balances~~in ~~outstanding~~conjunction ~~over~~with the ~~next twelve (12) months~~transaction.

The Company's other debt consists primarily of industrial revenue bonds and capital lease obligations used to finance capital expenditures. These financings mature between ~~2012~~2013 and 2019 and have interest rates ranging from 0.2217% to 1216.475%.

The Company was in compliance with all debt covenants as of ~~August~~February 42, ~~2012~~2013. While the Company was in compliance with its covenants and currently expects to be in compliance with its covenants during the next twelve (12) months, the Company's failure to comply with its covenants or other requirements of its 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 the Company's results of operations, financial condition and cash flows.

76. Income Taxes

~~Income~~An income tax ~~expense~~benefit was recorded for $~~121~~493 and $21,~~553~~263 for the three months ended ~~August~~February 42, ~~2012~~2013 and ~~July~~February 304, ~~2011~~2012, respectively. The ~~current~~income ~~quarter~~ tax ~~expense~~benefit ~~was reduced by $649~~ for ~~income~~the ~~tax~~three ~~benefits~~months ~~related~~ended ~~to discrete items including additional research and development credits and other deferred tax adjustments~~February 2, ~~resulting~~2013 inwas anprimarily ~~effective~~impacted ~~tax~~by ~~rate of 6%. The prior quarter tax expense included~~ a ~~$1,469~~loss ~~expense~~on ~~associated~~certain ~~with~~foreign ~~the~~operations ~~write-off~~for ofwhich a ~~deferred~~ tax ~~asset~~benefit ~~due~~is tonot amore ~~change~~likely inthan ~~state~~not ~~tax~~to ~~law~~be ~~partially~~realized ~~offset~~and bya ~~$790~~net of income tax ~~benefits~~benefit ~~from~~for ~~discrete~~the ~~items~~reinstatement ~~including~~of ~~additional~~the U.S. research and development tax ~~credits~~credit ~~claimed on the 2010 returns and state tax incentives, reflecting a 46% effective tax rate. These tax rates compare to our statutory rate~~ of ~~35%~~approximately ~~which is impacted by the mix of income by tax jurisdictions, various tax credits, and discrete items incurred in each period~~$600.

~~Income tax expense was $791 and $1,566 for the nine months ended August 4, 2012 and July 30, 2011, respectively~~7. ~~Income~~ ~~tax~~Fair ~~expense~~Value ~~for the nine months ended August 4, 2012 included a net income tax benefit~~ of ~~$732~~Financial for discrete items primarily related to additional research and development tax credits and other income tax return to provision adjustments as well as adjustments to valuation allowances and tax contingency reserves. Income tax expense for the nine months ended July 30, 2011 included a net benefit of $242 for discrete items, which included a $1,469 income tax charge related to a change in state tax law which resulted in a write-off of a deferred tax asset and a $810 income tax benefit related to a reorganization of the Company's legal entities.Instruments

8. Fair Value of Financial Instruments

The Company performs an analysis of all existing financial assets and financial liabilities measured at fair value on a recurring basis to determine the significance and character of all inputs used to determine their fair value. The Company's financial instruments, including cash, accounts receivable, notes receivable, accounts payable and accrued liabilities, have net carrying values that approximate their fair values due to the short-term nature of these instruments.

Table of Contents

We prioritize the inputs to valuation techniques used to measure fair value into the following three broad categories:

Level 1 inputs - Quoted prices for identical assets and liabilities in active markets.

Level 2 inputs - Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, observable inputs other than quoted prices and inputs that are derived principally from or corroborated by other observable market data.

Level 3 inputs - Unobservable inputs reflecting the entity's own assumptions about the assumptions market participants would use in pricing the asset or liability.

The estimated fair value of our long-term debt, which falls in Level 2 of the fair value hierarchy, 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 the same or similar issues. The following table presents the carrying amount and estimated fair value of long-term debt:~~

	August 4, 2012				October 29, 2011
	CarryingAmount		EstimatedFair Value		CarryingAmount		EstimatedFair Value
Total debt (including credit facilities)	$	142,541	$	148,817	$	157,211	$	161,259

~~The~~Table ~~estimated fair value~~ of assets held for sale, which falls within Level 3 of the fair value hierarchy, represents management's best estimate of fair value upon sale and is determined based on broker analyses of prevailing market prices for similar assets. As of August 4, 2012, the Company had $2,624 of assets held-for-sale. Contents

~~During~~prices for the ~~nine~~same ~~months~~or ~~ended~~similar ~~August 4,~~issues. The ~~2012,~~following ~~there~~table ~~were~~presents nothe ~~significant~~carrying ~~measurements~~amount ofand ~~non-financial~~estimated ~~assets or liabilities at~~ fair value onof ~~a non~~long-~~recurring~~term ~~basis subsequent to their initial recognition.~~ debt:

9. Commitments and Contingencies



	February 2, 2013				November 3, 2012
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Total debt (including credit facilities)	$	157,002	$	161,236	$	134,924	$	141,340

The estimated fair value of assets held for sale, which falls within Level 3 of the fair value hierarchy, represents management's best estimate of fair value upon sale and is determined based on broker analyses of prevailing market prices for similar assets. As of February 2, 2013, the Company had $2,614 of assets held-for-sale.

During the three months ended February 2, 2013, there were no significant measurements of non-financial assets or liabilities at fair value on a non-recurring basis subsequent to their initial recognition.

8. Commitments and Contingencies

In September 2003, the New Jersey Department of Environmental Protection (“NJDEP”) issued a directive to approximately 30 companies, including Franklin-Burlington Plastics, Inc., a subsidiary of the Company (“Franklin-Burlington”), to undertake an assessment of natural resource damage and perform interim restoration of the Lower Passaic River, a 17-mile stretch of the Passaic River in northern New Jersey. The directive, insofar as it relates to the Company and its subsidiary, pertains to the Company's plastic resin manufacturing facility in Kearny, New Jersey, located adjacent to the Lower Passaic River. The Company acquired the facility in 1986, when it purchased the stock of the facility's former owner, Franklin Plastics Corp. The Company acquired all of Franklin Plastics Corp.'s environmental liabilities as part of the acquisition. Franklin-Burlington responded to the directive, and no further action under the directive as yet has been required by NJDEP.

Also in 2003, the United States Environmental Protection Agency (“USEPA”) requested that companies located in the area of the Lower Passaic River, including Franklin-Burlington, cooperate in an investigation of contamination of the Lower Passaic River. In response, the Company and approximately 70 other companies (collectively, the “Cooperating Parties”) agreed, pursuant to an Administrative Order of Consent with the USEPA, to assume responsibility for completing a remedial investigation/feasibility study (“RIFS”) of the Lower Passaic River. The RIFS and related activities are currently estimated to cost approximately $~~100~~125 million to complete and are currently expected to be completed by mid-2015. However, the RIFS costs are exclusive of any costs that may ultimately be required to remediate the Lower Passaic River area being studied or costs associated with natural resource damages that may be assessed. By agreeing to bear a portion of the cost of the RIFS, the Company did not admit to or agree to bear any such remediation or natural resource damage costs. In 2007, the USEPA issued a draft study that evaluated nine alternatives for early remedial action of a portion of the Lower Passaic River. The estimated cost of the alternatives in the aggregate ranged from $900 million to $2.3 billion. The Cooperating Parties provided comments to the USEPA regarding this draft study, but the USEPA has not yet finalized its study. Currently, the Cooperating Parties understand that USEPA is finalizing this study and expects to issue it in 2013, and that the preferred early remedial alternatives are estimated by USEPA to cost $1.9 billion to $3.4 billion. The Cooperating Parties have submitted comments to the USEPA for consideration prior to issuance of the final study. In early calendar year 2012, the USEPA indicated to the Cooperating Parties that it would like to move forward with early remedial activity at a specific location along the river. In the third quarter of 2012, the Company and the other Cooperating Parties, with one exception, have agreed with USEPA to undertake a removal action at the specific location and the Company accrued $0.2 million. By agreeing to participate in this specific removal action, the Company did not admit ultimate responsibility for the removal action at such location, nor did the Company admit to or agree to bear costs for any other removal action at or remediation of the river, or for natural resource damages.

In 2009, the Company's subsidiary and over 300 other companies were named as third-party defendants in a suit brought by the NJDEP in Superior Court of New Jersey, Essex County, against Occidental Chemical Corporation and certain related entities (collectively, the “Occidental Parties”) with respect to alleged contamination of the Newark Bay Complex, including the Lower Passaic River. The third-party complaint seeks contributions from the third-party defendants with respect to any award to NJDEP of damages against the Occidental Parties in the matter.

Table of Contents

responsible for such remediation or natural resource damages is not yet known, it is not possible at this time to estimate the Company's ultimate liability related to this matter. Based on currently known facts and circumstances, the Company does not believe that this matter is likely to have a material effect on the Company's results of operations, consolidated financial position, or cash flows because the Company's Kearny, New Jersey, facility could not have contributed contamination along most of the river's length and did not store or use the contaminant that is of the greatest concern in the river sediments and because there are numerous other parties who will likely share in the cost of remediation and damages. However, it is reasonably possible that the ultimate liability resulting from this matter could materially differ from the February 2, 2013 accrual balance, and in the event of one or more adverse determinations related to this matter, the impact on the Company's results of operations, consolidated financial position or cash flows could be material to any specific period.

InOn December 14, 2009, ~~the~~Simmons Bedding Company's ~~subsidiary~~ and ~~over~~The ~~300~~Simmons ~~other~~Manufacturing ~~companies~~Co., ~~were~~LLC ~~named~~(collectively, as“Simmons”) ~~third-party~~filed ~~defendants~~suit in ~~a suit brought by~~ the ~~NJDEP in~~ Superior Court of New Jersey, Essex County (Simmons Bedding Company and The Simmons Manufacturing Co., ~~against~~LLC ~~Occidental~~v. ~~Chemical~~Creative Vinyl/Fabrics, Inc. and its owner, Spartech Corporation, Spartech Polycom Calendared and Converted Products, Granwell Products, Inc., Nan Ya Plastics Corporation USA - Docket No. ESX-L-10197-09) alleging that vinyl product supplied to Simmons failed to meet certain specifications and claiming, among other things, a breach of contract, breach of warranty and fraud for which Simmons was seeking unspecified damages, including costs related ~~entities~~to ~~(collectively~~a voluntary product recall. Creative Vinyl/Fabrics, ~~the~~Inc. (“~~Occidental Parties~~Creative”) was seeking common law indemnification and contribution from the Company. The Company supplied Creative with ~~respect~~PVC film pursuant to ~~alleged~~purchase ~~contamination~~orders submitted by Creative, which Creative further processed and then sold to Simmons. On November 16, 2012, the Court granted summary judgment on behalf of all of the ~~Newark~~Defendants ~~Bay~~in ~~Complex,~~the ~~including~~case for full dismissal of the ~~Lower~~matter. Simmons ~~Passaic~~filed ~~River~~its notice of appeal on January 3, 2013 and their appellate brief is due on March 18, 2013. The ~~third-party~~matter ~~complaint~~will ~~seeks~~be ~~contributions~~fully ~~from~~briefed by April 29, 2013. Based upon these recent developments, management does not believe that the ~~third-party~~ultimate ~~defendants~~liabilities ~~with~~resulting ~~respect~~from tothis proceeding, if any, ~~award~~will be material to ~~NJDEP~~the Company's results of ~~damages~~operations ~~against~~and ~~the~~will ~~Occidental~~not ~~Parties~~have ina material adverse effect on the ~~matter~~Company's consolidated financial position or cash flows.

AsOn ofSeptember ~~August 4~~15, ~~2012~~2011, ~~the~~we ~~Company~~received ~~had~~a ~~approximately~~ $14.18 million ~~accrued~~tax ~~related~~assessment tofor ~~these~~additional ~~Lower Passaic River matters described above~~taxes, ~~representing~~interest ~~funding of the RIFS costs~~ and ~~related~~penalties ~~legal~~from ~~expenses of~~ the ~~RIFS,~~Mexico ~~participation~~Tax inAuthorities ~~the~~related ~~removal~~to ~~action~~our ~~agreed~~2007 toincome ~~with~~tax ~~USEPA~~ and ~~the~~value ~~litigation~~added ~~matter~~tax filings. ~~Given~~The ~~the~~Company ~~uncertainties~~continues ~~pertaining~~ to ~~this~~contest ~~matter, including that~~ the ~~RIFS~~assessment ~~is ongoing, the ultimate remediation has not yet been determined~~ and ~~because the extent to which the Company may be responsible for such remediation or natural resource damages~~ is ~~not~~pursuing ~~yet~~litigation ~~known,~~with itrespect ~~is not possible at this time~~ to ~~estimate~~certain ~~the Company's ultimate liability related to this matter~~items. Based on ~~currently~~developments ~~known facts and circumstances, the Company does not believe that this matter is likely~~ to ~~have a material effect on the Company's results of operations~~date, ~~consolidated~~we ~~financial~~do ~~position, or cash flows because the Company's Kearny, New Jersey, facility could~~ not ~~have~~expect ~~contributed contamination along most of~~ the ~~river's~~ultimate ~~length~~outcome ~~and did not store or use the contaminant that is~~ of the greatest concern in the river sediments and because there are numerous other parties who will likely share in the cost of remediation and damages. However, it is reasonably possible that the ultimate liability resulting from this matter ~~could~~to ~~materially~~have ~~differ~~a ~~from~~material ~~the August 4, 2012 accrual balance, and in the event of one or more~~ adverse ~~determinations related to this matter, the~~ impact on ~~the~~our ~~Company's~~ results of operations, ~~consolidated~~ financial position or cash flows ~~could be material to any specific period~~.

InFive ~~March~~purported ~~2010,~~class ~~DPH~~action ~~Holdings~~lawsuits ~~Corp.,~~have abeen ~~successor~~filed toby ~~Delphi~~alleged ~~Corporation and certain of its affiliates (“Delphi”), served~~ Spartech ~~Polycom,~~stockholders ain ~~subsidiary~~connection ofwith the ~~Company,~~proposed ~~with~~merger atransactions ~~complaint~~among ~~seeking to avoid and recover approximately $8.6 million in alleged preference payments Delphi made to~~ Spartech, ~~Polycom~~PolyOne ~~shortly~~Corporation ~~before~~(“PolyOne”), ~~Delphi's~~2012 ~~bankruptcy~~Redhawk, ~~filing in 2005~~Inc. ~~Delphi~~(“Merger ~~initially~~Sub”) ~~pursued~~and ~~similar preference complaints against approximately 175 additional unrelated third parties. In June~~ 2012 Redhawk, ~~the~~LLC ~~Company and Delphi settled this litigation matter. The settlement did not have~~ (n/k/a ~~material~~PolyOne ~~impact~~Designed onStructures ~~the~~and ~~Company's~~Solutions ~~results~~LLC) of(“Merger ~~operations, consolidated financial position or cash flows~~LLC”).

OnTwo ~~December~~of ~~14,~~these ~~2009,~~purported ~~Simmons~~class ~~Bedding~~actions ~~Company~~were ~~and The Simmons Manufacturing Co., LLC (collectively, “Simmons”)~~ filed ~~suit~~ in the ~~Superior~~Circuit Court of ~~New~~St. ~~Jersey,~~Louis ~~Essex~~ County ~~(Simmons Bedding Company and The Simmons Manufacturing Co.~~, ~~LLC~~Missouri v.against ~~Creative Vinyl/Fabrics~~Spartech, ~~Inc. and~~ its ~~owner~~directors, ~~Spartech Corporation~~PolyOne, ~~Spartech~~Merger ~~Polycom~~Sub, ~~Calendared~~ and ~~Converted~~Merger ~~Products,~~LLC. ~~Granwell~~These ~~Products~~actions, ~~Inc~~Weinreb v. Spartech, ~~Nan~~et ~~Ya Plastics Corporation USA - Docket No~~al. ~~ESX-L-10197-09) alleging that vinyl product supplied to Simmons failed to meet certain specifications~~ and ~~claiming,~~Warren ~~among~~v. ~~other things~~Spartech, aet ~~breach of contract~~al., ~~breach~~have ofbeen ~~warranty~~consolidated ~~and fraud~~ for ~~which~~all ~~Simmons~~purposes isas ~~seeking~~In ~~unspecified~~re ~~damages,~~Spartech ~~including~~Corporation ~~costs~~Shareholder ~~related~~Litigation to(the a“Missouri ~~voluntary~~Stockholder ~~product recall. Creative Vinyl/Fabrics, Inc. (“Creative~~Actions”) ~~is seeking common law indemnification and contribution from the Company~~. The ~~Company~~Missouri ~~supplied~~Stockholder ~~Creative~~Actions ~~with~~allege, ~~PVC~~among ~~film~~other ~~pursuant~~things, tothat ~~purchase~~the ~~orders~~directors ~~submitted~~of bySpartech ~~Creative,~~breached ~~which~~their ~~Creative~~fiduciary ~~further~~duties ~~processed~~owed ~~and then sold~~ to ~~Simmons.~~stockholders ~~Fact~~by ~~discovery~~approving ~~has concluded and expert discovery is ongoing. A date for trial has not yet been scheduled. At this point,~~ the ~~Company~~proposed isacquisition ~~unable to predict an outcome or estimate a range~~ of ~~reasonably~~Spartech ~~possible~~by ~~losses,~~PolyOne ifand ~~any,~~by ~~related~~failing to ~~the~~disclose ~~Simmons~~certain ~~matter~~information ~~due~~ to ~~the~~stockholders. ~~multiple~~The ~~parties~~Missouri ~~involved~~Stockholder inActions ~~the~~further ~~case,~~allege ~~the~~that ~~complexity of the issues involved~~PolyOne, ~~the~~Merger ~~current stage of the litigation~~Sub, ~~including~~and ~~that~~Merger ~~expert~~LLC ~~discovery~~aided ~~is ongoing,~~ and abetted the ~~inherent~~directors ~~uncertainties~~of ~~involved~~Spartech in ~~litigation~~breaching ~~generally. Based~~their ~~upon~~fiduciary ~~the~~duties. ~~discovery~~Among ~~conducted~~other ~~to date~~things, ~~management believes that although~~ the ~~ultimate~~Missouri ~~liabilities~~Stockholder ~~resulting~~Actions ~~from~~seek ~~this proceeding, if any, could be material~~ to ~~the~~enjoin ~~Company's results of operations in~~ the ~~period recognized, such liabilities would not have a material adverse effect on the Company's consolidated financial position or cash flows~~merger.

~~The~~Two ~~Company~~of isthese ~~also~~purported ~~subject~~class toactions ~~various~~were ~~other~~filed ~~claims,~~in ~~lawsuits~~Delaware ~~and~~Chancery ~~administrative~~Court ~~proceedings~~(the ~~arising~~“Delaware inStockholder Actions”). One of the ~~ordinary~~Delaware ~~course~~Stockholder ofActions, ~~business~~Gross ~~with~~v. ~~respect~~Spartech, toet ~~commercial~~al., ~~product~~was ~~liability~~filed against Spartech, ~~employment~~its directors, PolyOne, Merger Sub, and Merger LLC. The other ~~matters~~Delaware Stockholder Action, ~~several~~Pill ofv. ~~which~~Spartech, ~~claim~~et ~~substantial~~al., ~~amounts~~was offiled ~~damages~~against Spartech and its directors. ~~While~~The itDelaware isStockholder ~~not~~Actions ~~possible~~alleged, among other things, that the directors of Spartech breached their fiduciary duties owed to ~~estimate~~stockholders ~~with~~by ~~certainty~~approving the ~~ultimate~~proposed ~~legal~~acquisition of Spartech by PolyOne and ~~financial~~by ~~liability~~failing ~~with~~to ~~respect~~disclose certain information to ~~these~~stockholders. ~~claims~~Gross v. Spartech, ~~lawsuits~~et al. also alleged that PolyOne, Merger Sub, and ~~administrative~~Merger ~~proceedings,~~LLC aided and abetted the ~~Company~~directors ~~believes~~of ~~that~~Spartech in breaching their fiduciary duties. Among other things, the ~~outcome~~Delaware ofStockholder ~~these~~Actions ~~matters~~sought ~~will~~to ~~not~~enjoin ~~have~~the amerger. ~~material~~After ~~adverse~~their ~~effect~~request onto stay the ~~Company's~~Delaware ~~financial~~Stockholder ~~position~~Actions was denied, ~~results~~plaintiffs in the Delaware Stockholder Actions filed a Notice and (Proposed) Order of ~~operations~~Dismissal oron ~~cash~~January ~~flows~~31, 2013, which was granted with modifications on February 1, 2013.

OnA ~~September~~purported ~~15,~~class ~~2011,~~action wewas ~~received~~also afiled ~~$4.8~~in ~~million~~the ~~tax~~United ~~assessment~~States ~~for~~District ~~additional~~Court ~~taxes,~~for ~~interest~~the ~~and~~Eastern ~~penalties~~District ~~from~~of ~~the~~Missouri ~~Mexico~~against ~~Tax~~Spartech, ~~Authorities~~its ~~related~~directors, toPolyOne, ~~our~~Merger ~~2007~~Sub, ~~income tax~~ and ~~value~~Merger ~~added~~LLC. ~~tax~~Faulkner ~~filings~~v. ~~The~~ ~~Company~~Holt, ~~continues~~et toal. ~~contest~~ (the ~~assessment~~“Missouri ~~and~~District isCourt ~~pursuing~~Stockholder ~~litigation~~Action”), ~~with~~alleges, ~~respect~~among toother ~~certain items. Based on developments to date~~things, wethat ~~do not expect~~ the ~~ultimate~~directors ~~outcome~~ of ~~this~~Spartech ~~matter~~breached totheir ~~have~~fiduciary aduties ~~material~~owed ~~adverse~~to ~~impact~~stockholders onby ~~our~~approving ~~results~~the ofproposed ~~operations,~~acquisition ~~financial position or cash flows. The Company files U.S. federal, U.S. state and foreign income tax returns. The statute~~ of ~~limitations~~Spartech ~~for~~by ~~U.S.~~PolyOne ~~federal income tax returns are open for fiscal year 2008~~ and ~~forward. For~~by ~~state~~failing ~~and foreign returns, the Company is generally no longer subject~~ to ~~tax~~disclose ~~examinations~~certain ~~for~~information ~~years prior~~ to ~~2006~~stockholders. In ~~addition,~~The ~~the~~Missouri ~~Company~~District isCourt ~~currently~~Stockholder ~~the~~Action ~~subject~~further ofalleges ~~several~~that ~~income~~PolyOne, ~~tax~~Merger ~~audits~~Sub, ~~for~~and ~~various~~Merger ~~periods~~LLC inaided ~~multiple~~and ~~jurisdictions. The~~abetted ~~Company expects that within~~ the ~~next twelve (12) months it will reach closure on certain~~

Table of Contents

directors of ~~these~~Spartech ~~audits~~in orbreaching their fiduciary duties. The Missouri District Court Stockholder Action also brings a claim, individually, against the ~~statue~~directors of ~~limitations~~Spartech ~~will~~under ~~lapse. The~~Section ~~outcome~~14(a) of ~~these~~the ~~audits~~Securities isExchange ~~not~~Act ~~estimable~~of at1934 ~~this~~and ~~time~~Rule 14a-9 promulgated thereunder. Among other things, the Missouri District Court Stockholder Action seeks to enjoin the merger.

~~10.~~PolyOne, ~~Net~~Merger ~~Earnings~~Sub, ~~(Loss)~~Merger ~~Per~~LLC, ~~Share~~Spartech, and Spartech's directors believe the Missouri Stockholder Action, the Delaware Stockholder Actions, and the Missouri District Court Stockholder Action and the underlying claims are without merit.

On March 5, 2013, counsel for the parties in each of the above-described lawsuits entered into a Memorandum of Understanding (the “MOU”), in which they agreed on the terms of a settlement of the Missouri Stockholder Action, including the dismissal with prejudice of the Missouri Stockholder Action and a release of all claims made therein against all of the defendants. The MOU also provides for dismissal with prejudice of the Missouri District Court Stockholder Action. The proposed settlement is conditioned upon, among other things, the execution of an appropriate stipulation of settlement, consummation of the merger, and final approval of the proposed settlement by the Circuit Court of St. Louis County, Missouri. In addition, in connection with the settlement and as provided in the MOU, the parties contemplate that plaintiffs' counsel will seek an award of attorneys' fees and expenses as part of the settlement. There can be no assurance that the merger will be consummated, that the parties ultimately will enter into a stipulation of settlement, or that the court will approve the settlement even if the parties enter into such stipulation. If the settlement conditions are not met, the proposed settlement as contemplated by the MOU would become void. The settlement will not affect the amount of the merger consideration that Spartech stockholders are entitled to receive in the merger.

The defendants deny all fault or liability and deny that they have committed any unlawful or wrongful act alleged in the Missouri State Action, the Delaware Stockholder Actions, and the Missouri District Court Stockholder Action or otherwise in relation to the merger. The defendants have agreed to the terms of the proposed settlement described above solely to avoid the substantial burden, expense, risk, inconvenience and distraction of continued litigation, including the risk of delaying or adversely affecting the merger.

The Company is also subject to various other claims, lawsuits and administrative proceedings arising in the ordinary course of business with respect to 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 believes that the outcome of these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows.

9. Net Earnings (Loss) Per Share

Basic earnings per share excludes any dilution and is computed by dividing net earnings attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The dilution from each of these instruments is calculated using the treasury stock method. Outstanding equity instruments that could potentially dilute basic earnings per share in the future but were not included in the computation of diluted earnings per share because they were antidilutive are as follows (in thousands):

	Three Months Ended		~~Nine Months Ended~~
	August 4, 2012	July 30, 2011	August 4, 2012	July 30, 2011
	February 2, 2013	February 4, 2012
Antidilutive shares:
SSARs	~~676~~1,141	1,~~282~~828	~~680~~	~~976~~
Stock options	—302	~~670~~522	—	~~670~~
Total antidilutive shares excluded from diluted earnings per share	~~676~~1,443	12,~~952~~350	~~680~~	~~1,646~~

	Three Months Ended				Nine Months Ended
	August 4, 2012		July 30, 2011		August 4, 2012		July 30, 2011
Basic and diluted net earnings:
Net earnings from continuing operations	$	1,838	$	2,988	$	3,241	$	3,996
Less: net earnings from continuing operations allocated to participating securities	10		30		19		40
Net earnings from continuing operations attributable to common shareholders	1,828		2,958		3,222		3,956
Net (loss) earnings from discontinued operations, net of tax	—		19		18		2,664
Less: net (loss) earnings from discontinued operations allocated to participating securities	—		—		—		26
Net (loss) earnings from discontinued operations attributable to common shareholders	—		19		18		2,638
Net earnings attributable to common shareholders	$	1,828	$	2,977	$	3,240	$	6,594
Weighted average shares outstanding:
Basic weighted average common shares outstanding	30,839		30,658		30,824		30,632
Add: dilutive shares from equity instruments	50		58		47		77
Diluted weighted average shares outstanding	30,889		30,716		30,871		30,709
Basic earnings (loss) per share attributable to common stockholders:
Net earnings from continuing operations	0.06		0.10		0.10		0.13
Net (loss) earnings from discontinued operations, net of tax	—		—		—		0.09
Net earnings per share	0.06		0.10		0.10		0.22
Diluted earnings per share attributable to common shareholders:
Net earnings from continuing operations	0.06		0.10		0.10		0.13
Net (loss) earnings from discontinued operations, net of tax	—		—		—		0.08
Net earnings per share	0.06		0.10		0.10		0.21

The Company used the two-class method to compute basic and diluted earnings per share for all periods presented. The reconciliation of the net earnings, net earnings attributable to common stockholders and the weighted average number of common and participating shares used in the computations of basic and diluted earnings per share for three months ended February 2, 2013, and February 4, 2012 are as follows (shares in thousands):

Table of Contents

11. Segment Information



	Three Months Ended
	February 2, 2013			February 4, 2012
Basic and diluted net loss:
Net loss	$	(467	)	$	(2,249	)
Less: net earnings allocated to participating securities	—			—
Net loss attributable to common shareholders	$	(467	)	$	(2,249	)
Weighted average shares outstanding:
Basic weighted average common shares outstanding	31,145			30,782
Add: dilutive shares from equity instruments	—			—
Diluted weighted average shares outstanding	31,145			30,782
Basic loss per share attributable to common stockholders:
Net loss	(0.01		)	(0.07		)
Diluted loss per share attributable to common shareholders:
Net loss	(0.01		)	(0.07		)

~~The Company is organized into three reportable segments based on its operating structure and the products manufactured~~10. ~~The~~ ~~three~~Segment reportable segments are Custom Sheet and Rollstock, Packaging Technologies and Color and Specialty Compounds. Operating results are regularly reviewed by the Company's chief operating decision maker, its CEO, to make decisions about resources to be allocated to the segment and assess performance. More specifically, management uses operating earnings (loss) from continuing operations, excluding the effect of foreign exchange, to evaluate business segment performance. Accordingly, discontinued operations have been excluded from the segment results below, which is consistent with management's evaluation metrics. Corporate operating losses include general and administrative expenses, corporate office expenses, shared services costs, information technology costs, professional fees, the impact of foreign currency exchange gains and losses and Passaic environmental costs. Information

The Company ~~reorganized~~is ~~its~~organized ~~internal~~into ~~reporting~~three reportable segments based on its operating structure and ~~management~~the ~~responsibilities~~products ~~for~~manufactured. The ~~the~~three ~~Passaic~~reportable ~~matter~~segments are Custom Sheet and Rollstock, Packaging Technologies and Color and Specialty Compounds. Operating results are regularly reviewed by the ~~associated~~Company's ~~closed~~chief ~~facility~~operating ~~during~~decision maker, its CEO, to make decisions about resources to be allocated to the ~~third~~segment ~~quarter~~and ofassess ~~2012~~performance. More asspecifically, amanagement ~~result~~uses ofoperating ~~developments~~earnings ~~with~~(loss) from continuing operations, excluding the ~~environmental~~effect ~~matters~~of foreign exchange, asto ~~described~~evaluate inbusiness ~~Note~~segment 9performance. ~~These~~Corporate ~~costs~~operating ~~were~~losses ~~previously~~include ~~reported~~general ~~under~~and ~~the~~administrative ~~Color~~expenses, &corporate ~~Specialty~~office ~~Compounds~~expenses, ~~segment~~shared services costs, ~~but~~information ~~will~~technology ~~now~~costs, beprofessional ~~reported~~fees, inthe ~~Corporate. Historical~~impact ~~results~~of ~~have~~foreign ~~been~~currency ~~reclassified~~exchange togains ~~conform~~and tolosses ~~these~~and ~~changes~~Passaic environmental costs.

~~During~~The ~~the fourth quarter of 2011, the~~ Company reorganized its internal reporting structure and management responsibilities for athe ~~specific~~Passaic ~~product~~matter ~~line~~and ~~from~~the ~~its~~associated ~~Color~~closed ~~and~~facility ~~Specialty~~during ~~Compounds~~the ~~segment~~third toquarter ~~its~~of ~~Custom~~2012 ~~Sheet~~as ~~and~~a ~~Rollstock~~result ~~segment~~of todevelopments ~~better~~with ~~align~~the ~~its~~environmental ~~management~~matters, ofas ~~this~~described ~~product~~in ~~line~~Note ~~with end markets~~8. These ~~management~~costs ~~and~~were ~~reporting~~previously ~~changes~~reported ~~resulted~~under ~~in a reorganization of~~ the ~~Company's~~Color ~~reportable~~& ~~segments,~~Specialty ~~and~~Compounds ~~historical~~ segment, ~~results~~but ~~have~~are ~~been~~now ~~reclassified~~reported toin ~~conform to these changes~~Corporate. ~~A description of the Company's reportable segments is as follows:~~

A description of the Company's reportable segments is as follows:

Custom Sheet and Rollstock

The Custom Sheet and Rollstock segment primarily manufactures plastic sheet, custom rollstock, calendered film, laminates and acrylic products. 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 used in several market sectors including material handling, 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. This segment sells packaging products principally through its own sales force, but it also uses a limited number of independent sales representatives. This segment produces and distributes the products from facilities in the United States and Mexico. The Company's Packaging Technologies products are mainly used in the food, medical and consumer packaging and graphic arts market sectors.

Color and Specialty Compounds

The Color and Specialty Compounds segment manufactures custom-designed plastic alloys, compounds and color concentrates for use by a large group of manufacturing customers servicing the transportation (primarily automotive), building and construction, packaging, agriculture, 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.

Table of Contents

~~The~~Color ~~following presents the Company's net sales, operating earnings (loss)~~ and ~~total~~Specialty ~~assets by reportable segment and the reconciliation to consolidated operating earnings for the three and nine months ended August 4, 2012, and July 30, 2011:~~Compounds

	Three Months Ended						Nine Months Ended
	August 4, 2012			July 30, 2011			August 4, 2012			July 30, 2011
Net sales: (a)(b)
Custom Sheet and Rollstock	$	149,371		$	149,025		$	451,026		$	426,578
Packaging Technologies	58,395			64,989			181,944			179,094
Color and Specialty Compounds	74,681			77,702			229,581			203,378
	$	282,447		$	291,716		$	862,551		$	809,050
Operating earnings (loss): (b)
Custom Sheet and Rollstock	$	6,871		$	6,366		$	18,680		$	19,058
Packaging Technologies	4,031			6,855			12,911			17,855
Color and Specialty Compounds	2,077			2,854			6,074			264
Corporate	(7,839		)	(7,750		)	(24,504		)	(23,574		)
	$	5,140		$	8,325		$	13,161		$	13,603

The following presents the Company's net sales, operating earnings (loss) and total assets by reportable segment and the reconciliation to consolidated operating earnings for the three months ended February 2, 2013, and February 4, 2012:



	Three Months Ended
	February 2, 2013			February 4, 2012
Net sales: (a)
Custom Sheet and Rollstock	$	142,630		$	145,626
Packaging Technologies	58,274			62,245
Color and Specialty Compounds	63,089			73,910
	$	263,993		$	281,781
Operating earnings (loss):
Custom Sheet and Rollstock	$	7,865		$	3,214
Packaging Technologies	3,539			3,706
Color and Specialty Compounds	137			1,070
Corporate	(9,909		)	(8,482		)
	$	1,632		$	(492	)

Notes to Table:

(a) Excludes intersegment sales of $~~13,678 and $~~15,~~504~~409 ~~in the third quarter of 2012~~ and ~~2011, respectively and intersegment sales of~~ $4716,~~451~~992 ~~and $40,275~~ in the first ~~nine~~quarter ~~months~~ of ~~2012~~2013 and ~~2011~~2012, respectively.

(b) Excludes discontinued operations.



	February 2, 2013		November 3, 2012
Assets:
Custom Sheet and Rollstock	$	266,452	$	271,723
Packaging Technologies	152,627		151,327
Color and Specialty Compounds	86,019		82,601
Corporate and other	40,927		38,982
	$	546,025	$	544,633

	August 4, 2012		October 29, 2011
Assets:
Custom Sheet and Rollstock	$	263,976	$	268,635
Packaging Technologies	146,749		145,096
Color and Specialty Compounds	88,967		94,267
Corporate and other (c)	37,450		41,704
	$	537,142	$	549,702

11. Comprehensive Income

12At February 2, 2013, and February 4, 2012, other comprehensive income (loss) consisted of cumulative foreign currency translation adjustments. Foreign ~~Comprehensive~~exchange ~~Income~~gains and losses are reported in selling, general and administrative expenses in the results of operations and reflect U.S. dollar-denominated transaction gains and losses due to fluctuations in foreign currency. The Company recorded foreign exchange gains before taxes of $425 and losses of $16 for the three months ended February 2, 2013 and February 4, 2012, respectively. As of February 2, 2013, the Company had monetary assets denominated in foreign currency of $5,077 of net Canadian liabilities, $1,273 of net Euro assets and $5,087 of net Mexican Peso assets.

At August 4, 2012, and July 30, 2011, other comprehensive income (loss) consisted of cumulative foreign currency translation adjustments. Foreign exchange gains and losses are reported in selling, general and administrative expenses in the results of operations and reflect U.S. dollar-denominated transaction gains and losses due to fluctuations in foreign currency. The reconciliation of net earnings to comprehensive income for the three and nine months ended August 4, 2012, and July 30, 2011 is as follows:

	Three Months Ended					Nine Months Ended
	August 4, 2012		July 30, 2011			August 4, 2012			July 30, 2011
Net earnings	$	1,838	$	3,007		$	3,259		$	6,660
Foreign currency translation adjustments	8		(128		)	(54		)	1,540
Total comprehensive income	$	1,846	$	2,879		$	3,205		$	8,200

The Company recorded foreign exchange losses before taxes of $264 and $626 for the three and nine months ended August 4, 2012, compared to a loss of $423 and a gain of $198 for the three and nine months ended July 30, 2011, respectively. As of August 4, 2012, the Company had monetary assets denominated in foreign currency of $5,845 of net Canadian liabilities, $569 of net Euro assets and $2,523 of net Mexican Peso assets.

Table of Contents

12. Proposed Merger and Subsequent Event

On October 23, 2012, PolyOne Merger Sub, Merger LLC, and Spartech entered into a Merger Agreement pursuant to which Spartech will be merged with and into Merger Sub, with Spartech to be the surviving corporation in the Merger and a wholly owned subsidiary of PolyOne.

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of Spartech common stock will be canceled and converted into the right to receive consideration equal to $2.67 in cash and 0.3167 PolyOne common shares. In the aggregate, PolyOne will issue approximately 9.9 million of its common shares and pay $83,368,435 in cash to Spartech shareholders. Spartech is required to conduct its business in the ordinary course of business and within certain defined restrictions between the date of signing the agreement to the closing date. Spartech is required to manage within these restrictions or obtain consent in writing from PolyOne to conduct certain activities.

At a special meeting of stockholders of Spartech Corporation on March 12, 2013, the stockholders voted to approve the merger agreement between Spartech and PolyOne Corporation. Pursuant to the merger, stockholders will receive, in exchange for each share of Spartech common stock, (1) $2.67 in cash, without interest, and (2) 0.3167 of a PolyOne common share. Based on the closing price of PolyOne's common stock on March 11, 2013, in exchange for each share of Spartech common stockholders will receive approximately $10.25, comprised of: (1) $2.67 per share in cash; and (2) 0.3167 of a PolyOne common share, having a value of approximately $7.58. The merger will be effective on March 13, 2013. PolyOne Corporation, with 2012 revenues of $3 billion, is a premier provider of specialized polymer materials, services and solutions dedicated to serving customers in diverse industries around the globe, by creating value through collaboration, innovation and an unwavering commitment to excellence. PolyOne is committed to its customers, employees, communities and shareholders through ethical, sustainable and fiscally responsible principles.

In conjunction with the definitive merger agreement, the Company has incurred various costs triggered by and directly related to the merger transaction. In the first quarter of 2013, Spartech recognized merger and transaction costs as follows:



	2013			Cumulative To-Date
Merger and Transaction Costs:
Stock compensation expense from accelerated vesting	$	—		$	4,865
Legal and financial advisor fees	1,357			3,245
Other merger and transaction costs	703			851
Total merger and transaction costs	2,060			8,961
Income tax benefit	(783		)	(3,198		)
Impact on net earnings	$	1,277		$	5,763

Effective on the closing date of the merger, an amount related to the make-whole on the Company's Senior Notes of $10.3 million will be paid in conjunction with the transaction along with $4.2 million to the Company's financial advisors.

Table of Contents

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the Company's financial condition and results of operations contains “forward-looking statements.” The following discussion of the Company's financial condition and results of operations should be read in conjunction with Spartech's condensed consolidated financial statements and accompanying notes. The Company has based its forward-looking statements about its markets and demand for its products and future results on assumptions that the Company considers reasonable. Actual results may differ materially from those suggested by such forward-looking statements for various reasons including those discussed in “Cautionary Statements Concerning Forward-Looking Statements.” Unless otherwise noted, all amounts and analyses are based on continuing operations.

Non-GAAP Financial Measures

Management's Discussion and Analysis of Financial Condition and Results of Operations contains financial information prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and operating earnings (loss) excluding special items, net earnings (loss) from continuing operations excluding special items and net earnings (loss) from continuing operations per diluted share excluding special items that are considered “non-GAAP financial measures.” Special items include merger and transaction costs, restructuring and exit costs, and foreign exchange (gains)/losses.

Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position or cash flow that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. The presentation of these measures is intended to supplement investors' understanding of the Company's operating performance. These measures may not be comparable to similar measures at other companies. The Company believes that these measurements are useful to investors because it helps them compare the Company's results to previous periods and provides an indication of underlying trends in the business. Non-GAAP measurements are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. See the “Non-GAAP Reconciliations" section for a reconciliation of GAAP to non-GAAP measures.

Business Overview

Spartech is an intermediary producer of plastic products, including polymeric compounds, concentrates, custom extruded sheet and rollstock products and packaging technologies. 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. The Company has facilities located throughout the United States, Canada, Mexico and France that are organized into three segments; Custom Sheet and Rollstock, Packaging Technologies, and Color and Specialty Compounds.

InOn ~~2009~~October 23, ~~the~~2012, ~~Company~~PolyOne ~~sold~~Merger ~~its~~Sub, ~~wheels~~Merger ~~and~~LLC, ~~profiles businesses~~ and ~~closed~~Spartech ~~and~~entered ~~liquidated~~into ~~three businesses, including~~ a ~~manufacturer~~Merger ofAgreement ~~boat~~pursuant ~~components sold~~ to ~~the~~which ~~marine~~Spartech ~~market~~will ~~and~~be ~~one~~merged ~~compounding~~with and ~~one~~into ~~sheet~~Merger ~~business~~Sub, ~~that~~with ~~previously~~Spartech ~~serviced~~to ~~single~~be ~~customers. These~~the ~~businesses~~surviving ~~are~~corporation ~~classified~~in asthe ~~discontinued~~Merger ~~operations~~ and ~~all amounts presented within Item 2 are presented on~~ a ~~continuing~~wholly ~~basis,~~owned ~~unless~~subsidiary ~~otherwise noted. See the notes to the unaudited consolidated condensed financial statements for further details~~ of ~~these divestitures and closures~~PolyOne.

~~The~~Pursuant ~~Company~~to ~~assesses net sales changes using two major drivers: underlying volume and price/mix. Underlying volume is calculated as~~ the ~~change~~terms ~~in pounds sold for a comparable number~~ of ~~days in~~ the ~~reporting~~Merger ~~period. The~~Agreement, ~~Company's~~at ~~fiscal~~the ~~year~~effective ~~ends~~time onof the ~~Saturday~~Merger, ~~closest~~each toissued ~~October 31st~~ and ~~fiscal~~outstanding ~~years~~share ~~generally contain 52 weeks. However, because~~ of ~~this~~Spartech ~~accounting~~common ~~convention,~~stock ~~every fifth or sixth fiscal year has an additional week, and 2012~~ will be ~~reported~~canceled ~~as a 53 week fiscal year. The Company's first quarter ended February 4, 2012~~ and ~~first~~converted ~~nine~~into ~~months~~the ~~ended~~right ~~August 4,~~to ~~2012~~receive ~~included~~consideration 14equal ~~weeks and 40 weeks respectively, compared~~ to 13$2.67 ~~weeks and 39 weeks~~ in ~~the~~cash ~~first quarter~~ and ~~first~~0.3167 ~~nine~~PolyOne ~~months~~common ~~of the prior year~~shares. ~~Please~~ ~~see~~In the ~~reconciliation~~aggregate, ~~tables~~PolyOne ~~and~~will ~~narrative~~issue ~~below~~approximately ~~for~~9.9 ~~adjustments~~million ~~to GAAP and discussion~~ of ~~special~~its ~~items~~common ~~affecting~~shares ~~results. Special items include restructuring~~ and ~~exit~~pay ~~costs. Years~~$83,368,435 ~~presented~~in ~~are~~cash ~~fiscal~~to ~~unless~~Spartech ~~noted otherwise~~shareholders.

~~Summary~~At ~~Results~~a special meeting of stockholders of Spartech Corporation on March 12, 2013, the stockholders voted to approve the merger agreement between Spartech and PolyOne Corporation. Pursuant to the merger, stockholders will receive, in exchange for each share of Spartech common stock, (1) $2.67 in cash, without interest, and (2) 0.3167 of a PolyOne common share. The merger will be effective on March 13, 2013.

~~Net~~The ~~sales~~Company ~~were~~assesses ~~$282.4~~net ~~million~~sales ~~and~~changes ~~$862.6~~using ~~million~~two ~~for~~major ~~the~~drivers: ~~three~~underlying volume and ~~nine months ended August 4, 2012~~price/mix. ~~This~~Underlying ~~reflects~~volume ais acalculated 3%as ~~decrease~~the change in ~~underlying~~pounds ~~volume~~sold ~~and~~for noa ~~net~~comparable ~~change~~number inof ~~price/mix~~days ~~for~~in the ~~three~~reporting ~~month~~period. The ~~comparison,~~Company's ~~and~~fiscal ayear 5%ends ~~increase~~on ~~from~~the ~~price/mix,~~Saturday aclosest 3%to ~~increase~~October ~~from~~31st ~~the~~and ~~impact~~fiscal ofyears angenerally ~~extra~~contain ~~week~~52 ~~and~~weeks. aHowever, 1%because ~~decrease~~of inthis ~~underlying~~accounting ~~volume~~convention, ~~for~~every ~~the~~fifth ~~nine~~or ~~month~~sixth ~~comparison. The~~fiscal ~~price/mix~~year ~~changes~~has ~~related~~an toadditional aweek, ~~product~~and ~~mix~~2012 ~~that~~was ~~included~~reported as a ~~greater~~53 ~~percentage~~week offiscal ~~higher~~year. ~~priced~~The ~~products~~Company's ~~and~~first ~~the~~quarter, ~~impact~~which ofended ~~changing~~February 2, ~~raw~~2013, ~~material~~included ~~prices~~13 ~~passed~~weeks ~~through~~compared asto ~~changes~~14 weeks in ~~selling~~the ~~price. Operating~~first ~~earnings~~quarter ~~excluding~~of ~~special~~the ~~items~~prior ~~were $6~~year.0 Please ~~million~~see the reconciliation tables and ~~$14.1~~narrative ~~million~~below for ~~the~~adjustments ~~three~~to GAAP and ~~nine~~discussion ~~months~~of ~~ended~~special ~~August 4,~~items ~~2012,~~affecting ~~respectively,~~results. Special ~~compared~~items toinclude ~~operating~~merger ~~earnings~~and ~~excluding~~transaction ~~special~~costs, ~~items~~foreign ofexchange ~~$8.5~~gains/losses, ~~million~~and restructuring and ~~$15~~exit costs.2 Years ~~million~~presented inare ~~the~~fiscal ~~same~~unless ~~periods~~noted ~~of 2011~~otherwise.

Table of Contents

Outlook

Despite our shortfall in third quarter earnings performance largely related to lower sales and higher new product development costs in our Packaging Technologies segment, Spartech expects annual earnings per share from continuing operations excluding special items (restructuring and exit costs) to be comparable to annual earnings per share for fiscal year 2011. Although demand in the Company's diverse end market segments continues to be volatile and raw materials pricing is dynamic, the Company continues to shift its product mix toward more specialized and higher margin products. We intend to build on our foundation from the operational improvements executed in the our Custom Sheet and Rollstock and Color and Specialty Compounds segments as well as the repositioning of our Packaging Technologies segment for an expanded customer base.

Consolidated Results

Net sales were $~~282~~264.40 million ~~and~~in ~~$862.6 million for~~ the three ~~and~~month ~~nine~~period ~~months~~ ended ~~August~~February 42, ~~2012~~2013. Fluctuations in net sales were caused by:

	Q3 2012 vs. Q3 2011		YTD 2012 vs. YTD 2011
Underlying volume	-3	%	-1	%
Volume from additional week	—	%	3	%
Price/Mix	—	%	5	%
Total	-3	%	7	%

The decrease in underlying volume for both period comparisons is primarily attributed to the lower sales to the appliance and electronics, lawn and garden, and graphic arts end markets. These decreases were partially offset by an increase in sales volume to the transportation and material handling end markets for both periods of comparison. For the nine month period ended August 4, 2012 volumes were also increased by the inclusion of an extra week during the first nine months of 2012 compared to the same period last year. The price/mix for the nine month period was primarily related to a product mix that included a greater percentage of higher priced products.

The following table presents net sales, cost of sales, and the resulting gross margin in dollars and on a per pound sold basis for the three and nine months ended August 4, 2012 and July 30, 2011. Cost of sales presented in the consolidated condensed 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.

	Three Months Ended				Nine Months Ended
	August 4, 2012		July 30, 2011		August 4, 2012		July 30, 2011
Dollars and Pounds(in millions)
Net sales	$	282.4	$	291.7	$	862.6	$	809.1
Cost of sales	255.3		265.1		783.9		736.9
Gross margin	$	27.1	$	26.6	$	78.7	$	72.2
Pounds sold	223.2		231.2		686.3		670.9
Dollars per Pound Sold
Net sales	$	1.266	$	1.262	$	1.257	$	1.206
Cost of sales	1.144		1.147		1.142		1.098
Gross margin	$0.122		$0.115		$0.115		$0.108

Gross margin per pound sold increased from 11.5 cents for the three months ended July 30, 2011 to 12.2 cents for the three months ended August 4, 2012 and increased from 10.8 cents for the nine months ended July 30, 2011 to 11.5 cents for the nine months ended August 4, 2012. The increases for both period comparisons primarily reflect improved margin from a better mix of high margin products and operating improvements such as increased production yield and regrind material usage, which was somewhat offset by increased costs due to higher labor expense associated with certain operating improvements. Cost increases for the nine month period of comparison also included higher freight, repairs and maintenance, and utility costs.

Table of Contents

Selling, general and administrative expenses were $20.7 million and $63.3 million for the three and nine months ended August 4, 2012, respectively, compared to $17.7 million and $55.7 million in the same periods in the prior year. A $2.2 million change in bad debt expense from a reversal during the third quarter of 2011 accounted for the principal difference in the quarter comparison. Both period comparisons also include higher labor, consulting and legal costs. Additionally, the three and nine month comparisons reflect a decrease for foreign currency changes of $0.1 million and an increase of $0.8 million respectively. The increase for the nine month period also reflects the impact of an additional week, which accounts for approximately $1.6 million of the total change. The Custom Sheet & Rollstock business along with Corporate implemented a reduction in force, eliminating layers of management and combining certain roles. This program resulted in severance payments totaling $0.3 million for the third quarter of 2012.



	Q1 2013 vs. Q1 2012
Underlying volume	4	%
Prior year additional week	-8	%
Price/Mix	-2	%
Total	-6	%

OnThe ~~May~~increase ~~15,~~in ~~2012,~~underlying volume for the ~~Company~~period ~~initiated~~is ~~restructuring~~primarily ~~actions~~attributed to ~~reduce~~the ~~costs~~higher ~~and~~sales ~~reposition~~to ~~its~~the ~~portfolio~~agriculture, tomaterial ~~more~~handling ~~specialty~~ and ~~higher-value~~automotive ~~products~~end markets. ~~The~~These ~~plan~~increases ~~includes~~were ~~the~~offset ~~consolidation~~by ofa ~~two~~decrease ~~Custom Sheet and Rollstock facilities~~ in ~~Canada~~sales ~~into~~volume to the ~~Granby,~~commercial ~~Quebec~~construction ~~location~~and inappliance ~~order~~and toelectronics ~~reduce~~end ~~fixed~~markets. For ~~costs~~the ~~and~~three ~~better~~month ~~leverage~~period ~~equipment~~ended ~~and~~February 2, ~~resources~~2013 ~~within~~volumes ~~one~~were ~~operation. The~~also ~~Company~~lower ~~expects~~due to ~~incur~~the ~~approximately~~inclusion ~~$1.7~~of ~~million~~an inextra ~~restructuring~~week ~~costs~~during ~~over~~ the ~~next~~first ~~year,~~three ~~which~~months ~~will~~of be2012. The ~~comprised~~price/mix ~~primarily~~decrease offor ~~employee~~the ~~severance,~~three ~~consolidation~~month ~~and~~period ~~facility~~was ~~shut-down~~primarily ~~costs,~~related ~~and~~to ~~fixed~~lower ~~asset~~selling ~~valuation~~prices ~~adjustments~~from raw material decreases.

AsThe afollowing ~~result~~table ofpresents ~~this~~net ~~action~~sales, ~~the~~cost ~~Company~~of ~~recorded~~sales, ~~$0.9~~and ~~million~~the resulting gross margin in ~~restructuring~~dollars and ~~exit~~on ~~costs~~a inper ~~the~~pound ~~third~~sold ~~quarter~~basis ~~and~~for ~~first~~the ~~nine~~three months ofended ~~2012 compared to $0.~~February 2, ~~million~~2013 and $1February 4, 2012.6 Cost ~~million~~of sales presented in the ~~same~~consolidated ~~periods~~condensed statements of ~~the~~operations ~~prior~~includes ~~year~~material and conversion costs but excludes amortization of intangible assets. ~~The~~We ~~charges~~have innot ~~the~~presented ~~previous~~cost ~~year~~of ~~are~~sales ~~the~~and ~~effect~~gross margin as a percentage of net sales because a ~~previously~~comparison ~~announced~~of ~~restructuring~~this ~~effort~~measure ~~substantially~~is ~~completed~~distorted inby ~~2011. Restructuring~~changes ~~and~~in ~~exit~~resin costs inthat ~~2011~~are ~~were~~typically ~~comprised~~passed ofthrough ~~employee~~to ~~severance,~~customers ~~facility~~as ~~consolidation~~changes ~~and~~to ~~shut-down~~selling ~~costs~~prices. These ~~and~~changes ~~fixed~~can ~~asset~~materially ~~valuation~~affect ~~adjustments~~the ~~for~~percentages ~~assets~~but ~~related~~do tonot ~~restructured~~present ~~facilities~~complete performance measures of the business.

Interest expense, net of interest income, was $3.2 million and $9.1 million for the three and nine months ended August 4, 2012 compared to $2.8 million and $8.0 million in the same periods of the prior year. The increase was due to an increase in interest rates on our debt for both period comparisons, the additional fee to Senior Note holders, as discussed in Note 6, which was capitalized and will be amortized over the remaining life of the Notes as an adjustment to interest expense, and the impact of the extra week for the nine month period of comparison.



	Three Months Ended
	February 2, 2013		February 4, 2012
Dollars and Pounds(in millions)
Net sales	$	264.0	$	281.8
Cost of sales	237.0		260.1
Gross margin	$	27.0	$	21.7

Pounds sold	215.8		225.5
Dollars per Pound Sold
Net sales	$	1.223	$	1.250
Cost of sales	1.098		1.153
Gross margin	$0.125		$0.097

~~Income~~Gross ~~tax~~margin ~~expense~~per ~~was~~pound ~~$0.1~~sold ~~million~~increased ~~and~~from $09.87 ~~million~~cents for the three ~~and nine~~ months ended ~~August~~February 4, 2012 ~~compared~~ to $212.6 million and $1.6 million in the the same periods of the prior year. The current quarter tax expense was reduced by $0.6 million for income tax benefits related to additional research and development tax credits and other deferred tax adjustments. The prior year quarter tax expense included $1.5 ~~million~~cents expense associated with the write-off of a deferred tax asset due to a change in state tax law partially offset by $0.8 million of income tax benefits from discrete items including additional research and development credits and state tax incentives. Income tax expense for the ~~nine~~three months ended ~~August~~February 4, 2012 included a net income tax benefit of $0.7 million for discrete items primarily related to additional research and development tax credits and other income tax return to provision adjustments as well as adjustments to valuation allowances and tax contingency reserves. Income tax expense for the nine months ended July 30, 2011 included a net benefit of $0.2 ~~million for discrete items~~, ~~which included a $1~~2013.5 million income tax charge related to a change in state tax law which resulted in a write-off of a deferred tax asset and a $0.8 million income tax benefit related to a reorganization of the Company's legal entities. The ~~effective~~increase ~~tax~~primarily ~~rates~~reflects ~~were 6% and 20% for~~ the ~~for~~impact ~~the three and nine months ended August 4, 2012 compared to 46% and 28% in the same periods~~ of the ~~prior~~shift ~~year, respectively. These tax rates compare~~ to ~~our~~higher ~~statutory~~margin ~~tax~~business ~~rate of 35%, which is impacted by the mix of income by tax jurisdiction, tax credits,~~ and ~~the~~production ~~existence~~efficiencies offrom ~~other~~operational ~~discrete items~~improvements. ~~The Company expects its effective tax rate to be in the range of 35% to 38% in the final quarter of its fiscal year.~~

WeSelling, ~~reported~~general ~~net~~and ~~earnings~~administrative ~~from~~expenses ~~continuing~~were ~~operations of~~ $122.~~8 million or $0.06 per diluted share and $3.~~2 million orin ~~$0.10~~the ~~per~~first ~~diluted~~quarter ~~share~~of ~~for~~2013 ~~three and nine months ended August 4, 2012,~~ compared to ~~net earnings from continuing operations of~~ $321.08 million ~~or $0.10 per diluted share and $4.0 million or $0.13 per diluted share for the same periods~~ in the prior year. ~~Excluding~~The ~~special~~extra ~~items~~week ~~(restructuring~~increased ~~and exit costs)~~selling, wegeneral ~~reported~~and ~~net~~administrative ~~earnings~~expenses ~~from~~by ~~continuing operations of~~ $21.56 million orin ~~$0.08~~the ~~per~~first ~~diluted~~quarter ~~share~~of ~~and $3~~2012.9 The ~~million~~increase orin ~~$0.12~~2013 ~~per~~is ~~diluted~~primarily ~~share~~due ~~for~~to ~~the~~an ~~three~~increase ~~and~~in ~~nine~~labor ~~months ended August 4~~costs, ~~2012,~~variable ~~compared~~pay ~~to net earnings of $3.1 million or $0.10 per diluted share~~ and ~~$5.0~~benefits ~~million~~compared orto ~~$0.16 per diluted share for~~ the ~~same periods in the~~ prior year quarter.

~~Net~~Merger ~~earnings~~and ~~from~~transaction ~~discontinued~~costs ~~operations~~represent ~~were~~legal ~~negligible~~and infinancial ~~the~~advisor ~~third~~fees ~~quarter~~as ~~and~~well ~~first~~as ~~nine~~other ~~months~~costs oftriggered ~~2012~~by ~~compared~~and ~~to negligible~~directly ~~earnings~~related into the ~~third~~merger ~~quarter~~transaction ofbetween ~~2011~~Spartech and ~~earnings~~PolyOne ofthat totaled $2.71 million in the first ~~nine~~quarter ~~months~~ of ~~2011~~2013. ~~Earnings in the first nine months of 2011 resulted from the settlement agreement for the breach of a contract by a third party that led to $4.8 million in total cash proceeds.~~

Restructuring and exit costs were $1.1 million in the first quarter of 2013 comprised of employee severance, facility consolidation and shutdown costs and fixed asset valuation adjustments including accelerated depreciation from shortening useful lives. These costs resulted from the Company's improvement initiatives, which include an objective of reducing the Company's fixed portion of its cost structure. Refer to Note 4 for further information regarding restructuring plans.

Interest expense, net of interest income, was $2.6 million in the first quarter of 2013 compared to $3.0 million in the same period of the prior year, primarily attributable to lower debt levels when compared to the same period of 2012.

Table of Contents

An income tax benefit was recorded for $0.5 million for the three months ended February 2, 2013 compared to $1.3 million in the same period of the prior year. The current quarter tax benefit was primarily impacted by a loss on certain foreign operations for which a tax benefit is not more likely than not to be realized and a net income tax benefit for the reinstatement of the U.S. research and development tax credit of approximately $0.6 million.

We reported a net loss of $0.5 million or $(0.01) per diluted share for the first quarter of 2013, compared to a net loss of $2.2 million or $(0.07) per diluted share in the prior year. Excluding special items, we reported net earnings of $1.3 million or $0.04 per diluted share for the first quarter of 2013, compared to a net loss of $2.2 million or $(0.07) per diluted share in the prior year.

Segment Results

The information included in this section is intended to provide specific information for the operating results of each segment.

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. The Company reorganized its internal reporting structure and management responsibilities for the Passaic matter and the associated closed facility during the third quarter of 2012 as a result of developments with the environmental matters, as described in Note 98. These costs were previously reported under the Color & Specialty Compounds segment, but ~~will~~are now be reported in Corporate. ~~Historical results have been reclassified to conform to these changes.~~

During the fourth quarter of 2011, the Company reorganized its internal reporting structure and management responsibilities of a product line from its Color and Specialty Compounds segment to its Custom Sheet and Rollstock segment to better align the management of this product line with end markets. This management and reporting change resulted in a reorganization of the Company's reportable segments. Historical segment results have been reclassified to conform to these changes.

Custom Sheet and Rollstock Segment

Net sales were $~~149~~142.46 million ~~and $451.0 million~~ for the three ~~and nine~~ months ended ~~August~~February 42, ~~2012~~2013. Fluctuations in net sales were caused by:

	Q3 2012 vs. Q3 2011		YTD 2012 vs. YTD 2011
	Q1 2013 vs. Q1 2012
Underlying volume	-48	%	-4	%
Volume from additional week	—	%	3	%
Prior year additional week	-8	%
Price/Mix	4-2	%	7	%
Total	—-2	%	6	%

The ~~decrease in~~ underlying sales volume ~~for~~in ~~both~~this ~~period~~segment ~~comparisons~~increased ~~reflects~~for ~~lower sales to~~ the ~~appliance~~three ~~and~~months ~~electronics~~ended ~~end~~February 2, ~~market. These~~2013 ~~decreases~~compared ~~were~~to ~~somewhat~~the ~~offset~~prior inyear, ~~both~~reflecting ~~period comparisons by~~ an increase in sales volume to the ~~automotive and~~ material handling ~~sectors. The~~and ~~price/mix~~automotive ~~increase~~end ~~for~~markets. ~~both~~These ~~period~~increases ~~comparisons~~were ~~was~~offset ~~mostly caused~~ by a ~~product~~decrease ~~mix~~in ~~that~~sales ~~included~~to athe ~~greater~~appliance ~~percentage~~and ofelectronic ~~higher~~end ~~priced~~markets, ~~products~~and ~~while~~ the ~~three~~inclusion ~~month~~of ~~period reflected~~ an ~~improved~~extra ~~mix~~week ~~that~~in ~~was offset by lower selling prices from raw material decreases from~~ the ~~prior~~first quarter of 2012.

Operating earnings excluding special items were $7.8 ~~million and $19~~.63 million for the three ~~and nine~~ months ended ~~August~~February 42, ~~2012~~2013 compared to $6.3 ~~million and $19~~.42 million for the ~~same~~three ~~periods~~months inended ~~the~~February 4, ~~prior year~~2012. The $5.1 million increase in earnings ~~for both period comparisons~~ can be attributed to angreater ~~increased~~ mix of higher margin products and operating improvements such as increased production yield and regrind material usage~~, which were slightly offset by increased costs related to labor~~. The $1.5 million increase in the third quarter earnings can be attributed to $3.3 million of improvement primarily from an increased mix of higher margin products and operating improvements, which was offset by $1.8 million resulting from the reversal of bad debt expense in the prior year period. The nine month comparison also reflects increased costs related to repairs and maintenance, utilities, and freight. Both costs and volume were increased by the inclusion of an extra week during the first nine months of 2012 compared to the same period last year.

Packaging Technologies Segment

Net sales were $58.43 million ~~and $181.9 million~~ for the three ~~and nine~~ months ended ~~August~~February 42, ~~2012~~2013. Fluctuations in net sales were caused by:

	Q3 2012 vs. Q3 2011		YTD 2012 vs. YTD 2011
	Q1 2013 vs. Q1 2012
Underlying volume	-7—	%	-4	%
Volume from additional week	—	%	3	%
Prior year additional week	-8	%
Price/Mix	-32	%	3	%
Total	-106	%	2	%

The ~~decline in~~ underlying sales volume ~~for~~in ~~both~~this ~~period~~segment ~~comparisons~~was ~~can~~relatively beflat ~~mainly~~for ~~attributed~~three months ended February 2, 2013 compared to the prior year, offset by a decrease in ~~graphic~~volume ~~arts~~due ~~sales~~to ~~related~~the toinclusion ~~certain~~of ~~programs~~an ~~not~~extra ~~continuing~~week in the ~~current~~first ~~period~~quarter of 2012. The price/mix increase ~~for the nine month period comparison~~ was primarily related to a product mix that included a greater percentage of higher priced products~~, while the three month comparison decreased primarily related to lower selling prices from raw material decreases passed through as lower selling~~ .

Operating earnings excluding special items were $3.5 million for the three months ended February 2, 2013 compared to $3.7 million for the three months ended February 4, 2012. The decrease in earnings was primarily the result of $0.6 million in expenses directly related to repairs and recovery from a fire in November 2012 at our Muncie, Indiana facility. The increased costs were somewhat offset by a greater mix of high material margin product compared to the prior year.

Color and Specialty Compounds Segment

Net sales were $63.1 million for the three months ended February 2, 2013. Fluctuations in net sales were caused by:

Table of Contents

prices and a product mix that included a greater percentage of lower priced products.



	Q1 2013 vs. Q1 2012
Underlying volume	1	%
Prior year additional week	-8	%
Price/Mix	-8	%
Total	-15	%

~~Operating~~The ~~earnings~~underlying ~~excluding~~sales ~~special~~volume ~~items~~in ~~were~~this ~~$4.0~~segment ~~million~~was ~~and~~higher ~~$12.9 million~~ for the three ~~and nine~~ months ended ~~August~~February 42, ~~2012~~2013 compared to ~~$6.9 million and $18.1 million for~~ the ~~same periods in the~~ prior year~~. The~~, ~~decrease~~reflecting inan ~~earnings~~increase ~~for~~in ~~both~~sales ~~period comparisons can be attributed~~ to the ~~decrease~~agriculture ~~in volume and additional development costs from new food and consumer packaging programs~~market. ~~The~~This ~~nine month period comparison this~~ was ~~somewhat~~ offset by a ~~greater mix of high margin products compared to the prior year. The nine month comparison also reflects a~~ decrease in ~~earnings~~volume ~~attributable~~due to ~~increased costs related to labor, depreciation expenses and freight. Both costs and volume were increased by~~ the inclusion of an extra week ~~during~~in the first ~~nine~~quarter ~~months~~ of 2012. The ~~compared~~price/mix decrease was primarily related to ~~the~~lower ~~same~~selling ~~period~~prices ~~last~~from ~~year~~raw material decreases.

~~Color~~Operating ~~and~~earnings ~~Specialty~~excluding ~~Compounds~~special ~~Segment~~items were $0.9 million for the three months ended February 2, 2013 compared to operating earnings of $1.1 million in the same period of the prior year. The decrease in earnings can be attributed to higher labor costs partially offset by a better mix of higher margin products.

Net sales were $74.7 million and $229.6 million for the three and nine months ended August 4, 2012. Fluctuations in net sales were caused by:

	Q3 2012 vs. Q3 2011		YTD 2012 vs. YTD 2011
Underlying volume	-2	%	5	%
Volume from additional week	—	%	3	%
Price/Mix	-2	%	5	%
Total	-4	%	13	%

The change in underlying sales volume for the third quarter was due to a decrease in automotive sales in Europe. The nine month comparison reflects an increase in sales related to commercial construction and packaging markets. The price/mix decrease for the three month comparison was primarily attributable to lower prices from raw material decreases passed through as lower selling prices. The price/mix increase for the nine month period comparison was primarily caused by a product mix that included a greater percentage of higher priced products.

Operating earnings excluding special items were $2.1 million and $6.1 million for the three and nine months ended August 4, 2012 compared to operating earnings of $3.1 million and $1.2 million in the same periods of the prior year. The significant increase in operating earnings for the nine month period comparison was due to the increase in sales volume, benefits from improvements on key operating metrics and greater mix of higher margin products compared to the prior year, which more than offset the impact of cost increases related to repairs and maintenance and labor costs. The decrease in operating earnings for the three month period was due to decreases in sales volume and a mix of lower margin products compared to the prior year. In addition, the prior year quarter included $0.4 million of income resulting from the reversal of bad debt expense in the prior year period. Both cost and volume were also increased by the inclusion of an extra week during the first nine months of 2012 compared to the same period last year.

Corporate

Corporate expenses include general and administrative expenses, corporate office expenses, shared services costs, information technology costs, professional fees, the impact of foreign currency exchange gains and losses and Passaic environmental costs. Corporate operating expenses ~~were~~excluding ~~$7.8~~special ~~million~~items ~~and~~were $248.53 million for the three ~~and nine~~ months ended ~~August~~February 42, ~~2012~~2013 and $7.8 ~~million and $23~~.65 million for the same ~~periods~~period last year. The three ~~and nine~~ month ~~comparisons~~period ~~reflect~~ended aFebruary 2, ~~decrease~~2013 ~~for~~was ~~foreign~~lower ~~currency~~primarily ~~changes~~due ofto ~~$0.1~~the ~~million~~impact ~~and~~of an ~~increase~~extra ofweek ~~$0.8~~during ~~million~~the ~~respectively,~~first ~~and~~quarter ~~the~~of ~~nine~~2012, ~~month~~a ~~comparison~~decrease ~~also~~in ~~includes~~professional ~~the~~fees, ~~impact~~offset ofby an ~~additional~~increase ~~week~~in variable pay.

Liquidity and Capital Resources

Cash Flow

The Company's primary sources of liquidity have been cash flows from operating activities and borrowings from third parties. Historically, the Company's principal uses of cash have been to support operating activities, invest in capital improvements, reduce outstanding indebtedness, finance strategic business acquisitions, acquire treasury shares and pay dividends on its common stock. The following summarizes the major categories of changes in cash and cash equivalents for the ~~nine~~three months ended ~~August~~February 42, ~~2012~~2013 and ~~July~~February 304, ~~2011~~2012:



	Three Months Ended
	February 2, 2013			February 4, 2012
Cash Flows (in thousands)
Net cash used by operating activities	$	(13,894	)	$	(6,714	)
Net cash used by investing activities	(5,117		)	(3,779		)
Net cash provided by financing activities	20,890			10,340
Effect of exchange rates on cash and cash equivalents	(7		)	4
Increase (decrease) in cash and cash equivalents	$	1,872		$	(149	)

Net cash used by operating activities was $13.9 million in the first three months of 2013 compared to $6.7 million for the same period in the prior year. The change primarily reflects the impact of an increased investment in inventory to support higher sales and the funding of transaction costs related to the merger.

Net cash used for investing activities of $5.1 million in the first three months of 2013 consisted of $5.1 million of capital expenditures which were slightly offset by nominal proceeds from the disposition of assets. Net cash used for investing activities in the first three months of 2012 included $3.9 million of capital expenditures. We expect our capital expenditures to range from $20.0 million to $25.0 million in 2013. Capital expenditure amounts are expected to be funded from operating cash flows and credit facility borrowings.

Net cash provided by financing activities of $20.9 million in the first three months of 2013 mainly consisted of credit facility borrowings of $22.0 million, offset by tax payments of $1.0 million for employees who surrendered shares when they exercised share-based awards. Net cash provided by financing activities of $10.3 million in the first three months of 2012 mainly

Table of Contents

	Nine Months Ended
	August 4, 2012			July 30, 2011
Cash Flows (in thousands)
Net cash provided by operating activities	$	29,097		$	25,211
Net cash used by investing activities	(13,166		)	(18,771		)
Net cash used by financing activities	(15,882		)	(10,134		)
Effect of exchange rates on cash and cash equivalents	7			2
Increase (decrease) in cash and cash equivalents	$	56		$	(3,692	)

consisted of credit facility borrowings offset by debt financing costs associated with the Company's December 2011 Amendments.

Net cash provided by operating activities was $29.1 million in the first nine months of 2012 compared to cash provided of $25.2 million for the same period in the prior year. The change reflects the impact of a decreased investment in net working capital of $7.5 million compared to the same period of the prior year. This was offset by the impact of lower net earnings in 2012, including the impact of $2.7 million in net earnings from discontinued operations in 2011. The decreased investment in net working capital can be attributed to an improvement in accounts receivable and inventory, partially offset by a decrease in accounts payable.

Net cash used for investing activities of $13.2 million in the first nine months of 2012 consisted of $13.3 million of capital expenditures which were slightly offset by $0.1 million of proceeds from the disposition of assets. Net cash used for investing activities in the first nine months of 2011 was comprised of $19.2 million of capital expenditures. We expect to spend approximately $20.0 million on capital expenditures in 2012. Capital expenditure amounts are expected to be funded from operating cash flows and credit facility borrowings.

Net cash used by financing activities of $15.9 million in the first nine months of 2012 mainly consisted of credit facility payments, the excess cash flow payment made to Senior Note Holders, debt financing costs associated with the Company's December 2011 Amendments along with an additional fee of $1.1 million to its Senior Note holders, which was capitalized and amortized over the remaining life of the Notes as an adjustment to interest expense. Net cash used by financing activities in the first nine months of 2011 of $10.1 million mainly consisted of credit facility payments and debt financing costs associated with the Company's January 2011 Amendments.

Financing Arrangements

On September 14, 2004 the Company completed a $150.0 million private placement of Senior Notes over a term of twelve (12) years (2004 Senior Notes). On June 9, 2010, the Company entered into a new credit facility agreement and amended its 2004 Senior Notes. The new credit facility agreement has a borrowing capacity of $150.0 million with an optional $50.0 million accordion feature, has a term of four (4) years, bears interest at either Prime or LIBOR plus a borrowing margin ~~and initially required a maximum Leverage Ratio of 3~~.~~5 to 1 and a minimum Fixed Charge Coverage Ratio of 2.25 to 1 (which was scheduled to decrease to 1.4 to 1 in the fourth quarter of 2012).~~ The credit facility and amended 2004 Senior Notes are secured with collateral including accounts receivable, inventory, machinery and equipment and intangible assets.

On December 6, 2011, the Company entered into concurrent amendments (collectively, the “December 2011 Amendments”) to its Amended and Restated Credit and 2004 Senior Note agreements (collectively, the “Agreements”) in order to provide covenant flexibility. Under the December 2011 Amendments, the Company's minimum Fixed Charge Coverage Ratio was amended to 1.2 to 1 at the end of the fourth quarter of 2012 and first quarter of 2013 and increases to 1.3 to 1 at the end of the second quarter of 2013, and the covenant definition was changed to exclude 50% of scheduled installment payments (previously 100%) in the denominator of the calculation. Under the December 2011 Amendments, the Company's maximum Leverage Ratio was amended to 3.0 to 1 at the end of the third quarter of 2012. Consistent with the previous agreement, the Company's maximum Leverage Ratio continues at 3.0 to 1 at the end of the fourth quarter of 2012 through the third quarter of 2013 and decreases to 2.75 to 1 at the end of fourth quarter of 2013. Under the December 2011 Amendments, the Company's annual capital expenditures will be limited to $30.0 million when the Company's Leverage Ratio exceeds 2.5 to 1. In addition, the Company will be subject to certain restrictions in its ability to complete acquisitions, pay dividends or buy back stock. The interest rate increased on the 2004 Senior Notes by 50 basis points to 7.08%. Capitalized fees incurred in the first quarter of 2012 for the December 2011 Amendments were $0.5 million. During the term of the Agreements, the Company was subject to an additional fee of 100 basis points in the event the Company's credit profile rating decreased to a defined level. Such a decrease occurred during the second quarter of 2012 and the Company incurred an additional fee of $1.1 million to its Senior Note holders, which was capitalized and will be amortized over the remaining life of the Notes as an adjustment to interest expense.

The Agreements require the Company to offer early principal payments to Senior Note holders and credit facility investors (only in the event of default) based on a ratable percentage of each fiscal year's excess cash flow and extraordinary receipts, such as the proceeds from the sale of businesses. Under the Agreements, if the Company sells a business, it is required to offer a percentage (which varies based on the Company's Leverage Ratio) of the after tax proceeds (defined as “extraordinary receipts”) to its Senior Note holders and credit facility investors in excess of a $1.0 million threshold. The excess cash flow definition in the Agreements follows a standard free cash flow calculation. The Company is only required to offer the excess cash flow and extraordinary receipts if the Company ends its fiscal year with a Leverage Ratio in excess of 2.5 to 1. The Senior Note holders are not required to accept their allotted portion and to the extent individual holders reject their portion, other holders are entitled to accept the rejected proceeds. Early principal payments made to Senior Note holders reduce the principal balance outstanding. No excess cash flow payment is required to be made in 2013 as the Company's fiscal year 2012 Leverage Ratio was not in excess of 2.5 to 1 as defined in the agreement. The Company made excess cash flow payments to the Senior Note holders in the second quarter of 2012 of $2.5 million.

At February 2, 2013, the Company had $82.2 million of total capacity and $56.5 million of outstanding loans under the credit facility at a weighted average interest rate of 3.32%. In addition to the outstanding loans, the credit facility borrowing capacity was reduced by several standby letters of credit totaling $11.3 million. The Company's average net revolver outstanding (average revolver borrowings net of cash) was approximately $61.8 million for the three months ended February 2, 2013. The Company is restricted to certain levels of expenditures relating to dividends and capital expenditures. The Company had $23.0 million of availability on its credit facility as of February 2, 2013. We primarily have used the borrowings on our revolving credit facility for working capital purposes and capital expenditures.

Interest on the amended 2004 Senior Notes is 7.08% and is payable semiannually on March 15 and September 15 of each year. The amended 2004 Senior Notes require equal annual principal payments of $22.2 million that commenced on September 15, 2012, and that are ratably reduced by required early principal payments based on a percentage of annual excess cash flow or extraordinary receipts as defined in the Agreements. The Company may, at its option and upon notice, prepay at any time all or any part of the amended 2004 Senior Notes, together with accrued interest plus a make-whole amount. Effective on the closing date of the merger, an amount related to the make-whole on the Company's Senior Notes of $10.3 million will be paid in conjunction with the transaction.

Table of Contents

The ~~agreements require the~~ Company ~~to offer early principal payments to Senior Note holders and credit facility investors (only in the event of default) based on a ratable percentage of each fiscal year~~'s ~~excess~~other ~~cash~~debt ~~flow~~consists ~~and~~primarily ~~extraordinary receipts, such as the proceeds from the sale~~ of ~~businesses. Under~~industrial ~~the~~revenue ~~Agreements,~~bonds ifand ~~the~~capital ~~Company~~lease ~~sells~~obligations aused ~~business, it is required~~ to ~~offer~~finance acapital percentage (which varies based on the Company's Leverage Ratio) of the after tax proceeds (defined as “extraordinary receipts”) to its Senior Note holders and credit facility investors in excess of a $1expenditures.~~0 million threshold.~~ ~~The~~These ~~excess~~financings ~~cash~~mature ~~flow~~between ~~definition~~2013 ~~in the Agreements follows a standard free cash flow calculation. The Company is only required to offer the excess cash flow~~ and ~~extraordinary~~2019 ~~receipts if the Company ends its fiscal year with a Leverage Ratio in excess of 2.5 to 1. The Senior Note holders are not required to accept their allotted portion~~ and tohave ~~the~~interest ~~extent~~rates ~~individual~~ranging ~~holders~~from ~~reject their portion, other holders are entitled to accept the rejected proceeds~~0. ~~Early~~17% ~~principal payments made~~ to ~~Senior Note holders reduce the principal balance outstanding~~16. ~~The Company made excess cash flow payments to the Senior Note holders of $2.~~5 ~~million and $0~~%.~~4 million in the second quarters of 2012 and 2011, respectively.~~

AtThe ~~August 4, 2012, the~~ Company ~~had~~was ~~$118.3~~in ~~million~~compliance ofwith ~~total~~all ~~capacity~~debt ~~and~~covenants ~~$20.4~~as ~~million~~ of ~~outstanding~~February 2, ~~loans~~2013. While ~~under~~ the ~~credit~~Company ~~facility~~was atin acompliance ~~weighted~~with ~~average~~its ~~interest~~covenants ~~rate~~and ofcurrently ~~1.77%. In~~expects ~~addition~~ to ~~the~~be ~~outstanding~~in ~~loans,~~compliance ~~the~~with ~~credit~~its ~~facility~~covenants ~~borrowing~~during ~~capacity~~the ~~was~~next ~~reduced~~twelve by(12) ~~several~~months, ~~standby~~the ~~letters of credit totaling $11.3 million. The~~ Company's ~~average~~failure ~~net~~to ~~revolver~~comply ~~outstanding~~with ~~(average~~its ~~revolver~~covenants ~~borrowings~~or ~~net~~other requirements of ~~cash)~~its ~~was~~financing ~~approximately~~arrangements ~~$61.1~~is ~~million~~an ~~for~~event ~~the~~of ~~quarter~~default ~~ended~~and ~~August 4~~could, ~~2012. Under~~among ~~the~~other ~~Company's most restrictive covenant~~things, ~~the~~accelerate ~~Leverage Ratio,~~ the ~~Company~~payment ~~had $18.9 million~~ of ~~availability on its credit facility as of August 4~~indebtedness, ~~2012. We~~which ~~primarily~~could have ~~used~~a ~~the~~material ~~borrowings~~adverse impact on ~~our~~the ~~revolving~~Company's ~~credit~~results ~~facility~~of ~~for~~operations, ~~working~~financial ~~capital~~condition ~~purposes~~ and ~~capital~~cash ~~expenditures~~flows.

Interest on the amended 2004 Senior Notes is 7.08% and is payable semiannually on March 15 and September 15 of each year. The Company may, at its option and upon notice, prepay at any time all or any part of the amended 2004 Senior Notes, together with accrued interest plus a make-whole amount. As of August 4, 2012, if the Company were to prepay the full principal outstanding on the amended 2004 Senior Notes, the make-whole amount would have been $13.4 million. The amended 2004 Senior Notes require equal annual principal payments of $22.2 million that commence on September 15, 2012, and that are ratably reduced by required early principal payments based on a percentage of annual excess cash flow or extraordinary receipts as defined in the Agreements. The first principal payment is expected to be paid in the fourth quarter of 2012, and the amounts associated with these payments are classified as current maturities of long term debt. Excluding these payments, borrowings under these facilities are classified as long-term because the Company has the ability and intent to keep the balances outstanding over the next twelve (12) months.

The Company's other debt consists primarily of industrial revenue bonds and capital lease obligations used to finance capital expenditures. These financings mature between 2012 and 2019 and have interest rates ranging from 0.22% to 12.47%.

The Company was in compliance with all debt covenants as of August 4, 2012. While the Company was in compliance with its covenants and currently expects to be in compliance with its covenants during the next twelve (12) months, the Company's failure to comply with its covenants or other requirements of its 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 the Company's results of operations, financial condition and cash flows.

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.

Table of Contents

Non-GAAP Reconciliations

The following table reconciles operating earnings (GAAP) to operating earnings excluding special items (Non-GAAP), net earnings from continuing operations (GAAP) to net earnings from continuing operations excluding special items (Non-GAAP) and net earnings from continuing operations per diluted share (GAAP) to net earnings from continuing operations per diluted share excluding special items (Non-GAAP). Special items consist of ~~restructuring~~merger and ~~exit~~transaction costs~~. We have also excluded the operations of our discontinued wheels~~, ~~profiles, marine, Donchery sheet and Arlington, Texas compounding operations throughout this press release and in the presentation below. The only adjustment reconciling GAAP to non-GAAP results is~~ restructuring and exit costs~~. The~~, ~~GAAP~~and ~~results~~foreign ~~include~~exchange ~~the beneficial impact from a lower effective tax rate in the current year period as well as the adverse impact of a higher effective tax rate in the prior year period~~(gains)/losses. ~~The non-GAAP results have not been adjusted for any changes in tax rates.~~

	Three Months Ended						~~Nine Months Ended~~
	August 4,			July 30,			August 4,		July 30,
	February 2,			February 4,
(unaudited and in thousands, except per share data)	~~2012~~2013			~~2011~~2012			~~2012~~		~~2011~~
Operating earnings (GAAP)	$	5,140		$	8,325		$	13,161	$	13,603
Operating earnings (loss) (GAAP)	$	1,632		$	(492	)
Restructuring and exit costs	~~897~~1,132			~~174~~—			~~897~~		~~1,550~~
Operating earnings excluding special items (Non-GAAP)	$	6,037		$	8,499		$	14,058	$	15,153
Merger and transaction costs	2,060			—
Net earnings from continuing operations (GAAP)	$	1,838		$	2,988		$	3,241	$	3,996
Foreign exchange (gains)/losses	(425		)	16
Restructuring and exit costs, net of tax	628			110			628		976
Operating earnings (loss) excluding special items (Non-GAAP)	$	4,399		$	(476	)
Net earnings from continuing operations excluding special items (Non-GAAP)	$	2,466		$	3,098		$	3,869	$	4,972
Net loss (GAAP)	$	(467	)	$	(2,249	)
Net earnings from continuing operations per diluted share (GAAP)	$	0.06		$	0.10		$	0.10	$	0.13
Restructuring and exit costs, net of tax	846			—
Restructuring and exit costs, net of tax	0.02			—			0.02		0.03
Merger and transaction costs, net of tax	1,277			—
Net earnings from continuing operations per diluted share excluding special items (Non-GAAP)	$	0.08		$	0.10		$	0.12	$	0.16
Foreign exchange (gains)/losses, net of tax	(314		)	12
Net earnings (loss) excluding special items (Non-GAAP)	$	1,342		$	(2,237	)
Net loss per diluted share (GAAP)	$	(0.01	)	$	(0.07	)
Restructuring and exit costs, net of tax	0.02			—
Merger and transaction costs, net of tax	0.04			—
Foreign exchange (gains)/losses, net of tax	(0.01		)	—
Net earnings (loss) per diluted share excluding special items (Non-GAAP)	$	0.04		$	(0.07	)

The following table reconciles operating earnings (loss) (GAAP) to operating earnings (loss) excluding special items (Non-GAAP) by segment (in thousands):

Three Months Ended

August 4, 2012

July 30, 2011

February 2, 2013

February 4, 2012

OperatingEarnings (Loss) (GAAP)

SpecialItems

Operating Earnings(Loss)Excluding Special Items (Non-GAAP) ~~Special Items~~

OperatingEarnings (Loss) (GAAP)

SpecialItems

Operating Earnings(Loss)~~Excluding~~ExcludingSpecial Items (Non-GAAP) ~~Special Items~~

Segment

Custom Sheet and Rollstock

67,~~871~~865

~~897~~434

78,~~768~~299

63,~~366~~214

~~(86~~—

)

63,~~280~~214

Packaging Technologies

43,~~031~~539

—

43,~~031~~539

63,~~855~~706

—

63,~~855~~706

Color and Specialty Compounds

~~2,077~~137

—766

~~2,077~~903

21,~~854~~070

~~260~~—

31,~~114~~070

Corporate

(79,~~839~~909

)

—1,567

(78,~~839~~342

)

(78,~~750~~482

)

—16

(78,~~750~~466

)

Total

51,~~140~~632

~~897~~2,767

64,~~037~~399

~~8,325~~(492

)

~~174~~16

~~8,499~~(476

)

Table of Contents

	Nine Months Ended								Nine Months Ended
	August 4, 2012								July 30, 2011
	OperatingEarnings (Loss) (GAAP)			SpecialItems		Operating Earnings(Loss)Excluding(Non-GAAP) Special Items			OperatingEarnings (Loss) (GAAP)			SpecialItems		Operating Earnings(Loss)Excluding(Non-GAAP) Special Items
Segment
Custom Sheet and Rollstock	$	18,680		$	897	$	19,577		$	19,058		$	372	$	19,430
Packaging Technologies	12,911			—		12,911			17,855			247		18,102
Color and Specialty Compounds	6,074			—		6,074			264			925		1,189
Corporate	(24,504		)	—		(24,504		)	(23,574		)	6		(23,568		)
Total	$	13,161		$	897	$	14,058		$	13,603		$	1,550	$	15,153

Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our exposure to market risk since ~~October~~November 293, ~~2011~~2012. Please see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended ~~October~~November 293, ~~2011~~2012, for a discussion of our exposure to market risk at ~~October~~November 293, ~~2011~~2012.

Item 4. Controls and Procedures

Spartech maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and is accumulated and communicated to management, including the Company's certifying officers, as appropriate to allow timely decisions regarding required disclosure. Based on an evaluation performed, the Company's certifying officers have concluded that the disclosure controls and procedures were effective as of ~~August~~February 42, ~~2012~~2013, to provide reasonable assurance of the achievement of these objectives.

Notwithstanding the foregoing, there can be no assurance that the Company's disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to report material information otherwise required to be set forth in the Company's reports.

There was no change in the Company's internal control over financial reporting during the quarter ended ~~August~~February 42, ~~2012~~2013 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Table of Contents

PART II — Other Information

Item 1. Legal Proceedings

As of February 2, 2013, the Company had approximately $1.3 million accrued related to these Lower Passaic River matters described above, representing funding of the RIFS costs and related legal expenses of the RIFS, participation in the removal action agreed to with USEPA and the litigation matter. Given the uncertainties pertaining to this matter, including that the RIFS is ongoing, the ultimate remediation has not yet been determined and because the extent to which the Company may be responsible for such remediation or natural resource damages is not yet known, it is not possible at this time to estimate the Company's ultimate liability related to this matter. Based on currently known facts and circumstances, the Company does not believe that this matter is likely to have a material effect on the Company's results of operations, consolidated financial position, or cash flows because the Company's Kearny, New Jersey, facility could not have contributed contamination along most of the river's length and did not store or use the contaminant that is of the greatest concern in the river sediments and because there are numerous other parties who will likely share in the cost of remediation and damages. However, it is reasonably possible that the ultimate liability resulting from this matter could materially differ from the February 2, 2013 accrual balance, and in the event of one or more adverse determinations related to this matter, the impact on the Company's results of operations, consolidated financial position or cash flows could be material to any specific period.

On December 14, 2009, Simmons Bedding Company and The Simmons Manufacturing Co., LLC (collectively, “Simmons”) filed suit in the Superior Court of New Jersey, Essex County (Simmons Bedding Company and The Simmons Manufacturing Co., LLC v. Creative Vinyl/Fabrics, Inc. and its owner, Spartech Corporation, Spartech Polycom Calendared and Converted Products, Granwell Products, Inc., Nan Ya Plastics Corporation USA - Docket No. ESX-L-10197-09) alleging that vinyl product supplied to Simmons failed to meet certain specifications and claiming, among other things, a breach of contract,

Table of Contents

~~NJDEP~~breach of warranty and fraud for which Simmons was seeking unspecified damages, ~~against~~including costs related to a voluntary product recall. Creative Vinyl/Fabrics, Inc. (“Creative”) was seeking common law indemnification and contribution from the ~~Occidental~~Company. ~~Parties~~The Company supplied Creative with PVC film pursuant to purchase orders submitted by Creative, which Creative further processed and then sold to Simmons. On November 16, 2012, the Court granted summary judgment on behalf of all of the Defendants in the case for full dismissal of the matter. Simmons filed its notice of appeal on January 3, 2013 and their appellate brief is due on March 18, 2013. The matter will be fully briefed by April 29, 2013. Based upon these recent developments, management does not believe that the ultimate liabilities resulting from this proceeding, if any, will be material to the Company's results of operations and will not have a material adverse effect on the Company's consolidated financial position or cash flows.

AsFive ofpurported ~~August 4,~~class ~~2012,~~action ~~the~~lawsuits ~~Company~~have ~~had~~been ~~approximately~~filed ~~$1.1~~by ~~million~~alleged ~~accrued~~Spartech ~~related~~stockholders ~~to these Lower Passaic River matters described above, representing funding of the RIFS costs and related legal expenses of the RIFS, participation~~ in ~~the~~connection ~~removal action agreed to~~ with ~~USEPA and~~ the ~~litigation~~proposed ~~matter. Given~~merger ~~the~~transactions ~~uncertainties~~among ~~pertaining to this matter~~Spartech, ~~including~~PolyOne ~~that~~Corporation ~~the RIFS is ongoing~~(“PolyOne”), ~~the~~2012 ~~ultimate remediation has not yet been determined and because the extent to which the Company may be responsible for such remediation or natural resource damages is not yet known~~Redhawk, ~~it is not possible at this time to estimate the Company's ultimate liability related to this matter~~Inc. ~~Based~~ on(“Merger ~~currently~~Sub”) ~~known facts~~ and ~~circumstances~~2012 Redhawk, ~~the~~LLC ~~Company does not believe that this matter is likely to have~~ (n/k/a ~~material~~PolyOne ~~effect~~Designed onStructures the Company's results of operations, consolidated financial position, or cash flows because the Company's Kearny, New Jersey, facility could not have contributed contamination along most of the river's length and ~~did~~Solutions ~~not~~LLC) ~~store~~(“Merger ~~or use the contaminant that is of the greatest concern in the river sediments and because there are numerous other parties who will likely share in the cost of remediation and damages~~LLC”). ~~However,~~ it is reasonably possible that the ultimate liability resulting from this matter could materially differ from the August 4, 2012, accrual balance, and in the event of one or more adverse determinations related to this matter, the impact on the Company's results of operations, consolidated financial position or cash flows could be material to any specific period.

InTwo ~~January~~of ~~2011,~~these purported class actions were filed in Delaware Chancery Court (the ~~Stamford,~~“Delaware CTStockholder ~~facility~~Actions”). One of ~~Spartech~~the ~~Polycast~~Delaware Stockholder Actions, ~~Inc~~Gross v. Spartech, aet ~~subsidiary~~al., ofwas ~~the~~filed ~~Company~~against Spartech, ~~received~~its ~~three~~directors, ~~notices~~PolyOne, ofMerger ~~violation~~Sub, ~~(NOVs)~~and ~~from~~Merger ~~the~~LLC. ~~Connecticut~~The ~~Department~~other ofDelaware ~~Environmental~~Stockholder ~~Protection~~Action, ~~(CTDEP)~~Pill ~~alleging~~v. ~~violations~~Spartech, ofet ~~regulations~~al., ~~governing~~was ~~air~~filed ~~pollution~~against ~~control~~Spartech and its directors. The ~~NOVs~~Delaware Stockholder Actions alleged:, ~~(1)~~among ~~failure~~other tothings, ~~file~~that athe ~~semi-annual~~directors ~~monitoring~~of ~~report;~~Spartech ~~(2)~~breached ~~failure~~their tofiduciary ~~have~~duties aowed ~~leak~~to ~~detection~~stockholders ~~and~~by ~~repair~~approving ~~program~~the ~~that~~proposed ~~meets~~acquisition ~~regulatory~~of ~~requirements;~~Spartech by PolyOne and, ~~(3)~~by ~~failure~~failing to ~~satisfy~~disclose certain ~~air~~information ~~emissions~~to ~~standards~~stockholders. ~~During~~ ~~the~~Gross ~~third~~v. ~~quarter~~Spartech, et al. also alleged that PolyOne, Merger Sub, and Merger LLC aided and abetted the directors of Spartech ~~entered~~in ~~into~~breaching atheir ~~final~~fiduciary ~~order~~duties. ~~with~~Among ~~CTDEP~~other ~~resolving~~things, the ~~matter~~Delaware Stockholder Actions sought to enjoin the merger. ~~The~~After ~~liabilities~~their ~~associated~~request ~~with~~to stay the ~~final~~Delaware ~~order~~Stockholder ~~were~~Actions ~~not~~was ~~material~~denied, toplaintiffs in the ~~Company's~~Delaware ~~results~~Stockholder Actions filed a Notice and (Proposed) Order of ~~operations~~Dismissal on January 31, 2013, which was granted with modifications on February 1, 2013.

~~The~~A ~~Company~~purported isclass ~~also~~action ~~subject~~was toalso ~~various~~filed ~~other~~in ~~claims,~~the ~~lawsuits~~United ~~and~~States ~~administrative~~District ~~proceedings~~Court ~~arising~~for in the ~~ordinary~~Eastern ~~course~~District of ~~business~~Missouri ~~with~~against ~~respect~~Spartech, toits ~~commercial~~directors, ~~product liability~~PolyOne, ~~employment~~Merger Sub, and ~~other~~Merger ~~matters~~LLC. Faulkner v. Holt, ~~several~~et ofal. ~~which~~(the ~~claim~~“Missouri ~~substantial~~District ~~amounts~~Court Stockholder Action”), alleges, among other things, that the directors of ~~damages.~~Spartech ~~While~~breached ittheir isfiduciary ~~not~~duties ~~possible~~owed to ~~estimate~~stockholders ~~with~~by ~~certainty~~approving the ~~ultimate~~proposed ~~legal~~acquisition of Spartech by PolyOne and ~~financial~~by ~~liability~~failing ~~with~~to ~~respect~~disclose certain information to ~~these~~stockholders. ~~claims~~The Missouri District Court Stockholder Action further alleges that PolyOne, ~~lawsuits~~Merger Sub, and ~~administrative~~Merger ~~proceedings,~~LLC ~~the~~aided ~~Company~~and ~~believes~~abetted ~~that~~ the ~~outcome~~directors of ~~these~~Spartech ~~matters~~in ~~will~~breaching ~~not~~their ~~have~~fiduciary duties. The Missouri District Court Stockholder Action also brings a ~~material~~claim, ~~adverse~~individually, ~~effect~~against onthe directors of Spartech under Section 14(a) of the ~~Company's~~Securities ~~financial~~Exchange ~~position~~Act of 1934 and Rule 14a-9 promulgated thereunder. Among other things, ~~results~~the ofMissouri ~~operations~~District orCourt ~~cash~~Stockholder ~~flows~~Action seeks to enjoin the merger.

PolyOne, Merger Sub, Merger LLC, Spartech, and Spartech's directors believe the Missouri Stockholder Action, the Delaware Stockholder Actions, and the Missouri District Court Stockholder Action and the underlying claims are without merit.

Table of Contents

Item 6. Exhibits

Exhibits (listed by numbers corresponding to the Exhibit Table of Item 601 of Regulation S-K)

10.1	Form of Restricted Stock Awards Agreements
10.2	Form of SSARs Awards Agreements
31.1	Section 302 Certification of CEO
31.2	Section 302 Certification of CFO
32.1	Section 1350 Certification of CEO
32.2	Section 1350 Certification of CFO
101	Data File for the Registrant's Quarterly Report on Form 10-Q for the quarter ended ~~August~~February 42, ~~2012~~2013 formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements (Filed Herewith).

2526

Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			SPARTECH CORPORATION(Registrant)
Date:	~~September~~March 12, ~~2012~~2013	By:	/s/ Victoria M. Holt
			Victoria M. Holt
			President and Chief Executive Officer (Principal Executive Officer)
			/s/ Randy C. Martin
			Randy C. Martin
			Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

2627

Filing Compare · SPARTECH CORP