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 "Selected Financial Data" and Spartech's 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" and Part I - Item 1A, "Risk Factors." Unless otherwise noted, all amounts and analyses are based on continuing operations.

Non-GAAP Financial Measures
Item 7 contains financial information prepared in accordance with US generally
accepted accounting principles ("GAAP") and operating earnings excluding special items, net earnings from continuing operations excluding special items and net earnings from continuing operations per diluted share excluding special items that are considered "non-GAAP financial measures." Special items include merger and transaction costs, foreign exchange gains/losses, restructuring and exit costs, goodwill impairment, other intangibles and fixed asset impairments, CEO separation costs, debt extinguishment costs and tax benefits from restructuring of foreign operations.

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 at the end of Item 7 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 as follows:

                                Percentage of Net Sales
                                 2012            2011
Custom Sheet and Rollstock        53%             53%
Packaging Technologies            21%             22%
Color and Specialty Compounds     26%             25%
                                 100%            100%

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 approximately $84,000,000 in cash to Spartech shareholders.

The closing of the Merger is expected to occur during the first calendar quarter of 2013, subject to the satisfaction of customary closing conditions, including, among other things: (1) the adoption and approval of the Merger Agreement and the Merger by Spartech's stockholders; (2) receipt of required regulatory approvals; (3) the absence of certain legal impediments preventing

the consummation of the Merger; (4) the effectiveness of the registration on Form S-4 to be filed by PolyOne relating to the PolyOne common shares to be issued in the Merger; (5) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (6) the approval by the New York Stock Exchange of the listing of PolyOne common shares issuable to Spartech stockholders under the Merger Agreement; and (7) the delivery of opinions from counsel to PolyOne and counsel to Spartech to the effect that the Merger will be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. Early termination of the required waiting period under Hart-Scott-Rodino Antitrust Improvements Act was granted on November 21, 2012.

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 and all amounts presented within this Item 7 are presented on a continuing basis, unless otherwise noted. See the Notes to Consolidated Financial Statements for further details of these divestitures and closures. The wheels, profiles and marine businesses were previously reported in the Engineered Products group and due to these dispositions, the Company no longer has this reporting group.

The Company assesses net sales changes using three major drivers: underlying volume, price changes, and mix of product sold. Underlying volume is calculated as the change in pounds sold for a comparable number of days in the reporting period. 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 is reported as a 53 week fiscal year. The Company's first quarter ended February 4, 2012 and year ended November 3, 2012 included 14 weeks and 53 weeks, respectively, compared to 13 weeks and 52 weeks in the prior year periods. Please see the reconciliation tables and narrative below for adjustments to GAAP and discussion of special items affecting results. Special items include restructuring and exit costs. Years presented are fiscal unless noted otherwise.

Executive Summary
Net sales of $1.1 billion in 2012 increased 4% from 2011 representing a 1% increase from price/mix, a 2% increase from the impact of an extra week, and a 1% increase in volume. The increase in volume was due to an increase in sales of sheet for material handling applications along with increased sales volume of compounds and sheet to the automotive and commercial construction end markets. The price/mix changes related to a product mix that included a greater percentage of higher priced products and the impact of changing raw material prices passed through as changes in selling price. Operating earnings excluding special items increased by $3.3 million to $24.4 million in 2012. The $3.3 million increase in earnings was primarily caused by improvements in our operations from our turnaround efforts. This increase overcame a $3.3 million change in bad debt expense from reversals in the prior year. The increase for the year also reflects the impact of an additional week, which accounts for approximately $1.6 million of the total change in 2012 vs. 2011. The higher gross margin was caused by increases in sales volume, production efficiencies and better product mix.

During 2012, we showed continued improvements from our turnaround efforts in our Color and Specialty Compounds segment, which we began in the first quarter of 2011. We also realized continued momentum in our turnaround efforts in the Custom Sheet and Rollstock segment which we began in the third quarter of 2011.

Outlook
The Company gained momentum on its key priorities and turnaround efforts in 2012 which provided for the improved results and established a stronger foundation for future earnings growth. We expect to continue to build on this foundation and execute on our growth strategy which focuses on shifting our product mix towards more specialized and higher margin products. We expect continued improvements from our turnaround efforts in our Color and Specialty Compounds and Custom Sheet and Rollstock segments. The Packaging Technologies segment is positioned to capitalize on its expanded customer base in 2013. While recent customer order patterns have remained stable and resin costs have experienced downward pressure, slow and uncertain demand in the markets we serve and dynamic raw material costs may impact our financial results in future periods. We expect low to moderate sales volume growth in 2013 as well as higher selling prices and a continued shift in mix to higher margin business which should result in solid improvement in our results for the full year 2013 compared to 2012. We remain committed to providing value to our stockholders through the completion of our turnaround strategy, the shift of mix to more specialty products, and focus on sustainable growth.

Results of Operations

Comparison of 2012 and 2011:

Consolidated Summary
Net sales were $1,149.4 million and $1,102.3 million in 2012 and 2011,
respectively, representing an 4% increase. The increase was caused by:
                            2012 vs. 2011
Underlying volume                1%
Volume from additional week      2%
Price/Mix                        1%
Total                            4%

The increase in volume was due to an increase in sales of sheet for material handling applications along with increased sales volume of compounds and sheet to the automotive and commercial construction end markets. The price/mix changes related to a product mix that included a greater percentage of higher priced products and the impact of changing raw material prices passed through as changes in selling price.
The following table presents net sales, cost of sales and the resulting gross margin in dollars and on a per pound sold basis for 2012 and 2011. Cost of sales presented in the consolidated statements of operations includes material and conversion costs but excludes amortization of intangible assets. We have not presented cost of sales and gross margin as a percentage of net sales because a comparison of this measure is distorted by changes in resin costs that are typically passed through to customers as changes to selling prices. These changes can materially affect the percentages but do not present complete performance measures of the business.

                                    2012         2011
Dollars and Pounds (in millions)
Net sales                        $ 1,149.4    $ 1,102.3
Cost of sales                      1,038.0      1,004.9
Gross margin                     $   111.4    $    97.4

Pounds sold                            922          898
Dollars per Pound Sold
Net sales                        $   1.247    $   1.227
Cost of sales                        1.126        1.119
Gross margin                     $   0.121    $   0.108

Gross margin per pound sold increased from 10.8 cents in 2011 to 12.1 cents in 2012. This increase primarily reflects the impact of the Company's turnaround efforts, shift to higher margin business and production efficiencies which was somewhat offset by increased costs due to higher labor associated with certain operating improvements.

Selling, general and administrative expenses were $85.2 million in 2012 compared to $74.5 million in 2011. The increase reflects higher labor and variable pay expenses along with the impact of $2.0 million in net bad debt income in 2011 compared to $1.3 million of bad debt expense in 2012. We established reserves for two large customers in 2010 and we recorded $3.1 million of income in 2011 because of favorable developments of contingencies on two customer receivable balances.

In the fourth quarter of 2012, the Company completed its annual goodwill impairment testing and concluded that the carrying value of its Packaging Technologies reporting unit is not impaired. Packaging Technologies has a goodwill balance of $47.5 million and is the only reporting unit with a goodwill balance as of fiscal year-end 2012. During the fourth quarter of 2011, the Company completed its annual goodwill impairment test and recorded $40.5 million of non-cash goodwill impairments. We concluded that the carrying amount of goodwill was impaired due to differences between the Company's fair value and book value of our Custom Sheet and Rollstock segment.

During 2011, we recorded $13.7 million of non-cash other intangible and fixed asset impairments that were caused by under-performance of historical acquisitions and decisions to dispose of certain fixed assets.

Restructuring and exit costs were $2.5 million in 2012 compared to $2.2 million in 2011. For both periods, restructuring and exit costs were 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 6, Restructuring for further information regarding restructuring plans.

In conjunction with the definitive merger agreement under which PolyOne Corporation will acquire all the outstanding shares of Spartech, the Company has incurred various costs triggered by and directly related to the merger transaction. In the fourth quarter of 2012, Spartech recognized $6.9 million of merger and transaction costs, including stock compensation expense from the acceleration of vesting of all outstanding equity awards, legal and financial advisor fees, and other costs directly related to the proposed merger transaction.

Interest expense, net of interest income, was $11.9 million in 2012 compared to $10.9 million in 2011. The increase was primarily driven by higher interest rates, the additional fee to Senior Note holders, 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.

Income tax expense was $1.1 million in 2012 compared to a benefit of $8.9 million in 2011 representing an effective tax rate of 28% and 27%, respectively. The Company's 2012 tax rate was impacted by several discrete tax adjustments. The majority of these items related to income tax return to provision adjustments. The Company's 2011 tax rate was impacted by the portion of goodwill impairment which was not deductible in the amount of $8.3 million.

We reported net earnings from continuing operations of $2.7 million or $0.09 per diluted share in 2012, which compared to a loss of $23.4 million or $0.76 per diluted share in 2011. Excluding special items, we reported net earnings from continuing operations of $8.6 million or $0.28 per diluted share in 2012, compared to $6.3 million or $0.20 per diluted share in 2011. The increase was due to impact of the Company's turnaround efforts, shift to higher margin business, production efficiencies and an additional week in 2012.

Net loss from discontinued operations, net of tax was $0.1 million in 2012 compared to earnings of $2.3 million in 2011. The earnings in 2011 mainly resulted from the settlement agreement for breach of contract by Chemtura that led to $3.0 million in cash proceeds after tax.

Segment Results
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 Item 3. These costs were previously reported under the Color & Specialty Compounds segment, but are now reported in Corporate. During the fourth quarter of 2011, the Company reorganized its internal reporting 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. During the second quarter of 2010, we moved our organizational reporting and management responsibilities of two businesses previously included in our Color and Specialty Compounds segment to our Custom Sheet and Rollstock segment. Also in this second quarter, we reorganized our internal reporting and management responsibilities of certain product lines between our Custom Sheet and Rollstock and Packaging Technologies segments to better align management of these product lines with end markets. These management and reporting changes resulted in a reorganization of the Company's three reportable segments. Historical segment results have been reclassified to conform to these changes.

Custom Sheet and Rollstock Segment
Net sales were $604.3 million and $577.4 million in 2012 and 2011, respectively.
The change was caused by:
                            2012 vs. 2011
Underlying volume                -1%
Volume from additional week      2%
Price/Mix                        4%
Total                            5%

The decrease in underlying volume reflects lower sales to the appliance and electronics end market which was mostly offset by the increase in sales of sheet for material handling applications along with increases in automotive and commercial construction

end markets. The price/mix increase was mostly caused by increases in selling prices and greater mix of higher-priced products.

Operating earnings excluding special items were $30.4 million in 2012 compared to $24.9 million in 2011. The increase in operating earnings was attributable to an 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 and variable pay. This increase overcame a $3.2 million change in bad debt expense from reversals in the prior year.

Packaging Technologies
Net sales were $243.1 million and $244.0 million in 2012 and 2011, respectively.
The net sales changes were:
                            2012 vs. 2011
Underlying volume                -4%
Volume from additional week      2%
Price/Mix                        2%
Total                            -%

The decrease in underlying volume can be mainly attributed to a decrease in graphic arts sales related to certain programs not continuing in 2012. The price/mix increase was primarily related to a product mix that included a greater percentage of higher priced products.

Operating earnings excluding special items were $18.0 million in 2012, compared to $23.8 million in 2011. The decrease in operating earnings was due to lower volume, start-up costs associated with accelerating production on our first Packaging Technologies line in Mexico, and additional development costs with various new customer programs in 2012.

Color and Specialty Compounds Segment
Net sales were $302.0 million and $280.9 million in 2012 and 2011, respectively,
representing an 8% increase. The increase was caused by:
                            2012 vs. 2011
Underlying volume                5%
Volume from additional week      2%
Price/Mix                        1%
Total                            8%

The increase in underlying volume was due to a significant increase in sales to the commercial construction market, automotive sector of the transportation market and agricultural market. The price/mix increase was mostly caused by increases in selling prices to pass through increases in raw material costs and a greater percentage of higher-priced products.

Operating earnings excluding special items were $9.0 million in 2012 compared to $3.3 million in 2011. The significant increase in operating earnings reflects the increase in sales volume, benefits from improvements on our key priorities and a greater mix of higher margin products, which more than offset the impact of costs increases related to repairs and maintenance and labor costs. Corporate
Corporate expenses include selling, 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 $39.3 million in 2012 compared to $30.7 million in 2011. The increased expenses in 2012 were mainly due to costs related to merger related expenses of $6.9 million, Passaic environmental costs and increased legal fees.

Comparison of 2011 and 2010:

Consolidated Summary
Net sales were $1,102.3 million and $1,022.9 million in 2011 and 2010,
respectively, representing an 8% increase. The increase was caused by:
                  2011 vs. 2010
Underlying volume      -2%
Price/Mix              10%
Total                  8%

The decrease in volume was due to a decline in sales of sheet for material handling applications caused by a considerable slowdown in orders from one customer. Mitigating this decrease was increased sales volume of compounds and sheet to the automotive and agricultural sectors of our end markets, and compounds to the commercial construction end market from gradual demand recovery. The price/mix increases were related to increases in selling prices to pass through increases in raw material costs and 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 2011 and 2010. Cost of sales presented in the consolidated statements of operations includes material and conversion costs but excludes amortization of intangible assets. We have not presented cost of sales and gross margin as a percentage of net sales because a comparison of this measure is distorted by changes in resin costs that are typically passed through to customers as changes to selling prices. These changes can materially affect the percentages but do not present complete performance measures of the business.

                                    2011         2010
Dollars and Pounds (in millions)
Net sales                        $ 1,102.3    $ 1,022.9
Cost of sales                      1,004.9        914.3
Gross margin                     $    97.4    $   108.6

Pounds sold                            898          915
Dollars per Pound Sold
Net sales                        $   1.227    $   1.118
Cost of sales                        1.119        0.999
Gross margin                     $   0.108    $   0.119

Gross margin per pound sold declined from 11.9 cents in 2010 to 10.8 cents in 2011. This decrease primarily reflects the impact of production inefficiencies that began in the second half of 2010 and higher costs. The inefficiencies and higher costs were partially offset by reduced depreciation expense due to the Company's plant consolidation efforts and a decrease in workers' compensation expense due to lower claims.

Selling, general and administrative expenses were $74.5 million in 2011 compared to $86.7 million in 2010. The decrease reflects the impact of $2.0 million in net bad debt income in 2011 compared to $8.1 million of bad debt expense in 2010. We established reserves for two large customers in 2010 and we recorded $3.1 million of income in 2011 because of favorable developments of contingencies on two customer receivable balances.

Amortization of intangibles was $1.7 million in 2011 compared to $3.8 million in 2010. The decrease is due to intangibles that became fully amortized coupled with the impact of intangible asset impairments recorded by the Company in 2010.

During the fourth quarter of 2011, the Company completed its annual goodwill impairment test and recorded $40.5 million of non-cash goodwill impairments. We concluded that the carrying amount of goodwill was impaired due to differences between the Company's fair value and book value of our Custom Sheet and Rollstock segment. During the fourth quarter of 2010, the Company recorded $56.1 million of non-cash goodwill impairments because we concluded that the carrying amount of goodwill was impaired due to differences between the Company's fair value and book value of our Packaging Technologies and Color & Specialty Compounds segments.

During 2010, we recorded $13.7 million of non-cash other intangible and fixed asset impairments that were caused by under-performance of historical acquisitions and decisions to dispose of certain fixed assets.

Restructuring and exit costs were $2.2 million in 2011 compared to $7.3 million in 2010. For both periods, restructuring and exit costs were comprised of employee severance, facility consolidation and shutdown costs and fixed asset valuation adjustments. 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 6, Restructuring for further information regarding restructuring plans.

Interest expense, net of interest income, was $10.9 million in 2011 compared to $12.0 million in 2010. The decrease was primarily driven by lower debt levels and reduction in higher interest rate debt.

In the third quarter of 2010, we recorded $0.7 million of non-cash debt extinguishment costs related to the write-off of unamortized debt issuance costs from the extinguishment of the Company's previous credit facility and 2006 Senior Notes.

The Company's effective tax rate in 2011 and 2010 was impacted by the portion of goodwill impairments that was not deductible of $8.3 million and $27.7 million, respectively. Excluding the goodwill impairments in 2011, our effective tax rate would have been 38.6%.

We reported a net loss from continuing operations of $23.4 million or $0.76 per diluted share in 2011, which compared to a loss of $49.6 million or $1.63 per diluted share in 2010. Excluding special items, we reported net earnings from continuing operations of $6.3 million or $0.20 per diluted share in 2011, compared to $6.6 million or $0.21 per diluted share in 2010. The increase was mainly due to the lower selling, general and administrative expenses as previously discussed.

. . .