SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1994
or
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5911
SPARTECH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 43-0761773
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7733 Forsyth Boulevard, Suite 1450, Clayton, Missouri, 63105
(address of principal executive offices)
(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 X No _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of April 30, 1994
Common Stock, $.75 par value
per share 8,263,547
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
INDEX
April 30, 1994
PART I. FINANCIAL INFORMATION PAGE
CONSOLIDATED CONDENSED BALANCE SHEET -
April 30, 1994 and October 30, 1993 3
CONSOLIDATED CONDENSED STATEMENT OF
OPERATIONS - for the thirteen and
twenty-six weeks ended April 30, 1994
and May 1, 1993 4
CONSOLIDATED CONDENSED STATEMENT OF
CASH FLOWS - for the twenty-six weeks
ended April 30, 1994 and May 1, 1993 5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
PART II. OTHER INFORMATION 13
SIGNATURES 14
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands, except per share amounts)
ASSETS
April 30, Oct. 30,
1994 1993
(unaudited)
Current Assets
Cash $ 1,417 $ 1,449
Accounts and notes receivable, net 36,891 32,723
Inventories 23,462 20,677
Prepayments and other 2,664 1,369
Total Current Assets 64,434 56,218
Plant and Equipment, Net 44,769 37,637
Goodwill 21,365 18,506
Other Assets 990 1,833
$131,558 $114,194
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 4,000 $ 3,000
Accounts payable 28,903 21,944
Accrued liabilities 7,483 6,242
Total Current Liabilities 40,386 31,186
Senior Long-Term Debt, Less Current Maturities 28,816 26,283
9% Convertible Subordinated Debentures 10,134 10,134
Other Liabilities 675 550
Total Long-Term Liabilities 39,625 36,967
Shareholders' Equity
6% Cumulative Convertible Preferred Stock,
776,700 shares issued and outstanding
($50 per share liquidation value) 777 777
Common stock, 8,326,296 shares issued 6,245 6,245
Contributed capital 73,053 73,258
Retained deficit (28,288) (32,151)
Treasury stock, at cost, 62,749 shares
in 1994 and 453,059 shares in 1993 (240) (2,088)
Total Shareholders' Equity 51,547 46,041
$131,558 $114,194
The accompanying notes are an integral part of this financial statement.
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited and dollars in thousands, except per share amounts)
THIRTEEN TWENTY-SIX
WEEKS ENDED WEEKS ENDED
April 30, May 1, April 30, May 1,
1994 1993 1994 1993
Revenues $64,350 $47,410 $113,508 $85,291
Costs and Expenses
Cost of sales 54,437 39,498 95,659 70,665
Selling and administrative 4,815 4,198 8,824 7,715
Depreciation and amortization 1,107 1,007 2,090 1,981
60,359 44,703 106,573 80,361
Operating Earnings 3,991 2,707 6,935 4,930
Interest 795 825 1,466 1,642
Earnings Before Income Taxes 3,196 1,882 5,469 3,288
Provision for Income Taxes
Federal 200 - 200 -
State 200 100 370 230
Net Earnings 2,796 1,782 4,899 3,058
Preferred Stock Accretion 518 489 1,036 978
Net Earnings Applicable
to Common Shares $ 2,278 $ 1,293 $ 3,863 $ 2,080
Net Earnings Per Common Share:
Primary $ .25 $ .14 $ .42 $ .24
Fully diluted $ .12 $ .08 $ .21 $ .14
The accompanying notes are an integral part of this financial statement.
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited and dollars in thousands)
TWENTY-SIX WEEKS ENDED
April 30, May 1,
1994 1993
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings $ 4,899 $ 3,058
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,090 1,981
Change in current assets and liabilities (1,368) 1,279
Other, net 473 (342)
Net cash provided by operating activities 6,094 5,976
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (3,984) (1,377)
Retirement of assets, net 63 27
Business acquisition:
Plant equipment and intangibles (8,160) (2,330)
Net working capital & debt assumed 1,320 -
Proceeds from note receivable 495 -
Net cash used for investing activities (10,266) (3,680)
CASH FLOW FROM FINANCING ACTIVITIES
Net borrowings under revolving credit loan 6,533 844
Principal payments on term loan (3,000) (3,000)
Stock options exercised 607 47
Net cash provided by (used for) financing
activities 4,140 (2,109)
INCREASE (DECREASE) IN CASH (32) 187
CASH AT BEGINNING OF PERIOD 1,449 1,175
CASH AT END OF PERIOD $ 1,417 $ 1,362
The accompanying notes are an integral part of this financial statement.
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
NOTE A - Basis of Presentation
The accompanying consolidated financial statements include the
accounts of Spartech Corporation and its wholly-owned subsidiaries (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. In
the opinion of management, the financial statements contain all
adjustments (consisting solely of normal recurring adjustments) and
disclosures necessary to make the information presented therein 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 30, 1993 Annual Report on Form 10-K.
The Company manufactures products for specific customer orders and
for standard stock inventory. Revenues are recognized and billings are
rendered as the product is shipped to the customer.
Operating results for the thirteen and twenty-six weeks ended April
30, 1994 and May 1, 1993 are seasonal in nature and are not necessarily
indicative of the results expected for the full year.
NOTE B - Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market. Inventories at April 30, 1994 and October 30, 1993 are comprised
of the following components:
1994 1993
Raw materials $16,112 $14,518
Finished goods 7,350 6,159
$23,462 $20,677
NOTE C - Income Taxes
Effective with the beginning of fiscal 1994, the Company adopted
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes", which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based on
the differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the years in which
the differences are expected to reverse.
The adoption of SFAS No. 109 resulted in no cumulative effect on
operations and, accordingly, prior year consolidated condensed financial
statements were not restated.<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
Under the provisions of SFAS No. 109, the Company recorded, as of
October 31, 1993, net deferred income tax assets aggregating approximately
$4,000, which represented the tax benefits of the tax net operating loss
and investment tax credit carryforwards offset by the net tax liabilities
resulting from temporary differences (consisting principally of
depreciation timing differences) in the tax bases of assets and
liabilities versus their financial accounting bases. As of April 30,
1994, this net deferred income tax asset was approximately $2,300,
reflecting the partial utilization of the tax net operating loss for the
first six months of fiscal year 1994. Due to the uncertainty regarding
the ability to utilize future tax benefits, the Company recorded a
valuation allowance at October 31, 1993, of approximately $4,000 with
approximately $2,300 remaining as of April 30, 1994.
The partial utilization of existing operating loss carryforwards
resulted in no regular tax provision for Federal income taxes being
recognized for the thirteen and twenty-six weeks ended April 30, 1994, and
May 1, 1993. However, due to the limitations on the use of net operating
loss carryforwards in the computation of Federal alternative minimum tax,
a $200 alternative minimum tax provision was recognized for the thirteen
weeks and twenty-six weeks ended April 30, 1994.
NOTE D - Earnings Per Share
Primary net earnings per common share are computed based upon the
weighted average number of common shares outstanding during each period
after consideration of the dilutive effect of stock options and warrants.
Such average shares were:
Period Ended Thirteen Weeks Twenty-Six Weeks
April 30, 1994 9,407,000 9,119,000
May 1, 1993 9,299,000 9,275,000
Fully diluted net earnings per common share assumes conversion of
securities when the earnings per share result is dilutive. Assumed
conversions increased the weighted average number of common shares
outstanding by 14,275,000 for the thirteen and twenty-six weeks ended
April 30, 1994 and May 1, 1993.
For the computation of primary net earnings per common share, net
earnings have been increased for an after-tax interest expense reduction
as computed under the modified treasury stock method. For the computation
of fully diluted net earnings per common share, net earnings have been
further increased for the elimination of preferred stock accretion
resulting from the assumed conversion of preferred stock. Net earnings
increases for the thirteen and twenty-six weeks ended April 30, 1994 and
May 1, 1993 were as follows:
Thirteen Weeks Twenty-Six Weeks
1994 1993 1994 1993
Primary $ 35 $ 71 $ 91 $ 168
Fully Diluted $ 518 $ 489 $1,036 $ 978
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
NOTE E - Interest and Income Tax Payments
Cash paid for interest, net of amounts capitalized, and income taxes
during the twenty-six weeks ended April 30, 1994 and May 1, 1993 were as
follows:
1994 1993
Interest $1,434 $1,625
Income taxes $ 456 $ 308
NOTE F - Shareholders' Equity
The authorized capital stock of the Company consists of 35 million
shares of $.75 par value common stock and 4 million shares of $1 par value
preferred stock.
Preferred stock outstanding as of April 30, 1994 and October 30, 1993
consisted of the following series of 6% Cumulative Convertible Preferred
Stock, which are convertible into the shares of common stock indicated and
which carry the equivalent common share voting rights indicated prior to
conversion:
Preferred Number of Common Stock Equivalent Common
Stock Preferred Shares Issuable Upon Share Voting
Series Outstanding Conversion Rights
Series L 373,500 6,884,987 1,721,247
Series M 343,200 6,289,998 1,572,500
Series N 60,000 1,099,650 274,913
These series of preferred stock were issued at an equivalent price of
$50 per share as part of a debt-to-equity restructuring completed April
30, 1992. In total, the restructuring resulted in the exchange of $30,163
of the Company's subordinated debt for these issues of preferred stock and
common stock.
Dividends are payable on each series of preferred stock commencing
April 30, 1995 at an annual rate of $3.00 per share; provided however,
that in the event a cash dividend is not declared by the Company's Board
of Directors, dividends shall be payable in shares of common stock based
on a price of $5.00 per share of common stock. These series of preferred
stock are not subject to mandatory redemption; however, they may be
redeemed at the option of the Company for $50 per share from and after
December 1, 1994 if certain conditions with respect to the market price of
the Company's common stock have been met and, in any event, from and after
December 1, 1999. The holders of these series of preferred stock are
entitled to receive $50 per share, plus accrued but unpaid dividends, in
the event of liquidation, dissolution or winding up of the Company.
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
The dividend terms of each series of preferred stock provide that
dividends will not begin accruing until April 30, 1995. Due to the
absence of a dividend requirement on these series of preferred stock, a
noncash charge for the accretion of the preferred stock has been
recognized. Such charges were:
Period Ended Thirteen Weeks Twenty-Six Weeks
April 30, 1994 $ 518 $1,036
May 1, 1993 $ 489 $ 978
The charge results in no net change in shareholders' equity, as the same
amount charged to retained earnings each quarter is added back to
contributed capital.
NOTE G - Commitments and Contingencies
On June 2, 1992, Mr. Lawrence M. Powers, former Chairman of the Board
and Chief Executive Officer of the Company, filed a lawsuit in the United
States District Court for the Southern District of New York against the
Company and certain of its Directors and major shareholders. In the suit,
Mr. Powers claims that, by reason of the Company's April 30, 1992 debt-to-
equity restructuring (which he had previously, on April 13, 1992 voted in
favor of as a Director) the Company should adjust his existing stock
options, provide for the issuance of 167,744 additional shares of common
stock to him and award to him attorney's fees and interest. Mr. Powers
seeks judgment against the Company and the other defendants: (1) in excess
of $13,000 plus punitive damages, (2) requiring the Company to issue him
an additional 167,744 shares of common stock, (3) requiring an adjustment
increasing his then outstanding options to purchase the Company's common
stock from 1,871,201 shares to 4,080,000 shares, and (4) for attorney's
fees and interest. In June, 1993, in responding to the Company's request
for summary judgment, the Court ruled the Board of Director's decision to
not adjust Mr. Powers' options was "final, binding and conclusive" unless
Mr. Powers can establish the Board was not acting independently and that
it could not have acted appropriately. Discovery was allowed to continue
in this litigation. The Company believes Mr. Powers' litigation is
without merit and is defending against it vigorously.
NOTE H - Acquisition
On February 2, 1994, the Company completed the acquisition of certain
assets of Product Components, Inc. ("ProCom"). The purchase included two
rigid plastic sheet and rollstock manufacturing plants, located in
Richmond, Indiana and Clare, Michigan, along with various other assets of
ProCom. The purchase price for ProCom's net assets, exclusive of working
capital purchased, totaled $8,000 of which $7,000 was paid in cash,
subject to post-closing adjustments. To facilitate the funding of the
purchase, the Company amended its credit arrangement with Chemical Bank by
increasing the limit on its revolving credit loan from $30,000 to $38,000.
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
The following summarizes unaudited pro forma consolidated results of
operations for the twenty-six weeks ended April 30, 1994 and May 1, 1993,
respectively, assuming this acquisition had been consummated as of the
beginning of each period. The results are not necessarily indicative of
what would have occurred had this acquisition been consummated as of the
beginning of each period presented or of the future operations of the
consolidated companies.
PRO FORMA
Twenty-Six Weeks Ended
April 30, May 1,
1994 1993
Revenues $120,008 $ 98,291
Earnings Before Income Taxes $ 5,752 $ 3,848
Net Earnings $ 5,162 $ 3,583
Net Earnings Per Common Share:
Primary $ .45 $ .30
Fully diluted $ .22 $ .16
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Revenues for the thirteen and twenty-six weeks ended April 30, 1994
increased from the similar periods in 1993, primarily the result of
sizable gains in pounds sold by the Company's rigid sheet & rollstock
group. This group experienced sales volume increases in excess of 50% for
the thirteen and twenty-six weeks ended April 30, 1994, over the similar
periods of 1993. The majority of the gains in sales volume during these
periods were obtained from our February 2, 1994 acquisition of certain
assets of Product Components, Inc. (see "Financial Condition - Investing
Activities" below for a further discussion of this acquisition) and from
the sign/advertising, home improvement, food packaging, and transportation
markets. The gains obtained in food packaging were the direct result of
our late 1993 first quarter acquisition of a portion of Penda
Corporation's custom extrusion division.
Operating earnings for the thirteen and twenty-six weeks ended April
30, 1994 also increased from the similar periods in 1993. The gains in
operating earnings were achieved through the increased sales volumes
discussed above, containment of selling, general, and administrative
expenses, and production efficiencies. These gains were partially offset
as strong construction industry demands for PVC resulted in higher raw
material costs at two of our units within the merchant compounding group.
Interest expense for the thirteen and twenty-six weeks ended April
30, 1994 decreased from the similar periods in 1993, reflecting the lower
interest rates obtained by the Company during the first six months of
fiscal year 1994 compared to the first six months of fiscal 1993. This
decrease in borrowing costs was partially offset by the additional
borrowings incurred by the Company for the acquisition of certain assets
of Product Components, Inc. ("ProCom"). In addition, during the second
quarter of 1994, the Company fixed its interest rate on all of its senior
bank debt at less than 6.25% through September of 1994, which is
approximately 3/4% better than the rate incurred during the same period of
fiscal 1993. This favorable rate will help offset the additional interest
costs resulting from the ProCom acquisition.<PAGE>
Financial Condition
Operations
Effective October 31, 1993 (Fiscal Year 1994), the Company adopted
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes." The adoption of SFAS No. 109 resulted in
no cumulative effect on operations and, accordingly, prior year
consolidated condensed financial statements were not restated. Reference
is made to Note C, Income Taxes, in Item 1 of this report, which is
incorporated herein by reference, for a further discussion on the adoption
of SFAS No. 109.
Investing Activities
Capital expenditures for the twenty-six weeks ended April 30, 1994
increased significantly as compared to the same period of 1993. This
increase was the direct result of the installation of a new PET line at
the Company's Mankato, Minnesota plant during late January of 1994. The
new line was necessary to keep up with the growing demand for the PET
packaging market.
In addition, the Second Phase of our strategic plan at Spartech
Compounding's Kearny, New Jersey location began during 1994. This Phase,
which includes the addition of a new compounding line, is anticipated to
be completed by August of 1994. Once completed, the production
capabilities at this operation will increase by more than 25%.
Reference is made to Note H, Acquisition, in Item 1 of this report,
which is incorporated herein by reference, for a discussion of the
Company's February 2, 1994 acquisition of certain assets of Product
Components, Inc.
The Company has not incurred any significant capital expenditures in
order to comply with the Clean Air Act Amendments of 1990. In addition,
the Company does not anticipate such capital expenditures to be material
in the future.
Financing Activities
The Company amended its credit arrangement with Chemical Bank by
increasing the limit on its revolving credit loan from $30,000 to $38,000
to facilitate the funding of the acquisition of certain assets of ProCom
(discussed in the referenced note above). The Company anticipates that
cash flow from operations and the additional borrowing capacity provided
under the Company's amended senior credit facility will be adequate to
provide necessary funds for the balance of fiscal year 1994.<PAGE>
PART II - OTHER INFORMATION
Responses to Part II, Items 1, 2, 3, 4, and 5, are omitted because
the requested information has been previously reported, the items are
inapplicable or the answer is negative.
Item 6 (a). Exhibits
11 Statement re Computation of Per Share Earnings
Item 6 (b). Reports on Form 8-K
A report on Form 8-K, dated February 2, 1994, relating to
the acquisition of certain assets of Product Components,
Inc., was filed with the Securities and Exchange Commission
on February 15, 1994.<PAGE>
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: May 31, 1994 /s/ Bradley B. Buechler
Bradley B. Buechler
President and Chief
Executive Officer
(Principal Executive
Officer)
/s/ David B. Mueller
David B. Mueller
Vice President of Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT 11
SPARTECH CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
April 30, May 1, April 30, May 1,
1994 1993 1994 1993
NET EARNINGS
Net Earnings $ 2,796 $ 1,782 $ 4,899 $ 3,058
Preferred stock
dividend requirements (518) (489) (1,036) (978)
Add: Interest savings,
net of tax effect,
on retirement of
debt from the
proceeds received
from the exercise
of options and
warrants in excess
of 20% limitation 35 71 91 168
Primary net earnings
applicable to
common shares 2,313 1,364 3,954 2,248
Add: Preferred stock
dividend elimination
resulting from the
assumed conversion
of preferred stock 518 489 1,036 978
Fully diluted net
earnings applicable
to common shares $ 2,831 $ 1,853 $ 4,990 $ 3,226
WEIGHTED AVERAGE SHARES
OUTSTANDING
Weighted average common
shares outstanding 8,217 7,756 7,978 7,747
Add: Shares issuable
from assumed exercise
of options and
warrants in excess
of 20% limitation 1,190 1,543 1,141 1,528
Primary weighted average
shares outstanding 9,407 9,299 9,119 9,275
Add: Shares issuable
from assumed
conversion of
preferred stock 14,275 14,275 14,275 14,275
Fully diluted
weighted average
shares outstanding 23,682 23,574 23,394 23,550
NET EARNINGS PER SHARE
Primary $ .25 $ .14 $ .42 $ .24
Fully Diluted $ .12 $ .08 $ .21 $ .14
