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 January 29, 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.)
7777 Bonhomme Avenue, Suite 1001, 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 January 29, 1994
Common Stock, $.75 par value
per share 8,000,797<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
INDEX
January 29, 1994
PART I. FINANCIAL INFORMATION PAGE
CONSOLIDATED CONDENSED BALANCE SHEET -
January 29, 1994 and October 30, 1993 3
CONSOLIDATED CONDENSED STATEMENT OF
OPERATIONS - for the thirteen weeks ended
January 29, 1994 and January 30, 1993 4
CONSOLIDATED CONDENSED STATEMENT OF
CASH FLOWS - for the thirteen weeks ended
January 29, 1994 and January 30, 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
Jan. 29 1994 October 30
(unaudited) 1993
Current Assets
Cash $ 1,487 $ 1,449
Accounts and notes receivable, net 30,914 32,723
Inventories 22,632 20,677
Prepayments and other 2,194 1,369
Total Current Assets 57,227 56,218
Plant and Equipment, Net 39,288 37,637
Goodwill 18,365 18,506
Other Assets 1,506 1,833
$ 116,386 $ 114,194
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 4,000 $ 3,000
Accounts payable 21,938 21,944
Accrued liabilities 6,402 6,242
Total Current Liabilities 32,340 31,186
Senior Long-Term Debt, Less Current
Maturities 24,820 26,283
9% Convertible Subordinated Debentures 10,134 10,134
Other Liabilities 675 550
Total Long-Term Liabilities 35,629 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 73,926 73,258
Retained deficit (30,566) (32,151)
Treasury stock, at cost, 325,499 shares
in 1994 and 453,059 shares in 1993 (1,965) (2,088)
Total Shareholders' Equity 48,417 46,041
$ 116,386 $ 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 WEEKS ENDED
January 29, January 30,
1994 1993
Revenues $ 49,158 $ 37,881
Costs and Expenses
Cost of sales 41,222 31,167
Selling and administrative 4,009 3,517
Depreciation and amortization 983 974
46,214 35,658
Operating Earnings 2,944 2,223
Interest 671 817
Earnings Before Income Taxes 2,273 1,406
Provision for Income Taxes
Federal - -
State 170 130
Net Earnings 2,103 1,276
Preferred Stock Accretion 518 489
Net Earnings Applicable
to Common Shares $ 1,585 $ 787
Net Earnings Per Common Share:
Primary $ .17 $ .10
Fully diluted $ .09 $ .06
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)
THIRTEEN WEEKS ENDED
January 29 January 30
1994 1993
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings $ 2,103 $ 1,276
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 983 974
Change in current assets and liabilities (817) 3,552
Other, net 452 (523)
Net cash provided by operating
activities 2,721 5,279
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (2,496) (681)
Retirement of assets, net 3 -
Business acquisition:
Equipment and intangibles - (1,009)
Net cash used for investing activities (2,493) (1,690)
CASH FLOW FROM FINANCING ACTIVITIES
Current debt, net - (5)
Senior long-term debt, net (463) (3,307)
Stock options exercised 273 -
Net cash used for financing activities (190) (3,312)
INCREASE IN CASH 38 277
CASH AT BEGINNING OF PERIOD 1,449 1,175
CASH AT END OF PERIOD $ 1,487 $ 1,452
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 dis-
closures 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 weeks ended January 29, 1994
and January 30, 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 January 29, 1994 and October 30, 1993 are
comprised of the following components:
1994 1993
Raw materials $15,176 $14,518
Finished goods 7,456 6,159
$22,632 $20,677
NOTE C - Income Taxes
Effective October 31, 1993 (fiscal year 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 financial state-
ments 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 in the
tax bases of assets and liabilities versus their financial accounting
bases. In addition, because of the uncertainty regarding the ability
to utilize these future tax benefits, the Company recorded a valuation
allowance at October 31, 1993, of approximately $4,000 in the amount
of the net deferred income tax assets. Accordingly, there was no
cumulative effect of this change in accounting.
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
January 29, 1994 9,314,000
January 30, 1993 9,281,000
Fully diluted net earnings per common share assume 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 weeks ended January 29,
1994 and January 30, 1993, respectively.
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 dividends resulting from the assumed conversion of preferred
stock. Such net earnings increases were:
Thirteen Weeks
Period Ended Primary Fully Diluted
January 29, 1994 $ 70 $ 518
January 30, 1993 $ 106 $ 489
<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 thirteen weeks ended January 29, 1994 and January 30,
1993 were as follows:
1994 1993
Interest $ 484 $ 591
Income taxes $ 109 $ 33
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 January 29, 1994 and October
30, 1993 consisted of the following series of 6% Cumulative Con-
vertible 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
January 29, 1994 $ 518
January 30, 1993 $ 489
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 Director,
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 app-
ropriately. 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 - Subsequent Event
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.
The following summarizes unaudited pro forma consolidated results
of operations for the thirteen weeks ended January 29, 1994 and
January 30, 1993, respectively, assuming this acquisition had been
consummated as of the beginning of each period. The results are not
necessarily indicative of what would of occurred had this acquisition
been consummated as of the beginning of each period presented or of
future operations of the consolidated companies.
PRO FORMA
THIRTEEN WEEKS ENDED
January 29, 1994 January 30, 1993
Revenues $55,658 $44,381
Earnings Before Income Taxes $ 2,556 $ 1,689
Net Earnings $ 2,366 $ 1,539
Net Earnings Per Common Share:
Primary $ .20 $ .13
Fully diluted $ .10 $ .07
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the thirteen weeks ended January 29, 1994 increased
from the similar period in 1993, primarily the result of a sizable
gain in pounds sold by the Company's rigid sheet & rollstock group.
This group experienced sales volume increases in excess of 35% for the
thirteen weeks ended January 29, 1994, over the similar period of
1993. The majority of the gains in sales volume were obtained from
the home improvement, food packaging, and transportation markets.
Operating earnings for the thirteen weeks ended January 29, 1994
also increased from the similar period in 1993. The gains in
operating earnings were achieved through the increased sales volume
levels discussed above, the sale of higher margin products, and
increased production efficiencies. These gains in operating earnings
were partially offset by Spartech Franklin's (a member of our merchant
compounding group) lower operating earnings that resulted from higher
than anticipated raw material costs due to the strong global demand
for PVC.
Interest expense for the thirteen weeks ended January 29, 1994
decreased from the similar period in 1993, reflecting the Company's
ability to reduce senior debt during fiscal year 1993 and the first
quarter of 1994, with the positive cash flow generated from
operations.
Financial Condition
Operations
Cash provided by operations for the thirteen weeks ended January
29, 1994 reflects the Company's increase in profitability, offset by
an increase in the Company's working capital levels as a result of the
additional sales volumes generated by the Company's business.
Investing Activities
Capital expenditures for the thirteen weeks ended January 29,
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,
1994. The new line was necessary to keep up with the strong demand
for PET products.
In addition, the Second Phase of our strategic plan at Spartech-
Franklin Plastics began during the first quarter of 1994. This Phase,
which includes the addition of a new compounding line, is anticipated
to be completed by mid 1994. Once completed, the production
capabilities at this operation will increase by more than 25%.
Reference is made to Note H, Subsequent Event, 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.<PAGE>
The Company has not incurred any significant
capital expendituresin 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). As of January 29,
1994, the Company's borrowings under its revolving credit loan were
approximately $22,000. 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: March 9, 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
January 29, January 30,
1994 1993
NET EARNINGS
Net Earnings $ 2,103 $ 1,276
Preferred stock dividend requirements (518) (489)
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 70 106
Primary net earnings applicable to common shares 1,655 893
Add: Preferred stock dividend elimination resulting
from the assumed conversion of preferred stock 518 489
Fully diluted net earnings applicable to common shares $ 2,173 $ 1,382
WEIGHTED AVERAGE SHARES OUTSTANDING
Weighted average common shares outstanding 7,906 7,738
Add: Shares issuable from assumed exercise of options
and warrants in excess of 20% limitation 1,408 1,543
Primary weighted average shares outstanding 9,314 9,281
Add: Shares issuable from assumed conversion of 14,275 14,275
preferred stock
Fully diluted weighted average shares outstanding 23,589 23,556
NET EARNINGS PER SHARE
Primary $ .17 $ .10
Fully Diluted $ .09 $ .06
