SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 1997
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Number of common shares outstanding as of May 3, 1997:
Common Stock, $.75 par value per share 26,619,154
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
INDEX
May 3, 1997
PART I. FINANCIAL INFORMATION PAGE
CONSOLIDATED CONDENSED BALANCE SHEET -
as of November 2, 1996 and May 3, 1997 3
CONSOLIDATED CONDENSED STATEMENT OF
OPERATIONS - for the quarter and six months
ended May 4, 1996 and May 3, 1997 4
CONSOLIDATED CONDENSED STATEMENT OF
CASH FLOWS - for six months ended
May 4, 1996 and May 3, 1997 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION 12
SIGNATURES 13
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands, except share amounts)
ASSETS
May 3, 1997
Nov. 2, 1996 (unaudited)
Current Assets
Cash and equivalents $ 4,685 $ 5,016
Receivables, net 66,176 68,379
Inventories 53,981 56,919
Prepayments and other 3,315 3,245
Total Current Assets 128,157 133,559
Property, Plant and Equipment 146,948 150,890
Less accumulated depreciation 34,593 39,466
Net Property, Plant and Equipment 112,355 111,424
Goodwill 46,348 45,332
Other Assets 2,100 4,077
$288,960 $294,392
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 995 $ 1,044
Accounts payable 40,178 39,866
Accrued liabilities 23,022 21,701
Due to Hamelin Group Inc. 9,701 -
Total Current Liabilities 73,896 62,611
Long-Term Debt, Less Current Maturities 97,471 107,226
Other Liabilities 5,198 6,570
Total Long-Term Liabilities 102,669 113,796
Shareholders' Equity
Common stock, 26,609,554 shares issued
in 1996 and 26,618,254 shares issued
in 1997 19,957 19,964
Contributed capital 90,708 89,510
Retained earnings 2,703 12,217
Treasury stock, at cost, 209,100 shares
in 1996 and 270,250 shares in 1997 (2,061) (3,060)
Cumulative translation adjustments 1,088 (646)
Total Shareholders' Equity 112,395 117,985
$288,960 $294,392
See accompanying notes to consolidated financial statements.
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited and amounts in thousands, except per share data)
QUARTER ENDED SIX MONTHS ENDED
May 4, May 3, May 4, May 3,
1996 1997 1996 1997
Net Sales $ 98,330 $129,815 $185,796 $243,202
Costs and Expenses
Cost of sales 83,449 108,629 157,922 203,937
Selling and administrative 5,989 7,990 11,592 14,854
Amortization of intangibles 183 321 381 646
89,621 116,940 169,895 219,437
Operating Earnings 8,709 12,875 15,901 23,765
Interest 1,100 2,093 2,201 4,003
Earnings Before Income Taxes 7,609 10,782 13,700 19,762
Income Taxes 2,834 4,107 5,139 7,609
Net Earnings $ 4,775 $ 6,675 $ 8,561 $ 12,153
Net Earnings Per Common Share:
Primary $ .19 $ .24 $ .35 $ .44
Fully diluted $ .19 $ .24 $ .35 $ .44
Weighted Average Number of
Shares Used in Computing Net
Earnings per Common Share:
Primary 24,603 27,756 24,456 27,672
Fully diluted 24,779 27,825 24,759 27,731
Dividends Per Common Share $ .04 $ .05 $ .07 $ .10
See accompanying notes to consolidated financial statements.
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited and dollars in thousands)
SIX MONTHS ENDED
May 4, 1996 May 3, 1997
Cash Flows From Operating Activities
Net earnings $ 8,561 $ 12,154
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 3,229 5,669
Change in current assets and
liabilities (4,158) (7,912)
Other, net 470 858
Net cash provided by operating
activities 8,102 10,769
Cash Flows From Investing Activities
Capital expenditures (5,187) (5,789)
Final installment for Hamelin Acquisition - (9,701)
Retirement of assets 2 245
Net cash used for investing activities (5,185) (15,245)
Cash Flows From Financing Activities
Net borrowings (payments) on revolving
credit facilities (1,510) 10,050
Payments on bonds and leases - (215)
Cash dividends on common stock (1,638) (2,639)
Stock options exercised 487 1,016
Treasury stock acquired (708) (3,207)
Other, net - -
Net cash used for financing activities (3,369) 5,005
Effect of exchange rate changes on cash
and equivalents - (198)
Increase (Decrease) In Cash and Equivalents (452) 331
Cash and Equivalents At Beginning Of Period 3,505 4,685
Cash and Equivalents At End Of Period $ 3,053 $ 5,016
See accompanying notes to consolidated financial statements.
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 November 2, 1996 Annual Report on
Form 10-K.
The Company's fiscal year ends on the Saturday closest to October 31.
Fiscal year 1996 included 53 weeks compared to 52 weeks for fiscal 1997. As a
result, the first quarter and six months ended May 4, 1996 consisted of 14 and
27 weeks, compared to the 13 and 26 weeks for the respective 1997 periods.
Operating results for any first quarter are traditionally 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 November 2, 1996 and May 3, 1997 are comprised of the
following components:
1996 1997
Raw materials $ 34,778 $ 36,811
Finished goods 19,203 20,108
$ 53,981 $ 56,919
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
NOTE C - Cash Flow Information
Supplemental information on cash flows and noncash transactions for the
six months ended May 4, 1996 and May 3, 1997 is as follows:
1996 1997
Cash paid for:
Interest $ 2,145 $ 2,507
Income taxes $ 4,228 $ 4,833
NOTE D - Commitments and Contingencies
The Company currently has no litigation with respect to any environmental
matters.
Note E - Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 - "Earnings per Share" ("SFAS 128")
which specifies the computation, presentation and disclosure requirements for
EPS. SFAS 128 replaces the presentation of primary and fully diluted EPS
pursuant to Accounting Principles Board Opinion No. 15 - "Earnings per Share"
("APB 15") with the presentation of basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding for
the period. Diluted EPS 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 Company is required to adopt SFAS 128 with
its October 31, 1998 financial statements and restate all prior-period EPS
data. The Company will continue to account for EPS under APB 15 until that
time. Under SFAS 128, the Company's basic EPS for the three months ended May
3, 1997 and May 4, 1996 was .25 and .20 per share, respectively, and the
Company's diluted EPS for the three months ended May 3, 1997 and May 4, 1996
was .24 and .19 per share, respectively. For the six month periods ended May
3, 1997 and May 4, 1996 basic EPS was .46 and .37 per share, respectively and
diluted EPS was .44 and .35 per share, respectively.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The Company's fiscal year ends on the Saturday closest to October 31.
Fiscal year 1996 included 53 weeks compared to 52 weeks for fiscal 1997. As a
result, the first quarter and six months ended May 4, 1996 consisted of 14 and
27 weeks, compared to the 13 and 26 weeks for the respective 1997 periods. The
operating results presented below include discussions as a percentage of sales,
and where indicated, certain 1996 amounts have been adjusted to reflect a 26-
week period for more meaningful comparisons.
Net sales were $129.8 million and $243.2 million for the quarter and six
months ended May 3, representing a 32% and 36% increase from the similar
periods in 1996. These results include an increase in pounds sold by the
Company's Extruded Sheet & Rollstock Group and the effects of the late 1996
acquisitions of Portage Industries and the Hamelin Group Inc. For the six month
period, this increase resulted from a 7% increase in overall pounds shipped and
a 34% increase in net sales related to the second half 1996 acquisitions, net
of a 5% decline related to changes in prices and mix of products sold in the
period.
Net sales of the Extruded Sheet & Rollstock Group increased approximately
18% for the quarter ended May 3, 1997 and 22% for the six months ended May 3,
1997 over the 1996 periods, with the Portage and GM-Plastics acquisitions
accounting for a majority of this growth. The increase in Extruded Sheet &
Rollstock sales for the six months resulted from a 9% increase in pounds
shipped as a result of strong sales to the packaging and sign/advertising
markets and an 18% increase in net sales related to the second half 1996
acquisitions. Price and product mix changes had a 5% negative impact on sales
for the six months. Net sales in the Color & Specialty Compounds Group
increased by 25% for both the quarter and six months periods in 1997 versus the
comparable 1996 periods. The increase in Color & Specialty Compounds sales for
the six months resulted from a 3% increase in pounds shipped and a 30% increase
in net sales related to the 1996 Korlin acquisition, net of an 8% decline
related to changes in prices and mix of products sold in the period. The
Molded Products Group added approximately $12.5 million and $22.9 million in
1997 net sales and $1.8 million and $3.0 million in operating earnings for the
quarter and six month periods ended May 3, 1997. Hamelin Industries, our
manufacturer of plastic wheel assemblies, posted strong results as sales
related to their newly-patented wheel locking device began to build during the
quarter.
Cost of sales increased to $109.0 million for the quarter ended May 3,
1997, compared with $83.4 million for the same period of 1996, but decreased to
<PAGE>
83.8% of net sales for 1997 from 84.9% for 1996. The cost of sales percentages
were 83.9% and 85.0% for the six months ended May 3, 1997 and May 4, 1996,
respectively. The more favorable cost of sales percentages in 1997 represent
an approximate 3% decline in overall raw material prices and improved
production efficiencies, partially offset by an increase in depreciation as a
result of capital expenditures incurred by the Company during the last 12
months.
Selling and administrative expenses were $8.0 million and $14.9 million
for the quarter and six months ended May 3, 1997 compared to $6.0 million and
$11.6 million for the similar periods in 1996. On a percentage of net sales
basis, selling and administrative costs for the quarter increased marginally to
6.2% in 1997 from 6.1% in 1996. The slight decrease in 1997 six month
percentage of 6.1 versus 6.2 for the same period last year was primarily a
result of continued cost containment efforts in 1997 and the effect of the
increased sales volume on the fixed portion of the costs.
Operating earnings for the quarter ended May 3, 1997 were $12.9 million
(9.9% of net sales) compared to $8.7 million (8.9% of net sales) for the
corresponding period in 1996. Operating earnings for the six months ended May
3, 1997 were $23.8 million (9.8% of net sales) compared to $15.9 million (8.6%
of net sales) for the six months in 1996. These gains in operating earnings
were achieved through the increased sales levels, improved production
efficiencies, cost containment efforts, and the declines in raw material
prices, discussed above.
Interest expense for the quarter and six months ended May 3, 1997 of $2.0
million and $4.0 million increased from the same periods in 1996 as a result of
borrowings related to the Portage and Hamelin acquisitions completed in the
last half of 1996.
The Company's effective tax rate was 39% for the quarter and six months of
1997 compared to 38% in 1996. The increase reflects the impact of new tax
jurisdictions resulting from the 1996 acquisitions.
Environmental and Inflation
The Company is subject to various laws governing employee safety and
federal, state, & local laws, and regulations governing the quantities of
certain specified substances that may be emitted into the air, discharged into
interstate and intrastate waters, and otherwise disposed of on and off the
properties of the Company. The Company does not anticipate that future
expenditures for the compliance with such laws and regulations will have a
material effect on its capital expenditures, earnings, or competitive position.
The plastic resins used by the Company in its production process are crude
oil or natural gas derivatives and are available from a number of domestic and
<PAGE>
foreign suppliers. Accordingly, the Company's raw materials are only somewhat
affected by supply, demand and price trends of the petroleum industry; pricing
of the resins tends to follow its own supply and demand equation except in
periods of anticipated or actual shortages of crude oil or natural gas. The
Company is not aware of any trends in the petroleum industry which will
significantly affect its sources of raw materials in 1997.
The effects of inflation have not been significant on the overall
operations of the Company during the last few years. No material amount of the
Company's sales are made pursuant to fixed price, long-term contracts. The
Company has historically been successful in compensating for inflationary costs
through increased selling prices and/or increased productivity and related
efficiencies. The Company anticipates this trend will continue in the future.
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. The Company's
principal uses of cash have been to support its operating activities, invest in
capital improvements, and finance strategic acquisitions. The Company's cash
flows for the periods indicated are summarized as follows:
Six Months
1996 1997
(Dollars in millions)
Net cash provided by
operating activities $ 8.1 $ 10.8
Net cash used for
investing activities $(5.2) $(15.2)
Net cash provided by (used for)
financing activities $(3.4) $ 5.0
The Company continues to generate strong cash flows from operations,
resulting from the 40% increase in net earnings in the first half of 1997
compared to the corresponding period of the prior year, net of the impact of
changes in working capital. Operating cash flows used for changes in working
capital totaled $7.9 million in the six months ended May 3, 1997, primarily as
a result of the increase in inventories to support future shipments and
receivables resulting from expanded sales levels.
The Company's primary investing activities are capital expenditures and
acquisitions of businesses in the plastics industry. Capital expenditures are
primarily incurred to maintain and improve productivity, as well as to
modernize and expand facilities. Capital expenditures for the six months ended
<PAGE>
May 3, 1997 and May 4, 1996 were $5.8 million and $5.2 million, respectively.
The Company anticipates total capital expenditures of approximately $12.5
million for fiscal 1997, reflecting an increase for additional equipment at the
facilities acquired in 1996, which will comprise over 50% of the 1997 budget.
Also impacting the first half 1997 cash used for investing activities was the
final payment, in late November 1996, on the Hamelin Group acquisition. The
amount ($9.7 million) was reflected as a current payable at fiscal year end
November 2, 1996.
The cash flows provided by financing activities were $5.1 million for the
first half of 1997. The primary activity was the net borrowings of $10.1
million which included the impact of funding the $9.7 million final installment
due Hamelin in the first quarter 1997.
Financing Arrangements
In August 1995, the Company completed a $50 million private placement of
senior unsecured notes at a fixed rate of 7.21% and finalized a $40 million
unsecured bank credit facility. The acquisition of Portage in May 1996 was
funded by the bank credit facility. In September 1996, the Company completed a
simultaneous public offering of 3 million shares of common stock for $25.9
million in net proceeds and a $30 million private placement of 7.62% guaranteed
senior notes to finance the acquisition of Hamelin.
The Company anticipates that cash flow from operations, together with the
financing and borrowings under the Company's bank credit facility, will satisfy
its working capital needs, regular quarterly dividends, and planned capital
expenditures for the next year.
Other
The information presented herein contains certain forward-looking
statements, as defined in the Private Securities Litigation Reform Act (PSLRA)
of 1995, which are based on current expectations and are subject to risk and
uncertainties. The Company desires to take advantage of the "safe harbor"
provisions of the PSLRA by cautioning that numerous important factors, in some
cases have affected, and in the future could affect, the Company's actual
results and could cause its consolidated results to differ materially from
those expressed in or implied by the forward-looking statements or related
assumptions. Investors are directed to the discussion of risks and
uncertainties associated with forward-looking statements contained in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
<PAGE>
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
At the Annual Shareholders meeting held March 12, 1997, Mr.
Thomas L. Cassidy was elected as a Director of the Company with
25,685,142 votes for, 66,807 against, and 630,955 shares
unvoted. Mr. David B. Mueller was also elected as a director of
the Company with 25,685,142 votes for, 630,955 against, and
66,807 shares unvoted. Mr. Rodney H. Sellers was also elected
as a Director of the Company with 25,685,142 votes for, 66,807
against, and 630,955 shares unvoted. Arthur Anderson & Co was
ratified as the Company's auditors with 25,840,931 votes for,
20,219 against, and 13,827 shares unvoted.
Item 6 (a). Exhibits
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
Item 6 (b). Reports on Form 8-K
None
<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: June 3, 1997 /s/ Bradley B. Buechler
Bradley B. Buechler
President and Chief
Executive Officer
(Principal Executive Officer)
/s/ Randy C. Martin
Randy C. Martin
Vice President - 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 data)
QUARTER ENDED SIX MONTHS ENDED
May 4, May 3, May 4, May 3,
1996 1997 1996 1997
NET EARNINGS
Primary and Fully diluted
net earnings $ 4,775 $ 6,675 $ 8,561 $ 12,153
WEIGHTED AVERAGE SHARES
OUTSTANDING
Weighted average common
shares outstanding 23,419 26,387 23,387 26,385
Add: Shares issuable from
assumed exercise of option 1,184 1,369 1,069 1,287
Primary weighted average 24,603 27,756 24,456 27,672
shares outstanding
Add: Additional shares
issuable from assumed
exercise of options due to
the difference in the share
repurchase price under the
fully diluted computation 176 69 303 59
Fully diluted weighted average
shares outstanding 24,779 27,825 24,759 27,731
NET EARNINGS PER SHARE
Primary $ .19 $ .24 $ .35 $ .44
Fully diluted $ .19 $ .24 $ .35 $ .44
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