SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K Filed with the Securities and
Exchange Commission on April 14, 1998
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 31, 1998
SPARTECH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-5911 43-0761773
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
7733 Forsyth Blvd., Suite 1450, Clayton, Missouri 63105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 721-4242
SPARTECH CORPORATION
FORM 8-K/A
AMENDMENT NO. 1
On March 31, 1998, Spartech Corporation (the "Company" or "Spartech")
completed the acquisition of all the stock of Polycom Huntsman, Inc. and
Subsidiaries ("Polycom"), as reported in the Company's Form 8-K filed on April
14, 1998. Pursuant to Items 7(a)4 and 7(b)2 of Form 8-K, this amendment is
submitted to file certain financial statements of the business acquired and pro
forma financial statements related to the Polycom acquisition.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
The Polycom audited balance sheet as of March 31, 1998, and the related
consolidated statements of operations and retained earnings, and cash
flows for the year ended March 31, 1998.
(b) Pro Forma Financial Information.
Spartech Corporation's pro forma combined condensed statements of
operations for the fiscal year ended November 1, 1997 and six months
ended May 2, 1998. A pro forma combined balance sheet is not included
in this filing as the balance sheet included with the Company's Form 10-
Q filed for the second quarter ended May 2, 1998 includes the effects of
the acquisition and accounts of Polycom as of that date.
(c) Exhibits.
23--Consent of Ernst & Young LLP, independent auditors
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
SPARTECH CORPORATION
Date June 15, 1998 By /s/Randy C. Martin
Randy C. Martin
Vice President-Finance and
Chief Financial Officer
Item 7(a). Financial Statements of Business Acquired
Polycom Huntsman, Inc. and Subsidiaries
Financial Statements
March 31, 1998
Report of Independent Auditors
Board of Directors
Polycom Huntsman, Inc.
We have audited the accompanying consolidated balance sheets of Polycom
Huntsman, Inc. and subsidiaries as of March 31, 1998 and 1997, and the related
consolidated statements of earnings and retained earnings and cash flows for the
years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Polycom Huntsman, SA, (SA) a wholly-owned subsidiary.
The financial statements of SA includes total assets of 10% and 8% as of March
31, 1998 and 1997, respectively, and total sales of 7% and 8% of the
consolidated totals, for the years then ended. Those statements were audited by
other auditors and our opinion, insofar as it relates to the financial
information of SA, is based solely on their report.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above, present fairly, in all
material respects, the financial position of Polycom Huntsman, Inc. and
subsidiaries as of March 31, 1998 and 1997, and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
April 17, 1998
POLYCOM HUNTSMAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31,
1998 1997
ASSETS
CURRENT ASSETS
Cash, including commercial paper (Note A) $2,663,216 $8,206,526
Accounts and other receivables - less
allowance for doubtful accounts of
$200,000
in 1998 and 1997 (Note G) 13,227,156 12,844,939
Due from Shareholders 1,112,682 0
Inventories (Note A)
Raw materials 3,605,843 3,374,873
Finished materials 3,863,570 5,291,560
7,469,413 8,666,433
Prepaid expenses 4,219,346 530,328
Total current assets 28,691,813 30,248,226
PROPERTY, PLANT, AND EQUIPMENT
at cost (Notes A and D)
Buildings and land improvements 17,725,055 11,770,124
Machinery and equipment 46,239,266 38,384,538
Furniture and fixtures 2,103,119 2,323,925
Transportation equipment 185,153 3,088,376
66,252,593 55,566,963
Less accumulated depreciation 21,212,200 20,663,350
45,040,393 34,903,613
Land 637,886 637,886
Construction in progress 2,182,449 7,380,202
47,860,728 42,921,701
OTHER ASSETS
Deferred charges (Note A) 167,383 162,165
Restricted bond fund 2,038,549 8,202,668
2,205,932 8,364,833
$78,758,473 $81,534,760
POLYCOM HUNTSMAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - continued
MARCH 31,
1998 1997
LIABILITIES
CURRENT LIABILITIES
Short-term borrowings (Note C) $0 $0
Current maturities of long-term debt 858,116 829,988
Accounts payable 6,295,689 6,756,338
Accrued liabilities 1,880,441 5,276,862
Income taxes 5,852 670,246
Total current liabilities 9,040,098 13,533,434
LONG-TERM DEBT, less current maturities 10,673,504 11,644,583
(Note D)
DEFERRED INCOME TAXES (Note A) 4,192,468 3,412,978
COMMITMENTS (Note E) - -
MINORITY INTEREST 166,092 206,114
SHAREHOLDERS' EQUITY (Note E)
Common stock - authorized 5,000,000 shares
of
no par value; issued and outstanding
9,230
shares with a stated value of $1 per 9,230 9,230
share
Additional paid in capital 1,517,270 1,517,270
1,526,500 1,526,500
Cumulative translation adjustment (245,140) (182,528)
Retained earnings 53,404,951 51,393,679
54,686,311 52,737,651
$78,758,473 $81,534,760
The accompanying notes are an integral part
of these statements.
POLYCOM HUNTSMAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
MARCH 31,
1998 1997
Net sales (Notes G and H) $116,215,984 $112,448,201
Cost of goods sold (Note G) 94,845,237 87,274,689
Gross profit 21,370,747 25,173,512
Selling and administrative expenses 17,514,223 12,960,145
Operating profit 3,856,524 12,213,367
Other income (expense)
Interest - net (11,469) 143,668
Miscellaneous (69,212) (168,520)
Minority Interest 40,022 (27,600)
(40,659) (52,452)
Earnings before income taxes 3,815,865 12,160,915
Income taxes (Note A)
Federal
Current 542,061 2,564,872
Deferred 736,237 780,814
State
Current 392,233 785,926
Deferred 201,787 206,923
Foreign (67,725) 575,312
1,804,593 4,913,847
NET EARNINGS 2,011,272 7,247,068
Retained earnings, beginning of year 51,393,679 44,146,611
Retained earnings, end of year $53,404,951 $51,393,679
The accompanying notes are an integral part
of these statements.
POLYCOM HUNTSMAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended MARCH 31,
1998 1997
OPERATING ACTIVITIES
Net earnings $2,011,272 $7,247,068
Adjustments to reconcile net earnings to
net
cash (used)/provided by operating
activities:
Depreciation and amortization 5,126,951 4,072,056
Deferred income taxes 938,024 987,737
Minority Interest (40,022) 27,600
Change in operating assets and
liabilities:
Accounts receivable (382,217) 183,799
Shareholders receivable (1,112,682) 0
Inventories 1,197,020 (2,106,275)
Prepaid expenses (3,689,018) (31,054)
Accounts payable (460,649) 157,778
Accrued liabilities (3,396,421) 343,136
Income taxes (664,394) (305,554)
Net cash (used)/provided by (472,136) 10,576,291
operating activities
INVESTING ACTIVITIES
Net Capital expenditures (10,278,920) (14,813,951)
Proceeds of restricted bond fund 6,325,359 0
Net cash used in investing (3,953,561) (14,813,951)
activities
FINANCING ACTIVITIES
Proceeds of long-term debt 0 617,394
Principal payments on long-term debt (763,359) (473,433)
Net cash provided by financing (763,359) 143,961
activities
Effect of exchange rate changes on cash (354,254) (332,456)
Decrease in cash and cash equivalents (5,543,310) (4,426,155)
Cash and cash equivalents at beginning of 8,206,526 12,632,681
year
Cash and cash equivalents at end of year $2,663,216 $8,206,526
Cash paid during the year for:
Interest $514,914 $376,159
Income taxes $4,603,479 $3,837,329
Non-cash investing activities:
Interest income increased the restricted
bond fund for $161,240 in the current year.
The accompanying notes are an integral part
of these statements.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is engaged in the manufacturing of thermoplastics for customers in
the automotive, packaging and consumer electronics industries predominately in
the United States and Europe. A summary of significant accounting policies
consistently applied in the preparation of the accompanying financial statements
follows.
1. Principles of Consolidation
The financial statements include the accounts of Polycom
Huntsman, Inc. and its majority owned subsidiaries (the Company). The
foreign subsidiary is included in the consolidated financial
statements on the basis of fiscal years ended February 28. All
significant intercompany transactions have been eliminated in
consolidation.
2. Inventories
Inventories consist of materials and supplies and are priced at the
lower of cost (using the first-in, first-out method) or market.
3. Depreciation and Amortization
Depreciation and amortization are provided in amounts sufficient to
relate the cost of depreciable assets and deferred costs to operations
over their estimated useful lives using the straight-line method of
depreciation and amortization.
4. Income Taxes
The Company accounts for income taxes on the liability method, as
provided by the Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." The principal difference between the
financial statements carrying amount and tax basis of assets and
liabilities relates to property, plant, and equipment.
5. Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
6. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid marketable securities purchased with a maturity date of
three months or less to be cash equivalents.
NOTE B - SALE OF COMMON STOCK
Effective March 31, 1998, the Company's shareholders sold 100% of
their common stock, 9,230 shares, to Spartech Corporation. The
financial statements have been presented on a historical basis without
consideration to this transaction.
NOTE C - SHORT-TERM BORROWINGS
At March 31, 1998, the Company has available an unsecured line of
credit in the amounts of $15,000,000 with interest at the bank's prime
rate or LIBOR plus 2.00%.
NOTE D - LONG-TERM DEBT
Long-term debt consists of mortgage notes payable, term notes payable,
and tax-free interest bonds. These notes and bonds mature at various
dates through December, 2015. These obligations have fixed and
variable interest rates ranging from two to eight percent as of March
31, 1998. They are collateralized by certain land, buildings,
machinery and equipment. The outstanding balance at March 31, is:
1998 1997
Principal balance $11,531,620 $12,474,571
Less current maturities 858,116 829,988
$10,673,504 $11,644,583
The Company's approximate fixed annual principal payments of long-term
debt for the next five years range from $347,000 to $858,000 per
annum.
NOTE E - COMMITMENTS
The Company leases land, building, corporate office space and certain
equipment. These leases provide for the payment of taxes, insurance,
and other expenses by the Company and expire at various dates through
fiscal year 2015. Future minimum rentals on non-cancelable operating
leases for the next five years range from $1,231,000 to $386,000 per
annum.
Total rent expense for the years ended March 31, 1998 and 1997
amounted to approximately $1,847,000 and $1,346,000, respectively.
The Company has an agreement with two of its shareholders to purchase,
under certain conditions, all the shares of stock upon their death.
The purchase price is to be the fair value per share determined at the
time of death.
NOTE F - EMPLOYEE BENEFIT PLANS
The Company has profit sharing plans which cover substantially all of
the Company's U.S. employees. The Company's contribution is voluntary
and at the discretion of the Board of Directors. The profit sharing
expense for the years ended March 31, 1998 and 1997, was approximately
$1,055,000 and $1,155,000, respectively.
NOTE G - TRANSACTIONS WITH RELATED PARTIES
The Company purchased raw materials amounting to approximately
$2,680,000 and $4,729,000 and had sales of approximately $14,375,000
and $15,891,000 to Huntsman Chemical Corporation (HCC), a shareholder,
during the years ended March 31, 1998 and 1997, respectively. In
addition, included in accounts and other receivables is approximately
$1,526,000 and $1,852,000 due from HCC at March 31, 1998 and 1997,
respectively.
NOTE H - MAJOR CUSTOMERS
During the years ended March 31, 1998 and 1997, the Company had
sales to two customers totaling approximately twenty-five percent of
sales, in each year.
NOTE I - FOREIGN CURRENCY TRANSACTIONS
All Balance Sheet accounts for foreign operations are translated
in U.S. dollars at the year-end rate of exchange, and Statement of
Earnings items are translated at the weighted average exchange rates
for the year. The resulting translation adjustments are made directly
to a separate component of stockholders' equity net of taxes.
Gains or losses realized from foreign currency transactions, such as
those resulting from the settlement of foreign receivables, are
included in the operations of the Company. The net gain or loss
resulting from such transactions was a net loss of $107,348 and
$249,093 during the years ended March 31, 1998 and 1997, respectively.
NOTE J - YEAR 2000 (Unaudited)
The Company has implemented a plan to modify its information
technology to be ready for the year 2000 and has converted critical
data processing systems. The Company's year 2000 modification is
substantially complete at March 31, 1998 and is expected to be
finalized during the remainder of 1998.
Item 7(b). Pro Forma Financial Information
SPARTECH CORPORATION
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
On March 31, 1998, Spartech Corporation (the "Company" or "Spartech")
completed its acquisition of all the stock of Polycom Huntsman, Inc. and
Subsidiaries ("Polycom"), as reported in the Company's Form 8-K filed on April
14, 1998. The net purchase price was approximately $129 million, including
estimated costs of the transaction and net of cash acquired with Polycom. The
acquisition was financed through the Company's bank credit facility and the
issuance of $10 million in Spartech common stock to Polycom shareholders.
The accompanying unaudited pro forma combined condensed statements of
operations present the condensed historical financial statements of the Company
and Polycom, pro forma adjustments, and the pro forma results under the purchase
method of accounting. The "Historical" columns of financial information for the
Company were prepared from audited and unaudited financial statements previously
filed with the Commission. The historical financial information for Polycom
included in the unaudited pro forma combined condensed statements of operations
for the year ended November 1, 1997 was prepared from the unaudited financial
information from the books and records of Polycom and represents the period from
November 1, 1996 through October 31, 1997. The historical financial information
for Polycom included in the unaudited pro forma combined condensed financial
statements for the six months ended May 2, 1998 was prepared from unaudited
information from the books and records of Polycom, therefore the "Historical"
column represents the five-month period from November 1, 1997 through March 31,
1998 prior to acquisition by Spartech. The results for Polycom subsequent to
the acquisition (April 1998) were included in the results of Spartech
Corporation as of May 2, 1998. The pro forma combined condensed statement of
operations for the fiscal year ended November 1, 1997 also gives effect to the
1997 acquisition of the Preferred Plastic Sheet Division acquisition as if it
occurred at the beginning of the period presented.
The pro forma financial information should be read in conjunction with
the historical financial statements of the Company included in its Annual Report
on Form 10-K for the year ended November 1, 1997 and the historical financial
statements of Polycom included elsewhere herein. The pro forma information is
not necessarily indicative of future earnings or earnings that would have been
reported for the periods presented had the transactions been completed at the
beginning of such periods. Further, the pro forma consolidated statement of
operations for the six months ended May 2, 1998 should not necessarily be taken
as an indication of earnings for a full year.
<TABLE>
SPARTECH CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED NOVEMBER 1, 1997
(Unaudited and in thousands, except per share amounts)
<CAPTION>
Spartech Previous Spartech
CorporationAcquisitionCorporationPolycom Pro FormaPro Forma
(Historical) (Preferred)(a) (As Adjusted)(Historical) Adjustments
Combined
<S> <C> <C> <C> <C> <C> <C>
Net Sales $502,715 $61,401 $564,116 $110,392 $ - $674,508
Costs and Expenses
Cost of sales 420,500 51,834 472,334 84,529 (1,202)(b)559,759
4,098 (c)
Selling and administrative 31,019 2,711 33,730 13,628 (3,762)(d) 39,498
(4,098)(c)
Amortization of intangibles 1,495 1,005 2,500 10 1,629 (e) 4,139
Operating earnings 49,701 5,851 55,552 12,225 3,335 71,112
Interest Expense (Income) 8,393 3,882 12,275 (42) 8,120 (f) 20,353
Earnings before income taxes 41,308 1,969 43,277 12,267 (4,785) 50,759
Income taxes 15,815 754 16,569 5,048 (1,434)(g) 20,183
Net earnings $ 25,493 $ 1,215 $26,708 $7,219 $(3,351) $ 30,576
Net earnings per common share:
Basic $ .96 $ 1.01 $ 1.13
Diluted $ .92 $ .96 $ 1.07
Weighted average shares
outstanding
Basic 26,418 26,418 634 (h) 27,052
Diluted 27,838 27,838 634 (h) 28,472
<FN>
The accompanying notes are an integral part of the pro forma combined condensed
financial statements.
</FN>
</TABLE>
<TABLE>
SPARTECH CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 2, 1998
(Unaudited and in thousands, except per share amounts)
<CAPTION>
Spartech
Corporation Polycom Pro Forma Pro Forma
(Historical)(Historical)(i)Adjustments Combined
<S> <C> <C> <C>
<C>
Net Sales $298,788 $ 46,367 $ - $345,155
Costs and Expenses
Cost of sales 248,390 35,925 (869) (b) 285,569
2,123 (c)
Selling and administrative 17,529 10,999 (6,542) (d) 19,863
(2,123) (c)
Amortization of intangibles 1,250 14 665 (e) 1,929
Operating earnings 31,619 (571) 6,746 37,794
Interest Expense (Income) 5,340 (13) 3,383 (f) 8,710
Earnings before income taxes 26,279 (558) 3,363 29,084
Income taxes 10,395 (319) 1,479 (g) 11,555
Net earnings $ 15,884 $ (239) $ 1,884 $ 17,529
Net earnings per common share:
Basic $ .60 $ .65
Diluted $ .56 $ .61
Weighted average shares
outstanding:
Basic 26,611 27,127
Diluted 28,445 28,961
<FN>
The accompanying notes are an integral part of the pro forma combined condensed
financial statements.
</FN>
</TABLE>
SPARTECH CORPORATION
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands)
(a) The acquisition of the Preferred Plastic Sheet Division of Preferred
Technical Group, Inc., a wholly-owned business unit of Echlin Inc.
("Preferred") was effective on August 22, 1997. These amounts represent
the results of Preferred as if it had been acquired at the beginning of the
fiscal year through the acquisition date. Results subsequent to the
acquisition date are included in the Spartech Corporation "As Reported"
column.
(b) Represents net effect of the reduction in costs of materials ($1,452 for
fiscal year 1997 and $973 for the six months ended May 2, 1998) related to
the effect of Spartech contractual relationships and the increase in
depreciation expense ($250 for fiscal year 1997 and $104 for the six months
ended May 2, 1998) related to the write-up of property, plant and equipment
to its estimated fair value and weighted average lives.
(c) Represents the reclassification of costs from selling and administrative
expense to cost of sales (primarily including salaries and benefits of
plant managers, production managers, and quality assurance managers at the
plant facilities) for costs directly related to production to be consistent
with the classification of such costs by the Company.
(d) To eliminate costs and expenses that will not be incurred subsequent to the
acquisition, related to: salaries and benefits of five corporate-level
managers that were not acquired by the Company ($2,287 for fiscal year 1997
and $5,956 for the six months ended May 2, 1998), expenses and depreciation
related to a corporate jet that was not acquired by the Company ($761 for
fiscal year 1997 and $315 for the six months ended May 2, 1998), and other
administrative costs and expenses that will not be recurring for the
Company. The adjustment for the six months included an extraordinary bonus
paid to seven key managers in accordance with the acquisition agreement.
(e) Reflects the additional amortization expense resulting from $65 million in
goodwill associated with the Polycom acquisition amortized over a 40 year
period.
(f) Represents the interest expense related to the financing of the acquisition
from the Company's bank credit facility at LIBOR of 6.7% plus debt
issuance cost amortized over 5 years.
(g) Adjusts the effective tax rate for the Company from 38.3% to 39.7%, after
the Polycom acquisition. The increase reflects the fact that the goodwill
from the Polycom transaction is not tax deductible.
(h) Represents the shares issued for the $10 million in common stock paid as
purchase price consideration to the Polycom shareholders.
(i) The Polycom "Historical" column, included in the statement of operations
for the six months ended May 2, 1998, represents the Polycom results prior
to acquisition by the Company (November 1, 1997 through March 31, 1998).
Polycom Huntsman, Inc. and Subsidiaries
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (Nos. 33-20437 and 33-61322) and Form S-3 (No. 333-24527) of
Spartech Corporation of our report dated April 17, 1998 relating to the
financial statements of Polycom Huntsman, Inc. and Subsidiaries included in this
Current Report on Form 8-K/A of Spartech Corporation dated March 31, 1998.
Ernst & Young LLP
Pittsburgh, Pennsylvania
June 11, 1998
