SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 1, 1997
Commission file number 1-5911
SPARTECH CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
43-0761773
(I.R.S. Employer Identification Number)
7733 FORSYTH, SUITE 1450, CLAYTON, MISSOURI 63105-1817
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 721-4242
Securities registered pursuant to Section 12(d) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.75 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $164,151,988 on December 31, 1997.
There were 26,439,948 total shares of common stock outstanding as of
December 31, 1997.
Documents incorporated by reference
1) Portions of the 1997 Annual Report to Shareholders are incorporated
by reference into Parts I, II and IV.
2) Portions of the Definitive Proxy Statement for the 1998 Annual
Meeting of Shareholders are incorporated
by reference into Part III.
PART I
Item 1. BUSINESS
General
Spartech Corporation, together with its subsidiaries ("Spartech" or the
"Company"), operates in one industry segment as a leading producer of
engineered thermoplastic materials, polymeric compounds, molded and profile
products for a wide spectrum of customers in the plastics industry. The
Company's 26 facilities throughout North America operate in the following
three lines of business:
Extruded Sheet & Rollstock - which sells its products to various
manufacturers who use plastic components in their industrial products.
The principal uses of the Company's extruded sheet & rollstock are food
and medical packaging products, signs, spas and showers, burial vault
liners, vehicle interiors, boats, and refrigerators. The Company is
North America's largest extruder of custom rigid plastic sheet &
rollstock, operating 17 facilities in the United States and Canada
under the name Spartech Plastics.
Color & Specialty Compounds - which sells custom designed plastic
alloys, compounds, color concentrates, and calendered film for
utilization by a large group of manufacturing customers for specialized
footwear, loose-leaf binders, lawn and garden equipment, cosmetics and
medical packaging products, automotive equipment, and numerous other
applications. The Company produces and distributes these products from
five facilities under the names Spartech Compounding, Korlin
Concentrates, and Spartech Vy-Cal Plastics in the United States and
Canada.
Molded & Profile Products - which manufactures custom and proprietary
products including: (1) thin-walled, printed plastic food packaging
and industrial containers, (2) thermoplastic tires and wheels for the
lawn and garden, refuse container, and toy markets, (3) a limited line
of tableware and housewares products, and (4) profile extruded products
for a variety of industries. The Company produces these molded and
profile products from five facilities in the United States and Canada
under the names GenPak, Hamelin Industries, Spartech Enterprises, and
Spartech Profiles.
The Company's principal executive office is located at 7733 Forsyth
Boulevard, Suite 1450, Clayton, Missouri 63105-1817, telephone (314) 721-
4242. The Company was incorporated in the State of Delaware in 1968,
succeeding a business which had commenced operations in 1960. In late
1983, the Company began a restructuring program designed to expand its
plastics processing business and dispose of all of its non-plastics
operating businesses. Since that time, the Company has expanded its
plastics business through both internal growth and 11 acquisitions.
Acquisitions completed over the last five years are summarized below:
Date
Acquired Business Acquired Principal Products
January 1993 Penda Corporation (a) Extruded Sheet & Rollstock
February 1994 Product Components Extruded Sheet & Rollstock
November 1994 Pawnee Industries (b) Extruded Sheet & Rollstock
and Color Concentrates
May 1996 Portage Industries (c) Extruded Sheet & Rollstock
September 1996 Hamelin Group (c) Extruded Sheet & Rollstock,
Color Concentrates, and
Molded Products
August 1997 Preferred Plastic Extruded Sheet & Rollstock
Plastic Sheet Division and Profile Products
of Echlin Inc. (c)
(a) Includes Penda Corporation Extrusion Division's polystyrene, print
grade lithographic styrene and PET businesses.
(b) Includes only Pawnee's Extrusion and Color Divisions.
(c) Information with respect to Spartech's recent acquisition activity is
set forth in Note (2) to the Consolidated Financial Statements on page
18 of the 1997 Annual Report to Shareholders, attached as Exhibit 13.
Extruded Sheet & Rollstock
Net sales and operating earnings (consisting of earnings before interest,
taxes and corporate operations/allocations) of the extruded sheet &
rollstock group for fiscal years 1997, 1996, and 1995 were as follows:
Fiscal Year
(Dollars in millions)
1997 1996 1995
Net Sales $375.8 $319.2 $283.2
Operating Earnings $39.6 $31.6 $25.7
Products - The Company's extruded sheet & rollstock group produces both
single and multilayer co-extruded plastic sheet on a custom basis for end
product manufacturers. The group's customers use the Company's plastic
sheet & rollstock to manufacture food and medical packaging products,
signs, spas and showers, burial vault liners, vehicle interiors, boats, and
refrigerators. Most of the group's customers thermoform, cut, and trim
their plastic sheet for these various end uses.
Manufacturing and Production - The principal raw materials used in
manufacturing extruded sheet & rollstock are plastic resins in pellet form,
which are crude oil or natural gas derivatives. The Company extrudes a
wide variety of plastic resins, including acrylonitrile butadiene styrene
("ABS"), polycarbonate, polypropylene ("PP"), acrylic, polyethylene
terephthalate ("PET"), polystyrene, polyethylene ("PE"), and polyvinyl
chloride ("PVC").
The Company produces plastic sheet of up to seven layers using a multi-
extrusion process, combining the materials in distinct layers as it is
extruded through the die into a sheet form. More than half of the Company's
plastic sheet is produced using this multi-extrusion process. The remainder
is produced in a single layer using conventional extrusion processes. In
some cases, the Company will coat the plastic sheet or laminate sheets
together in order to achieve performance characteristics desired by
customers for particular applications. The Company is actively involved in
new product developments, referred to as Alloy Plastics, which combine
advanced engineered thermoplastic compounds with new manufacturing
techniques. Spartech's Alloy Plastics represent new proprietary products
which offer end-product manufacturers a variety of solutions to design high
performance and environmentally-friendly products with cost effective
benefits. Spartech Plastics introduced five such new products in the
second half of fiscal 1997.
Marketing, Sales and Distribution - The custom sheet and rollstock
extrusion business has generally been a regional business supplying
manufacturers within an estimated 500 mile radius of each of the group's 17
facilities because of shipping costs for rigid plastic material and the
need for prompt response to customer requirements and specifications. The
outdoor sign and spa businesses, however, are slightly more national in
scope.
The Company sells its extruded sheet & rollstock products principally
through its own sales force, but also uses a limited number of independent
sales representatives. The Company generally does not sell products of the
extruded sheet & rollstock group under long-term contracts. During fiscal
1997, the extruded sheet & rollstock group sold its products to
approximately 2,500 customers.
Color & Specialty Compounds
Net sales and operating earnings (consisting of earnings before
interest, taxes and corporate operations/allocations) of the color &
specialty compound group for fiscal years 1997, 1996, and 1995 were as
follows:
Fiscal Year
(Dollars in millions)
1997 1996 1995
Net Sales $84.0 $68.2 $69.1
Operating Earnings $7.1 $5.4 $4.6
Products - The color & specialty compound group primarily manufactures
plastic alloys, compounds and color concentrates for end product
manufacturers. In addition, the Spartech Compounding-Cape Girardeau
facility distributes thermoplastic resins purchased from other resin
suppliers and Spartech Vy-Cal Plastics operates a vinyl calender, supplying
finished PVC film to manufacturers of loose-leaf binders, decorator grade
wallcoverings, and packaging products for the medical industry. Customers
of the color & specialty compound group primarily include extrusion and
injection molding businesses.
Spartech Compounding and Korlin produce a highly diversified range of
color and compound products, including: FDA clear compounds for food,
beverage, and medical applications; color concentrates for the film and
sheet extrusion markets; phosphorescent and fluorescent compounds; PVC
combinations incorporating nitrile, elvaloy, and polyurethane for chemical
and abrasion resistance for footwear, color compounds, and other specialty
applications. Spartech Vy-Cal Plastics operates as a custom specialty
house with its own laboratory facility for quality testing of color,
thickness, texture, tensile strength, and dimensional stability of its
specialized film output.
Manufacturing and Production - The principal raw materials used in
manufacturing specialty plastic alloys, compounds and color concentrates
are plastic resins in powder and pellet form, primarily PVC, ABS, and PE
with colorants, stabilizers, and several other additives used to obtain
particular qualities in the plastic resin once it is heated and extruded or
molded into end products.
The group has well-equipped laboratory facilities, with experimental
extruders and various types of chemical analysis and testing equipment. In
addition to compounding technology, the group has developed enhanced
capabilities to produce color concentrates and additives.
Marketing, Sales and Distribution - The color & specialty compound
group sells most of its products to customers located in the East Coast and
Midwest U.S. and in Quebec and Ontario, Canada. The group sells its
products principally through its own sales force, but also uses independent
sales representatives. During fiscal 1997, the color & specialty compound
group sold its products to approximately 1,000 customers.
Molded & Profile Products
The five manufacturing facilities which comprise the molded and profile
products group were added to the Company's businesses with the August 22,
1997 acquisition of the Preferred Plastic Sheet Division of Echlin Inc. and
the September 27, 1996 acquisition of the Hamelin Group Inc. Therefore,
fiscal 1997 results include only two months of operations for Spartech
Profiles and fiscal 1996 results only include one month of operations for
GenPak, Spartech Enterprises, and Hamelin Industries. The group's net
sales and operating earnings (consisting of earnings before interest, taxes
and corporate operations/allocations) for these periods were as follows:
Fiscal Year
(Dollars in millions)
1997 1996 1995
Net Sales $42.9 $ 3.9 $ -
Operating Earnings $5.9 $ .4 $ -
Products - The molded & profile products group manufactures custom and
proprietary items for a large group of intermediate and end-user customers.
GenPak is a producer of thin-walled, printed plastic food packaging and
industrial containers for a large group of dairy, deli, and industrial
supply companies; Hamelin Industries manufacturers thermoplastic tire and
wheel assemblies for the lawn and garden, refuse container, and toy
markets; Spartech Enterprises manufactures a limited line of tableware and
housewares products; and Spartech Profiles manufactures products for
various industries, including the bedding and construction markets.
Manufacturing and Production - The principal raw materials used in the
Company's manufacturing of its molded and profile products are PE, PP, and
PVC. The group manufactures it under four major product lines --
containers, wheels, tableware/houseware goods, and profile extruded
products.
Marketing, Sales and Distribution - GenPak markets most of its products
to customers located in North America, as well as, the Caribbean and
Russia; Hamelin Industries markets its products throughout North America
from a centrally located plant in Warsaw, Indiana; Spartech Enterprises
sells its products primarily throughout Canada; and Spartech Profiles
markets its products throughout the United States. The group sells its
products principally through its own sales force, but also uses independent
sales representatives. During fiscal 1997, the molded & profile products
group sold its products to approximately 500 customers.
Raw Materials
The Company uses large amounts of various plastic resins in its
manufacturing processes. Such resins are crude oil or natural gas
derivatives and are to some extent affected by supply, demand, and price
trends in the petroleum industry. While the Company seeks to match cost
increases with corresponding price increases, large increases in the costs
of these raw materials could adversely affect the Company's operating
margins. In addition, any major disruptions in the availability of crude
oil or natural gas to the Company's suppliers could adversely impact the
availability of the resins. However, the Company does business with most
of the major resin manufacturers and has enjoyed good relationships with
such suppliers over the past several years. Related thereto, the Company
has been able to adequately obtain all of its required raw materials to
date and expects to be able to continue to satisfy its requirements in
fiscal 1998 and beyond.
Seasonality
The Company's sales are somewhat seasonal in nature. Fewer orders are
placed and less manufacturing activity occurs during the November through
January period. This seasonal variation tends to track the manufacturing
activities of the Company's various customers in each region.
Competition
The extruded sheet & rollstock, color & specialty compounds, and molded
& profile products markets are highly competitive. Since the Company
manufactures a wide variety of products, it competes in different areas
with many other companies, some of which are much larger than the Company
and have more extensive production facilities, larger sales and marketing
staffs, and substantially greater financial resources than the Company.
The markets in which the Company competes are also periodically
characterized by excess supply and intense price competition. The Company
competes generally on the basis of price, product performance, and customer
service. Important competitive factors in each of the Company's businesses
include the ability to: (1) manufacture consistently to required quality
levels, (2) meet demanding delivery times, (3) exercise skill in raw
material purchasing, and (4) achieve production efficiencies to process the
products profitably. In addition, the Company may experience competition
from new entrants into the markets that it serves and increased competition
from companies offering products based on advanced technologies or
processes. The Company believes it is competitive in these key areas.
The extruded sheet & rollstock group is an intermediate processor of
plastics which manufactures sheet & rollstock for customers who shape it
for their end use with thermoforming equipment. Several of these customers
have, or upon expansion may acquire, extrusion machinery. Moreover, some
customers are large enough to justify building their own molds and shifting
from thermoforming to an injection molding process. Injection molding
techniques become competitive whenever large quantities are produced or
fine detailing or contouring is required on the end product. However,
thermoforming techniques have been improved in recent years and are
generally less expensive than other manufacturing methods due to equipment
costs and other associated start-up expenses. Any material reduction in
orders to the Company by its customers as a result of a shift to in-house
processing facilities could adversely affect the Company's business. In
addition, several customers of the Company's color & specialty compounds
division have the capability to formulate their own alloys, compounds and
color concentrates. However, the Company expects to benefit from a growing
trend of outsourcing of specialized semi-finished materials by many
manufacturers. Finally, the Company's molded & profile products group
operates in selective niches within highly-competitive markets.
Backlog
The Company estimates that the total dollar volume of its backlog as of
November 1, 1997 and November 2, 1996 was approximately $39.2 million and
$37.3 million, respectively, which represents approximately four to five
weeks of production for each year. The Company's backlog for 1996 was
approximately $37.3 million.
Employees
The Company's total employment approximates 2,125. There are 1,700
production personnel at the Company's 26 plants, approximately 32% of whom
are union employees covered by several collective bargaining agreements.
There have been no strikes in the past three years. Management personnel
total approximately 425 supervisory/clerical employees, none of whom is
unionized. The Company believes that all of its employee and union
relations are satisfactory.
Government Regulation
The Company is subject to various laws governing employee safety and
environmental matters. The Company believes it is in material compliance
with all such laws and does not anticipate large expenditures in fiscal
1998 to comply with any applicable regulations. The Company is subject to
federal, state, and local laws (including Canadian provincial) and
regulations governing the quantity 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.
Modifications of existing environmental regulations, the adoption of new
environmental regulations, or unanticipated enforcement actions, could
require material capital expenditures or otherwise have a material adverse
effect on the Company's businesses. The Company has not incurred
significant expenditures in order to comply with such laws and regulations,
nor does it anticipate continued compliance therewith to materially affect
its earnings or competitive position.
International Operations
Information regarding the Company's operations in its two geographic
segments -- United States and Canada -- is located in Note (12) to the
Consolidated Financial Statements on page 23 of the 1997 Annual Report to
Shareholders, attached hereto as Exhibit 13. The Company's Canadian
operations may be affected periodically by foreign political and economic
developments, laws and regulations, and currency fluctuations.
Other
The Company has performed an initial overall review to assess the impact
of the year 2000 on its major systems. It will continue to address any
changes needed within its systems to ensure it can be fully compliant with
year 2000 requirements on a timely basis. At this time, the Company does
not expect it will incur significant expenditures to effect these changes.
Item 2. PROPERTIES
The Company operates in plants and offices aggregating approximately
2,052,000 square feet of space. Approximately 792,000 square feet of plant
and office space is leased with the remaining 1,260,000 square feet owned
by the Company. A summary of the Company's principal operating facilities
follows:
Extruded Sheet & Rollstock
Location Description Size in Square Feet Owned/Leased
Arlington, TX Extrusion plant &
offices 126,000 Leased
Atlanta, GA Extrusion plant &
offices 75,000 Leased
Cape Girardeau, MO Extrusion plant &
offices 100,000 Owned
Clare, MI Extrusion plant &
offices 27,000 Owned
Greenville, OH Extrusion plant &
offices 54,000 Owned
4,000 Leased
Greensboro, GA Extrusion plant &
offices 42,000 Owned
La Mirada, CA Extrusion plant &
offices 98,000 Leased
Mankato, MN Extrusion plant &
offices 36,000 Owned
McMinnville, OR Extrusion plant &
offices 40,000 Owned
McPherson, KS Extrusion plant
& offices 101,000 Owned
Paulding, OH Extrusion plant &
offices 68,000 Owned
20,000 Leased
Portage, WI Extrusion plant &
offices 115,000 Owned
Richmond, IN Extrusion plant &
offices 52,000 Owned
29,000 Leased
Taylorville, IL Extrusion plant &
offices 40,000 Owned
Wichita, KS Extrusion plant &
offices 63,000 Owned
102,000 Leased
Cornwall, Ontario Extrusion plant &
offices 41,000 Leased
Granby, Quebec Extrusion plant &
offices 50,000 Owned
22,000 Leased
Color & Specialty Compounds
Location Description Size in Square Feet Owned/Leased
Cape Girardeau, MO Compounding plant &
offices 57,000 Owned
43,000 Leased
Conshohocken, PA Calendering plant &
offices 39,000 Owned
Goddard, KS Color plant & offices 38,000 Owned
Kearny, NJ Compounding plant &
offices 59,000 Owned
Stratford, Ontario Color plant & offices 65,000 Owned
Molded & Profile Products
Location Description Size in Square Feet Owned/Leased
Toronto, Ontario Injection Molding
plant & offices 73,000 Leased
Cookshire, Quebec Injection Molding
plant & offices 140,000 Owned
McPherson, KS Profile Plant -*
Montreal, Canada Injection Molding
plant & offices 100,000 Leased
15,000 Owned
Warsaw,Indiana Injection Molding
plant & offices 41,000 Owned
* Profile production conducted in same facility as the Extruded
Sheet & Rollstock plant noted above.
In addition, the Company leases office facilities in St. Louis,
Missouri, the aggregate square footage of which is approximately 5,500.
The plants located at the premises listed above are equipped with 93
sheet extrusion lines, 55 supplementary co-extruders, 9 profile extrusion
lines, 9 compounding-milling lines, 10 color compounding lines, 68
injection molding machines, 20 printing machines, 5 compression molding
machines, a calendering line, cutting and grinding machinery, resin storage
facilities, warehouse equipment, and quality laboratories at all locations.
The Company believes that its present facilities are adequate for the level
of business anticipated in fiscal year 1998.
Item 3. LEGAL PROCEEDINGS
On June 2, 1992, Mr. Lawrence M. Powers, a 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 claimed 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 have adjusted
his existing stock options, provided for the issuance of additional shares
of common stock, and awarded to him attorney's fees and interest. In
January 1996, Mr. Powers filed a similar lawsuit in the Circuit Court of
St. Louis County, Missouri against the Company and two officer directors.
In February 1997, the Company settled both lawsuits. The settlement
resolved all claims and terminated all disputes between the respective
parties and general releases were executed to prevent further action on
such disputes. The settlement was reflected in the Company's first quarter
financial statements and, after consideration of amounts previously
accrued, did not result in a net charge to earnings.
The Company is also subject to various other claims, lawsuits, and
administrative proceedings arising in the ordinary course of business with
respect to commercial, product liability, employment, and other matters,
several which claim substantial amounts of damages. While it is not
possible to estimate with certainty the ultimate legal and financial
liability with respect to these claims, lawsuits, and administrative
proceedings, the Company believes that the outcome of these other matters
will not have a material adverse effect on the Company's financial position
or results of operations. The Company currently has no litigation with
respect to any environmental matters.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal
year ended November 1, 1997.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information on page 25 and 28 of the 1997 Annual Report to
Shareholders, attached hereto as Exhibit 13, is incorporated by reference
in response to this item. The common stock dividend amounts on page 25
present the cash dividends declared in 1996 consisting of one quarter at
three cents per share and the last three quarters at four cents per share
and the cash dividends declared in 1997 consisting of all four quarters at
five cents per share. On December 9, 1997, the Company declared a
dividend of six cents per share payable on January 6, 1998. The Company's
Board of Directors reviews the dividend policy each December based on the
Company's business plan and cash flow projections for the next fiscal year.
Item 6. SELECTED FINANCIAL DATA
The information on page 25 of the 1997 Annual Report to Shareholders,
attached hereto as Exhibit 13, is incorporated by reference in response to
this item.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information on pages 12 and 13 of the 1997 Annual Report to
Shareholders, attached hereto as Exhibit 13, is incorporated by reference
in response to this item.
Safe Harbor Statement - Statements in this Annual Report that are not
purely historical, including statements which express the Company's belief,
anticipation or expectation about future events, are forward-looking
statements. These statements may be found in the descriptions of the
Company's business in Item 1 and legal proceedings in Item 2, and include
statements in "Management's Discussion and Analysis," incorporated herein
by reference, about future capital expenditures, expenditures for
environmental compliance, and anticipated cash flow and borrowings.
Forward looking statements involve certain risks and uncertainties that
could cause actual results to differ materially from such statements. In
addition to the risk factors discussed in Item 1 (Business, under the
headings Raw Materials, Seasonality, Competition, Government Regulation,
and International Operations) included herein on pages 5 through 7, other
important factors which have and could impact the Company's operations and
results, include: (1) the Company's financial leverage and the operating
and financial restrictions imposed by the instruments governing its
indebtedness may limit or prohibit its ability to incur additional
indebtedness, create liens, sell assets, engage in mergers, acquisitions or
joint ventures, pay cash dividends, or make certain other payments. In
addition, the Company's leverage and such restrictions could limit its
ability to respond to changing business or economic conditions; and (2) the
successful expansion through acquisitions, in which Spartech looks for
candidates that can complement its existing product lines, expand
geographic coverage, and provide superior shareholder returns, is not
assured. Acquiring businesses that meet these criteria continues to be an
important element of the Company's business strategy. Some of the
Company's major competitors have similar growth strategies. As a result,
competition for qualifying acquisition candidates is increasing and there
can be no assurance that such future candidates will exist on terms
agreeable to the Company. Furthermore, integrating acquired businesses
requires significant management time and skill and places additional
demands on Company operations and financial resources. However, the
Company continues to seek value-added acquisitions which meet its stringent
acquisition criteria and complement its existing businesses.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information entitled "Quarterly Financial Information" on page 23 of
the 1997 Annual Report to Shareholders, attached hereto as Exhibit 13, is
incorporated by reference in response to this item.
In addition, the financial statements of the Registrant filed herewith
are set forth in Item 14 and included in Part IV of this Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning Directors of the Company contained in the
section entitled "Election of Directors" of the Definitive Proxy Statement
for the 1998 Annual Meeting of Shareholders to be filed with the
Commission on or about January 26, 1998, is incorporated herein by
reference in response to this item.
In addition, the following table sets forth certain information with
respect to the Company's executive officers:
Name Age Position with the Company and
Date Appointed
Bradley B. Buechler 49 President (April 1987), Chief
Executive Officer (October
1991), and Director (February
1984)
David B. Mueller 44 Executive Vice President and
Chief Operating Officer (May
1996), Secretary (October
1991), and Director (March
1994)
Daniel J. Yoder 56 Vice President of Engineering
and Technology (May 1990)
Randy C. Martin 35 Vice President-Finance and
Chief Financial Officer (May
1996)
David G. Pocost 36 Vice President of Quality and
Environmental Affairs
(December 1996)
Mr. Buechler, a CPA, was with Arthur Andersen LLP before the
commencement of his employment with the Company in 1981. Prior to the
positions currently held, he was the Company's Corporate Controller and
Vice President - Finance from 1981-1984, Chief Financial Officer from 1983
- - 1987 and Chief Operating Officer from 1985 - 1996.
Mr. Mueller, a CPA, was previously with Arthur Andersen LLP for seven
years. More recently he was Corporate Controller of Apex Oil Company, a
large independent oil company, from 1981-1988. Prior to the positions
currently held, he was the Company's Vice President of Finance, Chief
Financial Officer from 1988 - 1996.
Mr. Yoder was General Manager of the Company's Spartech Plastics Central
Region from 1986-1990. From 1983-1986 he was Vice President of
Manufacturing for Atlas Plastics, Corp., prior to its acquisition by the
Company.
Mr. Martin, a CPA and CMA, was previously with KPMG Peat Marwick LLP for
eleven years before joining the Company in 1995. Prior to the positions
currently held, he was the Company's Corporate Controller from 1995 to
1996.
Mr. Pocost was previously with Moog Automotive as Division Quality
Assurance Manager and Senior Materials Engineer for eight years. Prior to
the position currently held, he was the Company's Director of Quality &
Environmental Affairs from 1994-1996.
Item 11. EXECUTIVE COMPENSATION
The information contained in the sections entitled "Executive
Compensation" and "Board Committees and Compensation" of the Definitive
Proxy Statement for the 1998 Annual Meeting of Shareholders to be filed
with the Commission on or about January 26, 1998 is incorporated herein by
reference in response to this item.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the sections entitled "Security Ownership"
of the Definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders to be filed with the Commission on or about January 26, 1998
is incorporated herein by reference in response to this item.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the section entitled "Election of
Directors" and "Executive Compensation" of the Definitive Proxy Statement
for the 1998 Annual Meeting of Shareholders to be filed with the Commission
on or about January 26, 1998 is incorporated herein by reference in
response to this item.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
The following financial statements, financial statement schedules and
exhibits are incorporated by reference from the 1997 Annual Report to
Shareholders and/or filed as part of this Form 10-K:
Page
Annual Report
Form 10-K to Shareholders
Report of Independent Public Accountants F-1 24
Financial Statements
Consolidated Balance Sheet - 14
Consolidated Statement of Operations - 15
Consolidated Statement of
Shareholders' Equity - 16
Consolidated Statement of Cash Flows - 17
Notes To Consolidated Financial Statements - 18-23
Financial Statement Schedules
Schedule
Number Description
II. Valuation and
Qualifying Accounts F-2 -
Exhibits
Exhibits required to be filed by Item 601(a) of Regulation S-K are
included as Exhibits to this report as follows:
2(A)(1) Asset Purchase and Sale Agreement between Spartech Corporation
(Buyer) and Pawnee Industries, Inc. (Seller)
2(B)(2) Agreement of Plan of Merger between Spartech Corporation,
Spartech Plastics, Inc., and Portage Industries Corporation,
dated February 22, 1996
2(C)(3) Asset Purchase and Sale Agreement between Spartech Corporation
Hamelin Group Inc., Hamelin Industries Inc., Robert Hamelin and
Hamro Group, Inc. dated June 7, 1996
2(D)(4) Asset Purchase and Sale Agreement between Spartech Corporation;
Preferred Technical Group, Inc. And Echlin Inc. dated
August 22, 1997
3(5) Articles of Incorporation and By-Laws
10(A) Amended and Restated Employment Agreement dated November 1,
1997, between Bradley B. Buechler and Spartech Corporation
10(B) Amended and Restated Employment Agreement dated November 1,
1997, between David B. Mueller and Spartech Corporation
10(C)(6) Amended and Restated Employment Agreement dated June 30, 1995,
between Daniel J. Yoder and Spartech Corporation
10(D)(7) Spartech Corporation Incentive Stock Option Plan dated July 26,
1991
10(E)(7) Spartech Corporation Restricted Stock Option Plan dated July 26
1991
10(F)(8) Employment Agreement between Randy C. Martin and Spartech
Corporation dated as of March 31, 1997
10(G)(8) Employment Agreement between David G. Pocost and Spartech
Corporation dated as of February 1, 1997
11 Statement re Computation of Per Share Earnings
13 Pages 12 through 28 of 1997 Annual Report to Shareholders
21 Subsidiaries of Registrant
23 Consent of Independent Public Accountants
24 Powers of Attorney
27 Financial Data Schedule
(1) Filed as an exhibit to the Company's Form 8-K, dated
November 1, 1994, filed with the Commission on November 16,
1994, and incorporated herein by reference.
(2) Filed as an exhibit to the Company's quarterly report on
Form 10-Q for the quarter ended February 3, 1996, filed with
the Commission on March 1, 1996, and incorporated herein by
reference.
(3) Filed as an exhibit to the Company's Form 8-K, dated July 28,
1997, filed with the Commission on August 12, 1997, and
incorporated herein by reference.
(4) Filed as an exhibit to the Company's Form 8-K, dated June 7,
1996, filed with the Commission on June 19, 1996, and incorporated
herein by reference.
(5) Filed in response to the Commission's comments concerning
the Company's Proxy Statement relating to the Annual Meeting
of Shareholders held June 10, 1992, filed with the Commission
on May 27, 1992, and incorporated herein by reference.
(6) Filed as an exhibit to the Company's quarterly report on
Form 10-Q for the quarter ended July 29, 1995, filed with the
Commission on August 28, 1995, and incorporated herein by
reference.
(7) Filed as an exhibit to the Company's annual report on Form
10-K for the fiscal year ended November 2, 1991, filed with
the Commission on February 18, 1992, and incorporated herein
by reference.
(8) Filed as an exhibit to the Company's quarterly report on Form
10-Q for the quarter ended August 2, 1997, filed with the
Commission on September 2, 1997, and incorporated herein by
reference.
All other financial statements and schedules not listed have been
omitted since the required information is included in the consolidated
financial statements or the notes thereto, or is not applicable or
required.
Reports on Form 8-K
A Form 8-K was filed on August 12, 1997 announcing the signing of an
Asset Purchase and Sale Agreement dated July 28, 1997 to purchase the net
assets of the Preferred Plastic Sheet Division of Echlin Inc. No financial
statements were required to be filed in the Form 8-K.
A Form 8-K/A was filed on November 4, 1997 for the completion of the
acquisition of the Preferred Plastic Sheet Division of Echlin Inc.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
January 12, 1998 By: /S/ Bradley B. Buechler
(Date) Bradley B. Buechler
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
DATE SIGNATURES TITLE
January 12, 1998 /S/ Bradley B. Buechler President, Chief
Bradley B. Buechler Executive Officer,
and Director (Principal
Executive Officer)
January 12, 1998 /S/ David B. Mueller Executive Vice
David B. Mueller President, Chief
Operating Officer,
and Director
January 12, 1998 /S/ Randy C. Martin Vice President-Finance
Randy C. Martin and Chief Financial
Officer (Principal
Financial and Accounting
Officer)
January 12, 1998 /S/ Thomas L. Cassidy Director
Thomas L. Cassidy*
January 12, 1998 /S/ W. R. Clerihue Chairman of the Board
W. R. Clerihue* and Director
January 12, 1998 /S/ Francis J. Eaton Director
Francis J. Eaton*
January 12, 1998 /S/ John R. Kennedy Director
John R. Kennedy*
January 12, 1998 /S/ Jackson W. Robinson Director
Jackson W. Robinson*
January 12, 1998 /S/ Alan R. Teague Director
Alan R. Teague*
* By Bradley B. Buechler as Attorney-in-Fact pursuant to Powers of Attorney
executed by the Directors listed above, which Powers of Attorney have been
filed with the Securities and Exchange Commission.
/S/ Bradley B. Buechler
Bradley B. Buechler
As Attorney-in-Fact
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SPARTECH CORPORATION
We have audited in accordance with generally accepted auditing standards, the
financial statements included in SPARTECH Corporation's 1997 Annual Report to
Shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated December 5, 1997. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. Schedule II included
in this Form 10-K is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
December 5, 1997
F-2
SPARTECH CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED 1997, 1996 AND 1995
(Dollars in thousands)
ADDITIONS
AND
BALANCE AT CHARGESTO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS PERIOD
November 1, 1997:
Allowance for
Doubtful Accounts $ 1,946 $ 985 $ (719) $ 2,212
November 2, 1996:
Allowance for
Doubtful Accounts $ 1,592 $ 578 $ (224) $ 1,946
October 28, 1995:
Allowance for
Doubtful Accounts $ 1,415 $ 840 $ (663) $ 1,592
Fiscal year 1996 and 1997 additions and write-offs include activity relating
to the acquisition of certain of the businesses and assets of Portage
Industries Corporation, the Hamelin Group, Inc., and the Preferred Plastics
Sheet Division of Echlin Inc. in May 1996, September 1996, and August 1997,
respectively.
F-2
10(A)
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT OF
BRADLEY B. BUECHLER
AGREEMENT entered into as of the 1st day of November, 1997, by and
between SPARTECH CORPORATION, a Delaware corporation ("Employer"), and
BRADLEY B. BUECHLER ("Employee").
WITNESSETH:
WHEREAS, Employee currently holds the position of President and Chief
Executive Officer of Employer pursuant to an employment agreement with
Employer dated July 1, 1992, as amended on March 8, 1993, July 1, 1995 and
July 1, 1996 (the "1992 Amended Employment Agreement"); and
WHEREAS, Employer desires to provide for Employee's continued service
to Employer in his current positions, and Employee is willing to provide
such services on the terms set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual premises set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the 1992 Amended Employment
Agreement is hereby amended and restated to read in its entirety as
follows:
1. Employment and Duties of Employee. Employer employs Employee to
act in a senior executive capacity, as President and Chief Executive
Officer of Employer, and in all aspects of its business, as and when
requested, and at such times and places as Employer shall reasonably
request, except that (a) Employee shall not be assigned duties or
responsibilities which are inconsistent with his position and status as
President and Chief Executive Officer, and (b) Employee shall not be
required temporarily or permanently, to relocate his residence.
Employee agrees faithfully to perform such duties as Employer assigns
to him; to devote the necessary time and best efforts to the manufacture
and sale of Employer's products; and to endeavor to improve Employer's
business, through plant and production organization, customer and supplier
relationships, capital development and additional financing resources,
acquisition of other businesses, and by other means, in all reasonable ways
for the term hereof, the services to be of a similar nature as those
currently provided Employer, subject always to the control and direction of
Employer's Board of Directors.
2. Compensation.
(a) Subject to annual review (without obligation to increase) for cost
of living and/or merit and other increases at the Board's discretion,
Employer agrees to compensate Employee at a fixed rate of $390,000 annually
("Base Salary"), such Base Salary to be paid in equal weekly installments.
Employer shall further advance or reimburse to Employee such other funds as
Employer determines for credit cards, costs and other reasonable expenses
incurred by Employee in the discharge of Employer's instructions hereunder,
and consistent with the necessities of the operation of the business.
Except to the extent that his participation therein will disadvantage the
other participants, Employee will also participate, as appropriate, in all
other stock option and stock purchase plans, insurance, medical and other
employee benefit programs currently established or hereafter instituted by
Employer. In addition, for the term of this Agreement, Employer will
continue to lease or otherwise make available for Employee an automobile of
comparable quality to the automobile currently leased by Employer for
Employee, and to pay the cost of insurance and maintenance for such
automobile.
(b) Employer further agrees to grant to Employee on or before November
7, 1997 an option to purchase 200,000 shares of common stock of Employer,
which shall be in addition to the options previously granted to Employee.
Such option may be granted pursuant to any of Employer's stock option plans
or, if unavailable thereunder, shall be granted directly to Employee
outside of such plans. Such option shall (A) have exercise prices which
are equal to the market price of the underlying shares on the date of grant
or not more than five days preceding the date of grant, as appropriately
adjusted as provided in the stock option agreement covering such options,
(B) be Employer's customary ten-year options, and (C) have the same terms
as options heretofore granted pursuant to Employer's Restricted Stock
Option Plan, including two year restrictions on resale of the underlying
shares while Employee remains employed.
The Board of Directors of Employer shall annually consider issuing
additional options to Employee.
(c) In addition to the benefits provided for above and elsewhere in
this Agreement, Employer shall contribute each year to the life insurance
contract in place for Employee and owned by Employee an amount equal to the
sum of (A) 15% of Employee's base salary as defined in this Agreement
(exclusive of bonuses) plus (B) the amount of the premium Employer would
pay for $1,250,000 of term life insurance on Employee.
3. Term of Employment.
(a) The term of this Agreement shall commence November 1, 1997 and,
except as provided in Section 11 below, shall continue until terminated by
three years' written notice by Employer to Employee, or by one year's
written notice by Employee to Employer, such notice not to be given by
Employer before November 1, 2000 and not to be given by Employee before (A)
if no Change in Control occurs, November 1, 2000, or (B) if a Change in
Control occurs, November 1, 1998. In the event such notice is given by
Employer, Employee shall not be required to perform further services to
Employer hereunder; in the event such notice is given by Employee, Employee
shall, for a period not to exceed 45 days after the date of such notice,
provide such consulting services to Employer as Employer shall reasonably
request.
(b) For purposes of this Agreement, "Change of Control" means the
first to occur of any of the following:
(i) The date Employer's Board of Directors votes to approve and
recommends a stockholder vote to approve:
(A) any consolidation or merger of Employer in which
Employer is not the continuing or surviving corporation; or
(B) any consolidation or merger of Employer in which shares
of Employer's capital stock would be converted into cash,
securities or other property, other than a consolidation or merger
of Employer (I) in which the direct or indirect holders of
Employer capital stock immediately prior to the consolidation or
merger have the right to receive the same direct or indirect
proportionate ownership of voting stock of the surviving
corporation immediately after the consolidation or merger or (II)
with another corporation which owns Employer capital stock
pursuant to which merger all of the Employer capital stock owned
by such corporation would be canceled or deemed and Employer
capital stock would be issued to the stockholders of such
corporation; or
(C) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the assets or Employer, other than any sale,
lease, exchange or other transfer to any corporation where
Employer owns, directly or indirectly, at least eighty percent
(80%) of the outstanding voting securities of such corporation
after any such transfer; or
(D) any plan or proposal for the liquidation or dissolution
of Employer; or
(ii) The date any person (as such term is used in Section 13(d) of
the Securities Exchange Act of 1934, hereinafter the "Exchange Act")
shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of a majority of Employer's outstanding voting
stock; or
(iii) The date the Board of Directors of Employer or any
affiliate (within the meaning of Rule 12b-2 under the Exchange Act) of
Employer authorizes and approves any transaction which has either a
reasonable likelihood or the purpose of causing, whether directly or
indirectly, Employer's common stock to be held of record by fewer than
300 persons or not to be listed on any national securities exchange;
or
(iv) The date, during any period of twenty-four (24) consecutive
months, on which those individuals who at the beginning of such period
constitute Employer's Board of Directors shall cease for any reason to
constitute a majority thereof unless the election, or the nomination
for election by Employer's stockholders, of each new director
comprising the majority was approved by a vote of at least a majority
of the Continuing Directors in office on the date of such election or
nomination for election of the new director. For purposes of this
Section, "Continuing Director" means:
(A) any member of Employer's Board of Directors as of the
close of business on the date of this Agreement; or
(B) any member of Employer's Board of Directors who succeeds
any Continuing Director described in clause (A) if such successor
was elected, or nominated for election by Employer's stockholders,
by a majority of the Continuing Directors then still in office; or
(C) any director elected, or nominated for election by
Employer's stockholders, to fill any vacancy or newly-created
directorship on Employer's Board of Directors by a majority of the
Continuing Directors then still in office.
4. Bonuses.
(a) For each fiscal year of Employer, Employee shall receive an annual
bonus equal to 1% of Employer's earnings before interest and income taxes
as reported in Employer's audited financial statements for each year that
this Agreement is in effect, adjusted, however, to exclude profit or loss
on extraordinary or nonrecurring items and unusual items (such as sale of a
significant amount of assets or securities other than in the ordinary
course of business operations, one-time employee separation costs, and
significant litigation costs or recoveries) ("Adjusted EBIT"), such
determination to be made by Employer's auditors based on generally accepted
accounting principles; provided, however, no such bonuses will be paid with
respect to any fiscal year in which Employer's Adjusted EBIT is less than
66-2/3% of the Company's Adjusted EBIT in its immediately preceding fiscal
year.
(b) Each fiscal year, an installment equal to 40% of the estimated
bonus for such fiscal year to be approved by the Compensation Committee of
Employer's Board of Directors shall be paid to Employee in August, and the
balance, if any, of such bonus shall be paid as soon as practicable upon
completion of Employer's audited financial statements for such fiscal year.
(c) Should this Agreement terminate prior to the close of a fiscal
year of Employer, Employee shall be entitled to a bonus with respect to
such fiscal year (in addition to such other amounts to which he may be
entitled on termination under other provisions of this Agreement) equal to
the bonus he would have earned had this Agreement been in effect for the
entire fiscal year multiplied by a fraction, the numerator of which shall
be the number of days in such fiscal year prior to termination of this
Agreement, and the denominator of which shall be 365.
5. Severance Benefits.
(a) If at any time before a Change in Control Employee's employment
with Employer is terminated (i) by Employer for any reason other than
"Cause" (as defined in Section 11(c) below), or (ii) by Employee with
"Justification" (as defined in Section 11(a) below) or pursuant to notice
of termination given by Employee to Employer pursuant to Section 3, above,
Employer shall pay to Employee within thirty (30) days of (I) the date
notice of such termination is given to Employee pursuant to Section 3,
above, or (II) the date of such termination with Justification, a lump sum
severance benefit (the "Severance Benefit") equal to (A) two times
Employee's then current Base Salary plus (B) the aggregate amount of bonus
paid or earned by Employee in the two years prior to the date of such
notice of termination.
(b) If at any time after a Change in Control Employee's employment
with Employer is terminated (i) by Employer for any reason other than
"Cause" (as defined in Section 11(c) below), or (ii) by Employee with
"Justification" (as defined in Section 11(a) below) or pursuant to notice
of termination given by Employee to Employer pursuant to Section 3, above,
Employer shall pay to Employee within thirty (30) days of (I) the date
notice of such termination is given to Employee pursuant to Section 3,
above, or (II) the date of such termination with Justification, a lump sum
severance benefit (the "Severance Benefit") equal to 2.95 times the sum of
(A) Employee's then current Base Salary plus (B) one-third of the aggregate
amount of bonus paid or earned by Employee in the three years prior to the
date of such notice of termination.
(c) The Severance Benefit shall be payable in lieu of any further
claims to Base Salary under Section 2 or bonuses under Section 4 hereof,
for any remaining term of this Agreement; however, the Severance Benefit
shall be in addition to and not in lieu of all other compensation and
benefits under any other provision of this Agreement, including accrued
vacation or sick pay, accrued amounts payable for prior salary or bonuses
earned, or any amounts payable under any life insurance, health, disability
or similar employee benefit plan. Employee may elect to have any life
insurance, health plan, disability plan or similar plan which was in effect
immediately prior to Employee's termination extended for a period of two
(2) years beyond when Employee's eligibility for such plan would otherwise
have ended, provided that (i) Employee so notifies Employer within five (5)
days of Employee's termination and (ii) the cost of extending Employee's
eligibility as described above shall be negotiated on a good faith basis
and, at Employee's request, subtracted from the payment of Employee's
severance benefit. Should the Employee subsequently obtain similar
coverage from another Employer or otherwise, Employee will notify Employer
and coverage will cease and a pro-rata refund returned to the Employee.
The "cost" for this purpose shall be deemed to be the most recent rate
charged to employees of Employer or its subsidiaries for such benefits.
Promptly after Employee's request for such extension, Employer shall place
sufficient funds in escrow to pay all premiums on such insurance and plans
for the period of the extension.
(d) If all or any portion of the Severance Benefit, together with any
other amounts, including the value of any stock options, received or deemed
to be received by Employee from Employer or any of its subsidiaries and
affiliates or from any pension, employee welfare, incentive compensation or
other plans sponsored by Employer or any of its subsidiaries and affiliates
(collectively, the "Base Payment"), will be subject to any excise tax under
Section 4999 of the Internal Revenue Code of 1986, as amended, or any
similar tax payable under any federal, state, local or other law
(collectively, "Excise Taxes"), Employer shall pay Employee an additional
amount (the "Gross-Up Payment") such that the net amount retained by
Employee, after deduction of any Excise Taxes payable by Employee with
respect to the Base Payment and the Gross-Up Payment and any federal, state
or local income or other taxes payable by Employee with respect to the Base
Payment and the Gross-Up Payment (collectively, "Other Taxes") (including
any additional tax resulting from any loss or disallowance of deductions
due to the Gross-Up Payment), will equal the Base Payment net of the Other
Taxes on the Base Payment determined without regard to any Excise Taxes.
For the purposes of this determination, Employee's income shall be assumed
to be subject to Other Taxes at the highest marginal rates. The Gross-Up
Payment shall be paid simultaneously with the payment of the Severance
Benefit, on the basis of Employer's good-faith estimate of the Excise Taxes
if necessary, but if the actual amount of Excise Taxes is later determined
by Employer or Employee to be different from the amount on which the Gross-
Up Payment was originally calculated, the difference shall be paid or
refunded within 30 days after notice of such difference is given to the
party liable for such payment or refund.
(e) In order to provide security to Employee for Employer's payment of
the amounts payable pursuant to Sections 5(a), 5(b) and 5(d) in the event
of a Change in Control, Employer agrees that within 10 days after a Change
in Control, whether or not Employee's employment is terminated, Employer
will either (i) pay Employee the Base Payment plus the Gross-Up Payment, in
full, in immediately available funds (which will discharge Employer's
obligations under this Section except for payment of any difference upon
final determination of the Gross-Up Amount pursuant to Section 5(d)), or
(ii) deposit 110% of the then-estimated Base Payment and Gross-Up Payment
in an interest-bearing escrow account with a St. Louis, Missouri bank with
which Employer has no other banking relationship, which escrow account
shall be maintained pursuant to a written escrow agreement reasonably
satisfactory to counsel for all parties, as security for Employer's timely
payment of the amounts due pursuant to Sections 5(a), 5(b) and 5(d), the
terms of which shall provide that the escrow account, including the
interest thereon, may be applied only to payment of any amounts due
pursuant to Sections 5(a), 5(b) and 5(d) and may be disbursed only pursuant
to written instructions to the escrow agent from both Employer and Employee
or pursuant to a valid court order.
6. Disability and Death Benefits. In the event Employee shall (i)
become physically or mentally disabled (as determined in accordance with
the Social Security Act) from performing his functions contemplated
hereunder, and such period of disability shall continue for at least six
consecutive months, or (ii) become deceased during the term hereof,
Employer shall pay to Employee, or, in accordance with Section 16 below,
his Representatives (as defined in Section 16(c)), as the case may be, the
annual salary provided hereunder, together with the annual bonus above
provided pro-rata, for a period through the balance of the month in which
the described disability period begins, or the balance of the month in
which the date of death, whichever shall occur sooner. Regular salary, pro
rata bonus, and other payments, shall be made to Employee or Employee's
Representatives, as the case may be, during the first six (6) months of any
period of disability, physical or mental, as above described.
7. Restrictive Covenants. Employee agrees that while employed by
Employer hereunder (including any renewal term hereunder), and for twenty-
four consecutive months following termination of employment, Employee will
not, in any manner, directly or indirectly:
(a) disclose or divulge to any person, entity, firm or company
whatsoever, nor use for his own benefit or the benefit of any other person,
entity, firm and company, directly or indirectly in competition with
Employer, any proprietary knowledge, confidential information, production
or business methods, techniques or customer lists of Employer, or its
affiliates (including Vita) (except information generally known or used in
the trade) ("Trade Secrets"):
(b) solicit, call on, divert, or interfere with any of the customers
of Employer or its affiliates (including Vita), trade, business, patronage,
employees or agents of Employer or its affiliates (including Vita), with
whom Employee has done business and in any city where Employee, Employer or
its affiliates (including Vita) is now engaged in the plastics business for
the purpose of diverting their trade to plastics businesses which compete
directly with Employer's businesses; or
(c) invest in, or take an active management or advisory role in, any
company in the plastics business whose operations compete directly with any
of Employer's businesses.
8. Limitation on Restrictive Covenants. It is the intention of the
parties to restrict the activities of Employee only to the extent necessary
for the protection of Employer's legitimate business interests. The
parties specifically agree that should any provision set forth in Sections
7 or 9 under any set of circumstances not now presently foreseen by the
parties, be deemed too broad for that purpose, said provisions will
nevertheless be valid and enforceable to the extent necessary for such
protection.
9. Inventions, etc. Employee acknowledges that all mechanical or
scientific inventions, production processes. techniques, programs, patents,
discoveries, formulae and improvements invented, discovered or learned by
Employee during employment hereunder, and relating to Employer's business
will be disclosed to Employer and will be the sole property of Employer.
Employee acknowledges that information imparted to him by Employer, or
its affiliates (including Vita), relating to the production methods,
techniques, customer lists, statistics, credit, customers and suppliers of
Employer, or its affiliates (including Vita) is the property of Employer,
or its affiliates (including Vita). Therefore, Employee shall, upon
termination of his employment hereunder, return to Employer all books,
records and notes containing customer lists and addresses, all duplicate
invoices, all statements and correspondence pertaining to such customers,
and all other information and documents (including all copies thereof)
relating to customers, their needs, products of Employer, or its affiliates
(including Vita) used by them, schedules of discussions with them, all
formulae, code books, price lists, products, manuals and equipment,
production or processing information or instructions, data applicable to
methods of manufacture, types, kinds, suppliers and costs of raw materials,
and all such other information applicable to Employer, or its affiliates
(including Vita), its customers and the manner of conducting its business.
Employer agrees, however, to provide Employee upon request with copies of
whatever documents he may reasonably require. The restraints on Employee,
as set forth in this Section 9, however, shall not apply to any invention
(i) for which no equipment, supplies, facility or Trade Secrets of Employer
was used; (ii) which was developed entirely on Employee's own time; (iii)
which does not relate to the business of Employer (including Employer's
actual or demonstrably anticipated research or development); and (iv) which
does not result from any work performed by Employee for Employer.
10. Non-Waiver of Breach. Employer's failure to exercise any right
hereunder in the event of Employee's breach of any term hereof, shall not
be construed as a waiver of such breach or prevent Employer from thereafter
enforcing strict compliance with any and all terms of this Agreement. The
parties recognize that the services to be rendered by Employee hereunder
are special, unique and of an extraordinary character.
11. Termination.
(a) If any of the following events (each a "Justification") occurs
during the term hereof, Employee may voluntarily terminate and resign his
employment immediately upon the occurrence of such event, and be entitled
to the severance benefits set forth in Section 5 of this Agreement:
(A) any duties are assigned to Employee or restrictions are
placed on Employee which are inconsistent with his position, duties,
responsibilities and status pursuant to Section 1; or
(B) Employee's Base Salary, options and bonuses hereunder are not
paid or delivered within seven days of Employee's notifying Employer
that such are due, or Employer takes action which otherwise adversely
affects or materially reduces any other benefits or rights which
Employee is entitled to hereunder.
If Employer and Employee are unable to agree that any of the above events
have occurred, the matter shall be referred to binding arbitration pursuant
to the rules of the American Arbitration Association.
(b) Employee is not required to seek employment after termination, and
no compensation earned after termination shall reduce the amounts otherwise
payable hereunder, including without limitation, severance benefits payable
pursuant to Section 5 hereof.
(c) If Employee's employment is terminated for Cause, or if Employee
resigns without Justification, i.e., other than as permitted by subsection
(a), and without giving notice of termination pursuant to Section 3
Employee shall, however, be entitled to receive all accrued compensation
and benefits payable hereunder through the date of such termination.
Employee shall not be entitled to any additional options, compensation,
bonuses or severance benefits under this Agreement. A termination for
Cause shall have occurred only if Employee's employment is terminated
because he was convicted of a felony, or because of acts or omissions
(including failure to follow the lawful instructions of Employer's Board of
Directors) on Employee's part resulting, or intended to result in personal
gain at the expense of Employer (including its subsidiaries) or intentional
acts or omissions on Employee's part causing material injury in excess of
$1,000,000 to the property or business of Employer (including its
subsidiaries). Cause shall not include:
(i) bad judgment or any act or omission reasonably believed by
Employee in good faith to have been in or not opposed to the best
interests of Employer (including its subsidiaries); or
(ii) any acts or omissions by Employee in connection with any bid,
tender or merger offer, restructuring proposals, or any controversy or
litigation relating thereto (whether involving Vita or other persons),
in which Employer may become involved, wherein Employee's acts or
omissions are the subject of controversy with any persons or firms
involved in such matters.
12. Independent Obligations.
(a) Employer's obligations to pay compensation and benefits due
hereunder shall be absolute and unconditional and shall not be affected by
any circumstances, including, without limitation, any set-off (including no
reduction in compensation or bonuses for compensation which was or could
have been earned elsewhere during the term hereof), counter-claim,
recoupment, defense or other right which the Employer may have against
Employee. Any such set-offs or other such counter-claims shall be the
subject of separate action, claim and proof against Employee without being
made subject to any set-off, counter-claim or cross-claim in any action by
the Employee to enforce his rights under this Agreement.
(b) Employee's obligations under Sections 7, 8, and 9 hereof represent
independent covenants by which Employee shall remain bound irrespective of
any breach by Employer.
13. Indemnification; Arbitration.
(a) In the event that Employee is required to institute or join in any
legal action or arbitration proceeding to obtain or enforce, or to defend
the validity or enforceability of, any contemplated or actual payment of
compensation or benefits under this Agreement, Employer will, if Employee
prevails in such action or proceeding, pay all actual legal fees and
expenses incurred by Employee.
(b) Employee shall have the right, in his sole discretion, to demand
arbitration of any substantive claim he may have against Employer for any
compensation or benefits due under this Agreement. Such arbitration shall
be conducted in St. Louis, Missouri, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon
any arbitration award may be entered in any court having jurisdiction. In
the event of concurrent arbitration and court proceedings relating to this
Agreement, the arbitration will not be stayed pending the conclusion of any
court proceedings.
14. Registration Rights. In the case of a proposed registration under
the Securities Act of 1933 (the "Securities Act") of an offering by
Employer of shares of its common stock while any common shares or preferred
shares are owned by Employee, Employee shall have the right to participate
in such registration and public offering as hereinafter provided. Employer
will give Employee at least twenty (20) days' prior written notice of any
proposed registration of shares of common stock under the Securities Act
for any offering by it otherwise relating to an employee stock option or
benefit plan or in a merger, consolidation, acquisition of assets or
recapitalization plan. If requested by Employee in writing, within twenty
(20) days after receipt of any such notice or on two occasions even if no
such notice has been given, Employer will use its best efforts to register
all or part of the shares of common stock of Employer owned by Employee or
which Employee has a right to acquire (as specified in such request) under
the Securities Act and from time to time, if possible, amend or supplement
the registration statement and prospectus used in connection therewith if
and to the extent necessary in order to comply with the Securities Act for
a period of up to one hundred twenty (120) days after the initial effective
date of such registration, provided that Employee shall not have failed to
exercise a right following such a notice within six months of the proposed
registration. Such registration shall be at the expense of Employer.
Employer will, at the request of Employee, take any and all such actions,
make such filings and enter into such agreements as may be reasonably
necessary or appropriate to facilitate sales of Employee's securities in
the manner contemplated by any such registration. If Employer or the
underwriter managing or proposing to manage Employer's offering determines
that registration of Employee's securities would impair Employer's
offering, then Employer may by notice in writing to Employee reduce the
number of shares to be registered for Employee (provided any others in a
similar position are similarly reduced) or elect to defer any registration
of shares requested by Employee for a period to be agreed upon between
Employer and Employee, such period to be not less than six (6) months nor
more than two (2) years from the date of Employer's offering. At the
deferred date, such registration shall proceed on the terms provided
herein. Employer in any case may defer registration in order to coordinate
with its normal quarterly and annual filings with the Securities and
Exchange Commission.
In the event of any such registration, to the extent permitted by law,
Employer will indemnify Employee, each underwriter and each person, if any,
who controls Employee or any such underwriter within the meaning of the
Securities Act, against all losses, claims, damages, liabilities and
expenses (under the Securities Act, at common law or otherwise) resulting
from any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus or resulting from any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses result from any untrue statement or omission or alleged untrue
statement or alleged omission contained or omitted in information furnished
in writing to Employer by Employee or such underwriter expressly for use
therein.
Employee will furnish to Employer in writing such information as shall
be reasonably requested by Employer for use in any such registration
statement or prospectus and, to the extent permitted by law, will indemnify
Employer, its directors, each officer signing such registration statement,
each person, if any, who controls Employer within the meaning of the
Securities Act, each underwriter, and each person, if any, who controls any
such underwriter, within the meaning of the Securities Act, against all
losses, claims, damages, liabilities and expenses resulting from any untrue
statement or alleged untrue statement of a material fact or any omission or
alleged omission of a material fact required to be stated in the
registration statement or prospectus or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement
or omission or alleged untrue statement or alleged omission is contained or
omitted in information so furnished in writing by Employee expressly for
use therein.
15. Amendment or Modification. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in a writing signed by Employee and a person
authorized to sign on behalf of Employer.
16. Successors; Binding Agreement.
(a) This Agreement shall bind any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Employer, in the same
manner and to the same extent that Employer would be required to perform
this Agreement if no such succession had taken place. The foregoing rights
shall include the right of Employee's Representatives to exercise any
outstanding options for so long as such options are by their terms
exercisable. Such Representatives shall have the same rights as Employee
pursuant to Section 4(c) hereof to apply shares of Employer.
(b) This Agreement shall inure to the benefit of and be enforceable by
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees ("Representatives").
If Employee should die before all compensation and benefits that would have
been paid if Employee had continued to live, all such compensation and
benefits shall be paid in accordance with the terms of this Agreement to
Employee's Representatives or, if there be no such Representatives, to
Employee's estate.
17. Notice. Notices and all other communication provided for in this
Agreement shall be in writing and shall be deemed to have been duly given
when delivered or mailed by certified or registered mail, return receipt
requested, postage prepaid, addressed to the respective addresses set forth
on the signature page of this Agreement, provided that all notices to
Employer shall be directed to the attention of the Secretary of Employer,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
18. Validity and Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain
in full force and effect, and any prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
20. Board Approval; Entire Agreement. This Agreement, which has been
reviewed and approved by the Board of Directors of Employer, embodies the
entire agreement between the parties with respect to its subject matter.
21. Governing Law. This Agreement shall be construed and interpreted
in accordance with, and shall be governed by, the substantive laws, but not
the conflicts of law principles, of the State of Missouri.
22. Certain Terms Survive. The obligations of Employer under Sections
13, 14 and 16(a), and the obligations of Employee under Sections 7, 8, 9
and 14, shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties have set their hands to duplicates on
the day and year first above written.
SPARTECH CORPORATION
By: /s/ David B. Mueller /s/Bradley B. Buechler
Employer BRADLEY B. BUECHLER, Employee
7733 Forsyth, Suite 1450 290 Herworth Drive
St. Louis, Missouri 63105 Chesterfield, Missouri 63005
10(B)
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT OF
DAVID B. MUELLER
AGREEMENT entered into as of the 1st day of November, 1997, by and
between SPARTECH CORPORATION, a Delaware corporation ("Employer"), and
DAVID B. MUELLER ("Employee").
WITNESSETH:
WHEREAS, Employee currently holds the position of Executive Vice
President and Chief Operating Officer and Secretary of Employer pursuant to
an employment agreement with Employer dated July 1, 1992, as amended on
March 8, 1993, July 1, 1995 and July 1, 1996 (the "1992 Amended Employment
Agreement"); and
WHEREAS, Employer desires to provide for Employee's continued service
to Employer in his current positions, and Employee is willing to provide
such services on the terms set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual premises set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the 1992 Amended Employment
Agreement is hereby amended and restated to read in its entirety as
follows:
1. Employment and Duties of Employee. Employer employs Employee to
act in a senior executive capacity, as Executive Vice President and Chief
Operating Officer and Secretary of Employer, and in all aspects of its
business, as and when requested, and at such times and places as Employer
shall reasonably request, except that (a) Employee shall not be assigned
duties or responsibilities which are inconsistent with his position and
status as Executive Vice President and Chief Operating Officer and
Secretary, and (b) Employee shall not be required temporarily or
permanently, to relocate his residence.
Employee agrees faithfully to perform such duties as Employer assigns
to him; to devote the necessary time and best efforts to the manufacture
and sale of Employer's products; and to endeavor to improve Employer's
business, through plant and production organization, customer and supplier
relationships, capital development and additional financing resources,
acquisition of other businesses, and by other means, in all reasonable ways
for the term hereof, the services to be of a similar nature as those
currently provided Employer, subject always to the control and direction of
Employer's Board of Directors.
2. Compensation.
(a) Subject to annual review (without obligation to increase) for cost
of living and/or merit and other increases at the Board's discretion,
Employer agrees to compensate Employee at a fixed rate of $250,000 annually
("Base Salary"), such Base Salary to be paid in equal weekly installments.
Employer shall further advance or reimburse to Employee such other funds as
Employer determines for credit cards, costs and other reasonable expenses
incurred by Employee in the discharge of Employer's instructions hereunder,
and consistent with the necessities of the operation of the business.
Except to the extent that his participation therein will disadvantage the
other participants, Employee will also participate, as appropriate, in all
other stock option and stock purchase plans, insurance, medical and other
employee benefit programs currently established or hereafter instituted by
Employer. In addition, for the term of this Agreement, Employer will
continue to lease or otherwise make available for Employee an automobile of
comparable quality to the automobile currently leased by Employer for
Employee, and to pay the cost of insurance and maintenance for such
automobile.
(b) Employer further agrees to grant to Employee on or before November
7, 1997 an option to purchase 150,000 shares of common stock of Employer,
which shall be in addition to the options previously granted to Employee.
Such option may be granted pursuant to any of Employer's stock option plans
or, if unavailable thereunder, shall be granted directly to Employee
outside of such plans. Such option shall (A) have exercise prices which
are equal to the market price of the underlying shares on the date of grant
or not more than five days preceding the date of grant, as appropriately
adjusted as provided in the stock option agreement covering such options,
(B) be Employer's customary ten-year options, and (C) have the same terms
as options heretofore granted pursuant to Employer's Restricted Stock
Option Plan, including two year restrictions on resale of the underlying
shares while Employee remains employed.
The Board of Directors of Employer shall annually consider issuing
additional options to Employee.
(c) In addition to the benefits provided for above and elsewhere in
this Agreement, Employer shall contribute each year to the life insurance
contract in place for Employee and owned by Employee an amount equal to the
sum of (A) 15% of Employee's base salary as defined in this Agreement
(exclusive of bonuses) plus (B) the amount of the premium Employer would
pay for $750,000 of term life insurance on Employee.
3. Term of Employment.
(a) The term of this Agreement shall commence November 1, 1997 and,
except as provided in Section 11 below, shall continue until terminated by
three years' written notice by Employer to Employee, or by one year's
written notice by Employee to Employer, such notice not to be given by
Employer before November 1, 2000 and not to be given by Employee before (A)
if no Change in Control occurs, November 1, 2000, or (B) if a Change in
Control occurs, November 1, 1998. In the event such notice is given by
Employer, Employee shall not be required to perform further services to
Employer hereunder; in the event such notice is given by Employee, Employee
shall, for a period not to exceed 45 days after the date of such notice,
provide such consulting services to Employer as Employer shall reasonably
request.
(b) For purposes of this Agreement, "Change of Control" means the
first to occur of any of the following:
(i) The date Employer's Board of Directors votes to approve and
recommends a stockholder vote to approve:
(A) any consolidation or merger of Employer in which
Employer is not the continuing or surviving corporation; or
(B) any consolidation or merger of Employer in which shares
of Employer's capital stock would be converted into cash,
securities or other property, other than a consolidation or merger
of Employer (I) in which the direct or indirect holders of
Employer capital stock immediately prior to the consolidation or
merger have the right to receive the same direct or indirect
proportionate ownership of voting stock of the surviving
corporation immediately after the consolidation or merger or (II)
with another corporation which owns Employer capital stock
pursuant to which merger all of the Employer capital stock owned
by such corporation would be canceled or redeemed and Employer
capital stock would be issued to the stockholders of such
corporation; or
(C) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, of the assets of Employer, other than any sale,
lease, exchange or other transfer to any corporation where
Employer owns, directly or indirectly, at least eighty percent
(80%) of the outstanding voting securities of such corporation
after any such transfer; or
(D) any plan or proposal for the liquidation or dissolution
of Employer; or
(ii) The date any person (as such term is used in Section 13(d) of
the Securities Exchange Act of 1934, hereinafter the "Exchange Act")
shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of a majority of Employer's outstanding voting
stock; or
(iii) The date the Board of Directors of Employer or any
affiliate (within the meaning of Rule 12b-2 under the Exchange Act) of
Employer authorizes and approves any transaction which has either a
reasonable likelihood or the purpose of causing, whether directly or
indirectly, Employer's common stock to be held of record by fewer than
300 persons or not to be listed on any national securities exchange;
or
(iv) The date, during any period of twenty-four (24) consecutive
months, on which those individuals who at the beginning of such period
constitute Employer's Board of Directors shall cease for any reason to
constitute a majority thereof unless the election, or the nomination
for election by Employer's stockholders, of each new director
comprising the majority was approved by a vote of at least a majority
of the Continuing Directors in office on the date of such election or
nomination for election of the new director. For purposes of this
Section, "Continuing Director" means:
(A) any member of Employer's Board of Directors as of the
close of business on the date of this Agreement; or
(B) any member of Employer's Board of Directors who succeeds
any Continuing Director described in clause (A) if such successor
was elected, or nominated for election by Employer's stockholders,
by a majority of the Continuing Directors then still in office; or
(C) any director elected, or nominated for election by
Employer's stockholders, to fill any vacancy or newly-created
directorship on Employer's Board of Directors by a majority of the
Continuing Directors then still in office.
4. Bonuses.
(a) For each fiscal year of Employer, Employee shall receive an annual
bonus equal to 0.60% of Employer's earnings before interest and income
taxes as reported in Employer's audited financial statements for each year
that this Agreement is in effect, adjusted, however, to exclude profit or
loss on extraordinary or nonrecurring items and unusual items (such as sale
of a significant amount of assets or securities other than in the ordinary
course of business operations, one-time employee separation costs, and
significant litigation costs or recoveries) ("Adjusted EBIT"), such
determination to be made by Employer's auditors based on generally accepted
accounting principles; provided, however, no such bonuses will be paid with
respect to any fiscal year in which Employer's Adjusted EBIT is less than
66-2/3% of the Company's Adjusted EBIT in its immediately preceding fiscal
year.
(b) Each fiscal year, an installment equal to 40% of the estimated
bonus for such fiscal year to be approved by the Compensation Committee of
Employer's Board of Directors shall be paid to Employee in August, and the
balance, if any, of such bonus shall be paid as soon as practicable upon
completion of Employer's audited financial statements for such fiscal year.
(c) Should this Agreement terminate prior to the close of a fiscal
year of Employer, Employee shall be entitled to a bonus with respect to
such fiscal year (in addition to such other amounts to which he may be
entitled on termination under other provisions of this Agreement) equal to
the bonus he would have earned had this Agreement been in effect for the
entire fiscal year multiplied by a fraction, the numerator of which shall
be the number of days in such fiscal year prior to termination of this
Agreement, and the denominator of which shall be 365.
5. Severance Benefits.
(a) If at any time before a Change in Control Employee's employment
with Employer is terminated (i) by Employer for any reason other than
"Cause" (as defined in Section 11(c) below), or (ii) by Employee with
"Justification" (as defined in Section 11(a) below) or pursuant to notice
of termination given by Employee to Employer pursuant to Section 3, above,
Employer shall pay to Employee within thirty (30) days of (I) the date
notice of such termination is given to Employee pursuant to Section 3,
above, or (II) the date of such termination with Justification, a lump sum
severance benefit (the "Severance Benefit") equal to (A) two times
Employee's then current Base Salary plus (B) the aggregate amount of bonus
paid or earned by Employee in the two years prior to the date of such
notice of termination.
(b) If at any time after a Change in Control Employee's employment
with Employer is terminated (i) by Employer for any reason other than
"Cause" (as defined in Section 11(c) below), or (ii) by Employee with
"Justification" (as defined in Section 11(a) below) or pursuant to notice
of termination given by Employee to Employer pursuant to Section 3, above,
Employer shall pay to Employee within thirty (30) days of (I) the date
notice of such termination is given to Employee pursuant to Section 3,
above, or (II) the date of such termination with Justification, a lump sum
severance benefit (the "Severance Benefit") equal to 2.95 times the sum of
(A) Employee's then current Base Salary plus (B) one-third of the aggregate
amount of bonus paid or earned by Employee in the three years prior to the
date of such notice of termination.
(c) The Severance Benefit shall be payable in lieu of any further
claims to Base Salary under Section 2 or bonuses under Section 4 hereof,
for any remaining term of this Agreement; however, the Severance Benefit
shall be in addition to and not in lieu of all other compensation and
benefits under any other provision of this Agreement, including accrued
vacation or sick pay, accrued amounts payable for prior salary or bonuses
earned, or any amounts payable under any life insurance, health, disability
or similar employee benefit plan. Employee may elect to have any life
insurance, health plan, disability plan or similar plan which was in effect
immediately prior to Employee's termination extended for a period of two
(2) years beyond when Employee's eligibility for such plan would otherwise
have ended, provided that (i) Employee so notifies Employer within five (5)
days of Employee's termination and (ii) the cost of extending Employee's
eligibility as described above shall be negotiated on a good faith basis
and, at Employee's request, subtracted from the payment of Employee's
severance benefit. Should the Employee subsequently obtain similar
coverage from another Employer or otherwise, Employee will notify Employer
and coverage will cease and a pro-rata refund returned to the Employee.
The "cost" for this purpose shall be deemed to be the most recent rate
charged to employees of Employer or its subsidiaries for such benefits.
Promptly after Employee's request for such extension, Employer shall place
sufficient funds in escrow to pay all premiums on such insurance and plans
for the period of the extension.
(d) If all or any portion of the Severance Benefit, together with any
other amounts, including the value of any stock options, received or deemed
to be received by Employee from Employer or any of its subsidiaries and
affiliates or from any pension, employee welfare, incentive compensation or
other plans sponsored by Employer or any of its subsidiaries and affiliates
(collectively, the "Base Payment"), will be subject to any excise tax under
Section 4999 of the Internal Revenue Code of 1986, as amended, or any
similar tax payable under any federal, state, local or other law
(collectively, "Excise Taxes"), Employer shall pay Employee an additional
amount (the "Gross-Up Payment") such that the net amount retained by
Employee, after deduction of any Excise Taxes payable by Employee with
respect to the Base Payment and the Gross-Up Payment and any federal, state
or local income or other taxes payable by Employee with respect to the Base
Payment and the Gross-Up Payment (collectively, "Other Taxes") (including
any additional tax resulting from any loss or disallowance of deductions
due to the Gross-Up Payment), will equal the Base Payment net of the Other
Taxes on the Base Payment determined without regard to any Excise Taxes.
For the purposes of this determination, Employee's income shall be assumed
to be subject to Other Taxes at the highest marginal rates. The Gross-Up
Payment shall be paid simultaneously with the payment of the Severance
Benefit, on the basis of Employer's good-faith estimate of the Excise Taxes
if necessary, but if the actual amount of Excise Taxes is later determined
by Employer or Employee to be different from the amount on which the Gross-
Up Payment was originally calculated, the difference shall be paid or
refunded within 30 days after notice of such difference is given to the
party liable for such payment or refund.
(e) In order to provide security to Employee for Employer's payment of
the amounts payable pursuant to Sections 5(a), 5(b) and 5(d) in the event
of a Change in Control, Employer agrees that within 10 days after a Change
in Control, whether or not Employee's employment is terminated, Employer
will either (i) pay Employee the Base Payment plus the Gross-Up Payment, in
full, in immediately available funds (which will discharge Employer's
obligations under this Section except for payment of any difference upon
final determination of the Gross-Up Amount pursuant to Section 5(d)), or
(ii) deposit 110% of the then-estimated Base Payment and Gross-Up Payment
in an interest-bearing escrow account with a St. Louis, Missouri bank with
which Employer has no other banking relationship, which escrow account
shall be maintained pursuant to a written escrow agreement reasonably
satisfactory to counsel for all parties, as security for Employer's timely
payment of the amounts due pursuant to Sections 5(a), 5(b) and 5(d), the
terms of which shall provide that the escrow account, including the
interest thereon, may be applied only to payment of any amounts due
pursuant to Sections 5(a), 5(b) and 5(d) and may be disbursed only pursuant
to written instructions to the escrow agent from both Employer and Employee
or pursuant to a valid court order.
6. Disability and Death Benefits. In the event Employee shall (i)
become physically or mentally disabled (as determined in accordance with
the Social Security Act) from performing his functions contemplated
hereunder, and such period of disability shall continue for at least six
consecutive months, or (ii) become deceased during the term hereof,
Employer shall pay to Employee, or, in accordance with Section 16 below,
his Representatives (as defined in Section 16(c)), as the case may be, the
annual salary provided hereunder, together with the annual bonus above
provided pro-rata, for a period through the balance of the month in which
the described disability period begins, or the balance of the month in
which the date of death, whichever shall occur sooner. Regular salary, pro
rata bonus, and other payments, shall be made to Employee or Employee's
Representatives, as the case may be, during the first six (6) months of any
period of disability, physical or mental, as above described.
7. Restrictive Covenants. Employee agrees that while employed by
Employer hereunder (including any renewal term hereunder), and for twenty-
four consecutive months following termination of employment, Employee will
not, in any manner, directly or indirectly:
(a) disclose or divulge to any person, entity, firm or company
whatsoever, nor use for his own benefit or the benefit of any other person,
entity, firm and company, directly or indirectly in competition with
Employer, any proprietary knowledge, confidential information, production
or business methods, techniques or customer lists of Employer, or its
affiliates (including Vita) (except information generally known or used in
the trade) ("Trade Secrets"):
(b) solicit, call on, divert, or interfere with any of the customers
of Employer or its affiliates (including Vita), trade, business, patronage,
employees or agents of Employer or its affiliates (including Vita), with
whom Employee has done business and in any city where Employee, Employer or
its affiliates (including Vita) is now engaged in the plastics business for
the purpose of diverting their trade to plastics businesses which compete
directly with Employer's businesses; or
(c) invest in, or take an active management or advisory role in, any
company in the plastics business whose operations compete directly with any
of Employer's businesses.
8. Limitation on Restrictive Covenants. It is the intention of the
parties to restrict the activities of Employee only to the extent necessary
for the protection of Employer's legitimate business interests. The
parties specifically agree that should any provision set forth in Sections
7 or 9 under any set of circumstances not now presently foreseen by the
parties, be deemed too broad for that purpose, said provisions will
nevertheless be valid and enforceable to the extent necessary for such
protection.
9. Inventions, etc. Employee acknowledges that all mechanical or
scientific inventions, production processes. techniques, programs, patents,
discoveries, formulae and improvements invented, discovered or learned by
Employee during employment hereunder, and relating to Employer's business
will be disclosed to Employer and will be the sole property of Employer.
Employee acknowledges that information imparted to him by Employer, or
its affiliates (including Vita), relating to the production methods,
techniques, customer lists, statistics, credit, customers and suppliers of
Employer, or its affiliates (including Vita) is the property of Employer,
or its affiliates (including Vita). Therefore, Employee shall, upon
termination of his employment hereunder, return to Employer all books,
records and notes containing customer lists and addresses, all duplicate
invoices, all statements and correspondence pertaining to such customers,
and all other information and documents (including all copies thereof)
relating to customers, their needs, products of Employer, or its affiliates
(including Vita) used by them, schedules of discussions with them, all
formulae, code books, price lists, products, manuals and equipment,
production or processing information or instructions, data applicable to
methods of manufacture, types, kinds, suppliers and costs of raw materials,
and all such other information applicable to Employer, or its affiliates
(including Vita), its customers and the manner of conducting its business.
Employer agrees, however, to provide Employee upon request with copies of
whatever documents he may reasonably require. The restraints on Employee,
as set forth in this Section 9, however, shall not apply to any invention
(i) for which no equipment, supplies, facility or Trade Secrets of Employer
was used; (ii) which was developed entirely on Employee's own time; (iii)
which does not relate to the business of Employer (including Employer's
actual or demonstrably anticipated research or development); and (iv) which
does not result from any work performed by Employee for Employer.
10. Non-Waiver of Breach. Employer's failure to exercise any right
hereunder in the event of Employee's breach of any term hereof, shall not
be construed as a waiver of such breach or prevent Employer from thereafter
enforcing strict compliance with any and all terms of this Agreement. The
parties recognize that the services to be rendered by Employee hereunder
are special, unique and of an extraordinary character.
11. Termination.
(a) If any of the following events (each a "Justification") occurs
during the term hereof, Employee may voluntarily terminate and resign his
employment immediately upon the occurrence of such event, and be entitled
to the severance benefits set forth in Section 5 of this Agreement:
(A) any duties are assigned to Employee or restrictions are
placed on Employee which are inconsistent with his position, duties,
responsibilities and status pursuant to Section 1; or
(B) Employee's Base Salary, options and bonuses hereunder are not
paid or delivered within seven days of Employee's notifying Employer
that such are due, or Employer takes action which otherwise adversely
affects or materially reduces any other benefits or rights which
Employee is entitled to hereunder.
If Employer and Employee are unable to agree that any of the above events
have occurred, the matter shall be referred to binding arbitration pursuant
to the rules of the American Arbitration Association.
(b) Employee is not required to seek employment after termination, and
no compensation earned after termination shall reduce the amounts otherwise
payable hereunder, including without limitation, severance benefits payable
pursuant to Section 5 hereof.
(c) If Employee's employment is terminated for Cause, or if Employee
resigns without Justification, i.e., other than as permitted by subsection
(a), and without giving notice of termination pursuant to Section 3
Employee shall, however, be entitled to receive all accrued compensation
and benefits payable hereunder through the date of such termination.
Employee shall not be entitled to any additional options, compensation,
bonuses or severance benefits under this Agreement. A termination for
Cause shall have occurred only if Employee's employment is terminated
because he was convicted of a felony, or because of acts or omissions
(including failure to follow the lawful instructions of Employer's Board of
Directors) on Employee's part resulting, or intended to result in personal
gain at the expense of Employer (including its subsidiaries) or intentional
acts or omissions on Employee's part causing material injury in excess of
$1,000,000 to the property or business of Employer (including its
subsidiaries). Cause shall not include:
(i) bad judgment or any act or omission reasonably believed by
Employee in good faith to have been in or not opposed to the best
interests of Employer (including its subsidiaries); or
(ii) any acts or omissions by Employee in connection with any bid,
tender or merger offer, restructuring proposals, or any controversy or
litigation relating thereto (whether involving Vita or other persons),
in which Employer may become involved, wherein Employee's acts or
omissions are the subject of controversy with any persons or firms
involved in such matters.
12. Independent Obligations.
(a) Employer's obligations to pay compensation and benefits due
hereunder shall be absolute and unconditional and shall not be affected by
any circumstances, including, without limitation, any set-off (including no
reduction in compensation or bonuses for compensation which was or could
have been earned elsewhere during the term hereof), counter-claim,
recoupment, defense or other right which the Employer may have against
Employee. Any such set-offs or other such counter-claims shall be the
subject of separate action, claim and proof against Employee without being
made subject to any set-off, counter-claim or cross-claim in any action by
the Employee to enforce his rights under this Agreement.
(b) Employee's obligations under Sections 7, 8, and 9 hereof represent
independent covenants by which Employee shall remain bound irrespective of
any breach by Employer.
13. Indemnification; Arbitration.
(a) In the event that Employee is required to institute or join in any
legal action or arbitration proceeding to obtain or enforce, or to defend
the validity or enforceability of, any contemplated or actual payment of
compensation or benefits under this Agreement, Employer will, if Employee
prevails in such action or proceeding, pay all actual legal fees and
expenses incurred by Employee.
(b) Employee shall have the right, in his sole discretion, to demand
arbitration of any substantive claim he may have against Employer for any
compensation or benefits due under this Agreement. Such arbitration shall
be conducted in St. Louis, Missouri, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon
any arbitration award may be entered in any court having jurisdiction. In
the event of concurrent arbitration and court proceedings relating to this
Agreement, the arbitration will not be stayed pending the conclusion of any
court proceedings.
14. Registration Rights. In the case of a proposed registration under
the Securities Act of 1933 (the "Securities Act") of an offering by
Employer of shares of its common stock while any common shares or preferred
shares are owned by Employee, Employee shall have the right to participate
in such registration and public offering as hereinafter provided. Employer
will give Employee at least twenty (20) days' prior written notice of any
proposed registration of shares of common stock under the Securities Act
for any offering by it otherwise relating to an employee stock option or
benefit plan or in a merger, consolidation, acquisition of assets or
recapitalization plan. If requested by Employee in writing, within twenty
(20) days after receipt of any such notice or on two occasions even if no
such notice has been given, Employer will use its best efforts to register
all or part of the shares of common stock of Employer owned by Employee or
which Employee has a right to acquire (as specified in such request) under
the Securities Act and from time to time, if possible, amend or supplement
the registration statement and prospectus used in connection therewith if
and to the extent necessary in order to comply with the Securities Act for
a period of up to one hundred twenty (120) days after the initial effective
date of such registration, provided that Employee shall not have failed to
exercise a right following such a notice within six months of the proposed
registration. Such registration shall be at the expense of Employer.
Employer will, at the request of Employee, take any and all such actions,
make such filings and enter into such agreements as may be reasonably
necessary or appropriate to facilitate sales of Employee's securities in
the manner contemplated by any such registration. If Employer or the
underwriter managing or proposing to manage Employer's offering determines
that registration of Employee's securities would impair Employer's
offering, then Employer may by notice in writing to Employee reduce the
number of shares to be registered for Employee (provided any others in a
similar position are similarly reduced) or elect to defer any registration
of shares requested by Employee for a period to be agreed upon between
Employer and Employee, such period to be not less than six (6) months nor
more than two (2) years from the date of Employer's offering. At the
deferred date, such registration shall proceed on the terms provided
herein. Employer in any case may defer registration in order to coordinate
with its normal quarterly and annual filings with the Securities and
Exchange Commission.
In the event of any such registration, to the extent permitted by law,
Employer will indemnify Employee, each underwriter and each person, if any,
who controls Employee or any such underwriter within the meaning of the
Securities Act, against all losses, claims, damages, liabilities and
expenses (under the Securities Act, at common law or otherwise) resulting
from any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus or resulting from any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses result from any untrue statement or omission or alleged untrue
statement or alleged omission contained or omitted in information furnished
in writing to Employer by Employee or such underwriter expressly for use
therein.
Employee will furnish to Employer in writing such information as shall
be reasonably requested by Employer for use in any such registration
statement or prospectus and, to the extent permitted by law, will indemnify
Employer, its directors, each officer signing such registration statement,
each person, if any, who controls Employer within the meaning of the
Securities Act, each underwriter, and each person, if any, who controls any
such underwriter, within the meaning of the Securities Act, against all
losses, claims, damages, liabilities and expenses resulting from any untrue
statement or alleged untrue statement of a material fact or any omission or
alleged omission of a material fact required to be stated in the
registration statement or prospectus or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement
or omission or alleged untrue statement or alleged omission is contained or
omitted in information so furnished in writing by Employee expressly for
use therein.
15. Amendment or Modification. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in a writing signed by Employee and a person
authorized to sign on behalf of Employer.
16. Successors; Binding Agreement.
(a) This Agreement shall bind any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Employer, in the same
manner and to the same extent that Employer would be required to perform
this Agreement if no such succession had taken place. The foregoing rights
shall include the right of Employee's Representatives to exercise any
outstanding options for so long as such options are by their terms
exercisable. Such Representatives shall have the same rights as Employee
pursuant to Section 4(c) hereof to apply shares of Employer.
(b) This Agreement shall inure to the benefit of and be enforceable by
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees ("Representatives").
If Employee should die before all compensation and benefits that would have
been paid if Employee had continued to live, all such compensation and
benefits shall be paid in accordance with the terms of this Agreement to
Employee's Representatives or, if there be no such Representatives, to
Employee's estate.
17. Notice. Notices and all other communication provided for in this
Agreement shall be in writing and shall be deemed to have been duly given
when delivered or mailed by certified or registered mail, return receipt
requested, postage prepaid, addressed to the respective addresses set forth
on the signature page of this Agreement, provided that all notices to
Employer shall be directed to the attention of the Secretary of Employer,
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
18. Validity and Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain
in full force and effect, and any prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
20. Board Approval; Entire Agreement. This Agreement, which has been
reviewed and approved by the Board of Directors of Employer, embodies the
entire agreement between the parties with respect to its subject matter.
21. Governing Law. This Agreement shall be construed and interpreted
in accordance with, and shall be governed by, the substantive laws, but not
the conflicts of law principles, of the State of Missouri.
22. Certain Terms Survive. The obligations of Employer under Sections
13, 14 and 16(a), and the obligations of Employee under Sections 7, 8, 9
and 14, shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties have set their hands to duplicates on
the day and year first above written.
SPARTECH CORPORATION
By: /s/Bradley B. Buechler /s/David B. Mueller
Employer DAVID B. MUELLER, Employee
7733 Forsyth, Suite 1450 22 Fair Oaks
St. Louis, Missouri 63105 Ladue, Missouri 63124
EXHIBIT 11
SPARTECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
Fiscal Year Ended
Nov 1, Nov 2, Oct 28,
1997 1996 1995
NET EARNINGS
Net earnings $25,493 $18,317 $14,534
Preferred stock accretion/requirements - - (1,098)
Primary net earnings applicable to common
shares and equivalents 25,493 18,317 13,436
Add: Preferred stock dividend accretion
reduction resulting from the
assumed conversion of the preferred stock - - 1,098
Fully diluted net earnings applicable to common
shares $ 25,493 $ 18,317 $ 14,534
WEIGHTED AVERAGE SHARES OUTSTANDING
Weighted average common shares outstanding 26,418 23,714 15,956
Add: Shares issuable from assumed exercise of
options and warrants 1,512 1,158 902
Primary weighted average common shares
outstanding 27,930 24,872 16,858
Add: Shares issuable from assumed
conversion of preferred stock - - 7,137
Add: Additional shares issuable from assumed
exercise of options and
warrants due to the difference in the
share repurchase price under the
fully diluted computation 201 243 116
Fully diluted weighted average common shares
outstanding 28,131 25,115 24,111
NET EARNINGS PER COMMON SHARE
Primary $ .91 $.74 $.80
Fully Diluted $.91 $.73 $.60
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Comparison Of Fiscal Years 1997 And 1996
The Company's fiscal year ends on the Saturday closest to October 31.
Fiscal year 1997 and 1995 each represented 52 weeks while fiscal 1996 consisted
of 53 weeks. As a result of the extra week in 1996, the operating results
presented below include discussions on a percentage of sales basis for more
meaningful comparisons.
Net sales were $502.7 million in 1997 representing a 28% increase from
$391.3 million in 1996. Excluding acquisitions, this growth in sales represents
a 7% increase in pounds sold offset by a 3% decrease from changes in prices and
mix of products sold and a 2% decline related to the extra week in 1996. The
Extruded Sheet & Rollstock Group's sales increased approximately 18% in 1997
representing an 8% increase in pounds shipped and a 15% increase in sales
related to acquisitions, while price and product mix changes and the extra week
had a negative impact on sales. Net sales in the Color & Specialty Compounds
Group increased 23% resulting from a 5% increase in pounds shipped and a 27%
increase in sales from the 1996 acquisition of Korlin Concentrates, net of
declines from changes in prices, mix of products sold, and the extra week in
1996. The Molded & Profile Products Group contributed $42.9 million in net
sales in its first full year as a market segment for the Company and benefited
from the late-1997 acquisition of Preferred's profile extruded products
operation.
Cost of sales decreased to 83.6% of net sales for 1997 from 84.5% for
1996. The more favorable cost of sales percentage in 1997 reflects improved
production efficiencies and a decline in certain raw material prices, partially
offset by an increase in depreciation as a result of capital expenditures
incurred by the Company during the last 18 months.
Selling and administrative expenses decreased to 6.2% of net sales in 1997
from 6.4% in 1996. The decrease in 1997 reflects continued cost containment
efforts and the economies of scale obtained through acquisitions and sales
growth of the Company.
Operating earnings for 1997 were $49.7 million (9.9% of net sales)
compared to $34.5 million (8.8% of net sales) in 1996. The gains in operating
earnings were achieved through the increased sales levels, improved production
efficiencies, and cost containment efforts.
Interest expense in 1997 increased from 1996, reflecting additional
borrowings related to the Portage, Hamelin and Preferred acqusitions, net of
$15.4 million in paydowns on the 1996 balance of the bank credit facility. In
addition, the Company borrowed, and subsequently paid down, the $9.7 million
due to Hamelin Group Inc. during 1997. The majority of the Company's debt is
based on fixed interest rates and therefore fluctuations in interest rates have
a minimal effect on interest costs.
The Company's effective tax rate was 38.3% for 1997 which is up from 37.8%
in 1996.
Comparison Of Fiscal Years 1996 And 1995
Net sales in 1996 of $391.3 million increased 11.1% from $352.3 million in
1995. The Extruded Sheet & Rollstock Group's sales increased approximately 13%
in 1996 primarily resulting from an increase in pounds shipped of 5%
(excluding acquisitions) and a 7% increase in net sales related to the Portage
and Hamelin acquisitions. Color & Specialty Compound sales declined by less
than 2% in 1996 to $68.2 million, as the group's Cape Girardeau, Missouri
facility spent sizable marketing efforts on new product developments during the
year.
Cost of sales decreased to 84.5% of net sales for 1996 from 85.8% for
1995. The stabilization of raw material prices and improved production
efficiencies contributed to the more favorable cost of sales percentage for
1996.
On a percentage of sales basis, selling and administrative expenses
reflect a decrease to 6.4% in 1996 from 7.0% in 1995. The decrease in 1996 was
primarily a result of the absence of significant legal expenses incurred in
1995 and continued cost containment efforts.
Operating earnings for 1996 were $34.5 million (8.8% of net sales)
compared to $24.6 million (7.0% of net sales) in 1995. The gains in operating
earnings were achieved through the increased sales discussed above, improved
production efficiencies, and cost containment efforts.
Interest expense in 1996 was relatively flat with 1995, representing the
net impact of the refinancings in late 1995 at more favorable interest rates
and the net increases in borrowings in 1996 related to the Portage and Hamelin
acquisitions. See the "Financing Arrangements" discussion that follows.
As a result of the utilization of substantially all of the Company's book
loss carryforwards in 1995, the Company's effective tax rate increased to 37.8%
in 1996 from 26.0% in 1995.
<TABLE>
<CAPTION>
Summary of Costs & Expenses
Fiscal Year
1997 1996 1995
(Dollars in millions)
<S> <C> <C> <C>
Cost of sales $420.5 $330.8 $302.4
Selling and admin-
istrative expenses $31.0 $25.2 $24.5
Interest expense $8.4 $5.1 $5.0
</TABLE>
sidebar 3-D bar charts
GROSS MARGIN
As % of sales
1995 = 14.2%
1996 = 15.5%
1997 = 16.4%
OPERATING EARNINGS
In millions of dollars
1995 = $24.6
1996 = $34.5
1997 = $49.7
Environmental Matters
The Company is subject to various laws governing employee safety and
Federal, state, and local (including Canadian provincial) regulations governing
the quantities of certain specified substances that may be emitted into the
air, discharged into waterways, and otherwise disposed of on and off the
properties of the Company. The Company does not anticipate that future
expenditures for 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 processes are
crude oil or natural gas derivatives and are available from a number of
domestic and foreign suppliers. Accordingly, the Company's raw materials are
only somewhat affected by supply, demand, and price trends of the petroleum
industry; the pricing of 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 1998.
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 continues to generate strong cash flows from operations,
resulting from the 39% increase in net earnings in 1997 compared to the prior
year, net of the impact of changes in working capital. Operating cash flows
provided by changes in working capital totaled $5.5 million in 1997, primarily
as a result of improved inventory turns and higher days payables outstanding.
In addition, the Company paid income taxes of $11.2 million in 1997 versus
$10.8 million for 1996.
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 1997 and 1996 were
$12.2 million and $9.6 million, respectively. The Company anticipates total
capital expenditures in fiscal 1998 of approximately $12.5 million, including
additional equipment for the facilities acquired in 1997.
On August 22, 1997, the Company completed the acquisition of the net
assets of the Preferred Plastic Sheet Division of Echlin Inc. for a cash
purchase price of approximately $65.1 million, including costs of the
transaction. Preferred's extruded sheet and profile extruded product facilities
generate annual sales of approximately $75 million. On September 27, 1996, the
Company finalized the purchase of substantially all the net assets of the
extrusion, color, and molding divisions of Hamelin, which had consolidated
sales of approximately $80 million for its fiscal year ended April 30, 1996.
The purchase price for the net assets of Hamelin was approximately $59.4
million in cash, including costs of the transaction. Effective May 9, 1996, the
Company completed its purchase of Portage for a cash price of approximately
$17.6 million, including estimated costs of the transaction. Refer to Note (2)
to the Consolidated Financial Statements for further discussion. The Company
continues to evaluate value-added acquisition opportunities that meet its
stringent acquisition criteria, which are premised on achieving returns in
excess of its weighted average cost of capital.
Financing Arrangements
In conjunction with the Preferred acquisition, the Company completed a $60
million private placement of debt at a fixed interest rate of 7.0%. 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 acquisition of Portage in May 1996 was funded by
the Company's bank credit facility. 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 bank credit facility.
The Company paid common stock dividends of $5.3 million or 20 cents per
share in 1997 and at its December 1997 meeting the Company's Board of Directors
raised the common stock dividend to an annual rate of 24 cents per share.
The Company anticipates that cash flow from operations, together with
borrowings under the Company's bank credit facility, will satisfy its working
capital needs and planned capital expenditures for the next year.
<TABLE>
<CAPTION>
Summary of Cash Flows
Fiscal Year
1997 1996 1995
(Dollars in millions)
<S> <C> <C> <C>
Net cash provided by
operating activities $48.4 $23.2 $16.5
Net cash used for
investing activities $83.9 $76.5 $33.5
Net cash provided by
financing activities $37.0 $54.5 $18.8
</TABLE>
sidebar 3-D bar charts
CASH FLOW FROM OPERATIONS
In millions of dollars
1995 = $16.5
1996 = $23.2
1997 = $48.4
CAPITAL EXPENDITURES
In millions of dollars
1995 = $10.0
1996 = $9.6
1997 = $12.2
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share amounts)
NOVEMBER 1, NOVEMBER 2,
ASSETS 1997 1996
<S> <C> <C>
Current Assets
Cash and equivalents $6,058 $4,685
Receivables, net of allowances of
$2,212 in 1997 and $1,946 in 1996 74,271 66,176
Inventories 55,851 53,981
Prepayments and other 4,517 3,315
Total Current Assets 140,697 128,157
Property, Plant and Equipment, Net 129,362 112,355
Goodwill 83,565 46,348
Other Assets 5,179 2,100
$358,803 $288,960
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 921 $995
Accounts payable 47,221 40,178
Accrued liabilities 26,271 23,022
Due to Echlin Inc./Hamelin Group Inc. 2,855 9,701
Total Current Liabilities 77,268 73,896
Long-Term Debt,Less Current Maturities 141,693 97,471
Other Liabilities 11,453 5,198
Total Long-Term Liabilities 153,146 102,669
Shareholders' Equity
Common stock, 26,628,154 and
26,609,554 shares issued in 1997
and 1996, respectively 19,971 19,957
Contributed capital 89,301 90,708
Retained earnings 22,912 2,703
Treasury stock, at cost, 147,691 shares
in 1997 and 209,100 shares in 1996 (2,127) (2,061)
Cumulative translation adjustments (1,668) 1,088
Total Shareholders' Equity 128,389 112,395
$358,803 $288,960
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Fiscal Year
1997 1996 1995
Net Sales $502,715 $391,348 $352,273
Costs and Expenses
Cost of sales 420,500 330,776 302,394
Selling and administrative 31,019 25,184 24,545
Amortization of intangibles 1,495 896 730
453,014 356,856 327,669
Operating Earnings 49,701 34,492 24,604
Interest 8,393 5,062 4,960
Earnings Before Income Taxes 41,308 29,430 19,644
Income taxes 15,815 11,113 5,110
Net Earnings 25,493 18,317 14,534
Preferred stock accretion -- -- (1,098)
Net Earnings Applicable to
Common Shares and Equivalents $25,493 $ 18,317 $ 13,436
Net Earnings Per Common Share
Primary $.91 $.74 $.80
Fully diluted $.91 $.73 $.60
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<C> <C> <C> <C> <C> <C>
Cumulative
Retained Trans Total
Common Contrib Earnings Treasury lation Shareholder
Stock Capital (Deficit) Stock Adjust. Equity
Balance,
October 29, 1994 $ 6,472 $75,215 $(23,449) $(5) - $58,233
Preferred stock
conversion 10,706 (10,706) - - - -
Stock options
exercised 345 1,164 - - - 1,509
Cash dividends - - (2,086) - - (2,086)
Preferred stock
accretion - 1,098 (1,098) - - -
Treasury stock
purchases - - - (62) - (62)
Net earnings - - 14,534 - - 14,534
Balance,
October 28, 1995 $17,523 $66,771 $(12,099) $(67) - $72,128
Common stock
issuance 2,250 23,632 - - - 25,882
Stock options
exercised 184 305 - 2,127 - 2,616
Cash dividends - - (3,515) - - (3,515)
Treasury stock
purchases - - - (4,121) - (4,121)
Net earnings - - 18,317 - - 18,317
Translation
adjustments - - - - 1,088 1,088
Balance,
November 2, 1996 19,957 $90,708 $2,703 $(2,061) $1,088 $112,395
Stock options
exercised 14 (1,407) - 4,335 - 2,942
Cash dividends - - (5,284) - - (5,284)
Treasury stock
purchases - - - (4,401) - (4,401)
Net earnings - - 25,493 - - 25,493
Translation
adjustments - - - - (2,756) (2,756)
Balance,
November 1, 1997 $19,971 $89,301 $22,912 $(2,127)$(1,668) $128,389
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Fiscal Year
1997 1996 1995
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net earnings $ 25,493 $ 18,317 $ 14,534
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 11,548 7,211 5,798
Change in current assets and
liabilities, net of effects of
acquisitions
Receivables 1,072 365 (4,447)
Inventories 1,296 (8,458) (6,504)
Prepayments and other 538 (21) (17)
Accounts payable 2,902 (3,034) 3,563
Accrued liabilities (311) 6,146 1,410
Other, net 5,852 2,634 2,150
Net cash provided by
operating activities 48,390 23,160 16,487
Cash Flows From Investing Activities
Capital expenditures (12,172) (9,566) (10,015)
Retirement of assets 215 346 538
Business acquisitions (71,920) (67,285) (24,060)
Net cash used for
investing activities (83,877) (76,505) (33,537)
Cash Flows From Financing Activities
Net borrowings (payments)
on revolving credit facilities (15,400) 6,190 (6,525)
Payments on bonds and leases (409) (1,210) -
Issuance of 7.0% Senior Notes 60,000 - -
Issuance of 7.62% Guaranteed
Senior Notes - 30,000 -
Issuance of common stock - 25,882 -
Issuance of 7.21% Senior
Unsecured Notes - - 50,000
Term loan payments - - (13,000)
Redemption of 9% Convertible
Subordinated Debentures - - (10,134)
Debt issuance costs (451) (444) (899)
Cash dividends on common stock (5,284) (3,515) (2,086)
Stock options exercised 2,942 1,704 1,509
Treasury stock acquired (4,401) (4,121) (62)
Net cash provided by
financing activities 36,997 54,486 18,803
Effect of exchange rate changes
on cash and equivalents (137) 39 -
Increase In Cash And Equivalents 1,373 1,180 1,753
Cash And Equivalents At Beginning Of Year 4,685 3,505 1,752
Cash And Equivalents At End Of Year $ 6,058 $ 4,685 $ 3,505
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(1) Significant Accounting Policies
Basis of Presentation - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect reported amounts and related
disclosures. Actual results could differ from those estimates. Certain prior
year amounts have been reclassified to conform to the current year
presentation. The Company's fiscal year ends on the Saturday closest to October
31. Fiscal year 1997 and 1995 each consists of 52 weeks, while 1996 included
53 weeks.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of SPARTECH Corporation and its wholly-owned
subsidiaries (the "Company"). All significant intercompany transactions and
balances have been eliminated.
Foreign Currency Translation - Assets and liabilities of the Company's
Canadian operations are translated from their functional currency (Canadian
dollar) to U.S. dollars using exchange rates in effect at the balance sheet
date. Results of operations are translated using average rates during the
period. Adjustments resulting from the translation process are included as a
separate component of stockholders' equity. The Company may periodically enter
into foreign currency contracts to manage exposures to market risks from
prospective changes in exchange rates. No such contracts were outstanding as of
November 1, 1997.
Cash Equivalents - Cash equivalents consist of highly liquid investments
with original maturities of three months or less.
Inventories - Inventories are valued at the lower of cost (first-in,
first-out) or market. Finished goods include the costs of material, labor, and
overhead.
Property, Plant and Equipment - Property, plant and equipment are carried
at cost. Depreciation is provided on a straight-line basis over the estimated
useful lives of the related assets as follows:
Years
Buildings and leasehold improvements 25
Machinery and equipment 12-16
Furniture and fixtures 5-10
Major renewals and betterments are capitalized. Maintenance and repairs
are expensed as incurred. Upon disposition, the net book value is eliminated
from the accounts, with the resultant gain or loss reflected in operations.
Goodwill - Goodwill, representing the excess of the purchase price over
the fair value of net assets acquired, is charged against operations on a
straight-line basis over the periods estimated to be benefited, not exceeding
40 years. Goodwill amortization totaled $1,495, $896, and $730 in 1997, 1996,
and 1995, respectively. Accumulated amortization at November 1, 1997 totaled
$7,242.
Financial Instruments - The Company uses the following methods and
assumptions in estimating the fair value of financial instruments:
Cash, accounts receivable, accounts payable, and accrued liabilities
- -- the carrying value of these instruments approximates fair value due to their
short-term nature; and
Long-term debt (including bank credit facility) -- based on borrowing
rates currently available for debt instruments with similar terms and
maturities, the carrying value of these instruments approximates fair value.
Revenue Recognition - 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.
Income Taxes - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets are also recognized for credit
carryforwards based on an assessment (which includes anticipating future
income) in determining the likelihood of realization. Deferred tax assets and
liabilities are measured using the rates expected to apply to taxable income in
the years in which the temporary differences are expected to reverse and the
credits are expected to be used. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in income in the period that
includes the enactment date.
(2) Acquisitions
On August 22, 1997, the Company completed the acquisition of the net
assets of the Preferred Plastic Sheet Division of Echlin Inc. ("Preferred").
The purchase of the extruded plastic sheet and profile extruded product
operations included four manufacturing facilities with annual sales of
approximately $75 million. The purchase price for the net assets acquired from
Preferred was $65,074 in cash, including costs of the transaction. The fair
value of assets acquired (including $39,199 of goodwill) and liabilities
assumed (including accounts payable and accrued liabilities) was $73,517 and
$8,443, respectively. The purchase price and related costs of the acquisition
were funded by a $60,000 private placement of debt with a fixed interest rate
of 7.0% and borrowings on the Company's existing unsecured bank credit
facility. The majority of the purchase price was paid to Echlin Inc. on August
22, 1997, with the remaining amount to be paid in December 1997, upon final
settlement of the transaction. An amount representing this final payment of
approximately $2,855 is reflected as Due to Echlin as of November 1, 1997.
On September 27, 1996, the Company completed the purchase of substantially
all of the net assets of the extrusion, color, and molding divisions of Hamelin
Group Inc. ("Hamelin") in accordance with an Asset Purchase and Sale Agreement.
Hamelin was a leading manufacturer of extruded plastic sheet, color concentrate
materials, molded food packaging products and injection molded wheels, based in
Montreal, Canada. Consolidated sales for the seven facilities were
approximately $80,000 for Hamelin's fiscal year ended April 30, 1996. The
purchase price for the net assets acquired from Hamelin was $59,400 in cash,
including costs of the transaction. The fair value of assets acquired
(including $13,500 of goodwill) and liabilities assumed (consisting of lease
liabilities, accounts payable, and accrued liabilities) was $70,900 and
$11,500, respectively. The purchase price was financed through a combination of
a common stock offering of 3 million shares and a private placement of $30,000
in debt. An initial installment was paid to the seller on September 27, 1996,
the closing date, with the remaining purchase price paid November 27, 1996.
Therefore, $9,701 was reflected as Due to Hamelin Group Inc. as of November 2,
1996, representing the amount remaining to be paid to the seller as of such
date.
On May 9, 1996, the Company completed its acquisition of Portage
Industries Corporation ("Portage") and pursuant to the Agreement and Plan of
Merger, each share of Portage common stock was converted into the right to
receive $6.60 in cash. The price for all outstanding shares of Portage's stock
(including exercisable options) totaled approximately $17,600 in cash,
including estimated costs of the transaction. The fair value of assets acquired
(including $9,500 of goodwill) and liabilities assumed was $27,200 and $9,600,
respectively. The purchase price was funded by the Company's existing unsecured
bank credit facility.
All these acquisitions have been accounted for by the purchase method, and
accordingly, the results of operations were included in the Company's
Consolidated Statement of Operations from their respective date of acquisition.
The purchase price has been allocated to the assets and liabilities (on a
preliminary basis for the 1997 acquisition), and the excess of cost over the
fair value of net assets acquired is being amortized over a forty-year period
on a straight-line basis.
The following summarizes unaudited pro forma consolidated results of
operations for fiscal year 1997 assuming the Preferred acquisition had occurred
at the beginning of the fiscal year. The results are not necessarily indicative
of what would have occurred had these transactions been consummated as of the
beginning of the fiscal year presented, or of future operations of the
consolidated companies.
Pro Forma (Unaudited)
Fiscal Year
1997
Net Sales $564,116
Earnings Before Income Taxes $43,277
Net Earnings $26,708
Net Earnings Per Common Share
Fully Diluted $.95
(3) Inventories
Inventories at November 1, 1997 and November 2, 1996 are comprised of the
following components:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Raw materials $37,832 $34,778
Finished goods 18,019 19,203
$55,851 $53,981
(4) Property, Plant and Equipment
</TABLE>
<TABLE>
<CAPTION>
Property, plant and equipment consisted of the following at November 1,
1997 and November 2, 1996:
1997 1996
<S> <C> <C>
Land $ 5,264 $ 4,964
Buildings and leasehold improvements 31,825 27,898
Machinery and equipment 132,895 110,525
Furniture and fixtures 3,759 3,561
173,743 146,948
Less accumulated depreciation 44,381 34,593
Property, plant and equipment, net $129,362 $112,355
</TABLE>
(5) Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt is comprised of the following at November 1, 1997 and
November 2, 1996:
1997 1996
<S> <C> <C>
7.0% Senior Notes $ 60,000 $--
7.62% Guaranteed Senior Notes 30,000 30,000
7.21% Senior Unsecured Notes 50,000 50,000
Unsecured Bank Credit Facility 300 15,700
Other 2,314 2,766
142,614 98,466
Less current maturities 921 995
Total long-term debt $141,693 $97,471
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 22, 1997, the Company completed a Private Placement of 7.0%
Senior Notes (the "1997 Notes") consisting of $45,000 designated as Series A
and $15,000 designated as Series B. The Series A 1997 Notes require equal
annual principal payments of approximately $6,429 commencing on August 22, 2001
and the Series B 1997 Notes do not require principal payments before becoming
due on August 22, 2004. Interest on the 1997 Notes is payable semiannually on
February 22 and August 22 of each year.
On September 27, 1996, the Company completed a $30,000 Private Placement
of 7.62% Guaranteed Senior Notes (the "1996 Notes") over a ten-year term. The
1996 Notes require equal annual principal payments of approximately $4,286
commencing on September 27, 2000. Interest on the 1996 Notes is payable
semiannually on March 27 and September 27 of each year.
On August 15, 1995, the Company completed a $50,000 Private Placement of
7.21% Senior Unsecured Notes (the "1995 Notes") over a ten-year term. The 1995
Notes require equal annual principal payments of approximately $7,143
commencing on August 15, 1999. Interest on the 1995 Notes is payable
semiannually on February 15 and August 15 of each year. In addition, the
Company concurrently finalized a new revolving $40,000 Unsecured Bank Credit
Facility (the "Bank Credit Facility"). The Bank Credit Facility has a five-year
term, with interest payable at a rate chosen by the Company of either prime
rate or an adjusted LIBOR plus .50%. On May 16, 1996 and September 1, 1995, the
Company entered into six-month fixed LIBOR loans under the Credit Facility of
$9,000 at 6.31% and $5,000 at 6.91%, respectively. The remaining Bank Credit
Facility is at the current prime rate, which, at November 1, 1997 and November
2, 1996, was 8.50% and 8.25%, respectively.
The other debt consists of $1,700 of Industrial Development Revenue Bonds
("the Bonds") and $614 of obligations under capital leases ("the Leases"). The
Bonds mature on November 1, 1999, have an annual mandatory sinking fund
requirement of $550, and carry a floating interest rate, which was 4.30% and
4.45% at November 1, 1997 and November 2, 1996, respectively. The Leases mature
between 1997 and 2000 and bear fixed interest rates varying from 8.13% to
9.38%.
Scheduled maturities of long-term debt for the next five fiscal years are:
1998-$923; 1999-$7,841; 2000-$12,422; 2001-$17,858; and 2002-$17,858.
The long-term debt contains certain covenants which, among other matters,
require the Company to restrict the incurrence of additional indebtedness,
satisfy certain ratios and net worth levels, and limit both the sale of assets
and merger transactions.
(6) Income Taxes
<TABLE>
<CAPTION>
The provision for income taxes for fiscal years 1997, 1996, and 1995 is
comprised of the following:
1997 1996 1995
<S> <C> <C> <C>
Federal:
Current $8,698 $7,758 $ 2,715
Deferred 3,631 1,480 3,680
State 1,819 1,760 1,348
Foreign 1,667 115 --
15,815 11,113 7,743
Utilization of operating loss carryforwards -- -- (2,633)
Provision for income taxes $15,815 $11,113 $ 5,110
</TABLE>
<TABLE>
<CAPTION>
The income tax provision on earnings of the Company differs from the
amounts computed by applying the U.S. Federal tax rate of 35% as follows:
1997 1996 1995
<S> <C> <C> <C>
Federal income taxes at statutory rate $14,458 $10,301 $6,875
State income taxes, net of applicable
Federal income tax benefits 1,182 1,144 876
Operating loss carryforwards -- -- (2,633)
Other 175 (332) (8)
$15,815 $11,113 $5,110
</TABLE>
<TABLE>
<CAPTION>
At November 1, 1997 and November 2, 1996, the Company's principal
components of deferred tax assets and liabilities consisted of the following:
1997 1996
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $1,019 $1,709
Bad debt reserves 712 593
Inventories 445 340
Tax carryforwards -- 888
Accrued liabilities 4,137 2,575
$6,313 $6,105
Deferred tax liabilities:
Depreciation $13,705 $7,491
Other 520 447
$14,225 $7,938
</TABLE>
At November 1, 1997, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $2,400, which are available to
offset future Federal taxable income expiring in the years 2001 through 2007.
(7) SHAREHOLDERS' EQUITY & STOCK OPTIONS
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. The Company began the payment of regular quarterly dividends on its
common stock in June of 1995.
The Company has an Incentive Stock Option Plan ("Incentive Plan") and
Restricted Stock Option Plan ("Restricted Plan") for executive officers and key
employees. The maximum number of shares which may be issued under the
Incentive Plan is 1,000,000. The minimum option price is the fair market value
per share at the date of grant, which may be paid upon exercise in Company
shares. The Incentive Plan has 559,000 shares outstanding at November 1, 1997.
The maximum number of shares issuable annually under the Restricted Plan is
limited to 10% of the Company's outstanding common shares (excluding treasury
shares) at each year end through 2001. Notwithstanding the foregoing, the Board
of Directors has resolved that at no time will the total unexercised options
issued to employees be in excess of 10% of the then outstanding common shares.
The options granted and common shares purchased under the Restricted Plan may
not be sold or disposed of for a period of three years from the date of option
grant. Subject to the limitations discussed above, the number of shares
issued, or options granted, pursuant to these plans is at the discretion of the
Compensation Committee of the Board of Directors. The Restricted Plan has
2,081,000 shares outstanding at November 1, 1997. Additional options, which
have been issued outside the Incentive and Resticted plans discussed above,
totaled 375,000 at November 1, 1997.
<TABLE>
A summary of the combined activity for the Company's stock options for
fiscal years 1997, 1996, and 1995 follows (shares in thousands):
<CAPTION>
1997 1996 1995
Shares Weighted Shares Weighted Shares Weighted
Under Average Under Average Under Average
Exercise Exercise Exercise
Option Price Option Price Option Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 2,074 $4.37 2,267 $3.85 2,507 $3.62
Granted 1,414<F1> $9.84 315 $7.07 260 $5.44
Exercised (473) $4.74 (508) $3.70 (500) $3.53
Outstanding,
end of year 3,015 $6.88 2,074 $4.37 2,267 $3.85
Weighted average fair
value of options granted $3.95 $2.49 $1.83
<FN>
<F1>
* Amount includes an option for 900 shares issued in conjunction with the
settlement of litigation with a former
employee--see note (11).
</FN>
</TABLE>
<TABLE>
Information with respect to options outstanding at November 1, 1997, all
of which are presently exercisable, follows (shares in thousands):
<CAPTION>
Weighted Average Weighted
Shares Under Remaining Average
Range of Exercise Prices Option Contractual Life Exercise Price
<C> <C> <C> <C>
$1.25 - 4.38 1,165 3.2 years $3.66
$5.00 - 7.00 455 4.7 years $6.08
$9.00 - 10.88 1,315 6.7 years $9.59
$11.00 - 16.00 80 9.5 years $13.77
3,015
</TABLE>
The Company follows Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" (APB 25), in accounting for its employee stock
options. Under APB 25, if the exercise price of the stock options equals the
market price of the underlying stock on the issuance date, no compensation
expense is recognized. The Company is required by Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" to
provide pro forma disclosures under an alternative fair value method of
accounting. The weighted average fair values of options granted were estimated
using the Black-Scholes option-pricing model with the following assumptions:
expected dividend yield of 1.25%, expected volatility of 35.0%, risk-free
interest rates ranging from 5.77% to 5.81%, and expected lives of the options
of 5 years. Had compensation expense been recognized based on these
hypothetical values the Company's net income for 1997 and 1996 would have been
$23,020 and $17,830, respectively, and fully diluted earnings per share for
1997 and 1996 would have been $.82 and $.71, respectively. As a result of
changing assumptions and future option grants, these hypothetical calculations
are not expected to be representative of future calculations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Earnings Per Share
Primary Net Earnings Per Share is computed based upon the weighted average
number of common shares outstanding during each period after consideration of
the dilutive effect of stock options. Such average shares were 27,930,000,
24,872,000, and 16,858,000 for 1997, 1996, and 1995, respectively. The weighted
average shares total for 1995 was affected by the actual conversion of the
Company's preferred stock discussed below.
Fully Diluted Net Earnings Per Share assumes conversion of securities when
the earnings per share result is dilutive. Assumed conversions increased the
weighted average number of common shares used in the computation to 28,131,000,
25,115,000, and 24,111,000 for 1997, 1996, and 1995, respectively.
Effective May 1, 1995, all of the Company's preferred stockholders
converted their shares into the Company's common stock. The conversion
increased the Company's outstanding common shares by 14,274,635. If the
preferred stockholders had converted their shares at the beginning of 1994, the
Primary Net Earnings Per Share reported for 1994 and 1995 would have been $.46
and $.60, respectively.
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 earnings per share. SFAS 128 replaces the presentation of
primary and fully diluted earnings per share pursuant to Accounting Principles
Board Opinion No. 15 - "Earnings Per Share" ("APB 15") with the presentation of
basic and diluted earnings per share. Basic earnings per share excludes any
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 earnings per share 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 beginning with its financial statements for the first quarter
ending January 31, 1998 and restate all prior-period earnings per share data.
Earnings per share in this report have been prepared and presented under APB
15. Under SFAS 128, the Company's basic earnings per share for 1997, 1996, and
1995 would have been $.96, $.77, and $.84 per share respectively, and the
Company's diluted earnings per share for 1997, 1996, and 1995 would have been
$.92, $.74, and $.60 per share, respectively.
(9) EMPLOYEE BENEFITS
The Company sponsors or contributes to various retirement benefit and
savings plans covering substantially all employees. The total cost of such
plans for 1997, 1996, and 1995 was $1,057, $698, and $465, respectively.
(10) Cash Flow Information
<TABLE>
Supplemental information on cash flows is as follows:
<CAPTION>
Fiscal Year
1997 1996 1995
<S> <C> <C> <C>
Cash paid during the year for:
Interest $7,470 $4,558 $ 4,099
Income taxes $11,245 $10,846 $ 3,517
Schedule of business acquisitions:
Fair value of assets acquired $73,517 $98,062 $26,330
Liabilities assumed (8,443) (21,076) (2,270)
Due to Echlin Inc./Hamelin Group Inc. 6,846 (9,701) --
Total cash paid for the net assets acquired $71,920 $67,285 $24,060
</TABLE>
(11) Commitments and Contingencies
The Company conducts certain of its operations in facilities under
operating leases. Rental expense for 1997, 1996, and 1995 was $3,780, $2,807,
and $2,872, respectively.
Future minimum lease payments under non-cancelable operating leases, by
fiscal year, are: 1998 - $2,547; 1999 - $1,750; 2000 - $1,160; 2001 - $832;
2002 - $363; and $267 thereafter.
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 claimed 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 additional shares of common
stock, and award to him attorney's fees and interest. In January 1996, Mr.
Powers filed a similar lawsuit in the Circuit Court of St. Louis County,
Missouri against the Company and two officer directors. In February 1997, the
Company settled both lawsuits. The settlement resolved all claims and
terminated all disputes between the respective parties and general releases
were executed to prevent further action on such disputes. The settlement was
reflected in the Company's first quarter financial statements and, after
consideration of amounts previously accrued, did not result in a net charge to
earnings.
At November 1, 1997, there were no other known contingent liabilities
(including guarantees, pending litigation, and environmental claims) that, in
the opinion of management, are expected to be material in relation to the
Company's financial position or results of operations, nor were there any
material commitments outside the normal course of business.
(12) Segment Information
The Company operates in one industry segment as a producer of engineered
thermoplastics, polymeric compounds, and molded products for a wide spectrum of
manufacturing customers. The Company operates from 26 plants in 25 cities
throughout the United States and Canada and its customer base is diverse--no
one customer represents greater than 5% of total sales, and the Company's
customers supply product to a broad range of markets (including
sign/advertising, lawn & garden, transportation, building & construction,
medical, and packaging).
<TABLE>
Following the acquisition of six plants in Canada from the Hamelin Group
on September 27, 1996, the Company began operating in two reportable geographic
areas -- the United States and Canada. Geographic financial information for
1997 and 1996 is as follows:
<CAPTION>
Operating Total
Net Sales Earnings Assets
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
United States $427,530 $384,334 $41,957 $33,856 $295,511 $221,542
Canada 75,185 7,014 7,744 636 63,292 67,418
$502,715 $391,348 $49,701 $34,492 $358,803 $288,960
</TABLE>
(13) Quarterly Financial Information
<TABLE>
Certain unaudited quarterly financial information for the years ended
November 1, 1997 and November 2, 1996 is as follows:
<CAPTION>
Quarter Ended Fiscal
Jan April July Oct Year
1997
<S> <C> <C> <C> <C> <C>
Net Sales $113,387 $129,815 $123,170 $136,343 $502,715
Gross Profit 18,079 21,187 20,435 22,514 82,215
Net Earnings 5,479 6,675 6,731 6,608 25,493
<CAPTION>
Net Earnings Per Share:
Primary . 20 .24 .24 .23 .91
Fully diluted .20 .24 .24 .23 .91
<CAPTION>
1996
Net Sales $87,466 $98,330 $101,223 $104,329 $391,348
Gross Profit 12,993 14,881 16,194 16,504 60,572
Net Earnings 3,786 4,775 5,020 4,736 18,317
<CAPTION>
Net Earnings Per Share:
Primary .16 .19 .20 .19 .74
Fully diluted .16 .19 .20 .18 .73
</TABLE>
MANAGEMENT & AUDITORS' REPORTS
MANAGEMENT REPORT
TO OUR SHAREHOLDERS
The financial statements of SPARTECH Corporation and subsidiaries were
prepared under the direction of management, which is responsible for their
integrity and objectivity. The statements have been prepared in conformity
with generally accepted accounting principles and, as such, include amounts
based on informed estimates and judgment of management.
Management has developed a system of internal controls, which is designed
to assure that the books and records accurately reflect the transactions of the
Company, and its established policies and procedures are followed properly.
This system is augmented by written policies and procedures, and the selection
and training of qualified personnel.
Arthur Andersen LLP, independent public accountants, are engaged to
provide an objective audit of the financial statements of SPARTECH Corporation
and issue reports thereon. Their audit is conducted in accordance with
generally accepted auditing standards.
The Board of Directors, acting upon the advice and recommendations of the
Audit Committee, is responsible for assuring that management fulfills its
responsibilities in the preparation of the financial statements and for
engaging the independent public accountants with whom the Committee reviews the
scope of the audits and the accounting principles to be applied in financial
reporting. The Committee meets regularly with the independent public
accountants and representatives of management to review their activities and
ensure that each is properly discharging its responsibilities.
/s/Bradley B. Buechler /s/David B. Mueller /s/Randy C. Martin
President and Executive Vice President Vice President-Finance
Chief Executive Officer and Chief Operating Officer and Chief Financial
Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SPARTECH CORPORATION
We have audited the accompanying consolidated balance sheet of SPARTECH
Corporation (a Delaware Corporation) and subsidiaries as of November 1, 1997
and November 2, 1996, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three fiscal years in the
period ended November 1, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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, the financial statements referred to above present fairly,
in all material respects, the financial position of SPARTECH Corporation and
subsidiaries as of November 1, 1997 and November 2, 1996, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended November 1, 1997 in conformity with generally accepted accounting
principles.
St. Louis, Missouri /s/ Arthur Andersen LLP
December 5, 1997
<TABLE>
FIVE YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
The following table sets forth selected financial data for each of the most
recent five fiscal years.
<CAPTION>
FISCAL YEAR
1997 1996 1995 1994 1993
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Net Sales $502,715 $391,348 $352,273 $256,593 $189,401
Gross Profit $82,215 $60,572 $49,879 $36,998 $28,008
Depreciation and
Amortization $11,548 $7,211 $5,798 $4,422 $4,000
Operating Earnings $49,701 $34,492 $24,604 $16,410 $10,569
Interest Expense $8,393 $5,062 $4,960 $3,125 $3,350
Net Earnings $25,493 $18,317 $14,534 $10,835 $6,716
PER SHARE INFORMATION
Fully Diluted
Earnings $ .91 $ .73 $ .60 $ .46 $ .30
Dividends Declared $ .20 $.15 $ .09 $ - $ -
Book Value Per Share $ 4.85 $4.26 $ 3.09 $2.54 $2.08
BALANCE SHEET INFORMATION
Working Capital $63,429 $54,261 $ 45,108 $ 26,351 $ 25,032
Capital Expenditures 12,172 $9,566 $10,015 $ 8,152 $ 2,610
Long-Term Debt,
Less Current
Maturities $ 141,693 $97,471 $ 59,510 $ 36,419 $ 36,417
Total Assets $358,803 $288,960 $178,329 $135,720 $114,194
Shareholders'
Equity $128,389 $112,395 $ 72,128 $ 58,233 $ 46,041
Market Value
of Equity $420,377 $290,405 $148,876 $131,694 $83,055
Ratios/Other Data
Gross Margin 16.4% 15.5% 14.2% 14.4% 14.8%
Operating Margin 9.9% 8.8% 7.0% 6.4% 5.6%
Effective Tax Rate 38.3% 37.8% 26.0% 18.4% 7.0%
Long-Term Debt
to Capitalization 52.5% 46.4% 45.2% 38.5% 44.2%
Return on Average
Equity 21.2% 20.0% 22.3% 20.8% 15.8%
Number of Employees 2,125 1,800 1,200 925 700
Weighted Average Shares
Outstanding 28,131 25,115 24,111 23,434 23,438
</TABLE>
INVESTOR INFORMATION
Annual Shareholders' Meeting
SPARTECH Corporation's Annual Shareholders' Meeting will be held on
Wednesday, March 11, 1998 at the Pierre Laclede Conference Center, 7733 Forsyth
Boulevard, Clayton, Missouri 63105 at 10:00 a.m. A formal notice of the
Meeting, together with a Proxy Statement, will be mailed before the Meeting to
shareholders entitled to vote.
Common Stock and Transfer Agent
As of January 1, 1998, there were approximately 5,500 shareholders of the
Company's common stock. The Company's Registrar and Transfer Agent is
ChaseMellon Shareholder Services LLC, 85 Challenger, Overpeck Center,
Ridgefield Park, New Jersey 07660. SPARTECH Corporation's common stock is
traded on the New York Stock Exchange under the symbol "SEH." Quarterly and
year-end stock prices for fiscal years 1997 and 1996 are shown below.
1997 1996
High Low High Low
First Quarter $11 1/2 $ 9 3/8 $ 7 3/8 $ 6
Second Quarter 13 3/4 10 5/8 10 1/4 6 7/8
Third Quarter 16 11 1/2 12 8 7/8
Fourth Quarter 18 15 11 9 1/2
Fiscal Year End $15 7/8 $11
Dividend Reinvestment Plan and Report on Form 10-K
A Dividend Reinvestment Plan is available to shareholders of the Company,
allowing for the automatic investment of cash dividends into SPARTECH common
stock. For details on the Plan, please contact the Company's Registrar and
Transfer Agent, ChaseMellon Shareholder Services at (888) 213-0965. In
addition, the Company will provide, without charge to any shareholder, a copy
of its 1997 Report on Form 10-K as filed with the Securities and Exchange
Commission. Requests should be directed to SPARTECH Investor Relations at
(314) 721-4242 or via internet at http://www.spartech.com/.
Research and Informational Reports
Research and informational reports on SPARTECH Corporation are available
from the following companies and individuals by calling SPARTECH Investor
Relations at (314) 721-4242 or the listed companies direct at the numbers shown
below:
A.G. Edwards - Mike Braig (314) 289-5894
C S First Boston - Brian Langenberg (312) 750-3101
EVEREN Securities - Shawn Severson (312) 574-5905
First Analysis - Allan Cohen (312) 258-1400
Huntleigh Securities - John Rast (314) 727-5454
Mesirow Financial - Gary Prestipino (312) 595-6750
Safe Harbor Statement
This Annual Report contains various forward-looking statements that
involve certain risks and uncertainties that could cause actual results to
differ materially from such statements. Potential risks and uncertainties
include such factors as continued economic growth, the successful integration
of acquired operations, and the pricing stability of resins. Investors are
directed to consider other risks and uncertainties discussed in documents filed
by the Company with the Securities and Exchange Commission.
EXHIBIT 21
SPARTECH CORPORATION
SUBSIDIARIES OF REGISTRANT
Legal Entity DBA Incorporation
Atlas Alchem Plastics, Inc. Spartech Plastics DE
Spartech Compounding
The Resin Exchange, Inc. Spartech Compounding MO
Resin Exchange
Franklin-Burlington Plastics,
Inc. Spartech Compounding DE
Spartech Vy-Cal Plastics
Alchem Plastics, Inc. Spartech Plastics DE
Alchem Plastics Corporation Spartech Plastics GA
Spartech Plastics, Inc. Spartech Plastics DE
Portage Industries
Preferred Plastics
Spartech Industries, Inc. Hamelin Industries DE
Spartech Canada, Inc. GM Plastics New Brunswick,
Genpak Canada
Spartech Enterprises
Korlin
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference in this
Form 10-K for the year ended November 1, 1997 into the Company's previously
filed Registration Statements on Form S-8 (File Numbers 33-20437 and 33-
61322) and Form S-3 (File Number 333-24527).
ARTHUR ANDERSEN LLP
St. Louis, Missouri
January 12, 1998
EXHIBIT 24
SPARTECH CORPORATION AND SUBSIDIARIES
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Bradley B. Buechler his true
and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, to act for him and in his name, place and stead,
in any and all capacities to sign this annual report on Form 10-K of
SPARTECH Corporation and Subsidiaries for fiscal year ending November
1, 1997, and any and all amendments thereto and to file the same with
all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof.
Dated: January 12, 1998 /s/ Alan R. Teague
Alan R. Teague
Director
EXHIBIT 24
SPARTECH CORPORATION AND SUBSIDIARIES
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Bradley B. Buechler his true
and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, to act for him and in his name, place and stead,
in any and all capacities to sign this annual report on Form 10-K of
SPARTECH Corporation and Subsidiaries for fiscal year ending November
1, 1997, and any and all amendments thereto and to file the same with
all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof.
Dated: January 12, 1998 /s/ Francis J. Eaton
Francis J. Eaton
Director
EXHIBIT 24
SPARTECH CORPORATION AND SUBSIDIARIES
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Bradley B. Buechler his true
and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, to act for him and in his name, place and stead,
in any and all capacities to sign this annual report on Form 10-K of
SPARTECH Corporation and Subsidiaries for fiscal year ending November
1, 1997, and any and all amendments thereto and to file the same with
all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof.
Dated: January 12, 1998 /s/ Jackson W. Robinson
Jackson W. Robinson
Director
EXHIBIT 24
SPARTECH CORPORATION AND SUBSIDIARIES
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Bradley B. Buechler his true
and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, to act for him and in his name, place and stead,
in any and all capacities to sign this annual report on Form 10-K of
SPARTECH Corporation and Subsidiaries for fiscal year ending November
1, 1997, and any and all amendments thereto and to file the same with
all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof.
Dated: January 12, 1998 /s/ Thomas L. Cassidy
Thomas L. Cassidy
Director
EXHIBIT 24
SPARTECH CORPORATION AND SUBSIDIARIES
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Bradley B. Buechler his true
and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, to act for him and in his name, place and stead,
in any and all capacities to sign this annual report on Form 10-K of
SPARTECH Corporation and Subsidiaries for fiscal year ending November
1, 1997, and any and all amendments thereto and to file the same with
all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof.
Dated: January 12, 1998 /s/ W. R. Clerihue
W. R. Clerihue
Director
EXHIBIT 24
SPARTECH CORPORATION AND SUBSIDIARIES
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature
appears below constitutes and appoints Bradley B. Buechler his true
and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, to act for him and in his name, place and stead,
in any and all capacities to sign this annual report on Form 10-K of
SPARTECH Corporation and Subsidiaries for fiscal year ending November
1, 1997, and any and all amendments thereto and to file the same with
all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or
cause to be done by virtue hereof.
Dated: January 12, 1998 /s/ John R. Kennedy
John R. Kennedy
Director
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THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-01-1997
<PERIOD-END> NOV-01-1997
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