Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
transmitting herewith the attached Form 10-Q.
Sincerely,
SPARTECH CORPORATION
/s/ Randy Martin
Randy Martin
Vice President - Finance and Chief Financial Officer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 30, 1999
Commission File Number 1-5911
SPARTECH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 43-0761773
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7733 Forsyth Boulevard, Suite 1450, Clayton, Missouri, 63105
(Address of principal executive offices)
(314) 721-4242
(Registrant's telephone number, including area code)
Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Number of shares outstanding as of January 30, 1999:
Common Stock, $.75 par value per share 26,945,382
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
INDEX
January 30, 1999
PART I. FINANCIAL INFORMATION PAGE
CONSOLIDATED CONDENSED BALANCE SHEET -
as of January 30, 1999 and October 31, 1998 3
CONSOLIDATED CONDENSED STATEMENT OF
OPERATIONS - for the quarter ended
January 30, 1999 and January 31, 1998 4
CONSOLIDATED CONDENSED STATEMENT OF
CASH FLOWS - for quarter ended
January 30, 1999 and January 31, 1998 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION 13
SIGNATURES 14
PART I - FINANCIAL INFORMATION
<PAGE>
Item 1. FINANCIAL STATEMENTS
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands, except share amounts)
ASSETS
Jan. 31, 1999
(unaudited) Oct. 31, 1998
Current Assets
Cash and equivalents $ 6,024 $ 7,247
Receivables, net 92,430 91,631
Inventories 69,417 64,859
Prepayments and other 10,036 9,459
Total Current Assets 177,907 173,196
Property, Plant and Equipment 271,094 263,626
Less accumulated depreciation 61,527 56,739
Net Property, Plant and Equipment 209,567 206,887
Goodwill 150,599 148,668
Other Assets 4,921 4,558
$542,994 $533,309
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 8,817 $ 8,948
Accounts payable 58,049 59,578
Accrued liabilities 32,917 32,466
Total Current Liabilities 99,783 100,992
Long-Term Debt, Less Current Maturities 246,919 245,272
Other Liabilities 34,660 33,449
Total Long-Term Liabilities 281,579 278,721
Shareholders' Equity
Common stock, 27,550,107 shares issued
in 1999 and 1998 20,663 20,663
Contributed capital 97,654 99,407
Retained earnings 57,459 50,185
Treasury stock, at cost, 604,725 shares
in 1999 and 688,917 shares in 1998 (10,081) (11,875)
Cumulative translation adjustments (4,063) (4,784)
Total Shareholders' Equity 161,632 153,596
$542,994 $533,309
See accompanying notes to consolidated financial statements.
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited and amounts in thousands, except per share data)
QUARTER ENDED
Jan. 30, 1999 Jan. 31, 1998
Net Sales $167,801 $133,081
Costs and Expenses
Cost of sales 137,604 110,601
Selling and administrative 10,125 8,161
Amortization of intangibles 997 541
148,726 119,303
Operating Earnings 19,075 13,778
Interest 3,851 2,345
Earnings Before Income Taxes 15,224 11,433
Income Taxes 6,067 4,412
Net Earnings $ 9,157 $ 7,021
Net Earnings Per Common Share:
Basic $ .34 $ .27
Diluted $ .32 $ .25
Weighted Average Number of Shares Used in
Computing Net Earnings per Common Share:
Basic 26,896 26,398
Diluted 28,748 28,101
Dividends Per Common Share $ .07 $ .06
See accompanying notes to consolidated financial statements.
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited and dollars in thousands)
QUARTER ENDED
Jan. 30, 1999 Jan. 31, 1998
Cash Flows from Operating Activities
Net earnings $ 9,157 $ 7,021
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 5,667 3,546
Change in current assets and
liabilities (1,171) (6,089)
Other, net 897 677
Net cash provided by operating
activities 14,550 5,155
Cash Flows from Investing Activities
Capital expenditures (4,956) (2,056)
Business Acquisitions (10,437) (3,095)
Retirement of assets 20 32
Net cash used for investing activities (15,373) (5,119)
Cash Flows from Financing Activities
Bank Borrowings for Business Acquisitions 10,437 3,095
Net borrowings (payments) on revolving
credit facilities (8,037) 55
Payments on bonds and leases (962) (658)
Cash dividends on common stock (1,883) (1,589)
Stock options exercised 480 329
Treasury stock acquired (439) (2,341)
Net cash used for
financing activities (404) (1,109)
Effect of exchange rate changes on cash
and equivalents 4 (58)
Decrease In Cash and Equivalents (1,223) (1,131)
Cash and Equivalents At Beginning Of Period 7,247 6,058
Cash and Equivalents At End Of Period $ 6,024 $ 4,927
See accompanying notes to consolidated financial statements.
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
NOTE A - Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Spartech Corporation and its wholly owned subsidiaries (the "Company"). These
financial statements have been prepared on a condensed basis and, accordingly,
certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the financial
statements contain all adjustments (consisting solely of normal recurring
adjustments) and disclosures necessary to make the information presented therein
not misleading. These financial statements should be read in conjunction with
the consolidated financial statements and accompanying footnotes thereto
included in the Company's October 31, 1998 Annual Report on Form 10-K.
The Company's fiscal year ends on the Saturday closest to October 31.
Operating results for the first quarter are traditionally seasonal in nature and
are not necessarily indicative of the results expected for the full year.
NOTE B - Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market. Inventories at January 30, 1999 and October 31, 1998 are comprised of
the following components:
1999 1998
Raw materials $ 45,987 $ 42,016
Finished goods 23,430 22,843
$ 69,417 $ 64,859
<PAGE>
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
NOTE C - Cash Flow Information
Supplemental information on cash flows and noncash transactions for the
quarter ended January 30, 1999 and January 31, 1998 is as follows:
1999 1998
Cash paid for:
Interest $ 1,579 $ 61
Income taxes $ 312 $ 304
NOTE D - Commitments and Contingencies
The Company currently has no litigation with respect to any environmental
matters.
Note E - Comprehensive Income
On November 1, 1998 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130--"Reporting Comprehensive Income". Comprehensive
Income is an entities change in equity during the period from transactions,
events and circumstances from non-owner sources. A summary of the components of
Total Comprehensive Income follows:
QUARTER ENDED
Jan. 30, 1999 Jan. 31, 1998
Net Earnings $ 9,157 $ 7,021
Foreign currency translation
adjustments 721 (1,046)
Total Comprehensive Income $ 9,878 $ 5,975
The Company's other comprehensive income consists solely of foreign
currency translation adjustments. Accumulated other comprehensive income is
represented on the balance sheet as cumulative translation adjustments as of
January 30, 1999 and October 31, 1998, respectively.
<PAGE>
Note F - Acquisitions
On January 7, 1999 the Company completed its acquisition of the net assets
of Lustro Plastics Company, a custom sheet and rollstock extruder with annual
sales of approximately $28 million. The total purchase price was approximately
$10.4 million, including estimated costs of the transaction. The fair value of
assets acquired, including $2.8 million of goodwill, and liabilities assumed
were $13.9 million and $3.5 million, respectively. The acquisition was funded
through the Company's existing bank credit facility.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the first quarter ending January 30, 1999 increased by 26% to
$167.8 million, as compared to $133.1 million during the same quarter last year,
and operating earnings rose by 38% to $19.1 million, from $13.8 million reported
for the first quarter of 1998. First quarter 1999 net earnings were $9.2
million, or $.32 per diluted share, compared to $7.0 million, or $.25 per
diluted share, reported in 1998.
Net sales of the Extruded Sheet & Rollstock group increased to $105.0
million, with a negative 7% price/product mix change being offset by a 7%
increase in base volume. Sales to the growing packaging and recreation/leisure
markets led the solid increase in base volume for the sheet group. Net sales of
the Color & Specialty Compound group grew to $50.5 million for the first quarter
as the impact of our 1998 midyear acquisitions of both Polycom Huntsman and
Plasticolour were realized. Base volume increased by 8% while price/mix related
changes had a negative 12% effect on sales. The Molded & Profile Products
segment benefited from the October 1998 acquisition of Anjac-Doron. Sales for
the group were up 17% to $12.3 million as compared to $10.5 million for the same
three-month period last year.
Cost of sales increased 24% to $137.6 million for the quarter ended January
30, 1999, compared with $110.6 million for the same period of 1998, but
decreased to 82.0% of net sales for 1999 from 83.1% for 1998. The more favorable
cost of sales percentage in 1999 represents a decline in overall raw material
prices and improved production efficiencies partially offset by an increase in
depreciation as a result of capital expenditures incurred by the Company during
the last 24 months.
Selling and administrative expenses of $10.1 million for the first quarter
of 1999 increased when compared to $8.2 million for the similar period in 1998
but decreased to 6.0% of net sales for 1999 from 6.1% in 1998.
Operating earnings for the quarter ended January 30, 1999 were $19.1
million (11.4% of net sales) compared to $13.8 million (10.4% of net sales) for
the corresponding period in 1998. These gains in operating earnings were
achieved through the increased sales levels, improved production efficiencies
and the declines in raw material prices, discussed above.
Interest expense of $3.9 million for the quarter ended January 30, 1999
increased from $2.3 million for the same period in 1998 as a result of
borrowings related to the Polycom Huntsman, Plasticolour, and Anjac-Doron
acquisitions completed in 1998.
The Company's effective tax rate was 39.9% for the first quarter of 1999
compared to 38.6% in 1998.
<PAGE>
Environmental and Inflation
The Company is subject to various laws and regulations governing employee
safety and 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 the compliance with such laws and regulations will have a
material effect on its capital expenditures, earnings, or competitive position.
The plastic resins used by the Company in its production process are crude
oil or natural gas derivatives which 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 1999.
Liquidity and Capital Resources
Cash Flow
The Company's primary sources of liquidity have been cash flows from
operating activities and borrowings from third parties. The Company's principal
uses of cash have been to support its operating activities, invest in capital
improvements, and finance strategic acquisitions. The Company's cash flows for
the periods indicated are summarized as follows:
First Quarter
1999 1998
(Dollars in millions)
Net cash provided by
operating activities $ 14.6 $ 5.2
Net cash used for
investing activities $ (15.4) $ (5.1)
Net cash used for
financing activities $ (0.4) $(1.1)
The Company continues to generate strong cash flows from operations, resulting
from the 30% increase in net earnings in the first quarter 1999 compared to the
corresponding period of the prior year. Operating cash flows used for changes
in working capital totaled $1.2 million in the quarter ended January 30, 1999.
The Company's primary investing activities are capital expenditures and
acquisitions of businesses in the plastics industry. Capital expenditures are
primarily incurred to maintain and improve productivity, as well as to modernize
and expand facilities. Capital expenditures for the quarter January 30, 1999
were $5.0 million as compared to $2.1 million for the first quarter of 1998.
The Company anticipates total capital expenditures of approximately $22 million
for fiscal 1999
The cash flows used by financing activities were $.4 million for the first
quarter of 1999. The primary activity was the bank borrowings of $10.4 million
for the Lustro Plastics Company acquisition, net repayment of debt of $9.0
million, and cash dividend payments of $1.9 million.
<PAGE>
Financing Arrangements
On March 31, 1998 the Company amended its $40 million bank credit facility
to $150 million. The bank credit facility has a five-year term, with interest
payable at a rate chosen by the Company of either prime or LIBOR plus .5% to
1.0%. The bank credit facility consists of a $50 million term loan, which has
equal quarterly payments due of $2.5 million over five years, and a $100 million
revolving facility. At January 30, 1999 the company had total borrowings under
the bank credit facility of $102.1 million at a weighted average rate of 6.4%
The Company anticipates that cash flow from operations, together with the
financing and borrowings under the Company's bank credit facility, will satisfy
its working capital needs, regular quarterly dividends, and planned capital
expenditures for the next year.
<PAGE>
Other
The Company has already modified substantially all of its computer systems to
be Year 2000 compliant. The Company has only needed to expend a limited amount
on specific Year 2000 related issues. The Company does not anticipate any
significant costs, problems, or uncertainties associated with any additional
Year 2000 compliance efforts. The implementation of new information systems and
other software and hardware replacements / upgrades take place in the normal
course of our business. Our Year 2000 readiness has been enhanced by these
efforts without the incurrence of significant incremental costs.
The Company could potentially experience disruption to some aspects of its
operations as a result of noncompliant systems utilized by unrelated third party
governmental and business entities. The Company continues to communicate with
others with whom it does significant business to determine their Year 2000
compliance readiness and the extent to which the Company is vulnerable to any
third party Year 2000 issues. These plans will evolve as 1999 progresses and
more information is gained on the Year 2000 readiness of any of our third party
suppliers.
The Company is in the process of developing contingency plans to ensure
critical operations continue uninterrupted or mitigates the impact of any Year
2000 failures.
The information presented herein contains certain forward-looking
statements, defined in Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements represent our judgement relating to, among other
things, future results of operations, growth plans, sales, capital requirements
and general industry and business conditions applicable to us. They are based
largely on our current expectations and are subject to a number of risks and
uncertainties. Actual results could differ materially from the information
contained in the forward-looking statements due to a number of factors,
including changes in the availability and cost of raw materials, changes in the
economy in general, unanticipated developments and competitive factors in the
plastics industry that may prevent us from competing successfully in existing or
new markets, and our ability to manage our growth effectively. Investors are
also directed to the discussion of risks and uncertainties associated with
forward-looking statements contained in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
<PAGE>
PART II - OTHER INFORMATION
Item 6 (a). Exhibits
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
Item 6 (b). Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPARTECH CORPORATION
(Registrant)
Date: February 26, 1999 /s/Bradley B. Buechler
Bradley B. Buechler
President and Chief
Executive Officer
(Principal Executive Officer)
/s/ Randy C. Martin
Randy C. Martin
Vice President - Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT 11
SPARTECH CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
QUARTER ENDED
January 30, January 31,
1999 1998
NET EARNINGS
Basic and diluted net earnings $ 9,157 $ 7,021
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic weighted average common shares
outstanding 26,896 26,398
Add: Shares issuable from assumed exercise
of options 1,852 1,703
Diluted weighted average shares 28,748 28,101
outstanding
NET EARNINGS PER SHARE:
Basic $ .34 $ .27
Diluted $ .32 $ .25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the period ended January 30, 1999 and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-END> JAN-30-1999
<CASH> 6024
<SECURITIES> 0
<RECEIVABLES> 94869
<ALLOWANCES> 2540
<INVENTORY> 69417
<CURRENT-ASSETS> 177907
<PP&E> 271094
<DEPRECIATION> 61527
<TOTAL-ASSETS> 542994
<CURRENT-LIABILITIES> 99783
<BONDS> 0
0
0
<COMMON> 20663
<OTHER-SE> 140969
<TOTAL-LIABILITY-AND-EQUITY> 542994
<SALES> 167801
<TOTAL-REVENUES> 167801
<CGS> 137604
<TOTAL-COSTS> 148726
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3851
<INCOME-PRETAX> 15224
<INCOME-TAX> 6067
<INCOME-CONTINUING> 9157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9157
<EPS-PRIMARY> .34<F1>
<EPS-DILUTED> .32<F2>
<FN>
<F1>Represents basic earnings per share in accordance with
SFAS No. 128, Earnings Per Share.
<F2>Represents diluted earnings per share in accordance with
SFAS No. 128, Earnings per Share.
</FN>
</TABLE>
