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 29, 2000
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.)
120 S. Central Suite 1700, 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 29, 2000:
Common Stock, $.75 par value per share 27,327,227
SPARTECH CORPORATION AND SUBSIDIARIES
INDEX
January 29, 2000
PART I. FINANCIAL INFORMATION PAGE
CONSOLIDATED CONDENSED BALANCE SHEET -
as of January 29, 2000 and October 30, 1999 3
CONSOLIDATED CONDENSED STATEMENT OF
OPERATIONS - for the quarter ended
January 29, 2000 and January 30, 1999 4
CONSOLIDATED CONDENSED STATEMENT OF
CASH FLOWS - for quarter ended
January 29, 2000 and January 30, 1999 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
Item 1. FINANCIAL STATEMENTS
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands, except share amounts)
ASSETS
Jan. 29, 2000
(unaudited) Oct. 30, 1999
Current Assets
Cash and equivalents $ 6,020 $ 8,890
Receivables, net 116,335 117,345
Inventories 82,814 72,108
Prepayments and other 8,199 8,634
Total Current Assets 213,368 206,977
Property, Plant and Equipment 329,082 318,528
Less accumulated depreciation 81,367 75,829
Net Property, Plant and Equipment 247,715 242,699
Goodwill 167,325 168,497
Other Assets 6,703 7,228
$635,111 $625,401
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 12,471 $ 13,215
Accounts payable 68,535 78,644
Accrued liabilities 35,238 37,420
Total Current Liabilities 116,244 129,279
Long-Term Debt, Less Current Maturities 232,857 217,094
Other Liabilities 39,598 38,986
Total Long-Term Liabilities 272,455 256,080
Company-obligated manditorily redeemable
convertible preferred securities of
Spartech Capital Trust holding solely
6.5% convertible subordinated debentures 50,000 50,000
Shareholders' Equity
Common stock, 28,007,023 and 27,915,873
shares issued in 2000 and 1999 20,994 20,925
Contributed capital 99,256 101,709
Retained earnings 94,472 85,651
Treasury stock, at cost, 679,796 shares
in 2000 and 675,937 shares in 1999 (15,268) (14,835)
Cumulative translation adjustments (3,042) (3,408)
Total Shareholders' Equity 196,412 190,042
$635,111 $625,401
See accompanying notes to consolidated financial statements.
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited and amounts in thousands, except per share data)
QUARTER ENDED
Jan. 29, 2000 Jan. 30, 1999
Net Sales $198,455 $167,801
Costs and Expenses
Cost of sales 162,335 137,604
Selling and administrative 11,991 10,125
Amortization of intangibles 1,139 997
175,465 148,726
Operating Earnings 22,990 19,075
Interest 3,714 3,851
Distributions on
preferred securities of
Spartech Capital Trust 813 -
Earnings Before Income Taxes 18,463 15,224
Income Taxes 7,296 6,067
Net Earnings $ 11,167 $ 9,157
Net Earnings Per Common Share:
Basic $ .41 $ .34
Diluted $ .39 $ .32
Dividends Per Common Share $ .085 $ .070
See accompanying notes to consolidated financial statements.
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited and dollars in thousands)
QUARTER ENDED
Jan. 29, 2000 Jan. 30, 1999
Cash Flows from Operating Activities
Net earnings $ 11,167 $ 9,157
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 6,673 5,667
Change in current assets and
liabilities (19,970) (1,171)
Other, net 1,142 897
Net cash provided by operating
activities (988) 14,550
Cash Flows from Investing Activities
Capital expenditures (6,489) (4,956)
Business Acquisitions (4,893) (10,437)
Retirement of assets 3 20
Net cash used for investing activities (11,379) (15,373)
Cash Flows from Financing Activities
Bank Borrowings for Business Acquisitions 4,893 10,437
Net borrowings (payments) on revolving
credit facilities 11,233 (8,037)
Payments on bonds and leases (1,442) (962)
Cash dividends on common stock (2,346) (1,883)
Stock options exercised 2,061 480
Treasury stock acquired (4,877) (439)
Net cash provided by (used for)
financing activities 9,522 (404)
Effect of exchange rate changes on cash
and equivalents (25) 4
Decrease In Cash and Equivalents (2,870) (1,223)
Cash and Equivalents At Beginning Of Period 8,890 7,247
Cash and Equivalents At End Of Period $ 6,020 $ 6,024
See accompanying notes to consolidated financial statements.
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
NOTE A - Basis of Presentation
Our consolidated financial statements include the accounts of Spartech
Corporation and its wholly owned subsidiaries. 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 our October
30, 1999 Annual Report on Form 10-K.
Our fiscal year ends on the Saturday closest to October 31. Operating
results for any 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 29, 2000 and October 30, 1999 are comprised of
the following components:
2000 1999
Raw materials $ 47,076 $ 41,781
Finished goods 35,738 30,327
$ 82,814 $ 72,108
NOTE C - Cash Flow Information
Supplemental information on cash flows and noncash transactions for the
quarter ended January 29, 2000 and January 30, 1999 is as follows:
2000 1999
Cash paid for:
Interest $ 2,126 $ 1,579
Income taxes $ 348 $ 312
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
Note D - Comprehensive Income
Comprehensive Income is an entity's change in equity during the period from
transactions, events and circumstances from non-owner sources. A summary of our
components of Total Comprehensive Income follows:
QUARTER ENDED
Jan. 29, 2000 Jan. 30, 1999
Net Earnings $ 11,167 $ 9,157
Foreign currency translation
adjustments 366 721
Total Comprehensive Income $ 11,533 $ 9,878
Our 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 29,
2000 and October 30, 1999, respectively.
Note E - Segment Information
Spartech's forty-three facilities are organized into three reportable segments
based on the nature of the products manufactured.
2000 1999
Net Sales *
Extruded Sheet & Rollstock $ 124,039 $ 105,030
Color & Specialty Compounds 55,723 50,486
Molded & Profile Products 18,693 12,285
Total Net $ 198,455 $ 167,801
Sales
Operating
Earnings
Extruded Sheet & Rollstock $ 14,655 $ 11,687
Color & Specialty Compounds 6,923 6,340
Molded & Profile Products 2,090 1,424
Corporate/Other (678) (376)
Total $ 22,990 $ 19,075
Operating
Earnings
* Excludes intersegment sales of $6,138 in 2000 and $4,679 in 1999 primarily
from the Color & Specialty Compounds segment
Note F - Convertible Preferred Securities
On February 18, 2000 we issued $100 million of 7.0% convertible
subordinated debentures to Spartech Capital Trust, a Delaware trust we control.
We used the proceeds to repay borrowings under our bank credit facility. The
debentures are the sole asset of the Trust and eliminate in consolidation. The
Trust purchased the debentures with the proceeds of a $100 million private
placement of 7.0% convertible preferred securities of the Trust having an
aggregate liquidation preference of $100 million and guaranteed by Spartech. The
debentures:
- Are convertible along with the Trust preferred securities, at the
option of the preferred security holders, into shares of our common
stock at a conversion price equivalent to $34.00 per share of common
stock, for a total of 2,941,476 shares;
- Are redeemable along with the Trust preferred securities, at
Spartech's option on or after February 17, 2003, at a price equal to
104.56% of the principal amount plus accrued interest, declining
annually to a price equal to the principal amount plus accrued
interest by February 17, 2010; and
- Mature and are payable, along with the Trust preferred securities, on
February 17, 2015 if they have not been previously redeemed or
converted.
Note G - Acquisition
On February 29, 2000, Spartech announced that it completed the purchase of
substantially all of the assets of Uniroyal Technology Corporation's (Nasdaq
NMS: UTCI) High Performance Plastics, Inc. ("HPP"), a well-established
manufacturer of proprietary plastic products based in South Bend, Indiana with
sales of approximately $130 million for its most recent fiscal year which ended
September 26, 1999. HPP, through its two operating divisions--Polycast (cell
cast acrylic) and Royalite (extruded thermoplastic sheet)--will significantly
expand Spartech's product offerings to customers, increase production capacity
through nine additional manufacturing plants located throughout North America,
and broaden our's technical and marketing expertise in serving several new
growth industries for Spartech. The acquisition price for HPP was approximately
$216 million and financed through our new $250 million bank credit facility.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the first quarter ended January 29, 2000 increased by 18% to
$198.5 million, as compared to $167.8 million during the same quarter last year,
and operating earnings rose by 21% to $23.0 million, from $19.1 million reported
for the first quarter of 1999. First quarter 2000 net earnings were $11.2
million, or $.39 per diluted share, compared to $9.2 million, or $.32 per
diluted share, reported in 1999.
Net sales of the Extruded Sheet & Rollstock segment increased to $124.0
million. Base volume increased by 7% for the first three months, as a result of
strong sales of our new alloy plastics to the packaging and recreation & leisure
markets, while our 1999 acquisitions of Lustro, Alltrista Corporation's Plastic
Packaging Division, and OS Plastics added another 6% to Spartech Plastics'
volume. Net sales of the Color & Specialty Compound segment grew to $55.7
million for the first quarter, with base volume growth of 6% coupled with a
positive 4% price/mix related change. Continued strength in the transportation
and electronics markets fueled the sales growth in this segment. The Molded &
Profile Products segment benefited from the October 1999 acquisitions of Accura
and Geoplast. Sales for the group were up 52% to $18.7 million as compared to
$12.3 million for the same three-month period last year.
Cost of sales increased 18% to $162.3 million for the quarter ended January
29, 2000, compared with $137.6 million for the same period of 1999, but
decreased to 81.8% of net sales for 2000 from 82.0% for 1999. The more favorable
cost of sales percentage in 2000 represents productivity improvements resulting
from both our capital expenditures and acquisition synergies and sales of higher
margin Alloy Plastics and Product Transformations.
Selling and administrative expenses of $12.0 million for the first quarter
of 2000 increased when compared to 10.1 million for the similar period in 1999
but remained at 6.0% of net sales.
Operating earnings for the quarter ended January 29, 2000 were $23.0
million (11.6% of net sales) compared to $19.1 million (11.4% of net sales) for
the corresponding period in 1999. These gains in operating earnings were
achieved through the increased sales levels and improved production
efficiencies, discussed above.
Interest expense and distributions on preferred securities of $4.5 million
for the quarter ended January 29, 2000 increased from $3.9 million for the same
period in 1999 as a result of borrowings related to the Lustro, Alltrista
Corporation's Plastic Packaging Division, OS Plastics, Accura and Geoplast
acquisitions completed in 1999.
Our effective tax rate was 39.5% for the first quarter of 2000 compared to
39.9% in 1999.
Environmental and Inflation
We operate under various laws and regulations governing employee safety,
the quantities of specified substances that may be emitted into the air,
discharged into waterways, and otherwise disposed of on and off our properties.
We do not anticipate that future expenditures for compliance with these laws and
regulations will have a material effect on its capital expenditures, earnings,
or competitive position.
The plastic resins we use in our production process are crude oil or
natural gas derivatives which are available from a number of domestic and
foreign suppliers. Accordingly, our raw materials are only somewhat affected by
supply, demand, and price trends of the petroleum industry. The pricing of
resins tends to be independent of crude oil or natural gas except in periods of
anticipated or actual shortages. We are not aware of any trends in the
petroleum industry which will significantly affect its sources of raw materials
in 2000.
Liquidity and Capital Resources
Cash Flow
Our primary sources of liquidity have been cash flows from operating
activities and borrowings from third parties. Our principal uses of cash have
been to support its operating activities, invest in capital improvements, and
finance strategic acquisitions. Cash flows for the periods indicated are
summarized as follows:
First Quarter
2000 1999
(Dollars in millions)
Net cash provided by (used for)
operating activities $ (1.0) $ 14.6
Net cash used for
investing activities $ (11.4) $ (15.4)
Net cash provided by (used for)
financing activities $ 9.5 $ (0.4)
Decrease in cash and equivalents $ (2.9) $ (1.2)
Operating cash flow provided by net earnings increased 22% to $11.2
million and the add back for depreciation and amortization in 2000 was $6.7
million. Operating cash flows used for changes in inventory totaled $10.7
million due to selective pre-buys of certain resins, increase in resin prices in
inventory, and the typical transition to what is traditionally our highest sales
level in the second quarter. Operating cash flows used for changes in accounts
payable totaled $10.1 due to conversion of some significant resin purchases to
more favorable discounting terms. Operating cash flows provided by changes in
accounts receivable totaled $1 million.
Our 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 29, 2000 were
$6.5 million as compared to $5.0 million for the first quarter of 1999. We
anticipates total capital expenditures of approximately $25 million for fiscal
2000
The cash flows provided by financing activities were $9.5 million for the
first quarter of 2000. The primary activity was the net bank borrowings of
$14.7 million, cash dividend payments of $2.3 million, and treasury stock
purchases, net of option proceeds, of $2.8 million.
Financing Arrangements
We anticipate that cash flow from operations, together with the financing
and borrowings under our bank credit facility, will satisfy our working capital
needs, regular quarterly dividends, and planned capital expenditures for the
next year.
Other
We have not incurred, nor do we expect to incur, any material costs related
to our Year 2000 compliance efforts. Amounts spent on information technology,
and non-IT equipment upgrades, have been planned in accordance with continual
efforts to upgrade our capabilities.
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. Our 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 or the plastics industry in general, other unanticipated
events 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 our Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
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
A Form 8-K was filed on December 6, 1999 announcing that effective
September 9, 1999, the Board of Directors of the registrant approved certain
amendments to the registrant's Restricted Stock Option Plan, originally
adopted in 1991. The amendments to the Plan permit certain transfers of
options issued pursuant to the Plan, and expand in certain respects the types
of consideration which may be paid to exercise the options and pay withholding
taxes due upon exercise. No financial statements were required to be filed in
the Form 8-K.
A Form 8-K was filed on December 9, 1999 announcing the fiscal 1999
operating results and outlook for fiscal 2000. No financial statements were
required to be filed in the Form 8-K.
A Form 8-K was filed on December 28, 1999 announcing an agreement to
acquire substantially all of the assets of High Performance Plastics, Inc. No
financial statements were required to be filed in the Form 8-K.
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 29, 2000 ________/s/Bradley B. Buechler
Bradley B. Buechler
Chairman, 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)
EXHIBIT 11
SPARTECH CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
QUARTER ENDED
January 29, January 30,
2000 1999
NET EARNINGS
Basic net earnings $11,167 $ 9,157
Add: Distributions on Preferred Securities,
net of tax 488 -
Diluted net earnings 11,655 9,157
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic weighted average common shares
outstanding 27,299 26,398
Add: Shares issuable from assumed conversion
of Preferred Stock 1,637 -
Add: Shares issuable from assumed exercise
of options 1,098 1,852
Diluted weighted average shares 30,034 28,748
outstanding
NET EARNINGS PER SHARE:
Basic $ .41 $ .34
Diluted $ .39 $ .32
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the period ended January 29, 2000 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-28-2000
<PERIOD-END> JAN-29-2000
<CASH> 6020
<SECURITIES> 0
<RECEIVABLES> 119467
<ALLOWANCES> 3519
<INVENTORY> 82814
<CURRENT-ASSETS> 213368
<PP&E> 329082
<DEPRECIATION> 81367
<TOTAL-ASSETS> 635111
<CURRENT-LIABILITIES> 116244
<BONDS> 0
50000
0
<COMMON> 20994
<OTHER-SE> 175418
<TOTAL-LIABILITY-AND-EQUITY> 635111
<SALES> 198455
<TOTAL-REVENUES> 198455
<CGS> 162335
<TOTAL-COSTS> 175465
<OTHER-EXPENSES> 813<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3714
<INCOME-PRETAX> 18463
<INCOME-TAX> 7296
<INCOME-CONTINUING> 11167
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11167
<EPS-BASIC> .41
<EPS-DILUTED> .39
<FN>
<F1>Distributions on Preferred Securities
</FN>
</TABLE>
