21
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 October 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 incorporation (I.R.S. Employer Identification
or organization) Number)
120 S. CENTRAL AVENUE; SUITE 1700, CLAYTON, MISSOURI 63105-1705
(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 $432,940,512 on December 31, 1999.
There were 27,385,677 total shares of common stock outstanding as of December
31, 1999.
Documents incorporated by reference
1) Portions of the 1999 Annual Report to Shareholders are incorporated by
reference into Parts I, II and IV.
2) Portions of the Definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders are incorporated by
reference into Part III.
PART I
Item 1. BUSINESS
General
Spartech Corporation, together with its subsidiaries, is an intermediary
processor of thermoplastics. The Company converts base polymers, or resins,
from commodity suppliers into extruded plastic sheet and rollstock, color
concentrates and blended resin compounds, and injection molded and profile
extruded products. The Company's products are sold to over 5,400 original
equipment manufacturers and other customers in a wide range of end markets. The
Company operates 42 production facilities in North America and one in Europe,
and is organized into three reportable segments, based on the products
manufactured: Extruded Sheet & Rollstock; Color & Specialty Compounds; and
Molded & Profile Products.
Extruded Sheet & Rollstock sells its products to various manufacturers who
use plastic components in their industrial products. The Company's extruded
sheet and rollstock is utilized in several end markets including
transportation, food/medical packaging, building & construction, recreation
& leisure, and sign/advertising. The Company is North America's largest
extruder of custom rigid plastic sheet and rollstock, operating 21
facilities in the United States and Canada under the name Spartech Plastics.
Color & Specialty Compounds sells custom designed plastic alloys, compounds,
color concentrates, and calendered film for utilization by a large group of
manufacturing customers servicing the packaging, transportation, electronics
& appliances, building & construction and other end markets. The Company
produces and distributes these products from 14 facilities under the names
Spartech Polycom, Spartech Color, and Spartech Vy-Cal in the United States,
Canada and France.
Molded & Profile Products 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) water purification system components,
and (4) profile extruded products for a variety of industries. The Company
manufactures these molded and profile products from 8 facilities in the
United States and Canada under the names Spartech Industries and Spartech
Profiles.
The Company's principal executive office is located at 120 S. Central Avenue,
Suite 1700, Clayton, Missouri 63105-1705, telephone (314) 721-4242. The Company
was incorporated in the State of Delaware in 1968, succeeding a business which
had commenced operations in 1960.
Industry Overview
The Society of Plastics Industry estimates that the U.S. plastics industry
produced over 91 billion pounds of plastic in 1998 and grew at a 6% compound
annual growth rate from 1993 to 1998, due partly to the continuing substitution
of plastics for traditional materials such as metal, fiberglass and wood. The
intermediary processor segment of the plastics industry is fragmented, with over
2,000 plastic processing companies that generally operate in one or more of the
following areas:
Sheet and film extrusion,
Specialty compounding,
Color concentrates,
Pipe, profile and tube extrusion,
Injection molding,
Thermoforming,
Blow molding, and
Rotational molding.
Each of these processing methods involves different production capabilities,
operating costs and equipment, and requires a different level of capital
expenditure and operating expertise. A large percentage of the plastics
processing industry in the United States is represented by small to mid-size
regional operations that generate less than $50 million in annual sales and the
industry is continuing to undergo consolidation. Current trends contributing to
this consolidation, include:
Greater focus on management transition issues by plastics entrepreneurs;
The potential to achieve economies of scale;
Increased capital and technical capabilities necessary to increase
production efficiencies and expand capacity; and
Customers seeking to deal with fewer suppliers.
Due to the size and breadth of our operations, the Company believes it is well
positioned to increase its business through new product developments, the
continuing substitution of thermoplastics for wood, metal, and fiberglass
applications, and selective acquisitions. The Company calls its new products
Alloy Plastics, and the substitution process Product Transformations and
additional information on these items is covered under the Operating Philosphy
section that follows below. Acquisitions completed over the last five years are
summarized below:
Date
Acquired Business Acquired Products / Segments
May 1996 Portage Industries Extruded Sheet & Rollstock
September 1996 Hamelin Group Extruded Sheet & Rollstock,
Color Concentrates, and Molded
Products
August 1997 Preferred Plastic Sheet Extruded Sheet & Rollstock and
Division of Echlin Inc. Profile Products
March 1998 Polycom Huntsman, Inc. Specialty Compounds
April 1998 Prismaplast Canada, Ltd. Color Concentrates
October 1998 Anjac-Doran Plastics, Inc. Profile Products
January 1999 Lustro Plastics, Company, Extruded Sheet & Rollstock
L.L.C.
May 1999 Alltrista Plastic Packaging Extruded Sheet & Rollstock
Company Division of
Alltrista Corporation
October 1999 Accura Molding Company Ltd. Injection Molded Products
October 1999 OS Plastics, Division of Extruded Sheet & Rollstock
Innocan Capital Inc.
October 1999 Geoplast PVC Division of RAE Profile Products
Capital Corp
Further information with respect to Spartech's recent acquisition activity is
set forth in Note (2) to the Consolidated Financial Statements on page 23 of the
1999 Annual Report to Shareholders, attached as Exhibit 13.
Operating Philosophy
Spartech introduced its current strategic vision in the early 1990's, as the
Company began to capitalize on its core manufacturing competencies and take
advantage of the growth opportunities in the consolidating plastics industry.
Today, our "Focused Growth" and "Continuous Improvement" strategies support our
commitment to generate value for our customers, shareholders, and employees.
SPARTECH's "Four Cornerstones for Volume Growth" initiatives continue to provide
a strong foundation for our Focused Growth strategy. In early fiscal 1999, the
Company introduced SPARTECH's "Pyramids of Productivity" initiative and has now
expanded its "Continuous Improvement" strategy to include three "Pyramids of
Performance."
Focused Growth Strategy--Spartech's volume growth strategy, initiated in 1991,
is known as Four Cornerstones for Growth, which focuses on balanced revenue
growth both through internal means -- new product developments, product
transformation initiatives and business partnerships -- and through strategic
acquisitions. The four elements of this growth strategy are:
Business Partnerships. The Company is committed to building business
partnerships that provide long-term growth opportunities and enhance
customer
relationships. Such partnerships offer direct and indirect benefits to the
Company and its customers by broadening product lines, lowering the cost of
technological efforts, and increasing geographic presence. The Company
regularly partners with customers and resin suppliers to develop
improvements in
order to offer customers state-of-the-art products, and have significantly
contributed to strengthening the Company's position in the plastics
intermediary
segment. In an effort to exceed customer expectations, the Company has
designed
several continuous improvement initiatives such as the "Total Transaction
Quality," "Growth Through Training" and "Total Customer Satisfaction"
programs.
These programs involve customer contact and survey processes, ISO9000 and
QS9000
quality system certifications, customer training offerings, and quality
management reviews.
Strategic Expansions. As a result of the Company's size and breadth of
operations, management believes that it is well positioned for continued
expansion through selective acquisitions in the consolidating plastics
intermediary segment. In evaluating acquisition opportunities, management
targets acquisition candidates that: (i) add complementary product lines
(with
emphasis on companies producing specialty or value-added thermoplastic
products); (ii) increase geographic presence or market penetration; and
(iii)
provide operational synergies in purchasing, production and customer
service.
Product Transformations. A key element of the Company's internal growth
is the ongoing transition of products previously made from wood,
metal or fiberglass to higher performing and less expensive recyclable
thermoplastics. The Company is the market leader in custom extruded sheet
and rollstock, where the transformation process is still in the early
stages. Sizable metal, glass and fiberglass specialty components have
recently begun to be replaced by
thermoplastics in the power tool and transportation markets. The Company
utilizes the experience of its sales and production personnel, partnerships
with suppliers, and relationships with customers to identify and develop
new applications for its products. Product Transformations have been a
key contributor to the Company's internal growth rates. Penetration of
plastics into the appliance & electronics, automotive, building &
construction, recreation & leisure, and packaging markets continues
to expand the opportunities for Product Transformations.
Alloy Plastics. The Company aggressively develops new proprietary
products that combine advanced-engineered thermoplastic compounds and
additives with new manufacturing techniques implemented by experienced
operating personnel, which we call "Alloy Plastics". Alloy Plastics
represent advancements in formulation and production technologies, such as
the ability to extrude new products that
combine the virtues of several polymers into a single sheet or to create
new specialty compounds by adding reinforcements such as talc, calcium
carbonate and glass fibers to base resins. All of the Company's Alloy
Plastics represent new proprietary products which offer end-product
manufacturers a variety of solutions for the design of high
performance and environmentally-friendly products with cost efficient
benefits.
Continuous Improvement Strategy--Spartech's Continuous Improvement strategy,
under the Company's Pyramids of Performance initiatives, focuses Spartech on
consistent improvement in production efficiency, communication, and service.
The three components of this strategy are:
Pyramid of Productivity. Combines Supply Chain Management, Lean
Manufacturing, and Results-Driven Communication efforts to enhance earnings
through continuous improvements at each of our 43 operations. Over 80
cross- functional teams throughout all our facilities work on generating
productivity improvements, eliminating waste, and identifying process
efficiencies. Annually, the Company recognizes our three best "Champion
Teams" at our Annual Awards Meeting.
Pyramid of Communication. Focuses on the effective use of information
technology to drive business growth, improve customer satisfaction, and
enhance shareholder relations. Our new Growth Focused Communication
program is being implemented in 2000 to install the policy and procedure
changes needed to continually improve in the areas of (1) Customer,
Sales, Marketing, and Manufacturing Information Integration, (2)
Electronic Commerce and Product Development Technology, (3) Enterprise-
Wide Communication Systems, and (4) Internet-Enabled Applications.
Pyramid of Service. Builds upon our efforts to consistently meet and
exceed customer expectations for quality, service, and cost. Our Total
Customer Satisfaction program emphasizes our commitment to enhance our rapid
response and competitive pricing to each of our five thousand-plus
customers. These efforts are coordinated with our Total Transaction Quality
and Growth Through Training programs to enhance our partnerships with
customers.
Operating Segments
Extruded Sheet & Rollstock--Net sales and operating earnings (consisting of
earnings before interest, taxes and corporate operations/allocations) of the
Extruded Sheet & Rollstock segment for fiscal years 1999, 1998, and 1997 were as
follows:
Fiscal Year
(Dollars in millions)
1999 1998 1997
Net Sales $494.1 $455.1 $375.8
Operating Earnings $57.6 $50.5 $39.6
Products. This segment, which operates under the name Spartech Plastics,
processes a variety of materials into single and multilayer sheets or
rollstock on a custom basis for end product manufacturers. The segment's
extruded sheet and rollstock is utilized in several end markets including
transportation, building & construction, packaging, recreation and sign/
advertising. Most of the segment's customers thermoform, cut, and trim
their plastic sheet for these various end uses.
New Product Development. This segment is actively involved in the
development of Alloy Plastics. These products are engineered sheets and
rollstock using multiple layers of materials, often of different plastics
and often using proprietary mixtures of plastic compounds. They offer end-
product manufacturers a variety of solutions to design high
performance and environmentally-friendly products with cost effective
benefits. The Company currently offers 15 alloy plastics, five of which
were introduced in April 1999.
Manufacturing and Production. This segment operates 21 facilities in
North America. The principal raw materials used in manufacturing extruded
sheet and rollstock are plastic resins in pellet form. The Company
extrudes a wide variety of plastic resins, including ABS
(acrylonitrile butadiene styrene), polycarbonate, polypropylene,
acrylic, PET (polyethylene terephthalate), polystyrene, polyethylene, PVC
(polyvinyl chloride), and PETG (polyethylene terephthalate glycol).
The Company produces plastic sheet and rollstock of up to seven layers
using a multi-extrusion process. This process combines the materials in
distinct layers as they are extruded through a die into sheet form,
providing improved and sometimes unique properties compared to single layer
extrusions. More than half of our 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 a
plastic sheet or laminate sheets together to achieve performance
characteristics desired by customers for particular applications.
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 production
facility. This is due to shipping costs for rigid plastic material and the
need for prompt response to customer requirements and specifications. The
outdoor sign and spa markets, however, are slightly more national in scope.
The Company sells extruded sheet and rollstock products principally through
our own sales force, but also uses a limited number of independent sales
representatives. During 1999, the Company sold products of the Extruded
Sheet & Rollstock segment to over 3,100 customers, including Sub-Zero
Freezer Company, John Deere & Company, Jacuzzi Incorporated, Igloo
Corporation, and Fleetwood Enterprises, Inc.
Color & Specialty Compounds--Net sales and operating earnings (consisting of
earnings before interest, taxes and corporate operations/allocations) of the
Color & Specialty Compounds segment for fiscal years 1999, 1998, and 1997 were
as follows:
Fiscal Year
(Dollars in millions)
1999 1998 1997
Net Sales $217.6 $158.2 $84.0
Operating Earnings $28.6 $18.1 $7.1
Products - The Color & Specialty Compounds segment manufactures color
concentrates, proprietary or custom-designed plastic compounds, and
calendered film for a large group of manufacturing customers who produce
footwear, appliance components, lawn and garden equipment, cosmetics
and medical packaging, vehicle components and numerous other products.
The segment operates under three business names:
Spartech Polycom produces its own line of proprietary compounds and
also provides toll compounding services for engineered resins, flame
retardants and other specialty compounds.
Spartech Color, the largest color supplier in Canada, is focused on
service- oriented color concentrate applications for film and molding.
Spartech Vy-Cal Plastics operates a vinyl calendering machine,
supplying finished PVC film to manufacturers of such products as
loose-leaf binders, decorator-grade wallcoverings and packaging products
for the medical industry.
Customers of the Color & Specialty Compounds segment range from major
integrated manufacturers to sole-proprietor subcontractors that use
injection molding, extrusion, blow molding and blown and cast film
processes.
New Product Development. This segment has well-equipped laboratory
facilities, particularly the Spartech Polycom Technical Center in Donora,
Pennsylvania. These laboratories operate testing and simulated end-use
process equipment as well as small scale versions of our production
equipment to ensure accurate scale-up from development to production. The
Company creates new specialty compounds by adding reinforcements and other
additives to the base resins, in order to offer end-product manufacturers a
variety of solutions for the design of high-performance and environmentally
friendly products on a cost- efficient basis. In addition to compounding
technology, the segment has developed enhanced capabilities to produce
color concentrates and additives.
Manufacturing and Production. This segment operates 13 manufacturing
facilities in North America and one in Europe. The principal raw materials
used in manufacturing specialty plastic compounds and color concentrates
are plastic resins in powder and pellet form, primarily polypropylene,
polyethylene, polystyrene, ABS and PVC. The Company also uses colorants,
mineral and glass reinforcements and other additives to impart specific
performance and appearance characteristics to the compounds. The raw
materials are mixed in a blending process and then fed into an extruder and
formed into pellets.
Marketing, Sales and Distribution. The Company generates most of the
Color & Specialty Compounds segment's sales in the United States and Canada
but also sells to customers in Europe and Mexico. The Company sells the
segment's products principally through our own sales force, but also uses
independent sales representatives. During 1999, the Company sold products
of the Color & Specialty Compounds segment to over 2,300 customers,
including The Black & Decker Corporation, DaimlerChrysler Corporation,
First Brands Corporation and Tenneco Inc.
Molded & Profile Products--Net sales and operating earnings (consisting of
earnings before interest, taxes, and corporate operations/allocations) of the
Molded and Profile Products segment for fiscal 1999, 1998, and 1997 were as
follows:
Fiscal Year
(Dollars in millions)
1999 1998 1997
Net Sales $56.2 $40.6 $ 42.9
Operating Earnings $7.8 $5.7 $ 5.9
" Products. Our Molded & Profile Products segment manufactures a wide range
of injection molded and profile extruded products for a large group of
intermediate and end-user customers The segment operates under two business
names:
-- Spartech Industries produces thin-walled, printed plastic food
packaging and industrial containers for a large group of dairy, deli and
industrial supply companies; plastic tire and wheel assemblies for the
lawn and garden, refuse container and toy markets; and water
purification systems for Brita.
Spartech Profiles manufactures products for various industries,
including the bedding and construction markets.
" New Product Development. This segment brings unique, recognized
capabilities to our customers such as print graphics and package design,
patented tread-cap wheel technologies and special fabrication of profile
products. In addition, this segment's creativity, engineering and design
principles enable us to effectively respond to customer needs in the niche
markets in which the Company participates.
" Manufacturing and Production. This segment operates eight manufacturing
facilities in North America. The principal raw materials used in
our manufacturing of molded and profile products are polyethylene,
polypropylene and PVC. Products are produced either through injection
molding or profile extrusion.
" Marketing, Sales and Distribution. Spartech Industries - Thin Wall
Containers markets most of its products to customers located in North America,
as well as the Caribbean. Spartech Industries - Custom Engineered Wheels markets
its products throughout North America. Spartech Industries - Custom Molded
Products sells water purification systems and various custom molded products
throughout North America. Spartech Profiles markets its custom profile products
throughout North America. The Company sells the segment's products principally
through our own sales force, but also uses independent sales representatives.
During 1999, the Company sold products of the Molded & Profile Products segment
to approximately 1,100 customers, including MTD Products, Dannon Company, Select
Comfort Corporation, The Toro Company and Waste Management, Inc.
Pending Acquisition
On December 27, 1999, Spartech announced that it entered into an agreement to
acquire substantially all of the assets of High Performance Plastics, Inc., a
wholly-owned subsidiary of Uniroyal Technology Corporation (Nasdaq NMS: UTCI)
and a well-established manufacturer of proprietary plastic products based in
South Bend, Indiana with sales of approximately $130 million. 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 the Company's technical and
marketing expertise in serving several new growth industries for Spartech.
Currently over 75% of HPP's sales are derived from products or markets in which
Spartech has not previously competed.
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.
The Company seeks to maintain operating margins by matching cost increases with
corresponding price increases and have generally been successful in doing so.
The Company does business with most of the major resin manufacturers and has
enjoyed good relationships with such suppliers over the past several years. 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 the
foreseeable future.
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 processing segments 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 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 manufacture consistently to required quality levels, meet demanding
delivery times, exercise skill in raw material purchasing, and achieve
production efficiencies to process the products profitably. The Company
believes it is competitive in each of these key areas.
Backlog
The Company estimates that the total dollar volume of its backlog as of
October 30, 1999 and October 31, 1998 was approximately $75.6 million and $66.5
million, respectively, which represents approximately five weeks of production
for each year.
Employees
The Company's total employment approximates 3,350. There are 2,800 production
personnel at the Company's 43 facilities, approximately 27% 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
550 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 2000 to
comply with any applicable regulations. The Company is subject to federal,
state, local and non-U.S. laws 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. The Company has not incurred significant
expenditures in order to comply with such laws and regulations, nor does it
anticipate continued compliance to materially affect its earnings or competitive
position.
International Operations
Information regarding the Company's operations in its three geographic
segments -- United States, Canada and France -- is located in Note (13) to the
Consolidated Financial Statements on page 29 of the 1999 Annual Report to
Shareholders, attached hereto as Exhibit 13. The Company's Canadian and French
operations may be affected periodically by foreign political and economic
developments, laws and regulations, and currency fluctuations.
Other
The Company has modified substantially all of its computer systems to be Year
2000 compliant. The Company has not incurred and does not anticipate any
significant costs, problems, or uncertainties associated with operating its Year
2000 compliant systems. 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 and the extent to which the Company is vulnerable to
any third party Year 2000 issues.
Item 2. PROPERTIES
The Company operates in plants and offices aggregating approximately
3,462,500 square feet of space. Approximately 1,424,000 square feet of plant
and office space is leased with the remaining 2,038,500 square feet owned by the
Company. A summary of the Company's principal operating facilities follows:
Extruded Sheet & Rollstock
Location Description Size in Square Owned/Leas
Feet ed
Arlington, TX Extrusion plant & 126,000 Leased
offices
Atlanta, GA Extrusion plant & 75,000 Leased
offices
Cape Extrusion plant & 100,000 Owned
Girardeau, MO offices
Clare, MI Extrusion plant & 27,000 Owned
offices
Evanston, IL Extrusion plant & 135,000 Leased
offices
Greenville, OH Extrusion plant & 60,000 Owned
offices
10,000 Leased
Greensboro, GA Extrusion plant & 42,000 Owned
offices
10,000 Leased
La Mirada, CA Extrusion plant & 98,000 Leased
offices
Mankato, MN Extrusion plant & 36,000 Owned
offices
54,000 Leased
McMinnville, Extrusion plant & 40,000 Owned
OR offices
McPherson, KS Extrusion plant 102,000 Owned
& offices
Muncie, IN Extrusion plant 201,500 Owned
& offices
Oxnard, CA Extrusion plant 73,000 Leased
& offices
Paulding, OH Extrusion plant 68,000 Owned
& offices
20,000 Leased
Portage, WI Extrusion plant & 118,000 Owned
offices
54,000 Leased
Richmond, IN Extrusion plant & 52,000 Owned
offices
29,000 Leased
Taylorville, Extrusion plant & 40,000 Owned
IL offices
Wichita, KS Extrusion plant & 63,000 Owned
offices
128,000 Leased
Cornwall #1, Extrusion plant & 38,000 Leased
Ontario offices
Cornwall #2, Extrusion plant & 64,000 Leased
Ontario offices
Granby, Quebec Extrusion plant & 75,000 Owned
offices
10,000 Leased
1,948,500
Color & Specialty Compounds
Location Description Size in Square Owned/Lease
Feet d
Cape Compounding plant & 57,000 Owned
Girardeau, MO offices
60,000 Leased
Charleston, SC Compounding plant & 97,000 Leased
offices
Conneaut, OH Compounding plant & 94,000 Owned
offices
Conshohocken, Calendering plant & 39,000 Owned
PA offices
Donora #1, PA Compounding plant & 142,000 Owned
offices
Donora #2, PA Compounding plant & 88,000 Owned
offices
Goddard, KS Color plant & 38,000 Owned
offices
Kearny, NJ Compounding plant & 59,000 Owned
offices
Lake Charles, Compounding plant & 55,000 Owned
LA offices
Lockport, NY Compounding plant & 45,000 Owned
offices
St. Clair, MI Compounding plant & 71,000 Owned
offices
Montreal, Color plant & 39,000 Leased
Quebec offices
Stratford, Color plant & 65,000 Owned
Ontario offices
Donchery, Compounding plant & 30,000 Owned
France offices
979,000
Molded & Profile Products
Location Description Size in Owned/Lease
Square Feet d
El Monte, CA Profile plant & 63,000 Leased
offices
Greensboro, GA Profile plant -*
McPherson, KS Profile plant -*
Warsaw, IN Injection molding 41,000 Owned
plant & offices
28,000 Leased
Brampton, Injection molding 100,000 Leased
Ontario plant & offices
Cookshire, Injection molding 140,000 Owned
Quebec plant & offices
Toronto, Injection molding 73,000 Leased
Ontario plant & offices
Winnipeg, Profile plant & 50,000 Owned
Manitoba offices
11,000 Leased
506,000
*Profile production conducted in same facility as the Extruded
Sheet & Rollstock plant noted above.
In addition, the Company leases office facilities for its headquarters in St.
Louis, Missouri and for administrative offices in Montreal, Quebec and
Washington, Pennsylvania, the aggregate square footage of which is approximately
29,000.
The plants located at the premises listed above are equipped with 104 sheet
extrusion lines, 79 of which run multi-layered materials, 40 profile extrusion
lines, 40 general compounding lines, 19 color compounding lines, 97 injection
molding machines, 20 printing 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
along with anticipated capital expenditures (estimated to be approximately $25
million in fiscal 2000) are adequate for the level of business anticipated in
fiscal 2000.
Item 3. LEGAL PROCEEDINGS
The Company is subject to various claims, lawsuits, and administrative
proceedings arising in the ordinary course of business with respect to
commercial, product liability, employment and other matters, several of 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 matters will not have a material adverse effect on the
Company's financial position or results of operations. The Company currently
has no material 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 October 30, 1999.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information on page 31 and 34 of the 1999 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 34 present the cash dividends
declared in fiscal 1998 consisting of four quarterly payments at six cents per
share and the cash dividends declared in fiscal 1999 consisting of four
quarterly payments at seven cents per share. On December 7, 1999, the Company
declared a dividend of eight and one-half cents per share payable on January 19,
2000. 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 31 of the 1999 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 14, 15, 16, and 17 of the 1999 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 description of the Company's business in
Item 1 and legal proceedings in Item 3, and include statements in "Management's
Discussion and Analysis," incorporated herein by reference, about future capital
expenditures, expenditures for environmental compliance, year 2000 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 7 through 8, 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; 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 29 of the
1999 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 2000
Annual Meeting of Shareholders, to be filed with the Commission on or about
January 21, 2000, 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:
Position with the Company and
Name Age Date Appointed
Bradley B. Buechler 51 Chairman of the Board (March
1999), President (April
1987), Chief Executive
Officer (October 1991), and
Director (February 1984)
David B. Mueller 46 Executive Vice President and
Chief Operating Officer (May
1996), Secretary (October
1991), and Director (March
1994)
Daniel J. Yoder 58 Vice President of Materials
(September 1998) and
Technology (May 1990)
Randy C. Martin 37 Vice President-Finance and
Chief Financial Officer (May
1996)
David G. Pocost 38 Vice President of Engineering
(September 1998), Quality and
MIS (December 1996)
Jeffrey D. Fisher 51 Vice President and General
Counsel (July 1999)
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 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.
Mr. Fisher, an attorney, was with the law firm of Armstrong Teasdale LLP for
24 years, the last 17 years as a partner, before joining the Company in July
1999.
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 2000 Annual Meeting of Shareholders to be filed with the Commission on or
about January 21, 2000 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 section entitled "Security Ownership" of the
Definitive Proxy Statement for the 2000 Annual Meeting of Shareholders to be
filed with the Commission on or about January 21, 2000 is incorporated herein by
reference in response to this item.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the sections entitled "Election of Directors,"
"Executive Compensation" and "Certain Transactions" of the Definitive Proxy
Statement for the 2000 Annual Meeting of Shareholders to be filed with the
Commission on or about January 21, 2000 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 1999 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 30
Financial Statements
Consolidated Balance Sheet - 18
Consolidated Statement of Operations - 19
Consolidated Statement of Shareholders' Equity - 20
Consolidated Statement of Cash Flows - 21
Notes To Consolidated Financial Statements - 22-29
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 (1) Asset Purchase and Sale Agreement between Spartech Corporation;
Polycom
Huntsman, Inc., and Spartech Polycom, Inc. dated March 31, 1998
3(A)(2) Restated Certificate of Incorporation
3(B)(3) Amended and Restated By-Laws
10(A) Amended and Restated Employment Agreement dated as of November 1, 1999,
between Bradley B. Buechler and Spartech Corporation
10(B) Amended and Restated Employment Agreement dated as of November 1, 1999,
between David B. Mueller and Spartech Corporation
10(C)(3) Employment Agreement dated June 30, 1998, between Daniel J. Yoder and
Spartech Corporation
10(D)(4) Spartech Corporation Incentive Stock Option Plan dated July 26, 1991
as amended November 1, 1997
10(E)(5) Spartech Corporation Amended and Restated Restricted Stock Option Plan
10(F)(6) Employment Agreement between Jeffrey D. Fisher and Spartech
Corporation dated April 30, 1999
10(G) Employment Agreement between Randy C. Martin and Spartech Corporation
dated as of January 1, 2000
10(H) Employment Agreement between David G. Pocost and Spartech Corporation
dated as of January 1, 2000
11 Statement re Computation of Per Share Earnings
13 Pages 14 through 31 and 34 of 1999 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 March 31, 1998
filed with the Commission
on April 14, 1998 and incorporated herein by reference.
(2)Filed as an exhibit to the Company's quarterly report on Form 10-Q for
the quarter ended
May 2, 1998, filed with the Commission on June 1, 1998 and incorporated
herein by reference.
(3)Filed as an exhibit to the Company's annual report on Form 10-K for
the fiscal year ended October 31, 1998, filed with the Commission
on January 7, 1999 and incorporated herein by reference.
(4)Filed as an exhibit to the Company's Form S-8 (File No. 333-60381),
filed with the Commission on July 31, 1998 and incorporated herein
by reference.
(5)Filed as an exhibit to the Company's Form 8-K filed with the Commission
on
December 6, 1999 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 31, 1999, filed with the Commission on August 31, 1999 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 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 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 10, 2000 By: /s/Bradley B. Buechler
(Date) Bradley B. Buechler
Chairman, 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 10, 2000 /s/Bradley B. Buechler Chairman, President, Chief
Bradley B. Buechler Executive Officer, and
Director
(Principal Executive Officer)
January 10, 2000 /s/David B. Mueller Executive Vice President,
David B. Mueller Chief Operating Officer, and
Director
January 10, 2000 /s/ Randy C. Martin Vice President-Finance
Randy C. Martin and Chief Financial Officer
(Principal Financial and
Accounting Officer)
January 10, 2000 /S/ Ralph B. Andy Director
Ralph B. Andy*
January 10, 2000 /S/ Thomas L. Cassidy Director
Thomas L. Cassidy*
January 10, 2000 /S/ W. R. Clerihue Director
W. R. Clerihue*
January 10, 2000 /S/John R. Kennedy Director
John R. Kennedy*
January 10, 2000 /S/ Calvin J. O'Connor Director
Calvin J. O'Connor*
January 10, 2000 /S/ Jackson W. Robinson Director
Jackson W. Robinson*
January 10, 2000 /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 are filed
herewith.
/s/ Bradley B. Buechler
Bradley B. Buechler
As Attorney-in-Fact
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 1999 Annual Report to
Shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated December 7, 1999. 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.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri
December 7, 1999
F-1
<TABLE>
SPARTECH CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED 1999, 1998, AND 1997
(Dollars in thousands)
<CAPTION>
BALANCE AT ADDITIONS AND
BEGINNING OF CHARGES TO COSTS BALANCE AT
DESCRIPTION PERIOD AND EXPENSES WRITE-OFFS END OF
PERIOD
<S> <C> <C> <C> <C>
October 30,
1999: $ 2,430 $ 1,467 $ (881) $ 3,016
Allowance for
Doubtful
Accounts
October 31,
1998: $ 2,212 $ 1,912 $ (1,694) $ 2,430
Allowance for
Doubtful
Accounts
November 1,
1997: $ 1,946 $ 985 $ (719) $ 2,212
Allowance for
Doubtful
Accounts
Fiscal year 1997, 1998, and 1999 additions and write-offs include activity
relating to the acquisition of certain of the businesses and assets of the
Preferred Plastic Sheet Division of Echlin Inc. in August 1997, Polycom
Huntsman, Inc. in March 1998, Prismaplast Canada Ltd. in April 1998, Anjac-Doron
Plastics, Inc. in October 1998, Lustro Plastics, Company, L.L.C. in January
1999, Alltrista Plastic Packaging Company Division of Alltrista Corporation in
May 1999, Accura Molding Company Ltd. in October 1999, OS Plastics Division of
Innocan Capital Inc. in October 1999, and Geoplast PVC Division of RAE Capital
Corp. in October 1999.
F-2
</TABLE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT OF
BRADLEY B. BUECHLER
AGREEMENT entered into as of the 1st day of November, 1999, by and between
SPARTECH CORPORATION, a Delaware corporation ("Employer"), and BRADLEY B.
BUECHLER ("Employee").
WITNESSETH:
WHEREAS, Employee currently holds the position of Chairman of the Board,
President and Chief Executive Officer of Employer pursuant to an employment
agreement with Employer dated July 1, 1992, as amended March 8, 1993, July 1,
1995, July 1, 1996 and November 1, 1997 (as so amended, 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.
(a) 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 (i) Employee shall not be assigned duties or
responsibilities which are inconsistent with his position and status as
President and Chief Executive Officer, and (ii) Employee shall not be required
temporarily or permanently, to relocate his residence. Employer will also use
its best efforts to cause Employee to be a duly elected member of Employer's
Board of Directors at all times during his employment hereunder, and so long as
Employee serves as a director, Employee shall also be the Chairman of the Board
of Employer.
(b) 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 $625,000 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, effective November 1,
1999, an option to purchase 110,000 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 (i) have exercise prices which are equal to the market
price of the underlying shares on the effective date of grant, subject to
appropriate adjustments as provided in the stock option agreement covering such
option, and (ii) otherwise be Employer's customary ten-year option on such terms
as are provided for in the current standard form of option agreement for options
granted pursuant to Employer's Restricted Stock Option Plan, as amended to date.
(c) The Board of Directors of Employer shall annually consider issuing
additional options to Employee.
(d) In addition to the benefits provided for above and elsewhere in this
Agreement, Employer shall contribute each year to a trust to be maintained for
the benefit of Employee an amount equal to the sum of (i) 15% of Employee's base
salary as defined in this Agreement (exclusive of bonuses) plus (ii) the amount
of the premium Employer would pay for $1,250,000 of term life insurance on
Employee. Such trust shall be of the type commonly known as a "rabbi trust" and
Employer and Employee shall use their best efforts to mutually agree on the
terms thereof and to cause such trust to be created within 90 days after the
date first above written.
(e) Employer agrees to repurchase during each twelve-month period that
this Agreement is in effect, beginning November 1, 1999, a number of Employer's
shares of common stock beneficially owned by Employee, on the following terms
and conditions:
(i) Only mature shares, i.e. shares outstanding at least six months,
will be repurchased;
(ii) The maximum number of shares which Employee may require Employer
to purchase in each twelve-month period shall be 15% of the sum
of (1) the number of outstanding shares beneficially owned by
Employee at the time of the repurchase plus (2) the number of
shares subject to currently-exercisable options beneficially
owned by Employee at the time of the repurchase;
(iii) The price per share will be the average of the publicly-
reported high and low sale prices of the common stock on the New
York Stock Exchange over the three trading days prior to the
sale.
(iv) Employer shall not be obligated to repurchase shares if
Employer's Board of Directors determines in good faith that
Employer's cash needs do not permit the repurchase; and
(v) The repurchases will be effected as of such date as Employee
specifies by notice to Employer's Chief Financial Officer at
least five trading days in advance of the desired repurchase
date; and
(vi) Employer's Board of Directors or its Compensation Committee will
approve each repurchase in advance to the extent required by
Rule 16b-3(e) or Rule 16b-3(d)(1) under the Securities Exchange
Act of 1934 (however, failure to so approve a requested
repurchase which is otherwise in compliance with these conditions
shall nevertheless be deemed a breach of the repurchase covenant
set forth in this paragraph 2(e)).
3. Term of Employment.
(a) The term of this Agreement as amended shall commence November 1, 1999
and shall continue until terminated:
(i) As provided in Section 11 below; or
(ii) Upon at least three years' written notice by Employer to
Employee, such notice not to be given by Employer before November
1, 2002; or
(iii) Upon at least one year's written notice by Employee to
Employer, such notice not to be given by Employee before (A) if
no Change in Control occurs, November 1, 2002, or (B) if a Change
in Control occurs, November 1, 2000.
If notice is given by Employer under clause 3(a)(ii), Employee shall not be
required to perform further services to Employer hereunder; if notice is given
by Employee under clause 3(a)(iii),
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 (1) 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 (2) 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 any member of Employer's Board of Directors who:
(A) is serving as of the close of business on the date first
above written; or
(B) was originally elected to succeed a Continuing Director
described in clause 3(b)(iv)(A), either by a majority of the
Continuing Directors described in clause 3(b)(iv)(A) then
still in office or by Employer's stockholders following
nomination by a majority of the Continuing Directors
described in clause 3(b)(iv)(A); or
(C) was originally elected to fill a vacancy or newly-created
directorship, either by a majority of the Continuing
Directors described in clause 3(b)(iv)(A) then still in
office or by Employer's stockholders following nomination by
a majority of the Continuing Directors described in clause
3(b)(iv)(A).
4. Bonuses.
(a) For each fiscal year of Employer, Employee shall receive an annual
bonus equal to 0.90% of Employer's earnings before 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 Pre-Tax Earnings"), 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 Pre-Tax Earnings are less than 75% of the Company's Adjusted
Pre-Tax Earnings in its immediately preceding fiscal year.
(b) Each fiscal year, an installment equal to 40% of the estimated bonus
for such fiscal year as approved by the Compensation Committee of Employer's
Board of Directors shall be paid to Employee in July, 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
(iii) By Employee pursuant to notice of termination given by
Employee to Employer pursuant to clause 3(a)(iii), above;
then Employer shall pay to Employee within thirty (30) days of (A) the date
notice of such termination is given to Employee pursuant to Section 3, above, or
(B) the date of such termination with Justification, a lump sum severance
benefit (the "Severance Benefit") equal to (I) two times Employee's then current
Base Salary plus (II) 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
(iii) By Employee pursuant to notice of termination given by
Employee to Employer pursuant to clause 3(a)(iii), above;
then Employer shall pay to Employee within thirty (30) days of (A) the date
notice of such termination is given to Employee pursuant to Section 3, above, or
(B) the date of such termination with Justification, a lump sum severance
benefit (the "Severance Benefit") equal to 2.95 times the sum of (I) Employee's
then current Base Salary plus (II) 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 to which
Employee may be entitled under any other provision of this Agreement or
otherwise, 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. If during the term of this Agreement
Employee either dies or becomes physically or mentally disabled (as determined
in accordance with the Social Security Act) from performing his functions
contemplated hereunder, and such period of disability continues for at least six
consecutive months, then Employer will 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 end of the month in which
Employee dies or the end of the month in which the six-month disability period
is satisfied, whichever occurs first. 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.
7. Restrictive Covenants. Employee agrees that while employed by
Employer hereunder (including any renewal term hereunder), and for twenty-four
(24) consecutive months following termination of employment, Employee will not,
in any manner, directly or indirectly:
(i) 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 International
Limited ("Vita"), except information generally known or used in the trade
("Trade Secrets");
(ii) Solicit, call on, divert, or interfere with any of the customers of
Employer or its affiliates (including Vita) or any 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 then engaged in the plastics business, for the
purpose of diverting their trade to any plastics business which compete directly
with Employer's businesses; or
(iii) 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. 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 8, 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.
9. Limitation on Restrictive Covenants. The parties recognize that the
services to be rendered by Employee hereunder are special, unique and of an
extraordinary character. However, 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 8 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.
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.
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:
(i) 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
(ii) 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
11(a)) and without giving notice of termination pursuant to clause 3(a)(iii),
then Employee shall be entitled to receive all accrued compensation and benefits
payable hereunder through the date of such termination but 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 Employee is convicted of a felony, 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 or its subsidiaries, or
because of intentional acts or omissions on Employee's part causing material
injury in excess of $1,000,000 to the property or business of Employer or 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.
(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
120 South Central Ave., Suite 1700 #3 Lochinvar
St. Louis, Missouri 63105 Town and Country, Missouri
63131
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT OF
DAVID B. MUELLER
AGREEMENT entered into as of the 1st day of November, 1999, 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, July 1, 1996 and November 1, 1997 (as so amended, 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.
(a) 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 (i) 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 (ii) Employee shall not be required temporarily or permanently,
to relocate his residence. Employer will also use its best efforts to cause
Employee to be a duly elected member of Employer's Board of Directors at all
times during his employment hereunder.
(b) 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 $435,000 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, effective November 1,
1999, an option to purchase 65,000 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 (i) have exercise prices which are equal to the market
price of the underlying shares on the effective date of grant, subject to
appropriate adjustments as provided in the stock option agreement covering such
option, and (ii) otherwise be Employer's customary ten-year option on such terms
as are provided for in the current standard form of option agreement for options
granted pursuant to Employer's Restricted Stock Option Plan, as amended to date.
(c) The Board of Directors of Employer shall annually consider issuing
additional options to Employee.
(d) In addition to the benefits provided for above and elsewhere in this
Agreement, Employer shall contribute each year to a trust to be maintained for
the benefit of Employee an amount equal to the sum of (i) 15% of Employee's base
salary as defined in this Agreement (exclusive of bonuses) plus (ii) the amount
of the premium Employer would pay for $750,000 of term life insurance on
Employee. Such trust shall be of the type commonly known as a "rabbi trust" and
Employer and Employee shall use their best efforts to mutually agree on the
terms thereof and to cause such trust to be created within 90 days after the
date first above written.
(e) Employer agrees to repurchase during each twelve-month period that
this Agreement is in effect, beginning November 1, 1999, a number of Employer's
shares of common stock beneficially owned by Employee, on the following terms
and conditions:
(i) Only mature shares, i.e. shares outstanding at least six months,
will be repurchased;
(ii) The maximum number of shares which Employee may require Employer
to purchase in each twelve-month period shall be 15% of the sum
of (1) the number of outstanding shares beneficially owned by
Employee at the time of the repurchase plus (2) the number of
shares subject to currently-exercisable options beneficially
owned by Employee at the time of the repurchase;
(iii) The price per share will be the average of the publicly-
reported high and low sale prices of the common stock on the New
York Stock Exchange over the three trading days prior to the
sale.
(iv) Employer shall not be obligated to repurchase shares if
Employer's Board of Directors determines in good faith that
Employer's cash needs do not permit the repurchase; and
(v) The repurchases will be effected as of such date as Employee
specifies by notice to Employer's Chief Financial Officer at
least five trading days in advance of the desired repurchase
date; and
(vi) Employer's Board of Directors or its Compensation Committee will
approve each repurchase in advance to the extent required by
Rule 16b-3(e) or Rule 16b-3(d)(1) under the Securities Exchange
Act of 1934 (however, failure to so approve a requested
repurchase which is otherwise in compliance with these conditions
shall nevertheless be deemed a breach of the repurchase covenant
set forth in this paragraph 2(e)).
3. Term of Employment.
(a) The term of this Agreement as amended shall commence November 1, 1999
and shall continue until terminated:
(i) As provided in Section 11 below; or
(ii) Upon at least three years' written notice by Employer to
Employee, such notice not to be given by Employer before November
1, 2002; or
(iii) Upon at least one year's written notice by Employee to
Employer, such notice not to be given by Employee before (A) if
no Change in Control occurs, November 1, 2002, or (B) if a Change
in Control occurs, November 1, 2000.
If notice is given by Employer under clause 3(a)(ii), Employee shall not be
required to perform further services to Employer hereunder; if notice is given
by Employee under clause 3(a)(iii), 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 (1) 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 (2) 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 any member of Employer's Board of Directors who:
(A) is serving as of the close of business on the date first
above written; or
(B) was originally elected to succeed a Continuing Director
described in clause 3(b)(iv)(A), either by a majority of the
Continuing Directors described in clause 3(b)(iv)(A) then
still in office or by Employer's stockholders following
nomination by a majority of the Continuing Directors
described in clause 3(b)(iv)(A); or
(C) was originally elected to fill a vacancy or newly-created
directorship, either by a majority of the Continuing
Directors described in clause 3(b)(iv)(A) then still in
office or by Employer's stockholders following nomination by
a majority of the Continuing Directors described in clause
3(b)(iv)(A).
4. Bonuses.
(a) For each fiscal year of Employer, Employee shall receive an annual
bonus equal to 0.50% of Employer's earnings before 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 Pre-Tax Earnings"), 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 Pre-Tax Earnings are less than 75% of the Company's Adjusted
Pre-Tax Earnings in its immediately preceding fiscal year.
(b) Each fiscal year, an installment equal to 40% of the estimated bonus
for such fiscal year as approved by the Compensation Committee of Employer's
Board of Directors shall be paid to Employee in July, 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
(iii) By Employee pursuant to notice of termination given by
Employee to Employer pursuant to clause 3(a)(iii), above;
then Employer shall pay to Employee within thirty (30) days of (A) the date
notice of such termination is given to Employee pursuant to Section 3, above, or
(B) the date of such termination with Justification, a lump sum severance
benefit (the "Severance Benefit") equal to (I) two times Employee's then current
Base Salary plus (II) 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
(iii) By Employee pursuant to notice of termination given by
Employee to Employer pursuant to clause 3(a)(iii), above;
then Employer shall pay to Employee within thirty (30) days of (A) the date
notice of such termination is given to Employee pursuant to Section 3, above, or
(B) the date of such termination with Justification, a lump sum severance
benefit (the "Severance Benefit") equal to 2.95 times the sum of (I) Employee's
then current Base Salary plus (II) 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 to which
Employee may be entitled under any other provision of this Agreement or
otherwise, 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. If during the term of this Agreement
Employee either dies or becomes physically or mentally disabled (as determined
in accordance with the Social Security Act) from performing his functions
contemplated hereunder, and such period of disability continues for at least six
consecutive months, then Employer will 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 end of the month in which
Employee dies or the end of the month in which the six-month disability period
is satisfied, whichever occurs first. 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.
7. Restrictive Covenants. Employee agrees that while employed by
Employer hereunder (including any renewal term hereunder), and for twenty-four
(24) consecutive months following termination of employment, Employee will not,
in any manner, directly or indirectly:
(i) 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 International
Limited ("Vita"), except information generally known or used in the trade
("Trade Secrets");
(ii) Solicit, call on, divert, or interfere with any of the customers of
Employer or its affiliates (including Vita) or any 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 then engaged in the plastics business, for the
purpose of diverting their trade to any plastics business which compete directly
with Employer's businesses; or
(iii) 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. 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 8, 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.
9. Limitation on Restrictive Covenants. The parties recognize that the
services to be rendered by Employee hereunder are special, unique and of an
extraordinary character. However, 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 8 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.
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.
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:
(i) 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
(ii) 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
11(a)) and without giving notice of termination pursuant to clause 3(a)(iii),
then Employee shall be entitled to receive all accrued compensation and benefits
payable hereunder through the date of such termination but 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 Employee is convicted of a felony, 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 or its subsidiaries, or
because of intentional acts or omissions on Employee's part causing material
injury in excess of $1,000,000 to the property or business of Employer or 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.
(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
120 South Central Ave., Suite 1700 22 Fair Oaks
St. Louis, Missouri 63105 Ladue, Missouri 63124
EMPLOYMENT AGREEMENT
AGREEMENT entered into this 1st day of January 2000 by and between Randy C.
Martin (the "Employee") and Spartech Corporation, a Delaware corporation (the
"Employer").
WITNESSETH:
WHEREAS, Employer desires to employ Employee, and Employee is willing to
accept such employment on the terms hereinafter set forth,
NOW, THEREFORE, the parties agree as follows:
1. Employment. Employer hereby employs Employee and Employee agrees to
accept such employment on the terms and conditions hereinafter set forth.
2. Term. The term of this Agreement shall commence January 1, 2000 for a
term of three (3) years ending January 1, 2003 (Original Term), unless extended
by mutual consent of the parties hereto.
It is the intent of the parties to negotiate a new contract to replace this
contract by December 31, 2001. If the parties have not entered into a new three
(3) year contract by December 31, 2001, then it is understood this contract is
effectively terminated and an amount equivalent to the Base Salary plus the last
year's bonus shall become due and payable on demand of the Employee or
throughout the remaining year of the Original Term, at the sole discretion of
the Employee. This amount should be in addition to any other benefits earned as
of that date.
3. Duties. Employer employs Employee to act in an executive capacity, as
Vice President of Finance and Chief Financial Officer for Employer, on all
aspects of its business, as and when requested, and at such times and places as
Employer shall reasonably request, subject always to the control and direction
of Employer's Board of Directors. During the term of this Agreement, Employee
(a) will serve Employer faithfully, diligently and to the best of his ability,
and (b) will devote his best efforts and his entire working time, attention and
skill to the performance of his duties hereunder and to promoting and furthering
the interests of Employer. While he is so employed, Employee will not, without
the prior written consent of employer render any services to any other business
concern; provided, however, that nothing herein shall prevent Employee from (i)
engaging
in additional activities in connection with personal investments
which do not interfere or conflict with his duties hereunder, or (ii) making any
investment in any publicly traded company so long as such investment does not
exceed one percent of the outstanding securities of any class.
4. Compensation. Subject to periodic review for cost of living and/or
merit and other increases, Employer agrees to compensate Employee at the rate of
$160,000 annually (Base Salary). Employer shall further advance or reimburse to
Employee such other monies 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. Employee may also participate in all stock option and stock
purchase plans, insurance, medical and other employee benefit programs currently
established and hereafter instituted by Employer which are generally available
to other employees of comparable position. For the term of this Agreement,
Employer shall maintain term life insurance for Employee's designated
beneficiaries equivalent to $250,000.
5. Bonuses. Employee shall be eligible for an annual discretionary bonus
based upon his performance, and based upon the overall results of the Employer's
operations at the end of each year, paid in accordance with the terms and
conditions of Employer's Bonus Program. Any such Bonus shall be subject to
approval by the CEO, and the Compensation Committee of the Board of Directors of
Employer.
6. Non-Disclosure. Employee acknowledges that as a result of his
employment by Employer he has acquired, and in the future, will use and acquire
knowledge and information utilized by Employer in its business which may not be
generally available to the public or to other persons in the plastics business
("Confidential Information"), including, without limitation, Employer's systems,
procedures, formulas, processes, confidential reports, lists of customers,
pricing structure, margins with respect to its products and similar information.
As a material inducement to Employer to enter into this Agreement and to pay
Employee the compensation set forth herein, Employee agrees that he will not, at
any time, directly or indirectly, divulge or disclose to any person, for any
purpose, any Confidential Information, except to those persons authorized by
Employer to receive Confidential Information and except for information which
becomes publicly available through no fault of Employee.
7. Covenant Not To Compete; No Solicitation of Employees. Employee agrees
as follows:
(a) For as long as he is employed by Employer and for one year after
any termination of employment, Employee agrees that he will not, directly or
indirectly, except as a passive investor in publicly held companies in which he
has less than a one percent interest, engage in, own or control any interest in
or act as director, officer or employee of, or consultant to, any firm or
corporation, directly or indirectly engaged, as these terms may be reasonably
construed, in a business substantially similar to that operated by Employer on
the date of termination, in the territories where Employer manufactures or
distributes its products. If the Employee is terminated without cause pursuant
to Paragraph 12(a) hereof, the non-competition provisions of this Paragraph 7(a)
shall apply only so long as Employer continues to pay Employee his base salary.
(b) Employee agrees that for one year after any termination of his
employment with Employer he will not, directly or indirectly, induce, or attempt
to induce, any of the employees of Employer to leave the employment of Employer,
or to employ any such employees within 90 days after any termination of their
employment with Employer.
8. Inventions. Employee acknowledges that all inventions, production
processes, techniques, programs, patents, discoveries, formulas 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 further acknowledges that information imparted to him by
Employer, relating to Employer's production and business methods, techniques,
customer lists, statistics, credit, customers and suppliers is secret and
confidential. Therefore, Employee shall, upon termination of his employment
hereunder and as a prior condition to receiving final wages, 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 information and documents (including all copies thereof)
relating to customers, their needs, products of Employer used by them, schedules
of discussions with them, all formulas, 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 other information of confidential or secret nature
applicable to Employer, 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. As a prior condition to
his receiving final wages, Employee, if requested, shall also execute an
affidavit to the effect that he has complied with the provisions in this
Paragraph 8. The restraints on Employee, as set forth in this Paragraph 8,
however, shall not apply to those inventions for which no equipment, supplies,
facility or trade secret information of Employer was used and which was
developed entirely on Employee's own time and which does not relate to the
business of the Employer, to Employer's actual or demonstrably anticipated
research or development, or which did not result from any work performed by
Employee for Employer.
9. Remedies. By reason of the fact that irreparable harm would be
sustained by Employer if there is any breach by Employee of the provisions of
Paragraphs 6, 7 and 8 hereof, it is agreed that, in addition to any other rights
which Employer may have under this Agreement or at law or in equity, Employer
shall be entitled to apply to any court of competent jurisdiction for, and
obtain, injunctive relief against Employee or against any third party, in order
to prevent any breach or threatened breach of the provisions of such paragraph.
10. Death During Employment. If Employee should die during the term of
this Agreement, Employer's only obligation shall be to pay Employee's spouse, or
his estate if he has no spouse, his base monthly salary to the month in which
death occurs.
11. Disability. Employer, at its option, may terminate this Agreement upon
written notice to Employee if the Employee, because of physical or mental
incapacity or disability, fails in any material respect to perform the services
required of him hereunder for a continuous period of 120 days, or for shorter
periods aggregating 180 days or more in any consecutive period of 240 days.
Upon such termination, all obligations hereunder of the Employer shall cease.
12. Termination. Anything herein to the contrary notwithstanding, Employer
shall have the right to terminate this Agreement as follows:
(a) Employer may terminate this Agreement without cause upon written
notice to Employee. In the event of such termination, Employee will be entitled
to receive the unpaid portion of base salary for the remaining term of this
Agreement, paid out over the remaining term of this Agreement.
(b) Employer may terminate this Agreement at any time for cause.
"Cause" as used herein shall mean dishonesty, theft, conviction of a felony,
drunkenness or a material breach of this Agreement. "Cause" shall also include
the failure of Employee, within ten days after receipt of written notice
-6-
thereof from Employer, for any reason, to correct, cease or
otherwise alter any failure to comply with the lawful
instructions of the corporation's Board of Directors or other act or
omission which, in the sole opinion of the Board of Directors, will materially
adversely affect Employer's business. In the event of termination for cause,
Employer shall have no obligation to pay any compensation except to the extent
the Employee's base salary has been accrued but is unpaid at the time of
termination.
13. Severability. If any part of this Agreement is found to be void or
unenforceable for any reason, the remainder of this Agreement shall be severable
and may be enforced accordingly.
14. Benefit. This Agreement shall inure to the benefit of and be binding
upon Employee, his heirs, executors and administrators, and upon the Employer
and its successors, but this Agreement may not be assigned by either party
except by operation of law by a merger of the Employer into another corporation
or by Employer in connection with any sale of its business or parts thereof.
15. Headings. These headings have been inserted in this Agreement for
convenience only and shall not affect the interpretation hereof.
16. Entire Agreement. This Agreement contains the entire understanding of
the parties and may not be amended or changed except by an agreement in writing
signed by the parties.
17. Notices. Any notices required or permitted hereunder shall be
addressed to Employer at its principal office and to Employee at his address as
it appears in the records of the Employer, or at such other address as either
party may have furnished to the other for such purpose in writing.
18. Applicable Law. This Agreement has been entered into in, and shall be
construed under the laws of, the State of Missouri.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
EMPLOYER:
SPARTECH CORPORATION
By: /s/Bradley B. Buechler
Bradley B. Buechler
Chairman, President and CEO
EMPLOYEE:
/s/ Randy C. Martin
Randy C. Martin
EMPLOYMENT AGREEMENT
AGREEMENT entered into this 1st day of January 2000 by and between David G.
Pocost (the "Employee") and Spartech Corporation, a Delaware corporation (the
"Employer").
WITNESSETH:
WHEREAS, Employer desires to employ Employee, and Employee is willing to
accept such employment on the terms hereinafter set forth,
NOW, THEREFORE, the parties agree as follows:
1. Employment. Employer hereby employs Employee and Employee agrees to
accept such employment on the terms and conditions hereinafter set forth.
2. Term. The term of this Agreement shall commence January 1, 2000 for a
term of three (3) years ending January 1, 2003 (Original Term), unless extended
by mutual consent of the parties hereto.
It is the intent of the parties to negotiate a new contract to replace this
contract by December 31, 2001. If the parties have not entered into a new three
(3) year contract by December 31, 2001, then it is understood this contract is
effectively terminated and an amount equivalent to the Base Salary plus the last
year's bonus shall become due and payable on demand of the Employee or
throughout the remaining year of the Original Term, at the sole discretion of
the Employee. This amount should be in addition to any other benefits earned as
of that date.
3. Duties. Employer employs Employee to act in an executive capacity, as
Vice President of Engineering, Quality and MIS for Employer, on all aspects of
its business, as and when requested, and at such times and places as Employer
shall reasonably request, subject always to the control and direction of
Employer's Board of Directors. During the term of this Agreement, Employee (a)
will serve Employer faithfully, diligently and to the best of his ability, and
(b) will devote his best efforts and his entire working time, attention and
skill to the performance of his duties hereunder and to promoting and furthering
the interests of Employer. While he is so employed, Employee will not, without
the prior written consent of employer render any services to any other business
concern; provided, however, that nothing herein shall prevent Employee from (i)
engaging
in additional activities in connection with personal investments which do not
interfere or conflict with his duties hereunder, or (ii) making any investment
in any publicly traded company so long as such investment does not exceed one
percent of the outstanding securities of any class.
4. Compensation. Subject to periodic review for cost of living and/or
merit and other increases, Employer agrees to compensate Employee at the rate of
$155,000 annually (Base Salary). Employer shall further advance or reimburse to
Employee such other monies 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. Employee may also participate in all stock option and stock
purchase plans, insurance, medical and other employee benefit programs currently
established and hereafter instituted by Employer which are generally available
to other employees of comparable position. For the term of this Agreement,
Employer shall maintain term life insurance for Employee's designated
beneficiaries equivalent to $250,000.
5. Bonuses. Employee shall be eligible for an annual discretionary bonus
based upon his performance, and based upon the overall results of the Employer's
operations at the end of each year, paid in accordance with the terms and
conditions of Employer's Bonus Program. Any such Bonus shall be subject to
approval by the CEO, and the Compensation Committee of the Board of Directors of
Employer.
6. Non-Disclosure. Employee acknowledges that as a result of his
employment by Employer he has acquired, and in the future, will use and acquire
knowledge and information utilized by Employer in its business which may not be
generally available to the public or to other persons in the plastics business
("Confidential Information"),including, without limitation, Employer's systems,
procedures, formulas, processes, confidential reports, lists of customers,
pricing structure, margins with respect to its products and similar information.
As a material inducement to Employer to enter into this Agreement and to pay
Employee the compensation set forth herein, Employee agrees that he will not, at
any time, directly or indirectly, divulge or disclose to any person, for any
purpose, any Confidential Information, except to those persons authorized by
Employer to receive Confidential Information and except for information which
becomes publicly available through no fault of Employee.
7. Covenant Not To Compete; No Solicitation of Employees. Employee agrees
as follows:
(a) For as long as he is employed by Employer and for one year after
any termination of employment, Employee agrees that he will not, directly or
indirectly, except as a passive investor in publicly held companies in which he
has less than one percent interest, engage in, own or control any interest in or
act as director, officer or employee of, or consultant to, any firm or
corporation, directly or indirectly engaged, as these terms may be reasonably
construed, in a business substantially similar to that operated by Employer on
the date of termination, in the territories where Employer manufactures or
distributes its products. If the Employee is terminated without cause pursuant
to Paragraph 12(a) hereof, the non-competition provisions of this Paragraph 7(a)
shall apply only so long as Employer continues to pay Employee his base salary.
(b) Employee agrees that for one year after any termination of his
employment with Employer he will not, directly or indirectly, induce, or attempt
to induce, any of the employees of Employer to leave the employment of Employer,
or to employ any such employees within 90 days after any termination of their
employment with Employer.
8. Inventions. Employee acknowledges that all inventions, production
processes, techniques, programs, patents, discoveries, formulas 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 further acknowledges that information imparted to him by
Employer, relating to Employer's production and business methods, techniques,
customer lists, statistics, credit, customers and suppliers is secret and
confidential. Therefore, Employee shall, upon termination of his employment
hereunder and as a prior condition to receiving final wages, 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 information and documents (including all copies thereof)
relating to customers, their needs, products of Employer used by them, schedules
of discussions with them, all formulas, 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 other information of confidential or secret nature
applicable to
Employer, 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. As a prior condition to his receiving
final wages, Employee, if requested, shall also execute an affidavit to the
effect that he has complied with the provisions in this Paragraph 8.
The restraints on Employee, as set forth in this Paragraph 8, however,
shall not apply to those inventions for which no equipment, supplies, facility
or trade secret information of Employer was used and which was developed
entirely on Employee's own time and which does not relate to the business of the
Employer, to Employer's actual or demonstrably anticipated research or
development, or which did not result from any work performed by Employee for
Employer.
9. Remedies. By reason of the fact that irreparable harm would be
sustained by Employer if there is any breach by Employee of the provisions of
Paragraphs 6, 7 and 8 hereof, it is agreed that, in addition to any other rights
which Employer may have under this Agreement or at law or in equity, Employer
shall be entitled to apply to any court of competent jurisdiction for, and
obtain, injunctive relief against Employee or against any third party, in order
to prevent any breach or threatened breach of the provisions of such paragraph.
10. Death During Employment. If Employee should die during the term of
this Agreement, Employer's only obligation shall be to pay Employee's spouse, or
his estate if he has no spouse, his base monthly salary to the month in which
death occurs.
11. Disability. Employer, at its option, may terminate this Agreement upon
written notice to Employee if the Employee, because of physical or mental
incapacity or disability, fails in any material respect to perform the services
required of him hereunder for a continuous period of 120 days, or for shorter
periods aggregating 180 days or more in any consecutive period of 240 days.
Upon such termination, all obligations hereunder of the Employer shall cease.
12. Termination. Anything herein to the contrary notwithstanding, Employer
hall have the right to terminate this Agreement as follows:
(a) Employer may terminate this Agreement without cause upon written
notice to Employee. In the event of such termination, Employee will be entitled
to receive the unpaid portion of base salary for the remaining term of this
Agreement, paid out over the remaining term of this Agreement.
(b) Employer may terminate this Agreement at any time for cause.
"Cause" as used herein shall mean dishonesty, theft, conviction of a felony,
drunkenness or a material breach of this Agreement. "Cause" shall also include
the failure of Employee, within ten days after receipt of written notice thereof
from Employer, for any reason, to correct, cease or otherwise alter any failure
to comply with the lawful instructions of the corporation's Board of Directors
or other act or omission which, in the sole opinion of the Board of Directors,
will materially adversely affect Employer's business. In the event of
termination for cause, Employer shall have no obligation to pay any compensation
except to the extent the Employee's base salary has been accrued but is unpaid
at the time of termination.
13. Severability. If any part of this Agreement is found to be void or
unenforceable for any reason, the remainder of this Agreement shall be severable
and may be enforced accordingly.
14. Benefit. This Agreement shall inure to the benefit of and be binding
upon Employee, his heirs, executors and administrators, and upon the Employer
and its successors, but this Agreement may not be assigned by either party
except by operation of law by a merger of the Employer into another corporation
or by Employer in connection with any sale of its business or parts thereof.
15. Headings. These headings have been inserted in this Agreement for
convenience only and shall not affect the interpretation hereof.
16. Entire Agreement. This Agreement contains the entire understanding of
the parties and may not be amended or changed except by an agreement in writing
signed by the parties.
17. Notices. Any notices required or permitted hereunder shall be
addressed to Employer at its principal office and to Employee at his address as
it appears in the records of the Employer, or at such other address as either
party may have furnished to the other for such purpose in writing.
18. Applicable Law. This Agreement has been entered into in, and shall be
construed under the laws of, the State of Missouri.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
EMPLOYER:
SPARTECH CORPORATION
By: /s/Bradley B. Buechler
Bradley B. Buechler
Chairman, President and CEO
EMPLOYEE:
/s/ David G. Pocost
David G. Pocost
EXHIBIT 11
<TABLE>
SPARTECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
<CAPTION>
Fiscal Year Ended
Oct 30, Oct 31, Nov. 1,
1999 1998 1997
<S> <C> <C> <C>
NET EARNINGS
Basic net earnings applicable to common shares $43,071 $33,720 $25,493
Add: Distributions on Preferred Securities, 1,280 - -
net of tax
Diluted net earnings
$44,351 $33,720 $25,493
WEIGHTED AVERAGE SHARES OUTSTANDING
Weighted average common shares outstanding 27,038 26,807 26,418
Add Shares issuable from assumed exercise of 1,075 - -
Preferred Stock
Add: Shares issuable from assumed exercise 1,869 1,802 1,420
of options and warrants
Diluted weighted average common shares
outstanding 29,982 28,609 27,838
NET EARNINGS PER COMMON SHARE
Basic $ 1.59 $1.26 $.96
Diluted $ 1.48 $1.18 $.92
</TABLE>
SPARTECH CORPORATION
1999 Annual Report
Management's Discussion & Analysis
Business Overview
Spartech is an intermediate processor of thermoplastics which converts base
polymers, or resins, from commodity suppliers into extruded plastic sheet and
rollstock, color concentrates and blended resin compounds, and injection molded
and profile extruded products for customers in a wide range of markets. We
operate 42 production facilities throughout North America and one in Europe, and
are organized into three business segments (1) Extruded Sheet & Rollstock (64%
of total sales), (2) Color & Specialty Compounds (27% of total sales), and (3)
Molded & Profile Products (9% of total sales). The results discussed below
include our 1997 acquisition of the Preferred Plastic Sheet Division of Echlin
Inc. (August 1997); the 1998 acquisitions of Polycom Huntsman, Inc. (March
1998), Prismaplast Canada Ltd, commonly known as Plasticolour (April 1998), and
Anjac-Doron Plastics, Inc. (October 1998); and our 1999 acquisitions of Lustro
Plastics Company (January 1999), Alltrista Plastic Packaging (May 1999), Accura
Molding Company, Ltd. (October 1999), OS Plastics (October 1999), and GeoPlast
(October 1999) from the date of acquisition.
Results of Operations
Comparison of Fiscal Years 1999 and 1998
Consolidated net sales increased 17%, from $653.9 million to $767.9 million,
including 8% from internal growth. Net sales of the Extruded Sheet & Rollstock
segment increased 9%, from $455.1 million to $494.1 million. This was due
primarily to a 7% increase in pounds sold and a 5% increase in sales related to
the Lustro and Alltrista acquisitions, offset in part by a negative 3% price and
product mix change. Sales to the growing packaging and recreation & leisure
markets were the primary factor in the increase in pounds sold for the sheet
group. Net sales of the Color & Specialty Compounds group increased 38%, from
$158.2 million to $217.6 million. This was primarily the result of our 1998
midyear acquisitions of Polycom and Prismaplast. Pounds sold increased by 9%
while price and product mix changes had a negative 5% effect on sales. The
negative price change reduced sales dollars, mostly reflecting an increase in
our tolling business, which is the value-added processing and conversion of
customer-owned material. Sales for the Molded & Profile Products group
increased 38%, from $40.6 million to $56.2 million, primarily as a result of our
1998 acquisition of Anjac-Doron.
Cost of sales increased from $542.6 million to $630.9 million, but as a
percentage of net sales decreased from 83.0% to 82.2%. The more favorable cost
of sales percentage in 1999 was primarily due to improved production
efficiencies and sales of Alloy Plastic and Product Transformation products,
partially offset by an increase in depreciation as a result of our capital
expenditures during the last 24 months.
Selling, general and administrative expenses increased from $38.3 million to
$45.1 million, but remained at 5.9% as a percentage of net sales.
Operating earnings increased 26%, from $69.7 million to $87.7 million.
Operating earnings as a percentage of net sales also increased from 10.7% to
11.4%. These gains in operating earnings were achieved through the increased
sales levels, improved production efficiencies and the sale of Alloy Plastics,
discussed above.
Interest expense and distributions on Preferred Securities increased 19%,
from $13.6 million to $16.2 million, as a result of borrowings related to the
1998 and 1999 acquisitions.
Our effective tax rate decreased from 39.9% to 39.8% as we begin to gain some
synergies in our multi-jurisdiction tax filings across our 43 operations.
Comparison of Fiscal Years 1998 and 1997
Net sales increased 30%, from $502.7 million to $653.9 million. This was
primarily due to an increase in pounds sold from 535 million to 902 million.
This growth in sales volume included a 10% increase in pounds sold excluding
acquisitions and the effect of our late 1997 acquisition of Preferred Plastics
and our 1998 acquisitions of Polycom and Plasticolour.
<PAGE>
Our Extruded Sheet & Rollstock group's net sales increased 21%, from $375.8
million to $455.1 million. This increase resulted from a 10% increase in pounds
sold excluding the effect of acquisitions and a 15% increase in sales related to
the August 1997 acquisition of Preferred Plastics. Price and product mix changes
had a negative 4% impact on sales. The increase in Extruded Sheet & Rollstock
pounds sold reflected strong sales of sign and specialty packaging products.
The Color & Specialty Compounds group's sales increased 88%, from $84.0 million
to $158.2 million. This was primarily the result of the $75.0 million in
revenues generated and approximately 240 million pounds sold by our 1998
acquisitions. The nearly 14% growth in base volume for the Color & Specialty
Compounds group was offset in part by price and mix changes due to the increase
in our tolling business. Molded & Profile Products group sales decreased 5%,
from $42.9 million to $40.6 million, primarily due to the sale of our housewares
business early in 1998.
Cost of sales increased from $420.5 million to $542.6 million, but decreased
from 83.6% of net sales to 83.0% of net sales. The more favorable cost of sales
percentage in 1998 represents a mix of higher margin product sales generated by
our new alloy plastics and product transformations and improved production
efficiencies, partially offset by an increase in depreciation as a result of our
capital expenditures during the last 24 months.
Selling, general, and administrative expenses increased from $31.0 million to
$38.3 million. However, selling, general, and administrative expenses as a
percentage of net sales decreased from 6.2% to 5.9%, primarily as a result of
continued cost containment efforts in 1998, ongoing synergies from acquisitions,
and the effect of the overall increase in sales volume on the fixed portion of
the costs.
Operating earnings increased 40%, from $49.7 million to $69.7 million.
Operating earnings as a percentage of net sales also increased from 9.9% to
10.7%. These gains in operating earnings were achieved through increased sales
levels, improved production efficiencies, cost containment efforts, and the new
product sales discussed above.
Interest expense increased 62%, from $8.4 million to $13.6 million, as a
result of borrowings related to the Preferred Plastics and Polycom acquisitions.
Our effective tax rate increased from 38.3% to 39.9%, due primarily to the
impact of non-deductible goodwill resulting from the Polycom acquisition.
Other Matters
We operate under various laws and regulations governing employee safety and
the quantities of specified substances that may be emitted into the air,
discharged into waterways, or 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 our 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 prices except in periods of
anticipated or actual shortages. We are not aware of any trends in the petroleum
industry which will significantly affect our sources of raw materials in 2000.
Sidebar Bar Chart
Net Sales
In Millions of Pounds
1997 = 535
1998 = 902
1999 = 1,186
Sidebar Bar Chart
Gross Margin
As a Percent of Sales
1997 = 16.4%
1998 = 17.0%
1999 = 17.8%
Sidebar Bar Chart
SG&A Expenses
As a Percent of Sales
1997 = 6.2%
1998 = 5.9%
1999 = 5.9%
Sidebar Bar Chart
Operating Earnings
In Millions of Dollars
1997 = $49.7
1998 = $69.7
1999 = $87.7
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 our operating activities, invest in capital improvements, and
finance strategic acquisitions.
We continue to generate strong cash flows from operations, due in part to the
continuing increases in our net earnings. Operating cash flows provided by
changes in working capital were a positive $6.3 million in 1999 and $1.1 million
in 1998 as a result of improved inventory and accounts payable management.
<PAGE>
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 were $17.9 million for 1998 and $24.7
million for 1999. We anticipate total capital expenditures of approximately $25
million for 2000. The net cash purchase price for Polycom, in March 1998, was
approximately $129 million, including estimated costs of the transaction and net
of cash acquired of $3 million. The acquisition was funded through our bank
credit facility and the issuance of $10 million of our common stock to Polycom
stockholders. In addition, we completed two other acquisitions in fiscal 1998
which, when combined with the Polycom purchase, totaled $132.6 million of cash
paid for acquired businesses. Our 1999 business acquisitions combined for a
total cash paid for these purchases of $64.8 million. We continue to evaluate
value-added acquisition opportunities that meet our stringent acquisition
criteria.
Our cash flows provided by financing activities were $82.9 million for 1998.
The primary activities were bank borrowings of $132.6 million for acquisitions,
repayment of debt of $33.5 million, purchases of treasury stock of $13.2
million, and proceeds from stock options exercised of $4.3 million. Our cash
flows provided by financing activities were $14.3 million for 1999. The primary
activities were bank borrowings of $64.8 million for acquisitions, repayment of
debt of $42.6 million, purchases of treasury stock of $16.6 million, and
proceeds from stock options exercised of $8.6 million. We paid common stock
dividends of $7.6 million or 28 cents per share in 1999, and at its December
1999 meeting our board of directors raised the dividend to an annual rate of 34
cents per share.
Financing Arrangements
In conjunction with the Polycom acquisition, on March 31, 1998 we increased
our $40 million bank credit facility to an aggregate availability of $150
million. The facility is unsecured and has a five-year term, with interest
payable at a rate chosen by us of either prime or LIBOR plus 0.5% to 1.0%. It
consists of a $50 million term loan, which has equal quarterly payments due of
$2.5 million that reduce our availability over the five year term, and a $100
million revolving facility. In conjunction with our two Canadian acquisitions
in October 1999, we entered into a credit facility for an additional $20 million
(in US dollars) of availability in Canada. At October 30, 1999, our total
borrowings under the bank credit facilities were $84.5 million at a weighted
average rate of 6.2% and we have $70.5 in remaining availability.
On March 5, 1999 we issued $50 million of 6.5% 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
(1) convertible into shares of our common stock at a conversion price equivalent
to $30.55 per share of common stock, for a total of 1,636,661 shares; (2)
redeemable on or after March 1, 2002; and (3) payable on March 1, 2014, if they
have not been previously redeemed or converted.
On June 8, 1999, we announced the completion of a secondary public offering
of 2,328,968 previously issued and outstanding shares of our common stock.
These shares represented all the common stock of the Company owned by two
selling shareholders. In addition to the shares offered by the selling
shareholders, we sold the underwriters an additional 345,000 shares to cover
over-allotments. The stock was sold to the public at $24.00 per share. The net
proceeds received by the Company from the sale of the over-allotment shares,
$7.6 million, was used to repay bank credit facility borrowings in support of
future strategic expansions.
We anticipate that cash flow from operations, together with the borrowings
under our bank credit facility and the proceeds from our debenture financing,
will satisfy our working capital needs, regular quarterly dividends, and planned
capital expenditures for the next year.
<PAGE>
Year 2000
We have instituted a plan to help ensure that we have no material business
interruptions related to Year 2000 issues. The plan consists of evaluation,
prioritization, analysis, testing, correction, and contingency planning. We
have completed the testing and correction phases of our systems. Our current
state of readiness is:
* Major Business Systems. Our major business systems include all financial,
sales, purchasing, product manufacturing, inventory management, and logistics
modules. We have performed formal testing on all of these major business
systems with no transitional problems identified. We will continue to
monitor these systems for any new, unforeseen issues that may arise.
* Information Technology (IT) Systems Infrastructure. We have completed our
evaluation and upgrade of our existing IT systems infrastructure company-wide.
The areas evaluated included workstations, servers, network hardware, operating
software, and application software.
* Non - IT Systems. We have completed our evaluations and upgrades for Year
2000 compliance of our non - IT systems such as process control equipment,
analytical equipment, quality systems, HVAC systems, security systems and
material handling systems.
* Third Party Issues. We have surveyed our key supply chain business
partners including key raw material suppliers, process control equipment
providers, and key providers of utilities, telecommunications, waste management
and transportation. We completed this process, with no indications that the
supply of key materials or services will be interrupted by Year 2000-related
problems.
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.
At this time, we believe that all major Year 2000 software, hardware, and
business-related issues have been identified. In addition, substantially all
internal Year 2000 necessary actions have occurred though normal maintenance and
upgrade plans. However, due to the general uncertainty inherent in the Year
2000 issue we are unable to determine with certainty whether the consequences of
Year 2000 failures will have a material impact on our financial position,
results of operations or cash flows. We believe the upgrades to systems and
software that have occurred should reduce the possibility of significant
interruptions of normal operations. However, we may experience problems due to
Year 2000 difficulties of others.
We have developed contingency plans for the critical aspects of our business.
These plans consist of manual back-up in case of internal IT or non - IT systems
failures, identification of alternative suppliers for our key supply chain
channels, providing IT disaster recovery resources, and ensuring extra staffing
is available near and over the Year 2000 transition.
Safe Harbor
This Report 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, the level of
financial leverage and restrictions from our indebtedness agreements,
unanticipated events that may prevent us from competing in existing or new
markets, and our ability to successfully complete acquisitions. 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.
Sidebar Bar Chart
Operating Cash Flow
In Millions of Dollars
1997 = $48.4
1998 = $64.5
1999 = $76.5
Sidebar Bar Chart
Capital Expenditures
In Millions of Dollars
1997 = $12.2
1998 = $17.9
1999 = $24.7
Sidebar Bar Chart
Cash Paid for Acquisitions
In Millions of Dollars
1997 = $71.9
1998 = $132.6
1999 = $64.8
Sidebar Bar Chart
Debt Repayments
In Millions of Dollars
1997 = $27.7
1998 = $33.5
1999 = $42.6
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share amounts)
<CAPTION>
October 30, October 31,
1999 1998
ASSETS
Current Assets
<S> <C> <C>
Cash and equivalents $ 8,890 $ 7,247
Receivables, net of allowances
of $3,016 in 1999 and $2,430 in 1998 117,345 91,631
Inventories 72,108 64,859
Prepayments and other 8,634 9,459
---------- ----------
Total Current Assets 206,977 173,196
Property, Plant and Equipment, Net 242,699 206,887
Goodwill 168,497 148,668
Other Assets 7,228 4,558
---------- ----------
$625,401 $533,309
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 13,215 $ 8,948
Accounts payable 78,644 59,578
Accrued liabilities 37,420 32,466
---------- ----------
Total Current Liabilities 129,279 100,992
---------- ----------
Long-Term Debt, Less Current Maturities 217,094 245,272
Other Liabilities 38,986 33,449
---------- ----------
Total Long-Term Liabilities 256,080 278,721
Company-obligated, mandatorily redeemable
convertible preferred securities of
Spartech Capital Trust holding solely 6.5%
convertible subordinated debentures 50,000 --
Shareholders' Equity
Common stock, 27,915,873 and 27,550,107
Shares issued in 1999 and 1998,
respectively 20,925 20,663
Contributed capital 101,709 99,407
Retained earnings 85,651 50,185
Treasury stock, at cost, 675,937 shares in
1999 and 688,917 shares in 1998 (14,835) (11,875)
Cumulative translation adjustments (3,408) (4,784)
---------- ----------
Total Shareholders' Equity 190,042 153,596
---------- ----------
$625,401 $533,309
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
<CAPTION>
Fiscal Year
1999 1998 1997
<S> <C> <C> <C>
Net Sales $767,873 $653,855 $502,715
-------- -------- --------
Costs and Expenses
Cost of sales 630,911 542,640 420,500
Selling, general and administrative 45,067 38,257 31,019
Amortization of intangibles 4,188 3,230 1,495
-------- -------- --------
680,166 584,127 453,014
-------- -------- --------
Operating Earnings 87,707 69,728 49,701
Interest 14,063 13,602 8,393
Distributions on preferred securities
of Spartech Capital Trust 2,135 -- --
-------- -------- --------
Earnings Before Income Taxes 71,509 56,126 41,308
Income taxes 28,438 22,406 15,815
-------- -------- --------
Net Earnings $ 43,071 $33,720 $25,493
========= ======== ========
Net Earnings Per Common Share
Basic $ 1.59 $ 1.26 $ .96
========= ======== ========
Diluted $ 1.48 $ 1.18 $ .92
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<CAPTION>
Cumulative Total
CommonContributedRetainedTreasuryTranslationShareholders'
Stock Capital Earnings Stock Adjustments Equity
<S> <C> <C> <C> <C> <C> <C>
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
--------------- ------- ------- ------- --------
Common stock issuance 476 9,524 -- -- -- 10,000
Stock options exercised 216 582 -- 3,459 -- 4,257
Cash dividends -- -- (6,447) -- -- (6,447)
Treasury stock purchases -- -- -- (13,207) -- (13,207)
Net earnings -- -- 33,720 -- -- 33,720
Translation adjustments -- -- -- -- (3,116) (3,116)
--------------- ------- ------- ------- --------
Balance, October 31,
1998 $20,663 $99,407 $50,185 $(11,875) $(4,784)$153,596
--------------- ------- ------- ------- --------
Common stock issuance -- 1,344 -- 6,269 -- 7,613
Stock options exercised 262 958 -- 7,394 -- 8,614
Cash dividends -- -- (7,605) -- -- (7,605)
Treasury stock purchases -- -- -- (16,623) -- (16,623)
Net earnings -- -- 43,071 -- -- 43,071
Translation adjustments -- -- -- -- 1,376 1,376
--------------- ------- ------- ------- --------
Balance, October 30,
1999 $20,925 $101,709 $85,651 $(14,835) $(3,408) $190,042
======================= ================ ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Fiscal Year
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net earnings $43,071 $33,720 $25,493
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Depreciation and amortization 23,222 18,530 11,548
Change in current assets
and liabilities, net of
effects of acquisitions:
Receivables (12,944) (2,383) 1,072
Inventories 685 (2,268) 1,296
Prepayments and other 1,411 1,314 538
Accounts payable 12,337 4,257 2,902
Accrued liabilities 4,784 151 (311)
Other, net 3,981 11,225 5,852
Net cash provided by operating -------- -------- --------
activities 76,547 64,546 48,390
-------- -------- --------
Cash Flows From Investing Activities
Capital expenditures (24,692) (17,859) (12,172)
Business acquisitions (64,826) (132,590) (71,920)
Dispositions of assets 283 4,264 215
Net cash used for investing -------- -------- --------
activities (89,235) (146,185) (83,877)
-------- -------- --------
Cash Flows From Financing Activities
Bank borrowings for business
acquisitions 64,826 132,590 11,920
Net borrowings (payments) on bank
credit facilities (41,847) (32,190) (27,320)
Payments on bonds and leases (718) (1,272) (409)
Issuance of 7.0% Senior Notes -- -- 60,000
Issuance of common stock 7,613 -- --
Debt issuance costs -- (801) (451)
Cash dividends on common stock (7,605) (6,447) (5,284)
Stock options exercised 8,614 4,257 2,942
Treasury stock acquired (16,623) (13,207) (4,401)
Net cash provided by financing -------- -------- --------
activities 14,260 82,930 36,997
-------- -------- --------
Effect of exchange rate changes on
cash and equivalents 71 (102) (137)
Increase In Cash And Equivalents 1,643 1,189 1,373
Cash And Equivalents At
Beginning Of Year 7,247 6,058 4,685
-------- -------- --------
Cash And Equivalents At End Of Year $8,890 $7,247 $6,058
======== ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
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 years
1999, 1998 and 1997 each consisted of 52 weeks.
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of SPARTECH Corporation and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated.
Foreign Currency Translation -- Assets and liabilities of the Company's Non-U.S.
operations are translated from their functional currency 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 shareholders'
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 October 30, 1999.
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 $4,188, $3,230, and $1,495 in 1999, 1998, and
1997, respectively. Accumulated amortization at October 30, 1999 totaled
$14,660.
The Company reviews goodwill and other long-lived assets for impairment whenever
events and changes in business circumstances indicate the carrying value of the
assets may not be recoverable. It recognizes impairment losses if expected
undiscounted future cash flows of the related assets are less than their
carrying value. An impairment loss represents the amount by which the carrying
value of an asset exceeds the fair value of the asset. The Company did not
recognize any impairment losses for the periods presented.
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 facilities) and mandatorily redeemable
convertible preferred securities -- based on borrowing rates currently
available for these security 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.
<PAGE>
2) ACQUISITIONS
On January 7, 1999, the Company completed its acquisition of the net assets of
Lustro Plastics Company, a custom sheet and rollstock extruder located in
Evanston, Illinois with annual sales of approximately $28,000. The cash
purchase price of approximately $10,400 was funded through our existing bank
credit facility.
On May 24, 1999, the Company completed its acquisition of the net assets of the
Plastic Packaging Division of Alltrista Corporation, a well-established
manufacturer of extruded sheet & rollstock packaging materials based in Muncie,
Indiana with sales approaching $30,000. The cash purchase price of
approximately $34,000 was funded through our existing bank credit facility.
In October 1999 the Company completed the acquisitions of the net assets of
Accura Molding Company, Ltd., OS Plastics, and GeoPlast Profile Extrusion.
Sales for the group of companies was approximately $24,000 and the cash purchase
price of approximately $21,000 was funded primarily through our revolving bank
credit facility in Canada. These acquisitions added custom injection molding,
extruded corrugated sheet, and profile extrusion product capabilities to the
Company.
On March 31, 1998, the Company completed its acquisition of all the stock of
Polycom Huntsman, Inc., a manufacturer of color & specialty compounds. The net
cash purchase price was approximately $129,000 (including estimated costs of the
transaction and net of cash acquired of $3,000). The acquisition was funded
through our bank credit facility and the issuance of $10,000 in Spartech common
stock to Polycom shareholders. The fair value of the assets acquired (including
approximately $65,000 in goodwill) and liabilities assumed (consisting of
accounts payable, accrued liabilities, lease liabilities, and industrial revenue
bonds) were $171,000 and $39,000, respectively. For its fiscal year ended March
31, 1998, Polycom's color, specialty, and toll compounding businesses generated
annual sales of approximately $115,000.
On April 26, 1998, the Company completed the purchase of the net assets of
Prismaplast Canada Ltd. of Montreal. Prismaplast, commonly known as
Plasticolour, produces color concentrates and specialty compounds with net sales
for 1997 of approximately $10,000. The acquisition price for Plasticolour
approximated $5,000, which was financed through operating cash flow and our bank
credit facility.
On October 30, 1998, the Company completed its purchase of all the stock of
Anjac-Doron Plastics, Inc., a custom profile extruder with annual sales of
approximately $9,000. The acquisition price of approximately $6,700 was financed
through our bank credit facility.
On August 22, 1997, the Company completed the acquisition of the net assets of
the Preferred Plastic Sheet Division of Echlin Inc. The purchase of the extruded
plastic sheet and profile extruded product operations included four
manufacturing facilities with annual sales of approximately $75,000. 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 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, 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 1999 assuming the OS Plastics, Accura, Alltrista, Lustro, and
GeoPlast acquisitions 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.
</TABLE>
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
1999 1998
<S> <C> <C>
Net Sales $810,928 $783,264
====== ======
Earnings Before Income Taxes $ 73,907 $ 64,326
====== ======
Net Earnings $ 44,511 $ 38,694
====== ======
Net Earnings Per
Common Share -- Diluted $ 1.53 $ 1.35
====== ======
</TABLE>
3) INVENTORIES
Inventories at October 30, 1999 and October 31, 1998 are comprised of the
following components:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Raw materials $41,781 $42,016
Finished goods 30,327 22,843
-------- -------
$72,108 $64,859
======== =======
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at October 30, 1999 and
October 31, 1998:
1999 1998
Land $ 6,936 $ 6,369
Buildings and leasehold improvements 51,559 45,312
Machinery and equipment 251,755 205,124
Furniture and fixtures 8,278 6,821
--------- ---------
318,528 263,626
Less accumulated depreciation 75,829 56,739
--------- ---------
Property, plant and equipment, net $242,699 $206,887
========= =========
5) LONG-TERM DEBT
Long-term debt is comprised of the following at October 30, 1999 and October 31,
1998:
1999 1998
7.0% Senior Unsecured Notes $ 60,000 $ 60,000
7.62% Guaranteed Unsecured Notes 30,000 30,000
7.21% Senior Unsecured Notes 42,857 50,000
Bank Credit Facilities 84,500 100,700
Other 12,952 13,520
--------- ---------
230,309 254,220
Less current maturities 13,215 8,948
--------- ---------
Total long-term debt $217,094 $245,272
========= =========
On March 31, 1998, the Company amended its unsecured bank credit facility to an
aggregate availability of $150,000 for a new five-year term. This facility
consists of a $50,000 term loan, which has equal quarterly payments due of
$2,500 that reduce this availability over the five-year term, and a $100,000
revolving facility. On September 24, 1999, the Company's Canadian entity
entered into an additional $20,000 revolving facility in Canada. The total
availability under these bank credit facilities was $155,000 at October 30,
1999. Of the $84,500 outstanding, $35,000 was under term loans and $49,500 under
revolving facilities, all of which is classified as long term as no paydowns of
the aggregate facility are required within the next year. Interest on our bank
credit facilities is payable at a rate chosen by the Company of either prime or
LIBOR plus .5% to 1.0%. At October 30, 1999, the Company had fixed LIBOR loans
outstanding under the bank credit facilities of $64,000 at 6.2% for a one-month
period (LIBOR loans totaled $88,500 at 6.19% on October 31, 1998). The remaining
bank credit facility borrowings were at the current prime rate (October 30, 1999
of $3,400 at 8.25% in the U.S. and $17,100 at 5.69% in Canada and October 31,
1998 of $12,200 at 8.0%).
On August 22, 1997, the Company completed a Private Placement of 7.0% Senior
Unsecured 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 Unsecured 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 over a ten-year term. The 1995 Notes require equal annual
principal payments of approximately $7,143 that commenced on August 15, 1999.
Interest on the 1995 Notes is payable semiannually on February 15 and August 15
of each year.
The other debt consists of industrial revenue bonds, capital leases, and other
term notes utilized to finance capital expenditures. These financings mature
between 1999 and 2015 and have interest rates ranging from 2.00% to 9.38%.
Scheduled maturities of long-term debt for the next five fiscal years are: 2000-
- -$13,215; 2001--$18,772; 2002--$18,553; 2003--$102,754; and 2004--$28,748. 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.
<PAGE>
6) CONVERTIBLE PREFERRED SECURITIES
On March 5, 1999, the Company issued $50 million of 6.5% convertible
subordinated debentures to Spartech Capital Trust, a Delaware trust under the
Company's control. The Company used the proceeds to repay borrowings under our
bank credit facilities. The debentures are the sole asset of the Trust and
eliminate in consolidation. The Trust purchased the debentures with the proceeds
of a $50 million private placement of 6.5% convertible preferred securities of
the Trust having an aggregate liquidation preference of $50 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 $30.55 per share of common stock, for a total of 1,636,661
shares;
Are redeemable along with the Trust preferred securities, at Spartech's
option on or after March 1, 2002, at a price equal to 104.56% at October 30,
1999 of the principal amount plus accrued interest, declining annually to a
price equal to the principal amount plus accrued interest by March 1, 2009; and
Mature and are payable, along with the Trust preferred securities, on March
1, 2014, if they have not been previously redeemed or converted.
7) SHAREHOLDERS' EQUITY & STOCK OPTIONS
The authorized capital stock of the Company consists of 45 million shares of
$.75 par value common stock and 4 million shares of $1 par value preferred
stock.
The Company has an Incentive Stock Option Plan and Restricted Stock Option Plan
for executive officers and key employees. The minimum option price is the fair
market value per share at the date of grant. The Incentive Plan has 598,625
shares outstanding at October 30, 1999. 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 2,159,850 shares outstanding at October 30,
1999. Additional options, which have been issued outside the Incentive and
Restricted plans discussed above, totaled 80,000 at October 30, 1999.
A summary of the combined activity for the Company's stock options for fiscal
years 1999, 1998, and 1997 follows (shares in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
Shares Weighted Shares Weighted Shares Weighted
Under Average Under Average Under Average
Option Exercise Option Exercise Option Exercise
Price Price Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year 3,293 $9.36 3,015 $6.88 2,074 $4.37
Granted 302 $18.74 793 $16.11 1,414* $9.84
Exercised (757) $7.27 (515) $5.29 (473) $4.74
--------- ---------- ----------
Outstanding, end of
Year 2,838 $10.91 3,293 $9.36 3,015 $6.88
======== ======== ========
Exercisable, end
of year 2,531 3,287 3,015
======== ======== ========
Weighted average fair
value of options granted $6.89 $5.00 $3.95
====== ====== ======
</TABLE>
*Amount includes an option for 900 shares issued in conjunction with the
settlement
of litigation, 560 of which remain outstanding at October 30,1999.
Information with respect to options outstanding at October 30, 1999 follows
(shares
in thousands):
Weighted Average Weighted
Shares Under Remaining Average
Range of Exercise
Prices Option Contractual Life Exercise Price
$ 1.25 -- 7.00 843 3.2 years $4.49
$ 9.00 -- 10.88 866 4.9 years $9.66
$11.00 -- 15.88 758 7.1 years $15.65
$16.00 -- 28.94 371 6.6 years $18.71
------
2,838
======
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The range from $16.00 - $28.94 includes 64 shares under option that were
exercisable at October 30, 1999 at an average exercise price of $18.58. All
other shares under option were exercisable at October 30, 1999.
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 option 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:
1999 1998 1997
Expected Dividend Yield 1.10% 1.30% 1.25%
Expected Volatility 33% 31% 35%
Risk-Free Interest Rates 5.70-5.80% 4.52-4.83% 5.77-5.81%
Expected Lives 5 Years 5 Years 5 Years
Had compensation expense been recognized based on these hypothetical values the
Company's net income for 1999, 1998, and 1997 would have been $41,818, $31,330,
and $23,020, respectively, and diluted earnings per share for 1999, 1998, and
1997 would have been $1.39, $1.10, and $.83, respectively. As a result of
changing assumptions, these hypothetical calculations are not necessarily
representative of future results.
8) INCOME TAXES
The provision for income taxes for fiscal years 1999, 1998, and 1997 is
comprised of the following:
1999 1998 1997
Federal:
Current $19,823 $14,844 $8,698
Deferred 3,138 3,483 3,631
State 3,441 2,697 1,819
Foreign 2,036 1,382 1,667
------- ------- -------
Provision for income taxes$28,438 $22,406 $15,815
======= ======== ========
Earnings before income taxes for 1999, 1998, and 1997 include $5,634, $4,383,
and $4,924, respectively from Non-U.S. operations. 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:
1999 1998 1997
Federal income taxes at
statutory rate $25,028 $19,644 $14,458
State income taxes, net of applicable
Federal income tax benefits 2,237 1,753 1,182
Other 1,173 1,009 175
-------- ------- -------
$28,438 $22,406 $15,815
======== ======= =======
At October 30, 1999 and October 31, 1998, the Company's principal components of
deferred tax assets and liabilities consisted of the following:
1999 1998
Deferred tax assets:
Tax carryforwards $ 387 $ 486
Bad debt reserves 657 675
Inventories 250 780
Accrued liabilities 7,236 6,571
-------- --------
$ 8,530 $ 8,512
======== ========
Deferred tax liabilities:
Depreciation $38,064 $34,531
Other 3,570 1,295
-------- -------
$41,634 $35,826
======== =======
At October 30, 1999 and October 31, 1998, the net current deferred tax asset was
$5,446 and $5,969, respectively, and the net noncurrent deferred tax liability
was $38,550 and $33,283, respectively.
<PAGE>
9) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128") which
specifies the computation, presentation and disclosure requirements for 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. All earnings per share data has been calculated in accordance with SFAS
128.
The weighted average number of common shares used in the computations of basic
and diluted earnings per share for 1999, 1998, and 1997 follows:
1999 1998 1997
Basic earnings per share 27,038 26,807 26,418
Effect of stock options 1,869 1,802 1,420
Effect of convertible
preferred securities 1,075 -- --
------- ------- ------
Diluted earnings per share 29,982 28,609 27,838
======= ======= =======
The effect of stock options represents the shares resulting from the assumed
exercise of outstanding stock options calculated using the treasury stock method
and the effect of convertible preferred securities represents the shares
resulting from the assumed conversion using the if converted method. Earnings
used in the computations of basic earnings per share represents net earnings as
reported. Earnings used in the computation of diluted earnings per share is
adjusted to add back the effect of the distributions on preferred securities for
the assumed conversion at the beginning of 1999.
10) 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
fiscal years 1999, 1998, and 1997 was $2,639, $1,856, and $1,057, respectively.
11) CASH FLOW INFORMATION
Supplemental information on cash flows for fiscal years 1999, 1998, and 1997 was
as follows:
1999 1998 1997
Cash paid during the year for:
Interest $17,422 $14,535 $7,470
======== ======== ========
Income taxes $18,431 $15,642 $11,245
======== ======== ========
Schedule of business acquisitions:
Fair value of assets acquired $75,528 $183,073 $73,517
Liabilities assumed (10,146) (43,434) (8,443)
Non-cash consideration/
holdback payments (556) (7,049) 6,846
--------- -------- --------
Total cash paid for the net
assets acquired $64,826 $132,590 $71,920
======== ======== ========
12) COMMITMENTS AND CONTINGENCIES
The Company conducts certain of its operations in facilities under operating
leases. Rental expense for 1999, 1998, and 1997 was $6,767, $5,408, and $3,780,
respectively.
Future minimum lease payments under non-cancelable operating leases, by fiscal
year, are: 2000--$4,795; 2001--$3,894; 2002--$2,668; 2003--$2,443; 2004--$1,669;
and $4,189 thereafter.
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13) SEGMENT INFORMATION
The Company's forty-three facilities are organized into three reportable
segments based on the nature of the products manufactured. The Company utilizes
operating earnings to evaluate business segment performance and determine the
allocation of resources. Segment accounting policies are the same as policies
described in note (1). A description of reportable segments for Spartech
Corporation follows:
Extruded Sheet & Rollstock -- This segment has twenty-one manufacturing
facilities and is the largest extruder of custom rigid plastic sheet and
rollstock in North America. The segment's finished products are generally
thermoformed by its customers for use in a wide variety of markets.
Color & Specialty Compounds -- This segment operates fourteen plants
throughout North America and Europe. The Color & Specialty Compounds
segment manufactures custom designed plastic alloys, compounds, color
concentrates and calendered film for utilization in numerous applications.
Molded & Profile Products -- This segment has eight North American
facilities which manufacture a number of proprietary items. These include
injection molded and printed food packaging, complete thermoplastic wheels
and tires, profile extruded products, and injection molded parts for water
filtration systems.
Corporate & Other includes unallocated corporate office expenses, goodwill
amortization, and other non-allocated expenses. Assets included in Corporate &
Other are made up primarily of goodwill, cash and cash equivalents, and
deferrals.
1999 1998 1997
Net Sales
Extruded Sheet & Rollstock $ 494,088 $ 455,096 $ 375,822
Color & Specialty Compounds 217,640 158,191 84,005
Molded & Profile Products 56,145 40,568 42,888
--------- --------- ---------
Net Sales $ 767,873 $ 653,855 $ 502,715
========= ========= =========
Operating Earnings
Extruded Sheet & Rollstock $ 57,648 $ 50,531 $ 39,625
Color & Specialty Compounds 28,622 18,078 7,139
Molded & Profile Products 7,784 5,664 5,896
Corporate & Other (6,347) (4,545) (2,959)
--------- --------- ---------
Total Operating Earnings $ 87,707 $ 69,728 $ 49,701
========= ========= =========
Assets
Extruded Sheet & Rollstock $ 252,661 $ 185,505 $ 182,870
Color & Specialty Compounds 152,279 149,810 42,000
Molded & Profile Products 49,574 29,467 32,102
Corporate & Other 170,887 168,527 101,831
--------- --------- ---------
Total Assets $ 625,401 $ 533,309 $ 358,803
========= ========= =========
Depreciation and Amortization
Extruded Sheet & Rollstock $ 8,821 $ 7,495 $ 5,898
Color & Specialty Compounds 7,467 5,118 1,626
Molded & Profile Products 2,512 2,117 2,110
Corporate & Other 4,422 3,800 1,914
--------- --------- ---------
Total Depreciation
and Amortization $ 23,222 $ 18,530 $ 11,548
========= ========= =========
Capital Expenditures
Extruded Sheet & Rollstock $ 12,927 $ 9,908 $ 6,570
Color & Specialty Compounds 6,670 5,018 1,467
Molded & Profile Products 4,595 2,881 4,060
Corporate & Other 500 52 75
--------- --------- ---------
Total Capital Expenditures $ 24,692 $ 17,859 $ 12,172
========= ========= =========
<PAGE>
In addition to the external sales disclosed in the table above, intersegment
sales were $20,457, $14,756, and $11,702 for the fiscal years ended 1999, 1998,
and 1997 respectively. Nearly all intersegment sales were generated from our
Color & Specialty Compounds segment.
The Company operates in three reportable geographic areas--the United States,
Canada, and Europe. Geographic financial information for fiscal years 1999,
1998, and 1997 was as follows:
Total
Net Sales Assets
1999 1998 1997 1999 1998 1997
United States $675,988 $572,676 $427,530 $526,502 $460,897 $295,511
Canada 82,464 75,970 75,185 91,868 63,898 63,292
Europe 9,421 5,209 -- 7,031 8,514 --
-------- ----------------- -------- -------- --------
$767,873 $653,855 $502,715 $625,401 $533,309 $358,803
========= ======== ======== ======== ======== ========
14) QUARTERLY FINANCIAL INFORMATION
Certain unaudited quarterly financial information for the fiscal years ended
October 30, 1999 and October 31, 1998 was as follows:
[CAPTION]
<TABLE>
Quarter Ended Fiscal
Jan April July Oct Year
<S> <C> <C> <C> <C> <C>
1999
Net Sales $167,801 $196,937 $201,802 $201,333 $767,873
Gross Profit 30,197 35,066 35,351 36,348 136,962
Net Earnings 9,157 11,105 11,415 11,394 43,071
Net Earnings Per Share:
Basic .34 .41 .42 .42 1.59
Diluted .32 .38 .39 .39 1.48
1998
Net Sales $133,081 $165,707 $177,702 $177,365 $653,855
Gross Profit 22,480 27,918 30,190 30,627 111,215
Net Earnings 7,021 8,863 9,020 8,816 33,720
Net Earnings Per Share:
Basic .27 .33 .33 .33 1.26
Diluted .25 .31 .31 .31 1.18
</TABLE>
15) COMPREHENSIVE INCOME
On November 1, 1998 we adopted Statement of Financial Accounting Standards
(SFAS) No. 130---"Reporting Comprehensive Income". Comprehensive Income is an
entity's change in equity during the period from transactions, events, and
circumstances from non-owner sources. The only component of Other Comprehensive
Income is foreign currency translation adjustments which represented a $1,376
increase and a $3,116 decrease to reported net earnings in 1999 and 1998,
respectively. Accumulated other comprehensive income is represented on the
balance sheet as cumulative translation adjustments as of October 30, 1999 and
October 31, 1998.
<PAGE>
SPARTECH CORPORATION
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 that 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 preparing 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
Chairman, President Executive Vice President Vice President-Finance
and Chief Executive and Chief Operating and Chief Financial
Officer Officer Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To SPARTECH Corporation
We have audited the accompanying consolidated balance sheet of SPARTECH
Corporation (a Delaware Corporation) and subsidiaries as of October 30, 1999 and
October 31, 1998, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three fiscal years in the
period ended October 30, 1999. 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 October 30, 1999 and October 31, 1998, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended October 30, 1999 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
St. Louis, Missouri
December 7, 1999
<PAGE>
FIVE YEAR SUMMARY
<TABLE>
The following table sets forth selected financial data for each of the most
recent five fiscal years
<CAPTION>
1999 1998 1997 1996 1995
(Dollars in Thousands, except per share amounts)
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Net Sales $767,873 $653,855 $502,715 $391,348 $352,273
Gross Profit $136,962 $111,215 $82,215 $60,572 $49,879
Depreciation and $23,222 $18,530 $11,548 $7,211 $5,798
Amortization
Operating Earnings $87,707 $69,728 $49,701 $34,492 $24,604
Interest and Preferred $16,198 $13,602 $8,393 $5,062 $4,960
Distributions
Net Earnings $43,071 $33,720 $25,493 $18,317 $14,534
PER SHARE INFORMATION
Earnings Per Share - $ 1.48 $ 1.18 $ .92 $ .74 $ .60
Diluted
Dividends Declared Per Share $ .28 $ .24 $ .20 $.15 $ .09
Book Value Per Share $ 6.98 $ 5.72 $ 4.85 $4.26 $ 3.09
BALANCE SHEET INFORMATION
Working Capital $77,698 $72,204 $63,429 $54,261 $45,108
Total Debt $230,309 $254,220 $ $98,466 $59,510
142,614
Total Assets $625,401 $533,309 $358,803 $288,960 $178,329
Cash Flow from Operations $76,547 $64,546 $ 48,390 $23,160 $16,487
Capital Expenditures $24,692 $17,859 $ 12,172 $9,566 $10,015
Shareholders' Equity $190,042 $153,596 $128,389 $112,395 $72,128
Market Value of Equity $779,743 $483,501 $420,377 $290,405 $148,876
Ratios / Other Data
Gross Margin 17.8% 17.0% 16.4% 15.5% 14.2%
Operating Margin 11.4% 10.7% 9.9% 8.8% 7.0%
Effective Tax Rate 39.8% 39.9% 38.3% 37.8% 26.0%
Total Debt to Capitalization 49.0% 62.3% 52.6% 46.7% 45.2%
Return on Average Equity 25.1% 23.9% 21.2% 20.0% 22.3%
Number of Employees 3,350 2,700 2,125 1,800 1,200
Weighted Average Shares 29,982 28,609 27,838 24,874 24,111
Outstanding - Diluted
</TABLE>
<PAGE>
INVESTOR INFORMATION
Annual Shareholders' Meeting
SPARTECH's Annual Shareholders' Meeting will be held on Wednesday, March 8, 2000
at Pierre Laclede Center, 7701 Forsyth Blvd., Clayton, MO 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, 2000, there were approximately 6,000 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 stock prices for
fiscal years 1999 and 1998 and year-ends 1996 to 1999 are shown to the left.
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 and direct cash
purchases of 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 1999 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 the 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:
First Analysis - Allan Cohen (312) 258-1400
Janney Montgomery Scott Inc. - Chris Crooks (215) 665-4446
Tucker Anthony Cleary Gull - Gary Prestopino (312) 466-4869
Sidebar Bar Chart
1999 Quarterly Common Stock Prices
1st Quarter = $17 5/8 to $24 3/8
2nd Quarter = $20 to $25 3/8
3rd Quarter = $21 1/4 to $32 1/2
4th Quarter = $26 7/8 to $30 5/16
Sidebar Bar Chart
1998 Quarterly Common Stock Prices
1st Quarter = $14 3/4 to $17 9/16
2nd Quarter = $16 3/8 to $23 1/8
3rd Quarter = $19 1/16 to $22 7/8
4th Quarter = $14 3/4 to $19
Sidebar Bar Chart
1996-1999 Year-End Common Stock Price
1996 = $11
1997 = $15 7/8
1998 = $18
1999 = $28 5/8
Sidebar Bar Chart
1996-1999 Common Stock Dividends
1996 = 15 cents
1997 = 20 cents
1998 = 24 cents
1999 = 28 cents
EXHIBIT 21
SPARTECH CORPORATION
SUBSIDIARIES OF REGISTRANT
Legal Entity DBA Incorporation
Atlas Alchem Plastics, Inc. Spartech Plastics Delaware
Spartech Color
The Resin Exchange, Inc. Spartech Polycom Missouri
Franklin-Burlington Plastics, Inc. Spartech Vy-Cal Delaware
Spartech Polycom
Alchem Plastics, Inc. Spartech Plastics Delaware
Alchem Plastics Corporation Spartech Plastics Georgia
Anjac-Doron Plastics, Inc. Spartech Profiles Delaware
Spartech Polycom, Inc. Spartech Polycom Pennsylvania
PH Chemicals, Inc. Spartech Polycom Delaware
Spartech Polycom, S.A. Spartech Polycom France
Spartech Plastics, Inc. Spartech Plastics Delaware
Spartech Profiles
Spartech Industries, Inc. Spartech Industries Delaware
Spartech Canada, Inc. Spartech Industries New Brunswick,
Canada
Spartech Color
Spartech Plastics
Spartech Profiles
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 October 30, 1999 into the Company's previously filed Registration
Statements on Form S-8 (File Numbers 33-20437, 33-61322 and 333-60381) and Form
S-3 (File Numbers 333-24527 and 333-90745).
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri
January 10, 2000
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 October 31, 1998, 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 10, 2000 /s/ Ralph B. Andy
Ralph B. Andy
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 October 31, 1998, 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 10, 2000 /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 October 31, 1998, 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 10, 2000 /s/Calvin O'Connor
Calvin O'Connor
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 October 31, 1998, 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 10, 2000 /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 October 31, 1998, 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 10, 2000 /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 October 31, 1998, 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 10, 2000 /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 October 31, 1998, 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 10, 2000 /s/John R. Kennedy
John R. Kennedy
Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
*Dollars in thousands, except per share amounts
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-END> OCT-30-1999
<CASH> 8890
<SECURITIES> 0
<RECEIVABLES> 120361
<ALLOWANCES> 3016
<INVENTORY> 72108
<CURRENT-ASSETS> 206977
<PP&E> 318528
<DEPRECIATION> 75829
<TOTAL-ASSETS> 625401
<CURRENT-LIABILITIES> 129279
<BONDS> 0
50000
0
<COMMON> 20925
<OTHER-SE> 169117
<TOTAL-LIABILITY-AND-EQUITY> 625401
<SALES> 767873
<TOTAL-REVENUES> 767873
<CGS> 630911
<TOTAL-COSTS> 680166
<OTHER-EXPENSES> 2135<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14063
<INCOME-PRETAX> 71509
<INCOME-TAX> 28438
<INCOME-CONTINUING> 43071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43071
<EPS-BASIC> 1.59
<EPS-DILUTED> 1.48
<FN>
<F1>Distributions on preferred securities of Spartech Capital Trust
</FN>
</TABLE>
