SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 29, 2000
Commission File Number 1-5911
SPARTECH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 43-0761773
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
120 South Central Avenue, Suite 1700, Clayton, Missouri 63105
(Address of principal executive offices)
(314) 721-4242
(Registrant's telephone number, including area code)
Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Number of common shares outstanding as of July 29, 2000:
Common Stock, $.75 par value per share 27,428,622
SPARTECH CORPORATION AND SUBSIDIARIES
INDEX
July 29, 2000
PART I. FINANCIAL INFORMATION PAGE
CONSOLIDATED CONDENSED BALANCE SHEET -
as of July 29, 2000 and October 30, 1999 3
CONSOLIDATED CONDENSED STATEMENT OF
OPERATIONS - for the quarter and nine months
ended July 29, 2000 and July 31, 1999 4
CONSOLIDATED CONDENSED STATEMENT OF
CASH FLOWS - for nine months ended
July 29, 2000 and July 31, 1999 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II. OTHER INFORMATION 14
SIGNATURES 15
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands, except share amounts)
ASSETS
July 29, 2000
(unaudited) Oct 30, 1999
Current Assets
Cash and equivalents $ 12,136 $ 8,890
Receivables, net 137,451 117,345
Inventories 105,641 72,108
Prepayments and other 14,981 8,634
------- -------
Total Current Assets 270,209 206,977
Property, Plant and Equipment 407,328 318,528
Less accumulated depreciation 94,686 75,829
------- -------
Net Property, Plant and Equipment 312,642 242,699
Goodwill 300,468 168,497
Other Assets 10,440 7,228
------- -------
$893,759 $625,401
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 12,280 $ 13,215
Accounts payable 84,411 78,644
Accrued liabilities 40,563 37,420
------- -------
Total Current Liabilities 137,254 129,279
------- -------
Long-Term Debt, Less Current Maturities 341,277 217,094
Other Liabilities 50,751 38,986
------- -------
Total Long-Term Liabilities 392,028 256,080
------- -------
Company-obligated manditorily redeemable
convertible preferred securities of
Spartech capital trusts holding solely
convertible subordinated debentures 150,000 50,000
Shareholders' Equity
Common stock, 28,067,023 and 27,915,873
shares issued in 2000 and 1999 21,038 20,925
Contributed capital 95,453 101,709
Retained earnings 117,129 85,651
Treasury stock, at cost, 638,401 shares
in 2000 and 675,937 shares in 1999 (14,998) (14,835)
Cumulative translation adjustments (4,145) (3,408)
------- -------
Total Shareholders' Equity 214,477 190,042
------- -------
$893,759 $625,401
======== ========
See accompanying notes to consolidated financial statements.
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited and dollars in thousands, except per share data)
QUARTER ENDED NINE MONTHS ENDED
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
Net Sales $255,935 $201,802 $711,050 $566,540
-------- -------- -------- --------
Costs and Expenses
Cost of sales 208,250 166,451 581,309 465,926
Selling and administrative 14,764 11,325 41,250 32,735
Amortization of intangibles 1,874 1,087 4,591 3,085
-------- -------- -------- --------
224,888 178,863 627,150 501,746
-------- -------- -------- --------
Operating Earnings 31,047 22,939 83,900 64,794
Interest 6,099 3,278 14,871 10,670
Distributions on
preferred securities of
Spartech Capital Trust 2,563 813 5,573 1,322
-------- -------- -------- --------
Earnings Before Income Taxes 22,385 18,848 63,456 52,802
Income Taxes 8,781 7,433 24,904 21,125
-------- -------- -------- --------
Net Earnings $ 13,604 $ 11,415 $ 38,552 $ 31,677
========= ======== ======== ========
Net Earnings Per Common Share:
Basic $ .50 $ .42 $ 1.41 $ 1.17
========= ======== ======== ========
Diluted $ .46 $ .39 $ 1.32 $ 1.09
========= ======== ======== ========
Dividends Per Common Share $ .085 $ .070 $ .255 $ .210
========= ======== ======== ========
See accompanying notes to consolidated financial statements.
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited and dollars in thousands)
NINE MONTHS ENDED
July 29, 2000 July 31, 1999
Cash Flows From Operating Activities
Net earnings $ 38,552 $ 31,677
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 23,827 17,302
Change in current assets and
liabilities, net of effects of
acquisitions (27,304) 3,538
Other, net 1,815 3,582
--------- --------
Net cash provided by operating
activities 36,890 56,099
--------- --------
Cash Flows From Investing Activities
Capital expenditures (20,561) (16,281)
Retirement of assets 86 226
Business Acquisitions (216,765) (44,166)
--------- --------
Net cash used for investing activities (237,240) (60,221)
--------- --------
Cash Flows From Financing Activities
Bank borrowings for business acquisitions 216,765 44,166
Net borrowings (payments) on revolving
credit facilities 8,146 (31,053)
Payments on bonds and leases (1,565) (3,889)
Issuance of common stock - 7,613
Debt issuance costs (2,915) -
Cash dividends on common stock (7,074) (5,688)
Stock options exercised 1,887 3,275
Treasury stock acquired (11,631) (9,254)
--------- --------
Net cash provided by
financing activities 203,613 5,170
--------- --------
Effect of exchange rate changes on cash
and equivalents (17) (48)
--------- --------
Increase In Cash and Equivalents 3,246 1,000
Cash and Equivalents At Beginning Of Period 8,890 7,247
--------- --------
Cash and Equivalents At End Of Period $ 12,136 $ 8,247
========= ========
See accompanying notes to consolidated financial statements.
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
NOTE A - Basis of Presentation
Our consolidated financial statements include the accounts of Spartech
Corporation and its wholly owned subsidiaries. These financial statements have
been prepared on a condensed basis and, accordingly, certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the financial statements contain all
adjustments (consisting solely of normal recurring adjustments) and disclosures
necessary to make the information presented therein not misleading. These
financial statements should be read in conjunction with the consolidated
financial statements and accompanying footnotes thereto included in our October
30, 1999 Annual Report on Form 10-K.
Our fiscal year ends on the Saturday closest to October 31. Operating
results for any quarter are traditionally seasonal in nature and are not
necessarily indicative of the results expected for the full year.
NOTE B - Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market. Inventories at July 29, 2000 and October 30, 1999 are comprised of the
following components:
2000 1999
Raw materials $ 63,855 $ 41,781
Finished goods 41,786 30,327
--------- --------
$ 105,641 $ 72,108
========= ========
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
NOTE C - Cash Flow Information
Supplemental information on cash flows and noncash transactions for the
nine months ended July 29, 2000 and July 31, 1999 is as follows:
2000 1999
Cash paid for:
Interest $ 17,417 $ 10,161
======== ========
Income taxes $ 18,288 $ 15,397
======== ========
Note D - Comprehensive Income
Comprehensive Income is an entity's change in equity during the period from
transactions, events and circumstances from non-owner sources. A summary of our
components of Total Comprehensive Income follows:
QUARTER ENDED NINE MONTHS ENDED
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
Net Earnings $ 13,604 $11,415 $ 38,552 $ 31,677
Foreign currency
translation adjustments (219) (1,569) (737) 270
-------- ------- -------- --------
Total Comprehensive Income $ 13,385 $ 9,846 $ 37,815 $ 31,947
======== ======= ======== ========
Our other comprehensive income consists solely of foreign currency
translation adjustments. Accumulated other comprehensive income is represented
on the balance sheet as cumulative translation adjustments as of July 29, 2000
and October 30, 1999.
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
Note E - Segment Information
Spartech's fifty-two facilities are organized into three reportable segments
based on the nature of the products manufactured.
QUARTER NINE MONTHS
ENDED
2000 1999 2000 1999
Net Sales
Extruded Sheet & $ 168,935 $ 133,259 $ 458,816 $ 363,696
Rollstock
Color & Specialty 60,923 54,641 178,952 162,246
Compounds
Molded & Profile Products 26,077 13,902 73,282 40,598
--------- --------- --------- ----------
Total Net Sales $ 255,935 $ 201,802 $ 711,050 $ 566,540
========= ========= ========= ==========
Operating Earnings
Extruded Sheet & $ 21,200 $ 15,805 $ 56,247 $ 42,096
Rollstock
Color & Specialty 8,333 6,857 23,323 21,252
Compounds
Molded & Profile Products 3,677 2,014 9,756 5,715
Corporate/Other (2,163) (1,737) (5,426) (4,269)
--------- --------- --------- ----------
Total Operating $ 31,047 $ 22,939 $ 83,900 $ 64,794
Earnings ========= ========= ========= ==========
Excludes intersegment sales of $6,075 and $4,450 for the three months ended
July 29, 2000 and July 31, 1999, respectively, and $18,829 and $14,374 for
the nine months ended July 29, 2000 and July 31, 1999, respectively,
primarily from the Color & Specialty Compounds segment.
Note F - Convertible Preferred Securities
On February 18, 2000 we issued $100 million of 7.0% convertible
subordinated debentures to Spartech Capital Trust, a Delaware trust we control.
We used the proceeds to repay borrowings under our bank credit facility. The
debentures are the sole asset of the Trust and eliminate in consolidation. The
Trust purchased the debentures with the proceeds of a $100 million private
placement of 7.0% convertible preferred securities of the Trust having an
aggregate liquidation preference of $100 million and guaranteed by Spartech. The
debentures:
- Are convertible along with the Trust preferred securities, at the
option of the preferred security holders, into shares of our common
stock at a conversion price equivalent to $34.00 per share of common
stock, for a total of 2,941,476 shares;
- Are redeemable along with the Trust preferred securities, at
Spartech's option on or after February 17, 2003, at a price equal to
104.56% of the principal amount plus accrued interest, declining
annually to a price equal to the principal amount plus accrued
interest by February 17, 2010; and
- Mature and are payable, along with the Trust preferred securities, on
February 17, 2015 if they have not been previously redeemed or
converted.
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
Note G - Acquisition
On February 29, 2000, Spartech announced that it completed the purchase of
substantially all of the assets of Uniroyal Technology Corporation's High
Performance Plastics, Inc. ("HPP"), a well-established manufacturer of extruded
sheet and rollstock, cell cast acrylic, and other proprietary plastic products
based in South Bend, Indiana with sales of approximately $130 million for its
most recent fiscal year which ended September 26, 1999. The acquisition price
for HPP was approximately $216 million including costs of the transaction. The
purchase was financed through our new $250 million bank credit facility. The
new bank credit facility has a five year term and bears interest at a rate
chosen by us of prime or LIBOR plus 0.625% to 1.250%.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales were $255.9 million and $711.1 million for the quarter and nine
months ended July 29, 2000, respectively, representing a 27% and 26% increase
from the similar periods in 1999. This sales growth included a 21% increase in
volume related to acquired operations and a 6% increase from internal growth.
These sales increases along with our ongoing improvements in production
efficiency helped us produce our thirty-fifth consecutive quarter of improved
year-over-year results.
Our Custom Sheet & Rollstock segment generated sales of $458.8 million
during the first nine months of 2000 up 26% from the $363.7 million in the first
nine months of 1999. Recent acquisitions, primarily Uniroyal's HPP Group, added
18% to sales for the first nine months. Base volume/internal price growth added
8% for the first nine months as a result of strong volume in the recreation &
leisure and packaging markets and increases in Alloy Plastics and Product
Transformation sales. Sales increased 10% for the Color & Specialty Compounds
group to $179.0 million in the first nine months of 2000, with base volume
increasing 7% and price/mix making up the balance of 3%. Our Molded & Profile
Products group generated $73.3 million in sales for the first nine months of
2000 up 80% from the prior year. This increase was related to three recent
acquisitions (60%) and internal growth (20%).
Cost of sales increased to $208.3 million for the quarter ended July 29,
2000, compared with $166.5 million for the same period in 1999, but decreased to
81.4% of net sales for 2000 from 82.5% for 1999. The cost of sales percentages
were 81.8% for the nine months ended July 29, 2000 and 82.2% for the similar
period in 1999. Our more favorable cost of sales percentages in 2000 represents
improved production efficiencies and sales of higher margin new products,
partially offset by the impact of resin cost increases.
Selling and administrative expenses were $14.8 million and $41.3 million
for the quarter and nine months ended July 29, 2000 compared to $11.3 million
and $32.7 million for the similar periods in 1999. On a percentage of net sales
basis, selling and administrative costs for the quarter ended July 29, 2000 were
at 5.8% as compared to 5.6% for the same period in 1999. The 2000 nine-month
percentage was unchanged from the prior year at 5.8%.
Operating earnings for the quarter ended July 29, 2000 were $31.0 million
(12.1% of net sales) compared to $22.9 million (11.4% of net sales) for the
corresponding period in 1999. Operating earnings for the nine months ended July
29, 2000 were $83.9 million (11.8% of net sales) compared to $64.8 million
(11.4% of net sales) for the nine months in 1999. These gains in operating
earnings were achieved through the increased sales levels, improved production
efficiencies and cost containment efforts.
Interest expense and Distributions on Preferred Securities Distributions
for the quarter and nine months ended July 29, 2000 of $8.7 million and $20.4
million increased from the same periods in 1999 as a result of borrowings
related to the acquisitions completed in 1999 and the acquisition of Uniroyal's
HPP Group on February 28, 2000. This increase in interest expense has also been
impacted by prime rate increases totaling 1.75% since May 1, 1999 and increases
in working capital resulting from higher resin prices and investments to support
the growth in sales. As of July 29, 2000, we have $208.9 million of floating
rate debt at an average rate of 7.6% up from 6.2% last year (approximately 42%
of our total financings).
Our effective tax rate was approximately 39.2% and 40.0% for the nine
months ending July 29, 2000 and July 31, 1999 reflecting an improvement in our
combined state tax rate.
Environmental
We operate under various laws and regulations governing employee safety,
the quantities of specified substances that may be emitted into the air,
discharged into waterways, and otherwise disposed of on and off our properties.
We do not anticipate that future expenditures for compliance with these laws and
regulations will have a material effect on its capital expenditures, earnings,
or competitive position.
The plastic resins we use in our production process are crude oil or
natural gas derivatives which are available from a number of domestic and
foreign suppliers. Accordingly, our raw materials are only somewhat affected by
supply, demand, and price trends of the petroleum industry. The pricing of
resins tends to be independent of crude oil or natural gas except in periods of
anticipated or actual shortages. We are not aware of any trends in the
petroleum industry which will significantly affect its sources of raw materials
in 2000.
Liquidity and Capital Resources
Cash Flow
Our primary sources of liquidity have been cash flows from operating
activities and borrowings from third parties. Our principal uses of cash have
been to support our operating activities, invest in capital improvements, and
finance strategic acquisitions. Our cash flows for the periods indicated are
summarized as follows:
Nine Months
2000 1999
(Dollars in millions)
Net cash provided by
operating activities $ 36.9 $ 56.1
======== ========
Net cash used for
investing activities $ (237.2) $ (60.2)
======== ========
Net cash provided by (used for)
financing activities $ 203.6 $ 5.2
======== ========
Increase in cash and equivalents $ 3.2 $ 1.0
======== ========
Operating cash flow provided by net earnings increased 22% to $38.6 in the
nine months of 2000 compared to the corresponding period of the prior year.
Operating cash flows used for changes in working capital totaled $27.3 million
for the nine months ended July 29, 2000. This was primarily the result of the
increases in receivables derived from our expanded sales level, the effect of
increases of resin prices on both receivables and inventory, and the tightening
of payment terms by certain suppliers.
Our primary investing activities are capital expenditures and acquisitions of
businesses in the plastics industry. Capital expenditures are primarily
incurred to maintain and improve productivity, as well as to modernize and
expand facilities. Capital expenditures for the nine months ended July 29, 2000
and July 31, 1999 were $20.6 million and $16.3 million, respectively. We
anticipate total capital expenditures of approximately $28 million for fiscal
2000, including expenditures for the most recent acquisitions.
The cash flows provided by financing activities were $203.6 million for the
first nine months of 2000. The primary activity was the bank borrowings of
$216.8 million for acquisitions, net borrowings of $6.6 million, cash dividend
payments of $7.1 million, and purchases of treasury stock, net of options
exercised, of $9.7 million.
Financing Arrangements
On February 18, 2000 we issued $100 million of 7.0% convertible subordinated
debentures to Spartech Capital Trust, a Delaware trust we control. We used the
proceeds to repay borrowings under our bank credit facility. The debentures are
the sole asset of the Trust and eliminate in consolidation. The Trust purchased
the debentures with the proceeds of a $100 million private placement of 7.0%
convertible preferred securities of the Trust having an aggregate liquidation
preference of $100 million and guaranteed by Spartech. The debentures:
- Are convertible along with the Trust preferred securities, at the
option of the preferred security holders, into shares of our common
stock at a conversion price equivalent to $34.00 per share of common
stock, for a total of 2,941,476 shares;
- Are redeemable along with the Trust preferred securities, at
Spartech's option on or after February 17, 2003, at a price equal to
104.56% of the principal amount plus accrued interest, declining
annually to a price equal to the principal amount plus accrued
interest by February 17, 2010; and
- Mature and are payable, along with the Trust preferred securities, on
February 17, 2015 if they have not been previously redeemed or
converted.
On February 28, 2000, we entered into a new $250 million bank credit
facility representing a revolving credit line with a five year term. Interest
on our bank credit facility is payable at a rate chosen by us of either prime or
LIBOR plus 0.625% to 1.250%.
We anticipate that cash flow from operations, together with the financing
and borrowings under our bank credit facility, will satisfy our working capital
needs, regular quarterly dividends, and planned capital expenditures for the
next year.
Other
The information presented herein contains certain forward-looking
statements, defined in Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements represent our judgement relating to, among other
things, future results of operations, growth plans, sales, capital requirements
and general industry and business conditions applicable to us. They are based
largely on our current expectations. Our actual results could differ materially
from the information contained in the forward-looking statements due to a number
of factors, including changes in the availability and cost of raw materials,
changes in the economy or the plastics industry in general, other unanticipated
events that may prevent us from competing successfully in existing or new
markets, and our ability to manage our growth effectively. Investors are also
directed to the discussion of risks and uncertainties associated with forward-
looking statements contained in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
PART II - OTHER INFORMATION
Item 6 (a). Exhibits
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
Item 6 (b). Reports on Form 8-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPARTECH CORPORATION
(Registrant)
Date: August 25, 2000 /S/ Bradley B. Buechler
Bradley B. Buechler
Chairman, President and Chief
Executive Officer
(Principal Executive Officer)
Date: August 25, 2000 /S/ Randy C. Martin
Randy C. Martin
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
EXHIBIT 11
SPARTECH CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
QUARTER ENDED NINE MONTHS ENDED
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
NET EARNINGS
Basic net earnings $ 13,604 $ 11,415 $ 38,552 $ 31,677
Add: Distributions on
Preferred Securities,
net of tax 1,563 488 3,380 793
--------- -------- ------- --------
Diluted net earnings $ 15,167 $ 11,903 $41,932 $ 32,470
========= ======== ======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic weighted average common
shares outstanding 27,427 27,084 27,358 26,958
Add: Shares issuable from
assumed conversion of
Preferred Stock 4,578 1,637 3,382 887
Add: Shares issuable from
assumed exercise of options 855 1,911 985 1,872
--------- -------- ------- --------
Diluted weighted average 32,860 30,632 31,725 29,717
shares outstanding ========= ======== ======== ========
NET EARNINGS PER SHARE
Basic $ .50 $ .42 $ 1.41 $ 1.17
========= ======== ======== ========
Diluted $ .46 $ .39 $ 1.32 $ 1.09
========= ======== ======== ========
