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 endedNovember 3, 2001
Commission file number1-5911
SPARTECH CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 43-0761773
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
120 S. CENTRAL AVENUE; SUITE 1700, CLAYTON, MISSOURI63105-1705
(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. YESX 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 $271,237,313 on December 31, 2001.
There were 26,759,714 total shares of common stock outstanding as of December 31, 2001.
Documents incorporated by reference
1) Portions of the 2001 Annual Report to Shareholders are incorporated by reference into Parts I, II and IV.
2) Portions of the Definitive Proxy Statement for the 2002 Annual Meeting of Shareholders are incorporated by reference into Part III.
PART I
Item 1.BUSINESS
General
Spartech Corporation ("The Company"), 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, acrylic products, color concentrates and blended resin compounds, and injection molded and profile extruded products. The Company's products are sold to over 6,500 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: Custom Sheet & Rollstock; Color & Specialty Compounds; and Molded & Profile Products.
Custom Sheet & Rollstock sells its products to various manufacturers who use plastic components in their industrial products. The Company's custom sheet and rollstock is utilized in several end markets including food/medical packaging, signs, spas, bathtubs & shower surrounds, burial vault liners, automotive & recreational vehicle components, airplanes, boats, security windows, and refrigerators. The Company is North America's largest extruder of custom rigid plastic sheet and rollstock, operating 24 facilities in the United States and Canada under the names Spartech Plastics and Spartech Polycast.
Color & Specialty Compoundssells custom designed plastic alloys, compounds, color concentrates and calendered film for utilization by a large group of manufacturing customers servicing the food & medical packaging, automotive equipment, consumer electronics & appliances, lawn & garden equipment, wallcoverings, and other end markets. The Company produces and distributes these products from 11 facilities under the names Spartech Polycom, Spartech Color and Spartech Vy-Cal in the United States, Canada and France.
Molded & Profile Productsmanufactures a number of proprietary items including: thermoplastic tires and wheels for the medical, lawn & garden, refuse container, and toy markets and window frames and fencing for the building & construction market as well as other custom 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, Spartech Profiles, Spartech Alshin, Spartech Townsend and Spartech Marine.
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 American Plastics Council estimates that the U.S. plastics industry produced over 100 billion pounds of plastic in 2000 and grew at a 4% compound annual growth rate from 1995 to 2000, 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,
- Cast Acrylics
- Specialty compounding,
- Color concentrates,
- Pipe, profile and tube extrusion,
- Injection molding,
- Thermoforming,
- Blow molding, and
- Rotational molding.
These processing methods involve varying production capabilities, operating costs and equipment, and require 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 and obtain synergies for fixed cost savings;
- 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 Philosophy section that follows on the next page. Acquisitions completed over the last five years are summarized below:
Date | | |
Acquired | Business Acquired | Products / Segments |
August 1997 | Preferred Plastic Sheet Division | Extruded Sheet & Rollstock |
| | of Echlin Inc | and 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 L.L.C. | Extruded Sheet & Rollstock |
May 1999 | Alltrista Plastic Packaging Company | Extruded Sheet & Rollstock |
| | Division of Alltrista Corporation | |
October 1999 | Accura Molding Company Ltd. | Injection Molded Products |
October 1999 | OS Plastics, Division of Innocan | Extruded Sheet & Rollstock |
| | Capital Inc. | |
October 1999 | Geoplast PVC Division of RAE | Profile Products |
| | Capital Corp | |
February 2000 | Uniroyal Technology Corporation's | Extruded Sheet & Rollstock |
| | High Performance Plastics | and Cell Cast Acrylic |
October 2000 | Alshin Tire Corporation | Injection Molded Products |
Further information with respect to Spartech's recent acquisition activity is set forth in Note (2) to the Consolidated Financial Statements on page 19 of the 2001 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 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, custom er 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) or new markets served; (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 sheet and rollstock, where the transformation process has been accelerating. Sizable metal, glass and fiberglass specialty components are being replaced by thermoplastics in the sign & advertising 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 Tr ansformations.
- 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'sContinuous Improvement strategy, under the Company's Pyramids of Performance initiatives, focuses Spartech on consistent improvement in production efficiency, communication, and training. 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 150 cross-functional teams throughout all our facilities work on generating productivity improvements, eliminating waste, and identifying process efficiencies. Annually, we recognize our five 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 was 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 Training.Builds upon our Total Transaction Quality and Total Customer Satisfaction programs to further develop properly motivated and well-trained employees through our Growth Through Training effort. This training initiative is designed to support our Creating Positive Change effort by strengthening our employees knowledge and skills in (1) Business Fundamentals, (2) Personal Development, (3) Process Improvement, and (4) Effective Management & Leadership.
In addition to these Focused Growth and Continuous Improvement Strategies, we recently implemented our Pillars of Leadership effort and our Creating Positive Change initiative. Under our Pillars of Leadership effort, we are training employees to be creative, decisive, and motivational. The Creating Positive Change initiative relied upon these skills in implementing several distinct phases during fiscal 2000 and 2001 to improve certain aspects of our business and streamline our operations. These three phases included the closing of nine operating facilities, the sale of three molded & profile operating plants, and S, G & A cost reduction measures. We believe that our continuing Pillars of Leadership effort and our Pyramid of Productivity teams will drive additional improvements and positive changes in our operations and production process.
Operating Segments
The Company operates its 43 production facilities in North America and Europe in three segments: Custom Sheet & Rollstock; Color & Specialty Compounds; and Molded & Profile Products.
Custom Sheet & Rollstock--Net sales and operating earnings (consisting of earnings before interest, taxes and corporate operations) of the Custom Sheet & Rollstock segment for fiscal years 2001, 2000 and 1999 were as follows:
Fiscal Year |
| 2001 | 2000 | 1999 |
(Dollars in millions) | | | |
Net Sales | $621.9 | $639.6 | $507.0 |
Operating Earnings | $ 66.6 | $ 74.8 | $ 57.6 |
- Products.This segment, operating under the names Spartech Plastics and Spartech Polycast, processes a variety of materials into single/multilayer sheets or rollstock and cell cast acrylic on a custom basis for end product manufacturers. The segment's products are utilized in several end markets including aerospace, transportation, building & construction, packaging, recreation and sign/advertising. Most of the segment's customers form, cut, stretch or 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 include 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 27 such Alloy Plastics, seven of which were introduced in April 2001.
- Manufacturing and Production.This segment operates 24 facilities in North America. The principal raw materials used in manufacturing 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).
Spartech Plastics produces extruded 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.
Spartech Polycast manufactures acrylic products through cell cast manufacturing, in more than 60 colors and in gauges ranging from 0.030 to 6.00 inches. Acrylic sheet manufactured by the cell cast process, which is more labor intensive than continuous cast, extrusion or calender processes, generally yields a product that is considered to have a higher quality.
- 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 cell cast acrylic, outdoor sign and spa markets, however, are more national in scope.
The Company sells sheet and rollstock products principally through our own sales force, but also uses a limited number of independent sales representatives. During 2001, the Company sold products of the Custom Sheet & Rollstock segment to over 3,500 customers, including Sub-Zero Freezer Company, The Procter & Gamble Company, Jacuzzi Incorporated, Igloo Corporation, Textron, Inc. and Hormel Foods.
Color & Specialty Compounds--Net sales and operating earnings (consisting of earnings before interest, taxes and corporate operations) of the Color & Specialty Compounds segment for fiscal years 2001, 2000 and 1999 were as follows:
Fiscal Yearb
| 2001 | 2000 | 1999 |
(Dollars in millions) | | | |
Net Sales | $227.8 | $249.0 | $226.0 |
Operating Earnings | $ 24.8 | $ 30.8 | $ 28.6 |
- 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 consumer appliance components, lawn and garden equipment, cosmetic 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 calender, 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. The ReinForce GRPP (glass-reinforced polypropylene) product introduced in 2001 was the first new product of the Color & Specialty Compound group that was marketed as an Alloy Plastic.
- Manufacturing and Production.This segment operates 10 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 normally 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 2001, the Company sold products of the Color & Specialty Compounds segment to over 2,000 customers, including the Solo Cup Company, DaimlerChrysler, Igloo Corporation and Pactiv Corporation.
Molded & Profile Products--Net sales and operating earnings (consisting of earnings before interest, taxes, and corporate operations) of the Molded and Profile Products segment for fiscal 2001, 2000 and 1999 were as follows:
Fiscal Yearb
| 2001 | 2000 | 1999 |
(Dollars in millions) | | | |
Net Sales | $87.4 | $99.0 | $57.4 |
Operating Earnings | $ 8.6 | $12.3 | $7.8 |
- Products.Our Molded & Profile Products segment manufactures injection molded and profile extruded products for a large group of intermediate and end-user customers. The segment operates under four business names:
- Spartech Industries produces plastic tire and wheel assemblies for the medical, lawn & garden, refuse container and toy markets and high performance molded urethane tires for the medical, material handling, lawn & garden, and recreational product applications. The company also produces various injection molded and profile extruded products that complement the wheels & tire offerings.
- Spartech Profiles manufactures products for various industries, including the bedding and construction markets.
- Spartech Marine specializes in the fabrication of acrylic products used in high end marine applications.
- Spartech Townsend manufactures acrylic rods and tubes used primarily in display, household and medical applications.
- New Product Development.This segment brings unique, recognized capabilities to our customers such as 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 acrylics, polyethylene, polypropylene and PVC. Our products in this segment are generally manufactured either through injection molding or profile extrusion processes.
- Marketing, Sales and Distribution.Spartech Industries - Custom Engineered Wheels operations market their products throughout North America. Spartech Profiles markets its custom profile products throughout North America. Spartech Marine markets its fabricated acrylic products throughout North America. Spartech Townsend markets its acrylic rods and tubes throughout North America. The Company sells the segment's products principally through our own sales force, but also uses independent sales representatives and wholesale distributors. During 2001, the Company sold products of the Molded & Profile Products segment to approximately 1,200 customers, including MTD Products, Honda, Invacare and Brentwood Industries.
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 has 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. Variability in pricing and changes in supply and demand of particular resins at any given time are risks that the Company has to manage in maintaining its operating profitability.
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 Custom 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 November 3, 2001 and October 28, 2000 was approximately $69.6 million and $80.4 million, respectively, which represents approximately four weeks of production for 2001 and 2000.
Employees
The Company's total employment approximates 3,300. There are 2,600 production personnel at the Company's 43 facilities, approximately 38% of whom are union employees covered by several collective bargaining agreements. The Company considers its employee relations to be good. Management personnel total approximately 700 supervisory/clerical employees, none of whom are unionized.
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 2002 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. The ability to obtain permits in order to conduct our business and the need to maintain the various laws and regulations related to our business are risks that require constant monitoring from our operating managers.
International Operations
Information regarding the Company's operations in its three geographic segments -- United States, Canada and Europe (France) -- is located in Note (13) to the Consolidated Financial Statements on page 27 of the 2001 Annual Report to Shareholders, attached hereto as Exhibit 13 and incorporated by reference. The Company's Canadian and French operations may be affected periodically by foreign political and economic developments, laws and regulations, and currency fluctuations.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides certain information about the Company's executive officers, their positions with the Company, and their prior business experience and employment for at least the past five years
Name | Age | Current Office, and Prior Positions and Employment |
Bradley B. Buechler | 53 | Chairman of the Board (since March 1999), President (since 1987) and Chief Executive Officer (since 1991). Mr. Buechler, a CPA, was with Arthur Andersen LLP before the commencement of his employment with the Company in 1981. |
George A. Abd | 38 | Executive Vice President, Color & Specialty Compounds (since September 2000); Vice President of Compounding for the Company's Spartech Polycom Division from March 1998 to September 2000. Mr. Abd held various positions with Polycom Huntsman, Inc for eleven years prior to its acquisition by the Company in March 1998. |
Randy C. Martin | 39 | Executive Vice President (since September 2000) and Chief Financial Officer (since May 1996); Corporate Controller from 1995 to May 1996; Vice President, Finance from May 1996 to September 2000. Mr. Martin, a CPA and CMA, was with KPMG Peat Marwick LLP for eleven years before joining the Company in 1995. |
David G. Pocost | 40 | Executive Vice President, Extruded Sheet and Profile Products (since September 2000); Director of Quality & Environmental Affairs from 1994 to December 1996; Vice President, Quality & MIS from December 1996 to September 1998, and Vice President, Engineering, Quality & MIS from September 1998 to September 2000. Mr. Pocost was previously with Moog Automotive as Division Quality Assurance Manager and Senior Materials Engineer for eight years. |
Jeffrey D. Fisher | 53 | Vice President and General Counsel (since July 1999); and Secretary (since September 2000). 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 2.PROPERTIES
The Company operates in plants and offices aggregating approximately 4,011,000 square feet of space. Approximately 1,600,000 square feet of plant and office space is leased with the remaining 2,411,000 square feet owned by the Company. A summary of the Company's principal operating facilities follows:
Extruded Sheet & Rollstock
Location | Description | Size in Square Feet | Owned/Leased |
Arlington, TX | Extrusion plant & offices | 120,000 | Leased |
Atlanta, GA | Extrusion plant & offices | 84,000 | Leased |
Cape Girardeau, MO | Extrusion plant & offices | 100,000 | Owned |
Clare, MI | Extrusion plant & offices | 27,000 | Owned |
Conneaut, OH | Extrusion plant & offices | 92,000 | Owned |
| | Warehouse | 1,000 | Leased |
Evanston, IL | Extrusion plant & offices | 135,000 | Leased |
Greenville, OH | Extrusion plant & offices | 60,000 | Owned |
| | | 20,000 | Leased |
Hackensack | Extrusion plant & offices | 81,000 | Owned |
La Mirada, CA | Extrusion plant & offices | 99,000 | Leased |
Mankato, MN | Extrusion plant & offices | 36,000 | Owned |
| | | 54,000 | Leased |
McMinnville, OR | Extrusion plant & offices | 40,000 | Owned |
Muncie, IN | Extrusion plant & offices | 202,000 | Owned |
Paulding, OH | Extrusion plant & offices | 68,000 | Owned |
| | 20,000 | Leased |
Phoenix, AZ | Extrusion plant & offices | 25,000 | Leased |
Portage, WI | Extrusion plant & offices | 115,000 | Owned |
| | 47,000 | Leased |
Redlands, CA | Extrusion plant & offices | 60,000 | Owned |
Richmond, IN | Extrusion plant & offices | 52,000 | Owned |
| | 20,000 | Leased |
Stamford, CT | Extrusion Plant & offices | 80,000 | Owned |
| | 7,000 | Leased |
Taylorville, IL | Extrusion plant & offices | 40,000 | Owned |
| | 5,000 | Leased |
Warsaw, IN | Extrusion plant & offices | 229,000 | Owned |
| | 162,000 | Leased |
Wichita, KS | Extrusion plant & offices | 62,000 | Owned |
| | 108,000 | Leased |
Cornwall #1, Ontario | Extrusion plant & offices | 38,000 | Leased |
Cornwall #2, Ontario | Extrusion plant & offices | 64,000 | Leased |
Granby, Quebec | Extrusion plant & offices | 65,000 | Owned |
| | | |
Color & Specialty Compounds
Location | Description | Size in Square Feet | Owned/Leased |
Cape Girardeau, MO | Compounding plant & offices | 56,000 | Owned |
| | | 60,000 | Leased |
Conneaut, OH | Compounding plant & offices | 94,000 | Owned |
Conshohocken, PA | Calendering plant & offices | 42,000 | Owned |
Donora #1, PA | Compounding plant & offices | 142,000 | Owned |
Donora #2, PA | Compounding plant & offices | 88,000 | Owned |
Kearny, NJ | Compounding plant & offices | 57,000 | Owned |
| | | 3,000 | Leased |
Lake Charles, LA | Compounding plant & offices | 55,000 | Owned |
Lockport, NY | Compounding plant & offices | 45,000 | Owned |
St. Clair, MI | Compounding plant & offices | 71,000 | Owned |
Stratford, Ontario | Color plant & offices | 65,000 | Owned |
Donchery, France | Compounding plant & offices | 30,000 | Owned |
| | | | |
| | | | |
Molded & Profile Products
Location | Description | Size in Square Feet | Owned/Leased |
Des Moines, IA | Profile Plant | 53,000 | Leased |
El Monte, CA | Profile Plant & Offices | 63,000 | Leased |
McPherson, KS | Profile Plant | 102,000 | |
Rancho Cucamonga, CA | Injection Molding plant & offices | 17,000 | Leased |
Rockledge, FL | Profile Plant | 112,000 | Leased |
Tupelo, MS | Warehouse | 54,000 | Leased |
Warsaw, Indiana | Molding plant & office | 41,000 | Owned |
| | | 68,000 | Leased |
Winnipeg, Manitoba | Profile Plant & Offices | 53,000 | Owned |
| | | |
In addition, the Company leases office facilities for its World Headquarters in St. Louis, Missouri and for administrative offices in Washington, Pennsylvania, the aggregate square footage of which is approximately 25,000.
The plants located at the premises listed above are equipped with 121 sheet extrusion lines, 76 of which run multi-layered materials, 29 casting machines, 33 profile extrusion lines, 38 general compounding lines, 7 color compounding lines, 16injection molding machines, a calendering line, cutting and grinding machinery, resin storage facilities, warehouse equipment, and quality laboratories at all locations. The Company believes that its present facilities along with anticipated capital expenditures (estimated to be approximately $25 million in fiscal 2002) are adequate for the level of business anticipated in fiscal 2002.
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 fiscalyear ended November 3, 2001.
PART II
Item 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information on page 29 and 31 of the 2001 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 31 present the cash dividends declared in fiscal 2000 consisting of four quarterly payments at eight and one-half cents per share and the cash dividends declared in fiscal 2001 consisting of four quarterly payments at nine and one-half cents per share. On December 6, 2001, the Company declared a dividend of nine and one-half cents per share payable on January 17, 2002. 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 29 of the 2001 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 9, 10, 11, 12, and 13 of the 2001 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 new products and markets benefits, future capital expenditures, expenditures for environmental compliance, and anticipated cash flow and borrowings.
Forward looking statements involve certain risks and uncertainties that could cause actual results to differ materially from such statements. In addition to the risk factors discussed in Item 1 (Business, under the headings Raw Materials, Seasonality, Competition, Government Regulation, and International Operations) included herein on pages 9 and 10, other important factors which have impacted 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; (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; and (3) our products are sold in a number of end markets which tend to be cyclical in nature, including transportation, building and construction, bath/pool and spa, and electronics and appliances. A downturn in one or more of these end markets could have a material adverse effect on our sales and operating profit.
Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUNT MARKET RISK
We are exposed to changes in interest rates primarily as a result of our borrowing activities. Our earnings and cash flows are subject to fluctuations in interest rates on our floating rate debt facilities. At November 3, 2001, we had approximately $50.5 million of debt subject to variable short-term interest rates. Based upon the November 3, 2001 balance, a change of one percent in interest rates would cause a change in net income of approximately $318,000 on an annual basis. We had $388.2 million of fixed rate financings outstanding as of November 3, 2001, including $125.0 million of floating rate debt hedged for three years by an interest rate swap. Interest expense on these fixed rate financings will not be materially effected by changes in interest rates over the next 12 months. In addition, the information on page 18, 19, and 27 of the 2001 Annual Report to Shareholders, attached hereto as Exhibit 13, is incorporated by reference in response to this item.
Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information entitled "Quarterly Financial Information" on page 27 of the 2001 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 2002 Annual Meeting of Shareholders, to be filed with the Commission on or about January 25, 2002, is incorporated herein by reference in response to this item.
Information concerning the Executive Officers of the Company is contained on page 11 in Part I of this Report.
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 2002 Annual Meeting of Shareholders, to be filed with the Commission on or about January 25, 2002, 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 2002 Annual Meeting of Shareholders, to be filed with the Commission on or about January 25, 2002, 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 Business Relationships and Transactions" of the Definitive Proxy Statement for the 2002 Annual Meeting of Shareholders, to be filed with the Commission on or about January 25, 2002, is incorporated herein by reference in response to this item.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)Financial Statements and Financial Statement Schedules
The following financial statements and financial statement schedules are incorporated by reference from the 2001 Annual Report to Shareholders, to be filed with the Commission on or about January 25, 2001, 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 | 28 |
| | | |
Financial Statements | | |
| | | |
Consolidated Balance Sheet | - | 14 |
| | | |
Consolidated Statement of Operations | - | 15 |
| | | |
Consolidated Statement of Shareholders' Equity | - | 16 |
| | | |
Consolidated Statement of Cash Flows | - | 17 |
| | | |
Notes To Consolidated Financial Statements | - | 18-27 |
Financial Statement Schedules | | |
| | | |
Schedule | | |
Number | Description | |
| | | |
II | Valuation and Qualifying Accounts | F-2 |
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.
(b)Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period covered by this Report.
(c) Exhibits
The Exhibits required to be filed by Item 601(a) of Regulation S-K are included as follows:
3.1(1) Restated Certificate of Incorporation
3.2(2) Amended and Restated By-Laws
4(3) Rights Agreement dated April 2, 2001 between Spartech Corporation and Mellon Investor Services LLC, as Rights Agent
10.1(4) Amended and Restated Employment Agreement dated November 1, 1999, between Bradley B. Buechler and Spartech Corporation
10.2(5) Transition Agreement and Consulting Agreement dated August 3, 2000, between David B. Mueller and Spartech Corporation
10.3(6)Employment Agreement dated January 1, 2000 between Randy C. Martin and Spartech Corporation
10.4(7) Employment Agreement dated January 1, 2000 between David G. Pocost and Spartech Corporation
10.5(8)Employment Agreement dated April 30, 1999 between Jeffrey D. Fisher and Spartech Corporation
10.6(9) Employment Agreement dated January 1, 2000 between George A. Abd and Spartech Corporation
10.7 Employment Agreement dated July 1, 2000 between Phillip Karig and Spartech Corporation
10.8(10) Spartech Corporation 2001 Stock Option Plan dated December 6, 2000
11 Statement re Computation of Per Share Earnings
13 Pages 9 through 29 and 31 of 2001 Annual Report to Shareholders
21 Subsidiaries of Registrant
23 Consent of Independent Public Accountants
24 Powers of Attorney
Notes to Exhibits
- Filed as Exhibit 3.1 to the Company's Form S-8 (File No. 333-60381), filed with the Commission on July 31, 1998 and incorporated herein by reference.
- Filed as Exhibit 3.2 to the Company's Form 10-K/A filed with the Commission on January 24, 2001 and incorporated herein by reference
- Filed as Exhibit 99.1 to the Company's Form 8-K filed with the Commission on April 5, 2001 and incorporated herein by reference.
- Filed as Exhibit 10(A) to the Company's annual report on Form 10-K for the fiscal year ended October 30, 1999, filed with the Commission on January 13, 2000 and incorporated herein by reference.
- Filed as Exhibit 10.4 to the Company's Form 10-K filed with the Commission on January 19, 2001 and incorporated herein by reference.
- Filed as Exhibit 10(G) to the Company's annual report on Form 10-K for the fiscal year ended October 30, 1999, filed with the Commission on January 13, 2000 and incorporated herein by reference.
- Filed as Exhibit 10(H) to the Company's annual report on Form 10-K for the fiscal year ended October 30, 1999, filed with the Commission on January 13, 2000 and incorporated herein by reference.
- Filed as Exhibit 10 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.
- Filed as Exhibit 10 to the Company's quarterly report on Form 10-Q for the quarter ended August 4, 2001, filed with the Commission on August 29, 2001 and incorporated herein by reference..
- Filed as Exhibit 4 to the Company's Form S-8 filed with the Commission on May 7, 2001 and incorporated herein by reference.
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 25, 2002 | 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 25, 2002 | /s/Bradley B. Buechler | Chairman, President, Chief |
| | Bradley B. Buechler | Executive Officer, and Director |
| | | (Principal Executive Officer) |
| | | |
January 25, 2002 | /s/ Randy C. Martin | Executive Vice President and Chief |
| | Randy C. Martin | Financial Officer (Principal |
| | Financial and Accounting Officer) |
| | | |
January 25, 2002 | /S/ Ralph B. Andy | Director |
| Ralph B. Andy* | |
| | | |
January 25, 2002 | __________________ | Director |
| | W. R. Clerihue* |
| | | |
January 25, 2002 | /S/ Roy Dobson | Director |
| | Roy Dobson* |
| | | |
| | | |
January 25, 2002 | /S/ Calvin J. O'Connor | Director |
| | Calvin J. O'Connor* |
| | | |
January 25, 2002 | /S/ Jackson W. Robinson | Director |
| | Jackson W. Robinson* |
| | | |
January 25, 2002 | /S/ Richard B. Scherrer | Director |
| | Richard B. Scherrer * |
| | | |
January 25, 2002 | /S/Craig A. Wolfanger | Director |
| | Craig A. Wolfanger* |
* 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 auditing standards generally accepted in the United States, the financial statements included in SPARTECH Corporation's 2001 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated December 6, 2001. 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
St. Louis, Missouri
December 6, 2001
F-1
SPARTECH CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED 2001, 2000, AND 1999.
(Dollars in thousands)
DESCRIPTION | BALANCE AT BEGINNING OF PERIOD | ADDITIONS AND CHARGES TO COSTSAND EXPENSES | WRITE-OFFS | BALANCE ATEND OF PERIOD |
November 3, 2001: Allowance for Doubtful Accounts | $ 3,627 | $ 2,801 | $ (2,471) | $ 3,957 |
October 28, 2000: Allowance for Doubtful Accounts | $ 3,016 | $ 1,634 | $ (1,023) | $ 3,627 |
October 30, 1999: Allowance for Doubtful Accounts | $ 2,430 | $ 1,467 | $ (881) | $ 3,016 |
| | | | | |
Fiscal year 1999 and 2000 additions and write-offs include activity relating to the acquisition of certain of the businesses and assets of 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, Geoplast PVC Division of RAE Capital Corp. in October 1999, Uniroyal Technology Corporation's High Performance Plastics Group in February 2000, and Alshin Tire Corporation in October 2000.
F-2
