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 SPARTECH CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR FISCAL YEARS ENDED 1999, 1998, AND 1997 (Dollars in thousands) BALANCE AT ADDITIONS AND BEGINNING OF CHARGES TO COSTS BALANCE AT DESCRIPTION PERIOD AND EXPENSES WRITE-OFFS END OF PERIOD 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. 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