SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 29, 2000
Commission File Number 1-5911
SPARTECH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 43-0761773
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
120 South Central Avenue, Suite 1700, Clayton, Missouri 63105
(Address of principal executive offices)
(314) 721-4242
(Registrant's telephone number, including area code)
Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Number of common shares outstanding as of April 29, 2000:
Common Stock, $.75 par value per share 27,412,161
SPARTECH CORPORATION AND SUBSIDIARIES
INDEX
April 29, 2000
PART I. FINANCIAL INFORMATION PAGE
CONSOLIDATED CONDENSED BALANCE SHEET -
as of April 29, 2000 and October 30, 1999 3
CONSOLIDATED CONDENSED STATEMENT OF
OPERATIONS - for the quarter and six months
ended April 29, 2000 and May 1, 1999 4
CONSOLIDATED CONDENSED STATEMENT OF
CASH FLOWS - for six months ended
April 29, 2000 and May 1, 1999 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II. OTHER INFORMATION 14
SIGNATURES 15
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands, except share amounts)
ASSETS
April 29, 2000
(unaudited) Oct. 30, 1999
Current Assets
Cash and equivalents $ 9,539 $ 8,890
Receivables, net 149,046 117,345
Inventories 100,865 72,108
Prepayments and other 13,906 8,634
Total Current Assets 273,356 206,977
Property, Plant and Equipment 404,300 318,528
Less accumulated depreciation 87,547 75,829
Net Property, Plant and Equipment 316,753 242,699
Goodwill 302,268 168,497
Other Assets 7,873 7,228
$900,250 $625,401
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 12,353 $ 13,215
Accounts payable 88,632 78,644
Accrued liabilities 43,131 37,420
Total Current Liabilities 144,116 129,279
Long-Term Debt, Less Current Maturities 347,901 217,094
Other Liabilities 53,751 38,986
Total Long-Term Liabilities 401,652 256,080
Company-obligated manditorily redeemable
convertible preferred securities of
Spartech capital trusts holding solely
convertible subordinated debentures 150,000 50,000
Shareholders' Equity
Common stock, 28,027,023 and 27,915,873
shares issued in 2000 and 1999 21,008 20,925
Contributed capital 95,948 101,709
Retained earnings 105,898 85,651
Treasury stock, at cost, 614,862 shares
in 2000 and 675,937 shares in 1999 (14,446) (14,835)
Cumulative translation adjustments (3,926) (3,408)
Total Shareholders' Equity 204,482 190,042
$900,250 $625,401
See accompanying notes to consolidated financial statements.
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited and dollars in thousands, except per share data)
QUARTER ENDED SIX MONTHS ENDED
April 29, May 1, April 29, May 1,
2000 1999 2000 1999
Net Sales $256,660 $196,937 $455,115 $364,738
Costs and Expenses
Cost of sales 210,724 161,871 373,059 299,475
Selling and administrative 14,495 11,285 26,486 21,410
Amortization of intangibles 1,578 1,001 2,717 1,998
226,797 174,157 402,262 322,883
Operating Earnings 29,863 22,780 52,853 41,855
Interest 5,058 3,541 8,772 7,392
Distributions on
preferred securities of
Spartech capital trusts 2,197 509 3,010 509
Earnings Before Income Taxes 22,608 18,730 41,071 33,954
Income Taxes 8,827 7,625 16,123 13,692
Net Earnings $ 13,781 $ 11,105 $ 24,948 $ 20,262
Net Earnings Per Common Share:
Basic $ .50 $ .41 $ .91 $ .75
Diluted $ .47 $ .38 $ .86 $ .70
Dividends Per Common Share $ .085 $ .070 $ .170 $ .140
See accompanying notes to consolidated financial statements.
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited and dollars in thousands)
SIX MONTHS ENDED
April 29, 2000 May 1, 1999
Cash Flows From Operating Activities
Net earnings $ 24,948 $ 20,262
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 14,823 11,426
Change in current assets and
liabilities, net of effects of
acquisitions (28,277) (6,584)
Other, net 3,141 2,495
Net cash provided by operating
activities 14,635 27,599
Cash Flows From Investing Activities
Capital expenditures (14,367) (11,349)
Retirement of assets 65 235
Business Acquisitions (216,304) (10,437)
Net cash used for investing activities (230,606) (21,551)
Cash Flows From Financing Activities
Bank borrowings for business acquisitions 216,304 10,437
Net borrowings (payments) on revolving
credit facilities 15,068 (4,224)
Payments on bonds and leases (1,316) (2,645)
Debt issuance costs (1,024) -
Cash dividends on common stock (4,701) (3,781)
Stock options exercised 1,367 1,967
Treasury stock acquired (9,092) (8,841)
Net cash provided by (used for)
financing activities 216,606 (7,087)
Effect of exchange rate changes on cash
and equivalents 14 40
Increase (Decrease) In Cash and Equivalents 649 (999)
Cash and Equivalents At Beginning Of Period 8,890 7,247
Cash and Equivalents At End Of Period $ 9,539 $ 6,248
See accompanying notes to consolidated financial statements.
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
NOTE A - Basis of Presentation
Our consolidated financial statements include the accounts of Spartech
Corporation and its wholly owned subsidiaries. These financial statements have
been prepared on a condensed basis and, accordingly, certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the financial statements contain all
adjustments (consisting solely of normal recurring adjustments) and disclosures
necessary to make the information presented therein not misleading. These
financial statements should be read in conjunction with the consolidated
financial statements and accompanying footnotes thereto included in our October
30, 1999 Annual Report on Form 10-K.
Our fiscal year ends on the Saturday closest to October 31. Operating
results for any quarter are traditionally seasonal in nature and are not
necessarily indicative of the results expected for the full year.
NOTE B - Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market. Inventories at April 29, 2000 and October 30, 1999 are comprised of the
following components:
2000 1999
Raw materials $ 59,287 $ 41,781
Finished goods 41,578 30,327
$100,865 $ 72,108
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
NOTE C - Cash Flow Information
Supplemental information on cash flows and noncash transactions for the six
months ended April 29, 2000 and May 1, 1999 is as follows:
2000 1999
Cash paid for:
Interest $ 10,913 $ 8,039
Income taxes $ 13,107 $ 10,032
Note D - Comprehensive Income
Comprehensive Income is an entity's change in equity during the period
from transactions, events and circumstances from non-owner sources. A summary
of our components of Total Comprehensive Income follows:
QUARTER ENDED SIX MONTHS ENDED
April 29, May 1, April 29, May 1,
2000 1999 2000 1999
Net Earnings $ 13,781 $ 11,105 $ 24,948 $ 20,262
Foreign currency
translation adjustments (884) 1,118 (518) 1,839
Total Comprehensive Income $ 12,897 $ 12,223 $ 24,430 $ 22,101
Our other comprehensive income consists solely of foreign currency
translation adjustments. Accumulated other comprehensive income is represented
on the balance sheet as cumulative translation adjustments as of April 29, 2000
and October 30, 1999, respectively.
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
Note E - Segment Information
Spartech's fifty-two facilities are organized into three reportable segments
based on the nature of the products manufactured.
Note F - Convertible Preferred Securities
On February 18, 2000 we issued $100 million of 7.0% convertible
subordinated debentures to Spartech Capital Trust, a Delaware trust we control.
We used the proceeds to repay borrowings under our bank credit facility. The
debentures are the sole asset of the Trust and eliminate in consolidation. The
Trust purchased the debentures with the proceeds of a $100 million private
placement of 7.0% convertible preferred securities of the Trust having an
aggregate liquidation preference of $100 million and guaranteed by Spartech. The
debentures:
- Are convertible along with the Trust preferred securities, at the
option of the preferred security holders, into shares of our common
stock at a conversion price equivalent to $34.00 per share of common
stock, for a total of 2,941,476 shares;
- Are redeemable along with the Trust preferred securities, at
Spartech's option on or after February 17, 2003, at a price equal to
104.56% of the principal amount plus accrued interest, declining
annually to a price equal to the principal amount plus accrued
interest by February 17, 2010; and
- Mature and are payable, along with the Trust preferred securities, on
February 17, 2015 if they have not been previously redeemed or
converted.
Note G - Acquisition
On February 29, 2000, Spartech announced that it completed the purchase of
substantially all of the assets of Uniroyal Technology Corporation's High
Performance Plastics, Inc. ("HPP"), a well-established manufacturer of
proprietary plastic products based in South Bend, Indiana with sales of
approximately $130 million for its most recent fiscal year which ended September
26, 1999. HPP, through its two operating divisions--Polycast (cell cast
acrylic) and Royalite (extruded thermoplastic sheet)--will significantly expand
Spartech's product offerings to customers, increase production capacity through
nine additional manufacturing plants located throughout North America, and
broaden our technical and marketing expertise in serving several new growth
industries for Spartech. The acquisition price for HPP was approximately $216
million including costs of the transaction. The fair value of assets acquired
(including $134 million of goodwill) and liabilities assumed (including accounts
payable and accrued liabilities) was $241 million and $25 million, respectively.
The purchase was financed through our new $250 million bank credit facility.
The new bank credit facility has a five year term and bears interest at a rate
chosen by us of prime or LIBOR plus 0.625% to 1.250%.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales were $256.7 million and $455.1 million for the quarter and six
months ended April 29, 2000, representing a 30% and 25% increase from the
similar periods in 1999. This sales growth included a 20% increase in volume
related to acquired operations and a 10% increase from internal growth (5%
volume growth and 5% related to price/mix increases). These sales increases
along with our ongoing improvements in production efficiency, helped us produce
our thirty-fourth consecutive quarter of improved year-over-year results.
Our Custom Sheet & Rollstock segment generated sales of $289.9 million
during the first six months of 2000 up 26% from the $230.4 million in the first
six months of 1999. Recent acquisitions, primarily Uniroyal's HPP Group, added
18% to sales for the first six months. Base volume growth added 5% for the
first six months as a result of strong volume in the packaging and recreation &
leisure markets and increases in Alloy Plastics and Product Transformation sales
while price/mix provided another 3% to sales. Sales increased 10% for the Color
& Specialty Compounds group to $118.0 million in the first six months of 2000,
with base volume increasing 8% and price/mix making up the balance of 2%. Our
Molded & Profile Products group generated $47.2 million in sales for the first
six months of 2000 up 77% from the prior year. This increase was related to
three recent acquisitions (53%) and internal growth (24%).
Cost of sales increased to $210.7 million for the quarter ended April 29,
2000, compared with $161.9 million for the same period in 1999, but decreased to
82.1% of net sales for 2000 from 82.2% for 1999. The cost of sales percentages
were 82.0% and 82.1% for the six months ended April 29, 2000 and May 1, 1999,
respectively. Our slightly more favorable cost of sales percentages in 2000
represents improved production efficiencies and sales of higher margin new
products, partially offset by the impact of resin cost increases.
Selling and administrative expenses were $14.5 million and $26.5 million
for the quarter and six months ended April 29, 2000 compared to $11.3 million
and $21.4 million for the similar periods in 1999. On a percentage of net sales
basis, selling and administrative costs for the quarter decreased to 5.6% from
5.7% in 1999. The 2000 six-month percentage also declined to 5.8% from 5.9% the
prior year.
Operating earnings for the quarter ended April 29, 2000 were $29.9 million
(11.6% of net sales) compared to $22.8 million (11.6% of net sales) for the
corresponding period in 1999. Operating earnings for the six months ended April
29, 2000 were $52.9 million (11.6% of net sales) compared to $41.9 million
(11.5% of net sales) for the six months in 1999. These gains in operating
earnings were achieved through the increased sales levels, improved production
efficiencies and cost containment efforts.
Interest expense and Distributions on Preferred Securities Distributions
for the quarter and six months ended April 29, 2000 of $7.3 million and $11.3
million increased from $4.1 million and $7.9 million for the same periods in
1999 as a result of borrowings related to the acquisitions completed in 1999 and
the acquisition of Uniroyal's HPP Group on February 28, 2000. This increase in
interest expense has also been impacted by prime rate increases totaling 1.75%
since May 1, 1999. As of April 29, 2000, we have $215.9 million of floating
rate debt (approximately 42% of our total financings).
Our effective tax rate was approximately 39.3% and 39.8% for the six months
ending April 29, 2000 and May 1, 1999 reflecting an improvement in our combined
state tax rate.
Environmental
We operate under various laws and regulations governing employee safety,
the quantities of specified substances that may be emitted into the air,
discharged into waterways, and otherwise disposed of on and off our properties.
We do not anticipate that future expenditures for compliance with these laws and
regulations will have a material effect on its capital expenditures, earnings,
or competitive position.
The plastic resins we use in our production process are crude oil or
natural gas derivatives which are available from a number of domestic and
foreign suppliers. Accordingly, our raw materials are only somewhat affected by
supply, demand, and price trends of the petroleum industry. The pricing of
resins tends to be independent of crude oil or natural gas except in periods of
anticipated or actual shortages. We are not aware of any trends in the
petroleum industry which will significantly affect its sources of raw materials
in 2000.
Liquidity and Capital Resources
Cash Flow
Our primary sources of liquidity have been cash flows from operating
activities and borrowings from third parties. Our principal uses of cash have
been to support our operating activities, invest in capital improvements, and
finance strategic acquisitions. Our cash flows for the periods indicated are
summarized as follows:
Six Months
2000 1999
(Dollars in millions)
Net cash provided by
operating activities $ 14.6 $ 27.6
Net cash used for
investing activities $ (230.6) $ (21.5)
Net cash provided by (used for)
financing activities $ 216.6 $ (7.1)
Increase (Decrease) in cash and equivalents$ .6 $ (1.0)
Operating cash flow provided by net earnings increased 23% to $24.9 in the
first half of 2000 compared to the corresponding period of the prior year.
Operating cash flows used for changes in working capital totaled $28.3 million
for the six months ended April 29, 2000. This was primarily the result of the
increased level of receivables derived from our expanded sales level, increased
inventory due to selective pre-buys of certain resins and the increases of resin
prices on both receivables and inventory.
Our primary investing activities are capital expenditures and acquisitions of
businesses in the plastics industry. Capital expenditures are primarily
incurred to maintain and improve productivity, as well as to modernize and
expand facilities. Capital expenditures for the six months ended April 29, 2000
and May 1, 1999 were $14.4 million and $11.3 million, respectively. We
anticipate total capital expenditures of approximately $28 million for fiscal
2000, including expenditures for the most recent acquisitions.
The cash flows provided by financing activities were $216.6 million for the
first six months of 2000. The primary activity was the bank borrowings of
$216.3 million for the HPP acquisition, net borrowings of $13.8 million, cash
dividend payments of $4.7 million, and purchases of treasury stock, net of
options exercised, of $7.7 million.
Financing Arrangements
On February 18, 2000 we issued $100 million of 7.0% convertible
subordinated debentures to Spartech Capital Trust, a Delaware trust we control.
We used the proceeds to repay borrowings under our bank credit facility. The
debentures are the sole asset of the Trust and eliminate in consolidation. The
Trust purchased the debentures with the proceeds of a $100 million private
placement of 7.0% convertible preferred securities of the Trust having an
aggregate liquidation preference of $100 million and guaranteed by Spartech. The
debentures:
- Are convertible along with the Trust preferred securities, at the
option of the preferred security holders, into shares of our common
stock at a conversion price equivalent to $34.00 per share of common
stock, for a total of 2,941,476 shares;
- Are redeemable along with the Trust preferred securities, at
Spartech's option on or after February 17, 2003, at a price equal to
104.56% of the principal amount plus accrued interest, declining
annually to a price equal to the principal amount plus accrued
interest by February 17, 2010; and
- Mature and are payable, along with the Trust preferred securities, on
February 17, 2015 if they have not been previously redeemed or
converted.
On February 28, 2000, we entered into a new $250 million bank credit
facility representing a revolving credit line with a five year term. Interest
on our bank credit facility is payable at a rate chosen by us of either prime or
LIBOR plus 0.625% to 1.250%.
We anticipate that cash flow from operations, together with the financing
and borrowings under our bank credit facility, will satisfy our working capital
needs, regular quarterly dividends, and planned capital expenditures for the
next year.
Other
The information presented herein contains certain forward-looking
statements, defined in Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements represent our judgement relating to, among other
things, future results of operations, growth plans, sales, capital requirements
and general industry and business conditions applicable to us. They are based
largely on our current expectations. Our actual results could differ materially
from the information contained in the forward-looking statements due to a number
of factors, including changes in the availability and cost of raw materials,
changes in the economy or the plastics industry in general, other unanticipated
events that may prevent us from competing successfully in existing or new
markets, and our ability to manage our growth effectively. Investors are also
directed to the discussion of risks and uncertainties associated with forward-
looking statements contained in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
At
the Annual Shareholders meeting held March 8, 2000, Mr. Roy
Dobson was elected as a Director of the Company with 25,322,108
votes for, 3,574 against, and 2,033,705 shares unvoted. Mr.
David B. Mueller was also elected as a director of the Company
with 25,323,346 votes for, 2,326 against, and 2,033,705 shares
unvoted. Mr. Richard B. Scherrer was also elected as a Director
of the Company with 25,322,190 votes for, 3,482 against, and
2,033,705 shares unvoted. Incentive bonuses for the Company's CEO
& COO were approved with 24,141,977 votes for, 1,490,188 against,
53,212 abstentions, and 1,674,001 unvoted. Arthur Andersen LLP
was ratified as the Company's auditors with 25,652,700 votes for,
21,102 against, 12,177 abstentions, and 1,706,677 shares unvoted.
Item 6 (a). Exhibits
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
Item 6 (b). Reports on Form 8-K
A report on Form 8-K, dated March 14, 2000, announcing the
acquisition of substantially all the assets of High Performance
Plastics, Inc. ("HPP") an indirect subsidiary of Uniroyal
Technology Corporation. A report on Form 8-K/A, dated March 14,
2000 was filed on May 15, 2000. This amendment was submitted to
file certain financial statements of the business acquired and
pro forma financial statements related to the HPP acquisition.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPARTECH CORPORATION
(Registrant)
Date: May 31, 2000 /S/ Bradley B. Buechler
Bradley B. Buechler
Chairman, President and Chief
Executive Officer
(Principal Executive Officer)
Date: May 31, 2000 /S/ Randy C. Martin
Randy C. Martin
Vice President - Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)