7
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 February 3, 2001
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 S. Central 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 shares outstanding as of February 3, 2001:
Common Stock, $.75 par value per share 26,608,318
SPARTECH CORPORATION AND SUBSIDIARIES
INDEX
February 3, 2001
PART I. FINANCIAL INFORMATION PAGE
CONSOLIDATED CONDENSED BALANCE SHEET -
as of February 3, 2001 and October 28, 2000 3
CONSOLIDATED CONDENSED STATEMENT OF
OPERATIONS - for the quarter ended
February 3, 2001 and January 29, 2000 4
CONSOLIDATED CONDENSED STATEMENT OF
CASH FLOWS - for quarter ended
February 3, 2001 and January 29, 2000 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
Feb. 3, 2001
(unaudited) Oct. 28, 2000
Current Assets
Cash and equivalents $ 11,727 $ 10,495
Receivables, net 127,679 143,733
Inventories 100,657 95,130
Prepayments and other 9,146 8,443
Total Current Assets 249,209 257,801
Property, Plant and Equipment 418,967 412,373
Less accumulated depreciation 108,047 100,752
Net Property, Plant and Equipment 310,920 311,621
Goodwill 303,096 305,153
Other Assets 15,257 14,394
$878,482 $888,969
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 18,548 $ 18,667
Accounts payable 85,676 90,077
Accrued liabilities 30,180 38,016
Total Current Liabilities 134,404 146,760
Long-Term Debt, Less Current Maturities 334,212 334,178
Other Liabilities 48,338 47,009
Total Long-Term Liabilities 382,550 381,187
Company-obligated manditorily redeemable
convertible preferred securities of
Spartech Capital Trust holding solely
convertible subordinated debentures 150,000 150,000
Shareholders' Equity
Common stock, 28,067,023
shares issued in 2001 and 2000 21,039 21,039
Contributed capital 95,021 95,241
Retained earnings 132,174 126,149
Treasury stock, at cost, 1,458,705 shares
in 2001 and 1,203,456 shares in 2000 (29,391) (25,306)
Accumulated Other Comprehensive Income (7,315) (6,101)
Total Shareholders' Equity 211,528 211,022
$878,482 $888,969
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
Feb. 3, 2001 Jan. 29, 2000
Net Sales $234,685 $198,455
Costs and Expenses
Cost of sales 195,031 162,335
Selling and administrative 14,103 11,991
Amortization of intangibles 2,050 1,139
211,184 175,465
Operating Earnings 23,501 22,990
Interest 7,141 3,714
Distributions on
preferred securities of
Spartech Capital Trust 2,562 813
Earnings Before Income Taxes 13,798 18,463
Income Taxes 5,243 7,296
Net Earnings $ 8,555 $ 11,167
Net Earnings Per Common Share:
Basic $ .32 $ .41
Diluted $ .32 $ .39
Dividends Per Common Share $ .095 $ .085
See accompanying notes to consolidated financial statements.
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited and dollars in thousands)
QUARTER ENDED
Feb. 3, 2001 Jan. 29, 2000
Cash Flows from Operating Activities
Net earnings $ 8,555 $ 11,167
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 9,065 6,673
Change in current assets and
liabilities (3,264) (19,970)
Other, net (402) 1,142
Net cash provided by (used for)
operating activities 13,954 (988)
Cash Flows from Investing Activities
Capital expenditures (5,411) (6,489)
Business Acquisitions - (4,893)
Retirement of assets 249 3
Net cash used for investing activities (5,162) (11,379)
Cash Flows from Financing Activities
Bank Borrowings for Business Acquisitions - 4,893
Net borrowings (payments) on revolving
credit facilities 206 11,233
Payments on bonds and leases (669) (1,442)
Cash dividends on common stock (2,530) (2,346)
Stock options exercised 521 2,061
Treasury stock acquired (4,987) (4,877)
Net cash (used for) provided by
financing activities (7,459) 9,522
Effect of exchange rate changes on cash
and equivalents (101) (25)
Increase (Decrease) In Cash and Equivalents 1,232 (2,870)
Cash and Equivalents At Beginning Of Period 10,495 8,890
Cash and Equivalents At End Of Period $ 11,727 $ 6,020
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
28, 2000 Annual Report on Form 10-K.
Our fiscal year ends on the Saturday closest to October 31. Fiscal year
2001 will include 53 weeks compared to 52 weeks in 2000. As a result, the first
quarter ended February 3, 2001 consists of 14 weeks, compared to the 13-week
first quarter ended January 29, 2000. 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 February 3, 2001 and October 28, 2000 are comprised of
the following components:
2001 2000
Raw materials $ 58,719 $ 55,253
Finished goods 41,938 39,877
$ 100,657 $ 95,130
NOTE C - Cash Flow Information
Supplemental information on cash flows and noncash transactions for the
quarter ended February 3, 2001 and January 29, 2000 is as follows:
2001 2000
Cash paid for:
Interest $ 7,012 $ 2,126
Income taxes $ 377 $ 348
SPARTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and dollars in thousands, except per share amounts)
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. The
reconciliation of Net Earnings to Comprehensive Income for the quarters ended
February 3, 2001 and January 29, 2000:
QUARTER ENDED
Feb. 3, 2001 Jan. 29, 2000
Net Earnings $ 8,555 $ 11,167
Foreign currency translation
adjustments 762 366
Cash flow hedge adjustments (1,976) -
Total Comprehensive Income $ 7,341 $ 11,533
Note E - Segment Information
Spartech's fifty-one facilities are organized into three reportable segments
based on the nature of the products manufactured.
Quarter Ended
Ne Feb. 3, 2001 Jan. 29, 2000
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Extruded Sheet & Rollstock $ 152,660 $ 124,039
Color & Specialty Compounds 55,944 55,723
Molded & Profile Products 26,081 18,693
To $ 234,685 $ 198,455
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Extruded Sheet & Rollstock $ 16,668 $ 14,655
Color & Specialty Compounds 6,187 6,923
Molded & Profile Products 2,372 2,090
Corporate/Other (1,726) (678)
To $ 23,501 $ 22,990
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Note F - Recently Issued Accounting Standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, and SFAS
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, was effective for the Company as of October 29, 2000. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at fair value and that the changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. On November 8,
2000, the Company entered into an interest rate swap as a hedge of $125,000 of
variable rate credit facilities. As of February 3, 2001, the Company has
recorded approximately $2.0 million as a liability and a reduction of
comprehensive income reflecting the reduction in value related to the decline in
interest rates since the interest rate swap's inception.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The Company's fiscal year ends on the Saturday closest to October 31.
Fiscal year 2001 will include 53 weeks compared to 52 weeks in 2000. As a
result, the first quarter ended February 3, 2001 consists of 14 weeks, compared
to the 13-week first quarter ended January 29, 2000. The operating results
presented below include discussions on a percentage of sales basis for more
meaningful comparisons.
Net sales for the first quarter ended February 3, 2001 increased by 18% to
$234.7 million, as compared to $198.5 million during the first quarter last year
primarily due to the new volume from our two fiscal 2000 acquisitions coupled
with the benefit of the additional week in this year's first quarter. The
Company's fiscal 2001 first quarter operating earnings were $23.5 million, up 2%
compared to the $23.0 million reported for the same quarter last year. First
quarter 2001 net earnings were $8.6 million, or $0.32 per diluted share,
compared to the $11.2 million, or $0.39 per diluted share, reported in 2000.
Net sales of the Custom Sheet & Rollstock segment increased to $152.7
million. Strong packaging volume, along with new business from recent
acquisitions and an additional week's activity, more than offset slowdowns in
the transportation and building & construction markets and West Coast production
problems related to the California energy situation. Net sales of the Color &
Specialty Compound segment approximated last year's volumes, despite an
additional week's activity, principally due to its greater level of business
with the weak automotive market. The Molded & Profile Products segment
benefited from the fiscal year 2000 acquisitions of Alshin Corporation and the
Townsend operation of High Performance Plastics, Inc. Sales for this group were
up 40% to $26.1 million as compared to $18.7 million in the first quarter last
year.
Cost of sales increased 20% to $195.0 million for the quarter ended
February 3, 2001, compared with $162.3 million for the first quarter 2000, but
increased to 83.1% of net sales for 2001 from 81.8% for 2000. The less favorable
cost of sales percentage in 2001 primarily relates to an increase in resin
prices.
Selling and administrative expenses of $14.1 million for the first quarter
of 2001 increased when compared to $12.0 million for the first quarter of 2000,
but remained at 6.0% of net sales.
Operating earnings for the quarter ended February 3, 2001 were $23.5
million (10.0% of net sales) compared to $23.0 million (11.6% of net sales) for
the corresponding period in 2000. The increase in operating earnings was
achieved through the increased sales levels, the additional week in the first
quarter 2001 and increase in sales of higher margin Alloy Plastics. The
reduction of operating earnings as a percentage of net sales represents the
affect of costs related the California brownouts, the impact of higher resin
prices passed through in the sales price that lowers our margin percentage, and
the affect of competitive pricing due to the economic slowdown in certain
markets.
Interest expense and distributions on preferred securities of $9.7 million
for the quarter ended February 3, 2001 increased from $4.5 million for the same
period in 2000 primarily as a result of borrowings related to the acquisitions
completed in 2000, the extra week, and an increase in working capital due to the
increase in resin costs.
Our effective tax rate was 38.0% for the first quarter of 2001 compared to
39.5% in 2000 reflecting an improvement in our combined state tax rate.
Environmental and Inflation
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 2001.
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 its operating activities, invest in capital improvements, and
finance strategic acquisitions. Cash flows for the periods indicated are
summarized as follows:
First Quarter
2001 2000
(Dollars in millions)
Net cash provided by (used for)
operating activities $ 14.0 $ (1.0)
Net cash used for
investing activities $ (5.2) $ (11.4)
Net cash (used for) provided by
financing activities $ (7.5) $ 9.5
Increase (Decrease) in cash
and equivalents $ 1.2 $ (2.9)
Operating cash flow provided by net earnings decreased 23% to $8.6 million.
Operating cash flows provided by changes in accounts receivable totaled $16.4
million due to seasonally lower sales in the first quarter. Operating cash
flows used for changes in inventory totaled $5.3 million due the typical
transition to what is traditionally our highest sales level in the second
quarter of our fiscal year. Operating cash flows used for changes in accounts
payable totaled $11.7 due to conversion of some significant resin purchases to
more favorable discounting terms.
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 quarter ended February 3, 2001
were $5.4 million as compared to $6.5 million for the first quarter of 2000. We
anticipate total capital expenditures of approximately $19 million for fiscal
2001.
The cash flows used for financing activities was $7.5 million for the first
quarter of 2001. The primary activity was the net bank repayments of $.5
million, cash dividend payments of $2.5 million, and treasury stock purchases,
net of option proceeds, of $4.5 million.
Financing Arrangements
On November 8, 2000 the Company entered into an interest rate swap for $125
million of its fixed LIBOR loans outstanding. Under the swap arrangement, the
Company's LIBOR rate is fixed at 6.48%, plus the borrowing margin, for a period
of two years.
We anticipate that cash flow from operations, together with the financing
and borrowings under our bank credit facility, will satisfy our working capital
needs, regular quarterly dividends, and planned capital expenditures for the
next year.
Other
The information presented herein contains certain forward-looking
statements, defined in Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements represent our judgement relating to, among other
things, future results of operations, growth plans, sales, capital requirements
and general industry and business conditions applicable to us. They are based
largely on our current expectations. Our actual results could differ materially
from the information contained in the forward-looking statements due to a number
of factors, including changes in the availability and cost of raw materials,
changes in the economy or the plastics industry in general, other unanticipated
events that may prevent us from competing successfully in existing or new
markets, and our ability to manage our growth effectively. Investors are also
directed to the discussion of risks and uncertainties associated with forward-
looking statements contained in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
PART II - OTHER INFORMATION
Item 6 (a). Exhibits
11 Statement re Computation of Per Share Earnings
Item 6 (b). Reports on Form 8-K
None
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: March 13, 2001 ________/s/Bradley B. Buechler
Bradley B. Buechler
Chairman, President and Chief
Executive Officer
(Principal Executive Officer)
________/s/ Randy C. Martin____ ____
Randy C. Martin
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)