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 MAY 5, 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 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 May 5, 2001:
COMMON STOCK, $.75 PAR VALUE PER SHARE 26,695,531
SPARTECH CORPORATION AND SUBSIDIARIES
INDEX
MAY 5, 2001
PART I. FINANCIAL INFORMATION PAGE
CONSOLIDATED CONDENSED BALANCE SHEET -
as of May 5, 2001 and October 28, 2000 3
CONSOLIDATED CONDENSED STATEMENT OF
OPERATIONS - for the quarter and six months
ended May 5, 2001 and April 29, 2000 4
CONSOLIDATED CONDENSED STATEMENT OF
CASH FLOWS - for six months ended
May 5, 2001 and April 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 13
SIGNATURES 14
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands, except share amounts)
ASSETS
MAY 5, 2001
(UNAUDITED) OCT. 28, 2000
CURRENT ASSETS
Cash and equivalents $ 9,396 $ 10,495
Receivables, net 144,701 143,733
Inventories 101,733 95,130
Prepayments and other 8,797 8,443
-------- --------
TOTAL CURRENT ASSETS 264,627 257,801
PROPERTY, PLANT AND EQUIPMENT 420,373 412,373
Less accumulated depreciation 114,689 100,752
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 305,684 311,621
GOODWILL 301,048 305,153
OTHER ASSETS 15,380 14,394
-------- --------
$886,739 $888,969
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 18,524 $ 18,667
Accounts payable 99,359 90,077
Accrued liabilities 34,539 38,016
-------- --------
TOTAL CURRENT LIABILITIES 152,422 146,760
-------- --------
LONG-TERM DEBT, LESS CURRENT MATURITIES 318,760 334,178
OTHER LIABILITIES 48,792 47,009
-------- --------
TOTAL LONG-TERM LIABILITIES 367,552 381,187
-------- --------
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 95,449 95,241
Retained earnings 139,763 126,149
Treasury stock, at cost, 1,371,492 shares
in 2001 and 1,203,456 shares in 2000 (28,897) (25,306)
Accumulated Other Comprehensive Income (10,589) (6,101)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 216,765 211,022
-------- --------
$886,739 $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 SIX MONTHS ENDED
MAY 5, APRIL 29, MAY 5, APRIL 29,
2001 2000 2001 2000
NET SALES $245,798 $256,660 $480,483 $455,115
-------- -------- -------- --------
COSTS AND EXPENSES
Cost of sales 203,092 210,724 398,123 373,059
Selling and administrative 15,074 14,495 29,177 26,486
Amortization of intangibles 2,040 1,578 4,090 2,717
-------- -------- -------- --------
220,206 226,797 431,390 402,262
-------- -------- -------- --------
OPERATING EARNINGS 25,592 29,863 49,093 52,853
Interest 6,702 5,058 13,843 8,772
Distributions on
preferred securities of
Spartech capital trusts 2,563 2,197 5,125 3,010
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES 16,327 22,608 30,125 41,071
Income Taxes 6,204 8,827 11,447 16,123
-------- -------- -------- --------
NET EARNINGS $ 10,123 $ 13,781 $ 18,678 $ 24,948
======== ======== ======== ========
NET EARNINGS PER COMMON SHARE:
Basic $ .38 $ .50 $ .70 $ .91
======== ======== ======== ========
Diluted $ .37 $ .47 $ .69 $ .86
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE $ .095 $ .085 $ .190 $ .170
======== ======== ======== ========
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
MAY 5, 2001 APRIL 29, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 18,678 $ 24,948
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 18,081 14,823
Change in current assets and
liabilities, net of effects of
acquisitions (4,926) (28,277)
Other, net 203 3,141
------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 32,036 14,635
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (8,568) (14,367)
Retirement of assets 448 65
Business Acquisitions - (216,304)
------- --------
NET CASH USED FOR INVESTING ACTIVITIES (8,120) (230,606)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank borrowings for business acquisitions - 216,304
Net borrowings (payments) on revolving
credit facilities (15,071) 15,068
Payments on bonds and leases (631) (1,316)
Debt issuance costs - (1,024)
Cash dividends on common stock (5,065) (4,701)
Stock options exercised 899 1,367
Treasury stock acquired (5,068) (9,092)
------- --------
NET CASH (USED FOR) PROVIDED BY
FINANCING ACTIVITIES (24,936) 216,606
------- --------
Effect of exchange rate changes on cash
and equivalents (79) 14
------- --------
(DECREASE) INCREASE IN CASH AND EQUIVALENTS (1,099) 649
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 10,495 8,890
------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 9,396 $ 9,539
======== ========
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 six months ended May 5, 2001 consists of 27 weeks,
compared to the 26 weeks in the six months ended April 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 May 5, 2001 and October 28, 2000 are
comprised of the following components:
2001 2000
Raw materials $ 61,194 $ 55,253
Finished goods 40,539 39,877
-------- --------
$101,733 $ 95,130
======== ========
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 May 5, 2001 and April 29, 2000 is as follows:
2001 2000
Cash paid for:
Interest $ 17,715 $ 10,913
======== ========
Income taxes $ 6,159 $ 13,107
======== ========
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 total comprehensive
income for the quarter and six months ended May 5, 2001 and April 29,
2000 was as follows:
QUARTER ENDED SIX MONTHS ENDED
MAY 5, APRIL 29, MAY 5, APRIL 29
2001 2000 2001 2000
Net Earnings $ 10,123 $ 13,781 $ 18,678 $ 24,948
Foreign currency
translation adjustments (1,220) (884) (458) (518)
Cash flow hedge adjustments (2,054) 0 (4,030) 0
------- ------- -------- --------
Total Comprehensive Income $ 6,849 $ 12,897 $ 14,190 $ 24,430
======= ======== ======== ========
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 facilities are organized into three reportable
segments based on the nature of the products manufactured.
QUARTER SIX MONTHS
ENDED
2001 2000 2001 2000
NET SALES*
Custom Sheet & Rollstock $162,880 $165,842 $315,540 $ 289,881
Color & Specialty Compounds 57,372 62,306 113,316 118,029
Molded & Profile Products 25,546 28,512 51,627 47,205
--------- --------- --------- ---------
TOTAL NET SALES $245,798 $256,660 $480,483 $ 455,115
========= ========= ========= ==========
OPERATING EARNINGS
Custom Sheet & Rollstock $ 18,583 $ 20,392 $ 35,251 $ 35,047
Color & Specialty Compounds 6,629 8,067 12,816 14,990
Molded & Profile Products 2,946 3,989 5,318 6,079
Corporate/Other (2,566) (2,585) (4,292) (3,263)
--------- --------- --------- ---------
TOTAL OPERATING EARNINGS $ 25,592 $ 29,863 $ 49,093 $ 52,853
========= ========= ========= ==========
* Excludes intersegment sales of $6,794 and $6,616 for the three
months ended May 5, 2001 and April 29, 2000, respectively, and $15,335
and $12,754 for the six months ended May 5, 2001 and April 29, 2000,
respectively.
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 May 5,
2001, the Company has recorded approximately $4.0 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 six months ended May 5, 2001 consists of 27
weeks, compared to the 26 weeks in the first six months ended April 29,
2000. The operating results presented below include discussions on a
percentage of sales basis for more meaningful comparisons.
Net sales were $245.8 million and $480.5 million for the quarter
and six months ended May 5, 2001, representing a 4% decrease and 6%
increase from the similar periods in 2000. Fiscal 2000 acquisitions
accounted for the increase during the first six months. The primary
reason for the decrease during the quarter was the reduction in resin
pricing impacting the sales price, offset partially by the positive
affect of sales for the companies acquired in fiscal 2000. Also during
the quarter, decreases for the slow down in the volume sold to the
automotive and manufactured housing markets were mostly offset with
changes in product mix to higher value products. The Company's fiscal
2001 second quarter and six-month operating earnings were $25.6 million
and $49.1 million compared to the $29.9 million and $52.9 million
reported for the same periods last year. Second quarter and six month
2001 net earnings were $10.1 million and $18.7 million, or $0.37 and
$0.69 per diluted share, compared to the $13.8 million and $24.9
million, or $0.47 and $0.86 per diluted share, reported in 2000.
Our Custom Sheet & Rollstock segment generated sales of $315.5
million during the first six months of 2001 up 9% compared to the
$289.9 million in the first six months of 2000 primarily due to the
fiscal 2000 acquisition of Uniroyal's HPP Group. Sales decreased 4%
for the Color & Specialty Compounds group to $113.3 million in the
first six months of 2001 due to its greater level of business with the
automotive industry. Our Molded & Profile Products group generated
$51.6 million in sales for the first six months of 2001 up 9% from the
prior year. This increase was primarily related to fiscal 2000
acquisitions.
Cost of sales increased to $398.1 million for the six months ended
May 5, 2001, compared with $373.1 million for the same period in 2000,
and increased to 82.9% of net sales for 2001 from 82.0% for 2000. Our
slightly less favorable cost of sales percentage in 2001 represents the
impact on productivity of weak demand in the transportation and
manufactured housing markets.
Selling and administrative expenses were $29.2 million for the six
months ended May 5, 2001 compared to $26.5 million for the similar
periods in 2000. On a percentage of net sales basis, selling and
administrative costs for the six months increased to 6.0% from 5.8% in
2000. Increased bad debt expense and the fiscal 2000 acquisitions were
the primary reasons for the increase.
Operating earnings for the six months ended May 5, 2001 were $49.1
million (10.2% of net sales) compared to $52.9 million (11.6% of net
sales) for the six months in 2000. The decrease in operating earnings
was primarily due to sluggish demand in the transportation and building
& construction markets and the increased bad debt expense.
Interest expense and Distributions on Preferred Securities
Distributions for the six months ended May 5, 2001 of $19.0 million
increased from $11.8 million for the same period in 2000 as a result of
borrowings related to the acquisitions completed in 2000.
Our effective tax rate was approximately 38.0% and 39.3% for the
six months ending May 5, 2001 and April 29, 2000 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 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 our operating activities, invest in
capital improvements, and finance strategic acquisitions. Our cash
flows for the periods indicated are summarized as follows:
SIX MONTHS
2001 2000
(Dollars in millions)
Net cash provided by
operating activities $ 32.0 $ 14.6
Net cash used for
investing activities $ (8.1) $(230.6)
Net cash (used for)provided by
financing activities $ (24.9) $ 216.6
(Decrease) Increase in cash and equivalents$ (1.1) $ .6
Operating cash flow provided by net earnings decreased 25.1% to $18.7
in the first half of 2001 compared to the corresponding period of the
prior year. Operating cash flows used for changes in working capital
totaled $4.9 million for the six months ended May 5, 2001 as compared
to $28.3 million in 2000. The larger fiscal 2000 working capital
increase was the result of several inventory pre-buys, increasing resin
prices and higher sales volume during that period.
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 May 5, 2001 and April 29, 2000
were $8.6 million and $14.4 million, respectively. We anticipate total
fiscal 2001 capital expenditures of less than $20 million. While this
amount is well under our $29.2 million incurred in fiscal 2000, it is
sufficient for all expected maintenance and operating enhancements
desired in 2001.
The cash flows used for financing activities were $24.9 million
for the first six months of 2001. The primary activity was the paydown
of bank borrowings of $15.7 million, cash dividend payments of $5.1
million, and purchases of treasury stock, net of options exercised, of
$4.2 million.
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 14, 2001,
Mr. Bradley B. Buechler was elected as a Director of the
Company with 25,704,964 votes for, 16,047 against, and
555,974 abstentions. Mr. Calvin J. O'Connor was also
elected as a director of the Company with 25,707,898
votes for, 13,023 against, and 555,974 abstentions. Mr.
Randy C. Martin was also elected as a Director of the
Company with 25,709,501 votes for, 11,510 against, and
555,974 abstentions. The Company's 2001 Stock Option
Plan was approved with 19,539,525 votes for, 5,261,281
against and 39,474 abstentions. Arthur Andersen LLP was
ratified as the Company's auditors with 26,178,778 votes
for, 61,521 against, and 16,979 abstentions.
ITEM 6 (A). EXHIBITS
4 Rights Agreement, dated as of April 2, 2001, between
the Company and Mellon Investor Services LLC, as Rights
Agent, which includes the form of Certificate of
Designations with respect to the Series Z
Preferred Stock as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to
Purchase Shares of Preferred Stock as Exhibit C 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.
11 Statement re Computation of Per Share Earnings
ITEM 6 (B). REPORTS ON FORM 8-K
A report on Form 8-K, dated April 5, 2001, the Special
Committee of the Company's Board of Directors declared
a dividend of one Preferred Share Purchase Right (a
"Right") for each outstanding share of our common
stock, par value $.75 per share. The dividend is
payable on April 13, 2001 to our stockholders of record
at the close of business on April 13, 2001. The Rights
are subject to the terms of a Rights Agreement dated
April 2, 2001 between the Company and Mellon Investor
Services LLC, as the Rights Agent. The Special
Committee adopted the Rights Agreement to assist the
Company in pursuing its long-term business strategies
and enhancing stockholder value, by protecting our
stockholders against unsolicited takeover efforts on
unfavorable terms. In general terms, the Rights
Agreement works by imposing a significant penalty upon
any person or group which acquires 15% or more of the
Company's outstanding common stock after April 2, 2001
without the approval of the Board of Directors
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: June 12, 2001 /S/ Bradley B. Buechler
Bradley B. Buechler
Chairman, President and Chief
Executive Officer
(Principal Executive
Officer)
Date: June 12, 2001 /S/ Randy C. Martin
Randy C. Martin
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)