SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 TO CURRENT REPORT ON FORM 8-K Filed with the Securities and Exchange Commission on November 14, 1994. Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) November 1, 1994 SPARTECH CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 1-5911 43-0761773 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 7733 Forsyth Boulevard, Suite 1450, Clayton, Missouri 63105 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(314) 721-4242 SPARTECH CORPORATION FORM 8-K/A AMENDMENT NO. 1 This amendment to Form 8-K, filed with the Securities and Exchange Commission on November 14, 1994, is submitted to file certain financial statements and Pro forma financial statements concerning Spartech Corporation's November 1, 1994 acquisition of Pawnee Industries, Inc's ("Pawnee") Extrusion and Color Divisions. Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired. (i) The Extrusion and Color Divisions of Pawnee Industries, Inc. audited balance sheet as of September 30, 1994, and the related consolidated statements of operations, equity and cash flows for the year then ended. (b) Pro Forma Financial Information. (i) Spartech Corporation Pro forma consolidated balance sheet as of October 29, 1994 and Pro forma consolidated statement of operations for the fiscal year ending October 29, 1994. (2) SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. SPARTECH CORPORATION Date 01/13/95 By /s/ David B. Mueller David B. Mueller Vice President of Finance and Chief Financial Officer (3) EXTRUSION AND COLOR DIVISIONS OF PAWNEE INDUSTRIES, INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1994 TOGETHER WITH AUDITORS' REPORT REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Extrusion and Color Divisions of Pawnee Industries, Inc.: We have audited the accompanying consolidated balance sheet of the Extrusion and Color Divisions of Pawnee Industries, Inc., as of September 30, 1994, and the related consolidated statements of operations, equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Extrusion and Color Divisions of Pawnee Industries, Inc. as of September 30, 1994, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. Arthur Andersen LLP St. Louis, Missouri December 20, 1994 EXTRUSION AND COLOR DIVISIONS OF PAWNEE INDUSTRIES, INC. CONSOLIDATED BALANCE SHEET - SEPTEMBER 30, 1994 ASSETS CURRENT ASSETS: Cash $ 2,676 Accounts receivable, less allowance for doubtful accounts of $104,596 6,689,514 Inventories 3,203,165 Notes receivable 66,653 Prepaid expenses 61,476 Total current assets 10,023,484 PROPERTY, PLANT AND EQUIPMENT: Land 188,467 Buildings and improvements 1,856,916 Machinery and equipment 15,470,499 Transportation equipment 120,536 Furniture and fixtures 390,695 18,027,113 Less - Accumulated depreciation (11,537,469) 6,489,644 OTHER ASSETS 17,621 Total assets $ 16,530,749 LIABILITIES AND EQUITY CURRENT LIABILITIES: Accounts payable $ 6,126,896 Accrued liabilities 723,630 Total current liabilities 6,850,526 INVESTMENT BY PAWNEE INDUSTRIES, INC. 9,680,223 Total liabilities and equity $ 16,530,749 The accompanying notes are an integral part of this financial statement. EXTRUSION AND COLOR DIVISIONS OF PAWNEE INDUSTRIES, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1994 NET SALES $ 59,163,821 COST OF SALES 52,760,840 Gross profit 6,402,981 OPERATING EXPENSES: Warehouse 1,311,971 Shipping 1,975,456 Selling 1,606,728 General and administrative 1,498,317 Other 1,253,167 7,645,639 Operating loss (1,242,658) INTEREST INCOME/(EXPENSE): Interest income 41,117 Interest expense (818,927) (777,810) PROVISION FOR INCOME TAXES 0 Net loss $ (2,020,468) The accompanying notes are an integral part of this financial statement. EXTRUSION AND COLOR DIVISIONS OF PAWNEE INDUSTRIES, INC. CONSOLIDATED STATEMENT OF EQUITY FOR THE YEAR ENDED SEPTEMBER 30, 1994 INVESTMENT BY PAWNEE INDUSTRIES, INC., September 30, 1993 $ 10,228,035 Net Loss (2,020,468) Advance from Pawnee Industries, Inc. 1,472,656 INVESTMENT BY PAWNEE INDUSTRIES, INC., September 30, 1994 $ 9,680,223 The accompanying notes are an integral part of this financial statement. EXTRUSION AND COLOR DIVISIONS OF PAWNEE INDUSTRIES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,020,468) Adjustments to reconcile net loss to net cash used in operating activities- Depreciation 1,498,735 Change in assets and liabilities- Accounts receivable (369,440) Inventory 2,163,611 Current assets (120,010) Accounts payable (2,172,706) Accrued liabilities (22,258) Net cash used in operating activities (1,042,536) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (722,495) Retirement of assets, net 292,271 Net cash used in investing activities (430,224) CASH FLOWS FROM FINANCING ACTIVITIES: Advances from Pawnee 1,472,656 Net increase (decrease) in cash (104) CASH, beginning of year 2,780 CASH, end of year $ 2,676 The accompanying notes are an integral part of this financial statement. EXTRUSION AND COLOR DIVISIONS OF PAWNEE INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1994 1. BASIS OF PRESENTATION AND ORGANIZATION: Basis of Presentation The accompanying consolidated financial statements include the Extrusion and Color Divisions of Pawnee Industries, Inc. (the Company). Because the Company's operations were substantially conducted through divisions of Pawnee Industries, Inc. (Pawnee), the Company had no separately identifiable equity other than an amount equal to its net assets captioned as "Investment by Pawnee Industries, Inc." All significant intercompany balances and transactions have been eliminated in consolidation. Organization The Company's Extrusion Division manufactures and sells extruded rigid plastic sheet and rollstock produced from various plastic resins. The Company's Color Division formulates, manufactures and sells color compounds, concentrates and additives used in the manufacture of plastics products. The Company's products are sold primarily to manufacturers for applications in the recreation, transportation, and other consumer product industries. These customers are located throughout the United States with concentrations of customers in Texas, Kansas, Ohio, and surrounding states in those areas. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Inventories Inventories are stated at the lower of last-in, first-out (LIFO) cost or net realizable value. Property, Plant and Equipment Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Revenue Recognition The Company manufactures products for specific customer orders and for standard stock inventory. Revenues are recognized and billings are rendered as the product is shipped to the customer. Research and Development The cost of research and product development is charged to expense as incurred. Such costs have not been significant. Corporate Allocations Pawnee allocated corporate costs to each division based upon the individual division's gross revenues. These costs are considered appropriate for each division and in the opinion of management, the method of allocation is reasonable. Income Taxes Pawnee is in a net operating loss position and no tax benefit was allocated to the divisions. 3. INVENTORIES: Inventories at September 30, 1994, consist of the following: Raw material and purchased parts $ 3,889,776 Work in process and finished goods 608,672 Supplies 123,203 4,621,651 Reserve for LIFO (1,418,486) Total inventories $ 3,203,165 4. LONG-TERM DEBT: The Company did not receive debt allocations from Pawnee, however, interest expense is allocated based upon the average investment by Pawnee multiplied by the average interest rate on Pawnee's debt. 5. LEASE COMMITMENTS: The Company leases certain buildings, vehicles and equipment. Net rental expense pursuant to all operating leases for the year ended September 30, 1994, was $238,832. The aggregate minimum annual rental payments for noncancelable operating leases as of September 30, 1994, are as follows: 1995- $100,709; 1996-$3,605; 1997-$672; 1998-$672; and 1999-$672. 6. EMPLOYEE BENEFIT PLANS: Pawnee has a 401(k) thrift plan which covers substantially all officers and employees of the Company. Provisions of the plan allow the Company to contribute up to 4% of the employee's actual monthly compensation. The amount provided for contributions for the year ended September 30, 1994 was $142,486. 7. SUBSEQUENT EVENT: On November 1, 1994, Spartech Corporation acquired the Company. The purchase included the Extrusion Divisions, located in Wichita, Kansas and Paulding, Ohio, along with the Color Division, located in Goddard, Kansas. The purchase price for the Company's net assets, exclusive of working capital purchased, totaled $15,000,000, subject to post-closing adjustments. In addition, Spartech Corporation paid approximately $11,000,000 for working capital assets (inventory and receivables). SPARTECH CORPORATION PRO FORMA FINANCIAL STATEMENTS SPARTECH CORPORATION PRO FORMA FINANCIAL STATEMENTS On November 1, 1994, Spartech Corporation (the "Company") completed the acquisition of Pawnee Industries, Inc.'s ("Pawnee") Extrusion and Color Divisions. The following statements represent the unaudited Pro forma consolidated condensed balance sheet as of October 29, 1994 and the unaudited Pro forma consolidated condensed statement of operations for the fiscal year ended October 29, 1994. The Pro forma consolidated condensed balance sheet was prepared under the assumption that the acquisition occurred on October 29, 1994, while the Pro forma consolidated condensed statement of operations assume that the acquisition occurred at the beginning of the period presented. SPARTECH CORPORATION PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET OCTOBER 29, 1994 (Unaudited and dollars in thousands, except per share amounts) Pawnee Extrusion & Spartech Color Corporation Divisions Pro Forma Consolidated (Historical) (Historical) Adjustments Pro Forma ASSETS Current Assets Cash $ 1,752 $ - $ - $ 1,752 Accounts and notes receivable, net 40,493 6,756 - 47,249 Inventories 22,936 3,081 1,418 B 26,635 (800)A Prepayments and other 1,112 161 - 1,273 Total current assets 66,293 9,998 618 76,909 Property, plant & equipment 70,429 17,233 (5,148) 82,514 Accumulated depreciation (23,773) (10,952) 10,952 (23,773) Property, plant & equipment, net 46,656 6,281 5,804 A 58,741 Goodwill 21,044 - 3,400 A 24,444 Other assets 1,727 - - 1,727 $135,720 $ 16,279 $ 9,822 $161,821 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current maturities of long-term debt $ 2,750 $ - - $ 2,750 Accounts payable 28,403 6,028 (6,028)C 28,403 Accrued liabilities 8,789 926 300 A 10,015 Total current liabilities 39,942 6,954 (5,728) 41,168 Senior long-term debt, less current maturities 26,285 - 24,875 A 51,160 9% Convertible subordinated debentures 10,134 - - 10,134 Other liabilities 1,126 - - 1,126 Total long-term liabilities 37,545 - 24,875 62,420 Shareholders' equity 6% Cumulative convertible preferred stock, 776,700 shares issued and outstanding ($50 per share liquidation value) 777 - - 777 Common stock, 8,629,947 shares issued 6,472 - - 6,472 Contributed capital 74,438 - - 74,438 Retained deficit (23,449) 9,325 (9,325)A (23,449) Treasury stock, at cost, 1,324 shares (5) - - (5) Total shareholders' equity 58,233 9,325 (9,325) 58,233 $135,720 $ 16,279 $ 9,822 $161,821 The accompanying notes are an integral part of the pro forma consolidated condensed financial statement. A- See the accompanying notes to the pro forma consolidated condensed financial statements - Basis of Presentation B- Amount represents LIFO inventory reserve recorded by Pawnee. The amount is added back into inventory since Spartech values its inventory at the lower of cost (first-in, first-out) or market. C- Pawnee's accounts payable were not assumed by Spartech. SPARTECH CORPORATION <CAPTIONS> PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED OCTOBER 29, 1994 (Unaudited and dollars in thousands, except per share amounts) Pawnee Extrusion & Spartech Color Corporation Divisions Pro Forma Consolidated (Historical) (Historical) Adjustments Pro Forma Revenues $256,593 $ 61,565 - $318,158 Costs and expenses Costs of sales 216,417 56,463 (1,220)A 270,560 (900)B (200)C Selling and administrative 19,344 4,305 (1,450)D 22,336 137 E Depreciation and amortization 4,422 1,697 (797)F 5,407 85 F 240,183 62,465 (4,345) 298,303 Operating earnings 16,410 (900) 4,345 19,855 Interest 3,125 - 1,600 G 4,725 Earnings before income taxes 13,285 (900) 2,745 15,130 Provision for income taxes 2,450 - 350 H 2,800 Net earnings 10,835 (900) 2,395 12,330 Preferred stock accretion (2,133) - - (2,133) Net earnings applicable to common shares $ 8,702 $ (900) $ 2,395 $ 10,197 Net earnings per common share: Primary $ 0.97 $ 1.14 Fully diluted $ 0.46 $ 0.53 Weighted average shares outstanding: Primary 8,985,000 8,985,000 Fully diluted 23,434,000 23,434,000 The accompanying notes are an integral part of the pro forma consolidated condensed financial statement. A- See the accompanying notes to the pro forma consolidated condensed financial statements - Cost of Sales B- Spartech has estimated that it will receive material cost savings of approximately $900 due to Spartech's substantial buying power of plastic resins used in the manufacture of rigid sheet and rollstock. C- Subsequent to the acquisition, Spartech has merged and/or eliminated production functions, saving the Company approximately $200 in salary and fringes. D- See the accompanying notes to the pro forma consolidated condensed financial statements - Centralized Corporate Office E- See the accompanying notes to the pro forma consolidated condensed financial statements - Fixed Asset Sale F- See the accompanying notes to the pro forma consolidated condensed financial statements - Depreciation and Amortization G- See the accompanying notes to the pro forma consolidated condensed financial statements - Interest Expense H- See the accompanying notes to the pro forma consolidated condensed financial statements - Income Taxes SPARTECH CORPORATION NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited and dollars in thousands) Basis of Presentation Spartech Corporation's (the "Company") historical amounts shown for the consolidated condensed balance sheet as of October 29, 1994 and for the consolidated condensed statement of operations for the fiscal year ended October 29, 1994 represent its audited results for that period. Pawnee's Extrusion and Color Divisions' historical amounts shown for the consolidated condensed balance sheet as of October 29, 1994 and for the consolidated condensed statement of operations for the fiscal year ended October 29, 1994 represent its unaudited results for those periods. The acquired assets of Pawnee's Extrusion and Color Divisions have been recorded at their estimated fair market values or net realizable values with the excess purchase price over the fair market values and net realizable values recorded as goodwill. The purchase price for Pawnee's assets totaled approximately $26 million (subject to post-closing adjustments), approximately $11 million of which represented the purchase of working capital assets, accounts receivable and inventory. Approximately $24,875 of this purchase price was paid in cash, while the remaining balance represented primarily employee related liabilities assumed by Spartech of approximately $926 and accrued transaction costs estimated to be $300. The cash portion of the purchase price was financed through the Company's amended credit arrangement with Chemical Bank and was recorded as a Pro forma adjustment to the consolidated condensed balance sheet as senior long-term debt. Pawnee's equity has been eliminated through a Pro forma adjustment since the acquisition was an asset purchase. Cost of Sales Pawnee's historical financial statements included an obsolete inventory adjustment of $1,220 during the fiscal year ended October 29, 1994. Spartech has adjusted Pawnee's inventory value to its net realizable value and does not anticipate such adjustments in the future. Centralized Corporate Office Prior to the acquisition, Pawnee maintained a centralized corporate office designed to fully support its operations. Subsequent to acquisition, the Company merged or eliminated several of the office functions, thereby reducing salary and overhead expenses. The pro forma consolidated condensed statement of operations for the fiscal year ended October 29, 1994 reflects reductions in selling and administrative expenses related to these items of $1,450. SPARTECH CORPORATION NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited and dollars in thousands) Fixed Asset Sale The pro forma consolidated condensed statement of operations for the fiscal year ended October 29, 1994 reflects the elimination of the gain recorded by Pawnee during fiscal year 1994 on the sale of fixed assets of $137. Depreciation and Amortization The pro forma consolidated condensed statement of operations for the fiscal year ended October 29, 1994 reflects a decrease of approximately $797 (over historical amounts recorded) in deprec- iation resulting from the write-down of property, plant and equip- ment to its estimated fair market value. The statements also include additional amortization expense of $85 incurred from the Goodwill purchased with this acquisition. Interest Expense The pro forma consolidated condensed statement of operations for the fiscal year ended October 29, 1994 reflects additional interest expense of $1,600 related to the debt incurred to finance the acquisition. The Company's average borrowing rate was approximately 6.5% during fiscal 1994. Income Taxes Income taxes have been provided on the incremental increase in income at a rate of approximately 18.5%, which represents the rate incurred by the Company for the fiscal year ended October 29, 1994.