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 1, 1997
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.)
7733 Forsyth Boulevard, Suite 1450, 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 February 1, 1997:
Common Stock, $.75 par value per share 26,348,004
SPARTECH CORPORATION AND SUBSIDIARIES
INDEX
February 1, 1997
PART I. FINANCIAL INFORMATION PAGE
CONSOLIDATED CONDENSED BALANCE SHEET -
as of November 2, 1996 and February 1, 1997 3
CONSOLIDATED CONDENSED STATEMENT OF
OPERATIONS - for the quarter ended
February 3, 1996 and February 1, 1997 4
CONSOLIDATED CONDENSED STATEMENT OF
CASH FLOWS - for quarter ended
February 3, 1996 and February 1, 1997 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION 12
SIGNATURES 13
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands, except share amounts)
ASSETS
Feb. 1, 1997 Nov. 2, 1996
(unaudited)
Current Assets
Cash and equivalents $ 4,685 $ 3,447
Receivables, net 66,176 63,025
Inventories 53,981 55,467
Prepayments and other 3,315 3,662
Total Current Assets 128,157 125,601
Property, Plant and Equipment 146,948 149,425
Less accumulated depreciation 34,593 37,063
Net Property, Plant and Equipment 112,355 112,362
Goodwill 46,348 45,919
Other Assets 2,100 2,362
$288,960 $286,244
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 995 $ 997
Accounts payable 40,178 37,316
Accrued liabilities 23,022 22,023
Due to Hamelin Group Inc. 9,701 -
Total Current Liabilities 73,896 60,336
Long-Term Debt, Less Current Maturities 97,471 104,877
Other Liabilities 5,198 5,966
Total Long-Term Liabilities 102,669 110,843
Shareholders' Equity
Common stock, 26,609,554 shares issued
in 1996 and 26,618,254 shares issued
in 1997 19,957 19,963
Contributed capital 90,708 90,395
Retained earnings 2,703 6,863
Treasury stock, at cost, 209,100 shares
in 1996 and 270,250 shares in 1997 (2,061) (2,781)
Cumulative translation adjustments 1,088 625
Total Shareholders' Equity 112,395 115,065
$288,960 $286,244
See accompanying notes to consolidated financial statements.
SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited and amounts in thousands, except per share data)
QUARTER ENDED
Feb. 3, 1996 Feb. 1, 1997
Net Sales $ 87,466 $113,387
Costs and Expenses
Cost of sales 74,473 95,308
Selling and administrative 5,603 6,864
Amortization of intangibles 198 325
80,274 102,497
Operating Earnings 7,192 10,890
Interest 1,101 1,910
Earnings Before Income Taxes 6,091 8,980
Income Taxes 2,305 3,502
Net Earnings $ 3,786 $ 5,478
Net Earnings Per Common Share:
Primary $ .16 $ .20
Fully diluted $ .16 $ .20
Weighted Average Number of Shares Used in
Computing Net Earnings per Common Share:
Primary 24,311 27,737
Fully diluted 24,375 27,748
Dividends Per Common Share $ .03 $ .05
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, 1996 Feb. 1, 1997
Cash Flows From Operating Activities
Net earnings $ 3,786 $ 5,478
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 1,626 2,824
Change in current assets and
liabilities (3,099) (3,134)
Other, net 157 1,103
Net cash provided by operating
activities 2,470 6,271
Cash Flows From Investing Activities
Capital expenditures (2,882) (2,861)
Final installment for Hamelin Acquisition - (9,701)
Retirement of assets 2 54
Net cash used for investing activities (2,880) (12,508)
Cash Flows From Financing Activities
Net borrowings (payments) on revolving
credit facilities (660) 7,500
Payments on bonds and leases - (82)
Cash dividends on common stock (701) (1,318)
Stock options exercised 209 627
Treasury stock acquired (336) (1,653)
Other, net - -
Net cash provided by (used for)
financing activities (1,488) 5,074
Effect of exchange rate changes on cash
and equivalents - (75)
Increase (Decrease) In Cash and Equivalents (1,898) (1,238)
Cash and Equivalents At Beginning Of Period 3,505 4,685
Cash and Equivalents At End Of Period $ 1,607 $ 3,447
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
The accompanying consolidated financial statements include the accounts of
Spartech Corporation and its wholly-owned subsidiaries (the "Company").
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 the Company's November 2, 1996 Annual Report on
Form 10-K.
The Company's fiscal year ends on the Saturday closest to October 31. Fiscal
year 1996 included 53 weeks compared to 52 weeks for fiscal 1997. As a result,
the first quarter ended February 3, 1996 consisted of 14 weeks, compared to the
13-week first quarter ended February 1, 1997. Operating results for the first
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 November 2, 1996 and February 1, 1997 are comprised of the
following components:
1996 1997
Raw materials $ 34,778 $ 36,838
Finished goods 19,203 18,629
$ 53,981 $ 55,467
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
quarter ended February 3, 1996 and February 1, 1997 is as follows:
1996 1997
Cash paid for:
Interest $ 187 $ 301
Income taxes $ 317 $ 154
NOTE D - Commitments and Contingencies
In February 1997, the Company settled the lawsuits against it and certain of
its Directors with the Company's former Chairman of the Board and Chief
Executive Officer. All claims under the lawsuit filed in 1992 with the United
States District Court for the Southern District of New York and the similar
lawsuit pending in the Circuit Court of St. Louis County, Missouri were resolved
with this settlement. The settlement terminated all disputes between the
respective parties and general releases were executed to prevent further action
on such disputes. The settlement was reflected in the Company's first quarter
financial statements and did not result in a net charge to earnings.
The Company currently has no litigation with respect to any environmental
matters.
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 1996 included 53 weeks compared to 52 weeks for fiscal 1997. As a result,
the first quarter ended February 3, 1996 consisted of 14 weeks, compared to the
13-week first quarter ended February 1, 1997. The operating results presented
below include discussions as a percentage of sales, and where indicated,
certain 1996 amounts have been adjusted to reflect a 13-week quarter for more
meaningful comparisons.
Net sales of $113.4 million for the first quarter ended February 1, 1997
increased 30% from the similar period in 1996 as a result of an increase in
pounds sold by the Company's Extruded Sheet & Rollstock Group and the effects of
the 1996 acquisitions of Portage Industries and the Hamelin Group Inc. The first
quarter 1997 net sales represent a 40% increase from 1996 sales, adjusted to
reflect a normal 13-week first quarter in 1996. This increase resulted from an
11% increase in overall pounds shipped and a 36% increase in net sales related
to the second half 1996 acquisitions, net of a 7% decline related to changes
in prices and mix of products sold in the period.
Net sales of the Extruded Sheet & Rollstock Group increased approximately 27%
for the quarter ended February 1, 1997 over the 1996 amount adjusted to a
13-week quarter. The increase in Extruded Sheet & Rollstock sales resulted from
a 13% increase in pounds shipped and a 21% increase in net sales related to the
second half 1996 acquisitions, net of a 7% decline related to changes in prices
and mix of products sold in the period. Net sales in the Color & Specialty
Compounds Group increased by 25% as compared to the 1996 amount adjusted to a
13-week quarter. The increase in Color & Specialty Compounds resulted from a 5%
increase in pounds shipped and a 31% increase in net sales related to the second
half 1996 acquisitions, net of a 11% decline related to changes in prices and
mix of products sold in the period. The Molded Products Group added
approximately $10.4 million in 1997 net sales.
Cost of sales increased 28% to $95.3 million for the quarter ended February 1,
1997, compared with $74.5 million for the same period of 1996, but decreased to
84.1% of net sales for 1997 from 85.1% for 1996. The more favorable cost of
sales percentage in 1997 represents an approximate 5% decline in overall raw
material prices and improved production efficiencies, partially offset by an
increase in depreciation as a result of capital expenditures incurred by the
Company during the last 12 months.
Selling and administrative expenses of $6.9 million for the first quarter of
1997 increased when compared to $5.6 million for the similar period in 1996 due
to the 1996 acquisitions. On a percentage of net sales basis, selling and
administrative costs for the quarter decreased to 6.1% in 1997 from 6.4% in
1996. The percentage decrease in 1997 was primarily a result of continued cost
containment efforts in 1997 and the effect of the increased sales volume on the
fixed portion of the costs.
Operating earnings for the quarter ended February 1, 1997 were $10.9 million
(9.6% of net sales) compared to $7.2 million (8.2% of net sales) for the
corresponding period in 1996. These gains in operating earnings were achieved
through the increased sales levels, improved production efficiencies, cost
containment efforts, and the declines in raw material prices, discussed above.
Interest expense of $1.9 million for the quarter ended February 1, 1997
increased from $1.1 million for the same period in 1996 as a result of
borrowings related to the Portage and Hamelin acquisitions completed in the last
half of 1996.
The Company's effective tax rate was 39.0% for the first quarter of 1997
compared to 37.8% in 1996. The increase reflects the impact of new tax
jurisdictions resulting from the 1996 acquisitions.
Environmental and Inflation
The Company is subject to various laws governing employee safety and federal,
state, & local laws, and regulations governing the quantities 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 does not anticipate that future
expenditures for the compliance with such laws and regulations will have a
material effect on its capital expenditures, earnings, or competitive position.
The plastic resins used by the Company in its production process are crude oil
or natural gas derivatives and are available from a number of domestic and
foreign suppliers. Accordingly, the Company's raw materials are only somewhat
affected by supply, demand and price trends of the petroleum industry;
pricing of the resins tends to follow its own supply and demand equation except
in periods of anticipated or actual shortages of crude oil or natural gas. The
Company is not aware of any trends in the petroleum industry which will
significantly affect its sources of raw materials in 1997.
The effects of inflation have not been significant on the overall operations
of the Company during the last few years. No material amount of the Company's
sales are made pursuant to fixed price, long-term contracts. The Company has
historically been successful in compensating for inflationary costs through
increased selling prices and/or increased productivity and related efficiencies.
The Company anticipates this trend will continue in the future.
Liquidity and Capital Resources
Cash Flow
The Company's primary sources of liquidity have been cash flows from operating
activities and borrowings from third parties. The Company's principal uses of
cash have been to support its operating activities, invest in capital
improvements, and finance strategic acquisitions. The Company's cash flows for
the periods indicated are summarized as follows:
First Quarter
1996 1997
(Dollars in millions)
Net cash provided by
operating activities $ 2.5 $ 6.3
Net cash used for
investing activities $(2.9) $ (12.5)
Net cash provided by (used for)
financing activities $(1.5) $ 5.1
The Company continues to generate strong cash flows from operations, resulting
from the 45% increase in net earnings in the first quarter 1997 compared to the
corresponding period of the prior year, net of the impact of changes in working
capital. Operating cash flows used for changes in working capital totaled $3.1
million in the quarter ended February 1, 1997, primarily as a result of the
increase in inventories to support future shipments.
The Company's 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 1,
1997 and February 3, 1996 were both $2.9 million. The Company anticipates total
capital expenditures of approximately $13.5 million for fiscal 1997, reflecting
an increase for additional equipment at the facilities acquired in 1996, which
will comprise over 50% of the 1997 budget. Also impacting the first quarter
1997 cash used for investing activities was the final payment, in late November
1996, on the Hamelin Group acquisition. The amount ($9.7 million) was reflected
as a current payable at fiscal year end November 2, 1996.
The cash flows provided by financing activities were $5.1 million for the
first quarter of 1997. The primary activity was the net borrowings of $7.5
million which included the impact of funding the $9.7 million final installment
due Hamelin in the first quarter 1997, net of $2.2 million of payments on the
revolving credit facility from operating cash flow generated in the quarter.
Financing Arrangements
In August 1995, the Company completed a $50 million private placement of
senior unsecured notes at a fixed rate of 7.21% and finalized a $40 million
unsecured bank credit facility. The acquisition of Portage in May 1996 was
funded by the bank credit facility. In September 1996, the Company completed a
simultaneous public offering of 3 million shares of common stock for $25.9
million in net proceeds and a $30 million private placement of 7.62% guaranteed
senior notes to finance the acquisition of Hamelin.
The Company anticipates that cash flow from operations, together with the
financing and borrowings under the Company's bank credit facility, will satisfy
its working capital needs, regular quarterly dividends, and planned capital
expenditures for the next year.
Other
The information presented herein contains certain forward-looking statements,
as defined in the Private Securities Litigation Reform Act (PSLRA) of 1995,
which are based on current expectations and are subject to risk and
uncertainties. The Company desires to take advantage of the "safe harbor"
provisions of the PSLRA by cautioning that numerous important factors, in some
cases have affected, and in the future could affect, the Company's actual
results and could cause its consolidated results to differ materially from those
expressed in or implied by the forward-looking statements or related
assumptions. Investors are directed to the discussion of risks and uncertainties
associated with forward-looking statements contained in the Company's 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
27 Financial Data Schedule
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 3, 1997 /s/ Bradley B. Buechler
Bradley B. Buechler
President and Chief
Executive Officer
(Principal Executive Officer)
/s/ Randy C. Martin
Randy C. Martin
Vice President - Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)