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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 1, 2003
Commission file number 1-5911
SPARTECH CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE
43-0761773
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
120 S. CENTRAL AVENUE; SUITE 1700, CLAYTON, MISSOURI 63105-1705
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 721-4242
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.75 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [X] NO [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $525,710,084 on May 3, 2003.
There were 29,351,907 total shares of common stock outstanding as of December
31, 2003.
Documents incorporated by reference
1) Portions of the 2003 Annual Report to Shareholders are incorporated by
reference into Parts I and II.
2) Portions of the Definitive Proxy Statement for the 2004 Annual Meeting of
Shareholders are incorporated by reference into Part III.
PART I
Item 1. BUSINESS
General
Spartech Corporation (the "Company"), together with its subsidiaries, is an
intermediary processor of thermoplastics. The Company converts base polymers,
or resins, from commodity suppliers into extruded plastic sheet & rollstock,
specialty film laminates, acrylic products, specialty plastic alloys, color
concentrates & blended resin compounds, and injection molded & profile extruded
products. Our products are sold to approximately 7,000 original equipment
manufacturers and other customers in a wide range of end markets. We operate 46
production facilities in North America and one in Europe, and are organized into
three reportable segments, based on the products we manufacture: Custom Sheet &
Rollstock; Color & Specialty Compounds; and Molded & Profile Products.
Custom Sheet & Rollstock sells its products to various manufacturers who use
plastic components in their industrial products. Our custom sheet and
rollstock is utilized in several end markets including food/medical
packaging, signs, spas, bathtubs & shower surrounds, burial vault liners,
automotive & recreational vehicle components, aircrafts, boats, security
windows, and refrigerators. The Company is North America's largest extruder
of custom rigid plastic sheet and rollstock, operating 26 facilities in the
United States, Canada, and Mexico under the names Spartech Plastics,
Spartech Polycast and Spartech PEP.
Color & Specialty Compounds sells custom designed plastic alloys, compounds,
color concentrates and calendered film for utilization by a large group of
manufacturing customers servicing the food/medical packaging, automotive
equipment, consumer electronics & appliances, roofing, wall coverings, and
other end markets. We produce and distribute these products from 14
facilities under the names Spartech Polycom, Spartech Color, and Spartech Vy-
Cal in the United States, Canada, Mexico and France.
Molded & Profile Products manufactures a number of proprietary items
including: thermoplastic tires and wheels for the medical, lawn & garden,
refuse container, and toy markets and window frames and fencing for the
building & construction market as well as other custom profile extruded and
acrylic products for a variety of industries. We manufacture these molded
and profile products from seven facilities in the United States and Canada
under the names Spartech Industries, Spartech Profiles, Spartech Townsend,
and Spartech Marine.
Spartech was incorporated in the State of Delaware in 1968, succeeding a
business which had commenced operations in 1960. Our principal executive office
is located at 120 South. Central Avenue, Suite 1700, Clayton, Missouri 63105-
1705. Our telephone number is (314) 721-4242. Our website address is
www.spartech.com.
Industry Overview
The intermediary processor segment of the plastics industry is fragmented,
with over 2,000 plastics processing companies many of which compete with us in
one or more of the following areas in which we operate:
* Sheet Extrusion - Plastic sheet is produced by forcing melted plastic
through a wide, flat die between polished or textured metal rollers and onto a
flat cooling bed for cutting to the desired width and length.
* Rollstock Extrusion - Similar to sheet extrusion, except that the
plastic is wound onto rolls rather than cut into flat pieces of a specific
length.
* Calendering - Plastic film is produced by drawing molten polymer
between two counter-rotating rollers under pressure.
* Cell Cast Acrylics - Acrylic sheet is produced by pouring a reactive
mixture of liquid monomers, additives and catalysts between two polished glass
sheets held together at a desired thickness, and allowing the mixture to
polymerize with time, heat, and pressure in an oven or water bath until solid.
* Specialty Compounding - Basic plastic resins are melted and mixed with
additives, fillers, or other plastics in order to impart specific properties
such as gloss, strength or moldability to the resulting mixture, which is
typically sold and shipped in pellet form.
* Color Concentrates - Basic plastic resins are melted and mixed with
pigments in order to produce colored pellets, which plastics compounders or
fabricators blend with natural color plastics to make products of desired
colors.
* Profile Extrusion - Products having a desired two-dimensional cross-
section, such as plastic fence rails or window frames, are produced by forcing
melted plastic through a die of various shapes, cooling it in air or in a water
bath, and cutting it to the desired length.
* Cast Acrylic Rods & Tubes - Rods are produced from reactive mixtures
similar to those used for cell cast acrylics by curing the mixture in a
vertical, tubular mold and then grinding and polishing the rod to the desired
length and diameter. Tubes are produced by curing a similar mixture against the
inside of a drum-shaped mold of the desired length and diameter while it
revolves on a horizontal axis.
* Injection Molding - Three-dimensional products such as wheels are formed
by forcing melted plastic into a mold cavity under pressure so that when cooled
the plastic reflects the shape of the cavity.
There are various other processes used within the plastics processing industry
in which we do not compete, such as film extrusion, continuous cast acrylics,
blown film, pipe and tube extrusion, thermoforming, blow molding and rotational
molding.
Each of these processing methods has unique competitive and economic
characteristics and involves different production capabilities, operating costs
and equipment and requires a different level of capital expenditure and
operating expertise.
A large percentage of the plastics processors in the United States are small to
mid-size regional operations that generate less than $50 million in annual
sales, and the industry is continuing to undergo consolidation. Current trends
contributing to this consolidation include:
* Greater focus on management transition issues by plastics entrepreneurs;
* The potential to achieve economies of scale and obtain revenue and fixed
cost synergies;
* Increased capital and technical capabilities necessary to increase
production efficiencies and expand capacity; and
* Customers seeking to deal with fewer suppliers.
Due to the size and breadth of our operations, we believe we are well
positioned to increase our business through new product developments, the
continuing substitution of thermoplastics for wood, metal and fiberglass
applications, and selective acquisitions.
Our Competitive Strengths
Our competitive strengths include:
* Market Position. According to the Plastics News Market Data Book, December
29, 2003, we are the largest producer of custom sheet and rollstock in North
America, and we are one of the leading producers of color and specialty
compounds in North America.
* New Product Development. Our diversity of product capabilities and
experienced operating personnel have provided a consistent means for
identifying and developing new product applications through both the use of our
proprietary Alloy Plastics and the acceleration of Product Transformation
ideas.
* Benefits from Acquisitions. We have completed 11 significant acquisitions
over the past five years. Our successful integration of these acquisitions
into our business has enabled us to achieve synergies and operating leverage
through:
- Greater geographic presence to service customers and respond to certain
concentrated markets;
- Centralized purchasing of raw materials and other cost synergies;
- Improved resource utilization through manufacturing optimization; and
- Greater absorption of fixed costs over an increased revenue base.
These factors enable us to broaden our product capabilities and enhance
customer service while maintaining our cost competitiveness
* Commitment to Customer Service. We seek to differentiate ourselves
from our
competitors by emphasizing our wide range of product offerings, consistent
product quality, outstanding customer service, and innovative technical
solutions for our customers.
* Diversified Customer Base. We sell our products to approximately 7,000
customers in a broad range of end markets, with no single customer
accounting for more than 4% of our 2003 sales. Our top 20 customers
represented 25% of our 2003 sales. Based on our classification of end
markets, packaging is our largest single market, accounting for
approximately 23% of our 2003 sales.
The packaging market generally experiences faster growth and less
cyclicality than the other major markets served by plastics processors.
* Geographic Presence. Our 47 plants are strategically located in 38 cities
throughout the North America and one city in France. The close proximity
of our plants to our customers saves shipping costs, reduces delivery
times and increases our presence in a variety of markets.
* Decentralized Management Structure. Our day-to-day operating decisions
are made at each of our operating locations. This promotes operating
efficiency, timely decision making and effective integration of the
businesses we acquire.
Due to the size and breadth of our operations, we believe we are well
positioned to increase our business through new product developments, the
continuing substitution of thermoplastics for wood, metal and fiberglass
applications, and selective acquisitions. We call our new products Alloy
Plastics and the substitution process Product Transformations, and additional
information regarding these items is covered in the Operating Philosophy section
that follows on the next page. Significant acquisitions completed over the last
five years are summarized below:
Date Acquired Business Acquired Products / Segments
January 1999 Lustro Plastics, Company Extruded Sheet &
L.L.C. Rollstock
May 1999 Alltrista Plastic Packaging Extruded Sheet &
Company Rollstock
Division of Alltrista
Corporation
October 1999 Accura Molding Company Ltd. Injection Molded
Products
October 1999 OS Plastics, Division of Extruded Sheet &
Innocan Rollstock
Capital Inc.
October 1999 Geoplast PVC Division of RAE Profile Products
Capital Corp.
December 1999 Allied Resinous Products, Extruded Sheet &
Inc. Rollstock
February 2000 Uniroyal Technology Extruded Sheet &
Corporation's Rollstock
High Performance Plastics and Cell Cast
Acrylic
October 2000 Alshin Tire Corporation Injection Molded
Products
June 2002 GWB Plastics Holding Co. Color & Specialty
Compounds
March 2003 Polymer Extruded Products Film & Extruded
Sheet
September 2003 TriEnda Division of Wilbert, Extruded Sheet &
Inc. Rollstock
In January 2004 we acquired the sheet extrusion assets of Quality Plastic
Sheet, LLC for a price of $2.0 million and entered into a long-term supply
contract with QPS' largest customer, representing approximately 6 million pounds
of business annually.
As a result of our acquisitions, we have been able to enhance our market
position, aggressively develop new and diverse products, achieve synergies and
operating leverage, expand our geographic presence into 47 plants in 39 cities,
and diversify our customer base, all of which help us to better serve our
customers by having the ability to offer them broader product capabilities while
being more cost-competitive.
Further information with respect to Spartech's recent acquisition activity is
set forth in Note (2) to the Consolidated Financial Statements on page 24 of the
2003 Annual Report to Shareholders, attached as Exhibit 13.
Our Operating Philosophy
We developed our current strategic vision in the early 1990's, as we began to
capitalize on our core manufacturing competencies and take advantage of the
growth opportunities in the consolidating plastics industry. Today, our
"Focused Growth" and "Continuous Improvement" strategies further support our
commitment to generate value for our customers, stockholders and employees.
Focused Growth Strategy-We call the initiatives under our focused growth
strategy the Four Cornerstones for Growth, which focuses on balanced revenue
growth both through internal means - new product developments, product
transformation initiatives and business partnerships - and through strategic
acquisitions and other new investments. The four elements of this growth
strategy are:
* Business Partnerships. We are committed to building business partnerships
that provide long-term growth opportunities and enhance customer
relationships. We regularly partners with customers and resin suppliers
to develop improvementsin order to offer custom engineered products
which have significantly contributed to strengthening our position in the
intermediary processor segment of the plastics industry. These partnerships
offer direct and indirect benefits
to us and our customers by broadening product lines, lowering the cost of
technological efforts, and expanding our opportunities in new markets. In an
effort to exceed customer expectations, we have designed several continuous
improvement initiatives such as the "Total Transaction Quality,"
"Growth Through Training" and "Total Customer Satisfaction" programs.
These programs involve customer contact and survey processes, ISO9000 and
QS9000 quality system certifications, customer training offerings, and
quality management reviews.
* Strategic Expansions. As a result of our size and breadth of operations,
we believe that we are well positioned for continued expansion
through selective acquisitions in the consolidating intermediary processor
of the plastics industry. In evaluating acquisition opportunities,
we target acquisition candidates that: (i) add complementary product
lines (with emphasis on
companies producing specialty or value-added thermoplastic products) or serve
new markets; (ii) increase geographic presence or market penetration;
and (iii) provide operational synergies in purchasing, production and
customer service.
In addition, trends and developments in the industry have promoted the
opportunity for outsourcing transactions whereby customers or other third
parties look to sell their non-core operations/equipment to intermediary
processors such as us to supply their plastics products. We have has also
expanded or constructed new facilities to increase our capacity for new market
growth.
* Product Transformations. Product Transformations are applications that
result from the ongoing transition of products previously manufactured from
traditional materials (such as wood, metal or fiberglass) into higher
performing and less expensive recyclable thermoplastics.
Product Transformations are a key element of our internal growth.
Since 1995, we have participated in over 300
Product Transformations. In 2003 alone, we completed 72 new Product
Transformations. A key element of our internal growth is the ongoing
transition of products previously made from wood, metal or fiberglass
to higher performing and less expensive recyclable thermoplastics.
The Company is the market leader in custom sheet and rollstock,
where the transformation process has been
accelerating. Sizable metal, glass and fiberglass specialty components are
being replaced by thermoplastics in the sign & advertising and transportation
markets. We utilize the experience of our sales and production personnel,
partnerships with suppliers, and relationships with customers to identify and
develop new applications for our products. Product Transformations have
been a key contributor to our internal growth rates. Penetration of plastics
into the appliance & electronics, automotive, building & construction,
recreation & leisure, and packaging markets continues to expand the
opportunities for Product Transformations.
* Alloy Plastics. We aggressively develop new proprietary products that
combine advanced-engineered thermoplastic compounds and additives with new
manufacturing techniques implemented by experienced operating personnel, which
we call "Alloy Plastics". Alloy Plastics represent advancements in
formulation and production technologies, such as the ability to extrude
new products that
combine the virtues of several polymers into a single sheet or to create new
specialty compounds by adding fillers such as talc, calcium carbonate
and glass fibers to base resins. All of our Alloy Plastics represent
new proprietary products which offer end-product manufacturers a variety
of solutions for the design of high performance and environmentally-
friendly products with cost efficient benefits.
Our Continuous Improvement Strategy-Our Continuous Improvement Strategy, under
our Pyramids of Performance initiatives, focuses Spartech on continuous
improvement in production efficiency, communication and accountability. The
three components of this strategy are:
* Pyramid of Productivity/Lean. Combines Supply Chain Management, Lean
Manufacturing, and Results-Driven Communication efforts to enhance earnings
through continuous improvements at each of our 47 operations. Over 120 cross-
functional teams throughout all our facilities work on generating productivity
improvements, eliminating waste and identifying process efficiencies.
Annually,
we recognize our five best "Champion Teams" at our Annual Awards Meeting.
* Pyramid of Communication. Focuses on the effective use of information
technology to drive business growth, improve customer satisfaction,
and enhance
shareholder relations. Our new Growth Focused Communication program was
implemented in 2000 to install the policy and procedure changes needed to
continually improve in the areas of (1) Customer, Sales, Marketing and
Manufacturing Information Integration, (2) Electronic Commerce and Product
Development Technology, (3) Enterprise-Wide Communication Systems, and (4)
Internet-Enabled Applications.
* Pyramid of Accountability. Stresses trust, performance, and responsibility
in order for us to be able to count on people to keep performance commitments
and communication agreements. The goal is to strengthen the Accountability
Culture through clear intentions, interlocking ownership, effective execution,
elimination of dysfunctional habits, responsive recovery, and measuring
results.
It is designed for everyone to achieve a level of awareness that the
business as a whole is more important than any single function or
level in the Company.
In addition to these Focused Growth and Continuous Improvement Strategies, we
recently implemented our Pillars of Leadership effort and our Creating Positive
Change initiative. Under our Pillars of Leadership effort, we are training
employees to be creative, decisive, and motivational. The Creating Positive
Change initiative relied upon these skills in implementing several phases to
improve certain aspects of our business and streamline our operations. These
phases included the closing of eleven operating facilities, the sale of three
molded & profile operating plants, and selling, general and administrative cost
reduction measures. We believe that our continuing Pillars of Leadership effort
and our Pyramid of Productivity teams will drive additional improvements and
positive changes in our operations and production process.
Operating Segments
We operate our 47 production facilities in North America and Europe in three
segments: Custom Sheet & Rollstock, Color & Specialty Compounds, and Molded &
Profile Products.
Custom Sheet & Rollstock-Net sales and operating earnings (consisting of
earnings before interest, taxes and corporate expenses) of the Custom Sheet &
Rollstock segment for fiscal years 2003, 2002 and 2001 were as follows:
Fiscal Year
2003 2002 2001
(in millions)
Net Sales $628.5 $600.5 $621.9
Operating Earnings $ 63.1 $ 62.3 $ 66.6
* Products. This segment, operating under the names Spartech Plastics,
Spartech Polycast and Spartech PEP, processes a variety of materials into
single/multilayer sheets or rollstock, cell cast acrylic and specialty film
laminates or acetates on a custom basis for end product manufacturers. The
segment's products are utilized in several end markets including packaging,
aerospace, transportation, building & construction, recreation, and
sign/advertising. Most of the segment's customers form, cut, stretch or trim
their plastic sheet for these various end uses.
* New Product Development. This segment is actively involved in the
development of Alloy Plastics. These products include engineered sheets and
rollstock using multiple layers of materials, often of different plastics and
often using proprietary mixtures of plastic compounds. They offer end-product
manufacturers a variety of solutions to design high performance (such as light
weight, weatherable, formable/shapeable, high gloss/non-painted and durable)
and
environmentally-friendly products with cost effective benefits. The Company
currently offers 44 such Alloy Plastics, nine of which were introduced
in April 2003.
* Manufacturing and Production. This segment operates 26 facilities in North
America. The principal raw materials used in manufacturing sheet and rollstock
are plastic resins in pellet form. We extrude a wide variety of plastic
resins,including ABS (acrylonitrile butadiene styrene), polycarbonate,
polypropylene, acrylic, PET (polyethylene terephthalate),
polystyrene, polyethylene, PVC
(polyvinyl chloride) and PETG (polyethylene terephthalate glycol).
Spartech Plastics produces extruded plastic sheet and rollstock of up to
seven layers using a multi-extrusion process. This process combines
materials in distinct layers as they are extruded through a die into sheet
form, providing improved and sometimes unique properties compared to single
layer extrusions. More than half of our plastic sheet is produced using
this multi-extrusion process. The remainder is produced in a single layer
using conventional extrusion processes. In some cases, we will coat a
plastic sheet or laminate sheets together to achieve performance
characteristics desired by our customers for particular applications.
Spartech Polycast manufactures acrylic products through cell cast
manufacturing, in more than 60 colors and in gauges ranging from 0.030 to
6.00 inches. Acrylic sheet manufactured by the cell cast process, which is
more labor intensive than continuous cast, extrusion or calender processes,
generally yields a product that is considered to have a higher quality than
acrylic sheet produced by other processes.
Spartech PEP manufactures weatherable film laminates and cellulose
specialty extruded products. Spartech PEP manufactures its weatherable
film laminates through an extruded film process which produces films as
thin as .0015 inches and as wide as ten feet, and cellulose specialty
products through a flat die casting process which produces films as thin as
.0075 inches and as wide as 60 inches. Certain cellulose products are then
pressed and polished using large hydraulic presses which produces
transparent sheeting of high optical quality.
* Marketing, Sales and Distribution. The custom sheet and rollstock
extrusion business has generally been a regional business supplying
manufacturers within an estimated 500 mile radius of each production facility.
This is due to shipping costs for rigid plastic material and the need for
prompt response to customer requirements and specifications. The cell cast
acrylic, outdoor sign, and spa markets, however, are more national in scope.
* We sell sheet and rollstock products principally through our own sales
force, but we also use a limited number of independent sales representatives.
During 2003, we sold products of the Custom Sheet & Rollstock segment to over
3,500 customers, including Sub-Zero Freezer Company, The ConAgra Brands, Inc.,
Jacuzzi Incorporated, Igloo Corporation, Textron, Inc. and Newell-Rubbermaid.
* Competition. The Custom Sheet & Rollstock processing segment is highly
competitive. Since the Company manufactures a wide variety of products, we
compete in different areas with many other companies. We compete generally on
the basis of price, product performance, and customer service. Important
competitive factors include the ability to manufacture consistently to
required quality levels, meet demanding delivery times, exercise skill in raw
material purchasing, achieve production efficiencies to process the products
profitably and provide new product solutions to customer applications.
Some of our primary competitors in the Custom Sheet & Rollstock segment
are CYRO Industries, Kama Corp., Primex Plastics Corporation, VPI, LLC,
and Klockner-Pentaplast of
America, Inc. We believe we compete effectively with these companies
in each of these key areas.
Color & Specialty Compounds-Net sales and operating earnings (consisting of
earnings before interest, taxes and corporate expenses) of the Color & Specialty
Compounds segment for fiscal years 2003, 2002 and 2001 were as follows:
Fiscal Year
2003 2002 2001
(in millions)
Net Sales $263.0 $235.7 $227.8
Operating Earnings $ 21.0 $ 25.7 $ 24.8
* Products - The Color & Specialty Compounds segment manufactures color
concentrates, proprietary or custom-designed plastic compounds, and calendered
film for a large group of manufacturing customers who produce consumer
appliance components, lawn & garden equipment, food & medical
packaging, vehicle components, and numerous other products. The segment
operates under three business names:
- Spartech Polycom produces its own line of proprietary compounds &
color concentrates and also provides toll compounding services for
engineered resins, flame retardants and other specialty compounds.
- Spartech Color, the largest color supplier in Canada, is focused on
service-oriented color concentrate applications for film and molding.
- Spartech Vy-Cal Plastics operates a vinyl calender, supplying finished
PVC film to manufacturers of such products as loose-leaf binders,
decorator-grade wall coverings, and packaging products for the medical industry.
Customers of the Color & Specialty Compounds segment range from major
integrated manufacturers to sole-proprietor subcontractors that use
injection molding, extrusion, blow molding and blown & cast film processes.
* New Product Development. This segment has well-equipped laboratory
facilities, particularly the Spartech Polycom Technical Center in Donora,
Pennsylvania. These laboratories operate testing and simulated end-use process
equipment as well as small scale versions of our production equipment to
ensure accurate scale-up from development to production. We create new
specialty compounds by adding fillers and other additives to the base resins,
in order to offer end-product manufacturers a variety of solutions for
the design of high-performance and environmentally-friendly products
on a cost-efficient basis.
In addition to compounding technology, the segment has developed
enhanced capabilities to produce color concentrates and additives.
The ReinForce GRPP(glass-reinforced polypropylene) product introduced
in 2001 was the first new product of the Color & Specialty Compound group
that was marketed as an Alloy Plastic.
* Manufacturing and Production. This segment operates 13 manufacturing
facilities in North America and one in Europe. The principal raw materials
used
in manufacturing specialty plastic compounds and color concentrates
are plastic
resins in powder and pellet form, primarily polypropylene, polyethylene,
polystyrene, ABS, TPO's, and PVC. We also use colorants, mineral and glass
reinforcements and other additives to impart specific performance and
appearance
characteristics to the compounds. The raw materials are mixed in a blending
process and then normally fed into an extruder and formed into pellets.
* Marketing, Sales and Distribution. The Company generates most of the Color
& Specialty Compounds segment's sales in the United States and Canada but also
sells to customers in Europe and Mexico. The Company sells the segment's
products principally through its own sales force, but also uses independent
sales representatives. During 2003, the Company sold products of the Color &
Specialty Compounds segment to over 2,100 customers, including the Solo Cup
Company, DaimlerChrysler, Igloo Corporation and Pactiv Corporation.
* Competition. The Color & Specialty Compounds processing segment is highly
competitive. We compete with some companies which are much larger than we are
and have more extensive production facilities, larger sales and
marketing staffs and substantially greater financial resources than we do.
We compete generally on the basis of price, product performance and customer
service. Important competitive factors in each of our businesses include
the ability to manufacture
consistently to required quality levels, meet demanding delivery times,
provide technical support, and achieve production efficiencies to process
the products profitably. Some of our primary competitors in the Color
& Specialty Compounds segment are Ampacet Corporation, AMETEK Westchester
Plastics, A. Schulman, Inc., Ferro Corp., PolyOne Corporation,
RheTech, Inc., and Washington Penn Plastic
Co., Inc. We believe we compete effectively with these companies in each of
these key areas.
Molded & Profile Products-Net sales and operating earnings (consisting of
earnings before interest, taxes, and corporate expenses) of the Molded and
Profile Products segment for fiscal 2003, 2002 and 2001 were as follows:
Fiscal Year
2003 2002 2001
(in millions)
Net Sales $64.6 $62.1 $87.4
Operating Earnings $ 5.4 $ 3.5 $ 8.6
* Products. Our Molded & Profile Products segment manufactures injection
molded and profile extruded products for a large group of intermediate and
end-user customers. The segment operates under four business names:
- Spartech Industries produces plastic tire and wheel assemblies for the
medical, lawn & garden, refuse container and toy markets, and high
performance
molded urethane tires for the medical, material handling, lawn & garden,
and
recreational product applications. We also produce various injection
molded and profile extruded products that complement the
wheels and tire offerings.
- Spartech Profiles manufactures products for various industries,
including
window frames and fencing for the building and construction markets.
- Spartech Marine specializes in the fabrication of acrylic and other custom
products used in high end marine applications.
- Spartech Townsend manufactures acrylic rods and tubes used primarily in
display, household and medical applications.
* New Product Development. This segment brings unique, recognized
capabilities to our customers such as patented tread-cap wheel technologies
and
special fabrication of profile products. In addition, this segment's
creativity,
engineering and design principles enable us to effectively respond to customer
needs in the niche markets in which we participate.
* Manufacturing and Production. This segment operates seven manufacturing
facilities in North America. The principal raw materials used in our
manufacturing of molded and profile products are acrylics, polyethylene,
polypropylene, and PVC. Our products in this segment are generally
manufactured either through injection molding or profile extrusion processes.
* Marketing, Sales and Distribution. Spartech Industries-Custom Engineered
Wheels operations markets its products throughout North America. Spartech
Profiles markets its custom profile products throughout North America.
Spartech Marine markets its fabricated acrylic products throughout
North America.
Spartech Townsend markets its acrylic rods and tubes throughout North America.
We sell the segment's products principally through our own sales force,
but also use independent sales representatives and wholesale distributors.
During 2003, we sold products of the Molded & Profile Products segment
to approximately 1,000 customers, including MTD Products, Honda, Invacare,
and Brentwood Industries.
* Competition. The Molded & Profile Products processing segment is highly
competitive and highly fragmented. Since we manufacture a wide variety of
products, we compete in different areas with many other companies,
some of which
are much larger than we are and have more extensive production facilities,
larger sales and marketing staffs and substantially greater financial
resources than we do. We generally compete on the basis of price,
product performance and customer service. Important competitive factors
in each of our businesses
include the ability to manufacture consistently to required quality levels,
meet demanding delivery times, and provide new product offerings.
Some of our primary competitors in the Molded & Profile Products
segment are Ace Products, Inc., Bunzl Extrusion, Inc., Kik Tire, Inc.,
Flex Technologies, Inc., Royal Group Technologies Limited,
and Trintex Corporation. We believe we compete effectively with these
companies in each of these key areas.
Raw Materials
We use large amounts of various plastic resins in our manufacturing
processes. These resins are crude oil or natural gas derivatives which are
available from a number of domestic and foreign suppliers. Our raw materials
are only somewhat affected by supply, demand and price trends in the petroleum
industry. However, trends in pricing, periods of anticipated or actual
shortages, and changes in supplier capacities can have more significant impact
on the cost of our raw materials over the short term. Price spikes in crude oil
and natural gas along with the political unrest in oil producing countries
resulted in unusually high pricing pressures during 2003. These pressures
resulted in dramatic increases in the prices of our raw materials. In prior
years, we were able to minimize the impact of such price increases in raw
material costs by controlling our inventory levels, increasing production
efficiencies, passing through price changes to customers and negotiating
competitive prices with our suppliers. Pricing changes through 2003 have been
more difficult for us to manage and have negatively affected our operating
margins in fiscal 2003. Resin pricing pressures started to ease by the end of
the second quarter of fiscal 2003 and continued to stabilize through the end of
2003, however, the volatility and direction of future pricing changes is
uncertain. We seek to maintain operating profit by matching cost increases with
corresponding price increases and have generally been successful in doing so.
We conduct business with most of the major resin manufacturers and have enjoyed
good relationships with such suppliers over the past several years. We have
been able to adequately obtain all of our required raw materials to date and
expects to be able to continue to satisfy our requirements in the foreseeable
future. Variability in pricing and changes in supply and demand of particular
resins at any given time are risks that we have to manage in maintaining our
operating profitability.
We manage our principal purchasing contracts through our corporate
headquarters in St. Louis, Missouri in order to realize the benefits of volume
purchasing and centralized management of the effects of supplier price changes
to be a low-cost producer for our customers. Since we are a custom manufacturer,
we do not typically hedge our purchases of materials, we build little product
for inventory, and we have a short backlog of orders at any point in time. We
have also implemented a centralized program to aggressively manage our inventory
levels. However, we will pre-purchase inventory when significant price
increases are predicted to manage the future impact of rising prices.
Seasonality
Our sales are somewhat seasonal in nature. Fewer orders are placed and less
manufacturing activity occurs during the November through January period. This
seasonal variation tends to track the manufacturing activities of our various
customers in each region.
Backlog
We estimate that the total dollar volume of our backlog as of November 1,
2003 and November 2, 2002 was approximately $92.9 million and $83.3 million,
respectively, which represents approximately five weeks of production for 2003
and 2002.
Employees
Our total number of employees is approximately 3,325. There are 2,615
production personnel at our 47 facilities, approximately 40% of whom are union
employees covered by several collective bargaining agreements. We consider our
employee relations to be good. Management personnel total approximately 710
supervisory/clerical employees, none of whom are unionized.
Government Regulation and Environmental Matters
The Company is subject to various laws governing employee safety and
environmental matters. The Company believes it is in material compliance with
all such laws. The Company is subject to federal, state, local and non-U.S.
laws and regulations governing the quantity 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
has not incurred significant expenditures in order to comply with such laws and
regulations. In September 2003, the New Jersey Department of Environmental
Protection Agency issued a directive and the United States Environmental
Protection Agency initiated an investigation related to over 70 companies,
including Spartech, regarding the Lower Passaic River. We expect that an
environmental study will be conducted to determine the extent and sources of
contamination at this site. We believe it is possible that the ultimate
liability from this issue could materially differ from the Company's $375,000
accrual as of November 1, 2003. In the event of one or more adverse
determinations related to this issue, the impact on the Company's results of
operations could be material to any specific period. However, it is our opinion
that future expenditures for compliance with these laws and regulations, as they
relate to the Lower Passaic River issue and other potential issues, will not
have a material effect on our capital expenditures, financial position, or
competitive position. The ability to obtain permits in order to conduct our
business and the need to maintain the various laws and regulations related to
our business are risks that require constant monitoring from our operating
managers.
International Operations
Information regarding our operations in its geographic segments is located in
Note (14) to the Consolidated Financial Statements on page 30 of the 2003 Annual
Report to Shareholders, attached hereto as Exhibit 13 and incorporated by
reference. Our Canadian, French and Mexican operations may be affected
periodically by foreign political and economic developments, laws and
regulations, and currency fluctuations.
Internet Access
Spartech's Forms 10-K, 10-Q, 8-K and all amendments to those reports are
available without charge through the Company's website on the Internet as soon
as reasonably practicable after they are electronically filed with, or furnished
to, the Securities and Exchange Commission. They may be accessed directly as
follows: www.spartech.com, Investor Relations, SEC Filings & Sec.16 Forms.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides certain information about the Company's
executive officers, their positions with the Company, and their prior business
experience and employment for at least the past five years
Name Age Current Office, and Prior Positions and Employment
Bradley B. Buechler 55 Chairman of the Board (since March 1999),
President (since 1987) and Chief Executive Officer
(since 1991). Mr. Buechler, a CPA, was with
Arthur Andersen LLP before the commencement of his
employment with the Company in 1981.
George A. Abd 40 Executive Vice President, Color & Specialty
Compounds (since September 2000); Vice President
of Compounding for the Company's Spartech Polycom
Division from March 1998 to September 2000. Mr.
Abd held various positions with Polycom Huntsman,
Inc for eleven years prior to its acquisition by
the Company in March 1998.
Randy C. Martin 41 Executive Vice President (since September 2000)
and Chief Financial Officer (since May 1996);
Corporate Controller from 1995 to May 1996; Vice
President, Finance from May 1996 to September
2000. Mr. Martin, a CPA and CMA, was with KPMG
Peat Marwick LLP for eleven years before joining
the Company in 1995.
David G. Pocost 42 Executive Vice President, Extruded Sheet and
Profile Products (since September 2000); Director
of Quality & Environmental Affairs from 1994 to
December 1996; Vice President, Quality & MIS from
December 1996 to September 1998, and Vice
President, Engineering, Quality & MIS from
September 1998 to September 2000. Mr. Pocost was
previously with Moog Automotive as Division
Quality Assurance Manager and Senior Materials
Engineer for eight years.
Jeffrey D. Fisher 55 Vice President and General Counsel (since July
1999); and Secretary (since September 2000). Mr.
Fisher, an attorney, was with the law firm of
Armstrong Teasdale LLP for 24 years, the last 17
years as a partner, before joining the Company in
July 1999.
Phillip M. Karig 47 Vice President-Purchasing and Supply Chain
Management (since September 2001), Director of
Purchasing from February 2000 to September 2001.
Mr. Karig was with Uniroyal Technology Corporation
for 12 years in various purchasing, logistics, and
materials management positions before joining the
Company in February 2000.
William F. Phillips 56 Vice President - National Sales Accounts (since
December 2002), Director of Marketing from July
1998 to December 2002. Mr. Phillips also held
various sales management positions with the
Company from March 1989 to July 1998.
Jeffrey C. Blessing 33 Corporate Controller (since August 2000),
Assistant Corporate Controller from December 1998
to August 2000, Division Controller Spartech
Plastics - Central Region from 1996 to 1998. Mr.
Blessing, a CPA, also held various corporate
office accounting positions for the Company from
1993 to 1996.
Item 2. PROPERTIES
The Company operates in plants and offices aggregating approximately
3,985,000 square feet of space. Approximately 1,601,000 square feet of plant
and office space is leased with the remaining 2,384,000 square feet owned by the
Company. A summary of the Company's principal operating facilities follows:
Custom Sheet & Rollstock
Location Description Size in Square Feet Owned/Leased
Arlington, TX Extrusion plant & 120,000 Leased
offices
Atlanta, GA Extrusion plant & 85,000 Leased
offices
Cape Extrusion plant & 100,000 Owned
Girardeau, MO offices
Clare, MI Extrusion plant & 27,000 Owned
offices
Evanston, IL Extrusion plant & 129,000 Leased
offices
Greenville, OH Extrusion plant & 80,000 Owned
offices
13,000 Leased
Hackensack, NJ Cast acrylic 81,000 Leased
plant & offices
La Mirada, CA Extrusion plant & 64,000 Leased
offices
Mankato, MN Extrusion plant & 38,000 Owned
offices
57,000 Leased
McMinnville, Extrusion plant & 40,000 Owned
OR offices
Muncie, IN Extrusion plant & 177,000 Owned
offices
Newark, NJ Extrusion plant & 59,000 Owned
offices
Paulding, OH Extrusion plant 71,000 Owned
& offices
69,000 Leased
Phoenix, AZ Cast acrylic & 33,000 Leased
offices
Portage, WI Extrusion plant & 113,000 Owned
offices
47,000 Leased
Portage, WI Extrusion plant 75,000 Leased
Ramos Arizpe, Extrusion plant & 55,000 Owned
Mexico offices
Redlands, CA Extrusion plant & 60,000 Owned
offices
Richmond, IN Extrusion plant & 54,000 Owned
offices
64,000 Leased
Stamford, CT Cast acrylic & 80,000 Leased
offices
7,000 Leased
Taylorville, Extrusion plant & 39,000 Owned
IL offices
5,000 Leased
Warsaw, IN Extrusion plant & 226,000 Owned
offices
135,000 Leased
Wichita, KS Extrusion plant & 62,000 Owned
offices
120,000 Leased
Cornwall #1, Extrusion plant & 38,000 Leased
Ontario offices
Cornwall #2, Extrusion plant & 64,000 Leased
Ontario offices
Granby, Quebec Extrusion plant & 65,000 Owned
offices
2,552,000
Color & Specialty Compounds
Location Description Size in Square Feet Owned/Leased
Arlington, TX Compounding plant & 112,000 Leased
offices
Atlanta, GA Compounding sales 5,000 Leased
office
Cape Girardeau, Compounding plant & 56,000 Owned
MO offices
60,000 Leased
Conneaut, OH Compounding plant & 94,000 Owned
offices
Conshohocken, Calendering plant & 42,000 Owned
PA offices
Donora #1, PA Compounding plant & 142,000 Owned
offices
Donora #2, PA Compounding plant & 88,000 Owned
offices
Kearny, NJ Compounding plant & 57,000 Owned
offices
Lake Charles, Compounding plant & 55,000 Owned
LA offices
Lockport, NY Compounding plant & 45,000 Owned
offices
Ramos Arizpe, Compounding plant & 55,000 Owned
Mexico offices
St. Clair, MI Compounding plant & 71,000 Owned
offices
Stratford, Color plant & 66,000 Owned
Ontario offices
25,000 Leased
Donchery, Compounding plant & 30,000 Owned
France offices
1,003,000
Molded & Profile Products
Location Description Size in Square Feet Owned/Leased
Des Moines, IA Cast acrylic plant & 53,000 Owned
offices
El Monte, CA Profile plant & 63,000 Leased
offices
Rancho Injection molding 17,000 Leased
Cucamonga, CA plant
Rockledge, FL Marine products 112,000 Leased
plant
Tupelo, MS Injection molding 54,000 Leased
plant
Warsaw, Indiana Injection molding 41,000 Owned
plant & offices
Winnipeg, Profile plant & 62,000 Owned
Manitoba offices
402,000
In addition, the Company leases office facilities for its world headquarters
in St. Louis, Missouri and for administrative offices in Washington,
Pennsylvania, the aggregate square footage of which is approximately 28,000.
The plants located at the premises listed above are equipped with 120 sheet
extrusion lines, (69 of which run multi-layered materials), 28 casting machines,
45 profile extrusion lines, (12 of which run multi-layered materials), 50
general compounding lines, 9 color compounding lines, 29 injection molding
machines, a calendering line, cutting and grinding machinery, resin storage
facilities, warehouse equipment, and quality laboratories at all locations. The
Company believes that its present facilities along with anticipated capital
expenditures (estimated to be approximately $22 million in fiscal 2004) are
adequate for the level of business anticipated in fiscal 2004.
Item 3. LEGAL PROCEEDINGS
As discussed under Item 1 - Government Regulations and Environmental Matters,
the Company has been notified by environmental agencies that it is a potentially
responsible party in connection with the investigation and remediation of an
environmental site. The Company believes that its potential continuing
liability with respect to this site will not have a material adverse effect on
its capital expenditures, financial position, or competitive position. In
addition, the Company initiates corrective and preventive environmental projects
of its own at its operations. Based on current information and estimates
prepared by the Company's environmental engineers and consultants, at November
1, 2003, the Company had adequate accruals to cover current environmental
expenditures relating to contaminated sites. The accrual represents the
Company's best estimate within its range of estimated costs associated with
probable remediation, based upon currently available information. Depending
upon the results of future testing, the ultimate remediation alternatives
undertaken, changes in regulations, new information and other factors, it is
possible that the Company could incur material costs in excess of its accrual at
November 1, 2003. The Company's estimate of the liability may be revised as
additional information is obtained.
The Company is subject to various other claims, lawsuits and administrative
proceedings arising in the ordinary course of business with respect to
commercial, product liability, employment and other matters, several of which
claim substantial amounts of damages. While it is not possible to estimate with
certainty the ultimate legal and financial liability with respect to these
claims, lawsuits and administrative proceedings, the Company believes that the
outcome of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year ended November 1, 2003.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information on pages 34, 35, and 37 of the 2003 Annual Report to
Shareholders, attached hereto as Exhibit 13, is incorporated by reference in
response to this item. The common stock dividend amounts on page 37 of the 2003
Annual Report to Shareholders present the cash dividends declared in fiscal 2002
consisting of four quarterly payments at nine and one-half cents per share and
the cash dividends declared in fiscal 2003 consisting of four quarterly payments
at ten cents per share. On December 11, 2003, the Company declared a dividend
of eleven cents per share payable on January 16, 2004. The Company's Board of
Directors reviews the dividend policy each December based on the Company's
business plan and cash flow projections for the next fiscal year.
Item 6. SELECTED FINANCIAL DATA
The information on pages 34 and 35 of the 2003 Annual Report to Shareholders,
attached hereto as Exhibit 13, is incorporated by reference in response to this
item.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information on pages 10 through 17 of the 2003 Annual Report to
Shareholders, attached hereto as Exhibit 13, is incorporated by reference in
response to this item.
Forward Looking Statements - Statements in this Annual Report that are not
purely historical, including statements which express the Company's belief,
anticipation or expectation about future events, are forward-looking statements.
These statements may be found in the description of the Company's business in
Item 1 and legal proceedings in Item 3, and include statements in "Management's
Discussion and Analysis," incorporated herein by reference, about new products
and markets benefits, future capital expenditures, expenditures for
environmental compliance, and anticipated cash flow and borrowings.
Forward looking statements involve certain risks and uncertainties that
could cause actual results to differ materially from such statements. In
addition to the risk factors discussed in Item 1 (Business, under the headings
Raw Materials, Seasonality, Competition, Government Regulation and Environmental
Matters, and International Operations) included herein on pages 11, 12 and 13
other important factors which have impacted and could impact the Company's
operations and results, include:
(1) the Company's financial leverage and the operating and financial
restrictions imposed by the instruments governing its indebtedness may limit or
prohibit its ability to incur additional indebtedness, create liens, sell
assets, engage in mergers, acquisitions or joint ventures, pay cash dividends,
or make certain other payments; the Company's leverage and such restrictions
could limit its ability to respond to changing business or economic conditions,
inability to meet debt obligations when due could impair our ability to finance
operations and could result in default;
(2) the successful expansion through acquisitions, in which Spartech looks for
candidates that can complement its existing product lines, expand geographic
coverage, and provide superior shareholder returns, is not assured. Acquiring
businesses that meet these criteria continues to be an important element of the
Company's business strategy. Some of the Company's major competitors have
similar growth strategies. As a result, competition for qualifying acquisition
candidates is increasing and there can be no assurance that such future
candidates will exist on terms agreeable to the Company. Furthermore,
integrating acquired businesses requires significant management time and skill
and places additional demands on Company operations and financial resources. If
we are unable to achieve the anticipated synergies, the interest and other
expenses from our acquisitions could exceed the net income we derive from the
acquired operations, which could reduce our net income. However, the Company
continues to seek value-added acquisitions which meet its stringent acquisition
criteria and complement its existing businesses; and
(3) our products are sold in a number of end markets which tend to be cyclical
in nature, including transportation, building and construction, bath/pool and
spa, and electronics and appliances. A downturn in one or more of these end
markets could have a material adverse effect on our sales and operating profit.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in interest rates primarily as a result of our
borrowing activities. Our earnings and cash flows are subject to fluctuations
in interest rates on our floating rate debt facilities. At November 1, 2003, we
had approximately $27.2 million of debt subject to variable short-term interest
rates. Based upon the November 1, 2003 balance, a change of one percent in
interest rates would cause a change in net income of approximately $174,000 on
an annual basis. We had $352.0 million of fixed rate financings outstanding as
of November 1, 2003, including $125.0 million of floating rate debt fixed
through November 2004 by an interest rate swap. Interest expense on these fixed
rate financings will not be materially affected by changes in interest rates
over the next 12 months. In addition, the information on page 22, 23, and 32 of
the 2003 Annual Report to Shareholders, attached hereto as Exhibit 13, is
incorporated by reference in response to this item.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information entitled "Quarterly Financial Information" on page 32 of the
2003 Annual Report to Shareholders, attached hereto as Exhibit 13, is
incorporated by reference in response to this item.
In addition, the financial statements of the Company filed herewith or
incorporated by reference are set forth in Item 15 and included in Part IV of
this Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Effective April 30, 2002, the Board of Directors of the Company, upon
recommendation of its audit committee, dismissed Arthur Andersen LLP
("Andersen") as the Company's independent public accountants and engaged Ernst &
Young LLP ("Ernst & Young ") to serve as the principal accountant to audit the
Company's financial statements for the fiscal year ending November 2, 2002.
Andersen audited the Company's financial statements for fiscal year 2001, and
had been the Company's principal accountant since 1989.
In connection with its audit for fiscal year 2001, and during the subsequent
interim period preceding the engagement of Ernst & Young, there were no
disagreements with Andersen on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure. Andersen's report
on the financial statements for fiscal year 2001 did not contain an adverse
opinion or a disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. During the last two fiscal
years, and during the subsequent interim period preceding the engagement of
Ernst & Young LLP, Andersen did not advise, and has not indicated to the Company
that it had reason to advise, the Company of any reportable event, as defined in
Item 304(a) of Regulation S-K of the Exchange Act. The Company requested that
Andersen furnish it with a letter addressed to the Securities and Exchange
Commission stating whether or not it agrees with the statements made in the Form
8-K filed on May 3, 2002. A copy of the letter from Andersen dated June 11,
2002, stating its agreement with the foregoing disclosures is filed as Exhibit
16.1 to the Form 8-K filed on May 3, 2002.
During the last two fiscal years, and during the subsequent interim period
preceding the engagement of Ernst & Young, the Company had not consulted Ernst &
Young regarding the application of accounting principles to a specified
transaction, either contemplated or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements or any other matter that
would be required to be reported.
Item 9A. CONTROLS AND PROCEDURES
Spartech maintains a system of disclosure controls and procedures which are
designed to ensure that information required to be disclosed by the Company in
the reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified under the
SEC's rules and forms. Based on an evaluation performed, the Company's
certifying officers have concluded that the disclosure controls and procedures
were effective as of November 1, 2003, to provide reasonable assurance of the
achievement of these objectives.
Notwithstanding the foregoing, there can be no assurance that the Company's
disclosure controls and procedures will detect or uncover all failures of
persons within the Company and its consolidated subsidiaries to report material
information otherwise required to be set forth in the Company's reports.
There was no change in the Company's internal control over financial reporting
during the quarter ended November 1, 2003, that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning Directors of the Company contained in the section
entitled "Proposal 1: Election of Directors" of the Definitive Proxy Statement
for the 2004 Annual Meeting of Shareholders, to be filed with the Commission on
or about January 23, 2004, is incorporated herein by reference in response to
this item.
Information concerning the Executive Officers of the Company is contained on
page 14 in Part I of this Report.
The information concerning Equity Compensation Plans is contained in the
section entitled "Equity Plan Compensation Information" of the Definitive Proxy
Statement for the 2004 Annual Meeting of Shareholders, to be filed with the
Commission on or about January 23, 2004, and is incorporated herein by reference
in response to this item.
The information regarding the audit committee and audit committee financial
expert is contained in the section entitled "Board of Directors and Committees"
of the Definitive Proxy Statement for the 2004 Annual Meeting of Shareholders,
to be filed with the Commission on or about January 23, 2004, is incorporated
herein by reference in response to this item.
Spartech has adopted a Code of Ethics that applies to the Company's chief
executive officer, chief financial officer, and controller; has posted such Code
of Ethics on its Internet website; and intends to satisfy the disclosure
requirement under Item 10 of Form 8-K by posting such information on its
Internet website. The Company's Code of Ethics may be accessed through its
Internet website at www.spartech.com within the Investor Relations/Corporate
Governance section of the site.
Item 11. EXECUTIVE COMPENSATION
The information contained in the sections entitled "Executive Compensation"
and "Compensation of Directors" of the Definitive Proxy Statement for the 2004
Annual Meeting of Shareholders, to be filed with the Commission on or about
January 23, 2004, is incorporated herein by reference in response to this item.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the section entitled "Security Ownership" of the
Definitive Proxy Statement for the 2004 Annual Meeting of Shareholders, to be
filed with the Commission on or about January 23, 2004, is incorporated herein
by reference in response to this item.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the sections entitled "Proposal 1: Election of
Directors," "Executive Compensation" and "Certain Business Relationships and
Transactions" of the Definitive Proxy Statement for the 2004 Annual Meeting of
Shareholders, to be filed with the Commission on or about January 23, 2004, is
incorporated herein by reference in response to this item.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information contained in the section entitled "Fees Paid to Auditors," of
the Definitive Proxy Statement for the 2004 Annual Meeting of Shareholders, to
be filed with the Commission on or about January 23, 2004, is incorporated
herein by reference in response to this item.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
The following financial statements and financial statement schedules are
incorporated by reference from the 2003 Annual Report to Shareholders, to be
filed with the Commission on or about January 16, 2004, and/or filed as part of
this Form 10-K:
Page
Annual Report to
Shareholders
Form 10-K
Report of Independent Public Accountants F-1 33
Financial Statements
Consolidated Balance Sheet - 18
Consolidated Statement of Operations - 19
Consolidated Statement of - 20
Shareholders' Equity
Consolidated Statement of Cash Flows - 21
Notes To Consolidated Financial Statements - 22-32
Financial
Statement Schedules
Schedule
Number Description
II Valuation and F-2
Qualifying Accounts
All other financial statements and schedules not listed have been omitted
since the required information is included in the consolidated financial
statements or the notes thereto, or is not applicable or required.
(b) Reports on Form 8-K
The Company filed a Form 8-K dated August 28, 2003 to furnish the press
release announcing fiscal 2003 third quarter financial results.
The Company filed a Form 8-K dated August 15, 2003 to furnish the press
release providing guidance for fiscal 2003 third quarter financial results.
(c) Exhibits
The Exhibits required to be filed by Item 601(a) of Regulation S-K are
included as follows:
3.1(1) Restated Certificate of Incorporation
3.2(2) Amended and Restated By-Laws
4(3) Rights Agreement dated April 2, 2001 between Spartech Corporation and
Mellon Investor Services LLC, as Rights Agent
10.1(4) Amended and Restated Employment Agreement dated November 1, 2002,
between Bradley B. Buechler and Spartech Corporation
10.2(5) Transition Agreement and Consulting Agreement dated August 3,
2000, between David B. Mueller and Spartech Corporation
10.3(6) Employment Agreement dated January 1, 2003 between Randy C.
Martin and Spartech Corporation
10.4(7) Employment Agreement dated January 1, 2003 between David G.
Pocost and Spartech Corporation
10.6 Employment Agreement dated December 10, 2003 between George A.
Abd and Spartech Corporation
10.7 Employment Agreement dated January 1, 2003 between Phillip Karig
and Spartech Corporation
10.8(8) Spartech Corporation 2001 Stock Option Plan dated December 6,
2000
10.9(9) Employment Agreement dated July 1, 2002 between William F.
Phillips and Spartech Corporation
10.10(10) Form of Indemnification Agreement entered into between Spartech
Corporation and each of its officers and directors as of November 1,
2002 (December 12, 2002 as to William F. Phillips).
10.11 Employment Agreement dated December 1, 2003 between Jeffrey D. Fisher
and Spartech Corporation
13 Pages 10 through 35 and 37 of 2003 Annual Report to Shareholders
16.1(11) Letter from Arthur Andersen, LLP to the Securities and Exchange
Commission dated May 3, 2002
21 Subsidiaries of Registrant
23.1 Consent of Independent Auditors
23.2 Information Regarding Consent of Arthur Andersen LLP
24 Powers of Attorney
31 Certifications pursuant to Exchange Act Rule 13a-14(a)
32 Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C.
Section 1350
Notes to Exhibits
(1) Filed as Exhibit 3.1 to the Company's Form S-8 (File No. 333-60381),
filed with the Commission on July 31, 1998 and incorporated
herein by reference.
(2) Filed as Exhibit 4.2 to the Company's Form S-3 filed with the
Commission on October 14, 2003 and incorporated herein
by reference.
(3) 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.
(4) Filed as Exhibit 10.1 to the Company's Form 10-K filed
with the Commission on January 17, 2003 and incorporated
herein by reference.
(5) Filed as Exhibit 10.4 to the Company's Form 10-K filed with
the Commission on January 19, 2001 and incorporated
herein by reference.
(6) Filed as Exhibit 10.3 to the Company's Form 10-K filed with
the Commission on January 17, 2003 and incorporated
herein by reference.
(7) Filed as Exhibit 10.4 to the Company's Form 10-K filed
with the Commission on January 17, 2003 and incorporated
herein by reference.
(8) Filed as Exhibit 4 to the Company's Form S-8 filed with the
Commission on May 7, 2001 and incorporated herein
by reference.
(9) Filed as Exhibit 10.9 to the Company's Form 10-K filed
with the Commission on January 17, 2003 and incorporated
herein by reference.
(10) Filed as Exhibit 10.10 to the Company's Form 10-K filed
with the Commission on January 17, 2003 and incorporated
herein by reference.
(11) Filed as Exhibit 16.1to the Company's Form 8-K filed with
the Commission on May 3, 2002 and incorporated
herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
January 16, 2004 By: /s/Bradley B. Buechler
(Date) Bradley B. Buechler
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
DATE SIGNATURES TITLE
January 16, 2004 /s/Bradley B. Buechler Chairman, President, Chief
Bradley B. Buechler Executive Officer, and
Director
(Principal Executive Officer)
January 16, 2004 /s/ Randy C. Martin Executive Vice President,
Chief
Randy C. Martin Financial Officer and Director
(Principal Financial and
Accounting
Officer)
January 16, 2004 /S/ Ralph B. Andy* Director
Ralph B. Andy
January 16, 2004 /S/Lloyd E. Campbell* Director
Lloyd E. Campbell
January 16, 2004 /S/ Walter J. Klein* Director
Walter J. Klein
January 16, 2004 /S/ Calvin J. O'Connor* Director
Calvin J. O'Connor
January 16, 2004 /S/ Jackson W. Robinson* Director
Jackson W. Robinson
January 16, 2004 /S/ Richard B. Scherrer* Director
Richard B. Scherrer
January 16, 2004 /S/Craig A. Wolfanger* Director
Craig A. Wolfanger
* By Bradley B. Buechler as Attorney-in-Fact pursuant to Powers of Attorney
executed by the Directors listed above, which Powers of Attorney are filed
herewith.
/s/Bradley B. Buechler
Bradley B. Buechler
As Attorney-in-Fact
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Spartech Corporation:
We have audited the consolidated financial statements of Spartech Corporation as
of November 1, 2003, and for the year then ended, and have issued our report
thereon dated December 11, 2003 (included in Spartech Corporation's 2002 Annual
Report to Shareholders and incorporated by reference in this Form 10-K). Our
audit also included the financial statement schedule for the year ended November
1, 2003 listed in Item 15(a) of this Form 10-K. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
St. Louis, Missouri
December 11, 2003
The following is a copy of the audit report previously issued by Arthur Andersen
LLP in connection with Spartech Corporation's filing on Form 10-K for the year
ended November 3, 2001. This audit report has not been reissued by Arthur
Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.2 for
further discussion.
TO SPARTECH CORPORATION
We have audited in accordance with auditing standards generally accepted in the
United States, the financial statements included in SPARTECH Corporation's 2001
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated December 6, 2001. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole.
Schedule II included in this Form 10-K is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri
December 6, 2001
F-1
SPARTECH CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED 2003, 2002, AND 2001.
(Dollars in thousands)
BALANCE AT ADDITIONS AND
BEGINNING OF CHARGES TO COSTS BALANCE AT
DESCRIPTION PERIOD AND EXPENSES WRITE-OFFS END OF
PERIOD
November 1, 2003
Allowance for $ 4,058 $ 1,132 $ (1,454) $ 3,737
Doubtful
Accounts
November 2,
2002: $ 3,957 $ 2,935 $ (2,834) $ 4,058
Allowance for
Doubtful
Accounts
November 3,
2001: $ 3,627 $ 2,801 $ (2,471) $ 3,957
Allowance for
Doubtful
Accounts
Fiscal years 2001, 2002 and 2003 additions and write-offs include activity
relating to the acquisition of certain of the businesses and assets of GWB
Plastics Holding Co. in June 2002 and Polymer Extruded Products in April 2003.
F-2