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18
United States Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
Pursuant to the requirements of the Securities and Exchange Act of 1934, we are
transmitting the attached Form 10-K.
Sincerely,
SPARTECH CORPORATION
/s/Randy C. Martin
Randy C. Martin
Vice President-Finance and Chief
Financial Officer
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 October 31, 1998
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 Identification
incorporation or organization) Number)
7733 FORSYTH, SUITE 1450, CLAYTON, MISSOURI 63105-1817
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 721-4242
Securities registered pursuant to Section 12(d) 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/
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $273,354,840 on December 31, 1998.
There were 26,871,350 total shares of common stock outstanding as of December
31, 1998.
Documents incorporated by reference
1) Portions of the 1998 Annual Report to Shareholders are incorporated by
reference into Parts I, II and IV.
2) Portions of the Definitive Proxy Statement for the 1999 Annual Meeting of
Shareholders are incorporated by reference into Part III.
3)
PART I
Item 1. BUSINESS
General
Spartech Corporation, together with its subsidiaries ("Spartech" or the
"Company"), operates in one industry segment as a leading producer of engineered
thermoplastic materials, polymeric compounds, molded and profile products for a
wide spectrum of customers in the plastics industry. The Company's 38
facilities throughout North America and Europe operate in the following three
lines of business:
Extruded Sheet & Rollstock - which sells its products to various
manufacturers who use plastic components in their industrial products. The
Company's extruded sheet & rollstock is utilized in several end markets
including transportation, building & construction, packaging, recreation,
and sign/advertising. The Company is North America's largest extruder of
custom rigid plastic sheet & rollstock, operating 17 facilities in the
United States and Canada under the name Spartech Plastics.
Color & Specialty Compounds - which sells custom designed plastic alloys,
compounds, color concentrates, and calendered film for utilization by a
large group of manufacturing customers servicing the packaging, electronics
& appliance, transportation, building & construction and other end markets.
The Company produces and distributes these products from 15 facilities under
the names Spartech Polycom, Spartech Color, and Spartech Vy-Cal Plastics in
the United States, Canada and France.
Molded & Profile Products - which manufactures custom and proprietary
products including: (1) thin-walled, printed plastic food packaging and
industrial containers, (2) thermoplastic tires and wheels for the lawn and
garden, refuse container, and toy markets, and (3) profile extruded products
for a variety of industries. The Company produces these molded and profile
products from 6 facilities in the United States and Canada under the names
GenPak, Hamelin Industries, and Spartech Profiles.
The Company's principal executive office is located at 7733 Forsyth
Boulevard, Suite 1450, Clayton, Missouri 63105-1817, telephone (314) 721-4242.
The Company was incorporated in the State of Delaware in 1968, succeeding a
business which had commenced operations in 1960. The Company primarily
operates as a leading intermediary plastics processor in the North American
plastics market. This segment of the plastics industry is
fragmented with over 2,000 plastic processing companies. The plastics
intermediary segment continues to experience significant consolidation driven
primarily by the desire of customers and suppliers to have fewer, stronger
intermediaries and the potential for companies to achieve economies of scale. A
key element of the Company's acquisition strategy is to continue to acquire
plastics intermediary companies with profitable operations. Acquisitions
completed over the last five years are summarized below:
Date
Acquired Business Acquired Principal Products
February 1994 Product Components Extruded Sheet & Rollstock
November 1994 Pawnee Industries (a) Extruded Sheet & Rollstock
and Color Concentrates
May 1996 Portage Industries (b) Extruded Sheet & Rollstock
September 1996 Hamelin Group (b) Extruded Sheet & Rollstock,
Color Concentrates, and
Molded Products
August 1997 Preferred Plastic Sheet Extruded Sheet & Rollstock
Division of Echlin Inc. (b) and Profile Products
March 1998 Polycom Huntsman, Inc. (b) Specialty Compounds & Color
Concentrates
April 1998 Prismaplast Canada, Ltd. (b) Color Concentrates
October 1998 Anjac-Doron Plastics, Inc. Profile Products
(b)
(a) Includes only Pawnee's Extrusion and Color Divisions.
(b) Information with respect to Spartech's recent acquisition activity is
set forth in Note (2) to the Consolidated Financial Statements on page 21 of
the 1998 Annual Report to Shareholders, attached as Exhibit 13.
Growth Strategy
In 1991, management began to develop and implement the Company's growth
strategy, known as 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. Additionally, the Company's operating plan emphasizes ongoing
cost containment and productivity improvement efforts to increase operating
earnings and further enhance stockholder returns. The four elements of this
growth strategy are:
Business Partnerships. The Company is committed to building business
partnerships that provide long-term growth opportunities and enhance customer
relationships. Such partnerships offer direct and indirect benefits to the
Company and its customers by broadening product lines, lowering the cost of
technological efforts and increasing geographic presence. The Company regularly
partners with customers and resin suppliers to develop improvements in order to
offer customers state-of-the-art products, and have significantly contributed to
strengthening the Company's leading market position in the custom extruded sheet
and rollstock segment. In an effort to exceed customer expectations, the
Company has 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 the Company's size and breadth of
operations, management believes that it is well positioned for continued
expansion through selective acquisitions in the consolidating plastics
intermediary segment. In evaluating acquisition opportunities, management
targets acquisition candidates that: (i) add complementary product lines (with
emphasis on companies producing specialty or value-added thermoplastic
products): (ii) increase geographic presence: and (iii) provide operational
synergies in purchasing, production and customer service. For example, the
Company's acquisition of Polycom Huntsman expanded two product lines
(polypropylene compounds and black concentrates), added eight state-of-the-art
manufacturing facilities in the U.S. and a manufacturing facility in France (the
Company's first outside North America), and provided additional cost saving
opportunities in purchasing and administrative expenses.
Product Transformations. A key element of the Company's 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 extruded sheet and rollstock, where the transformation
process is still in the early stages. Sizable metal, glass and fiberglass
specialty components have recently begun to be replaced by thermoplastics in the
agricultural equipment and transportation markets. The Company utilizes the
experience of its sales and production personnel, partnerships with suppliers,
and relationships with customers to identify and develop new applications for
its products. Product transformations have been a key contributor to the
Company's internal growth rates.
Alloy Plastics. The Company aggressively develops new proprietary products that
combine advanced-engineered thermoplastic compounds and additives with new
manufacturing techniques implemented by experienced operating personnel ("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 reinforcements such as talc, calcium carbonate and glass
fibers to base resins. All of the Company's 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.
Extruded Sheet & Rollstock
Net sales and operating earnings (consisting of earnings before interest, taxes
and corporate operations/allocations) of the extruded sheet & rollstock group
for fiscal years 1998, 1997, and 1996 were as follows:
Fiscal Year
(Dollars in millions)
1998 1997 1996
Net Sales $455.1 $375.8 $319.2
Operating Earnings $50.5 $39.6 $31.6
Products - Spartech Plastics produces both single and multilayer extruded
plastic sheet and rollstock on a custom basis for end product manufacturers.
The group's extruded sheet & rollstock is utilized in several end markets
including transportation, building & construction, packaging, recreation and
sign/advertising. Most of the group's customers thermoform, cut, and trim their
plastic sheet for these various end uses.
New Product Development - The extruded sheet & rollstock group is actively
involved in development of new Alloy Plastics, which offer end-product
manufacturers a variety of solutions to design high performance and
environmentally-friendly products with cost effective benefits. Spartech
Plastics currently offers nine such new products, five of which were introduced
in the second half of fiscal 1998.
Manufacturing and Production - The principal raw materials used in
manufacturing extruded sheet & rollstock are plastic resins in pellet form,
which are crude oil or natural gas derivatives. The Company extrudes a wide
variety of plastic resins, including acrylonitrile butadiene styrene ("ABS"),
polycarbonate ("PC"), polypropylene ("PP"), acrylic, polyethylene terephthalate
("PET"), polystyrene ("PS"), polyethylene ("PE"), and polyvinyl chloride
("PVC").
The Company produces plastic sheet of up to seven distinct layers using a
multi-extrusion process, as it is extruded through the die into a sheet form.
More than half of the Company's plastic sheet is produced using this multi-
extrusion process. The remainder is produced in a single layer using
conventional extrusion processes. In some cases, the Company will coat the
plastic sheet or laminate sheets together in order to achieve performance
characteristics desired by customers for particular applications.
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 of the group's 17 facilities because of
shipping costs for rigid plastic material and the need for prompt response to
customer requirements and specifications. The outdoor sign and spa markets,
however, are slightly more national in scope.
The Company sells its extruded sheet & rollstock products principally through
its own sales force, but also uses a limited number of independent sales
representatives. The Company generally does not sell products of the extruded
sheet & rollstock group under long-term contracts. During fiscal 1998, the
extruded sheet & rollstock group sold its products to approximately 2,300
customers.
Color & Specialty Compounds
Net sales and operating earnings (consisting of earnings before interest,
taxes and corporate operations/allocations) of the color & specialty compound
group for fiscal years 1998, 1997, and 1996 were as follows:
Fiscal Year
(Dollars in millions)
1998 1997 1996
Net Sales $158.2 $84.0 $68.2
Operating Earnings $18.1 $7.1 $5.4
Products - The color and specialty compounds group manufactures plastic
compounds, alloys and color concentrates for end product manufacturers.
Spartech Polycom both produces its own line of proprietary compounds and
provides toll compounding services for engineered resins, flame retardant and
other specialty compounds. Spartech Color, the largest color concentrate
supplier in Canada -with a sister plant in Goddard Kansas, is focused on service
oriented color concentrate applications for film and molding as well as
supplying nearly $10 million worth of color concentrates internally to the
Company's extruded sheet and rollstock group. Spartech Vy-Cal Plastics operates
a vinyl calender, supplying finished PVC film to manufacturers of loose-leaf
binders, decorator grade wallcoverings and packaging products for the medical
industry. Customers of the color and specialty compound group range from major
integrated OEMs to sole proprietary subcontractors that utilize injection
molding, extrusion, blow molding and blown and cast film processes.
New Product Development - The color and specialty compounds group has well-
equipped laboratory facilities, particularly with the newly acquired Spartech
Polycom Technical Center in Donora, PA. 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.
In addition to compounding technology, the group has developed enhanced
capabilities to produce color concentrates and additives.
Manufacturing and Production - The principal raw materials used in
manufacturing specialty plastic alloys, compounds and color concentrates are
plastic resins in powder and pellet form, primarily PP, PE, PS, ABS, and PVC
with colorants, mineral and glass reinforcements, and additives to impart
specific performance and appearance characteristics to the compounds.
Marketing, Sales and Distribution - The color & specialty compounds group
generates the majority of its sales in the United States and Canada but also has
a presence in Europe and Mexico. The group's sales are primarily managed by its
own internal sales force, but also uses independent agents and both local and
national distributors. During fiscal 1998, the color and specialty compound
group sold products to approximately 1,800 customers.
Molded & Profile Products
The group's net sales and operating earnings (consisting of earnings before
interest, taxes, and corporate operations/allocations) for the fiscal years
1998, 1997, and 1996 periods were as follows:
Fiscal Year
(Dollars in millions)
1998 1997 1996
Net Sales $40.6 $ 42.9 $ 3.9
Operating Earnings $5.7 $ 5.9 $ .4
Products - The molded & profile products group manufactures custom and
proprietary items for a large group of intermediate and end-user customers.
GenPak is a producer of thin-walled, printed plastic food packaging and
industrial containers for a large group of dairy, deli, and industrial supply
companies; Hamelin Industries manufacturers thermoplastic tire and wheel
assemblies for the lawn and garden, refuse container, and toy markets; and
Spartech Profiles manufactures products for various industries, including the
bedding and construction markets.
New Product Development - The molded and profile products group brings
unique, recognized capabilities to its customers such as print graphics and
package design, patented tread-cap wheel technologies and special fabrication of
profile products. In addition, this group's creativity, sound engineering and
design principles enable it to effectively respond to customer needs in the
niche markets in which the Company operates.
Manufacturing and Production - The principal raw materials used in the
Company's manufacturing of its molded and profile products are PE, PP, and PVC.
The group manufactures products under three major lines -- containers, wheels,
and profile extruded products.
Marketing, Sales and Distribution - GenPak markets most of its products to
customers located in North America, as well as, the Caribbean; Hamelin
Industries markets its products throughout North America from a centrally
located plant in Warsaw, Indiana; and Spartech Profiles markets its products
throughout the United States. The group sells its products principally through
its own sales force, but also uses independent sales representatives. During
fiscal 1998, the molded & profile products group sold its products to
approximately 400 customers.
Raw Materials
The Company uses large amounts of thermoplastic resins in its manufacturing
processes. Such resins are crude oil or natural gas derivatives and are to some
extent affected by supply, demand, and price trends in the petroleum industry.
While the Company seeks to match cost increases with corresponding price
increases, large increases in the costs of these raw materials could adversely
affect the Company's operating margins. In addition, any major disruptions in
the availability of crude oil or natural gas to the Company's suppliers could
adversely impact the availability of the resins. However, the Company does
business with most of the major resin manufacturers and has enjoyed good
relationships with such suppliers over the past several years. The Company has
been able to adequately obtain all of its required raw materials to date and
expects to be able to continue to satisfy its requirements in fiscal 1999 and
beyond.
Seasonality
The Company's 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
the Company's various customers in each region.
Competition
The extruded sheet & rollstock, color & specialty compounds, and molded &
profile products markets are highly competitive. Since the Company manufactures
a wide variety of products, it competes in different areas with many other
companies, some of which are much larger than the Company and have more
extensive production facilities, larger sales and marketing staffs, and
substantially greater financial resources than the Company. The markets in
which the Company competes are also periodically characterized by excess supply
and intense price competition. The Company competes generally on the basis of
price, product performance, and customer service. Important competitive factors
in each of the Company's businesses include the ability to: (1) manufacture
consistently to required quality levels, (2) meet demanding delivery times, (3)
exercise skill in raw material purchasing, and (4) achieve production
efficiencies to process the products profitably. In addition, the Company may
experience competition from new entrants into the markets that it serves and
increased competition from companies offering products based on advanced
technologies or processes. The Company believes it is competitive in these key
areas.
The extruded sheet & rollstock group is an intermediate processor of plastics
which manufactures sheet & rollstock for customers who shape it for their end
use with thermoforming equipment. Several of these customers have, or upon
expansion may acquire, extrusion machinery. Moreover, some customers are large
enough to justify building their own molds and shifting from thermoforming to an
injection molding process. Injection molding techniques become competitive
whenever large quantities are produced or fine detailing or contouring is
required on the end product. However, thermoforming techniques have been
improved in recent years and are generally less expensive than other
manufacturing methods due to equipment costs and other associated start-up
expenses. Any material reduction in orders to the Company by its customers as a
result of a shift to in-house processing facilities could adversely affect the
Company's business. In addition, several customers of the Company's color &
specialty compounds division have the capability to formulate their own alloys,
compounds and color concentrates. However, the Company expects to benefit from
a growing trend of outsourcing of specialized semi-finished materials by many
manufacturers. Finally, the Company's molded & profile products group operates
in selective niches within highly-competitive markets.
Backlog
The Company estimates that the total dollar volume of its backlog as of
October 31, 1998 and November 1, 1997 was approximately $66.5 million and $39.2
million, respectively, which represents approximately four to five weeks of
production for each year.
Employees
The Company's total employment approximates 2,700. There are 2,150 production
personnel at the Company's 38 facilities, approximately 28% of whom are union
employees covered by several collective bargaining agreements. There have been
no strikes in the past three years. Management personnel total approximately
550 supervisory/clerical employees, none of whom is unionized. The Company
believes that all of its employee and union relations are satisfactory.
Government Regulation
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 and does not anticipate large expenditures in fiscal 1999 to
comply with any applicable regulations. The Company is subject to federal,
state, and local laws (including Canadian provincial 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. Modifications of
existing environmental regulations, the adoption of new environmental
regulations, or unanticipated enforcement actions, could require material
capital expenditures or otherwise have a material adverse effect on the
Company's businesses. The Company has not incurred significant expenditures
in order to comply with such laws and regulations, nor does it anticipate
continued compliance therewith to materially affect its earnings or competitive
position.
International Operations
Information regarding the Company's operations in its three geographic
segments -- United States, Canada and Europe -- is located in Note (12) to the
Consolidated Financial Statements on page 26 of the 1998 Annual Report to
Shareholders, attached hereto as Exhibit 13. The Company's Canadian and French
operations may be affected periodically by foreign political and economic
developments, laws and regulations, and currency fluctuations.
Other
The Company has already modified substantially all of its computer systems to
be Year 2000 compliant. The Company does not anticipate any significant costs,
problems, or uncertainties associated with becoming Year 2000 compliant. The
Company could potentially experience disruption to some aspects of its
operations as a result of noncompliant systems utilized by unrelated third party
governmental and business entities. The Company continues to communicate with
others with whom it does significant business to determine their Year 2000
compliance readiness and the extent to which the Company is vulnerable to any
third party Year 2000 issues.
Item 2. PROPERTIES
The Company operates in plants and offices aggregating approximately
2,862,000 square feet of space. Approximately 1,078,000 square feet of plant
and office space is leased with the remaining 1,784,000 square feet owned by the
Company. A summary of the Company's principal operating facilities follows:
Extruded Sheet & Rollstock
Location Description Size in Square Feet Owned/
Leased
Arlington, TX Extrusion plant & offices 126,000 Leased
Atlanta, GA Extrusion plant & offices 75,000 Leased
Cape Girardeau, MO Extrusion plant & offices 100,000 Owned
Clare, MI Extrusion plant & offices 27,000 Owned
Greenville, OH Extrusion plant & offices 60,000 Owned
10,000 Leased
Greensboro, GA Extrusion plant & offices 28,000 Owned
4,000 Leased
La Mirada, CA Extrusion plant & offices 98,000 Leased
Mankato, MN Extrusion plant & offices 36,000 Owned
54,000 Leased
McMinnville, OR Extrusion plant & offices 40,000 Owned
McPherson, KS Extrusion plant & 51,000 Owned
offices
Paulding, OH Extrusion plant & offices 68,000 Owned
20,000 Leased
Portage, WI Extrusion plant & offices 115,000 Owned
54,000 Leased
Richmond, IN Extrusion plant & offices 52,000 Owned
29,000 Leased
Taylorville, IL Extrusion plant & offices 40,000 Owned
Wichita, KS Extrusion plant & offices 63,000 Owned
128,000 Leased
Cornwall, Ontario Extrusion plant & offices 38,000 Leased
Granby, Quebec Extrusion plant & offices 75,000 Owned
10,000 Leased
1,401,000
Color & Specialty Compounds
Location Description Size in Square Owned/
Feet Leased
Cape Girardeau, MO Compounding plant & offices 57,000 Owned
60,000 Leased
Charleston, SC Compounding plant & offices 97,000 Leased
Conneaut, OH Compounding plant & offices 94,000 Owned
Conshohocken, PA Calendering plant & offices 39,000 Owned
Donora #1, PA Compounding plant & offices 142,000 Owned
Donora #2, PA Compounding plant & offices 88,000 Owned
Goddard, KS Color plant & offices 38,000 Owned
Kearny, NJ Compounding plant & offices 59,000 Owned
Lake Charles, LA Compounding plant & offices 55,000 Owned
Lockport, NY Compounding plant & offices 45,000 Owned
Oxnard, CA Compounding plant & offices 73,000 Leased
St. Clair, MI Compounding plant & offices 71,000 Owned
Montreal, Quebec Color plant & offices 39,000 Leased
Stratford, Ontario Color plant & offices 65,000 Owned
Donchery, France Compounding plant & offices 30,000 Owned
1,052,000
Molded & Profile Products
Location Description Size in Square Owned/
Feet Leased
El Monte, CA Profile Plant & Offices 63,000 Leased
Greensboro, GA Profile Plant & Offices 14,000 Owned
6,000 Leased
McPherson, KS Profile Plant & Offices 51,000 Owned
Warsaw, Indiana Injection Molding plant & 41,000 Owned
offices
Cookshire, Quebec Injection Molding plant & 140,000 Owned
offices
Toronto, Ontario Injection Molding plant & 73,000 Leased
offices
388,000
In addition, the Company leases office facilities for its Corporate
Headquarters in St. Louis, Missouri and for administrative offices in Montreal,
Quebec and Washington, Pennsylvania, the aggregate square footage of which
approximates 21,500.
The plants located at the premises listed above are equipped with 90 sheet
extrusion lines, 63 supplementary co-extruders, 31 profile extrusion lines, 40
general compounding lines, 17 color compounding lines, 63 injection molding
machines, 20 printing machines, 5 compression 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 over $20 million in 1999) are adequate for the level of business anticipated
in fiscal year 1999.
Item 3. LEGAL PROCEEDINGS
In 1992 and 1996, a former Director, Chairman of the Board, and Chief
Executive Officer of the Company, filed lawsuits against the Company and certain
of its Directors and major shareholders. In the suits, it was claimed that the
Company should adjust his existing stock options, provide for the issuance of
additional shares of common stock, and award to him attorney's fees and
interest. In February 1997, the Company settled both lawsuits. The settlement
resolved all claims and 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 1997 financial statements and,
after consideration of amounts previously accrued, did not result in a net
charge to earnings.
The Company is also 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
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 other matters will not have a material adverse effect
on the Company's financial position or results of operations. The Company
currently has no litigation with respect to any environmental matters.
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 October 31, 1998.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information on page 29 and 32 of the 1998 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 29 present the cash dividends
declared in 1997 consisting of four quarterly payments at five cents per share
and the cash dividends declared in 1998 consisting of four quarterly payments at
six cents per share. On December 8, 1998, the Company declared a dividend of
seven cents per share payable on January 5, 1999. 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 page 29 of the 1998 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 13, 14 and 15 of the 1998 Annual Report to
Shareholders, attached hereto as Exhibit 13, is incorporated by reference in
response to this item.
Safe Harbor Statement - 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 descriptions 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 future capital
expenditures, expenditures for environmental compliance, year 2000 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 International
Operations) included herein on pages 7 through 8, other important factors which
have 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; and (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.
However, the Company continues to seek value-added acquisitions which meet its
stringent acquisition criteria and complement its existing businesses.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information entitled "Quarterly Financial Information" on page 27 of the
1998 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 Registrant filed herewith are
set forth in Item 14 and included in Part IV of this Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning Directors of the Company contained in the section
entitled "Election of Directors" of the Definitive Proxy Statement for the 1999
Annual Meeting of Shareholders to be filed with the Commission on or about
January 15, 1999, is incorporated herein by reference in response to this item.
In addition, the following table sets forth certain information with respect
to the Company's executive officers:
Position with the Company
Name Age and Date Appointed
Bradley B. Buechler 50 President (April 1987), Chief
Executive Officer (October 1991),
and Director (February 1984)
David B. Mueller 45 Executive Vice President and
Chief Operating Officer (May
1996), Secretary (October 1991),
and Director (March 1994)
Daniel J. Yoder 57 Vice President of Materials
(September 1998) and Technology
(May 1990)
Randy C. Martin 36 Vice President-Finance and Chief
Financial Officer (May 1996)
David G. Pocost 37 Vice President of Engineering
(September 1998), Quality and MIS
(December 1996)
Mr. Buechler, a CPA, was with Arthur Andersen LLP for ten years before the
commencement of his employment with the Company in 1981. Prior to the positions
currently held, he was the Company's Corporate Controller and Vice President -
Finance from 1981-1984, Chief Financial Officer from 1983 - 1987 and Chief
Operating Officer from 1985 - 1996.
Mr. Mueller, a CPA, was previously with Arthur Andersen LLP for seven years
(1974 - 1981). More recently he was Corporate Controller of Apex Oil Company, a
large independent oil company, from 1981-1988. Prior to the positions currently
held, he was the Company's Vice President of Finance, Chief Financial Officer
from 1988 - 1996.
Mr. Yoder was General Manager of the Company's Spartech Plastics Central
Region from 1986-1990. From 1983-1986 he was Vice President of Manufacturing
for Atlas Plastics, Corp., prior to its acquisition by the Company.
Mr. Martin, a CPA and CMA, was previously with KPMG Peat Marwick LLP for
eleven years before joining the Company in 1995. Prior to the positions
currently held, he was the Company's Corporate Controller from 1995 to 1996.
Mr. Pocost was previously with Moog Automotive as Division Quality Assurance
Manager and Senior Materials Engineer for eight years. Prior to the position
currently held, he was the Company's Director of Quality & Environmental Affairs
from 1994-1996.
Item 11. EXECUTIVE COMPENSATION
The information contained in the sections entitled "Executive Compensation"
and "Board Committees and Compensation" of the Definitive Proxy Statement for
the 1999 Annual Meeting of Shareholders to be filed with the Commission on or
about January 15, 1999 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 1999 Annual Meeting of Shareholders to be
filed with the Commission on or about January 15, 1999 is incorporated herein by
reference in response to this item.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the sections entitled "Election of Directors",
"Executive Compensation" and "Certain Transactions" of the Definitive Proxy
Statement for the 1999 Annual Meeting of Shareholders to be filed with the
Commission on or about January 15, 1999 is incorporated herein by reference in
response to this item.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
The following financial statements, financial statement schedules and
exhibits are incorporated by reference from the 1998 Annual Report to
Shareholders and/or filed as part of this Form 10-K:
Page
Annual Report
Form 10-K to Shareholders
Report of Independent Public Accountants F-1 28
Financial Statements
Consolidated Statement of Operations - 16
Consolidated Balance Sheet - 17
Consolidated Statement of Shareholders' Equity - 18
Consolidated Statement of Cash Flows - 19
Notes To Consolidated Financial Statements - 20-27
Financial Statement Schedules
Schedule
Number Description
II. Valuation and Qualifying Accounts F-2 -
Exhibits
Exhibits required to be filed by Item 601(a) of Regulation S-K are included
as Exhibits to this report as follows:
2(A)(1) Asset Purchase and Sale Agreement between Spartech Corporation,
Preferred Technical Group, Inc. and Echlin Inc. dated August 22, 1997
2(B)(2) Asset Purchase and Sale Agreement between Spartech Corporation,
Polycom Huntsman, Inc., and Spartech Polycom, Inc. dated March 31,
1998
3(A)(3) Amended and Restated Articles of Incorporation
3(B) Amended and Restated By-Laws
10(A)(4) Amended and Restated Employment Agreement dated November 1, 1997,
between Bradley B. Buechler and Spartech Corporation
10(B)(4) Amended and Restated Employment Agreement dated November 1, 1997,
between David B. Mueller and Spartech Corporation
10(C) Amended and Restated Employment Agreement dated June 30, 1998,
between Daniel J. Yoder and Spartech Corporation
10(D)(5) Spartech Corporation Incentive Stock Option Plan dated July 26, 1991
as amended
November 1, 1997
10(E)(6) Spartech Corporation Restricted Stock Option Plan dated July 26, 1991
as amended November 1, 1997
10(F)(7) Employment Agreement between Randy C. Martin and Spartech Corporation
dated as of March 31, 1997
10(G)(7) Employment Agreement between David G. Pocost and Spartech Corporation
dated as of February 1, 1997
11 Statement re Computation of Per Share Earnings
13 Pages 13 through 29 and 32 of 1998 Annual Report to Shareholders
21 Subsidiaries of Registrant
23 Consent of Independent Public Accountants
24 Powers of Attorney
27 Financial Data Schedule
(1) Filed as an exhibit to the Company's Form 8-K, dated July 28,
1997, filed with the Commission on August 12, 1997, and incorporated
herein by reference.
(2) Filed as an exhibit to the Company's Form 8-K, dated March 31,
filed with the Commission on April 14, 1998, and incorporated herein
by reference.
(3) Filed as an exhibit to the Company's quarterly report on Form 10-Q
for the quarter ended May 2, 1998, filed with the Commission on June
1, 1998 and incorporated herein by reference.
(4) Filed as an exhibit to the Company's annual report on Form 10-K
for the fiscal year ended November 1, 1997, filed with the
Commission on January 12, 1998, and incorporated herein by
reference.
(5) Filed as an exhibit to the Company's S-8, filed with the
Commission on July 31, 1998 and incorporated herein by
reference.
(6) Filed as an exhibit to the Company's proxy statement filed with the
Commission on January 27, 1998 and incorporated herein by reference.
(7) Filed as an exhibit to the Company's quarterly report on Form 10-Q
for the quarter ended August 2, 1997, filed with the Commission on
September 2, 1997, and incorporated herein by reference.
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.
Reports on Form 8-K
None
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 06, 1999 By: /S/ Bradley B. Buechler
(Date) Bradley B. Buechler
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 06, 1999 /S/ Bradley B. Buechler President, Chief Executive
Bradley B. Buechler Officer, and Director
(Principal Executive Officer)
January 06, 1999 /S/ David B. Mueller Executive Vice President,
David B. Mueller Chief Operating Officer, and
Director
January 06, 1999 /S/ Randy C. Martin Vice President-Finance and
Randy C. Martin Chief Financial Officer
(Principal Financial and
Accounting Officer)
January 06, 1999 /S/ Ralph B. Andy Director
Ralph B. Andy*
January 06, 1999 /S/ Thomas L. Cassidy Director
Thomas L. Cassidy*
January 06, 1999 /S/ W. R. Clerihue Chairman of the Board and
W. R. Clerihue* Director
January 06, 1999 /S/John R. Kennedy Director
John R. Kennedy*
January 06, 1999 /S/ Calvin J. O'Connor Director
Calvin J. O'Connor*
January 06, 1999 /S/ Jackson W. Robinson Director
Jackson W. Robinson*
January 06, 1999 /S/ Alan R. Teague Director
Alan R. Teague*
* By Bradley B. Buechler as Attorney-in-Fact pursuant to Powers of Attorney
executed by the Directors listed above, which Powers of Attorney have been filed
with the Securities and Exchange Commission.
/S/ Bradley B. Buechler
Bradley B. Buechler
As Attorney-in-Fact
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SPARTECH CORPORATION
We have audited in accordance with generally accepted auditing standards, the
financial statements included in SPARTECH Corporation's 1998 Annual Report to
Shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated December 4, 1998. 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
ARTHUR ANDERSEN LLP
St. Louis, Missouri
December 4, 1998
F-1
SPARTECH CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED 1998, 1997, AND 1996
(Dollars in thousands)
BALANCE AT ADDITIONS AND BALANCE
BEGINNING OF CHARGES TO COSTS AT END OF
DESCRIPTION PERIOD AND EXPENSES WRITE-OFFS PERIOD
October 31, 1998:
Allowance for $ 2,212 $ 1,912 $ (1,694) $ 2,430
Doubtful Accounts
November 1, 1997:
Allowance for $ 1,946 $ 985 $ (719) $ 2,212
Doubtful Accounts
November 2, 1996:
Allowance for $ 1,592 $ 578 $ (224) $ 1,946
Doubtful Accounts
Fiscal year 1996, 1997, and 1998 additions and write-offs include activity
relating to the acquisition of certain of the businesses and assets of Portage
Industries Corporation in May 1996, the Hamelin Group, Inc. in September 1996,
the Preferred Plastics Sheet Division of Echlin Inc. in August 1997, Polycom
Huntsman Inc. in March 1998, Prismaplast Canada Ltd. In April 1998, and Anjac-
Doron Plastics, Inc. in October 1998.
F-2