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21
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 30, 1999
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 (I.R.S. Employer Identification
or organization) 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(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 $432,940,512 on December 31, 1999.
There were 27,385,677 total shares of common stock outstanding as of December
31, 1999.
Documents incorporated by reference
1) Portions of the 1999 Annual Report to Shareholders are incorporated by
reference into Parts I, II and IV.
2) Portions of the Definitive Proxy Statement for the 2000 Annual Meeting of
Shareholders are incorporated by
reference into Part III.
PART I
Item 1. BUSINESS
General
Spartech Corporation, together with its subsidiaries, is an intermediary
processor of thermoplastics. The Company converts base polymers, or resins,
from commodity suppliers into extruded plastic sheet and rollstock, color
concentrates and blended resin compounds, and injection molded and profile
extruded products. The Company's products are sold to over 5,400 original
equipment manufacturers and other customers in a wide range of end markets. The
Company operates 42 production facilities in North America and one in Europe,
and is organized into three reportable segments, based on the products
manufactured: Extruded Sheet & Rollstock; Color & Specialty Compounds; and
Molded & Profile Products.
Extruded Sheet & Rollstock sells its products to various manufacturers who
use plastic components in their industrial products. The Company's extruded
sheet and rollstock is utilized in several end markets including
transportation, food/medical packaging, building & construction, recreation
& leisure, and sign/advertising. The Company is North America's largest
extruder of custom rigid plastic sheet and rollstock, operating 21
facilities in the United States and Canada under the name Spartech Plastics.
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 packaging, transportation, electronics
& appliances, building & construction and other end markets. The Company
produces and distributes these products from 14 facilities under the names
Spartech Polycom, Spartech Color, and Spartech Vy-Cal in the United States,
Canada and France.
Molded & Profile Products 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, (3) water purification system components,
and (4) profile extruded products for a variety of industries. The Company
manufactures these molded and profile products from 8 facilities in the
United States and Canada under the names Spartech Industries and Spartech
Profiles.
The Company's principal executive office is located at 120 S. Central Avenue,
Suite 1700, Clayton, Missouri 63105-1705, telephone (314) 721-4242. The Company
was incorporated in the State of Delaware in 1968, succeeding a business which
had commenced operations in 1960.
Industry Overview
The Society of Plastics Industry estimates that the U.S. plastics industry
produced over 91 billion pounds of plastic in 1998 and grew at a 6% compound
annual growth rate from 1993 to 1998, due partly to the continuing substitution
of plastics for traditional materials such as metal, fiberglass and wood. The
intermediary processor segment of the plastics industry is fragmented, with over
2,000 plastic processing companies that generally operate in one or more of the
following areas:
Sheet and film extrusion,
Specialty compounding,
Color concentrates,
Pipe, profile and tube extrusion,
Injection molding,
Thermoforming,
Blow molding, and
Rotational molding.
Each of these processing methods 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
processing industry in the United States is represented by 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;
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, the Company believes it is well
positioned to increase its business through new product developments, the
continuing substitution of thermoplastics for wood, metal, and fiberglass
applications, and selective acquisitions. The Company calls its new products
Alloy Plastics, and the substitution process Product Transformations and
additional information on these items is covered under the Operating Philosphy
section that follows below. Acquisitions completed over the last five years are
summarized below:
Date
Acquired Business Acquired Products / Segments
May 1996 Portage Industries Extruded Sheet & Rollstock
September 1996 Hamelin Group Extruded Sheet & Rollstock,
Color Concentrates, and Molded
Products
August 1997 Preferred Plastic Sheet Extruded Sheet & Rollstock and
Division of Echlin Inc. Profile Products
March 1998 Polycom Huntsman, Inc. Specialty Compounds
April 1998 Prismaplast Canada, Ltd. Color Concentrates
October 1998 Anjac-Doran Plastics, Inc. Profile Products
January 1999 Lustro Plastics, Company, Extruded Sheet & Rollstock
L.L.C.
May 1999 Alltrista Plastic Packaging Extruded Sheet & Rollstock
Company Division of
Alltrista Corporation
October 1999 Accura Molding Company Ltd. Injection Molded Products
October 1999 OS Plastics, Division of Extruded Sheet & Rollstock
Innocan Capital Inc.
October 1999 Geoplast PVC Division of RAE Profile Products
Capital Corp
Further information with respect to Spartech's recent acquisition activity is
set forth in Note (2) to the Consolidated Financial Statements on page 23 of the
1999 Annual Report to Shareholders, attached as Exhibit 13.
Operating Philosophy
Spartech introduced its current strategic vision in the early 1990's, as the
Company began to capitalize on its core manufacturing competencies and take
advantage of the growth opportunities in the consolidating plastics industry.
Today, our "Focused Growth" and "Continuous Improvement" strategies support our
commitment to generate value for our customers, shareholders, and employees.
SPARTECH's "Four Cornerstones for Volume Growth" initiatives continue to provide
a strong foundation for our Focused Growth strategy. In early fiscal 1999, the
Company introduced SPARTECH's "Pyramids of Productivity" initiative and has now
expanded its "Continuous Improvement" strategy to include three "Pyramids of
Performance."
Focused Growth Strategy--Spartech's volume growth strategy, initiated in 1991,
is known as 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. 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 position in the plastics
intermediary
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 or market penetration; and
(iii)
provide operational synergies in purchasing, production and customer
service.
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 custom 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 power tool 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. 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. The Company aggressively develops 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 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.
Continuous Improvement Strategy--Spartech's Continuous Improvement strategy,
under the Company's Pyramids of Performance initiatives, focuses Spartech on
consistent improvement in production efficiency, communication, and service.
The three components of this strategy are:
Pyramid of Productivity. Combines Supply Chain Management, Lean
Manufacturing, and Results-Driven Communication efforts to enhance earnings
through continuous improvements at each of our 43 operations. Over 80
cross- functional teams throughout all our facilities work on generating
productivity improvements, eliminating waste, and identifying process
efficiencies. Annually, the Company recognizes our three 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 is being 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 Service. Builds upon our efforts to consistently meet and
exceed customer expectations for quality, service, and cost. Our Total
Customer Satisfaction program emphasizes our commitment to enhance our rapid
response and competitive pricing to each of our five thousand-plus
customers. These efforts are coordinated with our Total Transaction Quality
and Growth Through Training programs to enhance our partnerships with
customers.
Operating Segments
Extruded Sheet & Rollstock--Net sales and operating earnings (consisting of
earnings before interest, taxes and corporate operations/allocations) of the
Extruded Sheet & Rollstock segment for fiscal years 1999, 1998, and 1997 were as
follows:
Fiscal Year
(Dollars in millions)
1999 1998 1997
Net Sales $494.1 $455.1 $375.8
Operating Earnings $57.6 $50.5 $39.6
Products. This segment, which operates under the name Spartech Plastics,
processes a variety of materials into single and multilayer sheets or
rollstock on a custom basis for end product manufacturers. The segment's
extruded sheet and rollstock is utilized in several end markets including
transportation, building & construction, packaging, recreation and sign/
advertising. Most of the segment's customers thermoform, cut, and 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 are 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 and environmentally-friendly products with cost effective
benefits. The Company currently offers 15 alloy plastics, five of which
were introduced in April 1999.
Manufacturing and Production. This segment operates 21 facilities in
North America. The principal raw materials used in manufacturing extruded
sheet and rollstock are plastic resins in pellet form. The Company
extrudes 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).
The Company produces plastic sheet and rollstock of up to seven layers
using a multi-extrusion process. This process combines the 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, the Company will coat a
plastic sheet or laminate sheets together 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 production
facility. This is due to 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 extruded sheet and rollstock products principally through
our own sales force, but also uses a limited number of independent sales
representatives. During 1999, the Company sold products of the Extruded
Sheet & Rollstock segment to over 3,100 customers, including Sub-Zero
Freezer Company, John Deere & Company, Jacuzzi Incorporated, Igloo
Corporation, and Fleetwood Enterprises, Inc.
Color & Specialty Compounds--Net sales and operating earnings (consisting of
earnings before interest, taxes and corporate operations/allocations) of the
Color & Specialty Compounds segment for fiscal years 1999, 1998, and 1997 were
as follows:
Fiscal Year
(Dollars in millions)
1999 1998 1997
Net Sales $217.6 $158.2 $84.0
Operating Earnings $28.6 $18.1 $7.1
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
footwear, appliance components, lawn and garden equipment, cosmetics
and medical packaging, vehicle components and numerous other products.
The segment operates under three business names:
Spartech Polycom produces its own line of proprietary compounds 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 calendering machine,
supplying finished PVC film to manufacturers of such products as
loose-leaf binders, decorator-grade wallcoverings 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 and 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. The
Company creates new specialty compounds by adding reinforcements 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.
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 and PVC. The Company also uses 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 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 our own sales force, but also uses
independent sales representatives. During 1999, the Company sold products
of the Color & Specialty Compounds segment to over 2,300 customers,
including The Black & Decker Corporation, DaimlerChrysler Corporation,
First Brands Corporation and Tenneco Inc.
Molded & Profile Products--Net sales and operating earnings (consisting of
earnings before interest, taxes, and corporate operations/allocations) of the
Molded and Profile Products segment for fiscal 1999, 1998, and 1997 were as
follows:
Fiscal Year
(Dollars in millions)
1999 1998 1997
Net Sales $56.2 $40.6 $ 42.9
Operating Earnings $7.8 $5.7 $ 5.9
" Products. Our Molded & Profile Products segment manufactures a wide range
of injection molded and profile extruded products for a large group of
intermediate and end-user customers The segment operates under two business
names:
-- Spartech Industries produces thin-walled, printed plastic food
packaging and industrial containers for a large group of dairy, deli and
industrial supply companies; plastic tire and wheel assemblies for the
lawn and garden, refuse container and toy markets; and water
purification systems for Brita.
Spartech Profiles manufactures products for various industries,
including the bedding and construction markets.
" New Product Development. This segment brings unique, recognized
capabilities to our customers such as print graphics and package design,
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 the Company participates.
" Manufacturing and Production. This segment operates eight manufacturing
facilities in North America. The principal raw materials used in
our manufacturing of molded and profile products are polyethylene,
polypropylene and PVC. Products are produced either through injection
molding or profile extrusion.
" Marketing, Sales and Distribution. Spartech Industries - Thin Wall
Containers markets most of its products to customers located in North America,
as well as the Caribbean. Spartech Industries - Custom Engineered Wheels markets
its products throughout North America. Spartech Industries - Custom Molded
Products sells water purification systems and various custom molded products
throughout North America. Spartech Profiles markets its custom profile products
throughout North America. The Company sells the segment's products principally
through our own sales force, but also uses independent sales representatives.
During 1999, the Company sold products of the Molded & Profile Products segment
to approximately 1,100 customers, including MTD Products, Dannon Company, Select
Comfort Corporation, The Toro Company and Waste Management, Inc.
Pending Acquisition
On December 27, 1999, Spartech announced that it entered into an agreement to
acquire substantially all of the assets of High Performance Plastics, Inc., a
wholly-owned subsidiary of Uniroyal Technology Corporation (Nasdaq NMS: UTCI)
and a well-established manufacturer of proprietary plastic products based in
South Bend, Indiana with sales of approximately $130 million. HPP, through its
two operating divisions--Polycast (cell cast acrylic) and Royalite (extruded
thermoplastic sheet)--will significantly expand Spartech's product offerings to
customers, increase production capacity through nine additional manufacturing
plants located throughout North America, and broaden the Company's technical and
marketing expertise in serving several new growth industries for Spartech.
Currently over 75% of HPP's sales are derived from products or markets in which
Spartech has not previously competed.
Raw Materials
The Company uses large amounts of various plastic 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.
The Company seeks to maintain operating margins by matching cost increases with
corresponding price increases and have generally been successful in doing so.
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 the
foreseeable future.
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 processing segments 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 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 manufacture consistently to required quality levels, meet demanding
delivery times, exercise skill in raw material purchasing, and achieve
production efficiencies to process the products profitably. The Company
believes it is competitive in each of these key areas.
Backlog
The Company estimates that the total dollar volume of its backlog as of
October 30, 1999 and October 31, 1998 was approximately $75.6 million and $66.5
million, respectively, which represents approximately five weeks of production
for each year.
Employees
The Company's total employment approximates 3,350. There are 2,800 production
personnel at the Company's 43 facilities, approximately 27% 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 2000 to
comply with any applicable regulations. 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, nor does it
anticipate continued compliance 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 France -- is located in Note (13) to the
Consolidated Financial Statements on page 29 of the 1999 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 modified substantially all of its computer systems to be Year
2000 compliant. The Company has not incurred and does not anticipate any
significant costs, problems, or uncertainties associated with operating its Year
2000 compliant systems. 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 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
3,462,500 square feet of space. Approximately 1,424,000 square feet of plant
and office space is leased with the remaining 2,038,500 square feet owned by the
Company. A summary of the Company's principal operating facilities follows:
Extruded Sheet & Rollstock
Location Description Size in Square Owned/Leas
Feet ed
Arlington, TX Extrusion plant & 126,000 Leased
offices
Atlanta, GA Extrusion plant & 75,000 Leased
offices
Cape Extrusion plant & 100,000 Owned
Girardeau, MO offices
Clare, MI Extrusion plant & 27,000 Owned
offices
Evanston, IL Extrusion plant & 135,000 Leased
offices
Greenville, OH Extrusion plant & 60,000 Owned
offices
10,000 Leased
Greensboro, GA Extrusion plant & 42,000 Owned
offices
10,000 Leased
La Mirada, CA Extrusion plant & 98,000 Leased
offices
Mankato, MN Extrusion plant & 36,000 Owned
offices
54,000 Leased
McMinnville, Extrusion plant & 40,000 Owned
OR offices
McPherson, KS Extrusion plant 102,000 Owned
& offices
Muncie, IN Extrusion plant 201,500 Owned
& offices
Oxnard, CA Extrusion plant 73,000 Leased
& offices
Paulding, OH Extrusion plant 68,000 Owned
& offices
20,000 Leased
Portage, WI Extrusion plant & 118,000 Owned
offices
54,000 Leased
Richmond, IN Extrusion plant & 52,000 Owned
offices
29,000 Leased
Taylorville, Extrusion plant & 40,000 Owned
IL offices
Wichita, KS Extrusion plant & 63,000 Owned
offices
128,000 Leased
Cornwall #1, Extrusion plant & 38,000 Leased
Ontario offices
Cornwall #2, Extrusion plant & 64,000 Leased
Ontario offices
Granby, Quebec Extrusion plant & 75,000 Owned
offices
10,000 Leased
1,948,500
Color & Specialty Compounds
Location Description Size in Square Owned/Lease
Feet d
Cape Compounding plant & 57,000 Owned
Girardeau, MO offices
60,000 Leased
Charleston, SC Compounding plant & 97,000 Leased
offices
Conneaut, OH Compounding plant & 94,000 Owned
offices
Conshohocken, Calendering plant & 39,000 Owned
PA offices
Donora #1, PA Compounding plant & 142,000 Owned
offices
Donora #2, PA Compounding plant & 88,000 Owned
offices
Goddard, KS Color plant & 38,000 Owned
offices
Kearny, NJ Compounding plant & 59,000 Owned
offices
Lake Charles, Compounding plant & 55,000 Owned
LA offices
Lockport, NY Compounding plant & 45,000 Owned
offices
St. Clair, MI Compounding plant & 71,000 Owned
offices
Montreal, Color plant & 39,000 Leased
Quebec offices
Stratford, Color plant & 65,000 Owned
Ontario offices
Donchery, Compounding plant & 30,000 Owned
France offices
979,000
Molded & Profile Products
Location Description Size in Owned/Lease
Square Feet d
El Monte, CA Profile plant & 63,000 Leased
offices
Greensboro, GA Profile plant -*
McPherson, KS Profile plant -*
Warsaw, IN Injection molding 41,000 Owned
plant & offices
28,000 Leased
Brampton, Injection molding 100,000 Leased
Ontario plant & offices
Cookshire, Injection molding 140,000 Owned
Quebec plant & offices
Toronto, Injection molding 73,000 Leased
Ontario plant & offices
Winnipeg, Profile plant & 50,000 Owned
Manitoba offices
11,000 Leased
506,000
*Profile production conducted in same facility as the Extruded
Sheet & Rollstock plant noted above.
In addition, the Company leases office facilities for its headquarters in St.
Louis, Missouri and for administrative offices in Montreal, Quebec and
Washington, Pennsylvania, the aggregate square footage of which is approximately
29,000.
The plants located at the premises listed above are equipped with 104 sheet
extrusion lines, 79 of which run multi-layered materials, 40 profile extrusion
lines, 40 general compounding lines, 19 color compounding lines, 97 injection
molding machines, 20 printing 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 $25
million in fiscal 2000) are adequate for the level of business anticipated in
fiscal 2000.
Item 3. LEGAL PROCEEDINGS
The Company is subject to various 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. The Company currently
has no material 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 30, 1999.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information on page 31 and 34 of the 1999 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 34 present the cash dividends
declared in fiscal 1998 consisting of four quarterly payments at six cents per
share and the cash dividends declared in fiscal 1999 consisting of four
quarterly payments at seven cents per share. On December 7, 1999, the Company
declared a dividend of eight and one-half cents per share payable on January 19,
2000. 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 31 of the 1999 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 14, 15, 16, and 17 of the 1999 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 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 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 29 of the
1999 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 2000
Annual Meeting of Shareholders, to be filed with the Commission on or about
January 21, 2000, 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 and
Name Age Date Appointed
Bradley B. Buechler 51 Chairman of the Board (March
1999), President (April
1987), Chief Executive
Officer (October 1991), and
Director (February 1984)
David B. Mueller 46 Executive Vice President and
Chief Operating Officer (May
1996), Secretary (October
1991), and Director (March
1994)
Daniel J. Yoder 58 Vice President of Materials
(September 1998) and
Technology (May 1990)
Randy C. Martin 37 Vice President-Finance and
Chief Financial Officer (May
1996)
David G. Pocost 38 Vice President of Engineering
(September 1998), Quality and
MIS (December 1996)
Jeffrey D. Fisher 51 Vice President and General
Counsel (July 1999)
Mr. Buechler, a CPA, was with Arthur Andersen LLP 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.
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 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.
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.
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 2000 Annual Meeting of Shareholders to be filed with the Commission on or
about January 21, 2000 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 2000 Annual Meeting of Shareholders to be
filed with the Commission on or about January 21, 2000 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 2000 Annual Meeting of Shareholders to be filed with the
Commission on or about January 21, 2000 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 1999 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 30
Financial Statements
Consolidated Balance Sheet - 18
Consolidated Statement of Operations - 19
Consolidated Statement of Shareholders' Equity - 20
Consolidated Statement of Cash Flows - 21
Notes To Consolidated Financial Statements - 22-29
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 (1) Asset Purchase and Sale Agreement between Spartech Corporation;
Polycom
Huntsman, Inc., and Spartech Polycom, Inc. dated March 31, 1998
3(A)(2) Restated Certificate of Incorporation
3(B)(3) Amended and Restated By-Laws
10(A) Amended and Restated Employment Agreement dated as of November 1, 1999,
between Bradley B. Buechler and Spartech Corporation
10(B) Amended and Restated Employment Agreement dated as of November 1, 1999,
between David B. Mueller and Spartech Corporation
10(C)(3) Employment Agreement dated June 30, 1998, between Daniel J. Yoder and
Spartech Corporation
10(D)(4) Spartech Corporation Incentive Stock Option Plan dated July 26, 1991
as amended November 1, 1997
10(E)(5) Spartech Corporation Amended and Restated Restricted Stock Option Plan
10(F)(6) Employment Agreement between Jeffrey D. Fisher and Spartech
Corporation dated April 30, 1999
10(G) Employment Agreement between Randy C. Martin and Spartech Corporation
dated as of January 1, 2000
10(H) Employment Agreement between David G. Pocost and Spartech Corporation
dated as of January 1, 2000
11 Statement re Computation of Per Share Earnings
13 Pages 14 through 31 and 34 of 1999 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 March 31, 1998
filed with the Commission
on April 14, 1998 and incorporated herein by reference.
(2)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.
(3)Filed as an exhibit to the Company's annual report on Form 10-K for
the fiscal year ended October 31, 1998, filed with the Commission
on January 7, 1999 and incorporated herein by reference.
(4)Filed as an exhibit to the Company's Form S-8 (File No. 333-60381),
filed with the Commission on July 31, 1998 and incorporated herein
by reference.
(5)Filed as an exhibit to the Company's Form 8-K filed with the Commission
on
December 6, 1999 and incorporated herein by reference.
(6)Filed as an exhibit to the Company's quarterly report on Form 10-Q for
the quarter ended
July 31, 1999, filed with the Commission on August 31, 1999 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
A Form 8-K was filed on December 6, 1999 announcing that effective
September 9, 1999, the Board of Directors of the registrant approved certain
amendments to the registrant's Restricted Stock Option Plan, originally
adopted in 1991. The amendments to the Plan permit certain transfers of
options issued pursuant to the Plan, and expand in certain respects the types
of consideration which may be paid to exercise the options and pay withholding
taxes due upon exercise. No financial statements were required to be filed in
the Form 8-K.
A Form 8-K was filed on December 9, 1999 announcing the fiscal 1999
operating results and outlook for fiscal 2000. No financial statements were
required to be filed in the Form 8-K.
A Form 8-K was filed on December 28, 1999 announcing an agreement to
acquire substantially all of the assets of High Performance Plastics, Inc. No
financial statements were required to be filed in the Form 8-K.
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 10, 2000 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 10, 2000 /s/Bradley B. Buechler Chairman, President, Chief
Bradley B. Buechler Executive Officer, and
Director
(Principal Executive Officer)
January 10, 2000 /s/David B. Mueller Executive Vice President,
David B. Mueller Chief Operating Officer, and
Director
January 10, 2000 /s/ Randy C. Martin Vice President-Finance
Randy C. Martin and Chief Financial Officer
(Principal Financial and
Accounting Officer)
January 10, 2000 /S/ Ralph B. Andy Director
Ralph B. Andy*
January 10, 2000 /S/ Thomas L. Cassidy Director
Thomas L. Cassidy*
January 10, 2000 /S/ W. R. Clerihue Director
W. R. Clerihue*
January 10, 2000 /S/John R. Kennedy Director
John R. Kennedy*
January 10, 2000 /S/ Calvin J. O'Connor Director
Calvin J. O'Connor*
January 10, 2000 /S/ Jackson W. Robinson Director
Jackson W. Robinson*
January 10, 2000 /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 are filed
herewith.
/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 1999 Annual Report to
Shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated December 7, 1999. 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 7, 1999
F-1
SPARTECH CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED 1999, 1998, AND 1997
(Dollars in thousands)
BALANCE AT ADDITIONS AND
BEGINNING OF CHARGES TO COSTS BALANCE AT
DESCRIPTION PERIOD AND EXPENSES WRITE-OFFS END OF
PERIOD
October 30,
1999: $ 2,430 $ 1,467 $ (881) $ 3,016
Allowance for
Doubtful
Accounts
October 31,
1998: $ 2,212 $ 1,912 $ (1,694) $ 2,430
Allowance for
Doubtful
Accounts
November 1,
1997: $ 1,946 $ 985 $ (719) $ 2,212
Allowance for
Doubtful
Accounts
Fiscal year 1997, 1998, and 1999 additions and write-offs include activity
relating to the acquisition of certain of the businesses and assets of the
Preferred Plastic Sheet Division of Echlin Inc. in August 1997, Polycom
Huntsman, Inc. in March 1998, Prismaplast Canada Ltd. in April 1998, Anjac-Doron
Plastics, Inc. in October 1998, Lustro Plastics, Company, L.L.C. in January
1999, Alltrista Plastic Packaging Company Division of Alltrista Corporation in
May 1999, Accura Molding Company Ltd. in October 1999, OS Plastics Division of
Innocan Capital Inc. in October 1999, and Geoplast PVC Division of RAE Capital
Corp. in October 1999.
F-2