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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 30, 2004
Commission file number 1-5911
SPARTECH CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
43-0761773
(I.R.S. Employer Identification Number)
120 S. CENTRAL AVENUE; SUITE 1700, CLAYTON, MISSOURI 63105-1705
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 721-4242
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.75 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [X] NO [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $724,659,535 on May 1, 2004.
There were 32,203,854 total shares of common stock outstanding as of December
31, 2004.
Documents incorporated by reference
1) Portions of the 2004 Annual Report to Shareholders (Parts I and II).
2) Portions of the Definitive Proxy Statement for the 2005 Annual Meeting
of Shareholders (Part III).
PART I
Item 1. BUSINESS
General
Spartech Corporation (the "Company"), together with its subsidiaries, is
an intermediary processor of engineered thermoplastics. The Company converts
base polymers, or resins, from commodity suppliers into extruded plastic sheet
& rollstock, specialty film laminates, acrylic products, specialty plastic
alloys, color concentrates & blended resin compounds, and injection molded &
profile extruded products. Our products are sold to approximately 7,300
original equipment manufacturers and other customers in a wide range of end
markets. We operate 49 production facilities in North America and two in
Europe, and are organized into three reportable segments, based on the products
we manufacture: Custom Sheet & Rollstock; Color & Specialty Compounds; and
Molded & Profile Products.
Custom Sheet & Rollstock sells its products to various manufacturers who
use plastic components in their industrial products. Our custom sheet and
rollstock is utilized in several end markets including food/medical
packaging, signs/advertising, spas, bathtubs & shower surrounds, burial
vault liners, automotive & recreational vehicle components, aircrafts,
boats, security windows, and refrigerators. The Company is North America's
largest extruder of custom rigid plastic sheet and rollstock, operating 28
facilities in the United States, Canada, Mexico and France under the names
Spartech Plastics, Spartech Polycast and Spartech PEP.
Color & Specialty Compounds sells custom designed plastic alloys,
compounds, color concentrates and calendered film for utilization by a
large group of manufacturing customers servicing the food/medical
packaging, automotive equipment, consumer electronics & appliances,
roofing, wall coverings, and other end markets. We produce and distribute
these products from 16 facilities under the names Spartech Polycom,
Spartech Color, and Spartech Vy-Cal in the United States, Canada, Mexico
and France.
Molded & Profile Products manufactures a number of proprietary items
including: thermoplastic tires and wheels for the medical, lawn & garden,
refuse container, and toy markets and window frames and fencing for the
building & construction market as well as other custom profile extruded and
acrylic products for a variety of industries. We manufacture these molded
and profile products from seven facilities in the United States and Canada
under the names Spartech Industries, Spartech Profiles, Spartech Townsend,
and Spartech Marine.
Spartech was incorporated in the State of Delaware in 1968, succeeding a
business which had commenced operations in 1960. Our principal executive
office is located at 120 South Central Avenue, Suite 1700, Clayton, Missouri
63105-1705. Our telephone number is (314) 721-4242. Our website address is
www.spartech.com.
Industry Overview
The intermediary processor segment of the plastics industry is fragmented,
with over 2,000 plastics processing companies many of which compete with us in
one or more of the following areas in which we operate:
* Sheet Extrusion - Plastic sheet is produced by forcing melted plastic
through a wide, flat die between polished or textured metal rollers and onto a
flat cooling bed for cutting to the desired width and length.
* Rollstock Extrusion - Similar to sheet extrusion, except that the plastic
is wound onto rolls rather than cut into flat pieces of a specific length.
* Calendering - Plastic film is produced by drawing molten polymer
between two counter-rotating rollers under pressure.
* Cell Cast Acrylics - Acrylic sheet is produced by pouring a reactive
mixture of liquid monomers, additives and catalysts between two polished glass
sheets held together at a desired thickness, and allowing the mixture to
polymerize with time, heat, and pressure in an oven or water bath until solid.
* Specialty Compounding - Basic plastic resins are melted and mixed with
additives,fillers, or other plastics in order to impart specific properties
such as gloss, strength or moldability to the resulting mixture, which is
typically sold and shipped in pellet form.
* Color Concentrates - Basic plastic resins are melted and mixed with
pigments in order to produce colored pellets, which plastics compounders or
fabricators blend with natural color plastics to make products of desired
colors.
* Profile Extrusion - Products having a desired two-dimensional cross-
section,such as plastic fence rails or window frames, are produced by forcing
melted plastic through a die of various shapes, cooling it in air or in a water
bath, and cutting it to the desired length.
* Cast Acrylic Rods & Tubes - Rods are produced from reactive mixtures
similar to those used for cell cast acrylics by curing the mixture in a
vertical, tubular mold and then grinding and polishing the rod to the desired
length and diameter. Tubes are produced by curing a similar mixture against
the inside of a drum-shaped mold of the desired length and diameter while it
revolves on a horizontal axis.
* Injection Molding - Three-dimensional products such as wheels are formed
by forcing melted plastic into a mold cavity under pressure so that when cooled
the plastic reflects the shape of the cavity.
There are various other processes used within the plastics processing industry
in which we do not compete, such as, continuous cast acrylics, blown film
extrusion, pipe and tube extrusion, thermoforming, blow molding and rotational
molding.
Each of these processing methods has unique competitive and economic
characteristics and involves different production capabilities, operating costs
and equipment and requires a different level of capital expenditure and
operating expertise.
A large percentage of the plastics processors in the United States are small
to mid-size regional operations that generate less than $50 million in annual
sales, and the industry is continuing to undergo consolidation. Current trends
contributing to this consolidation include:
* Greater focus on management transition issues by plastics entrepreneurs;
* The potential to achieve economies of scale and obtain revenue and fixed
cost synergies;
* Processors seeking to focus on fewer core competencies and outsourcing non-
core operations;
* Increased capital and technical capabilities necessary to increase
production efficiencies and expand capacity; and
* Customers seeking to deal with fewer suppliers.
Our Competitive Strengths
Our competitive strengths include:
* Market Position. According to the Plastics News Market Data Book, December
27, 2004, we are the largest producer of extruded sheet and rollstock in
North America, and we are one of the leading producers of color
and specialty compounds in North America.
* New Product Development. Our diversity of product capabilities and
experienced operating personnel have provided a consistent means for
identifying and developing new product applications through both the use
of our proprietary Alloy Plastics and the acceleration of Product
Transformation ideas.
* Benefits from Acquisitions. We have completed six significant acquisitions
of businesses over the past five years. Our successful integration of these
acquisitions into our business has enabled us to achieve synergies and
operating leverage through:
- Greater geographic presence to service customers and respond to certain
concentrated markets;
- Centralized purchasing of raw materials and other cost synergies;
- Improved resource utilization through manufacturing optimization; and
- Greater absorption of fixed costs over an increased revenue base.
These factors enable us to broaden our product capabilities and enhance
customer service while maintaining our cost competitiveness
* Commitment to Customer Service. We seek to differentiate ourselves from
our competitors by emphasizing our wide range of product offerings,
consistentproduct quality, outstanding customer service, and i
nnovative technical solutions for our customers.
* Diversified Customer Base. We sell our products to approximately 7,300
customers in a broad range of end markets, with no single customer
accounting for more than 6% of our 2004 sales. Our top 25 customers
represented 32% of our 2004 sales. Based on our classification of end
markets, packaging is our largest single market, accounting for
approximately 24% of our 2004 sales. The packaging market generally
experiences faster growth and less cyclicality than the other major markets
served by plastics processors.
* Geographic Presence. Our 51 plants are strategically located in 42 cities
throughout North America and in one city in France. The close proximity
of our plants to our customers saves shipping costs, reduces delivery
times and increases our presence in a variety of markets.
* Decentralized Management Structure. Our day-to-day operating decisions
are made at each of our operating locations. This promotes operating
efficiency, timely decision making and effective integration of the
businesses we acquire.
Due to the size and breadth of our operations, we believe we are well
positioned to increase our business through new product developments, the
continuing substitution of thermoplastics for wood, metal and fiberglass
applications, and selective acquisitions. We call our new products Alloy
Plastics and the substitution process Product Transformations, and additional
information regarding these items is covered in the Operating Philosophy
section that subsequently follows. Significant acquisitions of businesses
completed over the last five years are summarized below:
Date Acquired Business Acquired Products / Segments
February 2000 Uniroyal Technology Extruded Sheet &
Corporation's Rollstock
High Performance Plastics and Cell Cast
Acrylic
October 2000 Alshin Tire Corporation Injection Molded
Products
June 2002 GWB Plastics Holding Co. Color & Specialty
Compounds
March 2003 Polymer Extruded Products Film & Extruded
Sheet
September 2003 TriEnda Division of Wilbert, Extruded Sheet &
Inc. Rollstock
October 2004 VPI Divisions -
Sheet Products Division Extruded Sheet &
Contract Manufacturing Rollstock
Division Flexible Thick-gauge
Film & Converting Division sheet
Calendered Film &
Converting
As a result of our acquisitions, we have been able to enhance our market
position, aggressively develop new and diverse products, achieve synergies and
operating leverage, expand our geographic presence into 51 plants in 43 cities,
and diversify our customer base, all of which help us to better serve our
customers by having the ability to offer them broader product capabilities
while being more cost-competitive.
Further information with respect to Spartech's recent acquisition activity is
set forth in Note 2 to the Consolidated Financial Statements on page 28 of the
2004 Annual Report to Shareholders, included in Exhibit 13 to this report.
Our Operating Philosophy
We developed our current strategic vision in the early 1990's, as we began to
capitalize on our core manufacturing competencies and take advantage of the
growth opportunities in the consolidating plastics industry. Today, our
"Focused Growth" and "Continuous Improvement" strategies further support our
commitment to generate value for our customers, stockholders and employees.
Focused Growth Strategy-We call the initiatives under our focused growth
strategy the Four Cornerstones for Growth, which focuses on balanced revenue
growth both through internal means - new product developments, product
transformation initiatives and business partnerships - and through strategic
acquisitions and other new investments. The four elements of this growth
strategy are:
* Business Partnerships. We are committed to building business partnerships
that provide long-term growth opportunities and enhance customer
relationships. We regularly partner with customers and resin suppliers
to develop custom engineered products that significantly
contribute to strengthening our position
in the intermediary processor segment of the plastics industry. These
partnerships offer direct and indirect benefits to us and our customers by
broadening product lines, lowering the cost of technological efforts, and
expanding our opportunities in new markets. In an effort to exceed customer
expectations, we have designed several continuous improvement initiatives such
as the "Total Transaction Quality," "Growth Through Training" and "Total
Customer Satisfaction" programs. These programs involve customer contact and
survey processes, ISO9000 and QS9000 quality system certifications, customer
training offerings, and quality management reviews.
* Strategic Expansions. As a result of our size and breadth of operations,
we believe that we are well positioned for continued expansion through
selective acquisitions. In evaluating acquisition opportunities, we target
acquisition candidates that: (1) add complementary product lines (with
emphasis on companies producing specialty or value-added thermoplastic
products) or serve new markets; (2) increase geographic presence or market
penetration; and (3) provide operational synergies in purchasing, production
and customer service. In addition, trends and developments in the industry
have promoted opportunities for outsourcing transactions whereby customers or
other third parties look to sell their non-core operations/equipment to
intermediary processors such as us. We have also expanded or constructed new
facilities to increase our capacity for new market growth.
* Product Transformations. Product Transformations are applications that
result from the ongoing transition of products previously manufactured from
traditional materials (such as wood, metal or fiberglass) into higher
performing and less expensive recyclable thermoplastics. Product
Transformations are a key element of our internal growth. Since 1995, we have
participated in almost 400 Product Transformations. In 2004 alone, we
completed over 90 new Product Transformations. We opened a product
development center (PDC) in Warsaw, Indiana in 2004 the purpose of which
is to (1) provide customers innovative product and process solutions,
(2) accelerate the flow of new products to market, (3) design optimal
product formulations and (4)complement customers
technical capabilities. The Company is the market leader
in custom sheet and rollstock, where the transformation process has been
accelerating. Sizable metal, glass and fiberglass specialty components are
being replaced by thermoplastics in the sign & advertising and transportation
markets. We utilize the experience of our sales and production personnel,
partnerships with suppliers, and relationships with customers to identify and
help develop new applications for our products. Product Transformations have
been a key contributor to our internal growth rates. Penetration of plastics
into the appliance & electronics, automotive, building & construction,
recreation & leisure, and packaging markets continues to expand the
opportunities for Product Transformations.
* Alloy Plastics. We aggressively develop new proprietary products that
combine advanced-engineered thermoplastic compounds and additives with new
manufacturing techniques implemented by experienced operating personnel, which
we call "Alloy Plastics". Alloy Plastics represent advancements in
formulation and production technologies, such as the ability to extrude
new products that combine the virtues of several polymers into a single
sheet or to create new specialty compounds by adding fillers such as talc,
calcium carbonate and glass fibers to base resins. All of our Alloy
Plastics represent new proprietary products which offer end-product
manufacturers a variety of solutions for the design of high
performance and environmentally-friendly products with cost
efficient benefits.
Our Continuous Improvement Strategy-Our Continuous Improvement Strategy, under
our Pyramids of Performance initiatives, focuses Spartech on continuous
improvement in production efficiency, communication and accountability. The
three components of this strategy are:
* Pyramid of Productivity/Lean. Combines Supply Chain Management, Lean
Manufacturing, and Results-Driven Communication efforts to enhance earnings
through continuous improvements at each of our 51 operations.
Cross-functional teams throughout all our facilities work on
generating productivity improvements, eliminating waste and
identifying process efficiencies. Annually, we recognize our five best
"Champion Teams" at our Annual Awards Meeting.
* Pyramid of Communication. Focuses on the effective use of information
technology to drive business growth, improve customer satisfaction,
and enhance shareholder relations. Our new Growth Focused
Communication program was implemented in 2000 to install the policy
and procedure changes needed to continually improve in the areas of
(1) Customer, Sales, Marketing and Manufacturing Information Integration,
(2) Electronic Commerce and Product Development Technology,
(3) Enterprise-Wide Communication Systems, and (4) Internet-
Enabled Applications.
* Pyramid of Accountability. Stresses trust, performance, and
responsibility in order for us to be able to count on people to keep
performance commitments and communication agreements. The goal is to
strengthen the Accountability Culture through clear intentions, interlocking
ownership, effective execution, elimination of dysfunctional habits,
responsive recovery, and measuring results. It is designed for everyone
to achieve a level of awareness that the business as a whole is more
important than any single function or level in the Company.
In addition to these Focused Growth and Continuous Improvement Strategies, we
recently implemented our "Investing in.People, Products, Technology, and
Globalization" initiative. This operating initiative represents our short-term
plan to support our annual operating excellence and financial goals. Under
this initiative, our investments are designed to help accomplish the following:
* People. Utilize regional and corporate training to advance the knowledge
base of all personnel.
* Products. Accelerate Alloy Plastics and Product Transformation
introductions through the utilization of our new PDC.
* Technology. Continually monitor the development of new processes and
technologies.
* Globalization. Implement our "Three Continent Plan" to become the best
solution oriented global plastics processor of the future.
We believe that our Investing in.People, Products, Technology, and
Globalization initiative will help drive growth and additional improvements in
our operations and production process.
Operating Segments
We operate our 51 production facilities in North America and Europe in three
segments: Custom Sheet & Rollstock, Color & Specialty Compounds, and Molded &
Profile Products.
Custom Sheet & Rollstock-Net sales and operating earnings (consisting of
earnings before interest, taxes and corporate expenses) of the Custom Sheet &
Rollstock segment for fiscal years 2004, 2003 and 2002 were as follows:
Fiscal Year
2004 2003 2002
(in millions)
Net Sales $750.5 $628.5 $600.5
Operating $76.1 $ 63.1 $ 62.3
Earnings
* Products. This segment, operating under the names Spartech Plastics,
Spartech Polycast and Spartech PEP, processes a variety of materials into
single/multilayer sheets or rollstock, cell cast acrylic and specialty film
laminates or acetates on a custom basis for end product manufacturers. The
segment's products are utilized in several end markets including packaging,
aerospace, transportation, building & construction, recreation, and
sign/advertising. Most of the segment's customers form, cut, stretch or trim
their plastic sheet for these various end uses.
* New Product Development. This segment is actively involved in the
development of Alloy Plastics. These products include engineered sheets and
rollstock using multiple layers of materials, often of different plastics and
often using proprietary mixtures of plastic compounds. They offer end-product
manufacturers a variety of solutions to design high performance (such as light
weight, weatherable, formable/shapeable, high gloss/non-painted and durable)
and environmentally-friendly products at reduced costs. The Company currently
offers 54 such Alloy Plastics, ten of which were introduced in April 2004.
* Manufacturing and Production. This segment operates 27 facilities in
North America and one in Europe. The principal raw materials used in
manufacturing sheet and rollstock are plastic resins in pellet form.
We extrude a wide variety of plastic resins, including ABS
(acrylonitrile butadiene styrene), polycarbonate, polypropylene,
acrylic, PET (polyethylene terephthalate), polystyrene, polyethylene,
PVC (polyvinyl chloride) and PETG (polyethylene terephthalate glycol).
Spartech Plastics produces extruded plastic sheet and rollstock of up to
seven layers using a multi-extrusion process. This process combines
materials in distinct layers as they are extruded through a die into sheet
form, providing improved and sometimes unique properties compared to
single layer extrusions. More than half of our plastic sheet is produced
using this multi-extrusion process. The remainder is produced in a single
layer using conventional extrusion processes. In some cases, we will coat
a plastic sheet or laminate sheets together to achieve performance
characteristics desired by our customers for particular applications.
Spartech Polycast manufactures acrylic products through cell cast
manufacturing, in more than 60 colors and in gauges ranging from 0.030 to
6.00 inches. Acrylic sheet manufactured by the cell cast process, which
is more labor intensive than continuous cast, extrusion or calender
processes, generally yields a product that is considered to have a higher
quality than acrylic sheet produced by other processes.
Spartech PEP manufactures weatherable film laminates and cellulose
specialty extruded products. Spartech PEP manufactures its weatherable
film laminates through an extruded film process which produces films as
thin as .0015 inches and as wide as ten feet, and cellulose specialty
products through a flat die casting process which produces films as thin
as .0075 inches and as wide as 60 inches. Certain cellulose products are
then pressed and polished using large hydraulic presses which produces
transparent sheeting of high optical quality.
* Marketing, Sales and Distribution. The custom sheet and rollstock
extrusion business has generally been a regional business supplying
manufacturers within an estimated 500 mile radius of each production facility.
This is due to shipping costs for rigid plastic material and the need for
prompt response to customer requirements and specifications. The cell cast
acrylic, outdoor sign, and spa markets, however, are more national in scope.
o We sell sheet and rollstock products principally through our own sales
force, but we also use a limited number of independent sales representatives.
During 2004, we sold products of the Custom Sheet & Rollstock segment to more
than 4,000 customers, including Sub-Zero Freezer Company, The ConAgra Brands,
Inc., Jacuzzi Incorporated, Igloo Corporation, Textron, Inc. and Newell-
Rubbermaid.
* Competition. The Custom Sheet & Rollstock processing segment is highly
competitive. Since the Company manufactures a wide variety of products, we
compete in different areas with many other companies. We compete generally on
the basis of price, product performance, and customer service. Important
competitive factors include the ability to manufacture consistently to
required quality levels, meet demanding delivery times, exercise skill in
raw material purchasing, achieve production efficiencies to process the
products profitably and provide new product solutions to customer
applications. Some of our primary competitors in the Custom Sheet
& Rollstock segment are CYRO Industries, Kama Corp., Primex Plastics
Corporation, and Klockner-Pentaplast of America, Inc. We believe we
compete effectively with these companies in each of these key areas.
Color & Specialty Compounds-Net sales and operating earnings (consisting of
earnings before interest, taxes and corporate expenses) of the Color &
Specialty Compounds segment for fiscal years 2004, 2003 and 2002 were as
follows:
Fiscal Year
2004 2003 2002
(in millions)
Net Sales $302.7 $263.0 $235.7
Operating $ 23.7 $ 21.0 $ 25.7
Earnings
* Products - The Color & Specialty Compounds segment manufactures color
concentrates, proprietary or custom-designed plastic compounds, and calendered
film for a large group of manufacturing customers who produce consumer
appliance components, lawn & garden equipment, food & medical packaging,
vehicle components, and numerous other products. The segment operates under
three business names:
- - Spartech Polycom produces its own line of proprietary compounds & color
concentrates and also provides toll compounding services for engineered
resins, flame retardants and other specialty compounds. In addition,
Spartech Polycom produces thick-gauge, flexible sheet, calendered flexible
film, and converted decorative film.
- - Spartech Color, the largest color supplier in Canada, is focused on
service-oriented color concentrate applications for film and molding.
- - Spartech Vy-Cal Plastics operates a vinyl calender, supplying finished PVC
film to manufacturers of such products as loose-leaf binders, decorator-grade
wall coverings, and packaging products for the medical industry.
Customers of the Color & Specialty Compounds segment range from major
integrated manufacturers to sole-proprietor subcontractors that use
injection molding, extrusion, blow molding and blown & cast film
processes.
* New Product Development. This segment has well-equipped laboratory
facilities, particularly the Spartech Polycom Technical Center in Donora,
Pennsylvania. These laboratories operate testing and simulated end-use process
equipment as well as small scale versions of our production equipment to
ensure accurate scale-up from development to production. We create
new specialty compounds by adding fillers and other additives to the base
resins, in order to offer end-product manufacturers a variety of solutions for
the design of high- performance and environmentally-friendly products
on a cost-efficient basis. In addition to compounding technology, the
segment has developed enhanced capabilities to produce color concentrates
(glass-reinforced polypropylene) product introduced in 2001 was the first new
and additives. The ReinForce GRPP product of the Color & Specialty
Compound group that was marketed as an AlloyPlastic. Several new Alloy
Plastics have been introduced by this segment since that date.
* Manufacturing and Production. This segment operates 15 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,
polystyrene, ABS, TPO's, and PVC. We also use colorants, mineral and glass
polyethylene, reinforcements and other additives to impart specific
performance and appearance characteristics to the compounds. The raw
materials are mixed in a blending process and then normally fed into
an extruder and formed into pellets.
* Marketing, Sales and Distribution. The Company generates most of the
Color & Specialty Compounds segment's sales in the United States and
Canada but also sells to customers in Europe and Mexico. The Company
sells the segment's products principally through its own sales force,
but also uses independent sales representatives. During 2004, the
Company sold products of the Color & Specialty Compounds segment
to approximately 2,100 customers, including the Solo Cup Company,
Lear Corporation, DaimlerChrysler, Igloo Corporation
and Pactiv Corporation.
* Competition. The Color & Specialty Compounds segment is highly
competitive. We compete with some companies which are much larger than we are
and have more extensive production facilities, larger sales and marketing
staffs and substantially greater financial resources than we do. We compete
generally on the basis of price, product performance and customer service.
Important competitive factors in each of our businesses include the ability to
manufacture consistently to required quality levels, meet demanding delivery
times, provide technical support, and achieve production efficiencies to
process the products profitably. Some of our primary competitors in the
Color & Specialty Compounds segment are Ampacet Corporation,
AMETEK Westchester Plastics, A. Schulman, Inc., Ferro Corp., PolyOne
Corporation, RheTech, Inc., and Washington Penn Plastic Co., Inc. We
believe we compete effectively with these companies in each of these
key areas.
Molded & Profile Products-Net sales and operating earnings (consisting of
earnings before interest, taxes, and corporate expenses) of the Molded &
Profile Products segment for fiscal 2004, 2003 and 2002 were as follows:
Fiscal Year
2004 2003 2002
(in millions)
Net Sales $68.6 $64.6 $62.1
Operating $ 6.3 $ 5.4 $ 3.5
Earnings
* Products. Our Molded & Profile Products segment manufactures injection
molded and profile extruded products for a large group of intermediate
and end-user customers. The segment operates under four
business names:
- Spartech Industries produces plastic tire and wheel assemblies for the
medical, lawn & garden, refuse container and toy markets, and high performance
molded urethane tires for the medical, material handling, lawn & garden, and
recreational product applications. We also produce various injection molded
and profile extruded products that complement the wheels and tire offerings.
- Spartech Profiles manufactures products for various industries, including
window frames and fencing for the building and construction markets.
- Spartech Marine specializes in the fabrication of acrylic and other
custom products used in high end marine applications.
- Spartech Townsend manufactures acrylic rods and tubes used primarily in
display, household and medical applications.
* New Product Development. This segment brings unique, recognized
capabilities to our customers such as patented tread-cap wheel technologies
and special fabrication of profile products. In addition, this
segment's creativity, engineering and design principles enable us
to effectively respond to customer needs in the niche markets in
which we participate.
* Manufacturing and Production. This segment operates seven manufacturing
facilities in North America. The principal raw materials used in our
manufacturing of molded and profile products are acrylics, polyethylene,
polypropylene, and PVC. Our products in this segment are generally
manufactured either through injection molding or profile extrusion
processes.
* Marketing, Sales and Distribution. Spartech Industries-Custom Engineered
Wheels, Profiles, Marine and Townsend market their products throughout North
America. We sell the segment's products principally through our own sales
force, but also use independent sales representatives and wholesale
distributors. During 2004, we sold products of the Molded & Profile Products
segment to approximately 1,000 customers, including MTD Products, Honda,
Invacare, and Brentwood Industries.
* Competition. The Molded & Profile Products segment is highly competitive
and highly fragmented. Since we manufacture a wide variety of products, we
compete in different areas with many other companies, some of which are much
larger than we are and have more extensive production facilities, larger sales
and marketing staffs and substantially greater financial resources than we do.
We generally compete on the basis of price, product performance and customer
service. Important competitive factors in each of our businesses include the
ability to manufacture consistently to required quality levels, meet demanding
delivery times, and provide new product offerings. Some of our primary
competitors in the Molded & Profile Products segment are Bunzl Extrusion,
Inc., Flex Technologies, Inc., Royal Group Technologies Limited,
and Trintex Corporation. We believe we compete effectively with these
companies in each of these key areas.
Raw Materials
We use large amounts of various plastic resins in our manufacturing
processes. These resins are crude oil or natural gas derivatives which are
available from a number of domestic and foreign suppliers. Historically, our
raw materials are only somewhat affected by supply, demand and price trends in
the petroleum industry, however, more recently the unusually high price of
crude oil has had a greater impact on increasing the price of plastic resins,
our most significant raw material. We currently expect this pricing
relationship to continue in the foreseeable future. Past trends in resin
pricing, periods of anticipated or actual shortages of a particular resin, and
changes in supplier capacities can also have an impact on the cost of our raw
materials during a particular period. Price spikes in crude oil and natural
gas along with the political unrest in oil producing countries have resulted in
unusually high pricing pressures during 2003 and 2004. These pressures
resulted in dramatic increases in the prices of our raw materials. In prior
years, we were able to minimize the impact of such price increases in raw
material costs by controlling our inventory levels, increasing production
efficiencies, passing through price changes to customers, and negotiating
competitive prices with our suppliers. These pricing changes were more
difficult for us to manage and have negatively affected our operating margins
in 2003 and 2004. While we will continue to implement the actions noted above
to help minimize the impact of price changes on our margins, the direction,
degree of volatility, and our ability to manage future pricing changes is
uncertain.
We manage our principal purchasing contracts through our corporate
headquarters in Clayton, Missouri in order to realize the benefits of volume
purchasing and centralized management of the effects of supplier price changes
to remain a low-cost producer for our customers. Since we are a custom
manufacturer, we do not typically hedge our purchases of materials, we build
little product for inventory, and we have a short backlog of orders at any
point in time. We have also implemented a centralized program to aggressively
manage our inventory levels. However, we will pre-purchase inventory when
significant price increases are predicted to manage the future impact of rising
prices.
Seasonality
Our sales are somewhat seasonal in nature. Fewer orders are placed and less
manufacturing activity occurs during the November through January period. This
seasonal variation tends to track the manufacturing activities of our various
customers in each region.
Backlog
We estimate that the total dollar volume of our backlog as of October 30,
2004 and November 1, 2003 was approximately $120.0 million and $92.9 million,
respectively, which represents approximately six weeks of production for 2004
and five weeks of production for 2003.
Employees
Our total number of employees is approximately 3,750. There are 2,926
production personnel at our 51 facilities, approximately 27% of whom are union
employees covered by several collective bargaining agreements. We consider our
employee relations to be good. Management personnel total approximately 825
supervisory/clerical employees, none of whom are unionized.
Government Regulation and Environmental Matters
The Company is subject to various laws governing employee safety and
environmental matters. The Company believes it is in material compliance with
all such laws. The Company is subject to federal, state, local and non-U.S.
laws and regulations governing the quantity of certain specified substances
that may be emitted into the air, discharged into interstate and intrastate
waters, and otherwise disposed of on and off the properties of the Company. In
September 2003, the New Jersey Department of Environmental Protection issued a
directive and the United States Environmental Protection Agency initiated an
investigation related to over 70 companies, including a Spartech subsidiary,
regarding the Lower Passaic River. Our subsidiary has agreed to participate
along with at least 39 other companies (including several companies added in
2004) in an environmental study to determine the extent and sources of
contamination at this site. We believe it is possible that the ultimate
liability from this issue could materially differ from the Company's $221,000
accrual as of October 30, 2004. In the event of one or more adverse
determinations related to this issue, the impact on the Company's results of
operations could be material to any specific period. However, it is our
opinion that future expenditures for compliance with these laws and
regulations, as they relate to the Lower Passaic River issue and other
potential issues, will not have a material effect on our capital expenditures,
financial position, or competitive position.
International Operations
Information regarding our operations in various geographic segments is
located in Note 14 to the Consolidated Financial Statements beginning on page
35 of the 2004 Annual Report to Shareholders, attached hereto as Exhibit 13 and
incorporated by reference. Our Canadian, French and Mexican operations may be
affected periodically by foreign political and economic developments, laws and
regulations, and currency fluctuations.
Internet Access
Spartech's Forms 10-K, 10-Q, 8-K and all amendments to those reports are
available without charge through the Company's website on the Internet as soon
as reasonably practicable after they are electronically filed with, or
furnished to, the Securities and Exchange Commission. They may be accessed
directly as follows: www.spartech.com, Investor Relations, SEC Filings &
Sec.16 Forms.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides certain information about the Company's
executive officers, their positions with the Company, and their prior business
experience and employment for at least the past five years
Name Age Current Office, and Prior Positions and
Employment
Bradley B. Buechler 56 Chairman of the Board (since March 1999),
President (since 1987) and Chief Executive
Officer (since 1991). Mr. Buechler, a CPA,
was with Arthur Andersen LLP before the
commencement of his employment with the
Company in 1981.
George A. Abd 41 Executive Vice President, Color & Specialty
Compounds (since September 2000) and Molded &
Profile Products (since May 2004); Vice
President of Compounding for the Company's
Spartech Polycom Division from March 1998 to
September 2000. Mr. Abd held various
positions with Polycom Huntsman, Inc for
eleven years prior to its acquisition by the
Company in March 1998.
Randy C. Martin 42 Executive Vice President (since September
2000) Corporate Development (since May 2004)
and Chief Financial Officer (since May 1996);
Corporate Controller from 1995 to May 1996;
Vice President, Finance from May 1996 to
September 2000. Mr. Martin, a CPA and CMA,
was with KPMG Peat Marwick LLP for eleven
years before joining the Company in 1995.
Steven J. Ploeger 43 Executive Vice President Custom Sheet &
Rollstock (since May 2004); Vice President
Spartech Plastics from 2000 to 2004; General
Manager Spartech Plastics - North Region from
1996 to 2000. Mr. Ploeger also held various
sales management positions with the Company
from 1985 to 1996.
David G. Pocost 43 Executive Vice President - Technology and
Administration (March 2004 to January 3,
2005), Executive Vice President, Extruded
Sheet and Profile Products (since September
2000); Director of Quality & Environmental
Affairs from 1994 to December 1996; Vice
President, Quality & MIS from December 1996
to September 1998, and Vice President,
Engineering, Quality & MIS from September
1998 to September 2000.
Jeffrey D. Fisher 56 Vice President and General Counsel (since
July 1999); and Secretary (since September
2000). Mr. Fisher, an attorney, was with the
law firm of Armstrong Teasdale LLP for 24
years, the last 17 years as a partner, before
joining the Company in July 1999.
Phillip M. Karig 48 Vice President-Purchasing and Supply Chain
Management (since September 2001), Director
of Purchasing from February 2000 to September
2001. Mr. Karig was with Uniroyal Technology
Corporation for 12 years in various
purchasing, logistics, and materials
management positions before joining the
Company in February 2000.
Donna F. Loop 46 Vice President Human Resources (since
December 2004), Director of Human Resources
(February 2001 - December 2004). Ms. Loop
was with Dana Corporation from August 1997 to
February 2001 as Human Resource Manager, and
was with Spartech Plastics, Cape Girardeau in
various positions from September 1980 to
August 1997.
Michael G. Marcely 37 Vice President (Since December 2004) and
Corporate Controller (since July 2004),
Director of Internal Audit January 2003 to
July 2004. Mr. Marcely, a CPA, was with
Ernst & Young LLP for four years, Emerson
Electric for four years and KPMG LLP for six
years before joining the Company in 2003.
William F. Phillips 57 Vice President - National Sales Accounts
(since December 2002), Director of Marketing
from July 1998 to December 2002. Mr.
Phillips also held various sales management
positions with the Company from March 1989 to
July 1998.
Suzanne M. Riney 41 Vice President Environment and Quality (since
December 2004), Director of EHS & Training
Development (since May 2000), Manager of
Environmental Health and Safety from May 1998
to May 2000. Ms. Riney is a Professional
Engineer and held various positions in
Environmental Consulting and Civil
Engineering for 13 years before joining the
company in 1998.
Item 2. PROPERTIES
The Company operates in plants and offices aggregating approximately
4,272,000 square feet of space. Approximately 1,775,000 square feet of plant
and office space is leased with the remaining 2,497,000 square feet owned by
the Company. A summary of the Company's principal operating facilities
follows:
Custom Sheet & Rollstock
Location Description Size in Square Owned/Leas
Feet ed
Arlington, TX Extrusion plant & 135,000 Leased
offices
Atlanta, GA Extrusion plant & 85,000 Leased
offices
Cape Extrusion plant & 100,000 Owned
Girardeau, MO offices
14,000 Leased
Clare, MI Extrusion plant & 31,000 Owned
offices
Evanston, IL Extrusion plant & 123,000 Leased
offices
Greenville, OH Extrusion plant & 80,000 Owned
offices
21,000 Leased
Hackensack, NJ Cast acrylic 81,000 Leased
plant & offices
La Mirada, CA Extrusion plant & 64,000 Leased
offices
Mankato, MN Extrusion plant & 38,000 Owned
offices
57,000 Leased
McMinnville, Extrusion plant & 40,000 Owned
OR offices
Muncie, IN Extrusion plant & 152,000 Owned
offices
Newark, NJ Extrusion plant & 61,000 Owned
offices
Paulding, OH Extrusion plant 71,000 Owned
& offices
69,000 Leased
Phoenix, AZ Cast acrylic & 33,000 Leased
offices
Portage, WI Extrusion plant & 113,000 Owned
offices
47,000 Leased
Portage, WI Extrusion plant 54,000 Leased
Ramos Arizpe, Extrusion plant & 55,000 Owned
Mexico offices
Redlands, CA Extrusion plant & 60,000 Owned
offices
Richmond, IN Extrusion plant & 54,000 Owned
offices
41,000 Leased
Sheboygan Extrusion plant & 30,000 Owned
Falls, WI offices
30,000 Leased
Stamford, CT Cast acrylic & 80,000 Leased
offices
7,000 Leased
Taylorville, Extrusion plant & 39,000 Owned
IL offices
5,000 Leased
Warsaw, IN Extrusion plant & 187,000 Owned
offices
93,000 Leased
Wichita, KS Extrusion plant & 62,000 Owned
offices
110,000 Leased
Cornwall #1, Extrusion plant & 48,000 Leased
Ontario offices
Cornwall #2, Extrusion plant & 64,000 Leased
Ontario offices
Donchery, Extrusion plant & 66,000 Owned
France offices
Granby, Quebec Extrusion plant & 70,000 Owned
offices
2,570,000
Color & Specialty Compounds
Location Description Size in Owned/Lease
Square Feet d
Arlington, TX Compounding plant & 133,000 Leased
offices
Atlanta, GA Compounding sales 5,000 Leased
office
Cape Girardeau, Compounding plant & 56,000 Owned
MO offices
60,000 Leased
Conneaut, OH Compounding plant & 94,000 Owned
offices
Conshohocken, Calendering plant & 42,000 Owned
PA offices
Donora #1, PA Compounding plant & 142,000 Owned
offices
Donora #2, PA Compounding plant & 88,000 Owned
offices
Kearny, NJ Compounding plant & 57,000 Owned
offices
Lake Charles, Compounding plant & 55,000 Owned
LA offices
Lockport, NY Compounding plant & 45,000 Owned
offices
Manitowoc, WI Compounding plant & 95,000 Owned
offices
Ramos Arizpe, Compounding plant & 50,000 Owned
Mexico offices
Salisbury, MD Calendering plant & 130,000 Owned
offices
St. Clair, MI Compounding plant & 72,000 Owned
offices
Stratford, Color plant & 72,000 Owned
Ontario offices
25,000 Leased
Donchery, Compounding plant & 30,000 Owned
France offices
1,251,000
Molded & Profile Products
Location Description Size in Owned/Lease
Square Feet d
Des Moines, IA Cast acrylic plant & 72,000 Owned
offices
El Monte, CA Profile plant & 58,000 Leased
offices
Rancho Injection molding 17,000 Leased
Cucamonga, CA plant
Rockledge, FL Marine products 112,000 Leased
plant
Tupelo, MS Injection molding 104,000 Leased
plant
Warsaw, Indiana Injection molding 41,000 Owned
plant & offices
Winnipeg, Profile plant & 47,000 Owned
Manitoba offices
451,000
In addition, the Company leases office facilities for its world headquarters
in St. Louis, Missouri and for administrative offices in Washington,
Pennsylvania, the aggregate square footage of which is approximately 32,000.
The plants located at the premises listed above are equipped with 137 sheet
extrusion lines, (73 of which run multi-layered materials), 29 casting
machines, 38 profile extrusion lines, (12 of which run multi-layered
materials), 52 general compounding lines, 9 color compounding lines, 31
injection molding machines, 3 calendering lines, 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 $32 million in fiscal 2005) are adequate for the level of
business anticipated in fiscal 2005.
Item 3. LEGAL PROCEEDINGS
As discussed under Item 1 - Government Regulations and Environmental
Matters, the Company has been notified by environmental agencies that it is a
potentially responsible party in connection with the investigation and
remediation of an environmental site. The Company believes that its potential
continuing liability with respect to this site will not have a material adverse
effect on its capital expenditures, financial position, or competitive
position. Due to uncertainties inherent in this manner, management is unable
to estimate the Company's possible additional exposure upon the ultimate
outcome of this issue which is not expected to occur for a number of years. In
addition, the Company initiates corrective and preventive environmental
projects of its own at its operations. Based on current information and
estimates prepared by the Company's environmental engineers and consultants, at
October 30, 2004, the Company had adequate accruals to cover current
environmental expenditures relating to contaminated sites. The accrual
represents the Company's best estimate within its range of estimated costs
associated with probable remediation, based upon currently available
information. Depending upon the results of future testing, the ultimate
remediation alternatives undertaken, changes in regulations, new information
and other factors, it is possible that the Company could incur material costs
in excess of its accrual at October 30, 2004. The Company's estimate of the
liability may be revised as additional information is obtained.
The Company is subject to various other claims, lawsuits and administrative
proceedings arising in the ordinary course of business with respect to
commercial, product liability, employment and other matters, several of which
claim substantial amounts of damages. While it is not possible to estimate
with certainty the ultimate legal and financial liability with respect to these
claims, lawsuits and administrative proceedings, the Company believes that the
outcome of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of the fiscal year ended October 30, 2004.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) The information on pages 38, 39, and 41 of the 2004 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 41 of the 2004
Annual Report to Shareholders present the cash dividends declared in fiscal
2003 consisting of four quarterly payments at ten cents per share and the cash
dividends declared in fiscal 2004 consisting of four quarterly payments at
eleven cents per share. On December 8, 2004, the Company declared a quarterly
dividend of twelve cents per share. 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.
(b) N/A
(c) Repurchases of equity securities during the fourth quarter 2004 are listed
in the following table.
Period Total Number Average Total Number Maximum
of Shares Price Paid of Shares Number of
Purchased per Share Purchased as Shares That
Part of May Yet Be
Publicly Purchased
Announced Under the
Plans or Plans or
Programs Programs
August 13,900 $23.07 13,900 595,946
September 70,000 $23.67 70,000 525,946
October - n/a - 525,946
Total 83,900 $23.57 83,900 525,946
The Company's Board of Directors authorized the repurchase of up to 1 million
shares under the August 2002 program. The maximum number of shares that may
yet be purchased under this program is 525,946. In October 2004, the Company's
Board of Directors authorized the repurchase of up to 1 million shares under
the October 2004 program. The maximum number of shares that may yet be
purchased under this program is 1 million.
Item 6. SELECTED FINANCIAL DATA
The information on pages 38 and 39 of the 2004 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 through 21 of the 2004 Annual Report to
Shareholders, attached hereto as Exhibit 13, is incorporated by reference in
response to this item.
Forward Looking Statements - Statements in this Annual Report that are not
purely historical, including statements which express the Company's belief,
anticipation or expectation about future events, are forward-looking
statements. These statements may be found in the description of the Company's
business in Item 1 and legal proceedings in Item 3, and include statements in
"Management's Discussion and Analysis," incorporated herein by reference, about
new products and markets benefits, future capital expenditures, expenditures
for environmental compliance, and anticipated cash flow and borrowings.
Forward looking statements involve certain risks and uncertainties that
could cause actual results to differ materially from such statements. In
addition to the risk factors discussed in Item 1 (Business, under the headings
Raw Materials, Seasonality, Competition, Government Regulation and
Environmental Matters, and International Operations) included herein on pages
11 and 12 other important factors which have impacted and could impact the
Company's operations and results, include:
(1) the Company's financial leverage and the operating and financial
restrictions imposed by the instruments governing its indebtedness may limit or
prohibit its ability to incur additional indebtedness, create liens, sell
assets, engage in mergers, acquisitions or joint ventures, pay cash dividends,
or make certain other payments; the Company's leverage and such restrictions
could limit its ability to respond to changing business or economic conditions,
inability to meet debt obligations when due could impair our ability to finance
operations and could result in default;
(2) the successful expansion through acquisitions, in which Spartech looks
for candidates that can complement its existing product lines, expand
geographic coverage, and provide superior shareholder returns, is not assured.
Acquiring businesses that meet these criteria continues to be an important
element of the Company's business strategy. Some of the Company's major
competitors have similar growth strategies. As a result, competition for
qualifying acquisition candidates is increasing and there can be no assurance
that such future candidates will exist on terms agreeable to the Company.
Furthermore, integrating acquired businesses requires significant management
time and skill and places additional demands on Company operations and
financial resources. If we are unable to achieve the anticipated synergies,
the interest and other expenses from our acquisitions could exceed the net
income we derive from the acquired operations, which could reduce our net
income. However, the Company continues to seek value-added acquisitions which
meet its stringent acquisition criteria and complement its existing businesses;
and
(3) our products are sold in a number of end markets which tend to be
cyclical in nature, including transportation, building and construction,
bath/pool and spa, and electronics and appliances. A downturn in one or more of
these end markets could have a material adverse effect on our sales and
operating profit.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to changes in interest rates primarily as a result of our
borrowing activities. Our earnings and cash flows are subject to fluctuations
in interest rates on our floating rate debt facilities. At October 30, 2004,
we had no debt subject to variable short-term interest rates. We had $474.1
million of fixed rate financings outstanding as of October 30, 2004, including
$125.0 million of floating rate debt fixed through November 2004 by an interest
rate swap. Based upon the October 30, 2004 balance of the floating rate debt
fixed by an interest rate swap which expires in November 2004, a change of one
percent in interest rates would cause a change in net income of approximately
$759,000 on an annual basis. Interest expense on the other fixed rate
financings will not be materially affected by changes in interest rates over
the next 12 months. In addition, the information on page 26, 27, and 36 of the
2004 Annual Report to Shareholders, attached hereto as Exhibit 13, is
incorporated by reference in response to this item.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information entitled "Quarterly Financial Information" on page 36 of the
2004 Annual Report to Shareholders, attached hereto as Exhibit 13, is
incorporated by reference in response to this item.
In addition, the financial statements of the Company filed herewith or
incorporated by reference are set forth in Item 15 and included in Part IV of
this Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Spartech maintains a system of disclosure controls and procedures which are
designed to ensure that information required to be disclosed by the Company in
the reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified under the
SEC's rules and forms. Based on an evaluation performed, the Company's
certifying officers have concluded that the disclosure controls and procedures
were effective as of October 30, 2004, to provide reasonable assurance of the
achievement of these objectives.
Notwithstanding the foregoing, there can be no assurance that the Company's
disclosure controls and procedures will detect or uncover all failures of
persons within the Company and its consolidated subsidiaries to report material
information otherwise required to be set forth in the Company's reports.
There was no change in the Company's internal control over financial
reporting during the quarter ended October 30, 2004, that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
Item 9B. OTHER INFORMATION
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning Directors of the Company contained in the section
entitled "Proposal 1: Election of Directors" of the Definitive Proxy Statement
for the 2005 Annual Meeting of Shareholders, to be filed with the Commission on
or about January 25, 2005, is incorporated herein by reference in response to
this item.
Information concerning the Executive Officers of the Company is contained on
page 14 in Part I of this Report.
The information concerning Equity Compensation Plans is contained in the
section entitled "Equity Plan Compensation Information" of the Definitive Proxy
Statement for the 2005 Annual Meeting of Shareholders, to be filed with the
Commission on or about January 25, 2005, and is incorporated herein by
reference in response to this item.
The information regarding the audit committee and audit committee financial
expert is contained in the section entitled "Board of Directors and Committees"
of the Definitive Proxy Statement for the 2005 Annual Meeting of Shareholders,
to be filed with the Commission on or about January 25, 2005, is incorporated
herein by reference in response to this item.
Spartech has adopted a Code of Ethics that applies to the Company's chief
executive officer, chief financial officer, and controller; has posted such
Code of Ethics on its Internet website; and intends to satisfy the disclosure
requirement under Item 10 of Form 8-K by posting such information on its
Internet website. The Company's Code of Ethics may be accessed through its
Internet website at www.spartech.com within the Investor Relations/Corporate
Governance section of the site.
Item 11. EXECUTIVE COMPENSATION
The information contained in the sections entitled "Executive Compensation"
and "Compensation of Directors" of the Definitive Proxy Statement for the 2005
Annual Meeting of Shareholders, to be filed with the Commission on or about
January 25, 2005, 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 2005 Annual Meeting of Shareholders, to
be filed with the Commission on or about January 25, 2004, is incorporated
herein by reference in response to this item.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the sections entitled "Proposal 1: Election of
Directors," "Executive Compensation" and "Certain Business Relationships and
Transactions" of the Definitive Proxy Statement for the 2005 Annual Meeting of
Shareholders, to be filed with the Commission on or about January 25, 2005, is
incorporated herein by reference in response to this item.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information contained in the section entitled "Fees Paid to Auditors,"
of the Definitive Proxy Statement for the 2005 Annual Meeting of Shareholders,
to be filed with the Commission on or about January 25, 2005, is incorporated
herein by reference in response to this item.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
The following financial statements and financial statement schedules are
included in this Form 10-K or incorporated by reference from the 2004 Annual
Report to Shareholders filed in part as Exhibit 13 to this Form 10-K:
Page
Annual Report
Form 10-K to Shareholders
Report of Independent Registered Public F-1 37
Accounting Firm
Financial Statements
Consolidated Balance Sheets - 22
Consolidated Statements of Operations - 23
Consolidated Statements of - 24
Shareholders' Equity
Consolidated Statements of Cash Flows - 25
Notes To Consolidated Financial Statements - 26-36
Financial
Statement Schedules
Schedule
Number Description
II Valuation and F-2
Qualifying Accounts
All other financial statements and schedules not listed have been omitted
since the required information is included in the consolidated financial
statements or the notes thereto, or is not applicable or required.
(c) Exhibits
The Exhibits required to be filed by Item 601(a) of Regulation S-K are
included as follows:
3.1(a) Restated Certificate of Incorporation
3.2 Amended and Restated By-Laws, as amended
4(b) Rights Agreement dated April 2, 2001 between Spartech Corporation and
Mellon Investor Services LLC, as Rights Agent
10.1(c) Amended and Restated Employment Agreement dated November 1, 2002,
between Bradley B. Buechler and Spartech Corporation
10.2(d) Transition Agreement and Consulting Agreement dated August 3, 2000,
between David B. Mueller and Spartech Corporation
10.3(e) Employment Agreement dated January 1, 2003 between Randy C. Martin
and Spartech Corporation
10.4(f) Employment Agreement dated January 1, 2003 between David G. Pocost
and Spartech Corporation
10.5(m) Employment Agreement dated December 10, 2003 between George A. Abd
and Spartech Corporation
10.6(n) Employment Agreement dated January 1, 2003 between Phillip Karig and
Spartech Corporation
10.7 Employment Agreement dated July 1, 2004 between William F. Phillips
and Spartech Corporation
10.8(g) Employment Agreement dated December 1, 2003 between Jeffrey D. Fisher
and Spartech Corporation
10.9 Employment Agreement dated May 1, 2004 between Steven J. Ploeger and
Spartech Corporation
10.10(h) Form of Indemnification Agreement entered into between Spartech
Corporation and each of its officers and directors
10.11(i) Spartech Corporation 2004 Equity Compensation Plan dated
December 11, 2003
10.12(j) Form of Incentive Stock Option
10.13(k) Form of Nonqualified Stock Option
10.14(l) Form of Restricted Stock Unit Award
10.15 Spartech Corporation Deferred Compensation Plan, as amended
13 Pages 13 through 39 and 41 of 2004 Annual Report to Shareholders
21 Subsidiaries of Registrant
23.1 Consent of Independent Registered Public Accounting Firm
24 Powers of Attorney
31 Certifications pursuant to Exchange Act Rule 13a-14(a)
32 Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C.
Section 1350
Notes to Exhibits
(a) Filed as Exhibit 3.1 to the Company's Form S-8 (File No. 333-60381), filed
with the Commission on July 31, 1998 and incorporated herein by reference.
(b) Filed as Exhibit 99.1 to the Company's Form 8-K filed with the Commission
on April 5, 2001 and incorporated herein by reference.
(c) Filed as Exhibit 10.1 to the Company's Form 10-K filed with the Commission
on January 17, 2003 and incorporated herein by reference.
(d) Filed as Exhibit 10.4 to the Company's Form 10-K filed with the Commission
on January 19, 2001 and incorporated herein by reference.
(e) Filed as Exhibit 10.3 to the Company's Form 10-K filed with the Commission
on January 17, 2003 and incorporated herein by reference.
(f) Filed as Exhibit 10.4 to the Company's Form 10-K filed with the Commission
on January 17, 2003 and incorporated herein by reference.
(g) Filed as Exhibit 10.11 to the Company's Form 10-K filed with the
Commission on January 16, 2004 and incorporated herein by reference.
(h) Filed as Exhibit 10.10 to the Company's Form 10-K filed with the
Commission on January 17, 2003 and incorporated herein by reference.
(i) Filed as Exhibit 4.1 to the Company's Form S-8 (File No. 333-113752) filed
with the Commission on March 19, 2004 and incorporated herein by reference.
(j) Filed as Exhibit 1.01(2) to the Company's Form 8-K dated December 8, 2004
and incorporated herein by reference.
(k) Filed as Exhibit 1.01(3) to the Company's Form 8-K dated December 8, 2004
and incorporated herein by reference.
(l) Filed as Exhibit 1.01(4) to the Company's Form 8-K dated December 8, 2004
and incorporated herein by reference.
(m) Filed as Exhibit 10.6 to the Company's Form 10-K filed with the Commission
on January 16, 2004 and incorporated herein by reference.
(n) Filed as Exhibit 10.7 to the Company's Form 10-K filed with the Commission
on January 16, 2004 and incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SPARTECH CORPORATION
January 12, 2005 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 12, 2005 /s/Bradley B. Buechler Chairman, President, Chief
Bradley B. Buechler Executive Officer, and
Director
(Principal Executive Officer)
January 12, 2005 /s/ Randy C. Martin Executive Vice President,
Randy C. Martin Chief Financial Officer and
Director
(Principal Financial and
Accounting Officer)
January 12, 2005 /S/ Ralph B. Andy* Director
Ralph B. Andy
January 12, 2005 /S/Lloyd E. Campbell* Director
Lloyd E. Campbell
January 12, 2005 /S/ Walter J. Klein* Director
Walter J. Klein
January 12, 2005 /S/ Pamela F. Lenehan* Director
Pamela F. Lenehan
January 12, 2005 /S/ Jackson W. Robinson* Director
Jackson W. Robinson
January 12, 2005 /S/ Richard B. Scherrer* Director
Richard B. Scherrer
January 12, 2005 /S/Craig A. Wolfanger* Director
Craig A. Wolfanger
* By Bradley B. Buechler as Attorney-in-Fact pursuant to Powers of Attorney
executed by the Directors listed above, which Powers of Attorney are filed
herewith.
/s/Bradley B. Buechler
Bradley B. Buechler
As Attorney-in-Fact
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Spartech Corporation:
We have audited the consolidated financial statements of Spartech Corporation
as of October 30, 2004 and November 1, 2003, and for each of the three years in
the period ended October 30, 2004, and have issued our report thereon dated
December 17, 2004 (included in Spartech Corporation's 2004 Annual Report to
Shareholders and incorporated by reference in this Form 10-K). Our audits also
included the financial statement schedule listed in Item 15(a) of this Form 10-
K. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
St. Louis, Missouri
December 17, 2004
F-1
SPARTECH CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED 2004, 2003, AND 2002.
(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, 2004
Allowance for $ 3,737 $ 1,372 $ (2,112) $ 2,997
Doubtful
Accounts
November 1, 2003
Allowance for $ 4,058 $ 1,133 $ (1,454) $ 3,737
Doubtful
Accounts
November 2,
2002: $ 3,957 $ 2,935 $ (2,834) $ 4,058
Allowance for
Doubtful
Accounts
Fiscal years 2002, 2003 and 2004 additions and write-offs include activity
relating to the acquisition of certain of the businesses and assets of GWB
Plastics Holding Co. in June 2002, Polymer Extruded Products in April 2003 and
the three divisions of VPI in October 2004.
F-2