-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dk6s52AFVJaU7Pdzo8CqUHuMwWHno1umIMsICxxm3h76ez8M4oWZHeM+JWfd3MaP JsZUQv36n3oMr9tzTYLnmA== 0000077597-05-000005.txt : 20050113 0000077597-05-000005.hdr.sgml : 20050113 20050113170541 ACCESSION NUMBER: 0000077597-05-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20041030 FILED AS OF DATE: 20050113 DATE AS OF CHANGE: 20050113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPARTECH CORP CENTRAL INDEX KEY: 0000077597 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PLASTIC PRODUCTS [3080] IRS NUMBER: 430761773 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05911 FILM NUMBER: 05528713 BUSINESS ADDRESS: STREET 1: 120 S CENTRAL AVE STREET 2: STE 1700 CITY: CLAYTON STATE: MO ZIP: 63105 BUSINESS PHONE: 3147214242 MAIL ADDRESS: STREET 1: 120 S CENTRAL AVE STREET 2: STE 1700 CITY: CLAYTON STATE: MO ZIP: 63105 FORMER COMPANY: FORMER CONFORMED NAME: SPARTAN MANUFACTURING CORP DATE OF NAME CHANGE: 19830621 FORMER COMPANY: FORMER CONFORMED NAME: PERMANEER CORP DATE OF NAME CHANGE: 19781019 10-K 1 form_10k.txt FORM 10-K 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 EX-3.2 2 exhibit_3-2.txt EXHIBIT 3.2 SPARTECH CORPORATION BY-LAWS Amended and Restated As of June 11, 1998 Amended September 7, 2000 Amended December 6, 2000 Amended June 5, 2003 Amended September 1, 2004 ___________________________________________________________ ARTICLE I Offices Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II Meetings of Stockholders Section 1. All meetings of the stockholders shall be held in St. Louis County, Missouri at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors or the officer calling the meeting and stated in the notice of the meeting. Section 2. Annual meetings of stockholders shall be held on the second Wednesday of March if not a legal holiday, and if a legal holiday, then on the next Business Day following, at 10:00 a.m. or at such other date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. "Business Day" means any day on which the banks in New York City are not authorized or required to remain closed and on which the New York Stock Exchange is not closed. Section 3. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 4. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the chief executive officer and shall be called by the chief executive officer or the secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 5. Written notice of every meeting of the stockholders stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 6. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 7. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 8. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provisions of the statutes or of the certificate of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 9. Each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 10. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any provision of the statutes, the meeting and vote of stockholders may be dispensed with if all of the stockholders who would have been entitled to vote upon the action of such meeting were held shall consent in writing to such corporate action being taken; or if the certificate of incorporation authorizes the action to be taken with the written consent of the holders of less than all of the stock who would have been entitled to vote upon the action if a meeting were held, then on the written consent of the stockholders having not less than such percentage of the total number of votes as may be authorized in the certificate of incorporation; provided that in no case shall the written consent be by the holders of stock having less than the minimum percentage of the total vote required by statute for the proposed corporate action, and provided that prompt notice must be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent. ARTICLE III Directors Number, Qualification, Term of Office Section 1. The number of directors shall not be less than four nor more than 15, the exact number of directors to be fixed from time to time only by the vote of a majority of the entire Board. No decrease in the number of directors shall shorten the term of any incumbent director. The directors shall be divided into three classes: Class A, Class B and Class C. Such classes shall be as nearly equal in number as possible. At each annual election, the directors chosen to succeed those whose terms then expire shall be identified as being of the same class as the directors they succeed and shall be elected for a term expiring at the third succeeding annual meeting or thereafter when their respective successors in each case are elected and have qualified. If the number of directors is changed, any increase or decrease in directors shall be apportioned among the classes so as to maintain all classes as nearly equal in number as possible and any individual director elected to any class shall hold office for a term which shall coincide with the term of such class. The Board may, by the vote of a majority of the entire Board, prescribe qualifications of candidates for the office of director of the Corporation, but no director then in office shall be disqualified from office as a result of the adoption of such qualifications. Notwithstanding the foregoing, whenever the holders of any preferred stock issued by the Corporation shall have the right, voting as a class or otherwise, to elect directors at the annual meeting of stockholders, the then authorized number of directors of the Corporation shall be increased by the number of the additional directors so to be elected, and at such meeting the holder of such preferred stock shall be entitled, as a class or otherwise, to elect such additional directors. Any directors so elected shall hold office until the next annual meeting of stockholders or until their rights to hold such office terminate pursuant to the provisions of such preferred stock, whichever is earlier. The provisions of this paragraph shall apply notwithstanding the maximum number of directors hereinabove set forth. Removal of Directors Section 2. Directors of the Corporation may be removed solely in accordance with the provisions of Article FOURTEENTH of the Certificate of Incorporation. Vacancies Section 3. If the office of any director becomes vacant at any time by reason of death, resignation, retirement, disqualification, removal from office or otherwise, or if any new directorship is created by any increase in the authorized number of directors, a majority of the directors then in office, although less than a quorum, or the sole remaining director, may choose a successor or fill the newly created directorship, and the director so chosen shall hold office, subject to the provisions of these By-laws, until the expiration of the term of the class to which he has been chosen and until his successor shall be duly elected and qualified. Powers Section 4. The business of the corporation shall be managed by its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these By-laws directed or required to be exercised or done by the stockholders. Meetings of the Board of Directors Section 5. The Board of Directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 6. The first meeting of each newly elected Board of Directors shall be held at such time and place as may be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected Board of Directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. [Amended September 7, 2000] Section 7. Additional regular or special meetings of the Board of Directors may be called by the chief executive officer. A special meeting of the Board of Directors shall be called by either the chief executive officer or secretary upon the written request of any two directors. [Added December 6, 2000] Section 8. Notice of any meeting of the Board of Directors shall be given to all directors, in the manner provided in Article IV, not less than 72 hours prior to such meeting in the case of a physical meeting, or not less than 24 hours prior to such meeting in the case of a telephonic meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting. [Amended December 6, 2000] Section 9. Any director may participate in any meeting of the Board, or of any committee of which the director is a member, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other; and participation in a meeting in such manner shall constitute presence in person at the meeting. [Added December 6, 2000] Section 10. At all meetings of the Board, a majority of the membership of the whole Board shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the certificate of incorporation, or as otherwise provided in this Article. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 11. Any transaction requiring a vote by the Board of Directors must not only satisfy the requirements as set forth in this Article, but also must satisfy any and all requirements contained in the certificate of incorporation of the corporation and all statutory requirements. Board Action Without A Meeting Section 12. Unless otherwise restricted by the certificate of incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committees. Committees of Directors Section 13. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation, and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Section 14. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Compensation of Directors Section 15. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Independence of Directors Section 16. In determining the number of directors to constitute the Board of Directors of the corporation, and in selecting nominees for election to the Board of Directors, the Board of Directors or the committee thereof making such determination or selection shall ensure that a majority of the Board of Directors will be comprised of directors who are "independent" as defined from time to time in the rules and regulations of the United States Securities and Exchange Commission and any national securities exchange on which the securities of the corporation are listed. In addition, in selecting nominees for election to the Board of Directors, the Board of Directors or the committee thereof making such determination or selection shall ensure that immediately after such election the Board of Directors shall include no more than two directors who are not independent under the preceding definition; however, no director shall be required to resign from the Board of Directors in order to satisfy the limitation in this sentence. [Added June 5, 2003; Amended September 1, 2004] Section 17. The Board of Directors shall schedule regular executive sessions, at which times the non-management directors shall meet without the presence of the corporation's management. If there are any non-management directors who are not "independent" as defined under the preceding section of these Bylaws, the Board of Directors shall at least once a year schedule an executive session including only independent directors. For the purposes of this Bylaw, "non-management" directors means directors who are not "officers" (as defined in Rule 16a-1(f) or a successor rule of the United States Securities and Exchange Commission) of the corporation. The presiding director at such executive sessions shall be, in the following order of precedence: First, the Chairman of the Board of Directors, if a non-management director; Second, the director, if any, who shall have been formally designated by the Board of Directors as "Lead Director" or "Presiding Director;" Third, the Chairman of the Governance Committee; Fourth, the Chairman of the Audit Committee; Fifth, such other non-management director as shall be chosen by the directors present at the executive session. [Added June 5, 2003; Amended September 1, 2004] ARTICLE IV Notice Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these By-laws, notice is required to be given to any stockholder, it shall not be construed to mean personal notice unless expressly stated, but such notice may be given in writing, by mail, addressed to such stockholder at his address as it appears on the records of the corporation, with postage hereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notices to directors may be given by telephone or facsimile transmission. Notice by telephone shall be deemed to be given when the call is either received personally by the director or received in the director's personal mailbox in a voice mail system at a number furnished by the director for such purpose. Notice by facsimile transmission shall be deemed to be given upon confirmation by the sending machine of a completed transmission to a number furnished by the director for such purpose; provided that if the receiving location is at a place other than the director's residence and is either sent on a Saturday, Sunday or federal holiday or confirmed after 5:00 p.m. local time at the place of receipt it shall be deemed to be given on the next business day. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. The attendance of a person at any meeting shall constitute a waiver of notice of such meeting, except where the person attends such meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened and so objects at the beginning of the meeting. ARTICLE V Officers Section 1. The executive officers of the corporation shall be elected by the Board of Directors and shall be a chairman of the board (who shall also be a director of the corporation), a president, one or more vice presidents (who may be designated as executive or senior vice presidents or given such additional designations as the Board may determine), a chief financial officer, however titled, a principal accounting officer, however titled, and a secretary. Any number of offices may be held by the same person, unless the certificate of incorporation or these By-laws otherwise provide. [Amended September 7, 2000] Section 2. The Board of Directors shall elect the executive officers annually, but vacancies may be filled or new offices created and filled at any meeting of the Board of Directors. [Amended September 7, 2000] Section 3. The salaries of all executive officers of the corporation shall be fixed by the Board of Directors. [Amended September 7, 2000] Section 4. The Board of Directors may appoint or authorize the president to appoint other officers and agents with such powers and duties as the Board of Directors or the president shall determine. [Amended September 7, 2000] Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify or until their death, resignation or removal. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. [Amended September 7, 2000] Section 6. The officers of the corporation shall each have the following powers and duties generally pertaining to their respective offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors: a. CHAIRMAN OF THE BOARD (AND VICE CHAIRMAN OF THE BOARD). The chairman of the board shall preside at all meetings of the Board of Directors. In the absence of the chairman of the board or in the event of his inability or refusal to act, the vice chairman of the board (if any) shall exercise the powers and perform the duties of the chairman of the board. b. PRESIDENT AND CHIEF EXECUTIVE OFFICER. The president shall be the chief executive officer of the corporation. He shall preside at all meetings of the stockholders; shall have general and active management of the business of the corporation; shall see that all orders and resolutions of the Board of Directors are carried into effect; and in general shall have all powers and authority and perform all duties as are usually vested in the president and chief executive officer of a corporation, as well as such other powers, authority and duties as may be prescribed by the Board of Directors from time to time. In the absence of the chairman of the board and the vice chairman of the board or in the event of their inability or refusal to act, the president shall exercise the powers and perform the duties of the chairman of the board. The president may execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law or these By-laws to be otherwise signed and executed. c. EXECUTIVE VICE PRESIDENT. The executive vice presidents shall have such powers, authority and duties as may be prescribed by the Board of Directors or the president from time to time. In the absence of the president or his inability or refusal to act, the executive vice president shall exercise the powers and perform the duties of the president. The executive vice president may execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law or these By-laws to be otherwise signed and executed. If there is more than one executive vice president, the executive vice presidents shall have such authority in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election or the order in which their names appear in the minutes of the meeting or written consent documenting their election). [Amended September 7, 2000] d. OTHER VICE PRESIDENTS. The other vice presidents, if any, shall each possess powers and perform such duties, in addition to those prescribed in these By-laws, as the Board of Directors and/or the president may from time to time determine, and each shall have supervision over such department or division of the corporation's business as the chairman of the board or the president may from time to time assign to him. In the absence of the executive vice presidents or in the event of their inability or refusal to act, the senior vice presidents, and after them the other vice presidents, if any, in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election or the order in which their names appear in the minutes of the meeting or written consent documenting their election) shall exercise the powers and perform the duties of the executive vice presidents. [Amended September 7, 2000] e. SECRETARY AND ASSISTANT SECRETARY. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the chief executive officer, the chairman of the board, the vice chairman of the board, or the president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing of his signature. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election or the order in which their names appear in the minutes of the meeting or written consent documenting their election), shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. [Amended September 7, 2000] f. CHIEF FINANCIAL OFFICER AND ASSISTANT TREASURER. The chief financial officer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all monies and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. [Amended September 7, 2000] He shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the chief executive officer, chairman of the board, vice chairman of the board, and president, and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions in his office and of the financial condition of the corporation. If required by the Board of Directors, he shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election or the order in which their names appear in the minutes of the meeting or written consent documenting their election), shall, in the absence of the chief financial officer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the chief financial officer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. [Amended September 7, 2000] ARTICLE VI Certificates of Stock Section 1. Every holder of stock in the corporation shall be entitled to have a certificate certifying the number of shares owned by him in the corporation, signed by, or in the name of the corporation by, (1) the chairman or vice chairman of the Board of Directors, the president or a vice president, and (2) the treasurer or vice president-finance, the secretary, an assistant treasurer or an assistant secretary. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificates which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Where a certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation or its employee, the signatures of the officers of the corporation may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of issue. Lost Certificates Section 3. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representatives, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Transfers of Stock Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its book. Fixing Record Date Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or any distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock of for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Registered Stockholders Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII General Provisions Dividends Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conductive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Annual Statement Section 3. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. Checks Section 4. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Fiscal Year Section 5. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. Seal Section 6. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII Amendments Sections 1, 2 and 3 of Article III and this Article VIII of the By-laws may not be amended, modified or rescinded except by the affirmative vote of the holders of at least 80 percent of the outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors, considered for such purpose as one class, and, in addition, the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors, considered for such purpose as one class, which are not beneficially owned, directly or indirectly, by any corporation, person or other entity which is the beneficial owner (as defined in Article THIRTEENTH of the Certificate of Incorporation), directly or indirectly, of 10 percent or more of the outstanding shares of such capital stock, considered for such purpose as one class. To the extent not inconsistent with the foregoing, all other provisions of the By-laws may be amended, modified and rescinded and new By-laws may be adopted, (i) by the affirmative vote of the holders of at least a majority of the outstanding shares of capital stock of the corporation entitled to vote thereon, or (ii) by the Board of Directors; provided, that any By-law adopted, amended or modified by the Board of Directors may be amended, modified or rescinded by the vote of the stockholders prescribed in clause (i) above. EX-10.7 3 exhibit_10-7.txt EXHIBIT 10.7 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into effective July 1, 2004 by and between Spartech Corporation, a Delaware corporation ("Employer"), and William F. Phillips ("Employee"). WHEREAS, Employer desires to continue to employ Employee, and Employee is willing to continue such employment on the terms hereinafter set forth, NOW, THEREFORE, the parties agree as follows: 1. Employment. Employer hereby agrees to continue to employ Employee, and Employee agrees to continue such employment, on the terms and conditions hereinafter set forth. 2. Term. The term of this Agreement shall commence July 1, 2004 and, unless earlier terminated as provided herein, shall expire on June 30, 2006. However, should Employer and Employee continue Employee's employment thereafter, Employee will thereupon become an at-will employee with no fixed term of employment upon the terms stated in the following Sections of this Agreement, to the extent their terms permit, unless and until Employer and Employee either enter into a new written employment agreement or agree otherwise in writing. 3. Duties. Employer employs Employee to act in an executive capacity, with the initial title of Vice President of National Accounts, on behalf of Employer and Employer's subsidiaries (Employer and its subsidiaries being herein referred to collectively as "Spartech"), on all aspects of Spartech's business, as and when requested, and at such times and places as Employer shall reasonably request, subject always to the control and direction of Employer's Chief Executive Officer. Employee also agrees to serve as an officer and/or director of any Spartech-affiliated entity. During the term of this Agreement, Employee (a) will serve Employer faithfully, diligently and to the best of his ability, and (b) will devote his best efforts and his entire working time, attention and skill to the performance of his duties hereunder and to promoting and furthering the interests of Spartech. While he is so employed, Employee will not, without the prior written consent of Employer, render any services to any business concern other than Spartech; provided, however, that nothing herein shall prevent Employee from (i) engaging in additional activities in connection with personal investments which do not interfere or conflict with his duties hereunder, or (ii) making any investment in any publicly traded company so long as such investment does not exceed one percent of the outstanding securities of any class. 4. Compensation. (a) Subject to periodic review for cost of living and/or merit and other increases, Employer agrees to pay Employee a base salary of $185,000 annually. (b) Employee shall be eligible for an annual discretionary bonus based upon his performance and the results of Employer's operations, to be determined and paid in accordance with the terms and conditions of Employer's executive bonus program as in effect from time to time. Any such bonus shall be subject to approval by Employer's Chief Executive Officer and/or the Compensation Committee of Employer's Board of Directors. (c) Employee may also participate in all stock option and stock purchase plans, insurance, medical and other employee benefit programs currently established and hereafter instituted by Employer which are generally available to other employees of comparable position and responsibility. For the term of this Agreement, Employer shall maintain term life insurance for Employee's designated beneficiaries in the amount of at least $250,000. (d) Employer shall advance or reimburse to Employee the expenses reasonably incurred by Employee in the discharge of Employee's duties hereunder, consistent with the necessities of the operation of the business and Employer's expense reimbursement policies. (e) Employee shall be entitled to indemnification under Employer's Certificate of Incorporation, Bylaws and insurance policies to the same extent as the other executive officers of Employer, and the Indemnification Agreement between Employer and Employee dated November 1, 2002 shall continue in effect. 5. Transition and Non-Disclosure Covenants. (a) Employee acknowledges that as a result of his employment by Employer he has acquired, and in the future will use and acquire, knowledge and information utilized by Spartech in its business which may not be generally available to the public or to other persons in the plastics business ("Confidential Information"), including, without limitation, Spartech's systems, procedures, formulas, processes, confidential reports, business plans, customer lists, pricing and margin information, production or processing information or instructions, data applicable to methods of manufacture, types, suppliers and costs of raw materials, and all other information of a confidential or secret nature applicable to Spartech, its customers and the manner of conducting its business. As a material inducement to Employer to enter into this Agreement and to pay Employee the compensation set forth herein, Employee agrees that he will not, at any time, directly or indirectly, divulge or disclose to any person, for any purpose, any Confidential Information, except to those persons authorized by Spartech to receive Confidential Information and except for information which becomes publicly available through no fault of Employee. (b) Employee shall, upon termination of his employment hereunder and as a prior condition to receiving final wages, return to Employer all property of Spartech and all other tangible embodiments of Confidential Information, including, without limitation, books, records and notes, duplicate invoices, correspondence, schedules and calendars, formulas, code books, price lists, samples, manuals, equipment, files, software and storage media. As a prior condition to his receiving final wages, Employee, if requested, shall also execute an affidavit to the effect that he has complied with the provisions of this paragraph 5(b). (c) Employee acknowledges that he is being employed in a position of authority and responsibility; that as part of the normal and necessary scope of such authority and responsibility Spartech will impart to Employee, or Employee will otherwise acquire, knowledge specifically applicable to Spartech's business which may be known uniquely to Employee or which may be difficult to compile from other employees in a timely manner; and that Spartech's willingness to employ Employee is expressly conditioned on Employee's agreement to assist Spartech with any necessary post-termination transition of such specialized knowledge. By way of example and without limitation, such knowledge may include passwords or access codes, work procedures, hardware and software operating information, customer or supplier contact information, the status of pending matters, and actions required to be taken by Spartech within a short time after termination. Employee therefore agrees that upon termination of Employee's employment, whether by Employee or Employer and for whatever reason, Employee will, without additional consideration, and if, as and when reasonably and specifically requested by Spartech, impart such knowledge to such person or persons as may be designated by Spartech; provided that to the extent practicable, Employee may impart such knowledge orally rather than in writing and at times and in a manner that will not interfere with any subsequent employment; and Spartech will reimburse Employee for any actual and reasonable expenses incurred by Employee in imparting such knowledge. (d) If and as reasonably requested by Spartech, Employee will make himself available after both during and after the termination of his employment for interviews, depositions and/or testimony relating to, and will otherwise cooperate with and assist Spartech in the resolution and/or defense of, any claims arising out of the business of Spartech or out of Employee's acts or omissions while employed by Spartech, provided that Spartech will reimburse Employee for his actual and reasonable expenses, and any lost wages, incurred as a result of such cooperation and assistance. (e) In consideration of the salary and other benefits to be paid to Employee under this Agreement, Employee expressly agrees that the covenants in Sections 5, 6, 7 and 8 shall remain in effect not only during Employee's entire term of employment under this Agreement but also thereafter according to their terms, notwithstanding the expiration of the term stated in Section 2, unless and until Employer and Employee either (i) enter into a new written employment agreement without such covenants, or (ii) agree in writing to terminate such covenants, or (iii) otherwise expressly agree in writing. 6. Non-Competition and Non-Solicitation Covenants. (a) During his employment by Employer, and thereafter for the period described in paragraph 6(c), Employee will not, directly or indirectly, except as a passive investor in publicly held companies in which he has less than a one percent interest, engage in, own or control any interest in or act as director, officer or employee of, or consultant to, any firm or corporation, directly or indirectly engaged, as these terms may be reasonably construed, in a business substantially similar to that operated by Employer or Spartech on the date of termination, in the territories where Employer or Spartech manufacture or distribute their products. (b) During his employment by Employer, and thereafter for the period described in paragraph 6(c), Employee will not, directly or indirectly, induce or attempt to induce any employee of Employer or Spartech to leave the employment of Employer or Spartech, or employ or attempt to employ any of such employees within 90 days after any termination of their employment with Employer or Spartech. (c) If Employee's employment is terminated for Cause or because of Employee's resignation or disability, then the restrictions described in paragraphs 6(a) and 6(b) will continue for a period of one year after the effective termination date. If Employee's employment is terminated for any reason other than Cause or Employee's resignation or disability, then the restrictions described in paragraphs 6(a) and 6(b) will continue for the period, if any, during which Employer continues to pay Employee his final base salary pursuant to paragraph 10(a), whether more or less than one year, provided that if at the time of such termination the remaining term of this Agreement is less than one year, Employer may, at its sole option, extend such restrictions for a total period of up to one year after the termination of Employee's employment by continuing to pay Employee his final base salary during the extended period plus a bonus equal to a pro rata portion of the average bonus paid to him over the previous two years based on the number of days by which the extended period exceeds the remaining term of this Agreement, paid at the same times as Spartech's normal bonus payments for continuing employees. 7. Inventions. Employee acknowledges that all inventions, production processes, techniques, programs, patents, discoveries, formulas and improvements invented, discovered or learned by Employee during employment hereunder, and relating to Spartech's business, will be disclosed to Employer and will be the sole property of Employer, and Employee will assign all rights to such inventions and other intellectual property to Spartech upon Employer's request without further consideration. The restraints on Employee, as set forth in this Section 7, however, shall not apply to those inventions for which no equipment, supplies, facility or trade secret information of Spartech was used and which was developed entirely on Employee's own time and which does not relate to Spartech's business or to Spartech's actual or demonstrably anticipated research or development, or which did not result from any work performed by Employee for Spartech. 8. Remedies. By reason of the fact that irreparable harm would be sustained by Employer if there is any breach by Employee of the provisions of Sections 5, 6 and 7 hereof, it is agreed that, in addition to any other rights which Employer may have under this Agreement or at law or in equity, Employer shall be entitled to apply to any court of competent jurisdiction for, and obtain, injunctive relief against Employee or against any third party, in order to prevent any breach or threatened breach of such provisions. 9. Death During Employment. If Employee should die during the term of this Agreement, Employer's only obligation shall be to pay Employee's spouse, or his estate if he has no spouse, his base salary to the date of his death, plus any accrued and unpaid bonus for the previous year, plus a bonus for the current year equal to a pro rata portion of the average bonus paid to him over the previous two years, based on the number of days in the current year to and including the Employee's death, plus any vacation and fringe benefits accrued to the date of death in accordance with Employer's vacation and fringe benefit policies. 10. Termination. Notwithstanding anything herein to the contrary, Employer shall have the right to terminate Employee's employment as follows: (a) Employer may terminate Employee's employment without Cause upon written notice to Employee. In the event of such termination, Employer shall have no obligation to pay Employee any further compensation except to pay Employee's final base salary for the remaining term of this Agreement, paid when such salary would have been payable if Employee had remained employed, plus any accrued and unpaid bonus for the previous year, plus a bonus equal to the average bonus paid to him over the previous two years, paid at the same times as Spartech's normal bonus payments for continuing employees, plus any vacation and fringe benefits accrued to the effective date of termination in accordance with Employer's vacation and fringe benefit policies. (b) Employer may terminate Employee's employment at any time for Cause. "Cause" as used herein means any of the following: (i) Conviction of a misdemeanor involving physical harm, moral turpitude, fraud or misappropriation, or conviction of any felony; or (ii) Dishonesty or theft materially adversely affecting Employer's or Spartech's assets, business reputation or standing in the community; or (iii) Drunkenness or drug abuse in violation of Employer's or Spartech's policies or affecting Employee's performance of Employee's usual and customary employment or materially adversely affecting Employer's or Spartech's assets, business reputation or standing in the community; or (iv) The failure of Employee, within ten days after receipt of written notice thereof from Employer's or Spartech's Chief Executive Officer, to correct, cease or otherwise alter any failure to use best efforts to comply with Employer's or Spartech's lawful policies or reasonable instructions concerning Employee's employment; or (v) Any violation of Company policy or any other act or circumstance constituting "cause" at common law if the violation, act or circumstance is determined by Employer's or Spartech's Chief Executive Officer or Board of Directors to have a substantial likelihood of materially adversely affecting Employer's or Spartech's assets or business, or, if it is or were to become publicly known, Employer's or Spartech's business reputation or standing in the community. In the event of termination for Cause, Employer shall have no obligation to pay Employee any further compensation except to pay Employee's base salary accrued to the effective date of termination, plus any accrued and unpaid bonus for the previous year, and to pay any vacation and fringe benefits accrued to the effective date of termination in accordance with Employer's vacation and fringe benefit policies. (c) Employer may terminate Employee's employment by reason of disability upon written notice to Employee if the Employee, because of physical or mental incapacity, illness or disability, fails in any material respect to perform the services required of him hereunder for a continuous period of 120 days, or for shorter periods aggregating 180 days or more in any consecutive period of 240 days, or for such lesser period as constitutes the waiting period for benefits under any disability insurance policy maintained for Employee. In the event of termination by reason of disability, Employer shall have no obligation to pay Employee any further compensation except to pay Employee's base salary for the waiting period under any long-term disability insurance policy under which Employee is insured, or if there is no such policy then for a period of 90 days after the effective date of termination, to pay any accrued and unpaid bonus for the previous year, plus a bonus for the current year equal to a pro rata portion of the average bonus paid to him over the previous two years, based on the number of days in the current year to and including the effective date of termination, and to pay any vacation and fringe benefits accrued to the effective date of termination in accordance with Employer's vacation and fringe benefit policies. 11. Severability. If any part of this Agreement is found to be void or unenforceable for any reason, the remainder of this Agreement shall be severable and may be enforced according to its terms. 12. Benefit; Assignment. This Agreement shall inure to the benefit of and be binding upon Employee, his heirs, executors and administrators, and upon Employer and its successors; but this Agreement may not be assigned by either party except (i) by operation of law upon a merger or consolidation of Employer into or with another corporation, or (ii) by Employer in connection with a sale of its business or any part thereof. Employee hereby expressly consents to any such assignment and agrees to render his services hereunder to any such assignee. 13. Headings. The headings have been inserted in this Agreement for convenience only and shall not affect the interpretation hereof. 14. Entire Agreement. This Agreement contains the entire understanding of the parties and may not be amended or changed except by an agreement in writing signed by the parties. 15. Notices. Any notices required or permitted hereunder shall be addressed to Employer at its principal office and to Employee at his address as it appears in the records of the Employer, or at such other address as either party may have furnished to the other for such purpose in writing. 16. Applicable Law. This Agreement has been entered into in, and shall be construed under the laws of, the State of Missouri. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. Employer: SPARTECH CORPORATION By: s/BRADLEY B. BUECHLER Bradley B. Buechler Chairman of the Board, President and Chief Executive Officer Employee: s/WILLIAM F. PHILLIPS William F. Phillips EX-10.9 4 exhibit_10-9.txt EXHIBIT 10.9 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into effective May 1, 2004 by and between Spartech Corporation, a Delaware corporation ("Employer"), and Steven J Ploeger ("Employee"). WHEREAS, Employer desires to employ Employee, and Employee is willing to accept such employment on the terms hereinafter set forth, NOW, THEREFORE, the parties agree as follows: 1. Employment. Employer hereby agrees to employ Employee, and Employee agrees to accept such employment, on the terms and conditions hereinafter set forth. This Agreement supersedes in its entirety the Employment Agreement dated January 1, 2003 between Employee and Spartech Plastics, Inc., and Employee's employment under this Agreement shall be deemed to be a continuation of his employment with Spartech. 2. Term. The term of this Agreement shall commence May 1, 2004 and, unless earlier terminated as provided herein, shall expire April 30, 2007. However, should Employer and Employee continue Employee's employment thereafter, Employee will thereupon become an at-will employee with no fixed term of employment upon the terms stated in the following Sections of this Agreement, to the extent their terms permit, unless and until Employer and Employee either enter into a new written employment agreement or agree otherwise in writing. 3. Duties. Employer employs Employee to act in an executive capacity, with the initial title of Executive Vice President - Custom Sheet and Rollstock, on behalf of Employer and Employer's subsidiaries (Employer and its subsidiaries being herein referred to collectively as "Spartech"), on all aspects of Spartech's business, as and when requested, and at such times and places as Employer shall reasonably request, subject always to the control and direction of Employer's Chief Executive Officer. Employee also agrees to serve as an officer and/or director of any Spartech-affiliated entity. During the term of this Agreement, Employee (a) will serve Employer faithfully, diligently and to the best of his ability, and (b) will devote his best efforts and his entire working time, attention and skill to the performance of his duties hereunder and to promoting and furthering the interests of Spartech. While he is so employed, Employee will not, without the prior written consent of Employer, render any services to any business concern other than Spartech; provided, however, that nothing herein shall prevent Employee from (i) engaging in additional activities in connection with personal investments which do not interfere or conflict with his duties hereunder, or (ii) making any investment in any publicly traded company so long as such investment does not exceed one percent of the outstanding securities of any class. 4. Compensation. (a) Subject to periodic review for cost of living and/or merit and other increases, Employer agrees to pay Employee a base salary of $275,000 annually. (b) Employee shall be eligible for an annual discretionary bonus based upon his performance, the overall results of the Employer's operations, and the results of the operations of Employer's Custom Sheet & Rollstock business group, to be determined and paid in accordance with the terms and conditions of Employer's executive bonus program as in effect from time to time. Any such bonus shall be subject to approval by Employer's Chief Executive Officer and/or the Compensation Committee of Employer's Board of Directors. (c) Employee may also participate in all stock option and stock purchase plans, insurance, medical and other employee benefit programs currently established and hereafter instituted by Employer which are generally available to other employees of comparable position and responsibility. For the term of this Agreement, Employer shall maintain term life insurance for Employee's designated beneficiaries in the amount of at least $250,000. (d) Employer shall advance or reimburse to Employee the expenses reasonably incurred by Employee in the discharge of Employee's duties hereunder, consistent with the necessities of the operation of the business and Employer's expense reimbursement policies. (e) Employee shall be entitled to indemnification under Employer's Certificate of Incorporation, Bylaws and insurance policies and other contracts to the same extent as the other executive officers of Employer. The parties acknowledge having entered into an Indemnification Agreement in the current standard form for Employer's executive officers, effective May 1, 2004. 5. Transition and Non-Disclosure Covenants. (a) Employee acknowledges that as a result of his employment by Employer he has acquired, and in the future will use and acquire, knowledge and information utilized by Spartech in its business which may not be generally available to the public or to other persons in the plastics business ("Confidential Information"), including, without limitation, Spartech's systems, procedures, formulas, processes, confidential reports, business plans, customer lists, pricing and margin information, production or processing information or instructions, data applicable to methods of manufacture, types, suppliers and costs of raw materials, and all other information of a confidential or secret nature applicable to Spartech, its customers and the manner of conducting its business. As a material inducement to Employer to enter into this Agreement and to pay Employee the compensation set forth herein, Employee agrees that he will not, at any time, directly or indirectly, divulge or disclose to any person, for any purpose, any Confidential Information, except to those persons authorized by Spartech to receive Confidential Information and except for information which becomes publicly available through no fault of Employee. (b) Employee shall, upon termination of his employment hereunder and as a prior condition to receiving final wages, return to Employer all property of Spartech and all other tangible embodiments of Confidential Information, including, without limitation, books, records and notes, duplicate invoices, correspondence, schedules and calendars, formulas, code books, price lists, samples, manuals, equipment, files, software and storage media. As a prior condition to his receiving final wages, Employee, if requested, shall also execute an affidavit to the effect that he has complied with the provisions of this paragraph 5(b). (c) Employee acknowledges that he is being employed in a position of authority and responsibility; that as part of the normal and necessary scope of such authority and responsibility Spartech will impart to Employee, or Employee will otherwise acquire, knowledge specifically applicable to Spartech's business which may be known uniquely to Employee or which may be difficult to compile from other employees in a timely manner; and that Spartech's willingness to employ Employee is expressly conditioned on Employee's agreement to assist Spartech with any necessary post-termination transition of such specialized knowledge. By way of example and without limitation, such knowledge may include passwords or access codes, work procedures, hardware and software operating information, customer or supplier contact information, the status of pending matters, and actions required to be taken by Spartech within a short time after termination. Employee therefore agrees that upon termination of Employee's employment, whether by Employee or Employer and for whatever reason, Employee will, without additional consideration, and if, as and when reasonably and specifically requested by Spartech, impart such knowledge to such person or persons as may be designated by Spartech; provided that to the extent practicable, Employee may impart such knowledge orally rather than in writing and at times and in a manner that will not interfere with any subsequent employment; and Spartech will reimburse Employee for any actual and reasonable expenses incurred by Employee in imparting such knowledge. (d) If and as reasonably requested by Spartech, Employee will make himself available after both during and after the termination of his employment for interviews, depositions and/or testimony relating to, and will otherwise cooperate with and assist Spartech in the resolution and/or defense of, any claims arising out of the business of Spartech or out of Employee's acts or omissions while employed by Spartech, provided that Spartech will reimburse Employee for his actual and reasonable expenses, and any lost wages, incurred as a result of such cooperation and assistance. (e) In consideration of the salary and other benefits to be paid to Employee under this Agreement, Employee expressly agrees that the covenants in Sections 5, 6, 7 and 8 shall remain in effect not only during Employee's entire term of employment under this Agreement but also thereafter according to their terms, notwithstanding the expiration of the term stated in Section 2, unless and until Employer and Employee either (i) enter into a new written employment agreement without such covenants, or (ii) agree in writing to terminate such covenants, or (iii) otherwise expressly agree in writing. 6. Non-Competition and Non-Solicitation Covenants. (a) During his employment by Employer, and thereafter for the period described in paragraph 6(c), Employee will not, directly or indirectly, except as a passive investor in publicly held companies in which he has less than a one percent interest, engage in, own or control any interest in or act as director, officer or employee of, or consultant to, any firm or corporation, directly or indirectly engaged, as these terms may be reasonably construed, in a business substantially similar to that operated by Employer or Spartech on the date of termination, in the territories where Employer or Spartech manufacture or distribute their products. (b) During his employment by Employer, and thereafter for the period described in paragraph 6(c), Employee will not, directly or indirectly, induce or attempt to induce any employee of Employer or Spartech to leave the employment of Employer or Spartech, or employ or attempt to employ any of such employees within 90 days after any termination of their employment with Employer or Spartech. (c) If Employee's employment is terminated for Cause or because of Employee's resignation or disability, then the restrictions described in paragraphs 6(a) and 6(b) will continue for a period of one year after the effective termination date. If Employee's employment is terminated for any reason other than Cause or Employee's resignation or disability, then the restrictions described in paragraphs 6(a) and 6(b) will continue for the period, if any, during which Employer continues to pay Employee his final base salary pursuant to paragraph 10(a), whether more or less than one year, provided that if at the time of such termination the remaining term of this Agreement is less than one year, Employer may, at its sole option, extend such restrictions for a total period of up to one year after the termination of Employee's employment by continuing to pay Employee his final base salary during the extended period plus a bonus equal to a pro rata portion of the average bonus paid to him over the previous two years based on the number of days by which the extended period exceeds the remaining term of this Agreement, paid at the same times as Spartech's normal bonus payments for continuing employees. 7. Inventions. Employee acknowledges that all inventions, production processes, techniques, programs, patents, discoveries, formulas and improvements invented, discovered or learned by Employee during employment hereunder, and relating to Spartech's business, will be disclosed to Employer and will be the sole property of Employer, and Employee will assign all rights to such inventions and other intellectual property to Spartech upon Employer's request without further consideration. The restraints on Employee, as set forth in this Section 7, however, shall not apply to those inventions for which no equipment, supplies, facility or trade secret information of Spartech was used and which was developed entirely on Employee's own time and which does not relate to Spartech's business or to Spartech's actual or demonstrably anticipated research or development, or which did not result from any work performed by Employee for Spartech. 8. Remedies. By reason of the fact that irreparable harm would be sustained by Employer if there is any breach by Employee of the provisions of Sections 5, 6 and 7 hereof, it is agreed that, in addition to any other rights which Employer may have under this Agreement or at law or in equity, Employer shall be entitled to apply to any court of competent jurisdiction for, and obtain, injunctive relief against Employee or against any third party, in order to prevent any breach or threatened breach of such provisions. 9. Death During Employment. If Employee should die during the term of this Agreement, Employer's only obligation shall be to pay Employee's spouse, or his estate if he has no spouse, his base salary to the date of his death, plus any accrued and unpaid bonus for the previous year, plus a bonus for the current year equal to a pro rata portion of the average bonus paid to him over the previous two years, based on the number of days in the current year to and including the Employee's death, plus any vacation and fringe benefits accrued to the date of death in accordance with Employer's vacation and fringe benefit policies. 10. Termination. Notwithstanding anything herein to the contrary, Employer shall have the right to terminate Employee's employment as follows: (a) Employer may terminate Employee's employment without Cause upon written notice to Employee. In the event of such termination, Employer shall have no obligation to pay Employee any further compensation except to pay Employee's final base salary for the remaining term of this Agreement, paid when such salary would have been payable if Employee had remained employed, plus any accrued and unpaid bonus for the previous year, plus a bonus equal to the average bonus paid to him over the previous two years, paid at the same times as Spartech's normal bonus payments for continuing employees, plus any vacation and fringe benefits accrued to the effective date of termination in accordance with Employer's vacation and fringe benefit policies. (b) Employer may terminate Employee's employment at any time for Cause. "Cause" as used herein means any of the following: (i) Conviction of a misdemeanor involving physical harm, moral turpitude, fraud or misappropriation, or conviction of any felony; or (ii) Dishonesty or theft materially adversely affecting Employer's or Spartech's assets, business reputation or standing in the community; or (iii) Drunkenness or drug abuse in violation of Employer's or Spartech's policies or affecting Employee's performance of Employee's usual and customary employment or materially adversely affecting Employer's or Spartech's assets, business reputation or standing in the community; or (iv) The failure of Employee, within ten days after receipt of written notice thereof from Employer's or Spartech's Chief Executive Officer, to correct, cease or otherwise alter any failure to use best efforts to comply with Employer's or Spartech's lawful policies or reasonable instructions concerning Employee's employment; or (v) Any violation of Company policy or any other act or circumstance constituting "cause" at common law if the violation, act or circumstance is determined by Employer's or Spartech's Chief Executive Officer or Board of Directors to have a substantial likelihood of materially adversely affecting Employer's or Spartech's assets or business, or, if it is or were to become publicly known, Employer's or Spartech's business reputation or standing in the community. In the event of termination for Cause, Employer shall have no obligation to pay Employee any further compensation except to pay Employee's base salary accrued to the effective date of termination, plus any accrued and unpaid bonus for the previous year, and to pay any vacation and fringe benefits accrued to the effective date of termination in accordance with Employer's vacation and fringe benefit policies. (c) Employer may terminate Employee's employment by reason of disability upon written notice to Employee if the Employee, because of physical or mental incapacity, illness or disability, fails in any material respect to perform the services required of him hereunder for a continuous period of 120 days, or for shorter periods aggregating 180 days or more in any consecutive period of 240 days, or for such lesser period as constitutes the waiting period for benefits under any disability insurance policy maintained for Employee. In the event of termination by reason of disability, Employer shall have no obligation to pay Employee any further compensation except to pay Employee's base salary for the waiting period under any long-term disability insurance policy under which Employee is insured, or if there is no such policy then for a period of 90 days after the effective date of termination, to pay any accrued and unpaid bonus for the previous year, plus a bonus for the current year equal to a pro rata portion of the average bonus paid to him over the previous two years, based on the number of days in the current year to and including the effective date of termination, and to pay any vacation and fringe benefits accrued to the effective date of termination in accordance with Employer's vacation and fringe benefit policies. 11. Severability. If any part of this Agreement is found to be void or unenforceable for any reason, the remainder of this Agreement shall be severable and may be enforced according to its terms. 12. Benefit; Assignment. This Agreement shall inure to the benefit of and be binding upon Employee, his heirs, executors and administrators, and upon Employer and its successors; but this Agreement may not be assigned by either party except (i) by operation of law upon a merger or consolidation of Employer into or with another corporation, or (ii) by Employer in connection with a sale of its business or any part thereof. Employee hereby expressly consents to any such assignment and agrees to render his services hereunder to any such assignee. 13. Headings. The headings have been inserted in this Agreement for convenience only and shall not affect the interpretation hereof. 14. Entire Agreement. This Agreement contains the entire understanding of the parties and may not be amended or changed except by an agreement in writing signed by the parties. 15. Notices. Any notices required or permitted hereunder shall be addressed to Employer at its principal office and to Employee at his address as it appears in the records of the Employer, or at such other address as either party may have furnished to the other for such purpose in writing. 16. Applicable Law. This Agreement has been entered into in, and shall be construed under the laws of, the State of Missouri. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. Employer: SPARTECH CORPORATION By: s/BRADLEY B. BUECHLER Bradley B. Buechler Chairman of the Board, President and Chief Executive Officer Employee: s/STEVEN J. PLOEGER Steven J. Ploeger EX-10.15 5 exhibit_10-15.txt EXHIBIT 10.15 FIRST AMENDMENT AND RESTATEMENT OF THE SPARTECH CORPORATION NON-QUALIFIED DEFERRED COMPENSATION PLAN WHEREAS, Spartech adopted its Non-Qualified Deferred Compensation Plan effective January 1, 1994, to provide certain employees with additional retirement benefits through the Plan, in order to encourage their continued employment with Spartech; and WHEREAS, this amendment and restatement of the Plan has been approved by the Board; NOW, THEREFORE, the Plan is amended and restated to read as follows, effective January 1, 2000: Article 1. Definitions. "Account" or "Deferred Compensation Account" means an account established for a Participant pursuant to Section 4.1, or the balance thereof, according to the context. "Affiliated Company" means any corporation which is a member of the controlled group of corporations of which Spartech is a member, as determined by Section 1563(a) of the Code, without regard to Sections 1563(a)(4) and (4)(3)(C) of the Code. "Beneficiary" means any person, corporation or trust last designated by a Participant in writing to receive benefits provided under the Plan. Provided, that if a designation is not made or cannot be located by the time the payment of Benefits commences, or if the named Beneficiary predeceases the Participant and no contingent Beneficiary has been named, the Beneficiary shall be the Participant's Spouse, if such Spouse survives the Participant; or if the Spouse does not survive the Participant, the Beneficiaries shall be the Participant's descendants (including adopted children), per stirpes; or if no descendants survive the Participant, the Beneficiary shall be the Participant's estate. "Benefits" has the meaning given in Section 5.4. "Board" means the board of directors of Spartech. "Cause" means proven dishonesty or theft, conviction of a felony, habitual drunkenness or drug abuse or material breach of the Participant's employment contract with Spartech or an Affiliated Company; a determination of whether Cause exists in any given situation shall be in the sole discretion of the Board. In addition, termination of the Participant's employment for "cause" either under applicable law or as defined in the Participant's employment contract shall be "Cause" under this Plan. "Code" means the Internal Revenue Code of 1986, as amended. "Compensation" means, with respect to any Active Participant, the total amount shown on Internal Revenue Service Form W-2 for a calendar year as compensation for FICA and Medicare tax purposes. "Eligible Employee" means a person who serves as a managerial employee of Spartech or any of its Affiliated Companies. "Participant" means an Eligible Employee who has been designated to participate in the Plan and who has executed a Participation Agreement pursuant to Section 2.1. A Participant will be either an "Active Participant" or an "Inactive Participant" as described in Article 2. "Permanent Disability" means a physical or mental condition of a Participant resulting from injury, disease, or mental disorder which renders the Participant incapable of continuing his usual and customary employment with Spartech or an Affiliated Company. The disability of a Participant shall be determined by a licensed physician chosen by Spartech. The criteria for such determination shall be applied uniformly to all Participants. "Plan" means this Spartech Corporation Non-Qualified Deferred Compensation Plan, as heretofore or hereafter amended and/or restated. "Qualifying Period" means a twelve-month period which (i) begins on the date the Participant is employed by Spartech or an Affiliated Company on a permanent, full-time basis or any anniversary thereof, and (ii) ends on or after January 1, 1994. "Spartech" means Spartech Corporation, a Delaware corporation, which has adopted the Plan. "Spouse" means the person, if any, to whom the Participant is legally married at the time of his death. "Termination" has the meaning given in Section 5.3. "Trustee" means the person or entity named as trustee under the Trust. "Trust" means the Spartech Corporation Non Qualified Deferred Compensation Trust. "Vested Percentage" means a percentage determined as set out in Section 5.4. "Years of Service" means a whole number determined as set out in Section 5.1. Article 2. Participation In The Plan. 2.1 Any Eligible Employee may be designated by the Board to become a Participant in the Plan, effective as of the date the Participant becomes an Eligible Employee or such later date as the Board may determine. As a condition of his participation in the Plan, an Eligible Employee so designated must complete and execute a Participation Agreement in the form attached hereto or in such other form as the Board may approve. 2.2 A Participant will be an Active Participant so long as the Participant is an Eligible Employee or until the Board determines that the Participant shall become an Inactive Participant. 2.3 A Participant will become an Inactive Participant if and when the Participant ceases to be an Eligible Employee, or upon the Board's determination that the Participant shall become an Inactive Participant. The Board may also determine to redesignate an Inactive Participant as an Active Participant, but such a Participant shall not be entitled to any Benefits which would have accrued during the time he was an Inactive Participant. 2.4 Upon the Termination of a Participant, the Participant will automatically cease to be a Participant unless the Board determines that he may continue as an Inactive Participant for such period of time as the Board may determine in its sole discretion. No person may be an Active Participant after his Termination. 2.5 Each Participant shall advise Spartech of his current mailing address and the address of his Beneficiary, and shall notify Spartech promptly of any change of address. In the absence of such notice, Spartech shall be entitled, for all purposes, to rely on the last known address of the Participant or Beneficiary. Article 3. Contributions and Funding. 3.1 Spartech shall contribute to the Deferred Compensation Account of each Active Participant no later than December 31 of each calendar year an amount equal to 10% of the Participant's Compensation for the immediately preceding calendar year (e.g. contributions for 2004 shall be based on 2003 Compensation and shall be made no later than December 31, 2004). For purposes of this paragraph, a Participant's Compensation for any such year in excess of $150,000 shall be disregarded. However, beginning with the contributions to be made by December 31, 2004 based on compensation for calendar year 2003, the number in the preceding sentence shall be increased to $300,000. 3.2 Forfeitures of funded Accounts arising under Section 5.5 or Section 6.2 shall be credited to the Accounts of the remaining Active Participants in proportion to their respective balances. Spartech's obligation to make contributions to a Participant's Account in a calendar year shall be reduced by the amount of any allocations to the Participant's Account in that year as a result of such forfeitures. 3.3 Unless otherwise approved by the Board, Spartech shall not be required to make any contribution to the Deferred Compensation Account of an Inactive Participant, including contributions for years ended while the person was an Active Participant which are not yet due at the time the person becomes an Inactive participant. Unless otherwise approved by the Board, Spartech shall not be required to make any contribution to the Deferred Compensation Account of a Participant after his Termination, including contributions for years ended before the Termination which are not yet due at the time of the Termination. 3.4 Contributions by Participants are neither required nor permitted under the Plan. 3.5 Unless otherwise expressly directed by the Board, Spartech shall contribute any funding under the Plan to the Trust. 3.6 The determination of the Board as whether to fund the Plan in advance or as benefits are due, and if in advance, the amount thereof, shall be conclusive and binding upon all parties in interest. Article 4. Participant Accounts. 4.1 The Board shall establish a Deferred Compensation Account for each Participant. 4.2 A Participant's Account shall be invested in such investments as Spartech shall determine in its discretion. Spartech may, but shall not be required to, permit Participants to determine in full or in part how the Participant's Account shall be invested, but only to the extent deemed appropriate by Spartech in its sole discretion and from among such investment alternatives as are deemed appropriate by Spartech in its sole discretion. Spartech shall have no liability whatsoever to any Participant for the investment results of the Participant's Account. 4.3 To the extent the Plan is funded either through investments owned by Spartech which are reserved for funding of the Plan or through the Trust, Deferred Compensation Accounts shall be adjusted as of each December 31 to reflect increases or decreases as a result of the investment experience of the Plan for that year. Any increase or decrease shall be allocated among the Deferred Compensation Accounts based upon the value of each such Account in proportion to the value of all Deferred Compensation Accounts, appropriately adjusted to reflect additions to, charges against or distributions from the Account. 4.4 If a life insurance contract is purchased on the life of a Participant for purposes of funding his Benefits under the Plan, such contract shall be credited directly to the Deferred Compensation Account of the insured Participant. In that event, the value of the Participant's Deferred Compensation Account shall be reduced by the value of the life insurance contract for purposes of the annual increases or decreases under Section 4.3. Death benefits paid pursuant to a life insurance contract shall be credited directly to the Deferred Compensation Account of the Participant whose life is insured under such contract. 4.5 Spartech may deduct from a Participant's Account any taxes required to be withheld as a result of contributions, Benefits, vesting increases or other events under the Plan. 4.6 The annual accounting period for the Plan shall be the calendar year. Article 5. Accrual and Payment of Benefits. 5.1 A Participant will accrue one Year of Service for each Qualifying Period during which the Participant (i) is employed by Spartech or an Affiliated Company on a permanent, full-time basis for at least six months and (ii) is a Participant for at least six months. Years of Service need not be accrued in consecutive Qualifying Periods. The Board may also credit a Participant with additional Years of Service in its sole discretion which need not be uniformly exercised. A Termination will not cause the loss of accrued Years of Service but the re-employment of the Participant after a Termination will reset the beginning date of the Participant's Qualifying Period for future Years of Service. 5.2 In specific cases, the Board may authorize the accrual of Years of Service for Participants who are no longer employed by Spartech but for whom a Termination has not yet occurred. 5.3 The "Termination" of a Participant will occur when the Participant ceases to be employed by Spartech or any of its Affiliated Companies; except that in specific cases, the Board may defer Termination for a Participant who continues to provide services to Spartech or an Affiliated Company under a consulting or other non-employee service relationship, but in no event may the Participant's Termination occur later than the end of such consulting or other non-employee service relationship. 5.4 Upon the Termination of a Participant, the value of the Participant's Account (net of any surrender or termination charges) multiplied by the Vested Percentage set out in the following table ("Benefits") will be distributed to the Participant as set out in the following table, unless otherwise expressly agreed to by Spartech and the Participant: Reason for Age At Vested When Distributions Termination Terminat Percentage Will Commence ion Cause Any age None (0%) N/A Death Any age 100% Upon collection of insurance proceeds Permanent Any age 100% As promptly as Disability practicable after Termination Any other 65 or 100% As promptly as reason older practicable after Termination Under 65 10% times Years As promptly as of Service practicable after (minimum 10%, Termination maximum 100%) 5.5 Upon the Termination of a Participant, any portion of the Participant's Deferred Compensation Account in excess of the Vested Percentage thereof shall be forfeited. If such person is subsequently re-employed and again becomes a Participant, the forfeited amounts will not be restored to the Participant's Deferred Compensation Account, and the Participant will not be permitted to make any payment to Spartech in order to have forfeited or previously paid amounts restored to his Deferred Compensation Account. 5.6 Except to the extent a Participant's Account is invested in a life insurance policy Spartech may elect to pay the Benefits either by distributing Account investments to the Participant in kind, by liquidating the Account and distributing cash, or partly in each manner. 5.7 To the extent a Participant's Account is invested in an unmatured life insurance policy, Spartech may elect either to distribute the policy in kind or to surrender the policy and distribute the cash surrender value in cash. Except in the event of the Participant's death, life insurance policies held in a Participant's Account will be valued at their cash surrender value, interpolated terminal reserve value or similar valuation method and not face value, and the Participant will have no right to receive the face amount of the death benefits thereunder. 5.8 With respect to Benefits other than life insurance proceeds, Spartech may elect to pay the Benefits in either a single payment or in substantially equal monthly, quarterly or annual installments over a period not to exceed five years from the first payment date, but if a Participant dies, whether before payment of such Benefits commences or while he is receiving Benefits, any such remaining Benefits will be paid in a lump sum to the Participant's Beneficiary. 5.9 In the event of the Participant's death, life insurance proceeds will be payable according to the terms of the policy, and any Benefits represented by collected life insurance proceeds will be payable in a lump sum to the Participant's Beneficiary. 5.10 Spartech has no obligation to maintain any policy of insurance on the life of a Participant for any period of time either before or after the Participant's Termination; nor shall Spartech have any liability for reimbursement of premiums due to any delay in canceling or surrendering any policy of insurance after a Termination. 5.11 If, after a Termination, a Participant is re-employed and again is designated to participate in the Plan, any payment of Benefits may be suspended while the person is participating in the Plan and recommence on his subsequent Termination. 5.12 Any amount payable to or for the benefit of a minor, an incompetent person or other person incapable of receipting therefor shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge Spartech and the Board with respect thereto. 5.13 Neither a Participant nor any other person shall acquire any right, title, expectancy or other interest in or to any amount outstanding to the Participant's credit under the Plan other than upon the actual payment of such portions thereof in accordance with the terms of the Plan. The Plan shall not be deemed to constitute or create a trust, or an escrow agreement or any type of fiduciary relationship between Spartech and a Participant and his Spouse; nor shall the benefits provided herein be deemed in any way to be secured by any particular assets of Spartech. The Participant's interest and that of his Spouse shall be only the unsecured contractual right to receive the benefits provided for herein. 5.14 No right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or change, and any attempt to anticipate, alienate, sell, assign, pledge encumber or change the same shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefit. If a Participant or Spouse shall become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or change any right or benefit hereunder, then such right or benefit shall, in the discretion of the Board, cease and terminate; and in such event, Spartech may hold or apply the same or any part thereof for the benefit of such Participant or his Spouse at any time and in such proportion as the Board may deem proper. 5.15 Notwithstanding anything in the Plan apparently to the contrary, assets reserved for the Plan are subject to market risk, and nothing in the Plan constitutes a guarantee that said assets will not lose market value causing the Deferred Compensation Accounts of Participants or Beneficiaries to be reduced. Article 6. Restrictive Covenants. 6.1 By accepting participation in the Plan, and as a condition of his right to participate in the Plan, each Participant agrees that during the continuance of the Participant's employment relationship with Spartech or an Affiliated Company and for two years following the termination of the Participant's employment with Spartech or an Affiliated Company, regardless of who initiates the termination and regardless of whether the termination is with or without Cause, the Participant will not: (i) Directly or indirectly, on his own behalf, or on behalf of any other person, firm, partnership or corporation, transact any business which is the same as or similar to the business then being conducted by Spartech or any Affiliated Company, within a 200 mile radius of any facility owned and/or operated by Spartech or any Affiliated Company, or divert or solicit any of the business of Spartech or any Affiliated Company away from Spartech or the Affiliated Company; or (ii) Divulge to others or use for his own benefit or for the benefit of others any confidential information, including correspondence and other records, whether or not reduced to writing, which he may have acquired from Spartech, an Affiliated Company or others by reason of his employment with Spartech or an Affiliated Company; it being expressly understood that all such information, lists, correspondence and other writings are confidential and shall remain the sole property of Spartech or the Affiliated Company, as the case may be, and shall not be removed or transcribed for removal by the Participant upon termination of employment; or (iii) Enter into any agreement with or solicit the employment of any employee of Spartech or any Affiliated Company, or directly or indirectly attempt to induce any employee of Spartech or any Affiliated Company to leave Spartech or the Affiliated Company or to take employment with a competitor of Spartech or any Affiliated Company; or (iv) Solicit any clients or customers of Spartech or any Affiliated Company or induce or attempt to induce any such clients or customers to terminate or alter their relationship with Spartech or any Affiliated Company. 6.2 Any violation of the provisions of Section 6.1 by a Participant shall cause a total forfeiture of all rights and payments of Benefits payable under the Plan and the balance of such Participant's Deferred Compensation Account shall be forfeited. 6.3 Each Participant also agrees that Spartech shall, without prejudice to any other remedies, be entitled to injunctive relief for any breach of Section 6.1. Article 7 Administration. 7.1 The Board shall administer the Plan, and shall have full power and authority to compute the benefits payable to Participants or their Beneficiaries under the Plan and to resolve all questions and issues interpreting the terms and conditions of the Plan. The Board may adopt uniform and nondiscriminatory regulations for the administration of the Plan. 7.2 The Board shall maintain or cause to be maintained all books of accounts, records or other data as may be necessary or advisable in the Board's judgment for the proper administration of the Plan. 7.3 The Board may determine the facts required in the administration of the Plan from information certified to the Board by the Secretary of Spartech. 7.4 Any denial, in whole or in part, by the Board of a claim for benefits under the Plan by a Participant or a Beneficiary shall be by written notice, stating the specific reasons for the denial which must be referable to a particular provision of the Plan, said notice to be delivered or mailed to the Participant or, if no Participant is living, to his Beneficiary. The Board shall afford a reasonable opportunity to any Participant or Beneficiary whose claim for benefits has been denied, in whole or in part, for a hearing concerning any decision denying the claim. 7.5 The Board may delegate any of its duties or responsibilities under the Plan to other individuals, and unless otherwise directed by the Board, the Chief Executive Officer of Spartech shall be the Board's delegate for all purposes hereunder; provided that only the Board may amend or terminate the Plan. 7.6 If a member of the Board is also a Participant or other Eligible Employee, such Board member shall not participate in any determination reserved to the Board under the Plan to the extent it relates to or would affect such Board member in such capacity. Article 8. Miscellaneous Provisions. 8.1 The Board reserves the right to amend or terminate the Plan; however, no amendment or termination of the Plan may reduce or cancel the Deferred Compensation Account of a Participant (or the vested interest in such account) existing as of the date of such amendment or termination, nor change the manner or timing of payment of Benefits adversely to a Participant, without the consent of the affected Participant. 8.2 Construction of the Plan shall be governed by the laws of Missouri. 8.3 Nothing in the Plan, or any amendment thereto, shall give a Participant, Eligible Employee, Beneficiary, Spouse, employee or other person, a right unless it is specifically provided or is accorded by Spartech pursuant to the Plan. Nothing in the Plan or any amendment thereto shall be construed as giving a Participant the right to remain employed in any capacity by Spartech or an Affiliated Company and all persons shall remain subject to discharge or to changes in status at any time to the same extent as if the Plan had not been adopted. 8.4 The terms of the Plan shall be binding upon the heirs, executors, administrators, successors, assigns and Beneficiaries of all parties in interest. 8.5 Terms in the masculine shall be deemed to include the feminine, and terms in the singular shall be deemed to include the plural, and vice versa, wherever the context so admits or requires. 8.6 The cost of administering the Plan shall be paid by Spartech. 8.7 The Plan became operative and in effect as of January 1, 1994, and any amendment shall become effective when duly approved by the Board or at such other date as the Board may determine. 8.8 Headings herein have been inserted for convenience only and shall not affect the meaning or interpretation of the Plan. 8.9 If any provision of the Plan is found to be invalid, it will not render the remainder of the Plan invalid. PARTICIPATION AGREEMENT SPARTECH CORPORATION NON-QUALIFIED DEFERRED COMPENSATION PLAN , an employee of Spartech Corporation or one of its subsidiaries, has been selected and is hereby designated as a Participant in the Spartech Corporation Non-Qualified Deferred Compensation Plan, as heretofore or hereafter amended. The effective date of the Participant's participation in the Plan is ___________, 20___. If you wish to accept the benefits of the Plan and are willing to be bound by its provisions, please execute a copy of this Participation Agreement at the place indicated below. SPARTECH CORPORATION By: I hereby accept my designation as a Participant in the Spartech Corporation Non-Qualified Deferred Compensation Plan. I have read the Plan and agree to all of the provisions of the Plan, including (without limitation) the restrictive provisions of Article 6 of the Plan. I hereby designate the following person as my Beneficiary under the Plan: __________________________________________________ (Print Name and Relationship) Dated this ____ day of _____________, 20___. Signature of Participant EX-13 6 exhibit_13.txt EXHIBIT 13 Spartech Corporation 2004 Annual Report Management's Discussion and Analysis Business Overview SPARTECH is an intermediate processor of thermoplastics which converts base polymers or resins from commodity suppliers into extruded plastic sheet and rollstock, specialty film laminates, cell cast acrylic sheet, specialty plastic alloys, color concentrates & blended resin compounds, and injection molded & profile extruded products for customers in a wide range of markets. We operate 51 production facilities (49 throughout North America and two in Europe) that are organized into three business segments: (1) Custom Sheet & Rollstock (67% of total 2004 sales), (2) Color & Specialty Compounds (27% of total 2004 sales), and (3) Molded & Profile Products (6% of total 2004 sales). The discussions of results that follow incorporate acquisitions of businesses including our 2004 acquisition of three divisions of VPI (October 2004), 2003 acquisitions of the sheet extrusion business of TriEnda, a division of Wilbert Inc. (September 2003), and Polymer Extruded Products (PEP), Inc. (March 2003), and our 2002 acquisition of GWB Plastics Holding Company (GWB), parent of UVTEC and PolyTech South (June 2002). We consider purchases of certain assets and liabilities that do not qualify as a business for accounting purposes (referred to as outsourcing acquisitions) as internal growth because such purchases are comparable to other internal investments such as capital expenditures. Results of Operations Comparison of Fiscal Years 2004 and 2003 Net sales were $1,121.7 million for the year ended October 30, 2004, representing a 17% increase from the prior year. Internal volume of pounds sold comprised 9% of the net sales growth, acquisitions accounted for 4%, and price/mix accounted for the remaining 4% of the increase. The strong internal volume growth in 2004 was due primarily to demand increases in every major market we serve. Demand was particularly strong in the Packaging, Transportation, and Recreation & Leisure markets. Net sales of the Custom Sheet & Rollstock segment increased 19% to $750.5 million in 2004 from $628.5 million in 2003. The percentage increase was comprised of internal volume of pounds sold (11%), the TriEnda, VPI, and PEP acquisitions (5%), and price/mix (3%). The internal volume of pounds sold in this segment was mostly driven by strong demand primarily in the Packaging, Building & Construction, and Transportation markets. Approximately 4% of the increase in pounds sold in 2004 compared to the prior year was due to the full year impact of our new facility in Mexico which began shipping to customers in the spring of 2003. Net sales of the Color & Specialty Compounds segment increased 15% to $302.7 million in 2004 from $263.0 million in 2003. The percentage increase was comprised of internal volume of pounds sold (10%), the impact of the VPI acquisition (2%), and price/mix (3%). Internal volume growth was primarily attributable to strong demand in the Transportation and Building & Construction markets. The Molded & Profile Products segment net sales increased to $68.6 million, or 6%, from $64.6 million in 2003. The percentage increase was due mostly to price/mix as sales in pounds were flat in 2004 compared to 2003. Bar Chart Net Sales In Millions of Dollars 2002 - $898.3 2003 - $956.2 2004 - $1,121.7 Photograph Packaging for M&M's Is Produced With Materials Manufactured By Spartech Polycom Cost of sales in 2004 increased to $967.0 million, or 86.2% of net sales, from $822.1 million in 2003, or 86.0% of net sales. The slight increase in cost of sales as a percentage of net sales reflected the net effect of sharp increases in resin prices throughout 2004 partially offset by better leverage on conversion costs from increased sales volume and lean manufacturing initiatives. Material margins per pound sold for 2004 dropped just under .7 cent per pound from 2003 to 2004 due to resin price increases that could not be passed on quickly enough in terms of higher sales prices. The 2004 decrease in material margin per pound was more than offset by reductions in conversion costs resulting from better capacity utilization rates and our lean manufacturing initiative leading to a .2 cent increase in operating earnings per pound sold. We expect to continue experiencing pricing pressures on raw material costs, and we will attempt to minimize the impact of delays in passing on such increases to customers with production efficiencies, inventory control techniques, and negotiating competitive prices with our suppliers. Amortization of intangibles increased to $2.8 million in 2004 compared to $2.2 million in 2003. This increase reflected the full year impact of the PEP acquisition, one month of the VPI acquisition, and the 2004 outsourcing acquisition of the European Specialty Polystyrene Compounds business of BASF in April 2004. Selling, general, and administrative expenses were $59.1 million in 2004 compared to $53.5 million in 2003. This increase was mostly caused by the variable portion of expenses resulting from growth in sales and the impact of acquisitions which accounted for approximately 3% of the dollar increase. As a percentage of net sales, selling, general, and administrative expenses declined to 5.3% in 2004 from 5.6% in 2003 primarily reflecting leverage from strong sales growth. Operating earnings were $92.8 million in 2004, or 8.3% of net sales, compared to $78.3 million in 2003, or 8.2% of net sales. More importantly, our key measure of operating earnings per pound increased from 6.5 cents in 2003 to 6.7 cents in 2004. Each of the operating segments generated increases in operating earnings due primarily to increases in sales volume and cost leverage. The Custom Sheet & Rollstock segment experienced the largest improvement in conversion costs per pound of 2.4 cents from 2003 to 2004, but lost 2.6 cents of this improvement from lower material margin per pound due to higher resin prices and mix. Operating earnings per pound for the Color & Specialty Compounds segment improved .1 cent in 2004 compared to 2003 due to more favorable mix of sales of engineered filled compounds and better leverage on selling costs which more than offset pressure on material margin from resin price increases. The Molded & Profile Products segment saw a 2.2 cents increase in operating earnings per pound in 2004 over 2003 due mostly to a favorable shift in mix of product sold from custom profiles to wheels sold primarily to the Lawn & Garden market. Interest expense was $25.4 million in 2004 compared to $25.0 million in 2003. The slight increase in interest expense reflects an increase in our average interest rate and additional borrowings in the fourth quarter of 2004 to finance the VPI acquisition, partially offset by lower borrowing levels in the earlier portion of 2004. An interest rate swap encompassing $125.0 million of bank debt expired on November 10, 2004. On this date, our effective interest rate on this bank debt reverted back to a variable 30-day Eurodollar rate plus applicable margin (which was 2.59% at October 30, 2004) from the fixed swap effective rate including the applicable margin totaling 6.80%. Our effective tax rate was 37.6% in 2004 compared to 36.0% in 2003. The 2004 increase primarily reflects the lack of favorable adjustments included in 2003 related to a final settlement with the Internal Revenue Service on certain income tax refunds. Bar Chart Net Sales In Millions of Pounds 2002 - 1,179 2003 - 1,207 2004 - 1,383 Bar Chart Net Sales Price Per Pound Sold 2002 - $0.76 2003 - $0.79 2004 - $0.81 Net earnings increased to $42.1 million in 2004, or 23%, from $34.1 million in 2003 reflecting the impact of strong sales volume growth from strong demand and acquisitions. Diluted earnings per share increased to $1.32, or 15%, from $1.15 in 2003 reflecting the increase in net earnings, partially offset by an increase in shares outstanding from our February 2004 stock offering. Comparison of Fiscal Years 2003 and 2002 Net sales were $956.2 million for the year ended November 1, 2003, representing a 6% increase from the prior year. Acquisitions accounted for approximately 3% of the increase while internal volume in pounds sold grew by 1% and price/mix accounted for the balance of the increase over 2002 (resulting in a 3 cents increase in the average sales price per pound). Compared to the prior year, sales in 2003 were strong to customers serving the Transportation, Roofing, and Lawn & Garden markets as well as a solid performance in Pool & Spa applications. All other major markets served by the Company were relatively flat compared to the prior year. Net sales of the Custom Sheet & Rollstock segment increased 5% to $628.5 million in 2003, from $600.5 million in 2002. The March 2003 acquisition of PEP accounted for 2% of the increase, while internal growth added 3% (2% increase in volume along with 1% price/mix effect). The Custom Sheet & Rollstock segment accounted for most of the increase in sales to the Transportation market. This segment also benefited from the opening of our new facility in Mexico which began shipping production volumes in April 2003. Net sales of the Color & Specialty Compounds segment increased 12% to $263.0 million in 2003 from $235.7 million in 2002. Sales from the full year effect of the GWB acquisition, primarily servicing the Roofing market, contributed nearly 9% of the increase. The remaining growth was due to price/mix changes, as internal volume shipped was flat for the year. Sales for the Molded & Profile Products segment increased 4% to $64.6 million in 2003 from $62.1 million in 2002, led by a strong performance from our Custom Engineered Wheels group for Lawn & Garden applications. Cost of sales in 2003 increased to $822.1 million from $763.1 million in 2002, and increased as a percentage of net sales to 86.0% from 85.0% in 2002. The increased cost of sales percentage was due mainly to price increases on most of the Company's raw materials, primarily in the second quarter of 2003. These increases began to stabilize by the third quarter and throughout the fourth quarter. Amortization of intangible assets increased to $2.2 million in 2003 from $0.7 million in 2002 due to intangible assets acquired from GWB and PEP. Selling, general, and administrative expenses were $53.5 million for 2003, comparable to $53.6 million in 2002. A decrease in bad debt expense incurred for the year was partially offset by costs added from recent acquisitions. As a percentage of net sales, selling, general, and administrative expenses declined to 5.6% in 2003 from 6.0% in 2002. Operating earnings were $78.3 million in 2003 (8.2% of net sales) compared to $80.9 million (9.0% of net sales) reported in 2002. The decrease in operating earnings was attributable mainly to the Color & Specialty Compounds segment which was hardest hit by the sharp increases in resin cost during the first half of 2003. The operating margin percentage in this group dropped to 8.0% from the 10.9% achieved in 2002. Operating margins began to rebound in this group during our fourth quarter as resin prices stabilized and contracted price increases were more fully in effect. Operating margins in the Custom Sheet & Rollstock segment reduced slightly from 2002, but remained in the double digits. Bar Chart Operating Earnings Cents Per Pound Sold 2002 - 6.9 cents 2003 - 6.5 cents 2004 - 6.7 cents Bar Chart Operating Earnings As a % of Net Sales 2002 - 9.0% 2003 - 8.2% 2004 - 8.3% Interest expense of $25.0 million in 2003 decreased by 7% from $26.8 million in 2002. The reduction in interest expense resulting from debt repayments of $37.1 during 2003 was partially offset by the $27.6 million spent for acquisitions during the year. In 2003, approximately 93% of our debt and convertible preferred financings were fixed rate, resulting in interest expense being less affected by the reduction in interest rates during the year. Our effective tax rate was 36.0% in 2003, compared to 36.6% in 2002, reflecting an improvement in our combined state tax rate and favorable adjustments related to a final settlement with the Internal Revenue Service on income tax refunds, as well as ongoing benefits from research and development credits. Net earnings of $34.1 million in 2003 decreased slightly from $34.3 million in 2002. Diluted earnings per share declined to $1.15 in 2003 from $1.21 in 2002, due mainly to an increase in average shares outstanding from our May 2002 stock offering which were outstanding for the full year in 2003. Other Matters We operate under various laws and regulations governing employee safety and the quantities of specified substances that may be emitted into the air, discharged into waterways, or otherwise disposed of on and off our properties. 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 our $221 thousand accrual as of October 30, 2004. In the event of one or more adverse determinations related to this issue, the impact on our results of operations could be material to any specific period. However, it is our opinion that future expenditures for compliance with these laws and regulations, as they relate to the Lower Passaic River issue and other potential issues, will not have a material effect on our capital expenditures, financial position, or competitive position. The plastic resins we use in our production processes are derived from crude oil or natural gas, which are available from a number of domestic and foreign suppliers. Historically, our raw materials have been only somewhat affected by supply, demand, and price trends of 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 which 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. Bar Chart SG&A Expenses As % of Net Sales 2002 - 6.0% 2003 - 5.6% 2004 - 5.3% Photograph Appliances & Electronics Wheels Produced At Out Spartech Industries Facility Are Used On A Variety Of Small Appliances Liquidity and Capital Resources Cash Flow Our primary sources of liquidity have been cash flows from operating activities, borrowings from third parties, and equity offerings. Our principal uses of cash have been to support our operating activities, invest in capital improvements, finance strategic business/outsourcing acquisitions, and pay dividends on common stock. Cash flows from operations were $37.8 million in 2004 compared to $66.7 million in 2003. The decrease in 2004 reflects investment in net working capital of $48.1 million in 2004 compared to $14.3 million in 2003. The increase in net working capital investment primarily resulted from strong sales growth in 2004, continued increases in resin prices, and selective pre-buys of raw materials ahead of announced resin price increases which led to increases in inventory and receivable amounts. Our cash flows from operations of $66.7 million in 2003 was lower than the $87.1 million generated in 2002 as changes in working capital used $14.3 million of cash flow in 2003 while changes in working capital provided $12.5 million of cash flow in 2002. The use of working capital in 2003 was reflective of the growth in business and the increase in resin prices compared to the prior year. Working capital in 2002 benefited from lower resin prices and improvements in nearly every major category. Our primary investing activities are capital expenditures and business/outsourcing acquisitions in the plastics industry. Capital expenditures are primarily incurred to maintain and improve productivity, as well as to modernize and expand facilities. Capital expenditures were $35.0 million for 2004, $22.0 million for 2003, and $28.2 million for 2002. The higher capital expenditures in 2004 are associated with the expansion of our Donchery, France facility and our new Product Development Center in Warsaw, Indiana. The capital expenditures in 2002 reflected expansions in Tupelo, Mississippi and Ramos Arizpe, Mexico. We expect capital expenditures in 2005 to approximate the level of capital expenditures in 2004. In 2004, our business acquisitions totaled $87.9 million and consisted of $86.5 million paid for the VPI business and $1.4 million paid to complete the September 2003 acquisition of TriEnda extrusion assets. Our outsourcing acquisitions in 2004 included $6.0 million for certain assets of BASF's specialty polystyrene business and $2.1 million for a large portion of the business of the former QPS operation. In 2003, we completed the business acquisitions of PEP for $23.6 million and the sheet extrusion business of Wilbert, Inc.'s TriEnda division for $4.0 million. Cash invested for business acquisitions in 2002 mostly includes net cash paid of $47.1 million for the GWB acquisition. Cash flows provided by financing activities were $138.3 million for 2004. In September 2004, we completed a private placement of unsecured notes that provided proceeds of $150.0 million, which were partially used to fund the VPI business acquisition. In February 2004, we completed a common stock offering that provided proceeds of $60.9 million. Payments on notes in 2004 were $32.9 million. The increase in payments on notes over the prior year was attributable to the single principal payment on the 1997 Series B Notes due in fiscal 2004 (see Note 7 to the Consolidated Financial Statements). Net payments on bank credit facilities were $27.2 million. The bank credit facility payments included a pay down of the balance to $125.0 million, the portion of the borrowings covered by our interest rate swap agreement that expired on November 10, 2004. Additional financing activities during 2004 included common stock dividends of $13.8 million, proceeds of stock options exercised of $4.1 million and the purchase of treasury stock for $2.7 million. The amount remaining from financing activities contributed to the increase in year end cash of $45.2 million. In November 2004, a portion of the year end cash balance was used to pay down a portion of the bank credit facility, subsequent to the expiration of the interest rate swap agreement. We paid common stock dividends at a rate of 44 cents per share in calendar 2004, and our Board of Directors has approved an annual rate of 48 cents per share for calendar 2005. Photograph Medical Spartech Townsend's Acrylic Tubes Are Utilized in Various Medical Devices Bar Chart Capital Expenditures In Millions of Dollars 2002 - $28.2 2003 - $22.0 2004 - $35.0 Cash flows used in financing activities were $21.3 million for 2003. The primary activities were net bank credit facility borrowings of $8.5 million, payments on notes of $17.9 million, purchase of treasury stock of $3.4 million, common stock dividends of $11.7 million, and proceeds from stock options exercised of $3.3 million. Cash flows used in financing activities were $11.6 million for 2002. The primary activities were proceeds received from our May 30, 2002 stock offering of $50.7 million (which were used primarily to fund the GWB acquisition), net bank credit facility payments of $32.2 million, payments on notes of $17.9 million, purchase of treasury stock of $6.7 million, common stock dividends of $10.7 million, and proceeds from stock options exercised of $5.5 million. The following table summarizes our contractual obligations as of October 30, 2004 (dollars in thousands): Contractual Less Than 5 Years Obligations Total 1 Year 1-3 Years 3-5 Years or More - ------------ ------------ ------------ ------------ ------------ ------------ Long-term $ 672,826 $ 38,737 $ 56,444 $ 162,954 $ 414,691 Debt Capital 466 32 76 117 241 Lease Obligations Operating 34,154 7,813 10,635 6,725 8,981 Lease Obligations Purchase 247 247 - - - Obligations ------------ ------------ ------------ ------------ ------------ Total $ 707,693 $ 46,829 $ 67,155 $ 169,796 $ 423,913 ============ ============ ============ ============ ============ Amounts included in long-term debt include principal and guaranteed interest payments. Amounts included in purchase obligations represent future contractual payments under various take-or-pay arrangements entered into as part of the normal course of business. Commitments made under these arrangements represent future purchases in line with expected usage to obtain favorable pricing. The amounts in the previous table exclude obligations that are not take-or-pay arrangements. Such contractual purchase obligations are primarily purchase orders that are part of normal operations and are reflected in historical operating cash flow. We do not believe such purchase obligations will adversely affect our liquidity position. In addition, the previous table does not include long term contingent liabilities and liabilities related to deferred taxes because it is not certain when these liabilities will become due. Financing Arrangements In November 2000, we entered into an interest rate swap for $125 million of our fixed LIBOR loans outstanding. Under the swap arrangement, our LIBOR rate was fixed at 6.06%, plus the borrowing margin, until November 10, 2004. This swap arrangement was accounted for in accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." On May 30, 2002, we completed a public offering of 9,487,500 shares of our common stock. These shares represented 7,063,125 shares owned by two selling shareholders and 2,424,375 newly issued shares. The common stock was sold to the public at $22.00 per share. We used the net proceeds from the sale of our shares, totaling $50.7 million, primarily to finance the GWB acquisition. Effective February 3, 2004, we completed a public offering of 8,054,000 shares of our common stock. These shares represented 5,382,836 shares owned by Vita International Limited and 2,671,164 newly issued shares. The common stock was sold to the public at $24.00 per share. We used the net proceeds from the sale of our shares, totaling $60.9 million, to reduce borrowings under our bank credit facility and to finance acquisitions and other investing activities of the Company. Bar Chart Operating Cash Flow In Millions of Dollars 2002 - $87.1 2003 - $66.7 2004 - $37.8 Bar Chart Business Acquisitions In Millions Of Dollars 2002 - $46.2 2003 - $27.6 2004 - $88.0 On March 3, 2004, we refinanced our U.S. unsecured bank credit facility providing aggregate availability of $200 million and expiring on March 3, 2009. Interest on the bank credit facility is payable at a rate chosen by us of either prime or Eurodollar Rate plus a 0.5% to 1.125% borrowing margin, and the agreement requires a fee of 0.10% to 0.275% for any unused portion of the facility. On April 27, 2004, our Canadian subsidiary refinanced its unsecured bank credit facility providing aggregate availability of $10 million Canadian and expiring on March 3, 2009. Interest on the bank credit facility is payable at a rate chosen by us of either prime or LIBOR plus a .5% to 1.125% borrowing margin, and the agreement requires a non-use fee of .10% to .275% for any unused portion of the facility. At October 30, 2004, our total outstanding borrowings under our bank credit facilities were $125 million at a weighted average interest rate of 6.8% (including the effect of an interest rate swap which expired on November 10, 2004). At October 30, 2004 we had access to $69.4 million under our credit facilities in addition to $49.0 million of cash and equivalents. On September 15, 2004, we completed a private placement of unsecured notes at an interest rate of 5.54% totaling $150 million. We used these proceeds primarily to finance our acquisition of three divisions of VPI on October 1, 2004. Our current credit facilities contain certain affirmative and negative covenants, including restrictions on the incurrence of additional indebtedness, limitations on both the sale of assets and merger transactions, and requirements to maintain certain financial and debt service ratios and net worth levels. While we were in compliance with such covenants in 2004 and currently expect to be in compliance during 2005, our failure to comply with the covenants or other requirements of our financing arrangements could result in an event of default and, among other things, acceleration of the payment of our indebtedness, which could adversely impact our business, financial condition, and results of operations. We anticipate that cash flows from operations, together with the financing and borrowings under our bank credit facility, will provide the resources for (i) satisfying our working capital needs, regular quarterly dividends, and planned capital expenditures and (ii) managing the capital structure on a short and long-term basis. Significant Accounting Policies, Estimates, and Judgments We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. As such, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, shareholders' equity, revenues and expenses, and disclosures of contingent assets and liabilities at the date of the financial statements. Significant accounting policies, estimates and judgments which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following: Revenue Recognition - We recognize revenue as the product is shipped and title passes to the customer. We manufacture our products either to standard specifications or to custom specifications agreed upon with the customer in advance, and we inspect our products prior to shipment to ensure that these specifications are met. We continuously monitor and track product returns, which have historically been within our expectations and the provisions established. Despite our efforts to improve our quality and service to customers, we cannot guarantee that we will continue to experience the same, or better return rates, than we have in the past. Any significant increase in returns could have a material negative impact on our operating results. Bar Chart Total Debt In Millions Of Dollars 2002 - $393.0 2003 - $383.8 2004 - $474.1 Bar Chart Total Interest Expense In Millions of Dollars 2002 - $26.8 2003 - $25.0 2004 - $25.4 Accounts Receivable - We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's creditworthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Inventories - We value inventories at the lower of (i) actual cost to purchase or manufacture the inventory or (ii) the current estimated market value of the inventory. We also buy scrap and recyclable material (including regrind material) to be used in future production runs. We record these inventories initially at purchase price and, based on the inventory aging and other considerations for realizable value, we write down the carrying value to brokerage value, where appropriate. We regularly review inventory on hand and record provisions for obsolete inventory. A significant increase in the demand for our raw materials could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. In addition, most of our business is custom products, where the loss of a specific customer could increase the amount of excess or obsolete inventory on hand. Although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand could have a significant impact on the value of our inventory and the operating results. Acquisition Accounting - We have made several acquisitions in recent years. All of these acquisitions have been accounted for in accordance with the purchase method, and accordingly, the results of operation were included in our Consolidated Statement of Operations from the respective date of acquisition. The purchase price has been allocated to the identifiable assets and liabilities, and any excess of the cost over the fair value of the net identifiable assets acquired is recorded as goodwill. The initial allocation of purchase price is based on preliminary information, which is subject to adjustments upon obtaining complete valuation information. While the delayed finalization of a purchase price has historically not had a material impact on the consolidated results of operations, we cannot guarantee the same results in future acquisitions. Valuation of Long-Lived Assets - We review the carrying value of our long-lived assets, which primarily include property plant and equipment, goodwill, and other intangible assets, whenever events and changes in business circumstances indicate the carrying value of the assets may not be recoverable. If we determine that the carrying value of a long-lived asset may not be recoverable, a permanent impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. Fair value is generally measured based on a projected discounted cash flow method using a discount rate determined to be commensurate with the risk inherent in the business. The estimates in projected cash flows and discount rates are subject to change due to the economic environment, including such factors as interest rates, expected market returns, and the volatility of markets served. We believe that the estimates are reasonable; however, changes in estimates could materially affect the fair value assessments. Bar Chart Cash Dividends Per Share of Common Stock 2002 - $.38 2003 - $.40 2004 - $.44 Photograph Appliances & Electronics Spartech Plastics Produces Sheet Used In A Variety Of Appliances Contingencies - We are involved in litigation in the ordinary course of business, including environmental matters. Our policy is to record expense for contingencies when it is both probable that a liability has been incurred and the amount can be reasonably estimated. Estimating probable losses requires assessment of multiple outcomes that often depends on management's judgments regarding, but not limited to, potential actions by third parties such as regulators. The final resolution of these contingencies could result in expenses different than current accruals, and therefore have a material impact on our consolidated financial results in a future reporting period. Recently Issued Accounting Standards In December 2004, the Financial Accounting Standards Board (FASB) issued a revised version of Statement of Financial Accounting Standards (SFAS) 123, "Share Based Payment," (SFAS 123R) which replaces the original SFAS 123, "Accounting for Stock-Based Compensation" and supersedes Accounting Principals Board (APB) Opinion 25, "Accounting for Stock Issued to Employees." SFAS 123R requires public companies to recognize the costs associated with the award of equity instruments to employees in the results of operations over the service period related to the award. The cost is based on the fair value of the equity instrument at the date of grant. The provisions of SFAS 123R will be effective for us in the fourth quarter of 2005. The impact of the adoption of this standard on our historical net income and earnings per share is disclosed in Note 1 to the Notes to the Consolidated Financial Statements. Forward-Looking Statements This Report contains certain forward-looking statements, defined in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements represent our judgment relating to, among other things, future results of operations, growth plans, sales, capital requirements, and general industry and business conditions applicable to us. They are based largely on our current expectations. Our actual results could differ materially from the information contained in the forward-looking statements due to a number of factors, including changes in the availability and cost of raw materials, the level of financial leverage and restrictions from our indebtedness agreements, decreases in our level of sales or operating profits, the volatility or decline of our stock price, the requirement to pay substantial remediation costs or regulatory fines, unanticipated events that may prevent us from competing in existing or new markets, and our ability to successfully complete or integrate acquisitions. Investors are also directed to the discussion of risks and uncertainties associated with forward-looking statements contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission. Photograph Sign & Advertising McDonald's Outdoor Signs Utilize Weatherable Sheet Produced At Out Spartech Plastics Cape Girardeau, Missouri Facility Bar Chart Return on Equity Average Balance 2002 - 13.5% 2003 - 11.1% 2004 - 11.2% Consolidated Balance Sheet Assets October 30, November 1, 2004 2003 ----------- ------------ (Dollars in thousands) Current Assets Cash and equivalents $ 48,954 $ 3,779 Receivables, net of allowance of $2,997 in 188,427 149,546 2004 and $3,737 in 2003 Inventories 142,035 99,671 Prepaids and other 20,718 15,127 ---------- ----------- Total Current Assets 400,134 268,123 Property, Plant, and Equipment, Net 330,745 283,924 Goodwill, Net 361,957 334,392 Other Intangible Assets, Net 43,967 24,974 Other Assets 12,811 13,250 ----------- ----------- $ 1,149,614 $ 924,663 =========== =========== Liabilities and Shareholders' Equity Current Liabilities Current maturities of long-term debt $ 18,027 $ 32,991 Accounts payable 116,386 97,586 Accrued liabilities 44,223 39,987 ----------- ----------- Total Current Liabilities 178,636 170,564 ----------- ----------- Long-Term Liabilities Convertible subordinated debentures 154,639 154,639 Other long-term debt, less current 301,425 196,189 maturities Deferred taxes 94,825 78,568 Other liabilities 2,357 2,345 ----------- ----------- Total Long-Term Liabilities 553,246 431,741 ----------- ----------- Shareholders' Equity Common stock, 33,131,846 and 30,460,682 24,849 22,846 shares issued in 2004 and 2003, respectively Contributed capital 196,264 139,243 Retained earnings 220,136 191,912 Treasury stock, at cost, 952,073 shares in 2004 and 1,108,381 shares in 2003 (23,653) (27,142) Accumulated other comprehensive income 136 (4,501) (loss) ----------- ----------- Total Shareholders' Equity 417,732 322,358 ----------- ----------- $ 1,149,614 $ 924,663 =========== =========== See accompanying notes to consolidated financial statements. Consolidated Statement of Operations Fiscal Year 2004 2003 2002 --------- --------- ---------- (Dollars in thousands, except per share amounts) Net Sales $ 1,121,725 $ 956,160 $ 898,308 --------- ---------- ---------- Costs and Expenses Cost of sales 966,963 822,147 763,145 Selling, general, and administrative 59,121 53,540 53,624 Amortization of intangibles 2,840 2,187 660 --------- ---------- ---------- 1,028,924 877,874 817,429 --------- ---------- ---------- Operating Earnings 92,801 78,286 80,879 Interest 25,436 24,965 26,816 --------- ---------- ---------- Earnings Before Income Taxes 67,365 53,321 54,063 Income taxes 25,302 19,218 19,793 --------- ---------- ---------- Net Earnings $ 42,063 $ 34,103 $ 34,270 ========== ========== ========== Net Earnings Per Common Share Basic $ 1.34 $ 1.17 $ 1.23 ========== ========== ========== Diluted $ 1.32 $ 1.15 $ 1.21 ========== ========== ========== See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Dollars in thousands) Common Contributed Retained Treasury Accumulated Total Share- Stock Capital Earnings Stock Other holders' Compre- Equity hensive Income (Loss) --------- --------- --------- --------- ----------- ---------- Balance, November 3, 2001 $ 21,039 $ 94,239 $ 145,909 $ (30,410) $(14,231) $ 216,546 --------- --------- --------- --------- ----------- ---------- Comprehensive income: Net earnings - - 34,270 - - 34,270 Other comprehensive income: Translation adjustments - - - - 1,518 1,518 Cash flow hedge adjustments, net of tax of $288 - - - - (465) (465) ---------- Comprehensive income 35,323 Common stock issuance 1,807 48,856 - - - 50,663 Stock options exercised - (2,882) - 8,423 - 5,541 Cash dividends - - (10,661) - - (10,661) Treasury stock purchases - - - (6,714) - (6,714) --------- --------- --------- --------- ----------- ---------- Balance, November 2, 2002 $ 22,846 $ 140,213 $ 169,518 $ (28,701) $ (13,178) $ 290,698 --------- --------- --------- --------- ----------- ---------- Comprehensive income: Net earnings - - 34,103 - - 34,103 Other comprehensive income: Translation adjustments - - - - 6,038 6,038 Cash flow hedge adjustments, net of tax of $ (1,633) - - - - 2,639 2,639 ---------- Comprehensive income 42,780 Stock options exercised - (970) - 4,275 - 3,305 Cash dividends - - (11,709) - - (11,709) Treasury stock purchases - - - (2,716) - (2,716) --------- --------- --------- --------- ----------- ---------- Balance, November 1, 2003 $ 22,846 $ 139,243 $ 191,912 $ (27,142) $ (4,501) $ 322,358 --------- --------- --------- --------- ----------- ---------- Comprehensive income: Net earnings - - 42,063 - - 42,063 Other comprehensive income: Translation adjustments - - - - 941 941 Cash flow hedge adjustments, net of tax of $ (2,170) - - - - 3,696 3,696 ---------- Comprehensive income 46,700 Common stock issuance 2,003 58,919 - - - 60,922 Restricted stock grant - 180 - - - 180 Stock options exercised - (2,078) - 6,144 - 4,066 Cash dividends - - (13,839) - - (13,839) Treasury stock purchases - - - (2,655) - (2,655) --------- --------- --------- --------- ----------- ---------- Balance, October 30, 2004 $ 24,849 $ 196,264 $ 220,136 $ (23,653) $ 136 $ 417,732 --------- --------- --------- --------- ----------- ----------
See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS Fiscal Year 2004 2003 2002 (Dollars in thousands) ----------- --------- --------- Cash Flows from Operating Activities Net earnings $ 42,063 $ 34,103 $ 34,270 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 35,056 31,566 28,120 Change in current assets and liabilities, net of effects of acquisitions and divestitures: Receivables (21,599) (18,472) (1,380) Inventories (32,771) (713) 1,879 Prepaids and other (7,538) (2,192) 2,063 Accounts payable 10,944 10,975 3,871 Accrued liabilities 2,914 (3,881) 6,023 Other, net 8,703 15,294 12,224 ---------- ---------- ---------- Net cash provided by operating activities 37,772 66,680 87,070 ---------- ---------- ---------- Cash Flows from Investing Activities Capital expenditures (35,003) (22,009) (28,217) Business acquisitions (87,952) (27,589) (46,176) Outsourcing acquisitions (8,141) - (2,916) Dispositions of assets - 293 492 ---------- ---------- ---------- Net cash used for investing activities (131,096) (49,305) (76,817) ---------- ---------- ---------- Cash Flows from Financing Activities Bank credit facility (27,204) 8,530 (32,151) (payments)/borrowings, net Borrowings from issuance of notes 150,000 - - Payments on notes (32,857) (17,857) (17,857) Payments on bonds and leases (133) (150) (374) Issuance of common stock 60,922 - 50,663 Cash dividends on common stock (13,839) (11,709) (10,661) Stock options exercised 4,066 3,305 5,541 Treasury stock acquired (2,655) (3,436) (6,714) ---------- ---------- ---------- Net cash provided (used) by financing 138,300 (21,317) (11,553) activities ---------- ---------- ---------- Effect of exchange rate changes on cash 199 210 239 and equivalents ---------- ---------- ---------- Increase (decrease) in cash and 45,175 (3,732) (1,061) equivalents Cash and Equivalents at Beginning of Year 3,779 7,511 8,572 ---------- ---------- ---------- Cash and Equivalents at End of Year $ 48,954 $ 3,779 $ 7,511 ========== ========= ========= See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 1) Significant Accounting Policies Basis of Presentation - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation. The Company's fiscal year ends on the Saturday closest to October 31. Principles of Consolidation - The accompanying consolidated financial statements include the accounts of SPARTECH Corporation and its controlled affiliates. All intercompany transactions and balances have been eliminated. Investments in entities of 20 to 50 percent of the outstanding capital stock of such entities are accounted for by the equity method. Foreign Currency Translation - Assets and liabilities of the Company's non-U.S. operations are translated from their functional currency to U.S. dollars using exchange rates in effect at the balance sheet date. Results of operations are translated using average rates during the period. Adjustments resulting from the translation process are included in a separate component of shareholders' equity. Transactional gains and losses arise from receivable and payable balances in the normal course of business that are denominated in a currency other than the functional currency of the operation and are recorded in income when they occur. The Company may periodically enter into foreign currency contracts to manage exposures to market risks from prospective changes in exchange rates. No such contracts were outstanding as of October 30, 2004 or November 1, 2003. Cash Equivalents - Cash equivalents consist of highly liquid investments with original maturities of three months or less. Allowance for Doubtful Accounts - The Company performs ongoing credit evaluations of customers that includes reviewing creditworthiness from third- party reporting agencies, monitoring payment histories, and adjusting credit limits as necessary. We continually monitor collections and payments for our customers and maintain a provision for estimated credit losses recorded based on historical experience and specifically identified customer collection issues. Inventories - Inventories are valued at the lower of (i) actual cost to purchase or manufacture the inventory (specific identification) or (ii) the current estimated market value. Finished goods include the costs of material, labor, and overhead. Property, Plant, and Equipment - Property, plant, and equipment are carried at cost. Depreciation expense is recorded on a straight-line basis over the estimated useful lives of the related assets as shown below and totaled $32,216, $29,379, and $27,460 in fiscal years 2004, 2003, and 2002, respectively. Years Buildings and leasehold improvements 20-25 Machinery and equipment 12-16 Furniture and fixtures 5-10 Major additions and improvements are capitalized. Maintenance and repairs are expensed as incurred. Upon disposition, the net book value is eliminated from the accounts, with the resultant gain or loss reflected in operations. Acquisitions - Acquisitions are accounted for by the purchase method, and accordingly, the results of operations are included in the Company's Statement of Operations from the respective date of acquisition. The purchase price is allocated to the identifiable assets and liabilities, and any excess of the cost over the fair value of the identifiable assets acquired is recorded as goodwill. Identifiable intangible assets with definite lives are amortized as expense over the estimated periods to be benefited. Intangible assets with indefinite lives, including goodwill, are not subject to periodic amortization, but are tested for impairment annually, or more frequently if events or changes in circumstances indicate the asset might be impaired. The Company's annual impairment date is the last day of the fiscal year. Financial Instruments - The Company selectively uses derivative financial instruments to manage its interest costs as well as its balance of floating rate and fixed rate financings. No credit loss is anticipated, as the counterparties to these agreements are major financial institutions with high credit ratings. The Company does not enter into derivatives for trading purposes. The net amount paid or received under an interest rate swap agreement is recorded as interest expense. Derivative instruments (including certain derivative instruments embedded in other contracts) are recorded in the balance sheet as either an asset or liability measured at fair value, and changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying derivatives designated as fair value hedges allows a derivative's gains and losses to be offset in the income statement by the related change in the fair value of the hedged item. Special accounting for qualifying derivatives designated as cash flow hedges, allows the effective portion of a derivative's gains and losses to be reported as a component of accumulated other comprehensive income or loss and reclassified into earnings in the period during which the hedged transaction affects earnings. The Company uses the following methods and assumptions in estimating the fair value of financial instruments: Cash, accounts receivable, accounts payable, and accrued liabilities - the carrying value of these instruments approximates fair value due to their short- term nature; Derivative financial instruments - based upon quoted market prices or market prices for instruments with similar terms and maturities; and Long-term debt (including bank credit facilities and convertible subordinated debentures) - based on quoted, current market prices for the same or similar issues. As of October 30, 2004, the fair value of the convertible subordinated debentures was $162,680 as compared to the carrying amount of $154,639 and the fair value of other long-term debt was $328,156 as compared to its carrying amount of $319,452. Stock Based Compensation - In 2003, we adopted Statement of Financial Accounting Standards (SFAS) 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which amends SFAS 123, "Accounting for Stock-Based Compensation" to provide transition methods for a voluntary change to measuring compensation cost in connection with employee share option plans using a fair value based method. We continue to use the intrinsic value based method and do not recognize compensation expense in the results of operations for the issuance of options with an exercise price equal to or greater than the market price at the time of grant. As a result, the adoption of SFAS No. 148 had no impact on our results of operations or financial position. Had the fair value recognition provisions of SFAS No. 123 been adopted by the Company, the effect on net income and earnings per common share for fiscal 2004, 2003, and 2002 would have been as follows: 2004 2003 2002 ---------- ---------- ---------- Net Earnings as Reported $ 42,063 $ 34,103 $34,270 Deduct fair value of options 1,834 1,592 2,519 granted ---------- --------- --------- Pro Forma Net Earnings $ 40,229 $ 32,511 $ 31,751 ========== ========= ========= Earnings Per Share As Reported: Basic $ 1.34 $ 1.17 $ 1.23 Diluted 1.32 1.15 1.21 ========== ========== ========= Pro Forma: Basic $ 1.28 $ 1.11 $ 1.14 Diluted 1.26 1.10 1.12 ========== ========== ========= Using the Black-Scholes option-pricing model, the estimated weighted-average fair value of options granted during fiscal 2004, 2003, and 2002 is as follows: 2004 2003 2002 ---------- ----------- ---------- Weight Average Fair Value $ 6.94 $ 5.58 $ 6.91 Assumptions: Expected Dividend Yield 2.0% 2.0% 2.0% Expected Volatility 35% 35% 35% Risk-Free Interest Rates 2.95-3.70% 2.52-3.50% 4.38-5.14% Expected Lives 5.5 years 5 years 5 years The effects of applying SFAS No. 123 in the pro forma disclosure are not necessarily indicative of the effects that may be realized in future years. In December 2004, SFAS 123R, a revised version of SFAS 123, was issued which requires the recognition of compensation expense in the results of operations for the issuance of employee stock options. The provisions of SFAS 123R will be effective for the Company in the fourth quarter of 2005. The approximate impact of SFAS 123R on the Company's historical net earnings and earnings per share is presented in the previous table. The Company granted 7,596 restricted stock units to non-employee directors in June 2004. The grant-date fair value was $23.70 per share, and $180 of compensation expense was recorded upon issuance. Revenue Recognition - The Company manufactures products for specific customer orders and for standard stock inventory. Revenues are recognized and billings are rendered as the product is shipped to the customer in accordance with U.S. generally accepted accounting principles as well as the Securities and Exchange Commission's Staff Accounting Bulletin No.101. Shipping and handling costs associated with the shipment of goods are recorded as costs of sales in the consolidated statement of operations. Income Taxes - Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets are also recognized for credit carryforwards and then assessed (including the anticipation of future income) to determine the likelihood of realization. Deferred tax assets and liabilities are measured using the rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse and the credits are expected to be used. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. 2) Acquisitions On October 1, 2004, the Company completed the acquisition of substantially all of the assets of three divisions of VPI, based in Sheboygan, Wisconsin. The operations purchased included (1) The Sheet Products Division, a custom extruded sheet manufacturer serving the graphic arts, medical packaging, and specialty retail markets; (2) The Contract Manufacturing Division, a provider of non- carpet flooring and sound barrier products to the transportation industry; and (3) The Film and Converting Division calenders, prints, and laminates products for distribution to various markets including the Medical and Recreation & Leisure industries. The Sheet Products Division was added to the Company's Custom Sheet & Rollstock segment, and the Contract Manufacturing and Film and Converting Divisions were added to the Color & Specialty Compounds segment. Sales within the three divisions acquired totaled approximately $110 million for the 12 months prior to acquisition. The cash price for this acquisition of approximately $86.5 million was allocated to the assets acquired and liabilities assumed of $97.5 million and $11.0 million, respectively. The assets acquired include $39.6 million of property, plant, and equipment, $15.9 million of identified intangibles, and $19.9 million of goodwill, all of which is deductible for tax purposes. The preliminary identified intangibles and respective weighted average amortization periods includes $13.1 million of customer relationships (nine years), $1.5 million of technology (12 years) and $1.3 million of non-compete agreements (four years). The final cash price will change upon completion of a working capital adjustment. In addition, the Company has not finalized the allocation of the cash price to assets acquired and liabilities assumed and the determination of intangible amortization lives, and is awaiting final valuations from our independent advisors. On September 30, 2003, the Company completed the purchase of certain assets and entered into a supply agreement with Wilbert Inc.'s TriEnda Division located in Portage, Wisconsin. The acquired business was a "captive" (internal consumption) manufacturer of extruded sheet, primarily for the TriEnda line of reusable shipping and material handling containers. The total cash purchase price for these assets was $5,420 and was allocated to assets and liabilities of $5,517 and $97, respectively. Assets acquired included $752 of goodwill, all of which is deductible for tax purposes. This business is reported in the Company's Custom Sheet & Rollstock segment. On March 31, 2003, the Company completed its acquisition of Polymer Extruded Products, Inc. (PEP), a manufacturer of weatherable film laminates and cellulose specialty extruded products. PEP had annual sales of approximately $21,000 for calendar year 2002, with nearly $4,000 of those sales to SPARTECH's Custom Sheet & Rollstock segment. The cash paid for this acquisition of $23,761 was allocated to the assets acquired and liabilities assumed of $32,724 and $8,963, respectively (acquired assets included $14,484 of goodwill, $1,887 of which is deductible for tax purposes, non-compete agreements and customer relationships totaling $1,900 with amortization periods of five years, and a trademark of $8,900 which was determined to have an indefinite life). PEP is reported in the Company's Custom Sheet & Rollstock segment. On June 4, 2002, the Company completed its acquisition of GWB Plastics Holding Co. (GWB), which is the parent of two operating companies, UVTEC and PolyTech South. These businesses generated net sales of approximately $40,000 during the 12 months prior to the acquisition. The final purchase price of $47,228 was allocated to the assets acquired (including $23,675 of goodwill - $17,747 of which is deductible for tax purposes, non-compete agreements and customer contacts totaling $4,990 with amortization periods of three to five years, and product formulations totaling $12,030 with an amortization period of 15 years) and liabilities assumed of $52,157 and $4,929, respectively. GWB is reported in the Company's Color & Specialty Compounds segment. 3) Inventories Inventories at October 30, 2004 and November 1, 2003 are comprised of the following components: 2004 2003 ---------- -------- Raw materials $ 82,571 $ 57,414 Finished goods 59,464 42,257 ---------- -------- $ 142,035 $ 99,671 ========== ======== 4) Property, Plant, and Equipment Property, plant, and equipment consisted of the following at October 30, 2004 and November 1, 2003: 2004 2003 -------- --------- Land $ 14,167 $ 12,247 Buildings and leasehold improvements 85,915 74,264 Machinery and equipment 428,890 361,684 Furniture and fixtures 9,299 9,537 -------- -------- 538,271 457,732 Less accumulated depreciation 207,526 173,808 -------- -------- Property, plant, and equipment, net $ 330,745 $ 283,924 ======== ========= 5) Goodwill and Other Intangible Assets Changes in the carrying amount of goodwill for the years ended October 30, 2004 and November 1, 2003 are as follows: Custom Color & Molded & Total Sheet& Specialty Profile Rollstock Compounds Products --------- --------- --------- --------- Balance, November 2, 2002 $ 185,805 $ 95,422 $ 37,614 $ 318,841 Goodwill acquired 15,236 315 - 15,551 --------- --------- --------- --------- Balance, November 1, 2003 201,041 95,737 37,614 334,392 Goodwill acquired 11,088 8,650 478 20,216 Reclassifications 721 6,628 - 7,349 --------- --------- --------- --------- Balance, October 30, 2004 $ 212,850 $ 111,015 $ 38,092 $ 361,957 ========== ========= ========= ========= Total accumulated goodwill amortization at October 30, 2004 and November 1, 2003 is $29,773. Reclassifications represent opening balance adjustments between goodwill and deferred taxes. As of October 30, 2004 and November 1, 2003, the Company had amortizable intangible assets as follows: Gross Accumulated Carrying Amount Amortization 2004 2003 2004 2003 ------------ ------------ ------------ ----------- Non-compete agreements $ 3,960 $ 1,750 $ 1,242 $ 612 Customer 18,981 5,140 2,380 1,161 contracts/relationships Product formulations 17,811 12,030 2,063 1,073 ----------- ------------ ------------ ----------- Total $ 40,752 $ 18,920 $ 5,685 $ 2,846 =========== ============ =========== =========== Amortization expense for intangible assets totaled $2,840 in 2004, $2,187 in 2003, and $660 in 2002. Amortization expense for amortizable intangible assets over the next five fiscal years is estimated to be: 2005-$3,291, 2006-$3,012, 2007-$2,728, 2008-$1,963, and 2009-$1,570. The Company has a $8,900 trademark included in other intangible assets which has an indefinite life and therefore, is not subject to amortization. 6) Convertible Subordinated Debentures On February 18, 2000, the Company issued $103,093 of 7.0% convertible subordinated debentures to Spartech Capital Trust II, a Delaware trust controlled by the Company. The Company used the proceeds to repay borrowings under its bank credit facility. The debentures are the sole asset of the trust. The trust purchased the debentures with the proceeds of a $100,000 private placement of 7.0% convertible preferred securities of the trust having an aggregate liquidation preference of $100,000 and guaranteed by SPARTECH. The debentures: Are convertible along with the trust's preferred securities, at the option of the preferred security holders, into shares of the Company's common stock at a conversion price equivalent to $34.00 per share of common stock, for a total of 2,941,176 shares; Are redeemable along with the trust's preferred securities, at the Company's option, at a price equal to 104.2% of the principal amount plus accrued interest through March 1, 2005. This amount declines annually to a price equal to the principal amount plus accrued and unpaid interest after March 1, 2010; and Mature and are payable, along with the trust's preferred securities, on March 31, 2015, if they have not been previously redeemed or converted. On March 5, 1999, the Company issued $51,546 of 6.5% convertible subordinated debentures to Spartech Capital Trust, a Delaware trust controlled by the Company. The Company used the proceeds to repay borrowings under its bank credit facilities. The debentures are the sole asset of the trust. The trust purchased the debentures with the proceeds of a $50,000 private placement of 6.5% convertible preferred securities of the trust, having an aggregate liquidation preference of $50,000 and guaranteed by the Company. The debentures: Are convertible along with the trust's preferred securities, at the option of the preferred security holders, into shares of the Company's common stock at a conversion price equivalent to $30.55 per share of common stock, for a total of 1,636,661 shares; Are redeemable along with the trust's preferred securities, at the Company's option, at a price equal to 103.3% of the principal amount plus accrued interest through March 1, 2005. This amount declines annually to a price equal to the principal amount plus accrued and unpaid interest after March 1, 2009; and Mature and are payable, along with the trust's preferred securities, on March 31, 2014, if they have not been previously redeemed or converted. In December 2003, the FASB issued a revised version of FASB Interpretation No. 46 (FIN 46R), "Consolidation of Variable Interest Entities," which defines when a business should consolidate a variable interest entity. The Company adopted FIN 46R on January 31, 2004. As a result, we no longer consolidate our trusts which were formed solely for the issuance of trust preferred securities to outside investors. The effect of this deconsolidation was to: 1) eliminate the convertible preferred securities issued by the trusts; 2) record the convertible subordinated debentures issued to the trusts; 3) recognize the Company's equity investment in the common stock of the trusts; and 4) reclassify the distributions on the preferred securities to interest expense on the debentures. The convertible subordinated debentures and equity investments were previously eliminated in consolidation. The debentures, totaling $154.6 million, are now included in the Consolidated Balance Sheet as a separate component of long-term debt and the equity investment of $4.6 million is included in other assets. The adoption of FIN 46R had no impact on the Company's net income or earnings per share. The previous years' financial statements have been restated to reflect the effect of the deconsolidation required by FIN 46R. 7) Other Long-Term Debt Other long-term debt is comprised of the following at October 30, 2004 and November 1, 2003: 2004 2003 ------------- ------------- 5.54% Senior Unsecured 2004 Notes $ 150,000 $ - 7.0% Senior Unsecured 1997 Notes 19,286 40,714 7.62% Guaranteed Senior Unsecured 1996 Notes 8,571 12,857 7.21% Senior Unsecured 1995 Notes 7,143 14,286 Bank Credit Facilities 125,000 152,203 Other 9,452 9,120 ------------ ------------ 319,452 229,180 Less current maturities 18,027 32,991 ------------ ------------ Total other long-term debt $ 301,425 $ 196,189 ============ ============ On September 15, 2004, the Company completed a $150,000 private placement of 5.54% Senior Unsecured Notes over a twelve-year term. The 2004 Notes require equal annual principal payments of $30,000 that commence on September 15, 2012. Interest on the 2004 Notes is payable semiannually on March 15 and September 15 of each year. On August 22, 1997, the Company completed a private placement of 7.0% Senior Unsecured Notes consisting of $45,000 designated as Series A and $15,000 designated as Series B. The Series A 1997 Notes require equal annual principal payments of approximately $6,429 that commenced on August 22, 2001 and the required $15,000 principal payment due on the Series B 1997 Notes was paid on August 22, 2004. Interest on the 1997 Notes is payable semiannually on February 22 and August 22 of each year. On September 27, 1996, the Company completed a $30,000 private placement of 7.62% Guaranteed Unsecured Notes over a ten-year term. The 1996 Notes require equal annual principal payments of approximately $4,286 that commenced on September 27, 2000. Interest on the 1996 Notes is payable semiannually on March 27 and September 27 of each year. On August 15, 1995, the Company completed a $50,000 private placement of 7.21% Senior Unsecured Notes over a ten-year term. The 1995 Notes require equal annual principal payments of approximately $7,143 that commenced on August 15, 1999. Interest on the 1995 Notes is payable semiannually on February 15 and August 15 of each year. On March 3, 2004, the Company amended its unsecured bank credit facility to an aggregate availability of $200,000 for a new five-year term. On April 27, 2004, the Company's Canadian subsidiary entered into an additional $10,000 (Canadian) revolving credit facility in Canada that expires on March 3, 2009. The total capacity under these bank credit facilities was $208,192 at October 30, 2004. Borrowings under these facilities are classified as long-term, because no paydowns of the aggregate facilities are required within the next fiscal year. Interest on the bank credit facilities is payable at a rate chosen by the Company of either prime or Eurodollar rate plus a 0.5% to 1.125% borrowing margin and the agreement requires a fee of 0.10% to 0.275% for any unused portion of the facilities. At October 30, 2004, the Company had fixed LIBOR loans outstanding under the bank credit facilities of $125,000 at 2.59% in the U.S. for a one month period (LIBOR loans totaled $150,900 at 2.13%-2.25% in the U.S. on November 1, 2003). As of October 30, 2004, there were no bank credit facility borrowings at the current prime rate (November 1, 2003 of $1,000 at 4% in the U.S. and $303 at 4.75% in Canada). The Company had a $125,000 interest rate swap agreement that expired November 10, 2004 under which it paid interest at 6.06% and received interest at LIBOR plus the borrowing margin. We designated the swap as a cash flow hedge of the LIBOR borrowings under the bank credit facilities. The other debt consists of industrial revenue bonds utilized to finance capital expenditures. These financings mature between 2007 and 2015 and have interest rates ranging from 1.91% to 3.75%. Scheduled maturities of long-term debt for the next five fiscal years are: 2005- $18,027; 2006-$10,893; 2007-$6,523; 2008-$155; and 2009-$125,162. The long-term debt contains certain covenants which, among other matters, require the Company to restrict the incurrence of additional indebtedness, satisfy certain ratios and net worth levels, and limit both the sale of assets and merger transactions. 8) Shareholders' Equity & Stock Options The authorized capital stock of the Company consists of 55 million shares of $.75 par value common stock and 4 million shares of $1 par value preferred stock. On March 10, 2004 shareholders approved an increase to the authorized number of shares of common stock from 45,000,000 shares to 55,000,000 shares. The additional authorized shares will be used to provide flexibility (i) for the issuance of stock options and other stock-based compensation and incentive awards and (ii) raising additional capital, acquisitions, stock dividends, or other corporate purposes. On February 3, 2004, SPARTECH completed a common stock offering for 2.7 million newly issued shares. The stock was sold to the public at $24.00 per share. The net proceeds received by the Company for the sales of the shares totaled approximately $61 million with approximately $41 million used to pay down debt and $20 million that was subsequently used to fund capital expenditures and strategic expansions. After the offering, the Company's common issued shares increased by 8.8% to 33,131,846. The Company has a Shareholder Rights Plan in which rights trade with, and are inseparable from, each share of common stock. Prior to exercise, a Right does not give its holder any dividend, voting, or liquidation rights. Under certain circumstances, a Right may be exercised to purchase one one-thousandth of a share of Series Z Preferred Stock for $70 per share. The Rights become exercisable, subject to certain exceptions, if a new person or group acquires beneficial ownership of 15% or more, to purchase shares of the Company's common stock with a market value of $140.00, for $70.00 per Right. The Rights will expire on April 2, 2011 and may be redeemed by the Company for $.01 per Right at any time before a new person or group becomes a beneficial owner of 15% or more of the Company's outstanding common stock. The Company has a Stock Option Plan for executive officers, key employees, and directors. The minimum exercise price is the fair market value per share at the date of grant. Options are granted with lives ranging from 5-10 years and vest over a four-year period. No more than 3,000,000 shares may be issued as incentive stock options under the plan, and the maximum number of shares issuable annually under the plan is limited to 10% of the Company's outstanding common shares (excluding treasury shares) at the prior year end. Subject to the limitations discussed above, the number of options granted pursuant to these plans is at the discretion of the Compensation Committee of the Board of Directors. A summary of the combined activity for the Company's stock options for fiscal years 2004, 2003, and 2002 follows (shares in thousands): 2004 2003 2002 -------------- -------------- -------------- Shares Weighted Shares Weighted Shares Weighted Under Average Under Average Under Average Option Exercise Option Exercise Option Exercise Price Price Price ------ -------- ------ -------- ------ -------- Outstanding, beginning of 2,522 $ 19.50 2,382 $ 19.23 2,463 $ 16.67 year Granted 453 22.08 461 18.74 576 21.38 Exercised (298) 15.03 (250) 15.25 (609) 10.99 Canceled/Expired - - (71) 20.78 (48) 18.36 ------ ------ ------ Outstanding, end of year 2,677 20.38 2,522 19.50 2,382 19.23 Exercisable, end of year 1,606 1,443 1,453 ====== ====== ====== Information with respect to options outstanding at October 30, 2004 follows (shares in thousands): Range of Exercise Outstand- Weighted Remaining Exercisable Exercise Prices ing Shares Average Contractual Average Price Exercise Life Shares Price --------- --------- ---------- ---------- -------- $ 10.88 - 16.40 636 $13.95 4.4 years 546 $14.29 $ 18.00 - 21.00 501 18.15 7.2 years 206 18.23 $ 21.10 - 21.90 915 21.45 8.0 years 290 21.10 $ 21.94 - 28.94 625 27.15 4.6 years 564 27.48 ---------- ---------- 2,677 1,606 ========== ========== 9) Income Taxes The provision for income taxes for fiscal years 2004, 2003, and 2002 is comprised of the following: 2004 2003 2002 ---------- ---------- ------------ Federal: Current $ 13,269 $ 8,614 $ 8,651 Deferred 6,610 6,984 6,890 State 2,749 2,475 2,393 Foreign 2,674 1,145 1,859 ---------- ---------- ------------ Provision for income taxes $ 25,302 $ 19,218 $ 19,793 ========= ========== =========== Earnings before income taxes for 2004, 2003, and 2002 include $5,996, $3,762, and $5,329, respectively from non-U.S. operations. The income tax provision on earnings of the Company differs from the amounts computed by applying the U.S. Federal tax rate of 35% as follows: 2004 2003 2002 --------- ---------- ---------- Federal income taxes at statutory $ 23,578 $ 18,662 $ 18,922 rate State income taxes, net of 1,787 1,609 1,555 applicable Federal income tax benefits Other (63) (1,053) (684) -------- --------- ---------- $ 25,302 $ 19,218 $ 19,793 ======== ========= ========== At October 30, 2004 and November 1, 2003 the Company's principal components of deferred tax assets and liabilities consisted of the following: 2004 2003 ---------- ------------ Deferred tax assets: Employee benefits and $ 2,507 $ 1,411 compensation Workers' compensation 1,474 1,261 Deferred compensation benefit 973 716 plans Bad debt reserves 955 1,319 Other 590 3,143 -------- ---------- $ 6,499 $ 7,850 ======== ========== Deferred tax liabilities: Depreciation $ 59,830 $ 57,540 Goodwill and other intangibles 36,095 23,744 Inventory capitalization and 970 1,107 reserves --------- ---------- $ 96,895 $ 82,391 ========= ========== At October 30, 2004 and November 1, 2003, the net current deferred tax asset was $4,429 and $4,027, respectively, and the net noncurrent deferred tax liability was $94,825 and $78,568, respectively. As of October 30, 2004, no deferred taxes have been provided on the $26,337 in accumulated earnings of the Company's foreign subsidiaries that are not subject to United States income tax. The Company's intention is to reinvest these earnings indefinitely or to repatriate the earnings only when it is tax effective to do so. 10) Earnings Per Share Basic earnings per share excludes any dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The reconciliation of the net earnings and weighted average number of common shares used in the computations of basic and diluted earnings per share for fiscal years 2004, 2003, and 2002 was as follows (shares in thousands): 2004 2003 2002 --------------- ---------------- ---------------- Earnings Shares Earnings Shares Earnings Shares -------- --------- -------- ------- -------- -------- Basic Earnings Per $ 42,063 31,426 $ 34,103 29,268 $ 34,270 27,895 Share Effect of stock - 406 - 299 - 484 options Effect of convertible 2,010 1,636 - - - - preferred securities -------- -------- -------- ------- ------- ------- Diluted Earnings Per $44,073 33,468 $34,103 29,567 $34,270 28,379 Share ======= ======= ======= ======= ======= ======= The effect of stock options represents the shares resulting from the assumed exercise of outstanding stock options calculated using the treasury stock method. The effect of convertible subordinated debentures represents the shares resulting from the assumed conversion using the "if converted" method and the add-back of the interest expense, after tax, for the assumed conversion at the beginning of each year. In 2004, a portion of these debentures were antidilutive, and the diluted earnings per share calculation excluded 2,941,176 potentially dilutive shares, and the benefit of an interest expense add-back of $4,368, net of tax. In 2003 and 2002, the calculation of diluted earnings per share excluded 4,577,838 potentially dilutive shares and the benefit of an interest expense add-back of approximately $6,500, net of tax, in both years. 11) Employee Benefits The Company sponsors or contributes to various defined contribution retirement benefit and savings plans covering substantially all employees. The total cost of such plans for fiscal years 2004, 2003, and 2002 was $2,237, $2,530, and $2,742 respectively. 12) Cash Flow Information Supplemental information on cash flows for fiscal years 2004, 2003, and 2002 was as follows: 2004 2003 2002 -------- --------- -------- Cash paid during the year for: Interest $ 25,524 $ 26,690 $ 28,267 Income taxes 20,647 8,896 4,507 Schedule ofacquisitions/divestitures: Fair value of assets acquired $ 107,712 $ 37,937 $ 57,521 Liabilities assumed (10,146) (10,348) (5,589) Non-cash consideration/holdback payments (1,473) - (2,840) -------- -------- -------- Total cash paid $ 96,093 $ 27,589 $ 49,092 ======== ======== ======== 13) Commitments and Contingencies The Company conducts certain of its operations in facilities under operating leases. Rental expense for fiscal years 2004, 2003, and 2002, was $10,530, $10,657, and $9,264, respectively. Future minimum lease payments under non- cancelable operating leases, by fiscal year, are: 2005-$7,813; 2006-$5,997; 2007-$4,638; 2008-$3,893, 2009-$2,832, and $8,981 thereafter. 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. The subsidiary has agreed to participate along with at least 39 other companies (including several 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 accrual as of October 30, 2004. This accrual includes estimated costs associated with participation in the environmental study and legal fees. Due to uncertainties inherent in this matter, 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. These uncertainties primarily include the completion and outcome of the environmental study and the percentage of contamination attributable to the subsidiary and other parties. The Company is also subject to various other claims, lawsuits, and administrative proceedings arising in the ordinary course of business with respect to commercial, product liability, employment, and other matters, several 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 other matters will not have a material adverse effect on the Company's financial position or results of operations. 14) Segment Information The Company's 51 facilities are organized into three reportable segments based on the nature of the products manufactured. The Company utilizes operating earnings to evaluate business segment performance and determine the allocation of resources. Segment accounting policies are the same as policies described in Note 1. A description of the Company's reportable segments follows: Custom Sheet & Rollstock - This segment has 28 manufacturing facilities and is the largest extruder of plastic sheet, custom rollstock, laminates, and cell cast acrylic sheet in North America. Its finished products are formed by its customers for use in a wide variety of markets. Color & Specialty Compounds - This segment operates 16 plants throughout North America and Europe. It manufactures custom-designed plastic alloys, compounds, color concentrates, and calendered film for utilization in numerous applications. Molded & Profile Products - This segment has seven North American facilities which manufacture a number of proprietary items. These include injection molded products, complete thermoplastic wheels and tires, and profile extruded products. Corporate includes corporate office expenses. Assets included in Corporate & Other consist primarily of deferred taxes, cash & cash equivalents. 2004 2003 2002 ---------- ---------- ---------- Net Sales Custom Sheet & Rollstock $ 750,490 $ 628,535 $ 600,486 Color & Specialty Compounds 302,660 263,034 235,728 Molded & Profile Products 68,575 64,591 62,094 ---------- ---------- ---------- Total Net Sales $1,121,725 $956,160 $898,308 =========== ========== =========== Operating Earnings Custom Sheet & Rollstock $76,079 $63,096 $62,294 Color & Specialty Compounds 23,741 20,986 25,721 Molded & Profile Products 6,319 5,393 3,496 Corporate (13,338) (11,189) (10,632) ---------- ---------- ---------- Total Operating Earnings $92,801 $78,286 $80,879 =========== ========== =========== Assets Custom Sheet & Rollstock $641,673 $562,387 $515,415 Color & Specialty Compounds 354,158 259,381 254,371 Molded & Profile Products 89,153 84,514 77,252 Corporate & Other 64,630 18,381 28,757 ---------- ---------- ---------- Total Assets $1,149,614 $924,663 $875,795 =========== ========== =========== Depreciation and Amortization Custom Sheet & Rollstock $18,567 $17,561 $16,364 Color & Specialty Compounds 11,921 10,646 8,705 Molded & Profile Products 3,279 3,021 2,608 Corporate 1,289 338 443 ---------- ---------- ---------- Total Depreciation and $35,056 $31,566 $28,120 Amortization =========== ========== =========== Capital Expenditures Custom Sheet & Rollstock $21,094 $10,345 $16,062 Color & Specialty Compounds 7,538 6,698 6,153 Molded & Profile Products 3,658 2,565 4,357 Corporate 2,713 2,401 1,645 ---------- ---------- ---------- Total Capital Expenditures $35,003 $22,009 $28,217 =========== ========== =========== In addition to external sales to customers, intersegment sales were $49,769, $36,948, and $25,950 for the fiscal years ended 2004, 2003, and 2002, respectively. Most intersegment sales were generated from our Color & Specialty Compounds segment. The Company operates in five reportable geographic areas - the United States, Canada, Mexico, Europe, and Asia & Other. Geographic financial information for fiscal years 2004, 2003, and 2002 was as follows: Net Sales By Destination Property, Plant and Equipment, Net ---------------------------- ---------------------------- 2004 2003 2002 2004 2003 2002 ---------- --------- --------- --------- --------- -------- United States $ 935,321 $ 815,009 $ 776,749 $ 282,947 $239,825 $258,827 Canada 99,996 79,023 74,312 26,437 26,500 19,061 Mexico 43,167 31,400 23,070 14,465 14,192 - Europe 29,452 19,382 15,923 6,896 3,407 2,586 Asia & Other 13,789 11,346 8,254 - - - ---------- --------- --------- --------- --------- -------- $1,121,725 $ 956,160 $ 898,308 $330,745 $283,924 $280,474 ========== ========= ========= ========= ========= ======== 15) Comprehensive Income Comprehensive Income is an entity's change in equity during the period related to transactions, events, and circumstances from non-owner sources. Accumulated other comprehensive income (loss) consisted of foreign currency translation adjustments of $15 and $(926), and cash flow hedge adjustments of $121 and $(3,575) at October 30, 2004 and November 1, 2003, respectively. 16) Quarterly Financial Information Certain unaudited quarterly financial information for the fiscal years ended October 30, 2004 and November 1, 2003 was as follows: Quarter Ended Fiscal -------------------------------------------- ---------- Jan April July Oct Year ---------- ---------- ---------- ---------- ---------- 2004 - --------------- Net Sales $241,463 $287,591 $288,035 $304,636 $1,121,725 Gross Profit 33,423 43,712 40,957 36,670* 154,762 Net Earnings 7,706 13,519 11,712 9,126* 42,063 Net Earnings Per .26 .42 .36 .28* 1.34 Share - Basic - Diluted .26 .41 .36 .28* 1.32 2003 - --------------- Net Sales $213,700 $250,488 $238,870 $253,102 $956,160 Gross Profit 29,230 36,035 33,090 35,658 134,013 Net Earnings 6,158 10,541 8,147 9,257 34,103 Net Earnings Per .21 .36 .28 .32 1.17 Share - Basic - Diluted .21 .36 .28 .31 1.15 * Amounts are impacted by approximately $1.8 million of pre-tax, out-of- period charges to correct account balances identified from the implementation of information technology systems. Management Report To Our Shareholders The financial statements of SPARTECH Corporation and subsidiaries were prepared under the direction of management, which is responsible for their integrity and objectivity. The statements have been prepared in conformity with generally accepted accounting principles and, as such, include amounts based on informed estimates and judgment of management. Management has developed a system of internal controls, which is designed to ensure that the books and records accurately reflect the transactions of the Company and that its established policies and procedures are followed properly. This system is augmented by written policies and procedures, and the selection and training of qualified personnel. Ernst & Young LLP, an independent registered public accounting firm, is engaged to provide an objective audit of the financial statements of SPARTECH Corporation and issue a report thereon. Their audit is conducted in accordance with standards set by the Public Company Accounting Oversight Board (United States). The Board of Directors, acting upon the advice and recommendations of the Audit Committee, is responsible for assuring that management fulfills its responsibilities in preparing the financial statements and for engaging the independent public accountants with whom the Committee reviews the scope of the audits and the accounting principles to be applied in financial reporting. The Committee meets regularly with the independent public accountants and representatives of management to review their activities and ensure that each is properly discharging its responsibilities. /s/Bradley B. Buechler /s/Randy C. Martin Chairman, President Executive Vice President & Chief Executive Officer Corporate Development & Chief Financial Officer Report of Ernst & Young LLP, Independent Registered Public Accounting Firm Board of Directors SPARTECH Corporation We have audited the accompanying consolidated balance sheets of SPARTECH Corporation (the Company) as of October 30, 2004 and November 1, 2003, and the related consolidated statements of operations, changes in shareholders' equity and cash flows of the Company for the three years in the period ended October 30, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SPARTECH Corporation at October 30, 2004 and November 1, 2003 and the consolidated results of its operations and its cash flows for each of the three years in the period ended October 30, 2004 in conformity with U.S. generally accepted accounting principles. Ernst & Young LLP St. Louis, Missouri December 17, 2004 / Eleven-Year Summary The following table sets forth selected financial data for each of the most recent 11 years. This data should be read in conjunction with the Consolidated Financial Statements and Notes related thereto, and Management's Discussion and Analysis which begins on Page 13 of this Report. (Amounts in thousands, except per share data). 2004 2003 2002 2001 ----------- ---------- ---------- ---------- SUMMARY OF OPERATIONS Net Sales: In Dollars $ 1,121,725 $ 956,160 $ 898,308 $ 937,059 In Pounds 1,383,000 1,207,000 1,179,000 1,170,000 Gross Profit $154,762 $134,013 $135,163 $152,049 Depreciation & Amortization $35,056 $31,566 $28,120 $34,921 Operating Earnings $92,801 $78,286 $80,879 $82,374* Interest Expense $25,436 $24,965 $26,816 $34,821 Net Earnings $42,063 $34,103 $34,270 $29,903* PER SHARE INFORMATION Earnings Per Share-Diluted $1.32 $1.15 $1.21 $1.11* Dividends Declared Per Share $.44 $.40 $.38 $.38 Book Value Per Share $12.98 $10.98 $9.93 $8.11 BALANCE SHEET INFORMATION Working Capital $221,498 $97,559 $99,150 $111,139 Total Debt $474,091 $383,819 $392,971 $443,353 Total Assets $1,149,614 $924,663 $875,795 $824,967 Cash Flow From Operations $37,772 $66,680 $87,070 $70,453 Capital Expenditures $35,003 $22,009 $28,217 $16,237 Shareholders' Equity $417,732 $322,358 $290,698 $216,546 RATIOS/OTHER DATA Gross Margin 13.8% 14.0% 15.0% 16.2% Operating Margin In Percentage 8.3% 8.2% 9.0% 8.8%* In Cents Per Pound 6.7 cents 6.5 cents 6.9 cents 7.0 cents Effective Tax Rate 37.6% 36.0% 36.6% 37.1% Total Debt to Total Debt and Equity 53.2% 54.4% 57.5% 67.2% Return on Average Equity 11.2% 11.1% 13.5% 14.0%* Number of Employees 3,750 3,325 3,475 3,300 Common Shares: Outstanding at Year-End 32,180 29,352 29,285 26,700 Weighted Average-Diluted 33,468 29,567 28,379 28,696
* Reduced by pre-tax $9.1 million non-recurring charges related to the impairment of long-lived assets, severance and plan closedown costs 2000 1999 1998 1997 ----------- --------- --------- -------- SUMMARY OF OPERATIONS Net Sales: In Dollars $987,532 $790,427 $670,477 $514,891 In Pounds 1,286,000 1,166,000 886,000 522,000 Gross Profit $171,669 $136,962 $111,215 $82,215 Depreciation & Amortization $31,905 $ 23,222 $18,530 $11,548 Operating Earnings $109,761 $87,707 $69,728 $49,701 Interest Expense $29,131 $16,198 $13,602 $8,393 Net Earnings $49,907 $43,071 $33,720 $25,493 PER SHARE INFORMATION Earnings Per Share-Diluted $1.72 $1.48 $1.18 $.92 Dividends Declared $.34 $.28 $.24 $.20 Per Share Book Value Per $ 7.86 $6.98 $5.72 $4.85 Share BALANCE SHEET INFORMATION Working Capital $110,565 $76,711 $72,204 $63,429 Total Debt $507,484 $281,855 $254,220 $142,614 Total Assets $902,032 $633,134 $536,747 $360,875 Cash Flow From Operations $60,413 $76,547 $64,546 $48,390 Capital Expenditures $29,129 $24,692 $17,859 $12,172 Shareholders' Equity $211,022 $190,042 $153,596 $128,389 RATIOS/OTHER DATA Gross Margin 17.4% 17.3% 16.6% 16.0% Operating Margin In Percentage 11.1% 11.1% 10.4% 9.7% In Cents Per Pound 8.5 cents 7.5 cents 7.9 cents 9.5 cents Effective Tax Rate 38.1% 39.8% 39.9% 38.3% Total Debt to Total Debt and Equity 70.6% 59.7% 62.3% 52.6% Return on Average Equity 24.9% 25.1% 23.9% 21.2% Number of Employees 4,075 3,350 2,700 2,125 Common Shares: Outstanding at Year-End 26,864 27,240 26,861 26,480 Weighted Average-Diluted 31,874 29,982 28,609 27,838
1996 1995 1994 ---------- --------- --------- SUMMARY OF OPERATIONS Net Sales: In Dollars $401,132 $361,080 $263,008 In Pounds 400,000 371,000 310,000 Gross Profit $60,572 $49,879 $36,998 Depreciation & Amortization $7,211 $5,798 $4,422 Operating Earnings $34,492 $24,604 $16,410 Interest Expense $5,062 $4,960 $3,125 Net Earnings $18,317 $14,534 $10,835 PER SHARE INFORMATION Earnings Per Share-Diluted $.73 $.60 $.46 Dividends Declared Per Share $.15 $.09 $- Book Value Per Share $4.26 $3.09 $6.75 BALANCE SHEET INFORMATION Working Capital $53,610 $45,108 $26,351 Total Debt $98,466 $59,510 $39,169 Total Assets $291,610 $179,169 $136,223 Cash Flow From Operations $23,160 $16,487 $13,358 Capital Expenditures $9,220 $9,477 $7,819 Shareholders' Equity $112,395 $72,128 $58,233 RATIOS/OTHER DATA Gross Margin 15.1% 13.8% 14.1% Operating Margin In Percentage 8.6% 6.8% 6.2% In Cents Per Pound 8.6 cents 6.6 cents 5.3 cents Effective Tax Rate 37.8% 26.0% 18.4% Total Debt to Total Debt and Equity 46.7% 45.2% 40.2% Return on Average Equity 19.9% 22.3% 20.8% Number of Employees 1,800 1,200 925 Common Shares: Outstanding at Year-End 26,400 23,353 8,629 Weighted Average-Diluted 25,115 24,111 23,434
ANNUAL SHAREHOLDERS' MEETING SPARTECH's Annual Shareholders' Meeting will be held on Wednesday, March 9, 2005 at Washington University's Knight Center, One Brookings Drive, St. Louis, Missouri at 10:00 a.m. A formal notice of the Meeting, together with a Proxy Statement, will be mailed before the meeting to shareholders entitled to vote. COMMON STOCK AND TRANSFER AGENT As of January 1, 2005, there were approximately 1,500 registered shareholders and 4,300 shareholders with shares held by banks and brokers of the Company's common stock. The Company's Registrar and Transfer Agent is Mellon Investor Services, LLC, 85 Challenger Overpeck Center, Ridgefield Park, New Jersey 07660. The Company's common stock is traded on the New York Stock Exchange under the symbol "SEH." Quarterly stock prices for fiscal years 2004 and 2003, and year- ends 2001 to 2004, are shown to the right. DIVIDEND REINVESTMENT PLAN AND REPORT ON FORM 10-K A Dividend Reinvestment Plan is available to shareholders of the Company, allowing the automatic investment of cash dividends and direct cash purchases of the Company's common stock. For details on the Plan, please contact the Company's Registrar and Transfer Agent, Mellon Investor Services LLC, at (888) 213-0965. Common stock dividends paid for fiscal years 2001- 2004 are shown to the right. In addition, the Company will provide, without charge to any shareholder a copy of its 2004 Report on Form 10-K as filed with the Securities and Exchange Commission. Requests should be directed to SPARTECH Investor Relations at (888) 721-4242. Additionally, a link to all of the Company's SEC filings can be found in the Investor Relations section of the Company's website at www.spartech.com. Corporate Governance The Board of Directors has established specific Corporate Governance Guidelines, a Code of Ethics for the CEO and Senior Financial Officers, and a Code of Business Conduct and Ethics for all directors, officers and employees. These documents are provided on the Company's website at www.spartech.com within the Investor Relations/Corporate Governance section of the site. At this same website location, The Company provides an Ethics Hotline phone number that allows employees, shareholders, and other interested parties to communicate with the Company's management or Audit Committee (on an anonymous basis, if so desired) through an independent third party hotline. In addition, this same website location provides instructions for shareholders or other interested parties to contact the Company's Board of Directors. The rules of the New York Stock Exchange (NYSE) require Mr. Buechler, our Chief Executive Officer, to certify to the NYSE annually that he is not aware of any violation by the Company of the NYSE's corporate governance listing standards. In addition, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Mr. Buechler and Mr. Martin, our Chief Financial Officer, must each execute a certificate as to the quality of our public disclosures as part of our quarterly reports to the Securities and Exchange Commission (SEC). Their latest Section 302 certifications have been filed with the SEC as exhibits to our 2004 Form 10- K. Bar Chart 2004 Quarterly Common Stock Prices 1st - $21.58 - $26.00 2nd - $22.55 - $25.41 3rd - $21.36 - $26.30 4th - $21.85 - $25.95 Bar Chart 2003 Quarterly Common Stock Prices 1st - $17.71 - $21.05 2nd - $16.47 - $22.35 3rd - $19.69 - $23.65 4th - $20.30 - $24.49 Bar Chart 2001-2004 Year-End Common Stock Prices 2001 - $21.05 2002 - $18.79 2003 - $23.18 2004 - $25.20 Bar Chart 2001-2004 Common Stock Dividends 2001 - 38 cents 2002 - 38 cents 2003 - 40 cents 2004 - 44 cents EX-21 7 exhibit_21.txt EXHIBIT 21 EXHIBIT 21 SPARTECH CORPORATION SUBSIDIARIES OF REGISTRANT Legal Entity DBA Incorporation or Organization Atlas Alchem Plastics, Spartech Plastics Delaware Inc. TKM Plastics, LP Spartech Plastics Missouri Franklin-Burlington Spartech Vy-Cal Delaware Plastics, Inc. Spartech Polycom Alchem Plastics, Inc. Spartech Plastics Delaware Alchem Plastics Spartech Plastics Georgia Corporation Anjac-Doron Plastics, Inc. Spartech Profiles California Spartech Polycom, Inc. Spartech Polycom Pennsylvania Spartech Color Spartech Polycom, S.A.S. Spartech Polycom France PolyTech South, Inc. Spartech Polycom Delaware UVTEC, L.P. Spartech Polycom Texas Spartech Plastics, Inc. Spartech Plastics Delaware Spartech Industries, Inc. Spartech Industries Delaware Spartech Profiles Spartech Canada, Inc. Spartech Color New Brunswick Spartech Plastics Spartech Profiles Alshin Tire Corporation Spartech Industries California Spartech Polycast, Inc. Spartech Polycast Delaware Spartech Townsend, Inc. Spartech Townsend Delaware Spartech Industries Spartech Marine Delaware Florida, Inc. Spartech de Mexico, S.A. Spartech Plastics Mexico de C.V. Spartech Polycom Polymer Extruded Products, Spartech PEP New Jersey Inc. Spartech SPD, LLC Spartech Plastics Delaware Spartech CMD, LLC Spartech Polycom Delaware Spartech FCD, LLC Spartech Polycom Delaware X-Core, LLC Spartech Industries California EX-23.1 8 exhibit_23-1.txt EXHIBIT 23.1 Exhibit 23.1 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-61322, 333-60381, 333-30878, 333-60316, and 333-113752) and (Form S-3 Nos. 333-38246, 333-38218 and 333-109682) of Spartech Corporation of our report dated December 17, 2004, with respect to the consolidated financial statements and schedule incorporated by reference or included in the Annual Report (Form 10-K) for the year ended October 30, 2004. /s/ Ernst & Young LLP St. Louis, Missouri January 13, 2005 EX-24 9 exhibit_24.txt EXHIBIT 24 EXHIBIT 24 SPARTECH CORPORATION AND SUBSIDIARIES POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Bradley B. Buechler his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to act for him and in his name, place and stead, in any and all capacities to sign this annual report on Form 10-K of SPARTECH Corporation and Subsidiaries for the fiscal year ending October 30, 2004, and any and all amendments thereto and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof. Dated: January 12, 2005 /s/ Ralph B. Andy Ralph B. Andy Director EXHIBIT 24 SPARTECH CORPORATION AND SUBSIDIARIES POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Bradley B. Buechler his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to act for him and in his name, place and stead, in any and all capacities to sign this annual report on Form 10-K of SPARTECH Corporation and Subsidiaries for the fiscal year ending October 30, 2004, and any and all amendments thereto and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof. Dated: January 12, 2005 /s/ Lloyd E. Campbell Lloyd E. Campbell Director EXHIBIT 24 SPARTECH CORPORATION AND SUBSIDIARIES POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Bradley B. Buechler his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to act for him and in his name, place and stead, in any and all capacities to sign this annual report on Form 10-K of SPARTECH Corporation and Subsidiaries for the fiscal year ending October 30, 2004, and any and all amendments thereto and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof. Dated: January 12, 2005 /s/ Pamela F. Lenehan Pamela F. Lenehan Director EXHIBIT 24 SPARTECH CORPORATION AND SUBSIDIARIES POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Bradley B. Buechler his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to act for him and in his name, place and stead, in any and all capacities to sign this annual report on Form 10-K of SPARTECH Corporation and Subsidiaries the for fiscal year ending October 30, 2004, and any and all amendments thereto and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof. Dated: January 12, 2005 /s/ Jackson W. Robinson Jackson W. Robinson Director EXHIBIT 24 SPARTECH CORPORATION AND SUBSIDIARIES POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Bradley B. Buechler his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to act for him and in his name, place and stead, in any and all capacities to sign this annual report on Form 10-K of SPARTECH Corporation and Subsidiaries for the fiscal year ending October 30, 2004, and any and all amendments thereto and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof. Dated: January 12, 2005 /s/ Richard B. Scherrer Richard B. Scherrer Director EXHIBIT 24 SPARTECH CORPORATION AND SUBSIDIARIES POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Bradley B. Buechler his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to act for him and in his name, place and stead, in any and all capacities to sign this annual report on Form 10-K of SPARTECH Corporation and Subsidiaries for the fiscal year ending October 30, 2004, and any and all amendments thereto and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof. Dated: January 12, 2005 /s/ Craig A. Wolfanger Craig A. Wolfanger Director EXHIBIT 24 SPARTECH CORPORATION AND SUBSIDIARIES POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that the person whose signature appears below constitutes and appoints Bradley B. Buechler his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, to act for him and in his name, place and stead, in any and all capacities to sign this annual report on Form 10-K of SPARTECH Corporation and Subsidiaries for the fiscal year ending October 30, 2004, and any and all amendments thereto and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof. Dated: January 12, 2005 /s/ Walter J. Klein Walter J. Klein Director EX-31 10 exhibit_31.txt EXHIBIT 31 Exhibit 31.1 CERTIFICATION I, Bradley B. Buechler, Chairman, President, and Chief Executive Officer of Spartech Corporation, certify that: 1. I have reviewed this annual report on Form 10-K of Spartech Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statement were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control or financial reporting. January 12,2005 By: /s/ Bradley B. Buechler (Date) Bradley B. Buechler Chairman, President and Chief Executive Officer Spartech Corporation Exhibit 31.2 CERTIFICATION I, Randy C. Martin, Executive Vice President and Chief Financial Officer of Spartech Corporation, certify that: 1. I have reviewed this annual report on Form 10-K of Spartech Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statement were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control or financial reporting. January 12,2005 By: /s/ Randy C. Martin (Date) Randy C. Martin Executive Vice President and Chief Financial Officer Spartech Corporation EX-32 11 exhibit_32.txt EXHIBIT 32 EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies that this periodic report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in this annual report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Spartech Corporation. Date: January 12, 2005 /s/ Bradley B. Buechler Bradley B. Buechler Chairman, President and Chief Executive Officer /s/Randy C. Martin Randy C. Martin Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----