ST. LOUIS, Dec. 15 /PRNewswire-FirstCall/ -- Spartech Corporation
(NYSE:SEH) announced today operating results for its 2008 fourth
quarter and an additional $25 million of turnaround improvement
initiatives. Strong operating cash flows and continued progress on
structural cost reductions highlighted a quarter that experienced
substantial volume decreases from weak end market demand. The
fourth quarter 2008 results include a $254.1 million non-cash
charge for asset impairments. Fourth Quarter 2008 Financial Summary
-- Net sales were $346.1 million compared to $366.2 million in the
fourth quarter of 2007 representing a decrease of 5% reflecting
weak end market demand partially offset by higher selling prices
from the pass through of resin cost increases and sales mix
changes. Sales volumes were down 21% in the fourth quarter of 2008
compared to the prior year reflecting demand declines in the
transportation and recreation and leisure markets and general
inventory reductions across most markets. -- Operating earnings
excluding special items (consisting of the asset impairments and
restructuring and exit costs) were $5.4 million which declined $3.8
million compared to the fourth quarter of 2007, primarily
reflecting the lower sales volume partially offset by improved
gross margins. Solid gross margin per pound increases reflected
conversion cost savings from our cost reduction initiatives,
improvements in our product sales mix, and the timely pass through
of significant resin price increases. -- The reported operating
loss of $249.4 million included special items totaling $254.8
million in the fourth quarter of 2008 and $2.2 million in the prior
year fourth quarter. The non-cash asset impairments of $254.1
million primarily relate to the write off of goodwill from past
acquisitions. -- The diluted loss per share was ($6.51) including
the impact of non cash asset impairments and restructuring and exit
costs. Excluding these special items, the earnings per diluted
share for the fourth quarter of 2008 was $0.02 compared to $0.08 in
the fourth quarter of 2007. -- Progress was achieved in improving
cash flows and working capital. Cash flows from operations for the
quarter of $45.8 million were higher than the $34.3 million in the
fourth quarter of 2007 and funded $3.4 million of capital
expenditures and $38.8 million of debt repayments. For the year, we
realized $96.6 million in cash flows from operations and paid down
$57.2 million in debt. Turnaround Initiatives Update The company
continued to make progress on financial improvement and turnaround
initiatives including structural cost reductions and additional
actions to reduce our fixed cost footprint and strengthen our
competitive position and cash flow. During the second quarter, a
framework for a strategic assessment was established. In June, the
assessment was completed and a roadmap was created for improving
Spartech's performance for enhanced short-term results and
long-term sustainable profit growth. The strategic review included
the development of comprehensive portfolio plans, organizational
restructuring plans, manufacturing cost reduction plans, and other
financial turnaround initiatives. We accomplished measurable
savings and initiated additional actions in the fourth quarter of
2008. -- 2008 Turnaround Initiatives (Labor Reduction, Mankato
Consolidation, St. Clair Consolidation) -- During 2008, we
undertook initial steps to streamline our manufacturing cost
structure, in part by reducing the number of jobs at the company
and optimizing the use of flex time and overtime in our operations.
Our target was a 10% reduction in labor, but we realized a 12%
reduction (representing approximately 440 full-time equivalents)
from the beginning of calendar 2008 and this has resulted in
approximately $15 million of lower labor-related costs in 2008
compared to 2007. In addition to the across-the-board labor
reduction initiative, we announced two plant consolidations in 2008
which were completed in our fourth quarter: Mankato, Minnesota and
St. Clair, Michigan. We expect to see an additional $10 million of
benefit in 2009 due to the full-year impact of our labor reductions
and the two plant consolidations. -- 2009 Turnaround Initiatives
(Procurement, Segmentation, Cost Footprint) -- In this release, we
are announcing actions to realize an additional $25 million in
annualized benefits from initiatives in consolidating procurement,
improving margin segmentation, and further optimizing our
manufacturing cost footprint across the company. We have commenced
many of these initiatives and made progress in laying the
foundation for completing these actions throughout 2009. These new
activities include specific moves to further consolidate
compounding production and a decision to terminate our Plastics
Recycling Center, LLC joint venture in recycled compounds which was
completed in November. These two actions will provide annual
benefits of approximately $2.0 million and cost approximately $2.0
million to complete. In summary, we have now announced $50 million
in improvements from the combined 2008 and 2009 Turnaround
Initiatives. The $25 million in 2008 Turnaround Initiatives have
been completed with $15 million of improvements benefiting 2008 and
the incremental $10 million to be realized in 2009. The majority of
the 2009 Turnaround Initiatives will be realized in 2009 as we
implement them throughout our fiscal year. These actions will
maximize cash flow in a challenging near term environment, improve
our future earnings potential, and better position Spartech for an
economic recovery. Overview Spartech's President and Chief
Executive Officer, Myles S. Odaniell stated, "We continue to manage
through a very challenging economic environment that has negatively
impacted the end markets we serve. We are experiencing weak end
market demand in our major transportation, recreation and leisure,
and residential construction markets, but we are also experiencing
lower demand in most other markets. Our margins have faired well
and we continue to realize steady progress with structural cost
reduction efforts, but we have not been able to fully offset the
sharp decreases in demand. As expected, resin prices have started
to decline and we expect additional reductions in the near term."
Mr. Odaniell continued, "We are taking aggressive actions to
maximize cash flows and reduce our cost structure both in response
to current market conditions but also to capitalize on unique
improvement opportunities existing at Spartech. Our financial
improvement initiatives at Spartech, which were initiated early in
the year, has positioned us to address today's very challenging
market conditions and ensure we have a solid foundation for long-
term success. While the current demand declines are more extreme
and extended than we expected, we are staying the course on
executing the turnaround initiatives and additional near term
actions to improve our company. We are realistic about the
challenges ahead in this market and are prepared to adjust actions
as conditions warrant. Our effective management of working capital
and aggressive cost reduction initiatives should support continued
solid cash flow performance." Consolidated Results Net sales for
the fourth quarter of 2008 were $346.1 million compared to $366.2
million in the fourth quarter of 2007 representing a decrease of
5%. This change was caused by a decline in underlying sales volume
(-21%), partially offset by contributions from the Creative Forming
acquisition (+2%) and an increase from price/mix changes (+14%).
The underlying sales volume decline related largely to lower sales
to the automotive and recreation and leisure markets. Price/mix
changes reflect higher selling prices from effective pass through
of significant resin cost increases that occurred through October.
The reported operating loss of ($249.4) million for the fourth
quarter of 2008 compared to operating earnings of $7.0 million in
the prior year fourth quarter. Operating earnings excluding special
items were $5.4 million compared to $9.2 million in the fourth
quarter of 2007. This $3.8 million decrease was primarily the
result of the decline in sales volume from weak demand. In
addition, our operating earnings excluding special items in our
fourth quarter of 2008 were negatively impacted by a $2.7 million
increase in bad debt reserves and $0.9 million of foreign currency
loss resulting primarily from a significantly strengthening of the
U.S. dollar compared to the Mexican peso. However, gross margin per
pound sold was 11.4 cents in the fourth quarter of 2008 compared to
9.3 cents in the fourth quarter of 2007. This solid gross margin
per pound increase reflected conversion cost savings from our cost
reduction initiatives, improvements in our product sales mix, and
the timely pass through of significant resin price increases.
Selling, general and administrative expenses increased $2.8 million
in the fourth quarter of this year compared to the fourth quarter
of last year due to the impact of higher bad debt expense ($1.9
million), placement fees for hiring new executives ($0.5 million),
and the late 2007 acquisition of Creative Forming, Inc. ($0.2
million). Interest expense increased to $5.1 million in our fourth
quarter of 2008 compared to $4.5 million in 2007 due to higher
average debt levels from the impact of the Creative acquisition and
stock buybacks in late calendar 2007. Our effective tax rate was
impacted by the significant asset impairments, some of which are
not tax deductible. We estimate our 2009 tax rate to be
approximately 38-39%. Segment Results Custom Sheet & Rollstock
-- The sheet segment continued to be impacted by weak volume
demand, but made progress on its cost reduction initiatives. Fourth
Quarter Fiscal Year (In Millions) 2008 2007 2008 2007 Net Sales
$161.5 $164.5 $637.1 $674.8 Operating Earnings (Loss) $(112.8) $6.6
$(100.1) $44.2 Operating Earnings, excluding Special Items $6.4
$7.2 $19.8 $45.3 The net sales decrease of 2% reflected a 16%
decrease in volume mostly offset by a 14% increase from price/mix
changes. The volume decline was due primarily to continued weakness
in the residential construction, transportation, and recreational
vehicles sectors of our end markets. The increase from price/mix
mostly represents higher resin costs that were passed on to
customers as higher selling prices. The slight decrease in
operating earnings excluding special items in the fourth quarter of
2008 reflects the impact of the significant decrease in volume
mostly offset by a 2.7 cent increase in gross margin per pound. In
addition, the operating earnings in the fourth quarter of 2008
included $1.0 million of additional bad debt expense. Packaging
Technologies -- Net sales and operating earnings decreased with the
lower volume. Fourth Quarter Fiscal Year (In Millions) 2008 2007
2008 2007 Net Sales $68.6 $70.5 $274.4 $253.7 Operating Earnings
$4.7 $6.5 $18.8 $26.1 Operating Earnings, excluding Special Items
$5.4 $8.1 $20.2 $27.7 The net sales decrease of 3% in the fourth
quarter was attributable to the net effect of $5.7 million in
incremental sales from the Creative acquisition, 7% decrease from
packaging related volume, 12% decrease from non-packaging related
volume (related to automotive customers served by the Packaging
Technologies operations), and an 8% increase from price/mix. The
decrease in operating earnings reflects the lower volumes and a
decrease in gross margin per pound of 1.3 cents as the conversion
costs were not reduced enough to offset the lower volume. Color
& Specialty Compounds -- Net sales decreased, but margins
improved from the prior year fourth quarter. Fourth Quarter Fiscal
Year (In Millions) 2008 2007 2008 2007 Net Sales $100.3 $117.6
$414.0 $446.8 Operating Earnings (Loss) $(111.3) $1.4 $(98.0) $23.1
Operating Earnings, excluding Special Items $1.9 $1.5 $15.6 $23.3
Net sales in the fourth quarter decreased 15%, 27% from underlying
volume decreases partially offset by a 12% increase from price/mix.
The decrease in volume related to lower sales of compounds to
domestic automotive, lawn and garden, and recreation and leisure
markets which typically account for approximately 35% of this
segment's sales. The increase in price/mix reflects the reduction
in sales to less profitable customers and higher resin costs that
were passed on to customers as higher selling prices. This
segment's increase in operating earnings excluding special items
was a result of the volume decline and $0.4 million in bad debt
expense which was more than offset by an improved mix and some
purchasing benefits that resulted in a gross margin per pound sold
that was 1.7 cents higher than the prior year fourth quarter.
Engineered Products -- Net sales and operating earnings excluding
special items both increased with higher volumes. Fourth Quarter
Fiscal Year (In Millions) 2008 2007 2008 2007 Net Sales $15.8 $13.7
$73.4 $76.7 Operating Earnings (Loss) $(20.7) $0.8 $(13.3) $9.6
Operating Earnings, excluding Special Items $0.9 $0.8 $8.3 $9.6
Volume for the fourth quarter of 2008 was up 22% from the 2007
comparative quarter primarily related to higher sales of wheels
into the lawn and garden market. Operating earnings excluding
special items was up slightly from the net effect of higher volumes
partially offset by a decrease in gross margin per pound due to
mix. Cash Flow Performance We continue to make progress improving
cash flows and working capital. Strong cash flows from operations
for the quarter of $45.8 million were higher than both the $34.3
million in the fourth quarter of 2007 and the $34.1 million in the
third quarter of 2008. Operating cash flows funded $3.4 million of
capital expenditures and $38.8 million of debt repayments in the
fourth quarter of 2008. For the year, we realized $96.6 million in
cash flows from operations and paid down $57.2 million in debt. As
of the end of the fourth quarter of 2008, we had $274.7 million of
total debt. Outlook We will continue to execute on our structural
cost reduction actions and financial improvement initiatives to
reduce costs and maximize cash flows. These activities are in
addition to work schedule reductions to accommodate dynamic changes
in volumes. We expect a turbulent economic environment for the
foreseeable future and we are prepared to adjust actions as
conditions warrant. Our operating plans assume the recessionary
effects will continue through 2009 and that volumes will be weak
through this period. Our aggressive cost reduction efforts and
financial discipline will enable us to effectively manage through
this challenging market. We expect to emerge from this environment
a stronger and better positioned company to support future
long-term profitable growth. Special Items Special items
(consisting of asset impairments and restructuring and exit costs)
totaled $254.8 million in the fourth quarter of 2008 and $2.2
million in the prior year fourth quarter. Asset impairments
totaling $254.1 million consisted of non-cash charges for the write
off of goodwill ($238.6) million, identifiable intangible assets
($6.9) million, and certain fixed assets at non-core operations
($8.5) million. These charges have no effect on cash flows, but
reduced reported operating earnings and earnings per common share,
resulting in a loss for the quarter and fiscal year ended November
1, 2008. We incurred various restructuring and exit costs
(primarily related to severance and moving costs) to complete the
announced cost reduction activities to consolidate and close down
production facilities. Restructuring and exit costs for these
activities totaled $0.7 million for the fourth quarter of 2008.
During the fourth quarter of 2008, we completed the consolidations
of our Mankato, Minnesota and St. Clair, Michigan facilities. In
addition, we are consolidating production of certain compounds that
will allow us to operate more efficiently and we have terminated
our Plastics Recycling Center, LLC joint venture in recycled
compounds, which was completed in November. The joint venture with
another plastics processing company was designed to process scrap
compounds into pellets for consumption by the operating companies.
We have alternative supplies at a more effective price and have
decided to terminate the venture. The consolidation of compounding
production and termination of the joint venture is estimated to
improve operating earnings by approximately $2 million in 2009.
Spartech Corporation is a leading producer of engineered
thermoplastic sheet materials, thermoformed packaging, polymeric
compounds and concentrates, and engineered product solutions. The
Company has facilities located throughout the United States,
Canada, Mexico, and Europe with annual sales of approximately $1.4
billion. Safe Harbor For Forward-Looking Statements This press
release contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. "Forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 relate to future events and
expectations, include statements containing such words as
"anticipates," "believes," "estimates," "expects," "would,"
"should," "will," "will likely result," "forecast," "outlook,"
"projects," and similar expressions. Forward-looking statements are
based on management's current expectations and include known and
unknown risks, uncertainties and other factors, many of which
management is unable to predict or control, that may cause actual
results, performance or achievements to differ materially from
those expressed or implied in the forward-looking statements.
Important factors which have impacted and could impact our
operations and results include: (a) further adverse in economic or
industry conditions, including global supply and demand conditions
and prices for products of the types we produce; (b) our ability to
compete effectively on product performance, quality, price,
availability, product development, and customer service; (c)
material adverse changes in the markets we serve, including the
packaging, transportation, building and construction, recreation
and leisure, and other markets, some of which tend to be cyclical;
(d) further adverse changes in the domestic automotive markets,
including potential bankruptcies of one or more of the major
automobile manufacturers or suppliers; (e) our inability to achieve
the level of cost savings, productivity improvements, gross margin
enhancements, growth or other benefits anticipated from our planned
improvement initiatives; (f) our inability to achieve the level
productivity improvements, synergies, growth or other benefits
anticipated from acquired businesses and their integration; (g)
volatility of prices and availability of supply of energy and of
the raw materials that are critical to the manufacture of our
products, particularly plastic resins derived from oil and natural
gas, including future effects of natural disasters; (h) our
inability to manage or pass through to customers an adequate level
of increases in the costs of materials, freight, utilities, or
other conversion costs; (i) restrictions imposed on us by
instruments governing our indebtedness, the possible inability to
comply with requirements of those instruments, and inability to
access capital markets; (j) possible asset impairment charges; (k)
our inability to predict accurately the costs to be incurred, time
taken to complete, operating disruptions therefrom, or savings to
be achieved in connection with announced production plant
restructurings; (l) adverse findings in significant legal or
environmental proceedings or our inability to comply with
applicable environmental laws and regulations; (m) adverse
developments with work stoppages or labor disruptions, particularly
in the automotive industry; (n) our inability to develop and launch
new products successfully; (o) possible weaknesses in internal
controls; and (p) our ability to successfully complete the
implementation of a new enterprise resource planning computer
system and to obtain expected benefits from our system. SPARTECH
CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and dollars in thousands, except per share data) Three
Months Ended Fiscal Year Ended November November November November
1, 3, 1, 3, 2008 2007 2008 2007 Net sales $346,095 $366,238
$1,398,893 $1,451,983 Costs and expenses: Cost of sales 314,199
333,479 1,273,015 1,288,402 Selling, general, and administrative
expenses 25,229 22,397 92,557 83,830 Amortization of intangibles
1,299 1,165 5,189 4,500 Goodwill impairments 238,641 - 238,641 -
Fixed asset and other intangible asset impairments 15,431 1,550
15,503 1,550 Restructuring and exit costs 694 628 2,320 1,262
595,493 359,219 1,627,225 1,379,544 Operating earnings (loss)
(249,398) 7,019 (228,332) 72,439 Interest expense (net of interest
income: $61, $120, $395, and $501, respectively) 5,070 4,511 20,574
17,629 Earnings (loss) before income taxes (254,468) 2,508
(248,906) 54,810 Income tax (benefit) expense (57,071) 1,243
(56,794) 20,964 Net earnings (loss) $(197,397) $1,265 $(192,112)
$33,846 Net earnings (loss) per common share: Basic $(6.51) $.04
$(6.35) $1.06 Diluted $(6.51) $.04 $(6.35) $1.05 Dividends declared
per common share $.05 $.135 $.37 $.54 SPARTECH CORPORATION AND
SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited and dollars in
thousands, except share data) November 1, November 3, 2008 2007
Assets Current assets Cash and cash equivalents $2,118 $3,409 Trade
receivables, net of allowances of $4,550 and $1,572, respectively
176,108 212,221 Inventories 96,721 116,076 Prepaid expenses and
other current assets 24,665 20,570 Total current assets 299,612
352,276 Property, plant and equipment, net 280,202 324,025 Goodwill
145,498 383,988 Other intangible assets, net 32,722 45,151 Other
assets 4,385 5,431 Total assets $762,419 $1,110,871 Liabilities and
Shareholders' Equity Current liabilities Current maturities of
long-term debt $1,158 $448 Accounts payable 155,594 167,713 Accrued
liabilities 42,676 49,319 Total current liabilities 199,428 217,480
Long-term debt, less current maturities 273,496 333,835 Other
long-term liabilities Deferred taxes 56,516 111,997 Other long-term
liabilities 6,189 8,279 Total long-term liabilities 535,629 454,111
Shareholders' equity Preferred stock (authorized: 4,000,000 shares,
par value $1.00) Issued: None - - Common stock (authorized:
55,000,000 shares, par value $0.75) Issued: 33,131,846 shares;
Outstanding: 30,563,605 and 30,564,946 shares, respectively 24,849
24,849 Contributed capital 202,410 200,485 Retained earnings 53,834
257,111 Treasury stock, at cost, 2,568,241 and 2,566,900 shares,
respectively (56,389) (52,531) Accumulated other comprehensive
income 2,086 9,366 Total shareholders' equity 226,790 439,280 Total
liabilities and shareholders' equity $762,419 $1,110,871 SPARTECH
CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and dollars in thousands) Fiscal Year Ended November 1,
November 3, 2008 2007 Cash flows from operating activities Net
earnings (loss) $(192,112) $33,846 Adjustments to reconcile net
earnings (loss) to net cash provided by operating activities:
Depreciation and amortization 47,201 43,069 Stock-based
compensation expense 3,634 2,884 Goodwill impairments 238,641 -
Fixed asset and other intangible asset impairments 15,846 1,550
Restructuring and exit costs 659 573 Provision for bad debt expense
4,763 2,099 Deferred taxes (59,100) 2,792 Change in current assets
and liabilities, net of effects of acquisitions: Trade receivables
31,326 (6,172) Inventories 19,026 10,291 Prepaid expenses and other
current assets 1,727 (664) Accounts payable (11,691) 16,761 Accrued
liabilities (2,766) (6,078) Other, net (542) 3,060 Net cash
provided by operating activities 96,612 104,011 Cash flows from
investing activities Capital expenditures (17,276) (34,743)
Business acquisitions (792) (61,371) Dispositions of assets 584 94
Net cash used in investing activities (17,484) (96,020) Cash flows
from financing activities Bank credit facility (payments) /
borrowings, net (57,779) 36,823 Borrowings / (payments) on bonds
and leases 573 (580) Cash dividends on common stock (13,926)
(17,006) Issuance of common stock 2,812 - Stock options exercised
16 8,449 Treasury stock acquired (9,667) (38,374) Excess tax
benefits from stock-based compensation - 716 Debt issuance costs
(2,424) - Net cash used by financing activities (80,395) (9,972)
Effect of exchange rate changes on cash and cash equivalents (24)
18 Decrease in cash and cash equivalents (1,291) (1,963) Cash and
cash equivalents at beginning of year 3,409 5,372 Cash and cash
equivalents at end of year $2,118 $3,409 SPARTECH CORPORATION
(Unaudited and dollars in thousands, except share data) Within this
press release we have included operating earnings (loss), net
earnings (loss), and net earnings (loss) per dilutive share
excluding special items, which are non-GAAP measurements and
believe they are meaningful to investors because they provide a
view of the Company's comparable operating results. Special items
(goodwill impairments, fixed asset and other intangible asset
impairments, restructuring and exit costs, and former CEO
separation expense) represent significant items that we believe are
important to an understanding of the Company's overall operating
results in the periods presented. Such non-GAAP measurements are
not recognized in accordance with generally accepted accounting
principles (GAAP) and should not be viewed as an alternative to
GAAP measures of performance. The following reconciles GAAP to
non-GAAP measures. Three Months Ended Fiscal Year Ended November
November November November 1, 3, 1, 3, 2008 2007 2008 2007
Operating earnings (loss) (GAAP) $(249,398) $7,019 $(228,332)
$72,439 Goodwill impairments 238,641 - 238,641 - Fixed asset and
other intangible asset impairments 15,431 1,550 15,503 1,550
Restructuring and exit costs 694 628 2,320 1,262 Former CEO
separation expense - - - 1,856 Operating earnings excluding special
items (non-GAAP) $5,368 $9,197 $28,132 $77,107 Net earnings (loss)
(GAAP) $(197,397) $1,265 $(192,112) $33,846 Goodwill impairments,
net of tax 185,158 - 185,158 - Fixed asset and other intangible
asset impairments, net of tax 12,282 960 12,327 960 Restructuring
and exit costs, net of tax 442 386 1,537 784 Former CEO separation
expense - - - 1,147 Net earnings excluding special items (non-GAAP)
$485 $2,611 $6,910 $36,737 Net earnings (loss) per diluted share
(GAAP) $(6.51) $.04 $(6.35) $1.05 Goodwill impairments, net of tax
6.11 - 6.12 - Fixed asset and other intangible asset impairments,
net of tax .41 .03 .41 .03 Restructuring and exit costs, net of tax
.01 .01 .05 .02 Former CEO separation expense - - - .04 Net
earnings per diluted share excluding special items (non-GAAP) $.02
$.08 $.23 $1.14 DATASOURCE: Spartech Corporation CONTACT: Myles S.
Odaniell, President and Chief Executive Officer, or Randy C.
Martin, Executive VP and Chief Financial Officer, both of Spartech
Corporation, +1-314-721-4242 Web site: http://www.spartech.com/
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