Spartech Announces Fourth Quarter Results and Continued Progress on Financial Improvement Initiatives
(NYSE: SEH) announced today operating results for its 2008 fourth quarter and
an additional
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
non-cash charge for asset impairments.
Fourth Quarter 2008 Financial Summary
— Net sales were
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
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
totaling
prior year fourth quarter. The non-cash asset impairments of
primarily relate to the write off of goodwill from past acquisitions.
— The diluted loss per share was
cash asset impairments and restructuring and exit costs. Excluding these
special items, the earnings per diluted share for the fourth quarter of 2008
was
— Progress was achieved in improving cash flows and working capital.
Cash flows from operations for the quarter of
the
capital expenditures and
realized
million
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
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:
Minnesota
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
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
million
In summary, we have now announced
combined 2008 and 2009 Turnaround Initiatives. The
Turnaround Initiatives have been completed with
benefiting 2008 and the incremental
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,
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
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
2008 compared to operating earnings of
quarter. Operating earnings excluding special items were
compared to
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
bad debt reserves and
primarily from a significantly strengthening of the U.S. dollar compared to
the Mexican peso. However, gross margin per pound sold was
fourth quarter of 2008 compared to
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
fourth quarter of this year compared to the fourth quarter of last year due to
the impact of higher bad debt expense (
hiring new executives (
Creative Forming, Inc. (
million
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
increase in gross margin per pound. In addition, the operating earnings in
the fourth quarter of 2008 included
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
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
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
by an improved mix and some purchasing benefits that resulted in a gross
margin per pound sold that was
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
than both the
million
million
fourth quarter of 2008. For the year, we realized
from operations and paid down
fourth quarter of 2008, we had
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
in the prior year fourth quarter.
Asset impairments totaling
for the write off of goodwill
million
operating earnings and earnings per common share, resulting in a loss for the
quarter and fiscal year ended
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
quarter of 2008. During the fourth quarter of 2008, we completed the
consolidations of our
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
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
approximately
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
SOURCE Spartech Corporation