ST. LOUIS, Sept. 12 /PRNewswire-FirstCall/ -- Spartech Corporation
(NYSE:SEH) announced today its operating results for its third
quarter ended August 4, 2007. Third quarter 2007 Highlights --
Diluted earnings per share were $0.27 compared to $0.33 recorded in
the third quarter of 2006. Net earnings in both periods were
impacted by special items. Diluted earnings per share excluding
special items were $0.31 compared to $0.44 in the third quarter of
2006. -- Operating earnings excluding special items decreased $7.4
million in the third quarter from the prior year third quarter due
mostly to a 4% decrease in sales volume coupled with a 1.6 cent
drop in gross margin per pound sold. -- Cash flows provided by
operations were $26.5 million for the quarter which was used to
invest $10.3 million in capital expenditures and pay down $16.9
million of debt. Working capital as a percentage of sales improved
to 9.8% compared to 10.4% at the end of last year's third quarter.
-- Subsequent to the end of the quarter, the Company announced the
agreement to acquire Creative Forming, Inc. which has $48 million
of annual sales. Creative designs, engineers and manufactures
plastic packaging for the food, consumer product, produce and
medical markets. Overview of Results Net sales for the third
quarter were $361.1 million compared to $377.7 million in the third
quarter of 2006 representing a decrease of 4%. This change was
caused by a 4% decrease in consolidated sales volume primarily from
declines in sales to the transportation and recreation and leisure
markets due to weakness in demand. The sales volume decline
occurred in our Sheet and Color and Specialty Compounds segments
which were down 5% and 3%, respectively. We continued to see
success in our Green Initiative with sales of these products, that
deliver environmental and energy savings benefits, growing by 6.7
million pounds or 29% in the third quarter compared to last year's
third quarter. Reported operating earnings were $18.4 million in
the third quarter of the current year compared to $27.6 million in
the prior year third quarter. Operating earnings excluding special
items were $20.5 million for the third quarter of 2007 compared to
$27.9 million in the prior year third quarter. The $7.4 million
decrease was caused by the 4% decrease in sales volume coupled with
a 1.6 cent decrease in gross margin per pound sold which was
comprised of a 0.6 cent decrease in material margin and a 0.9 cent
increase in conversion costs. The decrease in material margin per
pound was caused by a soft demand environment along with increasing
resin costs and disruptions associated with our Greenville sheet
consolidation, all of which made it difficult to pass through the
increased resin costs to customers as higher selling prices on a
timely basis. The increase in conversion costs per pound was
attributable to dollar increases in employee health, workers
compensation, depreciation and utilities expenses coupled with the
decrease in sales volume. Selling, general and administrative
expenses increased $1.9 million in the third quarter of the current
year from the same quarter of the prior year because of a $1.9
million charge from entering into a Separation Agreement with the
Company's former President and Chief Executive Officer ("CEO").
Excluding this special item, expenses were flat reflecting lower
incentive compensation, commissions and bad debts expense partially
offset by higher information technology expenses from our on-going
Oracle ERP implementation and a $0.8 million increase in foreign
currency loss due to a weakening U.S. dollar. Overall we recognized
a $0.9 million currency loss, reported as a $1.0 million loss in
the corporate group and $0.5 million loss in the Color and
Specialty Compounds segment, partially offset by a $0.5 million
gain in the Engineered Products group and $0.1 million gain in the
Custom Sheet and Rollstock segment. Interest expense decreased to
$4.1 million from $5.0 million due to our focused efforts in debt
reduction using our improved cash flow over the past two years.
Reported net earnings totaled $8.8 million or $0.27 cents per
diluted share for the third quarter of 2007 compared to $10.6
million or $0.33 per diluted share in the third quarter of 2006.
Net earnings excluding special items was $10.1 million or $0.31
cents per diluted share in the third quarter of 2007 compared to
$14.2 million or $0.44 cents per diluted share in the third quarter
of 2006. Commenting on the results, Randy C. Martin, interim
President and Chief Executive Officer, stated, "We were
disappointed with the earnings performance in our third quarter, a
quarter in which we saw a challenging demand environment for some
of our key markets and disruptions associated with our Greenville
sheet consolidation at a time when resin prices were increasing.
Based on the Company's performance in the third quarter and our
expectations of the continued internal and external pressures on
the business for the remainder of the fiscal year, our full year
guidance for 2007 is $1.30-$1.35 per diluted share." Mr. Martin
continued, "Our Board of Directors is in process of conducting a
search for a new Chief Executive Officer. In the meantime, our team
is moving forward with our strategy which includes continued focus
on cost reductions, cash flow management and growing sales through
new product offerings, green product development and completing
acquisitions. We completed the construction of our new facility in
Greenville, Ohio and started moving production lines into the
facility. Despite the current disruptions from the transition, this
consolidation will begin to realize the planned $2.5 million in
annual cost reductions in early fiscal 2008. We also made progress
on our Oracle ERP initiative which will continue through 2008 by
implementing the system at eight facilities during the quarter.
Moving our company onto one information system will provide us more
timely information and insight into changes in our business, as
well as further the integration of our current businesses and
future acquisitions." Segment Results Custom Sheet and Rollstock --
Net sales decreased 4% and operating earnings were down $5.9
million. (In Millions) Third Quarter 2007 2006 Net Sales $231.3
$240.0 Operating Earnings $16.3 $22.1 The sales decrease included a
5% decrease in underlying sales volume partially offset by a 1%
increase from price/mix changes. The volume decline was due to
weakness in demand in the residential construction, recreational
vehicle and heavy truck sectors of our end markets. Of the 5%
volume decline, 4% was seen at the three facilities which are in
process of being consolidated into our new Greenville facility.
These facilities mostly produce polyethylene-based products to the
aforementioned markets that are experiencing weak demand. The weak
demand coupled with the short-term interruption caused by the
consolidation was the primary cause of our sheet volume decline for
the quarter comparison. The increase in price/mix is the effect of
higher resin costs in the third quarter comparison which we passed
on to customers as higher selling prices. The decrease in operating
earnings was driven by the decrease in sales volume and a drop of
2.8 cents in gross margin per pound sold. This per pound decrease
was comprised of a 1.3 cent decrease in material margin and 1.5
cent increase in conversion costs. The material margin decline was
mostly due to increases in resin costs during the quarter that were
not passed on to customers as higher selling prices on a timely
basis because of the challenging demand environment and disruptions
from our Greenville consolidation, particularly for our
polyethylene-based products. The increase in conversion cost per
pound reflected flat conversion cost dollars and the negative
impact of the 5% decrease in underlying sales volume. Color and
Specialty Compounds -- Net sales decreased 6% and operating
earnings were down $0.6 million from the third quarter of 2006. (In
Millions) Third Quarter 2007 2006 Net Sales $112.0 $118.7 Operating
Earnings $7.1 $7.7 The sales change was comprised of a 3% decrease
in underlying pounds sold and 3% decrease from price/mix changes.
The decrease in volume related to a decline in sales to the
domestic automotive, packaging and lawn and garden markets, offset
partially by continued strong sales of commercial roofing
applications. The decrease in price/mix was primarily caused by a
higher sales mix of toll-manufactured product which has a lower
than average selling price per pound sold. The $0.6 million
decrease in operating earnings was caused by the sales volume
decrease and a 0.3 cent decrease in gross margin per pound sold.
This per pound decrease was caused by flat conversion cost dollars
combined with a sales volume decline. Engineered Products -- Net
sales decreased 6% and operating earnings increased $0.8 million
over the third quarter of 2006. (In Millions) Third Quarter 2007
2006 Net Sales $17.8 $19.0 Operating Earnings $2.7 $1.8 The
decrease in sales reflects a higher mix of lower priced product
partially offset by a 2% higher volume of wheels to the lawn and
garden market. Approximately $.5 million of the operating earnings
increase was due to foreign currency gains at our Canadian profiles
business due to a weakening U.S. dollar. The remaining $.3 million
was driven by higher profitability of our wheels business. Cash
Flow Performance Cash provided by operating activities was $26.5
million in the third quarter of 2007 compared to $47.7 million in
the prior year third quarter. Changes in current assets and
liabilities, representing working capital balances, provided cash
of $3.4 million and $19.4 million in the third quarter of 2007 and
2006, respectively. The higher prior period amount reflects a
significant reduction in net working capital from our focus on
reducing this investment to a target level that was achieved by the
end of last fiscal year. Our net working capital as a percentage of
sales improved to 9.8% at the end of the third quarter of 2007 from
10.4% at the end of the third quarter of 2006 from the increased
management focus on net working capital metrics. Cash provided by
operating activities in the third quarter of 2007 funded the
planned increase in capital expenditures for the plant expansions
and information technology developments which resulted in total
capital expenditures of $10.3 million and a debt pay down of $16.9
million. As of the end of the third quarter of 2007, we had $268.7
million of total debt representing a debt to equity ratio of 0.58
to 1 and we have $274 million available under our bank credit
facility. Special Items In the third quarter of 2007, the Company
incurred $2.1 million of pre-tax special items ($1.3 million after
tax) representing $1.9 million reported in corporate selling,
general and administrative expenses from the resignation of the
Company's former CEO and $0.2 million of restructuring expenses
from the Greenville sheet consolidation reported as cost of sales.
The Company incurred $0.4 million of special items in the third
quarter of 2006 representing restructuring expenses which was
mostly associated with the prior year Donora consolidation in our
Color and Specialty segment. Subsequent Event On September 6, 2007,
the Company announced the agreement to acquire the stock of
Creative Forming, Inc. ("Creative") for approximately $61 million
in cash adjusted for changes in working capital. The acquisition
will be financed from the Company's bank credit facility and
operating cash flows and is expected to close on September 14,
2007. Creative designs, engineers and manufactures plastic
packaging for the food, consumer product, produce, and
medical/pharmaceutical markets with approximately $48 million in
annual sales. Earnings Guidance The Company is projecting earnings
for fiscal 2007 at a range of $1.30 to $1.35 per diluted share,
before the impact of special items. We expect the weakness in
demand in the domestic automotive, residential construction and
recreational vehicle market sectors to continue through the rest of
the fiscal year. Although we continue to reduce our cost footprint,
we expect the adverse impact of a sales volume decline, additional
expense related to our ERP implementation and inefficiencies from
the Greenville consolidation to result in a decrease in our fourth
quarter net earnings compared to the prior year fourth quarter.
Non-GAAP Measures We believe that operating earnings, net earnings
and earnings per share excluding special items, which are non-GAAP
measurements, are meaningful to investors because they provide a
view of the Company with respect to ongoing operating results.
Special items (former CEO separation expense and restructuring and
exit costs) represent significant charges that 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. A reconciliation of GAAP measurements to non-GAAP
measurements can be found at the end of this release. 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) adverse changes in economic or industry
conditions generally, 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
transportation, packaging, building and construction, recreation
and leisure, and other markets, some of which tend to be cyclical;
(d) our inability to achieve the level of cost savings,
productivity improvements, synergies, growth or other benefits
anticipated from acquired businesses and their integration; (e)
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; (f) our
inability to manage or pass through an adequate level of increases
to customers in the costs of materials, freight, utilities, or
other conversion costs; (g) our inability to predict accurately the
costs to be incurred, time taken to complete, or savings to be
achieved in connection with announced production plant
restructurings; (h) adverse findings in significant legal or
environmental proceedings or our inability to comply with
applicable environmental laws and regulations; (i) adverse
developments with work stoppages or labor disruptions, particularly
in the automotive industry; (j) our inability to achieve
operational efficiency goals or cost reduction initiatives; (k) our
inability to develop and launch new products successfully; (l)
restrictions imposed on us by instruments governing our
indebtedness, and the possible inability to comply with
requirements of those instruments; (m) possible weaknesses in
internal controls; and (n) our ability to successfully complete the
implementation of a new enterprise resource planning computer
system. We assume no duty to update our forward-looking statements,
except as required by law. SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited and
dollars in thousands, except per share data) Three Months Ended
Nine Months Ended August 4, July 29, August 4, July 29, 2007 2006
2007 2006 Net sales $361,123 $377,709 $1,085,745 $1,110,578 Cost
and expenses Cost of sales 320,389 329,617 955,549 981,059 Selling,
general and administrative 21,232 19,309 61,441 55,443 Amortization
of intangibles 1,063 1,192 3,335 3,567 342,684 350,118 1,020,325
1,040,069 Operating earnings 18,439 27,591 65,420 70,509 Interest
(net of interest income of $152, $247, $382 and $528, respectively)
4,065 5,039 13,119 16,382 Early debt extinguishment costs - 5,505 -
5,505 4,065 10,544 13,119 21,887 Earnings before income taxes
14,374 17,047 52,301 48,622 Income taxes 5,568 6,433 19,720 18,443
Net earnings $8,806 $10,614 $32,581 $30,179 Net earnings per common
share Basic $.27 $.33 $1.02 $.94 Diluted $.27 $.33 $1.01 $.94
Dividends declared per common share $.135 $.125 $.405 $.375 Note:
Our fiscal year ends on the Saturday closest to October 31. Because
of this convention, periodically our fiscal year has an additional
week and 2007 will be reported as a 53-week fiscal year. Our first
quarter included an additional week and the nine month period ended
August 4, 2007 includes 40 weeks compared to 39 weeks for the same
period of the prior year. SPARTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands) August
4, October 28, 2007 2006 (Unaudited) Assets Current assets Cash and
cash equivalents $3,389 $5,372 Receivables, net 201,706 200,728
Inventories 125,814 122,329 Prepaids and other 15,151 14,193 Total
current assets 346,060 342,622 Property, plant and equipment, net
303,618 304,779 Goodwill 350,399 350,399 Other intangible assets,
net 33,510 36,582 Other assets 8,180 7,412 Total assets $1,041,767
$1,041,794 Liabilities and Shareholders' Equity Current liabilities
Current maturities of long-term debt $6,871 $6,898 Accounts payable
154,414 149,520 Accrued liabilities 45,676 51,186 Total current
liabilities 206,961 207,604 Long-term debt, less current maturities
261,838 282,325 Deferred taxes 99,958 97,681 Other long-term
liabilities 8,917 11,491 Total long-term liabilities 370,713
391,497 Shareholders' equity Common stock, 33,131,846 shares issued
in 24,849 24,849 2007 and 2006 Contributed capital 200,661 198,661
Retained earnings 259,987 240,398 Treasury stock, at cost, 995,719
shares in 2007; 1,007,766 shares in 2006 (25,282) (22,845)
Accumulated other comprehensive income 3,878 1,630 Total
shareholders' equity 464,093 442,693 Total liabilities and
shareholders' equity $1,041,767 $1,041,794 SPARTECH CORPORATION AND
SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited and dollars in thousands) Nine Months Ended August 4,
July 29, 2007 2006 Cash flows from operating activities Net
earnings $32,581 $30,179 Adjustments to reconcile net earnings to
net cash provided by (used for) operating activities: Depreciation
and amortization 31,787 30,429 Restructuring and exit costs 559 30
Stock compensation expense 2,272 2,165 Early debt extinguishment
costs - 5,505 Other, net 5,462 4,949 Change in current assets and
liabilities (2,949) 15,407 Net cash provided by operating
activities 69,712 88,664 Cash flows from investing activities
Capital expenditures (28,774) (14,385) Sale of assets 81 2,393 Net
cash used for investing activities (28,693) (11,992) Cash flows
from financing activities Net (payments) / borrowings on notes and
(27,211) 39,922 revolving credit facilities Issuance of senior
notes - 50,000 Payment of convertible subordinated - (150,000)
debentures Payments on bonds and leases (504) (421) Early payment
premiums on convertible subordinated debentures - (3,780) Cash
dividends on common stock (12,668) (11,873) Stock options exercised
6,959 2,202 Treasury stock acquired (10,413) (1,541) Excess tax
benefits from stock based 752 237 compensation Net cash used for
financing activities (43,085) (75,254) Effect of exchange rate
changes on cash and cash equivalents 83 38 (Decrease) increase in
cash and cash equivalents (1,983) 1,456 Cash and cash equivalents
at beginning of year 5,372 4,601 Cash and cash equivalents at end
of quarter $3,389 $6,057 SPARTECH CORPORATION Within this press
release we have included operating earnings, net earnings, and
earnings per 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 (former CEO separation charge and restructuring and
exit costs) represent 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;
amounts are unaudited and in thousands, except per share data.
Three Months Ended Nine Months Ended August 4, July 29, August 4,
July 29, 2007 2006 2007 2006 Operating Earnings (GAAP) $18,439
$27,591 $65.420 $70,509 Former CEO Separation Expense 1,856 - 1,856
- Restructuring and Exit Costs 237 352 627 1,314 Operating Earnings
Excluding Special Items (Non-GAAP) $20,532 $27,943 $67,903 $71,823
Net Earnings (GAAP) $8,806 $10,614 $32,581 $30,179 Former CEO
Separation 1,147 - 1,147 - Expense, net of tax Restructuring and
Exit Costs, net of tax 147 218 389 814 Early Debt Extinguishment
Costs, net of tax - 3,411 - 3,411 Net Earnings Excluding Special
Items (Non-GAAP) $10,100 $14,243 $34,117 $34,404 Net Earnings per
Diluted Share (GAAP) $.27 $.33 $1.01 $.94 Former CEO Separation
Expense, net of tax .04 - .04 - Restructuring and Exit Costs, net
of tax - .01 - .02 Early Debt Extinguishment Costs, net of tax -
.11 - .11 Net Earnings per Diluted Share excluding Special Items
(Non-GAAP) $.31 $.44 $$1.05 $1.07 DATASOURCE: Spartech Corporation
CONTACT: Randy C. Martin, Chief Financial Officer, President and
Chief Executive Officer of Spartech Corporation, +1-314-721-4242
Web site: http://www.spartech.com/
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