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|Spartech Announces Fourth Quarter Results|
SPARTECH ANNOUNCES FOURTH QUARTER RESULTS
St. Louis, Missouri, December 13, 2012 - Spartech Corporation (NYSE:SEH), a leading producer of plastic sheet, compounds, and packaging solutions, announced today operating results for the fourth quarter of 2012.
Fourth Quarter 2012 Results
Fiscal Year 2012 Overview
Note: Please see the reconciliation tables and the narrative that follows for adjustments to certain GAAP measures and discussion of items affecting results. Special items include foreign exchange (gains)/losses, goodwill impairments, restructuring and exit costs, and merger and transaction costs.
Spartech's President and Chief Executive Officer, Vicki Holt stated, "In our fourth quarter, we realized a 58% improvement in operating earnings excluding special items. We continue to be confident in our initiatives to enhance margins, accelerate growth, and manage our cost structure. The Custom Sheet and Rollstock segment continues to achieve operational improvements and we are delivering measurable earnings improvements in this segment. We are near completion on the consolidation of our Custom Sheet and Rollstock facilities in Canada and are on track to complete the expansion of our Muncie, Indiana packaging facility by calendar year end. We have also announced a consolidation of our Stratford, Ontario Color and Specialty Compounds operation that we expect to be completed by April 2013."
Holt added, "We have received the clearance of our Hart Scott Rodino regulatory filing and are on track to complete the pending merger with PolyOne. We are excited at the prospect to join forces with PolyOne as we believe this transaction represents the best path forward for our stockholders, customers and employees. We believe that our complementary growth strategies, and combined resources will accelerate our shift to specialty applications and create a more competitive cost structure, enhanced customer relationships, improved market access and increasingly innovative technologies. We are pleased to be moving forward with a transaction that provides Spartech's stockholders with immediate value through a combination of a meaningful upfront premium over our pre-announcement share price, participation in the future of our combined businesses, and in the synergies inherent in this transaction."
Gross margin per pound sold increased from 11.1 cents for the three months ended October 29, 2011 to 13.9 cents for the three months ended November 3, 2012 due to operational improvements and efficiencies from the turnaround effort in the Custom Sheet and Rollstock segment along with a shift to higher margin business. Focus on increased production yield and the use of recycled materials was instrumental to generating the operating improvements achieved.
Selling, general and administrative expenses were $22.6 million in the fourth quarter of 2012 compared to $18.6 million in the same period of the prior year. The increase reflects higher labor costs related to the increase in variable pay expenses for the improved performance along with lower expense in the fourth quarter of 2011 due to the benefit of a $1.0 million favorable bad debt adjustment.
Operating earnings excluding special items increased to $9.8 million for the fourth quarter of 2012 from $6.2 million in the prior year fourth quarter representing the impacts of the Company's turnaround efforts, shift to higher margin business and production efficiencies.
Interest expense, net of interest income, was $2.7 million in the fourth quarter of 2012 compared to $2.9 million in the fourth quarter of 2011.
Income tax expense was $0.3 million in the fourth quarter of 2012 compared to a $10.4 million benefit in the fourth quarter of 2011. The effective tax rate for the fourth quarter of 2012 reflects a minimum tax in a foreign jurisdiction. The effective tax rate for the fourth quarter of 2011 reflects the non-deductibility of a portion of the goodwill impairment charges reflected in the period.
Net loss from continuing operations was $0.6 million in the fourth quarter of 2012 compared to a $27.4 million net loss in 2011. Net loss from continuing operations per diluted share was $0.02 in 2012 compared to a loss of $0.89 in 2011. Excluding special items, net earnings from continuing operations was $4.2 million or $0.14 per diluted share for the fourth quarter of 2012, compared to net earnings of $1.4 million or $0.05 per diluted share in the same period of the prior year.
Cash flows from operations were $15.2 million for the fourth quarter of 2012 which included a $2.2 million increase in working capital. In 2012 the Company utilized cash flows from operations to pay down $22.5 million of debt and fund $20.0 million of capital investments resulting in total debt of $134.9 million at the end of the year.
Custom Sheet & Rollstock - Net sales were $153.2 million for the three months ended November 3, 2012, a 2% increase over the same period of the prior year which consisted of a 6% decrease from price/mix offset by a 8% increase in volume. The price/mix decrease was mostly caused by decreases in selling prices from the pass through of lower raw materials costs. The increase in underlying volume is attributable to increases in material handling applications, commercial construction and custom thermoforming end markets. Operating earnings excluding special items were $10.8 million for the three months ended November 3, 2012 compared to $5.5 million for the three months ended October 29, 2011. The increase in operating earnings excluding special items can be attributed to higher volume and operating improvements such as increased production yield and regrind material usage, which were slightly offset by increased costs related to labor and variable pay for the improved performance.
Packaging Technologies - Net sales were $61.2 million for the three months ended November 3, 2012, a 6% decrease from the prior year period which consisted primarily of lower volume in graphic arts sales related to certain programs not continuing in 2012. Operating earnings excluding special items were $5.1 million for the three months ended November 3, 2012 compared to $5.7 million for the three months ended October 29, 2011. The decrease in operating earnings can be attributable to the lower sales volume. This segment continued to make progress in commercializing new customer programs during the quarter.
Color & Specialty Compounds - Net sales were $72.4 million for the three months ended November 3, 2012, a 7% decrease from the prior year period. These results represented an 11% decrease from price/mix partially offset by a 4% increase in volume. The price/mix decrease was mostly attributable to lower selling prices from the pass through of lower raw materials costs. The increase in underlying volume was due to increase in sales to the agricultural, distribution, and the automotive sectors. Operating earnings excluding special items were $2.9 million for the three months ended November 3, 2012 compared to operating earnings of $2.1 million in the same period of the prior year. The increase in operating earnings reflects the increase in sales volume and benefits from improvements on our key operating priorities.
Special Items and Discontinued Operations
Restructuring and exit costs were $1.6 million in the fourth quarter of 2012 compared to $0.6 million in the same period of the prior year. For both periods, restructuring and exit costs were comprised of employee severance, facility consolidation and shutdown costs and fixed asset valuation adjustments. These costs resulted from the Company's improvement initiatives, which include an objective of reducing the Company's fixed portion of its cost structure. The Company currently has two projects that are ongoing: the final stages of consolidation of its Cornwall, Ontario Custom Sheet and Rollstock facility and the initiation of consolidating its Stratford, Ontario Color and Specialty Compounds operation.
During the fourth quarter of 2011, the Company completed its annual goodwill impairment test and recorded $40.5 million of non-cash goodwill impairments. We concluded that the carrying amount of goodwill was impaired due to differences between the Company's fair value and book value of our Custom Sheet and Rollstock segment.
Spartech will hold a conference call with investors and financial analysts at 11:00 a.m. EST on Friday, December 14, 2012, to discuss Spartech's fourth quarter 2012 financial results. Prior to this call, the Company will provide supplemental slides on its website at www.spartech.com (under Presentations in the Investor Relations menu). Investors can listen to the call live via a webcast by logging onto www.spartech.com, or via phone by dialing 877-724-7545 and providing the Conference ID #: 40099677. International callers may dial 832-900-4628.
Spartech Corporation is a leading producer of plastic products including polymeric compounds, concentrates, custom extruded sheet and rollstock products and packaging technologies for a wide spectrum of customers. The Company's three business segments, which operate facilities in the United States, Mexico, Canada, and France, annually process approximately one billion pounds of plastic resins, specialty plastic alloys, and color and specialty compounds.
Cautionary Statements Concerning Forward-Looking Statements
Statements in this press release that are not purely historical, including statements that express the Company's belief, anticipation or expectation about future events, are forward-looking statements. "Forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 relate to future events and expectations and 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 that could cause actual results to differ from our forward-looking statements are as follows:
(a) The announced pending merger with PolyOne could cause disruptions in the business
(b) Uncertainty of the merger may cause customers, suppliers, employees, or strategic partners to delay or make different decisions about their relationship with the Company
(c) Required approvals and lawsuits challenging the merger could delay or prevent the closing of the merger
(d) Problems may arise in the integration of the businesses of PolyOne and the Company or the transaction may result in unexpected costs to merge the two companies
(e) Adverse changes in economic or industry conditions, including global supply and demand conditions and prices for products of the types we produce
(f) Our ability to compete effectively on product performance, quality, price, availability, product development, and customer service
(g) 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
(h) Volatility of prices and availability of supply of energy and raw materials that are critical to the manufacture of our products, particularly plastic resins derived from oil and natural gas, including future impacts of natural disasters
(i) 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
(j) Our inability to achieve and sustain the level of cost savings, productivity improvements, gross margin enhancements, growth or other benefits anticipated from our improvement initiatives
(k) Our inability to collect all or a portion of our receivables with large customers or a number of customers
(l) Loss of business with a limited number of customers that represent a significant percentage of our revenues
(m) 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
(n) Possible asset impairments
(o) Our inability to predict accurately the costs to be incurred, time taken to complete, operating disruptions therefrom, potential loss of business or savings to be achieved in connection with production plant consolidations and line moves
(p) Adverse findings in significant legal or environmental proceedings or our inability to comply with applicable environmental laws and regulations
(q) Our inability to develop and launch new products successfully or without extensive additional costs
(r) Possible weaknesses in internal controls
We assume no responsibility to update our forward-looking statements.
Spartech Corporation and Subsidiaries
Spartech Corporation and Subsidiaries
Spartech Corporation and Subsidiaries
Within this press release we have included operating earnings (loss) (GAAP) to operating earnings (loss) excluding special items (Non-GAAP), net earnings (loss) from continuing operations (GAAP) to net earnings (loss) from continuing operations excluding special items (Non-GAAP) and net earnings (loss) from continuing operations per diluted share (GAAP) to net earnings (loss) from continuing operations per diluted share excluding special items (Non-GAAP). Special items include foreign exchange (gains)/losses, goodwill impairments, restructuring and exit costs, and merger and transaction costs. We have also excluded the operations of our discontinued wheels, profiles, marine, Donchery sheet and Arlington, Texas compounding operations throughout this press release and in the presentation below.
We use these measurements to assess our ongoing operating results without the effect of these adjustments and compare such results to our historical and planned operating results. We believe these measurements are useful to help investors to compare our results to previous periods and provide an indication of underlying trends in the business. 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 tables reconcile (GAAP) to (Non-GAAP) measures:
The following table reconciles operating (loss) earnings (GAAP) to operating earnings (loss) excluding special items (Non-GAAP) by segment (in thousands):
Victoria M. Holt
Randy C. Martin
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