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Spartech Announces Second Quarter Results


June 8, 2011 - ST. LOUIS, MO

Spartech Corporation (NYSE: SEH), a leadingproducer of plastic sheet, compounds, and packaging products, announcedtoday operating results for its 2011 second quarter.

Second Quarter 2011 Financial Results

  • Net sales of $282.6 million for the second quarter of 2011 increased 5%from the same period in 2010. The pass-through of higher raw materialcosts as selling price increases and a greater mix of higher-priced productmore than offset a 3% decrease in volume which primarily occurred with onesheet customer.

  • Operating earnings excluding special items decreased $1.8 million to$7.6 million in the second quarter of 2011 from the prior year secondquarter. This decrease was caused by the lower sales volume, continuedproduction inefficiencies and raw material and other cost increases whichmore than offset a benefit from foreign currency.

  • Reported diluted earnings per share from continuing operations was$0.09 in the second quarter of 2011 compared to $0.15 in the prior yearsecond quarter. Excluding special items, diluted earnings per share fromcontinuing operations was $0.10 compared to $0.13 in the prior year secondquarter.

  • Cash flows from operations were $0.8 million for the second quarter of2011 and included a $12.1 million investment in working capital reflectingseasonality and raw material cost increases. The Company ended the quarterwith $178.3 million of debt.

Highlights

  • We made solid progress during the second quarter on our six keypriorities: back to basics in operations, optimizing material usage,starting up new production lines in support of organic growth, leveragingnew technology center, initiating a cross-unit business selling program,and engaging customers at multiple levels, all of which have an objectiveof improving profitability of the Company.

  • We have achieved improvements in several key performance indicators inour Color & Specialty Compounds and Packaging Technologies segments. Inorder to continue to drive improved operational performance andprofitability in our compounds business, we recently filled our Senior VicePresident of Color & Specialty Compounds leader position.

  • Effective June 1, 2011, Vicki Holt, President and Chief ExecutiveOfficer, assumed the responsibilities of interim Senior Vice President ofthe sheet business in addition to her Chief Executive Officer role to leadthe turnaround of this segment. With a focus on driving revenues andprofitability through expanded marketing and sales, operationalefficiencies and product yields, we will re-establish our market leadershipposition for this business.

  • The Company strengthened its senior leadership team by filling its openSenior Vice President of Human Resources position.

Note: Please see the reconciliation tables and the narrative below foradjustments to GAAP and discussion of items affecting results.

Spartech's President and Chief Executive Officer, Vicki Holt, stated,"Although I remain disappointed with our financial results compared to lastyear, we are making progress in the fundamentals necessary to improveprofitability in 2012. We have seen recent improvements in our key metricsincluding on-time delivery to customers, product yield and production yieldin portions of our business. A key focus for us in the next two quartersis to implement a turnaround in our Custom Sheet and Rollstock business inwhich we have significant opportunities to improve in the operations andcustomer interface areas, and I am excited about leading these efforts asthe interim leader of this business."

Additionally, Holt stated, "We are realistic about the level of work andcultural change necessary for us to achieve our targeted improvement fromour six key priorities and the headwinds brought by a volatile resin andinflationary environment. We remain committed to our priority initiativesthat will lead to organic sales growth coupled with a more efficient coststructure to improve profitability."

Consolidated Results
Net sales increased 5% to $282.6 million in the three month period endedApril 30, 2011 over the same period in the prior year, representing an 8%increase from price/mix offset by a 3% decrease in volume. This decreasewas due to a decline in sales of sheet for material handling applicationscaused by a considerable slowdown in orders from one of our significantcustomers. Mitigating this decrease were increases in sales volume ofcompounds and sheet to the automotive sector of the transportation marketand compounds to the commercial construction and agricultural end marketsfrom continued demand recovery, and an increase in graphic arts sales. Theprice/mix increase was primarily related to increases in selling prices topass through increases in raw material costs.

For the second quarter year-over-year comparison, gross margin per poundsold declined 1.2¢ to 11.5¢ in the second quarter of 2011 due primarily tothe impact of production inefficiencies that began in the second half of2010 and cost increases.

Selling, general and administrative expenses were $19.0 million in thesecond quarter of 2011 compared to $20.5 million in the same period of theprior year. This $1.5 million decrease reflects a $2.5 million change inforeign currency. Foreign currency gains were $0.5 million in the secondquarter of 2011 and losses were $1.9 million in the second quarter of 2010(foreign currency gains and losses are recorded in our Corporate entity).Net of foreign currency, the $1.0 million increase primarily reflectshigher employee relocation costs.

Amortization of intangibles was $0.4 million in the second quarter of 2011compared to $1.0 million in the same period of the prior year. The decreasereflects intangible assets which became fully amortized, coupled with theimpact of intangible asset impairments recorded by the Company in thefourth quarter of 2010.

Restructuring and exit costs were $0.5 million in the second quarter of2011 compared to $1.6 million in the same period of the prior year.Restructuring and exit costs are mostly comprised of employee severance,facility consolidation and shut-down costs and accelerated depreciation.

Interest expense, net of interest income, was $2.7 million in the secondquarter of 2011 compared to $3.3 million in the same period of the prioryear. This decrease was primarily driven by a reduction in higher interestrate debt.

Excluding special items (restructuring and exit costs, and tax benefitsfrom restructuring of foreign operations), net earnings from continuingoperations were $3.2 million or $0.10 per diluted share for the secondquarter of 2011, compared to net earnings from continuing operations of$3.9 million or $0.13 per diluted share in the same period of the prioryear. The fluctuation reflects the impact of items previously discussed.

Cash flows from operations in the second quarter of 2011 of $0.8 millionincluded a $12.1 million investment in working capital reflectingseasonality and raw material cost increases. Cash flow from operations andborrowings from our credit facility were used to fund $6.2 million ofcapital investments for additional capacity in specialty sheet products,maintenance and cost reductions.

Segment Results
The results of our three operating segments are discussed below. A tableis presented at the end of this release to reconcile amounts excludingspecial items to comparable GAAP measures.

Custom Sheet & Rollstock -- Net sales were $146.1 million in the threemonth period ended April 30, 2011, representing a 3% decrease in net sales,which consisted of a 16% decrease in volume offset by a 13% increase fromprice/mix changes. The decrease in underlying volume reflects asignificant reduction in one customer's business activity for a materialhandling application. Absent this customer's decline, our sales volume wasflat reflecting additional sales volume sold to the automotive sector whichwas offset somewhat by a decrease in volume sold of refrigeration sheet.The price/mix increase was mostly caused by increases in selling pricesfrom the pass through of increases in raw material costs and a greater mixof higher priced products. Operating earnings excluding special items were$7.2 million for the second quarter of 2011 compared to $10.6 million forthe same period of the prior year. The decrease in operating earningsreflects lower sales volume to the material handling customer and costincreases.

Packaging Technologies -- Net sales were $62.4 million in the three monthperiod ended April 30, 2011, representing a 14% increase in net sales,which consisted of a 2% increase in volume and a 12% increase in price/mixchanges. Operating earnings excluding special items were $6.5 million forthe three months ended April, 30, 2011 compared to $5.5 million for thethree months ended May 1, 2010. The increase in operating earnings was dueto lower depreciation and amortization relating to our prior yearimpairments, higher sales volume and an increase in mix of higher marginproduct.

Color & Specialty Compounds -- Net sales were $74.1 million in the threemonth period ended April 30, 2011, representing a 17% increase in netsales, which consisted of a 13% increase in volume and a 4% increase inprice/mix changes. The increase in underlying volume was due to asignificant increase in sales to the commercial construction market,automotive sector of the transportation market and agricultural market fromcontinued end market demand recovery. The price/mix increase was mostlycaused by increases in selling prices to pass through increases in rawmaterial costs. Operating earnings excluding special items were $1.3million for the second quarter of 2011 compared to operating earnings of$3.0 million in the same period of the prior year. The decrease inoperating earnings reflects continued production inefficiencies and theimpact of cost increases.

Outlook
We are continuing to focus on our six key priorities which have anobjective of improving our profitability, building a more customer-focusedorganization, and investing in capabilities to enhance growth. To date infiscal 2011 we have managed through significant increases in raw materialsand other costs and expect a volatile raw material and inflationaryenvironment to continue through the rest of the year. Although we believethe fundamental operational changes being undertaken in each of ourbusiness segments during 2011 will lead to substantial levels of earningsimprovement in fiscal 2012, we expect our fiscal 2011 earnings performanceto remain at depressed levels. We expect our diluted earnings per shareexcluding special items to be in the range of $0.16 to $.20 in 2011. Ourcommitment to our shareholders is to execute on our plan to deliversignificantly enhanced profitability and organic growth over the nexttwelve months.

Special Items and Discontinued Operations
Restructuring and exit costs totaled $0.5 million during the second quarterof 2011 compared to $1.6 million in the same period of the prior year.Restructuring and exit costs are comprised of employee severance, facilityconsolidation and shut-down costs and fixed asset valuation adjustments.These costs resulted from the Company's improvement initiatives, whichinclude an objective of reducing the Company's fixed portion of its coststructure. We expect to incur approximately $0.6 million of additionalrestructuring expenses which mostly consist of employee severance andshutdown costs for facility consolidation initiatives previously announced.

In the first quarter of 2010, we recognized a $2.8 million tax benefitrelated to tax restructuring of foreign operations that was excluded fromour presentation of net earnings from continuing operations as a special,non-recurring item.

Discontinued operations include our former Marine business, sheet businessin Donchery, France, and toll compounding business in Arlington, Texaswhich were all shutdown in the 2009 and the Wheels and Profiles businessesthat were divested in 2009.

During the first quarter of 2011 the Company reached agreement withChemtura and the Bankruptcy Court approved the final settlement of theclaim for the breach of a contract by Chemtura for $4.2 million in cash andequity in the newly reorganized Chemtura. The equity was subsequentlysold, resulting in $4.8 million of total cash proceeds. The associatedgain was recorded in discontinued operations.

Spartech will hold a conference call with investors and financial analystsat 11:00 a.m. EDT on Thursday, June 9, 2011, to discuss Spartech's secondquarter 2011 financial results. Prior to this call, the Company willprovide supplemental slides on its website at www.spartech.com (underPresentations in the Investor Relations menu). Investors can listen to thecall live via a webcast by logging onto www.spartech.com, or via phone bydialing 800-642-9809 and providing the Conference ID #: 63210196.International callers may dial 706-679-7637.

Spartech Corporation is a leading producer of plastic products includingpolymeric compounds, concentrates, custom extruded sheet and rollstockproducts and packaging technologies for a wide spectrum of customers. TheCompany's three business segments, which operate facilities in the UnitedStates, Mexico, Canada, and France, annually process approximately onebillion pounds of plastic resins, specialty plastic alloys, and color andspecialty compounds.

Cautionary Statements Concerning Forward-Looking Statements

Statements in this Form 10-Q that are not purely historical, includingstatements that express the Company's belief, anticipation or expectationabout future events, are forward-looking statements. "Forward-lookingstatements" within the meaning of the Private Securities Litigation ReformAct of 1995 relate to future events and expectations and include statementscontaining such words as "anticipates," "believes," "estimates," "expects,""would," "should," "will," "will likely result," "forecast," "outlook,""projects," and similar expressions. Forward-looking statements are basedon management's current expectations and include known and unknown risks,uncertainties and other factors, many of which management is unable topredict or control, that may cause actual results, performance orachievements to differ materially from those expressed or implied in theforward-looking statements. Important factors that could cause actualresults to differ from our forward-looking statements are as follows:

(a) Adverse changes in economic or industry conditions, including globalsupply and demand conditions and prices for products of the types weproduce
(b) Our ability to compete effectively on product performance, quality,price, availability, product development, and customer service
(c) Adverse changes in the markets we serve, including the packaging,transportation, building and construction, recreation and leisure, andother markets, some of which tend to be cyclical
(d) Volatility of prices and availability of supply of energy and rawmaterials that are critical to the manufacture of our products,particularly plastic resins derived from oil and natural gas, includingfuture impacts of natural disasters
(e) Our inability to manage or pass through to customers an adequate levelof increases in the costs of materials, freight, utilities, or otherconversion costs
(f) Our inability to achieve and sustain the level of cost savings,productivity improvements, gross margin enhancements, growth or otherbenefits anticipated from our improvement initiatives
(g) Our inability to collect all or a portion of our receivables with largecustomers or a number of customers
(h) Loss of business with a limited number of customers that represent asignificant percentage of our revenues
(i) Restrictions imposed on us by instruments governing our indebtedness,the possible inability to comply with requirements of those instruments andinability to access capital markets
(j) Possible asset impairments
(k) Our inability to predict accurately the costs to be incurred, timetaken to complete, operating disruptions therefrom, potential loss ofbusiness or savings to be achieved in connection with announced productionplant consolidations and line moves
(l) Adverse findings in significant legal or environmental proceedings orour inability to comply with applicable environmental laws andregulations
(m) Our inability to develop and launch new products successfully
(n) Possible weaknesses in internal controls

We assume no responsibility to update our forward-looking statements.




Spartech Corporation and Subsidiaries
Consolidated Condensed Statements of Operations

Three Months Ended Six Months Ended
-------------------- --------------------
April 30, May 1, April 30, May 1,
(Unaudited and dollars in 2011 2010 2011 2010
thousands, except per --------- --------- --------- ---------
share data)

Net sales $ 282,551 $ 268,524 $ 517,334 $ 493,687

Costs and expenses
Cost of sales 255,474 237,642 471,851 435,974
Selling, general and
administrative expenses 19,010 20,452 37,984 38,868
Amortization of intangibles 422 963 845 1,928
Restructuring and exit costs 548 1,596 1,377 2,266
--------- --------- --------- ---------
Total costs and expenses 275,454 260,653 512,057 479,036
========= ========= ========= =========

Operating earnings 7,097 7,871 5,277 14,651

Interest, net of interest
income 2,686 3,251 5,257 6,767
--------- --------- --------- ---------

Earnings from continuing
operations before income taxes 4,411 4,620 20 7,884

Income tax expense (benefit) 1,564 80 (987) (1,393)
--------- --------- --------- ---------

Net earnings from continuing
operations 2,847 4,540 1,007 9,277

Net earnings (loss) from
discontinued operations, net
of tax (225) (87) 2,646 (80)
--------- --------- --------- ---------

Net earnings $ 2,622 $ 4,453 $ 3,653 $ 9,197
========= ========= ========= =========

Basic earnings per share:
Earnings from continuing
operations $ 0.09 $ 0.15 $ 0.03 $ 0.30
Earnings (loss) from
discontinued operations, net
of tax (0.01) (0.01) 0.09 (0.00)
--------- --------- --------- ---------
Net earnings per share $ 0.08 $ 0.14 $ 0.12 $ 0.30
========= ========= ========= =========

Diluted earnings (loss) per
share:
Earnings from continuing
operations $ 0.09 $ 0.15 $ 0.03 $ 0.30
Earnings (loss) from
discontinued operations, net
of tax (0.01) (0.01) 0.09 (0.01)
--------- --------- --------- ---------
Net earnings per share $ 0.08 $ 0.14 $ 0.12 $ 0.29
========= ========= ========= =========




Spartech Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Unaudited)
April 30, October 30,
(Dollars in thousands, except share data) 2011 2010
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 2,707 $ 4,900
Trade receivables, net of allowances of $3,863
and $3,404, respectively 149,254 134,902
Inventories, net of inventory reserves of $8,312
and $6,539, respectively 99,894 79,691
Prepaid expenses and other current assets, net 24,966 35,789
Assets held for sale 3,156 3,256
----------- -----------
Total current assets 279,977 258,538

Property, plant, and equipment, net 210,835 211,844
Goodwill 87,921 87,921
Other intangible assets, net 13,716 14,559
Other long-term assets 4,102 4,279
----------- -----------
Total assets $ 596,551 $ 577,141
=========== ===========

Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term debt $ 526 $ 880
Accounts payable 137,731 129,037
Accrued liabilities 32,877 34,112
----------- -----------
Total current liabilities 171,134 164,029

Long-term debt, less current maturities 177,734 171,592

Other long-term liabilities:
Deferred taxes 41,751 42,648
Other long-term liabilities 6,358 5,866
----------- -----------
Total liabilities 396,977 384,135

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) 24,849 24,849
Issued: 33,131,846 shares; outstanding:
30,825,000 and 30,884,503 shares, respectively
Contributed capital 204,435 204,966
Retained earnings 13,689 10,036
Treasury stock, at cost, 2,306,846 and 2,247,343
shares, respectively (50,952) (52,730)
Accumulated other comprehensive income 7,553 5,885
----------- -----------
Total shareholders' equity 199,574 193,006

----------- -----------
Total liabilities and shareholders' equity $ 596,551 $ 577,141
=========== ===========




Spartech Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Six Months Ended
--------------------
April 30, May 1,
2011 2010
(Unaudited and dollars in thousands) --------- ---------

Cash flows from operating activities
Net earnings $ 3,653 $ 9,197
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 16,137 19,013
Stock-based compensation expense 1,541 1,931
Restructuring and exit costs 299 152
(Gain) loss on disposition of assets, net 192 (884)
Provision for bad debt expense 774 25
Change in current assets and liabilities (13,434) (8,161)
Other, net (673) (1,703)
--------- ---------
Net cash provided by operating activities 8,489 19,570

Cash flows from investing activities
Capital expenditures (14,201) (7,579)
Proceeds from the disposition of assets - 2,876
--------- ---------
Net cash used by investing activities (14,201) (4,703)

Cash flows from financing activities
Bank credit facility borrowings, net 6,000 11,900
Payments on notes and bank term loan (378) (49,590)
Payments on bonds and leases (255) (262)
Debt issuance costs (1,561) -
Stock-based compensation exercised (294) -
--------- ---------
Net cash provided (used) by financing
activities 3,512 (37,952)

Effect of exchange rates on cash and cash
equivalents 7 18
--------- ---------

Decrease in cash and cash equivalents (2,193) (23,067)

Cash and cash equivalents at beginning of year 4,900 26,925
--------- ---------

Cash and cash equivalents at end of period $ 2,707 $ 3,858
========= =========


Non-GAAP Reconciliations

Within this press release we have included operating earnings (GAAP) tooperating earnings excluding special items (Non-GAAP), net (loss) earningsfrom continuing operations (GAAP) to net (loss) earnings from continuingoperations excluding special items (Non-GAAP) and net earnings fromcontinuing operations per diluted share (GAAP) to net earnings fromcontinuing operations per diluted share excluding special items (Non-GAAP).Special items include restructuring and exit costs and a tax benefit onrestructuring of foreign operations. We have also excluded the operationsof our discontinued wheels, profiles, marine, Donchery sheet and Arlington,Texas compounding operations throughout this press release and in thepresentation below.

We use these measurements to assess our ongoing operating results withoutthe effect of these adjustments and compare such results to our historicaland planned operating results. We believe these measurements are useful tohelp investors to compare our results to previous periods and provide anindication of underlying trends in the business. Such non-GAAPmeasurements are not recognized in accordance with generally acceptedaccounting principles (GAAP) and should not be viewed as an alternative toGAAP measures of performance.

The following table reconciles (GAAP) to (Non-GAAP) measures:

 Three Months Ended Six Months Ended -------------------- -------------------- April 30, May 1, April 30, May 1, 2011 2010 2011 2010(unaudited and in thousands, --------- --------- --------- ---------except per share data) Operating earnings (GAAP) $ 7,097 $ 7,871 $ 5,277 $ 14,651 Restructuring and exit costs 548 1,596 1,377 2,266 --------- --------- --------- --------- Operating earnings excluding special items (Non-GAAP) $ 7,645 $ 9,467 $ 6,654 $ 16,917 ========= ========= ========= ========= Net earnings from continuing operations (GAAP) $ 2,847 $ 4,540 $ 1,007 $ 9,277 Restructuring and exit costs, net of tax 345 998 868 1,418 Tax benefits from restructuring of foreign operations - (1,631) - (4,401) --------- --------- --------- --------- Net earnings from continuing operations excluding special items (Non-GAAP) $ 3,192 $ 3,907 $ 1,875 $ 6,294 ========= ========= ========= ========= Net earnings from continuing operations per diluted share (GAAP) $ 0.09 $ 0.15 $ 0.03 $ 0.30 Restructuring and exit costs, net of tax 0.01 0.03 0.03 0.05 Tax benefit on restructuring of foreign operations - (0.05) - (0.14) --------- --------- --------- --------- Net earnings from continuing operations per diluted share excluding special items (Non-GAAP) $ 0.10 $ 0.13 $ 0.06 $ 0.21 ========= ========= ========= ========= 

The following table reconciles operating (loss) earnings (GAAP) tooperating (loss) earnings excluding special items (Non-GAAP) by segment (inthousands):

 Three Months Ended April 30, Three Months Ended May 1, 2011 2010 ----------------------------- ----------------------------- Operating Operating Earnings Earnings (Loss) (Loss) Operating Excluding Operating Excluding Earnings Special Earnings Special (Loss) Special Items (Loss) Special ItemsSegment (GAAP) Items (Non-GAAP) (GAAP) Items (Non-GAAP) --------- -------- --------- --------- ------- ---------Custom Sheet and Rollstock $ 7,075 $ 109 $ 7,184 $ 9,815 $ 771 $ 10,586Packaging Technologies 6,358 131 6,489 5,467 10 5,477Color & Specialty Compounds 961 308 1,269 2,191 787 2,978Corporate (7,297) - (7,297) (9,602) 28 (9,574) --------- -------- --------- --------- ------- --------- Total $ 7,097 $ 548 $ 7,645 $ 7,871 $ 1,596 $ 9,467 ========= ======== ========= ========= ======= =========

Company Contacts:

Victoria M. Holt
President and Chief Executive Officer
(314) 721-4242

Randy C. Martin
Executive Vice President and Chief Financial Officer
(314) 721-4242

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