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Spartech Corp. Reports Operating Results (10-Q)

September 10, 2009 | About:
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10qk

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Spartech Corp. (SEH) filed Quarterly Report for the period ended 2009-08-01.

SPARTECH CORP. is in the plastics processing business with its two lines of business being: Extruded Sheet & Rollstock - which sells its products to various manufacturers who use plastic components in their industrial products. Merchant Compounding - which sells specialty alloys compounds and color concentrates principally to manufacturers of specialized footwear shutters loose-leaf binders cosmetic packaging products and numerous other custom plastic applications. Spartech Corp. has a market cap of $360.6 million; its shares were traded at around $11.74 with a P/E ratio of 51.1 and P/S ratio of 0.2. Spartech Corp. had an annual average earning growth of 0.3% over the past 10 years.

Highlight of Business Operations:

Selling, general and administrative expenses were $19.6 million and $61.1 million in the third quarter and first nine months of 2009 compared to $21.7 million and $66.7 million in the same periods of the prior year. For both period comparisons, the benefits associated with our improvement initiatives were partially offset by the impact of $1.3 million and $1.7 million of foreign currency losses for the third quarter and the first nine months of 2009, respectively. In addition, our selling, general and administrative expenses in the first nine months of 2009 were impacted by a $1.0 million one-time reduction in our second quarter from a change in our vacation policy and by approximately $1.0 million of benefit each quarter from compensation reductions initiated in the second quarter that will be restored at the end of 2009 and will be replaced by further structural reductions.

Amortization of intangibles was $1.1 million and $3.4 million in the third quarter and first nine months of 2009 compared to $1.2 and $3.9 million in the same periods of the prior year. The decreases in both period comparisons reflect intangibles which were fully amortized by the end of 2008.

Restructuring and exit costs were $1.1 million and $5.6 million in the third quarter and first nine months of 2009 compared to $0.9 million and $1.7 million in the same periods of the prior year. The costs during the third quarter and first nine months of 2009 primarily consist of employee severance, facility consolidation and shut-down costs and accelerated depreciation resulting from our improvement initiatives. We expect to incur approximately $1.6 million of additional restructuring expenses for initiatives announced through August 1, 2009 which will be mostly comprised of employee severance and facility consolidation and shut-down costs. In the future, we expect to announce additional cost reduction activities to further facilitate a low cost-to-serve model and improve earnings.

Interest expense, net of interest income, was $3.8 million and $12.6 million in the third quarter and first nine months of 2009 compared to $5.2 million and $15.3 million in the same periods of the prior year. These decreases were primarily driven by the $76.7 million debt paydowns during the last 12 months.

Net cash used for financing activities was $41.1 million in the first nine months of 2009, compared to $37.6 million for the same period of 2008. The cash used for financing activities in the current period reflects $37.8 million to pay down debt and $3.1 million used to pay dividends. The cash used for financing activities in the same period of the prior year reflects $18.4 million to pay down debt, $12.4 million to pay dividends and $9.7 million of treasury share purchases, partially offset by $2.8 million received from a director purchase of common stock. We suspended our cash dividend during the second quarter of 2009.

As of August 1, 2009, we had $239.2 million of outstanding debt with a weighted average interest rate of 6.0%, of which 79% represented fixed rate instruments with a weighted average interest rate of 6.6%. In addition, as of August 1, 2009, we used $14.3 million of cash from unremitted foreign earnings held in Canada to pay down debt. Under Internal Revenue Service regulations, we can use this cash to fund U.S. operations or pay down U.S. debt for up to 60 consecutive days or 180 total days during our fiscal year without incurring residual U.S. income tax. If we were to permanently transfer this cash to the U.S., we may be required to pay income tax of approximately $3 to $4 million on the transferred cash.

Read the The complete ReportSEH is in the portfolios of Charles Brandes of Brandes Investment.

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