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Spartech Corporation - Company Profile, Information, Business Description, History, Background Information on Spartech Corporation

120 South Central Avenue
Suite 1700
Clayton, Missouri 63105-1705
U.S.A.

Company Perspectives:

Our mission is a simple one. All of us at Spartech endeavor: to meet the needs of our customers with the highest standards of value, quali ty, service, and integrity; to provide our employees with a safe and healthy work place where each has an equal opportunity to succeed; to operate our facilities in such a manner as to protect the environmen t; and to aim for a consistent and superior return on equity for all shareholders.

History of Spartech Corporation

Spartech Corporation operates as a leading manufacturer of engineered thermoplastic materials, polymeric compounds, and molded and profile products. Its products are used in a wide variety of items, ranging from subzero refrigerators to kayaks and food jars. Spartech serves t he packaging, transportation, building and construction, and the recr eation and leisure markets. The company has 43 manufacturing faciliti es in the United States, Canada, Mexico, and Europe. Together, these facilities have an annual production capacity of more than 1.4 billio n pounds.

A Bumpy Road to Success Since the 1960s

Spartech originated as Permaneer Corporation in St. Louis, Missouri i n 1960. Founded by Allen Portnoy, Permaneer manufactured doors, panel ing, furniture, and other wood products. The company was successful t hrough the decade, and it went public in 1968. Portnoy took Permaneer on an expansion spree in the early 1970s, borrowing heavily. By the mid-1970s, the company was collapsing under its debt load, and in 197 5 Permaneer's creditors forced Portnoy's resignation. One year later, Permaneer declared bankruptcy.

Portnoy was not ready to give up, however. In 1977, Portnoy joined wi th Lawrence Powers, a Wall Street securities lawyer with a background in public offerings and acquisitions, to form Spartan Manufacturing Corporation. Spartan won bankruptcy court approval to take over Portn oy's former company. Portnoy took the titles of president and chief e xecutive officer, Powers was named chairman, and, together with gener al counsel Martin Green, they controlled some 80 percent of Spartan's stock. The partners, determined to avoid Permaneer's fate, attempted to protect Spartan by taking it on the then-popular diversification route. Over the next several years, Spartan built itself into a congl omerate of nine separate businesses, ranging from plastics to compute r equipment to oil well pipe couplings, and including store fixtures, precision machines, copper tubing, and a computer lease brokerage bu siness. These acquisitions took the form of leveraged buyouts or were arranged through secured financing. In its initial years, Spartan en joyed the tax breaks brought by Permaneer's financial problems, helpi ng reduce the income tax on Spartan's earnings. An early, yet trouble d, centerpiece of the company was a plastic extrusion plant in Union, Missouri, a business that predated Spartan's formation. In 1980, the company acquired Alchem Plastics, with a plant in Los Angeles produc ing extruded custom sheet plastic, and a second plastics company, Koe nig Plastics Co., a plastic scrap reprocessor, and bundled its plasti cs businesses under the Alchem name.

Spartan grew quickly. Starting with about $2 million in sales in 1977, Powers and Portnoy built annual revenues to $20 million in 1978, $56 million in 1979, and $79 million in 1980. In those early years, Spartan's earnings appeared to keep pace, rising from &# 36;467,000 in 1978 to $1.5 million in 1979 and $1 million in 1980. Many of Spartan's businesses were already bleeding, however, wh en the company ran head on into the recession of the early 1980s. By 1982, Spartan was losing money--posting a loss of $4 million for the year despite sales topping $100 million--and Portnoy and Powe rs were besieged once again by creditors. Spartan began divesting its businesses as the company's fortunes continued to slide. Powers and Portnoy reorganized the company, renaming it Spartech, around its pla stics and computer business. In 1983, the company posted a loss of &# 36;10 million. Relations between Portnoy and Powers also cooled. As P owers told the St. Louis Post-Dispatch, "I lost confidence in [Portnoy's] management of Spartech and he lost confidence in my willi ngness to follow his lead as we lurched from one dispute with credito rs to another in 1982-83."

Portnoy and Powers agreed to split in 1983. Spartech, led by Powers, would keep its plastics business, while Portnoy would take control of the company's computer equipment business, spun off as Digitech. Tha t company worked on technology that would allow computer speech recog nition. Digitech, however, proved to be a money pit. Portnoy poured h is personal savings and stock into the company to keep it afloat, but it finally went bankrupt in 1990.

Deja Vu in the 1980s

Powers, meanwhile, had been training as a manager, attending Harvard Business School's executive management program from 1982 to 1983. It was there that Powers hit upon the idea of restructuring Spartech aro und its plastics business to restore the company to profitability. Jo ined by Buechler, who took charge of the Alchem Plastics division, Sp artech completed its divestiture of unrelated businesses and concentr ated on rebuilding itself as a plastics manufacturer. The company sta rted with negative assets of some $2 million, with sales of $ 24.5 million and a net loss of nearly $11 million. By 1985, howev er, the company had turned itself around, raising revenues to nearly $33 million and posting a profit of nearly $1.3 million.

Buechler oversaw the day-to-day management of the company at its Miss ouri headquarters while Powers, working out of his New York office, l ed Spartech on a new buying spree (and into renewed losses by the end of the decade). During the mid-1980s, however, Spartech grew strongl y, retaining its focus on the plastics industry. In May 1985 the comp any made its first new acquisition, of Southwest Converting for $ 2.5 million in cash and notes, adding that company's $7.5 million revenues. But Spartech was already preparing two more acquisitions t hat would double the company's size. The first acquisition, of Adams Industries, with revenues of $25 million, extended Spartech into a new area of plastics, polyethylene film manufacturing. The second a cquisition followed in January 1986, adding the $30 million Frank lin Plastics, a specialty plastics compounder, as a third Spartech di vision. At the same time, the company began paying attention to its i nternal growth, stepping up its capital expenditures. By 1986, the co mpany's revenues had climbed to $70.6 million, providing a net in come of $1.5 million. Spartech's stock, which had traded as low a s 50 cents per share, was beginning to rise. Yet Spartech was only st arting on its newest acquisition drive.

By 1988, Spartech had added seven more acquisitions, including rigid sheet producers Atlas Plastics and Eagle Plastics; specialty alloy an d compounder The Resin Exchange; polyethylene film maker Favorite Pla stics, for $18 million; the Burlington South compounding plant fr om Occidental Chemical Corp., for $6.2 million; and Koro Corp., a Boston-based rigid plastic sheet producer. The acquisitions helped b oost Spartech's revenues to $138.4 million by 1987 and to $22 1.8 million in 1988 and gave Spartech the lead in the rigid sheet pla stic market. The company was also profitable, generating $9.4 mil lion in 1987. Financing for this activity came in part with a $12 million dollar investment by Trust Co. of the West subsidiary TCW Ca pital in 1986, which also helped to head off a hostile takeover attem pt, followed by $40 million raised through a $25 million debe nture offering and a $15 million subordinated financing agreement , the latter arranged through TCW Capital.

By 1988, however, Spartech's profits were beginning to slip beneath t he weight of its debt load, which, at $100 million, had reached a n 11-to-1 debt-to-equity ratio. Profits fell to $3.3 million for the year. The Koro unit was failing (the company sold it less than a year after its acquisition), as was its Favorite Plastics acquisition , leading Spartech to charge that company with inflating its revenues prior to its acquisition by Spartech. The company looked to sell its profitable Atlas-Alchem division to help maintain its profits. Inste ad, however, the company agreed to sell 28 percent of Spartech's stoc k to British Vita plc, the largest rigid sheet plastic producer in Eu rope, which had seven plants to complement Spartech's six U.S. rigid sheet plants.

By 1989, Spartech was again seeing red, in the amount of $12.7 mi llion on $185 million. The loss included the closing of Spartech' s failing polyethylene film division, the disposition of which was co mpleted only in 1991. Spartech's losses continued, reaching $17.7 million for 1991, which included a charge for $12 million agains t the closing of its polyethylene film plants. Under pressure from Sp artech's major shareholders, British Vita and TCW, Powers resigned fr om the company in October 1991. He was replaced as chief executive by Buechler.

Third Time's the Charm in the 1990s

Under Buechler's leadership, Spartech again regrouped, now around its rigid sheet and rollstock division and its compound group. With the polyethylene unit's losses gone, and the company's overhead reduced ( Spartech closed Powers's New York office and consolidated its headqua rters in Clayton, after paying Powers a parachute of some $2.5 mi llion) Spartech again returned to profitability, posting $4.2 mil lion on 1982's $168.8 million in revenues. Buechler next turned t o reducing the company's $75 million in debt. In April 1993, he r eached agreement with the company's creditors to convert $30 mill ion of subordinated debt into new shares of common and preferred stoc k, reducing the company's debt-to-equity ratio to 1.2-to-1.

Meanwhile, Spartech returned to expansion through acquisition. In Jan uary 1993, the company purchased plastic custom extrusion equipment a nd related business from Penda Corp., adding $15 million to compa ny sales. That purchase was followed in March of the next year by the $8 million acquisition of Product Components, Inc., adding two n ew manufacturing plants and extending Spartech's plastic sheet line. In September 1994, Spartech, which had been looking to expand its Mid west operations, bought the extrusion and color concentrates units of Wichita, Kansas-based Pawnee Industries, Inc. These acquisitions hel ped Spartech boost its share of the rigid sheet market to 28 percent, while expanding its compounding capacity as well. The company's reve nues rose to $256.6 million in 1994, for net earnings of nearly & #36;11 million.

To prepare for further acquisitions as well as a second public offeri ng, Spartech raised $50 million in a private share placement and arranged an unsecured credit line of $40 million. By January 1996 , Spartech moved to grow again, purchasing Wisconsin-based Portage In dustries Corp. for $16 million and adding that company's $35 million in sales and two sheet extrusion and light-gauge thermoformin g plants. The Portage acquisition boosted Spartech's total production capacity to 450 million pounds per year.

Having entered the thin-wall thermoforming business with the Portage acquisition, Spartech moved to consolidate that capability, and also to enter a new market, injection molding. In June 1996, Spartech acqu ired Montreal-based Hamelin Group, Inc., and its sheet extrusion, col or concentrate, and injection molding units. The purchase, for $5 5 million, brought Spartech into Canada for the first time and added some $80 million to Spartech's revenues, while boosting the compa ny's production to 550 million pounds. The acquisition of Hamelin's i njection molding business also was seen as a strategic move for the c ompany, bringing it into the consumer market, which offered less vola tility during economic downturns.

Spartech's sales continued to gain strongly due to its acquisition, r ising from $352 million in 1995 to $391 million in 1996. The Hamelin addition was expected to swell Spartech's revenues to more th an $475 million in its 1997 fiscal year. The company also reporte d continued strength in its earnings, with income of $14.5 millio n in 1995 and $18.3 million in 1996. In September 1996, Spartech posted a second public offering of six million shares. With its stock , which had slipped below $1 per share in the early 1990s, tradin g at $9.50 per share, Spartech finally appeared to have found its course.

Spartech in the Late 1990s and Beyond

By 1997, Spartech controlled nearly one-third of the rigid plastic sh eet and rollstock extruder market. The company made several acquisiti ons during the late 1990s that left it well positioned for additional growth. In 1998, the company bought Anjac-Doron Plastics Inc., Polyc om Huntsman, and Prismaplast Canada Ltd. Five acquisitions were made in 1999, including Lustro Plastics Company and Alltrista Plastic Pack aging. Overall, Spartech's buying strategy left it with an expanded p roduct line and a stronger foothold in many of its markets.

As such, the company entered the new millennium on solid ground. It c ontinued its growth-through-acquisition policy by adding Uniroyal Tec hnology Corporation's plastics division to its arsenal in 2000. The d eal placed Spartech in the mass transit and aerospace markets for the first time. During the following year, the company announced its "Cr eating Positive Change" management plan, which included several initi atives that would result in the consolidation and divestiture of 12 p lants in order to cut costs and reduce debt. British Vita plc, a U.K. -based company that had accrued a 46 percent interest in Spartech, be gan selling off its stake in the company in 2002. It sold all remaini ng shares in 2004.

The manufacturing economy during this time period was weak, forcing S partech to focus on product marketing, strengthening its cost structu re, and new product development in order to remain competitive. The c ompany continued to view strategic acquisitions as a crucial componen t in its growth strategy. Indeed, Spartech completed three acquisitio ns in 2002 that led to its expansion into Mexico. Polymer Extruded Pr oducts was bought the following year. In 2004, the company bolstered its holdings with three acquisitions, expanded its facility in Donche ry, France, and opened a Product Development Center in Warsaw, Indian a. Sales surpassed $1 billion in 2004.

George A. Abd was named president and CEO of Spartech in 2005 after B radley Buechler announced his retirement. With new blood at the helm of the company for the first time in 14 years, Spartech launched seve ral restructuring initiatives that included shutting down several fac ilities and selling off unprofitable businesses. Spartech moved to st rengthen its financial position late that year as high resin prices a nd skyrocketing production costs began eating away at the company's b ottom line. While the company's acquisition strategy was temporarily put on hold as a result, management set forth a goal to increase Spar tech's global market penetration over the next five years. It also re mained focused on investing in people, products, technology, and glob alization. With this strategy in place, Spartech appeared to be on tr ack for future growth.

Principal Divisions: Custom Sheet and Rollstock; Color and Spe cialty Compounds; Molded and Profile Products.

Principal Competitors: CYRO Industries; PolyOne Corporation; P rimex Plastics Corporation.

Chronology

• Key Dates:
• 1960: Permaneer Corporation is created.
• 1968: The company goes public.
• 1976: Permaneer declares bankruptcy.
• 1977: Allen Portnoy and Lawrence Powers form Spartan Manufactu ring Corporation.
• 1980: Alchem Plastics and Koenig Plastics Co. are acquired.
• 1982: The company is reorganized as Spartech Corporation.
• 1983: Portnoy and Powers split; Powers remains head of Spartec h.
• 1985: Adams Industries is acquired.
• 1986: Spartech purchases Franklin Plastics.
• 1989: British Vita plc buys a 28 percent stake in the company.
• 1996: Portage Industries Corporation and Hamelin Group Inc. ar e acquired.
• 1998: Three purchases are made, including Anjac-Doron Plastics Inc., Polycom Huntsman, and Prismaplast Canada Ltd.
• 2002: British Vita begins selling off its stake in Spartech.
• 2005: Buechler retires; George Abd is named his successor.

Additional Details

• Public Company
• Incorporated: 1960 as Permaneer Corporation
• Employees: 3,750
• Sales: $1.12 billion (2004)
• Stock Exchanges: New York
• Ticker Symbol: SEH
• NAIC: 326130 Laminated Plastics Plate, Sheet, and Shape Manufa cturing; 326113 Unsupported Plastics Film and Sheet (Except Packaging ) Manufacturing

Further Reference

• Allen, Leslie J., "Spartech Cuts Debt, Sees Growth Ahead," St. Louis Post-Dispatch, May 20, 1990, p. 1E.
• Esposito, Frank, "Spartech Acquires Prismaplast," Plastics New s, May 4, 1998.
• Evans, Tavia, "Higher Resin Costs Stunt Spartech Strategy," St . Louis Post-Dispatch, October 20, 2005, p. E2.
• Ezer, Andrew, "After False Starts, Spartech Achieving Steady Prof it Climb," St. Louis Business Journal, March 23, 1987, p. 12A.
• Hanford, Desiree J., "Spartech Sticks with Its Successful Growth Plan," Dow Jones News Service, March 22, 2000.
• Lauzon, Michael, "Spartech Buying Hamelin," Plastics News, June 17, 1996, p. 1.
• Manor, Robert, "Founder Gets $2.5 Million to Leave," St. L ouis Post-Dispatch, October 13, 1991, p. 1E.
• ------, "Portnoy Had Faith in Firm," St. Louis Post-Dispatch,< /I> February 24, 1991, p. 1E.
• Melnick, Robert, "Spartech Plans To Double Its Size with Two Acqu isitions," St. Louis Business Journal, May 13, 1985, p. 10A.
• Pryweller, Joseph, "Abd Outlines Big Changes for Spartech," Pl astics News, June 13, 2005.
• Renstrom, Roger, "Spartech Adding Sheet Lines," Plastics News, September 13, 1999.
• "Spartech Corporation's Growing Role in the Plastics Business," St. Louis Commerce, November 1995, p. 28.
• "Spartech Stake to Go," Urethanes Technology, October 1, 2 001.