OMNOVA SOLUTIONS INC. 
By
Net sales increased
"During the fourth quarter, we were profitable in what was obviously a
challenging environment," said
"Looking forward, though the economic environment remains difficult, there are a number of positive developments occurring at OMNOVA Solutions," McMullen added, citing the following:
-- After a decade of unprecedented increases in the Company's raw material costs, prices began to decline in November and are continuing to drop in the first quarter of 2009.
-- Major inventory de-stocking by customers appears to be slowing as chemical volumes have increased in January compared to the last two months of 2008.
-- OMNOVA has recent customer wins, promising new products and encouraging ongoing customer trialing activities.
-- As previously announced, the Company has completed actions which are
expected to provide
-- Structural industry consolidation is occurring in both businesses with the exit of some competitors and the closing of manufacturing capacity by others.
"We expect that these five developments will drive first half 2009 year- over-year improved operating profit and debt reduction," McMullen said.
Selling, general and administrative expense as a percentage of sales fell
to 11.6% in the fourth quarter of 2008 as compared to 12.6% in the fourth
quarter of 2007. Expenses in the fourth quarter of 2008 were
Interest expense decreased
Debt was reduced
EBITDA, as defined in the Company's borrowing agreements for the
calculation of the net leverage ratio, grew 24%, to
Results for the Year Ending
Cost of goods sold for 2008 was
Interest expense decreased
Net loss for 2008 was
Performance Chemicals -- Net sales during the fourth quarter of 2008
increased 4.4%, to
Volumes were negatively impacted by the closure of a large paper mill in
September and broad-based market weakness in November as customers took
extended shutdowns around the
New record-high quarterly average prices for butadiene, styrene and most secondary raw materials were recorded in the fourth quarter of 2008. Average prices for butadiene were up 103%, while average styrene costs rose 23% as compared to the average prices in the fourth quarter of 2007. Raw material prices began to drop during the last month of the quarter and have continued to decline in the first quarter of 2009.
For the full year, Performance Chemicals sales were up
Decorative Products -- Net sales were
At a major "green" building conference during the quarter, Decorative
Products introduced RECORE(TM) commercial wallcovering technology, which
features 30% recycled content, including an innovative backing woven from
post-consumer recycled plastic. All new vinyl wallcovering patterns
introduced by OMNOVA as of
Beginning in 2008 and continuing into 2009, Decorative Products has
implemented cost reduction actions of approximately
For the full year, Decorative Products sales were up
Decorative Products Asia Operations -- Effective
For comparative purposes only, Decorative Products' Asian sales for the
fourth quarter of 2008 were
For the full year, Decorative Products' Asian sales were
Earnings Conference Call -- OMNOVA Solutions has scheduled its Earnings
Conference Call for
Non-GAAP and Other Financial Measures
Reconciliation of segment sales and operating profit to consolidated net sales and income (loss) before income taxes
Management reviews the information below in assessing the performance of the business segments and in making decisions regarding the allocation of resources to the business segments. Management believes that this information is useful for providing the investor with an understanding of the Company's business and operating performance.
(Dollars in millions) Three Months Ended Year Ended
November 30, November 30,
2008 2007 2008 2007
Performance Chemicals $132.0 $126.4 $521.6 $475.3
Decorative Products 87.6 69.5 347.8 270.2
Total Sales $219.6 $195.9 $869.4 $745.5
Segment Operating Profit (Loss)
(1) (2)
Performance Chemicals $10.2 $6.5 $25.2 $23.8
Decorative Products (5.3) 2.9 (6.5) 8.6
Interest expense (3.1) (3.3) (13.0) (16.5)
Corporate expense (1.3) (2.6) (7.7) (10.4)
Debt redemption expense -- -- -- (12.4)
Income (Loss) Before Income
Taxes $.5 $3.5 $(2.0) $(6.9)
Capital expenditures $3.7 $5.9 $14.8 $16.2
(1) Segment operating profit for the 4th quarter of 2008 and 2007 was
impacted by a number of items which are discussed earlier in this earnings
release. These items include for the 4th quarter of 2008 restructuring and
severance charges of $0.2 million, and for the 4th quarter of 2007
restructuring and severance charges of $0.5 million and a gain on the sale
of a building of $0.7 million. Management excludes these items when
evaluating the results of the Company's segments.
(2) Segment operating profit for the years ended November 30, 2008 and
2007 was impacted by a number of items which are discussed earlier in this
earnings release. These items include for the full year of 2008
restructuring and severance charges of $0.6 million, and for the full year
of 2007 restructuring and severance charges of $0.8 million and a gain on
the sale of a building of $0.7 million. Management excludes these items
when evaluating the results of the Company's segment.
Reconciliation of income (loss) from continuing operations to EBITDA and total debt to Net Debt
This earnings release includes EBITDA and Net Debt which are non-GAAP
financial measures as defined by the Securities and Exchange Commission.
EBITDA is calculated in accordance with the definition of Net Leverage Ratio
as set forth in the Company's
(Dollars in millions) Three Months Ended Year Ended
November 30, November 30,
Reconciliation of income
(loss) from continuing
operations to EBITDA 2008 2007 2008 2007
Income (Loss) from continuing
operations $.8 $3.4 $(2.2) $(7.0)
Interest 2.9 3.1 12.3 15.7
Tax (benefit) expense (.3) .1 .2 .1
Depreciation and amortization 5.9 5.0 23.9 20.1
Amortization of deferred
financing costs . 2 .2 .7 .8
Net earnings of joint ventures
less cash dividends -- -- -- (1.2)
Net earnings of foreign
subsidiaries less cash
dividends .1 .6 -- --
Loss on debt transactions -- -- -- 12.4
(Gains) or losses on sale
or disposal of capital
assets (.2) (.6) .1 (.4)
Non-cash (income) or
expense for pension plans .6 1.5 5.0 6.2
(Gain) or loss on change
in LIFO reserve 6.2 (1.0) 6.5 (.9)
Non-cash charge for
401(k) company match (.2) .5 1.2 2.1
Restructuring, severance
and non-recurring charges .5 .5 .1 1.0
EBITDA $16.5 $13.3 $47.8 $48.9
(Dollars in millions) November 30, November 30,
Reconciliation of total debt to Net Debt 2008 2007
Total debt $188.3 $149.9
Outstanding letters of credit and
interest rate swap 8.1 5.9
Cash and cash equivalents (17.4) (12.6)
Net Debt $179.0 $143.2
This earnings release may contain forward-looking statements concerning trends, expectations, estimates, forecasts and projections relating to the Company and its business, industries, markets, products, results of operations, financial condition, accounting policies and management judgments, among other things. These statements are intended to qualify for the protections afforded forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements may generally be identified by the use of forward-looking terms such as "may," "should," "projects," "forecasts," "seeks," "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "optimistic," "likely," "will," "would," "could," or similar terms. There are many risks, uncertainties and factors that could cause actual results or outcomes to differ materially from those expressed in or implied by the Company's forward-looking statements. Some of these risks, uncertainties and factors include, but are not limited to, the following: general economic trends affecting the Company's end-use markets; prices and availability of raw materials including styrene, butadiene, vinyl acetate monomer, polyvinyl chloride, acrylics and textiles; ability to increase pricing to offset raw material cost increases; product substitution and/or demand destruction due to product technology, performance or cost disadvantages; customer and/or competitor consolidation; ability to successfully develop and commercialize new products; customer ability to compete against increased foreign competition; ability to successfully implement productivity enhancement and cost reduction initiatives; operational issues at the Company's facilities; the Company's strategic alliance, joint venture and acquisition activities; acts of war or terrorism, natural disasters or other acts of God; changes in governmental and regulatory policies; compliance with extensive environmental, health and safety laws and regulations; rapid inflation in health care costs and assumptions used in determining health care cost estimates; risks associated with foreign operations including political unrest and fluctuations in exchange rates of foreign currencies; prolonged work stoppage resulting from labor disputes with unionized workforce; assumptions used in determining pension plan expense and funding, such as return on assets and discount rates and changes in pension funding regulations; litigation against the Company including adverse litigation judgment or settlement and absence of or inadequacy of insurance coverage for such litigation, judgments or settlements; availability of financing to fund operations at anticipated rates and terms; substantial debt and leverage and the ability to service that debt including increases in applicable short or long-term borrowing rates. The Company disclaims any obligation, other than imposed by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
OMNOVA Solutions Inc. is a technology-based company with 2008 sales of
OMNOVA SOLUTIONS INC.
Consolidated Statements of Operations
(Dollars in Millions, Except Per Share Data)
(Unaudited)
Three Months Ended Year Ended
November 30, November 30,
2008 2007 2008 2007
Net Sales $219.6 $195.9 $869.4 $745.5
Cost of goods sold 185.0 159.8 731.4 605.2
Gross Profit 34.6 36.1 138.0 140.3
Selling, general and
administrative 25.5 24.6 104.8 99.1
Depreciation and
amortization 5.9 5.0 23.9 20.1
Restructuring and severance .2 .5 .6 1.0
Interest expense 3.1 3.3 13.0 16.5
Equity earnings in
affiliates, net -- -- (.2) (1.2)
Debt redemption expense -- -- -- 12.4
Other income, net (.6) (.8) (2.1) (.7)
34.1 32.6 140.0 147.2
Income (Loss) From
Continuing Operations
Before Income Taxes .5 3.5 (2.0) (6.9)
Income tax benefit
(expense) .3 (.1) (.2) (.1)
Income (loss) from
continuing operations .8 3.4 (2.2) (7.0)
Discontinued operation,
net of tax:
Income (loss) from
operations -- .3 -- .3
Total discontinued
operations -- .3 -- .3
Net Income (Loss) $.8 $3.7 $(2.2) $(6.7)
Basic Income (Loss) Per Share
Income (loss) from
continuing operations
$.02 $.08 $(.05) $(.17)
Income from discontinued
operations -- .01 -- .01
Net income (loss) per
share .02 $.09 $(.05) $(.16)
Diluted Income (Loss) Per Share
Income (loss) from
continuing operations $.02 $.08 $(.05) $(.17)
Income from discontinued
operations -- .01 -- .01
Net income (loss) per
share $.02 $.09 $(.05) $(.16)
OMNOVA SOLUTIONS INC.
Condensed Balance Sheets
(Dollars in millions, except per share amounts)
November 30, November 30,
2008 2007
(Unaudited)
ASSETS:
Current Assets
Cash and cash equivalents $17.4 $12.6
Accounts receivable, net 118.3 102.2
Inventories 46.1 30.6
Prepaid expenses and other 4.5 3.1
Deferred income taxes 1.5 --
Total Current Assets 187.8 148.5
Property, plant and equipment, net 153.7 135.8
Trademarks and other intangible assets, net 5.5 4.2
Investments in affiliates -- 22.2
Prepaid pension asset -- 9.8
Deferred income taxes -- 1.7
Other assets 4.6 4.2
Total Assets $351.6 $326.4
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities
Amounts due banks $6.2 $5.3
Accounts payable 68.1 62.0
Accrued payroll and personal property taxes 13.0 14.2
Employee benefit obligations 3.2 3.3
Deferred income taxes -- 1.7
Other current liabilities 3.4 5.3
Total Current Liabilities 93.9 91.8
Long-term debt 182.1 144.6
Postretirement benefits other than pensions 9.3 11.0
Pension liabilities 13.0 2.4
Deferred income taxes 2.3 --
Other liabilities 14.4 11.3
Total liabilities 315.0 261.1
Shareholders' Equity
Preference stock - $1.00 par value; 15 million
shares authorized; none outstanding -- --
Common stock - $0.10 par value; 135 million shares
authorized; 43.9 million and 43.4 million shares
issued at November 30, 2008 and 2007, respectively 4.4 4.3
Additional contributed capital 311.8 312.7
Retained deficit (245.4) (243.3)
Treasury stock at cost; 0.1 million and 0.8
million shares at November 30, 2008 and 2007,
respectively (.6) (4.5)
Accumulated other comprehensive loss (33.6) (3.9)
Total Shareholders' Equity 36.6 65.3
Total Liabilities and Shareholders'
Equity $351.6 $326.4
SOURCE OMNOVA Solutions Inc.
