FAIRLAWN, Ohio, Sept. 29 /PRNewswire-FirstCall/ --
- Net sales increased $41.8
million, or 22%, compared to last year with volume gains of
4% year-over-year.
- Segment operating profit was $10.3
million as compared to $15.4
million in the third quarter of 2009. Segment
operating profit in the third quarter of 2010 included
non-recurring expenses of $4.9
million as compared to $0.8
million for the third quarter of 2009.
- Net income was $3.5 million, down
$6.6 million compared to the third
quarter of 2009. Net income in the third quarter of 2010
included total non-recurring expenses of $6.7 million compared to $0.7 million in 2009. Diluted earnings per
share were $0.08, compared to
$0.23 in the third quarter of 2009.
- The Company announced its intention to acquire Eliokem
International, a global specialty chemicals manufacturer. In the
third quarter of 2010, the Company incurred $1.9 million of non-recurring expense related to
the pending acquisition.
- The Company continued to improve its balance sheet. Net debt
declined $17.4 million during the
third quarter of 2010 from $102.1 million to
$84.7 million, due to strong cash flow from operations.
OMNOVA Solutions Inc. (NYSE: OMN) today reported net income of
$3.5 million, or $0.08 per diluted share, for the third quarter
ended August 31, 2010, compared to net income of $10.1 million, or $0.23 per diluted share, for the third quarter of
2009. Included in the third quarter of 2010 were
non-recurring expenses totaling $6.7 million, including $3.9 million related to a strike at a Decorative
Products manufacturing plant, $1.9
million related to a pending acquisition, $0.8 million for a foreign import duty claim, and
$0.1 million for restructuring and
severance actions and other items. Included in the third
quarter of 2009 were non-recurring expenses totaling $0.7 million including $0.6 million for flood-related damage, and
$0.3 million for restructuring and
severance actions offset by pension curtailment gains of
$0.2 million.
Net sales increased $41.8 million,
or 22.5%, to $227.9 million for the
third quarter of 2010, compared to $186.1 million for the third quarter of
2009. The third quarter increase in net sales was the result
of improved volumes of $7.4 million
and higher selling prices of $35.0
million partially offset by unfavorable foreign currency
translation effects of $0.6 million.
Gross profit declined to $39.1 million, with margins of 17.2%, in the
third quarter of 2010, compared to $44.0 million and margins of 23.6% in the
third quarter of 2009. Included in gross profit in the third
quarter of 2010 is $2.6 million of
strike-related costs. The decline in gross profit margin
percentage was primarily due to a change in product mix, higher
manufacturing costs as a result of the strike, and the effect of
index pricing, in which higher raw materials are passed through
without any gross margin benefit.
"In OMNOVA's third quarter, our underlying business continued to
post strong operating performance considering that results were
adversely impacted by nearly $7
million of non-recurring expenses. Cash flow was strong, and
our balance sheet continues to improve. We have made
significant progress on many fronts, including the introduction of
numerous innovative products, penetration into new, adjacent
markets, the continued globalization of our business and aggressive
productivity gains and cost reductions," said Kevin McMullen, OMNOVA Solutions' Chairman and
Chief Executive Officer.
"Overall, volume expansion continued despite weakness in
commercial wallcovering and carpet chemicals, which remain impacted
by the slow down in commercial and residential construction and
refurbishment activity. Specialty chemicals and domestic
laminates had double-digit volume gains. After several years
of adjusting our business model and cost structure in the face of
reduced market demand, we have strong operating leverage as volumes
outpaced last year's levels," McMullen added.
"On September 22, 2010, the
Company announced its intention to purchase Eliokem International
(Eliokem), a business that will significantly enhance and grow our
Performance Chemicals business. This acquisition will
transform OMNOVA Solutions into a much larger, more diverse
specialty chemical and functional surfaces company with
significantly enhanced global capability. It is an excellent
fit with OMNOVA's strategy to grow in existing markets, penetrate
new adjacent markets and globalize our Company," said McMullen.
Selling, general and administrative expenses in the third
quarter of 2010 were $24.4 million, or 10.7% of sales, compared
to $25.7 million, or 13.8% of
sales, in the third quarter of 2009. Despite rising volumes,
selling, general and administrative expenses decreased due to the
Company's focused ongoing efforts to control costs.
Other expense (income), net totaled $4.3
million for the third quarter and included non-recurring
expense of $1.9 million for the
pending Eliokem acquisition, $1.3
million of strike-related costs and $0.8 million for the foreign import duty
claim.
Interest expense in the third quarter of 2010 was $1.9 million, a decrease of
$0.1 million, as a result of lower average debt, compared to
the third quarter of 2009. The weighted average cost of
borrowing during the third quarter of 2010 was 4.6%, the same as
the third quarter of 2009.
The Company's tax expense for the third quarter of 2010 was
$0.1 million, compared to a benefit
of $0.1 million in the third quarter
of 2009. The consolidated tax rate is substantially lower
than the statutory rate because of the utilization of domestic
federal net operating loss carryforwards with offsetting valuation
allowances. The Company has approximately $137.8 million of domestic federal net
operating loss carryforwards, with expiration dates between 2021
and 2030.
The Company's net debt (total debt less cash) was $84.7 million at August
31, 2010, an improvement of $17.4 million during the quarter due to
strong cash flow from operations. Debt of $144.4 million was primarily comprised of a
term loan facility with $141.2 million outstanding and maturing in
2014. On August 31, 2010, there was
no outstanding debt on the Company's revolving asset-based credit
facility and the available borrowing capacity was $79.6 million. The August 31, 2010 consolidated cash balance was
$59.7 million, a quarter-over-quarter
increase of $17.7 million.
Total liquidity, comprised of unused borrowing capacity and
cash on hand, was $139.3 million as
of August 31, 2010.
Proposed Acquisition - On September 22, 2010, the Company announced its
intention to purchase Eliokem International, a global chemicals
manufacturer with sales of approximately $277 million for the last twelve months ended
August 31, 2010. The Company
will pay 227.5 million euros for
Eliokem or approximately $300 million
at current exchange rates. Eliokem is a worldwide producer of
specialty polymers and chemicals, including coating resins,
elastomeric modifiers, antioxidants, rubber reinforcing resins, oil
and gas drilling chemicals, and latices for specialty applications.
Eliokem has manufacturing sites in Caojing and Ningbo, China; Valia, India; Le
Havre, France; and
Akron (Ohio), USA.
Eliokem also has regional sales offices in Akron, Singapore, Shanghai and Mumbai. The company employs
approximately 630 people worldwide.
Closing of the proposed transaction is subject to consultation
with Eliokem's Works Council in France, completion of a definitive agreement,
regulatory approvals, financing and other customary conditions.
Subject to these conditions, the Company anticipates
completion of the transaction by the end of 2010.
Performance Chemicals - Net sales during the third
quarter of 2010 increased 39.2%, to $145.3
million, compared to $104.4
million in the third quarter of 2009. The improvement
was primarily driven by volume increases of $7.5 million, or 7.2%, and higher selling prices
of $34.1 million partially
offset by unfavorable foreign currency translation effects of
$0.7 million. Segment operating
profit was $15.2 million for the
third quarter of 2010 as compared to $14.8 million in the third quarter of 2009,
an increase of $0.4 million. The year-over-year
operating profit improvement was driven by higher volumes and
selling price increases which were partially offset by higher raw
material costs of $34.5 million and
reduced operating costs.
During the quarter, specialty and paper market volumes increased
as compared to a year ago, while carpet volumes were down.
The Company's industry-leading technology led to new business
wins in most of its markets. August was the thirteenth
consecutive month of year-over-year volume growth as the general
markets continued to recover. Also, several customers are now
operating production lines that had been idled in 2009.
Decorative Products – Net sales were $82.6 million during the third quarter of 2010,
an increase of $0.9 million, or 1.1%,
compared to the third quarter of 2009. Sales improved in
decorative laminates, coated fabrics and the Asian businesses,
while commercial wallcovering declined. Segment operating
loss was $4.9 million in the
third quarter of 2010, compared to income of $0.6 million for
the third quarter of 2009. Included in the loss were expenses
totaling $4.8 million related to the
strike in Columbus, Mississippi, a
foreign import duty claim, and restructuring and severance actions.
Excluding these items, Decorative Products was nearly
breakeven in the third quarter of 2010.
Prior to August 1, 2009, the
Company reported results for the Asian businesses on a one-month
lag. Beginning in the third quarter of 2009, the Asian
businesses began reporting on the same fiscal basis and,
accordingly, the third quarter of 2009 includes four months of
financial results. The sales and segment operating profit from the
additional month were approximately $8.0
million and $0.2 million, respectively.
On May 20, 2010, the Columbus, Mississippi United Steelworkers
Local 748-L voted against ratification of a new contract proposal
and subsequently went on strike on May 21, 2010. During
the quarter, the Company's salaried workforce and contract labor
continued to operate the plant and meet customers' requirements.
Late in the quarter, the Company transitioned from contract
labor to locally hired replacement workers. As a result,
strike-related costs, which were $3.9
million in the third quarter, are expected to decline
significantly in the fourth quarter to approximately $0.9 million to $1.2 million.
Earnings Conference Call - OMNOVA Solutions has scheduled
its Earnings Conference Call for Thursday,
September 30, 2010, at 11:00 a.m.
ET. The live audio event will be hosted by OMNOVA
Solutions' Chairman and Chief Executive Officer, Kevin McMullen. It is anticipated to be
approximately one hour in length and may be accessed by the public
from the Company's website (www.omnova.com). Webcast
attendees will be in a listen-only mode. Following the live
webcast, OMNOVA will archive the call on its website until
noon ET, October 21, 2010. A telephone replay will
also be available beginning at 1:00 p.m.
ET on September 30, 2010, and
ending at 11:59 p.m. ET on October 21,
2010. To listen to the telephone replay, callers
should dial: (USA)
800-475-6701 or (Int'l) 320-365-3844. The Access Code is
169617.
Non-GAAP and Other Financial Measures
Reconciliation of segment sales and operating profit
(loss) to consolidated net sales and net
income
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 investors with an understanding of the Company's business and
operating performance.
|
|
(Dollars in
millions)
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
|
August
31,
|
|
August
31,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Performance Chemicals
|
$145.3
|
|
$104.4
|
|
$396.7
|
|
$286.0
|
|
Decorative Products
|
82.6
|
|
81.7
|
|
241.5
|
|
221.6
|
|
Total Sales
|
$227.9
|
|
$186.1
|
|
$638.2
|
|
$507.6
|
|
Segment Operating Profit
(Loss)(1)
|
|
|
|
|
|
|
|
|
Performance Chemicals
|
$ 15.2
|
|
$ 14.8
|
|
$ 55.7
|
|
$ 34.0
|
|
Decorative Products
|
(4.9)
|
|
.6
|
|
(9.5)
|
|
(2.0)
|
|
Interest expense
|
(1.9)
|
|
(2.0)
|
|
(5.6)
|
|
(6.2)
|
|
Corporate expense
|
(4.8)
|
|
(3.4)
|
|
(12.5)
|
|
(10.1)
|
|
Income
Before Income
Taxes
|
3.6
|
|
10.0
|
|
28.1
|
|
15.7
|
|
Income tax expense
(benefit)
|
.1
|
|
(.1)
|
|
1.7
|
|
.6
|
|
Net Income
|
$
3.5
|
|
$
10.1
|
|
$
26.4
|
|
$
15.1
|
|
Depreciation and
amortization
|
$ 4.7
|
|
$ 5.9
|
|
$ 15.7
|
|
$ 17.2
|
|
Capital expenditures
|
$ 3.9
|
|
$ 2.2
|
|
$
8.8
|
|
$ 5.4
|
|
(1) Segment operating
profit (loss) for
the third quarter of 2010
included restructuring and
severance charges of $0.1 million for to a
|
|
Decorative
Products and $0.1 million for Performance Chemicals, $0.8 million
for a customs duty charge for Decorative Products'
|
|
Thailand operation
and worker strike costs of $3.9 million for Decorative Products.
Segment operating profit (loss) for the third
|
|
quarter of 2009
included restructuring and severance charges of $0.3 million and
$0.6 million of clean-up and repair costs related
|
|
flood at one of
our Decorative Products facilities. Segment operating profit for
the first nine months of 2010 included a
|
|
Performance
Chemicals gain of $9.7 million related to the dissolution of a
joint venture, a Decorative Products asset impairment
|
|
charge of $6.2
million, restructuring and severance charges of $0.3 million for
Performance Chemicals and $0.2 million for
|
|
Decorative
Products, $4.3 million of worker strike costs at Decorative
Products, $0.8 million for a customs duty charge
for
|
|
Decorative
Products' Thailand operation
and a legal settlement of $0.3 for Decorative Products. Segment
operating profit (loss) for
|
|
the first nine
months of 2009 included asset write-offs of $0.7 million for
Performance Chemicals, restructuring and severance
|
|
charges of $0.1
million for Performance Chemicals and $1.8 million for Decorative
Products, and $0.6 million of clean-up and
|
|
repair costs
related to the flood at the Decorative Products facility. Also
included in segment operating profit for the first nine
|
|
months of 2009 is
a pension curtailment loss of $0.2 million for Performance
Chemicals and a gain of $0.7 million for Decorative
|
|
Products.
Management excludes these items when evaluating the results of the
Company's ongoing business.
|
|
|
|
|
|
|
|
|
|
|
|
This press release includes "forward-looking statements" as
defined by federal securities laws. These statements, as well
as any verbal statements by the Company in connection with this
press release, are intended to qualify for the protections afforded
forward-looking statements under the Private Securities Litigation
Reform Act of 1995. Forward-looking statements reflect
management's current expectation, judgment, belief, assumption,
estimate or forecast about future events, circumstances or results
and may address business conditions and prospects, strategy,
capital structure, sales, profits, earnings, markets, products,
technology, operations, customers, raw materials, financial
condition, and accounting policies, among other matters.
Words such as, but not limited to, "will', "may," "should,"
"projects," "forecasts," "seeks," "believes," "expects,"
"anticipates," "estimates," "intends," "plans," "targets,"
"optimistic," "likely," "would," "could," and similar expressions
or phrases identify forward-looking statements.
All forward-looking statements involve risks and uncertainties.
Many risks and uncertainties are inherent in business
generally and the markets in which the Company operates or proposes
to operate. Other risks and uncertainties are more specific
to the Company's businesses including businesses the Company
acquires. The occurrence of such risks and uncertainties and
the impact of such occurrences is often not predictable or within
the Company's control. Any such occurrence could adversely
affect the Company's results and, in some cases, such effect could
be material.
All written and verbal forward-looking statements attributable
to the Company or any person acting on the Company's behalf are
expressly qualified in their entirety by the risk factors and
cautionary statements contained herein. Any forward-looking
statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation, and specifically
declines any obligation other than that imposed by law, to publicly
update or revise any forward-looking statements whether as a result
of new information, future events or otherwise.
Risk factors and uncertainties that may cause actual results to
differ materially from expected results include, among others: the
Company's ability to successfully complete the acquisition of
Eliokem; the Company's ability to successfully integrate Eliokem
into its operations; the Company's ability to achieve fully the
strategic and financial objectives related to the proposed
acquisition of Eliokem, including the acquisition being accretive
to the Company's earnings; and unexpected costs or liabilities that
may arise from the acquisition, ownership or operation of Eliokem.
Additional risk factors include: economic trends
affecting the economy in general and/or 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; loss of a significant customer; customer and/or
competitor consolidation; customer bankruptcy; ability to
successfully develop and commercialize new products; a decrease in
demand for domestically manufactured products due to increased
foreign competition and off-shoring of production; ability to
successfully implement productivity enhancement and cost reduction
initiatives; unexpected full or partial suspension of plant
operations; the Company's strategic alliance, joint venture and
acquisition activities; loss or damage due to acts of war or
terrorism, natural disasters, accidents, including fires, floods,
explosions and releases of hazardous substances; governmental
legislative and regulatory changes, including changes impacting
environmental compliance, pension plans, products and raw
materials; 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; meeting required pension plan funding obligations; stock
price volatility; infringement or loss of the Company's
intellectual property; litigation and claims against the Company
related to products, services, contracts, employment,
environmental, safety, intellectual property and other matters
arising out of the Company's business and adverse litigation
judgments or settlements; absence of or inadequacy of insurance
coverage for litigation, judgments, settlements or other losses;
availability of financing at anticipated rates and terms; and loan
covenant default arising from substantial debt and leverage and the
inability to service that debt, including increases in applicable
short-term or long-term borrowing rates.
OMNOVA Solutions Inc. is a technology-based company with last
twelve month sales through August
2010 of $827 million and a
workforce of approximately 2,300 employees worldwide. OMNOVA
is an innovator of emulsion polymers, specialty chemicals, and
decorative and functional surfaces for a variety of commercial,
industrial and residential end uses. Visit OMNOVA Solutions
on the internet at www.omnova.com.
OMNOVA SOLUTIONS
INC.
Consolidated Statements of
Operations
(Dollars in Millions, Except Per
Share Data)
(Unaudited)
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
|
August
31,
|
|
August
31,
|
|
|
2010
|
2009
|
|
2010
|
2009
|
|
Net Sales
|
$227.9
|
$186.1
|
|
$638.2
|
$507.6
|
|
Cost of goods sold
|
188.8
|
142.1
|
|
511.6
|
391.9
|
|
Gross Profit
|
39.1
|
44.0
|
|
126.6
|
115.7
|
|
Selling, general and
administrative
|
24.4
|
25.7
|
|
74.5
|
74.3
|
|
Depreciation and
amortization
|
4.7
|
5.9
|
|
15.7
|
17.2
|
|
Restructuring and
severance
|
.2
|
.3
|
|
.5
|
2.0
|
|
Asset impairment
|
—
|
—
|
|
6.2
|
.7
|
|
Interest expense
|
1.9
|
2.0
|
|
5.6
|
6.2
|
|
Other expense (income),
net
|
4.3
|
.1
|
|
(4.0)
|
(.4)
|
|
|
35.5
|
34.0
|
|
98.5
|
100.0
|
|
Income
Before Income
Taxes
|
3.6
|
10.0
|
|
28.1
|
15.7
|
|
Income tax expense (benefit)
|
.1
|
(.1)
|
|
1.7
|
.6
|
|
Net Income
|
$
3.5
|
$
10.1
|
|
$
26.4
|
$
15.1
|
|
Income
Per Share
|
|
|
|
|
|
|
Basic and Diluted net
income per
share
|
$
.08
|
$
.23
|
|
$
.59
|
$
.34
|
|
|
|
|
|
|
|
|
|
OMNOVA SOLUTIONS
INC.
Condensed Balance
Sheets
(Dollars in millions, except per
share amounts)
|
|
|
August
31,
|
|
November 30,
|
|
|
2010
|
|
2009
|
|
ASSETS:
|
(Unaudited)
|
|
|
|
Current Assets
|
|
|
|
|
Cash and cash
equivalents
|
$
59.7
|
|
$ 41.5
|
|
Accounts receivable,
net
|
125.4
|
|
105.9
|
|
Inventories
|
51.0
|
|
37.5
|
|
Prepaid expenses and
other
|
3.1
|
|
2.4
|
|
Total Current
Assets
|
239.2
|
|
187.3
|
|
Property, plant and equipment,
net
|
129.6
|
|
141.9
|
|
Trademarks and other intangible
assets, net
|
6.1
|
|
4.4
|
|
Deferred income taxes
|
1.2
|
|
1.2
|
|
Other assets
|
2.8
|
|
3.2
|
|
Total Assets
|
$
378.9
|
|
$
338.0
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY:
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
Amounts due banks
|
$ 4.7
|
|
$ 3.3
|
|
Accounts payable
|
81.9
|
|
64.4
|
|
Accrued payroll and personal
property taxes
|
15.8
|
|
16.4
|
|
Employee benefit
obligations
|
2.6
|
|
2.6
|
|
Deferred income taxes
|
.9
|
|
.9
|
|
Other current
liabilities
|
5.1
|
|
4.0
|
|
Total Current
Liabilities
|
111.0
|
|
91.6
|
|
Long-term debt
|
139.7
|
|
140.8
|
|
Postretirement benefits other
than pensions
|
8.1
|
|
8.4
|
|
Pension liabilities
|
60.2
|
|
65.4
|
|
Deferred income taxes
|
.9
|
|
.9
|
|
Other liabilities
|
14.3
|
|
15.8
|
|
Total Liabilities
|
334.2
|
|
322.9
|
|
Shareholders'
Equity
|
|
|
|
|
Preference stock - $1.00 par
value; 15 million shares authorized;
|
|
|
|
|
none outstanding
|
—
|
|
—
|
|
Common stock - $0.10 par value;
135 million shares authorized;
|
|
|
|
|
45.1 million shares and
44.5 million shares issued
at August 31,
2010
|
|
|
|
|
and November 30, 2009,
respectively
|
4.5
|
|
4.4
|
|
Additional contributed
capital
|
316.8
|
|
314.1
|
|
Retained deficit
|
(193.5)
|
|
(219.9)
|
|
Treasury
stock at cost; .2 million shares at
August 31,
2010
|
|
|
|
|
and .1 million shares at
November 30, 2009
|
(1.3)
|
|
(.4)
|
|
Accumulated other comprehensive
loss
|
(81.8)
|
|
(83.1)
|
|
Total Shareholders'
Equity
|
44.7
|
|
15.1
|
|
Total Liabilities and
Shareholders' Equity
|
$
378.9
|
|
$
338.0
|
|
|
|
|
|
|
|
SOURCE OMNOVA Solutions Inc.
Copyright . 29 PR Newswire