FAIRLAWN, OH -- OMNOVA Solutions Inc. today announced a net loss of $10.4 million, or a diluted loss per share of $0.23, for the fourth quarter ended Nov. 30, 2011. Included in the fourth quarter net loss was a loss from discontinued operations of $16.7 million, or a diluted loss per share of $0.37, related primarily to non-cash asset impairment charges of $13.6 million.

"Operating profit improved sequentially in the fourth quarter despite continued weakness in market demand," said Kevin McMullen, OMNOVA Solutions' chairman and chief executive officer. "Fourth quarter results were positively impacted by lower raw material input costs, which declined from an all-time high in the third quarter, but were still higher than the prior year. We also generated positive cash during the quarter and increased our cash balance to approximately $106 million.

"For full year 2011, the Company achieved record operating profit despite unprecedented raw material inflation. Our Performance Chemicals business, including ELIOKEM, achieved its best annual profit performance and the ELIOKEM acquisition was accretive in the first year. As we celebrate the one-year anniversary of the ELIOKEM acquisition, we are very enthusiastic about the long-term value we can create together," McMullen said. "Additionally, with the decision to exit commercial wallcovering, the Decorative Products segment is better positioned to be a positive contributor to OMNOVA's future financial results.

"While we are optimistic about the fundamental improvement we have made to the long-term business outlook for the Company, we are clearly facing some near-term headwinds with raw material price volatility and uncertain market demand," McMullen said.

  • The Company completed full year 2011 with record operating profit.
  • The acquisition of specialty chemical producer ELIOKEM was accretive in year one.
  • To increase focus on businesses with greater global growth potential, the Company decided during the fourth quarter to exit the commercial wallcovering businesses.
  • For the fourth quarter, the Company reported a net loss of $10.4 million, or $0.23 per diluted share, which included a loss from discontinued operations of $16.7 million, or $0.37 per diluted share, related primarily to non-cash asset impairment charges.
  • Adjusted Diluted Earnings Per Share for the fourth quarter (excluding discontinued operations) were $0.14 compared to $0.13 last year.

 

Discontinued Operations

As part of the Company's strategy to focus on businesses with greater global growth potential, the Company decided in the fourth quarter of 2011 to exit commercial wallcovering, and these businesses were classified as discontinued operations. On Dec. 12, 2011, the Company completed the sale of the North American commercial wallcovering business. Total sale proceeds from the North American assets were $10.0 million along with potential future royalty payments.

The Company's European-based commercial wallcovering business, known as Muraspec, serves the global commercial wallcovering market outside of North America, including Asia. Muraspec has been operated on a stand-alone basis and will continue business as usual to design, produce, sell and service its commercial wallcovering and other products. The Company is pursuing the sale of the ongoing Muraspec business.

The Company recorded a loss of $16.7 million in the fourth quarter of 2011 for discontinued operations which was related primarily to non-cash asset impairments of $13.6 million. OMNOVA will record a gain of approximately $9.8 million related to the sale of the North American commercial wallcovering business in the first quarter of 2012.

Commercial wallcovering results in the fourth quarter were sales of $19.3 million with an operating loss of $3.9 million excluding unusual items. For the full year 2011, the commercial wallcovering operations generated net sales of $70.2 million and an operating loss of $7.9 million excluding unusual items.

Reported Consolidated Results for the Fourth Quarter Ending Nov. 30, 2011

Net sales increased $111.1 million, or 58%, to $301.4 million for the fourth quarter of 2011, compared to $190.3 million for the fourth quarter of 2010. The sales improvement was driven by $81.8 million of revenues from the ELIOKEM acquisition and increased OMNOVA legacy sales of $29.3 million. The higher OMNOVA legacy sales resulted from price increases of $44.4 million and $2.0 million of favorable currency translation effects, which were partially offset by volume decreases of $17.1 million.

Gross profit in the fourth quarter of 2011 increased to $55.8 million, compared to $32.0 million in the fourth quarter of 2010, due primarily to the ELIOKEM acquisition. Raw material costs in OMNOVA's legacy business increased $39.4 million in the fourth quarter versus the same period last year. Gross profit margins in the fourth quarter of 2011 were 18.5%, compared to margins of 16.8% in the fourth quarter of 2010. The increase in gross profit margin percentage was due primarily to productivity and pricing actions.

Selling, general and administrative expenses (SG&A) in the fourth quarter of 2011 increased to $26.0 million, or 8.6% of sales, compared to $19.3 million, or 10.1% of sales, in the fourth quarter of 2010. The increase of $6.7 million in SG&A was due primarily to the ELIOKEM acquisition, partially offset by a bad debt reserve recovery of $1.7 million. The decline as a percentage of sales was due to higher sales and the Company's focused ongoing efforts to control costs and leverage SG&A across its global operations.

Interest expense in the fourth quarter of 2011 was $9.5 million, an increase of $6.4 million from the fourth quarter of 2010, due to higher borrowing levels and an increase in interest rates resulting from refinancing activities relative to the ELIOKEM acquisition in Dec. 2010.

Income from continuing operations before income taxes in the fourth quarter of 2011 was $10.8 million, compared to a loss of $5.6 million in the fourth quarter of 2010.

For the fourth quarter of 2011, income tax expense was $4.5 million, a 41.7% effective income tax rate. In the fourth quarter of 2010, the Company recorded a tax benefit of $89.2 million related to the reversal of a deferred tax asset valuation allowance in the U.S., which was no longer required. Cash tax payments in the U.S. over the next few years are expected to be minimal because the Company has $124.8 million of U.S. federal net operating loss carryforwards and $109.1 million of state and local tax net operating loss carryforwards with expiration dates between 2022 and 2032.

In the fourth quarter of 2011, income from continuing operations was $6.3 million, or $0.14 per diluted share. Loss from discontinued operations, net of tax, was $16.7 million related primarily to non-cash asset impairment charges of $13.6 million, or $0.37 per diluted share. The net loss was $10.4 million, or $0.23 per diluted share.

As of Nov. 30, 2011, the Company's debt of $457.3 million was comprised of $250.0 million of 7.875% Senior Notes maturing in 2018, a term loan of $198.0 million maturing in 2017 and $9.3 million of foreign operations borrowings. The Company maintained its strong liquidity position as global cash and cash equivalents totaled almost $106 million. Also, on Nov. 30, 2011, there were no outstanding borrowings under the Company's U.S. revolving asset-based credit facility, and the available borrowing capacity was $83.8 million.

Performance Chemicals Fourth Quarter 2011 Results

Net sales during the fourth quarter of 2011 increased $110.2 million, to $241.4 million, compared to $131.2 million in the fourth quarter of 2010. The ELIOKEM acquisition added $81.8 million of sales versus the prior year. Performance Chemicals' legacy sales increased $28.4 million in the fourth quarter of 2011 due to positive pricing actions of $39.6 million and $0.2 million of foreign currency translation effects, partially offset by volume decreases of $11.4 million. Segment operating profit was $24.1 million for the fourth quarter of 2011, compared to $17.6 million in the fourth quarter of 2010, an increase of $6.5 million (see Table 1).

Performance Chemicals Adjusted Segment Operating Profit for the fourth quarter of 2011 was $22.5 million, compared to the fourth quarter Pro Forma Adjusted Segment Operating Profit of $25.0 million in 2010 (see Table 3). The adjusted operating profit margin was 9.3% for the fourth quarter of 2011, compared to the pro forma adjusted operating profit margin of 12.2% in the fourth quarter of 2010. The decline in the operating profit margin was due primarily to the volume declines.

NewPage Corp., a major customer, filed for Chapter 11 bankruptcy protection in September 2011. Early in the first quarter of 2012, the Company completed a new two-year supply contract with NewPage and has been designated as a Critical Vendor. NewPage paid a cash settlement to the Company on its pre-petition bankruptcy trade receivable balance. The Bankruptcy Court has approved the settlement. As a result, in the fourth quarter of 2011, the Company reversed $1.7 million of the $2.6 million bad debt charge that it recorded for the NewPage receivable in the third quarter of 2011.

The specialty product lines within Performance Chemicals recorded strong double-digit sales growth in global drilling chemicals, continuing a year-long trend with increasing participation in high temperature, high pressure drilling environments around the world. Significant progress was made in obtaining customer approvals for tire cord latex from OMNOVA's new plant in Caojing, China. Also, Performance Chemicals introduced its bio-based co-polymer hybrid chemistry into both carpet and coated paper applications following successful commercialization with several specialty customers.

Decorative Products Fourth Quarter 2011 Results

Results of continuing operations excluding commercial wallcovering (see Table 2) were sales of $60.0 million during the fourth quarter of 2011, an increase of $0.9 million, or 1.5%, compared to the fourth quarter of 2010. Sales improved for North American and China coated fabrics and for decorative laminates but declined in performance films and Thailand coated fabrics. Adjusted Segment Operating Profit was $2.2 million in the fourth quarter of 2011, compared to a Pro Forma Adjusted Segment Operating Loss of $2.7 million for the fourth quarter of 2010 (see Table 3). The improvement is related primarily to productivity and pricing actions.

During the quarter, raw material price recovery was significantly higher than the previous year and continued the trend of sequential quarterly improvements in 2011. Globally, coated fabrics sales into the transportation and contract upholstery markets were very strong, driven by double-digit volume growth in after-market automotive, motorcycle, recreational seating and healthcare applications. The Thailand coated fabrics sales drop reflected the massive flooding in the region which impacted the manufacturing plants of customers. The Company's Thailand plants were not damaged and continued operating. Laminates sales grew double-digit in the store fixture and kitchen and bath segments, driven by specification of OMNOVA's products by a major DIY store chain.

 

 

TABLE 1

Reconciliation of Reported Segment Sales and Operating Profit (Loss) to Net Sales and Income From Continuing Operations

 

 

 

 

Three Months Ended
November 30,

 

 

Year Ended
November 30,

 

 

(Dollars in millions)

 

2011 

 

 

2010 

 

 

2011 

 

 

2010 

 

 

Performance Chemicals

 

$

241.4

 

 

$

131.2

 

 

$

951.9

 

 

$

527.9

 

 

Decorative Products

 

 

60.0

 

 

 

59.1

 

 

 

249.2

 

 

 

253.8

 

 

Total Sales

 

$

301.4

 

 

$

190.3

 

 

$

1,201.1

 

 

$

781.7

 

 

 

 

 

 

 

 

Segment Operating Profit (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Performance Chemicals

 

$

24.1

 

 

$

17.6

 

 

$

86.5

 

 

$

73.3

 

 

   Decorative Products

 

 

.7

 

 

 

(4.5)

 

 

 

(1.3)

 

 

 

(3.2)

 

 

Interest expense

 

 

(9.5)

 

 

 

(3.1)

 

 

 

(38.0)

 

 

 

(8.7)

 

 

Corporate expense

 

 

(4.5)

 

 

 

(12.7)

 

 

 

(13.8)

 

 

 

(22.6)

 

 

Deferred financing fees write-off

 

 

 

 

 

 

 

 

(1.0)

 

 

 

 

 

Acquisition and integration related expense

 

 

 

 

 

(2.9)

 

 

 

(2.3)

 

 

 

(5.5)

 

 

Income (Loss) From Continuing Operations Before

   Income Taxes

 

 

10.8

 

 

 

(5.6)

 

 

 

30.1

 

 

 

33.3

 

 

Income tax (expense) benefit

 

 

(4.5)

 

 

 

89.2

 

 

 

(13.4)

 

 

 

83.9

 

 

Income From Continuing Operations

 

$

6.3

 

 

$

83.6

 

 

$

16.7

 

 

$

117.2

 

 

Depreciation and amortization

 

$

8.8

 

 

$

4.5

 

 

$

33.5

 

 

$

18.7

 

 

Capital expenditures

 

$

8.6

 

 

$

6.0

 

 

$

24.1

 

 

$

13.7

 

 

 

 

TABLE 2

Adjusted Segment Sales

 

 

 

 

 

 

 

Three Months Ended
November 30,

 

 

Year Ended
November 30,

 

 

 

 

2011 
Actual 

 

 

2010 

Pro forma 

 

 

2011 
Actual 

 

 

2010 
Pro forma 

 

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance Chemicals (Legacy)

 

$

159.6

 

 

$

131.2

 

 

$

614.5

 

 

$

527.9

 

 

Performance Chemicals (ELIOKEM International)

 

 

81.8

 

 

 

72.9

 

 

 

337.4

 

 

 

288.4

 

 

Total Performance Chemicals

 

 

241.4

 

 

 

204.1

 

 

 

951.9

 

 

 

816.3

 

 

 

 

 

 

 

 

Decorative Products

 

 

60.0

 

 

 

59.1

 

 

 

249.2

 

 

 

253.8

 

 

Total Sales

 

$

301.4

 

 

$

263.2

 

 

$

1,201.1

 

 

$

1,070.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                     

Non-GAAP and Other Financial Measures (Continued)

 

 

TABLE 3

Adjusted Segment Operating Profit (Loss) Reconciliation

 

Three Months Ended

November 30,

 

 

Year Ended

November 30,

 

 

 

 

2011 
Actual 

 

 

2010 

Pro forma 

 

 

2011 

Actual 

 

 

2010 

Pro forma 

 

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

Performance Chemicals Segment Operating Profit

 

$

24.1

 

 

$

17.6

 

 

$

86.5

 

 

$

73.3

 

 

ELIOKEM operating profit – (pro forma 2010)

 

 

 

 

 

7.2

 

 

 

 

 

 

37.7

 

 

Restructuring, severance and benefit plan curtailment

 

 

.1

 

 

 

.2

 

 

 

1.1

 

 

 

.5

 

 

Customer trade receivable (recovery) write-off

 

 

(1.7)

 

 

 

 

 

 

.9

 

 

 

 

 

Distribution rights settlement

 

 

 

 

 

 

 

 

 

 

 

(9.7)

 

 

Fair value adjustment to ELIOKEM inventory

 

 

 

 

 

 

 

 

2.7

 

 

 

 

 

Performance Chemicals' segment operating profit adjustments

 

 

(1.6)

 

 

 

7.4

 

 

 

4.7

 

 

 

28.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance Chemicals' Adjusted Segment Operating Profit

 

$

22.5

 

 

$

25.0

 

 

$

91.2

 

 

$

101.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Decorative Products Segment Operating Profit (Loss)

 

$

.7

 

 

$

(4.5)

 

 

$

(1.3)

 

 

$

(3.2)

 

 

Restructuring, severance, and benefit plan curtailment

 

 

.2

 

 

 

1.4

 

 

 

.5

 

 

 

1.5

 

 

Asset impairment and facility closure costs

 

 

1.3

 

 

 

 

 

 

3.7

 

 

 

2.7

 

 

Tax indemnification lapse, legal settlements and other

 

 

 

 

 

(.2)

 

 

 

.2

 

 

 

.9

 

 

Strike costs

 

 

 

 

 

.6

 

 

 

 

 

 

2.5

 

 

Decorative Products' segment operating profit adjustments

 

 

1.5

 

 

 

1.8

 

 

 

4.4

 

 

 

7.6

 

 

Decorative Products' Adjusted Segment Operating Profit (Loss)

 

$

2.2

 

 

$

(2.7)

 

 

$

3.1

 

 

$

4.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE 4

Adjusted Income From Continuing Operations Reconciliation

 

Three Months Ended
November 30,

 

 

Year Ended
November 30,

 

 

 

 

2011 

Actual 

 

 

2010 

Pro forma 

 

 

2011 

Actual 

 

 

2010 

Pro forma 

 

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

Income From Continuing Operations

 

$

6.3

 

 

$

83.6

 

 

$

16.7

 

 

$

117.2

 

 

Performance Chemicals' segment operating profit adjustments

 

 

(1.6)

 

 

 

7.4

 

 

 

4.7

 

 

 

28.5

 

 

Decorative Products' segment operating profit adjustments

 

 

1.5

 

 

 

1.8

 

 

 

4.4

 

 

 

7.6

 

 

Corporate restructuring and other

 

 

 

 

 

(.9)

 

 

 

.2

 

 

 

(.9)

 

 

Additional interest expense

 

 

 

 

 

(6.1)

 

 

 

 

 

 

(28.1)

 

 

Acquisition and integration related expense

 

 

 

 

 

2.9

 

 

 

2.3

 

 

 

5.5

 

 

Acquisition related foreign currency hedge fair value adjustment

 

 

 

 

 

9.2

 

 

 

 

 

 

9.2

 

 

Deferred financing fees write-off

 

 

 

 

 

 

 

 

1.0

 

 

 

 

 

Additional income tax (expense) benefit

 

 

 

 

 

6.1

 

 

 

(5.6)

 

 

 

(4.2)

 

 

Tax valuation reversal

 

 

 

 

 

(98.2)

 

 

 

 

 

 

(98.2)

 

 

Tax expense for liquidation of foreign subsidiary

 

 

 

 

 

 

 

 

1.1

 

 

 

 

 

Income from continuing operations adjustments

 

 

(.1)

 

 

 

(77.8)

 

 

 

8.1

 

 

 

(80.6)

 

 

Adjusted Income From Continuing Operations

 

$

6.2

 

 

$

5.8

 

 

$

24.8

 

 

$

36.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE 5

Adjusted Diluted Earnings Per Share From

Three Months Ended
November 30,

 

 

Year Ended
November 30,

 

 

    Continuing Operations Reconciliation

 

2011 

Actual 

 

 

2010 

Pro forma 

 

 

2011 

Actual 

 

 

2010 

Pro forma 

 

 

(Dollars)

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share From Continuing Operations

 

$

.14

 

 

$

1.85

 

 

$

.37

 

 

$

2.61

 

 

Performance Chemicals' segment operating profit adjustments

 

 

(.04)

 

 

 

.16

 

 

 

.11

 

 

 

.63

 

 

Decorative Products' segment operating profit adjustments

 

 

.04

 

 

 

.04

 

 

 

.10

 

 

 

.17

 

 

Corporate restructuring and other

 

 

 

 

 

(.02)

 

 

 

 

 

 

(.02)

 

 

Additional interest expense

 

 

 

 

 

(.13)

 

 

 

 

 

 

(.63)

 

 

Acquisition and integration related expense

 

 

 

 

 

.06

 

 

 

.05

 

 

 

.12

 

 

Acquisition related foreign currency hedge fair value adjustment

 

 

 

 

 

.20

 

 

 

 

 

 

.21

 

 

Deferred financing fees write-off

 

 

 

 

 

 

 

 

.02

 

 

 

 

 

Additional income tax (expense) benefit

 

 

 

 

 

.14

 

 

 

(.12)

 

 

 

(.08)

 

 

Tax valuation reversal

 

 

 

 

 

(2.17)

 

 

 

 

 

 

(2.19)

 

 

Tax expense for liquidation of foreign subsidiary

 

 

 

 

 

 

 

 

.02

 

 

 

 

 

Total Earnings Per Share Impact of Adjusted Items

 

 

 

 

 

(1.72)

 

 

 

.18

 

 

 

(1.79)

 

 

Adjusted Diluted Earnings Per Share From Continuing Operations

 

$

.14

 

 

$

.13

 

 

$

.55

 

 

$

.82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Source: OMNOVA Solutions Inc.

 

 

 

 

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