OMNOVA Solutions Inc.
Annual Report 2004

Plain-text annual report

everywhere you look, we’re there 2004 Annual Report and 10K financial highlights OM NOVA Solutions Inc. (Dollars in millions, except per share data) Net Sales Performance Chemicals Decorative Products Building Products Segment Operating Profi t (Loss) Performance Chemicals Decorative Products Building Products Restructuring and severance Goodwill and indefi nite lived trademark impairments Idle fi xed assets, obsolete inventory and intangible asset write-off Interest expense Corporate expenses Restructuring and severance Deferred fi nancing costs write-off Income tax benefi t (expense) (Loss) Income before cumulative effect of accounting change Cumulative effect of accounting change Net Loss Basic Loss Per Share (Loss) Earnings before cumulative effect of accounting change Cumulative effect of accounting change Net Loss Per Basic Share Diluted Loss Per Share (Loss) Earnings before cumulative effect of accounting change Cumulative effect of accounting change Net Loss Per Diluted Share Other Data Capital expenditures Depreciation and amortization Number of employees at year-end Number of outstanding shares for diluted EPS (millions) Years Ended November 30, 2004 2003 2002 $ 372 .9 257 .8 115 .0 $ 745 .7 $ 13 .5 (2 .4) 1 .0 ( .5) (3 .9) – $ 7 .7 (20 .7) (11 .8) .1 – .3 $ (24 .4) – $ (24 .4) $ (.61) – $ (.61) $ (.61) – $ (.61) $ 11 .8 $ 22 .8 2,000 40 .2 $ 327.0 257.6 98.0 $ 682.6 $ 14.5 (9.3) 3.1 (8.8) (49.6) (5.7) $ (55.8) (15.3) (10.0) (.2) (3.1) .6 $ (83.8) – $ (83.8) $ (2.10) – $ (2.10) $ (2.10) – $ (2.10) $ 8.8 $ 33.7 2,100 39.9 $ 299.4 288.7 93.1 $ 681.2 $ $ 19.9 7.2 (4.9) 2.3 – – 24.5 (8.1) (9.2) .3 – (.5) 7.0 (142.5) $ (135 .5) $ $ $ $ $ $ $ .18 (3.60) (3.42) .18 (3.58) (3.40) 11.1 28.8 2,400 39.8 Pro-forma Data Management believes that adjusted net (loss) income provides a more accurate basis for comparing results year over year. The following table reconciles the Company’s net loss to adjusted net (loss) income: Net Loss Items added back net of tax Cumulative effect of accounting change Restructuring and severance Goodwill and indefi nite lived trademark impairments Idle fi xed assets, obsolete inventory and intangible asset write-off Deferred fi nancing costs write-off Adjusted net (loss) income – 9.0 49.6 5.7 3.1 $ (16.4) 142.5 (2.4) – – – 4.6 3 .9 – – $ (135 .5) $ (24 .4) $ (83.8) – .4 $ (20 .1) $ Adjusted (loss) earnings per share $ (.50) $ (.41) $ .12 Certain information included in this annual report is forward-looking and, accordingly, involves estimates, assumptions, judgments and uncertainties. Forward-looking statements may generally be identifi ed by the use of forward-looking terms such as “may,” “should,” “projects,” “forecasts,” “seeks,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “targets,” “likely,” “will,” “would,” “could,” or similar terms. For information regarding some of the factors that could cause actual results or outcomes to differ materially from those described in the forward-looking statements, see the Forward-Looking Statements section of Management’s Discussion and Analysis of Financial Condition and Results of Operations. We design, develop, produce and market emulsion polymers, specialty chemicals, and decorative and functional surfaces for a variety of commercial, industrial and residential end uses. Our solutions provide distinctive performance and aesthetic attributes to products that touch people’s lives every day. ON THE COVER | Products from OMNOVA help to give this café its unique ambiance. (left to right, top to bottom) MOR-GLO® products, which utilize POLYFOX® environmentally-preferred fl uoropolymers, are key ingredients in fl oor polishes. SURF(x)® laminates provide a continuous, three-dimensional edge to tables. VIEWNIQUE™ full-wall digital murals accentuate the brand. BOLTAFLEX® fabrics enhance seating appearance and functionality. MEMERASE® BLACKWALL™ fl exible wet-erase surfaces make communication fun. GENCRYL® PLATINUM Pt™ latex promotes higher print quality on coated paper products. everywhere you look, we’re there To Our Shareholders Kevin McMullen Chairman and CEO Kevin McMullen OMNOVA Solutions achieved strong 9% sales OMNOVA Solutions achieved strong 9% sales improvements on top of a $10 million impact in the prior growth in 2004. This growth was fueled by strengthening growth in 2004. This growth was fueled by strengthening inaugural year. Also, continued strong cash fl ow provided a markets, increasing interest in OMNOVA’s unique portfolio markets, increasing interest in OMNOVA’s unique portfolio $6 million reduction in average debt, year over year. of recently introduced products, market share gains and of recently introduced products, market share gains and We have made signifi cant progress, but we recognize improved pricing. I am encouraged by this top-line trend improved pricing. I am encouraged by this top-line trend that there is much more we must do to reap the full and proud of the work we have done on many fronts: and proud of the work we have done on many fronts: benefi ts of our success in growing the top line. Improving growing market share through differentiation, entering growing market share through differentiation, entering profi tability is our number-one priority, which we will new markets with a compelling value proposition, raising address with even greater urgency in 2005. prices in a very diffi cult raw material cost environment and reducing costs. Performance Chemicals Unfortunately, this sales growth did not translate Performance Chemicals, OMNOVA’s largest business into profi tability for the Company, due primarily to nearly segment, achieved a solid 14% increase in sales. Leading $40 million in oil-based raw material infl ation during the way were our paper and carpet product lines, driven the year. The prolonged and rapid ascent of raw material by improved markets and increased market share. While costs – up more than $120 million since the beginning margins still are not where we expect them to be, we of 2000, with nearly $80 million of this increase in 2003 did see modest year-over-year improvement despite and 2004 alone – has made it very diffi cult to restore the dramatic raw material infl ation. This improvement acceptable margins despite product price increases and is attributable to our RohmNova paper coating sales our intense focus on cost reductions. and service joint venture, which provides the broadest Our aggressive pricing actions yielded $30 million product offering of any paper coatings supplier in the in 2004 with an additional $60 million in anticipated world, and to the excellent work by the OMNOVA carpet annualized benefi ts from pricing actions implemented chemicals team. They drove volume gains, achieved late in the year. Our cost reduction efforts resulted in $16 necessary price increases, reduced costs and developed million in full-year savings from restructuring and other new products that the customers have embraced actions taken late in 2003 and early in 2004. In addition, our enthusiastically. These products include our GENCRYL® LEAN SixSigma initiative, which is centered on eliminating PLATINUM Pt™ Series high-performance paper coatings waste and optimizing our processes, completed its fi rst as well as ammonia-free and moisture-resistant latexes full year with $12.5 million in productivity and cash fl ow for the carpet market. 1 | OMN OVA Sol uti ons Inc. Other chemical product lines also made signifi cant progress in 2004. Our next-generation latex for disposable diapers was readily welcomed by customers in North America and Europe. And new products for construction and nonwoven applications, such as exterior gypsum board, ceiling tiles and commercial roofi ng, opened doors to markets we had not previously served in any major way. Decorative Products Sales in our Decorative Products segment were fl at in 2004 as the markets we serve continued to struggle. Hospitality, an important market for our commercial wallcoverings and coated fabrics, saw slight improvement during the year. But another key market, commercial offi ce, continued to be a concern as occupancies remained near 11-year lows, hovering around 83%. Although these markets were a challenge, we improved the profi tability of our Decorative Products business by approximately 75% in 2004, still operating at a loss, but showing progress. Decorative Products President Bob Coleman joined us in late 2003 and has done a good job of leading the team with a clear vision and a pragmatic approach to making the changes necessary for a return to profi tability. Among those changes are new leadership in new product development, as well as in commercial wallcovering for North America and Europe. These and other actions will help us gain greater leverage way, scoring a key win with a prominent west-coast from many exciting new developments, including customer and securing broad distribution for our new SURF(x)® laminates for three-dimensional applications, BOLTASOFT™ line of aftermarket fabrics, featuring one of MEMERASE® II fl exible whiteboards, BLACKWALL™ the most comprehensive selections of colors and styles wet-erase products, BREASE™ breathable wallcovering, in the industry. These accounts contributed to increased VIEWNIQUE™ full-wall digital murals, and best-in-class sales in 2004, but they should make an even greater status for our custom wallcovering design and service. impact in the coming months as volumes ramp up. In addition, our U.K.-based commercial wallcovering business introduced ESPRIT™, an innovative and Building Products comprehensive program to reinvigorate the wallcovering Sales in our commercial single-ply roofi ng business selection process in Europe. segment grew by a strong 17%. The growth stemmed We also had some noteworthy commercial from a robust re-roofi ng market and a focused go- successes to celebrate in the coated fabrics area. Last to-market strategy aimed at broadening OMNOVA’s spring, OMNOVA Solutions was named primary up- presence with Tier II and Tier III contractors. holstery supplier of choice by the American Boatbuilders Profi tability in this segment suffered from raw Association, a buying consortium made up of 12 of the material infl ation, higher-than-expected warranty ex- world’s premier boat makers. In addition, OMNOVA penses and limited price increases. However, this trend entered the automotive upholstery aftermarket in a big is showing signs of reversing as indicated by the pricing OMNOVA Solutions Inc. | 2 This hotel customer is having a comfortable stay, thanks to products by OMNOVA: (left to right, top to bottom) LYTRON® opacifi ers used in personal care products, BOLTAFLEX® coated fabrics for furniture, BOLTA® wallcovering, GENCRYL® PLATINUM Pt™ paper coatings for magazines, PERMAFRESH® wrinkle-free technology, and GENCAL® high-performance latex for commercial carpet backing. actions achieved late in 2004 and announced for 2005. Globalization Also, we expect to continue the signifi cant productivity As customers move offshore and demand their gains our operations achieved in the past year. suppliers do the same, and with imports making inroads OMNOVA is working to create more differentiation in several of our key markets, we are making good with products such as GENFLEX™ PEEL & STICK™ progress to position ourselves as a global supplier. thermoplastic (TPO) roofi ng systems that can be installed For example, our chemicals business saw its fi fth in about half the time of conventional fully-adhered straight year of sales improvement in Europe, with systems. The Energy Star®-rated PEEL & STICK system an increase of 17% in 2004. We’ve accomplished this reduces fumes, fi re hazards, and materials at the job with the help of strategic manufacturing partners in the site as compared to many asphalt-based systems, region. This has kept our costs down while providing and is proving its value across a broad spectrum of the capability to offer this market the same value-added commercial installations around the country, including products that are available in the United States, along hospitals, high rises, condominiums, stores, restaurants with custom products formulated specifi cally for our and government facilities. international customers, such as opacifi ers for personal 3 | OMN OVA Sol uti ons Inc. Highlights for 2004 include new products such as (left to right) GENFLO® latex for next-generation disposable diapers, GENFLEX™ PEEL & STICK™ commercial roofi ng, NAUTOLEX® marine fabrics for the American Boatbuilders Association consortium, and GENCEAL™ polymers used in exterior gypsum wallboard. care applications. While the emphasis of our chemicals care applications. While the emphasis of our chemicals care applications. While the emphasis of our chemicals care applications. While the emphasis of our chemicals Likewise, we will address cost in our business. Likewise, we will address cost in our business. business has been on Europe to this point, we had business has been on Europe to this point, we had business has been on Europe to this point, we had business has been on Europe to this point, we had Though we’ve made progress over the past two years, Though we’ve made progress over the past two years, signifi cant gains in Asia in 2004 and plan to establish a signifi cant gains in Asia in 2004 and plan to establish a signifi cant gains in Asia in 2004 and plan to establish a signifi cant gains in Asia in 2004 and plan to establish a we know it is still not enough. We will accelerate the we know it is still not enough. We will accelerate the permanent presence there in 2005. permanent presence there in 2005. elimination of waste and improve productivity with the aid On the decorative products side, we have a long- On the decorative products side, we have a long- of LEAN SixSigma tools and principles which are becoming established position in Europe with our Muraspec U.K. established position in Europe with our Muraspec U.K. a part of the culture of OMNOVA Solutions. We are working wallcovering business and a rapidly growing presence in wallcovering business and a rapidly growing presence in relentlessly to leverage our breadth and scale, and to Asia through our Thailand and China manufacturing joint Asia through our Thailand and China manufacturing joint standardize common processes across the Company. ventures. Our Asian joint venture plants currently derive ventures. Our Asian joint venture plants currently derive Globally, we will target regions and markets 14% of their sales from North American accounts and we 14% of their sales from North American accounts and we that complement our strengths in product types and expect that percentage to increase as we further leverage expect that percentage to increase as we further leverage manufacturing capabilities. We have leading positions in our strong North American distribution base. In addition, many of the markets we serve in North America, and these joint ventures are having growing success with sales there is no reason why we cannot extend that leadership to Asian customers to meet the rapidly growing demand in internationally. these markets for value-added products. We also will continue our commitment to operate Our commercial roofi ng business also became more responsibly with regard to the environment, health, global in 2004 as we won our fi rst installation in Korea late safety and security. We are proud of our performance in in the year. The Year Ahead these areas, as refl ected by the 2004 Responsible Care® Achievement Awards we received from the Synthetic Organic Chemical Manufacturers Association. We can point to many successes in 2004, but I know I have confi dence in our ability to turn our profi tability the Board of Directors, our leadership team and the 2,000 around because of the dedication and talent of our associates of OMNOVA Solutions around the world share employees. They are working tirelessly day in and day out my disappointment in the year’s results from a profi tability to build a company that will deliver prosperity and pride perspective. to all its stakeholders. Their efforts helped us accomplish We know what we have to do. We are all intently meaningful sales growth in 2004. Our challenge, and our focused on making the tough decisions in 2005 that primary objective for 2005 and beyond, is to translate will drive improvement in the short term and create the this growth into bottom-line profi tability and value for our foundation for future growth. shareholders. We will build on our top-line growth successes by Thank you for your continued support. continuing to create clear value and differentiation with our technology and new product development efforts, along with our service. At the same time, we are giving new tools to our sales and marketing organizations that will sharpen our ability to work more closely with, and deliver real value to, customers. Kevin M. McMullen Chairman and CEO OMNOVA Solutions Inc. | 4 corporate information EXECUTIVE OFFICERS Diane E. McGarry 1 SHAREHOLDER INFORMATION Common Stock Listing: Retired Chief Marketing Officer, Retired Chief Marketing Officer, Retired Chief Marketing Officer, New York Stock Exchange Kevin M. McMullen Xerox Corporation Transfer Agent and Registrar Transfer Agent and Registrar Ticker Symbol: OMN Chairman, Chief Executive Officer Chairman, Chief Executive Officer and President Kevin M. McMullen 3 The Bank of New York The Bank of New York 1-800-524-4458 Annual Meeting of Shareholders Chairman, Chief Executive Officer Chairman, Chief Executive Officer Chairman, Chief Executive Officer 1-610-382-7833 (outside U.S.) (outside U.S.) March 23, 2005 at 9:00 a.m. Michael E. Hicks and President, 1-888-269-5221 (hearing impaired – TDD phone) (hearing impaired – TDD phone) Hilton Akron – Fairlawn Senior Vice President and OMNOVA Solutions Inc. Shareowners@bankofny.com (Email) Shareowners@bankofny.com 3180 West Market Street Chief Financial Officer; Treasurer www.stockbny.com (stock transfer website) Fairlawn, Ohio James C. LeMay Steven W. Percy 11 Former Chairman and Send shareholder inquiries to: Send shareholder inquiries to: Independent Registered Senior Vice President, Business Chief Executive Officer, The Bank of New York The Bank of New York Public Accounting Firm Development; General Counsel BP America Inc. Shareholder Relations Department 11-E Shareholder Relations Department 11-E Ernst & Young LLP Gregory T. Troy Senior Vice President, Human Resources Douglas E. Wenger Douglas E. Wenger Senior Vice President and Chief Information Officer James J. Hohman Vice President; President, Performance Chemicals Robert H. Coleman President, Decorative Products Harold P. Franze President, Building Products BOARD OF DIRECTORS Edward P. Campbell 1 Chairman and Chief Executive Officer, Nordson Corporation David A. Daberko 2,3 Chairman and Chief Executive Officer, National City Corporation David J. D’Antoni 2 Retired Senior Vice President and Group Operating Officer, Ashland Inc. Dr. R. Byron Pipes 2,3 John L. Bray Distinguished Professor of Engineering, Purdue University William R. Seelbach 22 William R. Seelbach P.O. Box 11258 Church Street Station Church Street Station New York, NY 10286 New York, NY 10286 Akron, Ohio Form 10 - K Send certificates for transfer and Send certificates for transfer and March 1, 2005 on the internet at address changes to: address changes to: The Bank of New York www.omnova.com or by writing to: OMNOVA Solutions Inc. Additional copies available after President and Chief Executive Officer, President and Chief Executive Officer, Receive and Deliver Department 11-W 175 Ghent Road Ohio Aerospace Institute COMMITTEES 1 Audit Committee Chairman: Steven W. Percy Steven W. Percy 2 Compensation and Corporate Governance Committee Chairman: David A. Daberko 3 Executive Committee Chairman: Kevin M. McMullen P.O. Box 11002 Church Street Station New York, NY 10286 BuyDIRECT (A direct purchase, sale and dividend Fairlawn, OH 44333-3300 Attention: Secretary Shareholder Services 1-800-735-5160 reinvestment plan) BuyDIRECT is Investor Relations Contact available to shareholders and Michael E. Hicks interested first-time investors and Senior Vice President and offers a convenient method of Chief Financial Officer increasing investment in the Company. 330-869-4411 All brokerage commissions and bank service fees incurred on behalf OMNOVA Solutions Foundation of the participants in connection 175 Ghent Road with stock purchases and dividend Fairlawn, OH 44333-3300 reinvestments are paid by the Company. 330-869-4289 Subject to terms and conditions of the plan, dividends, together with Communications optional cash investments of up to General inquiries, contact: $120,000 per year, are used to buy Corporate Communications, more shares of the Company’s 330-869-4293. Common Stock. BuyDIRECT Contact: The Bank of New York Dividend Reinvestment Department P.O. Box 1958 Newark, NJ 07101-9774 1-800-524-4458 Financial literature requests, contact World Investor Link, 1-888-400-7789. Internet Website www.omnova.com OMNOVA Solutions is an equal opportunity employer. PAPER STOCK: The cover and inside glossy pages of this report are printed on paper coated with GenFlo® latex. PHOTOS: Marine fabrics photo (page 4) courtesy of Formula Powerboats • GlasRoc® exterior gypsum wallboard photo (page 4) courtesy of BPB America Inc. i n o t a E & x D y b n g s e D i OMNOVA SOLUTIONS INC. 175 Ghent Road Fairlawn, OH 44333 Telephone: 330-869-4200 www.omnova.com MOR-GLO, SURF(x), BOLTAFLEX, MEMERASE, GENCRYL, GENFLO, BOLTA, PERMAFRESH, LYTRON, GENCAL, and NAUTOLEX are registered trademarks of OMNOVA Solutions Inc. GENCEAL, VIEWNIQUE, BLACKWALL, PLATINUM Pt, BREASE, ESPRIT, BOLTASOFT, GENFLEX, and PEEL & STICK are trademarks of OMNOVA Solutions Inc. GLASROC is a registered trademark of BPB plc. ENERGY STAR is a registered service mark of the U.S. EPA and RESPONSIBLE CARE is a registered service mark of Chemical Manufacturers Association, Inc. POLYFOX is a registered trademark used under license by OMNOVA Solutions Inc. © 2005 OMNOVA Solutions Inc. 

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