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.
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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.