SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended May 31, 2003
Commission File Number 1-15147
OMNOVA Solutions Inc.
(Exact name of registrant as specified in its charter)
| Ohio (State of Incorporation) |
34-1897652 (I.R.S. Employer Identification No.) | |
| 175 Ghent Road Fairlawn, Ohio (Address of principal executive offices) |
44333-3300 (Zip Code) | |
Registrant’s telephone number, including area code (330) 869-4200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x NO ¨
At June 30, 2003, there were 39,954,624 outstanding shares of OMNOVA Solutions’ Common Stock, par value $0.10.
OMNOVA SOLUTIONS INC.
Table of Contents
| Page No. | ||||||
| Part I. | Financial Information |
|||||
| Item 1. |
Financial Statements (Unaudited) | |||||
| Condensed Consolidated Statements of Operations—Three Months and Six Months Ended May 31, 2003 and 2002 | -3- | |||||
| Condensed Consolidated Balance Sheets—May 31, 2003 and November 30, 2002 | -4- | |||||
| Condensed Consolidated Statements of Cash Flows—Six Months Ended May 31, 2003 and 2002 | -5- | |||||
| Notes to the Unaudited Interim Condensed Consolidated Financial Statements as of May 31, 2003 | -6- | |||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | -12- | ||||
| Item 3. |
Quantitative and Qualitative Disclosure About Market Risk | -19- | ||||
| Item 4. |
Controls and Procedures | -19- | ||||
| Part II. | Other Information |
|||||
| Item 1. |
Legal Proceedings | -20- | ||||
| Item 4. |
Submission of Matters to a Vote of Security Holders | -20- | ||||
| Item 6. |
Exhibits and Reports on Form 8-K | -21- | ||||
| Signatures | -22- | |||||
| Certifications | -23- | |||||
| Exhibit Index | -25- | |||||
-2-
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations
(Dollars in Millions, Except Per Share Data)
(Unaudited)
| Three Months Ended May 31, |
Six Months Ended May 31, |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| Net Sales |
$ | 176.6 | $ | 175.0 | $ | 330.0 | $ | 331.3 | ||||||||
| Costs and Expenses |
||||||||||||||||
| Cost of products sold |
133.1 | 124.5 | 248.5 | 235.2 | ||||||||||||
| Selling, general and administrative |
34.8 | 36.5 | 68.9 | 71.1 | ||||||||||||
| Depreciation and amortization |
6.8 | 7.3 | 13.6 | 14.5 | ||||||||||||
| Interest expense |
2.9 | 2.1 | 4.9 | 4.4 | ||||||||||||
| Other expense (income), net |
.9 | 1.0 | 2.0 | 1.7 | ||||||||||||
| Restructuring and severance (income) expense |
— | (2.0 | ) | 1.1 | (2.0 | ) | ||||||||||
| Deferred financing costs write-off |
3.1 | — | 3.1 | — | ||||||||||||
| 181.6 | 169.4 | 342.1 | 324.9 | |||||||||||||
| (Loss) Income Before Income Taxes |
(5.0 | ) | 5.6 | (12.1 | ) | 6.4 | ||||||||||
| Income tax expense (benefit) |
— | .1 | (.2 | ) | .4 | |||||||||||
| (Loss) Income Before Cumulative Effect of Accounting Change |
(5.0 | ) | 5.5 | (11.9 | ) | 6.0 | ||||||||||
| Cumulative Effect of Accounting Change |
— | — | — | (142.5 | ) | |||||||||||
| Net (Loss) Income |
$ | (5.0 | ) | $ | 5.5 | $ | (11.9 | ) | $ | (136.5 | ) | |||||
| Basic (Loss) Earnings Per Share |
||||||||||||||||
| (Loss) Earnings before cumulative effect of accounting change |
$ | (.12 | ) | $ | .14 | $ | (.30 | ) | $ | .15 | ||||||
| Cumulative effect of accounting change |
— | — | — | (3.60 | ) | |||||||||||
| Net (Loss) Income Per Basic Share |
$ | (.12 | ) | $ | .14 | $ | (.30 | ) | $ | (3.45 | ) | |||||
| Diluted (Loss) Earnings Per Share: |
||||||||||||||||
| (Loss) Earnings before cumulative effect of accounting change |
$ | (.12 | ) | $ | .14 | $ | (.30 | ) | $ | .15 | ||||||
| Cumulative effect of accounting change |
— | — | — | (3.57 | ) | |||||||||||
| Net (Loss) Income Per Diluted Share |
$ | (.12 | ) | $ | .14 | $ | (.30 | ) | $ | (3.42 | ) | |||||
See notes to the unaudited interim condensed consolidated financial statements.
-3-
Condensed Consolidated Balance Sheets
(Unaudited)
| May 31, 2003 |
November 30, 2002 |
|||||||
| (Dollars in millions) | ||||||||
| ASSETS: |
||||||||
| Current Assets |
||||||||
| Cash and cash equivalents |
$ | 6.7 | $ | 8.4 | ||||
| Accounts receivable, net |
101.6 | 42.8 | ||||||
| Inventories |
57.0 | 48.3 | ||||||
| Deferred income taxes |
11.8 | 11.8 | ||||||
| Prepaid expenses and other |
10.2 | 4.8 | ||||||
| Total Current Assets |
187.3 | 116.1 | ||||||
| Property, plant and equipment, net |
185.3 | 193.0 | ||||||
| Goodwill, net |
41.7 | 41.1 | ||||||
| Trademarks and other intangible assets, net |
34.3 | 35.6 | ||||||
| Prepaid pension |
56.5 | 55.4 | ||||||
| Other assets |
28.4 | 24.9 | ||||||
| Total Assets |
$ | 533.5 | $ | 466.1 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY: | ||||||||
| Current Liabilities | ||||||||
| Current portion of long-term debt |
$ | — | $ | 6.0 | ||||
| Accounts payable |
94.6 | 83.7 | ||||||
| Accrued payroll and personal property taxes |
12.1 | 14.0 | ||||||
| Other current liabilities |
13.0 | 11.6 | ||||||
| Total Current Liabilities |
119.7 | 115.3 | ||||||
| Long-term debt |
198.0 | 126.5 | ||||||
| Postretirement benefits other than pensions |
51.6 | 51.4 | ||||||
| Deferred income taxes |
11.8 | 11.8 | ||||||
| Other liabilities |
13.6 | 13.9 | ||||||
| Shareholders’ Equity |
||||||||
| Preference stock—$1.00 par value; 15.0 million shares authorized; none outstanding |
— | — | ||||||
| Common stock—$0.10 par value; 135.0 million shares authorized; 41.8 million shares issued; 39.9 million shares outstanding in 2003 and 39.6 million shares outstanding in 2002 |
4.2 | 4.2 | ||||||
| Additional contributed capital |
309.3 | 309.3 | ||||||
| Retained deficit |
(159.9 | ) | (148.0 | ) | ||||
| Treasury stock at cost; 2.0 million shares and 2.1 million shares |
(12.9 | ) | (13.3 | ) | ||||
| Accumulated other comprehensive loss |
(1.9 | ) | (5.0 | ) | ||||
| Total Shareholders’ Equity |
138.8 | 147.2 | ||||||
| Total Liabilities and Shareholders’ Equity |
$ | 533.5 | $ | 466.1 | ||||
See notes to the unaudited interim condensed consolidated financial statements.
-4-
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended May 31, |
||||||||
| 2003 |
2002 |
|||||||
| (Dollars in millions) | ||||||||
| Operating Activities |
||||||||
| Net loss |
$ | (11.9 | ) | $ | (136.5 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Cumulative effect of change in accounting principle |
— | 142.5 | ||||||
| Depreciation, amortization and (gain)/loss on sale of fixed assets |
12.6 | 12.4 | ||||||
| Write-off of deferred financing costs |
3.1 | — | ||||||
| Changes in operating assets and liabilities net of effects of acquisitions and dispositions of businesses: |
||||||||
| Current assets |
(72.1 | ) | (3.0 | ) | ||||
| Current liabilities |
10.6 | (5.4 | ) | |||||
| Other noncurrent assets |
(.2 | ) | (4.6 | ) | ||||
| Other noncurrent liabilities |
.7 | (.4 | ) | |||||
| Net Cash (Used In) Provided By Operating Activities |
(57.2 | ) | 5.0 | |||||
| Investing Activities |
||||||||
| Capital expenditures |
(4.6 | ) | (4.8 | ) | ||||
| Proceeds from asset dispositions |
1.9 | 2.8 | ||||||
| Net Cash Used In Investing Activities |
(2.7 | ) | (2.0 | ) | ||||
| Financing Activities |
||||||||
| Long-term debt incurred |
125.6 | 50.0 | ||||||
| Long-term debt paid |
(219.1 | ) | (56.3 | ) | ||||
| Issuance of notes |
165.0 | — | ||||||
| Net short-term debt (paid) incurred |
(6.0 | ) | 2.5 | |||||
| Other |
(7.5 | ) | .6 | |||||
| Net Cash Provided By (Used In) Financing Activities |
58.0 | (3.2 | ) | |||||
| Effect of exchange rate changes on cash |
.2 | — | ||||||
| Net Decrease in Cash and Cash Equivalents |
(1.7 | ) | (.2 | ) | ||||
| Cash and cash equivalents at beginning of year |
8.4 | 8.5 | ||||||
| Cash And Equivalents At End Of Period |
$ | 6.7 | $ | 8.3 | ||||