Attached files
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| 8-K - CURRENT REPORT - OMNOVA SOLUTIONS INC | d8k.htm |
 January 19, 2011
Earnings Teleconference
Fourth Quarter 2010
2011 Outlook
Exhibit 99 |
 -
2
-
Cautionary
Cautionary
•
This
presentation
and
the
accompanying
oral
remarks
include
“forward-looking
statements,”
as
defined
by
federal
securities
laws.
These
statements,
as
well
as
any
verbal
statements
by
the
Company
in
connection
with
this
presentation,
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
that
the
Company
acquires.
The
occurrence
of
such
risks
and
uncertainties
and
the
impact
of
such
occurrence
is
often
not
predictable
or
within
the
Company’s
control.
Such
impacts
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
risks,
uncertainties
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.
•
Risks
and
uncertainties
that
may
cause
actual
results
to
differ
materially
from
expected
results
include,
among
others:
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
acquisition
of
Eliokem,
including
the
acquisition
becoming
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;
unplanned
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;
ability
to
comply,
and
cost
of
compliance
with,
legislative
and
regulatory
changes,
including
changes
impacting
environmental,
health
and
safety
compliance
and
changes
which
may
restrict
or
prohibit
certain
products
and
raw
materials;
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;
changes
in,
and
compliance
with,
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;
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.
•
For
further
information
on
risks
and
uncertainties,
see
the
Company’s
Form
10-K
and
Form
10-Q
filings
with
the
Securities
and
Exchange
Commission.
Forward-Looking Statements
Non-GAAP Financial Measures
This
presentation
includes
Adjusted
Net
Income,
Adjusted
Diluted
Earnings
Per
Share,
Adjusted
Segment
Operating
Profit,
EBITDA,
Adjusted
EBITDA
and
Net
Debt
which
are
non-GAAP
financial
measures
as
defined
by
the
Securities
and
Exchange
Commission. |
 -
3
-
Reversal of U.S. Tax Valuation Allowance
Reversal of U.S. Tax Valuation Allowance
•
Between 2002 and 2008, OMNOVA Solutions generated ~ $240 million of net losses
–
Most of the losses occurred in 2002 and 2003; ~ $228 million of those losses were
related to writedowns of
goodwill, intangibles, fixed assets, as well as several major restructuring
actions. –
During this period of time, the Company recorded approximately 40% of the losses as
a Deferred Tax Asset which could be used to offset future taxes payable; then
immediately offset it with a valuation allowance reserve due to uncertainty
that the Company would have sufficient future taxable income in order to use the
asset.
–
The valuation allowance has been outlined in the financial statement footnotes since
2002 and grew to $104.5 million in 2010.
•
In 2009 and 2010, the Company generated significant improvement in Net Income,
driven
by
new
product
commercialization,
cost
reduction
actions,
market
share
gains
and improved indexed pricing mechanisms to recover raw material inflation.
•
In 4Q 2010, the Company determined that it was “more likely than not”
able to utilize
the
Deferred
Tax
Asset
in
future
periods
due
to
recent
history
of
profitability
and
improved financial outlook.
–
The Company reversed 94% of the Valuation Allowance, or $98.2 million
–
This reversal put the Deferred Tax Asset on the balance sheet.
–
This reversal resulted in non-cash income of $90.5 million.
–
There was No impact on cash income taxes or cash flow.
|
 -
4
-
Reversal of U.S. Tax Valuation Allowance
(cont’d)
Reversal of U.S. Tax Valuation Allowance
(cont’d)
•
Projected Impact on 2011 Financial Results:
–
Full Year Book Income Tax Rate of ~ 42%
Reflects Estimated Tax Rates in the jurisdictions where OMNOVA operates
–
Cash
income
taxes
will
remain
significantly
lower
than
Book
Income
Tax.
Net
Operating
Loss
(NOL)
carryforwards
will
substantially
offset
domestic
cash
taxes
–
NOL
balances
on
11/30/2010
were
$119
million
Federal
and
$4
million
State
and
Local
Cash
income
taxes
were
$1.1
million
in
2010
2011
Cash
income
taxes
expected
to
increase
slightly
due
to
higher
foreign-based
income
–
EBITDA
–
no
change
•
Summary
–
Significant
improvement
in
OMNOVA
Solutions
profitability
over
past
2
years
–
Accounting
treatment
changes
reflect
likelihood
of
future
income
to
utilize
Deferred
Tax
Asset
–
Book
income
tax
rate
forecasted
to
be
42%
–
EBITDA
and
cash
flow
not
impacted
–
Domestic
cash
income
taxes
expected
to
be
low
for
3
-
5
years
due
to
NOL
carryforwards |
 -
5
-
Proforma 2010 Quarterly and Full Year
Proforma 2010 Quarterly and Full Year |
 -
6
-
Capital Structure Proforma 2010
Capital Structure Proforma 2010
$(mils)
Debt
Annual
Amount
Rate
Interest
Matures
Senior Notes
250.0
$
7.875%
19.7
$
2018
Fixed
TLB
200.0
5.750%
11.5
2016
Floating …L+400…Floor 175
Other
5.1
6.000%
0.3
ABL Commitment Fees
unused
0.6
2015
Floating… L+225 / Grid
Deferred Financing Amort
2.0
Swap Amortization
2.7
Total
455.1
$
36.8
$
Dec. 31, 2010 Liquidity
Asset-Based Revolver
71.6
Cash
84.7
Total Liquidity
156.3
$
Net Debt
370.4
Proforma LTM EBITDA
120.2
Net Leverage Ratio
3.1 |
 -
7
-
2011 Outlook
2011 Outlook
•
Expect modest volume growth in 2011
–
Stronger growth in Performance Chemicals
•
Significant raw material inflation in Q1
–
Decorative Products faces price recovery challenge
•
Additional Q1 acquisition-related expenses of
$5-7 million
•
Expected Eliokem acquisition synergies
–
Modest in 2011
–
$5-10 million in 2012
–
$10-15 million in 2013
•
Estimated capital expenditures of $30-35 million
•
Expect 2011 Adjusted EPS to be comparable with 2010
Adjusted Proforma EPS of $0.62 |
 -
8
- |