Second Quarter 2008 Loss Per Share onRecord Increases in Raw Material Costs

Decorative Materials OMNOVA Solutions Reports  - Loss per share of $0.07 as compared to a loss per share of $0.23for the second quarter of 2007 - Net sales increased $31.7 million, or 16.9%, which included $24.0million of sales from Asian businesses, as compared to the secondquarter of 2007 - Operating profit of $3.0 million, down from $10.0 million due tounprecedented oil-based raw material inflation of $14.4 million - Significant new pricing actions to recover raw material costswere implemented late in the second quarter and early in the thirdquarter FAIRLAWN, Ohio, June 16 /PRNewswire-FirstCall/ -- OMNOVA SolutionsInc. NYSE: OMN today reported a net loss of $3.1 million, or $0.07per diluted share, for the second quarter ended May 31, 2008,compared to a net loss of $9.8 million, or $0.23 per diluted share,for the second quarter of 2007. Included in the second quarter of2007 were debt redemption and restructuring costs of $12.5 million. Net sales increased $31.7 million, to $219.7 million, for thesecond quarter of 2008 compared to $188.0 million during the sameperiod a year ago. Contributing to the second quarter increase weresales of $24.0 million from the Decorative Products Asianbusinesses acquired in the first quarter of 2008, favorable pricingof $11.4 million and positive foreign exchange translation of $0.1million partially offset by net volume declines of $3.8 million.The volume declines primarily occurred in two product lines sold tothe residential housing industry: Performance Chemicals' carpetbusiness and Decorative Products' laminate business. Volumedeclines were partially offset by volume increases in PerformanceChemicals' paper chemicals business. Excluding the DecorativeProducts Asian businesses, the Company's sales grew $7.7 million or4.1%. Gross profit decreased $3.3 million to $33.8 million, with a grossprofit margin of 15.4%, in the second quarter of 2008 compared to$37.1 million, with a gross profit margin of 19.7%, in the secondquarter of 2007. Margins declined due to higher costs for rawmaterials, freight and utilities, product mix issues in NorthAmerica, and lower than average gross margins in the Asianbusinesses. Cost of goods sold of $185.9 million for the secondquarter of 2008 increased $35.0 million as compared to the secondquarter of 2007, due to manufacturing costs of $25.7 million fromthe inclusion of the Decorative Products Asian businesses, and$14.4 million of higher raw material costs. Cost of goods sold waspartially reduced by lower volumes of $2.9 million and lowermanufacturing expense of $2.2 million, primarily in North America. "Our priority to improve profitability continued to be challengedby record setting raw material inflation during the quarter," saidKevin McMullen, OMNOVA Solutions' Chairman and Chief ExecutiveOfficer. "Late in the second quarter, we implemented priceincreases at both Decorative Products and Performance Chemicalswith minimal loss of volume. However, as oil has continued to climbas high as $139 a barrel, we have experienced new record high costsfor OMNOVA's major raw materials during our third quarter startingin June. In response, we have announced additional price increasesof up to 30% across many of our Performance Chemicals products." "In addition to new pricing actions, we are also focused onproductivity improvements to restore profit margins to acceptablelevels. We continue to drive our LEAN SixSigma focus deeper intoour domestic plants while introducing the concept to our new Asianbusinesses. Our cost structure, excluding raw materials, is lowerthan anytime since our formation in 1999. Everyone in ourorganization is keenly focused on our most important priority,which is margin improvement," McMullen said. Selling, general and administrative expense in the second quarterof 2008, which included $1.7 million from the Decorative ProductsAsian businesses, increased $2.3 million, to $27.5 million, or12.5% of sales. This compares to $25.2 million, or 13.4% of netsales, in the second quarter of 2007. Interest expense decreased $1.4 million, to $3.5 million, for thesecond quarter of 2008 as compared to $4.9 million for the sameperiod a year ago, due to significantly lower average interestrates as a result of the Company refinancing actions in 2007 andlower base interest rates, which was partially offset by higheraverage debt levels. Total debt at the end of the second quarter of2008 was $197.9 million, up $24.9 million from the second quarterof 2007. The increase in debt included $32.4 million of borrowingsand assumed debt to fund the purchase price and transaction fees ofthe Decorative Products Asian joint venture acquisitions in January2008, partially offset by $7.5 million of debt reduction utilizingcash from operations. Net Debt was $193.8 million at the end of thesecond quarter of 2008. There was $27.8 million of unused andavailable liquidity under the Company's revolving asset- basedcredit facility. The weighted average cost of borrowing during thesecond quarter of 2008 was 6.6%, an improvement from 10.8% for thesecond quarter of 2007. The weighted average borrowing rate on May31, 2008 declined to 5.5%. EBITDA, as defined in the Company's borrowing agreements for thecalculation of the net leverage ratio, was $9.7 million for thesecond quarter of 2008 compared to $14.3 million for the secondquarter of 2007. EBITDA for the twelve months ended May 31, 2008was $43.9 million, compared to $44.5 million for the twelve monthsended May 31, 2007. OMNOVA's leverage ratio of Net Debt to EBITDAwas 4.4 at May 31, 2008, well under the covenant limit of 5.5. Anexplanation of how the Company defines EBITDA and Net Debt andreconciliations of EBITDA to income (loss) from continuingoperations and Net Debt to total debt are provided in the Non-GAAPand Other Financial Measures section of this earnings release. Performance Chemicals - Net sales during the second quarter of 2008increased 7.6% to $125.2 million compared to $116.4 million in thesecond quarter of 2007. The increase was driven by higher sellingprices of $10.4 million, partially offset by volume decreases of$1.6 million. Sales growth was achieved despite carpet industryvolumes being down approximately 13%. Segment operating profit was$1.9 million for the second quarter of 2008, down from $5.8 millionfor the second quarter of 2007. The year-over-year operating profitdecline was attributable to $12.6 million of higher raw materialcosts, lower volumes of $0.6 million, higher freight expenses andunabsorbed manufacturing overhead, which was partially offset bythe higher selling prices. Segment operating profit margin was 1.5%for the second quarter of 2008 as compared to 5.0% for the secondquarter of 2007. Even though operating profit was lower, efficiencyimproved as pounds produced per employee increased over 5% for thefirst half of 2008 as compared to the same period in 2007. During the second quarter of 2008, volumes in paper chemicalsincreased high single digits year-over-year, driven by volume winsfrom 2007 with customers utilizing the Company's innovativeGenCryl(R) Pt(TM) product, a high-strength latex binder forhigh-grade coated paper applications. All paper latex products wererepriced late in the quarter with no loss of major customers. Incarpet chemicals, the Company experienced a significant decrease involumes in excess of the overall market decline due to customermix, mill closures, and the loss of one customer, which waspreviously announced in the first quarter. New record-high prices for butadiene and styrene (up 25% and 12%,respectively, as compared to the second quarter of 2007) and mostsecondary raw materials continued in the second quarter of 2008.Butadiene, the Company's second largest raw material in pounds anddollar value, was put on allocation by all major North Americansuppliers during the second quarter of 2008. Although butadienesupply to the Company was reduced slightly, Performance Chemicalswas able to satisfy all of its customers' needs. However, industryforecasts call for butadiene prices to increase significantly inthe third quarter, with both supply and allocations tightening. Inresponse, Performance Chemicals is implementing third quarter priceincreases across most product lines of up to 30% in June. Decorative Products - Net sales were $94.5 million during thesecond quarter of 2008, an increase of $22.9 million or 32.0%compared to the second quarter of 2007. The increase in sales wasdue to $24.0 million of sales from the Asian businesses, priceincreases of $1.0 million, and favorable foreign exchangetranslation of $0.1 million, partially offset by lower domesticlaminates volumes of $2.2 million. Price increases implemented latein the second quarter and announced early in the third quarterrepresent a potential increase in sales of approximately $6 millionon an annualized basis. Operating profit declined $3.1 million, to$1.1 million, for the second quarter of 2008 compared to operatingprofit of $4.2 million for the second quarter of 2007. Key factorsimpacting the second quarter 2008 operating profit decline werehigher raw material costs of $1.8 million, negative profitvariances of $1.2 million from the Asian businesses, lower volumesof $0.6 million and higher manufacturing and overhead costs of $0.5million, partially offset by sales price increases of $1.0 million. During the quarter, domestic contract interiors, coated fabrics andMuraspec U.K. wallcoverings all achieved year-over-year salesgrowth despite several weak end-use markets, while laminate saleswere down year-over-year on lower residential kitchen and bathcabinet volume. The Company believes that Decorative Products hasgained market share across most end uses. In contract interiors,the Company completed the sampling and field placement of itsECORE(TM) brand recyclable wallcovering. In the Company's coatedfabrics product line, industrial films, rigids, and marine productsgenerated higher sales while transportation end uses were weaker.The price increases across most product lines addressed rising rawmaterial costs, especially market prices for polyvinyl chloride(PVC) resin, up 33% year-over-year and plasticizer, up 44%year-over-year. At the beginning of the quarter, OMNOVA went livewith its SAP business planning system at a second DecorativeProducts manufacturing plant in Monroe, North Carolina, with athird facility scheduled for third quarter 2008. All of theCompany's Performance Chemicals plants have previously converted tothe SAP platform. Also, union members at the industrial film plantin Jeannette, Pennsylvania ratified a new three-year laborcontract. Decorative Products Asia Operations - Effective December 31, 2007,the Company acquired the remaining 49.9% interest of its formerDecorative Products joint venture companies in China and Thailandfor $32.4 million in cash, assumption of debt and transaction fees.Previously, the Company used the equity method of accounting torecord its proportionate share of the net income or loss of theseAsian businesses as equity earnings in affiliates, and did notconsolidate sales or operating results of these businesses. Theoperating results of Decorative Products Asian businesses are nowconsolidated but continue to be recognized on a one month lag,meaning that the February through April time period is recorded forthe Company's 2008 second quarter. For comparative purposes, Decorative Products Asian sales for thesecond quarter of 2008 were $24.0 million compared to $20.4 millionfor the second quarter of 2007, an increase of 17.6%. The operatingloss for the Decorative Products Asian businesses was $0.9 million,as compared to an operating profit of $1.0 million in the secondquarter of last year. Unfavorable year-over- year comparisons weredriven by increased raw material costs, bad debt expense, thestrength of the Thai Baht and Chinese Yuan currencies, and weakerFebruary results due to manufacturing shutdowns in China fromsevere snowstorms. In Thailand, the Company implemented amanagement restructuring which is expected to provide future costreductions and manufacturing efficiencies. China had its bestoperating results of the fiscal year in May 2008, which will bereported in the Company's third quarter. The Decorative ProductsAsian consolidation resulted in certain significant increases inbalance sheet accounts as of May 31, 2008, including: netreceivables $18.9 million, net inventories $16.3 million, net fixedassets $30.9 million and current liabilities $25.8 million. Earnings Conference Call - OMNOVA Solutions has scheduled itsEarnings Conference Call for Tuesday, June 17, 2008, at 11:00 a.m.EDT. The live audio event will be hosted by OMNOVA Solutions'Chairman and Chief Executive Officer, Kevin McMullen. It isanticipated to be approximately one hour in length and may beaccessed by the public from the Company's website ( www.omnova.com ). Webcast attendees will be in a listen-only mode. Following thelive webcast, OMNOVA will archive the call on its website untilnoon EDT, June 24, 2008. A telephone replay will also be availablebeginning at 1:00 p.m. EDT on June 17, 2008, and ending at 11:59p.m. EDT on June 24, 2008. To listen to the telephone replay,callers should dial: (USA) 800-475-6701 or (Int'l) 320-365-3844.The Access Code is 926316. Non-GAAP and Other Financial Measures Reconciliation of segment sales and operating profit toconsolidated net sales and income (loss) before income taxes Management reviews the information below in assessing theperformance of the business segments and in making decisionsregarding the allocation of resources to the business segments.Management believes that this information is useful for providingthe investor with an understanding of the Company's business andoperating performance. Reconciliation of loss from continuing operations to EBITDA andtotal debt to Net Debt This earnings release includes EBITDA and Net Debt which arenon-GAAP financial measures as defined by the Securities andExchange Commission. EBITDA is calculated in accordance with thedefinition of Net Leverage Ratio as set forth in the Company's$150,000,000 Term Loan Credit Agreement dated as of May 22, 2007and excludes charges for interest, taxes, depreciation andamortization, amortization of deferred financing costs, netearnings of joint ventures less cash dividends, net earnings offoreign subsidiaries less cash dividends, loss on debttransactions, gains or losses on sale or disposal of capitalassets, loss from write-down of non-current assets, non-cash incomeor expense for the Company's pension plans, gains or losses fromchanges in the LIFO reserve, and non-cash charges for the 401(k)company match and up to $2.0 million annually for restructuring,severance and non-recurring charges. Net Debt is calculated astotal debt, outstanding letters of credit and the fair value of theinterest rate swap if in a loss position less cash, cashequivalents and restricted cash. EBITDA and Net Debt are notmeasures of financial performance under GAAP. EBITDA and Net Debtare not calculated in the same manner by all companies andaccordingly are not necessarily comparable to similarly titledmeasures of other companies and may not be an appropriate measurefor comparing performance relative to other companies. EBITDA andNet Debt should not be construed as indicators of the Company'soperating performance or liquidity and should not be considered inisolation from or as a substitute for net income (loss), cash flowsfrom operations or cash flow data which are all prepared inaccordance with GAAP. EBITDA and Net Debt are not intended torepresent and should not be considered more meaningful than, or asan alternative to, measures of operating performance as determinedin accordance with GAAP. Management believes that presenting thisinformation is useful to investors because these measures arecommonly used as analytical indicators to evaluate performance,measure leverage capacity and debt service ability and bymanagement to allocate resources. Set forth below are thereconciliations of these non-GAAP financial measures to their mostdirectly comparable GAAP financial measures. The Company did nothave any results from Discontinued Operations in the secondquarters or first six months of 2008 and 2007; therefore, theCompany's net loss for those periods is the equivalent of income(loss) from continuing operations as defined in the $150,000,000Term Loan Credit Agreement.