Omnova proclaims 'strong' Q1 liquidity, touts loan amendment benefits

By Paul Deckelman

New York, April 3 - Omnova Solutions Inc. finished its 2013 fiscal first quarter with what its chief executive officer called a "strong" liquidity position and said that a recently completed amendment to its credit facility will yield benefits going forward in the form of lower interest costs.

Kevin M. McMullen, who also is chairman and president of the Fairlawn, Ohio-based specialty chemical manufacturer and laminates producer, said Wednesday that in the fiscal first quarter ended Feb. 28, the company's liquidity stood at $200 million, consisting of $122 million of cash, cash equivalents and restricted cash and $78 million of available borrowing capacity under Omnova's U.S. revolving asset-based credit facility.

He told analysts on a conference call following the release of the quarterly results that the company's net debt position increased sequentially by $26.9 million to $334.2 million during the quarter, primarily due to a seasonal increase in working capital, although it was essentially flat versus the year-earlier level.

Total debt at Feb. 28 stood at $454 million. It was comprised of $250 million of 7 7/8% senior notes due 2018, a $195.5 million term loan maturing in 2017 and $8.5 million of foreign operations borrowing.

Interest expense falls

McMullen said that interest expense during the quarter was $8.6 million, down by $900,000 from the same period last year due mostly to the completed amortization in 2012 of an interest-rate swap agreement.

However, he said that going forward, Omnova expects annual interest-rate savings of about $2.4 million at current Libor levels as a result of the completion, announced on March 11, of an amendment to the term loan. Omnova and its lenders agreed to a 125-basis-point reduction in the floating-rate pricing of the facility to 4.25%, and the term was extended by one year to May 2018.

Omnova will report a charge of about $1.5 million in the 2013 second quarter related to this transaction.

During the question-and-answer portion of the conference call that followed McMullen's formal presentation, the company's senior vice president and chief financial officer, Michael E. Hicks, told an analyst that factoring in the term loan amendment, Omnova anticipates that interest expense will now fall further to around $8 million per quarter, versus the $8.6 million fiscal first-quarter figure.

For the first quarter - which McMullen said is typically Omnova's weakest quarter of its annual fiscal year - the company reported income from continuing operations of about $200,000, or breakeven on a per-diluted-share basis. Its adjusted income from continuing operations for the quarter was $1.5 million, or 3 cents per share, down from $10 million, or 22 cents per share, in the year-ago quarter.

The net loss for the quarter was $200,000, or breakeven per diluted share, versus a profit of $13.5 million, or 29 cents per share, in the 2012 first fiscal quarter.

McMullen said that growth-oriented capital investments for new and "re-purposed" global manufacturing capabilities are expected to deliver positive benefits in the second half of this year, and the company anticipates full-year adjusted income from continuing operations to exceed the results achieved in 2012.

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