2015 ANNUAL REPORT AND FORM 10-K
COUNTLESS
CONSUMER AND
COMMERCIAL
BRANDS DEPEND
ON OMNOVA
TO GAIN THAT
SPECIAL EDGE
IN PERFORMANCE.
DEAR FELLOW SHAREHOLDERS:
In 2015, OMNOVA Solutions initiated dramatic actions on many fronts – sales and
marketing, R&D, manufacturing and administration – all aimed at improving margins
and accelerating profitable growth. As a result, we made significant progress in growing
profits, expanding margins, increasing volumes in key specialty markets and improving
cash flow from operations. Adjusted earnings per share (adjusted EPS) grew nearly
30% for the year. Adjusted segment operating profit was $74.4 million for the combined
businesses, or 8.9% of net sales, up 200 basis points for the Company overall. (See Tables
following this letter.) Contributions to improved profitability were broad based from all
product lines except oil & gas, which was hampered by difficult market conditions.
Our key accomplishments during the
Engineered Surfaces posted its
& gas drilling additives and paper
year included:
fourth consecutive year of adjusted
chemicals – resulted in significantly
Implementing new processes
to drive commercial and
innovation excellence that
improves our ability to execute
our business strategies and
more closely matches our
technology programs with our
customers’ needs
Realigning our North American
manufacturing footprint to more
competitively serve our markets
Refocusing key resources to
support growth in our specialty
businesses
Strengthening our commercial
and technical teams
Reducing our operational and
administrative costs
These actions contributed to
growth in our adjusted EPS of 29%
versus last year and, from a cost
perspective, had an estimated 2015
impact of nearly $3.0 million in
savings from SG&A reductions and
from our manufacturing footprint
redesign. Savings are expected
to grow to approximately $14
million to $17 million annually by
2017 from cost actions alone. In
addition to the cost savings, we
believe the major business benefits
will ramp up in 2016 and beyond
from improved effectiveness as we
reap the rewards of the enhanced
capabilities we have established
to drive the strategies for each of
our businesses through stronger
commercial processes, improved
asset utilization, and a more
competitive cost base.
In addition to driving stronger
organic growth in our specialty
businesses, we continue to look
for strategy-enhancing, capability-
building bolt-on acquisitions.
segment operating profit growth,
reduced industry demand.
increasing by 20.0% to $22.2 million.
Performance Chemicals adjusted
segment operating profit grew to
$52.2 million as compared to $49.9
million a year earlier. (See Tables.)
The success we have had over
the past four years in Engineered
Surfaces started with structural
business changes we made in
this segment in 2012. Many of the
improvement actions we took then
are similar to those we initiated in
Performance Chemicals in 2015,
which I will expand upon later in
this letter.
2015 FINANCIAL RESULTS
AND DISCUSSION
Adjusted net income was $16.5
million in 2015, excluding
restructuring charges and other
unusual items, compared to
$12.9 million in 2014. Adjusted
earnings per share year-over-year
was up significantly, jumping to
$0.36 in 2015 from $0.28 a year
ago. (See Tables.)
Despite overall volumes being
down, we did see important gains
in key specialty lines of business
in both Performance Chemicals
and Engineered Surfaces, where
we are focusing our efforts on
long-term, profitable growth. The
specialty chemical lines of coatings,
nonwovens, elastomeric modifiers,
and home and personal care all
saw volume increases, as did North
American laminates in Engineered
Surfaces. We also were pleased to
see volume increases in tire cord
adhesives, one of our traditional
core Performance Materials lines
of business.
The rapid decline of the price of
oil – from over $100 a barrel in
2014 to under $30 as I write this
letter – made 2015 a difficult year
for the oil & gas market. Despite
this, profitability in our oil & gas
chemicals business remains at
attractive levels, and we expect
this cyclical market will eventually
return to its former strength. In the
Net sales in 2015 declined
meantime, our team is working
approximately 15%, to $838.0
to offer unique solutions that will
million, compared with $987.4
continue to diversify and grow
million in the previous year. Nearly
our oil & gas position now and into
one-half of the decline was related
the future.
to lower raw material costs, which
affected index pricing tied to these
materials in certain markets. The
strong dollar and other international
influences also contributed to the
sales decline due to the negative
impact on foreign exchange rates,
particularly in Thailand and Europe.
In addition, challenging conditions
in two of our served markets – oil
Market challenges also continued to
significantly affect the demand for
coated paper chemicals in 2015 due
to the popularity of digital media, as
well as growth in imported paper.
Likewise, demand in the carpet
market, while expected to begin
growing again as new construction
and existing home sales improve,
has nonetheless remained flat.
OMNOVA made good use of its
food service market segment
capital and strong cash flow from
that will carry over into 2016 and
operations to fund growth, complete
beyond. Our surf(x) laminates
its share repurchase program and
are the perfect replacement for
retire debt.
By the end of 2015, we had
repurchased 2.8 million shares for
a total of $20.0 million, completing
the share repurchase program
authorized by the Company’s Board
of Directors in late 2014.
OMNOVA also redeemed $50.0
million of the $200 million 7.875%
Senior Notes due in 2018, saving
approximately $4.0 million in future
interest costs.
ENGINEERED SURFACES
As I mentioned, Engineered Surfaces
has seen four consecutive years
of year-over-year improvement in
adjusted segment operating profit
– which grew by 20.0%, to $22.2
million, in 2015 – and operating
profit margin – which expanded by
200 basis points to 9.7% during the
year. (See Tables.)
Volume growth in laminates for
retail store fixture applications was
up 48% from 2014 on the strength
of our surf(x)® three-dimensional
laminates, and was a significant
contributor to our success as we
achieved wins with major national
retailers during the year. Our surf(x)®
3D laminates feature a proprietary
performance construction that keeps
retail environments looking better
longer through improved impact
resistance and the elimination of
unsightly chips and cracks, all at
a significantly lower overall cost.
These qualities are valued by the
operators of restaurant chains
as well, and in 2015 we gained
momentum in the large and growing
high pressure laminates, offering
30% lower fabrication costs and
up to 50% savings in life cycle
maintenance costs, in addition to
better design and appearance of
end-use products such as tables and
distinctive architectural elements.
This was also an important year for
laminates and films used in luxury
vinyl tile (LVT), the fastest growing
segment of the flooring market.
Production of LVT in North America
is just now ramping up, and we have
won new business that will expand
in 2016 with key flooring customers
for print and wear layer applications.
In the case of one major flooring
company, we successfully expanded
our long relationship in Performance
Chemicals on the carpet side of the
business to become a key partner in
LVT applications.
In the automotive market, we are
growing our customer base and
vehicle programs in Asia for interior
applications (e.g. seating, door
panels, instrument panels) from
our coated fabrics plants in China
and Thailand. In the large China
market, we have won business with
12 local OEMs to provide our coated
fabrics to many of the highest selling
models including sedans, SUVs,
light trucks and electric vehicles.
Innovation has played a major role
in these business wins. For example,
our team in China developed a
low-VOC, low-odor coated fabric
that meets the preferences of car
buyers in the region. We are building
a strong reputation for both our
technology and our quality in an
industry where Western quality
standards and service are valued.
“Our surf(x)® 3D laminates
feature a proprietary
performance construction
that keeps retail
environments looking
better longer through
improved impact resistance
and the elimination of
unsightly chips and cracks,
all at a significantly lower
overall cost.”
“In the large China market,
we have won business
with 12 local OEMs to
provide our coated fabrics
to many of the highest
selling models.”
PERFORMANCE CHEMICALS
This past year marked a critical
Throughout the year, we introduced
some exciting new products in
Performance Chemicals and took
aggressive actions to improve this
segment’s competitive position
and performance. Our new product
actions have been focused on
accelerating profitable growth in our
specialty lines of business including
specialty coatings, nonwovens,
construction materials, home
and personal care, and oil & gas
chemicals, whereas in our traditional
core lines of business our efforts
have emphasized increased profit
and cash contribution.
Among the new products is our
Pliotec® HDT-12 direct-to-metal
proprietary specialty coating,
which launched in North America
after a successful introduction in
Europe the previous year. This
launch contributed to a particularly
strong year for North American
specialty coatings and, importantly,
we have the opportunity to grow
this technology with other key
customers.
The global coatings business is
turning point for OMNOVA’s
chemicals that go into nonwoven
end uses. We have long had success
in disposable hygiene products
(diapers, feminine products, etc.),
where our latex binders offer
superior fluid management. We have
built upon our unique expertise in
binder systems to open a new, large
market segment for OMNOVA in
surface treatments. For example,
our recently introduced Softwick™
finishing treatment is a unique
polymer system that provides
softness and wicking properties
for improved fluid management,
offering the potential to design
advanced, less bulky products, thus
reducing costs for our customers and
increasing comfort for end users.
We are now beginning to apply
our differentiated technologies to
other key disposable and durable
nonwoven applications in building
materials (roofing), filtration,
automotive (in the passenger
compartment and under the hood),
wipes, and medical garments
(masks, gowns). It is important to
note that the nonwovens market
positioned well with several other
includes many large, global
new products, including innovative
customers. As with the hygiene
coating resins that protect wood
segment, we are targeting customers
decks and siding as well as garage
and applications that will allow us to
floors and concrete. Our highly-
regarded intumescent coatings
provide fire protection for the
steel in many of the most iconic
buildings around the world, such
as Wimbledon’s Centre Court, the
Sochi Winter Olympics stadium, and
several well-known office buildings,
airport terminals and sports stadiums
across North America, Europe, the
Middle East and Asia.
achieve significant profitable growth
on a global scale.
This global growth will be better
supported with the recent expansion
of capabilities and capacity at our
newest plant in Caojing, China.
In addition to nonwovens, this
plant can now serve customers in
the specialty coatings, tire cord,
construction, carpet and other
specialty markets.
“We have built upon our
unique expertise in binder
systems (for hygiene) to
open a new, large market
segment for OMNOVA in
surface treatments.”
“Our highly-regarded
intumescent coatings
provide fire protection for
the steel in many of the most
iconic buildings around the
world, such as Wimbledon’s
Centre Court ...”
POSITIONED FOR
ACCELERATED GROWTH
Last year, I outlined the four strategic
priorities that we as a Company
are focused on to achieve our
performance goals.
OUR VALUE-CREATING STRATEGY
Accelerate Growth in
Specialty Businesses
Expand Margins, Generate
Cash in Traditional Core
Drive Improved
Return on Investment
Deploy a Balanced
Capital Allocation Policy
States. We also announced the
We also know that there is
closure of approximately 130 million
significant potential for OMNOVA
pounds of excess North American
to gain a much larger share of
styrene butadiene (SB) capacity at
opportunities with key existing
our Mogadore, Ohio plant. These
customers. Toward that objective, in
actions followed the repurposing in
2015, we revised our sales model to
2014 of approximately 120 million
include more focused key account
pounds of SB capacity in Mogadore
selling, a major step for the future.
to focus on growth in specialty
Key account selling involves building
chemical applications such as
deeper, broader relationships with
coatings, nonwovens, and oil & gas.
those major customers that play
Production of SB latex for paper and
in a wide variety of markets so
carpet is being consolidated into our
that we can better understand and
Green Bay, Wisconsin plant, which is
respond to their emerging needs
the most modern in the industry and
and gain greater impact from
is very competitive in serving the
our new products and innovative
North American market.
technologies.
The manufacturing footprint
Additionally, the Company moved
In late 2014 and throughout 2015,
realignment is expected to be
forward to reduce general and
we initiated a comprehensive set
largely complete in the second
administrative expenses through
of actions designed to support
quarter of 2016. These and
a major restructuring that we
those priorities and create a solid
other actions are key to being a
announced in June 2015.
foundation for improvement and
competitive, long-term supplier and
excellence across all disciplines.
will result in an increase in total
While these actions extended to
OMNOVA SB capacity utilization
every corner of our Company,
to 90%, from 62% previously. This
we put particular emphasis
is expected to allow us to be more
on Performance Chemicals,
cost competitive and enhance the
implementing many of the ideas
depressed margins in paper and
and actions that helped re-ignite
carpet chemicals.
Combined, all of these actions are
expected to save the Company
approximately $14 million to $17
million annually by 2017 and help us
refocus our resources to accelerate
growth in our specialty lines of
business, improve the profitability
and cash generation of our
the Engineered Surfaces segment in
recent years.
To help increase our growth
Performance Materials (traditional
trajectory, we have strengthened
core) product lines, and drive greater
In order to more profitably and
our marketing, sales and innovation
returns on our investments.
efficiently support customers in all
processes and capabilities. We know
of OMNOVA’s chemical markets now
that accelerating profitable growth
and in the future, the Company has
depends on our commercial and
taken steps to adjust capacity and
technology teams working hand-in-
realign our operational footprint.
hand to turn insights on customer
In June 2015, we announced the
needs into innovative products that
closure of manufacturing at the
offer compelling and differentiated
Performance Chemicals plant
value propositions to our markets.
in Calhoun, Georgia, and the
We now have more consistent and
conversion of that facility to a
disciplined processes to gain and
distribution center to serve chemical
transfer these customer insights
customers in the southern United
and keep our innovation projects
on target.
Importantly, we have been
carrying out these changes under
new leadership. Anne Noonan
completed her first year as president
of Performance Chemicals in late
2015, and she has put together
an impressive team of leaders –
seasoned, high performers in new
roles as well as industry experts
from outside the Company.
1234 OUTLOOK AND ASPIRATIONS
With adjusted EPS up 29%, cash from operations up 191%, and margin expansion across all but one of our product
lines, 2015 was a year of clear progress. More importantly, our actions and achievements created the momentum
to position OMNOVA Solutions for increased performance in 2016, when the Company expects another year of
significant growth in adjusted EPS. With a longer-term look, we are driving to transform OMNOVA into a true specialty
business, and in doing so we aspire to achieve adjusted operating profit margins for the Company in the mid-teens,
adjusted EBITDA margins in the high teens, improved adjusted return on invested capital, and significant improvement
in working capital efficiencies. We believe we have the people, processes and tools in place to make it happen.
I want to thank our employees worldwide for a solid year in the midst of some challenging markets and tremendous
change at our Company. I believe we are on an exciting path to achieve a sustained level of performance
improvement and ongoing excellence for our shareholders, customers and employees.
Thank you all for your continued support,
Kevin M. McMullen
Chairman and Chief Executive Officer
CORPORATE GOALS REFLECT SUCCESSFUL TRANSITION TO SPECIALTY FOCUS
Adjusted Segment
Operating Margin
Adjusted
EBITDA Margin
Adjusted Return on
Invested Capital
Mid-
Teens
High-
Teens
8.9%
6.9%
9.4%
8.3%
7.6%
6.1%
2014
2015
2018
2014
2014
2015
2015
2018
2018
2014
2015
Goal
2014
2015
Goal
2014
2015
Goal
See tables that follow for Non-GAAP financial information.
This Shareholder Letter and Annual Report contain “forward-looking statements” reflecting management’s current expectations or
forecasts of future events, circumstances, results, or aspirations. Forward-looking statements, by their nature, are subject to risks and
uncertainties, and our actual results may differ materially from our current expectations and forecasts. For more infomation on forward-
looking statements and these risks and uncertainties, see Item 1A, Risk Factors, in this Annual Report.
COMPANY CONFIDENTIAL
NON-GAAP AND OTHER FINANCIAL MATTERS
Table A
Reconciliation of Reported Segment Sales and Operating Profit to Net Sales and Net (Loss) Income
(Dollars in millions)
Net Sales
Performance Chemicals
Performance Materials
Specialty Chemicals
Total Performance Chemicals
Engineered Surfaces
Coated Fabrics
Laminates and Performance Films
Total Engineered Surfaces
Inter-segment sales
Total Net Sales
Segment Operating (Loss) Profit
Performance Chemicals
Engineered Surfaces
Interest expense
Corporate expense
Shareholder activist costs
Operational improvement costs
Asset impairment
Debt issuance costs write-off
Acquisition and integration related expenses
(Loss) Income From Continuing Operations Before Income
Taxes
Income tax benefit
(Loss) income from continuing operations
Discontinued operations, net of tax
Net (Loss) Income
Depreciation and amortization
Capital expenditures
Year Ended
November 30,
2015
2014
331.0 $
277.1
608.1 $
423.9
322.6
746.5
87.8 $
142.1
229.9
—
838.0 $
15.9 $
18.9
(28.3 )
(23.7 )
(1.9 )
(0.4 )
(0.6 )
(0.6 )
(0.4 )
(21.1 )
2.4
(18.7 )
.9
(17.8 ) $
34.0 $
24.0 $
98.4
142.7
241.1
(.2 )
987.4
46.2
19.2
(32.9 )
(20.0 )
—
—
—
(.8 )
—
11.7
.4
12.1
(.6 )
11.5
34.8
29.8
$
$
$
$
$
$
$
$
This Shareholder Letter includes Adjusted Segment Operating Profit, Adjusted Income From Continuing Operations,
Adjusted Diluted Earnings Per Share, Adjusted EBIT, Net Debt and Adjusted EBITDA, which are non-GAAP financial
measures as defined by the Securities and Exchange Commission. Management reviews the adjusted financial
measures in assessing the performance of the business segments and in making decisions regarding the allocation
of resources to the business segments. Management also believes that the adjusted information is useful for
providing investors with an understanding of the Company’s business and operating performance. Management
excludes the items shown in the tables below because management does not consider them to be reflective of
normal operations. These adjusted financial measurements are not measurements of financial performance under
GAAP and such financial measures should not be considered as an alternative to Segment Operating Profit, Net
Income, Diluted Earnings Per Share or other measures of financial performance determined in accordance with
GAAP. These non-GAAP financial measures may not be comparable to similarly titled measures reported by other
companies. Presented in Tables B and C is the Company's Net Leverage Ratio calculation (Net Debt / Adjusted
EBITDA). Presented in Table D is the Company’s Adjusted Return on Invested Capital calculation (Adjusted Net
Operating Profit After Tax / Total Debt and Equity). The tables below provide the reconciliation of these financial
measures to the comparable GAAP financial measures.
NON-GAAP AND OTHER FINANCIAL MATTERS (Continued)
Twelve Months Ended November 30, 2015
Table B
(Dollars in millions except per share data)
Sales
Performance
Chemicals
608.1
$
Engineered
Surfaces
229.9
$
Corporate
—
$
Consolidated
838.0
$
Segment Operating Profit / Corporate Expense
$
Interest Expense
Income (loss) From Continuing Operations Before
Income Taxes
Management Excluded Items
Restructuring and severance
Accelerated depreciation on production transfer
Operational improvements costs
Acquisition and integration related expense
Environmental costs
Debt issuance costs write-off
Other financing costs
Shareholder activist costs
Asset impairment, facility closure costs and other
Subtotal for Management Excluded Items
Adjusted Segment Operating Profit / Corporate
Expense from Continuing Operations before
Income Taxes
Tax Expense (30% rate)*
Adjusted Income From Continuing Operations
Adjusted Diluted Earnings Per Share from
Adjusted Income from Continuing Operations
$
15.9
—
15.9
4.3
5.8
5.0
—
2.8
—
—
—
18.4
36.3
18.9
—
18.9
1.5
—
—
—
.2
—
—
—
1.6
3.3
$
(27.6 )
$
(28.3 )
(55.9 )
.1
—
.4
.4
—
.6
1.0
1.9
.6
5.0
$
52.2
$
22.2
$
(50.9 )
$
$
$
$
*Tax rate is based on the Company's estimated normalized annual effective tax rate
Adjusted segment operating profit from
continuing operations as a % of sales
Segment / Corporate Capital Expenditures
8.6 %
12.6
$
9.7 %
8.5
$
$
2.9
$
24.0
Adjusted segment operating profit / corporate
expense from continuing operations before
income taxes
Unallocated Corporate Interest Expense excluding
debt premium
Segment / Consolidated Adjusted EBIT
Depreciation and Amortization excluding
accelerated depreciation
Segment / Consolidated Adjusted EBITDA $
$
52.2
$
22.2
$
(50.9 )
$
23.5
—
52.2
21.1
73.3
$
—
22.2
6.0
28.2
27.3
(23.6 )
1.1
$
(22.5 )
$
Adjusted EBITDA as a % of sales
12.1 %
12.3 %
Net Leverage
Total short and long-term debt
Less Cash
Net Debt (Debt less Cash)
Net Leverage Ratio**
** The above calculation is not intended to be used for purposes of calculating debt covenant compliance.
$
$
7.2
(28.3 )
(21.1 )
5.9
5.8
5.4
.4
3.0
.6
1.0
1.9
20.6
44.6
23.5
(7.0 )
16.5
.36
27.3
50.8
28.2
79
9.4 %
356.7
(44.9 )
311.8
3.95x
NON-GAAP AND OTHER FINANCIAL MATTERS (Continued)
Twelve Months Ended November 30, 2014
(Dollars in millions except per share data)
Sales (Inter-group eliminations)
Performance
Chemicals
746.5
$
Engineered
Surfaces
241.1
$
Table C
Corporate
Consolidated
Segment Operating Profit / Corporate Expense
$
Interest Expense
Income (Loss) From Continuing Operations Before
Income Taxes
Management Excluded Items
Restructuring and severance
Accelerated depreciation on production transfer
Environmental costs
Gain on settlement of note receivable
Debt issuance costs write-off
Other financing costs
Asset impairment, facility closure costs and other
Subtotal for Management Excluded Items
Adjusted Segment Operating Profit / Corporate
Expense from Continuing Operations before
Income Taxes
Tax Expense (30% rate)*
Adjusted Income From Continuing Operations
Adjusted Diluted Earnings Per Share from Adjusted
Income from Continuing Operations
$
46.2
—
46.2
.5
2.2
1.0
—
—
—
—
3.7
19.2
—
19.2
.2
—
—
(1.1 )
—
—
.2
(.7 )
$
$
$
$
(.2 )
(20.8 )
(32.9 )
(53.7 )
—
—
—
—
.8
2.4
.6
3.8
$
49.9
$
18.5
$
(49.9 )
$
$
$
*Tax rate is based on the Company's estimated normalized annual effective tax rate.
Adjusted segment operating profit from continuing
operations as a % of sales
Segment / Corporate Capital Expenditures
$
6.7 %
21.8
$
7.7 %
6.7
$
1.3
$
29.8
Adjusted segment operating profit / corporate
expense from continuing operations before
income taxes
Unallocated Corporate Interest Expense excluding
debt premium
Segment / Consolidated Adjusted EBIT
Depreciation and Amortization excluding accelerated
depreciation
Segment / Consolidated Adjusted EBITDA $
$
49.9
$
18.5
$
(49.9 )
$
—
49.9
25.8
75.7
$
—
18.5
6.1
24.6
30.9
(19.0 )
.6
$
(18.4 )
$
Adjusted EBITDA as a % of sales
10.1 %
10.2 %
8.3 %
Net Leverage
Total short and long-term debt
Less Cash
Net Debt (Debt less Cash)
Net Leverage Ratio**
** The above calculation is not intended to be used for purposes of calculating debt covenant compliance.
$
$
412.0
(99.5 )
312.5
3.82x
987.4
44.6
(32.9 )
11.7
.7
2.2
1.0
(1.1 )
.8
2.4
.8
6.8
18.5
(5.6 )
12.9
.28
18.5
30.9
49.4
32.5
81.9
NON-GAAP AND OTHER FINANCIAL MATTERS (Continued)
Twelve Months Ended November 30, 2015 and 2014
Adjusted Return on Invested Capital
Table D
Adjusted Net Operating Profit after Tax
2015
2014
Adjusted Income from Continuing Operations
Interest add back excluding debt premium
Tax Effect of Interest add back*
Total Adjusted Net Operating Profit after Tax
Debt and Equity
Short-term Debt
Senior Notes
Long-term Debt
Total Shareholders' Equity
$
$
$
Total Debt and Equity
$
16.5
27.3
(8.2)
35.6
2.5
150.0
204.2
109.1
465.8
$
$
$
$
12.9
30.9
(9.3)
34.5
5.6
200.0
206.4
150.5
562.5
Adjusted Return on Invested Capital
7.6%
6.1%
*Tax rate is based on the Company's estimated normalized annual effective tax rate
1/15/2016 8:49 AM
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ROI Capital
DIRECTORS & OFFICERS
BOARD OF DIRECTORS
DAVID J. D’ANTONI 2
Retired Senior Vice President and Group
Operating Officer,
Ashland Inc.
JANET PLAUT GIESSELMAN 1
Retired President and General Manager,
Dow Oil & Gas
JOSEPH M. GINGO 1
Chairman, Retired President and Chief
Executive Officer of A. Schulman, Inc.
KEVIN M. MCMULLEN 3
Chairman, Chief Executive Officer and
President,
OMNOVA Solutions Inc.
MICHAEL J. MERRIMAN 2, 3, 4
Operating Advisor,
Reliance Capital Partners LLC
JAMES A. MITAROTONDA 1
Chairman, President, and Chief Executive
Officer of Barington Capital Group, L.P.;
Chairman, President and Chief
Executive Officer of Barington Companies
Investors, LLC
STEVEN W. PERCY 1, 3
Retired Chairman and
Chief Executive Officer,
BP America Inc.
LARRY B. PORCELLATO 2
Retired Chief Executive Officer,
The Homax Group, Inc.
ALLAN R. ROTHWELL 1
Retired Executive Vice President,
Eastman Chemical Company
WILLIAM R. SEELBACH 2
Senior Advisor,
The Riverside Company
ROBERT A. STEFANKO 2
Retired Chairman and Executive Vice
President – Finance and Administration,
A. Schulman, Inc.
COMMITTEES
1
Audit Committee
Chairman: Steven W. Percy
2
3
Compensation and Corporate
Governance Committee
Chairman: Michael J. Merriman
Executive Committee
Chairman: Kevin M. McMullen
4
Presiding Director
OFFICERS
KEVIN M. MCMULLEN
Chairman, Chief Executive Officer
and President
JAMES C. LEMAY
Senior Vice President, Corporate
Development; General Counsel
PAUL F. DESANTIS
Senior Vice President and
Chief Financial Officer
DOUGLAS E. WENGER
Senior Vice President and
Chief Information Officer
MICHAEL A. QUINN
Senior Vice President and
Chief Human Resources Officer
CHESTER W. FOX
Vice President, Treasurer and
Investor Relations
DAVID H. MAYNARD
President, Engineered Surfaces
ANNE P. NOONAN
President, Performance Chemicals
JAY T. AUSTIN
Senior Vice President,
Global Sourcing and Logistics
CORPORATE INFORMATION
SHAREHOLDER INFORMATION
NYSE ANNUAL CEO CERTIFICATION
The annual CEO certification required by
Section 303A.12(a) of the New York Stock
Exchange Listed Company Manual was
submitted by Kevin M. McMullen without
qualification on April 20, 2015.
TRANSFER AGENT AND REGISTRAR
Computershare
1-866-220-6360
1-201-680-6578 (outside U.S. and
Canada)
1-800-952-9245 (hearing impaired)
Address shareholder inquiries to:
OMNOVA Solutions Inc.
c/o Computershare
P.O. Box 30170
College Station, TX 77842-3170
or
211 Quality Circle, Suite 210
College Station, TX 77845
(overnight delivery/private couriers/
registered mail)
Questions and inquiries:
www.computershare.com/investor
All trademarks - OMNOVA Solutions
SHAREHOLDERS SERVICES
1-800-735-5160
INVESTOR RELATIONS CONTACT
Chester W. Fox
Vice President, Treasurer and
Investor Relations
216-682-7003
OMNOVA SOLUTIONS FOUNDATION
25435 Harvard Road
Beachwood, OH 44122-6201
216-682-7067
COMMUNICATIONS
General Inquires:
Corporate Communications
216-682-7010
information@omnova.com
INTERNET WEBSITE
www.omnova.com
OMNOVA Solutions is an equal
opportunity employer.
BUYDIRECT
BuyDIRECT is a direct purchase, sale
and dividend reinvestment plan
available to shareholders and interested
first-time investors.
It offers a convenient method of
increasing investment in the Company.
Subject to terms and conditions of the
plan, dividends (if any), together with
optional cash investments of up to
$120,000 per year, are used to buy more
shares of the Company’s Common Stock.
For more information regarding
the BuyDIRECT program, contact
Computershare at 1-866-220-6360.
COMMON STOCK LISTING
New York Stock Exchange
Ticker Symbol: OMN
ANNUAL MEETING OF SHAREHOLDERS
March 17, 2016 at 9:00 a.m.
OMNOVA Solutions
25435 Harvard Road
Beachwood, OH 44122-6201
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
Akron, OH
[THIS PAGE INTENTIONALLY LEFT BLANK]
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended November 30, 2015
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.)
25435 Harvard Road, Beachwood, Ohio
(Address of principal executive offices)
44122-6201
(Zip Code)
Registrant’s telephone number, including area code (216) 682-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange
on which registered
Common Stock, par value 10¢ per share
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if
the registrant
is a well-known seasoned issuer, as defined in Rule 405 of
the Securities
Act. Yes ‘ No Í
Indicate by check mark if the registrant
is not required to file reports pursuant
to Section 13 or Section 15(d) of the
Act. Yes ‘ No Í
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 Í No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ‘ No Í
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any,
interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes Í No ‘
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer ‘
Accelerated filer Í
Non-accelerated filer ‘
(do not check if a smaller
reporting company)
Smaller reporting company ‘
Indicate by check mark whether
the registrant
is a shell company (as defined in Rule 12-b of
the Exchange
Act) Yes ‘ No Í
The aggregate market value of the voting stock held by nonaffiliates of the registrant was $336,364,600 based on the closing
price per share of $7.51 on May 29, 2015, the last business day of the registrant’s most recently completed second quarter.
As of January 19, 2016, there were 44,807,593 outstanding shares of the Company’s Common Stock, 10¢ par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2016 Proxy Statement of OMNOVA Solutions Inc. are incorporated into Part III of this Report.
OMNOVA SOLUTIONS INC.
Annual Report on Form 10-K
For the Year Ended November 30, 2015
Table of Contents
Item
Number
PART I
1
1A
1B
2
3
4
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
5
6
7
7A
8
9
9A
9B
Market for Registrant’s Common Equity, Related shareholder Matters and Issuer Purchases of Equity Securities . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
10
11
12
13
14
Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related shareholder Matters . . . . . . . . . .
Certain Relationships and Related Transactions, Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
1
8
16
17
17
17
18
20
21
36
39
90
90
90
90
92
92
92
92
15
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
93
96
Item 1.
Business
Introduction
PART I
OMNOVA Solutions Inc. (referred to in this report as OMNOVA Solutions, OMNOVA, the Company, we or our) became an
independent publicly-traded company on October 1, 1999, when it was spun off by GenCorp Inc., its former parent company.
OMNOVA Solutions is incorporated under the laws of the State of Ohio, and its headquarters is located at 25435 Harvard Road,
Beachwood, Ohio 44122-6201.
OMNOVA Solutions is an innovator of performance-enhancing chemistries and surfaces for a number of commercial,
industrial, and residential end uses. Our products provide a variety of important functional and aesthetic benefits to hundreds of
products that people use daily. We hold leading positions in key market categories, which have been built through innovative
products, customized product solutions, strong technical expertise, well-established distribution channels, recognized brands, and
long-standing customer relationships. We have strategically located manufacturing, technical, and sales facilities in North America,
Europe, China, Thailand, and India to service our broad customer base.
OMNOVA operates two business segments: Performance Chemicals and Engineered Surfaces. Of our 2015 net sales, 73%
were derived from the Performance Chemicals segment and 27% were derived from the Engineered Surfaces segment. Financial
information relating to the Company’s business segments is set forth in Note R to the Consolidated Financial Statements of this
report.
Performance Chemicals
Background
Our Performance Chemicals segment began in 1952 as part of The General Tire & Rubber Company (later known as
GenCorp). Initially, the business focused on the manufacture of styrene butadiene latex for the paper industry and styrene
butadiene vinyl pyridine latex for tire cord adhesives in a single facility in Mogadore, Ohio. Since that time, the business has
grown through internal development and acquisitions to include six U.S. and four international manufacturing sites with expanded
capabilities, chemistries, and applications, as well as technology centers and sales offices in the U.S., Europe, and Asia.
Products
OMNOVA Solutions’ Performance Chemicals segment produces a broad range of emulsion polymers and specialty chemicals
based primarily on styrene butadiene (SB), styrene butadiene acrylonitrile (SBA), styrene butadiene vinyl pyridine, nitrile butadiene
(NBR), polyvinyl acetate, acrylic, styrene acrylic, vinyl acrylic, glyoxal, fluorochemical, and bio-based chemistries. We are a
leading supplier in a wide range of niche applications. We operate well maintained, strategically located, cost competitive
production facilities in U.S., Europe, China, and India. Our custom-formulated products include latices, hollow plastic pigments,
resins, binders, adhesives, specialty rubbers, antioxidants, and elastomeric modifiers, which are used in oil & gas drilling and
production, specialty coatings, paper and packaging, carpet, nonwovens, construction, adhesives, tape, tires, floor care, textiles,
graphic arts, polymer stabilization,
industrial rubbers & thermoplastics, synthetic latex gloves, and various other specialty
applications. Our products provide a variety of functional properties to enhance our customers’ products, including greater
improved processibility,
strength, adhesion, dimensional stability, water resistance, corrosion resistance,
enhanced appearance, improved durability and moisture wicking. Our Performance Chemicals segment is recognized for its core
capabilities in emulsion polymerization and emulsion polymer technology and for its ability to rapidly develop, manufacture, and
deliver highly customized products that provide innovative and value-added solutions to customers across a broad array of end
markets and applications.
flow and leveling,
1
The following table shows major Performance Chemicals products, end-use applications, and brand names:
Product Line
% of Performance
Chemicals Fiscal
2015 Net Sales
Performance Materials
54%
Specialty Chemicals
46%
Primary Products
End-use Applications
Brand Names
Paper, Packaging,
Carpet, Tire Cord,
Plastics, Synthetic Latex
Gloves, and Rubber
Products
Nonwovens, Textiles,
Graphic Arts, Automotive
Thermoplastics, Oil &
Gas, Specialty Coatings,
Buildings & Construction,
Home & Personal Care
SB and SBA latex
binders and crosslinkers,
lubricants and hollow
plastic pigments, styrene
butadiene vinyl
pyridine, VP latex, bio-
based polymers,
antioxidants, reinforcing
resins, phenolic
antioxidants, NBR
powders and
dispersions
SB, SBA, acrylic,
vinyl acrylic, styrene
acrylic and polyvinyl
acetate emulsion
polymers, hollow plastic
pigments, solid &
glyoxal resins,
elastomeric modifiers,
silicone emulsions,
polyethylene resins, and
fluorosurfactants,
opacifiers, and bio-
based polymers
SUNREZ, OMNAREZ,
SUNKOTE, SEQUALFLOW,
SUNKEM, GENCRYL,
SUNSIZE, ECOKOTE,
ACCUKOTE, LYTRON, HPP,
REACTOPAQUE, GENFLO,
GENCRYL PT, OMNAGLIDE,
SEQUAREZ, GENTAC,
PLIOCORD, OMNATUF,
OMNABLOC, GENCAL,
NOVAGREEN, LYTRON,
WINGSTAY
PERMALOFT, OMNABOND,
SUNSIZE, GENFLO,
GENCRYL, OMNAPEL,
SEQUABOND, SUNCRYL,
ACRYGEN, SUNBOND,
SEDGERES, PRYM,
SEDGEQUEST, SEDGELEV,
SEDGESPERSE, SEDGESAV,
SEQUAWET,
SEQUACLEAN,
WARCOSET, WARCO,
SEQUASOFT,
SEDGELCLEAN,
SEDGEDYE, SEDGEFIX,
SEDGEGARD, SEDGEKIL,
SEDGELUB, SEDGEMUL,
SEQUALINK,
SEDGESCOUR,
SEDGESOFT, SUNKOTE,
MYKON, PERMAFRESH,
SEQUAPEL, X-CAPE,
MYKOSOFT, MYKOSIL,
NORANE, IMPREGNOLE,
MYKOWICK, ACRYGEN,
NOVACRYL, GENFLO,
SECOAT, SECRYL,
SEQUABOND, CDP, UNIQ-
PRINT, GENGLAZE,
STYLECOAT, OMNAGLO,
MORGLO, RWL, ML,
MORFLO, MORSHINE,
CONREZ, NM, NH,
CONLEX, VERUS,
VISCODRILL, GENCEAL,
HYDROPLIOLITE, PLIOLITE,
PLIOTONE, PLIOWAY,
PLIOTEC, GENCEAL,
POLYFOX, SUNIGUM,
CHEMIGUM, LYTRON
2
Performance Materials. OMNOVA Solutions is a leading supplier of custom-formulated SB and SBA latex and hollow
plastic pigments for paper and paperboard coatings. In addition, we produce a broad variety of specialty chemical additives and
binder chemistries for coating applications in the paper, packaging, and paperboard industries. Our commitment
to product
innovation has enhanced our market position by creating products for the paper industry that improve the printability, strength,
gloss, opacity, and moisture resistance of coated papers and paperboard. Applications for our products include paper and
paperboard coatings used in magazines, catalogs, direct mail advertising, brochures, specialty papers,
food cartons, and
household and other consumer and industrial packaging.
OMNOVA is also a leading supplier of custom-formulated SB latex used as carpet backing binders. Our products for the
carpet industry secure carpet fibers to the carpet backing and adhere the primary backing to the secondary backing, while meeting
the stringent manufacturing, environmental, odor, flammability, and flexible installation requirements of our customers. Our strong
historical position in residential carpeting has been enhanced by new products to serve that market, as well as innovations in
commercial carpet backing binders that provide moisture barrier and other properties, enabling the replacement of higher cost
polyurethane binders.
OMNOVA is also a leading global supplier of vinyl pyridine latex which is used in fabric bonding to rubber in tire and belting
applications. In addition, the Company is the leading global supplier of antioxidants used in polymer stabilization and synthetic
latex gloves.
Sales of our Performance Materials products represented 39.4% of our consolidated net sales for 2015, 42.9% for 2014, and
44.6% for 2013.
Specialty Chemicals. OMNOVA Solutions is a leading global supplier of polymers, waterborne and solvent borne
dispersions, elastomers, and other specialty chemicals for a variety of product categories. Applications for our specialty polymers
and chemicals include specialty coatings; nonwovens (such as disposable hygiene products, engine filters, roofing mat, scrub
pads); construction; oil and gas drilling and recovery; adhesives; tape; floor care; textiles; graphic arts; home & personal care; and
various other specialty applications. Our focus is on developing unique products for custom applications that address specific
customer needs, including enhanced functionality, improved durability, high temperature, chemical and UV resistance, corrosion
resistance,
improved environmental performance, and improved processibility. Sales of our Specialty Chemicals products
represented 33.1% of our consolidated net sales for 2015, 32.7% for 2014, and 31.3% for 2013.
During 2015, the Company realigned product lines within its Performance Chemicals segment in an effort to integrate business
team structures. The tire cord, antioxidant and reinforcing resins lines were moved from Specialty Chemicals to Performance
Materials. All prior period amounts have been reclassified to conform to current year presentation.
Markets and Customers
The Performance Materials product line is highly competitive based on quality, customer service, product performance, price,
field technical support, and product innovations. The Specialty Chemicals product line includes many product categories that are
performance driven where product innovation, technical service, and application support are key competitive differentiators.
Marketing and Distribution
Our Performance Chemicals segment primarily sells its products directly to manufacturers through dedicated internal
marketing, sales, and technical service teams focused on providing highly responsive customized solutions.
Competition
Performance Chemicals primarily competes with other global chemical companies, including Trinseo, BASF, Lanxess, Lubrizol,
Wacker, Celanese, Dow, Arkema, Synthomer, Kumho, LG Chem, and Addivant, and with smaller regional companies such as
Interpolymer, Rashig, Croslene, Yatai, and Jubilant. Depending on the products involved and markets served, the basis of
competition varies and may include price, quality, customer and technical service, product performance, innovation, and industry
reputation. Overall, our Performance Chemicals segment regards its products to be competitive in its major categories, and we
believe that we are a leader in several categories, including SB and SBA latex paper coatings and carpet backing binders in North
3
America and a global leader in nonwoven SB binders, SB vinyl pyridine tire cord adhesives, floor care polymers, and polymers
used in the manufacturing of masking and other tapes. In addition, we also retain strong, industry recognized brands in
antioxidants, specialty coatings, and elastomeric modifiers.
Engineered Surfaces
Background
Our Engineered Surfaces segment began in 1945 when The General Tire & Rubber Company (later known as GenCorp)
purchased a coated fabrics manufacturing facility located in Jeannette, Pennsylvania from the Pennsylvania Rubber Company.
Since that time, the business has grown through internal development and acquisitions to include three U.S. and two international
manufacturing sites; a distribution center in the U.S.; technology centers and sales offices in the U.S. and Asia; and a wide range
of engineered surfacing products.
Products
Our Engineered Surfaces segment develops, designs, produces, and markets a broad line of functional and decorative
surfacing products, including coated fabrics; vinyl, paper, and specialty laminates; and performance films. These products are used
in numerous applications, including commercial building refurbishment; new construction; residential cabinets; flooring; ceiling tile;
retail displays;
food service tables and fixtures, office furniture, healthcare furniture and equipment and other furnishings;
transportation markets, including bus, mass transit, marine, automotive and motorcycle OEM seating; recreational vehicles;
manufactured housing and products; and a variety of performance film applications. Our core competencies in innovative product
development, design, compounding, calendering, casting, printing, coating, and embossing enable us to develop unique,
aesthetically pleasing surfacing products that have strong functional properties, such as cleanability and durability, including
scratch, stain, chip, and crack resistance that address specific customer needs. We have strong custom color and design
capabilities; an extensive design library covering a broad range of patterns, textures and colors, product formulation, and coating
and processing capabilities. Together these capabilities provide our products with the functionality and aesthetics that add value for
our customers. In addition, our broad range of products, global presence, and end-use applications give us economies of scale in
sourcing, manufacturing, design, sales and marketing, and product and process development.
4
The following table shows the products that our Engineered Surfaces segment develops, designs, produces, and markets.
Product Line
Coated Fabrics
% of Engineered
Surfaces Fiscal
2015 Net Sales
38%
Vinyl and urethane
coated fabrics
Primary Products
End-use Applications
Brand Names
Laminates and
Performance Films
62%
Vinyl, paper, and
specialty laminates;
performance films
BOLTAFLEX,
BOLTASOFT,
QUANTUM,
NAUTOLEX, PREFIXX,
PREVAILL, PINNACLE
RADIANCE,
SURF(X), DESIGN4,
EFX, DURAMAX,
HARMONY,
VIEWNIQUE
Seating surfacing for
transportation, marine,
offices, hotels,
hospitals and health
care facilities, stores,
schools, restaurants,
public buildings, and
residences; and
industrial applications
Decorative and
protective surfacing for
retail display and food
service fixtures, kitchen
and bath cabinets,
manufactured housing,
recreational vehicle
interiors, flooring,
commercial and
residential furniture,
home furnishings and
consumer appliances,
wall panel systems,
decorative wall
surfacing; industrial
films for banners, tents,
ceiling tiles, decking,
health care furniture,
and bath and spa
surrounds
Coated Fabrics. OMNOVA Solutions is a leading North American and Asian supplier of vinyl and urethane coated fabrics
for transportation, marine, commercial, residential, and health care applications. Our durable coated fabrics are well-suited for
demanding, high-use environments and offer a cost effective alternative to other surfacing materials, such as leather and textile
fabrics. Applications for our coated fabrics include transportation seating (automotive OEM, bus and other mass transit, marine,
and motorcycle), automotive aftermarket applications, contract and health care furniture, residential applications, and stadium,
arena seating and healthcare equipment. A key differentiator for our coated fabrics products is our PreFixx® protective coating,
long recognized for delivering the industry’s best-in-class performance. Sales of our coated fabrics products represented 10.5% of
our consolidated net sales for 2015, 10.0% for 2014, and 10.7% for 2013.
Laminates and Performance Films. OMNOVA Solutions is a leading supplier of vinyl, paper, and specialty laminates, and
performance films. Our laminates are used as alternatives to wood, paint, stone, stainless steel, high pressure laminates, and
thermally fused laminates in markets where durability, design, and cost are key requirements. We offer our customers a broad
range of designs and textures, as well as proprietary coating technology that provides enhanced durability and scratch and stain
resistance. Applications for our laminates include kitchen and bath cabinets, manufactured housing and recreational vehicle
interiors, flooring, commercial and residential furniture, retail display fixtures, home furnishings, consumer appliances, bath and
spa surrounds, food service tables, chairs, wall and surfacing protection and architectural accents. Performance films applications
include luxury vinyl tile (LVT), awnings, tents, flooring, promotional graphics, medical products, movie screens, decking, ceiling tile,
and shower pan liners.
5
A key strength of our laminates business is our coating technology, including ultraviolet, melamine, urethane, thermally cured,
and others, which provides greater durability for high-wear applications. In addition, our laminates business has differentiated
itself in the market as a single-source supplier through its harmony programTM of integrated vinyl and paper laminate designs for
the furniture and cabinet industries by building a unique library of matched vinyl and paper laminate designs, with a variety of
patterns and textures, and developing rapid make-to-order production capabilities. We also offer SURF(X)® 3D Laminates for
multi-dimensional applications for the office and health care furniture and retail display fixture and food service markets. These
laminates offer a cost effective alternative to high pressure laminates, thermally fused melamine and real wood veneers. They
provide furniture makers with design flexibility in rounded surfaces, eliminating the need for unsightly and expensive edge-
banding, and provide enhanced cleanability/disinfection and durability with increased chip and crack resistance. Sales of our
Laminates and Performance Films products represented 17.0% of our consolidated net sales for 2015, 14.5% for 2014, and 13.4%
for 2013.
Markets and Customers
We believe that our Engineered Surfaces segment is a leader in its targeted product categories. The coated fabrics, laminates,
and performance films businesses are highly competitive based on functional performance, decorative content, price, quality,
customer service, global capability, brand name recognition, distribution networks, and industry reputation. Engineered Surfaces
markets its products under numerous brand names to different industries.
Marketing and Distribution
Our Engineered Surfaces segment distributes its products primarily through a direct sales force and agents to manufacturers of
retail store fixtures, cabinets, furniture, seating, and health care components, and other products. Many of our Engineered Surfaces
segment’s products have strong, well-recognized brand names that are promoted through trade shows, industry periodicals, our
website (www.omnova.com), and other media.
Competition
OMNOVA’s Engineered Surfaces segment competes with numerous companies, including international companies. Many of
these companies focus on only one product line and/or market and are smaller and privately-owned. Competitors include:
(cid:129) Coated Fabrics—Morbern, Beneke, Uniroyal, and Spradling International
(cid:129) Laminates and Performance Films—Wilsonart, Toppan Printing, Renolit Corporation, LG Chemical America, PolyOne
Corporation, and I2M
International Operations
Net sales from our foreign operations were $298.2 million in 2015, $350.5 million in 2014, and $365.5 million in 2013.
These net sales represented 35.6% of our total net sales in 2015, 35.5% in 2014, and 35.9% in 2013. Long-lived assets primarily
consist of net property, plant, and equipment. Long-lived assets of our foreign operations totaled $85.6 million at November 30,
2015, $110.1 million at November 30, 2014, and $116.4 million at November 30, 2013. Our consolidated long-lived assets
totaled $215.6 million at November 30, 2015, $238.4 million at November 30, 2014, and $224.3 million at November 30,
2013.
Intellectual Property
We regard patents, trademarks, copyrights, and other intellectual property as important to our success, and we rely on them
in the United States and foreign countries to protect our investments in products and technology. Our patents expire at various
times, but we believe that the loss or expiration of any individual patent would not materially affect our business. We, like any
other company, may be subject to claims of alleged infringement of the patents, trademarks, and other intellectual property rights
of third parties from time to time in the ordinary course of business.
6
Seasonal Factors
We historically experience stronger sales and income in our second, third, and fourth quarters, comprised of the three-month
periods ending May 31, August 31, and November 30. Our performance in the first quarter (December through February) has
historically been weaker due to generally lower levels of customer manufacturing, construction, and refurbishment activities during
the holidays and cold weather months.
Environmental Matters
Our business operations, like those of other companies in the industries in which we operate, are subject to numerous federal,
state, local, and foreign environmental laws and regulations. These laws and regulations not only affect our current operations, but
also could impose liability on us for past operations that were conducted in compliance with then applicable laws and regulations.
For further discussion of capital and noncapital expenditures for environmental compliance, please refer to “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Environmental Matters” on page 36 of this report,
which is incorporated herein by reference.
Employees
As of November 30, 2015, the Company employed approximately 2,235 employees at offices, plants, and other facilities
the
located principally throughout
Company’s employees are covered by collective bargaining agreements in the United States. In addition, certain of our foreign
employees are also covered by collective bargaining agreements.
the United States, France, China, India, and Thailand. Approximately 9.9%, or 222, of
Raw Materials
Our Performance Chemicals segment utilizes a variety of raw materials, primarily monomers, in the manufacture of our
products. Most of these raw materials have been, and we expect will continue to be, generally available from multiple suppliers.
Monomer costs are a major component of the emulsion polymers produced by this segment. Key monomers include butadiene,
styrene, acrylates, acrylonitrile, vinyl acetate and vinyl pyridine (2VP). These monomers represented approximately 61% of
Performance Chemicals’ total raw materials purchased on a dollar basis in 2015 for this segment.
Our Engineered Surfaces segment utilizes a variety of raw materials that are generally available from multiple suppliers. Key
raw materials include polyvinyl chloride (PVC) resins, textiles, plasticizers, paper, and titanium dioxide. PVC resins, plasticizers,
and textiles represented approximately 56% of Engineered Surfaces’ total raw materials purchased on a dollar basis in 2015 for
this segment.
The cost of these raw materials has a significant impact on our profitability. We generally attempt to respond to raw material
cost increases through productivity programs and price increases to our customers. The success of attempted price increases
depends on a variety of
factors including the specific market application and competitive environment. Under certain
circumstances, we are not able to pass along some or all of the increase. In addition, if accepted by customers, price increases
generally lag the increase in raw material costs. Index pricing applies to approximately 40% of Performance Chemicals’ sales (see
discussion on page 22).
Research and Development
The OMNOVA Solutions technology centers in Akron, Ohio; Chester, South Carolina; Villejust, France; Valia, India; Minhang,
China; and Rayong, Thailand and the design centers in Monroe, North Carolina; New York, New York; and Minhang, China
support research and development efforts across our businesses and complement the resources focused on innovation in each of
our segments. Our efforts are focused on developing new applications with our base technologies, enhancing the functionality of
our products in existing applications, as well as developing new product and technology platforms.
Our research and development expenses were $8.3 million in 2015, $9.7 million in 2014, and $10.0 million in 2013.
Research and development expenses include the costs of technical activities that are useful in developing new products, services,
processes or techniques, as well as those expenses for technical activities that may significantly improve existing products or
forth in Note A to the Consolidated Financial
processes. Information relating to research and development expense is set
Statements of this report.
7
Available Information
Our website is located at www.omnova.com. We make available free of charge on our website all materials that we file
electronically with the Securities and Exchange Commission, including our Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we
electronically file or furnish such materials to the SEC. The OMNOVA Solutions Business Conduct Policies and Corporate
Governance Guidelines and charters for the Audit Committee and Compensation and Corporate Governance Committee of the
OMNOVA Solutions Board of Directors are also available on our website and in print to any shareholder who requests a copy. All
requests must be made in writing and addressed to OMNOVA Solutions Inc., Attn: Secretary, 25435 Harvard Road, Beachwood,
Ohio 44122-6201.
Item 1A.
Risk Factors
This Annual Report includes descriptions of our current business, operations, assets and other matters affecting the Company,
as well as “forward-looking statements” as defined by federal securities laws. All forward-looking statements by the Company,
including verbal statements, 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, debt and cash levels, sales, profits, earnings, markets, products, technology, operations, customers, raw
materials, claims and litigation, 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,” “committed,” and similar expressions or phrases identify forward-looking
statements.
All descriptions of our current business, operations and assets, as well as all forward-looking statements, involve risks and
uncertainties. Many risks and uncertainties are inherent in business generally. Other risks and uncertainties are more specific to the
Company’s businesses and strategy, or to any new businesses which the Company may enter into or acquire. There also may be
risks and uncertainties not currently known to us. The occurrence of any of such risks and uncertainties and the impact of such
occurrences is often not predictable or within the Company’s control. Such impacts could adversely affect the Company’s business,
operations or assets as well as the Company’s actual results and the value of your investment in the Company. In some cases, such
effect could be material. Certain risks and uncertainties facing the Company are described below or elsewhere in this Annual
Report.
All written and verbal descriptions of our business, operations and assets and all 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 and referenced herein. All such descriptions and any forward-looking statement speak only as of
the date on which such description or 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 such description or forward-looking statements
whether as a result of new information, future events or otherwise.
Market and Economic Risks
Our business is sensitive to general economic, business, and industry conditions.
We are exposed to general economic, business and industry conditions, both in the United States and internationally. Adverse
global economic and financial conditions are difficult to predict and mitigate against, and therefore the potential impact is difficult
to estimate. The end markets that we serve can be sensitive to changes in general economic conditions and can be volatile, with
significant, rapid, and unpredictable reductions in demand. Adverse general economic conditions may cause, among other things,
significant reductions in available capital and liquidity from banks and other credit providers, substantial volatility in equity and
currency values worldwide, and/or a prolonged recessionary or slow growth period, each of which may adversely affect our
customers’ access to capital or ability or desire to acquire or pay for our products. In addition, downturns in our customers’
particular industries, even when overall economic conditions are favorable, could adversely affect our sales, profitability, operating
results, and cash flows.
8
Our suppliers may be similarly affected by general economic conditions which may affect their access to capital and liquidity,
and which may in turn cause them to raise prices or reduce or eliminate production.
We are subject to the risks of doing business in foreign countries and markets.
We conduct a significant portion of our business in countries outside of the United States. Accordingly, our business is subject
to risks related to the differing legal, political, social and regulatory requirements, and economic conditions of many jurisdictions.
Risks associated with international operations, include, but are not limited to:
(cid:129) fluctuations in currency exchange rates;
(cid:129) region to region fluctuations in key raw material costs;
(cid:129) transportation delays and interruptions;
(cid:129) political and economic instability and disruptions;
(cid:129) failure to have or obtain, delays in obtaining, or the revocation of governmental licenses and permits;
(cid:129) the imposition of duties and tariffs;
(cid:129) import and export controls;
(cid:129) government control of capital transactions, including the borrowing of funds for operations or the expatriation of cash;
(cid:129) difficulties in staffing and managing operations;
(cid:129) limitations on our ability to enforce legal rights and remedies;
(cid:129) more stringent environmental, health and safety laws and regulations;
(cid:129) potentially adverse tax consequences; and
(cid:129) government expropriation of a business or assets.
Raw material prices and availability have a significant impact on results.
The cost of raw materials has a significant impact on results. The principal raw materials that we use in our business are
derived from petrochemicals and chemical feedstocks. The prices of many of these raw materials are cyclical and volatile and are
affected by supply and demand factors beyond our control. While we generally attempt to pass along higher raw material costs to
our customers in the form of price increases, there historically has been a time between an increase in raw material costs and our
ability to increase the prices of our products. Additionally, we may not be able to increase the prices of our products due to
competitive pricing pressure and other factors.
We generally have multiple global sources of supply for our raw materials. However, in some cases there are a limited
number of suppliers that are capable of delivering raw materials that meet our standards and these suppliers generally have
greater pricing and supply leverage. Various factors, including feedstock shortages, production disruptions, natural disasters, the
financial stability of our suppliers, supplier commitments to others, and internal raw material use by suppliers have reduced and
eliminated, and in the future may reduce or eliminate, the availability of certain raw materials. Additionally, disruptions in
transportation could delay receipt of raw materials. As a result, higher prices and shortages could occur in the future.
Furthermore, increases in raw material prices or supply uncertainty may result in customers switching to substitutes for our
products.
Our industry is highly competitive.
Many of the markets in which we operate are highly competitive. The bases of competition may include, product performance
and quality, price, product availability, and security of supply and customer service. Some of our competitors are larger and have
more financial resources than us. We may also experience increased competition from companies that offer alternative products
9
based on technologies and processes that have superior performance or better pricing, which could cause a decline in the market
acceptance of our products. The increasing pressure from our competitors to keep pace and develop new technologies and
products requires us to incur substantial expense.
Mergers and acquisitions in various industries continue to create individual customers with greater purchasing power and
competitors with greater financial and other resources. Customers in established markets like the United States and Europe face
their own competitive pressures, particularly from businesses in regions with lower overhead costs. These competitive pressures may
require us to reduce prices and attempt
to offset such price reductions with improved operating efficiencies and reduced
expenditures, which options may be limited or unavailable. Additionally, larger competitors may be better positioned to weather
prolonged periods of reduced prices, which may incentivize them to reduce prices even when not dictated by market and
competitive conditions.
The occurrence or threat of extraordinary events, including natural disasters, political disruptions, terrorist attacks, and acts
of war, could significantly disrupt production and decrease market demand for our products.
Extraordinary events, including natural disasters, political disruptions, terrorist attacks, public health issues, and acts of war
could adversely affect the economy generally, and disrupt our business and operations resulting in a loss of sales and customers. In
addition, in many cases we do not have redundant manufacturing or transportation capability and thus, any disruption of
production or transportation may result in loss of sales and customers.
Legal, Regulatory, and Compliance Risks
We are subject to extensive and increasing governmental regulation.
Our business operations are subject
to numerous foreign, federal, state and local regulations, which govern and restrict
numerous aspects of our business and involve significant compliance cost. We expect regulations, and the costs associated with
compliance, to continue to increase.
Among these regulations are increasingly stringent environmental and health and safety regulations. The cost of compliance
with these regulations is significant and increasing, and violating these regulations can result in substantial costs, including fines,
damages, criminal or civil sanctions, remediation costs, and interruptions in our operations.
Certain environmental requirements provide for strict, and under certain circumstances joint and several,
liability for
investigation and remediation of releases of regulated materials into the environment at or from properties owned or operated by
us or our predecessors or at or from properties where substances were sent for off-site treatment or disposal. These regulations may
also restrict or prohibit our ability to use certain raw materials key to our products or prohibit the sale of our products altogether.
We may be unable to effectively protect our intellectual property or may be subject to intellectual property claims.
For certain products we rely on trademark, trade secret, patent, and copyright laws to protect our intellectual property. We
cannot be sure that these intellectual property rights will be successfully asserted in the future or that they will not be invalidated or
circumvented. In addition, laws of some foreign countries in which our products are or may be sold do not protect our intellectual
property rights to the same extent as the laws of the United States. The failure or inability of us to protect our proprietary
information could make us less competitive.
From time to time, we may be subject
to claims or allegations that we infringe or have misappropriated the intellectual
property of third parties. Defending against such claims is costly and intellectual property litigation often involves complex questions
of fact and law, with unpredictable results. We may be forced to acquire rights to such third-party intellectual property on
unfavorable terms (if rights are made available at all), pay damages, modify accused products to be non-infringing, or stop selling
the applicable product altogether. Any of the foregoing could have a negative effect on our competitiveness.
We are subject to claims and litigation.
From time to time, we are subject
to various claims, proceedings, and lawsuits related to products, services, contracts,
employment, environmental, safety, intellectual property, and other matters arising out of our business operations or the business
10
operations of our predecessors. Whether founded or unfounded, if these claims, proceedings, and lawsuits are not resolved in our
favor, they may result in significant financial liability, place significant restrictions on or require significant changes in our business
operations, and harm the reputation of the Company and our products. The costs of investigating and defending against claims
can be substantial. We may not have applicable insurance coverage or our insurance providers may determine that our insurance
coverage does not apply a particular claim, and any such insurance coverage that we do have may be inadequate to cover the full
cost of a particular claim.
Resolutions of claims, proceedings, and lawsuits can be unpredictable and can often take years. As a result, any estimates of
liability that we may have made could be over or understated.
Changes in accounting policies, standards, and interpretations could materially affect how we report our financial condition
and results of operations.
The FASB, regulatory agencies, and other bodies that establish accounting standards periodically change the financial
accounting and reporting standards governing the preparation of the Company’s financial statements. Additionally, those bodies
that establish and interpret the accounting standards (such as the FASB and the SEC) may change prior interpretations or positions
on how these standards should be applied. These changes can be difficult to predict and can materially affect how the Company
records and reports its financial condition and results of operations. In unusual circumstances, the Company could be required to
retroactively apply a new or revised standard, resulting in changes to previously reported financial results.
We may be subject to the actions of activist shareholders.
We have been the subject of increased activity by activist shareholders, and shareholder activism generally is increasing.
Responding to shareholder activism can be costly and time-consuming, disrupt our operations, and divert
the attention of
management and our employees from our strategic initiatives. Activist campaigns can create perceived uncertainties as to our
future direction, strategy, or leadership and may result in the loss of potential business opportunities, harm our ability to attract new
investors, customers, and joint venture partners, and cause our stock price to experience periods of volatility or stagnation.
Moreover, if individuals are elected to our Board with a specific agenda, even though less than a majority, it may adversely affect
our ability to effectively and timely implement our current initiatives, retain, and attract experienced executives and employees, and
execute on our long-term strategy.
Business and Strategic Risks
We may be unable to achieve, or may be delayed in achieving, the objectives and benefits of our cost reduction initiatives.
We have and are undertaking operational excellence improvements using LEAN SixSigma, manufacturing footprint
optimization, global supply chain management, Enterprise Resource Planning (ERP) and other initiatives in an effort to improve
efficiencies and lower our cost structure. There may be unanticipated difficulties in implementing one or more of these initiatives,
and we may not ultimately realize the full benefits of, or be able to sustain the benefits anticipated by, these initiatives.
Additionally, even if we achieve these goals, the cost of implementing these initiatives could ultimately exceed their benefits. In
addition, certain of these initiatives are designed to streamline and consolidate our manufacturing capacity, increasing the risk of
business interruption if a consolidated manufacturing site experiences operational or other difficulties.
Our sales and profitability depend on our ability to develop and commercialize new products at competitive prices.
The highly competitive nature of many of our markets requires that we develop, introduce, sell, and support cost effective new
products and technologies on a timely basis and we make significant investments in research and development to do so. We may
be unsuccessful in developing or introducing new products, modifying our existing products, achieving market acceptance of new
products, or offering new products at competitive prices.
A significant portion of Performance Chemicals sales is concentrated among several large customers.
Our Performance Chemicals segment has several
large customers who account for a significant portion of Performance
Chemicals’ total sales. The loss of, or a significant reduction in purchases by, any one of these large customers could adversely
affect our results.
11
We are exposed to credit risk from our customers.
We extend credit on most of our sales, which exposes us to the risk of customer nonpayment. In deciding whether to extend
credit or enter into other transactions, we may rely on information furnished by or on behalf of customers, including financial
statements, credit reports, and other information. We may also rely on representations of these customers or third-parties as to the
accuracy and completeness of credit risk related information. The inaccuracy of that information or those representations would
affect our ability to accurately evaluate the default risk of a customer. Even with accurate information, negative changes in
economic, business, or industry conditions may increase the credit risk of customers who are initially determined to have
acceptable credit risk.
We may participate in joint ventures, the success of which depend, in part, on the performance of our joint venture partners.
From time to time, we participate in joint ventures. In a joint venture, we share business oversight and control with unaffiliated
third parties. If our joint venture partners do not fulfill their obligations, the affected joint venture may not be able to operate
according to its business plan, requiring us to increase our level of commitment to the joint venture. Differences in views among
joint venture participants could result in delayed decisions, failures to agree on major issues, or deviations from established
business plans.
We may not be able to identify or complete transactions with attractive acquisition candidates.
As part of our business strategy, we have pursued, and may continue to pursue,
targeted acquisition opportunities.
to identify and evaluate acquisition candidates (including potential
Implementing this business strategy requires management
synergies, business opportunities, and growth prospects), and to successfully negotiate the acquisition with the target company and
its stakeholders. There are a limited number of attractive candidates. Even if we identify attractive acquisition candidates we may
not be able to pay the required acquisition price. If we complete an acquisition, we may not achieve the anticipated benefits, such
as reduced cost or increased revenue.
We may not be able to successfully integrate acquisitions into our operations.
The integration of acquisitions into our operations involves a number of risks, including:
(cid:129) difficulty integrating operations and personnel at different locations;
(cid:129) diversion of management attention;
(cid:129) potential disruption of ongoing business because of the unknown reactions to the combination of OMNOVA and the
acquisition by customers, suppliers, and other key constituencies;
(cid:129) difficulties in assimilating the technologies and products of the acquisition;
(cid:129) inability to retain key personnel;
(cid:129) inability to successfully incorporate acquired business components with our existing operational and accounting
infrastructure;
(cid:129) difficulty in expanding product manufacturing to new sites; and
(cid:129) inability to maintain uniform standards, controls, procedures and policies.
If we are unable to effectively integrate operations and personnel in a timely and efficient manner after an acquisition is
completed, we may not realize the projected benefits expected from the acquisition.
We could have unanticipated capital expenditures.
Unanticipated maintenance issues, changes in government regulations, or significant technology shifts could result in higher
than anticipated capital expenditures.
12
Our business is subject to the risks associated with the use, production, storage, and transportation of chemicals.
Our manufacturing operations are subject to the potential hazards and risks associated with chemical production and the
related storage and transportation of inventories and wastes, including explosions, fires, inclement weather, natural disasters,
mechanical failure, unscheduled downtime, transportation interruptions, releases of hazardous substances and other risks. These
hazards can cause personal injury and loss of life, severe damage to, or destruction of, property and equipment and environmental
contamination. In addition, the occurrence of material operating problems at our facilities due to any of these hazards may
diminish or eliminate our ability to produce product.
Our information systems may experience an interruption or breach in security.
We rely heavily on electronic communications, information systems (both internal and provided by third parties) and the
internet to operate our factories, sell our products, fulfill orders, manage inventory, and bill, collect, and make payments. Our
systems are vulnerable to damage or interruption from natural disasters, power loss, telecommunication failures, computer viruses,
computer denial-of-service attacks, unauthorized intrusion, and other events, any of which could interrupt our business operations.
Our business is also subject to break-ins, sabotage, and intentional acts of vandalism.
Cybersecurity attacks can originate from a wide variety of sources, including persons who linked to terrorist organizations or
hostile foreign governments. Those same parties may also attempt to fraudulently induce employees, customers, or other users of
our systems to disclose sensitive information in order to gain access to our data or that of our customers.
Our security systems may not be able to protect our systems from attacks or other disruptions due to the rapid evolution and
sophistication of cyberattack methods. Any significant disruption or slowdown of our current or future information systems as a
result of a system security failure could disrupt the flow of operational information, cause orders to be lost or delayed, damage our
reputation with our customers, or cause our customers to cancel orders. Additionally, the theft of sensitive data and our inability to
protect trade secrets and personal identifiable information of our employees, customers, or suppliers could have an adverse effect
on our business, customers, suppliers, and employees. These risks may increase in the future as we increase our usage of mobile
platforms and expand our internal usage of third-party, web-based products and applications.
Employee healthcare costs continue to increase.
We maintain a self-insured healthcare plan under which we generally share the cost of health care with certain of our
employees and retirees. Employee healthcare is a significant operating cost for us, and these costs have been escalating well in
excess of other inflationary trends over the past decade. If healthcare costs continue to increase, we may not be willing or able to
pass those costs on to employees.
We may be unable to retain or attract key employees.
Many parts of our business are highly technical and specialized. Global competition for skilled employees meeting our
specialized needs is intense and our business success is dependent on our ability to retain our key employees and to attract highly-
qualified new employees. The unanticipated departure of any key member of management or any key employee, or our inability to
attract necessary talent, could adversely affect our ability to implement strategic initiatives and effectively operate our business.
We are subject to collective bargaining agreements with certain employees.
Approximately 10% of our employees located in the United States are covered by collective bargaining agreements. In
addition, certain employees of our foreign operations are also covered by collective bargaining agreements. We may not be able
to renew our collective bargaining agreements on terms similar to current terms, or renegotiate collective bargaining agreements
on terms acceptable to us. The prolonged failure to renew or renegotiate a collective bargaining agreement could result in work
stoppages. Additionally, in foreign jurisdictions where we operate, national unions and foreign governments may be unable to
reach agreements, which could result
in work stoppages that are out of the Company’s control. In addition, if a collective
bargaining agreement is negotiated at higher-than-anticipated cost, absorbing those costs or passing them through to customers
may make us less competitive.
13
Our U.S. pension plan is underfunded, requiring the Company to make significant cash contributions to the plan.
The Company’s U.S. pension plan is underfunded, and we are required to make significant cash contributions to it to comply
with minimum funding requirements imposed by benefit and tax laws. Contribution amounts are based on plan performance,
interest rates, and pension funding legislation, among other factors. We currently anticipate that we will be required under the
Pension Protection Act of 2006 to make a contribution to our U.S. pension plan in 2016 of $6.4 million. We cannot predict
whether changing conditions including interest rates, pension assets performance, discount rates, government regulation, or other
factors will require us to make future contributions in excess of current expectations, or whether we will have the funds necessary to
make minimum pension contributions at the times that they may be required.
We maintain cash balances in foreign financial institutions.
We maintain cash balances in foreign financial institutions. While we monitor the financial institutions that we maintain
accounts with, we may not be able to recover our funds in the event that the financial institution would fail. In addition, we may be
limited by foreign governments in the amount and timing of funds to be repatriated from foreign financial institutions.
We carry a significant amount of goodwill on our balance sheet.
As of November 30, 2015, we had goodwill of $80.8 million. The future occurrence of a potential indicator of impairment,
such as a significant adverse change in legal factors or business climate, an adverse action or assessment by a regulator,
unanticipated competition, a material negative change in relationships with significant customers, strategic decisions made in
response to economic or competitive conditions, loss of key personnel or a more-likely-than-not expectation that a reporting unit or
a significant portion of a reporting unit will be sold or disposed of, could result in goodwill impairment charges. We have recorded
goodwill impairment charges in the past, and such charges materially affected our historical results of operations. For additional
information, see Note A, Goodwill and Intangible Assets, to the accompanying consolidated financial statements.
The market price for our common shares is particularly volatile.
The market for our common shares is characterized by significant price volatility, and we expect that our share price will
continue to be volatile. The trading of relatively small quantities of common shares by our stockholders may cause disproportionate
movements upwards and downwards in our stock price due to our small market capitalization and low trading volume, and the
cyclical nature of our business may create prolonged periods of higher or lower than normal stock price not correlated to general
economic or market conditions.
Debt Risks
Our substantial debt could adversely affect our financial health and prevent us from fulfilling our obligations.
We have substantial debt and, as a result, significant debt service obligations. Our substantial debt could:
(cid:129) make it more difficult for us to satisfy our obligations with respect to our outstanding notes, our term loan and our revolving
credit facility;
(cid:129) increase our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations, because
a portion of our borrowings, including those under our term loan and our revolving credit facility, are at variable rates of
interest;
(cid:129) require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the
availability of our cash flow to fund working capital, capital expenditures, acquisitions, joint ventures, pension contributions
and investments, and other general corporate purposes;
(cid:129) limit our flexibility in planning for, or reacting to, changes in our business and the product categories in which we
participate;
(cid:129) limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants in our debt
agreements, and;
(cid:129) place us at a competitive disadvantage compared to our competitors that have less debt.
14
Our ability to make scheduled payments on or to refinance our debt obligations and to fund planned capital expenditures and
expansion efforts and any acquisitions we may make in the future depends on our ability to generate cash in the future and our
financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain
financial, business and other factors beyond our control. We could be required to obtain the consent of the lenders under our term
loan and our revolving credit facility to refinance material portions of our debt. We may not be able to maintain a level of cash
flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our debt.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or
delay investments and capital expenditures, sell assets, seek additional capital, or restructure or refinance our debt. These
alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. If our operating
results and available cash are insufficient to meet our debt service obligations, we could face substantial liquidity problems and
might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able
to consummate those dispositions or to obtain the proceeds that we could realize from them, and these proceeds may not be
adequate to meet any debt service obligations then due. Additionally, the agreements governing our term loan and our revolving
credit facility and the indenture governing the notes will limit the use of the proceeds from any disposition; as a result, we may not
be allowed, under these documents, to use proceeds from such dispositions to satisfy all current debt service obligations. Further,
we may need to refinance all or a portion of our debt on or before maturity, and we cannot assure that we will be able to
refinance any of our debt on commercially reasonable terms or at all.
Despite ongoing actions to reduce our debt, we may still be required to incur significant additional debt.
We may be able to incur substantial additional debt, including additional secured debt, in the future. The terms of our note
indenture restrict, and the agreements governing our term loan and revolving credit facility restrict but do not completely prohibit us
from incurring substantial additional debt. In addition, our note indenture allows us to issue additional notes under certain
circumstances, which would also be guaranteed by our domestic subsidiaries. The note indenture also allows us to incur certain
other additional secured debt. Non-guarantor subsidiaries, which includes our foreign subsidiaries may incur additional debt
under the note indenture, which debt (as well as other liabilities at any such subsidiary) would be structurally senior to our
outstanding notes. In addition, the note indenture does not prevent us from incurring certain other liabilities that do not constitute
indebtedness (as defined in the note indenture). If new debt or other liabilities are added to our current debt levels, the related risks
that we and our subsidiaries now face could intensify.
The indenture governing the notes and the agreements governing our term loan and our revolving credit facility imposes
significant operating and financial restrictions on us, which may prevent us from capitalizing on business opportunities.
The agreements governing our term loan and our revolving credit facility and the indenture governing the notes impose
significant operating and financial restrictions on us. These restrictions limit our ability, among other things, to:
(cid:129) incur additional debt or issue certain disqualified stock and preferred stock;
(cid:129) pay dividends or certain other distributions on our capital stock or repurchase our capital stock;
(cid:129) make certain investments or other restricted payments;
(cid:129) place restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us;
(cid:129) engage in transactions with affiliates;
(cid:129) sell certain assets or merge with or into other companies;
(cid:129) enter into sale and leaseback transactions;
(cid:129) guarantee debt;
(cid:129) create liens; and
(cid:129) enter into unrelated businesses.
Our term loan and revolving credit facility require us to meet certain financial covenants, including covenants relating to senior
net debt leverage, minimum excess availability and a springing minimum fixed charge coverage ratio if average excess availability
falls below a certain level.
15
As a result of these covenants and restrictions, we may be limited in how we conduct our business and may be unable to raise
additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any
future debt we may incur could include more restrictive covenants. We may not be able maintain compliance with these covenants
in the future and, if we fail to do so, we may be unable to obtain waivers from the lenders and/or amend the covenants.
Moreover, our revolving credit facility provides the lenders considerable discretion to impose reserves, which could materially
impair the amount of borrowings that would otherwise be available to us. There can be no assurance that the lenders under our
revolving credit facility will not impose such actions during the term of our revolving credit facility and further, were they to do so,
the resulting impact of this action could materially and adversely impair our ability to make interest payments on our debt.
If we default under our term loan or our revolving credit facility, we may not be able to service our debt obligations.
In the event of a default under our term loan or our revolving credit facility, the lenders under each of these facilities could
elect to declare all amounts borrowed, together with accrued and unpaid interest and other fees, to be due and payable. If such
acceleration occurs, thereby permitting an acceleration of amounts outstanding under the notes, we may not be able to repay the
amounts due under our term loan, our revolving credit facility, or our outstanding notes. This could have serious consequences to
the holders of the notes and to our financial condition and results of operations, and could cause us to become bankrupt or
insolvent.
We may not be able to generate sufficient cash to service all of our debt and may be forced to take other actions to satisfy
our obligations under our debt, which may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations and to fund planned capital expenditures and
expansion efforts and any strategic alliances or acquisitions we may make in the future depends on our ability to generate cash in
the future and our financial condition and operating performance, which are subject
to prevailing economic and competitive
conditions and to certain financial, business and other factors beyond our control. We will also be required to obtain the consent of
the lenders under our term loan and our revolving credit facility to refinance material portions of our debt. We cannot assure that
we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and
interest on our debt.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or
delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our debt. These
alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. If our operating
results and available cash are insufficient to meet our debt service obligations, we could face substantial liquidity problems and
might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able
to consummate those dispositions or to obtain the proceeds that we could realize from them, and these proceeds may not be
adequate to meet any debt service obligations then due. Additionally, the agreements governing our term loan and our revolving
credit facility and the indenture governing the notes will limit the use of the proceeds from any disposition; as a result, we may not
be allowed, under these documents, to use proceeds from such dispositions to satisfy all current debt service obligations. Further,
we may need to refinance all or a portion of our debt on or before maturity, and may not be able to refinance any of the debt on
commercially reasonable terms or at all.
Our non-guarantor subsidiaries may incur obligations that will constrain the ability of our subsidiaries to provide us with
cash, which may affect our ability to make payments on our debt.
Our cash flows and our ability to service our debt, including our ability to make interest and principal payments when due,
will be dependent upon cash dividends and other distributions or other transfers from our subsidiaries. Dividends, loans, and
advances to us from our non-guarantor subsidiaries may be restricted by covenants in certain debt agreements. If our non-
guarantor subsidiaries incur obligations with these restrictive covenants, it will constrain the ability of our non-subsidiaries to
provide us with cash, which may affect our ability to make payments on our debt.
Item 1B. Unresolved Staff Comments
Not Applicable.
16
Item 2.
Properties
The Company’s significant operating, manufacturing, distribution, research, design and/or sales, and marketing facilities are
set forth below:
Corporate Headquarters:
OMNOVA Solutions Inc.
25435 Harvard Road
Beachwood, OH
Performance Chemicals:
Headquarters:
25435 Harvard Road
Beachwood, OH
Engineered Surfaces:
Headquarters:
25435 Harvard Road
Beachwood, OH
Manufacturing/Technical/
Distribution Facilities:
Akron, OH
Calhoun, GA
Caojing, China
Chester, SC
Fitchburg, MA
Green Bay, WI
Le Havre, France
Mogadore, OH
Ningbo, China
Valia, India
Stafford, TX
Manufacturing Facilities:
Auburn, PA
Jeannette, PA
Minhang, China
Monroe, NC
*Rayong, Thailand
OMNOVA Solutions Global Technology Center
2990 Gilchrist Road
Akron, OH
Sales/Marketing:
*Beachwood, OH
*Mumbai, India
*Shanghai, China
*Singapore
Villejust, France
Sales/Marketing/Technical/Design/
Distribution:
Akron, OH
*Beachwood, OH
*Asnieres, France
*Bangkok, Thailand
*Columbus, MS
*Rayong, Thailand
*Shanghai, China
*
An asterisk next to a facility listed above indicates that it is a leased property.
For further discussion of our leased properties, please refer to Note P to the Consolidated Financial Statements of this report.
Item 3.
Legal Proceedings
From time to time, the Company is subject to various claims, proceedings and lawsuits related to products, services, contracts,
employment, environmental, safety, intellectual property, and other matters. The ultimate resolution of such claims, proceedings,
and lawsuits is inherently unpredictable and, as a result, the Company’s estimates of liability, if any, are subject to change. Actual
results may materially differ from the Company’s estimates and an unfavorable resolution of any matter could have a material
adverse effect on the financial condition, results of operations, and/or cash flows of the Company. However, subject to the above
and taking into account such amounts, if any, as are accrued from time to time on the Company’s balance sheet, the Company
does not believe, based on the information currently available to it, that the ultimate resolution of these matters will have a material
effect on the consolidated financial condition, results of operations, or cash flows of the Company.
Item 4.
Mine Safety Disclosures
Not applicable.
17
PART II
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
The Company’s common shares are listed on the New York Stock Exchange and trades under the symbol OMN. At
November 30, 2015, there were 6,030 holders of record of the Company’s common shares. Information regarding the high and
low quarterly sales prices of the Company’s common share is contained in the Quarterly Financial Data (Unaudited), which
appears on page 88 of this report and is incorporated herein by reference. The Company has not declared a dividend on its
common shares since 2001.
During the fourth quarter of 2014, the Company’s Board of Directors authorized the repurchase of up to $20.0 million of the
Company’s common shares. The authorization was effective for one year and expired October 31, 2015. The Company fully
utilized this program, repurchasing 2.6 million and 0.2 million of its common shares on the open market during 2015 and 2014,
respectively, at a total cost of $20.0 million.
The following table summarizes the Company’s repurchases of its common shares for the three months ended November 30,
2015.
Month
Total Number of shares
repurchased(a)
Average price paid per
share
Total number of shares
purchased as part of
publicly announced plans
or programs
Maximum dollar value of
shares that may yet be
purchased under the
plans or programs
September 1—30 . . . . . . . . .
October 1—31 . . . . . . . . . . .
November 1—30 . . . . . . . . .
251,200
733,447
2,049
Total . . . . . . . . . . . . . . . . . . .
986,696
$5.82
$6.81
$7.19
$6.37
251,200
733,447
2,049
986,696
$5,041,825
—
$
—
$
(a)
Includes common shares repurchased in the open market and common shares deemed surrendered by employees in connection with the Company’s stock compensation
and benefit plans to satisfy tax obligations.
Information concerning long-term debt appears in Note N to the Consolidated Financial Statements and is incorporated herein
by reference.
Information concerning securities authorized for issuance under the Company’s equity compensation plans is set forth in Equity
Compensation Plan Information of Item 12 in this Annual Report on page 92 and is incorporated herein by reference.
18
The following graph compares the cumulative 5-Year total return to shareholders on OMNOVA Solutions Inc.’s common
shares versus the cumulative total returns of the S&P 500 index and the S&P Industrials index. The graph assumes that the value of
the investment in the Company’s common shares and in each of the indexes (including reinvestment of dividends) was $100 on
November 30, 2010 and tracks it through November 30, 2015.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN®
Among OMNOVA Solutions Inc., the S&P 500 Index
and the S&P Industrials Index
$250
$200
$150
$100
$50
$0
11/10
11/11
11/12
11/13
11/14
11/15
OMNOVA Solutions Inc.
S&P 500
S&P Industrials
*The stock price performance included in this graph is not necessarily indicative of future stock price performance.
19
Item 6.
Selected Financial Data(1)
The following table sets forth the Company’s selected historical financial data which has been adjusted to reflect discontinued
operations for all periods presented. The selected historical financial data as of November 30, 2015, 2014, 2013, 2012, 2011,
and for each of the five years in the period ended November 30, 2015 are derived from the Company’s audited consolidated
financial statements.
Statement of operations data:
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Cost of goods sold (exclusive of depreciation)
$ 838.0
644.1
$ 987.4
788.0
$1,018.1
805.4
$1,125.5
898.3
$1,201.1
982.5
2015
2014
2013
2012
2011
(Dollars in millions, except per share data)
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general, and administrative . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on asset sales(3) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and severance(4)
. . . . . . . . . . . . . . . . . . . . . . . .
Interest expense(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition and integration related expense(5)
. . . . . . . . . . . .
Debt issuance costs write-off . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net(6) . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from continuing operations before income taxes . . .
Income tax benefit (expense)(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from continuing operations . . . . . . . . . . . . . . . . . . .
Discontinued Operations, net of tax:
Gain (loss) from operations(8) . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . .
193.9
119.3
34.0
19.4
.2
5.9
28.3
.4
.6
6.9
215.0
(21.1)
2.4
(18.7)
.9
—
.9
199.4
120.2
34.8
—
.5
.9
32.9
—
.8
(2.4)
212.7
118.1
33.6
.2
(4.9)
7.1
31.9
—
1.5
(1.3)
227.2
121.2
32.0
1.0
—
1.0
36.5
—
—
(1.4)
218.6
108.6
33.5
3.1
1.2
1.6
38.0
2.3
1.0
(.8)
187.7
186.2
190.3
188.5
11.7
.4
12.1
(.6)
—
(.6)
26.5
(6.0)
20.5
(.9)
—
(.9)
36.9
(11.2)
25.7
(4.1)
6.0
1.9
30.1
(13.4)
16.7
(19.5)
—
(19.5)
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (17.8) $
11.5
$
19.6
$
27.6
$
(2.8)
Basic income (loss) per share:
(Loss) income from continuing operations . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . .
$
(.41) $
.02
$
.26
(.01)
$
.44
(.02)
$
.56
.05
.37
(.43)
Net (loss) income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(.39) $
.25
$
.42
$
.61
$
(.06)
Diluted income (loss) per share:
(Loss) income from continuing operations . . . . . . . . . . . . . . . . . . .
Income (loss) from discontinued operations . . . . . . . . . . . . . . . . . .
$
(.41) $
.02
$
.26
(.01)
$
.44
(.02)
$
.56
.04
.37
(.43)
Net (loss) income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(.39) $
.25
$
.42
$
.60
$
(.06)
General:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt(9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
24.0
$ 687.2
$ 357.2
44.9
$
$
29.8
$ 829.2
$ 409.2
99.5
$
$
28.9
$ 854.7
$ 447.0
$ 164.9
$
32.8
$ 873.7
$ 442.6
$ 148.5
$
24.1
$ 865.1
$ 444.3
$ 103.1
(1) During November 2011, the Company committed to a plan to dispose of substantially all of its Engineered Surfaces commercial wallcovering operations. As such, the
results of operations for these businesses have been classified as discontinued operations for all periods presented.
(2) During 2015, the Company recognized asset
impairment charges of $19.4 million, primarily related to the write-down of the assets of its India business (see
Management’s Discussion and Analysis of Financial Condition and Results of Operations), a $0.6 million impairment on Corporate facilities, and $0.5 million
20
impairment on certain assets no longer used. During 2013, the Company recognized intangible asset impairment charges of $0.2 million to write down the value of one
of its trademarks to fair value. During 2012, the Company recognized asset impairment charges of $1.0 million to write down the value of its Columbus, Mississippi
facility and to write off other assets no longer used. During 2011, the Company recognized asset impairment charges of $3.1 million due to the idling of a plant in
Taicang, China and the planned realignment of coated fabrics production amongst existing facilities.
(3) During 2013, gain (loss) on asset sales primarily relates to the sale of equipment and plants in Columbus, Mississippi and Taicang, China.
(4) Restructuring and severance consisted primarily of severance costs of $5.9 million in 2015, severance costs of $0.9 million in 2014, and facility closure costs of $2.6
million and severance costs of $4.5 million in 2013, $1.0 million in 2012, and $1.6 million in 2011.
(5) The Company recognized acquisition and integration costs of $0.4 million in 2015, related to the acquisition of the assets of New Fluid Solutions. The Company
recognized acquisition and integration costs of $2.3 million in 2011, related to the purchase of ELIOKEM International SAS, which was acquired on December 9, 2010.
(6) During 2015, the Company recognized operational development costs of $5.4 million, environmental remediation costs of $3.0 million, and shareholder activist costs of
$1.9 million, which was partially offset by gains on foreign currency transactions of $1.5 million, sales of scrap material of $1.1 million, and net other income items of
$0.8 million. Included in 2014 were income from scrap material sales of $1.8 million, a gain on settlement of notes receivable of $1.1 million, gain on foreign currency
transactions of $1.1 million, and interest income of $0.8 million, partially offset by miscellaneous non-income tax expense of $1.1 million, environmental remediation
costs of $1.0 million, and other of $0.3 million.
(7) During 2014, the Company reversed a valuation allowance of $6.9 million related to capital loss carryforwards in the U.S.
(8)
Includes long-lived asset impairment charges of $13.6 million in 2011.
(9)
Included in 2015, 2014, and 2013 is $17.2 million, $17.6 million and $3.0 million, respectively, for capital leases. During 2015, the Company prepaid $50.0 million
of its Senior Notes for which it incurred $1.0 million in premium fees which is included in interest expense and wrote-off $0.6 million of related deferred financing fees.
Also, during 2014, the Company prepaid $50.0 million of its Senior Notes for which it incurred $2.0 million in premium fees which is included in interest expense and
wrote-off $0.8 million of related deferred financing fees.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company is an innovator of performance-enhancing chemistries and surfaces for a variety of commercial, industrial, and
residential end uses. As discussed in Item 1. Business, the Company operates two reportable business segments: Performance
Chemicals and Engineered Surfaces. The Performance Chemicals segment produces a broad range of emulsion polymers and
specialty chemicals based primarily on styrene butadiene (SB), styrene butadiene acrylonitrile (SBA), styrene butadiene vinyl
pyridine, nitrile butadiene (NBR), polyvinyl acetate, acrylic, styrene acrylic, vinyl acrylic, glyoxal, fluorochemicals, and bio-based
chemistries. Performance Chemicals’ custom-formulated products include latices, hollow plastic pigment, resins, binders, adhesives,
specialty rubbers, antioxidants and elastomeric modifiers which are used in oil and gas drilling and production, specialty coatings,
carpet, paper and packaging, nonwovens, construction, adhesives,
textiles, graphic arts, polymer
stabilization, industrial rubbers & thermoplastics, synthetic gloves and various other specialty applications. The Engineered Surfaces
segment develops, designs, produces, and markets a broad line of functional and decorative surfacing products, including coated
fabrics, vinyl, paper, and specialty laminates, and industrial films. These products are used in numerous applications, including
transportation including
commercial building refurbishment, remodeling and new construction, kitchen and bath cabinets,
automotive, truck, bus and other mass transit, marine and motorcycle, recreational vehicles and manufactured housing, flooring,
commercial and residential furniture, retail display fixtures, home furnishings and commercial appliances, and industrial films for
flooring, banners, tents, and ceiling tiles. Refer to Item 1. Business, of this Annual Report on Form 10-K for further description of
and background on the Company’s operating segments.
floor care,
tape,
tires,
The Company primarily sells its products directly to manufacturers.
The Company has manufacturing facilities strategically located in the United States, France, China, India, and Thailand.
The Company has historically experienced stronger sales and income in its second, third, and fourth quarters, comprised of
the three-month periods ending May 31, August 31, and November 30. The Company’s performance in the first quarter
(December through February) has historically been weaker and less profitable due to generally lower levels of customer
manufacturing, construction, and refurbishment activities during the holidays and cold weather months.
The Company’s chief operating decision maker, its CEO, evaluates performance and allocates resources by operating
information has been prepared in accordance with authoritative guidance promulgated by the Financial
segment. Segment
Accounting Standards Board (“FASB”). The Company’s two operating segments were determined based on products and services
21
provided. Accounting policies of the segments are the same as those described in Note A—Description of Business and Significant
Accounting Policies of the Company’s Consolidated Financial Statements. For a reconciliation of the Company’s segment operating
performance information, refer to Note R of the Company’s Consolidated Financial Statements.
A majority of the Company’s raw materials are derived from petrochemicals and chemical feedstocks where prices are cyclical
and volatile. Generally, the Company attempts to pass along increased raw material prices to customers in the form of price
increases of its products. However, due to sales contracts with certain customers, there may be a time delay between increased raw
material prices and the Company’s ability to increase the prices of its products. Additionally, the Company may also experience,
from time to time, competitive price pressures and other factors which may not allow it to increase the prices of its products. Also,
as raw material prices change, the Company revalues its inventory, which may result in an increase or decrease in the value of its
inventory.
OMNOVA’s Performance Chemicals segment had sales price index contracts related to approximately 40% of its sales in
2015 and approximately 42% of its sales in 2014. Customers with sales price index contracts are primarily in the Performance
Materials product line. The index is generally comprised of a negotiated, fixed amount per pound and the market price of key raw
materials (i.e. styrene and butadiene). The contract mechanisms generally allow for the pass-through of the changes, either
increases or decreases, in the prices of key raw materials within a 30 to 60 day period. Contracts vary in length from 12 to 36
months.
The remainder of Performance Chemicals’ sales are not indexed. OMNOVA periodically negotiates with each customer
regarding pricing changes based on the raw material components and the value-added and performance attributes of
OMNOVA’s product. OMNOVA’s pricing objective, which may or may not be met, is to recover raw material price increases
within a 30 to 60 day period.
Styrene, a key raw material component, is generally available worldwide, and OMNOVA has supply contracts with several
producers. OMNOVA believes there is adequate global capacity to serve demand. OMNOVA’s styrene purchases for 2012
through 2015 and the range of market prices are as follows:
Pounds Purchased
(in millions)
Market Price Range
Per Pound
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
166
177
172
177
$0.41 - $0.68
$0.69 - $0.84
$0.71 - $0.93
$0.57 - $0.78
Butadiene, a key raw material component, is generally available worldwide, but its price is volatile. OMNOVA has supply
times, when the demand for butadiene exceeds supply, it is sold on an allocated basis.
contracts with several producers. At
OMNOVA’s butadiene purchases for 2012 through 2015 and the range of market prices are as follows:
Pounds Purchased
(in millions)
Market Price Range
Per Pound
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
132
142
139
158
$0.29 - $0.65
$0.55 - $0.82
$0.44 - $1.01
$0.84 - $1.98
OMNOVA’s Engineered Surfaces segment does not generally utilize sales price index contracts with its customers; rather, it
negotiates pricing with each customer. OMNOVA’s pricing objective, which may or may not be met, is to recover raw material
price increases within a 90 day period. Key raw materials utilized by the Engineered Surfaces segment include polyvinyl chloride
(PVC) resins, textiles, and plasticizers. These raw materials are generally readily available worldwide from multiple suppliers.
22
Key Indicators
Key economic measures relevant to the Company include global economic growth rates, discretionary spending for durable
goods, print advertising, oil and gas consumption and drilling levels, U.S. commercial real estate occupancy rates, U.S. office
furniture sales, manufactured housing shipments, housing starts and sales of existing homes, and forecasts of raw material pricing
for certain petrochemical feed stocks. Key OEM industries, which provide a general indication of demand drivers to the Company,
include paper, commercial and residential construction and refurbishment, automotive and tire production, furniture manufacturing,
flooring manufacturing, and ABS manufacturing. These measures provide general information on trends relevant to the demand for
the Company’s products, but the trend information does not necessarily directly correlate with demand levels in the markets which
ultimately use the Company’s products in part because the Company’s market share is relatively small in a number of specialty
markets.
Key operating measures utilized by the business segments include: orders; sales and pricing; working capital days; inventory;
productivity; plant utilization; new product vitality; cost of quality; and order fill-rates, which provide key indicators of business
trends; and safety and other internal metrics. These measures are reported on various cycles including daily, weekly and monthly,
depending on the needs established by operating management.
Key financial measures utilized by management to evaluate the results of its businesses and to understand the key variables
impacting the current and future results of the Company include sales and pricing; gross profit; selling, general, and administrative
expenses; adjusted operating profit; adjusted net
taxes, depreciation, and
amortization (“EBITDA”) as set forth in the Net Leverage Ratio in the Company’s $200,000,000 Term Loan Credit Agreement;
Adjusted EBITDA, working capital; operating cash flows; capital expenditures; cash interest expense; adjusted earnings per share;
and applicable ratios, such as inventory turnover; working capital turnover; return on sales and assets; and leverage ratios. These
measures, as well as objectives established by the Board of Directors of the Company, are reviewed at monthly, quarterly, and
annual intervals and compared with historical periods.
income; consolidated earnings before interest,
Results of Operations of 2015 Compared to 2014
The Company’s net sales in 2015 were $838.0 million compared to $987.4 million in 2014. The Performance Chemicals
business segment revenue decreased by 18.5% and the Engineered Surfaces business segment revenue decreased by 4.6%.
Contributing to the net sales decrease in 2015 were sales volumes that were lower by $52.5 million, or 5.3%, a reduction in
customer pricing of $71.6 million, and unfavorable currency exchange translation effects of $25.5 million. The pricing decline was
primarily due to lower raw material costs and their related impact on pricing index formulas in certain markets of Performance
Chemicals. The lower volume was driven primarily by market weakness in paper, carpet, coated fabrics, and oil and gas, which
were only partially offset by improved volumes in specialty coatings, nonwovens, industrial rubber, laminates and tire cord.
Gross profit and gross profit margin in 2015 were $193.9 million and 23.1% compared to $199.4 million and 20.2% in
2014. The higher gross profit margin was primarily due to expanding margins, partially offset by unfavorable volumes and
unfavorable year-over-year inventory valuation adjustments of $3.5 million and unfavorable currency effects.
Selling, general, and administrative expense in 2015 decreased $0.9 million to $119.3 million, compared to $120.2 million
in 2014. The decrease in 2015 reflects savings from cost reduction programs implemented during the year.
Interest expense was $28.3 million and $32.9 million for 2015 and 2014, respectively. Included in 2015 and 2014 is $1.0
million and $2.0 million, respectively, of premiums paid on the early redemption of $100 million of the $250 million outstanding
Senior Notes ($50 million redeemed in November 2015 and $50 million redeemed in November 2014). The Company expects
interest expense will be approximately $3.9 million lower in 2016 compared to 2015, primarily due to the early redemption of
debt.
Income tax benefit was $2.4 million in 2015, or an 11.4% effective income tax rate, compared to an income tax benefit of
$0.4 million, or a 3.4% effective tax rate, for 2014. The higher tax rate in 2015 was primarily due to increased jurisdictional losses
in 2015. These losses primarily relate to the Company’s restructuring expenses and debt prepayment costs which were partially
offset by permanently non-deductible impairment charges. Cash tax payments in the U.S. are expected to be minimal for the next
few years as the Company has $107.4 million of U.S. federal net operating loss carryforwards, $112.4 million of state and local
23
net operating loss carryforwards, $0.2 million of foreign tax credit carryforwards, and $0.4 million of AMT credit carryforwards.
The $112.4 million of state and local NOLC’s have a related realizable deferred tax asset value of $4.4 million. During the year
ended November 30, 2015, the Company utilized approximately $8.2 million of federal net operating loss carryforwards. The
majority of the federal, state, and local net operating loss carryforwards have expirations between tax years 2021 and 2034.
The Company has not provided for U.S. income taxes on certain of its non-U.S. subsidiaries’ undistributed earnings as such
amounts are considered permanently reinvested outside the U.S. To the extent
foreign earnings previously treated as
permanently reinvested are repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these
earnings. However, based on the Company’s policy of permanent reinvestment, it is not practicable to determine the U.S. federal
income tax liability, if any, which would be payable if such earnings were not permanently reinvested. As of November 30, 2015,
the non-U.S. subsidiaries have a cumulative unremitted foreign loss position of $6.4 million.
that
The Company incurred losses from continuing operations of $18.7 million, or $0.41 per diluted share, in 2015 compared to
income of $12.1 million, or $0.26 per diluted share, in 2014. Included in 2015 are restructuring and severance charges of $5.9
million, accelerated depreciation expense of $5.8 million, asset
improvement and
shareholder activist costs of $7.3 million, environmental reserve costs of $3.0 million, premium fees and debt issuance cost write-off
of $1.6 million and acquisition expense and other items of $1.6 million. Included in 2014 are premium fees and deferred
financing costs write-offs of $3.2 million, environmental reserve charges of $1.0 million, corporate headquarters relocation
expense of $0.6 million, and a gain on the settlement of notes receivable of $1.1 million.
impairments of $19.4 million, operational
Segment Discussion
The following Segment Discussion presents information used by the Company in assessing the results of operations by business
segment. The Company believes that this presentation is useful for providing the investor with an understanding of the Company’s
business and operating performance because these measures are used by the chief operating decision maker, the CEO, in
evaluating performance and allocating resources.
24
The following table reconciles segment sales to consolidated net sales and segment operating profit (loss) to consolidated
income before income taxes. During the second quarter of 2015, the Performance Chemical segment realigned certain product
groupings to better optimize and integrate cross-functional business team structures in order to support business growth. This
resulted in an increase in sales of $107.4 million and $115.6 million to the Performance Materials product line for 2014 and
2013, respectively, with a corresponding decrease to the Specialty Chemicals product line. All prior period amounts have been
recast to conform with current presentation.
Year Ended
November 30,
2015
2014
(Dollars in millions)
Segment Sales:
Performance Chemicals
Performance Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specialty Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$331.0
277.1
$423.9
322.6
Total Performance Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$608.1
$746.5
Engineered Surfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Coated Fabrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Laminates and Performance Films . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 87.8
142.1
$ 98.4
142.7
Total Engineered Surfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-segment sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
229.9
—
241.1
(.2)
Consolidated Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$838.0
$987.4
Segment Gross Profit:
Performance Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Surfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$133.4
60.5
$141.1
58.3
Consolidated Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$193.9
$199.4
Segment Operating Profit:
Performance Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Surfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholder Activist costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operational improvement costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition and integration related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15.9
18.9
(28.3)
(23.7)
(1.9)
(.4)
(.6)
(.6)
(.4)
$ 46.2
19.2
(32.9)
(20.0)
—
—
—
(.8)
—
Consolidated income from continuing operations before income tax . . . . . . . . . . . . . . . . . . . . . . . .
$ (21.1) $ 11.7
Performance Chemicals
Performance Chemicals’ net sales decreased $138.4 million to $608.1 million in 2015, compared to $746.5 million in 2014.
The decrease was due primarily to reduced customer pricing of $72.2 million, or 9.7%, which was driven by contract-based index
pricing in certain markets and other price declines related to lower raw material costs, lower volumes that were unfavorable by
$42.9 million and unfavorable foreign currency translation effects of $23.3 million. Lower volumes, driven primarily by market
weakness in paper, carpet and oil and gas, were only partially offset by improved volumes in specialty coatings, nonwovens,
elastomeric modifiers, home and personal care, construction materials,
industrial rubber and tire cord. Net sales for the
Performance Materials product line decreased $92.9 million to $331.0 million in 2015 compared to $423.9 million in 2014. Net
sales for the Specialty Chemicals product line decreased $45.5 million to $277.1 million in 2015 compared to $322.6 million in
2014.
25
Performance Chemicals’ gross profit and gross profit margin were $133.4 million and 21.9% in 2015, compared to $141.1
million and 18.9% in 2014. The increase in gross profit margin was due primarily to expanding margins partially offset by
unfavorable volumes and unfavorable year-over-year inventory valuation adjustments of $1.6 million and unfavorable currency
translation effects.
This segment generated an operating profit of $15.9 million in 2015, compared to $46.2 million in 2014. The segment’s
operating profit was impacted primarily by the segment wide restructuring initiative and the asset impairment charge recorded for
the segment’s India operation. Management excludes these and other items when evaluating segment performance. Those items for
2015 included an asset impairment charge of $18.4 million primarily related to the Company’s India business, $5.8 million of
accelerated depreciation expense related to assets for which production will be transferred to another Performance Chemicals
facility, $5.0 million of operational improvement costs related to manufacturing footprint improvements, $4.3 million of severance
charges and environmental remediation charges of $2.8 million. The asset impairment charge was due to the Company approving
a plan to sell the assets of the Company’s non-core India business which resulted in the Company writing-down the value of that
asset group to its expected sales value. The segment operating profit was also impacted by volume declines and pricing declines
which were offset by margin expansion, favorable mix and improvements in manufacturing operations. Special items in 2014
which management excluded for business evaluation purposes included environmental remediation charges of $1.0 million, $2.2
million of accelerated depreciation expense related to assets for which production will be transferred to another Performance
Chemicals facility, and $0.5 million of severance charges.
Engineered Surfaces
Engineered Surfaces’ net sales decreased $11.2 million to $229.9 million in 2015, compared to $241.1 million in 2014. The
decrease was due primarily to lower volumes of $9.6 million and unfavorable foreign currency translation effects of $2.2 million,
which were partially offset by favorable pricing of $0.6 million. Coated Fabrics’ net sales decreased $10.6 million to $87.8 million
in 2015 compared to $98.4 million in 2014 primarily due to lower volume in the Asia automotive market. Net sales for the
Laminates and Performance Films product lines decreased, $0.6 million to $142.1 million in 2015 compared to $142.7 million in
2014, as sales improvements in recreational vehicles and retail display were offset by weakness in other markets.
Engineered Surfaces’ gross profit and gross margin were $60.5 million and 26.3% in 2015 compared to $58.3 million and
24.2% in 2014. The improvement in 2015 was due primarily to favorable product mix, positive pricing actions, and lower raw
material costs.
Segment operating profit was $18.9 million for 2015 compared to $19.2 million for 2014. The decrease in segment
operating profit was due primarily to charges for restructuring and severance which was partially offset by improved sales mix,
lower raw material costs and pricing. Segment operating profit includes items which management excludes when evaluating the
the Company’s segments. Those items for 2015 include workforce reduction actions of $1.5 million, European
results of
restructuring and inventory write-down charges of $1.6 million, and environmental remediation charges of $0.2 million. Those
items for 2014 include workforce reduction actions of $0.4 million and other items of $0.2 million offset by a gain on the
settlement of notes receivable of $1.1 million.
Interest and Corporate
Interest expense was $28.3 million and $32.9 million for 2015 and 2014, respectively. Included in 2015 and 2014 is $1.0
million and $2.0 million, respectively, of premiums paid on the early redemption of $100 million of the $250 million outstanding
Senior Notes ($50 million redeemed in November 2015 and $50 million redeemed in November 2014).
Corporate expenses were $23.7 million in 2015 compared to $20.0 million in 2014. The increase is due primarily to higher
employee compensation related costs and higher costs for outside professional services.
Results of Operations of 2014 Compared to 2013
The Company’s net sales in 2014 were $987.4 million, compared to $1,018.1 million in 2013. The Performance Chemicals
business segment revenue decreased by 3.4% while the Engineered Surfaces business segment revenue decreased 1.6%.
Contributing to the net sales decrease in 2014 were reduced volumes of $5.6 million, or 0.6%, reduced pricing of $24.5 million,
and unfavorable currency exchange translation effects of $0.4 million. The pricing decline was primarily due to lower raw material
26
costs and their related impact on pricing index formulas in Performance Materials and previously negotiated price reductions,
particularly in paper coatings, from earlier in the year in response to increased competitive intensity. The volume decline was
related primarily to paper coatings loss of volume to competitors and overall demand reduction and approximately $8.0 million of
lower year-over-year sales in coated fabrics as a result of exiting certain lower margin applications in late 2013. Sales in the
specialty lines of businesses continued to increase with particular strength in oil & gas, specialty coatings, and laminates.
Gross profit and gross profit margin were $199.4 million and 20.2% in 2014, compared to $212.7 million and 20.9% in
2013. The decline in gross profit margin was primarily due to the previously negotiated price reductions in Performance Materials,
higher global logistics costs, and volume shortfalls. Including the effect of an unfavorable year-over-year LIFO inventory reserve
adjustment of $5.0 million, raw material costs increased $8.3 million in 2014 compared to 2013.
Selling, general, and administrative expense in 2014 increased $2.1 million to $120.2 million, or 12.2% of sales, compared
to $118.1 million, or 11.6% of net sales, in 2013. The increase in 2014 reflects increased investment in sales and marketing
resources to support growth in the specialty lines of business.
Interest expense was $32.9 million and $31.9 million for 2014 and 2013, respectively. Included in 2014 is $2.0 million of
premiums paid on the early redemption of $50 million of the $250 million outstanding Senior Notes in November 2014. The
Company expects that this early redemption will lower future interest expense by approximately $3.9 million.
loss carryforward as the Company will utilize the capital
Income tax expense was $0.4 million in 2014, a (3.4)% effective income tax rate, compared to income tax expense of $6.0
million, or a 22.6% effective income tax rate, for 2013. The lower rate in 2014 was primarily due to the reversal of a valuation
loss carryforward against a capital gain
allowance on a capital
recognized on an intra-group stock sale in 2014 and also due to income in foreign jurisdictions where the rate is lower than the
U.S. domestic federal statutory rate. Cash tax payments in the U.S. are expected to be minimal for the next few years as the
Company has $115.1 million of U.S. federal net operating loss carryforwards, $113.9 million of state and local net operating loss
carryforwards, $0.2 million of foreign tax credit carryforwards, and $0.2 million of AMT credit carryforwards. The $113.9 million
of state and local NOLC’s have a related realizable deferred tax asset value of $5.0 million. The majority of the federal, state, and
local net operating loss carryforwards will expire between tax years 2021 and 2034.
The Company has not provided for U.S. income taxes on certain of its non-U.S. subsidiaries’ undistributed earnings as such
amounts are considered permanently reinvested outside the U.S. To the extent
foreign earnings previously treated as
permanently reinvested are repatriated, the related U.S. tax liability may be reduced by any foreign income taxes paid on these
earnings. However, based on the Company’s policy of permanent reinvestment, it is not practicable to determine the U.S. federal
income tax liability, if any, which would be payable if such earnings were not permanently reinvested. As of November 30, 2013,
the non-U.S. subsidiaries have a cumulative unremitted foreign earnings income position of $65.2 million.
that
The Company generated income from continuing operations of $12.1 million or $0.26 per diluted share in 2014 compared to
$20.5 million or $0.44 per diluted share in 2013. Included in 2014 are premium fees and deferred financing costs write-offs of
$3.2 million related to the debt redemption discussed previously, environmental reserve charges of $1.0 million, corporate
headquarter relocation expense of $0.6 million, and a gain on the settlement of notes receivable of $1.1 million. Included in 2013
are gains on asset sales of $4.9 million due primarily to the sale of the Company’s Taicang, China facility and Columbus,
Mississippi property, plant, and equipment, a write-off of deferred financing fees of $1.5 million as a result of refinancing actions,
and an impairment charge of $0.9 million on a note receivable.
Segment Discussion
The following Segment Discussion presents information used by the Company in assessing the results of operations by business
segment. The Company believes that this presentation is useful for providing the investor with an understanding of the Company’s
business and operating performance because these measures are used by the chief operating decision maker, the CEO, in
evaluating performance and allocating resources.
27
The following table reconciles segment sales to consolidated net sales and segment operating profit (loss) to consolidated
income before income taxes.
Year Ended
November 30,
2014
2013
(Dollars in millions)
Segment Sales:
Performance Chemicals
Performance Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specialty Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$423.9
322.6
$ 454.2
318.8
Total Performance Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Surfaces
$746.5
$ 773.0
Coated Fabrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Laminates and Performance Films . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 98.4
142.7
$ 108.9
136.2
Total Engineered Surfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
241.1
245.1
Consolidated Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$987.6
$1,018.1
Segment Gross Profit:
Performance Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Surfaces
$141.1
58.3
$ 155.4
57.3
Consolidated Gross Profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$199.4
$ 212.7
Segment Operating Profit:
Performance Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Surfaces
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs write-off
$ 46.2
19.2
(32.9)
(20.0)
(0.8)
$
64.1
15.6
(31.9)
(19.8)
(1.5)
Consolidated income from continuing operations before income tax . . . . . . . . . . . . . . . . . . . . . . .
$ 11.7
$
26.5
Performance Chemicals
Performance Chemicals’ net sales decreased $26.5 million to $746.5 million during 2014, compared to $773.0 million
during 2013. The decrease was due primarily to reduced customer pricing of $25.9 million, or 3.4%, and lower volumes of $2.0
million, partially offset by favorable foreign currency translation effects of $1.4 million. Lower customer pricing was primarily due
to lower raw material costs and their impact on index pricing and previously negotiated price reductions in certain Performance
lines (primarily paper coatings) in response to increased competitive intensity. Reduced volumes in paper
Materials product
coatings, nonwovens, and antioxidants were only partially offset by improvements in oil and gas, and global specialty coatings.
Net sales for the Performance Materials product line decreased $30.3 million to $423.9 million during 2014 compared to $454.2
million during 2013. The decrease was driven by lower volumes and reduced pricing. Net sales for the Specialty Chemicals
product line decreased $3.8 million to $322.6 million during 2014 compared to $318.8 million during 2013. The decrease was
due to reduced customer pricing, partially offset by improved volumes of $3.5 million and favorable foreign currency translation
effects of $1.4 million.
Performance Chemicals’ gross profit and gross profit margin were $141.1 million and 18.9% in 2014, compared to $155.4
million and 20.1% in 2013. The decline in gross profit margin was due primarily to the previously negotiated price reductions in
Performance Materials, higher global logistics costs and reduced volume. Including the effect of an unfavorable year-over-year
LIFO inventory reserve adjustment of $3.4 million, raw material costs decreased $9.1 million in 2014 compared to 2013.
28
This segment generated an operating profit of $46.2 million in 2014, compared to $64.1 million in 2013. The decrease in
segment operating profit was due primarily to lower pricing and volume in Performance Materials and higher logistics costs. The
segment operating profit also includes items which management excludes when evaluating the results of the Company’s segments.
Those items for 2014 include environmental remediation charges of $1.0 million, $2.2 million of accelerated depreciation expense
related to assets for which production will be transferred to another Performance Chemicals facility, and $0.5 million of severance
charges. Those items for 2013 include $2.1 million of severance costs, $1.0 million of accelerated depreciation expense, a non-
cash intangible asset impairment charge of $0.2 million, and a gain of $0.3 million on an asset sale.
Engineered Surfaces
Engineered Surfaces’ net sales decreased $4.0 million to $241.1 million in 2014 from $245.1 million in 2013. The decrease
was due primarily to the strategic decision in 2013 to exit certain low margin coated fabrics applications and unfavorable currency
translation of $1.8 million, which were partially offset by higher volumes in Laminates. Coated Fabrics’ net sales decreased to
$98.4 million in 2014, compared to $108.9 million in 2013 as improved sales in the China automotive seating market were more
than offset by the lower sales in China residential furniture applications and North American transportation applications as a result
of exiting certain low margin applications in late 2013. Net sales for the Laminates and Performance Films product lines decreased
to $142.7 million during 2014, compared to $136.2 million during 2013, as sales improved in kitchen and bath, flooring,
recreational vehicles, and retail display.
Engineered Surfaces’ gross profit was $58.3 million with a gross profit margin of 24.2% during 2014, compared to $57.3
million and a gross profit margin of 23.4% in 2013. The improvement in 2014 was primarily due to positive pricing actions, lower
raw material costs, and improved product mix, partially offset by higher logistics and utility costs and higher costs of quality in
Thailand.
Segment operating profit was $19.2 million for 2014 compared to $15.6 million for 2013. Since the exit from commercial
wallcovering and subsequent closure of the Columbus, Mississippi plant, the segment had steadily increased its profit contribution
with 2014 being a record year. The improvement was due primarily to better sales mix, lower raw material costs, and positive
pricing actions. Segment operating profit also includes items which management excludes when evaluating the results of the
Company’s segments. Those items for 2014 include workforce reduction actions of $0.4 million and a gain on the settlement of
notes receivable of $1.1 million. Those items for 2013 include gains on asset sales of $5.1 million, workforce reduction and other
costs of $3.0 million, facility closure and transition costs of $3.3 million, and a non-cash impairment charge of $0.9 million on a
note receivable.
Interest and Corporate
Interest expense was $32.9 million and $31.9 million for 2014 and 2013, respectively. Included in 2014 is $2.0 million of
premiums paid on the early redemption of $50 million of the $250 million outstanding Senior Notes in November 2014.
Corporate expenses were $20.0 million in 2014 compared to $19.8 million in 2013. The increase is due primarily to
accelerated one-time employment expenses related to employee retirements.
Discontinued Operations
The Company sold its commercial wallcovering businesses during the first half of 2012 to J. Josephson, Inc., a private
commercial wallcovering producer based in New Jersey, United States. As a result of extensive negotiations, during May 2015, J.
Josephson Inc. agreed to reimburse the Company for a 2014 settlement claim paid by the Company to a former wallcovering
customer. The Company recognized a gain of $0.9 million, net of tax, which is included in results for discontinued operations.
29
Financial Resources and Capital Spending
The following table reflects key cash flow measures from continuing operations:
2015
2014
2013
(Dollars in millions)
Cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 43.7
$ 45.8
$ 15.0
$(29.0) $(25.0) $(22.0)
$(72.7) $(52.5) $ (1.5)
$(54.6) $(65.4) $ 21.9
Cash provided by operating activities was $43.7 million in 2015, compared to $15.0 million in 2014 and $45.8 million in
2013. The increase in 2015 was due to lower working capital. The decrease in 2014 was due primarily to an increase in working
capital and lower net income. Days sales outstanding was 51.6 days in 2015, 50.8 days in 2014, and 47.8 days in 2013. The
increase in both 2015 and 2014 was due primarily to an increase in terms at several key customers and a higher mix of
receivables in foreign countries where terms are longer.
Cash used in investing activities was $29.0 million in 2015, compared to $25.0 million in 2014 and $22.0 million in 2013.
Included in 2015 are capital expenditures of $24.0 million and $5.0 million for the acquisition of New Fluid Solutions. Included in
2014 were capital expenditures of $29.8 million, which were partially offset by cash received on the settlement of notes receivable
of $2.3 million and insurance proceeds of $2.4 million. The Company expects capital expenditures to be between approximately
$20.0 million and $30.0 million during 2016.
Cash used in financing activities was $72.7 million in 2015, and was due primarily to a $50.0 million debt prepayment on
the Company’s Senior Notes and $18.6 million used in the buyback of the Company’s common shares. Cash used in financing
activities in 2014 was $52.5 million, due primarily to a $50.0 million debt prepayment on the Company’s Senior Notes and $1.4
million used in the buyback of the Company’s common shares. Cash used in financing activities in 2013 of $1.5 million was
primarily due to debt payments of $6.5 million and refinancing costs of $0.6 million, partially offset by the release of restricted
cash, which was previously used as a compensating balance against
foreign debt. Total debt was $358.7 million as of
November 30, 2015, which includes senior notes outstanding of $150.0 million, $190.0 million for the term loan, capital lease
obligations of $17.2 million, and $1.5 million of
foreign debt, compared to $412.8 million as of November 30, 2014.
OMNOVA’s cash balance of $44.9 million at November 30, 2015 consists of $5.3 million in the U.S., $26.5 million in Europe,
and $13.1 million in Asia. OMNOVA is not aware of any restrictions regarding the repatriation of its non-U.S. cash.
The Company believes that its cash flows from operations, together with existing credit facilities and cash on hand will be
adequate to fund its requirements for at least the next twelve months.
Debt
Information regarding the Company’s debt is disclosed in Note N to the Company’s consolidated financial statements.
Contractual Obligations
Long-term debt and amounts due banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest payments on long-term debt(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating and financing leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and post-retirement funding obligations(3) . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$341.5
26.6
51.5
38.5
13.8
62.0
10.4
Payments Due By Period
Less
Than 1
Year
2 – 3
Years
4 – 5
Years
More
Than 5
Years
(Dollars in millions)
$338.0
2.9
31.6
8.3
—
7.3
3.4
$ 3.5
1.2
19.9
5.3
13.8
6.3
—
$ — $ —
19.5
—
19.6
—
29.4
3.5
3.0
—
5.3
—
19.0
3.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$544.3
$50.0
$391.5
$30.8
$72.0
30
(1) Includes principal and effective interest payments.
(2) Based on outstanding debt balances as of November 30, 2015 and estimated interest rates. As those are based on estimates, actual
future payments may be different.
(3) Payments are based on Company estimates and current funding laws. Actual results may be different.
Significant Accounting Estimates and Management Judgments
The Company’s discussion and analysis of its results of operations, financial condition, and liquidity are based upon the
Company’s consolidated financial statements as of November 30, 2015, which have been prepared in accordance with U.S.
generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates
and judgments that affect
the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities as of the date of the financial statements. Periodically, the Company reviews its estimates and
judgments including those related to product returns, accounts receivable, inventories, litigation, environmental reserves, pensions,
and income taxes. The Company bases its estimates and judgments on historical experience and on various assumptions that it
believes to be reasonable under the circumstances. Actual results may materially differ from these estimates under different
assumptions or conditions.
Management believes the following critical accounting policies affect its more significant estimates and assumptions used in the
preparation of its consolidated financial statements:
A)
Revenue Recognition
The Company recognizes revenue when the following criteria are met:1) persuasive evidence of an arrangement exists; 2)
delivery has occurred; 3) an established sales price has been set with the customer; 4) collection of the sale revenue from the
customer is reasonably assured; and 5) no contingencies exist. Delivery is considered to have occurred when the customer assumes
the risk and rewards of ownership. The Company estimates and records provisions for quantity rebates and sales returns and
allowances as an offset to revenue in the same period the related revenue is recognized, based upon its experience. These items
are included as a reduction in deriving net sales.
B) Allowance For Doubtful Accounts
The Company’s policy is to identify all customers that are considered doubtful of collection based upon the customer’s financial
condition, payment history, credit rating and other relevant factors; the Company will reserve the portion of such accounts
receivable for which collection does not appear likely. If the financial condition of our customers were to deteriorate, resulting in an
inability to make payments, additional allowances may be required. The allowance for doubtful accounts was $1.3 million and
$1.4 million at November 30, 2015 and 2014, respectively.
C) Allowance For Inventory Obsolescence
The Company’s policy is to maintain an inventory obsolescence reserve based upon specifically identified, discontinued, or
obsolete items and a percentage of quantities on hand compared with historical and forecasted usage and sales levels. The policy
has been applied on a consistent basis for all years presented. A sudden and unexpected change in design trends and/or material
preferences could impact the carrying value of the Company’s inventory and require the Company to increase its reserve for
obsolescence. The reserve for inventory obsolescence, which applies primarily to our Engineered Surfaces segment, was $7.3
million at November 30, 2015 and $7.6 million at November 30, 2014.
D)
Litigation and Environmental Reserves
From time to time, the Company is subject to claims, lawsuits, and proceedings related to product liability, product warranty,
contract, employment, environmental, and other matters. The Company provides a reserve for such matters when it concludes a
material loss is probable and the amount can be estimated. Costs related to environmental compliance are also accrued when it is
probable a loss has been incurred and the amount of loss can be estimated.
31
E)
Pensions and Other Post-retirement Plans
The Company accounts for its pension and other post-retirement plans by recognizing in its balance sheet the overfunded or
underfunded status of defined benefit post-retirement plans, measured as the difference between the fair value of plan assets and
the benefit obligation (the projected benefit obligation for pension plans and the accumulated post-retirement benefit obligation for
other post-retirement plans). The Company recognizes the change in the funded status of the plan in the year in which the change
occurs through Accumulated Other Comprehensive (Loss) Income. As of May 2007, the Company’s U.S. defined benefits pension
plan has been closed to all new hires and since December 1, 2011, future service benefits have been frozen for all participants.
The most significant elements in determining the Company’s pension expense are the expected return on plan assets and the
discount rate. The assumed long-term rate of return on assets is applied to a calculated value of plan assets, which recognizes
changes in the fair value of plan assets in a systematic manner over five years. This produces the expected return on plan assets
that is included in pension (expense) income. For our U.S. plan, the difference between this expected return and the actual return
on plan assets is deferred and amortized over the estimated remaining life expectancy of plan participants. The net deferral of past
asset gains (losses) affects the calculated value of plan assets and, ultimately, future pension (expense) income.
The Company recorded pension expense of $3.6 million in both 2015 and 2014. Pension expense is calculated using the
discount rate to discount plan liabilities at the prior year measurement date. Discount rates of 4.01% and 4.74% were used to
calculate the pension expense in 2015 and 2014, respectively. The Company anticipates 2016 expense to be approximately $0.7
million based on a discount rate range of 1.37%—5.07% discussed further below. An increase or decrease of 25 basis points in
the discount rate would decrease or increase expense on an annual basis by less than $0.1 million. Cash contributions to the
pension plans were $5.7 million in 2015 and $4.1 million in 2014. Future pension benefits for U.S. plan members are frozen and
fully vested. Therefore, there is no future service benefit accrual for the Company’s U.S. defined benefit plans.
The Company determined the discount rate used to discount the U.S. plan liabilities at the plan’s measurement date, which
was November 30, 2015. The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the
end of the year. The discount rate used spot rates on a yield curve matching benefit payments to determine the weighted average
discount rate that would be applied in determining the benefit obligation at November 30, 2015. Changes in discount rates, as
well as the net effect of other changes in actuarial assumptions and experience, have been recognized in Accumulated Other
Comprehensive Income (Loss). The Company determined the discount rate used to measure defined benefit pension plan
obligations as of November 30, 2015 should be 4.29% compared to 4.01% in 2014. A 25 basis point change in the discount rate
would increase or decrease the projected benefit obligation by approximately $8.0 million.
Historically, the Company has used a single weighted-average discount rate approach to develop the interest and service cost
components of the net periodic benefit costs for its U.S. benefit plans. This method represented the constant annual rate that would
be required to discount all future benefit payments related to past service from the date of expected future payment
to the
measurement date such that the aggregate present value equals the obligation. During the fourth quarter of 2015, the Company
adopted certain amendments to alter the method previously used, which will be effective in determining 2016 benefit expense for
its U.S. plans. The Company has elected to utilize an approach that discounts the individual expected cash flows underlying interest
and service costs using the applicable spot rates derived from the yield curve used to determine the benefit obligation to the
relevant projected cash flows. The election and adoption of this method will provide a more precise measurement of service and
interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. The
change in method will result in a decrease in the service and interest components for benefit cost in 2016. The spot rates used to
determine service and interest costs ranged from 1.14% to 5.07%. The ultimate spot rate used to discount cash flows beyond 30
years is 4.68%. Based on current economic conditions, the Company estimates the service cost and interest cost for the plans will
be reduced by approximately $2.3 million in 2016 as a result of the change in method. The Company will account for this action
as a change in estimate that
is inseparable from a change in accounting principle and accordingly has accounted for it
prospectively.
The use of disaggregated discount rates results in a different amount of Interest Cost compared to the traditional single
weighted-average discount rate approach because of different weightings given to each subset of payments. The use of
disaggregated discount rates affects the amount of Service Cost because the benefit payments associated with new service credits
for active employees tend to be of longer duration than the overall benefit payments associated with the plan’s benefit obligation.
32
As a result, the payments would be associated with longer-term spot rates on the yield curve, resulting in lower present values than
the calculations using the traditional single weighted-average discount rate.
In 2014, the Company adopted the Society of Actuaries’ (“SOA”) RP-2014 mortality tables with a generation projection scale
of MP-2014 to determine the Company’s 2014 liability for its U.S. pension plans. These tables were released late in 2014. This
table, along with the change in the discount rate, contributed to the increase in the actuarial loss recognized during 2014 and the
increase in the projected benefit obligation. During 2015, the Company reviewed the SOA tables and adopted a modified version
of the RP-2014 table and selected industry specific tables that better match the company’s business characteristics (for the
Performance Chemicals segment-the Chemical, Oil & Gas and Utilities industry table and for the Engineered Surfaces segment, the
Consumer Goods and Food & Drink industry table). Due to the change in the mortality tables in 2015, the Company recognized an
actuarial gain of approximately $18.0 million and a decrease in its projected benefit obligation.
To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the
future expectations for returns for each asset class, as well as the target allocation of the pension portfolio. This resulted in the
selection of a long-term rate of return on assets assumption of 7.75% for plan years 2015 and 2014. The measurement dates of
November 30, 2015 and 2014 were used to determine these rates. A 25 basis point change in the assumed rate of return for
assets would increase or decrease pension expense by approximately $0.5 million. Pension plan assets are measured at fair value
on the measurement date.
Based on current estimates of pension asset performance, interest and discount rate assumptions, the Company anticipates it
will be required under the Pension Protection Act of 2006 (“PPA-2006”), to make a cash contribution to its U.S. pension plan of
$6.4 million in 2016. The Company, under rules of the PPA-2006, has elected the fifteen year amortization schedule for the period
beginning with the 2009 plan year. Total global pension plan contributions for 2016 are expected to be $6.5 million.
Factors that could alter future cash requirements and timing of any such cash equivalents are:
(cid:129) Investment returns which differ materially from the Company’s 7.75% return assumption for 2016;
(cid:129) Significant changes in interest rates, affecting the discount rate; and
(cid:129) Opportunities to reduce future cash requirements by accelerating contributions ahead of the minimum required schedule.
Voluntary contributions in excess of minimally required amounts may prevent the need for larger contributions in the future.
F)
Income Taxes
The Company follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial reporting and tax basis of assets and liabilities using the enacted tax
rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation
allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or
all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
As of November 30, 2015, the Company had approximately $94.9 million of deferred tax assets primarily related to pension
and federal and state domestic loss carryforwards and $36.6 million of deferred tax liabilities primarily related to intangible assets
and fixed asset depreciation differences.
For the year ended November 30, 2015, the Company considered the positive and negative evidence as required by ASC
740, “Income Taxes,” and concluded that it is more-likely-than-not
the Company will realize the benefit from the U.S.
deferred tax assets due to a preponderance of positive evidence, which includes a three year U.S. cumulative income position
absent any one-time restructuring and impairment charges, predictability of future taxable income, current year utilization of $8.2
million of federal net operating loss carryforwards, and taxable income from the reversal of deferred tax assets and liabilities in
future years. However, because of Net Operating Loss Carryforwards (“NOLCs”), the Company does not expect to incur significant
cash payments for U.S. taxes over the next several years.
that
33
The Company has not provided deferred tax liabilities on certain of its non-U.S. subsidiaries’ undistributed earnings as these
undistributed earnings are treated by the Company as being permanently reinvested. To the extent that foreign earnings previously
treated as permanently reinvested were to be repatriated, the related U.S. tax liability may be reduced by any foreign income
taxes paid on these earnings. However, based on the Company’s policy of permanent reinvestment, it
is not practicable to
determine the U.S. federal income tax liability, if any, which would be payable if such earnings were not permanently reinvested.
Determination of the amount of unrecognized deferred tax liabilities and related foreign withholding taxes are not practicable due
to the complexities associated with this hypothetical calculation and the Company’s permanent reinvestment policy. As of
November 30, 2015, the non-U.S. subsidiaries have a cumulative unremitted foreign loss position of $6.4 million, for which no
deferred tax liability has been provided.
The Company utilizes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position
must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the
largest amount of benefit that is more-likely-than-not of being realized upon ultimate settlement.
The Company’s accounting policy for interest and/or penalties related to underpayments of income taxes is to include interest
and penalties in tax expense. For 2015, the Company recognized $0.4 million income tax benefit related to interest and penalties.
G)
Share-Based Employee Compensation
The Company uses the fair value method of recording share-based payments based on the grant date fair value.
While the Company regularly evaluates the use of share-based payments, its practice has been to issue fewer stock options
than have been issued in the past, utilizing other forms of incentives such as restricted stock, which are required to be expensed
using the fair value method. Refer to Note Q to the Company’s Consolidated Financial Statements for further discussion of share-
based payments.
H)
Long-Lived Assets
Long-lived assets, such as property, plant, and equipment, and finite-lived intangibles are stated at historical cost
less
accumulated depreciation.
Construction in process (“CIP”) is not depreciated until the asset is placed in service. Refurbishment costs that extend the useful
life of the asset are capitalized, whereas ordinary maintenance and repair costs are expensed as incurred. Interest expense
incurred during the construction phase is capitalized as part of construction in process until the relevant projects are completed and
placed into service.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of
an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the
asset exceeds the estimated fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or the
estimated disposal price less costs to sell. Depreciation ceases for assets meeting the held-for-sale criteria.
During 2015, the Company recognized impairment charges of $19.4 million, of which $18.3 million was related to the
Company’s India business due to an approved plan to sell this non-core business. Due to the plan to sell the assets of this business,
the Company recognized an impairment charge to write-down the disposal group to to its expected sales price after considering
costs to sell. Additionally, the assets and liabilities of this business are considered as held for sale with these assets and liabilities
included in Other Current Assets and Other Current Liabilities, respectively. The Company also recognized additional impairment
charges on land at its former corporate headquarters and for other assets that were idled.
34
I) Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed in a
least annually as of
business combination. Goodwill and other indefinite lived intangible assets are tested for impairment at
September and whenever events or circumstances indicate that
the carrying amount may not be recoverable. The Company
performs the impairment analysis at the reporting unit level using a two-step impairment test. The first step identifies potential
impairments by comparing the estimated fair value of a reporting unit with its carrying value. Fair value is typically estimated using
a market approach method or a discounted cash flow analysis, which requires the Company to estimate future cash flows
anticipated to be generated by the reporting unit, as well as a discount rate to measure the present value of the anticipated cash
flows. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is not considered impaired and the second
step is not necessary. If the carrying value of a reporting unit exceeds the estimated fair value, the second step calculates the
possible impairment by comparing the implied fair value of goodwill with the carrying value. If the implied fair value of goodwill is
less than the carrying value, an impairment charge is recognized. During the fourth quarter of 2015, the Company performed its
annual impairment test for goodwill and determined that there were no impairments.
The impairment test for indefinite lived intangible assets consists of comparing the fair value of the asset with its carrying value.
The Company estimates the fair value of its indefinite lived intangible assets using a fair value model based on a market approach
method or discounted future cash flows. If the carrying amounts exceed the estimated fair value, an impairment loss would be
recognized in the amount of the excess. Key inputs used in determining the fair value of the trademarks/tradenames were expected
future revenues and royalty rates, and accordingly, their fair value is impacted by selling prices, which for the Company is based
in part on raw material costs. During the fourth quarter of 2015, the Company performed its annual impairment test for indefinite
lived intangible assets and determined that there were no impairments of its indefinite lived intangible assets. If the carrying value
of these assets exceeds the current estimated fair value, the asset is considered impaired and this could result in a charge to
earnings. The estimated fair value of our trademarks/tradenames decreased by approximately $4.9 million or 11.3% during
2015. A sensitivity analysis was performed on the Company’s trademarks/tradenames assuming a hypothetical 100 basis point
increase in the present value factor, which yielded an estimated fair value slightly above book value, and a 200 basis-point
increase in the present value factor, which yielded an estimated fair value slightly below book value for three of the indefinite-lived
trademarks/tradenames. Key inputs used in determining the fair value of the trademarks/tradenames were expected future
revenues and royalty rates, and accordingly their fair value is impacted by selling prices, which for the Company is based in part
on raw material costs. The trademarks/tradenames continue to be important to the Company, and we continue to focus on long-
trends continue, the long-term assumptions relative to growth rates and profitability of the
term growth, however, if recent
trademarks/tradenames may not be attained, which could result in an impairment to one or more of the Company’s trademarks/
tradenames. The Company recognized impairment losses related to one of its indefinite lived trademarks of $0.2 million in 2013.
Estimating future cash flows requires significant
including sales, operating
margins, royalty rates, discount rates, and future economic conditions. To the extent that the reporting unit is unable to achieve
these assumptions, impairment losses may occur.
judgments and assumptions by management
Finite-lived intangible assets, such as customer lists, patents, trademarks, and licenses are recorded at cost or at estimated fair
value when acquired as part of a business combination. Intangible assets with finite lives are amortized over their estimated useful
lives with periods ranging from 3 to 30 years. Accumulated amortization of finite lived intangible assets at November 30, 2015
and 2014 was $44.5 million and $43.1 million, respectively.
J)
Foreign Currency Translation
The financial position and results of operations of the Company’s foreign subsidiaries are measured using the local currency
as the functional currency. Assets and liabilities of operations denominated in foreign currencies are translated into U.S. dollars at
exchange rates in effect at the balance sheet date, while revenues and expenses are translated at the weighted average exchange
rates each month during the year. The resulting translation gains and losses on assets and liabilities are recorded in Accumulated
Other Comprehensive (Loss) Income, and are excluded from net
income until realized through a sale or liquidation of the
investment.
35
K)
Leasing Arrangements
Operating leases—Lease expense is recorded on a straight-line basis over the non-cancelable lease term, including any
optional renewal terms that are reasonably expected to be exercised. Leasehold improvements related to these operating leases are
amortized over the estimated useful life or the non-cancelable lease term, whichever is shorter.
Capital leases—Capital leases are recorded at the lower of fair market value or the present value of future minimum lease
payments with a corresponding amount recorded in property, plant, and equipment. Current portions of capital lease payments
are included in Amounts due banks and non-current capital lease obligations are included in Long-term debt in our Consolidated
Balance Sheets.
Environmental Matters
The Company’s policy is to conduct its businesses with due regard for the preservation and protection of the environment. The
laws and regulations. The
Company devotes significant resources and management attention to comply with environmental
Company’s Consolidated Balance Sheets as of November 30, 2015 and 2014 reflects reserves for environmental remediation
efforts of $4.1 million and $1.6 million, respectively. During 2015, the Company recognized environmental remediation expense
of $3.0 million.
Capital expenditures for projects related to environmental matters were $0.6 million in 2015, $1.0 million in 2014, and $0.7
million in 2013. During 2015, non-capital expenditures for environmental compliance and protection totaled $5.2 million, all of
which were for recurring costs associated with managing hazardous substances and pollution abatement in ongoing operations.
Similar non-capital expenditures were $7.8 million and $9.4 million in years 2014 and 2013, respectively. The Company
anticipates that non-capital environmental expenditures for the next several years will be consistent with 2015 expenditure levels.
New Accounting Pronouncements
New accounting pronouncements impacting the Company are disclosed in Note A to the Company’s consolidated financial
statements.
Forward Looking Statements
This Annual Report includes forward looking statements as defined by federal securities laws. Please refer to Item 1A. Risk
Factors, beginning on page 5 of this Report which is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates on its long-term debt obligations. As described in Note
N to the Consolidated Financial Statements, the Company’s Term Loan Facility and non-domestic borrowings bear interest at
various rates. Borrowings under the Term Loan and the Facility were $190.0 million as of November 30, 2015. Non-domestic
borrowings with banks were $1.5 million as of November 30, 2015. The weighted average effective interest rate of the Company’s
outstanding debt was 6.00% as of November 30, 2015. A hypothetical increase or decrease of 100 basis points would impact the
Company’s interest expense on its variable rate debt by approximately $2.0 million annually.
The Company is subject to foreign currency exchange rate risk. The Company has accumulated currency translation losses of
$30.2 million as of November 30, 2015, which is included in accumulated other comprehensive income (loss).
The Company does not enter into derivatives or other financial instruments for trading or speculative purposes.
Management’s Assessment of Internal Control Over Financial Reporting
Management of OMNOVA Solutions Inc. is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). In evaluating the Company’s internal control over
financial reporting, management has adopted the framework in Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (2013 framework).
36
Under the supervision and with the participation of the Company’s management, including the chief executive officer and chief
financial officer, the Company conducted an assessment of the effectiveness of the Company’s internal control over financial
reporting. Management has determined that
reporting is effective as of
November 30, 2015.
the Company’s internal control over
financial
The effectiveness of the Company’s internal control over financial reporting as of November 30, 2015 has been audited by
Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included herein.
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of OMNOVA Solutions Inc.:
We have audited OMNOVA Solutions Inc.’s internal control over financial reporting as of November 30, 2015, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). OMNOVA Solutions Inc.’s management
is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying report titled “Management’s Assessment of Internal Control Over Financial Reporting.”
Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
its inherent
Because of
internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
limitations,
In our opinion, OMNOVA Solutions Inc. maintained, in all material respects, effective internal control over financial reporting as of
November 30, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of OMNOVA Solutions Inc. as of November 30, 2015 and 2014, and the related consolidated
statements of operations, comprehensive (loss) income, shareholders’ equity and cash flows for each of the three years in the
period ended November 30, 2015 and our report dated January 25, 2016 expressed an unqualified opinion thereon.
Akron, Ohio
January 25, 2016
38
Item 8.
Consolidated Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Report of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for the years ended November 30, 2015, 2014, and 2013 . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive (Loss) Income for the years ended November 30, 2015, 2014, and 2013 . . .
Consolidated Balance Sheets at November 30, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Shareholders’ Equity for the years ended November 30, 2015, 2014, and 2013 . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended November 30, 2015, 2014, and 2013 . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
Number
40
41
42
43
44
45
46
47
39
To the Shareholders of OMNOVA Solutions Inc.:
REPORT OF MANAGEMENT
Management of OMNOVA Solutions Inc. is responsible for preparing the accompanying consolidated financial statements and for
assuring their integrity and objectivity. These financial statements were prepared in accordance with U.S. generally accepted
accounting principles and fairly represent the transactions and financial condition of the Company in all material respects. The
financial statements include amounts that are based on management’s best estimates and judgments. The Company’s financial
statements have been audited by Ernst & Young LLP, an independent registered public accounting firm that has been selected by
the Audit Committee of the Board of Directors and approved by the shareholders. Management has made available to Ernst &
Young LLP all of the Company’s financial records and related data, internal audit reports, as well as the minutes of shareholders’
and directors’ meetings.
Management of the Company has established and maintains a system of internal controls over financial reporting that is designed
to provide reasonable assurance that assets are safeguarded, transactions are properly recorded and executed in accordance with
management’s authorization and the books and records accurately reflect the disposition of assets. The system of internal controls
includes appropriate division of responsibility. The Company maintains an internal audit department that independently assesses
the effectiveness of the internal controls through a program of internal audits.
The Audit Committee is composed of directors who are not officers or employees of the Company. It meets regularly with members
of management, the internal auditors and representatives of the independent registered public accounting firm to discuss the
adequacy of the Company’s internal control over financial reporting, financial statements and the nature, extent and results of the
audit effort. Management reviews with the Audit Committee all of the Company’s significant accounting policies and assumptions
affecting the results of operations. Both the independent registered public accounting firm and internal auditors have access to the
Audit Committee without the presence of management.
Kevin M. McMullen
Chairman, Chief Executive Officer and President
Paul F. DeSantis
Senior Vice President and Chief Financial Officer
January 25, 2016
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of OMNOVA Solutions Inc.:
We have audited the accompanying consolidated balance sheets of OMNOVA Solutions Inc. as of November 30, 2015 and
2014, and the related consolidated statements of operations, comprehensive (loss) income, shareholders’ equity and cash flows for
each of the three years in the period ended November 30, 2015. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of OMNOVA Solutions Inc. at November 30, 2015 and 2014, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended November 30, 2015, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
OMNOVA Solutions Inc.’s internal control over financial reporting as of November 30, 2015, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated January 25, 2016 expressed an unqualified opinion thereon.
Akron, Ohio
January 25, 2016
41
OMNOVA SOLUTIONS INC.
Consolidated Statements of Operations
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold (exclusive of depreciation)
$838.0
644.1
$987.4
788.0
$1,018.1
805.4
Years Ended November 30,
2015
2014
2013
(Dollars in millions, except per share data)
193.9
199.4
212.7
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Costs and Expenses:
Selling, general, and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment
Loss (gain) on asset sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition and integration related expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
119.3
34.0
19.4
.2
5.9
28.3
.6
.4
6.9
120.2
34.8
—
.5
.9
32.9
.8
—
(2.4)
Total Other Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
215.0
187.7
(Loss) income from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operations:
Gain (loss) from discontinued operations (net of tax expense (benefit) of $0.6, $(0.4) million,
(21.1)
2.4
(18.7)
11.7
.4
12.1
118.1
33.6
.2
(4.9)
7.1
31.9
1.5
—
(1.3)
186.2
26.5
(6.0)
20.5
and $(0.6) million in 2015, 2014 and 2013, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . .
.9
(.6)
(.9)
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (17.8)
$ 11.5
$
19.6
Income Per Share—Basic
(Loss) income per share—continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) income per share—discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (.41)
.02
$ .26
(.01)
Basic (loss) income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (.39)
$ .25
Weighted average shares outstanding—Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average shares outstanding—Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45.3
45.7
46.3
47.1
$
$
.44
(.02)
.42
46.1
46.6
See notes to consolidated financial statements.
42
OMNOVA SOLUTIONS INC.
Consolidated Statements of Comprehensive (Loss) Income
Net (Loss) Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Components of other comprehensive (loss) income:
Foreign currency translations
Unrealized net change during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized net change on intercompany foreign debt during the period . . . . . . . . . . . . . . . . . . . . .
Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended November 30,
2015
2014
2013
(Dollars in millions)
$(17.8)
$ 11.5
$ 19.6
(11.2)
(12.2)
3.5
(5.4)
(7.5)
2.4
(.6)
4.1
(1.1)
2.4
Foreign currency translations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(19.9)
(10.5)
Post-retirement benefit plans:
Actuarial net gain (loss):
Net gain (loss) arising during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net loss included in net periodic benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . .
16.5
4.4
(50.7)
2.5
35.5
3.6
Prior service credit:
Prior service credit arising during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Amortization of prior service credits included in net periodic benefit cost
Tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.1
(.1)
(8.1)
—
(.3)
18.8
Defined benefit plans, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.8
(29.7)
Other comprehensive (loss) income, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7.1)
(40.2)
.1
(.3)
(15.2)
23.7
26.1
Comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(24.9)
$(28.7)
$ 45.7
See notes to consolidated financial statements.
43
OMNOVA SOLUTIONS INC.
Consolidated Balance Sheets
ASSETS:
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes—current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30,
2015
2014
(Dollars in millions, except
per share amounts)
$ 44.9
105.3
81.9
18.8
—
$ 99.5
135.7
92.7
21.0
7.0
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks and other intangible assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Deferred income taxes—non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
250.9
214.9
60.9
80.8
67.8
4.7
7.2
355.9
238.4
66.4
85.4
68.2
7.0
7.9
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 687.2
$ 829.2
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities
Amounts due banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll and personal property taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Post-retirement benefits other than pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes—non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2.5
72.0
25.0
3.2
1.1
8.7
112.5
150.0
204.2
6.9
84.9
9.5
10.1
$
5.6
94.3
17.8
2.9
1.4
1.8
123.8
200.0
206.4
6.6
110.8
21.6
9.5
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
578.1
678.7
Shareholders’ Equity
Preference stock—$1.00 par value; 15 million shares authorized; none outstanding . . . . . . . . . . . . . . . . . . . . .
Common stock—$0.10 par value; 135 million shares authorized, 48.3 million shares issued as of
—
—
November 30, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional contributed capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained deficit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock at cost; 3.5 million and 1.0 million shares at November 30, 2015 and 2014, respectively . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.8
339.7
(73.9)
(25.6)
(135.9)
4.8
338.5
(56.1)
(7.9)
(128.8)
Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
109.1
150.5
Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 687.2
$ 829.2
See notes to consolidated financial statements.
44
OMNOVA SOLUTIONS INC.
Consolidated Statements of Shareholders’ Equity
for the Years Ended November 30, 2015, 2014, and 2013
Number of
Common
Shares
Outstanding
Common
Stock
Additional
Contributed
Capital
Retained
Deficit
Treasury
Stock
Accumulated
Other
Comprehensive
(Loss) Income
Total
Shareholders’
Equity
46.9
$4.7
$331.8 $(87.2) $ (4.4)
$(114.7)
$130.2
19.6
.3
.1
2.8
(.8)
2.4
(.1)
23.8
19.6
2.4
(.1)
23.8
2.1
47.2
$4.8
$334.6 $(67.6) $ (5.2)
$ (88.6)
$178.0
11.5
11.5
(Dollars and shares in millions)
Balance November 30, 2012 . . . . . . . . . . . . . . . . . . . . . . .
2013
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustment (net of tax expense of
$1.1 million) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit plans: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service credits (net of tax benefit of $0.1 million)
Net actuarial gain (net of tax expense of $15.2
million)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issuance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance November 30, 2013 . . . . . . . . . . . . . . . . . . . . . . .
2014
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustment (net of tax benefit of
$2.4 million) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit plans:
Prior service credits (net of tax benefit of $0.1
million)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss (net of tax benefit of $18.7
(10.5)
(10.5)
(.2)
(.2)
(29.5)
(29.5)
2.6
(1.4)
million)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issuance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of treasury shares . . . . . . . . . . . . . . . . . . . . .
.3
(.2)
3.9
(1.3)
(1.4)
Balance November 30, 2014 . . . . . . . . . . . . . . . . . . . . . . .
2015
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustment (net of tax benefit of
$3.5 million) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Defined benefit plans:
Prior service credits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial gain (net of tax expense of $8.1
million)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issuance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of treasury shares . . . . . . . . . . . . . . . . . . . . . .
Balance November 30, 2015 . . . . . . . . . . . . . . . . . . . . . . .
47.3
$4.8
$338.5 $(56.1) $ (7.9)
$(128.8)
$150.5
(17.8)
(17.8)
.1
(2.6)
44.8
1.2
.9
(18.6)
$339.7 $(73.9) $(25.6)
$4.8
(19.8)
(19.8)
(.1)
(.1)
12.8
$(135.9)
12.8
2.1
(18.6)
$109.1
See notes to consolidated financial statements.
45
OMNOVA SOLUTIONS INC.
Consolidated Statements of Cash Flows
Operating Activities
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Loss (gain) on disposal of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization & write-off of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from insurance settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for uncollectible accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for obsolete inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of effect from business acquisition:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contribution to defined benefit plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended November 30,
2015
2014
2013
(Dollars in millions)
$(17.8)
$ 11.5
$ 19.6
.2
34.0
2.8
19.4
—
2.4
.2
—
(5.9)
—
11.6
2.5
9.4
(3.6)
11.6
(18.4)
(4.7)
—
.5
34.8
3.3
—
—
2.7
.3
.2
(5.1)
—
(12.3)
(6.8)
(8.1)
.2
(17.3)
15.2
(4.1)
—
(4.9)
33.6
2.8
.2
.8
2.2
—
1.5
3.9
(.2)
2.8
5.9
(.9)
(10.6)
11.0
(13.0)
(8.8)
(.1)
Net Cash Provided By Operating Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43.7
15.0
45.8
Investing Activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from note receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from insurance settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from asset sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash Used In Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing Activities
Repayment of debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for debt refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash Used In Financing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (Decrease) Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(24.0)
—
(5.0)
—
—
(29.0)
(52.5)
25.2
(26.8)
—
—
(18.6)
—
(72.7)
3.4
(54.6)
99.5
(29.8)
2.3
—
2.4
.1
(25.0)
(52.0)
23.3
(22.7)
—
—
(1.4)
.3
(52.5)
(2.9)
(65.4)
164.9
(28.9)
—
—
.2
6.7
(22.0)
(2.0)
34.9
(39.4)
(.6)
5.5
—
.1
(1.5)
(.4)
21.9
143.0
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 44.9
$ 99.5
$164.9
Supplemental Cash Flow Information
Capital lease obligations incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for:
$ — $ 14.5
$
3.0
Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 24.9
$ 3.8
$ 30.9
$ 3.9
$ 29.7
$ 4.4
See notes to consolidated financial statements.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A—Description of Business and Significant Accounting Policies
Description of Business—OMNOVA Solutions Inc. (“OMNOVA” or the “Company”) is an innovator of performance-
enhancing chemistries and surfaces for a variety of commercial, industrial, and residential end uses. Our products provide a
variety of important functional and aesthetic benefits to hundreds of products that people use daily. We hold leading positions in
key market categories, which have been built through innovative products, customized product solutions, strong technical expertise,
well-established distribution channels, recognized brands, and long-standing customer relationships. We utilize 25 strategically
located manufacturing, technical, and other facilities in North America, Europe, and Asia to service our broad customer base.
OMNOVA operates two business segments:Performance Chemicals and Engineered Surfaces.
Performance Chemicals—The Performance Chemicals segment produces a broad range of emulsion polymers and specialty
chemicals based primarily on styrene butadiene (SB), styrene butadiene acrylonitrile (SBA), styrene butadiene vinyl pyridine, nitrile
butadiene (NBR), polyvinyl acetate, acrylic, styrene acrylic, vinyl acrylic, glyoxal, fluorochemicals and bio-based chemistries.
Performance Chemicals’ custom-formulated products are tailored latexes,
specialty rubbers,
antioxidants, hollow plastic pigment and elastomeric modifiers which are used in specialty coatings, carpet, paper, nonwovens,
construction, oil and gas drilling and production, adhesives, tape, tire cord, floor care, textiles, graphic arts, polymer stabilization,
industrial rubbers & thermoplastics and various other specialty applications. Its products provide a variety of functional properties
to enhance the Company’s customers’ products, including greater strength, adhesion, dimensional stability, water resistance, flow
and leveling, improved processibility, and enhanced appearance.
resins, binders, adhesives,
lines. The Performance Materials product
The Performance Chemicals segment consists of two product
line encompasses
products that have applications in the paper, paperboard, carpet, and tire cord industries. Paper and paperboard coatings are
used in magazines, catalogs, direct mail advertising, brochures, printed reports, food cartons, household, and other consumer and
industrial packaging. Carpet binders are used to secure carpet fibers to carpet backing and meet the stringent manufacturing,
environmental, odor, flammability, and flexible installation requirements. Tire cord is used in automotive tires. The Specialty
Chemicals product
line encompasses products that have applications for specialty coatings, nonwovens (such as disposable
hygiene products, engine filters, roofing mat, and scrub pads), construction, oil and gas drilling and production, adhesives, tape,
floor care, textiles, graphic arts, polymer stabilization, industrial rubbers & thermoplastics, and various other specialty applications.
Engineered Surfaces—The Engineered Surfaces segment develops, designs, produces, and markets a broad line of
engineered surfacing products, including coated fabrics; vinyl, paper and specialty laminates; and industrial films. These products
are used in numerous applications, including commercial building refurbishment, new construction, residential cabinets, flooring,
ceiling tile and furnishings, transportation markets including buses and mass transit vehicles, marine, automotive and motorcycle
OEM seating and manufactured housing, recreational vehicles, health care patient and common area furniture, and a variety of
industrial films applications.
The Engineered Surfaces segment consists of
line applications include
upholstery used in refurbishment and new construction for the commercial office, hospitality, health care, retail, education and
restaurant markets, marine and transportation seating, commercial and residential furniture, automotive soft tops, and automotive
after-market applications. The Laminates and Performance Films product line applications include kitchen and bath cabinets, wall
surfacing, manufactured housing and recreational vehicle interiors, flooring, commercial and residential furniture, retail display
fixtures, home furnishings, commercial appliances, and a variety of industrial film applications.
lines. The Coated Fabrics product
two product
The Company’s operations are located primarily in the United States, France, China, India, and Thailand.
Basis of Presentation—The consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles and include the accounts of the Company and its wholly owned subsidiaries. All intercompany
balances have been eliminated.
Reclassifications—Certain prior year amounts have been reclassified to conform to current year presentation. Unless
otherwise noted, all disclosures in the notes to the consolidated financial statements relate to the continuing operations of the
Company.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note A—Description of Business and Significant Accounting Policies (Continued)
Use of Estimates—The preparation of the consolidated financial statements in conformity with U.S. generally accepted
the amounts reported in the
accounting principles requires management
consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
to make estimates and assumptions that affect
Revenue Recognition—The Company recognizes revenue when the following criteria are met:1) persuasive evidence of an
arrangement exists; 2) delivery has occurred; 3) an established sales price has been set with the customer; 4) collection is
reasonably assured; and 5) no contingencies exist. Delivery is considered to have occurred when the customer assumes the risk and
rewards of ownership. The Company estimates and records provisions for quantity rebates and sales returns and allowances as an
offset to revenue in the same period the related revenue is recognized, based upon its experience. These items are included as a
reduction in deriving net sales.
Freight Costs—The Company reflects the cost of shipping its products to customers as cost of products sold. Customer
reimbursements for freight are recognized as an offset in cost of products sold and are not significant.
Environmental Costs—The Company recognizes costs associated with managing hazardous substances and pollution in
ongoing operations as incurred. The Company accrues for costs associated with environmental remediation when it becomes
probable that a liability has been incurred and the amount is estimable.
Research and Development Expense—Research and development costs, which were $8.3 million in 2015, $9.7 million in
2014, and $10.0 million in 2013, are charged to expense as incurred.
Advertising Costs—Advertising costs are expensed when incurred. Advertising expense was $0.7 million, $0.9 million, and
$0.6 million in 2015, 2014, and 2013, respectively.
Cash and Cash Equivalents—The Company considers all highly liquid instruments with maturities of 90 days or less as cash
equivalents.
Restricted Cash—Cash that is restricted as to withdrawal or usage is recognized as restricted cash.
Financial Instruments and Fair Value Measurements—Financial assets and financial
liabilities carried on the balance
sheet include cash and deposits at financial institutions, trade receivables and payables, capital lease obligations, other receivables
and payables, borrowings, and derivative instruments. The accounting policies on recognition and measurement of these items are
disclosed elsewhere in these financial statements. Fair value is the price that would be received to sell an asset or the price paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
The Company measures financial assets and liabilities at fair value in one of three levels of inputs as follows:
(cid:129) Level 1—Quoted prices in active markets for identical assets or liabilities.
(cid:129) Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities
in an active market, quoted prices in markets that are not active, and model-derived valuations in which all significant inputs
are observable or can be corroborated by observable market data.
(cid:129) Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use
significant unobservable inputs.
Financial Risk—The Company is mainly exposed to credit, interest rate, and currency exchange rate risks which arise in the
normal course of business.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note A—Description of Business and Significant Accounting Policies (Continued)
Concentrations of Credit Risk—Credit risk is the potential
loss resulting from the failure of a customer or
counterparty to settle its financial and contractual obligations to the Company as and when they become due. The primary credit
risk for the Company is its accounts and notes receivable, which are generally unsecured. The Company has established credit
limits for customers and monitors their balances to mitigate its risk of loss. Concentrations of credit risk with respect to accounts
receivable are generally limited due to the wide variety of customers and markets using the Company’s products. There was no
single customer who represented more than 10% of the Company’s net sales in 2015, 2014 and 2013 or net trade receivables
outstanding at November 30, 2015 or 2014.
financial
Foreign Currency Risk—The Company incurs foreign currency risk on sales and purchases denominated in other currencies.
The currencies giving rise to this risk are primarily the GB Pound Sterling, the Euro, the Thai Baht, the Chinese Yuan, and the Indian
Rupee. Foreign currency exchange contracts are used by the Company to manage risks from the change in exchange rate of the
sales denominated in U.S. dollars. Risk to the Euro is partially limited due to natural cash flows netting.
Derivative Instruments—The Company uses, from time to time, certain derivative instruments to mitigate its exposure to
volatility in interest rates and foreign currency exchange rates. The Company recognizes derivative instruments as either an asset or
a liability at their respective fair value. On the date a derivative contract is entered into, the Company may elect to designate the
derivative as a fair value hedge, a cash flow hedge, or a hedge of a net investment in a foreign operation. The Company does not
use fair value or net investment hedges. For a cash flow hedge, the fair value of the effective portion of the derivative is recognized
as an asset or liability with a corresponding amount in Accumulated Other Comprehensive Income (Loss). Amounts in Accumulated
Other Comprehensive Income (Loss) are recognized in earnings when the underlying hedged transaction affects earnings.
Ineffectiveness is measured by comparing the present value of the cumulative change in the expected future cash flows of the
derivative and the present value of the cumulative change in the expected future cash flows of the related instrument. Any
ineffective portion of a cash flow hedge is recognized in earnings immediately. For derivative instruments not designated as
hedges, the change in fair value of the derivative is recognized in earnings each reporting period.
The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in
offsetting changes in the cash flows of the hedged item or management determines that designation of the derivative as a hedging
instrument is no longer appropriate. Any prospective gains or losses in this scenario on the derivative would be recognized in
earnings.
Foreign currency exchange contracts are used by the Company to manage risks from the change in exchange rates on cash
payments between the Company’s foreign subsidiaries. These forward contracts are used on a continuing basis for periods of less
than one year, consistent with the underlying hedged transactions. The hedging limits the impact of foreign exchange rate
movements on the Company’s operating results. As of November 30, 2015 the notional amount of outstanding forward contracts
was $9.3 million with a fair value of less than $0.1 million. As of November 30, 2014, the Company did not have any forward
contracts. For forward contracts that are not designated as hedging instruments, changes in the fair value of these instruments are
recognized in earnings immediately.
The Company does not enter into derivative instruments for trading or speculative purposes.
Accounts Receivable Allowance—The Company’s policy is to identify all customers that are considered doubtful of
collection based upon the customer’s financial condition, payment history, credit rating, and other relevant factors and to reserve
the portion of such accounts receivable for which collection does not appear likely. If the financial condition of our customers were
to deteriorate, resulting in an inability to make payments, additional allowances may be required. The allowance for doubtful
accounts was approximately $1.3 million and $1.4 million at November 30, 2015 and 2014, respectively.
The Company does not charge interest to its customers on past due accounts receivable.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note A—Description of Business and Significant Accounting Policies (Continued)
Inventories—Inventories are stated at the lower of cost or market on a consistent basis. All U.S. based inventory, which
represents 48.4% of total inventory, is valued using the last-in, first-out (“LIFO”) method. The Company believes the LIFO method
results in a better matching of costs and revenues. The remaining portions of inventories, which are located outside of the U.S., are
valued using the first-in, first-out (“FIFO”) or an average cost method. Inventory costs include direct overhead, freight, and duty.
The Company’s policy is to maintain an inventory obsolescence reserve based upon specifically identified, discontinued, or
obsolete items and a percentage of quantities on hand compared with historical and forecasted usage and sales levels. The policy
has been applied on a consistent basis for all years presented. A sudden and unexpected change in design trends and/or material
preferences could impact the carrying value of the Company’s inventory and require the Company to increase its reserve for
obsolescence. The reserve for inventory obsolescence, which applies primarily to our Engineered Surfaces segment, was $7.3
million and $7.6 million at November 30, 2015 and 2014, respectively.
Notes Receivable—Notes receivable accepted by the Company are initially recognized at fair value. The Company does not
subsequently adjust the fair value of these notes receivable unless it is determined that the note receivable is impaired. As with its
accounts receivable allowance, the Company considers the issuer’s financial condition, payment history, credit rating, and other
relevant factors when assessing the collectability of the note and to reserve the portion of such note for which collection does not
appear likely. Interest income is recognized as earned.
Litigation and Environmental Reserves—From time to time, the Company is subject to claims, lawsuits, and proceedings
related to product liability, product warranty, contract, employment, environmental, and other matters. The Company provides a
reserve for such matters when it concludes a material
loss is probable and the amount can be estimated. Costs related to
environmental compliance are also accrued, on an undiscounted basis, when it is probable a loss has been incurred and the
amount of loss can be estimated.
Deferred Financing Fees—Debt issuance costs are capitalized and amortized over the life of the related debt. Deferred
financing fee amortization is included in interest expense in the consolidated statements of operations.
Property, Plant, and Equipment—Property, plant, and equipment are recorded at cost. Construction in process is not
depreciated until the asset is ready for its intended use and is placed into service. Refurbishment costs that extend the useful life of
the asset are capitalized, whereas ordinary maintenance and repair costs are expensed as incurred. Interest expense incurred
during the construction phase is capitalized as part of construction in process until the relevant projects are completed and placed
into service.
Depreciation is computed principally using the straight-line method using depreciable lives as follows:
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years
25 – 40
5 – 15
3 – 10
3 – 5
Leasehold improvements are depreciated over the shorter of the lease term, including any expected renewal periods that are
probable to occur, or the estimated useful life of the improvement.
All of the Company’s long-lived assets are reviewed for impairment whenever events or circumstances indicate that
the
carrying amount may not be recoverable. If the sum of undiscounted expected future cash flows is less than the carrying amount of
the asset or asset group, an impairment loss is recognized based on the difference between the estimated fair value of the asset or
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note A—Description of Business and Significant Accounting Policies (Continued)
asset group and its carrying value. Impairment losses related to property, plant, and equipment for continuing operations of $19.4
million were recognized in 2015.
When specific actions to dispose of an asset or group of assets meet certain criteria, the underlying assets and liabilities are
adjusted to the lesser of carrying value or fair value and, if material, they are reclassified into a “held for sale” category in the
consolidated balance sheet or they are condensed and reported in other assets and liabilities.
Goodwill and Intangible Assets—Goodwill represents the excess of the purchase price over the fair value of assets
acquired and liabilities assumed in a business combination. Goodwill and other indefinite lived intangible assets are tested for
impairment at least annually as of September 1 and whenever events or circumstances indicate that the carrying amount may not
be recoverable. The Company performs the impairment analysis at the reporting unit level using a two-step impairment test. The
first step identifies potential impairments by comparing the estimated fair value of a reporting unit with its carrying value, including
goodwill and intangible assets. Fair value is typically estimated using a market approach method or a discounted cash flow
analysis, which requires the Company to estimate future cash flows anticipated to be generated by the reporting unit, as well as a
discount rate to measure the present value of the anticipated cash flows. If the estimated fair value of a reporting unit exceeds its
carrying value, goodwill is not considered impaired and the second step is not necessary. If the carrying value of a reporting unit
exceeds the fair value, the second step calculates the possible impairment by comparing the implied fair value of goodwill with the
carrying value. If the implied fair value of goodwill is less than the carrying value, an impairment charge is recognized. As of
September 1, 2015, the estimated fair value of the Company’s goodwill exceeds the carrying value. As of November 30, 2015, all
of the Company’s goodwill is associated with its Performance Chemicals segment.
The impairment test for indefinite lived intangible assets consists of comparing the estimated fair value of the asset with its
carrying value. The Company estimates the fair value of its indefinite lived intangible assets using a fair value model based on a
market approach method or discounted future cash flows. If the carrying amounts exceed the estimated fair value, an impairment
loss would be recognized in the amount of the excess. Key inputs used in determining the fair value of the trademarks/tradenames
were expected future revenues and royalty rates, and accordingly, their fair value is impacted by selling prices, which for the
Company is based in part on raw material costs. During the fourth quarter of 2015, the Company performed its annual impairment
test for indefinite lived intangible assets and determined that there were no impairments of its indefinite lived intangible assets. If the
carrying value of these assets exceeds the current estimated fair value, the asset is considered impaired and this could result in a
charge to earnings. The estimated fair value of our trademarks/tradenames increased approximately $3.8 million or 9.6% during
2014 and decreased by approximately $4.9 million or 11.3% during 2015. A sensitivity analysis was performed on the
Company’s trademarks/tradenames assuming a hypothetical 100 basis point increase in the present value factor, which yielded an
estimated fair value slightly above fair value, and a 200 basis-point increase in the present value factor, which yielded an
estimated fair value slightly below book value for three of
the indefinite-lived trademarks/tradenames. Key inputs used in
determining the fair value of the trademarks/tradenames were expected future revenues and royalty rates, and accordingly their
fair value is impacted by selling prices, which for the Company is based in part on raw material costs. The trademarks/tradenames
continue to be important to the Company, and we continue to focus on long-term growth, however, if recent trends continue, the
long-term assumptions relative to growth rates and profitability of the trademarks/tradenames may not be attained, which could
result in an impairment to one or more of the Company’s trademarks/tradenames.
Estimating future cash flows requires significant
including sales, operating
margins, royalty rates, discount rates, and future economic conditions. To the extent that the reporting unit is unable to achieve
these assumptions, impairment losses may occur.
judgments and assumptions by management
Finite lived intangible assets, such as customer lists, patents, trademarks, and licenses, are initially recorded at cost or
estimated fair value when acquired as part of a business combination. Finite lived intangible assets are amortized over their
estimated useful lives with periods ranging from 3 to 53 years.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note A—Description of Business and Significant Accounting Policies (Continued)
Pension and Other Post-retirement Plans—We account
for our pensions and other post-retirement benefits by
(1) recognizing the funded status of the benefit plans in our statement of financial position, (2) recognizing, as a component of
other comprehensive income or net periodic benefit cost, the gains or losses and prior service costs or credits that arise during the
period, (3) measuring defined benefit plan assets and obligations as of the date of the Company’s fiscal year end statement of
financial position and (4) disclosing additional information in the notes to the financial statements about certain effects on net
periodic benefit costs for the next fiscal year that arise from delayed recognition of prior service costs or credits and transition
assets or obligations.
Asset Retirement Obligations—The fair value of an asset retirement obligation is recorded when the Company has an
legal obligation to perform an asset retirement activity and the amount of the obligation can be reasonably
unconditional
estimated. In assessing asset retirement obligations, the Company reviews the expected settlement dates or a range of estimated
settlement dates, the expected method of settlement of the obligation, and other factors pertinent to the obligations.
Foreign Currency Translation—The financial position and results of operations of the Company’s foreign subsidiaries are
measured using the local currency as the functional currency. Assets and liabilities of operations denominated in foreign currencies
are translated into U.S. dollars at exchange rates in effect at the balance sheet date, while revenues and expenses are translated at
the average exchange rates each month during the year. The resulting translation gains and losses on assets and liabilities are
recorded in Accumulated Other Comprehensive Income (Loss), and are excluded from net income until realized through sale or
liquidation of the investment.
Gains or losses relating to foreign currency transactions are included in Other (income) expense, net in the consolidated
statement of operations and consisted of a gain of $1.5 million in 2015 and $1.1 million in 2014 and expense of $0.6 million in
2013.
Income Taxes—The Company follows the liability method of accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on the difference between the financial reporting and tax basis of assets and liabilities
using the enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company
records a valuation allowance to offset deferred tax assets, if based on the weight of available evidence, it is more-likely-than-not
that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
The Company has not provided deferred tax liabilities on certain of its non-U.S. subsidiaries’ undistributed earnings as these
undistributed earnings are treated by the Company as being permanently reinvested. To the extent that foreign earnings previously
treated as permanently reinvested were to be repatriated, the related U.S. tax liability may be reduced by any foreign income
is not practicable to
taxes paid on these earnings. However, based on the Company’s policy of permanent reinvestment, it
determine the U.S. federal income tax liability, if any, which would be payable if such earnings were not permanently reinvested.
Determination of the amount of unrecognized deferred tax liabilities and related foreign withholding taxes are not practicable due
to the complexities associated with this hypothetical calculation and the Company’s permanent reinvestment policy. As of
November 30, 2015, the non-U.S. subsidiaries have a cumulative unremitted foreign loss position of $6.4 million, for which no
deferred tax liability has been provided.
The Company utilizes a recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position
must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the
largest amount of benefit that is more-likely-than-not of being realized upon ultimate settlement.
The Company’s accounting policy for interest and/or penalties related to underpayments of income taxes is to include interest
and penalties in tax expenses.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note A—Description of Business and Significant Accounting Policies (Continued)
Operating Leases—Lease expense is recognized on a straight-line basis over the non-cancelable lease term, including any
optional renewal terms that are reasonably expected to be exercised. Leasehold improvements related to these operating leases are
amortized over the estimated useful life, or the non-cancelable lease term, whichever is shorter.
Capital Leases—Capital leases are recognized at the lower of fair market value or the present value of future minimum lease
payments with a corresponding amount recognized in property, plant, and equipment. Depreciation on assets under capital leases
is included in depreciation expense. Current portions of capital
lease payments are included in Amounts due banks and non-
current capital lease obligations are included in Long-term debt in our Consolidated Balance Sheets. The Company has two leased
assets, land and the building for its corporate headquarters, which are classified as capital leases with a present value of minimum
lease payments of $17.2 million as of November 30, 2015. The lease for the land commenced in November 2013 and expires in
20 years at which time the Company can acquire the land for a nominal amount. The lease for the building commenced in
November 2014 and expires in 22 years at which time the Company receives the building at no cost.
Share-Based Compensation—Share-based compensation is measured at the grant date, based on the calculated fair value
of the award, and is recognized as an expense over the requisite service period (generally the vesting period). Share-based
expense includes expense related to restricted stock and options issued, as well as share units deferred into the Company’s
Deferred Compensation Plan for Non-Employee Directors and performance shares awarded under the Company’s Long-Term
Incentive Plan. The Company did not capitalize any expense related to share-based payments and recognizes share-based
expense within Selling, General, and Administrative expense.
Earnings Per Share—The Company uses the two-class method for computing earnings per share where participating
securities are included in the computation of earnings per share. Participating securities include unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents, whether paid or not. The Company did not have
any participating securities outstanding during 2015 and 2014, and less than $0.1 million outstanding in 2013.
Accounting Standards Adopted in 2015
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2015-17, “Balance Sheet Classification of Deferred Taxes,” which requires that deferred tax liabilities and assets be classified
as noncurrent in the statement of financial position based on an analysis of each taxpaying component within a jurisdiction. This
this ASU
ASU would be effective for the Company December 1, 2017, however the Company has elected to early adopt
prospectively beginning for the year ended November 30, 2015, as is permitted under the standard. Due to the prospective
treatment, prior periods presented in these financial statements have not been adjusted. The adoption of this ASU did not have an
impact on the Company’s financial position.
In April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity,” which changes the criteria for reporting discontinued operations. To qualify as a discontinued operation
under the amended guidance, a component or group of components of an entity that has been disposed of or is classified as held
for sale must represent a strategic shift that has or will have a major effect on the entity’s operations and financial results. This
guidance also expands related disclosure requirements. This guidance was effective for fiscal year beginning after December 15,
2014. The adoption of this guidance did not have an impact on the Company’s financial position.
In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which amends ASC 740, “Income Taxes.” This ASU
provides guidance on the financial statement presentation of an unrecognized tax benefit, as either a reduction of a deferred tax
asset or as a liability, when a net operating loss carryforward, similar tax loss, or a tax credit carryforward exists. This ASU was
effective for the Company December 1, 2014. The adoption of this ASU did not have a material impact on the Company’s
financial position.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note A—Description of Business and Significant Accounting Policies (Continued)
In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income,” which requires companies to provide
the amounts reclassified out of accumulated comprehensive income by component as well as requiring
information about
additional disclosures for these amounts. This ASU was effective for the Company on December 1, 2013. The adoption of this ASU
did not have an impact on the Company’s financial position, results of operations, or cash flows.
Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which clarifies existing
accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company will recognize
that reflects the consideration to which the
revenue when it
company expects to be entitled in exchange for those goods and services. ASU 2014-09 will be effective for the Company
December 1, 2018. The Company is in the process of determining what impact, if any, the adoption of this ASU will have on its
financial position, results of operations, and cash flows.
transfers promised goods or services to customers in an amount
In April 2015, the FASB issued 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which expands upon the
guidance on the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt
discounts. This guidance requires retrospective application and is effective for fiscal years beginning after December 15, 2015 and
for interim periods within those fiscal years, with early adoption permitted. The Company expects the adoption of this guidance to
impact the classification of deferred financing fees on its balance sheet, but it will not impact the Company’s financial position,
results of operations or cash flows.
In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330):Simplifying the Measurement of Inventory,” which
applies to inventory that is measured using first-in, first-out (“FIFO”) or average cost. As proscribed in this update, an entity should
measure inventory that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in the
ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Subsequent measurement
is unchanged for inventory that is measured using last-in, first-out (“LIFO”). This update is effective for annual and interim periods
beginning after December 15, 2016, and should be applied prospectively with early adoption permitted at the beginning of an
interim or annual reporting period. The Company is currently evaluating the impact of the adoption of this guidance on the
Consolidated Financial Statements.
to goodwill. Such adjustments are required when new information is obtained about
In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments,”
which illustrates certain guidance governing adjustments to the provisional amounts recognized at the acquisition date with a
corresponding adjustment
facts and
circumstances that existed as of the acquisition date that, if known, would have affected the measurement amounts initially
recognized or would have resulted in the recognition of additional assets and liabilities. This new guidance eliminates the
requirement to retrospectively account for such adjustments. This new guidance is effective for our fiscal year commencing on
December 1, 2016, and early adoption is permitted in certain circumstances. The Company does not expect the adoption of this
guidance to have a material impact on the consolidated financial statements. Where possible, the Company plans on adopting this
simplifying guidance early. Given that this guidance applies to entity specific transactions and would only become relevant in
certain circumstances, the Company is unable to estimate the impact, if any, this new guidance may have on the financial position,
results of operations, and cash flows.
In March 2013, the FASB issued ASU No. 2013-05 “Foreign Currency Matters,” which provides guidance on when to
release the cumulative currency translation adjustment into net income when a parent either sells a part or all of its investment in a
foreign entity. This ASU was effective for the Company on December 1, 2014. The adoption of this ASU did not have a material
impact on the Company’s consolidated financial position, results of operations, or cash flows.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note B—Discontinued Operations
The Company sold its commercial wallcovering businesses during the first half of 2012 to J. Josephson, Inc., a private
commercial wallcovering producer based in New Jersey, United States. As a result of extensive negotiations, during May 2015, J.
Josephson Inc. agreed to reimburse the Company for a 2014 claim paid by the Company to a former wallcovering customers. The
Company recognized a gain of $0.9 million, net of tax, which is included in results for discontinued operations of the Company’s
consolidated statement of operations.
There were no net sales of the discontinued businesses in 2015 or 2014 and for 2013 net sales were $2.1 million. Income
before income taxes for the discontinued businesses were $1.5 million in 2015 and losses before income taxes were $1.0 million
and $1.5 million for 2014 and 2013, respectively.
Note C—Asset Sales
During July 2013, the Company sold the land and building of its Columbus, Mississippi facility to the Columbus Business
Center LLC, for $1.9 million and all of the equipment of that facility for $2.3 million. Proceeds from the sale were comprised of
cash of $1.1 million and a note receivable with a notional amount of $3.1 million. In May 2014, the Company received full
payment of the note receivable. The Company accounted for the land and building sale using the deposit method, as required
under ASC 360, “Property, Plant, and Equipment—Real Estate Sales” and accordingly, the book value of the land and building
was included in the Company’s Property, Plant, and Equipment at November 30, 2013 (see Note L—Property, Plant, and
Equipment, Net). The Company recognized a gain of $1.4 million related to the sale of the equipment component of this
transaction during the third quarter of 2013. In a separate transaction, the Company entered into a long-term lease with the buyer
to lease a portion of the facility through the end of 2018, which will be used as a distribution facility for the Coated Fabrics
business.
During the fourth quarter of 2013, the Company sold its idled Taicang, China facility for $5.1 million in cash. The Company
recognized a gain of $3.5 million for this transaction.
Note D—Restructuring and Severance
The following table is a summary of restructuring and severance charges for 2015, 2014, and 2013:
2015
2014
2013
(Dollars in millions)
Severance expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Closure costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5.9
$.8
— .1
$4.5
2.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5.9
$.9
$7.1
During 2015, the Engineered Surfaces segment recognized restructuring and severance costs of $1.5 million primarily related
to workforce reductions and closure costs, the Performance Chemicals segment recognized $4.3 million of severance costs related
to workforce reductions, and Corporate recognized $0.1 million of severance costs related to workforce reductions. All costs are
expected to be paid by the end of the third quarter of 2016.
During 2014,
the Engineered Surfaces segment recognized restructuring and severance costs related to its continuing
operations of $0.4 million primarily related to workforce reductions and plant closure costs and the Performance Chemicals
segment recognized $0.5 million of severance costs related to workforce reductions. All of the costs were paid during 2014.
During 2013, the Engineered Surfaces Segment recognized restructuring and severance costs related to its continuing
operations of $5.5 million. The costs were primarily related to plant closure costs and workforce reduction actions at its Columbus,
Mississippi and Taicang, China facilities. The Performance Chemicals segment recognized $1.6 million of severance costs related
to the restructuring of its European operations.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note D—Restructuring and Severance (Continued)
The following table summarizes the Company’s liabilities related to restructuring and severance activities:
Performance Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Surfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30,
2014
$—
—
—
$—
2015
Provision
Payments
(Dollars in millions)
$4.3
1.5
.1
$5.9
$2.9
.7
—
$3.6
November 30,
2015
$1.4
.8
.1
$2.3
Note E—Asset Impairment
During 2015, the Company recognized $19.4 million of asset impairments which includes an impairment on the Company’s
non-core India business of $18.3 million, an impairment on land at the Company’s former headquarter location of $0.6 million
and other asset impairments of $0.5 million on assets that were idled during 2015. The impairment primarily related to the
Performance Chemical’s India business which the Company’s management during November 2015 committed to a plan to sell the
assets. The Company recognized an impairment charge to write-down the net assets of this disposal group to its expected sales
price after considering costs to sell. Additionally, the assets and liabilities of this business are considered as held for sale and are
included in Other Current Assets and Other Current Liabilities, respectively. The company utilized unobservable inputs in
determining the magnitude of the non-recurring impairment representing level 3 inputs in the fair value hierarchy.
At November 30, 2015 the India operation comprised the following assets and liabilities.
Assets classified as held for sale
(dollars in millions)
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 2015
$1.0
.2
.8
.2
2.2
2.8
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5.0
Liabilities classified as held for sale
(dollars in millions)
Short-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1.5
.8
1.8
4.1
3.0
0.3
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7.4
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note E—Asset Impairment (Continued)
There were no asset impairments during 2014.
During the fourth quarter of 2013, based on the Company’s annual impairment test for indefinite lived intangible assets, the
expected future discounted cash flows of one of the Performance Chemicals segments’ trademarks was lower than its book value by
$0.2 million as a result of lower selling prices. Accordingly, an impairment charge of $0.2 million was recognized.
Note F—Other Expense (Income)
Included in other expense (income) in 2015 were operational development costs of $5.4 million, environmental remediation
costs of $3.0 million, shareholder activist costs of $1.9 million, which was partially offset by gains on foreign currency transactions
of $1.5 million, sales of scrap material of $1.1 million and net other income $0.8 million.
Included in other expense (income) in 2014 were income from scrap material sales of $1.8 million, a gain on settlement of
notes receivable of $1.1 million, gain on foreign currency transactions of $1.1 million, and interest income of $0.8 million,
partially offset by miscellaneous non-income tax expense of $1.1 million, environmental remediation costs of $1.0 million, and
other of $0.3 million.
Included in other expense (income) in 2013 were insurance recovery proceeds of $0.8 million in settlement of a business
interruption claim and a non-cash impairment charge of $0.9 million for a note receivable to reflect the balance of the note at fair
value.
Note G—Income Taxes
The components of (loss) income from continuing operations before income taxes are as follows:
(Loss) Income from Continuing Operations Before Income Taxes
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Tax Benefit (Expense)
Current
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. State and Local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred
U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. State and Local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended November 30,
2015
2014
2013
(Dollars in millions)
$(11.2) $ (1.7) $13.6
12.9
13.4
(9.9)
$(21.1) $11.7
$26.5
Years Ended November 30,
2015
2014
2013
(Dollars in millions)
$ (.6) $ — $ 1.1
(.2)
(3.0)
(.2)
(4.5)
(.2)
(2.7)
(3.5)
(4.7)
(2.1)
4.0
(.2)
2.1
5.9
5.6
(.3)
(.2)
(6.1)
(.9)
3.1
5.1
(3.9)
Income Tax (Benefit) Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.4
$ .4
$(6.0)
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note G—Income Taxes (Continued)
Effective Income Tax Rate
Tax at Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance (reversal) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign taxes at different rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permanent items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U. S. tax deemed dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible executive compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign withholding tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign stock sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible impairment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign non-deductible interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended November 30,
2015
2014
2013
35.0% 35.0% 35.0%
(49.7)
(2.6)
(22.5)
12.8
.9
1.8
— 10.8
2.4
6.6
—
4.2
5.5
—
—
(3.0)
2.4
3.1
.4
(11.2)
1.2
—
3.7
.7
(7.6)
4.1
—
(2.2)
—
(3.7)
1.1
1.1
(1.0)
.1
4.3
(2.0)
(3.3)
—
(29.3)
—
(4.4)
.9
Effective Income Tax Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.4% (3.4)% 22.6%
As of November 30, 2015, the Company’s effective tax rate was a benefit of 11.4% on the global pretax loss of $21.1
million. The primary item reducing the overall global tax benefit by 29.3% relates to an impairment which is permanently non-
deductible for tax purposes. This is partially offset by a 12.8% effective tax benefit related to foreign taxes in jurisdictions in which
the tax rate is lower than the US federal statutory rate. The primary jurisdictions in which rates are significantly lower than the U.S.
are Luxembourg, Thailand and China. The reductions related to foreign taxes in these jurisdictions were 10%, 3% and 2%,
respectively.
Deferred Taxes
(Dollars in millions)
November 30,
2015
2014
Assets
Liabilities
Assets
Liabilities
Accrued estimated costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOLC’s and other carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Post-retirement employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9.2
—
—
30.8
56.6
4.5
4.0
(10.2)
$ — $ 7.0
—
—
40.5
57.4
5.5
1.0
(11.1)
22.6
14.0
—
—
—
—
—
$ —
26.7
20.0
—
—
—
—
—
Deferred Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 94.9
$36.6
$100.3
$46.7
As of November 30, 2015, the Company had approximately $107.4 million of U.S. federal net operating loss carryforwards
(NOLCs), $112.4 million of state and local NOLCs, $0.2 million of foreign tax credit carryforwards, and $0.4 million of AMT
credit carryforwards. The $112.4 million of state and local NOLCs have a realizable deferred tax asset value of $4.4 million.
During the year ended November 30, 2015, the Company utilized approximately $8.2 million of federal net operating loss
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note G—Income Taxes (Continued)
carryforward. The majority of the federal, state and local NOLCs will expire in tax years 2021 through 2034 while the foreign tax
credit carryforwards will expire in the tax years 2016 through 2022. As of November 30, 2015, the Company had approximately
$51.0 million of foreign NOLCs of which $41.4 million have an indefinite carryforward period. Of the $41.4 million foreign
NOLCs which have an indefinite carryforward period, $29.9 million have a valuation allowance provided against them as the
Company does not anticipate utilizing these carryforwards. Cash paid for income taxes in 2015, 2014 and 2013 was $3.8
million, $3.9 million and $4.4 million, respectively, and related primarily to state and foreign income taxes.
There were no unrecognized tax positions at November 30, 2015. The total unrecognized tax benefits were $0.6 million at
November 30, 2014. There were no interest and penalties recognized in the statement of financial position at November 30, 2015
and $0.4 million recognized during 2014. The amount of unrecognized tax benefits which impacted the Company’s effective tax
rate in 2015 was $0.6 million. There were no unrecognized tax benefits, which impacted the Company’s effective tax rate in 2014.
The amount of unrecognized tax benefits which impacted the Company’s effective tax rate in 2013 was $1.9 million.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties is as
follows:
Years Ended November 30,
2015
2014
2013
(Dollars in millions)
Opening balance December 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase based on tax positions related to prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease based on tax positions in the prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction due to lapse of statue of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ .6
—
—
(.6)
—
$0.8
—
—
(.2)
—
$ 4.3
—
(.4)
(3.1)
—
Ending balance November 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ .6
$ .8
Interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense. For the
year 2015, the Company recognized $0.4 million income tax benefit related to interest and penalties. The Company recognized
no income tax expense related to interest and penalties in 2014 and recognized an income tax benefit of $0.7 million in 2013.
With limited exceptions, the Company is no longer open to audit under the statutes of limitation by the Internal Revenue
Service and various states and foreign taxing jurisdictions for years prior to 2010.
Note H—Accumulated Other Comprehensive (Loss) Income
The components of Accumulated Other Comprehensive (Loss) Income are as follows:
November 30,
2015
2014
2013
(Dollars in millions)
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (30.2) $ (10.3) $ 0.2
(88.8)
(118.5)
(105.7)
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(135.9) $(128.8) $(88.6)
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note H—Accumulated Other Comprehensive (Loss) Income (Continued)
The following table provides additional details of
the amounts recognized into net earnings from accumulated other
comprehensive (loss) income:
Foreign
Currency
Items
Defined
Benefit
Plans
Accumulated
Other
Comprehensive
Loss
(Dollars in millions)
Balance November 30, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive earnings (loss) before reclassifications . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Amounts reclassified from accumulated other comprehensive earnings (loss)
$ (2.2) $(112.5)
21.4
2.3
2.4
—
Balance November 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive earnings (loss) before reclassifications . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Amounts reclassified from accumulated other comprehensive earnings (loss)
$ 0.2
(10.5)
—
$ (88.8)
(31.0)
1.3
Balance November 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive earnings (loss) before reclassifications . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Amounts reclassified from accumulated other comprehensive earnings (loss)
$(10.3) $(118.5)
10.1
2.7
(19.9)
—
$(114.7)
23.8
2.3
$ (88.6)
(41.5)
1.3
$(128.8)
(9.8)
2.7
Balance November 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(30.2) $(105.7)
$(135.9)
Note I—Earnings Per Share
The following table sets forth the computation of earnings per common share and earnings per common share—assuming
dilution, and does not include participating securities for any year (in millions, except per share amounts):
Years Ended November 30,
2015
2014
2013
Numerator
(Loss) Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(18.7) $12.1
$20.5
Income (loss) from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.9
(.6)
(.9)
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(17.8) $11.5
$19.6
Denominator (shares in millions)
Denominator for basic earnings per share—weighted average shares outstanding . . . . . . . . . . . . . . . . .
Effect of dilutive securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45.3
0.4
46.3
0.8
46.1
0.5
Denominator for dilutive earnings per share—adjusted weighted average shares and assumed
conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45.7
47.1
46.6
Basic and Diluted (Loss) Income Per Share
(Loss) income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (.41) $ .26
$ .44
Income (loss) from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ .02
$ (.01) $ (.02)
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (.39) $ .25
$ .42
The Company previously displayed earnings per share under the Two-Class Method as a result of participating securities,
which expired during 2013 and the requirement to allocate earnings between common shareholders and other shareholders which
is no longer required and therefore have no impact on weighted average shares outstanding. Certain options to purchase common
stock and unearned restricted stock of the Company were anti-dilutive and consisted of 0.1 million shares during both 2014 and
2013. There were no anti-dilutive shares related to share-based incentive compensation that were excluded from the computation
of dilutive weighted-average shares outstanding in 2015 as they would have had an anti-dilutive effect.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note J—Accounts Receivable
The Company’s net accounts receivable of $105.3 million are generally unsecured. There was no customer who represented
more than 10% of the Company’s net trade receivables at November 30, 2015 or 2014. The allowance for doubtful accounts was
$1.3 million and $1.4 million at November 30, 2015 and 2014, respectively. Write-offs of uncollectible accounts receivable
totaled $0.3 million, $0.9 million, and $0.2 million in 2015, 2014, and 2013, respectively. The provision for bad debts was $0.2
million, $0.3 million, and $0.0 million in 2015, 2014, and 2013, respectively.
Note K—Inventories
November 30,
2015
2014
(Dollars in millions)
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 34.7
4.9
60.7
$ 41.7
6.6
72.5
Acquired cost of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess of acquired cost over LIFO cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obsolescence reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100.3
(11.1)
(7.3)
120.8
(20.5)
(7.6)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 81.9
$ 92.7
Inventories valued using the LIFO method represented $50.4 million, or 48.4%, and $62.0 million, or 51.4%, of inventories at
November 30, 2015 and 2014, respectively.
In 2015 and 2014, inventory quantities declined in both segments resulting in a partial liquidation of LIFO inventory layers
carried at lower costs prevailing in prior years compared to the costs of current year purchases. The effect of this partial liquidation
decreased cost of products sold by $9.5 million and $1.2 million in 2015 and 2014, respectively. The partial liquidation resulted
in a decrement in the LIFO inventories of $1.5 million.
Note L—Property, Plant and Equipment, Net
November 30,
2015
2014
(Dollars in millions)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 16.5
140.7
425.5
16.1
$ 17.7
141.2
411.6
26.8
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
598.8
(383.9)
597.3
(358.9)
Property, Plant, and Equipment, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 214.9
$ 238.4
As of November 30, 2015,
included in Land and Buildings and improvements are $3.0 million and $13.4 million,
respectively, of assets under capital leases.
Depreciation expense was $30.3 million, $29.5 million, and $28.0 million in 2015, 2014, and 2013, respectively. Included
in depreciation expense is $26.0 million, $23.4 million, and $22.2 million in 2015, 2014, and 2013, respectively, related to
depreciation of manufacturing facilities and equipment.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note L—Property, Plant and Equipment, Net (Continued)
As of November 30, 2015 and 2014, the Company had $2.8 million and $3.1 million, respectively, of unamortized software
costs included in machinery and equipment, primarily related to an Enterprise Resource Program (ERP) system. Depreciation
expense of software costs was $1.0 million, $0.6 million, and $0.7 million in 2015, 2014, and 2013, respectively. The Company
is depreciating these costs over five years.
Included in depreciation expense in 2015 is $5.8 million of accelerated depreciation expense related to the conversion of the
plant in Calhoun, Georgia to a distribution center and the transfer of styrene butadiene capacity in Mogadore, Ohio to the Green
Bay, Wisconsin plant. Included in depreciation expense in 2014 is $2.2 million of accelerated depreciation expense related to the
Akron, Ohio assets for which production is being transferred to another Performance Chemicals facility in an effort to consolidate,
upgrade, and improve processes. The Calhoun, Georgia assets will be fully depreciated by the end of the first quarter of 2016,
consistent with their continued use during the transition period. The Mogadore, Ohio assets were fully depreciated as of
November 30, 2015.
Note M—Goodwill and Other Intangible Assets
Goodwill
The following table reflects changes in the carrying value of goodwill:
Balance November 30, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance November 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Dollars in millions)
$88.9
(3.5)
85.4
1.6
(6.2)
Balance November 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$80.8
Intangible Assets
The following table summarizes the Company’s intangible assets as of November 30, 2015 and 2014:
November 30, 2015
November 30, 2014
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
Weighted
Average Life at
November 30,
2015
Finite-lived intangible assets
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trademarks
Technical know-how . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Land use rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19.5
7.9
5.6
32.9
6.9
1.9
(Dollars in millions)
$16.7
7.1
4.3
13.4
1.1
1.9
$ 21.3
7.5
5.1
36.6
6.4
1.9
$17.1
6.9
4.2
12.0
1.0
1.9
Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 74.7
$44.5
$ 78.8
$43.1
1.8
9.3
36.9
6.9
58.1
0.0
15.8
Indefinite lived intangible assets
Trademarks
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30.7
—
30.7
—
N/A
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$105.4
$44.5
$109.5
$43.1
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note M—Goodwill and Other Intangible Assets (Continued)
Amortization expense for finite-lived intangible assets was $3.7 million, $5.3 million, and $5.6 million for the years ended
November 30, 2015, 2014, and 2013, respectively. During 2013, the Company recognized an impairment loss of $0.2 million
for one of its trademarks.
The following table summarizes expected future annual amortization expense for the Company’s finite-lived intangible assets:
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Dollars in millions)
$ 4.6
4.4
3.1
3.1
3.1
11.9
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$30.2
Note N—Debt and Credit Lines
Amounts Due Banks
Amounts due banks consist of the following debt obligations that are due within the next twelve months:
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$200 million Term Loan B—current portion (interest at 4.25%)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign subsidiaries borrowings (interest at 10.2%—12.9%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30,
2015
2014
(Dollars in millions)
$ .4
$ .5
2.0
2.0
3.2
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2.5
$5.6
The Company maintains borrowing facilities at certain foreign subsidiaries, which consist of working capital credit lines and
facilities for the issuance of letters of credit. As of November 30, 2015, total borrowing capacity for foreign working capital credit
lines and letters of credit facilities was $17.7 million, of which $0.4 million was utilized as letters of credit issued. During the same
period, there were $1.5 million of foreign borrowings not included in the working capital credit lines as they were classified as
other liabilities in connection with assets held for sale. As of November 30, 2014, total borrowing capacity for foreign working
capital credit lines and letters of credit facilities was $22.9 million, of which $3.2 million had been utilized as borrowings and $1.1
million was utilized as letters of credit issued.
The Company’s long-term debt consists of the following:
$200 million Term Loan B (interest at 4.25%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Unsecured Notes (interest at 7.875%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior Revolving Credit Facility (interest at 1.99%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized original issue discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 30,
2015
2014
(Dollars in millions)
$190.0
150.0
17.2
—
$192.0
200.0
17.6
—
357.2
(2.5)
(.5)
409.6
(2.4)
(0.8)
Total long-term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$354.2
$406.4
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note N—Debt and Credit Lines (Continued)
The following table reflects payments on long-term debt (excluding capital lease obligations) through maturity:
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.0
$ 2.0
$336.0
(Dollars in millions)
Senior Unsecured Notes
The Senior Unsecured Notes (“Senior Notes”) have a face value of $150.0 million with a 7.875% interest rate, which is
payable semi-annually. The Senior Notes mature on November 1, 2018 and are unsecured. The Company is permitted to redeem
a portion of the outstanding Senior Notes any time after October 31, 2014 at a premium above par, subject to certain restrictions.
The Senior Notes are fully and unconditionally and jointly and severally guaranteed on a senior, unsecured basis by all of
OMNOVA Solutions Inc.’s existing and future material domestic subsidiaries that from time to time guarantee obligations under the
Company’s Senior Notes. During the fourth quarters of 2015 and 2014, the Company redeemed $50.0 million of the outstanding
Senior Notes for which it paid redemption premiums of $1.0 million and $2.0 million, respectively, which is included in interest
expense.
Term Loan
The Company has a $200 million Term Loan (“Term Loan”) (balance of $190.0 million on November 30, 2015), which was
amended on March 7, 2013. The amendment extended the maturity date of the Term Loan by one year, to May 31, 2018, and
reduced the borrowing spreads as described below. The Term Loan is secured by all real property and equipment of the
Company’s U.S. facilities and guaranteed by the material U.S. subsidiaries of the Company. The Term Loan carries a variable
interest rate based on, at the Company’s option, either a Eurodollar rate or a base rate, in each case, plus an applicable margin.
The Eurodollar rate is a periodic fixed rate equal to the London Inter Bank Offered Rate (“LIBOR”) subject to a floor of 1.25%. The
applicable margin for the Eurodollar rate is 3.0%. The base interest rate is a fluctuating rate equal to the higher of (i) the Prime
Rate, (ii) the sum of the Federal Funds Effective Rate plus 0.50% or (iii) the one month Eurodollar rate plus 1.0%, subject to a floor
of 2.25%. The applicable margin for the base rate is 2.00%. Annual principal payments consist of $2.0 million, due in quarterly
installments, and potential annual excess free cash flow payments as defined in the Term Loan agreement, with any remaining
balance to be paid on May 31, 2018. The Company was not required to make any excess free cash flow payments for 2015 or
2014. The Company can prepay any amount at any time without penalty upon proper notice and subject to a minimum dollar
requirement.
Prepayments will be applied towards any required annual excess free cash flow payment. Additionally, the Term Loan
provides for additional borrowings of the greater of $75 million or an amount based on a senior secured leverage ratio, as
defined in the Term Loan, provided that certain requirements are met. The Term Loan contains affirmative and negative covenants,
including limitations on additional debt, certain investments and acquisitions outside of the Company’s line of business. The Term
Loan requires the Company to maintain an initial senior secured net leverage ratio of less than 2.5 to 1. The Company is in
compliance with this covenant with a senior secured net leverage ratio of 2.0 to 1 at November 30, 2015. The Company’s EBITDA,
as defined in the Term Loan for covenant purposes, was $80.6 million for 2015 which provided a cushion of approximately $16.0
million for covenant measurement purposes.
The Company issued the Term Loan in 2010 at a discount of $2.0 million, receiving cash of $198 million. This original issue
discount is reflected as a reduction of debt outstanding and is being amortized over the respective term of the debt as a non-cash
component of interest expense.
Senior Revolving Credit Facility
The Company also has a Senior Secured Revolving Credit Facility (“Facility”), with potential availability of $100 million, which
can be increased up to $150 million subject to additional borrowing base assets and lender approval. The Facility was amended
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note N—Debt and Credit Lines (Continued)
on April 5, 2013. The Facility matures December 9, 2017. The Facility is secured by U.S. accounts receivable, inventory
(collectively the “Eligible Borrowing Base”) and intangible assets. Availability under the Facility will fluctuate depending on the
Eligible Borrowing Base and is determined by applying customary advance rates to the Eligible Borrowing Base. The Facility
includes a $15 million sub-limit for the issuance of commercial and standby letters of credit and a $10 million sub-limit for
swingline loans. Outstanding letters of credit on November 30, 2015 were $0.4 million. The Facility contains affirmative and
negative covenants, similar to the Term Loan, including limitations on additional debt, certain investments and acquisitions outside
of the Company’s line of business. If the average excess availability of the Facility falls below $25 million during any fiscal quarter,
the Company must then maintain a fixed charge coverage ratio greater than 1.1 to 1 as defined in the agreement. Average excess
availability is defined as the average amount available for borrowing under the Facility during the Company’s fiscal quarter. The
Company was in compliance with this requirement as the average excess availability did not fall below $25 million during any
quarter of 2015 and averaged $65.9 million during the fourth quarter of 2015.
Advances under the Facility bear interest, at the Company’s option, at either an alternate base rate or a Eurodollar rate, in
each case, plus an applicable margin. The alternate base interest rate is a fluctuating rate equal to the higher of the prime rate or
the sum of the federal funds effective rate plus 0.50%. The Eurodollar rate is a periodic fixed rate equal to LIBOR. Applicable
margins are based on the Company’s average daily excess availability during the previous fiscal quarter. If average excess
availability is greater than or equal to $50 million, the applicable margin will be 1.75% on Eurodollar loans and 0.75% on base
rate borrowings. If average excess availability is greater than or equal to $25 million but less than $50 million, the applicable
margin will be 2.0% on Eurodollar loans and 1.0% on base rate borrowings. If average excess availability is less than $25 million,
the applicable margin will be 2.25% on Eurodollar loans and 1.25% on base rate borrowings. The commitment fee for unused
credit lines will be0.25% if outstanding borrowings on the Facility are greater than or equal to 50% of the maximum revolver
amount and 0.375% if outstanding borrowings are less than 50% of the maximum revolver amount.
At November 30, 2015, the Company had $92.9 million of eligible inventory and receivables to support the borrowing base,
which is capped at $100 million under the Facility. At November 30, 2015, letters of credit outstanding under the Facility were
$0.4 million, there were no amounts borrowed under the Facility and the amount available for borrowing under the Facility was
$62.6 million.
Capital Lease Obligations
At November 30, 2015, the Company’s commitments under capital leases was $17.2 million.
The following is a schedule by year of future minimum lease payments for this capital lease together with the present value of
the net minimum lease payments as of November 30, 2015.
Year Ending November 30:
(Dollars in millions)
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amount representing estimated executory costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amount representing interest
$ 1.2
1.4
1.5
1.5
1.5
19.5
26.6
.7
25.9
8.7
Present value of minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17.2
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note N—Debt and Credit Lines (Continued)
Deferred Financing Fees
Deferred financing costs incurred in connection with the issuance of the Senior notes, the Term Loan and the Facility are being
amortized over the respective terms of the underlying debt, including any amendments. Total amortization expense of deferred
financing costs was $2.0 million, $2.3 million, and $2.3 million for 2015, 2014, and 2013, respectively. As a result of redeeming
$50.0 million of its Senior Notes in November of both 2015 and 2014, the Company wrote-off $0.6 million and $0.8 million,
respectively, of existing deferred financing fees. As a result of the refinancing actions relating to the Term Loan and the Facility
during the second quarter of 2013, the Company incurred $1.2 million of fees, of which $0.9 million were expensed in the second
quarter of 2013 and the remainder were recognized as deferred financing fees to be amortized over the term of the debt.
Additionally, $0.4 million of existing deferred financing fees and $0.2 million of existing deferred original issue discount fees were
written off in 2013.
The weighted-average interest rate on the Company’s debt was 6.0% for 2015 and 6.3% for 2014.
Cash paid for interest was $24.9 million, $30.9 million, and $29.7 million for 2015, 2014, and 2013, respectively. Included
in 2015 and 2014 is the premium paid on the partial redemption of the Senior Notes as described previously.
Note O—Employee Benefit Plans
The Company maintains a number of defined benefit and defined contribution plans to provide retirement benefits for
employees. These plans are maintained and contributions are made in accordance with the Employee Retirement Income Security
Act of 1974 (“ERISA”), local statutory law, or as determined by the Board of Directors. The plans generally provide benefits based
upon years of service and compensation. Pension plans are funded except for a domestic non-qualified pension plan for certain
key employees and certain foreign plans. The Company uses a November 30 measurement date for its plans.
Historically, the Company has used a single weighted-average discount rate approach to develop the interest and service cost
components of the net periodic benefit costs. This method represented the constant annual rate that would be required to discount
all future benefit payments related to past service from the date of expected future payment to the measurement date such that the
aggregate present value equals the obligation. During the fourth quarter of 2015, the Company adopted certain amendments to
alter the method previously used for its U.S. plans. The Company has elected to utilize an approach that discounts the individual
expected cash flows underlying interest and service costs using the applicable spot rates derived from the yield curve used to
determine the benefit obligation to the relevant projected cash flows. The election and adoption of this method will provide a more
precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and the
corresponding spot yield curve rates. The change in method will result in a decrease in the service and interest components for
benefit cost starting in 2016. The spot rates used to determine service and interest costs ranged from 1.14% to 5.07%. The ultimate
spot rate used to discount cash flows beyond 30 years is 4.68%. Based on current economic conditions, the Company estimates
that the service cost and interest cost for the U.S. plans will be reduced by approximately $2.3 million in 2016 as a result of the
change in method. The Company has accounted for this action as a change in estimate and accordingly has accounted for it on a
prospective basis.
The use of disaggregated discount rates results in a different amount of Interest Cost compared to the traditional single
weighted-average discount rate approach because of different weightings given to each subset of payments. The use of
disaggregated discount rates affects the amount of Service Cost because the benefit payments associated with new service credits
for active employees tend to be of longer duration than the overall benefit payments associated with the plan’s benefit obligation.
As a result, the payments would be associated with longer-term spot rates on the yield curve, resulting in lower present values than
the calculations using the traditional single weighted-average discount rate.
Defined Benefit Plans
The Company’s defined benefits plans generally provide benefits based on years of service and compensation for salaried
employees and under negotiated non-wage based formulas for union-represented employees.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note O—Employee Benefit Plans (Continued)
Changes in benefit obligations and plan assets are as follows:
Change in Benefit Obligation
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid net of retiree contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
(Dollars in millions)
$333.8
1.4
12.9
(.5)
(34.7)
(.2)
(28.2)
(2.0)
$ 284.0
1.5
13.1
—
52.5
—
(16.1)
(1.2)
Benefit Obligation at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$282.5
$ 333.8
Change in Plan Assets
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits and expenses paid net of retiree contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$221.8
(2.2)
5.7
—
—
(28.2)
$ 216.3
16.3
4.1
.4
.8
(16.1)
Fair Value of Plan Assets at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$197.1
$ 221.8
Funded Status at November 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (85.4) $(112.0)
Amounts Recognized in the Consolidated Balance Sheets
Current liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(.5) $ (1.2)
(110.8)
(84.9)
Net Amount Recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (85.4) $(112.0)
As of November 30, 2015 and 2014, the amounts included in Accumulated Other Comprehensive Income (Loss) that have not
yet been recognized in net periodic benefit cost consist of:
2015
2014
(Dollars in millions)
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(137.0) $(159.9)
.1
$
.1
$
The after-tax amount of unrecognized net actuarial loss at November 30, 2015 was $123.9 million. The estimated net loss for
defined benefit plans that will be amortized from Accumulated Other Comprehensive Income (Loss) during 2016 is $4.6 million.
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note O—Employee Benefit Plans (Continued)
Net Periodic Benefit Cost
Net Periodic Benefit Cost
Service costs for benefits earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest costs on benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1.4
12.9
(15.7)
5.4
(0.4)
$ 1.5
13.1
(14.9)
3.9
—
$ 1.7
12.3
(14.7)
5.0
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3.6
$ 3.6
$ 4.3
2015
2014
2013
(Dollars in millions)
The Company made $5.7 million and $4.1 million in contributions to its plans during 2015 and 2014, respectively. The
Company anticipates that it will be required to make a contribution to its pension plans of $6.5 million in 2016. The Company
anticipates pension expense to be approximately $.7 million in 2016 reflecting the impact of the change in accounting policy
previously disclosed.
Future service benefits are frozen for all participants under the Company’s U.S. defined benefit plan. All benefits earned by
affected employees through the effective dates of the freezes have become fully vested with the affected employees eligible to
receive benefits upon retirement, as described in the Plan document.
Estimated future benefit payments to retirees from the Company’s pension plans are as follows: 2016—$18.0 million, 2017—
$16.3 million, 2018—$16.7 million, 2019—$17.2 million, 2020—$17.7 million, and thereafter $91.1 million.
Information regarding pension plans with accumulated benefit obligations in excess of plan assets is as follows:
U.S. Pension Plans
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. Pension Plans
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
(Dollars in millions)
$271.2
$271.2
$196.1
$320.5
$320.5
$220.7
$ 11.3
$ 8.1
$ 1.0
$ 13.3
$ 9.8
$ 1.1
Assumptions
Weighted average assumptions used to measure the benefit obligation for the Company’s defined benefit plans as of
November 30, 2015 and 2014 were as follows:
Weighted Average Assumptions
Discount rate used for liability determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual rates of salary increase (non-U.S. plans)
Measurement date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.29% 4.01%
3.77% 3.67%
11/30
11/30
68
Pension Plans
2015
2014
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note O—Employee Benefit Plans (Continued)
Weighted average assumptions used to measure the net periodic benefit cost for the Company’s defined benefit plans as of
November 30, 2015, 2014, and 2013 were as follows:
Pension Plans
2015
2014
2013
Weighted Average Assumptions
Discount rate used for expense determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual rates of salary increase (non-U.S. plans) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.01% 4.74% 4.10%
7.75% 7.75% 7.75%
3.67% 3.56% 3.40%
The discount rate used for the liability measurement reflects the current rate at which the pension liabilities could be effectively
settled at the end of the year. The discount rate used spot rates on a yield curve matching benefit payments to determine the
weighted average discount rate that would be applied in determining the benefit obligation at November 30, 2015. The increase
in the discount rate used in 2015 is due to higher yields on investments used in establishing the yield curve as compared to the
prior year. The assumed long-term rate of return on plan assets assumption is based on the weighted average expected return of
the various asset classes in the plans’ portfolios. The asset class return is developed using historical asset return performance, as
well as current market conditions, such as inflation, interest rates, and equity market performance. The rate of compensation
increase is based on management’s estimates using historical experience and expected increases in rates.
In 2014, the Company adopted the Society of Actuaries’ (“SOA”) RP-2014 mortality tables with a generation projection scale
of MP-2014 to determine the Company’s 2014 liability for its U.S. pension plans. These tables were released late in 2014. This
table, along with the change in the discount rate, contributed to the increase in the actuarial loss recognized during 2014 and the
increase in the projected benefit obligation. During 2015, the Company reviewed the SOA tables and adopted a modified version
of the RP-2014 table and selected industry specific tables that better match the company’s business characteristics (for the
Performance Chemicals segment—the Chemical, Oil & Gas and Utilities industry table and for the Engineered Surfaces segment,
the Consumer Goods and Food & Drink industry table). Due to the change in the mortality tables in 2015, the Company
recognized an actuarial gain of approximately $15.6 million and a decrease in its projected benefit obligation.
Pension Plans Assets
The Company’s defined benefit plans are funded primarily through asset trusts or through general assets of the Company. The
Company employs a total return on investments approach for its U.S. defined benefit pension plan assets. A mix of equity
securities, fixed income securities, and alternative investments are used to maximize the long-term rate of return on assets for the
level of acceptable risk. Asset allocation at November 30, 2015, target allocation for 2015, and expected long-term rate of return
by asset category are as follows:
Asset
Category
Target
Allocation
2015
Percentage of Plan Assets
At November 30,
2015
2014
Weighted-
Average Expected
Long-Term Rate
Of Return
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52%
18%
10%
20%
49%
18%
12%
21%
56%
31%
2%
11%
4.2%
1.1%
.8%
1.6%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
100%
7.75%
Included in Other are hedge funds and short-term money market funds.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note O—Employee Benefit Plans (Continued)
The following tables set forth, by level within the fair value hierarchy, the U.S. defined benefit plans’ assets at November 30,
2015 and November 30, 2014:
2015
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Registered investment companies:
Total
Level 1
Level 2
Level 3
(Dollars in millions)
$
.1
$
.1
$— $ —
Equity mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
105.2
34.2
105.2
34.2
Total registered Investment companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
139.4
139.4
Collective trust funds:
Collateralized loan obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total collective trust funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.9
31.9
24.7
—
—
—
—
—
—
—
—
—
—
—
—
31.9
31.9
24.7
2014
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Registered investment companies:
$196.1
$139.5
$— $56.6
$
.7
$
.7
$— $ —
Equity mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123.1
69.5
123.1
69.5
Total registered Investment companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
192.6
192.6
Collective trust funds:
Collateralized loan obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total collective trust funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.9
22.9
4.5
—
—
—
—
—
—
—
—
—
—
—
—
22.9
22.9
4.5
$220.7
$193.3
$— $27.4
Money market funds are valued at a net asset value (NAV) of $1.00 per share held by the plan at year end, which
approximates fair value.
Registered investment companies are valued at quoted market prices.
The fair value of the participation units owned by the Plan in the collective trust funds are based on the NAV of participating
units held by the Plan.
Investments in real estate partnerships are valued at the fair value of the underlying assets based on comparable sales value
for similar assets, discounted cash flow models, appraisals, and other valuation techniques.
The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or
reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent
with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note O—Employee Benefit Plans (Continued)
A reconciliation of the beginning and ending Level 3 measurements is as follows:
Total
Collective
Trusts
Real Estate
Partnerships
(Dollars in millions)
Beginning balance, December 1, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized net gains or losses included in funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 37.5
(12.0)
1.9
$ 32.4
(12.0)
2.5
$ 5.1
—
(.6)
Ending balance, November 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 27.4
$ 22.9
$ 4.5
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized net gains or losses included in funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32.0
(2.8)
—
11.0
—
(2.0)
21.0
(2.8)
2.0
Ending balance, November 30, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 56.6
$ 31.9
$24.7
For Level 3 investments in the Company’s U.S. defined benefit plan, the Benefits Committee, which is comprised of certain
executives of the Company, uses third party services as the primary basis for valuation of these investments. The third party services
do not provide access to valuation models, inputs, and assumptions. Accordingly, the Benefits Committee conducts a review of a
variety of factors including internal controls reports and financial statements of the investment, economic conditions, industry and
market developments, and overall credit ratings, as well as utilizing a vendor review of the fund in assessing the propriety of the
estimated fair value.
The following table summarizes the quantitative inputs and assumptions used for items categorized as recurring Level 3 assets
not reported at a NAV as of November 30, 2015.
Financial Assets
Fair Value
Valuation Techniques
Unobservable Inputs
Ranges
Real estate partnerships
(not reported at NAV)
(Dollars in Millions)
$1.6
—
$1.6
Discounted cash flow
analysis
Appraisals
Discount rate
Exit capitalization rate
DCF term (years)
Comparable sales
6.75% - 13.0%
6.43% - 10.0%
10 - 12
N/A
The following table sets forth a summary of the Plan’s investments with a reported NAV, which is a practical expedient to
estimating fair value, as of November 30, 2015 (dollars in millions).
SEI Structured Credit Collective Fund(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy Debt Collective Investment Trust(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Core Property Collective Investment Trust(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22.2
$ 9.7
$23.1
Fair Value
(a) The SEI Structured Credit Collective Fund seeks to provide high general returns by investing in collateralized debt obligations
instruments. The SEI Structured Credit Collective Fund requires a two-year non-
(“CDO’s”) and other structured credit
redemption period after which investments can be redeemed at any time; however, a 90 day redemption notification period is
required. The Plan has satisfied all funding obligations related to this investment and has surpassed the two-year non-
redemption period.
(b) The SEI Energy Debt Collective Funds seeks to generate high total returns by primarily investing in debt securities of U.S. and
international energy companies denominated in U.S. dollars. The Fund will invest in investment grade bonds, below investment
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note O—Employee Benefit Plans (Continued)
(c)
grade bonds, loans, rights issues, or equities of U.S. companies. Equity investments will be limited. In most cases, equity
investments will be attached to a debt investment for extending credit or if received in a restructuring, though the Sub-Adviser
is permitted to add-on to an existing equity position through a secondary market transaction.
The SEI Core Property Fund, (the “Fund”) seeks both current income and long-term capital appreciation through investing in
underlying funds that acquire, manage, and dispose of commercial real estate properties. The Fund expects to invest at least
85% of its assets in open-end core underlying funds focused on properties in the US, with “core” meaning high-quality, low-
leveraged, income-generating office, industrial, retail, and multi-family properties, generally fully-leased to credit-worthy
companies and governmental entities. Up to 5% of the Fund’s net assets may be invested in liquid real estate strategies
(publicly-traded REITs) for cash management purposes and the fund may have up to a 15% allocation to non-core sectors and
strategies.
Defined Contribution Plans
The Company also sponsors a defined contribution 401(k) plan. Participation in this plan is available to substantially all U.S.
salaried employees and to certain groups of U.S. hourly employees. Company contributions to this plan are based on either a
percentage of employee contributions or on a specified amount per hour based on the provisions of the applicable collective
bargaining agreement. Prior to December 1, 2012, all Company contributions were made with Company stock. Effective
December 1, 2012, all Company contributions are made in cash. Contribution expense to this plan was approximately $2.4
million in 2015, $2.8 million in 2014, and $2.7 million in 2013. The defined contribution 401(k) plan contained approximately
1.1 million shares at November 30, 2015 and 1.3 million shares at November 30, 2014 of the Company’s common stock.
Health Care Plans
The Company provides retiree medical plans for certain retired U.S. employees of which there were 72 retired participants as
of November 30, 2015. The plans generally provide for cost sharing in the form of retiree contributions, deductibles, and
coinsurance between the Company and its retirees, and a fixed cost cap on the amount the Company pays annually to provide
future retiree medical coverage. These post-retirement benefits are unfunded and are accrued by the date the employee becomes
eligible for benefits. Retirees in certain other countries are provided similar benefits by plans sponsored by local governments.
Because the Company’s retiree health care benefits are capped, assumed health care cost trend rates have a minimal effect on
the amounts reported for the retiree health care plans. A one-percentage point increase/decrease in assumed health care cost
trend rates would not significantly increase or decrease the benefit obligation at November 30, 2015 and would have no effect on
the aggregate of the service and interest components of the net periodic cost.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note O—Employee Benefit Plans (Continued)
Changes in benefit obligations are as follows:
Change in Benefit Obligation
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss (gain)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid net of retiree contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
(Dollars in millions)
$ 7.1
.3
.8
(.6)
$ 7.2
.3
.8
(1.2)
Benefit Obligation at End of Year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7.6
$ 7.1
Change in Plan Assets
Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits and expenses paid, net of retiree contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
.6
(.6)
$ —
1.2
(1.2)
Fair Value of Plan Assets at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
$ —
Funded Status at November 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(7.6)
$(7.1)
Amounts Recognized in the Consolidated Balance Sheets
Current liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (.7)
(6.9)
$ (.5)
(6.6)
Net Amount Recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(7.6)
$(7.1)
As of November 30, 2015 and 2014, the amounts included in Accumulated Other Comprehensive Income (Loss) that have not
been recognized in net periodic benefit cost consist of:
Net actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service credit
$13.2
$15.2
$ — $ .1
2015
2014
(Dollars in millions)
Net Periodic Benefit Cost
2015
2014
2013
(Dollars in millions)
Net Periodic Benefit Cost (Income)
Service costs for benefits earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest costs on benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ — $ —
.3
—
(.3)
(1.4)
.3
—
(.3)
(1.4)
.3
—
(.1)
(1.2)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1.0) $(1.4) $(1.4)
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note O—Employee Benefit Plans (Continued)
Estimated future benefit payments and Medicare Part D subsidies for the retiree health care plans are as follows:
Benefit
Payments
Medicare
Part D
Subsidy
(Dollars in millions)
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021—2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ .7
.7
.7
.6
.6
2.8
$.1
.1
.1
.1
.1
.5
The Company expects to record non-cash retiree medical health care reduction of expenses of approximately $0.8 million in
2016.
The estimated net actuarial gain for retiree medical plans that will be amortized from Accumulated Other Comprehensive Loss
during 2016 is $1.0 million.
Assumptions
2015
2014
2013
Weighted Average Assumptions
Discount rate used for liability determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount rate used for expense determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current trend rate for health care costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ultimate trend rate for health care costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year reached . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Measurement date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.15% 3.85% 4.39%
3.85% 4.39% 3.70%
8.50% 7.40% 7.60%
4.50% 4.50% 4.50%
2028
2028
11/30
11/30
2028
11/30
The discount rate reflects the current rate at which the retiree medical liabilities could be effectively settled at the end of the
year. The discount rate used spot rates on a yield curve matching benefit payments to determine the weighted average discount
rate that would be applied in determining the benefit obligation at November 30, 2015.
Note P—Contingencies and Commitments
Litigation
From time to time, the Company is subject to various claims, proceedings, and lawsuits related to products, services, contracts,
employment, environmental, safety, intellectual property, and other matters. The ultimate resolution of such claims, proceedings,
and lawsuits is inherently unpredictable and, as a result, the Company’s estimates of liability, if any, are subject to change. Actual
results may materially differ from the Company’s estimates and an unfavorable resolution of any matter could have a material
adverse effect on the financial condition, results of operations and/or cash flows of the Company. However, subject to the above
and taking into account such amounts, if any, as are accrued from time to time on the Company’s balance sheet, the Company
does not believe, based on the information currently available to it, that the ultimate resolution of these matters will have a material
effect on the consolidated financial condition, results of operations, or cash flows of the Company.
Leases
The Company leases certain facilities, machinery and equipment, and office buildings under long-term, non-cancelable
operating leases. The leases generally provide for renewal options ranging from 5 to 20 years and require the Company to pay for
utilities, insurance, taxes, and maintenance. Rent expense on operating leases was $5.9 million in 2015, $6.9 million in 2014, and
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note P—Contingencies and Commitments (Continued)
$6.6 million in 2013. Future minimum commitments at November 30, 2015 for non-cancelable operating leases were $38.5
million with annual amounts of $5.3 million in 2016, $4.7 million in 2017, $3.6 million in 2018, $2.9 million in 2019, $2.4
million in 2020, and $19.6 million for leases after 2020.
Environmental Matters
The Company’s policy is to conduct its businesses with due regard for the preservation and protection of the environment. The
Company devotes significant resources and management attention to comply with environmental
laws and regulations. The
Company’s Consolidated Balance Sheets as of November 30, 2015 and 2014 reflects reserves for environmental remediation of
$4.1 million and $1.6 million, respectively. The Company’s estimates are subject to change and actual results may materially differ
from the Company’s estimates. Management believes, on the basis of presently available information, that resolution of known
environmental matters will not materially affect liquidity, capital resources, or the consolidated financial condition of the Company.
Collective Bargaining Agreements
At November 30, 2015, the Company employed approximately 2,235 employees at offices, plants, and other facilities
located principally throughout
the
Company’s employees are covered by collective bargaining agreements in the United States. There are no collective bargaining
agreements expiring during 2016. In addition, certain of the Company’s foreign employees are also covered by collective
bargaining agreements.
the United States, France, China, India, and Thailand. Approximately 9.9%, or 222, of
Note Q—Share-Based Compensation Plans
The OMNOVA Solutions Third Amended and Restated 1999 Equity and Performance Incentive Plan (the “Plan”) permits the
Company to grant to officers, key employees, and non-employee directors of the Company incentives directly linked to the price of
OMNOVA Solutions’ common shares. The Plan, by virtue of the three amendments approved by shareholders since the original
plan was approved in 1999, authorizes up to 9.6 million shares of Company shares in the aggregate for a) awards of options to
purchase shares of OMNOVA Solutions’ common shares, b) performance shares and performance units, c) restricted shares, d)
deferred shares, or e) appreciation rights. Shares used may be either newly issued shares, treasury shares, or both. As of
November 30, 2015, approximately 2.0 million shares of Company common shares remained available for grants under the Plan.
All options granted under the Plan have been granted at exercise prices equal to the market value of the Company’s common
shares on the date of grant. Additionally, the Plan provides that the term of any stock option granted under the Plan may not
exceed 10 years.
Share-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized
as an expense over the requisite service period (generally the vesting period).
For stock options, the fair value calculation is estimated using a Black-Scholes based option valuation model. For restricted
shares grants, which consist of the Company’s common shares, the fair value is equal to the market price of the Company’s shares
on the date of grant. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by
employees who receive equity awards. Subsequent events are not indicative of the reasonableness of the original estimates of fair
value made by the Company.
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note Q—Share-Based Compensation Plans (Continued)
A summary of the Company’s stock option activity and related information for the years ended 2015, 2014, and 2013 are as
follows:
Outstanding at beginning of year
. . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
2013
Weighted
Average
Exercise
Price
$5.15
$4.70
$5.07
Shares
9,250
(3,750)
(3,500)
Weighted
Average
Exercise
Price
Shares
Shares
Weighted
Average
Exercise
Price
78,250
(6,500)
(62,500)
$5.60
$5.21
$5.71
128,000
(20,250)
(29,500)
$4.99
$4.03
$4.04
Outstanding at end of year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,000
$6.12
9,250
$5.15
78,250
$5.60
The following table summarizes the range of exercise prices and weighted average exercise prices for options outstanding and
exercisable at November 30, 2015 under the Company’s stock option plans:
Outstanding Options
Exercisable Options
$6.00—$6.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,000
$6.12
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,000
$6.12
Weighted
Average
Exercise
Price
Number
Weighted
Average
Remaining
Contractual
Life (yrs)
0.81
0.81
Number
2,000
2,000
Weighted
Average
Exercise
Price
$6.12
$6.12
A summary of the Company’s restricted share activity and related information for the years ended November 30, 2015,
2014, and 2013 are as follows:
Non-vested at beginning of year
. . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
2013
Weighted
Average
Grant
Date Fair
Value
$7.63
$7.26
$5.88
$8.32
Weighted
Average
Grant
Date Fair
Value
$7.03
$9.31
$7.60
$7.91
Weighted
Average
Grant
Date Fair
Value
$6.86
$7.87
$7.57
$7.51
Shares
863,150
330,850
(229,874)
(8,050)
Shares
956,076
341,350
(332,776)
(44,700)
Shares
919,950
329,350
(333,350)
(43,750)
Non-vested at end of year
. . . . . . . . . . . . . . . . . . . . . . . . . . .
872,200
$8.13
919,950
$7.63
956,076
$7.03
Compensation expense for all share-based payments included in general and administrative expense was $2.4 million, $2.7
million, and $2.2 million during 2015, 2014 and 2013, respectively.
As of November 30, 2015, there was $3.2 million of total unrecognized compensation expense related to non-vested share-
based compensation arrangements to be amortized over the next 1.8 years.
The intrinsic value of stock options exercised was less than $0.1 million in 2015, $0.2 million and $0.1 million in 2014 and
2013, respectively. The intrinsic value of stock options that were outstanding was less than $0.1 million as of November 30, 2015
and November 30, 2014.
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note Q—Share-Based Compensation Plans (Continued)
Cash received from options exercised was less than $0.1 million in 2015, $0.3 million and $0.1 million in 2014 and 2013,
respectively.
Note R—Business Segment Information
The Company’s two operating segments are Performance Chemicals and Engineered Surfaces. The Company’s operating
segments are strategic business units that offer different products and services. They are managed separately based on
fundamental differences in their operations. Accounting policies of the segments are the same as those described in the significant
accounting policies.
Segment operating profit represents net sales less applicable costs, expenses and provisions for restructuring and severance
costs, asset write-offs and work stoppage costs relating to operations. However, management excludes restructuring and severance
costs, asset write-offs and work stoppage costs when evaluating the results and allocating resources to the segments.
Segment operating profit excludes unallocated corporate headquarters expenses, provisions for corporate headquarters
restructuring and severance, interest expense and income taxes. Corporate headquarters expense includes the cost of providing
and maintaining the corporate headquarters functions, including salaries, rent, travel and entertainment expenses, depreciation,
utility costs, outside services and amortization of deferred financing costs.
For a discussion of segment performance, refer to Segment Discussion in Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations starting on page 18 of this Annual Report on Form 10-K.
During the second quarter of 2015, the Performance Chemicals segment realigned certain product groupings to better
optimize and integrate cross-functional business team structures in order to support business growth. This resulted in an increase in
sales of $107.4 million and $115.6 million to the Performance Materials product line for 2014 and 2013, respectively, with a
corresponding decrease to the Specialty Chemicals product line. All prior period amounts have been recast to conform with current
presentation.
In 2015, segment operating profit for Engineered Surfaces includes restructuring and severance charges of $1.5 million,
facility closure and asset impairment costs of $1.6 million and environmental remediation charges of $0.2 million while the
impairment charges of $18.4 million, $5.8 million of accelerated
Performance Chemicals operating profit
depreciation, operational development costs of $5.0 million, restructuring and severance charges of $4.3 million and $2.8 million
of environmental remediation charges.
includes asset
In 2014, segment operating profit for Engineered Surfaces includes restructuring and severance charges of $0.4 million and a
gain on a note receivable of $1.1 million while the Performance Chemicals operating profit includes restructuring and severance
charges of $0.5 million, $2.2 million of accelerated depreciation on re-purposed assets and $1.0 million of environmental
remediation charges.
In 2013, segment operating profit for the Engineered Surfaces segment included gain on asset sales of $5.1 million, severance
charges of $3.0 million and facility closure costs of $2.6 million, and the Performance Chemicals segment included restructuring
and severance charges of $2.1 million, accelerated depreciation on re-purposed assets of $1.0 million, asset impairment charges
of $0.2 million and a gain on asset sales of $0.3 million.
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note R—Business Segment Information (Continued)
The following table sets forth a summary of operations by segment and a reconciliation of segment sales to consolidated sales
and segment operating profit to consolidated income from continuing operations before income taxes.
2015
2014
2013
(Dollars in millions)
Net Sales
Performance Chemicals
Performance Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specialty Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$331.0
277.1
$423.9
322.6
$ 454.2
318.8
Total Performance Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Surfaces
$608.1
$746.5
$ 773.0
Coated Fabrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Laminates and Performance Films . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 87.8
142.1
$ 98.4
142.7
$ 108.9
136.2
Total Engineered Surfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-segment sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$229.9
—
$241.1
(.2)
$ 245.1
—
Total Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$838.0
$987.4
$1,018.1
Segment Operating Profit
Performance Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Surfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15.9
18.9
$ 46.2
19.2
$
64.1
15.6
Total segment operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholder activist costs
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operational improvement costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition and integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34.8
(28.3)
(23.7)
(1.9)
(.4)
(.6)
(.4)
(.6)
65.4
(32.9)
(20.0)
—
—
—
—
(.8)
79.7
(31.9)
(19.8)
—
—
—
—
(1.5)
(Loss) Income From Continuing Operations Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . .
$ (21.1) $ 11.7
$
26.5
Total Assets
Performance Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Surfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Expenditures
Performance Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Surfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and Amortization
Performance Chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Surfaces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$469.4
158.4
59.4
$535.8
170.9
122.5
$ 547.6
129.4
177.7
$687.2
$829.2
$ 854.7
$ 12.5
8.6
2.9
$ 21.8
6.6
1.4
$
22.8
5.1
1.0
$ 24.0
$ 29.8
$
28.9
$ 26.9
6.0
1.1
$ 28.1
6.2
.5
$
26.3
7.0
.3
$ 34.0
$ 34.8
$
33.6
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note R—Business Segment Information (Continued)
GEOGRAPHIC INFORMATION
Net Sales
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United States export sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment Operating Profit
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Lived Assets
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
2013
(Dollars in millions)
$488.7
1.7
167.6
180.0
$578.3
3.2
208.9
197.0
$ 592.2
4.8
216.5
204.6
$838.0
$987.4
$1,018.1
$ 31.5
(5.3)
8.6
$ 43.4
14.5
7.5
$
54.7
8.6
16.4
$ 34.8
$ 65.4
$
79.7
$311.1
199.2
176.9
$397.5
285.0
146.7
$ 408.5
290.3
155.9
$687.2
$829.2
$ 854.7
$125.9
45.9
43.8
$128.3
56.0
54.1
$ 110.0
61.1
55.4
$215.6
$238.4
$ 226.5
Note S—Financial Instruments and Fair Value Measurements
Assets and liabilities that are within the provisions of Accounting Standards Codification 820 are recorded at fair value using
market and income valuation approaches and considering the Company’s and counterparty’s credit risk. The Company uses the
market approach and the income approach to value assets and liabilities as appropriate.
The Company considers the recognized book value of financial assets and liabilities, which includes cash and deposits at
financial institutions, trade receivables and trade payables, and notes receivable to be reflective of fair value due to the short-term
nature of these items.
There were no transfers into or out of Level 3 during 2015. There was one transfer out of Level 3 during 2014 due to the
settlement of a note receivable that had a fair value of $0.2 million at November 30, 2013. The gain recognized on this settlement
was $1.1 million.
The fair value of the Company’s debt at November 30, 2015 approximated $337.8 million, which is lower than the notional
amount of $341.5 million as a result of the effect of market rates on the Company’s debt. The carrying value of amounts due banks
approximates fair value due to their short-term nature. The fair value of the Senior Unsecured Notes and Term Loan is based on
market price information and is measured using the last available trade on a secondary market in each respective period and
therefore is considered a Level 2 measurement. The fair value is not indicative of the amount that the Company would have to pay
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note S—Financial Instruments and Fair Value Measurements (Continued)
to redeem these instruments since they are infrequently traded and are not callable at this value. The fair value of the Company’s
capital lease obligations approximates the carrying amount based on estimated borrowing rates to discount the cash flows to their
present value.
Note T—Separate Financial Information of Subsidiary Guarantors of Indebtedness
The $150 million Senior Notes are jointly, severally, and unconditionally guaranteed on a senior unsecured basis by all of
OMNOVA Solutions Inc.’s existing and future 100% wholly owned U.S. subsidiaries that from time to time guarantee obligations
under the Company’s Senior Notes, with certain customary exceptions (the “Guarantors”). These exceptions include automatic
release under circumstances such as the sale of the subsidiary Guarantor or substantially all of its assets, the designation of the
subsidiary Guarantor as unrestricted in accordance with the provisions of the Senior Notes, and the release of the subsidiary’s
guarantee under the credit facility. Presented below are the condensed financial statements of OMNOVA Solutions (“Parent”) as
borrower, its combined Guarantor subsidiaries, and its combined Non-Guarantor subsidiaries. The income (loss) of the Company’s
subsidiary guarantors and non-guarantors in these condensed consolidating statements of operations are presented under the
equity method for purpose of this disclosure only.
Condensed Consolidating Statements of Operations For the Year Ended November 30, 2015
(Dollars in millions)
OMNOVA
Solutions
(Parent)
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Total
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$543.8
419.1
$ —
—
$322.1
253.7
$(27.9)
(28.7)
$838.0
644.1
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition and integration costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance cost write-off
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (income) from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
124.7
84.4
20.9
—
2.9
.5
27.3
.4
.6
12.2
0.1
Total costs and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
149.3
(Loss) Income from continuing operations before income taxes . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit (expense)
(Loss) Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain from discontinued operations
(24.6)
5.9
(18.7)
.9
—
—
—
—
—
—
(1.4)
—
—
11.2
.2
10.0
(10.0)
(3.1)
(13.1)
—
68.4
34.9
13.1
.2
3.0
18.9
2.4
—
—
—
6.7
79.2
(10.8)
(.4)
(11.2)
—
.8
—
—
—
—
—
—
—
—
(23.4)
(.1)
193.9
119.3
34.0
.2
5.9
19.4
28.3
.4
.6
—
6.9
(23.5)
215.0
24.3
—
24.3
—
(21.1)
2.4
(18.7)
.9
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (17.8)
$(13.1)
$ (11.2)
$ 24.3
$ (17.8)
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note T—Separate Financial Information of Subsidiary Guarantors of Indebtedness (Continued)
Condensed Consolidating Statements of Operations For the Year Ended November 30, 2014
(Dollars in millions)
OMNOVA
Solutions
(Parent)
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Total
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$644.2
521.2
$ —
—
$377.5
300.9
$(34.3)
(34.1)
$987.4
788.0
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance cost write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Income) loss from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
123.0
80.5
19.8
.2
.8
29.6
0.8
(20.6)
(5.8)
—
—
—
—
—
(1.3)
—
(8.8)
.1
Total costs and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
105.3
(10.0)
Income (loss) from continuing operations before income taxes . . . . . .
Income tax (expense) benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations
. . . . . . . . . . . . . . . . . . . . . .
(Income) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . .
17.7
(5.6)
12.1
(.6)
10.0
10.7
20.7
—
76.6
39.7
15.0
0.3
0.1
4.6
—
—
3.5
63.2
13.4
(4.7)
8.7
—
(.2)
—
—
—
—
—
—
29.4
(.2)
29.2
(29.4)
—
(29.4)
—
199.4
120.2
34.8
0.5
0.9
32.9
0.8
—
(2.4)
187.7
11.7
0.4
12.1
(.6)
Net Income (Loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 11.5
$ 20.7
$ 8.7
$(29.4)
$ 11.5
Condensed Consolidating Statements of Operations For the Year Ended November 30, 2013
(Dollars in millions)
OMNOVA
Solutions
(Parent)
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Total
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$658.1
522.9
$ —
—
$392.6
314.5
$(32.6)
(32.0)
$1,018.1
805.4
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing fees write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Income) loss from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
135.2
82.1
17.8
(1.8)
4.6
.2
24.0
1.5
(9.6)
(6.5)
Total costs and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
112.3
Income (loss) from continuing operations before income taxes . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from continuing operations
. . . . . . . . . . . . . . . . . . . . . .
(Income) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . .
22.9
(2.4)
20.5
(0.9)
—
—
—
—
—
—
—
—
(13.4)
(.3)
(13.7)
13.7
(3.4)
10.3
—
78.1
36.0
15.8
(3.1)
2.5
—
7.9
—
—
5.4
64.5
13.6
(0.2)
13.4
—
(.6)
—
—
—
—
—
—
—
23.0
.1
23.1
(23.7)
—
(23.7)
—
212.7
118.1
33.6
(4.9)
7.1
0.2
31.9
1.5
—
(1.3)
186.2
26.5
(6.0)
20.5
(0.9)
Net Income (Loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19.6
$ 10.3
$ 13.4
$(23.7)
$
19.6
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note T—Separate Financial Information of Subsidiary Guarantors of Indebtedness (Continued)
Condensed Consolidating Statements of Comprehensive Income (Loss) for the Year Ended November 30, 2015
(Dollars in millions)
OMNOVA
Solutions
(Parent)
Guarantor
Subsidiaries
Non -
Guarantor
Subsidiaries
Eliminations
Total
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss) income, net of tax . . . . . . . . . . . . . . . .
$(17.8)
(7.1)
$(13.1)
(61.9)
$(11.2)
(49.4)
$ 24.3
111.3
$(17.8)
(7.1)
Comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(24.9)
$(75.0)
$(60.6)
$135.6
$(24.9)
Condensed Consolidating Statements of Comprehensive Income (Loss) for Year Ended November 30, 2014
(Dollars in millions)
OMNOVA
Solutions
(Parent)
Guarantor
Subsidiaries
Non -
Guarantor
Subsidiaries
Eliminations
Total
Net Income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . .
$ 11.5
(40.2)
$ 20.7
(10.4)
$ 8.7
(12.8)
$(29.4)
23.2
$ 11.5
(40.2)
Comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(28.7)
$ 10.3
$ (4.1)
$ (6.2)
$(28.7)
Condensed Consolidating Statements of Comprehensive Income (Loss) for the Year Ended November 30, 2013
(Dollars in millions)
OMNOVA
Solutions
(Parent)
Guarantor
Subsidiaries
Non -
Guarantor
Subsidiaries
Eliminations
Total
Net Income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . .
$19.6
26.1
$10.3
18.5
Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$45.7
$28.8
$13.4
5.1
$18.5
$(23.7)
(23.6)
$(47.3)
$19.6
26.1
$45.7
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note T—Separate Financial Information of Subsidiary Guarantors of Indebtedness (Continued)
Condensed Consolidating Statements of Financial Position November 30, 2015
(Dollars in millions)
OMNOVA
Solutions
(Parent)
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries Eliminations
Total
ASSETS:
Current Assets
Cash and cash equivalents
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.2
52.7
52.5
—
2.9
$ — $ 39.7
52.6
30.4
4.1
8.7
—
—
—
6.9
$ — $ 44.9
— 105.3
81.9
—
18.8
(1.0)
(4.1)
.3
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and other intangible assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
113.3
125.2
77.2
65.8
311.4
53.5
4.7
3.2
6.9
—
—
.9
59.3
(13.2)
135.5
89.7
64.5
11.9
13.6
—
3.7
.3
(4.8)
250.9
— 214.9
— 141.7
67.8
—
—
4.7
7.2
—
(10.8)
(384.3)
(40.3)
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $754.3
$ 57.6
$315.5
$(440.2) $687.2
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities
Amounts due to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.5
38.0
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.6
Accrued payroll and personal property taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
2.7
Employee benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.1
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9.5)
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ — $ — $ 2.5
72.0
25.0
3.2
1.1
—
8.7
—
—
—
—
(.1)
12.0
34.0
11.3
.5
—
.1
6.2
—
.1
—
—
—
—
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefits other than pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48.4
354.2
6.9
74.9
—
154.1
6.7
645.2
109.1
.1
—
—
—
—
111.0
—
52.1
—
—
10.0
24.3
238.9
3.4
11.9
112.5
— 354.2
6.9
—
84.9
—
9.5
(14.8)
—
(504.0)
10.1
—
111.1
(53.5)
328.7
(13.2)
(506.9)
66.7
578.1
109.1
Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . $754.3
$ 57.6
$315.5
$(440.2) $687.2
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note T—Separate Financial Information of Subsidiary Guarantors of Indebtedness (Continued)
Condensed Consolidating Statements of Financial Position November 30, 2014
(Dollars in millions)
ASSETS:
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net
Goodwill and other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OMNOVA
Solutions
(Parent)
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Total
$ 43.9
68.9
51.9
5.0
4.9
174.6
128.3
75.9
65.4
351.9
111.3
7.0
2.5
$ —
—
—
—
6.9
6.9
—
—
.5
52.6
144.2
—
3.8
$ 55.6
66.8
42.6
2.1
8.8
175.9
110.1
75.9
8.8
152.9
—
—
1.6
$ — $ 99.5
135.7
92.7
7.0
21.0
—
(1.8)
(.1)
.4
(1.5)
—
—
(6.5)
(557.4)
(255.5)
—
—
355.9
238.4
151.8
68.2
—
—
7.0
7.9
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$916.9
$208.0
$525.2
$(820.9)
$829.2
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities
Amounts due to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll and personal property taxes . . . . . . . . . . . . . . . . . . . . .
Employee benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefits other than pensions . . . . . . . . . . . . . . . . . . . . . .
Pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2.4
43.0
10.3
2.9
1.4
6.1
66.1
406.4
6.6
98.7
—
181.6
7.0
766.4
150.5
$ —
—
.1
—
—
—
.1
—
—
—
—
114.1
—
114.2
93.8
$ 3.2
51.3
7.4
—
—
—
61.9
—
—
12.1
28.0
267.8
2.5
372.3
152.9
$ — $ 5.6
94.3
17.8
2.9
1.4
1.8
—
—
—
—
(4.3)
(4.3)
—
—
—
(6.4)
(563.5)
—
(574.2)
(246.7)
123.8
406.4
6.6
110.8
21.6
—
9.5
678.7
150.5
Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . .
$916.9
$208.0
$525.2
$(820.9)
$829.2
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note T—Separate Financial Information of Subsidiary Guarantors of Indebtedness (Continued)
Condensed Consolidating Statements of Cash Flows Year Ended November 30, 2015
(Dollars in millions)
Operating Activities
Net Cash (Used In) Provided By Operating Activities . . . . . . . . . . . . . . .
Investing Activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of business, less cash received . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash (Used in) Provided by Investing Activities . . . . . . . . . . . . . . . .
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash (Used in) Provided by Financing Activities . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . .
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . .
OMNOVA
Solutions
(Parent)
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Total
$ 15.9
$ (9.1)
$ 17.0
$19.9
$43.7
(16.3)
(5.0)
25.0
3.7
—
(52.5)
—
—
(18.6)
—
(71.1)
12.8
(38.7)
43.9
—
—
10.4
10.4
—
—
—
—
—
—
—
(1.3)
—
—
(7.7)
—
—
(7.7)
—
(25.0)
25.2
(26.8)
—
(10.4)
(37.0)
11.8
(15.9)
55.6
—
—
(35.4)
(35.4)
—
25.0
—
—
—
10.4
35.4
(19.9)
—
—
(24.0)
(5.0)
—
(29.0)
—
(52.5)
25.2
(26.8)
(18.6)
—
(72.7)
3.4
(54.6)
99.5
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . . . . . . . .
$ 5.2
$ —
$ 39.7
$ — $44.9
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note T—Separate Financial Information of Subsidiary Guarantors of Indebtedness (Continued)
Condensed Consolidating Statements of Cash Flows Year Ended November 30, 2014
(Dollars in millions)
Net Cash Provided By (Used In) Operating Activities . . . . . . . . . . .
Investing Activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from insurance settlements . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from note receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of business, less cash received . . . . . . . . . . . . . . . . . . .
Proceeds from asset sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries and other
Net Cash (Used in) Provided by Investing Activities . . . . . . . . . . . .
Financing Activities
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from exercise of stock options . . . . . . . . . . . . . . . . . .
Net Cash Provided by (Used in) Financing Activities . . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . .
OMNOVA
Solutions
(Parent)
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Total
$ (2.6)
$
.1
$ 5.0
$12.5
$15.0
(20.4)
—
2.3
—
—
—
(18.1)
15.3
(52.0)
—
—
(1.4)
.3
(37.8)
.3
—
—
—
19.7
—
13.0
32.7
(31.9)
—
—
—
—
—
(31.9)
(.9)
—
—
(9.4)
2.4
—
—
—
(37.8)
(44.8)
16.6
—
23.3
(22.7)
—
—
17.2
15.4
(7.2)
62.8
—
—
—
(19.7)
.1
24.8
5.2
—
—
—
—
—
—
—
(17.7)
—
—
(29.8)
2.4
2.3
—
.1
—
(25.0)
—
(52.0)
23.3
(22.7)
(1.4)
.3
(52.5)
(2.9)
(65.4)
164.9
$99.5
Net Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . .
(58.2)
102.1
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . . .
$ 43.9
$ —
$ 55.6
$ —
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
Note T—Separate Financial Information of Subsidiary Guarantors of Indebtedness (Continued)
Condensed Consolidating Statements of Cash Flows Year Ended November 30, 2013
(Dollars in millions)
Net Cash Provided By (Used In) Operating Activities . . . . . . . . . .
Investing Activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from insurance settlements . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of business and asset sales . . . . . . . . . . . . . . .
Investment in subsidiary and other . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash (Used In) Provided by Investing Activities . . . . . . . . . . .
Financing Activities
Repayment of debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term debt payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for debt refinancing . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received from exercise of stock options . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash (Used in) Provided by Financing Activities . . . . . . . . . .
Effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . .
Net Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . .
OMNOVA
Solutions
(Parent)
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Total
$ 29.2
$(4.7)
$ 24.9
$(3.6)
$ 45.8
(12.8)
—
1.7
(5.2)
(16.3)
(2.0)
—
—
(.6)
5.5
.1
—
3.0
(12.5)
3.4
98.7
—
—
—
(8.5)
(8.5)
—
—
—
—
—
—
8.5
8.5
4.7
—
—
(16.1)
.2
5.0
—
(10.9)
(3.4)
34.9
(39.4)
—
—
—
8.5
.6
3.9
18.5
44.3
—
—
13.7
13.7
3.4
—
—
—
—
—
(17.0)
(13.6)
3.5
—
—
(28.9)
.2
6.7
—
(22.0)
(2.0)
34.9
(39.4)
(.6)
5.5
.1
—
(1.5)
(.4)
21.9
143.0
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . .
$102.1
$ —
$ 62.8
$ —
$164.9
Note U—Treasury Stock Purchases
During the fourth quarter of 2014, the Company’s Board of Directors authorized the repurchase of up to $20.0 million of the
Company’s common shares. The authorization was effective for one year and expired on October 31, 2015. The Company was
authorized to use various methods to make the repurchases, including open market repurchases, negotiated block transactions, and
open market solicitations for shares, all or some of which were permitted to be effected through Rule 10b5-1 plans. The timing of
repurchases depended upon several factors including market and business conditions. The Company’s share repurchase program
did not obligate it to acquire any specific number of shares.
During the fourth quarter of 2014, the Company repurchased 0.2 million of its common shares on the open market at a total
cost of $1.4 million. During 2015, the Company repurchased 2.6 million of its common shares on the open market at a total cost
of $18.6 million completing the repurchase program at a total cost of $20.0 million.
Note V—Acquisitions
On June 4, 2015, the Company completed the acquisition of the assets of New Fluid Solutions (“NFS”), and certain related entities.
The acquisition of NFS has been accounted for using the acquisition method in accordance with the FASB ASC Topic 805, Business
Combinations. Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The fair
values of identifiable intangible assets were based on valuations using the income approach and estimates provided by management.
The excess of the purchase price over the estimated fair values of the tangible assets, identifiable intangible assets and assumed
liabilities was recorded as goodwill. The allocation of the purchase price is based upon a valuation of certain assets acquired and
liabilities assumed. The total consideration paid for NFS was $5.0 million, which the Company recognized approximately $0.7 million
of identifiable intangible assets, related primarily to trademarks, patents, and other technology, based on their estimated fair values,
$1.9 million of property, plant and equipment, $1.6 million of residual goodwill and other assets of $0.8 million.
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
OMNOVA SOLUTIONS INC.
Selected Quarterly Financial Data (Unaudited)
2015
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit(1)(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on asset sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairments and write-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs write-off
(Loss) Income from continuing operations(4)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income(3)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) Income per share from continuing operations(5)
Three Months Ended
February 28
May 31
August 31
November 30
(Dollars in millions, except per share amounts)
$210.9
$220.2
$206.9
$ 51.5
$ 41.7
$ 52.9
$ — $ 1.1
$ 3.4
$ — $ — $ —
.5
$ — $
$ — $ — $ —
$
$ 3.0
$ (3.2)
.4
$ —
.9
$ — $
.4
$
$ 3.9
$ (3.2)
.6
$
$200.0
$ 47.8
$ 1.4
$
.2
$ 18.3
$
.6
$ (18.9)
$ —
$ (18.9)
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (.07)
$ .07
$ .01
$ (.43)
Net (loss) income per share(4)
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock price range per share—high . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (.07)
$ 8.52
$ 6.54
$ .09
$ 8.62
$ 7.30
$ .01
$ 8.24
$ 5.76
$ (.43)
$ 7.55
$ 5.00
2014
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit(1)(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs write-off
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income per share from continuing operations(4)
Three Months Ended
February 28
May 31
August 31
November 30
(Dollars in millions, except per share amounts)
$252.1
$225.9
$266.4
$ 49.2
$ 52.6
$ 49.1
$ —
.5
$
.3
$
$ — $
.3
$
.1
$ — $ — $ —
$ 3.8
$ 1.4
$ 1.8
(.4) $ —
$
(.2)
$
$ 1.8
$ 3.4
$ 1.2
$243.0
$ 48.5
.1
$
.1
$
$
.8
$ 5.1
$ —
$ 5.1
Basic and Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ .03
$ .08
$ .04
$ .11
Net income per share
Basic and Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock price range per share—high . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ .03
$10.11
$ 8.13
$ .07
$11.03
$ 8.41
$ .04
$10.07
$ 7.80
$ .11
$ 8.52
$ 5.15
(1) Gross profit excludes depreciation and amortization expense. Depreciation and amortization expense related to
manufacturing facilities and equipment was $5.0 million, $5.0 million, $7.8 million, and $8.2 million for the three months
ended February 28, 2015, May 31, 2015, August 31, 2015, and November 30, 2015, and $5.8 million, $6.0 million, $5.8
million, and $5.8 million for the three months ended February 28, 2014, May 31, 2014, August 31, 2014 and
November 30, 2014, respectively.
(2) Gross profit includes net LIFO inventory reserve adjustments of $2.2 million of income, $1.5 million of income, $2.1 million of
income, and $3.7 million of income for the three months ended February 28, 2015, May 31, 2015, August 31, 2015, and
November 30, 2015, respectively, and $0.7 million of expense, $0.8 million of expense, $0.3 million of income, and $2.4
million of income for the three months ended February 28, 2014, May 31, 2014, August 31, 2014, and November 30,
2014, respectively.
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(3)
Income from continuing operations and net income for the three months ended November 30, 2014 includes $6.9 million for
the reversal of a valuation allowance related to capital loss carryforwards in the U.S. Income from continuing operations and
net income includes $1.0 million and $2.0 million of debt redemption premium expense related to early debt redemption for
the three months ended November 30, 2015 and November 30, 2014, respectively.
(4) The sum of the quarterly earnings per share amounts may not equal the annual amount due to changes in the number of
shares outstanding during the year.
89
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no changes in accountants or disagreements with the Company’s independent registered public accounting
firm regarding accounting and financial disclosure matters during the two most recent years of the Company or during any period
subsequent to the date of the Company’s most recent consolidated financial statements.
Item 9A. Controls and Procedures
Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of the Company’s disclosure controls and procedures as of November 30, 2015, using criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013).
Based on its evaluation, management has determined that the Company’s disclosure controls and procedures are effective. Further,
during the quarter ended November 30, 2015, there were no changes in the Company’s internal control over financial reporting
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s annual report on the Company’s internal control over financial reporting and the attestation report of
the
Company’s independent registered public accounting firm are set forth on pages 29 and 30 of this report, respectively, and are
incorporated herein by reference.
Item 9B. Other Information
Not applicable.
Item 10. Directors and Executive Officers of the Registrant
PART III
The below biographical information for OMNOVA’s executive officers is given as of January 25, 2016. Except as otherwise
indicated, each individual has held the same office during the preceding five-year period.
Kevin M. McMullen, age 55, Chairman of the Board, Chief Executive Officer and President of the Company since February
2001. Prior to that, Mr. McMullen served as Chief Executive Officer and President of the Company from December 2000 and as a
Director from March 2000. From January 2000 until December 2000, Mr. McMullen served as President and Chief Operating
Officer of the Company, and from September 1999 to January 2000, Mr. McMullen served as Vice President of the Company and
President, Decorative & Building Products. Previously, Mr. McMullen was Vice President of GenCorp Inc. and President of
GenCorp’s Decorative & Building Products business unit from September 1996 until the spin-off of OMNOVA Solutions in October
1999. Prior to that, Mr. McMullen was General Manager of General Electric Corporation’s Commercial & Industrial Lighting
business from 1993 to 1996 and General Manager of General Electric Lighting’s Business Development and Strategic Planning
activities from 1991 to 1993. Mr. McMullen was a management consultant with McKinsey & Co. from 1985 to 1991.
Paul F. DeSantis, age 51, Senior Vice President and Chief Financial Officer since July 2014. Mr. DeSantis joined the
Company from Bob Evans Farms, Inc., a restaurants owner/operator and packaged foods business, where he served as Chief
Financial Officer from March 2011 until June 2014. Prior to Bob Evans Farms, he was Chief Financial Officer for The A. Schulman
Company, a leading global plastic compounding company, from 2006 until 2011. Previously, he served in senior finance roles for
The Scotts-Miracle-Gro Co., a leading supplier of branded consumer products for lawn and garden care, from 1997 until 2006;
and for the Kellogg Company, a manufacturer and marketer of ready-to-eat cereal and convenience foods, from 1993 until 1997.
James C. LeMay, age 59, Senior Vice President, Corporate Development; General Counsel of OMNOVA Solutions Inc. since
December 1, 2000. Previously, Mr. LeMay was Senior Vice President, Law and General Counsel of OMNOVA Solutions Inc. since
its formation. Prior to the spin-off of OMNOVA Solutions in October 1999, Mr. LeMay served as Assistant General Counsel of
GenCorp Inc.
Douglas E. Wenger, age 59, Senior Vice President and Chief Information Officer of the Company since November 2001.
Prior to joining OMNOVA in October 2001, Mr. Wenger served as Director, Global I/T Strategy and Architecture from 2000 until
90
2001; as Global Program Director, Enterprise Business Applications from 1996 until 2000; Director, Business Information
Development, Worldwide Research & Development from 1993 until 1996; and as Director, North American Information Systems
and Database Development from 1991 until 1993, in each case, for the Kellogg Company, a manufacturer and marketer of ready-
to-eat cereal and convenience foods.
Anne P. Noonan, age 52, President, Performance Chemicals since September 2014. Ms. Noonan joined OMNOVA from
Chemtura Corporation, a global manufacturer of specialty chemicals that was formed from the 2005 merger of Great Lakes
Chemical Corp. and Crompton Corp. She most recently served as Senior Vice President and President of Chemtura’s Industrial
Engineered Products business from October 2013 until September 2014. Prior roles at Chemtura include Vice President, Strategic
Business Development and President, Great Lakes Solutions from 2012 until 2013; President, Great Lakes Solutions from 2009 until
2012; Group President, Polymer Additives from 2007 until 2009; and Vice President & General Manager, Flame Retardants &
Brominated Performance Products from 2005 until 2007. Ms. Noonan held several senior management positions at Great Lakes
Chemical Corp. from 1987 until 2005, and began her career as an Analytical Research Chemist with McNeil Specialty Chemical
Company and Squibb-Linson, Co. from 1985 until 1987.
David H. Maynard, age 52, President, Engineered Surfaces since February 2012. Prior to his current role, Mr. Maynard
served most recently as General Manager, Laminates and Performance Films since 2009 and had served earlier in a variety of
finance, operations and business management positions of increasing responsibility within OMNOVA’s Engineered Surfaces
business segment. Mr. Maynard joined OMNOVA in 1991 as an Accounting Manager. Prior to joining OMNOVA, Mr. Maynard
served as Audit Manager with KPMG from 1986 to 1991.
Jay T. Austin, age 59, Senior Vice President, Global Sourcing and Logistics of the Company since December 2010. Prior to
that, he had served as Vice President, Strategic Sourcing of OMNOVA Solutions since August 2008. Prior to joining the Company,
Mr. Austin had served as Vice President of Global Procurement for ICI Paints (a leading international paint business) since March
2006 and, prior to that, as Director of Purchasing, North America for The Glidden Company, a division of ICI Paints, since July
2002.
Michael A. Quinn, age 52, Senior Vice President and Chief Human Resources Officer since October 2013. Prior to joining
OMNOVA, Mr. Quinn spent 28 years in human resources positions with high technology, manufacturing, and service companies.
Most recently, Mr. Quinn had served since January 2009 as Vice President, Human Resources for the Specialty Diagnostics Group
of Thermo Fisher Scientific (the world leader in serving science through products and services that help customers solve complex
analytical challenges, improve patient diagnostics, and increase laboratory productivity). Previously, Mr. Quinn had served as Vice
President, Talent Management and Development for Thermo Fisher Scientific since June 2007. Before joining Thermo Fisher
Scientific, Mr. Quinn spent four years as Director, Talent Acquisition and Development for the Integrated Defense Systems business
of Raytheon Company (a leading defense and aerospace company).
The Company’s executive officers generally hold terms of office of one year and/or until their successors are elected.
The information required by this item is set forth in the following sections of OMNOVA’s Definitive Proxy Statement for the
2016 Annual Meeting of Shareholders to be held March 17, 2016 (the “2016 Proxy Statement”) and these sections are
incorporated herein by reference:
(cid:129) “Nominees for election at this Annual Meeting”
(cid:129) “Continuing directors not up for election”
(cid:129) “Ownership of OMNOVA Equity Securities—Section 16(a) beneficial ownership reporting compliance”
(cid:129) “Corporate Governance Documents—Business Conduct Policies (Code of Ethics)”
(cid:129) “Audit Matters—Audit committee independence and financial experts”
OMNOVA expects to file the 2016 Proxy Statement with the SEC on or before February 5, 2016. Any amendment to, or
waiver from a provision of, the Code of Ethics that applies to its Chief Executive Officer, Chief Financial Officer, or any other
executive officer or director, will be promptly disclosed on its website (www.omnova.com) as required by laws, rules and
regulations of the SEC.
91
Item 11.
Executive Compensation
The information required by this item is set forth in the following sections of the 2016 Proxy Statement and these sections are
incorporated herein by reference:
(cid:129) “Compensation Discussion and Analysis”
(cid:129) “Compensation of Executive Officers”
(cid:129) “Compensation and Corporate Governance Committee Report”
(cid:129) “Corporate Governance and the Board—Risk management—Oversight of compensation practices and risks”
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by this item is set forth in the section captioned “Ownership of OMNOVA Equity Securities” of the
2016 Proxy Statement and is incorporated herein by reference.
Equity Compensation Plan Information
The following table sets forth certain information as of November 30, 2015, regarding the only equity compensation plan
maintained by the Company on that date, the Third Amended and Restated 1999 Equity and Performance Incentive Plan. This plan
has been approved by the Company’s shareholders.
Plan Category
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
issuance under equity
compensation plans
Equity compensation plans approved by security holders . . . . . . . . .
Equity compensation plans not approved by security holders . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
874,200
N/A
874,200
$8.12
N/A
$8.12
1,982,042
N/A
1,982,042
Item 13.
Certain Relationships and Related Transactions, Director Independence
The information required by this item is set forth in the following sections of the 2016 Proxy Statement and these sections are
incorporated herein by reference:
(cid:129) “Corporate Governance and the Board—Director independence”
(cid:129) “Corporate Governance and the Board—Related-party transactions”
Item 14.
Principal Accountant Fees and Services
The information required by this item is set forth in the section captioned “Audit Matters” of the 2016 Proxy Statement and is
incorporated herein by reference.
92
Item 15.
Exhibits and Financial Statement Schedules
(a)(1) Consolidated Financial Statements:
PART IV
The following consolidated financial statements of OMNOVA Solutions Inc. are included in Item 8:
Consolidated Statements of Operations for the years ended November 30, 2015, 2014, and 2013
Consolidated Statements of Comprehensive (Loss) Income for the years ended November 30, 2015, 2014, and 2013
Consolidated Balance Sheets at November 30, 2015 and 2014
Consolidated Statements of Shareholders’ Equity for the years ended November 30, 2015, 2014, and 2013
Consolidated Statements of Cash Flows for the years ended November 30, 2015, 2014, and 2013
Notes to Consolidated Financial Statements
(a)(2) Schedules
All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission
are either presented in the Company’s consolidated financial statements or are not required under the related instructions or are
inapplicable and therefore have been omitted.
93
(a)(3) Exhibits
Exhibit
Description
EXHIBIT INDEX
3.3
3.4
4.1
10.3†
10.5†
10.6†
10.7†
10.8†
10.9†
10.11†
10.12†
10.13†
10.14†
10.22†
10.23†
10.24†
10.26†
10.30
CHARTER DOCUMENTS
Amended and Restated Articles of Incorporation of OMNOVA Solutions Inc. (incorporated by reference to the same
numbered exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2014 (File
No. 1-15147)).
Amended and Restated Code of Regulations of OMNOVA Solutions Inc., incorporated by reference to the same
numbered exhibit of the Company’s Registration Statement on Form 10 (File No. 1-15147))
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
Indenture dated as of November 3, 2010 by and among OMNOVA Solutions Inc., the Guarantors (as defined
therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to the same numbered
exhibit to the Company’s Current Report on Form 8-K filed November 4, 2010 (File No. 1-15147)).
MATERIAL CONTRACTS
Amended and Restated Employment Agreement dated December 31, 2009 between OMNOVA Solutions and Kevin
M. McMullen (incorporated by reference to the same numbered exhibit to the Company’s Annual Report on
Form 10-K for the year ended November 30, 2008 (File No. 1-15147)).
Amended and Restated Severance Agreement dated December 31, 2009 between OMNOVA Solutions and Kevin M.
McMullen (incorporated by reference to the same numbered exhibit to the Company’s Annual Report on Form 10-K
for the year ended November 30, 2008 (File No. 1-15147)).
Form of Amended and Restated Severance Agreement granted to certain executive officers of OMNOVA Solutions
(other than the officer identified above) (incorporated by reference to the same numbered exhibit to the Company’s
Annual Report on Form 10-K for the year ended November 30, 2008 (File No. 1-15147)).
OMNOVA Solutions Third Amended and Restated 1999 Equity and Performance Incentive Plan, (incorporated by
reference to Appendix C to the Company’s 2012 Proxy Statement filed with the Securities and Exchange Commission
on February 3, 2012 (File No. 1-15147).
OMNOVA Solutions Deferred Compensation Plan for Nonemployee Directors, as amended and restated effective
January 1, 2009 (incorporated by reference to the same numbered exhibit to the Company’s Annual Report on
Form 10-K for the year ended November 30, 2008 (File No. 1-15147)).
Retirement Plan for Nonemployee Directors of OMNOVA Solutions, as amended and restated effective January 1,
2009 (incorporated by reference to the same numbered exhibit to the Company’s Annual Report on Form 10-K for
the year ended November 30, 2008 (File No. 1-15147)).
Savings Benefits Restoration Plan for Salaried Employees of OMNOVA Solutions (incorporated by reference to the
same numbered exhibit to the Company’s Annual Report on Form 10-K for the year ended November 30, 2008 (File
No. 1-15147)).
Pension Benefits Restoration Plan for Salaried Employees of OMNOVA Solutions (incorporated by reference to the
same numbered exhibit to the Company’s Annual Report on Form 10-K for the year ended November 30, 2008 (File
No. 1-15147)).
OMNOVA Solutions Corporate Officers Severance Plan, effective January 1, 2009 (incorporated by reference to the
same numbered exhibit to the Company’s Annual Report on Form 10-K for the year ended November 30, 2008 (File
No. 1-15147)).
OMNOVA Solutions Long-Term Incentive Program, as amended and restated effective January 19, 2012
(incorporated by reference to Appendix B to the Company’s 2012 Proxy Statement filed with the Securities and
Exchange Commission on February 3, 2012 (File No. 1-15147)).
Form of Deferred Share Agreement (incorporated by reference to the same numbered exhibit to the Company’s
Annual Report on Form 10-K for the year ended November 30, 2009 (File No. 1-15147)).
Form of Performance Share Agreement (incorporated by reference to the same numbered exhibit to the Company’s
Annual Report on Form 10-K for the year ended November 30, 2012 (File No. 1-15147)).
Form of Restricted Stock Agreement (incorporated by reference to the same numbered exhibit to the Company’s
Annual Report on Form 10-K for the year ended November 30, 2011 (File No. 1-15147)).
OMNOVA Solutions Executive Incentive Compensation, as amended and restated effective January 19, 2012
(incorporated by reference to Appendix A to the Company’s 2012 Proxy Statement filed with the Securities and
Exchange Commission on February 3, 2012 (File No. 1-15147)).
Second Amended and Restated Term Loan Credit Agreement dated as of December 9, 2010 by and among
OMNOVA Solutions Inc., as Borrower, the financial institutions party thereto as Lenders, and Deutsche Bank Trust
Company Americas, as agent for the Lenders (incorporated by reference to the same numbered exhibit to the
Company’s Annual Report on Form 10-K for the year ended November 30, 2010 (File No. 1-15147)).
94
Exhibit
Description
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
12.1
21.1
23.1
24.1
31.1
31.2
32.1
101
Second Amended and Restated Senior Secured Credit Facility dated as of December 9, 2010 by and among
OMNOVA Solutions Inc. and ELIOKEM Inc., as borrowers, the financial institutions party thereto, as Lenders, and
JPMorgan Chase Bank N.A., as agent for the Lenders (incorporated by reference to the same numbered exhibit to the
Company’s Annual Report on Form 10-K for the year ended November 30, 2010 (File No. 1-15147)).
Amendment dated March 7, 2013, to Second Amended and Restated Term Loan Credit Agreement dated as of
December 9, 2010, by and among OMNOVA Solutions Inc., as Borrower, the financial institutions party thereto, as
Lenders, and Deutsche Bank Trust Company Americas, as agent for the Lenders (incorporated by reference to the
same numbered exhibit to the Company’s Annual Report on Form 10-K for the year ended November 30, 2013 (File
No. 1-15147)).
Amendment dated April 5, 2013, to Second Amended and Restated Credit Agreement dated as of December 9,
2010, by and among OMNOVA Solutions Inc., as Borrower, the financial institutions party thereto, as Lenders, and
JP Morgan Chase Bank, N.A., as agent for the Lenders (incorporated by reference to the same numbered exhibit to
the Company’s Annual Report on Form 10-K for the year ended November 30, 2010 (File No. 1-15147)).
Amendment No. 2, dated March 28, 2014, to Second Amended and Restated Term Loan Credit Agreement dated as
of December 9, 2010, by and among OMNOVA Solutions Inc., as Borrower, the financial institutions party thereto,
as Lenders, and Deutsche Bank Trust Company Americas, as agent for the Lenders (incorporated by reference to the
same numbered exhibit to the Company’s Annual Report on Form 10-K filed January 22, 2015 (File No. 1-15147)).
Consent to Limited Release of Collateral, dated November 21, 2014, to Second Amended and Restated Term Loan
Credit Agreement dated as of December 9, 2010, by and among OMNOVA Solutions Inc., as Borrower, the
financial institutions party thereto, as Lenders, and Deutsche Bank Trust Company Americas, as agent for the Lenders
(incorporated by reference to the same numbered exhibit to the Company’s Annual Report on Form 10-K filed
January 22, 2015 (File No. 1-15147)).
Amendment No. 3, dated March 31, 2014, to Second Amended and Restated Credit Agreement dated as of
December 9, 2010, by and among OMNOVA Solutions Inc., as Borrower, the financial institutions party thereto, as
Lenders, and JP Morgan Chase Bank, N.A., as agent for the Lenders (incorporated by reference to the same
numbered exhibit to the Company’s Annual Report on Form 10-K filed January 22, 2015 (File No. 1-15147)).
Amendment No. 4, dated November 21, 2014, to Second Amended and Restated Credit Agreement dated as of
December 9, 2010, by and among OMNOVA Solutions Inc., as Borrower, the financial institutions party thereto, as
Lenders, and JP Morgan Chase Bank, N.A., as agent for the Lenders (incorporated by reference to the same
numbered exhibit to the Company’s Annual Report on Form 10-K filed January 22, 2015 (File No. 1-15147)).
Form of Indemnification Agreement by and among OMNOVA Solutions Inc. and the directors and officers of the
Company.
Computation of Ratio of earnings to fixed charges.
SUBSIDIARIES OF THE REGISTRANT
Listing of Subsidiaries.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
POWER OF ATTORNEY
Powers of Attorney.
CERTIFICATIONS
Principal Executive Officer’s Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Principal Financial Officer’s Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
The following financial information from our Annual Report on Form 10-K for 2015, filed with the SEC on January
25, 2016, formatted in XBRL: (i) the Consolidated Statements of Operations for the years ended November 30, 2015,
2014, and 2013; (ii) the Consolidated Statements of Comprehensive Income (Loss) for the years ended November 30,
2015, 2014, and 2013; (iii) the Consolidated Balance Sheets at November 30, 2015 and 2014; (iv) the
Consolidated Statements of Shareholders’ Equity for the years ended November 30, 2015, 2014, and 2013; (v) the
Consolidated Statements of Cash Flows for the years ended November 30, 2015, 2014, and 2013; and (vi) the
Notes to the Consolidated Financial Statements.
The Company will supply copies of any of the foregoing exhibits to any shareholder upon receipt of a written request
addressed to OMNOVA Solutions Inc., 25435 Harvard Road, Beachwood, Ohio 44122-6201, Attention: Secretary, and
payment of $1 per page to help defray the costs of handling, copying, and return postage.
† Management contract or compensatory arrangement.
95
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: January 25, 2016
OMNOVA SOLUTIONS INC.
By /s/ KEVIN M. MCMULLEN
Kevin M. McMullen
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
By /s/ PAUL F. DESANTIS
Paul F. DeSantis
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
*
D. J. D’Antoni
*
Janet Plaut Giesselman
*
Joseph M. Gingo
*
Michael J. Merriman
*
James A. Mitarotonda
*
Steven W. Percy
*
Larry B. Porcellato
*
Allan R. Rothwell
*
William R. Seelbach
*
Robert A. Stefanko
*Signed by the undersigned as attorney-in-fact and
agent for the Directors indicated.
/s/ JAMES. C. LEMAY
James C. LeMay
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
96
January 25, 2016
January 25, 2016
January 25, 2016
January 25, 2016
January 25, 2016
January 25, 2016
January 25, 2016
January 25, 2016
January 25, 2016
January 25, 2016
January 25, 2016
Exhibit 31.1
I, Kevin M. McMullen, certify that:
1. I have reviewed this Annual Report on Form 10-K of OMNOVA Solutions Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Name: Kevin M. McMullen
Title:
Chairman, Chief Executive Officer and
President
Date: January 25, 2016
97
Exhibit 31.2
I, Paul F. DeSantis, certify that:
1. I have reviewed this Annual Report on Form 10-K of OMNOVA Solutions Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: January 25, 2016
98
Name: Paul F. DeSantis
Title:
Senior Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of OMNOVA Solutions Inc.
(the “Company”) on Form 10-K for the year ended
November 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the
undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company as of the dates and for the periods expressed in the Report.
Date: January 25, 2016
Name: Kevin M. McMullen
Title:
Chairman, Chief Executive Officer and President
Name: Paul F. DeSantis
Title:
Senior Vice President and Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report
or as a separate disclosure document.
99
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