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MarketScreener Homepage  >  Equities  >  Nyse  >  OMNOVA Solutions Inc.    OMN

OMNOVA SOLUTIONS INC.

(OMN)
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OMNOVA : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

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01/31/2020 | 01:31pm EDT

Overview


OMNOVA Solutions is a global 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 have
strategically located manufacturing, technical and other facilities globally to
service our broad customer base. Please refer to Item 1. Business, of this
Annual Report on Form 10-K for further description of and background on the
Company and its operating segments.

The Company's Chief Operating Decision Maker ("CODM"), its Chief Executive
Officer ("CEO"), makes decisions, assesses performance, and allocates resources
prospectively by reporting segment. Segment information has been prepared in
accordance with guidance promulgated by the FASB.

The Company has two reporting segments: "Specialty Solutions", a segment focused
on the Company's higher growth specialty businesses, and "Performance
Materials," a segment comprised of the Company's businesses which are focused on
more mature markets. These reporting segments were determined based on products
and services 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 P of the
Company's Consolidated Financial Statements.

A majority of the Company's raw materials are derived from petrochemicals and
chemical feedstocks, where prices can be cyclical and volatile. Styrene, a key
raw material for the Company, 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 2017 through
2019 and the range of market prices were as follows:
     Pounds Purchased (in millions)   Market Price Range Per Pound
2019                             91          $0.41 - $0.55
2018                            102          $0.53 - $0.73
2017                            129          $0.48 - $0.72



Butadiene, a key raw material for the Company, is generally available worldwide,
but its price is volatile. OMNOVA has supply contracts with several producers.
At times, when the demand for butadiene exceeds supply, it is sold on an
allocated basis. OMNOVA's butadiene purchases for 2017 through 2019 and the
range of market prices were as follows:
     Pounds Purchased (in millions)   Market Price Range Per Pound
2019                             67          $0.37 - $0.58
2018                             77          $0.36 - $0.79
2017                            103          $0.39 - $1.42

Other key raw materials utilized by the Company include acrylites, polyvinyl chloride (PVC) resins, textiles, and plasticizers. These raw materials are generally available worldwide from several suppliers.


The Company negotiates pricing with a majority of customers considering the
value-added performance attributes of those products and the cost of the raw
materials. The Company's pricing objective, which may or may not be met, is to
recover raw material price increases for non-indexed contracts within three
months.

OMNOVA had indexed sales price contracts covering approximately 25% of its sales
in 2019. These contract indexes are generally comprised of several components: a
negotiated fixed amount per pound, and the market price of key raw materials
(i.e., styrene and butadiene). The indexed contracts provide that OMNOVA will
pass through the increases or decreases of key raw materials, generally within a
30 to 60 day period. Indexed contracts vary in length, generally from 12 to 36
months.


Key Indicators
Key economic measures relevant to the Company include global economic growth
rates, discretionary spending for durable goods, 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 Original Equipment Manufacturer ("OEM") industries, which
provide a general indication of demand drivers to the Company, include
commercial and residential construction and refurbishment, automotive and tire
production, furniture, flooring, 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; 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.

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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
income; consolidated earnings before interest, taxes, depreciation, and
amortization ("EBITDA") as set forth in the Net Leverage Ratio in the Company's
$350,000,000 Term Loan Credit Agreement; Adjusted EBITDA, working capital;
operating cash flows; capital expenditures; cash interest expense; adjusted
earnings per share; return on invested capital; 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
Company's Board of Directors, are reviewed at monthly, quarterly, and annual
intervals and compared with historical periods.

Results of Operations of 2019 Compared to 2018


The Company's net sales in 2019 were $736.2 million, compared to $769.8 million
in 2018, a decrease of $33.6 million, or 4.4%. The Specialty Solutions business
segment revenue increased by 5.2% and the Performance Materials business segment
revenue decreased by 20.9%. Contributing to the net sales decrease in 2019 were
lower volume of $21.3 million, unfavorable foreign currency of $11.2 million,
and unfavorable price/mix of $1.1 million.

Gross profit and gross profit margin in 2019 were $176.2 million and 23.9%,
compared to $190.7 million and 24.8% in 2018. The decrease in gross profit
margin resulted from lower volumes, primarily within Performance Materials. The
decrease in volume was primarily due to the Company's strategic transition away
from the commodity paper coatings market and volume reductions in the commodity
carpet market, which were partially offset by improved volume in the oil & gas,
coatings and performance additives business lines.

Selling, general, and administrative expense in 2019 increased $3.5 million or
3.3%, to $109.7 million, compared to $106.2 million in 2018. The increase in
2019 was primarily due to increased outside services as a result of the
Synthomer merger transaction and the inclusion of full year expenses of OMNOVA
Portugal, which was acquired in September 2018.

Interest expense was $20.0 million and $19.3 million for 2019 and 2018, respectively. The slight increase was primarily attributable to a higher average debt balance resulting from the use of revolving credit arrangements.


During the fourth quarter of fiscal 2019, the Company incurred $17.9 million of
costs related to initiatives to lower its cost structure. These initiatives
involved, among other things, the liquidation of several holding companies in
Europe that resulted in the recognition of foreign currency translation losses
in the Consolidated Statement of Operations.

The Securities and Exchange Commission Staff Accounting Bulletin No.118 ("SAB
118"), provides a measurement period that should not extend beyond one year from
the Tax Cuts and Job Act (the "Tax Act") enactment date for companies to
complete the accounting under ASC 740, Income Taxes. At November 30, 2018, the
Company had provisionally estimated minimal income inclusion for the transition
tax related to foreign earnings on which U.S. income taxes were previously
deferred. Under SAB 118 guidance, the Company adjusted the income inclusion
related to transition tax to $27.7 million. The change is a result of additional
analysis, changes in interpretation and assumptions, as well as additional
regulatory guidance that was issued. As of February 28, 2019, the Company
completed the analysis of the impact of the Tax Act in accordance with the SAB
118 and there were no further impacts. The Company utilized existing net
operating loss carryforwards to offset the income inclusion, and therefore had
no cash taxes related to the transition tax during 2019.

Income tax expense was $3.4 million in 2019, compared to income tax benefit of
$6.2 million in 2018. The Company's income tax expense was different than the
statutory income tax rate due to income in foreign jurisdictions with
corresponding tax expense which was not offset by losses in the U.S.
jurisdiction in which no tax benefit was recognized. The 2018 income tax benefit
was different than the statutory income tax rate primarily due to items related
to the Tax Act. As a result of the Tax Act, in 2018 the Company recorded a
provisional net tax benefit of approximately $9.9 million, comprised of: a tax
benefit of $4.1 million related to the re-measurement of the U.S. deferred taxes
for the reduction of the U.S. federal corporate income tax rate; a tax benefit
of $0.9 million associated with the reversal of the valuation allowance against
the existing AMT credit carryforward as it is refundable under the Tax Act; and
a tax benefit of $4.9 million associated with the reversal of the valuation
allowance on a portion of the U.S. deferred tax assets as a result of deferred
tax liabilities for indefinite lived intangible assets now considered available
as a source of income as a result of the Tax Act. In addition, the Company
recognized a $0.9 million income tax benefit related to the impact of a French
tax rate change on the Company's deferred tax liabilities. Based on French tax
legislation enacted during the first quarter of 2018, the French tax rate will
be reduced to 25.0% beginning in 2022 and the Company's deferred tax liabilities
were reduced to appropriately reflect this legislation as a current period tax
benefit in 2018.


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 CODM, its CEO, in making decisions, assessing
performance and allocating resources.


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                                                     Year Ended
                                                    November 30,
                                                 2019            2018
                                                (Dollars in millions)
Net Sales
Specialty Solutions                          $    513.0$  487.6
Performance Materials                             223.2          282.2
Total Net Sales                              $    736.2$  769.8
Segment Operating Profit
Specialty Solutions                          $     66.2$   70.7
Performance Materials                             (15.8 )         (9.8 )
Total segment operating profit                     50.4           60.9
Interest expense                                  (20.0 )        (19.3 )
Corporate expenses                                (21.1 )        (24.0 )
Realized foreign currency translation losses      (17.9 )            -
Merger transaction costs                           (9.4 )            -
Corporate severance                                (0.3 )         (0.9 )
Operational improvement costs                      (0.3 )            -
Asset impairment                                   (0.1 )         (0.1 )
Acquisition and integration related expense         0.1           (2.2 )
Gain (loss) on sale of assets                      (0.2 )          0.9
Debt issuance costs write-off                      (0.2 )         (0.8 )
Income (Loss) Before Income Taxes            $    (19.0 )$   14.5

Specialty Solutions


Specialty Solutions' net sales increased $25.4 million, or 5.2%, to $513.0
million in 2019, compared to $487.6 million in 2018. OMNOVA Portugal accounted
for $48.0 million of the current year sales increase. The increased sales were
primarily driven by improved volumes of $27.5 million, and price/mix of $4.8
million, which were partially offset by unfavorable foreign exchange of $6.9
million. Volume was up in the specialty coatings & ingredients and oil & gas
business lines. Net sales for the the specialty coatings & ingredients business
line increased $22.9 million to $274.5 million in 2019 compared to $251.6
million in 2018. Net sales for the oil & gas business line increased $13.9
million to $85.2 million compared to $71.3 million in 2018. Net sales for the
laminates & films business line decreased $11.4 million to $153.3 million in
2019 compared to $164.7 million in 2018.

This segment generated an operating profit of $66.2 million in 2019, compared to
$70.7 million in 2018. The decrease in segment operating profit was due largely
to increased operating costs partly due to the inclusion of OMNOVA Portugal,
partially offset by improved volume and price/mix. Segment operating profit
includes items which Management excludes when evaluating the results of the
Company' segments. Those items for 2019 totaled $0.3 million and consisted
primarily of $0.4 million of restructuring and severance and $0.3 million of
acquisition and integration costs. Those items for 2018 totaled $3.7 million and
included $1.8 million of acquisition and integration related expense, $1.2
million of asset impairment, facility closure and other costs, and $0.7 million
of restructuring and severance charges.

Performance Materials


Performance Materials' net sales decreased $59.0 million ,or 20.9%, to $223.2
million in 2019, compared to $282.2 million in 2018. The decrease in current
year sales was driven by lower volume of $48.8 million, unfavorable price/mix of
$5.9 million, and unfavorable foreign currency of $4.3 million. Volumes were
down primarily in the paper and carpet business line, due to the Company's exit
of the commodity paper business line and reduced volumes in the commodity carpet
market. Net sales for the paper and carpet business line decreased $49.5 million
to $64.1 million in 2019 compared to $113.6 million in 2018. Net sales in the
performance additives business line decreased $13.7 million to $110.6 million in
2019 compared to $124.3 million in 2018. Net sales for the coated fabrics'
business line increased $4.2 million to $48.5 million in 2019, compared to $44.3
million in 2018.

Segment operating losses were $15.8 million in 2019, and $9.8 million in 2018.
The segment operating loss in 2019 was primarily due to an asset impairment
charge of $7.8 million for the write down of two tradenames related to the
performance additives business line. Segment operating profit includes items
which Management excludes when evaluating the results of the Company's segments.
Those items for 2019 totaled $9.9 million and consisted primarily of $10.7
million of asset impairment, facility closure costs and other, $2.2 million of
restructuring and severance, $1.1 million of accelerated depreciation, which
were partially offset by a $4.4 million gain on sale of assets. Those items for
2018 totaled $16.7 million and include asset impairments, facility, and other
costs of $14.3 million, accelerated depreciation of $1.1 million, restructuring
and severance of $1.1 million, and environmental charges of $0.2 million.

Corporate Expenses

Corporate expenses were $21.1 million in 2019, compared to $24.0 million in 2018. The decrease is primarily due to lower incentive compensation expense.




                                       17
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Results of Operations of 2018 Compared to 2017


The Company's net sales in 2018 were $769.8 million, compared to $783.1 million
in 2017. The acquisition of Resiquimica in September of 2018 accounted for $10.7
million of current year sales, while our former China-based coated fabric
manufacturing operation, ("CCF") which was sold in July of 2017, accounted for
$10.4 million in sales in 2017. Excluding the effect of CCF, sales decreased
$2.9 million or 0.4%. The Specialty Solutions segment revenue increased 10.5%
and the Performance Materials segment revenue decreased by 17.4%. Contributing
to the net sales decrease of $2.9 million in 2018 were lower volume of $30.5
million, which was partially offset by favorable foreign exchange of $14.7
million and favorable price/mix of $2.5 million.

Gross profit and gross profit margin in 2018 were $190.7 million and 24.8%,
compared to $200.8 million and 25.6% in 2017. The decrease in gross profit
margin resulted from lower volumes, primarily within Performance Materials.
Volume decreased primarily due to the Company's continued strategic transition
away from the commodity paper coatings market, and the sale of CCF, which were
partially offset by improved volumes in the oil & gas, coatings and performance
additives business lines.

Selling, general, and administrative expense in 2018 decreased $12.4 million or
10.5%, to $106.2 million, compared to $118.6 million in 2017. The decrease in
2018 reflects the One OMNOVA cost reduction initiatives, and reductions in
outside services and incentive compensation.

On December 22, 2017, U.S. federal tax legislation, commonly referred to as the
Tax Cuts and Job Act (the "Tax Act") was signed into law which, among other
items: reduced the U.S. corporate income tax rate effective January 1, 2018 from
35% to 21%; repealed the Alternative Minimum Tax ("AMT"); imposed a one-time
transition tax on accumulated foreign earnings not previously subject to U.S.
taxation; provides a U.S. federal tax exemption on future distributions of
foreign earnings; and beginning in fiscal 2019, creates a new minimum tax on
certain foreign-sourced earnings. The U.S. corporate tax rate reduction resulted
in a blended federal statutory tax rate of 22.2% for fiscal 2018 (based on 35%
corporate rate through December 31, 2017 and 21% from that date through the end
of fiscal 2018). The Securities and Exchange Commission Staff Accounting
Bulletin No.118 ("SAB 118"), provides a measurement period that should not
extend beyond one year from the Tax Act enactment date for companies to complete
the accounting under ASC 740, Income Taxes. While the Company was able to make
reasonable estimates of the items above, the ultimate impact may differ from
these provisional amounts due to additional analysis, changes in interpretations
and assumptions, additional regulatory guidance that may be issued and actions
we may take as a result of the Tax Act. Adjustments to the provisional amounts
recorded by the Company that are identified within a subsequent measurement
period of up to one year from the enactment date will be included as an
adjustment to income tax expense in the period the amounts are determined.

Income tax benefit was $6.2 million in 2018, compared to income tax expense of
$83.7 million in 2017. The 2018 income tax benefit was different than the
statutory income tax rate primarily due to items related to the Tax Act. As a
result of the Tax Act, the Company recorded a provisional net tax benefit of
approximately $9.9 million, comprised of: a tax benefit of $4.1 million related
to the re-measurement of the U.S. deferred taxes for the reduction of the U.S.
federal corporate income tax rate; a tax benefit of $0.9 million associated with
the reversal of the valuation allowance against the existing AMT credit
carryforward as it is refundable under the Tax Act; and a tax benefit of $4.9
million associated with the reversal of the valuation allowance on a portion of
the U.S. deferred tax assets as a result of deferred tax liabilities for
indefinite lived intangible assets now considered available as a source of
income as a result of the Tax Act. In addition, the Company recognized a $0.9
million income tax benefit related to the impact of a French tax rate change on
the Company's deferred tax liabilities. Based on recently enacted French tax
legislation during the first quarter of 2018, the French tax rate will be
reduced to 25.0% beginning in 2022 and the Company's deferred tax liabilities
were reduced to appropriately reflect this legislation as a current period tax
benefit. The 2017 income tax expense was higher than the statutory income tax
rate of 35% primarily as a result of a $79.9 million income tax expense related
to valuation allowances on deferred tax assets. Of that amount, $75.7 million
income tax expense was recorded in the U.S. during the fourth quarter of 2017.
Additionally, a $19.6 million goodwill impairment was recorded in the fourth
quarter of 2017 for which no tax benefit was realized as the goodwill impairment
is permanently non-deductible for tax purposes. The tax impact of the goodwill
impairment was $6.9 million. These charges were partially offset by a $3.4
million income tax benefit from French legislative changes during the year.
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 CODM, its CEO, in making decisions, assessing
performance and allocating resources.

                                       18
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                                                    Year Ended
                                                   November 30,
                                                2018            2017
                                               (Dollars in millions)
Net Sales
Specialty Solutions                         $    487.6$  441.4
Performance Materials                            282.2          341.7
Total Net Sales                             $    769.8$  783.1
Segment Operating Profit
Specialty Solutions                         $     70.7$   59.9
Performance Materials                             (9.8 )        (12.6 )
Total segment operating profit                    60.9           47.3
Interest expense                                 (19.3 )        (21.5 )
Corporate expenses                               (24.0 )        (24.5 )
Corporate severance                               (0.9 )         (2.9 )
Asset impairment                                  (0.1 )         (1.8 )

Acquisition and integration related expense (2.2 ) (0.3 ) Gain (loss) on sale of assets

                      0.9              -
Debt issuance costs write-off                     (0.8 )            -
Pension settlement                                   -           (0.4 )
Income (Loss) Before Income Taxes           $     14.5$   (4.1 )


Specialty Solutions
Specialty Solutions' net sales increased $46.2 million, or 10.5%, to $487.6
million in 2018, compared to $441.4 million in 2017. The acquisition of OMNOVA
Portugal accounted for $10.7 million of the increase. The increased sales were
primarily driven by improved volumes of $25.9 million, price/mix of $11.3
million, and favorable foreign exchange of $9.0 million. Volume was up in the
specialty coatings & ingredients, oil & gas, and laminates & films business
lines. Net sales for the specialty coatings & ingredients business line
increased $20.3 million to $251.6 million in 2018 compared to $231.3 million in
2017. Net sales for the oil & gas business line increased $16.7 million to $71.3
million compared to $54.6 million in 2017. Net sales for the laminates & films
business line increased $9.2 million to $164.7 million in 2018 compared to
$155.5 million in 2017.

This segment generated an operating profit of $70.7 million in 2018, compared to
$59.9 million in 2017. The increase in segment operating profit was due in part
to increased volume, cost reduction initiatives, favorable foreign exchange, and
improved price/mix, partially offset by higher raw material and operating costs.
Segment operating profit includes items which Management excludes when
evaluating the results of the Company' segments. Those items for 2018 totaled
$3.7 million and included $1.8 million of acquisition and integration related
expense, $1.2 million of asset impairment, facility closure and other costs, and
$0.7 million of restructuring and severance charges. Those items for 2017
totaled $0.9 million and included $0.6 million of restructuring and severance
charges and $0.3 million of operational improvement costs.

Performance Materials


Performance Materials' net sales decreased $59.5 million, or 17.4%, to $282.2
million in 2018, compared to $341.7 million in 2017. During 2017, the Company
sold CCF which accounted for $10.4 million of net sales in 2017. The decrease of
$59.5 million was driven primarily by lower volume of $46.0 million, due to the
divestiture of CCF of $10.4 million, and unfavorable price/mix of $8.8 million,
partially offset by favorable foreign exchange of $5.7 million. Volumes were
down, primarily in the paper business line, due to the Company's exit of the
commodity portion of the business line. Net sales for the performance additives
business line increased $4.8 million to $106.0 million in 2018 compared to
$101.2 million in 2017. The coated fabrics' business line net sales decreased
$10.9 million to $44.3 million in 2018, compared to $55.2 million in 2017,
primarily due to the sale of CCF. Paper and carpet business line net sales
decreased $52.9 million to $113.6 million in 2018, compared to $166.5 million in
2017.

Segment operating losses were $9.8 million in 2018, and $12.6 million in 2017.
The segment operating loss in 2018 was primarily due to an asset impairment
charge of $9.2 million related to the styrene-butadiene (SB) production
transition from Green Bay, Wisconsin to Mogadore, Ohio, to offset the impact
from lower volumes within the Company's commodity paper business line. Segment
operating profit includes items which Management excludes when evaluating the
results of the Company's segments. Those items for 2018 totaled $16.7 million
and include asset impairments, facility, and other costs of $14.3 million,
accelerated depreciation of $1.1 million, restructuring and severance of $1.1
million and environmental charges of $0.2 million. Those items for 2017 totaled
$33.3 million and include asset impairment charges and facility closure costs of
$33.6 million, restructuring and severance costs of $1.7 million, and a reversal
of an environmental charge of $2.0 million.

Interest and Corporate Expenses


Interest expense was $19.3 million and $21.5 million for 2018 and 2017,
respectively. The decrease was primarily attributable to the $40.0 million Term
Loan B prepayment made during the first quarter of fiscal 2018, resulting in a
lower average outstanding debt balance in fiscal 2018 compared to fiscal 2017.

Corporate expenses were $24.0 million in 2018, compared to $24.5 million in 2017. The decrease is primarily due to lower incentive compensation expense and outside service costs.



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Restructuring Plans

The Company carried out several key initiatives during 2019 and maintained the following restructuring plans:

2018 Restructuring Plan


During the third quarter of fiscal 2018, the Company announced its plan to close
its styrene butadiene manufacturing facility in Green Bay, Wisconsin, moving
production to our Mogadore, Ohio facility. The Company incurred $4.3 million of
restructuring and severance expenses in fiscal 2019 related to this plan. Total
expense incurred for this plan was $6.1 million, all of which has been paid as
of November 30, 2019. As of November 30, 2019, the plan was considered complete.

2017 Restructuring Plan


Restructuring and severance activities initiated in 2017 include the One OMNOVA
initiative announced during the first quarter of 2017. The One OMNOVA initiative
was focused on improving functional excellence in marketing, sales, operations,
supply chain and technology, as well as various corporate functions. The plan
was designed to reduce complexity and drive consistency across the global
enterprise through a standardized, integrated business system. The Company
incurred $1.0 million of restructuring and severance expense in fiscal 2019
related to this plan. Total expense incurred for this plan was $6.2 million, all
of which has been paid as of November 30, 2019. As of November 30, 2019, the
plan was considered complete.

2016 Restructuring Plan

Restructuring and severance activities initiated in 2016 included continued cost
reduction and efficiency improvement actions, as well as a change in the
Company's CEO. For these activities, the Company has incurred and paid
restructuring and severance costs of $7.6 million. As of November 30, 2018, the
plan was considered complete.


Financial Resources and Capital Spending


The following table reflects key cash flow measures from continuing operations:

                                                      2019        2018        2017
                                                          (Dollars in millions)
Net cash provided by (used in) operating activities $  24.4$  56.7$  47.8
Net cash provided by (used in) investing activities $ (30.3 )$ (46.0 )$ (28.6 )
Net cash provided by (used in) financing activities $   2.6$ (42.7 )$  (6.6 )
Increase (decrease) in cash and cash equivalents    $  (3.2 )$ (33.9 )$  16.0



Cash provided by operating activities was $24.4 million in 2019, compared to
$56.7 million in 2018 and $47.8 million in 2017. The $32.3 million decrease in
2019 was primarily due to lower earnings and unfavorable working capital.
Working capital days increased 10.0 days to 56.8 days in 2019 compared to 46.8
days in 2018 primarily as a result of the inclusion of OMNOVA Portugal's working
capital. The increase in cash provided by operating activities in 2018 was
primarily due to higher earnings after consideration of non-cash items and
improved working capital.

Cash used in investing activities was $30.3 million in 2019, compared to $46.0
million in 2018 and $28.6 million in 2017. The $15.7 million decrease in 2019
was driven by the acquisition of OMNOVA Portugal in 2018 for $22.8 million, and
the sale of the Green Bay, Wisconsin facility and equipment for $4.9 million,
partially offset by higher capital expenditures in 2019 of $9.3 million.
Included in 2018 are capital expenditures of $23.8 million, primarily related to
manufacturing equipment, and the acquisition of OMNOVA Portugal. Included in
2017 were capital expenditures of $25.1 million, primarily related to
manufacturing equipment, the acquisition and disposal of businesses of $7.3
million, partially offset by the collection of a $3.8 million note receivable.
The Company expects capital expenditures of approximately $30.0 million to $35.0
million during 2020.

Cash provided by financing activities was $2.6 million in 2019, compared with a
use of $42.7 million in 2018 and a use of $6.6 million in 2017. The $45.3
million improvement in 2019 was driven primarily by a $40.0 million debt
prepayment on its Term Loan B in 2018. During 2019, the Company utilized its
credit facilities, borrowing $392.7 million and repaying $390.0 million. Cash
used in financing activities in 2018, was due primarily to debt repayments of
$66.2 million and borrowings of $24.3 million. Cash used in financing activities
was $6.6 million in 2017, and was due primarily to debt repayments of $4.2
million and $2.2 million of common shares redeemed in the repayment of employees
withholding taxes. OMNOVA's cash balance of $50.9 million at November 30, 2019
consists of $10.5 million in the U.S., $14.2 million in Europe, and $26.2
million in Asia. As of November 30, 2019, the Company 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 cash requirements for at least the next twelve months.

Debt

Information regarding the Company's debt is disclosed in Note L to the Company's consolidated financial statements.

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Contractual Obligations


The following table summarizes the Company's contractual obligations for the
periods indicated:
                                                                Payments Due By Period
                                       Total         2020        2021 - 2022       2023 - 2024       Beyond 2024
                                                                 (Dollars

in millions) Short-term and long-term debt $ 317.6$ 3.5$ 26.0$ 288.1 $

           -
Capital lease obligations(1)             17.7          1.3               2.5               2.5              11.4
Interest payments on long-term
debt(2)                                  57.4         16.2              30.6              10.6                 -
Operating leases                         16.0          4.2               5.1               2.3               4.4
Purchase obligations                     12.2         12.2                 -                 -                 -
Pension and post-retirement funding
obligations(3)                           37.2          7.3              14.4               8.3               7.2
Total                                $  458.1$   44.7$        78.6$       311.8$        23.0

(1) Includes principal and effective interest payments.

(2) Based on outstanding debt balances as of November 30, 2019 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. As those

are based on estimates, actual future payments 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, 2019, which have been prepared in accordance with
U.S. generally accepted accounting principles. The preparation of these
consolidated 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 consolidated 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 revenues when control of the promised goods is
transferred to customers, in an amount that reflects the consideration expected
to be received in exchange for those goods in accordance with ASC 606. When
recognizing revenue, the Company applies the following five-step approach: (1)
identify the contract with a customer, (2) identify the performance obligations,
(3) determine the transaction price, (4) allocate the transaction price to the
performance obligations in the contract, and (5) recognize revenue when a
performance obligation is satisfied.

B) Allowance For Doubtful Accounts


The Company's policy is to identify customers that are considered doubtful of
collection based upon the customer's financial condition, payment history,
credit rating and other relevant factors; and reserves the portion of such
accounts receivable for which collection does not appear likely. The allowance
for doubtful accounts was $3.4 million and $3.3 million at November 30, 2019 and
2018, 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. 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 was $6.1 million and $6.9 million at November 30, 2019
and 2018, respectively.

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.

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

                                       21
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Comprehensive (Loss) Income. As of May 2007, the Company's U.S. defined benefit
pension plan has been closed to all new hires and since December 1, 2011, future
service benefits have been frozen and fully vested for all participants.
Therefore, there is no future service benefit accrual for the Company's U.S.
defined benefit plans.

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 $2.0 million in 2019 and $1.3 million in
2018. Pension expense is calculated using the discount rate to discount plan
liabilities at the prior year measurement date. Discount rates of 4.41% and
3.66% were used to calculate the pension expense in 2019 and 2018, respectively.
The Company anticipates 2020 expense to be approximately $1.2 million based on a
weighted average discount rate of 3.07%. An increase or decrease of 25 basis
points in the discount rate would decrease or increase expense on an annual
basis by approximately $0.1 million. Cash contributions to the pension plans
were $6.5 million in 2019 and $6.3 million in 2018.

The Company, in consultation with its actuary, determined the discount rate used
to discount the U.S. plan liabilities at the plan's measurement date, which was
November 30, 2019. The discount rate reflects the current rate at which the
pension liabilities could be effectively settled at the end of the year. In
determining the discount rate, we 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, 2019. 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, in consultation with its actuary,
determined the discount rate used to measure defined benefit pension plan
obligations as of November 30, 2019 should be 3.07%, compared to 4.41% in 2018.
A 25 basis point change in the discount rate would increase or decrease the
projected benefit obligation by approximately $7.7 million.

The Company utilizes 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 spot rates used to determine service and
interest costs for 2019 ranged from 3.28% to 4.85%. The ultimate spot rate used
to discount cash flows beyond 30 years was 4.83% for 2019. The spot rates used
to determine service and interest costs for 2020 expense ranged from 2.05% to
3.61%. The ultimate spot rate used to discount cash flows beyond 30 years was
3.61% for 2020.

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.

The Company uses the Mercer modified version (MRP - 2007) of the Society of
Actuaries' (SOA) Pri-2012 mortality table for the pre-retirement mortality base
table. The Company also uses the Mercer Industry Longevity Experience Study
(MILES) table for the Chemical, Oil & Gas and Utilities industry and the
Consumer Goods and Food & Drink industry for the post-retirement mortality base
table.

To develop the expected long-term rate of return on assets assumption, the
Company, in consultation with its actuary, 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 7.68% for both 2019 and 2018.
The measurement dates of November 30, 2019 and 2018 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 or at Net Asset Value ("NAV") for certain
collective trusts on the measurement date.

Based on current estimates of pension asset performance, interest and discount
rate assumptions, the Company intends to make cash contributions to its pension
plans of $6.6 million in 2020.

Factors that could impact future cash requirements and timing of any such cash equivalents are:

• Investment returns which differ materially from the Company's 7.68% return

assumption for 2020;

• Significant changes in interest rates, affecting the discount rate; and

• 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 bases
of assets and liabilities using the enacted tax rates that will be in effect in
the period the differences are expected to reverse. The Company records a
valuation allowance to offset deferred tax assets, if based on the weight of all
available positive and negative evidence, it is more-likely-than-not that some
portion, or all, of the deferred tax assets will not be realized. Changes in tax
laws and rates may affect recorded deferred tax assets and liabilities along
with our effective tax rate in the future.

A high degree of judgment is required to determine the extent a valuation
allowance should be provided against deferred tax assets. On a quarterly basis,
the Company assesses the likelihood of realization of its deferred tax assets
considering all available evidence, both positive and negative. In determining
whether a valuation allowance is warranted, the Company evaluates factors such
as prior earnings history, expected future earnings, carry-back and
carry-forward periods and tax strategies that could potentially enhance the
likelihood of the realization of a

                                       22
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deferred tax asset. The weight given to the positive and negative evidence is
commensurate with the extent to which the evidence may be objectively verified.
It is generally difficult to outweigh objectively verifiable negative evidence
of cumulative financial reporting losses.

As a result of historical restructuring charges and impairments over the last
few years, including a significant goodwill impairment recorded in the fourth
quarter of 2017, the Company entered into a U.S. jurisdiction three-year
cumulative loss position for the three year period ending November 2017. For the
three year period ended November 2019, the U.S. jurisdiction remains in a
three-year cumulative loss position. Considering the weight of available
positive and negative evidence, the Company does not believe the positive
evidence (some of which is subjective) overcomes the negative objective evidence
of a 3-year cumulative loss position. Therefore, the Company concludes that the
valuation allowance should remain on its U.S. deferred tax assets as of November
30, 2019.

The Company has not provided for U.S. income taxes on undistributed earnings on
certain of its non-U.S. subsidiaries as such amounts are considered permanently
reinvested outside the U.S. As a result of the Tax Act, to the extent that
foreign earnings previously treated as permanently reinvested are repatriated,
the related U.S. tax liability primarily attributable to withholding taxes may
be creditable. However, based on the Company's policy of permanent reinvestment,
it is not practicable to determine the income tax liability, if any, which would
be payable if such earnings were not permanently reinvested. As of November 30,
2019, the non-U.S. subsidiaries have cumulative foreign retained earnings of
$50.2 million.
The Company utilizes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of an income tax position taken
or expected to be taken in an income tax return. For those benefits to be
recognized, an income 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 income tax expense. For 2019, the Company recognized minimal income
tax expense related to interest and penalties.
On December 22, 2017, U.S. federal tax legislation, commonly referred to as the
Tax Cuts and Job Act (the "Tax Act") was signed into law which, among other
changes: reduced the U.S. corporate income tax rate effective January 1, 2018
from 35% to 21%; repealed the Alternative Minimum Tax ("AMT"); imposed a
one-time transition tax on accumulated foreign earnings not previously subject
to U.S. taxation; provides a U.S. federal tax exemption on future distributions
of foreign earnings; and beginning in fiscal 2019, creates a new minimum tax on
certain foreign-sourced earnings. The Tax Act subjects a U.S. shareholder to tax
on global intangible low-taxed income ("GILTI") earned by certain foreign
subsidiaries.
G)  Share-Based Compensation

The Company uses the fair value method of accounting to record share-based
compensation based on the grant date fair value. While the Company regularly
evaluates the use of share-based compensation, its practice has been to issue
restricted shares or restricted share units, which are required to be expensed
using the fair value method. Beginning with grants in 2018, the Company
determined that its performance share awards ("PSA's") would vest and be paid in
OMNOVA common shares. The fair value of PSA's, restricted share awards ("RSA's")
and restricted share units ("RSU's") is determined based on the closing market
price of the Company's common shares at the date of grant. Refer to Note O to
the Company's Consolidated Financial Statements for further discussion of
share-based compensation.

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 and amortization.


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 CIP 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 2018, the Company's Board of Directors approved a plan to close the Green
Bay, Wisconsin plant shifting styrene butadiene manufacturing to its production
plant in Mogadore, Ohio. As a result, the Company determined that certain plant
and equipment were impaired and recognized an impairment charge of $9.2 million,
primarily in the Performance Materials segment, to write-down the asset group to
fair value based on the market approach analysis. The plant and equipment was
sold in 2019 for $4.9 million, recognizing a gain of $4.4 million. Also during
2018, the Company recognized other asset impairment charges of $2.7 million
related to idled assets.

During the fourth quarter of 2017, due to anticipated lower volumes in the paper
market, the Company performed an impairment analysis of the related asset group.
Based on this analysis, it was determined that the fair value of the asset group
was in excess of the book value, and accordingly, the Company concluded no
impairment was necessary.

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 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. Fair value is typically estimated using
a market approach method or a discounted cash flow analysis based

                                       23
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on level 3 inputs in the fair value hierarchy, 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. As of
November 30, 2019, the estimated fair value of the Company's reporting units
exceeded the carrying value of goodwill and therefore, no impairment was
recognized.

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. As of September 1, 2019,
the Company performed its annual impairment test for indefinite lived intangible
assets and determined that the carrying value of two individual tradenames
within the Performance Materials segment were greater than their fair value and,
accordingly, recorded an impairment of $7.8 million. A sensitivity analysis was
performed by the Company on one of these tradenames and a hypothetical 100 basis
point increase in the discount rate used to value this tradename would result in
additional impairment of $0.6 million. The second tradename had no remaining
fair value. Trademarks and 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 and tradenames may not be attained, which could result in
additional impairment to one or more of the Company's trademarks and tradenames.

Estimating future cash flows requires significant judgments and assumptions by
Management 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.

Finite lived intangible assets, such as customer lists, patents, certain
trademarks/tradenames, and licenses, are recorded at cost or estimated fair
value when acquired as part of a business combination. Intangible assets with a
finite life are amortized over their estimated useful lives with periods ranging
from 3 to 53 years.

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.

K) Leasing Arrangements

Operating lease expenses are 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 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 inShort-term debt 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 Company devotes significant
resources and Management attention to comply with environmental laws and
regulations. The Company's Consolidated Balance Sheets as of November 30, 2019
and 2018 reflects reserves for environmental remediation efforts of $1.4 million
and $1.5 million, respectively.

Capital expenditures for projects related to environmental matters were $0.4
million in 2019, $1.8 million in 2018, and $2.9 million in 2017. During 2019,
non-capital expenditures for environmental compliance and protection totaled
$10.5 million, all of which were for recurring costs associated with managing
hazardous substances and pollution abatement in ongoing operations. Similar
non-capital expenditures were $10.0 million and $8.8 million in years 2018 and
2017, respectively. The Company anticipates that non-capital environmental
expenditures for the next several years will be consistent with 2019 expenditure
levels.

New Accounting Pronouncements

New accounting pronouncements impacting the Company are disclosed in Note A to the Company's consolidated financial statements.

Non-GAAP Financial Measures for Periods Ended November 30, 2019 and November 30, 2018


The following discussion includes Non-GAAP financial measures. An explanation of
Managements reasons for reviewing and presenting these Non-GAAP measures, and a
reconciliation of the Non-GAAP financial measures to GAAP is provided below
under the heading "GAAP to Non-GAAP Reconciliations."



                                       24
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Management Adjusted Results

Consolidated Results


For the fourth quarter of 2019, segment operating loss was $16.9 million,
compared to income of $6.0 million last year. Segment operating loss for the
fourth quarter of 2019 included $28.7 million of items primarily related to the
recognition of foreign currency translation losses, intangible asset impairments
in the Performance Materials segment, and costs related to the Company's
proposed merger with Synthomer, which was announced on July 3, 2019. Segment
operating profit for the fourth quarter of 2018 included $9.0 million of items
primarily related to asset impairment charges and costs for the closure of the
Company's Green Bay, Wisconsin facility and Portugal acquisition costs. Adjusted
Segment Operating Profit, which excludes those items, was $7.0 million for the
fourth quarter of 2019, compared to $10.1 million for the fourth quarter of
2018. (See tables A and B). Adjusted Diluted Earnings per Share were $0.11 for
the fourth quarter of 2019, compared to $0.17 last year. The decline was
primarily due to the weakness in the laminates & films business line and in the
overall Performance Materials segment, partially offset by strength in the
Company's oil & gas and adhesives & sealants business lines.

For the twelve months ended November 2019, segment operating profit was $1.1
million, compared to $33.8 million in the prior year. The 2019 result included
$38.6 million of items primarily related to a restructuring of the Company's
European holding company structure, costs relating to the Company's proposed
merger with Synthomer, severance and restructuring, accelerated depreciation,
and intangible asset impairment costs. The 2018 results included $23.5 million
of items primarily related to asset impairment charges, costs for the closure of
the Company's Green Bay, Wisconsin facility, and OMNOVA Portugal acquisition
costs. Adjusted Segment Operating Profit, excluding those items, was $19.7
million for the twelve months ended November 2019, compared to $38.0 million for
the prior year. Adjusted Diluted Earnings per Share were $0.33 for 2019,
compared to $0.63 last year.

Adjusted EBITDA was $70.0 million for 2019, compared to $86.3 million last year.
Adjusted Segment EBITDA was down for Specialty Solutions, at $86.1 million for
2019 compared to $92.0 million in the prior year. Adjusted Segment EBITDA for
Performance Materials declined by $13.6 million, from $18.1 million at the end
of November 2018 to $4.5 million at the end of November 2019. The decline
primarily reflects the impact of the Company's decision to exit the commodity
paper market, volume weakness in the carpet market and weakness in the tire cord
market.

During 2019, the Company experienced broad economic pressures in Asia and in the
U.S. recreational vehicle markets, which resulted in lower demand in several key
markets including recreational vehicles, construction, automotive and tires.

Specialty Solutions Segment Results


For the fourth quarter of 2019, Specialty Solutions operating profit was $16.9
million, compared with $15.7 million in the fourth quarter of 2018. Adjusted
Segment Operating Profit for Specialty Solutions was $16.9 million, or 14.0% of
net sales, compared to $17.8 million, or 13.9% of net sales, last year. (See
Tables A and B). The Company's oil & gas business line again demonstrated strong
growth in revenue and profit during the quarter, as the Company's differentiated
offerings continue to find traction with end users. The growth in the oil & gas
business line, together with continued new product success in the Company's
adhesive & sealants business line, and above-plan performance by the Company's
Portuguese business (acquired in September 2018), was offset by declines in the
Company's laminates & films and elastomeric modifiers business lines. The
laminates & films business line continued to see challenging conditions in its
end markets (particularly in recreational vehicles) while the elastomeric
modifiers business line was particularly impacted by a slow Asian market and
weaker automotive markets globally.

For the twelve months ended November 2019, Specialty Solutions operating profit
was $66.2 million, compared with $70.7 million last year. Specialty Solutions
Adjusted Segment Operating Profit for the year was $66.5 million, or 13.0% of
net sales, compared to $74.4 million, or 15.3% of net sales, for the comparable
period last year. (See Tables A and B.) The period-to-period decline was the
result of a slow start to the year in nonwovens, declines in elastomeric
modifiers related to a slow Asian market and weaker automotive markets
generally, as well as overall weakness in laminates & films (particularly in
recreational vehicles). While the oil & gas business line's contribution to
Specialty Solutions Adjusted Segment Operating Profit was up by approximately
40% from the prior period, it was not sufficient to offset the aforementioned
declines.

In 2019, the Company's vitality index for Specialty Solutions is 20.7%, up from
19.3% last year. Profit margins from the Company's new product portfolio in
Specialty Solutions has increased by 340 basis points and is now accretive to
overall specialty margins.

Performance Materials Segment Results


Performance Materials' segment operating loss for the fourth quarter of 2019 was
$9.5 million, compared with a loss of $4.2 million for the fourth quarter of
last year. Performance Materials Adjusted Segment Operating Loss for the quarter
was $2.4 million, compared to income of $1.9 million last year. (See Tables A
and B.) The primary drivers of the year-over-year decline include the Company's
exit from the commodity paper market, volume reductions in the commodity carpet
market, and increased competitive intensity in tire cord markets. These declines
were partially offset by growth in the reinforcing resins market and the
benefits of closing the Company's Green Bay, Wisconsin plant, which are expected
to yield annual benefits of $7.0 million to $8.0 million by the second half of
2020.

Performance Materials' segment operating loss for 2019 was $15.8 million,
compared with a loss of $9.8 million for the prior year. Performance Materials
Adjusted Segment Operating Loss in 2019 was $5.8 million, compared to income of
$6.9 million in the prior year. (See Tables A and B.) The primary drivers of the
decline are consistent with those of the quarter, and were partially offset by
the benefits of closing the Company's Green Bay, Wisconsin plant.

The challenges in commodity-based markets like paper and carpet continue to mask
the more positive performance of the Company's smaller but more profitable
Performance Materials business lines, including the Company's coated fabrics and
reinforcing resins business lines. The segment is continuing to execute its
strategy of growing the profitable Performance Materials business lines while
reducing exposure to less profitable business lines through reducing direct
costs, repurposing assets, and reducing exposure in the segment's most
commoditized end markets.

                                       25
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                                       Non-GAAP and other Financial Matters
                                       Three Months Ended November 30, 2019
                                                                                                          Table A

(In millions except per share        Specialty       Performance       Combined
data)                                Solutions        Materials        Segments       Corporate      Consolidated
Net Sales                         $     120.3$      48.9$     169.2     $        -     $       169.2

Segment Operating Profit /
Corporate Expense                 $      16.9$      (9.5 )$       7.4$    (24.3 )$       (16.9 )
Interest expense                            -                 -                -           (4.8 )            (4.8 )
Income (Loss) Before Income
Taxes                             $      16.9$      (9.5 )$       7.4$    (29.1 )$       (21.7 )
Management Excluded Items
  Restructuring and severance              .1                 -               .1             .1                .2
  Acquisition and integration
related expense                            .3                 -               .3            (.4 )             (.1 )
  Merger transaction costs                  -                 -                -            4.0               4.0
  Other financing costs                   (.4 )               -              (.4 )            -               (.4 )
  Realized foreign currency
translation losses                          -                 -                -           17.9              17.9
  Asset impairment, facility
closure costs and other                     -               7.1              7.1              -               7.1
      Subtotal for management
excluded Items                              -               7.1              7.1           21.6              28.7
Adjusted Segment Operating
Profit / Corporate Expense
Before Income Taxes               $      16.9$      (2.4 )$      14.5$     (7.5 )   $         7.0
Income tax expense (25% rate)*                                                                               (1.8 )
Adjusted Income (Loss)                                                                              $         5.2
Adjusted Diluted Earnings Per
Share from Adjusted Income                                                                          $        0.11

*Income Tax rate is based on the Company's estimated normalized annual effective tax rate


Adjusted Segment Operating
Profit as a % of sales                   14.0 %            (4.9 )%           8.6 %
Segment / Corporate Capital
Expenditures                      $       5.9$       1.3      $      

7.2 $ - $ 7.2



Adjusted Segment Operating
Profit / Corporate Expense
Before Income Taxes               $      16.9$      (2.4 )$      14.5$     (7.5 )   $         7.0
Unallocated corporate interest
expense                                     -                 -                -            4.7               4.7

Segment / Consolidated Adjusted

                           EBIT          16.9              (2.4 )           14.5           (2.8 )            11.7
Depreciation and amortization
excluding accelerated
depreciation                              5.0               2.8              7.8             .2               8.0

Segment / Consolidated Adjusted

                         EBITDA   $      21.9$       0.4      $      

22.3 $ (2.6 )$ 19.7


Adjusted EBITDA as a % of sales          18.2 %             0.8  %          13.2 %                           11.6 %




                                       26
--------------------------------------------------------------------------------
                                Non-GAAP and other Financial Matters (Continued)
                                      Three Months Ended November 30, 2018
                                                                                                        Table B

(In millions except per share        Specialty       Performance      Combined
data)                                Solutions        Materials       Segments      Corporate      Consolidated
Net Sales                         $     127.6$      63.7$    191.3     $        -     $       191.3

Segment Operating Profit /
Corporate Expense                 $      15.7$      (4.2 )$     11.5$     (5.5 )   $         6.0
Interest expense                            -                 -              -           (4.9 )            (4.9 )
Income (Loss) Before Income
Taxes                             $      15.7$      (4.2 )$     11.5$    (10.4 )   $         1.1
Management Excluded Items
Restructuring and severance                 -                .7             .7             .2                .9
  Accelerated depreciation on
production transfer                         -                .7             .7              -                .7
Acquisition and integration
related expense                           1.9                .2            2.1            1.5               3.6
  Gain on sale of assets                    -                 -              -            (.9 )             (.9 )
Asset impairment, facility
closure costs and other                    .2               4.5            4.7              -               4.7
      Subtotal for management
excluded Items                            2.1               6.1            8.2             .8               9.0
Adjusted Segment Operating
Profit / Corporate Expense
Before Income Taxes               $      17.8$       1.9$     19.7$     (9.6 )$        10.1
Income tax expense (25% rate)*                                                                             (2.5 )
Adjusted Income (Loss)                                                                            $         7.6
Adjusted Diluted Earnings Per
Share from Adjusted Income                                                                        $        0.17

*Income Tax rate is based on the Company's estimated normalized annual effective tax rate


Adjusted Segment Operating
Profit as a % of sales                   13.9 %             3.0 %         10.3 %
Segment / Corporate Capital
Expenditures                      $       8.1$       2.7     $     

10.8 $ .2$ 11.0



Adjusted Segment Operating
Profit / Corporate Expense
Before Income Taxes               $      17.8$       1.9$     19.7$     (9.6 )$        10.1
Unallocated corporate interest
expense                                     -                 -              -            4.9               4.9

Segment / Consolidated Adjusted

                           EBIT          17.8               1.9           19.7           (4.7 )            15.0
Depreciation and amortization
excluding accelerated
depreciation                              4.6               2.6            7.2              -               7.2

Segment / Consolidated Adjusted

                         EBITDA   $      22.4$       4.5     $     

26.9 $ (4.7 )$ 22.2


Adjusted EBITDA as a % of sales          17.6 %             7.1 %         14.1 %                           11.6 %




                                       27
--------------------------------------------------------------------------------
                                 Non-GAAP and other Financial Matters (Continued)
                                       Twelve Months Ended November 30, 2019
                                                                                                          Table C

(In millions except per share         Specialty       Performance       Combined
data)                                 Solutions        Materials        Segments      Corporate      Consolidated
Net Sales                          $     513.0$     223.2$    736.2     $        -     $       736.2

Segment Operating Profit /
Corporate Expense                  $      66.2$     (15.8 )$     50.4$    (49.3 )   $         1.1
Interest expense                             -                 -               -          (20.0 )           (20.0 )
Income (Loss) Before Income
Taxes                              $      66.2$     (15.8 )$     50.4$    (69.3 )$       (18.9 )
Management Excluded Items
  Restructuring and severance               .4               2.2             2.6             .3               2.9
  Accelerated depreciation on
production transfer                          -               1.1             1.1              -               1.1
  Operational improvements costs             -                 -               -             .3                .3
  Acquisition and integration
related expense                             .3                .4              .7            (.1 )              .6
  (Gain) on sale of assets                   -              (4.4 )          (4.4 )           .2              (4.2 )
  Debt issuance costs write-off
and additional interest                      -                 -               -             .2                .2
  Merger transaction costs                   -                 -               -            9.4               9.4
  Other financing costs                    (.4 )               -             (.4 )            -               (.4 )
  Realized foreign currency
translation losses                           -                 -               -           17.9              17.9
  Asset impairment, facility
closure costs and other                      -              10.7            10.7             .1              10.8
      Subtotal for Management
Excluded Items                              .3              10.0            10.3           28.3              38.6
Adjusted Segment Operating
Profit / Corporate Expense
Before Income Taxes                $      66.5$      (5.8 )$     60.7$    (41.0 )$        19.7
Tax expense (25% rate)*                                                                                      (4.9 )
Adjusted Income (Loss)                                                                              $        14.8
Adjusted Diluted Earnings Per
Share from Adjusted Income                                                                          $        0.33

*Tax rate is based on the Company's estimated normalized annual
effective tax rate

Adjusted Segment Operating
Profit as a % of sales                    13.0 %            (2.6 )%          8.2 %
Segment / Corporate Capital
Expenditures                       $      23.2$       8.2$     31.4$      1.7$        33.1


Adjusted Segment Operating
Profit / Corporate Expense
Before Income Taxes                $      66.5$      (5.8 )$     60.7$    (41.0 )$        19.7
Unallocated corporate interest
expense                                      -                 -               -           20.0              20.0

Segment / Consolidated Adjusted

                            EBIT          66.5              (5.8 )          60.7          (21.0 )            39.7
Depreciation and amortization
excluding accelerated
depreciation                              19.6              10.3            29.9             .4              30.3

Segment / Consolidated Adjusted

                          EBITDA   $      86.1$       4.5      $     

90.6 $ (20.6 )$ 70.0


Adjusted EBITDA as a % of sales           16.8 %             2.0  %         12.3 %                            9.5 %




                                       28
--------------------------------------------------------------------------------
                                 Non-GAAP and other Financial Matters (Continued)
                                      Twelve Months Ended November 30, 2018
                                                                                                         Table D

(In millions except per share         Specialty       Performance      Combined
data)                                 Solutions        Materials       Segments      Corporate      Consolidated
Net Sales                          $     487.6$     282.2$    769.8     $        -     $       769.8

Segment Operating Profit /
Corporate Expense                  $      70.7$      (9.8 )$     60.9$    (27.1 )$        33.8
Interest expense                             -                 -              -          (19.3 )           (19.3 )
Income (Loss) Before Income
Taxes                                     70.7              (9.8 )         60.9          (46.4 )            14.5
Management Excluded Items
Restructuring and severance                 .7               1.1            1.8             .9               2.7
  Accelerated depreciation on
production transfer                         .1               1.1            1.2              -               1.2
Asset impairment, facility
closure costs and other                    1.1              14.3           15.4             .1              15.5
Environmental costs                          -                .2             .2              -                .2
  Gain on sale of assets                     -                 -              -            (.9 )             (.9 )
  Deferred financing fees
written-off                                  -                 -              -             .8                .8
Acquisition and integration
related expense                            1.8                 -            1.8            2.2               4.0
      Subtotal for management
excluded items                             3.7              16.7           20.4            3.1              23.5
Adjusted Segment Operating
Profit / Corporate Expense
before Income Taxes                $      74.4$       6.9$     81.3$    (43.3 )$        38.0
Tax expense (25% rate)*                                                                                     (9.5 )
Adjusted Income                                                                                    $        28.5
Adjusted Diluted Earnings Per
Share from Adjusted Income                                                                         $        0.63

*Tax rate is based on the Company's estimated normalized annual
effective tax rate

Adjusted Segment Operating
Profit as a % of sales                    15.3 %             2.4 %         10.6 %
Segment / Corporate Capital
Expenditures                       $      16.9$       6.0$     22.9$       .9$        23.8


Adjusted Segment Operating
Profit / Corporate Expense
Before Income Taxes                $      74.4$       6.9$     81.3$    (43.3 )$        38.0
Unallocated corporate interest
expense                                      -                 -              -           19.3              19.3

Segment / Consolidated Adjusted

                            EBIT          74.4               6.9           81.3          (24.0 )            57.3
Depreciation and amortization
excluding accelerated
depreciation                              17.6              11.2           28.8             .2              29.0

Segment / Consolidated Adjusted

                          EBITDA   $      92.0$      18.1     $    

110.1 $ (23.8 )$ 86.3


Adjusted EBITDA as a % of sales           18.9 %             6.4 %         14.3 %                           11.2 %



Shareholder Communications Pending the Merger


Pending its merger with Synthomer, the Company has suspended the distribution of
earnings releases and has discontinued earnings teleconferences, and the
Company's shareholders should not rely on any existing forward-looking guidance
or on the Company issuing any future forward-looking guidance. The Company
currently expects to obtain all remaining antitrust and other regulatory
approvals that are required for the completion of the merger in early 2020.
However, the Company cannot guarantee when any such approvals will be obtained,
or that they will be obtained at all. Please refer to the disclosures concerning
risk factors relating to the consummation of the merger.

Forward Looking Statements


This Annual Report includes forward looking statements as defined by federal
securities laws. Please refer to Item 1A. Risk Factors of this Report, which is
incorporated herein by reference.

© Edgar Online, source Glimpses

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