NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As of
August 31, 2016
(In Millions of Dollars, Except Share Data)
Note A – Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. These interim statements should be read in conjunction with the financial statements and notes thereto included in the OMNOVA Solutions Inc. (“OMNOVA Solutions” or the “Company”) Annual Report on Form 10-K for the year ended
November 30, 2015
, previously filed with the Securities and Exchange Commission (“SEC”).
The financial statements as of
August 31, 2016
have been derived from the unaudited interim consolidated financial statements at that date and do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.
These interim consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim period and all such adjustments are of a normal recurring nature except as disclosed herein. The results of operations for the interim period are not necessarily indicative, if annualized, of those to be expected for the full year.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could materially differ from those estimates.
The consolidation method is followed to report investments in subsidiaries. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Inter-company accounts and transactions are eliminated during the consolidation process of these accounts.
A detailed description of the Company’s significant accounting policies and management judgments is located in the audited consolidated financial statements for the year ended
November 30, 2015
, included in the Company’s Form 10-K filed with the SEC.
Description of Business
– The Company is an innovator of emulsion polymers, specialty chemicals and engineered surfaces for a variety of commercial, industrial and residential end uses. The Company's products provide a variety of important functional and aesthetic benefits to hundreds of products that people use daily. The Company holds 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. The Company utilizes strategically located manufacturing, technical and other facilities in North America, Europe, China, and Thailand to service the 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, resins, binders, adhesives, specialty rubbers, antioxidants, hollow plastic pigment and elastomeric modifiers which are used in specialty coatings, carpet, paper, nonwovens, construction, oil & 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.
The Performance Chemicals segment consists of
two
product lines. The Performance Materials product line encompasses products that have applications in the paper, paperboard, carpet, polymer stabilization, industrial rubbers & thermoplastics, 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 & gas drilling and production, adhesives, tape, floor care, textiles, graphic arts, and various other specialty applications.
Note A – Basis of Presentation (Continued)
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
two
product lines. The Coated Fabrics product 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.
Accounting Standards Not Yet Adopted
In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) 2016-15, Statement of Cash Flows- Classification of Certain Cash Receipts and Cash Payments, which clarifies existing guidance related to accounting for cash receipts and cash payments and classification on the statement of cash flows. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. The adoption of this ASU will not have an impact on the Company's financial position, results of operations, or cash flows.
In June 2016, the the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decrease of expected credit losses that have taken place during the period. This ASU changes the impairment model for most financial assets and certain other instruments, which will result in earlier recognition of allowances for losses. The guidance should be applied using a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of ASU 2016-13 on the Company's financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends existing guidance related to accounting for employee share-based payments affecting the income tax consequences of awards, classification of awards as equity or liabilities, and classification on the statement of cash flows. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company is evaluating the impact that adoption of this guidance will have on its Consolidated Financial Statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires a lessee to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with a lease term of more than twelve months. Leases will continue to be classified as either financing or operating, with classification affecting the recognition, measurement and presentation of expenses and cash flows arising from a lease. The new guidance is effective for the Company’s fiscal year that begins on December 1, 2019 and requires a modified retrospective approach to adoption for lessees related to capital and operating leases existing at, or entered into after, the earliest comparative period presented in the financial statements, with certain practical expedients available. Early adoption is permitted. The Company is currently evaluating the potential impact on its Consolidated Financial Statements and related disclosures.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10: Recognition and Measurement of Financial Assets and Financial Liabilities), which revised entities’ accounting related to: (i) the classification and measurement of investments in equity securities; and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The new guidance is effective for the Company’s fiscal year that begins on December 1, 2018 and requires a modified retrospective approach to adoption. Early adoption is only permitted for the provision related to instrument-specific credit risk. The Company is currently evaluating the potential impact on its Consolidated Financial Statements and related disclosures.
Note A – Basis of Presentation (Continued)
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 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 revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the 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 currently evaluating the potential impact the adoption of this guidance will have on its Consolidated Financial Statements and related disclosures.
Note B – Fair Value Measurements and Risk
Financial Risk Management Objectives and Policies
The Company is exposed primarily to credit, interest rate, and currency exchange rate risks, which arise in the normal course of business.
Credit Risk
Credit risk is the potential financial loss resulting from the failure of a customer or counterparty to settle its financial and contractual obligations with the Company as and when they fall due. The primary credit risk for the Company is its accounts receivable 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 one customer that represented approximately 10% of the Company’s net sales during the three-month period ending
August 31, 2016
. There was no single customer who represented more than 10% of the Company’s net trade receivables
August 31, 2016
.
Interest Rate Risk
The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s
$350 million
Term Loan B (balance of
$350.0 million
at
August 31, 2016
) and various foreign subsidiary borrowings, which bear interest at variable rates, approximating market interest rates. The Term Loan B has a LIBOR floor of
1.00%
, which eliminates the variability in interest rate changes on Eurodollar loans as long as LIBOR is under
1.00%
.
Foreign Currency Risk
The Company incurs foreign currency risk on sales and purchases denominated in other than the functional currency. The currencies giving rise to this risk are primarily the Euro, Chinese Yuan, Thai Baht, and Great Britain Pound Sterling.
Foreign currency exchange contracts are used by the Company to manage risks from the change in market exchange rates on cash payments by the Company's foreign subsidiaries. These forward contracts are used on a continuing basis for periods of approximately thirty days, consistent with the underlying hedged transactions. Hedging limits the impact of foreign exchange rate movements on the Company’s operating results. The counterparties to these instruments are investment grade financial institutions and the Company does not anticipate any non-performance. The Company maintains control over the size of positions entered into with any one counterparty and regularly monitors the credit rating of these institutions. Such instruments are not purchased and sold for trading purposes. These contracts are not designated as hedging instruments and changes in fair value of these instruments are recognized in earnings immediately. Gains (losses) on foreign currency contracts that were recorded in the Consolidated Statement of Operations for the three and
nine
month periods ending
August 31, 2016
were not material.
Derivative Instruments
The Company recognizes the fair value of qualifying derivative instruments as either an asset or a liability within its statement of financial position. 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) (“AOCI”). Amounts in AOCI are recognized in earnings when the underlying hedged transaction is recognized in earnings. Ineffectiveness, if any, is measured by comparing the present value of the cumulative change in the expected future cash flows of the derivative to the
Note B – Fair Value Measurements and Risk (Continued)
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 does not enter into derivative instruments for trading or speculative purposes.
The Company defines fair value as the price received to transfer an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses a hierarchy of valuation inputs to measure fair value.
The hierarchy prioritizes the inputs into three broad levels:
Level 1 inputs—unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occur with sufficient frequency and volume to provide ongoing pricing information.
Level 2 inputs—inputs other than quoted market prices included in Level 1 that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates.
Level 3 inputs—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.
The fair value of derivative financial instruments recognized in the Consolidated Statements of Financial Position follows as:
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Notional Amount
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Other Current Assets
|
|
Other Current Liabilities
|
|
Type of Hedge
|
|
Term
|
Derivatives designated as hedges - August 31, 2016
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Forward Contracts
|
$
|
9.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash Flow
|
|
30 days
|
Total
|
$
|
9.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedges - November 30, 2015
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Forward Contracts
|
$
|
9.2
|
|
|
$
|
—
|
|
|
$
|
.1
|
|
|
Cash Flow
|
|
30 days
|
Total
|
$
|
9.2
|
|
|
$
|
—
|
|
|
$
|
.1
|
|
|
|
|
|
Fair Value Measurements
The Company uses the market approach and the income approach to value assets and liabilities as appropriate. The following financial assets and liabilities are measured and presented at fair value on a recurring basis as of
August 31, 2016
and
November 30, 2015
:
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|
|
|
|
|
|
Fair Value Measurements - August, 31, 2016
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|
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|
|
(Dollars in millions)
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Financial Liabilities
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total Liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements - November 30, 2015
|
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|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
Foreign currency exchange contracts
|
$
|
(.1
|
)
|
|
$
|
(.1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Total Liabilities
|
$
|
(.1
|
)
|
|
$
|
(.1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
There were no transfers into or out of Level 3 during the
first nine months
of
2016
or
2015
.
Note B – Fair Value Measurements and Risk (Continued)
The fair value of the Company’s Term Loan at
August 31, 2016
approximated
$347.0 million
, which is less than book value of
$350.0 million
as a result of prevailing market rates on the Company’s debt. The carrying value of amounts due banks and Senior Notes approximates fair value due to their short-term nature. The fair value of the Term Loan is based on market price information and is measured using the last available trade of the instrument 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 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 obligation approximates its carrying amount based on estimated borrowing rates to discount the cash flows to their present value.
Note C – Other Expense (Income), Net
The following table sets forth the major components of other expense (income):
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|
|
|
|
|
|
|
Three Months Ended August 31,
|
|
Nine Months Ended August 31,
|
(Dollars in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Shareholder activist costs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.9
|
|
Operational improvement costs
|
—
|
|
|
1.6
|
|
|
(.4
|
)
|
|
4.5
|
|
Environmental remediation
|
—
|
|
|
—
|
|
|
—
|
|
|
.2
|
|
Gain on foreign currency transactions
|
.1
|
|
|
(.3
|
)
|
|
—
|
|
|
(1.2
|
)
|
Insurance proceeds
|
(.2
|
)
|
|
—
|
|
|
(.3
|
)
|
|
—
|
|
Gain on sale of scrap
|
—
|
|
|
(.3
|
)
|
|
(.3
|
)
|
|
(.9
|
)
|
Other bank fees and expenses
|
.3
|
|
|
.2
|
|
|
.6
|
|
|
.7
|
|
Interest income
|
(.2
|
)
|
|
(.2
|
)
|
|
(.5
|
)
|
|
(.5
|
)
|
Facility closure costs
|
.9
|
|
|
—
|
|
|
1.8
|
|
|
—
|
|
Other non-income taxes
|
.2
|
|
|
.3
|
|
|
.7
|
|
|
.8
|
|
Other
|
(.1
|
)
|
|
(.1
|
)
|
|
(.6
|
)
|
|
(.6
|
)
|
Total
|
$
|
1.0
|
|
|
$
|
1.2
|
|
|
$
|
1.0
|
|
|
$
|
4.9
|
|
Note D - Restructuring and Severance
The following table is a summary of restructuring and severance charges for the
third
quarters and the
first nine months
of
2016
and
2015
, respectively:
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|
|
|
|
|
|
|
|
Three Months Ended August 31,
|
|
Nine Months Ended August 31,
|
(Dollars in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Severance Expense
|
$
|
.4
|
|
|
$
|
3.2
|
|
|
$
|
3.1
|
|
|
$
|
4.3
|
|
Closure Costs
|
.9
|
|
|
.2
|
|
|
1.8
|
|
|
.2
|
|
Total
|
$
|
1.3
|
|
|
$
|
3.4
|
|
|
$
|
4.9
|
|
|
$
|
4.5
|
|
During the
third
quarter of
2016
, the Engineered Surfaces and Performance Chemicals segments recognized restructuring and severance costs related to continuing operations of
$0.4 million
and
$0.9 million
respectively, related to workforce reduction and facility closure actions. During the first
nine
months of
2016
, the Engineered Surfaces and Performance Chemicals segments and Corporate recognized restructuring and severance costs related to continuing operations of
$0.7 million
,
$4.1 million
and
$0.1 million
, respectively, related to workforce reduction and facility closure actions. During the first
nine
months of
2015
, the Engineered Surfaces and Performance Chemicals segments and Corporate recognized restructuring and severance costs of
$0.8 million
,
$3.6 million
and
$0.1 million
, respectively, related to workforce reduction and facility closure actions.
The following table summarizes the Company's liabilities related to restructuring and severance activities:
Note D - Restructuring and Severance (Continued)
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|
|
|
|
|
|
|
|
November 30, 2015
|
|
2016
|
|
August 31, 2016
|
(Dollars in millions)
|
Provision
|
|
Payments
|
|
|
(Dollars in millions)
|
Performance Chemicals
|
$
|
1.4
|
|
|
$
|
4.1
|
|
|
$
|
5.1
|
|
|
$
|
.4
|
|
Engineered Surfaces
|
.8
|
|
|
.7
|
|
|
1.6
|
|
|
(.1
|
)
|
Corporate
|
.1
|
|
|
.1
|
|
|
.1
|
|
|
.1
|
|
Total
|
$
|
2.3
|
|
|
$
|
4.9
|
|
|
$
|
6.8
|
|
|
$
|
.4
|
|
The Company expects to incur future costs related to its restructuring activities, as processes are continually evaluated to enhance the efficiency and cost effectiveness of its operations, and to ensure competitiveness across its businesses and across geographic areas. Future costs are expected to include costs related to closed facilities and restructuring plan implementation costs and these will be recognized as incurred.
Note E – Income Taxes
The Company recorded an income tax expense of
$1.9 million
and benefit of
$0.5 million
for the
third
quarters of 2016 and
2015
, respectively, and income tax expense of
$5.4 million
and a benefit of
$1.1 million
for the
nine months ended August 31, 2016 and 2015
, respectively. The Company’s effective tax rate for the
first nine months
of 2016 of
33.3%
was
lower
than its U.S. federal statutory rate primarily due to income in foreign jurisdictions where the statutory tax rate is less than the U.S. federal statutory rate. The effective tax rate for the
third
quarter of
2016
was
28.8%
expense compared to
500.0%
benefit in the
third
quarter of
2015
. The change in the effective tax rate for the third quarter of 2016 as compared to 2015 primarily relates to 2015 tax benefits on losses from restructuring. The 2016 third quarter effective tax rate of
28.8%
was primarily driven by foreign statutory tax rates lower than the U.S. rate in Asia and Europe.
There were no unrecognized tax positions as of
August 31, 2016
and
November 30, 2015
.
Interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense, however, there were no interest and penalties recognized in the statement of financial position as of
August 31, 2016
and
November 30, 2015
.
As of
August 31, 2016
, the Company had approximately
$107.7 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
$7.8 million
of federal net operating loss carryforward. The majority of the federal, state and local NOLCs expire in tax years 2021 through 2034, while the foreign tax credit carryforwards expire between tax years 2016 and 2022. As of
August 31, 2016
, the Company had approximately
$45.8 million
of foreign NOLCs of which
$38.1 million
have an indefinite carryforward period. Of the
$38.1 million
foreign NOLCs, which have an indefinite carryforward period,
$26.1 million
have a valuation allowance provided against them as the Company does not anticipate utilizing these carryforwards.
With limited exceptions, the Company is no longer open to audit by the Internal Revenue Service and various states and foreign taxing jurisdictions for years prior to 2010
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 that 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.
Note F – Income Per Share
The Company presents both basic and diluted earnings per share (“EPS”) amounts. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted EPS is calculated by dividing net income by the weighted average number of common shares and common equivalent shares outstanding during the reporting period that are calculated using the treasury stock method for stock-based awards. The treasury stock method assumes that the Company uses the proceeds from the exercise of awards to repurchase common stock at the average market price during the period.
Note F – Income Per Share (Continued)
The following table sets forth the computation of earnings per common share and fully diluted earnings per common share:
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 31,
|
|
Nine Months Ended August 31,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Numerator
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
4.7
|
|
|
$
|
.4
|
|
|
$
|
10.8
|
|
|
$
|
.2
|
|
Income from discontinued operations, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.9
|
|
Net income
|
|
$
|
4.7
|
|
|
$
|
.4
|
|
|
$
|
10.8
|
|
|
$
|
1.1
|
|
|
|
|
|
|
|
|
|
|
Denominator
(shares in millions)
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share - weighted average shares outstanding
|
|
$
|
44.1
|
|
|
$
|
45.2
|
|
|
$
|
44.0
|
|
|
$
|
45.7
|
|
Effect of dilutive securities
|
|
.6
|
|
|
.6
|
|
|
.4
|
|
|
.5
|
|
Denominator for dilutive earnings per share - adjusted weighted average shares and assumed conversions
|
|
$
|
44.7
|
|
|
$
|
45.8
|
|
|
$
|
44.4
|
|
|
$
|
46.2
|
|
|
|
|
|
|
|
|
|
|
Income Per Share - Basic
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
.11
|
|
|
$
|
.01
|
|
|
$
|
.25
|
|
|
$
|
—
|
|
Income from discontinued operations, net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.02
|
|
Net income
|
|
$
|
.11
|
|
|
$
|
.01
|
|
|
$
|
.25
|
|
|
$
|
.02
|
|
|
|
|
|
|
|
|
|
|
Income Per Share - Diluted
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
.10
|
|
|
$
|
.01
|
|
|
$
|
.24
|
|
|
$
|
—
|
|
Income from discontinued operations, net of tax
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
.02
|
|
Net income
|
|
$
|
.10
|
|
|
$
|
.01
|
|
|
$
|
.24
|
|
|
$
|
.02
|
|
During the
third
quarter and
first nine months
of 2016 and 2015, respectively, there were no anti-dilutive shares related to share-based incentive compensation that were excluded from the computation of dilutive weighted-average shares outstanding as there were no such shares that would have had an anti-dilutive effect.
Note G – Comprehensive (Loss) Income
The following tables reflect the changes in the components of accumulated other comprehensive loss for the
three
and
nine
months ended
August 31, 2016
and
2015
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended August 31, 2016 and 2015
|
Foreign Currency Items
|
|
Defined Benefit Plans
|
|
Accumulated Other Comprehensive Loss
|
|
|
Balance - May 31, 2016
|
$
|
(22.4
|
)
|
|
$
|
(104.6
|
)
|
|
$
|
(127.0
|
)
|
Other comprehensive (loss) income before reclassifications
|
(1.1
|
)
|
|
—
|
|
|
(1.1
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
.6
|
|
|
.6
|
|
Balance - August 31, 2016
|
$
|
(23.5
|
)
|
|
$
|
(104.0
|
)
|
|
$
|
(127.5
|
)
|
|
|
Foreign Currency Items
|
|
Defined Benefit Plans
|
|
Accumulated Other Comprehensive Loss
|
|
|
Balance - May 31, 2015
|
$
|
(22.3
|
)
|
|
$
|
(117.3
|
)
|
|
$
|
(139.6
|
)
|
Other comprehensive (loss) income before reclassifications
|
(4.1
|
)
|
|
—
|
|
|
(4.1
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
.7
|
|
|
.7
|
|
Balance - August 31, 2015
|
$
|
(26.4
|
)
|
|
$
|
(116.6
|
)
|
|
$
|
(143.0
|
)
|
|
Nine months ended August 31, 2016 and 2015
|
Foreign Currency Items
|
|
Defined Benefit Plans
|
|
Accumulated Other Comprehensive Loss
|
|
|
Balance - November 30, 2015
|
$
|
(30.2
|
)
|
|
$
|
(105.7
|
)
|
|
$
|
(135.9
|
)
|
Other comprehensive (loss) income before reclassifications
|
6.7
|
|
|
—
|
|
|
6.7
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
1.7
|
|
|
1.7
|
|
Balance - August 31 2016
|
$
|
(23.5
|
)
|
|
$
|
(104.0
|
)
|
|
$
|
(127.5
|
)
|
|
|
Foreign Currency Items
|
|
Defined Benefit Plans
|
|
Accumulated Other Comprehensive Loss
|
|
|
Balance - November 30, 2014
|
$
|
(10.3
|
)
|
|
$
|
(118.5
|
)
|
|
$
|
(128.8
|
)
|
Other comprehensive (loss) income before reclassifications
|
(16.1
|
)
|
|
—
|
|
|
(16.1
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
1.9
|
|
|
1.9
|
|
Balance - August 31, 2015
|
$
|
(26.4
|
)
|
|
$
|
(116.6
|
)
|
|
$
|
(143.0
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss) related to Defined Benefit Plans were included in net periodic benefit expense.
Note H – Inventories
Inventories are stated at the lower of cost or market value. Certain U.S. inventories are valued using the last-in, first-out (“LIFO”) method and represented approximately
$48.4 million
, or
48.6%
, and
$50.4
million, or
48.4%
, of inventories at
August 31, 2016
and
November 30, 2015
, respectively. The remaining portion of inventories (which are located outside of the U.S.) are valued using costing methods that approximate the first-in, first-out (“FIFO”) or average cost methods. Interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs and are subject to final year-end LIFO inventory valuations. Inventory costs include material, labor, and overhead. Inventories, net, consisted of the following:
Note H – Inventories (Continued)
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
August 31, 2016
|
|
November 30, 2015
|
Raw materials and supplies
|
$
|
32.2
|
|
|
$
|
34.7
|
|
Work-in-process
|
6.5
|
|
|
4.9
|
|
Finished products
|
60.8
|
|
|
60.7
|
|
Acquired cost of inventories
|
99.5
|
|
|
100.3
|
|
Excess of acquired cost over LIFO cost
|
(11.5
|
)
|
|
(11.1
|
)
|
Obsolescence reserves
|
(7.8
|
)
|
|
(7.3
|
)
|
Net Inventories
|
$
|
80.2
|
|
|
$
|
81.9
|
|
Note I – Debt and Credit Lines
Debt obligations due within the next twelve months consist of the following:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
August 31, 2016
|
|
November 30, 2015
|
Capital lease obligations
|
$
|
.5
|
|
|
$
|
.5
|
|
$350 million Term Loan B – current portion (interest at 5.25%)
|
3.5
|
|
|
—
|
|
$200 million Term Loan B - current portion (Interest at 4.25%)
|
—
|
|
|
2.0
|
|
Senior Unsecured Notes (interest at 7.875%)
|
150.0
|
|
|
—
|
|
Total
|
$
|
154.0
|
|
|
$
|
2.5
|
|
The Company has borrowing facilities at certain of its foreign subsidiaries, which consist of working capital credit lines and facilities for the issuance of letters of credit. As of
August 31, 2016
, total borrowing capacity for foreign working capital credit lines and letters of credit facilities was
$6.6 million
, of which
$6.5 million
was available for utilization.
At
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. These letters of credit support commitments made in the ordinary course of business.
The Company’s long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
August 31, 2016
|
|
November 30, 2015
|
$350 million Term Loan B (interest at 5.25% at August 2016)
|
350.0
|
|
|
—
|
|
$200 million Term Loan B (interest at 4.25% at August 2015)
|
—
|
|
|
190.0
|
|
Senior Unsecured Notes (interest at 7.875%)
|
150.0
|
|
|
150.0
|
|
Capital lease obligations
|
17.0
|
|
|
17.2
|
|
|
517.0
|
|
|
357.2
|
|
Less: current portion
|
(154.0
|
)
|
|
(2.5
|
)
|
Unamortized original issue discount
|
(3.5
|
)
|
|
(.5
|
)
|
Total Long-Term Debt, net of current portion
|
$
|
359.5
|
|
|
$
|
354.2
|
|
In August 2016, the Company refinanced its U.S. debt facilities, issuing a
$350 million
Term Loan B ("New Term Loan B") and amending and restating its Senior Revolving Credit Facility (“Facility”). A portion of the New Term Loan B was used to redeem the outstanding principal and interest on the
$200.0 million
Term Loan B. In addition,
$155.9 million
of the new Term Loan B proceeds are held in trust and are committed to be used to redeem the remaining balance outstanding and accrued but unpaid interest on the Company's 7.785% Senior Notes ("Senior Notes"), due November 1, 2018 on November 1, 2016. This amount is restricted to redemption of the Senior Notes, and as such, is reflected as Restricted Cash in the Consolidated Balance Sheet as of August 31, 2016.
Note I – Debt and Credit Lines (Continued)
The New Term Loan B was issued at a discount of
$3.5 million
which is reflected as Unamortized original issue discount. The Company also incurred new debt issuance costs of
$5.0 million
, which are capitalized as a component of debt issuance costs on the Statements of Operation. These amounts will be amortized over the respective term of the debt as a non-cash component of interest expense. In addition, the Company wrote-off
$1.7 million
of existing debt issuance costs and original issue discount related to the prior Term Loan B and Senior Revolving Credit Facility. The Company expects to write-off
$1.3 million
of debt issuance costs related to the Senior Notes in November 2016 when the Notes are redeemed.
Senior Unsecured Notes
The Senior Notes have a notional value of
$150 million
with a
7.875%
interest rate, which is payable semi-annually. The Senior Notes have a maturity date of
November 1, 2018
and are unsecured. 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 100% owned domestic subsidiaries that from time to time guarantee obligations under the Company’s Senior Notes. As noted above, these Senior Notes will be redeemed on November 1, 2016.
Term Loan
The Company's
$350 million
Term Loan matures on
August 26, 2023
. The New Term Loan B is primarily secured by all real property, plant, and equipment of the Company's U.S. facilities and fully and unconditionally and jointly and severally 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 ICE InterBank Offered Rate (“LIBOR”) subject to a floor of
1.00%
. The applicable margin for the eurodollar rate is
4.25%
. 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
1.00%
. The applicable margin for the base rate is
3.25%
. Annual principal payments consist of
$3.5 million
, due in
quarterly
installments beginning November 30, 2016, and potential annual excess free cash flow payments as defined in the Term Loan B agreement, with any remaining balance to be paid on
August 26, 2023
. The Company does not expect to make any annual excess free cash flow payments during
2016
. The Company can prepay any amount at anytime without penalty upon proper notice and subject to a minimum dollar requirement, except for prepayments arising from a repricing transaction occurring prior to February 26, 2017 which bear a premium of 1% of the loan amount being repaid. Prepayments will be applied towards any required annual excess free cash flow payment.
Additionally, the New Term Loan B provides for additional borrowings of the greater of
$85 million
or an amount based on a senior secured leverage ratio, as defined in the New Term Loan B, provided that certain requirements are met. The New Term Loan B contains affirmative and negative covenants, including limitations on additional debt, certain investments and acquisitions outside of the Company’s line of business. The New Term Loan B requires the Company to maintain a total net leverage ratio of less than
5.0
to 1.0. The Company is in compliance with this covenant with a total net leverage ratio of
3.4
to 1.0 at
August 31, 2016
.
Senior Revolving Credit Facility
The Company also has a Senior Secured Revolving Credit Facility (the "Facility") with a potential availability of
$90 million
, which can be further increased up to
$140 million
subject to additional borrowing base assets and lender approval. As noted above, the Facility was amended in August 2016, resulting in a new maturity date, a reduction of potential availability from
$100 million
to
$90 million
and a reduction of applicable margins. The Facility now matures on
August 26, 2021
. 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
sublimit for the issuance of commercial and standby letters of credit and a
$10 million
sublimit for swingline loans. Outstanding letters of credit on
August 31, 2016
were
$0.4 million
. The Facility contains affirmative and negative covenants, similar to the New Term Loan B, 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 1.0 as defined in the agreement. Average excess availability is defined as the average daily 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 the
third
quarter of
2016
.
Note I – Debt and Credit Lines (Continued)
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
$50 million
, the applicable margin will be
1.50%
on eurodollar loans and
0.50%
on base rate borrowings. If average excess availability is greater than or equal to
$25 million
but less 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 less than
$25 million
, the applicable margin will be
2.00%
on eurodollar loans and
1.00%
on base rate borrowings. The
commitment fee for unused credit lines will be
0.25%
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
August 31, 2016
, there were no amounts borrowed under the Facility, letters of credit outstanding under the Facility were
$0.4 million
and the amount available for borrowing under the Facility was
$64.4 million
.
The weighted-average interest rate on the Company’s debt was
5.80%
and
6.05%
during the
third
quarters of
2016
and
2015
, respectively.
Capital Lease Obligations
At
August 31, 2016
, the Company had assets under capital leases totaling
$17.0 million
, which are included in building and land.
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
August 31, 2016
.
|
|
|
|
|
Year Ending November 30:
|
(Dollars in millions)
|
2016
|
$
|
.3
|
|
2017
|
1.5
|
|
2018
|
1.5
|
|
2019
|
1.5
|
|
2020
|
1.4
|
|
Thereafter
|
19.5
|
|
Total minimum lease payments
|
25.7
|
|
Less: Amount representing estimated executory costs
|
(.6
|
)
|
Net minimum lease payments
|
25.1
|
|
Less: Amount representing interest
|
(8.1
|
)
|
Present value of minimum lease payments
|
$
|
17.0
|
|
Debt Issuance Costs
Debt issuance costs and original issue discounts incurred in connection with the issuance of the Company's debt are being amortized over the respective terms of the underlying debt, including any amendments. Total amortization expense of deferred financing costs and original issue discounts was
$0.5 million
for each of the
third
quarters of
2016
and
2015
, and
$1.4 million
and
$1.7 million
for the
first nine months
of
2016
and
2015
, respectively.
Note J – Share-Based Employee Compensation
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
Company common shares in the aggregate for (a) awards of options to purchase Company 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 or treasury shares or both. As of
August 31, 2016
, approximately
1.2 million
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 option granted under the Plan may not exceed
10 years
.
Note J – Share-Based Employee Compensation (Continued)
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 options, the fair value calculation is estimated using a Black-Scholes based option valuation model. For restricted share grants, the fair value is equal to the market price of the Company’s common 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, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company.
During the
first nine months
of
2016
, no share options were issued and of the remaining
2,000
share options,
1,000
were exercised and
1,000
expired.
During the
first nine months
of
2016
,
416,500
restricted shares were issued,
233,900
restricted shares vested and
19,500
shares were forfeited.
Compensation expense for all share-based payments included in general and administrative expense was
$1.8 million
and
$1.7 million
for the
first nine months
of
2016
and
2015
, respectively.
As of
August 31, 2016
, there was
$3.6 million
of unrecognized compensation cost related to non-vested share-based compensation arrangements.
Note K – Employee Benefit Plans
The Company maintains a number of defined benefit 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. The pension plans are funded except for a U.S. non-qualified pension plan for certain key employees and certain foreign plans. 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 dates on which such benefits were frozen have become fully vested with the affected employees eligible to receive benefits upon retirement, as described in the Plan document. The following table sets forth the components of net periodic benefit costs for the Company’s retirement programs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Pension
Plans
|
|
Health Care
Plans
|
Three months ended August 31, 2016 and 2015
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service costs
|
$
|
.5
|
|
|
$
|
.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest costs
|
2.4
|
|
|
3.3
|
|
|
.1
|
|
|
.1
|
|
Expected return on plan assets
|
(3.8
|
)
|
|
(3.9
|
)
|
|
—
|
|
|
—
|
|
Amortization of net actuarial loss (gain)
|
1.2
|
|
|
1.4
|
|
|
(.3
|
)
|
|
(.3
|
)
|
Net periodic cost (benefit)
|
$
|
.3
|
|
|
$
|
1.2
|
|
|
$
|
(.2
|
)
|
|
$
|
(.2
|
)
|
|
|
Pension
Plans
|
|
Health Care
Plans
|
Nine months ended August 31, 2016 and 2015
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service costs
|
$
|
1.5
|
|
|
$
|
1.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest costs
|
7.2
|
|
|
9.7
|
|
|
.3
|
|
|
.3
|
|
Expected return on plan assets
|
(11.4
|
)
|
|
(11.5
|
)
|
|
—
|
|
|
—
|
|
Amortization of net actuarial loss (gain)
|
3.5
|
|
|
4.1
|
|
|
(.9
|
)
|
|
(.9
|
)
|
Net periodic cost (benefit)
|
$
|
.8
|
|
|
$
|
3.5
|
|
|
$
|
(.6
|
)
|
|
$
|
(.6
|
)
|
During the fourth quarter of 2015, the Company adopted the spot rate method for determining its interest and service costs. The Company expects to contribute approximately
$6.5 million
to its pension plan trusts during fiscal
2016
. Contributions made during the
first nine months
of
2016
were
$6.2 million
.
The Company also sponsors a defined contribution 401(k) plan. Participation in this plan is voluntary and 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 percentage of employee pay based on the provisions of the applicable collective bargaining agreement. Company contributions are made in cash. Expense for this plan was
$0.7 million
and
$2.1 million
for the
third
quarter and the
first nine months
of
2016
and
$0.4 million
and
$1.7 million
for the
third
quarter and the
first nine months
of
2015
, respectively.
Note L – Contingencies
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.
Note M – Business Segment Information
The Company’s
two
operating segments were determined based on products and services provided. Accounting policies of the segments are the same as the Company’s accounting policies.
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, technology, and marketing strategies.
Segment operating profit represents net sales less applicable costs, expenses and provisions for restructuring and severance costs, asset write-offs, and other items.
Segment operating profit excludes unallocated corporate headquarters expenses, provisions for corporate headquarters, corporate 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 Board of Directors costs. The Company had one customer whose revenue individually represented 10% or more of the Company’s total revenue for the three month period ended
August 31, 2016
. Additional information regarding the Company's segments is included in the Company's consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended
November 30, 2016
.
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 (loss) from continuing operations before income taxes.
Note M – Business Segment Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 31,
|
|
Nine Months Ended August 31,
|
(Dollars in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net Sales
|
|
|
|
|
|
|
|
Performance Chemicals
|
|
|
|
|
|
|
|
Performance Materials
|
$
|
71.5
|
|
|
$
|
83.0
|
|
|
$
|
215.5
|
|
|
$
|
252.9
|
|
Specialty Chemicals
|
72.0
|
|
|
70.6
|
|
|
200.0
|
|
|
214.1
|
|
Total Performance Chemicals
|
$
|
143.5
|
|
|
$
|
153.6
|
|
|
$
|
415.5
|
|
|
$
|
467.0
|
|
Engineered Surfaces
|
|
|
|
|
|
|
|
Coated Fabrics
|
$
|
17.1
|
|
|
$
|
21.7
|
|
|
$
|
54.5
|
|
|
$
|
65.9
|
|
Laminates and Performance Films
|
35.0
|
|
|
35.6
|
|
|
102.9
|
|
|
105.1
|
|
Total Engineered Surfaces
|
52.1
|
|
|
57.3
|
|
|
157.4
|
|
|
171.0
|
|
Inter-segment sales
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Net Sales
|
$
|
195.6
|
|
|
$
|
210.9
|
|
|
$
|
572.9
|
|
|
$
|
638.0
|
|
Segment Operating Profit
|
|
|
|
|
|
|
|
Performance Chemicals
|
$
|
17.3
|
|
|
$
|
7.5
|
|
|
$
|
42.4
|
|
|
$
|
27.4
|
|
Engineered Surfaces
|
3.9
|
|
|
5.2
|
|
|
13.8
|
|
|
14.2
|
|
Total Segment Operating Profit
|
21.2
|
|
|
12.7
|
|
|
56.2
|
|
|
41.6
|
|
Interest expense
|
(5.9
|
)
|
|
(6.8
|
)
|
|
(17.4
|
)
|
|
(20.5
|
)
|
Corporate expense
|
(6.6
|
)
|
|
(6.0
|
)
|
|
(20.9
|
)
|
|
(18.7
|
)
|
Shareholder activist costs
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.9
|
)
|
Operational improvement costs
|
—
|
|
|
—
|
|
|
.4
|
|
|
(.4
|
)
|
Asset impairment
|
—
|
|
|
—
|
|
|
—
|
|
|
(.6
|
)
|
Acquisition and integration costs
|
(.4
|
)
|
|
—
|
|
|
(.4
|
)
|
|
(.4
|
)
|
Debt issuance costs write-off
|
(1.7
|
)
|
|
—
|
|
|
(1.7
|
)
|
|
—
|
|
Income (Loss) From Continuing Operations Before Income Taxes
|
$
|
6.6
|
|
|
$
|
(.1
|
)
|
|
$
|
16.2
|
|
|
$
|
(.9
|
)
|
Note N – Separate Financial Information of Subsidiary Guarantors of Indebtedness
The
$150 million
Senior Notes and the new
$350 million
Term Loan are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by all of OMNOVA Solutions Inc.’s existing and future
100%
owned domestic subsidiaries that from time to time guarantee obligations under the Company’s Senior Notes, with certain exceptions (the “Guarantors”). Presented below are the condensed financial statements of OMNOVA Solutions 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 purposes of this disclosure only.
Note N – Separate Financial Information of Subsidiary Guarantors of Indebtedness (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Operations for the Three Months Ended August 31, 2016
|
(Dollars in millions)
|
OMNOVA
Solutions
(Parent)
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
Net Sales
|
$
|
134.4
|
|
|
$
|
—
|
|
|
$
|
72.4
|
|
|
$
|
(11.2
|
)
|
|
$
|
195.6
|
|
Cost of products sold
|
99.4
|
|
|
—
|
|
|
55.1
|
|
|
(11.0
|
)
|
|
143.5
|
|
Gross profit
|
35.0
|
|
|
—
|
|
|
17.3
|
|
|
(.2
|
)
|
|
52.1
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
21.3
|
|
|
—
|
|
|
8.0
|
|
|
—
|
|
|
29.3
|
|
Depreciation and amortization
|
3.8
|
|
|
—
|
|
|
3.0
|
|
|
—
|
|
|
6.8
|
|
Restructuring and severance
|
.3
|
|
|
—
|
|
|
.1
|
|
|
—
|
|
|
.4
|
|
Interest expense (income)
|
5.8
|
|
|
(.4
|
)
|
|
.5
|
|
|
—
|
|
|
5.9
|
|
Acquisition costs
|
.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.4
|
|
Deferred Financing Fees write-off
|
1.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
(Income) loss from subsidiaries
|
(1.0
|
)
|
|
(1.6
|
)
|
|
—
|
|
|
2.6
|
|
|
—
|
|
Other (income) expense, net
|
(2.3
|
)
|
|
—
|
|
|
3.4
|
|
|
(.1
|
)
|
|
1.0
|
|
Total costs and other expenses
|
30.0
|
|
|
(2.0
|
)
|
|
15.0
|
|
|
2.5
|
|
|
45.5
|
|
Income (loss) from continuing operations before income taxes
|
5.0
|
|
|
2.0
|
|
|
2.3
|
|
|
(2.7
|
)
|
|
6.6
|
|
Income tax expense
|
.3
|
|
|
.5
|
|
|
.6
|
|
|
.5
|
|
|
1.9
|
|
Net income (loss)
|
$
|
4.7
|
|
|
$
|
1.5
|
|
|
$
|
1.7
|
|
|
$
|
(3.2
|
)
|
|
$
|
4.7
|
|
|
Condensed Consolidating Statements of Operations for the Nine Months Ended August 31, 2016
|
(Dollars in millions)
|
OMNOVA Solutions (Parent)
|
|
Guarantor Subsidiaries
|
|
Non - Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
Net Sales
|
$
|
384.7
|
|
|
$
|
—
|
|
|
$
|
218.0
|
|
|
$
|
(29.8
|
)
|
|
$
|
572.9
|
|
Cost of products sold
|
283.9
|
|
|
—
|
|
|
163.5
|
|
|
(29.3
|
)
|
|
418.1
|
|
Gross profit
|
100.8
|
|
|
—
|
|
|
54.5
|
|
|
(.5
|
)
|
|
154.8
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
66.2
|
|
|
—
|
|
|
24.8
|
|
|
—
|
|
|
91.0
|
|
Depreciation and amortization
|
14.7
|
|
|
—
|
|
|
8.8
|
|
|
—
|
|
|
23.5
|
|
Asset impairment
|
—
|
|
|
—
|
|
|
.4
|
|
|
—
|
|
|
.4
|
|
Loss on asset sales
|
.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.1
|
|
Restructuring and severance
|
1.6
|
|
|
—
|
|
|
1.5
|
|
|
—
|
|
|
3.1
|
|
Interest expense (income)
|
17.1
|
|
|
(1.2
|
)
|
|
1.4
|
|
|
.1
|
|
|
17.4
|
|
Acquisition costs
|
.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.4
|
|
Deferred Financing fees write off
|
1.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.7
|
|
(Income) loss from subsidiaries
|
(11.3
|
)
|
|
(8.5
|
)
|
|
—
|
|
|
19.8
|
|
|
—
|
|
Other (income) expense, net
|
(4.1
|
)
|
|
(.4
|
)
|
|
5.7
|
|
|
(.2
|
)
|
|
1.0
|
|
Total costs and other expenses
|
86.4
|
|
|
(10.1
|
)
|
|
42.6
|
|
|
19.7
|
|
|
138.6
|
|
Income (loss) from continuing operations before income taxes
|
14.5
|
|
|
10.1
|
|
|
11.9
|
|
|
(20.3
|
)
|
|
16.2
|
|
Income tax expense (benefit)
|
3.7
|
|
|
2.6
|
|
|
3.4
|
|
|
(4.3
|
)
|
|
5.4
|
|
Net income (loss)
|
$
|
10.8
|
|
|
$
|
7.5
|
|
|
$
|
8.5
|
|
|
$
|
(16.0
|
)
|
|
$
|
10.8
|
|
Note N – Separate Financial Information of Subsidiary Guarantors of Indebtedness (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Operations for the Three Months Ended August 31, 2015
|
(Dollars in millions)
|
OMNOVA Solutions (Parent)
|
|
Guarantor Subsidiaries
|
|
Non - Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
Net Sales
|
$
|
138.0
|
|
|
$
|
—
|
|
|
$
|
79.0
|
|
|
$
|
(6.1
|
)
|
|
$
|
210.9
|
|
Cost of products sold
|
103.6
|
|
|
—
|
|
|
62.2
|
|
|
(6.4
|
)
|
|
159.4
|
|
Gross profit
|
34.4
|
|
|
—
|
|
|
16.8
|
|
|
.3
|
|
|
51.5
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
21.0
|
|
|
—
|
|
|
8.9
|
|
|
—
|
|
|
29.9
|
|
Depreciation and amortization
|
6.6
|
|
|
—
|
|
|
3.2
|
|
|
—
|
|
|
9.8
|
|
Asset impairment
|
—
|
|
|
—
|
|
|
.5
|
|
|
—
|
|
|
.5
|
|
Restructuring and severance
|
2.5
|
|
|
—
|
|
|
.9
|
|
|
—
|
|
|
3.4
|
|
Interest expense (income)
|
6.7
|
|
|
(.4
|
)
|
|
.5
|
|
|
—
|
|
|
6.8
|
|
(Income) loss from subsidiaries
|
(3.7
|
)
|
|
(2.1
|
)
|
|
—
|
|
|
5.8
|
|
|
—
|
|
Other expense (income), net
|
.7
|
|
|
(.2
|
)
|
|
.6
|
|
|
.1
|
|
|
1.2
|
|
Total costs and other expenses
|
33.8
|
|
|
(2.7
|
)
|
|
14.6
|
|
|
5.9
|
|
|
51.6
|
|
Income (loss) from continuing operations before income taxes
|
.6
|
|
|
2.7
|
|
|
2.2
|
|
|
(5.6
|
)
|
|
(.1
|
)
|
Income tax expense (benefit)
|
.2
|
|
|
(.7
|
)
|
|
—
|
|
|
—
|
|
|
(.5
|
)
|
Net Income (loss)
|
$
|
.4
|
|
|
$
|
3.4
|
|
|
$
|
2.2
|
|
|
$
|
(5.6
|
)
|
|
$
|
.4
|
|
|
Condensed Consolidating Statements of Operations for the Nine Months Ended August 31, 2015
|
(Dollars in millions)
|
OMNOVA Solutions (Parent)
|
|
Guarantor Subsidiaries
|
|
Non - Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
Net Sales
|
$
|
415.0
|
|
|
$
|
—
|
|
|
$
|
245.3
|
|
|
$
|
(22.3
|
)
|
|
$
|
638.0
|
|
Cost of products sold
|
322.7
|
|
|
—
|
|
|
192.1
|
|
|
(22.9
|
)
|
|
491.9
|
|
Gross profit
|
92.3
|
|
|
—
|
|
|
53.2
|
|
|
.6
|
|
|
146.1
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
64.6
|
|
|
—
|
|
|
27.1
|
|
|
—
|
|
|
91.7
|
|
Depreciation and amortization
|
14.1
|
|
|
—
|
|
|
9.8
|
|
|
—
|
|
|
23.9
|
|
Asset impairment
|
.6
|
|
|
—
|
|
|
.5
|
|
|
—
|
|
|
1.1
|
|
Restructuring and severance
|
2.6
|
|
|
—
|
|
|
1.9
|
|
|
—
|
|
|
4.5
|
|
Interest expense (income)
|
19.8
|
|
|
(1.1
|
)
|
|
1.8
|
|
|
—
|
|
|
20.5
|
|
Acquisition and integration related expense
|
.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.4
|
|
(Income) loss from subsidiaries
|
(12.1
|
)
|
|
(7.9
|
)
|
|
—
|
|
|
20.0
|
|
|
—
|
|
Other expense, net
|
3.1
|
|
|
.1
|
|
|
1.7
|
|
|
—
|
|
|
4.9
|
|
Total costs and other expenses
|
93.1
|
|
|
(8.9
|
)
|
|
42.8
|
|
|
20.0
|
|
|
147.0
|
|
(Loss) income from continuing operations before income taxes
|
(.8
|
)
|
|
8.9
|
|
|
10.4
|
|
|
(19.4
|
)
|
|
(.9
|
)
|
Income tax (benefit) expense
|
(1.0
|
)
|
|
(2.6
|
)
|
|
2.5
|
|
|
—
|
|
|
(1.1
|
)
|
Income (loss) from continuing operations
|
.2
|
|
|
11.5
|
|
|
7.9
|
|
|
(19.4
|
)
|
|
.2
|
|
Income from discontinued operations
|
.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.9
|
|
Net Income (loss)
|
$
|
1.1
|
|
|
$
|
11.5
|
|
|
$
|
7.9
|
|
|
$
|
(19.4
|
)
|
|
$
|
1.1
|
|
Note N – Separate Financial Information of Subsidiary Guarantors of Indebtedness (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Comprehensive Income (Loss) for the Three Months Ended August 31, 2016
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
OMNOVA Solutions (Parent)
|
|
Guarantor Subsidiaries
|
|
Non - Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
4.7
|
|
|
$
|
1.5
|
|
|
$
|
1.7
|
|
|
$
|
(3.2
|
)
|
|
$
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss), net of tax
|
(.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(.5
|
)
|
Comprehensive income (loss)
|
$
|
4.2
|
|
|
$
|
1.5
|
|
|
$
|
1.7
|
|
|
$
|
(3.2
|
)
|
|
$
|
4.2
|
|
|
Condensed Consolidating Statements of Comprehensive Income (Loss) for the Nine Months Ended August 31, 2016
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
OMNOVA Solutions (Parent)
|
|
Guarantor Subsidiaries
|
|
Non - Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
$
|
10.8
|
|
|
$
|
7.5
|
|
|
$
|
8.5
|
|
|
$
|
(16.0
|
)
|
|
$
|
10.8
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
8.4
|
|
|
.4
|
|
|
6.5
|
|
|
(6.9
|
)
|
|
8.4
|
|
Comprehensive income (loss)
|
$
|
19.2
|
|
|
$
|
7.9
|
|
|
$
|
15.0
|
|
|
$
|
(22.9
|
)
|
|
$
|
19.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Comprehensive Income (Loss) for the Three Months Ended August 31, 2015
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
OMNOVA Solutions (Parent)
|
|
Guarantor Subsidiaries
|
|
Non - Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
.4
|
|
|
$
|
3.4
|
|
|
$
|
2.2
|
|
|
$
|
(5.6
|
)
|
|
$
|
.4
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax
|
(3.4
|
)
|
|
(225.6
|
)
|
|
(228.1
|
)
|
|
453.7
|
|
|
(3.4
|
)
|
Comprehensive (loss) income
|
$
|
(3.0
|
)
|
|
$
|
(222.2
|
)
|
|
$
|
(225.9
|
)
|
|
$
|
448.1
|
|
|
$
|
(3.0
|
)
|
|
Condensed Consolidating Statements of Comprehensive Income (Loss) for the Nine Months Ended August 31, 2015
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
OMNOVA Solutions (Parent)
|
|
Guarantor Subsidiaries
|
|
Non - Guarantor Subsidiaries
|
|
Eliminations
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
$
|
1.1
|
|
|
$
|
11.5
|
|
|
$
|
7.9
|
|
|
$
|
(19.4
|
)
|
|
$
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax
|
(14.2
|
)
|
|
(265.2
|
)
|
|
(272.3
|
)
|
|
537.5
|
|
|
(14.2
|
)
|
Comprehensive (loss) income
|
$
|
(13.1
|
)
|
|
$
|
(253.7
|
)
|
|
$
|
(264.4
|
)
|
|
$
|
518.1
|
|
|
$
|
(13.1
|
)
|
Note N – Separate Financial Information of Subsidiary Guarantors of Indebtedness (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Financial Position August 31, 2016
|
(Dollars in millions)
|
OMNOVA
Solutions
(Parent)
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
16.3
|
|
|
$
|
—
|
|
|
$
|
54.0
|
|
|
$
|
—
|
|
|
$
|
70.3
|
|
Restricted cash
|
155.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
155.9
|
|
Accounts receivable, net
|
54.5
|
|
|
—
|
|
|
50.7
|
|
|
—
|
|
|
105.2
|
|
Inventories
|
54.2
|
|
|
—
|
|
|
27.5
|
|
|
(1.5
|
)
|
|
80.2
|
|
Prepaid expenses and other
|
4.1
|
|
|
10.7
|
|
|
4.5
|
|
|
.3
|
|
|
19.6
|
|
Deferred income taxes
|
—
|
|
|
—
|
|
|
3.2
|
|
|
(3.2
|
)
|
|
—
|
|
Total Current Assets
|
285.0
|
|
|
10.7
|
|
|
139.9
|
|
|
(4.4
|
)
|
|
431.2
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
123.3
|
|
|
—
|
|
|
89.4
|
|
|
—
|
|
|
212.7
|
|
Goodwill, trademarks and other intangible assets, net
|
76.5
|
|
|
—
|
|
|
64.2
|
|
|
—
|
|
|
140.7
|
|
Deferred income taxes
|
65.0
|
|
|
.7
|
|
|
8.5
|
|
|
(7.4
|
)
|
|
66.8
|
|
Intercompany
|
316.7
|
|
|
59.7
|
|
|
10.3
|
|
|
(386.7
|
)
|
|
—
|
|
Investments in subsidiaries
|
81.1
|
|
|
121.2
|
|
|
—
|
|
|
(202.3
|
)
|
|
—
|
|
Deferred financing fees
|
7.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7.2
|
|
Other assets
|
3.3
|
|
|
—
|
|
|
.4
|
|
|
—
|
|
|
3.7
|
|
Total Assets
|
$
|
958.1
|
|
|
$
|
192.3
|
|
|
$
|
312.7
|
|
|
$
|
(600.8
|
)
|
|
$
|
862.3
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Amounts due to banks
|
$
|
4.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4.0
|
|
Senior notes
|
150.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
150.0
|
|
Accounts payable
|
46.1
|
|
|
.1
|
|
|
29.3
|
|
|
—
|
|
|
75.5
|
|
Accrued payroll and personal property taxes
|
14.9
|
|
|
—
|
|
|
10.7
|
|
|
(.2
|
)
|
|
25.4
|
|
Employee benefit obligations
|
3.2
|
|
|
—
|
|
|
.5
|
|
|
—
|
|
|
3.7
|
|
Accrued interest
|
4.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.3
|
|
Deferred income taxes
|
—
|
|
|
—
|
|
|
.2
|
|
|
(.2
|
)
|
|
—
|
|
Other current liabilities
|
5.9
|
|
|
—
|
|
|
—
|
|
|
(3.2
|
)
|
|
2.7
|
|
Total Current Liabilities
|
228.4
|
|
|
.1
|
|
|
40.7
|
|
|
(3.6
|
)
|
|
265.6
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
359.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
359.5
|
|
Postretirement benefits other than pensions
|
6.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.7
|
|
Pension liabilities
|
65.0
|
|
|
—
|
|
|
10.4
|
|
|
—
|
|
|
75.4
|
|
Deferred income taxes
|
—
|
|
|
—
|
|
|
21.9
|
|
|
(8.6
|
)
|
|
13.3
|
|
Intercompany
|
160.3
|
|
|
111.6
|
|
|
114.9
|
|
|
(386.8
|
)
|
|
—
|
|
Other liabilities
|
7.8
|
|
|
—
|
|
|
3.6
|
|
|
—
|
|
|
11.4
|
|
Total Liabilities
|
827.7
|
|
|
111.7
|
|
|
191.5
|
|
|
(399.0
|
)
|
|
731.9
|
|
Total Shareholder's Equity
|
130.4
|
|
|
80.6
|
|
|
121.2
|
|
|
(201.8
|
)
|
|
130.4
|
|
Total Liabilities and Shareholders’ Equity
|
$
|
958.1
|
|
|
$
|
192.3
|
|
|
$
|
312.7
|
|
|
$
|
(600.8
|
)
|
|
$
|
862.3
|
|
Note N – 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
|
$
|
5.2
|
|
|
$
|
—
|
|
|
$
|
39.7
|
|
|
$
|
—
|
|
|
$
|
44.9
|
|
Accounts receivable, net
|
52.7
|
|
|
—
|
|
|
52.6
|
|
|
—
|
|
|
105.3
|
|
Inventories
|
52.5
|
|
|
—
|
|
|
30.4
|
|
|
(1.0
|
)
|
|
81.9
|
|
Deferred income taxes
|
—
|
|
|
—
|
|
|
4.1
|
|
|
(4.1
|
)
|
|
—
|
|
Prepaid expenses and other
|
2.9
|
|
|
6.9
|
|
|
8.7
|
|
|
.3
|
|
|
18.8
|
|
Total Current Assets
|
113.3
|
|
|
6.9
|
|
|
135.5
|
|
|
(4.8
|
)
|
|
250.9
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
125.2
|
|
|
—
|
|
|
89.7
|
|
|
—
|
|
|
214.9
|
|
Goodwill, trademarks and other intangible assets, net
|
77.2
|
|
|
—
|
|
|
64.5
|
|
|
—
|
|
|
141.7
|
|
Deferred income taxes
|
65.8
|
|
|
.9
|
|
|
11.9
|
|
|
(10.8
|
)
|
|
67.8
|
|
Intercompany
|
311.4
|
|
|
59.3
|
|
|
7.4
|
|
|
(378.1
|
)
|
|
—
|
|
Investments in subsidiaries
|
68.5
|
|
|
106.6
|
|
|
—
|
|
|
(175.1
|
)
|
|
—
|
|
Deferred financing fees
|
4.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.7
|
|
Other assets
|
3.2
|
|
|
3.7
|
|
|
.3
|
|
|
—
|
|
|
7.2
|
|
Total Assets
|
$
|
769.3
|
|
|
$
|
177.4
|
|
|
$
|
309.3
|
|
|
$
|
(568.8
|
)
|
|
$
|
687.2
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Amounts due to banks
|
$
|
2.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.5
|
|
Accounts payable
|
38.0
|
|
|
—
|
|
|
34.0
|
|
|
—
|
|
|
72.0
|
|
Accrued payroll and personal property taxes
|
13.6
|
|
|
.1
|
|
|
11.3
|
|
|
—
|
|
|
25.0
|
|
Employee benefit obligations
|
2.7
|
|
|
—
|
|
|
.5
|
|
|
—
|
|
|
3.2
|
|
Accrued interest
|
1.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.1
|
|
Deferred income taxes
|
—
|
|
|
—
|
|
|
.1
|
|
|
(.1
|
)
|
|
—
|
|
Other current liabilities
|
6.4
|
|
|
—
|
|
|
5.5
|
|
|
(3.2
|
)
|
|
8.7
|
|
Total Current Liabilities
|
64.3
|
|
|
.1
|
|
|
51.4
|
|
|
(3.3
|
)
|
|
112.5
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
354.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
354.2
|
|
Postretirement benefits other than pensions
|
6.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.9
|
|
Pension liabilities
|
74.9
|
|
|
—
|
|
|
10.0
|
|
|
—
|
|
|
84.9
|
|
Deferred income taxes
|
—
|
|
|
—
|
|
|
24.3
|
|
|
(14.8
|
)
|
|
9.5
|
|
Intercompany
|
153.2
|
|
|
111.0
|
|
|
113.6
|
|
|
(377.8
|
)
|
|
—
|
|
Other liabilities
|
6.7
|
|
|
—
|
|
|
3.4
|
|
|
—
|
|
|
10.1
|
|
Total Liabilities
|
660.2
|
|
|
111.1
|
|
|
202.7
|
|
|
(395.9
|
)
|
|
578.1
|
|
Total Shareholder's Equity
|
109.1
|
|
|
66.3
|
|
|
106.6
|
|
|
(172.9
|
)
|
|
109.1
|
|
Total Liabilities and Shareholders’ Equity
|
$
|
769.3
|
|
|
$
|
177.4
|
|
|
$
|
309.3
|
|
|
$
|
(568.8
|
)
|
|
$
|
687.2
|
|
Note N – Separate Financial Information of Subsidiary Guarantors of Indebtedness (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Cash Flows for the Nine Months Ended August 31, 2016
|
(Dollars in millions)
|
OMNOVA
Solutions
(Parent)
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By (Used In) Operating Activities
|
$
|
28.4
|
|
|
$
|
(1.5
|
)
|
|
$
|
16.8
|
|
|
$
|
(2.7
|
)
|
|
$
|
41.0
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(11.7
|
)
|
|
—
|
|
|
(4.8
|
)
|
|
—
|
|
|
(16.5
|
)
|
Proceeds from insurance settlements
|
.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
.1
|
|
Proceeds from sale of businesses
|
—
|
|
|
—
|
|
|
5.3
|
|
|
—
|
|
|
5.3
|
|
Investments in subsidiary and other
|
—
|
|
|
(2.3
|
)
|
|
—
|
|
|
2.3
|
|
|
—
|
|
Net Cash (Used In) Provided By Investing Activities
|
(11.6
|
)
|
|
(2.3
|
)
|
|
.5
|
|
|
2.3
|
|
|
(11.1
|
)
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
346.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
346.5
|
|
Repayment of debt obligations
|
(190.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(190.0
|
)
|
Payments for debt refinancing
|
(4.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.2
|
)
|
Restricted cash
|
(155.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(155.9
|
)
|
Other
|
(.5
|
)
|
|
—
|
|
|
2.3
|
|
|
(2.3
|
)
|
|
(.5
|
)
|
Net Cash (Used In) Provided By Financing Activities
|
(4.1
|
)
|
|
—
|
|
|
2.3
|
|
|
(2.3
|
)
|
|
(4.1
|
)
|
Effect of exchange rate changes on cash
|
(1.6
|
)
|
|
3.8
|
|
|
(5.3
|
)
|
|
2.7
|
|
|
(.4
|
)
|
Net Increase in Cash and Cash Equivalents
|
11.1
|
|
|
—
|
|
|
14.3
|
|
|
—
|
|
|
25.4
|
|
Cash and cash equivalents at beginning of period
|
5.2
|
|
|
—
|
|
|
39.7
|
|
|
—
|
|
|
44.9
|
|
Cash and Cash Equivalents at End of Period
|
$
|
16.3
|
|
|
$
|
—
|
|
|
$
|
54.0
|
|
|
$
|
—
|
|
|
$
|
70.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Cash Flows for the Nine Months Ended August 31, 2015
|
(Dollars in millions)
|
OMNOVA
Solutions
(Parent)
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Operating Activities
|
$
|
6.7
|
|
|
$
|
.9
|
|
|
$
|
4.8
|
|
|
$
|
25.4
|
|
|
$
|
37.8
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(10.3
|
)
|
|
—
|
|
|
(5.0
|
)
|
|
—
|
|
|
(15.3
|
)
|
Acquisition of business, less cash acquired
|
(5.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5.0
|
)
|
Net Cash (Used In) Investing Activities
|
(15.3
|
)
|
|
—
|
|
|
(5.0
|
)
|
|
—
|
|
|
(20.3
|
)
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Repayment of debt obligations
|
(1.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.9
|
)
|
Short-term debt (payments), net
|
—
|
|
|
—
|
|
|
(2.1
|
)
|
|
—
|
|
|
(2.1
|
)
|
Other
|
(12.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12.2
|
)
|
Net Cash (Used In) Financing Activities
|
(14.1
|
)
|
|
—
|
|
|
(2.1
|
)
|
|
—
|
|
|
(16.2
|
)
|
Effect of exchange rate changes on cash
|
10.4
|
|
|
(.9
|
)
|
|
16.7
|
|
|
(25.4
|
)
|
|
.8
|
|
Net (Decrease) Increase in Cash and Cash Equivalents
|
(12.3
|
)
|
|
—
|
|
|
14.4
|
|
|
—
|
|
|
2.1
|
|
Cash and cash equivalents at beginning of period
|
43.9
|
|
|
—
|
|
|
55.6
|
|
|
—
|
|
|
99.5
|
|
Cash and Cash Equivalents at End of Period
|
$
|
31.6
|
|
|
$
|
—
|
|
|
$
|
70.0
|
|
|
$
|
—
|
|
|
$
|
101.6
|
|
Note O - Asset Sale
On February 5, 2016, the Company completed the sale of its Performance Chemicals' India operations (through the sale of 100% of the outstanding equity of the Company's OMNOVA Solutions India Private Limited Subsidiary) to Apotex Inc., a private industrial products manufacturer headquartered in India. The sale included all assets and liabilities, contracts and other assets associated with the Company’s production of rubber related products. Under terms of the sale, the Company received
$5.3 million
in cash. The sale price was equal to the net book value of these assets and liabilities and therefore, there was no gain or loss recognized on this transaction. The Company will continue to sell certain of its products within India in the ordinary course of business.