OMNOVA Solutions Inc.

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OMNOVA Solutions Inc.

175 Ghent Road
Fairlawn, Ohio 44333-3300
U.S.A.
Telephone: (330) 869-4200
Fax: (330) 869-4288
Web site: http://www.omnova.com

Public Company
Incorporated: 1999
Employees: 2,400
Sales: $681.2 million (2002)
Stock Exchanges: New York
Ticker Symbol: OMN
NAIC: 325998 All Other Miscellaneous Chemical Product and Preparation Manufacturing

OMNOVA Solutions Inc. is a Fairlawn, Ohio, company comprised of two business segments: Decorative & Building Products and Performance Chemicals. The Decorative & Building Products segment includes four product categories. Commercial wallcoverings, accounting for nearly a third of the division's annual revenues, offers both decorative and protective wall surfacing products for such customers as hospitals, hotels, public and private offices, restaurants, schools, and stores. Coated fabrics products decorate and protect furniture at home and in the workplace as well as transportation seating. OMNOVA's decorative paper and vinyl laminates are used in a wide variety of applications, such as residential and office furniture, kitchen and bath cabinets, recreational vehicles, and floor and ceiling tile. The final product category of the Decorative & Building Products segment is commercial roofing, sold under the GenFlex brand and used in such structures as factories, government buildings, office complexes, restaurants, shopping malls, and stadiums. The Performance Chemicals business segment offers three product categories. Specialty chemicals are used in the manufacture of nonwoven products, such as diapers, engine filters, flooring and roofing mat, as well as plastic parts, tapes, tires, and textiles. OMNOVA's paper chemicals are used in the manufacture of a wide variety of papers used to produce magazines and catalogs, as well as food cartons and packaging materials. Finally, the segment's carpet chemicals product category provides SB latex carpet backing adhesive used in the manufacture of both residential and commercial carpeting. OMNOVA is a public company trading on the New York Stock Exchange.

Lineage Dating Back to 1915

In 1999 OMNOVA was created as a spinoff from GenCorp, which grew out of the General Tire & Rubber Company, founded by William O'Neil, a former Firestone Company dealer who in 1911 quit to strike out on his own. His first business, Western Tire and Rubber, made tire repair materials in Kansas City. He relocated four years later to Akron, Ohio, which was quickly becoming the "Rubber Capital of the World," home to Goodyear, Goodrich, and Firestone, as well as General Tire. Akron was also where O'Neil's father, Michael O'Neil, owned a department store. Father and son launched General Tire to make repair materials but a year later, in 1916, it began to manufacture tires. General expanded over the next dozen years and although it controlled less than 2 percent of the tire market, concentrating on the higher-price range, by the start of the 1930s it was established enough to survive the Great Depression and complete a pair of acquisitions: Yale Tire and Rubber and India Tire and Rubber. It also began to diversify, turning at first to the ownership of radio stations.

General shifted to defense products during World War II, picking up Aerojet, a missile manufacturer which would become a major part of GenCorp. Because of natural rubber shortages caused by the war, General was also forced to become heavily involved in the production of synthetic rubber, which provided a natural bridge to the chemical industry. Before General's major push into performance chemicals, it made an acquisition that would form the basis of OMNOVA's Decorative & Building Products business segment. In 1945 it inherited a coated fabrics plant, located in Jeannette, Pennsylvania, after acquiring the Pennsylvania Rubber Company. In the postwar years General continued to diversify, creating an industrial products division to produce plastic and metal parts for electric appliances and aircraft. On the media side, General bought television stations in New York, Los Angeles, and Memphis, then acquired RKO Pictures from Howard Hughes to provide programming. The company also ramped up its production of synthetic rubber, which again became a necessity in the tire industry due to a shortage of natural rubber caused by the Korean War. In 1952 General laid the foundation for OMNOVA's Performance Chemicals business when its Mogadore, Ohio, factory began to manufacture styrene butadiene latex (SB latex), an emulsion polymer used to make paper, and SB vinyl pyridine latex, an adhesive used in the production of tire cords. When William O'Neil died in 1960, his sons took over General. During the 1960s the company bolstered its coated fabrics business by opening a plant in Columbus, Mississippi, adding a number of products. In the early 1970s the plant began to produce commercial wallcoverings. Also during the 1960s General's chemical segment added new products for the paper and carpet industries. Another aspect of what would become OMNOVA, the GenFlex roofing systems, began in 1980 with the introduction of a single-ply vinyl product line, which would eventually be followed by thermoplastic polyolefin and synthetic rubber membrane systems.

Formation of GenCorp: 1984

General underwent a number of changes in the 1980s, as its tire business began to erode at a rapid pace. The company was restructured in 1984 and GenCorp was created as a conglomerate to serve as a holding company for General's divisions now turned subsidiaries, which included Aerojet, RKO, and the tires, industrial products, and chemicals product lines. Later in the decade GenCorp began to shed assets, selling off its stake in Frontier Airlines, acquired by RKO in 1965, as well as RKO's television stations in Los Angeles and the New York market, RKO's radio station, and bottling interests owned by the subsidiary. Opting to focus on defense contracting and Aerojet, GenCorp also exited its original business, selling off its remaining tire operation to Continental AG of Germany in 1987.

In the 1990s GenCorp continued to grow the subsidiaries that would comprise OMNOVA's two business segments. In 1991 it acquired the wallcovering business of Canadian General Towers. The 1993 acquisition of Reneer Films Corporation from Goodyear broadened the company's vinyl and decorative laminate capabilities, resulting in GenCorp becoming North America's top maker of vinyl woodgrain laminates. Paper laminates were added in 1997 through the purchase of the Printworld business of Technographics, Inc., thereby giving GenCorp the ability to accomplish transfer printing for apparel and home furnishings. A year later the company bought the commercial wallcovering business of Walker Greenbank, based in the United Kingdom.

GenCorp's chemical product lines, in the meantime, were enhanced by the 1996 purchase of Morton International's Lytron plastic pigment product line used in the paper industry to enhance gloss brightness, opacity, and printability in paper and paperboard coatings. In 1988 GenCorp bought Goodyear's latex manufacturing plant located in Calhoun, Georgia. Also in 1998 it paid $108 million for Sequa Chemicals, the specialty chemicals units of Sequa Corporation. GenCorp completed two more acquisitions in 1999. The first added the U.S. acrylic emulsion polymer business of Germany-based PolymerLatex, a move that both strengthened the company's position in acrylic emulsions and also provided some market diversification. In addition, GenCorp bought the global latex floor care business of Morton International in 1999, a transaction that offered a number of benefits. Morton added a complementary product line with a new customer base and also provided a toehold in Europe and the Far East markets. Also of importance in 1999 was the establishment of a strategic alliance with PolymerLatex that benefited GenCorp's global paper customers.

Birth of OMNOVA: 1999

While many aspects of GenCorp enjoyed leading market positions and strong potential, it was difficult within the conglomerate structure for these interests to receive the kind of attention necessary in order to fully prosper. Moreover, investors had a difficult time assessing GenCorp and its diverse makeup. By the mid-1990s, mired in debt and troubled by environmental issues involving Aerojet, GenCorp was in need of new leadership at the top. It arrived in the form of John B. Yasinsky. After serving as a group president at Westinghouse Electric Corporation, he joined GenCorp in 1993, becoming president and chief operating officer. In 1994 he was named CEO and in March of the following year was also named chairman of the GenCorp board. Yasinsky was instrumental in turning around the troubled company. As a result, in 1999 GenCorp was secure enough that it could elect to shed its performance chemicals and decorative and building products interests by creating a tax-free spinoff. The hope was to unlock shareholder value in GenCorp's varied businesses as well as to provide the kind of focus that GenCorp had been unable to provide to these assets. GenCorp retained its aerospace, automotive, and pharmaceutical chemical businesses—and the GenCorp name. In order to be closer to its key asset, Aerojet, the much leaner company moved its headquarters to Sacramento, California.

Company Perspectives:

We feel it is imperative to build strong, long-term customer relationships so that we can understand customers' needs better than our competitors. By knowing exactly what customers need and value, we can use our core competencies in technology, design and processing to deliver noncommodity products and services that differentiate them—and us—in the marketplace.

The old GenCorp assets remained in Akron but assumed a new name: OMNOVA Solutions. "OMNOVA" was coined by fusing the Latin words "Omni" for "all" and "Nova" for "new." Not only was "all new" deemed fitting because the name represented a new start, but also because it connoted innovation, which was a major thrust of the newly independent company. Furthermore, "Solutions" was incorporated to indicate a commitment to customer satisfaction and a desire to forge long-term relationships. In addition to remaining in Ohio, Omnova also retained GenCorp's chief executive officer and chairman of the board, Yasinsky, to head the spinoff, which was completed on October 1, 1999. He guided OMNOVA as the company's CEO through its first year, and then in November 2000 turned over the post to President and COO Kevin McMullen. The 40-year-old McMullen came to GenCorp in 1996 after several years at General Electric, where he served stints as general manager for two separate divisions. McMullen became a vice-president of GenCorp Inc. and president of the Decorative & Building Products business unit.

For 1999, in the midst of the spinoff from GenCorp, OMNOVA recorded solid improvements over the previous year. Revenues grew by 23 percent to $767.4 million, due primarily to the acquisitions completed during the year. Both business segments posted significant gains, an 11 percent increase in sales for Decorative & Building Products and 44 percent for Performance Chemicals. The two OMNOVA segments combined to produce a net profit of $34.4 million. During this period the company also pursued what it called growth initiatives, achieved through joint ventures or strategic alliances. In 1999, for instance, the Decorative & Building Products segment formed a joint venture called Rayong with a Thailand-based decorative film and coated fabrics company as a way to expand into the Pacific Rim markets and also add new products for sale in North America and Europe. Another joint venture with similar goals was then established with a Shanghai, China-based maker of coated fabrics. OMNOVA in 2000 created Muraspec N.A. L.L.C. with partner Brewster Wallpaper Corp. in order to act as a national distributor for three OMNOVA-owned brands, plus decorative and functional wall surfacing products manufactured by outside firms.

The company's first full year after the spinoff from GenCorp, however, would not prove to be as successful as hoped. OMNOVA completed a minor acquisition, adding the specialty/textile coatings business of High Point Textile Auxiliaries, LLC for less than $1 million. But due to market softness and the rising costs of raw materials, the Decorative & Building Products segment decreased in sales by 3 percent over the previous year, leading to the elimination of 40 jobs in the division. Because Performance Chemicals grew by a modest 6 percent, OMNOVA recorded a slight gain in net sales over the previous year, totaling $773.3 million. Net income, on the other hand plummeted to $4.4 million. To help control costs, Performance Chemicals instituted a hiring freeze.

McMullen replaced Yasinsky as chairman in February 2001, but with the national economy beginning to sour OMNOVA continued to slide during 2001. It made one acquisition, the $8.3 million purchase of product lines from Decorative Surfaces International, which helped somewhat, but the Decorative & Building Products segment still suffered a 3.2 percent decrease in revenues. As the main culprit, management pointed to poor market conditions in the United States and United Kingdom, which adversely impacted end-use markets. Performance Chemicals also experienced a 6.6 percent drop in sales over the previous year, attributed mostly to the poor economy. During the course of the year, OMNOVA took steps to rein in costs, closing a plant in North Carolina and laying off a number of workers companywide, totaling some 9 percent of its workforce. Nevertheless, OMNOVA saw its revenues decline to $737 million while recording a net loss of $6.7 million in 2001.

Business continued to deteriorate in both business segments in 2002. Net sales for Decorative & Building Products fell by 8.2 percent, due in large part to disappointing occupancy rates in the corporate and hospitality markets. Because of lower activity in commercial construction and refurbishment projects, roofing sales also suffered. Meanwhile, Performance Chemicals lost 6.7 percent of its business, again the result of a lackluster economy. Consequently, OMNOVA saw its net sales tumble to $681.2 million in fiscal 2002 while posting a net loss of $135.5 million. Business conditions continued to erode in 2003, matched by further layoffs and the elimination of some product lines.