OMNOVA SOLUTIONS INC - 10-K Annual Report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

OMNOVA Solutions Inc. (referred to in this report as OMNOVA Solutions or the Company) became an independent publicly-traded company on October 1, 1999, when GenCorp Inc., its former parent company, distributed a dividend payable in one share of OMNOVA Solutions common stock for each share of GenCorp common stock held on the September 27, 1999 record date (the spin-off). OMNOVA Solutions is incorporated under the laws of the State of Ohio, and its headquarters is located at 175 Ghent Road, Fairlawn, Ohio 44333.

OMNOVA Solutions operates two business segments: Decorative & Building Products and Performance Chemicals. Decorative & Building Products develops, designs, manufactures and markets a comprehensive line of decorative and functional surfacing products including commercial wallcovering, coated fabrics, printed and solid color surface laminates, industrial films, transfer printed products and commercial roofing. These products are used in numerous applications, including building refurbishment, new construction, furniture, transportation, cabinets, home furnishings and apparel. The Performance Chemicals segment manufactures a broad range of emulsion polymers and specialty chemicals used as coatings, binders, adhesives and additives for paper, carpet, textiles and nonwovens, construction, floor care and various other specialty chemical applications. (Financial information relating to the Company’s business segments appears on pages 38 and 39 of this report).

The Decorative & Building Products business began in 1945 when The General Tire & Rubber Company, OMNOVA’s predecessor, purchased the Jeannette, Pennsylvania coated fabrics facility from the Pennsylvania Rubber Company. In 1963, the Company built a production facility in Columbus, Mississippi to increase its capacity and product offerings in coated fabrics. The manufacturing of commercial wallcovering was added at that plant in the early 1970s.

Decorative & Building Products expanded its commercial wallcovering capabilities in 1991 through the acquisition of Canadian General Towers’ commercial wallcovering business. With the 1998 acquisition of Walker Greenbank’s U.K.-based Muraspec commercial wallcovering businesses, Decorative & Building Products grew its worldwide leadership position in this product category. Muraspec provides a European manufacturing base and a distribution business with sales offices throughout the U.K. and Europe. Muraspec also serves as a key European distribution platform from which to market commercial wallcoverings and other surfacing products.

The Reneer Films Division of Goodyear was acquired in 1993, increasing vinyl film and decorative laminate capability for the Decorative & Building Products business and elevating its position in vinyl woodgrain laminates to number one in North America. In 1997, the Printworld business of Technographics, Inc. was acquired, adding paper laminates to the Company’s vinyl laminate portfolio and gaining entry into transfer printing for home furnishings and apparel.

The Company has also pursued its growth initiatives by entering into strategic alliances and joint ventures. In 1999, Decorative & Building Products formed a joint venture company with an affiliate of the Thailand-based Charoen Pokphand Group. The joint venture acquired a Rayong, Thailand-based decorative film and coated fabrics business to serve the decorative film and coated fabric product based markets in the Asia-Pacific region

and provide expanded product lines to North America and Europe. In 2000, the Company formed another joint venture with the Charoen Pokphand Group, which acquired a Shanghai, China-based coated fabrics business to strengthen and expand the Company’s position in the Asia-Pacific region and provide expanded product lines to Europe. Also in 2000, the Company formed Muraspec N.A. LLC, a joint venture with Brewster Wallpaper Corp. to serve as a national distributor for two of the Company’s wallcovering brands, Genon^® and Muraspec^™, and a diverse offering of other decorative and functional wall surfacing manufactured by others.

The GenFlex roofing systems business was started in 1980 when GenCorp began manufacturing a single vinyl product line (PVC). This business has expanded over the years to include the manufacturing of thermoplastic polyolefin (TPO) and sourcing of synthetic rubber (EPDM) membrane systems, making OMNOVA one of the largest suppliers of single-ply commercial roofing in North America. In 2001, the Company began production of single-ply roofing at a new manufacturing facility located in Muscle Shoals, Alabama.

The Performance Chemicals business began in 1952 as a segment of The General Tire & Rubber Company. Initially, the business focused on the manufacture of styrene butadiene (SB) latex, an emulsion polymer, for the paper industry and for SB vinyl pyridine tire cord adhesives in its Mogadore, Ohio facility. During the 1960s, the business began expanding its product lines for the paper and carpet industries, and in 1993 started a SB latex plant in Green Bay, Wisconsin to better serve the needs of its paper customers in the upper Midwest. In 1996, the Company substantially expanded SB latex capacity at its Mogadore, Ohio facility.

Performance Chemicals broadened its offerings to the paper industry with the 1996 acquisition of Morton International’s Lytron^® plastic pigment product line. The 1998 acquisition of Goodyear’s Calhoun, Georgia latex business provided additional manufacturing capacity, a strong presence in the southeast and an expanded customer base. In 1998, Performance Chemicals also acquired Sequa Chemicals’ U.S. specialty chemicals business, expanding existing emulsion polymer market positions and providing entry into new specialty chemical markets.

The fiscal year 1999 acquisition of PolymerLatex’s U.S. acrylics latex business in Fitchburg, Massachusetts provided a key northeast production location while strengthening and diversifying served markets in specialty acrylic emulsions. The 1999 acquisition of Morton International’s global polymer floor care business provided Performance Chemicals with several new emulsion polymer product lines and customers, based on complementary manufacturing technology. The acquisition of the specialty/textile coatings business of High Point Textile Auxiliaries, LLC in 2000 broadened the total solution capability of the Company to the textile industry.

On October 1, 2001, OMNOVA Solutions and the Rohm and Haas Company signed a letter of intent to form a global joint venture for the purpose of marketing, selling and servicing latex binders, synthetic pigments and specialty additives for surface treatments in the paper and paperboard industry. This follows the formation of a strategic alliance in paper and paperboard coatings in January 2001. Upon completion, the proposed joint venture is expected to lower costs and provide total coating solutions to the paper and paperboard industry by leveraging the strengths of the parent companies, including strong technical service capability, technology innovation, complementary product lines and expanded geographical reach.

Both the Decorative & Building Products and the Performance Chemicals business segments operate design and development centers that focus on technology and design expertise relevant to their specific businesses. The Company also utilizes the OMNOVA Solutions Technology Center in Akron, Ohio to support research and development efforts across the Company and develop high impact technologies that enable new business

opportunities by leveraging core competencies in cross-cutting application disciplines such as: (i) performance coatings and printing inks; (ii) materials characterization and graphics technology; and (iii) materials selection, substitution and fabrication, including fluoropolymers. (Information relating to research and development expense is set forth in Note G to the Consolidated Financial Statements on page 30 of this report.)

Decorative & Building Products is the leading global manufacturer of wallcoverings for commercial applications. Its product line includes a broad range of fabric-backed vinyl and paper-backed vinyl wallcovering designs. Its industry leading styling and design library covers a broad range of styles, patterns, textures and colors, both traditional and contemporary. Decorative & Building Products’ strengths include its reputation for product durability and quality, its global distribution network, its extensive emboss and print roll library and its long-term customer relationships. Well-known brand names include Genon^®, Bolta^®, Essex^®, Lanark^®, Tower^®, X-Quest^®, MemErase^® and Guard^® in North America and Muraspec^™, Muralon^™ and Buflon^® in Europe. Key end users include the hospitality, healthcare and commercial office markets. Commercial wallcoverings represented 18.3%, 18.2% and 20.1% of OMNOVA Solutions’ consolidated revenues for fiscal 2001, 2000 and 1999, respectively.

Based on industry data and information, Decorative & Building Products believes that it is the leading North American supplier of vinyl and urethane fabrics for contract and residential home furnishings, transportation seating and marine applications, as well as a variety of other industrial and commercial end use applications. Its coated fabrics offer durable, stain resistant and cost effective surfaces which can be used as alternatives or complements to leather and textile coverings. Competitive advantages in the coated fabrics industry are based on creative design and styling capabilities, performance enhancing coatings, innovative technical support programs, leading brand names and established distribution channels. Well-known brands include BoltaFlex^®, Colorguard, Voyager and Nautalex^®.

Decorative & Building Products believes that it is a leading supplier of decorative surfacing laminates for wood and metal applications and that it holds the number one North American position in combined paper and vinyl woodgrain laminates. Decorative laminate products are manufactured utilizing vinyls and lightweight papers. Unique ultraviolet (UV), electronic beam (EB) and other coatings provide scratch, stain and UV resistance. In addition, Decorative & Building Products has further differentiated itself in the decorative laminate market as a single source supplier of integrated vinyl and paper laminate designs for the furniture and cabinet industries, building a unique library of matched vinyl and paper laminate design patterns and textures and developing rapid make-to-order production capabilities. Important markets for these products include furniture, kitchen cabinets, manufactured housing, flooring laminates, consumer electronics and wrapped wood components. Double polished clear vinyl films for the graphic arts, office products and stationery markets are also produced.

Decorative & Building Products is also a leading North American manufacturer and marketer of single-ply roofing membrane systems for the commercial roofing market. Selling under the GenFlex^™ brand name, it was the first in the industry and is one of few North American single-ply roofing suppliers that offers all three single-ply roofing systems: EPDM, TPO and PVC. This broad product line will meet virtually any commercial roofing application requirement. Through the introduction of innovative products, GenFlex roofing systems has developed programs that reduce the time and cost of installation. GenFlex recently began production at a state of the art extrusion plant located in Muscle Shoals, Alabama, to produce 12 foot wide single-ply TPO and PVC roofing membranes. GenFlex roofing systems represented 15.4%, 13.7% and 12.8% of OMNOVA Solutions’ consolidated revenues for fiscal 2001, 2000 and 1999, respectively.

Decorative & Building Products manufactures heat-transfer prints on paper used to decorate apparel and home furnishings. Heat-transfer printing is an innovative, unique process for printing intricate patterns on synthetic fabrics that can be used widely in the home furnishing, commercial furnishing and apparel industries.

Decorative & Building Products has established leading positions in all of its product categories by utilizing the Company’s core competencies in design, compounding, calendering, printing, embossing and coating. Given the similar core competencies and base technology requirements, the business is able to leverage its investments in manufacturing, technology, process and design improvements across this broad set of product lines and benefit from economies of scale. In addition, its broad offering of decorative products uniquely positions it to provide integrated decorative solutions for its customers.

Performance Chemicals manufactures a broad line of emulsion polymers and specialty chemicals for use in the paper, carpet, textile, nonwovens, construction, graphic arts, coatings, adhesives, floor care and transportation industries. Performance Chemicals’ products for the paper industry improve the strength, gloss, opacity and printability of its customers’ products. These products are primarily used in the manufacture of coated papers for applications such as magazines, catalogs, direct mail advertising and inserts, photo papers and office forms. Paper and paperboard coatings represented 18.8%, 17.8% and 16.5% of OMNOVA Solutions’ consolidated revenues for fiscal 2001, 2000 and 1999, respectively. Latex formulations are also used to provide these same characteristics to paperboard packaging for food, household and other consumer and industrial products. The business is a leading North American producer of SB latex for paper and paperboard coatings, as well as carpet backing adhesive, which secures carpet fibers to backing materials.

Through the 1998 acquisition of Sequa Chemicals, Performance Chemicals significantly expanded its product line breadth to include specialty additives for paper coating formulations such as lubricants and insolubilizers and wet end opacifiers used in the making of paper. The acquisition significantly expanded total product offerings to paper customers and enabled Performance Chemicals to generate significant synergies through consolidated purchasing of monomers, cross-selling of polymers and auxiliary chemicals and enhanced applications development. Additionally, the acquisition added a diverse line of textile processing, coating and finishing chemicals that provide water, stain and oil repellency, and permanent press properties to natural and synthetic textile fibers for apparel, home furnishings, and carpet and upholstery applications. The specialty/textile coatings acquisition from High Point in 2000 provided additional value-added compounded latex coating products to Performance Chemicals’ textile chemicals’ customers.

Performance Chemicals’ product portfolio includes a growing specialty segment that provides resins, binders, coatings, adhesives, fluorochemicals and saturants to a broad variety of markets that include nonwovens, graphic arts, floor care, construction, adhesives and tires. These products provide a variety of functional properties to customer products, including greater strength, adhesion, improved processibility and enhanced appearance.

In 2001, the Company completed a strategic alliance with Daikin Industries, a leading fluorochemicals supplier, focused on the Company’s proprietary PolyFox^™ technology platform. Based on its PolyFox^™ technology, Performance Chemicals recently introduced fluorosurfactant products for the floor care market. These environmentally friendly products and others under development are targeted to replace a competitor’s perfluorooctane sulfonate (PFOS) based products recently withdrawn from the market over environmental concerns.

With a strong market position in the latex and specialty chemicals industry, Performance Chemicals is recognized in all of its markets for its core capabilities in polymer technology, for its ability to rapidly develop highly customized products for targeted applications and to provide innovative, cost effective customer solutions and for its strong field technical support.

Management believes that Decorative & Building Products is a leader in its targeted product categories. The wallcovering, coated fabrics, decorative laminates, commercial roofing and other Decorative & Building Products categories are highly competitive based on decorative content, performance characteristics, price, quality, customer service, brand name recognition, distribution networks and reputation. Decorative & Building Products markets its products under numerous brand names to different industries. Major customers of this segment include Steelcase, LA-Z-Boy and Ashley Furniture.

Management believes that Performance Chemicals is a leader in many of its targeted product categories. The polymer and chemical coating and binding categories are highly competitive based on price, quality, customer service, product performance, field technical support and product innovations. Performance Chemicals is a leading producer of SB latex for the paper and carpet industry. Major latex customers include industry leaders such as International Paper, Shaw and Stora Enso.

Performance Chemicals competes with several large global chemical companies including Dow and BASF, some of which are vertically integrated in one or more major raw materials. Performance Chemicals also competes with a variety of U.S.-focused suppliers of specialty chemicals including Noveon, ParaChem, Air Products, National Starch and S.C. Johnson Polymers. Depending on the products involved and markets served, the basis of competition varies among price, quality, customer and technical service, product performance and innovation and industry recognition. Overall, Performance Chemicals regards its products to be competitive in its major categories and believes that it holds leading or strong number two positions in several North American categories including styrene butadiene latex paper coatings and carpet backing binders, textile permanent press resins, nonwoven binders and vinyl pyridine tire cord adhesives.

OMNOVA Solutions regards patents, trademarks, copyrights and other intellectual property as important to its success and relies on them, both in the United States and foreign countries, to protect its investments in products and technology. Patents to which OMNOVA Solutions has rights expire at various times, but the Company believes that the loss or expiration of any individual patent would not materially affect the business of the Company. OMNOVA Solutions, like any other company, may be subject to claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties from time to time in the ordinary course of business.

Decorative & Building Products utilizes a variety of raw materials which are generally available from multiple suppliers. Key raw materials include polyvinyl chloride resins, textiles, plasticizers, paper and titanium dioxide. Textiles and polyvinyl chloride resins represent approximately 39% of total raw materials purchased on a dollar basis.

Performance Chemicals also utilizes a variety of raw materials, primarily monomers, in the manufacture of its products, all of which are generally available from several qualified suppliers. Monomer costs are a major component of the emulsion polymers produced by the business. Key monomers include styrene, butadiene, acrylonitrile, vinyl pyridine, acrylic acid, vinyl acetate, butyl acrylate, ethyl acrylate and methyl methacrylate. These monomers represented approximately 61% of total raw materials purchased on a dollar basis.

The cost of these raw materials has a significant impact on OMNOVA Solutions’ profitability. OMNOVA Solutions generally attempts to pass increased raw materials prices on to its customers in the form of price increases. The success of attempted price increases depends on a variety of factors including the competitive environment. Under certain circumstances, OMNOVA is not able to pass along the increase. In addition, if accepted by customers, price increases generally lag the increase in raw material costs.

The Company historically experiences stronger sales and income in its second, third and fourth fiscal quarters, comprised of the three-month periods ending May 31, August 31 and November 30. The Company’s performance in the first fiscal quarter (December through February) has historically been weaker due to generally lower levels of construction activity over the holidays and cold weather months.

The business operations of OMNOVA Solutions, like those of other companies in the industries in which OMNOVA Solutions operates, are subject to numerous federal, state, local and foreign environmental laws and regulations. These laws and regulations not only affect OMNOVA Solutions’ current operations, but also could impose liability on OMNOVA Solutions for past operations that were conducted in compliance with then applicable laws and regulations. A discussion of capital and noncapital expenditures incurred in 2001 and forecasted for 2002 for environmental compliance is included under the heading Environmental Matters on page 16 of this report and is incorporated herein by reference.

OMNOVA Solutions employed approximately 2,500 employees at November 30, 2001, at offices, plants and other facilities located principally throughout the United States and the United Kingdom. Approximately 23% of the 2,500 employees are covered by collective bargaining agreements with approximately 17% of those employees covered by collective bargaining agreements that are due to expire within one year.

Decorative & Building Products:
Headquarters: 175 Ghent Road Fairlawn, OH 44333-3300 330/869-4200	Manufacturing Facilities: Auburn, PA Columbus, MS Jeannette, PA Kent, England Monroe, NC Muscle Shoals, AL Rayong, Thailand Shanghai, China	Sales/Marketing/Design/Distribution: Asnieres, France Bangkok, Thailand Boston, MA Brussels, Belgium Charlotte, NC Columbus, OH Dubai, UAE Hertfordshire, England Maumee, OH New York, NY Paris, France Rayong, Thailand Salem, NH São Paulo, Brazil Shanghai, China Warsaw, Poland
Performance Chemicals:
Headquarters: 175 Ghent Road Fairlawn, Ohio 44333-3300 330/869-4200	Sales/Manufacturing/Technical/Distribution: Akron, OH Calhoun, GA Chester, SC *Dalton, GA Fitchburg, MA Green Bay, WI Hertfordshire, England Mogadore, OH

In 2001, the Company closed its Greensboro, North Carolina facility and production was consolidated into Performance Chemicals’ remaining facilities. Data appearing in Note N to the Consolidated Financial Statements on page 36 of this report with respect to leased properties is incorporated herein by reference.

On October 12, 2000, a group of hourly retirees filed a class action seeking, among other things, reinstatement of certain retiree medical benefits under the GenCorp Hourly Retiree Medical Plan. The OMNOVA Solutions Hourly Retiree Medical Plan (OMNOVA Plan) was established at the time of the spin-off and is identical to the GenCorp Hourly Retiree Medical Plan which was modified in 1994 to provide for contributions by retirees after plan costs exceed certain levels. The plaintiffs challenge the establishment of the OMNOVA Plan and seek, among other things, to reinstate pre-1994 GenCorp retiree medical plan benefit terms. The class representatives consist of three hourly retirees from OMNOVA’s Jeannette, Pennsylvania facility and one hourly retiree from GenCorp Inc.’s former Akron tire plant. The putative class encompasses all eligible hourly retirees formerly represented by the United Rubber Workers or United Steel Workers of America. The Unions, however, are not party to the suit, and have previously agreed to not support such litigation. OMNOVA believes that it has meritorious defenses and intends to vigorously defend these claims.

OMNOVA Solutions is subject to various legal actions, governmental investigations and proceedings relating to a wide range of matters. In the opinion of management, after reviewing the information that is currently available with respect to these matters and consulting with counsel, any liability which may ultimately be incurred with respect to these matters will not materially affect the consolidated financial condition of OMNOVA Solutions. The effect of resolution of these matters on results of operations cannot be predicted because any such effect depends on both future results of operations and the amount and timing of the resolution of such matters.

Kevin M. McMullen, age 41, Chairman of the Board, Chief Executive Officer and President of the Company since February 2001. Prior to that, Mr. McMullen served as Chief Executive Officer and President of the Company from December 2000 and as a Director from March 2000. From January 2000 until December 2000, Mr. McMullen served as President and Chief Operating Officer of the Company, and from September 1999 until January 2000, Mr. McMullen served as Vice President of the Company and President, Decorative & Building Products. Previously, Mr. McMullen was Vice President of GenCorp Inc. and President of GenCorp’s Decorative & Building Products business unit from September 1996 until the spin-off of OMNOVA Solutions in October 1999. Prior to that, Mr. McMullen was General Manager of General Electric Corporation’s Commercial & Industrial Lighting business from 1993 to 1996 and General Manager of General Electric Lighting’s Business Development and Strategic Planning activities from 1991 to 1993.

Michael E. Hicks, age 43, Senior Vice President, Chief Financial Officer and Treasurer of OMNOVA Solutions Inc. since its formation. Prior to the spin-off of OMNOVA Solutions in October 1999, Mr. Hicks served as Senior Vice President, Chief Financial Officer and Treasurer of GenCorp Inc. from February 1999 and as Treasurer of GenCorp from September 1994 to February 1999.

James J. Hohman, age 53, Vice President of the Company since November 2001 and President, Paper & Carpet Chemicals since December 2000; Vice President, Specialty Chemicals from March 2000 until November 2000; and Vice President, Paper Chemicals from the spin-off of the Company from GenCorp Inc. in October 1999 until March 2000. Prior to the spin-off, Mr. Hohman served for GenCorp Inc. as Vice President, Paper Chemicals from November 1998 until October 1999 and as Director, Strategic Business Development, Performance Chemicals business unit from March 1996 until October 1998. Previously, Mr. Hohman held several key business and marketing management positions at BP Chemicals from 1982 until 1996, most recently serving as General Manager, Barex Resins.

James C. LeMay, age 45, Senior Vice President, Business Development; General Counsel of OMNOVA Solutions Inc. since December 1, 2000; previously, Senior Vice President, Law and General Counsel of OMNOVA Solutions Inc. since its formation. Prior to the spin-off of OMNOVA Solutions in October 1999, Mr. LeMay served as Assistant General Counsel of GenCorp Inc. from May 1997, and as Senior Counsel of GenCorp from May 1990 to May 1997.

Gregory T. Troy, age 46, Senior Vice President, Human Resources of OMNOVA Solutions Inc. since September 1999. Mr. Troy served as Director, Human Resources of GenCorp Inc.’s Performance Chemicals business unit from December 1996 until the spin-off of OMNOVA Solutions in October 1999. Previously, Mr. Troy served as Director of Bosch Braking Systems (formerly AlliedSignal) from 1995 to December 1996, and Employee Relations Area Manager, Manufacturing of Mobil Corporation’s Plastics division from 1994 to 1995.

Douglas E. Wenger, age 44, Senior Vice President and Chief Information Officer of the Company since November 2001. Prior to joining OMNOVA Solutions, Mr. Wenger served as Director, Global I/T Strategy and Architecture for Kellogg Company from 2000 until 2001; Global Program Director, Enterprise Business Applications from 1996 until 2000; Director, Business Information Development, Worldwide Research & Development from 1993 until 1996; and as Director, North American Information Systems and Database Development from 1991 until 1993.

The Company was spun off from GenCorp Inc. as an independent public company as of October 1, 1999. The Company’s common stock is listed on the New York Stock Exchange and trades under the symbol OMN. Prior to the spin-off, the Company’s common stock was not publicly traded. At December 31, 2001, there were approximately 10,500 holders of record of the Company’s common stock. For fiscal year 2001, the Company paid a cash dividend of $.05 per share on its common stock in the first and second quarter. For fiscal year 2000, the Company paid quarterly cash dividends of $.05 per share on its common stock. On November 30, 1999, the Company paid a cash dividend on its common stock of $.05 per share. Information regarding the high and low quarterly sales prices of the Company’s common stock is contained in the Quarterly Financial Data (Unaudited) which appears on page 40 of this report and is incorporated herein by reference.

	2001			2000			1999			1998			1997
	(Dollars in millions, except per-share data)
Net Sales
Decorative & Building Products	$	416.1		$	429.8		$	443.5		$	398.6		$	367.7
Performance Chemicals		320.9			343.5			323.9			225.6			180.6

	$	737.0		$	773.3		$	767.4		$	624.2		$	548.3

Segment Operating Profit
Decorative & Building Products	$	11.9		$	37.0		$	51.4		$	51.5		$	44.2
Performance Chemicals		17.2			2.1			31.6			35.0			21.9
Unusual and nonrecurring items		(13.7	)		(.3	)		(4.4	)		(3.4	)		—

	$	15.4		$	38.8		$	78.6		$	83.1		$	66.1

Net (Loss) Income	$	(6.7	)	$	4.4		$	34.4		$	42.6		$	34.3

Earnings (Loss) Per Share of Common Stock
Basic	$	(.17	)	$	.11		$	.82		$	1.03		$	.93
Diluted	$	(.17	)	$	.11		$	.82		$	1.01		$	.91
Cash dividends paid	$	.10		$	.20		$	.05		$	—		$	—
General
Capital expenditures	$	19.5		$	35.3		$	35.0		$	18.0		$	10.9
Depreciation and amortization	$	34.3		$	33.3		$	30.7		$	21.5		$	16.0
Total assets	$	639.1		$	647.5		$	722.5		$	602.7		$	277.1
Long-term debt	$	157.8		$	145.8		$	190.0		$	—		$	—

OMNOVA Solutions operates two business segments: Decorative & Building Products and Performance Chemicals. Decorative & Building Products designs, manufactures and markets a comprehensive line of decorative and functional surfacing products including commercial wallcovering, coated fabrics, printed and solid color surface laminates, industrial films, transfer printed products and commercial roofing. These products are used in numerous applications including building refurbishment, new construction, furniture, transportation, cabinets, home furnishings and apparel. The Performance Chemicals segment manufactures a broad line of emulsion polymers and specialty chemicals used as coatings, binders, adhesives, and additives for paper, carpet, textiles and nonwovens, construction, floor care and various other specialty chemical applications.

The Company’s sales are affected by numerous factors. In the Decorative & Building Products segment, commercial wallcovering and GenFlex roofing systems sales are driven by trends in refurbishment of commercial office buildings, hotels, hospitals and schools and new construction cycles. Product design and styling are important product differentiators in the commercial wallcovering business. Sales trends in decorative laminates and coated fabrics are driven by both design and performance of the products’ surfaces. The Decorative & Building Products segment focuses on achieving sales growth by designing and producing aesthetically attractive products and through advanced technology in substrate and coatings that offer enhanced stain and scratch resistance, along with improved durability, to meet the needs of commercial and residential furniture customers, as well as customers in transportation, upholstery and demountable office systems. In the Performance Chemicals segment, the key sales drivers are: the ability to create custom polymer and specialty chemical solutions to enhance customer product performance; domestic demand for coated paper and carpeting; and trends in the textile and specialty chemicals industries. The Company is subject to changes in its manufacturing costs arising from volatility in the price of several key raw materials including polyvinyl chloride resins, styrene and butadiene.

In 2001, the Company’s Decorative & Building Products segment acquired certain business lines and assets of Decorative Surfaces International, Inc. (DSI). In 2000, the Company completed the formation of Muraspec N.A. LLC (MNA), a joint venture with Brewster Wallpaper Corp., to serve as a national distributor for two of the Company’s wallcovering brands and a diverse offering of other decorative and functional wall surfaces manufactured by others. Also in 2000, the Company formed a joint venture with the Thailand-based Charoen Pokphand Group, which acquired a Shanghai, China-based coated fabrics business to strengthen and expand the

Company’s position in the Asia-Pacific region. In 1999, Decorative & Building Products formed its first joint venture with the Charoen Pokphand Group to acquire two manufacturing plants in Thailand to serve the coated fabrics and decorative film markets in the Asia-Pacific region and to provide expanded product lines to North America and Europe.

Recent strategic acquisitions of Performance Chemicals included: (i) the purchase of the specialty/textile coatings business of High Point Textile Auxiliaries, LLC in 2000 and (ii) the fiscal 1999 acquisitions of PolymerLatex’s U.S. acrylics latex business, which strengthened and diversified markets in specialty acrylic emulsions and Morton International’s global polymer floor care business, which provided several new emulsion polymer product lines and customers, based on complementary manufacturing technology.

Net sales for the Company in fiscal 2001 decreased 4.7 percent to $737.0 million compared to $773.3 million in fiscal 2000, with sales declining in both business segments. Segment operating profit excluding unusual and nonrecurring items decreased to $29.1 million in fiscal 2001 from $39.1 million in fiscal 2000 primarily due to a decrease in sales volume and product mix and startup costs associated with the Company’s new extrusion plant in Alabama. Operating margins in fiscal 2001 declined to 3.9 percent from 5.1 percent in fiscal 2000. Total segment operating profit including unusual and nonrecurring items decreased to $15.4 million in fiscal 2001 from $38.8 million in fiscal 2000. Including unusual and nonrecurring items, the Company incurred a net loss of $6.7 million in fiscal 2001 compared to net income of $4.4 million in fiscal 2000.

Ohio		34-1897652
(State of Incorporation)		(I.R.S. Employer Identification No.)

175 Ghent Road, Fairlawn, Ohio		44333-3300
(Address of principal executive offices)		(Zip Code)

Title of each class		Name of each exchange on which registered

Common Stock, par value 10¢ per share		New York

Item Number		Page

PART I
1	Business	1
2	Properties	7
3	Legal Proceedings	8
4	Submission of Matters to a Vote of Security Holders	8
4A	Executive Officers of the Registrant	8

PART II
5	Market for Registrant’s Common Equity and Related Stockholder Matters	10
6	Selected Financial Data	10
7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
7A	Quantitative and Qualitative Disclosures About Market Risk	17
8	Consolidated Financial Statements and Supplementary Data	18
9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	18

PART III
10	Directors and Executive Officers of the Registrant	41
11	Executive Compensation	41
12	Security Ownership of Certain Beneficial Owners and Management	41
13	Certain Relationships and Related Transactions	41

PART IV
14	Exhibits, Financial Statement Schedules and Reports on Form 8-K	41
	Signatures	44

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