PolyOne Reports 2002 Fourth-Quarter, Full-Year Results
January 30, 2003
Fourth-quarter earnings are slightly better than anticipated in December
European and Asian operations finish 2002 up strongly from 2001
Company anticipates sequential sales growth and improved earnings before
special charges in first-quarter 2003
CLEVELAND, Jan. 30 /PRNewswire-FirstCall/ -- PolyOne Corporation
(NYSE: POL), a leading global polymer services company, reported sales today
of $580.3 million and a net loss of $17.5 million, or $0.19 per share, for the
fourth quarter ended December 31, 2002. For the full year, the Company had
sales of $2.5 billion and a net loss of $58.9 million, or $0.65 per share,
which included a write-off of goodwill of $53.7 million, or $0.59 per share,
in connection with a change in an accounting method.
Net income for fourth-quarter 2002 included special charges relating to
costs of previously announced restructuring initiatives, impairment of an
equity investment and an impairment of a marketable security. These charges
reduced net income by $3.1 million, or $0.03 per share. For the full year,
special charges reduced net income by $9.3 million, or $0.10 per share. A
summary of special charges incurred during 2002 is attached.
"As expected, customer demand in the fourth quarter slowed considerably,
especially in North America," said Thomas A. Waltermire, PolyOne chairman and
chief executive officer. "While the fourth quarter historically reflects the
lowest seasonal demand period, we have seen indications of substantial
inventory reduction by our customers, a reflection of continuing economic
"This lingering uncertainty and an apparent increase in energy costs have
continued to negatively impact the industry. In this environment, it is
essential that we improve our competitive cost position," added Waltermire.
"I am confident that the significant improvements we have made in the past two
years, coupled with the actions we announced in December and January, should
help both our financial performance and our drive for growth going forward."
On December 17, 2002, PolyOne announced that it had initiated a thorough
assessment of its businesses, its overall cost structure, the effectiveness of
its approach to customers and its debt level. As a result of this work, the
Company announced a series of actions designed to contribute to PolyOne's
profitability in 2003:
On January 14, 2003, management outlined its plans to reduce its selling
and administrative (S&A) costs to less than 10 percent of sales. In
2002, S&A costs as reported in the consolidated income statement were
approximately 12 percent of sales.
The Company has targeted a reduction of $200 million to $300 million in
its overall debt level. This goal complements management's process of
assessing alternatives for non-strategic assets.
Effective with the first quarter of 2003, PolyOne will suspend payment
of its quarterly dividend until its earnings and operating performance
improve. In 2002, PolyOne paid a $0.0625 per share (approximately
$6 million) quarterly dividend.
The Company expects to limit capital spending to approximately
$50 million in 2003.
Fourth-Quarter 2002 Results(*) (Dollars in millions, except per share data)
4Q02 3Q02 4Q01 Sales $580.3 $650.7 $573.2 Operating income (loss) (13.4) 26.3 (35.9) Operating income (loss) before special items** (9.1) 31.6 3.2 Net income (loss) $(17.5) $9.8 $(30.1) Income (loss) before discontinued operations and special items** (14.5) 13.0 (5.5) Income (loss) per share, diluted $(0.19) $0.11 $(0.33) Income (loss) per share before discontinued operations (0.19) 0.11 (0.33) Per share effect of excluding special items**, increase 0.03 0.03 0.27 Per share effect of goodwill amortization expense on net income 0.00 0.00 0.04 Full-Year 2002 Results(*) (Dollars in millions, except per share data)
2002 2001 Sales $2,498.2 $2,581.1 Operating income (loss) 38.9 (29.5) Operating income before special items** 52.9 31.6 Net loss $(58.9) $(46.1) Loss before discontinued operations and cumulative effect of a change in accounting (6.6) (47.1) Income (loss) before discontinued operations, cumulative effect of a change in accounting and special items** 2.7 (11.2) Loss per share, diluted $(0.65) $(0.51) Loss per share before discontinued operations and cumulative effect of a change in accounting, diluted (0.07) (0.52) Per share effect of excluding special items**, increase 0.10 0.40 Per share effect of goodwill amortization expense on net income 0.00 0.16
*2002 and 2001 results of So.F.teR S.p.A. have been reported separately
to reflect the December 2002 sale of that business as a discontinued
**A summary of special items for 2002 and 2001 can be found in the
Fourth-Quarter 2002 Business Highlights
PolyOne's international operations continued to grow sales from 2001
levels. Compared with the 2001 fourth quarter and full year, sales
volume in pounds increased 12 percent and 7 percent, respectively.
Asian sales were particularly strong, increasing to $74.8 million in
2002 compared with $48.2 million in 2001.
The Distribution segment demonstrated solid improvement over year-ago
levels, with fourth-quarter and full-year 2002 revenues up 16 percent
and 12 percent, respectively, over the comparable 2001 periods. The
majority of this improvement resulted from the addition of PolyOne's
Geon-brand vinyl compounds to the Distribution business.
In PolyOne's Resin and Intermediates (R&I) segment, equity operating
income before special items increased $4.6 million in fourth-quarter
2002 compared with fourth-quarter 2001. Most of the increase resulted
from higher chlor-alkali selling prices and higher margins between
polyvinyl chloride (PVC) industry selling prices and raw material costs.
For the full year, equity income before special charges increased
$23.2 million in 2002 compared with 2001. Most of the year-over-year
improvement is attributable to higher PVC margins from the Oxy Vinyls,
LP resin joint venture.
PolyOne continues to make progress toward its objective of realizing
$200 million in annual income improvements in 2003 compared with the
base year 2000. In the fourth quarter of 2002, PolyOne realized
approximately $2 million of additional benefit from its value capture
initiatives, for an annualized rate of approximately $150 million.
In January 2003, PolyOne announced that it would reduce its overall cost
structure by eliminating approximately 400 salaried positions, primarily
in administrative functions. PolyOne projects that this reduction will
lower S&A costs, as classified on its income statement, between
approximately $30 million and $35 million pre tax annually, effective
with the second quarter of 2003. In addition, PolyOne will reduce its
non-personnel costs by approximately $5 million to $10 million pre tax.
PolyOne expects nearly all staff reductions to occur in the first
quarter of 2003, and will recognize a restructuring charge of
approximately $22 million pre tax.
PolyOne's capital expenditures were approximately $26 million in the
fourth quarter of 2002. For the year, capital expenditures totaled
approximately $75.1 million, excluding approximately $3.8 million spent
on the So.F.teR S.p.A. joint venture. During the fourth quarter,
PolyOne completed the sale of its 70 percent majority interest in
So.F.teR S.p.A., an Italian compounder of thermoplastic materials, while
licensing certain key technologies.
Most fourth-quarter capital spending funded the continuing expansion and
modernization of the North American Plastic Compounds and Colors (PCC)
unit's manufacturing base. Five PCC plants were closed in the fourth
quarter. Two additional plants will cease production when PolyOne
completes the upgrade by mid-2003. The Company projects that this
initiative will increase 2003 operating income by approximately
PolyOne completed the acquisition of Transformacion de Pigmentos y
Colorantes, S.A. (TRANSCOLOR), a large color concentrates producer
operating near Pamplona in northern Spain. TRANSCOLOR has annual
revenues of approximately $36 million (USD).
Also in the fourth quarter, PolyOne reached an agreement to sell to TPM
Holdings, LP its majority interest in the joint venture company Techmer
PM, LLC. PolyOne expects the sale of its 51 percent position to occur
in the first quarter of 2003. TPM Holdings owns the remaining
49 percent of Techmer PM, LLC.
PolyOne and Nanocor Inc., the largest supplier of nanoclays for
plastics, formed a strategic alliance to manufacture and market
nanocomposites made from polyolefin, PVC and related polymers. PolyOne
will manage all aspects of the manufacture, marketing and sale of
nanoclay concentrates and composites, using Nanocor's products and
technology and assistance from Nanocor's sales personnel.
PolyOne management estimates that first-quarter 2003 earnings, while
showing a marked improvement from the loss in the fourth quarter, will be a
loss in the range of $0.03 to $0.07 per share. The key variable is whether
the January increase in sales is sustainable through the balance of the
quarter in light of current economic uncertainties. Despite these
uncertainties, the Company projects that first-quarter 2003 sales will rebound
from fourth-quarter 2002 levels and exceed sales in first-quarter 2002.
PolyOne forecasts higher equity operating income from its Resin and
Intermediates segment, due primarily to improved customer demand.
The following table summarizes PolyOne's projection of the primary
earnings drivers anticipated to impact operating income before special items
in first-quarter 2003 versus the fourth quarter of 2002. Also included is the
projected annual impact of key initiatives. While the leverage on earnings
from changes in sales levels varies by product, PolyOne generally anticipates
a variable-margin impact on earnings ranging from 25 percent to 30 percent of
the sales change.
Incremental Change Income (Expense) - $ in millions 1Q03 Yr03
PVC resin pricing
1Q03 (+1 - 2 cents per lb.) $2-3 - Ethylene costs 1Q03 (+1 - 1.5 cents per lb.) $(2-3) - Chlorine costs 1Q03 (+$0 per ton) ----- - Caustic soda selling price 1Q03 (+$20 - 30 per ton) $1-2 - Natural gas costs 1Q03 (+$0.50 - 0.90 per million BTU) $(1-2) Value capture initiatives $50-70 Reduction in selling and administrative costs $32-37 2003 estimated program cost increases $(25-30)
High-leverage variables comprise the key commodities and their estimated
leverage on PolyOne earnings from changing prices/costs. The projections
represent industry forecasts, with allowance for actual price change
realization. PVC pricing consists of the combined impact of PVC resin
industry selling prices and estimated resulting impact on PVC compound costs.
Value capture initiatives represent the remaining benefit projected to
increase 2003 earnings as a result of the initiatives launched upon PolyOne's
formation. The 2003 earnings benefit is expected to come primarily from the
completion of the North American manufacturing consolidation and
modernization, the acquisition of TRANSCOLOR, 2002 investments in
international operations, and lower sourcing and logistics costs.
Program cost increases relate to employment compensation and benefit
costs, primarily (1) pension expense due to a lower liability discount rate
and poor pension asset performance and (2) the rising cost of medical
PolyOne will host an analyst conference call at 10 a.m. Eastern time on
Friday, January 31, 2003. The conference call number is 888-489-0038 or
706-643-1611 (international), conference topic: PolyOne Earnings Call. The
call will be broadcast live and then via replay for two weeks on the Company's
Web site: www.polyone.com .
Upcoming Investor Meeting
PolyOne will host an investor meeting on Tuesday, February 11, 2003, at
The Sheraton New York Hotel and Towers, 811 Seventh Avenue at 53rd Street.
Presenting will be Thomas A. Waltermire, chairman and chief executive officer;
W. David Wilson, chief financial officer; and V. Lance Mitchell, vice
president, global plastics. Information on this meeting can be obtained be
contacting Darlene Hampton at 216-589-4376 or firstname.lastname@example.org .
The meeting will be broadcast live and then via replay for two weeks on the
Company's Web site: www.polyone.com .
Investors interested in more detailed information on PolyOne's results or
the performance of its business segments, please see the Supplemental
Information report issued today. The report is posted in the Investor
Relations section of the Company's Web site: www.polyone.com . It can also be
obtained from the contact listed at the end of this release.
PolyOne Corporation, with 2002 revenues of $2.5 billion, is an
international polymer services company with operations in thermoplastic
compounds, specialty resins, specialty polymer formulations, engineered films,
color and additive systems, elastomer compounding and thermoplastic resin
distribution. Headquartered in Cleveland, Ohio, PolyOne has employees at
manufacturing sites in North America, Europe, Asia and Australia, and joint
ventures in North America, South America, Europe, Asia and Australia.
Information on the Company's products and services can be found at
In this release, statements that are not reported financial results or
other historical information are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-
looking statements give current expectations or forecasts of future events and
are not guarantees of future performance. They are based on management's
expectations that involve a number of business risks and uncertainties, any of
which could cause actual results to differ materially from those expressed in
or implied by the forward-looking statements. You can identify these
statements by the fact that they do not relate strictly to historic or current
facts. They use words such as "anticipate," "estimate," "expect," "project,"
"intend," "plan," "believe" and other words and terms of similar meaning in
connection with any discussion of future operating or financial performance.
In particular, these include statements relating to future actions;
prospective changes in raw material costs, product pricing or product demand;
future performance or results of current and anticipated market conditions and
market strategies; sales efforts; expenses; the outcome of contingencies such
as legal proceedings; and financial results. Factors that could cause actual
results to differ materially include, but are not limited to: (1) an inability
to achieve or delays in achieving estimated and actual savings related to
restructuring programs; (2) delays in achieving or inability to achieve the
Company's strategic value capture initiatives, including cost reduction and
employee productivity goals, or achievement of less than the anticipated
financial benefit from the initiatives; (3) the effect on foreign operations
of currency fluctuations, tariffs, nationalization, exchange controls,
limitations on foreign investment in local businesses and other political,
economic and regulatory risks; (4) changes in U.S., regional or world polymer
and/or rubber consumption growth rates affecting the Company's markets;
(5) changes in global industry capacity or in the rate at which anticipated
changes in industry capacity come online in the polyvinyl chloride (PVC),
chlor-alkali, vinyl chloride monomer (VCM) or other industries in which the
Company participates; (6) fluctuations in raw material prices, quality and
supply and in energy prices and supply, in particular fluctuations outside the
normal range of industry cycles; (7) production outages or material costs
associated with scheduled or unscheduled maintenance programs; (8) costs or
difficulties and delays related to the operation of joint venture entities;
(9) lack of day-to-day operating control, including procurement of raw
materials, of equity or joint venture affiliates; (10) partial control over
investment decisions and dividend distribution policy of the OxyVinyls
partnership and other minority equity holdings of the Company; (11) an
inability to launch new products and/or services that strategically fit the
Company's businesses; (12) the possibility of goodwill impairment; (13) an
inability to maintain any required licenses or permits; (14) an inability to
comply with any environmental laws and regulations; and (15) a delay or
inability to achieve divestitures necessary to achieve targeted debt levels.
We cannot guarantee that any forward-looking statement will be realized,
although we believe we have been prudent in our plans and assumptions.
Achievement of future results is subject to risks, uncertainties and
inaccurate assumptions. Should known or unknown risks or uncertainties
materialize, or should underlying assumptions prove inaccurate, actual results
could vary materially from those anticipated, estimated or projected.
Investors should bear this in mind as they consider forward-looking
We undertake no obligation to publicly update forward-looking statements,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any further disclosures we make on related
subjects in our Form 10-Q, 8-K and 10-K reports to the Securities and Exchange
Commission. You should understand that it is not possible to predict or
identify all such factors. Consequently, you should not consider any such
list to be a complete set of all potential risks or uncertainties. (Ref.
PolyOne Corporation and Subsidiaries Condensed Consolidated Statements of Income (Unaudited) (In millions, except per share data)
Three Months Ended Year Ended December 31, December 31, 2002 2001 2002 2001 Sales $580.3 $573.2 $2,498.2 $2,581.1 Operating costs and expenses: Cost of sales 500.2 482.8 2,098.2 2,162.4 Selling and administrative 78.6 69.6 302.6 297.7 Depreciation and amortization 17.9 18.0 72.5 89.2 Employee separation and plant phase- out - 26.3 1.1 36.1 Merger and integration costs - - - 5.9 Loss on divestiture of equity investment 3.6 9.5 5.1 9.5 (Income) loss from equity affiliates and minority interest (6.6) 2.9 (20.2) 9.8 Operating income (loss) (13.4) (35.9) 38.9 (29.5) Interest expense (11.0) (8.9) (42.4) (40.7) Interest income 0.3 0.3 0.9 2.3 Other expense, net (5.3) (2.1) (9.2) (6.3) Income (loss) before income taxes, discontinued operations, and cumulative effect of change in accounting method (29.4) (46.6) (11.8) (74.2) Income tax benefit 11.8 16.5 5.2 27.1 Income (loss) before discontinued operations and cumulative effect of a change in accounting (17.6) (30.1) (6.6) (47.1) Discontinued operations: Income from operations and loss on sale (net of income taxes) 0.1 0.0 1.4 1.0 Cumulative effect of a change in goodwill accounting, net of income tax benefit of $1.0 million - - (53.7) - Net loss $(17.5) $(30.1) $(58.9) $(46.1) Income (loss) per Share of Common Stock: Basic income (loss) per share before discontinued operations and effect of change in accounting $(.19) $(.33) $(.07) $(.52) Discontinued operations - - .01 .01 Cumulative effect of a change in accounting - - (.59) - Basic income (loss) per share $(.19) $(.33) $(.65) $(.51) Diluted income (loss) per share before discontinued operations and effect of change in accounting $(.19) $(.33) $(.07) $(.52) Discontinued operations - - .01 .01 Cumulative effect of a change in accounting - - (.59) - Diluted income (loss) per share $(.19) $(.33) $(.65) $(.51) Weighted average shares used to compute loss per share: Basic 90.8 90.0 90.8 89.8 Diluted 90.8 90.0 90.8 89.9 Dividends paid per share of common stock $.0625 $.0625 $.25 $.25 PolyOne Corporation and Subsidiaries Condensed Consolidated Balance Sheet (Unaudited) (In millions)
December 31, December 31, Assets 2002 2001 Current assets: Cash and cash equivalents $41.4 $18.2 Accounts receivable, net 164.3 135.6 Other receivables 5.4 11.4 Inventories 253.7 255.3 Deferred taxes 42.1 40.2 Other current assets 7.3 16.5 Total current assets 514.2 477.2 Property, net 682.1 683.6 Investment in equity affiliates 271.8 287.9 Goodwill, net 444.0 476.3 Other intangible assets, net 32.8 61.0 Other non-current assets 52.6 65.5 Total assets $1,997.5 $2,051.5 Liabilities and Shareholders' Equity Current liabilities: Short-term bank debt $0.7 $14.7 Accounts payable 242.0 311.4 Accrued expenses 160.2 161.0 Current portion of long-term debt 91.0 4.6 Total current liabilities 493.9 491.7 Long-term debt 492.2 426.8 Deferred taxes 39.0 63.2 Post-retirement benefits other than pensions 122.5 126.2 Other non-current liabilities, including pensions 261.2 214.5 Minority interest in consolidated subsidiaries 9.0 15.7 Total liabilities 1,417.8 1,338.1 Shareholders' equity: Preferred stock - - Common stock 1.2 1.2 Other shareholders' equity 578.5 712.2 Total shareholders' equity 579.7 713.4 Total liabilities and shareholders' equity $1,997.5 $2,051.5 PolyOne Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (In millions)
Three Months Ended Year Ended December 31, December 31, 2002 2001 2002 2001 Operating Activities Net income (loss) $(17.5) $(30.1) $(58.9) $(46.1) Income (loss) from discontinued operations 0.1 - 1.4 1.0 Loss from continuing operations (17.6) (30.1) (60.3) (47.1) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Employee separation and plant phase-out charges - 26.3 1.1 36.1 Cash payments on employee separation and plant phase- out (4.9) (4.7) (17.0) (23.8) Cumulative effect of a change in accounting - - 53.7 - Depreciation and amortization 17.9 18.0 72.5 89.2 Unrealized currency gains (2.2) (0.8) (13.0) (0.8) Investment write-down and loss on sale of equity affiliate 3.6 9.5 5.1 9.5 Companies carried at equity and minority interest: (Income) loss (7.4) 3.1 (19.7) 11.2 Dividends received 2.6 1.7 4.7 3.7 Change in assets and liabilities: Operating working capital: Accounts receivable 33.7 52.7 (38.6) 188.8 Inventories 33.7 25.3 0.8 76.7 Accounts payable (44.4) (30.5) (64.5) 1.4 Accrued expenses and other (2.6) (17.8) 8.6 (41.9) Net cash provided (used) by continuing operations 12.4 52.7 (66.6) 303.0 Investing Activities Capital expenditures (26.0) (32.3) (75.1) (78.1) Cash received from equity affiliates 10.9 (0.4) 27.1 1.7 Business acquired, net of cash received (11.4) - (11.4) - Proceeds from sale of assets 12.8 1.6 14.7 4.4 Net cash provided (used) by continuing operations (13.7) (31.1) (44.7) (72.0) Financing Activities Change in short-term debt 89.0 (30.4) 83.2 (230.2) Change in long-term debt (93.3) 0.1 60.6 (0.9) Termination of interest rate swap agreements - - 8.3 4.3 Repurchase of common stock - - - - Proceeds from the exercise of stock options - - 7.0 - Dividends (5.8) (5.9) (22.7) (22.9) Net cash provided (used) by continuing operations (10.1) (36.2) 136.4 (249.7) Net cash provided (used) by discontinued operations - 0.0 1.4 (0.1) Effect of exchange rate changes on cash (0.6) (0.4) (3.3) (0.9) Increase (decrease) in cash and cash equivalents (12.0) (15.0) 23.2 (19.7) Cash and cash equivalents at beginning of period 53.4 33.2 18.2 37.9 Cash and cash equivalents at end of period $41.4 $18.2 $41.4 $18.2 Summary of Special Items (In millions)
Quarters 4Q02 3Q02 4Q01 Employee separation and plant phase- out costs $- $(0.2) $(26.3) Period plant phase-out costs incurred (0.4) (0.5) - Plant phase-out accelerated depreciation (0.3) (0.5) - Equity affiliate - employee severance, liabilities associated with the temporary idling of a plant and facility asset write-off and decommissioning costs - (4.1) (3.3) Loss on divestiture of equity investment (3.6) - (9.5) Subtotal - operating (expense) (4.3) (5.3) (39.1) Investment write-down (0.8) - - Total - pre-tax (expense) (5.1) (5.3) (39.1) Income tax benefit 2.0 1.9 14.5 Total - after-tax (expense) $(3.1) $(3.4) $(24.6) Year 2002 2001 Employee separation and plant phase- out cost $(1.1) $(36.1) Period plant phase-out costs incurred (1.1) (0.2) Plant phase-out accelerated depreciation (1.8) - Equity affiliate - employee severance, liabilities associated with the temporary idling of a plant and facility asset write-off and decommissioning costs (4.9) (9.4) Merger and integration costs - (5.9) Loss on divestiture of equity investment (5.1) (9.5) Subtotal - operating (expense) (14.0) (61.1) Investment write-down (0.8) (0.6) Litigation settlement gain - 4.1 Total - pre-tax (expense) (14.8) (57.6) Income tax benefit 5.5 21.7 Total - after-tax (expense) $(9.3) $(35.9)
SOURCE PolyOne Corporation
CONTACT: Dennis Cocco, Chief Investor & Communications Officer of
PolyOne Corporation, +1-216-589-4018