PolyOne Reports Fourth-Quarter, Full-Year Earnings
January 30, 2002
Reduced demand in customer markets causes fourth-quarter revenue decline First-quarter 2002 earnings expected to improve over 2001 level, despite uncertain outlook
CLEVELAND, Jan 30, 2002 /PRNewswire via COMTEX/ -- PolyOne Corporation (NYSE:
POL), a leader in polymer compounding and related services, today reported
revenues of $590 million and a net loss of $30.1 million, or $0.33 per share,
for the fourth quarter ended December 31, 2001.
Special items during the quarter consisted primarily of restructuring costs and
the impairment of an equity investment to be sold. Special items increased the
reported net loss by $24.6 million, or $0.27 per share. Excluding special items,
the net loss for the quarter was $5.5 million after tax.
"In the fourth quarter, we continued to demonstrate discipline in reducing our
structural costs through strategic initiatives and short-term cost controls,"
said Thomas A. Waltermire, PolyOne chairman and chief executive officer. "The
benefits of these initiatives are apparent in operating base costs for the
quarter that were approximately $25 million lower than the average for 2000.
"The fourth quarter, however, ranked as our toughest quarter for revenues in
2001 because of reduced demand in the consumer durable, electronic and building
materials markets, especially after mid-November when the holiday season began,"
PolyOne was formed on August 31, 2000, from the consolidation of The Geon
Company and M.A. Hanna Company. The consolidation has been accounted for as a
purchase business combination, with Geon as the acquiring enterprise. The
comparative "reported results" for 2000, which follow and which also appear in
the attached financial statements, are those of the former Geon only for the
first eight months, and of PolyOne for the final four months.
Because of the significant impact of the merger on comparative data, PolyOne is
providing "pro forma 2000 results" as if the Company had been formed prior to
the periods presented. These results are provided for illustrative purposes
only. A list of assumptions used to calculate pro forma results appears at the
end of this release.
Fourth-Quarter Reported and Pro Forma Results ($ in millions, except per share data) Reported Reported Pro Forma 2001 2000 2000 Sales $ 589.9 $ 702.8 $ 702.8 Operating (loss) (26.1) (6.4) (3.8) Operating income (loss) before special items * 3.5 (3.1) (3.8) Net (loss) (30.1) (13.2) (11.3) Net (loss) before special items* (5.5) (12.8) (12.8) Earnings (loss) per share, diluted (0.33) (0.15) (0.12) Per share effect of special items*, expense (income) 0.27 0.01 (0.02) Full-Year Reported and Pro Forma Results ($ in millions, except per share data) Reported Reported Pro Forma 2001 2000 2000 Sales $ 2,654.6 $1,887.8 $3,139.7 Operating income (loss) (17.1) 64.8 115.5 Operating income before special items* 34.5 81.5 128.4 Net income (loss) (46.1) 15.9 52.4 Net income (loss) before special items* (10.2) 25.0 48.5 Earnings (loss) per share, diluted (0.51) 0.26 0.57 Per share effect of special items*, expense (income) 0.40 0.15 (0.04)
*A summary of all special items for 2001 and 2000 can be found in the attached
Fourth-Quarter and 2001 Business Highlights
* As part of its strategy to modernize its North American Plastic Compounds and
Colors operations, the Company on November 29 announced an upgrade and
consolidation of its vinyl compound facilities. These actions will generate an
estimated pre-tax earnings improvement of $21 million annually, beginning in
2003. The related closing of three plants will result in a net reduction of
approximately 300 manufacturing and salaried jobs. PolyOne will incur a one-time
cash cost of $19 million for facility closings and a $7 million writedown for
accelerated depreciation of the asset-carrying value of the plants and
equipment. Of the $26 million total cost, reported fourth-quarter 2001 earnings
reflect a pre-tax charge of $22 million for these items. The remaining $4
million will be recognized during 2002, with $2 million taken as a one-time cash
charge and $2 million for the accelerated depreciation charge.
* In 2001, PolyOne made a number of significant restructuring announcements
concerning the modernization of 20 manufacturing facilities at an estimated
capital investment of $50 million. The Company also announced the closing of 18
plants by the end of 2002, with total employee severance and cash closing costs
of $47 million. When these actions are completed, PolyOne anticipates an annual
pre-tax earnings improvement of approximately $70 million.
* The Company continues to focus on strategic value creation initiatives.
Because of its progress in targeting these cost-saving opportunities,
performance business earnings before special items increased $0.5 million in
fourth-quarter 2001, despite a sales decline of $113 million from fourth-
* PolyOne continued its successful conversion of nearly all its operating units
worldwide to a single business information system. The most recent major
conversion on January 1, 2002, involved the Elastomers and Performance Additives
group. This conversion brought an additional six manufacturing plants, 4,700 raw
materials, 3,200 suppliers and more than 1,100 customers onto the new system.
Approximately 70 percent of PolyOne's operating units are now on this single
* Before a restructuring charge, fourth-quarter equity earnings from PolyOne's
polyvinyl chloride (PVC) resin joint venture, Oxy Vinyls LP, declined by
approximately $3.5 million from third-quarter 2001, principally because of lower
demand and decreased selling prices for caustic soda and PVC resin. Reduced
ethylene and natural gas costs partially offset these trends.
* In December 2001, OxyVinyls temporarily idled its Deer Park, Texas,
chlor-alkali production facility. The site shutdown, a result of weak industry
conditions, is expected to yield a cash earnings improvement of $4.3 million to
PolyOne in 2002. PolyOne's share of the charge for employee severance and plant
closing costs, taken in fourth-quarter 2001, totaled $3.3 million pre tax.
* During the fourth quarter, PolyOne recorded a special pre-tax charge of $9.5
million for the impairment of its investment in Australian Vinyls Corporation
(AVC), a manufacturer of vinyl resins and compounds. The impairment writedown
relates to PolyOne's announced divestiture of the PVC resin portion of its
interest in the equity joint venture. PolyOne is a 37.4 percent partner in AVC
with Orica Limited, which is likewise divesting its 62.6 percent resin interest.
When the sale of AVC is completed in February 2002, PolyOne and Orica will
retain ownership of a vinyl compounding business with annual revenue of
approximately $20 million.
* As part of its initiative to reduce raw material sourcing costs, PolyOne began
operating a new, centralized pigment and small lot distribution warehouse in
northeast Ohio during the fourth quarter. This distribution warehouse reduces
both costs and inventory and builds on PolyOne's advantages of scale and its
skills in distribution and logistics. This raw material initiative, which will
enable PolyOne to take advantage of large-scale purchases and distribute raw
materials more cost effectively, is part of the Company's larger value capture
"At this point, business conditions remain weak," said Waltermire. "The
improvement we've seen in January 2002 orders over December levels appears to be
largely seasonal. In our major markets, we are not seeing signs of recovery
compared with the overall demand levels in the second half of 2001.
"Our plan is to continue to control our discretionary spending and implement our
value capture initiatives. Our management's focus and all of PolyOne's efforts
are directed toward improving our near-term results regardless of the direction
of the economy, and laying the foundation for the numerous growth opportunities
we have available," Waltermire added.
Considerable economic uncertainty surrounds the Company's outlook for the first
quarter of 2002. Although sales are projected to increase compared with
fourth-quarter 2001 based on normal seasonal patterns, early January 2002
shipments reflect no broad economic turnaround in any of PolyOne's business
units. The Company expects sales in the first quarter of 2002 to be below levels
for the same period in 2001. PolyOne remains concerned about sustainable buying
patterns in the automotive industry, even though automotive inventories were in
better alignment at the end of 2001 versus 2000.
The Company expects no additional meaningful benefit from its targeted value
capture initiative savings in first-quarter 2002 compared with fourth- quarter
2001. PolyOne does, however, expect to maintain its current level of savings.
During the first quarter, considerable activity is planned to accomplish some of
the restructuring needed to deliver the savings expected later in the year.
For 2002, the Company anticipates expense increases of approximately $15 million
relating to pension and medical costs and $7 million relating to depreciation.
The cessation of goodwill amortization due to the implementation of FASB 142
will benefit 2002 earnings by an estimated $0.16 per share compared with 2001
PolyOne's equity investments in OxyVinyls and Sunbelt Chlor-Alkali are expected
to report losses in first-quarter 2002, due primarily to lower caustic soda
prices. These results should improve over the first-quarter 2001 loss, however,
and the Company projects a full-year loss less than half that reported in 2001,
due largely to lower ethylene and natural gas costs.
Pro Forma Assumptions
* The 2000 pro forma operating results assume that the consolidation to form
PolyOne and the sale of M.A. Hanna's Cadillac Plastic business occurred prior to
2000. This presentation is not GAAP reporting, and may not reflect either how
operating results would have occurred or future results of PolyOne.
* Pro forma results include no future integration cost or profit improvement
assumptions from the consolidation of Geon and M.A. Hanna.
* The pro forma results include the PolyOne formation purchase price allocation.
PolyOne will host an analyst conference call at 9 a.m. Eastern Time on Thursday,
January 31. The conference call number is 888-455-9948 or 712-271-0561
(international), passcode: PolyOne. The call will be broadcast live and 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 2001 revenues of $2.7 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 www.polyone.com.
In this press 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; including, for example,
statements about business outlook, assessment of market conditions, strategies,
future plans, future sales, prices for major products, inventory levels, capital
spending and tax rates. These forward-looking statements 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. Factors that could cause actual results to differ
materially include (but are not limited to): (1) the risk that the former Geon
and M.A. Hanna businesses will not be integrated successfully; (2) an inability
to achieve or delays in achieving savings related to consolidation and
restructuring programs; (3) unanticipated delays in achieving or inability to
achieve cost reduction and employee productivity goals and other strategic value
capture initiatives; (4) unanticipated costs related to the consolidation of
Geon and M.A. Hanna; (5) 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; (6) unanticipated changes in world, regional or U.S. plastic,
rubber and PVC consumption growth rates affecting the Company's markets; (7)
unanticipated changes in global industry capacity or in the rate at which
anticipated changes in industry capacity come online in the PVC, VCM,
chlor-alkali or other industries in which the Company participates; (8)
fluctuations in raw material prices and supply and energy prices and supply, in
particular fluctuations outside the normal range of industry cycles; (9)
unanticipated production outages or material costs associated with scheduled or
unscheduled maintenance programs; (10) unanticipated costs or difficulties and
delays related to the operation of joint venture entities; (11) lack of
day-to-day operating control, including procurement of raw material feedstocks,
of other equity or joint venture relationship companies; (12) lack of direct
control over the reliability of delivery and quality of the primary raw
materials utilized in the Company's products; (13) partial control over
investment decisions and dividend distribution policy of the OxyVinyls
partnership and other minority equity holdings of the Company.
PolyOne Corporation and Subsidiaries Condensed Consolidated Statements of Income (Unaudited) (Dollars in millions except per share data) Three Months Twelve Months Ended Ended December 31, December 31, 2001 2000 2001 2000 Sales $589.9 $702.8 $2,654.6 $1,887.8 Operating costs and expenses: Cost of sales 497.3 596.7 2,223.0 1,598.8 Selling and administrative 70.9 80.9 304.2 191.5 Depreciation and amortization 18.4 24.9 91.3 57.4 Employee separation and plant phase- out 26.3 - 36.1 2.8 Merger and integration costs - 1.7 5.9 9.5 (Income) loss from equity affiliates and minority interest 3.1 5.0 11.2 (37.0) Operating income (loss) (26.1) (6.4) (17.1) 64.8 Interest expense (9.2) (13.4) (41.9) (36.7) Interest income 0.3 0.2 2.3 1.6 Other expense, net (11.5) (1.3) (15.0) (3.6) Income (loss) before income taxes (46.5) (20.9) (71.7) 26.1 Income tax (expense) benefit 16.4 7.7 25.6 (10.2) Net income (loss) $(30.1) $(13.2) $(46.1) $15.9 Earnings (Loss) per Share of Common Stock: Basic $(.33) $(.15) $(.51) $.26 Diluted $(.33) $(.15) $(.51) $.26 Weighted average shares used to compute earnings per share: Basic 90.0 90.1 89.8 61.4 Diluted 90.0 90.1 89.8 62.0 Dividends paid per share of common stock $.0625 $.0625 $.25 $.25 PolyOne Corporation and Subsidiaries Condensed Consolidated Balance Sheet (Unaudited) (Dollars in millions) December 31, December 31, Assets 2001 2000 Current assets: Cash and cash equivalents $18.2 $37.9 Trade accounts receivable, net 135.6 330.4 Other receivables 11.4 17.1 Inventories 255.3 337.1 Deferred taxes 48.6 53.9 Other current assets 16.5 20.1 Total current assets 485.6 796.5 Property, net 683.6 703.8 Investment in equity affiliates 287.9 311.6 Goodwill and other intangible assets, net 535.3 540.3 Other non-current assets 68.8 78.4 Total assets $2,061.2 $2,430.6 Liabilities and Shareholders' Equity Current liabilities: Short-term bank debt $14.7 $237.2 Accounts payable 311.4 319.4 Accrued expenses 169.4 175.7 Current portion of long-term debt 3.0 2.6 Total current liabilities 498.5 734.9 Long-term debt 428.4 442.4 Deferred taxes 64.5 132.8 Post-retirement benefits other than pensions 126.2 129.9 Other non-current liabilities, including pensions 214.5 149.0 Minority interest in consolidated subsidiaries 15.7 14.0 Total liabilities 1,347.8 1,603.0 Shareholders' equity: Preferred stock - - Common stock 1.2 1.2 Other shareholders' equity 712.2 826.4 Total shareholders' equity 713.4 827.6 Total liabilities and shareholders' equity $2,061.2 $2,430.6 PolyOne Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (Dollars in millions) Three Months Ended Year Ended December 31, December 31, 2001 2000 2001 2000 Operating Activities Net income (loss) $(30.1) $(13.2) $(46.1) $15.9 Adjustments to reconcile net income (loss) to net cash used by operating activities: Employee separation and plant phase-out charges 26.3 - 36.1 2.8 Cash payments on employee separation and plant phase-out (3.5) (0.2) (11.9) (0.2) Depreciation and amortization 18.4 24.9 91.3 57.4 Investment write-down 10.1 - 10.1 - Companies carried at equity and minority interest: (Income) loss 3.1 5.0 11.2 (37.0) Dividends received 1.7 1.7 3.7 27.0 Provision (benefit) for deferred income taxes (26.2) (4.5) (29.0) 8.3 Change in assets and liabilities: Operating working capital: Accounts receivable 53.7 88.0 191.0 60.0 Inventories 24.6 0.5 79.7 9.9 Accounts payable (28.4) (0.9) (4.8) (19.2) Accrued expenses and other 6.3 (30.4) (22.6) (61.0) Net cash provided by operating activities 56.0 70.9 308.7 63.9 Investing Activities Capital expenditures (32.6) (39.0) (80.2) (62.7) Cash (advanced) received from equity affiliates (0.4) - 1.7 5.3 Proceeds from sale of assets 1.6 6.7 4.4 44.2 Business acquisitions, net of cash acquired - (2.4) - (2.4) Cash received in connection with consolidation of M.A. Hanna Company, net of transaction costs paid - - - 28.1 Other (0.8) 1.4 (0.8) 7.9 Net cash provided by operating and investing activities 23.8 37.6 233.8 84.3 Financing Activities Change in short-term debt (33.2) (28.8) (233.2) 8.7 Change in long-term debt 0.7 (39.0) (0.8) (72.9) Termination of interest rate swap agreements - - 4.3 - Net proceeds from issuance of common stock - - - 0.6 Repurchase of common stock - (18.7) - (18.7) Dividends (5.9) (5.7) (22.9) (14.9) Net cash used by financing activities (38.4) (92.2) (252.6) (97.2) Effect of exchange rate changes on cash (0.4) 1.0 (0.9) (0.4) Decrease in cash and cash equivalents (15.0) (53.6) (19.7) (13.3) Cash and cash equivalents at beginning of period 33.2 91.5 37.9 51.2 Cash and cash equivalents at end of period $18.2 $37.9 $18.2 $37.9 Summary of Special Items In millions Pro Forma Reported Results Results Quarter 4Q01 3Q01 4Q00 4Q00 Employee separation and plant phase- out cost $(26.3) $- $- $- Equity investment restructuring cost (3.3) (5.1) - - Merger and integration cost - (0.1) (1.7) - Charge for acquired profit in inventory - - (1.6) - Subtotal - operating loss (29.6) (5.2) (3.3) - Investment write-down (9.5) - - - Subtotal - pre-tax expense (39.1) (5.2) (3.3) - - after-tax expense (24.6) (3.2) (1.9) - German tax rate adjustment - - 1.5 1.5 Total after-tax income (expense) $(24.6) $(3.2) $(0.4) $1.5 Pro Forma Reported Results Results Year 2001 2000 2000 Employee separation and plant phase- out cost $(36.1)(a) $(2.8) $(2.8) Merger and integration cost (1.1) (9.5) - Period cost of closed facilities (0.2) - - Equity investment restructuring cost (9.4) (e) - - Executive separation cost (4.8) (d) - (8.5) Charge for acquired profit in inventory - (2.8) - Directors pension termination - (0.8) (0.8) Write-off debt placement cost - (0.8) (0.8) Subtotal - operating loss (51.6) (16.7) (12.9) Litigation settlement gain 4.1 (b) - - Investment write-down (10.1) (c) - - Other restructuring cost - (0.6) (0.6) Subtotal - pre-tax expense (57.6) (17.3) (13.5) - after-tax expense (35.9) (10.6) (8.1) Hanna reversal of income tax reserve - - 10.5 German tax rate adjustment - 1.5 1.5 Total after-tax income (expense) $(35.9) $(9.1) $3.9 Notes: (a) Includes North American Plastics Compound and Colors announced manufacturing reconfiguration 1Q01 - ($7.0) and 4Q01 - ($22.5); Engineered Films 1Q01 announced staff reductions ($1.9) and 4Q01 asset write-down ($3.8)and Formulators staff reductions in 2Q01 - ($0.9) (b) Settlement of a former O'Sullivan breach of contract claim includes interest income of $1.0 (c) Includes Australian Vinyls Corporation (AVC) investment impairment 4Q01 - ($9.5) (d) Executive severance in connection with a change in control as a result of the merger ($4.8) (e) Restructuring cost recorded by equity affiliates AVC 3Q01 - ($5.1) and OxyVinyls 1Q01 - ($1.0) and 4Q01 - ($3.3)
SOURCE PolyOne Corporation
CONTACT: Media & Investors, Dennis Cocco, Chief Investor & Communications
Officer of PolyOne, +1-216-589-4018