PolyOne Reports Results for 2003 Fourth Quarter and Full Year
February 4, 2004
- Fourth-quarter performance in line with expectations
- Company projects continuing sales momentum in first-quarter 2004
CLEVELAND, Feb. 4 /PRNewswire-FirstCall/ -- PolyOne Corporation
(NYSE: POL), a leading global polymer services company, today reported sales
from continuing operations of $474.0 million for the quarter ended
December 31, 2003, an increase of $28 million, or 6 percent, over the fourth
quarter of 2002. PolyOne also posted an operating loss from continuing
operations of $7.9 million in the fourth quarter of 2003 compared with an
operating loss from continuing operations of $17.3 million in the fourth
quarter of 2002.
Use of Non-GAAP Financial Measures
This press release includes the use of both GAAP (generally accepted
accounting principles) and non-GAAP financial measures. The non-GAAP
financial measures are: operating income (loss) before special items, net
income (loss) before special items and net income (loss) per share before
special items. The most directly comparable GAAP financial measures are
operating income (loss), net income (loss) and net income (loss) per share.
When PolyOne's chief operating decision makers review consolidated and
segment results, special items are excluded from operating income, net income
and net income per share to enhance understanding of current profitability
levels and how current levels may serve as a base for future performance.
PolyOne's chief operating decision makers also use non-GAAP financial measures
for decisions regarding allocation of resources. In addition, operating
income before special items is a component of the PolyOne Annual Incentive
Plan at the corporate and business segment levels.
PolyOne is providing these non-GAAP financial measures because it believes
that they provide investors a top-level management view of the Company's
financial performance and enhance investor understanding of current
profitability levels and their potential future implications.
Special items recognized during 2003 and 2002 include restructuring
activities such as employee separation costs resulting from personnel
reduction programs, plant closing and phase-out costs, asset impairments,
gains and losses on divestiture of equity investments, adjustments to reflect
a tax benefit on domestic operating losses and deferred tax valuation
allowances on domestic operating losses.
Tables included in this press release reconcile each non-GAAP financial
measure to the most directly comparable GAAP financial measure (Exhibit 1) and
provide detail on special items (Exhibit 2).
Discussion of Results
PolyOne reported a fourth-quarter 2003 net loss of $182.6 million, or
$2.00 per share, compared with a fourth-quarter 2002 net loss of
$17.5 million, or $0.19 per share. The 2003 fourth quarter net loss included
no U.S. income tax benefit on domestic operating losses. PolyOne also
reported a fourth-quarter 2003 loss before special items of $6.7 million, or
$0.07 per share, compared with a fourth-quarter 2002 net loss before special
items of $14.4 million, or $0.16 per share. The 2003 net loss per share
before special items is within the range of Wall Street estimates found on
Thomson Financial's First Call.
"Our lower cost structure and an increase in customer demand compared with
last year's fourth quarter were the key factors in our improved operational
financial performance," said Thomas A. Waltermire, PolyOne president and chief
executive officer. "While we will continue to reduce our cost structure, we
are focused on improving our market positions to better leverage the benefits
of a strengthening U.S. economy. We are encouraged by the comparatively and
sequentially stronger daily shipment rates experienced throughout the
The 2003 fourth quarter net loss of $182.6 million included special items
before taxes of $169.5 million. The special charges relate largely to (a)
personnel reductions; (b) the previously announced closing of the Burlington,
New Jersey, Wynne, Arkansas, and DeForest, Wisconsin, plants; and (c) a pre-
tax non-cash charge of $130.5 million associated with discontinued operations,
which PolyOne announced on January 15, 2004, based on currently projected net
proceeds from the disposition of three non-core business operations:
Elastomers and Performance Additives, Specialty Resins and Engineered Films.
The charge represents an estimated impairment in the net assets of the
discontinued operations held for sale.
For full-year 2003, PolyOne had sales from continuing operations of
$1.965 billion, an improvement of nearly 4 percent compared with 2002 sales
from continuing operations of $1.892 billion. The operating loss in 2003 was
$4.0 million compared with operating income of $5.0 million in 2002. Before
special items, however, operating income improved to $43.8 million in 2003
from $18.4 million in 2002.
The following chart summarizes consolidated operating results. Business
segment results (restated for the presentation of continuing and discontinued
operations) are attached as Exhibit 3.
Quarterly Summary of Consolidated Operating Results (In millions, except per share data) 4Q03 3Q03 4Q02 Operating results: Sales $474.0 $493.3 $445.6 Operating income (loss) (7.9) 6.7 (17.3) Net loss $(182.6) $(43.2) $(17.5) Income (loss) from discontinued operations - after tax (152.7) (1.8) 2.1 Loss before discontinued operations (29.9) (41.4) (19.6) Earnings per share - diluted: Net loss $(2.00) $(0.47) $(0.19) Income (loss) from discontinued operations (1.67) (0.02) 0.02 Loss before discontinued operations (0.33) (0.45) (0.21) Per share impact of special items - after tax: Before discontinued operations (0.25) (0.42) (0.03) Discontinued operations (1.68) (0.01) - Other data: Indirect costs of discontinued operations retained in continuing operations $4.1 $4.1 $6.1 Sales of discontinued operations (includes sales of $14.2 for Softer in 2002) 134.8 137.0 148.9 Depreciation and amortization: Before discontinued operations 12.8 12.8 12.8 Discontinued operations 4.0 5.4 5.1 Full-Year Summary of Consolidated Operating Results (In millions, except per share data) 2003 2002 Operating results: Sales $1,964.5 $1,891.5 Operating income (loss) (4.0) 5.0 Net loss $(251.1) $(58.9) Income (loss) from discontinued operations - after tax (155.8) 20.1 Loss before discontinued operations and cumulative effect of a change in accounting (95.3) (25.3) Earnings per share - diluted: Net loss $(2.76) $(0.65) Income (loss) from discontinued operations (1.76) 0.22 Income (loss) before discontinued operations and cumulative effect of a change in accounting (1.05) (0.28) Per share impact of special items - after tax: Before discontinued operations (0.81) (0.10) Discontinued operations (1.76) - Other data: Indirect cost of discontinued operations retained in continuing operations $17.9 $22.6 Sales of discontinued operations (includes sales of $70.0 for Softer in 2002) 571.0 676.7 Depreciation and amortization: Before discontinued operations Discontinued operations 51.4 51.0 20.5 21.5 Fourth-Quarter 2003 Business Highlights
Working capital management: PolyOne reduced total accounts receivable and
inventories by approximately $69 million. Accounts payable declined by
Plans for debt reduction: In October, PolyOne identified three non-core
operating units for divestment as part of its plan to reduce debt by
$200 million to $300 million. PolyOne intends to use a substantial portion of
the anticipated proceeds from the planned sale of these units to reduce debt
and strengthen its balance sheet. The Company expects to complete all three
dispositions in 2004. The non-core units employ approximately 2,270 people
and had 2003 sales totaling $571.0 million.
Overhead cost reductions: During the fourth quarter, management
implemented a number of programs to improve the performance of the North
American operations. As part of ongoing efforts to reduce PolyOne's selling
and administrative cost to less than 10 percent of sales, approximately 200
positions were eliminated in a number of business operations and functional
support departments during the quarter. Approximately 630 positions were
eliminated in 2003.
Restructuring actions: During the fourth quarter, PolyOne announced that
it will close the Burlington, New Jersey, manufacturing plant in the first
quarter of 2004. PolyOne projects that this restructuring action will yield
an annualized pre-tax earnings improvement of $5.5 million. The Company
anticipates total restructuring expense of approximately $15.5 million, of
which approximately $7 million will be non-cash and related to asset write-
offs. The fourth-quarter 2003 restructuring expense (included in special
items) was $11.5 million.
PolyOne also announced that it will close the DeForest, Wisconsin, and
Wynne, Arkansas, manufacturing plants in early 2004. PolyOne projects that
this restructuring action will yield an annualized pre-tax earnings
improvement of $7.5 million. Total restructuring expense will approximate
$12.5 million, of which approximately $5.0 million will be non-cash and
related to asset write-offs. The fourth-quarter 2003 restructuring expense
(included in special items) was $7.7 million.
ResinDirect acquisition: In January 2004, PolyOne announced that it had
acquired the North American distribution business of ResinDirect LLC, a wholly
owned subsidiary of Louis Dreyfus Energy Services L.P. In North America,
ResinDirect distributes approximately 60 million pounds of commodity plastic
resins annually. ResinDirect's North American distribution business is being
integrated into PolyOne's Distribution business segment, which had sales of
$529 million in 2003.
Tekno Polimer acquisition: In January 2004, PolyOne acquired the remaining
13 percent of its Turkish compounding operation, Tekno Polimer. Tekno Polimer
is part of PolyOne's European Engineered Materials business. The compounder
has provided successful PET recycling technology and has become the Center of
Excellence for recycled products in PolyOne's International Engineered
Materials business. Tekno Polimer sales were approximately $20 million in
Business Segment Performance Highlights
Performance Plastics: Fourth-quarter 2003 sales totaled $372.9 million, an
increase of $29.6 million, or 9 percent, versus the fourth quarter of 2002.
Shipment volume in the fourth quarter of 2003 improved 5 percent compared with
prior-year results. Sales benefited from favorable foreign currency exchange
rates and the Transcolor acquisition in December 2002. With the exception of
the Formulators product group, each operating unit in Performance Plastics had
improved shipment volumes. Contributing to the Formulators' volume decline
were a key customer that lost share in its end market and the contribution to
the BayOne equity joint venture of the former urethanes product line, for
which PolyOne no longer separately reports sales.
Distribution: Fourth-quarter 2003 Distribution shipment volumes reflected
the overall improvement in the North American manufacturing economy. Shipment
volumes in the United States and Canada improved 6 percent compared with
fourth-quarter 2002 and 4 percent compared with third-quarter 2003. Due to
PolyOne's exit of portions of the Distribution operations in Mexico, overall
segment volumes were up 1 percent and 3 percent compared with the same
Resin and Intermediates: Equity income from joint ventures, net of
allocated overhead support cost and costs associated with past operations, was
$5.0 million in the fourth quarter of 2003, $1.3 million more than in fourth-
quarter 2002. PolyOne's share of equity earnings increased $1.6 million from
Oxy Vinyls, LP and $0.4 million from SunBelt Chlor-Alkali in the fourth
quarter of 2003 compared with the same quarter in 2002. PolyOne's share of
equity earnings from SunBelt and OxyVinyls decreased $1.6 million compared
with the third quarter of 2003, due principally to higher feedstock costs and
lower resin and chlor-alkali selling prices.
First-Quarter 2004 Business Outlook
Customer demand, which strengthened in September after a weak July and
August, continued strong through early December. After a normal seasonal
year-end slowdown, demand in January 2004 returned to September/October 2003
levels for most business units and geographic regions. While sales demand in
February and March is difficult to predict, PolyOne estimates that if current
trends continue, first-quarter 2004 sales from continuing operations would
likely improve 5 percent to 8 percent over fourth-quarter 2003 levels and
would exceed first-quarter 2003 levels.
Demand for polyvinyl chloride (PVC) resin in the 2004 first quarter is
forecasted to be seasonally higher than in fourth-quarter 2003. Average
industry PVC resin selling prices are projected to improve from the 2003
fourth quarter because most producers have announced $0.02-per-pound increases
for both January and February. Consequently, PVC resin industry margins over
raw materials are projected to improve compared with the fourth quarter of
2003, even though ethylene costs are expected to increase during the first
quarter. The higher PVC resin industry margins, however, will be mostly offset
by higher natural gas costs. Chlor-alkali prices are anticipated to be down
in the 2004 first quarter compared with the fourth quarter of 2003. Caustic
demand is expected to improve sequentially.
The combination of these factors results in a projected decrease in
operating income for PolyOne's Resin and Intermediates segment of $2 million
to $4 million in the first quarter of 2004 compared with the fourth quarter of
In addition, PolyOne's operating businesses (the Performance Plastics and
Distribution business segments) anticipate that higher PVC resin prices and
other natural gas-derived raw material costs will likely affect operating
income negatively by $4 million to $6 million and offset a portion of the
benefit from higher sales compared with the fourth quarter 2003.
Restructuring expense in the first quarter of 2004 is projected at
approximately $11.5 million before taxes for actions initiated to date, with
approximately $5 million for continuing operations and $6.5 million for
discontinued operations. The Company does not expect to recognize a U.S.
income tax benefit on its loss in the first quarter.
Taking all these factors into consideration, PolyOne's first-quarter 2004
performance should improve over first-quarter 2003 results. The Company
anticipates a net loss between $0.09 and $0.17 per share, which includes a
foreign income tax expense of $4 million to $4.5 million, no tax benefit on
U.S. domestic losses and the $11.5 million restructuring expense. Before
restructuring and after adjusting to reflect a tax benefit on domestic
operating losses, PolyOne expects a small profit in the first quarter, driven
by internal cost reduction actions and improved demand, versus a first-quarter
loss in 2003.
"Economic indicators suggest that the customer demand we saw in the fourth
quarter should continue to improve in the first quarter, particularly in North
America," said Waltermire. "Like our customers, we remain cautiously
optimistic. We are confident that we have a solid strategy to improve
performance. Our actions remain focused on lowering our cost structure,
reducing debt through asset sales, reducing working capital and strengthening
our market positions."
The Company publishes more details of its performance as well as
information on key drivers of its operating results. This information will be
posted today on its Web site at www.polyone.com in the corporate investor
relations section under the listing "Supplements." The supplemental
information also can be obtained, once available, from the contact listed at
the end of this news release.
PolyOne Fourth-Quarter 2003 Conference Call
PolyOne will host a conference call at 10 a.m. Eastern time on February 5,
2004. The conference dial-in number is 888-489-0038 (domestic) or
706-643-1611 (international), conference topic: PolyOne Earnings Call. The
replay number is 800-642-1687 (domestic) or 706-645-9291 (international). The
conference ID for the replay is 4281892. The call will be broadcast live and
then via replay for two weeks on the Company's Web site
at http://www.polyone.com .
PolyOne Corporation, with 2003 annual revenues of approximately
$2 billion, is an international polymer services company with continuing
operations in thermoplastic compounds, specialty polymer formulations, color
and additive systems, and thermoplastic resin distribution. Headquartered in
Avon Lake, Ohio, PolyOne has employees at manufacturing sites in North
America, Asia and Australia, and joint ventures in North America, South
America and Asia. Information on the Company's products and services can be
found at http://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. 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 or achievement of less than the anticipated
financial benefit from initiatives related to restructuring programs,
including cost reduction and employee productivity goals; (2) a delay or
inability to achieve targeted debt level reductions through divestitures or
other means; (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 within the
Company's various businesses; (12) the possibility of further goodwill
impairment; (13) an inability to maintain any required licenses or permits;
(14) an inability to comply with any environmental laws and regulations; (15)
an inability or delay beyond December 31, 2004, in finding buyers of
discontinued operations or other non-core assets for reasonable and acceptable
terms; (16) an inability to access the receivables sale facility as a result
of breaching covenants; (17) any poor performance of our pension plan assets
and any obligation on our part to fund our pension plan; (18) any delay and/or
inability to bring the North American Color and Additives Masterbatch and the
Engineered Materials product platforms to profitability; (19) an inability to
achieve anticipated earnings performance due to the divestment of a non-core
business prior to March 31, 2004; and (20) an inability to raise prices or
sustain price increases for products.
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 risk factors. Consequently, you should not consider any such
list to be a complete set of all potential risks or uncertainties.
PolyOne Corporation and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (In millions, except per share data) Three Months Ended Year Ended December 31, December 31, 2003 2002 2003 2002 Sales $474.0 $445.6 $1,964.5 $1,891.5 Operating costs and expenses: Cost of sales 403.0 383.1 1,664.7 1,583.4 Selling and administrative 57.8 70.1 243.8 266.2 Depreciation and amortization 12.8 12.8 51.4 51.0 Employee separation and plant phase- out 9.0 - 35.1 1.1 Asset impairments 8.0 - 8.0 - Loss on divestiture of equity investment - 3.6 - 5.1 (Income) from equity affiliates and minority interest (8.7) (6.7) (34.5) (20.3) Operating income (loss) (7.9) (17.3) (4.0) 5.0 Interest expense (17.6) (11.0) (66.6) (42.4) Interest income 0.3 0.3 0.9 0.9 Other expense, net (3.6) (5.1) (13.3) (8.0) Loss before income taxes, discontinued operations, and cumulative effect of change in accounting method (28.8) (33.1) (83.0) (44.5) Income tax (expense) benefit (1.1) 13.5 (12.3) 19.2 Loss before discontinued operations and cumulative effect of a change in accounting (29.9) (19.6) (95.3) (25.3) Income (loss) from discontinued operations, net of income taxes (152.7) 2.1 (155.8) 20.1 Cumulative effect of a change in goodwill accounting, net of income tax benefit of $1.0 million - - - (53.7) Net loss $(182.6) $(17.5) $(251.1) $(58.9) Income (loss) per share of common stock: Basic loss per share before discontinued operations and effect of change in accounting $(0.33) $(0.21) $(1.05) $(0.28) Discontinued operations (1.67) 0.02 (1.71) 0.22 Cumulative effect of a change in accounting - - - (0.59) Basic loss per share $(2.00) $(0.19) $(2.76) $(0.65) Diluted loss per share before discontinued operations and effect of change in accounting $(0.33) $(0.21) $(1.05) $(0.28) Discontinued operations (1.67) 0.02 (1.71) 0.22 Cumulative effect of a change in accounting - - - (0.59) Diluted loss per share $(2.00) $(0.19) $(2.76) $(0.65) Weighted average shares used to compute loss per share: Basic 91.1 90.8 91.1 90.8 Diluted 91.1 90.8 91.1 90.8 Dividends paid per share of common stock $- $0.0625 $- $0.2500 PolyOne Corporation and Subsidiaries Condensed Consolidated Balance Sheet (Unaudited) (In millions) December 31, December 31, Assets 2003 2002 Current assets: Cash and cash equivalents $48.7 $41.4 Accounts receivable, net 263.5 161.1 Inventories 196.9 210.0 Deferred taxes 26.9 42.1 Other current assets 17.7 12.3 Discontinued operations 52.1 47.3 Total current assets 605.8 514.2 Property, net 486.1 507.9 Investment in equity affiliates 256.7 271.8 Goodwill, net 334.0 332.1 Other intangible assets, net 20.2 28.3 Other non-current assets 53.2 51.2 Discontinued operations 144.9 292.0 Total assets $1,900.9 $1,997.5 Liabilities and Shareholders' Equity Current liabilities: Short-term bank debt $1.1 $0.7 Accounts payable 173.4 194.9 Accrued expenses 111.1 144.3 Current portion of long-term debt 26.3 91.0 Discontinued operations 52.3 63.0 Total current liabilities 364.2 493.9 Long-term debt 757.1 492.2 Deferred taxes 25.9 39.0 Post-retirement benefits other than pensions 120.3 122.5 Other non-current liabilities, including pensions 257.9 260.9 Discontinued operations 0.2 0.3 Minority interest in consolidated subsidiaries 8.5 9.0 Total liabilities 1,534.1 1,417.8 Shareholders' equity: Preferred stock - - Common stock 1.2 1.2 Other shareholders' equity 365.6 578.5 Total shareholders' equity 366.8 579.7 Total liabilities and shareholders' equity $1,900.9 $1,997.5 PolyOne Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (In millions) Three Months Ended Year Ended December 31, December 31, 2003 2002 2003 2002 Operating Activities Net income (loss) $(182.6) $(17.5) $(251.1) $(58.9) Cumulative effect of a change in accounting - - - 53.7 Loss (Income) from discontinued operations 152.7 (2.1) 155.8 (20.1) Income (loss) from continuing operations (29.9) (19.6) (95.3) (25.3) Adjustments to reconcile net income (loss) to net cash used by operating activities: Employee separation and plant phase-out charges 9.0 - 35.1 1.1 Cash payments on employee separation and plant phase-out (8.2) (4.9) (43.5) (17.0) Depreciation and amortization 12.8 12.8 51.4 51.0 Unrealized currency gains (8.5) (2.2) (13.4) (13.0) LIFO reserve (1.3) 1.0 0.4 6.2 Loss on sale of assets and asset impairments 8.4 - 8.6 - Investment write-down and loss on sale of equity affiliate - 3.6 - 5.1 Companies carried at equity and minority interest: Income from equity affiliates (9.1) (7.1) (36.3) (20.2) Minority interest expense 0.4 0.5 1.8 - Dividends and distributions received 12.1 20.6 24.7 37.4 Change in assets and liabilities: Accounts receivable 49.5 65.5 2.2 8.5 FIFO inventories 24.8 28.6 24.3 (5.6) Accounts payable (35.9) (43.9) (31.3) (47.6) Proceeds under (decrease in) sale of accounts receivable 6.1 (32.4) (89.2) (57.6) Accrued expenses and other (21.4) (5.8) (15.5) 7.3 Net cash provided (used) by operating activities for continuing operations 8.8 16.7 (176.0) (69.7) Investing Activities Capital expenditures (8.8) (22.0) (28.7) (65.0) Return of capital by equity affiliates, net of investment 4.0 (9.1) 3.9 (6.8) Business acquired, net of cash received - (11.4) (15.8) (11.4) Proceeds from sale of assets 0.7 12.8 27.7 14.7 Net cash used by investing activities for continuing operations (4.1) (29.7) (12.9) (68.5) Financing Activities Change in short-term debt 5.5 - (84.6) (5.8) Change in long-term debt (6.6) (4.3) 291.2 149.6 Debt issuance Costs (0.3) - (15.0) - Termination of interest rate swap agreements - - (2.6) 8.3 Proceeds from the exercise of stock options - - - 7.0 Dividends - (5.8) - (22.7) Net cash provided (used) by financing activities for continuing operations (1.4) (10.1) 189.0 136.4 Net cash provided (used) by discontinued operations (11.2) 11.7 4.2 28.3 Effect of exchange rate changes on cash 6.2 (0.6) 3.0 (3.3) (Decrease) increase in cash and cash equivalents (1.7) (12.0) 7.3 23.2 Cash and cash equivalents at beginning of period 50.4 53.4 41.4 18.2 Cash and cash equivalents at end of period $48.7 $41.4 $48.7 $41.4 Exhibit 1 1 of 2
Below is a reconciliation of the non-GAAP financial measures that exclude
special items to the most directly comparable measures calculated and
presented in accordance with GAAP.
(Amounts in millions, except per share data) Quarters Year 4Q03 3Q03 4Q02 2003 2002 Consolidated: Net loss $ (182.6) $(43.2) $(17.5) $ (251.1) $(58.9) Cumulative effect of a change in goodwill accounting, after tax - - - - (53.7) Special items in continued operations, before tax (17.5) (8.9) (4.9) (48.0) (14.2) Tax - special items in continued operations (5.4) (29.1) 1.9 (26.1) 5.3 Special items in discontinued operations, before tax (152.0) (0.5) (0.2) (161.1) (0.6) Tax - special items in discontinued operations (1.0) (0.9) 0.1 1.4 0.2 Earnings (loss) before special items $(6.7) $(3.8) $(14.4) $(17.3) $4.1 Special items in continued operations, after tax $(22.9) $(38.0) $(3.0) $(74.1) $(8.9) Special items in discontinued operations, after tax (153.0) (1.4) (0.1) (159.7) (0.4) Total special items, after tax $(175.9) $(39.4) $(3.1) $(233.8) $(9.3) Diluted loss per share $(2.00) $(0.47) $(0.19) $(2.76) $(0.65) Cumulative effect of a change in goodwill accounting, after tax - - - - (0.59) Special items in continued operations, before tax (0.19) (0.10) (0.05) (0.52) (0.16) Tax - special items in continued operations (0.06) (0.32) 0.02 (0.29) 0.06 Special items in discontinued operations, before tax (1.67) - - (1.78) - Tax - special items in discontinued operations (0.01) (0.01) - 0.02 - Earnings (loss) before special items per share $(0.07) $(0.04) $(0.16) $(0.19) $0.04 Per share impact of special items in continued operations, after tax $(0.25) $(0.42) $(0.03) $(0.81) $(0.10) Per share impact of special items in discontinued operations, after tax (1.68) (0.01) - (1.76) - Per share impact of total special items, after tax $(1.93) $(0.43) $(0.03) $(2.57) $(0.10) Exhibit 1 2 of 2 (Amounts in millions, except per share data) Before discontinued operations and effect of a change in Quarters Year accounting: 4Q03 3Q03 4Q02 2003 2002 Loss $(29.9) $(41.4) $(19.6) $(95.3) $(25.3) Special items in continued operations, after tax (22.9) (38.0) (3.0) (74.1) (8.9) Loss before special items $(7.0) $(3.4) $(16.6) $(21.2) $(16.4) Diluted loss per share $(0.33) $(0.45) $(0.21) $(1.05) $(0.28) Per share impact of special items in continued operations, after tax (0.25) (0.42) (0.03) (0.81) (0.10) Loss before special items per share $(0.08) $(0.03) $(0.18) $(0.24) $(0.18) Operating income (loss) $(7.9) $6.7 $(17.3) $(4.0) $5.0 Special items in continued operations, before tax (17.5) (8.9) (4.1) (47.8) (13.4) Operating income (loss) before special items $9.6 $15.6 $(13.2) $43.8 $18.4 Operating income (loss) before special charges by business segment: Performance Plastics $6.4 $12.7 $(7.9) $34.5 $31.9 Distribution 2.4 2.2 (1.8) 9.1 4.3 Resin & Intermediates 5.0 7.5 3.7 24.0 10.6 Other (4.2) (6.8) (7.2) (23.8) (28.4) Operating income (loss) before special items $9.6 $15.6 $(13.2) $43.8 $18.4 Summary of Special Items (Unaudited) (In millions) Three Months Year 4Q03 3Q03 4Q02 2003 2002 Continuing operations: Employee separation and plant phase-out costs (1) $(9.0) $(7.7) $- $(35.1) $(1.1) Period plant phase-out costs incurred (2) (0.5) (1.2) (0.2) (2.9) (0.5) Asset impairments (8) (8.0) - - (8.0) - Equity affiliate - employee severance, liabilities associated with the temporary idling of a plant and cumulative effect of a change in accounting (3) - - - (1.8) (4.9) Loss on divestiture of equity investment (4) - - (3.6) - (5.1) Subtotal - impact on EBITDA (expense) (17.5) (8.9) (3.8) (47.8) (11.6) Plant phase-out accelerated depreciation (2) - - (0.3) - (1.8) Subtotal - impact on operating (expense) (17.5) (8.9) (4.1) (47.8) (13.4) Investment writedown - - (0.8) - (0.8) Loss on sale (5) - - - (0.2) - Total - impact pre tax (expense) (17.5) (8.9) (4.9) (48.0) (14.2) Income tax benefit on above items 6.4 2.8 1.9 17.6 5.3 Foreign dividend tax (6) - (24.0) - (24.0) - Tax allowance (7) (11.8) (7.9) - (19.7) - Total - after tax (expense) before discontinued operations and cumulative effect of a change in accounting $(22.9) $(38.0) $(3.0) $(74.1) $(8.9) Discontinued operations: Employee separation and plant phase-out costs (1) $(19.4) $(0.5) $- $(28.5) $- Period plant phase-out costs incurred (2) (2.1) - (0.2) (2.1) (0.6) Subtotal - impact on EBITDA and operating income (expense) (21.5) (0.5) (0.2) (30.6) (0.6) Net asset impairments of discontinued operations (9) (130.5) - - (130.5) - Total - impact pre tax (expense) (152.0) (0.5) (0.2) (161.1) (0.6) Income tax benefit on above items 40.0 0.2 0.1 43.5 0.2 Tax allowance (7) (41.0) (1.1) - (42.1) - Total - after tax (expense) discontinued operations and before cumulative effect of a change in accounting $(153.0) $(1.4) $(0.1) $(159.7) $(0.4) Total Continuing and Discontinued - after tax (expense) before cumulative effect of a change in accounting $(175.9) $(39.4) $(3.1) $(233.8) $(9.3) ( ) Denotes reference to explanatory comments attached. Exhibit 2 2 of 2 Summary of Special Items (Unaudited) Explanatory Comments (In millions) (1) These costs include severance, employee outplacement, external outplacement consulting, lease termination, facility closing costs and the write-down of the carrying value of plants and equipment related to restructuring initiatives. The 2003 expense relates to the following: -- January 16, 2003 announcement to reduce approximately 400 staff personnel. -- March 26, 2003 announcement to exit an Engineered Films plant in Yerington, Nevada. -- June 2003 decision to close the Fort Worth, Texas plant. -- Second quarter reversal of restructuring costs provided for in prior years. -- Third quarter reduction of 112 North American plastics personnel (71 in manufacturing and 41 in sales and administration). Manufacturing reductions include the shutdown of the St. Remi, Quebec powder production, elimination of vinyl compound production shifts and staff reductions at the Macedonia, Ohio engineered materials plant. -- Third quarter closure of two leased Ohio administrative offices. -- Third quarter closure of a portion of the Mexico distribution business. The restructuring costs include asset write-offs totaling $0.4 million. -- Fourth quarter reduction of approximately 200 personnel largely in administrative roles. -- Fourth quarter adjustment of $2.9 million expense to restructuring initiatives recorded in prior periods. -- October 29, 2003 announcement to close Elastomers and Performance Additives plants in Wynne, Arkansas and DeForest, Wisconsin. -- December 11, 2003 announcement to close and Engineered Films plant in Burlington, New Jersey. The 2002 expense was associated with the consolidation of certain activities related to the Formulator operations in the Performance Plastics business segment. (2) These are plant and phase-out costs associated with the 2001 Geon restructuring initiatives that are to be recognized as period costs versus when the restructuring initiative was approved. In connection with the acquisition of Hanna and resulting formation of PolyOne, management developed several initiatives to capture the strategic value of the combined former Geon and former Hanna businesses. This resulted in several announcements in 2001 that former Geon plants and Hanna plants would be closed. The initiatives also included the termination of corporate and other positions at Geon and former Hanna locations. The 2003 third and fourth quarter expense is for the write-off of inventory and receivables as a result of the decision to close the Mexico distribution business. (3) The 2003 expense relates to employee severance costs associated with a personnel reduction undertaken by OxyVinyls in the second quarter. In addition, the 2003 expense includes a charge for the cumulative effect of a change in accounting upon OxyVinyls adoption of SFAS No. 143 "Accounting for Asset Retirement Obligations." The 2002 costs include PolyOne's share of OxyVinyls employee severance, plant phase-out costs and liabilities associated with the temporary idling of a plant in December 2001 and the asset write-off and decommissioning costs related to the permanent closure of a portion of a plant in 2002. (4) Includes the 2002 first quarter loss on our divestiture of our 37.4% investment in the PVC resin operations of Australian Vinyls Corporation. In the fourth quarter of 2002, PolyOne recognized an impairment loss on the sale of its equity investment in Techmer PM, LLC. (5) Loss recorded for the sale of our European vinyl compounding business. (6) U.S. tax expense related to foreign subsidiary dividends to be paid in the fourth quarter of 2003. (7) Tax allowance to reduce net U.S. deferred income tax assets resulting from operating loss carry-forwards. (8) A non-cash impairment charge to adjust the 2003 year-end carrying value of deferred product technology, customer list, note receivable and internet investments to their estimated realizable future cash flows. (9) A non-cash discontinued operations impairment charge to adjust the 2003 year-end net asset carrying value of the Elastomers and Performance Additives, Specialty Resins and Engineered Films business operations to the estimated future net sale proceeds. Business Segment Operations (Unaudited) (In millions) Senior management uses operating income before special items as a business segment measure of operating performance. For a reconciliation from operating income to operating income before special items see the following table. Special items include gains and losses associated with the specific strategic initiatives such as restructuring or consolidation of operations, gains and losses attributable to divestment of joint ventures, and certain one-time items. Accordingly, senior management believes that excluding special items provides insight into the underlying metric achievement level and its potential future implication. Operating income before special items may not be comparable to financial performance measures presented by other companies. The "Other" segment primarily consists of the elimination of inter-business segment sales and profit in inventory, a portion of the indirect cost of discontinued operations and unallocated corporate costs. Three Months Year 4Q03 3Q03 4Q02 2003 2002 Business Segments: Sales: Performance Plastics $372.9 $392.8 $343.3 $1,556.1 $1,475.9 Distribution 132.0 128.2 125.9 529.2 519.7 Resin & Intermediates - - - - - Other (30.9) (27.7) (23.6) (120.8) (104.1) $474.0 $493.3 $445.6 $1,964.5 $1,891.5 Operating income (loss) before special items: Performance Plastics $6.4 $12.7 $(7.9) $34.5 $31.9 Distribution 2.4 2.2 (1.8) 9.1 4.3 Resin & Intermediates 5.0 7.5 3.7 24.0 10.6 Other (4.2) (6.8) (7.2) (23.8) (28.4) $9.6 $15.6 $(13.2) $43.8 $18.4 Reconciliation: Operating income (loss) $(7.9) $6.7 $(17.3) $(4.0) $5.0 Special items, expense 17.5 8.9 4.1 47.8 13.4 Operating income (loss) before special items $9.6 $15.6 $(13.2) $43.8 $18.4 Other data: Discontinued operations Sales: Elastomers and Performance Additives $81.9 $84.5 $81.1 $347.9 $363.8 Specialty Resins and Engineered Films 52.9 52.5 53.6 223.1 242.9 Softer - - 14.2 - 70.0 $134.8 $137.0 $148.9 $571.0 $676.7 Operating income (loss) before special items and indirect costs retained in continuing operations: Elastomers and Performance Additives $1.9 $2.7 $3.2 $13.9 $25.0 Specialty Resins and Engineered Films (0.8) (2.0) 0.9 (6.1) 9.5 $1.1 $0.7 $4.1 $7.8 $34.5 Reconciliation to income (loss) from discontinued operations, net of income taxes Special items impacting operating income (loss) (21.5) (0.5) (0.2) (30.6) (0.6) Net asset impairments of discontinued operations (130.5) - - (130.5) - Net tax benefit (allowance) (1.8) (2.0) (1.8) (2.5) (13.8) $(152.7) $(1.8) $2.1 $(155.8) $20.1 Reallocation of indirect costs of the discontinued operations retained in continuing operations: Performance Plastics $(1.7) $(1.7) $(2.5) $(7.2) $(9.1) Distribution (0.4) (0.5) (0.7) (2.1) (2.7) Other (2.0) (1.9) (2.9) (8.6) (10.8) Elastomers and Performance Additives 2.4 2.6 3.5 10.9 13.6 Specialty Resins and Engineered Films 1.7 1.5 2.6 7.0 9.0
SOURCE PolyOne Corporation
CONTACT: Investor & Media Contact, Dennis Cocco, Vice President,
Investor Relations & Communications of PolyOne Corporation, +1-440-930-1538/