-- Reports earnings per share of $0.04; $0.13 excluding special items,
tax charges
-- Cash balance of $182 million; liquidity exceeds $250 million
-- Gross margin improvement driven by restructuring actions completed
ahead of schedule and continued execution of four pillar strategy
-- Working capital days improve to 35, versus 57 days a year ago
PolyOne Corporation (NYSE: POL) today reported 2009 second quarter revenues of $496.5 million, a 34 percent decrease compared with revenues of $748.1 million in the second quarter of 2008. The decline in sales was principally due to continued weak global demand as volume fell 30 percent.
PolyOne reported net income of $3.5 million, or $0.04 per diluted share in the second quarter of 2009, compared with net income of $8.8 million or $0.09 per diluted share in the second quarter of 2008. Included in the results for the second quarter of 2009 are special items totaling $3.1 million of expense (after-tax) principally related to previously announced restructuring actions and tax adjustments totaling $5.3 million. The tax adjustments relate to a foreign tax audit assessment which the Company intends to appeal and a valuation allowance adjustment related to deferred tax assets. The Company began recording a valuation allowance against U.S. deferred tax assets during the fourth quarter of 2008.
The chart below facilitates a comparison of second quarter 2009 results
with the second quarter of 2008, showing the impact of special items and the
above-mentioned tax matters:
Q2 09 EPS Q2 08 EPS
----- --- ----- ---
Net income $3.5 $0.04 $8.8 $0.09
Special items, after-tax 3.1 0.03 2.5 0.03
Tax adjustments 5.3 0.06 0.3
---------------- ----------------
$11.9 $0.13 $11.6 $0.12
On a comparable basis, before special items and the tax items noted above, PolyOne reported net income of $0.13 per share in the second quarter of 2009, versus the $0.12 per share of income reported for the second quarter of 2008.
The Company's second quarter 2009 gross margin before special items of 18.2 percent represents 600 basis points of improvement from the second quarter of 2008 and a sequential improvement of 300 basis points versus the 15.2 percent for the first quarter of 2009 (See attachment 6). The gross margin improvements highlighted above can be summarized as follows:
Q2 09 vs. Q2 08
---------------
Q2 08 Gross margin 11.8%
Special items in gross margin 0.4%
----
Q2 08 Gross margin before special items 12.2%
Restructuring savings 1.9%
Volume/price/mix 2.2%
LIFO reserve adjustments 1.9%
Q2 09 Gross margin before special items 18.2%
Special items in gross margin -0.8%
----
Q2 09 Gross margin 17.4%
Q2 09 vs. Q109
--------------
Q1 09 Gross margin 12.8%
Special items in gross margin 2.4%
----
Q1 09 Gross margin before special items 15.2%
Restructuring savings 1.2%
Volume/price/mix 2.4%
LIFO reserve adjustments -0.6%
Q2 09 Gross margin before special items 18.2%
Special items in gross margin -0.8%
----
Q2 09 Gross margin 17.4%
"Our second quarter gross margin expansion and earnings improvement provide further evidence that we have radically reduced our manufacturing capacity and cost structure," said Stephen D. Newlin, chairman, president and chief executive officer. "I am particularly pleased with our ability to accelerate the previously announced restructuring actions and drive gross margin improvement, which has allowed us to offset the negative impact of significantly lower sales volume. Most notably, operating income from our Specialty Platform increased $14.1 million from the first quarter to the second of 2009. This reflects not only the aforementioned restructuring savings, but a nearly 50 percent increase in sales in Asia where demand appears to be recovering much faster than elsewhere in the world."
During the second quarter of 2009, the Company generated $59 million of cash flow and reported $182 million of cash on hand as of June 30, 2009. Combined with its undrawn and available accounts receivable facility, liquidity increased 35 percent from $189 million on March 31, 2008, to $255 million as of June 30, 2009. Robert M. Patterson, senior vice president and chief financial officer said, "We have made tremendous progress in reducing working capital this year which has been the primary driver of cash flow growth. Most notably, we have improved our inventory turnover to 11 times--a nearly 50 percent improvement--as a result of our lean six sigma initiatives."
Outlook Update
Regarding the Company's second half outlook, Newlin made several remarks:
"We are encouraged by the accelerated activity in Asia, and modest increases in sales in Europe and North America from the first quarter to the second. That being said, demand levels are still significantly below historic norms and this may continue for some time.
"With increasing levels of cash and a dramatically reduced cost structure, we are gaining more confidence about the future and expect to emerge from the recession a leaner, healthier organization. As new housing starts and auto production appear to be bottoming, we remain cautiously optimistic the worst is behind us, but we are mindful of rapidly changing conditions.
"Such changes in the near term include our expectation that favorable increases in chlorine prices will not be enough to offset unfavorable caustic soda price trends and this will put pressure on earnings from our SunBelt joint venture in the second half of 2009. We also expect LIFO benefits to diminish as commodity costs moderate or increase. It is unfortunate that these items may overshadow the progress we have made improving our core earnings, however, they are purely a function of the current economic environment. We will continue to focus on our strategic platforms and we remain confident our four pillar strategy of specialization, globalization, and operating and commercial excellence are transforming PolyOne into a specialty company."
Second Quarter 2009 Earnings Conference Call
PolyOne will host a conference call at 9 a.m. Eastern Time on Thursday, August 6, 2009. The conference dial-in number is 866-543-6403 (domestic) or 617-213-8896 (international), passcode 26334516, conference topic: second quarter 2009 PolyOne earnings conference call. The call will be available for replay until August 20, 2009, on the Company's Web site at www.polyone.com/investor or by phone at 888-286-8010 (domestic) or 617-801-6888 (international). The passcode for the replay is 93965590.
About PolyOne
PolyOne Corporation, with 2008 revenues of $2.7 billion, is a premier provider of specialized polymer materials, services and solutions. Headquartered outside of Cleveland, Ohio USA, PolyOne has operations around the world. For additional information on PolyOne, visit our Web site at www.polyone.com.
To access PolyOne's news library online, please visit www.polyone.com/news.
Forward-looking Statements
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. They use words such as "will," "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 and/or sales. Factors that could cause actual results to differ materially from those implied by these forward-looking statements include, but are not limited to: disruptions, uncertainty or volatility in the credit markets that could adversely impact the availability of credit already arranged and the availability and cost of credit in the future; the continued degradation in the North American residential construction market; the financial condition of our customers, including the ability of customers (especially those that may be highly leveraged and those with inadequate liquidity) to maintain their credit availability; the effect on foreign operations of currency fluctuations, tariffs, and other political, economic and regulatory risks; changes in polymer consumption growth rates in the markets where PolyOne conducts business; changes in global industry capacity or in the rate at which anticipated changes in industry capacity come online; fluctuations in raw material prices, quality and supply and in energy prices and supply; production outages or material costs associated with scheduled or unscheduled maintenance programs; unanticipated developments that could occur with respect to contingencies such as litigation and environmental matters; an inability to achieve or delays in achieving or achievement of less than the anticipated financial benefit from initiatives related to working capital reductions, cost reductions and employee productivity goals; an inability to raise or sustain prices for products or services; an inability to maintain appropriate relations with unions and employees; and other factors affecting our business beyond our control, including, without limitation, changes in the general economy, changes in interest rates and changes in the rate of inflation. The above list of factors is not exhaustive.
We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to consult any further disclosures we make on related subjects in our reports on Form 10-Q, 8-K and 10-K that we provide to the Securities and Exchange Commission.
Attachment 1
Supplemental Information
------------------------
Summary of Consolidated Operating Results (Unaudited)
Second Quarter 2009
(In millions, except per share data)
Operating results: Three Months Ended Six Months Ended
June 30, June 30,
------------ ----------
2009 2008 2009 2008
---- ---- ---- ----
Sales $496.5 $748.1 $959.9 $1,461.8
Operating income 19.3 24.0 16.6 44.1
Net income (loss) 3.5 8.8 (5.8) 15.3
Earnings per common share:
Basic earnings (loss) per
share $0.04 $0.09 $(0.06) $0.16
Diluted earnings (loss) per
share $0.04 $0.09 $(0.06) $0.16
Total basic per share impact
of special items (1) $(0.03) $(0.03) $(0.15) $(0.04)
Total diluted per share
impact of special
items (1) $(0.03) $(0.03) $(0.15) $(0.04)
Special items (1): Three Months Ended Six Months Ended
June 30, June 30,
------------ ----------
2009 2008 2009 2008
---- ---- ---- ----
Cost of sales
Employee separation and plant
phaseout costs $(2.9) $(0.4) $(12.7) $(0.4)
Environmental remediation costs (1.4) (2.3) (2.9) (3.9)
---- ---- ----- ----
Impact on cost of sales (4.3) (2.7) (15.6) (4.3)
Selling and administrative
Legal (0.2) - (0.2) -
Employee separation and plant
phaseout costs (0.1) (1.1) (0.4) (1.1)
---- ---- ---- ----
Impact on selling and
administrative (0.3) (1.1) (0.6) (1.1)
Adjustment to impairment of goodwill - - (5.0) -
Impact on operating income and
(loss) income before income taxes (4.6) (3.8) (21.2) (5.4)
Income tax benefit on special items 1.5 1.3 7.6 1.9
--- --- --- ---
Impact of special items on net
income (loss) $(3.1) $(2.5) $(13.6) $(3.5)
===== ===== ====== =====
Basic and diluted impact per
common share $(0.03) $(0.03) $(0.15) $(0.04)
Weighted average diluted shares
used to compute earnings per
share: 93.5 93.8 92.3 93.5
(1) Special items is a non-GAAP financial measure. Special items include
charges related to specific strategic initiatives or financial
restructurings such as: consolidation of operations; employee separation
costs resulting from personnel reduction programs, plant phaseout costs,
executive separation agreements; asset impairments; environmental
remediation costs, fines or penalties for facilities no longer owned or
closed in prior years; gains and losses on the divestiture of operating
businesses, joint ventures and equity investments; gains and losses on
facility or property sales or disposals; results of litigation, fines or
penalties, where such litigation (or action relating to the fines or
penalties) arose prior to the commencement of the performance period; and
the effect of changes in tax law, accounting principles or other such
laws or provisions affecting reported results or the effect of adverse
determinations by regulatory agencies relating to accounting principles
or treatment.
Attachment 2
PolyOne Corporation and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(In millions, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------ ----------
2009 2008 2009 2008
----- ----- ----- -------
Sales $496.5 $748.1 $959.9 $1,461.8
Cost of sales 410.2 659.6 814.4 1,288.4
----- ----- ----- -------
Gross margin 86.3 88.5 145.5 173.4
Selling And administrative 77.1 75.0 147.3 147.9
Adjustment to impairment of
goodwill - - 5.0 -
Income from equity affiliates 10.1 10.5 23.4 18.6
----- ----- ----- -------
Operating income 19.3 24.0 16.6 44.1
Interest expense, net (8.8) (9.8) (17.6) (18.2)
Other expense, net (0.7) (0.7) (7.3) (2.7)
----- ----- ----- -------
Income (loss) before income taxes 9.8 13.5 (8.3) 23.2
Income Tax (expense) benefit (6.3) (4.7) 2.5 (7.9)
----- ----- ----- -------
Net income (loss) $3.5 $8.8 $(5.8) $15.3
===== ===== ===== =======
Earnings (loss) per common share:
Basic earnings (loss) $0.04 $0.09 $(0.06) $0.16
Diluted earnings (loss) $0.04 $0.09 $(0.06) $0.16
Weighted average shares used
to compute earnings per share:
Basic 92.4 93.0 92.3 93.0
Diluted 93.5 93.8 92.3 93.5
Equity affiliates earnings
recorded by PolyOne:
SunBelt $9.0 $9.4 $21.8 $16.6
Other equity affiliates 1.1 1.1 1.6 2.0
----- ----- ----- -------
Income from equity affiliates $10.1 $10.5 $23.4 $18.6
===== ===== ===== =======
Attachment 3
PolyOne Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)
June 30, December 31,
2009 2008
-------- --------
Assets
Current assets:
Cash and cash equivalents $182.3 $44.3
Accounts receivable, net 285.6 262.1
Inventories 149.5 197.8
Deferred income tax assets 0.6 1.0
Other current assets 18.6 19.9
-------- --------
Total current assets 636.6 525.1
Property, net 408.8 432.0
Investment in equity affiliates and
nonconsolidated subsidiary 29.5 20.5
Goodwill 159.0 163.9
Other intangible assets, net 67.5 69.1
Deferred income tax assets - 0.5
Other non-current assets 61.4 66.6
-------- --------
Total assets $1,362.8 $1,277.7
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $39.7 $19.8
Short-term debt 22.1 6.2
Accounts payable 234.9 160.0
Accrued expenses 97.1 118.2
-------- --------
Total current liabilities 393.8 304.2
Long-term debt 388.9 408.3
Post-retirement benefits other than pensions 81.9 80.9
Pension benefits 208.7 225.0
Deferred income tax liabilities 3.4 -
Other non-current liabilities 91.0 83.4
Shareholders' equity 195.1 175.9
-------- --------
Total liabilities and shareholders' equity $1,362.8 $1,277.7
======== ========
Attachment 4
PolyOne Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(In millions)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2009 2008 2009 2008
---- ---- ---- ----
Operating Activities
Net income (loss) $3.5 $8.8 $(5.8) $15.3
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 14.0 15.9 34.0 31.7
Deferred income tax expense 9.4 1.0 8.8 0.4
Provision for doubtful
accounts 0.5 0.7 1.5 2.8
Stock compensation expense 0.8 0.7 1.4 1.5
Adjustment to impairment
of goodwill - - 5.0 -
Asset write-downs and
impairment charges 0.2 - 1.4 -
Companies carried at equity
and minority interest:
Income from equity
affiliates and
minority interest (10.1) (10.5) (23.4) (18.6)
Dividends and
distributions
received 12.8 7.4 14.2 8.3
Change in assets and liabilities:
Increase in accounts
receivable (25.4) (28.2) (9.4) (79.9)
Decrease (increase) in
inventories 11.2 (4.8) 47.0 (33.3)
Increase in accounts
payable 49.0 32.7 74.7 78.3
Increase (decrease) in
sale of accounts
receivable - (72.8) (14.2) 13.8
Decrease in accrued
expenses and other (1.7) (8.3) (0.6) (20.6)
------ ----- ---- ------
Net cash provided (used)
by operating activities 64.2 (57.4) 134.6 (0.3)
Investing Activities
Capital expenditures (5.5) (11.5) (12.2) (19.9)
Business acquisitions,
net of cash received - - - (150.0)
------ ----- ---- ------
Net cash used by
investing activities (5.5) (11.5) (12.2) (169.9)
Financing Activities
Change in short-term debt (0.1) 0.7 15.1 82.6
Issuance of long-term
debt, net of debt
issuance cost - 77.8 - 77.8
Repayment of long-term debt - (10.7) - (11.4)
------ ----- ------ ------
Net cash (used) provided
by financing activities (0.1) 67.8 15.1 149.0
Effect of exchange rate changes
on cash 1.2 1.7 0.5 1.6
------ ----- ------ ------
Increase (decrease) in cash and
cash equivalents 59.8 0.6 138.0 (19.6)
Cash and cash equivalents at
beginning of period 122.5 59.2 44.3 79.4
------ ----- ------ ------
Cash and cash equivalents
at end of period $182.3 $59.8 $182.3 $59.8
====== ===== ====== ======
Attachment 5
Business Segment and Platform Operations (Unaudited)
(In millions)
Operating income at the segment level does not include: special items as
defined on attachment 1; corporate general and administration costs that
are not allocated to segments; intersegment sales and profit
eliminations; share-based compensation costs; and certain other items
that are not included in the measure of segment profit and loss that is
reported to and reviewed by the chief operating decision maker. These
costs are included in Corporate and eliminations.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2009 2008 2009 2008
---- ---- ---- ----
Sales:
International Color and
Engineered Materials $115.0 $172.1 $209.1 $337.3
Specialty Engineered Materials 50.1 67.3 101.5 131.8
Specialty Color, Additives and Inks 49.2 60.8 94.0 119.2
------ ------ ------ --------
Specialty Platform 214.3 300.2 404.6 588.3
Performance Products and Solutions 170.3 273.7 329.1 533.0
PolyOne Distribution 135.1 208.2 272.0 409.3
Corporate and eliminations (23.2) (34.0) (45.8) (68.8)
------ ------ ------ --------
Sales $496.5 $748.1 $959.9 $1,461.8
====== ====== ====== ========
Gross margin:
International Color and Engineered
Materials $25.0 $30.7 $42.1 $59.5
Specialty Engineered Materials 13.0 12.5 22.0 23.3
Specialty Color, Additives and Inks 12.0 12.4 20.9 23.6
----- ----- ------ -----
Specialty Platform 50.0 55.6 85.0 106.4
Performance Products and Solutions 27.1 19.0 48.2 40.0
PolyOne Distribution 13.3 18.1 27.1 35.3
Corporate and eliminations (4.1) (4.2) (14.8) (8.3)
----- ----- ------ ------
Gross margin $86.3 $88.5 $145.5 $173.4
===== ===== ====== ======
Operating (loss) income:
International Color and Engineered
Materials $5.9 $10.4 $5.5 $18.2
Specialty Engineered Materials 4.7 3.2 5.1 6.1
Specialty Color, Additives and Inks 4.0 3.5 4.5 6.3
----- ----- ----- -----
Specialty Platform 14.6 17.1 15.1 30.6
Performance Products and Solutions 14.7 5.3 23.4 13.6
PolyOne Distribution 3.9 7.0 8.8 12.5
Resin and Intermediates 8.0 8.7 19.7 14.6
Corporate and eliminations (21.9) (14.1) (50.4) (27.2)
----- ----- ----- -----
Operating income $19.3 $24.0 $16.6 $44.1
===== ===== ===== =====
Specialty Platform consists of our three specialty businesses:
International Color and Engineered Materials; Specialty Engineered
Materials; and Specialty Color, Additives and Inks.
Attachment 6
Reconciliation of Non-GAAP Financial Measures (Unaudited)
(In millions, except per share data)
Senior management uses gross margin before special items and operating
income before special items to assess performance and allocate resources
because senior management believes that these measures are useful in
understanding current profitability levels and that current levels may
serve as a base for future performance. In addition, operating income
before the effect of special items is a component of various PolyOne
annual and long-term employee incentive plans and is used in debt
covenant computations. Senior management uses free cash flow to assess
our ability to service our debt. Below is a reconciliation of non-GAAP
financial measures to the most directly comparable measures calculated
and presented in accordance with GAAP. See attachment 1 for a definition
of special items.
Three Months Ended Six Months Ended
Reconciliation to Consolidated June 30, June 30,
Statements of Operations ------------------ ----------------
2009 2008 2009 2008
---- ---- ---- ----
Sales $496.5 $748.1 $959.9 $1,461.8
Gross margin before special
items $90.6 $91.2 $161.1 $177.7
Special items in gross margin (4.3) (2.7) (15.6) (4.3)
----- ----- ------ ------
Gross margin $86.3 $88.5 $145.5 $173.4
===== ===== ====== ======
Gross margin before special
items as a percent of sales 18.2% 12.2% 16.8% 12.2%
Operating income before
special items $23.9 $27.8 $37.8 $49.5
Special items in operating
income (4.6) (3.8) (21.2) (5.4)
----- ----- ----- -----
Operating income $19.3 $24.0 $16.6 $44.1
===== ===== ===== =====
Senior management uses comparisons of net (loss) income and basic and
diluted (loss) earnings per share (EPS) before special items, tax gain
and tax valuation allowance to assess performance and facilitate
comparability of results with prior periods. Below is a reconciliation
of these non-GAAP financial measures to their most directly comparable
measure calculated and presented in accordance with GAAP.
Three Months Ended Three Months Ended
Reconciliation to Consolidated June 30, 2009 June 30, 2008
Statements of Operations ------------------ ------------------
$ EPS $ EPS
- --- - ---
Net income $3.5 $0.04 $8.8 $0.09
Special items, after-tax
(attachment 1) 3.1 0.03 2.5 0.03
Tax (a) 5.3 0.06 0.3 -
----- ----- ----- -----
$11.9 $0.13 $11.6 $0.12
===== ===== ===== =====
Six Months Ended Six Months Ended
Reconciliation to Consolidated June 30, 2009 June 30, 2008
Statements of Operations ---------------- ---------------
$ EPS $ EPS
- --- - ---
Net (loss) income $(5.8) $(0.06) $15.3 $0.16
Special items, after-tax
(attachment 1) 13.6 0.15 3.5 0.04
Tax (a) 0.7 - 0.5 0.01
---- ----- ----- ----
$8.5 $0.09 $19.3 $0.21
==== ===== ===== =====
(a) Net tax loss associated with foreign tax audits and deferred income
tax valuation allowance on deferred tax assets
Senior management uses free cash flow to assess our ability to service
our debt. Below is a reconciliation of this non-GAAP financial measure to
the most directly comparable measure calculated and presented in
accordance with GAAP.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
Reconciliation to Consolidated
Statements of Cash Flows 2009 2008 2009 2008
------------------------------ ---- ---- ---- ----
Net cash provided (used) by
operating activities $64.2 $(57.4) $134.6 $(0.3)
Net cash used by investing
activities (5.5) (11.5) (12.2) (169.9)
Decrease (increase) in sale of
accounts receivable - 72.8 14.2 (13.8)
----- ---- ---- -----
Free cash flow $58.7 $3.9 $136.6 $(184.0)
===== ==== ====== ========