PolyOne Reports Strong Second-Quarter 2005 Results
July 28, 2005
- Resin and Intermediates segment performance bolsters net income results
- Revenues improve on higher product selling prices as shipment volumes
approach first-quarter levels
- Cash flow improves significantly
CLEVELAND, July 28 /PRNewswire-FirstCall/ -- PolyOne Corporation
(NYSE: POL), a leading global polymer compounding and North American
distribution company, today reported sales from continuing operations of
$583.4 million for the second quarter ended June 30, 2005, an increase of
$25.6 million, or 5 percent, compared with the second quarter of 2004.
Operating income from continuing operations was $42.5 million for the second
quarter of 2005, a $1.5 million increase over the same period in 2004, and a
$3.8 million improvement over the first quarter of 2005.
Net income for the second quarter of 2005 was $31.3 million, or $0.34 per
share -- a significant improvement over $21.5 million, or $0.24 per share, in
the second quarter of 2004. Most of this improvement came from increased
equity affiliate income and continued strength from the Specialty Resins unit,
a discontinued operation.
"These results reflect a substantial turnaround in our overall performance
during the last two years," said Thomas A. Waltermire, president and chief
executive officer. "We are benefiting from our efforts to strengthen our
market position and our cost structure. However, demand in the second quarter
was hampered by customer inventory adjustments, resulting in flat volumes and
continued margin challenges."
Waltermire added, "We are benefiting also from the diversity of our
earnings base, which includes backward integration into polyvinyl chloride
(PVC) resin, chlorine and caustic soda. In addition, in the second quarter,
we continued to manage our working capital aggressively, which enhanced our
positive operating cash flow."
A Note on Accounting for Discontinued Operations
In accordance with Generally Accepted Accounting Principles (GAAP),
PolyOne segregates and reports results of discontinued operations net of tax
as a separate line item on the statement of operations (income statement).
Income or loss from discontinued operations is reported below operating income
- continuing operations on the income statement. As a result, reporting and
discussion of items above the operating income - continuing operations line
(such as sales, operating income, and selling and administrative costs)
includes only the results of continuing operations.
Quarterly Summary of Consolidated Operating Results (In millions of dollars, except per share data, unaudited) 2Q05 2Q04 1Q05 Operating results: Sales - continuing operations $583.4 $557.8 $576.7 Operating income - continuing operations $42.5 $41.0 $38.7 Net income - total Company $31.3 $21.5 $13.4 Income before discontinued operations - after tax 22.6 19.2 19.1 Income (loss) from discontinued operations 8.7 2.3 (5.7) Earnings (loss) per share - diluted: Net income - total Company $0.34 $0.24 $0.15 Income before discontinued operations 0.25 0.21 0.21 Income (loss) from discontinued operations 0.09 0.03 (0.06) Total per share impact of special items - after tax: 0.10 (0.04) (0.05) Before discontinued operations 0.06 0.03 0.05 Discontinued operations 0.04 (0.07) (0.10) Other data: Sales - discontinued operations* $68.1 $154.6 $65.0 Depreciation and amortization - continuing operations 12.4 13.5 12.5 *Second-quarter 2004 discontinued sales included $94.9 million in revenues from the Elastomers and Performance Additives business that was sold in August 2004.
A discussion occurs at the end of this release on the use of non-GAAP
Special items for continuing and discontinued operations increased
earnings in the 2005 second quarter by $0.10 per share on a pro forma basis.
The most significant special item was a non-cash tax benefit. The Company is
required to provide for a deferred tax allowance on domestic earnings and
thus, its reported earnings are not United States tax affected. A definition
and a list of special items appear in Attachment 4.
Second-quarter 2005 Highlights (see Attachment 7)
Total Company - Revenues from continuing operations increased 4.6 percent
versus second-quarter 2004 and 1.2 percent versus first-quarter 2005.
Shipments, however, declined 9 percent from the same quarter in 2004 and 1.6
percent from the first quarter of 2005. This slowness in the second quarter,
which is normally seasonally stronger than the first quarter, was attributable
primarily to a slowdown in North American plastics product industrial
production and to continued weak demand in Europe. The Company believes
customers may have been utilizing inventories built up during prior periods as
potential hedges against prospective higher raw material prices.
Net cash used by operating activities was $7.2 million for the first six
months of 2005. Operating cash flow as defined in Attachment 5 was a positive
$26.3 million for the second quarter, a substantial improvement over first-
quarter 2005. Contributing were significant improvements in working capital
efficiency, stronger earnings and cash received from equity affiliates. The
Company has also improved its accounts receivable and inventory control by
achieving reductions in its days sales in receivables (DSO) and inventory
In the first six months of 2005, S&A costs were 8.1 percent of sales
compared with the 2004 average of 9.3 percent.
For PolyOne's discontinued operations, revenues increased 14 percent
versus the second quarter of 2004, excluding revenues of the now-divested
Elastomers and Performance Additives business from 2004 results. Second-
quarter revenues from discontinued operations increased 4.5 percent versus the
first quarter of 2005. Shipments declined 4.6 percent from second-quarter
2004, and decreased sequentially by 1.0 percent. Higher selling prices for
Specialty Resins, due to tight supply conditions, drove the revenue gains.
Performance Plastics segment: Following is a brief description of second-
quarter activities within the product groups that make up Performance
Performance Plastics' operating income increased in the second quarter by
$3.8 million over the first quarter of 2005. Operating income was $10.4
million lower than the second-quarter 2004 level, primarily because of lower
sales volumes and product spreads. Higher raw material costs across virtually
all product lines resulted in the year-over-year decline in product spreads
(selling price minus raw material cost). Selling price increases only
partially offset the impact of rising raw material costs.
Vinyl Compounds -- Shipment volumes declined 13 percent compared with the
second quarter of 2004 and 8 percent year to date compared with the same
period in 2004. This decline was due primarily to softening demand in the
electronics and packaging markets. Higher average selling prices, resulting
from efforts to recapture increases in the cost of resin and non-resin raw
materials, helped hold the second-quarter sales decline to 3 percent and raise
year-to-date sales 2 percent compared with the same periods in 2004.
Also in the second quarter, PolyOne agreed to acquire the equipment,
recipes and customer list of Novatec Plastics Corporation, a compounding
business. The transaction expands PolyOne's leadership in the customer
profile and custom molding markets.
Polymer Coating Systems (formerly Formulators) -- Volume declined 4
percent for both the quarter and the year to date compared with the same
periods in 2004, due to general softening across most markets and a decline in
demand from the automotive industry that was caused primarily by a reduced
production schedule and platform buildouts. Sales increases of 6 percent in
the second quarter and 5 percent year to date compared with the same periods
in 2004 were primarily from higher selling price realizations.
International -- International Color and Engineered Materials volume
decreased year over year, primarily as a result of the May 31, 2004 sale of
the Melos rubber granules business. The divestment of Melos accounted for the
majority of the 19 percent volume decline in the second quarter and the entire
19 percent year-to-date volume decline compared with the same periods in 2004.
The balance of the volume decline was due to general weakness in European
plastics markets, especially regarding to Engineered Materials applications.
This weakness in Europe was partially offset by strengthening demand in
Asia. During the second quarter, the Company's newly completed manufacturing
facility in Shenzhen, China, successfully commenced operations. The plant
manufactures engineered material compounds, color compounds and inks.
A favorable euro-to-U.S.-dollar currency exchange rate and higher average
selling prices contributed to an international sales increase of 9 percent in
the second quarter and 6 percent year to date compared with the same periods
North American Color -- Quarterly volume improved 2 percent compared with
the second quarter of 2004 and nearly 5 percent compared with the first
quarter of 2005, primarily from new business in construction and wire and
cable applications. Higher average selling prices and new captured business
helped drive a 12 percent year-to-date sales improvement.
North American Engineered Materials -- Volume fell 20 percent in the
second quarter and 11 percent year to date compared with the same periods in
2004. The primary cause was reduced demand for certain automotive
applications, compounded by the general slowing in automobile production early
in the quarter. Higher average selling prices from efforts to recapture raw
material cost increases, coupled with a more value-added mix of products,
helped hold the second-quarter sales decline to 4 percent and increased year-
to-date sales 1 percent compared with the same periods in 2004.
Distribution segment: Sales increased 11 percent in the second quarter and
13 percent year to date compared with the same periods last year. These
increases were driven primarily by selling price increases passed through from
the supplier base. Volume declined 5 percent in the second quarter and 2
percent year to date, consistent with the general softening across the North
American plastics industry experienced by the Performance Plastics segment.
Operating income decreased in the quarter to $4.0 million from $4.8
million in the second quarter of 2004, due primarily to the aforementioned
lower shipment volumes. A sequential operating income decline of $1.4 million
was due to lower sales volumes and product spreads as commodity resin prices
came under pressure.
Resin and Intermediates (R&I) segment: Operating income rose $15.6 million
in the second quarter and $32.5 million year to date compared with the same
periods in 2004. The equity earnings contribution from Oxy Vinyls, LP
increased $6.3 million in the second quarter and $14.1 million year to date,
driven primarily by higher industry average PVC resin selling price spreads
over raw materials and improved chlor-alkali profitability. SunBelt Chlor-
Alkali's equity earnings contribution increased $8.7 million in the second
quarter and $16.8 million year to date over the same periods last year, due
largely to significantly higher combined selling prices for chlorine and
Report on 2005 Priorities
Early this year, PolyOne outlined a series of financial and business
priorities aimed at further strengthening the Company. At the time these
goals were established, expectations were for year-over-year plastics industry
growth in North America and modest improvements in European economies. After
six months, it appears that real average annual industry growth is unlikely to
occur; in fact, according to the plastics product industrial production index,
North American are tracking below 2004 levels. This slowing of demand,
coupled with higher raw material prices, has retarded improvements in product
spread. Consequently, product spreads have increased only modestly compared
with fourth-quarter 2004 levels and have generally remained below average 2004
- Accelerate organic business growth:
For its continuing operations, PolyOne's targets are a 2 percent to 3
percent increase over market growth and at least $20 million in sales
of products incorporating new technologies. While first-half shipments
were approximately 5 percent below first-half 2004 levels (excluding
Melos volume), the Company does not believe it is losing market share
within the industry. PolyOne attributes most of this reduction to
customer inventory destocking in anticipation of commodity price
declines. In addition, weak demand has persisted in Europe, as it has
since the fourth quarter of 2004.
- Build the North American Color and Additives and the Engineered
Materials businesses into strong earnings contributors:
Slowing demand and higher raw material costs have adversely affected
PolyOne's original goal to achieve full-year profitability for its
North American Color and Additives and Engineered Materials units.
Through the first six months, only the general-purpose color product
line within the Color and Additives business unit achieved its
profitability objective. The Color and Additives unit has, however,
made substantial strides to re-establish its market position, as
evidenced by year-over-year volume growth of 5 percent in what is
believed to be a down market.
- Complete the return to a strong financial position: PolyOne's 2005 goal
was to lower its debt coverage ratio to less than 3.0 by paying down
debt with cash generated from improved earnings and proceeds from
divestments. Lower sales and slower spread recovery are likely to
impede full achievement of this goal. Nevertheless, the Company
anticipates steady progress toward its debt coverage objective.
- Ingrain the drive for continuous productivity gains: PolyOne is on
track toward its goal of continuing to achieve cost reduction and asset
efficiency improvements, in part by further lowering selling and
administrative (S&A) costs as a percentage of sales. In the first six
months of 2005, S&A costs were 8.1 percent of sales compared with the
2004 average of 9.3 percent.
Third-quarter 2005 Business Outlook
"We believe that our customers have finished destocking inventories and
will begin to increase their product purchases in the third quarter.
Consequently, we anticipate at least a modest improvement in demand for our
products," said Waltermire. "Our focus in the upcoming quarter will continue
to be on sales targets, with a goal of growing faster than our markets and
restoring spreads over raw materials wherever possible."
With inventory corrections largely complete, PolyOne expects third-quarter
sales volumes to better reflect underlying market demand. Leading economic
trend indicators for North America remain neutral to positive for growth
prospects. Consequently, PolyOne expects that sales volumes for North
American business operations should increase sequentially by 1 percent to 3
percent, factoring in typical July demand softening. This level would result
in volumes below third-quarter 2004 levels.
PolyOne projects that International sales volumes will decline marginally
from second-quarter 2005 primarily due to continuing weakness in Europe
compounded by the August holiday period. The Company anticipates continuing
strong volume growth from its Asian operations.
For the continuing operations, PolyOne expects sales revenue increases to
follow North American volume improvements. Average compound product pricing
is anticipated to be largely unchanged compared with the second quarter.
Public industry sources indicate, however, that commodity spot and export
prices are beginning to increase, and contract price increases for polyolefin
and PVC resins have been announced for later in the quarter. Even though
increasing commodity resin price trends would pressure compound product
spreads (product prices over raw material costs), these spreads should remain
largely constant compared with the second quarter. PolyOne anticipates that,
taken together, volume and margin expectations should provide a sequential
earnings improvement for the continuing operations, excluding R&I segment
The Resin and Intermediates segment should benefit in the third quarter
from continuing strong earnings associated with chlor-alkali products.
PolyOne anticipates that caustic soda and chlorine pricing will approximate
second-quarter levels. The Company expects lower OxyVinyls earnings, however,
due primarily to decreased resin price spreads and higher energy costs
adversely affecting PVC resin, vinyl chloride monomer and chlor-alkali
production costs. As a result of these factors, PolyOne anticipates that
Resin and Intermediates segment earnings should be between $5 million and $7
million lower than in second-quarter 2005.
Considering this combination of factors, PolyOne anticipates that
operating income from continuing operations should be approximately $3 million
to $6 million lower in the third quarter compared with the second quarter of
PolyOne expects that the discontinued operations, Specialty Resins and
Engineered Films, should experience seasonal volume softening and reduced
demand for automotive applications in the third quarter. In addition, PolyOne
foresees modest selling price spread erosion associated with selling price
pressure corresponding to lower demand levels and higher energy-based
conversion costs. Consequently, PolyOne projects that the discontinued
operations' net income should decline sequentially between $1 million and $3
In the second quarter, other expense, net benefited $2.8 million from
favorable foreign exchange rate changes compared with second-quarter 2004.
For the 2005 quarter, currency exchange gains were $2.0 million. The Company
does not anticipate a similar positive earnings impact in the third quarter.
PolyOne will continue to maintain a full valuation allowance associated
with U.S. Federal taxes. Consequently, PolyOne's reported net income will
reflect only foreign tax liabilities. The Company expects the effective
foreign tax rate to remain at approximately 30 percent.
In the second quarter, PolyOne generated positive operating cash flow from
operations. In the third quarter, the Company expects to further increase
operating cash flow compared with the second quarter as a result of
anticipated higher equity investment distributions, continuing tight working
capital control and lower cash interest payments. Capital expenditures,
depreciation and cash taxes paid should approximate second-quarter levels.
The primary use for positive operating cash flows should remain debt
PolyOne Second-quarter 2005 Conference Call
PolyOne will host a conference call at 9:00 a.m. Eastern time on July 29,
2005. 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 9932132. The call will be broadcast live and
then via replay for two weeks on the Company's Web site at
The Company filed today with the Securities and Exchange Commission (SEC)
its Quarterly Report on Form 10-Q for the second quarter of 2005. The Form
10-Q contains more details of PolyOne's performance as well as information on
key drivers of operating results. This information will be posted today on
the Company's Web site at http://www.polyone.com in the corporate investor
relations section. The Form 10-Q can be obtained from the contact listed at
the end of this press release and is also available on the SEC's Web site at
In-quarter Update Policy
PolyOne intends to release an in-quarter update during September, the
final month of the quarter. The purpose of this release is to inform
investors of any material changes to major business drivers as discussed in
the "Outlook" section of earnings releases and Form 10-Q or Form 10-K.
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 cash flow, operating income (loss) before
special items on a consolidated basis and per share impact of special items.
The most directly comparable GAAP financial measures are: net cash used
(provided) by operating activities, operating income (loss) and income (loss)
When PolyOne's chief operating decision makers review consolidated and
segment results, special items are excluded from operating income and are
evaluated on a per-share basis to enhance understanding of current
profitability levels and how current levels may serve as a basis for future
performance. PolyOne's chief operating decision makers also use these 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 and is used in debt covenant computations. PolyOne's
chief operating decision makers use operating cash flow as an internal measure
of cash generation from operations, and it is also a component of the PolyOne
Annual Incentive Plan.
PolyOne is providing these non-GAAP financial measures because it believes
they offer investors a top-level management view of PolyOne's financial
performance and enhance investor understanding of current profitability levels
and how current levels may serve as a basis for future performance.
Special items include charges related to specific strategic initiatives
such as the consolidation of operations; restructuring activities such as
employee separation costs resulting from personnel reduction programs, plant
closure and phase-out costs; asset impairments; environmental remediation
costs for facilities no longer owned or closed in prior years; gains and
losses on the divestiture of joint ventures and 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 (Attachment 5)
and provide detail on special items (Attachment 4). Also attached are
standard financial schedules and a summary of segment results.
PolyOne Corporation, with 2004 annual revenues of approximately $2.2
billion, is a leading global compounding and North American distribution
company with continuing operations in thermoplastic compounds, specialty
polymer formulations, color and additive systems, and thermoplastic resin
distribution. Headquartered in northeast Ohio, PolyOne has employees at
manufacturing sites in North America, Europe, Asia and Australia, and joint
ventures in North America and South America. Information on PolyOne'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, including, without limitations, meeting cash flow goals,
receiving cash distributions from equity affiliates and achieving working
capital targets; 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:
- 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
- changes in U.S., regional or world polymer consumption growth rates
affecting PolyOne's markets;
- failure of customer demand to recover in the third quarter 2005 as
anticipated resulting in an inability to meet earnings improvement
- 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 PolyOne participates;
- fluctuations in raw material prices, quality and supply and in energy
prices and supply, in particular fluctuations outside the normal range
of industry cycles;
- production outages or material costs associated with scheduled or
unscheduled maintenance programs;
- costs or difficulties and delays related to the operation of joint
- lack of day-to-day operating control, including procurement of raw
materials, of equity or joint venture affiliates;
- partial control over investment decisions and dividend distribution
policy of the OxyVinyls partnership and other minority equity holdings
- an inability to launch new products and/or services within PolyOne's
- the possibility of further goodwill impairment;
- an inability to maintain any required licenses or permits;
- an inability to comply with any environmental laws and regulations;
- the cost of compliance with environmental laws and regulations,
including any increased cost of complying with new or revised laws and
- unanticipated developments that could occur with respect to
contingencies such as litigation and environmental matters, including
any developments that would require any increase in our costs and/or
reserves for such contingencies;
- an inability to achieve or delays in achieving or achievement of less
than the anticipated financial benefit from initiatives related to cost
reductions and employee productivity goals;
- a delay or inability to achieve targeted debt level reductions through
divestitures and/or other means;
- an inability to access the revolving credit facility and/or the
receivables sale facility as a result of breaching covenants due to not
achieving anticipated earnings performance or for any other reason;
- any poor performance of our pension plan assets and any obligation on
our part to fund PolyOne's pension plan;
- any delay and/or inability to bring the North American Colors and
Additives Masterbatch and the Engineered Materials product platforms to
- an inability to raise prices or sustain price increases for products;
- an inability or delay beyond December 31, 2005 in finding buyers of
discontinued operations or other non-core assets for reasonable and
- an inability to achieve anticipated earnings performance due to the
divestment of a non-core business;
- an inability to complete the sale of discontinued businesses due to
problems or delays associated with legal proceedings, regulatory
approvals and/or buyers receiving financing for the transaction or any
- the ability to maintain appropriate relations with unions and employees
in certain locations in order to avoid disruptions of business; and
- other factors affecting our business beyond our control, including,
without limitations, changes in the general economy, changes in
interest rates and changes in the rate of inflation.
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 reports on Form 10-Q, 8-K and 10-K provided 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 list to be a complete set of all potential risks or uncertainties. (Ref.
Attachment 1 PolyOne Corporation and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (In millions, except per share data) Three Months Ended Six Months Ended June 30, June 30, 2005 2004 2005 2004 Sales $583.4 $557.8 $1,160.1 $1,093.4 Operating costs and expenses: Cost of sales 512.9 459.6 1,017.5 908.2 Selling and administrative 47.3 54.8 94.0 112.6 Depreciation and amortization 12.4 13.5 24.9 27.1 Employee separation and plant phase-out 0.4 (1.0) 0.6 (1.2) Environmental remediation at inactive sites - 0.9 - 1.3 Loss on sale of assets - 5.7 - 5.7 Income from equity affiliates and minority interest (32.1) (16.7) (58.1) (25.9) Operating income 42.5 41.0 81.2 65.6 Interest expense (17.0) (18.3) (33.3) (36.7) Other expense, net (0.5) (3.1) (1.3) (6.0) Income before income taxes and discontinued operations 25.0 19.6 46.6 22.9 Income tax expense (2.4) (0.4) (4.9) (5.3) Income before discontinued operations 22.6 19.2 41.7 17.6 Discontinued operations: Income from operations, net of income taxes 8.7 2.3 3.0 7.9 Net income $31.3 $21.5 $44.7 $25.5 Earnings per common share: Basic and diluted earnings: Before discontinued operations $0.25 $0.21 $0.46 $0.19 Discontinued operations 0.09 0.03 0.03 0.09 Basic and diluted earnings per share $0.34 $0.24 $0.49 $0.28 Weighted average shares used to compute earnings per share: Basic 91.8 91.5 91.8 91.5 Diluted 92.1 91.8 92.1 91.7 Dividends paid per share of common stock $- $- $- $- Attachment 2 PolyOne Corporation and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (In millions, except per share data) June 30, December 31, 2005 2004 Assets Current assets: Cash and cash equivalents $34.7 $38.6 Accounts receivable, net 314.1 309.7 Inventories 201.5 196.0 Deferred income tax assets 19.9 20.1 Other current assets 16.7 17.7 Discontinued operations 33.5 34.6 Total current assets 620.4 616.7 Property, net 414.3 441.2 Investment in equity affiliates 302.1 263.3 Goodwill, net 322.0 321.0 Other intangible assets, net 9.9 10.1 Other non-current assets 59.1 59.6 Discontinued operations 48.3 59.9 Total assets $1,776.1 $1,771.8 Liabilities and Shareholders' Equity Current liabilities: Short-term bank debt $3.3 $2.3 Accounts payable 220.1 210.7 Accrued expenses 83.1 102.4 Current portion of long-term debt 47.5 49.3 Discontinued operations 27.0 26.3 Total current liabilities 381.0 391.0 Long-term debt 640.7 640.5 Deferred income tax liabilities 10.0 14.4 Post-retirement benefits other than pensions 111.2 114.0 Other non-current liabilities, including pensions 213.8 224.6 Minority interest in consolidated subsidiaries 5.4 6.8 Discontinued operations 0.1 0.1 Total liabilities 1,362.2 1,391.4 Shareholders' equity: Preferred stock, 40.0 shares authorized, no shares issued - - Common stock, $.01 par, 400.0 shares authorized, 122.2 shares issued at June 30, 2005 and December 31, 2004 1.2 1.2 Other shareholders' equity 412.7 379.2 Total shareholders' equity 413.9 380.4 Total liabilities and shareholders' equity $1,776.1 $1,771.8 Attachment 3 PolyOne Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (In millions) Six Months Ended June 30, 2005 2004 Operating Activities Net income $44.7 $25.5 Income from discontinued operations 3.0 7.9 Income from continuing operations 41.7 17.6 Adjustments to reconcile income from continuing operations to net cash used by operating activities of continuing operations: Employee separation and plant phase-out charges 0.6 (1.2) Cash payments on employee separation and plant phase-out (1.9) (14.7) Charges on environmental remediation at inactive sites - 1.3 Cash payments for environmental remediation at inactive sites (9.9) (0.8) Depreciation and amortization 24.9 27.1 Loss on sale of assets - 5.7 Companies carried at equity and minority interest: Income from equity affiliates and minority interest (58.1) (25.9) Dividends and distributions received 19.2 2.8 Deferred income taxes 0.9 1.1 Change in assets and liabilities: Accounts receivable (51.5) (62.5) FIFO inventories (6.1) (19.9) Accounts payable 15.2 59.9 Increase (decrease) in sale of accounts receivable 38.6 (51.6) Accrued expenses and other (20.8) 17.4 Net cash used by operating activities of continuing operations (7.2) (43.7) Investing Activities Capital expenditures (17.5) (9.3) Return of cash from equity affiliates - 13.6 Business acquired, net of cash received (2.7) (5.1) Proceeds from sale of assets 8.4 26.3 Net cash provided (used) by investing activities of continuing operations (11.8) 25.5 Financing Activities Change in short-term debt 1.0 (0.2) Change in long-term debt (1.5) (3.4) Proceeds from exercise of stock options 0.3 - Net cash used by financing activities of continuing operations (0.2) (3.6) Net cash provided by discontinued operations 17.1 26.6 Effect of exchange rate on changes on cash (1.8) (0.8) Increase (decrease) in cash and cash equivalents (3.9) 4.0 Cash and cash equivalents at beginning of period 38.6 48.7 Cash and cash equivalents at end of period $34.7 $52.7 Attachment 4 Summary of Special Items (Unaudited) (In millions)
"Special items" include charges related to specific strategic initiatives
such as the consolidation of operations; restructuring activities, including
employee separation costs resulting from personnel reduction programs, plant
closure and phase-out costs; asset impairments; environmental remediation
costs for facilities no longer owned or closed in prior years; gains and
losses on the divestiture of joint ventures and equity investments;
adjustments to reflect a tax benefit on domestic losses; and deferred tax
valuation allowances on domestic operating income.
Special items ($mm) 2Q04 1Q05 2Q05 Continuing operations Employee separation and plant phase-out costs (1) 1.0 (0.2) (0.4) Asset impairments (2) - - - Environmental remediation at inactive sites (3) (0.7) - - Loss on sale (5.7) - - Impact on pre-tax income (5.4) (0.2) (0.4) Income tax benefit on above items 3.9 0.1 0.2 Tax allowance (5) 3.4 4.5 5.8 Impact on net income from continuing operations 1.9 4.4 5.6 Per share impact 0.03 0.05 0.06 Discontinued operations Employee separation and plant phase-out costs (1) (1.1) - - Impact on operating income (1.1) - - Net asset impairment and loss on disposition of discontinued operations (4) (9.9) (11.6) - Impact on pre-tax income (11.0) (11.6) - Income tax benefit on above items 4.3 4.5 - Tax allowance (5) 0.9 (2.3) 3.4 Impact on net income from discontinued operations (5.8) (9.4) 3.4 Per share impact (0.07) (0.10) 0.04 Total Impact on net income (3.9) (5.0) 9.0 Per share impact (0.04) (0.05) 0.10 Explanations: 1. Severance, employee outplacement, external outplacement consulting, lease termination, facility closing costs and the write-down of the carrying value of plant and equipment resulting from restructuring initiatives. For 1Q05, continuing operations included $0.2 of additional loss on sale of phase-out plant. 2. A non-cash impairment charge to adjust the carrying value of deferred product technology, customer list, customer contract, Internet investment and note receivable to estimated realizable future cash flows or fair market value. 3. Environmental remediation costs for facilities either no longer owned or closed in prior years. 4. A non-cash impairment charge to adjust the net asset carrying value of discontinued operations to estimated net future proceeds. For 1Q05, includes $10.9 impairment charge for Engineered Films and $0.7 charge for stay bonuses for Elastomers and Performance Additives. 5. Tax allowance to adjust net U.S. deferred income tax assets resulting from operating loss carry-forwards. Attachment 5 Reconciliation of Non-GAAP Financial Measures (Unaudited) (In millions)
Below is a reconciliation of non-GAAP financial measures to the most
directly comparable measures calculated and presented in accordance with GAAP.
2Q05 2Q04 1Q05 Continuing operations: Operating income before special items $42.9 $40.0 $38.9 Special items in continuing operations, before tax (0.4) 1.0 (0.2) Operating income $42.5 $41.0 $38.7 Discontinued operations: Operating income before special items $8.9 $14.0 $6.2 Special items in discontinued operations, before tax - (11.0) (11.6) Operating income (loss) $8.9 $3.0 $(5.4) Continuing operations: Income per share before impact of special items $0.19 $0.18 $0.16 Per share impact of special items, after tax 0.06 0.03 0.05 Diluted income per share $0.25 0.21 $0.21 Discontinued operations: Income per share before impact of special items $0.05 $0.09 $0.04 Per share impact of special items, after tax 0.04 (0.06) (0.10) Diluted income (loss) per share $0.09 $0.03 $(0.06) Three Months Ended Six Months Ended June 30, June 30, March 31, June 30, 2005 2004 2005 2005 (in millions) Reconciliation to Condensed Consolidated Statement of Cash Flow Net cash provided (used) by operating activities of continuing operations $(6.1) $(53.2) $(1.1) $(7.2) Net cash provided (used) by investing activities of continuing operations (2.1) 34.2 (9.7) (11.8) Less (increase) decrease in sale of accounts receivable 20.6 50.9 (59.2) (38.6) Plus net cash provided (used) by discontinued operations 12.5 16.1 4.6 17.1 Interest rate swap fair value debt adjustment 1.6 8.1 (2.2) (0.6) Guarantee of Sunbelt outstanding senior secured notes - - - - Other financing activity (1.8) - 2.2 0.4 Effect of exchange rate changes on cash (0.5) (0.3) (2.3) (1.8) Increase (Decrease) in borrowed debt less cash and cash equivalents $25.2 $55.8 $(67.7) $(42.5) Plus voluntary payments to employee pension plans $- $- $- $- Less proceeds from sale of assets - (24.3) - - Less guarantee of Sunbelt outstanding senior secured notes - - - - Less proceeds from sale of business, net of note receivable - - - - Plus business acquired, net of cash received 1.1 - 1.6 2.7 Operating cash flow $26.3 $31.5 $(66.1) $(39.8) Attachment 6 Business Segment Operations (Unaudited) (In millions)
Senior management uses operating income before the effect of "special
items" to assess performance and allocate resources to business segments
because senior management believes that this measure is useful in
understanding current profitability levels and how current levels may serve as
a base for future performance. In addition, operating income before the
effect of "special items" is a component of the PolyOne Annual Incentive Plan
at the corporate level and is used in debt covenant computations.
2Q05 2Q04 1Q05 Business Segments: Sales: Performance Plastics Segment $448.6 $439.9 $449.2 Distribution Segment 170.2 153.8 167.5 Intersegment eliminations (35.4) (35.9) (40.0) $583.4 $557.8 $576.7 Operating income (loss) Performance Plastics Segment $15.5 $24.5 $11.5 Distribution Segment 4.0 4.8 5.4 Resin & Intermediates Segment 28.5 12.9 22.9 Other Segment (5.1) (2.2) (0.9) Special items, income (expense) (0.4) 1.0 (0.2) Operating income $42.5 $41.0 $38.7 Other data: Discontinued operations Sales: Elastomers and Performance Additives $- $94.9 $- Specialty Resins and Engineered Films 68.1 59.7 65.0 $68.1 $154.6 $65.0 Operating income (loss) Elastomers and Performance Additives $- $10.0 $- Specialty Resins and Engineered Films 8.9 4.0 6.2 Special items, expense before tax - (11.0) (11.6) Operating Income $8.9 $3.0 $(5.4) Attachment 7 Sales and Shipment Volume Summary 2Q05 versus 1Q05 2Q05 versus 2Q04 Shipment Shipment 2Q05 Sales, Sales $, Lbs., Sales $, Lbs., % of Total % Change % Change % Change % Change* Performance Plastics Vinyl Compounds 29.9% (0.3)% (1.9)% (2.6)% (12.7)% Polymer Coatings (Formulators) 7.7 6.0 2.5 6.0 (4.2) NA Color and Additives Masterbatch 10.4 1.3 4.6 11.6 2.0 NA Engineered Materials 4.6 (10.4) (11.3) (3.6) (20.2) International Colors and Engineered Materials 19.9 (0.5) 1.2 9.4 (3.4)* Total 72.5 (0.1) (1.7) 1.9 (10.3)* Distribution 27.5 1.7 (1.0) 10.7 (4.9) Total 100.0% 1.2% (1.6)% 4.6% (9.0)%* *Excludes shipments from Melos in second quarter of 2004
SOURCE PolyOne Corporation
CONTACT: Dennis Cocco, Vice President, Investor Relations &
Communications of PolyOne Corporation, +1-440-930-1538
Web site: http://www.polyone.com