PolyOne Announces Third Quarter 2008 Results
November 05 2008 - 8:00AM
PR Newswire (US)
- Third quarter sales increase 10.6 percent, earnings decline from
special charges and slightly lower operating income. CLEVELAND,
Nov. 5 /PRNewswire-FirstCall/ -- PolyOne Corporation (NYSE: POL), a
premier global provider of specialized polymer materials, services
and solutions, today reported fiscal third quarter 2008 revenues of
$735.1 million, a 10.6 percent increase compared with revenues of
$664.8 million in the third quarter of 2007. PolyOne reported a net
loss of $5.6 million or $0.06 per share in the third quarter of
2008 compared with net income of $2.3 million or $0.02 per diluted
share in the third quarter of 2007. Included in the results for the
third quarter of 2008 and 2007 are special items resulting in
charges of $0.19 and $0.12, respectively (see Attachment 1). On a
comparable basis, before special items, PolyOne reported $0.13 per
share in the third quarter of 2008, compared with $0.14 per share
in the third quarter of last year. "We're pleased that the third
quarter impact of Hurricane Ike was not as significant as we
initially anticipated, and that, for the quarter, we are able to
report slightly better than expected earnings per share before
special items," said Stephen D. Newlin, chairman, president and
chief executive officer. Newlin added, "While our SunBelt joint
venture had no choice but to close down temporarily, our other
facilities in the area did an exceptional job at managing through
power and supply interruptions to meet customer needs and exceed
our post-hurricane expectations for the quarter. This is a direct
result of the tireless efforts of our employees who helped
positively manage our impacted operations." "Our International
Color and Engineered Materials segment reported an operating income
decline versus the third quarter of 2007, and on a sequential basis
versus the second quarter of 2008. This confirms the concerns we
have communicated in our outlook updates that the economic slowdown
already present in the U.S. is taking hold in Europe and Asia,"
Newlin continued. "We continue to focus on our transformation
strategy; however, we are not going to ignore the prevailing market
dynamics. We recognize that now is a time to be prudent with cash,
control spending, preserve our liquidity and protect ourselves from
potential customer solvency issues." Commenting on the Company's
financial position, senior vice president and chief financial
officer, Robert M. Patterson said, "As of September 30, 2008 we had
$37 million of cash, plus borrowing availability of $133 million
under our accounts receivable securitization facility, for total
liquidity of $170 million. During the third quarter, we paid down
$8 million of debt and repurchased one million of the Company's
outstanding common shares." Outlook "While our results for the
third quarter were modestly better than anticipated, our fourth
quarter earnings may fall short of our previous expectations," said
Newlin. "Accordingly, it may be a challenge to deliver full-year
earnings per share before special items within the range of
guidance we provided in September." Newlin cited several factors
contributing to this assessment. "First, we are lowering our
earnings expectations as a result of latent supply and pricing
uncertainties associated with the Gulf storms. That being said, we
are more concerned about the recent deterioration in the global
economy. We expect further pressure on our international results;
first as it becomes increasingly clear that European and Asian
demand is slowing, and second due to the continued weakening of the
Euro relative to the U.S. Dollar. Additionally, the U.S. economy is
under tremendous strain on the heels of the global financial
crisis, creating significant uncertainty over the next few quarters
for our customers. Specifically, such key PolyOne end markets as
housing, construction, automotive and electronics face particularly
troubling business conditions which we expect may reverberate
throughout other markets as the global economic slowdown gains
momentum." In reaction to the uncertainties described above,
PolyOne is taking actions to reduce spending and preserve
liquidity. Patterson stated, "We began the year expecting to spend
between $55 and $60 million for capital expenditures and this did
not contemplate the incremental $6 to $7 million we will incur this
year as a result of manufacturing realignment actions announced in
July. Without limiting spending related to the realignment we are
now forecasting to spend less than $55 million for the year."
Patterson further added, "The fourth quarter is typically our
strongest cash flow quarter and we expect that to be the case this
year. Given our concerns about the economy, we will be prioritizing
free cash flow use first for required short term debt repayment and
second to ensure we have adequate liquidity to fund seasonal
working capital requirements. We will then consider additional
capital expenditures beyond maintenance levels prior to furthering
our overall capital structure objectives." Third Quarter 2008
Earnings Release and Conference Call PolyOne will host a conference
call at 9 a.m. Eastern on Wednesday, November 5, 2008. The
conference dial-in number is 866-543-6403 (domestic) or
617-213-8896 (international), pass code 55915037, conference topic:
third quarter 2008 PolyOne earnings conference call. The replay
number is 888-286- 8010 (domestic) or 617-801-6888 (international).
The pass code for the replay is 19198595. The call will be
broadcast live and then be available via replay until November 13,
2008, on the Company's Web site at http://www.polyone.com/. About
PolyOne PolyOne Corporation, with annual revenues of more than $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
http://www.polyone.com/. 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 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) Third Quarter 2008 (In millions,
except per share data) 3Q08 3Q07 2Q08 Operating results: Sales
$735.1 $664.8 $748.1 Operating income (loss) 1.3 (23.6) 24.0 Net
income (loss) (5.6) 2.3 8.8 Earnings per common share: Basic and
diluted earnings per share $(0.06) $0.02 $0.09 Total diluted per
share impact of special items after tax (1): $(0.19) $(0.12)
$(0.03) (1) Special items is a non-GAAP financial measure. Special
items includes 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 phaseout costs; executive
separation agreements; 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; and adjustments to reflect a tax benefit on domestic
losses. Following is a list of special items. Special items (in
millions, except per share data) 3Q08 3Q07 2Q08 Employee separation
and plant phaseout costs (a) $(11.6) $(1.5) $(1.5) Write-down of
certain assets of and investment in equity affiliate (b) (4.7)
(1.6) - Impairment of intangibles and other investments (c) . -
(2.5) - Environmental remediation costs (d) (10.4) (30.0) (2.3)
Reimbursement to Goodrich Corp. of environmental costs related to
Calvert City (e) - (15.6) - Settlement of legal issues and related
reserves . - (2.4) - Impact on operating income (26.7) (53.6) (3.8)
Deferred note issuance cost write-off - (1.6) - Premium on early
extinguishment of debt - (7.5) - Impact on income before income
taxes (26.7) (62.7) (3.8) Income tax benefit on above items 9.0
21.7 1.3 Reversal of deferred tax liability associated with sale of
equity affiliate - 31.5 - Adjustment to foreign income tax
contingency and related interest - (1.0) - Impact on net income
$(17.7) $(10.5) $(2.5) Per diluted share impact $(0.19) $(0.12)
$(0.03) a. Severance, employee outplacement, external outplacement
consulting, lease termination, facility closing costs, accelerated
depreciation and the write-down of the carrying value of plant and
equipment resulting from restructuring initiatives and executive
separation agreements. b. Non-cash write-down of certain inventory,
receivables, and intangible assets of, and an impairment of our
investment in our equity affiliate in Colombia. c. Impairment of
the carrying value of certain intangibles and other investments. d.
Environmental remediation costs for facilities either no longer
owned or closed in prior years. e. Remediation costs and certain
legal costs related to the Calvert City, Kentucky facility.
Attachment 2 PolyOne Corporation and Subsidiaries Consolidated
Statements of Operations (Unaudited) (In millions, except per share
data) Three Months Ended Nine Months Ended September 30, September
30, 2008 2007 2008 2007 Sales $ 735.1 $ 664.8 $ 2,196.9 $ 2,011.4
Cost of sales 669.9 634.8 1,958.3 1,814.8 Gross margin 65.2 30.0
238.6 196.6 Selling and administrative 69.7 65.3 217.6 197.9 Income
from equity affiliates and minority interest 5.8 11.7 24.4 16.6
Operating income (loss) 1.3 (23.6) 45.4 15.3 Interest expense
(10.5) (11.9) (30.4) (43.2) Interest income 0.8 1.6 2.5 3.4 Premium
on early extinguishment of long-term debt - (7.5) - (12.8) Other
expense, net - (1.8) (2.7) (4.5) Income (loss) before income taxes
(8.4) (43.2) 14.8 (41.8) Income tax benefit (expense) 2.8 45.5
(5.1) 46.1 Net income (loss) $(5.6) $2.3 $9.7 $ 4.3 Basic and
diluted earnings (loss) per common share $(0.06) $0.02 $0.10 $0.05
Weighted average shares used to compute earnings per share: Basic
92.9 92.8 92.9 92.7 Diluted 92.9 93.3 93.5 93.1 Dividends declared
per share of common stock $- $- $- $- Equity earnings (loss)
recorded by PolyOne: SunBelt $10.2 $12.6 $26.8 $30.6 OxyVinyls - -
- 0.9 Impairment of investment in OxyVinyls - - - (15.9) Other
equity affiliates 0.3 0.7 2.3 2.8 Write-down of certain assets of
and investment in Geon/Polimeros Andinos (4.7) (1.6) (4.7) (1.6)
Minority interest - - - (0.2) Income from equity affiliates and
minority interest $5.8 $11.7 $24.4 $16.6 Attachment 3 PolyOne
Corporation and Subsidiaries Condensed Consolidated Balance Sheets
(Unaudited) (In millions) September 30, December 31, 2008 2007
Assets Current assets: Cash and cash equivalents $37.0 $79.4
Accounts receivable, net 392.4 340.8 Inventories 273.1 223.4
Deferred income tax assets 21.9 20.4 Other current assets 19.7 19.8
Total current assets 744.1 683.8 Property, net 444.5 449.7
Investment in equity affiliates 25.8 19.9 Goodwill 332.8 288.8
Other intangible assets, net 70.4 6.7 Deferred income tax assets
75.0 69.9 Other non-current assets 67.1 64.2 Total assets $1,759.7
$1,583.0 Liabilities and Shareholders' Equity Current liabilities:
Short-term bank debt $77.3 $6.1 Accounts payable 290.7 250.5
Accrued expenses 112.7 94.4 Current portion of long-term debt 2.9
22.6 Total current liabilities 483.6 373.6 Long-term debt 388.0
308.0 Post-retirement benefits other than pensions 87.7 81.6
Pension benefits 62.6 82.6 Other non-current liabilities 91.3 87.8
Total liabilities 1,113.2 933.6 Shareholders' equity 646.5 649.4
Total liabilities and shareholders' equity $1,759.7 $1,583.0
Attachment 4 PolyOne Corporation and Subsidiaries Consolidated
Statements of Cash Flows (Unaudited) (In millions) Three Months
Ended Nine Months Ended September 30, September 30, 2008 2007 2008
2007 Operating Activities Net income (loss) $(5.6) $2.3 $9.7 $4.3
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 20.1 14.1 51.8
42.7 Charges for environmental remediation 10.4 45.6 14.3 47.5 Cash
payments for environmental remediation (3.1) (1.7) (7.9) (4.6)
Deferred income tax benefit (5.5) (46.8) (5.1) (52.2) Premium on
early extinguishment of long term debt - 7.5 - 12.8 Stock
compensation expense 0.7 1.0 2.2 3.6 Asset impairment charge - 2.5
- 2.5 Companies carried at equity and minority interest: Impairment
of certain assets of and investment in equity affiliates 4.7 1.6
4.7 17.5 Income from equity affiliates and minority interest (10.5)
(13.3) (29.1) (34.1) Dividends and distributions received 12.5 14.4
20.8 24.2 Contributions to pensions and other post-retirement plans
(5.5) (10.5) (25.5) (24.2) Change in assets and liabilities:
Accounts receivable 8.0 18.8 (69.1) (52.0) Inventories (1.5) 8.0
(34.8) (9.0) Accounts payable (42.2) (11.1) 36.1 68.7 Increase
(decrease) in sale of accounts receivable 12.0 (89.2) 25.8 -
Accrued expenses and other 22.8 (0.4) 23.1 (4.3) Net cash provided
(used) by operating activities 17.3 (57.2) 17.0 43.4 Investing
Activities Capital expenditures (9.7) (14.8) (29.6) (36.7) Business
acquisitions, net of cash received (0.2) (11.0) (150.2) (11.0)
Investment in affiliated company (1.1) - (1.1) - Proceeds from sale
of equity affiliate - 260.5 - 260.5 Proceeds from sale of assets -
- - 5.2 Net cash (used) provided by investing activities (11.0)
234.7 (180.9) 218.0 Financing Activities Change in short-term debt
(9.2) (17.7) 73.4 (0.2) Issuance of long-term debt, net of debt
issuance cost - - 77.8 - Repayment of long-term debt (10.8) (142.0)
(22.2) (263.4) Purchase of common stock for treasury (8.0) - (8.0)
- Premium on early extinguishment of long-term debt - (7.5) -
(12.8) Proceeds from exercise of stock options 1.1 0.2 1.1 0.9 Net
cash (used) provided by financing activities (26.9) (167.0) 122.1
(275.5) Effect of exchange rate changes on cash (2.2) 1.7 (0.6) 4.1
Increase (decrease) in cash and cash equivalents (22.8) 12.2 (42.4)
(10.0) Cash and cash equivalents at beginning of period 59.8 44.0
79.4 66.2 Cash and cash equivalents at end of period $37.0 $56.2
$37.0 $56.2 Attachment 5 Business Segment and Platform Operations
(Unaudited) (In millions) Operating income at the segment level
does not include: corporate general and administration costs that
are not allocated to segments; intersegment sales and profit
eliminations; charges related to specific initiatives, such as the
consolidation of operations; restructuring activities, including
employee separation costs resulting from personnel reduction
programs, plant closure and phaseout costs; executive separation
agreements; share-based compensation 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; 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. 3Q08 2Q08
1Q08 4Q07 3Q07 Sales: International Color and Engineered Materials
$ 153.7 $ 172.1 $ 165.2 $ 146.9 $ 147.4 Specialty Engineered
Materials 66.1 67.3 64.5 28.7 31.8 Specialty Color, Additives and
Inks 60.1 60.8 58.4 53.0 58.7 Specialty Platform 279.9 300.2 288.1
228.6 237.9 Performance Products and Solutions 274.4 273.7 259.3
246.1 274.5 PolyOne Distribution 214.7 208.2 201.1 184.0 185.8
Corporate and eliminations (33.9) (34.0) (34.8) (27.4) (33.4) Sales
$ 735.1 $ 748.1 $ 713.7 $ 631.3 $664.8 Gross margin: International
Color and Engineered Materials $23.3 $30.7 $28.8 $23.0 $23.9
Specialty Engineered Materials 13.3 12.5 11.6 2.9 3.4 Specialty
Color, Additives and Inks 13.4 12.4 11.2 9.5 11.2 Specialty
Platform 50.0 55.6 51.6 35.4 38.5 Performance Products and
Solutions 17.1 19.0 21.0 15.6 23.9 PolyOne Distribution 22.2 18.1
17.2 15.4 14.8 Corporate and eliminations (24.1) (4.2) (4.9) (2.0)
(47.2) Gross margin $65.2 $88.5 $84.9 $64.4 $30.0 Operating income
(loss): International Color and Engineered Materials $4.6 $10.4
$7.8 $4.8 $6.5 Specialty Engineered Materials 5.0 3.2 2.9 (1.0) -
Specialty Color, Additives and Inks 4.7 3.5 2.8 1.3 3.2 Specialty
Platform 14.3 17.1 13.5 5.1 9.7 Performance Products and Solutions
5.3 5.3 8.3 4.3 12.6 PolyOne Distribution 9.4 7.0 5.5 5.7 5.3 Resin
and Intermediates 9.6 8.7 5.9 7.3 11.2 Corporate and eliminations
(37.3) (14.1) (13.1) (3.8) (62.4) Operating income (loss) $1.3
$24.0 $20.1 $18.6 $(23.6) 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 operating income before the effect of special items to assess
performance and allocate resources because senior management
believes that this measure is 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. 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 list of
special items. 3Q08 3Q07 2Q08 Operating income before special items
$28.0 $30.0 $27.8 Special items in operating income (26.7) (53.6)
(3.8) Operating income (loss) $1.3 $(23.6) $24.0 Income per share
before impact of special items $0.13 $0.14 $0.12 Per share impact
of special items, after tax (0.19) (0.12) (0.03) Diluted earnings
(loss) per common share $(0.06) $0.02 $0.09 Three Months Ended Nine
Months Ended September 30, September 30, Reconciliation to
Condensed Consolidated Statement of Cash Flows 2008 2007 2008 2007
Net cash (used) provided by operating activities $17.3 $(57.2)
$17.0 $43.4 Net cash (used) provided by investing activities (11.0)
234.7 (180.9) 218.0 Decrease (increase) in sale of accounts
receivable (12.0) 89.2 (25.8) - Free cash flow $(5.7) $266.7 $
(189.7) $261.4 DATASOURCE: PolyOne Corporation CONTACT: Robert M.
Patterson, Senior Vice President & Chief Financial Officer,
PolyOne Corporation, +1-440-930-3302 Web site:
http://www.polyone.com/
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