- Third quarter sales increase 10.6 percent, earnings decline from special charges and slightly lower operating income. - Global economic slowdown creates new industry headwinds.
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 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
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)
3Q083Q07 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) 3Q083Q07 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 9.021.7 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 669.9634.8 1,958.3 1,814.8
Gross margin 65.2 30.0238.6196.6
Selling and administrative 69.7 65.3217.6197.9
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:
Basic92.9 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 assets21.9 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, net70.46.7
Deferred income tax assets 75.0 69.9
Other non-current assets67.1 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 pensions87.7 81.6
Pension benefits62.6 82.6
Other non-current liabilities 91.3 87.8
Total liabilities1,113.2 933.6
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 EndedNine 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 receivable8.0 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 other22.8 (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 options1.1 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
Materials66.1 67.3 64.5 28.7 31.8
Specialty Color, Additives
and Inks 60.1 60.8 58.4 53.0 58.7
Specialty Platform279.9300.2288.1228.6237.9
Performance Products and
Solutions 274.4273.7259.3246.1274.5
PolyOne Distribution 214.7208.2201.1184.0185.8
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
Materials13.3 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
Solutions17.1 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
Materials5.0 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
Solutions5.3 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 EndedNine 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
SOURCE PolyOne Corporation
