PolyOne Summary Results CLEVELAND, May 3 /PRNewswire-FirstCall/ --
PolyOne Corporation (NYSE: POL), a leading global polymer
compounding and North American distribution company, today reported
sales of $674.6 million for the first quarter ended March 31, 2006,
an improvement of 10 percent over first-quarter 2005 sales of
$611.8 million. The Company reported record income before
discontinued operations of $48.9 million, or $0.53 per share, in
the first quarter of 2006 compared with $25.0 million, or $0.27 per
share, in the first quarter of 2005. Included in the results for
both quarters is the net benefit from the combined effect of
settlements of legal disputes and other adjustments to litigation
reserves, which improved pretax income by $8.8 million in the first
quarter of 2006 and $3.7 million in the first quarter of 2005. "Our
compounding businesses demonstrated marked improvement with
significantly better income compared to the first and fourth
quarters of 2005," said Stephen D. Newlin, chairman, president and
chief executive officer. "At the same time, we are continuing to
benefit from OxyVinyls and SunBelt's strong performance.
Additionally, we generated positive cash flow this quarter as a
result of our record earnings and effective asset management,
combined with the proceeds from the sale of the Engineered Films
unit." In the first quarter, discontinued operations lost $2.1
million, due primarily to final impairment adjustments associated
with the February divestment of the Engineered Films unit. With the
divestment of Engineered Films, the Company no longer has any
businesses reported as discontinued operations. Net cash used by
operating activities during the first quarter was $10.8 million.
Operating cash flow(1) for the quarter was a use of $4.7 million,
an improvement of $61.4 million from the first quarter of 2005.
This improvement was due primarily to stronger earnings and
significant improvements in working capital efficiency. The
Company's cash position also benefited from $20.5 million in gross
cash proceeds received from the Engineered Films divestment.
Special items in the quarter from continuing and discontinued
operations are defined and listed in Attachment 5. (1) A discussion
occurs at the end of this release on the use of non-GAAP financial
measures Segment Highlights Performance Plastics segment:
First-quarter 2006 sales increased 7 percent, or $36.0 million, to
$520.2 million compared with the first quarter of 2005, and 10
percent, or $47.2 million, compared with the fourth quarter of
2005. Operating income increased 60 percent to $27.7 million
compared with the first quarter of 2005, and nearly sevenfold
compared with the fourth quarter of 2005. Operating income as a
percent of sales increased to 5.3 percent, a significant
improvement over the first and fourth quarters of 2005. This
improvement reflected stronger product spreads (selling price less
raw material costs) for nearly every product group. Distribution
segment: First-quarter sales were up markedly compared with both
first- and fourth-quarter 2005. Sales of $194.1 million improved by
$26.6 million, or 16 percent, over the first quarter of 2005, and
by $21.4 million, or 12 percent, over the fourth quarter of 2005.
Operating income in the first quarter of 2006 was a record $6.2
million, 15 percent higher than in the first quarter of 2005. Resin
and Intermediates segment: Both Oxy Vinyls, LP and SunBelt Chlor-
Alkali had strong earnings in the first quarter, which resulted in
record performance for the segment. Operating income was $36.2
million, an increase of $13.3 million, or 58 percent, compared with
the first quarter of 2005. Compared with the fourth quarter of
2005, operating income was up $7.9 million. Contributing to the
improvement were continued strong polyvinyl chloride (PVC) resin
product spreads, due largely to lower average ethylene and natural
gas costs throughout the quarter, that more than offset a
sequential decline in PVC resin pricing, as well as generally
stable aggregate chlor-alkali pricing and product spreads.
Discontinued Operations PolyOne completed the sale of its
Engineered Films business on February 15, 2006. The Company
received gross proceeds of $26.7 million before associated fees and
costs, of which $20.5 million was received in cash and $6.2 million
in the form of a note payable from the new entity. PolyOne will
retain an 18 percent minority ownership interest in the new entity.
Discontinued results in the first quarter reflect the Engineered
Films unit's operating performance until the date of the sale and
final impairment adjustments. Adoption of Statement of Financial
Accounting Standards No. 123(R) On January 1, 2006, PolyOne adopted
Statement of Financial Accounting Standards No. 123(R),
"Share-Based Payment" (SFAS No. 123(R)) using the modified
prospective transition method. The Company, under SFAS No. 123(R),
recognized compensation cost of $1.4 million, or $0.02 per share in
the first quarter 2006. PolyOne anticipates that full year earnings
under SFAS No. 123(R) could be approximately $4 million.
Second-quarter 2006 Business Outlook PolyOne anticipates that
positive business conditions for products within the Performance
Plastics segment should continue, resulting in sales and shipments
at or near first-quarter 2006 levels. Underlying demand appears
resilient, even though early second-quarter seasonal demand
strengthening is being overshadowed by processor inventory
corrections in anticipation of lower product pricing. Raw material
costs should remain flat compared with the end of the first
quarter, although the recent upturn in energy costs could change
this projection entering the third quarter. The Company anticipates
that, given the above factors, segment earnings should show
marginal improvement, both sequentially and compared with the
second quarter of 2005. PolyOne projects that Distribution segment
sales and shipment levels should approach first-quarter levels and
improve relative to the comparatively weak second-quarter 2005,
when business conditions deteriorated consistently throughout the
quarter. Operating income should improve versus the second- quarter
2005 level, but may not match the record first-quarter performance.
For the Resin and Intermediates segment, PolyOne anticipates that
SunBelt and OxyVinyls should continue to deliver strong earnings as
seasonal demand improvements largely offset slightly lower product
spreads. Industry aggregate caustic soda and chlorine selling
prices are projected to come off first-quarter levels. PVC resin
product spreads are likely to moderate slightly reflecting the
combined impacts from changes in average second- quarter ethylene
and natural gas costs and PVC resin prices. By their nature, legal
settlements and other non-recurring costs are difficult to predict.
Nevertheless, the Company does not expect the magnitude of cost
benefit realized in the first quarter to be repeated in the second
quarter. The Company anticipates that second-quarter earnings, in
conjunction with larger cash distributions from OxyVinyls and
SunBelt, should be sufficient to more than offset higher capital
expenditures and cash interest payments, resulting in positive cash
generation. PolyOne projects that operating cash flow for the year,
excluding cash proceeds received from the sale of the Engineered
Films unit, will significantly exceed that generated in 2005.
First-quarter 2006 Earnings Conference Call and Webcast PolyOne
will host a conference call at 9:00 a.m. Eastern time on Thursday,
May 4, 2006. 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 9935705. The call will be broadcast live and then via replay for
two weeks on the Company's Web site at http://www.polyone.com/.
About PolyOne PolyOne Corporation, with 2005 annual revenues of
approximately $2.5 billion, is a leading global compounding and
North American distribution company with operations in
thermoplastic compounds, specialty polymer formulations, color and
additive systems, and thermoplastic resin distribution.
Headquartered in northeast Ohio, PolyOne operates globally with
manufacturing sites in North America, Europe and Asia, and joint
ventures in North America and South America. Information on
PolyOne's products and services can be found at
http://www.polyone.com/. Use of Non-GAAP Financial Measures This
earnings 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 and per share impact of special
items. The most directly comparable GAAP financial measures are:
net cash provided (used) by operating activities, operating income
(loss) and income (loss) per share. PolyOne's chief operating
decision makers use these financial measures to monitor and
evaluate the ongoing performance of the Company and each business
segment, and allocate resources. In addition, operating income
before special items and operating cash flow are components of
various PolyOne annual and long-term employee incentive plans.
Tables included in this news release reconcile each non-GAAP
financial measure with the most directly comparable GAAP financial
measure (Attachment 6) and provide detail on special items
(Attachment 5). Also attached are standard financial schedules and
a summary of segment results. 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. 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
limitation, 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 risks; - changes in U.S.,
regional or world polymer consumption growth rates affecting
PolyOne's markets; - 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 venture entities; - 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 of PolyOne; - an inability to launch new
products and/or services within PolyOne's various businesses; - 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
regulations; - 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; - 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 Color and Additives Masterbatch and the
Engineered Materials product platforms to profitability; - an
inability to raise prices or sustain price increases for products;
- an inability 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 limitation, 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 statements. 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. #50406) Attachment 1 Supplemental Information
Quarterly Summary of Consolidated Operating Results, Showing
Discontinued Operations' Impact (In millions of dollars, except per
share data, unaudited) 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 income before discontinued operations on the income
statement. As a result, reporting and discussion of items above the
income before discontinued operations line (such as sales,
operating income, interest, and selling and administrative costs)
include only the results of continuing operations. 1Q06 1Q05 4Q05
Operating results: Sales -- continuing operations $ 674.6 $611.8
$606.8 Operating income--continuing operations $67.9 $44.7 $38.0
Net income -- total Company $46.8 $13.4 $21.7 Income before
discontinued operations after tax 48.9 25.0 20.4 Income (loss) from
discontinued operations net of income taxes (2.1) (11.6) 1.3
Earnings (loss) per share -- diluted: Net income -- total Company
$0.51 $0.15 $0.24 Income before discontinued operations 0.53 0.27
0.22 Income (loss) from discontinued operations (0.02) (0.12) 0.02
Total per share impact of special items (1) after tax: 0.17 (0.05)
0.09 Before discontinued operations 0.20 0.07 0.09 Discontinued
operations (0.03) (0.12) - Other data: Sales -- discontinued
operations $9.6 $30.0 $27.8 Depreciation and amortization 14.3 12.5
12.4 (1) A definition and a list of special items appear in
Attachment 5 Attachment 2 PolyOne Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited) (In
millions, except per share data) Three Months Ended March 31, 2006
2005 Sales $674.6 $611.8 Operating costs and expenses: Cost of
sales 583.7 533.5 Selling and administrative 47.3 47.1 Depreciation
and amortization 14.3 12.5 Income from equity affiliates and
minority interest (38.6) (26.0) Operating income 67.9 44.7 Interest
expense, net (16.6) (16.8) Interest income 0.5 0.5 Other expense,
net (1.2) (0.8) Income before income taxes and discontinued
operations 50.6 27.6 Income tax expense (1.7) (2.6) Income before
discontinued operations 48.9 25.0 Loss from discontinued
operations, net of income taxes (2.1) (11.6) Net income $46.8 $13.4
Earnings (loss) per common share: Basic and diluted earnings
(loss): Before discontinued operations $0.53 $0.27 Discontinued
operations (0.02) (0.12) Basic and diluted earnings (loss) per
share $0.51 $0.15 Weighted average shares used to compute earnings
per share: Basic 92.1 91.8 Diluted 92.5 92.2 Dividends paid per
share of common stock $- $- Attachment 3 PolyOne Corporation and
Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (In
millions, except per share data) March 31, December 31, 2006 2005
Assets Current assets: Cash and cash equivalents $37.5 $32.8
Accounts receivable, net 380.9 320.5 Inventories 217.0 191.8
Deferred income tax assets 20.2 20.1 Other current assets 19.3 27.4
Discontinued operations - 20.9 Total current assets 674.9 613.5
Property, net 426.1 436.0 Investment in equity affiliates 309.0
273.9 Goodwill 315.3 315.3 Other intangible assets, net 10.0 10.6
Other non-current assets 65.0 60.0 Discontinued operations - 6.7
Total assets $1,800.3 $1,716.0 Liabilities and Shareholders' Equity
Current liabilities: Short-term bank debt $6.8 $ 7.1 Accounts
payable 262.4 232.6 Accrued expenses 96.2 82.4 Current portion of
long-term debt 0.7 0.7 Discontinued operations - 11.2 Total current
liabilities 366.1 334.0 Long-term debt 638.1 638.7 Post-retirement
benefits other than pensions 104.9 107.9 Other non-current
liabilities, including pensions 219.1 214.3 Minority interest in
consolidated subsidiaries 5.6 5.4 Total liabilities 1,333.8 1,300.3
Shareholders' equity 466.5 415.7 Total liabilities and
shareholders' equity $1,800.3 $1,716.0 Attachment 4 PolyOne
Corporation and Subsidiaries Condensed Consolidated Statements of
Cash Flows (Unaudited) (In millions) Three Months Ended March 31,
2006 2005 Operating Activities Net income $46.8 $13.4 Adjustments
to reconcile net income to net cash provided (used) by operating
activities: Depreciation and amortization 14.3 12.5 Loss on
disposition of discontinued businesses and related plant closeout
charges 2.3 11.6 Companies carried at equity and minority interest:
Income from equity affiliates (38.6) (26.0) Dividends and
distributions received 4.1 - Provision for deferred income taxes
0.2 0.5 Change in assets and liabilities: Accounts receivable
(47.3) (60.4) Inventories (7.9) (32.9) Accounts payable 19.2 37.3
Increase (decrease) in sales of accounts receivable (7.9) 59.2
Accrued expenses and other 4.1 (9.9) Net cash used by discontinued
operations (0.1) (1.8) Net cash provided (used) by operating
activities (10.8) 3.5 Investing Activities Capital expenditures
(4.9) (8.9) Proceeds from sale of discontinued business, net 17.3 -
Business acquired, net of cash received - (1.6) Proceeds from sale
of assets 2.4 0.8 Net cash used by discontinued operations (0.2) -
Net cash provided (used) by investing activities 14.6 (9.7)
Financing Activities Change in short-term debt (0.3) 0.9 Proceeds
from exercise of stock options 2.0 0.2 Net cash provided by
financing activities 1.7 1.1 Effect of exchange rate on changes on
cash (0.8) (2.3) Increase (decrease) in cash and cash equivalents
4.7 (7.4) Cash and cash equivalents at beginning of period 32.8
38.6 Cash and cash equivalents at end of period $37.5 $31.2
Attachment 5 Summary of Special Items (Unaudited) (In millions,
except per share data) "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; 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; adjustments
to reflect a tax benefit on domestic losses; and deferred tax
valuation allowances on domestic operating income. Special items
1Q06 1Q05 4Q05 Continuing operations Employee separation and plant
phase-out costs (1) $ 0.1 $ (0.2) $ (3.0) Asset impairments (2) - -
(0.2) Environmental remediation at inactive sites (3) 1.7 - 2.0
Impact on pretax income 1.8 (0.2) (1.2) Income tax benefit on above
items (0.8) 0.1 0.1 Tax allowance (5) 17.1 6.7 9.0 Impact on net
income (loss) from continuing operations 18.1 6.6 7.9 Per diluted
share impact 0.20 0.07 (0.09) Discontinued operations Employee
separation and plant phase-out costs (1) - (0.7) 0.1 Impact on
operating income - (0.7) 0.1 Net asset impairment and loss on
disposition of discontinued operations (4) (2.3) (10.9) (0.3)
Impact on pretax income (2.3) (11.6) (0.2) Income tax benefit on
above items 0.9 4.5 0.1 Tax allowance (5) (0.8) (4.5) 0.5 Impact on
net income (loss) from discontinued Operations (2.2) (11.6) 0.4 Per
diluted share impact (0.03) (0.12) - Total Impact on net income
(loss) $15.9 $(5.0) $8.3 Per share impact $0.17 $(0.05) $0.09
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 and executive separation
agreements. 2. Non-cash impairment charges to adjust the carrying
value of investments to fair market value. 3. Environmental
remediation costs for facilities either no longer owned or closed
in prior years. 4. Non-cash impairment charges to adjust the net
asset carrying value of discontinued operations to estimated net
future proceeds and to recognize costs that were not allowed to be
recognized due to the contingent nature of these costs until the
business was sold, in accordance with generally accepted accounting
principals. 5. Tax allowance to adjust net U.S. deferred income tax
assets resulting from operating loss carry-forwards. Attachment 6
Reconciliation of Non-GAAP Financial Measures (In millions) Below
is a reconciliation of non-GAAP financial measures to the most
directly comparable measures calculated and presented in accordance
with GAAP. 1Q06 1Q05 4Q05 Continuing operations: Operating income
before special items $66.1 $44.9 $39.2 Special items in continuing
operations, before tax 1.8 (0.2) (1.2) Operating income $67.9 $44.7
$38.0 Discontinued operations: Operating income before special
items 0.2 $- $1.7 Special items in discontinued operations, before
tax (2.3) (11.6) (0.2) Operating income (loss) $(2.1) $(11.6) $1.5
Continuing operations: Income per share before impact of special
items $0.33 $0.20 $0.13 Per share impact of special items, after
tax 0.20 0.07 0.09 Diluted income (loss) per share $0.53 $0.27
$0.22 Discontinued operations: Income per share before impact of
special items $0.01 $- $0.02 Per share impact of special items,
after tax (0.03) (0.12) - Diluted income (loss) per share $(0.02)
$(0.12) $0.02 March 31, March 31, (in millions) 2006 2005
Reconciliation to Condensed Consolidated Statement of Cash Flows
Net cash provided (used) by operating activities $(10.8) $3.5 Net
cash provided (used) by investing activities 14.6 (9.7) Decrease
(increase) in sale of accounts receivable 7.9 (59.2) Interest rate
swap fair value debt adjustment (0.9) (2.2) Other financing
activity 2.6 2.2 Effect of exchange rate changes on cash (0.8)
(2.3) Increase (decrease) in borrowed debt less cash and cash
equivalents $12.6 $(67.7) Less proceeds from sale of business, net
of note receivable $(17.3) $- Plus business acquired, net of cash
received - 1.6 Operating cash flow $(4.7) $(66.1) Attachment 7
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 various PolyOne annual and long term employee incentive
plans and is used in debt covenant computations. 1Q06 1Q05 4Q05
Business Segments: Sales: Performance Plastics Segment $520.2
$484.2 $473.0 Distribution Segment 194.1 167.5 172.7 Intersegment
eliminations (39.7) (39.9) (38.9) $674.6 $611.8 $606.8 Operating
income (loss) Performance Plastics Segment $27.7 $17.3 $3.6
Distribution Segment 6.2 5.4 6.0 Resin & Intermediates Segment
36.2 22.9 28.3 Other Segment $(2.2) $(0.9) $0.1 Operating income
$67.9 $44.7 $38.0 Other data: Discontinued operations Sales: 9.6
30.0 27.8 Net income (loss) (2.1) (11.6) 1.7 Segment Sales and
Shipment Volume Summary 1Q06 versus 1Q05 1Q06 versus 4Q05 Shipment
Shipment 1Q06 Sales, Sales $, Lbs., Sales $, Lbs., % of Total %
Change % Change % Change % Change Performance Plastics 73 7 0 10 6
Distribution 27 16 6 12 12 Total 100% 10% 1% 11% 7% DATASOURCE:
PolyOne Corporation CONTACT: Investors & Media, Dennis Cocco,
Vice President, Investor Relations & Communications of PolyOne
Corporation, +1-440-930-1538 Web site: http://www.polyone.com/
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