PolyOne Announces Fourth Quarter 2008 Results
February 05 2009 - 7:00AM
PR Newswire (US)
- Lower raw material costs offset impact of unprecedented demand
declines CLEVELAND, Feb. 5 /PRNewswire-FirstCall/ -- PolyOne
Corporation (NYSE: POL) today reported fiscal fourth quarter
revenues of $541.8 million, a 14.2 percent decrease compared with
revenues of $631.3 million in the fourth quarter of 2007. Price
increases and the acquisition of GLS only partially offset an
unprecedented decline in demand as volume fell 24% from the fourth
quarter of 2007 to the fourth quarter of 2008. PolyOne reported a
net loss of $282.6 million or $3.07 per share in the fourth quarter
of 2008 compared with net income of $7.1 million or $0.08 per
diluted share in the fourth quarter of 2007. Included in the
results for the fourth quarter of 2008 are a series of special
items, the largest of which are a non-cash goodwill impairment
charge of $170.0 million (pre-tax) and a non-cash valuation
allowance of $104.5 million recorded against deferred tax assets.
Total special items of $289.5 million (after-tax) or $3.15 per
share are detailed in Attachment 1. On a comparable basis, before
special items, PolyOne reported earnings of $0.08 per share in the
fourth quarter of 2008 matching the $0.08 per share amount reported
in the fourth quarter of last year. For the full year, PolyOne
reported a net loss of $2.94 per share compared with net income of
$0.12 per diluted share in 2007. Before special items, PolyOne
reported earnings per share of $0.41 in 2008 - equal to that
reported in 2007. "Despite extraordinary volatility in raw material
and energy costs, and unprecedented demand declines in the fourth
quarter, we are reporting full year and fourth quarter earnings per
share before special items equal to last year," said Stephen D.
Newlin, chairman, president and chief executive officer. "While we
believe this is solid performance in the current environment, we
must remain focused on the year ahead. I am proud of the way the
PolyOne team is stepping up to contribute as we face a widely
expected continued deterioration of the economy in 2009." Newlin
continued, "We believe the volume declines observed during the
fourth quarter were at least partially due to customer inventory
destocking, and we have yet to see that trend reverse. Three weeks
ago, we announced additional cost cutting measures and
restructuring actions that will allow PolyOne to remain competitive
through the near-term economic downturn. We believe these actions
set the stage for significant earnings improvement when the economy
ultimately recovers." Special items in the fourth quarter included
a tax valuation allowance of $104.5 million against U.S. deferred
tax assets. The valuation allowance is larger than previously
disclosed primarily due to finalizing the accounting and
determining that about $35 million of the allowance that we
previously planned as a direct reduction of equity now must be
charged as expense. This does not change the Company's previous
statements that this is a non-cash charge that has no impact on
PolyOne's cash flow, liquidity, or credit facilities. Further, the
Company expects that it will have sufficient U.S. profitability
during the tax-loss carry-forward period to realize substantially
all of the deferred tax benefits. The non-cash goodwill impairment
charge of $170 million relates to the Company's Geon Compounds and
Specialty Coatings reporting units within the Performance Products
and Solutions Segment. This goodwill impairment charge is
preliminary based on management's best estimates and may be revised
prior to the Company filing its 2008 annual report on Form 10-K or
during the first quarter of 2009 after management has an
opportunity to conduct a full valuation study of these two
reporting units. Special charges recorded during the fourth quarter
also include $26.6 million of pre-tax charges related to the
combined restructuring actions announced on January 15, 2009 and
announced on July 28, 2008. Commenting on the goodwill impairment,
senior vice president and chief financial officer, Robert M.
Patterson, said, "The non-cash goodwill impairment charge in 2008
reflects an increase in our cost of capital due primarily to the
significant deterioration in the capital markets during the fourth
quarter and related decline in the market value of equity and debt
securities. The cost of capital is used to discount future cash
flows and therefore is a key assumption used in estimating the fair
value of a business. The impairment also reflects a reduction in
the near-term earnings outlook for the Geon Compounds and Specialty
Coatings reporting units. While the outlook for these businesses
declined in the fourth quarter of 2008, we believe they will both
generate significant earnings improvement when the economy
recovers." Patterson added, "We generated strong cash flow during
the quarter and we applied this principally to debt reduction. From
the third quarter of 2008, overall debt has declined $50 million,
including our Sunbelt joint venture guarantee. As of December 31,
2008, we had $44 million of cash, plus borrowing availability of
$121 million under our accounts receivable securitization facility,
for total liquidity of $165 million." 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/. To access
PolyOne's news library online, please visit
http://www.polyone.com/news Attachment 1 Supplemental Information
Summary of Consolidated Operating Results (Unaudited) Fourth
Quarter 2008 (In millions, except per share data) Operating
results: Three Months Ended Year Ended December 31, December 31,
2008 2007 2008 2007 Sales $541.8 $631.3 $2,738.7 $2,642.7 Operating
income (loss) (174.7) 18.6 (129.3) 33.9 Net income (loss) (282.6)
7.1 (272.9) 11.4 Earnings per common share: Basic and diluted
earnings (loss) per share $(3.07) $0.08 $(2.94) $0.12 Total diluted
per share impact of special items (1) $(3.15) $- $(3.35) $(0.29)
(1) Special items is a non-GAAP financial measure. 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 phaseout costs; executive
separation agreements; goodwill and 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 income tax valuation
allowance. Following is a list of special items: Special items:
Three Months Ended Year Ended December 31, December 31, 2008 2007
2008 2007 Employee separation and plant phaseout costs (a) $(26.6)
$- $(39.7) $(2.2) Write-down of certain assets of and investment in
equity affiliate (b) - - (4.7) (1.6) (Impairment) adjustment to
impairment of former equity investment (c) - 1.1 - (14.8) Charge
related to sale of investment in OxyVinyls - (0.4) - (0.4)
Environmental remediation costs (d) (0.3) (1.3) (14.6) (33.2)
Reimbursement to Goodrich Corp. of environmental costs (e) - - -
(15.6) Provision for settlement of certain legal issues and related
reserves (1.0) - (1.0) (2.4) Impairment of goodwill (f) (170.0) -
(170.0) - Impairment of other intangibles and investments - - -
(2.5) Impact on operating income (loss) (197.9) (0.6) (230.0)
(72.7) Impairment of available for sale security (0.6) - (0.6) -
Deferred note issuance cost write-off - - - (2.7) Premium on early
extinguishment of debt - - - (12.8) Impact on income (loss) before
income taxes (198.5) (0.6) (230.6) (88.2) Income tax benefit on
special items 13.5 0.2 24.4 30.8 Reversal of deferred tax liability
associated with the sale of equity affiliate - - - 31.5 Adjustment
to foreign income tax contingency and related interest - 0.2 -
(0.8) Deferred tax valuation allowance (g) (104.5) - (104.5) -
Impact of special items on net income (loss) $(289.5) $(0.2)
$(310.7) $(26.7) Basic and diluted impact per common share $(3.15)
$- $(3.35) $(0.29) Weighted average diluted shares used to compute
earnings per share: 92.1 93.2 92.7 93.1 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.
Write-down of certain inventory, receivables, and intangible assets
of, and an impairment of our investment in our equity affiliate in
Colombia. c. Non-cash impairment charge to adjust the carrying
value of our former equity investment in OxyVinyls to fair market
value. 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.
f. Non-cash impairment related to Geon Compounds and Specialty
Coatings reporting units within the Performance Products and
Solutions segment. This charge is preliminary based on management's
best estimates and may be revised prior to the Company filing its
annual report on Form 10-K or during the first quarter of 2009
after management has an opportunity to conduct a full valuation
study of these two reporting units. g. Tax valuation against U.S.
deferred tax assets. Attachment 2 PolyOne Corporation and
Subsidiaries Consolidated Statements of Operations (Unaudited) (In
millions, except per share data) Three Months Ended Year Ended
December 31, December 31, 2008 2007 2008 2007 Sales $541.8 $631.3
$2,738.7 $2,642.7 Cost of sales 483.8 566.9 2,442.1 2,381.7 Gross
margin 58.0 64.4 296.6 261.0 Selling and administrative 69.5 56.9
287.1 254.8 Impairment of goodwill 170.0 - 170.0 - Income from
equity affiliates and minority interest 6.8 11.1 31.2 27.7
Operating income (loss) (174.7) 18.6 (129.3) 33.9 Interest expense,
net (9.3) (7.1) (37.2) (46.9) Premium on early extinguishment of
long-term debt �?? - - (12.8) Other expense, net (1.9) (2.1) (4.6)
(6.6) Income (loss) before income taxes (185.9) 9.4 (171.1) (32.4)
Income tax benefit (expense) (96.7) (2.3) (101.8) 43.8 Net income
(loss) $(282.6) $7.1 $(272.9) $11.4 Basic and diluted earnings
(loss) per common share $(3.07) $0.08 $(2.94) $0.12 Weighted
average shares used to compute earnings per share: Basic 92.1 92.9
92.7 92.8 Diluted 92.1 93.2 92.7 93.1 Dividends declared per share
of common stock $- $- $- $- Equity earnings (loss) recorded by
PolyOne: SunBelt $5.7 $10.4 $32.5 $41.0 OxyVinyls - (1.1) - (0.2)
(Impairment) adjustment to impairment of investment in OxyVinyls -
1.1 - (14.8) Other equity affiliates 1.0 1.1 3.3 3.9 Charges
related to sale of OxyVinyls investment - (0.4) - (0.4) Write-down
of certain assets of and investment in Geon/Polimeros Andinos - -
(4.7) (1.6) Minority interest 0.1 - 0.1 (0.2) Income from equity
affiliates and minority interest $6.8 $11.1 $31.2 $27.7 Attachment
3 PolyOne Corporation and Subsidiaries Condensed Consolidated
Balance Sheets (Unaudited) (In millions) December December 31, 2008
31, 2007 Assets Current assets: Cash and cash equivalents $44.3
$79.4 Accounts receivable, net 262.1 340.8 Inventories 197.8 223.4
Deferred income tax assets 1.0 20.4 Other current assets 19.9 19.8
Total current assets 525.1 683.8 Property, net 432.0 449.7
Investment in equity affiliates and nonconsolidated subsidiary 20.5
19.9 Goodwill 163.9 288.8 Other intangible assets, net 69.1 6.7
Deferred income tax assets 0.5 69.9 Other non-current assets 66.6
64.2 Total assets $1,277.7 $1,583.0 Liabilities and Shareholders'
Equity Current liabilities: Current portion of long-term debt $19.8
$22.6 Short-term bank debt 6.2 6.1 Accounts payable 160.0 250.5
Accrued expenses 118.2 94.4 Total current liabilities 304.2 373.6
Long-term debt 408.3 308.0 Post-retirement benefits other than
pensions 80.9 81.6 Pension benefits 225.0 82.6 Other non-current
liabilities 83.4 87.8 Total liabilities 1,101.8 933.6 Shareholders'
equity 175.9 649.4 Total liabilities and shareholders' equity
$1,277.7 $1,583.0 Attachment 4 PolyOne Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited) (In millions)
Three Months Ended Year Ended December 31, December 31, 2008 2007
2008 2007 Operating Activities Net income (loss) $(282.6) $7.1
$(272.9) $11.4 Adjustments to reconcile net income to net cash
provided by operating activities: Depreciation and amortization
16.2 14.7 68.0 57.4 Deferred income tax benefit (expense) 94.5
(4.9) 89.4 (57.1) Premium on early extinguishment of long term debt
- - - 12.8 Provision for doubtful accounts 0.7 0.3 6.0 1.9 Stock
compensation expense 0.8 0.7 3.0 4.3 Impairment of goodwill 170.0 -
170.0 - Other asset write-downs and impairment charges 3.1 - 3.6
3.3 Companies carried at equity and minority interest: Income from
equity affiliates and minority interest (6.8) (11.1) (31.2) (27.7)
Dividends and distributions received 12.1 13.4 32.9 37.6 Change in
assets and liabilities: (Increase) decrease in accounts receivable
135.2 42.8 60.8 (10.8) (Increase) decrease in inventories 68.5 35.7
33.6 26.7 Increase (decrease) in accounts payable (130.8) (50.9)
(94.7) 17.8 Increase (decrease) in sale of accounts receivable
(11.6) - 14.2 - Increase (decrease) in accrued expenses and other
(13.8) (24.0) (10.2) (10.4) Net cash provided by operating
activities 55.5 23.8 72.5 67.2 Investing Activities Capital
expenditures (12.9) (6.7) (42.5) (43.4) Business acquisitions, net
of cash received - (0.2) (150.2) (11.2) Investment in affiliated
company - - (1.1) - Proceeds from sale of equity affiliate - - -
260.5 Proceeds from sale of assets 0.3 4.2 0.3 9.4 Net cash (used)
provided by investing activities (12.6) (2.7) (193.5) 215.3
Financing Activities Change in short-term debt (30.1) - 43.3 (0.2)
Issuance of long-term debt, net of debt issuance cost - - 77.8 -
Repayment of long-term debt (3.1) (0.7) (25.3) (264.1) Purchase of
common stock for treasury (0.9) - (8.9) - Premium on early
extinguishment of long-term debt - - - (12.8) Proceeds from
exercise of stock options - 0.3 1.1 1.2 Net cash (used) provided by
financing activities (34.1) (0.4) 88.0 (275.9) Effect of exchange
rate changes on cash (1.5) 2.5 (2.1) 6.6 Increase (decrease) in
cash and cash equivalents 7.3 23.2 (35.1) 13.2 Cash and cash
equivalents at beginning of period 37.0 56.2 79.4 66.2 Cash and
cash equivalents at end of period $44.3 $79.4 $44.3 $79.4
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. 4Q08 4Q07 Year 2008 Year
2007 Sales: International Color and Engineered Materials $96.4
$146.9 $587.4 $588.6 Specialty Engineered Materials 54.4 28.7 252.3
124.3 Specialty Color, Additives and Inks 49.3 53.0 228.6 232.0
Specialty Platform 200.1 228.6 1,068.3 944.9 Performance Products
and Solutions 193.7 246.1 1,001.4 1,086.8 PolyOne Distribution
172.7 184.0 796.7 744.3 Corporate and eliminations (24.7) (27.4)
(127.7) (133.3) Sales $541.8 $631.3 $2,738.7 $2,642.7 Gross margin:
International Color and Engineered Materials $13.6 $23.0 $96.4
$95.9 Specialty Engineered Materials 9.8 2.9 45.9 12.2 Specialty
Color, Additives and Inks 11.0 9.5 48.0 41.3 Specialty Platform
34.4 35.4 190.3 149.4 Performance Products and Solutions 28.2 15.6
85.3 105.5 PolyOne Distribution 15.6 15.4 73.1 60.7 Resin and
Intermediates - - - 0.6 Corporate and eliminations (20.2) (2.0)
(52.1) (55.2) Gross margin $58.0 $64.4 $296.6 $261.0 Operating
income (loss): International Color and Engineered Materials $(2.4)
$4.8 $20.4 $25.1 Specialty Engineered Materials 1.8 (1.0) 12.9
(2.2) Specialty Color, Additives and Inks 2.5 1.3 13.5 7.0
Specialty Platform 1.9 5.1 46.8 29.9 Performance Products and
Solutions 16.0 4.3 34.9 57.5 PolyOne Distribution 6.2 5.7 28.1 22.1
Resin and Intermediates 4.4 7.3 28.6 34.8 Corporate and
eliminations (203.2) (3.8) (267.7) (110.4) Operating income (loss)
$(174.7) $18.6 $(129.3) $33.9 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. Three Months Ended Year
Ended December 31, December 31, 2008 2007 2008 2007 Operating
income before special items $23.2 $19.2 $100.7 $106.6 Special items
in operating income (197.9) (0.6) (230.0) (72.7) Operating income
(loss) $(174.7) $18.6 $(129.3) $33.9 Income per share before impact
of special items $0.08 $0.08 $0.41 $0.41 Per share impact of
special items, after tax (3.15) - (3.35) (0.29) Diluted earnings
(loss) per common share $(3.07) $0.08 $(2.94) $0.12 Three Months
Ended Year Ended December 31, December 31, Reconciliation to
Consolidated Statement of Cash Flows 2008 2007 2008 2007 Net cash
provided by operating activities $55.5 $23.8 $72.5 $67.2 Net cash
(used) provided by investing activities (12.6) (2.7) (193.5) 215.3
Decrease (increase) in sale of accounts receivable 11.6 - (14.2) -
Free cash flow $54.5 $21.1 $(135.2) $282.5 DATASOURCE: PolyOne
Corporation CONTACT: Investor Relations: Robert M. Patterson,
Senior Vice President & Chief Financial Officer,
+1-440-930-3302, Media: Amanda Marko, Director, Corporate
Communications, +1-440-930-3162, , both of PolyOne Corporation Web
Site: http://www.polyone.com/ http://www.polyone.com/news
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