[POLYONE(R) LOGO]
NEWS RELEASE
FOR IMMEDIATE RELEASE
POLYONE REPORTS FIRST-QUARTER EARNINGS
- - REVENUE AND EARNINGS IMPROVE FROM FOURTH-QUARTER LEVELS
- - STRATEGIC VALUE CAPTURE INITIATIVES CONTINUE TO IMPROVE EARNINGS
CLEVELAND - April 30, 2002 - PolyOne Corporation (NYSE: POL), a leading global
polymer services company, today reported revenues of $613 million and -
excluding the cumulative effect of a change in goodwill accounting - a net loss
of $3.6 million, or $0.04 per share, for the first quarter ended March 31, 2002.
Consistent with the Company's April 8, 2002, announcement, the charge for
goodwill impairment increased the net loss by $53.7 million, or $0.60 per share.
Special items during the quarter consisted primarily of restructuring costs,
loss on the sale of the Company's interest in its Australian polyvinyl chloride
(PVC) resin joint venture and the effect of an equity affiliate's employee
separation costs. Special items increased the reported net loss by $2.3 million,
or $0.03 per share. Excluding the cumulative effect of a change in accounting
and special items, the net loss for the quarter was $1.3 million.
"While we are encouraged by the positive uptick in demand in the first quarter
compared with fourth-quarter 2001, we have not yet seen a return to strong
demand from our customers, nor have they shown the confidence to build higher
inventory levels," said Thomas A. Waltermire, PolyOne chairman and chief
executive officer. "Demand for PolyOne products appears to be tracking U.S.
industry production rates, which are improving, but still lag first-quarter 2000
and 2001 levels.
"Our steadfast discipline to reduce both structural and short-term costs coupled
with improvement in our Resin and Intermediate segment resulted in a $12.4
million increase in operating income in first-quarter 2002 compared with
first-quarter 2001, before special items and excluding 2001 goodwill
amortization," added Waltermire. "We achieved this increase despite the fact
that revenues in first-quarter 2002 were nearly 14 percent lower than last
year."
FIRST-QUARTER RESULTS
---------------------
(Dollars in millions, except per share data)
1Q02 1Q01 4Q01
---- ---- ----
Sales $ 613.2 $ 709.7 $ 589.9
Operating income (loss) 6.5 (23.3) (26.1)
Operating income (loss) before special items* 8.7 (8.1) 3.5
Net loss (57.3) (21.4) (30.1)
Net loss before cumulative effect of a
change in accounting (3.6) (21.4) (30.1)
Net loss before cumulative effect of a
change in accounting and special items* (1.3) (11.8) (5.5)
Loss per share, diluted (0.64) (0.24) (0.33)
Loss per share before cumulative
effect of a change in accounting, diluted (0.04) (0.24) (0.33)
Per share effect of excluding special items*, increase 0.03 0.11 0.27
Per share effect of goodwill amortization expense
on net loss before cumulative effect of a
change in accounting -- 0.04 0.04
*A summary of all special items for 2002 and 2001 can be found in the attached
table.
FIRST-QUARTER BUSINESS HIGHLIGHTS
- ---------------------------------
- - PolyOne's objective to capture approximately $60 million to $70 million in
additional savings from strategic value creation initiatives in 2002,
compared with 2001, should be realized principally in the third and fourth
quarters of 2002. The Company captured as expected an additional $9 million
and $3 million in first-quarter 2002 compared with first-quarter 2001 and
fourth-quarter 2001, respectively.
- - As announced earlier this year, PolyOne completed the divestiture of its
PVC resin interest in Australian Vinyls Corporation, an equity joint
venture in which it owned a 37.4 percent share. Orica Limited, which held
the remaining portion, also divested its interest. PolyOne and Orica retain
ownership of an Australian PVC compounding business, Welvic Australia Pty
Ltd., in proportions equivalent to their former resin interests.
- - Oxy Vinyls, LP, PolyOne's PVC resin equity joint venture, reported strong
demand during the quarter. OxyVinyls' PVC resin shipments increased more
than 20 percent from fourth-quarter 2001 levels. PVC resin price increases
in February and March of 2002 returned the average price for the first
quarter to levels similar to the fourth quarter, during which PVC resin
selling prices eroded throughout the quarter.
- - PolyOne's share of the operating loss by the Sunbelt chlor-alkali joint
venture was $3.4 million for the quarter. Although chlorine selling prices
improved from fourth-quarter 2001 levels, lower caustic shipments and
selling prices created an operating loss.
2
- - PolyOne's asset reconfiguration program for its North American Plastic
Compounds and Colors (PCC) Group is on schedule for completion near the end
of 2002. The Company plans to modernize 11 manufacturing sites with an
investment of slightly less than $50 million, while closing a total of 14
sites (10 site closings are planned in 2002). PolyOne expects to realize
approximately $50 million in operating improvements, as well as increased
production capacity, as of the beginning of 2003. During first-quarter
2002, the Corona, California, engineered materials plant was closed.
- - PolyOne will continue to upgrade its information systems to link nearly all
of its businesses worldwide, and anticipates capital spending of
approximately $10 million for this initiative in 2002. PolyOne brought the
Elastomers segment onto its unified system in January, and intends to bring
its Formulators unit online in June.
- - PolyOne, effective January 1, 2002, adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets." The
Company announced on April 8 that it would record a non-cash transitional
impairment charge of $54.7 million pre tax as a cumulative effect of a
change in accounting principle upon adoption of this new standard. The
goodwill impairment charge relates to PolyOne's 1999 acquisition of its
Engineered Films operation.
- - Following an April 15 announcement, PolyOne sold $200 million of 8.875
percent unsecured senior notes to certain institutional investors in an
issuance exempt from the registration requirements of the Securities Act of
1933. The Company used the proceeds from the offering to repay amounts
outstanding under its revolving bank credit facility, to repay a loan held
by one of its German subsidiaries, to reduce a portion of the amount sold
under its receivables sale facility, to repay borrowings under its
short-term lines of credit, and to pay related fees and expenses. The notes
will rank equally with all of PolyOne's other senior unsecured
indebtedness.
BUSINESS OUTLOOK
- ----------------
"Looking to the second quarter, we expect revenues to improve compared with the
first quarter, fueled by seasonal market demands and the gradual strengthening
within the overall economy," said Waltermire. "We project similar trends in our
European and Asian operations."
While the Company anticipates that revenues in the second quarter will show an
increase from first-quarter 2002 levels, they appear at this time likely to fall
short of second-quarter 2001. Even with the expected seasonal improvement,
PolyOne's current outlook reflects a degree of economic uncertainty in many
markets, particularly telecommunications and electrical. Additionally, the
sustainability of automotive builds continues to be a concern going forward.
"As a management team, we remain focused on and encouraged by the opportunity
that our value capture initiatives continue to provide and by the return of
top-line sales growth," said Waltermire. "We're also heartened by some signs
that suggest we are at the beginning of a recovery in the commodity cycle, which
should benefit profitability at our OxyVinyls equity investment."
3
PolyOne expects earnings in the second quarter, before any special items, to be
positive, largely due to sequential revenue growth. OxyVinyls results should
improve modestly from first-quarter 2002 levels because of higher PVC resin
prices and margins, although they will be partially offset by chlor-alkali price
trends and higher natural gas costs. While revenue levels could fall short
versus a year ago, earnings comparisons for the second quarter of 2002 versus
the second quarter of 2001 should be favorable as a result of benefits derived
from the value capture initiatives.
The poor outlook on caustic soda prices will result in continued Sunbelt losses
estimated at more than $1 million per month for PolyOne's share during the
second quarter. The Company also anticipates higher vinyl chloride monomer costs
for its specialty resin products and higher costs for raw materials such as PVC
resin for its compounding operations.
For the year, PolyOne estimates capital expenditures will be in the range of $75
million to $80 million. Nearly half of the projected capital spending is
associated with the North American PCC asset reconfiguration and the new
business information system. Further, PolyOne projects that cash spending for
restructuring initiatives announced and accrued in 2001 in relation to employee
separation and plant phase-out costs will range between $25 million and $30
million over the last nine months of 2002.
PolyOne's issuance of $200 million of unsecured debt and the subsequent
repayment of the revolving bank credit facility and extinguishment of the German
subsidiary's debt and other short-term lines should result in approximately $6.5
million higher interest expense for the remainder of 2002. However, PolyOne is
currently exploring alternatives to swap a portion of its fixed-rate debt for
floating rate, which could result in near-term reductions in projected interest
costs. Decreased use of the receivables sale facility will reduce "other
expense" by approximately $0.6 million annually.
CONFERENCE CALL
- ---------------
PolyOne will host an analyst conference call at 9 a.m. Eastern time on
Wednesday, May 1, 2002. The conference call number is 888-455-9948 or
712-271-0561 (international), passcode: PolyOne. The call will be broadcast live
and then via replay for two weeks on the Company's Web site: www.polyone.com.
SUPPLEMENTAL INFORMATION
- ------------------------
Investors interested in more detailed information on PolyOne's results or the
performance of its business segments, please see the Supplemental Information
report issued today. The report is posted in the Investor Relations section of
the Company's Web site: www.polyone.com. It can also be obtained from the
contact listed at the end of this release.
ABOUT POLYONE
- -------------
PolyOne Corporation, with 2001 revenues of $2.7 billion, is an international
polymer services company with operations in thermoplastic compounds, specialty
resins, specialty polymer formulations, engineered films, color and additive
systems, elastomer compounding and thermoplastic resin distribution.
Headquartered in Cleveland, Ohio, PolyOne has employees at manufacturing sites
in North America, Europe, Asia and Australia, and joint ventures in North
America, South America, Europe, Asia and Australia. Information on the Company's
products and services can be found at www.polyone.com.
4
PolyOne Media & Investor Contact: Dennis Cocco
Chief Investor & Communications Officer
216.589.4018
FORWARD-LOOKING STATEMENTS
- --------------------------
In this 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, including, for example,
statements about business outlook, assessment of market conditions, strategies,
future plans, future sales, prices for major products, inventory levels, capital
spending and tax rates. These forward-looking statements 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. Factors that could cause actual results to differ
materially include, but are not limited to: (1) an inability to achieve or
delays in achieving savings related to consolidation and restructuring programs;
(2) delays in achieving or inability to achieve the Company's strategic value
capture initiatives, including cost reduction and employee productivity goals,
or achieving less than the anticipated financial benefit from the initiatives;
(3) 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; (4) changes in
world, regional or U.S. plastic, rubber and PVC consumption growth rates
affecting the Company's markets; (5) changes in global industry capacity or in
the rate at which anticipated changes in industry capacity come online in the
PVC, VCM, chlor-alkali or other industries in which the Company participates;
(6) fluctuations in raw material prices and supply and energy prices and
supply, in particular fluctuations outside the normal range of industry cycles;
(7) production outages or material costs associated with scheduled or
unscheduled maintenance programs; (8) costs or difficulties and delays related
to the operation of joint venture entities; (9) lack of day-to-day operating
control, including procurement of raw material feedstocks, of other equity or
joint venture affiliates; (10) lack of direct control over the reliability of
delivery and quality of the primary raw materials utilized in the Company's
products; (11) partial control over investment decisions and dividend
distribution policy of the OxyVinyls partnership and other minority equity
holdings of the Company; (12) an inability to launch new products and/or
services that fit strategically with and add value to the Company's business;
(13) the possibility of goodwill impairment; (14) an inability to maintain any
required licenses or permits; and (15) an inability to comply with any
environmental laws and regulations.
###
5
POLYONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE DATA)
Three Months Ended
March 31,
------------- -------------
2002 2001
------------- -------------
Sales $ 613.2 $ 709.7
Operating costs and expenses:
Cost of sales 503.9 598.4
Selling and administrative 81.1 81.9
Depreciation and amortization 18.3 26.4
Employee separation and plant phase-out 0.9 8.9
Merger and integration costs -- 5.3
Loss from equity affiliates and minority interest 2.5 12.1
---------- ----------
Operating income (loss) 6.5 (23.3)
Interest expense (8.8) (12.9)
Interest income 0.2 0.2
Other expense, net (3.7) (2.3)
---------- ----------
Loss before income taxes and cumulative effect
of change in accounting method (5.8) (38.3)
Income tax benefit 2.2 16.9
---------- ----------
Loss before cumulative effect of a change in accounting (3.6) (21.4)
Cumulative effect of a change in goodwill accounting,
net of income tax benefit of $1.0 million (53.7) --
---------- ----------
Net loss $ (57.3) $ (21.4)
========== ==========
Loss per Share of Common Stock:
Basic loss per share before effect of change in accounting $ (.04) $ (.24)
Cumulative effect of a change in accounting (.60) --
---------- ----------
Basic loss per share $ (.64) $ (.24)
========== ==========
Diluted loss per share before effect of change in accounting $ (.04) $ (.24)
Cumulative effect of a change in accounting (.60) --
---------- ----------
Diluted loss per share $ (.64) $ (.24)
========== ==========
Weighted average shares used to compute loss per share:
Basic 90.0 89.7
Diluted 90.0 89.7
Dividends paid per share of common stock $ .0625 $ .0625
POLYONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN MILLIONS)
March 31, December 31,
ASSETS 2002 2001
----------------- -----------------
Current assets:
Cash and cash equivalents $ 22.5 $ 18.2
Trade accounts receivable, net 205.2 135.6
Other receivables 8.0 11.4
Inventories 271.7 255.3
Deferred taxes 48.5 48.6
Other current assets 17.8 16.5
---------- ----------
Total current assets 573.7 485.6
Property, net 673.4 683.6
Investment in equity affiliates 283.1 287.9
Goodwill and other intangible assets, net 481.5 537.3
Other non-current assets 46.8 66.8
---------- ----------
Total assets $ 2,058.5 $ 2,061.2
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank debt $ 64.2 $ 14.7
Accounts payable 333.2 311.4
Accrued expenses 164.3 169.4
Current portion of long-term debt 4.1 4.6
---------- ----------
Total current liabilities 565.8 500.1
Long-term debt 424.4 426.8
Deferred taxes 58.5 64.5
Post-retirement benefits other than pensions 125.2 126.2
Other non-current liabilities, including pensions 215.3 214.5
Minority interest in consolidated subsidiaries 15.9 15.7
---------- ----------
Total liabilities 1,405.1 1,347.8
Shareholders' equity:
Preferred stock -- --
Common stock 1.2 1.2
Other shareholders' equity 652.2 712.2
---------- ----------
Total shareholders' equity 653.4 713.4
---------- ----------
Total liabilities and shareholders' equity $ 2,058.5 $ 2,061.2
========== ==========
POLYONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
Three Months Ended
March 31,
--------------------------
2002 2001
----------- -----------
OPERATING ACTIVITIES
Net loss $ (57.3) $ (21.4)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Employee separation and plant phase-out charges 0.9 8.9
Cash payments on employee separation and plant phase-out (4.0) (1.2)
Cumulative effect of a change in accounting 53.7 --
Depreciation and amortization 18.3 26.4
Investment write-down, loss on sale of equity affiliate 1.5 --
Companies carried at equity and minority interest:
Loss 2.5 12.1
Dividends received -- 1.0
Change in assets and liabilities:
Operating working capital:
Accounts receivable (70.3) 40.7
Inventories (16.5) 14.2
Accounts payable 22.8 30.6
Accrued expenses and other 16.4 (33.0)
-------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (32.0) 78.3
INVESTING ACTIVITIES
Capital expenditures (10.7) (19.3)
Cash received from equity affiliates 1.3 2.2
Other 0.8 (3.1)
-------- --------
NET CASH PROVIDED BY OPERATING AND INVESTING ACTIVITIES (40.6) 58.1
FINANCING ACTIVITIES
Change in short-term debt 49.2 (59.4)
Change in long-term debt (0.6) 1.9
Proceeds from the exercise of stock options 2.7 --
Dividends (5.8) (5.6)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 45.5 (63.1)
Effect of exchange rate changes on cash (0.6) (0.8)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4.3 (5.8)
Cash and cash equivalents at beginning of period 18.2 37.9
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 22.5 $ 32.1
======== ========
SUMMARY OF SPECIAL ITEMS
(In millions)
Quarters
--------------------------------------------
1Q02 4Q01 1Q01
---------- ---------- ----------
Employee separation and plant phase-out costs $ (0.9) $ (26.3) $ (8.9)
Period plant phase-out costs incurred (0.1) -- --
Plant phase-out accelerated depreciation (0.5)
Equity affiliate - employee severance and liabilities
associated with the temporary idling of a plant (0.7) (3.3) (1.0)
Merger and integration costs -- -- (0.5)
Executives separation costs -- -- (4.8)
---------- ---------- ----------
Subtotal - operating loss (2.2) (29.6) (15.2)
Investment write-down and loss on sale (1.5) (9.5) (0.6)
---------- ---------- ----------
Total - pre-tax expense (3.7) (39.1) (15.8)
Income tax benefit 1.4 14.5 6.2
---------- ---------- ----------
Total after-tax expense $ (2.3) $ (24.6) $ (9.6)
========== ========== ==========