Exhibit 99.1
[COMPANY LOGO]
NEWS RELEASE
FOR IMMEDIATE RELEASE
POLYONE REPORTS IMPROVED SECOND-QUARTER EARNINGS
- SALES GROWTH CONTINUES FOR SECOND CONSECUTIVE QUARTER
- CUSTOMER DEMAND IMPROVES IN MOST MARKETS
- EUROPEAN AND ASIAN RESULTS REFLECT ECONOMIC STRENGTHENING
CLEVELAND - July 30, 2002 - PolyOne Corporation (NYSE: POL), a leading global
polymer services company, today reported revenues of $692.0 million and net
income of $6.1 million, or $0.07 per share, for the second quarter ended June
30, 2002.
Net income included $0.5 million of special charges associated primarily with
restructuring initiatives announced in 2001. Operating income before special
items also was negatively affected by a profit deferral of approximately $2
million, or about $0.01 per share, related to the transfer of vinyl compound
business from a third-party distributor to PolyOne Distribution. The earnings
impact results from the elimination of inter-company profits in the inventory of
PolyOne Distribution, a consolidated business. PolyOne must defer profit
recognition until PolyOne Distribution sells to a third-party customer.
"We were especially pleased to see the improvement in sales in the second
quarter," said Thomas A. Waltermire, PolyOne chairman and chief executive
officer. "The strengthening demand from our customers is a particularly
refreshing sign. In addition, our earnings continue to improve, driven by
benefits from our value capture initiatives.
"The resilience of the economies in Europe and Asia is further gratifying,"
added Waltermire. "In North America, the economy has been slower to recover, but
we are pleased to see many of our customers experiencing improvement,
particularly in building material applications."
SECOND-QUARTER RESULTS
(Dollars in millions, except per share data)
2Q02 1Q02 2Q01
---- ---- ----
Sales $ 692.0 $ 613.2 $ 695.4
Operating income 22.7 5.0 16.8
Operating income before special items* 23.4 8.7 18.4
Net income (loss) 6.1 (57.3) 2.5
Net loss before cumulative effect of a
change in accounting 6.1 (3.6) 2.5
Net income (loss) before cumulative effect of a
change in accounting and special items* 6.6 (1.3) 1.0
Income (loss) per share, diluted 0.07 (0.64) 0.03
Income (loss) per share before cumulative
effect of a change in accounting, diluted 0.07 (0.04) 0.03
Per share effect of excluding special items*, increase
(decrease) 0.00 0.03 (0.02)
Per share effect of goodwill amortization expense
on net income before cumulative effect of a
change in accounting 0.00 0.00 0.04
YEAR-TO-DATE RESULTS
(Dollars in millions, except per share data)
1H02 1H01
---- ----
Sales $ 1,305.2 $ 1,405.1
Operating income (loss) 27.7 (6.5)
Operating income before special items* 32.1 10.3
Net loss (51.2) (18.9)
Net income (loss) before cumulative effect of a
change in accounting 2.5 (18.9)
Net income (loss) before cumulative effect of a
change in accounting and special items* 5.3 (10.8)
Loss per share, diluted (0.55) (0.21)
Income (loss) per share before cumulative
effect of a change in accounting, diluted 0.03 (0.21)
Per share effect of excluding special items*, increase 0.03 0.09
Per share effect of goodwill amortization expense
on net income before cumulative effect of a
change in accounting 0.00 0.08
*A summary of all special items for 2002 and 2001 can be found in the attached
table.
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SECOND-QUARTER BUSINESS HIGHLIGHTS
- - PolyOne reported sequential sales growth for the second consecutive
quarter, with sales 13 percent above the first quarter of 2002 and nearly
equal to the second quarter of 2001.
- - For the first six months of 2002, PolyOne improved its net income before
the cumulative effect of a change in accounting and special items by $16.1
million over the same period of 2001 on 7 percent lower sales. The improved
earnings reflect primarily the results of initiatives to reduce operating
costs and higher earnings from the Resin and Intermediates equity
affiliates.
- - PolyOne Distribution saw a strong second-quarter sales increase, exceeding
first-quarter 2002 and second-quarter 2001 sales by 14 and 17 percent,
respectively. The Distribution business' ability to capture PolyOne's vinyl
compound sales following the transfer of that business from a third party
in April 2002 represented approximately 13 of the 17 percentage points of
the quarter's sales increase over second-quarter 2001.
- - PolyOne International Plastic Compounds and Colors (PCC) operations saw
strong demand increases in second-quarter 2002. Combined sales for Europe
and Asia increased 21 and 19 percent from the first quarter of 2002 and the
second quarter of 2001, respectively. Throughout second-quarter 2002, the
euro gained strength versus the U.S. dollar, averaging approximately 5
percent above first-quarter 2002 and second-quarter 2001 levels.
- - Oxy Vinyls, LP, PolyOne's polyvinyl chloride (PVC) resin equity joint
venture, reported strong market demand during the quarter. As a result,
market prices for PVC resins increased approximately $0.07 per pound
compared with the average in first-quarter 2002. This increase contributed
to improved PVC resin margins and helped boost equity income by $5.5
million, before special items, in the second quarter versus the first
quarter of 2002.
- - PolyOne's equity losses from the SunBelt Chlor-Alkali joint venture were
$3.2 million for the quarter, slightly better than in first-quarter 2002.
Chlorine price increases realized in the second quarter were offset by a
decline in caustic soda prices.
- - As part of the drive to implement income-improving opportunities, PolyOne
captured $8.0 million and $2.0 million in additional income improvements
compared with second-quarter 2001 and first-quarter 2002, respectively. The
Company projects that through these strategic value capture initiatives, it
will capture between $45 million and $50 million in additional benefits for
the full year compared with 2001, with approximately 60 percent coming in
the second half of 2002. This revised 2002 estimate represents a reduction
from earlier projections, and stems principally from a delay in closing the
Bethlehem, Pennsylvania, plant and the effect on shipments of the
slower-than-anticipated rate of economic recovery. The Company remains
committed to the goal established in 2001 of capturing approximately $200
million in annual income improvements, and believes it will achieve its
target in 2003.
- - PolyOne's asset reconfiguration program for its North American PCC
operation is largely on schedule for completion near the end of 2002. Five
plants are scheduled for closing in the third quarter. The Company
completed a reassessment of its Bethlehem site, which affirmed an earlier
decision to close the facility and transfer production to Avon Lake, Ohio.
This
3
evaluation has delayed the Bethlehem closing until mid-2003, when PolyOne
will begin to realize annual savings of approximately $5 million from this
action.
- - Per PolyOne's announcement in August 2001, the Chicago facility in the
Elastomers and Performance Additives segment was closed during the second
quarter. Products and manufacturing were successfully transferred to the
DeForest, Wisconsin, plant.
- - PolyOne continues to upgrade its information systems to link nearly all of
its businesses worldwide. In June, the Company successfully brought online
its Formulators operations and the Performance Additives portion of its
Elastomers segment, which represent more than $200 million in annual
revenues. The system upgrade involved 10 sites and more than 400 employees
who underwent training. Overall, PolyOne anticipates capital spending of
approximately $10 million to upgrade its systems in 2002.
- - Following the issuance of $200 million of unsecured senior debt in April
2002, the Company entered into interest rate swap agreements to effectively
convert fixed-rate interest cost to a variable rate on $80 million of debt.
PolyOne estimates that these agreements will reduce its interest cost by
approximately $0.9 million in the second half of 2002.
- - During the second quarter, PolyOne announced North American vinyl compound
price increases for flexible and rigid products. This development was
driven by the need to recover margins reduced by the escalating market
price for PVC resin. Generally, the increases took effect late in the
quarter, and had no material effect on second-quarter results.
BUSINESS OUTLOOK
Demand in late June and early July slowed across many markets from the typical
effects of holiday and associated vacation shutdowns among PolyOne's customers.
In the latter half of July, customer orders returned to levels that suggest
third-quarter 2002 revenues will be at or slightly ahead of second-quarter
revenues and 5 percent or more above the third quarter of 2001.
"We remain optimistic about realizing improvements in revenues and income in the
third quarter," said Waltermire. "Most of our markets have demonstrated steady
growth since the beginning of 2002, and this trend continues despite the
uncertainties reflected in the equity market."
Sales appear to be strengthening in most markets, with the continuing exception
of telecommunications, which represents approximately 4 to 6 percent of
PolyOne's historic revenues. Market analysts suggest that with the technological
advances and overbuilding of network systems that took place in the 1990s, a
telecom recovery is unlikely in the near future.
As PolyOne moves through the third quarter, a number of factors could affect
earnings:
- - PolyOne anticipates approximately $6 million in new value capture
initiatives. Value capture benefits will result from a number of programs,
including targeted growth initiatives, sourcing savings and manufacturing
cost reductions.
4
- - Several key variables could improve the Resin and Intermediates segment's
equity income by an estimated $6 million to $8 million over second-quarter
2002 results. PolyOne forecasts that the market price for PVC resin will
increase in July and remain unchanged through the third quarter. Also,
announced increases in market prices for caustic soda and chlorine in the
third quarter should result in improved ECU (Electro Chemical Unit) pricing
of approximately $150 per ton. SunBelt, which had been losing approximately
$1 million per month, could return nearly to the break-even point if the
price increases are realized.
- - North American PCC operating income will be directly affected to the degree
that announced selling price increases are realized in the marketplace.
This is especially important in vinyl compounds, where margins will be
reduced due to the rapid and substantial increases in PVC resin market
prices during the first half of 2002. PolyOne projects that the average
market price for PVC resins will rise by approximately $0.05 in the third
quarter compared with the average price in the second quarter of 2002. For
PolyOne, a $0.01 shift in vinyl compound margin (selling price less PVC
resin cost) changes operating income nearly $3 million per quarter. In the
third quarter, PolyOne needs to realize approximately $0.04 to $0.05 per
pound of vinyl compound selling price to maintain second-quarter average
margins. Since the start of 2002, PolyOne has announced a total of $0.08
per pound in vinyl compound price increases.
- - For the year, PolyOne estimates capital expenditures in the range of $75
million to $80 million. Nearly half of the projected capital spending is
associated with the North American PCC asset modernization and the new
business information system. Further, PolyOne projects that cash spending
for restructuring initiatives announced in 2001 in relation to employee
separation and plant phase-out costs will range between $23 million and $27
million in the second half of 2002.
The outlook for fourth-quarter 2002 remains uncertain. While some normal
seasonal slowdown in sales is expected from second-quarter and projected
third-quarter levels, the current view projects strong double-digit sales demand
versus the fourth quarter of 2001. PolyOne's earnings in the fourth quarter are
anticipated to be substantially higher than year-earlier results, assuming that
margins retain gains achieved in the third quarter.
CONFERENCE CALL
PolyOne will host an analyst conference call at 9 a.m. Eastern time on
Wednesday, July 31, 2002. The conference call number is 888-489-0038 or
706-643-1611 (international), conference topic: POLYONE EARNINGS CALL. 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.
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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.
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
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, quality 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) partial control over investment decisions and
dividend distribution policy of the OxyVinyls partnership and other minority
equity holdings of the Company; (11) an inability to launch new products and/or
services that strategically fit the Company's businesses; (12) the possibility
of goodwill impairment; (13) an inability to maintain any required licenses or
permits; and (14) an inability to comply with any environmental laws and
regulations.
###
6
POLYONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Sales $ 692.0 $ 695.4 $ 1,305.2 $ 1,405.1
Operating costs and expenses:
Cost of sales 577.7 578.8 1,081.6 1,177.2
Selling and administrative 76.3 77.6 157.4 159.5
Depreciation and amortization 19.1 25.9 37.4 52.3
Employee separation and plant phase-out -- 0.9 0.9 9.8
Merger and integration costs -- 0.5 -- 5.8
Loss on divestiture of equity investment -- -- 1.5 --
(Income) loss from equity affiliates and minority interest (3.8) (5.1) (1.3) 7.0
---------- ---------- ---------- ----------
Operating income (loss) 22.7 16.8 27.7 (6.5)
Interest expense (11.4) (10.9) (20.2) (23.8)
Interest income 0.3 1.2 0.5 1.4
Other expense, net (1.6) 1.4 (3.8) (0.9)
---------- ---------- ---------- ----------
Income (loss) before income taxes and cumulative
effect of change in accounting method 10.0 8.5 4.2 (29.8)
Income tax (expense) benefit (3.9) (6.0) (1.7) 10.9
---------- ---------- ---------- ----------
Income (loss) before cumulative effect of a change in accounting 6.1 2.5 2.5 (18.9)
Cumulative effect of a change in goodwill accounting,
net of income tax benefit of $1.0 million -- -- (53.7) --
---------- ---------- ---------- ----------
Net income (loss) $ 6.1 $ 2.5 $ (51.2) $ (18.9)
========== ========== ========== ==========
Income (loss) per Share of Common Stock:
Basic income (loss) per share before effect of change in accounting $ .07 $ .03 $ .03 $ (.21)
Cumulative effect of a change in accounting -- -- (.60) --
---------- ---------- ---------- ----------
Basic income (loss) per share $ .07 $ .03 $ (.57) $ (.21)
========== ========== ========== ==========
Diluted income (loss) per share before effect of change in accounting $ .07 $ .03 $ .03 $ (.21)
Cumulative effect of a change in accounting -- -- (.58) --
---------- ---------- ---------- ----------
Diluted income (loss) per share $ .07 $ .03 $ (.55) $ (.21)
========== ========== ========== ==========
Weighted average shares used to compute loss per share:
Basic 90.3 89.8 90.4 89.8
Diluted 92.5 90.5 92.3 90.3
Dividends paid per share of common stock $ .0625 $ .0625 $ .125 $ .125
POLYONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN MILLIONS)
June 30, December 31,
ASSETS 2002 2001
-------- --------
Current assets:
Cash and cash equivalents $ 46.2 $ 18.2
Trade accounts receivable, net 239.9 135.6
Other receivables 10.3 11.4
Inventories 291.9 255.3
Deferred taxes 50.5 48.6
Other current assets 15.6 16.5
-------- --------
Total current assets 654.4 485.6
Property, net 683.8 683.6
Investment in equity affiliates 285.9 287.9
Goodwill, net 446.8 476.3
Other intangible assets, net 33.9 61.0
Other non-current assets 49.9 66.8
-------- --------
Total assets $2,154.7 $2,061.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank debt $ 15.9 $ 14.7
Accounts payable 303.9 311.4
Accrued expenses 159.1 169.4
Current portion of long-term debt 4.2 4.6
-------- --------
Total current liabilities 483.1 500.1
Long-term debt 585.4 426.8
Deferred taxes 61.8 64.5
Post-retirement benefits other than pensions 129.1 126.2
Other non-current liabilities, including pensions 212.2 214.5
Minority interest in consolidated subsidiaries 17.8 15.7
-------- --------
Total liabilities 1,489.4 1,347.8
Shareholders' equity:
Preferred stock -- --
Common stock 1.2 1.2
Other shareholders' equity 664.1 712.2
-------- --------
Total shareholders' equity 665.3 713.4
-------- --------
Total liabilities and shareholders' equity $2,154.7 $2,061.2
======== ========
POLYONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2002 2001 2002 2001
------ ------ ------ ------
OPERATING ACTIVITIES
Net loss $ 6.1 $ 2.5 $(51.2) $(18.9)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Employee separation and plant phase-out charges -- 0.9 0.9 9.8
Cash payments on employee separation and plant phase-out (3.7) (6.2) (7.7) (12.8)
Cumulative effect of a change in accounting -- -- 53.7 --
Depreciation and amortization 19.1 25.9 37.4 52.3
Investment write-down, loss on sale of equity affiliate -- -- 1.5 --
Companies carried at equity and minority interest:
(Income) loss (3.2) (5.1) (0.7) 7.0
Dividends received 2.1 -- 2.1 1.0
Change in assets and liabilities:
Operating working capital:
Accounts receivable (23.5) 87.6 (93.8) 128.3
Inventories (14.7) 47.1 (31.2) 61.3
Accounts payable (37.5) 15.8 (14.7) 46.4
Accrued expenses and other 5.0 11.8 21.4 (15.8)
------ ------ ------ ------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (50.3) 180.3 (82.3) 258.6
INVESTING ACTIVITIES
Capital expenditures (23.1) (16.7) (33.8) (36.0)
Cash received from equity affiliates (0.9) (1.7) 0.4 0.5
Proceeds from sale of assets 1.1 2.8 1.1 2.8
Other (4.4) 6.6 (3.6) 3.5
------ ------ ------ ------
NET CASH USED BY INVESTING ACTIVITIES (27.3) (9.0) (35.9) (29.2)
FINANCING ACTIVITIES
Change in short-term debt (49.9) (162.8) (0.7) (222.2)
Change in long-term debt 155.1 1.2 154.5 3.1
Proceeds from the exercise of stock options 2.3 -- 5.0 --
Dividends (5.4) (5.7) (11.2) (11.3)
------ ------ ------ ------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 102.1 (167.3) 147.6 (230.4)
Effect of exchange rate changes on cash (0.8) 0.1 (1.4) (0.7)
------ ------ ------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 23.7 4.1 28.0 (1.7)
Cash and cash equivalents at beginning of period 22.5 32.1 18.2 37.9
------ ------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 46.2 $ 36.2 $ 46.2 $ 36.2
====== ====== ====== ======
SUMMARY OF SPECIAL ITEMS
(In millions)
Quarters
--------------------
2Q02 1Q02 2Q01
---- ---- ----
Employee separation and plant phase-out costs $ -- $(0.9) $(0.9)
Period plant phase-out costs incurred (0.1) (0.1) (0.2)
Plant phase-out accelerated depreciation (0.5) (0.5) --
Equity affiliate - employee severance and liabilities
associated with the temporary idling of a plant (0.1) (0.7) --
Merger and integration costs -- -- (0.5)
Loss on divestiture of equity investment -- (1.5) --
---- ---- ----
Subtotal - operating loss (0.7) (3.7) (1.6)
Litigation settlement gain -- -- 4.1
---- ---- ----
Total - pre-tax income (expense) (0.7) (3.7) 2.5
Income tax benefit (expense) 0.2 1.4 (1.0)
---- ---- ----
Total - after-tax income (expense) $(0.5) $ (2.3) $ 1.5
==== ==== ====
Six Months
-------------
1H02 1H01
----- -----
Employee separation and plant phase-out cost $(0.9) $(9.8)
Period plant phase-out costs incurred (0.2) (0.2)
Plant phase-out accelerated depreciation (1.0) --
Equity affiliate - employee severance and liabilities
associated with the temporary idling of a plant (0.8) (1.0)
Merger and integration costs -- (5.8)
Loss on divestiture of equity investment (1.5) --
----- -----
Subtotal - operating loss (4.4) (16.8)
Investment write-down -- (0.6)
Litigation settlement gain -- 4.1
----- -----
Total - pre-tax income (expense) (4.4) (13.3)
Income tax benefit 1.6 5.2
----- -----
Total - after-tax income (expense) $(2.8) $(8.1)
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