Exhibit 99.1
[POLYONE LOGO] NEWS RELEASE
FOR IMMEDIATE RELEASE
POLYONE REPORTS RESULTS FOR SECOND-QUARTER 2003
- OPERATING INCOME IMPROVES SEQUENTIALLY ON NEARLY FLAT SALES
- NORTH AMERICAN OPERATIONS REFLECT CONTINUING WEAK ECONOMIC CONDITIONS
- COMPANY DEVELOPS IMPROVEMENT ACTIONS FOR SECOND HALF
CLEVELAND - July 29, 2003 - PolyOne Corporation (NYSE: POL), a leading global
polymer services company, today reported sales of $650.9 million for the second
quarter ended June 30, 2003, a decrease of $20.0 million, or 3 percent, from the
2002 second quarter. PolyOne had a net loss of $6.0 million, or a diluted net
loss of $0.07 per share, for the 2003 second quarter compared with net income of
$6.1 million, or $0.07 per diluted share, in the same quarter last year. These
results are consistent with PolyOne's July 9, 2003, announcement on projected
second-quarter earnings.
The 2003 net loss includes special items of $2.3 million after-tax expense, or
$0.03 per share, associated primarily with previously announced and new
restructuring initiatives. Among the new initiatives is the scheduled August
closing of the Fort Worth, Texas, color additives plant, for which PolyOne took
a second-quarter pre-tax charge of $3.5 million, including $2.6 million in
non-cash costs. PolyOne estimates that this closing will result in annual
pre-tax operating savings of approximately $3.4 million.
In the 2002 second quarter, net income included $0.5 million of after-tax
special charges related principally to restructuring initiatives. A list and
description of all special items for the second quarters of 2003 and 2002 and
the first quarter of 2003 is in the attached Exhibit 1.
PolyOne faced continuing weak demand in second-quarter 2003 in its North
American businesses, which represent approximately 83 percent of total Company
revenues. Many customers, apparently expecting a near-term improvement in demand
and selling prices, increased inventories in the first quarter. In the second
quarter, however, demand faltered and, as a result, it appears that many
customers lowered their inventories. Consequently, the Company had only partial
success in raising selling prices to cover higher raw material costs.
"Although we are disappointed by a sales increase of only 1 percent over the
previous quarter, we are encouraged that we were able to retain operating
margins at first-quarter levels through our internal efforts to lower costs,"
said Thomas A. Waltermire, PolyOne chairman and chief executive officer. "In
addition, we are confident that we are maintaining our share of targeted markets
in an intensely competitive environment."
SECOND-QUARTER 2003 BUSINESS HIGHLIGHTS
- ---------------------------------------
REDEFINED GO-TO-MARKET APPROACH: In April 2003, PolyOne launched efforts to
improve and sustain profitability by redefining the way it takes its products
and services to market. These efforts include repricing and rationalizing some
product lines, aligning the commercial organization toward the most profitable
customers, and establishing a rigorous customer tracking and closing system.
Although this work is still in the early stages, it already has resulted in $2.5
million in operating income improvement on an annual run-rate basis.
LOWER SELLING AND ADMINISTRATIVE EXPENSE: The cost reductions that PolyOne
implemented in January 2003 produced results as selling and administrative (S&A)
spending declined $13.2 million in the first half of 2003 compared with the same
period last year. Despite increases in employee benefit costs, S&A costs in the
second quarter of 2003 were $5.6 million below the second-quarter 2002 level as
PolyOne continued to pursue its objective of reducing S&A costs to less than 10
percent of sales.
STRENGTHENED BALANCE SHEET: In May 2003, PolyOne completed a debt refinancing
that provides the liquidity for the Company to repay unsecured senior debt that
will mature in September 2003. Under the refinancing plan, PolyOne has $300
million in new, senior unsecured debt; a revised, three-year, $50 million
secured revolving credit facility; and a new, three-year, $225 million accounts
receivable sale facility. Following the refinancing, approximately $34 million
of the unsecured senior debt maturing in September was purchased and retired in
the second quarter. The Company took a $0.8 million charge associated with the
early retirement of this debt. Interest savings will exceed this charge by $0.4
million in the second and third quarters of 2003.
Effective June 30, 2003, PolyOne terminated its guarantee on $42.3 million of
borrowings by Oxy Vinyls, LP (OxyVinyls) from Occidental Petroleum Corporation,
PolyOne's partner in this equity joint venture.
ALIGNMENT OF CAPACITY WITH DEMAND: As previously announced, PolyOne closed its
Engineered Films plant in Yerington, Nevada, to reduce excess production
capacity and realign its product portfolio to available capacity. The plant,
which employed 84 people, produced a variety of custom film products.
As part of a continuing evaluation of its manufacturing facilities, PolyOne
concluded that it will close its color additives plant in Fort Worth, Texas, in
August 2003. The Company is transferring production to other color plants with
available capacity. The plant has 32 employees.
In July 2003, the Company decided to reduce the work schedule at most of its
vinyl compounding plants. Initially, approximately 54 employees will be affected
by this decision. Additionally, PolyOne closed two production lines at its
Macedonia, Ohio, engineered materials plant, affecting 19 employees. As
previously announced, the Bethlehem, Pennsylvania, plant, which made engineered
material compounds, was closed at the end of June, and the production was
transferred to other PolyOne facilities.
The aggregate annual cost saving from these five actions is projected to
approximate $15 million.
POLYONE ALIGNS IN JOINT VENTURE WITH BAYER: In April 2003, PolyOne and Bayer
Polymers LLC announced the formation of a 50/50 joint venture to develop and
market polyurethane systems. The new enterprise, BayOne Urethane Systems, LLC,
began operating in June from headquarters at a
PolyOne facility in St. Louis, Missouri. BayOne combines Bayer Polymers'
technologies and raw materials with PolyOne's formulating expertise and
technical service know-how. The joint venture will focus primarily on markets in
the United States and Canada for carpet backing and related applications,
non-automotive flexible molded foam, integral skins, footwear, instrument panels
and filters.
SECOND-QUARTER 2003 SEGMENT RESULTS
- -----------------------------------
PERFORMANCE PLASTICS: Sales and pounds shipped decreased 1 percent and 12
percent, respectively, compared with the second quarter of 2002. Operating
income before special items fell $11.2 million, due primarily to an increase in
raw material costs in the 2003 second quarter compared with the same quarter in
2002. Compared with first-quarter 2003, operating income before special items
improved $2.5 million, despite essentially flat shipments.
International operations had a 23 percent sales improvement in second-quarter
2003 over the same quarter in 2002. International sales benefited both from an
acquisition that added approximately $11 million and from favorable currency
exchange of $14 million in the second quarter of 2003 versus the same quarter in
2002. International operations had a 12 percent increase in shipments between
the same periods, or a 2 percent decline excluding the impact of the
acquisition. Shipments improved 6 percent in second-quarter 2003 compared with
first-quarter 2003.
ELASTOMERS AND PERFORMANCE ADDITIVES: Shipments were down 9 percent compared
with first-quarter 2003 and down 10 percent compared with second-quarter 2002.
PolyOne believes the principal factors in these declines were renewed slowness
in automotive accounts and, to a lesser degree, customers drawing down
inventories that they had restocked during the 2003 first quarter to hedge
higher prices.
DISTRIBUTION: Sales declined 3 percent and pounds shipped decreased 15 percent
in second-quarter 2003 compared with the year-ago quarter. For PolyOne's U.S.
and Canadian operations, sales increased 1 percent on 8 percent lower shipments.
Anticipating lower polymer pricing from suppliers in the second half of the
year, some customers used the second quarter of 2003 to de-stock inventories.
RESIN AND INTERMEDIATES: This segment, which comprises primarily the OxyVinyls
and SunBelt Chlor-Alkali joint ventures, realized a significant turnaround from
the second quarter of 2002, although not to the extent anticipated in the
second-quarter 2003 outlook issued in April. For the quarter, the segment
reported $7.5 million in operating income before special items, a $6.7 million
improvement compared with the same quarter in 2002 and a $3.5 million increase
over the 2003 first quarter. Improved polyvinyl chloride (PVC) resin spreads
(selling price less the cost of chlorine and ethylene) in second-quarter 2003
were partially offset by the substantially higher cost of natural gas and
significantly lower PVC resin shipments.
SUMMARY OF SECOND-QUARTER 2003 RESULTS
--------------------------------------
(Dollars in millions, except per share data)
2Q03 1Q03 2Q02
------- ------- -------
Sales $ 650.9 $ 645.5 $ 670.9
Operating income (loss) 10.8 (16.2) 21.6
Income (loss) before discontinued operations and
cumulative effect of a change in accounting (6.0) (19.3) 5.3
Net Income (loss) $ (6.0) $ (19.3) $ 6.1
Income (loss) per share, diluted $ (0.07) $ (0.21) $ 0.07
Income (loss) per share before discontinued operations
and cumulative effect of a change in accounting (0.07) (0.21) 0.06
Per share effect of excluding special items, increase 0.03 0.18 -
SUMMARY OF YEAR-TO-DATE 2003 RESULTS
------------------------------------
(Dollars in millions, except per share data)
6 MOS. 2003 6 MOS. 2002
----------- -----------
Sales $ 1,296.4 $ 1,267.2
Operating income (loss) (5.4) 26.0
Income (loss) before discontinued operations and
cumulative effect of a change in accounting (25.3) 1.4
Net loss $ (25.3) $ (51.2)
Loss per share, diluted $ (0.28) $ (0.55)
Income (loss) per share before discontinued operations
and cumulative effect of a change in accounting (0.28) 0.02
Per share effect of excluding special items, increase 0.21 0.03
THIRD-QUARTER 2003 BUSINESS OUTLOOK
- -----------------------------------
With North American customer demand in an apparent holding pattern and no real
evidence of an economic recovery, PolyOne projects third-quarter 2003 sales
demand to be similar to the second-quarter level. While this similarity between
these quarters is typical, the third quarter also tends to be adversely affected
by summer shutdowns among North American customers in July and European
customers in August.
For PolyOne's operating businesses (total Company less the Resin and
Intermediates segment), the margin compression seen in the second quarter of
2003 will likely continue into the third quarter unless raw material costs
moderate or PolyOne succeeds in gaining selling price increases. PolyOne regards
it as unlikely that either raw material relief or increased selling prices will
bring a significant benefit in the third quarter.
PVC resin demand is forecasted to improve slightly in the third quarter compared
with the prior quarter, although average industry selling prices will likely
decrease. Lower industry PVC resin selling prices, partially offset by lower
chlorine and ethylene costs, are expected to drive a 1-cent to 2-cent-per-pound
decrease in PVC resin spreads compared with second-quarter 2002.
Chlor-alkali demand is projected to be flat in the third quarter compared with
the second quarter of 2003, with a modest decrease in industry chlorine selling
prices partially offset by slightly higher caustic soda selling prices. Natural
gas costs are projected to be flat between the quarters. In combination with the
PVC resin spread change, these factors would reduce operating income before any
special items for the Resin and Intermediates segment by $1 million to $2
million in the third quarter compared with the second quarter of 2003.
With PolyOne's new refinancing package in place for a full quarter, net interest
expense in the third quarter will increase an estimated $2 million over the
second-quarter 2003 level.
PolyOne estimates that special item pre-tax expense in the third quarter will
total between $6.5 million and $7.5 million for restructuring actions initiated
to date, including the July 2003 initiatives previously noted. The Company
estimates that the non-cash component of expense will approximate $1.5 million.
The cumulative result of these factors (anticipated flat overall sales in a
difficult economy, uncertainty about the magnitude of product margin recovery,
expectations of slightly poorer Resin and Intermediates performance and higher
interest costs) is that PolyOne projects third-quarter 2003 earnings before
special items to be no better than in the 2003 second quarter.
"Because we foresee no second-half rebound in the economy, we are committed to
making the necessary changes to return the business to profitability and to
building a stronger performance base going into 2004," said Waltermire. "Each of
our business units and functional areas has prepared a second-half business plan
outlining specific, measurable improvement actions. We will implement individual
actions as quickly as possible. We are considering further manufacturing plant
and line shutdowns as well as other job eliminations."
POLYONE SECOND-QUARTER 2003 CONFERENCE CALL
- -------------------------------------------
PolyOne will host a conference call at 9 a.m. Eastern time on July 30, 2003. 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 6571857. The call will be broadcast live and then via replay for
two weeks on the Company's Web site: http://www.polyone.com.
ABOUT POLYONE
- -------------
PolyOne Corporation, with annual revenues approximating $2.5 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
http://www.polyone.com.
PolyOne Investor & Media Contact: Dennis Cocco
Vice President, Investor Relations
& Communications
216-589-4018
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 or 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: (1) an inability to achieve or delays in
achieving estimated and actual savings related to 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 achievement of 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 U.S., regional or world polymer and/or rubber 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 polyvinyl chloride (PVC), chlor-alkali, vinyl chloride monomer (VCM) or
other industries in which the Company participates; (6) fluctuations in raw
material prices, quality and supply and in 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 materials, of 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 within the Company's
various businesses; (12) the possibility of goodwill impairment; (13) an
inability to maintain any required licenses or permits; (14) an inability to
comply with any environmental laws and regulations; (15) a delay or inability to
achieve targeted debt levels through divestitures or other means.
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 Form 10-Q, 8-K and 10-K reports to the Securities and Exchange
Commission. You should understand that it is not possible to predict or identify
all such factors. Consequently, you should not consider any such list to be a
complete set of all potential risks or uncertainties. (Ref. #703)
###
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,
------------------------ -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Sales $ 650.9 $ 670.9 $ 1,296.4 $ 1,267.2
Operating costs and expenses:
Cost of sales 559.4 559.0 1,111.5 1,049.1
Selling and administrative 70.3 75.9 142.1 155.3
Depreciation and amortization 18.4 18.6 36.9 36.4
Employee separation and plant phase-out 2.1 - 27.0 0.9
Loss on divestiture of equity investment - - - 1.5
(Income) loss from equity affiliates and minority interest (10.1) (4.2) (15.7) (2.0)
----------- ----------- ----------- -----------
Operating income (loss) 10.8 21.6 (5.4) 26.0
Interest expense (17.3) (11.3) (29.8) (19.8)
Interest income 0.1 0.3 0.3 0.5
Other expense, net (3.5) (1.8) (6.6) (4.4)
----------- ----------- ----------- -----------
Income (loss) before income taxes, discontinued operations, and
cumulative effect of change in accounting method (9.9) 8.8 (41.5) 2.3
Income tax benefit (expense) 3.9 (3.5) 16.2 (0.9)
----------- ----------- ----------- -----------
Income (loss) before discontinued operations and
cumulative effect of a change in accounting (6.0) 5.3 (25.3) 1.4
Discontinued operations:
Income from operations, net of income taxes - 0.8 - 1.1
Cumulative effect of a change in goodwill accounting,
net of income tax benefit of $1.0 million - - - (53.7)
----------- ----------- ----------- -----------
Net income (loss) $ (6.0) $ 6.1 $ (25.3) $ (51.2)
=========== =========== =========== ===========
Income (loss) per share of common stock:
Basic income (loss) per share before discontinued operations
and effect of change in accounting $ (.07) $ .06 $ (.28) $ .02
Discontinued operations - .01 - .01
Cumulative effect of a change in accounting - - - (.60)
----------- ----------- ----------- -----------
Basic income (loss) per share $ (.07) $ .07 $ (.28) $ (.57)
=========== =========== =========== ===========
Diluted income (loss) per share before discontinued operations
and effect of change in accounting $ (.07) $ .06 $ (.28) $ .02
Discontinued operations - .01 - .01
Cumulative effect of a change in accounting - - - (.58)
----------- ----------- ----------- -----------
Diluted income (loss) per share $ (.07) $ .07 $ (.28) $ (.55)
=========== =========== =========== ===========
Weighted average shares used to compute loss per share:
Basic 91.1 90.3 91.0 90.4
Diluted 91.1 92.5 91.0 92.3
Dividends paid per share of common stock $ - $ .0625 $ - $ .1250
POLYONE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet (Unaudited)
(In millions)
June 30, December 31,
ASSETS 2003 2002
-------- --------
Current assets:
Cash and cash equivalents $ 63.2 $ 41.4
Restricted cash 53.7 -
Accounts receivable, net 297.8 164.3
Inventories 285.7 253.7
Deferred taxes 42.5 42.1
Other current assets 26.0 12.7
-------- --------
Total current assets 768.9 514.2
Property, net 667.9 682.1
Investment in equity affiliates 268.6 271.8
Goodwill, net 444.5 444.0
Other intangible assets, net 31.0 32.8
Other non-current assets 67.6 52.6
-------- --------
Total assets $2,248.5 $1,997.5
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank debt $ 1.0 $ 0.7
Accounts payable 269.4 242.0
Accrued expenses 126.2 160.2
Current portion of long-term debt 56.9 91.0
-------- --------
Total current liabilities 453.5 493.9
Long-term debt 796.4 492.2
Deferred taxes 16.8 39.0
Post-retirement benefits other than pensions 122.6 122.5
Other non-current liabilities, including pensions 274.4 261.2
Minority interest in consolidated subsidiaries 9.5 9.0
-------- --------
Total liabilities 1,673.2 1,417.8
Shareholders' equity:
Preferred stock - -
Common stock 1.2 1.2
Other shareholders' equity 574.1 578.5
-------- --------
Total shareholders' equity 575.3 579.7
-------- --------
Total liabilities and shareholders' equity $2,248.5 $1,997.5
======== ========
POLYONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)
Three Months Ended Six Months Ended
June 30, June, 30
------------------- -------------------
2003 2002 2003 2002
------- ------- ------- -------
OPERATING ACTIVITIES
Net income (loss) $ (6.0) $ 6.1 $ (25.3) $ (51.2)
Cumulative effect of a change in accounting - - - (53.7)
Income from discontinued operations - 0.8 - 1.1
------- ------- ------- -------
Income (loss) from continuing operations (6.0) 5.3 (25.3) 1.4
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Employee separation and plant phase-out charges 2.1 - 27.0 0.9
Cash payments on employee separation and plant phase-out (11.0) (3.7) (23.0) (7.7)
Depreciation and amortization 18.4 18.6 36.9 36.4
Unrealized currency gains (0.7) (4.4) (6.9) (3.6)
Loss on sale of assets 0.2 - 0.2 -
Investment write-down and loss on sale of equity affiliate - - - 1.5
Companies carried at equity and minority interest:
Income from equity affiliates (10.2) (4.8) (16.2) (2.8)
Minority interest expense 0.1 0.6 0.5 0.8
Dividends and distributions received 1.0 2.7 2.0 3.0
Change in assets and liabilities:
Operating working capital:
Accounts receivable (87.4) (19.8) (125.1) (89.3)
Inventories 8.1 (13.9) (26.0) (30.7)
Accounts payable (33.9) (42.3) 22.3 (19.6)
Accrued expenses and other (17.9) 10.3 (38.2) 28.5
------- ------- ------- -------
NET CASH USED BY CONTINUING OPERATIONS (137.2) (51.4) (171.8) (81.2)
------- ------- ------- -------
INVESTING ACTIVITIES
Capital expenditures (9.9) (22.5) (16.1) (33.0)
Increase in restricted cash (53.7) - (53.7) -
Return of capital by equity affiliates, net of investment (2.5) (1.0) (0.1) (0.5)
Business acquired, net of cash received - - (15.8) -
Proceeds from sale of assets 0.2 1.1 22.6 1.1
------- ------- ------- -------
NET CASH PROVIDED USED CONTINUING OPERATIONS (65.9) (22.4) (63.1) (32.4)
------- ------- ------- -------
FINANCING ACTIVITIES
Change in short-term debt (69.4) (51.2) (34.0) (2.1)
Change in long-term debt 297.8 155.3 303.9 155.0
Debt Issuance Costs (14.0) (4.0) (14.0) (4.9)
Proceeds from the exercise of stock options - 2.3 - 5.0
Dividends - (5.4) - (11.2)
------- ------- ------- -------
NET CASH PROVIDED BY CONTINUING OPERATIONS 214.4 97.0 255.9 141.8
------- ------- ------- -------
NET CASH USED BY DISCONTINUED OPERATIONS - 1.5 - 1.4
Effect of exchange rate changes on cash 1.6 (1.0) 0.8 (1.6)
------- ------- ------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 12.9 23.7 21.8 28.0
Cash and cash equivalents at beginning of period 50.3 22.5 41.4 18.2
------- ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 63.2 $ 46.2 $ 63.2 $ 46.2
======= ======= ======= =======
Exhibit 1
Summary of Special Items (Unaudited)
(In millions)
Three Months Six Months
------------------------ ---------------
2Q03 1Q03 2Q02 1H03 1H02
----- ----- ----- ----- -----
Employee separation and plant phase-out costs(1) $(2.1) $(24.9) $ - $(27.0) $(0.9)
Period plant phase-out costs incurred(2) (0.3) (0.9) (0.1) (1.2) (0.2)
Equity affiliate - employee severance, liabilities
associated with the temporary idling of a plant
and cumulative effect of a change in accounting(3) (1.0) (0.8) (0.1) (1.8) (0.8)
Loss on divestiture of equity investment(4) - - - - (1.5)
----- ----- ----- ----- -----
Subtotal - impact on EBITDA (expense) (3.4) (26.6) (0.2) (30.0) (3.4)
Plant phase-out accelerated depreciation(2) - - (0.5) - (1.0)
----- ----- ----- ----- -----
Subtotal - impact on operating (expense) (3.4) (26.6) (0.7) (30.0) (4.4)
Loss on sale(5) (0.2) - - (0.2) -
----- ----- ----- ----- -----
Total - impact on pre tax (expense) (3.6) (26.6) (0.7) (30.2) (4.4)
Income tax benefit 1.3 10.4 0.2 11.7 1.6
----- ----- ----- ----- -----
Total - after tax (expense) before discontinued
operations and cumulative effect of a change
in accounting $(2.3) $(16.2) $(0.5) $(18.5) $(2.8)
===== ===== ===== ===== =====
(1) These costs include severance, employee outplacement, external outplacement
consulting, lease termination, facility closing costs and the write-down of the
carrying value of plants and equipment related to restructuring initiatives. The
2003 expense relates to the January 16, 2003 announcement to reduce
approximately 400 staff personnel, the March 26, 2003 announcement to exit an
Engineering Films plant, the June 2003 decision to close the Fort Worth plant
and the second quarter reversal of restructuring costs provided for in prior
years. The 2002 expense was associated with the consolidation of certain
activities related to the Formulator operations in the Performance Plastics
business segment.
(2) These are plant and phase-out costs associated with the 2001 Geon
restructuring initiatives that are to be recognized as period costs versus when
the restructuring initiative was approved. In connection with the acquisition of
Hanna and resulting formation of PolyOne, management developed several
initiatives to capture the strategic value of the combined former Geon and
former Hanna businesses. Included in the initiatives was the closing of excess
manufacturing capacity of the Elastomers business and establishing centers of
manufacturing excellence within the North American Plastics Compounds and Colors
operations. This resulted in several announcements in 2001 that former Geon
plants and Hanna plants would be closed. The initiatives also included the
termination of corporate and other positions at Geon and former Hanna locations.
These plans and activities related to the former Geon plants and personnel were
finalized and approved during 2001.
(3) The second quarter 2003 expense relates to employee severance costs
associated with a personnel reduction undertaken by OxyVinyls. In addition, the
2003 first six months expense includes a charge for the cumulative effect of a
change in accounting upon OxyVinyls adoption of SFAS No. 143 "Accounting for
Asset Retirement Obligations." The 2002 costs include PolyOne's share of
OxyVinyls employee severance, plant phase-out costs and liabilities associated
with the temporary idling of a plant in December 2001.
(4) Includes the 2002 first quarter loss on our divestiture of our 37.4%
investment in the PVC resin operations of Australian Vinyls Corporation.
(5) This is the loss recorded for the sale of our European vinyl compounding
business.
Exhibit 2
Business Segment Information (Unaudited)
(In millions)
Senior management uses operating income before special items and EBITDA before
special items to assess performance and allocate resources to business segments.
For a reconciliation from operating income to operating income before special
items to EBITDA before special items and EBITDA to EBITDA before special items,
see the following table. Operating income before special items and EBITDA before
special items are non-GAAP measures and should not be considered an alternative
to any other measure of performance in accordance with GAAP. Senior management
presents operating income before special items and EBITDA before special items
when discussing the results of operations of the business segments because
senior management believes such measures are useful in assessing the underlying
earnings power and operating cash flows of each business segment. Special items
include gains and losses associated with the specific strategic initiatives such
as restructuring or consolidation of operations, gains and losses attributable
to divestment of joint ventures, and certain one-time items.
Accordingly, senior management believes that excluding special items provides
insight into the underlying results of operations of each of PolyOne's business
segments. Operating income before special items and EBITDA before special items
may not be comparable to financial performance measures presented by other
companies.
Quarters Year-to-Date
-------------------------------------------- ---------------------------
2Q03 1Q03 2Q02 2003 2002
------------ ------------ ------------ ----------- -----------
Sales:
Performance Plastics $ 460.5 $ 447.6 $ 466.3 $ 908.1 $ 873.0
Elastomers & Additives 87.5 94.0 95.8 181.5 187.5
Distribution 133.1 135.9 137.6 269.0 258.0
Resin & Intermediates - - - - -
Other (30.2) (32.0) (28.8) (62.2) (51.3)
------------ ------------ ------------ ----------- -----------
$ 650.9 $ 645.5 $ 670.9 $1,296.4 $ 1,267.2
============ ============ ============ =========== ===========
EBITDA before special items:
Performance Plastics $ 22.0 $ 19.5 $ 32.7 $ 41.5 $ 59.4
Elastomers & Additives 4.2 5.3 7.6 9.5 13.1
Distribution 3.2 3.3 4.6 6.5 6.7
Resin & Intermediates 7.5 4.1 0.8 11.6 (4.5)
Other (4.3) (3.3) (5.3) (7.6) (8.9)
------------ ------------ ------------ ----------- -----------
$ 32.6 $ 28.9 $ 40.4 $ 61.5 $ 65.8
============ ============ ============ =========== ===========
Operating income (loss) before special items:
Performance Plastics $ 7.3 $ 4.8 $ 18.5 $ 12.1 $ 31.8
Elastomers & Additives 1.2 2.2 4.4 3.4 6.7
Distribution 2.8 2.9 4.1 5.7 5.7
Resin & Intermediates 7.5 4.0 0.8 11.5 (4.5)
Other (4.6) (3.5) (5.5) (8.1) (9.3)
------------ ------------ ------------ ----------- -----------
$ 14.2 $ 10.4 $ 22.3 $ 24.6 $ 30.4
============ ============ ============ =========== ===========
Reconciliation:
Operating income (loss) $ 10.8 $ (16.2) $ 21.6 $ (5.4) $ 26.0
Special items, expense 3.4 26.6 0.7 30.0 4.4
------------ ------------ ------------ ----------- -----------
Operating income before special items 14.2 10.4 22.3 24.6 30.4
Depreciation and amortization 18.4 18.5 18.6 36.9 36.4
Accelerated depreciation in special items - - (0.5) - (1.0)
------------ ------------ ------------ ----------- -----------
EBITDA before special items $ 32.6 $ 28.9 $ 40.4 $ 61.5 $ 65.8
============ ============ ============ =========== ===========
EBITDA $ 29.2 $ 2.3 $ 40.2 $ 31.5 $ 62.4
Impact of special items, expense 3.4 26.6 0.2 30.0 3.4
------------ ------------ ------------ ----------- -----------
EBITDA before special items $ 32.6 $ 28.9 $ 40.4 $ 61.5 $ 65.8
============ ============ ============ =========== ===========
Note: The "Other" segment primarily consists of the elimination of
inter-business segment sales and profit in inventories and unallocated
corporate costs.