Exhibit 99.1
POLYONE CORPORATION
SUPPLEMENTAL INFORMATION FOR THIRD QUARTER 2003
ISSUED: OCTOBER 29, 2003
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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 or achievement of less than the anticipated financial benefit from the
initiatives related to restructuring programs including cost reduction and
employee productivity goals; (2) a delay or inability to achieve targeted debt
level reductions through divestitures or other means; (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) an inability or delay in finding buyers of non-core assets for
reasonable and acceptable terms; (16) an inability to access the receivables
sale facility as a result of breaching covenants; (17) any poor performance of
our pension plan assets and any obligation on our part to fund our pension plan;
and (18) a delay or
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inability to bring the North American colors and performance additives and the
engineered materials product platforms to profitability.
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. #10203)
PRESENTATION OF FINANCIAL INFORMATION
Below is supplementary commentary to the consolidated and business segment
operating results for the three-month and nine-month periods ended September 30,
2003 and 2002, respectively, released on October 29, 2003.
ECONOMIC ENVIRONMENT
PolyOne's North American sales trends historically have shown a general
correlation with the U.S. Industrial Production Manufacturing Index, less the
high-tech component. After a modest increase in the first half of 2002, the
index started declining in the third quarter of 2002 and continued a quarterly
trend downward through the second quarter of 2003. In the third quarter of 2003,
the index increased slightly, or 0.3%, over the 2003 second quarter, primarily
on the strength of September 2003 which was 0.5% above the average of the
combined July 2003 and August 2003 performance. On an annualized basis, this
index for the third quarter of 2003 was below the third quarter of 2002 by
approximately 2%.
According to the October Consensus Forecasts, the EURO ZONE's GDP declined 0.1%
in the 2003 second quarter and the European Commission expects flat growth in
the 2003 third quarter, with growth of 0.2% expected in the 2003 fourth quarter.
For Asia, 2003 GDP growth is forecasted at 3.3%, or approximately 1% above the
2002 GDP growth rate. The 2003 growth in Asia resumed during the 2003 second
quarter after a downward trend earlier due in part to the SARS illness.
TOTAL COMPANY RESULTS - 3Q03 VERSUS 3Q02
Third quarter 2003 sales of $630.3 million were $20.4 million, or 3% lower than
third quarter 2002. Each business segment reported sales decreases in the third
quarter of 2003 compared to the same period a year ago. Within the Performance
Plastics business segment, the International
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Plastic Compounds and Colors (PC&C) product group realized a 17% sales increase
in the quarter, which included the effects of the December 2002 Transcolor
acquisition and currency translation. Excluding the effects of the Transcolor
acquisition and currency translation, the International PC&C sales decreased 2%.
Also within the Performance Plastics business segment, the Vinyl Compounding
product group was flat with the same period last year.
PolyOne reported operating income of $6.9 million for the third quarter of 2003,
a decrease of $19.4 million compared to the same period last year. Of the 2003
operating income decrease of $19.4 million, special items represented $4.1
million of the change. The special items impacting operating income in both
third quarters primarily relate to restructuring initiatives. In addition to
previously announced restructuring initiatives, the 2003 third quarter special
items reflected the decision to reduce North American manufacturing and overhead
staffing, close two Ohio administrative offices and close a portion of the
Mexico Distribution business, see Exhibit 1 which provides additional
information on special items. The 2003 third quarter $15.3 million decrease in
operating income before special items was largely the result of decreases in
Performance Plastics of $5.9 million, Elastomers and Performance Additives of
$4.9 million and Resin & Intermediates (R&I) of $3.9 million. Within PolyOne's
operating businesses (total Company excluding the R&I segment) the margin
associated with lower sales volumes and lower product material margins,
particularly in vinyl compounds and engineered films, more than offset benefits
from cost savings initiatives and favorable currency translation of
approximately $0.9 million.
Interest expense in the third quarter of 2003 of $19.2 million increased $7.6
million compared to the same quarter in 2002. The higher 2003 interest expense
is primarily due to the issuance of $300 million of 10.625 percent unsecured
senior notes during the second quarter of 2003. In the third quarter of 2003,
other expense, net, which includes the finance costs associated with the
receivables sale facility, foreign currency gains and losses and other
miscellaneous expenses, totaled $3.5 million, an increase of $4.0 million over
the same period in 2002. The increase was primarily due to a $2.1 million
increase from the impact of foreign currency losses and an $0.5 million increase
in the finance costs associated with the receivables sale facility.
Additionally, the 2002 expense included an $0.8 million gain from the sale of
property.
Despite a 2003 third quarter consolidated pre-tax loss of $15.5 million that
included Mexico restructuring charges of $1.7 million on which no tax benefit
was recorded, the quarter's income tax expense was $27.7 million. The quarter's
special tax items include tax expense of $24.0 million related to dividends from
foreign subsidiaries and a $9.0 million tax allowance to reduce the U.S. net
deferred income tax asset resulting from operating loss carry-forwards.
Excluding the above items, the effective income tax rate for the third quarter
of 2003 is 38.4%, see additional commentary later in this document. For the
third quarter of 2002, the effective income tax expense rate on income from
continuing operations was 37.3%.
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The third quarter 2003 net loss was $43.2 million versus a net income of $9.8
million in the third quarter of 2002. The 2003 loss included special charges
after-tax of $39.4 million compared to 2002 charges of $3.4 million.
COMMENTARY ON BUSINESS SEGMENT OPERATING RESULTS 3Q03 VERSUS 3Q02
See Exhibit 2 for business segment information referred to in the commentary
below.
PERFORMANCE PLASTICS had third quarter 2003 sales of $445.3 million, a decrease
of $3.6 million versus the third quarter 2002. Excluding the impact of foreign
currency and the Transcolor acquisition, the decrease was $21.1 million, or 5%.
A breakdown of the 2003 third quarter segment sales, by primary product group,
is as follows:
PERFORMANCE PLASTICS SALES AND VOLUME
Three Months Ended September 30,
2003 vs. 2002
----------------------------------------------------
2003
Sales % Sales $ Shipment Lbs.
of Total % Change % Change
--------------- ------------- -------------------
North American:
Vinyl Compounds 37% 0% -5%
Colors and Additives 11% -7% -7%
Engineered Materials 7% -10% -13%
International PC&C 24% 17% 9%
Specialty Resins and Formulators 14% -7% -10%
Engineered Films 7% -16% -16%
--------------- ------------- -------------------
Performance Plastics 100% -1% -6%
The only product group to report sales growth in the 2003 third quarter was
International PC&C, which benefited $8.8 million from the December 2002
acquisition of Transcolor and approximately $8.7 million from favorable Euro to
U.S. dollar currency exchange. Before the effects of the Transcolor acquisition
and currency translation, the 2003 third quarter International PC&C sales were
2% below the 2002 third quarter and volume was down 2% for the same period. The
North American Vinyl Compounds sales were flat with the same quarter last year
while the pounds shipped were down 5% on weaker demand. Since a year ago, vinyl
compound selling prices have increased but are not sufficient to fully recover
higher raw material costs. In the 2003 third quarter, the North American Colors
and Additives sales revenue was a combined 2% higher than the same quarter last
year in Packaging, Wire & Cable, and Producer Services markets, but was offset
by a 14% decline in sales in other market platforms, especially Custom Molding
and Automotive. Color average selling prices were higher in all markets except
Pipe & Fittings. The decrease in North American Engineered Materials sales was
primarily due to lower pounds shipped in nearly all markets and was partially
offset by increased selling prices in most markets and a sales mix that resulted
in an overall higher average selling price per pound. In the Specialty Resins
and Formulators product group, the lower sales volumes (Specialty Resins
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down 14% and Formulators down 5%) were partially offset by increased average
selling prices in both Specialty Resins and in Formulators. The Engineered Films
sales decreased both in the custom and automotive operations. The automotive
industry production and PolyOne supplied platforms were down approximately 8%
versus the 2002 third quarter. The remainder of the automotive sales decline is
due to old programs terminating over approximately the past twelve months.
Softening in several applications reduced custom sales, especially Thin Films
and other industrial markets as well as the movement of Office Products
overseas.
Operating income before special items for the Performance Plastics segment in
the third quarter of 2003 was $10.9 million, a decrease of $5.9 million compared
to the third quarter of 2002. This decrease in operating income before special
items resulted from a combination of the margin associated with the lower sales
and margin compression in North American Vinyl Compounds and Engineered Films
due to the impact of modestly higher PVC resin. These negative impacts to income
were partially offset by lower costs from restructuring initiatives and
favorable currency translation of $0.9 million. The third quarter 2003 U.S.
industry average PVC resin selling price was approximately 0.5 cents per pound
above the same period in 2002.
ELASTOMERS AND PERFORMANCE ADDITIVES sales were $84.6 million in the third
quarter of 2003, a $10.6 million or 11% decrease compared to the same quarter in
2002. The 2003 third quarter shipment volume in pounds was down 14% versus 2002.
In the third quarter of 2003 compared to 2002, elastomer compounding sales
(excludes rolls and additives) decreased $9.1 million. Contributing to the sales
decrease was weak industrial and automotive industry production levels.
Additives revenue declined $1.7 million from slower customer demand, while rolls
sales increased $0.2 million from new 2003 business.
Operating income before special items in the third quarter of 2003 was $0.1
million, or $4.9 million below the same quarter in 2002. Lower sales volumes
were the primary driver of lower earnings with some reduction from
energy-related raw material costs outpacing increases in selling prices.
DISTRIBUTION sales in the third quarter of 2003 were $128.1 million, 6% below
the same quarter in 2002. The shipment volume in pounds when comparing the same
periods was down 12% in 2003. For the 2003 third quarter versus the comparable
period in 2002, U.S. and Canada sales decreased by 3% while shipments volume
declined 7%. In Mexico, sales declined by approximately 50% due to a decision to
exit a portion of the business.
Operating income before special items in the third quarter of 2003 was $2.7
million, or $0.3 million above the third quarter of 2002. The 2003 increase in
operating income before special items is primarily due to the reduction of costs
in Mexico and lower spending in the U.S. and Canada more than offsetting the
lower sales.
R&I operating income before special items, consisting of equity income from
joint ventures, allocated overhead support cost and costs associated with past
operations was $7.5 million for the third quarter of 2003, or $3.9 million below
the third quarter of 2002. PolyOne's share of equity earnings before special
items in the third quarter of 2003 compared to the same quarter in
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2002 decreased from OxyVinyls by $8.1 million and was partially offset by an
increase from SunBelt of $2.3 million.
OxyVinyls third quarter earnings in 2003 versus 2002 suffered from higher energy
costs of approximately $1.75 per million BTU's and lower PVC resin margins due
to higher average industry ethylene cost of approximately 4.5 cents per pound
and higher chlorine cost of approximately $15 per ton. The OxyVinyls chlor-alkai
operations benefited from higher industry caustic soda prices of approximately
$50 per ton. Comparing the quarters, the average industry spread of PVC resin
selling prices over ethylene and chlorine costs decreased by approximately 2.0
cents per pound. The SunBelt earnings improvement was primarily driven by the
higher average industry selling prices of chlorine and of caustic soda in the
third quarter of 2003 versus the same period a year ago.
OTHER consists primarily of corporate governance costs that are not allocated to
business segments and inter-segment profit elimination. Operating income before
special items was an expense of $4.9 million in the third quarter of 2003
compared to an expense of $4.0 million in the same quarter of 2002. The third
quarter inter-segment elimination of profit in inventory in 2003 was $1.1
million greater than 2002.
TOTAL COMPANY RESULTS - 3Q03 VERSUS 2Q03
Third quarter 2003 sales of $630.3 million were $20.6 million, or 3% lower than
second quarter of 2003. The 2003 third quarter sales began slow in both July and
August and then showed some encouraging upswing as September 2003 sales exceeded
September 2002 sales by 5%. Below is a table summarizing the sales and pound
volume changes, for the third quarter 2003 versus second quarter 2003, by
business segment and major product group within the Performance Plastics
business segment.
3Q03 versus 2Q03
-------------------------------------
Sales $% Shipment Lbs. %
Change Change
--------------- -------------------
Performance Plastics:
North American Plastic :
Vinyl Compounds -1% 0%
Colors and Additives 1% -4%
Engineered Materials 0% -4%
International PC&C -4% -1%
Specialty Resins and Formulators -3% -3%
Engineered Films -15% -15%
--------------- -------------------
Total Performance Plastics -3% -2%
Elastomers and Performance Additives -3% -1%
Distribution -4% -0%
--------------- -------------------
Total -3% -2%
In the third quarter, no segment increased sales over the previous quarter.
However, within the Performance Plastics segment, sales of Colors and Additives
increased 1%, while shipments
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decreased 4% due to higher Packaging and Wire & Cable sales volumes, offset by
market erosion in custom molding and seasonal declines in Automotive and Pipe &
Fittings. Also, Engineered Materials realized flat sales on 4% lower shipments
due to weaker automotive industry production of 12% and slower shipments to Wire
& Cable customers partially offset by higher sales volumes of Custom Molding
products particularly to the appliance industry. The lower sales in the third
quarter versus the previous quarter for Engineered Films was mainly due to the
typical seasonality in both the automotive and custom operations. Automotive
manufacturers typically shutdown for a period in July to change over to the new
models plus this year's production schedules were adjusted to reduce some model
inventories. In the custom operations, third quarter sales typically reflect the
fall-off of Pool Liners.
PolyOne had operating income of $6.9 million for the third quarter 2003 compared
to operating income of $10.8 million in the previous quarter. The special items
expense included in operating income was $9.4 million in the 2003 third quarter
and $3.4 million in the 2003 second quarter. The special items impacting
operating income in both quarters largely consisted of restructuring costs. The
2003 third quarter $2.1 million increase over the previous quarter in operating
income before special items was primarily the result of a $3.6 million increase
in the Performance Plastics segment, which was partially offset by a $1.1
million decrease in the Elastomers and Performance Additives segment and with
the Distribution segment nearly flat. The earnings improvement in the
Performance Plastics segment was largely driven by higher margins particularly
in the Vinyl Compound and Specialty Resin product groups. The earnings in the
R&I segment were comparable between the quarters as slightly higher OxyVinyls
earnings of $.4 million and a favorable $1.1 million swing in the elimination of
OxyVinyls profit in PolyOne inventory was offset by lower SunBelt earnings of
$1.3 million.
The third quarter 2003 net loss was $43.2 million versus a net loss of $6.0
million in the second quarter of 2003. The 2003 third quarter net loss included
special items after-tax expense of $39.4 million compared with the 2003 second
quarter expense of $2.3 million.
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TOTAL COMPANY RESULTS - YTD 2003 VERSUS 2002
For the nine months ended September 30, 2003, sales were $1,926.7 million, which
was $8.8 million above the same period in 2002. Below is a table summarizing the
sales breakdown and the sales and volume changes for the 2003 and 2002
nine-month periods ended September 30.
Nine Months Ended September 30,
2003 vs. 2002
------------------------------------------------------
2003
Sales % Sales $ Shipment Lbs.
of Total % Change % Change
-------------- ---------------- --------------------
Performance Plastics:
North American Plastic :
Vinyl Compounds 25% 0% -5%
Colors and Additives 7% -5% -2%
Engineered Materials 5% -9% -13%
International PC&C 17% 26% 16%
Specialty Resins and Formulators 10% -5% -8%
Engineered Films 6% -10% -9%
-------------- ---------------- --------------------
Total Performance Plastics 70% 2% -4%
Elastomers and Performance Additives 14% -6% -6%
Distribution 21% 1% -7%
Other -5% - -
-------------- ---------------- --------------------
Total 100% 0% -5%
For the first nine months of 2003, Performance Plastics and Distribution both
reported sales growth over the same 2002 period. Within Performance Plastics,
the International PC&C sales increase of 26% benefited $30.2 million from the
December 2002 acquisition of Transcolor and approximately $38.2 million from
favorable Euro-to-U.S. dollar currency exchange. Before the effects of the
Transcolor acquisition and currency translation, the 2003 first nine months
International PC&C sales were 1% below the 2002 same period, while volume
increased 2% during the period. North American Vinyl Compound 2003 shipments are
5% below the comparable last year period primarily lead by decrease in sales
volumes in Wire & Cable and Packaging with higher average selling prices
offsetting the volume decrease. The North American Colors and Additives 2003
year-to-date shipments are 2% below the 2002 same period, lead by decreases from
market erosion in Custom Molding (26% decline) and 18% lower sales volumes in
Automotive nearly offset by a combined 17% increase in Pipe & Fittings and
Producer Services markets. While Color selling prices increased in most markets,
the sales mix resulted in a lower overall average 2003 nine-month selling price.
The North American Engineered Materials sales and shipment weakness for the 2003
and 2002 nine months is largely due to lower volumes in most markets except Wire
& Cable. Also, the 2003 year-to-date Engineered Films sales and shipments
decrease versus the same 2002 period was largely in the automotive operations
due to lower automotive industry sales and the terminating of old platform
programs. Film sales decreases were also in the Loose-leaf and Thin Films
markets of the custom operations.
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PolyOne had operating income of $1.5 million in the first nine months of 2003
versus operating income of $52.3 million in the same 2002 period. For the nine
months ended September 30, the 2003 special items in operating income, consist
primarily of restructuring costs and losses on divestments, were expense of
$39.4 million versus expense of $9.7 million for the same period in 2002. For
the nine month period, the 2003 versus 2002 decrease in operating income before
special items of $21.1 million primarily resulted from decreases in Performance
Plastics of $25.6 million and Elastomers and Performance Additives of $8.2
million, which was partially offset by an increase in the R&I segment of $12.1
million. The earnings decreases in Performance Plastics and Elastomers and
Performance Additives largely were due to higher material costs that have not
been fully recovered in higher selling prices and lower sales volumes. The
margin compression was most severe in the North American Vinyl Compounds,
Specialty Resins and Engineered Films operations. The improvement in the R&I
segment resulted from higher SunBelt earnings of $14.5 million that was
partially offset by lower OxyVinyls earnings of $3.8 million. For the nine
months of 2003 versus 2002, the average industry selling price for chlorine
increased approximately $120 per ton and caustic soda increased approximately
$65 per ton. For the comparable nine month periods, OxyVinyls earnings decreased
primarily due to higher average natural gas costs of approximately $2.30 per
million BTU's, which was largely offset by higher chlor-alkali earnings driven
the higher industry average selling prices of chlorine and caustic soda, while
the average industry spreads of PVC selling prices over ethylene and chlorine
costs were nearly flat.
Interest expense in the first nine months of 2003 of $49.0 million increased
$17.6 million compared to the same period in 2002. The higher 2003 interest
expense primarily is due to the issuance of $300 million of 10.625 percent
unsecured senior notes in the second quarter of 2003 and the issuance of $200
million of 8.875 percent unsecured senior notes in the second quarter of 2002.
Other expense, net includes the finance costs associated with the receivables
sale facility, foreign currency gains and losses and other miscellaneous
expenses. In the first nine months of 2003, other expense, net totaled $10.1
million, an increase of $6.2 million over the same period in 2002. The increase
was primarily due to a $3.7 million increase from the impact of foreign currency
losses and an $0.8 million increase in the finance costs associated with the
receivables sale facility. The 2003 other expense, net also includes a purchase
premium of $0.8 million on the early buy-back and retirement of a portion of the
unsecured senior notes that matured in September 2003.
The 2003 nine-month income tax expense was $11.5 million on a consolidated
pre-tax loss of $57.0 million. The 2003 year-to-date special tax items include
tax expense of $24.0 million related to dividends from foreign subsidiaries and
a $9.0 million tax allowance to reduce the U.S. net deferred income tax asset
resulting from operating loss carry-forwards. Excluding the above items, the
effective income tax rate for the first nine months of 2003 was 37.7%. For the
first nine months of 2002, the effective income tax expense rate on income from
continuing operations was 37.5%.
The net loss before discontinued operations and cumulative effect of a change in
accounting for the nine months ended September 30, 2003 was $68.5 million
compared to a 2002 nine-month
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net income before discontinued operations and cumulative effect of a change in
accounting of $11.0 million. The 2003 loss included special after-tax charges of
$57.9 million compared to 2002 charges of $6.2 million.
CAPITAL RESOURCES AND LIQUIDITY
As of September 30, 2003, PolyOne had existing facilities to access available
capital resources (receivables sale facility, secured revolving credit facility,
uncommitted short-term credit lines and senior unsecured notes and debentures)
totaling approximately $985.7 million. As of September 30, 2003, the Company had
utilized $851.5 million of these facilities and approximately $134.2 million was
available to be drawn and remain in compliance with all facilities. The utilized
facilities consisted of long-term debt of $785.9 million (including $777.5
million of senior unsecured notes and debentures), short-term debt of $0.9
million, capital leases of $0.1 million and receivables sold of $64.6 million.
Of the capital resource facilities available to PolyOne as of September 30,
2003, the portion of the receivables sale facility that was actually sold
provided security in connection with the transfer of ownership of these
receivables. Each indenture governing our senior unsecured notes and debentures
and our guarantee of the SunBelt notes allows for a specific level of secured
debt, above which security must be provided on each such indenture. The
receivables sale facility does not constitute debt under the covenants
associated with the senior unsecured notes and debentures. As of September 30,
2003, the Company sold accounts receivable of $64.6 million and had guaranteed
unconsolidated equity affiliate debt of $91.4 million for SunBelt.
On May 6, 2003, PolyOne completed a debt refinancing. The refinancing provided
liquidity and the funds to repay senior debt that matured in September 2003, and
to support normal operations and fund previously announced restructuring
initiatives intended to improve earnings. As part of this comprehensive
refinancing, we issued $300 million of 10.625 percent unsecured senior notes,
entered into a new three-year $225 million receivables sale facility, and
amended and restated the revolving credit facility. The 10.625 percent unsecured
senior notes rank equally with all other senior unsecured indebtedness. The new
receivables sale facility replaced the former receivables sale facility. The
security that had been extended in February 2003 to senior notes and debentures
and our guarantee of the SunBelt notes terminated as part of the debt
refinancing. Security was granted under the terms of the 2003 amended and
restated revolving credit agreement. As of September 30, 2003, PolyOne's secured
borrowings were not at levels that would trigger the security on the public
indentures.
As of September 30, 2003, PolyOne had not drawn on the revolving credit
facility, although it served as a back-up facility for $25.9 million of
outstanding letters of credit and for $7.9 million of loan guarantees, the
majority of which related to our 50% Colombian equity joint venture. As noted
above, on May 6, 2003, PolyOne amended and restated its revolving credit
facility. As amended and restated, it has a three-year term and provides for up
to $50.0 million in borrowings. However, the maximum amount that may be borrowed
under the revolving credit facility is limited to an amount equal to 95% of the
amount that may be borrowed and secured without triggering the security
provisions of the indentures governing the existing senior unsecured notes and
debentures. The revolving credit facility was further amended on
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September 25, 2003 to limit any borrowings under the facility unless, after
giving effect to the borrowing, the interest coverage ratio calculated under the
agreement would not be less than 1 and the borrowed debt-to-adjusted EBITDA
ratio would be not more than 4.75. The amended and restated revolving credit
facility makes available up to $35.0 million for the issuance of standby letters
of credit. Obligations under the revolving credit facility are secured by
substantially all of the Company's domestic intellectual property and inventory
and some of the Company's domestic real property.
PolyOne's amended and restated revolving credit facility and the new receivables
sale facility require, among other things, PolyOne to maintain certain interest
coverage and borrowed debt-to-adjusted EBITDA earnings ratios. Further, the
financing arrangements limit payments for purposes such as capital expenditures,
acquisitions and dividends. On September 25, 2003, the required financial ratios
in the financing arrangements were amended. The following table summarizes the
current defined financial covenant ratios for the remainder of 2003 and 2004
under the amended and restated revolving credit facility (both ratios apply) and
the new receivables sale facility (only the interest coverage ratio applies to
the receivables sale facility):
Borrowed
Debt-to-
Interest Adjusted
Coverage Ratio EBITDA
Ratio
(Minimum) (Maximum)
----------------- -------------------
Agreement compliance
Third quarter of 2003 .50 20.00
Fourth quarter of 2003 .65 15.00
First quarter of 2004 .75 13.00
Second quarter of 2004 1.00 10.25
Third quarter of 2004 1.50 7.50
Fourth quarter of 2004 1.90 5.75
On May 6, 2003, PolyOne terminated its former receivables sale facility and
entered into a new receivables sale facility. Under the terms of the agreement
governing the new facility, the Company is allowed to sell accounts receivable
and realize proceeds of up to $225.0 million. However, the maximum amount of
proceeds that may be received is limited to 85% of the amount of eligible
domestic accounts receivable sold. The new receivables sale facility also makes
available up to $50.0 million for the issuance of standby letters of credit.
Although the former receivables sale facility contained a provision that would
allow the purchasers of the accounts receivable to terminate the facility if
senior debt ratings fell below specified levels, the new receivables sale
facility does not contain any credit ratings provision.
The realization of profitable operations will be important to (1) maintaining
the existing levels of available capital resources, (2) any refinancing of a
portion of the existing capital resources, and (3) the execution of our
announced restructuring initiatives. The sum of EBITDA ($111.4 million) and
special items totaled approximately $124 million in the year 2002. In the first
nine months of 2003, the sum of EBITDA ($56.6 million) and special items totaled
$96.0 million, or
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$19.1 million below the comparable amount in 2002. EBITDA must cover
expenditures for financing costs (interest expense and discount on sale of
accounts receivable, which were approximately $53 million in the first nine
months of 2003 and are projected to be $72 million for the full year), spending
associated with restructuring, cash taxes, capital expenditures and cash to fund
sales growth through increased working capital requirements. Cash spending for
the restructuring initiatives to-date (North American PC&C manufacturing
improvements, business unit initiatives and the recent selling and
administrative cost-reduction program) was approximately $39 million in the
first nine months of 2003 and are projected to be approximately $47 million for
the year. Capital expenditures for the year 2003 are projected to be
approximately $35 to $40 million. In December 2002, PolyOne announced that the
Company would suspend the payment of dividends commencing in the first quarter
of 2003.
In the first nine months of 2003, PolyOne contributed, primarily in the third
quarter, approximately $16 million to its qualified defined benefit pension
plans, which exceeded the 2003 required minimum funding of approximately $1
million. PolyOne currently estimates that there will be no required minimum
funding in 2004. Market asset performance in 2003 will impact the final minimum
funding requirements in 2005. An assumed 8.75% long-term rate of return on
pension assets in 2003 would produce a projected minimum funding requirement by
September 15, 2005 of approximately $36 million. The actual 2003 nine-month
asset return was approximately 14% (each 1% return on asset variance in 2003
from 8.75% impacts the 2005 minimum funding by approximately $1 million).
However, PolyOne intends to continue funding in excess of any minimum required
for the qualified defined benefit pension plans during calendar 2004, which
would reduce any otherwise required funding by September 15, 2005.
Based on our current projected operations, PolyOne believes the Company should
be able to continue to manage and control working capital, discretionary
spending and capital expenditures, and that cash flow generated from operations,
along with the borrowing capacity under the revised revolving credit facility
and new receivables sale facility, should be adequate to fund its operations and
to meet its debt service requirements.
Senior management uses EBITDA and EBITDA before special items as cash flow
metrics. PolyOne believes that EBITDA and EBITDA before special items are useful
cash flow metrics, both at the consolidated and business segment levels, to
assess liquidity and operating cash flow available for working capital,
investing activities, financing activities and other spending, such as
restructuring. When PolyOne's management reviews results, special items are
excluded from EBITDA in order to enhance the understanding of their current
level and their potential future implications. Below is a reconciliation of
EBITDA to "net cash provided (used) by operating activities for continuing
operations" and "EBITDA before special items" to "net loss.".
12
Reconciliation of EBITDA and EBITDA before special items to
Cash Flow and Operating Results
$ millions
Nine Months Ended September Year 2002
30, 2003
------------------------------- -----------------------------
Cash Flow Operating Cash Flow Operating
Results Results
------------- -------------- ----------- --------------
Net cash provided (used) by operating activities
for continuing operations ($164.6) ($32.7)
Net loss ($68.5) ($58.9)
Cumulative effect of a change in accounting
53.7
Income from discontinued operations (1.4)
Income tax expense (benefit) 11.5 (5.2)
Interest expense, net 48.4 41.5
Other expense, net 10.1 9.2
Depreciation and amortization 55.1 72.5
Payments of interest, taxes and discount on sale
of receivables 38.4 47.2
Equity and minority interest income (loss) 25.8 20.2
Dividends and distributions received (12.6) (37.4)
Realized currency gains (losses) 8.9 13.0
Investment writedown and asset losses (0.2) (5.1)
Receivables sale facility, decrease 95.3 57.6
Commercial working capital 47.6 59.9
Accrued expenses and other 17.8 (11.3)
------------- -------------- ----------- --------------
EBITDA 56.6 56.6 111.4 111.4
Special items, expense 39.4 39.4 12.2 12.2
------------- -------------- ----------- --------------
EBITDA before special items $96.0 $96.0 $123.6 $123.6
============= ============== =========== ==============
CASH FLOW AND WORKING CAPITAL
For the three months ended September 30, 2003, operating activities from
continuing operations provided cash of $7.4 million and for the nine months
ended September 30, 2003 operating activities from continuing operations used
cash of $164.4 million. For the third quarter and nine months, the amount sold
under the receivables sale facility was reduced $25.4 million and $95.3
13
million, respectively. For the 2003 third quarter, working capital decreased
$19.3 million and for the first nine months of 2003 working capital increased
$275.8 million.
Before changes in the level of accounts receivable sold, operating activities
provided cash of $32.8 million in the third quarter of 2003 and utilized cash of
$69.1 million in the first nine months of 2003. Commercial working capital
(trade accounts receivables before receivables sold plus FIFO inventories less
accounts payables) decreased $26.0 million in the 2003 third quarter and
increased $47.6 million in the nine months ended September 30, 2003. Cash
funding of restructuring initiatives was $12.0 million in the third quarter of
2003 and $35.3 million in the first nine months of 2003. The level of accounts
receivable sold decreased $25.4 million in the third quarter of 2003 and
decreased $95.3 million in the first nine months of 2003. When comparing the
nine months ended September 30, 2003 versus 2002, net cash used by continuing
operations for operating activities increased $104.2 million. This increase was
primarily due to lower 2003 EBITDA of $50.3 million, plus a reduction in the
level of accounts receivables sold of $70.1 million, and plus a reduction in
accrued expenses and other of $25.5 million largely due to increased payments of
employee separation and plant phase-out costs, that was partially offset by a
smaller 2003 increase in the level of commercial working capital.
Investing activities from continuing operations for the three months ended
September 30, 2003 provided cash of $49.3 million and for the nine months ended
September 30, 2003 used cash of $13.8 million. Before the decrease in restricted
cash, the investing activities from continuing operations used cash of $4.4
million in the 2003 third quarter. Cash spending included capital expenditures
for the 2003 third quarter of $8.8 million and $24.9 million year-to-date. Also,
the first nine months of 2003 included spending for businesses acquired of $15.8
million and proceeds from the sale of assets of $27.0 million. The May 2003 debt
refinancing provided restricted cash for the payment of certain unsecured senior
debt, which matured in September 2003.
Cash used for financing activities from continuing operations during the third
quarter of 2003 was $65.5 million, primarily reflecting the payment of certain
unsecured senior debt, which matured in September 2003. Cash provided by
financing activities from continuing operations for the nine months ended
September 30, 2003 was $190.4 million, primarily reflecting the issuance of $300
million of 10.625% unsecured senior notes and subsequent reduction of short-term
debt. No dividends were paid 2003.
Commercial Working Capital (CWC) is non-GAAP metric used by management to
support its cash management activities. Management believes CWC is a useful
metric as it focuses on that portion of GAAP working capital that would be
expected to impact liquidity as changes in sales levels occur. CWC may not be a
comparable metric to that used by other companies. The table below is a
reconciliation of the change in PolyOne's defined Commercial Working Capital
between the Balance Sheet Change and Statement of Cash Flows. Under GAAP, the
balance sheet is translated at the month-end currency exchange rate. The cash
flow uses an average period rate and excludes non-cash currency translation.
14
COMMERCIAL WORKING CAPITAL (CWC)
RECONCILIATION OF BALANCE SHEET MOVEMENT TO CASH FLOW
($ IN MILLIONS)
SEPTEMBER 2003
BALANCE SHEET CHANGE CASH FLOW CHANGE
- ------------------------------- -----------------------------
QTR YTD PER FINANCIAL STATEMENTS QTR YTD
- -------------- ------------- ------------ -------------
$ 17.4 $ 150.9 Trade Accounts Receivable $ 16.0 $ 141.1
(26.6) 5.4 Inventories (27.3) (1.3)
12.4 (15.0) Accounts Payable 13.0 (9.3)
- -------------- ------------- ------------ -------------
3.2 141.3 1.7 130.5
- - Cumulative Currency Translation 1.5 10.8
- -------------- ------------- ------------ -------------
3.2 141.3 3.2 141.3
ADJUSTMENTS:
(25.4) (95.3) Receivable Securitization (25.4) (95.3)
(3.8) 1.6 Lifo Reserve (3.8) 1.6
- -------------- ------------- ------------ -------------
COMMERCIAL WORKING CAPITAL
$ (26.0) $ 47.6 INCREASE (DECREASE) $ 26.0) $ 47.6
============== ============= ============ =============
CWC COMPONENTS AND MOVEMENT
($ IN MILLIONS)
Third Year-to-Date
Sept. 30, Quarter 2003
2003 Balance 2003 Change Change
- -------------- ------------ -----------
Trade Accounts Receivable before
$379.8 Receivables Sold $(8.0) $55.5
284.7 FIFO Inventories (30.4) 7.1
(257.0) Accounts Payable 12.4 (15.0)
- -------------- ------------ -----------
$407.5 Total $(26.0) $47.6
============== ============ ===========
The days of trade receivables outstanding at September 30, 2003 of approximately
54 days was flat with the June 30, 2003 level. Days of inventory at September
30, 2003 were approximately 46 days or nearly 8 days above the 2003 June
month-end level. The September 30, 2003 accounts payables were $12.4 million
below June 30, 2003, due to lower inventory purchases in September.
15
CWC RECONCILIATION TO GAAP WORKING CAPITAL
($ IN MILLIONS)
September 30,
2003
-------------------
Total current assets $ 688.7
Total current liabilities (392.6)
-------------------
Working Capital (GAAP) 296.1
Add: Short-term and current long-term debt 1.7
Accrued liabilities 133.9
Receivable securitization and Lifo reserve 90.2
Deduct: Cash (50.4)
Deferred tax asset, current (41.2)
Other current assets (22.8)
-------------------
Commercial Working Capital $ 407.5
===================
OTHER
INCOME TAXES
The 2003 third quarter and nine-month income tax expense on the pre-tax loss
from continuing operations was $27.7 million and $11.5 million, respectively.
The expense in both 2003 periods included the income tax expense on foreign
earnings plus $24.0 million related to our intent to distribute foreign
dividends, in the 2003 fourth quarter. The foreign dividend distribution results
in higher income tax expense because of our inability to utilize domestic
foreign tax credits. The foreign dividends will have no significant impact on
PolyOne's liquidity. Further, because of the past three years of accumulated
U.S. losses, no tax benefit can be recorded on domestic losses. Therefore,
PolyOne's 2003 losses from U.S. operations have been reduced by $9.0 million,
the value of its otherwise deferred tax credits, in both 2003 periods. PolyOne
intends to adjust or eliminate the tax valuation allowance in the future when
sufficient positive evidence exists to support realization of some or all of its
reserved deferred tax assets.
As of September 30, 2003, PolyOne's balance sheet had no net domestic deferred
tax asset. Further, cumulative allowances on deferred tax benefit/credit have
been recorded of approximately $41 million.
NON-CORE BUSINESS OPERATIONS
On October 21, 2003, PolyOne announced its intent to pursue the sale of three
non-core business operations. The non-core business operations consist of the
Specialty Resin and Engineered Films product groups, which are included in the
Performance Plastics business, and the Elastomers and Performance Additives
business. As a result of this decision, in the fourth
16
quarter of 2003, certain assets including goodwill will be reviewed as to
potential impairment and could result in charges to earnings. Also, an on-going
evaluation will occur as to when to report each business operation as a
discontinued operation.
Below is summary financial information regarding the non-core business
operations (Specialty Resin and Engineered Films) included in the Performance
Plastics business segment.
$ millions Three Months Nine Months
------------ -----------
3Q03 2Q03 3Q02 2003 2002
---- ---- ---- ---- ----
Operations:
Sales $52.7 $58.7 $61.9 $170.4 $189.3
Operating income, before special items (3.6) (5.0) (2.3) (10.7) 2.2
Other Data:
EBITDA, before special items (0.9) (2.3) 0.4 (2.5) 10.4
Assets, as of September 30 $206.8 $227.9
GOODWILL IMPAIRMENT ASSESSMENT
As of September 30, 2003, PolyOne had recorded goodwill on the balance sheet
totaling $444.7 million. Most of the goodwill is associated with three
identified reporting units - Plastic Compounds and Colors ($270.5 million),
Specialty Resins and Formulators ($59.9 million) and Elastomers and Performance
Additives ($111.9 million). Statement of Financial Accounting Standards No. 142
(SFAS No. 142) "Goodwill and Other Intangible Assets," requires an annual
assessment for potential impairment of goodwill. During 2002, we elected to make
July 1 our annual assessment date. As disclosed in the 2003 second quarter 10-Q,
in August 2003 we completed our assessment and concluded for each reporting unit
that its fair value exceeds its book carrying value. With the issuance of the
valuation reports, we completed the required 2003 "phase one" annual goodwill
impairment assessment and concluded that no impairment had occurred.
Any future occurrence of a defined potential indicator of impairment would
result in our having to perform another "phase-one" valuation analysis, as
required under SFAS No. 142, for some or all of our reporting units prior to the
next required 2004 annual assessment. Events deemed to be potential indicators
of impairment and the resulting analysis could result in charges against
earnings for goodwill and other asset impairments in the future. Any future
goodwill impairment would have no impact on PolyOne's required financial ratios
under the receivables sale facility and the revolving credit facility. However,
the available borrowings under the revolving credit facility would effectively
be reduced by 10% of any after-tax impairment write-off. The October 21, 2003
announcement concerning the potential sale of non-core business operations will
result in a 2003 fourth quarter assessment of potential goodwill impairment for
the Specialty Resin and Formulators and Elastomers and Performance Additives
reporting units.
17
WELVIC DISPOSITION
Welvic Australia Pty Ltd (Welvic), effective September 1, 2003, sold its net
operating assets to Orica Ltd. Welvic is an Australian vinyl custom compounding
joint venture between PolyOne (37.4% ownership interest) and Orica Ltd.
Following the sale of assets, Welvic will be liquidated. Through the sale of
operating assets and liquidation, PolyOne estimates it will realize
approximately $2.5 million of cash, which approximated the book carrying value.
RECLASSIFICATION
In December 2002, PolyOne sold its 70% interest in So.F.ter S.p.A. an Italian
compounder of thermoplastic materials. With the sale, all historical operating
results of this business have been reported separately as a discontinued
operation. The business was previously included within PolyOne's Performance
Plastics business segment.
18
Exhibit 1
Summary of Special Items (Unaudited)
(In millions)
Three Months Nine Months
----------------------------------------- ------------------------
3Q03 2Q03 3Q02 2003 2002
------------ ----------- ------------ ----------- ----------
Employee separation and plant phase-out costs (1) $ (8.2) $ (2.1) $ (0.2) $ (35.2) $ (1.1)
Period plant phase-out costs incurred (2) (1.2) (0.3) (0.5) (2.4) (0.7)
Equity affiliate - employee severance, liabilities
associated with the temporary idling of a plant
and cumulative effect of a change in accounting (3) - (1.0) (4.1) (1.8) (4.9)
Loss on divestiture of equity investment (4) - - - - (1.5)
------------ ----------- ------------ ----------- ----------
Subtotal - impact on EBITDA (expense) (9.4) (3.4) (4.8) (39.4) (8.2)
Plant phase-out accelerated depreciation (2) - - (0.5) - (1.5)
------------ ----------- ------------ ----------- ----------
Subtotal - impact on operating (expense) (9.4) (3.4) (5.3) (39.4) (9.7)
Loss on sale (5) - (0.2) - (0.2) -
------------ ----------- ------------ ----------- ----------
Total - impact pre tax (expense) (9.4) (3.6) (5.3) (39.6) (9.7)
Income tax benefit on above items 3.0 1.3 1.9 14.7 3.5
Foreign dividend tax (6) (24.0) - - (24.0) -
Tax allowance (7) (9.0) - - (9.0) -
------------ ----------- ------------ ----------- ----------
Total - after tax (expense) before discontinued
operations and cumulative effect of a change
in accounting $ (39.4) $ (2.3) $ (3.4) $ (57.9) $ (6.2)
============ =========== ============ =========== ==========
(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 following:
* January 16, 2003 announcement to reduce approximately 400 staff
personnel.
* March 26, 2003 announcement to exit an Engineering Films plant in
Yerington, Nevada.
* June 2003 decision to close the Fort Worth, Texas plant.
* Second quarter reversal of restructuring costs provided for in prior
years.
* Third quarter reduction of 112 North American plastics personnel (71
in manufacturing and 41 in sales and administration). Manufacturing
reductions include the shutdown of the St. Remi, Quebec powder
production, elimination of vinyl compound production shifts and staff
reductions at the Macedonia, Ohio engineered materials plant.
* Third quarter closure of two leased Ohio administrative offices.
* Third quarter closure of a portion of the Mexico distribution
business. The restructuring costs include asset write-offs totaling
$0.4 million.
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. 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. The 2003 third quarter expense is for the write-off of
inventory and receivables as a result of the decision to close the Mexico
distribution business.
(3) The second quarter 2003 expense relates to employee severance costs
associated with a personnel reduction undertaken by OxyVinyls. In addition, the
2003 first nine 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 and the asset write-off
and decommissioning costs related to the permanent closure of a portion of a
plant in 2002.
(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) Loss recorded for the sale of our European vinyl compounding business.
(6) U.S. tax expense related to foreign subsidiary dividends to be paid in the
fourth quarter of 2003.
(7) Tax allowance to reduce net U.S. deferred income tax assets resulting from
operating loss carry-forwards.
Exhibit 2
Business Segment Operations and Other Data (Unaudited)
(In millions)
Senior management uses operating income before special items as a business
segment measure of operating performance. Also, EBITDA before special items is
used as a business segment cash flow metric. 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 measures of
performance in accordance with GAAP. Senior management presents operating income
before special items and EBITDA before special items when discussing the
business segments because senior management believes such measures are useful in
assessing the underlying earnings and cash generating power 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 metric achievement level and their potential future
implication. Operating income before special items and EBITDA before special
items may not be comparable to financial performance measures presented by other
companies.
Three Months Nine Months
-------------------------------------------- ----------------------------
OPERATIONS: 3Q03 2Q03 3Q02 2003 2002
------------ ------------ ------------ ------------ ------------
Sales:
Performance Plastics $ 445.3 $ 460.5 $ 448.9 $1,353.4 $1,321.9
Elastomers and Performance Additives 84.6 87.5 95.2 266.1 282.7
Distribution 128.1 133.1 135.8 397.1 393.8
Resin & Intermediates - - - - -
Other (27.7) (30.2) (29.2) (89.9) (80.5)
------------ ------------ ------------ ------------ ------------
$ 630.3 $ 650.9 $ 650.7 $1,926.7 $1,917.9
============ ============ ============ ============ ============
Operating income (loss) before special items:
Performance Plastics $ 10.9 $ 7.3 $ 16.8 $ 23.0 $ 48.6
Elastomers and Performance Additives 0.1 1.2 5.0 3.5 11.7
Distribution 2.7 2.8 2.4 8.4 8.1
Resin & Intermediates 7.5 7.5 11.4 19.0 6.9
Other (4.9) (4.6) (4.0) (13.0) (13.3)
------------ ------------ ------------ ------------ ------------
$ 16.3 $ 14.2 $ 31.6 $ 40.9 $ 62.0
============ ============ ============ ============ ============
OTHER DATA:
EBITDA before special items:
Performance Plastics $ 25.1 $ 22.0 $ 30.7 $ 66.6 $ 90.1
Elastomers and Performance Additives 3.1 4.2 7.7 12.6 20.8
Distribution 3.1 3.2 2.8 9.6 9.5
Resin & Intermediates 7.6 7.5 12.0 19.2 7.5
Other (4.4) (4.3) (3.9) (12.0) (12.8)
------------ ------------ ------------ ------------ ------------
$ 34.5 $ 32.6 $ 49.3 $ 96.0 $ 115.1
============ ============ ============ ============ ============
Reconciliation:
Operating income $ 6.9 $ 10.8 $ 26.3 $ 1.5 $ 52.3
Special items, expense 9.4 3.4 5.3 39.4 9.7
------------ ------------ ------------ ------------ ------------
Operating income before special items 16.3 14.2 31.6 40.9 62.0
Depreciation and amortization 18.2 18.4 18.2 55.1 54.6
Accelerated depreciation in special items - - (0.5) - (1.5)
------------ ------------ ------------ ------------ ------------
EBITDA before special items $ 34.5 $ 32.6 $ 49.3 $ 96.0 $ 115.1
============ ============ ============ ============ ============
EBITDA $ 25.1 $ 29.2 $ 44.5 $ 56.6 $ 106.9
Impact of special items, expense 9.4 3.4 4.8 39.4 8.2
------------ ------------ ------------ ------------ ------------
EBITDA before special items $ 34.5 $ 32.6 $ 49.3 $ 96.0 $ 115.1
============ ============ ============ ============ ============
Note: The "Other" segment primarily consists of the elimination of inter-
business segment sales and profit in inventories and unallocated
corporate costs.