EXHIBIT 99.1
(POLYONE LOGO) NEWS RELEASE
FOR IMMEDIATE RELEASE
POLYONE REPORTS STRONG EARNINGS AND CASH FLOW IMPROVEMENTS
- APPROXIMATELY $200 MILLION GENERATED YEAR TO DATE FOR DEBT
REDUCTION FROM OPERATIONS AND DIVESTMENTS
- OPERATING INCOME IMPROVES NEARLY $31 MILLION FROM
THIRD-QUARTER 2003
- REVENUES INCREASE 12 PERCENT FROM THIRD-QUARTER 2003
- STRONG DEMAND AND MARGINS MORE THAN DOUBLE RESIN AND
INTERMEDIATES EARNINGS CONTRIBUTION
CLEVELAND - October 27, 2004 - PolyOne Corporation (NYSE: POL), a leading global
polymer compounding and North American distribution company, today reported
sales from continuing operations of $552.2 million for the third quarter ended
September 30, 2004, an increase of $58.9 million, or 12 percent, compared with
the third quarter of 2003. Operating income from continuing operations was $37.8
million for the third quarter of 2004, a $31.1 million improvement over the same
period in 2003.
Net income for the third quarter of 2004 was $11.6 million, or $0.13 per share -
a substantial improvement over the net loss of $43.2 million or $ 0.47 per share
reported in the third quarter of 2003.
Special items for continuing and discontinued operations combined reduced
earnings per share in the 2004 third quarter by $0.08 on a proforma basis. In
the continuing businesses, the most significant special item was a $7.4 million
pre-tax charge for a change in estimate to environmental reserves. The sale of
the Elastomers and Performance Additives unit in August resulted in a charge
affecting discontinued operations of $5.4 million on a pre-tax basis in the
third quarter. A definition and a detailed list of special items appear in
Attachment 4.
"We continued to generate solid operating cash flow in the third quarter," said
Thomas A. Waltermire, president and chief executive officer. "Our team succeeded
primarily through improved profitability, based on a balance of volume growth,
lower-cost operations and excellent gains in working capital efficiency.
"We achieved these results in a challenging environment," said Waltermire. "As
expected, volume was a bit below the second quarter and raw material cost
increases continued to pressure margins in our operating businesses.
Importantly, our joint ventures (Oxy Vinyls, LP and SunBelt Chlor-Alkali) that
also produce key raw materials for our operating businesses earned as much in
the third quarter as they did in the first six months of this year."
-1-
PROGRESS ON PRIORITIES
PolyOne has outlined four priorities for 2004:
REDUCE DEBT BY $200 TO $300 MILLION THROUGH NON-CORE ASSET SALES AND
OPERATING CASH FLOW: Year to date, PolyOne has generated approximately
$200 million from operations and divestments for debt reduction. Since
January 1, 2004, the Company has reduced its long-term debt and
receivable facility drawings by $134 million. Cash and marketable
securities have increased $66 million. This excess cash, plus future
operating cash flow and proceeds from divestments, is expected to be
used to repay maturing debt, purchase debt on the open market as
available or to make supplemental contributions to PolyOne's pension
fund. During the third quarter, the Company purchased on the open
market debt with maturities in 2005 and 2006, totaling $64 million of
principal value. The market value of these purchases exceeded the
principal value by $3.1 million. This market price premium appears as a
charge within "other expense, net". At the end of the third quarter,
PolyOne had no drawings on either its revolving credit facility or its
receivables sale facility.
As a result of debt reduction and earnings improvements, the leverage
ratio (calculated as borrowed debt divided by adjusted EBITDA) that is
used for PolyOne's bank covenant has declined substantially to 4.6
times at the end of the 2004 third quarter from 12.5 times at the end
of December 2003.
In August, PolyOne completed its agreement to sell its Elastomers and
Performance Additives business to an investor group led by Lion
Chemical Capital, LLC and ACI Capital Co., Inc. for $120 million, of
which $106 million was paid in cash and $14 million in the form of a
six-year note from the buyer.
- - RETURN TWO CORE BUSINESSES TO PROFITABILITY: In the third quarter,
PolyOne continued to progress toward its objective to return the North
American Color and Additives Masterbatch and Engineered Materials units
to acceptable profitability. Through the first nine months of 2004,
combined operating income (loss) from these businesses improved by
approximately $18 million compared with the same period in 2003. While
not yet profitable on an operating income basis, these businesses
generated more than $3 million in positive cash flow during the 2004
third quarter.
- - BRING OVERHEAD COSTS OF CONTINUING BUSINESSES UNDER 10 PERCENT OF
SALES: Selling and administrative (S&A) costs for the continuing
businesses were 10.1 percent of sales in the first nine months of 2004,
down from 12.4 percent in the same period of 2003. In the first nine
months of 2004, S&A costs declined nearly $20 million compared with the
2003 period.
- - GROW THE TOP LINE: Revenue in the third quarter of 2004 was 12 percent
higher compared with the third quarter of 2003. Shipments improved 5
percent over the same period.
-2-
A NOTE ON ACCOUNTING FOR DISCONTINUED OPERATIONS
In accordance with Generally Accepted Accounting Principles (GAAP), PolyOne
segregates and reports results of discontinued operations net of tax as a
separate line item on the statement of operations (income statement). Income or
loss from discontinued operations is reported below operating income -
continuing operations on the income statement. As a result, reporting and
discussion of items above the operating income - continuing operations line
(such as sales, operating income, interest, and selling and administrative
costs) includes only the results of continuing operations.
QUARTERLY SUMMARY OF CONSOLIDATED OPERATING RESULTS
(In millions of dollars, except per share data)
3Q04 3Q03 2Q04
--------- --------- ---------
OPERATING RESULTS:
Sales - continuing operations $ 552.2 $ 493.3 $ 557.8
Operating income - continuing operations $ 37.8 $ 6.7 $ 41.0
Net income (loss) - total Company $ 11.6 $ (43.2) $ 21.5
Income (loss) from discontinued operations - after tax (0.2) (1.8) 2.3
Income (loss) before discontinued operations 11.8 (41.4) 19.2
EARNINGS (LOSS) PER SHARE - DILUTED:
Net income (loss) - total Company $ 0.13 $ (0.47) $ 0.24
Income (loss) from discontinued operations -- (0.02) 0.03
Income (loss) before discontinued operations 0.13 (0.45) 0.21
Per share impact of special items - after tax:
Before discontinued operations (0.04) (0.42) 0.03
Discontinued operations (0.04) (0.02) (0.07)
OTHER DATA:
Sales - discontinued operations $ 85.4 $ 137.3 $ 154.6
Depreciation and amortization:
Before discontinued operations 9.1 12.8 11.0
Discontinued operations -- 5.8 --
A discussion occurs at the end of this release on the use of non-GAAP financial
measures.
-3-
SALES AND SHIPMENT VOLUME SUMMARY
3Q04 VERSUS 2Q04 3Q04 VERSUS 3Q03
---------------- ----------------
Shipment Shipment
3Q04 Sales, Sales $, Lbs., Sales $, Lbs.,
% of Total % Change % Change % Change % Change
---------- -------- -------- -------- --------
PERFORMANCE PLASTICS
Vinyl Compounds 31% -4% -6% 11% 8%
Formulators 7 -4 -6 1 -8
Color and Additives
Masterbatches 10 2 -3 12 28
Engineered Material 5 0 -19 9 -9
International Compounds
and Colors (1) 20 -5 -16 6 -10
--------------------------------------------------------------------
TOTAL 73 -3 -10 9 2
Distribution 27 1 -1 21 16
-------------------------------------------------------------------
TOTAL 100% -1% -8% 12% 5%
(1) Prior periods-2Q04 and 3Q03- include sales and shipments of
Melos which was sold in June 2004.
THIRD-QUARTER 2004 HIGHLIGHTS
OVERALL: Operating income from continuing operations before special items was
essentially flat in the third quarter of 2004 compared with the second quarter
of 2004. The adverse impact of lower sales volumes and margins was offset by
improved Resin and Intermediates (R&I) earnings coupled with lower plant and S&A
costs. Compared with the third quarter of 2003, operating income before special
items in the third quarter of 2004 was up $29 million. This improvement resulted
from balanced improvements in sales volumes, plant and S&A costs, and R&I
earnings.
Third-quarter 2004 operating income from discontinued operations before special
items declined $7.8 million compared with the second quarter of 2004, largely as
a result of lower Elastomers & Performance Additives earnings following the
divestment. Compared with the third quarter of 2003, the improvement in
operating income before special items was due primarily to the elimination of
depreciation charged to discontinued operations in 2004.
Included in the third-quarter results were gains associated with regulated
changes in accounting for pensions and other post-retirement benefits, an
adjustment for profit in inventory associated with PolyOne products sold by the
Distribution business and other one-time earnings credits that in aggregate
increased operating income approximately $8 million. The impact appears most
pronounced in the third quarter, but actually lowers costs for the entire year.
-4-
PolyOne's results for the first nine months of 2004 were a significant
improvement over the same period in 2003. Sales improved more than 10 percent.
Contributing to the nearly $100 million improvement in operating income in the
first nine months of 2004 compared to 2003 was a balance of factors including:
shipment volume improvement; lower cost structure resulting from earlier
initiatives; elimination of the depreciation associated with discontinued
business; and increased earnings from the Resin and Intermediates segment.
- - PERFORMANCE PLASTICS SEGMENT: Overall sales and shipments declined from
the second quarter of 2004, due primarily to seasonal slowness in July
in North America and August in Europe. Sequential comparisons for
Europe were adversely affected by the sale of the Melos business in
June 2004. Excluding Melos, third quarter 2004 International shipments
increased 1 percent compared to the second quarter 2004. Most markets
experienced some slowing, with automotive being the most notable.
Demand for North American wire and cable (served by the Vinyl
Compounds, Engineered Materials, and Color and Additives units)
remained strong, however, as did the Asian Color business, which
recorded a 25 percent volume improvement in the quarter compared with
the third quarter of 2003. The year-over-year improvement in sales and
shipments reflected increased demand in North America, higher selling
prices, and focused efforts to improve the Company's growth and market
position.
- - DISTRIBUTION SEGMENT: Shipments declined slightly from the second
quarter due primarily to normal seasonal slowness, while sales
increased due to higher selling prices passed through from suppliers.
Because of the success of price increases and retention of margins,
segment operating income was only slightly lower than in the second
quarter. The strong year-over-year improvement in sales and shipments
reflected both a stronger economy and the acquisition of ResinDirect
earlier in 2004.
- - RESIN AND INTERMEDIATES SEGMENT: Both OxyVinyls and SunBelt experienced
strong demand in the third quarter of 2004. While OxyVinyls saw higher
costs for ethylene, natural gas costs declined slightly compared with
the second quarter. Overall results improved from the second quarter,
due primarily to higher selling prices for polyvinyl chloride (PVC)
resin and caustic soda.
FOURTH-QUARTER 2004 BUSINESS OUTLOOK
PolyOne anticipates revenues from continuing operations to increase in the range
of 5 percent to 10 percent compared with the fourth quarter of 2003. PolyOne
anticipates, however, that fourth-quarter 2004 revenues from continuing
operations could be down 6 percent to 10 percent from third-quarter levels,
which is within the range of typical seasonality. The anticipated sequential
decline in sales could reduce operating income by $10 million to $16 million
compared with the third quarter.
All of PolyOne's North American and International operating units expect to
continue to experience margin compression from higher raw material, additive and
freight costs.
-5-
Nevertheless, the Company will attempt to mitigate most adverse effects from
these pressures through efforts to raise product prices and through product
reformulations.
While the R&I segment should continue to benefit in the fourth quarter from
increasing market prices for PVC resins and caustic soda, PolyOne anticipates a
typical seasonal slowing in PVC resin demand compared with the third quarter.
Average PVC resin industry prices are projected to be slightly higher, due
primarily to increases realized during the third quarter that lift the
sequential-quarter average. Additionally, caustic soda should realize higher
average market prices during the fourth quarter. Ethylene prices are also
projected to escalate in the fourth quarter in conjunction with high natural gas
and oil costs.
In combination, these factors could result in a quarterly R&I operating income
decrease of between $2 million and $4 million compared with the third quarter of
2004.
Net income from discontinued operations should be lower in the fourth quarter
compared with the third quarter, a result of the sale of the Elastomers and
Performance Additives unit during the third quarter, continuing margin pressure
and lower seasonal demand for Specialty Resins and Engineered Films products.
The net result is that the discontinued businesses could contribute between $3
million and $4 million less in net income in the fourth quarter compared with
the third quarter.
PolyOne anticipates that fourth-quarter cost levels will be generally comparable
with the third quarter, after consideration of the third quarter cost benefits
discussed above. Interest expense should decline by approximately $1 million in
the fourth quarter from the third quarter as a result of the early retirement of
debt. The Company does not expect that the premium associated with early debt
retirement will approach the $3 million experienced in the third quarter.
PolyOne will continue to maintain a full valuation allowance against net federal
and state deferred tax assets, even though loss carry-forwards are expected to
preclude payment of these taxes for several years. The Company anticipates that
foreign income taxes will be between $2 million and $3 million in the fourth
quarter of 2004.
PolyOne projects positive cash generation in the fourth quarter before
consideration of business divestments. Cash generation should be driven by cash
earnings, reduced working capital needs and diminishing cash restructuring
costs.
"It appears that raw material costs will continue to increase," said Waltermire.
"In the face of this trend, we remain dedicated to controlling our destiny by
taking appropriate actions, including raising selling prices, redesigning
products to lower costs and using aggressive purchasing tactics."
Added Waltermire, "We are cautious about the near- and longer-term effects of
rising energy prices on the economy. Despite this, our past efforts have
strengthened PolyOne and are showing up on the bottom line. Our results in the
fourth quarter should represent a solid improvement over the fourth quarter of
2003."
-6-
NEW IN-QUARTER UPDATE POLICY
Beginning with the fourth quarter of 2004, PolyOne will release an in-quarter
update. The purpose of this release is to inform investors of any material
changes to major business drivers as discussed in the earnings release and Form
10-Q or 10-K outlook sections. While an exact date for this report has not been
set, investors should expect it to be issued some time around the final month of
the quarter. PolyOne will periodically assess the value of this update to
shareholders.
USE OF NON-GAAP FINANCIAL MEASURES
This press release includes the use of both GAAP (generally accepted accounting
principles) and non-GAAP financial measures. The non-GAAP financial measures
are: operating cash flow, operating income (loss) before special items on a
consolidated basis and per share impact of special items. The most directly
comparable GAAP financial measures are: net cash used (provided) by operating
activities, operating income (loss) and income (loss) per share.
When PolyOne's chief operating decision makers review consolidated and segment
results, special items are excluded from operating income and are evaluated on a
per share basis to enhance understanding of current profitability levels and how
current levels may serve as a base for future performance. PolyOne's chief
operating decision makers also use these non-GAAP financial measures for
decisions regarding allocation of resources. In addition, operating income
before special items is a component of the PolyOne Annual Incentive Plan at the
corporate level and is used in debt covenant computations. PolyOne's chief
operating decision makers also use operating cash flow as a component of the
PolyOne Annual Incentive Plan at the corporate level.
PolyOne is providing these non-GAAP financial measures because it believes they
offer investors a top-level management view of the Company's financial
performance and enhance investor understanding of current profitability levels
and how current levels may serve as a base for future performance.
Special items recognized during 2004 and 2003 include charges related to
specific strategic initiatives such as the consolidation of operations,
restructuring activities such as employee separation costs resulting from
personnel reduction programs, plant closure and phase-out costs, asset
impairments, environmental remediation costs for facilities no longer owned or
closed in prior years, gains and losses on the divestiture of joint ventures and
equity investments, adjustments to reflect a tax benefit on domestic operating
losses and deferred tax valuation allowances on domestic operating losses.
Tables included in this press release reconcile each non-GAAP financial measure
to the most directly comparable GAAP financial measure (Attachment 5) and
provide detail on special items (Attachment 4). Also attached are standard
financial schedules and segment results.
-7-
FORM 10-Q
The Company filed today with the Securities and Exchange Commission (SEC) its
Quarterly Report on Form 10-Q for third-quarter 2004. The Form 10-Q contains
more details of PolyOne's performance as well as information on key drivers of
operating results. This information will be posted today on the Company's Web
site at http://www.polyone.com in the corporate investor relations section. The
Form 10-Q can be obtained from the contact listed at the end of this news
release, and is also available on the SEC's Web site at www.sec.gov.
POLYONE THIRD-QUARTER 2004 CONFERENCE CALL
PolyOne will host a conference call at 9 a.m. Eastern time on October 28, 2004.
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 4283104. The call will be broadcast live and then via replay for
two weeks on the Company's Web site at http://www.polyone.com.
ABOUT POLYONE
PolyOne Corporation, with 2003 annual revenues of approximately $2 billion, is a
leading global compounding and North American distribution company with
continuing operations in thermoplastic compounds, specialty polymer
formulations, color and additive systems, and thermoplastic resin distribution.
Headquartered in northeast Ohio, PolyOne has employees at manufacturing sites in
North America, Europe, Asia and Australia, and joint ventures in North America,
South America and Asia. Information on PolyOne's products and services can be
found at http://www.polyone.com.
PolyOne Investor & Media Contact: Dennis Cocco
Vice President, Investor Relations
& Communications
440.930.1538
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
-8-
as legal proceedings; and financial results. Factors that could cause
actual results to differ materially include, but are not limited to:
- an inability to achieve or delays in achieving or achievement
of less than the anticipated financial benefit from
initiatives related to restructuring programs, including cost
reduction and employee productivity goals;
- a delay or inability to achieve targeted debt level reductions
through divestitures and/or other means;
- 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;
- changes in U.S., regional or world polymer consumption growth
rates affecting PolyOne's markets;
- 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 PolyOne participates;
- fluctuations in raw material prices, quality and supply and in
energy prices and supply, in particular fluctuations outside
the normal range of industry cycles;
- production outages or material costs associated with scheduled
or unscheduled maintenance programs;
- costs or difficulties and delays related to the operation of
joint venture entities;
- lack of day-to-day operating control, including procurement of
raw materials, of equity or joint venture affiliates;
- partial control over investment decisions and dividend
distribution policy of the OxyVinyls partnership and other
minority equity holdings of PolyOne;
- an inability to launch new products and/or services within
PolyOne's various businesses;
- the possibility of further goodwill impairment;
- an inability to maintain any required licenses or permits:
- an inability to comply with environmental laws and
regulations;
- the cost of compliance with environmental laws and
regulations, including any increased cost of complying with
new or revised laws and regulation;
- unanticipated developments that could occur with respect to
contingencies such as litigation and environmental matters,
including any developments that would require any increase in
our costs and/or reserves for such contingencies;
- an inability or delay beyond December 31, 2004, in finding
buyers of discontinued operations or other non-core assets for
reasonable and acceptable terms;
- an inability to access the revolving credit facility and/or
the receivables sale facility as a result of breaching
covenants due to not achieving anticipated earnings
performance;
- any poor performance of our pension plan assets and any
obligation on our part to fund PolyOne's pension plan;
- any delay and/or inability to bring the North American Color
and Additives Masterbatch and the Engineered Materials product
platforms to profitability;
- an inability to achieve anticipated earnings performance due
to the divestment of a non-core business prior to December 31,
2004;
- an inability to raise prices or sustain price increases for
products; or
- an inability to complete the sale of discontinued businesses
due to problems or delays associated with legal proceedings,
regulatory approvals and/or buyers receiving financing for the
transaction or any other reasons.
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 reports on Form 10-Q, 8-K and 10-K provided to the Securities and
Exchange Commission. You should understand that it is not possible to predict or
identify all risk factors. Consequently, you should not consider any such list
to be a complete set of all potential risks or uncertainties. (Ref. #102704)
###
-9-
Attachment 1
POLYONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In millions, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004 2003
-------- -------- --------- ---------
Sales $ 552.2 $ 493.3 $ 1,645.6 $ 1,490.5
Operating costs and expenses:
Cost of sales 469.1 414.6 1,377.3 1,261.7
Selling and administrative 49.1 61.3 166.2 184.6
Depreciation and amortization 9.1 12.8 31.7 38.6
Employee separation and plant phase-out (0.3) 7.7 (1.5) 26.1
Environmental remediation at inactive sites 7.4 0.3 8.7 1.1
Loss on sale of assets 0.2 -- 5.9 0.3
Income from equity affiliates and minority interest (20.2) (10.1) (46.1) (25.8)
-------- -------- --------- ---------
Operating income 37.8 6.7 103.4 3.9
Interest expense (18.1) (19.2) (54.8) (49.0)
Other expense, net (5.7) (2.6) (11.7) (9.1)
-------- -------- --------- ---------
Income (loss) before income taxes and discontinued operations 14.0 (15.1) 36.9 (54.2)
Income tax expense (2.2) (26.3) (7.5) (11.2)
-------- -------- --------- ---------
Income (loss) before discontinued operations 11.8 (41.4) 29.4 (65.4)
Discontinued operations:
Income (loss) from operations, net of income taxes (0.2) (1.8) 7.7 (3.1)
-------- -------- --------- ---------
Net income (loss) $ 11.6 $ (43.2) $ 37.1 $ (68.5)
======== ======== ========= =========
Income (loss) per share of common stock:
Basic income (loss) per share before discontinued operations $ 0.13 $ (0.45) $ 0.32 $ (0.72)
Discontinued operations -- (0.02) 0.08 (0.03)
-------- -------- --------- ---------
Basic income (loss) per share $ 0.13 $ (0.47) $ 0.40 $ (0.75)
======== ======== ========= =========
Diluted income (loss) per share before discontinued operations $ 0.13 $ (0.45) $ 0.32 $ (0.72)
Discontinued operations -- (0.02) 0.08 (0.03)
-------- -------- --------- ---------
Diluted income (loss) per share $ 0.13 $ (0.47) $ 0.40 $ (0.75)
======== ======== ========= =========
Weighted average shares used to compute earnings per share:
Basic 91.5 91.1 91.5 91.0
Diluted 91.8 91.1 91.7 91.0
Dividends paid per share of common stock $ -- $ -- $ -- $ --
-10-
Attachment 2
POLYONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except per share data)
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 114.7 $ 48.7
Accounts receivable, net 345.6 263.5
Inventories 201.7 196.9
Deferred income tax assets 27.0 26.9
Other current assets 16.9 17.7
Discontinued operations 33.4 52.1
---------- -----------
Total current assets 739.3 605.8
Property, net 431.2 486.1
Investment in equity affiliates 268.3 256.7
Goodwill, net 327.1 334.0
Other intangible assets, net 14.1 20.2
Other non-current assets 59.8 53.2
Discontinued operations 63.1 144.9
---------- -----------
Total assets $ 1,902.9 $ 1,900.9
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank debt $ 4.0 $ 1.1
Accounts payable 221.6 173.4
Accrued expenses 124.7 111.1
Current portion of long-term debt 44.4 26.3
Discontinued operations 24.9 52.3
---------- -----------
Total current liabilities 419.6 364.2
Long-term debt 673.0 757.1
Deferred income tax liabilities 24.2 25.9
Post-retirement benefits other than pensions 115.0 120.3
Other non-current liabilities, including pensions 266.0 257.9
Minority interest in consolidated subsidiaries 7.8 8.5
Discontinued operations 0.2 0.2
---------- -----------
Total liabilities 1,505.8 1,534.1
Shareholders' equity:
Preferred stock, 40.0 shares authorized, no shares issued -- --
Common stock, $.01 par, 400.0 shares authorized, 122.2 shares issued at
September 30, 2004 and December 31, 2003 1.2 1.2
Other shareholders' equity 395.9 365.6
---------- -----------
Total shareholders' equity 397.1 366.8
---------- -----------
Total liabilities and shareholders' equity $ 1,902.9 $ 1,900.9
========== ===========
-11-
Attachment 3
POLYONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
NINE MONTHS ENDED
SEPTEMBER 30,
2004 2003
--------- ---------
OPERATING ACTIVITIES
Net income (loss) $ 37.1 $ (68.5)
Income (loss) from discontinued operations 7.7 (3.1)
--------- ---------
Income (loss) from continuing operations 29.4 (65.4)
Adjustments to reconcile income (loss) from continuing
operations to net cash used by
operating activities of continuing operations:
Employee separation and plant phase-out charges (1.5) 26.1
Cash payments on employee separation and plant phase-out (18.9) (35.3)
Charges for environmental remediation at inactive sites 8.7 1.1
Cash payments on environmental remediation at inactive sites (1.0) (1.2)
Depreciation and amortization 31.7 38.6
Loss on sale of assets 5.9 0.3
Companies carried at equity and minority interest:
Income from equity affiliates (47.1) (27.2)
Minority interest expense 1.0 1.4
Dividends and distributions received 34.7 12.5
Deferred income taxes 1.4 --
Change in assets and liabilities:
Accounts receivable (60.6) (128.0)
FIFO inventories (25.7) 1.2
Accounts payable 55.0 4.6
Decrease in sale of accounts receivable (70.7) (14.6)
Accrued expenses and other 42.3 27.6
--------- ---------
NET CASH USED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS (15.4) (158.3)
INVESTING ACTIVITIES
Capital expenditures
Business acquired, net of cash received (13.0) (22.7)
Proceeds from sale of discontinued business, net of note receivable of $14.0 (5.1) (15.8)
Proceeds from sale of assets 106.0 --
31.9 27.0
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES OF CONTINUING OPERATIONS 119.8 (11.5)
FINANCING ACTIVITIES
Change in short-term debt 20.9 (90.1)
Change in long-term debt (83.4) 297.8
Termination of interest rate swaps (0.3) (2.6)
Debt issuance costs -- (14.7)
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES OF CONTINUING OPERATIONS (62.8) 190.4
NET CASH PROVIDED (USED) BY DISCONTINUED OPERATIONS 24.8 (8.4)
EFFECT OF EXCHANGE RATE ON CHANGES ON CASH (0.4) (3.2)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 66.0 9.0
Cash and cash equivalents at beginning of period 48.7 41.4
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 114.7 $ 50.4
========= =========
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Attachment 4
Summary of Special Items (Unaudited)
(In Millions)
SPECIAL ITEMS ($MM) 1Q03 2Q03 3Q03 FY03 1Q04 2Q04 3Q04 FY04
- ----------------------------------------------------------------------------------------------------------------------------------
Continuing operations
- ---------------------
Employee separation and plant phase-out costs (1) (17.4) (1.0) (7.7) (26.1) 0.2 1.0 0.3 1.5
Period plant phase-out costs incurred (2) (0.9) (0.3) (1.2) (2.4) --
Environmental remediation at inactive sites (3) (0.4) (0.4) (0.3) (1.1) (0.6) (0.7) (7.4) (8.7)
Loss on sale (4) (0.3) (0.3) (5.7) (0.2) (5.9)
Equity affiliate - cumulative effect of a change
in accounting (5) (0.8) (0.8) --
Equity affiliate - employee separation (6) (1.0) (1.0) --
--------------------------------------------------------------------------
Impact on pre-tax income (19.5) (3.0) (9.2) (31.7) (0.4) (5.4) (7.3) (13.1)
Income tax benefit on above items 7.7 1.0 2.9 11.6 0.2 3.9 3.0 7.1
Foreign dividend tax (8) (24.0) (24.0) --
Tax allowance (9) (8.3) (8.3) (4.9) 3.4 1.2 (0.3)
--------------------------------------------------------------------------
Impact on net income from continuing operations (11.8) (2.0) (38.6) (52.4) (5.1) 1.9 (3.1) (6.3)
--------------------------------------------------------------------------
Per share impact (0.13) (0.02) (0.42) (0.57) (0.06) 0.03 (0.04) (0.07)
--------------------------------------------------------------------------
Discontinued operations
- -----------------------
Employee separation and plant phase-out costs (1) (7.5) (1.1) (0.6) (9.2) (5.2) (1.1) (1.0) (7.3)
Period plant phase-out costs incurred (2) -- --
--------------------------------------------------------------------------
Impact on operating income (7.5) (1.1) (0.6) (9.2) (5.2) (1.1) (1.0) (7.3)
Net asset impairment of discontinued operations (7) -- (9.9) (5.4) (15.3)
--------------------------------------------------------------------------
Impact on pre-tax income (7.5) (1.1) (0.6) (9.2) (5.2) (11.0) (6.4) (22.6)
Income tax benefit on above items 2.9 0.4 0.2 3.5 2.0 4.3 2.5 8.8
Tax allowance (9) (1.1) (1.1) 2.0 0.9 (0.2) 2.7
--------------------------------------------------------------------------
Impact on net income from discontinued operations (4.6) (0.7) (1.5) (6.8) (1.2) (5.8) (4.1) (11.1)
--------------------------------------------------------------------------
Per share impact (0.05) (0.01) (0.02) (0.08) (0.01) (0.07) (0.04) (0.12)
--------------------------------------------------------------------------
Impact on net income (16.4) (2.7) (40.1) (59.2) (6.3) (3.9) (7.2) (17.4)
--------------------------------------------------------------------------
Per share impact (0.18) (0.03) (0.44) (0.65) (0.07) (0.04) (0.08) (0.19)
--------------------------------------------------------------------------
Explanations:
1. Severance, employee outplacement, external outplacement consulting,
lease termination, facility closing costs and the write-down of the
carrying value of plant and equipment resulting from restructuring
initiatives.
2. Costs associated with restructuring initiatives that were required to
be recognized as period costs versus when the restructuring initiative
was approved. The third and fourth quarter expense under continuing
operations is for the write-off of inventories and receivables
resulting from the decision to close the Mexico distribution business.
3. Environmental remediation costs for facilities either no longer owned
or closed in prior years.
4. Loss recorded upon the sale of our European vinyl compounding business
in the second quarter of 2003 and upon the sale of our Melos rubber
granules business in the second quarter of 2004.
5. A charge for the cumulative effect of a change in accounting upon
OxyVinyls adoption of SFAS No. 143, "Accounting for Asset Retirement
Obligations."
6. Employee severance costs associated with a personnel reduction
undertaken by OxyVinyls in the second quarter of 2003.
7. A non-cash impairment charge to adjust the net asset carrying value of
discontinued operations to estimated net future proceeds.
8. U.S. tax expense related to foreign subsidiary dividends paid.
9. Tax allowance to adjust net income tax assets resulting from operating
loss carry-forwards.
-13-
Attachment 5
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In Millions)
Below is a reconciliation of non-GAAP financial measures to the most directly
comparable measures calculated and presented in accordance with GAAP.
3Q04 2Q04 3Q03
----------- ----------- ---------
CONTINUING OPERATIONS:
Operating income before special items $ 45.1 $ 46.4 $ 15.9
Special items in continuing operations, before tax (7.3) (5.4) (9.2)
----------- ----------- ---------
Operating income $ 37.8 $ 41.0 $ 6.7
=========== =========== =========
DISCONTINUED OPERATIONS:
Operating income before special items $ 6.1 $ 14.0 $ 0.7
Special items in discontinued operations, before tax (1.0) (1.1) (0.6)
----------- ----------- ---------
Operating income (loss) $ 5.1 $ 12.9 $ 0.1
=========== =========== =========
CONTINUING OPERATIONS:
Income (loss) per share before impact of special items $ 0.17 $ 0.18 $ (0.03)
Per share impact of special items, after tax (0.04) 0.03 (0.42)
----------- ----------- ---------
Diluted income (loss) per share $ 0.13 $ 0.21 $ (0.45)
=========== =========== =========
DISCONTINUED OPERATIONS:
Income per share before impact of special items $ 0.04 $ 0.10 $ --
Per share impact of special items, after tax (0.04) (0.07) (0.02)
----------- ----------- ---------
Diluted income (loss) per share $ -- $ 0.03 $ (0.02)
=========== =========== =========
(in millions)
Nine Months
Three Months Ended Ended
September June 30, March 31, September 30,
30, 2004 2004 2004 2004
RECONCILIATION TO CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
Net cash provided (used by) by operating activities of continuing operations $ 28.3 $ (53.2) $ 9.5 $ (15.4)
Net cash provided (used by) by investing activities of continuing operations 93.3 34.2 (8.7) 119.8
Less decrease in sale of accounts receivable 19.1 50.9 0.7 70.7
Plus net cash provided by discontinued operations (1.8) 16.1 10.5 34.1
Interest rate swap fair value debt adjustment (1.4) 5.3 1.4 5.3
Effect of exchange rate changes on debt 0.3 -- -- 0.3
Effect of exchange rate changes on cash (0.1) (0.3) (0.5) (0.9)
---------------------------------------------
DECREASE IN BORROWED DEBT LESS CASH AND CASH EQUIVALENTS 139.2 53.0 12.9 205.1
---------------------------------------------
Less proceeds from sale of assets (5.6) (26.3) -- (31.9)
Less proceeds from sale of business, net of note receivable (106.0) (106.0)
Plus business acquired, net of cash received -- -- 5.1 5.1
----------------------------------------------
OPERATING CASH FLOW 27.6 26.7 18.0 72.3
=============================================
-14-
Attachment 6
Business Segment Operations (Unaudited)
(In millions)
Senior management uses operating income before the effect of "special items" to
assess performance and allocate resources to business segments because senior
management believes that this measure is useful in understanding current
profitability levels and how current levels may serve as a base for future
performance. In addition, operating income before the effect of "special items"
is a component of the PolyOne Annual Incentive Plan at the corporate level and
is used in debt covenant computations.
"Special items" include charges related to specific strategic initiatives such
as the consolidation of operations, restructuring activities such as employee
separation costs resulting from personnel reduction programs, plant closure and
phase-out costs, asset impairments, environmental remediation costs for
facilities no longer owned or closed in prior years, and gains and losses on the
divestiture of joint ventures and equity investments.
Three Months
--------------------------------------
3Q04 2Q04 3Q03
-------- -------- --------
BUSINESS SEGMENTS:
Sales:
Performance Plastics Segment $ 426.9 $ 439.9 $ 392.6
Distribution Segment 154.7 153.8 128.1
Resin & Intermediates Segment -- -- --
Inter-segment Sales (29.4) (35.9) (27.4)
-------- -------- --------
$ 552.2 $ 557.8 $ 493.3
======== ======== ========
Operating income (loss)
Performance Plastics Segment $ 28.4 $ 29.9 $ 12.8
Distribution Segment 4.5 4.7 2.2
Resin & Intermediates Segment 18.1 13.6 7.9
Other Segment $ (5.9) $ (1.8) $ (7.0)
Special items, (expense) (7.3) (5.4) (9.2)
-------- -------- --------
Operating income (loss) $ 37.8 $ 41.0 $ 6.7
======== ======== ========
Other data:
Discontinued operations
Sales:
Elastomers and Performance Additives $ 30.3 $ 94.9 $ 84.7
Specialty Resins and Engineered Films 55.1 59.7 52.6
-------- -------- --------
$ 85.4 $ 154.6 $ 137.3
======== ======== ========
Operating income (loss)
Elastomers and Performance Additives $ 2.9 $ 9.9 $ 5.8
Specialty Resins and Engineered Films 3.2 4.1 0.7
Depreciation and amortization -- -- 5.8
Special items, expense before tax $ (1.0) $ (1.1) $ (0.6)
-------- -------- --------
Operating Income $ 5.1 $ 12.9 $ 0.1
======== ======== ========
-15-