EXHIBIT 99.1
(POLYONE LOGO)
NEWS RELEASE
POLYONE REPORTS BEST FULL-YEAR, FOURTH-QUARTER RESULTS SINCE FORMATION
- FOURTH-QUARTER, FULL-YEAR INCOME IMPROVES SUBSTANTIALLY OVER 2003
- FULL-YEAR REVENUES INCREASE 10 PERCENT
- EVERY OPERATING UNIT CONTRIBUTES TO PERFORMANCE IMPROVEMENT
- COMPANY GENERATES STRONG CASH FLOW FROM OPERATIONS IN 2004
- POLYONE SUBSTANTIALLY STRENGTHENS FINANCIAL POSITION WITH $234 MILLION
IN DEBT REDUCTION AND PENSION FUNDING
CLEVELAND - February 3, 2005 - PolyOne Corporation (NYSE: POL), a leading global
polymer compounding and North American distribution company, today reported
sales from continuing operations of $515.9 million for the fourth quarter ended
December 31, 2004, an increase of $41.9 million, or 9 percent, compared with the
fourth quarter of 2003.
"Our strategy in 2004 was to set clear, measurable objectives that would
position our business for success, focus on these goals and execute our plans
well," said Thomas A. Waltermire, president and chief executive officer. "We
achieved our important growth objectives in addition to solidifying our balance
sheet through our debt reduction initiatives, improving our North American Color
and Engineered Materials business units, and lowering our overall cost
structure."
Operating income from continuing operations was $16.2 million for the fourth
quarter of 2004, a $24.1 million improvement over the same period in 2003.
PolyOne reported a net loss of $13.6 million, or $0.15 per share - a substantial
improvement over a net loss of $182.6 million, or $2.00 per share, reported in
the fourth quarter of 2003.
In the 2004 fourth quarter, special items for continuing and discontinued
operations combined totaled $16.4 million after tax and reduced earnings per
share by $0.18. A definition and a detailed list of special items appear in
Attachment 4.
The 2003 fourth-quarter net loss included special items before taxes of $170.9
million, including a pre-tax non-cash charge of $130.5 million associated with
the planned disposition of three non-core businesses. The charge represented an
estimated impairment in the net assets of the discontinued operations held for
sale.
For full-year 2004, revenues from continuing operations increased $197.0
million, or 10 percent, compared with 2003. Operating income from continuing
operations increased $123.6 million, a substantial improvement driven by a
balance of factors, including shipment volume improvements, a reduced cost
structure and improved earnings from the Resin and Intermediates (R&I) segment.
-1-
"Our success in generating this significant income improvement resulted from
three years of dedicated effort at every level of our organization to reduce our
overall cost structure in every operating unit while capturing growth,
particularly in North America," Waltermire said.
PROGRESS ON PRIORITIES
PolyOne outlined four priorities at the beginning of 2004:
- REDUCE DEBT BY $200 MILLION TO $300 MILLION THROUGH NON-CORE ASSET SALES
AND OPERATING CASH FLOW: PolyOne reduced its debt, including the SunBelt
Chlor-Alkali guarantee and pension obligation, by approximately $234
million in 2004. Since January 1, 2004, the Company has reduced its
long-term debt and receivables sale facility drawings by $164.4 million.
At the end of the fourth quarter, PolyOne had no drawings under either
its revolving credit facility or its receivables sale facility. During
the fourth quarter, the Company made a voluntary contribution of $65
million to its defined benefit pension plans, which will eliminate
pension funding obligations for 2005 and 2006.
Net cash provided by operating activities was a negative $51.6 million
for the full year 2004. Operating cash flow as defined in Attachment 5
was a positive $96 million for the full year, a substantial improvement
over 2003. Contributing to this increase were significant improvements
in working capital efficiency, stronger earnings and lower restructuring
outflows.
As a result of debt reduction and earnings improvements, the debt
coverage ratio (calculated as defined in PolyOne's bank facility
covenant test) declined substantially to 3.97 at the end of the 2004
from 12.5 at the end of 2003.
- RETURN TWO CORE BUSINESSES TO PROFITABILITY: PolyOne continued making
progress toward its objective to return the North American Color and
Additives Masterbatch and Engineered Materials units to acceptable
profitability. At the end of 2004, combined operating income from these
businesses had improved by approximately $24 million compared with 2003.
While not yet profitable on an operating income basis, these businesses
combined generated positive operating cash flow during 2004.
- BRING OVERHEAD COSTS OF CONTINUING BUSINESSES UNDER 10 PERCENT OF SALES:
Selling and administrative (S&A) costs for the continuing businesses
were 9.3 percent of sales in 2004, down from 12.3 percent in 2003 and
14.1 percent in 2002.
- GROW THE TOP LINE: Revenue for 2004 was 10 percent higher compared with
2003, and shipments for continuing operations improved 5 percent over
the same period. A number of factors contributed to this improvement,
including: PolyOne's acquisition in early 2004 of the North American
plastics distribution business ResinDirect, a subsidiary of Louis
Dreyfus Energy Services; the startup of a new thermoplastic elastomers
(TPE) manufacturing line in Europe; the significantly improved business
climate for North American plastics markets and, in particular, the wire
and cable industry; new business applications, including an important
outdoor decking application for the North American Color Additives
business; and the commitment of significant resources that helped
further the development of nanocomposite applications.
-2-
With the anticipated completion of a third China manufacturing operation
in the second quarter of 2005, PolyOne will have a strong base for
additional leverage and growth within Asia in 2005.
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)
<Table>
<Caption>
4Q04 4Q03 3Q04 FY04 FY03
---- ---- ---- ---- ----
OPERATING RESULTS:
Sales - continuing operations $ 515.9 $ 474.0 $ 552.1 $ 2,161.5 $ 1,964.5
Operating income (loss) - continuing operations $ 16.2 $ (7.9) $ 37.8 $ 119.6 $ (4.0)
Net income (loss) - total Company $ (13.6) $ (182.6) $ 11.6 $ 23.5 $ (251.1)
Income (loss) from discontinued operations - after tax (2.8) (152.7) (0.2) 4.9 (155.8)
Income (loss) before discontinued operations (10.8) (29.9) 11.8 18.6 (95.3)
EARNINGS (LOSS) PER SHARE - DILUTED:
Net income (loss) - total Company $ (0.15) $ (2.00) $ 0.13 $ 0.26 $ (2.76)
Income (loss) from discontinued operations (0.03) (1.67) 0.00 0.06 (1.71)
Income (loss) before discontinued operations (0.12) (0.33) 0.13 0.20 (1.05)
Per share impact of special items - after tax:
Before discontinued operations (0.14) (0.27) (0.04) (0.21) (0.84)
Discontinued operations (0.04) (1.68) (0.04) (0.16) (1.76)
OTHER DATA:
Sales - discontinued operations $ 56.1 $ 134.9 $ 85.4 $ 452.0 $ 571.4
Depreciation and amortization:
Before discontinued operations 12.3 12.8 11.4 50.9 51.4
Discontinued operations - 4.3 - - 21.7
A discussion appears at the end of this press release on the use of non-GAAP
financial measures.
-3-
FOURTH-QUARTER AND FULL-YEAR 2004 HIGHLIGHTS (SEE ATTACHMENT 7)
TOTAL COMPANY
Operating income from continuing operations before special items in the fourth
quarter of 2004 was up $9.0 million compared with the fourth quarter of 2003.
This increase resulted from balanced improvements in sales volumes, plant and
S&A costs, and R&I earnings. Operating income from continuing operations,
however, declined by $21.6 million in the fourth quarter of 2004 compared with
the third quarter of 2004. Before special items, this decline was $25.0 million.
The adverse impact of lower seasonal sales volumes, reduced margins in
Performance Plastics and lower R&I earnings more than offset lower plant and S&A
costs.
Income from discontinued operations (Specialty Resins and Engineered Films)
declined by $2.2 million compared with the third quarter of 2004, primarily as a
result of the loss of income from the Elastomers and Performance Additives unit,
which was sold in August 2004. Before special items, this decline was $2.6
million. Compared with the fourth quarter of 2003, however, income from
discontinued operations improved $23.1 million. Before special items, the
improvement was $2.3 million. The Company recognized $21.4 million in special
items in fourth-quarter 2003, primarily for employee separation and plant
phase-costs associated with restructuring initiatives in the discontinued
operations.
- - PERFORMANCE PLASTICS SEGMENT
- VINYL COMPOUNDS - Fourth-quarter 2004 shipments were down seasonally
from the third quarter in all markets with the exception of pipe
fittings. Fourth-quarter shipments, however, reflected a 6 percent
increase compared with the fourth quarter of 2003, led by strong
demand in wire and cable. Pricing improved only slightly in
fourth-quarter 2004 compared with the third quarter.
For the full year, vinyl compound sales and shipments improved 12
percent and 9 percent, respectively, reflecting this business'
market strength, higher pricing and an improved economy.
- FORMULATORS - Shipments and revenues were down 10 percent and 8
percent, respectively, in the fourth quarter of 2004 versus the
third quarter, primarily a result of normal seasonality. Compared
with fourth-quarter 2003, revenues were up 8 percent as a result of
new business, improved pricing and stronger screen printing ink
sales.
For the full year, revenues increased 2 percent compared with 2003,
led by vinyl screen printing inks growth and higher selling prices.
Shipments were down 3 percent in the same period, affected primarily
by automotive applications in models that have been phased out.
- INTERNATIONAL - Seasonal weakness and a general economic softness in
Europe led to an International sales decline of 5 percent from the
third quarter of 2004. Fourth-quarter 2004 shipments were down 14
percent from the third quarter, a greater amount than revenues due
to the strengthening euro. Compared with the fourth quarter of 2003,
however, shipments increased 3 percent, excluding shipments from the
Melos(R) rubber granulates business in the 2003 fourth quarter. The
rubber granulates business was sold on May 31, 2004.
-4-
For the year, International sales increased 8 percent compared with
2003. Currency exchange increased revenues $35 million. Excluding
Melos shipments, overall international shipments increased nearly 6
percent, led by Asia, which was up 12 percent.
In January 2005, PolyOne completed the purchase of the remaining 16
percent of equity ownership in Star Color, a color additives
manufacturing subsidiary in Thailand.
- NORTH AMERICAN COLOR - Fourth-quarter revenues increased 1 percent
versus third-quarter 2004 on 3 percent less shipment volume, a
result of higher selling prices and more favorable product mix.
Fourth-quarter revenues increased 19 percent on a 17 percent
improvement in shipments compared with fourth-quarter 2003, driven
by improved quality, service and a strengthening of the unit's
market position.
For the full year, Color made great progress toward re-establishing
itself as a market leader. Sales improved 7 percent while shipment
volume increased 20 percent.
- NORTH AMERICAN ENGINEERED MATERIALS - While revenues in the fourth
quarter decreased 7 percent from the third-quarter level, volumes
decreased slightly less as the business took steps to replace
low-priced tolling business with more specialty business. A similar
trend is evident in the comparison of fourth-quarter 2004 with
fourth-quarter 2003 results.
For 2004, revenues increased 3 percent over the prior year. Income
increased significantly on a lower cost structure and improved
business mix.
- - DISTRIBUTION SEGMENT: Fourth-quarter revenues decreased 2 percent from
third-quarter levels, while shipments declined 8 percent due to seasonal
slowing. The smaller sales decline was due to higher selling prices that
PolyOne passed on from its supplier base. Compared with the fourth quarter
of 2003, sales increased 15 percent while shipments were up 4 percent. The
difference between sales and shipments was primarily the result of the
closing of the Mexico operation. The solid year-over-year growth was driven
by higher commodity resin sales, achieved as a result of the ResinDirect
acquisition, and continued growth in PolyOne branded product sales.
Distribution sales increased $77.1 million, or 15 percent, for the full year
compared with 2003, led by a 9 percent increase in shipments. Eliminating
the impact of the Mexican operations during 2003, full year sales in the
U.S. and Canada were up 20 percent on a 15 percent increase in shipments.
- - RESIN AND INTERMEDIATES SEGMENT: Both Oxy Vinyls, LP and SunBelt
Chlor-Alkali benefited from improved caustic soda prices in the fourth
quarter of 2004 compared with the third quarter. OxyVinyls' income decreased
in the fourth quarter, however, due primarily to a lower average industry
resin margin spread over raw materials and the typical seasonal slowing in
polyvinyl chloride (PVC) demand. In the fourth quarter of 2004, industry
average ethylene costs rose more than 6 cents per pound, while industry
average PVC resin increased an average of only 2.5 cents.
-5-
FIRST-QUARTER 2005 BUSINESS OUTLOOK
"Our first-quarter focus is on growing our businesses organically and restoring
our margin spread over raw materials," said Waltermire. "Although we face some
challenges, especially from continuing key raw material cost increases, our
customers are optimistic about business conditions. In this economic
environment, we intend to maximize every opportunity to improve sales and
strengthen our market position."
Because the first quarter is generally stronger seasonally than the fourth
quarter, PolyOne anticipates that revenues from continuing operations should
increase in a range of 12 percent to 15 percent over fourth-quarter 2004
revenues. Contributing to this estimated sales increase are projected volume
shipment improvements of 5 percent to 7 percent and expected price increases of
4 percent to 5 percent, with the balance expected to come from foreign exchange
due to the weaker U.S. dollar. Volume shipments in North America were slow to
develop in early January, but started to build toward the end of the month.
Although all of PolyOne's operating units raised prices in the fourth quarter of
2004, additional raw material, additive and freight costs are expected to
pressure margins in the first quarter of 2005. Nevertheless, PolyOne expects
modest sequential margin improvement, but does not expect to see margin recovery
to mid-2004 levels until later in 2005. Of particular note are the downstream
vinyl operating businesses, which are being adversely affected by escalating PVC
resin, ethylene and chlorine costs as well as price increases in various
compound additives.
These anticipated sales and margin improvements, partially offset by anticipated
cost increases from adverse discount interest rate movements affecting benefit
cost projections, result in an expected operating income increase from
continuing operations of $11 million to $17 million over fourth-quarter 2004.
Included in this total is an increase in expected R&I segment operating income.
The R&I segment should continue to benefit in the first quarter from increasing
market prices for PVC resins and caustic soda and an increase in PVC resin
demand compared with the fourth quarter. Partially offsetting these factors are
anticipated higher energy and derivative feedstock costs. Average PVC resin
industry prices are projected to raise the first quarter average 3 cents to 4
cents per pound higher due to increases realized during the fourth quarter and
announced for the first quarter. Ethylene costs are expected to be at least 2
cents to 3 cents higher in the first quarter, principally reflecting increases
realized during the fourth quarter. The combination of these factors is expected
to increase R&I operating income between $3 million and $5 million in the first
quarter compared with the fourth quarter.
As a result of improved selling prices and shipments for Specialty Resins and
Engineered Films, net income from discontinued operations should increase
between $1 million and $2 million in the first quarter compared with the fourth
quarter.
Interest costs should be approximately $1 million lower in the first quarter
compared with the fourth quarter, due to fourth-quarter debt retirements.
PolyOne will continue to maintain a full valuation allowance associated with
U.S. federal taxes. Consequently, PolyOne's financial statement net income will
reflect only foreign tax liabilities. The Company expects the effective foreign
tax rate to remain at approximately 25 percent.
-6-
PolyOne projects continuing strong operating cash generation for 2005, before
considering business divestments. The Company expects cash generation
levels to approach those realized in 2004. Cash flow in 2004 benefited from
substantially improved working capital efficiency, higher earnings and lower
outlays associated with previously announced restructuring initiatives. These
general trends are expected to continue into 2005. Embedded in the Company's
annual projection, however, is an anticipated substantial working capital build
in the first quarter that results in negative cash generation in the quarter due
to strong sequential revenue growth.
PolyOne expects a number of additional factors to affect 2005 cash flow:
- - Capital expenditures, including discontinued operations, are projected at
$40 million to $45 million compared with 2004 spending of $28.5 million;
- - Restructuring expenditures should be minimal compared with $22.5 million in
2004;
- - No contributions to the qualified pension plan will be required in 2005 and
2006, a result of the $65 million voluntary contribution in 2004;
- - Approximately $47 million remains outstanding on debt maturing in 2005;
- - The Company has targeted further reductions in its internal working capital
as a percentage of sales metric; and
- - Interest costs should be $5 million to $6 million lower in 2005, before
consideration of further early debt retirements.
IN-QUARTER UPDATE POLICY
PolyOne intends to release an in-quarter update some time during March, the
final month of the quarter. The purpose of this release is to inform investors
of any material changes to major business drivers as discussed in the "Outlook"
section of earnings releases and Form 10-Q or 10-K.
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 an internal measure of
cash generation from operations, and it is also a component of the PolyOne
Annual Incentive Plan at the corporate level.
PolyOne is providing these non-GAAP financial measures because it also believes
they offer investors a top-level management view of the Company's financial
performance and enhances investor understanding of current profitability levels
and how current levels may serve as a base for future performance.
-7-
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 a summary of segment results.
POLYONE FOURTH-QUARTER 2004 CONFERENCE CALL
PolyOne will host a conference call at 10:00 a.m. Eastern time on Friday,
February 4, 2005. 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 9931951. 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 2004 annual revenues of $2.2 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 and South
America. 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 as legal proceedings; and
financial results. Factors that could cause actual results to differ
materially include, but are not limited to:
- 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;
-8-
- 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 any 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
regulations;
- 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 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;
- 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 raise prices or sustain price increases for products;
- an inability or delay beyond December 31, 2005, in finding buyers of
discontinued operations or other non-core assets for reasonable and
acceptable terms;
- an inability to achieve anticipated earnings performance due to the
divestment of a non-core business prior to March 31, 2005;
- 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; and
- a delay in the completion of the China plant slated for startup in the
second quarter 2005.
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. #2305)
###
-9-
ATTACHMENT 1
POLYONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In millions, except per share data)
<Table>
<Caption>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2004 2003 2004 2003
--------- --------- --------- ---------
Sales $ 515.9 $ 474.0 $ 2,161.5 $ 1,964.5
Operating costs and expenses:
Cost of sales 460.2 403.0 1,837.5 1,664.7
Selling and administrative 41.9 56.2 201.2 240.8
Depreciation and amortization 12.3 12.8 50.9 51.4
Employee separation and plant phase-out 0.1 9.0 (1.4) 35.1
Asset impairments 3.8 8.0 3.8 8.0
Environmental remediation at inactive sites -- 1.6 8.7 2.7
Loss on sale of assets -- -- 5.9 0.3
Income from equity affiliates and minority interest (18.6) (8.7) (64.7) (34.5)
--------- --------- --------- ---------
Operating income (loss) 16.2 (7.9) 119.6 (4.0)
Interest expense (17.3) (17.6) (72.1) (66.6)
Other expense, net (3.6) (3.3) (15.3) (12.4)
--------- --------- --------- ---------
Income (loss) before income taxes and discontinued operations (4.7) (28.8) 32.2 (83.0)
Income tax expense (6.1) (1.1) (13.6) (12.3)
--------- --------- --------- ---------
Income (loss) before discontinued operations (10.8) (29.9) 18.6 (95.3)
Discontinued operations:
Income (loss) from operations, net of income taxes (2.8) (152.7) 4.9 (155.8)
--------- --------- --------- ---------
Net income (loss) $ (13.6) $ (182.6) $ 23.5 $ (251.1)
========= ========= ========= =========
Income (loss) per share of common stock:
Basic income (loss) per share before discontinued operations $ (0.12) $ (0.33) $ 0.20 $ (1.05)
Discontinued operations (0.03) (1.67) 0.06 (1.71)
--------- --------- --------- ---------
Basic income (loss) per share $ (0.15) $ (2.00) $ 0.26 $ (2.76)
========= ========= ========= =========
Diluted income (loss) per share before discontinued operations $ (0.12) $ (0.33) $ 0.20 $ (1.05)
Discontinued operations (0.03) (1.67) 0.06 (1.71)
--------- --------- --------- ---------
Diluted income (loss) per share $ (0.15) $ (2.00) $ 0.26 $ (2.76)
========= ========= ========= =========
Weighted average shares used to compute earnings per share:
Basic 91.6 91.1 91.6 91.1
Diluted 92.0 91.1 91.8 91.1
</Table>
-10-
ATTACHMENT 2
POLYONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except per share data)
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2004 2003
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 38.6 $ 48.7
Accounts receivable, net 309.7 263.5
Inventories 196.0 196.9
Deferred income tax assets 20.1 26.9
Other current assets 17.7 17.7
Discontinued operations 34.6 52.1
---------- ----------
Total current assets 616.7 605.8
Property, net 441.2 486.1
Investment in equity affiliates 263.3 256.7
Goodwill, net 321.0 334.0
Other intangible assets, net 10.1 20.2
Other non-current assets 59.6 53.2
Discontinued operations 59.9 144.9
---------- ----------
Total assets $ 1,771.8 $ 1,900.9
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank debt $ 2.3 $ 1.1
Accounts payable 210.7 173.4
Accrued expenses 102.4 111.1
Current portion of long-term debt 49.3 26.3
Discontinued operations 26.3 52.3
---------- ----------
Total current liabilities 391.0 364.2
Long-term debt 640.5 757.1
Deferred income tax liabilities 14.3 25.9
Post-retirement benefits other than pensions 114.0 120.3
Other non-current liabilities, including pensions 224.7 257.9
Minority interest in consolidated subsidiaries 6.8 8.5
Discontinued operations 0.1 0.2
---------- ----------
Total liabilities 1,391.4 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
December 31, 2004 and 2003 1.2 1.2
Other shareholders' equity 379.2 365.6
---------- ----------
Total shareholders' equity 380.4 366.8
---------- ----------
Total liabilities and shareholders' equity $ 1,771.8 $ 1,900.9
========== ==========
-11-
ATTACHMENT 3
POLYONE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
2004 2003
-------- --------
OPERATING ACTIVITIES
Net income (loss) $ 23.5 $ (251.1)
Income (loss) from discontinued operations 4.9 (155.8)
-------- --------
Income (loss) from continuing operations 18.6 (95.3)
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 (1.4) 35.1
Cash payments on employee separation and plant phase-out (22.5) (43.5)
Charges for environmental remediation at inactive sites 8.7 2.7
Cash payments on environmental remediation at inactive sites (1.6) (2.8)
Voluntary payments to employee pension plans (65.0) (15.1)
Depreciation and amortization 50.9 51.4
Loss on sale of assets 5.9 0.3
Companies carried at equity and minority interest:
Income from equity affiliates (66.2) (36.3)
Minority interest expense 1.5 1.8
Dividends and distributions received 51.5 24.7
Deferred income taxes 0.5 4.5
Change in assets and liabilities:
Accounts receivable (38.0) 2.2
FIFO inventories 1.1 24.3
Accounts payable 34.7 (31.3)
Decrease in sale of accounts receivable (70.7) (89.2)
Accrued expenses and other 40.4 (9.6)
-------- --------
NET CASH USED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS (51.6) (176.0)
INVESTING ACTIVITIES
Capital expenditures (23.4) (28.7)
Return of capital by equity affiliates, net 8.3 3.9
Business acquired, net of cash received (6.7) (15.8)
Proceeds from sale of discontinued business, net of note receivable of $14.0 101.5 --
Proceeds from sale of assets 32.2 (27.7)
-------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES OF CONTINUING OPERATIONS 111.9 (12.9)
FINANCING ACTIVITIES
Change in short-term debt 24.1 (84.6)
Change in long-term debt (117.8) 291.2
Termination of interest rate swaps (0.3) (2.6)
Proceeds from the exercise of stock options 0.3 --
Debt issuance costs (0.4) (15.0)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES OF CONTINUING OPERATIONS (94.1) 189.0
NET CASH PROVIDED BY DISCONTINUED OPERATIONS 24.6 4.2
EFFECT OF EXCHANGE RATE ON CHANGES ON CASH (0.9) 3.0
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10.1) 7.3
Cash and cash equivalents at beginning of period 48.7 41.4
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38.6 $ 48.7
======== ========
</Table>
-12-
ATTACHMENT 4
SUMMARY OF SPECIAL ITEMS (UNAUDITED)
(In Millions)
SPECIAL ITEMS ($MM) 4Q03 FY03 1Q04 2Q04 3Q04 4Q04 FY04
- -------------------------------------------------------------------------------------------------------------------------
Continuing operations
- ---------------------
Employee separation and plant phase-out costs (1) (9.0) (35.1) 0.2 1.0 0.3 (0.1) 1.4
Period plant phase-out costs incurred (2) (0.5) (2.9) - - - - -
Asset Impairments (3) (8.0) (8.0) - - - (3.8) (3.8)
Environmental remediation at inactive sites (4) (1.6) (2.7) (0.6) (0.7) (7.4) - (8.7)
Loss on sale (5) 0.1 (0.2) - (5.7) (0.2) - (5.9)
Equity affiliate - cumulative effect of a change
in accounting (6) - (0.8) - - - - -
Equity affiliate - employee separation (7) - (1.0) - - - - -
------ ------ ----- ----- ----- ----- ------
Impact on pre-tax income (19.0) (50.7) (0.4) (5.4) (7.3) (3.9) (17.0)
Income tax benefit on above items 7.1 18.7 2.0 3.9 3.0 1.5 8.6
Foreign dividend tax (9) - (24.0) - - - - -
Tax allowance (10) (12.5) (20.8) (4.9) 3.4 1.2 (10.6) (10.9)
------ ------ ----- ----- ----- ----- ------
Impact on net income from continuing operations (24.2) (76.8) (5.1) 1.9 (3.1) (13.0) (19.3)
Per share impact (0.27) (0.84) (0.06) 0.03 (0.04) (0.14) (0.21)
Discontinued operations
- -----------------------
Employee separation and plant phase-out costs (1) (19.3) (28.5) (5.2) (1.1) (1.0) (0.6) (7.9)
Period plant phase-out costs incurred (2) (2.1) (2.1) - - - - -
------ ------ ----- ----- ----- ----- ------
Impact on operating income (21.4) (30.6) (5.2) (1.1) (1.0) (0.6) (7.9)
Net asset impairment of discontinued operations (8) (130.5) (130.5) - (9.9) (5.4) (6.0) (21.3)
------ ------ ----- ----- ----- ----- ------
Impact on pre-tax income (151.9) (161.1) (5.2) (11.0) (6.4) (6.6) (29.2)
Income tax benefit on above items 40.0 43.5 2.0 4.3 2.5 2.6 11.4
Tax allowance (10) (41.0) (42.1) 2.0 0.9 (0.2) 0.6 3.3
------ ------ ----- ----- ----- ----- ------
Impact on net income from discontinued operations (152.9) (159.7) (1.2) (5.8) (4.1) (3.4) (14.5)
Per share impact (1.68) (1.76) (0.01) (0.07) (0.04) (0.04) (0.16)
------ ------ ----- ----- ----- ----- ------
Impact on net income (177.3) (236.5) (6.3) (3.9) (7.2) (16.4) (33.8)
Per share impact (1.95) (2.60) (0.07) (0.04) (0.08) (0.18) (0.37)
Explanations:
1. Severance, employee outplacement, external outplacement consulting, lease
termination, facility closing cost 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. A non-cash impairment charge to adjust the carrying value of deferred
product technology, customer list, customer contract, internet investment
and note receivable to estimated realizable future cash flows or fair market
value.
4. Environmental remediation costs for facilities either no longer owned or
closed in prior years.
5. Loss from the sale of European vinyl compounding business in the second
quarter of 2003 and from the sale of Melos rubber granules business in the
second quarter of 2004.
6. A charge for the cumulative effect of a change in accounting upon OxyVinyls
adoption of SFAS No. 142, "Accounting for Asset Retirement Obligations."
7. Employee severance costs associated with a personnel reduction by OxyVinyls
in the second quarter of 2003.
8. A non-cash impairment charge to adjust the net asset carrying value of
discontinued operations to estimated net future proceeds.
9. U.S. tax expense related to foreign subsidiary dividends paid.
10. Tax allowance to adjust net U.S. deferred 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.
<Table>
<Caption>
4Q04 3Q04 4Q03 FY 2004 FY 2003
------- ------- ------- ------- -------
CONTINUING OPERATIONS:
Operating income before special items $ 20.1 $ 45.1 $ 11.1 $ 136.6 $ 46.7
Special items in continuing operations, before tax (3.9) (7.3) (19.0) (17.0) (50.7)
------- ------- ------- ------- -------
Operating income (loss) $ 16.2 $ 37.8 $ (7.9) $ 119.6 $ (4.0)
======= ======= ======= ======= =======
DISCONTINUED OPERATIONS:
Operating income before special items $ 3.5 $ 6.1 $ 1.2 $ 35.1 $ 7.9
Special items in discontinued operations, before tax (0.6) (1.0) (21.4) (7.9) (30.6)
------- ------- ------- ------- -------
Operating income (loss) $ 2.9 $ 5.1 $ (20.2) $ 27.2 $ (22.7)
======= ======= ======= ======= =======
CONTINUING OPERATIONS:
Income (loss) per share before impact of special items $ 0.02 $ 0.17 $ (0.06) $ 0.41 $ (0.21)
Per share impact of special items, after tax (0.14) (0.04) (0.27) (0.21) (0.84)
------- ------- ------- ------- -------
Diluted income (loss) per share $ (0.12) $ 0.13 $ (0.33) $ 0.20 $ (1.05)
======= ======= ======= ======= =======
DISCONTINUED OPERATIONS:
Income per share before impact of special items $ 0.01 $ 0.04 $ 0.01 $ 0.22 $ 0.05
Per share impact of special items, after tax (0.04) (0.04) (1.68) (0.16) (1.76)
------- ------- ------- ------- -------
Diluted income (loss) per share $ (0.03) $ -- $ (1.67) $ 0.06 $ (1.71)
======= ======= ======= ======= =======
Quarter Ended Year Ended
------------------------------------------ -------------------------
Dec. 31, Sept. 30, June 30, March 31, Year ended Year ended
2004 2004 2004 2004 Dec 31, 2004 Dec 31, 2003
---- ---- ---- ---- ------------ ------------
RECONCILIATION TO CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOW
Net cash provided (used by) by operating activities
of continuing operations $ (36.2) $ 28.3 $ (53.2) $ 9.5 $ (51.6) $(176.0)
Net cash provided (used by) by investing activities of
continuing operations (7.9) 94.3 34.2 (8.7) 111.9 (12.9)
Less decrease in sale of accounts receivable - 19.1 50.9 0.7 70.7 89.2
Plus net cash provided (used) by discontinued operations (0.2) (1.8) 18.9 7.7 24.6 4.2
Interest rate swap fair value debt adjustment (0.9) 1.2 (5.3) 2.3 (2.7) (9.8)
Guarantee of Sunbelt outstanding senior secured notes 6.1 - - - 6.1 6.1
Other financing activity (2.0) 0.3 - - (1.7) (11.6)
Effect of exchange rate changes on cash (0.5) 0.4 (0.3) (0.5) (0.9) 3.0
------ ----- ------ ------ ------ -------
DECREASE IN BORROWED DEBT LESS CASH AND CASH EQUIVALENTS $ (41.6) $ 141.8 $ 45.2 $ 11.0 $ 156.4 $(107.8)
Plus voluntary payments to employee pension plans $ 65.0 $ - $ - $ - $ 65.0 $ 15.0
Less proceeds from sale of assets (net of idle assets) - (5.7) (18.6) - (24.3) (0.3)
Less guarantee of Sunbelt outstanding senior secured notes (6.1) - - - (6.1) (6.1)
Less proceeds from sale of discontinued business, net of
note receivable of $14.0 and selling costs - (101.5) - - (101.5) -
Plus business acquired, net of cash received - - 6.7 6.7 -
------ ----- ------ ------ ------ -------
OPERATING CASH FLOW $ 17.3 $ 34.6 $ 26.6 $ 17.7 $ 96.2 $ (99.2)
====== ====- ====== ====== ====== ======-
-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
------------
4Q04 3Q04 4Q03 FY04 FY03
- --------------------------------------------------------------------------------------------------------------
Business Segments:
Sales:
Performance Plastics Segment 402.7 426.9 373.1 1,697.5 1,556.1
Distribution Segment 152.0 154.7 132.0 606.3 529.2
Resin and Intermediates Segment - - - - -
Inter-segment Sales (38.8) (29.4) (31.1) (142.3) (120.8)
-----------------------------------------------------------
515.9 552.2 474.0 2,161.5 1,964.5
===========================================================
Operating income (loss)
Performance Plastics Segment 3.5 28.4 6.3 82.1 34.5
Distribution Segment 3.7 4.5 2.4 17.7 9.1
Resin and Intermediates Segment 15.4 18.1 6.6 53.7 26.7
Other Segment (2.5) (5.9) (4.2) (16.9) (23.6)
Special items, income (expense) (3.9) (7.3) (19.0) (17.0) (50.7)
-----------------------------------------------------------
Operating income (loss) 16.2 37.8 (7.9) 119.6 (4.0)
===========================================================
Other data:
Discontinued operations
Sales:
Elastomers and Performance Additives - 30.3 81.9 220.1 348.1
Specialty Resins and Engineered Films 56.1 55.1 53.0 231.9 223.3
-----------------------------------------------------------
56.1 85.4 134.9 452.0 571.4
===========================================================
Operating income (loss)
Elastomers and Performance Additives - 2.9 3.6 20.6 24.8
Specialty Resins and Engineered Films 3.5 3.2 1.9 14.5 4.8
Depreciation and amortization - - (4.3) - (21.7)
Special items (expense) before tax (0.6) (1.0) (21.4) (7.9) (30.6)
-----------------------------------------------------------
Operating income (loss) 2.9 5.1 (20.2) 27.2 (22.7)
===========================================================
-15-
ATTACHMENT 7
SALES AND SHIPMENT VOLUME SUMMARY
4Q04 VERSUS 3Q04 4Q04 VERSUS 4Q03 2004 VERSUS 2003
---------------- ---------------- ----------------
Shipment Shipment Shipment
4Q04 Sales, Sales $, Lbs., Sales $, Lbs., Sales $, Lbs.,
% of Total % Change % Change % Change % Change % Change % Change
---------- -------- -------- -------- -------- -------- --------
PERFORMANCE PLASTICS
Vinyl Compounds 31% -7% -8% 11% 6% 12% 9%
Formulators 7 -8 -10 8 -1 2 -3
Color and Additives 11 1 -3 19 17 7 20
Masterbatches
Engineered Material 5 -7 -5 -5 -24 3 -10
International Compounds
and Colors 19 -5 -14 0 3 8 12
------------------------------------------------------------------------------
TOTAL 73 -6 -8 8 -3 9 3
Distribution 27 -2 -8 15 4 15 9
------------------------------------------------------------------------------
TOTAL 100% -7% -8% 9% -2% 10% 5%
-16-