================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): October 27, 2005
POLYONE CORPORATION
--------------------------------------------------
(Exact name of registrant as specified in charter)
Ohio 1-16091 34-1730488
---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
PolyOne Center, 33587 Walker Road, Avon Lake, Ohio 44012
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (440) 930-1000
------------------------------------------------------------------
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing requirements of the registrant under any of
the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13E-4(c))
================================================================================
Item 2.02. Results of Operations and Financial Condition.
On October 27, 2005, the Registrant issued a press release, furnished herewith
as Exhibit 99.1, announcing earnings for the third quarter of 2005. The press
release shall not be deemed to be "filed" under the Securities Exchange Act of
1934.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit 99.1 - Press release dated October 27, 2005, furnished herewith.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
POLYONE CORPORATION
By: /s/ Michael J. Meier
-----------------------
Michael J. Meier
Corporate Controller
Dated: October 27, 2005
Exhibit 99.1
POLYONE REPORTS THIRD-QUARTER 2005 RESULTS
- Sales increase, but income declines as rising energy and raw material
costs offset market price increases
- Strong cash flow marks third-quarter performance
- In fourth quarter, Company focuses on restoring product spreads,
controlling working capital, maximizing cash generation
CLEVELAND, Oct. 27 /PRNewswire-FirstCall/ -- PolyOne Corporation (NYSE:
POL), a leading global polymer compounding and North American distribution
company, today reported sales from continuing operations of $579.0 million for
the third quarter ended September 30, 2005, an improvement of nearly 5 percent
over third-quarter 2004 sales of $552.2 million.
The Company recorded a net loss of $19.5 million, or $(0.21) per share, in
the third quarter of 2005, compared with net income of $11.6 million, or $0.13
per share, in the third quarter of 2004. This decline was due primarily to lower
income contribution from the Resin and Intermediates segment resulting
principally from a combination of a non-cash charge related to the idling of
certain production assets, hurricane-related production interruptions, and
significant increases in raw material and energy costs.
Special items for continuing and discontinued operations reduced third-
quarter net income $0.31 per share. In continuing operations, the most
significant special items were a pre-tax $22.9 million non-cash charge related
to the impairment of a previously idled chlor-alkali facility at Oxy Vinyls, LP
and a $2.9 million pre-tax charge for a change in estimates to environmental
reserves. A definition and detailed list of special items appear in
Attachment 5.
Net cash provided by operating activities was $12.4 million for the first
nine months of 2005. Operating cash flow* was a positive $48.2 million for the
third quarter of 2005, due in large part to substantial improvements in working
capital efficiency and cash distributions from equity affiliates. Additionally,
PolyOne has improved its working capital through reductions in its accounts
receivable, days sales outstanding (DSO) and days sales in inventory (DSI)
metrics.
(* A discussion occurs at the end of this release on the use of non-GAAP
financial measures.)
In the first nine months of 2005, selling and administrative costs were 7.9
percent of sales compared with 9.7 percent for the first nine months of 2004.
"Despite the effects of two hurricanes and significant increases in energy
and raw material costs, we posted strong cash generation this quarter," said
David Wilson, chief financial officer. "In the last year, our teams throughout
the Company have delivered continuous and improved control and management of our
working capital. Just as importantly, we have achieved these results under
challenging conditions."
Shipment volume for continuing operations declined 2 percent in the 2005
third quarter compared with the third quarter of 2004. Driven by strong
September results, however, shipments improved 2 percent over second-quarter
2005 levels. September ranks as the second-strongest shipping month to date in
2005.
For the first nine months of 2005 sales were $1,739.1 million, a 6 percent
improvement over the same period in 2004. Net income declined to $25.2 million,
or $0.27 per share, from $37.1 million, or $0.40 per share, in the first nine
months of 2004. Special items for continuing and discontinued operations reduced
2005 net income $0.26 per share.
Segment Highlights (see Attachment 7)
Performance Plastics segment:
Third-quarter sales and shipment volumes increased $1.3 million and 1
percent, respectively, compared with the second quarter of 2005. Operating
income was $4.9 million lower than the second-quarter 2005 level, primarily
because of lower product spreads (selling price less raw material costs). Higher
raw material costs offset improved demand and higher selling prices.
For the year to date, sales increased to $1,347.7 million, a 4.1 percent
increase over 2004, due primarily to higher realized selling prices. Operating
income, however, declined to $36.7 million from $74.2 million, again due
primarily to lower product spreads.
Following are product line highlights from within the Performance Plastics
segment:
Vinyl Compounds - Sales improved 8 percent while shipment volume was up 7
percent versus the second quarter. Shipments were up in almost all market
segments with the exception of pipe fittings, where customers made
significant inventory adjustments. Shipments in other construction- related
product lines increased due to new business closes combined with slightly
higher market demand. Pricing was up 1 percent over the previous quarter.
Year to date, Vinyl Compounds sales increased 5 percent and shipment volume
decreased 6 percent compared with the same period in 2004.
Polymer Coating Systems (Formulators) - Sales and shipment volume each
decreased 9 percent compared with the second quarter. The volume decline
occurred in most products, including inks, plastisols and powders. Powder
shipment levels were affected by product buildouts and shutdowns in the
auto industry during the third quarter. Colorant product volume, however,
improved sequentially. Year-to-date sales improved 3 percent due to
increases in product selling prices, even as volume declined 5 percent
compared with the same period in 2004.
International Color and Engineered Materials - Sales were down 5 percent
from the second quarter. Currency exchange accounted for 2 percentage
points of this decline. Third-quarter shipment volume decreased 1 percent
versus the second quarter, driven primarily by seasonality (summer holiday
period). Almost all of the decline was attributable to Engineered
Materials. Europe continues to experience general economic softness.
International sales in the first nine months of 2005 were up 2 percent
versus the comparable period in 2004, while volume declined 15 percent. The
May 2004 sale of the Germany-based Melos rubber granulates business
accounted for 11 percentage points of the year-over-year volume decline,
and reduced the year-over-year sales improvement by 3 percentage points.
North American Color - Sales were 3 percent lower and shipment volume was 5
percent lower compared with the second quarter, due primarily to auto
production plant shutdowns and decreased seasonal demand for construction
materials. Sales to the pipe and fittings market, however, demonstrated
strong sequential growth. Nine-month shipments increased 3 percent over the
comparable period in 2004 due to new customer gains in construction
material applications and contract tolling.
North American Engineered Materials - Sales declined 6 percent and shipment
volume declined 5 percent from the second quarter. Nine-month sales
declined 2 percent and shipments decreased 10 percent compared with the
same period in 2004. The sales and volume declines in the third quarter and
the nine-month period were due primarily to reduced automotive demand in
toll compounding. The unit continues, however, to demonstrate gains in new
applications within custom compounding.
Distribution segment: Sales in the third quarter were $168.8 million, a 1
percent decrease from the second quarter, due in part to lower average selling
prices across all product segments. Shipment volume increased 2 percent, driven
primarily by increased demand for commodity resins. Sales and shipment trends
within Distribution appear consistent with overall U.S. plastic processor
indexes. Operating income was $4.2 million, an increase of $0.2 million over the
previous quarter, driven by higher volumes and lower overhead costs.
For the first nine months of 2005, sales increased 11 percent while shipment
volume decreased 2 percent compared with 2004. Higher average selling prices
drove the sales increase. Operating income was $13.5 million, a decrease of $0.5
million from the same period in 2004. The main drivers of the decrease were
increased delivery costs resulting from fuel surcharges and the volume decline.
Resin and Intermediates segment: Third-quarter operating income declined
$38.1 million compared with the second quarter, due largely to a $22.9 million
non-cash pre-tax charge related to the impairment of a previously idled chor-
alkali facility at OxyVinyls. Third-quarter operating income before special
items* declined $15.2 million compared with the second quarter. The equity
earnings contribution from OxyVinyls and SunBelt Chlor-Alkali decreased in the
third quarter from its peak in the second quarter due to hurricane-related
production interruptions, decreased polyvinyl chloride (PVC) resin price spreads
due to higher ethylene costs, and significantly higher average natural gas
costs. PVC market prices declined in July and August. The 2 cents-per- pound
increase in September was not sufficient to overcome the rise in the cost of
energy and related raw materials that began early in August.
Year-to-date operating income before the special item associated with idled
facilities improved $27.9 million compared with 2004. The main factor in this
improvement was higher SunBelt profitability, due largely to higher selling
prices for chlorine and caustic soda.
(* A discussion of special items occurs in Attachment 5.)
CEO Resignation
On October 7, PolyOne announced that Thomas A. Waltermire resigned as
president and chief executive officer and as a director. William F. Patient, who
had been non-executive chairman of the board, will serve as chairman, president
and chief executive officer until a successor is named. The Company also
announced that the search for a successor would begin immediately, with
completion anticipated by early 2006.
Pending Sale of Engineered Films Business
PolyOne announced on September 27, 2005, that it had signed a letter of
intent to sell its Engineered Films business unit to an investor group
comprising members of the unit's management team, along with an investor group
formed by Matrix Capital Markets. The transaction is expected to close in the
fourth quarter of 2005, subject to a number of closing conditions.
Fourth-quarter 2005 Business Outlook
In addition to a normal seasonally slower fourth quarter, PolyOne
anticipates it could be negatively impacted by rapidly escalating raw material
costs, particularly from suppliers affected by the recent hurricanes. In order
to restore product spreads (selling price less raw material cost) in reaction to
this cost inflation, the Company is raising selling prices within the
Performance Plastics and Distribution segments. Each of the North American
businesses has announced price increases to restore spreads to acceptable levels
at the start of 2006. Due to cost increases experienced at the beginning of the
quarter within the Performance Plastics segment, however, fourth-quarter product
spreads are anticipated to decline compared with the third quarter.
"We cannot stand by and watch our product spreads decline in this
environment," said Patient. "In the fourth quarter, our focus is restoring
product spreads through higher selling prices, with the goal to have those
spreads back to acceptable levels as we enter 2006."
In the Resin and Intermediates segment, OxyVinyls is attempting to raise PVC
resin prices in the face of escalating ethylene and natural gas costs, which
would result in PVC resin prices increasing significantly in October. These
increases are necessary for OxyVinyls to restore product spreads and
profitability in the fourth quarter. In contrast, SunBelt should benefit from
stable chlorine prices and from caustic soda market price increases.
PolyOne anticipates positive operating cash flow from operations in the
fourth quarter. The Company expects cash receipts from equity affiliates to be
lower, consistent with lower earnings expectations. Capital expenditures,
depreciation and cash taxes paid should approximate third-quarter levels. Cash
interest paid, consistent with scheduled payments, will be substantially greater
than in the third quarter of 2005. Debt reduction is anticipated to remain the
primary use for positive operating cash flows and any proceeds from divestments.
A fourth-quarter outlook appears in PolyOne's Form 10-Q for the quarter
ended September 30, 2005.
Third-quarter 2005 Earnings Conference Call and Webcast
PolyOne will host a conference call at 9:00 a.m. Eastern time on Friday,
October 28, 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 9932167. The call will be broadcast live and
then via replay for two weeks on the Company's Web site at www.polyone.com.
About PolyOne
PolyOne Corporation, with 2004 annual revenues of approximately $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.
Use of Non-GAAP Financial Measures
This earnings 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
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.
PolyOne's chief operating decision makers use these financial measures to
monitor and evaluate the ongoing performance of the Company and each business
segment and in decisions on allocation of resources. In addition, operating
income before special items and operating cash flow are components of various
PolyOne annual incentive plans.
Tables included in this news release reconcile each non-GAAP financial
measure with the most directly comparable GAAP financial measure (Attachment 6)
and provide detail on special items (Attachment 5). Also attached are standard
financial schedules and a summary of segment results.
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,
including, without limitation, meeting cash flow goals, receiving cash
distributions from equity affiliates and achieving working capital targets;
results of current and anticipated market conditions and market strategies;
sales efforts; expenses; the outcome of contingencies such as legal proceedings;
financial results; and the anticipated sale of the Engineered Films unit.
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;
- 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, including those fluctuations related to the effects of
Hurricane Katrina and Hurricane Rita;
- 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 cost
reductions 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 or for any other reason;
- 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;
- adverse changes in our relations with customers;
- an inability to maintain appropriate relations with unions and employees
in certain locations in order to avoid disruptions of business;
- 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;
- an inability to complete the sale of discontinued businesses, including
the Engineered Films unit, due to problems or delays associated with
legal proceedings, regulatory approvals, buyers receiving financing for
the transaction, satisfactory completion of due diligence, finalization
of definitive agreements or any other reasons; and
- other factors affecting our business beyond our control, including,
without limitation, changes in the general economy, changes in interest
rates and changes in the rate of inflation.
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 list to be
a complete set of all potential risks or uncertainties. (Ref. #91305)
Attachment 1
Supplemental Information
Quarterly Summary of Consolidated Operating Results, Showing Discontinued
Operations Impact
(In millions of dollars, except per share data, unaudited)
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) include only the results of continuing operations.
3Q05 3Q04* 2Q05
---------- ---------- ----------
Operating results:
Sales - continuing operations $ 579.0 $ 552.2 $ 583.4
Operating income (loss) - continuing
operations $ (1.4) $ 37.8 $ 42.5
Net income - total Company $ (19.5) $ 11.6 $ 31.3
Income (loss) before discontinued
operations - after tax (21.8) 11.8 22.6
Income (loss) from discontinued
operations 2.3 (0.2) 8.7
Earnings (loss) per share - diluted:
Net income (loss) - total Company $ (0.21) $ 0.13 $ 0.34
Income (loss) before discontinued
operations (0.24) 0.13 0.25
Income from discontinued operations 0.03 - 0.09
Total per share impact of special items (1)
- after tax: (0.31) (0.08) 0.10
Before discontinued operations (0.29) (0.04) 0.06
Discontinued operations (0.02) (0.04) 0.04
Other data:
Sales - discontinued operations* $ 63.4 $ 85.4 $ 68.1
Depreciation and amortization 13.4 11.5 12.4
* Third-quarter 2004 discontinued sales included $30.3 million in revenues
from the Elastomers and Performance Additives business that was sold in August
2004.
(1) A definition and a list of special items appear in Attachment 5.
Attachment 2
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,
----------------------- -----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Sales $ 579.0 $ 552.2 $ 1,739.1 $ 1,645.6
Operating costs and expenses:
Cost of sales 511.7 469.1 1,529.2 1,377.3
Selling and administrative 42.9 46.7 136.9 159.3
Depreciation and amortization 13.4 11.5 38.3 38.6
Employee separation and plant
phaseout 1.9 (0.3) 2.5 (1.5)
Environmental remediation at
inactive sites 2.9 7.4 2.9 8.7
Loss on sale of assets - 0.2 - 5.9
Loss (income) from equity affiliates
and minority interest 7.6 (20.2) (50.5) (46.1)
Operating income (loss) (1.4) 37.8 79.8 103.4
Interest expense (17.0) (18.1) (51.2) (54.8)
Interest income 0.5 0.4 1.4 1.0
Other expense, net (2.4) (6.1) (3.7) (12.7)
Income (loss) before income taxes
and discontinued operations (20.3) 14.0 26.3 36.9
Income tax expense (1.5) (2.2) (6.4) (7.5)
Income (loss) before discontinued
operations (21.8) 11.8 19.9 29.4
Discontinued operations:
Income (loss) from operations, net
of income taxes 2.3 (0.2) 5.3 7.7
Net income (loss) $ (19.5) $ 11.6 $ 25.2 $ 37.1
Earnings (loss) per common share:
Basic and diluted earnings (loss):
Before discontinued operations $ (0.24) $ 0.13 $ 0.22 $ 0.32
Discontinued operations 0.03 - 0.05 0.08
Basic and diluted earnings (loss)
per share $ (0.21) $ 0.13 $ 0.27 $ 0.40
Weighted average shares used to
compute earnings per share:
Basic 91.9 91.5 91.8 91.5
Diluted 92.0 91.8 92.1 91.7
Dividends paid per share of common
stock $ - $ - $ - $ -
Attachment 3
PolyOne Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In millions, except per share data)
September 30, December 31,
2005 2004
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 47.3 $ 38.6
Accounts receivable, net 336.9 309.7
Inventories 194.4 196.0
Deferred income tax assets 20.2 20.1
Other current assets 14.6 17.7
Discontinued operations 34.9 34.6
Total current assets 648.3 616.7
Property, net 405.6 441.2
Investment in equity affiliates 267.1 263.3
Goodwill, net 322.0 321.0
Other intangible assets, net 12.1 12.3
Other non-current assets 58.9 57.4
Discontinued operations 44.9 59.9
Total assets $ 1,758.9 $ 1,771.8
Liabilities and Shareholders' Equity
Current liabilities:
Short-term bank debt $ 6.6 $ 2.3
Accounts payable 224.7 210.7
Accrued expenses 93.1 102.4
Current portion of long-term debt 29.6 49.3
Discontinued operations 29.0 26.3
Total current liabilities 383.0 391.0
Long-term debt 638.8 640.5
Deferred income tax liabilities 9.9 14.4
Post-retirement benefits other than pensions 106.8 114.0
Other non-current liabilities, including
pensions 216.0 224.6
Minority interest in consolidated subsidiaries 5.7 6.8
Discontinued operations 0.1 0.1
Total liabilities 1,360.3 1,391.4
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, 2005 and December 31, 2004 1.2 1.2
Other shareholders' equity 397.4 379.2
Total shareholders' equity 398.6 380.4
Total liabilities and shareholders' equity $ 1,758.9 $ 1,771.8
Attachment 4
PolyOne Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
Nine Months Ended
September 30,
-----------------------
2005 2004
---------- ----------
Operating Activities
Net income $ 25.2 $ 37.1
Income from discontinued operations 5.3 7.7
Income from continuing operations 19.9 29.4
Adjustments to reconcile income from continuing
operations to net cash used by operating activities
of continuing operations:
Employee separation and plant phaseout charges 2.5 (1.5)
Cash payments on employee separation and plant
phaseout (2.3) (18.9)
Charges on environmental remediation at inactive
sites 2.9 8.7
Cash payments for environmental remediation at
inactive sites (11.3) (1.0)
Depreciation and amortization 38.3 38.6
Loss on sale of assets - 5.9
Companies carried at equity and minority interest:
Income from equity affiliates and minority
interest (50.5) (46.1)
Dividends and distributions received 46.8 33.8
Deferred income taxes 1.0 1.4
Change in assets and liabilities:
Accounts receivable (53.9) (60.6)
FIFO inventories (2.4) (25.7)
Accounts payable 19.5 55.0
Increase (decrease) in sale of accounts
receivable 20.1 (70.7)
Accrued expenses and other (18.2) 39.8
Net cash provided (used) by operating
activities of continuing operations 12.4 (11.9)
Investing Activities
Capital expenditures (23.4) (13.0)
Return of cash from equity affiliates - 0.9
Proceeds from sale of discontinued business, net - 101.5
Business acquired, net of cash received (2.7) (5.1)
Proceeds from sale of assets 15.4 31.9
Net cash provided (used) by investing activities
of continuing operations (10.7) 116.2
Financing Activities
Change in short-term debt 4.2 20.9
Change in long-term debt (20.0) (83.4)
Termination of interest rate swaps - (0.3)
Proceeds from exercise of stock options 0.4 0.1
Net cash used by financing activities of continuing
operations (15.4) (62.7)
Net cash provided by discontinued operations 23.1 24.8
Effect of exchange rate changes on cash (0.7) (0.4)
Increase in cash and cash equivalents 8.7 66.0
Cash and cash equivalents at beginning of period 38.6 48.7
Cash and cash equivalents at end of period $ 47.3 $ 114.7
Attachment 5
Summary of Special Items (Unaudited)
(In millions, except per share data)
"Special items" include charges related to specific strategic initiatives
such as the consolidation of operations; restructuring activities, including
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 losses; and deferred tax valuation allowances on
domestic operating income.
9 Months
Ended
Sept. 30,
Special items 2005 3Q05 3Q04 2Q05 1Q05
- -------------------------------- ---------- ---------- ---------- ---------- ----------
Continuing operations
Employee separation and plant
phase-out costs (1) (2.5) (1.9) 0.3 (0.4) (0.2)
Asset impairments (2) (0.2) (0.2) - - -
Environmental remediation at
inactive sites (3) (2.9) (2.9) (7.4) - -
Loss on the sale of Melos - - (0.2) - -
Rubber Granules business
Impairment of previously idled
chlor-alkali facility at
Oxy Vinyls, LP (22.9) (22.9)
Impact on pre-tax income (28.5) (27.9) (7.3) (0.4) (0.2)
Income tax benefit on above
items 10.3 10.0 3.0 0.2 0.1
Tax allowance (5) 1.7 (8.6) 1.2 5.8 4.5
Impact on net income from
continuing operations (16.5) (26.5) (3.1) 5.6 4.4
Per share impact (0.18) (0.29) (0.04) 0.06 0.05
Discontinued operations
Employee separation and plant
phase-out costs (1) (1.3) (0.6) (1.0) - (0.7)
Impact on operating income (1.3) (0.6) (1.0) - (0.7)
Net asset impairment and loss
on disposition of discontinued
operations (4) (14.8) (3.9) (5.4) - (10.9)
Impact on pre-tax income (16.1) (4.5) (6.4) - (11.6)
Income tax benefit on above
items 6.3 1.8 2.5 - 4.5
Tax allowance (5) 2.0 0.9 (0.2) 3.4 (2.3)
Impact on net income from
discontinued operations (7.8) (1.8) (4.1) 3.4 (9.4)
Per share impact (0.8) (0.02) (0.04) 0.04 (0.10)
Total
Impact on net income (24.3) (28.3) (7.2) 9.0 (5.0)
Per share impact (0.26) (0.31) (0.08) 0.10 (0.05)
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. A non-cash impairment charge to adjust the carrying value of an
investment to fair market value.
3. Environmental remediation costs for facilities either no longer owned
or closed in prior years.
4. A non-cash impairment charge to adjust the net asset carrying value of
Engineered Films to estimated net future proceeds.
5. Tax allowance to adjust net U.S. deferred income tax assets resulting
from operating loss carry-forwards.
Attachment 6
Reconciliation of Non-GAAP Financial Measures (Unaudited)
(In millions)
Below is a reconciliation of non-GAAP financial measures to the most
directly comparable measures calculated and presented in accordance with GAAP.
3Q05 3Q04 2Q05
---------- ---------- ----------
Continuing operations:
Operating income before special
items $ 26.5 $ 45.1 $ 42.9
Special items in continuing
operations, before tax (27.9) (7.3) (0.4)
Operating income $ (1.4) $ 37.8 $ 42.5
Discontinued operations:
Operating income before special
items $ 7.0 $ 6.1 $ 8.9
Special items in discontinued
operations, before tax (0.6) (1.0) -
Operating income (loss) $ 6.4 $ 5.1 $ 8.9
Continuing operations:
Income per share before impact of
special items $ 0.05 $ 0.17 $ 0.19
Per share impact of special items,
after tax (0.29) (0.04) 0.06
Diluted income per share $ (0.24) $ 0.13 $ 0.25
Discontinued operations:
Income per share before impact of
special items $ 0.05 $ 0.04 $ 0.05
Per share impact of special items,
after tax (0.02) (0.04) 0.04
Diluted income (loss) per share $ 0.03 $ - $ 0.09
Three Months Ended Nine Months
--------------------------------------------- Ended
September 30, September 30, June 30, September 30,
(in millions) 2005 2004 2005 2005
- --------------------------- ------------- ------------- ------------- -------------
Reconciliation to Condensed
Consolidated Statements of
Cash Flows
Net cash provided (used)
by operating activities of
continuing operations $ 19.6 $ 31.8 $ (6.1) $ 12.4
Net cash provided (used)
by investing activities
of continuing operations 1.1 90.7 (2.1) (10.7)
Less (increase) decrease
in sale of accounts
receivable 18.5 19.1 20.6 (20.1)
Plus net cash provided
(used) by discontinued
operations 6.0 (1.8) 12.5 23.1
Interest rate swap fair
value debt adjustment 0.2 (1.4) 1.6 (0.4)
Guarantee of SunBelt
outstanding senior
secured notes - - - -
Other financing activity 1.7 0.4 (1.8) 2.1
Effect of exchange rate
changes on cash 1.1 0.4 0.5 (0.7)
Increase (Decrease) in
borrowed debt less cash
and cash equivalents $ 48.2 $ 139.2 $ 25.2 $ 5.7
Plus voluntary payments
to employee pension plans $ - $ - $ - $ -
Less proceeds from
sale of assets - (5.6) - -
Less guarantee of SunBelt
outstanding senior
secured notes - - - -
Less proceeds from sale of
business, net of note
receivable - (101.5) - -
Plus business acquired,
net of cash received - - 1.1 2.7
Operating cash flow $ 48.2 $ 32.1 $ 26.3 $ 8.4
Attachment 7
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.
3Q05 3Q04 2Q05
---------- ---------- ----------
Business Segments:
Sales:
Performance Plastics Segment $ 449.9 $ 426.9 $ 448.6
Distribution Segment 168.8 154.7 170.2
Intersegment eliminations (39.7) (29.4) (35.4)
$ 579.0 $ 552.2 $ 583.4
Operating income (loss)
Performance Plastics Segment $ 10.6 $ 28.4 $ 15.5
Distribution Segment 4.2 4.5 4.0
Resin & Intermediates Segment 13.3 18.1 28.5
Other Segment (1.6) (5.9) (5.1)
Special items, income (expense) (27.9) (7.3) (0.4)
Operating income $ (1.4) $ 37.8 $ 42.5
Other data:
Discontinued operations
Sales:
Elastomers and Performance
Additives $ - $ 30.3 $ -
Specialty Resins and
Engineered Films 63.4 55.1 68.1
$ 63.4 $ 85.4 $ 68.1
Operating income
Elastomers and Performance
Additives $ - $ 2.9 $ -
Specialty Resins and Engineered
Films 7.0 3.2 8.9
Special items, expense
before tax (0.6) (1.0) -
Operating income $ 6.4 $ 5.1 $ 8.9
Attachment 8
Sales and Shipment Volume Summary
3Q05 versus 2Q05 3Q05 versus 3Q04
------------------------- -------------------------
Shipment Shipment
3Q05 Sales, Sales $, Lbs., Sales $, Lbs.,
% of Total % Change % Change % Change % Change
----------- ----------- ----------- ----------- -----------
Performance Plastics
Vinyl Compounds 32% 8% 7% 10% 0%
Polymer Coatings
(Formulators) 7 (9) (9) 1 (8)
NA Color and
Additives 10 (3) (5) 7 (1)
Masterbatch
NA Engineered
Materials 4 (6) (5) (10) (7)
International Colors
and Engineered
Materials 19 (5) (1) 3 (5)
Total 73 0 1 6 (2)
Distribution 27 (1) 2 (9) (2)
Total 100% (1)% 2% 5% (2)%
SOURCE PolyOne Corporation
-0- 10/27/2005
/CONTACT: Investors & Media, Dennis Cocco, Vice President, Investor
Relations & Communications of PolyOne Corporation, +1-440-930-1538/
/Web site: http://www.polyone.com/
(POL)