CLEVELAND, April 29, 2003 (PRIMEZONE) --
-- Sales improve despite continuing weak economy
-- Operating income improves before special items
-- High energy and rising raw material costs hurt margins as Company
pursues price increases
PolyOne Corporation (NYSE:POL), a leading global polymer services company, today reported sales of $645.5 million for the first quarter ended March 31, 2003, an increase of $49.2 million, or 8 percent, over the 2002 first quarter. The Company had a net loss of $19.3 million, or a diluted loss of $0.21 per share, for the 2003 first quarter compared with a net loss of $57.3 million, or a diluted loss of $0.64 per share, in the same quarter last year.
The 2003 net loss included special charges associated largely with previously announced restructuring initiatives, which totaled $16.2 million after tax, or $0.18 per share. Special items in the first quarter included costs related to the elimination of most of approximately 400 staff positions, as announced on January 14, and the exiting of the Yerington, Nevada, Engineered Films plant, announced on March 26.
In the 2002 first quarter, the net loss included a charge related to a change in accounting of $53.7 million and income from discontinued operations of $0.3 million. Additionally, $2.3 million of expense for special items was included in the first-quarter 2002 net loss. A list of all special charges for the first quarter of 2003 and 2002 and the fourth quarter of 2002 is in the attached Exhibit 1.
Thomas A. Waltermire, PolyOne chairman and chief executive officer, said, "The strategic actions we have taken to consolidate and modernize North American operations, reduce costs and upgrade our information systems have started to pay off but, in the face of economic weakness in the United States and high energy and raw material costs, we have yet to see the benefits on our bottom line. Still, our strategies are working. Our sales are growing as we continue to improve marketing efforts, complete the restructuring of our North American manufacturing facilities and focus on our best opportunities for profitable growth."
First-Quarter 2003 Business Highlights
The U.S. industrial manufacturing economic index (excluding high technology) for the first quarter of 2003 was slightly below the same quarter in 2002. Despite continuing weakness of the U.S. economy, PolyOne sales increased compared with the first quarter of 2002.
Overall, Performance Plastics segment sales and shipments improved 10 percent and 5 percent, respectively, compared with the year-ago first quarter. The Company noted solid growth in its Vinyl Compounds and Color and Additives units during the quarter, reflecting new capabilities to serve customers more effectively. Both North American and international sales grew. International shipments, especially in Asia, were strong, growing 10 percent from the first quarter of 2002, before the benefit of the Transcolor acquisition. Transcolor, a Spanish color concentrates producer, contributed $10.4 million to 2003 first-quarter sales, and favorable currency exchange added $15.4 million.
Operating income in every segment was adversely affected by higher energy and raw material costs. Vinyl Compounds, Specialty Resins and Engineered Films operating earnings experienced margin compression resulting from significantly higher polyvinyl chloride (PVC) resin and vinyl chloride monomer (VCM) costs in first-quarter 2003 versus the prior-year quarter. Almost every PolyOne business, however, has or is in the process of either raising prices or obtaining surcharges on its products.
The Elastomers and Performance Additives segment achieved substantial volume growth compared with both the first and fourth quarters of 2002. Shipments were up 8 percent compared with first-quarter 2002, but lower average pricing, due in part to mix factors, resulted in revenues increasing only 2 percent. Sales and shipments were up 16 percent and 15 percent, respectively, compared with fourth-quarter 2002. The Company believes that restocking by customers during the 2003 first quarter was the principal factor in this sequential sales improvement.
Sales and shipments of the Distribution segment improved 13 percent and 8 percent, respectively, in the quarter compared with a year ago, due primarily to the ongoing benefits of the decision last year to add PolyOne's Geon brand vinyl compounds to the product line, instead of using a third-party distributor.
PolyOne's Resin and Intermediates segment, comprised primarily of the Oxy Vinyls, LP and SunBelt Chlor-Alkali joint ventures, had a significant turnaround from the same quarter in 2002, in which it had a $5.3 million operating loss before special items. In the first quarter of 2003, the segment reported $4.0 million in operating income before special items, a result of improved pricing for chlorine and to a lesser extent caustic soda. Also contributing to OxyVinyls' increased 2003 first-quarter earnings were higher average material spreads on PVC resin selling prices over ethylene and chlorine costs, which were partially offset by the substantially higher cost of natural gas.
The Company has nearly finished eliminating the approximately 400 salaried positions announced in January 2003. This action is aimed at reducing sales and administrative costs by $30 million to $35 million pre tax annually. In addition, PolyOne has begun implementing $5 million to $10 million in non-personnel cost reductions. In combination, these initiatives represent an important step in the Company's effort to bring the selling and administrative-to-sales ratio below 10 percent.
Earlier in April, PolyOne announced plans to implement a comprehensive refinancing program by early May 2003. The refinancing is expected to provide the necessary liquidity to repay $87.8 million of senior debt that matures in September 2003, as well as to support normal operations and fund previously announced restructuring initiatives intended to improve earnings. The refinancing anticipates the issuance of $250 million in long-term debt; a revised, three-year, $50 million secured revolving credit facility; and a new, three-year, $225 million accounts receivable sale facility.
Summary of First-Quarter 2003 Results
(Dollars in millions, except per share data)
Quarters
-----------------------
1Q03 4Q02 1Q02
------- ------- -------
Sales $ 645.5 $ 80.3 $ 96.3
Operating income (loss) (16.2) (13.4) 4.4
Net loss $ (19.3) $ (17.5) $ (57.3)
Loss before discontinued operations and
cumulative effect of a change in
accounting (19.3) (17.6) (3.9)
Loss per share, diluted $ (0.21) $ (0.19) $ (0.64)
Loss per share before discontinued
operations and cumulative effect of a
change in accounting (0.21) (0.19) (0.04)
Per share effect of excluding special
items, increase 0.18 0.03 0.03
Outlook
Despite the Company's sales growth in the first quarter, the business outlook remains uncertain. North American customer demand in April appears to be in a holding pattern, showing no real evidence of an anticipated economic recovery. By comparison, in the 2002 second quarter, demand growth strengthened through the quarter as PolyOne reported a sequential sales increase of 12 percent. PolyOne, however, anticipates that the typical seasonal demand cycle will result in sequential second-quarter 2003 volume growth across most of its businesses.
The Company anticipates further benefits in the second quarter from previously announced programs to reduce costs. In addition, energy costs are projected to moderate from the 2003 first quarter.
The improving chlor-alkali and PVC resin markets should help increase second-quarter operating income for the Resin and Intermediates segment by $10 million to $13 million compared with the 2002 second quarter.
The margin compression realized in the first quarter of 2003 is likely to continue into the second quarter unless raw material costs moderate or PolyOne realizes selling price increases. Most PolyOne businesses will continue to focus on attaining announced price increases.
When PolyOne completes the new refinancing package, net interest expense in the second quarter of 2003 will increase an estimated $3 million to $4 million over the first quarter. PolyOne estimates that special item expense in the second quarter of 2003 will total between $2 million and $3 million pre tax. Anticipated special items include ongoing restructuring initiatives to reduce costs and the write-off of deferred issuance costs associated with terminated financing facilities.
Taking all these factors into consideration -- including the uncertain economic recovery, the indefinite magnitude of product margin recovery, cost savings, improved Resin and Intermediates performance and higher interest costs -- the Company projects that second-quarter earnings before special charges will meet or exceed the 2002 second-quarter earnings level of $0.06 per share. Correspondingly, PolyOne expects that EBITDA before special items will show a year-over-year improvement.
Waltermire said, "We will continue to focus on the factors we can control to strengthen our competitive position and performance. While reducing costs and increasing productivity are ongoing efforts, we are pursuing a number of initiatives to capture growth opportunities, such as the recently announced alliance with Bayer Polymers to develop and market polyurethane systems.
"We will continue our investments to expand in Asia and our programs to enhance our product development capabilities to meet market needs, to grow our North American market position and to make PolyOne the supplier of choice for our customers," Waltermire concluded.
Supplemental Information
The Company publishes more details of its performance, as well as information on key drivers of its operating results. This information will be posted today on its Web site at www.polyone.com in the corporate investor relations section under the listing "Supplements." The supplemental information also can be obtained, once available, from the contact listed below.
Conference Call
PolyOne will host an analyst conference call at 1 p.m. Eastern time on Friday, May 2, 2003. The conference call number is 888-489-0038 or 706-643-1611 (international), the conference I.D. number is 6571725 and the conference topic is "PolyOne Earnings Call." The call will be broadcast live and then via replay for two weeks on the Company's Web site: www.polyone.com. In addition, a replay of the call will be accessible by calling 800-642-1687 or 706-645-9291 (international) between 3 p.m. May 2 and 9 a.m. Wednesday, May 14.
About PolyOne
PolyOne Corporation, with 2002 revenues of $2.5 billion, is an international polymer services company with operations in thermoplastic compounds, specialty resins, specialty polymer formulations, engineered films, color and additive systems, elastomer compounding and thermoplastic resin distribution. Headquartered in Cleveland, Ohio, PolyOne has employees at manufacturing sites in North America, Europe, Asia and Australia, and joint ventures in North America, South American, Europe, Asia and Australia. Information on the Company's products and services can be found at www.polyone.com.
Forward-Looking Statements
In this press release, statements that are not reported financial results or other historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events and are not guarantees of future performance. They are based on management's expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions; prospective changes in raw material costs, product pricing or product demand; future performance or results of current and anticipated market conditions and market strategies; sales efforts; expenses; the outcome of contingencies such as legal proceedings; and financial results. Factors that could cause actual results to differ materially include, but are not limited to: (1) an inability to achieve or delays in achieving estimated and actual savings related to restructuring programs; (2) delays in achieving or inability to achieve the Company's strategic value capture initiatives, including cost reduction and employee productivity goals, or achievement of less than the anticipated financial benefit from the initiatives; (3) the effect on foreign operations of currency fluctuations, tariffs, nationalization, exchange controls, limitations on foreign investment in local businesses and other political, economic and regulatory risks; (4) changes in U.S., regional or world polymer and/or rubber consumption growth rates affecting the Company's markets; (5) changes in global industry capacity or in the rate at which anticipated changes in industry capacity come online in the polyvinyl chloride (PVC), chlor-alkali, vinyl chloride monomer (VCM) or other industries in which the Company participates; (6) fluctuations in raw material prices, quality and supply and in energy prices and supply, in particular fluctuations outside the normal range of industry cycles; (7) production outages or material costs associated with scheduled or unscheduled maintenance programs; (8) costs or difficulties and delays related to the operation of joint venture entities; (9) lack of day-to-day operating control, including procurement of raw materials, of equity or joint venture affiliates; (10) partial control over investment decisions and dividend distribution policy of the OxyVinyls partnership and other minority equity holdings of the Company; (11) an inability to launch new products and/or services that strategically fit the Company's businesses; (12) the possibility of goodwill impairment; (13) an inability to maintain any required licenses or permits; (14) an inability to comply with any environmental laws and regulations; (15) a delay or inability to achieve targeted debt levels through divestitures or other means; (16) a delay or inability to replace the Company's current receivables sale facility by June 30, 2003; and (17) a delay or an inability to complete a new long-term debt refinancing.
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.
We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties. (Ref. No. 403)
PolyOne Corporation and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
(In millions, except per share data)
Three Months Ended
March 31,
--------------------
2003 2002
--------- ---------
Sales $ 645.5 $ 596.3
Operating costs and expenses:
Cost of sales 552.1 490.1
Selling and administrative 71.8 79.4
Depreciation and amortization 18.5 17.8
Employee separation and plant phase-out 24.9 0.9
Loss on divestiture of equity investment -- 1.5
(Income) loss from equity affiliates
and minority interest (5.6) 2.2
--------- ---------
Operating income (loss) (16.2) 4.4
Interest expense (12.5) (8.5)
Interest income 0.2 0.2
Other expense, net (3.1) (2.6)
--------- ---------
Loss before income taxes, discontinued
operations, and cumulative effect of
change in accounting method (31.6) (6.5)
Income tax benefit 12.3 2.6
--------- ---------
Loss before discontinued operations and
cumulative effect of a change in accounting (19.3) (3.9)
Discontinued operations:
Income from operations and loss on
sale (net of income taxes) -- 0.3
Cumulative effect of a change in goodwill
accounting, net of income tax benefit
of $1.0 million -- (53.7)
--------- ---------
Net loss $ (19.3) $ (57.3)
========= =========
Loss per share of common stock:
Basic loss per share before discontinued
operations and effect of change in accounting $ (.21) $ (.04)
Discontinued operations -- --
Cumulative effect of a change in accounting -- $ (.60)
--------- ---------
Basic loss per share $ (.21) $ (.64)
========= =========
Diluted loss per share before discontinued
operations and effect of change in accounting $ (.21) $ (.04)
Discontinued operations -- --
Cumulative effect of a change in accounting -- $ (.60)
--------- ---------
Diluted loss per share $ (.21) $ (.64)
========= =========
Weighted average shares used to compute
loss per share:
Basic 90.9 90.0
Diluted 90.9 90.0
Dividends paid per share of common stock $ -- $ .0625
PolyOne Corporation and Subsidiaries
Condensed Consolidated Balance Sheet (Unaudited)
(In millions)
March 31, December 31,
Assets 2003 2002
---------- ----------
Current assets:
Cash and cash equivalents $ 50.3 $ 41.4
Accounts receivable, net 204.5 164.3
Inventories 289.7 253.7
Deferred taxes 41.9 42.1
Other current assets 16.1 12.7
---------- ----------
Total current assets 602.5 514.2
Property, net 672.7 682.1
Investment in equity affiliates 256.8 271.8
Goodwill, net 444.1 444.0
Other intangible assets, net 31.8 32.8
Other non-current assets 51.8 52.6
---------- ----------
Total assets $ 2,059.7 $ 1,997.5
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term bank debt $ 36.2 $ 0.7
Accounts payable 299.4 242.0
Accrued expenses 138.8 160.2
Current portion of long-term debt 91.0 91.0
---------- ----------
Total current liabilities 565.4 493.9
Long-term debt 498.4 492.2
Deferred taxes 23.8 39.0
Post-retirement benefits other than pensions 123.0 122.5
Other non-current liabilities,
including pensions 267.2 261.2
Minority interest in consolidated subsidiaries 9.2 9.0
---------- ----------
Total liabilities 1,487.0 1,417.8
Shareholders' equity:
Preferred stock -- --
Common stock 1.2 1.2
Other shareholders' equity 571.5 578.5
---------- ----------
Total shareholders' equity 572.7 579.7
---------- ----------
Total liabilities and
shareholders' equity $ 2,059.7 $ 1,997.5
========== ==========
PolyOne Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
Three Months Ended
March 31,
------------------
2003 2002
------- -------
Operating Activities
Net loss $ (19.3) $ (57.3)
Cumulative effect of a
change in accounting -- (53.7)
Income from discontinued
operations -- 0.3
------- -------
Loss from continuing
operations (19.3) (3.9)
Adjustments to reconcile
net loss to net cash
used by operating activities:
Employee separation and
plant phase-out charges 24.9 0.9
Cash payments on employee
separation and plant phase-out (12.0) (4.0)
Depreciation and amortization 18.5 17.8
Unrealized currency (gains) losses (6.2) 0.8
Investment write-down and loss
on sale of equity affiliate -- 1.5
Companies carried at equity and
minority interest:
(Income) loss from equity
affiliates (6.0) 2.0
Minority interest expense 0.4 0.2
Dividends and distributions
received 1.0 0.3
Change in assets and liabilities:
Operating working capital:
Accounts receivable (37.7) (69.5)
Inventories (34.1) (16.8)
Accounts payable 56.2 22.7
Accrued expenses and other (20.3) 17.3
------- -------
Net cash used by continuing
operations (34.6) (30.7)
------- -------
Investing Activities
Capital expenditures (6.2) (10.5)
Return of capital by equity
affiliates, net of investment 2.4 0.5
Business acquired, net
of cash received (15.8) --
Proceeds from sale of assets 22.4 --
------- -------
Net cash provided (used) by
continuing operations 2.8 (10.0)
------- -------
Financing Activities
Change in short-term debt 35.4 49.1
Change in long-term debt 6.1 (0.3)
Proceeds from the exercise
of stock options -- 2.7
Dividends -- (5.8)
------- -------
Net cash provided by
continuing operations 41.5 45.7
------- -------
Net cash used by
discontinued operations -- (0.1)
Effect of exchange rate
changes on cash (0.8) (0.6)
------- -------
Increase in cash and
cash equivalents 8.9 4.3
Cash and cash equivalents at
beginning of period 41.4 18.2
------- -------
Cash and cash equivalents
at end of period $ 50.3 $ 22.5
======= =======
Summary of Special Items (Unaudited)
(In millions)
Quarters
-----------------------
1Q03 1Q02 4Q02
------- ------- -------
Employee separation and
plant phase-out costs (a) $ (24.9) $ (0.9) $ --
Period plant phase-out
costs incurred (b) (0.9) (0.1) (0.4)
Equity affiliate - employee
severance, liabilities
associated with the
temporary idling of a plant
and cumulative effect of a
change in accounting (c) (0.8) (0.7) --
Loss on divestiture of
equity investment (d) -- (1.5) (3.6)
------- ------- -------
Subtotal - impact on
EBITDA (expense) (26.6) (3.2) (4.0)
Plant phase-out accelerated
depreciation (b) -- (0.5) (0.3)
------- ------- -------
Subtotal - impact on
operating (expense) (26.6) (3.7) (4.3)
Investment write-down (e) -- -- (0.8)
------- ------- -------
Total - impact on pre
tax (expense) (26.6) (3.7) (5.1)
Income tax benefit 10.4 1.4 2.0
------- ------- -------
Total - after tax (expense)
before discontinued
operations and cumulative
effect of a change in
accounting $ (16.2) $ (2.3) $ (3.1)
======= ======= =======
(a) These costs include severance, employee outplacement, external outplacement consulting, lease termination, facility closing costs and the write-down of the carrying value of plants and equipment related to restructuring initiatives. The 2003 expense relates to the January 16, 2003 announcement to reduce approximately 400 staff personnel and the March 26, 2003 announcement to exit an Engineering Films plant. The 2002 expense was associated with the consolidation of certain activities related to the Formulator operations in the Performance Plastics business segment.
(b) These are plant and phase-out costs associated with the 2001 Geon restructuring initiatives that are to be recognized as period costs versus when the restructuring initiative was approved. In connection with the acquisition of Hanna and resulting formation of PolyOne, management developed several initiatives to capture the strategic value of the combined former Geon and former Hanna businesses. Included in the initiatives was the closing of excess manufacturing capacity of the Elastomers business and establishing centers of manufacturing excellence within the North American Plastics Compounds and Colors operations. This resulted in several announcements in 2001 that former Geon plants and Hanna plants would be closed. The initiatives also included the termination of corporate and other positions at Geon and former Hanna locations. These plans and activities related to the former Geon plants and personnel were finalized and approved during 2001.
(c) The 2003 expense relates to the cumulative effect of a change in accounting upon OxyVinyls adoption of SFAS No. 143 "Accounting for Asset Retirement Obligations." The 2002 costs include PolyOne's share of OxyVinyls employee severance, plant phase-out costs and liabilities associated with the temporary idling of a plant in December 2001.
(d) Includes the 2002 first quarter loss on our divestiture of our 37.4% investment in the PVC resin operations of Australian Vinyls Corporation and we recognized a loss on the divestiture of the investment. In December 2002, we recognized an impairment loss on our investment in Techmer PM, LLC, an unconsolidated equity affiliate, in connection with a pending sale which closed in January 2003.
(e) Impairment of a marketable security.
Business Segment Information (Unaudited)
(In millions)
Senior management uses operating income before special items and EBITDA before special items to assess performance and allocate resources to business segments. For a reconciliation from operating income to operating income before special items to EBITDA before special items and EBITDA to EBITDA before special items, see the following table. Operating income before special items and EBITDA before special items are non-GAAP measures ands should not be considered an alternative to any other measure of performance in accordance with GAAP. Senior management presents operating income before special items and EBITDA before special items when discussing the results of operations of the business segments because senior management believes such measures are useful in assessing the underlying earnings power and operating cash flows of each business segment. Special items include gains and losses associated with the specific strategic initiatives such as restructuring or consolidation of operations, gains and losses attributable to divestment of joint ventures, and certain one-time items. Accordingly, senior management believes that excluding special items provides insight into the underlying results of operations of each of PolyOne's business segments. Operating income before special items and EBITDA before special items may not be comparable to financial performance measures presented by other companies.
Quarters
-----------------------
1Q03 1Q02 4Q02
------- ------- -------
Sales:
Performance Plastics $ 447.6 $ 406.7 $ 396.9
Elastomers & Additives 94.0 91.7 81.2
Distribution 135.9 120.4 125.9
Resin & Intermediates -- -- --
Other (32.0) (22.5) (23.7)
-------- -------- --------
$ 645.5 $ 596.3 $ 580.3
======== ======== ========
EBITDA before special items:
Performance Plastics $ 19.5 $ 26.7 $ 7.1
Elastomers & Additives 5.3 5.5 2.3
Distribution 3.3 2.1 (0.7)
Resin & Intermediates 4.1 (5.3) 3.9
Other (3.3) (3.6) (4.1)
-------- -------- --------
$ 28.9 $ 25.4 $ 8.5
======== ======== ========
Operating income
(loss) before special items:
Performance Plastics $ 4.8 $ 13.3 $ (7.1)
Elastomers & Additives 2.2 2.3 (0.3)
Distribution 2.9 1.6 (1.1)
Resin & Intermediates 4.0 (5.3) (3.7)
Other (3.5) (3.8) (4.3)
-------- -------- --------
$ 10.4 $ 8.1 $ (9.1)
======== ======== ========
Reconciliation:
Operating income (loss) $ (16.2) $ 4.4 $ (13.4)
Special items, expense 26.6 3.7 4.3
-------- -------- --------
Operating income before
special items 10.4 8.1 (9.1)
Depreciation and
amortization 18.5 17.8 17.9
Accelerated depreciation
in special items -- (0.5) (0.3)
-------- -------- --------
EBITDA before special items $ 28.9 $ 25.4 $ 8.5
======== ======== ========
Loss before discontinued
operations and cumulative effect
of a change in accounting $ (19.3) $ (3.9) $ (17.6)
Income tax benefit (12.3) (2.6) (11.8)
Interest expense, net 12.3 8.3 10.7
Other expense, net 3.1 2.6 5.3
Depreciation and amortization 18.5 17.8 17.9
-------- -------- --------
EBITDA 2.3 22.2 4.5
Impact of special items, expense 26.6 3.2 4.0
-------- -------- --------
EBITDA before special items $ 28.9 $ 25.4 $ 8.5
======== ======== ========
Note: The "Other" segment primarily consists of the elimination of
inter-business segment sales profit in inventories and
unallocated corporate costs.