- Best second-quarter and first-half earnings ever -- up 28 percent
and 57 percent, respectively, over 2005; revenues increased 11
percent CLEVELAND, Aug. 2 /PRNewswire-FirstCall/ -- PolyOne
Corporation (NYSE: POL), a leading global supplier of specialized
polymer materials, services and solutions, today reported sales of
$686.4 million for the second quarter ended June 30, 2006, an
increase of 11 percent compared with second-quarter 2005 sales of
$620.4 million. The Company reported income before discontinued
operations of $42.4 million, or $0.46 per share, in the second
quarter of 2006, compared with $33.0 million, or $0.36 per share,
in the second quarter of 2005, a 28 percent increase. Income before
discontinued operations for the first six months was $91.3 million,
or $0.99 per share, compared with $58.0 million, or $0.63 per
share, an increase of 57 percent over the same period in 2005. "Our
Performance Plastics and Distribution business segments capitalized
on solid demand in our North American and International markets
during the first half of 2006 to realize strong sales and earnings
improvements," said Stephen D. Newlin, chairman, president and
chief executive officer. "Coupled with cash distributions from our
Resin and Intermediates segment, these results enabled us to reduce
our long-term debt during the second quarter and further strengthen
our financial profile." Net cash provided by operating activities
for the first half of 2006 was $46.2 million compared with $11.1
million for the first half of 2005. Operating cash flow(1) for the
first half of 2006 was $51.0 million compared with a negative $39.8
million for the first half of 2005. This increase stemmed primarily
from stronger earnings and significant improvements in working
capital efficiency. In the second quarter of 2006, the Company
retired $15.8 million of long-term debt. Segment Highlights
Performance Plastics segment: Sales were $537.6 million, an
increase of $51.9 million, or 11 percent, compared with
second-quarter 2005 sales. Operating income in the second quarter
of 2006 increased $2.5 million, or 10 percent, compared with the
2005 second quarter. Distribution segment: PolyOne Distribution's
sales were $189.7 million, an improvement of $19.5 million, or 11
percent, compared with the second quarter of 2005. Operating income
of $5.1 million in the second quarter of 2006 was 28 percent higher
than in the second quarter of 2005. Resin and Intermediates
segment: In the second quarter operating income reached $28.9
million compared with $28.5 million in the second quarter of 2005.
Oxy Vinyls, LP earnings remained strong during the quarter.
Nevertheless, industry spreads for polyvinyl chloride (PVC) resins
in the second quarter of 2006 were slightly lower than in the first
quarter as lower average ethylene costs only partially offset a
decline in quarterly average market prices for PVC. SunBelt
Chlor-Alkali reported record quarterly earnings and continued to
benefit from strong caustic soda and chlorine demand. Segment
Other: Compared with the second quarter of 2005, the Company
realized a $2.4 million net benefit from adjustments to various
operating reserves and favorable litigation settlements. Included
in this amount was $6.1 million of net pre-tax benefit from the
combined effect of legal dispute settlements and adjustments to
litigation reserves. Third-quarter 2006 Business Outlook PolyOne is
cautious about third-quarter demand within Performance Plastics,
due to a forecasted slowing in the North American automotive and
building products markets. Management's view, however, is that
sales and shipments should approximate second-quarter 2006 levels.
The Company projects that operating income should improve compared
with the 2005 third quarter, but is likely to decline compared with
the 2006 second-quarter performance as operating margins are
anticipated to come under pressure as energy-derived raw material
costs increase. PolyOne projects that Distribution segment sales
and shipments should be slightly lower than in second-quarter 2006,
but should improve compared with the third quarter of 2005.
Third-quarter 2006 operating income should decline sequentially,
but approximate the third-quarter 2005 performance. In the Resin
and Intermediates segment, PolyOne expects earnings for both
OxyVinyls and SunBelt to improve significantly compared with the
third quarter of 2005, but to trend lower sequentially. Both
businesses would be adversely affected by forecasted lower caustic
demand and pricing. Additionally, industry PVC resin product
spreads are projected to narrow as announced PVC price hikes may
lag realized and announced ethylene cost increases. Energy costs
are anticipated to move upward as well during the quarter. The
Company anticipates that adjustments to operating and litigation
reserves and legal settlements should result in a net benefit in
the third quarter of 2006. While the net impact of non-recurring
events is difficult to predict, PolyOne projects that this benefit
could approach the net benefit realized in the second quarter of
2006. Considering all the above factors, PolyOne expects earnings
during the third quarter to improve compared with the same period
in 2005, but to decline sequentially. PolyOne continues to
anticipate that operating cash flows for the year should
substantially exceed those generated in 2005. (1) Operating cash
flow is a non-GAAP financial measure. A discussion occurs at the
end of this release on the use of non-GAAP financial measures.
Second-quarter 2006 Earnings Conference Call and Webcast PolyOne
will host a conference call at 9:00 a.m. Eastern time on Thursday,
August 3, 2006. The conference dial-in number is 888-489-0038
(domestic) or 706-643-1611 (international), conference topic:
PolyOne Earnings Call. A replay will be available for two weeks by
calling 800-642-1687 (domestic) or 706-645-9291 (international).
The conference ID for the replay is 9935907. In addition, 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 2005 annual revenues of approximately
$2.5 billion, is a leading global supplier of specialized polymer
materials, services and solutions. Headquartered in northeast Ohio,
PolyOne has operations in North America, Europe, Asia and
Australia, and joint ventures in North America and South America.
Product offerings include vinyl and other thermoplastic compounds,
polymer coating systems, color and additive masterbatches, and
specialty vinyl resins. See http://www.polyone.com/ for additional
information on PolyOne. 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 provided (used) 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 to allocate resources. In addition, operating income
before special items and operating cash flow are components of
various PolyOne annual and long-term employee 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 about 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; 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; - 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 cost
reductions and employee productivity goals; - a delay in achieving
or inability to achieve targeted debt level reductions; - an
inability to access the receivables sale facility as a result of
breaching covenants due to failure to achieve 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 groups to profitability; - an inability to raise
prices or sustain price increases for products; - the occurrence
and timing of any benefits from legal settlements or adjustments to
litigation reserves; - an inability to maintain appropriate
relations with unions and employees in certain locations in order
to avoid disruptions of business; and - other factors beyond our
control affecting our business, 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. #80206) 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 income taxes as a
separate line item on the statement of operations (income
statement). Income or loss from discontinued operations net of
income taxes is reported below income before discontinued
operations on the income statement. As a result, reporting and
discussion of items above the income before discontinued operations
line (such as sales, operating income, interest, and selling and
administrative costs) include only the results of continuing
operations. 2Q06 2Q05 1Q06 Operating results: Sales - continuing
operations $686.4 $620.4 $674.6 Operating income 63.5 53.2 67.9 Net
income 42.4 31.3 46.8 Income before discontinued operations 42.4
33.0 48.9 Loss from discontinued operations net of income taxes -
(1.7) (2.1) Earnings (loss) per common share: Basic and diluted
earnings per share $0.46 $0.34 $0.51 Before discontinued operations
0.46 0.36 0.53 Discontinued operations - (0.02) (0.02) Total per
share impact of special items (1) after tax: $0.17 $0.10 0.17
Before discontinued operations $0.17 0.11 0.20 Discontinued
operations - (0.01) (0.03) Other data: Sales - discontinued
operations $- $31.1 $9.6 Depreciation and amortization 14.3 12.4
14.3 (1) - Special items in a non-GAAP financial measure. A
discussion is at the end of the release regarding the use of
non-GAAP financial measures. 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
Six Months Ended June 30, June 30, 2006 2005 2006 2005 Sales $686.4
$620.4 $1,361.0 $1,232.2 Operating costs and expenses: Cost of
sales 592.7 538.7 1,176.3 1,072.0 Selling and administrative 49.9
47.8 99.2 94.9 Depreciation and amortization 14.3 12.4 28.6 24.9
Employee separation and plant phaseout (0.2) 0.4 (0.3) 0.6
Environmental remediation at inactive sites (2.3) -- (4.1) --
Income from equity affiliates and minority interest (31.5) (32.1)
(70.1) (58.1) Operating income 63.5 53.2 131.4 97.9 Interest
expense (16.8) (17.4) (33.4) (34.2) Interest income 0.8 0.4 1.3 0.9
Premium on early extinguishment of long-term debt (1.2) -- (1.2) --
Other expense, net (1.5) (0.8) (2.7) (1.6) Income before income
taxes and discontinued operations 44.8 35.4 95.4 63.0 Income tax
expense (2.4) (2.4) (4.1) (5.0) Income before discontinued
operations 42.4 33.0 91.3 58.0 Discontinued operations: Loss from
operations, net of income taxes -- (1.7) (2.1) (13.3) Net income
$42.4 $31.3 $89.2 $44.7 Earnings (loss) per common share: Basic
earnings (loss): Before discontinued operations $0.46 $0.36 $0.99
$0.63 Discontinued operations -- (0.02) (0.02) (0.14) Basic
earnings per share $0.46 $0.34 $0.97 $0.49 Diluted earnings (loss):
Before discontinued operations $0.46 $0.36 $0.99 $0.63 Discontinued
operations -- (0.02) (0.03) (0.14) Diluted earnings per share $0.46
$0.34 $0.96 $0.49 Weighted average shares used to compute earnings
per share: Basic 92.4 91.8 92.2 91.8 Diluted 93.0 92.1 92.6 92.1
Dividends paid per share of common stock $- $- $- $- Attachment 3
PolyOne Corporation and Subsidiaries Condensed Consolidated Balance
Sheets (Unaudited) (In millions) June 30, December 31, 2006 2005
Assets Current assets: Cash and cash equivalents $75.0 $32.8
Accounts receivable, net 379.9 320.5 Inventories 228.2 191.8
Deferred income tax assets 19.6 20.1 Other current assets 18.2 27.4
Discontinued operations - 20.9 Total current assets 720.9 613.5
Property, net 423.0 436.0 Investment in equity affiliates 302.7
273.9 Goodwill 315.3 315.3 Other intangible assets, net 9.6 10.6
Other non-current assets 64.4 60.0 Discontinued operations - 6.7
Total assets $1,835.9 $1,716.0 Liabilities and Shareholders' Equity
Current liabilities: Short-term bank debt $4.6 $7.1 Accounts
payable 277.3 232.6 Accrued expenses 84.9 82.4 Current portion of
long-term debt 19.3 0.7 Discontinued operations - 11.2 Total
current liabilities 386.1 334.0 Long-term debt 603.7 638.7
Post-retirement benefits other than pensions 103.5 107.9 Other
non-current liabilities, including pensions 221.4 214.3 Minority
interest in consolidated subsidiaries 5.9 5.4 Total liabilities
1,320.6 1,300.3 Shareholders' equity 515.3 415.7 Total liabilities
and shareholders' equity $1,835.9 $1,716.0 Attachment 4 PolyOne
Corporation and Subsidiaries Condensed Consolidated Statements of
Cash Flows (Unaudited) (In millions) Three Months Six Months Ended
Ended June 30, June 30, 2006 2005 2006 2005 Operating Activities
Net income $42.4 $31.3 $89.2 $44.7 Adjustments to reconcile net
income to net cash provided by operating activities: Depreciation
and amortization 14.3 12.4 28.6 24.9 Premium on early
extinguishment of long term debt 1.2 - 1.2 - Loss on disposition of
discontinued businesses and related plant phaseout charge - - 2.3
11.6 Companies carried at equity and minority interest: Income from
equity affiliates and minority interest (31.5) (32.1) (70.1) (58.1)
Dividends and distributions received 38.1 19.2 42.2 19.2 Provision
for deferred income taxes 0.3 0.4 0.5 0.9 Change in assets and
liabilities: Accounts receivable 3.9 7.2 (43.4) (53.2) Inventories
(8.5) 23.5 (16.4) (9.4) Accounts payable 12.5 (21.0) 31.7 16.3
Increase (decrease) in sale of accounts receivable - (20.6) (7.9)
38.6 Accrued expenses and other (15.7) (19.2) (11.6) (29.1) Net
cash (used) provided by discontinued operations - 6.5 (0.1) 4.7 Net
cash provided by operating activities 57.0 7.6 46.2 11.1 Investing
Activities Capital expenditures (7.6) (9.1) (12.5) (18.0) Business
acquisitions, net of cash received - (1.1) - (2.7) Proceeds from
sale of assets 4.8 7.6 7.2 8.4 Proceeds from sale of discontinued
business, net - - 17.3 - Net cash used by discontinued operations -
(0.7) (0.2) (0.7) Net cash provided (used) by investing activities
(2.8) (3.3) 11.8 (13.0) Financing Activities Change in short-term
debt (2.1) 0.1 (2.4) 1.0 Change in long-term debt (17.0) (1.5)
(17.0) (1.5) Proceeds from exercise of stock options 0.8 0.1 2.8
0.3 Net cash used by financing activities (18.3) (1.3) (16.6) (0.2)
Effect of exchange rate changes on cash 1.6 0.5 0.8 (1.8) Increase
(decrease) in cash and cash equivalents 37.5 3.5 42.2 (3.9) Cash
and cash equivalents at beginning of period 37.5 31.2 32.8 38.6
Cash and cash equivalents at end of period $75.0 $34.7 $75.0 $34.7
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 phaseout costs; executive separation agreements; 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. 2Q06 2Q05 1Q06
Special items Continuing operations: Employee separation and plant
phaseout costs (1) $0.2 $(0.4) $0.1 Asset impairments (2) (0.1) - -
Environmental remediation at inactive sites (3) 2.3 - 1.8 Impact on
pretax income 2.4 (0.4) 1.9 Income tax benefit on above items (1.1)
0.2 (0.8) Tax allowance (5) 14.1 9.9 17.1 Impact on net income
(loss) from continuing operations 15.4 9.7 18.2 Per diluted share
impact 0.17 0.11 0.20 Discontinued operations: Employee separation
and plant phaseout costs (1) - - - Impact on operating income - - -
Net asset impairment and loss on disposition of discontinued
operations (4) - - (2.3) Impact on pretax income - - (2.3) Income
tax benefit on above items - - 0.9 Tax allowance (5) - (0.7) (0.8)
Impact on net income (loss) from discontinued operations - (0.7)
(2.2) Per diluted share impact - (0.01) (0.03) Total: Impact on net
income (loss) $15.4 $9.0 $16.0 Per share impact $0.17 $0.10 $0.17
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 and executive separation
agreements. 2. Non-cash impairment charges to adjust the carrying
value of investments to fair market value. 3. Environmental
remediation costs for facilities either no longer owned or closed
in prior years. 4. Non-cash impairment charges to adjust the net
asset carrying value of discontinued operations to estimated net
future proceeds and to recognize costs that were not allowed to be
recognized due to the contingent nature of these costs until the
business was sold, in accordance with generally accepted accounting
principles. 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 (In millions) Below
is a reconciliation of non-GAAP financial measures to the most
directly comparable measures calculated and presented in accordance
with GAAP. 2Q06 2Q05 1Q06 Continuing operations: Operating income
before special items $61.1 $53.6 $66.0 Special items in continuing
operations, before tax 2.4 (0.4) 1.9 Operating income $63.5 $53.2
$67.9 Discontinued operations: Operating income before special
items $- $(1.0) $0.3 Special items in discontinued operations,
before tax - - (2.3) Operating income (loss) $- $(1.0) $(2.0)
Continuing operations: Income per share before impact of special
items $0.29 $0.25 $0.33 Per share impact of special items, after
tax 0.17 0.11 0.20 Diluted income (loss) per share 0.46 $0.36 $0.53
Discontinued operations: Income per share before impact of special
items $- $(0.01) $0.01 Per share impact of special items, after tax
- (0.01) (0.03) Diluted income (loss) per share $- $(0.02) $(0.02)
Three Months Ended Six Months Ended (in millions) June 30, June 30,
June 30, June 30, 2006 2005 2006 2005 Reconciliation to Condensed
Consolidated Statement of Cash Flows Net cash provided (used) by
operating activities $57.0 $7.6 $46.2 $11.1 Net cash provided
(used) by investing activities (2.8) (3.3) 11.8 (13.0) Decrease
(increase) in sale of accounts receivable - 20.6 7.9 (38.6)
Interest rate swap fair value debt adjustment 0.2 1.6 (0.7) (0.6)
Other financing activities (0.3) (1.8) 2.3 0.4 Effect on exchange
rate changes on cash 1.6 0.5 0.8 (1.8) Increase (decrease) in
borrowed debt less cash and cash equivalents $55.7 $25.2 $68.3
$(42.5) Less proceeds from sale of discontinued business, net of
note receivable - - (17.3) - Plus business acquired, net of cash
received - 1.1 - 2.7 Operating cash flow $55.7 $26.3 $51.0 $(39.8)
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 various PolyOne annual and long term employee incentive
plans and is used in debt covenant computations. 2Q06 2Q05 1Q06
Business Segments Sales: Performance Plastics Segment $537.6 $485.7
$520.2 Distribution Segment 189.7 170.2 194.1 Intersegment
eliminations (40.9) (35.5) (39.7) $686.4 $620.4 $674.6 Operating
income (loss): Performance Plastics Segment $28.7 $26.2 $27.7
Distribution Segment 5.1 4.0 6.2 Resin & Intermediates Segment
28.9 28.5 36.2 Other Segment 0.8 (5.5) (2.2) Operating Income $63.5
$53.2 67.9 Other Data: Discontinued operations Sales $- $31.1 $9.6
Net income (loss) - (1.7) (2.1) Segment Sales and Shipment Volume
Summary 2Q06 versus 2Q05 2Q06 versus 1Q06 2Q06 Shipment Shipment
Sales, Sales $, Lbs., Sales $, Lbs., % of Total % Change % Change %
Change % Change Performance Plastics 72.4 % 10.7 % 15.1 % 3.3 % 4.3
% Distribution 27.6 11.5 5.6 (2.2) (1.8) Total 100.0 % 10.6 % 12.8
% 1.8 % 2.8 % DATASOURCE: PolyOne Corporation CONTACT: Investor
& Media Contact, Dennis Cocco, Vice President, Investor
Relations & Communications of PolyOne Corporation,
+1-440-930-1538 Web site: http://www.polyone.com/
Copyright