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PolyOne Corp. Reports Operating Results (10-Q)

November 04, 2010 | About:
10qk

10qk

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PolyOne Corp. (POL) filed Quarterly Report for the period ended 2010-09-30.

Polyone Corp. has a market cap of $1.21 billion; its shares were traded at around $13.19 with a P/E ratio of 17.9 and P/S ratio of 0.6. POL is in the portfolios of James Barrow of Barrow, Hanley, Mewhinney & Strauss, Jim Simons of Renaissance Technologies LLC, Paul Tudor Jones of The Tudor Group, Chuck Royce of Royce& Associates, George Soros of Soros Fund Management LLC, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

In September 2010, we issued $360 million aggregate principal amount of senior unsecured notes at par. The notes mature in September 2020 and bear interest at 7.375% per annum, payable semi-annually in arrears on March 15th and September 15th of each year. Deferred financing costs from the issuance of $7.0 million are included in Other non-current assets and will be amortized over the term of the senior unsecured notes. We used a portion of the net proceeds from these notes to repurchase $256 million aggregate principal amount of our 8.875% senior notes due May 2012 at a premium of $25.6 million in a tender offer in the third quarter of 2010. The tender premium, $0.7 million of other debt extinguishment costs and the write off of deferred note issuance costs of $1.7 million are shown within the Debt Extinguishment Costs line in our Consolidated Statement of Operations. On October 8, 2010, we repurchased an additional $1 million aggregate principal amount of our 8.875% senior notes due May 2012 in a tender offer.

Operating income increased $79.5 million in the first nine months of 2010 compared to the first nine months of 2009. Gains from insurance and legal settlements of $21.6 million favorably impacted operating income in the first nine months of 2010 while operating income in the first nine months of 2009 included gains of $23.9 million and $21.1 million associated with an insurance settlement and the curtailment of our post-retirement health care plan, respectively. Charges related to environmental remediation and plant related restructuring were $12.1 million in the first nine months of 2010 versus $33.5 million in the first nine months of 2009. Operating income for the first nine months of 2009 included a $5.0 million charge related to the adjustment to our 2008 estimated year-end goodwill impairment charge as compared to no such charge in the first nine months of 2010. Income from our equity investment in SunBelt decreased $9.0 million in the first nine months of 2010 as compared to the same period in 2009. Operating income improved $85.5 million in the first nine months of 2010 due to increased volumes and ongoing efficiency gains from our Lean Six Sigma initiatives.

In the first nine months of 2010, liquidity increased by $111.9 million driven by the increase in our cash balance and the increase in accounts receivable availability. The increase in cash of $85.2 million includes proceeds of $21.6 million from insurance and legal settlements, $9.8 million from the sale of our investment in, and payment of the related seller note receivable from, OSullivan Films and net proceeds of $353.6 million from the issuance of our 7.375% senior notes due 2020. A portion of the net proceeds from the issuance of our 7.375% senior notes was used to repurchase $256 million aggregate principal amount of our 8.875% senior notes due May 2012 in a tender offer, which resulted in the extinguishment of $256 million of debt and related payment of $26.3 million of debt extinguishment costs through September 30, 2010. Additionally, we repaid our $40 million credit facility, paid $1.4 million of extinguishment costs associated therewith, and repaid $20 million aggregate principal of our 6.52% medium-term notes. The increase in our accounts receivable facility availability reflects an increase in sales.

Debt extinguishment costs include costs related to the repurchase of our 8.875% senior notes due 2012 in a tender offer and costs associated with the repayment of our $40 million credit facility in the third quarter of 2010. We incurred $25.6 million of premiums related to our tender offer from which we extinguished $256 million aggregate principal amount of our 8.875% senior notes. In addition, we wrote off $1.7 million of deferred financing fees and incurred other extinguishment costs of $0.7 million. In connection with the repayment of our $40 million credit facility, we incurred extinguishment costs of $1.4 million.

For the third quarter of 2010, we recognized income tax expense of $6.4 million compared to a benefit of $3.1 million in the third quarter of 2009. Valuation allowances against our deferred tax assets increased by $5.1 million in the third quarter of 2010 as a result of a pre-tax loss in the United States during that period primarily related to debt extinguishment costs from the repayment of our $40 million credit facility and $256 million of our 8.875% senior notes. The related non-cash charge to income tax expense was $3.0 million, associated with various U.S. federal, state, local, and foreign deferred tax assets. During the third quarter of 2010, we recognized $1.9 million of income tax expense, including the related interest and penalties, associated with uncertain tax positions. Our effective tax rate for the third quarter of 2010 reflects these items and the impact of foreign earnings which are taxed at rates that differ from the United States. We decreased existing valuation allowances against our deferred tax assets by $28.4 million in the third

Debt extinguishment costs include costs related to the repurchase of our 8.875% senior notes due 2012 in a tender offer and costs associated with the repayment of our $40 million credit facility in the third quarter of 2010. We incurred $25.6 million of premiums related to our tender offer from which we extinguished $256 million aggregate principal amount of our 8.875% senior notes. In addition, we wrote off $1.7 million of deferred financing fees and incurred other extinguishment costs of $0.7 million. In connection with the repayment of our $40 million credit facility, we incurred extinguishment costs of $1.4 million.

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