PolyOne Corp. Reports Operating Results (10-Q)
PolyOne Corporation 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. PolyOne was formed from the consolidation of the former M.A. Hanna Company and The Geon Company. Information on the Company\'s products and services can be found at www.polyone.com. PolyOne Corp. has a market cap of $417.6 million; its shares were traded at around $4.52 with a P/E ratio of 15.6 and P/S ratio of 0.1. PolyOne Corp. had an annual average earning growth of 3.3% over the past 5 years. Highlight of Business Operations:Operating income in the second quarter of 2009 declined $4.7 million versus the second quarter of 2008 driven by the impact of lower volume, partially offset by a 555 basis point improvement in gross margin as a percentage of sales. This improvement was driven by a more profitable sales mix, lower raw material costs, the realization of restructuring savings, and the benefit from LIFO related to the significant reduction in U.S. inventories. Foreign exchange had an unfavorable impact of $2.3 million and $3.8 million, respectively, in second quarter and first half of 2009, driven mainly by the strengthening of the U.S. dollar versus the Euro and Canadian dollar.
For the first half of 2009, operating income declined $27.5 million versus the first half of 2008 largely due to the same factors impacting the second quarter but also $13.1 million of charges related to restructuring and employee separation, and a $5.0 million adjustment to our estimated 2008 year-end goodwill impairment charge.
Net income declined $5.3 million and $21.1 million during the second quarter and first half of 2009, respectively, as compared to the same periods in 2008 due to the items discussed in the paragraphs above, and higher Other expense, net due to foreign exchange losses. Net interest expense was lower than in comparable prior periods due to lower average borrowing levels. Income tax (expense) benefit included a first quarter recognition of $10.0 million of income tax benefits and related interest income due to the favorable settlement of a foreign tax audit partially offset by a $7.0 million charge for similar items in the second quarter of 2009.
Operating income in the first half of 2009 was $27.5 million lower and included a $13.1 million increase in charges for restructuring and employee separation, a $5.0 million adjustment to our estimated year-end goodwill impairment charge and an unfavorable foreign exchange impact of $3.8 million. Volumes declined significantly for all operating segments. Favorable items impacting operating income in the first half of 2009 were improved sales mix, lower raw material costs, a benefit from LIFO reserve adjustments due to significantly lower inventories in the United States, realization of
Interest expense, net declined $1.0 million in the second quarter of 2009 versus second quarter of 2008 due to lower average borrowings. Included in interest expense, net for the second quarter of 2009 and 2008 was interest income of $0.7 million and $0.9 million, respectively.
As a result of the completion of the step two analysis, we determined that the final goodwill impairment charge as of December 31, 2008 was $175.0 million, which consisted of $147.8 million and $27.2 million for the Geon Compounds and Specialty Coatings reporting units, respectively. This represents an increase in the goodwill impairment charge for Specialty Coatings of approximately $12.4 million and a decrease for Geon Compounds of $7.4 million, as compared to the preliminary estimates recorded in the fourth quarter of 2008. The total difference of approximately $5.0 million from our preliminary estimate was recorded in the first quarter of 2009.
Read the The complete ReportPOL is in the portfolios of Kenneth Fisher of Fisher Asset Management, LLC.