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PolyOne Corp. Reports Operating Results (10-Q)

November 04, 2009 | About:
10qk

10qk

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PolyOne Corp. (POL) filed Quarterly Report for the period ended 2009-09-30.

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 $534.4 million; its shares were traded at around $5.78 with a P/E ratio of 24.1 and P/S ratio of 0.2. Polyone Corp. had an annual average earning growth of 3.3% over the past 5 years.

Highlight of Business Operations:

Operating income in the third quarter and first nine months of 2009 increased $54.9 million and $27.4 million, respectively, versus the corresponding periods in 2008 primarily as a result of third quarter 2009 gains of $21.1 million associated with the curtailment of our postretirement healthcare plan and $23.9 million related to the reimbursement of previously incurred environmental costs. Additionally, operating income was favorably impacted by improved mix, lower raw material costs, the realization of restructuring savings, and an incremental benefit from LIFO related to the significant inventory reduction in the United States in the first nine months of 2009. The impact of the previously noted volume declines partially offset these favorable items in the third quarter and first nine months of 2009 compared to the corresponding periods in 2008. Additionally, we recognized charges of $12.1 million and $25.2 million related to restructuring and employee separation in the third quarter and first nine months of 2009, respectively, as compared to $11.6 million and $13.1 million in the corresponding periods in 2008. Our operating income for the first nine months of 2009 was also negatively impacted by the $5.0 million adjustment to our estimated 2008 year-end goodwill impairment charge. Changes in currency exchange rates unfavorably impacted operating income by $1.0 million and $4.5 million, respectively, in the third quarter and first nine months of 2009 as compared to the corresponding periods in 2008, driven mainly by the strengthening of the U.S. dollar versus the Euro and Canadian dollar.

Net income increased $55.2 million and $34.1 million during the third quarter and first nine months of 2009, respectively, as compared to the same periods in 2008 primarily due to the items discussed in the paragraph above. Net interest expense was lower than in comparable prior periods primarily due to lower average borrowing levels and lower average interest rates on our variable rate debt. Income tax benefit for the first nine months of 2009 included $13.2 million of income tax benefits and related interest income due to the favorable settlement of a foreign tax audit and a state tax refund. These items were partially offset by $8.3 million of charges for similar items in the second and third quarters of 2009.

Cost of sales includes raw material, plant conversion, distribution and environmental remediation related costs and plant related restructuring charges. These costs, as a percentage of sales, declined to 80.4% in the third quarter of 2009 as compared to 91.1% in the third quarter of 2008. Included in cost of sales for the third quarter of 2009 is a gain of $23.9 million associated with the reimbursement of previously incurred environmental costs. Restructuring charges in cost of sales were $10.5 million in the third quarter 2009 as compared to $11.5 million in the same period in 2008. The primary drivers of the remaining quarter-over-quarter decline were lower raw material costs, realization of restructuring savings and the LIFO benefit related to inventory reductions in the United States.

Interest expense, net declined $1.2 million in the third quarter of 2009 versus the third quarter of 2008 due primarily to lower average borrowings and lower interest rates on our variable rate debt. Included in interest expense, net for the third quarter of 2009 and 2008 was interest income of $0.9 million and $0.8 million, respectively.

Cost of sales includes raw material, plant conversion, distribution and environmental remediation related costs and plant related restructuring charges. These costs, as a percentage of sales, declined to 83.2% of sales in the first nine months of 2009 as compared to 89.1% in the first nine months of 2008. Cost of sales for the first nine months of 2009 includes a gain of $23.9 million associated with the reimbursement of previously incurred environmental costs. Restructuring charges in cost of sales were $23.2 million in the first nine months of 2009 and $11.9 million in the same period in 2008. Lower raw material costs, the realization of restructuring savings and a benefit from LIFO related to inventory reductions in the United States favorably impacted cost of good sold in the first nine months of 2009 as compared to the same period in 2008.

Subsequently, in the first quarter of 2009, we completed the second step of the analysis and determined the final goodwill impairment charge as of December 31, 2008 was $175.0 million, reflecting impairments of $147.8 million and $27.2 million for the Geon Compounds and Specialty Coatings reporting units, respectively. This represented 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.

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