e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2011
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o |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission file number 1-16091
POLYONE CORPORATION
(Exact name of registrant as specified in its charter)
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Ohio
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34-1730488 |
(State or other jurisdiction
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(I.R.S. Employer Identification No.) |
of incorporation or organization) |
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33587 Walker Road, Avon Lake, Ohio
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44012 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (440) 930-1000
Former name, former address and former fiscal year, if changed since last report: Not Applicable
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). [ ]
Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
The number of outstanding shares of the registrants common stock, $0.01 par value, as of April 29,
2011 was 93,387,990.
TABLE OF CONTENTS
Part I Financial Information
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Item 1. |
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Financial Statements |
PolyOne Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(In millions, except per share data)
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Three Months Ended |
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March 31, |
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Adjusted |
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2011 |
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2010 |
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Sales |
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$ |
718.5 |
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$ |
630.4 |
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Cost of sales |
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595.8 |
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526.7 |
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Gross margin |
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122.7 |
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103.7 |
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Selling and administrative |
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76.8 |
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71.5 |
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Income related to equity affiliates |
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133.9 |
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1.5 |
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Operating income |
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179.8 |
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33.7 |
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Interest expense, net |
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(8.5 |
) |
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(8.0 |
) |
Other expense, net |
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(0.2 |
) |
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(0.7 |
) |
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Income before income taxes |
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171.1 |
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25.0 |
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Income tax expense |
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(60.9 |
) |
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(4.0 |
) |
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Net income |
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$ |
110.2 |
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$ |
21.0 |
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Earnings per common share: |
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Basic earnings |
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$ |
1.17 |
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$ |
0.23 |
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Diluted earnings |
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$ |
1.14 |
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$ |
0.22 |
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Cash dividends declared per common share |
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$ |
0.04 |
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$ |
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Weighted-average shares used to compute earnings per share: |
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Basic |
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93.9 |
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92.5 |
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Diluted |
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96.4 |
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95.3 |
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See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
2
PolyOne Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
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(Unaudited) |
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Adjusted |
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March 31, |
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December 31, |
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2011 |
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2010 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
412.4 |
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$ |
378.1 |
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Accounts receivable, net |
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382.5 |
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294.5 |
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Inventories |
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237.9 |
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211.3 |
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Other current assets |
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58.3 |
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55.1 |
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Total current assets |
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1,091.1 |
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939.0 |
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Property, net |
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379.6 |
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374.4 |
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Investment in equity affiliates |
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2.7 |
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Goodwill |
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170.6 |
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164.1 |
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Other intangible assets, net |
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69.8 |
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67.8 |
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Deferred income tax assets |
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42.2 |
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59.7 |
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Other non-current assets |
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75.2 |
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64.2 |
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Total assets |
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$ |
1,828.5 |
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$ |
1,671.9 |
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Liabilities and Shareholders Equity |
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Current liabilities: |
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Current portion of long-term debt |
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$ |
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$ |
20.0 |
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Accounts payable |
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342.2 |
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269.0 |
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Accrued expenses |
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153.1 |
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145.8 |
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Total current liabilities |
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495.3 |
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434.8 |
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Long-term debt |
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432.9 |
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432.9 |
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Post-retirement benefits other than pensions |
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19.3 |
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19.4 |
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Pension benefits |
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154.0 |
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154.5 |
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Other non-current liabilities |
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111.8 |
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114.3 |
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Shareholders equity |
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615.2 |
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516.0 |
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Total liabilities and shareholders equity |
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$ |
1,828.5 |
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$ |
1,671.9 |
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See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
3
PolyOne Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In millions)
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Three Months Ended |
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March 31, |
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Adjusted |
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2011 |
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2010 |
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Operating Activities |
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Net income |
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$ |
110.2 |
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$ |
21.0 |
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Adjustments to reconcile net income to net cash (used) provided by
operating activities: |
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Depreciation and amortization |
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14.1 |
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14.0 |
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Deferred income tax provision |
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26.7 |
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Provision for doubtful accounts |
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0.9 |
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1.2 |
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Stock compensation expense |
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1.2 |
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0.9 |
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Companies carried at equity: |
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Income related to equity affiliates |
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(133.9 |
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(1.5 |
) |
Dividends and distributions received |
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0.6 |
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Change in assets and liabilities, net of acquisition: |
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Increase in accounts receivable |
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(78.1 |
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(71.3 |
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Increase in inventories |
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(17.4 |
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(24.3 |
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Increase in accounts payable |
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66.8 |
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75.2 |
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Decrease in accrued expenses and other |
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(29.9 |
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(13.0 |
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Net cash (used) provided by operating activities |
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(39.4 |
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2.8 |
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Investing Activities |
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Capital expenditures |
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(7.7 |
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(4.3 |
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Business acquisitions and related deposits, net of cash acquired |
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(20.0 |
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Proceeds from sale of equity affiliate and other assets |
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132.8 |
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7.8 |
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Net cash provided by investing activities |
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105.1 |
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3.5 |
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Financing Activities |
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Change in short-term debt |
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0.2 |
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Repayment of long-term debt |
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(20.0 |
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(20.0 |
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Purchase of common shares for treasury |
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(13.6 |
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Proceeds from exercise of stock options |
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1.1 |
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0.7 |
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Net cash used by financing activities |
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(32.5 |
) |
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(19.1 |
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Effect of exchange rate changes on cash |
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1.1 |
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(0.4 |
) |
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Increase (decrease) in cash and cash equivalents |
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34.3 |
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(13.2 |
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Cash and cash equivalents at beginning of period |
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378.1 |
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222.7 |
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Cash and cash equivalents at end of period |
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$ |
412.4 |
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$ |
209.5 |
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See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
4
PolyOne Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
Note 1 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with Form 10-Q instructions and in the opinion of management contain all adjustments,
consisting of normal recurring accruals necessary to present fairly the financial position, results
of operations and cash flows for the periods presented. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates. These interim financial statements should be read
in conjunction with the financial statements and accompanying notes included in the Annual Report
on Form 10-K for the year ended December 31, 2010 of PolyOne Corporation.
Operating results for the three months ended March 31, 2011 are not necessarily indicative of the
results that may be attained in subsequent periods or for the year ending December 31, 2011.
Note 2 Change in Accounting Principle
Effective January 1, 2011, we changed our method of recognizing actuarial gains and losses for
pension and other postretirement benefits for all our defined benefit plans. Historically, we
recognized actuarial gains and losses in accumulated other comprehensive income within
Shareholders Equity on our consolidated balance sheets on an annual basis and have amortized them
into our operating results over the average remaining life expectancy of the plan participants for
the majority of our U.S. and foreign benefit plans and over the remaining service period of plan
participants for certain non-U.S. benefit plans, to the extent such gains and losses were outside
of a corridor. We have elected to immediately recognize actuarial gains and losses, after
consideration of inventory capitalization, in our operating results in the year in which the gains
or losses occur because it is generally preferable to accelerate the recognition of deferred gains
and losses into income rather than to delay such recognition. This change will improve the
transparency in our operating results by more quickly recognizing the effects of economic and
interest rate trends on plan obligations, investments and assumptions. These gains and losses are
generally only measured annually as of December 31 and, accordingly, will be recorded during the
fourth quarter of each year. In accordance with Financial Accounting Standards Board Accounting
Standards Codification Topic 250, Accounting Changes and Error Corrections, all prior periods
presented in this Quarterly Report on Form 10-Q have been adjusted to apply the new method
retrospectively. The majority of our net periodic benefit cost is captured within Corporate and
eliminations in our operating segment results. The impact associated with our accounting change is
reflected entirely within Corporate and eliminations. The annual recognition of actuarial gains and
losses will be reflected within Corporate and eliminations. The effect of the change on
retained earnings as of January 1, 2010 was a reduction of $190.6 million, with a corresponding
offset to accumulated other comprehensive income.
We have presented the effects of the change in accounting principle on our consolidated financial
statements for 2011 and 2010 below. We have condensed the comparative financial statements for
financial statement line items that were not affected by the change in accounting principle.
5
Condensed Consolidated Statements of Operations
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Three months ended March 31, 2011 |
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Prior |
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Effect of |
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Accounting |
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Accounting |
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(In millions, except per share data) |
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Method |
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Change |
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As Reported |
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Sales |
|
$ |
718.5 |
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$ |
|
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|
$ |
718.5 |
|
Cost of sales |
|
|
596.0 |
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(0.2 |
) |
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|
595.8 |
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Gross margin |
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122.5 |
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0.2 |
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|
122.7 |
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Selling and administrative |
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|
79.1 |
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(2.3 |
) |
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76.8 |
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Income from equity affiliates |
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|
133.9 |
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133.9 |
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Operating income |
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|
177.3 |
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2.5 |
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|
179.8 |
|
Interest and other expense, net |
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(8.7 |
) |
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(8.7 |
) |
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Income before income taxes |
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|
168.6 |
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2.5 |
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171.1 |
|
Income tax expense |
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(60.0 |
) |
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0.9 |
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(60.9 |
) |
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Net income |
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$ |
108.6 |
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$ |
1.6 |
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$ |
110.2 |
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Earnings per common share: |
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Basic earnings per common share |
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$ |
1.16 |
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$ |
0.01 |
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$ |
1.17 |
|
Diluted earnings per common share |
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$ |
1.13 |
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$ |
0.01 |
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$ |
1.14 |
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Three months ended March 31, 2010 |
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Effect of |
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Originally |
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Accounting |
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(In millions, except per share data) |
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Reported |
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Change |
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As Adjusted |
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Sales |
|
$ |
630.4 |
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|
$ |
|
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|
$ |
630.4 |
|
Cost of sales |
|
|
526.9 |
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|
(0.2 |
) |
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|
526.7 |
|
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|
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|
|
|
Gross margin |
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|
103.5 |
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|
0.2 |
|
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|
103.7 |
|
Selling and administrative |
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|
73.9 |
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(2.4 |
) |
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|
71.5 |
|
Income from equity affiliates |
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|
1.5 |
|
|
|
|
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|
1.5 |
|
|
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|
|
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|
|
|
|
Operating income |
|
|
31.1 |
|
|
|
2.6 |
|
|
|
33.7 |
|
Interest and other expense, net |
|
|
(8.7 |
) |
|
|
|
|
|
|
(8.7 |
) |
|
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|
|
Income before income taxes |
|
|
22.4 |
|
|
|
2.6 |
|
|
|
25.0 |
|
Income tax expense |
|
|
(4.0 |
) |
|
|
|
|
|
|
(4.0 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
18.4 |
|
|
$ |
2.6 |
|
|
$ |
21.0 |
|
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Earnings per common share: |
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|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.20 |
|
|
$ |
0.03 |
|
|
$ |
0.23 |
|
Diluted earnings per common share |
|
$ |
0.19 |
|
|
$ |
0.03 |
|
|
$ |
0.22 |
|
6
Condensed Consolidated Balance Sheets
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|
March 31, 2011 |
|
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|
Prior |
|
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Effect of |
|
|
|
|
|
|
Accounting |
|
|
Accounting |
|
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(In millions) |
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Method |
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Change |
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As Reported |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,828.5 |
|
|
$ |
|
|
|
$ |
1,828.5 |
|
|
|
|
|
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|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
1,213.3 |
|
|
$ |
|
|
|
$ |
1,213.3 |
|
Retained earnings (accumulated deficit) |
|
|
37.9 |
|
|
|
(189.0 |
) |
|
|
(151.1 |
) |
Accumulated other comprehensive (loss) income |
|
|
(165.7 |
) |
|
|
189.0 |
|
|
|
23.3 |
|
Other equity accounts |
|
|
743.0 |
|
|
|
|
|
|
|
743.0 |
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders equity |
|
|
615.2 |
|
|
|
|
|
|
|
615.2 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,828.5 |
|
|
$ |
|
|
|
$ |
1,828.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Prior |
|
|
Effect of |
|
|
|
|
|
|
Accounting |
|
|
Accounting |
|
|
|
|
(In millions) |
|
Method |
|
|
Change |
|
|
As Adjusted |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,671.9 |
|
|
$ |
|
|
|
$ |
1,671.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
1,155.9 |
|
|
$ |
|
|
|
$ |
1,155.9 |
|
Accumulated deficit |
|
|
(66.9 |
) |
|
|
(190.6 |
) |
|
|
(275.5 |
) |
Accumulated other comprehensive (loss) income |
|
|
(172.1 |
) |
|
|
190.6 |
|
|
|
18.5 |
|
Other equity accounts |
|
|
755.0 |
|
|
|
|
|
|
|
755.0 |
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders equity |
|
|
516.0 |
|
|
|
|
|
|
|
516.0 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,671.9 |
|
|
$ |
|
|
|
$ |
1,671.9 |
|
|
|
|
|
|
|
|
|
|
|
7
Condensed Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March, 2011 |
|
|
|
Prior |
|
|
Effect of |
|
|
|
|
|
|
Accounting |
|
|
Accounting |
|
|
|
|
(In millions) |
|
Method |
|
|
Change |
|
|
As Reported |
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
108.6 |
|
|
$ |
1.6 |
|
|
$ |
110.2 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Other adjustments, net |
|
|
(91.0 |
) |
|
|
|
|
|
|
(91.0 |
) |
Change in assets and liabilities, net of acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in receivables, inventory and payables, net |
|
|
(28.7 |
) |
|
|
|
|
|
|
(28.7 |
) |
Decrease in accrued expenses and other |
|
|
(28.3 |
) |
|
|
(1.6 |
) |
|
|
(29.9 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
(39.4 |
) |
|
|
|
|
|
|
(39.4 |
) |
Net cash provided by investing activities |
|
|
105.1 |
|
|
|
|
|
|
|
105.1 |
|
Net cash used by financing activities |
|
|
(32.5 |
) |
|
|
|
|
|
|
(32.5 |
) |
Effect of exchange rate changes on cash |
|
|
1.1 |
|
|
|
|
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
34.3 |
|
|
|
|
|
|
|
34.3 |
|
Cash and cash equivalents at beginning of period |
|
|
378.1 |
|
|
|
|
|
|
|
378.1 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
412.4 |
|
|
$ |
|
|
|
$ |
412.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March, 2010 |
|
|
|
|
|
|
|
Effect of |
|
|
|
|
|
|
Originally |
|
|
Accounting |
|
|
|
|
(In millions) |
|
Reported |
|
|
Change |
|
|
As Adjusted |
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
18.4 |
|
|
$ |
2.6 |
|
|
$ |
21.0 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Other adjustments, net |
|
|
15.2 |
|
|
|
|
|
|
|
15.2 |
|
Change in assets and liabilities, net of acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in receivables, inventory and payables, net |
|
|
(20.4 |
) |
|
|
|
|
|
|
(20.4 |
) |
Decrease in accrued expenses and other |
|
|
(10.4 |
) |
|
|
(2.6 |
) |
|
|
(13.0 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
2.8 |
|
|
|
|
|
|
|
2.8 |
|
Net cash used by investing activities |
|
|
3.5 |
|
|
|
|
|
|
|
3.5 |
|
Net cash provided by financing activities |
|
|
(19.1 |
) |
|
|
|
|
|
|
(19.1 |
) |
Effect of exchange rate changes on cash |
|
|
(0.4 |
) |
|
|
|
|
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
(13.2 |
) |
|
|
|
|
|
|
(13.2 |
) |
Cash and cash equivalents at beginning of period |
|
|
222.7 |
|
|
|
|
|
|
|
222.7 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
209.5 |
|
|
$ |
|
|
|
$ |
209.5 |
|
|
|
|
|
|
|
|
|
|
|
8
Note 3 Goodwill
The total purchase price associated with acquisitions is allocated to the fair value of assets
acquired and liabilities assumed based on the fair values at the acquisition date, with excess
amounts recorded as goodwill. On January 3, 2011, we acquired Uniplen Industria de Polimeros Ltda.,
a leading Brazilian producer of specialty engineered materials and distributor of thermoplastics,
which resulted in the addition of $6.3 million of goodwill during the first quarter of 2011. The
purchase price allocations are preliminary and may require subsequent adjustment.
Goodwill as of March 31, 2011 and December 31, 2010, and changes in the carrying amount of goodwill
by operating segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty |
|
|
Global Color, |
|
|
Performance |
|
|
|
|
|
|
|
|
|
Engineered |
|
|
Additives and |
|
|
Products and |
|
|
PolyOne |
|
|
|
|
(In millions) |
|
Materials |
|
|
Inks |
|
|
Solutions |
|
|
Distribution |
|
|
Total |
|
Balance, December 31, 2010 |
|
$ |
82.6 |
|
|
$ |
72.5 |
|
|
$ |
7.4 |
|
|
$ |
1.6 |
|
|
$ |
164.1 |
|
Acquisition of businesses |
|
|
6.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.3 |
|
Translations and other adjustments |
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011 |
|
$ |
88.9 |
|
|
$ |
72.7 |
|
|
$ |
7.4 |
|
|
$ |
1.6 |
|
|
$ |
170.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other adjustments to goodwill primarily represent adjustments to the purchase price allocation
for acquisitions during the measurement period subsequent to the acquisition date.
At March 31, 2011 and December 31, 2010, PolyOne had $33.2 million of indefinite-lived other
intangible assets that are not subject to amortization, consisting of a trade name acquired as part
of the acquisition of GLS Corporation.
The following summarizes the gross carrying value and accumulated amortization for each major
category of intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011 |
|
|
|
Acquisition |
|
|
Accumulated |
|
|
Currency |
|
|
|
|
(In millions) |
|
Cost |
|
|
Amortization |
|
|
Translation |
|
|
Net |
|
Non-contractual customer relationships |
|
$ |
44.6 |
|
|
$ |
(15.3 |
) |
|
$ |
|
|
|
$ |
29.3 |
|
Sales contracts |
|
|
11.4 |
|
|
|
(10.7 |
) |
|
|
|
|
|
|
0.7 |
|
Patents, technology and other |
|
|
9.9 |
|
|
|
(4.5 |
) |
|
|
1.2 |
|
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
65.9 |
|
|
$ |
(30.5 |
) |
|
$ |
1.2 |
|
|
$ |
36.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
|
|
Acquisition |
|
|
Accumulated |
|
|
Currency |
|
|
|
|
(In millions) |
|
Cost |
|
|
Amortization |
|
|
Translation |
|
|
Net |
|
Non-contractual customer relationships |
|
$ |
42.2 |
|
|
$ |
(14.6 |
) |
|
$ |
|
|
|
$ |
27.6 |
|
Sales contracts |
|
|
11.4 |
|
|
|
(10.6 |
) |
|
|
|
|
|
|
0.8 |
|
Patents, technology and other |
|
|
9.4 |
|
|
|
(4.3 |
) |
|
|
1.1 |
|
|
|
6.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
63.0 |
|
|
$ |
(29.5 |
) |
|
$ |
1.1 |
|
|
$ |
34.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
Note 4 Inventories
Components of Inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In millions) |
|
2011 |
|
|
2010 |
|
At FIFO cost: |
|
|
|
|
|
|
|
|
Finished products |
|
$ |
139.7 |
|
|
$ |
129.2 |
|
Work in process |
|
|
3.2 |
|
|
|
2.4 |
|
Raw materials and supplies |
|
|
95.0 |
|
|
|
79.7 |
|
|
|
|
|
|
|
|
|
|
$ |
237.9 |
|
|
$ |
211.3 |
|
|
|
|
|
|
|
|
Note 5 Property
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In millions) |
|
2011 |
|
|
2010 |
|
Land and land improvements |
|
$ |
44.1 |
|
|
$ |
43.5 |
|
Buildings |
|
|
296.8 |
|
|
|
290.0 |
|
Machinery and equipment |
|
|
921.6 |
|
|
|
909.7 |
|
|
|
|
|
|
|
|
|
|
|
1,262.5 |
|
|
|
1,243.2 |
|
Less accumulated depreciation and amortization |
|
|
(882.9 |
) |
|
|
(868.8 |
) |
|
|
|
|
|
|
|
|
|
$ |
379.6 |
|
|
$ |
374.4 |
|
|
|
|
|
|
|
|
Note 6 Income Taxes
Income tax expense was $60.9 million for the first quarter of 2011 compared to $4.0 million in
the first quarter of 2010. We record our interim provision for income taxes based on our estimated
annual effective tax rate as well as certain items discrete to the current period. Our interim
provision, as well as our estimated annual effective tax rate, is impacted by a number of factors
including our U.S. federal and state and foreign income tax loss carryforwards and our ability to
use them as well as changes to our unrealized tax benefits.
We decreased existing valuation allowances against our deferred tax assets by $2.4 million in the
first quarter of 2011 and $3.6 million in the first quarter of 2010 as a result of generating
positive pre-tax income.
Note 7 Investment in Equity Affiliates
The results of operations of SunBelt Chlor-Alkali Partnership (SunBelt), a manufacturer and
marketer of PVC resins, were included in the SunBelt Joint Venture operating segment through the
date of disposition of our interest in SunBelt. On February 28, 2011, we sold our 50% interest in
SunBelt to Olin Corporation (Olin) for $132.3 million in cash, the assumption by Olin of our
guarantee of $42.7 million aggregate principal amount of senior secured notes issued by SunBelt,
and potential annual earn-out payments for three fiscal years ending December 31, 2011, 2012 and
2013, if SunBelt meets certain performance targets. In the three months ended March 31, 2011, we
recorded a pre-tax gain of $128.2 million net of associated transaction costs within Income related
to equity affiliates.
The following tables present SunBelts summarized financial results for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Two Months Ended |
|
|
Three Months Ended |
|
(Dollars in millions) |
|
February 28, 2011 |
|
|
March 31, 2010 |
|
Net sales |
|
$ |
30.5 |
|
|
$ |
27.6 |
|
Operating income |
|
$ |
12.7 |
|
|
$ |
3.4 |
|
Partnership income as reported by SunBelt |
|
$ |
11.5 |
|
|
$ |
1.6 |
|
|
|
|
|
|
|
|
Equity affiliate earnings recorded by PolyOne |
|
$ |
5.7 |
|
|
$ |
0.8 |
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
December 31, |
|
Summarized balance sheet (Dollars in millions) |
|
2010 |
|
Current assets |
|
$ |
21.2 |
|
Non-current assets |
|
|
78.7 |
|
|
|
|
|
Total assets |
|
|
99.9 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
21.3 |
|
Non-current liabilities |
|
|
73.1 |
|
|
|
|
|
Total liabilities |
|
|
94.4 |
|
|
|
|
|
Partnership capital |
|
$ |
5.5 |
|
|
|
|
|
Note 8 Weighted-Average Shares Used in Computing Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
(In millions) |
|
|
2011 |
|
|
|
2010 |
|
Weighted-average shares outstanding basic |
|
|
93.9 |
|
|
|
92.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares diluted: |
|
|
|
|
|
|
|
|
Weighted-average shares outstanding basic |
|
|
93.9 |
|
|
|
92.5 |
|
Plus dilutive impact of stock options and awards |
|
|
2.5 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
Weighted-average shares diluted |
|
|
96.4 |
|
|
|
95.3 |
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2011 and 2010, 0.4 million and 2.4 million of
equity-based awards, respectively, were excluded from the computation of diluted earnings per share
because their effect would have been anti-dilutive.
Note 9 Employee Benefit Plans
Components of defined benefit pension plan costs, adjusted for our change in accounting as
described in Note 2, Change in Accounting Principle, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
|
|
|
|
Adjusted |
|
(In millions) |
|
2011 |
|
|
2010 |
|
Service cost |
|
$ |
0.4 |
|
|
$ |
0.4 |
|
Interest cost |
|
|
7.1 |
|
|
|
7.4 |
|
Expected return on plan assets |
|
|
(7.3 |
) |
|
|
(6.5 |
) |
Amortization of transition obligation and prior service costs |
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
$ |
0.2 |
|
|
$ |
1.5 |
|
|
|
|
|
|
|
|
Components of postretirement health care plan benefit costs, adjusted for our change in
accounting as described in Note 2, Change in Accounting Principle, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
|
|
|
|
Adjusted |
|
(In millions) | |
2011 |
|
|
2010 |
|
Interest cost |
|
$ |
0.3 |
|
|
$ |
0.4 |
|
Amortization of transition obligation and prior service costs |
|
|
(4.4 |
) |
|
|
(4.4 |
) |
|
|
|
|
|
|
|
|
|
$ |
(4.1 |
) |
|
$ |
(4.0 |
) |
|
|
|
|
|
|
|
11
Note 10 Financing Arrangements
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(Dollars in millions) |
|
2011(1) |
|
|
2010(1) |
|
8.875% senior notes due May 2012 |
|
$ |
22.9 |
|
|
$ |
22.9 |
|
7.500% debentures due December 2015 |
|
|
50.0 |
|
|
|
50.0 |
|
7.375% senior notes due September 2020 |
|
|
360.0 |
|
|
|
360.0 |
|
Medium-term notes: |
|
|
|
|
|
|
|
|
6.58% medium-term notes due February 2011 |
|
|
|
|
|
|
20.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
432.9 |
|
|
|
452.9 |
|
Less current portion |
|
|
|
|
|
|
20.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, net of current portion |
|
$ |
432.9 |
|
|
$ |
432.9 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Book values include unamortized discounts and adjustments related to hedging
instruments, as applicable. |
In February 2011, we repaid $20 million aggregate principal amount of our 6.58% medium-term
notes at maturity.
Note 11 Sale of Accounts Receivable
Accounts receivable consists of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In millions) |
|
2011 |
|
| 2010 |
|
Trade accounts receivable |
|
$ |
182.6 |
|
|
$ |
135.4 |
|
Retained interest in securitized accounts receivable |
|
|
204.4 |
|
|
|
163.2 |
|
Allowance for doubtful accounts |
|
|
(4.5 |
) |
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
$ |
382.5 |
|
|
$ |
294.5 |
|
|
|
|
|
|
|
|
Sale of Accounts Receivable Under the terms of our accounts receivable sale facility, we
sell accounts receivable to PolyOne Funding Corporation (PFC) and PolyOne Funding Canada
Corporation (PFCC), both wholly owned, bankruptcy-remote subsidiaries. PFC and PFCC, in turn, may
sell an undivided interest in up to $175 million and $25 million of these accounts receivable,
respectively, to certain investors. The accounts receivable sale facility matures in June 2012. As
of March 31, 2011 and December 31, 2010, accounts receivable totaling $204.4 million and $163.2
million, respectively, were sold by us to PFC and PFCC. The maximum amount of proceeds that PFC and
PFCC may receive under the facility is limited to the lesser of $200 million or 85% of the eligible
domestic and Canadian accounts receivable sold. As of March 31, 2011 and December 31, 2010, neither
PFC nor PFCC had sold any of their undivided interests in accounts receivable.
The accounts receivable sale facility also makes up to $40 million available for the issuance of
standby letters of credit as a sub-limit within the $200 million limit under the facility, of which
$12.9 million was used at March 31, 2011. The level of availability under the accounts receivable
sale facility is based on the prior months total accounts receivable sold to PFC and PFCC, as
reduced by outstanding letters of credit. Additionally, availability is dependent upon compliance
with a fixed charge coverage ratio covenant related primarily to operating performance that is set
forth in the related agreements. As of March 31, 2011, we were in compliance with these covenants.
As of March 31, 2011, $145.6 million of securitized accounts receivable were available for sale.
12
Note 12 Segment Information
Segment information for the three months ended March 31, 2011 and 2010, adjusted for our
change in accounting as described in Note 2, Change in Accounting Principle, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted |
|
|
|
Three Months Ended March 31, 2011 |
|
|
Three Months Ended March 31, 2010 |
|
|
|
Sales to |
|
|
|
|
|
|
Segment |
|
|
Sales to |
|
|
|
|
|
|
Segment |
|
|
|
External |
|
|
Total |
|
|
Operating |
|
|
External |
|
|
|
|
|
|
Operating |
|
(In millions) |
|
Customers |
|
|
Sales |
|
|
Income |
|
|
Customers |
|
|
Total Sales |
|
|
Income |
|
Global Specialty Engineered
Materials |
|
$ |
142.9 |
|
|
$ |
151.9 |
|
|
$ |
14.4 |
|
|
$ |
119.0 |
|
|
$ |
126.3 |
|
|
$ |
12.1 |
|
Global Color, Additives and Inks |
|
|
139.8 |
|
|
|
140.4 |
|
|
|
11.3 |
|
|
|
130.0 |
|
|
|
130.9 |
|
|
|
8.9 |
|
Performance Products and Solutions |
|
|
189.8 |
|
|
|
208.7 |
|
|
|
14.3 |
|
|
|
166.4 |
|
|
|
183.7 |
|
|
|
12.1 |
|
PolyOne Distribution |
|
|
246.0 |
|
|
|
247.0 |
|
|
|
14.7 |
|
|
|
215.0 |
|
|
|
215.9 |
|
|
|
8.6 |
|
SunBelt Joint Venture |
|
|
|
|
|
|
|
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
Corporate and eliminations |
|
|
|
|
|
|
(29.5 |
) |
|
|
120.1 |
|
|
|
|
|
|
|
(26.4 |
) |
|
|
(7.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
718.5 |
|
|
$ |
718.5 |
|
|
$ |
179.8 |
|
|
$ |
630.4 |
|
|
$ |
630.4 |
|
|
$ |
33.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
|
|
|
|
|
December 31, |
|
|
|
March 31, 2011 |
|
|
2010 |
|
Global Specialty Engineered Materials |
|
$ |
373.2 |
|
|
$ |
346.3 |
|
Global Color, Additives and Inks |
|
|
385.3 |
|
|
|
338.1 |
|
Performance Products and Solutions |
|
|
310.5 |
|
|
|
287.5 |
|
PolyOne Distribution |
|
|
196.6 |
|
|
|
159.8 |
|
SunBelt Joint Venture |
|
|
|
|
|
|
3.2 |
|
Corporate and eliminations |
|
|
562.9 |
|
|
|
537.0 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,828.5 |
|
|
$ |
1,671.9 |
|
|
|
|
|
|
|
|
Note 13 Commitments and Contingencies
We have been notified by federal and state environmental agencies and by private parties that
we may be a potentially responsible party (PRP) in connection with the investigation and
remediation of certain environmental waste disposal sites. While government agencies frequently
assert that PRPs are jointly and severally liable at these sites, in our experience, the interim
and final allocations of liability costs are generally made based on the relative contribution of
waste. We believe that our potential continuing liability with respect to these sites will not have
a material adverse effect on our consolidated financial position, results of operations or cash
flows. In addition, we initiate corrective and preventive environmental projects of our own to
ensure safe and lawful activities at our operations. We believe that compliance with current
governmental regulations at all levels will not have a material adverse effect on our financial
condition.
During the three months ended March 31, 2011 and 2010, we recognized $1.5 million and $3.1 million,
respectively, of expense related to environmental activities at all of our active and inactive
sites. During the three months ended March 31, 2011, we received $1.9 million of proceeds from
insurance recoveries. We did not receive any proceeds from insurance recoveries during the three
months ended March 31, 2010. The gains associated with these recoveries are included within Cost of
sales in our Consolidated Statement of Operations.
Based on estimates that were prepared by our environmental engineers and consultants, we had
accrued $85.2 million at March 31, 2011 and $87.4 million at December 31, 2010 for probable future
environmental expenditures related to previously contaminated sites. The accruals represent our
best estimate of the remaining probable remediation costs, based upon information and technology
that is currently available and our view of the most likely remedy. Depending upon the results of
future testing, the ultimate remediation alternatives undertaken, changes in regulations, new
information, newly discovered conditions and other factors, it is reasonably possible that we could
incur additional costs in excess of the amount accrued at March 31, 2011. However, such additional
costs, if any, cannot be currently
13
estimated. Our estimate of the liability may be revised as new regulations or technologies are
developed or additional information is obtained. Additional information related to environmental
liabilities is in Note 12, Commitments and Related-Party Information, to the consolidated financial
statements included in our Annual Report on Form 10-K for the year ended December 31, 2010.
Note 14 Fair Value
The estimated fair values of financial instruments were principally based on market prices
where such prices were available and, where unavailable, fair values were estimated based on market
prices of similar instruments. Short-term foreign exchange contracts are the only asset or
liability recorded at fair value on a recurring basis. These contracts are measured based on
exchange rates at March 31, 2011 and classified as a Level 2 fair value measurement within the fair
value hierarchy.
The following table summarizes the contractual amounts of our foreign exchange contracts as of
March 31, 2011. Foreign currency amounts are translated at exchange rates as of March 31, 2011. The
Buy amounts represent the U.S. dollar equivalent of commitments to purchase currencies, and the
Sell amounts represent the U.S. dollar equivalent of commitments to sell currencies.
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
Currency (In millions) |
|
Buy |
|
Sell |
U.S. Dollar |
|
$ |
61.0 |
|
|
|
|
|
Euro |
|
|
|
|
|
$ |
56.6 |
|
British pound |
|
|
|
|
|
$ |
4.4 |
|
The carrying amounts and fair values of our financial instruments as of March 31, 2011 and
December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
December 31, 2010 |
|
|
|
Carrying |
|
|
|
|
|
Carrying |
|
|
(In millions) |
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
Cash and cash equivalents |
|
$ |
412.4 |
|
|
$ |
412.4 |
|
|
$ |
378.1 |
|
|
$ |
378.1 |
|
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.500% debentures |
|
|
50.0 |
|
|
|
54.0 |
|
|
|
50.0 |
|
|
|
52.8 |
|
8.875% senior notes |
|
|
22.9 |
|
|
|
24.1 |
|
|
|
22.9 |
|
|
|
24.2 |
|
7.375% senior notes |
|
|
360.0 |
|
|
|
381.6 |
|
|
|
360.0 |
|
|
|
374.4 |
|
Medium-term notes |
|
|
|
|
|
|
|
|
|
|
20.0 |
|
|
|
20.1 |
|
Foreign exchange contracts |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
(0.4 |
) |
|
|
(0.4 |
) |
We are exposed to market risk from changes in foreign currency exchange rates. Information
about our risks and exposure management is included in Item 7A Quantitative and Qualitative
Disclosures about Market Risk in our Annual Report on Form 10-K for the year ended December 31,
2010. There have been no material changes in the market risk from December 31, 2010 to March 31,
2011.
14
Note 15 Comprehensive Income
The following table sets forth the reconciliation of net income to comprehensive income,
adjusted for our change in accounting as described in Note 2, Change in Accounting Principle:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
|
|
|
|
Adjusted |
|
(In millions) |
|
2011 |
|
|
2010 |
|
Net income |
|
$ |
110.2 |
|
|
$ |
21.0 |
|
Amortization of transition obligation and prior service costs |
|
|
(3.3 |
) |
|
|
(4.2 |
) |
Translation adjustment |
|
|
8.1 |
|
|
|
(4.9 |
) |
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
115.0 |
|
|
$ |
11.9 |
|
|
|
|
|
|
|
|
15
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Our Business
We are a premier provider of specialized polymer materials, services and solutions with operations
in thermoplastic compounds, specialty polymer formulations, color and additive systems,
thermoplastic resin distribution and specialty vinyl resins. Headquartered in Avon Lake, Ohio, we
have employees at manufacturing sites and distribution facilities in North America, South America,
Europe and Asia. We provide value to our customers through our ability to link our knowledge of
polymers and formulation technology with our manufacturing and supply chain to provide an essential
link between large chemical producers (our raw material suppliers) and designers, assemblers and
processors of plastics (our customers). When used in this Quarterly Report on Form 10-Q, the terms
we, us, our and the Company mean PolyOne Corporation and its subsidiaries.
Recent Developments
Change in Accounting Principle
Effective January 1, 2011, we changed our method of recognizing actuarial gains and losses for
pension and other postretirement benefits for all our defined benefit plans. Historically, we
recognized actuarial gains and losses in accumulated other comprehensive income within
Shareholders Equity on our consolidated balance sheets on an annual basis and amortized them into
our operating results over the average remaining life expectancy of the plan participants for the
majority of our U.S. and foreign benefit plans and over the remaining service period of plan
participants for certain non-U.S. benefit plans, to the extent such gains and losses were outside
of a corridor. We have elected to immediately recognize actuarial gains and losses, after
consideration of inventory capitalization, in our operating results in the year in which the gains
or losses occur because it is generally preferable to accelerate the recognition of deferred gains
and losses into income rather than to delay such recognition. These gains and losses are generally
only measured annually as of December 31 and accordingly will be recorded during the fourth quarter
of each year. The majority of our net periodic benefit cost is captured within Corporate and
eliminations in our operating segment results. The impact associated with our accounting change is
reflected entirely within Corporate and eliminations. The annual recognition of actuarial gains and
losses will be reflected within Corporate and eliminations. This change will improve the
transparency in our operating results by more quickly recognizing the effects of economic and
interest rate trends on plan obligations, investments and assumptions. All prior periods presented
in this Quarterly Report on Form 10-Q have been adjusted to apply the new method retrospectively.
Acquisition
On January 3, 2011, we acquired the assets of Uniplen Indústria de Polímeros Ltda. (Uniplen), a
leading Brazilian producer of specialty engineered materials and distributor of thermoplastics. The
Uniplen transaction was completed for a cash purchase price of $21 million, with a potential for
further consideration payable over the next three years based on the acquired business achieving
certain performance targets. Uniplen recorded revenues of approximately $34 million in 2010.
Uniplens results of operations are included within Global Specialty Engineered Materials.
Sale of SunBelt Chlor-Alkali Partnership
On February 28, 2011, we sold our 50% equity interest in SunBelt to Olin Corporation (Olin) for
$132.3 million in cash, the assumption by Olin of our guarantee of $42.7 million aggregate
principal amount of senior secured notes issued by SunBelt, and potential annual earn-out payments
for three fiscal years ending December 31, 2011, 2012 and 2013, if SunBelt meets certain
performance targets. In the three months ended March 31, 2011, we recorded a pre-tax gain of $128.2
million net of associated transaction costs.
Cash Dividend and Share Repurchase
On March 3, 2011, our Board of Directors approved a dividend of $0.04 per common share outstanding,
to be paid on April 7, 2011 to shareholders of record on March 14, 2011. Additionally, in March
2011, we repurchased 1,000,000 common shares for $13.6 million in the aggregate.
16
Highlights and Executive Summary
Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
Adjusted |
(In millions) |
|
2011 |
|
2010 |
Sales |
|
$ |
718.5 |
|
|
$ |
630.4 |
|
Operating income |
|
$ |
179.8 |
|
|
$ |
33.7 |
|
Net income |
|
$ |
110.2 |
|
|
$ |
21.0 |
|
Sales increased 14.0% in the first quarter of 2011 compared to the first quarter of 2010
driven by a 6.3% increase in volume and increased market pricing associated with raw material
inflation. Sales increased across many of our end markets in the first quarter of 2011 compared to
the first quarter of 2010, led by gains in transportation, wire and cable, building and
construction, industrial and healthcare end markets.
Operating income increased $146.1 million in the first quarter of 2011 compared to the first
quarter of 2010. Operating income in the first quarter of 2011 included a $128.2 million net gain
from the sale of our equity investment in SunBelt. In addition to the increase in operating income
of $128.2 million due to the sale of our equity interest in SunBelt, operating income improved
$17.9 million due to an increase in volume, improved sales mix, and ongoing efficiency gains from
our Lean Six Sigma initiatives.
Net income increased in the first quarter of 2011 for the reasons cited above. Income tax expense
increased in the first quarter of 2011 as compared to the corresponding period in 2010 primarily
due to tax on the gain on the sale of our equity investment in SunBelt and our improved operating
results.
Results of Operations Three Months Ended March 31, 2011 compared to the Three Months Ended
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VariancesFavorable |
|
|
|
Three Months Ended March 31, |
|
|
(Unfavorable) |
|
|
|
|
|
|
|
Adjusted |
|
|
|
|
|
|
|
(Dollars in millions, except per share data) |
|
2011 |
|
|
2010 |
|
|
Change |
|
|
% Change |
|
Sales |
|
$ |
718.5 |
|
|
$ |
630.4 |
|
|
$ |
88.1 |
|
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
595.8 |
|
|
|
526.7 |
|
|
|
(69.1 |
) |
|
|
(13.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
122.7 |
|
|
|
103.7 |
|
|
|
19.0 |
|
|
|
18.3 |
% |
Selling and administrative |
|
|
76.8 |
|
|
|
71.5 |
|
|
|
(5.3 |
) |
|
|
(7.4 |
)% |
Income related to equity affiliates |
|
|
133.9 |
|
|
|
1.5 |
|
|
|
132.4 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
179.8 |
|
|
|
33.7 |
|
|
|
146.1 |
|
|
NM |
|
Interest expense, net |
|
|
(8.5 |
) |
|
|
(8.0 |
) |
|
|
(0.5 |
) |
|
|
6.3 |
% |
Other expense, net |
|
|
(0.2 |
) |
|
|
(0.7 |
) |
|
|
0.5 |
|
|
|
(71.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
171.1 |
|
|
|
25.0 |
|
|
|
146.1 |
|
|
NM |
|
Income tax expense |
|
|
(60.9 |
) |
|
|
(4.0 |
) |
|
|
(56.9 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
110.2 |
|
|
$ |
21.0 |
|
|
$ |
89.2 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
1.17 |
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
1.14 |
|
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
Sales
Sales increased 14.0% in the first quarter of 2011 compared to the first quarter of 2010 driven by
a 6.3% increase in volume and increased market pricing associated with raw material inflation.
Sales increased across many of our end markets in the first quarter of 2011 compared to the first
quarter of 2010, led by gains in transportation, wire and cable, building and construction,
industrial and healthcare end markets.
17
Cost of Sales
These costs include raw materials, plant conversion, distribution, environmental remediation and
plant-related restructuring charges. As a percent of sales, cost of sales declined from 83.6% in
the first quarter of 2010 to 82.9% in the first quarter of 2011 driven by improvements in sales mix
and ongoing efficiency gains from Lean Six Sigma initiatives.
Selling and Administrative
These costs include selling, technology, administrative functions, corporate and general expenses
and amortization of intangible assets and increased over the first quarter of the prior year
principally due to higher salaries and benefits for newly hired commercial resources.
Income related to Equity Affiliates
Income related to equity affiliates is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(In millions) |
|
2011 |
|
|
2010 |
|
SunBelt |
|
$ |
133.9 |
|
|
$ |
0.8 |
|
BayOne |
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
$ |
133.9 |
|
|
$ |
1.5 |
|
|
|
|
|
|
|
|
Income related to equity affiliates for the first quarter of 2011 increased as compared to the
corresponding period in 2010 due to the net gain on the sale of our equity investment in SunBelt of
$128.2 million. The net gain associated with our sale of our equity investment in SunBelt is
reflected within Corporate and eliminations in our segments.
Interest Expense, net
Interest expense, net increased in the first quarter of 2011 as compared to the first quarter of
2010 due to lower interest income. Included in Interest expense, net for each of the three months
ended March 31, 2011 and 2010 is interest income of $0.2 million and $0.8 million, respectively.
Other Expense, net
Other expense, net includes financing costs associated with our accounts receivable sale facility,
foreign currency gains and losses and other miscellaneous items. Included in Other expense, net for
the first quarter of 2011 is a gain of $0.5 million associated with an earn-out from our sale of
OSullivan Films.
Income Tax (Expense) Benefit
Income tax expense was $60.9 million for the first quarter of 2011 compared to $4.0 million in the
first quarter of 2010. We record our interim provision for income taxes based on our estimated
annual effective tax rate as well as certain items discrete to the current period. Our interim
provision, as well as our estimated annual effective tax rate, is impacted by a number of factors
including our U.S. federal and state and foreign income tax loss carryforwards and our ability to
use them as well as changes to our unrealized tax benefits.
We decreased existing valuation allowances against our deferred tax assets by $2.4 million in the
first quarter of 2011 and $3.6 million in the first quarter of 2010 as a result of generating
positive pre-tax income.
18
SEGMENT INFORMATION
Operating income is the primary financial measure that is reported to the chief operating decision
maker for purposes of allocating resources to segments and assessing segment performance. Operating
income at the segment level does not include: corporate general and administrative costs that are
not allocated to segments; intersegment sales and profit eliminations; 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; share-based compensation costs; asset and goodwill
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; and certain
other items that are not included in the measure of segment profit or loss that is reported to and
reviewed by the chief operating decision maker. These costs are included in Corporate and
eliminations.
Sales and Operating Income Three Months Ended March 31, 2011 compared to the Three Months
Ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
March 31, |
|
|
|
|
|
|
|
|
Adjusted |
|
|
|
|
|
|
|
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
Change |
|
|
% Change |
|
Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Specialty Engineered Materials |
|
$ |
151.9 |
|
|
$ |
126.3 |
|
|
$ |
25.6 |
|
|
|
20.3 |
% |
Global Color, Additives and Inks |
|
|
140.4 |
|
|
|
130.9 |
|
|
|
9.5 |
|
|
|
7.3 |
% |
Performance Products and Solutions |
|
|
208.7 |
|
|
|
183.7 |
|
|
|
25.0 |
|
|
|
13.6 |
% |
PolyOne Distribution |
|
|
247.0 |
|
|
|
215.9 |
|
|
|
31.1 |
|
|
|
14.4 |
% |
Corporate and eliminations |
|
|
(29.5 |
) |
|
|
(26.4 |
) |
|
|
(3.1 |
) |
|
|
11.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
718.5 |
|
|
$ |
630.4 |
|
|
$ |
88.1 |
|
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Specialty Engineered Materials |
|
$ |
14.4 |
|
|
$ |
12.1 |
|
|
$ |
2.3 |
|
|
|
19.0 |
% |
Global Color, Additives and Inks |
|
|
11.3 |
|
|
|
8.9 |
|
|
|
2.4 |
|
|
|
27.0 |
% |
Performance Products and Solutions |
|
|
14.3 |
|
|
|
12.1 |
|
|
|
2.2 |
|
|
|
18.2 |
% |
PolyOne Distribution |
|
|
14.7 |
|
|
|
8.6 |
|
|
|
6.1 |
|
|
|
70.9 |
% |
SunBelt Joint Venture |
|
|
5.0 |
|
|
|
(0.3 |
) |
|
|
5.3 |
|
|
NM |
|
Corporate and eliminations |
|
|
120.1 |
|
|
|
(7.7 |
) |
|
|
127.8 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
179.8 |
|
|
$ |
33.7 |
|
|
$ |
146.1 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) as a percentage of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Specialty Engineered Materials |
|
|
9.5 |
% |
|
|
9.6 |
% |
|
(0.1 |
)% points |
|
|
|
|
Global Color, Additives and Inks |
|
|
8.0 |
% |
|
|
6.8 |
% |
|
1.2 |
% points |
|
|
|
|
Performance Products and Solutions |
|
|
6.9 |
% |
|
|
6.6 |
% |
|
0.3 |
% points |
|
|
|
|
PolyOne Distribution |
|
|
6.0 |
% |
|
|
4.0 |
% |
|
2.0 |
% points |
|
|
|
|
Total |
|
|
25.0 |
% |
|
|
5.3 |
% |
|
19.7 |
% points |
|
|
|
|
Global Specialty Engineered Materials
Sales increased $25.6 million, or 20.3%, in the first quarter of 2011 compared to the first quarter
of 2010. Improvements in sales mix and increases in market pricing associated with raw material
inflation favorably impacted sales by 13.4%, while the acquisition of Uniplen added 6.4%.
Global Color, Additives and Inks
Sales increased $9.5 million, or 7.3%, in the first quarter of 2011 compared to the first quarter
of 2010. Sales mix and increases in market pricing associated with raw material inflation favorably
impacted sales by 12.0%, and were partially offset by a 5.4% decline in volume. Currency exchange
rates favorably impacted sales by 0.8%.
Operating income increased $2.4 million in the first quarter of 2011 as compared to the first
quarter of 2010 driven by increased sales and improved sales mix.
19
Performance Products and Solutions
Sales increased $25.0 million, or 13.6%, in the first quarter of 2011 compared to the first quarter
of 2010. Volume increased 11.8% as compared to the first quarter of 2010, driven primarily by
improvements in the industrial and building and construction end markets. Increased sales prices
and improved product mix favorably impacted sales by 1.7%.
Operating income increased $2.2 million in the first quarter of 2011 compared to the first quarter
of 2010 primarily due to the increase in sales.
PolyOne Distribution
Sales increased $31.1 million, or 14.4%, in the first quarter of 2011 compared to the first quarter
of 2010. Sales were favorably impacted by improved product mix and increased market pricing
associated with raw material inflation in the North American plastics and chemicals industry.
Operating income increased $6.1 million in the first quarter of 2011 compared to the first quarter
of 2010 due to increased sales.
SunBelt Joint Venture
Income from the SunBelt Joint Venture increased $5.3 million in the first quarter of 2011 through
the date of the disposition of our equity interest in SunBelt compared to the first quarter of 2010
driven by approximately 50% increase in electrochemical unit pricing.
Corporate and Eliminations
The following table breaks down Corporate and eliminations into its various components for the
first quarter of 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
Adjusted |
|
(In millions) |
|
2011 |
|
|
2010 |
|
Environmental remediation costs |
|
$ |
(1.5 |
) |
|
$ |
(3.1 |
) |
Employee separation and plant phaseout |
|
|
(0.3 |
) |
|
|
|
|
Share-based compensation |
|
|
(1.2 |
) |
|
|
(0.9 |
) |
Incentive compensation |
|
|
(5.1 |
) |
|
|
(8.4 |
) |
Unallocated pension and postretirement medical expense |
|
|
4.0 |
|
|
|
3.7 |
|
Insurance settlement |
|
|
1.9 |
|
|
|
3.2 |
|
Gain on sale of equity interest in SunBelt |
|
|
128.2 |
|
|
|
|
|
All other and eliminations (a) |
|
|
(5.9 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
Total Corporate and eliminations |
|
$ |
120.1 |
|
|
$ |
(7.7 |
) |
|
|
|
|
|
|
|
|
|
|
(a) |
|
All other and eliminations is comprised of intersegment eliminations and corporate
general and administrative costs that are not allocated to segments. |
20
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
(In millions) |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Cash and cash equivalents |
|
$ |
412.4 |
|
|
$ |
378.1 |
|
Accounts receivable sale facility availability |
|
|
145.6 |
|
|
|
128.2 |
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
558.0 |
|
|
$ |
506.3 |
|
|
|
|
|
|
|
|
Liquidity is defined as an enterprises ability to generate adequate amounts of cash to meet
both current and future needs. These needs include paying obligations as they mature, maintaining
production capacity and providing for planned growth. Capital resources are sources of funds other
than those generated by operations.
In the first three months of 2011, liquidity increased by $51.7 million, driven by the increase in
our cash balance and the increase in accounts receivable, providing additional borrowing capacity
against our accounts receivable sale facility. The increase in cash of $34.3 million includes cash
proceeds of $132.3 million from the sale of our equity investment in SunBelt, offset by debt
principle payments of $20.0 million, cash of $13.6 million paid to acquire our common shares, a net
cash payment of $20.0 million for our acquisition of Uniplen, and increased investment in our
working capital of $28.7 million to support our growth. The increase in our accounts receivable
facility availability reflects an increase in sales.
Cash Flows
The following describes the material components of cash flows from operating, investing and
financing activities for the first three months of 2011 and 2010.
Operating Activities In first three months of 2011, net cash used by operating activities was
$39.4 million as compared to net cash provided by operating activities of $2.8 million in the first
three months of 2010. In the first three months of 2011, working capital, which we define as
accounts receivable plus inventory less accounts payable, increased reflecting our investment of
$28.7 million in support of our sales growth. Working capital as a percentage of sales for the
first three months of 2011 was 9.7% compared to 10.4% for the first three months of 2010. Accounts
receivable as a percentage of quarterly sales increased to 53.2% as of March 31, 2011 as compared
to 47.7% as of December 31, 2010. The increase in accounts receivable resulted principally from
higher sales in March 2011 compared to December 2010. Days sales outstanding over the period from
December 31, 2010 to March 31, 2011 improved from 49.5 to 43.5.
Investing Activities Cash provided by investing activities during the first three months of 2011
was $105.1 million, reflecting cash proceeds of $132.3 million from the sale of our 50% equity
investment in SunBelt. Cash paid for our acquisition of Uniplen, net of cash acquired, was $20.0
million and capital expenditures were $7.7 million. Cash provided by investing activities in the
first quarter of 2010 included proceeds from the sale of our investment in OSullivan Films and the
collection of the principal on the related note receivable.
Financing Activities Net cash used by financing activities in the first three months of 2011 was
$32.5 million, which includes repayment of $20.0 million of aggregate principal amount of our 6.58%
medium-term notes at maturity and cash paid to repurchase $13.6 million of our outstanding common
shares. Cash used by financing activities during the first three months of 2010 reflects our
repayment of $20.0 million of aggregate principal amount of our 6.52% medium-term notes at
maturity.
21
Capital Resources
The following table summarizes our available and outstanding facilities as of March 31, 2011:
|
|
|
|
|
|
|
|
|
(In millions) |
|
Outstanding |
|
|
Available |
|
Long-term debt, including current maturities |
|
$ |
432.9 |
|
|
$ |
|
|
Accounts receivable sale facility |
|
|
|
|
|
|
145.6 |
|
|
|
|
|
|
|
|
|
|
$ |
432.9 |
|
|
$ |
145.6 |
|
|
|
|
|
|
|
|
Our principal sources of liquidity and capital resources are our cash flows from operating
activities, available funding under our accounts receivable sale facility, and proceeds from the
sale of previously closed facilities and redundant assets. We expect that our ability to generate
cash from our operations and other sources of liquidity and capital resources should be sufficient
to support strategic acquisitions as well as our operating needs and quarterly dividends on a
short-term and long-term basis.
Long-Term Debt
As of March 31, 2011, long-term debt totaled $432.9 million, with maturities ranging from 2012 to
2020. There were no current maturities of long-term debt at March 31, 2011.
Aggregate maturities of long-term debt for the next five years are: 2012 $22.9 million; 2013
$0.0 million; 2014 $0.0 million; 2015 $50.0 million; 2016 $0.0; and thereafter $360.0
million.
Each of our 7.375% senior notes due 2020, 7.500% debentures due 2015 and 8.875% senior notes due
2012 are our direct, unsecured obligations and are not guaranteed by any of our subsidiaries. The
indentures governing our 2015 debentures and our 2012 senior notes contain limitations on our
ability to incur secured debt. The indenture governing our 2020 senior notes contains limitations
on, among other things, our ability to incur debt, including secured debt.
Guarantee and Agreement
We entered into a definitive Guarantee and Agreement with Citicorp USA, Inc., KeyBank National
Association and National City Bank (now PNC Bank) on June 6, 2006. Under this Guarantee and
Agreement, we guarantee some treasury management and banking services provided to us and our
subsidiaries, such as foreign currency forwards and bank overdrafts. This guarantee is secured by
our inventories located in the United States.
Accounts Receivable Sale Facility
As of March 31, 2011, we had receivables sale facilities outstanding in the United States and
Canada totaling $200 million. These facilities expire in June 2012. The maximum proceeds that we
may receive are limited to the lesser of $200 million or 85% of the eligible domestic and Canadian
accounts receivable sold. This facility also makes up to $40 million available for issuing standby
letters of credit as a sub-limit within the $200 million facility, of which $12.9 million was used
at March 31, 2011.
The facility requires us to maintain a minimum fixed charge coverage ratio (defined as Adjusted
EBITDA less capital expenditures, divided by the sum of interest expense and scheduled debt
repayments for the next four quarters) of at least 1 to 1 when average excess availability under
the facility is $40 million or less. As of March 31, 2011, the average excess availability under
the facility was greater than $40 million. Additionally, the fixed charge coverage ratio exceeded 1
to 1.
The indentures governing 2015 debentures and our 2012 senior notes allow a specific level of
secured debt, above which security must be provided on the debentures and senior notes on a pari
passu basis. The accounts receivable sale facility is not considered debt under the covenants
associated with the indentures governing these debentures and senior notes. The indenture governing
our 2020 senior notes limits our ability to incur secured debt without providing security on the
senior notes on a pari passu basis other then permitted secured debt, such as the accounts
receivable sale facility.
22
Contractual Obligations
We have future obligations under various contracts relating to debt and interest payments,
operating leases, standby letters of credit, pension and postretirement benefit plans and purchase
obligations. During the three months ended March 31, 2011, there were no significant changes to
these obligations as reported in our Annual Report on Form 10-K for the year ended December 31,
2010, except as it relates to the scheduled repayment of debt as previously discussed.
Critical Accounting Policies and Estimates
Effective January 1, 2011, we changed our method of recognizing actuarial gains and losses for
pension and other postretirement benefits for all our defined benefit plans. Historically, we
recognized actuarial gains and losses in accumulated other comprehensive income within
Shareholders Equity on our consolidated balance sheets on an annual basis and have amortized them
into our operating results over the average remaining life expectancy of the plan participants for
the majority of our U.S. and foreign benefit plans and over the remaining service period of plan
participants for certain non-U.S. benefit plans, to the extent such gains and losses were outside
of a corridor. We have elected to immediately recognize actuarial gains and losses, after
consideration of inventory capitalization, in our operating results in the year in which the gains
and losses occur because it is generally preferable to accelerate the recognition of deferred gains
and losses into income rather than to delay such recognition. This change will improve the
transparency in our operating results by more quickly recognizing the effects of economic and
interest rate trends on plan obligations, investments and assumptions. These gains and losses are
generally only measured annually as of December 31 and, accordingly, will be recorded during the
fourth quarter of each year. In accordance with Financial Accounting Standards Board Accounting
Standards Codification Topic 250, Accounting Changes and Error Corrections, all prior periods
presented in this Quarterly Report on Form 10-Q have been adjusted to apply the new method
retrospectively. The majority of our net periodic benefit cost is captured within Corporate and
eliminations in our operating segment results. The impact associated with our accounting change is
reflected entirely within Corporate and eliminations. The annual recognition of actuarial gains and
losses will be reflected within Corporate and eliminations. The effect of the change on
retained earnings as of January 1, 2010 was a reduction of $190.6 million, with a corresponding
offset to accumulated other comprehensive income.
23
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
In this quarterly report on Form 10-Q, 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
managements 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. They use words such as will, 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 and/or sales. In particular, these
include statements relating to future actions; prospective changes in raw material costs, product
pricing or product demand; future performance; 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
from those implied by these forward-looking statements include, but are not limited to:
|
|
|
the effect on foreign operations of currency fluctuations, tariffs and other
political, economic and regulatory risks; |
|
|
|
|
changes in polymer consumption growth rates where PolyOne conducts business; |
|
|
|
|
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; |
|
|
|
|
production outages or material costs associated with scheduled or unscheduled
maintenance programs; |
|
|
|
|
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 working capital reductions,
cost reductions and employee productivity goals and our new global organization
structure; |
|
|
|
|
an inability to raise or sustain prices for products or services; |
|
|
|
|
an inability to maintain appropriate relations with unions and employees; |
|
|
|
|
the speed and extent of an economic recovery, including the recovery of the housing
and chlor-alkali markets; |
|
|
|
|
the financial condition of our customers, including the ability of customers
(especially those that may be highly leveraged and those with inadequate liquidity) to
maintain their credit availability; |
|
|
|
|
disruptions, uncertainty or volatility in the credit markets that may limit our
access to capital; |
|
|
|
|
the amount and timing of repurchases of PolyOne common shares; |
|
|
|
|
our ability to pay regular quarterly cash dividends and the amounts and timing of
any future dividends; |
|
|
|
|
other factors affecting our business beyond our control, including, without
limitation, changes in the general economy, changes in interest rates and changes in
the rate of inflation; and |
|
|
|
|
other factors described in our Annual Report on Form 10-K for the year ended
December 31, 2010 under Item 1A, Risk Factors. |
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,
except as otherwise required by law. You are advised, however, to consult any further disclosures
we make on related subjects in our reports on Forms 10-Q, 8-K and 10-K furnished to the SEC. You
should understand that it is not possible to predict or identify all risk factors. Consequently,
you should not consider any such list to be a complete set of all potential risks or uncertainties.
24
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures about Market Risk |
We are exposed to certain market risks as part of our ongoing business operations, including risks
from foreign currency exchange rates that could impact our financial condition, results of
operations and cash flows. We manage our exposure to these and other market risks through regular
operating and financing activities, including the use of derivative financial instruments. We
intend to use these derivative financial instruments as risk management tools and not for
speculative investment purposes.
Foreign currency exposure We enter into intercompany lending transactions that are denominated
in various foreign currencies and are subject to financial exposure from foreign exchange rate
movement from the date a loan is recorded to the date it is settled or revalued. To mitigate this
risk, we enter into foreign exchange contracts, which had a fair value of $0.1 million at March 31,
2011. Gains and losses on these contracts generally offset gains and losses on the assets and
liabilities being hedged.
We face translation risks related to the changes in foreign currency exchange rates. Amounts
invested in our foreign operations are translated into U.S. dollars at the exchange rates in effect
at the balance sheet date. The resulting translation adjustments are recorded as a component of
Accumulated other comprehensive income (loss) in the Shareholders equity section of the
accompanying consolidated balance sheets. Net sales and expenses in our foreign operations foreign
currencies are translated into varying amounts of U.S. dollars depending upon whether the U.S.
dollar weakens or strengthens against other currencies. Therefore, changes in exchange rates may
either positively or negatively affect our net sales and expenses from foreign operations as
expressed in U.S. dollars.
|
|
|
Item 4. |
|
Controls and Procedures |
Disclosure controls and procedures
PolyOnes management, under the supervision of and with the participation of its Chief Executive
Officer and its Chief Financial Officer, has evaluated the effectiveness of the design and
operation of PolyOnes disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this
quarterly report. Based upon this evaluation, PolyOnes Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of the period covered by this quarterly report, its
disclosure controls and procedures were effective.
Changes in internal control over financial reporting
There were no changes in PolyOnes internal control over financial reporting during the quarter
ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect,
its internal control over financial reporting.
25
Part II Other Information
|
|
|
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
The table below sets forth information regarding repurchases of our common shares during the period
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
|
Shares that May |
|
|
|
|
|
|
|
|
|
|
|
as Part of Publicly |
|
|
Yet be Purchased |
|
|
|
Total Number of |
|
|
Average Price |
|
|
Announced |
|
|
Under the |
|
Period |
|
Shares Purchased |
|
|
Paid Per Share |
|
|
Program |
|
|
Program (1) |
|
January 1 to January 31 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
8,750,000 |
|
February 1 to February 28 |
|
|
3,590 |
(2) |
|
|
14.44 |
|
|
|
|
|
|
|
8,750,000 |
|
March 1 to March 31 |
|
|
1,000,000 |
|
|
|
13.64 |
|
|
|
1,000,000 |
|
|
|
7,750,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,003,590 |
|
|
$ |
13.65 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On August 18, 2008, our Board of Directors approved a stock repurchase program authorizing
us, depending upon market conditions and other factors, to repurchase up to 10.0 million shares of
our common stock, in the open market or in privately negotiated transactions. |
|
(2) |
|
Represents shares surrendered to our company to satisfy the exercise price in connection with
the exercise of options. |
|
|
|
Exhibit No. |
|
Description of Exhibit |
|
2.1
|
|
Purchase Agreement, dated as of February 28, 2011, by and
among PolyOne Corporation, 1997 Chloralkali Venture, LLC, Olin
Corporation and Olin SunBelt II, Inc. (incorporated by
reference to Exhibit 2.1 to the Companys Current Report on
Form 8-K filed March 3, 2011, SEC File No. 1-16091). |
|
|
|
10.1
|
|
Form of Award Agreement under the 2011 Long-Term Incentive Plan |
|
|
|
18.1
|
|
Letter of Independent Registered Public Accounting Firm
Regarding Change in Accounting Principle |
|
|
|
31.1
|
|
Certification of Stephen D. Newlin, Chairman, President and
Chief Executive Officer, pursuant to SEC Rules 13a-14(a) and
15d-14(a), adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
31.2
|
|
Certification of Robert M. Patterson, Executive Vice President
and Chief Financial Officer, pursuant to SEC Rules 13a-14(a)
and 15d-14(a), adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
32.1
|
|
Certification of Stephen D. Newlin, Chairman, President and
Chief Executive Officer, pursuant to 18 U.S.C. Section 1350,
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
|
|
|
32.2
|
|
Certification of Robert M. Patterson, Executive Vice President
and Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 |
26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
May 4, 2011
|
|
POLYONE CORPORATION |
|
|
|
|
|
|
|
|
|
/s/ Robert M. Patterson
Robert M. Patterson
|
|
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
(Principal Financial Officer and Principal Accounting Officer) |
|
|
27
EXHIBIT INDEX
|
|
|
Exhibit No. |
|
Description of Exhibit |
2.1
|
|
Purchase Agreement, dated as of February 28, 2011, by and
among PolyOne Corporation, 1997 Chloralkali Venture, LLC, Olin
Corporation and Olin SunBelt II, Inc. (incorporated by
reference to Exhibit 2.1 to the Companys Current Report on
Form 8-K filed March 3, 2011, SEC File No. 1-16091). |
|
|
|
10.1
|
|
Form of Award Agreement under the 2011 Long-Term Incentive Plan |
|
|
|
18.1
|
|
Letter of Independent Registered Public Accounting Firm
Regarding Change in Accounting Principle |
|
|
|
31.1
|
|
Certification of Stephen D. Newlin, Chairman, President and
Chief Executive Officer, pursuant to SEC Rules 13a-14(a) and
15d-14(a), adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
31.2
|
|
Certification of Robert M. Patterson, Executive Vice President
and Chief Financial Officer, pursuant to SEC Rules 13a-14(a)
and 15d-14(a), adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
32.1
|
|
Certification of Stephen D. Newlin, Chairman, President and
Chief Executive Officer, pursuant to 18 U.S.C. Section 1350,
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 |
|
|
|
32.2
|
|
Certification of Robert M. Patterson, Executive Vice President
and Chief Financial Officer, pursuant to 18 U.S.C. Section
1350, adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 |
28