PolyOne Announces Fourth Quarter 2008 Results

- Lower raw material costs offset impact of unprecedented demand declines




CLEVELAND, Feb. 5  /PRNewswire-FirstCall/ -- PolyOne Corporation (NYSE: POL) today reported fiscal fourth quarter revenues of $541.8 million, a 14.2 percent decrease compared with revenues of $631.3 million in the fourth quarter of 2007.  Price increases and the acquisition of GLS only partially offset an unprecedented decline in demand as volume fell 24% from the fourth quarter of 2007 to the fourth quarter of 2008.

PolyOne reported a net loss of $282.6 million or $3.07 per share in the fourth quarter of 2008 compared with net income of $7.1 million or $0.08 per diluted share in the fourth quarter of 2007.  Included in the results for the fourth quarter of 2008 are a series of special items, the largest of which are a non-cash goodwill impairment charge of $170.0 million (pre-tax) and a non-cash valuation allowance of $104.5 million recorded against deferred tax assets.  Total special items of $289.5 million (after-tax) or $3.15 per share are detailed in Attachment 1.

On a comparable basis, before special items, PolyOne reported earnings of $0.08 per share in the fourth quarter of 2008 matching the $0.08 per share amount reported in the fourth quarter of last year.  For the full year, PolyOne reported a net loss of $2.94 per share compared with net income of $0.12 per diluted share in 2007.  Before special items, PolyOne reported earnings per share of $0.41 in 2008 - equal to that reported in 2007.

"Despite extraordinary volatility in raw material and energy costs, and unprecedented demand declines in the fourth quarter, we are reporting full year and fourth quarter earnings per share before special items equal to last year," said Stephen D. Newlin, chairman, president and chief executive officer.  "While we believe this is solid performance in the current environment, we must remain focused on the year ahead.  I am proud of the way the PolyOne team is stepping up to contribute as we face a widely expected continued deterioration of the economy in 2009."

Newlin continued, "We believe the volume declines observed during the fourth quarter were at least partially due to customer inventory destocking, and we have yet to see that trend reverse.  Three weeks ago, we announced additional cost cutting measures and restructuring actions that will allow PolyOne to remain competitive through the near-term economic downturn.  We believe these actions set the stage for significant earnings improvement when the economy ultimately recovers."

Special items in the fourth quarter included a tax valuation allowance of $104.5 million against U.S. deferred tax assets.  The valuation allowance is larger than previously disclosed primarily due to finalizing the accounting and determining that about $35 million of the allowance that we previously planned as a direct reduction of equity now must be charged as expense.  This does not change the Company's previous statements that this is a non-cash charge that has no impact on PolyOne's cash flow, liquidity, or credit facilities.  Further, the Company expects that it will have sufficient U.S. profitability during the tax-loss carry-forward period to realize substantially all of the deferred tax benefits.

The non-cash goodwill impairment charge of $170 million relates to the Company's Geon Compounds and Specialty Coatings reporting units within the Performance Products and Solutions Segment.  This goodwill impairment charge is preliminary based on management's best estimates and may be revised prior to the Company filing its 2008 annual report on Form 10-K or during the first quarter of 2009 after management has an opportunity to conduct a full valuation study of these two reporting units.

Special charges recorded during the fourth quarter also include $26.6 million of pre-tax charges related to the combined restructuring actions announced on January 15, 2009 and announced on July 28, 2008.

Commenting on the goodwill impairment, senior vice president and chief financial officer, Robert M. Patterson, said, "The non-cash goodwill impairment charge in 2008 reflects an increase in our cost of capital due primarily to the significant deterioration in the capital markets during the fourth quarter and related decline in the market value of equity and debt securities.  The cost of capital is used to discount future cash flows and therefore is a key assumption used in estimating the fair value of a business. The impairment also reflects a reduction in the near-term earnings outlook for the Geon Compounds and Specialty Coatings reporting units.  While the outlook for these businesses declined in the fourth quarter of 2008, we believe they will both generate significant earnings improvement when the economy recovers."

Patterson added, "We generated strong cash flow during the quarter and we applied this principally to debt reduction.  From the third quarter of 2008, overall debt has declined $50 million, including our Sunbelt joint venture guarantee.  As of December 31, 2008, we had $44 million of cash, plus borrowing availability of $121 million under our accounts receivable securitization facility, for total liquidity of $165 million."

About PolyOne

PolyOne Corporation, with annual revenues of more than $2.7 billion, is a premier provider of specialized polymer materials, services and solutions.  Headquartered outside of Cleveland, Ohio USA, PolyOne has operations around the world.  For additional information on PolyOne, visit our Web site at http://www.polyone.com/.

  To access PolyOne's news library online, please visit http://www.polyone.com/news




                                                             Attachment 1
  Supplemental Information

              Summary of Consolidated Operating Results (Unaudited)
                             Fourth Quarter 2008
                      (In millions, except per share data)


  Operating results:               Three Months Ended       Year Ended
                                      December 31,          December 31,
                                    2008         2007     2008        2007

   Sales                          $541.8       $631.3  $2,738.7    $2,642.7

   Operating income (loss)        (174.7)        18.6    (129.3)       33.9

   Net income (loss)              (282.6)         7.1    (272.9)       11.4

   Earnings per common share:
    Basic and diluted earnings
     (loss) per share             $(3.07)       $0.08    $(2.94)      $0.12

     Total diluted per share
      impact of special items (1) $(3.15)          $-    $(3.35)     $(0.29)



  (1)  Special items is a non-GAAP financial measure. Special items include
       charges related to specific strategic initiatives such as: the
       consolidation of operations; restructuring activities, including
       employee separation costs resulting from personnel reduction
       programs, plant closure and phaseout costs; executive separation
       agreements; goodwill and asset impairments; environmental remediation
       costs for facilities no longer owned or closed in prior years; gains
       and losses on the divestiture of joint ventures and equity
       investments; adjustments to reflect a tax benefit on domestic losses;
       and, deferred income tax valuation allowance. Following is a list of
       special items:


  Special items:                  Three Months Ended       Year Ended
                                    December 31,           December 31,
                                   2008         2007     2008      2007
     Employee separation and
      plant phaseout costs (a)   $(26.6)          $-   $(39.7)    $(2.2)
     Write-down of certain
      assets of and investment
      in equity affiliate (b)         -            -     (4.7)     (1.6)
   (Impairment) adjustment to
    impairment of former
    equity investment (c)             -          1.1        -     (14.8)
   Charge related to sale of
    investment in OxyVinyls           -         (0.4)       -      (0.4)
   Environmental remediation
    costs (d)                      (0.3)        (1.3)   (14.6)    (33.2)
   Reimbursement to Goodrich
    Corp. of environmental
    costs (e)                         -            -        -     (15.6)
   Provision for settlement
    of certain legal issues
    and related reserves           (1.0)           -     (1.0)     (2.4)
   Impairment of goodwill (f)    (170.0)           -   (170.0)        -
   Impairment of other
    intangibles and
    investments                       -            -        -      (2.5)
     Impact on operating income
      (loss)                     (197.9)        (0.6)  (230.0)    (72.7)

   Impairment of available
    for sale security              (0.6)           -     (0.6)        -
   Deferred note issuance
    cost write-off                    -            -        -      (2.7)
   Premium on early
    extinguishment of debt            -            -        -     (12.8)
     Impact on income (loss)
      before income taxes        (198.5)        (0.6)  (230.6)    (88.2)

   Income tax benefit on
    special items                  13.5          0.2     24.4      30.8
     Reversal of deferred tax
      liability associated with
      the sale of equity
       affiliate                      -            -        -      31.5
   Adjustment to foreign
    income tax contingency
    and related interest              -          0.2        -      (0.8)
   Deferred tax valuation
    allowance (g)                (104.5)           -   (104.5)        -
   Impact of special items on
    net income (loss)           $(289.5)       $(0.2) $(310.7)   $(26.7)

   Basic and diluted impact
    per common share             $(3.15)          $-   $(3.35)   $(0.29)

   Weighted average diluted
    shares used to compute
    earnings per share:            92.1         93.2     92.7      93.1


  a.  Severance, employee outplacement, external outplacement consulting,
      lease termination, facility closing costs, accelerated depreciation
      and the write-down of the carrying value of plant and equipment
      resulting from restructuring initiatives and executive separation
      agreements.
  b.  Write-down of certain inventory, receivables, and intangible assets
      of, and an impairment of our investment in our equity affiliate in
      Colombia.
  c.  Non-cash impairment charge to adjust the carrying value of our
      former equity investment in OxyVinyls to fair market value.
  d.  Environmental remediation costs for facilities either no longer
      owned or closed in prior years.
  e.  Remediation costs and certain legal costs related to the
      Calvert City, Kentucky facility.
  f.  Non-cash impairment related to Geon Compounds and Specialty
      Coatings reporting units within the Performance Products and
      Solutions segment. This charge is preliminary based on
      management's best estimates and may be revised prior to the
      Company filing its annual report on Form 10-K or during the
      first quarter of 2009 after management has an opportunity to
      conduct a full valuation study of these two reporting units.
  g.  Tax valuation against U.S. deferred tax assets.



                                 Attachment 2
                 PolyOne Corporation and Subsidiaries
            Consolidated Statements of Operations (Unaudited)
                   (In millions, except per share data)


                                   Three Months Ended        Year Ended
                                      December 31,           December 31,
                                     2008         2007     2008      2007
   Sales                           $541.8       $631.3  $2,738.7  $2,642.7

   Cost of sales                    483.8        566.9   2,442.1   2,381.7
   Gross margin                      58.0         64.4     296.6     261.0
   Selling and administrative        69.5         56.9     287.1     254.8
   Impairment of goodwill           170.0            -     170.0         -
   Income from equity
    affiliates and minority
    interest                          6.8         11.1      31.2      27.7
   Operating income (loss)         (174.7)        18.6    (129.3)     33.9
   Interest expense, net             (9.3)        (7.1)    (37.2)    (46.9)
   Premium on early
    extinguishment of long-term
    debt                                â??            -         -     (12.8)
   Other expense, net                (1.9)        (2.1)     (4.6)     (6.6)
   Income (loss) before income
    taxes                          (185.9)         9.4    (171.1)    (32.4)
   Income tax benefit (expense)     (96.7)        (2.3)   (101.8)     43.8
   Net income (loss)              $(282.6)        $7.1   $(272.9)    $11.4

   Basic and diluted earnings
    (loss) per common share        $(3.07)       $0.08    $(2.94)    $0.12

   Weighted average shares used
    to compute earnings per
    share:
       Basic                         92.1         92.9      92.7      92.8
       Diluted                       92.1         93.2      92.7      93.1

   Dividends declared per share
    of common stock                    $-           $-        $-        $-


   Equity earnings (loss) recorded
    by PolyOne:
     SunBelt                         $5.7        $10.4     $32.5     $41.0
     OxyVinyls                          -         (1.1)        -      (0.2)
     (Impairment) adjustment to
      impairment of investment
      in OxyVinyls                      -           1.1        -     (14.8)
     Other equity affiliates          1.0           1.1      3.3       3.9
   Charges related to sale of
    OxyVinyls investment                -          (0.4)       -      (0.4)
   Write-down of certain assets
    of and investment in
    Geon/Polimeros Andinos              -             -     (4.7)     (1.6)
   Minority interest                  0.1             -      0.1      (0.2)
   Income from equity affiliates
    and minority interest            $6.8         $11.1    $31.2     $27.7



                                                           Attachment 3

                  PolyOne Corporation and Subsidiaries
             Condensed Consolidated Balance Sheets (Unaudited)
  (In millions)

                                                        December  December
                                                        31, 2008  31, 2007
  Assets
  Current assets:
    Cash and cash equivalents                              $44.3     $79.4
    Accounts receivable, net                               262.1     340.8
    Inventories                                            197.8     223.4
    Deferred income tax assets                               1.0      20.4
    Other current assets                                    19.9      19.8
     Total current assets                                  525.1     683.8
  Property, net                                            432.0     449.7
  Investment in equity affiliates and
   nonconsolidated subsidiary                               20.5      19.9
  Goodwill                                                 163.9     288.8
  Other intangible assets, net                              69.1       6.7
  Deferred income tax assets                                 0.5      69.9
  Other non-current assets                                  66.6      64.2
     Total assets                                       $1,277.7  $1,583.0

  Liabilities and Shareholders' Equity
  Current liabilities:
    Current portion of long-term debt                      $19.8     $22.6
    Short-term bank debt                                     6.2       6.1
    Accounts payable                                       160.0     250.5
    Accrued expenses                                       118.2      94.4
     Total current liabilities                             304.2     373.6
  Long-term debt                                           408.3     308.0
  Post-retirement benefits other than pensions              80.9      81.6
  Pension benefits                                         225.0      82.6
  Other non-current liabilities                             83.4      87.8
     Total liabilities                                   1,101.8     933.6
  Shareholders' equity                                     175.9     649.4
     Total liabilities and shareholders' equity         $1,277.7  $1,583.0



                                                          Attachment 4

                  PolyOne Corporation and Subsidiaries
            Consolidated Statements of Cash Flows (Unaudited)
                            (In millions)


                              Three Months Ended       Year Ended
                                 December 31,          December 31,
                                2008         2007     2008      2007
  Operating Activities
    Net income (loss)        $(282.6)        $7.1  $(272.9)       $11.4
    Adjustments to
     reconcile net income
     to net cash provided
     by operating activities:
      Depreciation and
       amortization             16.2         14.7     68.0         57.4
      Deferred income tax
       benefit (expense)        94.5         (4.9)    89.4        (57.1)
      Premium on early
       extinguishment of
       long term debt              -            -        -         12.8
      Provision for
       doubtful accounts         0.7          0.3      6.0          1.9
      Stock compensation
       expense                   0.8          0.7      3.0          4.3
      Impairment of
       goodwill                170.0            -    170.0            -
      Other asset
       write-downs and
       impairment charges        3.1            -      3.6          3.3
      Companies carried at
       equity and minority
       interest:
          Income from equity
           affiliates and
           minority interest    (6.8)       (11.1)   (31.2)       (27.7)
          Dividends and
           distributions
           received             12.1         13.4     32.9         37.6
  Change in assets and
   liabilities:
      (Increase) decrease
       in accounts
       receivable              135.2         42.8     60.8        (10.8)
      (Increase) decrease
       in inventories           68.5         35.7     33.6         26.7
      Increase (decrease)
       in accounts payable    (130.8)       (50.9)   (94.7)        17.8
      Increase (decrease)
       in sale of accounts
       receivable              (11.6)           -     14.2            -
      Increase (decrease)
       in accrued expenses
       and other               (13.8)       (24.0)   (10.2)       (10.4)
  Net cash provided by
   operating activities         55.5         23.8     72.5         67.2

  Investing Activities
    Capital expenditures       (12.9)        (6.7)   (42.5)       (43.4)
    Business
     acquisitions, net of
     cash received                 -         (0.2)  (150.2)       (11.2)
    Investment in
     affiliated company            -            -     (1.1)           -
    Proceeds from sale of
     equity affiliate              -            -        -        260.5
    Proceeds from sale of
     assets                      0.3          4.2      0.3          9.4
  Net cash (used)
   provided by
   investing activities        (12.6)        (2.7)  (193.5)       215.3

  Financing Activities
    Change in short-term
     debt                      (30.1)           -     43.3         (0.2)
    Issuance of long-term
     debt, net of debt
     issuance cost                 -            -     77.8            -
    Repayment of
     long-term debt             (3.1)        (0.7)   (25.3)      (264.1)
    Purchase of common
     stock for treasury         (0.9)           -     (8.9)           -
    Premium on early
     extinguishment of
     long-term debt                -            -        -        (12.8)
    Proceeds from
     exercise of stock
     options                       -          0.3      1.1          1.2
  Net cash (used)
   provided by
   financing activities        (34.1)        (0.4)    88.0       (275.9)

  Effect of exchange
   rate changes on cash         (1.5)         2.5     (2.1)         6.6
  Increase (decrease)
   in cash and cash
   equivalents                   7.3         23.2    (35.1)        13.2
  Cash and cash
   equivalents at
   beginning of period          37.0         56.2     79.4         66.2
  Cash and cash
   equivalents at end
   of period                   $44.3        $79.4    $44.3        $79.4



                                                          Attachment 5

               Business Segment and Platform Operations (Unaudited)
                                (In millions)

  Operating income at the segment level does not include: corporate general
  and administration costs that are not allocated to segments; intersegment
  sales and profit eliminations; charges related to specific 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 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 and loss that is reported
  to and reviewed by the chief operating decision maker. These costs
  are included in Corporate and eliminations.


                                 4Q08     4Q07    Year 2008  Year 2007

  Sales:
    International Color and
     Engineered Materials        $96.4   $146.9     $587.4     $588.6
    Specialty Engineered
     Materials                    54.4     28.7      252.3      124.3
    Specialty Color, Additives
     and Inks                     49.3     53.0      228.6      232.0
      Specialty Platform         200.1    228.6    1,068.3      944.9
    Performance Products and
     Solutions                   193.7    246.1    1,001.4    1,086.8
    PolyOne Distribution         172.7    184.0      796.7      744.3
    Corporate and eliminations   (24.7)   (27.4)    (127.7)    (133.3)
      Sales                     $541.8   $631.3   $2,738.7   $2,642.7

  Gross margin:
    International Color and
     Engineered Materials        $13.6    $23.0      $96.4      $95.9
    Specialty Engineered
     Materials                     9.8      2.9       45.9       12.2
    Specialty Color, Additives
     and Inks                     11.0      9.5       48.0       41.3
      Specialty Platform          34.4     35.4      190.3      149.4
    Performance Products and
     Solutions                    28.2     15.6       85.3      105.5
    PolyOne Distribution          15.6     15.4       73.1       60.7
    Resin and Intermediates          -        -          -        0.6
    Corporate and eliminations   (20.2)    (2.0)     (52.1)     (55.2)
      Gross margin               $58.0    $64.4     $296.6     $261.0

  Operating income (loss):
    International Color and
     Engineered Materials        $(2.4)    $4.8      $20.4      $25.1
    Specialty Engineered
     Materials                     1.8     (1.0)      12.9       (2.2)
    Specialty Color, Additives
     and Inks                      2.5      1.3       13.5        7.0
      Specialty Platform           1.9      5.1       46.8       29.9
    Performance Products and
     Solutions                    16.0      4.3       34.9       57.5
    PolyOne Distribution           6.2      5.7       28.1       22.1
    Resin and Intermediates        4.4      7.3       28.6       34.8
    Corporate and eliminations  (203.2)    (3.8)    (267.7)    (110.4)
      Operating income (loss)  $(174.7)   $18.6    $(129.3)     $33.9


  Specialty Platform consists of our three specialty businesses:
  International Color and Engineered Materials; Specialty
  Engineered Materials; and Specialty Color, Additives and Inks.



                                                      Attachment 6


          Reconciliation of Non-GAAP Financial Measures (Unaudited)
                 (In millions, except per share data)

  Senior management uses operating income before the effect of special items
  to assess performance and allocate resources because senior management
  believes that this measure is useful in understanding current
  profitability levels and that current levels may serve as a base for
  future performance. In addition, operating income before the effect of
  special items is a component of various PolyOne annual and long-term
  employee incentive plans and is used in debt covenant computations.

  Below is a reconciliation of non-GAAP financial measures to the most
  directly comparable measures calculated and presented in accordance
  with GAAP. See Attachment 1 for a list of Special items.


                                   Three Months Ended        Year Ended
                                      December 31,           December 31,
                                    2008        2007       2008      2007

  Operating income before
   special items                   $23.2       $19.2      $100.7    $106.6
  Special items in operating
   income                         (197.9)       (0.6)     (230.0)    (72.7)
     Operating income (loss)     $(174.7)      $18.6     $(129.3)    $33.9

  Income per share before
   impact of special items         $0.08       $0.08       $0.41     $0.41
  Per share impact of special
   items, after tax                (3.15)          -       (3.35)    (0.29)
     Diluted earnings (loss) per
      common share                $(3.07)      $0.08      $(2.94)    $0.12


                                  Three Months Ended          Year Ended
                                      December 31,            December 31,
  Reconciliation to Consolidated
   Statement of Cash Flows          2008        2007        2008      2007

  Net cash provided by operating
   activities                      $55.5       $23.8       $72.5     $67.2
  Net cash (used) provided by
   investing activities            (12.6)       (2.7)     (193.5)    215.3
  Decrease (increase) in sale of
   accounts receivable              11.6           -       (14.2)        -
  Free cash flow                   $54.5       $21.1     $(135.2)   $282.5


DATASOURCE: PolyOne Corporation



CONTACT:  Investor Relations: Robert M. Patterson, Senior Vice President

& Chief Financial Officer, [phone], Media: Amanda Marko, Director,

Corporate Communications, [phone], , both of

PolyOne Corporation 



Web Site:  http://www.polyone.com/

http://www.polyone.com/news 

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