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PolyOne Announces Third Quarter 2008 Results

Thursday 06. November 2008 - - Third quarter sales increase 10.6 percent, earnings decline from special charges and slightly lower operating income. - Global economic slowdown creates new industry headwinds. - Debt reduced -- strong balance sheet positions PolyOne to weather economic slump.

PolyOne Corporation (NYSE: POL), a premier global provider of specialized polymer materials, services and solutions, today reported fiscal third quarter 2008 revenues of $735.1 million, a 10.6 percent increase compared with revenues of $664.8 million in the third quarter of 2007.

PolyOne reported a net loss of $5.6 million or $0.06 per share in the third quarter of 2008 compared with net income of $2.3 million or $0.02 per diluted share in the third quarter of 2007. Included in the results for the third quarter of 2008 and 2007 are special items resulting in charges of $0.19 and $0.12, respectively (see Attachment 1).

On a comparable basis, before special items, PolyOne reported $0.13 per share in the third quarter of 2008, compared with $0.14 per share in the third quarter of last year.

“We’re pleased that the third quarter impact of Hurricane Ike was not as significant as we initially anticipated, and that, for the quarter, we are able to report slightly better than expected earnings per share before special items,” said Stephen D. Newlin, chairman, president and chief executive officer. Newlin added, “While our SunBelt joint venture had no choice but to close down temporarily, our other facilities in the area did an exceptional job at managing through power and supply interruptions to meet customer needs and exceed our post-hurricane expectations for the quarter. This is a direct result of the tireless efforts of our employees who helped positively manage our impacted operations.”

“Our International Color and Engineered Materials segment reported an operating income decline versus the third quarter of 2007, and on a sequential basis versus the second quarter of 2008. This confirms the concerns we have communicated in our outlook updates that the economic slowdown already present in the U.S. is taking hold in Europe and Asia,” Newlin continued. “We continue to focus on our transformation strategy; however, we are not going to ignore the prevailing market dynamics. We recognize that now is a time to be prudent with cash, control spending, preserve our liquidity and protect ourselves from potential customer solvency issues.”

Commenting on the Company’s financial position, senior vice president and chief financial officer, Robert M. Patterson said, “As of September 30, 2008 we had $37 million of cash, plus borrowing availability of $133 million under our accounts receivable securitization facility, for total liquidity of $170 million. During the third quarter, we paid down $8 million of debt and repurchased one million of the Company’s outstanding common shares.”

Outlook

“While our results for the third quarter were modestly better than anticipated, our fourth quarter earnings may fall short of our previous expectations,” said Newlin. “Accordingly, it may be a challenge to deliver full-year earnings per share before special items within the range of guidance we provided in September.”

Newlin cited several factors contributing to this assessment. “First, we are lowering our earnings expectations as a result of latent supply and pricing uncertainties associated with the Gulf storms. That being said, we are more concerned about the recent deterioration in the global economy. We expect further pressure on our international results; first as it becomes increasingly clear that European and Asian demand is slowing, and second due to the continued weakening of the Euro relative to the U.S. Dollar. Additionally, the U.S. economy is under tremendous strain on the heels of the global financial crisis, creating significant uncertainty over the next few quarters for our customers. Specifically, such key PolyOne end markets as housing, construction, automotive and electronics face particularly troubling business conditions which we expect may reverberate throughout other markets as the global economic slowdown gains momentum.”

In reaction to the uncertainties described above, PolyOne is taking actions to reduce spending and preserve liquidity. Patterson stated, “We began the year expecting to spend between $55 and $60 million for capital expenditures and this did not contemplate the incremental $6 to $7 million we will incur this year as a result of manufacturing realignment actions announced in July. Without limiting spending related to the realignment we are now forecasting to spend less than $55 million for the year.”

Patterson further added, “The fourth quarter is typically our strongest cash flow quarter and we expect that to be the case this year. Given our concerns about the economy, we will be prioritizing free cash flow use first for required short term debt repayment and second to ensure we have adequate liquidity to fund seasonal working capital requirements. We will then consider additional capital expenditures beyond maintenance levels prior to furthering our overall capital structure objectives.”