PolyOne 2009 Annual Report
PolyOne 2009 Annual Report PolyOne 2009 Annual Report
POLYONE CORPORATION buyer or similar specific transactions, we believe that the use of these two methods provides reasonable estimates of the reporting units’ fair value and that these estimates are consistent with how we believe a market participant would view the fair value of each of the reporting units. Estimates of fair value using these methods reflects a number of factors, including projected future operating results and business plans, economic projections, anticipated future cash flows, comparable marketplace data within a consistent industry grouping and the cost of capital. There are inherent uncertainties, however, related to these factors and to management’s judgment in applying them to this analysis. Nonetheless, management believes that the combination of these two methods provides a reasonable approach to estimate the fair value of our reporting units. The market approach is used to estimate fair value by applying sales and earnings multiples (derived from comparable publiclytraded companies with similar investment characteristics of the reporting unit) to the reporting unit’s operating performance adjusted for non-recurring items. Management believes that this approach is appropriate as it provides an estimate of fair value reflecting multiples associated with entities with operations and economic characteristics comparable to our reporting units. The key estimates and assumptions that are used to determine fair value under this approach include trailing twelve-month earnings before interest, taxes, depreciation and amortization (EBITDA) and projected EBITDA based on consensus estimates as reported by a third-party resource, which would approximate a market participant’s view, to determine the market multiples to calculate the enterprise value. The income approach is based on projected future debt-free cash flows discounted to present value using factors that consider the timing and risk of the future cash flows. Management believes that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating and cash flow performance. This approach also mitigates the impact of cyclical downturns that occur in the reporting unit’s industry. The income approach is based on a reporting unit’s projection of operating results and cash flows discounted to present value using a weighted-average cost of capital. The projection is based upon management’s best estimates of projected economic and market conditions over the related period including growth rates, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, terminal value margin rates, future capital expenditures and changes in future working capital requirements based on management projections. Indefinite-lived intangible assets consist of a tradename, acquired as part of the January 2008 acquisition of GLS, which is tested annually for impairment. The fair value of the trade name is calculated using a “relief from royalty payments” methodology. This approach involves two steps (1) estimating reasonable royalty rates for the tradename and (2) applying this royalty rate to a net sales stream and discounting the resulting cash flows to determine fair value. This fair value is then compared with the carrying value of the tradename. Other finite-lived intangible assets, which consist primarily of non-contractual customer relationships, sales contracts, patents and technology, are amortized over their estimated useful lives. The remaining lives range up to 15 years. In accordance with the provisions of FASB ASC Topic 360, Property, Plant, and Equipment, we assess the fair value of our longlived assets on a non-recurring basis. In 2009, we recorded impairment charges totaling approximately $8.6 million for certain of the facilities that were closed as a result of the previously mentioned plant phaseout activities. Our estimates of fair value are based primarily on estimates from broker opinions of value and appraisals of the assets. As these fair value measurements are based on significant unobservable inputs, such as recent sales of comparable properties, they are classified within Level 3 of the fair value hierarchy. Note 20 — BUSINESS COMBINATIONS Acquisition On December 23, 2009 we acquired substantially all of the assets of NEU, a specialty healthcare engineered materials provider, for a cash purchase price of $11.5 million paid at close and an earnout of up to $0.5 million payable in 2011, resulting in goodwill of $4.5 million and $5.9 million of identifiable intangible assets. NEU had sales of $7.7 million for the year ended December 31, 2008. Our purchase price allocation is preliminary and may require subsequent adjustment. On January 2, 2008, we acquired 100% of the outstanding capital stock of GLS, a global provider of specialty TPE compounds for consumer, packaging and medical applications, for a cash purchase price of $148.9 million including acquisition costs, net of cash received. GLS, with sales of $128.8 million for the year ended December 31, 2007, has been fully integrated into the Specialty Engineered Materials segment. This acquisition complements our global engineered materials business portfolio and accelerates our shift to specialization. The combination of GLS’s specialized TPE offerings, compounding expertise and brand, along with our extensive global infrastructure and commercial presence offers customers: enhanced technologies; a broader range of products, services and solutions; and expanded access to specialized, high-growth markets around the globe. The combinations of these factors are the drivers behind the excess of the purchase price over the fair value of the tangible assets and liabilities acquired. Note 21 — SHAREHOLDERS’ EQUITY In August 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. During 2009, no shares were repurchased under this program. During 2008, we repurchased 1.25 million shares of common stock under this program at an average price of $7.12 per common share 60
for approximately $8.9 million. There are 8.75 million shares available for repurchase under the program at December 31, 2009. Note 22 — SUBSEQUENT EVENTS financial statements. There were no subsequent events requiring recognition in these financial statements for the year ended December 31, 2009. Events subsequent to December 31, 2009 have been evaluated through February 18, 2010, or the date of issuance of these Note 23 — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) 2009 Quarters 2008 Quarters (In millions, except per share data) Fourth Third Second First Fourth (2) Third Second First Sales $552.5 $548.3 $496.5 $463.4 $ 541.8 $735.1 $748.1 $713.7 Gross Margin 87.7 107.3 86.3 59.2 58.0 65.2 88.5 84.9 Operating costs and expenses, net 526.9 492.1 477.2 466.1 716.5 733.8 724.1 693.6 Operating income (loss) 25.6 56.2 19.3 (2.7) (174.7) 1.3 24.0 20.1 Net income (loss) 24.0 49.6 3.5 (9.3) (282.6) (5.6) 8.8 6.5 Earnings (loss) per common share: Basic earnings (loss) (1) $ 0.26 $ 0.54 $ 0.04 $ (0.10) $ (3.07) $ (0.06) $ 0.09 $ 0.07 Diluted earnings (loss) (1) $ 0.25 $ 0.53 $ 0.04 $ (0.10) $ (3.07) $ (0.06) $ 0.09 $ 0.07 (1) (2) Per share amounts for the quarter and the full year have been computed separately. The sum of the quarterly amounts may not equal the annual amounts presented because of differences in the average shares outstanding during each period. Included in operating expense for the fourth quarter 2008 results are charges of $26.6 million related to employee separation and plant phaseout and $170.0 million related to goodwill impairment. Included in net loss for the fourth quarter are charges of $105.9 million to record deferred a deferred tax valuation allowance. POLYONE CORPORATION 61
- Page 15 and 16: We also conduct investigations and
- Page 17 and 18: and the availability and cost of cr
- Page 19 and 20: Executive officers are elected by o
- Page 21 and 22: PART II ITEM 5. MARKET FOR REGISTRA
- Page 23 and 24: on the opportunity to accelerate de
- Page 25 and 26: Results of Operations Variances—F
- Page 27 and 28: Sales and Operating Income (Loss)
- Page 29 and 30: Sales and Operating Income (Loss)
- Page 31 and 32: $5.7 million. Additionally, liquidi
- Page 33 and 34: issuing standby letters of credit a
- Page 35 and 36: Description Pension and Other Post-
- Page 37 and 38: Description Share-Based Compensatio
- Page 39 and 40: MANAGEMENT’S REPORT The managemen
- Page 41 and 42: Consolidated Statements of Operatio
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- Page 45 and 46: Note 1 — DESCRIPTION OF BUSINESS
- Page 47 and 48: As of December 31, 2009, included i
- Page 49 and 50: derivative agreements. This new gui
- Page 51 and 52: OxyVinyls, a former 24% owned affil
- Page 53 and 54: $127.2 million and is included in a
- Page 55 and 56: Change in AOCI: Pension Benefits He
- Page 57 and 58: pricing the asset. Unobservable inp
- Page 59 and 60: 2029. Various foreign subsidiaries
- Page 61 and 62: During 2008, RSUs were granted to e
- Page 63 and 64: partner, Producer Services offers r
- Page 65: Outstanding stock options with exer
- Page 69 and 70: ITEM 12. SECURITY OWNERSHIP OF CERT
- Page 71 and 72: Exhibit No. Exhibit Description 10.
- Page 73 and 74: SIGNATURES Pursuant to the requirem
- Page 75 and 76: Exhibit No. Exhibit Description 10.
- Page 77 and 78: Exhibit 31.1 CERTIFICATION I, Steph
- Page 79 and 80: Exhibit 32.1 CERTIFICATION PURSUANT
- Page 81 and 82: THIS PAGE IS NOT PART OF POLYONE’
for approximately $8.9 million. There are 8.75 million shares available<br />
for repurchase under the program at December 31, <strong>2009</strong>.<br />
Note 22 — SUBSEQUENT EVENTS<br />
financial statements. There were no subsequent events requiring<br />
recognition in these financial statements for the year ended December<br />
31, <strong>2009</strong>.<br />
Events subsequent to December 31, <strong>2009</strong> have been evaluated<br />
through February 18, 2010, or the date of issuance of these<br />
Note 23 — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)<br />
<strong>2009</strong> Quarters 2008 Quarters<br />
(In millions, except per share data) Fourth Third Second First Fourth (2) Third Second First<br />
Sales $552.5 $548.3 $496.5 $463.4 $ 541.8 $735.1 $748.1 $713.7<br />
Gross Margin 87.7 107.3 86.3 59.2 58.0 65.2 88.5 84.9<br />
Operating costs and expenses, net 526.9 492.1 477.2 466.1 716.5 733.8 724.1 693.6<br />
Operating income (loss) 25.6 56.2 19.3 (2.7) (174.7) 1.3 24.0 20.1<br />
Net income (loss) 24.0 49.6 3.5 (9.3) (282.6) (5.6) 8.8 6.5<br />
Earnings (loss) per common share:<br />
Basic earnings (loss) (1) $ 0.26 $ 0.54 $ 0.04 $ (0.10) $ (3.07) $ (0.06) $ 0.09 $ 0.07<br />
Diluted earnings (loss) (1) $ 0.25 $ 0.53 $ 0.04 $ (0.10) $ (3.07) $ (0.06) $ 0.09 $ 0.07<br />
(1)<br />
(2)<br />
Per share amounts for the quarter and the full year have been computed separately. The sum of the quarterly amounts may not equal the annual<br />
amounts presented because of differences in the average shares outstanding during each period.<br />
Included in operating expense for the fourth quarter 2008 results are charges of $26.6 million related to employee separation and plant phaseout<br />
and $170.0 million related to goodwill impairment. Included in net loss for the fourth quarter are charges of $105.9 million to record deferred a<br />
deferred tax valuation allowance.<br />
POLYONE CORPORATION<br />
61
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