PolyOne Announces First Quarter 2017 Results

Attachment 1

PolyOne Corporation

Summary of Condensed Consolidated Statements of Income (Unaudited)

(In millions, except per share data)

Three Months Ended March 31,

2017

2016

Sales

$

898.8

$

847.0

Operating income

81.4

71.3

Net income attributable to PolyOne shareholders

46.9

39.1

Basic earnings per share attributable to PolyOne shareholders

$

0.57

$

0.46

Diluted earnings per share attributable to PolyOne shareholders

$

0.57

$

0.46

Three Months Ended
 March 31, 2017

Three Months Ended
 March 31, 2016

Reconciliation to Condensed Consolidated Statements of Income

$

EPS

$

EPS

Net income attributable to PolyOne shareholders

$

46.9

$

0.57

$

39.1

$

0.46

Special items, after tax (Attachment 3)

1.9

0.02

9.1

0.10

Adjusted net income / EPS - excluding special items

$

48.8

$

0.59

$

48.2

$

0.56

Attachment 2

PolyOne Corporation

Condensed Consolidated Statements of Income (Unaudited)

(In millions, except per share data)

Three Months Ended March 31,

2017

2016

Sales

$

898.8

$

847.0

Cost of sales

711.4

661.5

Gross margin

187.4

185.5

Selling and administrative expense

106.0

114.2

Operating income

81.4

71.3

Interest expense, net

(14.6)

(14.6)

Debt extinguishment costs

(0.3)

—

Other (expense) income, net

(0.8)

0.3

Income before income taxes

65.7

57.0

Income tax expense

(18.8)

(18.0)

Net income

46.9

39.0

Net loss attributable to noncontrolling interests

—

0.1

Net income attributable to PolyOne common shareholders

$

46.9

$

39.1

Earnings per common share attributable to PolyOne common shareholders - Basic:

$

0.57

$

0.46

Earnings per common share attributable to PolyOne common shareholders - Diluted:

$

0.57

$

0.46

Cash dividends declared per share of common stock

$

0.135

$

0.120

Weighted-average shares used to compute earnings per common share:

Basic

82.1

84.7

Diluted

82.7

85.5

Attachment 3

Special items ⁽¹⁾

Three Months Ended March 31,

2017

2016

Cost of sales:

   Restructuring costs

$

(0.4)

$

(2.7)

   Environmental remediation costs

(2.2)

(1.7)

   Acquisition related costs

(0.2)

(2.5)

      Impact on cost of sales

(2.8)

(6.9)

Selling and administrative expense:

 Restructuring, legal and other

0.4

(6.6)

   Acquisition related costs

(0.7)

(0.3)

      Impact on selling and administrative expense

(0.3)

(6.9)

      Impact on operating income

(3.1)

(13.8)

   Debt extinguishment costs

(0.3)

—

   Other income, net

0.1

0.2

      Impact on income before income taxes

(3.3)

(13.6)

Income tax benefit on above special items

1.3

4.9

Tax adjustments⁽²⁾

0.1

(0.4)

Impact of special items on net income attributable to PolyOne Shareholders

$

(1.9)

$

(9.1)

Diluted earnings per common share impact

$

(0.02)

$

(0.10)

Weighted average shares used to compute adjusted earnings per share:

   Diluted

82.7

85.5

⁽¹⁾

Special items include charges related to specific strategic initiatives or financial restructuring such as: consolidation of operations; debt extinguishment costs; costs incurred directly in relation to acquisitions or divestitures; employee separation costs resulting from personnel reduction programs, plant realignment costs, executive separation agreements; asset impairments; mark-to-market adjustments associated with actuarial gains and losses on pension and other post-retirement benefit plans; environmental remediation costs, fines, penalties and related insurance recoveries related to facilities no longer owned or closed in prior years; gains and losses on the divestiture of operating businesses, joint ventures and equity investments; gains and losses on facility or property sales or disposals; results of litigation, fines or penalties, where such litigation (or action relating to the fines or penalties) arose prior to the commencement of the performance period; one-time, non-recurring items; and the effect of changes in accounting principles or other such laws or provisions affecting reported results.

⁽²⁾

Tax adjustments include the net tax expense/benefit from one-time income tax items, the set-up or reversal of uncertain tax position reserves and deferred income tax valuation allowance adjustments.

PolyOne Corporation

Condensed Consolidated Balance Sheets

(In millions)

(Unaudited)
March 31, 
 2017

December 31,
 2016

Assets

Current assets:

Cash and cash equivalents

$

157.7

$

226.7

Accounts receivable, net

453.5

363.7

Inventories, net

337.2

312.4

Other current assets

36.6

46.7

Total current assets

985.0

949.5

Property, net

605.6

607.7

Goodwill

686.7

677.4

Intangible assets, net

367.0

363.5

Other non-current assets

132.4

125.2

Total assets

$

2,776.7

$

2,723.3

Liabilities and Shareholders' Equity

Current liabilities:

Short-term and current portion of long-term debt

$

17.9

$

18.5

Accounts payable

402.1

361.5

Accrued expenses and other current liabilities

97.6

129.6

Total current liabilities

517.6

509.6

Non-current liabilities:

Long-term debt

1,279.2

1,239.8

Pension and other post-retirement benefits

63.1

63.1

Deferred income taxes

43.8

43.1

Other non-current liabilities

138.6

142.2

Total non-current liabilities

1,524.7

1,488.2

Shareholders' equity:

PolyOne shareholders' equity

733.6

724.7

Noncontrolling interests

0.8

0.8

Total equity

734.4

725.5

Total liabilities and shareholders' equity

$

2,776.7

$

2,723.3

Attachment 5

PolyOne Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

Three Months Ended March 31,

2017

2016

Operating Activities

Net income

$

46.9

$

39.0

Adjustments to reconcile net income to net cash used by operating activities:

Depreciation and amortization

26.1

24.3

Accelerated depreciation and fixed asset charges associated with restructuring activities

0.4

2.8

Debt extinguishment costs

0.3

—

Share-based compensation expense

2.4

2.2

Change in assets and liabilities, net of the effect of acquisitions:

Increase in accounts receivable

(86.7)

(79.5)

Increase in inventories

(22.4)

(13.3)

Increase in accounts payable

38.5

29.9

Decrease in pension and other post-retirement benefits

(3.3)

(23.7)

Decrease in accrued expenses and other assets and liabilities - net

(25.9)

(5.2)

Net cash used by operating activities

(23.7)

(23.5)

Investing Activities

Capital expenditures

(15.5)

(19.6)

Business acquisitions

(20.9)

(72.8)

Sale of and proceeds from other assets

0.9

—

Net cash used by investing activities

(35.5)

(92.4)

Financing Activities

Borrowings under credit facilities

288.8

221.9

Repayments under credit facilities

(248.4)

(174.6)

Purchase of common shares for treasury

(34.3)

(39.6)

Cash dividends paid

(11.3)

(10.4)

Repayment of long-term debt

(1.6)

(1.4)

Payments of withholding tax on share awards

(2.3)

(5.1)

Debt financing costs

(1.9)

—

Net cash used by financing activities

(11.0)

(9.2)

Effect of exchange rate changes on cash

1.2

0.7

Decrease in cash and cash equivalents

(69.0)

(124.4)

Cash and cash equivalents at beginning of period

226.7

279.8

Cash and cash equivalents at end of period

$

157.7

$

155.4

Attachment 6

PolyOne Corporation

Business Segment and Platform Operations (Unaudited)

(In millions)

Operating income at the segment level does not include: special items as defined in Attachment 3; corporate general and administration costs that are not allocated to segments; intersegment sales and profit eliminations; share-based compensation costs; 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.

Three Months Ended March 31,

2017

2016

Sales:

   Color, Additives and Inks

$

211.8

$

204.9

   Specialty Engineered Materials

159.1

141.0

   Designed Structures and Solutions

102.1

108.5

      Specialty Platform

473.0

454.4

   Performance Products and Solutions

183.7

166.2

   PolyOne Distribution

286.1

268.8

   Corporate and eliminations

(44.0)

(42.4)

      Sales

$

898.8

$

847.0

Gross margin:

   Color, Additives and Inks

$

75.2

$

75.3

   Specialty Engineered Materials

46.1

44.2

   Designed Structures and Solutions

5.8

10.7

      Specialty Platform

127.1

130.2

   Performance Products and Solutions

33.9

32.4

   PolyOne Distribution

31.4

30.7

   Corporate and eliminations

(5.0)

(7.8)

      Gross margin

$

187.4

$

185.5

Selling and administrative expense:

   Color, Additives and Inks

$

40.1

$

40.4

   Specialty Engineered Materials

22.5

20.8

   Designed Structures and Solutions

9.1

10.3

      Specialty Platform

71.7

71.5

   Performance Products and Solutions

11.8

12.7

   PolyOne Distribution

12.8

13.2

   Corporate and eliminations

9.7

16.8

      Selling and administrative expense

$

106.0

$

114.2

Operating income:

   Color, Additives and Inks

$

35.1

$

34.9

   Specialty Engineered Materials

23.6

23.4

   Designed Structures and Solutions

(3.3)

0.4

      Specialty Platform

55.4

58.7

   Performance Products and Solutions

22.1

19.7

   PolyOne Distribution

18.6

17.5

   Corporate and eliminations

(14.7)

(24.6)

      Operating income

$

81.4

$

71.3

The Specialty Platform consists of our three specialty segments: Color, Additives and Inks; Specialty Engineered Materials; and Designed Structures and Solutions. We present Specialty Platform sales, gross margin, selling and administrative expense, and operating income because management believes that this is useful information to investors by highlighting our collective progress in advancing our specialization strategy.

Attachment 7

PolyOne Corporation

Reconciliation of Non-GAAP Financial Measures (Unaudited)

(In millions, except per share data)

Senior management uses gross margin before special items and operating income before special items to assess performance and allocate resources because senior management believes that these measures are useful in understanding current profitability levels and how it may serve as a basis for future performance. In addition, operating income before the effect of special items is a component of PolyOne annual and long-term employee incentive plans and is used in debt covenant computations. Senior management believes these measures are useful to investors because they allow for comparison to PolyOne's performance in prior periods without the effect of items that, by their nature, tend to obscure PolyOne's operating results due to the potential variability across periods based on timing, frequency and magnitude. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or solely as alternatives to, financial measures prepared in accordance with GAAP. Below is a reconciliation of these non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP. See Attachment 3 for a definition and summary of special items.

Three Months Ended March 31,

Reconciliation to Consolidated Statements of Income

2017

2016

Sales

$

898.8

$

847.0

Gross margin - GAAP

187.4

185.5

Special items in gross margin (Attachment 3)

2.8

6.9

Gross margin adjusted

$

190.2

$

192.4

Gross margin adjusted as a percent of sales

21.2

%

22.7

%

Operating income - GAAP

81.4

71.3

Special items in operating income (Attachment 3)

3.1

13.8

   Operating income adjusted

$

84.5

$

85.1

Operating income adjusted as a percent of sales

9.4

%

10.0

%

Three Months Ended
 March 31, 2017

Three Months Ended
 March 31, 2016

GAAP
Results

Special
Items

Adjusted
Results

GAAP
Results

Special
Items

Adjusted
Results

Income before income taxes

$

65.7

$

3.3

$

69.0

$

57.0

$

13.6

$

70.6

Income tax expense - GAAP

(18.8)

—

(18.8)

(18.0)

—

(18.0)

Income tax impact of special items
(Attachment 3)

—

(1.3)

(1.3)

—

(4.9)

(4.9)

Tax adjustments (Attachment 3)

—

(0.1)

(0.1)

—

0.4

0.4

Income tax expense

$

(18.8)

$

(1.4)

$

(20.2)

$

(18.0)

$

(4.5)

$

(22.5)

Effective Tax Rate

28.6%

29.3%

31.6%

31.9%