PolyOne Announces First Quarter 2018 Results

Attachment 1

PolyOne Corporation

Summary of Condensed Consolidated Statements of Income (Unaudited)

(In millions, except per share data)

Three Months Ended March 31,

2018

2017

Sales

$

901.6

$

796.7

Operating income

78.8

82.0

Net income from continuing operations attributable to PolyOne shareholders

47.7

48.3

Basic earnings per share from continuing operations attributable to PolyOne shareholders

$

0.59

$

0.58

Diluted earnings per share from continuing operations attributable to PolyOne shareholders

$

0.59

$

0.58

Three Months Ended
 March 31, 2018

Three Months Ended
 March 31, 2017

Reconciliation to Condensed Consolidated Statements of Income

$

EPS

$

EPS

Net income from continuing operations attributable to PolyOne shareholders

$

47.7

$

0.59

$

48.3

$

0.58

Special items, after tax (Attachment 3)

7.4

0.09

0.9

0.01

Adjusted net income / EPS - excluding special items

$

55.1

$

0.68

$

49.2

$

0.59

Attachment 2

PolyOne Corporation

Condensed Consolidated Statements of Income (Unaudited)

(In millions, except per share data)

Three Months Ended March 31,

2018

2017

Sales

$

901.6

$

796.7

Cost of sales

703.1

614.5

Gross margin

198.5

182.2

Selling and administrative expense

119.7

100.2

Operating income

78.8

82.0

Interest expense, net

(15.5)

(14.6)

Debt extinguishment costs

—

(0.3)

Other income, net

1.1

0.9

Income from continuing operations before income taxes

64.4

68.0

Income tax expense

(16.7)

(19.7)

Net income from continuing operations

47.7

48.3

Loss from discontinued operations, net of income taxes

(0.8)

(1.4)

Net income attributable to PolyOne common shareholders

$

46.9

$

46.9

Earnings (loss) per common share attributable to PolyOne common

shareholders - Basic:

Continuing operations

$

0.59

$

0.58

Discontinued operations

(0.01)

(0.01)

Total

$

0.58

$

0.57

Earnings (loss) per common share attributable to PolyOne common

shareholders - Diluted:

Continuing operations

$

0.59

$

0.58

Discontinued operations

(0.01)

(0.01)

Total

$

0.58

$

0.57

Cash dividends declared per share of common stock

$

0.175

$

0.135

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

Basic

80.4

82.1

Diluted

81.3

82.7

PolyOne Corporation

Summary of Special Items (Unaudited)

(In millions, except per share data)

Special items ⁽¹⁾

Three Months Ended March 31,

2018

2017

Cost of sales:

   Restructuring costs

$

(0.2)

$

—

   Environmental remediation costs

(3.1)

(2.2)

   Reimbursement of previously incurred environmental costs

0.7

—

   Acquisition related costs

(1.1)

(0.2)

      Impact on cost of sales

(3.7)

(2.4)

Selling and administrative expense:

   Restructuring, legal and other

(4.9)

1.4

   Acquisition related costs

(0.8)

(0.7)

      Impact on selling and administrative expense

(5.7)

0.7

      Impact on operating income

(9.4)

(1.7)

   Debt extinguishment costs

—

(0.3)

   Other income, net

0.1

0.1

      Impact on income from continuing operations before income taxes

(9.3)

(1.9)

Income tax benefit on above special items

2.4

0.9

Tax adjustments⁽²⁾

(0.5)

0.1

Impact of special items on net income (loss) from continuing
 operations attributable to PolyOne Shareholders

$

(7.4)

$

(0.9)

Diluted earnings per common share impact

$

(0.09)

$

(0.01)

Weighted average shares used to compute adjusted earnings per share:

   Diluted

81.3

82.7

⁽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.

Attachment 4

PolyOne Corporation

Condensed Consolidated Balance Sheets

(In millions)

(Unaudited)
March 31, 
 2018

December 31,
 2017

Assets

Current assets:

Cash and cash equivalents

$

165.5

$

243.6

Accounts receivable, net

490.8

392.4

Inventories, net

322.0

327.8

Other current assets

57.0

102.8

Total current assets

1,035.3

1,066.6

Property, net

486.5

461.6

Goodwill

635.6

610.5

Intangible assets, net

426.6

400.0

Other non-current assets

159.9

166.6

Total assets

$

2,743.9

$

2,705.3

Liabilities and Shareholders' Equity

Current liabilities:

Short-term and current portion of long-term debt

$

35.1

$

32.6

Accounts payable

416.2

388.9

Accrued expenses and other current liabilities

120.6

149.1

Total current liabilities

571.9

570.6

Non-current liabilities:

Long-term debt

1,318.8

1,276.4

Pension and other post-retirement benefits

62.4

62.3

Other non-current liabilities

205.7

196.6

Total non-current liabilities

1,586.9

1,535.3

Shareholders' equity:

PolyOne shareholders' equity

584.2

598.5

Noncontrolling interests

0.9

0.9

Total equity

585.1

599.4

Total liabilities and shareholders' equity

$

2,743.9

$

2,705.3

Attachment 5

PolyOne Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

Three Months Ended March 31,

2018

2017

Operating Activities

Net income

$

46.9

$

46.9

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

Depreciation and amortization

22.4

26.1

Accelerated depreciation and fixed asset charges associated with restructuring activities

—

0.4

Debt extinguishment costs

—

0.3

Share-based compensation expense

2.7

2.4

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

Increase in accounts receivable

(82.4)

(86.7)

Decrease (increase) in inventories

17.0

(22.4)

Increase in accounts payable

16.6

38.5

Decrease in pension and other post-retirement benefits

(2.3)

(3.3)

Increase (decrease) in accrued expenses and other assets and liabilities - net

5.8

(25.9)

Net cash provided (used) by operating activities

26.7

(23.7)

Investing Activities

Capital expenditures

(12.9)

(15.5)

Business acquisitions, net of cash acquired

(73.0)

(20.9)

Sale of and proceeds from other assets

—

0.9

Net cash used by investing activities

(85.9)

(35.5)

Financing Activities

Borrowings under credit facilities

286.6

288.8

Repayments under credit facilities

(249.1)

(248.4)

Purchase of common shares for treasury

(42.2)

(34.3)

Cash dividends paid

(14.2)

(11.3)

Repayment of long-term debt

(1.6)

(1.6)

Payments of withholding tax on share awards

(1.6)

(2.3)

Debt financing costs

—

(1.9)

Net cash used by financing activities

(22.1)

(11.0)

Effect of exchange rate changes on cash

3.2

1.2

Decrease in cash and cash equivalents

(78.1)

(69.0)

Cash and cash equivalents at beginning of period

243.6

226.7

Cash and cash equivalents at end of period

$

165.5

$

157.7

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,

2018

2017

Sales:

   Color, Additives and Inks

$

270.9

$

211.8

   Specialty Engineered Materials

163.1

159.1

   Performance Products and Solutions

191.0

183.7

   PolyOne Distribution

315.5

286.1

   Corporate and eliminations

(38.9)

(44.0)

      Sales

$

901.6

$

796.7

Gross margin:

   Color, Additives and Inks

$

92.2

$

75.2

   Specialty Engineered Materials

44.8

46.1

   Performance Products and Solutions

34.6

33.9

   PolyOne Distribution

31.7

31.4

   Corporate and eliminations

(4.8)

(4.4)

      Gross margin

$

198.5

$

182.2

Selling and administrative expense:

   Color, Additives and Inks

$

50.1

$

40.1

   Specialty Engineered Materials

24.7

23.2

   Performance Products and Solutions

11.9

11.8

   PolyOne Distribution

13.5

12.8

   Corporate and eliminations

19.5

12.3

      Selling and administrative expense

$

119.7

$

100.2

Operating income:

   Color, Additives and Inks

$

42.1

$

35.1

   Specialty Engineered Materials

20.1

22.9

   Performance Products and Solutions

22.7

22.1

   PolyOne Distribution

18.2

18.6

   Corporate and eliminations

(24.3)

(16.7)

      Operating income

$

78.8

$

82.0

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

2018

2017

Sales

$

901.6

$

796.7

Gross margin - GAAP

198.5

182.2

Special items in gross margin (Attachment 3)

3.7

2.4

Adjusted Gross margin

$

202.2

$

184.6

Adjusted Gross margin as a percent of sales

22.4

%

23.2

%

Operating income - GAAP

78.8

82.0

Special items in operating income (Attachment 3)

9.4

1.7

   Adjusted Operating income

$

88.2

$

83.7

Adjusted Operating income as a percent of sales

9.8

%

10.5

%

The table below reconciles pre-special income tax expense and the pre-special effective tax rate to their most comparable US GAAP figures.

Three Months Ended
 March 31, 2018

Three Months Ended
 March 31, 2017

GAAP Results

Special Items

Adjusted Results

GAAP Results

Special Items

Income from continuing operations before income taxes

$

64.4

$

9.3

$

73.7

$

68.0

$

1.9

$

69.9

Income tax expense - GAAP

(16.7)

—

(16.7)

(19.7)

—

(19.7)

Income tax impact of special items (Attachment 3)

—

(2.4)

(2.4)

—

(0.9)

(0.9)

Tax adjustments (Attachment 3)

—

0.5

0.5

—

(0.1)

(0.1)

Income tax expense

$

(16.7)

$

(1.9)

$

(18.6)

$

(19.7)

$

(1.0)

$

(20.7)

Effective Tax Rate

25.9

%

25.2

%

29.0

%

29.6

%

The following table summarizes our liquidity as of March 31, 2018:

(In millions)

March 31, 2018

Cash and cash equivalents

$

165.5

Revolving credit availability

305.9

Liquidity

$

471.4