PolyOne Announces Fourth Quarter and Full Year 2017 Results

Attachment 1

PolyOne Corporation

Summary of Condensed Consolidated Statements of Income (Unaudited)

(In millions, except per share data)

Three Months Ended
December 31,

Year Ended
December 31,

2017

2016

2017

2016

Sales

$

800.6

$

694.8

$

3,229.9

$

2,938.6

Operating income

45.8

62.1

277.5

286.3

Net income from continuing operations attributable to PolyOne
  shareholders

35.4

35.2

173.5

166.4

Basic earnings per share from continuing operations attributable to
  PolyOne shareholders

$

0.44

$

0.43

$

2.13

$

1.98

Diluted earnings per share from continuing operations attributable to
  PolyOne shareholders

$

0.43

$

0.42

$

2.11

$

1.96

Senior management uses comparisons of adjusted net income from continuing operations attributable to PolyOne shareholders and diluted adjusted earnings per share (EPS) from continuing operations attributable to PolyOne shareholders, excluding special items, to assess performance and facilitate comparability of results. 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
December 31, 2017

Three Months Ended
December 31, 2016

Reconciliation to Condensed Consolidated Statements of Income

$

EPS

$

EPS

Net income from continuing operations attributable to PolyOne
  shareholders

$

35.4

$

0.43

$

35.2

$

0.42

Special items, after tax (Attachment 3)

(2.2)

(0.02)

(2.5)

(0.03)

Adjusted net income / EPS - excluding special items

$

33.2

$

0.41

$

32.7

$

0.39

Year Ended

December 31, 2017

Year Ended

December 31, 2016

Reconciliation to Condensed Consolidated Statements of Income

$

EPS

$

EPS

Net income from continuing operations attributable to PolyOne
  shareholders

$

173.5

$

2.11

$

166.4

$

1.96

Special items, after tax (Attachment 3)

8.1

0.10

7.9

0.10

Adjusted net income / EPS - excluding special items

$

181.6

$

2.21

$

174.3

$

2.06

Attachment 2

PolyOne Corporation

Condensed Consolidated Statements of Income (Unaudited)

(In millions, except per share data)

Three Months Ended
December 31,

Year Ended
December 31,

2017

2016

2017

2016

Sales

$

800.6

$

694.8

$

3,229.9

$

2,938.6

Cost of sales

631.4

542.3

2,510.9

2,261.5

Gross margin

169.2

152.5

719.0

677.1

Selling and administrative expense

123.4

90.4

441.5

390.8

Operating income

45.8

62.1

277.5

286.3

Interest expense, net

(15.5)

(15.4)

(60.8)

(59.7)

Debt extinguishment costs

—

—

(0.3)

(0.4)

Other (expense) income, net

(0.9)

0.4

(4.1)

0.4

Income from continuing operations before income taxes

29.4

47.1

212.3

226.6

Income tax benefit (expense)

6.1

(12.0)

(38.7)

(60.4)

Net income from continuing operations

35.5

35.1

173.6

166.2

Income (loss) from discontinued operations, net of taxes

2.6

(1.4)

(231.2)

(1.2)

Net income (loss)

$

38.1

$

33.7

$

(57.6)

$

165.0

Net (income) loss attributable to noncontrolling interests

(0.1)

0.1

(0.1)

0.2

Net income (loss) attributable to PolyOne common shareholders

$

38.0

$

33.8

$

(57.7)

$

165.2

Earnings (loss) per common share attributable to PolyOne common shareholders - Basic:

Continuing operations

$

0.44

$

0.43

$

2.13

$

1.98

Discontinued operations

0.03

(0.02)

(2.84)

(0.01)

Total

$

0.47

$

0.41

$

(0.71)

$

1.97

Earnings (loss) per common share attributable to PolyOne common shareholders - Diluted:

Continuing operations

$

0.43

$

0.42

$

2.11

$

1.96

Discontinued operations

0.03

(0.02)

(2.81)

(0.01)

Total

$

0.46

$

0.40

$

(0.70)

$

1.95

Cash dividends declared per share of common stock

$

0.175

$

0.135

$

0.580

$

0.495

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

Basic

80.9

83.1

81.5

83.9

Diluted

81.8

83.7

82.1

84.6

Special items ⁽¹⁾

Three Months Ended
December 31,

Year Ended
December 31,

2017

2016

2017

2016

Cost of sales:

   Restructuring costs

$

(0.2)

$

(0.2)

$

3.1

$

(1.1)

   Environmental remediation costs

(2.7)

(2.2)

(14.8)

(8.4)

   Reimbursement of previously incurred environmental costs

2.8

0.8

9.1

6.1

   Pension & other post-retirement benefits - mark-to-market adjustment

(0.1)

0.3

(0.1)

0.3

   Acquisition related costs

(0.3)

(0.3)

(3.0)

(6.8)

      Impact on cost of sales

(0.5)

(1.6)

(5.7)

(9.9)

Selling and administrative expense:

   Restructuring, legal and other

(9.2)

(3.0)

(20.7)

(19.8)

   Pension & other post-retirement benefits - mark-to-market adjustment

(3.2)

8.1

(3.2)

8.1

   Acquisition related costs

(0.5)

(0.6)

(2.9)

(2.0)

      Impact on selling and administrative expense

(12.9)

4.5

(26.8)

(13.7)

      Impact on operating income

(13.4)

2.9

(32.5)

(23.6)

   Debt extinguishment costs

—

—

(0.3)

(0.4)

   Other income (expense), net

0.1

0.1

(0.1)

0.2

      Impact on income from continuing operations before income taxes

(13.3)

3.0

(32.9)

(23.8)

Income tax benefit (expense) on above special items

4.8

(1.8)

11.6

8.3

Tax adjustments⁽²⁾

10.7

1.3

13.2

7.6

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

$

2.2

$

2.5

$

(8.1)

$

(7.9)

Diluted earnings per common share impact

$

0.02

$

0.03

$

(0.10)

$

(0.10)

Weighted average shares used to compute adjusted earnings per share:

   Diluted

81.8

83.7

82.1

84.6

⁽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 benefit/(expense) 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)

Year Ended

December 31, 2017

Year Ended

December 31, 2016

ASSETS

Current assets

Cash and cash equivalents

$

243.6

$

225.5

Accounts receivable, net

392.4

325.6

Inventories, net

327.8

266.4

Current assets held-for-sale

—

86.5

Other current assets

102.8

45.5

Total current assets

1,066.6

949.5

Property, net

461.6

426.3

Goodwill

610.5

532.7

Intangible assets, net

400.0

342.7

Non-current assets held for sale

—

347.4

Other non-current assets

166.6

137.2

Total assets

$

2,705.3

$

2,735.8

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities

Short-term and current portion of long-term debt

$

32.6

$

18.5

Accounts payable

388.9

320.9

Current liabilities held-for-sale

—

45.3

Accrued expenses and other current liabilities

149.1

125.2

Total current liabilities

570.6

509.9

Non-current liabilities:

Long-term debt

1,276.4

1,239.4

Pension and other post-retirement benefits

62.3

63.1

Non-current liabilities held-for-sale

—

50.2

Other non-current liabilities

196.6

147.7

   Total non-current liabilities

1,535.3

1,500.4

Shareholders' equity

PolyOne shareholders' equity

598.5

724.7

Noncontrolling interests

0.9

0.8

Total equity

599.4

725.5

Total liabilities and shareholder's equity

$

2,705.3

$

2,735.8

Attachment 5

PolyOne Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

Year Ended December 31,

2017

2016

Operating Activities

Net (loss) income

$

(57.6)

$

165.0

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

Loss on sale of business, net of tax

227.7

—

Depreciation and amortization

97.4

100.5

Accelerated depreciation and fixed asset charges associated with restructuring
activities

0.9

5.4

Gain on sale of closed facilities

(3.6)

—

Debt extinguishment costs

0.3

0.4

Share-based compensation expense

10.2

8.4

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

Increase in accounts receivable

(44.7)

(17.6)

(Increase) decrease in inventories

(41.1)

0.8

Increase in accounts payable

52.2

12.4

Decrease in pension and other post-retirement benefits

(9.6)

(43.2)

Decrease in accrued expenses and other assets and liabilities - net

(29.7)

(4.5)

Net cash provided by operating activities

202.4

227.6

Investing activities

Capital expenditures

(79.6)

(84.2)

Business acquisitions, net of cash acquired

(163.8)

(164.2)

Proceeds from sale of business and other assets

124.0

13.0

Net cash used by investing activities

(119.4)

(235.4)

Financing activities

Proceeds from long-term debt

—

100.0

Borrowing under credit facilities

1,472.9

1,031.9

Repayment under credit facilities

(1,417.0)

(1,032.7)

Purchase of common shares for treasury

(70.7)

(86.2)

Cash dividends paid

(44.1)

(40.2)

Repayment of long-term debt

(6.5)

(6.0)

Payments of withholding tax on share awards

(4.7)

(5.1)

Debt financing costs

(2.6)

(2.0)

Net cash used by financing activities

(72.7)

(40.3)

Effect of exchange rate changes on cash

6.6

(5.0)

Increase (decrease) in cash and cash equivalents

16.9

(53.1)

Cash and cash equivalents at beginning of year

226.7

279.8

Cash and cash equivalents at end of year

$

243.6

$

226.7

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
December 31,

Year Ended
December 31,

2017

2016

2017

2016

Sales:

   Color, Additives and Inks

$

222.6

$

184.7

$

893.2

$

797.7

   Specialty Engineered Materials

150.2

135.3

624.3

565.8

   Performance Products and Solutions

177.0

158.2

720.6

668.5

   PolyOne Distribution

286.6

254.8

1,154.6

1,071.0

   Corporate and eliminations

(35.8)

(38.2)

(162.8)

(164.4)

      Sales

$

800.6

$

694.8

$

3,229.9

$

2,938.6

Gross margin:

   Color, Additives and Inks

$

75.4

$

62.8

$

312.2

$

286.1

   Specialty Engineered Materials

40.8

38.6

169.5

167.5

   Performance Products and Solutions

26.5

26.6

123.0

121.2

   PolyOne Distribution

29.2

27.3

126.0

117.1

   Corporate and eliminations

(2.7)

(2.8)

(11.7)

(14.8)

      Gross margin

$

169.2

$

152.5

$

719.0

$

677.1

Selling and administrative expense:

   Color, Additives and Inks

$

46.9

$

39.8

$

173.6

$

158.6

   Specialty Engineered Materials

24.8

22.8

91.3

86.4

   Performance Products and Solutions

11.6

11.2

45.9

46.8

   PolyOne Distribution

14.1

12.6

53.4

48.9

   Corporate and eliminations

26.0

4.0

77.3

50.1

      Selling and administrative expense

$

123.4

$

90.4

$

441.5

$

390.8

Operating income:

   Color, Additives and Inks

$

28.5

$

23.0

$

138.6

$

127.5

   Specialty Engineered Materials

16.0

15.8

78.2

81.1

   Performance Products and Solutions

14.9

15.4

77.1

74.4

   PolyOne Distribution

15.1

14.7

72.6

68.2

   Corporate and eliminations

(28.7)

(6.8)

(89.0)

(64.9)

      Operating income

$

45.8

$

62.1

$

277.5

$

286.3

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
December 31,

Year Ended
December 31,

Reconciliation to Consolidated Statements of Income

2017

2016

2017

2016

Sales

$

800.6

$

694.8

$

3,229.9

$

2,938.6

Gross margin - GAAP

169.2

152.5

719.0

677.1

Special items in gross margin (Attachment 3)

0.5

1.6

5.7

9.9

Adjusted Gross margin

$

169.7

$

154.1

$

724.7

$

687.0

Adjusted Gross margin as a percent of sales

21.2

%

22.2

%

22.4

%

23.4

%

Operating income - GAAP

45.8

62.1

277.5

286.3

Special items in operating income (Attachment 3)

13.4

(2.9)

32.5

23.6

   Adjusted Operating income

$

59.2

$

59.2

$

310.0

$

309.9

Adjusted Operating income as a percent of sales

7.4

%

8.5

%

9.6

%

10.5

%

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

Three Months Ended
December 31, 2017

Three Months Ended
December 31, 2016

GAAP
Results

Special
Items

Adjusted
Results

GAAP
Results

Special
Items

Adjusted
Results

Income from continuing operations before income taxes

$

29.4

$

13.3

$

42.7

$

47.1

$

(3.0)

$

44.1

Income tax benefit (expense) - GAAP

6.1

—

6.1

(12.0)

—

(12.0)

Income tax impact of special items (Attachment 3)

—

(4.8)

(4.8)

—

1.8

1.8

Tax adjustments (Attachment 3)

—

(10.7)

(10.7)

—

(1.3)

(1.3)

Income tax benefit (expense)

$

6.1

$

(15.5)

$

(9.4)

$

(12.0)

$

0.5

$

(11.5)

Effective Tax Rate

nm

22.0

%

25.5

%

26.1

%

nm - not meaningful

Year Ended
December 31, 2017

Year Ended
December 31, 2016

GAAP
Results

Special
Items

Adjusted
Results

GAAP
Results

Special
Items

Adjusted
Results

Income from continuing operations before income taxes

$

212.3

$

32.9

$

245.2

$

226.6

$

23.8

$

250.4

Income tax expense - GAAP

(38.7)

—

(38.7)

(60.4)

—

(60.4)

Income tax impact of special items (Attachment 3)

—

(11.6)

(11.6)

—

(8.3)

(8.3)

Tax adjustments (Attachment 3)

—

(13.2)

(13.2)

—

(7.6)

(7.6)

Income tax expense

$

(38.7)

$

(24.8)

$

(63.5)

$

(60.4)

$

(15.9)

$

(76.3)

Effective Tax Rate

18.2

%

25.9

%

26.7

%

30.5

%

Liquidity is calculated as follows:

(In millions)

As of December 31, 2017

Cash and cash equivalents

$

243.6

Revolving credit availability

330.3

Liquidity

$

573.9