PolyOne Announces Second Quarter 2017 Results

Attachment 1

PolyOne Corporation
Summary of Condensed Consolidated Statements of Income (Unaudited)
(In millions, except per share data)

Three Months Ended

June 30,

Six Months Ended

June 30,

2017

2016

2017

2016

Sales

$

814.1

$

758.2

$

1,610.8

$

1,497.1

Operating income

80.0

81.8

164.0

152.2

Net income from continuing operations attributable to PolyOne
  shareholders

49.6

50.1

97.9

88.4

Basic earnings per share from continuing operations attributable to
  PolyOne shareholders

$

0.61

$

0.59

$

1.20

$

1.05

Diluted earnings per share from continuing operations attributable to PolyOne shareholders

$

0.60

$

0.59

$

1.19

$

1.04

Three Months Ended
 June 30, 2017

Three Months Ended
 June 30, 2016

Reconciliation to Condensed Consolidated Statements of Income

$

EPS

$

EPS

Net income from continuing operations attributable to PolyOne shareholders

$

49.6

$

0.60

$

50.1

$

0.59

Special items, after tax (Attachment 3)

2.2

0.03

0.2

—

Adjusted net income / EPS - excluding special items

$

51.8

$

0.63

$

50.3

$

0.59

Six Months Ended

June 30, 2017

Six Months Ended

June 30, 2016

Reconciliation to Condensed Consolidated Statements of Income

$

EPS

$

EPS

Net income from continuing operations attributable to PolyOne shareholders

$

97.9

$

1.19

$

88.4

$

1.04

Special items, after tax (Attachment 3)

3.1

0.03

6.9

0.08

Adjusted net income / EPS - excluding special items

$

101.0

$

1.22

$

95.3

$

1.12

Attachment 2

PolyOne Corporation
Condensed Consolidated Statements of Income (Unaudited)
(In millions, except per share data)

Three Months Ended

June 30,

Six Months Ended

June 30,

2017

2016

2017

2016

Sales

$

814.1

$

758.2

$

1,610.8

$

1,497.1

Cost of sales

626.1

576.3

1,240.5

1,138.6

Gross margin

188.0

181.9

370.3

358.5

Selling and administrative expense

108.0

100.1

206.3

206.3

Operating income

80.0

81.8

164.0

152.2

Interest expense, net

(15.2)

(14.6)

(29.8)

(29.2)

Debt extinguishment costs

—

(0.4)

(0.3)

(0.4)

Other (expense) income, net

(1.4)

0.1

(2.5)

0.1

Income from continuing operations before income taxes

63.4

66.9

131.4

122.7

Income tax expense

(13.8)

(16.8)

(33.5)

(34.4)

Net income from continuing operations

49.6

50.1

97.9

88.3

(Loss) income from discontinued operations, net of income taxes

(231.0)

(0.1)

(232.4)

0.7

Net (loss) income

$

(181.4)

$

50.0

$

(134.5)

$

89.0

Net loss attributable to noncontrolling interests

—

—

—

0.1

Net (loss) income attributable to PolyOne common shareholders

$

(181.4)

$

50.0

$

(134.5)

$

89.1

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

Continuing operations

$

0.61

$

0.59

$

1.20

$

1.05

Discontinued operations

(2.83)

—

(2.84)

0.01

Total

$

(2.22)

$

0.59

$

(1.64)

$

1.06

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

Continuing operations

$

0.60

$

0.59

$

1.19

$

1.04

Discontinued operations

(2.80)

—

(2.82)

0.01

Total

$

(2.20)

$

0.59

$

(1.63)

$

1.05

Cash dividends declared per share of common stock

$

0.135

$

0.120

$

0.270

$

0.240

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

Basic

81.8

84.1

81.9

84.4

Diluted

82.5

84.7

82.6

84.9

Attachment 3

PolyOne Corporation
Summary of Special Items (Unaudited)
(In millions, except per share data)

Special items ⁽¹⁾

Three Months Ended

June 30,

Six Months Ended

June 30,

2017

2016

2017

2016

Cost of sales:

   Restructuring costs

$

2.7

$

(1.0)

$

2.7

$

(0.9)

   Environmental remediation costs

(5.0)

(2.1)

(7.2)

(3.8)

   Reimbursement of previously incurred environmental costs

3.8

5.3

3.8

5.3

   Acquisition related costs

(1.3)

(2.0)

(1.5)

(4.5)

      Impact on cost of sales

0.2

0.2

(2.2)

(3.9)

Selling and administrative expense:

 Restructuring, legal and other

(7.1)

(5.6)

(5.7)

(11.5)

   Acquisition related costs

(0.3)

(0.6)

(1.0)

(0.9)

      Impact on selling and administrative expense

(7.4)

(6.2)

(6.7)

(12.4)

      Impact on operating income

(7.2)

(6.0)

(8.9)

(16.3)

   Debt extinguishment costs

—

(0.4)

(0.3)

(0.4)

   Other income, net

(0.4)

(0.1)

(0.3)

0.1

      Impact on income from continuing operations before income taxes

(7.6)

(6.5)

(9.5)

(16.6)

Income tax benefit on above special items

2.6

2.6

3.5

6.4

Tax adjustments⁽²⁾

2.8

3.7

2.9

3.3

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

$

(2.2)

$

(0.2)

$

(3.1)

$

(6.9)

Diluted earnings per common share impact

$

(0.03)

$

—

$

(0.03)

$

(0.08)

Weighted average shares used to compute adjusted earnings per share:

   Diluted

82.5

84.7

82.6

84.9

⁽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)
June 30, 
 2017

December 31,
 2016

Assets

Current assets:

Cash and cash equivalents

$

191.1

$

225.5

Accounts receivable, net

435.7

325.6

Inventories, net

296.0

266.4

Current assets held-for-sale

142.6

86.5

Other current assets

69.9

45.5

Total current assets

1,135.3

949.5

Property, net

435.6

426.3

Goodwill

598.5

532.7

Intangible assets, net

403.4

342.7

Non-current assets held for sale

—

347.4

Other non-current assets

139.8

139.8

Total assets

$

2,712.6

$

2,738.4

Liabilities and Shareholders' Equity

Current liabilities:

Short-term and current portion of long-term debt

$

17.6

$

18.5

Accounts payable

376.8

320.9

Current liabilities held-for-sale

39.5

45.3

Accrued expenses and other current liabilities

112.3

125.2

Total current liabilities

546.2

509.9

Non-current liabilities:

Long-term debt

1,382.5

1,239.4

Pension and other post-retirement benefits

63.6

63.1

Non-current liabilities held for sale

—

52.8

Other non-current liabilities

162.2

147.7

Total non-current liabilities

1,608.3

1,503.0

Shareholders' equity:

PolyOne shareholders' equity

557.3

724.7

Noncontrolling interests

0.8

0.8

Total equity

558.1

725.5

Total liabilities and shareholders' equity

$

2,712.6

$

2,738.4

Attachment 5

PolyOne Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)

Six Months Ended June 30,

2017

2016

Operating Activities

Net income

$

(134.5)

$

89.0

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

Loss from classification to held for sale, net of tax

229.3

—

Depreciation and amortization

52.6

49.2

Accelerated depreciation and fixed asset charges associated with restructuring activities

0.9

4.1

Gain from the sale of closed facilities

(3.1)

—

Debt extinguishment costs

0.3

0.4

Share-based compensation expense

5.7

4.3

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

Increase in accounts receivable

(98.5)

(84.3)

Increase in inventories

(17.8)

(4.3)

Increase in accounts payable

39.5

21.6

Decrease in pension and other post-retirement benefits

(6.7)

(27.1)

(Decrease) increase in accrued expenses and other assets and liabilities - net

(24.0)

1.7

Net cash provided by operating activities

43.7

54.6

Investing Activities

Capital expenditures

(34.1)

(39.6)

Business acquisitions

(137.9)

(72.8)

Sale of assets

9.8

9.0

Net cash used by investing activities

(162.2)

(103.4)

Financing Activities

Borrowings under credit facilities

699.6

471.2

Repayments under credit facilities

(555.0)

(471.4)

Purchase of common shares for treasury

(34.3)

(39.6)

Cash dividends paid

(22.2)

(20.7)

Repayment of long-term debt

(3.3)

(2.8)

Payments of withholding tax on share awards

(2.7)

(4.4)

Debt financing costs

(1.9)

(0.6)

Net cash provided (used) by financing activities

80.2

(68.3)

Effect of exchange rate changes on cash

2.7

(1.3)

Decrease in cash and cash equivalents

(35.6)

(118.4)

Cash and cash equivalents at beginning of period

226.7

279.8

Cash and cash equivalents at end of period

$

191.1

$

161.4

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

June 30,

Six Months Ended

June 30,

2017

2016

2017

2016

Sales:

   Color, Additives and Inks

$

223.7

$

212.2

$

435.5

$

417.1

   Specialty Engineered Materials

158.7

143.3

317.8

284.3

   Performance Products and Solutions

184.2

172.8

367.9

339.0

   PolyOne Distribution

290.8

272.6

576.9

541.4

   Corporate and eliminations

(43.3)

(42.7)

(87.3)

(84.7)

      Sales

$

814.1

$

758.2

$

1,610.8

$

1,497.1

Gross margin:

   Color, Additives and Inks

$

80.1

$

78.0

$

155.3

$

153.3

   Specialty Engineered Materials

42.2

43.0

88.3

87.2

   Performance Products and Solutions

33.7

33.0

67.6

65.4

   PolyOne Distribution

33.5

29.5

64.9

60.2

   Corporate and eliminations

(1.5)

(1.6)

(5.8)

(7.6)

      Gross margin

$

188.0

$

181.9

$

370.3

$

358.5

Selling and administrative expense:

   Color, Additives and Inks

$

41.5

$

39.8

$

81.6

$

80.2

   Specialty Engineered Materials

21.9

21.6

44.4

42.4

   Performance Products and Solutions

11.4

11.7

23.2

24.4

   PolyOne Distribution

13.2

11.7

26.0

24.9

   Corporate and eliminations

20.0

15.3

31.1

34.4

      Selling and administrative expense

$

108.0

$

100.1

$

206.3

$

206.3

Operating income:

   Color, Additives and Inks

$

38.6

$

38.2

$

73.7

$

73.1

   Specialty Engineered Materials

20.3

21.4

43.9

44.8

   Performance Products and Solutions

22.3

21.3

44.4

41.0

   PolyOne Distribution

20.3

17.8

38.9

35.3

   Corporate and eliminations

(21.5)

(16.9)

(36.9)

(42.0)

      Operating income

$

80.0

$

81.8

$

164.0

$

152.2

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

June 30,

Six Months Ended

June 30,

Reconciliation to Consolidated Statements of Income

2017

2016

2017

2016

Sales

$

814.1

$

758.2

$

1,610.8

$

1,497.1

Gross margin - GAAP

188.0

181.9

370.3

358.5

Special items in gross margin (Attachment 3)

(0.2)

(0.2)

2.2

3.9

Adjusted Gross margin

$

187.8

$

181.7

$

372.5

$

362.4

Adjusted Gross margin as a percent of sales

23.1

%

24.0

%

23.1

%

24.2

%

Operating income - GAAP

80.0

81.8

164.0

152.2

Special items in operating income (Attachment 3)

7.2

6.0

8.9

16.3

   Adjusted Operating income

$

87.2

$

87.8

$

172.9

$

168.5

Adjusted Operating income as a percent of sales

10.7

%

11.6

%

10.7

%

11.3

%

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
 June 30, 2017

Three Months Ended
 June 30, 2016

GAAP

Results

Special Items

Adjusted Results

GAAP

Results

Special Items

Adjusted Results

Income from continuing operations before income taxes

$

63.4

$

7.6

$

71.0

$

66.9

$

6.5

$

73.4

Income tax expense - GAAP

(13.8)

—

(13.8)

(16.8)

—

(16.8)

Income tax impact of special items (Attachment 3)

—

(2.6)

(2.6)

—

(2.6)

(2.6)

Tax adjustments (Attachment 3)

—

(2.8)

(2.8)

—

(3.7)

(3.7)

Income tax expense

$

(13.8)

$

(5.4)

$

(19.2)

$

(16.8)

$

(6.3)

$

(23.1)

Effective Tax Rate

21.8

%

27.0

%

25.1

%

31.5

%

Six Months Ended 

June 30, 2017

Six Months Ended 

June 30, 2016

GAAP

Results

Special Items

Adjusted Results

GAAP

Results

Special Items

Adjusted Results

Income from continuing operations before income taxes

$

131.4

$

9.5

$

140.9

$

122.7

$

16.6

$

139.3

Income tax expense - GAAP

(33.5)

—

(33.5)

(34.4)

—

(34.4)

Income tax impact of special items (Attachment 3)

—

(3.5)

(3.5)

—

(6.4)

(6.4)

Tax adjustments (Attachment 3)

—

(2.9)

(2.9)

—

(3.3)

(3.3)

Income tax expense

$

(33.5)

$

(6.4)

$

(39.9)

$

(34.4)

$

(9.7)

$

(44.1)

Effective Tax Rate

25.5

%

28.3

%

28.0

%

31.7

%