PolyOne Announces First Quarter 2015 Results

Attachment 1

PolyOne Corporation

Summary of Condensed Consolidated Statements of Income (Unaudited)

(In millions, except per share data)

Three Months Ended
March 31,

2015

2014

Sales

$

873.1

$

1,002.3

Operating income

70.1

56.4

Net income attributable to PolyOne shareholders

30.2

29.4

Basic earnings per share attributable to PolyOne shareholders

$

0.34

$

0.31

Diluted earnings per share attributable to PolyOne shareholders

$

0.34

$

0.31

Senior management uses comparisons of adjusted net income attributable to PolyOne shareholders and diluted earnings per share (EPS) attributable to PolyOne shareholders, excluding special items, to assess performance and facilitate comparability of results. Below is a reconciliation of these non-GAAP financial measures to their most directly comparable measures calculated and presented in accordance with U.S. GAAP (GAAP).

Three Months Ended
March 31, 2015

Three Months Ended
March 31, 2014

Reconciliation to Condensed Consolidated Statements of Income

$

EPS

$

EPS

Net income attributable to PolyOne shareholders

$

30.2

$

0.34

$

29.4

$

0.31

Special items, after tax (Attachment 3)

11.4

0.12

12.5

0.13

Adjusted net income / EPS

$

41.6

$

0.46

$

41.9

$

0.44

Attachment 2

PolyOne Corporation

Condensed Consolidated Statements of Income (Unaudited)

(In millions, except per share data)

Three Months Ended
March 31,

2015

2014

Sales

$

873.1

$

1,002.3

Cost of sales

703.3

814.1

Gross margin

169.8

188.2

Selling and administrative expense

99.7

131.8

Operating income

70.1

56.4

Interest expense, net

(16.1)

(15.5)

Other expense, net

(0.7)

(1.0)

Income before income taxes

53.3

39.9

Income tax expense

(23.1)

(10.7)

Net income

30.2

29.2

 Net loss attributable to noncontrolling interests

—

0.2

Net income attributable to PolyOne common shareholders

$

30.2

$

29.4

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

$

0.34

$

0.31

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

$

0.34

$

0.31

Cash dividends declared per share of common stock

$

0.10

$

0.08

Weighted-average shares used to compute earnings per share:

Basic

89.2

94.5

Diluted

90.1

95.7

Attachment 3

PolyOne Corporation

Summary of Special Items (Unaudited)

(In millions, except per share data)

Special items ⁽¹⁾

Three Months Ended
March 31,

2015

2014

Cost of sales:

   Employee separation and restructuring costs

$

(7.9)

$

(11.0)

   Reimbursement of previously incurred environmental costs

0.5

—

   Environmental remediation costs

(1.5)

(0.9)

      Impact on cost of sales

(8.9)

(11.9)

Selling and administrative expense:

   Employee separation and restructuring costs

(2.7)

(10.1)

   Acquisition/divestiture related costs

(0.5)

(0.2)

   Legal related and other

2.8

(0.7)

      Impact on selling and administrative expense

(0.4)

(11.0)

      Impact on operating income and income before income taxes

(9.3)

(22.9)

Income tax benefit on special items

3.8

8.8

Tax adjustments⁽²⁾

(5.9)

1.6

Impact of special items on net income attributable to PolyOne Shareholders

(11.4)

(12.5)

Basic earnings per common share impact

$

(0.13)

$

(0.13)

Diluted earnings per common share impact

$

(0.12)

$

(0.13)

Weighted average common shares used to compute earnings per share:

   Basic

89.2

94.5

   Diluted

90.1

95.7

⁽¹⁾

Special items are a non-GAAP financial measure. Special items include charges related to specific strategic initiatives or financial restructuring such as: consolidation of operations; debt extinguishment costs; employee separation costs resulting from personnel reduction programs, plant phase-in 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, remediation costs 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; unrealized gains and losses from foreign currency option contracts; 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 and deferred income tax valuations allowance adjustments.

Attachment 4

PolyOne Corporation

Condensed Consolidated Balance Sheets

(In millions)

(Unaudited)
March 31, 2015

December 31,
 2014

Assets

Current assets:

Cash and cash equivalents

$

226.4

$

238.6

Accounts receivable, net

445.0

396.8

Inventories, net

297.9

309.0

Other current assets

83.8

98.3

Total current assets

1,053.1

1,042.7

Property, net

578.1

596.7

Goodwill

591.7

590.6

Intangible assets, net

355.8

362.7

Other non-current assets

110.2

118.5

Total assets

$

2,688.9

$

2,711.2

Liabilities and Shareholders' Equity

Current liabilities:

Short-term and current portion of long-term debt

$

61.9

$

61.8

Accounts payable

382.1

365.9

Accrued expenses and other liabilities

110.8

173.5

Total current liabilities

554.8

601.2

Non-current liabilities:

Long-term debt

1,049.2

962.0

Pension and other post-retirement benefits

77.9

103.7

Deferred income taxes

92.8

88.8

Other non-current liabilities

155.1

178.3

Total non-current liabilities

1,375.0

1,332.8

Shareholders' equity:

PolyOne shareholders' equity

758.2

776.3

Noncontrolling interests

0.9

0.9

Total equity

759.1

777.2

Total liabilities and shareholders' equity

$

2,688.9

$

2,711.2

Attachment 5

PolyOne Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

Three Months Ended
March 31,

2015

2014

Operating Activities

Net income

$

30.2

$

29.2

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

Depreciation and amortization

25.1

32.8

Provision for doubtful accounts

—

0.2

Share-based compensation expense

1.9

3.8

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

Increase in accounts receivable

(55.8)

(81.7)

Decrease in inventories

7.4

5.9

Increase in accounts payable

22.2

43.2

Decrease in pension and other post-retirement benefits

(24.0)

(18.4)

Decrease in accrued expenses and other assets and liabilities - net

(64.8)

(89.9)

Net cash used by operating activities

(57.8)

(74.9)

Investing Activities

Capital expenditures

(15.1)

(17.5)

Proceeds from sale of equity affiliate and other assets

1.1

26.8

Net cash (used) provided by investing activities

(14.0)

9.3

Financing Activities

Repayment of long-term debt

—

(8.0)

Borrowings under credit facilities

274.7

20.9

Repayments under credit facilities

(187.4)

(20.9)

Purchase of common shares

(19.6)

(51.0)

Exercise of share awards

3.8

5.4

Cash dividends paid

(9.0)

(7.6)

Net cash provided (used) by financing activities

62.5

(61.2)

Effect of exchange rate changes on cash

(2.9)

(0.1)

Decrease in cash and cash equivalents

(12.2)

(126.9)

Cash and cash equivalents at beginning of period

238.6

365.2

Cash and cash equivalents at end of period

$

226.4

$

238.3

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 on 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,

2015

2014

Sales:

   Global Color, Additives and Inks

$

208.5

$

219.6

   Global Specialty Engineered Materials

141.9

157.4

   Designed Structures and Solutions

119.1

173.6

      Specialty Platform

469.5

550.6

   Performance Products and Solutions

175.9

207.6

   PolyOne Distribution

265.7

284.1

   Corporate and eliminations

(38.0)

(40.0)

      Sales

$

873.1

$

1,002.3

Gross margin:

   Global Color, Additives and Inks

$

73.4

$

74.9

   Global Specialty Engineered Materials

43.0

42.6

   Designed Structures and Solutions

13.8

26.2

      Specialty Platform

130.2

143.7

   Performance Products and Solutions

22.5

28.0

   PolyOne Distribution

27.8

29.8

   Corporate and eliminations

(10.7)

(13.3)

      Gross margin

$

169.8

$

188.2

Selling and administrative expense:

   Global Color, Additives and Inks

$

39.6

$

44.5

   Global Specialty Engineered Materials

19.9

24.3

   Designed Structures and Solutions

10.6

15.0

      Specialty Platform

70.1

83.8

   Performance Products and Solutions

11.0

12.0

   PolyOne Distribution

12.1

12.6

   Corporate and eliminations

6.5

23.4

      Selling and administrative expense

$

99.7

$

131.8

Operating income:

   Global Color, Additives and Inks

$

33.8

$

30.4

   Global Specialty Engineered Materials

23.1

18.3

   Designed Structures and Solutions

3.2

11.2

      Specialty Platform

60.1

59.9

   Performance Products and Solutions

11.5

16.0

   PolyOne Distribution

15.7

17.2

   Corporate and eliminations

(17.2)

(36.7)

      Operating income

$

70.1

$

56.4

Specialty Platform consists of our three specialty segments: Global Specialty Engineered Materials; Global Color, Additives and Inks; and Designed Structures and Solutions. We present Specialty Platform sales, gross margin, selling and administration, 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 that current levels may serve as a base for future performance. In addition, operating income before the effect of special items is a component of various PolyOne annual and long-term employee incentive plans and is used in debt covenant computations. Below is a reconciliation of non-GAAP financial measures to the most directly comparable measures calculated and presented in accordance with GAAP. See Attachment 3 for a definition of special items.

Three Months Ended
March 31,

Reconciliation to Consolidated Statements of Income

2015

2014

Sales

$

873.1

$

1,002.3

Gross margin before special items

178.7

200.1

Special items in gross margin (Attachment 3)

(8.9)

(11.9)

   Gross margin - GAAP

$

169.8

$

188.2

Gross margin, before special items, as a percent of sales

20.5

%

20.0

%

Operating income before special items

79.4

79.3

Special items in operating income (Attachment 3)

(9.3)

(22.9)

   Operating income - GAAP

$

70.1

$

56.4

Operating income before special items as a percent of sales

9.1

%

7.9

%

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

Three Months Ended March 31, 2015

Three Months Ended March 31, 2014

GAAP Results

Special Items

Pre-special Results

GAAP Results

Special Items

Pre-special Results

Income, before income taxes

$

53.3

$

9.3

$

62.6

$

39.9

$

22.9

$

62.8

Income tax (expense) - GAAP

(23.1)

—

(23.1)

(10.7)

—

(10.7)

Tax benefit on special items (Attachment 3)

—

(3.8)

(3.8)

—

(8.8)

(8.8)

Tax specials - expense/(benefit) (Attachment 3)

—

5.9

5.9

—

(1.6)

(1.6)

Income tax (expense)/benefit

$

(23.1)

$

2.1

$

(21.0)

$

(10.7)

$

(10.4)

$

(21.1)

Effective Tax Rate

43.3

%

33.5

%

26.8

%

33.6

%

Liquidity is calculated as follows:

As of March 31,

(In millions)

2015

Cash and cash equivalents

$ 226.4

Revolving credit availability

    148.7

Liquidity

$ 375.1