PolyOne Announces Record First Quarter 2014 Results

(a)

Tax adjustments include the net tax expense (benefit) from one-time income tax items and deferred income tax valuation allowance adjustments.

Attachment 2

PolyOne Corporation

Condensed Consolidated Statements of Income (Unaudited)

(In millions, except per share data)

Three Months Ended 

March 31,

2014

2013

Sales

$

1,002.3

$

801.1

Cost of sales

814.1

638.8

Gross margin

188.2

162.3

Selling and administrative expense

131.8

121.9

Income related to previously owned equity affiliates

—

0.1

Operating income

56.4

40.5

Interest expense, net

(15.5)

(15.6)

Debt extinguishment costs

—

(10.6)

Other (expense) income, net

(1.0)

1.4

Income from continuing operations before income taxes

39.9

15.7

Income tax expense

(10.7)

(4.7)

Net income from continuing operations

29.2

11.0

Income from discontinued operations, net of income taxes

—

4.1

Net income

29.2

15.1

 Net loss attributable to noncontrolling interests

0.2

0.2

Net income attributable to PolyOne common shareholders

$

29.4

$

15.3

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

Continuing operations

$

0.31

$

0.12

Discontinued operations

—

0.05

Total

$

0.31

$

0.17

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

Continuing operations

$

0.31

$

0.12

Discontinued operations

—

0.04

Total

$

0.31

$

0.16

Cash dividends declared per share of common stock

$

0.08

$

0.06

Weighted-average shares used to compute earnings per share:

Basic

94.5

91.7

Diluted

95.7

92.8

Attachment 3

PolyOne Corporation

Summary of Special Items (Unaudited)

(In millions, except per share data)

Special items ⁽¹⁾

Three Months Ended 

March 31,

2014

2013

Cost of sales:

   Employee separation and plant phase-out costs

$

(11.0)

$

—

   Reimbursement of previously incurred environmental costs

—

5.2

   Environmental remediation costs

(0.9)

(2.0)

   Acquisition related costs

—

(4.1)

      Impact on cost of sales

(11.9)

(0.9)

Selling and administrative expense:

   Employee separation and plant phase-out costs

(6.9)

(11.7)

   Legal related (costs) gains

(0.7)

0.1

   Unrealized gain on foreign currency option contracts

—

0.4

   Acquisition/divestiture related costs

(0.2)

(4.6)

  Acceleration of executive long-term incentive compensation

(3.2)

—

      Impact on selling and administrative expense

(11.0)

(15.8)

Gain on sale of investment in equity affiliates

—

0.1

<span class="prnews_span">      Impact on operating income

(22.9)

(16.6)

   Debt extinguishment costs

–

(10.6)

   Bridge loan commitment fees – interest expense

–

(1.9)

   Other income, net

–

1.4

      Impact on income from continuing operations before income taxes

(22.9)

(27.7)

Income tax benefit on special items

8.8

10.5

Impact of special items on net income attributable to PolyOne Shareholders

$

(14.1)

$

(17.2)

Basic earnings per common share impact

$

(0.15)

$

(0.19)

Diluted earnings per common share impact</span>

$

(0.15)

$

(0.19)

Weighted average shares used to compute earnings per share:

   Basic

94.5

91.7

   Diluted

95.7

92.8

⁽¹⁾

Special items are a non-GAAP financial measure. Special items include charges related to specific strategic initiatives or financial restructurings such as: consolidation of operations; debt extinguishment costs; employee separation costs resulting from personnel reduction programs, plant phase-out costs, executive separation agreements; asset impairments; mark-to-market adjustments associated with actuarial gains and losses on pension and other postretirement 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.

Attachment 4

PolyOne Corporation

Condensed Consolidated Balance Sheets

(In millions)

(Unaudited)
March 31, 2014

December 31,
 2013

Assets

Current assets:

Cash and cash equivalents

$

238.3

$

365.2

Accounts receivable, net

507.5

428.0

Inventories, net

333.0

342.5

Other current assets

91.3

117.9

Total current assets

1,170.1

1,253.6

Property, net

631.2

646.2

Goodwill

568.7

559.0

Intangible assets, net

361.0

365.8

Other non-current assets

127.2

119.5

Total assets

$

2,858.2

$

2,944.1

Liabilities and Shareholders' Equity

Current liabilities:

Short-term and current portion of long-term debt

$

12.8

$

12.7

Accounts payable

430.1

386.9

Accrued expenses and other liabilities

131.1

209.3

Total current liabilities

574.0

608.9

Non-current liabilities:

Long-term debt

968.1

976.2

Pension and other post-retirement benefits

63.8

77.3

Deferred income taxes

122.1

133.8

Other non-current liabilities

181.1

169.4

Total non-current liabilities

1,335.1

1,356.7

Shareholders' equity:

PolyOne shareholders' equity

947.6

976.8

Noncontrolling interests

1.5

1.7

Total equity

949.1

978.5

Total liabilities and shareholders' equity

$

2,858.2

$

2,944.1

Attachment 5

PolyOne Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

Three Months Ended  

March 31,

2014

2013

Operating Activities

Net income

$

29.2

$

15.1

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

Depreciation and amortization

32.8

19.9

Debt extinguishment costs

—

10.6

Provision for doubtful accounts

0.2

—

Stock based compensation expense

3.8

7.0

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

Increase in accounts receivable

(81.7)

(76.2)

Decrease in inventories

5.9

11.4

Increase in accounts payable

43.2

49.2

Decrease in pension and other post-retirement benefits

(18.4)

(54.7)

Decrease in accrued expenses and other assets and liabilities

(89.9)

(73.8)

Net cash used by operating activities

(74.9)

(91.5)

Investing Activities

Capital expenditures

(17.5)

(12.9)

Business acquisitions, net of cash acquired

—

(259.9)

Proceeds from sale of equity affiliate and other assets

24.1

Net cash provided (used) by investing activities

9.3

(248.7)

Financing Activities

Repayment of long-term debt

(8.0)

(297.0)

Proceeds from long-term debt

—

600.0

Debt financing costs

—

(13.0)

Borrowings under credit facilities

20.9

41.7

Repayments under credit facilities

(20.9)

(10.0)

Purchase of common shares

(51.0)

(20.8)

Exercise of stock awards

5.4

2.9

Cash dividends paid

(7.6)

(4.5)

Net cash (used) provided by financing activities

(61.2)

299.3

Effect of exchange rate changes on cash

(0.1)

(0.2)

Decrease in cash and cash equivalents

(126.9)

(41.1)

Cash and cash equivalents at beginning of period

365.2

210.0

Cash and cash equivalents at end of period

$

238.3

$

168.9

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 chief operating decision makers. These costs are included in Corporate and eliminations.

Three Months Ended 

March 31,

2014

2013

Sales:

   Global Color, Additives and Inks

$

219.6

$

205.3

   Global Specialty Engineered Materials

157.4

152.9

   Designed Structures and Solutions

173.6

41.5

      Specialty Platform

550.6

399.7

   Performance Products and Solutions

207.6

166.6

   PolyOne Distribution

284.1

268.0

   Corporate and eliminations

(40.0)

(33.2)

      Sales

$

1,002.3

$

801.1

</td>

Gross margin:

   Global Color, Additives and Inks

$

74.9

$

67.7

   Global Specialty Engineered Materials

42.6

39.2

   Designed Structures and Solutions

26.2

5.2

      Specialty Platform

143.7

112.1

   Performance Products and Solutions

28.0

24.0

   PolyOne Distribution

29.8

28.2

   Corporate and eliminations

(13.3)

(2.0)

      Gross margin

$

188.2

$

162.3

Selling and administrative expense:

   Global Color, Additives and Inks

$

44.5

$

43.5

   Global Specialty Engineered Materials

24.3

23.4

   Designed Structures and Solutions

15.0

3.7

      Specialty Platform

83.8

70.6

   Performance Products and Solutions

12.0

10.4

   PolyOne Distribution

12.6

12.0

   Corporate and eliminations

23.4

28.9

      Selling and administrative expense

$

131.8

$

121.9

Operating income:

   Global Color, Additives and Inks

$

30.4

$

24.2

   Global Specialty Engineered Materials

18.3

15.8

   Designed Structures and Solutions

11.2

1.5

      Specialty Platform

59.9

41.5

   Performance Products and Solutions

16.0

13.6

   PolyOne Distribution

17.2

16.2

   Corporate and eliminations

(36.7)

(30.8)

      Operating income

$

56.4

$

40.5

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 Operations

2014

2013

Sales

$

1,002.3

$

801.1

Gross margin before special items

200.1

163.2

Special items in gross margin (Attachment 3)

(11.9)

(0.9)

   Gross margin - GAAP

$

188.2

$

162.3

Gross margin before special items as a percent of sales

20.0

%

20.4

%

Operating income adjusted

79.3

57.1

Special items in operating income (Attachment 3)

(22.9)

(16.6)

   Operating income - GAAP

$

56.4

$

40.5

Specialty Platform % of Operating Income

2006Y*

Q1 2014

Global Color, Additives and Inks

$

8.9

$

30.4

Global Specialty Engineered Materials

3.9

18.3

Designed Structures and Solutions

–

11.2

Specialty Platform

$

12.8

$

59.9

Performance Products and Solutions

64.2

16.0

Distribution

19.2

17.2

Joint ventures

102.9

—

Corporate and eliminations

34.5

(36.7)

Operating income

$

233.6

$

56.4

Less: Corporate and special items

(34.5)

36.7

Operating income excluding corporate and special items

$

199.1

$

93.1

Specialty platform operating mix percentage

6%

64%

Adjusted EPS by Quarter

Q2'13

Q3'13

Q4'13

Q1'14

TTM Q1'14

Net income from continuing operations attributable to PolyOne common

shareholders

$

38.6

$

23.2

$

21.0

$

29.4

$

112.2

Special items, after tax

(2.2)

10.5

4.9

14.1

27.3

Tax adjustments

0.2

1.8

(0.3)

(1.6)

0.1

Adjusted net income

$

36.6

$

35.5

$

25.6

$

41.9

$

139.6

Diluted shares

99.1

98.1

97.2

95.7

N/A

Adjusted EPS

$

0.37

$

0.36

$

0.26

$

0.44

$

1.43

Adjusted EPS by Quarter

Q2'12

Q3'12

Q4'12

Q1'13

TTM Q1'13

Net income from continuing operations attributable to PolyOne common

shareholders

$

18.4

$

19.4

$

0.2

$

11.2

$

49.2

Special items, after tax

8.0

5.3

16.3

17.2

46.8

Tax adjustments

0.9

0.1

(0.6)

0.5

0.9

Adjusted net income

$

27.3

$

24.8

$

15.9

$

28.9

$

96.9

Diluted shares

90.7

90.2

90.5

92.8

            N/A

Adjusted EPS

$

0.30

$

0.28

$

0.18

$

0.31

$

1.07