PolyOne Announces Third Quarter 2019 Results

Attachment 1

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Sales

$

705.3

$

729.0

$

2,204.1

$

2,203.9

Operating income

43.1

48.7

136.3

148.4

Net income from continuing operations attributable to PolyOne 
shareholders

23.5

32.5

69.1

89.0

Basic earnings per share from continuing operations attributable to 
PolyOne shareholders

$

0.31

$

0.41

$

0.89

$

1.11

Diluted earnings per share from continuing operations attributable to 
PolyOne shareholders

$

0.30

$

0.40

$

0.89

$

1.10

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.

With respect to our forecasted results for full-year 2019 adjusted EPS, the Company does not provide a reconciliation of this forward-looking non-GAAP financial measure because it is not possible for the Company to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing and amount of certain items, such as, but not limited to, restructuring costs, environmental remediation costs, acquisition-related costs, and other non-routine costs. Each of such adjustments has not yet occurred, are out of the Company's control and/or cannot be reasonably predicted. For the same reasons, the Company is unable to address the probable significance of the unavailable information.

Three Months Ended
September 30, 2019

Three Months Ended
September 30, 2018

Reconciliation to Condensed Consolidated Statements of Income

$

EPS

$

EPS

Net income from continuing operations attributable to PolyOne shareholders

$

23.5

$

0.30

$

32.5

$

0.40

Special items, after tax (Attachment 3)

10.5

0.14

0.5

0.01

Adjusted net income / EPS - excluding special items

$

34.0

$

0.44

$

33.0

$

0.41

Nine Months Ended
September 30, 2019

Nine Months Ended
September 30, 2018

Reconciliation to Condensed Consolidated Statements of
Income

$

EPS

$

EPS

Net income from continuing operations attributable to PolyOne shareholders

$

69.1

$

0.89

$

89.0

$

1.10

Special items, after tax (Attachment 3)

35.9

0.46

13.0

0.16

Adjusted net income / EPS - excluding special items

$

105.0

$

1.35

$

102.0

$

1.26

Attachment 2

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Sales

$

705.3

$

729.0

$

2,204.1

$

2,203.9

Cost of sales

544.8

571.8

1,700.2

1,720.0

Gross margin

160.5

157.2

503.9

483.9

Selling and administrative expense

117.4

108.5

367.6

335.5

Operating income

43.1

48.7

136.3

148.4

Interest expense, net

(15.5)

(15.6)

(47.6)

(47.2)

Debt extinguishment costs

—

—

—

(0.1)

Other income, net

0.6

0.7

1.4

2.0

Income from continuing operations before income taxes

28.2

33.8

90.1

103.1

Income tax expense

(4.6)

(1.3)

(20.8)

(14.2)

Net income from continuing operations

23.6

32.5

69.3

88.9

Income from discontinued operations, net of income taxes

19.5

17.7

54.2

59.4

Net income

$

43.1

$

50.2

$

123.5

$

148.3

Net (income) loss attributable to noncontrolling interests

(0.1)

—

(0.2)

0.1

Net income attributable to PolyOne common shareholders

$

43.0

$

50.2

$

123.3

$

148.4

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

Continuing operations

$

0.31

$

0.41

$

0.89

$

1.11

Discontinued operations

0.25

0.22

0.71

0.74

Total

$

0.56

$

0.63

$

1.60

$

1.85

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

Continuing operations

$

0.30

$

0.40

$

0.89

$

1.10

Discontinued operations

0.26

0.22

0.69

0.74

Total

$

0.56

$

0.62

$

1.58

$

1.84

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

Basic

76.9

79.8

77.3

80.1

Diluted

77.4

80.7

77.8

80.8

Cash dividends declared per share of common stock

$

0.195

$

0.175

$

0.585

$

0.525

Attachment 3

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

Special items ⁽¹⁾

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Cost of sales:

   Restructuring costs

$

—

$

(0.1)

$

0.3

$

(0.5)

   Environmental remediation costs

(6.4)

(7.4)

(10.4)

(19.2)

   Reimbursement of previously incurred environmental costs

4.0

1.5

4.0

3.8

   Acquisition related costs

—

—

(2.0)

(1.8)

      Impact on cost of sales

(2.4)

(6.0)

(8.1)

(17.7)

Selling and administrative expense:

   Restructuring, legal and other

(3.0)

(1.5)

(15.0)

(12.2)

Acquisition earn-out adjustments

(10.0)

—

(20.7)

—

   Acquisition related costs

(1.0)

(0.7)

(3.3)

(2.7)

      Impact on selling and administrative expense

(14.0)

(2.2)

(39.0)

(14.9)

      Impact on operating income

(16.4)

(8.2)

(47.1)

(32.6)

   Debt extinguishment costs

—

—

—

(0.1)

   Other income, net

0.1

—

0.4

0.2

      Impact on income from continuing operations before income taxes

(16.3)

(8.2)

(46.7)

(32.5)

Income tax benefit on above special items

4.1

2.9

11.5

9.2

Tax adjustments⁽²⁾

1.7

4.8

(0.7)

10.3

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

$

(10.5)

$

(0.5)

$

(35.9)

$

(13.0)

Diluted earnings per common share impact

$

(0.14)

$

(0.01)

$

(0.46)

$

(0.16)

Weighted average shares used to compute adjusted earnings per share:

   Diluted

77.4

80.7

77.8

80.8

⁽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 (Unaudited)
(In millions)

September 30,

2019

December 31,
2018

Assets

Current assets:

Cash and cash equivalents

$

199.6

$

170.9

Accounts receivable, net

368.7

347.2

Inventories, net

281.6

284.6

Current assets held for sale

265.5

129.7

Other current assets

58.4

66.4

Total current assets

1,173.8

998.8

Property, net

386.0

384.5

Goodwill

682.6

639.1

Intangible assets, net

475.8

422.4

Operating lease assets, net

65.0

—

Non-current assets held for sale

—

124.5

Other non-current assets

163.0

154.0

Total assets

$

2,946.2

$

2,723.3

Liabilities and Equity

Current liabilities:

Short-term and current portion of long-term debt

$

18.6

$

19.4

Accounts payable

289.3

305.0

Current operating lease obligations

20.7

—

Current liabilities held for sale

105.2

104.5

Accrued expenses and other current liabilities

191.7

128.7

Total current liabilities

625.5

557.6

Non-current liabilities:

Long-term debt

1,406.3

1,336.2

Pension and other post-retirement benefits

52.7

54.3

Non-current operating lease obligations

44.3

—

Non-current liabilities held for sale

—

3.3

Other non-current liabilities

225.2

231.3

Total non-current liabilities

1,728.5

1,625.1

Equity:

PolyOne shareholders' equity

591.4

540.0

Noncontrolling interests

0.8

0.6

Total equity

592.2

540.6

Total liabilities and equity

$

2,946.2

$

2,723.3

Attachment 5

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

Nine Months Ended September 30,

2019

2018

Operating Activities

Net income

$

123.5

$

148.3

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

Depreciation and amortization

68.4

69.0

Debt extinguishment costs

—

0.1

Share-based compensation expense

8.7

8.3

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

Increase in accounts receivable

(12.7)

(70.6)

Decrease (increase) in inventories

20.0

(0.1)

Increase (decrease) in accounts payable

(28.3)

28.4

Decrease in pension and other post-retirement benefits

(7.0)

(7.7)

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

26.0

(4.8)

Net cash provided by operating activities

198.6

170.9

Investing Activities

Capital expenditures

(47.9)

(51.2)

Business acquisitions, net of cash acquired

(119.6)

(98.6)

Sale of and proceeds from other assets

5.3

3.9

Net cash used by investing activities

(162.2)

(145.9)

Financing Activities

Borrowings under credit facilities

882.4

835.3

Repayments under credit facilities

(808.5)

(797.5)

Repayment of other debt

—

(16.4)

Purchase of common shares for treasury

(26.9)

(53.0)

Cash dividends paid

(45.7)

(42.1)

Repayment of long-term debt

(4.9)

(4.9)

Payments of withholding tax on share awards

(2.0)

(3.9)

Debt financing costs

(0.2)

(0.5)

Net cash used by financing activities

(5.8)

(83.0)

Effect of exchange rate changes on cash

(1.9)

(4.8)

Increase (decrease) in cash and cash equivalents

28.7

(62.8)

Cash and cash equivalents at beginning of period

170.9

243.6

Cash and cash equivalents at end of period

$

199.6

$

180.8

Attachment 6

PolyOne Corporation
Business Segment 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
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Sales:

   Color, Additives and Inks

$

246.3

$

261.0

$

777.1

$

805.6

   Specialty Engineered Materials

183.0

166.7

568.2

495.3

   Distribution

295.9

321.8

919.8

960.6

   Corporate and eliminations

(19.9)

(20.5)

(61.0)

(57.6)

      Sales

$

705.3

$

729.0

$

2,204.1

$

2,203.9

Gross margin:

   Color, Additives and Inks

$

83.7

$

88.8

$

264.5

$

275.3

   Specialty Engineered Materials

48.1

44.4

152.5

134.8

   Distribution

32.7

31.4

101.1

95.2

   Corporate and eliminations

(4.0)

(7.4)

(14.2)

(21.4)

      Gross margin

$

160.5

$

157.2

$

503.9

$

483.9

Selling and administrative expense:

   Color, Additives and Inks

$

45.3

$

47.7

$

144.3

$

146.8

   Specialty Engineered Materials

27.8

25.5

85.2

74.7

   Distribution

13.9

13.8

42.7

40.7

   Corporate and eliminations

30.4

21.5

95.4

73.3

      Selling and administrative expense

$

117.4

$

108.5

$

367.6

$

335.5

Operating income:

   Color, Additives and Inks

$

38.4

$

41.1

$

120.2

$

128.5

   Specialty Engineered Materials

20.3

18.9

67.3

60.1

   Distribution

18.8

17.6

58.4

54.5

   Corporate and eliminations

(34.4)

(28.9)

(109.6)

(94.7)

      Operating income

$

43.1

$

48.7

$

136.3

$

148.4

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
September 30,

Nine Months Ended
September 30,

Reconciliation to Consolidated Statements of Income

2019

2018

2019

2018

Sales

$

705.3

$

729.0

$

2,204.1

$

2,203.9

Gross margin - GAAP

160.5

157.2

503.9

483.9

Special items in gross margin (Attachment 3)

2.4

6.0

8.1

17.7

Adjusted Gross margin

$

162.9

$

163.2

$

512.0

$

501.6

Adjusted Gross margin as a percent of sales

23.1

%

22.4

%

23.2

%

22.8

%

Operating income - GAAP

43.1

48.7

136.3

148.4

Special items in operating income (Attachment 3)

16.4

8.2

47.1

32.6

   Adjusted Operating income

$

59.5

$

56.9

$

183.4

$

181.0

Adjusted Operating income as a percent of sales

8.4

%

7.8

%

8.3

%

8.2

%

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 September
30, 2019

Three Months Ended September
30, 2018

GAAP
Results

Special
Items

Adjusted
Results

GAAP
Results

Special
Items

Adjusted
Results

Income from continuing operations before income
   taxes

$

28.2

$

16.3

$

44.5

$

33.8

$

8.2

$

42.0

Income tax expense - GAAP

(4.6)

—

(4.6)

(1.3)

—

(1.3)

Income tax impact of special items (Attachment
3)

—

(4.1)

(4.1)

—

(2.9)

(2.9)

Tax adjustments (Attachment 3)

—

(1.7)

(1.7)

—

(4.8)

(4.8)

Income tax expense

$

(4.6)

$

(5.8)

$

(10.4)

$

(1.3)

$

(7.7)

$

(9.0)

Effective Tax Rate

16.3

%

23.4

%

3.8

%

21.4

%

Nine Months Ended 

 September 30, 2019

Nine Months Ended 

 September 30, 2018

GAAP
Results

Special
Items

Adjusted
Results

GAAP
Results

Special
Items

Adjusted
Results

Income from continuing operations before income
   taxes

$

90.1

$

46.7

$

136.8

$

103.1

$

32.5

$

135.6

Income tax expense - GAAP

(20.8)

—

(20.8)

(14.2)

—

(14.2)

Income tax impact of special items (Attachment
3)

—

(11.5)

(11.5)

—

(9.2)

(9.2)

Tax adjustments (Attachment 3)

—

0.7

0.7

—

(10.3)

(10.3)

Income tax expense

$

(20.8)

$

(10.8)

$

(31.6)

$

(14.2)

$

(19.5)

$

(33.7)

Effective Tax Rate

23.1

%

23.1

%

13.8

%

24.9

%

Attachment 8

PolyOne Corporation
Impacts of Discontinued Operations on Earnings Per Share (Unaudited)

Three Months Ended

March 31,

Three Months Ended

June 30,

Three Months Ended

September 30,

Three Months Ended

December 31,

Year Ended

December 31,

2019

2018

2019

2018

2019

2018

2018

2018

Estimated adjusted EPS
from con't ops

$

0.43

$

0.39

$

0.48

$

0.46

$

0.44

$

0.41

$

0.24

$

1.51

Estimated adjusted EPS
from disc ops

0.21

0.29

0.26

0.25

0.26

0.22

0.17

0.92

$

0.64

$

0.68

$

0.74

$

0.71

$

0.70

$

0.63

$

0.41

$

2.43

Special items, before
income taxes

(0.17)

(0.11)

(0.25)

(0.18)

(0.21)

(0.11)

(0.33)

(0.75)

Income tax benefit on
special items

0.04

0.03

0.06

0.05

0.05

0.04

0.07

0.19

Tax adjustments

(0.02)

(0.01)

(0.01)

0.06

0.02

0.06

—

0.13

GAAP EPS

$

0.49

$

0.59

$

0.54

$

0.64

$

0.56

$

0.62

$

0.15

$

2.00

See Attachment 1 for details on the use by senior management of diluted adjusted earnings per share (EPS) from continuing operations attributable to PolyOne shareholders, excluding special items, to assess performance and facilitate comparability of results. See Attachment 3 for a definition and summary of special items and tax adjustments.