PolyOne Announces Fourth Quarter and Full Year 2016 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,

2016

2015

2016

2015

Sales

$

787.7

$

775.8

$

3,339.8

$

3,377.6

Operating income

57.9

31.3

281.9

250.9

Net income attributable to PolyOne shareholders

33.8

3.1

165.2

144.6

Basic earnings per share attributable to PolyOne shareholders

$

0.41

$

0.04

$

1.97

$

1.65

Diluted earnings per share attributable to PolyOne shareholders

$

0.40

$

0.04

$

1.95

$

1.63

Senior management uses comparisons of adjusted net income attributable to PolyOne shareholders and diluted adjusted earnings per share (EPS) 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
2016年12月31日

Three Months Ended
2015年12月31日

Reconciliation to Condensed Consolidated Statements of Income

$

EPS

$

EPS

Net income attributable to PolyOne shareholders

$

33.8

$

0.40

$

3.1

$

0.04

Special items, after tax (Attachment 3)

(2.2)

(0.02)

30.4

0.35

Adjusted net income / EPS - excluding special items

$

31.6

$

0.38

$

33.5

$

0.39

Year Ended

Year Ended

2016年12月31日

2015年12月31日

Reconciliation to Condensed Consolidated Statements of Income

$

EPS

$

EPS

Net income attributable to PolyOne shareholders

$

165.2

$

1.95

$

144.6

$

1.63

Special items, after tax (Attachment 3)

14.8

0.18

28.9

0.33

Adjusted net income / EPS - excluding special items

$

180.0

$

2.13

$

173.5

$

1.96

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,

2016

2015

2016

2015

Sales

$

787.7

$

775.8

$

3,339.8

$

3,377.6

Cost of sales

632.4

618.9

2,633.6

2,696.1

Gross margin

155.3

156.9

706.2

681.5

Selling and administrative expense

97.4

125.6

424.3

430.6

Operating income

57.9

31.3

281.9

250.9

Interest expense, net

(15.5)

(15.6)

(59.8)

(64.1)

Debt extinguishment costs

—

(16.4)

(0.4)

(16.4)

Other income (expense), net

0.4

0.3

0.6

(2.7)

Income (loss), before income taxes

42.8

(0.4)

222.3

167.7

Income tax (expense) benefit

(9.1)

3.4

(57.3)

(23.0)

Net income

33.7

3.0

165.0

144.7

 Net loss (income) attributable to noncontrolling interests

0.1

0.1

0.2

(0.1)

Net income attributable to PolyOne common shareholders

$

33.8

$

3.1

$

165.2

$

144.6

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

$

0.41

$

0.04

$

1.97

$

1.65

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

$

0.40

$

0.04

$

1.95

1.63

Cash dividends declared per share of common stock

$

0.135

$

0.120

$

0.495

$

0.420

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

Basic

83.1

85.8

83.9

87.8

Diluted

83.7

86.6

84.6

88.7

Attachment 3

PolyOne Corporation

Summary of Special Items (Unaudited)

(In millions, except per share data)

Special items ⁽¹⁾

Three Months Ended
December 31,

Year Ended
December 31,

2016

2015

2016

2015

Cost of sales:

Restructuring costs

$

(1.3)

$

(8.1)

$

(6.5)

$

(32.9)

Environmental remediation costs

(2.2)

(1.5)

(8.3)

(9.3)

Reimbursement of previously incurred environmental costs

0.8

0.9

6.1

3.5

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

0.3

(1.0)

0.3

(1.0)

Acquisition related costs

(0.3)

—

(6.8)

—

     Impact on cost of sales

(2.7)

(9.7)

(15.2)

(39.7)

Selling and administrative expense:

Employee separation, restructuring and legal costs

(3.7)

(9.9)

(26.0)

(17.5)

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

8.1

(10.6)

8.1

(10.6)

Acquisition related costs

(0.8)

(1.2)

(2.2)

(3.5)

     Impact on selling and administrative expense

3.6

(21.7)

(20.1)

(31.6)

     Impact on operating income

0.9

(31.4)

(35.3)

(71.3)

  Debt extinguishment costs

—

(16.4)

(0.4)

(16.4)

  Other income, net

0.1

—

0.2

0.1

Impact on income (loss) before income taxes

1.0

(47.8)

(35.5)

(87.6)

Income tax (expense) benefit on above special items

(0.7)

17.6

12.5

31.3

Tax adjustments ⁽²⁾

1.9

(0.2)

8.2

27.4

Impact of special items on net income attributable to PolyOne 
     Shareholders

$

2.2

$

(30.4)

$

(14.8)

$

(28.9)

Diluted adjusted earnings per common share impact

$

0.02

$

(0.35)

$

(0.18)

$

(0.33)

Weighted average shares used to compute adjusted earnings per share:

  Diluted

83.7

86.6

84.6

88.7

⁽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)

Year Ended
2016年12月31日

Year Ended
2015年12月31日

Assets

Current assets:

Cash and cash equivalents

$

226.7

$

279.8

Accounts receivable, net

363.7

347.0

Inventories, net

312.4

287.0

Other current assets

46.7

47.0

Total current assets

949.5

960.8

Property, net

607.7

583.5

Goodwill

676.7

597.7

Intangible assets, net

364.2

344.6

Other non-current assets

125.2

108.5

Total assets

$

2,723.3

$

2,595.1

Liabilities and Shareholders' Equity

Current liabilities:

Short-term and current portion of long-term debt

$

18.5

$

18.6

Accounts payable

361.5

351.6

Accrued expenses and other liabilities

129.6

127.9

Total current liabilities

509.6

498.1

Non-current liabilities:

Long-term debt

1,239.8

1,128.0

Pension and other post-retirement benefits

63.1

77.5

Other non-current liabilities

185.3

186.3

Total non-current liabilities

1,488.2

1,391.8

Shareholders' equity:

PolyOne shareholders' equity

724.7

704.2

Noncontrolling interests

0.8

1.0

Total equity

725.5

705.2

Total liabilities and shareholders' equity

$

2,723.3

$

2,595.1

Attachment 5

PolyOne Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

Year Ended
December 31,

2016

2015

Operating activities

Net income

$

165.0

$

144.7

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

Depreciation and amortization

100.5

98.1

Accelerated depreciation and fixed asset charges associated with restructuring activities

5.4

17.6

Debt extinguishment costs

0.4

16.4

Share-based compensation expense

8.4

9.1

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

(Increase) decrease in accounts receivable

(17.6)

42.6

Decrease in inventories

0.8

21.4

Increase (decrease) in accounts payable

12.4

(8.3)

Decrease in pension and other post-retirement benefits

(43.2)

(24.6)

Decrease in accrued expenses and other assets and liabilities - net

(10.8)

(89.8)

Net cash provided by operating activities

221.3

227.2

Investing activities

Capital expenditures

(84.2)

(91.2)

Business acquisitions, net of cash acquired

(164.2)

(18.3)

Sale of and proceeds from other assets

13.0

3.0

Net cash used by investing activities

(235.4)

(106.5)

Financing activities

Repayment of long-term debt

(6.0)

(365.3)

Premium on early extinguishment of long-term debt

—

(13.4)

Net proceeds from long-term debt

100.0

547.3

Debt financing costs

(2.0)

(6.0)

Borrowings under credit facilities

1,031.9

891.3

Repayments under credit facilities

(1,032.7)

(936.8)

Purchase of common shares for treasury

(86.2)

(156.1)

Exercise of share awards

1.2

4.3

Cash dividends paid

(40.2)

(35.7)

Net cash used by financing activities

(34.0)

(70.4)

Effect of exchange rate changes on cash

(5.0)

(9.1)

(Decrease) increase in cash and cash equivalents

(53.1)

41.2

Cash and cash equivalents at beginning of year

279.8

238.6

Cash and cash equivalents at end of year

$

226.7

$

279.8

Attachment 6

PolyOne Corporation

Segment Results (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,

2016

2015

2016

2015

Sales:

  Color, Additives and Inks

$

184.7

$

184.9

$

797.7

$

810.7

  特种工程材料

135.3

125.2

565.8

542.8

  Designed Structures and Solutions

92.9

110.4

401.7

453.5

     Specialty Platform

412.9

420.5

1,765.2

1,807.0

  Performance Products and Solutions

158.2

152.7

668.5

694.1

  PolyOne Distribution

254.8

242.1

1,071.0

1,034.1

  Corporate and eliminations

(38.2)

(39.5)

(164.9)

(157.6)

     Sales

$

787.7

$

775.8

$

3,339.8

$

3,377.6

Gross margin:

  Color, Additives and Inks

$

62.8

$

67.0

$

286.1

$

293.8

  特种工程材料

38.6

37.3

167.5

161.0

  Designed Structures and Solutions

4.0

12.2

34.0

55.4

     Specialty Platform

105.4

116.5

487.6

510.2

  Performance Products and Solutions

26.6

24.8

121.2

101.9

  PolyOne Distribution

27.3

27.2

117.1

114.6

  Corporate and eliminations

(4.0)

(11.6)

(19.7)

(45.2)

     Gross margin

$

155.3

$

156.9

$

706.2

$

681.5

Selling and administrative expense:

  Color, Additives and Inks

$

39.8

$

39.5

$

158.6

$

158.4

  特种工程材料

22.8

20.9

86.4

81.4

  Designed Structures and Solutions

8.7

10.4

37.8

41.6

     Specialty Platform

71.3

70.8

282.8

281.4

  Performance Products and Solutions

11.2

11.3

46.8

44.5

  PolyOne Distribution

12.6

11.6

48.9

46.6

  Corporate and eliminations

2.3

31.9

45.8

58.1

     Selling and administrative expense

$

97.4

$

125.6

$

424.3

$

430.6

Operating income:

  Color, Additives and Inks

$

23.0

$

27.5

$

127.5

$

135.4

  特种工程材料

15.8

16.4

81.1

79.6

  Designed Structures and Solutions

(4.7)

1.8

(3.8)

13.8

     Specialty Platform

34.1

45.7

204.8

228.8

  Performance Products and Solutions

15.4

13.5

74.4

57.4

  PolyOne Distribution

14.7

15.6

68.2

68.0

  Corporate and eliminations

(6.3)

(43.5)

(65.5)

(103.3)

     Operating income

$

57.9

$

31.3

$

281.9

$

250.9

The Specialty Platform consists of our three specialty segments: Color, Additives and Inks; Specialty Engineered Materials; and Designed Structures and Solutions. We present Specialty Platform sales, gross margin, selling and administrative expense, 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 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

2016

2015

2016

2015

Sales

$

787.7

$

775.8

$

3,339.8

$

3,377.6

Gross margin - GAAP

155.3

156.9

706.2

681.5

Special items in gross margin (Attachment 3)

2.7

9.7

15.2

39.7

  Gross margin before special items

$

158.0

$

166.6

$

721.4

$

721.2

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

20.1

%

21.5

%

21.6

%

21.4

%

Operating income - GAAP

57.9

31.3

281.9

250.9

Special items in operating income (Attachment 3)

(0.9)

31.4

35.3

71.3

  Operating income adjusted

$

57.0

$

62.7

$

317.2

$

322.2

Operating income, before special items, as a percent of sales

7.2

%

8.1

%

9.5

%

9.5

%

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

Three Months Ended

2016年12月31日

2015年12月31日

GAAP Results

Special Items

Pre-special Results

GAAP Results

Special Items

Pre-special Results

Income (loss) before income taxes

$

42.8

$

(1.0)

$

41.8

$

(0.4)

$

47.8

$

47.4

Income tax (expense) benefit - GAAP

(9.1)

—

(9.1)

3.4

—

3.4

Income tax impact of special items (Attachment 3)

—

0.7

0.7

—

(17.6)

(17.6)

Tax adjustments (Attachment 3)

—

(1.9)

(1.9)

—

0.2

0.2

Income tax (expense) benefit

$

(9.1)

$

(1.2)

$

(10.3)

$

3.4

$

(17.4)

$

(14.0)

Effective Tax Rate

21.3

%

24.6

%

nm

29.5

%

nm - not meaningful

Year Ended

Year Ended

2016年12月31日

2015年12月31日

GAAP Results

Special Items

Pre-special Results

GAAP Results

Special Items

Pre-special Results

Income before income taxes

$

222.3

$

35.5

$

257.8

$

167.7

$

87.6

$

255.3

Income tax expense - GAAP

(57.3)

—

(57.3)

(23.0)

—

(23.0)

Income tax impact of special items (Attachment 3)

—

(12.5)

(12.5)

—

(31.3)

(31.3)

Tax adjustments (Attachment 3)

—

(8.2)

(8.2)

—

(27.4)

(27.4)

Income tax expense

$

(57.3)

$

(20.7)

$

(78.0)

$

(23.0)

$

(58.7)

$

(81.7)

Effective Tax Rate

25.8

%

30.3

%

13.7

%

32.0

%

Liquidity is calculated as follows:

(In millions)

As of December 31, 2016

Cash and cash equivalents

$

226.7

Revolving credit availability

386.2

Liquidity

$

612.9

Senior management has defined Adjusted EBITDA as net income, prepared in accordance with GAAP, adjusted for interest, taxes, depreciation, amortization and special items. Adjusted EBITDA is a non-GAAP financial measurement used by management to enhance the understanding of our operating results. We provide Adjusted EBITDA because we believe that investors and securities analysts will find Adjusted EBITDA to be a useful measure for evaluating our operating performance. Adjusted EBITDA should not be considered as an alternative to net income as a measure of operating results in accordance with GAAP. Below is a reconciliation of Adjusted EBITDA to the most directly comparable financial measure calculated and presented in accordance with GAAP. See Attachment 3 for a definition and summary of special items.

Year Ended 2016年12月31日

Net income

$

165.0

Income tax expense

57.3

Income before income taxes

222.3

Interest expense, net

59.8

Depreciation and amortization

104.0

Special items, impact on income before income taxes (Attachment 3)

35.5

Accelerated depreciation included in special items

(3.5)

Adjusted EBITDA⁽³⁾

$

418.1

⁽³⁾ Adjusted EBITDA does not include the pro forma impact of acquired businesses for the year ended 2016年12月31日.

Senior management has defined Net Debt as total debt outstanding less cash and cash equivalents. We provide Net Debt because we believe that it is more representative of our financial position given the amount of cash and cash equivalents held by PolyOne. Below is a reconciliation of Net Debt to the most directly comparable financial measures calculated and presented in accordance with GAAP.

2016年12月31日

Short-term and current portion of long-term debt

$

18.5

Long-term debt

1,239.8

Total Debt

1,258.3

Less: Cash and cash equivalents

(226.7)

Net Debt

$

1,031.6

Below is Net Debt to Adjusted EBITDA for the year ended 2016年12月31日. Senior management believes that investors and securities analysts find this leverage ratio useful for evaluating our ability to pay off debt and for comparing this measure with that of similar companies that have different capital structures.

Year Ended 2016年12月31日

Net Debt / Adjusted EBITDA

2.5