PolyOne Announces Second Quarter 2019 Results

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.

⁽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 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
June 30,

Six Months Ended
June 30,

2019

2018

2019

2018

Sales:

   Color, Additives and Inks

$

267.5

$

273.7

$

530.8

$

544.6

   Specialty Engineered Materials

195.3

165.5

385.2

328.6

   Performance Products and Solutions

174.9

191.9

344.7

382.9

   Distribution

306.6

323.3

623.9

638.8

   Corporate and eliminations

(40.5)

(39.6)

(80.9)

(78.5)

      Sales

$

903.8

$

914.8

$

1,803.7

$

1,816.4

Gross margin:

   Color, Additives and Inks

$

91.3

$

94.3

$

180.8

$

186.5

   Specialty Engineered Materials

54.0

45.6

104.4

90.4

   Performance Products and Solutions

31.2

34.1

59.1

68.7

   Distribution

34.2

32.1

68.4

63.8

   Corporate and eliminations

(5.2)

(9.6)

(10.9)

(14.4)

      Gross margin

$

205.5

$

196.5

$

401.8

$

395.0

Selling and administrative expense:

   Color, Additives and Inks

$

49.0

$

49.0

$

99.0

$

99.1

   Specialty Engineered Materials

28.3

24.5

57.4

49.2

   Performance Products and Solutions

11.7

11.5

24.4

23.4

   Distribution

14.1

13.4

28.8

26.9

   Corporate and eliminations

30.8

20.7

52.3

40.2

      Selling and administrative expense

$

133.9

$

119.1

$

261.9

$

238.8

Operating income:

   Color, Additives and Inks

$

42.3

$

45.3

$

81.8

$

87.4

   Specialty Engineered Materials

25.7

21.1

47.0

41.2

   Performance Products and Solutions

19.5

22.6

34.7

45.3

   Distribution

20.1

18.7

39.6

36.9

   Corporate and eliminations

(36.0)

(30.3)

(63.2)

(54.6)

      Operating income

$

71.6

$

77.4

$

139.9

$

156.2

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

2019

2018

2019

2018

Sales

$

903.8

$

914.8

$

1,803.7

$

1,816.4

Gross margin - GAAP

205.5

196.5

401.8

395.0

Special items in gross margin (Attachment 3)

1.7

8.0

5.7

11.7

Adjusted Gross margin

$

207.2

$

204.5

$

407.5

$

406.7

Adjusted Gross margin as a percent of sales

22.9

%

22.4

%

22.6

%

22.4

%

Operating income - GAAP

71.6

77.4

139.9

156.2

Special items in operating income (Attachment 3)

19.4

15.0

32.5

24.4

   Adjusted Operating income

$

91.0

$

92.4

$

172.4

$

180.6

Adjusted Operating income as a percent of sales

10.1

%

10.1

%

9.6

%

9.9

%

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, 2019

Three Months Ended
 June 30, 2018

GAAP
Results

Special
Items

Adjusted
Results

GAAP
Results

Special
Items

Adjusted
Results

Income from continuing operations before income taxes

$

56.2

$

19.2

$

75.4

$

61.6

$

15.0

$

76.6

Income tax expense - GAAP

(14.1)

—

(14.1)

(10.1)

—

(10.1)

Income tax impact of special items (Attachment 3)

—

(4.6)

(4.6)

—

(3.9)

(3.9)

Tax adjustments (Attachment 3)

—

0.6

0.6

—

(5.2)

(5.2)

Income tax expense

$

(14.1)

$

(4.0)

$

(18.1)

$

(10.1)

$

(9.1)

$

(19.2)

Effective Tax Rate

25.1

%

24.0

%

16.4

%

25.1

%

Six Months Ended
 June 30, 2019

Six Months Ended
 June 30, 2018

GAAP
Results

Special
Items

Adjusted
Results

GAAP
Results

Special
Items

Adjusted
Results

Income from continuing operations before income taxes

$

108.8

$

32.2

$

141.0

$

126.0

$

24.3

$

150.3

Income tax expense - GAAP

(28.4)

—

(28.4)

(26.8)

—

(26.8)

Income tax impact of special items (Attachment 3)

—

(7.9)

(7.9)

—

(6.3)

(6.3)

Tax adjustments (Attachment 3)

—

2.4

2.4

—

(4.7)

(4.7)

Income tax expense

$

(28.4)

$

(5.5)

$

(33.9)

$

(26.8)

$

(11.0)

$

(37.8)

Effective Tax Rate

26.1

%

24.0

%

21.3

%

25.1

%