PolyOne Announces Change in Pension Accounting

Attachment 1

PolyOne Corporation and Subsidiaries

Description of Accounting Change

PolyOne Corporation is changing its method of recognizing actuarial gains and losses for all of its pension and other postretirement benefit plans. Historically, PolyOne recognized actuarial gains and losses in Accumulated Other Comprehensive income within Shareholders' Equity on its consolidated balance sheets on an annual basis and amortized them into its operating results over the average remaining life of the plan participants for the majority of its U.S. and foreign benefit plans and over the remaining service period of plan participants for certain non-U.S. benefit plans, to the extent such gains and losses were outside of a corridor. PolyOne has elected to immediately recognize actuarial gains and losses, after consideration of inventory capitalizations, in its operating results in the year in which the gains and losses occur because it is generally preferable to accelerate the recognition of deferred gains and losses into income rather than to delay such recognition. This change will improve the transparency of PolyOne's operating results by more quickly recognizing the effects of economic and interest rate trends on plan obligations, investments and assumptions. These gains and losses are generally only measured annually as of December 31 and, accordingly, will be recorded during the fourth quarter of each year.

The majority of PolyOne's net periodic benefit cost is captured within Corporate and eliminations in its operating segments results. The impact associated with the accounting change is reflected entirely within Corporate and eliminations. The annual recognition of actuarial gains and losses will be reflected within Corporate and eliminations. This change in accounting principle was elected by PolyOne during the first quarter of 2011, and is required to be reported through retrospective application of historical results in future quarterly and annual reports filed with the SEC to conform to current period presentation.

Attachment 2

PolyOne Corporation and Subsidiaries

Diluted Earnings per Share, as Reported and as Adjusted (Unaudited)

Diluted earnings (loss) per share is computed as net income available to common shareholders divided by the weighted average diluted shares outstanding. Diluted earnings (loss) before special items is calculated as net income excluding special items and certain tax adjustments as defined on page 9.

Diluted EPS

Diluted EPS

Before Special Items (1)

As Reported

As Adjusted

As Reported

As Adjusted

Q1

$    0.19

$    0.22

$    0.17

$    0.18

Q2

$    0.47

$    0.50

$    0.25

$    0.27

Q3

$    0.01

$    0.04

$    0.28

$    0.30

Q4

$    1.00

$    0.92

$    0.17

$    0.18

2010

$    1.69

$    1.69

$    0.88

$    0.94

Diluted EPS

Diluted EPS

Before Special Items (1)

As Reported

As Adjusted

As Reported

As Adjusted

Q1

$   (0.19)

$    0.04

$   (0.10)

$   (0.07)

Q2

$   (0.02)

$    0.01

$    0.09

$    0.11

Q3

$    0.51

$    0.55

$    0.13

$    0.15

Q4

$    0.22

$    0.54

$    0.11

$    0.14

2009

$    0.53

$    1.14

$    0.25

$    0.33

Diluted EPS

Diluted EPS

Before Special Items (1)

As Reported

As Adjusted

As Reported

As Adjusted

Q1

$    0.08

$    0.09

$    0.09

$    0.10

Q2

$    0.12

$    0.13

$    0.15

$    0.16

Q3

$   (0.01)

$    0.00

$    0.18

$    0.19

Q4

$   (3.01)

$   (4.76)

$   (0.04)

$   (0.03)

2008

$   (2.81)

$   (4.50)

$    0.38

$    0.43

Diluted EPS

Diluted EPS

Before Special Items (1)

As Reported

As Adjusted

As Reported

As Adjusted

Q1

$    0.07

$    0.09

$    0.08

$    0.10

Q2

$   (0.03)

$   (0.01)

$    0.13

$    0.15

Q3

$    0.05

$    0.07

$    0.17

$    0.18

Q4

$    0.10

$    0.29

$    0.10

$    0.12

2007

$    0.19

$    0.44

$    0.48

$    0.55

Attachment 3

PolyOne Corporation and Subsidiaries

Consolidated Statements of Operations, as Adjusted (Unaudited)

(In millions, except per share data)

1Q10

2Q10

3Q10

4Q10

2010Y

Sales

$ 630.4

$  692.9

$   680.8

$  617.8

$ 2,621.9

Cost of sales

526.7

566.1

569.5

530.8

2,193.1

Gross margin

103.7

126.8

111.3

87.0

428.8

Selling and administrative

71.5

70.7

74.6

79.4

296.2

Income related to equity affiliates

1.5

7.8

10.5

22.2

42.0

Operating income

33.7

63.9

47.2

29.8

174.6

Interest expense, net

(8.0)

(7.7)

(7.5)

(8.3)

(31.5)

Debt extinguishment costs

–

–

(29.4)

(0.1)

(29.5)

Other expense, net

(0.7)

(1.2)

(0.3)

(0.1)

(2.3)

Income before income taxes

25.0

55.0

10.0

21.3

111.3

Income tax benefit (expense)

(4.0)

(6.9)

(6.4)

68.6

51.3

Net income

$   21.0

$    48.1

$       3.6

$    89.9

$    162.6

Basic earnings per common share

$   0.23

$    0.52

$     0.04

$    0.96

$     1.75

Diluted earnings per common share

$   0.22

$    0.50

$     0.04

$    0.92

$     1.69

Weighted average shares used to compute earnings per share:

   Basic

92.5

92.8

93.1

93.7

93.1

   Diluted

95.3

96.3

96.3

97.4

96.0

1Q09

2Q09

3Q09

4Q09

2009Y

Sales

$ 463.4

$  496.5

$   548.3

$  552.5

$ 2,060.7

Cost of sales

412.2

415.5

442.2

467.0

1,736.9

Gross margin

51.2

81.0

106.1

85.5

323.8

Selling and administrative

49.6

74.0

53.4

39.9

216.9

Impairment of goodwill

5.0

–

–

–

5.0

Income related to equity affiliates

13.3

10.1

5.2

6.6

35.2

Operating income

9.9

17.1

57.9

52.2

137.1

Interest expense, net

(8.8)

(8.8)

(8.5)

(8.2)

(34.3)

Other expense, net

(6.6)

(0.7)

(1.2)

(1.1)

(9.6)

Income (loss) before income taxes

(5.5)

7.6

48.2

42.9

93.2

Income tax benefit (expense)

8.8

(6.3)

3.1

7.9

13.5

Net income

$     3.3

$      1.3

$     51.3

$    50.8

$    106.7

Basic earnings per common share

$   0.04

$    0.01

$     0.56

$    0.55

$     1.15

Diluted earnings per common share

$   0.04

$    0.01

$     0.55

$    0.54

$     1.14

Weighted average shares used to compute earnings (loss) per share:

   Basic

92.2

92.4

92.4

92.5

92.4

   Diluted

92.5

93.5

93.9

94.4

93.4

PolyOne Corporation and Subsidiaries

Consolidated Statements of Operations, as Adjusted (Unaudited)

(In millions, except per share data)

1Q08

2Q08

3Q08

4Q08

2008Y

Sales

$  713.7

$  748.1

$   735.1

$  541.8

$ 2,738.7

Cost of sales

627.3

655.7

663.0

505.7

2,451.7

Gross margin

86.4

92.4

72.1

36.1

287.0

Selling and administrative

70.7

72.8

67.4

228.7

439.6

Impairment of goodwill

–

–

–

170.0

170.0

Income related to equity affiliates

8.1

10.5

5.8

6.8

31.2

Operating income (loss)

23.8

30.1

10.5

(355.8)

(291.4)

Interest expense, net

(8.4)

(9.8)

(9.7)

(9.3)

(37.2)

Other expense, net

(2.0)

(0.7)

–

(1.9)

(4.6)

Income (loss) before income taxes

13.4

19.6

0.8

(367.0)

(333.2)

Income tax expense

(4.6)

(7.0)

(0.6)

(71.6)

(83.8)

Net income (loss)

$      8.8

$     12.6

$      0.2

$ (438.6)

$   (417.0)

Basic and diluted earnings (loss) per common share:

$    0.09

$     0.14

$     0.00

$   (4.76)

$    (4.50)

Diluted earnings (loss) per common share

$    0.09

$     0.13

$     0.00

$   (4.76)

$    (4.50)

Weighted average shares used to compute earnings (loss) per share:

   Basic

92.9

93.0

92.9

92.1

92.7

   Diluted

93.3

93.8

93.7

92.1

92.7

1Q07

2Q07

3Q07

4Q07

2007Y

Sales

$  657.8

$  688.8

$   664.8

$  631.3

$  2,642.7

Cost of sales

575.3

601.9

630.6

562.1

2,369.9

Gross margin

82.5

86.9

34.2

69.2

272.8

Selling and administrative

61.4

65.8

62.6

30.7

220.5

Income (loss) related to equity affiliates

6.5

(1.6)

11.7

11.1

27.7

Operating income (loss)

27.6

19.5

(16.7)

49.6

80.0

Interest expense, net

(14.4)

(15.1)

(10.3)

(7.1)

(46.9)

Premium on early extinguishment of debt

–

(5.3)

(7.5)

–

(12.8)

Other expense, net

(0.9)

(1.8)

(1.8)

(2.1)

(6.6)

Income (loss) before income taxes

12.3

(2.7)

(36.3)

40.4

13.7

Income tax benefit (expense)

(3.9)

1.7

42.9

(13.5)

27.2

Net income (loss)

$      8.4

$     (1.0)

$       6.6

$    26.9

$      40.9

Basic and diluted earnings (loss) per common share:

$    0.09

$   (0.01)

$     0.07

$    0.29

$     0.44

Weighted average shares used to compute earnings (loss) per share:

   Basic

92.6

92.8

92.8

92.9

92.8

   Diluted

93.0

92.8

93.3

93.2

93.1

Attachment 4

PolyOne Corporation and Subsidiaries

Reconciliation of Non-GAAP Financial Measures, as Adjusted (Unaudited)

(In millions)

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.

Senior management uses net 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. Below is a reconciliation of non-GAAP financial measures to the most directly comparable measures calculated and presented in accordance with GAAP.

1Q10

2Q10

3Q10

4Q10

2010Y

Reconciliation to Consolidated Statements of Operations

Sales

$    630.4

$    692.9

$    680.8

$    617.8

$    2,621.9

Gross margin – as reported

103.5

126.7

111.2

87.5

428.9

Pension accounting change adjustment

0.2

0.1

0.1

(0.5)

(0.1)

Pension accounting change – special items (1)

(0.1)

–

–

0.6

0.5

Special items (1) in gross margin – as reported

3.1

(10.9)

4.7

8.9

5.8

Gross margin before special items – adjusted

$    106.7

$    115.9

$    116.0

$    96.5

$    435.1

Gross margin before special items as a percent of sales

16.9%

16.7%

17.0%

15.6%

16.6%

Operating income – as reported

$    31.1

$    61.5

$    44.6

$    37.1

$    174.3

Pension accounting change adjustment

2.6

2.4

2.6

(7.3)

0.3

Pension accounting change – special items (1)

(0.1)

–

–

9.7

9.6

Special items (1) in operating income – as reported

3.3

(10.5)

5.5

(5.5)

(7.2)

Operating income before special items – adjusted

$    36.9

$    53.4

$    52.7

$    34.0

$    177.0

Net income – as reported

$    18.4

$    45.7

$    1.0

$    97.5

$    162.6

Pension accounting change adjustment, after tax

2.6

2.4

2.6

(7.6)

–

Pension accounting change – special items, after tax (1)

(1.1)

(0.9)

(1.0)

9.1

6.1

Special items (1) and non-recurring items, after tax – as reported

(0.2)

(9.0)

21.8

(2.9)

9.7

Tax adjustments (2) – as reported

(2.5)

(12.2)

4.6

(78.2)

(88.3)

$    17.2

$    26.0

$    29.0

$    17.9

$    90.1

1Q09

2Q09

3Q09

4Q09

2009Y

Reconciliation to Consolidated Statements of Operations

Sales

$    463.4

$    496.5

$    548.3

$    552.5

$    2,060.7

Gross margin – as reported

50.8

80.9

106.0

84.5

322.2

Pension accounting change adjustment

0.4

0.1

0.1

1.0

1.6

Pension accounting change – special items (1)

(0.3)

–

–

(0.8)

(1.1)

Special items (1) in gross margin – as reported

11.3

4.3

(8.0)

4.6

12.2

Gross margin before special items – adjusted

$    62.2

$    85.3

$    98.1

$    89.3

$    334.9

Gross margin before special items as a percent of sales

13.4%

17.2%

17.9%

16.2%

16.3%

Operating income (loss) – as reported

$    (11.1)

$    13.9

$    54.9

$    22.4

$    80.1

Pension accounting change adjustment

21.0

3.2

3.0

29.8

57.0

Pension accounting change – special items (1)

(17.9)

–

–

(26.4)

(44.3)

Special items (1) in operating income – as reported

16.6

4.6

(27.5)

1.9

(4.4)

Operating income before special items – adjusted

$    8.6

$    21.7

$    30.4

$    27.7

$    88.4

Net income (loss) – as reported

$    (17.7)

$    (1.9)

$    48.3

$    20.8

$    49.5

Pension accounting change adjustment, after tax

21.0

3.2

3.0

30.0

57.2

Pension accounting change – special items, after tax (1)

(19.1)

(1.2)

(1.2)

(28.0)

(49.5)

Special items (1), after tax – as reported

10.5

3.1

(17.7)

0.8

(3.3)

Tax adjustments (2) – as reported

(1.6)

7.3

(18.0)

(10.8)

(23.1)

$    (6.9)

$    10.5

$    14.4

$    12.8

$    30.8

PolyOne Corporation and Subsidiaries

Reconciliation of Non-GAAP Financial Measures, as Adjusted (Unaudited)

(In millions, except per share data)

1Q08

2Q08

3Q08

4Q08

2008Y

Reconciliation to Consolidated Statements of Operations

Sales

$    713.7

$    748.1

$    735.1

$    541.8

$    2,738.7

Gross margin – as reported

86.2

92.3

72.0

41.5

292.0

Pension accounting change adjustment

0.2

0.1

0.1

(5.4)

(5.0)

Pension accounting change – special items (1)

(0.1)

–

–

5.5

5.4

Special items (1) in gross margin – as reported

1.6

2.7

21.9

18.7

44.9

Gross margin before special items – adjusted

$    87.9

$    95.1

$    94.0

$    60.3

$    337.3

Gross margin before special items as a percent of sales

12.3%

12.7%

12.8%

11.1%

12.3%

Operating income (loss) – as reported

$    21.4

$    27.8

$    8.1

$    (191.2)

$    (133.9)

Pension accounting change adjustment

2.4

2.3

2.4

(164.6)

(157.5)

Pension accounting change – special items (1)

(0.1)

–

–

166.3

166.2

Special items (1) in operating income – as reported

1.6

3.8

26.7

197.9

230.0

Operating income before special items – adjusted

$    25.3

$    33.9

$    37.2

$    8.4

$    104.8

Net income (loss) – as reported

$    7.3

$    11.2

$    (1.3)

$    (277.4)

$    (260.2)

Pension accounting change adjustment, after tax

1.5

1.4

1.5

(161.2)

(156.8)

Pension accounting change – special items, after tax (1)

(0.1)

–

–

162.2

162.1

Special items (1), after tax – as reported

1.0

2.5

17.7

185.0

206.2

Tax adjustments (2) – as reported

–

–

–

88.9

88.9

$    9.7

$    15.1

$    17.9

$    (2.5)

$    40.2

1Q07

2Q07

3Q07

4Q07

2007Y

Reconciliation to Consolidated Statements of Operations

Sales

$    657.8

$    688.8

$    664.8

$    631.3

$    2,642.7

Gross margin – as reported

82.2

86.7

34.2

67.8

270.9

Pension accounting change adjustment

0.3

0.2

–

1.4

1.9

Pension accounting change – special items (1)

(0.1)

–

–

(1.2)

(1.3)

Special items (1) in gross margin – as reported

1.0

1.3

46.6

1.3

50.2

Gross margin before special items – adjusted

$    83.4

$    88.2

$    80.8

$    69.3

$    321.7

Gross margin before special items as a percent of sales

12.7%

12.8%

12.2%

11.0%

12.2%

Operating income (loss) – as reported

$    24.6

$    16.6

$    (19.4)

$    22.0

$    43.8

Pension accounting change – non-special

3.0

2.9

2.7

27.6

36.2

Pension accounting change – special items (1)

(0.1)

–

–

(24.8)

(24.9)

Special items (1) in operating income – as reported

1.0

17.5

53.6

0.6

72.7

Operating income before special items – adjusted

$    28.5

$    37.0

$    36.9

$    25.4

$    127.8

Net income (loss) – as reported

$    6.5

$    (2.8)

$    4.9

$    9.2

$    17.8

Pension accounting change adjustment, after tax

1.9

1.8

1.7

17.7

23.1

Pension accounting change – special items, after tax (1)

(0.1)

–

–

(15.9)

(16.0)

Special items (1), after tax – as reported

0.7

15.3

41.0

0.4

57.4

Tax adjustments (2) – as reported

–

–

(30.5)

(0.2)

(30.7)

$    9.0

$    14.3

$    17.1

$    11.2

$    51.6

(1) Special items is 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 phaseout costs, executive separation agreements; asset impairments; environmental remediation costs, fines or penalties for 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; and the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results or the effect of adverse determinations by regulatory agencies relating to accounting principles or treatment.

(2) Net tax (benefit) loss from one-time foreign and domestic income tax items and deferred income tax valuation allowance adjustments on deferred tax assets