PolyOne Announces Second Quarter 2013 Results

Attachment 1

Summary of Consolidated Statements of Income (Unaudited)

(In millions, except per share data)

Three Months Ended
June 30,

Six Months Ended
June 30,

Adjusted (a)

Adjusted(a)

2013

2012

2013

2012

Sales

$  1,037.6

$      756.6

$  1,838.7

$   1,502.1

Operating income

80.7

43.3

121.2

80.7

Net income from continuing operations attributable to PolyOne 

 shareholders

38.6

18.4

49.8

33.7

Basic earnings per share from continuing operations attributable

 to PolyOne shareholders

$        0.39

$        0.21

$        0.52

$        0.38

Diluted earnings per share from continuing operations

 attributable to PolyOne shareholders

$        0.39

$        0.20

$        0.52

$        0.37

Senior management uses comparisons of net income from continuing operations attributable to PolyOne shareholders and diluted earnings

per share (EPS) from continuing operations attributable to PolyOne shareholders before adjustments to assess performance and facilitate

comparability of results with prior periods. Below is a reconciliation of these non-GAAP financial measures to their most directly

comparable measures calculated and presented in accordance with U.S. GAAP (GAAP).

Three Months Ended

June 30, 2013

Three Months Ended

June 30, 2012 (a)

Reconciliation to Consolidated Statements of Income

$

EPS

$

EPS

Net income from continuing operations attributable to PolyOne shareholders

$        38.6

$       0.39

$       18.4

$         0.20

Special items, after tax (Attachment 3)

(2.2)

(0.02)

8.0

0.09

Tax adjustments (b)

0.2

–

0.9

0.01

Adjusted net income / EPS

$        36.6

$       0.37

$        27.3

$         0.30

Six Months Ended

June 30, 2013

Six Months Ended

June 30, 2012 (a)

Reconciliation to Consolidated Statements of Income

$

EPS

$

EPS

Net income from continuing operations attributable to PolyOne shareholders

$        49.8

$       0.52

$       33.7

$         0.37

Special items, after tax (Attachment 3)

15.0

0.16

14.1

0.16

Tax adjustments (b)

0.7

–

1.0

0.01

Adjusted net income / EPS

$       65.5

$      0.68

$        48.8

$         0.54

(a) Adjusted to reflect the resins business as a discontinued operation, including reclassifying the related assets and liabilities as held-for-sale.

(b) 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

Consolidated Statements of Income

(Unaudited)

(In millions, except per share data)

Three Months Ended
June 30,

Six Months Ended
June 30,

Adjusted (a)

Adjusted (a)

2013

2012

2013

2012

Sales

$ 1,037.6

$         756.6

$1,838.7

$     1,502.1

Cost of sales

833.9

612.6

1,472.7

1,225.8

    Gross margin

203.7

144.0

366.0

276.3

Selling and administrative expense

123.0

100.7

244.9

196.0

Income related to previously owned equity affiliates

–

–

0.1

0.4

    Operating income

80.7

43.3

121.2

80.7

Interest expense, net

(16.6)

(12.4)

(32.2)

(24.7)

Premium on early extinguishment of debt

–

–

(10.6)

–

Other (expense) income, net

(1.2)

(0.9)

0.2

(2.2)

    Income from continuing operations before income taxes

62.9

30.0

78.6

53.8

Income tax expense

(24.6)

(11.6)

(29.3)

(20.1)

    Net income from continuing operations

38.3

18.4

49.3

33.7

Income from discontinued operations, net of income taxes

142.3

6.2

146.4

11.1

    Net income

$    180.6

$           24.6

$   195.7

$         44.8

        Net loss attributable to noncontrolling interests

0.3

–

0.5

–

    Net income attributable to PolyOne common shareholders

$    180.9

$               24.6

$   196.2

$         44.8

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

     Continuing operations

$      0.39

$           0.21

$     0.52

$         0.38

     Discontinued operations

1.46

0.07

1.55

0.12

     Total

$      1.85

$          0.28

$     2.07

$         0.50

Earnings per common share attributable to PolyOne

 common shareholders - Diluted:

    Continuing operations

$      0.39

$           0.20

$     0.52

$         0.37

    Discontinued operations

1.44

0.07

1.53

0.12

    Total

$      1.83

$           0.27

$     2.05

$         0.49

Cash dividends declared per share of common stock

$      0.06

$           0.05

$     0.12

$         0.10

Weighted-average shares used to compute earnings

 per share:

    Basic

97.7

89.1

94.7

89.1

    Diluted

99.1

90.7

95.8

90.7

(a) Adjusted to reflect the resins business as a discontinued operation, including reclassifying the related assets and liabilities as held-for-sale.

Attachment 3

PolyOne Corporation

Summary of Special Items (Unaudited)

(In millions, except per share data)

Special items (1):

Three Months Ended
June 30,

Six Months Ended
June 30

2013

2013

2012

Cost of sales:

Employee separation and plant phase-out costs

$        –

$         –

$        –

$    (0.4)

Reimbursement of previously incurred environmental costs

14.9

–

20.1

–

Environmental remediation costs

(1.3)

(2.9)

(3.3)

(4.5)

Acquisition/divestiture related costs

(3.5)

–

(7.6)

(5.4)

       Impact on cost of sales

10.1

(2.9)

9.2

(10.3)

Selling and administrative expense:

Employee separation and plant phase-out costs

(3.1)

(8.7)

(14.8)

(8.8)

Legal related costs

(0.6)

–

(0.5)

(0.6)

Unrealized gain on foreign currency option contracts

0.2

0.7

0.6

0.2

Acquisition/divestiture related costs

(1.4)

(0.9)

(6.0)

(1.2)

       Impact on selling and administrative expense

(4.9)

(8.9)

(20.7)

(10.4)

Gain on sale of investment in equity affiliates

–

–

0.1

0.4

            Impact on operating income

5.2

(11.4)

(20.3)

     Premium on early extinguishment of debt

–

–

(10.6)

–

     Bridge loan commitment fees – interest expense

–

–

(1.9)

–

     Other income (expense), net

–

–

1.4

–

            Impact on income before income taxes

5.2

(11.8)

(22.5)

(20.3)

Income tax (expense) benefit on special items

(3.0)

3.8

7.5

6.2

Impact of special items on net income attributable to PolyOne Shareholders

$      2.2

$      (8.0)

$   (15.0)

$  (14.1)

Basic earnings per common share impact

$    0.02

$    (0.09)

$   (0.16)

$   (0.16)

Diluted earnings per common share impact

$    0.02

$    (0.09)

$   (0.16)

$   (0.16)

Weighted average shares used to compute earnings per share:

   Basic

97.7

89.1

94.7

89.1

   Diluted

99.1

90.7

95.8

90.7

(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 (Unaudited)

(In millions)

Adjusted (a)

June 30,

December 31,

2013

2012

Assets

Current assets:

    Cash and cash equivalents

$                     392.4

$                     210.0

    Accounts receivable, net

521.5

313.9

    Inventories, net

367.9

244.4

    Assets held-for-sale

–

39.3

    Other current assets

73.6

81.1

        Total current assets

1,355.4

888.7

Property, net

654.7

385.8

Goodwill

549.5

405.5

Intangible assets, net                                                  

376.1

340.0

Other non-current assets

137.7

108.0

        Total assets

$                   3,073.4

$                 2,128.0

Liabilities and Shareholders' Equity

Current liabilities:

    Short-term and current portion of long-term debt

$                          8.7

$                       3.8

    Accounts payable

415.4

296.1

    Liabilities held-for-sale

–

18.0

    Accrued expenses

257.5

141.9

        Total current liabilities

681.6

459.8

Non-current liabilities:

    Long-term debt

1,022.5

703.1

    Post-retirement benefits other than pensions

15.9

16.9

    Pension benefits

118.2

182.8

    Other non-current liabilities

239.5

134.0

        Total non-current liabilities

1,396.1

1,036.8

Shareholders' equity:

    PolyOne shareholders' equity

993.9

629.1

    Non-controlling interests

1.8

2.3

       Total equity

995.7

631.4

       Total liabilities and shareholders' equity

$                   3,073.4

$             2,128.0

(a) Adjusted to reflect the resins business as a discontinued operation, including reclassifying the related assets and liabilities as held-for-sale.

Attachment 5

PolyOne Corporation

Consolidated Statements of Cash Flows (Unaudited)

(In millions)

Six Months Ended

June 30,

Adjusted (a)

2013

2012

Operating Activities

Net income

$                195.7

$             44.8

Adjustments to reconcile net income to net cash (used) provided by operating activities:

       Depreciation and amortization

45.8

35.6

       Debt extinguishment costs

10.6

–

       Provision for doubtful accounts

–

0.7

       Stock based compensation expense

10.1

5.0

       Gain on sale of business

(223.6)

–

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

       Increase in accounts receivable

(70.6)

(85.1)

       Increase in inventories

(3.9)

(16.5)

       Increase in accounts payable

15.5

59.5

       Decrease in pensions and other post-retirement benefits

(65.7)

(18.3)

       Increase in accrued expenses and other

60.9

6.6

Net cash (used) provided by operating activities

(25.2)

32.3

Investing Activities

    Capital expenditures

(26.7)

(16.7)

    Business acquisitions, net of cash acquired

(259.4)

–

    Proceeds from sale of businesses and other assets

274.1

18.9

Net cash (used) provided by investing activities

(12.0)

2.2

Financing Activities

    Repayment of long-term debt

(297.0)

(1.5)

    Proceeds from long-term debt

600.0

–

    Debt financing costs

(13.0)

–

    Borrowings under credit facilities

125.0

–

    Repayments under credit facilities

(117.5)

–

    Purchase of common shares for treasury

(71.2)

(15.9)

    Exercise of stock awards

3.3

6.4

    Cash dividends paid

(9.9)

(8.0)

    Proceeds from noncontrolling interests

–

2.4

Net cash provided (used) by financing activities

219.7

(16.6)

Effect of exchange rate changes on cash

(0.1)

(0.5)

Increase in cash and cash equivalents

182.4

17.4

Cash and cash equivalents at beginning of period

210.0

191.9

Cash and cash equivalents at end of period

$             392.4

$                209.3

(a) Adjusted to reflect the resins business as a discontinued operation, including reclassifying the related assets and liabilities as held-for-sale.

Attachment 6

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

Three Months Ended

Six Months Ended

June 30,

June 30,

Adjusted (a) (c)

Adjusted (a) (c)

2013

2012

2013

2012

Sales:

    Global Specialty Engineered Materials

$      192.2

$      138.9

$       352.0

$       280.9

    Global Color, Additives and Inks

229.4

211.5

434.7

413.9

    Designed Structures and Solutions

198.9

–

240.4

–

        Specialty Platform

620.5

350.4

1,027.1

694.8

    Performance Products and Solutions

177.0

167.5

336.7

336.0

    PolyOne Distribution

275.1

270.6

543.1

533.6

    Corporate and eliminations

(35.0)

(31.9)

(68.2)

(62.3)

        Sales

$   1,037.6

$      756.6

$    1,838.7

$    1,502.1

Gross margin:

    Global Specialty Engineered Materials

$        41.3

$        32.6

$         81.3

$         65.8

    Global Color, Additives and Inks

75.2

65.2

142.9

125.7

    Designed Structures and Solutions

25.5

–

30.7

–

        Specialty Platform

142.0

97.8

254.9

191.5

    Performance Products and Solutions

24.6

20.6

47.8

39.1

    PolyOne Distribution

28.1

28.9

56.3

58.0

    Corporate and eliminations

9.0

(3.3)

7.0

(12.3)

        Gross margin

$      203.7

$      144.0

$       366.0

$       276.3

Selling and administrative expense:

    Global Specialty Engineered Materials

$        25.2

$        19.8

$         48.8

$         41.2

    Global Color, Additives and Inks

44.7

40.8

88.2

81.7

    Designed Structures and Solutions

16.5

–

20.2

–

        Specialty Platform

86.4

60.6

157.2

122.9

    Performance Products and Solutions

10.1

9.8

20.3

19.8

    PolyOne Distribution

11.2

12.2

23.2

24.6

    Corporate and eliminations

15.3

18.1

44.2

28.7

        Selling and administrative expense

$      123.0

$      100.7

$       244.9

$       196.0

Operating income:

    Global Specialty Engineered Materials

$        16.1

$        12.8

$         32.5

$         24.6

    Global Color, Additives and Inks

30.5

24.4

54.7

44.0

    Designed Structures and Solutions

9.0

–

10.5

–

        Specialty Platform

55.6

37.2

97.7

68.6

    Performance Products and Solutions

14.5

10.8

27.5

19.3

    PolyOne Distribution

16.9

16.7

33.1

33.4

    Corporate and eliminations

(6.3)

(21.4)

(37.1)

(40.6)

        Operating income

$        80.7

$        43.3

$       121.2

$         80.7

Specialty Platform consists of our three specialty segments: Global Specialty Engineered Materials; Global Color, Additives and Inks; and Designed

Structures and Solutions. We present Specialty Platform sales, gross margin, selling and administration, and operating income because management believes

that this is useful information to investors by highlighting our collective progress in advancing our specialization strategy.

(a) Adjusted to reflect the resins business as a discontinued operation, including reclassifying the related assets and liabilities as held-for-sale.

(c) Adjusted to reclassify our Specialty Coatings business from the Performance Products and Solutions segment to the Global Color, Additives and

Inks segment as well as remove the resins business from the Performance Products and Solutions segment as it is now classified as a discontinued

operation.

Attachment 7

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
June 30,

Six Months Ended

June 30,

Adjusted (a)

Adjusted (a)

Reconciliation to Consolidated Statements of Income

2013

2012

2013

2012

Sales

$       1,037.6

$         756.6

$       1,838.7

$       1,502.1

Gross margin before special items

$          193.6

$         146.9

356.8

$         286.6

Special items in gross margin (Attachment 3)

10.1

(2.9)

9.2

(10.3)

   Gross margin – GAAP

$          203.7

$         144.0

$         366.0

$         276.3

Gross margin before special items as a percent of sales

18.7%

19.4%

19.4%

19.1%

Operating income

$            75.5

$           55.1

$         132.6

$         101.0

Special items in operating income (Attachment 3)

5.2

(11.8)

(11.4)

(20.3)

   Operating income - GAAP

$            80.7

$           43.3

$         121.2

$           80.7

Operating income before special items as a percent of sales

7.3%

7.3%

7.2%

6.7%

Senior management uses the "Mix Shift Highlights Specialty Transformation" graph to show PolyOne's progression toward its specialty

targets.

Platform operating income mix percentage  

       2005Y*

      2008Y*

   2010Y*

      2012Y*

Q2 2013Y 

Global Specialty Engineered Materials

$       0.4

$      17.6

$     49.7

$     47.0

$     16.1

Global Color, Additives and Inks

4.3

28.1

37.7

66.8

30.5

Designed Structures and Solutions

–

–

–

–

9.0

$        4.7

$      45.7

$      87.4

$   113.8

$     55.6

Performance Products and Solutions

75.7

31.3

54.0

74.9

14.5

Distribution

19.5

28.1

42.0

66.0

16.9

Joint Ventures

91.9

28.6

18.9

–

–

Corporate

(51.5)

(425.1)

(27.7)

(87.6)

(6.3)

Operating income (loss)

$   140.3

$    174.6

$   167.1

$     80.7

Less: Corporate and special items

51.5

425.1

27.7

87.6

6.3

$    191.8

$    133.7

$    202.3

$  254.7

$     87.0

Specialty platform operating mix percentage

2%

34%

43%

45%

64%

* Historical results are shown as presented in prior filings and have not been updated to reflect subsequent changes in accounting principal.

Senior management uses net debt as a measure of our financial position. Below is a reconciliation of this non-GAAP financial measure to

the most directly comparable measure calculated and presented in accordance with GAAP.

June 30,

December 31,

Reconciliation to Condensed Consolidated Balance Sheets

2013

2012

Short-term debt and current portion of long-term debt

$            8.7

$            3.8

Long-term debt

1,022.5

703.1

Less cash and cash equivalents

(392.4)

(210.0)

Net debt

$        638.8

$        496.9

(a) Adjusted to reflect the resins business as a discontinued operation, including reclassifying the related assets and liabilities as held-for-sale.