8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported): January 28, 2020

PolyOne Corporation
(Exact Name of Registrant as Specified in Its Charter)
Ohio	1-16091	34-1730488
---	---	---
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

PolyOne Center

33587 Walker Road

Avon Lake, Ohio 44012

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (440) 930-1000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, par value $.01 per share	POL	New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 8.01  Other Events.

As previously disclosed, on December 19, 2019, PolyOne Corporation ("PolyOne") entered into a definitive share purchase agreement (the “Agreement”) with Clariant AG (“Clariant”), and a wholly owned subsidiary of PolyOne (“PolyOne India”) entered into a definitive business transfer agreement (the “BTA”) with Clariant Chemicals (India) Limited, an indirect majority-owned subsidiary of Clariant (“Clariant India”). Pursuant to the Agreement and the BTA, PolyOne has agreed to acquire the masterbatch business of Clariant (the “Masterbatches Business of Clariant Ltd”).

The audited combined financial statements of the Masterbatches Business of Clariant Ltd, which comprise the combined balance sheets as of December 31, 2018 and 2017, the related combined statements of income, statements of comprehensive income, statements of changes in equity and statements of cash flows for the years then ended and related notes thereto, are filed as Exhibit 99.1 to this Current Report on Form 8-K.

The unaudited interim combined financial statements of the Masterbatches Business of Clariant Ltd, which comprise the combined balance sheets as of September 30, 2019 and December 31, 2018, the related combined statements of income, statements of comprehensive income, statements of changes in equity and statements of cash flows for the nine-month periods ended September 30, 2019 and 2018 and related notes thereto, are filed as Exhibit 99.2 to this Current Report on Form 8-K.

The unaudited pro forma condensed combined balance sheet as of September 30, 2019 and the unaudited pro forma condensed combined statements of income for the year ended December 31, 2018 and the nine months ended September 30, 2019 giving effect to PolyOne’s acquisition of the Masterbatches Business of Clariant Ltd and the previously announced divestiture of the Company's Performance Products and Solutions business segment are filed as Exhibit 99.3 to this Current Report on Form 8-K.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits:

Number	Exhibit
23.1	Consent of PricewaterhouseCoopers AG
99.1	Audited Combined Financial Statements of the Masterbatches Business of Clariant Ltd
99.2	Unaudited Interim Combined Financial Statements of the Masterbatches Business of Clariant Ltd
99.3	Unaudited Pro Forma Condensed Combined Financial Information
104	Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

POLYONE CORPORATION
By: /s/ Bradley C. Richardson
Name: Bradley C. Richardson
Title: Executive Vice President and Chief Financial Officer

Dated: January 28, 2020

Document

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the incorporation by reference in the following Registration Statements of PolyOne Corporation:

(1) Registration Statement (Form S-8 No. 333-231236) pertaining to the PolyOne Supplemental Retirement Benefit Plan (As Amended and Restated Effective January 1, 2014);

(2) Registration Statement (Form S-8 No. 333-217879) pertaining to the PolyOne Corporation 2017 Equity and Incentive Compensation Plan;

(3) Registration Statement (Form S-8 No. 333-205919) pertaining to the Amended and Restated PolyOne Corporation 2010 Equity and Performance Incentive Plan;

(4) Registration Statement (Form S-8 No. 333-181787) pertaining to the PolyOne Corporation 2010 Equity and Performance Incentive Plan;

(5) Registration Statement (Form S-8 No. 333-166775) pertaining to the PolyOne Corporation 2010 Equity and Performance Incentive Plan;

(6) Registration Statement (Form S-8 No. 333-157486) pertaining to the PolyOne Retirement Savings Plan;

(7) Registration Statement (Form S-8 No. 333-47796) pertaining to Post Effective Amendment No. 3 on Form S-8 to Form S-4 pertaining to the Geon Company 1993 Incentive Stock Plan, the Geon Company 1995 Incentive Stock Plan, the Geon Company 1998 Interim Stock Award Plan, the Geon Company 1999 Incentive Stock Plan, the PolyOne Corporation Deferred Compensation Plan for Non-Employee Directors and the M.A. Hanna Company Long-Term Incentive Plan; and

(8) Registration Statement (Form S-8 No. 333-141029) pertaining to the PolyOne Retirement Savings Plan and the DH Compounding Company Savings and Retirement Plan and Trust.

of our report dated December 23, 2019 relating to the financial statements of the Masterbatches Business of Clariant Ltd, which appears in this Current Report on Form 8-K.

/s/ PricewaterhouseCoopers AG

Basel, Switzerland

January 28, 2020

Document

Exhibit 99.1

The Masterbatches Business of Clariant Ltd

Combined Financial Statements

As of and for the years ended December 31, 2018 and December 31, 2017

The Masterbatches Business of Clariant Ltd

Audited Annual Combined Financial Statements

Independent Auditors’ Report	2
Combined Balance Sheets as of December 31, 2018 and 2017<br><br>Combined Statements of Income for the Years Ended December 31, 2018 and 2017	4
		5
Combined Statements of Comprehensive Income for the Years Ended December 31, 2018 and 2017	6
Combined Statements of Changes in Equity for the Years Ended December 31, 2018 and 2017	7
Combined Statements of Cash Flows for the Years Ended December 31, 2018 and 2017	8
Notes to the Combined Financial Statements	9

1

The accompanying notes are an integral part of these combined financial statements.

Report of Independent Auditors

To the Board of Directors and Management of Clariant Ltd

We have audited the accompanying combined financial statements of the Masterbatches Business of Clariant Ltd (the “Company”), which comprise the combined balance sheets as of December 31, 2018 and 2017, and the related combined statements of income, comprehensive income, changes in equity and cash flows for the years then ended.

Management's Responsibility for the Combined Financial Statements

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

PricewaterhouseCoopers AG, St. Jakobs-Strasse 25, Postfach, CH-4002 Basel, Switzerland

Phone: +41 58 792 51 00, Telefax: +41 58 792 51 10, www.pwc.ch

2

PricewaterhouseCoopers AG is a member of the global PricewaterhouseCoopers network of firms, each of which is a separate and independent legal entity.

Opinion

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Masterbatches Business of Clariant Ltd as of December 31, 2018 and 2017 and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ PricewaterhouseCoopers AG

Basel, Switzerland

December 23, 2019

The Masterbatches Business of Clariant Ltd

COMBINED BALANCE SHEETS

As of December 31, 2018 and December 31, 2017

(in CHF, thousands)	December 31<br><br>2018	December 31<br><br>2017
ASSETS
Current assets:
Cash and cash equivalents	123,328	29,493
Accounts receivable, net	176,604	207,416
Inventories	102,711	102,381
Loans to related parties	80,600	72,498
Other current assets	32,339	34,480
Total current assets	515,582	446,268
Non-current assets:
Property, plant and equipment, net	196,071	209,225
Goodwill	48,703	49,561
Intangible assets, net	6,304	9,949
Deferred tax assets	12,718	12,261
Investments in affiliates	4,080	3,637
Total non-current assets	267,876	284,633
Total assets	783,458	730,901
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	125,282	117,369
Accrued and other liabilities	46,411	49,886
Accrued employee expenses	42,114	40,070
Short-term debt	17,871	41,006
Loans from related parties	59,171	258,638
Total current liabilities	290,849	506,969
Non-current liabilities:
Long-term debt	3,945	5,858
Retirement benefit obligations	18,855	27,185
Deferred tax liabilities	9,264	11,170
Other non-current liabilities	3,066	3,781
Total non-current liabilities	35,130	47,994
Total liabilities	325,979	554,963
EQUITY
Net investment from the Parent	492,686	200,941
Accumulated other comprehensive loss	(49,335)	(37,632)
Total equity attributable to the Masterbatches Business	443,351	163,309
Non-controlling interests	14,128	12,629
Total equity	457,479	175,938
Total liabilities and equity	783,458	730,901

4

The accompanying notes are an integral part of these combined financial statements.

The Masterbatches Business of Clariant Ltd

COMBINED STATEMENTS OF INCOME

For the years ended December 31, 2018 and December 31, 2017

(in CHF, thousands)	December 31<br><br>2018	December 31<br><br>2017
Sales	1,182,893	1,188,846
Cost of goods sold	(872,385)	(888,645)
Gross profit	310,508	300,201
Selling, general and administrative costs	(219,781)	(231,114)
Research and development costs	(8,539)	(10,740)
Other expense	(342)	(36)
Operating income	81,846	58,311
Interest expense	(14,599)	(16,931)
Interest income	1,638	2,552
Income before income tax expense	68,885	43,932
Income tax expense	(17,767)	(13,936)
Net income	51,118	29,996
Less: Net income attributable to non-controlling interests	327	2,000
Net income attributable to the Masterbatches Business	50,791	27,996

5

The accompanying notes are an integral part of these combined financial statements.

The Masterbatches Business of Clariant Ltd

COMBINED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended December 31, 2018 and December 31, 2017

(in CHF, thousands)	December 31<br><br>2018	December 31<br><br>2017
Net income	51,118	29,996
Other comprehensive income (loss):
Defined benefit plan adjustment	1,461	(421)
Currency translation adjustment	(12,866)	(14,592)
Other comprehensive loss for the period, gross	(11,405)	(15,013)
Deferred tax effect	(270)	(111)
Other comprehensive loss for the period, net of tax	(11,675)	(15,124)
Comprehensive income for the period	39,444	14,872
Less: Comprehensive income attributable to non-controlling interests	355	1,983
Comprehensive income attributable to the Masterbatches Business	39,089	12,889

6

The accompanying notes are an integral part of these combined financial statements.

The Masterbatches Business of Clariant Ltd

COMBINED STATEMENTS OF CHANGES IN EQUITY

For the years ended December 31, 2018 and December 31, 2017

(in CHF, thousands)	Net investment from the Parent	Accumulated other comprehensive loss	Non-controlling interests	Total equity
Balance as of January 1, 2017	119,644	(22,525)	13,674	110,793
Net income	27,996	-	2,000	29,996
Net transfers with Parent	53,301	-	-	53,301
Changes in non-controlling interests	-	-	(3,028)	(3,028)
Other comprehensive loss	-	(15,107)	(17)	(15,124)
Balance as of December 31, 2017	200,941	(37,632)	12,629	175,938
Net income	50,792	-	327	51,119
Net transfers with Parent	240,953	-	-	240,953
Changes in non-controlling interests	-	-	1,144	1,144
Other comprehensive loss	-	(11,703)	28	(11,675)
Balance as of December 31, 2018	492,686	(49,335)	14,128	457,479

7

The accompanying notes are an integral part of these combined financial statements.

The Masterbatches Business of Clariant Ltd

COMBINED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2018 and December 31, 2017

(in CHF, thousands)	December 31<br><br>2018	December 31<br><br>2017
Operating activities:
Net income	51,119	29,996
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Deferred tax benefit	(1,207)	3,443
Depreciation and amortization	27,614	26,613
Share-based compensation expense	265	679
Gain on disposals in operating income	-	(868)
Changes in operating assets and liabilities:
Accounts receivable	21,264	(21,745)
Inventories	(5,742)	(7,651)
Accounts payable	10,364	13,457
Other current assets and liabilities	(8,074)	(9,721)
Accrued liabilities	5,115	2,248
Net cash provided by operating activities	100,718	36,451
Investing activities:
Investments in property, plant and equipment	(17,144)	(32,339)
Investments in intangible assets	(991)	(2,974)
Proceeds from sale of long-lived assets	-	2,541
Net cash used by investing activities	(18,135)	(32,772)
Financing activities:
Proceeds from short-term debt	7,827	19,906
Repayments of short-term debt	(27,879)	(11,380)
Proceeds from long-term debt	-	5,808
Repayments of long-term debt	-	(1,553)
Net (repayments) of loans to related parties	(206,266)	(79,102)
Net contributions / (distributions) with non-controlling interests	1,144	(3,028)
Net contributions to Parent	239,615	52,832
Net cash provided / used by financing activities	14,441	(16,517)
Effect of exchange rate changes	(3,189)	(545)
Increase / (decrease) in cash and cash equivalents	93,835	(13,383)
Cash and cash equivalents at the beginning of year	29,493	42,876
Cash and cash equivalents at the end of year	123,328	29,493
Supplemental cash information:
Interest paid	(15,024)	(14,252)
Income tax paid	(18,973)	(10,493)
Noncash investing and financing activity:
Investments in property plant and equipment in accounts payable	12,478	9,992

8

The accompanying notes are an integral part of these combined financial statements.

The Masterbatches Business of Clariant Ltd

NOTES TO THE COMBINED FINANCIAL STATEMENTS

(in CHF, thousands)

NOTE 1 BASIS OF PRESENTATION

On 25 July 2019, Clariant Ltd (hereafter “Clariant” or “the Parent”) announced its intent to divest the Masterbatches Business (“the Masterbatches Business”, “the Masterbatches Business of Clariant Ltd” or “the Company”). On 19 December 2019, the Parent entered into a Share Purchase Agreement (“SPA”) with PolyOne Corporation (the “Buyer”) providing for the sale of the Masterbatches Business for approximately USD 1,560 million.

The Masterbatches Business is a part of the global business of Clariant and specializes in color and additive concentrates and performance solutions for plastics whose product offerings enhance the market appeal or the end-use performance of plastic products, packaging and fibers. The Company’s portfolio of products caters to various industries including healthcare, infrastructure, agriculture, consumers goods, printing and packaging, transportation, fibers and home and personal care.

The Company has historically operated as part of the Parent and not as a separate entity. The accompanying combined financial statements have been prepared on a carve-out basis and are derived from the consolidated financial statements of the Parent to prepare the combined balance sheets as of December 31, 2018 and December 31, 2017 and the related combined statements of income, comprehensive income, changes in equity and cash flows for the years ended December 31, 2018 and December 31, 2017. The combined financial statements were prepared on a combined basis in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) by combining financial information from the Parent’s accounting records, including assets and liabilities attributed to the business activity of the Company, specifically identified revenues and expenses of the Company, and allocations of certain expenses described further below.

The intercompany transactions and balances within the Company have been eliminated. All transactions between the Company and the Parent, which were not historically settled in cash, are considered to be effectively settled for cash in the combined financial statements at the time the transaction is recorded. The total net effect of the settlement of these transactions between the Company and the Parent are reflected in the combined statements of cash flows as a financing activity, and in the combined balance sheets and combined statements of changes in equity as net investment from the Parent. In addition, transactions between the Company and the Parent, which were historically settled for cash or are expected to be settled for cash, have been classified as related party in the combined financial statements. Refer to Note 15, Related Party Transactions and Net Investment from the Parent for further details.

The combined financial statements include all assets, liabilities, revenues, and expenses that management has determined are specifically or primarily related to the activities of the Company, as well as direct and indirect costs incurred within Clariant that are attributable to the operations of the Masterbatches Business. Central support costs include corporate and shared service functions that are provided on a centralized basis by Clariant, including but not limited to employee benefits, finance, human resources, risk management, information technology, facilities, and legal. These expenses have been allocated to the Company on the basis of direct usage when identifiable, or when specific identification is not practicable, a proportional allocation method based primarily on combined sales, headcount, or other measures, depending on the nature of services received. Such allocations are based on the requirements of preparing combined financial statements and in that same context management determined that such allocations are determined on a reasonable basis. However, such cost allocations may not be indicative of the costs that would have been incurred if the Company had been operated on a standalone basis during the periods presented.

Cash generated from the Company’s operations is managed centrally by the Parent, with cash pooling agreements in place for each participating entity. Related party loan arrangements recorded in the

The Masterbatches Business of Clariant Ltd

combined balance sheets represent cash pooling arrangements between the Masterbatches Business and the Parent. Cash included in the combined balance sheets represents cash legally owned by the Company as of December 31, 2018 and December 31, 2017.

Third-party debt obligations of the Parent and the corresponding interest costs related to those debt obligations, specifically those that relate to straight bonds and certificates of indebtedness, have not been attributed to the Company, as the Company was not the legal obligor of such debt obligations. The third-party debt obligations included in the combined financial statements are those for which the legal obligor is a legal entity within the Company. None of the Company’s assets were pledged as collateral under the Parent’s debt obligations as of December 31, 2018 or December 31, 2017.

As the separate legal entities that comprise the Company were not historically held by a single legal entity, equity shown in the combined financial statements relates to the equity attributable to the Masterbatches Business. Net investment from the Parent represents the cumulative investment by the Parent in the Company through the dates presented, inclusive of operating results. Transactions with the Parent are reflected in the accompanying combined statements of changes in equity as net amount of contributions to Parent, and in the accompanying combined balance sheets within net investment from the Parent.

The Parent calculates foreign currency translation on its combined assets and liabilities, which include assets and liabilities of the Company. As a result, the Company has not historically recorded foreign currency translation on its own assets and liabilities. Therefore, the Company’s accumulated other comprehensive loss includes an allocation from the Parent’s foreign currency translation based on the net assets of the Company as of December 31, 2016. Foreign currency translation adjustment recorded during the fiscal years ended December 31, 2018 and December 31, 2017 is based on currency movements specific to the Company’s financial statements.

Tangible assets are included in the combined balance sheets based on the assets expected to be divested with the Masterbatches Business. In the case of shared assets, which are used in part by the Company and in part by other businesses of the Parent, tangible assets are attributed based on the “major user” principle, in which the asset is only recognized in the combined balance sheets of the Masterbatches Business when the Company is considered to be the major user of the asset. The impact from joint use of the shared asset is reflected as an asset charge expense to the Masterbatches Business or income from related parties in the combined statements of income. Where a tangible shared asset is not expected to be divested, but was used in the operations of the Company, an asset charge expense is levied to the Masterbatches Business and is included within the combined statements of income. Alternatively, if a tangible shared asset is expected to be divested, but was also used by other businesses of the Parent, then the Masterbatches Business charges the Parent an asset charge-out recorded within the combined statements of income.

The same “major user” principle is applied to determine leased assets and associated commitments of the Company. Leased assets allocated to the Company are accounted for under the guidance in ASC 840, Leases, and are included in the relevant disclosures (e.g., future minimum lease commitments). When shared with other businesses of the Parent, income from related parties is recognized in the combined statements of income to reflect such shared usage. Leased assets that are shared but are not expected to be divested are reflected only as an asset charge expense to the Masterbatches Business.

The tax amounts in the combined financial statements have been calculated based on a separate return methodology and presented as if the Company’s operations were separate tax payers in the respective jurisdictions.

The Masterbatches Business of Clariant Ltd

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Preparation of carve-out financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. These estimates and underlying assumptions can impact all elements of the combined financial statements, including but not limited to: allocations of costs and expenses from the Parent; pension and post-retirement obligations; impairment testing for goodwill, inventory reserves, intangible assets; deferred tax assets; uncertain income tax positions; and contingencies.

Although these estimates represent management’s best estimates based on available information, historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances, actual results may differ from these estimates. As future events and their effects cannot be determined with certainty, the estimates and assumptions may prove to be incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause a change in the estimates and assumptions.

Cash and Cash Equivalents

Cash and cash equivalents comprise cash on hand, deposits, as well as short-term investment instruments with an initial lifetime of 90 days or less. They are valued at their nominal value, which is close to their fair market value. Cash and cash equivalents in the combined balance sheets represent cash legally owned by the Company and, as such, do not include balances from cash pooling arrangements managed centrally by the Parent.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are amounts due from customers for goods sold in the ordinary course of business. They are generally due within 40 days and, therefore, are classified as current. Accounts receivable are stated at the amount to which the Company is unconditionally entitled, net of allowance for doubtful accounts representing estimated losses resulting from inability or unwillingness of customers to make required payments. This estimated allowance is based on management’s evaluation of specific balances as the balances become past due, the financial condition of its customers and the Company’s historical experience with write-offs. A reserve is recorded against accounts receivables when amounts are estimated to be uncollectible. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts was CHF 2,025 thousand and CHF 1,368 thousand as of December 31, 2018 and 2017, respectively. Further, within the combined statements of income the Company recognized bad debt expense of CHF 1,248 thousand and a bad debt benefit of CHF 383 thousand for the years ended December 31, 2018 and 2017, respectively.

Inventories

Inventories are stated at the lower of cost and net realizable value. Purchased goods are valued at acquisition costs, while self-manufactured products are valued at manufacturing costs including related production overhead costs. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs. Inventory held at the balance sheet date is primarily valued at standard costs, which approximates actual costs on a weighted average basis. Adjustments are recorded to inventories with a carrying amount in excess of net realizable value. Unsaleable inventories are fully written off. Write-downs reduce the cost basis of inventories permanently.

Property, Plant and Equipment

Property, plant and equipment are carried at historical acquisition cost, net of accumulated depreciation and any impairment losses, as applicable. Land is not depreciated. Depreciation is recorded on a straight-

The Masterbatches Business of Clariant Ltd

line basis to the combined statements of income, using the assets’ estimated useful lives which fall within the following ranges:

Asset type	Useful life
Buildings	15 to 40 years
Machinery and technical equipment	10 to 16 years
Furniture and other equipment	3 to 10 years
Vehicles	5 to 10 years

Major additions and improvements are capitalized, while minor repair and maintenance costs are expensed as incurred.

In the case of sale, retirement or disposal, the net book value of the asset is removed from the Company’s books. Gains and losses on disposals are determined by comparing the proceeds with the net book value and are included as a component of income from operations in the accompanying combined statements of income.

Goodwill and Other Intangible Assets

Goodwill is the excess of the purchase price paid in a business combination over the fair value of the net assets of the acquired business. Goodwill is carried at cost and is tested for impairment, quantitatively or qualitatively, on an annual basis during the fourth quarter of the fiscal year, or more frequently, if impairment indicators are present. Impairment testing is performed at the Company’s reporting unit level, which includes the five reporting units aligned with the geographic regions in which the Company operates.

This impairment test determines whether the fair value of each reporting unit to which goodwill is allocated is lower than its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; any recognized loss cannot exceed the total amount of goodwill allocated to that reporting unit. In determining the fair value of a reporting unit, management uses significant judgments and estimates to forecast the future discounted cash flows associated with the reporting unit, including the expected growth of sales, the discount rates, and the development of raw material prices. Prior to performing the quantitative goodwill impairment test, the Company may first perform an assessment of qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The quantitative goodwill impairment test is required only if the totality of events and circumstances indicates it is more likely than not that the fair value is less than carrying value.

Trademarks and licenses are capitalized at historical costs and amortized on a straight-line basis to the combined statements of income over their estimated useful lives, with a maximum of ten years.

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. They are amortized on a straight-line basis to the combined statements of income over their estimated useful lives (three to five years).

Internal and external costs directly associated with the production of identifiable and unique software and other intangible products for internal use, incurred during the application development stage are capitalized. All other costs are expensed as incurred. The activities during the application development stage include (1) design of chosen path, including software configuration and software interfaces, (2) coding, (3) installation to hardware and (4) testing, including the parallel processing phase. Costs associated with developing and maintaining common software programs are recognized as an expense when incurred. Capitalized software is amortized on a straight-line bases over the remaining economic useful life.

The Masterbatches Business of Clariant Ltd

Impairment of Long-lived Assets

A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. In determining the recoverability of long-lived assets held and used, the Company initially assesses whether the carrying value of the asset (or group of assets) exceeds the estimated undiscounted future cash flows associated with the asset (or group of assets). If exceeded, the Company then evaluates whether an impairment charge is required by determining if the carrying value of the asset (or group of assets) exceeds its fair value. Additionally, the asset useful lives and depreciation methods are reviewed each period.

Pension and Other Post-Retirement Plans

The Parent sponsors certain defined benefit pension plans, primarily in Belgium, Italy, Taiwan, Saudi Arabia, France and Pakistan, among others, for which sponsorship is expected to transfer as part of the Transaction (collectively, the “Direct Plans”). Defined benefit accounting is applied for the Direct Plans resulting in the recognition of a pension asset or liability to recognize the funded status within the combined financial statements. In addition to the Direct Plans, certain of the Company’s employees, primarily in the United States, Germany and Mexico, participate in defined benefit pension plans, for which sponsorship does not transfer (collectively, the “Shared Plans”). Such Shared Plans are accounted for as multiemployer plans based on the multiemployer pension accounting guidance in ASC 715, Compensation—Retirement Benefits, and accordingly the Company does not record an asset or liability to recognize the funded status of the Shared Plans. The related pension and other postemployment expenses of the Shared Plans are charged to the Company based primarily on the service cost of active participants. Refer to Note 11 Employee Benefit Plans for additional information.

Debt Instruments

Bank loans are recognized at historical cost, net of debt issuance costs incurred. They are subsequently reported at amortized cost; any difference between the proceeds (net of debt issuance costs) and the redemption value is recognized through earnings within the interest expense line item on the combined statements of income over the period of the borrowings using the effective interest rate method. Financial instruments with maturities exceeding 12 months are classified as long-term.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, accounts payable, short-term debt, and long-term debt approximate their fair values. See Note 13, Fair Value Measurements, to the combined financial statements for fair value of financial instruments.

Foreign Currency

The combined financial statements are presented in Swiss francs (“CHF”), which is the reporting currency of the Company. Foreign currency transactions are remeasured into the functional currency using the exchange rates prevailing at the dates of the transactions for each of the combined companies of the Masterbatches Business. Foreign exchange gains and losses resulting from the remeasurement at the reporting date of monetary assets and liabilities denominated in foreign currencies are recognized in the combined statements of income. The aggregate transaction gains / (losses) for the years ended December 31, 2018 and 2017 were CHF 1,060 thousand and CHF (730) thousand, respectively.

For the purposes of the combined financial statements, the results and financial position of the combined companies whose functional currency is different from the Swiss franc are translated into the reporting currency. Revenues and expenses of international entities are translated at average currency exchange rates during the period. Assets and liabilities of international entities are translated using the exchange rate at the end of the period. The resulting translation adjustments are accumulated as a component of other comprehensive income or loss.

The Masterbatches Business of Clariant Ltd

Recognition of Revenue from Contracts with Customers

Revenue from contracts with customers is measured based on the consideration the Company expects to receive in exchange for satisfying a performance obligation by transferring control of goods to the customer. Arrangements with customers are considered contracts if all the following criteria are met: (a) parties have approved the contract and are committed to perform their respective obligations; (b) each party’s rights regarding the goods or services to be transferred can be identified; (c) payment terms for the goods or services to be transferred can be identified; (d) the contract has commercial substance and (e) collectability of substantially all of the consideration is probable. The Company recognizes revenue from contracts with customers when products are sold and when it satisfies a performance obligation by transferring control over a product to the customer, which normally takes place at a point in time, upon delivery. Transaction price is allocated to each performance obligation when such performance obligation(s) are identified within each customer contract. Revenue is reported net of sales taxes, returns, discounts and rebates. Rebates to customers are provided for in the same period that the related sales are recorded, based on the contract terms. The payment terms are typically 40 days.

The Masterbatches Business periodically enters into prepayment contracts with customers whereby it receives consideration for products to be delivered in a future period. Such consideration received is recorded as deferred revenue, considered a contract liability under Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606), and presented as part of other liabilities. Deferred revenue is released and revenues associated with such transactions are recognized upon delivery and transfer of control over a product to the customer. Cash rebates and discounts granted to customers are classified as a reduction of revenue. Shipping and handling activities performed after control of goods has transferred to a customer are not treated as a separate performance obligation.

The Company adopted ASC 606, effective January 1, 2018, using the modified retrospective method. Prior to 2018 the Company accounted for revenue when there was evidence of a sales agreement, the delivery of goods had occurred, the sales price was fixed or determinable and the collectability of revenue was reasonably assured. Refer to the section Accounting Standards Adopted below for a description of the impact of adoption of ASC 606.

Research and Development Costs

Research and development costs are charged to expense as incurred.

Share-Based Compensation Expense

Certain employees of the Company participate in the Parent’s share-based compensation plans. Share-based compensation expense related to these plans is recognized based on a specific identification of cost related to the Company’s employees. The Company also records the allocated share-based compensation expense relating to employees of central support functions provided by the Parent; these expenses are included in the other income / (expense) account in the combined statements of income.

Share-based compensation expense is initially measured at fair value of the awards on the grant date and is recognized in the accompanying combined statements of income using an accelerated method, over the requisite service period. Share-based compensation expense is based on awards expected to ultimately vest and, therefore, has been reduced for estimated forfeitures.

The share-based compensation expense included in the combined financial statements has been derived from the share-based compensation awards granted by the Parent to employees who are specifically identified in the plans as well as an allocation of corporate employees of the Parent. The share-based compensation is treated as a capital contribution from the Parent in the combined financial statements and are assumed to be settled by the Parent. Total share-based compensation expense for the share-based compensation plans was CHF 265 thousand and CHF 679 thousand for the years ended December 31, 2018 and 2017, respectively and are reflected as an expense in selling, general and administrative costs in the combined statements of income.

The Masterbatches Business of Clariant Ltd

Income Taxes

The Company’s operating results are included in the income tax returns of the Parent. The company accounts for income taxes under the separate return method. Under this approach, the Company determines its deferred tax assets and liabilities and related tax expense as if it were filing separate tax returns. Deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for financial and tax reporting purposes. Such amounts are adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. In the event the Company determines it is more likely than not that the deferred tax asset will not be realized in the future, the valuation allowance adjustment to the deferred tax assets will be charged to earnings in the period in which such determination is made. In determining the provision for income taxes for financial statement purposes, the Company makes certain estimates and judgments which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities. See Note 12, Income Taxes, for additional detail.

Accounting Standards Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). These ASUs (collectively, the “New Revenue Standard”) introduce a five-step model for recognition of revenue from contracts with customers that focuses on transfer of control. The Company adopted the New Revenue Standard using the modified retrospective method for all contracts with customers as of January 1, 2018. The Masterbatches Business applied the practical expedient for contracts modified prior to the beginning of the earliest reporting period presented under the new standard (i.e., January 1, 2018), which allows the Company to reflect the aggregate effect of all modifications that occur before January 1, 2018 when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price to the satisfied and unsatisfied performance obligations for the modified contract at transition. The adoption did not have a material impact on the Company’s combined financial statements and as a result, the Masterbatches Business did not recognize a cumulative effect adjustment included in the net investment from the Parent.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). The amendments in ASU 2015-17 eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and non-current in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as non-current. This guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. This standard was adopted as of January 1, 2017 and the adoption did not have a material impact on the Company's financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The amendments in ASU 2016-01 address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted the standard as of January 1, 2018 and the adoption did not have a material impact on the Company's financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies several aspects of the accounting for employee share-based payment transactions, including the related accounting for income taxes, forfeitures, withholding of shares to satisfy the employer’s tax withholding requirements, and classification in the statements of cash flows. The new standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those years, and with early

The Masterbatches Business of Clariant Ltd

adoption permitted. This standard was adopted on January 1, 2017 and the adoption did not have a material impact on the Company's financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The amendments in ASU 2016-15 address the classification of eight specific cash flow issues and their presentation within the Statement of Cash Flows. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company decided to early adopt ASU 2016-15 as of January 1, 2017 and the adoption did not have a material impact on the Company's financial statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other Than Inventory (“ASU 2016-16”). The amendments in ASU 2016-16 require companies to recognize the income tax effects of intercompany sales or transfers of assets, other than inventory, in the combined statements of income as income tax expense or benefit in the period the sale or transfer occurs. This ASU is effective for fiscal years beginning after December 15, 2017. The Company decided to early adopt this standard as of January 1, 2017 and recognized an adjustment of CHF 2 million included in the net investment from the Parent upon adoption of this standard on January 1, 2017.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company decided to early adopt ASU 2016-18 as of January 1, 2017. The adoption had no impact on the Company's financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). The amendments in ASU 2017-01 introduce an additional screen to determine when an acquired set represents a business. Based on this additional screen, when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This ASU is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company early adopted ASU 2017-01 as of January 1, 2017. The adoption had no impact on the Company's financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which amends and simplifies the guidance on goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment is determined by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for annual and any interim impairment tests annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. Early adoption is permitted for any impairment tests performed on testing dates after January 1, 2017. The Company has decided to early adopt ASU 2017-04 as of January 1, 2017. The adoption had no impact on the Company’s financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). The amendments in this update require the presentation of the service cost component of the net periodic benefit cost in the same combined statement of income line item as other employee

The Masterbatches Business of Clariant Ltd

compensation costs arising from services rendered during the period. All other components of net periodic benefit cost must be presented below operating income. Only the service cost component is eligible for capitalization in assets. This ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted. The Company has adopted ASU 2017-07 on January 1, 2017. As a result of the adoption of this standard, the Company includes CHF 3,046 thousand and CHF 3,002 thousand of service cost in Cost of goods sold, selling and administrative costs and research and development costs for the periods ended December 31, 2018 and December 31, 2017, respectively, which are mapped to these cost accounts consistently with other employee compensation costs. The remainder of the net periodic benefit costs are included in Other income, net on the statement of income. The new guidance was applied retrospectively, except for the limitation on capitalization in assets which was applied prospectively. For additional detail on the components of the Company’s annual net periodic benefit cost, see Note 11, Employee Benefit Plans.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock compensation (Topic 718) (“ASU 2017-09”). The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. This ASU is effective for periods beginning after December 15, 2017. The Group adopted this update as of January 1, 2018. The adoption had no impact on the Company's financial statements.

Accounting Standards Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“the New Leases Standard”). The New Leases Standard was issued to increase transparency and comparability among entities by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about lease arrangements. The New Leases Standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

The Masterbatches Business will adopt the New Leases Standard on the required effective date of January 1, 2019 using the transition option established by ASU 2018-11, Leases (Topic 842), Targeted Improvements (ASU 2018-11), which permits companies to adopt the New Leases Standard as of the beginning of the period of adoption without recasting financial information for prior periods presented. The Company will also elect the practical expedient package related to the identification and classification of leases and the accounting for initial direct costs whereby prior conclusions do not have to be reassessed for leases that commenced before the effective date. As the Company will not reassess such conclusions, the Company will not adopt the practical expedient to use hindsight to determine the likelihood of whether a lease will be extended, terminated or whether a purchase option will be exercised.

The primary impact upon adoption will be the recognition of right of use assets and lease obligations, on a discounted basis, of the Company’s minimum lease obligations. ASU 2016-02 will not have a material effect on the combined statements of income. However, the Company will recognize approximately CHF 21.5 million of operating lease liabilities and related right-of-use assets in the combined balance sheet upon adoption. The impact of this ASU is non-cash in nature and will not affect the Company’s cash flows.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under ASU 2016-13, the Company will be required to use a current expected credit loss model (“CECL”) that will result in immediate recognition of an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including accounts receivable. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. This guidance becomes effective for the Company on January 1, 2023, including the interim periods in that year. The Company is currently evaluating the impact that the adoption of this ASU will have on the combined financial statements and related disclosures.

The Masterbatches Business of Clariant Ltd

NOTE 3 SALES

The Masterbatches Business is a manufacturer and seller of industrial goods and generally meets the criteria to recognize revenues as products are shipped to customers. Set out below is the disaggregation of the sales from contracts with customers of the Company, for the years ended:

(in CHF, thousands)	December 31, 2018	December 31, 2017
Europe, Middle East and Africa	564,733	552,287
North America	270,099	273,760
Asia Pacific	159,570	170,330
Greater China	110,726	102,808
Latin America	77,765	89,661
Total sales	1,182,893	1,188,846

As of December 31, 2018, the Company did not have a material amount of unsatisfied performance obligations outstanding with customers for contracts in excess of one year in duration. As of December 31, 2018 and 2017 deferred revenues amounted to CHF 6,500 thousand and CHF 5,864 thousand, respectively.

Revenue recognized in the year ended December 31, 2018 that was part of the deferred revenues balance as of January 1, 2018 was CHF 5,864 thousand.

Outstanding obligations for returns, refunds, and warranties as of December 31, 2018 were not material.

NOTE 4 INVENTORIES

Components of inventories, consisted of the following, as of:

(in CHF, thousands)	December 31, 2018	December 31, 2017
Raw materials and work in process	48,734	53,777
Finished products	48,623	43,462
Consumables	5,354	5,142
Total inventories	102,711	102,381

The Company evaluates its product inventory to identify inventory with net realizable value below its carrying amount, including obsolete or slow-moving items as well as inventory that is not of saleable quality. Inventories are adjusted for estimated obsolescence and written down to net realizable value. The Company did not record material amounts of inventory write-downs for the year ended December 31, 2018 and 2017, respectively.

NOTE 5 OTHER CURRENT ASSETS

Other current assets consisted of the following, as of:

The Masterbatches Business of Clariant Ltd

(in CHF, thousands)	December 31, 2018	December 31, 2017
VAT and other taxes receivable	13,351	14,513
Prepayments and deferred charges	9,155	8,357
Other receivables	9,279	11,089
Income tax receivables	554	521
Total other current assets	32,339	34,480

NOTE 6 PROPERTY, PLANT AND EQUIPMENT, NET

Components of property, plant and equipment consisted of the following, as of:

(in CHF, thousands)	December 31, 2018	December 31, 2017
Machinery and technical equipment	357,927	359,459
Buildings	187,472	182,707
Furniture and other equipment	41,490	41,738
Construction in progress	15,860	27,419
Land	10,562	11,987
Vehicles	5,895	6,221
Total property, plant and equipment, gross	619,206	629,531
Less accumulated depreciation	(423,135)	(420,306)
Total property, plant and equipment, net	196,071	209,225

Depreciation expense was CHF 23,153 thousand and CHF 24,599 thousand in the years ended December 31, 2018 and 2017, respectively.

NOTE 7 GOODWILL AND INTANGIBLE ASSETS, NET

The amounts shown below reflect the change in goodwill during 2018 and 2017:

(in CHF, thousands)	2018	2017
Balance at the beginning of the year	49,561	49,597
Currency translation adjustment	(858)	(36)
Total goodwill at the end of the year	48,703	49,561

During the fourth quarter of 2018 and 2017, the Company performed its annual impairment test. No impairment was recorded in 2018 or 2017 as a result of the impairment tests.

Net intangible assets consisted of the following, as of:

December 31, 2018

(in CHF, thousands)	Gross Carrying Amount	Accumulated Amortization	Net Carrying Amount
Capitalized software for internal use	11,128	(7,585)	3,543
Patents, technology and other	8,047	(6,264)	1,783
Trade names	15,168	(14,190)	978
Total intangible assets	34,343	(28,039)	6,304

The Masterbatches Business of Clariant Ltd

December 31, 2017

(in CHF, thousands)	Gross Carrying Amount	Accumulated Amortization	Net Carrying Amount
Capitalized software for internal use	10,373	(4,626)	5,747
Patents, technology and other	8,152	(5,982)	2,170
Trade names	15,769	(13,737)	2,032
Total intangible assets	34,294	(24,345)	9,949

Amortization expense was CHF 4,461 thousand and CHF 2,014 thousand in the years ended December 31, 2018 and 2017, respectively.

Expected amortization of finite-lived intangible assets for the next five years and thereafter is as follows:

(in CHF, thousands)
2019	2,677
2020	1,727
2021	788
2022	538
2023	377
Thereafter	197
Total	6,304

NOTE 8 ACCRUED AND OTHER LIABILITIES

Accrued and other liabilities as of December 31, 2018 and 2017 consisted of the following:

(in CHF, thousands)	December 31, 2018	December 31, 2017
VAT and other taxes payable	11,773	14,531
Customer rebates	7,776	7,681
Accrued raw materials purchases	6,133	7,719
Deferred revenue	6,500	5,864
Accrued expenses	4,830	4,198
Prepayments from customers	2,208	3,734
Income tax payable	563	1,356
Other	6,628	4,803
Total	46,411	49,886

The Masterbatches Business of Clariant Ltd

NOTE 9 ACCRUED EMPLOYEE EXPENSES

Accrued employee expenses as of December 31, 2018 and 2017 consisted of the following:

(in CHF, thousands)	December 31, 2018	December 31, 2017
Wages, salaries and related accruals	20,363	19,767
Bonus accrual	15,225	15,750
Accrued taxes	3,002	2,932
Other employee expenses accruals	3,524	1,621
Total	42,114	40,070

NOTE 10 DEBT ARRANGEMENTS

Long-term debt

The Company's long-term debt as of December 31, 2018 and 2017 mainly consists of interest-bearing notes due in 2019 through 2021. The Company did not record material amounts of unamortized debt discount or debt issuance costs related to their long-term borrowings.

Total outstanding principal related to long-term debt arrangements consisted of the following, as of:

(in CHF, thousands)	December 31, 2018		December 31, 2017
Notes due 2019 through 2021	5,896		5,858
Less: maturities classified as current	1,951		-
Total long-term debt	3,945		5,858
Weighted average interest rate on outstanding borrowings at end of year	8.0	%	12.2	%

Aggregate maturities of the outstanding principal amount of long-term debt for the next five years and thereafter are as follows:

(in CHF, thousands)
2019	-
2020	1,977
2021	1,967
2022	-
2023	-
Thereafter	-
Total maturities	3,945

Short-term debt

(in CHF, thousands)	December 31, 2018		December 31, 2017
Current maturities of long-term debt	1,951		-
Short term debt	15,920		41,006
Loans from related parties	59,171		258,638
Total short-term debt	77,042		299,644
Weighted average interest rate on outstanding non-related party borrowings at end of year	9.3	%	8.5	%

The Masterbatches Business of Clariant Ltd

NOTE 11 EMPLOYEE BENEFIT PLANS

Upon the divestiture of the Masterbatches Business by Clariant, the Parent transferred certain employee benefit plans in full to the Company and retained certain other plans. The defined benefit plans that were transferred in full (the “Direct Plans”) are accounted for in the combined financial statements as defined benefit plans in accordance with ASC 715, Compensation—Retirement Benefits to reflect the related assets and liabilities of these plans. The defined benefit plans that were not transferred in full (the “Shared Plans”), are accounted for using the multiemployer accounting approach with the related assets or liabilities not reflected in these combined financial statements.

Defined Benefit Plans

The Company sponsors the Direct Plans, which are defined benefit pension plans for certain active employees, terminated employees and retirees of the Masterbatches Business. The defined benefit plans provide pension benefits based on years of service and employee compensation levels. The Company’s primary plans are located in the United States of America, Canada, Belgium, Taiwan, Italy, Saudi Arabia, Pakistan and France. The information included in this footnote relates to the material plans of the Company. The remaining plans are insignificant to the Company both individually and in the aggregate. The obligations for these plans are recorded over the requisite service period.

The amounts shown below reflect the change in the defined benefit obligations and plan assets during 2018 and 2017:

(in CHF, thousands)	December 31, 2018	December 31, 2017
Benefit obligation at the beginning of the year	101,213	96,270
Service cost	2,688	2,650
Interest cost	3,184	3,184
Employee contributions	19	16
Actuarial (gains)/losses	(5,787)	4,429
Benefits paid	(7,158)	(5,408)
Foreign currency translation	(1,948)	(649)
Other	73	721
Benefit obligation at the end of the year	92,284	101,213
(in CHF, thousands)	December 31, 2018	December 31, 2017
---	---	---
Change in plan assets:
Fair value of plan assets at the beginning of the year	77,535	69,936
Actual return on the plan assets	(2,045)	6,858
Employer contributions	8,624	5,735
Employee contributions	19	16
Benefits paid	(6,256)	(4,378)
Foreign currency translation	(1,428)	(1,205)
Other	(59)	573
Fair value of plan assets at the end of the year	76,390	77,535
Funded status	(15,894)	(23,678)

The Masterbatches Business of Clariant Ltd

Amounts recognized in accumulated other comprehensive income before tax effects were as follows:

	Actuarial (gains)/losses	Total
Accumulated other comprehensive loss at December 31, 2016	35	35
Net amount generated/arising in current year	263	263
Amortization
Foreign currency translation adjustment	78	78
Accumulated other comprehensive loss at December 31, 2017	376	376
Net amount generated/arising in current year	(1,005)	(1,005)
Amortization
Foreign currency translation adjustment	(67)	(67)
Accumulated other comprehensive loss at December 31, 2018	(696)	(696)

The projected benefit obligation (“PBO”), accumulated benefit obligation (“ABO”), and fair value of plan assets for pension plans with accumulated benefit obligations are as follows:

(in CHF, thousands)	December 31, 2018	December 31, 2017
Pension plans with ABO in excess of the fair value of plan assets:
PBO	41,384		101,213
ABO	32,899		88,112
Fair value of plan assets at the end of the year	25,734		77,535
Pension plans with fair value of plan assets in excess of ABO:
PBO	50,900		-
ABO	47,436		-
Fair value of plan assets at the end of the year	50,656		-
Total pension plans:
PBO	92,284		101,213
ABO	80,325		88,112
Fair value of plan assets at the end of the year	76,390		77,535

Benefit costs presented below were determined based on actuarial methods and included the following:

(in CHF, thousands)	December 31, 2018	December 31, 2017
Service cost	2,688		2,650
Interest cost	3,184		3,184
Expected return on plan assets	(2,737)		(2,692)
Net periodic benefit cost	3,135		3,142

As described in Note 2, Significant Accounting Policies, the Company elected to early adopt ASU 2017-07 effective January 1, 2017. As a result, service costs are classified as employee compensation costs within cost of sales and selling, general and administrative costs within the combined statement of income. All

The Masterbatches Business of Clariant Ltd

other components of net periodic benefit cost are classified within the other income, net line item, for all periods presented.

Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions are recognized in other comprehensive income. Cumulative gains and losses in excess of 10% of the greater of the PBO or the market related value of plan assets for a particular plan are amortized over the average future service period of the employees in that plan. The Company does not expect to recognize cumulative gains and losses in excess of 10% of the PBO and therefore does not expect to amortize any actuarial losses from accumulated other comprehensive income into net periodic benefit cost in 2019.

The weighted average assumptions used to determine the actuarial value of the projected benefit obligation and the net expense for the pension plans were as follows:

Assumptions used to determine benefit obligations are as follows as at:

	December 31, 2018	December 31, 2017
Weighted-average discount rate	3.8		%	3.3	%
Weighted-average rate of increase in compensation levels	3.3		%	3.0	%

Assumptions used to determine net expense are as follows as at:

	December 31, 2018		December 31, 2017
Weighted-average discount rate	4.2	%	3.3	%
Weighted-average rate of increase in compensation levels	3.9	%	3.2	%
Weighted-average expected long-term rate of return on plan assets	3.6	%	2.9	%

The Company selects discount rates by analyzing the results of matching each plan’s projected benefit obligations with a portfolio of high-quality fixed income investments rated AA-or higher by Standard and Poor’s in the relevant country where the plan is located. In developing the expected long-term rate of return on assets, the Company modelled the expected long-term rates of return for broad categories of investments held by the plan against a number of various potential economic scenarios.

The Masterbatches Business of Clariant Ltd

The fair value of the Company’s pension plan assets, as of December 31, 2018, was split into the major asset categories, by level, as follows:

(in CHF, thousands)	Total	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	757	757		-
Corporate debt securities	47,533		47,533	-
Investment funds	22,091	8,506	13,585	-
Insurance assets - contracts and reserves	4,172		4,172	-
Government securities	1,693	1,502	191	-
Other	144		144	-
Total	76,390	10,765	65,625	-

The Company’s investment strategy for its pension plans is to optimize the long-term investment return on plan assets in relation to the liability structure to maintain an acceptable level of risk while minimizing the cost of providing pension benefits and maintaining adequate funding levels in accordance with applicable rules in each jurisdiction. The investment mix between equity securities and insurance assets securities is based upon achieving a desired return, balancing higher return, more volatile equity securities, and lower return, less volatile fixed income securities and is adjusted for the expected duration of the obligation and the funded status of the plan.  Investment allocations are made across a range of securities, maturities and credit quality. The Company's defined benefit plan investments are based on local laws and customs. Most plans invest in insurance assets and investment funds.

Pension Funding

The following future benefit payments, which reflect expected future level of service, are expected to be paid as of December 31, 2018:

(in CHF, millions)
2019	(6,613)
2020	(5,330)
2021	(6,481)
2022	(6,011)
2023	(5,680)
2024-2028	(33,405)

The Company anticipates making pension contributions of approximately CHF 3,117 thousand in 2019.

Defined Contribution Plans

The Parent sponsors defined contribution plans for certain hourly and salaried employees, which accrue benefits for employees on a pro-rata basis during their employment period based on their individual salaries. Expense related to the contributions for these plans recorded by the Company was approximately CHF 5,887 thousand and CHF 5,999 thousand for the years ended December 31, 2018 and 2017, respectively. These amounts are primarily comprised of contributions to defined benefit plans in Germany, Italy and the United States.

The Masterbatches Business of Clariant Ltd

Multiemployer Pension Plans

The Company accounts for certain of its pension plans as multiemployer pension plans, that based on their nature qualify as multiemployer pension plans under US GAAP. When a plan is accounted for using the multiemployer accounting approach, the related assets and liabilities are not reflected in the combined financial statements. Benefits under these plans are based primarily on the years of service and employee’s compensation. The Company recorded expense in the combined statement of income of CHF 2,232 thousand and CHF 2,326 thousand for the years ended December 31, 2018 and 2017 respectively, related to the employees’ participation in Parent sponsored plans.

The Company had no other postretirement benefit obligations as of December 31, 2018 or 2017.

NOTE 12 INCOME TAXES

Income before income taxes is summarized below based on the geographic location of the operation to which such earnings are attributable.

(in CHF, thousands)	December 31, 2018	December 31, 2017
Domestic	12,548	2,931
Foreign	56,337	41,001
Income from operations, before income taxes	68,885	43,932

A summary of income tax expense is as follows:

(in CHF, thousands)	December 31, 2018	December 31, 2017
Current income tax expense (benefit):
Domestic	(41)	(6)
Foreign	19,014	10,499
Total current income tax expense	18,973	10,493
Deferred income tax (benefit) expense:
Domestic	1	0
Foreign	(1,208)	3,443
Total deferred income tax (benefit) expense	(1,207)	3,443
Total income tax expense	17,767	13,936

The Masterbatches Business of Clariant Ltd

A reconciliation of the applicable Swiss statutory tax rate to the consolidated effective income tax rate along with a description of significant or unusual reconciling items is included below.

(in CHF, thousands)	December 31, 2018		December 31, 2017
Swiss statutory income tax rate 12%	8,266		5,271
Total foreign tax rate differential	7,230		5,781
Non-deductible items	785		588
Tax exempt income	(811)		(862)
Utilization and changes in recognition of tax losses and tax credits	476		(3,160)
Unrecognized current year tax losses and tax credits	265		5,110
Adjustments relating to prior periods	1,234		(1,686)
US Tax reform (tax rate impact)	-		2,450
Other items	322		444
Effective tax rate	26	%	32	%

The effective tax rates for all periods differ from the applicable Swiss statutory tax rate as a result of differences in foreign tax rates, permanent items and certain unusual items. Permanent items primarily consist of income or expense not taxable or deductible as well as unrecognized current year tax losses. Significant or unusual items impacting the effective income tax rate are described below.

2018 Significant items

The additional expense from prior period relates to prior year adjustments in various jurisdictions.

2017 Significant items

The tax expense resulting from not recognizing current year losses mainly relates to China and Brazil.

The benefit reflected in the changes in valuation allowances line resulted from the realizability of a deferred tax asset in one of the Company’s foreign entities.

The enactment of US tax reform led to a deferred tax charge of CHF 2,450 thousand.

Components of the Company’s deferred tax assets (liabilities) as of December 31, 2018 and 2017 were as follows:

The Masterbatches Business of Clariant Ltd

(in CHF, thousands)	December 31, 2018	December 31, 2017
Deferred tax assets:
PPE and intangible assets	20,589	21,230
Retirement benefit obligations	2,084	3,953
Tax losses and tax credits	6,713	7,836
Other accruals and provisions	8,189	5,261
Gross deferred tax assets	37,575	38,280
Valuation allowances	17,358	18,140
Deferred tax assets, net of valuation allowances	20,217	20,140
Deferred tax liabilities:
PPE and intangible assets	(12,272)	(13,344)
Retirement benefit obligations	(36)	(7)
Other accruals and provisions	(4,455)	(5,698)
Deferred tax liabilities	(16,763)	(19,049)
Net deferred tax assets	3,454	1,091
Included in:
Deferred tax assets	12,718	12,261
Deferred tax liabilities	(9,264)	(11,170)

As of December 31, 2018, a foreign subsidiary has gross net operating loss carryforwards totaling CHF 8,090 thousand that have indefinite carryforward periods. The Company has not provided valuation allowances against these losses as it believes that the subsidiary will generate sufficient taxable profits to use these losses.

Total tax valuation allowances on all deferred tax assets decreased by CHF 782 thousand from the prior year.

The Company decided to repatriate certain current and prior year foreign earnings . A provision has been made for non-recoverable withholding taxes on the undistributed earnings of certain consolidated non-Swiss subsidiaries, primarily outside of Europe, of approximately CHF 585 thousand as of December 31, 2018.

The Company records provisions for uncertain tax positions in accordance with ASC 740, Income Taxes. A reconciliation of unrecognized tax benefits is as follows:

(in CHF, thousands)	2018	2017
Balance as of the beginning of the year	156	156
Increases as a result of positions taken for prior years	565	-
Balance as of the end of the year	721	156

The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes. As of December 31, 2018, and 2017, the Company had CHF 178 thousand and CHF 106 thousand accrued for interest and penalties, respectively.

The Masterbatches Business of Clariant Ltd

Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during the next twelve months a reduction in unrecognized tax benefits may occur up to CHF 500 thousand based on the outcome of tax examinations and settlements.

The following table summarizes key jurisdictions and tax years that remain subject to examination:

China	2015 - 2018
Germany	2009 - 2018
Italy	2015 - 2018
Switzerland	2018
USA	2016 - 2018

If all unrecognized tax benefits were recognized, the net impact on the provision for income tax expense would be a benefit of CHF 721 thousand.

NOTE 13 FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurement, (ASC 820) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;

Level 3 - Unobservable inputs that are supported by little or no market activity. Level 3 assets or liabilities are those whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques with significant unobservable inputs, as well as assets or liabilities for which the determination of fair value requires significant judgment or estimation. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Observable market data is used in determining fair value, when available. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

In addition to items measured at fair value on a recurring basis, assets may be measured at fair value on a nonrecurring basis. These assets include long-lived assets and intangible assets which may be written down to fair value as a result of impairment.

The Company has determined the fair value measurements related to each of these rely primarily on Company-specific inputs and the Company's assumptions about the use of the assets, as observable inputs may not be available (Level 3). To determine the fair value of long-lived asset groups, the Company utilizes discounted cash flows expected to be generated by the long-lived asset group.

The Company evaluates the carrying value of its goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter of each year. These fair value measurements require the

The Masterbatches Business of Clariant Ltd

Company to make significant assumptions and estimates about the extent and timing of future cash flows, discount rates, and growth rates, which are subject to a high degree of uncertainty. The Company believes the assumptions and estimates used to determine the estimated fair value are reasonable, but different assumptions could materially affect the estimated fair value.

During the years ended December 31, 2018 and 2017, the Company did not record a goodwill impairment charge for any of its reporting units

Financial Instruments Not Carried at Fair Value

The Company recorded CHF 3,945 thousand and CHF 5,858 thousand of long-term debt as of December 31, 2018 and 2017, respectively, whose amortized costs approximates fair value (Level 2), which consists primarily of interest-bearing notes due in 2019 through 2021. See Note 10, Debt Arrangements for additional information.

Assets and Liabilities Not Carried at Fair Value

The carrying value of cash and cash equivalents, short receivables, accounts payable, and short-term debt approximates fair value due to their short-term nature.

NOTE 14 COMMITMENTS AND CONTINGENCIES

Purchase commitments. In the regular course of business, the Masterbatches Business enters into relationships with vendors and suppliers whereby the Company commits itself to capital acquisition of property, plant and equipment and intangible assets in order to benefit from better pricing conditions. The major part of the capital commitments will be paid within the one year after the respective balance sheet date. These commitments are not in excess of current market prices and reflect normal business operations.

Lease obligations. The Masterbatches Business leases certain manufacturing facilities, warehouse space, machinery and equipment, automobiles, railcars, computers and software under operating leases. Lease expense was CHF 7,286 thousand and CHF 7,371 thousand for the years ended December 31, 2018 and 2017 respectively.

Future minimum lease payments for operating leases with initial or remaining non-cancelable lease terms in excess of one year for the next five years and thereafter are as follows:

(in CHF, thousands)	December 31, 2018
2019	5,134
2020	4,695
2021	3,838
2022	2,913
2023	2,113
Thereafter	9,451
Total	28,144

Income from lease arrangements in which the Company is the lessor is not significant.

Contingencies. The Masterbatches Business operates in countries where political, economic, social, legal, and regulatory developments can have an impact on the operational activities. The effects of such

The Masterbatches Business of Clariant Ltd

risks on the Company’s results, which arise during the normal course of business, are not foreseeable and are, therefore, not included in the accompanying financial statements.

In the ordinary course of business, the Company is involved in lawsuits, claims, investigations and proceedings, including product liability, intellectual property, commercial, environmental, and health and safety matters. Although the outcome of any legal proceedings cannot be predicted with certainty, the Company is not aware of such matters pending which would likely have any material adverse effect in relation to its business, financial position, or results of operations.

In determining loss contingencies, the Company considers the likelihood of impairing an asset or the incurrence of a liability at the date of the combined financial statements as well as the ability to reasonably estimate the amount of such loss. The Company records a provision for a loss contingency when information available before the combined financial statements are issued or are available to be issued indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the combined financial statements and when the amount of loss can be reasonably estimated. The Company regularly re-evaluates claims to determine whether provisions need to be readjusted based on the most current information available to the Company.

NOTE 15 RELATED PARTY TRANSACTIONS AND NET INVESTMENT FROM THE PARENT

The Masterbatches Business has historically operated as part of the Parent and not as a stand-alone company. Accordingly, the Parent has funded certain expenses or provided services on behalf of the Company. These services included support functions provided by the Parent on behalf of the Company. As such the Parent allocated certain costs to the Company that are reflected within these combined financial statements. Such allocations are based on the requirements of preparing combined financial statements and in that same context management determined that such allocations are determined on a reasonable basis. However, such cost allocations may not be indicative of the costs that would have been incurred if the Company had been operated on a standalone basis during the periods presented. In addition, the expenses reflected in the combined financial statements may not be indicative of expenses the business will incur in the future. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including the Company’s capital structure, information technology and infrastructure.

As described in Note 1, Basis of Presentation, the Masterbatches Business participates in a global cash pooling arrangement operated by the Parent and certain of its subsidiaries, whereby cash generated by the Company is managed by the Parent. This arrangement manages the working capital needs of the Masterbatches Business. The majority of the Company’s cash is transferred to the Parent, and the Parent funds the Company’s operating and investing activities as necessary. The cumulative net transfers related to these transactions are recorded in net parent investment in the combined financial statements.

Related Party Transactions

In the ordinary course of business, the Masterbatches Business enters into transactions with related parties, which are subsidiaries and other businesses of the Parent, for the sale or purchase of goods, as well as other arrangements.

The Masterbatches Business of Clariant Ltd

(in CHF, thousands)	December 31, 2018	December 31, 2017
Revenue from sale of goods	1,501	2,009
Purchase of goods	36,679	25,799
Interest expense from related parties	10,572	8,779
Interest income from related parties	1,350	960
Income from shared assets used jointly with the Parent	1,404	1,557
Expenses from shared assets used jointly with the Parent	3,501	3,767

Goods sold includes revenues from sales of inventories from the Masterbatches Business to other strategic business units of the Parent.

Goods and services purchased mainly consist of purchases of inventories to the Masterbatches Business from other strategic business units of the Parent as well as indirect production and other related costs allocated to the Company.

Related Party Balances

Related party balances as of December 31, 2018 and 2017 consisted of the following:

(in CHF, thousands)	December 31, 2018	December 31, 2017
Accounts receivable, net	330	391
Accounts payable	5,621	4,263
Loans to related parties	80,600	72,498
Loans from related parties	59,171	258,638

Allocations of Costs for The Parent’s Services

The Masterbatches Business has certain services and functions provided to it by the Parent. These services and functions included, but were not limited to, senior management, legal, human resources, finance and accounting, treasury, information technology (“IT”) services and support, cash management, payroll processing, pension and benefit administration, other shared services and research and developments costs. These costs were allocated using methodologies that management believes were reasonable for the item being allocated. Allocation methodologies included direct usage when identifiable, as well as the Company’s relative share of revenues as a percentage of the total.

The total costs, net of income, for services and functions allocated to the Masterbatches Business from the Parent were as follows, for the years ended:

(in CHF, thousands)	December 31, 2018	December 31, 2017
Research and development costs	1,401	1,768
Selling, general and administrative costs	78,000	100,048
Total costs, net of income, allocated from the Parent	79,401	101,916

Net Investment from the Parent

Net investment from the Parent on the combined balance sheets and combined statements of changes in equity represents the Parent’s historical investment in the Masterbatches Business, the net effect of

The Masterbatches Business of Clariant Ltd

transactions with, and allocations from, the Parent, as well as the Company’s accumulated earnings and other comprehensive income. Net transfers to the Parent are included within net parent investment.

NOTE 16 ACCUMULATED OTHER COMPREHENSIVE LOSS

The amounts recognized in accumulated other comprehensive loss were as follows:

(in CHF, thousands)	Cumulative Translation Adjustment	Pension and Other Postretirement Benefits	Accumulated Other Comprehensive Loss
Balance at December 31, 2016	(21,968)	(557)	(22,525)
Reclassification to earnings	-	-	-
Gain (loss) arising during the period	(14,575)	(421)	(14,996)
Effect of deferred taxes	-	(111)	(111)
Balance at December 31, 2017	(36,543)	(1,089)	(37,632)
Reclassification to earnings	-	-	-
Gain (loss) arising during the period	(12,835)	1,390	(11,445)
Effect of deferred taxes	-	(258)	(258)
Balance at December 31, 2018	(49,378)	43	(49,335)

NOTE 17 SUBSEQUENT EVENTS

The combined financial statements of the Company are derived from the financial statements of the Parent, which issued its consolidated financial statements for the year ended December 31, 2018 on February 11, 2019. Accordingly, the Company has evaluated transactions or other events for consideration as recognized subsequent events in the annual financial statements through February 11, 2019. Additionally, the Company has evaluated transactions and other events that occurred through the issuance of these financial statements, December 23, 2019, for purposes of disclosure of unrecognized subsequent events.

On 19 December 2019, the Parent entered into a Share Purchase Agreement with PolyOne Corporation providing for the sale of the Masterbatches Business. Refer to Note 1, Basis of Presentation for further details.

33

Document

Exhibit 99.2

The Masterbatches Business of Clariant Ltd

Unaudited Interim Combined Financial Statements

As of September 30, 2019 and December 31, 2018 and for the nine-month periods ended September 30, 2019 and 2018

Unaudited Interim Combined Financial Statements

Combined Balance Sheets as of September 30, 2019 and December 31, 2018	2
Combined Statements of Income for the Nine-Month Periods Ended September 30, 2019 and 2018	3
Combined Statements of Comprehensive Income for the Nine-Months Ended September 30, 2019 and 2018	4
Combined Statements of Changes in Equity for the Nine-Months Ended September 30, 2019 and 2018	5
Combined Statements of Cash Flows for the Nine-Months Ended September 30, 2019 and 2018	6
Notes to the Interim Combined Financial Statements	7

1

The accompanying notes are an integral part of these interim combined financial statements.

The Masterbatches Business of Clariant Ltd

COMBINED BALANCE SHEETS

As of September 30, 2019 and December 31, 2018

(unaudited)

(in CHF, thousands)	September 30<br><br>2019	December 31<br><br>2018
ASSETS
Current assets:
Cash and cash equivalents	35,068	123,328
Accounts receivable, net	182,642	176,604
Inventories	98,565	102,711
Loans to related parties	87,039	80,600
Other current assets	22,853	32,339
Total current assets	426,167	515,582
Non-current assets:
Property, plant and equipment, net	186,674	196,071
Right-of-use assets	24,446	-
Goodwill	48,547	48,703
Intangible assets, net	5,476	6,304
Deferred tax assets	17,469	12,718
Investments in affiliates	3,173	4,080
Total non-current assets	285,785	267,876
Total assets	711,952	783,458
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	95,773	125,282
Accrued and other liabilities	47,695	46,411
Accrued employee expenses	36,118	42,114
Short-term debt	25,077	17,871
Loans from related parties	43,224	59,171
Total current liabilities	247,887	290,849
Non-current liabilities:
Long-term debt	6,736	3,945
Retirement benefit obligations	24,953	18,855
Lease liabilities	18,574	-
Deferred tax liabilities	9,426	9,264
Other non-current liabilities	2,010	3,066
Total non-current liabilities	61,699	35,130
Total liabilities	309,586	325,979
EQUITY
Net investment from the Parent	449,138	492,686
Accumulated other comprehensive loss	(59,757)	(49,335)
Total equity attributable to the Masterbatches Business	389,381	443,351
Non-controlling interests	12,985	14,128
Total equity	402,366	457,479
Total liabilities and equity	711,952	783,458

2

The accompanying notes are an integral part of these interim combined financial statements.

The Masterbatches Business of Clariant Ltd

COMBINED STATEMENTS OF INCOME

For the nine-months ended September 30, 2019 and September 30, 2018

(unaudited)

(in CHF, thousands)	September 30<br><br>2019	September 30<br><br>2018
Sales	856,163	905,500
Cost of goods sold	(622,187)	(663,956)
Gross profit	233,976	241,544
Selling, general and administrative costs	(172,398)	(170,182)
Research and development costs	(7,922)	(5,855)
Other expense	(480)	(155)
Operating income	53,176	65,352
Interest expense	(10,062)	(11,257)
Interest income	1,548	1,115
Income before income tax expense	44,662	55,210
Income tax expense	(11,792)	(16,601)
Net income	32,870	38,609
Less: Net income attributable to non-controlling interests	646	391
Net income attributable to the Masterbatches Business	32,224	38,218

3

The accompanying notes are an integral part of these interim combined financial statements.

The Masterbatches Business of Clariant Ltd

COMBINED STATEMENTS OF COMPREHENSIVE INCOME

For the nine-months ended September 30, 2019 and September 30, 2018

(unaudited)

(in CHF, thousands)	September 30<br>2019	September 30<br><br>2018
Net income	32,870	38,609
Other comprehensive income (loss):
Defined benefit plan adjustment	(7,339)	1,083
Currency translation adjustment	(5,450)	(13,736)
Other comprehensive loss for the period, gross	(12,789)	(12,653)
Deferred tax effect	2,098	(83)
Other comprehensive loss for the period, net of tax	(10,691)	(12,736)
Comprehensive income for the period	22,179	25,873
Less: Comprehensive income / (loss) attributable to non-controlling interests	377	(190)
Comprehensive income attributable to the Masterbatches Business	21,802	26,063

4

The accompanying notes are an integral part of these interim combined financial statements.

The Masterbatches Business of Clariant Ltd

COMBINED STATEMENTS OF CHANGES IN EQUITY

For the nine-months ended September 30, 2019 and September 30, 2018

(unaudited)

(in CHF, thousands)	Net investment from the Parent	Accumulated other comprehensive loss	Non-controlling interests	Total equity
Balance as of December 31, 2018	492,686	(49,335)	14,128	457,479
Net income	32,224	-	646	32,870
Net transfers with Parent	(75,772)	-	-	(75,772)
Changes in non-controlling interests	-	-	(1,520)	(1,520)
Other comprehensive loss	-	(10,422)	(269)	(10,691)
Balance as of September 30, 2019	449,138	(59,757)	12,985	402,366
(in CHF, thousands)	Net investment from the Parent	Accumulated other comprehensive loss	Non-controlling interests	Total equity
---	---	---	---	---
Balance as of December 31, 2017	200,941	(37,632)	12,629	175,938
Net income	38,218	-	391	38,609
Net transfers with Parent	205,125	-	-	205,125
Changes in non-controlling interests	-	-	1,849	1,849
Other comprehensive loss	-	(12,155)	(581)	(12,736)
Balance as of September 30, 2018	444,284	(49,787)	14,288	408,785

5

The accompanying notes are an integral part of these interim combined financial statements.

The Masterbatches Business of Clariant Ltd

COMBINED STATEMENTS OF CASH FLOWS

For the nine-months ended September 30, 2019 and September 30, 2018

(unaudited)

(in CHF, thousands)	September 30<br><br>2019	September 30<br><br>2018
Operating activities:
Net income	32,870	38,609
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Deferred tax benefit	(1,796)	(1,006)
Depreciation and amortization	17,953	21,341
Changes in operating assets and liabilities:
Accounts receivable	(10,617)	(7,876)
Inventories	1,675	(11,622)
Accounts payable	(20,878)	1,813
Other current assets and liabilities	7,245	(6,182)
Accrued liabilities	(6,948)	(15,208)
Net cash provided by operating activities	19,504	19,869
Investing activities:
Investments in property, plant and equipment	(17,671)	(12,516)
Investments in intangible assets	(1,035)	(746)
Net cash used by investing activities	(18,706)	(13,262)
Financing activities:
Proceeds from short-term debt	10,525	8,522
Repayments of short-term debt	(5,365)	(6,713)
Proceeds from long-term debt	6,686	-
Repayments of long-term debt	(430)	-
Net (repayments) of loans from / to related parties	(22,182)	(211,669)
(Distributions) / contributions to non-controlling interests	(1,520)	1,849
(Distributions) / contributions to Parent	(75,994)	204,447
Net cash used by financing activities	(88,280)	(3,564)
Effect of exchange rate changes	(778)	(2,305)
(Decrease) / increase in cash and cash equivalents	(88,260)	738
Cash and cash equivalents at the beginning of year	123,328	29,493
Cash and cash equivalents as of September 30	35,068	30,231
Noncash investing and financing activity:
Investments in property plant and equipment in accounts payable	6,160	4,210

6

The accompanying notes are an integral part of these interim combined financial statements.

The Masterbatches Business of Clariant Ltd

UNAUDITED NOTES TO THE COMBINED FINANCIAL STATEMENTS

(in CHF, thousands)

NOTE 1 BASIS OF PRESENTATION

On 25 July 2019, Clariant Ltd (hereafter “Clariant” or “the Parent”) announced its intent to divest the entire Masterbatches Business (“the Masterbatches Business”, “the Masterbatches Business of Clariant Ltd” or “the Company”). On 19 December 2019, the Parent entered into a Share Purchase Agreement (“SPA”) with PolyOne Corporation (the “Buyer”) providing for the sale of the Masterbatches Business for approximately USD 1,560 million.

The Masterbatches Business is a part of the global business of Clariant, and specializes in color and additive concentrates and performance solutions for plastics whose product offerings enhance the market appeal or the end-use performance of plastic products, packaging and fibers. The Company’s portfolio of products caters to various industries including healthcare, infrastructure, agriculture, consumers goods, printing and packaging, transportation, fibers and home and personal care.

The Company has historically operated as part of the Parent and not as a separate entity. The accompanying interim combined financial statements have been prepared on a carve-out basis and are derived from the consolidated financial statements of the Parent.

The interim combined financial statements were prepared on a combined basis in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) consistent in all material respects with those applied for the year ended December 31, 2018, except for the effects of adopting new accounting guidance effective on January 1, 2019, as described in Note 2, Significant Accounting Policies. The interim financial information is unaudited but reflects all normal adjustments which are, in the opinion of management, necessary to provide a fair statement of results for the periods presented. The results of operations for the interim period are not necessarily indicative of the results to be expected for the entire year.

The December 31, 2018 balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. Therefore, these interim combined financial statements should be read in conjunction with the combined financial statements for the year ended December 31, 2018.

NOTE 2 SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Preparation of the interim carve-out financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect reported amounts and disclosures. These estimates and underlying assumptions can impact all elements of the interim combined financial statements, including but not limited to: allocations of costs and expenses from the Parent; pension and post-retirement obligations; impairment testing for goodwill, inventory reserves, intangible assets; deferred tax assets; uncertain income tax positions; and contingencies.

Although these estimates represent management’s best estimates based on available information, historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances, actual results may differ from these estimates. As future events and their effects cannot be determined with certainty, the estimates and assumptions may prove to be incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause a change in the estimates and assumptions.

Accounting Standards Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“the New Leases Standard”). The New Leases Standard was issued to increase transparency and comparability among entities by recognizing right-of-use assets and lease liabilities on the balance sheet and disclosing key information about lease arrangements. The New Leases Standard is effective for public companies for

The Masterbatches Business of Clariant Ltd

fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Masterbatches Business adopted the New Leases Standard as of January 1, 2019 using the transition option established by ASU 2018-11, Leases (Topic 842), Targeted Improvements (ASU 2018-11), which permits companies to adopt the New Leases Standard as of the beginning of the period of adoption without recasting financial information for prior periods presented.

The applied practical expedients at the adoption of the standard are as follows:

1. Practical expedient under ASC 842-10-65-1 (gg) to not reassess whether expired or existing land easements are or contain leases.

2. The package of transition practical expedients under ASC 842-10-65-1 (f) (elected as a package and applied consistently to all leases) not to reassess leases that commenced before the effective date consisting in:

a) No need to reassess whether any expired or existing contracts are or contain leases.

b) No need to reassess the lease classification for any expired or existing leases.

c) No need to reassess initial direct costs for any existing leases.

The company does not make use of the following practical expedients:

1. Practical expedient under ASC 842-10-65-1 (g) to use hindsight to determine the likelihood of whether a lease will be extended, terminated or whether a purchase option will be exercised.

2. Practical expedient to not separate lease and non-lease components. Therefore, the company separates non-lease components for all classes of underlying assets.

The impact upon adoption on January 1, 2019 was the recognition of CHF 21.5 million of right-of-use assets and lease obligations in the combined balance sheet. There was no cumulative effect adjustment as a result of the adoption of this standard. The impact of this ASU is non-cash in nature and did not materially affect the Company’s cash flows.

In February 2018 the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, that gives entities the option to reclassify to retained earnings tax effects related to items that have been stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (the Act). An entity that elects to reclassify these amounts must reclassify stranded tax effects related to the Act’s change in US federal tax rate for all items accounted for in other comprehensive income.

For all entities, the guidance is effective for fiscal years beginning after 15 December 2018, and interim periods within those fiscal years. The Company adopted this update as of January 1, 2019. The adoption had no impact on the Company's combined financial statements.

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under ASU 2016-13, the Company will be required to use a current expected credit loss model (“CECL”) that will result in immediate recognition of an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including accounts receivable. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. This guidance becomes effective for the Company on January 1, 2023, including the interim periods in that year. The Company is currently evaluating the impact that the adoption of this ASU will have on the combined financial statements and related disclosures.

The Masterbatches Business of Clariant Ltd

NOTE 3 SALES

The Masterbatches Business is a manufacturer and seller of industrial goods and generally meets the criteria to recognize revenues as products are shipped to customers. Set out below is the disaggregation of the sales from contracts with customers of the Company for the periods ended:

(in CHF, thousands)	September 30, 2019	September 30, 2018
Europe, Middle East and Africa	407,417	438,540
North America	187,946	204,644
Asia Pacific	122,622	119,063
Greater China	75,879	83,428
Latin America	62,299	59,826
Total sales	856,163	905,501

As of September 30, 2019, the Company did not have a material amount of unsatisfied performance obligations outstanding with customers for contracts in excess of one year in duration. Deferred revenue, considered a contract liability under ASC 606, amounted to CHF 6,995 thousand and CHF 6,500 thousand as of September 30, 2019 and December 31, 2018, respectively.

Revenue recognized as of September 30, 2019 that was part of the deferred revenues balance as of December 31, 2018 was CHF 6,500 thousand.

Outstanding obligations for returns, refunds, and warranties as of September 30, 2019 were not material.

NOTE 4 INVENTORIES

Components of inventories consisted of the following, as of:

(in CHF, thousands)	September 30, 2019	December 31, 2018
Raw materials and work in process	49,843	48,734
Finished products	42,693	48,623
Consumables	6,029	5,354
Total inventories	98,565	102,711

Inventories are adjusted for estimated obsolescence and written down to net realizable value. The Company did not record material amounts of inventory write-downs for the nine-month period ended September 30, 2019 or for the year ended December 31, 2018.

The Masterbatches Business of Clariant Ltd

NOTE 5 PROPERTY, PLANT AND EQUIPMENT, NET

Components of property, plant and equipment consisted of the following, as of:

(in CHF, thousands)	September 30, 2019	December 31, 2018
Machinery and technical equipment	351,767	357,927
Buildings	184,096	187,472
Furniture and other equipment	41,175	41,490
Construction in progress	19,065	15,860
Land	9,168	10,562
Vehicles	5,412	5,895
Total property, plant and equipment, gross	610,683	619,206
Less accumulated depreciation	(424,009)	(423,135)
Total property, plant and equipment, net	186,674	196,071

Depreciation expense was CHF 16,062 thousand and CHF 17,566 thousand in the periods ended September 30, 2019 and September 30, 2018, respectively.

NOTE 6 LEASING

A lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. The Company determines if an arrangement is a lease at inception. Right-of-use assets and lease liabilities are included in the Company’s combined balance sheet.

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

The Company leases machinery, equipment, land, buildings and cars which have remaining lease terms between less than one year and 37 years. Certain lease contracts contain options to extend the leases, which the Company has included in the lease term when it is reasonably certain for the Company to exercise that option. In addition, the Company made an accounting policy election for all the asset classes to not capitalize short-term leases and recognize them in the combined statement of income on a straight-line basis over the lease term. A short-term lease is defined as a lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

Discount rates

To determine the present value of lease payments, the rate implicit in the lease is used, whenever such rate is readily determinable. When the implicit rate is not determinable, the Company uses its incremental borrowing rate, derived from information available at the lease commencement date. The Company gives consideration to publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates, which are representative of rates for borrowings on a collateralized basis.

The below information is presented for the operating leases only under ASC 842. The Company does not have material finance leases.

The Masterbatches Business of Clariant Ltd

Operating leases consisted of the following as of September 30, 2019:

(in CHF, thousands)	September 30, 2019
Right-of-use assets:
Right-of-use assets	24,446
Total operating lease assets	24,446
Lease liabilities:
Accrued and other liabilities	4,782
Lease liabilities	18,575
Total operating lease liabilities	23,357

Maturities of operating lease liabilities are as follows:

(in CHF thousands)	September 30, 2019
Remainder of 2019	1,740
2020	6,000
2021	5,236
2022	4,176
2023	3,000
Thereafter	10,491
Total future undiscounted cash flows	30,643
Less imputed interest	7,286
Total operating lease liabilities	23,357

Operating lease term and discount rate are as follows, for the nine-month period ended:

	September 30, 2019
Weighted average remaining lease term (in years)	8.5
Weighted average discount rate	7	%

Operating lease expense and cash paid are as follows for the nine-month period ended:

	September 30, 2019
Operating lease expense	5,388
Operating lease cash paid	6,334
Lease liabilities arising from obtaining right-of-use assets	4,590

The Masterbatches Business of Clariant Ltd

As of December 31, 2018, the future minimum lease payments for operating leases under ASC 840 with initial or remaining non-cancelable lease terms in excess of one year for the next five years and thereafter are as follows:

(in CHF, thousands)	December 31, 2018
2019	5,134
2020	4,695
2021	3,838
2022	2,913
2023	2,113
Thereafter	9,451
Total	28,144

NOTE 7 GOODWILL AND INTANGIBLE ASSETS, NET

The amounts shown below reflect the change in goodwill during the nine-month period ended September 30, 2019:

(in CHF, thousands)
Balance at the beginning of the year	48,703
Currency translation adjustment	(156)
Balance as of September 30, 2019	48,547

Net intangible assets consisted of the following, as of:

September 30, 2019

(in CHF, thousands)	Gross Carrying Amount	Accumulated Amortization	Net Carrying Amount
Capitalized software for internal use	12,034	(8,936)	3,098
Patents, technology and other	7,974	(6,471)	1,503
Trade names	14,725	(13,850)	875
Total intangible assets	34,733	(29,257)	5,476

December 31, 2018

(in CHF, thousands)	Gross Carrying Amount	Accumulated Amortization	Net Carrying Amount
Capitalized software for internal use	11,128	(7,585)	3,543
Patents, technology and other	8,047	(6,264)	1,783
Trade names	15,168	(14,190)	978
Total intangible assets	34,343	(28,039)	6,304

Amortization expense was CHF 1,891 thousand and CHF 3,775 thousand for the periods ended September 30, 2019 and 2018, respectively.

The Masterbatches Business of Clariant Ltd

Expected amortization of finite-lived intangible assets for the next five years and thereafter are as follows:

(in CHF thousands)	As of September 30, 2019
Remainder of 2019	813
2020	1,986
2021	1,047
2022	797
2023	636
Thereafter	197
Total	5,476

NOTE 8 DEBT ARRANGEMENTS

Long-term debt

The Company's long-term debt as of September 30, 2019 and December 31, 2018 mainly consists of interest-bearing notes due in 2019 through 2025. The Company did not record material amounts of unamortized debt discount or debt issuance costs related to their long-term borrowings.

Total outstanding principal related to long-term debt arrangements consisted of the following as of:

(in CHF, thousands)	September 30, 2019		December 31, 2018
Notes due 2019 through 2025	10,239		5,896
Less: maturities classified as current	(3,503)		(1,951)
Total long-term debt	6,736		3,945
Weighted average interest rate on outstanding borrowings at end of year	6.0	%	8.0	%

Short-term debt

(in CHF, thousands)	September 30, 2019		December 31, 2018
Current maturities of long-term debt	3,503		1,951
Short term debt	21,574		15,920
Loans with related parties	43,224		59,171
Total short-term debt	68,301		77,042
Weighted average interest rate on outstanding non-related party borrowings at end of year	10.6	%	9.3	%

NOTE 9 FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurement, (ASC 820) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;

Level 3 - Unobservable inputs that are supported by little or no market activity. Level 3 assets or liabilities are those whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques with significant unobservable inputs, as well as assets or

The Masterbatches Business of Clariant Ltd

liabilities for which the determination of fair value requires significant judgment or estimation. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Observable market data is used in determining fair value, when available. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Financial assets and liabilities measured at fair value on a nonrecurring basis include long-lived assets and intangible assets which may be written down to fair value as a result of impairment.

The Company has determined the fair value measurements related to each of these rely primarily on Company-specific inputs and the Company's assumptions about the use of the assets, as observable inputs may not be available (Level 3). To determine the fair value of long-lived asset groups, the Company utilizes discounted cash flows expected to be generated by the long-lived asset group.

The Company performs the annual impairment test in the fourth quarter, however as of September 30, 2019 or 2018 no indicators of impairment were observed by management. As such, during the periods ended September 30, 2019 and 2018, the Company did not record a goodwill impairment charge for any of its reporting units.

Financial Instruments Not Carried at Fair Value

The Company recorded CHF 6,736 thousand and CHF 3,945 thousand of long-term debt as of September 30, 2019 and December 31, 2018, respectively, whose carrying value approximates fair value (Level 2), which consists primarily of interest bearing notes due in 2019 - 2025. See Note 8, Debt Arrangements for additional information.

Assets and Liabilities Not Carried at Fair Value

The carrying value of cash and cash equivalents, short term receivables, accounts payable, short-term debt and current loans to and from related parties are reasonable estimates of fair value due to the relatively short period of time between the origination of the instruments and their expected realization.

NOTE 10 EMPLOYEE BENEFIT PLANS

Upon the divestiture of the Masterbatches Business by Clariant, the Parent expects to transfer certain employee benefit plans in full to the Company and retained certain other plans. The defined benefit plans that are expected to be transferred in full (the “Direct Plans”) are accounted for in the interim combined financial statements as defined benefit plans in accordance with ASC 715, Compensation—Retirement Benefits, to reflect the related assets and liabilities of these plans. The defined benefit plans that are not expected to be transferred in full (the “Shared Plans”), are accounted for using the multiemployer accounting approach with the related assets or liabilities not reflected in these combined financial statements.

Defined Benefit Plans

The Company sponsors the Direct Plans, which are defined benefit pension plans for certain active employees, terminated employees and retirees of the Masterbatches Business. The defined benefit plans provide pension benefits based on years of service and employee compensation levels. The Company’s primary plans are located in the United States of America, Canada, Belgium, Taiwan, Italy, Saudi Arabia, Pakistan and France. The below defined benefit plan disclosures include those material plans to the Company.

The Masterbatches Business of Clariant Ltd

The interim net periodic benefit costs presented below were determined based on actuarial methods and include the following for the nine-month period ended:

(in CHF, thousands)	September 30, 2019		September 30, 2018
Service cost	2,092		2,421
Interest cost	3,131		2,816
Expected return on plan assets	(2,903)		(2,514)
Net periodic benefit cost	2,320	2,723

The total amount of the employer’s contribution paid, and expected to be paid, during 2019 is not significantly different from the disclosure in the annual financial statements.

The weighted average expected long-term rate of return on plan assets used in the determination of the pension net benefit cost was 3.6%.

Service costs are classified as employee compensation costs within cost of sales and selling, general and administrative costs within the interim combined statement of income. All other components of net periodic benefit cost are classified within the other income, net line item, for all periods presented.

Defined Contribution Plans

The Parent sponsors defined contribution plans for certain hourly and salaried employees, which accrue benefits for employees on a pro-rata basis during their employment period based on their individual salaries. Expense related to the contributions for these plans recorded by the Company was approximately CHF 4,433 thousand and CHF 4,441 thousand for the nine months ended September 30, 2019 and 2018, respectively.

Multiemployer Pension Plans

The Company accounts for certain of its pension plans as multiemployer pension plans. These include pension plans as well as the Shared Plans that based on their nature qualify as multiemployer pension plans under US GAAP. As such, the related assets and liabilities are not reflected in the combined financial statements. The Company recorded expense in the Combined statement of Income of CHF 1,065 thousand and CHF 1,701 thousand for the nine months ended September 30, 2019 and 2018, related to the employees’ participation in Parent sponsored plans.

The Company had no other postretirement benefit obligations as of September 30, 2019.

The Masterbatches Business of Clariant Ltd

NOTE 11 INCOME TAXES

A summary of income tax expense is as follows for the periods ended:

(in CHF, thousands)	September 30, 2019	September 30, 2018
Current income tax expense (benefit):
Domestic	(3)	3
Foreign	13,591	17,604
Total current income tax expense	13,588	17,608
Deferred income tax (benefit) expense:
Domestic	4	1
Foreign	(1,800)	(1,008)
Total deferred income tax (benefit) expense	(1,797)	(1,007)
Total income tax expense	11,792	16,601

The annual estimated effective tax rate method was applied, as management believes it provides a reliable estimate of the expected 2018 and 2019 income tax expense on an interim basis. During the first nine months of 2019, the Company recorded an income tax expense of CHF 11,792 thousand, reflecting the estimated annual effective tax rate in each of its jurisdictions, applied to the third quarter of 2019 combined result before taxes.

As of September 30, 2019, there is pending tax legislation that is expected to be enacted before the end of 2019 that will increase the Company’s income tax rate in Switzerland effective January 1, 2020. Upon enactment, the Company will be required to remeasure its current deferred tax assets and liabilities to reflect the new tax rate.

NOTE 12 COMMITMENTS AND CONTINGENCIES

Purchase commitments. In the regular course of business, the Masterbatches Business enters into relationships with vendors and suppliers whereby the Company commits itself to capital acquisition of property, plant and equipment and intangible assets in order to benefit from better pricing conditions. The majority of the capital commitments will be paid within the one year after the respective balance sheet date. These commitments are not in excess of current market prices and reflect normal business operations.

Contingencies. The Masterbatches Business operates in countries where political, economic, social, legal, and regulatory developments can have an impact on the operational activities. The effects of such risks on the Company’s results, which arise during the normal course of business, are not foreseeable and are, therefore, not included in the accompanying financial statements.

In the ordinary course of business, the Company is involved in lawsuits, claims, investigations and proceedings, including product liability, intellectual property, commercial, environmental, and health and safety matters. Although the outcome of any legal proceedings cannot be predicted with certainty, the Company is not aware of such matters pending which would likely have any material adverse effect in relation to its business, financial position, or results of operations.

In determining loss contingencies, the Company considers the likelihood of impairing an asset or the incurrence of a liability at the date of the combined financial statements as well as the ability to reasonably estimate the amount of such loss. The Company records a provision for a loss contingency when information available before the combined financial statements are issued or are available to be issued indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the combined financial statements and when the amount of loss can be reasonably estimated. The Company regularly re-evaluates claims to determine whether provisions need to be readjusted based on the most current information available to the Company.

The Masterbatches Business of Clariant Ltd

NOTE 13 RELATED PARTY TRANSACTIONS AND NET INVESTMENT FROM THE PARENT

The Masterbatches Business has historically operated as part of the Parent and not as a stand-alone company. Accordingly, the Parent has funded certain expenses or provided services on behalf of the Company. These services included support functions provided by the Parent on behalf of the Company. As such the Parent allocated certain costs to the Company that are reflected within these combined financial statements. Such allocations are based on the requirements of preparing combined financial statements and in that same context management determined that such allocations are determined on a reasonable basis. However, such cost allocations may not be indicative of the costs that would have been incurred if the Company had been operated on a standalone basis during the periods presented. In addition, the expenses reflected in the financial statements may not be indicative of expenses the business will incur in the future. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including the Company’s capital structure, information technology and infrastructure.

As described in Note 1, Basis of Presentation, the Masterbatches Business participates in a global cash pooling arrangement operated by the Parent and certain of its subsidiaries, whereby cash generated by the Company is managed by the Parent. This arrangement manages the working capital needs of the Masterbatches Business. The majority of the Company’s cash is transferred to the Parent, and the Parent funds the Company’s operating and investing activities as necessary. The cumulative net transfers related to these transactions are recorded in Net parent investment in the combined financial statements.

Related Party Transactions

In the ordinary course of business, the Masterbatches Business enters into transactions with related parties, which are subsidiaries and other businesses of the Parent, for the sale or purchase of goods, as well as other arrangements. Related party transactions include the following for the nine-month period ended:

(in CHF, thousands)	September 30, 2019	September 30, 2018
Revenue from sale of goods	1,219	1,098
Purchase of goods	26,093	27,438
Interest expense from related parties	6,491	8,687
Interest income with related parties	1,240	902
Income from shared assets used jointly with the Parent	1,328	1,090
Expenses from shared assets used jointly with the Parent	2,961	2,652

Related Party Balances

Related party balances as of September 30, 2019 and December 31, 2018 consisted of the following:

(in CHF, thousands)	September 30, 2019	December 31, 2018
Accounts receivable, net	225	330
Accounts payable	3,855	5,621
Loans to related parties	87,039	80,600
Loans from related parties	43,224	59,171

Allocations of Costs for The Parent’s Services

The total costs for services and functions allocated to the Company from the Parent were as follows for the nine-month period ended:

The Masterbatches Business of Clariant Ltd

(in CHF, thousands)	September 30, 2019	September 30, 2018
Selling, general and administrative costs	63,688	66,731
Research and development costs	1,077	996
Total costs allocated from the Parent	64,765	67,726

Net Investment from the Parent

Net investment from the Parent on the combined balance sheets and combined statements of changes in equity represents the Parent’s historical investment in the Masterbatches Business, the net effect of transactions with, and allocations from, the Parent, as well as the Company’s accumulated earnings and other comprehensive income. Net transfers to the Parent are included within Net Parent investment.

NOTE 14 ACCUMULATED OTHER COMPREHENSIVE LOSS

The amounts recognized in accumulated other comprehensive loss as of September 30, 2019 was as follows:

(in CHF, thousands)	Cumulative Translation Adjustment	Pension and Other Postretirement Benefits	Accumulated Other Comprehensive Loss
Balance at December 31, 2018	(49,378)	43	(49,335)
Reclassification to earnings	-	-	-
Loss arising during the period	(5,170)	(7,339)	(12,509)
Effect of deferred taxes	-	2,087	2,087
Balance at September 30, 2019	(54,548)	(5,209)	(59,757)

The amounts recognized in accumulated other comprehensive loss as of September 30, 2018 was as follows:

(in CHF, thousands)	Cumulative Translation Adjustment	Pension and Other Postretirement Benefits	Accumulated Other Comprehensive Loss
Balance at December 31, 2017	(36,543)	(1,089)	(37,632)
Reclassification to earnings	-	-	-
Gain / (loss) arising during the period	(13,145)	1,083	(12,062)
Effect of deferred taxes	-	(93)	(93)
Balance at September 30, 2018	(49,688)	(99)	(49,787)

NOTE 15 SUBSEQUENT EVENTS

The Company has evaluated transactions for consideration as recognized subsequent events in these combined financial statements through 23 December 2019, the date these financial statements were available for issuance (or issued), for the purposes of unrecognized subsequent events.

On 19 December 2019, the Parent entered into a Share Purchase Agreement with PolyOne Corporation providing for the sale of the Masterbatches Business. Refer to Note 1, Basis of Presentation for further details.

18

Document

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On December 19, 2019, PolyOne Corporation (the “Company” and, together with its subsidiaries, “PolyOne” or “we”) entered into a definitive share purchase agreement (the “Purchase Agreement”) with Clariant AG, a corporation organized and existing under the laws of Switzerland, and a definitive business transfer agreement (the “BTA” and, together with the Purchase Agreement, the “Agreements”) with Clariant Chemicals (India) Limited, a public limited company incorporated in India and an indirect majority-owned subsidiary of Clariant (“Clariant India” and, together with Clariant AG, “Clariant”). Pursuant to the Purchase Agreement, PolyOne has agreed to acquire Clariant’s global masterbatch business outside of India (the “Clariant Masterbatch Business”), and pursuant to the BTA, PolyOne has agreed to purchase Clariant India’s masterbatch business (the “Clariant India Masterbatch Business”, together with the Clariant Masterbatch Business, “Clariant Masterbatch”), for a net purchase price of $1.45 billion in cash, subject to customary closing adjustments. We refer to the pending acquisition of Clariant Masterbatch as the “Clariant Acquisition”. The Clariant Acquisition, which has not yet been consummated, will be accounted for as a business combination under Accounting Standards Codification ("ASC") Topic 805, Business Combinations ("ASC 805"), with PolyOne considered as the accounting acquirer and Clariant Masterbatch as the accounting acquiree. The Clariant Acquisition is subject to customary closing conditions and is expected to close in mid-2020.

The Company intends to fund the Clariant Acquisition, in part, through the issuance of approximately $650.0 million aggregate principal amount of senior unsecured debt securities (the “New Notes”) and cash proceeds of approximately $450.0 million from the issuance of equity securities. We anticipate that in the event the New Notes are issued prior to the consummation of the Clariant Acquisition, the New Notes will be subject to a special mandatory redemption in the event that the Clariant Acquisition is not consummated on or prior to December 19, 2020 or, if prior to December 19, 2020, the Purchase Agreement is terminated other than in connection with the consummation of the Clariant Acquisition. The remaining $400.0 million will be funded with a portion of the net cash proceeds received from the sale of the Company’s Performance Products and Solutions business segment (“PP&S”). As previously announced, on August 16, 2019, the Company entered into a definitive asset purchase agreement (the “Sale Agreement”) with SK Echo Group S.à r.l., a société à responsabilité limitée governed by the laws of Luxembourg (“Purchaser”), pursuant to which Purchaser agreed to acquire PP&S for $775.0 million in cash, subject to a customary working capital adjustment. On October 25, 2019, the Company completed the sale of PP&S to the Purchaser pursuant to the terms of the Sale Agreement and received cash proceeds, net of transaction costs, of $761.8 million, which is subject to change due to customary working capital adjustments.

Additionally, on December 19, 2019, we entered into a Commitment Letter (the “Commitment Letter”) with Citigroup Global Markets Inc., Morgan Stanley Senior Funding, Inc., Wells Fargo Bank, National Association, Citizens Bank, N.A., HSBC Bank USA, N.A., PNC Bank, National Association, Truist Bank and U.S. Bank National Association (collectively, the “Commitment Parties”). Pursuant to and subject to the terms and conditions set forth in the Commitment Letter, the Commitment Parties have provided up to a 12-month commitment for a $1,150 million senior unsecured bridge loan facility (the “Bridge Facility”) for purposes of funding the Clariant Acquisition. We currently intend to issue the New Notes in lieu of borrowing under the Bridge Facility.

The unaudited pro forma condensed combined financial statements, which have been prepared to give effect to the divestiture of PP&S and the completion of the Clariant Acquisition, have been developed from, and should be read in conjunction with, (1) the unaudited interim consolidated financial statements of PolyOne contained in its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, (2) the audited consolidated financial statements of PolyOne contained in its Current Report on Form 8-K filed on January 28, 2020, (3) the unaudited interim combined financial statements of Clariant Masterbatch as of September 30, 2019 and for the nine-month periods ended September 30, 2019 and 2018, filed as Exhibit 99.2 to the Current Report on Form 8-K to which this unaudited pro forma condensed combined financial information is filed (the “Current Report”), and (4) the audited combined financial statements of Clariant Masterbatch as of and for the fiscal year ended December 31, 2018 filed as Exhibit 99.1 to the Current Report.

Clariant Masterbatch has historically operated as part of Clariant and not as a separate entity. Therefore, the accompanying historical financial statements of Clariant Masterbatch have been prepared on a carve-out basis and are derived from the consolidated financial statements of Clariant. These historical financial statements, which were prepared on a combined basis in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), include all assets, liabilities, revenues, and expenses that Clariant’s management has determined are specifically or primarily related to the business activities of Clariant Masterbatch, as well as direct and indirect costs incurred within Clariant that are attributable to the operations of Clariant Masterbatch. Central support costs include corporate and shared service functions that are provided on a centralized basis by Clariant, including but not limited to employee benefits, finance, human resources, risk management, information technology, facilities, and legal. These expenses have been allocated to Clariant Masterbatch on the basis of direct usage when identifiable, or when specific identification is not practicable, a proportional allocation method based primarily on combined sales, headcount, or other measures depending on the nature of services received.

The accompanying unaudited pro forma condensed combined financial statements were prepared in accordance with Article 11 of Regulation S-X. The combined historical financial statements have been adjusted on a pro forma basis to reflect factually supportable items that are directly attributable to the divestiture of PP&S and the completion of the Clariant Acquisition and, with respect to the combined statements of operations only, expected to have a continuing impact. The unaudited pro forma condensed combined balance sheet as of September 30, 2019 is presented as if the divestiture of PP&S and the completion of the Clariant Acquisition had occurred on September 30, 2019. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2019, and for the year ended December 31, 2018, are presented as if the completion of the Clariant Acquisition had occurred on January 1, 2018, the beginning of the earliest period presented.

The unaudited pro forma condensed combined financial statements have been prepared using the acquisition method of accounting for business combinations under US GAAP. Under the acquisition method of accounting, the preliminary purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair market values, with any excess purchase price allocated to goodwill. The pro forma adjustments to the historical financial information are based on currently available information, and in many cases, are based on estimates and preliminary information. The Company believes such estimates are reasonable and supportable under the circumstances and reflect the best currently available assumptions. The assumptions underlying the pro forma adjustments are described in greater detail in the accompanying notes to the unaudited pro forma condensed combined financial statements. A final determination of the fair values of Clariant Masterbatch's assets and liabilities, which cannot be made prior to the completion of the Clariant Acquisition, will be based on the actual net assets of Clariant Masterbatch that exist as of the date of completion of the Clariant Acquisition. Consequently, the final acquisition accounting adjustments may be materially different from the unaudited pro forma adjustments.

The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated financial position of PolyOne would have been if the Clariant Acquisition had occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position. Furthermore, the unaudited pro forma condensed combined financial statements do not reflect the costs of any integration activities including planning costs or any benefits that may result from realization of future cost savings from operating efficiencies or revenue synergies expected to result from the Clariant Acquisition. The unaudited pro forma condensed combined financial statements do not reflect any dispositions or the effects of any other commitments that may be required by either PolyOne or Clariant in connection with the receipt of regulatory approvals required to complete the Clariant Acquisition.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF SEPTEMBER 30, 2019

(In millions)

	Historical PolyOne		Divestiture of PP&S Business (Note 7)		Historical Clariant Masterbatch After Reclassifications (Note 4)		Pro Forma Adjustments (Note 5)			Eliminations (Note 5)			Pro Forma Combined
Assets
Current assets:
Cash and cash equivalents	$	199.6	$	567.4	$	35.3	$	(354.8)	a	$	—		$	447.5
Accounts receivable, net	368.7		—		183.9		—			(0.3)		b	552.3
Inventories, net	281.6		—		99.2		12.9		c	—			393.7
Current assets held for sale	265.5		(265.5)		—		—			—			—
Other current assets	58.4		—		110.6		—			—			169.0
Total current assets	1,173.8		301.9		429.0		(341.9)			(0.3)			1,562.5
Property, net	386.0		—		188.0		108.1		d	—			682.1
Goodwill	682.6		—		48.9		649.3		e	—			1,380.8
Intangible assets, net	475.8		—		5.5		535.2		f	—			1,016.5
Operating lease assets	65.0		—		24.6		—			—			89.6
Other non-current assets	163.0		—		20.8		—			—			183.8
Total assets	$	2,946.2	$	301.9	$	716.8	$	950.7		$	(0.3)		$	4,915.3
Liabilities and Shareholders' Equity
Current liabilities:
Short-term and current portion of long-term debt	$	18.6	$	—	$	68.8	$	—		$	—		$	87.4
Accounts Payable	289.3		—		96.4		—			(0.3)		b	385.4
Current operating lease obligations	20.7		—		—		—			—			20.7
Current liabilities held for sale	105.2		(105.2)		—		—			—			—
Accrued expenses and other current liabilities	191.7		140.2		84.4		87.6		g	—			503.9
Total current liabilities	625.5		35.0		249.6		87.6			(0.3)			997.4
Non current liabilities:	—		—		—		—			—			—
Long-term debt	1,406.3		(194.4)		6.8		641.9		h	—			1,860.6
Pension and other post-retirement benefits	52.7		—		25.1		33.7		i	—			111.5
Non-current operating lease obligations	44.3		—		18.7		—			—			63.0
Other non-current liabilities	225.2		—		11.5		182.4		j	—			419.1
Total non current liabilities	1,728.5		(194.4)		62.1		858.0			—			2,454.2
Equity:	—				—								—
PolyOne shareholders' equity	591.4		461.3		392.0		5.1		h	—			1,449.8
Noncontrolling interests	0.8		—		13.1		—			—			13.9
Total Equity	592.2		461.3		405.1		5.1			—			1,463.7
Total liabilities and equity	$	2,946.2	$	301.9	$	716.8	$	950.7		$	(0.3)		$	4,915.3

See accompanying notes to unaudited pro forma condensed combined financial statements.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

Nine months ended September 30, 2019

(In millions except for share and per share data)

	Historical PolyOne		Divestiture of PP&S Business (Note 7)		Historical Clariant Masterbatch After Reclassifications (Note 4)		Pro Forma Adjustments (Note 6)			Eliminations (Note 6)			Pro Forma Combined
Sales	$	2,204.1	$	—	$	860.5	$	—		$	(3.6)	a	$	3,061.0
Cost of Sales	1,700.2		—		625.3		10.2		b	(3.6)		b	2,332.1
Gross Margin	503.9		—		235.2		(10.2)			—			728.9
Selling and administrative expenses	367.6		—		181.2		18.4		c	—			567.2
Operating income	136.3		—		54.0		(28.6)			—			161.7
Interest expense, net	(47.6)		7.1		(8.7)		(22.7)		d	—			(71.9)
Other (expense) income, net	1.4		—		(0.5)		(13.2)		e	—			(12.3)
Income from continuing operations before income taxes	90.1		7.1		44.8		(64.5)			—			77.5
Income tax expense	(20.8)		(1.8)		(11.9)		18.9		f	—			(15.6)
Net income (loss) from continuing operations	69.3		5.3		32.9		(45.6)			—			61.9
Net income attributable to noncontrolling interests	(0.2)		—		(0.6)		—			—			(0.8)
Net income (loss) from continuing operations attributable to common shareholders	$	69.1	$	5.3	$	32.3	$	(45.6)		$	—		$	61.1
Earnings per common share attributable to PolyOne common shareholders:
Basic	$	0.89											$	0.68
Diluted	$	0.89											$	0.67
Weighted-average shares used to compute earnings per common share:
Basic	77.3						13.0		g				90.3
Plus dilutive impact of share-based compensation	0.5						—						0.5
Diluted	77.8						13.0						90.8
Anti-dilutive shares not included in diluted common shares outstanding	0.8						—						0.8

See accompanying notes to unaudited pro forma condensed combined financial statements.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

Year ended December 31, 2018

(In millions except for share and per share data)

	Historical PolyOne		Divestiture of PP&S Business (Note 7)		Historical Clariant Masterbatch After Reclassifications (Note 4)		Pro Forma Adjustments (Note 6)			Eliminations (Note 6)			Pro Forma Combined
Sales	$	2,881.0	$	—	$	1,209.8	$	—		$	(4.9)	a	$	4,085.9
Cost of Sales	2,256.2		—		892.2		11.5		b	(4.9)		b	3,155.0
Gross Margin	624.8		—		317.6		(11.5)			—			930.9
Selling and administrative expenses	446.2		—		233.5		22.5		c	—			702.2
Operating income	178.6		—		84.1		(34.0)			—			228.7
Interest expense, net	(62.8)		4.4		(13.3)		(30.3)		d	—			(102.0)
Debt extinguishments costs	(1.1)		—		—		—			—			(1.1)
Other (expense) income, net	(12.9)		—		(0.3)		0.2		e	—			(13.0)
Income from continuing operations before income taxes	101.8		4.4		70.5		(64.1)			—			112.6
Income tax expense	(14.4)		(1.1)		(18.2)		18.0		f	—			(15.7)
Net income (loss) from continuing operations	87.4		3.3		52.3		(46.1)			—			96.9
Net loss (income) attributable to noncontrolling interests	0.3		—		(0.3)		—			—			—
Net income (loss) from continuing operations attributable to common shareholders	$	87.7	$	3.3	$	52.0	$	(46.1)		$	—		$	96.9
Earnings per common share attributable to PolyOne common shareholders:
Basic	$	1.10											$	1.05
Diluted	$	1.09											$	1.04
Weighted-average shares used to compute earnings per common share:
Basic	79.7						13.0		g				92.7
Plus dilutive impact of share-based compensation	0.7						—						0.7
Diluted	80.4						13.0						93.4
Anti-dilutive shares not included in diluted common shares outstanding	—						—						—

See accompanying notes to unaudited pro forma condensed combined financial statements.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

1.BASIS OF PRESENTATION

The unaudited pro forma condensed combined financial statements show the historical financial positions and results of operations of PolyOne and Clariant Masterbatch and have been prepared to illustrate the effect of (1) the completion of PolyOne’s disposition of PP&S and (2) the completion of the pending Clariant Acquisition, including pro forma assumptions and adjustments related to the Clariant Acquisition, and the anticipated contemporaneous financing transactions, as described in these accompanying notes to the unaudited pro forma condensed combined financial statements. The pro forma adjustments give effect to events that are (1) directly attributable to the Clariant Acquisition, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the results of operations of the combined business.

The Clariant Acquisition is being accounted for as a business combination using the acquisition method of accounting under the provisions of ASC 805, which requires assets acquired and liabilities assumed to be recorded at their acquisition date fair value. ASC Topic 820, Fair Value Measurements ("ASC 820"), defines the term "fair value" as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." This is an exit price concept that assumes the highest and best use of an asset or liability by market participants, who are assumed to be buyers and sellers in the principal (or the most advantageous) market for the asset or liability. As a result, the Company may be required to value assets of Clariant Masterbatch at fair value measures that do not reflect the Company’s intended use of those assets.

The unaudited pro forma condensed combined balance sheet as of September 30, 2019 is presented as if the Clariant Acquisition had occurred on September 30, 2019. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2019, and for the year ended December 31, 2018, are presented as if the Clariant Acquisition had occurred on January 1, 2018, the beginning of the earliest period presented.

As of the date of this Current Report, PolyOne has not completed the detailed valuation studies necessary to determine the fair value of the Clariant Masterbatch assets to be acquired and the liabilities to be assumed and the related allocations of purchase price. Therefore, the allocation of the purchase price as reflected in the unaudited pro forma condensed combined financial information is based upon management's preliminary estimates of the fair market value of the assets acquired and liabilities assumed, as if the Clariant Acquisition had occurred on the aforementioned dates. The final allocation of the purchase price will be determined after completion of the Clariant Acquisition and determination of the estimated fair value of Clariant’s assets and liabilities, and associated tax adjustments. Any adjustments to the preliminary estimated fair value amounts could have a significant impact on the unaudited pro forma condensed combined financial information contained herein and our future results of operations and financial position. There can be no assurance that such finalization will not result in material changes.

The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies adopted by PolyOne. Certain financial information of Clariant Masterbatch as presented in its historical combined financial statements has been preliminarily reclassified to conform to the historical presentation in PolyOne’s consolidated financial statements for the purposes of preparing the unaudited pro forma condensed combined financial information. Upon completion of the acquisition, PolyOne will perform a full and detailed review of Clariant Masterbatch’s accounting policies. As a result of that review, PolyOne may identify additional differences between the accounting policies of the two companies that, when conformed, could have a material impact on the consolidated financial statements of the combined company.

These pro forma condensed combined financial statements are being provided for illustrative purposes only and do not claim to represent the Company’s actual financial position or results of operations had the Clariant Acquisition occurred on the dates specified nor do they project the Company’s results of operations or financial position for any future period or date. The actual results reported by the combined company in periods following the Clariant Acquisition may differ significantly from these unaudited pro forma condensed combined financial statements. The pro forma condensed combined financial statements do not account for the cost of any restructuring activities or synergies resulting from the Clariant Acquisition or other costs relating to the integration of the two companies.

2. PURCHASE PRICE ALLOCATION

The total estimated purchase consideration and the allocation of that estimated amount are discussed below. The final allocation will be determined at a later date and is dependent on a number of factors, including the final evaluation of the fair value of Clariant Masterbatch's tangible and identifiable intangible assets to be acquired and liabilities to be assumed. Such final adjustments may be material.

The table below reflects the sources and uses of funds relating to the Clariant Acquisition as follows:

Description	Amount		Notes
(in millions)
Sources:
Issuance of New Notes	$	650.0	(i.)
Issuance of Common Shares	450.0		(ii.)
Cash on hand	442.4		(iii.)
	$	1,542.4
Uses:
Purchase Consideration	$	1,481.4	(iv.)
Financing Costs	38.1		(v.)
Transaction Costs	22.9		(vi.)
	$	1,542.4

(i.) In the event that we do not issue the New Notes, we may instead incur borrowings under the Bridge Facility or issue other indebtedness in lieu thereof, which could result in a significant change to the amount of interest expense included within these unaudited pro forma condensed combined financial statements. The interest under the Bridge Facility would be paid quarterly in arrears at a rate per annum equal to the three-month LIBOR plus a margin of 4.25%. This margin is stepped up 50 basis points every three months to a maximum rate of 8.0%.

(ii.) Reflects estimated gross proceeds and assumes the underwriters do not exercise their option to purchase additional shares from us.

(iii.) Includes cash on hand as of September 30, 2019 plus additional cash received from the sale of PP&S that will be used to fund the Clariant Acquisition.

(iv.) Reflects the consideration estimated to be paid to Clariant pursuant to the Agreements, inclusive of estimated closing adjustments. The cash portion of the consideration is estimated to be $1,393.8 million. The contingent portion of the consideration is $87.6 million and represents loan receivables from Clariant AG to the Clariant Masterbatch Business as of September 30, 2019. These loan receivables are treated as a net debt adjustment within the Purchase Agreement, with cash payable to Clariant AG upon the receivable being collected.

(v.) Reflects the cash expected to be paid for issuance costs related to the New Notes offering and the common shares offering and the non-refundable commitment fees related to Bridge Facility.

(vi.) Reflects the cash expected to be paid for acquisition costs incurred by the Company for investment banking, attorney, consultant, independent accountant, and other external costs related to the Clariant Acquisition.

The table below represents a preliminary allocation of the estimated total purchase consideration to Clariant Masterbatch’s tangible and intangible assets acquired and liabilities assumed based on PolyOne management’s preliminary estimates of their respective fair values as of September 30, 2019:

(in millions)
Cash and Cash Equivalents	$	35.3
Accounts Receivable	183.9
Inventories	112.1
Other Current Assets	110.6
Property, plant, and equipment	296.1
Goodwill	698.2
Intangible Assets	540.7
Operating lease assets	24.6
Other non-current assets	20.8
Short-term and current portion of long-term debt	(68.8)
Accounts Payable	(96.4)
Accrued expenses and other current liabilities	(84.4)
Non-current operating lease obligations	(18.7)
Other non-current liabilities	(259.5)
Non-Controlling Interests	(13.1)
Total Estimated Purchase Consideration	$	1,481.4

Any changes to the initial estimates of the fair value of assets and liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.

3. CLARIANT MASTERBATCH HISTORICAL COMBINED FINANCIAL STATEMENTS

Clariant Masterbatch historical balances were derived from Clariant Masterbatch’s historical combined financial statements described in the introduction and are presented under U.S. GAAP and converted from Swiss francs to U.S. dollars based on historical exchange rates. The historical combined income statements of Clariant Masterbatch were translated using the average exchange rate for the nine months ended September 30, 2019 (1.00499 USD/CHF) and the average exchange rate for the year ended December 31, 2018 (1.02274 USD/CHF). The historical combined balance sheet of Clariant Masterbatch as of September 30, 2019 was translated using the spot rate on September 30, 2019 (1.00691 USD/CHF).

4. RECLASSIFICATION ADJUSTMENTS

Acquisition accounting rules require evaluation of certain assumptions, estimates or determination of financial statement classifications which are completed during the measurement period as defined in current accounting standards. Certain balances were reclassified from the Clariant Masterbatch historical financial statements so that their presentation would be consistent with that of PolyOne. These adjustments and reclassifications are based on management's preliminary analysis. Upon consummation of the Clariant Acquisition, additional differences or reclassifications may be identified that, when conformed, could have a material impact on these unaudited pro forma condensed combined financial statements.

The amounts included in the table below may differ slightly from the historical financial statements of Clariant Masterbatch due to rounding.

Clariant Masterbatch

Combined Statements of Financial Position

As of September 30, 2019

(In Millions)

Financial Statement Line		Historical Clariant Masterbatch Before Reclassifications (CHF)	Historical Clariant Masterbatch Before Reclassifications ()	Reclassifications ()	Notes	Historical Clariant Masterbatch After Reclassifications ()
Assets
Current assets:
Cash and cash equivalents	CHF	35.1
Accounts receivable, net		182.6	183.9	—		183.9
Inventories		98.6	99.2	(99.2)	i.	—
Inventories, net		—	—	99.2	i.	99.2
Loans to related parties		87.0	87.6	(87.6)	ii.	—
Other current assets		22.9	23.0	87.6	ii.	110.6
Total current assets		426.2	429.0	—		429.0
Property, plant and equipment, net		186.7	188.0	(188.0)	iii.	—
Property, net		—	—	188.0	iii.	188.0
Right-of-use assets		24.4	24.6	(24.6)	iv.	—
Goodwill		48.5	48.9	—		48.9
Intangible assets, net		5.5	5.5	—		5.5
Operating lease assets		—	—	24.6	iv.	24.6
Deferred tax assets		17.5	17.6	(17.6)	v.	—
Investments in affiliates		3.2	3.2	(3.2)	vi.	—
Other non-current assets		—	—	20.8	v., vi.	20.8
Total non-current assets		285.8	287.8	—		287.8
Total assets	CHF	712.0

All values are in US Dollars.

(i.) To reclassify inventories to inventories, net

(ii.) To reclassify loans to related parties to other current assets

(iii.) To reclassify property, plant, and equipment, net to property, net

(iv.) To reclassify right-of-use assets to operating lease assets

(v.) To reclassify deferred tax assets to other non-current assets

(vi.) To reclassify investments in affiliates to other non-current assets

Financial Statement Line		Historical Clariant Masterbatch Before Reclassifications (CHF)	Historical Clariant Masterbatch Before Reclassifications ()	Reclassifications ()	Notes	Historical Clariant Masterbatch After Reclassifications ()
Liabilities and Equity
Current liabilities:
Short-term debt	CHF	25.1			vii.
Short-term and current portion of long-term debt		—	—	68.8	vii., ix.	68.8
Accounts Payable		95.8	96.4	—		96.4
Accrued employee expenses		36.1	36.4	(36.4)	viii.	—
Loans from related parties		43.2	43.5	(43.5)	ix.	—
Accrued and other liabilities		47.7	48.0	(48.0)	x	—
Accrued expenses and other current liabilities		—	—	84.4	viii, x.	84.4
Total current liabilities		247.9	249.6	—		249.6
Non current liabilities:
Long-term debt		6.7	6.8	—		6.8
Retirement benefit obligations		25.0	25.1	(25.1)	xi.
Pension and other post-retirement benefits		—	—	25.1	xi.	25.1
Lease liabilities		18.6	18.7	(18.7)	xii.	—
Non-current operating lease obligations		—	—	18.7	xii.	18.7
Deferred tax liabilities		9.4	9.5	(9.5)	xiii.	—
Other non-current liabilities		2.0	2.0	9.5	xiii.	11.5
Total non current liabilities		61.7	62.1	—		62.1
Total liabilities		309.6	311.7	—		311.7
Equity:
PolyOne shareholders' equity		—	—	392.0	xiv.	392.0
Net investment from the Parent		449.2	452.2	(452.2)	xiv.	—
Accumulated other comprehensive loss		(59.8)	(60.2)	60.2	xiv.	—
Total equity attributable to the Masterbatches Business		389.4	392.0	—		392.0
Non-controlling interests		13.0	13.1	—		13.1
Total Equity		402.4	405.1	—		405.1
Total liabilities and equity	CHF	712.0

All values are in US Dollars.

(vii.)  To reclassify short-term debt to short-term and current portion of long-term debt

(viii.) To reclassify accrued employee expenses to accrued expenses and other current liabilities

(ix.) To reclassify loans from related parties to short-term and current portion of long-term debt

(x.) To reclassify accrued and other liabilities to accrued expenses and other current liabilities

(xi.) To reclassify retirement benefit obligations to pension and other post-retirement benefits

(xii.) To reclassify lease liabilities to non-current operating lease obligations

(xiii.) To reclassify deferred tax liabilities to other non-current liabilities

(xiv.) To reclassify net investment from parent and accumulated other comprehensive loss to shareholders’ equity

Clariant Masterbatch

Combined Statements of Income

Nine Months Ended September 30, 2019

(In millions)

Financial Statement Line		Historical Clariant Masterbatch Before Reclassifications (CHF)	Historical Clariant Masterbatch Before Reclassifications ()	Reclassifications ()	Notes	Historical Clariant Masterbatch After Reclassifications ()
Sales	CHF	856.2
Cost of goods sold		622.2	625.3	—		625.3
Gross profit		234.0	235.2	—		235.2
Selling, general and administrative costs		172.4	173.3	(173.3)	i.	—
Selling and administrative expenses		—	—	181.2	i., ii.	181.2
Research and development costs		7.9	7.9	(7.9)	ii.	—
Other expense		0.5	0.5	(0.5)	iii.	—
Operating income		53.2	53.5	0.5		54.0
Interest expense		(10.1)	(10.2)	10.2	iv.	—
Interest income		1.5	1.5	(1.5)	v.	—
Interest expense, net		—	—	(8.7)	iv., v.	(8.7)
Debt extinguishments costs		—	—	—		—
Other (expense) income, net		—	—	(0.5)	iii.	(0.5)
Income from continuing operations before income taxes		44.6	44.8	—		44.8
Income tax expense		(11.8)	(11.9)	—		(11.9)
Net Income		32.8	32.9	—		32.9
Less: Net income attributable to non-controlling interests		(0.6)	(0.6)	—		(0.6)
Net income attributable to the Masterbatches Business	CHF	32.2

All values are in US Dollars.

(i.)  To reclassify selling, general, and administrative costs to selling and administrative expenses

(ii.)  To reclassify research and development costs to selling and administrative expenses

(iii.)  To reclassify other expense to other (expense) income, net

(iv.) To reclassify interest expense to interest expense, net

(v.) To reclassify interest income to interest expense, net

Clariant Masterbatch

Combined Statements of Income

Year Ended December 31, 2018

(In millions)

Financial Statement Line		Historical Clariant Masterbatch Before Reclassifications (CHF)	Historical Clariant Masterbatch Before Reclassifications ()	Reclassifications ()	Notes	Historical Clariant Masterbatch After Reclassifications ()
Sales	CHF	1,182.9
Cost of goods sold		872.4	892.2	—		892.2
Gross profit		310.5	317.6	—		317.6
Selling, general and administrative costs		219.8	224.8	(224.8)	i.	—
Selling and administrative expenses		—	—	233.5	i., ii.	233.5
Research and development costs		8.5	8.7	(8.7)	ii.	—
Other expense		0.3	0.3	(0.3)	iii.	—
Operating income		81.9	83.8	0.3		84.1
Interest expense		(14.6)	(14.9)	14.9	iv.	—
Interest income		1.6	1.6	(1.6)	v.	—
Interest expense, net		—	—	(13.3)	iv., v.	(13.3)
Debt extinguishments costs		—	—	—		—
Other (expense) income, net		—	—	(0.3)	iii.	(0.3)
Income from continuing operations before income taxes		68.9	70.5	—		70.5
Income tax expense		(17.8)	(18.2)	—		(18.2)
Net Income		51.1	52.3	—		52.3
Less: Net income attributable to non-controlling interests		(0.3)	(0.3)	—		(0.3)
Net income attributable to the Masterbatches Business	CHF	50.8

All values are in US Dollars.

(i.)  To reclassify selling, general, and administrative costs to selling and administrative expenses

(ii.)  To reclassify research and development costs to selling and administrative expenses

(iii.)  To reclassify other expense to other (expense) income, net

(iv.) To reclassify interest expense to interest expense, net

(v.) To reclassify interest income to interest expense, net

5. PRO FORMA AND ELIMINATION ADJUSTMENTS TO CONDENSED COMBINED BALANCE SHEET

a.Cash and cash equivalents - Represents adjustments comprised of the following:

(in millions)	Amount
Estimated gross proceeds from issuance of New Notes	$	650.0
Estimated gross proceeds from issuance of common shares	450.0
Financing costs	(38.1)
Transaction costs	(22.9)
Estimated purchase consideration paid at closing	(1,393.8)
Pro forma adjustment to cash and cash equivalents	$	(354.8)

b.Accounts receivable, net - Represents elimination of balances related to sales and purchases between PolyOne and Clariant Masterbatch.

c.Inventories, net - Represents a $12.9 million adjustment to increase the carrying value of Clariant Masterbatch’s inventory to its estimated acquisition-date fair value. As a result of this adjustment, the estimated inventory step-up will increase cost of sales as the acquired inventory is sold within the first turn of inventory after the Clariant Acquisition. As there is no continuing impact, the effect on cost of sales from the inventory step-up is not included in the unaudited pro forma condensed combined statement of operations.

d.Property, net - Represents a $108.1 million increase to reflect the fair value of Clariant Masterbatch-owned property, plant, and equipment assets.

e.Goodwill - To eliminate Clariant Masterbatch’s previously existing goodwill and to record goodwill resulting from the Clariant Acquisition. Adjustments to goodwill consist of the following:

(in millions)
Goodwill (as determined in Note 2)	$	698.2
Elimination of Clariant Masterbatch pre-acquisition goodwill	(48.9)
Pro forma adjustment to goodwill	$	649.3

f.Intangible assets, net - To eliminate Clariant Masterbatch’s previously existing intangible assets and to record the fair value of Clariant Masterbatch’s identifiable intangible assets, including customer relationships and brands. Adjustments to intangible assets consist of the following:

(in millions)
Fair value of acquired intangible assets	$	540.7
Elimination of Clariant Masterbatch pre-acquisition intangible assets	(5.5)
Pro forma adjustment to intangible assets, net	$	535.2

g.Accrued expenses and other current liabilities - To reflect the contingent portion of the purchase price. See Note 2(iv.).

h.Financing - To consummate the Clariant Acquisition, PolyOne intends to issue approximately $650.0 million aggregate principal amount of New Notes, which, for purposes of the unaudited pro forma condensed combined financial information, PolyOne has assumed will be issued at a 4.50% fixed interest rate and approximately $450.0 million of common shares. As a result of the anticipated issuance of the New Notes, the unaudited pro forma condensed combined balance sheet reflects an increase in long-term debt of $641.9 million, which is net of $8.1 million of estimated debt issuance costs. As a result of the anticipated issuance of common shares, the unaudited pro forma condensed combined balance sheet reflects an increase in PolyOne shareholders’ equity of $431.5 million, which is net of $18.5 million of estimated stock issuance costs. Shareholders’ equity also reflects adjustments for $11.5 million of non-refundable commitment fees paid to secure the Bridge Facility and $22.9 million of estimated transaction costs, which were recognized as adjustments to retained earnings, and the elimination of Clariant Masterbatch’s historical equity balance. As the commitment fees and estimated transaction costs represent non-recurring amounts not reflective of continuing operations, no adjustment has been made to the statement of operations. Adjustments to Shareholders’ equity consist of the following:

(in millions)
Issuance of common shares	$	450.0
Stock issuance costs recognized as a reduction to shareholders’ equity	(18.5)
Non-refundable Bridge Facility commitment fees recognized within retained earnings	(11.5)
Transaction costs recognized within retained earnings	(22.9)
Elimination of Clariant Masterbatch’s historical equity	(392.0)
Pro forma adjustment to shareholders’ equity	$	5.1

i.Pension and other post-retirement benefits - Represents a $33.7 million increase to reflect the remeasurement of Clariant Masterbatch’s retirement plans as of the assumed acquisition date. The adjustment primarily relates to the fact that Clariant Masterbatch had appropriately measured certain of its defined benefit plans that were shared with Clariant as multi-employer plans in its historical combined financial statements, which were prepared on a carve-out basis. However, upon consummation of the Clariant Acquisition, PolyOne will provide post-retirement benefits to the relevant employees through single-employer plans.

j.Other non-current liabilities - Adjustments reflect accounting for the deferred income tax effects of the purchase accounting adjustments at the estimated blended statutory tax rate.

6. PRO FORMA AND ELIMINATION ADJUSTMENTS TO CONDENSED COMBINED STATEMENT OF OPERATIONS

For both the year ended December 31, 2018 and the nine months ended September 30, 2019, PP&S was reflected in discontinued operations and thus no adjustment is necessary to reflect the divesture in the condensed combined statements of operations.

a.Sales - Represents elimination of revenues earned by PolyOne on sales to Clariant Masterbatch, and vice versa, that would be considered intercompany transactions and will be eliminated in the consolidated financial statements of the combined company following completion of the Clariant Acquisition. Revenue eliminated for the nine months ended September 30, 2019 and year ended December 31, 2018 was $3.6 million and $4.9 million, respectively.

b.Cost of sales - Represents adjustments comprised of the following:

(in millions)	Nine Months Ended September 30, 2019		Year Ended<br>December 31, 2018
Depreciation of acquired property, net (i)	$	10.2	$	11.5
Elimination of cost of sales (ii)	3.6		4.9

i.Represents net impact of removal of historical depreciation expense and increased depreciation expense for the fair value of property, plant, and equipment assets recognized as part of acquisition accounting. Property, plant, and equipment assets are depreciated over their estimated remaining useful lives, determined in accordance with PolyOne's policy.

ii.Represents elimination of cost of goods sold relating to transactions between PolyOne and Clariant Masterbatch that would be considered intercompany transactions and will be eliminated in the consolidated financial statements of the combined company following the Clariant Acquisition

c.Selling and administrative expenses - Represents net impact of removal of historical amortization expense and increased amortization expense for the fair value of definite lived intangible assets recognized as part of acquisition accounting. Acquired intangible assets are assumed to be amortized on a straight-line basis over expected useful lives of 15 - 20 years.

d.Interest expense, net - To consummate the Clariant Acquisition, PolyOne intends to issue approximately $650.0 million aggregate principal amount of New Notes. For the purposes of the unaudited pro forma condensed combined financial information, PolyOne has assumed that the New Notes will be issued at a 4.50% fixed interest rate. Based on this assumed interest, the pro forma adjustment to interest expense was calculated as follows:

(in millions)	Nine Months Ended September 30, 2019		Year Ended<br>December 31, 2018
Estimated interest expense on New Notes	$	21.9	$	29.3
Estimated amortization of deferred financing costs (see Note 5g)	0.8		1.0
Pro forma adjustment to interest expense, net	$	22.7	$	30.3

If the actual interest rate were to vary by 1/8th percent, the pro forma adjustment for interest expense would change by $0.6 million and $0.8 million for the nine months ended September 30, 2019 and the year ended December 31, 2018, respectively.

Further, as disclosed in Note 4, the total gross interest expense included within Clariant Masterbatch’s combined statements of income for the nine months ended September 30, 2019 and year ended December 31, 2018 was $10.2 million and $14.9 million, respectively. We believe that such amounts may have been less in those periods had the Clariant Acquisition occurred on January 1, 2018 given PolyOne’s capital structure. However, no pro forma adjustment has been made to the historical interest expense of Clariant Masterbatch since the related debt may be assumed upon consummation of the Clariant Acquisition.

e.Other (expense) income, net - Represents the additional net periodic pension cost related to Clariant Masterbatch’s retirement plans that would have been presented in Other (expense) income, net under PolyOne’s accounting policies. Specifically, as a result of adopting Accounting Standards Update (“ASU”) 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”), on January 1, 2018, PolyOne presents all components of net periodic benefit cost, except for service costs, in Other (expense) income, net. In addition, this pro forma adjustment reflects the difference in net periodic benefit cost due to the fact that PolyOne immediately recognizes actuarial gains and losses in our operating results in the year in which the gains or losses occur whereas Clariant Masterbatch amortized these gains and losses using the corridor approach in its historical financial statements.

f.Income tax expense - Represents the income tax effect of the Clariant Acquisition pro forma and elimination adjustments using an estimated blended statutory rate of 29% and 28% for the nine months ended September 30, 2019 and year ended December 31, 2018, respectively.

g.Weighted-average shares used to compute earnings per share - To consummate the Clariant Acquisition, PolyOne intends to issue approximately $450.0 million of common shares. The pro forma adjustment assumes that these shares will be issued at a price of $34.61 based on the Company closing stock price on January 24, 2020. As such, the pro forma adjustment represents the additional approximately 13.0 million shares of common stock that would be issued in order to obtain this level of financing. The sensitivity analysis in the table below reflects the pro forma combined basic and diluted weighted average shares outstanding and the related earnings per share (“EPS”) impact if the actual share price were to fluctuate by 10 percent.

	Nine Months Ended September 30, 2019			Twelve Months Ended December 31, 2018
	Weighted Average Number of Shares	EPS	Weighted Average<br>Number of Shares	EPS
Basic:
10 percent increase in stock price	89.1	$0.69	91.5	$1.06
10 percent decrease in stock price	91.7	$0.67	94.1	$1.03
Diluted:
10 percent increase in stock price	89.6	$0.68	92.2	$1.05
10 percent decrease in stock price	92.2	$0.66	94.8	$1.02

7. SALE OF PP&S

As previously announced, on August 16, 2019, the Company entered into the Sale Agreement with Purchaser, pursuant to which Purchaser agreed to acquire the Company’s PP&S business for $775.0 million in cash, subject to a customary working capital adjustment. On October 25, 2019, the Company completed the sale of PP&S to the Purchaser pursuant to the terms of the Sale Agreement and received cash proceeds, net of transaction costs, of $761.8, which is subject to change due to customary working capital adjustments.

The unaudited pro forma condensed combined balance sheet reflects the associated accounting adjustments related to this transaction and the settlement of the outstanding principal balance of the senior secured revolving credit facility assuming that they occurred on September 30, 2019. This includes derecognition of the assets and liabilities that were held for sale and the net impact on cash consisting of net cash proceeds generated from the sale of PP&S of $761.8 million, less the cash paid to settle the outstanding principal balance of the senior secured revolving credit facility of $194.4 million. Estimated income taxes payable related to the divestiture of $140.2 million were recognized as an adjustment to accrued expenses and other current liabilities. The expected gain, net of taxes, was recognized as an adjustment to retained earnings. As the gain represents a non-recurring amount not reflective of continuing operations, no adjustment has been made to the statement of operations. Lastly, interest expense, net, was adjusted to remove the historical interest expense related to the senior secured revolving credit facility for the nine months ended September 30, 2019 and year ended December 31, 2018 of $7.1 million and $4.4 million, respectively. This adjustment was tax effected.

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