Avant Brands Annual Report 2009

FY2009 Annual Report · Avant Brands

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2009 ANNUAL REPORT

leaner.
stronger.
poised for growth.

To Our
Shareholders

PolyOne is the leanest and strongest we
have ever been. Our conﬁdence, resolve
and focus have reached all-time highs.

We are a more eﬃcient and streamlined organization than
ever before. Taken together, we are approaching our peak
performance and are committed to delivering consistent,
double-digit growth.

Amidst the unprecedented challenges of 2009—without
clarity on the duration of the economic crisis and uncertain
where demand decline in our end markets would trough
—PolyOne reshaped and fortiﬁed the Company. We
strengthened our balance sheet, focused on scaling our
organizational size and structure to global demand, and
far surpassed consensus earnings estimates. In trial
after trial, our people ﬂawlessly executed on our strategy,
proving we have both the right team and plan in place.

Given the challenging economic environment, our year-end
results were nothing short of outstanding. Full year earnings
were well beyond analyst estimates and even our own
expectations. With annual sales of $2.1 billion, a 25% year-
over-year decline, we delivered earnings per share before
special items of $0.37. We are very proud of these results
which were just $0.04 shy of 2008 on a comparable basis.

As we enter 2010, our momentum is accelerating and we
are conﬁdent in our new stride. With strength built upon the
conﬁdence we gained, the adaptability we demonstrated,
and the results we generated during the most challenging
economic period in our Company’s history, our credibility
is without question. We are poised to consistently deliver
on our commitment to our shareholders. We are the new
PolyOne and we have established a new way of creating
value and selling solutions. From our culture of customer
ﬁrst, to our stronger balance sheet, to our operational

eﬃciency gains, to new business growth—PolyOne
unmistakably leaner, stronger and poised for growth.

Leaner
We began 2009 with a global restructuring aimed at aligning
our organization with near-term demand, while concurrently
planning for future growth. Our restructuring eﬀorts, which
are saving $60 million annually, were completed ahead of
schedule and below cost estimates, without compromising
the safety of our associates. In fact, our 2009 lost time
incidence rate was 0.8, placing PolyOne far ahead of our
industry average of 5.7 and ﬁrmly in the elite class of the
world’s safest companies.

Our eﬃciency improvements were not merely structural—
they were also operational. We realized signiﬁcant eﬃciency
gains with the launch of our award-winning global Lean Six
Sigma (LSS) initiative. As evidenced by the size and scope
of the deployment, we are fully committed to optimizing
every aspect of our performance and the service we provide
customers. In fact, our global on-time delivery performance
demonstrated that our customer care remained exemplary.

Stronger
Our balance sheet is another measure of PolyOne’s strength.
Prioritizing and driving LSS projects focused on eﬃciency
improvements contributed to creating the strongest balance
sheet in the history of our Company—we increased cash
from $44 million at the end of 2008 to $223 million at the
end of 2009 and net debt declined $223 million.

Our resolve was
further strengthened by delivering
estimate-beating year-end results. This achievement

This is our time. We have prepared for it. We are ready to grow.
We are the new PolyOne—a company with limitless potential.

fortiﬁed our strategic focus and the inherent discipline in
our culture. Conﬁdence in our value-creating solutions
positions us ahead of those in our industry who employ the
failed strategies of maintaining unproﬁtable business and
pursuing volume instead of a solid return for shareholders.

We have assembled the best commercial team in our
industry and equipped them with world-class training, tools
and resources. Last year, they persevered—ﬁghting for
new business, concentrating on higher-margin solutions,
leveraging the full spectrum of PolyOne solutions and
uncovering new ways to create value for our customers.
Our commercial excellence
initiatives will be further
enhanced in 2010 by the numerous customer-centric LSS
projects underway.

Throughout 2009, we strengthened our Company by
pursuing growth from new sources. Building on our
solutions-oriented approach to selling, PolyOne secured
that reinforced our
agreements with key suppliers
leadership position in the distribution industry. Foremost
among
these agreements was DuPont Engineered
Polymers’ selecting PolyOne Distribution as its primary
North American distributor. Additionally, as 2009 drew to a
close, we acquired substantially all of the assets of specialty
healthcare compounder New England Urethane, Inc.

requires

responsiveness

More Agile
to our customers,
Agility
shareholders and employees
in a new economic
environment, while steadfastly adhering to our strategy.
Guided by our strategy of specialization, globalization,
and operational and commercial excellence, we have
transformed PolyOne into a nimble, focused team that
possesses the collective commitment, determination, and
passion to put customers ﬁrst and grow our company with
the highest sense of urgency.

The expansion of our Specialty operating
income
demonstrates our ability to execute on the strategy. First,
our innovations distinguish PolyOne from the competition
by oﬀering specialized solutions that ﬁll unmet needs and
create value for our customers. We have a robust and
growing portfolio of sustainable solutions that address
demand driven by emerging trends such as government
regulations, consumer preference and the rising cost
of non-renewable resources. An additional beneﬁt of
expanding our Specialty platform is our reduced exposure
to the cyclicality of commodity markets and our equity

investments. As an example, healthcare—a target market
for us—has proven more resilient to the economic
downturn than most other markets we traditionally serve.
Our Specialty platform provides ﬂexibility that positions
PolyOne to capitalize on changes in economic conditions,
consumer demand and regulatory trends.

To improve our agility and performance, we made a series
of major improvements to our organizational structure,
eﬀective January 1, 2010. By globalizing our Specialty
businesses and sourcing, we will better serve our global
customers, drive execution of our four strategic pillars, and
leverage our strong geographic footprint.

We also have launched a cross selling initiative to take
advantage of the breadth and depth of product oﬀerings
represented by our three strategic platforms and the
number of customer touch points provided by our
Distribution business. Cross selling, combined with our
new global organization, improves our agility and allows
us to more swiftly identify value-added customer solutions
and win new business around the world.

Poised for Growth
Our 2009 proﬁtability was not the result of luck, but of focus,
drive and solid execution. By year-end, PolyOne returned
to revenue growth. Now our top priority is to consistently
deliver expanded earnings and double-digit sales growth,
regardless of the economic outlook.

We have reached an inﬂection point in our transformation.
The extensive and lasting eﬃciency gains we achieved,
coupled with the proven ability of our management team
to transform PolyOne into a specialty company, will propel
our growth. The path before us is clear. Our leadership
team, polymer-formulation expertise, global footprint, and
product portfolio provide the credibility; our determination
to complete our transformation provides the fuel.

This is our time. We have prepared for it. We are ready to grow.
We are the new PolyOne—a company with limitless potential.

As always, we appreciate your continued faith and
support in PolyOne, and we look forward to our future
with great enthusiasm.

Sincerely,

Stephen D. Newlin
Chairman, President and Chief Executive Ofﬁcer

March 17, 2010

PolyOne Corporation, with annual revenues of $2.1 billion, is a leading global provider of specialized polymer materials,

services and solutions. Headquartered outside Cleveland, Ohio, U.S.A., PolyOne has operations around the world.

See www.polyone.com for additional information.

PolyOne is executing a transformational strategy
that consists of four core components:

Specialization
diﬀerentiates us through value-creating oﬀerings that extend beyond products
to help customers who care about service, technology and problem solving.

Globalization
takes us into high-growth markets where our customers are migrating, and
positions us to serve them with consistency everywhere in the world.

Operational Excellence
empowers us to respond to the voice of the customer with a relentless focus
on continuous improvement in everything we do.

Commercial Excellence
governs our activities in the marketplace, where we deliver value to customers
by showing them how they can increase their proﬁts and grow.

In this annual report, statements that are not reported ﬁnancial results or other historical information are the “forward-looking statements” within the meaning

of the Private Securities Litigation Reform Act of 1995. Factors that could cause our actual results to diﬀer materially from those implied by forward-looking

statements are described in detail on page 2 of the Form 10-K.

The New PolyOne

PolyOne launched Lean Six Sigma globally in late 2008 and by the end of 2010, more than 25 percent of our 3,900

associates around the world will have completed training, including 1 percent who will hold LSS Black Belt certiﬁcations.

In January 2010, PolyOne earned the most prestigious process improvement award in the world for our customer centric

Lean Six Sigma deployment. The Process Excellence Award for “Best Start-up Program” was presented during the

International Quality and Productivity Center’s 11th Annual Lean Six Sigma and Process Improvement Summit. In the “Best

Start-up” category, a panel of industry experts selected PolyOne based on our ability to set organizational direction,

deliver business beneﬁts, and initiate a culture change.

“ To us it is much more than just
an award, it’s a statement
about the new PolyOne–
and symbolizes how
we have changed our
corporate culture.

We have made the voice of the
customer the basis for our competitive
diﬀerentiation and strategic execution,
and LSS has helped in driving change and
bringing rigor, discipline and accountability
into our organization.”

–Stephen D. Newlin

leaner.

stronger.

Aided by Lean Six Sigma and our ﬁrst class of Black Belts,
we created supply chain and inventory eﬃciencies, without
sacriﬁcing our customer care. For example, we decreased our
average days sales in inventory while maintaining exemplary
on-time delivery performance.

By reducing our dependence on traditionally cyclical commodity
end markets and equity investment earnings, we have radically
shifted the earnings proﬁle of our company. Our stated goal is
to derive at least 50 percent of our earnings from the Specialty
platform by 2012.

Days Sales in Inventory

Specialty Operating Income

52
52

48
48

43
43

39
39

34
34

$60
$60

$40
$40

$20
$20

50%

35%

20%

2005 2006 2007 2008

2009

Specialty Operating Income (in millions)
Percentage of Operating Income

*Excluding corporate and eliminations

Q1 09 Q2 09 Q3 09

Q4 09

poised for growth.

Our two priorities are 1) proﬁtable top-line growth and 2) the continued successful deployment of Lean Six Sigma to reduce costs
and working capital, as well as enhance our customer-facing operations. We expect to grow earnings from each of our three
strategic platforms through increased sales.

POL Stock Price
January–December 2009

$7
$7

$5
$5

$4
$4

$2
$2

F M A M J

S O N D

United States
Securities and Exchange Commission

Washington, DC 20549

FORM 10-K
¥ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

n TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

For the transition period from

Commission file number 1-16091

Polyone Corporation

(Exact name of registrant as specified in its charter)

Ohio

(State or other jurisdiction of

incorporation or organization)

33587 Walker Road,
Avon Lake, Ohio
(Address of principal executive offices)

34-1730488

(IRS Employer Identification No.)

44012
(Zip Code)

Registrant’s telephone number, including area code

(440) 930-1000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Common Stock, par value $.01 per share

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

No n

No ¥

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes n
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes n
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject
the past
90 days. Yes ¥
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¥
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or
for such shorter period that the registrant was required to submit and post such
files). Yes n
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or
a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):

to such filing requirements for

No n

Large accelerated filer n

Accelerated filer ¥

Non-accelerated filer n

Smaller reporting company n

(Do not check if a smaller reporting company)

No ¥

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes n
The aggregate market value of the registrant’s outstanding common stock held by non-affiliates on June 30, 2009,
determined using a per share closing price on that date of $2.71, as quoted on the New York Stock Exchange, was
$228,620,378.

The number of shares of common stock outstanding as of February 16, 2010 was 92,542,800.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant’s definitive
Proxy Statement with respect to the 2010 Annual Meeting of Shareholders.

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PART I

CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

In this Annual Report on Form 10-K, statements that are not
reported financial results or other historical information are “for-
ward-looking statements” within the meaning of the Private Secu-
rities Litigation Reform Act of 1995. Forward-looking statements
give current expectations or forecasts of future events and are not
guarantees of future per formance. They are based on manage-
ment’s expectations that involve a number of business risks and
uncertainties, any of which could cause actual results to differ
materially from those expressed in or implied by the forward-looking
statements. You can identify these statements by the fact that they
do not relate strictly to historic or current facts. They use words such
as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,”
“believe” and other words and terms of similar meaning in connec-
tion with any discussion of future operating or financial per for-
mance and/or sales.
these include statements
relating to future actions; prospective changes in raw material
costs, product pricing or product demand; future per formance;
results of current and anticipated market conditions and market
strategies; sales efforts; expenses; the outcome of contingencies
such as legal proceedings; and financial results. Factors that could
cause actual results to differ materially include, but are not limited
to:

In particular,

(cid:129) the effect on foreign operations of currency fluctuations,
tariffs and other political, economic and regulatory risks;

(cid:129) changes in polymer consumption growth rates where we

conduct business;

(cid:129) changes in global industry capacity or in the rate at which
anticipated changes in industry capacity come online in the
polyvinyl chloride (PVC), chlor alkali, vinyl chloride monomer
(VCM) or other industries in which we participate;

(cid:129) fluctuations in raw material prices, quality and supply and in

energy prices and supply;

(cid:129) production outages or material costs associated with sched-

uled or unscheduled maintenance programs;

(cid:129) unanticipated developments that could occur with respect to
contingencies such as litigation and environmental matters,
including any developments that would require any increase
in our costs and/or reserves for such contingencies;

(cid:129) an inability to achieve or delays in achieving or achievement
of less than the anticipated financial benefit from initiatives
related to our specialization strategy, operational excellence
initiatives, cost reductions and employee productivity goals;

(cid:129) an inability to raise or sustain prices for products or services;

(cid:129) the possibility of further degradation in the North American

building and construction market;

(cid:129) amounts for non-cash charges relating to property, plant and
equipment that differ from the original estimates because of
the ultimate fair market value of such property, plant and
equipment;

(cid:129) amounts required for capital expenditures at remaining loca-
tions changing based on the level of expenditures required to
shift production capacity;

(cid:129) our ability to continue to realize anticipated savings and
operational benefits from our realigning of assets, including
those related to closure of certain production facilities;

(cid:129) disruptions, uncertainty or volatility in the credit markets

that may limit our access to capital;

(cid:129) other factors affecting our business beyond our control,
including, without limitation, changes in the general econ-
omy, changes in interest rates and changes in the rate of
inflation; and

(cid:129) other factors described in this Annual Repor t on Form 10-K

under Item 1A, “Risk Factors.”

We cannot guarantee that any forward-looking statement will
be realized, although we believe we have been prudent in our plans
and assumptions. Achievement of future results is subject to risks,
uncertainties and inaccurate assumptions. Should known or
unknown risks or uncertainties materialize, or should underlying
assumptions prove inaccurate, actual results could vary materially
from those anticipated, estimated or projected. Investors should
bear this in mind as they consider forward-looking statements. We
undertake no obligation to publicly update forward-looking state-
ments, whether as a result of new information, future events or
otherwise, except as otherwise required by law. You are advised,
however, to consult any further disclosures we make on related
subjects in our reports on Forms 10-Q, 8-K and 10-K furnished to
the SEC. You should understand that it is not possible to predict or
identify all risk factors. Consequently, you should not consider any
such list to be a complete set of all potential risks or uncertainties.

ITEM 1. BUSINESS

Business Overview

(cid:129) an inability to maintain appropriate relations with unions and

employees;

We are incorporated in Ohio and our headquarters are in Avon
Lake, Ohio. We employ approximately 3,900 people and have 47

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manufacturing sites and 11 distribution facilities in North America,
Europe and Asia, and joint ventures in North America. We offer more
than 35,000 polymer solutions to over 10,000 customers across
the globe. In 2009, we had sales of $2.1 billion, 37% of which were
to customers outside the United States.

We provide value to our customers through our ability to link our
knowledge of polymers and formulation technology with our manu-
facturing and supply chain processes to provide an essential link
between large chemical producers (our raw material suppliers) and
designers, assemblers and processors of plastics (our customers).
We believe that large chemical producers are increasingly outsourc-
ing less-than-railcar business; polymer and additive producers need
multiple channels to market; processors continue to outsource
compounding; and international companies need suppliers with
global reach. Our goal is to provide our customers with specialized
material and service solutions through our global reach, product
platforms, low-cost manufacturing operations, a fully integrated
information technology network, broad market knowledge and raw
material procurement leverage. Our end markets are primarily in the
building and construction materials, wire and cable, transpor tation,
durable goods, packaging, electrical and electronics, medical and
industrial
telecommunications markets, as well as many
applications.

PolyOne was formed on August 31, 2000 from the consolida-
tion of The Geon Company (Geon) and M.A. Hanna (Hanna). Geon’s
roots date back to 1927 when BFGoodrich scientist Waldo Semon
produced the first usable vinyl polymer. In 1948, BFGoodrich cre-
ated a vinyl plastic division that was subsequently spun off through
a public offering in 1993, creating Geon, a separate publicly-held
company. Hanna was formed in 1885 as a privately-held company
and became publicly-held in 1927. In the mid-1980s, Hanna began
to divest its historic mining and shipping businesses to focus on
polymers. Hanna purchased its first polymer company in 1986 and
completed its 26th polymer company acquisition in 2000.

Polymer Industry Overview

Polymers are a class of organic materials that are generally
produced by converting natural gas or crude oil derivatives into
monomers, such as ethylene, propylene, vinyl chloride and styrene.
These monomers are then polymerized into chains called polymers,
or plastic resin, in its most basic form. Large petrochemical com-
panies, including some in the petroleum industry, produce a major-
ity of the monomers and base resins because they have direct
access to the raw materials needed for production. Monomers
make up the majority of the variable cost of manufacturing the base
resin. As a result, the cost of a base resin tends to move in tandem
with the industry market prices for monomers and the cost of raw
materials and energy used during production. Resin selling prices
can move in tandem with costs, but are largely driven by supply and
demand balances. Through our equity interest in SunBelt Chlor-
Alkali Partnership (SunBelt), we realize a portion of the economic
benefits of a base resin producer for PVC resin, one of our major raw
materials.

Thermoplastic polymers make up a substantial majority of the
resin market and are characterized by their ability to be reshaped
repeatedly into new forms after heat and pressure are applied.
Thermoplastics offer versatility and a wide range of applications.
The major types of thermoplastics include polyethylene, polyvinyl
chloride, polypropylene, polystyrene, polyester and a range of spe-
cialized engineering resins. Each type of thermoplastic has unique
qualities and characteristics that make it appropriate for use in a
particular product.

Thermoplastic resins are found in a number of end-use prod-
ucts and in a variety of markets, including packaging, building and
construction, wire and cable, transpor tation, medical, furniture and
furnishings, durable goods, institutional products, electrical and
electronics, adhesives, inks and coatings. Each type of thermoplas-
tic resin has unique characteristics (such as flexibility, strength or
durability) suitable for use in a particular end-use application. The
packaging industry, the largest consumer of plastics, requires
plastics that help keep food fresh and free of contamination while
providing a variety of options for product display, and offering
advantages in terms of weight and user-friendliness. In the building
and construction industry, plastic provides an economical and
energy efficient replacement for other traditional materials in piping
applications, siding, flooring, insulation, windows and doors, as well
as structural and interior or decorative uses. In the wire and cable
industry, thermoplastics serve to protect by providing electrical
insulation, flame resistance, durability, water resistance, and color
coding to wire coatings and connectors. In the transportation indus-
try, plastic has proved to be durable, lightweight and corrosion
resistant while offering fuel savings, design flexibility and high
per formance. In the medical industry, plastics help save lives by
safely providing a range of transparent and opaque thermoplastics
that are used for a vast array of devices including blood and intra-
venous bags, medical tubing, masks, lead replacement for radiation
shielding, clamps and connectors to bed frames, curtains and
sheeting, and electronic enclosures. In the electronics industry,
plastic enclosures and connectors not only enhance safety through
electrical insulation, but thermally and electrically conductive plas-
tics provide heat transferring, cooling, antistatic, electrostatic dis-
charge, and electromagnetic shielding per formance for critical
applications including integrated circuit chip packaging.

Various additives can be combined with a base resin to provide
it with greater versatility and per formance. These combinations are
known as plastic compounds. Plastic compounds have advantages
over metals, wood, rubber and other traditional materials, which
have resulted in the replacement of these materials across a wide
spectrum of applications that range from automobile parts to con-
struction materials. Plastic compounds offer advantages compared
to traditional materials that include processability, weight reduction,
chemical resistance, flame retardance and lower cost. Plastics
have a reputation for durability, aesthetics, ease of handling and
recyclability.

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PolyOne Segments

We operate in six reportable segments: International Color and
Engineered Materials; Specialty Engineered Materials; Specialty
Color, Additives and Inks; Per formance Products and Solutions;
PolyOne Distribution; and Resin and Intermediates. Our segments
are further discussed in Note 16, Segment Information, to the
accompanying consolidated financial statements.

International Color and Engineered Materials

The International Color and Engineered Materials operating seg-
ment combines the strong regional heritage of our color and additive
masterbatches and engineered materials operations to create glo-
bal capabilities with plants, sales and service facilities located
throughout Europe and Asia.

Working in conjunction with our Specialty Color, Additives and
Inks and North American Engineered Materials operating segments,
we provide solutions that meet our
international customers’
demands for both global and local manufacturing, service and
technical support.

Specialty Engineered Materials

The Specialty Engineered Materials operating segment is a leading
provider of custom plastic compounding services and solutions for
processors of thermoplastic materials across a wide variety of
markets and end-use applications including those that currently
employ traditional materials such as metal. Specialty Engineered
Materials’ product portfolio, one of the broadest in our industry,
includes standard and custom formulated high-per formance poly-
mer compounds that are manufactured using a full range of ther-
moplastic compounds and elastomers, which are then combined
with advanced polymer additive,
filler, colorant
and/or biomaterial technologies.

reinforcement,

With a depth of compounding expertise, we are able to expand
the per formance range and structural properties of traditional
engineering-grade thermoplastic resins that meet our customers’
unique per formance requirements. Our product development and
application reach is further enhanced by the capabilities of our
North American Engineered Materials Solutions Center, which pro-
duces and evaluates prototype and sample parts to help assess
end-use per formance and guide product development. Our manu-
facturing capabilities are targeted at meeting our customers’
demand for speed, flexibility and critical quality.

This segment also includes GLS Corporation (GLS), which we
acquired in January 2008. GLS is a global developer of innovative
thermoplastic elastomer (TPE) compounds and offers the broadest
range of soft-touch TPE materials in the industry.

Specialty Color, Additives and Inks

The Specialty Color, Additives and Inks operating segment is a
leading provider of specialized color and additive concentrates as
well as inks and latexes.

Color and additive products include an innovative array of
colors, special effects and per formance-enhancing and eco-friendly
solutions. Our color masterbatches contain a high concentration of
color pigments and/or additives that are dispersed in a polymer
carrier medium and are sold in pellet, liquid, flake or powder form.
When combined with non pre-colored base resins, our colorants
help our customers achieve a wide array of specialized colors and
effects that are targeted at the demands of today’s highly design-
oriented consumer and industrial end markets. Our additive master-
batches encompass a wide variety of per formance enhancing char-
acteristics and are commonly categorized by the function that they
per form, such as UV stabilization, anti-static, chemical blowing,
antioxidant and lubricant, and processing enhancement.

Our colorant and additives masterbatches are used in most
plastics manufacturing processes,
including injection molding,
extrusion, sheet, film, rotational molding and blow molding through-
out the plastics industry, particularly in the packaging, transpor ta-
tion, consumer, outdoor decking, pipe and wire and cable markets.
They are also incorporated into such end-use products as stadium
seating, toys, housewares, vinyl siding, pipe, food packaging and
medical packaging.

This segment also provides custom-formulated liquid systems
that meet a variety of customer needs and chemistries, including
vinyl, natural rubber and latex, polyurethane and silicone. Products
include proprietar y fabric screen-printing inks and latexes for diver-
sified markets that range from recreational and athletic apparel,
construction and filtration to outdoor furniture and healthcare. In
addition, we have a 50% interest in BayOne, a joint venture between
PolyOne and Bayer Corporation, which sells liquid polyurethane
systems into many of the same markets.

Performance Products and Solutions

The Per formance Products and Solutions operating segment is a
global leader offering an array of products and services for vinyl
coating, molding and extrusion processors. Our product offerings
include: rigid, flexible and dry blend vinyl compounds; industry-
leading dispersion, blending and specialty suspension grade vinyl
resins; and specialty coating materials based largely on vinyl. These
products are sold to a wide variety of manufacturers of plastic parts
and consumer-oriented products. We also offer a wide range of
services to the customer base utilizing these products to meet the
ever changing needs of our multi-market customer base. These
services include materials testing and component analysis, custom
compound development, colorant and additive services, design
assistance, structural analyses, process simulations and extruder
screw design.

Much of the revenue and income for Per formance Products and
Solutions is generated in North America. However, sales in Asia and
Europe constitute a minor but growing portion of this segment. In
addition, we owned 50% of a joint venture producing and marketing
vinyl compounds in Latin America through the disposition date of
October 13, 2009.

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Vinyl is one of the most widely used plastics, utilized in a wide
range of applications in building and construction, wire and cable,
consumer and recreation markets, transportation, packaging and
healthcare. Vinyl resin can be combined with a broad range of
additives, resulting in per formance versatility, particularly when fire
resistance, chemical resistance or weatherability is required. We
believe we are well-positioned to meet the stringent quality, service
and innovation requirements of this diverse and highly competitive
marketplace.

This operating segment also includes Producer Services, which
offers custom compounding services to resin producers and pro-
cessors that design and develop their own compound and master-
batch recipes. Customers often require high quality, cost effective
and confidential services. As a strategic and integrated supply chain
partner, Producer Services offers resin producers a way to develop
custom products for niche markets by using our compounding
expertise and multiple manufacturing platforms.

PolyOne Distribution

The PolyOne Distribution operating segment distributes more than
3,500 grades of engineering and commodity grade resins, including
PolyOne-produced compounds, to the North American market.
These products are sold to over 5,000 custom injection molders
and extruders who, in turn, convert them into plastic parts that are
sold to end-users in a wide range of industries. Representing over
20 major suppliers, we offer our customers a broad product port-
folio, just-in-time delivery from multiple stocking locations and local
technical support.

Resin and Intermediates

We report the results of our Resin and Intermediates operating
segment on the equity method. This segment consists almost
former
entirely of our 50% equity interest in SunBelt and our
24% equity interest in OxyVinyls LP (OxyVinyls), through its dispo-
sition date of July 6, 2007. SunBelt, a producer of chlorine and
caustic soda, is a partnership with Olin Corporation. OxyVinyls, a
producer of PVC resins, VCM and chlorine and caustic soda, was a
partnership with Occidental Chemical Corporation. In 2009, Sun-
Belt had production capacity of approximately 320 thousand tons of
chlorine and 358 thousand tons of caustic soda. Most of the
chlorine manufactured by SunBelt is consumed by OxyVinyls to
produce PVC resin. Caustic soda is sold on the merchant market
to customers in the pulp and paper, chemical, building and con-
struction and consumer products industries.

Competition

The production of compounded plastics and the manufacture of
custom and proprietary formulated color and additives systems for
the plastics industry are highly competitive. Competition is based
on service, per formance, product innovation, product recognition,
speed, delivery, quality and price. The relative importance of these
factors varies among our products and services. We believe that we
are the largest independent compounder of plastics and producer of

custom and proprietar y formulated color and additive masterbatch
systems in the United States and Europe, with a growing presence
in Asia. Our competitors range from large international companies
with broad product offerings to local
independent custom com-
pounders whose focus is a specific market niche or product
offering.

The distribution of polymer resin is also highly competitive.
Speed, service, reputation, product line, brand recognition, deliv-
ery, quality and price are the principal factors affecting competition.
We compete against other national independent resin distributors
in North America, along with other regional distributors. Growth in
the thermoplastic resin and compound distribution market
is
directly correlated with growth in the base polymer resins market.

We believe that the strength of our company name and repu-
tation, the broad range of product offerings from our suppliers and
our speed and responsiveness, coupled with the quality of products
and flexibility of our distribution network, allow us to compete
effectively.

Raw Materials

The primary raw materials used by our manufacturing operations
are PVC resin, VCM, polyolefin and other thermoplastic resins,
plasticizers, inorganic and organic pigments, all of which we believe
are in adequate supply. We have long-term supply contracts with
OxyVinyls under which the majority of our PVC resin and all of our
VCM is supplied. These contracts will expire in 2013, although they
contain two five-year renewal provisions that are at our option. We
believe these contracts should assure the availability of adequate
amounts of PVC resin and VCM. We also believe that the pricing
under these contracts provides PVC resins and VCM to us at a
competitive cost. We also periodically obtain raw materials from
foreign suppliers. See discussion of risks associated with raw
material supply and costs in Item 1A. Risk Factors.

Patents and Trademarks

We own and maintain a large number of U.S. and foreign patents
and trademarks that contribute to our competitiveness in the mar-
kets we serve because they protect our inventions and product
names against infringement by others. Patents exist for 20 years if
all fees are paid, and trademarks have an indefinite life based upon
continued use. While we view our patents and trademarks to be
valuable because of the broad scope of our products and services
and brand recognition we enjoy, we do not believe that the loss or
expiration of any single patent or trademark would have a material
adverse effect on our results of operations, financial position or the
continuation of our business. Nevertheless, we have implemented
management processes designed to protect our inventions and
trademarks.

Seasonality and Backlog

Sales of our products and services are slightly seasonal as demand
is generally slower in the first and fourth calendar quarters of the
year. Because of the nature of our business, we do not believe that

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our backlog is a meaningful indicator of the level of our present or
future business.

Employees

Working Capital Practices

Our products are generally manufactured with a short turnaround
time, and the scheduling of manufacturing activities from customer
orders generally includes enough lead time to assure delivery of an
adequate supply of raw materials. We offer payment terms to our
customers that are competitive. We generally allow our customers
to return merchandise if pre-agreed quality standards or specifica-
tions are not met; however, we employ quality assurance practices
that seek to minimize customer returns. Our customer returns are
immaterial.

Significant Customers

No customer accounts for more than 3% of our consolidated rev-
enues, and neither we nor any of our operating segments would
suffer a material adverse effect if we were to lose any single
customer.

Research and Development

We have substantial technology and development capabilities. Our
efforts are largely devoted to developing new product formulations
to satisfy defined market needs, providing quality technical services
to evaluate alternative raw materials, assuring the continued suc-
cess of our products for customer applications, providing technol-
ogy to improve our products, processes and applications, and
providing support to our manufacturing plants for cost reduction,
productivity and quality improvement programs. We operate
research and development centers that support our commercial
development activities and manufacturing operations. These facil-
ities are equipped with state-of-the-ar t analytical, synthesis, poly-
mer characterization and testing equipment, along with pilot plants
and polymer compounding operations that simulate specific pro-
duction processes that allow us to rapidly translate new technolo-
gies into new products.

Our investment in product research and development was
$22.9 million in 2009, $26.5 million in 2008 and $21.6 million
in 2007. In 2010, we expect our investment in research and
development
to increase moderately as we deploy greater
resources to focus on material and service innovations.

Methods of Distribution

We sell products primarily through direct sales personnel, distrib-
utors, including our PolyOne Distribution segment, and commis-
sioned sales agents. We primarily use truck carriers to transpor t our
products to customers, although some customers pick up product
at our operating facilities or warehouses. We also ship some of our
manufactured products to customers by railroad cars.

As of February 1, 2010, we employed approximately 3,900 people.
Less than 2% of our employees are represented by labor unions
under collective bargaining agreements. We believe that relations
with our employees are good, and we do not anticipate significant
operating issues to occur as a result of current negotiations or when
we renegotiate collective bargaining agreements as they expire.

Environmental, Health and Safety

We are subject to various environmental laws and regulations that
apply to the production, use and sale of chemicals, emissions into
the air, discharges into waterways and other releases of materials
into the environment and the generation, handling, storage, trans-
portation, treatment and disposal of waste material. We endeavor
to ensure the safe and lawful operation of our facilities in the
manufacture and distribution of products, and we believe we are
in material compliance with all applicable laws and regulations.

We maintain a disciplined environmental and occupational
safety and health compliance program and conduct periodic internal
and external regulatory audits at our facilities to identify and cat-
egorize potential environmental exposures, including compliance
matters and any actions that may be required to address them. This
effort can result in process or operational modifications, the instal-
lation of pollution control devices or cleaning up grounds or facil-
ities. We believe that we are in material compliance with all
applicable requirements.

We are strongly committed to safety as evidenced by our injury
incidence rate of 0.9 per 100 full-time workers per year in 2009, an
improvement from 1.1 in 2008. The 2008 average injury incidence
rate for our NAICS Code (326 Plastics and Rubber Products Man-
ufacturing) was 5.7.

In our operations, we must comply with product-related gov-
ernmental law and regulations affecting the plastics industry gen-
erally and also with content-specific law, regulations and non-
governmental standards. We believe that compliance with current
governmental laws and regulations and with non-governmental con-
tent-specific standards will not have a material adverse effect on
our financial position, results of operations or cash flows. The risk
of additional costs and liabilities, however, is inherent in certain
plant operations and certain products produced at these plants, as
is the case with other companies in the plastics industry. Therefore,
we may incur additional costs or liabilities in the future. Other
developments, such as increasingly strict environmental, safety
and health laws, regulations and related enforcement policies,
including those under the Restrictions on the Use of Certain Haz-
ardous Substances (RoHS) and the Consumer Product Safety Infor-
mation Act of 2008, the implementation of additional content-
specific standards, discovery of unknown conditions, and claims
for damages to property, persons or natural resources resulting
from plant emissions or products could also result in additional
costs or liabilities.

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A number of foreign countries and domestic communities have
enacted, or are considering enacting, laws and regulations concern-
ing the use and disposal of plastic materials. Widespread adoption
of these laws and regulations, along with public perception, may
have an adverse impact on sales of plastic materials. Although
many of our major markets are in durable, longer-life applications
that could reduce the impact of these kinds of environmental reg-
ulations, more stringent regulation of the use and disposal of
plastics may have an adverse effect on our business.

During 2004, the U.S. Environmental Protection Agency (EPA)
conducted multimedia audits at two of our facilities, pursuant to
which certain fines and penalties have been asserted by the EPA.
See Item 3., “Legal Proceedings”, for additional information.

We have been notified by federal and state environmental
agencies and by private parties that we may be a potentially respon-
sible party (PRP) in connection with their investigation and reme-
diation of a number of environmental waste disposal sites. While
government agencies assert that PRPs are jointly and severally
liable at these sites, in our experience, interim and final allocations
of liability costs are generally made based on the relative contribu-
tion of waste. However, even when allocations of costs based on
relative contribution of waste have been made, we cannot assure
that our allocation will not increase if other PRPs do not pay their
allocated share of these costs.

Based on September 2007 court rulings (see Note 12, Com-
mitments and Related-Par ty Information, to the accompanying con-
solidated financial statements) in the case of Westlake Vinyls,
Inc. v. Goodrich Corporation, et al. and a settlement agreement
related to the former Goodrich Corporation (now owned by Westlake
Vinyls, Inc.) Calvert City facility, we recorded a charge during 2007 of
$15.6 million for past remediation costs payable to Goodrich Cor-
poration. We also adjusted our environmental reserve for future
remediation costs, a portion of which already related to the Calvert
City site, resulting in an additional charge of $28.8 million in 2007.

We incurred environmental expenses of $11.7 million in 2009,
$17.1 million in 2008 and $48.8 million in 2007. Our environmen-
tal expense in 2009 related mostly to ongoing remediation. Our
environmental expense in 2008 consisted of higher utility cost
estimates necessary to support remediation. Our environmental
expenses in 2007 were largely driven by the charges stemming from
the aforementioned Calvert City settlement and subsequent
reserve adjustment. Additionally, in 2009, we received $23.9 mil-
lion from our former parent company as partial reimbursement of
certain previously incurred environmental remediation costs. In
2008, we received $1.5 million of insurance recoveries. There were
no insurance recoveries in 2007.

We also conduct investigations and remediation at certain of our
active and inactive facilities and have assumed responsibility for the
resulting environmental liabilities from operations at sites we or our
predecessors formerly owned or operated. We believe that our poten-
tial continuing liability at these sites will not have a material adverse
effect on our results of operations or financial position. In addition,
we voluntarily initiate corrective and preventive environmental

projects at our facilities. Based on current information and estimates
prepared by our environmental engineers and consultants, we had
reserves as of December 31, 2009 on our accompanying consoli-
dated balance sheet totaling $81.7 million to cover probable future
environmental expenditures related to previously contaminated sites.
This figure represents our best estimate of probable costs for
remediation, based upon the information and technology currently
available and our view of the most likely remedy.

Depending upon the results of future testing, the ultimate
remediation alternatives undertaken, changes in regulations,
new information, newly discovered conditions and other factors,
it is reasonably possible that we could incur additional costs in
excess of the amount accrued at December 31, 2009. Such costs,
if any, cannot be currently estimated. We may revise our estimate of
this liability as new regulations or technologies are developed or
additional information is obtained.

We expect cash paid for environmental remediation expendi-

tures will be approximately $15 million in 2010.

International Operations

Our international operations are subject to a variety of risks, includ-
ing currency fluctuations and devaluations, exchange controls, cur-
rency restrictions and changes in local economic conditions. While
the impact of these risks is difficult to predict, any one or more of
them could adversely affect our future operations. For more infor-
mation about our international operations, see Note 16, Segment
Information, to the accompanying consolidated financial state-
ments, which is incorporated by reference into this Item 1.

Where You Can Find Additional Information

telephone number

Our principal executive offices are located at 33587 Walker Road,
Avon Lake, Ohio 44012, and our
is
(440) 930-1000. We are subject to the information reporting
requirements of the Exchange Act, and, in accordance with these
requirements, we file annual, quarterly and other reports, proxy
statements and other information with the SEC relating to our
business, financial results and other matters. The reports, proxy
statements and other information we file may be inspected and
copied at prescribed rates at the SEC’s Public Reference Room and
via the SEC’s website (see below for more information).

You may inspect a copy of the reports, proxy statements and
other information we file with the SEC, without charge, at the SEC’s
Public Reference Room, 100 F Street, N.E., Room 1580, Washing-
ton, D.C. 20549, and you may obtain copies of the reports, proxy
statements and other information we file with the SEC, from those
offices for a fee. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Our
filings are available to the public at
the SEC’s website at
http://www.sec.gov.

Our Internet address is www.polyone.com. Our Annual Reports
on Form 10-K, Quarterly Repor ts on Form 10-Q, Current Reports on
Form 8-K and amendments to those reports filed or furnished

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pursuant to Section 13(a) or 15(d) of the Exchange Act are available,
free of charge, on our website (www.polyone.com, select Investors
and then SEC Edgar filings) or upon written request, as soon as
reasonably practicable after we electronically file or furnish them to
the SEC. These reports are also available on the SEC’s website at
www.sec.gov.

ITEM 1A. RISK FACTORS

The following are certain risk factors that could affect our business,
financial position, results of operations or cash flows. These risk
factors should be considered along with the forward-looking state-
ments contained in this Annual Repor t on Form 10-K because these
factors could cause our actual results or financial condition to differ
materially from those projected in forward-looking statements. The
following discussion is not an all-inclusive listing of risks, although
we believe these are the more material risks that we face. If any of
the following occur, our business, financial position, results of
operations or cash flows could be negatively affected.

Demand for and supply of our products and services may be
adversely affected by several factors, some of which we cannot
predict or control, that could adversely affect our financial posi-
tion, results of operations or cash flows.

Several factors may affect the demand for and supply of our prod-
ucts and services, including:

(cid:129) economic downturns in the significant end markets that we

serve;

(cid:129) product obsolescence or technological changes that unfa-
vorably alter the value / cost proposition of our products and
services;

(cid:129) competition from existing and unforeseen polymer and non-

polymer based products;

(cid:129) declines in general economic conditions or reductions in
industrial production growth rates, both domestically and
globally, which could impact our customers ability to pay
amounts owed to us;

(cid:129) changes in environmental regulations that would limit our
ability to sell our products and services in specific markets;
and

(cid:129) inability to obtain raw materials or supply products to cus-
tomers due to factors such as supplier work stoppages,
supply shortages, plant outages or regulatory changes that
may limit or prohibit overland transpor tation of certain haz-
ardous materials and exogenous factors,
like severe
weather.

If any of these events occur, the demand for and supply of our
products and services could suffer, which would adversely affect
our financial position, results of operations and cash flows.

Our manufacturing operations are subject to hazards and other
risks associated with polymer production and the related stor-
age and transportation of raw materials, products and wastes.

Our manufacturing operations are subject to the usual hazards and
risks associated with polymer production and the related storage
and transpor tation of raw materials, products and wastes. These
hazards and risks include, but are not limited to:

(cid:129) explosions, fires, inclement weather and natural disasters;

(cid:129) mechanical failure resulting in protracted or short duration

unscheduled downtime;

(cid:129) regulatory changes that affect or limit the transpor tation of

raw materials;

(cid:129) inability to obtain or maintain any required licenses or

permits;

(cid:129) interruptions and environmental hazards such as chemical
spills, discharges or releases of toxic or hazardous sub-
stances or gases into the environment or workplace; and

(cid:129) storage tank leaks or other issues resulting from remedial

activities.

The occurrence of any of these operating problems at our
facilities may have a material adverse effect on the productivity
and profitability of a particular manufacturing facility or on our
operations as a whole, during and after the period of these oper-
ating difficulties. These operating problems may also cause per-
sonal injury and loss of life, severe damage to or destruction of
property and equipment and environmental damage. We are subject
to present and potential future claims with respect to workplace
exposure, workers’ compensation and other matters. Although we
maintain property and casualty insurance of the types and in the
amounts that we believe are customary for the industry, we may not
be fully insured against all potential hazards that are incident to our
business.

Extensive environmental, health and safety laws and regula-
tions impact our operations and assets and compliance with
these regulations could adversely affect our financial position,
results of operations or cash flows.

Our operations on, and ownership of, real property are subject to
extensive environmental, health and safety laws and regulations at
the national, state and local governmental levels. The nature of our
business exposes us to compliance costs and risks of liability under
these laws and regulations due to the production, storage, trans-
portation, recycling or disposal and/or sale of materials that can
cause contamination and other harm to the environment or per-
sonal injury if they are released. Environmental compliance require-
ments on us and our vendors may significantly increase the costs of
these activities involving raw materials, energy, finished products
and wastes. We may incur substantial costs, including fines, dam-
ages, criminal or civil sanctions, remediation costs or experience
interruptions in our operations for violations of these laws.

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We also conduct investigations and remediation at some of our
active and inactive facilities and have assumed responsibility for
environmental liabilities at sites formerly owned or operated by our
predecessors or by us. Also, federal and state environmental stat-
utes impose strict, and under some circumstances, joint and sev-
eral liability for the cost of investigations and remedial actions on
any company that generated the waste, arranged for disposal of the
waste, transpor ted the waste to the disposal site or selected the
disposal site as well as on the owners and operators of these sites.
Any or all of the responsible parties may be required to bear all of
the costs of clean up, regardless of fault or legality of the waste
disposal or ownership of the site, and may also be subject to liability
for natural resource damages. We have been notified by federal and
state environmental agencies and private parties that we may be a
potentially responsible party in connection with certain sites. We
may incur substantial costs for some of these sites. It is possible
that we will be identified as a potentially responsible party at more
sites in the future which could result in our being assessed sub-
stantial investigation or cleanup costs.

We may also incur additional costs and liabilities as a result of
increasingly strict environmental, safety and health laws, regula-
tions and related enforcement policies, restrictions on the use of
lead and phthalates under the Restriction on the Use of Certain
Hazardous Substances (RoHS) and the Consumer Product Safety
Information Act of 2008 and restrictions on greenhouse gases
emissions.

The European Union has adopted REACH, a legislative act to
cover Registration, Evaluation, Authorization and Restriction of
Chemicals. The goal of this legislation, which became effective in
June 2007, is to minimize risk to human health and to the environ-
ment by regulating the use of chemicals. As these regulations
evolve, we will endeavor to remain in compliance with REACH.

We accrue costs for environmental matters that have been
identified when it is probable that these costs will be required and
when they can be reasonably estimated. However, we may be
subject to additional environmental liabilities or potential liabilities
that have not been identified. We expect that we will continue to be
subject to increasingly stringent environmental, health and safety
laws and regulations. We anticipate that compliance with these laws
and regulations will continue to require capital expenditures and
operating costs, which could adversely affect our financial position,
results of operations or cash flows.

Because our operations are conducted worldwide, they are
inherently affected by risk.

As noted above in Item 1. “Business,” we have extensive operations
outside of the United States. Revenue from these operations (prin-
cipally from Canada, Mexico, Europe and Asia) was approximately
37% in each of 2009, 2008 and 2007. Long-lived assets of our
foreign operations represented 36% in 2009, 35% in 2008 and 36%
in 2007 of our total long-lived assets.

International operations are subject to risks, which include, but

are not limited to, the following:

(cid:129) changes in local government regulations and policies includ-
ing, but not limited to foreign currency exchange controls or
monetary policy; repatriation of earnings; expropriation of
property; duty or tariff restrictions; investment limitations;
and tax policies;

(cid:129) political and economic instability and disruptions, including
labor unrest, civil strife, acts of war, guerilla activities, insur-
rection and terrorism;

(cid:129) legislation that regulates the use of chemicals;

(cid:129) disadvantages of competing against companies from coun-
tries that are not subject to U.S. laws and regulations,
including the Foreign Corrupt Practices Act (FCPA);

(cid:129) difficulties
operations;

staffing

and managing multi-national

(cid:129) limitations on our ability to enforce legal

rights and

remedies;

(cid:129) reduced protection of intellectual property rights; and

(cid:129) other risks arising out of foreign sovereignty over the areas

where our operations are conducted.

In addition, we could be adversely affected by violations of the
FCPA and similar worldwide anti-briber y laws. The FCPA and similar
anti-briber y laws in other jurisdictions generally prohibit companies
and their
intermediaries from making improper payments to
non-U.S. officials for the purpose of obtaining or retaining business.
Our policies mandate compliance with these anti-bribery laws. We
operate in many parts of the world that have experienced govern-
mental corruption to some degree and, in certain circumstances,
strict compliance with anti-briber y laws may conflict with local cus-
toms and practices. We cannot assure you that our internal controls
and procedures always will protect us from the reckless or criminal
acts committed by our employees or agents. If we are found to be
liable for FCPA violations, we could suffer from criminal or civil
penalties or other sanctions, which could have a material adverse
effect on our business.

Any of these risks could have an adverse effect on our inter-
national operations by reducing the demand for our products or
reducing the prices at which we can sell our products, which could
result in an adverse effect on our business, financial position,
results of operations or cash flows. We may not be able to continue
to operate in compliance with applicable customs, currency
exchange control regulations, transfer pricing regulations or any
other laws or regulations that we may be subject to. In addition,
these laws or regulations may be modified in the future, and we may
not be able to operate in compliance with those modifications.

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We engage in acquisitions and joint ventures, and may encoun-
ter unexpected difficulties integrating those businesses.

Attainment of our strategic plan objectives may require, in part,
strategic acquisitions or joint ventures intended to complement or
expand our businesses globally or add product technology that
accelerates our specialization strategy, or both. Success will
depend on our ability to complete these transactions or arrange-
ments, and integrate the businesses acquired in these transactions
as well as develop satisfactor y working arrangements with our
strategic partners in the joint ventures. Unexpected difficulties in
completing and integrating acquisitions with our existing operations
and in managing strategic investments could occur. Furthermore,
we may not realize the degree, or timing, of benefits initially antic-
ipated, which could adversely affect our business, financial posi-
tion, results of operations or cash flows.

Our results of operations may be adversely affected by the
results of operations of SunBelt.

SunBelt is our largest equity investment. The earnings of this
partnership may be significantly affected by changes in the com-
modity cycle for hydrocarbon feedstocks and for chlor-alkali prod-
ucts. If the profitability of SunBelt is adversely affected, cash
distributions from the partnership may decline or we may be
required to make cash contributions to the partnership, either of
which could adversely affect our financial position, results of oper-
ations or cash flows.

Natural gas, electricity, fuel and raw material costs, and other
external factors beyond our control, as well as downturns in the
home repair and remodeling and new home sectors of the econ-
omy, can cause wide fluctuations in our margins.

The cost of our natural gas, electricity, fuel and raw materials, and
other costs, may not correlate with changes in the prices we receive
for our products, either in the direction of the price change or in
absolute magnitude. Natural gas and raw materials costs represent
a substantial part of our manufacturing energy costs. In particular,
electricity and fuel represent a component of the costs to manu-
facture building products. Most of the raw materials we use are
commodities and the price of each can fluctuate widely for a variety
of reasons, including changes in availability because of major
capacity additions or reductions or significant facility operating
problems. Other external factors beyond our control can cause
volatility in raw materials prices, demand for our products, product
prices, sales volumes and margins. These factors include general
economic conditions, the level of business activity in the industries
that use our products, competitors’ actions, international events
and circumstances, and governmental regulation in the United
States and abroad, such as climate change regulation. These fac-
tors can also magnify the impact of economic cycles on our busi-
ness. While we attempt to pass through price increases in energy
costs and raw materials, we have been unsuccessful in doing so in
some circumstances in the past and there can be no reassurance
that we can do so in the future.

Additionally, our products used in housing, transportation and
building and construction markets are impacted by changes in
demand in these sectors, which may be significantly affected by
changes in economic and other conditions such as gross domestic
product levels, employment levels, demographic trends, legislative
actions and consumer confidence. These factors can lower the
demand for and pricing of our products, which could cause our net
sales and net income to decrease.

We face competition from other polymer and chemical compa-
nies, which could adversely affect our sales, results of opera-
tions or cash flows.

We actively compete with companies that produce the same or
similar products, and in some instances with companies that pro-
duce different products that are designed for the same end uses.
We encounter competition in price, delivery, service, performance,
product innovation, product recognition and quality, depending on
the product involved.

We expect that our competitors will continue to develop and
introduce new and enhanced products, which could cause a decline
in the market acceptance of our products. In addition, our compet-
itors could cause a reduction in the selling prices of some of our
products as a result of intensified price competition. Competitive
pressures can also result in the loss of major customers. An inability
to compete successfully could have an adverse effect on our finan-
cial position, results of operations or cash flows.

We may also experience increased competition from compa-
nies that offer products based on alternative technologies and
processes that may be more competitive or better in price or
per formance, causing us to lose customers and result in a decline
in our sales volume and earnings.

Additionally, some of our customers may already be or may
become large enough to justify developing in-house production
capabilities. Any significant reduction in customer orders as a result
of a shift to in-house production could adversely affect our sales and
operating profits.

A major failure of our information systems could harm our
business.

We depend on integrated information systems to conduct our busi-
ness. We may experience operating problems with our information
systems as a result of system failures, viruses, computer “hackers”
or other causes. Any significant disruption or slowdown of our
systems could cause customers to cancel orders or cause standard
business processes to become ineffective, which could adversely
affect our financial position, results of operations or cash flows.

Adverse credit market conditions may significantly affect our
access to capital, cost of capital and ability to meet liquidity
needs.

Disruptions, uncertainty or volatility in the credit markets may
adversely impact our ability to access credit already arranged

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and the availability and cost of credit to us in the future. These
market conditions may limit our ability to replace maturing liabilities
in a timely manner and access the capital necessary to grow and
maintain our business. Accordingly, we may be forced to delay
raising capital, issue shorter tenors than we prefer or pay unattrac-
tive interest rates, which could increase our interest expense,
decrease our profitability and significantly reduce our
financial
flexibility. There can be no assurances that government responses
to the disruptions in the financial markets will stabilize the markets
or increase liquidity and the availability of credit. Longer term
disruptions in the capital and credit markets as a result of uncer-
tainty, changing or increased regulation, reduced alternatives or
failures of significant financial institutions could adversely affect
our access to liquidity needed for our business. Any disruption could
require us to take measures to conserve cash until the markets
stabilize or until alternative credit arrangements or other funding for
our business needs can be arranged. Such measures could include
deferring capital expenditures and reducing or eliminating future
share repurchases or other discretionary uses of cash. Overall, our
results of operations, financial condition and cash flows could be
materially adversely affected by disruptions in the credit markets.

The recent global financial crisis may have significant effects
on our customers and suppliers that would result in material
adverse effects on our business and operating results.

The recent global financial crisis, which has included, among other
things, significant reductions in available capital and liquidity from
banks and other providers of credit, substantial reductions and
fluctuations in equity and currency values worldwide, and concerns
that the worldwide economy may enter into a prolonged reces-
sionary period, may materially adversely affect our customers’
access to capital or willingness to spend capital on our products
or their ability to pay for products that they will order or have already
ordered from us. In addition, the current global financial crisis may
materially adversely affect our suppliers’ access to capital and
liquidity with which to maintain their inventories, production levels
and product quality, which could cause them to raise prices or lower
production levels.

Also, availability under our receivables sales facility may be
adversely impacted by credit quality and per formance of our cus-
tomer accounts receivable. The availability under the receivable
sales facility is based on the amount of receivables that meet the
eligibility criteria of the receivables sales facility. As sales decline,
receivable losses increase or credit quality deteriorates,
the
amount of eligible receivables declines and, in turn, lowers the
availability under the facility.

These potential effects of the recent global financial crisis are
difficult to forecast and mitigate. As a consequence, our operating
results for a particular period are difficult to predict, and, therefore,
prior results are not necessarily indicative of results to be expected
in future periods. Any of the foregoing effects could have a material
adverse effect on our business, results of operations and financial
condition.

We have a significant amount of goodwill, and any future good-
will impairment charges could adversely impact our results of
operations.

As of December 31, 2009, we had goodwill of $163.5 million. The
future occurrence of a potential indicator of impairment, such as a
significant adverse change in legal factors or business climate, an
adverse action or assessment by a regulator, unanticipated com-
petition, a material negative change in relationships with significant
customers, strategic decisions made in response to economic or
competitive conditions, loss of key personnel or a more-likely-than-
not expectation that a reporting unit or a significant portion of a
reporting unit will be sold or disposed of, could result in goodwill
impairment charges, which could adversely impact our results of
operations.

Poor investment performance by our pension plan assets may
increase our pension liability and expense, which may increase
the required funding of our pension obligations and divert funds
from other potential uses.

We provide defined benefit pension plans to eligible employees. Our
pension expense and our required contributions to our pension
plans are directly affected by the value of plan assets, the projected
rate of return on plan assets, the actual rate of return on plan
assets and the actuarial assumptions we use to measure our
defined benefit pension plan obligations, including the rate at which
future obligations are discounted to a present value, or the discount
rate. As of December 31, 2009, for pension accounting purposes,
we assumed an 8.5% rate of return on pension assets.

Poor investment per formance by our pension plan assets
resulting from a decline in the stock market could significantly
increase the deficit position of our plans. Should the assets earn
an average return less than 8.5% over time, it is likely that future
pension expenses and funding requirements would increase.

We establish the discount rate used to determine the present
value of the projected and accumulated benefit obligation at the end
of each year based upon the available market rates for high quality,
fixed income investments. An increase in the discount rate would
reduce the future pension expense and, conversely, a lower dis-
count rate would raise the future pension expense.

Based on current guidelines, assumptions and estimates,
including stock market prices and interest rates, we anticipate that
we will be required to make a cash contribution of approximately
$20.8 million to our pension plans in 2010.

We cannot predict whether changing market or economic con-
ditions, regulatory changes or other factors will further increase our
pension expense or funding obligations, diverting funds we would
otherwise apply to other uses.

ITEM 1B. UNRESOLVED STAFF COMMENTS

We have no outstanding or unresolved comments from the staff of
the SEC.

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ITEM 2. PROPERTIES

As of February 1, 2010, we operated facilities in the United States and internationally. Our corporate office is located in Avon Lake, Ohio.
We employ approximately 3,900 people and have 47 manufacturing sites and 11 distribution facilities in North America, Europe, and Asia,
and joint ventures in North America. We own substantially all of our manufacturing sites and lease our distribution facilities. We believe that
the quality and production capacity of our facilities is sufficient to maintain our competitive position for the foreseeable future. The following
table identifies the principal facilities of our segments:

Performance Products and
Solutions

International Color and
Engineered Materials

Long Beach, California
Commerce, California
Kennesaw, Georgia(1)
Henry, Illinois
Terre Haute, Indiana
Louisville, Kentucky
Sullivan, Missouri
Pedricktown, New Jersey
Avon Lake, Ohio
North Baltimore, Ohio
Clinton, Tennessee
Dyersburg, Tennessee
Pasadena, Texas
Seabrook, Texas
Orangeville, Ontario, Canada
St. Remi de Napierville,

Quebec, Canada

Dongguan, China
(16 manufacturing plants)

Assesse, Belgium
Pudong (Shanghai), China
Shenzhen, China
Suzhou, China
Tianjin, China(2)
Cergy, France
Tossiat, France
Bendor f, Germany
Gaggenau, Germany
Melle, Germany
Gyor, Hungary
Kutno, Poland
Mumbai, India
Jurong, Singapore(3)
Barbastro, Spain
Pamplona, Spain
Angered, Sweden
Bangkok, Thailand
Istanbul, Turkey
(18 manufacturing plants)

Specialty Color, Additives
and Inks

Glendale, Arizona
Kennesaw, Georgia
Suwanee, Georgia(2)
Elk Grove Village, Illinois
St. Louis, Missouri
Massillon, Ohio
Norwalk, Ohio
Lehigh, Pennsylvania
Vonore, Tennessee
Shenzhen, China(1)
Toluca, Mexico
(9 manufacturing plants)

Specialty
Engineered Materials
McHenry, Illinois
Avon Lake, Ohio
Dyersburg, Tennessee(1)
North Haven, Connecticut
Seabrook, Texas(1)
Suzhou, China
Gaggenau, Germany(1)
Jurong, Singapore(1)
Barbastro, Spain(1)
(4 manufacturing plants)

PolyOne Distribution

Livermore, California
Rancho Cucamonga, California
Chicago, Illinois(4)
Ayer, Massachusetts
Chesterfield Township, Michigan
Eagan, Minnesota
Statesville, North Carolina
Massillon, Ohio
La Porte, Texas
Fife, Washington
Mississauga, Ontario, Canada
(11 distribution facilities)

Resin and Intermediates
SunBelt joint venture —
McIntosh, Alabama(5)

(1) Facility is not included in manufacturing plants total as it is also included as part of another segment.
(2) Facility is not included in manufacturing plants total as it is a design center/lab.
(3) As part of the restructuring actions announced in January 2009, the Jurong, Singapore facility will be closed during 2010.
(4) Facility is not owned by PolyOne, however it is included in distribution facility total as it is a primary distribution location.
(5) Facility is shared as part of a joint venture, not included in manufacturing plants total.

ITEM 3. LEGAL PROCEEDINGS

During 2004, the EPA conducted multimedia inspections at our

polyvinyl chloride resin manufacturing facilities located in Henry,

Illinois and Pedricktown, New Jersey. In December 2007, the EPA

met with the Company for the first time since those inspections to

discuss possible violations of the Clean Air Act, the Clean Water Act

and the Resource Conservation and Recovery Act at each of the

Henry, Illinois and Pedricktown, New Jersey facilities. Discussions

between representatives for the Company and the EPA occurred in

2008, during which we provided additional information as well as

our position regarding the compliance status of the facilities and

discussed certain modifications to testing procedures and record

keeping. In January 2009, we received a letter from the EPA pro-

posing a resolution of any violations identified as a result of the

2004 inspection that would include our payment of fines and pen-

alties in the amount of $1.3 million. We continue to discuss with the

EPA resolution of proposed violations on a mutually agreed basis.

In addition to the matters regarding the environment described
above and in Item 1. under the heading “Environmental, Health and
Safety,” we are involved in various pending or threatened claims,
lawsuits and administrative proceedings, all arising from the ordi-
nary course of business concerning commercial, product liability,
employment and environmental matters that seek remedies or
damages. We believe that the probability is remote that losses in
excess of the amounts we have accrued could be materially adverse
to our financial position, results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY

HOLDERS

No matters were submitted to a vote of security holders during the
fourth quarter of 2009.

EXECUTIVE OFFICERS OF THE REGISTRANT

(Included pursuant to Instruction 3 to paragraph (b) of Item 401 of
Regulation S-K)

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Executive officers are elected by our Board of Directors to serve one-year terms. The following table lists the name of each person currently
serving as an executive officer of our company, his age as of February 18, 2010 and his current position with our company:

Name

Stephen D. Newlin
Robert M. Patterson

Bernard P. Baert

Michael E. Kahler
Thomas J. Kedrowski

Craig M. Nikrant

Michael L. Rademacher

Robert M. Rosenau

Kenneth M. Smith
John V. Van Hulle

Age

57
37

52
51

55
52

Chairman, President and Chief Executive Officer
Senior Vice President and Chief Financial Officer

Position

Senior Vice President, President of Europe and International

Senior Vice President, Chief Commercial Officer
Senior Vice President, Supply Chain and Operations

Senior Vice President, President of Global Specialty Engineered
Materials
Senior Vice President, President of Distribution

Senior Vice President, President of Per formance Products and
Solutions

Senior Vice President, Chief Information and Human Resources Officer
Senior Vice President, President of Global Color, Additives and Inks

Stephen D. Newlin: Chairman, President and Chief Executive Offi-
cer, February 2006 to date. President — Industrial Sector of Ecolab
Inc. (a global developer and marketer of cleaning and sanitizing
specialty chemicals, products and services) from 2003 to 2006.
Mr. Newlin served as President and a Director of Nalco Chemical
Company (a manufacturer of specialty chemicals, services and
systems) from 1998 to 2001 and was Chief Operating Officer
and Vice Chairman from 2000 to 2001. Mr. Newlin serves on the
Boards of Directors of Black Hills Corporation and The Valspar
Corporation.

Rober t M. Patterson: Senior Vice President and Chief Financial
Officer, May 2008 to date. Vice President and Treasurer of Novelis,
Inc. (an aluminum rolled products manufacturer) from 2007 to May
2008. Vice President, Controller and Chief Accounting Officer of
Novelis from 2006 to 2007. Mr. Patterson served as Vice President
and Segment Chief Financial Officer, Thermal and Flow Technology
Segments of SPX Corporation (a multi-industry manufacturer and
developer) from 2005 to 2006 and as Vice President and Chief
Financial Officer, Cooling Technologies and Services of SPX from
2004 to 2005. Mr. Patterson served as Vice President and Chief
Financial Officer of Marley Cooling Tower Company, a cooling tower
manufacturer and subsidiary of SPX, from 2002 to 2004.

Bernard P. Baert: Senior Vice President, President of Europe and
International, January 2010 to date. Senior Vice President and
General Manager, Color and Engineered Materials, Europe and Asia,
May 2006 to January 2010. Vice President and General Manager,
Colors and Engineered Materials, Europe and Asia, September
2000, upon formation of PolyOne, to April 2006. General Manager,
Color Europe, M.A. Hanna Company, 1997 to August 2000.

Michael E. Kahler: Senior Vice President, Chief Commercial Officer,
January 2010 to date. Senior Vice President, Commercial Devel-
opment, May 2006 to January 2010. President, Process Technology
Division, Alfa Laval Inc. (a global provider of heat transfer, separa-
tion and fluid handling products and engineering solutions) from
January 2004 to March 2006. Group Vice President, Nalco Chem-
ical Company (a manufacturer of specialty chemicals, services and
systems) from December 1999 to October 2002.

Thomas J. Kedrowski: Senior Vice President, Supply Chain and
Operations, September 2007 to date. Vice President of Strategy
and Process Improvement, H.B. Fuller Company (a global manufac-
turer and marketer of adhesives and specialty chemical products)
from November 2005 to April 2007. Vice President of Global Oper-
ations, H.B. Fuller Company from February 2002 to November
2005.

Craig M. Nikrant: Senior Vice President, President of Global Spe-
cialty Engineered Materials, January 2010 to date. Vice President
and General Manager, Specialty Engineered Materials, September
2006 to December 2009. General Manager, Specialty Film & Sheet,
General Electric Plastics, June 2004 to September 2006. Director,
Global Commercial Effectiveness, General Electric Plastics (a
former division of General Electric specializing in supplying plas-
tics), December 2003 to June 2004. Six Sigma Master Black Belt,
General Electric Company Plastics Business, March 2001 to
December 2002. General Manager, Commercial Operations, North
Central Region, General Electric Plastics, June 1999 to March
2001.

Michael L. Rademacher: Senior Vice President, President of Distri-
bution, January 2010 to date. Senior Vice President and General
Manager, Distribution, May 2006 to January 2010. Vice President
and General Manager, PolyOne Distribution, September 2000, upon
formation of PolyOne, to April 2006. Senior Vice President — Plas-
tics Americas, M.A. Hanna Company, January 2000 to August
2000. Vice President and General Manager, Industrial Chemical
and Solvents Division, Ashland Chemical Company (chemical man-
ufacturing and distribution), 1998 to January 2000.

Rober t M. Rosenau: Senior Vice President, President of Per for-
mance Products and Solutions, January 2010 to date. Senior Vice
President and General Manager, Per formance Products and Solu-
tions, June 2008 to January 2010, Senior Vice President and
General Manager, Vinyl Business, May 2006 to June 2008. Vice
President and General Manager, Vinyl Compounds, January 2003 to
April 2006. General Manager, Extrusion Products, September 2000
to December 2002. General Manager, Custom Profile Compounds,
The Geon Company, April 1998 to August 2000.

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Kenneth M. Smith: Senior Vice President, Chief Information and
Human Resources Officer, May 2006 to date. Chief Human
Resources Officer, January 2003 to date, and Vice President and
Chief Information Officer, September 2000, upon formation of
PolyOne, to April 2006. Vice President, Information Technology,
The Geon Company, May 1999 to August 2000, and Chief Informa-
tion Officer, August 1997 to May 1999.

John V. Van Hulle: Senior Vice President, President of Global Color,
Additives and Inks, January 2010 to date. Senior Vice President and
General Manager, Specialty Color, Additives and Inks, July 2006 to
January 2010. President and Chief Executive Officer — ChemDe-
sign Corporation (a custom chemical manufacturer), December
2001 to July 2006. President, Specialty & Fine Chemicals — Cam-
brex Corporation (a specialty chemical and pharmaceutical busi-
ness) August 1994 to November 2000.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY

SECURITIES

The following table sets forth the range of the high and low sale prices for our common stock, $0.01 par value per share, as reported by the
New York Stock Exchange, where the shares are traded under the symbol “POL,” for the periods indicated:

Common stock price:

High

Low

2009 Quarters

2008 Quarters

Fourth

Third

Second

First

Fourth

Third

Second

First

$7.74

$7.19

$3.65

$3.56

$6.39

$8.57

$8.23

$7.15

$5.45

$2.50

$2.23

$1.32

$2.33

$6.26

$6.30

$5.11

As of February 16, 2010, there were 2,514 holders of record of our common stock.

We did not pay dividends in 2009 or 2008. Future declarations of dividends on common stock are at the discretion of the Board of
Directors, and the declaration of any dividends will depend on, among other things, earnings, capital requirements and our financial position,
results of operations and cash flows. Additionally, the agreements that govern our receivables sale facility contain restrictions that could limit
our ability to pay future dividends.

The table below sets forth information regarding repurchases of our common shares during the fourth quarter of 2009:

Period

October 1 to October 31

November 1 to November 30

December 1 to December 31

Total

Total Number of

Average Price Paid

Part of Publicly

Shares Purchased

Per Share

Announced Program

be Purchased Under
the Program(1)

Total Number of

Maximum Number of

Shares Purchased as

Shares that May Yet

—

$—

—

$—

—

8,750,000

(1) On August 18, 2008, our Board of Directors approved a stock repurchase program authorizing us, depending upon market conditions and other

factors, to repurchase up to 10.0 million shares of our common stock, in the open market or in privately negotiated transactions.

ITEM 6. SELECTED FINANCIAL DATA

You should refer to Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in Part II of this
Annual Report on Form 10-K and the notes to our accompanying consolidated financial statements for additional information regarding the
financial data presented below, including matters that might cause this data not to be indicative of our future financial condition, results of
operations or cash flows.

(In millions, except per share data)

Sales

Operating income (loss)

Income (loss) before discontinued operations

Discontinued operations

Net income (loss)

Basic and diluted (loss) earnings per common share:

Before discontinued operations

Discontinued operations

2009(1)

2008(2)

2007

2006(3)

2005

$2,060.7

$2,738.7

$2,642.7

$2,622.4

$2,450.6

98.4

67.8

—

$ (129.3)

$ (272.9)

—

33.9

11.4

—

$ 190.6

$ 141.3

$ 125.6

63.2

(2.7)

(15.3)

67.8

$ (272.9)

11.4

$ 122.9

47.9

0.73

(2.94)

0.12

1.36

0.69

—

(0.03)

(0.17)

Basic and diluted (loss) earnings per common share

0.73

(2.94)

0.12

1.33

0.52

Total assets

Long-term debt, net of current portion

$1,385.9

$1,277.7

$1,583.0

$1,780.8

$1,695.3

$ 389.2

$ 408.3

$ 308.0

$ 567.7

$ 638.7

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(1) Included in operating income for 2009 results are charges of $27.2 million related to employee separation and plant phaseout and benefits of
$23.9 million related to reimbursement of previously incurred environmental expenses and $21.1 million related to a curtailment gain from
amendments to certain of our employee benefit plans.

(2) Included in operating expense for 2008 results are charges of $39.7 million related to employee separation and plant phaseout and
$170.0 million related to goodwill impairment. Included in net loss for 2008 are charges of $105.9 million to record deferred a deferred tax
valuation allowance.

(3) In February 2006, we sold 82% of our Engineered Films business. This business was previously reported as discontinued operations and is
recognized as such in our historical results. The retained ownership of 18% is reported on the cost method of accounting and is recognized in our
accompanying consolidated financial statements as such.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Management’s Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) is designed to provide information
that is supplemental to, and should be read together with, our
consolidated financial statements and the accompanying notes
contained in this Annual Report on Form 10-K. Information in this
Item 7 is intended to assist the reader in obtaining an understand-
ing of our consolidated financial statements, the changes in certain
key items in those financial statements from year to year, the
primary factors that accounted for those changes, and any known
trends or uncertainties that we are aware of that may have a
material effect on our future per formance, as well as how certain
accounting principles affect our consolidated financial statements.
MD&A includes the following sections:

(cid:129) Our Business

(cid:129) Business Model and Key Concepts

(cid:129) Key Challenges

(cid:129) Strategy and Key Trends

(cid:129) Recent Developments

(cid:129) Highlights and Executive Summar y

(cid:129) Results of Operations — an analysis of our consolidated
results of operations for the three years presented in our
consolidated financial statements

(cid:129) Liquidity and Capital Resources — an analysis of the effect
of our operating, financing and investing activities on our
liquidity and capital resources

(cid:129) Off-Balance Sheet Arrangements — a discussion of such

arrangements

(cid:129) Contractual Obligations — a summar y of our aggregate con-

tractual obligations

(cid:129) Critical Accounting Policies and Estimates — a discussion of
accounting policies that require significant judgments and
estimates

(cid:129) New Accounting Pronouncements — a summary and discus-
sion of our plans for the adoption of new accounting stan-
dards relevant to us

The following discussion contains forward-looking statements
that reflect our plans, estimates and beliefs. Our actual results
could differ materially from those discussed in these forward-look-
ing statements. Factors that could cause or contribute to these
differences include, but are not limited to, those discussed below
and elsewhere in this Annual Repor t on Form 10-K particularly in
“Cautionar y Note On Forward-Looking Statements” and Item 1A.
“Risk Factors.”

Our Business

We are a premier provider of specialized polymer materials, ser-
vices and solutions with operations in thermoplastic compounds,
specialty polymer formulations, color and additive systems, ther-
moplastic resin distribution and specialty vinyl resins. We also have
two equity investments: one in a manufacturer of caustic soda and
chlorine and one in a formulator of polyurethane compounds. Head-
quartered in Avon Lake, Ohio, with 2009 sales of $2.1 billion, we
have manufacturing sites and distribution facilities in North Amer-
ica, Europe and Asia and joint ventures in North America. We
currently employ approximately 3,900 people and offer more than
35,000 polymer solutions to over 10,000 customers across the
globe. We provide value to our customers through our ability to link
our knowledge of polymers and formulation technology with our
manufacturing and supply chain to provide an essential
link
between large chemical producers (our raw material suppliers)
and designers, assemblers and processors of plastics (our
customers).

Business Model and Key Concepts

The central focus of our business model is to provide specialized
material and service solutions to our customers by leveraging our
global footprint, product and technology breadth, manufacturing
expertise, fully integrated information technology network, broad
market
reach and raw material procurement strength. These
resources enable us to capitalize on dynamic changes in the end
markets we serve, which include appliances, building and construc-
tion materials, electrical and electronics, medical, industrial, pack-
aging, transpor tation, and wire and cable markets.

Key Challenges

Overall, our business faces a number of issues resulting from the
recent economic downturn, especially as it relates to critically
affected markets such as building and construction and transpor-
tation. Maintaining profitability during periods of raw material price
volatility is another critical challenge. Further, we need to capitalize

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on the opportunity to accelerate development of products that meet
a growing body of environmental laws and regulations such as lead
and phthalate restrictions included in the RoHS and the Consumer
Product Safety Information Act of 2008.

Strategy and Key Trends

To address these challenges and achieve our vision, we have
implemented a strategy with four core components: specialization,
globalization, operational excellence and commercial excellence.
Specialization differentiates us through products, services, tech-
nology, and solutions that add value. Globalization takes us into
growth markets to service our customers with consistency wherever
their operations might be. Operational excellence empowers us to
respond to the voice of the customer while focusing on continuous
improvement. Commercial excellence enables us to deliver value to
customers by supporting their growth and profitability.

In the short term, we will maintain our focus on top-line growth,
improving or maintaining the cost/price relationship with regard to
raw materials and improving working capital efficiency. In addition to
driving top-line growth, we have established margin improvement
targets for all businesses. In 2010, most of our capital expendi-
tures will be focused on maintenance spending and supporting
growth in top-line sales. We will also consider smaller, bolt-on
strategic acquisitions and other synergy opportunities that comple-
ment our core platforms. These actions will ensure that we continue
to invest in capabilities that advance the pace of our transformation
but do not adversely impact our liquidity.

We will continue our enterprise-wide Lean Six Sigma program
directed at improving profitability and cash flow by applying proven
management techniques and strategies to key areas of the busi-
ness, such as pricing, supply chain and operations management,
productivity and quality.

Long-term trends that currently provide opportunities to lever-
age our strategy include the drive toward sustainability in polymers
and their processing, the emergence of biodegradable and bio-
based polymers, consumer concern over the use of bisphenol-A
(BPA) in infant-care products and developing legislation that bans
lead and certain phthalates from toys and child-care items.

Recent Developments

Acquisition of New England Urethane

On December 23, 2009, we acquired substantially all of the assets
of New England Urethane, Inc. (NEU), a specialty healthcare engi-
neered materials provider for a cash purchase price of $11.5 million
paid at close and an earnout of up to $0.5 million payable in 2011,
resulting in goodwill of $4.5 million and $5.9 million of identifiable
intangible assets. NEU had sales of $7.7 million for the year ended
December 31, 2008. Our purchase price allocation is preliminary as
of December 31, 2009.

Sale of Columbian Joint Venture Interest

On October 13, 2009, we sold our investment in Geon Polimeros
Andinos (GPA), previously a 50% owned equity affiliate and part of
the Per formance Products and Solutions operating segment, to
Mexichem Compuestos, S.A. de C.V. We received cash proceeds of
$13.5 million and recorded a pre-tax gain of $2.8 million in our
fourth quarter 2009 results of operations.

Pension plan changes

On January 15, 2009, we adopted amendments to the Geon Pen-
sion Plan (Geon Plan), the Benefit Restoration Plan (BRP), the
voluntary retirement savings plan (RSP) and the Supplemental
Retirement Benefit Plan (SRP). Effective March 20, 2009, the
amendments to the Geon Plan and the BRP permanently froze
future benefit accruals and provide that participants will not receive
credit under the Geon Plan or the BRP for any eligible earnings paid
on or after that date. Additionally, certain benefits provided under
the RSP and SRP were eliminated after March 20, 2009. These
actions resulted in a reduction of our 2009 annual benefit expense
of $3.7 million and are expected to reduce our future pension fund
contribution requirements by approximately $20 million.

On September 1, 2009, we adopted changes to our post-
retirement healthcare plan whereby, effective January 1, 2010,
the plan, for certain eligible retirees, was discontinued, and ben-
efits will be phased out through December 31, 2012. As a result of
the plan change, our liability for post-retirement healthcare was
reduced by $58.1 million.

Highlights and Executive Summary

Selected Financial Data

(In millions)

2009

2008

2007

Sales
Operating income (loss)

$2,060.7
98.4
$

$2,738.7
$ (129.3)

$2,642.7
33.9
$

Net income (loss)

67.8

$ (272.9)

Cash and cash equivalents

$ 222.7

44.3

Accounts receivable availability

112.8

121.4

11.4

79.4

151.2

Liquidity

$ 335.5

$ 165.7

$ 230.6

Debt, short- and long-term

$ 409.6

$ 434.3

$ 336.7

2009 vs. 2008

The decrease in sales was primarily attributable to a 21.6% decline
in volume in 2009 as compared to 2008, reflecting the adverse
impact of the global recession on demand levels across all end
markets. Particularly hardest hit were the transpor tation and build-
ing and construction end markets. Additionally, changes in currency
exchange rates had a negative impact on sales of approximately 3%
in 2009.

The improvement in operating income for 2009 reflects the
favorable impact of higher margin business gains, lower raw mate-
rial costs, the realization of restructuring savings, and an incremen-
tal benefit from LIFO related to the significant inventory reduction in

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the United States. These factors more than offset the impact of the
decrease in volumes and the negative impact of changes in currency
exchange rates in 2009. Operating income in 2009 also included
gains of $21.9 million associated with the curtailment of certain of
our employee benefit plans, $23.9 million related to the reimburse-
ment of previously incurred environmental costs and a $2.8 million
gain associated with the sale of our interest in a previously 50%
owned equity affiliate, GPA. We recognized charges of $27.2 million
related to restructuring and employee separation in 2009 as com-
pared to $39.7 million in 2008. Our operating income was also
negatively impacted by a $170.0 million goodwill impairment charge
in 2008, and a subsequent $5.0 million charge to finalize this
preliminary estimate in the first quarter of 2009. Changes in cur-
rency exchange rates unfavorably impacted operating income by
$5.2 million in 2009 as compared to 2008, driven primarily by
changes in the U.S. dollar versus the Euro and Canadian dollar.

The increase in net income in 2009 as compared to 2008 was
primarily due to the items discussed in the paragraph above. Addi-
tionally, net interest expense was lower in 2009 than in the prior
year primarily due to lower average interest rates on our variable
rate debt and a lower average debt balance. Income tax benefit was
$13.3 million in 2009 as compared to expense of $101.8 million in
2008 as the 2008 amount reflects a $105.9 million charge to
record a tax valuation allowance.

liquidity

Since December 31, 2008, our

increased by
$169.8 million to $335.5 million as the increase in our cash
balance has more than offset the decrease in our borrowing capac-
ity under the accounts receivable facility. The increase in cash and
cash equivalents of $178.4 million was primarily the result of
improved earnings coupled with substantially lower working capital
investment at December 31, 2009 as compared to December 31,
2008. Our cash balance was favorably impacted by the $23.9 mil-
lion reimbursement of previously incurred environmental costs and
$13.5 million of proceeds associated with the sale of our interest in
GPA. These items more than offset the impact of $17.2 million of
pension contributions, $31.3 million of payments in 2009 for our
previously announced restructuring activities,
the payment of
$11.5 million related to the acquisition of NEU, the repayment of

$20.0 million aggregate principal amount of our 6.91% medium-
term notes and a reduction in short-term debt of $5.7 million.

2008 vs. 2007

The acquisition of GLS in January of 2008, the favorable impact
from foreign exchange and higher prices driven by an improved sales
mix and the result of offsetting rising raw material and energy costs
helped counterbalance the adverse impact of lower volume driven
by a significant slowing in global economic activity in the late third
quarter and the fourth quarter of 2008. This downturn in economic
activity and the underlying financial credit crisis that precipitated it
had a significant negative impact on our businesses, particularly the
Per formance Products and Solutions segment. The International
Color and Engineered Materials business, while benefiting from
favorable foreign exchange rates, saw demand contract in the third
quarter and then more dramatically in the fourth quarter of 2008 as
the economies in Europe and Asia slowed and declining exports
from Asia offset any sales increase during the prior quarters in
2008.

Operating income declined due to a $170 million goodwill
impairment charge taken in the fourth quarter of 2008, $39.7 mil-
lion of restructuring charges, and year-over-year declines in Per for-
mance Products and Solutions and International Color and
Engineered Materials segment operating income. The acquisition
of GLS, margin and mix improvements and the impact from foreign
exchange were favorable items that partially offset the overall
decrease.

The decline in net income was due to the items described
previously and the recording of a $105.9 million tax valuation
allowance.

Liquidity declined $64.9 million due to a lower available pool of
receivables to sell and a year-over-year decline in cash and cash
equivalents driven by a higher investment in working capital, pen-
sion funding, and lower dividends from our equity affiliates due
primarily to the divestiture of our ownership stake in OxyVinyls. The
increase in total debt resulted from the financing activities neces-
sary to support the acquisition of GLS.

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Results of Operations

(Dollars in millions, except per share data)

2009

2008

2007

Change

Variances—Favorable (Unfavorable)

2009 versus 2008

2008 versus 2007

Sales

Cost of sales

Gross margin
Selling and administrative

Impairment of goodwill

Income from equity affiliates and minority interest
Operating income (loss)

Interest expense, net

Premium on early extinguishment of long-term debt

Other expense, net

Income (loss) before income taxes

Income tax benefit (expense)
Net income (loss)

Basic and diluted (loss) earnings per common share:

NM — Not meaningful

Sales

Sales decreased in 2009 as compared to 2008 due to a decrease
in volume of 21.6% and the unfavorable impact of foreign exchange
on sales of approximately 3%. All operating segments experienced a
decline in sales in 2009. The end markets most impacted globally
were transpor tation and building and construction.

The increase in sales in 2008, as compared to 2007, includes
6.3% from acquisitions and other, 1.7% due to the favorable impact
of foreign exchange, and a 9.7% favorable impact from price and
mix, which offset an unfavorable impact of 14.1% due to the decline
in volume. The impact of the decline in volume was evident across
all of our operating segments but of greatest magnitude in our
businesses tied to the North American building and construction
and transpor tation end markets.

Cost of Sales

These costs include raw materials, plant conversion, distribution,
environmental remediation and plant related restructuring charges.
As a percentage of sales, these costs declined to 83.5% of sales in
2009 as compared to 89.2% in 2008. Cost of sales in 2009
includes a gain of $23.9 million associated with the reimbursement
of previously incurred environmental costs. Charges related to
environmental remediation and plant related restructuring were
$36.1 million in 2009 as compared to $44.9 million in 2008.
The benefit of LIFO, primarily related to inventory reductions in
the United States, favorably impacted cost of sales by $18.3 million,
as compared to $4.6 million in 2008. Additionally, lower raw mate-
rial costs and the realization of restructuring savings favorably
impacted cost of goods sold in 2009 as compared to 2008.

As a percentage of sales, these costs declined to 89.2% of
sales in 2008 as compared to 90.1% in 2007. GLS contributed
0.5 percentage points of the improvement reflecting the margin

$2,060.7

$2,738.7

$2,642.7

$(678.0)

(24.8)% $ 96.0

1,720.2

2,442.1

2,381.7

721.9

340.5
272.3

5.0

35.2
98.4

(34.3)

—
(9.6)

54.5

13.3
67.8

0.73

296.6
287.1

170.0

31.2
(129.3)

(37.2)

—
(4.6)

(171.1)

(101.8)
$ (272.9)

(2.94)

261.0
254.8

—

27.7
33.9

(46.9)

(12.8)
(6.6)

(32.4)

43.8
11.4

0.12

29.6%

14.8%
5.2%

12.8%
NM

7.8%

—

(108.7)%

(60.4)

35.6
(32.3)

(170.0)

3.5
(163.2)

9.7

12.8
2.0

43.9
14.8

165.0

4.0
227.7

2.9

—
(5.0)

3.6%

(2.5)%

13.6%
(12.7)%

12.6%
NM

20.7%

100.0%
30.3%

225.6

115.1
$ 340.7

(138.7)

NM
(145.6)
NM $(284.3)

NM
NM

impact of its specialty sales mix. Charges related to environmental
remediation and plant related restructurings were $44.9 million in
2008 as compared to $50.2 million in 2007. The remaining
decrease in cost of sales is due to the realization of pricing initi-
atives and sales mix improvements partially offset by higher raw
material costs.

Selling and Administrative

These costs include selling, technology, administrative functions
and corporate and general expenses. Selling and administrative
costs decreased $14.8 million, or 5.2%, in 2009 as compared to
2008. Favorably impacting selling and administrative costs was
$21.9 million of curtailment gains, $7.6 million less employee
separation and plant phase-out costs, a decrease in insurance
and bad debt expense and savings from our restructuring activities.
These favorable items were partially offset by increased pension
and incentive compensation expenses.

During 2008, selling and administrative costs increased
$32.3 million, or 12.7%, as compared to 2007. Selling and admin-
istrative costs was negatively impacted by an increase of $9.6 mil-
lion for employee separation and approximately $17.5 million of
incremental costs associated with GLS, which was acquired in
January of 2008.

Impairment of Goodwill

During the fourth quarter of 2008, we identified indicators of
potential impairment and evaluated the carrying values of goodwill
and other intangible and long-lived assets. Due to the extensive
work involved in per forming the related asset appraisals, we initially
recognized a preliminary estimate of
loss of
$170.0 million in 2008. Upon completion of the analysis in the

the impairment

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first quarter of 2009, we revised our estimate of goodwill impair-
ment to $175.0 million, of which $147.8 million and $27.2 million
related to the Geon Compounds and Specialty Coatings reporting
units, respectively. This represented a decrease for Geon Com-
pounds of $7.4 million and an increase in the goodwill impairment
charge for Specialty Coatings of $12.4 million, as compared to the
preliminary estimates recorded in the fourth quarter of 2008.

Income from Equity Affiliates

Income from equity affiliates for 2009, 2008 and 2007 is summa-
rized as follows:

(In millions)

SunBelt

Other equity affiliates
Impairment of OxyVinyls investment

Gain on sale and (charges) related to

investment in GPA

2009

2008

2007

$29.7

$32.5

$ 41.0

2.7
—

2.8

3.4
—

3.1
(14.8)

(4.7)

(1.6)

$35.2

$31.2

$ 27.7

During 2009, income from equity affiliates increased $4.0 mil-
lion, or 12.8%, as compared to 2008. In 2008, we recorded
$4.7 million of charges related to our investment in GPA, a 50%
owned equity affiliate. In 2009, we sold our investment in GPA,
resulting in a pre-tax gain of $2.8 million. Additionally, lower earn-
ings from our SunBelt joint venture for 2009 were due primarily to
lower pricing for caustic soda, partially offset by an increase in
pricing and volume for chlorine as compared to 2008.

During 2008, income from equity affiliates increased $3.5 mil-
lion, or 12.6%, versus 2007. The increase was due to $11.7 million
lower impairment charges recorded in 2008 as compared to 2007,
partially offset by lower SunBelt earnings. The $8.5 million lower
SunBelt earnings were mainly due to lower demand for chlorine in
the downstream PVC resin markets as a result of the significant
deterioration of the North American building and construction and
basic infrastructure markets.

Interest Expense, Net

Interest expense, net decreased in 2009 as compared to 2008 due
to lower average borrowing levels and lower interest rates on our
variable rate debt. Interest expense decreased in 2008 as com-
pared to 2007 due to lower average borrowing levels.

Included in interest expense, net for the years ended Decem-
ber 31, 2009, 2008 and 2007 is interest income of $3.2 million,
$3.4 million and $4.5 million, respectively.

Premium on Early Extinguishment of Long-term Debt

Cash expense from the premium on our repurchase of $241.4 mil-
lion aggregate principal amount of our 10.625% senior notes in
2007 was $12.8 million.

Other Expense, Net

Financing costs associated with our receivables sale facility, foreign
currency gains and losses and other miscellaneous items are as
follows:

(In millions)

2009

2008

2007

Currency exchange gain (loss)

$(0.1)

$ 1.2

$(5.0)

Foreign exchange contracts (loss) gain

(7.9)

(1.3)

0.7

Fees and discount on sale of trade

receivables

Impairment of available for sale security

Other expense, net

(1.3)

—

(0.3)

(3.6)

(0.6)

(0.3)

(2.0)

—

(0.3)

Other expense, net

$(9.6)

$(4.6)

$(6.6)

Income Tax (Expense) Benefit

In 2009, we recorded tax benefit of $13.3 million related primarily to
tax refunds in both U.S. and foreign jurisdictions.

We also decreased our existing deferred tax asset valuation
allowances related to various U.S.
federal, state and foreign
deferred tax assets by $54.6 million in 2009, resulting in a non-
cash tax benefit of $23.8 million. The remaining decrease of
$30.8 million related primarily to changes in our liabilities for
pensions and other post-retirement benefits, for which the tax
impact is recorded in accumulated other comprehensive income.
We review all valuation allowances related to deferred tax assets
and will adjust these reserves when appropriate.

We have U.S. federal net operating loss carryforwards of
$66.0 million which expire at various dates from 2024 through
2028 and combined state net operating loss carryforwards of
$314.6 million which expire at various dates from 2010 through
2029. Various foreign subsidiaries have net operating loss carryfor-
wards totaling $34.5 million which expire at various dates from
2010 through 2019. We have provided valuation allowances of
$42.9 million against these loss carryforwards.

Segment Information

Operating income is the primar y financial measure that is reported
to the chief operating decision maker for purposes of making
decisions about allocating resources to the segment and assessing
its per formance. Operating income at the segment level does not
include: corporate general and administrative costs that are not
allocated to segments; intersegment sales and profit eliminations;
charges related to specific strategic initiatives, such as the consol-
idation of operations; restructuring activities, including employee
separation costs resulting from personnel reduction programs,
plant closure and phaseout costs; executive separation agree-
ments; share-based compensation costs; asset and goodwill
impairments; environmental remediation costs for
facilities no
longer owned or closed in prior years; gains and losses on the
divestiture of joint ventures and equity investments; and certain
other items that are not included in the measure of segment profit or
loss that is reported to and reviewed by the chief operating decision
maker. These costs are included in Corporate and eliminations.

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Sales and Operating Income (Loss) — 2009 compared with 2008:

(Dollars in millions)

2009

2008

Change

% Change

Sales:

International Color and
Engineered Materials

Specialty Engineered

Materials

Specialty Color,

$ 459.4 $ 587.4 $(128.0)

(21.8)%

208.6

252.3

(43.7)

(17.3)%

Specialty Engineered Materials

Operating income increased by $2.2 million, or 10.8%, in 2009
compared to 2008 driven by declining raw material costs, improved
product mix and pricing, the realization of savings from our restruc-
turing programs and reduced discretionar y spending. These favor-
able items were partially offset by lower volumes and changes in
currency exchange rates.

Additives and Inks

194.7

228.6

(33.9)

(14.8)%

Performance Products

and Solutions

667.7

1,001.4

(333.7)

(33.3)%

PolyOne Distribution

625.1

796.7

(171.6)

(21.5)%

Corporate and
eliminations

Operating income

(loss):

International Color and
Engineered Materials

Specialty Engineered

Materials

Specialty Color,

(94.8)

(127.7)

32.9

25.8%

$2,060.7 $2,738.7 $(678.0)

(24.8)%

22.6 $

20.4 $

2.2

10.8%

16.2

12.9

3.3

25.6%

Sales decreased $43.7 million, or 17.3%, in 2009 as compared to
2008 due to the decreased demand in our end markets related to
transpor tation and wire and cable applications. Volumes declined
approximately 19.7% in 2009 as compared to 2008. Partially off-
setting the impact of lower volume were improvements in pricing
and sales mix.

Operating income increased $3.3 million, or 25.6%, in 2009 as
compared to 2008 driven primarily by lower raw material costs, the
realization of savings from restructuring and the change in the LIFO
reserve related to the inventory reduction in the United States.
These items more than offset the impact of declines in volumes.
Also contributing to the improved income results is the continued
successful integration of GLS, which was acquired in 2008.

Additives and Inks

14.2

13.5

0.7

5.2%

Specialty Color, Additives and Inks

43.5

24.8

34.9

28.1

8.6

24.6%

(3.3)

(11.7)%

25.5

28.6

(3.1)

(10.8)%

(48.4)

(267.7)

219.3

(81.9)%

98.4 $ (129.3) $ 227.7 (176.1)%

Sales declined $33.9 million, or 14.8%, in 2009 as compared to
2008 as volume declined 16.7% due primarily to decreased
demand in the transpor tation and packaging end markets. Partially
offsetting the impact of lower volume was a higher value sales mix
driven by business gains in specialty type applications.

Operating income increased $0.7 million, or 5.2%, primarily
due to the benefits of a more profitable sales mix, lower raw
material costs, the benefit from LIFO related to the inventory reduc-
tion in the United States and decreased discretionary spending, all
of which offset the adverse impact of the decline in volumes.

4.9%

3.5%

1.4% points

Performance Products and Solutions

Performance Products

and Solutions

PolyOne Distribution

Resin and

Intermediates

Corporate and
eliminations

Operating income (loss)
as a percentage of
sales:

International Color and
Engineered Materials

Specialty Engineered

Materials

Specialty Color,

7.8%

5.1%

2.7% points

Additives and Inks

7.3%

5.9%

1.4% points

Performance Products

and Solutions

PolyOne Distribution

Total

6.5%

4.0%

4.8%

3.5%

3.0% points

0.5% points

(4.7)%

9.5% points

International Color and Engineered Materials

Sales decreased $128.0 million, or 21.8%, in 2009 as compared to
2008. Approximately 17.9% of the decrease was due to lower
volumes as a result of the effects of the global recession on
demand levels in Europe and Asia. Changes in currency exchange
rates in 2009 resulted in a decrease in sales of approximately 6.2%.
These unfavorable items were partially offset by improvement in the
price and mix of products sold.

Sales decreased $333.7 million, or 33.3%, in 2009 as compared to
2008 due to the decreased demand across all end markets, partic-
ularly those related to the North American building and construction
market. Volumes declined 27.8% in 2009 as compared to 2008.
Lower market prices associated with lower commodity costs resulted
in a 5.7% decline in sales during 2009 as compared to 2008.

Operating income increased $8.6 million, or 24.6%, in 2009 as
compared to 2008 despite lower volume. LIFO reserve changes
added $11.0 million to operating income in 2009 versus $3.2 million
in 2008. Beyond that, decreased raw material costs and savings from
restructuring more than offset the impact of the decline in volumes.

PolyOne Distribution

PolyOne Distribution sales decreased $171.6 million, or 21.5%, in
2009 as compared to 2008, as volumes declined 12.1%, with the
remainder due to lower market pricing associated with lower com-
modity costs.

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Operating income decreased $3.3 million, or 11.7%, in 2009

as compared to 2008 due primarily to the decline in volume.

Resin and Intermediates

During 2009, income from equity affiliates included in Resin and
Intermediates decreased $3.1 million due to lower earnings from
our SunBelt joint venture.

Corporate and Eliminations

Operating loss from Corporate and eliminations was $48.4 million
in 2009 as compared to $267.7 million in 2008 as summarized in
the following table:

(In millions)

Curtailment of post-retirement health care

plan and other(a)

Impairment of goodwill(b)

Environmental remediation costs, net of

recoveries(c)

Employee separation and plant

phaseout(d)

Recognition of inventory step-up

associated with GLS acquisition(e)

Gain on sale and (charges) related to

investment in equity affiliate(f)

Share-based compensation

Incentive compensation

Unallocated pension and post-retirement

medical expense

All other and eliminations(g)

Year Ended

December 31,

2009

2008

$ 21.9

—

(5.0)

(170.0)

12.2

(15.6)

(27.2)

(39.7)

—

2.8

(2.6)

(19.6)

(13.6)

(17.3)

(1.6)

(4.7)

(3.0)

(4.2)

(5.4)

(23.5)

Total Corporate and eliminations

$(48.4)

$(267.7)

(a) During the third quarter of 2009, we amended certain of our post-
retirement healthcare plans whereby benefits to be paid under
these plans will be phased out through 2012, resulting in a cur-
tailment gain of $21.1 million. We also recorded curtailment gains
totaling approximately $0.8 million related to other employee ben-
efit plans.

(b) In the first quarter of 2009, we increased our estimated year-end
goodwill impairment charge of $170.0 million by $5.0 million, which
is comprised of an increase of $12.4 million related to our Specialty
Coatings reporting unit and a decrease of $7.4 million to our Geon
Compounds reporting unit. See Note 2, Goodwill, to the accompa-
nying consolidated financial statements for further information.

(c) During the third quarter of 2009, we received $23.9 million from our
former parent company, as partial reimbursement for certain pre-
viously incurred environmental remediation costs.

(d) During the third quarter of 2008 and subsequently in January 2009,
we announced the restructuring of certain manufacturing assets,
primarily in North America. See Note 3, Employee Separation and
Plant Phaseout, to the accompanying consolidated financial state-
ments for further information.

(e) Upon acquisition of GLS in 2008, GLS’s inventory was initially
stepped up from cost to fair value. This difference was recognized
with the first turn of inventory within Corporate and eliminations.

(f) On October 13, 2009, we sold our 50% interest in GPA, previously
part of the Per formance Products and Solutions operating seg-
ment, to Mexichem Compuestos, S.A. de C.V, resulting in a pre-tax
gain of approximately $2.8 million in our 2009 results of opera-
tions. In the third quarter of 2008, we recorded $2.6 million related
to our proportionate share of the write-down of certain assets by
GPA and a $2.1 million charge related to an impairment of our
investment in this equity affiliate.

(g) All other and eliminations is comprised of intersegment elimina-
tions and corporate general and administrative costs that are not
allocated to segments.

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Sales and Operating Income (Loss) — 2008 compared with
2007:

(Dollars in millions)

2008

2007

Change

% Change

Sales:

International Color and
Engineered Materials

Specialty Engineered

Materials

Specialty Color,

$ 587.4 $ 588.6 $

(1.2)

(0.2)%

252.3

124.3

128.0

103.0%

Additives and Inks

228.6

232.0

(3.4)

(1.5)%

Per formance Products

and Solutions

1,001.4

1,086.8

(85.4)

(7.9)%

PolyOne Distribution

796.7

744.3

52.4

7.0%

Corporate and
eliminations

Operating income

(loss):

International Color and
Engineered Materials

Specialty Engineered

Materials

Specialty Color,

(127.7)

(133.3)

5.6

$2,738.7 $2,642.7 $ 96.0

4.2%

3.6%

20.4 $

25.1 $

(4.7)

(18.7)%

12.9

(2.2)

15.1

686.4%

Additives and Inks

13.5

7.0

6.5

92.9%

Per formance Products

and Solutions

PolyOne Distribution

Resin and

Intermediates

Corporate and
eliminations

Operating income (loss)
as a percentage of
sales:

International Color and
Engineered Materials

Specialty Engineered

Materials

Specialty Color,

34.9

28.1

57.5

22.1

(22.6)

(39.3)%

6.0

27.1%

28.6

34.8

(6.2)

(17.8)%

(267.7)

(110.4)

(157.3)

(142.5)%

$ (129.3) $

33.9 $(163.2)

(481.4)%

3.5%

4.3%

(0.8)% points

5.1%

(1.8)%

6.9% points

Additives and Inks

5.9%

3.0%

2.9% points

Per formance Products

and Solutions

PolyOne Distribution

Total

3.5%

(4.7)%

5.3%

3.0%

1.3%

(1.8)% points

0.5% points

(6.0)% points

Operating income declined $4.7 million, or 18.7%, in 2008
despite the favorable impact of foreign exchange of $2.2 million.
Continued progress in improving the sales mix through the pene-
tration of specialty applications in the packaging, electrical and
electronics, specialty wire and cable and transportation end mar-
kets did not offset the adverse impact of the substantial weakening
of demand in the fourth quarter of 2008.

Specialty Engineered Materials

Sales increased $128.0 million, or 103.0%, in 2008 compared to
2007 primarily due to the acquisition of GLS. GLS continued to
demonstrate its ability to grow its specialty mix of applications in the
healthcare, consumer products and medical end markets. Partially
offsetting the favorable benefit to sales from the acquisition of GLS
was lower demand for wire and cable and general purpose products
that go into the North American building and construction and
transpor tation end markets.

Operating income increased $15.1 million in 2008 driven pri-
marily by the GLS acquisition and the elimination of unprofitable
accounts.

Specialty Color, Additives and Inks

Sales declined $3.4 million, or 1.5%, in 2008 as volume declined
10.7%. Partially mitigating the impact of lower volume was a higher
value sales mix driven by a greater focus on capturing specialty type
applications and higher pricing to offset increased raw material
costs.

Operating income improved $6.5 million in 2008 driven by the
combined effect of a more profitable sales mix, cost reduction
initiatives in operations, and a focused effort on culling unprofitable
business.

Performance Products and Solutions

Sales declined $85.4 million, or 7.9%, in 2008 due primarily to
significantly lower demand in the North American building and
construction and transpor tation markets. Volume declined
19.9%. Favorable items impacting sales were higher prices due
to rising raw material costs and an improved sales mix.

Operating income declined $22.6 million, or 39.3%, in 2008 as
compared to 2007 due to lower demand and because selling price
increases did not offset higher raw material costs. Falling raw
material costs and reduced inventory resulted in a favorable LIFO
reserve adjustment of $3.2 million for the year.

International Color and Engineered Materials

PolyOne Distribution

Sales declined $1.2 million, or 0.2%, in 2008 as weakening
demand in the second half of 2008 in both Europe and Asia offset
higher pricing and a $42.6 million favorable impact from foreign
exchange. Volumes declined 11.1%.

PolyOne Distribution sales increased $52.4 million, or 7.0%, in
2008 despite lower volumes. The combined impact of price
increases to offset increasing raw material costs, continued growth
in higher value end markets, such as healthcare and consumer
products, and the success of a national accounts program offset
the impact of declining volume.

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Operating income increased $6.0 million, or 27.1%, in 2008
driven by a more profitable sales mix, margin benefits realized as a
result of increased market prices, cost containment programs to
mitigate rising transportation and distribution costs, and the cumu-
lative impact of various margin improvement programs.

Resin and Intermediates

Operating income declined $6.2 million, or 17.8%, in 2008 driven by
a 20.8% volume decline driven partially by force majeure claims
from SunBelt’s sole chlorine customer, OxyVinyls. In December,
OxyVinyls declared force majeure due to a plant shutdown. In the
third quarter of 2008, OxyVinyls declared force majeure due to the
combined effect of Hurricanes Gustav and Ike.

Corporate and Eliminations

Operating loss from Corporate and eliminations was
$157.3 million higher in 2008 due mainly to a $170 million impair-
ment of goodwill, higher year-over-year restructuring charges offset
partially by lower environmental remediation charges. In 2008, we
recorded environmental remediation, restructuring and impairment
charges of $229.0 million as compared to $69.9 million of similar
charges recorded in 2007. The following table breaks down Corpo-
rate and eliminations into its various components:

agreement entered into in connection with the case, which requires
us to pay remediation costs related to the Calvert City facility.
(c) During the third quarter of 2008 and subsequently in January 2009,
we announced the restructuring of certain manufacturing assets,
primarily in North America. See Note 3, Employee Separation and
Plant Phaseout, to the accompanying consolidated financial state-
ments for further information.

(d) In the third quarter of 2008 and 2007, we recorded $2.6 million
and $1.6 million, respectively, related to our proportionate share of
the write-down of certain assets by GPA, our former equity affiliate
in Columbia. Also, in the third quarter of 2008, we recorded a
$2.1 million charge related to our proportionate share of an impair-
ment of our investment in this former equity affiliate.

(e) Our 24% equity investment in OxyVinyls was adjusted at June 30,
2007 as the carrying value was higher than the fair value and the
decrease was determined to be an other than temporary decline in
value.

(f) In the third quarter of 2007, we accrued $15.6 million to reimburse
Goodrich Corporation for remediation costs paid on our behalf and
certain legal costs related to the Calvert City facility.

(g) An impairment of the carrying value of certain patents and tech-
nology agreements and investments of $2.5 million was recorded
during 2007.

(h) The gains on sale of assets in 2007 relates to the sale of previously

closed facilities and other assets.

(i) All other and eliminations is comprised of intersegment elimina-
tions and corporate general and administrative costs that are not
allocated to segments.

(In millions)

Impairment of goodwill(a)

Year Ended

December 31,

2008

2007

$(170.0)

—

Liquidity and Capital Resources

Environmental remediation costs(b)

(15.6)

(33.2)

(In millions)

Employee separation and plant

phaseout(c)

Charges related to investment in equity

affiliate(d)

Share-based compensation

Impairment of OxyVinyls equity

investment(e)

Settlement of environmental costs related

to Calvert City(f)

Impairment of intangibles and other

investments(g)

Cost related to sale of OxyVinyls equity

investment

Gain on sale of assets(h)

All other and eliminations(i)

(39.7)

(4.7)

(3.0)

—

(34.7)

(2.2)

(1.6)

(4.3)

(14.8)

(15.6)

(2.5)

(0.4)

2.5

(38.3)

Total Corporate and eliminations

$(267.7)

$(110.4)

(a) In the fourth quarter of 2008, we recognized a non-cash goodwill
impairment charge of $170.0 million related to our Geon Com-
pounds and Specialty Coatings reporting units within the Perfor-
mance Products and Solutions segment. See Note 2, Goodwill and
Other Intangibles, to the accompanying consolidated financial
statements for further information.

(b) In the third quarter of 2007, our accrual for costs related to future
remediation at inactive or formerly owned sites was adjusted based
on a U.S. District Court’s rulings on several motions in the case of
Westlake Vinyls, Inc. v. Goodrich Corporation et al. and a settlement

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Cash and cash equivalents

Accounts receivable availability

Liquidity

As of December 31,

2009

2008

$222.7

$ 44.3

112.8

121.4

$335.5

$165.7

Liquidity is defined as an enterprise’s ability to generate adequate
amounts of cash to meet both current and future needs. These
needs include paying obligations as they mature, maintaining pro-
duction capacity and providing for planned growth. Capital
resources are sources of funds other than those generated by
operations.

Liquidity increased as of December 31, 2009 compared to
December 31, 2008 primarily as a result of the increase in cash
associated with improved earnings and the reduction in working
capital investment since the beginning of 2009. The reduction in
working capital is reflective of our efforts to increase inventory
efficiency, and improve the timing between customer receipt and
vendor payments. Our cash balance was also favorably impacted by
the $23.9 million reimbursement of previously incurred environ-
mental costs and $13.5 million of proceeds associated with the
sale of our interest in GPA. These items more than offset the impact
of $17.2 million of pension contributions and $31.3 million of
payments in 2009 for our previously announced restructuring activ-
ities, the payment of $11.5 million related to the acquisition of NEU,
the repayment of $20.0 million aggregate principal amount of our
6.91% medium-term notes and the reduction in short-term debt of

minority interest

(35.2)

(31.2)

(27.7)

$5.7 million. Additionally, liquidity was negatively impacted by the
reduction in availability under our receivables sale facility due to the
decrease in our U.S. and Canadian accounts receivable.

Cash Flows

The following discussion focuses on the material components of
cash flows from operating, investing and financing activities.

Operating Activities

(In millions)

2009

2008

2007

Cash Flows from Operating Activities

Net income (loss)

$ 67.8

$(272.9) $ 11.4

Depreciation and amortization

64.8

68.0

57.4

Investing Activities

(In millions)

2009

2008

2007

Cash Flows from Investing Activities

Capital expenditures

$(31.7) $ (42.5)

$ (43.4)

Investment in affiliated company

—

(1.1)

—

Business acquisitions, net of cash

acquired

(11.5)

(150.2)

(11.2)

Proceeds from sale of investment
in equity affiliate and other
assets

Net cash (used) provided by

investing activities

17.0

0.3

269.9

$(26.2) $(193.5)

$215.3

Net cash used by investing activities in 2009 reflects $13.5 million

of cash proceeds from the sale of our interest in GPA and $3.5 mil-

89.4

(57.1)

lion of proceeds from the sale of other assets. Capital expenditures

primarily related to maintenance spending and implementing our

12.8

restructuring initiatives. Business acquisitions, net of cash

5.9

—

3.3

2.6

5.0

—

6.0

3.0

170.0

1.9

4.3

—

3.7

3.6

3.3

acquired in 2009 reflects cash paid for our acquisition of NEU.

Net cash used by investing activities in 2008 relates primarily

to the $150.2 million to fund the acquisition of GLS and $42.5 mil-

lion of capital expenditures. Capital expenditures in 2008 reflect

strategic investments to upgrade our Enterprise Resource Planning

system, expand our global footprint in China and India through

investment in manufacturing and customer specific projects, prod-

uct line investments to support our specialization strategy, and the

enablement of

the manufacturing restructuring initiative we

36.5

32.9

37.6

announced in July 2008. Spending on strategic projects constituted

1.3

39.1

60.8

33.6

(10.8)

26.7

approximately 48% of total spending. The remainder of spending

was related to productivity improvement, on-going maintenance of

the asset base and critical environmental, health and safety (EH&S)

projects.

76.3

(94.7)

17.8

Net cash provided by investing activities in 2007 totaled

Deferred income tax provision

(benefit)

Premium on early extinguishment of

long-term debt

Provision for doubtful accounts

Stock compensation expense

Impairment of goodwill

Asset write-downs and impairment
charges, net of (gain) on sale of
closed facilities

Companies carried at equity and

minority interest:

Income from equity affiliates and

Distributions and distributions

received

Change in assets and liabilities:

Decrease (increase) in accounts

receivable

Decrease in inventories

Increase (decrease) in accounts

payable

Increase (decrease) in sale of

accounts receivable

(Decrease) increase in accrued

(14.2)

14.2

—

expenses and other

(27.2)

(10.2)

(10.4)

Net cash provided by operating

activities

$229.7

$ 72.5

$ 67.2

Cash provided by operating activities increased in 2009 as com-
pared to 2008 due primarily to improved earnings and the previously
described favorable impacts related to improved working capital
per formance.

Cash provided by operating activities increased in 2008 as
compared to 2007 due to higher earnings before giving effect to
non-cash restructuring and tax valuation allowance charges, lower
debt extinguishment premiums, lower cash payments for environ-
mental remediation, and an increase in the sale of accounts receiv-
able, all of which more than offset higher pension funding.

$215.3 million, primarily from the proceeds of the sale of our

24% interest in OxyVinyls. In a transaction related to the sale of

our interest in OxyVinyls, we purchased the remaining 10% minority

interest in Powder Blends, LP. Included in the $43.4 million of

capital expenditures were strategic investments to expand our

footprint in Eastern Europe through the building of our Poland

facility, and increase our capabilities to compete in more specialized

end-markets related to additives and liquid color applications.

Spending on strategic projects constituted approximately 42% of

total spending. The remainder of spending was related to produc-

tivity improvement, on-going maintenance of the asset base and

critical EH&S projects.

Capital expenditures are currently estimated to be approxi-

mately $40 million in 2010, primarily to maintain manufacturing

operations, support an implementation of a Enterprise Resource

Planning system in Asia and other strategic spending.

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Financing Activities

The following table summarizes our available and outstanding

(In millions)

2009

2008

2007

facilities at December 31, 2009:

Cash Flows from Financing Activities

(In millions)

Outstanding

Available

Change in short-term debt

$ (5.7) $ 43.3

(0.2)

Long-term debt, including current maturities

$409.1

$ —

Issuance of long-term debt, net of debt

issuance costs

—

77.8

—

Short-term debt

Receivables sale facility

—

0.5

112.8

—

$409.6

$112.8

Repayment of long-term debt

(20.0)

(25.3)

(264.1)

Purchase of common stock for treasury

Premium paid on early extinguishment of long-

term debt

Proceeds from exercise of stock options

—

(8.9)

—

1.1

(12.8)

1.2

Net cash (used) provided by financing

activities

$(25.7) $ 88.0

$(275.9)

Long-Term Debt

Our long-term debt matures over the period ranging from 2010 to
2015. Current maturities of long-term debt at December 31, 2009
were $19.9 million.

Cash used by financing activities in 2009 reflects the repay-

ment of short-term debt and our 6.91% medium-term notes.

Guarantee and Agreement

Cash provided by financing activities in 2008 was primarily
used for the acquisition of GLS and the funding necessary to
extinguish maturing debt. On January 9, 2008, we borrowed
$40.0 million under the new credit facility. In April 2008, we sold
an additional $80.0 million in aggregate principal amount of
8.875% senior notes due 2012.

Cash used by financing activities in 2007 was primarily for the

extinguishment of debt.

Balance Sheets

The following discussion focuses on material changes in balance
sheet line items from December 31, 2008 to December 31, 2009
that are not discussed in the preceding “Cash Flows” section.

for

liability

pension

Pension

benefits — Our

benefits
decreased $52.0 million during 2009, due mainly to the January 15,
2009 amendments to certain of our pension plans and improved
plan asset returns for the year. These amendments permanently
froze future benefit accruals and reduced our total future pension
fund contributions by approximately $19 million.

Post-retirement benefits other than pension — Our liability for
post-retirement benefits other
than pensions decreased by
$59.1 million due primarily to the September 1, 2009 amendments
to certain of our other post-retirement benefit plans. These amend-
ments resulted in the phase-out of benefits for certain eligible
retirees through December 31, 2012 and reduced our total future
contributions by approximately $58 million.

Capital Resources

As of December 31, 2009, we had existing facilities to access
capital resources (receivables sale facility, credit facility, medium
term notes and senior unsecured notes and debentures) totaling
$522.4 million. As of December 31, 2009, we had used $409.6 mil-
lion of these facilities, and $112.8 million was available to be
drawn. As of December 31, 2009, we also had a $222.7 million
cash and cash equivalents balance adding to our available liquidity.

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We entered into a definitive Guarantee and Agreement with Citicorp
USA, Inc., KeyBank National Association and National City Bank on
June 6, 2006. Under this Guarantee and Agreement, we guarantee
some treasury management and banking services provided to us
and our subsidiaries, such as foreign currency forwards and bank
overdrafts. This guarantee is secured by our inventories located in
the United States.

Credit Facility

On January 3, 2008, we entered into a credit agreement with
Citicorp USA, Inc., as administrative agent and as issuing bank,
and The Bank of New York, as paying agent. The credit agreement
provides for an unsecured revolving and letter of credit facility with
total commitments of up to $40 million. The credit agreement
expires on March 20, 2011.

Borrowings under the credit facility are based on the applicable
LIBOR rate plus a fixed facility fee of 4.77%. At December 31, 2009,
we had outstanding borrowings under the credit facility of $40.0 mil-
lion that is included in Long-term debt on the accompanying con-
solidated balance sheets. The credit agreement contains covenants
that, among other things, restrict our ability to incur liens, and
various other customary provisions, including affirmative and neg-
ative covenants, and representations and warranties. As of
December 31, 2009, we were in compliance with the covenants
in the credit agreement.

Receivables Sale Facility

The receivables sale facility was amended in June 2007 to extend
the maturity to June 2012 and to, among other things, modify
certain financial covenants and reduce the cost of utilizing the
facility. In July 2007, the receivables sale facility was amended
to include up to $25.0 million of Canadian receivables, which
increased the facility size to $200.0 million. The maximum pro-
ceeds that we may receive are limited to the lesser of $200.0 million
or 85% of the eligible domestic and Canadian accounts receivable
sold. This facility also makes up to $40.0 million available for

issuing standby letters of credit as a sub-limit within the $200.0 mil-
lion facility, of which $12.8 million was used at December 31, 2009.

Off-Balance Sheet Arrangements

Receivables sale facility

The facility requires us to maintain a minimum fixed charge
coverage ratio (defined as Adjusted EBITDA less capital expendi-
tures, divided by interest expense and scheduled debt repayments
for the next four quarters) of at least 1 to 1 when average excess
availability under the facility is $40.0 million or less. As of Decem-
ber 31, 2009, the average excess availability under the facility was
greater than $40.0 million. Additionally, the fixed charge coverage
ratio exceeded 1 to 1.

Notes Receivable

Included in Other current assets as of December 31, 2009 is
$8.1 million outstanding on a seller note receivable due to us from
O’Sullivan Films, which purchased our engineered films business in
February 2006. This note accrues interest at 7% and is due in full
with accrued interest at maturity in December 2010.

Included in Other non-current assets as of December 31, 2009
is $23.5 million outstanding on a seller note receivable due from
Excel Polymers LLC, which purchased our elastomers and per for-
mance additives business in August 2004. During 2009, we and
Excel agreed to extend the maturity of the seller note to February 29,
2012. As a result of this extension, we were given a secured
position in the assets of the business. This note accrues interest
at 10% per annum and is due in full with accrued interest at maturity.

Concentrations of Credit Risk

Financial instruments, including foreign exchange contracts and
interest rate swap agreements, along with trade accounts receiv-
able and notes receivable, subject us to potential credit risk. Con-
centration of credit risk for trade accounts receivable is limited due
to the large number of customers constituting our customer base
and their distribution among many industries and geographic loca-
tions. We are exposed to credit risk with respect to notes receivable
but we believe collection of the outstanding amounts is probable.
We are exposed to credit risk with respect to forward foreign
exchange contracts and interest rate swap agreements in the event
of non-per formance by the counter-par ties to these financial instru-
ments. We believe that the risk of incurring material losses related
to this credit risk is remote. We do not require collateral to support
the financial position of our credit risks.

Of the capital resource facilities available to us as of Decem-
ber 31, 2009, the portion of the receivables that was actually sold
under the receivables sale facility provided security for the transfer
of ownership of these receivables. Each indenture governing our
senior unsecured notes and debentures and our guarantee of
$48.8 million of SunBelt notes allows a specific level of secured
debt, above which security must be provided on each indenture and
our guarantee of the SunBelt notes. The receivables sale facility and
our guarantee of SunBelt debt are not considered debt under the
covenants associated with our senior unsecured notes and
debentures.

We sell a portion of our domestic accounts receivable to PolyOne
Funding Corporation (PFC) and a portion of our Canadian accounts
receivable to PolyOne Funding Canada Corporation (PFCC), both
wholly-owned, bankruptcy-remote subsidiaries. At December 31,
2009, accounts receivable totaling $151.1 million were sold to
PFC and PFCC. When PFC and PFCC sell an undivided interest in
these accounts receivable to certain third-party investors, such
amounts are reflected as a reduction of accounts receivable in
the accompanying consolidated balance sheets. The maximum
proceeds that PFC and PFCC may receive under the facility is limited
to the lesser of $200.0 million or 85% of the eligible domestic and
Canadian accounts receivable sold. At December 31, 2009, PFC
and PFCC had not sold any of their undivided interests in accounts
receivable. We believe that available funding under our receivables
sale facility provides us increased flexibility to manage working
capital requirements and is an important source of liquidity.

Guarantee of indebtedness of others

We guarantee $48.8 million of unconsolidated equity affiliate debt
of SunBelt in connection with the construction of a chlor-alkali
facility in McIntosh, Alabama. This debt guarantee matures in 2017.

Letters of credit

The receivables sale facility makes up to $40.0 million available for
the issuance of standby letters of credit, $12.8 million of which was
used at December 31, 2009. These letters of credit are issued by
the bank in favor of third parties and are mainly related to insurance
claims and interest rate swap agreements.

We have no other off-balance sheet arrangements as defined in

Item 303(a)(4)(ii) of Regulation S-K.

Contractual Obligations

The following table summarizes our obligations under long-term
debt, operating leases, standby letters of credit, interest obliga-
tions, pension and post-retirement obligations, guarantees and
purchase obligations as of December 31, 2009:

(In millions)
Contractual Obligations
Long-term debt
Operating leases
Standby letters of credit
Interest on long-term debt

obligations(1)

Pension and post-retirement

obligations(2)

Guarantees
Purchase obligations

Payment Due by Period

Less than

More than

Total

1 Year

1-3 Years 4-5 Years

5 Years

$409.1 $ 19.9 $339.2 $ — $ 50.0
17.0
—

26.3
—

12.5
—

19.8
12.8

75.6
12.8

88.8

32.2

45.5

7.5

3.6

237.6
48.8
19.6

25.4
6.1
10.2

80.9
12.2
7.0

72.4
12.2
1.7

58.9
18.3
0.7

Total

$892.3 $126.4 $511.1 $106.3 $148.5

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(1) Interest obligations are stated at the rate of interest that is defined
by the debt instrument, assuming that the debt is paid at maturity.
(2) Pension and post-retirement obligations relate to our U.S. and inter-

national pension and other post-retirement plans.

We expect to maintain existing levels of available capital
resources and meet our cash requirements in 2010. Expected
sources of cash in 2010 include cash from operations, additional
borrowings under existing loan agreements that are not fully drawn if
needed, cash distributions from equity affiliates and proceeds from
the sale of previously closed facilities and redundant assets.
Expected uses of cash in 2010 include interest payments, cash
taxes, contributions to our defined benefit pension plan, debt
retirements, environmental remediation at inactive and formerly
owned sites and capital expenditures. Capital expenditures are
currently estimated to be approximately $40 million in 2010, pri-
marily to maintain manufacturing operations, support an SAP imple-
mentation in Asia and other strategic spending.

We may from time to time seek to retire or purchase our
outstanding debt through cash purchases and/or exchanges for
equity securities, in open market purchases, privately negotiated
transactions or otherwise. Such repurchases or exchanges, if any,
will depend on prevailing market conditions, our liquidity require-
ments, contractual restrictions and other factors. The amounts
involved may be material.

Based on current projections, we believe that we will be able to
continue to manage and control working capital, discretionary

spending and capital expenditures and that cash provided by oper-
ating activities, along with available borrowing capacity under our
receivables sale facility, should allow us to maintain adequate
levels of available capital resources to fund our operations and
meet debt service and minimum pension funding requirements for
both the short and long term.

Critical Accounting Policies and Estimates

Significant accounting policies are described more fully in Note 1,
Summar y of Significant Accounting Policies, to the accompanying
consolidated financial statements. The preparation of
financial
statements in conformity with U.S. generally accepted accounting
principles (U.S. GAAP) requires us to make estimates and assump-
tions about future events that affect the amounts reported in our
financial statements and accompanying notes. We base our esti-
mates on historical experience and assumptions that we believe are
reasonable under the related facts and circumstances. The appli-
cation of these critical accounting policies involves the exercise of
judgment and use of assumptions for future uncertainties. Accord-
ingly, actual results could differ significantly from these estimates.
We believe that the following discussion addresses our most critical
accounting policies, which are those that are the most important to
the portrayal of our financial condition and results of operations and
require our most difficult, subjective and complex judgments. We
have reviewed these critical accounting policies and related disclo-
sures with the Audit Committee of our Board of Directors.

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Description

Judgments and Uncertainties

Effect if Actual Results
Differ from Assumptions

Pension and Other Post-retirement Plans
(cid:129) We account for our defined benefit pension
plans and other post-retirement plans in
accordance with FASB ASC Topic 715,
Compensation — Retirement Benefits.

Goodwill and Intangible Assets
(cid:129) Goodwill represents the excess of the

purchase price over the fair value of the
net assets of acquired companies. We
follow the guidance in ASC 350,
Intangibles — Goodwill and Other, and test
goodwill for impairment at least annually,
absent a triggering event that would
warrant an impairment assessment. On an
ongoing basis, absent any impairment
indicators, we per form our goodwill
impairment testing as of the first day of
October of each year. The carrying value of
goodwill at December 31, 2009 was
$163.5 million.

(cid:129) At December 31, 2009, our balance sheet
reflected $33.2 million associated with the
trade name acquired as part of the
acquisition of GLS.

(cid:129) Included in our results of operations are
significant amounts associated with our
pension and post-retirement benefit plans
that we measure using actuarial valuations.
Inherent in these valuations are key
assumptions, including assumptions about
discount rates and expected returns on
plan assets. These assumptions are
updated at the beginning of each fiscal
year. We consider current market
conditions, including changes in interest
rates, when making these assumptions.
Changes in pension and post-retirement
benefit costs may occur in the future due
to changes in these assumptions.
(cid:129) Market conditions and interest rates
significantly affect the value of future
assets and liabilities of our pension and
post-retirement plans. It is difficult to
predict these factors due to the volatility of
market conditions.

(cid:129) To develop our discount rate, we consider
the yields of high-quality, fixed-income
investments with maturities that correspond
to the timing of our benefit obligations.

(cid:129) To develop our expected return on plan
assets, we consider our historical long-
term asset return experience, the expected
investment portfolio mix of plan assets and
an estimate of long-term investment
returns. To develop our expected portfolio
mix of plan assets, we consider the
duration of the plan liabilities and give
more weight to equity investments than to
fixed-income securities.

(cid:129) We have identified our reporting units at
the operating segment level or in some
cases one level below the operating
segment level. Goodwill is allocated to the
reporting units based on the estimated fair
value at the date of acquisition.

(cid:129) We determine the fair value of our

reporting units using a combination of two
valuation methods; the income approach
and the market approach.

(cid:129) The income approach requires us to make
assumptions and estimates regarding
projected economic and market conditions,
growth rates, operating margins and cash
expenditures.

(cid:129) The market approach requires us to make
assumptions and judgments to identify
comparable publicly-traded companies,
trailing twelve-month earnings before
interest, taxes, depreciation and
amortization (EBITDA) and projected EBITDA.

(cid:129) We have estimated the fair value of the

GLS tradename using a “relief from royalty
payments” approach. This approach
involves two steps (1) estimating
reasonable royalty rate for the tradename
and (2) applying this royalty rate to a net
sales stream and discounting the resulting
cash flows to determine fair value. Fair
value is then compared with the carrying
value of the tradename.

(cid:129) The weighted average discount rates used

to value our pension and other post-
retirement liabilities as of December 31,
2009 were 6.17% and 5.61%, respectively.
As of December 31, 2009, an increase/
decrease in the discount rate of 50 basis
points, holding all other assumptions
constant, would have increased or
decreased accumulated other
comprehensive income and the related
pension and post-retirement liability by
approximately $24.4 million.

(cid:129) The weighted-average expected return on
assets was 8.50% for 2009, 2008 and
2007. The expected return on assets is a
long-term assumption whose accuracy can
only be measured over a long period based
on past experience. A variation in the
expected return on assets by 50 basis
points as of December 31, 2009 would
result in a change of approximately $1.6
million in net periodic benefit cost.

(cid:129) If actual results are not consistent with our
assumptions and estimates, we may be
exposed to additional goodwill impairment
charges.

(cid:129) Based on our 2009 annual impairment

test, the fair value of each of our reporting
units exceeded the corresponding carrying
value by 14% to 82%.

(cid:129) If actual results are not consistent with our
assumptions and estimates, we may be
exposed to impairment charges related to
our indefinite lived tradenames.

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Description

Judgments and Uncertainties

Effect if Actual Results
Differ from Assumptions

Income Taxes
(cid:129) We account for income taxes using the

asset and liability method. Under the asset
and liability method, deferred tax assets
and liabilities are recognized for the
estimated future tax consequences
attributable to differences between the
financial statement carrying amounts of
existing assets and liabilities and their
respective tax bases. In addition, deferred
tax assets are also recorded with respect
to net operating losses and other tax
attribute carryforwards. Deferred tax
assets and liabilities are measured using
enacted tax rates in effect for the year in
which those temporary differences are
expected to be recovered or settled.
Valuation allowances are established when
realization of the benefit of deferred tax
assets is not deemed to be more likely
than not. The effect on deferred tax assets
and liabilities of a change in tax rates is
recognized in income in the period that
includes the enactment date.

(cid:129) We recognize net tax benefits under the
recognition and measurement criteria of
ASC Topic 740, Income Taxes, which
prescribes requirements and other
guidance for financial statement
recognition and measurement of positions
taken or expected to be taken on tax
returns. We record interest and penalties
related to uncertain tax positions as a
component of income tax expense.

Environmental Liabilities
(cid:129) Based upon estimates prepared by our

environmental engineers and consultants,
we have $81.7 million accrued at
December 31, 2009 to cover probable
future environmental remediation
expenditures.

(cid:129) The ultimate recovery of certain of our

(cid:129) Although management believes that the

estimates and judgments discussed herein
are reasonable, actual results could differ,
which could result in gains or losses that
could be material.

deferred tax assets is dependent on the
amount and timing of taxable income that
we will ultimately generate in the future
and other factors such as the
interpretation of tax laws. This means that
significant estimates and judgments are
required to determine the extent that
valuation allowances should be provided
against deferred tax assets. We have
provided valuation allowances as of
December 31, 2009 aggregating $132.9
million against such assets based on our
current assessment of future operating
results and these other factors.

(cid:129) If further developments or resolution of

these matters are not consistent with our
assumptions and judgments, we may need
to recognize a significant charge in a future
period.

(cid:129) This accrual represents our best estimate
of the remaining probable remediation
costs based upon information and
technology currently available and our view
of the most likely remedy. Depending upon
the results of future testing, the ultimate
remediation alternatives undertaken,
changes in regulations, new information,
newly discovered conditions and other
factors; it is reasonably possible that we
could incur additional costs in excess of
the amount accrued. However, such
additional costs, if any, cannot currently be
estimated. Our estimate of this liability
may be revised as new regulations or
technologies are developed or additional
information is obtained. Changes during
the past five years have primarily resulted
from an increase in the estimate of future
remediation costs at existing sites and
payments made each year for remediation
costs that were already accrued.

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Description

Judgments and Uncertainties

Effect if Actual Results
Differ from Assumptions

(cid:129) Option-pricing models and generally

(cid:129) We do not believe there is a reasonable

accepted valuation techniques require
management to make assumptions and to
apply judgment to determine the fair value
of our awards. These assumptions and
judgments include estimating the future
volatility of our stock price, future
employee turnover rates and risk-free rate
of return.

likelihood there will be a material change in
the future estimates or assumptions we
use to determine share-based
compensation expense. However, if actual
results are not consistent with our
estimates or assumptions, we may be
exposed to changes in share-based
compensation expense that could be
material.

Share-Based Compensation
(cid:129) We have share-based compensation plans
that include non-qualified stock options,
incentive stock options, restricted stock,
restricted stock units, per formance shares,
per formance units and stock appreciation
rights (SARs). See Note 15, Share-Based
Compensation, to the accompanying
consolidated financial statements for a
complete discussion of our stock-based
compensation programs.

(cid:129) We determine the fair value of our SARs
granted in 2009 and 2007 based on a
Monte Carlo simulation method. For SARs
granted during 2008, the option pricing
model used was the Black-Scholes
method.

(cid:129) We determine the fair value of our market-
based and per formance-based nonvested
share awards at the date of grant using
generally accepted valuation techniques
and the average of the high and low grant
date market price of our stock.

(cid:129) Management reviews its assumptions and
the valuations provided by independent
third-party valuation advisors to determine
the fair value of share-based compensation
awards.

New Accounting Pronouncements —

Consolidation — In June 2009, the Financial Accounting Standards
Board (FASB) issued new guidance that modifies how a company
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated.
The new guidance clarifies that the determination of whether a
company is required to consolidate an entity is based on, among
other things, an entity’s purpose and design and a company’s ability
to direct the activities of the entity that most significantly impact the
entity’s economic per formance. A requirement of the new guidance
is an ongoing reassessment of whether a company is the primary
beneficiary of a variable interest entity. Additional disclosures are
also required about a company’s involvement in variable interest
entities and any significant changes in risk exposure due to that
involvement. The new requirements are effective for our fiscal year
beginning January 1, 2010. The adoption of this guidance will not
materially affect our financial statements.

Subsequent Events — In May 2009, the FASB issued new
guidance to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date but
before financial statements are issued or are available to be issued.
The new guidance also requires entities to disclose the date through
which subsequent events were evaluated as well as the rationale for
the date that was selected and is effective for interim and annual
periods ending after June 15, 2009. Refer to Note 22, Subsequent
Events.

Fair Value Measurements and Disclosures — In September
2006, the FASB issued new guidance regarding fair value measure-
ments, which defines fair value, establishes the framework for

measuring fair value under U.S. GAAP and expands disclosures
about fair value measurements. In February 2008, the FASB issued
further guidance that delayed the effective date of fair value mea-
surements for all nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis, to fiscal years beginning
after November 15, 2008. The adoption of this new guidance on
January 1, 2009, for all nonfinancial assets and nonfinancial lia-
bilities, did not materially affect our financial statements. See
Note 19, Fair Value, for information on our assets and liabilities
measured at fair value.

Business Combinations — In December 2007,

the FASB
issued new guidance that establishes principles over the method
entities use to recognize and measure assets acquired and liabil-
ities assumed in a business combination and enhances disclosures
of business combinations. The new guidance is effective for busi-
ness combinations completed on or after January 1, 2009. The
adoption of this new guidance did not materially impact our 2009
financial statements. Refer to Note 20, Business Combinations.

Derivatives and Hedging — In March 2008, the FASB issued
new guidance that requires qualitative disclosures about objectives
and strategies for using derivatives, quantitative disclosures about
fair value amounts of and gains and losses on derivative instru-
ments, and disclosures about credit-risk-related contingent fea-
tures in derivative agreements. This new guidance is effective for
fiscal years beginning after November 15, 2008. The adoption of
this guidance on January 1, 2009 did not materially affect our
financial statements. Refer to Note 18, Financial Instruments, for
information on our derivatives and the required disclosures.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

We are exposed to certain market risks as part of our ongoing
business operations, including risks from changes in interest rates
on debt obligations and foreign currency exchange rates that could
impact our financial condition, results of operations and cash flows.
We manage our exposure to these and other market risks through
regular operating and financing activities, including the use of
derivative financial instruments. We intend to use these derivative
financial instruments as risk management tools and not for spec-
ulative investment purposes.

Interest rate exposure — We are subject to interest rate risk
related to our floating rate debt. As of December 31, 2009, approx-
imately 90% of the principal amount of our debt obligations were at
fixed rates. Additionally, borrowings under the credit facility are
based on the applicable LIBOR rate plus a fixed facility fee of 4.77%.
There would be no significant impact on our interest expense or
cash flows from either a 10% increase or decrease in market rates
of interest on our outstanding variable rate debt as of December 31,
2009.

Foreign currency exposure — We enter into intercompany
lending transactions that are denominated in various foreign cur-
rencies and are subject to financial exposure from foreign exchange
rate movement from the date a loan is recorded to the date it is
settled or revalued. To mitigate this risk, we enter into foreign
exchange contracts. Gains and losses on these contracts generally
offset gains and losses on the assets and liabilities being hedged.

Effective April 1, 2009, we changed the functional currency for
our Canadian operations from the Canadian dollar to the U.S. dollar.
Our sales in Canada are primarily denominated in U.S. dollars.
Additionally, with the closure of our Niagara, Canada facility in the
first quarter of 2009, the majority of our inventory is sourced from
our U.S. operations. The change in functional currency is applied on
a prospective basis. The U.S dollar translated amounts of nonmon-
etary assets and liabilities at March 31, 2009 became the historical
accounting basis for those assets and liabilities at April 1, 2009.
The change in functional currency in Canada did not have a material
effect on our consolidated results of operations for 2009.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY

DATA

Index to Financial Statements

Management’s Report
Reports of Independent Registered Public Accounting Firm
Consolidated Financial Statements:

Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders’ Equity
Notes to Consolidated Financial Statements

Page

33
34

35
36
37
38
39-61

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MANAGEMENT’S REPORT

The management of PolyOne Corporation is responsible for prepar-
ing the consolidated financial statements and disclosures included
in this Annual Report on Form 10-K. The financial statements and
disclosures included in this Annual Report fairly present in all
material respects the financial position, results of operations,
shareholders’ equity and cash flows of PolyOne Corporation as of
and for the year ended December 31, 2009.

Management is responsible for establishing and maintaining
disclosure controls and procedures designed to ensure that the
information required to be disclosed by the company is captured
and reported in a timely manner. Management has evaluated the
design and operation of the company’s disclosure controls and
procedures at December 31, 2009 and found them to be effective.

financial

Internal control over

Management is also responsible for establishing and main-
taining a system of internal control over financial reporting that is
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles.
reporting
includes policies and procedures that provide reasonable assur-
ance that: PolyOne Corporation’s accounting records accurately and
fairly reflect the transactions and dispositions of the assets of the
company; unauthorized or improper acquisition, use or disposal of
company assets will be prevented or timely detected; the compa-
ny’s transactions are properly recorded and reported to permit the
preparation of the company’s financial statements in conformity
with generally accepted accounting principles; and the company’s
receipts and expenditures are made only in accordance with autho-
rizations of management and the board of directors of the company.

financial

Management has assessed the effectiveness of PolyOne’s
internal control over
reporting as of December 31,
2009 and has prepared Management’s Annual Report On Internal
Control Over Financial Reporting contained on page 62 of this
Annual Repor t. This report concludes that internal control over
financial reporting is effective and that no material weaknesses
were identified.

/s/ STEPHEN D. NEWLIN

/s/ ROBERT M. PATTERSON

Stephen D. Newlin
Chairman, President and
Chief Executive Officer

Robert M. Patterson
Senior Vice President
and Chief Financial Officer

February 18, 2010

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
PolyOne Corporation

We have audited the accompanying consolidated balance sheets of
PolyOne Corporation as of December 31, 2009 and 2008, and the
related consolidated statements of operations, shareholders’ equity
and cash flows for each of the three years in the period ended Decem-
ber 31, 2009. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and per form the audit to obtain rea-
sonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
PolyOne Corporation at December 31, 2009 and 2008, and the con-
solidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), PolyOne
Corporation’s internal control over financial reporting as of Decem-
ber 31, 2009, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organi-
zations of the Treadway Commission, and our report dated February 18,
2010 expressed an unqualified opinion thereon.

/s/

ERNST & YOUNG LLP

Cleveland, Ohio
February 18, 2010

The Board of Directors and Shareholders
PolyOne Corporation
We have audited PolyOne Corporation’s internal control over financial
reporting as of December 31, 2009, based on criteria established in
Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO crite-
ria). PolyOne Corporation’s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting included in the
accompanying “Management’s Annual Report on Internal Control over
Financial Reporting”. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and per form the audit to obtain rea-
sonable assurance about whether effective internal control over finan-
cial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and per forming such other pro-
cedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

financial

A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company’s internal control over
reporting
includes those policies and procedures that: (1) pertain to the main-
tenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detec-
tion of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion, PolyOne Corporation maintained, in all material
financial reporting as of

respects, effective internal control over
December 31, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the con-
solidated balance sheets of PolyOne Corporation and subsidiaries as of
December 31, 2009, and 2008, and the related consolidated state-
ments of operations, shareholders’ equity and cash flows for each of
the three years in the period ended December 31, 2009, and our report
dated February 18, 2010 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Cleveland, Ohio
February 18, 2010

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Consolidated Statements of Operations

(In millions, except per share data)

Sales

Cost of sales

Gross margin

Selling and administrative

Impairment of goodwill

Income from equity affiliates

Operating income (loss)

Interest expense, net

Premium on early extinguishment of long-term debt

Other expense, net

Income (loss) before income taxes

Income tax benefit (expense)

Net income (loss)

Basic and diluted earnings (loss) per common share:

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

Basic

Diluted

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

Year Ended December 31,

2009

2008

2007

$2,060.7

$2,738.7

$2,642.7

1,720.2

2,442.1

2,381.7

340.5

272.3

5.0

35.2

98.4

(34.3)

—

(9.6)

54.5

13.3

296.6

287.1

170.0

31.2

(129.3)

(37.2)

—

(4.6)

(171.1)

(101.8)

67.8

$ (272.9)

0.73

(2.94)

92.4

93.4

92.7

261.0

254.8

—

27.7

33.9

(46.9)

(12.8)

(6.6)

(32.4)

43.8

11.4

0.12

92.8

93.1

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Consolidated Balance Sheets

(In millions, except per share data)

ASSETS

Current assets

Cash and cash equivalents

Accounts receivable (less allowance of $5.9 in 2009 and $6.7 in 2008)

Inventories

Deferred income tax assets

Other current assets

Total current assets

Property, net

Investment in equity affiliates and nonconsolidated subsidiary

Goodwill

Other intangible assets, net

Deferred income tax assets

Other non-current assets

Total assets

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities

Current portion of long-term debt

Short-term debt

Accounts payable, including amounts payable to related party

Accrued expenses and other liabilities

Total current liabilities

Long-term debt

Post-retirement benefits other than pensions

Pension benefits

Other non-current liabilities

Commitments and contingencies (See Note 12)

Shareholders’ equity

Preferred stock, 40.0 shares authorized, no shares issued

Common stock, $0.01 par, 400.0 shares authorized, 122.2 shares issued in 2009 and 2008

Additional paid-in capital

Accumulated deficit

Common stock held in treasury, at cost, 29.7 shares in 2009 and 29.9 shares in 2008

Accumulated other comprehensive loss

Total shareholders’ equity

Total liabilities and shareholders’ equity

The accompanying notes to consolidated financial statements are an integral part of these balance sheets.

December 31,

2009

2008

$ 222.7

44.3

274.4

159.6

—

38.0

694.7

392.4

5.8

163.5

71.7

8.1

55.7

262.1

197.8

1.0

19.9

525.1

432.0

20.5

163.9

69.1

0.5

66.6

$1,391.9

$1,277.7

19.9

19.8

0.5

238.3

117.0

375.7

389.2

21.8

173.0

98.6

6.2

160.0

118.2

304.2

408.3

80.9

225.0

83.4

—

1.2

—

1.2

1,065.5

1,065.0

(253.6)

(321.0)

(158.5)

(321.4)

(323.8)

(245.1)

333.6

175.9

$1,391.9

$1,277.7

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Consolidated Statements of Cash Flows

(In millions)

Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization
Deferred income tax provision (benefit)
Premium on early extinguishment of long-term debt
Provision for doubtful accounts
Stock compensation expense
Impairment of goodwill
Asset write-downs and impairment charges, net of gain on sale of assets
Companies carried at equity and minority interest:
Income from equity affiliates and minority interest
Dividends and distributions received

Changes in assets and liabilities, net of acquisition:
Decrease (increase) in accounts receivable
Decrease in inventories
Increase (decrease) in accounts payable
(Decrease) increase in sale of accounts receivable

Decrease in accrued expenses and other

Net cash provided by operating activities
Investing activities
Capital expenditures
Investment in affiliated company
Business acquisitions and related deposits, net of cash acquired
Proceeds from sale of investment in equity affiliates and other assets

Net cash (used) provided by investing activities
Financing activities
Change in short-term debt
Issuance of long-term debt, net of debt issuance costs
Repayment of long-term debt
Purchase of common stock for treasury
Premium on early extinguishment of long-term debt
Proceeds from the exercise of stock options

Net cash (used) provided by financing activities
Effect of exchange rate changes on cash

Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

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

Year Ended December 31,

2009

2008

2007

$ 67.8

$(272.9)

$ 11.4

64.8
5.9
—
3.3
2.6
5.0
3.7

(35.2)
36.5

1.3
39.1
76.3
(14.2)
(27.2)

68.0
89.4
—
6.0
3.0
170.0
3.6

(31.2)
32.9

60.8
33.6
(94.7)
14.2
(10.2)

57.4
(57.1)
12.8
1.9
4.3
—
3.3

(27.7)
37.6

(10.8)
26.7
17.8
—
(10.4)

229.7

72.5

67.2

(31.7)
—
(11.5)
17.0

(42.5)
(1.1)
(150.2)
0.3

(43.4)
—
(11.2)
269.9

(26.2)

(193.5)

215.3

(5.7)
—
(20.0)
—
—
—

(25.7)
0.6

178.4
44.3

43.3
77.8
(25.3)
(8.9)
—
1.1

88.0
(2.1)

(35.1)
79.4

(0.2)
—
(264.1)
—
(12.8)
1.2

(275.9)
6.6

13.2
66.2

$222.7

$ 44.3

$ 79.4

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Consolidated Statements of Shareholders’ Equity

(Dollars in millions, except per share data;

shares in thousands)

Balance January 1, 2007
Comprehensive income:

Net income
Translation adjustment
Adjustments related to Pensions and Postemployment

benefits:

Prior service credit recognized during year, net of tax of

$1.9

Net actuarial gain occurring during year, net of tax

benefit of $12.2

Total comprehensive income
Stock-based compensation and benefits and exercise of

options

Common Shares

Common

Shares Held

Common

in Treasury

Total

Stock

Shareholders’ Equity

Additional

Paid-in

Capital

Accumulated

Common

Other

Accumulated

Stock Held

Comprehensive

Deficit

in Treasury

Income (Loss)

122,192 (29,384) $ 581.7 $1.2 $1,065.7 $ (59.9) $(326.2)

$ (99.1)

11.4
28.3

(4.0)

26.2

61.9

11.4

28.3

(4.0)

26.2

325

5.8

(0.7)

6.5

—

Balance December 31, 2007

122,192 (29,059)

649.4

1.2

1,065.0

(48.5)

(319.7)

(48.6)

Comprehensive (loss):

Net loss
Translation adjustment
Adjustments related to Pensions and Postemployment

benefits:
Prior service credit recognized during year, net of tax

of $0.0

Net actuarial loss occurring during year, net of tax of

$0.2

Adjustment for plan amendment, net of tax of $0.0
Adjustment for supplemental executive retirement

plan, net of tax of $0.0

Total comprehensive loss
Repurchase of common stock
Stock-based compensation and benefits and exercise of

(1,250)

(272.9)
(25.3)

(5.4)

(157.8)
(6.1)

(1.9)

(469.4)
(8.9)

391

4.8

(272.9)

(25.3)

(5.4)

(157.8)
(6.1)

(1.9)

(8.9)

4.8

options

Balance December 31, 2008

Comprehensive income:

Net income
Translation adjustment
Adjustments related to Pensions and Postemployment

benefits:
Net actuarial gain occurring during year, net of tax of

$0.6

Net gain due to retiree plan amendments, net of tax

of $0.0

Net gain due to
post-retirement healthcare plan amendments, net of

tax of $0.0

Unrealized gain on available-for-sale securities

Total comprehensive income
Stock-based compensation and benefits and exercise of

options

122,192 (29,918)

175.9

1.2

1,065.0

(321.4)

(323.8)

(245.1)

67.8
0.7

30.2

18.5
37.0

0.2

154.4

67.8

0.7

30.2

18.5
37.0

0.2

212

3.3

0.5

2.8

Balance December 31, 2009

122,192 (29,706) $ 333.6 $1.2 $1,065.5 $(253.6) $(321.0)

$(158.5)

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

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Note 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 2 — GOODWILL AND INTANGIBLE ASSETS

Note 3 — EMPLOYEE SEPARATION AND PLANT PHASEOUT

Note 4 — FINANCIAL INFORMATION OF EQUITY AFFILIATES

Note 5 — FINANCING ARRANGEMENTS

Note 6 — LEASING ARRANGEMENTS

Note 7 — ACCOUNTS RECEIVABLE

Note 8 — INVENTORIES

Note 9 — PROPERTY

Note 10 — OTHER BALANCE SHEET LIABILITIES

Note 11 — EMPLOYEE BENEFIT PLANS

Note 12 — COMMITMENTS AND RELATED-PARTY INFORMATION

Note 13 — OTHER EXPENSE, NET

Note 14 — INCOME TAXES

Note 15 — SHARE-BASED COMPENSATION

Note 16 — SEGMENT INFORMATION

Note 17 — WEIGHTED-AVERAGE SHARES USED IN COMPUTING EARNINGS PER SHARE

Note 18 — FINANCIAL INSTRUMENTS

Note 19 — FAIR VALUE

Note 20 — BUSINESS COMBINATIONS

Note 21 — SHAREHOLDERS’ EQUITY

Note 22 — SUBSEQUENT EVENTS

Note 23 — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Note 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Description of Business

PolyOne Corporation (PolyOne, Company, we, us or our) is a premier
provider of specialized polymer materials, services and solutions
with operations in thermoplastic compounds, specialty polymer
formulations, color and additive systems, thermoplastic resin dis-
tribution and specialty polyvinyl chloride (PVC) resins. We also have
two equity investments: one in a manufacturer of caustic soda and
chlorine and one in a formulator of polyurethane compounds.
PolyOne was incorporated in the state of Ohio on August 31, 2000.

Our operations are located primarily in the United States,
Europe, Canada, Asia and Mexico. Our operations are reported in
six reportable segments: International Color and Engineered Mate-
rials; Specialty Engineered Materials; Specialty Color, Additives and
Inks; Per formance Products and Solutions; PolyOne Distribution;
and Resin and Intermediates. See Note 16, Segment Information,
for more information.

Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of
PolyOne and its subsidiaries. All majority-owned affiliates over
which we have control are consolidated. Investments in affiliates
and joint ventures in which our ownership is 50% or less, or in which
we do not have control but have the ability to exercise significant
influence over operating and financial policies, are accounted for
under the equity method. Intercompany transactions are elimi-
nated. Transactions with related parties, including joint ventures,
are in the ordinary course of business.

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The change in functional currency in Canada did not have a material
effect on our consolidated results of operations for 2009.

Reclassifications

Certain reclassifications of the prior period amounts and presen-
tation have been made to conform to the presentation for the
current period.

Use of Estimates

Preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires man-
agement to make estimates and assumptions in certain circum-
stances that affect amounts reported in the accompanying
consolidated financial statements and notes. Actual results could
differ from these estimates.

on accelerated methods for income tax purposes. We expense
repair and maintenance costs as incurred. We capitalize replace-
ments and betterments that increase the estimated useful life of an
asset. We capitalize interest expense on major construction and
development projects while in progress.

We retain fully depreciated assets in property and accumulated
depreciation accounts until we remove them from service. In the
case of sale, retirement or disposal, the asset cost and related
accumulated depreciation balance is removed from the respective
account, and the resulting net amount, less any proceeds, is
included as a component of income (loss) from continuing opera-
tions in the accompanying consolidated statements of operations.

We account for operating leases under the provisions of Finan-
cial Accounting Standards Board (FASB) Accounting Standards Cod-
ification (ASC) Topic 840, Leases.

Cash and Cash Equivalents

Impairment of Long-Lived Assets

We consider all highly liquid investments purchased with a maturity
of less than three months to be cash equivalents. Cash equivalents
are stated at cost, which approximates fair value.

Allowance for Doubtful Accounts

We evaluate the collectability of trade receivables based on a
combination of factors. We regularly analyze significant customer
accounts and, when we become aware of a specific customer’s
inability to meet its financial obligations to us, such as in the case of
a bankruptcy filing or deterioration in the customer’s operating
results or financial position, we record a specific allowance for
bad debt to reduce the related receivable to the amount we rea-
sonably believe is collectible. We also record bad debt allowances
for all other customers based on a variety of factors including the
length of time the receivables are past due, the financial health of
the customer, economic conditions and historical experience. In
estimating the allowances, we take into consideration the existence
of credit insurance. If circumstances related to specific customers
change, our estimates of the recoverability of receivables could be
adjusted further.

Inventories

Inventories are stated at the lower of cost or market. Approximately
76% and 66% of our inventories as of December 31, 2009 and
2008, respectively, are valued using the first-in, first-out (FIFO) cost
method. Inventories not valued by the FIFO method are valued using
the last-in, first-out (LIFO) or average cost method.

Property and Depreciation

Property, plant and equipment is carried at cost, net of depreciation
and amortization that is computed using the straight-line method
over the estimated useful life of the assets, which ranges from 3 to
15 years for machinery and equipment and up to 40 years for
buildings. Computer software is amortized over periods not exceed-
ing 10 years. Property, plant and equipment is generally depreciated

We assess the recoverability of long-lived assets whenever events
or changes in circumstances indicate that we may not be able to
recover the assets’ carrying amount. We measure the recoverability
of assets to be held and used by a comparison of the carrying
amount of the asset to the expected net future undiscounted cash
flows associated with the asset. We measure the amount of impair-
ment of long-lived assets as the amount by which the carrying value
of the asset exceeds the fair value of the asset, which is generally
determined based on projected discounted future cash flows or
appraised values.

Goodwill and Other Intangible Assets

Goodwill is the excess of the purchase price paid over the fair value
of the net assets of the acquired business. Goodwill and other
indefinite-lived intangible assets are tested for impairment at the
reporting unit level. Our reporting units have been identified at the
operating segment level or in some cases one level below the
operating segment level. Goodwill is allocated to the reporting units
based on the estimated fair value at the date of acquisition.

Our annual measurement date for testing impairment of good-
will and other indefinite-lived intangibles is October 1st. We com-
pleted our testing of impairment on October 1, 2009, noting no
impairment. The future occurrence of a potential indicator of impair-
ment would require an interim assessment for some or all of the
reporting units prior to the next required annual assessment on
October 1, 2010. Refer to Note 19, Fair Value, for further discus-
sion of our approach for assessing fair value of goodwill.

Notes Receivable

As of December 31, 2009, included in Other current assets is
$8.1 million outstanding on a seller note receivable from O’Sullivan
Films, which purchased our engineered films business in February
2006. This note accrues interest at 7% and is due in full with
accrued interest at maturity in December 2010.

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As of December 31, 2009, included in Other non-current
assets is $23.5 million outstanding on a seller note receivable
due from Excel Polymers LLC (Excel), which purchased our elas-
tomers and per formance additives business in August 2004. During
2009, the Company and Excel agreed to extend the maturity of the
seller note to February 29, 2012. As a result of this extension, we
were given a secured position in the assets of the business. This
note accrues interest at 10% per annum and is due in full with
accrued interest at maturity.

Litigation Reserves

FASB ASC Topic 450, Contingencies, requires that we accrue for
loss contingencies associated with outstanding litigation, claims
and assessments for which management has determined it is
probable that a loss contingency exists and the amount of loss
can be reasonably estimated. We record expense associated with
professional fees related to litigation claims and assessments as
incurred.

Derivative Financial Instruments

FASB ASC Topic 815, Derivative and Hedging, requires that all
derivative financial
instruments, such as foreign exchange con-
tracts and interest rate swap agreements, be recognized in the
financial statements and measured at fair value, regardless of the
purpose or intent in holding them.

We are exposed to foreign currency changes and interest rate
fluctuations in the normal course of business. We have established
policies and procedures that manage these exposures through the
use of financial instruments. By policy, we do not enter into these
instruments for trading purposes or speculation.

We enter into intercompany lending transactions denominated
in various foreign currencies and are subject to financial exposure
from foreign exchange rate movement over the term of the loans. To
mitigate this risk, we enter into foreign exchange contracts with
institutions. These contracts are not treated as
major financial
hedges and, as a result, are adjusted to fair value, with the resulting
gains and losses recognized as other income or expense in the
accompanying consolidated statements of operations. Realized
and unrealized gains and losses on these contracts offset the
foreign exchange gains and losses on the underlying transactions.
Our forward contracts have original maturities of one year or less.
See Note 18, Financial Instruments, for more information.

During 2008 and 2007, we used interest rate swap agree-
ments that modified the exposure to interest rate risk by converting
fixed-rate debt to a floating rate. These interest rate swaps qualified
as fair value hedges in accordance with FASB ASC Topic 815. The
interest rate swap and instrument being hedged were adjusted to
fair value in the balance sheet, with the corresponding change
recognized in the statement of operations. As of and for the year
ended December 31, 2009, there were no open interest rate
swaps. See Note 5, Financing Arrangements, for more information.

Pension and Other Post-retirement Plans

We account for our pensions and other post-retirement benefits in
accordance with FASB ASC Topic 715, Compensation — Retire-
ment Benefits. This standard requires us to (1) recognize the funded
status of the benefit plans in our statement of financial position,
(2) recognize as a component of other comprehensive income, net
of tax, the gains or losses and prior service costs or credits that
arise during the period but are not recognized as components of net
periodic benefit cost, (3) measure defined benefit plan assets and
obligations as of the date of the employer’s fiscal year end state-
ment of financial position and (4) disclose additional information in
the notes to financial statements about certain effects on net
periodic benefit costs for the next fiscal year that arise from delayed
recognition of gains or losses, prior service costs or credits, and
transition assets or obligations.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss at December 31, 2009 and
2008 are as follows:

(In millions)

2009

2008

Foreign currency translation adjustments

(4.3)

(5.0)

Unrecognized losses, transition obligation and

prior service costs

(154.4)

(240.1)

Unrealized gain in available-for-sale securities

0.2

—

$(158.5)

$(245.1)

Fair Value of Financial Instruments

FASB ASC Topic 820, Fair Value Measurements and Disclosures,
requires disclosures of the fair value of financial instruments. The
estimated fair values of
instruments were principally
based on market prices where such prices were available and,
where unavailable, fair values were estimated based on market
prices of similar instruments. See Note 18, Financial Instruments,
for further discussion.

financial

Foreign Currency Translation

Revenues and expenses are translated at average currency
exchange rates during the related period. Assets and liabilities of
foreign subsidiaries and equity investees are translated using the
exchange rate at the end of the period. The resulting translation
adjustment
is recorded as accumulated other comprehensive
income or loss in shareholders’ equity. Gains and losses resulting
from foreign currency transactions, including intercompany trans-
actions that are not considered permanent
investments, are
included in other income, net in the accompanying consolidated
statements of operations.

Revenue Recognition

We recognize revenue when the revenue is realized or realizable,
and has been earned. We recognize revenue when a firm sales
agreement is in place, shipment has occurred and collectability of
the fixed or determinable sales price is reasonably assured.

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Shipping and Handling Costs

New Accounting Pronouncements

Shipping and handling costs are included in cost of sales.

Research and Development Expense

Research and development costs, which were $22.9 million in
2009, $26.5 million in 2008 and $21.6 million in 2007, are
charged to expense as incurred.

Environmental Costs

We expense costs that are associated with managing hazardous
substances and pollution in ongoing operations on a current basis.
Costs associated with the remediation of environmental contami-
nation are accrued when it becomes probable that a liability has
been incurred and our proportionate share of the cost can be
reasonably estimated.

Equity Affiliates

We account for our investments in equity affiliates under FASB ASC
Topic 323, Investments — Equity Method and Joint Ventures. We
recognize our proportionate share of the income of equity affiliates.
Losses of equity affiliates are recognized to the extent of our
investment, advances, financial guarantees and other commit-
ments to provide financial support to the investee. Any losses in
excess of this amount are deferred and reduce the amount of future
earnings of the equity investee recognized by PolyOne. As of Decem-
ber 31, 2009 and 2008, there were no deferred losses related to
equity investees.

We recognize impairment losses in the value of investments
that we judge to be other than temporar y. See Note 4, Financial
Information of Equity Affiliates, for more information.

Share-Based Compensation

We account for share-based compensation under the provisions of
FASB ASC Topic 718, Compensation — Stock Compensation, which
requires us to estimate the fair value of share-based awards on the
date of grant using an option-pricing model. The value of the portion
of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the accompanying
consolidated statements of operations. As of December 31, 2009,
we had one active share-based employee compensation plan, which
is described more fully in Note 15, Share-Based Compensation.

Income Taxes

Deferred tax liabilities and assets are determined based upon the
differences between the financial reporting and tax basis of assets
and liabilities and are measured using the tax rate and laws cur-
rently in effect. In accordance with FASB ASC Topic 740, Income
Taxes, we evaluate our deferred income taxes to determine whether
a valuation allowance should be established against the deferred
tax assets or whether the valuation allowance should be reduced
based on consideration of all available evidence, both positive and
negative, using a “more likely than not” standard.

Consolidation — In June 2009, the FASB issued new guidance that
modifies how a company determines when an entity that is insuf-
ficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. The new guidance clarifies that the
determination of whether a company is required to consolidate an
entity is based on, among other things, an entity’s purpose and
design and a company’s ability to direct the activities of the entity
that most significantly impact the entity’s economic per formance. A
requirement of the new guidance is an ongoing reassessment of
whether a company is the primary beneficiary of a variable interest
entity. Additional disclosures are also required about a company’s
involvement in variable interest entities and any significant changes
in risk exposure due to that involvement. The new requirements are
effective for fiscal years beginning after November 15, 2009 and
are effective for us on January 1, 2010. The adoption of this
guidance will not materially affect our financial statements.

Subsequent Events — In May 2009, the FASB issued new guidance
to establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. The new
guidance also requires entities to disclose the date through which
subsequent events were evaluated as well as the rationale for the
date that was selected and is effective for interim and annual
periods ending after June 15, 2009. Refer to Note 22, Subsequent
Events.

Fair Value Measurements and Disclosures — In September 2006,
the FASB issued new guidance regarding fair value measurements,
which defines fair value, establishes the framework for measuring
fair value under U.S. generally accepted accounting principles and
expands disclosures about fair value measurements. In February
2008, the FASB issued further guidance that delayed the effective
date of fair value measurements for all nonfinancial assets and
liabilities, except those that are recognized or dis-
nonfinancial
closed at fair value in the financial statements on a recurring basis,
to fiscal years beginning after November 15, 2008. The adoption of
this new guidance on January 1, 2009, for all nonfinancial assets
and nonfinancial liabilities, did not have a material impact on our
financial statements. See Note 19, Fair Value, for information on our
assets and liabilities measured at fair value.

Business Combinations — In December 2007, the FASB issued
new guidance that establishes principles over the method entities
use to recognize and measure assets acquired and liabilities
assumed in a business combination and enhances disclosures
of business combinations. The new guidance is effective for busi-
ness combinations completed on or after January 1, 2009. The
adoption of this new guidance did not materially impact our 2009
financial statements. Refer to Note 20, Business Combinations.

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derivative agreements. This new guidance is effective for fiscal
years beginning after November 15, 2008. The adoption of this
guidance on January 1, 2009 did not materially impact our financial
statements. See Note 18, Financial Instruments, for information on
our derivatives and the required disclosures.

Note 2 — GOODWILL AND INTANGIBLE ASSETS

The total purchase price associated with acquisitions is allocated to
the fair value of assets acquired and liabilities assumed based on
their fair values at the acquisition date, with excess amounts
recorded as goodwill. Based on a preliminary purchase price allo-
cation, the acquisition of New England Urethane, Inc (NEU) resulted
in the addition of $4.5 million of goodwill and $5.9 million in
identifiable intangibles during the year ended December 31,
2009. Additionally, in 2008 the acquisition of GLS resulted in the
addition of $44.1 million of goodwill and $65.7 million in identifiable
intangibles. See Note 20, Business Combination, for more infor-
mation on the NEU and GLS acquisitions. The following table details
the changes in the carrying amount of goodwill:

(In millions)

Balance at beginning of the year

Acquisition of businesses

Impairment

Translation and other adjustments

Balance at end of year

2009

2008

$163.9

$ 288.8

4.5

45.2

(5.0)

(170.0)

0.1

(0.1)

$163.5

$ 163.9

including goodwill. The two reporting units that showed potential
impairment were Geon Compounds and Specialty Coatings (report-
ing units within Per formance Products and Solutions). As such, step
two of the impairment test was initiated; however, due to its time
consuming nature, the step-two analysis had not been completed
as of the filing date of our 2008 annual report on Form 10-K for the
year ended December 31, 2008. We recorded an estimated non-
cash goodwill impairment charge of $170.0 million as of Decem-
ber 31, 2008. Upon completion of the analysis in the first quarter of
2009, we revised our estimate of goodwill impairment as of Decem-
ber 31, 2008 to $175.0 million, of which $147.8 million and
$27.2 million relates to the Geon Compounds and Specialty Coat-
ings reporting units, respectively. Adjustments of $12.4 million and
($7.4) million related to the goodwill impairment charge for Spe-
cialty Coatings and Geon Compounds, respectively, were recorded
in the first quarter of 2009 on the line Impairment of goodwill in the
accompanying Consolidated Statements of Operations and is
reflected on the line Corporate and eliminations in Note 16, Seg-
ment Information.

At December 31, 2009, PolyOne had $33.2 million of indefi-
nite-lived other intangible assets that are not subject to amortiza-
tion, consisting of a trade name acquired as part of the GLS
acquisition. This indefinite-lived intangible asset was tested for
impairment as of October 1, 2009, and no impairment adjustments
were determined to be required.

Information regarding PolyOne’s finite-lived other intangible

Goodwill as of December 31, 2009 and 2008, by operating

assets follows:

segment, was as follows:

As of December 31, 2009

(In millions)

2009

2008

(In millions)

Cost

Amortization

Translation

Net

December 31,

Acquisition

Accumulated

Currency

International Color and Engineered

Materials

Specialty Engineered Materials

Specialty Color, Additives and Inks

Per formance Products and Solutions

PolyOne Distribution

Total

$ 72.1

$ 72.0

48.6

33.8

7.4

1.6

44.1

33.8

12.4

1.6

$163.5

$163.9

FASB ASC Topic 350 requires that our annual, and any interim,
impairment assessment be per formed at the reporting unit level. At
October 1, 2009, five of our reporting units had goodwill: Geon
Compounds; International Color and Engineered Materials; GLS;
Specialty Inks and Polymer Systems; and PolyOne Distribution.
These five reporting units were tested for impairment as of Octo-
ber 1, 2009, and no indicators of potential impairment were noted.

During the fourth quarter of 2008, indicators of potential
impairment caused us to conduct an interim impairment test. Those
indicators included the following: a significant decrease in market
capitalization; a decline in recent operating results and a decline in
our business outlook primarily due to the macroeconomic environ-
ment. We completed step one of the impairment analysis and
concluded that, as of December 31, 2008, the fair value of two
of our reporting units was below their respective carrying values,

Non-contractual customer

relationships

Sales contract

Patents, technology and

other

Total

$42.2

$(11.7)

$ — $30.5

11.4

(10.4)

—

9.5

(3.7)

1.2

1.0

7.0

$63.1

$(25.8)

$1.2

$38.5

As of December 31, 2008

Acquisition

Accumulated

Currency

(In millions)

Cost

Amortization

Translation

Net

Non-contractual customer

relationships

Sales contract

Patents, technology and

other

Total

$37.0

$ (9.2)

$ — $27.8

11.4

(10.2)

—

8.8

(3.2)

1.3

1.2

6.9

$57.2

$(22.6)

$1.3

$35.9

Amortization of other finite-lived intangible assets for the years
ended December 31, 2009, 2008 and 2007 was $3.3 million,
$3.3 million and $2.1 million, respectively. As of December 31,
2009, we expect amortization expense on other finite-lived intan-
gibles for the next five years as follows: 2010 — $3.7 million;
2011 — $3.5 million; 2012 — $3.1 million; 2013 — $3.1 million;
and 2014 — $3.0 million.

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Note 3 — EMPLOYEE SEPARATION AND PLANT PHASEOUT

Management has undertaken certain restructuring initiatives to
reduce costs and, as a result, we have incurred employee separa-
tion and plant phaseout costs.

Employee separation costs include one-time termination ben-
efits including salary continuation benefits, medical coverage and
outplacement assistance and are based on a formula that takes
into account each individual employee’s base compensation and
length of service. Employee separation costs also include on-going
postemployment benefits accounted for under FASB ASC Topic 712,
Compensation — Nonretirement Postemployment Benefits, which
are accrued when it is probable that a liability has been incurred and
the amount can be reasonably estimated.

Plant phaseout costs include the impairment of property, plant
and equipment at manufacturing facilities and the resulting write-
down of the carrying value of these assets to fair value, which
represents management’s best estimate of the net proceeds to be
received for the assets to be sold or scrapped, less any costs to
sell. Plant phaseout costs also include cash facility closing costs
and lease termination costs. Assets transferred to our other facil-
ities are transferred at net book value.

Employee separation and plant phaseout costs associated
with continuing operations are reflected on the line Corporate
and eliminations in Note 16, Segment Information. A summar y of
total employee separation and plant phaseout costs, including
where the charges are recorded in the accompanying consolidated
statements of operations, follows:

(In millions)

Cost of sales

Selling and administrative

Total employee separation and plant

2009

2008

2007

$24.4 $29.3 $1.4

2.8

10.4

0.8

phaseout

$27.2 $39.7 $2.2

Included in employee separation and plant phaseout costs
shown in the preceding table were charges of $7.4 million, included
in Cost of sales, and $1.2 million, included in Selling and admin-
istrative, for accelerated depreciation on assets related to the 2009
restructuring initiatives discussed below. Cash payments for
employee separation and plant phaseout costs during 2009,
2008 and 2007 were $32.1 million, $5.5 million and $1.5 million,
respectively.

In July 2008, we announced the restructuring of certain man-
ufacturing assets, including the closure of seven production facil-
ities in North America and one in the United Kingdom. In January
2009, we announced further cost saving measures that included
eliminating approximately 370 positions worldwide, implementing
reduced work schedules for another 100 to 300 employees, closing
our Niagara, Ontario facility and idling certain other capacity. We
recognized charges of $26.9 million and $38.3 million in 2009 and
2008, respectively, related to these actions. We do not expect to
incur significant additional expenses associated with these
activities.

The following table details the charges and changes to the
the year ended

reserves associated with these initiatives for
December 31, 2009:

Employee

Plant Phaseout Costs

(Dollars in millions, except employee

Separation

Cash

Asset

numbers)

Costs

Closure

Write-downs

Total

Balance at January 1, 2008

$ — $ — $ — $ —

Charge

Utilized

Balance at December 31,

2008

Charge

Utilized

26.1

2.2

10.0

38.3

(2.4)

(1.5)

(10.0)

(13.9)

$ 23.7

$ 0.7

$ — $ 24.4

3.0

8.4

15.5

26.9

(23.8)

(7.5)

(15.5)

(46.8)

Impact of foreign currency

translation

0.1

—

0.2

Balance at December 31,

2009

$ 3.0

$ 1.7

$ — $ 4.7

In addition to the above, during 2009 and 2008, we incurred
$0.3 million and $1.1 million, respectively, of expense related to
executive severance agreements, which was included in Selling and
administrative in the accompanying consolidated statements of
operations. In 2009 and 2008, we paid $0.8 million and $1.0 mil-
lion, respectively, related to executive severance agreements. Our
liability for unpaid executive severance costs was $0.6 million at
December 31, 2009 and will be paid over the next 12 months.

Note 4 — FINANCIAL INFORMATION OF EQUITY AFFILIATES

SunBelt Chlor-Alkali Partnership (SunBelt) is the most significant of
our equity investments and is reported in the Resin and Interme-
diates segment. PolyOne owns 50% of SunBelt. The remaining 50%
of SunBelt is owned by Olin SunBelt Inc., a wholly owned subsidiary
of the Olin Corporation.

Summarized financial information for SunBelt follows:

(In millions)

SunBelt:

Net sales

Operating income

Partnership income as reported by

2009

2008

2007

$167.4

$173.0

$180.6

$ 67.6

$ 73.6

$ 91.3

SunBelt

$ 59.4

$ 65.1

$ 82.0

PolyOne’s ownership of SunBelt

50%

Earnings of equity affiliate recorded

by PolyOne

$ 29.7

$ 32.5

$ 41.0

Summarized balance sheet as of December 31:

2009

2008

Current assets

Non-current assets

Total assets

Current liabilities

Non-current liabilities

Total liabilities

Partnership interest

$ 16.1

$ 22.4

94.1

110.2

21.4

85.3

107.7

130.1

19.7

97.5

106.7

117.2

3.5

$ 12.9

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OxyVinyls, a former 24% owned affiliate, purchases chlorine
from SunBelt under an agreement that expires in 2094. The agree-
ment requires OxyVinyls to purchase all of the chlorine that is
produced by SunBelt up to a maximum of 250,000 tons per year
at market price, less a discount. OxyVinyls’ chlorine purchases from
SunBelt were $33.9 million in 2007 through its disposition date of
July 6, 2007.

On July 6, 2007, we sold our 24% interest in OxyVinyls, a
manufacturer and marketer of PVC resins, for cash proceeds of
$261 million.

The following table presents OxyVinyls’ summarized financial

results for the periods indicated:

Summarized balance sheet as of December 31:

Current assets

Non-current assets

Total assets

Current liabilities

Non-current liabilities

Total liabilities

2009

2008

$ 7.1

$31.4

4.2

12.3

$11.3

$43.7

$ 8.8

$24.6

—

1.6

$ 8.8

$26.2

On October 13, 2009, we sold our interest in Geon Polimeros
Andinos (GPA), previously a 50% owned equity affiliate and part of
the Per formance Products and Solutions operating segment. We
received cash proceeds of $13.5 million and recorded a pre-tax gain
of $2.8 million in the fourth quarter 2009 results of operations.

(In millions)

OxyVinyls:

Net sales

Operating income

Partnership (loss) as reported by OxyVinyls

PolyOne’s ownership of OxyVinyls

PolyOne’s proportionate share of OxyVinyls’ (loss)

Amortization of the difference between PolyOne’s

investment and its underlying share of OxyVinyls’
equity

Six Months Ended

June 30, 2007

$1,107.4

11.6

(2.0)

24%

(0.5)

0.3

Note 5 — FINANCING ARRANGEMENTS

Short-term debt — At December 31, 2009 and 2008, $0.5 million
and $6.2 million, respectively, of short-term notes issued by certain
of our European subsidiaries were outstanding. This short-term
debt has maturities of less than one year, is renewable with the
consent of both parties, and is prepayable.

The weighted-average interest rate on total short-term borrow-
ings was 3.1% at December 31, 2009 and 4.4% at December 31,
2008.

Long-term debt — Long-term debt as of December 31 con-

(Loss) of equity affiliate recorded by PolyOne

(0.2)

sisted of the following:

We recorded an impairment of $14.8 million on our OxyVinyls
investment during 2007 due to an other than temporar y decline in
value. It is included in Income from equity affiliates in the accom-
panying consolidated statements of operations. The impairment is
not reflected in the equity affiliate earnings above because it is
excluded as a measure of segment operating income or loss that is
reported to and reviewed by the chief operating decision maker (See
Note 16, Segment Information).

Our other investments in equity affiliates include the BayOne
Urethane Systems, L.L.C (BayOne) equity affiliate (owned 50%),
which is included in the Specialty Color, Additives and Inks operating
segment, and the Altona Properties equity affiliate (owned 37.4%),
which is included in the Resin and Intermediates operating
segment.

Combined summarized financial information for these equity

affiliates follows:

(In millions)

Net sales

Operating income

Partnership income as reported by other equity

affiliates

Equity affiliate earnings recorded by PolyOne

2009

2008

$77.9

$112.2

6.2

5.4

2.7

7.7

6.6

3.3

(Dollars in millions)

December 31,
2009(1)

December 31,
2008(1)

8.875% senior notes due 2012

$279.5

$279.2

7.500% debentures due 2015

50.0

Medium-term notes:

6.91% medium-term notes due 2009

6.52% medium-term notes due 2010

6.58% medium-term notes due 2011

Credit facility borrowings, facility expires

2011

Total long-term debt

Less current portion

Total long-term debt, net of current

portion

—

19.9

19.7

40.0

19.8

19.6

19.5

40.0

$409.1

$428.1

19.9

19.8

$389.2

$408.3

(1) Book values include unamortized discounts and adjustments

related to hedging instruments, as applicable.

Aggregate maturities of long-term debt for the next five years
are: 2010 — $19.9 million; 2011 — $59.7 million; 2012 —
$279.5 million; 2013 — $0.0 million; 2014 — $0.0 million; and
thereafter — $50.0 million.

During April 2008, we sold an additional $80.0 million aggre-
gate principal amount of 8.875% senior notes due 2012. Net
proceeds from the offering were used to reduce the amount of
receivables previously sold under the receivables sale facility.

On January 3, 2008, we entered into a credit facility with
Citicorp USA, Inc., as administrative agent and as issuing bank,

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and The Bank of New York, as paying agent. The credit agreement
provides for an unsecured revolving and letter of credit facility with
total commitments of up to $40.0 million. The credit agreement
expires on March 20, 2011. Borrowings under the credit facility are
based on the applicable LIBOR rate plus a fixed facility fee of 4.77%.

During 2007, we repurchased $241.4 million aggregate prin-
cipal amounts of our 10.625% senior notes at a premium of
$12.8 million. The premium is shown as a separate line item in
the accompanying consolidated statements of operations. Unam-
ortized deferred note issuance costs of $2.8 million were charged
to expense due to this repurchase and are included in Interest
expense, net in the accompanying consolidated statements of
operations in 2007. Also, during each of the years ended Decem-
ber 31, 2009, 2008 and 2007, $20.0 million of aggregate principal
amount of our medium-term notes became due and were paid.

Included in Interest expense, net

the years ended
December 31, 2009, 2008 and 2007 was interest income of
$3.2 million, $3.4 million, and $4.5 million. Total interest paid
on long-term and short-term borrowings was $35.1 million in 2009,
$37.1 million in 2008 and $45.7 million in 2007.

for

As of December 31, 2009, our secured borrowings were not at
levels that would trigger the security provisions of the indentures
governing our senior notes and debentures and our guarantee of the
SunBelt notes. See Note 12, Commitments and Related-Par ty
Information.

We entered into a definitive Guarantee and Agreement with
Citicorp USA, Inc., KeyBank National Association and National City
Bank on June 6, 2006. Under this Guarantee and Agreement, we
guarantee some treasury management and banking services pro-
vided to us and our subsidiaries, such as foreign currency forwards
and bank overdrafts. This guarantee is secured by our inventories
located in the United States.

We are exposed to market risk from changes in interest rates
on our debt obligations. In prior years we entered into interest rate
swap agreements that modified our exposure to interest rate risk by
converting fixed-rate obligations to floating rates or floating rate
obligations to fixed rates. As of December 31, 2009, there were no
open interest rate swap agreements. The following table shows the
interest rate impact of the swap agreements during 2008 and
2007:

Effective

Interest Rate

during 2008

during 2007

$40.0 million of borrowings under credit
facility with an interest rate of 6.65%

$60.0 million of medium-term notes with a
weighted-average interest rate of 6.67%

$80.0 million of medium-term notes with a
weighted-average interest rate of 6.76%

8.4%

7.1%

—

9.5%

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Note 6 — LEASING ARRANGEMENTS

We lease certain manufacturing facilities, warehouse space,
machinery and equipment, automobiles and railcars under operat-
ing leases. Rent expense was $20.6 million in 2009, $24.0 million
in 2008 and $22.4 million in 2007.

Future minimum lease payments under non-cancelable oper-
ating leases with initial lease terms longer than one year as of
December 31, 2009 were as follows: 2010 — $19.8 million;
2011 — $15.2 million; 2012 — $11.1 million; 2013 — $6.9 mil-
lion; 2014 — $5.6 million; and thereafter — $17.0 million.

Note 7 — ACCOUNTS RECEIVABLE

Accounts receivable as of December 31 consist of the following:

(In millions)

Trade accounts receivable
Retained interest in securitized accounts

receivable

Allowance for doubtful accounts

2009

2008

$129.2

$141.6

151.1

127.2

(5.9)

(6.7)

$274.4

$262.1

The following table details the changes in allowance for doubt-

ful accounts:

(In millions)

2009

2008

2007

Balance at beginning of the year

$(6.7)

$(4.8)

$(5.9)

Provision for doubtful accounts

Accounts written off

Translation and other adjustments

Balance at end of year

(3.3)

(6.0)

(1.9)

4.0

0.1

4.2

3.3

(0.1)

(0.3)

$(5.9)

$(6.7)

$(4.8)

Sale of Accounts Receivable — Under the terms of our receiv-
ables sale facility, we sell accounts receivable to PolyOne Funding
Corporation (PFC) and PolyOne Funding Canada Corporation (PFCC),
both wholly-owned, bankruptcy-remote subsidiaries. PFC and PFCC,
in turn, may sell an undivided interest in up to $175.0 million and
$25.0 million of these accounts receivable, respectively, to certain
investors. The receivables sale facility was amended in June 2007
to extend the maturity of the facility to June 2012 and to, among
other things, modify certain financial covenants and reduce the cost
of utilizing the facility.

As of December 31, 2009 and 2008, accounts receivable
totaling $151.1 million and $141.4 million, respectively, were sold
by us to PFC and PFCC. The maximum proceeds that PFC and PFCC
may receive under the facility is limited to the lesser of $200.0 mil-
lion or 85% of the eligible domestic and Canadian accounts receiv-
able sold. As of December 31, 2009, neither PFC nor PFCC had sold
any of their undivided interests in accounts receivable. As of Decem-
ber 31, 2008, PFC and PFCC had sold $14.2 million of their undi-
vided interests in accounts receivable.

We retain an interest in the difference between the amount of
trade receivables sold by us to PFC and PFCC and the undivided
interest sold by PFC and PFCC as of December 31, 2009 and 2008.
As a result, the interest retained by us is $151.1 million and

$127.2 million and is included in accounts receivable on the
accompanying consolidated balance sheets as of December 31,
2009 and 2008, respectively.

The receivables sale facility also makes up to $40.0 million
available for the issuance of standby letters of credit as a sub-limit
within the $200.0 million limit under the facility, of which $12.8 mil-
lion was used at December 31, 2009. The level of availability under
the receivables sale facility is based on the prior month’s total
accounts receivable sold to PFC and PFCC, as reduced by outstand-
ing letters of credit. Additionally, availability is dependent upon
compliance with a fixed charge coverage ratio covenant related
primarily to operating per formance that is set forth in the related
agreements. As of December 31, 2009, we were in compliance with
these covenants. As of December 31, 2009, $112.8 million was
available for sale.

We also service the underlying accounts receivable and receive
a service fee of 1% per annum on the average daily amount of the
outstanding interests in our receivables. The net discount and other
costs of the receivables sale facility are included in Other expense,
net in the accompanying consolidated statements of operations.

Note 8 — INVENTORIES

Components of Inventories are as follows:

(In millions)

At FIFO or average cost, which
approximates current cost:
Finished products

Work in process

Raw materials and supplies

Reserve to reduce certain inventories

to LIFO cost basis

December 31,

2009

2008

$107.6

$127.4

2.4

72.9
182.9

2.1

109.9
239.4

(23.3)
$159.6

(41.6)
$197.8

During 2009 and 2008, reductions in LIFO inventory layers
resulted in liquidations of LIFO inventory layers carried at lower
costs prevailing in prior years as compared with the cost of current-
year purchases. The effect of LIFO liquidations on Cost of sales in
2009 and 2008 was a decrease of $15.8 million and $7.5 million,
respectively.

Note 9 — PROPERTY

Components of Property, net are as follows:

(In millions)

Land and land improvements
Buildings

Machinery and equipment

Less accumulated depreciation and

amortization

December 31,

2009

2008

40.7
277.0

916.5

40.7
278.6

912.0

1,234.2

1,231.3

(841.8)

(799.3)

$ 392.4

$ 432.0

Depreciation expense was $61.5 million in 2009, $64.7 million
in 2008 and $55.3 million in 2007. During 2009 and 2008, we
recorded $8.6 million and $6.9 million, respectively, of accelerated
depreciation related to the restructuring of certain manufacturing
assets, respectively.

Note 10 — OTHER LIABILITIES

Other liabilities at December 31, 2009 and 2008 consist of the
following:

(In millions)

Employment costs

Environmental

Taxes

Post-retirement benefits

Interest

Pension

Employee separation and plant

phaseout

Insurance accruals

Deferred tax liabilities

Other

Accrued Expenses

Non-current

Liabilities

December 31,

2009

2008

2009

2008

$ 68.8

$ 48.1

$22.0

$10.2

10.2

7.8

4.6

5.2

4.6

5.3

0.4

0.5

9.6

14.1

5.0

10.1

4.8

4.6

25.5

0.3

—

5.7

71.5

—

0.8

3.8

0.5

—

0.2

—

1.5

$117.0

$118.2

$98.6

$83.4

Note 11 — EMPLOYEE BENEFIT PLANS

We have several pension plans; however, as of December 31, 2009,
only certain foreign plans accrue benefits. The plans generally
provide benefit payments using a formula that is based upon
employee compensation and length of service. All U.S. defined
benefit pension plans are frozen from accruing benefits and are
closed to new participants.

We also sponsor several unfunded defined benefit post-retire-
ment plans that provide subsidized health care and life insurance
benefits to certain retirees and a closed group of eligible employ-
ees. On September 1, 2009, we adopted changes to our U.S. pos-
tretirement healthcare plan whereby, effective January 1, 2010, the
plan, for certain eligible retirees, will be discontinued, and benefits
will be phased out through December 31, 2012. Only certain

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employees hired prior to December 31, 1999 are eligible to par-
ticipate in our subsidized post-retirement health care and life insur-
ance plans. These amendments resulted in a curtailment gain of

$21.1 million in our 2009 results and decreased the accumulated
pension benefit obligation by $58.1 million.

The following tables present the change in benefit obligation, change in plan assets and components of funded status for defined benefit

pension and post-retirement health care benefit plans. Actuarial assumptions that were used are also included.

(In millions)

Change in benefit obligation:

Projected benefit obligation — beginning of year

Service cost

Interest cost

Participant contributions

Benefits paid

Plan amendments/settlements

Change in discount rate and other

Projected benefit obligation — end of year

Projected salary increases

Accumulated benefit obligation

Change in plan assets:

Plan assets — beginning of year

Actual return on plan assets

Company contributions

Plan participants’ contributions

Benefits paid

Other

Plan assets — end of year

Under-funded status at end of year

Pension Benefits

Health Care Benefits

2009

2008

2009

2008

$ 501.2

$ 487.1

$ 91.0

$ 91.5

1.4

30.7

0.1

(38.9)

(18.0)

22.2

1.3

32.4

—

(37.0)

2.2

15.2

0.1

4.1

5.9

(10.9)

(58.1)

(5.5)

0.3

5.5

6.0

(12.1)

6.1

(6.3)

$ 498.7

$ 501.2

$ 26.6

$ 91.0

2.1

19.9

—

$ 496.6

$ 481.3

$ 26.6

$ 91.0

$ 271.9

$ 401.3

$ — $ —

63.7

23.5

0.1

(120.8)

29.8

—

5.0

5.9

—

6.1

6.0

(38.9)

(37.0)

(10.9)

(12.1)

0.3

(1.4)

—

$ 320.6

$ 271.9

$ — $ —

$(178.1)

$(229.3)

$(26.6)

$(91.0)

Plan assets of $320.6 million and $271.9 million as of December 31, 2009 and 2008, respectively, relate to our funded pension plans
that have a projected benefit obligation of $455.4 million and $458.1 million as of December 31, 2009 and 2008, respectively. As of
December 31, 2009 and 2008, we are 70% and 59% funded, respectively, in regards to these plans and their respective projected benefit
obligation.

Amounts included in the accompanying consolidated balance sheets are as follows:

Pension Benefits

Health Care Benefits

2009

0.3

5.0

173.4

2008

0.3

4.6

225.0

2009

$ —

4.6

22.0

2008

$ —

10.1

80.9

Pension Benefits

Health Care Benefits

2009

$229.0

1.2

2008

$279.4

1.2

$230.2

$280.6

2009

$ 8.9

(52.3)

$(43.4)

2008

$ 15.7

(24.4)

$ (8.7)

(In millions)

Other non-current assets

Current liabilities

Long-term liabilities

Amounts recognized in AOCI:

(In millions)

Net loss

Prior service loss (credit)

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Change in AOCI:

(In millions)

AOCI in prior year

Prior service (cost) credit recognized during year

Prior service (cost) credit occurring in the year

Net loss (gain) recognized during the year

Net (gain) loss occurring in the year

Other adjustments

AOCI in current year

Pension Benefits

Health Care Benefits

2009

$280.6

(0.5)

0.5

(12.0)

(38.5)

0.1

2008

$114.8

(0.2)

1.9

(7.7)

172.1

(0.3)

2009

2008

$ (8.7)

$(13.8)

30.3

(58.1)

(0.6)

(6.4)

0.1

5.5

6.1

(1.1)

(4.8)

(0.6)

$230.2

$280.6

$(43.4)

$ (8.7)

As of December 31, 2009 and 2008, we had plans with total projected and accumulated benefit obligations in excess of the related plan

assets as follows:

(In millions)

Projected benefit obligation

Accumulated benefit obligation

Fair value of plan assets

Weighted-average assumptions used to determine benefit obligation at December 31:

Discount rate

Rate of compensation increase

Assumed health care cost trend rates at December 31:

Health care cost trend rate assumed for next year

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

Year that the rate reaches the ultimate trend rate

Pension Benefits

Health Care Benefits

2009

2008

2009

2008

$497.9

$499.6

$26.6

$91.0

495.9

319.6

480.2

270.4

26.6

91.0

—

Health Care

Pension Benefits

Benefits

2009

2008

2009

2008

6.17% 6.62% 5.61% 6.65%

3.5%

—

— 9.25% 9.25%

— 5.00% 5.00%

— 2016

2015

Assumed health care cost trend rates have an effect on the amounts reported for the health care plans. A one percentage point change

in assumed health care cost trend rates would have the following impact:

(In millions)

Effect on total of service and interest cost

Effect on post-retirement benefit obligation

One Percentage

Point Increase

Point Decrease

$0.2

1.2

$(0.2)

(1.1)

An expected return on plan assets of 8.5% will be used to determine the 2010 pension expense. The expected long-term rate of return on
pension assets was determined after considering the historical experience of long-term asset returns by asset category, the expected
investment portfolio mix by category of asset and estimated future long-term investment returns.

The following table summarizes the components of net period benefit cost that was recognized during each of the years in the three-year

period ended December 31, 2009. Actuarial assumptions that were used are also included.

(In millions)

Components of net periodic benefit costs:

Service cost

Interest cost

Expected return on plan assets

Amortization of net loss

Curtailment (gain) loss and settlement charges

Amortization of prior service credit (cost)

Pension Benefits

Health Care Benefits

2009

2008

2007

2009

2008

2007

$ 1.4

$ 1.3

$ 1.1

$ 0.1

$ 0.3

$ 0.4

30.7

32.4

30.1

(21.8)

(33.4)

(31.8)

12.1

(0.8)

0.8

7.5

0.5

0.2

9.6

0.3

4.1

—

0.6

(21.1)

5.5

—

1.2

—

5.2

—

1.7

—

$ 22.4

$ 8.5

$ 9.2

$(25.4)

$ 1.4

$ 1.5

(0.1)

(9.1)

(5.6)

(5.8)

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Weighted-average assumptions used to determine net periodic benefit cost for the years

ended December 31:

Discount rate

Expected long-term return on plan assets

Rate of compensation increase

Assumed health care cost trend rates at December 31:

Health care cost trend rate assumed for next year

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

Year that the rate reaches the ultimate trend rate

Pension Benefits

Health Care Benefits

2009

2008

2007

2009

2008

2007

6.61% 6.78% 6.07% 6.50% 6.61% 6.02%

8.50% 8.50% 8.50%

3.5%

—

— 9.25% 9.25% 10.0%

— 5.00% 5.00% 5.25%

— 2015

2015

2013

The amounts in accumulated other comprehensive income that
are expected to be amortized as net expense (income) during fiscal
year 2010 are as follows:

(In millions)

Pension Benefits

Health Care Benefits

Amount of net prior service credit

Amount of net loss

$0.8

9.3

$(17.4)

0.7

(In millions)

Asset category

Cash

Large cap equity funds

Mid cap equity funds

Small cap equity funds

Our pension asset investment strategy is to diversify the asset

Global equity funds

portfolio among and within asset categories to enhance the portfo-

Fixed income funds

lio’s risk-adjusted return. Our portfolio asset mix also considers the

Multi-asset mutual fund

duration of plan liabilities, historical and expected returns of the

Floating rate income fund

asset investments, and the funded status of the plan. The pension

Fund of hedge funds

Fair Value of Plan Assets at December 31, 2009

Level 1

Level 2

Level 3

Total

$ 14.4

$— $ —

$ 14.4

38.9

32.4

28.4

109.8

48.3

22.2

11.0

—

15.2

38.9

32.4

28.4

109.8

48.3

22.2

11.0

15.2

asset allocation is reviewed and actively managed based on the

Total plan assets

$305.4

$— $15.2

$320.6

funded status of the plan. As the funded status of the plan

increases, the asset allocation is adjusted to decrease the level

of risk. Based on the current funded status of the plan, our pension

asset investment allocation guidelines are to invest 40% to 75% in

equity securities, 15% to 45% in fixed income securities and 10% to

30% in alternative investments. These alternative investments may

include funds of multiple asset investment strategies and funds of

hedge funds.

Details of the pension plan assets as of December 31, 2009

and 2008 are listed below. The fair value of the plan assets are

presented using a three-tier hierarchy. The hierarchy indicates the

extent to which inputs used in measuring fair value are observable

in the market and are based on the following:

Level 1 — quoted prices in active markets for identical instru-

ments and are the most observable

Level 2 — other significant observable inputs including quoted

prices for similar assets and observable inputs such as interest

rates, foreign currency exchange rates, commodity rates and yield

curves

Level 3 — significant unobservable inputs (including the fund’s

own judgments about the assumptions market participants would

use in pricing the investment)

Large cap equity funds invest in publicly-traded equity securities
of companies with a market capitalization typically in excess of
$10 billion with a focus on growth or value. Mid cap equity funds
invest in publicly-traded equity securities of companies with a market
capitalization typically greater than $2 billion but less than $10 billion
with a focus on growth or value. Small cap equity funds invest in
publicly-traded equity securities of companies with a market capital-
ization typically less than $2 billion with a focus on growth or value.
Global equity funds invest in publicly-traded equity securities of
companies domiciled in the U.S., developed international countries,
and emerging markets typically with a market capitalization greater
than $2 billion with a focus on growth or value. Fixed income funds
invest primarily in investment grade fixed income securities. The
multi-asset mutual fund strategy is based on a diverse range of
investments including, but not limited to, investment grade and high
yield bonds, international and emerging market bonds, inflation-
indexed bonds, equities and commodities. The floating rate income
fund strategy is to invest primarily in a diversified portfolio of first and
second lien high-yield senior floating rate loans and other floating rate
debt securities.

Included in our Level 3 assets are investments in funds of
hedge funds. The strategy of these investments is to achieve a
return in excess of LIBOR by a margin of five hundred basis points
annualized over a full market cycle by investing in 25 or more
sub-hedge funds with a wide variety of different investment strat-
egies. These investment funds use unobservable inputs that reflect
assumptions market participants would be expected to use in

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pricing the asset. Unobservable inputs are used to measure fair
value to the extent that observable inputs are not available and are
developed based on the best information available under the cir-
cumstances. In developing unobser vable inputs, market participant
assumptions are used if they are reasonably available without
undue cost and effort. Due to liquidity restrictions related to these
investments, the plan redeemed one of the fund of hedge funds
investments in 2009, and the remaining fund of hedge funds
investment has been scheduled to be redeemed in 2010.

The following table is a reconciliation of our beginning and

ending balances of our Level 3 assets for 2009:

(In millions)

Level 3 plan assets — beginning of year

Return on plan assets still held at year end

Return on plan assets sold during the year

Purchases, sales and settlements, net

Level 3 plan assets — end of year

$ 37.0

3.1

(0.3)

(24.6)

15.2

The estimated future benefit payments for our pension and

health care plans are as follows:

(In millions)

2010

2011

2012

2013

2014

2015 through 2019

Medicare

Pension

Health Care

Part D

Benefits

Subsidy

$ 37.6

$4.6

$0.2

38.1

37.8

38.0

38.2

195.1

3.6

2.9

2.2

2.1

9.1

0.2

0.1

0.6

We currently estimate that 2010 employer contributions will be
$20.8 million to all qualified and nonqualified pension plans and
$4.6 million to all health care benefit plans.

We sponsor a voluntary retirement savings plan (RSP). Under
the provisions of this plan, eligible employees receive defined
Company contributions of 2% of their eligible earnings plus they
are eligible for Company matching contributions based on the first
6% of their eligible earnings contributed to the plan. In addition, we
may make discretionary contributions to this plan for eligible
employees based on a specific percentage of each employee’s
compensation.

Following are our contributions to the RSP:

(In millions)

Retirement savings match

2009

2008

2007

$5.8

$ 6.0

$ 5.7

Retirement benefit contribution

3.7

4.8

4.9

$9.5

$10.8

$10.6

Note 12 — COMMITMENTS AND RELATED-PARTY INFORMATION

Environmental — We have been notified by U.S. federal and state
environmental agencies and by private parties that we may be a
potentially responsible party (PRP) in connection with the investi-
gation and remediation of a number of environmental waste

disposal sites. While government agencies frequently assert that
PRPs are jointly and severally liable at these sites, in our experi-
ence, interim and final allocations of liability costs are generally
made based on the relative contribution of waste. We believe that
our potential continuing liability with respect to these sites will not
have a material adverse effect on our consolidated financial posi-
tion, results of operations or cash flows. In addition, we initiate
corrective and preventive environmental projects of our own to
ensure safe and lawful activities at our operations. We believe that
compliance with current governmental regulations at all levels will
not have a material adverse effect on our financial condition.

In September 2007, we were informed of rulings by the United
States District Court for the Western District of Kentucky on several
pending motions in the case of Westlake Vinyls, Inc. v. Goodrich
Corporation, et al., which has been pending since 2003. The Court
held that PolyOne must pay the remediation costs at the former
Goodrich Corporation (now Westlake Vinyls, Inc.) Calvert City facility,
together with certain defense costs of Goodrich Corporation. The
rulings also provided that PolyOne can seek indemnification for
contamination attributable to Westlake Vinyls.

The environmental obligation at the site arose as a result of an
agreement by our predecessor, The Geon Company, at the time of
its spin-off from Goodrich Corporation in 1993, to indemnify Goo-
drich Corporation for environmental costs at the site. Neither Poly-
One nor The Geon Company ever owned or operated the facility.
Following the Court rulings, the parties to the litigation entered into
settlement negotiations and agreed to settle all claims regarding
past environmental costs incurred at the site. Subject to applicable
insurance recoveries, we recorded a charge of $15.6 million and
made payments, net of related receipts of $18.8 million, in 2007 for
past remediation activities related to these Court rulings.

Based on these same Court rulings and the settlement agree-
ment, we adjusted our environmental reserve for future remediation
costs, a portion of which already related to the Calvert City site,
resulting in a charge of $28.8 million in 2007. The settlement
agreement provides a mechanism to allocate future remediation
costs at the Calvert City facility to Westlake Vinyls, Inc. We will
adjust our environmental reserve in the future, consistent with any
such future allocation of costs.

Based on estimates prepared by our environmental engineers
and consultants, we had accruals, totaling $81.7 million as of
December 31, 2009 and $85.6 million as of December 31,
2008 for probable future environmental expenditures relating to
previously contaminated sites. These accruals are included in
Accrued expenses and Other non-current liabilities on the accom-
panying consolidated balance sheets. The accruals represent our
best estimate of the remaining probable remediation costs, based
upon information and technology that is currently available and our
view of the most likely remedy. Depending upon the results of future
testing, the ultimate remediation alternatives undertaken, changes
in regulations, new information, newly discovered conditions and
other factors, it is reasonably possible that we could incur addi-
tional costs in excess of the accrued amount at December 31,

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2009. However, such additional costs, if any, cannot be currently
estimated. Our estimate of this liability may be revised as new
regulations or technologies are developed or additional information
is obtained. These remediation costs are expected to be paid over
the next 30 years.

The following table details the changes in the environmental

accrued liabilities:

(In millions)

2009

2008

2007

Balance at beginning of the year

$ 85.6

$ 83.8

$ 59.5

Environmental remediation (benefit)

expenses, net of recoveries

(12.2)

15.6

48.8

Note 14 — INCOME TAXES

For financial statement reporting purposes, income before income
taxes is summarized below based on the geographic location of the
operation to which such earnings are attributable. Certain foreign
operations are branches of PolyOne and are, therefore, subject to
United States (U.S.) as well as foreign income tax regulations. As a
result, pre-tax income by location and the components of income tax
expense by taxing jurisdiction are not directly related.

Income (loss) before income taxes and discontinued opera-
tions for the periods ended December 31, 2009, 2008 and 2007
consists of the following:

Cash receipts (payments), net of

insurance recoveries

Translation and other adjustments

7.6

0.7

(12.6)

(25.5)

(1.2)

1.0

(In millions)

Domestic

Foreign

Balance at end of year

$ 81.7

$ 85.6

$ 83.8

2009

2008

2007

$51.6

$(138.8)

$(57.7)

2.9

(32.3)

25.3

$54.5

$(171.1)

$(32.4)

Our environmental expense is presented net of insurance and
other recoveries of $23.9 million in 2009 and $1.5 million in 2008
and is included in Cost of sales in the accompanying consolidated
statements of operations. There were no insurance recoveries
during 2007. In 2009, we received $23.9 million from our former
parent company as partial reimbursement of certain previously
incurred environmental remediation costs. In 2007, environmental
expense included the $15.6 million charge related to the settle-
ment agreement and the $28.8 million reserve adjustment dis-
cussed above.

Guarantees — We guarantee $48.8 million of SunBelt’s out-
standing senior secured notes in connection with the construction
of a chlor-alkali facility in McIntosh, Alabama. This debt matures in
equal installments annually until 2017.

Related-Party Transactions — We purchase a substantial por-
tion of our PVC resin and all of our vinyl chloride monomer (VCM) raw
materials under supply agreements with OxyVinyls. We have also
entered into various service agreements with OxyVinyls. We sold our
24% equity interest in OxyVinyls on July 6, 2007. Purchases of raw
materials from OxyVinyls were $152 million for the six months
ended June 30, 2007.

A summar y of income tax (expense) benefit for the periods

ended December 31, 2009, 2008 and 2007 is as follows:

(In millions)

Current:

Federal

State

Foreign

Total current

Deferred:

Federal

State

Foreign

2009

2008

2007

$ 4.0

— $ (3.3)

4.3

10.9

(3.9)

(8.5)

(3.2)

(6.8)

$19.2

$ (12.4)

$(13.3)

$ (1.7)

$ (88.6)

$ 55.3

—

(4.2)

(3.3)

2.5

2.6

(0.8)

Total deferred

$ (5.9)

$ (89.4)

$ 57.1

Total tax benefit (expense)

$13.3

$(101.8)

$ 43.8

The principal items accounting for the difference in income
taxes computed at the U.S. statutor y rate for the periods ended
December 31, 2009, 2008 and 2007 are as follows:

(In millions)

2009

2008

2007

Computed tax (expense) benefit at

35% of income (loss) from
continuing operations before taxes

$(19.1)

$ 59.9

$11.3

State tax, net of federal benefit

2.8

(2.5)

(0.4)

Note 13 — OTHER EXPENSE, NET

Other expense, net for the years ended December 31, 2009, 2008
and 2007 consist of the following:

(In millions)

2009

2008

2007

Differences in rates of foreign

operations

Changes in valuation allowances

Impact from sale of interest in

OxyVinyls

Impact of goodwill impairment charge

Recognition of uncertain tax positions

Currency exchange gain (loss)

$(0.1)

$ 1.2

$(5.0)

Other, net

4.5

23.3

1.2

(105.9)

2.6

(1.0)

—

0.6

1.2

—

31.5

(54.2)

(0.3)

—

(0.2)

Foreign exchange contracts (loss) gain

Discount on sale of trade receivables

Impairment of available for sale security

Other expense, net

(7.9)

(1.3)

—

(0.3)

(1.3)

(3.6)

(0.6)

(0.3)

0.7

(2.0)

—

(0.3)

$(9.6)

$(4.6)

$(6.6)

Income tax benefit (expense)

$ 13.3

$(101.8)

$43.8

We have U.S. federal net operating loss carryforwards of
$66.0 million, which expire at various dates from 2024 through
2028 and combined state net operating loss carryforwards of
$314.6 million, which expire at various dates from 2010 through

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2029. Various foreign subsidiaries have net operating loss carryfor-
wards totaling $34.5 million, which expire at various dates from
2010 through 2019. We have provided valuation allowances of
$42.9 million against many loss carryforwards.

A reconciliation of the beginning and ending amount of unrec-

ognized tax benefits is as follows:

Components of our deferred tax liabilities and assets as of

(In millions)

December 31, 2009 and 2008 were as follows:

Balance as of January 1

2009

2008

Additions based on tax positions related to the

current year

Additions for tax positions of prior years

Reductions for tax positions of prior years

Settlements

Balance as of December 31

Unrecognized Tax

Benefits

2009

2008

$ 6.3

$6.0

0.9

7.1

(6.0)

(0.3)

—

0.3

—

$ 8.0

$6.3

(In millions)

Deferred tax liabilities:

Tax over book depreciation

$ 26.2

$ 36.6

Intangibles

Equity investments

Other, net

2.8

—

10.8

2.9

1.7

7.5

Total deferred tax liabilities

$ 39.8

$ 48.7

Deferred tax assets:

Equity investments

Post-retirement benefits other than pensions

Employment cost and pension

Environmental

Net operating loss carryforward

State taxes

Alternative minimum tax credit carryforward

Other, net

Total deferred tax assets

Tax valuation allowance

Net deferred tax assets

1.6

9.7

61.0

28.1

32.7

21.2

8.3

13.9

—

36.1

77.7

29.4

41.9

23.6

12.5

16.5

$ 176.5

$ 237.7

(132.9)

(187.5)

3.8

1.5

The deferred asset related to state taxes and the related
valuation allowance were each increased from amounts previously
reported by $18.4 million associated with state net operating
losses in states in which realization of the related tax benefits
do not meet the more likely than not threshold.

No provision has been made for income taxes on undistributed
earnings of consolidated non-United States subsidiaries of
$151 million at December 31, 2009 since it is our intention to
indefinitely reinvest undistributed earnings of our foreign subsid-
iaries. It is not practicable to estimate the additional income taxes
and applicable foreign withholding taxes that would be payable on
the remittance of such undistributed earnings.

We received worldwide income tax refunds of $0.2 million in
2009, net of payments of $15.3 million. Worldwide income tax
payments in 2008 and 2007 were $9.6 million and $18.3 million,
respectively.

As of December 31, 2009, we have an $8.0 million liability for
uncertain tax positions all of which, if recognized, would impact the
effective tax rate. We expect that the amount of uncertain tax
positions will change in the next twelve months due to the resolution
of an income tax audit in a foreign jurisdiction.

We recognize interest and penalties related to uncertain tax
positions in the provision for income taxes. As of December 31,
2009 and December 31, 2008, we have accrued $0.6 million and
$2.5 million of interest and penalties, respectively.

We are no longer subject to U.S. income tax examinations for
periods preceding 2005, and with limited exceptions, for periods
preceding 2002 for both foreign and state and local
tax
examinations.

Note 15 — SHARE-BASED COMPENSATION

Share-based compensation cost is based on the value of the por-
tion of share-based payment awards that are ultimately expected to
vest during the period. Share-based compensation cost recognized
in the accompanying consolidated statements of operations for the
years ended December 31, 2009, 2008 and 2007 includes com-
pensation cost for share-based payment awards based on the grant
date fair value estimated in accordance with the provision of FASB
ASC Topic 718, Compensation — Stock Compensation. Because
share-based compensation expense recognized in the accompany-
ing consolidated statements of operations for the years ended
December 31, 2009, 2008 and 2007 is based on awards ultimately
expected to vest, it has been reduced for estimated for feitures. We
estimate for feitures at the time of grant and revise that estimate, if
necessary, in subsequent periods if actual for feitures differ from
those estimates.

We have one active share-based compensation plan, which is
described below. Share-based compensation is included in Selling
and administrative in the accompanying consolidated statements of
operations. A summary of compensation expense by type of award
follows:

(In millions)

Stock appreciation rights

Restricted stock units

Restricted stock awards

Per formance shares

2009

2008

2007

$1.2

$1.5

$ 4.1

1.3

0.1

—

0.8

0.7

—

0.7

(0.5)

Total share-based compensation

$2.6

$3.0

$ 4.3

2008 Equity and Performance Incentive Plan

In May 2008, our shareholders approved the PolyOne Corporation
2008 Equity and Per formance Incentive Plan (2008 EPIP). This plan
replaced the 2005 Equity and Per formance Incentive Plan (2005
EPIP). The 2005 EPIP was frozen upon the approval of the 2008
EPIP in May 2008. The 2008 EPIP provides for the award of a variety

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of share-based compensation alternatives, including non-qualified
stock options, incentive stock options, restricted stock, restricted
stock units (RSUs), per formance shares, per formance units and
stock appreciation rights (SARs). A total of five million shares of
common stock have been reserved for grants and awards under the
2008 EPIP. It is anticipated that all share-based grants and awards
that are earned and exercised will be issued from shares of PolyOne
common stock that are held in treasury.

Stock Appreciation Rights

options granted was set equal to the midpoint between the vesting
and expiration dates for each grant. The expected volatility was
determined based on the average weekly volatility for our common
stock for the contractual life of the awards. Dividends were not
included in this calculation because we do not currently pay divi-
dends. The risk-free rate of return was based on available yields on
U.S. Treasury bills of the same duration as the contractual life of the
awards. Forfeitures were estimated at 3% per year based on our
historical experience.

During the years ended December 31, 2009, 2008 and 2007, the
total number of SARs granted were 1,411,000, 1,094,400 and
1,626,900, respectively. The 2009 awards vest in one-third incre-
ments annually over a three-year service period and the achieve-
ment of certain stock price targets. The 2008 awards vest in one-
third increments annually over a three-year service period. The
2007 awards vest based on a service period of one year and the
achievement of certain stock price targets. All SARs expire seven
years after the date of grant.

The SARs granted during 2009 and 2007 were valued using a
Monte Carlo simulation method as the vesting is dependent on the
achievement of certain stock price targets. The expected term of

The SARs granted during 2008 were valued using the Black-
Scholes method as the awards only have time-based vesting
requirements. The expected term of SARs granted was determined
based on the “simplified method” described in Staff Accounting
Bulletin (SAB) Topic 14.D.2, which is permitted if historical exercise
experience is not sufficient. The expected volatility was determined
based on the average weekly volatility for our common stock for the
expected term of the awards. Dividends were not included in this
calculation because we do not currently pay dividends. The risk-free
rate of return was based on available yields on U.S. Treasury bills of
the same duration as the expected option term. Forfeitures were
estimated at 3% per year based on our historical experience.

The following is a summary of the assumptions related to the grants issued during 2009, 2008 and 2007:

Expected volatility (weighted-average)

Expected dividends

Expected term (in years)

Risk-free rate

Value of SARs granted

2009

49.7%

—

4.5 — 5.6

2008

36.9%

—

4.5

2007

44.1%

—

4.0 — 4.4

3.25%

2.48% — 3.08%

3.88% — 4.30%

$0.61 — $0.68

$2.26 — $2.68

$2.68 — $3.05

A summary of SAR activity under the 2008 EPIP as of December 31, 2009 and during 2009 is presented below:

(Shares in thousands, dollars in millions, except per share data)

Stock Appreciation Rights

Outstanding as of January 1, 2009

Granted

Exercised

Forfeited or expired

Outstanding as of December 31, 2009

Vested and exercisable as of December 31, 2009

Weighted-Average

Aggregate

Exercise Price

Remaining

Intrinsic

Per Share

Contractual Term

Value

$7.18

1.43

6.77

6.36

5.66

7.14

4.33 years

3.47 years

$10.8

$ 1.9

4,015

1,411

(1)

(215)

5,210

2,762

The weighted-average grant date fair value of SARs granted
during 2009, 2008 and 2007 was $0.65, $2.28, and $2.74,
respectively. The total intrinsic value of SARs that were exercised
during 2009, 2008 and 2007 was less than $0.1 million for each
year. As of December 31, 2009, there was $1.4 million of total
unrecognized compensation cost
related to SARs, which is
expected to be recognized over the next 28 months.

Restricted Stock Units

During 2009, 810,100 RSU’s were granted to key employees. A
RSU represents a contingent right to receive one share of our
common stock at a future date provided there is a continuous

three-year service period and the achievement of certain stock
price targets. The RSUs were valued using a Monte Carlo simulation
method as the award is dependent on the achievement of certain
stock price targets. The expected term of the awards granted was
set at three years, consistent with the per formance period of the
awards. The expected volatility was determined to be 53.3% based
on the three-year historical average weekly volatility for our common
stock. Dividends were not included in this calculation because we
do not currently pay dividends. The risk-free rate of return was
estimated as 1.5% based on available yields on U.S. Treasury bills
for three-years as of the grant date of the awards. Forfeitures were
estimated at 3% per year based on our historical experience.

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During 2008, RSUs were granted to executives and other key
employees. The only attainment requirement for the 2008 awards
is a continuous three-year service period. Compensation expense is
measured on the grant date using the quoted market price of our
common stock and is recognized on a straight-line basis over the
requisite service period.

As of December 31, 2009, 1,258,392 RSUs remain unvested
with a weighted-average grant date fair value of $3.30 and a
weighted-average remaining contractual term of 22 months. Unrec-
ognized compensation cost for RSUs at December 31, 2009 was
$1.9 million.

Restricted Stock Awards

In 2007, we issued restricted stock as part of the compensation
package for executives and other key employees. The value of the
restricted stock was established using the market price of our
common stock on the date of grant. Compensation expense is

being recorded on a straight-line basis over the three-year cliff
vesting period of the restricted stock. As of December 31, 2009,
12,100 shares of restricted stock remain unvested with a weighted-
average grant date fair value of $7.28 and a weighted-average
remaining contractual term of ten months. Unrecognized compen-
sation cost for restricted stock awards as of December 31, 2009
was less than $0.1 million.

Stock Options

Our incentive stock plans previously provided for the award or grant
of options to purchase our common stock. Options were granted in
2004 and prior years. Options granted generally became exercis-
able at the rate of 35% after one year, 70% after two years and 100%
after three years. The term of each option does not extend beyond
10 years from the date of grant. All options were granted at 100% or
greater of market value (as defined) on the date of the grant.

A summary of option activity as of December 31, 2009 and changes during 2009 follows:

(Shares in thousands, dollars in millions, except per share data)

Options

Outstanding as of January 1, 2009

Exercised

Forfeited or expired

Outstanding, vested and exercisable as of December 31, 2009

Weighted-Average

Aggregate

Exercise Price Per

Remaining

Intrinsic

Contractual Term

Value

$11.43

—

13.57

10.10

1.36 years

$0.4

3,377

—

(1,550)

1,827

No stock options were exercised during 2009. The total intrinsic value of stock options that were exercised during 2008 and 2007 was
$0.4 million and $0.2 million, respectively. Cash received during 2008 and 2007 from the exercise of stock options was $1.1 million and
$1.2 million, respectively.

Note 16 — SEGMENT INFORMATION

A segment is a component of an enterprise whose operating results
are regularly reviewed by the enterprise’s chief operating decision
maker to make decisions about resources to be allocated to the
segment and assess its per formance, and for which discrete finan-
cial information is available. We have six reportable segments:
International Color and Engineered Materials; Specialty Engineered
Materials; Specialty Color, Additives and Inks; Per formance Prod-
ucts and Solutions; PolyOne Distribution; and Resin and
Intermediates.

Operating income is the primary measure that is reported to
the chief operating decision maker for purposes of making deci-
sions about allocating resources to the segment and assessing its
per formance. Operating income at the segment level does not
include: corporate general and administrative costs that are not
allocated to segments; intersegment sales and profit eliminations;
charges related to specific strategic initiatives such as the consol-
idation of operations; restructuring activities, including employee
separation costs resulting from personnel reduction programs,
plant closure and phaseout costs; executive separation agree-
ments; share-based compensation costs; asset impairments; envi-
ronmental remediation costs for facilities no longer owned or closed

in prior years; gains and losses on the divestiture of joint ventures
and equity investments; and certain other items that are not
included in the measure of segment profit or loss that is reported
to and reviewed by the chief operating decision maker. These costs
are included in Corporate and eliminations.

Segment assets are primarily customer receivables, invento-
ries, net property, plant and equipment, and goodwill. Intersegment
sales are generally accounted for at prices that approximate those
for similar transactions with unaffiliated customers. Corporate and
eliminations includes cash, sales of accounts receivable, retained
assets and liabilities of discontinued operations, and other unallo-
cated corporate assets and liabilities. The accounting policies of
each segment are consistent with those described in Note 1, Sum-
mary of Significant Accounting Policies. Following is a description of
each of our six reportable segments.

International Color and Engineered Materials

The International Color and Engineered Materials operating seg-
ment combines the strong regional heritage of our color and additive
masterbatches and engineered materials operations to create

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global capabilities with plants, sales and service facilities located
throughout Europe and Asia.

Working in conjunction with our Specialty Color, Additives and
Inks and North American Engineered Materials operating segments,
international customers’
we provide solutions that meet our
demands for both global and local manufacturing, service and
technical support.

Specialty Engineered Materials

reinforcement,

This segment also includes GLS, which we acquired in January
2008. GLS is a global developer of innovative TPE and offers the
broadest range of soft-touch TPE materials in the industry.

Specialty Color, Additives and Inks

The Specialty Color, Additives and Inks operating segment is a
leading provider of specialized color and additive concentrates as
well as inks and latexes.

Our colorant and additives masterbatches are used in most
including injection molding,
plastics manufacturing processes,
extrusion, sheet, film, rotational molding and blow molding through-
out the plastics industry, particularly in the packaging, transpor ta-
tion, consumer, outdoor decking, pipe and wire and cable markets.
They are also incorporated into such end-use products as stadium
seating, toys, housewares, vinyl siding, pipe, food packaging and
medical packaging.

Performance Products and Solutions

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partner, Producer Services offers resin producers a way to develop
custom products for niche markets by using our compounding
expertise and multiple manufacturing platforms.

PolyOne Distribution

Financial information by reportable segment is as follows:

Resin and Intermediates

We report the results of our Resin and Intermediates operating
segment on the equity method. This segment consists almost
entirely of our 50% equity interest in SunBelt and our
former
24% equity interest in OxyVinyls, through its disposition date of
July 6, 2007. SunBelt, a producer of chlorine and caustic soda, is a
partnership with Olin Corporation. OxyVinyls, a producer of PVC
resins, VCM and chlorine and caustic soda, was a partnership with
Occidental Chemical Corporation. In 2009, SunBelt had production
capacity of approximately 320 thousand tons of chlorine and 358
thousand tons of caustic soda. Most of the chlorine manufactured
by SunBelt is consumed by OxyVinyls to produce PVC resin. Caustic
soda is sold on the merchant market to customers in the pulp and
paper, chemical, building and construction and consumer products
industries.

Year Ended December 31, 2009

Sales to External

Operating

Depreciation and

Capital

(In millions)

Customers

Intersegment Sales

Total Sales

Income (Loss)

Amortization

Expenditures

International Color and Engineered

Materials

Specialty Engineered Materials
Specialty Color, Additives and Inks
Performance Products and Solutions
PolyOne Distribution
Resin and Intermediates
Corporate and eliminations
Total

$ 459.4
184.8
192.9
600.5
623.1
—
—
$2,060.7

$ —
23.8
1.8
67.2
2.0
—
(94.8)
$ —

$ 459.4
208.6
194.7
667.7
625.1
—
(94.8)
$2,060.7

$ 22.6
16.2
14.2
43.5
24.8
25.5
(48.4)
$ 98.4

$14.7
7.0
7.3
22.3
1.3
0.3
11.9
$64.8

$11.7
2.3
3.2
11.5
0.3
—
2.7
$31.7

Year Ended December 31, 2008

Sales to External

Operating

Depreciation and

Capital

(In millions)

Customers

Intersegment Sales

Total Sales

Income (Loss)

Amortization

Expenditures

International Color and Engineered

Materials

Specialty Engineered Materials
Specialty Color, Additives and Inks
Performance Products and Solutions
PolyOne Distribution
Resin and Intermediates
Corporate and eliminations
Total

$ 587.4
223.0
225.8
910.9
791.6
—
—
$2,738.7

—
29.3
2.8
90.5
5.1
—
(127.7)
—

$ 587.4
252.3
228.6
1,001.4
796.7
—
(127.7)
$2,738.7

$ 20.4
12.9
13.5
34.9
28.1
28.6
(267.7)
$(129.3)

$16.1
6.3
8.0
24.9
1.7
0.2
10.8
$68.0

$11.7
4.4
3.3
14.7
0.1
—
8.3
$42.5

Year Ended December 31, 2007

Sales to External

Operating

Depreciation and

Capital

(In millions)

Customers

Intersegment Sales

Total Sales

Income (Loss)

Amortization

Expenditures

International Color and Engineered

Materials

Specialty Engineered Materials
Specialty Color, Additives and Inks
Performance Products and Solutions
PolyOne Distribution
Resin and Intermediates
Corporate and eliminations
Total

$ 588.6
98.1
230.8
985.6
739.6
—
—
$2,642.7

—
26.2
1.2
101.2
4.7
—
(133.3)
—

$ 588.6
124.3
232.0
1,086.8
744.3
—
(133.3)
$2,642.7

$ 25.1
(2.2)
7.0
57.5
22.1
34.8
(110.4)
$ 33.9

$14.4
3.9
8.8
23.7
1.7
0.2
4.7
$57.4

$20.3
1.1
2.6
14.4
0.1
—
4.9
$43.4

Total

Assets

$ 294.4
180.9
107.3
346.1
152.3
2.0
308.9
$1,391.9

Total

Assets

$ 341.2
215.8
139.7
321.8
149.8
7.3
102.1
$1,277.7

Total

Assets

$ 412.5
56.6
159.5
559.6
175.2
4.5
215.1
$1,583.0

Per formance Products and Solutions also includes our former
equity investment in GPA (owned 50%) through its disposition date
of October 13, 2009. For 2009, 2008 and 2007, Specialty Color,

Additives and Inks includes earnings of BayOne equity affiliate
(owned 50% by Specialty Inks and Polymer Systems).

Earnings of equity affiliates are included in the related seg-
ment’s operating income and the investment in equity affiliates is

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included in the related segment’s assets. Amounts related to equity
affiliates included in the segment information, excluding amounts

related to losses on divestitures of equity investments, are as
follows:

(In millions)

Earnings of equity affiliates:

Specialty Color, Additives and Inks

Performance Products and Solutions

Resin and Intermediates

Subtotal

Minority interest

Corporate and eliminations

Total

Investment in equity affiliates:

Specialty Color, Additives and Inks

Performance Products and Solutions

Resin and Intermediates

Corporate and eliminations

Total

2009

2008

2007

$ 2.2

$ 3.5

$ 3.3

0.5

29.7

32.4

—

2.8

(0.1)

32.4

35.8

0.1

0.6

40.8

44.7

(0.2)

(4.7)

(16.8)

$35.2

$31.2

$ 27.7

$ 2.3

$ 2.4

—

2.5

1.0

9.8

7.2

1.1

$ 5.8

$20.5

Our sales are primarily to customers in the United States, Europe, Canada and Asia, and the majority of our assets are located in these
same geographic areas. Following is a summary of sales and long-lived assets based on the geographic areas where the sales originated and
where the assets are located:

(In millions)

Net sales:

United States

Europe

Canada

Asia

Other

Long-lived assets:

United States

Europe

Canada

Asia

Other

Note 17 — WEIGHTED-AVERAGE SHARES USED IN COMPUTING EARNINGS PER SHARE

(In millions)

Weighted-average shares — basic:

Weighted-average shares outstanding

Less unearned portion of restricted stock awards included in outstanding shares

Weighted-average shares — diluted:

Weighted-average shares outstanding — basic

Plus dilutive impact of stock options and stock awards

2009

2008

2007

$1,308.3

$1,718.4

$1,670.9

393.7

192.1

160.7

5.9

528.8

295.8

182.4

13.3

513.7

291.7

152.5

13.9

$ 252.8

$ 280.7

$ 289.8

97.4

5.0

34.8

2.4

101.1

113.8

12.9

35.2

2.1

17.3

25.8

3.0

2009

2008

2007

92.4

92.9

93.0

—

0.2

92.4

92.7

92.8

92.4

92.7

92.8

1.0

—

0.3

93.4

92.7

93.1

Basic earnings per common share is computed as net income
available to common shareholders divided by the weighted average
basic shares outstanding. Diluted earnings per common share is
computed as net income available to common shareholders divided
by the weighted average diluted shares outstanding. Pursuant to
FASB ASC Topic 260, Earnings Per Share, when a loss is reported

the denominator of diluted earnings per share cannot be adjusted
for the dilutive impact of stock options and awards because doing
so will result in anti-dilution. Therefore, for the year ended Decem-
ber 31, 2008, basic weighted-average shares outstanding are used
in calculating diluted earnings per share.

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Outstanding stock options with exercise prices greater than the
average price of the common shares are anti-dilutive and are not
included in the computation of diluted earnings per share. The
number of anti-dilutive options and awards was 5.3 million, 4.1 mil-
lion and 6.4 million at December 31, 2009, 2008 and 2007,
respectively.

Note 18 — FINANCIAL INSTRUMENTS

The estimated fair values of financial instruments were principally
based on market prices where such prices were available and,
where unavailable, fair values were estimated based on market

prices of similar instruments. The fair value of short-term foreign

exchange contracts is based on exchange rates at December 31,

2009.

The following table summarizes the contractual amounts of our

foreign exchange contracts as of December 31, 2009 and 2008.

Foreign currency amounts are translated at exchange rates as of

December 31, 2009 and 2008, respectively. The “Buy” amounts

represent the U.S. dollar equivalent of commitments to purchase

currencies, and the “Sell” amounts represent the U.S. dollar equiv-

alent of commitments to sell currencies.

Currency (In millions)

U.S. dollar

Euro

British pound

Canadian dollar

December 31, 2009

December 31, 2008

Buy

Sell

Buy

Sell

$59.9

$ — $ 4.6

$29.7

—

55.5

4.4

—

8.9

—

20.4

4.5

—

The carrying amounts and fair values of our financial instruments as of December 31, 2009 and 2008 are as follows:

(In millions)

Cash and cash equivalents

Long-term debt

Credit facility borrowings

7.500% debentures

8.875% senior notes

Medium-term notes

Foreign exchange contracts

Note 19 — FAIR VALUE

2009

2008

Carrying

Amount

Fair

Value

Carrying

Amount

Fair

Value

$222.7

$ 44.3

40.0

50.0

40.0

45.8

40.0

50.0

40.0

30.0

279.5

285.1

279.2

139.6

39.6

0.5

38.4

0.5

58.9

(0.3)

35.4

(0.3)

The fair values of financial assets and liabilities are measured on a
recurring or non-recurring basis. Financial assets and liabilities
measured on a recurring basis are those that are adjusted to fair
value each time a financial statement is prepared. Financial assets
and liabilities measured on a non-recurring basis are those that are
adjusted to fair value when a significant event occurs. In determin-
ing fair value of financial assets and liabilities, we use various
valuation techniques. The availability of inputs observable in the
market varies from instrument to instrument and depends on a
variety of factors including the type of instrument, whether the
instrument is actively traded, and other characteristics particular
to the transaction. For many financial instruments, pricing inputs
are readily observable in the market, the valuation methodology
used is widely accepted by market participants, and the valuation
does not require significant management discretion. For other
financial
instruments, pricing inputs are less observable in the
market and may require management judgment.

We assess the inputs used to measure fair value using a three-
tier hierarchy. The hierarchy indicates the extent to which inputs
used in measuring fair value are observable in the market. Level 1
inputs include quoted prices for identical instruments and are the
most observable. Level 2 inputs include quoted prices for similar

assets and observable inputs such as interest rates, foreign cur-
rency exchange rates, commodity rates and yield curves. Level 3
inputs are not observable in the market and include management’s
own judgments about the assumptions market participants would
use in pricing the asset or liability. The use of observable and
unobservable inputs is reflected in the discussion below.

In accordance with the provisions of FASB ASC Topic 350,
Intangibles — Goodwill and Other, we assess the fair value of
goodwill on a non-recurring basis. Accordingly, goodwill with a pre-
liminary carrying amount of $334.0 million as of December 31,
2008 was adjusted to its implied fair value of $159.0 million,
resulting in an impairment charge of $175.0 million, of which
$170.0 million was included in earnings for the three-month period
ended December 31, 2008 and $5.0 million was included in earn-
ings for the three-month period ended March 31, 2009. The implied
fair value of goodwill is determined based on significant unobserv-
able inputs as summarized below. Accordingly, these inputs fall
within Level 3 of the fair value hierarchy.

We use a combination of two valuation methods, a market
approach and an income approach, to estimate the fair value of our
reporting units. Absent an indication of fair value from a potential

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buyer or similar specific transactions, we believe that the use of
these two methods provides reasonable estimates of the reporting
units’ fair value and that these estimates are consistent with how
we believe a market participant would view the fair value of each of
the reporting units. Estimates of fair value using these methods
reflects a number of factors, including projected future operating
results and business plans, economic projections, anticipated
future cash flows, comparable marketplace data within a consistent
industry grouping and the cost of capital. There are inherent uncer-
tainties, however, related to these factors and to management’s
judgment in applying them to this analysis. Nonetheless, manage-
ment believes that the combination of these two methods provides
a reasonable approach to estimate the fair value of our reporting
units.

The market approach is used to estimate fair value by applying
sales and earnings multiples (derived from comparable publicly-
traded companies with similar investment characteristics of the
to the reporting unit’s operating per formance
reporting unit)
adjusted for non-recurring items. Management believes that this
approach is appropriate as it provides an estimate of fair value
reflecting multiples associated with entities with operations and
economic characteristics comparable to our reporting units. The key
estimates and assumptions that are used to determine fair value
under this approach include trailing twelve-month earnings before
interest, taxes, depreciation and amortization (EBITDA) and pro-
jected EBITDA based on consensus estimates as reported by a
third-party resource, which would approximate a market partici-
pant’s view, to determine the market multiples to calculate the
enterprise value.

The income approach is based on projected future debt-free
cash flows discounted to present value using factors that consider
the timing and risk of the future cash flows. Management believes
that this approach is appropriate because it provides a fair value
estimate based upon the reporting unit’s expected long-term oper-
ating and cash flow per formance. This approach also mitigates the
impact of cyclical downturns that occur in the reporting unit’s
industry. The income approach is based on a reporting unit’s pro-
jection of operating results and cash flows discounted to present
value using a weighted-average cost of capital. The projection is
based upon management’s best estimates of projected economic
and market conditions over the related period including growth
rates, estimates of future expected changes in operating margins
and cash expenditures. Other significant estimates and assump-
tions include terminal value growth rates, terminal value margin
rates, future capital expenditures and changes in future working
capital requirements based on management projections.

Indefinite-lived intangible assets consist of a tradename,
acquired as part of the January 2008 acquisition of GLS, which
is tested annually for impairment. The fair value of the trade name is
calculated using a “relief from royalty payments” methodology. This
approach involves two steps (1) estimating reasonable royalty rates
for the tradename and (2) applying this royalty rate to a net sales
stream and discounting the resulting cash flows to determine fair
value. This fair value is then compared with the carrying value of the

tradename. Other finite-lived intangible assets, which consist pri-
marily of non-contractual customer relationships, sales contracts,
patents and technology, are amortized over their estimated useful
lives. The remaining lives range up to 15 years.

In accordance with the provisions of FASB ASC Topic 360,
Property, Plant, and Equipment, we assess the fair value of our long-
lived assets on a non-recurring basis. In 2009, we recorded impair-
ment charges totaling approximately $8.6 million for certain of the
facilities that were closed as a result of the previously mentioned
plant phaseout activities. Our estimates of fair value are based
primarily on estimates from broker opinions of value and appraisals
of the assets. As these fair value measurements are based on
significant unobservable inputs, such as recent sales of compara-
ble properties, they are classified within Level 3 of the fair value
hierarchy.

Note 20 — BUSINESS COMBINATIONS

Acquisition

On December 23, 2009 we acquired substantially all of the
assets of NEU, a specialty healthcare engineered materials pro-
vider, for a cash purchase price of $11.5 million paid at close and an
earnout of up to $0.5 million payable in 2011, resulting in goodwill
of $4.5 million and $5.9 million of identifiable intangible assets.
NEU had sales of $7.7 million for the year ended December 31,
2008. Our purchase price allocation is preliminary and may require
subsequent adjustment.

On January 2, 2008, we acquired 100% of the outstanding
capital stock of GLS, a global provider of specialty TPE compounds
for consumer, packaging and medical applications, for a cash pur-
chase price of $148.9 million including acquisition costs, net of
cash received. GLS, with sales of $128.8 million for the year ended
December 31, 2007, has been fully integrated into the Specialty
Engineered Materials segment. This acquisition complements our
global engineered materials business portfolio and accelerates our
shift to specialization. The combination of GLS’s specialized TPE
offerings, compounding expertise and brand, along with our exten-
sive global infrastructure and commercial presence offers custom-
ers: enhanced technologies; a broader range of products, services
and solutions; and expanded access to specialized, high-growth
markets around the globe. The combinations of these factors are
the drivers behind the excess of the purchase price over the fair
value of the tangible assets and liabilities acquired.

Note 21 — SHAREHOLDERS’ EQUITY

In August 2008, our Board of Directors approved a stock repur-
chase program authorizing us, depending upon market conditions
and other factors, to repurchase up to 10.0 million shares of our
common stock, in the open market or in privately negotiated
transactions.

During 2009, no shares were repurchased under this program.
During 2008, we repurchased 1.25 million shares of common stock
under this program at an average price of $7.12 per common share

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for approximately $8.9 million. There are 8.75 million shares avail-
able for repurchase under the program at December 31, 2009.

financial statements. There were no subsequent events requiring
recognition in these financial statements for the year ended Decem-
ber 31, 2009.

Note 22 — SUBSEQUENT EVENTS

Events subsequent to December 31, 2009 have been evaluated
through February 18, 2010, or the date of issuance of these

Note 23 — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

(In millions, except per share data)

Fourth

Third

Second

First

Fourth(2)

Third

Second

First

2009 Quarters

2008 Quarters

Sales

Gross Margin

Operating costs and expenses, net

Operating income (loss)

Net income (loss)

Earnings (loss) per common share:
Basic earnings (loss)(1)
Diluted earnings (loss)(1)

$552.5

$548.3

$496.5

$463.4

$ 541.8

$735.1

$748.1

$713.7

87.7

526.9

25.6

24.0

107.3

492.1

56.2

49.6

86.3

59.2

58.0

65.2

88.5

84.9

477.2

466.1

716.5

733.8

724.1

693.6

19.3

3.5

(2.7)

(9.3)

(174.7)

(282.6)

1.3

(5.6)

24.0

8.8

20.1

6.5

$ 0.26

$ 0.54

$ 0.04

$ (0.10)

$ (3.07)

$ (0.06)

$ 0.09

$ 0.07

$ 0.25

$ 0.53

$ 0.04

$ (0.10)

$ (3.07)

$ (0.06)

$ 0.09

$ 0.07

(1) Per share amounts for the quarter and the full year have been computed separately. The sum of the quarterly amounts may not equal the annual

amounts presented because of differences in the average shares outstanding during each period.

(2) Included in operating expense for the fourth quarter 2008 results are charges of $26.6 million related to employee separation and plant phaseout
and $170.0 million related to goodwill impairment. Included in net loss for the fourth quarter are charges of $105.9 million to record deferred a
deferred tax valuation allowance.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUN-
TANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure controls and procedures

PolyOne’s management, with the participation of the Chief Execu-
tive Officer and the Chief Financial Officer, has evaluated the
effectiveness of the design and operation of PolyOne’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and
the Securities Exchange Act of 1934) as of
15d-15(e) under
December 31, 2009. Based on this evaluation, the Chief Executive
Officer and the Chief Financial Officer have concluded that such
disclosure controls and procedures are effective as of Decem-
ber 31, 2009.

Management’s annual report on internal control over financial
reporting

The following report is provided by management in respect of
PolyOne’s internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934):

1. PolyOne’s management is responsible for establishing and
maintaining adequate internal control over financial reporting.

2. PolyOne’s management has used the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) framework to
evaluate the effectiveness of internal control over financial
reporting. Management believes that the COSO framework is
a suitable framework for its evaluation of financial reporting
because it is free from bias, permits reasonably consistent
qualitative and quantitative measurements of PolyOne’s internal
control over financial reporting, is sufficiently complete so that
those relevant factors that would alter a conclusion about the
effectiveness of PolyOne’s internal control over financial report-
ing are not omitted and is relevant to an evaluation of internal
control over financial reporting.

3. Management has assessed the effectiveness of PolyOne’s
internal control over financial reporting as of December 31,
2009 and has concluded that such internal control over financial
reporting is effective. There were no material weaknesses in
internal
by
financial
management.

identified

reporting

control

over

4. Ernst & Young LLP, who audited the consolidated financial state-
ments of PolyOne for the year ended December 31, 2009, also
issued an attestation report on PolyOne’s internal control over
financial reporting under Auditing Standard No. 5 of the Public
Company Accounting Oversight Board. This attestation report is
set forth on page 34 of this Annual Report on Form 10-K and is
incorporated by reference into this Item 9A.

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Changes in internal control over financial reporting

There were no changes in the Company’s internal control over
financial reporting that occurred during the quarter ended Decem-
ber 31, 2009 that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial
reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPO-

RATE GOVERNANCE

The information regarding PolyOne’s directors, including the iden-
tification of the audit committee and the audit committee financial
expert, is incorporated by reference to the information contained in
PolyOne’s Proxy Statement with respect to the 2010 Annual Meet-
ing of Shareholders (2010 Proxy Statement). Information concern-
ing executive officers is contained in Part I of this Annual Report on
Form 10-K under the heading “Executive Officers of the Registrant.”

The information regarding Section 16(a) beneficial ownership
reporting compliance is incorporated by reference to the material
under the heading “Section 16(a) Beneficial Ownership Reporting
Compliance” in the 2010 Proxy Statement.

The information regarding any changes in procedures by which
shareholders may recommend nominees to PolyOne’s Board of
Directors is incorporated by reference to the information contained
in the 2010 Proxy Statement.

PolyOne has adopted a code of ethics that applies to its
principal executive officer, principal financial officer and principal
accounting officer. PolyOne’s code of ethics is posted under the
Investor Relations tab of its website at www.polyone.com. PolyOne
will post any amendments to, or waivers of, its code of ethics that
apply to its principal executive officer, principal financial officer and
principal accounting officer on its website.

ITEM 11. EXECUTIVE COMPENSATION

The information regarding executive officer and director compen-
sation is incorporated by reference to the information contained in
the 2010 Proxy Statement.

The information regarding compensation committee interlocks
and insider participation and the compensation committee report is
incorporated by reference to the information contained in the 2010
Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL

(a)(2) Financial Statement Schedules:

The following financial statements of subsidiaries not consol-
idated and 50% or less owned entities, as required by Item 15(c) are
incorporated by reference to Exhibits 99.1 and 99.2 to this Annual
Repor t on Form 10-K:

Consolidated financial statements of Oxy Vinyls, LP for the six-

month period ended June 30, 2007.

Consolidated financial statements of SunBelt Chlor-Alkali Part-
nership as of December 31, 2009 and for each of the years
in the three year period then ended.

All other schedules for which provision is made in the appli-
cable accounting regulation of the SEC are not required under the
related instructions or are inapplicable and, therefore, omitted.

OWNERS AND MANAGEMENT AND RELATED SHARE-
HOLDER MATTERS

The information about our equity compensation plans is incorpo-
rated by reference to the information contained in the 2010 Proxy
Statement.

The information regarding security ownership of certain bene-
ficial owners and management is incorporated by reference to the
information contained in the 2010 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSAC-
TIONS, AND DIRECTOR INDEPENDENCE

The information regarding certain relationships and related trans-
actions and director independence is incorporated by reference to
the information contained in the 2010 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information regarding fees paid to and services provided by Poly-
One’s independent registered public accounting firm during the
fiscal years ended December 31, 2009 and 2008 and the pre-
approval policies and procedures of the audit committee is incor-
porated by reference to the information contained in the 2010 Proxy
Statement.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements:

The following consolidated financial statements of PolyOne

Corporation are included in Item 8:

Consolidated Statements of Operations for the years ended

December 31, 2009, 2008 and 2007

Consolidated Balance Sheets at December 31, 2009 and

2008

Consolidated Statements of Cash Flows for the years ended

December 31, 2009, 2008 and 2007

Consolidated Statements of Shareholders’ Equity for the years

ended December 31, 2009, 2008 and 2007

Notes to Consolidated Financial Statements

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(a)(3) Exhibits.

Exhibit No.

Exhibit Description

3.1

3.2

3.3

4.1

4.2

4.3

4.4

10.1+

10.2+

10.3+

10.4+

10.5+

10.6+

10.7+

10.8+

10.9+

10.10+

10.11+

Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, SEC File No. 1-16091)

Amendment to the Second Article of the Articles of Incorporation, as filed with the Ohio Secretary of State, November 25, 2003
(incorporated by reference to Exhibit 3.1a to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003,
SEC File No. 1-16091)

Regulations (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 17, 2009, SEC File
No. 1-16091)

Form of Indenture between the Company and NBD Bank, as trustee, governing the Company’s Medium Term Notes (incorporated by
reference to Exhibit 4.1 to M.A. Hanna Company’s Registration Statement on Form S-3, Registration Statement No. 333-05763, filed on
June 12, 1996)

Indenture, dated as of April 23, 2002, between the Company and The Bank of New York, as trustee, governing the Company’s
8.875% Senior Notes due May 15, 2012 (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on
Form S-4, Registration Statement No. 333-87472, filed on May 2, 2002)

Supplemental Indenture, dated as of April 10, 2008, between PolyOne Corporation and The Bank of New York Trust Company, N.A., as
successor trustee (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed April 11, 2008, SEC File
No. 1-16091)

Form of Award Agreement for Stock Appreciation Rights (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K filed on January 11, 2005, SEC File No. 1-16091)

1999 Incentive Stock Plan, as amended and restated through August 31, 2000 (incorporated by reference to Exhibit 10.5 to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, SEC File No. 1-16091)

2000 Stock Incentive Plan (incorporated by reference to Annex D to Amendment No. 3 to The Geon Company’s Registration Statement on
Form S-4, Registration Statement No. 333-37344, filed on July 28, 2000)

Amended and Restated Benefit Restoration Plan (Section 401(a)(17)) (incorporated by reference to Exhibit 10.8 of the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2007, SEC File No. 1-16091)

Strategic Improvement Incentive Plan (incorporated by reference to Exhibit 10.9b to the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2001, SEC File No. 1-16091)

Senior Executive Annual Incentive Plan, effective January 1, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on May 24, 2005, SEC File No. 1-16091)

2005 Equity and Performance Incentive Plan (amended and restated by the Board as of July 21, 2005) (incorporated by reference to
Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, SEC File No. 1-16091)

Form of Management Continuity Agreement (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2007, SEC File No. 1-16091)

10.12+ Schedule of Executives with Management Continuity Agreements

10.13+

10.14+

10.15+

10.16+

10.17

Amended and Restated PolyOne Supplemental Retirement Benefit Plan (incorporated by reference to Exhibit 10.15 to the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2007, SEC File No. 1-16091)

Amended and Restated Letter Agreement, dated as of July 16, 2008, between the Company and Stephen D. Newlin, originally effective as
of February 13, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2008, SEC File No. 1-16091)

Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on July 5, 2006, SEC File No. 1-16091)

Amended and Restated PolyOne Corporation Executive Severance Plan (incorporated by reference to Exhibit 10.16 to the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, SEC File No. 1-16091)

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Exhibit No.

Exhibit Description

10.18

10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32+

10.33+

10.34

10.35

10.36

10.37

10.38

Second Amended and Restated Security Agreement, dated as of June 6, 2006, between the Company, as grantor, and U.S. Bank
Trust National Association, as collateral trustee (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed on June 8, 2006, SEC File No. 1-16091)

Amended and Restated Collateral Trust Agreement, dated as of June 6, 2006, between the Company, as grantor, and U.S. Bank
Trust National Association, as collateral trustee (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
filed on June 8, 2006, SEC File No. 1-16091)

Amended and Restated Intercreditor Agreement, dated as of June 6, 2006, between the Company, as grantor; Citicorp USA, Inc., as
receivables and bank agent; U.S. Bank Trust National Association, as collateral trustee; PolyOne Funding Corporation (incorporated by
reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 8, 2006, SEC File No. 1-16091)

Amended and Restated Plant Services Agreement, between the Company and the B.F. Goodrich Company (incorporated by reference to
Exhibit 10.13 to The Geon Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996, SEC File No. 1-11804)

Assumption of Liabilities and Indemnification Agreement, dated March 1, 1993, amended and restated by Amended and Restated
Assumption of Liabilities and Indemnification Agreement, dated April 27, 1993 (incorporated by reference to Exhibit 10.14 to The Geon
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996, SEC File No. 1-11804)

Partnership Agreement, by and between 1997 Chloralkali Venture, Inc. and Olin Sunbelt, Inc. (incorporated by reference to Exhibit 10(A) to
The Geon Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, SEC File No. 1-11804)

Amendment to Partnership Agreement between Olin Sunbelt, Inc. and 1997 Chloralkali Venture, Inc., addition of §5.03 (incorporated by
reference to Exhibit 10.16b to The Geon Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997, SEC File
No. 1-11804)

Amendment to Partnership Agreement between Olin Sunbelt, Inc. and 1997 Chloralkali Venture, Inc., addition of §1.12 (incorporated by
reference to Exhibit 10.16c to The Geon Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997, SEC File
No. 1-11804)

Unconditional and Continuing Guaranty, between the Company and Olin Corporation and Sunbelt Chlor Alkali Partnership (incorporated by
reference to Exhibit 10(C) to The Geon Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, SEC File
No. 1-11804)

Guarantee by the Company in Favor of Sunbelt Chlor Alkali Partnership of the Guaranteed Secure Senior Notes due 2017, dated
December 22, 1997 (incorporated by reference to Exhibit 10.20 to The Geon Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, SEC File No. 1-11804)

Asset Contribution Agreement — PVC Partnership (Geon) (incorporated by reference to Exhibit 10.3 to The Geon Company’s Current
Report on Form 8-K filed on May 13, 1999, SEC File No. 1-11804)

Stock Purchase Agreement among O’Sullivan Films Holding Corporation, O’Sullivan Management, LLC, and Matrix Films, LLC, dated as of
February 15, 2006 (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2005, SEC File No. 1-16091)

Form of Award Agreement for Stock-Settled Stock Appreciation Rights (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, SEC File No. 1-16091)

Form of Award Agreement for Performance Units (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2007, SEC File No. 1-16091)

Sale and Agreement, by and among PolyOne Corporation, Occidental Chemical Corporation, and their representative affiliates party
thereto, dated as of July 6, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2007, SEC File No. 1-16091)

Second Amended and Restated Receivables Sale Agreement, dated as of June 26, 2007, among the Company, as seller and as servicer,
and PolyOne Funding Corporation, as buyer (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2007, SEC File No. 1-16091)

Canadian Receivables Purchase Agreement, dated as of July 13, 2007, among PolyOne Funding Canada Corporation, as seller; the
Company, as servicer; the banks and other financial institutions party thereto, as purchasers; Citicorp USA, Inc., as agent; and National
City Business Credit, Inc., as syndication agent (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2007, SEC File No. 1-16091)

Canadian Receivables Sale Agreement, dated as of July 13, 2007, among PolyOne Canada Inc., as seller; PolyOne Funding Canada
Corporation, as buyer; and the Company, as servicer (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2007, SEC File No. 1-16091)

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Exhibit No.

Exhibit Description

10.39

10.40+

10.41+

10.42+

10.43+

10.44+

10.45+

10.46+

10.47+

10.48+

10.49+

Credit Agreement, dated January 3, 2008, by and among PolyOne Corporation, the lenders party thereto, Citicorp USA, Inc., as
administrative agent and as issuing bank, and The Bank of New York, as paying agent (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed on January 3, 2008, SEC File No. 1-16091)

Form of Award Agreement for Restricted Stock Units (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2008, SEC File No. 1-16091)

Form of Award Agreement for Performance Units (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2008, SEC File No. 1-16091)

First Amendment to The Geon Company Section 401(a)(17) Benefit Restoration Plan (December 31, 2007 Restatement) (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, SEC File No. 1-16091)

Form of Grant of Performance Shares under the 2009 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, SEC File No. 1-16091)

Form of Grant of Stock-Settled Stock Appreciation Rights under the 2009 Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, SEC File No. 1-16091)

Form of Grant of Per formance Units under the 2009 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, SEC File No. 1-16091)

Executive Severance Plan, as amended and restated effective February 17, 2009 (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, SEC File No. 1-16091)

10.50+ Undetermined Time Employment Contract between PolyOne Luxembourg s.a.r.l. and Bernard Baert (incorporated herein by reference to

Exhibit 10.1 to the Company’s Form 8-K, filed with the Commission on September 2, 2009, SEC File No. 1-106091)

10.51+

Amendment No. 2 to the PolyOne Supplemental Retirement Benefit Plan (As Amended and Restated Effective December 31, 2007)

18.1

21.1

23.1

23.2

23.3

31.1

31.2

32.1

32.2

99.1

99.2

Letter regarding Change in Accounting Principles (incorporated by reference to Exhibit No. 18.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2008, SEC File No. 1-16091)

Subsidiaries of the Company

Consent of Independent Registered Public Accounting Firm — Ernst & Young LLP

Consent of Independent Registered Public Accounting Firm — KPMG LLP

Consent of Independent Registered Public Accounting Firm — Ernst & Young LLP

Certification of Stephen D. Newlin, Chairman, President and Chief Executive Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a),
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Robert M. Patterson, Senior Vice President and Chief Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a),
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification pursuant to 18 U.S.C. § 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as signed by Stephen D.
Newlin, Chairman, President and Chief Executive Officer

Certification pursuant to 18 U.S.C. § 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as signed by Robert M.
Patterson, Senior Vice President and Chief Financial Officer

Audited Financial Statements of Oxy Vinyls, LP

Audited Financial Statements of SunBelt Chlor Alkali Partnership

Indicates management contract or compensatory plan, contract or arrangement in which one or more directors or executive officers of the
Registrant may be participants

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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

February 18, 2010

POLYONE CORPORATION

By: /s/ ROBERT M. PATTERSON

Rober t M. Patterson
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on

behalf of the Registrant and in the capacities indicated and on the dates indicated.

Signature and Title

/s/ STEPHEN D. NEWLIN

Stephen D. Newlin

/s/ ROBERT M. PATTERSON

Robert M. Patterson

/s/ J. DOUGLAS CAMPBELL

J. Douglas Campbell

/s/ CAROL A. CARTWRIGHT

Carol A. Cartwright

/s/ GALE DUFF-BLOOM

Gale Duff-Bloom

/s/ RICHARD H. FEARON

Richard H. Fearon

/s/ GORDON D. HARNETT

Gordon D. Harnett

/s/ RICHARD A. LORRAINE

Richard A. Lorraine

/s/ EDWARD J. MOONEY

Edward J. Mooney

/s/ WILLIAM H. POWELL

William H. Powell

/s/ FARAH M. WALTERS

Farah M. Walters

Chairman, President, Chief Executive Officer and Director
(Principal Executive Officer)

Date February 18, 2010

Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

Date February 18, 2010

Director

Date February 17, 2010

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Exhibit No.

Exhibit Description

EXHIBIT INDEX

3.1

3.2

3.3

4.1

4.2

4.3

4.4

10.1+

10.2+

10.3+

10.4+

10.5+

10.6+

10.7+

10.8+

10.9+

10.10+

10.11+

10.12+
10.13+

10.14+

10.15+

10.16+

10.17

10.18

10.19

10.20

Articles of Incorporation (incorporated by reference to Exhibit 3.I to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, SEC File No. 1-16091)
Amendment to the Second Article of the Articles of Incorporation, as filed with the Ohio Secretary of State, November 25, 2003
(incorporated by reference to Exhibit 3.1a to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003,
SEC File No. 1-16091)
Regulations (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 17, 2009, SEC File
No. 1-16091)

Indenture, dated as of December 1, 1995, between the Company and NBD Bank, as trustee (incorporated by reference to Exhibit 4.3 to
The Geon Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996, SEC File No. 1-11804)
Form of Indenture between the Company and NBD Bank, as trustee, governing the Company’s Medium Term Notes (incorporated by
reference to Exhibit 4.1 to M.A. Hanna Company’s Registration Statement on Form S-3, Registration Statement No. 333-05763, filed on
June 12, 1996)

Indenture, dated as of April 23, 2002, between the Company and The Bank of New York, as trustee, governing the Company’s
8.875% Senior Notes due May 15, 2012 (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-4,
Registration Statement No. 333-87472, filed on May 2, 2002)

Long-Term Incentive Plan, as amended and restated as of March 1, 2000 (incorporated by reference to Exhibit A to M.A. Hanna
Company’s Definitive Proxy Statement filed on March 24, 2000, SEC File No. 1-05222)
Form of Award Agreement for Stock Appreciation Rights (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K filed on January 11, 2005, SEC File No. 1-16091)

1995 Incentive Stock Plan, as amended and restated through August 31, 2000 (incorporated by reference to Exhibit 10.3 to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, SEC File No. 1-16091)
1999 Incentive Stock Plan, as amended and restated through August 31, 2000 (incorporated by reference to Exhibit 10.5 to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000, SEC File No. 1-16091)

Strategic Improvement Incentive Plan (incorporated by reference to Exhibit 10.9b to the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2001, SEC File No. 1-16091)

Senior Executive Annual Incentive Plan, effective January 1, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on May 24, 2005, SEC File No. 1-16091)
2005 Equity and Per formance Incentive Plan (amended and restated by the Board as of July 21, 2005) (incorporated by reference to
Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, SEC File No. 1-16091)

Amended and Restated Deferred Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.4 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, SEC File No. 1-16091)
Form of Management Continuity Agreement (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2007, SEC File No. 1-16091)

Schedule of Executives with Management Continuity Agreements
Amended and Restated PolyOne Supplemental Retirement Benefit Plan (incorporated by reference to Exhibit 10.15 to the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2007, SEC File No. 1-16091)

Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K filed on July 5, 2006, SEC File No. 1-16091)

Guarantee and Agreement, dated as of June 6, 2006, between the Company, as guarantor, and the beneficiary banks party thereto
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 8, 2006, SEC File No. 1-16091)
Second Amended and Restated Security Agreement, dated as of June 6, 2006, between the Company, as grantor, and U.S. Bank
Trust National Association, as collateral trustee (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed on June 8, 2006, SEC File No. 1-16091)

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Exhibit No.

Exhibit Description

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32+

10.33+

10.34

10.35

10.36

10.37

10.38

10.39

10.40+

10.41+

10.42+

10.43+

10.44+

Amended and Restated Instrument Guaranty, dated as of December 19, 1996 (incorporated by reference to Exhibit 10.12 to The Geon
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996, SEC File No. 1-11804)
Amended and Restated Plant Services Agreement, between the Company and the B.F. Goodrich Company (incorporated by reference to
Exhibit 10.13 to The Geon Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996, SEC File No. 1-11804)

Partnership Agreement, by and between 1997 Chloralkali Venture, Inc. and Olin Sunbelt, Inc. (incorporated by reference to Exhibit 10(A)
to The Geon Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, SEC File No. 1-11804)

Chlorine Sales Agreement, between Sunbelt Chlor Alkali Partnership and OxyVinyls, LP (incorporated by reference to Exhibit 10(B) to The
Geon Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, SEC File No. 1-11804)
Unconditional and Continuing Guaranty, between the Company and Olin Corporation and Sunbelt Chlor Alkali Partnership (incorporated by
reference to Exhibit 10(C) to The Geon Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, SEC File
No. 1-11804)

Asset Contribution Agreement — PVC Partnership (Geon) (incorporated by reference to Exhibit 10.3 to The Geon Company’s Current
Report on Form 8-K filed on May 13, 1999, SEC File No. 1-11804)
Stock Purchase Agreement among O’Sullivan Films Holding Corporation, O’Sullivan Management, LLC, and Matrix Films, LLC, dated as of
February 15, 2006 (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2005, SEC File No. 1-16091)
Form of Award Agreement for Stock-Settled Stock Appreciation Rights (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, SEC File No. 1-16091)

Form of Award Agreement for Performance Units (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2007, SEC File No. 1-16091)
Sale and Agreement, by and among PolyOne Corporation, Occidental Chemical Corporation, and their representative affiliates party
thereto, dated as of July 6, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007, SEC File No. 1-16091)

Second Amended and Restated Receivables Purchase Agreement, dated as of June 26, 2007, among PolyOne Funding Corporation, as
seller; the Company, as servicer; the banks and other financial institutions party thereto, as purchasers; Citicorp USA, Inc., as agent; and
National City Business Credit, Inc., as syndication agent (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2007, SEC File No. 1-16091)
Second Amended and Restated Receivables Sale Agreement, dated as of June 26, 2007, among the Company, as seller and as servicer,
and PolyOne Funding Corporation, as buyer (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2007, SEC File No. 1-16091)

Canadian Receivables Purchase Agreement, dated as of July 13, 2007, among PolyOne Funding Canada Corporation, as seller; the
Company, as servicer; the banks and other financial institutions party thereto, as purchasers; Citicorp USA, Inc., as agent; and National
City Business Credit, Inc., as syndication agent (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2007, SEC File No. 1-16091)

Credit Agreement, dated January 3, 2008, by and among PolyOne Corporation, the lenders party thereto, Citicorp USA, Inc., as
administrative agent and as issuing bank, and The Bank of New York, as paying agent (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on January 3, 2008, SEC File No. 1-16091)

PolyOne Corporation 2008 Equity and Per formance Incentive Plan (incorporated herein by reference to Appendix A to the Registrant’s
proxy statement on Schedule 14A (SEC File No. 1-16091), filed on March 25, 2008).
Form of Award Agreement for Restricted Stock Units (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2008, SEC File No. 1-16091)

Form of Award Agreement for Stock-Settled Stock Appreciation Rights (incorporated by reference to Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, SEC File No. 1-16091)
Form of Award Agreement for Performance Units (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2008, SEC File No. 1-16091)

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Exhibit No.

Exhibit Description

10.45+

10.46+

10.47+

10.48+

10.49+

10.50+

10.51+

18.1

21.1
23.1

23.2

23.3
31.1

31.2

32.1

32.2

99.1

99.2

Amendment No. 1 to the PolyOne Supplemental Retirement Benefit Plan (As Amended and Restated Effective December 31, 2007)
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, SEC
File No. 1-16091)
Form of Grant of Per formance Shares under the 2009 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, SEC File No. 1-16091)

Form of Grant of Performance Units under the 2009 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, SEC File No. 1-16091)

Undetermined Time Employment Contract between PolyOne Luxembourg s.a.r.l. and Bernard Baert (incorporated herein by reference to
Exhibit 10.1 to the Company’s Form 8-K, filed with the Commission on September 2, 2009, SEC File No. 1-106091)
Amendment No. 2 to the PolyOne Supplemental Retirement Benefit Plan (As Amended and Restated Effective December 31, 2007)

Subsidiaries of the Company
Consent of Independent Registered Public Accounting Firm — Ernst & Young LLP

Consent of Independent Registered Public Accounting Firm — KPMG LLP

Consent of Independent Registered Public Accounting Firm — Ernst & Young LLP
Certification of Stephen D. Newlin, Chairman, President and Chief Executive Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a),
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification pursuant to 18 U.S.C. § 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as signed by Stephen D.
Newlin, Chairman, President and Chief Executive Officer

Certification pursuant to 18 U.S.C. § 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as signed by Robert M.
Patterson, Senior Vice President and Chief Financial Officer

Audited Financial Statements of Oxy Vinyls, LP

Audited Financial Statements of SunBelt Chlor Alkali Partnership

Indicates management contract or compensatory plan, contract or arrangement in which one or more directors or executive officers of the
Registrant may be participants

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Exhibit 31.1

I, Stephen D. Newlin, certify that:

1. I have reviewed this Annual Report on Form 10-K of PolyOne Corporation;

CERTIFICATION

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons per forming the equivalent
functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s

internal control over financial reporting.

February 18, 2010

/s/ Stephen D. Newlin

Stephen D. Newlin
Chairman, President and Chief Executive Officer

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Exhibit 31.2

I, Robert M. Patterson, certify that:

1. I have reviewed this Annual Report on Form 10-K of PolyOne Corporation;

CERTIFICATION

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s

internal control over financial reporting.

/s/ Robert M. Patterson

Rober t M. Patterson
Senior Vice President and Chief Financial Officer

February 18, 2010

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CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32.1

In connection with the Annual Repor t on Form 10-K of PolyOne Corporation (the “Company”) for the year ended December 31, 2009, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen D. Newlin, Chairman, President and Chief
Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of
2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Repor t fairly presents, in all material respects, the financial condition and results of operations

of the Company as of the dates and for the periods expressed in the Report.

/s/ Stephen D. Newlin

Stephen D. Newlin
Chairman, President and Chief Executive Officer

February 18, 2010

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a

separate disclosure document.

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CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32.2

In connection with the Annual Repor t on Form 10-K of PolyOne Corporation (the “Company”) for the year ended December 31, 2009, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert M. Patterson, Senior Vice President and Chief
Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of
2002, that, to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Repor t fairly presents, in all material respects, the financial condition and results of operations

of the Company as of the dates and for the periods expressed in the Report.

/s/ Robert M. Patterson

Rober t M. Patterson
Senior Vice President and Chief Financial Officer

February 18, 2010

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a

separate disclosure document.

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THIS PAGE IS NOT PART OF POLYONE’S FORM 10-K FILING

PolyOne Stock Performance

The following is a graph that compares the cumulative total shareholder returns for PolyOne’s common shares, the S&P 500 index and
the S&P Mid Cap Chemicals index with dividends assumed to be reinvested when received. The graph assumes the investing of $100
from December 31, 2004 through December 31, 2009. The S&P Mid Cap Chemicals index includes a broad range of chemical
manufacturers. Because of the relationship of PolyOne’s business within the chemical industry, it is concluded that comparison with
this broader index is appropriate.

Comparison of Cumulative Total Return to Shareholders

$200

$150

$100

$50

12/31/04

12/31/05

12/31/06

12/31/07

12/31/08

12/31/09

POLYONE CORPORATION

S&P 500 INDEX

S&P MID CAP CHEMICALS

Company / Index

Base
Period
12/31/04

12/31/05

12/31/06

INDEXED RETURNS
Years Ending
12/31/07

12/31/08

12/31/09

PolyOne Corporation
S&P 500 Index
S&P Mid Cap Chemicals

$100
$100
$100

$ 70.97
$104.91
$ 97.94

$ 82.78
$121.48
$115.33

$ 72.63
$128.16
$146.57

$34.77
$80.74
$92.22

$ 82.45
$102.11
$146.96

STOCK EXCHANGE LISTING

FINANCIAL INFORMATION

PolyOne Corporation Common Stock is listed in the New York Stock Exchange.
Symbol: POL.

Security analysts and representatives of financial institutions are invited to
contact:

SHAREHOLDER INQUIRIES

If you have any questions concerning your account as a shareholder, name or
address changes, inquiries regarding stock certificates, or if you need tax
information regarding your account, please contact our transfer agent:

Joseph P. Kelley
Vice President, Planning and Investor Relations
Phone: 440.930.3502
Fax: 440.930.1750
E-mail: joseph.kelley@polyone.com

Computershare Trust Company, N.A.
P.O. Box 43078
Providence, Rhode Island 02940-3078
Phone: 877-498-8861
www.computershare.com

Additional information about PolyOne, including current and historic copies
of Form 10-K and other reports filed with the Securities and Exchange
Commission, is available online at www.polyone.com or free of charge from:

Investor Affairs Administrator
PolyOne Corporation
33587 Walker Road
Avon Lake, Ohio 44012
Phone: 440-930-1522

ANNUAL MEETING

The annual meeting of shareholders of PolyOne Corporation will be held May 12,
2010 at 9:00 a.m. at the LACENTRE Conference and Banquet Facility,
Champagne C Ballroom, 25777 Detroit Road, Westlake, Ohio. The meeting notice
and proxy materials were mailed to shareholders with this annual report. PolyOne
Corporation urges all shareholders to vote their proxies so that they can participate
in the decisions at the annual meeting.

AUDITORS

Ernst & Young LLP
925 Euclid Avenue, Suite 1300
Cleveland, Ohio 44115-1476

INTERNET ACCESS

Information on PolyOne’s products and services, news releases, corporate
governance, EDGAR filings, Forms 10-K and 10-Q, etc., as well as an electronic
version of this annual report, are available on the Internet at www.polyone.com.

ANNUAL CERTIFICATIONS

PolyOne Corporation included as Exhibits 31.1 and 31.2 to its Annual Report
on Form 10-K for 2009, filed with the Securities and Exchange Commission,
certificates of its Chief Executive Officer and Chief Financial Officer certifying
the quality of PolyOne’s public disclosure. On June 9, 2009, PolyOne
Corporation submitted to the New York Stock Exchange a certificate of the
Chief Executive Officer of PolyOne certifying that he is not aware of any
violation by PolyOne of New York Stock Exchange corporate governance
standards.

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CORPORATE OFFICERS

BOARD OF DIRECTORS

STEPHEN D. NEWLIN
Chairman, President and Chief Executive Oﬃcer

ARIF N. AHMED
Vice President and Treasurer

BERNARD BAERT
Senior Vice President, President of Europe and
International

DR. CECIL C. CHAPPELOW
Vice President, Innovation, Sustainability and
Chief Innovation Oﬃcer

DR. WILLIE CHIEN
Vice President, President of Asia

MICHAEL E. KAHLER
Senior Vice President, Chief Commercial Oﬃcer

THOMAS J. KEDROWSKI
Senior Vice President, Supply Chain and
Operations

JOSEPH P. KELLEY
Vice President, Planning and Investor Relations

LISA K. KUNKLE
Vice President, General Counsel and Secretary

CRAIG M. NIKRANT
Senior Vice President, President of Global
Specialty Engineered Materials

ROBERT M. PATTERSON
Senior Vice President and Chief Financial Oﬃcer

MICHAEL L. RADEMACHER
Senior Vice President, President of Distribution

ROBERT M. ROSENAU
Senior Vice President, President of Performance
Products and Solutions

VINCENT W. SHEMO
Vice President and Corporate Controller

KENNETH M. SMITH
Senior Vice President, Chief Information and
Human Resources Oﬃcer

JOHN V. VAN HULLE
Senior Vice President, President of Global Color,
Additives and Inks

FRANK J. VARI
Vice President, Tax

STEPHEN D. NEWLIN
Chairman, President and Chief Executive Oﬃcer,
PolyOne Corporation. Committees: 3,4

J. DOUGLAS CAMPBELL
Retired Chairman and Chief Executive Oﬃcer,
ArrMaz Custom Chemicals, Inc. – a specialty mining
and asphalt additives and reagents producer.
Committees: 2,3,4*

DR. CAROL A. CARTWRIGHT
President, Bowling Green State University –
a public higher education institution.
Committees: 1,5*

GALE DUFF-BLOOM
Retired President, Company Communications
and Corporate Image, J.C. Penney Company Inc.
– a major retailer. Committees: 3,4,5

RICHARD H. FEARON
Vice Chairman and Chief Financial and
Planning Oﬃcer, Eaton Corporation – a global
manufacturing company. Committees: 1*,5

GORDON D. HARNETT
Lead Director
Retired Chairman and Chief Executive Oﬃcer,
Brush Engineered Materials, Inc. – a supplier and
producer of engineered materials. Committees: 1,2*

RICHARD A. LORRAINE
Retired Senior Vice President and Chief
Financial Oﬃcer, Eastman Chemical Company –
a specialty chemicals company. Committees: 1,5

EDWARD J. MOONEY
Retired Chairman and Chief Executive Oﬃcer,
Nalco Chemical Company – a specialty
chemicals company. Committees: 2,3*,4

WILLIAM H. POWELL
Retired Chairman and Chief Executive Oﬃcer,
National Starch and Chemical Company –
a specialty chemical company. Committees: 2,3,4

FARAH M. WALTERS
President and Chief Executive Oﬃcer, QualHealth,
LLC – a healthcare consulting ﬁrm. Committees: 2,4

COMMITTEES
1. Audit

2. Compensation

3. Environmental, Health and Safety

4. Financial Policy

5. Nominating and Governance

* Denotes Chairperson