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COLLABORATION. INNOVATION. EXCELLENCE.
A N N U A L R E P O R T 2 0 1 5
COLLABORATION
INNOVATION
EXCELLENCE
ABOUT POLYONE
PolyOne Corporation, with 2015 revenues of $3.4 billion,
is a premier provider of specialized polymer materials,
services and solutions. We are dedicated to serving
customers in diverse industries around the globe, by
creating value through collaboration, innovation and
an unwavering commitment to excellence. Guided
by our Core Values, Sustainability Promise and No
Surprises PledgeSM, we are committed to our customers,
employees, communities and shareholders through
ethical, sustainable and fiscally responsible principles.
1
A N N U A L R E P O R T 2 0 1 5
OUR VISION & VALUES
To be the world’s premier provider of specialized polymer materials, services and solutions.
Collaboration. Innovation. Excellence. These core values, which begin with our individual decisions and actions, focus our
attention on putting the customer first by creating genuine value through collaboration, innovation and an unwavering
commitment to excellence. We will uphold these values with the utmost integrity in all that we do.
OUR STRATEGY
SPECIALIZATION
Differentiates us through unique value-creating offerings
to our customers.
GLOBALIZATION
Positions us to serve our customers consistently,
everywhere in the world.
OPERATIONAL EXCELLENCE
Empowers us to respond to the voice of the customer
with relentless continuous improvement.
COMMERCIAL EXCELLENCE
Governs our activities in the marketplace to deliver
extraordinary value to our customers.
“Our focus remains on material science,
formulation and service—and delivering
those to customers with the highest
standards of excellence and innovation.
With an exceptional team of global
associates executing our proven strategy,
we continue on our never-ending pursuit
of growth and success.”
—Robert M. Patterson, President and Chief Executive Officer
In this annual report, statements that are not reported financial results or other historical information are “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 in Part I of the Form 10-K.
2
““ ANNUAL REPORT 2015
A Letter
To Our
Shareholders
from Robert M. Patterson,
President and CEO
Our 2015 performance highlights included:
•
•
Improved safety for our associates, lowering our injury incident rate
from 0.84 to 0.74, six times better than the industry average.
Increased full year adjusted EPS 9% to $1.96. On a constant currency
basis, adjusted EPS expanded 14%.
• Color, Additives and Inks and Specialty Engineered Materials had record
years and remain the driving force behind 25 consecutive quarters of
adjusted EPS growth.
• Continued rapid pace of innovation with 43% of our specialty platform
sales from products introduced in the last five years.
•
Increased our dividend 20%—our fifth consecutive annual increase—
and repurchased 4.5 million shares of our common stock.
• Further strengthened our balance sheet by refinancing a portion of
our outstanding debt, significantly lowering interest rates, extending
maturities and enhancing liquidity.
ADJUSTED EARNINGS PER SHARE*
S
R
A
L
L
O
D
.
S
.
U
E
G
A
T
N
E
C
R
E
P
.60
.50
.40
.30
.20
.10
0
12%
10%
8%
6%
4%
2%
0%
*2009 has not been restated for subsequent changes in accounting principles or discontinued operations
ADJUSTED CONSOLIDATED OPERATING MARGIN
H
T
2
E
E
A
S
C
P
U
U
O
O
R
R
R
N
O W T
F Y
Y E
5 C
T I V
E Q
S G
S O
2015
2011
2012
2013
2010
2014
2009
18+20+23+30+43+60+65
20+33+33+46+60+81+90
8+32+43+50+61+85+95
0+28+37+40+51+73+76
6
0+43+49+52+59+66+76
37+36+37+49+51+63+68
39+48+46+61+60+74+87
22+47+52+61+61+74+87
8 2.8%
2009
2014
2010
2013
2012
2011
2015
5.2%
8.3%
6.7%
5.6%
6.9%
9.5%
While 2015 was a year with many highlights, it was also a year in which we
faced short-term challenges. Revenues declined as a result of unfavorable
foreign exchange, lower selling prices in Distribution and Performance
Products and Solutions due to lower hydro-carbon based raw material costs,
and the ongoing integration of the former Spartech businesses. Ultimately,
our results fell just short of our goal of annual double-digit EPS expansion.
Yet in their own way, these temporary headwinds proved to be a galvanizing
experience for our exceptional team of associates who rallied to overcome
them. During the course of our efforts, we did not sacrifice our intermediate
or long-term growth potential or deviate from our proven four-pillar
strategy—achieving many important successes as follows:
SPECIALIZATION
65% of our operating income was generated from our specialty businesses in
2015—continuing the highest level in the history of our company. Back in 2005,
it was just 2%. That tremendous growth is a testament to our investments in
customer-driven innovation, solutions and design services. As a measurement
gauge, our Vitality Index reflects the percentage of specialty sales from
2015 was yet another
year of significant
accomplishments at
PolyOne as we continued
to execute our proven
four-pillar strategy. We
put our customers first
by developing new and
innovative solutions
to help them grow and
investing in commercial
resources who provide
exemplary service. We also
solidified our leadership
team and further
developed our culture of
excellence shared among
6,900 global associates.
3
products introduced in the last five years. In 2015, our Vitality Index
was an impressive 43%, truly world-class performance.
the scope of our IQ Design services offering, so that more
customers can now benefit from our design expertise.
We launched several new products this year, including the exciting
and game-changing ColorMatrix™ Fiber Colorant Solutions,
ColorMatrix™ Select, a cloud-based liquid color creation and
supply service; and InVisiOSM Color Inspiration 2016, a collection of
emerging colors used when inspiring and collaborating with our
customers during their product design process.
OPERATIONAL EXCELLENCE
Operational Excellence begins with safety. It’s a mindset and a
way of life at PolyOne. Consistent with this commitment, we
were pleased to have lowered our injury incident rate from 0.84
to 0.74, which is six times better than the Plastics and Rubber
Manufacturing Industry average of 4.6.
We launched a dedicated team to serve the outdoor high
performance market, where customers are utilizing our high-
strength, lightweight materials to replace metal and improve
the design and performance of their products. In 2015 this
included a unique Engineered Material formulation based on our
Gravi-Tech™ High Density Composite material.
GLOBALIZATION
Globalization means serving our multi-national customers with
consistency and excellence anywhere in the world that they
need us, which is why we continued to invest for the future. We
were extremely proud to open our new Asia Innovation Center
in Shanghai in June to improve cross-business unit collaboration
with our customers and increase our speed to market.
In December, we acquired Magenta Master Fibers from BASF,
which expanded our specialty colorant business for fiber
applications, as well as grew our resources and presence in
Europe and Asia.
As we grow our global customer base and footprint, we are
ensuring that our people are prepared to lead and serve
customers with excellence. We further advanced our global
leadership training and development programs, underpinned
by the success of our flagship offerings for future leaders—
NextGen and PolyMasters.
COMMERCIAL EXCELLENCE
Our unique approach to the marketplace is led by our talented
sales, technology and marketing teams. As we approach
customers, it’s now with a more unified front. We call it “One
PolyOne,” and it’s a theme and shift we’ve been pursuing since
2014. The true power of our company is in the broad solutions
portfolio we offer to maximize the benefits we provide to our
customers—and in turn, our shareholders.
Such is the case with a prominent and innovative healthcare
leader who named us “Supplier of the Year” for the second year
in a row. The company selected PolyOne based on our unique
ability to bring solutions from our Engineered Materials, Color
and Distribution businesses.
With an estimated $40 billion in addressable market opportunity
and a world-class portfolio to address it, we not only train our
existing sales force to be the best, we strategically invest in
new resources to generate growth. Last year we increased our
sales force by 9%, and we expect a sustainable return on those
important commercial investments in 2016 and beyond.
A growing strength throughout PolyOne is our specialty
services capability. It’s become our timeless differentiator. We
continue to formalize additional service offerings that extend
well beyond specialty polymer formulations—yet they are
clearly complementary and value-added for our customers. For
example, in 2015 we temporarily deployed several of our skilled
LSS black belts to multiple customers to help improve their
manufacturing and development processes. We also expanded
Likewise, Lean Six Sigma (LSS) remains at the core of formal
process improvement at PolyOne. More than 3,300 of our
associates are trained on the methodology, and at any given time
there are dozens of projects being conducted globally to improve
our operations, sales processes, systems or any activities that
could benefit from quality or efficiency gains.
A large focus of our LSS activity last year was within our
Designed Structures and Solutions (DSS) business segment.
Comprised of the sheet, rollstock and packaging businesses of
the former Spartech, we have made substantial progress and
improvements, yet much opportunity—and work—still remain.
We’ve taken concerted actions to improve on-time delivery
rates, quality, operations and the commercial approach at
DSS to better serve our customers—all of which continue to
be areas we’re focusing on. We were also pleased to welcome
Rich Altice as president of DSS who, along with our global head
of operations John Midea, has been strategically making the
necessary changes to deliver value and further the specialty
transformation progress in 2016.
A PLATINUM VISION FOR THE FUTURE
At our Investor Day in May, we unveiled new, aggressive
performance targets for our company. They constitute what
we’re calling our 2020 Platinum Vision. Each new performance
objective evokes the strengths of our transformation thus far,
including innovation, collaboration and service—all of which we
will use to better serve our customers—the underlying enabler
to PolyOne’s growth.
As we embark on this path, I am enthusiastic about what this
will mean for our valued customers, and I would like to first and
foremost thank them for choosing PolyOne as a partner for their
material science and services needs. To our shareholders—both
long-term owners of our stock and those new to our company—
thank you for your trust in PolyOne’s ability to deliver and
grow. Our diverse and talented Board of Directors continues
to provide ongoing support and guidance, and I am thankful
for their important contributions and perspectives. And finally,
thank you to the great team of PolyOne associates around the
world. I remain inspired by the work they do every day to serve
our customers. I am proud to stand beside them in our ongoing
quest to deliver excellence in all that we do—for our customers,
shareholders and each other.
In summary, 2015 was a year our team joined together to
overcome many challenges and found a way to win. We delivered
record earnings per share while also investing for the future.
In 2016, we will work hard to continue to build upon our
momentum, execute our strategy and progress in our pursuit of
platinum performance!
Robert M. Patterson
President and Chief Executive Officer
March 17, 2016
4
ANNUAL REPORT 2015
PROOF OF PERFORMANCE
Our transformation is clearly evident in our specialty operating income mix shift, a key driver in six consecutive years of adjusted EPS growth.
OPERATING INCOME MIX SHIFT*^
ADJUSTED EARNINGS PER SHARE נ
E
M
O
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I
G
N
I
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A
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P
O
F
O
%
100
80
60
40
20
0100+100+100+100+100
10+32+53+82+82+84
1+18+34+51+61+64
50+77+80+97+100+100
*Operating Income excludes Corporate charges and special items
2007
2005
2009
2015
2013
2011
SPECIALTY
DISTRIBUTION
PP&S
JV’S
S
R
A
L
L
O
D
.
S
.
U
2.00
1.80
1.60
1.40
1.20
1.00
.80
.60
.40
.20
0
SIX CONSECUTIVE YEARS OF EPS GRO W TH
+5+33+41+50+65+90+98
†2009 has not been restated for subsequent changes in accounting principles or discontinued operations
◊EPS excluding special items and income from equity affiliates
2009
2014
2010
2013
2012
2011
2015
^2005–2009 has not been restated for subsequent changes in accounting principles or discontinued operations
STOCK PERFORMANCE
PolyOne’s stock performance has significantly outpaced the S&P 500 index and the S&P Mid Cap Chemicals index.
E
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500
400
300
200
100
0
12.31.09
DATE
POL
S&P MID CAP CHEMICALS
S&P 500
12.31.10
12.31.11
12.31.12
12.31.13
12.31.14
12.31.15
2020 PLATINUM VISION—OUR TRANSFORMATION CONTINUES…
Our track record of growth has been excellent, and we’re aspiring to even greater heights with our 2020 Platinum Vision.
2006
“Where we were”
2015
“Where we are”
2020
Platinum Vision
Operating Income %
Specialty
Color, Additives & Inks
Specialty Engineered Materials
Designed Structures & Solutions
PP&S
Distribution
Specialty Platform Operating Income % of Total
ROIC** (after-tax)
Adjusted EPS Growth
1.7%
1.1%
—
5.5%
2.6%
6.0%
5.0%
N/A
**ROIC is defined as TTM adjusted OI divided by the sum of average debt and equity over a 5 quarter period
5
16.7%
14.7%
3.0%
8.3%
6.6%
65%
11.8%
20% +
20% +
12–14%
10–12%
6.5–7.5%
80% +
15%
25 Consecutive Quarters
of YOY EPS Growth
Double Digit Expansion
United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
.
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
Common Shares, par value $.01 per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Í No ‘
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 ‘ No Í
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 to
such filing requirements for the past 90 days. Yes Í No ‘
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. Í
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 Í No ‘
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):
Large accelerated filer Í
Accelerated filer ‘
Non-accelerated filer ‘
Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No Í
The aggregate market value of the registrant’s outstanding common shares held by non-affiliates on June 30, 2015, determined using a per share
closing price on that date of $38.90, as quoted on the New York Stock Exchange, was $3.3 billion.
(Do not check if a smaller reporting company)
The number of shares of common shares outstanding as of February 1, 2016 was 85,306,587.
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 2016 Annual Meeting of Shareholders.
POLYONE CORPORATION
[THIS PAGE INTENTIONALLY LEFT BLANK]
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 “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of
future events and are not guarantees of
future performance. They are based on management’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 connection with any discussion of future operating or financial
performance and/or sales. In particular, these include statements relating to future actions; prospective
changes in raw material costs, product pricing or product demand; future performance; estimated
capital expenditures; 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 from those implied by these forward-looking
statements include, but are not limited to:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
effects on foreign operations due to currency fluctuations, tariffs and other political, economic
and regulatory risks;
changes in polymer consumption growth rates and laws and regulations regarding the
disposal of plastic materials where we conduct business;
changes in global industry capacity or in the rate at which anticipated changes in industry
capacity come online in the industries in which we participate;
fluctuations in raw material prices, quality and supply, and in energy prices and supply;
production outages or material costs associated with scheduled or unscheduled maintenance
programs;
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;
an inability to achieve or delays in achieving or achievement of less than the anticipated
financial benefit from initiatives related to working capital reductions, cost reductions and
employee productivity goals;
an inability to raise or sustain prices for products or services;
an inability to maintain appropriate relations with unions and employees;
the strength and timing of economic recoveries;
the financial condition of our customers, including the ability of customers (especially those
that may be highly leveraged and those with inadequate liquidity) to maintain their credit
availability;
disruptions, uncertainty or volatility in the credit markets that may limit our access to capital;
other factors affecting our business beyond our control, including, without limitation, changes
in the general economy, changes in interest rates and changes in the rate of inflation;
the amount and timing of repurchases, if any, of PolyOne common shares;
POLYONE CORPORATION 1
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
our ability to pay regular quarterly cash dividends and the amounts and timing of any future
dividends;
our ability to realize anticipated savings and operational benefits from the realignment of
assets, including the closure of manufacturing facilities; the timing of closings and shifts of
production to new facilities related to asset realignments and any unforeseen loss of
customers and/or disruptions of service or quality caused by such closings and/or production
shifts; separation and severance amounts that differ from original estimates, amounts for non-
cash charges related to asset write-offs and accelerated depreciation realignments of
property, plant and equipment, that differ from original estimates;
our ability to identify and evaluate acquisition targets and consummate acquisitions;
the ability to successfully integrate acquired businesses into our operations, including whether
such businesses will be accretive to our earnings, retain the management teams of acquired
businesses, and retain relationships with customers of acquired businesses, including, without
limitation, Spartech, Accella Performance Materials and Magenta;
information systems failures and cyberattacks; and
other factors described in this Annual Report on Form 10-K under Item 1A, “Risk Factors.”
in our plans and assumptions. Achievement of
We cannot guarantee that any forward-looking statement will be realized, although we believe we have
been prudent
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 statements, 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.
future results is subject
ITEM 1. BUSINESS
Business Overview
We are a premier provider of specialized polymer materials, services and solutions with operations in
specialty polymer formulations, color and additive systems, plastic sheet and packaging solutions and
polymer distribution. We are also a highly specialized developer and manufacturer of performance
enhancing additives, liquid colorants and fluoropolymers and silicone colorants. Headquartered in Avon
Lake, Ohio, we have employees at sales, manufacturing and distribution facilities in North America,
South America, Europe, Asia and Africa. We provide value to our customers through our ability to link
our knowledge of polymers and formulation technology with our manufacturing and supply chain
capabilities to provide value added solutions to designers, assemblers and processors of plastics (our
customers). When used in this Annual Report on Form 10-K, the terms “we,” “us,” “our”, “PolyOne” and
the “Company” mean PolyOne Corporation and its consolidated subsidiaries.
PolyOne was formed on August 31, 2000 from the consolidation of The Geon Company (Geon) and
M.A. Hanna Company (Hanna). Geon’s roots date back to 1927 when BFGoodrich scientist Waldo
Semon produced the first usable vinyl polymer. In 1948, BFGoodrich created 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.
2 POLYONE CORPORATION
PolyOne Corporation is incorporated in Ohio and headquartered in Avon Lake, Ohio. We employ
approximately 6,900 people and have 76 manufacturing sites and eight distribution facilities in North
America, South America, Europe and Asia. We offer more than 35,000 polymer solutions to over
10,000 customers across the globe. In 2015, we had sales of $3.4 billion, 34% of which were to
customers outside the United States.
We provide value to our customers with solutions built upon our ability to leverage our polymer and
formulation expertise with our operational capabilities, being the essential link between large chemical
producers (our raw material suppliers) and designers, assemblers and processors of plastics (our
customers). We believe that our role in the value chain continues to become more essential as our
customers need reliable suppliers with global reach and more effective solutions to improve their
profitability and competitive advantage. Our goal is to provide our customers with specialized materials
and service solutions through our global reach, broad market knowledge, technical expertise, product
breadth, efficient manufacturing operations, a fully integrated information technology network and raw
material procurement leverage. Our end markets are primarily in transportation, packaging, building
and construction, industrial, healthcare, consumer, wire and cable, electrical and electronics, and
appliance.
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, such as polyethylene and
polypropylene, in their most basic forms. Large petrochemical companies, including some in the
petroleum industry, produce a majority 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.
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
specialized engineering resins. Each type of thermoplastic has unique qualities and characteristics that
make it appropriate for use in a particular application. Thermoplastic composites include these base
resins, but are combined with a structural filler such as glass, wood, carbon or polymer fibers to
enhance strength, rigidity and structure. Further performance can be delivered through an engineered
thermoplastic sheet or thick film, which may incorporate more than one resin formulation or composite
integrity and
in multiple layers to impart additional properties such as gas barrier, structural
lightweighting.
Thermoplastic and polymer composites are found in a variety of end-use products and markets,
including packaging, building and construction, wire and cable, transportation, medical, furniture and
furnishings, durable goods, electrical and electronics, adhesives, inks and coatings. Each type of
thermoplastic resin has unique characteristics (such as flexibility, strength or durability) suitable for use
in a particular end-use application. The packaging industry 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,
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
flame resistance, durability, water resistance, and color coding to wire coatings and
insulation,
flooring,
POLYONE CORPORATION 3
connectors. In the transportation industry, plastic has proven to be durable, lightweight and corrosion
resistant while offering fuel savings, design flexibility and high performance, often replacing traditional
materials such as metal and glass. In the medical industry, plastics are used for a vast array of devices
and equipment, including blood and intravenous bags, medical tubing, catheters, lead replacement for
radiation shielding, clamps and connectors to bed frames, curtains and sheeting, electronic enclosures
In the electronics industry, plastic enclosures and connectors not only
and equipment housings.
enhance safety through electrical insulation, but thermally and electrically conductive plastics provide
heat
shielding
performance for critical applications including integrated circuit chip packaging.
cooling, antistatic, electrostatic discharge, and electromagnetic
transferring,
Various additives can be formulated with a base resin and further engineered into a structure to
provide them with greater versatility and performance. Polymer formulations and structures have
advantages over metals, wood, rubber, glass 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 construction materials. These specialized polymers offer advantages compared to traditional
materials that include design freedom, processability, weight reduction, chemical resistance, flame
retardance and lower cost. Plastics are renowned for their durability, aesthetics, ease of handling and
recyclability.
PolyOne Segments
We operate in five reportable segments: (1) Color, Additives and Inks; (2) Specialty Engineered
Materials; (3) Designed Structures and Solutions; (4) Performance Products and Solutions; and
(5) PolyOne Distribution.
On December 9, 2015, the Company completed the acquisition of specialty color concentrates of
Magenta Master Fibers (Magenta) for $18.3 million, net of cash acquired. The Magenta acquisition
complements our Color business by providing specialty solid color concentrates in a wide-range of
applications, including clothing and apparel, outdoor equipment, high-performance products and the
transportation industry. Magenta’s results are included within the Color, Additives and Inks segment.
On December 1, 2014,
the Company completed the acquisition of specialty assets of Accella
Performance Materials (Accella) for $47.2 million, net of cash acquired. The Accella acquisition
complements the existing specialty business portfolio by providing specialty coating solutions and
value-added services in a wide-range of applications, including consumer products, interior and under-
the-hood automotive parts, outdoor recreational equipment and food packaging. Accella’s results are
included within the Color, Additives and Inks segment.
On May 30, 2013, we sold our vinyl dispersion, blending and suspension resin assets (Resin Business)
to Mexichem Specialty Resins Inc. (Mexichem). As a result of the sale, the Resin Business has been
removed from the Performance Products and Solutions segment and is presented as a discontinued
operation in all periods presented.
On March 13, 2013, PolyOne acquired Spartech Corporation (Spartech), a supplier of sustainable
plastic sheet, color and engineered materials, and packaging solutions. The acquisition of Spartech
has provided substantial synergies through enhanced operational cost efficiencies and has expanded
PolyOne’s specialty portfolio.
Spartech’s results have been reflected within our Consolidated Statements of Income and within our
Designed Structures and Solutions segment, as well as within our Specialty Engineered Materials,
Color, Additives and Inks and Performance Products and Solutions segments, since the date of
acquisition.
Our segments are further discussed in Note 16, Segment Information.
4 POLYONE CORPORATION
Color, Additives and Inks
Color, Additives and Inks is a leading provider of specialized custom color and additive concentrates in
solid and liquid form for thermoplastics, dispersions for thermosets, as well as specialty inks, plastisols,
and vinyl slush molding solutions. Color and additive solutions include an innovative array of colors,
special effects and performance-enhancing and eco-friendly solutions. When combined with a non-
base resin, our solutions help customers achieve differentiated specialized colors and effects targeted
at the demands of today’s highly design-oriented consumer and industrial end markets. Our additive
concentrates encompass a wide variety of performance and process enhancing characteristics and are
commonly categorized by the function that they perform, such as UV stabilization, antimicrobial, anti-
static, blowing or foaming, antioxidant, lubricant, and productivity enhancement. Our colorant and
additives concentrates are used in a broad range of polymers, including those used in medical and
pharmaceutical devices,
transportation, building
food packaging, personal care and cosmetics,
products, wire and cable markets. We also provide custom-formulated liquid systems that meet a
variety of customer needs and chemistries, including vinyl, natural rubber and latex, polyurethane and
silicone. Our offerings also include proprietary inks and latexes for diversified markets such as
recreational and athletic apparel, construction and filtration, outdoor furniture and healthcare. Our liquid
polymer coatings and additives are largely based on vinyl and are used in a variety of markets,
including building and construction, consumer, healthcare, industrial, packaging, textiles, appliances,
transportation, and wire and cable. Color, Additives and Inks has manufacturing, sales and service
facilities located throughout North America, South America, Europe, Asia and Africa.
Specialty Engineered Materials
Specialty Engineered Materials is a leading provider of specialty polymer formulations, services and
solutions for designers, assemblers and processors of thermoplastic materials across a wide variety of
markets and end-use applications. Our product portfolio, which we believe to be one of the most
diverse in our industry, includes specialty formulated high-performance polymer materials that are
manufactured using thermoplastic resins and elastomers, which are then combined with advanced
polymer additives, reinforcement, filler, colorant and/or biomaterial technologies. Our technical and
market expertise enables us to expand the performance range and structural properties of traditional
engineering-grade thermoplastic resins to meet evolving customer needs. Specialty Engineered
Materials has manufacturing, sales and service facilities located throughout North America, Europe,
Asia and South America. Our product development and application reach is further enhanced by the
capabilities of our Innovation Centers in the United States, Germany and China, which produce and
evaluate prototype and sample parts to help assess end-use performance and guide product
development. Our manufacturing capabilities are targeted at meeting our customers’ demand for
speed, flexibility and critical quality.
Designed Structures and Solutions
On March 13, 2013, the Company completed the acquisition of Spartech, a supplier of plastic sheet,
color and engineered materials, and packaging solutions. As a result of
the acquisition, a new
reportable segment,
“Designed Structures and Solutions”, was created. We believe PolyOne’s
Designed Structures and Solutions segment is a market leader in providing specialized, full service and
innovative solutions in engineered polymer structures, rigid barrier packaging and specialty cast
acrylics. We utilize a variety of polymers, specialty additives and processing technologies to produce a
complete portfolio of sheet, custom rollstock and specialty film, laminate and acrylic solutions. Our
solutions can be engineered to provide structural or functional performance in an application or design
and visual aesthetics to meet our customers’ needs. Our offerings also include a wide range of
sustainable, cost-effective stock and custom packaging solutions for various industry processes used
in the food, medical, and consumer markets. In addition to packaging, we also work closely with
customers to provide solutions for transportation, building and construction, healthcare and consumer
POLYONE CORPORATION 5
markets. Designed Structures and Solutions has manufacturing, sales and service facilities located
throughout North America.
Performance Products and Solutions
Performance Products and Solutions is comprised of the Geon Performance Materials (Geon) and
Producer Services business units. The Geon business delivers an array of products and services for
vinyl molding and extrusion processors located in North America and Asia. The GeonTM brand name
carries strong recognition globally. Geon’s products are sold to manufacturers of durable plastic parts
and consumer-oriented products. We also offer a wide range of services including materials testing,
component analysis, custom formulation development, colorant and additive services, part design
assistance, structural analysis, process simulations, mold design and flow analysis and extruder screw
design. Vinyl is used across a broad range of markets and applications, including, but not limited to:
healthcare, wire and cable, building and construction, consumer and recreational products and
transportation and packaging. The Producer Services business unit offers contract manufacturing and
outsourced polymer manufacturing services to resin producers and polymer marketers, primarily in the
United States and Mexico, as well as its own proprietary compounds for pressure pipe and drip
irrigation applications. As a strategic and integrated supply chain partner, Producer Services offers
resin producers a capital-efficient way to effectively develop custom products for niche markets by
leveraging its extensive process technology expertise, broad manufacturing capabilities and
geographic locations.
PolyOne Distribution
The PolyOne Distribution business distributes more than 3,500 grades of engineering and commodity
grade resins,
including PolyOne-produced solutions, principally to the North American and Asian
markets. These products are sold to over 6,000 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 25 major suppliers, we offer our customers a broad product portfolio, just-in-time delivery from
multiple stocking locations and local technical support. Recent expansion in Central America and Asia
have bolstered PolyOne Distribution’s ability to serve the specialized needs of customers globally.
Competition
The production of plastics and the manufacturing of custom and proprietary formulated color and
additives systems for the plastics industry are highly competitive. Competition is based on service,
performance, 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 formulator of plastic materials and producer of custom and proprietary color and
additive systems in the United States and Europe, with a growing presence in Asia and South America.
Our competitors range from large international companies with broad product offerings to local
independent custom producers 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, delivery, quality and price, are the principal
factors affecting competition. We
independent resin distributors in North America, along with other
compete against other national
regional distributors. Growth in the polymer distribution market is highly correlated with growth in the
base polymer resins market. We believe that the strength of our company name and reputation, the
broad range of product offerings from our suppliers and our speed and responsiveness, combined with
the quality of products and agility of our distribution network, allow us to compete effectively.
Raw Materials
The primary raw materials used by our manufacturing operations are polyvinyl chloride (PVC) resin,
polyolefin and other thermoplastic resins, plasticizers, inorganic and organic pigments, all of which we
6 POLYONE CORPORATION
believe are in adequate supply. We have a long-term supply contract with Oxy Vinyls LP, a former
equity investment affiliate, under which the majority of our PVC resin is supplied. This contract contains
a year-by-year evergreen renewal provision, unless terminated by either party with a one-year advance
notice. We believe this contract assures the availability of adequate amounts of PVC resin. We also
believe that the pricing under this contract provides PVC resins to us at a competitive cost. See the
discussion of risks associated with raw material supply and costs in Item 1A, “Risk Factors”.
Patents and Trademarks
We own and maintain a number of patents and trademarks in the United States and other key
countries that contribute to our competitiveness in the markets we serve because they protect our
inventions and product names against infringement by others. Patents exist for 20 years from filing
date, 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 cash flows.
Nevertheless, we have 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 our
backlog is a meaningful indicator of the level of our present or future business.
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
specifications are not met; however, we employ quality assurance practices that seek to minimize
customer returns. Our customer returns are immaterial.
Significant Customers
No customer accounted for more than 2% of our consolidated revenues in 2015, and we do not believe
we would suffer a material adverse effect to our consolidated financial statements 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, by providing quality technical
services to evaluate alternative raw materials, assuring the continued success of our products for
customer applications, providing technology 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 facilities are equipped with state-of-the-art analytical,
synthesis, polymer characterization and testing equipment, along with pilot plants and polymer
manufacturing operations that simulate specific production processes that allow us to rapidly translate
new technologies into new products. Our investment
in product research and development from
continuing operations was $53.0 million in 2015, $53.4 million in 2014 and $52.6 million in 2013. On a
constant currency basis, our investment in research and development from continuing operations for
2015 was $55.5 million compared to $53.4 million in 2014.
POLYONE CORPORATION 7
Methods of Distribution
including our PolyOne
We sell products primarily through direct sales personnel, distributors,
Distribution segment, and commissioned sales agents. We primarily use truck carriers to transport our
products to customers, although some customers pick up product at our manufacturing facilities or
warehouses. We also ship some of our manufactured products to customers by rail.
Employees
As of December 31, 2015, we employed approximately 6,900 people. Approximately 4% 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, transportation, 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 correct potential
environmental exposures, including compliance matters and operational risk reduction opportunities.
This effort can result in process or operational modifications, the installation of pollution control devices
or cleaning up grounds or facilities. 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 0.74 per 100 full-time
workers per year in 2015, compared to 0.84 in 2014. The 2014 average injury incidence rate for our
NAICS Code (326 Plastics and Rubber Products Manufacturing) was 4.6.
In our operations, we must comply with product-related governmental law and regulations affecting the
plastics industry generally 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 content-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 Hazardous Substances (RoHS), Registration, Evaluation, Authorization and Restriction of
Chemicals (REACH), the Dodd-Frank Wall Street Reform and Consumer Protection Act (covering
Conflict Minerals), and the Consumer Product Safety Improvement Act,
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.
A number of foreign countries and domestic communities have enacted, or are considering enacting,
laws and regulations concerning 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
8 POLYONE CORPORATION
reduce the impact of these kinds of environmental regulations, more stringent regulation of the use and
disposal of plastics may have an adverse effect on our business.
We have been notified by federal and state environmental agencies and by private parties that we may
be a potentially responsible party (PRP) in connection with the investigation and remediation of certain
environmental sites. While government agencies frequently assert that PRPs are jointly and severally
liable at these sites, in our experience, the interim and final allocations of liability costs are generally
made based on the relative contribution of waste. 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 position, results of operations or cash flows.
We incurred environmental expenses, before insurance recoveries, of $9.3 million in 2015, $10.3
million in 2014 and $61.2 million in 2013. Our environmental expense in 2015, 2014 and 2013 related
mostly to ongoing remediation projects. The 2013 expense also included a $47.0 million adjustment to
our Calvert City reserve, which is discussed further in Note 13, Commitments and Contingencies. In
2015, 2014 and 2013, we recognized gains associated with insurance recoveries of $3.5 million, $3.7
million and $23.5 million,
respectively, as reimbursement of previously incurred environmental
remediation costs.
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 certain sites we, or
our predecessors, formerly owned or operated. We believe that our potential continuing liability at
these sites will not have a material adverse effect on our results of operations, financial position or
cash flows. As of December 31, 2015, our reserves totaled $119.9 million, covering probable future
environmental expenditures that we can reasonably estimate related to previously contaminated sites.
This amount represents our best estimate of probable costs, based upon the information and
technology currently available. We continue to pursue available insurance coverage related to these
matters and recognize gains as we receive reimbursement. No receivable has been recognized for
future recoveries.
Refer to Note 13, Commitments and Contingencies,
liabilities.
for further discussion of our environmental
We expect 2016 environmental cash expenditures to approximate $10.2 million.
International Operations
Our international operations are subject to a variety of risks,
including currency fluctuations and
devaluations, exchange controls, currency 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 information about our
international operations, see Note 16, Segment
Information, to the accompanying consolidated financial statements.
Where You Can Find Additional Information
Our principal executive offices are located at 33587 Walker Road, Avon Lake, Ohio 44012, and our
telephone number 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, Washington,
POLYONE CORPORATION 9
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 Reports on
Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of
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. The contents of our
website are not part of this Annual Report on Form 10-K, and the reference to our website does not
constitute incorporation by reference into this Form 10-K of the information contained at that site.
the Exchange Act are available,
ITEM 1A. RISK FACTORS
The following are certain risk factors that could affect our business, results of operations, financial
position or cash flows. These risk factors should be considered along with the forward-looking
statements contained in this Annual Report 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, results of
operations, financial position or cash flows could be adversely 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.
Several factors may affect the demand for and supply of our products and services, including:
(cid:129)
(cid:129)
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economic downturns in the significant end markets that we serve;
product obsolescence or
proposition of our products and services;
technological changes that unfavorably alter
the value/cost
competition from existing and unforeseen polymer and non-polymer based products;
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;
changes in environmental regulations that would limit our ability to sell our products and
services in specific markets;
changes in laws and regulations regarding the disposal of plastic materials; and
inability to obtain raw materials or supply products to customers due to factors such as
supplier work stoppages, supply shortages, plant outages or regulatory changes that may limit
or prohibit overland transportation of certain hazardous 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 and
potentially lead to asset impairment.
Our manufacturing operations are subject to hazards and other risks associated with polymer
production and the related storage and transportation of raw materials, products and wastes.
The occurrence of an operating problem at our facilities (e.g., an explosion, mechanical
failure,
chemical spills or discharges) may have a material adverse effect on the productivity and profitability of
a particular manufacturing or distribution facility or on our operations as a whole, during and after the
10 POLYONE CORPORATION
period of these operating difficulties. Operating problems may cause personal injury and/or loss of life,
customer attrition and severe damage to or destruction of property and equipment and environmental
damage. We are subject to present claims and potential future claims with respect to workplace
exposure, workers’ compensation and other matters. Our property and casualty insurance, which we
believe is of the types and in the amounts that are customary for the industry, may not fully insure us
against all potential hazards that are incident to our business or otherwise could occur.
Extensive environmental, health and safety laws and regulations impact our operations and
financial statements.
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, transportation, recycling or disposal and/or sale of materials that can cause
contamination and other harm to the environment or personal injury if they are improperly handled and
released. Environmental compliance requirements 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, criminal or civil sanctions, damages, remediation costs or
experience interruptions in our operations for violations of these laws.
Our operations could be adversely affected by various risks inherent in conducting operations
worldwide.
We have extensive operations outside of the United States, that are subject to risks; including, but not
limited to, the following:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
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changes in local government regulations and policies including, 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;
political and economic instability and disruptions, including labor unrest, civil strife, acts of
war, guerrilla activities, insurrection and terrorism;
legislation that regulates the use of chemicals;
disadvantages of competing against companies from countries that are not subject
to
U.S. laws and regulations, including the Foreign Corrupt Practices Act (FCPA) and the U.K.
Bribery Act;
compliance with international
economic sanctions;
trade laws and regulations,
including export control and
difficulties in staffing and managing multi-national operations;
limitations on our ability to enforce legal rights and remedies;
reduced protection of intellectual property rights; and
other risks arising out of
conducted.
foreign sovereignty over the areas where our operations are
In addition, we could be adversely affected by violations of the FCPA, U.K Bribery Act and similar
worldwide anti-bribery laws as well as export controls and economic sanction laws. The FCPA, U.K.
Bribery Act and similar anti-bribery 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 laws. We operate in many parts of the
world that have experienced governmental corruption to some degree and, in certain circumstances,
strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot
POLYONE CORPORATION 11
assure you that our internal controls and procedures will always protect us from the reckless or criminal
acts committed by our employees or agents. If we are found to be liable for FCPA, U.K Bribery Act,
export control or sanction violations, we could suffer from criminal or civil penalties or other sanctions,
including loss of export privileges or authorization needed to conduct aspects of our international
business, which could have a material adverse effect on our business.
Any of these risks could have an adverse effect on our international operations by reducing demand for
our products.
We engage in acquisitions and joint ventures, and may encounter unexpected difficulties
integrating those businesses.
Attainment of our strategic plan objectives 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 arrangements, and integrate the businesses acquired in these transactions as well as develop
satisfactory working arrangements with our strategic partners in the joint ventures. Unexpected
difficulties in integrating recent and future acquisitions with our existing operations and in managing
strategic investments could occur. Furthermore, we may not realize the degree, or timing, of benefits
initially anticipated.
We are undergoing restructurings that may cause disruption or could have an adverse effect on
our business and operations.
We are undergoing certain restructurings that are intended to realize certain synergies. There can be
no assurance that such restructurings and reorganizations will be successful or properly implemented.
If any of such internal restructurings are not successful or properly implemented, we may fail to realize
the potential synergies of the acquisition, which may harm our business and results of operations or
cause disruptions to our operations, including disruption in our supply chain or loss of customers.
Natural gas, electricity, fuel and raw material costs and other external factors that are also
beyond our control can cause volatility in our results.
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 costs. 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.
Volatility of end markets that PolyOne serves.
PolyOne’s segment results have varied in the past and may vary from quarter to quarter in the future.
Profitability can be negatively impacted by volatility in the end markets that PolyOne serves. The
Company has undertaken measures to reduce the impact of this volatility through diversification of
markets it serves and expansion of geographic regions in which it operates. Future downturns in any of
the markets could adversely affect our results.
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,
demographic trends,
legislative actions and consumer confidence. These factors can lower the
demand for and pricing of our products.
levels, employment
12 POLYONE CORPORATION
We face competition from other companies and alternative technologies.
We encounter competition in price, payment terms, 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 competitors
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 customers.
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 business. 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 inefficient or ineffective.
Increased information systems security threats and more sophisticated and targeted computer
crime could pose a risk to our systems, networks, and products.
Increased global information systems security threats and more sophisticated and targeted computer
crime pose a risk to the security of our systems and networks and the confidentiality, availability and
integrity of our data and communications. While we attempt to mitigate these risks by employing a
number of measures, including employee training, comprehensive monitoring of our networks and
systems, and maintenance of backup and protective systems, our systems, networks and products
remain potentially vulnerable to advanced persistent threats. Depending on their nature and scope,
such threats could potentially lead to the compromising of confidential
information and
communications, improper use of our systems and networks, manipulation and destruction of data,
defective products, production downtimes and operational disruptions, which in turn could adversely
affect our reputation, competitiveness and results of operations.
Significant movements in foreign currency exchange rates or change in monetary policy may
harm our financial results.
We are exposed to fluctuations in foreign currency exchange rates. Any significant change in the value
of the currencies of the countries in which we do business against the U.S. dollar could affect our
ability to sell products competitively and control our cost structure, which could have a material adverse
effect on our business, financial condition and results of operations. For additional detail related to this
risk, see Item 7A, “Quantitative and Qualitative Disclosure About Market Risk.”
Disruptions in the global credit and financial markets could limit our access to credit, which
could negatively impact our business.
Global credit and financial markets have experienced volatility in recent years, including volatility in
security prices,
liquidity and credit availability, declining valuations of certain investments and
significant changes in the capital and organizational structures of certain financial institutions. These
market conditions may limit our ability to 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 unattractive interest rates, which could increase our interest expense, decrease our profitability
and significantly reduce our financial flexibility.
POLYONE CORPORATION 13
The agreements governing our debt, including our revolving credit facility, term loan and other
debt instruments, contain various covenants that limit our ability to take certain actions and
also require us to meet financial maintenance tests, failure to comply with which could have a
material adverse effect on us.
The agreements governing our revolving credit facility and our secured term loan, and the indentures
and credit agreements governing other debt, contain a number of customary restrictive covenants that,
among other things,
incur additional debt or liens,
consolidate or merge with any entity or transfer or sell all or substantially all of our assets, pay
dividends or make certain other restricted payments, make investments, enter into transactions with
affiliates, create dividend or other payment restrictions with respect to subsidiaries, make capital
investments and alter the business we conduct.
limit our ability to: consummate asset sales,
In addition, these agreements require us to comply with specific financial tests, under which we are
required to achieve certain or specific financial and operating results. Our ability to comply with these
provisions may be affected by events beyond our control. A breach of any of these covenants would
result in a default under certain of these agreements and instruments, which in turn could be a default
under all of these agreements and instruments. In the event of any default, our lenders could elect to
declare all amounts borrowed under the agreements, together with accrued interest thereon, to be due
and payable. In such event, we cannot assure that we would have sufficient assets to pay debt then
outstanding under the agreements governing our debt. Any future refinancing of the revolving credit
facility or other debt may contain similar restrictive covenants.
To service our indebtedness, we will require a significant amount of cash. Our ability to
generate cash depends on many factors beyond our control.
Our ability to pay interest on our debt and to satisfy our other debt obligations will depend in part upon
our future financial and operating performance and that of our subsidiaries and upon our ability to
renew or refinance borrowings. Prevailing economic conditions and financial, business, competitive,
legislative, regulatory and other factors, many of which are beyond our control, will affect our ability to
make these payments. While we believe that cash flow from our current level of operations, available
cash and available borrowings under our revolving credit facilities will provide adequate sources of
liquidity for at least the next twelve months, a significant drop in operating cash flow resulting from
economic conditions, competition or other uncertainties beyond our control could create the need for
alternative sources of liquidity. If we are unable to generate sufficient cash flow to meet our debt
service obligations, we will have to pursue one or more alternatives, such as reducing or delaying
capital or other expenditures, refinancing debt, selling assets, or raising equity capital.
We have a significant amount of goodwill, and any future goodwill impairment charges could
adversely impact our results of operations.
As of December 31, 2015, we had goodwill of $597.7 million. For additional information, see Note 3,
Goodwill and Intangible Assets, to the accompanying consolidated financial statements. 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 competition, a
material negative change in relationships with 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
impairment charges, which could adversely impact our results of operations. We have
goodwill
recorded goodwill impairment charges in the past, and such charges materially impacted our historical
results of operations and financial condition. Based on our 2015 interim impairment test, performed as
of December 31, 2015, our Custom Engineered Structures (CES) reporting unit, which is included in
our Designed Structures and Solutions segment, was identified as being at risk of impairment. For
14 POLYONE CORPORATION
additional information, see “Critical Accounting Policies” included in Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations.”
Risks related to our pension plans may adversely impact our results of operations, cash flows
and financial position.
Significant changes in the actual investment return on pension assets, discount rates, and other factors
have and may continue to adversely affect our results of operations, financial position and pension
contributions in future periods. U.S. generally accepted accounting principles require that we calculate
income or expense for the plans using actuarial valuations. These valuations reflect assumptions about
financial markets and interest rates. Changes in these assumptions have resulted in material gains and
losses to income in recent years and may continue to do so in future periods. For a discussion
regarding the significant assumptions used to estimate pension expense, including discount rate,
expected long-term rate of return on plan assets and mortality, and how our financial statements can
be affected by pension plan accounting policies, see “Critical Accounting Policies” and estimates
included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
Poor investment performance by our pension plan assets resulting from a decline in prices in the equity
and/or fixed income markets could impact the funded status of our plans. Should the assets earn an
average return less than our assumed rate, future pension expenses and funding requirements could
increase. Further, we cannot predict whether changing market or economic conditions, regulatory
changes or other factors will further increase our pension expense or funding obligations, diverting
funds we would otherwise apply to other uses.
POLYONE CORPORATION 15
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Headquartered in Avon Lake, Ohio we operate globally with principal
locations consisting of 76
manufacturing sites and eight distribution facilities in North America, South America, Europe and Asia.
We own the majority 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
1. Carson, California
2. Terre Haute, Indiana
3. Louisville, Kentucky
4. Avon Lake, Ohio
5. Clinton, Tennessee
6. Dyersburg, Tennessee
7. Pasadena, Texas
8. Seabrook, Texas
9. Orangeville, Ontario,
2. Chicago, Illinois
3. Eagan, Minnesota
4. Edison, New Jersey
5. Statesville, North
Color,
Additives and Inks
1. Glendale, Arizona
2. Kennesaw, Georgia
2. Goodyear, Arizona
3. Greenville, Ohio
4. Hackensack,
New Jersey
Specialty
Engineered Materials
1. McHenry, Illinois
2. Avon Lake, Ohio
Designed Structures and
Solutions
1. Cape Girardeau,
5. La Mirada, California
6. Manitowoc,
Wisconsin
PolyOne Distribution
1. Rancho Cucamonga,
Suwanee, Georgia (3)
3. Elk Grove Village,
California
Missouri
Illinois
Carolina
6. Elyria, Ohio
7. La Porte, Texas
8. Brampton, Ontario,
Canada
(8 Distribution
Facilities)
Dyersburg,
Tennessee (1)
3. North Haven,
Connecticut
Seabrook, Texas (1)
4. Gaggenau, Germany
5. Istanbul, Turkey
6. Barbastro, Spain
7. Melle, Germany
8 & 9. Suzhou, China (2)
10. Shenzhen, China
11. Birmingham,
Alabama
Shanghai, China (3)
(11 Manufacturing
Plants)
Canada
10. St. Remi de
Napierville,
Quebec, Canada
11. Dongguan, China
12. Lockport, New York
13. Ramos Arizpe,
Mexico
(13 Manufacturing
Plants)
7. McMinnville, Oregon
8. Muncie, Indiana
9. Newark, New Jersey
10. Paulding, Ohio
11. Pleasant Hill, Iowa
12. Ripon, Wisconsin
13. Salisbury, Maryland
14. Portage, Wisconsin
15. Sheboygan Falls,
Wisconsin
16. Stamford,
Connecticut
17. Wichita, Kansas
Maryland Heights,
Missouri (3)
(17 Manufacturing
Plants)
4. St. Louis, Missouri
5. Massillon, Ohio
6. Norwalk, Ohio
7. North Baltimore, Ohio
8. Lehigh, Pennsylvania
9. Mountain Top,
Pennsylvania
10. Vonore, Tennessee
11. Toluca, Mexico
12. Assesse, Belgium
13. Cergy, France
14. Tossiat, France
15. Gyor, Hungary
16. Milan, Italy
17. Kutno, Poland
18. Pune, India
19. Pamplona, Spain
20. Bangkok, Thailand
21. Pudong (Shanghai),
China
22. Jeddah, Saudi
Arabia
Shenzhen, China (1)
23. Tianjin, China
24. Novo Hamburgo,
Brazil
25. Berea, Ohio
26. Richland Hills,
Texas
27. Bethel, Connecticut
28. Barberton, Ohio
29. Knowsley, United
Kingdom
30. Eindhoven,
Netherlands
31. Suzhou, China
32 & 33. Shanghai,
China (4)
34. Itupeva, Brazil
35. Odkarby, Finland
Manitowoc,
Wisconsin (1)
(35 Manufacturing
Plants)
(1) Facility is not included in manufacturing plants total as it is also included as part of another segment.
(2) There are two manufacturing plants located at Suzhou, China.
(3) Facility is not included in manufacturing plants total as it is a design center/lab.
(4) There are two manufacturing plants located at Shanghai, China
16 POLYONE CORPORATION
ITEM 3. LEGAL PROCEEDINGS
Information regarding other
Contingencies, to the consolidated financial statements and is incorporated by reference herein.
legal proceedings can be found in Note 13, Commitments and
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
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 the Company, their age as of
February 12, 2016 and current position with the Company.
Name
Stephen D. Newlin
Robert M. Patterson
Bradley C. Richardson
Richard N. Altice
Mark D. Crist
Michael A. Garratt
Michael E. Kahler
Lisa K. Kunkle
M. John Midea, Jr.
Craig M. Nikrant
Joel R. Rathbun
Ana G. Rodriguez
John V. Van Hulle
Age
63
43
57
51
57
52
58
47
51
54
43
48
58
Executive Chairman
President and Chief Executive Officer
Position
Executive Vice President and Chief Financial Officer
Senior Vice President, President of Designed Structures and Solutions
Senior Vice President, President of Distribution
Senior Vice President, President of Performance Products and Solutions
Senior Vice President, Chief Commercial Officer
Senior Vice President, General Counsel and Secretary
Senior Vice President, Global Operations and Process Improvement
Senior Vice President, President of Specialty Engineered Materials
Senior Vice President, Mergers & Acquisitions
Senior Vice President, Chief Human Resource Officer
Senior Vice President, President of Color, Additives and Inks
Stephen D. Newlin: Executive Chairman, May 2014 to date. Chairman, President and Chief Executive
Officer, February 2006 to May 2014. 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 Oshkosh
Corporation, The Chemours Company and Univar Inc.
Robert M. Patterson: President and Chief Executive Officer, May 2014 to date. Executive Vice
President and Chief Operating Officer, March 2012 to May 2014. Executive Vice President and Chief
Financial Officer, January 2011 to March 2012. Senior Vice President and Chief Financial Officer, May
2008 to January 2011. 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.
Bradley C. Richardson: Executive Vice President and Chief Financial Officer, November 2013 to date.
Executive Vice President and Chief Financial Officer of Diebold, Incorporated (an integrated self-
service delivery manufacturer for the banking industry and security systems) from November 2009
through November 2013. Executive Vice President, Corporate Strategy and Chief Financial Officer at
Modine Manufacturing Company (a manufacturer of thermal management systems and components)
from 2003 to 2009. Vice President, Performance Management Planning and Control, Chief Financial
Officer, Upstream, BP Amoco, London, (a producer of oil, natural gas, and petro chemicals) 2000 to
POLYONE CORPORATION 17
2003. Mr. Richardson serves on the Board of Directors of Brady Corporation and is Chair of its Audit
Committee.
Richard N. Altice: Senior Vice President, President of Designed Structures and Solutions, May 2015 to
date. Vice President, Epoxy Specialties Resins of Hexion Inc. (a global manufacturer of thermoset
resins) from June 2013 to May 2015. Operating Partner, Quinpario Partners LLC (a private equity firm
specializing in investments in specialty chemical businesses) from September 2012 to June 2013.
Mr. Altice served as President & General Manager, Technical Specialties of Solutia Inc. (a global
manufacturer of performance materials and specialty chemicals) from October 2011 to September
2012, as Vice President, Business Management of Solutia Inc. from August 2010 to October 2011, as
from May 2009 to August 2010, as Global
Vice President, Commercial Services of Solutia Inc.
Commercial Director, Fluids of Solutia Inc. from October 2008 to May 2009, and as Fluids Specialist of
Solutia Inc.
from March 2008 to October 2008. Mr. Altice served as Regional Sales Director of
Strongwell Corporation (a manufacturer of fiber reinforced polymer) from 2001 to 2008.
Mark D. Crist: Senior Vice President, President of Distribution, June 2014 to date. Vice President,
Global Key Accounts and Vice President of Asia January 2012 to May 2014. Global Commercial
Director of Geon Performance Materials June 2008 to December 2011. General Manager Nalco
Chemical Company Europe (a manufacturer of specialty chemicals, services and systems) from April
2006 to March 2008. General Manager Nalco Chemical Company North America June 2003 to March
2006. Marketing Manager Nalco Europe December 1999 to May 2003. Regional Sales Manager Nalco
Chemical Company March 1997 to November 1999.
Michael A. Garratt: Senior Vice President, President of Performance Products and Solutions,
September 2013 to date. President, Marmon Utility (a manufacturer of medium-high voltage utility,
subsea and down-hole power cables and molded insulator systems), March 2011 to September 2013.
Chief Operating Officer, Excel Polymers (a custom thermoset rubber formulator), November 2009 to
December 2010. Vice President and General Manager — Americas Compounding and Performance
Additives, Excel Polymers, March 2009 to November 2009. Vice President and General Manager —
Industrial and Consumer, Excel Polymers, December 2005 to March 2009. From August 1994 to June
2005, Mr. Garratt worked for DuPont Dow Elastomers, a joint venture of Dupont and Dow (global
manufacturers of engineered thermoset rubber and thermoplastic elastomer materials) in market
development and product management positions, culminating in a regional commercial leadership role
for Europe, the Middle East and Africa.
Michael E. Kahler: Senior Vice President, Chief Commercial Officer, January 2010 to date. Senior Vice
President, Commercial Development, May 2006 to January 2010. President, Process Technology
Division, Alfa Laval Inc. (a global provider of heat transfer, separation and fluid handling products and
engineering solutions) from January 2004 to March 2006. Group Vice President, Nalco Chemical
Company (a manufacturer of specialty chemicals, services and systems) from December 1999 to
October 2002.
Lisa K. Kunkle: Senior Vice President, General Counsel and Secretary, May 2015 to date. Vice
President, General Counsel and Secretary, August 2007 to May 2015, Assistant General Counsel
February 2007 to August 2007. Partner, Jones Day (a global law firm), January 2006 to February 2007,
Associate, Jones Day, August 1995 to January 2006.
M. John Midea, Jr.: Senior Vice President, Global Operations and Process Improvement, February
2015 to date. President and Chief Executive Officer, Resco Products (a refractory products company)
from August 2012 to October 2014. President and Chief Operating Officer, Ennis Traffic Safety
Solutions (a traffic safety and infrastructure company) from June 2008 to July 2012. Vice President,
North American — General Industrial, Valspar Corporation (a manufacturer of paints and coatings)
from June 2007 to May 2008. Vice President and General Manager, Power Coatings, Valspar
Corporation from February 2002 to June 2007.
18 POLYONE CORPORATION
Craig M. Nikrant: Senior Vice President, President of Specialty 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 plastics), 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.
Joel R. Rathbun: Senior Vice President, Mergers & Acquisitions, January 2016 to date. General
Manager, Specialty Engineered Material North America from February 2013 to January 2016. Vice
President, Mergers and Acquisitions from June 2011 to February 2013. Mr. Rathbun served as Senior
Vice President, Mergers and Acquisitions, Moelis & Company (an American global
independent
investment bank) from January 2008 to June 2011. He also served as Executive Director, Mergers and
Acquisitions of CIBC World Markets (an investment bank in the domestic and international equity and
debt capital markets) from 2006 to 2008, as Director, Mergers and Acquisitions of CIBC World Markets
from 2003 to 2005, as Associate, Mergers and Acquisitions of CIBC World Markets from 2000 to 2002,
and as Analyst, Mergers and Acquisitions of CIBC World Markets from 1998 to 2000.
Ana G. Rodriguez: Senior Vice President, Chief Human Resources Officer, May 2014 to date. Senior
Vice President, Global Human Resources, Molex Incorporated (a manufacturer of electronic
connectors), September 2008 to March 2014. Vice President, Co-General Counsel and Corporate
Secretary, Molex, September 2006 to August 2008, Vice President and Assistant General Counsel,
Molex, October 2005 to September 2006. Senior Counsel, Amgen Inc. (a global biotechnology
medicines company), May 2003 to September 2005. Senior Counsel and Assistant Corporate
Secretary, Tenet Healthcare Corporation (a health care services company) May 2000 to May 2003.
John V. Van Hulle: Senior Vice President, President of 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 — ChemDesign Corporation (a custom chemical
manufacturer), December 2001 to July 2006. President, Specialty & Fine Chemicals — Cambrex
Corporation (a specialty chemical and pharmaceutical business) August 1994 to November 2000.
POLYONE CORPORATION 19
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 shares,
$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 share price:
Fourth
Third
Second
First
Fourth
Third
Second
First
High
Low
$36.24 $39.89
$41.20
$40.72 $39.28 $43.34
$42.47
$38.38
$28.97 $29.09
$36.33
$34.41 $32.01 $34.78
$36.02
$32.81
2015 Quarters
2014 Quarters
As of February 1, 2016, there were 2,110 holders of record of our common shares.
The following table presents quarterly dividends declared per common share for the fiscal year ended
December 31, 2015 and 2014
Quarter Ended:
March 31,
June 30,
September 30,
December 31,
Total
2015
2014
$0.10 $0.08
0.10
0.10
0.12
0.08
0.08
0.10
$0.42 $0.34
The table below sets forth information regarding repurchase of shares of our common shares during
the period indicated. For the full year 2015, we repurchased 4.5 million shares at a weighted average
share price of $34.67.
Period
October 1 to October 31
November 1 to November 30
December 1 to December 31
Total
Total Number
of Shares
Purchased
Weighted
Average Price
Paid Per Share
100,000
900,000
—
$31.99
34.87
—
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Program
Maximum
Number of
Shares
that May
Yet be
Purchased
Under the
Program(1)
100,000
5,097,373
900,000
4,197,373
— 4,197,373
1,000,000
$34.58
1,000,000
(1)
In August 2008, PolyOne’s Board of Directors approved a common shares repurchase program authorizing PolyOne to
purchase up to 10.0 million shares of its common shares. On October 11, 2011 and October 23, 2012, PolyOne’s Board of
Directors increased the common shares repurchase authorization by an additional 5.3 million and 13.2 million, respectively.
Purchases of common shares may be made by open market purchases or privately negotiated transactions and may be
made pursuant to Rule 10b5-1 plans and accelerated share repurchases.
20 POLYONE CORPORATION
ITEM 6. SELECTED FINANCIAL DATA
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)
2015(1)
2014(2)
2013(3)
2012(4)
2011(5)
Sales
Operating income
Net income from continuing operations
Net income from continuing operations attributable to
$3,377.6 $3,835.5 $3,771.2 $2,860.8 $2,709.4
250.9
144.7
155.1
77.2
231.5
92.9
137.5
53.2
203.0
153.4
PolyOne shareholders
144.6
78.0
94.0
53.3
153.4
Cash dividends declared per common share
$
0.42 $
0.34 $
0.26 $
0.20 $
0.16
Earnings per share from continuing operations
attributable to PolyOne shareholders:
Basic
Diluted
Total assets(6)
Long-term debt(6)
$
$
1.65 $
0.85 $
0.98 $
0.60 $
1.63 $
0.83 $
0.97 $
0.59 $
1.66
1.63
$2,595.1 $2,666.3 $2,896.6 $2,102.0 $2,052.7
$1,128.0 $ 948.9 $ 961.1 $ 686.5 $ 688.5
(1)
(2)
(3)
(4)
(5)
Included in operating income for 2015 are: 1) a mark-to-market adjustment related to our pension and post-retirement health
care benefit plans of $11.6 million, 2) $41.9 million related to employee separation and restructuring costs and 3) $5.8
million related to environmental remediation costs, net of insurance recoveries. Included in net income from continuing
operations for 2015 is 4) a $30.7 million net tax benefit as a result of amending U.S. federal income tax returns from 2004 to
2012 to use foreign tax credits.
Included in operating income for 2014 are: 1) a mark-to-market adjustment related to our pension and post-retirement health
care benefit plans of $56.5 million, 2) $94.1 million related to employee separation and restructuring costs and reductions in
force and 3) $6.6 million related to environmental remediation costs, net of insurance recoveries.
Included in operating income for 2013 are: 1) gains of $26.9 million primarily related to the 2013 SunBelt Chlor Alkali
Partnership (SunBelt) earn-out, 2) a mark-to-market gain related to our pension and OPEB plans of $44.0 million,
3) expenses of $61.2 million related to environmental remediation costs, 4) insurance recoveries of $23.5 million, 5) a $7.0
million gain on commercial litigation, 6) expenses of $52.0 million related to employee separation and restructuring costs
and 7) acquisition-related costs (including inventory fair value adjustments) of $15.2 million.
Included in operating income for 2012 are: 1) gains of $23.4 million for the 2012 SunBelt earn-out , 2) a mark-to-market loss
related to our pension and OPEB plans of $42.0 million, 3) expenses of $12.8 million related to environmental remediation
costs, 4) expenses of $11.5 million related to employee separation and restructuring costs and 5) acquisition-related costs of
$9.3 million.
Included in operating income for 2011 are: 1) gains of $146.3 million related to the sale of our equity interest in SunBelt,
which includes the 2011 earn-out of $18.1 million, 2) a mark-to-market charge related to our pension and OPEB plans of
$83.8 million, 3) environmental remediation costs of $6.4 million, net of insurance recoveries and 4) acquisition-related costs
of $6.6 million. Included in net income for 2011 is a $29.5 million tax benefit related to our investment in O’Sullivan
Engineered Films and a $13.0 million tax benefit primarily related with the reversal of valuation allowances.
(6) All prior periods have been retrospectively adjusted, as a result of accounting standard changes in 2015 related to the
balance sheet presentation of debt issuance costs and deferred income tax assets and liabilities. Refer to “Accounting
Standards Adopted” within Note 1, Description of Business and Summary of Significant Accounting Policies.
POLYONE CORPORATION 21
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
is supplemental
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is
to, and should be read together with, our
designed to provide information that
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 understanding 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 performance, as well
as how certain accounting principles affect our consolidated financial statements.
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-looking
statements. Factors that could cause or contribute to these differences include, but are not limited to,
those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Cautionary
Note on Forward-Looking Statements” and Item 1A, “Risk Factors.”
Our Business
We are a premier provider of specialized polymer materials, services and solutions with operations in
specialty polymer formulations, color and additive systems, plastic sheet and packaging solutions and
polymer distribution. We are also a highly specialized developer and manufacturer of performance
enhancing additives, liquid colorants, and fluoropolymer and silicone colorants. Headquartered in Avon
Lake, Ohio, with 2015 sales of $3.4 billion, we have manufacturing sites and distribution facilities in
North America, South America, Europe, Asia and Africa. We currently employ approximately 6,900
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 capabilities to provide value-added solutions to
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 transportation, packaging, building and construction, industrial, healthcare, consumer,
wire and cable, electrical and electronics and appliance.
Key Challenges
Our business faces macroeconomic exposures resulting from economic downturns, especially as it
relates to cyclical markets such as building and construction, automotive and industrial. In addition,
with 52.0% and 49.0% of our Color, Additives and Inks and Specialty Engineered Materials segments’
sales outside the United States, we experience volatility related to foreign currency fluctuations, most
significantly the Euro. Increasing profitability during periods of raw material price volatility is another
challenge. Further, we strive to capitalize 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 Restrictions on the Use of Certain Hazardous Substances and the Consumer Product
Safety Information Act of 2008.
22 POLYONE CORPORATION
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, technology, and solutions that add value.
Globalization allows us to service our customers with consistency wherever their operations might be
around the world. 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 with superior customer service.
As part of our Platinum Vision for 2020, we have established margin improvement targets for all
businesses. In the short term, we will maintain our focus on sales growth with expanding margins, with
a goal of offsetting weaker foreign currencies and raw material volatility. Longer term, we will continue
to focus on accelerating the launch of new products and collaborating with our customers to develop
new and unique solutions for their benefit. Capital expenditures will be focused primarily to support
sales growth, our continued investment in recent acquisitions, and other strategic investments. We also
continue to consider acquisitions and other synergy opportunities that complement our core platforms.
These actions will ensure that we continue to invest in capabilities that advance the pace of our
transformation and continue to support growth in key markets and product offerings.
We will continue our enterprise-wide Lean Six Sigma program directed at improving margin, profitability
and cash flow by applying proven management techniques and strategies to key areas of the business,
such as pricing, supply chain and operations management, productivity and quality. Long-term trends
that currently provide opportunities to leverage our strategy include improving health and wellness,
protecting the environment, globalizing and localizing and increasing energy efficiency. Examples of
how our strategy supports these trends can be found in numerous initiatives: active participation in the
medical device market,
to deliver consistent solutions globally,
lightweighting and metal replacement and development of solutions that respond to ever-changing
market needs by offering alternatives to traditional materials.
leveraging our global
footprint
Recent Developments
On December 9, 2015, the Company completed the acquisition of specialty color concentrates of
Magenta, a leading innovative developer in the global fiber industry, for $18.3 million in cash, net of
cash acquired. The results of Magenta since the date of acquisition were not material.
On January 29, 2016, the Company completed the acquisition of certain technologies and assets from
footprint and expertise in the
Inc (Kraton),
Kraton Performance Polymers,
thermoplastic elastomer (TPE) innovation and design, for $72.0 million in cash.
to expand its global
Highlights and Executive Summary
A summary of PolyOne’s sales, operating income, income from continuing operations net of income
taxes, net income from continuing operations attributable to PolyOne common shareholders, liquidity
and total debt is included in the following table:
(In millions)
Sales
Operating income
Net income from continuing operations
Net income from continuing operations attributable to PolyOne common
shareholders
Liquidity
Long-term debt
2015
2014
2013
$3,377.6 $3,835.5 $3,771.2
250.9
144.7
155.1
77.2
231.5
92.9
144.6
78.0
94.0
$ 621.7 $ 475.0 $ 650.9
$1,128.0 $ 948.9 $ 961.1
POLYONE CORPORATION 23
Results of Operations
Variances — Favorable (Unfavorable)
2015 versus 2014
2014 versus 2013
(Dollars in millions, except per share data) 2015
2014
2013
Change
%
Change
Change
%
Change
Sales
Cost of sales
Gross margin
Selling and administrative expense
Income related to previously owned
equity affiliates
Operating income
Interest expense, net
Debt extinguishment costs
Other expense, net
Income from continuing operations,
before income taxes
Income tax expense
Net income from continuing
operations
Income from discontinued
operations, net of income taxes
Net income
Net (income) loss attributable to
noncontrolling interests
Net income attributable to PolyOne
common shareholders
$3,377.6 $3,835.5 $3,771.2 $(457.9)
(11.9)% $ 64.3
2,696.1
3,127.6
3,109.0
431.5
662.2
457.6
(26.4)
122.2
(18.6)
45.7
1.7 %
(0.6)%
6.9 %
(95.2)
(20.8)%
681.5
430.6
—
250.9
(64.1)
(16.4)
(2.7)
167.7
(23.0)
707.9
552.8
—
155.1
(62.2)
—
(4.5)
88.4
(11.2)
13.8 %
(3.7)%
22.1 %
61.8 %
(3.1)%
26.9
231.5
(63.5)
(15.8)
(1.2)
—
95.8
(1.9)
— %
(26.9)
(100.0)%
(76.4)
(33.0)%
1.3
15.8
2.0 %
100.0 %
(16.4)
(100.0)%
1.8
40.0 %
(3.3)
(275.0)%
151.0
79.3
89.7 %
(62.6)
(41.5)%
(58.1)
(11.8)
(105.4)%
46.9
80.7 %
$ 144.7 $
77.2 $
92.9 $ 67.5
87.4 % $ (15.7)
(16.9)%
—
144.7
1.2
149.8
(1.2)
(100.0)% (148.6)
(99.2)%
78.4 $ 242.7
66.3
84.6 %
(164.3)
(67.7)%
(0.1)
0.8
1.1
(0.9)
(112.5)%
(0.3)
(27.3)%
$ 144.6 $
79.2 $ 243.8 $ 65.4
82.6 % $(164.6)
(67.5)%
Earnings per share attributable to PolyOne common shareholders—basic:
Continuing operations
Discontinued operations
Total
$
$
1.65 $
0.85 $
—
0.01
1.65 $
0.86 $
0.98
1.57
2.55
Earnings per share attributable to PolyOne common shareholders—diluted:
Continuing operations
Discontinued operations
Total
Sales
$
$
1.63 $
0.83 $
—
0.02
1.63 $
0.85 $
0.97
1.56
2.53
Sales decreased $457.9 million, or 11.9%, in 2015 compared to 2014. Sales decreased 6.0% as lower
volume associated with the ongoing integration of the legacy Spartech businesses more than offset
new business gains in smaller, niche specialty applications. Sales further declined 2.3% as a result of
unfavorable foreign exchange rates and 4.5% due to declining hydrocarbon based raw material costs
that led to reduced overall average selling prices, particularly for the Performance Products and
Solutions and PolyOne Distribution segments. Partially offsetting these items was the acquisition of
Accella, which increased sales 0.9%.
Sales increased $64.3 million, or 1.7%, in 2014 compared to 2013. The acquisition of Spartech
increased sales 5.2%, while improved mix within our Color, Additives and Inks and Specialty
24 POLYONE CORPORATION
Engineered Materials segments increased sales 3.7%. Partially offsetting these increases were
declines of 7.0% primarily a result of softening demand in Europe and the wire and cable end market
along with the exit of certain product lines in Brazil.
Cost of sales
As a percent of sales, cost of sales decreased from 81.5% in 2014 to 79.8% in 2015. This is primarily a
result of
improved mix within the Color, Additives and Inks and Specialty Engineered Materials
specialty segments and $27.0 million in lower restructuring charges in 2015.
As a percent of sales, cost of sales decreased from 82.4% in 2013 to 81.5% in 2014 primarily due to
improved mix within our specialty platform segments and the exiting of certain product lines in Brazil
and Spartech.
Selling and administrative expense
These costs include selling, technology, administrative functions, corporate and general expenses.
Selling and administrative expense in 2015 decreased $122.2 million, primarily related to lower
restructuring charges of $25.2 million, $32.4 million as a result of reduced compensation costs, a $16.6
million reduction due to foreign currency, primarily driven by the weaker Euro, and a $43.9 million
reduction in our pension mark-to-market adjustment. The 2015 adjustment was a result of actual asset
returns that were lower than our assumed returns partially offset by the impact of increased discount
rates. See Note 12, Employee Benefit Plans, for further discussion on our mark-to-market adjustment.
The remaining decrease is primarily due to an improved cost structure as a result of restructuring
actions.
Selling and administrative expense in 2014 increased $95.2 million, primarily related to increased
restructuring costs of $11.4 million and a $96.9 million unfavorable difference in the pension mark-to-
market adjustment. In 2014, we recognized a pension charge of $54.5 million compared to a pension
gain of $42.4 million in 2013. The 2014 mark-to-market adjustment was driven primarily by decreased
discount rates and a change in our mortality assumptions. These increases more than offset
decreased discretionary spending.
Income Related to Previously Owned Equity Affiliates
Effective February 28, 2011, we sold our 50% equity investment
recognized a gain of $26.9 million related to the final earn-out associated with the sale.
in SunBelt. During 2013, we
Interest expense, net
Interest expense, net increased $1.9 million in 2015 compared to 2014 due to increased borrowings on
our revolving credit facility during 2015 as compared to 2014.
Interest expense, net decreased $1.3 million in 2014 compared to 2013, primarily due to the
amortization of the Spartech bridge loan commitment fees of $1.9 million, which impacted 2013.
Debt extinguishment costs
Debt extinguishment costs of $16.4 million for 2015 includes $13.4 of premium and consent payments
and $3.0 million associated with the write-off of unamortized deferred financing costs due to the early
repurchase of the remaining $316.6 million aggregate principal of our 7.375% senior notes due 2020.
Debt extinguishment costs of $15.8 million for 2013 includes $5.2 million related to the repurchase of
$43.4 million aggregate principal amount of our 7.375% senior notes due 2020 and $1.3 million
aggregate principal amount of our 7.50% debentures due 2015. Debt extinguishment costs for 2013
also includes $10.6 million related to the repayment of the outstanding principal amount of $297.0
million under our senior secured term loan.
POLYONE CORPORATION 25
Income taxes
The Company is subject to taxation in the U.S. and numerous foreign jurisdictions. In determining the
effective income tax rate, the Company analyzes various factors, including annual earnings, the laws of
taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes,
the ability to use tax credits, net operating loss carryforwards, and available tax planning alternatives.
Discrete items, including the effect of changes in tax laws, statutory tax rates, and valuation allowances
or other non-recurring tax adjustments are reflected in the period in which they occur as an addition to,
or reduction from, the income tax provision.
A reconciliation of the U.S. federal statutory tax rate to the consolidated effective income tax rate along
with a description of significant reconciling items is included below.
Income tax expense at 35%
Amended prior period tax returns
Foreign tax rate differential
State and local tax, net
Domestic production activities deduction
Permanent tax differences
U.S. credit for research activities
Tax benefits on certain foreign investments
Uncertain tax positions
Changes in valuation allowances
Settlements
Effective income tax rate
2015
2014
2013
35.0%
35.0% 35.0%
(18.3)
(5.0)
2.7
(2.0)
1.8
(0.7)
(0.7)
0.6
0.3
—
(2.3)
(5.7)
2.8
(2.5)
(2.1)
(1.2)
(17.0)
1.0
7.8
(3.1)
—
(3.3)
2.6
(1.0)
4.9
(1.4)
—
(0.3)
2.0
—
13.7%
12.7% 38.5%
The effective tax rates for all periods differed from the U.S. federal statutory tax rate as a result of
permanent items, state and local
income taxes and foreign tax rates differences. Permanent items
primarily consist of income or expense not taxable or deductible. Significant or unusual items impacting
the effective income tax rate are described below.
2015 Significant items
Amending U.S. federal income tax returns for 2004 through 2012 to use foreign tax credits decreased
the effective tax rate by 18.3% ($30.7 million).
Uncertain tax positions increased the effective tax rate by 0.6% ($1.0 million). The reversal of an
uncertain tax position due to the expiration of the statute of limitations decreased the effective tax rate
by 5.9% ($9.9 million). A foreign court ruling, which settled an uncertain position taken in a prior year,
increased the effective tax rate by 4.7% ($7.9 million). Other unfavorable uncertain tax positions more
than offset the net decrease in the effective tax rate of these two items.
2014 Significant items
Tax benefits on certain foreign investments decreased the effective tax rate by 17.0% ($15.0 million)
related to the write-off of our investment in certain Brazil subsidiaries for tax purposes and operating
losses primarily as a result of restructuring actions to close certain Brazil facilities discussed in Note 4,
Employee Separation and Restructuring Costs.
Permanent tax differences decreased the effective tax rate by 2.1% ($1.9 million) primarily related to
foreign tax law changes and the utilization of foreign tax credits.
Changes in valuation allowances increased the effective tax rate by 7.8% ($6.9 million) primarily
related to certain Brazilian subsidiaries as a result of cumulative operating losses.
26 POLYONE CORPORATION
2013 Significant items
Permanent tax differences increased the effective tax rate by 4.9% ($7.4 million) primarily related to
foreign tax law changes and the tax effect of statutory foreign exchange gains.
The U.S. credit for research activities benefit decreased the effective tax rate by 1.4% ($2.1 million),
which included the benefit of two years of the U.S. research and experimentation tax credit due to the
extension of the credit in the American Taxpayer Relief Act of 2012 (the Act) as signed into law in
January 2013. The Act extended certain tax benefits retroactively to January 1, 2012.
Segment Information
the segment
level does not
Operating income is the primary measure that is reported to our chief operating decision maker for
purposes of making decisions about allocating resources to the segments and assessing their
performance. Operating income at
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 consolidation of operations; restructuring
activities, including employee separation costs resulting from personnel reduction programs, plant
closure and phase-in costs; costs incurred directly in relation to acquisitions or divestitures; integration
costs; executive separation agreements; share-based compensation costs; environmental remediation
costs and other liabilities for facilities no longer owned or closed in prior years; gains and losses on the
divestiture of joint ventures and equity investments; actuarial gains and losses associated with our
pension and post-retirement benefit plans; and certain other items that are not included in the measure
of segment profit or loss that is reported to and reviewed by our chief operating decision maker. These
costs are included in Corporate and eliminations.
PolyOne has five reportable segments: (1) Color, Additives and Inks; (2) Specialty Engineered
Materials; (3) Designed Structures and Solutions; (4) Performance Products and Solutions; and
(5) PolyOne Distribution.
Our segments are further discussed in Note 16, Segment
consolidated financial statements.
Information,
to the accompanying
POLYONE CORPORATION 27
3.4%
5.6%
3.6%
Sales and Operating Income — 2015 compared with 2014 and 2014 compared with 2013
(Dollars in millions)
2015
2014
2013
Change % Change
Change % Change
2015 versus 2014
2014 versus 2013
Sales:
Color, Additives and Inks
Specialty Engineered Materials
810.7
542.8
850.8
598.3
852.3
615.5
(40.1)
(55.5)
(4.7)%
(9.3)%
(1.5)
(17.2)
(0.2)%
(2.8)%
453.5
617.5
597.4
(164.0)
(26.6)%
20.1
Designed Structures and
Solutions
Performance Products and
Solutions
PolyOne Distribution
1,034.1
1,114.4
1,075.2
(80.3)
694.1
816.6
773.2
(122.5)
(15.0)%
(7.2)%
43.4
39.2
Corporate and eliminations
(157.6)
(162.1)
(142.4)
4.5
2.8%
(19.7)
(13.8)%
Sales
$3,377.6 $3,835.5 $3,771.2
$(457.9)
(11.9)% $ 64.3
1.7%
Operating income:
Color, Additives and Inks
Specialty Engineered Materials
Designed Structures and
Solutions
Performance Products and
Solutions
PolyOne Distribution
135.4
79.6
124.9
72.4
104.0
57.2
10.5
7.2
8.4%
9.9%
20.9
15.2
20.1%
26.6%
13.8
45.1
33.4
(31.3)
(69.4)%
11.7
35.0%
57.4
68.0
63.1
68.2
56.0
63.3
(5.7)
(0.2)
(9.0)%
(0.3)%
7.1
4.9
12.7%
7.7%
Corporate and eliminations
(103.3)
(218.6)
(82.4)
115.3
52.7% (136.2)
(165.3)%
Operating income
$ 250.9 $ 155.1 $ 231.5
$ 95.8
61.8% $ (76.4)
(33.0)%
Operating income as a percentage of sales:
Color, Additives and Inks
Specialty Engineered Materials
16.7%
14.7%
14.7%
12.1%
12.2%
9.3%
2.0% points
2.6% points
2.5% points
2.8% points
Designed Structures and
Solutions
Performance Products and
Solutions
PolyOne Distribution
Total
Color, Additives and Inks
3.0%
7.3%
5.6%
(4.3)% points
1.7% points
8.3%
6.6%
7.4%
7.7%
6.1%
4.0%
7.2%
5.9%
6.1%
0.6% points
0.5% points
3.4% points
0.5% points
0.2% points
(2.1)% points
Sales decreased $40.1 million, or 4.7%, in 2015 compared to 2014 primarily due to unfavorable foreign
exchange rate impact of 6.7% and 2.3% due to lower volume from the integration of the legacy
Spartech business offsetting smaller, specialty niche application wins. Partially offsetting these
decreases were sales increases of 4.1% due to the Accella acquisition.
Operating income increased $10.5 million in 2015 compared to 2014. This increase was driven
primarily by improved mix of $14.6 million, $3.0 million due to the Accella acquisition and $2.7 million
as a result of an improved cost structure primarily due to restructuring actions. Restructuring savings
were largely a result of the closure of a manufacturing plant in Europe and the integration of Spartech.
Partially offsetting these increases was an unfavorable foreign exchange rate impact of $8.9 million.
Sales decreased $1.5 million, or 0.2%, in 2014 compared to 2013. Mix improvement of 6.2% and an
increase of 2.0% due to the inclusion of Spartech results for a full year nearly offset lower volumes of
8.0% that were primarily a result of weaker demand conditions in Europe.
28 POLYONE CORPORATION
Operating income increased $20.9 million in 2014 compared to 2013. This increase was driven
primarily by improved mix of $9.7 million, $6.4 million as a result of general and administrative
spending reductions and benefits from the restructuring actions noted above and $2.8 million related to
the acquisitions of Accella and Spartech.
The cost savings achieved from the noted restructuring actions above are in-line with our expectations.
impact to the Color,
We do not expect further benefits related to these actions to have a material
Additives and Inks segment going forward.
Specialty Engineered Materials
Sales decreased $55.5 million, or 9.3%, in 2015 compared to 2014 primarily due to an unfavorable
foreign exchange rate impact of 5.1% and mix of 1.8%. Further reducing sales by 2.2% was lower
volume as a result of exiting certain business in Brazil and legacy Spartech products, which offset
gains in specialty niche applications.
Operating income increased $7.2 million in 2015 compared to 2014. This increase was driven by
favorable mix of $6.1 million and $3.6 million of benefits realized from the closure of two manufacturing
facilities in Brazil. See further discussion of this restructuring action in Note 4, Employee Separation
and Restructuring Costs, to the accompanying financial statements. Partially offsetting these increases
was an unfavorable foreign exchange rate impact of $2.6 million.
Sales decreased $17.2 million, or 2.8%, in 2014 compared to 2013. Improved mix resulted in a 4.8%
increase to sales. These increases were more than offset by volume decreases of 7.8% primarily due
to exiting certain product lines in Brazil.
Operating income increased $15.2 million in 2014 compared to 2013. This increase was primarily
driven by favorable mix of $10.1 million, $2.9 million of benefits realized from the 2013 Spartech
realignment actions and $2.1 million of benefits realized from the improved cost structure as a result of
these restructuring actions in Note 4,
the Brazil restructuring actions. See further discussion of
Employee Separation and Restructuring Costs.
Total cost savings achieved for the Spartech realignment and Brazil restructuring actions are in-line
with our expectations. We do not expect further benefits related to these actions to have a material
impact to the Specialty Engineered Materials segment going forward.
Designed Structures and Solutions
Sales decreased $164.0 million, or 26.6%, in 2015 compared to 2014. 13.7% was a result of lower
volume, while the remaining decline is associated with lower selling prices due to declining
hydrocarbon raw material costs.
Operating income decreased $31.3 million in 2015 compared to 2014. This decline was primarily due
to lower sales impacting operating income by $48.5 million. This was partially offset by $7.3 million in
benefits realized from the 2013 Spartech manufacturing realignment actions and $7.5 million in lower
compensation costs and discretionary spending.
In 2015, PolyOne determined it would close two manufacturing facilities within the Designed Structures
and Solutions segment to right size operations as a result of declining results and near term outlook.
We expect annual cash savings, beginning primarily in the second half of 2016, of approximately $5.0
million as a result of these actions. See further discussion of this restructuring action in Note 4,
Employee Separation and Restructuring Costs.
Sales increased $20.1 million, or 3.4%, in 2014 compared to 2013. Sales increased 22.1% as a result
of the inclusion of Spartech results for the full year in 2014 and 6.5% due to improved mix. Partially
offsetting these increases was a 25.0% volume decline resulting from exiting certain products.
Operating income increased $11.7 million in 2014 compared to 2013. This increase was driven
primarily by improved mix of $19.8 million, benefits of the 2013 Spartech realignment actions of $7.7
POLYONE CORPORATION 29
million, $7.6 million in lower compensation costs and discretionary spending and $9.7 million related to
the inclusion of Spartech results for the full year of 2014. Partially offsetting these increases were lower
volumes as a result of exiting certain products of $35.0 million.
Performance Products and Solutions
Sales decreased $122.5 million, or 15.0%, in 2015 compared to 2014. Sales declined 10.8% as a
result of lower volume related to legacy Spartech business along with customer destocking in the first
quarter of 2015. The remaining decrease in sales of 4.2% is a result of declining hydrocarbon based
raw material costs that led to reduced overall average selling prices.
Operating income decreased $5.7 million in 2015 compared to 2014. Lower volume related to legacy
Spartech reduced operating income by $13.2 million. Benefits realized of $6.3 million related to the
2013 Spartech restructuring actions partially offset this decrease.
Sales increased $43.4 million, or 5.6%, in 2014 compared to 2013. Sales increased 5.5% as a result of
the acquisition of Spartech and 2.1% due to volume increases primarily within the industrial and
transportation end markets. Unfavorable mix as a result of a higher volume of contract manufacturing
sales partially offset these increases.
Operating income increased $7.1 million in 2014 compared to 2013. The increase was primarily due to
improved volume as a result of
the Spartech acquisition of $4.4 million, while the remaining
improvement was a result of the benefits realized from the 2013 Spartech realignment actions.
The cost savings achieved from the restructuring actions noted above are in-line with our expectations.
to the
We do not expect
Performance Products and Solutions segment going forward.
further benefits related to these actions to have a material
impact
PolyOne Distribution
Sales decreased $80.3 million, or 7.2%, in 2015 compared to 2014. Sales were reduced by 7.6% due
to declining hydrocarbon based raw material costs that led to lower overall average selling prices.
Higher volume partially offset this decrease.
Operating income decreased $0.2 million in 2015 compared to 2014 as a result of higher seller and
administrative costs resulting from an investment in commercial resources.
Sales increased $39.2 million, or 3.6%, in 2014 compared to 2013. An increase of 3.3% was primarily
driven by increased raw material costs that led to higher overall average selling prices. The remaining
increase in sales was attributable to volume growth.
Operating income increased $4.9 million in 2014 compared to 2013 primarily due to increased sales
and slightly lower selling and administrative expenses.
Corporate and Eliminations
Corporate and eliminations decreased $115.3 million in 2015 compared to 2014. This decrease was
largely due to $52.2 million of lower restructuring charges primarily associated with our 2013 and 2014
actions that have been completed or are substantially complete in 2015 and a $44.9 lower mark-to-
market adjustment in 2015 as compared to 2014. The 2015 adjustment was a result of actual asset
returns that were lower than our assumed returns partially offset by the impact of increased discount
rates. See Note 12, Employee Benefit Plans, for further discussion on our mark-to-market adjustment.
The remaining decrease was primarily due to lower compensation costs.
We expect to incur approximately $10.0 million of restructuring charges associated with 2015 actions in
the first half of 2016. Approximately $3.0 million of these costs will be non-cash charges.
Corporate and eliminations increased $136.2 million in 2014 as compared to 2013. This increase was
primarily a result of the recognition of a pension charge of $51.5 million in 2014 compared to a pension
gain of $55.2 million in 2013. The increase was driven primarily by decreased discount rates and a
30 POLYONE CORPORATION
change in our mortality assumptions which unfavorably impacted the mark-to-market adjustment in
2014. Higher restructuring charges of $42.1 million were related to the Spartech restructuring actions
and the closure of two manufacturing facilities in Brazil in 2014. Included in 2013 was a gain of $26.9
million related to the third and final earn-out related to our sale of a 50% equity interest in SunBelt to
Olin Corporation (Olin). These increases were partially offset by lower environmental remediation
costs, net of insurance recoveries, of $31.1 million. See Note 13, Commitments and Contingencies, for
further discussion on our environmental matters.
Liquidity and Capital Resources
Our objective is to finance our business through operating cash flow and an appropriate mix of debt
and equity. By laddering the maturity structure, we avoid concentrations of debt maturities, reducing
liquidity risk. We may from time to time seek to retire or purchase our outstanding debt with cash and/
or exchanges for equity securities, in open market purchases, privately negotiated transactions or
otherwise. We may also seek to repurchase our outstanding common shares. Such repurchases, if
any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and
other factors. The amounts involved have been and may continue to be material.
The following table summarizes our liquidity as of December 31, 2015:
(In millions)
Cash and cash equivalents
Revolving credit availability
Liquidity
$279.8
341.9
$621.7
As of December 31, 2015, 70% of the Company’s cash and cash equivalents resided outside the
United States. Repatriation of these funds could result in potential foreign and domestic taxes. To the
extent foreign earnings previously treated as indefinitely reinvested were to be repatriated, the potential
U.S. tax liability may be reduced by any foreign income taxes paid on these earnings. However, based
on the Company’s policy of indefinite reinvestment, it is not practicable to determine the U.S. federal
income tax liability, if any, due to the complexities associated with this hypothetical calculation and the
Company’s indefinite reinvestment policy. As of December 31, 2015, the non-U.S. subsidiaries have a
cumulative unremitted foreign earnings income position of $293.5 million, for which no deferred tax
liability has been provided.
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 operating
activities, along with available borrowing capacity under our revolving credit facilities, will allow us to
maintain adequate levels of available capital to fund our operations, meet debt service obligations,
continue paying dividends and repurchase outstanding common shares in accordance with our board
authorization.
Expected sources of cash in 2016 include cash from operations and available liquidity under our
revolving credit facility, if needed. Expected uses of cash in 2016 include interest payments, cash
taxes, contributions to our pension plans, dividend payments, share repurchases, environmental
remediation costs, restructuring payments and capital expenditures. Capital expenditures are currently
estimated to be $85.0 to $90.0 million in 2016, primarily to support sales growth, our continued
investment in recent acquisitions and other strategic investments.
POLYONE CORPORATION 31
Cash Flows
The following summarizes our cash flows from operating, investing and financing activities.
(In millions)
Cash provided by (used by):
Operating Activities
Investing Activities
Financing Activities
Effect of exchange rate on cash
Net increase (decrease) in cash and cash equivalents
Operating activities
2015
2014
2013
$ 227.2
$ 208.4
$109.0
(106.5)
(111.8)
(60.1)
(70.4)
(218.4)
104.8
(9.1)
(4.8)
1.5
$ 41.2
$(126.6) $155.2
In 2015, net cash provided by operating activities was $227.2 million as compared to $208.4 million in
2014. The increase in net cash provided by operating activities of $18.8 million is primarily driven by
higher earnings and a decrease in working capital of $18.1 million. Partially offsetting these increases
were higher payroll payments of $12.3 million as a result of payment timing and an increase in pension
contributions of $5.4 million.
Working capital as a percentage of sales, which we define as the average thirteen months of accounts
receivable, plus inventory, less accounts payable, divided by full year sales, improved to 9.7% at
December 31, 2015 from 9.9% at December 31, 2014. Days sales outstanding as of December 31,
2015 and December 31, 2014 were 45.4 and 46.0, respectively.
In 2014, net cash provided by operating activities was $208.4 million as compared to $109.0 million in
2013. The increase in net cash provided by operating activities of $99.4 million is primarily driven by
lower tax payments of $51.6 million. 2013 included tax payments primarily associated with the gain on
sale of the Resin Business, lower pension and post-retirement health care benefit plan payments of
$49.5 million and improved working capital.
Investing Activities
Net cash used by investing activities during 2015 of $106.5 million reflects capital expenditures of
$91.2 million and the acquisition of Magenta for $18.3 million, partially offset by the proceeds from the
sale of assets of $3.0 million.
Net cash used by investing activities during 2014 of $111.8 million primarily reflects capital
expenditures of $92.8 million and the acquisition of Accella for $47.2 million. This usage was partially
offset by the third and final earn-out payment from the 2011 sale of our equity investment in SunBelt of
$26.8 million and proceeds from the sale of other assets of $1.4 million.
Net cash used by investing activities during 2013 of $60.1 million primarily reflects our acquisition of
Spartech for $258.8 million, net of cash acquired, and capital expenditures of $76.4 million. These cash
outflows were partially offset by cash proceeds received of $275.7 million primarily related to the sale
of our Resin Business for $250.0 million and the $23.2 million payment for year two of the three year
earn-out from the 2011 sale of our equity investment in SunBelt.
Financing Activities
Net cash used by financing activities in 2015 primarily reflects repayment of long-term debt totaling
$365.3 million, a $45.5 million net payment under existing credit facilities, repurchases of $156.1
million of our outstanding common shares and cash dividends paid of $35.7 million. Partially offsetting
these cash outflows was $547.3 million of proceeds from the new senior secured term loan.
Net cash used in financing activities in 2014 reflects repurchases of $233.2 million of our outstanding
common shares, cash dividends paid of $29.9 million and the repayment of long-term debt of $8.0
32 POLYONE CORPORATION
million. These cash outflows more than offset the tax benefit of $6.9 million related to the exercise of
employee equity awards and a $45.8 million net draw under existing credit facilities.
Net cash used in financing activities in 2013 reflects repayment of our long-term debt of $343.3 million,
debt financing costs of $13.0 million, premium on early extinguishment of long-term debt of $4.6
million, repurchases of $131.6 million of our outstanding common shares and dividend payments of
$21.5 million. These cash uses were more than offset by proceeds received from the issuance of our
5.25% senior notes due 2023 in the aggregate principal amount of $600.0 million, net proceeds from
borrowings under our credit facilities of $11.5 million and income tax benefits of $7.3 million related to
the exercise of equity awards.
Total Debt
The following table summarizes debt as presented at December 31, 2015 and 2014.
(In millions)
7.500% debentures due 2015
Revolving credit facility due 2018
7.375% senior notes due 2020
Senior term loan due 2022
5.250% senior notes due 2023
Other debt
Total debt
Less short-term and current portion of long-term debt
Long-term debt
December 31,
2015
December 31,
2014
$
—
—
—
541.4
591.7
13.5
$
48.6
45.0
313.0
—
590.5
13.5
$1,146.6
$1,010.6
18.6
61.7
$1,128.0
$ 948.9
On November 12, 2015, PolyOne entered into a senior secured term loan having an aggregate
principal amount of $550.0 million. Net proceeds of $547.3 million reflected a $2.7 million issuance
discount. $5.5 million is payable annually while the remaining balance matures on November 12, 2022.
The interest rate associated with the term loan is 300 basis points plus the greater of (i) the 1-, 2-, 3- or
6-month LIBOR, at the Company’s discretion, or (ii) 75 basis points. The proceeds from the term loan
were used to repay in full $316.6 million aggregate principal amount of our 7.375% senior notes due
2020, repay in full $48.7 million aggregate principal amount of our 7.50% debentures due 2015 and
repay $106.6 million of the outstanding balance on our revolving credit facility. We recognized $16.4
million of debt extinguishment costs within Debt extinguishment costs in our Consolidated Statements
of Income in connection with these repurchases.
The Company maintains a revolving credit facility, which matures on March 1, 2018, with a maximum
borrowing facility size of $400.0 million, subject to a borrowing base with advances against certain U.S.
and Canadian accounts receivable, inventory and other assets as specified in the agreement. We have
the option to increase the availability under the facility to $450.0 million, subject to meeting certain
requirements and obtaining commitments for such increase. The revolving credit facility has a U.S. and
a Canadian line of credit. Currently there are no borrowings on the U.S. or Canadian portion of the
facility. Advances under the U.S. portion of our revolving credit facility bear interest, at the Company’s
option, at a Base Rate or a LIBOR Rate plus an applicable margin. The Base Rate is a fluctuating rate
equal to the greater of (i) the Federal Funds Rate plus one-half percent, (ii) the prevailing LIBOR Rate
plus one percent, and (iii) the prevailing Prime Rate. The applicable margins vary based on the
Company’s daily average excess availability during the previous quarter. The weighted average annual
interest rate under this facility for the year ended December 31, 2015 and 2014 were 2.46% and
2.84%, respectively. As of December 31, 2015, we had no borrowings under our revolving credit
facility, which had availability of $338.7 million. Borrowings under this facility as of December 31, 2014
were $45.0 million.
POLYONE CORPORATION 33
limit our ability to: consummate asset sales,
The agreements governing our revolving credit facility and our secured term loan, and the indentures
and credit agreements governing other debt, contain a number of customary restrictive covenants that,
among other things,
incur additional debt or liens,
consolidate or merge with any entity or transfer or sell all or substantially all of our assets, pay
dividends or make certain other restricted payments, make investments, enter into transactions with
affiliates, create dividend or other payment restrictions with respect to subsidiaries, make capital
investments and alter the business we conduct. In addition, these agreements require us to comply
with specific financial tests, under which we are required to achieve certain or specific financial and
operating results. As of December 31, 2015, we were in compliance with all covenants.
renewal. The credit
The Company maintains a credit line with Saudi Hollandi Bank for $16.0 million. The credit line has an
interest rate equal to the Saudi Arabia Interbank Offered Rate plus a fixed rate of 0.85% and is subject
to annual
line is being used to fund capital expenditures related to the
manufacturing facility in Jeddah, Saudi Arabia. As of December 31, 2015, letters of credit under the
credit line were $0.2 million and borrowings were $12.6 million with an interest rate of 1.78%. As of
December 31, 2014, letters of credit under the credit line were $0.2 million and borrowings were $13.1
million with an interest rate of 1.85%. As of December 31, 2015 and 2014, there was remaining
availability on the credit line of $3.2 million and $2.7 million, respectively.
For additional
accompanying consolidated financial statements.
information about our debt obligations, see Note 6, Financing Arrangements, to the
Concentrations of Credit Risk
Financial instruments, including foreign exchange contracts, and trade accounts receivable, subject us
to potential credit risk. Concentration 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 locations. We are exposed to credit risk with respect to foreign exchange
contracts in the event of non-performance by the counter-parties to these financial instruments. 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.
Guarantee of Indebtedness of Others
On February 28, 2011, we sold our 50% equity interest in SunBelt to Olin. As a result of the sale, Olin
assumed our obligations under our guarantee of senior secured notes issued by SunBelt, which were
$12.2 million as of December 31, 2015. Unless the guarantee is formally assigned to Olin, we remain
obligated under the guarantee, although Olin has agreed to indemnify us for amounts that we may be
obligated to pay under the guarantee. These notes mature in December 2017.
Letters of Credit
Our revolving credit facility provides up to $50.0 million for the issuance of letters of credit, $11.5
million of which was used at December 31, 2015. These letters of credit are issued by the bank in favor
of third parties and are mainly related to insurance claims.
34 POLYONE CORPORATION
Contractual Cash Obligations
The following table summarizes our obligations under debt agreements, operating leases, interest
obligations, pension and other post-retirement plan obligations and purchase obligations as of
December 31, 2015:
(In millions)
Total debt (1)
Operating leases
Interest on long-term debt obligations (2)
Pension and post-retirement obligations (3)
Purchase obligations (4)
Total
Payment Due by Period
Total
2016
2017 & 2018
2019 & 2020
Thereafter
$1,163.5 $ 18.6
$ 11.1
$ 11.2
$1,122.6
84.6
419.4
74.8
15.6
21.0
55.5
25.8
12.7
29.4
113.7
11.3
2.6
15.1
116.9
11.1
0.2
19.1
133.3
26.6
0.1
$1,757.9 $133.6
$168.1
$154.5
$1,301.7
(1) Total debt includes both the current and long-term portions of debt.
(2) Represents estimated contractual interest payments for all outstanding debt.
(3) Pension and post-retirement obligations relate to our U.S. and international pension and other post-retirement plans. The
expected payments associated with these plans represent an actuarial estimate of future assumed payments based upon
retirement and payment patterns. Due to uncertainties regarding the assumptions involved in estimating future required
contributions to our pension and non-pension postretirement benefit plans, including: (i) interest rate levels, (ii) the amount
and timing of asset returns and (iii) what, if any, changes may occur in pension funding legislation, the estimates in the table
may differ materially from actual future payments.
(4) Purchase obligations are primarily comprised of service agreements related to telecommunication, information technology,
utilities and other manufacturing plant services and certain capital commitments.
The table excludes the liability for unrecognized income tax benefits, since we cannot predict with
reasonable certainty the timing of cash settlements, if any, with the respective taxing authorities. At
December 31, 2015, the gross liability for unrecognized income tax benefits, including interest and
penalties, totaled $17.0 million.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K other
than the SunBelt debt guarantee described previously in the Guarantee of Indebtedness of Others
section.
POLYONE CORPORATION 35
Critical Accounting Policies and Estimates
Significant accounting policies are described more fully in Note 1, Description of Business and
Summary 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 assumptions about future events that affect
the amounts reported in our consolidated financial statements and accompanying notes. We base our
estimates on historical experience and assumptions that we believe are reasonable considering the
related facts and circumstances. The application of these critical accounting policies involves the
exercise of judgment and use of assumptions for future uncertainties. Accordingly, 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.
Description
Judgments and Uncertainties
Effect if Actual Results
Differ from Assumptions
such
provision
Environmental Liabilities
Š Based upon our estimates, we have
$119.9 million accrued at December 31,
2015 for probable future environmental
expenditures. Any
is
recognized using the Company’s best
estimate of the amount of loss incurred, or at
the lower end of an estimated range, when a
single best estimate is not determinable. In
the Company recovers a
some cases,
the costs relating to these
portion of
obligations from insurers or other
third
parties; however, the Company records such
amounts only when they are collected.
Pension and Other Post-retirement Plans
Š We account
for our defined benefit
pension plans and other post-retirement
plans in accordance with FASB ASC
Topic 715, Compensation — Retirement
Benefits. We immediately recognize actuarial
gains and losses in our operating results in
the year in which the gains or losses occur.
In 2015, we recognized a $11.6 million
charge as a result of the recognition of these
actuarial losses, which unfavorably impacted
our statement of
income, statement of
comprehensive income, and the funded
status of our pension plans. This charge was
mainly driven by lower than expected asset
returns.
36 POLYONE CORPORATION
Š This accrual
represents our best
estimate of the remaining probable costs
based upon information and technology
currently available. Depending upon the
the ultimate
future testing,
results of
remediation
undertaken,
alternatives
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.
returns and interest
the value of
Š Asset
rates
significantly affect
future
assets and liabilities of our pension and
post-retirement plans and therefore the
funded status of our plans. It is difficult
to predict
these factors due to the
volatility of market conditions.
Š To develop our discount rate, we
consider
the yields of high-quality
corporate bonds with maturities that
correspond to the timing of our benefit
obligations,
referred to as the bond
matching approach.
returns
Š To develop our expected long-term
return on plan assets, we consider
historical and forward looking long-term
asset
expected
and
investment portfolio mix of plan assets.
The weighted-average expected long-
term rate of return on plan assets was
6.87% for 2015, 6.86% for 2014 and
8.41% for 2013.
the
Š If further developments or resolution
of these matters are not consistent with
our assumptions and judgments, we
may need to recognize a significant
adjustment in a future period.
Š As noted in Note 13, Commitments
and Contingencies, we recorded a
$47.0 million adjustment in 2013 related
to our ongoing remedial
investigation
and feasibility study (RIFS) at Calvert
City. As we progress through certain
benchmarks such as completion of the
RIFS, issuance of a record of decision
and
additional
information will become available that
may require an adjustment
to our
existing reserves.
remedial
design,
Š The weighted average discount
rates used to value our pension liabilities
as of December 31, 2015 and 2014
were 4.11 % and 3.88%, post-retirement
liabilities were 4.12% and 3.75%. As of
December 31, 2015, an increase/
decrease in the discount rate of 50 basis
points, holding all other assumptions
constant, would have increased or
decreased pre-tax income and the
related pension and post-retirement
liability by approximately $26.1 million.
An increase/decrease in the discount
rate of 50 basis points as of December
31, 2015 would result in a change of
approximately $1.6 million in the 2016
net periodic benefit cost.
Š The expected long-term return on
plan assets utilized as of January 1,
2015 and 2014 were 6.87% and
6.86%,
respectively. An increase/
decrease in our expected long-term
return on plan assets of one percent
Description
Judgments and Uncertainties
Effect if Actual Results
Differ from Assumptions
Š Life expectancy
is a significant
assumption that impacts our pension and
other post-retirement benefits obligation.
During 2015, we adopted the MP-2015
mortality improvement scale which was
issued by the Society of Actuaries in
October 2015.
result
of
in
would
approximately $4.6 million to 2016 net
periodic benefit cost.
change
a
Income Taxes
Š We account for income taxes using the
asset and liability method under ASC
Topic 740. 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
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.
allowances
are
Š 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.
Goodwill
Š 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
least annually, absent a
impairment at
triggering event
that would warrant an
impairment assessment. On an ongoing
indicators,
basis, absent any impairment
we perform our goodwill impairment testing
as of the first day of October of each year.
as
such
other
factors
Š The ultimate recovery of certain of our
deferred tax assets is dependent on the
amount and timing of taxable income that
we will ultimately generate in the future
and
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, 2015, aggregating to $19.3
million against such assets based on our
future operating
current assessment of
results and these other
factors. At
December 31, 2015, the gross liability for
benefits,
unrecognized
income
totaled
including interest and penalties,
$17.0 million.
tax
Š We have identified our
reporting
units at the operating segment level, or
in some cases, one level below the
operating segment
is
allocated to the reporting units based
on the estimated fair value at the date
of acquisition.
level. Goodwill
Š We estimated fair value using the
us,
best
information
including market
and
discounted cash flow projections using
the income approach.
information
available
to
assumptions
Š The income approach requires us to
make
estimates
regarding projected economic and market
conditions, growth rates, operating margins
Sensitivity
expenditures.
and
cash
and
Š Although management believes
the estimates and judgments
that
discussed herein are reasonable,
actual results could differ, which could
result
in income tax expense or
benefits that could be material.
Š If actual results are not consistent
with our assumptions and estimates,
we may be exposed to goodwill
impairment charges.
on
Š Based
annual
our
impairment test performed on October
1st, no reporting units were considered
at risk of impairment.
2015
valuation
Š The fair value of the reporting unit is
based on a number of subjective factors
including: (a) appropriate consideration
the
of
consideration of our business outlook
for fiscal 2016 and beyond, and (c)
discount rates for our estimated cash
flows. Declining fourth quarter results
along with the near term outlook for the
approaches,
(b)
POLYONE CORPORATION 37
Description
Judgments and Uncertainties
Effect if Actual Results
Differ from Assumptions
analyses were performed around these
to assess the
assumptions in order
reasonableness of
the assumptions and
the resulting estimated fair values.
two steps:
Š We estimate the fair value of trade
from royalty
names using a “relief
payments” approach. This approach
(1) estimating
involves
reasonable royalty rate for
the trade
name 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 trade name.
Š Option-pricing models and generally
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 forfeiture
rates and risk-free rates of return.
31,
December
Indefinite-lived Intangible Assets
Š At
our
2015,
reflected
Consolidated Balance Sheet
$96.3 million of indefinite lived trade name
assets, which includes, $33.2 million
associated with the trade name acquired
as part of the acquisition of GLS and $63.1
million associated with trade names
acquired as part of
the ColorMatrix
acquisition.
Share-Based Compensation
Š We have share-based compensation
plans that
include non-qualified stock
options, incentive stock options, restricted
stock units, performance shares and stock
appreciation rights (SARs). See Note 15,
to
Share-Based Compensation,
the
accompanying
financial
consolidated
statements for a complete discussion of
our stock-based compensation programs.
Š We determined the fair value of the SARs
granted based on a Monte Carlo simulation
method.
Custom Engineered Structures (CES)
reporting unit, included in the Designed
Structures and Solutions
segment,
resulted in updating the assumptions for
the fair value of this reporting unit. As a
result, the fair value of the reporting unit
exceeded the carrying value by 13% as
of December 31, 2015. As such, we
concluded that the goodwill assigned to
the CES business of $108.8 million was
of
but
not
impairment.
impaired,
at-risk
is
Š If actual results are not consistent
with our assumptions and estimates,
we may be exposed to impairment
charges related to our indefinite lived
trade names.
on
Š Based
annual
our
impairment test, no trade names were
considered at risk.
2015
Š We do not believe there is a
reasonable likelihood there will be a
material change in the future estimates
or assumptions we use to determine
share-based compensation expense.
Recent and Future Adoption of Accounting Standards
Information regarding recent and future adoption of accounting standards can be found in Note 1,
Description of Business and Summary of Significant Accounting Policies, to the consolidated financial
statements and is incorporated by reference herein.
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 speculative investment purposes.
Interest rate exposure — Interest on our revolving credit facility is based upon a Prime rate or LIBOR,
plus a margin. Interest on our new senior term secured loan is based upon a fixed rate of 300 basis
points plus the greater of (i) the 1-, 2-, 3- or 6-month LIBOR, at the Company’s discretion, or (ii) 75
basis points. Interest on the credit line with Saudi Hollandi Bank is based upon SAIBOR plus a fixed
38 POLYONE CORPORATION
rate of 0.85%. There would be no material 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, 2015.
Foreign currency exposure — We enter into intercompany lending transactions that are denominated
in various foreign currencies 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
may enter into foreign exchange forward contracts. Gains and losses on these contracts generally
offset gains and losses on the assets and liabilities being hedged.
We face translation risks related to the changes in foreign currency exchange rates. Amounts invested
in our foreign operations are translated into U.S. dollars at the exchange rates in effect at the balance
sheet date. The resulting translation adjustments are recorded as a component of Accumulated other
comprehensive loss in the Shareholders’ equity section of the accompanying Consolidated Balance
Sheets. Net sales and expenses in our foreign operations’ foreign currencies are translated into
varying amounts of U.S. dollars depending upon whether the U.S. dollar weakens or strengthens
against other currencies. Therefore, changes in exchange rates may either positively or negatively
affect our net sales and expenses from foreign operations as expressed in U.S. dollars.
POLYONE CORPORATION 39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statement
Management’s Report
Reports of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders’ Equity
Notes to Consolidated Financial Statements
Page
41
42-43
44
45
46
47
48
49-79
40 POLYONE CORPORATION
MANAGEMENT’S REPORT
The management of PolyOne Corporation is responsible for preparing the consolidated financial
statements and disclosures included in this Annual Report on Form 10-K. The consolidated financial
statements and disclosures included in this Annual Report fairly present in all material respects the
consolidated financial position, results of operations, shareholders’ equity and cash flows of PolyOne
Corporation as of and for the year ended December 31, 2015.
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, 2015 and found them to be effective.
Management is also responsible for establishing and maintaining a system of internal control over
financial reporting that is designed to provide reasonable assurance regarding the reliability of financial
financial statements for external purposes in accordance with
reporting and the preparation of
generally accepted accounting principles. Internal control over financial reporting includes policies and
procedures that provide reasonable assurance that: PolyOne Corporation’s accounting records
accurately and fairly reflect
the Company;
the transactions and dispositions of
unauthorized or improper acquisition, use or disposal of Company assets will be prevented or timely
detected; the Company’s transactions are properly recorded and reported to permit the preparation of
the Company’s consolidated financial statements in conformity with generally accepted accounting
principles; and the Company’s receipts and expenditures are made only in accordance with
authorizations of management and the Board of Directors of the Company.
the assets of
Management has assessed the effectiveness of PolyOne’s internal control over financial reporting as
of December 31, 2015 and has prepared Management’s Annual Report On Internal Control Over
Financial Reporting contained on page 80 of
this Annual Report, which concludes that as of
December 31, 2015, PolyOne’s internal control over financial reporting is effective and that no material
weaknesses were identified.
/s/ ROBERT M. PATTERSON
/s/ BRADLEY C. RICHARDSON
Robert M. Patterson
President and Chief Executive Officer
Bradley C. Richardson
Executive Vice President and Chief Financial Officer
February 12, 2016
POLYONE CORPORATION 41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of PolyOne Corporation
We have audited PolyOne Corporation’s internal control over financial reporting as of December 31,
2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).
is responsible for maintaining effective internal control over
PolyOne Corporation’s management
financial reporting, and for its assessment 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.
the effectiveness of
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 perform the audit
to obtain
reasonable assurance about whether effective internal control over financial 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 performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
financial
reporting includes those policies and procedures that
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
(1) pertain to the
maintenance 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 detection 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 respects, effective internal control over
financial reporting as of December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of PolyOne Corporation as of December 31,
2015 and 2014, and the related consolidated statements of
income, comprehensive income,
shareholders’ equity and cash flows for each of the three years in the period ended December 31,
2015 and our report dated February 12, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Cleveland, Ohio
February 12, 2016
42 POLYONE CORPORATION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of PolyOne Corporation
We have audited the accompanying consolidated balance sheets of PolyOne Corporation as of
December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive
the three years in the period ended
income, shareholders’ equity and cash flows for each of
December 31, 2015. 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 perform the audit to obtain
reasonable 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 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, 2015 and 2014, and the
consolidated results of its operations and its cash flows for each of the three years in the period ended
December 31, 2015, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
reporting as of
Board (United States), PolyOne Corporation’s internal control over
December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our
report dated February 12, 2016 expressed an unqualified opinion thereon.
financial
/s/ Ernst & Young LLP
Cleveland, Ohio
February 12, 2016
POLYONE CORPORATION 43
Consolidated Statements of Income
(In millions, except per share data)
Sales
Cost of sales
Gross margin
Selling and administrative expense
Income related to previously owned equity affiliates
Operating income
Interest expense, net
Debt extinguishment costs
Other expense, net
Income from continuing operations, before income taxes
Income tax expense
Net income from continuing operations
Income from discontinued operations, net of income taxes
Net income
Net (income) loss attributable to noncontrolling interests
Year Ended December 31,
2015
2014
2013
$
3,377.6
$
3,835.5
$
3,771.2
2,696.1
3,127.6
3,109.0
681.5
430.6
—
250.9
(64.1)
(16.4)
(2.7)
167.7
(23.0)
144.7
—
144.7
(0.1)
707.9
552.8
—
155.1
(62.2)
—
(4.5)
88.4
(11.2)
77.2
1.2
78.4
0.8
662.2
457.6
26.9
231.5
(63.5)
(15.8)
(1.2)
151.0
(58.1)
92.9
149.8
242.7
1.1
Net income attributable to PolyOne common shareholders
$
144.6
$
79.2
$
243.8
Earnings per share attributable to PolyOne common shareholders — basic:
Continuing operations
Discontinued operations
Total
$
$
Earnings per share attributable to PolyOne common shareholders — diluted:
Continuing operations
Discontinued operations
Total
Cash dividends declared per common share
Weighted-average number of common shares outstanding:
Basic
Diluted
$
$
$
$
$
$
$
$
1.65
—
1.65
1.63
—
1.63
0.42
87.8
88.7
$
$
$
$
$
0.85
0.01
0.86
0.83
0.02
0.85
0.34
92.3
93.5
0.98
1.57
2.55
0.97
1.56
2.53
0.26
95.5
96.5
The accompanying notes to the consolidated financial statements are an integral part of these statements.
44 POLYONE CORPORATION
Consolidated Statements of Comprehensive Income
(In millions)
Net income
Other comprehensive loss:
Translation adjustments
Unrealized gain on available-for-sale securities
Total other comprehensive loss
Total comprehensive income
Comprehensive (income) loss attributable to noncontrolling interests
Year Ended December 31,
2015
2014
2013
$ 144.7
$
78.4
$ 242.7
(29.1)
0.1
(29.0)
115.7
(0.1)
(27.5)
—
(27.5)
50.9
0.8
(3.7)
—
(3.7)
239.0
1.1
Comprehensive income attributable to PolyOne common shareholders
$ 115.6
$
51.7
$ 240.1
The accompanying notes to the consolidated financial statements are an integral part of these statements.
POLYONE CORPORATION 45
Consolidated Balance Sheets
(In millions, except par value per share)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Other current assets
Total current assets
Property, net
Goodwill
Intangible assets, net
Other non-current assets
Total assets
Year Ended December 31,
2015
2014
$
$
279.8
347.0
287.0
47.0
960.8
583.5
597.7
344.6
108.5
238.6
396.8
309.0
54.0
998.4
596.7
590.6
362.7
117.9
$
2,595.1
$
2,666.3
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term and current portion of long-term debt
$
18.6
$
Accounts payable
Accrued expenses and other liabilities
Total current liabilities
Long-term debt
Pension and other post-retirement benefits
Deferred income taxes
Other non-current liabilities
Total non-current liabilities
SHAREHOLDERS’ EQUITY
Preferred stock, 40.0 shares authorized, no shares issued
Common Shares, $0.01 par, 400.0 shares authorized, 122.2 shares issued
Additional paid-in capital
Retained earnings
Common shares held in treasury, at cost, 36.9 shares in 2015 and 32.9 shares
in 2014
Accumulated other comprehensive loss
Total PolyOne shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
351.6
127.9
498.1
1,128.0
77.5
33.8
152.5
61.7
365.9
172.9
600.5
948.9
103.7
57.7
178.3
1,391.8
1,288.6
—
1.2
1,155.6
367.1
(748.4)
(71.3)
704.2
1.0
705.2
—
1.2
1,155.4
259.7
(597.7)
(42.3)
776.3
0.9
777.2
$
2,595.1
$
2,666.3
The accompanying notes to the consolidated financial statements are an integral part of these statements.
46 POLYONE CORPORATION
Consolidated Statements of Cash Flows
(In millions)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Accelerated depreciation and fixed asset charges associated with
restructuring activities
Deferred income tax (benefit) expense
Debt extinguishment costs
Share-based compensation expense
Gain on sale of business
Income related to previously owned equity affiliates
Changes in assets and liabilities, net of the effect of acquisitions and
divestitures:
Decrease in accounts receivable
Decrease in inventories
Decrease in accounts payable
(Decrease) increase in pension and other post-retirement benefits
(Decrease) increase in accrued expenses and other assets and
liabilities - net
Net cash provided by operating activities
Investing activities
Capital expenditures
Business acquisitions, net of cash acquired
Proceeds from sale of businesses and other assets
Net cash used by investing activities
Financing activities
Repayment of long-term debt
Premium on early extinguishment of long-term debt
Net proceeds from long-term debt
Debt financing costs
Borrowing under credit facilities
Repayment under credit facilities
Purchase of common shares for treasury
Exercise of stock awards
Cash dividends paid
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
Year Ended December 31,
2015
2014
2013
$ 144.7
$ 78.4
$ 242.7
98.1
100.8
97.1
17.6
(27.4)
16.4
9.1
—
—
42.6
21.4
(8.3)
(24.6)
(62.4)
227.2
(91.2)
(18.3)
3.0
33.0
(45.2)
—
14.2
(1.2)
—
24.4
28.4
(15.2)
30.0
(39.2)
208.4
(92.8)
(47.2)
28.2
(106.5)
(111.8)
(365.3)
(13.4)
547.3
(6.0)
891.3
(936.8)
(156.1)
4.3
(35.7)
(70.4)
(9.1)
41.2
238.6
(8.0)
—
—
—
168.6
(122.8)
(233.2)
6.9
(29.9)
(218.4)
(4.8)
(126.6)
365.2
13.6
12.9
15.8
16.5
(223.7)
(26.9)
26.9
20.4
(16.6)
(124.5)
54.8
109.0
(76.4)
(259.4)
275.7
(60.1)
(343.3)
(4.6)
600.0
(13.0)
129.0
(117.5)
(131.6)
7.3
(21.5)
104.8
1.5
155.2
210.0
$ 279.8
$ 238.6
$
365.2
The accompanying notes to the consolidated financial statements are an integral part of these statements.
POLYONE CORPORATION 47
Consolidated Statements of Shareholders’ Equity
Common Shares
Common
Shares
Held
in
Treasury
Common
Shares
Shareholders’ Equity
Common
Shares
Additional
Paid-in
Capital
Retained
Earnings
(Deficit)
Common
Shares
Held
in
Treasury
Accumulated
Other
Comprehensive
Loss
Total
PolyOne
shareholders’
equity
Non-
controlling
Interests
Total
equity
122.2
(32.7)
$
1.2
$ 1,016.1
$ (13.0)
243.8
$ (364.1)
$
(11.1)
$
629.1
243.8
2.3
(1.1)
$ 631.4
242.7
(3.7)
(3.7)
0.5
10.0
136.6
117.2
(5.0)
0.6
(5.4)
(19.2)
(131.6)
2.5
7.5
253.8
(24.6)
(131.6)
10.0
(3.7)
0.5
253.8
(24.6)
(131.6)
10.0
122.2
(27.1)
$
1.2
$ 1,149.8
$ 211.6
$ (371.0)
$
(14.8)
$
976.8
$
1.7
$ 978.5
79.2
(0.8)
78.4
79.2
(31.1)
(6.3)
0.5
(233.2)
5.6
6.5
(27.5)
(27.5)
(31.1)
(233.2)
12.1
122.2
(32.9)
$
1.2
$ 1,155.4
$ 259.7
$ (597.7)
$
(42.3)
$
776.3
$
144.6
(37.2)
(29.0)
(4.5)
0.5
(156.1)
0.2
5.4
144.6
(29.0)
(37.2)
(156.1)
5.6
122.2
(36.9)
$
1.2
$ 1,155.6
$ 367.1
$ (748.4)
$
(71.3)
$
704.2
$
1.0
$ 705.2
(27.5)
(31.1)
(233.2)
12.1
0.9
0.1
$ 777.2
144.7
(29.0)
(37.2)
(156.1)
5.6
(In millions)
Balance at January 1,
2013
Net income (loss)
Other comprehensive
loss
Noncontrolling interest
activity
Shares issued in
connection with
acquisitions
Cash dividends
declared
Repurchase of
common shares
Stock-based
compensation and
exercise of awards
Balance at December 31,
2013
Net income (loss)
Other comprehensive
loss
Cash dividends
declared
Repurchase of
common shares
Stock-based
compensation and
exercise of awards
Balance at December 31,
2014
Net income
Other comprehensive
loss
Cash dividends
declared
Repurchase of
common shares
Stock-based
compensation and
exercise of awards
Balance at December 31,
2015
The accompanying notes to the consolidated financial statements are an integral part of these statements.
48 POLYONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
We are a premier provider of specialized polymer materials, services and solutions with operations in
specialty polymer formulations, color and additive systems, plastic sheet and packaging solutions, and
polymer distribution. We are also a highly specialized developer and manufacturer of performance
enhancing additives, liquid colorants, and fluoropolymer and silicone colorants. Headquartered in Avon
Lake, Ohio, we have employees at manufacturing sites and distribution facilities in North America,
South America, Europe, Asia and Africa. 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 value added solutions to designers, assemblers and processors of plastics (our customers).
When used in these notes to the consolidated financial statements,
the terms “we,” “us,” “our”,
“PolyOne” and the “Company” mean PolyOne Corporation and its consolidated subsidiaries.
Our operations are located primarily in North America, South America, Europe and Asia. Our
operations are reported in five reportable segments: Color, Additives and Inks; Specialty Engineered
Materials; Designed Structures and Solutions; Performance Products and Solutions; and PolyOne
Distribution. See Note 16, Segment Information, for more information.
Accounting Standards Adopted
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Auditing Standards Update
2015-03, “Interest-Imputation of Interest (Subtopic 835-30) — Simplifying the Presentation of Debt
Issuance Costs” (ASU 2015-03), which requires unamortized debt issuance costs to be presented as a
reduction of the corresponding debt liability rather than a separate asset. The Company adopted
ASU 2015-03 during the fourth quarter of 2015 and applied this standard retrospective to 2014. Refer
to Note 6, Financial Arrangements, for the impact on our Consolidated Balance Sheets.
In August 2015, the FASB issued Auditing Standards Update 2015-15, “Interest-Imputation of Interest
(Subtopic 835-30) — Presentation and Subsequent Measurement of Debt Issuance Costs Associated
with Line-of-Credit Arrangements” (ASU 2015-15), which added clarification to ASU 2015-03 in
allowing debt issuance costs related to line-of-credit arrangements to be presented as an asset and
subsequently amortized ratably over the term of the line-of-credit agreement, regardless of whether
there are any outstanding borrowings on the line-of-credit arrangement. The Company adopted
ASU 2015-15 during the fourth quarter of 2015 and applied this standard retrospective to 2014. Debt
issuance costs related to our revolving credit facility due 2018 of $2.3 million and $3.2 million for 2015
and 2014, respectively, are reflected in the Consolidated Balance Sheets as other non-current assets.
In September 2015,
the FASB issued Accounting Standards Update 2015-16, “Simplifying the
Accounting for Measurement-Period Adjustments” (ASU 2015-16). Measurement period adjustments
are changes to provisional amounts recorded when the accounting for a business combination is
incomplete as of the end of a reporting period. The measurement period can extend for up to a year
following the transaction date. The new guidance requires companies to recognize these adjustments,
including any related impacts to net income, in the reporting period in which the adjustments are
determined. Companies are no longer required to retroactively apply measurement period adjustments
to the prior period. This update is effective for annual and interim periods beginning after December 15,
2016. We have early adopted this standard beginning in fiscal 2015. There was no material impact to
the Consolidated Financial Statements.
the FASB issued Accounting Standards Update 2015-17,
In November 2015,
“Balance Sheet
Classification of Deferred Taxes” (ASU 2015-17). The new guidance requires that all deferred tax
assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the
balance sheet. This update is effective for annual and interim periods beginning after December 15,
POLYONE CORPORATION 49
2016, with early adoption permitted. We have early adopted this standard, as permitted, beginning with
fiscal 2015, and applied this standard retrospectively to 2014. The retrospective adoption resulted in
the following impact to the Consolidated Balance Sheet as of December 31, 2014: a decrease to other
current assets of $41.4 million, an increase to other non-current assets of $9.6 million, a decrease in
accrued expenses and other liabilities of $0.7 million and a decrease in deferred income taxes of $31.1
million.
Accounting Standards Not Yet Adopted
In May 2014, the FASB issued Auditing Standards Update 2014-09, “Revenue from Contracts with
Customers” (ASU 2014-09). Under this standard, a company recognizes revenue when it transfers
promised goods or services to customers in an amount that reflects the consideration to which the
company expects to be entitled in exchange for those goods or services. The standard implements a
five-step process for customer contract revenue recognition that focuses on transfer of control. It will
be effective for us beginning January 1, 2018, with early adoption not permitted. Entities can transition
to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.
We are currently assessing the impact this standard will have on our consolidated financial statements
as well as the method by which we will adopt the new standard.
In July 2015,
the FASB issued Accounting Standards Update 2015-11, “Inventory (Topic 300):
Simplifying the Measurement of Inventory” (ASU 2015-11), which applies to inventory measured using
first-in, first out (FIFO) or average cost. This update proscribes that an entity should measure inventory
that is within scope at the lower of cost and net realizable value, which is the estimated selling prices in
the ordinary course of business,
less reasonably predictable costs of completion, disposal and
transportation. This update is effective for annual and interim periods beginning after December 15,
2016, and should be applied prospectively with early adoption permitted at the beginning of an interim
or annual reporting period. We are currently evaluating the impact of the adoption of this guidance on
the Consolidated Financial Statements, but do not expect this standard to have a material impact on
our Consolidated Financial Statements.
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. Transactions with related
parties, including joint ventures, are in the ordinary course of business.
Reclassifications
Certain reclassifications of the prior period amounts and presentation 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 management to make estimates and assumptions in certain circumstances that
affect amounts reported in the accompanying consolidated financial statements and notes. Actual
results could differ from these estimates.
Cash and Cash Equivalents
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.
50 POLYONE CORPORATION
Allowance for Doubtful Accounts
We evaluate the collectability of 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 reasonably 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.
Accounts receivable balances are written off against the allowance for doubtful accounts after a final
determination of uncollectability has been made.
Inventories
External purchases of raw materials and finished goods are valued at weighted average cost.
Manufactured finished goods are stated at the lower of cost or market using the first-in, first-out (FIFO)
method.
Long-lived Assets
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 lives of the assets, which generally ranges
from 3 to 15 years for machinery and equipment and up to 40 years for buildings. During 2015 and
2014, we depreciated certain assets associated with closing manufacturing locations over a shortened
life (through a cease-use date). Software is amortized over periods not exceeding 10 years. Property,
plant and equipment is generally depreciated on accelerated methods for income tax purposes. We
expense repair and maintenance costs as incurred. We capitalize replacements and betterments that
increase the estimated useful life of an asset.
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 from continuing operations in the accompanying
Consolidated Statements of Income.
We account for operating leases under the provisions of FASB Accounting Standards Codification
(ASC) Topic 840, Leases.
Finite-lived intangible assets, which consist primarily of customer relationships, patents and technology
are amortized over their estimated useful lives. The remaining useful lives range up to 21 years.
We assess the recoverability of long-lived assets when 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 future
undiscounted cash flows associated with the asset. We measure the amount of impairment 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.
No such impairments were recognized during 2015, 2014 or 2013.
Goodwill and Indefinite Lived Intangible Assets
Goodwill is the excess of the purchase price paid over the fair value of the net assets of the acquired
business. Goodwill is 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.
POLYONE CORPORATION 51
Our annual measurement date for testing impairment of goodwill and indefinite-lived intangibles is
October 1st. We completed our testing of impairment as of October 1, noting no impairment in 2015,
2014 or 2013. Additionally, as noted within our “Critical Accounting Policies and Estimates” section of
Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, we
completed an interim goodwill
impairment assessment as of December 31, 2015 for our Customer
Engineered Services reporting unit, which is included in our Designed Structures and Solutions
segment, and concluded there was no impairment. The future occurrence of a potential indicator of
impairment would require an interim assessment for some or all of the reporting units prior to the next
required annual assessment on October 1, 2016. Refer to Note 18, Fair Value, for further discussion of
our approach for assessing the fair value of goodwill.
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.
Refer to Note 13, Commitments and Contingencies, for further information.
Derivative Financial Instruments
FASB ASC Topic 815, Derivative and Hedging, requires that all derivative financial instruments, such
as foreign exchange contracts, 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 in the normal course of business. We have established
policies and procedures that manage this exposure through the use of financial instruments. By policy,
we do not enter into these instruments for trading purposes or speculation. These instruments are not
designated as hedges and, as a result, are adjusted to fair value, with the resulting gains and losses
recognized in the accompanying Consolidated Statements of Income immediately.
Pension and Other Post-retirement Plans
We account for our pensions and other post-retirement benefits in accordance with FASB ASC Topic
715, Compensation — Retirement Benefits. We immediately recognize actuarial gains and losses in
our operating results in the year in which the gains or losses occur. Refer to Note 12, Employee Benefit
Plans, for more information.
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss in 2015, 2014 and 2013 were as follows:
Cumulative
Translation
Adjustment
Pension
and other
post-
retirement
benefits
Unrealized
gain in
available-
for-sale
securities
(In millions)
Balance at January 1, 2013
Translation adjustments
Balance at December 31, 2013
Translation adjustments
Balance at December 31, 2014
Translation adjustments
Unrecognized gain on available-for-sale securities
$
$
(16.5)
(3.7)
(20.2)
(27.5)
(47.7)
(29.1)
—
Balance at December 31, 2015
$
(76.8)
$
52 POLYONE CORPORATION
5.2
—
5.2
—
5.2
—
—
5.2
$
$
0.2
—
0.2
—
0.2
—
0.1
0.3
Total
$ (11.1)
(3.7)
(14.8)
(27.5)
(42.3)
(29.1)
0.1
$ (71.3)
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 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. See Note 18, Fair Value, for further discussion.
Foreign Currency Translation
Revenues and expenses are translated at average currency exchange rates during the related period.
Assets and liabilities of foreign subsidiaries are translated using the exchange rate at the end of the
period. The resulting translation adjustments are recorded as accumulated other comprehensive
income or loss. Gains and losses resulting from foreign currency transactions, including intercompany
transactions that are not considered permanent investments, are included in Other expense, net in the
accompanying Consolidated Statements of Income.
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 is
reasonably assured.
Shipping and Handling Costs
Shipping and handling costs are included in cost of sales.
Research and Development Expense
Research and development costs from continuing operations, which were $53.0 million in 2015, $53.4
million in 2014 and $52.6 million in 2013, 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 environmental contamination are accrued when it
becomes probable that a liability has been incurred and our proportionate share of the cost can be
reasonably estimated. Any such provision is recognized using the Company’s best estimate of the
amount of loss incurred, or at the lower end of an estimated range, when a single best estimate is not
determinable. In some cases, the Company may be able to recover a portion of the costs relating to
these obligations from insurers or other third parties; however, the Company records such amounts
only when it is probable that they will be collected.
Share-Based Compensation
for share-based compensation under
We account
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. The value of the portion of the award that is ultimately expected to vest is
the requisite service periods in the accompanying Consolidated
recognized as expense over
Statements of
Income. As of December 31, 2015, we had one active share-based employee
compensation plan, which is described more fully in Note 15, Share-Based Compensation.
Income Taxes
Deferred income 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
currently 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
POLYONE CORPORATION 53
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.
Note 2 — BUSINESS COMBINATIONS
Magenta Master Fibers
On December 9, 2015, the Company completed the acquisition of Magenta Master Fibers (Magenta), a
leading innovative developer of specialty color concentrates for
for
approximately $18.3 million, net of cash acquired. The results of operations of Magenta since the date
of acquisition are immaterial. These results are reported in the Color, Additives and Inks segment. The
acquisition resulted in preliminary goodwill of $6.6 million, which is not deductible for tax purposes.
the global
industry,
fiber
Accella Performance Materials
the Company completed the acquisition of specialty assets of Accella
On December 1, 2014,
liquid polymer
Performance Materials (Accella), a leading North American manufacturer of
formulations, for approximately $47.2 million, net of cash acquired. The results of operations of Accella
were included in the Company’s Consolidated Statements of Income for the period subsequent to the
date of the acquisition and are reported in the Color, Additives and Inks segment. The final purchase
price allocation resulted in goodwill of $24.7 million and intangible assets of $16.0 million. The goodwill
and intangible assets are deductible for tax purposes.
Spartech Corporation
On March 13, 2013, PolyOne acquired Spartech, a supplier of sustainable plastic sheet, color and
engineered materials and packaging solutions. At the effective time of the merger, each issued and
outstanding share of Spartech common shares was canceled and converted into the right to receive
consideration equal to $2.67 in cash and 0.3167 shares of PolyOne common shares for a purchase
price of $511.1 million. PolyOne funded the cash portion of the consideration, and the repayment of
certain portions of Spartech’s debt, with a portion of the net proceeds of its issuance of 5.25% senior
notes due 2023, discussed in Note 6, Financing Arrangements. The table below summarizes the
components of the purchase price.
(In millions, except stock price and share data)
PolyOne shares issued
PolyOne closing stock price on March 13, 2013
Total value of PolyOne shares issued
Cash consideration transferred to Spartech shareholders
Fair value of Spartech equity awards, net of deferred tax benefits (1)
Total consideration transferred to Spartech equity holders
Spartech revolving credit facilities repaid at close (2)
Spartech senior notes repaid at close (2)
Total consideration transferred to debt and equity holders
Cash acquired
10.0
$ 25.05
$ 249.9
83.4
2.4
335.7
77.2
102.3
515.2
(4.1)
Total consideration transferred to debt and equity holders, net of cash acquired
$ 511.1
(1)
(2)
In accordance with ASC 718, Compensation — Stock Compensation, the fair value of replacement awards attributable to
pre-combination service is recognized as part of purchase consideration. The $2.4 million represents the fair value of
Spartech replacement equity awards of $3.9 million net of deferred income tax benefits of $1.5 million. The fair value of
awards attributable to post-combination service amounted to $2.7 million and are being recognized as stock compensation
over their requisite service periods within PolyOne’s Consolidated Statements of Income.
In accordance with the provisions of Spartech’s 7.08% senior notes due 2016 and revolving credit facilities, at the time of
closing, PolyOne repaid all borrowings under Spartech’s revolving credit
facilities, which amounted to $77.2 million.
Additionally, PolyOne repaid $102.3 million related to Spartech’s 7.08% senior notes due 2016, including $88.9 million of
aggregated principal, $10.3 million make-whole provisions, and $3.1 million of interest payable.
54 POLYONE CORPORATION
The acquisition of Spartech has provided synergies through enhanced operational cost efficiencies and
has expanded PolyOne’s specialty portfolio. By combining Spartech’s leading market positions in
sheet, rigid barrier packaging and specialty cast acrylics with PolyOne’s capabilities, we have been
better able serve our customers and accelerate growth. Spartech’s results have been reflected within
our Consolidated Statements of Income and within the Designed Structures and Solutions segment, as
well as our existing Specialty Engineered Materials, Color, Additives and Inks and Performance
Products and Solutions segments since the date of acquisition.
In 2013, we incurred acquisition-related costs totaling of $7.6 million which have been included within
selling and administrative expense in our Consolidated Statements of Income.
Note 3 — 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.
Goodwill as of December 31, 2015 and 2014, and changes in the carrying amount of goodwill by
segment were as follows:
(In millions)
Goodwill, gross at
January 1, 2014
Accumulated
Specialty
Engineered
Materials
Color,
Additives
and Inks
Designed
Structures
and
Solutions
Performance
Products
and
Solutions
PolyOne
Distribution
Total
$
112.1
$
326.3
$
136.3
$
186.0
$
1.6
$
762.3
impairment losses
(12.2)
(16.1)
—
(175.0)
Goodwill, net at
January 1, 2014
Acquisitions of
businesses
Currency translation
Balance at
99.9
310.2
136.3
11.0
—
(0.5)
23.5
—
8.4
—
0.2
—
December 31, 2014
99.4
333.7
144.7
11.2
Acquisitions of
businesses
Currency translation
Balance at
—
(1.4)
8.6
(0.1)
—
—
—
—
—
1.6
—
—
1.6
—
—
(203.3)
559.0
32.1
(0.5)
590.6
8.6
(1.5)
December 31, 2015
$
98.0
$
342.2
$
144.7
$
11.2
$
1.6
$
597.7
At December 31, 2015, PolyOne had $96.3 million of indefinite-lived intangible assets that are not
subject to amortization, consisting of a trade name of $33.2 million acquired as part of the acquisition
of GLS Corporation (GLS) and trade names of $63.1 million acquired as part of the acquisition of
ColorMatrix Group, Inc. (ColorMatrix).
POLYONE CORPORATION 55
Indefinite and finite-lived intangible assets consisted of the following:
(In millions)
Customer relationships
Patents, technology and other
Indefinite-lived trade names
Total
(In millions)
Customer relationships
Patents, technology and other
Indefinite-lived trade names
In-process research and development
Total
As of December 31, 2015
Acquisition
Cost
Accumulated
Amortization
Currency
Translation
Net
199.4
137.0
96.3
$
(42.1)
(45.7)
—
432.7
$
(87.8)
$
$
— $
(0.3)
—
(0.3)
$
157.3
91.0
96.3
344.6
Acquisition
Cost
As of December 31, 2014
Currency
Translation
Accumulated
Amortization
Net
198.1
132.9
96.3
3.4
$
(32.6)
(35.3)
—
—
$
— $
165.5
(0.1)
—
—
97.5
96.3
3.4
430.7
$
(67.9)
$
(0.1)
$
362.7
$
$
$
$
Amortization of finite-lived intangible assets for the years ended December 31, 2015, 2014 and 2013
was $19.9 million, $19.2 million and $17.8 million, respectively.
We expect finite-lived intangibles amortization expense for the next five years as follows:
Expected amortization expense
2016
$20.2
2017
$20.2
2018
$20.2
2019
$20.2
2020
$16.7
Note 4 — EMPLOYEE SEPARATION AND RESTRUCTURING COSTS
In 2015, PolyOne determined it would close two manufacturing facilities within the Designed Structures
and Solutions segment and take other corporate actions to reduce administrative costs. These actions
were taken as a result of Designed Structures and Solutions’ declining results and near term outlook.
We recognized $6.2 million of severance costs, $10.0 million of asset related charges, including
accelerated depreciation, and $0.9 million of other ongoing costs associated with exiting these plants
and transferring equipment. We anticipate these actions to result in $10.0 million of additional charges,
primarily incurred in the first half of 2016. Of the additional charges to be incurred, $3.0 million will be
accelerated depreciation.
In June 2014, PolyOne determined it would close its Diadema and Joinville, Brazil facilities that were
acquired in 2011 with the acquisition of Uniplen Industria de Polimeros Ltda. These actions were taken
to streamline operations and improve our financial performance in Brazil. We recognized $1.3 million
and $17.0 million related to these actions in 2015 and 2014, respectively. Total costs of $18.3 million in
connection with these actions include $11.2 million of asset-related charges, including accelerated
depreciation, $2.7 million of severance and $4.4 million of other associated costs. Of the total charges,
approximately $7.0 million were cash costs.
In 2013, PolyOne determined it would close seven former Spartech manufacturing facilities and one
administrative office and relocate operations to other PolyOne facilities. The closure of
these
manufacturing facilities was part of the Company’s efforts to improve service, on time delivery and
quality as we align assets with our customers’ needs. In addition to these actions, PolyOne incurred
severance costs related to former Spartech executives and other employees, as well as fixed asset-
related charges and other ongoing costs associated with restructuring actions that were underway prior
to PolyOne’s acquisition of Spartech.
56 POLYONE CORPORATION
Since the date of the Spartech acquisition, the Company has incurred $123.4 million of charges in
connection with the 2013 Spartech actions. Costs include $47.2 million of asset-related charges,
including accelerated depreciation and asset write-offs, and total cash charges of $76.2 million,
including $25.9 million for severance and $50.3 million of other associated costs. Of the total cash
charges, approximately $64.0 million relates to manufacturing realignment actions initiated by
PolyOne.
The following table summarizes restructuring activity related to the Spartech actions initiated in 2013.
These actions are complete as of December 31, 2015.
(In millions)
Accrual balance at December 31, 2012
Charged to expense
Cash payments
Non-cash utilization
Accrual balance at December 31, 2013
Charged to expense
Cash payments
Non-cash utilization
Accrual balance at December 31, 2014
Charged to expense
Cash payments
Non-cash utilization
Long-Lived
Asset
Charges
Employee
Separation
Other
Ongoing
Costs
Total
$ —
$ —
$ — $ —
13.6
—
(13.6)
21.1
(6.0)
—
9.4
(9.4)
—
44.1
(15.4)
(13.6)
$ —
$ 15.1
$ — $ 15.1
27.3
—
(27.3)
5.1
(17.5)
—
27.3
(27.3)
—
59.7
(44.8)
(27.3)
$ —
$ 2.7
$ — $ 2.7
6.3
—
(6.3)
(0.3)
(2.3)
—
13.6
19.6
(13.6)
(15.9)
—
(6.3)
Accrual balance at December 31, 2015
$ —
$ 0.1
$ — $ 0.1
During 2014,
in addition to the actions noted above, we recognized $17.4 million of employee
separation and restructuring costs primarily in Europe related to the closure of our Bendorf, Germany
manufacturing plant along with other reductions in force across Europe.
In 2015, we recognized total employee separation and restructuring charges of $41.9 million, which
included $27.0 million recognized within Cost of goods sold and $14.9 million recognized in Selling and
administrative expenses. In 2014, we recognized total employee separation and restructuring charges
of $94.1 million, which included $54.0 million recognized within Cost of goods sold and $40.1 million
recognized in Selling and administrative expenses. In 2013, we recognized total employee separation
and restructuring charges of $52.0 million, which included $16.1 million recognized within Cost of
goods sold and $35.9 million recognized in Selling and administrative expenses.
Note 5 — DISCONTINUED OPERATIONS
On May 30, 2013, PolyOne sold its Resin Business to Mexichem Specialty Resins Inc. for $250.0
million cash consideration. This sale resulted in the recognition of a pre-tax gain of $223.7 million
($139.7 million, net of tax).
PolyOne has classified the Resin Business operating results as a discontinued operation in the
accompanying Consolidated Statements of Income for all periods presented.
POLYONE CORPORATION 57
The Resin Business’ sales, income before income taxes and net income were as follows:
(In millions)
Sales
Gain on sale
Income from operations
Income before taxes
Income tax benefit (expense)
Income from discontinued operations, net of income taxes
* Includes the Resin Business’ operating results through May 29, 2013.
Note 6 — FINANCING ARRANGEMENTS
Total debt as of December 31 consisted of the following:
As of December 31, 2015 (In millions)
Senior term loan due 2022
5.250% senior notes due 2023
Other debt
Total debt
Less short-term and current portion of long-term debt
Long-term debt
As of December 31, 2014 (In millions)
7.500% debentures due 2015
Revolving credit facility due 2018
7.375% senior notes due 2020
5.250% senior notes due 2023
Other debt
Total debt
Less short-term and current portion of long-term debt
Long-term debt
Year Ended
December 31,
2014
2013*
$ — $ 55.3
$ — $223.7
12.2
—
—
1.2
235.9
(86.1)
$1.2
$149.8
Unamortized
discount
and debt
issuance
cost
$ 8.6
8.3
—
$16.9
—
$16.9
Unamortized
discount
and debt
issuance
cost(1)
$ 0.1
—
3.6
9.5
—
$13.2
0.1
$13.1
Principal
Amount
$ 550.0
600.0
13.5
$1,163.5
18.6
$1,144.9
Principal
Amount
$
48.7
45.0
316.6
600.0
13.5
$1,023.8
61.8
$ 962.0
Net debt
$ 541.4
591.7
13.5
$1,146.6
18.6
$1,128.0
Net debt
$
48.6
45.0
313.0
590.5
13.5
$1,010.6
61.7
$ 948.9
(1) Prior to the adoption of ASU 2015-03, debt issuance costs of $0.1 million and $13.1 million were previously reflected in the
Consolidated Balance Sheets as other current assets and other non-current assets, respectively.
On November 12, 2015, PolyOne entered into a senior secured term loan having an aggregate
principal amount of $550.0 million. Net proceeds of $547.3 million reflected a $2.7 million issuance
discount. $5.5 million is payable annually while the remaining balance matures on November 12, 2022.
The interest rate associated with the term loan is 300 basis points plus the greater of (i) the 1-, 2-, 3- or
6-month LIBOR, at the Company’s discretion, or (ii) 75 basis points. The proceeds from the term loan
were used to repay in full $316.6 million aggregate principal amount of our 7.375% senior notes due
2020, repay in full $48.7 million aggregate principal amount of our 7.50% debentures due 2015 and
58 POLYONE CORPORATION
repay $106.6 million of the outstanding balance on our revolving credit facility. We recognized $16.4
million of debt extinguishment costs within Debt extinguishment costs in our Consolidated Statements
of Income in connection with these repurchases.
On February 28, 2013, PolyOne issued $600.0 million aggregate principal amount of senior notes,
which mature on March 15, 2023. The senior notes bear an interest rate of 5.25% per year, payable
in arrears, on March 15 and September 15 of each year, which commenced on
semi-annually,
September 15, 2013. We used a portion of the net proceeds of the offering to pay the cash portion of
the Spartech acquisition, and to repay certain Spartech debt, including the $88.9 million aggregate
principal amount of its senior notes due 2016 and related interest and make-whole payments totaling
$13.4 million and all outstanding amounts under its revolving credit facility. We also used a portion of
these net proceeds to make a voluntary $50.0 million contribution to our U.S. qualified defined benefit
plan and to repay the outstanding principal amount of $297.0 million under our senior secured term
loan. We incurred debt extinguishment costs of $10.6 million related to the early retirement of our
senior secured term loan, including $8.2 million of deferred financing cost write-offs and $2.4 million of
discounts that were written off. These costs are presented within Debt extinguishment costs in our
Consolidated Statements of Income.
The Company maintains a revolving credit facility, which matures on March 1, 2018, with a maximum
borrowing facility size of $400.0 million, subject to a borrowing base with advances against certain U.S.
and Canadian accounts receivable, inventory and other assets as specified in the agreement. We have
the option to increase the availability under the facility to $450.0 million, subject to meeting certain
requirements and obtaining commitments for such increase. The revolving credit facility has a U.S. and
a Canadian line of credit. Currently there are no borrowings on the U.S. or Canadian portion of the
facility. Advances under the U.S. portion of our revolving credit facility bear interest, at the Company’s
option, at a Base Rate or a LIBOR Rate plus an applicable margin. The Base Rate is a fluctuating rate
equal to the greater of (i) the Federal Funds Rate plus one-half percent, (ii) the prevailing LIBOR Rate
plus one percent, and (iii) the prevailing Prime Rate. The applicable margins vary based on the
Company’s daily average excess availability during the previous quarter. The weighted average annual
interest rate under this facility for the year ended December 31, 2015 and 2014 were 2.46% and
2.84%, respectively. As of December 31, 2015, we had no borrowings under our revolving credit
facility, which had availability of $338.7 million. Borrowings under this facility as of December 31, 2014
were $45.0 million.
limit our ability to: consummate asset sales,
The agreements governing our revolving credit facility and our secured term loan, and the indentures
and credit agreements governing other debt, contain a number of customary restrictive covenants that,
incur additional debt or liens,
among other things,
consolidate or merge with any entity or transfer or sell all or substantially all of our assets, pay
dividends or make certain other restricted payments, make investments, enter into transactions with
affiliates, create dividend or other payment restrictions with respect to subsidiaries, make capital
investments and alter the business we conduct. In addition, these agreements require us to comply
with specific financial tests, under which we are required to achieve certain or specific financial and
operating results. As of December 31, 2015, we were in compliance with all covenants.
renewal. The credit
The Company maintains a credit line with Saudi Hollandi Bank for $16.0 million. The credit line has an
interest rate equal to the Saudi Arabia Interbank Offered Rate plus a fixed rate of 0.85% and is subject
to annual
line is being used to fund capital expenditures related to the
manufacturing facility in Jeddah, Saudi Arabia. As of December 31, 2015, letters of credit under the
credit line were $0.2 million and borrowings were $12.6 million with an interest rate of 1.78%. As of
December 31, 2014, letters of credit under the credit line were $0.2 million and borrowings were $13.1
million with an interest rate of 1.85%. As of December 31, 2015 and 2014, there was remaining
availability on the credit line of $3.2 million and $2.7 million, respectively.
POLYONE CORPORATION 59
Aggregate maturities of the principal amount of debt for the next five years and thereafter are as follows:
(In millions)
2016
2017
2018
2019
2020
Thereafter
Aggregate maturities
$
18.6
5.5
5.6
5.6
5.6
1,122.6
$ 1,163.5
Included in Interest expense, net for the years ended December 31, 2015, 2014 and 2013 was interest
income of $1.0 million, $1.1 million and $1.3 million, respectively. Total interest paid on debt was $65.9
million in 2015, $59.8 million in 2014 and $50.4 million in 2013.
Note 7 — LEASING ARRANGEMENTS
We lease certain manufacturing facilities, warehouse space, machinery and equipment, automobiles,
railcars, computers and software under operating leases. Rent expense from continuing operations
was $27.1 million in 2015, $30.4 million in 2014 and $24.5 million in 2013.
Future minimum lease payments under non-cancelable operating leases with initial lease terms longer
than one year as of December 31, 2015 are as follows:
(In millions)
2016
2017
2018
2019
2020
Thereafter
Total
$
$
21.0
17.2
12.2
8.3
6.8
19.1
84.6
Note 8 — ACCOUNTS RECEIVABLE, NET
Accounts receivable, net as of December 31 consist of the following:
(In millions)
Trade accounts receivable
Allowance for doubtful accounts
Accounts receivable, net
2015
2014
$
$
350.0
(3.0)
347.0
$
$
399.9
(3.1)
396.8
The following table details the changes in allowance for doubtful accounts:
(In millions)
Balance at beginning of the year
Provision for doubtful accounts
Accounts written off
Currency translation and other adjustments
Balance at end of year
60 POLYONE CORPORATION
2015
2014
2013
$
$
(3.1) $
(0.2)
—
0.3
(3.0) $
(5.2) $
(0.4)
2.2
0.3
(3.1) $
(4.3)
(0.2)
0.2
(0.9)
(5.2)
Note 9 — INVENTORIES, NET
Components of Inventories, net are as follows:
(In millions)
Finished products
Work in process
Raw materials and supplies
Inventories, net
Note 10 — PROPERTY, NET
Components of Property, net are as follows:
(In millions)
Land and land improvements
Buildings
Machinery and equipment
Property, gross
Less accumulated depreciation and amortization
Property, net
December 31,
2015
December 31,
2014
$
172.7
$
187.8
5.0
109.3
287.0
$
4.1
117.1
309.0
$
December 31,
2015
December 31,
2014
$
46.9
$
318.3
1,104.7
1,469.9
(886.4)
49.2
309.2
1,077.2
1,435.6
(838.9)
$
583.5
$
596.7
Depreciation expense from continuing operations was $84.4 million in 2015, $104.7 million in 2014 and
$91.0 million in 2013. Included in depreciation expense from continuing operations was accelerated
depreciation of $6.2 million, $23.1 million and $12.7 million during 2015, 2014 and 2013, respectively,
related to restructuring actions.
Note 11 — OTHER BALANCE SHEET LIABILITIES
Other liabilities at December 31, 2015 and 2014 consist of the following:
(In millions)
Employment costs
Environmental liabilities
Accrued taxes
Pension and other post-employment benefits
Accrued interest
Dividends payable
Unrecognized tax benefits
Other
Total
Note 12 — EMPLOYEE BENEFIT PLANS
Accrued expenses and
other liabilities
December 31,
2015
2014
Other non-current liabilities
December 31,
2015
2014
$
76.8 $
112.2 $
21.7 $
10.2
4.2
5.7
12.1
10.3
1.5
7.1
11.5
10.3
5.7
16.1
8.8
2.1
6.2
109.7
—
—
—
—
14.2
6.9
23.4
109.6
—
—
—
—
26.0
19.3
$
127.9 $
172.9 $
152.5 $
178.3
We recognize actuarial gains and losses in our operating results in the year in which the gains or
losses occur. These gains and losses are generally only measured annually as of December 31 and,
POLYONE CORPORATION 61
accordingly, are recorded during the fourth quarter of each year. We recognized a charge of $11.6
million and $56.5 million in the fourth quarter of 2015 and 2014, respectively, related to the actuarial
losses during the year. In the fourth quarter of 2013, we recognized a benefit of $44.0 million.
All U.S. qualified defined benefit pension plans are frozen, no longer accrue benefits and are closed to
new participants. We have foreign pension plans that accrue benefits. The plans generally provide
benefit payments using a formula that is based upon employee compensation and length of service.
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.
(In millions)
Change in benefit obligation:
Pension Benefits
2015
2014
Health Care Benefits
2014
2015
Projected benefit obligation — beginning of year
$
576.8
$
537.0
$
16.6
$
16.4
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
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
Benefits paid
Other
Plan assets — end of year
Unfunded status at end of year
1.7
21.3
(18.3)
(51.9)
(2.2)
527.4
(1.7)
525.7
484.0
(1.2)
25.8
(51.9)
(0.7)
$
$
$
1.6
24.9
70.9
(54.8)
(2.8)
576.8
(3.5)
573.3
472.2
47.8
20.1
(54.8)
(1.3)
$
$
$
—
0.6
(3.6)
(1.2)
(0.6)
11.8
—
11.8
$
$
— $
—
1.2
(1.2)
—
456.0
$
484.0
$
— $
—
0.7
1.3
(1.7)
(0.1)
16.6
—
16.6
—
—
1.5
(1.7)
0.2
—
(71.4) $
(92.8) $
(11.8) $
(16.6)
$
$
$
$
$
Amounts included in the accompanying Consolidated Balance Sheets as of December 31 are as
follows:
(In millions)
Pension Benefits
2015
2014
Health Care Benefits
2014
2015
Accrued expenses and other liabilities
$
4.4 $
4.1 $
1.3 $
Other non-current liabilities
67.0
88.7
10.5
1.6
15.0
As of December 31, 2015 and 2014, 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
62 POLYONE CORPORATION
Pension Benefits
2015
2014
Health Care Benefits
2014
2015
$
527.4 $
566.3 $
11.8 $
525.7
456.0
562.8
473.5
11.8
—
16.6
16.6
—
Weighted-average assumptions used to determine benefit obligations at December 31:
Discount rate
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
2014
2015
Health Care Benefits
2015
2014
4.11%
3.88%
4.12%
3.75%
N/A
N/A
N/A
N/A
N/A
N/A
6.69%
6.88%
4.50%
2027
4.50%
2027
The following table summarizes the components of net periodic benefit cost or gain that was
recognized during each of the years in the three-year period ended December 31, 2015.
Pension Benefits
2014
2013
2015
Health Care Benefits
2014
2013
2015
(In millions)
Components of net periodic
benefit costs (gains):
Service cost
Interest cost
Expected return on plan assets
Mark-to-market actuarial net
losses (gains)
$
$
1.7
21.3
(32.7)
15.2
1.6
24.9
(32.2)
55.2
49.5
$
$
1.7
23.9
(37.4)
(43.0)
$
(54.8) $
— $
0.6
—
(3.6)
(3.0)
— $
0.7
—
1.3
—
0.6
—
(1.0)
(0.4)
Net periodic benefit cost (gain)
$
5.5
$
$
2.0 $
In 2015, we recognized an $11.6 million mark-to-market charge that was primarily a result of actual
asset returns that were $33.9 million lower than our assumed returns. Partially offsetting the lower
asset returns was the increase in our year end discount rates, from 3.88% to 4.11%, and updated
mortality assumptions.
In 2014, we recognized a $56.5 million mark-to-market charge that was primarily a result of the decrease
in year end discount rates, from 4.83% to 3.88%, and updated mortality assumptions. During 2014, we
adopted the RP-2014 mortality table which was issued by the Society of Actuaries in October 2014.
Weighted-average assumptions used to determine net periodic benefit cost
December 31:
for the years ended
Discount rate*
Expected long-term return on plan assets*
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
2014
2015
3.88%
6.87%
4.83%
6.86%
2013
4.12%
8.41%
Health Care Benefits
2014
2013
2015
3.75%
—%
4.38%
—%
3.71%
—%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
6.88%
7.02%
7.39%
4.50%
4.50%
4.63%
2027
2027
2025
* The mark-to-market component of net periodic costs is determined based on discount rates as of year end and actual asset
returns during the year.
The expected long-term rate of return on pension assets was determined after considering the historical
and forward looking long-term asset returns by asset category and the expected investment portfolio mix.
Our pension investment strategy is to diversify the portfolio among asset categories to enhance the
portfolio’s risk-adjusted return as well as insulate it from exposure to changes in interest rates. Our
POLYONE CORPORATION 63
asset mix considers the duration of plan liabilities, historical and expected returns of the investments,
and the funded status of the plan. The pension asset allocation is reviewed and actively managed
based on the funded status of the plan. As the funded status of the plan increases, the asset allocation
is adjusted to increase the mix of
those
investments with the duration of the plan liabilities. Based on the current funded status of the plan, our
pension asset investment allocation guidelines are to invest 60% to 70% in fixed income securities,
30% to 40% in equity securities and 0% to 10% in alternative investments and cash. These alternative
investments may include funds of multiple asset investment strategies and funds of hedge funds.
fixed income investments and match the duration of
The fair values of pension plan assets at December 31, 2015 and 2014, by asset category, are as follows:
Fair Value of Plan Assets at
December 31, 2015
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
— $
—
— $
—
$
283.4 $
167.8
$
Fair Value of Plan Assets at
December 31, 2014
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
— $
—
— $
—
$
3.6 $
15.8
38.8
—
—
—
87.3
137.9
—
$
6.7 $
19.2
44.3
35.7
—
—
—
74.6
124.7
—
—
3.4
53.1
76.4
—
34.9
—
—
—
18.8
62.6
77.0
—
5.2
—
$
305.2 $
163.6
$
Total
3.6
15.8
38.8
3.4
53.1
76.4
87.3
172.8
4.8
456.0
Total
6.7
19.2
44.3
35.7
18.8
62.6
77.0
74.6
129.9
15.2
484.0
—
—
—
—
—
—
4.8
4.8
$
—
—
—
—
—
—
—
15.2
15.2
$
(In millions)
Asset category
Cash
Equities
Registered investment companies:
Non-U.S. equity
Common collective funds:
Short-term investments
United States equity
Fixed income
United States treasuries
Fixed income securities
Other
Totals
(In millions)
Asset category
Cash
Equities
Registered investment companies:
Non-U.S. equity
Floating rate income
Common collective funds:
Short-term investments
United States equity
Fixed income
United States treasuries
Fixed income securities
Other
Totals
64 POLYONE CORPORATION
Equities represent U.S. publicly-traded equity securities of companies with a market capitalization
typically between than $1 billion and $6 billion with a focus on growth or value. International equities
primarily represent publicly-traded equity securities of developed international countries and emerging
markets with a focus on growth or value. The registered investment company fixed income funds invest
primarily in investment grade fixed income securities. The registered investment company non-US
equity funds invest in underlying securities that are actively traded in public, non-US markets. The
registered investment company 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. Common collective funds are valued at the net value of units held by the fund at year end.
The unit value is determined by the total value of fund assets divided by the total number of units of the
fund owned. Short-term investments in common collective funds represent cash and other short-term
investments. The equity investments in common collective funds are predominately in equity or
investment grade fixed income securities actively traded in public markets based upon readily
measurable prices. The United States treasuries and fixed income securities consist of publicly traded
United States and non-United States fixed interest obligations (principally corporate and government
bonds and debentures). Other assets are primarily insurance contracts for international plans.
Level 1 assets are valued based on quoted market prices. Level 2 investments included within the
respective common collective trust funds are valued using a net asset value per share that is based on
quoted market prices and/or other market data for
the same or comparable instruments and
transactions of the underlying equity or fixed income investments. The insurance contracts included in
the other asset category are valued at the transacted price.
The estimated future benefit payments for our pension and health care plans are as follows:
(In millions)
2016
2017
2018
2019
2020
2021 through 2025
Pension
Benefits
$
39.8 $
39.2
39.1
38.3
38.3
180.8
Health
Care
Benefits
1.2
1.2
1.2
1.1
1.0
4.3
We currently estimate that 2016 employer contributions will be $24.6 million to all qualified and non-
qualified pension plans and $1.2 million to all healthcare benefit plans.
PolyOne sponsors various voluntary retirement savings plans (RSP). Under the provisions of the plans,
eligible employees receive defined Company contributions and are eligible for Company matching
contributions based on their eligible earnings contributed to the plan. In addition, we may make
discretionary contributions to the plans 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
Retirement benefit contribution
Total contributions
2015
2014
2013
$
$
9.9 $
4.1
9.7 $
4.0
14.0 $
13.7 $
9.8
4.0
13.8
POLYONE CORPORATION 65
Note 13 — COMMITMENTS AND CONTINGENCIES
Environmental — We have been notified by federal and state environmental agencies and by private
parties that we may be a potentially responsible party (PRP) in connection with the environmental
investigation and remediation of certain sites. While government agencies frequently assert that PRPs
are jointly and severally liable at these sites, in our experience, the interim and final allocations of
liability costs are generally made based on the relative contribution of waste. We may also 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 position, results of operations or cash flows.
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 had been pending since 2003. The Court held that PolyOne must pay the
remediation costs at the former Goodrich Corporation Calvert City facility (now largely owned and
operated by Westlake Vinyls), 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 between The B.F.Goodrich
Company (n/k/a Goodrich Corporation) and our predecessor, The Geon Company, at the time of the
initial public offering in 1993, by which the Geon Company became a public company, to indemnify
Goodrich Corporation for environmental costs at the site. At the time, neither PolyOne 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. The settlement agreement provides a mechanism to pursue allocation of future
remediation costs at the Calvert City site to Westlake Vinyls. While we do not currently assume any
allocation of costs in our current reserve, we will adjust our reserve, in the future, consistent with any
such future allocation of costs.
A remedial investigation and feasibility study (RIFS) is underway at the Calvert City site. During the
third quarter of 2013, we submitted a remedial investigation report to the United States Environmental
Protection Agency (USEPA). Utilizing the preliminary results of a ground water modeling study that we
obtained in the fourth quarter of 2013, we were able to develop estimates for potential remedies at
Calvert City. Based upon this information, we recorded a $47.0 million charge in the fourth quarter of
2013 associated with the anticipated remedy. The EPA provided a final remedial investigation report in
the third quarter of 2015. Additionally, in the third quarter of 2015, the USEPA assumed responsibility
for the completion of the feasibility study. We continue to pursue available insurance coverage related
to this matter and recognize gains as we receive reimbursement. No receivable has been recognized
for future recoveries.
On March 13, 2013, PolyOne acquired Spartech. One of Spartech’s subsidiaries, Franklin-Burlington
Inc. (Franklin-Burlington), operated a plastic resin compounding facility in Kearny, New
Plastics,
Jersey, located adjacent to the Passaic River. The USEPA has requested that companies located in
the area of the lower Passaic River, including Franklin-Burlington, cooperate in an investigation of
contamination of the lower Passaic River. In response, Franklin-Burlington and approximately 70 other
to an Administrative Order of
companies (collectively, the Cooperating Parties) agreed, pursuant
Consent with the USEPA, to assume responsibility for development of a RIFS of the lower Passaic
River. The RIFS costs are exclusive of any costs that may ultimately be required to remediate the
lower Passaic River area being studied or costs associated with natural resource damages that may be
assessed. By agreeing to bear a portion of the cost of the RIFS, Franklin-Burlington did not admit to
any liability or agree to bear any such remediation or natural resource damage costs.
In April 2014, the USEPA released a Focused Feasibility Study for public comment for a portion of the
lower Passaic River. The Cooperating Parties, along with other interested parties, have submitted
comments, and the USEPA is currently reviewing the comments. In February 2015, the Cooperating
66 POLYONE CORPORATION
Parties submitted to the USEPA a remedial investigation report for the lower Passaic River. In March
2015, Franklin-Burlington, along with nine other PRPs, submitted a de minimis settlement petition to
the USEPA, asserting the ten entities contributed little or no impact to the lower Passaic River and
seeking a meeting to commence settlement discussions. The USEPA has stated that it views the
issuance of a Record of Decision as the appropriate time for de minimis discussions. It is uncertain
when such discussions will take place. In April 2015, the Cooperating Parties submitted a feasibility
study to the USEPA. The feasibility study does not contemplate who is responsible for remediation nor
does it determine how such costs will be allocated to PRPs. The CPG is currently revising its RIFS,
which has not yet been approved by the USEPA, as part of continuing technical discussions with the
USEPA.
As of December 31, 2015, we have not accrued for remedial costs related to the lower Passaic River.
We believe Franklin-Burlington, based on the currently available information, contributed little to no
contamination to the lower Passaic River. We are unable to estimate a liability, if any, given the
uncertainties related to this matter, including the fact that the final remedial actions and scope, an
allocation to Franklin-Burlington,
the de minimis petition or the
if any, and a final resolution of
appropriate legal actions, have not been determined.
Based on our estimates, we had accruals totaling $119.9 million and $121.1 million as of
December 31, 2015 and 2014, respectively, for probable future environmental expenditures relating to
previously contaminated sites. These accruals are undiscounted and included in Accrued expenses
and other liabilities and Other non-current
liabilities on the accompanying Consolidated Balance
Sheets. The accruals represent our best estimate of probable future costs that we can reasonably
estimate, based upon information and technology that is currently available and our view of the most
likely remedy. Depending upon the results of
future testing, completion and results of remedial
investigation and feasibility studies,
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, 2015. However,
such additional costs, if any, cannot be currently estimated.
We believe that the probability is remote that losses in excess of amounts we have accrued would be
materially adverse to our financial position, results of operations or cash flows.
The following table details the changes in the environmental accrued liabilities:
(In millions)
Balance at beginning of the year
Environmental expenses
Net cash payments
Currency translation and other
Balance at end of year
2015
2014
2013
$
121.1
$
125.9
$
9.3
(9.8)
(0.7)
10.3
(14.7)
(0.4)
75.4
61.2
(14.3)
3.6
$
119.9
$
121.1
$
125.9
Included in Cost of sales in the accompanying Consolidated Statements of Income are insurance
recoveries received for previously incurred environmental costs of $3.5 million, $3.7 million and $23.5
million in 2015, 2014 and 2013, respectively. Such insurance recoveries are recognized as a gain
when received.
Other Litigation — We are involved in various pending or
lawsuits and
administrative proceedings, all arising from the ordinary course of business concerning commercial,
product liability, employment and environmental matters that seek remedies or damages. We believe
that
the amounts we have accrued would be
materially adverse to our financial position, results of operations or cash flows.
the probability is remote that
losses in excess of
threatened claims,
Guarantees — On February 28, 2011, we sold our 50% equity interest
in SunBelt Chlor Alkali
Partnership (Sunbelt) to Olin Corporation (Olin). As a result of the sale, Olin assumed our obligations
POLYONE CORPORATION 67
under our guarantee of senior secured notes issued by SunBelt which are $12.2 million as of
December 31, 2015. Unless the guarantee is formally assigned to Olin, we remain obligated under the
guarantee, although Olin has agreed to indemnify us for amounts that we may be obligated to pay
under the guarantee. The senior secured notes mature in December 2017.
Note 14 — INCOME TAXES
Income from continuing operations, before income taxes is summarized below based on the
geographic location of the operation to which such earnings are attributable.
Income from continuing operations, before income taxes consists of the following:
(In millions)
Domestic
Foreign
Income from continuing operations, before income taxes
2015
2014
2013
$
$
93.8 $
53.5 $
73.9
34.9
167.7 $
88.4 $
109.1
41.9
151.0
A summary of income tax expense (benefit) from continuing operations is as follows:
(In millions)
Current income tax expense (benefit):
Federal
State
Foreign
Total current income tax expense (benefit):
Deferred income tax expense (benefit):
Federal
State
Foreign
Total deferred income tax (benefit) expense
Total income tax expense (benefit)
2015
2014
2013
$
21.6
$
36.1
$
2.2
26.6
50.4
$
3.1
17.2
56.4
$
(33.1) $
(36.7) $
4.5
1.2
(4.6)
(3.9)
(27.4) $
(45.2) $
23.0
$
11.2
$
$
$
$
$
18.2
2.8
22.5
43.5
11.9
2.8
(0.1)
14.6
58.1
to Note 5, Discontinued Operations,
Refer
operations.
for
income tax expense allocated to discontinued
A reconciliation of the U.S. federal statutory tax rate to the consolidated effective income tax rate along
with a description of significant reconciling items is included below.
Income tax expense at 35%
Amended prior period tax returns
Foreign tax rate differential
State and local tax, net
Domestic production activities deduction
Permanent tax differences
U.S. credit for research activities
Tax benefits on certain foreign investments
Uncertain tax positions
Changes in valuation allowances
Settlements
Effective income tax rate
68 POLYONE CORPORATION
2015
35.0%
(18.3)
(5.0)
2.7
(2.0)
1.8
(0.7)
(0.7)
0.6
0.3
—
13.7%
2014
35.0%
(2.3)
(5.7)
2.8
(2.5)
(2.1)
(1.2)
(17.0)
1.0
7.8
(3.1)
12.7%
2013
35.0%
—
(3.3)
2.6
(1.0)
4.9
(1.4)
—
(0.3)
2.0
—
38.5%
The effective tax rates for all periods differed from the U.S. federal statutory tax rate as a result of
income taxes and foreign tax rates differences. Permanent items
permanent items, state and local
primarily consist of income or expense not taxable or deductible. Significant or unusual items impacting
the effective income tax rate are described below.
2015 Significant items
Amending U.S. federal income tax returns for 2004 through 2012 to use foreign tax credits decreased
the effective tax rate by 18.3% ($30.7 million).
Uncertain tax positions increased the effective tax rate by 0.6% ($1.0 million). The reversal of an
uncertain tax position due to the expiration of the statute of limitations decreased the effective tax rate
by 5.9% ($9.9 million). A foreign court ruling, which settled an uncertain position taken in a prior year,
increased the effective tax rate by 4.7% ($7.9 million). Other unfavorable uncertain tax positions more
than offset the net decrease in the effective tax rate of these two items.
2014 Significant items
Tax benefits on certain foreign investments decreased the effective tax rate by 17.0% ($15.0 million)
related to the write-off of our investment in certain Brazil subsidiaries for tax purposes and operating
losses primarily as a result of restructuring actions to close certain Brazil facilities discussed in Note
4, Employee Separation and Restructuring Costs.
Permanent tax differences decreased the effective tax rate by 2.1% ($1.9 million) primarily related to
foreign tax law changes and the utilization of foreign tax credits.
Changes in valuation allowances increased the effective tax rate by 7.8% ($6.9 million) primarily
related to certain Brazilian subsidiaries as a result of cumulative operating losses.
2013 Significant items
Permanent tax differences increased the effective tax rate by 4.9% ($7.4 million) primarily related to
foreign tax law changes and the tax effect of statutory foreign exchange gains.
The U.S. credit for research activities benefit decreased the effective tax rate by 1.4% ($2.1 million),
which included the benefit of two years of the U.S. research and experimentation tax credit due to the
extension of the credit in the American Taxpayer Relief Act of 2012 (the Act) as signed into law in
January 2013. The Act extended certain tax benefits retroactively to January 1, 2012.
POLYONE CORPORATION 69
Components of our deferred tax assets (liabilities) as of December 31, 2015 and 2014 were as follows:
(In millions)
Deferred tax assets:
Pension and other post-retirement benefits
Employment costs
Environmental reserves
Net operating loss carryforwards
Foreign tax credit carryforwards
Other, net
Gross deferred tax assets
Valuation allowances
Total deferred tax assets, net of valuation allowances
Deferred tax liabilities:
Tax and book basis differences associated with property, plant and equipment
Tax and book basis differences associated with intangibles
Other, net
Total deferred tax liabilities
Net deferred tax liabilities
2015
2014
29.7
34.7
45.8
33.3
37.4
22. 3
203.2
(19.3)
183.9
$
$
$
39.1
47.2
46.5
42.0
8.7
21.9
205.4
(23.6)
181.8
(60.3) $
(76.9)
(135.8)
(7.2)
(135.2)
(9.1)
(203.3) $
(221.2)
(19.4) $
(39.4)
$
$
$
$
$
$
As of December 31, 2015, the Company had $37.4 million of U.S. foreign tax credit carryforwards that
expire between 2016 and 2025. The Company plans to utilize all U.S. foreign tax credits prior to the
expiration period.
As of December 31, 2015, we had gross state net operating loss carryforwards of $203.8 million that
expire at various dates from 2016 through 2032. Various foreign subsidiaries have gross net operating
loss carryforwards totaling $102.6 million that expire between 2016 and 2035 with limited exceptions
that have indefinite carryforward periods. We have provided valuation allowances of $18.9 million
against certain foreign and state net operating loss carryforwards that are expected to expire prior to
utilization. The valuation allowances decreased by $4.3 million from 2014 to 2015 primarily related to
foreign exchange rate changes.
No provision has been made for income taxes on undistributed earnings of consolidated non-U.S.
subsidiaries of $293.5 million as of December 31, 2015, because our intention is to reinvest indefinitely
undistributed earnings of our foreign subsidiaries. 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 made worldwide income tax payments of $57.7 million and received refunds of $2.6 million in
2015. We made worldwide income tax payments of $70.0 million and $120.3 million in 2014 and 2013,
respectively, and received refunds of $4.2 million and $2.9 million in 2014 and 2013, respectively.
Payments made in 2014 included U.S. federal tax payments related to 2013 U.S. federal income of
$9.7 million. Higher income tax payments made in 2013 primarily related to higher 2013 earnings and
the gain recognized related to the divestiture of the Resin Business.
70 POLYONE CORPORATION
The Company records provisions for uncertain tax positions in accordance with ASC Topic 740,
Income Taxes. A reconciliation of unrecognized tax benefits is as follows:
(In millions)
Balance as of January 1,
Increases as a result of positions taken during current year
Increases as a result of positions taken for prior years
Balance related to acquired businesses
Reductions for tax positions of prior years
Decreases as a result of lapse of statute of limitations
Decreases relating to settlements with taxing authorities
Other, net
Balance as of December 31
Unrecognized Tax Benefits
2015
2014
2013
$
28.6
$
15.2
$
14.5
0.5
12.6
—
—
(13.1)
(15.3)
(0.8)
1.2
3.8
14.2
(2.3)
—
(2.3)
(1.2)
—
—
1.1
—
(0.6)
(0.3)
0.5
$
12.5
$
28.6
$
15.2
We recognize interest and penalties related to uncertain tax positions in the provision for income taxes.
As of December 31, 2015 and 2014, we had $4.5 million and $8.6 million accrued for interest and
penalties, respectively.
Although the timing and outcome of tax settlements are uncertain, it is reasonably possible that during
the next twelve months a reduction in unrecognized tax benefits may occur up to $4.7 million based on
the outcome of tax examinations and the expiration of statutes of limitations.
If all unrecognized tax benefits were recognized, the net impact on the provision for income tax
expense would be a benefit of $9.8 million.
The Company is currently being audited by several state and foreign taxing jurisdictions. With the
exception of amended tax returns for 2004 to 2010 which are limited in scope to foreign tax credits, we
are no longer subject to U.S. federal income tax examinations for periods preceding 2012. With limited
exceptions, we are no longer subject to state tax on foreign tax examinations for periods preceding
2010.
Note 15 — SHARE-BASED COMPENSATION
Share-based compensation cost is based on the value of the portion 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 Income includes compensation 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. Share-based compensation expense is
based on awards expected to vest and therefore has been reduced for estimated forfeitures.
Equity and Performance Incentive Plans
The PolyOne Corporation 2010 Equity and Performance Incentive Plan (2010 EPIP), as amended and
restated in 2015, reserved 6.2 million common shares for the award of a variety of share-based
compensation alternatives, including non-qualified stock options, incentive stock options, restricted
stock, restricted stock units (RSUs), performance shares, performance units and stock appreciation
rights (SARs). It is anticipated that all share-based grants and awards that are earned and exercised
will be issued from PolyOne common shares that are held in treasury.
POLYONE CORPORATION 71
Share-based compensation is included in Selling and administrative expense in the accompanying
Consolidated Statements of Income. A summary of compensation expense by type of award follows:
(In millions)
Stock appreciation rights
Performance shares
Restricted stock units
Total share-based compensation
Stock Appreciation Rights
2015
2014
2013
$
$
4.4 $
5.5 $
0.5
4.2
0.7
8.0
9.1 $
14.2 $
6.1
0.3
10.1
16.5
During the years ended December 31, 2015, 2014 and 2013, the total number of SARs granted were
0.3 million, 0.3 million and 0.5 million, respectively. Awards vest in one-third increments upon the later
of the attainment of stock price targets and time-based vesting over a three-year service period.
Awards granted in 2015 and 2014 are subject to an appreciation cap of 200% of the base price.
Outstanding SARs have contractual terms ranging from seven to ten years from the date of the grant.
The SARs were valued using a Monte Carlo simulation method as the vesting is dependent on the
achievement of certain stock price targets. The SARs have time and market-based vesting conditions but
vest no earlier than their three year graded vesting schedule. The expected term is an output from the
Monte Carlo model, and are derived from employee exercise assumptions that are based on PolyOne
historical exercise experience. The expected volatility was determined based on the average weekly
volatility for our common shares for the contractual life of the awards. The expected dividend assumption
was determined based upon PolyOne’s dividend yield at the time of grant. 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.
The following is a summary of the weighted average assumptions related to the grants issued during
2015, 2014 and 2013:
Expected volatility
Expected dividends
Expected term (in years)
Risk-free rate
Value of SARs granted
A summary of SAR activity for 2015 is presented below:
Stock Appreciation Rights
In millions, except per share data)
Shares
2015
2014
2013
43.0%
1.05%
6.5
1.95%
48.0%
0.91%
6.4
2.94%
50.0%
1.04%
7.4
2.12%
$13.94
$14.05
$10.83
Weighted-
Average
Exercise Price
Per Share
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Outstanding as of January 1, 2015
Granted
Exercised
Outstanding as of December 31, 2015
Vested and exercisable as of December 31, 2015
1.6
0.3
(0.4)
1.5
0.9
$
$
$
20.13
38.36
13.10
25.49
18.98
6.63 $
28.9
—
—
6.75 $
5.52 $
13.1
12.0
The total intrinsic value of SARs exercised during 2015, 2014 and 2013 was $9.7 million, $15.0 million
and $14.9 million, respectively. As of December 31, 2015, there was $2.4 million of total unrecognized
compensation cost related to SARs, which is expected to be recognized over the weighted average
remaining vesting period of 17 months.
72 POLYONE CORPORATION
Restricted Stock Units
RSUs represent contingent rights to receive one common share at a future date provided certain
vesting criteria are met.
During 2015, 2014 and 2013, the total number of RSUs granted were 0.1 million, 0.2 million and
0.5 million, respectively. These RSUs, which vest on the third anniversary of the grant date, were
granted to executives and other key employees. Compensation expense is measured on the grant date
using the quoted market price of our common shares and is recognized on a straight-line basis over
the requisite service period.
As of December 31, 2015, 0.7 million RSUs remain unvested with a weighted-average grant date fair
value of $29.94. Unrecognized compensation cost for RSUs at December 31, 2015 was $5.5 million,
which is expected to be recognized over the weighted average remaining vesting period of 10 months.
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 performance, and for which discrete financial information is available.
Operating income is the primary measure that is reported to our chief operating decision maker for
purposes of allocating resources to the segments and assessing their performance. Operating income
at the segment level does not include: corporate general and administrative expenses that are not
allocated to segments; intersegment sales and profit eliminations; charges related to specific strategic
initiatives such as the consolidation of operations;
including employee
separation costs resulting from personnel reduction programs, plant closure and phase-in costs;
executive separation agreements; share-based compensation costs; asset impairments; environmental
remediation costs and other liabilities for facilities no longer owned or closed in prior years; gains and
joint ventures and equity investments; actuarial gains and losses
losses on the divestiture of
associated with our pension and other post-retirement benefit plans; and certain other items that are
not included in the measure of segment profit or loss that is reported to and reviewed by our chief
operating decision maker. These costs are included in Corporate and eliminations.
restructuring activities,
Segment assets are primarily customer receivables, inventories, net property, plant and equipment,
intangible assets and goodwill.
Intersegment sales are generally accounted for at prices that
approximate those for similar transactions with unaffiliated customers. Corporate and eliminations
assets and liabilities primarily include cash, debt, pension and other employee benefits, environmental
liabilities, retained assets and liabilities of discontinued operations, and other unallocated corporate
assets and liabilities. The accounting policies of each segment are consistent with those described in
Note 1, Description of Business and Summary of Significant Accounting Policies.
On December 9, 2015, the Company completed the acquisition of specialty color concentrates of
Magenta, a leading innovative developer in the global fiber industry, for approximately $18.3 million in
cash, net of cash acquired. Magenta results are included within the Color, Additives and Inks segment.
On December 1, 2014, the Company completed the acquisition of specialty assets of Accella, a leading
North American manufacturer of liquid polymer formulations, for $47.2 million in cash, net of cash
acquired. Accella results were included within the Color, Additives and Inks segment.
The following is a description of each of our five reportable segments.
Color, Additives and Inks
Color, Additives and Inks is a leading provider of specialized custom color and additive concentrates in
solid and liquid form for thermoplastics, dispersions for thermosets, as well as specialty inks, plastisols,
and vinyl slush molding solutions. Color and additive solutions include an innovative array of colors,
POLYONE CORPORATION 73
special effects and performance-enhancing and eco-friendly solutions. When combined with a non-
base resin, our solutions help customers achieve differentiated specialized colors and effects targeted
at the demands of today’s highly design-oriented consumer and industrial end markets. Our additive
concentrates encompass a wide variety of performance and process enhancing characteristics and are
commonly categorized by the function that they perform, such as UV stabilization, antimicrobial, anti-
static, blowing or foaming, antioxidant, lubricant, and productivity enhancement. Our colorant and
additives concentrates are used in a broad range of polymers, including those used in medical and
pharmaceutical devices,
transportation, building
food packaging, personal care and cosmetics,
products, wire and cable markets. We also provide custom-formulated liquid systems that meet a
variety of customer needs and chemistries, including vinyl, natural rubber and latex, polyurethane and
silicone. Our offerings also include proprietary inks and latexes for diversified markets such as
recreational and athletic apparel, construction and filtration, outdoor furniture and healthcare. Our liquid
polymer coatings and additives are largely based on vinyl and are used in a variety of markets,
including building and construction, consumer, healthcare, industrial, packaging, textiles, appliances,
transportation, and wire and cable. Color, Additives and Inks has manufacturing, sales and service
facilities located throughout North America, South America, Europe, Asia and Africa.
Specialty Engineered Materials
Specialty Engineered Materials is a leading provider of specialty polymer formulations, services and
solutions for designers, assemblers and processors of thermoplastic materials across a wide variety of
markets and end-use applications. Our product portfolio, which we believe to be one of the most
diverse in our industry, includes specialty formulated high-performance polymer materials that are
manufactured using thermoplastic resins and elastomers, which are then combined with advanced
polymer additives, reinforcement, filler, colorant and/or biomaterial technologies. Our technical and
market expertise enables us to expand the performance range and structural properties of traditional
engineering-grade thermoplastic resins to meet evolving customer needs. Specialty Engineered
Materials has manufacturing, sales and service facilities located throughout North America, Europe,
Asia and South America. Our product development and application reach is further enhanced by the
capabilities of our Innovation Centers in the United States, Germany and China, which produce and
evaluate prototype and sample parts to help assess end-use performance and guide product
development. Our manufacturing capabilities are targeted at meeting our customers’ demand for
speed, flexibility and critical quality.
Designed Structures and Solutions
On March 13, 2013, the Company completed the acquisition of Spartech, a supplier of plastic sheet,
color and engineered materials, and packaging solutions. As a result of
the acquisition, a new
reportable segment,
“Designed Structures and Solutions”, was created. We believe PolyOne’s
Designed Structures and Solutions segment is a market leader in providing specialized, full service and
innovative solutions in engineered polymer structures, rigid barrier packaging and specialty cast
acrylics. We utilize a variety of polymers, specialty additives and processing technologies to produce a
complete portfolio of sheet, custom rollstock and specialty film, laminate and acrylic solutions. Our
solutions can be engineered to provide structural or functional performance in an application or design
and visual aesthetics to meet our customers’ needs. Our offerings also include a wide range of
sustainable, cost-effective stock and custom packaging solutions for various industry processes used
in the food, medical, and consumer markets. In addition to packaging, we also work closely with
customers to provide solutions for transportation, building and construction, healthcare and consumer
markets. Designed Structures and Solutions has manufacturing, sales and service facilities located
throughout North America.
Performance Products and Solutions
Performance Products and Solutions is comprised of the Geon Performance Materials (Geon) and
Producer Services business units. The Geon business delivers an array of products and services for
74 POLYONE CORPORATION
vinyl molding and extrusion processors located in North America and Asia. The GeonTM brand name
carries strong recognition globally. Geon’s products are sold to manufacturers of durable plastic parts
and consumer-oriented products. We also offer a wide range of services including materials testing,
component analysis, custom formulation development, colorant and additive services, part design
assistance, structural analysis, process simulations, mold design and flow analysis and extruder screw
design. Vinyl is used across a broad range of markets and applications, including, but not limited to:
healthcare, wire and cable, building and construction, consumer and recreational products and
transportation and packaging. The Producer Services business unit offers contract manufacturing and
outsourced polymer manufacturing services to resin producers and polymer marketers, primarily in the
United States and Mexico, as well as its own proprietary compounds for pressure pipe and drip
irrigation applications. As a strategic and integrated supply chain partner, Producer Services offers
resin producers a capital-efficient way to effectively develop custom products for niche markets by
leveraging its extensive process technology expertise, broad manufacturing capabilities and
geographic locations.
PolyOne Distribution
The PolyOne Distribution business distributes more than 3,500 grades of engineering and commodity
including PolyOne-produced solutions, principally to the North American and Asian
grade resins,
markets. These products are sold to over 6,000 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 25 major suppliers, we offer our customers a broad product portfolio, just-in-time delivery from
multiple stocking locations and local technical support. Recent expansion in Central America and Asia
have bolstered PolyOne Distribution’s ability to serve the specialized needs of customers globally.
Financial information by reportable segment is as follows:
Year Ended
December 31, 2015
(In millions)
Sales to
External
Customers
Intersegment
Sales
Total Sales
Operating
Income
Depreciation
and
Amortization(1)
Capital
Expenditures
Total
Assets
Color, Additives and
Inks
Specialty Engineered
Materials
Designed Structures
and Solutions
Performance Products
and Solutions
PolyOne Distribution
Corporate and
eliminations
Total
801.2
9.5
810.7
135.4
493.1
49.7
542.8
79.6
448.8
4.7
453.5
13.8
615.8
1,018.7
78.3
15.4
694.1
1,034.1
57.4
68.0
— (157.6)
(157.6)
(103.3)
42.4
15.9
16.9
16.2
0.7
12.2
27.3
17.7
18.4
9.8
0.4
939.5
353.4
449.5
237.4
200.0
17.6
415.3
$ 3,377.6
$
— $ 3,377.6 $ 250.9
$ 104.3
$
91.2
$ 2,595.1
(1) Corporate and eliminations includes accelerated depreciation associated with restructuring actions of $6.2 million.
POLYONE CORPORATION 75
Year Ended
December 31, 2014
(In millions)
Sales to
External
Customers
Intersegment
Sales
Total Sales
Operating
Income
Depreciation
and
Amortization(1)
Capital
Expenditures
Total
Assets
Color, Additives and
Inks
Specialty Engineered
Materials
Designed Structures
and Solutions
Performance Products
and Solutions
PolyOne Distribution
Corporate and
eliminations
Total
835.0
15.8
850.8
124.9
555.2
43.1
598.3
72.4
616.5
1.0
617.5
45.1
728.2
1,100.6
88.4
13.8
816.6
1,114.4
63.1
68.2
— (162.1)
(162.1)
(218.6)
41.4
16.7
19.8
17.7
0.6
27.7
28.1
15.2
25.6
15.2
0.1
934.2
370.1
490.1
265.5
214.2
8.6
392.2
$ 3,835.5
$
— $ 3,835.5 $ 155.1
$ 123.9
$
92.8
$ 2,666.3
(1) Corporate and eliminations includes accelerated depreciation associated with restructuring actions of $23.1 million.
Year Ended
December 31, 2013
(In millions)
Sales to
External
Customers
Intersegment
Sales
Total Sales
Operating
Income
Depreciation
and
Amortization(1)
Capital
Expenditures(1a)
Total
Assets
Color, Additives and
Inks
Specialty Engineered
844.6
7.7
852.3
104.0
Materials
571.9
43.6
615.5
57.2
597.3
0.1
597.4
33.4
Designed Structures
and Solutions
Performance
Products and
Solutions
PolyOne Distribution
1,066.5
690.9
82.3
8.7
773.2
1,075.2
56.0
63.3
Corporate and
eliminations
— (142.4)
(142.4)
(82.4)
38.8
18.8
21.2
15.5
0.6
13.9
29.3
14.3
13.4
12.4
0.3
6.5
960.7
378.4
523.1
276.3
216.7
541.4
Total
$ 3,771.2
$
— $ 3,771.2 $ 231.5
$ 108.8
$
76.2
$ 2,896.6
(1) Excludes $1.0 million of depreciation expense associated with the Resin Business. Corporate and eliminations includes
accelerated depreciation associated with restructuring actions of $12.7 million.
(1a) Excludes $0.2 million of capital expenditures associated with the Resin Business.
76 POLYONE CORPORATION
Our sales are primarily to customers in the United States, Canada, Mexico, Europe, South America
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)
Sales:
United States
Europe
Canada
Asia
Mexico
South America
Total Sales
Long-lived assets:
United States
Europe
Canada
Asia
Mexico
South America
$
$
$
2015
2014
2013
2,244.9 $
430.1
241.3
235.9
209.7
15.7
2,590.4 $
511.8
277.4
246.2
178.4
31.3
2,538.2
519.7
267.8
239.0
158.1
48.4
3,377.6 $
3,835.5 $
3,771.2
418.1 $
421.1 $
94.0
6.9
40.2
19.4
4.9
95.7
12.8
39.5
19.7
7.9
444.4
103.0
13.2
51.8
20.5
13.3
646.2
Total Long-lived assets
$
583.5 $
596.7 $
Note 17 — COMMON SHARE DATA
Weighted-average shares used in computing net income per share are as follows:
(In millions)
Weighted-average shares — basic:
Plus dilutive impact of share-based compensation
Weighted-average shares — diluted:
2015
2014
2013
87.8
0.9
88.7
92.3
1.2
93.5
95.5
1.0
96.5
Outstanding share-based awards with exercise prices greater than the average price of the common
shares are anti-dilutive and are not included in the computation of diluted net income per share. The
number of anti-dilutive options and awards was 0.4 million and 0.3 million at December 31, 2014 and
2013, respectively. Less than 0.1 million options and awards were anti-dilutive for the computation of
diluted earnings per common share at December 31, 2015.
We purchased 4.5 million, 6.3 million and 5.0 million shares in 2015, 2014 and 2013, respectively, at
an aggregate cost of $156.1 million, $233.2 million and $131.6 million, respectively, under these
authorizations.
Note 18 — FAIR VALUE
Fair value is measured based on an exit price, representing the amount that would be received to sell
an asset or paid to satisfy a liability in an orderly transaction between market participants. Fair value is
a market-based measurement that is determined based on assumptions that market participants would
use in pricing an asset or liability. As a basis for considering such assumptions, a fair value hierarchy is
established, which categorizes the inputs used in measuring fair value as follows: (Level 1) observable
inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active
markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which
there is little or no market data, which require the reporting entity to develop its own assumptions.
POLYONE CORPORATION 77
Financial instruments accounted for at fair value on a recurring basis as of December 31, 2015 and
2014 include cash of $279.8 million and $238.6 million, respectively, and are classified as level 1
assets within the fair value hierarchy.
The estimated fair value of PolyOne’s debt instruments at December 31, 2015 and 2014 was $1,136.2
million and $1,031.9 million, respectively, compared to carrying values of $1,146.6 million and $1,010.6
million as of December 31, 2015 and 2014, respectively. The fair value of PolyOne’s debt instruments
was estimated using prevailing market interest rates on debt with similar creditworthiness, terms and
maturities and represent Level 2 measurements within the fair value hierarchy.
In accordance with the provisions of FASB ASC Topic 350, Intangibles — Goodwill and Other, we
assess the fair value of goodwill on an annual basis or at an interim date if potential
impairment
indicators are present. The implied fair value of goodwill
is determined based on significant
unobservable inputs. Accordingly, these inputs fall within Level 3 of the fair value hierarchy. We use an
income approach to estimate the fair value of our reporting units. The income approach uses a
reporting unit’s projection of estimated operating results and cash flows that is discounted using a
weighted-average cost of capital that is determined based on current market conditions. The projection
uses management’s best estimates of economic and market conditions over the projected period
including growth rates in sales, costs and number of units, estimates of future expected changes in
operating margins and cash expenditures. Other significant estimates and assumptions include
terminal value growth rates, terminal value margin rates, future capital expenditures and changes in
future working capital requirements. We validate our estimates of fair value under the income approach
by considering the implied control premium and conclude whether the implied control premium is
reasonable based on other recent market transactions. No impairment charges were required in 2015,
2014 or 2013.
Indefinite-lived intangible assets primarily consist of the GLS and ColorMatrix trade names. Indefinite-
lived intangible assets are tested for impairment annually at the same time we test goodwill for
indefinite-lived intangible assets is determined based on
impairment. The implied fair value of
significant unobservable inputs, as summarized below. Accordingly, these inputs fall within Level 3 of
the fair value hierarchy. The fair value of the trade names is calculated using a “relief from royalty”
methodology. This approach involves two steps (1) estimating reasonable royalty rates for the trade
name 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 trade name. No
impairment charges were required in 2015, 2014 or 2013.
78 POLYONE CORPORATION
Note 19 — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In millions, except per
share data)
Sales
Gross Margin
Operating income (loss)
Net income (loss) from
continuing operations
Net income (loss) from
continuing operations
attributable to PolyOne
shareholders
2015 Quarters
2014 Quarters
Fourth (2)
Third (3) Second (4)
First (5)
Fourth (6)
Third (7)
Second (8)
First (9)
$ 775.8 $ 841.6 $ 887.1 $ 873.1 $ 869.3 $ 958.4 $ 1,005.5 $ 1,002.3
156.9
31.3
169.1
69.2
185.7
80.3
169.8
70.1
152.6
(14.3)
182.6
63.6
184.5
49.4
188.2
56.4
3.0
44.5
67.0
30.2
(15.0)
32.3
30.7
29.2
$
3.1 $
44.5 $
66.8 $
30.2 $
(14.6) $
32.3 $
30.9 $
29.4
Net income from continuing operations per common share attributable to PolyOne common shareholders: (1)
Basic earnings (loss) per
share
Diluted earnings (loss)
per share
$
$
0.04 $
0.51 $
0.75 $
0.34 $
(0.16) $
0.35 $
0.33 $
0.31
0.04 $
0.50 $
0.74 $
0.34 $
(0.16) $
0.35 $
0.33 $
0.31
(4)
(2)
(3)
(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.
Included for the fourth quarter 2015 are: 1) a mark-to-market pension and other post-retirement charge of $11.6 million, 2)
employee separation and restructuring costs of $10.1 million and 3) $16.4 million of debt extinguishment costs primarily due
to the repayment in full of $316.6 million aggregate principal amount of our 7.375% senior notes due 2020.
Included for the third quarter 2015 are: 1) employee separation and restructuring costs of $13.7 million and 2) a $7.5 million
benefit related to the reversal of an uncertain tax position due to the expiration of the statute of limitations.
Included for the second quarter 2015 are: 1) employee separation and restructuring costs of $7.5 million and 2) a $26.0
million tax benefit as a result of amending U.S. federal income tax returns from 2005 to 2012 to use foreign tax credits.
Included for the first quarter 2015 are employee separation and restructuring costs of $10.6 million.
Included for the fourth quarter 2014 are: 1) a mark-to-market pension and other post-retirement charge of $56.5 million, 2)
employee separation and restructuring costs of $23.2 million, 3) environmental remediation costs of $2.6 million and 5) a
gain related to the reimbursement of previously incurred environmental costs of $2.1 million.
Included for the third quarter 2014 are: 1) employee separation and restructuring costs of $17.9 million, 2) environmental
remediation costs of $5.9 million and 3) a gain related to the reimbursement of previously incurred environmental costs of
$1.6 million.
Included for the second quarter 2014 are: 1) employee separation and restructuring costs of $35.1 million and 2) a $5.4
million tax benefit associated with our investments in certain foreign affiliates.
Included for the first quarter 2014 are employee separation and restructuring costs of $17.9 million.
(5)
(6)
(9)
(8)
(7)
Note 20 — SUBSEQUENT EVENTS
On January 29, 2016, the Company completed the acquisition of certain technologies and assets from
Kraton Performance Polymers,
footprint and expertise in the
thermoplastic elastomer (TPE) innovation and design, for $72.0 million in cash. The results will be
reported in the Specialty Engineered Materials segment.
to expand its global
Inc (Kraton),
POLYONE CORPORATION 79
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure controls and procedures
PolyOne’s management, with the participation of the Chief Executive 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 15d-15(e) under the Securities Exchange Act of
1934) as of December 31, 2015. Based on this evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that our disclosure controls and procedures were effective as of
December 31, 2015.
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. Under the supervision of and with participation of PolyOne’s management, including the Chief
Executive Officer and the Chief Financial Officer, we conducted an evaluation of the effectiveness
of internal control over financial reporting as of December 31, 2015 based on the guidelines
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) (2013 Framework). 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 reporting are not omitted and is relevant to an evaluation of internal control over financial
reporting.
3. Based on the results of our evaluation, management has concluded that such internal control over
financial reporting was effective as of December 31, 2015. There were no material weaknesses in
internal control over financial reporting identified by management. The results of management’s
assessment were reviewed with our Audit Committee.
4. Ernst & Young LLP, who audited the consolidated financial statements of PolyOne for the year
ended December 31, 2015, 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 42 of this Annual Report on Form 10-K and is
incorporated by reference into this Item 9A.
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 December 31, 2015 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
Limitations in internal control over financial reporting
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
80 POLYONE CORPORATION
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information regarding PolyOne’s directors, including the identification of the audit committee and
audit committee financial experts,
is incorporated by reference to the information contained in
PolyOne’s Proxy Statement with respect to the 2016 Annual Meeting of Shareholders (2016 Proxy
Statement). Information concerning 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 2016 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 2016 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 compensation is incorporated by reference to
the information contained in the 2016 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 2016
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED SHAREHOLDER MATTER
Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
(a)
Weighted-average exercise
price of outstanding options,
warrants and rights
(b)
Number of securities
remaining available for future
issuance under equity
compensation plans
(excluding securities reflected
in column (a))
(c)
1,582,904
$
25.29
2,126,758 (1)
—
—
—
Plan category
Equity compensation
plans approved by
security holders
Equity compensation
plans not approved by
security holders
Total
1,582,904
$
25.29
$
2,126,758
POLYONE CORPORATION 81
(1)
In addition to options, warrants and rights, the Amended and Restated PolyOne Corporation 2010 Equity and Performance
Incentive Plan (the “Restated 2010 EPIP”) authorizes the issuance of restricted stock, RSUs, performance shares and
awards to Non-Employee Directors. The Restated 2010 EPIP limits the total number of shares that may be issued as one or
more of these types of awards to 2.6 million. On May 14, 2015 our shareholders approved an amendment to this plan
whereby, among other provisions, a total of 6.2 million common shares are reserved for grant under the Restated 2010
EPIP.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information regarding certain relationships and related transactions and director independence is
incorporated by reference to the information contained in the 2016 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding fees paid to and services provided by PolyOne’s independent registered public
accounting firm and the pre-approval policies and procedures of the audit committee is incorporated by
reference to the information contained in the 2016 Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANACIAL STATEMENT SCHEDULES
(a)(1) Financial Statements:
The following consolidated financial statements of PolyOne Corporation are included in Item 8:
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015,
2014 and 2013
Consolidated Balance Sheets at December 31, 2015 and 2014
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2015, 2014
and 2013
Notes to Consolidated Financial Statements
All other schedules for which provision is made in Regulation S-X of the SEC are not required
under the related instructions or are inapplicable and, therefore, have been omitted.
(a)(3) Exhibits.
Refer to the Exhibit Index, which is incorporated by reference herein.
82 POLYONE CORPORATION
SIGNATURES
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.
February 12, 2016
POLYONE CORPORATION
BY:
/S/ BRADLEY C. RICHARDSON
Bradley C. Richardson
Executive 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/ ROBERT M. PATTERSON
Robert M. Patterson
President and Chief Executive Officer and Director
(Principal Executive Officer)
Date: February 12,
2016
/S/ BRADLEY C. RICHARDSON
Bradley C. Richardson
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: February 12,
2016
/S/ STEPHEN D. NEWLIN
Executive Chairman and Director
Stephen D. Newlin
/S/ RICHARD H. FEARON
Director
Richard H. Fearon
/S/ GREGORY J. GOFF
Gregory J. Goff
Director
/S/ WILLIAM R. JELLISON
Director
William R. Jellison
/S/ SANDRA BEACH LIN
Sandra Beach Lin
Director
/S/ RICHARD A. LORRAINE
Director
Richard A. Lorraine
/S/ WILLIAM H. POWELL
Director
William H. Powell
/S/ KERRY J. PREETE
Kerry J. Preete
Director
/S/ FARAH M. WALTERS
Director
Farah M. Walters
/S/ WILLIAM A. WULFSOHN
Director
William A. Wulfsohn
Date: February 12,
2016
Date: February 12,
2016
Date: February 12,
2016
Date: February 12,
2016
Date: February 12,
2016
Date: February 12,
2016
Date: February 12,
2016
Date: February 12,
2016
Date: February 12,
2016
Date: February 12,
2016
POLYONE CORPORATION 83
Exhibit No.
Exhibit Description
EXHIBIT INDEX
2.1†
2.2†
2.3†
2.4†
3.1
3.2
3.3
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7+
10.8+
Purchase Agreement, dated as of February 28, 2011, by and among PolyOne Corporation, 1997 Chloralkali
Venture, LLC, Olin Corporation and Olin SunBelt II, Inc. (incorporated by reference to Exhibit 2.1 to the
Company’s Current Report on Form 8-K filed March 3, 2011, SEC File No. 1-16091)
Agreement and Plan of Merger, dated as of September 30, 2011, among PolyOne Corporation, 2011
ColorNewton Inc., ColorMatrix Group, Inc., and Audax ColorMatrix Holdings, LLC (Incorporated by reference
to Exhibit 2.1 to PolyOne Corporation’s current report on Form 8-K filed on October 5, 2011, SEC File
No. 1-16091)
Agreement and Plan of Merger, dated October 23, 2012, by and among PolyOne Corporation, 2012
RedHawk, Inc., 2012 RedHawk, LLC and Spartech Corporation (Incorporated by reference to Exhibit 2.1 to
PolyOne Corporation’s current report on Form 8-K filed on October 24, 2012, SEC File No. 1-16091)
Asset Purchase Agreement, dated as of March 25, 2013, by and between PolyOne Corporation and
Mexichem Specialty Resins Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report
on Form 8-K filed March 27, 2013, SEC File No. 1-16091)
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 February 28, 2013, between PolyOne Corporation and Wells Fargo Bank, National
Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on
Form 8-K filed on March 5, 2013, SEC File No. 1-16091)
Amended and Restated Credit Agreement, dated March 1, 2013, among the Company, PolyOne Canada and
certain other subsidiaries of the Company, Wells Fargo Capital Finance, LLC, as administrative agent, Bank
of America, N.A. and U.S. Bank National Association, as syndication agents, PNC Bank National Association
and KeyBank National Association, as documentation agents, and Wells Fargo Capital Finance, LLC and
Merrill, Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and bookrunners (incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 5, 2013, SEC File
No. 1-16091)
First Amendment to Amended and Restated Credit Agreement, dated as of March 28, 2014, among the
Company, PolyOne Canada Inc. and certain other subsidiaries of the Company, Wells Fargo Capital Finance,
LLC, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, SEC File No. 1-16091)
Second Amendment to Amended and Restated Credit Agreement, dated as of June 3, 2015, among the
Company, PolyOne Canada Inc. and certain other subsidiaries of the Company, Wells Fargo Capital Finance,
LLC, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, SEC File No. 1-16091)
Third Amendment to Amended and Restated Credit Agreement, dated as of June 30, 2015, among the
Company, PolyOne Canada Inc. and certain other subsidiaries of the Company, Wells Fargo Capital Finance,
LLC, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, SEC File No. 1-16091)
Fourth Amendment to Amended and Restated Credit Agreement and Release, dated November 12, 2015, by
and among PolyOne Corporation, the subsidiaries of PolyOne Corporation party thereto, Wells Fargo Capital
Finance, LLC, as agent, and the lenders party thereto**
Credit Agreement, dated November 12, 2015, by and among PolyOne Corporation, as borrower, Citibank,
N.A., as administrative agent, each of Citigroup Global Markets Inc., Wells Fargo Securities LLC, Goldman,
Sachs & Co., HSBC Securities (USA) Inc. and Morgan Stanley & Co. LLC, as joint-lead arrangers and joint-
book managers, Jefferies Finance LLC, KeyBanc Capital Markets Inc. and SunTrust Robinson Humphrey,
Inc., as co-managers, and several other commercial lending institutions that are parties thereto**
Form of 2011 Award Agreement under the 2010 Equity and Performance Incentive Plan (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2011, SEC File No. 1-16091)
Amended and Restated PolyOne Corporation 2010 Equity and Performance Incentive Plan (incorporated by
reference to Appendix B to the Company’s definitive proxy statement on Schedule 14A filed on April 3, 2015,
SEC File No. 1-16091)
POLYONE CORPORATION
Exhibit No.
Exhibit Description
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
10.16+
10.17+
10.18+
10.19+
10.20+
10.21+
10.22+
10.23+
10.24+
10.25+
10.26+
21.1
23.1
Amended and Restated PolyOne Senior Executive Annual Incentive Plan (incorporated by reference to
Appendix C to the Company’s definitive proxy statement on Schedule 14A filed on April 3, 2015, SEC File
No. 1-16091)
Form of Grant of Stock-Settled Stock Appreciation Rights under the 2010 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2010, SEC File No. 1-16091)
Amended and Restated Deferred Compensation Plan for Non-Employee Directors (as amended and restated
effective May 20, 2014) (incorporated by reference to Exhibit 10.7 of the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2014, SEC File No. 1-16091)
Form of Management Continuity Agreement for Executive Officers prior to 2011 (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)
Form of Management Continuity Agreement for Executive Officers after 2011 (incorporated by reference to
Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013,
SEC File No. 1-16091)
Schedule of Executive Officers with Management Continuity Agreements**
PolyOne Supplemental Retirement Benefit Plan (As Amended and Restated Effective January 1, 2014)
(incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2013, SEC file No. 1-16091)
Amended and Restated Letter Agreement, dated as of March 6, 2014, 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 March 31, 2014, SEC File No. 1-16091)
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)
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)
PolyOne Corporation 2008 Equity and Performance 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 2009 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)
Executive Severance Plan, as amended and restated effective May 15, 2014 (incorporated by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, SEC File
No. 1-16091)
Form of 2012 Award Agreement under the PolyOne Corporation 2010 Equity and Performance Incentive
Plan, as amended (incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2012, SEC File No. 1-16091)
Form of 2013 Award Agreement under the PolyOne Corporation 2010 Equity and Performance Incentive
Plan, as amended (incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2013, 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)
Form of 2014 Award Agreement under the PolyOne Corporation 2010 Equity and Performance Incentive
Plan, as amended (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2014, SEC File No. 1-16091)
Subsidiaries of the Company**
Consent of Independent Registered Public Accounting Firm — Ernst & Young LLP**
POLYONE CORPORATION
Exhibit No.
Exhibit Description
31.1
31.2
32.1
32.2
Certification of Robert M. Patterson, 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 Bradley C. Richardson, Executive 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 Robert M. Patterson, 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 Bradley C. Richardson, Executive Vice President and Chief Financial Officer**
101 .INS
XBRL Instance Document**
101 .SCH
XBRL Taxonomy Extension Schema Document**
101 .CAL
XBRL Taxonomy Extension Calculation Linkbase Document**
101 .LAB
XBRL Taxonomy Extension Label Linkbase Document**
101 .PRE
XBRL Taxonomy Extension Presentation Linkbase Document**
101 .DEF
XBRL Taxonomy Definition Linkbase Document**
+
†
Indicates management contract or compensatory plan, contract or arrangement in which one or more directors or executive
officers of the Registrant may be participants
The exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K and will be provided to the
Securities and Exchange Commission upon request.
**
Filed herewith.
POLYONE CORPORATION
Exhibit 31.1
I, Robert M. Patterson, 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
performing 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.
/s/ Robert M. Patterson
Robert M. Patterson
President and Chief Executive Officer
February 12, 2016
POLYONE CORPORATION
Exhibit 31.2
I, Bradley C. Richardson, 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
performing 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.
/s/ Bradley C. Richardson
Bradley C. Richardson
Executive Vice President and Chief Financial Officer
February 12, 2016
POLYONE CORPORATION
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 Report on Form 10-K of PolyOne Corporation (the “Company”) for the year ended December 31,
2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert M. Patterson, 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)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report 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
Robert M. Patterson
President and Chief Executive Officer
February 12, 2016
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.
POLYONE CORPORATION
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 Report on Form 10-K of PolyOne Corporation (the “Company”) for the year ended December 31,
2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bradley C. Richardson,
Executive 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)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report 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/ Bradley C. Richardson
Bradley C. Richardson
Executive Vice President and Chief Financial Officer
February 12, 2016
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.
POLYONE CORPORATION
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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, 2010 through December 31, 2015. 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, comparison
with this broader index is appropriate.
STOCK EXCHANGE LISTING
FINANCIAL INFORMATION
PolyOne's Common Stock is listed on the New York Stock Exchange, Symbol: POL.
Security analysts and representatives of financial institutions are invited to contact:
Eric R. Swanson
Director, Investor Relations
Phone: 440-930-1018
Email: eric.swanson@polyone.com
AUDITORS
Ernst & Young LLP
950 Main Ave., Suite 1800
Cleveland, OH 44113
INTERNET ACCESS
Information on PolyOne’s products and services, news releases, corporate governance,
EDGAR filings, Reports on 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.
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:
Wells Fargo Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
Phone: 1-855-598-2615
www.shareowneronline.com
Additional information about PolyOne, including current and historic copies of Annual
Reports on 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 will be held May 12, 2016 at 9:00 a.m. at
PolyOne’s Corporate headquarters, 33587 Walker Road, Avon Lake, Ohio. The meeting notice
and proxy materials were mailed to shareholders with this annual report. PolyOne urges all
shareholders to vote their proxies so that they can participate in the decisions at the
annual meeting.
COLLABORATION
INNOVATION
EXCELLENCE
PolyOne Corporation Board of Directors (Left to Right): Richard H. Fearon, Kerry J. Preete, William H. Powell, Farah M. Walters, William A. Wulfsohn, Stephen D. Newlin, Robert M. Patterson, Sandra B. Lin, Richard A. Lorraine,
Gregory J. Goff, and William R. Jellison
CORPORATE OFFICERS
BOARD OF DIRECTORS
STEPHEN D. NEWLIN
Executive Chairman
ROBERT M. PATTERSON
President and
Chief Executive Officer
BRADLEY C. RICHARDSON
Executive Vice President,
Chief Financial Officer
RICHARD N. ALTICE
Senior Vice President,
President of Designed
Structures and Solutions
MARK D. CRIST
Senior Vice President,
President of Distribution
GIUSEPPE Di SALVO
Vice President,
Corporate Controller
CATHY K. DODD
Vice President, Marketing
JAVIER A. ECHEVARRIA
Vice President, Global Sourcing
MICHAEL A. GARRATT
Senior Vice President,
President of Performance
Products and Solutions
AVERY L. JOHNSON
Vice President, Tax
MICHAEL E. KAHLER
Senior Vice President,
Chief Commercial Officer
HOLGER KRONIMUS
Vice President, Europe,
General Manager, Engineered
Materials Europe
LISA K. KUNKLE
Senior Vice President,
General Counsel and Secretary
SCOTT J. LEFFLER
Vice President, Treasurer
M. JOHN MIDEA, JR.
Senior Vice President,
Global Operations and
Process Improvement
DR. CHRISTOPHER MURPHY
Vice President,
Research and Development,
Chief Innovation Officer
CRAIG M. NIKRANT
Senior Vice President,
President of Global Specialty
Engineered Materials
JOEL RATHBUN
Senior Vice President,
Mergers & Acquisitions
ANA G. RODRIGUEZ
Senior Vice President,
Chief Human Resources Officer
KURT C. SCHUERING
Vice President, Global Key
Account Management
JOHN V. VAN HULLE
Senior Vice President,
President of Global Color
Additives and Inks
WILLIAM H. POWELL
Retired Chairman and Chief
Executive Officer, National Starch
and Chemical Company
Committee: 2*
KERRY J. PREETE
Executive Vice President, Global
Strategy, Monsanto Company
Committees: 2, 3
FARAH M. WALTERS
President and Chief Executive
Officer, QualHealth, LLC
Committees: 2, 4
WILLIAM A. WULFSOHN
Chairman and Chief Executive
Officer, Ashland Inc.
Committees: 1, 2
COMMITTEES
1. Audit
2. Compensation
3. Environmental, Health and Safety
4. Nominating & Governance
* Denotes Chairperson
STEPHEN D. NEWLIN
Executive Chairman,
PolyOne Corporation
Committee: 3
ROBERT M. PATTERSON
President and Chief Executive
Officer, PolyOne Corporation
Committee: 3
RICHARD H. FEARON
Lead Director, PolyOne Corporation
Vice Chairman and Chief Financial
and Planning Officer, Eaton
Committees: 1, 4*
GREGORY J. GOFF
President and Chief Executive
Officer, Tesoro Corporation and
Chairman and Chief Executive
Officer, Tesoro Logistics
Committees: 3*, 4
WILLIAM R. JELLISON
Vice President, Chief Financial
Officer, Stryker Corporation
Committee: 1
SANDRA B. LIN
Retired President, Chief Executive
Officer and Director, Calisolar Inc.
(now Silico Materials)
Committees: 1, 3
RICHARD A. LORRAINE
Retired Senior Vice President
and Chief Financial Officer,
Eastman Chemical Company
Committees: 1*, 4
P
O
L
Y
O
N
E
A
N
N
U
A
L
R
E
P
O
R
T
2
0
1
5
W W W . P O L Y O N E . C O M
COLLABORATION. INNOVATION. EXCELLENCE.