Avant Brands
Annual Report 2017

Plain-text annual report

A N N U A L R E P O R T 2 0 1 7 C R E A T I N G A WO R L D - C L A S S , S U S T A I N A B L E O R G A N I Z A T I O N P O L Y O N E A N N U A L R E P O R T 2 0 1 7 CREATING A WORLD-CLASS, SUSTAINABLE ORGANIZATION PolyOne Corporation (NYSE: POL), with 2017 revenues of $3.2 billion, is a premier provider of specialized polymer materials, services and solutions. The company is dedicated to serving customers in diverse industries around the globe, by creating value through collaboration, innovation and an unwavering commitment to excellence. Guided by its Core Values, Sustainability Promise and No Surprises PledgeSM, PolyOne is an ACC Responsible Care® certified company committed to its customers, employees, communities and shareholders through ethical, sustainable and fiscally responsible principles. OUR VISION To be the world’s premier provider of specialized polymer materials, services and solutions. OUR VALUES 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. 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 l of the Form 10-K. LETTER TO OUR SHAREHOLDERS “ Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.  —Sustainable Development (as defined by the World Commission on Environment and Development, 1987) “ SUSTAINABILITY IN ACTION People. Products. Planet. Performance. Dear PolyOne Shareholders, PolyOne was established in 2000 through the consolidation of two historic companies, M.A. Hanna and Geon. The early years were challenging as the company struggled to find or create its identity as a combined enterprise. That changed in 2006 when we embarked on a specialty transformation driven by our four- pillar strategy of specialization, globalization, commercial and operational excellence. As PolyOne has evolved into a specialty company, we’ve continued to refine and increase our sustainability efforts. Like all that we do, we start by putting our customers first, then we look inward to make a difference. Our guiding principle is to enable our customers’ innovation and sustainability goals through world- class products and services, and this is captured in both our Sustainability Promise and No Surprises PledgeSM. People, Products, Planet and Performance are the four cornerstones of our sustainability endeavors, and we’re making significant contributions in each. 1 SAFETY RATE 5x Better than Industry Average PEOPLE Ethics and safety underpin our Safety is not just a program a company, and that’s why culture and goal of taking care or something we talk about. we are always refining our of our people. Our 0.69 injury It’s a way of life. incidence rate last year is five strong culture by hiring the best and brightest people— times better than the industry And our focus on People and developing talent from average. While we are proud isn’t solely for those who call within—through robust of this performance, our goal PolyOne home. is zero injuries. campus recruiting, unique leadership development Our commitment includes the opportunities and meaningful To help us improve and people in all the communities employee engagement. progress on our journey, we where we operate as well. recently sought and obtained For example, our United Similarly, supporting a diverse the American Chemistry Way campaign has mobilized and inclusive workforce is Council’s Responsible Care and motivated our North crucial to any sustainable certification. This was one of American workforce to raise enterprise. LEAD by Women our greatest accomplishments more than $1 million in each of is a leadership development in 2017. the past four years. Employees initiative where PolyOne further give of their time by associates build their skills with serving on non-profit boards the goal of advancing respect, and participating in countless diversity and inclusion at all volunteer projects, where we levels of the company. roll up our sleeves and put in 1 sweat equity to help make our Through LEAD by Women communities a more vibrant, and other special events healthy and sustainable place with guest speakers, we’re for everyone. encouraging dialogue and different perspectives to We welcome the challenge best serve our customers, of continually building upon drive innovation and become our positive momentum as a top workplace. 3 2 Top of Page: Safety First is a mindset at PolyOne, and our production plant in Ramos, Mexico recently marked a four-year span with no injuries. 1. PolyOne employees have a passion for serving our communities using their time and talents, which recently included framing a house with Habitat for Humanity. 2. PolyOne’s global symbol for Diversity and Inclusion. 3. PolyOne hosts cultural awareness events and activities for employees, like celebrating Chinese New Year. 2 PRODUCTS We are proud to have Our products and their impact can be found making a established the “PolyOne Sustainable Solutions” mark to denote our products or services that meet defined standards for sustainability in areas such as recyclability, reusability, eco-conscious composition, or resource efficiency. We also established our Sustainability Promise and No Surprises PledgeSM. These commitments are made internally, yet upheld externally, with all our stakeholders. positive difference in nearly every industry, such as: • Delivering light-weighting benefits in rail, auto and aerospace to improve fuel efficiency OUR NO SURPRISES PLEDGESM At PolyOne, we are committed to helping you grow your • Extending shelf-life and recyclability of food and beverage business with safe and packaging to reduce spoilage and waste • Advancing healthcare innovation of medical devices with materials that enable disinfection and minimize the spread of infection In addition, specialized polymer and composite solutions are also helping make our customers’ sustainable products come to life, as PolyOne materials can be used in the design of new innovations ranging from wind turbines to solar panel components. And we formulate bio-based products by incorporating other natural materials like soy, algae or corn to meet customers’ exacting and unique specifications while reducing fossil fuel consumption. No matter what industry is being served, we are committed to investing in our people so that our resources are equipped to deliver these types of sustainable innovations. And our global product stewardship team ensures we do so while meeting or exceeding standards and regulations in an ever- changing global landscape. Maintaining a world-class specialty portfolio of products and services isn’t easy. It requires investments and an innovative culture to develop breakthrough offerings that customers covet, while at the same time, profitably growing PolyOne. But it also requires we maintain an unbiased and candid assessment of our portfolio…then if need be, address what’s not working within it. Last year, that responsibility led us to the decision to divest DSS and invest in specialty acquisitions such as SilCoTec, Mesa and Rutland. environmentally sound solutions. This commitment is exemplified by our No Surprises Pledge SM which we make to all customers and markets, across the globe. • You can be confident that, in formulating and manufacturing our materials, we use sustainable practices to provide long-term product viability and sound environmental stewardship • You can expect that the materials we produce contain only ingredients that conform to accepted legal and regulatory compliance guidelines • You can trust that PolyOne materials meet the rigorous quality and safety management standards required across the globe • You can be certain that PolyOne meets or exceeds the material safety data reporting requirements of your country or region • When you choose PolyOne, you can be confident our products will help you meet or exceed today’s stringent compliance standards 3 26 ENERGY SAVINGS PROJECTS resulting in a 10% REDUCTION* 47 WASTE MINIMIZING PROJECTS resulting in a 11% REDUCTION* *Intensity Per Unit of Production PLANET PolyOne, like every company, facilities as part of our LSS recent acquisitions, we seek has a responsibility to take Customer First initiative. All to replace metal halide light great care of our planet—and of these projects—regardless fixtures with LED fixtures, we take that responsibility of their location—reduce providing a greener, more very seriously. Efficient, scrap, waste, material and efficient and longer-lasting high-quality operations are energy usage—and greatly lighting solution. Below: Lean Six Sigma drives culture and process at our manufacturing facilities, such as in Pune, India. Bottom of page: By utilizing solar panels atop our Assesse, Belgium operations, we’re preventing the generation of 90 tons of CO₂ each year. one means to that goal, and help our customers and PolyOne’s award-winning environment along the way! Lean Six Sigma culture contributes every day. More In terms of waste reduction than 3,000 of our associates and energy efficiency, are trained in LSS principles, we’ve been very prudent in and there are more than minimizing our usage and 300 process improvement requirements. For example, projects underway at any in our Assesse, Belgium given time in our facilities. manufacturing facility we utilize solar energy as part We also train our customers of our operations and office and manage projects at their power requirements. And in 4 PERFORMANCE We’re always working to get better, always finding ways to do Performance and growth make all things possible at PolyOne. more. We regularly and voluntarily conduct audits in areas like When we are growing, we are able to: safety, environmental and other functions of vital importance. We’ve enlisted in the ACC’s Responsible Care program to share and learn from the best chemical companies in the world. We also conduct employee engagement surveys to hear from our team about what we are doing well, and where we can do better, as we strive to become a great place to work. And we will. We’re taking these and other steps, so we can improve our performance. And this concept—aiming higher and continuous • Hire incredible people and add to our exceptional team with new talent and fresh perspectives. This breeds innovation and diverse thinking—critical for any global company now, and will be even more so in the future. • Invest in our team, allowing them a channel for professional development and personal fulfillment. This not only increases their skills and contributions, but it also builds loyalty to PolyOne and our customers. improvement—is perhaps the most important aspect of our • Acquire specialty companies, some with complementary sustainability commitment. materials, some with new technologies, and some with next generation material science that will sustain our company and We acknowledge and embrace the requirement of financial customers decades from now. performance and growing our company…year after year after year. And we’ve done that. Last year, we achieved our eighth consecutive year of adjusted EPS growth, delivering $2.21 per share, an all-time record. • Innovate for the future because innovation is the lifeblood of any specialty company. It’s about taking chances and having the mental freedom—and confidence—to pursue something greater. As a growth company, we push each other, challenge preconceived barriers, dream up what’s next…and then, just ADJUSTED EARNINGS PER SHARE* do it! 2.50 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 S R A L L O D . . S U P E C U H $1.31 E Y $1.96 $1.80 $2.21 T I V $2.06 E A R 8 C O N S S G R O W T S O F A D J . E 6+27+33+40+52+72+78+82+89 2009 2010 2011 2012 2013 2014 2015 2016 2017 $0.68 $0.82 $1.00 $0.13 * EPS excluding special items and income from equity affiliates • Reward our stakeholders, as our growth enables stock price appreciation, increases in share repurchases and dividends for shareholders, fulfilling and productive careers for our associates, and giving back in our communities. 38% of specialty sales from products introduced IN THE LAST 5 YEARS 5 PERFORMANCE 2017 SHAREHOLDER RETURN 1 year +36% SHARE PRICE APPRECIATION 30% ANNOUNCED INCREASE IN DIVIDEND 2.0M SHARES REPURCHASED Three years ago, we were at an important crossroads in our specialty journey. By 2014, we had overhauled our portfolio, increased earnings five years in a row, and done so through mix improvement and margin expansion. It was inspiring to see our specialty story take hold and our improvements in safety, operating margins and return on invested capital. But we needed to accelerate sales growth to sustain performance. So at the end of 2014 we made the decision to invest significantly in sales, marketing and technology resources, and in 2017, we delivered our most significant increase in organic sales growth since coming out of the great recession. Y L R A E N 20% Commercial Resources Increase A LOOK AHEAD Sustainability is about meeting or exceeding our ambitious goals today while ensuring that our successors and future generations can do the same. At PolyOne, we have created momentum, and momentum is everything. In business, in sports, in relationships. In life. It’s so hard to create yet so easy to lose. The best way to keep it, is to protect it. This is what sustainability is truly all about. It’s what will build a world-class, sustainable organization at PolyOne—one in which everyone benefits. Our customers require it. Our shareholders expect it. And the PolyOne team thrives within it! In closing, I would like to thank our exceptional and diverse Board of Directors for their continued governance and valued insights, as well as our global associates and customers for their collaboration and dedication. I’m truly honored to serve all of our stakeholders as Chairman, President and CEO, and I remain fully committed to the ongoing success and sustainability of PolyOne. SINCE 2014 Robert M. Patterson Chairman, President and CEO 6 United States Securities and Exchange Commission Washington, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017 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 Name of each exchange on which registered Common Shares, par value $.01 per share 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 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 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 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. 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 No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company (Do not check if a smaller reporting company) If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No The aggregate market value of the registrant’s outstanding common shares held by non-affiliates on June 30, 2017, determined using a per share closing price on that date of $38.74, as quoted on the New York Stock Exchange, was $3.2 billion. The number of shares of common shares outstanding as of February 1, 2018 was 80,888,155. 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 2018 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 environmental liabilities; 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: • • • • • • • • • • • 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 acquisition and integration, working capital reductions, cost reductions and employee productivity goals; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends; information systems failures and cyberattacks; and other factors described in this Annual Report on Form 10-K under Item 1A, “Risk Factors.” We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and 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 filed with 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. POLYONE CORPORATION 1 ITEM 1. BUSINESS Business Overview We are a premier provider of specialized polymer materials, services and solutions with operations in specialty engineered materials, advanced composites, color and additive systems 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. 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 B.F.Goodrich scientist Waldo Semon produced the first usable vinyl polymer. In 1948, B.F.Goodrich created a vinyl plastic division that was subsequently spun off through a public offering in 1993, creating The Geon Company, 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. PolyOne Corporation is incorporated in Ohio and headquartered in Avon Lake, Ohio. We employ approximately 6,300 people and have 70 manufacturing sites and eight distribution facilities in North America, South America, Europe, Asia and Africa. We offer more than 35,000 polymer solutions to over 10,000 customers across the globe. In 2017, we had sales of $3.2 billion, 41% of which were to customers outside the United States. We are able to leverage our polymer and formulation expertise with our operational capabilities, creating an 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 vital as our customers increasingly need reliable suppliers with global reach and more effective material-based solutions to improve their profitability and competitive advantage. Our goal is to provide our customers with specialized materials and service solutions through our global footprint, broad market knowledge, technical expertise, product breadth, efficient manufacturing operations, a fully integrated information technology network and raw material procurement leverage. Our end markets include healthcare, transportation, packaging, consumer, building and construction, industrial, 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 in multiple layers to impart additional properties such as gas barrier, structural integrity and lightweighting. Thermoplastics 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, outdoor high performance, 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 2 POLYONE CORPORATION and user-friendliness. In the building and construction industry, plastic provides an economical and energy efficient replacement for other traditional materials in piping applications, siding, flooring, insulation, windows and doors, as well as structural and interior or decorative uses. In the wire and cable industry, thermoplastics serve to protect by providing electrical insulation, flame resistance, durability, water resistance and color coding to wire coatings and connectors. In the transportation 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 and equipment housings. In the outdoor high performance industry, plastic applications are used for components and colorants for all terrain vehicles and reinforced polymers are used for various outdoor activities. In the electronics industry, plastic enclosures and connectors not only enhance safety through electrical insulation, but thermally and electrically conductive plastics provide heat transferring, cooling, antistatic, electrostatic discharge, and electromagnetic shielding performance for critical applications including integrated circuit chip packaging. 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 four reportable segments: (1) Color, Additives and Inks; (2) Specialty Engineered Materials; 3) Performance Products and Solutions; and (4) PolyOne Distribution. Previously, PolyOne had five reportable segments. However, as a result of the divestiture of the Designed Structures & Solutions segment (DSS), we have removed DSS as a separate operating segment and its results are presented as a discontinued operation. Historical information has been retrospectively adjusted to reflect these changes. Please see Note 3, Discontinued Operations for additional information. On January 2, 2018, the Company completed the acquisition of IQAP Masterbatch Group S.L. (IQAP), an innovative producer of specialty colorants and additives based in Spain with customers throughout Europe. The results of operations of IQAP will be reported in the Color, Additives and Inks segment. The acquisition of IQAP is expected to add approximately $45.0 million in annual sales. On July 5, 2017, the Company completed the acquisition of assets from Mesa Industries, Inc. (Mesa), a producer of solid and liquid colorant technologies. On June 8, 2017, the Company completed the acquisition of Rutland Holding Company (Rutland). Rutland is a leading producer of specialty inks and an innovator in textile screen printing solutions and services. On January 3, 2017, the Company completed the acquisition of SilCoTec, Inc. (SilCoTec), a leading producer of innovative silicone colorants, dispersions and formulations. The results of operations of the 2017 acquisitions are reported in the Color, Additives and Inks segment subsequent to their respective acquisition dates. The 2017 acquisitions collectively added $57.7 million to total sales for the year ended December 31, 2017. Our segments are further detailed in Note 14, Segment Information. 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 compete against other national independent resin distributors in North America, along with other regional distributors. Growth in the POLYONE CORPORATION 3 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 polyolefin and other thermoplastic resins, polyvinyl chloride (PVC) resin, plasticizers, inorganic and organic pigments, all of which we believe are in adequate supply. Oxy Vinyls LP sells PVC to PolyOne under terms of a Resin Purchase Agreement that expires on December 31, 2020. The agreement requires PolyOne to purchase a majority of its annual requirements in North America from Oxy Vinyls LP. This contract provides 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 resin to PolyOne at a competitive price. 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 rigorously protect our inventions and trademarks. Seasonality and Backlog Sales of our products and services are 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 3% of our consolidated revenues in 2017, 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 was $52.1 million in 2017, $50.4 million in 2016 and $48.9 million in 2015. Methods of Distribution We sell products primarily through direct sales personnel, distributors, including our PolyOne 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. 4 POLYONE CORPORATION Employees As of December 31, 2017, we employed approximately 6,300 people. Approximately 2% of our employees are represented by labor unions under collective bargaining agreements. We believe that relations with our employees are good, and we do not anticipate significant operating issues to occur as a result of current negotiations, or when we renegotiate collective bargaining agreements as they expire. Environmental, Health and Safety We are subject to various environmental laws and regulations that apply to the production, use and sale of chemicals, emissions into the air, discharges into waterways and other releases of materials into the environment and the generation, handling, storage, 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 0.69 per 100 full-time workers per year in 2017 and 0.74 in 2016. The 2016 average injury incidence rate for our NAICS Code (326 Plastics and Rubber Products Manufacturing) was 3.9. Further, we recently achieved the American Chemistry Council's certification as a Responsible Care Management System® (RCMS) company. Certification was granted based on PolyOne's conformance to the RCMS's comprehensive environmental health, safety and security requirements. The RCMS certification affirms the importance PolyOne places on having world-class environmental, health, safety and security performance. 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. We incurred environmental expenses, before insurance recoveries, of $14.8 million in 2017, $8.3 million in 2016 and $9.3 million in 2015. Our environmental expense in 2017, 2016 and 2015 related mostly to ongoing remediation projects. In 2017, 2016 and 2015, we recognized gains associated with insurance recoveries of $9.1 million, $6.1 million and $3.5 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. With respect to the former Goodrich Corporation Calvert City site, contrary to prior understanding, the United States Environmental Protection Agency (USEPA) issued a proposed plan on December 1, 2017 identifying significant remedial actions beyond containment. During the public comment period, we had meaningful discussions with the USEPA regarding an alternative remedy, performed additional technical analysis to support our remedy, and have provided this information to the USEPA in our formal comment response. We believe this alternative is equally protective of human health and the environment, can commence contamination removal much more quickly, is less disruptive to the business operating at the site, and is more cost effective. These discussions, along with our technical analysis of an alternative remedy, give us reason to believe that there are two likely outcomes, the EPA’s proposed plan and our proposed alternative remedy, with neither outcome being more likely than the other. As such, we have not adjusted our current reserve of $107.0 million, which reflects the low end of the range of these two outcomes. Based on the USEPA's proposed plan issued on December 1, 2017, the cost estimate for their proposed remedy is $244.0 million. The USEPA could issue its Record of Decision as early as the POLYONE CORPORATION 5 first quarter of 2018, and if the USEPA determines our alternative remedy is not appropriate, there could be an adjustment to increase our current reserve based on the proposed plan issued on December 1, 2017. Environmental reserves for all other sites totaled $10.1 million as of December 31, 2017, covering probable future environmental expenditures that we can reasonably estimate related to previously contaminated sites, other third party liabilities, alleged contributions of contamination and contractual indemnification of other parties. 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 all matters and recognize gains as we receive reimbursement. No receivable has been recognized for future recoveries. Refer to Note 11, Commitments and Contingencies, for further discussion of the Calvert City site and our overall environmental liability. We expect 2018 cash environmental expenditures to approximate $10.0 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 14, 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., Washington, 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 the Exchange Act are available, free of charge, on our website (www.polyone.com, select Investors and then SEC 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. 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: • • economic downturns or other volatility in the significant end markets that we serve; product obsolescence or technological changes that unfavorably alter the value/cost proposition of our products and services; • competition from existing and unforeseen polymer and non-polymer based products; 6 POLYONE CORPORATION • • • • 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 or otherwise adversely affect our results. 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 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 (including, but not limited to, the Restrictions on the Use of Certain Hazardous Substances and the Consumer Product Safety Information Act of 2008). 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. Our operations are subject to risks; including, but not limited to, the following: • • • • • • • • • • 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 trade laws and regulations, including export control and economic sanctions; difficulties in staffing and managing multi-national operations; limitations on our ability to enforce legal rights and remedies; reduced protection of intellectual property rights; other risks arising out of foreign sovereignty over the areas where our operations are conducted; and increasingly complex laws and regulations concerning privacy and data security, including the European Union's General Data Protection Regulation. POLYONE CORPORATION 7 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 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, 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. Natural gas, electricity, fuel and raw material costs could cause volatility in our results. The cost of our natural gas, electricity, fuel and raw materials, 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 also cause fluctuations in raw materials prices, which could negatively impact demand for our products and cause volatility in our results. We face competition from other companies and customers' in-house production. 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. Increased information systems security threats and more sophisticated and targeted computer crime could pose a risk to our systems, networks and products, which could harm our business. We depend on integrated information systems to conduct our business. 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. Our systems, networks and products may be vulnerable to advanced persistent threats or other types of system failures. Depending on their nature and scope, such threats and system failures 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 cause customers to cancel orders or otherwise adversely affect our reputation, competitiveness and results of operations. 8 POLYONE CORPORATION Disruptions in the global credit, financial and/or currency markets could limit our access to credit or otherwise harm our financial results, which could have a material adverse impact on our business. Global credit and financial markets experience volatility, 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. 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. 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, whether precipitated by governmental monetary policy or otherwise, 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." 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 senior secured revolving credit facility and our senior secured term loan, and the indentures and credit agreements governing other debt, contain a number of customary restrictive covenants that, among other things, limit our ability to: consummate asset sales, 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, certain of these agreements require us to comply under certain circumstances 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 such agreements and instruments, which in certain circumstances 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. Furthermore, certain of these agreements condition our ability to obtain additional borrowing capacity, engage in certain transactions or take certain other actions, on our achievement of certain or specific financial and operating results, although our failure to achieve such results would not result in a default under such agreements. 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. POLYONE CORPORATION 9 We have a significant amount of goodwill, and any future goodwill impairment charges could adversely impact our results of operations. As of December 31, 2017, we had goodwill of $610.5 million. The future occurrence of a potential indicator of impairment, such as a significant adverse change in legal factors or business climate, an adverse action or assessment by a regulator, unanticipated 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 goodwill impairment charges, which could adversely impact our results of operations. We have recorded goodwill impairment charges in the past, and such charges materially impacted our historical results of operations and financial condition. Based on our 2017 goodwill impairment test, performed as of October 1, 2017, no reporting units were identified as being at risk of future impairment. For additional information, see Note 4, Goodwill and Intangible Assets, to the accompanying consolidated financial statements and “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. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 10 POLYONE CORPORATION ITEM 2. PROPERTIES Headquartered in Avon Lake, Ohio we operate globally with principal locations consisting of 70 manufacturing sites and eight distribution facilities in North America, South America, Europe, Asia and Africa. 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 Specialty Engineered Materials Color, Additives and Inks PolyOne Distribution 1. Carson, California 1. McHenry, Illinois 1. Glendale, Arizona Shenzhen, China (1) 1. Rancho Cucamonga, 2. Terre Haute, Indiana 3. Louisville, Kentucky 4. Avon Lake, Ohio 5. Clinton, Tennessee 2. Avon Lake, Ohio Dyersburg, Tennessee (1) 2. Kennesaw, Georgia Suwanee, Georgia (3) 23. Tianjin, China California 24. Novo Hamburgo, Brazil 2. Chicago, Illinois 3. North Haven, Connecticut Seabrook, Texas (1) 3. Elk Grove Village, Illinois 25. Berea, Ohio 3. Eagan, Minnesota 4. St. Louis, Missouri 26. Richland Hills, Texas 4. Edison, New Jersey 6. Dyersburg, Tennessee 4. Gaggenau, Germany 5. Massillon, Ohio 27. Bethel, Connecticut 5. Statesville, North 7. Pasadena, Texas 5. Istanbul, Turkey 6. Norwalk, Ohio 28. Knowsley, United Carolina 8. Seabrook, Texas 6. Barbastro, Spain 7. North Baltimore, Ohio Kingdom 6. Elyria, Ohio 9. Orangeville, Ontario, Canada 7. Melle, Germany 8. & 9. Suzhou, China (2) 10. St. Remi de Napierville, Quebec, Canada 10. Shenzhen, China Shanghai, China (3) 8. Lehigh, Pennsylvania 29. Eindhoven, Netherlands 7. La Porte, Texas 9. Mountain Top, Pennsylvania 30. Suzhou, China 31. & 32. Shanghai, China (4) 8. Brampton, Ontario, Canada 10. Vonore, Tennessee 33. Itupeva, Brazil (8 Distribution Facilities) 11. Dongguan, China 11. Birmingham, Alabama 11. Toluca, Mexico 34. Odkarby, Finland 12. Lockport, New York 12. Englewood, Colorado 12. Assesse, Belgium 35. Cape Town, South Africa 13. Ramos Arizpe, Mexico (13 Manufacturing Plants) 13. Montrose, Colorado Pune, India(1) 13. Cergy, France 36. Diez, Germany 14. Tossiat, France 37. La Porte, Indiana (13 Manufacturing Plants) 15. Gyor, Hungary 16. Milan, Italy 38. Pineville, NC 39. Lima, Peru 17. Kutno, Poland 40. Phoenix, Arizona 18. Pune, India 41. Fort Smith, Arkansas 19. Pamplona, Spain 42. Barcelona, Spain 20. Bangkok, Thailand 43. Alicante, Spain 21. Pudong (Shanghai), China 44. Tabor, Czech Republic Pamplona, Spain (3) 22. Jeddah, Saudi Arabia (44 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 ITEM 3. LEGAL PROCEEDINGS Information regarding other legal proceedings can be found in Note 11, Commitments and Contingencies, to the consolidated financial statements and is incorporated by reference herein. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. POLYONE CORPORATION 11 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 15, 2018 and current position with the Company. Name Robert M. Patterson Bradley C. Richardson Mark D. Crist Michael A. Garratt J. Scott Horn Lisa K. Kunkle M. John Midea, Jr. Craig M. Nikrant Joel R. Rathbun João José San Martin Neto Donald K. Wiseman Age 45 59 59 54 62 49 53 56 45 57 50 Position Chairman, President and Chief Executive Officer Executive Vice President, Chief Financial Officer Senior Vice President, President of Color, Additives and Inks Senior Vice President, Chief Commercial Officer Senior Vice President, President of Distribution 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 Performance Products and Solutions Robert M. Patterson: Chairman, President and Chief Executive Officer, May 2016 to date. President and Chief Executive Officer, May 2014 to May 2016. 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. Bradley C. Richardson: Executive Vice President, Chief Financial Officer, November 2013 to date. Executive Vice President, 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) from 2000 to 2003. Mr. Richardson serves on the Board of Directors of Brady Corporation and is Chair of its Audit Committee. Mark D. Crist: Senior Vice President, President of Color, Additives and Inks, July 2017 to date. Senior Vice President, President of Distribution, June 2014 to July 2017. 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 from June 2003 to March 2006. Michael A. Garratt: Senior Vice President, Chief Commercial Officer, April 2016 to date. Senior Vice President, President of Performance Products and Solutions, September 2013 to April 2016. President, Marmon Utility (a manufacturer of medium-high voltage utility, subsea and down-hole power cables and molded insulator systems) from March 2011 to September 2013. Chief Operating Officer, Excel Polymers (a custom thermoset rubber formulator) from November 2009 to December 2010. Vice President and General Manager - Americas Compounding and Performance Additives, Excel Polymers from March 2009 to November 2009. Vice President and General Manager - Industrial and Consumer, Excel Polymers from December 2005 to March 2009. From April 1996 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. J. Scott Horn: Senior Vice President, President of Distribution, July 2017 to date. General Manager, PolyOne Distribution, 2000 to July 2017. Vice President of M.A. Hanna Resin Distribution from 1995 to 2000, when PolyOne was formed. President, Fiberchem, Inc. (a leading regional distributor of thermoplastic and thermoset resins) from 1991, upon acquisition of Fiberchem by PolyOne’s predecessor, M.A. Hanna Company, to 1995. Mr. Horn worked in various roles of increasing responsibility at Fiberchem from 1981 to 1991. 12 POLYONE CORPORATION 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) from January 2006 to February 2007. Associate, Jones Day from 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. 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 (a former division of General Electric specializing in supplying plastics) from June 2004 to September 2006. Director, Global Commercial Effectiveness, General Electric Plastics from December 2003 to June 2004. Six Sigma Master Black Belt, General Electric Company Plastics Business from March 2001 to December 2002. General Manager, Commercial Operations, North Central Region, General Electric Plastics from June 1999 to March 2001. Joel R. Rathbun: Senior Vice President, Mergers and Acquisitions, January 2016 to date. General Manager, Specialty Engineered Material North America, February 2013 to January 2016. Vice President, Mergers and Acquisitions, 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. João José San Martin Neto: Senior Vice President, Chief Human Resources Officer, November 2016 to date. Senior Director, Human Resources, Color, Additives and Inks, February 2013 to November 2016. Group Global Director, Human Resources, Engineered Products and Solutions from November 2012 to February 2013. Vice President Human Resources, Alcoa Power and Propulsion (a business unit of Alcoa Inc. specializing in titanium and aluminum castings) from May 2009 to October 2012. Vice President Human Resources, Alcoa Electrical & Electronic Solutions (a business unit of Alcoa Inc. specializing in the design, development and production of electrical and electronic distribution systems) from August 2003 to April 2009. Donald K. Wiseman: Senior Vice President, President of Performance Products and Solutions, April 2016 to date. General Manager of Geon Performance Materials, September 2015 to April 2016. Prior to PolyOne, he worked at Johns Manville (a manufacturer of insulation, roofing materials and engineered products), where he had responsibility for its Performance Materials business from December 2013 to September 2015. Managing Director, Cabot Microelectronics Corporation (a provider of chemical mechanical planarization solutions) from June 2012 to December 2013. Global Business Director, Cabot Microelectronics Corporation from June 2007 to June 2012. Vice President of Operations, Michelman (a manufacturer of advanced materials used in coatings, printing & packaging and industrial markets) from May 2005 to June 2007. POLYONE CORPORATION 13 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 High Low $ $ 46.79 40.06 $ $ 40.61 34.15 Second 40.88 $ 33.19 $ First Fourth Third $ $ 35.06 31.68 $ $ 34.68 28.77 $ $ 38.34 31.25 Second 38.41 $ 29.74 $ First $ $ 31.30 22.35 2017 Quarters 2016 Quarters As of February 1, 2018, there were 1,856 holders of record of our common shares. The following table presents quarterly dividends declared per common share for the fiscal year ended December 31, 2017 and 2016: Quarter Ended: March 31, June 30, September 30, December 31, Total 2017 2016 $ $ 0.135 0.135 0.135 0.175 0.580 $ $ 0.120 0.120 0.120 0.135 0.495 We currently have an authorized common share repurchase program; however, we did not repurchase any common shares during the three months ended December 31, 2017. For the full year 2017, we repurchased 2.0 million common shares at a weighted average share price of $35.38. 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 — $ — — — $ — — — — Total Number of Shares Purchased as Part of Publicly Announced Program — — — — Maximum Number of Shares that May Yet be Purchased Under the Program(1) 6,485,874 6,485,874 6,485,874 (1) On August 18, 2008, we announced that our Board of Directors approved a common shares repurchase program authorizing PolyOne to purchase up to 10.0 million of its common shares. On October 11, 2011 and October 23, 2012, we further announced that our Board of Directors had increased the common shares repurchase authorization by an additional 5.3 million and 13.2 million, respectively. On May 16, 2016, we announced that we would increase our share buyback by 7.3 million to 10.0 million. As of December 31, 2017, approximately 6.5 million shares remain available for purchase under these authorizations. 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. 14 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) 2017 2016 2015 2014 2013 Sales Operating income Net income from continuing operations Net income from continuing operations attributable to PolyOne shareholders $ 3,229.9 $ 2,938.6 $ 2,928.8 $ 3,219.0 $ 3,173.9 277.5 173.6 173.5 286.3 166.2 166.4 257.6 148.5 148.4 150.6 74.7 75.5 243.0 100.2 101.3 Cash dividends declared per common share $ 0.580 $ 0.495 $ 0.420 $ 0.340 $ 0.260 Earnings per share from continuing operations attributable to PolyOne shareholders: Basic Diluted Total assets Long-term debt $ $ $ $ 2.13 2.11 2,705.3 1,276.4 $ $ $ $ 1.98 1.96 2,735.8 1,239.4 $ $ $ $ 1.69 1.67 2,620.3 1,127.6 $ $ $ $ 0.82 0.81 2,666.3 948.5 $ $ $ $ 1.06 1.05 2,896.6 952.6 POLYONE CORPORATION 15 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide information that is supplemental to, and should be read together with, our consolidated financial statements and the accompanying notes contained in this Annual Report on Form 10-K. Information in this Item 7 is intended to assist the reader in obtaining an 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 engineered materials, advanced composites, color and additive systems 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 2017 sales of $3.2 billion, we have manufacturing sites and distribution facilities in North America, South America, Europe, Asia and Africa. We currently employ approximately 6,300 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). 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 54% and 52% of our respective 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. 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. 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, 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 our core capabilities 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 16 POLYONE CORPORATION be found in numerous initiatives: active participation in the medical device market, leveraging our global footprint 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. Recent Developments On January 2, 2018, the Company completed the acquisition of IQAP Masterbatch Group S.L. (IQAP), an innovative producer of specialty colorants and additives based in Spain with customers throughout Europe. The results of operations of IQAP will be reported in the Color, Additives and Inks segment. The acquisition of IQAP is expected to add approximately $45.0 million in annual sales. On July 5, 2017, the Company completed the acquisition of assets from Mesa Industries, Inc. (Mesa), a United States producer of color and additive materials and services. On June 8, 2017, the Company completed the acquisition of Rutland Holding Company (Rutland), a leading producer of specialty inks and an innovator in textile screen printing solutions and services. On January 3, 2017, the Company completed the acquisition of SilCoTec, Inc. (SilCoTec), a leading producer of innovative silicone colorants, dispersions and formulations. The results of operations of the 2017 acquisitions are included in the Color, Additives and Inks segment subsequent to their respective acquisition dates. The 2017 acquisitions collectively added $57.7 million to total sales for the year ended December 31, 2017. On July 19, 2017, PolyOne divested its Designed Structures and Solutions (DSS) segment to an affiliate of Arsenal Capital Partners. Previously, DSS was included as a separate operating segment. As a result of the sale, the DSS operating segment results are now reported as discontinued operations. Historical information has been retrospectively adjusted to reflect these changes. 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 2017 $ 3,229.9 2016 $ 2,938.6 2015 $ 2,928.8 277.5 173.6 173.5 286.3 166.2 166.4 257.6 148.5 148.4 $ 573.9 $ 611.7 $ 615.5 $ 1,276.4 $ 1,239.4 $ 1,127.6 POLYONE CORPORATION 17 Results of Operations Variances — Favorable (Unfavorable) 2017 versus 2016 2016 versus 2015 (Dollars in millions, except per share data) 2017 2016 2015 Change % Change Change % Change Sales Cost of sales Gross margin Selling and administrative expense Operating income Interest expense, net Debt extinguishment costs Other (expense) income, net Income from continuing operations before income taxes Income tax expense $ 3,229.9 $ 2,938.6 $ 2,928.8 $ 291.3 9.9 % $ 2,510.9 2,261.5 2,277.3 (249.4) (11.0)% 719.0 441.5 277.5 (60.8) (0.3) (4.1) 212.3 (38.7) 677.1 390.8 286.3 (59.7) (0.4) 0.4 226.6 (60.4) 651.5 393.9 257.6 (64.0) (16.4) (3.2) 174.0 (25.5) 41.9 6.2 % (50.7) (13.0)% (8.8) (1.1) 0.1 (4.5) (14.3) 21.7 7.4 (3.1)% (1.8)% 25.0 % nm (6.3)% 35.9 % 9.8 15.8 25.6 3.1 28.7 4.3 16.0 3.6 0.3 % 0.7 % 3.9 % 0.8 % 11.1 % 6.7 % 97.6 % 112.5 % 52.6 30.2 % (34.9) (136.9)% Net income from continuing operations $ 173.6 $ 166.2 $ 148.5 $ 4.5 % $ 17.7 11.9 % Loss from discontinued operations, net of income taxes Net (loss) income Net (income) loss attributable to noncontrolling interests Net (loss) income attributable to PolyOne common shareholders (231.2) (57.6) (1.2) 165.0 (3.8) (230.0) nm 144.7 (222.6) (134.9)% 2.6 20.3 (68.4)% 14.0 % (0.1) 0.2 (0.1) (0.3) (150.0)% 0.3 300.0 % $ (57.7) $ 165.2 $ 144.6 $ (222.9) (134.9)% $ 20.6 14.2 % Earnings (loss) per share attributable to PolyOne common shareholders - basic: Continuing operations Discontinued operations Total $ $ 2.13 $ 1.98 $ 1.69 (2.84) (0.01) (0.04) (0.71) $ 1.97 $ 1.65 Earnings (loss) per share attributable to PolyOne common shareholders - diluted: Continuing operations Discontinued operations Total nm - not meaningful Sales $ $ 2.11 $ 1.96 $ 1.67 (2.81) (0.01) (0.04) (0.70) $ 1.95 $ 1.63 Sales increased $291.3 million, or 9.9%, in 2017 compared to 2016. Previous commercial investments drove organic sales growth of 6.6% and acquisitions increased sales by 3.2%. Sales increased $9.8 million, or 0.3%, in 2016 compared to 2015. Growth within the industrial and consumer markets positively impacted sales by 4.3%, while acquisitions increased sales by 1.7%. 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, reduced sales by 4.7% and unfavorable foreign exchange impacted sales 1.0%. Cost of sales As a percent of sales, cost of sales increased from 77.0% in 2016 to 77.7% in 2017 primarily as a result of raw material cost inflation. As a percent of sales, cost of sales decreased from 77.8% in 2015 to 77.0% in 2016 primarily due to lower hydrocarbon based raw material costs. 18 POLYONE CORPORATION Selling and administrative expense These costs include selling, technology, administrative functions, corporate and general expenses. Selling and administrative expense in 2017 increased $50.7 million, primarily related to $20.3 million in additional compensation and employee costs, which was impacted by our investment in commercial resources, as well as acquired businesses of $16.3 million. The remaining increase is primarily related to our 2017 pension mark-to-market adjustment compared to 2016, which increased expense $11.3 million. See Note 10, Employee Benefit Plans, for further discussion on our mark-to-market adjustment. Selling and administrative expense in 2016 decreased $3.1 million, primarily related to an $18.7 million reduction in our pension mark-to-market adjustment. See Note 10, Employee Benefit Plans, for further discussion on our mark- to-market adjustment. Offsetting this decrease were selling and administrative expenses associated with acquired businesses of $6.7 million and an increase in employee costs, including incentives, of $4.0 million. Interest expense, net Interest expense, net increased $1.1 million in 2017 compared to 2016 due to the impact of increased market interest rates and higher borrowings on our senior secured revolving credit facility. Partially offsetting these increases were interest rate reductions from amending the senior secured term loan in January and August to reduce the margin by 50 basis points and 25 basis points, respectively. Interest expense, net decreased $4.3 million in 2016 compared to 2015 due to the refinancing of higher interest debt during the fourth quarter of 2015. Debt extinguishment costs Debt extinguishment costs of $0.3 million and $0.4 million for 2017 and 2016 includes the write-off of unamortized deferred financing costs and premium and consent payments in connection with the amendments of the senior secured term loan due 2022 and the senior secured revolving credit facility. See Note 5, Financing Arrangements for additional information. Debt extinguishment costs of $16.4 million for 2015 include $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. 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 were 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. The Tax Cuts and Jobs Act (TCJA) was enacted on December 22, 2017. Among other things, effective in the first taxable year after the enactment, the TCJA reduces the US federal corporate tax rate from 35% to 21% and exempts from U.S. federal income taxation dividends from certain foreign corporations to their U.S. shareholders. The TCJA also requires U.S. companies to pay a one-time transition tax on earnings of certain foreign corporate subsidiaries that were previously deferred from U.S. taxation. Further, the TCJA impacts certain deductions by limiting or eliminating them and it subjects certain foreign earnings to U.S. tax. At December 31, 2017, we have not completed our accounting for the tax effects of the enactment of the TCJA; however, in compliance with the SEC's Staff Accounting Bulletin (SAB) 118 (issued December 22, 2017), we have made a reasonable estimate of the effects on our existing deferred income tax balances and the one-time transition tax, which is included as a component of income tax expense from continuing operations in the following tabular reconciliation. We do not anticipate the resulting cash tax payable for the one-time transition tax to be greater than $10.0 million. Once we have finalized our 2017 tax returns, we will update our estimates based on our completed review, including the consideration of additional clarifications on the TCJA from the U.S. government. Any adjustments to our provisional amounts will be disclosed in our respective filings within the one-year measurement period provided by SAB 118. At December 31, 2017, we have not completed our analysis with respect to the impact of the TCJA on our continuing assertion that our foreign earnings are indefinitely reinvested pursuant to Accounting Principles Board (APB) 23 of Accounting Standards Codification (ASC) 740-30. APB 23 provides guidance that US companies do not POLYONE CORPORATION 19 need to recognize tax effects on foreign earnings that are indefinitely reinvested. Upon completion of our analysis, if our assertion were to change in the future, that change could result in a recognition of tax liabilities. At December 31, 2017, we have not completed our analysis with respect to the impact of the TCJA on our 2018 effective tax rate, but we reasonably estimate it to be approximately 25% excluding the effect of future or unknown changes in tax laws, statutory tax rates, uncertain tax positions, valuation allowances and other non-recurring tax adjustments. A reconciliation of the applicable U.S. federal statutory tax rate to the consolidated effective income tax rate from continuing operations along with a description of significant or unusual reconciling items is included below. Federal statutory income tax rate Foreign tax rate differential State and local tax, net Tax benefits on certain foreign investments Domestic production activities deduction Amended prior period tax returns and corresponding favorable audit adjustments Net impact of uncertain tax positions Permanent tax differences U.S. credit for research activities Changes in valuation allowances U.S. tax reform, transition tax U.S. tax reform, tax effect on net deferred tax liabilities Other Effective income tax rate 2017 2017 2016 2015 35.0% (11.1) 1.4 (6.8) (1.9) (3.6) 2.2 1.2 (1.1) 0.7 11.3 (9.5) 0.4 18.2% 35.0% (5.6) 2.1 (1.9) (1.5) (1.3) (1.1) 0.9 (0.4) 0.4 — — 0.1 26.7% 35.0% (5.3) 2.5 — (1.8) (17.7) 0.5 1.7 (0.5) 0.3 — — — 14.7% The increase in the Foreign tax rate differential line item in the table above, compared to 2016, primarily related to a European legal entity realignment. Tax benefits on certain foreign investments decreased the effective tax rate by 6.8% ($14.4 million) related to distributions from foreign subsidiaries with net foreign tax credits. U.S. tax reform had a net unfavorable impact of 1.8% ($3.8 million) that included the unfavorable impact of the transition tax of 11.3% ($24.0 million) and was partially offset by the lower U.S. federal corporate tax rate reducing our net deferred tax liabilities, which reduced the tax rate by 9.5% ($20.2 million). 2016 Tax benefits on certain foreign investments decreased the effective tax rate by 1.9% ($4.3 million) primarily related to the dissolution of an entity. The Net impact of uncertain tax positions decreased the effective tax rate by 1.1% ($2.5 million) and primarily related to the reversal of an uncertain tax position due to the expiration of the statute of limitations. 2015 Amending U.S. federal income tax returns for 2004 through 2012 to use foreign tax credits decreased the effective tax rate by 17.7% ($30.8 million). This is reflected in the Amended prior period tax returns and corresponding favorable audit adjustments line in the table above. The Net impact of uncertain tax positions increased the effective tax rate by 0.5% ($0.9 million). The reversal of an uncertain tax position due to the expiration of the statute of limitations decreased the effective tax rate by 5.7% ($9.9 million). A foreign court ruling, which settled an uncertain position taken in a prior year, increased the effective tax rate by 4.6% ($8.0 million). Other unfavorable uncertain tax positions increased the effective tax rate by 1.6%, which offset the net decrease in the effective tax rate of the two items noted. 20 POLYONE CORPORATION Segment Information 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 the segment level does not include: corporate general and administrative costs that are not allocated to segments; intersegment sales and profit eliminations; charges related to specific strategic initiatives, such as the 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; 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 four reportable segments: (1) Color, Additives and Inks; (2) Specialty Engineered Materials; 3) Performance Products and Solutions; and (4) PolyOne Distribution. Our segments are further discussed in Note 14, Segment Information, to the accompanying consolidated financial statements. Sales and Operating Income — 2017 compared with 2016 and 2016 compared with 2015 (Dollars in millions) 2017 2016 2015 Change % Change Change % Change 2017 versus 2016 2016 versus 2015 Sales: Color, Additives and Inks $ Specialty Engineered Materials Performance Products and Solutions PolyOne Distribution Corporate and eliminations Sales Operating income: 893.2 624.3 720.6 1,154.6 (162.8) $ 797.7 565.8 668.5 1,071.0 (164.4) $ 810.7 542.8 694.1 1,034.1 (152.9) $ $ 3,229.9 $ 2,938.6 $ 2,928.8 $ Color, Additives and Inks $ 138.6 $ 127.5 $ 135.4 $ Specialty Engineered Materials Performance Products and Solutions PolyOne Distribution Corporate and eliminations Operating income 78.2 77.1 72.6 (89.0) $ 277.5 $ 81.1 74.4 68.2 79.6 57.4 68.0 (64.9) 286.3 $ (82.8) 257.6 $ 95.5 58.5 52.1 83.6 1.6 291.3 11.1 (2.9) 2.7 4.4 (24.1) (8.8) 12.0 % $ 10.3 % 7.8 % 7.8 % 1.0 % 9.9 % $ 8.7 % $ (3.6)% 3.6 % 6.5 % (37.1)% (3.1)% $ (13.0) 23.0 (25.6) 36.9 (11.5) 9.8 (7.9) 1.5 17.0 0.2 17.9 28.7 (1.6)% 4.2 % (3.7)% 3.6 % (7.5)% 0.3 % (5.8)% 1.9 % 29.6 % 0.3 % 21.6 % 11.1 % Operating income as a percentage of sales: Color, Additives and Inks Specialty Engineered Materials Performance Products and Solutions PolyOne Distribution Total Color, Additives and Inks 15.5% 12.5% 10.7% 6.3% 8.6% 16.0% 14.3% 11.1% 6.4% 9.7% 16.7% 14.7% 8.3% 6.6% 8.8% (0.5)% points (1.8)% points (0.4)% points (0.1)% points (1.1)% points (0.7)% points (0.4)% points 2.8% points (0.2)% points 0.9% points Sales increased $95.5 million, or 12.0%, in 2017 compared to 2016. Acquisitions increased sales by 8.1%, while sales grew 3.4% organically primarily in the packaging, wire & cable and textile end markets. Favorable foreign exchange rates added 0.5% to the sales growth rate. Operating income increased $11.1 million in 2017 compared to 2016. This was driven by increased sales, partially offset by raw material cost inflation and increased compensation costs. Sales decreased $13.0 million, or 1.6%, in 2016 compared to 2015. Sales increases of 2.2% from acquisitions were offset by unfavorable foreign exchange rate impacts of 1.5% and sales declines of 1.6% associated with legacy Spartech Corporation (Spartech) business. The remaining decline was a result of lower demand within the oil and gas and packaging end markets. POLYONE CORPORATION 21 Operating income decreased $7.9 million in 2016 compared to 2015, due primarily to the decline in sales noted above, unfavorable exchange rate impacts of $1.0 million and unfavorable product mix. Specialty Engineered Materials Sales increased $58.5 million, or 10.3%, in 2017 compared to 2016 largely driven by organic growth of 5.1% and growth from acquisition of 5.0%. Operating income decreased by $2.9 million, in 2017 compared to 2016 as the benefit of increased sales was more than offset by raw material cost inflation. Sales increased $23.0 million, or 4.2%, in 2016 compared to 2015. Sales increased 9.0% due to acquisitions, partially offset by unfavorable product mix of 3.7% primarily resulting from a decline in oil and gas applications, and an unfavorable foreign exchange rate impact of 1.1%. Operating income increased $1.5 million in 2016 compared to 2015 due to the increase in sales noted above. Performance Products and Solutions Sales increased $52.1 million, or 7.8%, in 2017 compared to 2016 primarily due to volume growth within the electrical and industrial end markets along with a 2.3% impact from higher overall average selling prices associated with raw material cost inflation. Operating income increased $2.7 million in 2017 compared to 2016 as the benefit of increased sales was partially offset by the impact of hurricane Harvey and ongoing raw material cost inflation. Sales decreased $25.6 million, or 3.7%, in 2016 compared to 2015 as volume growth of 2.1% was more than offset by a 5.6% decline related to reduced overall average selling prices resulting from lower hydrocarbon based raw material costs. Operating income increased $17.0 million in 2016 compared to 2015 primarily from expanding gross margin driven by improved mix and lower costs. PolyOne Distribution Sales increased $83.6 million, or 7.8%, in 2017 compared to 2016 as a result of growth in the electronics, appliance and industrial end markets as well as higher overall average selling prices associated with raw material cost inflation. Operating income increased $4.4 million in 2017 compared to 2016 as a result of higher sales. Sales increased $36.9 million, or 3.6%, in 2016 compared to 2015. Volume growth of 11.1% was partially offset by lower overall average selling prices due to declining hydrocarbon based resin costs. Operating income increased $0.2 million in 2016 compared to 2015 as a result of increased sales, offset by increased selling and administrative costs from our investment in commercial resources and margin compression from lower overall average selling prices due to declining hydrocarbon based resin costs. Corporate and Eliminations Corporate and eliminations increased $24.1 million in 2017 compared to 2016. This increase is largely due to a $3.3 million mark-to-market loss in 2017 as compared to an $8.4 million mark-to-market gain in 2016. See Note 10, Employee Benefit Plans, for further discussion on our mark-to-market adjustment. Additionally, there was $9.4 million higher compensation and employee costs primarily associated with additional incentives and commercial resources. Corporate and eliminations decreased $17.9 million in 2016 as compared to 2015. This decrease was largely due to a $20.0 million lower mark-to-market adjustment in 2016 as compared to 2015. See Note 10, Employee Benefit Plans, for further discussion on our mark-to-market adjustment. Offsetting these decreases was an increase associated with acquisition related costs of $5.5 million. 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 22 POLYONE CORPORATION 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, 2017: (In millions) Cash and cash equivalents Revolving credit availability Liquidity $ $ 243.6 330.3 573.9 As of December 31, 2017, 92% of the Company’s cash and cash equivalents resided outside the United States. Repatriation of such foreign cash and cash equivalents are exempt from domestic taxation pursuant to the enactment of the TCJA but in certain cases may be subject to foreign taxes. As of December 31, 2017, the non-U.S. subsidiaries had a cumulative unremitted foreign earnings income position of $413.0 million, for which no deferred tax liability has been provided with respect to foreign withholding taxes, as these amounts, consistent with our policy (as noted above and described in more detail below), continue to be indefinitely reinvested. After considering the impact of foreign tax credit carryforwards, we anticipate that the resulting cash tax payable as a result of the one-time transition tax on previously deferred foreign earnings is estimated to be less than $10.0 million and we have elected to pay with the company’s current year tax filing. As such, no future cash tax payments are anticipated for the transition tax. 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 2018 include cash from operations and available liquidity under our revolving credit facility, if needed. Expected uses of cash in 2018 include select specialty acquisitions, interest payments, cash taxes, dividend payments, share repurchases, environmental remediation costs and capital expenditures. Capital expenditures are currently estimated to be $75.0 to $80.0 million in 2018, primarily to support sales growth, our continued investment in recent acquisitions and other strategic investments. Additionally, as further described in Note 11, Commitments and Contingencies, we may incur additional uses of cash for environmental remediation at the former Goodrich Corporation Calvert City site. 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 2017 2016 2015 $ $ 202.4 (119.4) (72.7) 6.6 16.9 $ $ $ 227.6 (235.4) (40.3) (5.0) (53.1) $ 240.3 (106.5) (83.5) (9.1) 41.2 Operating activities In 2017, net cash provided by operating activities was $202.4 million as compared to $227.6 million in 2016. The decrease in net cash provided by operating activities of $25.2 million reflects an increase in working capital in support of higher revenues. 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, increased to 10.3% at December 31, 2017 from 10.0% at December 31, 2016. This increase is due to the support of higher revenues and the impact of recent acquisitions. In 2016, net cash provided by operating activities was $227.6 million as compared to $240.3 million in 2015. The decrease in net cash provided by operating activities of $12.7 million was primarily driven by working capital changes of $60.1 million between 2016 and 2015. Lower sales during 2015 resulted in a working capital reduction of $55.7 million as compared to a slight build in working capital supporting higher sales in 2016. This decrease in POLYONE CORPORATION 23 cash flow was largely offset by higher earnings of $20.3 million and lower incentive payments of $22.0 million during 2016. Investing Activities Net cash used by investing activities during 2017 of $119.4 million reflects capital expenditures of $79.6 million and acquisitions of $163.8 million, partially offset by the proceeds from the sale of business and other assets of $124.0 million. Net cash used by investing activities during 2016 of $235.4 million reflects capital expenditures of $84.2 million and acquisitions of $164.2 million, partially offset by the sale of and proceeds from other assets of $13.0 million. Net cash used by investing activities during 2015 of $106.5 million primarily reflects capital expenditures of $91.2 million acquisitions of $18.3 million, partially offset by the sale of and proceeds from other assets of $3.0 million. Financing Activities Net cash used by financing activities in 2017 primarily reflects repurchases of $70.7 million of our outstanding common shares, cash dividends paid of $44.1 million and $6.5 million repayment of long-term debt. Net borrowings of $55.9 million under our revolving credit facilities partially offset these uses. Net cash used in financing activities in 2016 primarily reflects repurchases of $86.2 million of our outstanding common shares, cash dividends paid of $40.2 million and $6.0 million repayment of long-term debt. Partially offsetting these cash outflows was the increase of $100.0 million to the senior secured term loan due 2022 primarily used to fund acquisitions. Net cash used in 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 our senior secured term loan. Total Debt The following table summarizes debt as presented at December 31, 2017 and 2016. (In millions) Senior secured revolving credit facility due 2022 Senior secured term loan due 2022 5.250% senior notes due 2023 Other debt (1) Total debt Less short-term and current portion of long-term debt Total long-term debt, net of current portion December 31, 2017 December 31, 2016 $ $ $ 56.5 629.0 594.0 29.5 1,309.0 32.6 1,276.4 $ $ $ — 635.3 592.9 29.7 1,257.9 18.5 1,239.4 (1) Other debt includes capital lease obligations of $17.8 million and $17.4 million as of December 31, 2017 and 2016, respectively. On January 24, 2017, the Company entered into a third amendment to its senior secured term loan, which reduced the margin by 50 basis points to 225 basis points. On August 15, 2017, the Company entered into a fourth amendment to its senior secured term loan. Under the terms of the fourth amended senior secured term loan, the margin was reduced by an additional 25 basis points to 200 basis points. At the Company's discretion, interest is based upon (i) a margin rate of 200 basis points plus the 1-, 2-, 3-, or 6-month LIBOR or (ii) a margin rate of 100 basis points plus a Prime Rate, subject to a floor of 175 basis points. Repayments in the amount of one percent of the aggregate principal amount as of August 15, 2017 are payable annually, while the remaining balance matures on November 12, 2022.The weighted average annual interest rate under the senior secured term loan for the year ended December 31, 2017 and 2016 was 3.27% and 3.61%, respectively. The total principal repayments for the year ended December 31, 2017 were $6.5 million. On February 24, 2017, PolyOne amended and restated its senior secured revolving credit facility increasing the maximum borrowing facility size from $400.0 million to $450.0 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. Under the terms of the amended and restated senior secured revolving facility the maturity date was extended to February 24, 2022. The revolving credit facility has a U.S. and a Canadian line of credit. Currently there are no borrowings on the Canadian portion of the facility. Advances under the U.S. portion of our revolving credit facility 24 POLYONE CORPORATION 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, 2017 and 2016 was 2.77% and 3.15%, respectively. As of December 31, 2017, we had $56.5 million under our revolving credit facility, which had availability of $326.2 million. As of December 31, 2016, we had no borrowings under our revolving credit facility, which had availability of $382.7 million. The agreements governing our revolving credit facility and our senior secured term loan, and the indentures and credit agreements governing other debt, contain a number of customary financial and restrictive covenants that, among other things, limit our ability to: consummate asset sales, 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. As of December 31, 2017, we were in compliance with all covenants. The Company also has a credit line of $16.0 million with Saudi Hollandi Bank. 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 renewal. Borrowings under the credit line were primarily used to fund capital expenditures related to the manufacturing facility in Jeddah, Saudi Arabia. As of December 31, 2017, letters of credit under the credit line were $0.2 million and borrowings were $11.7 million with an interest rate of 2.69%. As of December 31, 2016, letters of credit under the credit line were $0.2 million and borrowings were $12.3 million with an interest rate of 2.84%. As of December 31, 2017 and 2016, remaining availability on the credit line was $4.1 million and $3.5 million, respectively. For additional information about our debt obligations, see Note 5, Financing Arrangements, to the accompanying consolidated financial statements. Letters of Credit Our revolving credit facility provides up to $50.0 million for the issuance of letters of credit, $8.1 million of which was used at December 31, 2017. These letters of credit are issued by the bank in favor of third parties and are mainly related to insurance claims. 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, 2017: (In millions) (1) Total debt Operating leases Interest on long-term debt obligations (2) Pension and post-retirement obligations (3) Purchase obligations (4) Total Payment Due by Period Total 2018 2019 & 2020 2021 & 2022 Thereafter $ 1,323.5 $ 32.6 $ 13.2 $ 674.7 $ 603.0 67.8 297.4 47.4 19.9 18.2 56.9 5.4 14.4 28.2 112.6 10.4 5.5 13.1 109.8 9.8 — 8.3 18.1 21.8 — $ 1,756.0 $ 127.5 $ 169.9 $ 807.4 $ 651.2 (1) Total debt includes both the current and long-term portions of debt and capital lease obligations. (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 for a 10 year period. 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, because we cannot predict with reasonable certainty the timing of cash settlements, if any, with the applicable taxing authorities. At December 31, 2017, the gross liability for unrecognized income tax benefits, including interest and penalties, totaled $22.5 million. POLYONE CORPORATION 25 Off-Balance Sheet Arrangements We have no material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K. 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 • This accrual represents our best estimate of the remaining probable costs based upon information and technology currently available. Depending upon the results of future testing, the ultimate remediation alternatives undertaken, changes in regulations, new information, newly discovered conditions and other factors, it is reasonably possible that we could incur additional costs in excess of the amount accrued. However, such additional costs, if any, cannot currently be estimated. Our estimate of this liability may be revised as new regulations or technologies are developed or additional information is obtained. • 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. • As we progress through certain benchmarks such as completion of the remedial investigation and feasibility study, issuance of a record of decision and remedial design, additional information will become available that may require an adjustment to our existing reserves. • With respect to Calvert City, based on the USEPA's proposed plan issued on December 1, 2017, the cost estimate for their proposed remedy is $244.0 million. The USEPA could issue its Record of Decision as early as the first quarter of 2018, and if the USEPA determines our alternative remedy is not appropriate, there could be an adjustment to increase our current reserve based on the proposed plan issued on December 1, 2017. Environmental Liabilities • Based upon our estimates, we have an undiscounted accrual of $117.1 million at December 31, 2017 for probable future environmental expenditures. 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. • Contrary to prior understanding, the United States Environmental Protection Agency (USEPA) issued a proposed plan for the site on December 1, 2017 identifying significant remedial actions beyond containment at the former Goodrich Corporation Calvert City site. During the public comment period, we had meaningful discussions with the USEPA regarding an alternative remedy, performed additional technical analysis to support our remedy, and have provided this information to the USEPA in our formal comment response. We believe this alternative is equally protective of human health and the environment, can commence contamination removal much more quickly, is less disruptive to the business operating at the site, and is more cost effective. These discussions, along with our technical analysis of an alternative remedy, give us reason to believe that there are two likely outcomes, the EPA’s proposed plan and our proposed alternative remedy, with neither outcome being more likely than the other. As such, we have not adjusted our current reserve of $107.0 million, which reflects the low end of the range of these two outcomes. • As of December 31, 2017, we have not accrued for costs of remediation to the lower Passaic River as we are unable to estimate a liability, related to this matter. • In some cases, the Company recovers a portion of the costs relating to these obligations from insurers or other third parties; however, the Company records such amounts only when they are collected. 26 POLYONE CORPORATION Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions Pension and Other Post-retirement Plans • 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 2017, we recognized a $3.3 million charge as a result of the recognition of these actuarial losses, which unfavorably impacted net income (loss), comprehensive income (loss) and the funded status of our pension plans. This loss was mainly driven by a decrease in discount rates used to estimate the value plan obligations. Income Taxes • 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 allowances are established when realization of the benefit of deferred tax assets is not deemed to be more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We have included a reasonable estimate of these effects from the Tax Cuts and Jobs Act enacted on December 22, 2017 (TCJA). Additionally, we have adopted a provisional policy for the tax on global intangible low- taxed income (GILTI) in association with the TCJA, and we will provisionally recognize tax on GILTI in each period as compared to setting up deferred taxes. • 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. • Asset returns and interest rates significantly affect the value of 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. • 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. • To develop our expected long-term return on plan assets, we consider historical and forward looking long-term asset returns and the expected investment portfolio mix of plan assets. The weighted- average expected long-term rate of return on plan assets was 6.08% for 2017 and 6.87% for 2016 and 2015. • Life expectancy is a significant assumption that impacts our pension and other post-retirement benefits obligation. During 2017, we adopted the MP-2017 mortality improvement scale which was issued by the Society of Actuaries in October 2017. • 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 other factors such as the interpretation of tax laws. We have provided valuation allowances as of December 31, 2017, aggregating to $21.4 million primarily against certain foreign and state net operating loss carryforwards based on our current assessment of future operating results and other factors. At December 31, 2017, the gross liability for unrecognized income tax benefits, including interest and penalties, totaled $22.5 million. • At December 31, 2017, we have not completed our accounting for the tax effects of the enactment of the Act; however, in certain cases and in compliance with the SEC's Staff Accounting Bulletin (SAB) 118 (issued December 22, 2017), we have made a reasonable estimate of the effects on our existing deferred income tax balances and the one-time transition tax, which is included as a component of income tax expense from continuing operations in the following tabular reconciliation. Once we have finalized our 2017 tax returns, we will update our estimates based on our completed review, including the consideration of additional clarifications on the TCJA from the U.S. government. Any adjustments to our provisional amounts will be disclosed in our respective filings within the one-year measurement period provided by SAB 118. • For the items which we were able to determine a reasonable estimate, we recognized a net provisional amount of $3.8 million, which is included as a component of income tax expense from continuing operations. • The weighted average discount rates used to value our pension liabilities as of December 31, 2017 and 2016 were 3.62% and 3.97%, respectively, post-retirement liabilities were 3.60% and 4.04%, respectively. As of December 31, 2017, 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 $23.2 million. An increase/decrease in the discount rate of 50 basis points as of December 31, 2017 would result in a change of approximately $1.5 million in the 2018 net periodic benefit cost. • The expected long-term return on plan assets utilized as of January 1, 2017 and 2016 was 6.08% and 6.87%, respectively. An increase/decrease in our expected long-term return on plan assets of 50 basis points as of December 31, 2017, would result in a change of approximately $2.3 million to 2018 net periodic benefit cost. • Although management believes that the estimates and judgments discussed herein are reasonable, actual results could differ, which could result in income tax expense or benefits, including those measurement period adjustments related to the TCJA that could be material. POLYONE CORPORATION 27 Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions Goodwill • 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, including subsequent updates, and test goodwill for impairment at least annually, absent a triggering event that would warrant an impairment assessment. On an ongoing basis, absent any impairment indicators, we perform our goodwill impairment testing as of the first day of October of each year. • We have identified our reporting units at the operating segment level, or in most 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. • We estimated fair value using the best information available to us, including market information and discounted cash flow projections using the income approach. • The income approach requires us to make assumptions and estimates regarding projected economic and market conditions, growth rates, operating margins and cash expenditures. Sensitivity analyses were performed around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values. • If actual results are not consistent with our assumptions and estimates, we may be exposed to goodwill impairment charges. • The fair value of the reporting unit is based on a number of subjective factors including: (a) appropriate consideration of valuation approaches, (b) the consideration of our business outlook for fiscal 2018 and beyond and (c) weighted average cost of capital (discount rate), growth rates and market multiples for our estimated cash flows. • Based on our 2017 annual impairment test performed on October 1st, we determined there were no reporting units considered to be at risk of future impairment due to the fair value's proximity to the carrying value. We believe that the current assumptions and estimates are reasonable, supportable and appropriate. The business could be impacted by unforeseen changes in market factors, which could impact our existing assumptions used in our impairment test. As such, there can be no assurance that these estimates and assumptions made for the purposes of the goodwill impairment test will prove to be accurate predictions of future performance. Indefinite-lived Intangible Assets • Indefinite-lived intangible assets represent trade names associated with acquired companies. • We estimate the fair value of trade names using a “relief from royalty payments” approach. This approach involves two steps: (1) estimating 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. • If actual results are not consistent with our assumptions and estimates, we may be exposed to impairment charges related to our indefinite lived trade name • Based on our 2017 annual impairment test, no trade names were considered at risk. 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. 28 POLYONE CORPORATION 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 and senior secured term loan is based upon a Prime rate or LIBOR, plus a margin. Interest on the credit line with Saudi Hollandi Bank is based upon SAIBOR plus a fixed 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, 2017. 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 29 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 (Loss) Consolidated Statements of Comprehensive Income (Loss) Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Shareholders’ Equity Notes to Consolidated Financial Statements Page 31 32 34 35 36 37 38 39 30 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, 2017. 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, 2017 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 reporting and the preparation of financial statements for external purposes in accordance with 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 transactions and dispositions of the assets of the Company; unauthorized or improper acquisition, use or disposal of Company assets will be prevented or timely detected; the 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. Management has assessed the effectiveness of PolyOne’s internal control over financial reporting as of December 31, 2017 and has prepared Management’s Annual Report On Internal Control Over Financial Reporting contained on page 63 of this Annual Report, which concludes that as of December 31, 2017, 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 Chairman, President and Chief Executive Officer Bradley C. Richardson Executive Vice President, Chief Financial Officer February 15, 2018 POLYONE CORPORATION 31 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of PolyOne Corporation Opinion on Internal Control over Financial Reporting We have audited PolyOne Corporation’s internal control over financial reporting as of December 31, 2017, 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). In our opinion, PolyOne Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, and the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes of PolyOne Corporation and our report dated February 15, 2018, expressed an unqualified opinion. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Management’s Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to PolyOne Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulation of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. 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. Definition and Limitations of Internal Control Over Financial Reporting 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 financial reporting includes those policies and procedures that (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. /s/ Ernst & Young LLP Cleveland, Ohio February 15, 2018 32 POLYONE CORPORATION REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of PolyOne Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of PolyOne Corporation (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of income (loss), comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material aspects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, 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 15, 2018 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as PolyOne Corporation's auditor since 1993. Cleveland, Ohio February 15, 2018 POLYONE CORPORATION 33 Consolidated Statements of Income (Loss) (In millions, except per share data) Sales Cost of sales Gross margin Selling and administrative expense Operating income Interest expense, net Debt extinguishment costs Other (expense) income, net Income from continuing operations before income taxes Income tax expense Net income from continuing operations Loss from discontinued operations, net of income taxes Net (loss) income Net (income) loss attributable to noncontrolling interests Net (loss) income attributable to PolyOne common shareholders Year Ended December 31, 2017 $ 3,229.9 2,510.9 719.0 441.5 277.5 (60.8) (0.3) (4.1) 212.3 (38.7) 173.6 (231.2) (57.6) (0.1) (57.7) $ 2016 $ 2,938.6 2,261.5 677.1 390.8 286.3 (59.7) (0.4) 0.4 226.6 (60.4) 166.2 (1.2) 165.0 0.2 165.2 $ 2015 $ 2,928.8 2,277.3 651.5 393.9 257.6 (64.0) (16.4) (3.2) 174.0 (25.5) 148.5 (3.8) 144.7 (0.1) 144.6 $ Earnings (loss) per share attributable to PolyOne common shareholders - basic: Continuing operations Discontinued operations Total Earnings (loss) per share attributable to PolyOne common shareholders - diluted: Continuing operations Discontinued operations Total Weighted-average shares used to compute earnings per common share: Basic Plus dilutive impact of share-based compensation Diluted Anti-dilutive shares not included in diluted common shares outstanding $ $ $ $ $ 2.13 (2.84) (0.71) $ 1.98 (0.01) 1.97 $ 2.11 (2.81) (0.70) $ 1.96 (0.01) 1.95 $ $ $ $ 81.5 0.6 82.1 0.6 83.9 0.7 84.6 0.2 1.69 (0.04) 1.65 1.67 (0.04) 1.63 87.8 0.9 88.7 — Cash dividends declared per common share $ 0.580 $ 0.495 $ 0.420 The accompanying notes to the consolidated financial statements are an integral part of these statements. 34 POLYONE CORPORATION Consolidated Statements of Comprehensive Income (Loss) (In millions) Net (loss) income Other comprehensive income (loss): Translation adjustments Unrealized gain on available-for-sale securities Total other comprehensive income (loss) Total comprehensive (loss) income Comprehensive (income) loss attributable to noncontrolling interests Year Ended December 31, 2017 2016 2015 $ (57.6) $ 165.0 $ 144.7 41.2 — 41.2 (23.0) (29.1) 0.1 0.1 (22.9) (29.0) (16.4) 142.1 115.7 (0.1) 0.2 (0.1) Comprehensive (loss) income attributable to PolyOne common shareholders $ (16.5) $ 142.3 $ 115.6 The accompanying notes to the consolidated financial statements are an integral part of these statements. POLYONE CORPORATION 35 Consolidated Balance Sheets (In millions, except par value per share) ASSETS Current assets: Cash and cash equivalents Accounts receivable, net Inventories, net Current assets held-for-sale Other current assets Total current assets Property, net Goodwill Intangible assets, net Non-current assets held-for-sale Other non-current assets Total assets LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term and current portion of long-term debt Accounts payable Current liabilities held-for-sale Accrued expenses and other current liabilities Total current liabilities Long-term debt Pension and other post-retirement benefits Deferred income taxes Non-current liabilities held-for-sale 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, 41.3 shares in 2017 and 39.6 shares in 2016 Accumulated other comprehensive loss PolyOne shareholders' equity Noncontrolling interest Total equity Total liabilities and equity Year Ended December 31, 2017 2016 $ 243.6 $ 392.4 327.8 — 102.8 1,066.6 461.6 610.5 400.0 — 166.6 225.5 325.6 266.4 86.5 45.5 949.5 426.3 532.7 342.7 347.4 137.2 $ $ 2,705.3 $ 2,735.8 32.6 $ 388.9 — 149.1 570.6 18.5 320.9 45.3 125.2 509.9 1,276.4 1,239.4 62.3 40.3 — 156.3 1,535.3 — 1.2 1,161.5 387.1 (898.3) (53.0) 598.5 0.9 599.4 63.1 6.9 50.2 140.8 1,500.4 — 1.2 1,157.1 491.2 (830.6) (94.2) 724.7 0.8 725.5 $ 2,705.3 $ 2,735.8 The accompanying notes to the consolidated financial statements are an integral part of these statements. 36 POLYONE CORPORATION Consolidated Statements of Cash Flows (In millions) Operating activities Net (loss) income Adjustments to reconcile net (loss) income to net cash provided by operating activities: Loss on sale of business, net of tax Depreciation and amortization Accelerated depreciation and fixed asset charges associated with restructuring activities Gain on sale of closed facilities Deferred income tax (benefit) expense Debt extinguishment costs Share-based compensation expense Changes in assets and liabilities, net of the effect of acquisitions: (Increase) decrease in accounts receivable (Increase) decrease in inventories Increase (decrease) in accounts payable Decrease in pension and other post-retirement benefits Decrease 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 the sale of business and other assets Net cash used by investing activities Financing activities Borrowings under credit facilities Repayments under credit facilities Purchase of common shares for treasury Cash dividends paid Repayment of long-term debt Payments on withholding tax on share awards Debt financing costs Net proceeds from long-term debt Premium on early extinguishment of long-term debt Net cash used 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, 2017 2016 2015 $ (57.6) $ 165.0 $ 144.7 227.7 97.4 0.9 (3.6) (1.4) 0.3 10.2 (44.7) (41.1) 52.2 (9.6) (28.3) 202.4 (79.6) (163.8) 124.0 (119.4) — 100.5 5.4 — 10.5 0.4 8.4 (17.6) 0.8 12.4 (43.2) (15.0) 227.6 (84.2) (164.2) 13.0 (235.4) 1,472.9 (1,417.0) (70.7) (44.1) (6.5) (4.7) (2.6) — — (72.7) 6.6 16.9 226.7 243.6 $ 1,031.9 (1,032.7) (86.2) (40.2) (6.0) (5.1) (2.0) 100.0 — (40.3) (5.0) (53.1) 279.8 226.7 $ $ — 98.1 17.6 — (27.4) 16.4 9.1 42.6 21.4 (8.3) (24.6) (49.3) 240.3 (91.2) (18.3) 3.0 (106.5) 891.3 (936.8) (156.1) (35.7) (365.3) (8.8) (6.0) 547.3 (13.4) (83.5) (9.1) 41.2 238.6 279.8 The accompanying notes to the consolidated financial statements are an integral part of these statements. POLYONE CORPORATION 37 Consolidated Statements of Shareholders' Equity Common Shares Common Shares Held in Treasury Common Shares Shareholders’ Equity Common Shares Additional Paid-in Capital Retained Earnings Common Shares Held in Treasury Accumulated Other Comprehensive Loss Total PolyOne shareholders' equity Non- controlling Interests Total equity 122.2 (32.9) $ 1.2 $ 1,155.4 $ 259.7 $ (597.7) $ (42.3) $ 776.3 $ 122.2 (36.9) $ 1.2 $ 1,155.6 $ 367.1 $ (748.4) $ (71.3) $ 704.2 $ 1.0 $ 705.2 5.6 5.6 165.2 (0.2) 165.0 144.6 (37.2) (4.5) 0.5 0.2 (156.1) 5.4 165.2 (41.1) (3.0) 0.3 1.5 (86.2) 4.0 (29.0) 144.6 (29.0) (37.2) (156.1) (22.9) (22.9) (41.1) (86.2) 5.5 122.2 (39.6) $ 1.2 $ 1,157.1 $ 491.2 $ (830.6) $ (94.2) $ 724.7 $ (2.0) 0.3 4.4 (57.7) (46.9) 0.5 (70.7) 3.0 41.2 (57.7) 41.2 (46.9) (70.7) 7.4 0.5 122.2 (41.3) $ 1.2 $ 1,161.5 $ 387.1 $ (898.3) $ (53.0) $ 598.5 $ 0.9 $ 599.4 0.9 0.1 $ 777.2 144.7 (29.0) (37.2) (156.1) (22.9) (41.1) (86.2) 5.5 0.8 0.1 $ 725.5 (57.6) 41.2 (46.9) (70.7) 7.4 0.5 (In millions) Balance at January 1, 2015 Net income Other comprehensive loss Cash dividends declared Repurchase of common shares Share-based compensation and exercise of awards Balance at December 31, 2015 Net income (loss) Other comprehensive loss Cash dividends declared Repurchase of common shares Share-based compensation and exercise of awards Balance at December 31, 2016 Net (loss) income Other comprehensive gain Cash dividends declared Repurchase of common shares Share-based compensation and exercise of awards Other Balance at December 31, 2017 The accompanying notes to the consolidated financial statements are an integral part of these statements. 38 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 engineered materials, advanced composites, color and additive systems 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 four reportable segments: Color, Additives and Inks; Specialty Engineered Materials; Performance Products and Solutions; and PolyOne Distribution. See Note 14, Segment Information, for more information. Accounting Standards Adopted In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), which simplifies the accounting for share-based payment transactions. Excess tax benefits and deficiencies reflect the difference between the book expense and the tax deduction of share based compensation. Book expense is based on an estimated fair value of the award at the grant date and the tax deduction is based on the actual value of the award at the exercise or vesting date. Such book and tax differences are required to be recognized as income tax expense or benefit in the Consolidated Statements of Income (Loss) rather than additional paid-in capital. Further, the update allows an entity to make a policy election to recognize forfeitures as they occur or estimate the number of awards expected to be forfeited. We have adopted ASU 2016-09 as of January 1, 2017. As a result of this adoption, certain reclassifications of the prior period presentation have been made to conform to the presentation for the current period. The excess tax benefits are classified as an operating activity, rather than a financing activity, and the cash paid for shares withheld to satisfy statutory tax withholding obligations are classified as a financing activity ($5.1 million and $8.8 million for the years ended 2016 and 2015, respectively) on the Consolidated Statement of Cash Flows. Also, we elected to continue to estimate forfeitures rather than account for them as they occur. In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. This standard removes the second step of the goodwill impairment test, where a determination of the fair value of individual assets and liabilities of a reporting unit were needed to measure the goodwill impairment. Under this updated standard, goodwill impairment will now be the amount by which a reporting unit’s fair value is less than its carrying value. Any impairment is not to exceed the respective carrying value of goodwill. We have adopted this update for any impairment test performed after January 1, 2017. 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. We have analyzed the impact of the standard on our contract portfolio and reviewed our current accounting policies and practices to identify differences that would result from applying the requirements of the new standard. We have identified our revenue streams and determined there is no material impact to the Consolidated Financial Statements from the adoption of ASU 2014-09, along with subsequent updates and clarifications collectively known as Accounting Standard Codification (ASC) 606. We have elected to transition to the standard through a cumulative-effect adjustment as of the date of adoption, but as a result of no material impact from the adoption of the standard, we will not have an adjustment to our beginning retained earnings balance. The Company will adopt ASU 2014-09 on the required date of January 1, 2018. In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842) (ASU 2016-02), which requires a lessee to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with a lease term of more than twelve months. Leases will continue to be classified as either financing POLYONE CORPORATION 39 or operating, with classification affecting the recognition, measurement and presentation of expenses and cash flows arising from a lease. The Company will adopt ASU 2016-02 no later than the required date of January 1, 2019. We are currently assessing the impact this standard will have on our Consolidated Financial Statements. In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other than Inventory (ASU 2016-16), which requires companies to recognize the income tax effects of intercompany sales or transfers of assets, other than inventory, in the income statement as income tax expense (or benefit) in the period the sale or transfer occurs. We will recognize an adjustment of $17.0 million to beginning retained earnings upon required adoption of this standard on January 1, 2018 from transactions completed as of December 31, 2017. In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07). This standard requires the presentation of the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. All other components of net periodic benefit cost will be presented below operating income. The Company will adopt ASU 2017-07 on the required date of January 1, 2018. For detail on the components of our annual net periodic benefit cost please see Note 10, Employee Benefit Plans. 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. Historical information has been retrospectively adjusted to reflect the classification of discontinued operations. Discontinued operations are further discussed in Note 3, Discontinued Operations. Reclassifications Certain reclassifications of the prior period amounts and presentation have been made to conform to the presentation for the current period for the adoption of ASU 2016-09 as further described in the Accounting Standards Adopted section of this Note. 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. 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. The allowance for doubtful accounts was $2.8 million and $2.6 million as of December 31, 2017 and 2016, respectively. Inventories External purchases of raw materials and finished goods are valued at weighted average cost. Raw materials and 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 three to 15 years for 40 POLYONE CORPORATION machinery and equipment and up to 40 years for buildings. We depreciate certain assets associated with closing manufacturing locations over a shortened life (through the 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 (Loss). We account for operating and capital 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 20 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 2017, 2016 or 2015. Goodwill and Indefinite Lived Intangible Assets 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. 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 most cases, one level below the operating segment level. Goodwill is allocated to the reporting units based on the estimated fair value at the date of acquisition. Our annual measurement date for testing impairment of goodwill and indefinite-lived intangibles is October 1. We completed our testing of impairment as of October 1, noting no impairment in 2017, 2016 or 2015. There are no reporting units identified as at-risk of future 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, 2018. 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. Indefinite-lived intangible assets primarily consist of the GLS, ColorMatrix and Gordon Composites trade names. Indefinite-lived intangible assets are tested for impairment annually at the same time we test goodwill for impairment. The implied fair value of indefinite-lived intangible assets is determined based on significant unobservable inputs, as summarized below. 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 using a weighted-average cost of capital that is determined based on current market conditions. This fair value is then compared with the carrying value of the trade name. 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 recognize expense associated with professional POLYONE CORPORATION 41 fees related to litigation claims and assessments as incurred. Refer to Note 11, 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 at each period end, with the resulting gains and losses recognized in the accompanying Consolidated Statements of Income (Loss) 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 10, Employee Benefit Plans, for more information. Accumulated Other Comprehensive Loss Changes in accumulated other comprehensive loss in 2017, 2016 and 2015 were as follows: (In millions) Balance at January 1, 2015 Translation adjustments Unrecognized gain on available-for-sale securities Balance at December 31, 2015 Translation adjustments Unrecognized gain on available-for-sale securities Balance at December 31, 2016 Translation adjustments Balance at December 31, 2017 Fair Value of Financial Instruments Cumulative Translation Adjustment Pension and other post- retirement benefits Unrealized gain in available- for-sale securities Total $ (47.7) $ 5.2 $ 0.2 $ (42.3) (29.1) — (76.8) (23.0) — (99.8) 41.2 — — 5.2 — — 5.2 — — 0.1 0.3 — 0.1 0.4 — (29.1) 0.1 (71.3) (23.0) 0.1 (94.2) 41.2 $ (58.6) $ 5.2 $ 0.4 $ (53.0) 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. 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 long-term investments, are included in Other income (expense), net in the accompanying Consolidated Statements of Income (Loss). 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, the price is fixed or determinable, shipment has occurred and collectability is reasonably assured. 42 POLYONE CORPORATION Shipping and Handling Costs Shipping and handling costs are included in cost of sales. Research and Development Expense Research and development costs of $52.1 million in 2017, $50.4 million in 2016 and $48.9 million in 2015, 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 We account for share-based compensation under the provisions of FASB ASC Topic 718, Compensation — Stock Compensation, which requires us to estimate the fair value of share-based awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the accompanying Consolidated Statements of Income (Loss). As of December 31, 2017, we had one active share-based employee compensation plan, which is described more fully in Note 13, 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 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. See Note 12, Income Taxes, for disclosure on the impact that the enacted Tax Cuts and Jobs Act (TCJA) has had on the recognition of our deferred tax assets and liabilities. Note 2 — BUSINESS COMBINATIONS On July 5, 2017, the Company completed the acquisition of assets from Mesa Industries, Inc. (Mesa), a producer of solid and liquid colorant technologies. Goodwill recognized as a result of this acquisition is deductible for tax purposes. On June 8, 2017, the Company completed the acquisition of Rutland Holding Company (Rutland). Rutland is a leading producer of specialty inks and an innovator in textile screen printing solutions and services. Goodwill recognized as a result of this acquisition is not deductible for tax purposes. On January 3, 2017, the Company completed the acquisition of SilCoTec, Inc. (SilCoTec), a leading producer of innovative silicone colorants, dispersions and formulations. Goodwill recognized as a result of this acquisition is deductible for tax purposes. The combined purchase price of Mesa, Rutland and SilCoTec was $163.8 million, net of cash acquired. The preliminary purchase price allocation for Mesa, Rutland and SilCoTec resulted in goodwill of $78.4 million, intangible assets of $76.8 million, net working capital of $20.0 million and deferred tax liabilities of $23.7 million. Goodwill of $21.0 million is deductible for tax purposes. The results of operations of Mesa, Rutland and SilCoTec are reported in the Color, Additives and Inks segment subsequent to the acquisition dates. The combined sales of Mesa, Rutland and SilCoTec included in our year ended December 31, 2017 results were $57.7 million. The fair value of the intangible assets acquired during the year ended December 31, 2017, including their estimated useful lives and valuation methodology are as follows: (in millions) Customer relationships Patents, technology and other Total $ $ Fair Value 51.5 25.3 76.8 Useful Life 17 - 20 5 - 20 Valuation Method Multi-period excess earnings Relief-from-royalty method POLYONE CORPORATION 43 Note 3 — DISCONTINUED OPERATIONS On July 19, 2017, PolyOne divested its Designed Structures and Solutions segment (DSS) to an affiliate of Arsenal Capital Partners (Arsenal) for $115.0 million cash, subject to working capital and other purchase adjustments. The sale resulted in the recognition of an after-tax loss of $227.7 million, which is reflected within the Loss from discontinued operations, net of income taxes line of the Consolidated Statements of Income (Loss). PolyOne has classified the DSS assets and liabilities as held-for-sale as of December 31, 2016 in the accompanying Consolidated Balance Sheets and has classified the DSS operating results and the loss on the sale, net of tax, as discontinued operations in the accompanying Consolidated Statements of Income (Loss) for all periods presented. Previously, DSS was included as a separate operating segment. The following table summarizes the discontinued operations associated with DSS for the years ended December 31, 2017, 2016 and 2015: (In millions) Sales Loss on sale Loss from operations Loss before taxes Income tax benefit $ $ 2017 2016 2015 222.1 $ 401.2 $ 448.8 (295.6) $ — $ (8.6) (304.2) 73.0 (4.3) (4.3) 3.1 — (6.3) (6.3) 2.5 (3.8) Loss from discontinued operations, net of taxes $ (231.2) $ (1.2) $ The following table summarizes the assets and liabilities of DSS as of December 31, 2016: (In millions) Assets: Current assets: Total current assets(1) Non-current assets: Property, net Goodwill Intangible assets, net Other non-current assets Total non-current assets Assets held-for-sale Liabilities: Current liabilities: Total current liabilities Non-current liabilities: Deferred income taxes Other Total non-current liabilities Liabilities held-for-sale December 31, 2016 $ $ $ $ 86.5 181.4 144.7 20.8 0.5 347.4 433.9 45.3 48.7 1.5 50.2 95.5 (1) Current assets includes cash and cash equivalents of $1.2 million. Note 4 — 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. 44 POLYONE CORPORATION Goodwill as of December 31, 2017 and 2016, and changes in the carrying amount of goodwill by segment were as follows: Specialty Engineered Materials Color, Additives and Inks Performance Products and Solutions PolyOne Distribution Total (In millions) Goodwill, gross at January 1, 2016 Accumulated impairment losses Goodwill, net at January 1, 2016 Acquisitions of businesses Currency translation Balance at December 31, 2016 Acquisitions of businesses Currency translation $ 110.2 $ 358.3 $ 186.2 $ 1.6 $ (12.2) 98.0 74.9 0.6 173.5 — (0.3) (16.1) 342.2 4.5 (0.3) 346.4 77.0 1.1 (175.0) 11.2 — — 11.2 — — — 1.6 — — 1.6 — — Balance at December 31, 2017 $ 173.2 $ 424.5 $ 11.2 $ 1.6 $ 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 Total Acquisition Cost Accumulated Amortization Currency Translation Net As of December 31, 2017 $ $ $ $ 257.3 158.2 100.3 515.8 Acquisition Cost 205.1 132.3 100.3 437.7 $ $ $ $ (61.5) $ (54.4) — (115.9) $ As of December 31, 2016 Accumulated Amortization Currency Translation (49.9) $ (44.4) — (94.3) $ 0.1 — — 0.1 $ $ (0.3) $ (0.4) — (0.7) $ Net 656.3 (203.3) 453.0 79.4 0.3 532.7 77.0 0.8 610.5 195.9 103.8 100.3 400.0 154.9 87.5 100.3 342.7 Amortization of finite-lived intangible assets included in continuing operations for the years ended December 31, 2017, 2016 and 2015 was $21.6 million, $17.9 million and $15.8 million, respectively. We expect finite-lived intangibles amortization expense for the next five years as follows: Expected amortization expense 2018 $23.4 2019 $23.4 2020 $22.7 2021 $22.4 2022 $20.4 POLYONE CORPORATION 45 Note 5 — FINANCING ARRANGEMENTS Total debt consisted of the following: As of December 31, 2017 (In millions) Senior secured revolving credit facility due 2022 Senior secured term loan due 2022 5.250% senior notes due 2023 Other debt (1) Total debt Less short-term and current portion of long-term debt Total long-term debt, net of current portion As of December 31, 2016 (In millions) Senior secured term loan due 2022 5.250% senior notes due 2023 Other debt (1) Total debt Less short-term and current portion of long-term debt Total long-term debt, net of current portion $ $ $ $ $ $ Principal Amount Unamortized discount and debt issuance cost Net debt Weighted average interest rate 56.5 637.5 600.0 29.5 1,323.5 32.6 1,290.9 $ $ $ Principal Amount Unamortized discount and debt issuance cost 644.0 600.0 29.7 1,273.7 18.5 1,255.2 $ $ $ 8.7 7.1 — 15.8 — 15.8 — $ 8.5 6.0 — 14.5 — 14.5 2.77% 3.27% 5.25% Weighted average interest rate 3.61% 5.25% 56.5 629.0 594.0 29.5 1,309.0 32.6 1,276.4 Net debt 635.3 592.9 29.7 1,257.9 18.5 1,239.4 $ $ $ $ $ (1) Other debt includes capital lease obligations of $17.8 million and $17.4 million as of December 31, 2017 and 2016, respectively. On January 24, 2017, the Company entered into a third amendment to its senior secured term loan, which reduced the margin by 50 basis points to 225 basis points. On August 15, 2017, the Company entered into a fourth amendment to its senior secured term loan. Under the terms of the fourth amended senior secured term loan, the margin was reduced by an additional 25 basis points to 200 basis points. At the Company's discretion, interest is based upon (i) a margin rate of 200 basis points plus the 1-, 2-, 3-, or 6-month LIBOR or (ii) a margin rate of 100 basis points plus a Prime Rate, subject to a floor of 175 basis points. Repayments in the amount of one percent of the aggregate principal amount as of August 15, 2017 are payable annually, while the remaining balance matures on November 12, 2022. The total principal repayments for the year ended December 31, 2017 were $6.5 million. On February 24, 2017, PolyOne amended and restated its senior secured revolving credit facility increasing the maximum borrowing facility size from $400.0 million to $450.0 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. Under the terms of the amended and restated senior secured revolving facility the maturity date was extended to February 24, 2022. The revolving credit facility has a U.S. and a Canadian line of credit. Currently there are no borrowings on the 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, 2016 was 3.15%. As of December 31, 2017, we had borrowings of $56.5 million under our revolving credit facility, which had availability of $326.2 million. As of December 31, 2016, we had no borrowings under our revolving credit facility, which had availability of $382.7 million. The agreements governing our revolving credit facility and our senior secured term loan, and the indentures and credit agreements governing other debt, contain a number of customary financial and restrictive covenants that, among other things, limit our ability to: consummate asset sales, 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. As of December 31, 2017, we were in compliance with all covenants. The Company also has a credit line of $16.0 million with Saudi Hollandi Bank. 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 renewal. Borrowings under the credit line were primarily used to fund capital expenditures related to the manufacturing facility in Jeddah, Saudi Arabia. As of December 31, 2017, letters of credit under the credit line were $0.2 million 46 POLYONE CORPORATION and borrowings were $11.7 million with an interest rate of 2.69%. As of December 31, 2016, letters of credit under the credit line were $0.2 million and borrowings were $12.3 million with an interest rate of 2.84%. As of December 31, 2017 and 2016, there was remaining availability on the credit line of $4.1 million and $3.5 million, respectively. The estimated fair value of PolyOne’s debt instruments at December 31, 2017 and 2016 was $1,343.3 million and $1,271.7 million, respectively, compared to carrying values of $1,309.0 million and $1,257.9 million as of December 31, 2017 and 2016, 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. Aggregate maturities of the principal amount of debt for the next five years and thereafter are as follows: (In millions) 2018 2019 2020 2021 2022 Thereafter Aggregate maturities $ 32.6 6.6 6.6 6.6 668.1 603.0 $ 1,323.5 Included in Interest expense, net for the years ended December 31, 2017, 2016 and 2015 was interest income of $0.7 million, $0.8 million and $1.0 million, respectively. Total interest paid on debt was $59.4 million in 2017, $56.3 million in 2016 and $65.9 million in 2015. Note 6 — LEASING ARRANGEMENTS We lease certain manufacturing facilities, warehouse space, machinery and equipment, automobiles, railcars, computers and software under operating leases. Lease expense from continuing operations was $25.2 million in 2017, $23.0 million in 2016 and $22.8 million in 2015. Future minimum lease payments under non-cancelable operating leases with initial lease terms longer than one year as of December 31, 2017 are as follows: (In millions) 2018 2019 2020 2021 2022 Thereafter Total Note 7 — INVENTORIES, NET Components of Inventories, net are as follows: (In millions) Finished products Work in process Raw materials and supplies Inventories, net $ $ 18.2 15.6 12.6 8.1 5.0 8.3 67.8 December 31, 2017 203.3 $ 5.1 119.4 327.8 $ December 31, 2016 177.4 $ 4.5 84.5 266.4 $ POLYONE CORPORATION 47 Note 8 — PROPERTY, NET Components of Property, net are as follows: (In millions) Land and land improvements (1) Buildings (2) Machinery and equipment Property, gross Less accumulated depreciation and amortization Property, net December 31, 2017 December 31, 2016 $ $ 40.7 $ 303.5 1,038.0 1,382.2 (920.6) 461.6 $ 38.7 285.2 966.3 1,290.2 (863.9) 426.3 (1) Land and land improvements include properties under capital leases of $1.7 million as of December 31, 2017 and 2016. (2) Buildings include properties under capital leases of $16.5 million as of December 31, 2017 and 2016. Depreciation expense from continuing operations was $61.2 million in 2017, $57.8 million in 2016 and $58.8 million in 2015. Note 9 — OTHER BALANCE SHEET LIABILITIES Other liabilities at December 31, 2017 and 2016 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 10 — EMPLOYEE BENEFIT PLANS Accrued expenses and other current liabilities December 31, Other non-current liabilities December 31, 2017 2016 2017 2016 87.5 8.4 13.8 5.4 10.1 14.2 3.3 6.4 149.1 $ $ 72.0 8.8 5.3 5.6 12.1 11.3 0.2 9.9 125.2 $ $ 20.1 108.7 — — — — 18.1 9.4 156.3 $ $ 21.7 108.5 — — — — 9.1 1.5 140.8 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, accordingly, are recorded during the fourth quarter of each year. We recognized a charge of $3.3 million and $11.6 million in the fourth quarter of 2017 and 2015, respectively, related to the actuarial losses during the year. We recognized a benefit of $8.4 million in the fourth quarter of 2016, related to the actuarial gain during the year. 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. 48 POLYONE CORPORATION 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: Projected benefit obligation — beginning of year Service cost Interest cost Actuarial loss (gain) 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 Pension Benefits 2017 2016 Health Care Benefits 2016 2017 $ $ $ $ $ $ 503.0 0.6 19.3 21.3 (38.8) 2.3 507.7 (2.0) 505.7 $ $ $ $ 474.3 44.0 4.6 (38.8) 0.6 484.7 $ (23.0) $ 527.4 1.0 20.7 (2.0) (43.2) (0.9) 503.0 (1.7) 501.3 $ $ $ $ 456.0 37.1 24.7 (43.2) (0.3) 474.3 $ (28.7) $ 10.8 — 0.4 (1.7) (0.9) 0.2 8.8 — 8.8 $ $ $ — $ — 0.9 (0.9) — — $ (8.8) $ 11.8 — 0.5 (0.6) (1.0) 0.1 10.8 — 10.8 — — 1.0 (1.0) — — (10.8) Amounts included in the accompanying Consolidated Balance Sheets as of December 31 are as follows: (In millions) Non-current assets Accrued expenses and other liabilities Other non-current liabilities Pension Benefits 2017 2016 Health Care Benefits 2016 2017 $ $ $ 35.9 4.4 54.5 $ $ $ 29.2 4.4 53.5 $ $ $ — $ $ 1.0 $ 7.8 — 1.2 9.6 As of December 31, 2017 and 2016, 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 Pension Benefits 2016 2017 Health Care Benefits 2016 2017 $ $ $ 63.9 61.9 5.1 $ $ $ 62.4 60.7 4.5 $ $ $ $ 8.8 8.8 $ — $ 10.8 10.8 — 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 2017 2016 Health Care Benefits 2017 2016 3.62% 3.97% 3.60% 4.04% N/A N/A N/A N/A N/A N/A 6.29% 4.50% 2027 6.52% 4.50% 2027 POLYONE CORPORATION 49 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, 2017. (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) Net periodic (benefit) cost Pension Benefits 2016 2015 2017 Health Care Benefits 2016 2017 2015 $ $ $ $ 0.6 19.3 (27.7) 1.0 20.7 (31.4) 5.0 (2.8) $ (7.8) (17.5) $ 1.7 21.3 (32.7) 15.2 5.5 $ $ — $ 0.4 — (1.7) (1.3) $ — $ — 0.6 0.5 — — (0.6) (0.1) $ (3.6) (3.0) In 2017, we recognized a $3.3 million mark-to-market charge that was primarily a result of the decrease in our year end discount rates, from 3.97% to 3.62%, and updated mortality assumptions, partially offset by a higher than expected return on assets. In 2016, we recognized an $8.4 million mark-to-market gain that was primarily a result of actual asset returns that were $5.7 million higher than our assumed returns and updated mortality assumptions. Partially offsetting these gains was the decrease in our year end discount rates, from 4.10% to 3.97%. Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31: Discount rate* Expected long-term return on plan assets* Assumed health care cost trend rates at December 31: Health care cost trend rate assumed for next year Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) Year that the rate reaches the ultimate trend rate Pension Benefits Health Care Benefits 2017 2016 2015 2017 2016 3.97% 6.08% 4.10% 6.87% 3.88% 6.87% 4.04% —% 4.12% —% 2015 3.75% —% N/A N/A N/A N/A N/A N/A N/A N/A N/A 6.52% 6.69% 6.88% 4.50% 2027 4.50% 2027 4.50% 2027 * 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 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. Based on the current funded status of the plan, our pension asset investment allocation guidelines are to invest 90% in fixed income securities and 10% in equity securities. The plan keeps a minimal amount of cash available to fund benefit payments. These investments may include funds of multiple asset investment strategies and funds of hedge funds. 50 POLYONE CORPORATION The fair values of pension plan assets at December 31, 2017 and 2016, by asset category, are as follows: (In millions) Asset category Cash Other Total Investments measured at NAV: Common collective funds: United States equity International equity Global equity Fixed income Total common collective funds Total investments at fair value (In millions) Asset category Cash Other Total Investments measured at NAV: Common collective funds: United States equity International equity Global equity Fixed income Total common collective funds Total investments at fair value Pension Plan Assets Fair Value of Plan Assets at December 31, 2017 Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Investments (at Fair Value) $ $ 4.3 $ — 4.3 $ — $ — — $ — $ 5.1 5.1 4.3 5.1 9.4 19.2 19.4 9.6 427.1 475.3 $ 484.7 Fair Value of Plan Assets at December 31, 2016 Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Investments (at Fair Value) $ $ 7.0 — 7.0 $ $ — $ — — $ — $ 4.5 4.5 7.0 4.5 11.5 45.5 37.1 27.6 352.6 462.8 474.3 $ $ Other assets are primarily insurance contracts for international plans. The U.S. equity common collective funds are predominately invested in equity securities actively traded in public markets. The international and global equity common collective funds have broadly diversified investments across economic sectors and focus on low volatility, long-term investments. The fixed income common collective funds consist primarily of publicly traded United States fixed interest obligations (principally investment grade bonds and government securities). Level 1 assets are valued based on quoted market prices. Level 2 investments are valued based on quoted market prices and/or other market data for the same or comparable instruments and transactions of the underlying fixed income investments. The insurance contracts included in the other asset category are valued at the transacted price. Common collective funds are valued at the net asset 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. POLYONE CORPORATION 51 The estimated future benefit payments for our pension and health care plans are as follows: (In millions) 2018 2019 2020 2021 2022 2023 through 2027 Pension Benefits Health Care Benefits $ $ 39.3 38.4 38.3 38.6 36.6 169.8 1.0 0.9 0.9 0.8 0.8 3.1 We currently estimate that 2018 employer contributions will be $4.4 million to all qualified and non-qualified pension plans and $1.0 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 Note 11 — COMMITMENTS AND CONTINGENCIES 2017 2016 2015 $ $ 9.1 1.6 10.7 $ $ 8.2 4.0 12.2 $ $ 8.4 4.1 12.5 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, the United States District Court for the Western District of Kentucky in the case of Westlake Vinyls, Inc. v. Goodrich Corporation, et al., 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. Following the Court rulings, the parties to the litigation 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. We will adjust our accrual, in the future, consistent with any such future allocation of costs. Additionally, we continue to pursue available insurance coverage related to this matter and recognize gains as we receive reimbursement. 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. Since 2009, PolyOne, along with respondents Westlake Vinyls, Inc., and Goodrich Corporation, have worked with the United States Environmental Protection Agency (USEPA) on the investigation of contamination at the site as well as evaluation of potential remedies to address the contamination. As recently as November 2017, the USEPA indicated it supported a containment remedy that is technologically feasible and would protect human health and the environment, minimize disruption to the ongoing operations at the site, and appropriately balance cost with effectiveness. Contrary to prior understanding, the USEPA issued a proposed plan for the site on December 1, 2017 identifying significant remedial actions beyond containment. The public comment period for the USEPA’s proposed plan ended 52 POLYONE CORPORATION on February 13, 2018. During the public comment period, we had meaningful discussions with the USEPA regarding an alternative remedy, performed additional technical analysis to support our remedy, and have provided this information to the USEPA in our formal comment response. We believe this alternative is equally protective of human health and the environment, can commence contamination removal much more quickly, is less disruptive to the business operating at the site, and is more cost effective. These discussions, along with our technical analysis of an alternative remedy, give us reason to believe that there are two likely outcomes, the EPA’s proposed plan and our proposed alternative remedy, with neither outcome being more likely than the other. As such, we have not adjusted our current reserve of $107.0 million, which reflects the low end of the range of these two outcomes. Based on the USEPA's proposed plan issued on December 1, 2017, the cost estimate for their proposed remedy is $244.0 million. The USEPA could issue its Record of Decision as early as the first quarter of 2018, and if the USEPA determines our alternative remedy is not appropriate, there could be an adjustment to increase our current reserve based on the proposed plan issued on December 1, 2017. On March 13, 2013, PolyOne acquired Spartech. One of Spartech's subsidiaries, Franklin-Burlington Plastics, Inc. (Franklin-Burlington), operated a plastic resin compounding facility in Kearny, New Jersey, located adjacent to the Passaic River. The USEPA requested that companies located in the area of the lower Passaic River, including Franklin-Burlington, cooperate in an investigation of contamination of approximately 17 miles of the lower Passaic River (the lower Passaic River Study Area). In response, Franklin-Burlington and approximately 70 other companies (collectively, the Cooperating Parties) agreed, pursuant to an Administrative Order on Consent (AOC) with the USEPA, to assume responsibility for development of a Remedial Investigation and Feasibility Study (RIFS) of the lower Passaic River Study Area. The RIFS costs are exclusive of any costs that may ultimately be required to remediate the lower Passaic River Study Area 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 2015, the Cooperating Parties submitted to the USEPA a remedial investigation report and feasibility study for the lower Passaic River Study Area, and are currently engaged in technical discussions with the USEPA regarding those documents. Neither of those documents contemplates who is responsible for remediation or how such costs might be allocated to PRPs. In March 2016, the USEPA issued a Record of Decision selecting a remedy for an eight-mile portion of the lower Passaic River Study Area at an estimated and discounted cost of $1.4 billion. On March 31, 2016, the USEPA sent a Notice of Potential Liability to over 100 companies, including Franklin- Burlington, and several municipalities for this eight-mile portion. In September 2016, the USEPA reached an agreement with Occidental Chemical Corporation (OCC), which orders OCC to perform the remedial design for the lower eight mile portion of the Passaic River. In September 2017, the USEPA sent a letter to over 80 companies, including Franklin-Burlington indicating that the USEPA would engage the recipients in a process to allocate remedial costs for the lower eight miles of the lower Passaic River Study Area, and has engaged a third party allocator as part of that process. Based on the currently available information, we have found no evidence that Franklin-Burlington contributed any of the primary contaminants of concern to the lower Passaic River. A timeline as to when an allocation of the remedial costs may be determined is not yet known and any allocation to Franklin-Burlington has not been determined. As a result of these uncertainties, we are unable to estimate a liability related to this matter and, as of December 31, 2017, we have not accrued for costs of remediation related to the lower Passaic River. Our Consolidated Balance Sheet includes accruals totaling $117.1 million and $117.3 million as of December 31, 2017 and 2016, respectively, based on our estimates of probable future environmental expenditures relating to previously contaminated sites. These undiscounted amounts are 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 currently available information and technology 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, technology development, 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, 2017. However, such additional costs, if any, cannot be currently estimated. POLYONE CORPORATION 53 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 2017 2016 2015 $ $ 117.3 14.8 (15.2) 0.2 117.1 $ $ 119.9 8.3 (11.0) 0.1 117.3 $ $ 121.1 9.3 (9.8) (0.7) 119.9 The environmental expenses noted in the table above are included in Cost of sales in the accompanying Consolidated Statements of Income (Loss), as are insurance recoveries received for previously incurred environmental costs. We received insurance recoveries of $9.1 million, $6.1 million and $3.5 million in 2017, 2016 and 2015, respectively. Such insurance recoveries are recognized as a gain when received. Other Litigation — We are involved in various pending or threatened claims, 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 probability is remote that losses in excess of the amounts we have accrued would be materially adverse to our financial position, results of operations or cash flows. Note 12 — 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 $ $ 105.6 106.7 212.3 2017 2016 2015 A summary of income tax expense from continuing operations is as follows: (In millions) Current income tax expense (benefit): Domestic - U.S. tax reform, transition tax Domestic - other Foreign Total current income tax expense Deferred income tax (benefit) expense: Domestic - U.S. tax reform, tax effect on net deferred tax liabilities Domestic - other Foreign Total deferred income tax (benefit) expense Total income tax expense $ $ $ $ $ 2017 24.0 (11.2) 27.3 40.1 (20.1) $ 27.4 (8.7) (1.4) $ $ 38.7 $ $ $ $ 129.1 97.5 226.6 $ $ 94.7 79.3 174.0 2016 2015 — $ 27.8 22.5 50.3 $ — $ 6.0 4.1 10.1 60.4 $ $ — 24.5 28.5 53.0 — (28.6) 1.1 (27.5) 25.5 The Tax Cuts and Jobs Act (TCJA) was enacted on December 22, 2017. Among other things, effective in the first taxable year after the enactment, the TCJA reduces the US federal corporate tax rate from 35% to 21%, exempts from U.S. federal income taxation dividends from certain foreign corporations to their U.S. shareholders, eliminates or reduces the effect of various federal tax deductions and creates new taxes on certain outbound payments and future foreign earnings generated after 2017. The TCJA also requires U.S. companies to pay a one-time transition tax on earnings of foreign corporate subsidiaries that are at least ten-percent owned by such U.S. companies and that were previously deferred from U.S. taxation. At December 31, 2017, we have not completed our accounting for the tax effects of the enactment of the TCJA; however, in compliance with the SEC's Staff Accounting Bulletin (SAB) 118 (issued December 22, 2017), we have made a reasonable estimate of the effects on our existing deferred income tax balances and the one-time transition tax, which is included as a component of income tax expense from continuing operations in the following tabular reconciliation. Once we have finalized our 2017 tax returns, we will update our estimates based on our completed review, including the consideration of additional clarifications on the TCJA from the U.S. government. Any adjustments to our provisional amounts will be disclosed in our respective filings within the one-year measurement period provided by SAB 118. 54 POLYONE CORPORATION At December 31, 2017, we have not completed our analysis with respect to the impact of the TCJA on our continuing assertion that our foreign earnings are indefinitely reinvested pursuant to Accounting Principles Board (APB) 23 of Accounting Standards Codification (ASC) 740-30. APB 23 provides guidance that US companies do not need to recognize tax effects on foreign earnings that are indefinitely reinvested. Upon completion of our analysis, if our assertion were to change in the future, that change could result in a recognition of tax liabilities. A reconciliation of the applicable U.S. federal statutory tax rate to the consolidated effective income tax rate from continuing operations along with a description of significant or unusual reconciling items is included below. Federal statutory income tax rate Foreign tax rate differential: Asia Europe North America (Canada and Mexico) Total foreign tax rate differential: State and local tax, net Tax benefits on certain foreign investments Domestic production activities deduction Amended prior period tax returns and corresponding favorable audit adjustments Net impact of uncertain tax positions Permanent tax differences U.S. credit for research activities Changes in valuation allowances U.S. tax reform, transition tax U.S. tax reform, tax effect on net deferred tax liabilities Other Effective income tax rate 2017 2016 2015 35.0% 35.0% 35.0% (1.2) (8.6) (1.3) (11.1) 1.4 (6.8) (1.9) (3.6) 2.2 1.2 (1.1) 0.7 11.3 (9.5) 0.4 (1.2) (2.7) (1.7) (5.6) 2.1 (1.9) (1.5) (1.3) (1.1) 0.9 (0.4) 0.4 — — 0.1 (1.5) (2.8) (1.0) (5.3) 2.5 — (1.8) (17.7) 0.5 1.7 (0.5) 0.3 — — — 18.2% 26.7% 14.7% The effective tax rates for all periods differed from the applicable U.S. federal statutory tax rate as a result of permanent items, state and local income taxes, differences in foreign tax rates and certain unusual items. 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. 2017 Significant items The increase in the Foreign tax rate differential line item in the table above, compared to 2016, primarily related to a European legal entity realignment. Tax benefits on certain foreign investments decreased the effective tax rate by 6.8% ($14.4 million) related to distributions from foreign subsidiaries with net foreign tax credits. 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 17.7% ($30.8 million). This is reflected in the Amended prior period tax returns and corresponding favorable audit adjustments line in the table above. The Net impact of uncertain tax positions increased the effective tax rate by 0.5% ($0.9 million). The reversal of an uncertain tax position due to the expiration of the statute of limitations decreased the effective tax rate by 5.7% ($9.9 million). A foreign court ruling, which settled an uncertain position taken in a prior year, increased the effective tax rate by 4.6% ($8.0 million). Other unfavorable uncertain tax positions increased the effective tax rate by 1.6%, which offset the net decrease in the effective tax rate of the two items noted. POLYONE CORPORATION 55 Components of our deferred tax assets (liabilities) as of December 31, 2017 and 2016 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: Property, plant and equipment Goodwill and intangibles Other, net Total deferred tax liabilities Net deferred tax (liabilities) assets Consolidated Balance Sheets: Non-current deferred income tax assets Non-current deferred income tax liabilities 2017 2016 7.3 22.0 29.4 42.3 — 20.0 121.0 (21.4) 99.6 $ $ $ (20.7) $ (98.7) (1.0) (120.4) $ (20.8) $ $ 19.5 (40.3) $ 12.5 33.7 45.1 28.8 23.0 30.9 174.0 (19.8) 154.2 (16.5) (121.1) (1.8) (139.4) 14.8 21.7 (6.9) $ $ $ $ $ $ $ $ We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future using the new federal statutory tax rate of 21%. However, we are still analyzing certain aspects of the TCJA and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amount during the measurement period allowed by SAB 118. The provisional amount recorded associated with the reduction of the U.S. federal statutory rate resulted in a decrease of $20.1 million to our net deferred tax liabilities. Prior to the enactment of the TCJA, the Company had $24.6 million of U.S. foreign tax credit carryforwards that would have otherwise expired between 2018 and 2025. Due to the TCJA, the Company utilized all U.S. foreign tax credits to offset taxes due for the one-time transition tax on foreign earnings prior to the period ended December 31, 2017. We do not anticipate the resulting cash tax payable for the one-time transition tax to be greater than $10.0 million. As of December 31, 2017, we had gross state net operating loss carryforwards of $162.1 million that expire between 2018 and 2032. Various foreign subsidiaries have gross net operating loss carryforwards totaling $124.8 million that expire between 2018 and 2037 with limited exceptions that have indefinite carryforward periods. We have provided valuation allowances of $20.5 million against certain foreign and state net operating loss carryforwards that are expected to expire prior to utilization. In addition, we have valuation allowances of $0.9 million against other net deferred tax assets. As disclosed above, we recorded a provisional amount for our one-time transition tax liability for our foreign subsidiaries, resulting in an increase in income tax expense of $24.0 million. We have not yet completed our calculation of the total post-1986 earnings for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of post -1986 foreign earnings & profits previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested. No provision has been made for income taxes on undistributed earnings of those consolidated non-U.S. subsidiaries of $413.0 million as of December 31, 2017, 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 $56.5 million and received refunds of $6.7 million in 2017. We made worldwide income tax payments of $50.3 million and $57.7 million in 2016 and 2015, respectively, and received refunds of $2.4 million and $2.6 million in 2016 and 2015, respectively. 56 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 2017 2016 2015 $ 7.9 9.2 1.8 — (0.3) (0.2) — 0.2 $ 11.3 $ 0.3 1.2 — — (4.2) (0.3) (0.4) $ 18.6 $ 7.9 $ 27.4 3.9 9.2 — — (13.1) (15.3) (0.8) 11.3 We recognize interest and penalties related to uncertain tax positions in the provision for income taxes. As of December 31, 2017 and 2016, we had $3.9 million and $3.3 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 $3.3 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 $10.6 million. The Company is currently being audited by federal, state and foreign taxing jurisdictions. With the exception of amended tax returns for 2004 to 2012, which are limited in scope to foreign tax credits, we are no longer subject to U.S. federal income tax examinations for periods preceding 2013. With limited exceptions, we are no longer subject to state tax and foreign tax examinations for periods preceding 2013. For the income tax benefit associated with the July 19, 2017 sale of DSS, refer to Note 3, Discontinued Operations. Note 13 — 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 (Loss) 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 In May 2017, our shareholders approved the PolyOne Corporation 2017 Equity and Incentive Compensation Plan (2017 EICP). This plan replaced the PolyOne Corporation 2010 Equity and Performance Incentive Plan (2010 EPIP), as amended and restated in 2015. The 2010 EPIP was frozen upon the approval of the 2017 EICP. The 2017 EICP reserved 2.5 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. Share-based compensation is included in Selling and administrative expense in the accompanying Consolidated Statements of Income (Loss). A summary of compensation expense by type of award follows: (In millions) Stock appreciation rights Performance shares Restricted stock units Total share-based compensation 2017 2016 2015 $ $ 4.2 0.6 5.3 10.1 $ $ 3.3 — 4.4 7.7 $ $ 4.0 0.5 3.7 8.2 POLYONE CORPORATION 57 Stock Appreciation Rights During the years ended December 31, 2017, 2016 and 2015, the total number of SARs granted were 0.5 million, 0.5 million and 0.3 million, respectively. Awards vest in one-third increments upon the later of the attainment of time- based vesting over a three-year service period and stock price targets. Awards granted in 2017, 2016 and 2015 are subject to an appreciation cap of 200% of the base price. Outstanding SARs have contractual terms of 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 2017, 2016 and 2015: Expected volatility Expected dividends Expected term (in years) Risk-free rate Value of SARs granted 2017 41.0% 1.58% 6.5 2.72% $12.01 2016 41.0% 1.92% 6.7 1.90% $8.29 2015 43.0% 1.05% 6.5 1.95% $13.94 A summary of SAR activity for 2017 is presented below: Stock Appreciation Rights (In millions, except per share data) Outstanding as of January 1, 2017 Granted Exercised Forfeited or expired Outstanding as of December 31, 2017 Vested and exercisable as of December 31, 2017 Weighted- Average Exercise Price Per Share Weighted- Average Remaining Contractual Term Shares 1.8 0.5 (0.4) (0.1) 1.8 1.0 $ $ $ 25.73 34.10 18.94 37.14 28.62 26.29 6.68 — — — 6.85 5.16 $ $ $ Aggregate Intrinsic Value 14.3 27.0 17.6 The total intrinsic value of SARs exercised during 2017, 2016 and 2015 was $7.6 million, $2.8 million and $9.7 million, respectively. As of December 31, 2017, there was $2.5 million of total unrecognized compensation cost related to SARs, which is expected to be recognized over the weighted average remaining vesting period of 23 months. Restricted Stock Units RSUs represent contingent rights to receive one common share at a future date provided certain vesting criteria are met. During 2017, 2016 and 2015, the total number of RSUs granted were 0.3 million, 0.2 million and 0.1 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, 2017, 0.5 million RSUs remain unvested with a weighted-average grant date fair value of $33.05. Unrecognized compensation cost for RSUs at December 31, 2017 was $7.6 million, which is expected to be recognized over the weighted average remaining vesting period of 24 months. Note 14 — 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. 58 POLYONE CORPORATION 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; restructuring activities, 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 losses on the divestiture of joint ventures and equity investments; actuarial gains and losses 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. 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. PolyOne has four reportable segments. Previously, PolyOne had five reportable segments. However, as a result of the divestiture of DSS, we have removed DSS as a separate operating segment and its results are presented as a discontinued operation. Historical information has been retrospectively adjusted to reflect these changes. The following is a description of each of our four 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, special effects and performance-enhancing and eco-friendly solutions. When combined with polymer resins, 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, including UV light stabilization and blocking, antimicrobial, anti-static, blowing or foaming, antioxidant, lubricant, oxygen and visible light blocking and productivity enhancement. Our colorant and additives concentrates are used in a broad range of polymers, including those used in medical and pharmaceutical devices, food packaging, personal care and cosmetics, transportation, building products, wire and cable markets. We also provide custom-formulated liquid systems that meet a variety of customer needs and chemistries, including polyester, 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. We also have what we believe is the broadest composite platform of solutions, which include a full range of products from long glass and carbon fiber technology to thermoset and thermoplastic composites. These solutions meet a wide variety of unique customer requirements for light weighting. 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, and Asia. 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 POLYONE CORPORATION 59 development. Our manufacturing capabilities are targeted at meeting our customers’ demand for speed, flexibility and critical quality. 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 formulations for certain 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 4,000 grades of engineering and commodity grade resins, including PolyOne-produced solutions, principally to the North American, Central American and Asian markets. These products are sold to over 6,500 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. 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: Sales to External Customers Intersegment Sales Total Sales Operating Income Depreciation and Amortization Capital Expenditures Total Assets $ 877.7 $ 15.5 $ 893.2 $ 138.6 $ 41.2 $ 21.2 $ 1,146.8 574.8 49.5 624.3 639.6 1,137.8 81.0 16.8 720.6 1,154.6 78.2 77.1 72.6 21.1 15.5 0.8 4.2 23.4 545.1 17.2 0.5 9.3 275.8 250.9 486.7 Corporate and eliminations — (162.8) (162.8) (89.0) Total $ 3,229.9 $ — $ 3,229.9 $ 277.5 $ 82.8 $ 71.6 $ 2,705.3 Sales to External Customers Intersegment Sales Total Sales Operating Income Depreciation and Amortization Capital Expenditures Total Assets $ 778.9 $ 18.8 $ 797.7 $ 127.5 $ 40.2 $ 20.6 $ 923.8 516.4 49.4 565.8 589.2 1,054.1 — — 79.3 16.9 668.5 1,071.0 (164.4) (164.4) (64.9) — — — 81.1 74.4 68.2 18.3 15.0 0.7 4.0 25.8 19.4 542.8 12.4 0.2 13.0 18.6 84.2 241.8 207.0 386.5 433.9 $ 2,735.8 Total $ 2,938.6 $ — $ 2,938.6 $ 286.3 $ 104.0 $ 60 POLYONE CORPORATION Year Ended December 31, 2017 (In millions) Color, Additives and Inks Specialty Engineered Materials Performance Products and Solutions PolyOne Distribution Year Ended December 31, 2016 (In millions) Color, Additives and Inks Specialty Engineered Materials Performance Products and Solutions PolyOne Distribution Corporate and eliminations Assets Held for Sale Year Ended December 31, 2015 (In millions) Color, Additives and Inks Specialty Engineered Materials Performance Products and Solutions PolyOne Distribution Corporate and eliminations Assets Held for Sale Sales to External Customers Intersegment Sales Total Sales Operating Income Depreciation and Amortization Capital Expenditures Total Assets $ 801.2 $ 9.5 $ 810.7 $ 135.4 $ 40.7 $ 27.3 $ 945.4 493.1 49.7 542.8 615.8 1,018.7 — — 78.3 15.4 694.1 1,034.1 (152.9) (152.9) (82.8) — — — 79.6 57.4 68.0 15.2 15.5 0.7 3.8 28.4 17.7 357.7 9.8 0.4 17.6 18.4 91.2 240.8 199.9 432.3 444.2 $ 2,620.3 Total $ 2,928.8 $ — $ 2,928.8 $ 257.6 $ 104.3 $ 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. The 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 Total Long lived assets 2017 2016 2015 $ $ $ $ 1,910.8 455.7 251.1 313.4 279.8 19.1 3,229.9 279.7 97.0 8.2 56.2 18.5 2.0 461.6 $ $ $ $ 1,767.8 415.2 237.7 266.9 233.7 17.3 2,938.6 268.3 86.6 7.2 44.6 18.5 1.1 426.3 $ $ $ $ 1,806.3 421.8 225.7 249.6 209.7 15.7 2,928.8 234.5 88.5 6.9 45.7 19.4 4.9 399.9 Note 15 — SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (In millions, except per share data) Fourth (2) Third (3) Second (4) First (5) Fourth(6) Third (7) Second (8) First (9) 2017 Quarters 2016 Quarters Sales Gross Margin Operating income Net income from continuing operations Net income from continuing operations attributable to PolyOne shareholders $ 800.6 $ 818.5 $ 814.1 $ 796.7 $ 694.8 $ 746.7 $ 758.2 $ 738.9 169.2 179.5 188.0 182.3 152.5 45.8 35.5 67.7 40.2 80.0 49.6 84.0 48.3 62.1 35.1 166.1 72.0 42.8 181.9 176.6 81.8 50.1 70.4 38.2 $ 35.4 $ 40.2 $ 49.6 $ 48.3 $ 35.2 $ 42.8 $ 50.1 $ 38.3 Net income from continuing operations per common share attributable to PolyOne common shareholders: (1) Basic earnings per share Diluted earnings per share $ $ 0.44 0.43 $ $ 0.50 0.49 $ $ 0.61 0.60 $ $ 0.58 0.58 $ $ 0.43 0.42 $ $ 0.51 0.51 $ $ 0.59 0.59 $ $ 0.45 0.45 (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 2017 are: 1) tax adjustments primarily associated with the Tax Cuts and Jobs Act of $10.7 million and 2) a mark-to-market pension and other post-retirement charge of $3.3 million. Included for the third quarter 2017 are: 1) acquisition related costs and adjustments of $2.6 million, 2) environmental remediation costs of $4.9 million and 3) a gain related to the reimbursement of previously incurred environmental costs of $2.5 million. Included for the second quarter 2017 are: 1) environmental remediation costs of $5.0 million and 2) a gain related to the reimbursement of previously incurred environmental costs of $3.8 million. Included for the first quarter 2017 are environmental remediation costs of $2.2 million. (2) (3) (4) (5) POLYONE CORPORATION 61 (6) (7) (8) (9) Included for the fourth quarter 2016 are: 1) a mark-to-market pension and other post-retirement charge of $8.4 million and 2) environmental remediation costs of $2.2 million. Included for the third quarter 2016 are: 1) acquisition related costs and adjustments of $2.5 million and 2) environmental remediation costs of $2.4 million. Included for the second quarter 2016 are: 1) environmental remediation costs of $2.1 million and 2) a gain related to the reimbursement of previously incurred environmental costs of $5.3 million. Included for the first quarter 2016 are: 1) acquisition related costs and adjustments of $2.8 million and 2) environmental remediation costs of $1.7 million. Note 16 — SUBSEQUENT EVENTS On January 2, 2018, the Company completed the acquisition of IQAP Masterbatch Group S.L. (IQAP) for $74.0 million, net of cash acquired. IQAP is an innovative provider of specialty colorants and additives based in Spain with customers throughout Europe. The IQAP results will be reported in the Color, Additives and Inks segment. 62 POLYONE CORPORATION 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, 2017. 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, 2017. 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, 2017 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, 2017. 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, 2017, also issued an attestation report on PolyOne’s internal control over financial reporting under Auditing Standard No. 2201 of the Public Company Accounting Oversight Board. This attestation report is set forth on page 31 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, 2017 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 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. POLYONE CORPORATION 63 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 2018 Annual Meeting of Shareholders (2018 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 2018 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 2018 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 2018 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 2018 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 Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Plan category (a) Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total 1,812,317 — 1,812,317 (b) $28.62 — $28.62 (c) 2,513,164 (1) — 2,513,164 (1) In addition to options, warrants and rights, the PolyOne Corporation 2017 Equity and Incentive Compensation Plan (the 2017 EICP) authorizes the issuance of restricted stock, RSUs, performance shares and awards to Non-Employee Directors. The 2017 EICP limits the total number of shares that may be issued as one or more of these types of awards to 2.5 million. 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 2018 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 2018 Proxy Statement. 64 POLYONE CORPORATION 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 (Loss) for the years ended December 31, 2017, 2016 and 2015 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015 Consolidated Balance Sheets at December 31, 2017 and 2016 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2017, 2016 and 2015 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: POLYONE CORPORATION 65 Exhibit No. Exhibit Description EXHIBIT INDEX 2.1† 2.2† 2.3† 3.1 3.2 3.3 4.1 10.1 10.2 10.3 10.4 10.5 10.6 10.7+ 10.8+ 10.9+ 10.10 10.11+ 10.12+ 10.13+ 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) Equity Purchase Agreement dated June 29, 2017, by and among PolyOne Corporation, PolyOne Designed Structures and Solutions LLC and NLIN Plastics, LLC (incorporated by reference to Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, 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) Second Amended and Restated Credit Agreement, dated February 24, 2017, by and among PolyOne Corporation, the subsidiaries of PolyOne Corporation party thereto, Wells Fargo Capital Finance, LLC, as administrative agent, and the various lenders and other agents party thereto (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, SEC File No. 1-16091) 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 (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, SEC File No. 1-16091) Amendment Agreement No. 1 to the Credit Agreement, dated as of June 15, 2016, among the Company, certain subsidiaries of the Company, Citibank, N.A., as administrative agent, and the additional lender 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. 2016, SEC File No. 16091) Amendment Agreement No. 2, dated August 3, 2016, by and among PolyOne Corporation, the subsidiaries of PolyOne Corporation party thereto, Citibank, N.A, as administrative agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 5, 2016, SEC File No. 1-16091) Amendment Agreement No. 3, dated January 24, 2017, by and among PolyOne Corporation, the subsidiaries of PolyOne Corporation party thereto, Citibank, N.A., 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 March 31, 2017, SEC File No. 1-16091) Amendment Agreement No. 4, dated August 15, 2017, by and among PolyOne Corporation, the subsidiaries of PolyOne Corporation party thereto, Citibank, N.A., 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 September 30, 2017, SEC File No. 1-16091) 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) 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) PolyOne 2017 Equity and Incentive Compensation Plan (incorporated by reference to Appendix B to the Company's definitive proxy statement on Schedule 14A filed on March 31, 2017, 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) 66 POLYONE CORPORATION Exhibit No. 10.14+ 10.15+ 10.16+ 10.17+ 10.18+ 10.19+ 10.20+ 10.21+ 10.22+ 21.1 23.1 31.1 31.2 32.1 32.2 101 .INS 101 .SCH 101 .CAL 101 .LAB 101 .PRE 101 .DEF Exhibit Description 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) 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) 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** Certification of Robert M. Patterson, Chairman, President and Chief Executive Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002** Certification of 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, Chairman, President and Chief Executive Officer** Certification pursuant to 18 U.S.C. § 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as signed by Bradley C. Richardson, Executive Vice President and Chief Financial Officer** XBRL Instance Document** XBRL Taxonomy Extension Schema Document** XBRL Taxonomy Extension Calculation Linkbase Document** XBRL Taxonomy Extension Label Linkbase Document** XBRL Taxonomy Extension Presentation Linkbase Document** 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 67 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES POLYONE CORPORATION February 15, 2018 BY: /S/ BRADLEY C. RICHARDSON Bradley C. Richardson Executive Vice President, 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 Chairman, President and Chief Executive Officer and Director (Principal Executive Officer) Date: February 15, 2018 Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) Date: February 15, 2018 Director Director Director Director Director Director Director Director Director Date: February 15, 2018 Date: February 15, 2018 Date: February 15, 2018 Date: February 15, 2018 Date: February 15, 2018 Date: February 15, 2018 Date: February 15, 2018 Date: February 15, 2018 Date: February 15, 2018 /S/ ROBERT M. PATTERSON Robert M. Patterson /S/ BRADLEY C. RICHARDSON Bradley C. Richardson /S/ RICHARD H. FEARON Richard H. Fearon /S/ GREGORY J. GOFF Gregory J. Goff /S/ WILLIAM R. JELLISON William R. Jellison /S/ SANDRA BEACH LIN Sandra Beach Lin /S/ RICHARD A. LORRAINE Richard A. Lorraine /S/ KIM ANN MINK Kim Ann Mink /S/ WILLIAM H. POWELL William H. Powell /S/ KERRY J. PREETE Kerry J. Preete /S/ WILLIAM A. WULFSOHN William A. Wulfsohn 68 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 Chairman, President and Chief Executive Officer February 15, 2018 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, Chief Financial Officer February 15, 2018 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, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert M. Patterson, Chairman, President and Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the 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. February 15, 2018 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. /s/ Robert M. Patterson Robert M. Patterson Chairman, President and Chief Executive Officer 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, 2017, 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) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the 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. February 15, 2018 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. /s/ Bradley C. Richardson Bradley C. Richardson Executive Vice President, Chief Financial Officer POLYONE CORPORATION [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, 2012 through December 31, 2017. 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: 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: Equiniti Trust Company 1110 Centre Pointe Curve, Suite 101 Mendota Heights, MN 55120-4100 Phone: 1-855-598-2815 or 1-651-450-4064 www.shareowneronline.com 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 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: 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. Investor Affairs Administrator PolyOne Corporation 33587 Walker Road Avon Lake, Ohio 44012 Phone: 440-930-1000 ANNUAL MEETING The annual meeting of shareholders of PolyOne will be held May 17, 2018 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. LEADERSHIP PolyOne Corporation Board of Directors (Left to Right): William A. Wulfsohn, Gregory J. Goff, Richard A. Lorraine, Kim Ann Mink, Richard H. Fearon, Robert M. Patterson, Sandra B. Lin, William R. Jellison, Kerry J. Preete, and William H. Powell. Not pictured: Robert E. Abernathy CORPORATE OFFICERS BOARD OF DIRECTORS ROBERT M. PATTERSON Chairman, President and Chief Executive Officer BRADLEY C. RICHARDSON Executive Vice President, Chief Financial Officer MARK D. CRIST Senior Vice President, President of Color, Additives and Inks GIUSEPPE Di SALVO Vice President, Corporate Controller CATHY K. DODD Vice President, Marketing MICHAEL A. GARRATT Senior Vice President, Chief Commercial Officer J. SCOTT HORN, JR. Senior Vice President, President of Distribution AVERY L. JOHNSON Vice President, Tax HOLGER KRONIMUS Vice President, Europe, General Manager, Engineered Materials, Europe LISA K. KUNKLE Senior Vice President, General Counsel and Secretary M. JOHN MIDEA, JR. Senior Vice President, Global Operations and Process Improvement DR. CHRISTOPHER J. MURPHY Vice President, Research and Development, Chief Innovation Officer CRAIG M. NIKRANT Senior Vice President, President of Specialty Engineered Materials JOEL RATHBUN Senior Vice President, Mergers & Acquisitions JOÃO JOSÉ SAN MARTIN NETO Senior Vice President, Chief Human Resources Officer KURT C. SCHUERING Vice President, Global Key Account Management JAMES N. SLOAN Vice President, Treasurer DONALD K. WISEMAN Senior Vice President, President of Performance Products and Solutions ROBERT M. PATTERSON Chairman, President and Chief Executive Officer, PolyOne Corporation Committee: 3 RICHARD A. LORRAINE Retired Senior Vice President and Chief Financial Officer, Eastman Chemical Company Committees: 1*, 4 RICHARD H. FEARON Lead Director, PolyOne Corporation Vice Chairman and Chief Financial and Planning Officer, Eaton Committees: 2, 4* KIM ANN MINK Chairman, President and Chief Executive Officer, Innophos Holdings, Inc. Committee: 3 ROBERT E. ABERNATHY Retired Chairman and Chief Executive Officer, Halyard Health, Inc. Committee: 1 WILLIAM H. POWELL Retired Chairman and Chief Executive Officer, National Starch and Chemical Company Committee: 2* GREGORY J. GOFF Chairman, President and Chief Executive Officer, Andeavor and Chairman and Chief Executive Officer, Andeavor Logistics Committees: 3*, 4 KERRY J. PREETE Executive Vice President, Chief Strategy Officer, Monsanto Company Committees: 2, 4 WILLIAM R. JELLISON Retired Vice President, Chief Financial Officer, Stryker Corporation Committee: 1 WILLIAM A. WULFSOHN Chairman and Chief Executive Officer, Ashland Global Holdings, Inc. Committees: 1, 2 SANDRA B. LIN Retired President, Chief Executive Officer and Director, Calisolar Inc. (now Silicor Materials Inc.) Committees: 1, 3 COMMITTEES 1. Audit 2. Compensation 3. Environmental, Health and Safety 4. Nominating & Governance * Denotes Chairperson P O L Y O N E A N N U A L R E P O R T 2 0 1 7 POLYONE.COM ANNUAL REPORT 2017 

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