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S U S T A I N A B L E
O R G A N I Z A T I O N
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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.
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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
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L
Y
O
N
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A
N
N
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A
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E
P
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2
0
1
7
POLYONE.COM
ANNUAL REPORT 2017