CREATING A WORLD-CLASS,
SUSTAINABLE ORGANIZATION
ANNUAL REPORT 2018
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Color treatment and selection of this publication’s imagery and content were derived from PolyOne’s 2019 Color Inspirations trend report.
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PolyOne Corporation
(NYSE: POL), with 2018
revenues of $3.5 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.
CREATING A WORLD-CLASS,
SUSTAINABLE ORGANIZATION
OUR VISION
To be the world’s premier provider of specialized polymer materials,
services and solutions.
OUR STRATEGY
SPECIALIZATION
Differentiates us through unique value-creating offerings to our customers.
GLOBALIZATION
Positions us to serve our customers consistently, everywhere in the world.
OPERATIONAL EXCELLENCE
Empowers us to respond to the voice of the customer with relentless
continuous improvement.
COMMERCIAL EXCELLENCE
Governs our activities in the marketplace to deliver extraordinary value to
our customers.
OUR CULTURE
CORE 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.
PERSONAL VALUES
Integrity, Honesty and Respect. These personal values begin with each of us—
the judgments and decisions we make as individuals aff ect the way PolyOne is
viewed in the marketplace and in the communities where we work.
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. Sustainability metrics represent 12-month approximate values based on
available data from reporting facilities and are often made in reliance on third-party supplier information.
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2
0
1
8
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,
As we look back on 2018, we do so with a great sense of pride. It was a year of
many accomplishments that are helping us create a world-class, sustainable
organization. It was our safest year on record, we were recognized as an ACC
Responsible Care® company and we earned our fi rst Great Place to Work®
certifi cation! We did all this while also delivering a 10% increase in adjusted
EPS, our ninth consecutive year of adjusted EPS growth.
These accomplishments were achieved in a year that will largely be
remembered for its tumultuous political environment, rapid and persistent
infl ation and recent economic weakness in certain end markets and regions.
That’s what great companies do.
Culture is everything, and our associates work tirelessly to execute our
four-pillar strategy, focusing on achieving our goals today while also
ensuring our ability to do the same in the future. We put our customers fi rst
with exemplary service and unparalleled technology. When they call us with
their toughest problems…we say, “Challenge Accepted” and get to work.
In 2018 we also outlined how PolyOne defi nes sustainability and the
People, Products,
progress we’re making in each of our four focus areas: People, Products,
Planet and Performance. This comes at an important time when the world
Planet and Performance
seeks a better understanding of the inherent benefi ts of polymers
and plastics. It’s also a time when the world has said enough is
enough, and it’s time to eliminate plastic waste.
At PolyOne we pledge to do both.
Let’s take a closer look at the milestone
accomplishments in each of our sustainability
pillars from last year, as well as some of our
ongoing activities.
1
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PEOPLE
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PolyOne Global 5K Fun Run and
Walk in Bangkok, Thailand.
2
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SAFEST YEAR EVER
.51
INJURY RATE
3
E
R
19%
FE W E
INJU
R
RIES
6 %
T I O N
C
i n
u i s i t i o
y r
D
U
a
t
r
a
q
c
i n j u
50%
REDUCTION
in
lacerations
n
e
D
U
E
6
2
%R
TIO
in injury
severity
C
N
6
i
n
I
N
6
c
C
o
R
n
d
s
E
%
i
n
j
u
e
A
a
r
c
y
S
y
u
s
E
f
r
e
t
i
v
e
e
79%
manufacturing
sites
INJURY
FREE
As an ACC Responsible Care® company, our
“safety fi rst” culture was built not through
Our focus on people is advancing our Diversity
& Inclusion commitment as well. Our LEAD by
words, but through dedication, continuous
Women associate resource group led numerous
improvement and action.
In 2018 we focused on risk
reduction through a new,
global R3 initiative. By
identifying and eliminating
potential hazards, we
achieved the safest year in
leadership development training sessions in 2018,
covering topics such as unconscious bias, building
trust and impactful communication.
Last year we were excited to launch two
additional resource groups. PRIDE at PolyOne
was created, ensuring our LGBT community
The Hand: PolyOne’s global symbol for
Diversity & Inclusion
PolyOne history, with 19% fewer injuries, 79%
and its supporters can confi dently bring their
of our facilities going injury-free, and an overall
true selves to work each day and maximize their
incident rate of 0.51.
RISK
PERCEPTION
RISK
TOLERANCE
DECISION
OR
ACTION
Graphic: Our R3 initiative helps associates
ascertain Risk Perception and Risk Tolerance,
leading to a safer Decision or Action.
contributions with the full support of all PolyOne
associates. We also launched HYPE, which is
building a collaborative network of PolyOne’s
young professionals, eager to innovate and
impact our customers with the support of cross-
generational expertise.
A high-performing, diverse and inclusive
company is a company poised for sustainability,
and PolyOne is positioned very well in this regard.
It begins with our Code of Conduct, built around
our personal values of Integrity, Honesty and
Respect, on which we train associates regularly
and translate into 18 languages to ensure
understanding and commitment.
These values are also at the forefront as we
recruit top talent from global institutions
of higher learning. Last year we welcomed
nearly 140 new associates from colleges and
universities, our largest new hire and internship
classes ever. This is a remarkable milestone when
compared to 2008 when we did not hire any
students into full-time employment.
3
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We also continue to expand our leadership
All combined, the actions to build our culture
development programs. These are rotational
drove a fi rst-ever recognition at PolyOne. In
opportunities where new associates experience
and contribute in various, related roles within a
function, such as sales, technology, marketing,
September we were very proud to be recognized
as a Great Place to Work® in the U.S. from the
Great Place to Work Institute. This prestigious
supply chain, IT or fi nance. The breadth of global
award does not represent the fi nish line however.
experience and collaborative relationships formed
Rather it’s another milestone on our ongoing
build highly eff ective and diverse skill sets to
journey to become a top workplace.
leverage once their rotations are completed and
they have settled into a longer-term role.
Our hallmark in-house leadership curriculum is as
robust as ever, and we have now graduated over
250 of our associates through the highly coveted
NextGen and PolyMasters programs.
TT
s Leaders T
oday
’
Building Tomorrow’
TT
Health and wellness is a commitment we make to
every PolyOne associate. We do this through our
safety focus, benefi ts, and wellness programs that
support fi nancial, physical and mental wellness.
While some are tailored to local standards and
needs, others canvas our global organization,
like our inaugural Global 5K Fun Run and Walk
held last year. More than 2,500 associates in
11 countries participated in an activity focused
solely on promoting healthy lifestyles.
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Top to Bottom: PolyOne Wellness
events in Pune, India; Avon Lake, Ohio;
and Shanghai, China.
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PRODUCTS
Investments in 2018 included a new
thermoplastic elastomer line in Pune, India.
5
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Our proven ability to innovate materials that enable our customers’ sustainability goals remains
a diff erentiator for PolyOne. Our guiding principles are outlined in our No Surprises PledgeSM
(see sidebar on right).
A crucial enabler to living this Pledge is having deep material science expertise on our team, and
we’ve invested heavily in this area. Since 2014, we have increased our technical resources by 34%.
These highly-talented PolyOne associates add value to our customers and improve sustainability
through formulating polymer solutions, such as:
• Barrier technologies that preserve the shelf-life and quality of food, beverages, medicine and
other perishable goods through thinner gauge designs and high-performance materials that
require less plastic
• Light-weighting solutions that replace heavier traditional materials like metal, glass and wood
that can improve fuel effi ciency in all modes of transportation
• Breakthrough fi ber colorant technology that minimizes the amount of wastewater generated
during our customers’ production processes
• R&D projects aimed to improve the recyclability of materials and packaging across a spectrum
of end uses
HELPING CUSTOMERS MEET THEIR GOALS THROUGH
MATERIAL SCIENCE
NO SURPRISES
PLEDGESM
At PolyOne, we are
committed to helping you
grow your business with safe
and environmentally sound
solutions. This commitment
is exemplifi ed by our No
Surprises PledgeSM which we
make to all customers and
markets, across the globe.
• You can be confi dent
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 confi dent our
products will help you meet
or exceed today’s stringent
compliance standards
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HELPING CUSTOMERS
BECOME MORE SUSTAINABLE
$1.3 BILLION IN REVENUE FROM SUSTAINABLE SOLUTIONS*
2016–2018
Lightweighting
Reduced Material
Requirements
Eco-conscious
Composition
Bio-derived Content
Improved Recyclability
Reduced Energy Use
Renewable Energy
Applications
Volatile Organic
Compound Reduction
PolyOne off ers a broad portfolio of technologies
that help our customers—and our planet—be more
sustainable. Through our design expertise and
material science, we can make a positive impact in
applications in nearly every end market. Examples
of our solutions that make our customers’ products
more sustainable include the following:
ColorMatrix™ Amosorb™
oxygen scavenger additive for PET
packaging reduces material weight,
extends shelf-life and reduces
spoilage in nearly 4 billion juice and
carbonated beverage containers
per year.
ColorMatrix™ Lactra™ SX
additive provides high-performance
light-blocking technology that
enables a recyclable alternative to
long-life dairy packaging.
20% IN CR E A S E
$440M
$480M
$400M
2016
2017
2018
*PolyOne Sustainable Solutions defi nitions aligned with FTC 2012 Guide for the
Use of Environmental Marketing Claims (“Green Guides”)
Nymax™ solutions, which are
formulated with at least 50%
reclaimed nylon, enabled landfi ll waste
reduction of over 17 million pounds.
Maxxam™ LO formulations
reduce VOCs by up to 80% when
compared to standard mineral-fi lled
polypropylene grades.
7
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SPECIALTY ACQUISITIONS
PolyOne composite technologies provide a lighter weight
alternative to steel and aluminum.
PLASTICS ARE...
up to
83%
lighter than
up to
52%
lighter than
STEEL
ALUMINUM
As the demand for our products grow, we’re
investing in our facilities to ensure we can meet
the ever-changing regulatory, service and
quality requirements. For example, we invested
in three new engineered materials lines in our
Suzhou, China facility; introduced thermoplastic
elastomer capability in Pune, India; upgraded our
laboratory in McHenry, Illinois; and increased
solid and liquid colorant processing capacity at
multiple facilities in North America.
We also expanded our product portfolio through
the acquisition of specialty companies that
have complementary technologies. In 2018 we
acquired IQAP, a highly-respected color and
additives producer with an established footprint
in Europe, as well as PlastiComp, a unique
innovator of specialty composites that provides
performance attributes such as high strength and
stiff ness, design freedom, fatigue endurance, and
corrosion resistance.
In January of this year we purchased Fiber-Line, a
global leader in customized engineered fi bers and
composite materials that serves the fi ber optic
cable, oil & gas, industrial and consumer industries.
2.5B
required
fiber kilometers
FOR 5G BUILD OUT
OVER NEXT 10 YEARS
We measure the health of our innovation
capabilities and portfolio through our Vitality
Index, which is the revenue generated from
products that have been in the PolyOne portfolio
for less than fi ve years. For 2018, our Vitality Index
was 35%, a testament to our innovation capability
and a sign of confi dence to our customers.
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PLANET
In 2018 wind energy generation began at
our facility in Assesse, Belgium
9
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Effi ciency and continuous improvement are at
the core of our Operational Excellence strategy
and also ensure we’re taking responsible care of
our planet. This begins with the Lean Six Sigma
(LSS) culture that we continue to invest in and
RESPONSIBILITY TO
OUR PLANET
utilize each day throughout our company.
As we produce our materials we recognize and
embrace our responsibility to the planet, and we
monitor several metrics to track our performance.
From 2016–2018 we made progress in several
important metrics, including these highlights:
28% Decrease in Greenhouse Gas
Emissions Intensity
2016: 0.30 MT of C02 Equivalents
per MT of Production
2018: 0.22 MT of C02 Equivalents
per MT of Production
36,300 Metric Tons of Cumulative
Reclaimed Raw Materials Used for
Production 2016–2018
Reuse of raw materials enables landfi ll
waste reduction
8% Reduction in Total Metric Tons
of Waste
2016: 18,400 MT
2018: 17,000 MT
We still have more work to do in other areas,
as we consider these measures over that
same period:
0.5% Increase in Energy Intensity
2016: 1.2575 MWh per MT Produced
2018: 1.2641 MWh per MT Produced
18% Increase in Water Intensity
2016: 2.18 m3 per MT Produced
2018: 2.57 m3 per MT Produced
While these last two metrics are heavily
infl uenced by mix, we are committed to continual
improvement in each. We view environmental
metrics with high importance, just as we do all
measures throughout our 4Ps of sustainability.
More than 4,100 active associates have been
trained in LSS and at any given time there
are approximately 350 process improvement
projects underway. These and other projects
benefi t the planet by minimizing the amount of
natural resources required to safely manufacture,
transport and ensure fi rst-time quality material to
our customers. For example, 45 energy savings
projects last year will result in an approximate
2,250 MWh/yr reduction of energy.
0
ZERO
reportable releases
in excess of permitted level
to the environment
SINCE 2013
What’s eff ective for PolyOne has also proven
to be desirable and eff ective for our customers.
In launching PolyOne’s LSS Customer First
service, we have been training our customers
in lean principles, who then identify and
implement process improvement projects in their
operations. In doing so, it not only strengthens
their business and builds loyalty to PolyOne, but
also multiplies the positive impact on our planet.
Green energy is another area we are routinely
evaluating, and in 2018 we were proud to
install three windmills at our Assesse, Belgium
production facility. Combined with the rooftop
panels we installed in prior years, our Assesse
facility now draws 80% of its required production
energy from solar and wind sources.
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SERVING OUR COMMUNITIES
UNITED WAY CAMPAIGN RESULTS
Community service is a true passion for our
associates, and we strongly support their eff orts
to give back in the cities where we operate.
In addition to our fi nancial contributions and
volunteerism with local non-profi ts, many
activities focus on building more sustainable
communities, such as a beach clean-up in Peru
and planting trees in India.
S
R
A
L
L
O
D
.
.
S
U
2.0
1.5
1.0
.5
0
$12M+
FOR UNITED
WAY SINCE 2008
$1.65M
(cid:481) (cid:496) (cid:517) (cid:548) (cid:556) (cid:560)
(cid:481) (cid:496) (cid:517) (cid:548) (cid:556) (cid:560)
2008
2014
2016
2012
2010
2018
$391K
Last year, we were also proud to partner with
Global Vision 2020, by donating our design
expertise as well as materials to this wonderful
non-profi t organization that invented a system
for diagnosing and creating eyeglasses onsite for
people in low-resource countries without access
to eye care.
In addition to our involvement as an ACC
Responsible Care® company, we are members
of Operation Clean Sweep®, where we train and
audit our operations to prevent plastic pellet
loss into the environment. We also recently
joined the Alliance to End Plastic Waste as a
founding member and created a new VP of
Sustainability role.
And as the aforementioned collaboration among
all plastics industry stakeholders continues
to gain momentum, we will increase our
engagement to help ensure needed actions are
taken to reduce pollution, increase recycling
and utilize specialty plastics for the tremendous
sustainable value they bring to the world.
Founding Member
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Top to Bottom: Tree planting in Pune,
India; park restoration in Lorain, Ohio;
and beach clean up in Lima, Peru.
11
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PERFORMANCE
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2018 marked the ninth consecutive year of
adjusted EPS expansion at PolyOne, as we
delivered $2.43 per share. It’s a commendable
streak that we work tirelessly to achieve and
build upon.
Last year it took tremendous eff ort from our
team to deliver, overcoming some of the most
signifi cant industry dynamics since the great
recession. This included unprecedented raw
material infl ation, spiking logistics costs and select
end market weakness.
We also increased our dividend for the seventh
year in a row.
At our Investor Day in May of last year, we
communicated a path to achieving sustainable
double digit annual adjusted EPS growth and
16–17% Return on Invested Capital (ROIC). The
key drivers as we progress on that performance
journey include:
• Increasing commercial resources 5–7%
annually
• Expanding specialty portfolio with strategic
acquisitions, then doubling the acquired
company’s margins in 5–7 years
• Innovating and developing new technologies
and services
• Repurchasing 600K–1M shares annually
• Enhancing effi ciencies through LSS and
Commercial Excellence
11%
INCREASE
IN DIVIDEND
9 CONSECUTIVE YEARS OF
ADJUSTED EPS GROWTH
ADJUSTED EARNINGS PER SHARE*
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
H
H
P
P
E
E
C
C
U
U
$1.31
E Y
E Y
$1.96
T I V
T I V
$1.80
$2.21
$2.43
$2.06
E A R
E A R
9 C O N S
9 C O N S
S G R O W T
S G R O W T
S O F A D J . E
S O F A D J . E
(cid:522)(cid:486) (cid:493) (cid:501) (cid:514) (cid:536) (cid:542) (cid:547) (cid:554) (cid:562)
(cid:522)(cid:486) (cid:493) (cid:501) (cid:514) (cid:536) (cid:542) (cid:547) (cid:554) (cid:562)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$0.68
$0.82
$1.00
$0.13
*EPS excluding special items and income from equity affiliates
Last year, we fulfi lled our commitments in each of these areas. Our investments of
time, talent and capital will remain aligned in these areas in the coming year. And
combined with the momentum we are demonstrating as to People, Products and
Planet, I remain confi dent in our ability to deliver our desired adjusted EPS and
ROIC as a world-class, sustainable organization. As we pursue these goals, PolyOne’s
culture—built on our values, ethics and trust—will underpin all that we do.
In closing, I would like to thank our customers for their continued trust in PolyOne,
our Board of Directors for their guidance and insight, our management team for
their tireless work to execute our strategy, and all the PolyOne associates around the
world for their ongoing commitment to our customers’ success and to each other.
It is a privilege to serve all of our many stakeholders as Chairman, President and CEO
of this great company, and I look forward to leading our ongoing journey to become
a high-performing, world-class sustainable organization.
Robert M. Patterson
Chairman, President and CEO
13
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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, 2018
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 whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) 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 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.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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 29, 2018, determined using a per
share closing price on that date of $43.22, as quoted on the New York Stock Exchange, was $3.5 billion.
The number of shares of common shares outstanding as of February 1, 2019 was 77,722,398.
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 2019 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 “will,” “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 condition, 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
disruptions, uncertainty or volatility in the credit markets that could adversely impact the availability of credit
already arranged and the availability and cost of credit in the future;
the effect on foreign operations of currency fluctuations, tariffs and other political, economic and regulatory
risks;
changes in polymer consumption growth rates and laws and regulations regarding plastics in jurisdictions
where we conduct business;
changes in global industry capacity or in the rate at which anticipated changes in industry capacity come online;
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;
an inability to raise or sustain prices for products or services;
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;
our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends;
our ability to identify and evaluate acquisition targets and consummate and integrate acquisitions;
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 fluoropolymer and
silicone colorants. Headquartered in Avon Lake, Ohio, we have employees at sales, manufacturing and distribution
facilities in North America, South America, Europe and Asia. 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 currently employ approximately
6,900 people and have 74 manufacturing sites and eight distribution facilities in North America, South America, Europe
and Asia. We offer more than 35,000 polymer solutions to over 10,000 customers across the globe. In 2018, we had
sales of $3.5 billion, approximately 43% 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 increasingly effective material-based solutions to improve
their products' appeal, performance, differentiation, profitability and competitive advantage. Our goal is to provide
customers with specialized materials and 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 equipment, electrical and electronics, adhesives, inks and coatings. Each type of thermoplastic resin
has unique characteristics (such as flexibility, strength or durability) suitable for use in a particular end-use application.
The packaging industry requires plastics that help keep food fresh and free of contamination while providing a variety
of options for product display, and offering advantages in terms of weight and user-friendliness. In the building and
construction industry, plastic provides an economical and energy efficient replacement for other traditional materials
in piping applications, siding, flooring, insulation, windows and doors, as well as structural and interior or decorative
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uses. In the wire and cable industry, thermoplastics and composites serve to protect by providing electrical insulation,
flame resistance, durability, water resistance, water swelling and color coding to engineered fibers, yarn products, 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) Distribution. Previously, PolyOne had five reportable segments. However,
as a result of the divestiture of the Designed Structures & Solutions segment (DSS) on July 19, 2017, 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, to the
accompanying consolidated financial statements for additional information.
Our segments are further detailed in Note 14, Segment Information, to the accompanying consolidated financial
statements.
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 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”.
POLYONE CORPORATION 3
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 2018, 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 $56.3 million in 2018, $52.1 million in 2017 and
$50.4 million in 2016.
Methods of Distribution
We sell products primarily through direct sales personnel, distributors, including our Distribution segment, and
commissioned sales agents. We primarily use truck carriers to transport our products to customers, although some
customers pick up product at our manufacturing facilities or warehouses. We also ship some of our manufactured
products to customers by rail.
Employees
In September 2018, the Great Place to Work Institute certified PolyOne as a Great Place to Work® in the U.S. based
on a comparison of our employees' survey responses to those of employees at hundreds of other certified companies.
We believe this reflects our commitment to better serving our associates, customers and communities, as well as
further advancing our sustainability initiatives.
As of December 31, 2018, we employed approximately 6,600 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.
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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 record-low injury incidence rate of 0.51 per 100 full-time
workers per year in 2018 and 0.69 in 2017. The 2017 average injury incidence rate for our NAICS Code (326 Plastics
and Rubber Products Manufacturing) was 3.9. We hold 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 January 2019, PolyOne, along with 29 other member companies located throughout North America, South America,
Europe, Asia, Africa and the Middle East, joined together as founding members of the Alliance to End Plastic Waste
(AEPW). The AEPW has thus far committed over $1.0 billion to help end plastic waste in the environment. The AEPW
intends to develop and bring to scale solutions expected to minimize and manage plastic waste and promote solutions
for used plastics by helping enable a circular economy. Our commitment to AEPW confirms the importance we place
on being a global leader in all aspects of how we define sustainability: people, products, planet and 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 $23.2 million in 2018, $14.8 million in 2017 and
$8.3 million in 2016. The increase in environmental expense is primarily due to arbitration related to potential recoveries
of previously incurred costs from third parties and insurance carriers. In 2018, 2017 and 2016, we recognized gains
associated with insurance recoveries of $4.3 million, $9.1 million and $6.1 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, the United States Environmental
Protection Agency (USEPA) issued its Record of Decision (ROD) in September 2018, selecting a remedy consistent
with our accrual assumptions. In October 2018, the USEPA sent a letter to the respondents inviting negotiation of an
agreement to conduct the remedial design; that negotiation is ongoing. Our current reserve of $103.3 million is consistent
with the USEPA's estimates contained in the ROD. Environmental reserves for all other sites totaled $10.8 million as
of December 31, 2018, 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, to the accompanying consolidated financial statements for further
discussion of the Calvert City site and our overall environmental liability.
POLYONE CORPORATION 5
We expect 2019 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 the noted
risks, see Item 1A. Risk Factors. 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 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:
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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;
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 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
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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.
Environmental, health and safety laws and regulations impact our operations and financial statements.
Our operations on, and ownership of, real property are subject to 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:
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changes in local government regulations and policies including, but not limited to duty or tariff restrictions,
foreign currency exchange controls or monetary policy, repatriation of earnings, expropriation of property,
investment limitations and tax policies;
risks associated with the withdrawal of the United Kingdom (UK) from the European Union (EU), commonly
known as "Brexit";
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.
On June 23, 2016, the UK held a referendum in which UK voters approved an exit from the EU. The June 2016
referendum result, and the subsequent commencement of the official withdrawal process by the UK government in
March 2017, has created uncertainties affecting business operations in the UK and the EU. The long-term nature of
the UK’s relationship with the EU is unclear and there is considerable uncertainty when any relationship will be agreed
and implemented. The long term effects of Brexit will depend on any agreements the UK makes to retain access to
EU markets, either during a transitional period or more permanently. Given the lack of comparable precedent, it is
unclear what financial, trade and legal implications the withdrawal of the UK from the EU would have and how such
withdrawal would affect us. It is possible that the withdrawal could, among other things, affect the legal and regulatory
environments to which our businesses are subject, impact trade between the UK and the EU through potential
restrictions on the free movement of goods and labor between the UK and the EU, create economic and political
uncertainty in the region, and create other impediments to our ability to transact within and between the UK and EU.
Less than 2% of our total consolidated sales originated in the UK and shipped to the EU for the year ended December
31, 2018.
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
POLYONE CORPORATION 7
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.
Natural gas, electricity, fuel, logistics and raw material costs could cause volatility in our results.
The cost of our natural gas, electricity, fuel, logistics 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.
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.
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: sell or otherwise transfer assets, including in a spin-off, 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
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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 provide adequate
sources of liquidity, a significant drop in operating cash flow resulting from economic conditions, competition or other
uncertainties beyond our control could create the need for alternative sources of liquidity. If we are unable to generate
sufficient cash flow to meet our debt service obligations, we will have to pursue one or more alternatives, such as
reducing or delaying capital or other expenditures, refinancing debt, selling assets, or raising equity capital.
We have a significant amount of goodwill, and any future goodwill impairment charges could adversely impact
our results of operations.
As of December 31, 2018, we had goodwill of $650.3 million. The future occurrence of a potential indicator of impairment,
such as a significant adverse change in 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 2018 goodwill
impairment test, performed as of October 1, 2018, 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.”
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
POLYONE CORPORATION 9
ITEM 2. PROPERTIES
Headquartered in Avon Lake, Ohio we operate globally with principal locations consisting of 74 manufacturing sites
and eight distribution facilities in North America, South America, Europe and Asia. We own the majority of our
manufacturing sites and lease our distribution facilities. We believe that the quality and production capacity of our
facilities is sufficient to maintain our competitive position for the foreseeable future. The following table identifies the
principal facilities of our segments:
Performance Products and
Solutions
Specialty
Engineered Materials
Color,
Additives and Inks
Distribution
1. Carson, California
1. Birmingham, Alabama
1. Glendale, Arizona
25. Tianjin, China
1. Rancho Cucamonga,
2. Terre Haute, Indiana
2. Englewood, Colorado
2. Phoenix, Arizona
26. Tabor, Czech Republic
California
3. Louisville, Kentucky
3. Montrose, Colorado
3. Fort Smith, Arkansas
27. Odkarby, Finland
2. Chicago, Illinois
4. Lockport, New York
4. North Haven, Connecticut
4. Bethel, Connecticut
28. Cergy, France
3. Eagan, Minnesota
5. Avon Lake, Ohio
5. McHenry, Illinois
5. Kennesaw, Georgia
29. Tossiat, France
4. Edison, New Jersey
6. Clinton, Tennessee
6. Winona, Minnesota
6. Elk Grove Village, Illinois
30. Diez, Germany
5. Statesville, North
7. Dyersburg, Tennessee
7. Hickory, North Carolina
7. La Porte, Indiana
31. Gyor, Hungary
Carolina
8. Pasadena, Texas
8. Avon Lake, Ohio
8. St. Louis, Missouri
32. Pune, India
6. Elyria, Ohio
9. Seabrook, Texas
9. Hatfield, Pennsylvania
9. Pineville, North Carolina
33. Milan, Italy
7. La Porte, Texas
10. Orangeville, Ontario,
10. Changzhou, China
10. Berea, Ohio
34. Toluca, Mexico
Canada
11. Shenzhen, China
11. Massillon, Ohio
35. Eindhoven, Netherlands
8. Brampton, Ontario,
Canada
11. St. Remi de Napierville,
12. Suzhou, China
12. North Baltimore, Ohio
36. Lima, Peru
(8 Distribution Facilities)
Quebec, Canada
13. Gaggenau, Germany
13. Norwalk, Ohio
37. Kutno, Poland
12. Dongguan, China
14. Melle, Germany
14. Lehigh, Pennsylvania
38. Jeddah, Saudi Arabia
13. Ramos Arizpe, Mexico
15. Leeuwarden, Netherlands
15. Mountain Top,
(13 Manufacturing Plants)
16. Barbastro, Spain
Pennsylvania
39. Alicante, Spain
40. Barcelona, Spain
17. Istanbul, Turkey
16. Vonore, Tennessee
41. Pamplona, Spain
18. Leek, United Kingdom
Dyersburg, Tennessee (1)
Seabrook, Texas (1)
Shanghai, China (2)
Pune, India (1)
(18 Manufacturing Plants)
17. Richland Hills, Texas
42. Bangkok, Thailand
18. Assesse, Belgium
43. Knowsley, United
19. Itupeva, Brazil
20. Novo Hamburgo, Brazil
21. Pudong (Shanghai),
China
22. & 23. Shanghai, China (3)
24. Suzhou, China
Kingdom
Suwanee, Georgia (2)
Shenzhen, China (1)
Pamplona, Spain (2)
(43 Manufacturing Plants)
(1) Facility is not included in manufacturing plants total as it is also included as part of another segment.
(2) Facility is not included in manufacturing plants total as it is a design center/lab.
(3) 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
accompanying consolidated financial statements and is incorporated by reference herein.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
10
POLYONE CORPORATION
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 serving as an executive officer of the Company, their age, and position with the Company as of
February 1, 2019.
Name
Robert M. Patterson
Bradley C. Richardson
Mark D. Crist
Michael A. Garratt
J. Scott Horn
Lisa K. Kunkle
M. John Midea, Jr.
Chris L. Pederson
Joel R. Rathbun
João José San Martin Neto
Donald K. Wiseman
Age
46
60
60
55
63
50
54
52
46
58
51
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 Resources 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, 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.
POLYONE CORPORATION 11
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.
Chris L. Pederson: Senior Vice President, President of Specialty Engineered Materials, November 2018 to date. Vice
President, Strategy, Hexcel Corporation (a global leader in advanced composites technology) from March 2017 to
November 2018. Vice President, Aerospace of Cytec Engineered Materials (a producer of specialty bonding adhesives
and composite materials) from November 2009 to February 2016. Vice President, Research and Development of Cytec
from January 2004 to November 2009. Mr. Pederson served as a Senior Engineer at Boeing (a global aerospace
company) from 1992 to 2001.
Joel R. Rathbun: Senior Vice President, Mergers and Acquisitions, January 2016 to date. General Manager, Specialty
Engineered Materials 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.
12
POLYONE CORPORATION
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common shares, at $0.01 par value per share, are traded on the New York Stock Exchange under the symbol
“POL”.
As of February 1, 2019, there were 1,781 holders of record of our common shares.
We currently have an authorized common share repurchase program. For the full year 2018, we repurchased 3.4
million common shares at a weighted average share price of $37.01. During the three months ended December 31,
2018, we repurchased 2.1 million common shares as shown in the table below.
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
792,446
1,336,668
$
$
—
31.76
33.55
—
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Program
792,446
1,336,668
—
Maximum
Number of
Shares that
May Yet be
Purchased
Under the
Program(1)
4,444,140
3,107,472
3,107,472
2,129,114
$
32.91
2,129,114
(1) On August 18, 2008, we announced that our Board of Directors approved a common share 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 share 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, 2018, approximately 3.1 million shares remained
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.
POLYONE CORPORATION 13
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)
2018
2017
2016
2015
2014
Sales
Operating income
Net income from continuing operations
Net income from continuing operations attributable to
PolyOne shareholders
$
3,533.4
$
3,229.9
$
2,938.6
$
2,928.8
$
3,219.0
273.7
160.8
161.1
272.8
173.6
173.5
267.7
166.2
166.4
258.4
148.5
148.4
200.5
74.7
75.5
Cash dividends declared per common share
$
0.720
$
0.580
$
0.495
$
0.420
$
0.340
Earnings per share from continuing operations attributable to PolyOne shareholders:
Basic
Diluted
Total assets
Long-term debt
$
$
$
$
2.02
2.00
2,723.3
1,336.2
$
$
$
$
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
14
POLYONE CORPORATION
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 2018 sales of $3.5 billion, we have manufacturing sites
and distribution facilities in North America, South America, Europe and Asia. We currently employ approximately 6,900
people and offer more than 35,000 polymer solutions to over 10,000 customers across the globe. We provide value
to our customers through our ability to link our knowledge of polymers and formulation technology with our manufacturing
and supply chain capabilities to provide value-added solutions to designers, assemblers and processors of plastics
(our customers).
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 56% and 54% 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, raw material volatility and logistics cost inflation. 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 while focusing on our four cornerstones of sustainability - people, products, planet and performance
to ensure the growth we achieve is sustainable for us and our customers. 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 be found in numerous initiatives:
POLYONE CORPORATION 15
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, 2019, the Company completed the acquisition of Fiber-Line, a global leader in polymer coated engineered
fibers and composite materials, for $120.2 million, subject to a working capital adjustment and contingent earn-out
consideration over a two-year period. The results of Fiber-Line will be reported in the Specialty Engineered Materials
segment. The acquisition of Fiber-Line is expected to add approximately $100.0 million in annual sales.
On May 31, 2018, the Company acquired the outstanding shares of PlastiComp, Inc. (PlastiComp) for total consideration
of $43.6 million, net of cash acquired and inclusive of contingent earn-out consideration that will be finalized two years
from the date of acquisition. Specializing in long-fiber reinforced thermoplastics, PlastiComp's results are reported in
the Specialty Engineered Materials segment.
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, for $74.9 million, net
of cash acquired. The results of operations of IQAP are reported in the Color, Additives and Inks segment.
Highlights and Executive Summary
A summary of PolyOne’s sales, operating income, income from continuing operations net of income taxes and net
income from continuing operations attributable to PolyOne common shareholders 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
2018
$ 3,533.4
2017
$ 3,229.9
2016
$ 2,938.6
273.7
160.8
161.1
272.8
173.6
173.5
267.7
166.2
166.4
16
POLYONE CORPORATION
Results of Operations
Variances — Favorable (Unfavorable)
2018 versus 2017
2017 versus 2016
(Dollars in millions, except per share data)
2018
2017
2016
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
$ 3,533.4
$ 3,229.9
$ 2,938.6
$
303.5
9.4 % $
291.3
9.9 %
2,788.5
2,511.0
2,262.2
(277.5)
(11.1)%
(248.8)
(11.0)%
744.9
471.2
273.7
(62.8)
(1.1)
(12.6)
197.2
(36.4)
718.9
446.1
272.8
(60.8)
(0.3)
0.6
212.3
(38.7)
676.4
408.7
267.7
(59.7)
(0.4)
19.0
226.6
(60.4)
26.0
(25.1)
0.9
(2.0)
(0.8)
(13.2)
(15.1)
2.3
3.6 %
(5.6)%
0.3 %
(3.3)%
nm
nm
(7.1)%
5.9 %
42.5
(37.4)
5.1
(1.1)
0.1
(18.4)
(14.3)
21.7
7.4
6.3 %
(9.2)%
1.9 %
(1.8)%
25.0 %
96.8 %
(6.3)%
35.9 %
4.5 %
Net income from continuing operations
$
160.8
$
173.6
$
166.2
$
(12.8)
(7.4)% $
Loss from discontinued operations, net of income
taxes
Net income (loss)
Net loss (income) attributable to noncontrolling
interests
Net income (loss) attributable to PolyOne common
shareholders
(1.3)
159.5
(231.2)
(57.6)
(1.2)
165.0
229.9
217.1
0.3
(0.1)
0.2
0.4
nm
nm
nm
(230.0)
nm
(222.6)
(134.9)%
0.3
150.0 %
$
159.8
$
(57.7) $
165.2
$
217.5
nm $ (222.9)
(134.9)%
Earnings (loss) per share attributable to PolyOne common shareholders - basic:
Continuing operations
Discontinued operations
Total
$
$
2.02
$
2.13
$
1.98
(0.01)
(2.84)
(0.01)
2.01
$
(0.71) $
1.97
Earnings (loss) per share attributable to PolyOne common shareholders - diluted:
Continuing operations
Discontinued operations
Total
nm - not meaningful
Sales
$
$
2.00
$
2.11
$
1.96
(0.01)
(2.81)
(0.01)
1.99
$
(0.70) $
1.95
Sales increased $303.5 million, or 9.4%, in 2018 compared to 2017 primarily driven by organic sales growth of 5.3%,
acquisitions of 3.3%, and favorable foreign exchange.
Sales increased $291.3 million, or 9.9%, in 2017 compared to 2016. Previous commercial investments drove organic
sales growth of 6.6%, while acquisitions added 3.2%.
Cost of sales
As a percent of sales, cost of sales increased from 77.7% in 2017 to 78.9% in 2018 primarily as a result of raw material
cost inflation and increased North American logistics costs.
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.
POLYONE CORPORATION 17
Selling and administrative expense
These costs include selling, technology, administrative functions, corporate and general expenses. Selling and
administrative expense in 2018 increased $25.1 million, primarily related to acquired businesses of $19.0 million,
additional investment in commercial resources and $3.1 million of translation impact from foreign exchange.
Selling and administrative expense in 2017 increased $37.4 million, primarily related to $20.3 million in additional
compensation and employee costs, which included our investment in commercial resources, as well as the impact
from acquired businesses of $16.3 million.
Interest expense, net
Interest expense, net increased $2.0 million in 2018 compared to 2017 due to the impact of increased interest rates
associated with our variable rate debt. Partially offsetting this increase was an interest rate reduction from amending
the senior secured term loan in April to reduce the margin by 25 basis points and a $2.0 million favorable impact from
the net investment hedges that were executed during 2018. See Note 15, Derivatives and Hedging, to the accompanying
consolidated financial statements for detail on those hedges.
Interest expense, net increased $1.1 million in 2017 compared to 2016 due to the impact of increased interest rates
associated with our variable rate debt 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 2017
and August 2017 to reduce the margin by 50 basis points and 25 basis points, respectively.
Other (expense) income, net
The Company has adopted Accounting Standards Update (ASU) 2017-07, Compensation - Retirement Benefits (Topic
715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost on January
1, 2018. As a result, all components of net periodic benefit cost, except for service costs, are presented here. For
further detail, see Note 10, Employee Benefit Plans, to the accompanying consolidated financial statements.
Debt extinguishment costs
Debt extinguishment costs of $1.1 million and $0.3 million for 2018 and 2017, respectively, 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 2026 and the senior secured revolving credit facility. See Note 5, Financing Arrangements,
to the accompanying consolidated financial statements for additional information.
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 2018, the
TCJA reduced the U.S. 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 required U.S. companies to pay a one-time transition tax on earnings of foreign corporate subsidiaries that
were at least ten-percent owned by such U.S. companies and that were previously deferred from U.S. taxation.
As of December 31, 2018, we had completed our accounting for the tax effects of the enactment of the TCJA. In
compliance with the one-year measurement period of the SEC's Staff Accounting Bulletin 118 (SAB 118) (issued
December 22, 2017), we have finalized the effects of the TCJA on our existing deferred income tax balances, the one-
time transition tax and, as discussed below, the impact the TCJA had on our indefinite reinvestment assertion pursuant
to Accounting Principles Board 23 (APB 23). These finalized effects are included as components of income tax expense
from continuing operations and are noted in the following tabular reconciliation.
As of December 31, 2018, we had completed our analysis with respect to the impact of the TCJA on our continuing
assertion that our foreign earnings are indefinitely reinvested pursuant to APB 23 of Accounting Standards Codification
740-30 (ASC 740-30). APB 23 provides guidance that US companies do not need to recognize tax effects on foreign
earnings that are indefinitely reinvested. Our assertion has changed with respect to certain earnings of foreign affiliates
in certain countries, which resulted in a recognition of tax liabilities. As of December 31, 2018, and noted in the
Repatriation of certain foreign earnings from prior and current periods line in the following tabular reconciliation, we
18
POLYONE CORPORATION
recognized an impact of 4.5% to our provision from a decision to repatriate prior year earnings after completing our
analysis with respect to the TCJA and 1.2% pertaining to our decision to repatriate certain current year earnings. The
rest of our foreign earnings are indefinitely reinvested pursuant to APB 23 and our policy. No deferred income taxes
were recorded on outside basis differences as it was not practicable to determine the provision impact, if any, due to
the complexities associated with this calculation.
We elected to recognize the resulting tax on the global intangible low-taxed income (GILTI) as a period expense in the
period the tax is incurred.
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 on GILTI
Repatriation on certain foreign earnings from prior and current periods
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
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
2018
2018
2017
2016
21.0%
(5.8)
2.8
1.5
5.7
—
(0.7)
—
(0.4)
(1.8)
0.8
(3.5)
(1.1)
18.5%
35.0%
(11.1)
1.4
—
0.4
(6.8)
(1.9)
(3.6)
2.2
0.7
11.3
(9.5)
0.1
18.2%
35.0%
(5.6)
2.1
—
—
(1.9)
(1.5)
(1.3)
(1.1)
0.4
—
—
0.6
26.7%
The increase in the Repatriation on certain foreign earnings from prior and current periods line item resulted from a
decision to repatriate certain foreign earnings from current and prior periods.
The benefit reflected in the Changes in valuation allowances line resulted from the realizability of a deferred tax asset
for one of our foreign entities.
2017
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.
POLYONE CORPORATION 19
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) Distribution.
Our segments are further discussed in Note 14, Segment Information, to the accompanying consolidated financial
statements.
Sales and Operating Income — 2018 compared with 2017 and 2017 compared with 2016
(Dollars in millions)
2018
2017
2016
Change
% Change
Change
% Change
2018 versus 2017
2017 versus 2016
Sales:
Color, Additives and Inks
$ 1,046.5
$
$
153.3
17.2 % $
Specialty Engineered Materials
Performance Products and Solutions
Distribution
Corporate and eliminations
Sales
Operating income:
645.8
735.8
1,265.4
(160.1)
893.2
624.3
720.6
1,154.6
(162.8)
$
797.7
565.8
668.5
1,071.0
(164.4)
$ 3,533.4
$ 3,229.9
$ 2,938.6
$
Color, Additives and Inks
$
158.5
$
138.6
$
127.5
$
Specialty Engineered Materials
Performance Products and Solutions
Distribution
Corporate and eliminations
Operating income
72.3
73.6
71.5
(102.2)
$
273.7
$
75.5
77.1
72.6
81.1
74.4
68.2
(91.0)
272.8
$
(83.5)
267.7
$
21.5
15.2
110.8
2.7
303.5
19.9
(3.2)
(3.5)
(1.1)
(11.2)
0.9
3.4 %
2.1 %
9.6 %
1.7 %
9.4 % $
14.4 % $
(4.2)%
(4.5)%
(1.5)%
(12.3)%
0.3 % $
95.5
58.5
52.1
83.6
1.6
291.3
11.1
(5.6)
2.7
4.4
(7.5)
5.1
12.0 %
10.3 %
7.8 %
7.8 %
1.0 %
9.9 %
8.7 %
(6.9)%
3.6 %
6.5 %
(9.0)%
1.9 %
Operating income as a percentage of sales:
Color, Additives and Inks
Specialty Engineered Materials
Performance Products and Solutions
Distribution
Total
Color, Additives and Inks
15.1%
11.2%
10.0%
5.7%
7.7%
15.5%
12.1%
10.7%
6.3%
8.4%
16.0%
14.3%
11.1%
6.4%
9.1%
(0.4)% points
(0.9)% points
(0.7)% points
(0.6)% points
(0.7)% points
(0.5)% points
(2.2)% points
(0.4)% points
(0.1)% points
(0.7)% points
Sales increased $153.3 million, or 17.2%, in 2018 compared to 2017. Acquisitions increased sales 10.5%, while organic
sales grew 5.2% primarily in the packaging and consumer end markets. Favorable foreign exchange added 1.5%.
Operating income increased $19.9 million in 2018 compared to 2017 primarily due to the benefit of higher sales and
recent acquisitions.
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 and
acquisitions.
20
POLYONE CORPORATION
Specialty Engineered Materials
Sales increased $21.5 million, or 3.4%, in 2018 compared to 2017. Sales growth in Europe and Asia contributed 3.2%,
acquisitions added 1.9% and favorable foreign exchange added 1.7%. Lower sales in North America partially offset
these increases due to weakness in the wire and cable and consumer end markets.
Operating income decreased by $3.2 million, in 2018 compared to 2017 as the benefit of higher sales and recent
acquisitions was more than offset by higher raw material and logistics costs.
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 $5.6 million, in 2017 compared to 2016 as the benefit of increased sales was more
than offset by raw material cost inflation.
Performance Products and Solutions
Sales increased $15.2 million, or 2.1%, in 2018 compared to 2017 as higher unit sales was slightly offset by weaker
mix.
Operating income decreased $3.5 million in 2018 compared to 2017. The benefit of increased sales was more than
offset by weaker mix and higher logistics costs, as well as lower demand in certain end markets in North America,
such as building and construction and appliance.
Sales increased $52.1 million, or 7.8%, in 2017 compared to 2016 primarily due to higher unit sales 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.
Distribution
Sales increased $110.8 million, or 9.6%, in 2018 compared to 2017 as a result of increased unit sales and higher
overall average selling prices associated with raw material cost inflation.
Operating income decreased $1.1 million in 2018 compared to 2017 as the benefit of higher sales was more than
offset by higher logistics costs and increased selling and administrative expense, including our continued investment
in commercial resources.
Sales increased $83.6 million, or 7.8%, in 2017 compared to 2016 as a result of organic growth 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.
Corporate and Eliminations
Corporate and eliminations increased $11.2 million in 2018 compared to 2017. This increase was primarily a result of
higher environmental remediation costs combined with lower insurance reimbursements associated with such costs
in 2018. Partially offsetting these costs were lower compensation and employee costs.
Corporate and eliminations increased $7.5 million in 2017 compared to 2016. This increase is largely due to higher
compensation and employee costs primarily associated with additional incentives and commercial resources.
Liquidity and Capital Resources
Our objective is to finance our business through operating cash flow and an appropriate mix of debt and equity. By
laddering the maturity structure, we avoid concentrations of debt maturities, reducing liquidity risk. We may from time
to time seek to retire or purchase our outstanding debt with cash and/or exchanges for equity securities, in open market
purchases, privately negotiated transactions or otherwise. We may also seek to repurchase our outstanding common
shares. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual
restrictions and other factors. The amounts involved have been and may continue to be material.
POLYONE CORPORATION 21
The following table summarizes our liquidity as of December 31, 2018:
(In millions)
Cash and cash equivalents
Revolving credit availability
Liquidity
$
$
170.9
280.7
451.6
As of December 31, 2018, approximately 95% of the Company’s cash and cash equivalents resided outside the United
States.
After considering the impact of foreign tax credit carryforwards, there was no resulting cash tax payable as a result of
the one-time transition tax on previously deferred foreign earnings.
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, explore specialty acquisitions and
opportunistically repurchase outstanding common shares.
Expected sources of cash in 2019 include cash from operations and available liquidity under our revolving credit facility,
if needed. Expected uses of cash in 2019 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 in the range of $80.0 to $90.0 million in 2019, 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, to the accompanying consolidated
financial statements, 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 (decrease) increase in cash and cash equivalents
2018
2017
2016
$
$
$
253.7
(170.3)
(148.1)
(8.0)
(72.7) $
202.4
(119.4)
(72.7)
6.6
16.9
$
$
227.6
(235.4)
(40.3)
(5.0)
(53.1)
Operating activities
In 2018, net cash provided by operating activities was $253.7 million as compared to $202.4 million in 2017. The
increase in net cash provided by operating activities of $51.3 million primarily reflects improved working capital, as
well as a receipt of $27.9 million of U.S. federal income tax refunds.
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 10.7% at December 31, 2018 from 10.3%
at December 31, 2017. This increase is due to the impact of recent acquisitions.
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.
Investing Activities
Net cash used by investing activities during 2018 of $170.3 million reflects acquisitions of $98.6 million and capital
expenditures of $76.0 million.
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.
22
POLYONE CORPORATION
Financing Activities
Net cash used by financing activities in 2018 primarily reflects repurchases of $123.0 million of our outstanding common
shares, cash dividends paid of $56.1 million, and repayment of debt of $22.9 million. Net borrowings of $62.6 million
under our revolving credit facilities partially offset these uses.
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 by 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 primarily used to fund acquisitions.
Total Debt
The following table summarizes debt as presented at December 31, 2018 and 2017.
(In millions)
Senior secured revolving credit facility due 2022
Senior secured term loan due 2026
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,
2018
December 31,
2017
$
$
$
120.1
619.8
595.0
20.7
1,355.6
19.4
1,336.2
$
$
$
56.5
629.0
594.0
29.5
1,309.0
32.6
1,276.4
(1) Other debt includes capital lease obligations of $3.4 million and $17.8 million as of December 31, 2018 and 2017, respectively.
On April 11, 2018, the Company entered into a fifth amendment to its senior secured term loan. Under the terms of
the amended senior secured term loan, the margin was reduced by 25 basis points to 175 basis points. At the Company's
discretion, interest is based upon (i) a margin rate of 175 basis points plus the 1-, 2-, 3-, or 6-month LIBOR, subject
to a floor of 75 basis points, or (ii) a margin rate of 75 basis points plus a Prime Rate, subject to a floor of 175 basis
points. On November 9, 2018, the Company entered into a sixth amendment to its senior secured term loan, which
extended the maturity to 2026. Repayments in the amount of one percent of the aggregate principal amount as of
August 3, 2016 are payable annually, while the remaining balance matures on January 30, 2026. The weighted average
annual interest rate under the senior secured term loan for the year ended December 31, 2018 and 2017 was 3.80%
and 3.27%, respectively. The total principal repayments for the year ended December 31, 2018 were $6.5 million.
The Company maintains a senior secured revolving credit facility, which matures on February 24, 2022 and provides
a maximum borrowing facility size of $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. 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, 2018 and 2017
was 3.35% and 2.77%, respectively. As of December 31, 2018, we had borrowings of $120.1 million under our revolving
credit facility, which had remaining availability of $279.4 million. As of December 31, 2017, we had borrowings of $56.5
million under our revolving credit facility, which had remaining availability of $326.2 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: sell or otherwise transfer assets, including in a spin-off, 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, 2018, we were in compliance with all covenants.
As of December 31, 2018 and 2017, the Company maintained a credit line of $12.0 million and $16.0 million, respectively,
with Saudi Hollandi Bank. The credit line has an interest rate equal to the Saudi Arabia Interbank Offered Rate plus a
POLYONE CORPORATION 23
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, 2018, letters of
credit under the credit line were immaterial and borrowings were $10.7 million with a weighted average annual interest
rate of 3.35%. As of December 31, 2017, letters of credit under the credit line were $0.2 million and borrowings were
$11.7 million with a weighted average annual interest rate of 2.69%. As of December 31, 2018 and 2017, remaining
availability on the credit line was $1.3 million and $4.1 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, $10.5 million of which was
used at December 31, 2018. 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, 2018:
(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
2019
2020 & 2021
2022 & 2023
Thereafter
$
1,371.8
$
19.4
$
15.7
$
734.3
$
602.4
80.6
354.9
45.4
19.4
24.5
70.6
5.2
16.7
32.8
126.4
10.0
2.2
14.3
101.5
9.4
0.5
9.0
56.4
20.8
—
$
1,872.1
$
136.4
$
187.1
$
860.0
$
688.6
(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, 2018, the gross
liability for unrecognized income tax benefits, including interest and penalties, totaled $19.2 million.
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.
24
POLYONE CORPORATION
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.
Environmental Liabilities
• Based upon our estimates, we have an
undiscounted accrual of $114.1 million at
December 31, 2018 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.
• With respect to the former Goodrich
Corporation Calvert City site, the United
States Environmental Protection Agency
(USEPA) issued its Record of Decision (ROD)
in September 2018, selecting a remedy
consistent with our accrual assumptions. In
October 2018, the USEPA sent a letter to the
respondents inviting negotiation of an
agreement to conduct the remedial design;
that negotiation is ongoing. Our current
reserve of $103.3 million is consistent with the
USEPA's estimates contained in the ROD.
• Based on currently available information as
of December 31, 2018, we have not identified
evidence that Franklin-Burlington contributed
any of the primary contaminants of concern to
the lower Passaic River and therefore have
not accrued for costs of remediation to the
lower Passaic River.
• 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.
POLYONE CORPORATION 25
Description
Judgments and Uncertainties
Effect if Actual Results
Differ from Assumptions
• The weighted average discount
rates used to value our pension
liabilities as of December 31, 2018 and
2017 were 4.11% and 3.62%,
respectively, post-retirement liabilities
were 3.98% and 3.60%, respectively.
As of December 31, 2018, 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
$19.7 million. An increase/decrease in
the discount rate of 50 basis points as
of December 31, 2018 would result in
a change of approximately $1.3 million
in the 2019 net periodic benefit cost.
• The expected long-term return on
plan assets utilized as of January 1,
2018 and 2017 was 5.09% and 6.08%,
respectively. An increase/decrease in
our expected long-term return on plan
assets of 50 basis points as of
December 31, 2018, would result in a
change of approximately $2.1 million to
2019 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 that could be material.
• 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 5.09% for 2018, 6.08%
for 2017 and 6.87% for 2016.
• Life expectancy is a significant
assumption that impacts our pension and
other post-retirement benefits obligation.
During 2018, we adopted the MP-2018
mortality improvement scale which was
issued by the Society of Actuaries in
October 2018.
• 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, 2018, aggregating to $15.1
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, 2018, the gross liability for
unrecognized income tax benefits,
including interest and penalties, totaled
$19.2 million.
• Undistributed and indefinitely reinvested
earnings for certain consolidated non-U.S.
subsidiaries were approximately $350
million as of December 31, 2018. No
provision was made on these earnings as
APB 23 of ASC 740-30 provides guidance
that U.S. companies do not need to
recognize tax effects on foreign earnings
that are indefinitely reinvested. Additionally,
no deferred income taxes were recorded on
outside basis differences as it was not
practicable
the provision
impact, if any, due to the complexities
associated with this calculation.
to determine
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 2018, we
recognized a $15.6 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 lower than expected asset
returns.
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 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.
• We have completed our accounting for the
tax effects of the enactment of the TCJA as of
December 31, 2018. We elected to recognize
the resulting tax on GILTI as a period expense
in the period the tax is incurred.
26
POLYONE CORPORATION
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 and (c) weighted average cost
of capital (discount rate), growth rates
and market multiples for our estimated
cash flows.
• Based on our 2018 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 or opportunities, 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 2018 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 accompanying consolidated financial statements
and is incorporated by reference herein.
POLYONE CORPORATION 27
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, 2018.
Foreign currency exposure — We enter into intercompany 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 and
derivative instruments. 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.
28
POLYONE CORPORATION
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
30
31
33
34
35
36
37
38
POLYONE CORPORATION 29
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,
2018.
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, 2018
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,
2018 and has prepared Management’s Annual Report On Internal Control Over Financial Reporting contained on page
62 of this Annual Report, which concludes that as of December 31, 2018, 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 19, 2019
30
POLYONE CORPORATION
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, 2018, 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, 2018, 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 PolyOne Corporation as of December 31, 2018 and 2017, 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, 2018, and the related notes of PolyOne Corporation
and our report dated February 19, 2019, expressed an unqualified opinion thereon.
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 the Company 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 19, 2019
POLYONE CORPORATION 31
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, 2018 and 2017, 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, 2018, and the related
notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and
2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2018, 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, 2018, 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 19, 2019 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 included 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 19, 2019
32
POLYONE CORPORATION
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 income (loss)
Net loss (income) attributable to noncontrolling interests
Net income (loss) attributable to PolyOne common shareholders
Year Ended December 31,
2018
$ 3,533.4
2,788.5
744.9
471.2
273.7
(62.8)
(1.1)
(12.6)
197.2
(36.4)
160.8
(1.3)
159.5
0.3
159.8
$
2017
$ 3,229.9
2,511.0
718.9
446.1
272.8
(60.8)
(0.3)
0.6
212.3
(38.7)
173.6
(231.2)
(57.6)
(0.1)
(57.7) $
2016
$ 2,938.6
2,262.2
676.4
408.7
267.7
(59.7)
(0.4)
19.0
226.6
(60.4)
166.2
(1.2)
165.0
0.2
165.2
$
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
$
$
$
$
2.02
(0.01)
2.01
2.00
(0.01)
1.99
$
$
$
$
$
2.13
(2.84)
(0.71) $
1.98
(0.01)
1.97
$
2.11
(2.81)
(0.70) $
1.96
(0.01)
1.95
79.7
0.7
80.4
—
81.5
0.6
82.1
0.6
83.9
0.7
84.6
0.2
Cash dividends declared per share of common stock
$
0.720
$
0.580
$
0.495
The accompanying notes to the consolidated financial statements are an integral part of these statements.
POLYONE CORPORATION 33
Consolidated Statements of Comprehensive Income (Loss)
(In millions)
Net income (loss)
Other comprehensive (loss) income, net of tax:
Translation adjustments and related hedging instruments
Cash flow hedges
Other
Total other comprehensive (loss) income
Total comprehensive income (loss)
Comprehensive loss (income) attributable to noncontrolling interests
Year Ended December 31,
2018
2017
2016
$ 159.5
$ (57.6) $ 165.0
(27.6)
41.2
(23.0)
(1.3)
(0.4)
(29.3)
130.2
—
—
—
0.1
41.2
(22.9)
(16.4)
142.1
0.3
(0.1)
0.2
Comprehensive income (loss) attributable to PolyOne common shareholders
$ 130.5
$ (16.5) $ 142.3
The accompanying notes to the consolidated financial statements are an integral part of these statements.
34
POLYONE CORPORATION
Consolidated Balance Sheets
(In millions, except par value per share)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Other current assets
Total current assets
Property, net
Goodwill
Intangible assets, net
Other non-current assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term and current portion of long-term debt
Accounts payable
Accrued expenses and other current liabilities
Total current liabilities
Non-current liabilities:
Long-term debt
Pension and other post-retirement benefits
Deferred income taxes
Other non-current liabilities
Total non-current liabilities
SHAREHOLDERS' EQUITY
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, 44.5 shares in 2018 and 41.3 shares in 2017
Accumulated other comprehensive loss
PolyOne shareholders' equity
Noncontrolling interest
Total equity
Total liabilities and equity
Year Ended December 31,
2018
2017
$
170.9
$
413.4
344.7
69.8
998.8
495.4
650.3
423.4
155.4
243.6
392.4
327.8
102.8
1,066.6
461.6
610.5
400.0
166.6
$
$
2,723.3
$
2,705.3
19.4
$
399.0
139.2
557.6
32.6
388.9
149.1
570.6
1,336.2
1,276.4
54.3
69.3
165.3
1,625.1
1.2
1,166.9
472.9
(1,018.7)
(82.3)
540.0
0.6
540.6
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
$
2,723.3
$
2,705.3
The accompanying notes to the consolidated financial statements are an integral part of these statements.
POLYONE CORPORATION 35
Consolidated Statements of Cash Flows
(In millions)
Operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Loss on sale of business, net of tax
Depreciation and amortization
Accelerated depreciation and fixed asset charges associated with
restructuring activities
Gain from 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 in accounts receivable
(Increase) decrease in inventories
Increase in accounts payable
Increase (decrease) in pension and other post-retirement benefits
Increase (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 other debt
Repayment of long-term debt
Payments on withholding tax on share awards
Debt financing costs
Net proceeds from long-term debt
Net cash used by financing activities
Effect of exchange rate changes on cash
(Decrease) increase 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,
2018
2017
2016
$
159.5
$
(57.6) $
165.0
—
88.5
3.0
—
(4.8)
1.1
10.9
(11.3)
(10.6)
7.9
4.8
4.7
253.7
(76.0)
(98.6)
4.3
(170.3)
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)
1,152.9
(1,090.3)
(123.0)
(56.1)
(16.4)
(6.5)
(4.1)
(4.6)
—
(148.1)
(8.0)
(72.7)
243.6
170.9
$
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
$
The accompanying notes to the consolidated financial statements are an integral part of these statements.
36
POLYONE CORPORATION
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
(36.9) $
1.2
$
1,155.6
$
367.1
$
(748.4) $
(71.3) $
704.2
$
1.0
$ 705.2
165.2
(0.2)
165.0
165.2
(41.1)
(3.0)
0.3
1.5
(86.2)
4.0
(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
$
(57.7)
(46.9)
41.2
(2.0)
0.3
4.4
(70.7)
3.0
0.5
$
(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
(3.4)
0.2
5.4
159.8
(57.5)
(16.5)
(123.0)
2.6
159.8
(0.3)
159.5
(29.3)
(29.3)
(57.5)
(123.0)
8.0
(16.5)
(29.3)
(57.5)
(123.0)
8.0
(16.5)
122.2
(44.5) $
1.2
$
1,166.9
$
472.9
$ (1,018.7) $
(82.3) $
540.0
$
0.6
$ 540.6
(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, 2016
Net income
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
Net income
Other
comprehensive loss
Cash dividends
declared
Repurchase of
common shares
Share-based
compensation and
exercise of awards
Other
Balance at
December 31, 2018
The accompanying notes to the consolidated financial statements are an integral part of these statements.
POLYONE CORPORATION 37
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 and Asia. 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 Distribution. See Note 14, Segment Information, for more information.
Accounting Standards Adopted
On January 1, 2018, the Company adopted Accounting Standards Codification (ASC) 606, Revenue from Contracts
with Customers and all related amendments (the Standard), for all contracts using the modified retrospective method.
The Standard implements a five-step process for revenue recognition that focuses on transfer of control and defines
a contract as “an agreement between two or more parties that creates legally enforceable rights and obligations.” The
adoption of the Standard did not materially impact the timing and measurement of revenue recognition. Additionally,
we concluded that the methodology for which we historically estimated and recognized variable consideration (e.g.,
rebates) is consistent with the requirements of the Standard. As a result, we did not recognize a cumulative effect
adjustment to the opening balance of retained earnings.
At contract inception, PolyOne assesses the goods and services promised to a customer and identifies a performance
obligation for each promised good or service that is distinct. Our contracts, generally in the form of purchase orders
or written contracts, specify the product or service that is promised to the customer. The typical contract life is less
than 12 months and contains only one performance obligation, to provide conforming goods or services to the customer.
Revenue is recognized at the point in time when control of the product is transferred to the customer, which typically
occurs when products are shipped from our facilities with the exception of certain contract manufacturing arrangements.
The revenue streams within the Company are consistent with those disclosed for our reportable segments, within Note
14, Segment Information. For descriptions of our product offerings and segments see Note 14, Segment Information.
We offer more than 35,000 polymer solutions to over 10,000 customers across the world. No customer accounts for
more than 3% of our consolidated revenues and we do not have a high concentration of business in one particular
end market.
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-07,
Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost (ASU 2017-07). 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 must be
presented below operating income. The Company has adopted ASU 2017-07 on January 1, 2018.
ASU 2017-07 provides a practical expedient to utilize previously disclosed components of net periodic benefit costs
as an estimate for retrospective presentation. Utilizing this practical expedient, the Company reclassified non-service
components of net periodic benefit cost from Cost of sales and Selling and administrative expense into Other income,
net on the Consolidated Statements of Income. The adoption of ASU 2017-07 resulted in $9.6 million of costs for the
year ended December 31, 2018 and gains of $4.7 million, and $18.6 million for the years ended December 31, 2017
and 2016, respectively, of the non-service components of net periodic benefit presented in Other income, net. For
additional detail on the components of our annual net periodic benefit cost, see Note 10, Employee Benefit Plans.
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 recognized an adjustment of $17.0 million to beginning retained earnings upon adoption
of this standard on January 1, 2018 from transactions completed as of December 31, 2017.
38
POLYONE CORPORATION
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to
Accounting for Hedging Activities (ASU 2017-12). This amendment to the hedge accounting model better aligns an
entity's risk management activities with its financial reporting by expanding an entity's ability to hedge risk components,
eliminating the separate measurement and reporting of hedge ineffectiveness and reducing the complexity of applying
certain aspects of hedge accounting. The Company has early adopted ASU 2017-12 as of July 1, 2018. For additional
disclosure and detail on the hedge relationships entered into by the Company, see Note 15, Derivatives and Hedging.
Accounting Standards Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 was issued to
increase transparency and comparability among entities by recognizing lease assets and lease liabilities on the balance
sheet and disclosing key information about lease arrangements. ASU 2016-02 is effective for public companies for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.
We will adopt the new standard on the required effective date of January 1, 2019 using the transition option,
“Comparatives Under 840 Option,” established by ASU 2018-11, Leases (Topic 842), Targeted Improvements (ASU
2018-11). This transition option was released by the FASB to reduce the cost and complexity associated with reflecting
the new standard in prior periods presented. We will also elect the practical expedient package related to the
identification, classification and accounting for initial direct costs whereby prior conclusions do not have to be reassessed
for leases that commenced before the effective date. As we will not reassess such conclusions, the Company does
not plan to adopt the practical expedient to use hindsight to determine the likelihood of whether a lease will be extended,
terminated or whether a purchase option will be exercised.
A cross-functional implementation team is finalizing policy elections, the discount rate to be used based on January
1, 2019 data, and business processes and controls to support recognition and disclosure under the new standard.
The primary impact upon adoption will be the recognition of right of use assets and lease obligations, on a discounted
basis, of our minimum lease obligations, as disclosed in Note 6, Leasing Arrangements. We currently do not expect
ASU 2016-12 to have a material effect on our Consolidated Statements of Income.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 changes the impairment model for most financial
instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment
methodology that reflects losses once the losses are probable. Under ASU 2016-13, the Company will be required to
use a current expected credit loss model (CECL) that will immediately recognize an estimate of credit losses that are
expected to occur over the life of the financial instruments that are in the scope of this update, including trade receivables.
The CECL model uses a broader range of reasonable and supportable information in the development of credit loss
estimates. This guidance becomes effective for the Company on January 1, 2020, including the interim periods in the
year. The Company is currently evaluating the impact that the adoption of this ASU will have on the consolidated
financial statements and related disclosures.
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 2017-07 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.
POLYONE CORPORATION 39
Allowance for Doubtful Accounts
We evaluate the collectability of receivables based on a combination of factors, each of which are adjusted if specific
circumstances change. We reserve for amounts determined to be uncollectible based on a specific customer’s inability
to meet its financial obligation to us. We also record a general reserve based on the age of receivables past due,
economic conditions and historical experience. In estimating the allowance, we take into consideration the existence
of credit insurance. The allowance for doubtful accounts was $2.4 million and $2.8 million as of December 31, 2018
and 2017, 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 3 to 15 years for 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 2018, 2017 or 2016.
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, quantitatively or qualitatively, 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, quantitatively or qualitatively, 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 2018, 2017 or 2016. 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, 2019.
We test our goodwill either quantitatively or qualitatively for impairment. For our quantitative approach, 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
40
POLYONE CORPORATION
implied control premium and conclude whether the implied control premium is reasonable based on other recent market
transactions.
A qualitative approach for both goodwill and indefinite-lived intangible assets is performed if the last quantitative test
exceeded certain thresholds. During our qualitative approach, we assess whether the existence of events or
circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than
its carrying amount. If, after assessing the totality of events and circumstances, we determine it is more likely than not
that the fair value is less than carrying value, a quantitative impairment test is performed for each asset, as described
above.
Indefinite-lived intangible assets primarily consist of the GLS, ColorMatrix and Gordon Composites trade names.
Indefinite-lived intangible assets are tested, quantitatively or qualitatively, for impairment annually at the same time
we test goodwill for impairment. For our quantitative approach, 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 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 and to changes in cash flows due to changes in our contractually specified
interest rates (e.g, LIBOR) 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. We formally assess, designate and document, as a hedge of an underlying exposure, the
qualifying derivative instrument that will be accounted for as an accounting hedge at inception. Additionally, in
accordance with ASU 2017-12, we assess at inception whether the financial instruments used in the hedging transaction
are highly effective at offsetting changes in either the fair values or cash flows of the underlying exposures. If highly
effective, any subsequent test may be done qualitatively.
The net interest payments accrued each month for effective instruments designated as a hedge are reflected in net
income as adjustments of interest expense and the remaining change in the fair value of the derivatives is recorded
as a component of Accumulated Other Comprehensive Income (AOCI). Instruments not designated as hedges 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.
Refer to Note 15, Derivatives and Hedging, for more information.
Pension and Other Post-retirement Plans
We account for our pensions and other post-retirement benefits in accordance with FASB ASC Topic 715, Compensation
— 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.
POLYONE CORPORATION 41
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss in 2018, 2017 and 2016 were as follows:
(In millions)
Balance at January 1, 2016
Translation adjustments
Unrealized gain
Balance at December 31, 2016
Translation adjustments
Balance at December 31, 2017
Translation adjustments
Unrealized losses
Other
Cumulative
Translation
Adjustment and
Related Hedging
Instruments
Pension and
other post-
retirement
benefits
Cash Flow
Hedges
Other
Total
$
(76.8) $
5.2
$
— $
0.3
$
(71.3)
(23.0)
—
(99.8)
41.2
(58.6)
(25.6)
(2.0)
—
—
—
5.2
—
5.2
—
—
—
—
—
—
—
—
—
(1.3)
—
—
0.1
0.4
—
0.4
—
—
(0.4)
(23.0)
0.1
(94.2)
41.2
(53.0)
(25.6)
(3.3)
(0.4)
Balance at December 31, 2018
$
(86.2) $
5.2
$
(1.3) $
— $
(82.3)
Fair Value of Financial Instruments
FASB ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosures of the fair value of financial
instruments. The estimated fair values of financial instruments were principally based on market prices where such
prices were available and, where unavailable, fair values were estimated based on market prices of similar instruments.
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 once control of the product is transferred to the customer, which typically occurs when products
are shipped from our facilities.
Shipping and Handling Costs
Shipping and handling costs are included in cost of sales.
Research and Development Expense
Research and development costs of $56.3 million in 2018, $52.1 million in 2017 and $50.4 million in 2016 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 they are 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, 2018, we had one active share-
based employee compensation plan, which is described more fully in Note 13, Share-Based Compensation.
42
POLYONE CORPORATION
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 additional detail.
Note 2 — BUSINESS COMBINATIONS
On January 2, 2018, the Company completed the acquisition of IQAP Masterbatch Group S.L. (IQAP), an innovative
provider of specialty colorants and additives based in Spain with customers primarily throughout Europe. Goodwill
recognized as a result of this acquisition is not deductible for tax purposes. The results of IQAP are reported in the
Color, Additives and Inks segment.
On May 31, 2018, the Company completed the acquisition of PlastiComp, Inc. (PlastiComp), who specializes in long-
fiber reinforced thermoplastics. Goodwill recognized as a result of this acquisition is not deductible for tax purposes.
The results of PlastiComp are reported in the Specialty Engineered Materials segment.
The combined total consideration of IQAP and PlastiComp of $118.5 million, net of cash acquired, is inclusive of
contingent earn-out consideration for PlastiComp that will be finalized two years from the date of acquisition. The
preliminary purchase price allocation for IQAP and PlastiComp resulted in intangible assets of $51.0 million, goodwill
of $41.5 million, property, plant and equipment of $30.8 million, net working capital of $19.4 million, deferred tax
liabilities of $13.1 million and other liabilities of $11.1 million. The total combined sales of IQAP and PlastiComp for
the ended December 31, 2018 were $71.0 million.
The fair value of intangible assets acquired during the year ended December 31, 2018, including their estimated useful
lives and valuation methodology are as follows:
(in millions)
Customer relationships
Patents, technology and other
Total
$
$
Fair Value
21.1
29.9
51.0
Useful Life
18
13 - 24
Valuation Method
Multi-period excess earnings
Relief-from-royalty method
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. The sale resulted in the recognition of an after-tax loss of $229.0
million that was primarily recognized during the second quarter of 2017.
The following table summarizes the discontinued operations associated with DSS for the years ended December
31, 2018, 2017 and 2016, which is reflected within the Loss from discontinued operations, net of income taxes line
of the Consolidated Statements of Income (Loss):
(In millions)
Sales
Loss on sale
Loss from operations
Loss before taxes
Income tax benefit
Loss from discontinued operations, net of taxes
Note 4 — GOODWILL AND INTANGIBLE ASSETS
2018
2017
2016
— $
222.1
$
401.2
(1.8) $
(295.6) $
—
(1.8)
0.5
(8.6)
(304.2)
73.0
(1.3) $
(231.2) $
—
(4.3)
(4.3)
3.1
(1.2)
$
$
$
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.
POLYONE CORPORATION 43
Goodwill as of December 31, 2018 and 2017 and changes in the carrying amount of goodwill by segment were as
follows:
(In millions)
Balance at January 1, 2017
Acquisition of businesses
Currency translation
Balance at December 31, 2017
Acquisition of businesses
Currency translation
Specialty
Engineered
Materials
Color,
Additives
and Inks
Performance
Products
and
Solutions
PolyOne
Distribution
Total
173.5
—
(0.3)
173.2
16.3
(0.6)
346.4
77.0
1.1
424.5
25.8
(1.7)
11.2
—
—
11.2
—
—
1.6
—
—
1.6
—
—
Balance at December 31, 2018
$
188.9
$
448.6
$
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, 2018
$
$
$
$
278.4
188.1
100.3
566.8
Acquisition
Cost
257.3
158.2
100.3
515.8
$
$
$
$
(75.0) $
(66.8)
—
(141.8) $
As of December 31, 2017
Accumulated
Amortization
Currency
Translation
(61.5) $
(54.4)
—
(115.9) $
(0.7) $
(0.9)
—
(1.6) $
0.1
—
—
0.1
$
$
Net
532.7
77.0
0.8
610.5
42.1
(2.3)
650.3
202.7
120.4
100.3
423.4
195.9
103.8
100.3
400.0
Amortization of finite-lived intangible assets included in continuing operations for the years ended December 31,
2018, 2017 and 2016 was $25.9 million, $21.6 million and $17.9 million, respectively.
We expect finite-lived intangibles amortization expense for the next five years as follows:
Expected amortization expense
2019
$26.2
2020
$25.6
2021
$25.3
2022
$23.3
2023
$20.8
44
POLYONE CORPORATION
Note 5 — FINANCING ARRANGEMENTS
Total debt consisted of the following:
As of December 31, 2018 (In millions)
Senior secured revolving credit facility due 2022
Senior secured term loan due 2026
5.25% 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, 2017 (In millions)
Senior secured revolving credit facility due 2022
Senior secured term loan due 2026
5.25% 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
120.1
631.0
600.0
20.7
1,371.8
19.4
1,352.4
$
$
$
— $
11.2
5.0
—
16.2
—
16.2
$
$
120.1
619.8
595.0
20.7
1,355.6
19.4
1,336.2
3.35%
3.80%
5.25%
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
$
$
$
— $
8.5
6.0
—
14.5
—
14.5
$
$
2.77%
3.27%
5.25%
56.5
629.0
594.0
29.5
1,309.0
32.6
1,276.4
(1) Other debt includes capital lease obligations of $3.4 million and $17.8 million as of December 31, 2018 and 2017, respectively.
On April 11, 2018, the Company entered into a fifth amendment to its senior secured term loan. Under the terms of
the amended senior secured term loan, the margin was reduced by 25 basis points to 175 basis points. At the Company's
discretion, interest is based upon (i) a margin rate of 175 basis points plus the 1-, 2-, 3-, or 6-month LIBOR, subject
to a floor of 75 basis points, or (ii) a margin rate of 75 basis points plus a Prime Rate, subject to a floor of 175 basis
points. On November 9, 2018, the Company entered into a sixth amendment to its senior secured term loan, which
extended the maturity to 2026. Repayments in the amount of one percent of the aggregate principal amount as of
August 3, 2016 are payable annually, while the remaining balance matures on January 30, 2026. The total principal
repayments for the year ended December 31, 2018 were $6.5 million.
The Company maintains a senior secured revolving credit facility, which matures on February 24, 2022 and provides
a maximum borrowing facility size of $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. 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. As of December 31, 2018, we had borrowings of $120.1 million under our revolving credit facility, which had
remaining availability of $279.4 million. As of December 31, 2017, we had borrowings of $56.5 million under our
revolving credit facility, which had remaining availability of $326.2 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: sell or otherwise transfer assets, including in a spin-off, 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, 2018, we were in compliance with all covenants.
As of December 31, 2018 and 2017, the Company maintained a credit line of $12.0 million and $16.0 million, respectively,
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, 2018, letters of
credit under the credit line were immaterial and borrowings were $10.7 million with a weighted average annual interest
POLYONE CORPORATION 45
rate of 3.35%. As of December 31, 2017, letters of credit under the credit line were $0.2 million and borrowings were
$11.7 million with a weighted average annual interest rate of 2.69%. As of December 31, 2018 and 2017, there was
remaining availability on the credit line of $1.3 million and $4.1 million, respectively.
The estimated fair value of PolyOne’s debt instruments at December 31, 2018 and 2017 was $1,316.8 million and
$1,343.3 million, respectively, compared to carrying values of $1,355.6 million and $1,309.0 million as of December 31,
2018 and 2017, 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)
2019
2020
2021
2022
2023
Thereafter
Aggregate maturities
$
19.4
8.1
7.6
127.3
607.0
602.4
$
1,371.8
Included in Interest expense, net for the years ended December 31, 2018, 2017 and 2016 was interest income of
$3.1 million, $0.7 million and $0.8 million, respectively. Total interest paid on debt was $61.0 million in 2018, $59.4
million in 2017 and $56.3 million in 2016.
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 $25.9 million in 2018,
$25.2 million in 2017 and $23.0 million in 2016.
Future minimum lease payments under non-cancelable operating leases with initial lease terms longer than one
year as of December 31, 2018 are as follows:
(In millions)
2019
2020
2021
2022
2023
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
46
POLYONE CORPORATION
$
$
24.5
20.4
12.4
8.5
5.8
9.0
80.6
December 31, 2018
204.3
$
6.9
133.5
344.7
$
December 31, 2017
203.3
$
5.1
119.4
327.8
$
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, 2018
December 31, 2017
$
$
48.8
$
316.5
1,082.2
1,447.5
(952.1)
495.4
$
40.7
303.5
1,038.0
1,382.2
(920.6)
461.6
(1) Land and land improvements include properties under capital leases of $0.1 million and $1.7 million as of December 31, 2018 and 2017,
respectively.
(2) Buildings include properties under capital leases of $3.6 million and $16.5 million as of December 31, 2018 and 2017, respectively.
Depreciation expense from continuing operations was $62.6 million in 2018, $61.2 million in 2017 and $57.8 million
in 2016.
Note 9 — OTHER BALANCE SHEET LIABILITIES
Other liabilities at December 31, 2018 and 2017 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,
2018
2017
2018
2017
75.7
9.9
16.0
4.9
10.8
15.6
1.7
4.6
139.2
$
$
87.5
8.4
13.8
5.4
10.1
14.2
3.3
6.4
149.1
$
$
18.9
104.2
—
—
—
—
16.1
26.1
165.3
$
$
20.1
108.7
—
—
—
—
18.1
9.4
156.3
We recognize actuarial gains and losses in our operating results in the year in which the gains or losses occur. These
gains and losses are generally only measured annually as of December 31 and, accordingly, are recorded during the
fourth quarter of each year. We recognized a charge of $15.6 million and $3.3 million in the fourth quarter of 2018 and
2017, 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.
POLYONE CORPORATION 47
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 (gain) loss
Benefits paid
Other
Projected benefit obligation — end of year
Projected salary increases
Accumulated benefit obligation
Change in plan assets:
Plan assets — beginning of year
Actual (loss) return on plan assets
Company contributions
Benefits paid
Other
Plan assets — end of year
Unfunded status at end of year
Pension Benefits
2018
2017
Health Care Benefits
2017
2018
$
$
$
$
$
$
507.7
0.6
17.6
(23.9)
(37.7)
(1.6)
462.7
(1.6)
461.1
$
$
$
$
484.7
(16.4)
4.5
(37.7)
(0.7)
434.4
$
(28.3) $
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) $
8.8
—
0.3
(0.6)
(0.8)
(0.3)
7.4
—
7.4
$
$
$
— $
—
0.8
(0.8)
—
— $
(7.4) $
10.8
—
0.4
(1.7)
(0.9)
0.2
8.8
—
8.8
—
—
0.9
(0.9)
—
—
(8.8)
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
2018
2017
Health Care Benefits
2017
2018
$
$
$
23.5
4.1
47.7
$
$
$
35.9
4.4
54.5
$
$
$
— $
$
0.8
$
6.6
As of December 31, 2018 and 2017, 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
2017
2018
Health Care Benefits
2017
2018
$
$
$
56.4
54.8
4.6
$
$
$
63.9
61.9
5.1
$
$
$
$
7.4
7.4
$
— $
—
1.0
7.8
8.8
8.8
—
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
Health Care Benefits
2018
2017
2018
2017
4.11%
3.62%
3.98%
3.60%
N/A
N/A
N/A
N/A
N/A
N/A
6.09%
4.50%
2027
6.29%
4.50%
2027
48
POLYONE CORPORATION
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, 2018.
(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)
Other
Net periodic cost (benefit)
Pension Benefits
2017
2016
2018
Health Care Benefits
2017
2018
2016
$
$
0.6
17.6
(23.8)
16.2
(0.1)
10.5
$
$
$
0.6
19.3
(27.7)
5.0
$
1.0
20.7
(31.4)
(7.8)
— $
0.3
—
— $ —
0.5
0.4
—
—
(0.6)
(1.7)
—
(2.8) $
—
(17.5) $
—
(0.3) $
—
(1.3) $
(0.6)
—
(0.1)
In 2018, we recognized a $15.6 million mark-to-market charge that was primarily a result of actual asset returns that
were lower than our assumed returns. Partially offsetting the lower asset returns was the increase in our year end
discount rates from 3.62% to 4.11%.
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 discounts 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
2018
2017
2016
2018
2017
3.62%
5.09%
3.97%
6.08%
4.10%
6.87%
3.60%
—%
4.04%
—%
2016
4.12%
—%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
6.29%
6.52%
6.69%
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 83% in fixed income securities and
17% 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.
POLYONE CORPORATION 49
The fair values of pension plan assets at December 31, 2018 and 2017, 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, 2018
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Investments
(at Fair Value)
$
$
3.7
$
—
3.7
$
— $
—
— $
— $
4.6
4.6
3.7
4.6
8.3
14.9
14.9
8.5
387.8
426.1
$
434.4
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
$
$
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.
50
POLYONE CORPORATION
The estimated future benefit payments for our pension and health care plans are as follows:
(In millions)
2019
2020
2021
2022
2023
2024 through 2028
Pension
Benefits
Health
Care
Benefits
$
$
38.3
37.7
38.2
36.2
35.9
162.4
0.9
0.8
0.8
0.7
0.7
2.5
We currently estimate that 2019 employer contributions will be $4.3 million to all qualified and non-qualified pension
plans and $0.9 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
2018
2017
2016
$
$
10.1
—
10.1
$
$
9.1
1.6
10.7
$
$
8.2
4.0
12.2
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.
Under the agreement, The Geon Company agreed to indemnify Goodrich Corporation for certain environmental costs
at the site. Neither PolyOne nor The Geon Company ever 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. The USEPA issued its Record of Decision (ROD) in
September 2018, selecting a remedy consistent with our accrual assumptions. In October 2018, the USEPA sent a
letter to the respondents inviting negotiation of an agreement to conduct the remedial design; that negotiation is ongoing.
Our current reserve of $103.3 million is consistent with the USEPA's estimates contained in the ROD.
On March 13, 2013, PolyOne acquired Spartech Corporation (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
POLYONE CORPORATION 51
River, including Franklin-Burlington, cooperate in an investigation of contamination of approximately 17 miles of the
lower Passaic River Study Area (the LPRSA). 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 of the LPRSA. Franklin-
Burlington has not admitted to any liability or agreed to bear any other costs for remediation or natural resource damage.
In 2015, the Cooperating Parties submitted to the USEPA a remedial investigation report and feasibility study for the
LPRSA, and are currently engaged in technical discussions with the USEPA to revise and finalize 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 ROD selecting a remedy for an eight-mile portion of the LPRSA 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 an
allocation process for the lower eight miles of the LPRSA, and has engaged a third-party allocator as part of that
process. Along with other parties, Franklin-Burlington is participating in the development of this allocation process with
the allocator retained by the USEPA, and this process is expected to continue into at least 2019. On June 30, 2018,
OCC, independent of the USEPA, filed suit against over 100 named entities, including Franklin-Burlington, seeking
contribution for past and future costs associated with the remediation of the lower eight-mile portion of the LPRSA.
Based on the currently available information, we have not identified 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, 2018,
we have not accrued for costs of remediation related to the lower Passaic River.
The Consolidated Balance Sheets include accruals totaling $114.1 million and $117.1 million as of December 31, 2018
and 2017, 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 current 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, 2018. However, such
additional costs, if any, cannot be currently estimated.
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
2018
2017
2016
$
$
117.1
23.2
(26.0)
(0.2)
114.1
$
$
117.3
14.8
(15.2)
0.2
117.1
$
$
119.9
8.3
(11.0)
0.1
117.3
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 $4.3 million, $9.1 million and $6.1 million in 2018, 2017 and 2016, 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.
52
POLYONE CORPORATION
2018
2017
2016
Income from continuing operations, before income taxes consists of the following:
(In millions)
Domestic
Foreign
Income from continuing operations, before income taxes
$
$
86.3
110.9
197.2
A summary of income tax expense from continuing operations is as follows:
(In millions)
Current income tax expense (benefit):
Domestic - GILTI and 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
$
$
$
$
$
2018
3.7
10.2
27.3
41.2
(6.8) $
22.1
(20.1)
(4.8) $
$
36.4
$
$
$
$
105.6
106.7
212.3
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
2016
—
27.8
22.5
50.3
—
6.0
4.1
10.1
60.4
Within the Total deferred income tax benefit, Foreign, was a benefit of $9.3 million and $9.5 million for the year ended
December 31, 2018 and 2017, respectively. These benefits related to a 2017 European legal entity realignment.
The Tax Cuts and Jobs Act (TCJA) was enacted on December 22, 2017. Among other things, effective in 2018, the
TCJA reduced 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 required U.S. companies to pay a one-time transition tax on earnings of foreign corporate subsidiaries that
were at least ten-percent owned by such U.S. companies and that were previously deferred from U.S. taxation.
As of December 31, 2018, we had completed our accounting for the tax effects of the enactment of the TCJA. In
compliance with the one-year measurement period of the SEC's Staff Accounting Bulletin 118 (SAB 118) (issued
December 22, 2017), we have finalized the effects of the TCJA on our existing deferred income tax balances, the one-
time transition tax and, as discussed below, the impact the TCJA had on our indefinite reinvestment assertion pursuant
to Accounting Principles Board 23 (APB 23). These finalized effects are included as components of income tax expense
from continuing operations and are noted in the following tabular reconciliation.
As of December 31, 2018, we had completed our analysis with respect to the impact of the TCJA on our continuing
assertion that our foreign earnings are indefinitely reinvested pursuant to APB 23 of Accounting Standards Codification
740-30 (ASC 740-30). APB 23 provides guidance that US companies do not need to recognize tax effects on foreign
earnings that are indefinitely reinvested. Our assertion has changed with respect to certain earnings of foreign affiliates
in certain countries, which resulted in a recognition of tax liabilities. As of December 31, 2018, and noted in the
Repatriation of certain foreign earnings from prior and current periods line in the following tabular reconciliation, we
recognized an impact of 4.5% to our provision from a decision to repatriate prior year earnings after completing our
analysis with respect to the TCJA and 1.2% pertaining to our decision to repatriate certain current year earnings. The
rest of our foreign earnings are indefinitely reinvested pursuant to APB 23 and our policy. No deferred income taxes
were recorded on outside basis differences as it was not practicable to determine the provision impact, if any, due to
the complexities associated with this calculation.
We elected to recognize the resulting tax on the global intangible low-taxed income (GILTI) as a period expense in the
period the tax is incurred.
POLYONE CORPORATION 53
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
Canada and Mexico
Total foreign tax rate differential:
State and local tax, net
Tax on GILTI
Repatriation on certain foreign earnings from prior and current periods
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
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
2018
2017
2016
21.0%
35.0%
35.0%
0.2
(6.0)
—
(5.8)
2.8
1.5
5.7
—
(0.7)
—
(0.4)
(1.8)
0.8
(3.5)
(1.1)
(1.2)
(8.6)
(1.3)
(11.1)
1.4
—
0.4
(6.8)
(1.9)
(3.6)
2.2
0.7
11.3
(9.5)
0.1
(1.2)
(2.7)
(1.7)
(5.6)
2.1
—
—
(1.9)
(1.5)
(1.3)
(1.1)
0.4
—
—
0.6
18.5%
18.2%
26.7%
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.
2018 Significant items
The increase in the Repatriation on certain foreign earnings from prior and current periods line item resulted from a
decision to repatriate certain foreign earnings from current and prior periods.
The benefit reflected in the Changes in valuation allowances line resulted from the realizability of a deferred tax asset
for one of our foreign entities.
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.
54
POLYONE CORPORATION
Components of our deferred tax assets (liabilities) as of December 31, 2018 and 2017 were as follows:
(In millions)
Deferred tax assets:
Pension and other post-retirement benefits
Employment costs
Environmental reserves
Net operating loss 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
2018
2017
$
$
$
$
$
$
$
$
8.2
20.1
29.0
48.8
39.8
145.9
(15.2)
130.7
$
$
$
(33.9) $
(101.5)
(14.4)
(149.8) $
(19.1) $
50.2
$
(69.3) $
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)
As of December 31, 2018, we had gross state net operating loss carryforwards of $151.7 million that expire between
2019 and 2033. Various foreign subsidiaries have gross net operating loss carryforwards totaling $152.3 million that
expire between 2019 and 2037 with limited exceptions that have indefinite carryforward periods. Total tax valuation
allowances decreased $6.2 million from the prior year primarily due to the ability to realize net operating loss
carryforwards at a certain foreign entity based on expected future profitability. We have provided valuation allowances
of $15.1 million against certain foreign and state net operating loss carryforwards that are expected to expire prior to
utilization.
We decided to repatriate certain current and prior year foreign earnings, which we have received in 2018 or will receive
in the future, for which the provision impact (5.7%) has been included in the tabular rate reconciliation and in Other,
net deferred tax liabilities ($8.2 million) above. No provision has been made for income taxes on the undistributed
earnings of certain consolidated non-U.S. subsidiaries, primarily in Europe, of approximately $350 million as of
December 31, 2018 as these amounts, consistent with our policy, continue to be indefinitely reinvested.
We made worldwide income tax payments of $46.5 million and received refunds of $29.9 million in 2018. We made
worldwide income tax payments of $56.5 million and $50.3 million in 2017 and 2016, respectively, and received refunds
of $6.7 million and $2.4 million in 2017 and 2016, respectively.
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
2018
2017
2016
$
18.6
$
1.3
1.1
—
(2.8)
(0.2)
(1.4)
0.1
$
7.9
9.2
1.8
—
(0.3)
(0.2)
—
0.2
$
16.7
$
18.6
$
11.3
0.3
1.2
—
—
(4.2)
(0.3)
(0.4)
7.9
We recognize interest and penalties related to uncertain tax positions in the provision for income taxes. As of
December 31, 2018 and 2017, we had $2.5 million and $3.9 million accrued for interest and penalties, respectively.
POLYONE CORPORATION 55
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 $1.2 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 $10.9 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
The PolyOne Corporation 2017 Equity and Incentive Compensation Plan 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
Stock Appreciation Rights
2018
2017
2016
$
$
4.4
0.6
5.9
10.9
$
$
4.2
0.6
5.3
10.1
$
$
3.3
—
4.4
7.7
During the years ended December 31, 2018, 2017 and 2016, the total number of SARs granted were 0.3 million, 0.5
million and 0.5 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 2018, 2017 and 2016 are subject
to an appreciation cap of 200% of the base price. 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 2018, 2017 and
2016:
Expected volatility
Expected dividends
Expected term (in years)
Risk-free rate
Value of SARs granted
56
POLYONE CORPORATION
2018
41.0%
1.67%
6.5
3.06%
$14.82
2017
41.0%
1.58%
6.5
2.72%
$12.01
2016
41.0%
1.92%
6.7
1.90%
$8.29
A summary of SAR activity for 2018 is presented below:
Stock Appreciation Rights
(In millions, except per share data)
Outstanding as of January 1, 2018
Granted
Exercised
Forfeited or expired
Outstanding as of December 31, 2018
Vested and exercisable as of December 31, 2018
Weighted-
Average
Exercise Price
Per Share
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Shares
1.8
0.3
(0.3)
—
1.8
1.0
$
$
$
28.62
41.89
21.83
37.31
32.14
28.83
6.85
$
27.0
6.77
5.67
$
$
4.0
3.5
The total intrinsic value of SARs exercised during 2018, 2017 and 2016 was $6.5 million, $7.6 million and $2.8 million,
respectively. As of December 31, 2018, there was $2.7 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 2018, 2017 and 2016, the total number of RSUs granted were 0.2 million, 0.3 million and 0.2 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, 2018, 0.6 million RSUs remain unvested with a weighted-average grant date fair value of $34.80.
Unrecognized compensation cost for RSUs at December 31, 2018 was $8.1 million, which is expected to be recognized
over the weighted average remaining vesting period of 21 months.
Note 14 — SEGMENT INFORMATION
Operating income is the primary measure that is reported to our chief operating decision maker (CODM) 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, along with related gains from insurance recoveries, 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 CODM. 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
POLYONE CORPORATION 57
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 and Asia.
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 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.
Distribution
The 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 Distribution's ability to serve the specialized needs of customers globally.
58
POLYONE CORPORATION
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
$ 1,040.6
$
5.9
$ 1,046.5
$
158.5
$
44.3
$
22.9
$ 1,235.1
593.6
52.2
645.8
652.4
1,246.8
83.4
18.6
735.8
1,265.4
72.3
73.6
71.5
23.2
15.9
0.7
4.4
25.2
596.2
19.5
0.1
8.3
275.4
249.0
367.6
Corporate and eliminations
—
(160.1)
(160.1)
(102.2)
Total
$ 3,533.4
$
— $ 3,533.4
$
273.7
$
88.5
$
76.0
$ 2,723.3
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
75.5
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)
(91.0)
Total
$ 3,229.9
$
— $ 3,229.9
$
272.8
$
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)
(83.5)
—
—
—
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
$
267.7
$
104.0
$
Year Ended December 31, 2018
(In millions)
Color, Additives and Inks
Specialty Engineered
Materials
Performance Products and
Solutions
Distribution
Year Ended December 31, 2017
(In millions)
Color, Additives and Inks
Specialty Engineered
Materials
Performance Products and
Solutions
Distribution
Year Ended December 31, 2016
(In millions)
Color, Additives and Inks
Specialty Engineered
Materials
Performance Products and
Solutions
Distribution
Corporate and eliminations
Assets Held for Sale
POLYONE CORPORATION 59
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
Note 15 — DERIVATIVES AND HEDGING
2018
2017
2016
$
$
$
$
2,030.4
549.9
255.0
346.4
331.7
20.0
3,533.4
290.0
116.4
10.7
58.9
17.7
1.7
495.4
$
$
$
$
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
We are exposed to market risks, such as changes in foreign currency exchange rates and interest rates. To manage
the volatility related to these exposures we may enter into various derivative transactions. As of December 31, 2018,
we had derivatives designated as net investment hedging and cash flow hedging instruments.
Net Investment Hedge
During October and December of 2018, as a means of mitigating the impact of currency fluctuations on our Euro
investments in foreign entities, we executed a total of six cross currency swaps, in which we will pay fixed-rate interest
in Euros and receive fixed-rate interest in U.S. dollars with a combined notional amount of 250.0 million Euros and
which mature in March 2023. This effectively converts a portion of our U.S. Dollar denominated fixed-rate debt to Euro
denominated fixed-rate debt. That conversion resulted in a benefit of $2.0 million for the year ended December 31,
2018, which was recognized within Interest expense, net within the Condensed Consolidated Statements of Income.
We designated the swaps as net investment hedges of our net investment in our European operations under ASU
2017-12 and applied the spot method to these hedges. For the year ended December 31, 2018, a $2.0 million gain
was recognized within translation adjustments in AOCI, net of tax.
Cash Flow Hedging Instruments
In August 2018, we entered into two interest rate swaps with a combined notional amount of $150.0 million to manage
the variability of cash flows in the interest rate payments associated with our existing LIBOR-based interest payments,
effectively converting $150.0 million of our floating rate debt to a fixed rate. We began to receive floating rate interest
payments based upon one month U.S. dollar LIBOR and in return are obligated to pay interest at a fixed rate of 2.732%
until November 2022. We have designated these swap contracts as cash flow hedges pursuant to ASC 815, Derivatives
and Hedging. For the year ended December 31, 2018, the amount of expense recognized within Interest expense,
net in our Consolidated Statements of Income (Loss) was $0.3 million and $1.3 million of loss was recognized in AOCI,
net of tax.
All of our derivative assets and liabilities measured at fair value are classified as Level 2 within the fair value hierarchy.
We determine the fair value of our derivatives based on valuation methods, which project future cash flows and discount
the future amounts present value using market based observable inputs, including interest rate curves and foreign
currency rates. The fair value of derivative financial instruments recognized in the Condensed Consolidated Balance
Sheets is as follows:
60
POLYONE CORPORATION
(In millions)
Assets
Balance Sheet Location
December 31, 2018 December 31, 2017
Cross Currency Swaps (Net Investment Hedge) Other non-current assets
Liabilities
Interest Rate Swap (Fair Value Hedge)
Other non-current liabilities
$
$
2.6
1.7
$
$
—
—
Note 16 — 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)
2018 Quarters
2017 Quarters
Sales
Gross Margin
Operating income
Net income from continuing operations
Net income from continuing operations
attributable to PolyOne shareholders
$
834.0
$ 883.0
$
914.8
$ 901.6
$ 800.6
$
818.5
$
814.1
$
796.7
165.0
184.9
196.5
198.5
169.3
47.0
11.4
70.5
50.2
77.4
51.5
78.8
47.7
47.1
35.5
179.5
65.7
40.2
187.9
182.2
78.0
49.6
82.0
48.3
$
11.6
$
50.2
$
51.6
$
47.7
$
35.4
$
40.2
$
49.6
$
48.3
Net income from continuing operations per common share attributable to PolyOne common shareholders: (1)
Basic earnings per share
Diluted earnings per share
$
$
0.15
0.15
$
$
0.63
0.62
$
$
0.65
0.64
$
$
0.59
0.59
$
$
0.44
0.43
$
$
0.50
0.49
$
$
0.61
0.60
$
$
0.58
0.58
(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 2018 are: 1) mark-to-market pension and other post-retirement charge of $15.6 million, 2) environmental
remediation costs of $3.9 million and 3) acquisition related costs and adjustments of $2.0 million.
Included for the third quarter 2018 are: 1) environmental remediation costs of $7.5 million and 2) a gain related to the reimbursement of
previously incurred environmental costs of $1.5 million.
Included for the second quarter 2018 are: 1) environmental remediation costs of $8.7 million, 2) acquisition related costs and adjustments of
$1.9 million and 3) a gain related to the reimbursement of previously incurred environmental costs of $1.6 million.
Included for the first quarter 2018 are: 1) environmental remediation costs of $3.1 million and 2) acquisition related costs and adjustments of
$1.9 million.
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)
(6)
(7)
(8)
(9)
Note 17 — SUBSEQUENT EVENTS
On January 2, 2019, the Company completed the acquisition of Fiber-Line for $120.2 million, subject to a working
capital adjustment and contingent earn-out consideration over a two-year period. The Fiber-Line results will be reported
in the Specialty Engineered Materials segment.
POLYONE CORPORATION 61
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, 2018.
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, 2018.
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, 2018 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, 2018. 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, 2018, 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, 2018 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.
62
POLYONE CORPORATION
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 2019 Annual Meeting of Shareholders (2019 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 2019 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 2019 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 2019 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 2019 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
1,797,702
—
1,797,702
(b)
$32.14
—
$32.14
(c)
2,020,629
—
2,020,629
(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.
The information regarding security ownership of certain beneficial owners is incorporated by reference to the information
contained in the 2019 Proxy Statement.
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 2019 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 2019 Proxy Statement.
POLYONE CORPORATION 63
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, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and
2016
Consolidated Balance Sheets at December 31, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2018, 2017 and 2016
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:
64
POLYONE CORPORATION
Exhibit No.
Exhibit Description
2.1†
2.2†
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+
10.14+
10.15+
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)
Amendment Agreement No. 5, dated April 11, 2018, 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 June 30, 2018, SEC
File No. 1-16091)
Amendment Agreement No. 6, dated November 9, 2018, 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 November 13, 2018, 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)
POLYONE CORPORATION 65
Exhibit No.
10.16+
10.17+**
10.18+
10.19
10.20+
10.21+
10.22+
10.23+
10.24+
21.1**
23.1**
31.1**
31.2**
32.1**
32.2**
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
101 .INS**
101 .SCH**
101 .CAL**
101 .LAB**
101 .PRE**
101 .DEF**
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.
ITEM 16. FORM 10-K SUMMARY
None.
66
POLYONE CORPORATION
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 19, 2019
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.
/S/ ROBERT M. PATTERSON
Robert M. Patterson
/S/ BRADLEY C. RICHARDSON
Bradley C. Richardson
/S/ ROBERT E. ABERNATHY
Robert E. Abernathy
/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/ 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
Signature and Title
Chairman, President and Chief Executive Officer and
Director
(Principal Executive Officer)
Date: February 19, 2019
Executive Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: February 19, 2019
Director
Director
Director
Director
Director
Director
Director
Director
Director
Date: February 19, 2019
Date: February 19, 2019
Date: February 19, 2019
Date: February 19, 2019
Date: February 19, 2019
Date: February 19, 2019
Date: February 19, 2019
Date: February 19, 2019
Date: February 19, 2019
POLYONE CORPORATION 67
[THIS PAGE INTENTIONALLY LEFT BLANK]
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 19, 2019
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 19, 2019
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, 2018, 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 19, 2019
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, 2018, 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 19, 2019
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
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THIS PAGE IS NOT PART OF POLYONE’S FORM 10-K FILING
PolyOne Stock Performance
The following is a graph that compares the cumulative total shareholder returns for PolyOne’s common shares, the S&P 500
index and the S&P Mid Cap Chemicals index, with dividends assumed to be reinvested when received. The graph assumes the
investing of $100 from December 31, 2013 through December 31, 2018. 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:
Joe Di Salvo
Vice President, Investor Relations
Phone: 440-930-1921
Email: giuseppe.disalvo@polyone.com
Equiniti Trust Company
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
Phone: 1-855-598-2615
or 1-651-450-4064
www.shareowneronline.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 16, 2019 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): Kerry J. Preete, Gregory J. Goff, Robert E. Abernathy, Kim Ann Mink, Richard H. Fearon, Robert M. Patterson, Sandra B. Lin,
William R. Jellison, and William A. Wulfsohn. Not pictured: William H. Powell, Dr. Patricia Verduin
CORPORATE OFFICERS
BOARD OF DIRECTORS
ROBERT M. PATTERSON
Chairman, President and
Chief Executive Officer
BRADLEY C. RICHARDSON
Executive Vice President,
Chief Financial Officer
ROBERT T. BINDNER
Senior Vice President, President of
Performance Products and Solutions
MARK D. CRIST
Senior Vice President, President of
Color Additives and Inks
GIUSEPPE Di SALVO
Vice President, Investor Relations
CATHY K. DODD
Vice President, Marketing
MICHAEL A. GARRATT
Senior Vice President,
Chief Commercial Officer
JUSTIN M. HESS
Vice President,
Corporate Controller
J. SCOTT HORN, JR.
Senior Vice President,
President of Distribution
DR. DAVID A. JARUS
Vice President, Research and
Development
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
CHRISTOPHER L.
PEDERSON
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
THOMAS TAYLOR
Vice President, Global Sourcing
and Logistics
ROBERT M. PATTERSON
Chairman, President and
Chief Executive Offi cer,
PolyOne Corporation
Committee: 3
WILLIAM H. POWELL
Retired Chairman and Chief
Executive Offi cer, National Starch
and Chemical Company
Committees: 2*, 3
RICHARD H. FEARON
Lead Director, PolyOne Corporation
Vice Chairman and Chief Financial
and Planning Offi cer, Eaton
Committees: 2, 4*
KERRY J. PREETE
Retired Executive Vice President,
Chief Strategy Offi cer,
Monsanto Company
Committees: 2, 4
DR. PATRICIA VERDUIN
Chief Technology Offi cer,
Colgate-Palmolive Company
Committee: 3
WILLIAM A. WULFSOHN
Chairman and Chief Executive
Offi cer, Ashland Global Holdings Inc.
Committees: 1, 2
COMMITTEES
1. Audit
2. Compensation
3. Environmental, Health and Safety
4. Nominating & Governance
* Denotes Chairperson
ROBERT E. ABERNATHY
Retired Chairman and
Chief Executive Offi cer,
Halyard Health, Inc.
Committee: 1
GREGORY J. GOFF
Executive Vice Chairman,
Marathon Petroleum Corporation
Committees: 3*, 4
WILLIAM R. JELLISON
Retired Vice President,
Chief Financial Offi cer,
Stryker Corporation
Committee: 1*
SANDRA B. LIN
Retired President, Chief Executive
Offi cer and Director, Calisolar Inc.
(now Silicor Materials Inc.)
Committees: 1, 4
KIM ANN MINK
Chairman, President and
Chief Executive Offi cer,
Innophos Holdings, Inc.
Committee: 3
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