UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2009

[  ] 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		34-1730488
(State or other jurisdiction		(I.R.S. Employer Identification No.)
of incorporation or organization)
33587 Walker Road, Avon Lake, Ohio		44012
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (440) 930-1000

Former name, former address and former fiscal year, if changed since last report: Not Applicable

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.

[x] Yes     [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes     [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]		Accelerated filer [x]		Non-accelerated filer [ ] (Do not check if a smaller reporting company)		Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[ ] Yes     [x] No

The number of outstanding shares of the registrant’s common stock, $0.01 par value, as of November 2, 2009 was 92,485,656.

Part I – Financial Information

Item 1.		Financial Statements

PolyOne Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(In millions, except per share data)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Sales		$	548.3			$	735.1			$	1,508.2			$	2,196.9
Cost of sales			441.0				669.9				1,255.4				1,958.3
Gross margin			107.3				65.2				252.8				238.6
Selling and administrative			56.3				69.7				203.6				217.6
Adjustment to impairment of goodwill			–				–				5.0				–
Income from equity affiliates			5.2				5.8				28.6				24.4
Operating income			56.2				1.3				72.8				45.4
Interest expense, net			(8.5	)			(9.7	)			(26.1	)			(27.9	)
Other expense, net			(1.2	)			–				(8.5	)			(2.7	)
Income (loss) before income taxes			46.5				(8.4	)			38.2				14.8
Income tax benefit (expense)			3.1				2.8				5.6				(5.1	)
Net income (loss)		$	49.6			$	(5.6	)		$	43.8			$	9.7
Earnings (loss) per common share:
Basic earnings (loss)		$	0.54			$	(0.06	)		$	0.47			$	0.10
Diluted earnings (loss)		$	0.53			$	(0.06	)		$	0.47			$	0.10
Weighted-average shares used to compute earnings per share:
Basic			92.4				92.9				92.4				92.9
Diluted			93.9				92.9				93.0				93.5

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

PolyOne Corporation and Subsidiaries
Condensed Consolidated Balance Sheets

(In millions)

		(Unaudited)
		September 30,				December 31,
		2009				2008
Assets
Current assets:
Cash and cash equivalents		$	241.0			$	44.3
Accounts receivable, net			297.2				262.1
Inventories			158.2				197.8
Deferred income tax assets			0.5				1.0
Other current assets			15.6				19.9
Total current assets			712.5				525.1
Property, net			395.6				432.0
Investment in equity affiliates and nonconsolidated subsidiary			21.4				20.5
Goodwill			159.0				163.9
Other intangible assets, net			66.7				69.1
Deferred income tax assets			–				0.5
Other non-current assets			66.9				66.6
Total assets		$	1,422.1			$	1,277.7
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt		$	39.9			$	19.8
Short-term debt			0.6				6.2
Accounts payable			260.1				160.0
Accrued expenses and other liabilities			116.7				118.2
Total current liabilities			417.3				304.2
Long-term debt			389.0				408.3
Postretirement benefits other than pensions			24.1				80.9
Pension benefits			206.8				225.0
Deferred income tax liabilities			4.3				–
Other non-current liabilities			94.8				83.4
Shareholders’ equity			285.8				175.9
Total liabilities and shareholders’ equity		$	1,422.1			$	1,277.7

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

PolyOne Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)

		Nine Months Ended
		September 30,
		2009				2008
Operating Activities
Net income		$	43.8			$	9.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			49.8				51.8
Deferred income tax provision (benefit)			9.4				(5.1	)
Provision for doubtful accounts			3.0				5.3
Stock compensation expense			2.2				2.2
Adjustment to impairment of goodwill			5.0				–
Asset write-downs and impairment charges			7.7				0.5
Companies carried at equity:
Income from equity affiliates			(28.6	)			(24.4	)
Dividends and distributions received			27.6				20.8
Change in assets and liabilities, net of acquisition:
Increase in accounts receivable			(20.2	)			(74.4	)
Decrease (increase) in inventories			39.9				(34.9	)
Increase in accounts payable			97.8				36.1
(Decrease) increase in sale of accounts receivable			(14.2	)			25.8
(Decrease) increase in accrued expenses and other			(6.3	)			3.6
Net cash provided by operating activities			216.9				17.0
Investing Activities
Capital expenditures			(15.9	)			(29.6	)
Investment in affiliated company			–				(1.1	)
Business acquisitions, net of cash acquired			–				(150.2	)
Net cash used by investing activities			(15.9	)			(180.9	)
Financing Activities
Change in short-term debt			(5.5	)			73.4
Purchase of common stock for treasury			–				(8.0	)
Issuance of long-term debt, net of debt issuance cost			–				77.8
Repayment of long-term debt			–				(22.2	)
Proceeds from exercise of stock options			–				1.1
Net cash (used) provided by financing activities			(5.5	)			122.1
Effect of exchange rate changes on cash			1.2				0.6
Increase (decrease) in cash and cash equivalents			196.7				(42.4	)
Cash and cash equivalents at beginning of period			44.3				79.4
Cash and cash equivalents at end of period		$	241.0			$	37.0

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

PolyOne Corporation and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to
Form 10-Q and, in the opinion of management, contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. These interim financial statements should be read in conjunction with the financial statements and accompanying notes included in our 2008 Annual Report on Form 10-K.

Operating results for the three-month and nine-month periods ended September 30, 2009 are not necessarily indicative of the results that may be attained in subsequent periods or for the year ending December 31, 2009.

Reclassification – Certain prior year amounts have been reclassified to conform to the current year presentation.

Note 2 – New Accounting Pronouncements

Consolidation – In June 2009, the Financial Accounting Standards Board (FASB) issued new guidance that modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The new guidance clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. A requirement of the new guidance is an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. Additional disclosures are also required about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. The new requirements are effective for fiscal years beginning after November 15, 2009 and is effective for us on January 1, 2010. We are currently evaluating the impact, if any, that the adoption of the new guidance will have on our financial condition, results of operations and disclosures.

Subsequent Events – In May 2009, the FASB issued new guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The new guidance also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for the date that was selected and is effective for interim and annual periods ending after June 15, 2009. Refer to Note 18, Subsequent Events.

Financial Instruments – On April 9, 2009, the FASB issued guidance regarding interim disclosures about fair value of financial instruments. The new guidance is intended to enhance consistency in financial reporting by increasing the frequency of fair value disclosures. Refer to Note 16, Financial Instruments, for information on our assets and liabilities measured at fair value.

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

Business Combinations – In December 2007, the FASB issued new guidance that establishes principles over the method entities use to recognize and measure assets acquired and liabilities assumed in a business combination and enhances disclosures of business combinations. The new guidance is effective for business combinations completed on or after

January 1, 2009. The impact of the adoption of this new guidance will depend on the nature and significance of future acquisitions.

Derivatives and Hedging – In March 2008, the FASB issued new guidance that requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This new guidance is effective for fiscal years beginning after November 15, 2008. The adoption of this guidance on January 1, 2009 did not materially impact our financial statements. See Note 16, Financial Instruments, for information on our derivatives and the required disclosures.

Note 3 – Goodwill

The following table details the changes in the carrying amount of goodwill during the nine months ended September 30, 2009:

		Nine Months Ended
(In millions)		September 30, 2009
Balance at beginning of the period		$	163.9
Adjustment to December 31, 2008 impairment charge			(5.0	)
Translation and other adjustments			0.1
Balance at end of the period		$	159.0

Goodwill as of September 30, 2009 and December 31, 2008, by operating segment, was as follows:

		September 30,				December 31,
(In millions)		2009				2008
International Color and Engineered Materials		$	72.1			$	72.0
Specialty Engineered Materials			44.1				44.1
Specialty Color, Additives and Inks			33.8				33.8
Performance Products and Solutions			7.4				12.4
PolyOne Distribution			1.6				1.6
Total		$	159.0			$	163.9

As previously disclosed in our 2008 Annual Report on Form 10-K, during the fourth quarter of 2008, we noted indicators of potential impairment of our long-lived assets and goodwill. Based on the results of our preliminary review, we recorded a non-cash impairment charge of $170.0 million in the fourth quarter of 2008. Upon completion of the analysis in the first quarter of 2009, we revised our estimate of goodwill impairment as of December 31, 2008 to $175.0 million, of which $147.8 million and $27.2 million relates to the Geon Compounds and Specialty Coatings reporting units, respectively. Adjustments of $12.4 million and ($7.4) million related to the goodwill impairment charge for Specialty Coatings and Geon Compounds, respectively, were recorded in the first quarter of 2009 on the line Adjustment to impairment of goodwill and is reflected on the line Corporate and eliminations in Note 13, Segment Information.

Note 4 – Inventories

Components of inventories are as follows:

		September 30,				December 31,
(In millions)		2009				2008
At FIFO or average cost, which approximates current cost:
Finished products		$	106.2			$	127.4
Work in process			2.8				2.1
Raw materials and supplies			75.7				109.9
			184.7				239.4
Reserve to reduce certain inventories to LIFO cost basis			(26.5	)			(41.6	)
		$	158.2			$	197.8

Note 5 – Property

		September 30,				December 31,
(In millions)		2009				2008
Land and land improvements		$	40.7			$	40.7
Buildings			278.9				278.6
Machinery and equipment			912.8				912.0
			1,232.4				1,231.3
Less accumulated depreciation and amortization			(836.8	)			(799.3	)
		$	395.6			$	432.0

During the nine months ended September 30, 2009, we recognized accelerated depreciation of $7.5 million as a result of certain plant closures. See Note 9, Employee Separation and Plant Phaseout, for further discussion.

Note 6 – Income Taxes

For the third quarter of 2009, we recognized an income tax benefit of $3.1 million, compared to a benefit of $2.8 million in the third quarter of 2008. For the first nine months of 2009, we recognized an income tax benefit of $5.6 million compared to income tax expense of $5.1 million during the same period of 2008. We record our interim provision for income taxes based on our estimated annual effective tax rate as well as certain items discrete to the current period. Our interim provision as well as our estimated annual effective tax rate is impacted by a number of factors including our U.S. federal and state and foreign income tax loss carryforwards and our ability to use them, as well as changes to our unrealized tax benefits.

We decreased existing valuation allowances against our deferred tax assets by $28.4 million in the third quarter of 2009. During the first nine months of 2009, we decreased these same valuation allowances by $34.6 million. The non-cash benefit to income tax expense for the third quarter and first nine months of 2009 was $15.3 million and $12.6 million, respectively, and related to various U.S. federal, state, local and foreign deferred tax assets. The remaining decrease of $13.1 million and $22.0 million, respectively, related to pension and postretirement health care liabilities and was recorded as an increase to accumulated other comprehensive income. We review all valuation allowances related to deferred tax assets and will adjust these reserves when appropriate.

During the third quarter of 2009, we recognized $3.4 million of benefit related to a state tax refund.

Note 7 – Investment in Equity Affiliates

The results of operations of SunBelt Chlor-Alkali Partnership (SunBelt), our significant equity investment, are included in the Resin and Intermediates segment. We own 50% of SunBelt.

The following table presents SunBelt’s summarized financial results for the periods indicated:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(Dollars in millions)		2009				2008				2009				2008
Net sales		$	36.9			$	43.1			$	135.1			$	123.3
Operating income		$	11.6			$	22.4			$	59.2			$	59.9
Partnership income as reported by SunBelt		$	9.6			$	20.3			$	53.2			$	53.6
PolyOne’s ownership of SunBelt			50	%			50	%			50	%			50	%
Equity affiliate earnings recorded by PolyOne		$	4.8			$	10.2			$	26.6			$	26.8

		September 30,				December 31,
(In millions)		2009				2008
Current assets		$	36.4			$	22.4
Non-current assets			97.6				107.7
Total assets			134.0				130.1
Current liabilities			22.0				19.7
Non-current liabilities			97.5				97.5
Total liabilities			119.5				117.2
Partnership capital		$	14.5			$	12.9

Other investments in equity affiliates are discussed below.

The BayOne Urethane Systems, L.L.C. equity affiliate (owned 50%) is included in the Specialty Color, Additives and Inks operating segment. The Performance Products and Solutions operating segment includes the Geon Polimeros Andinos equity affiliate (owned 50%). Combined summarized financial information for these equity affiliates follows.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(Dollars in millions)		2009				2008				2009				2008
Net sales		$	20.9			$	44.8			$	63.3			$	90.6
Operating income		$	1.2			$	0.8			$	4.8			$	5.4
Partnership income as reported by other equity affiliates		$	1.0			$	0.7			$	4.1			$	4.6
PolyOne’s ownership of other equity affiliates			50	%			50	%			50	%			50	%
Equity affiliate earnings recorded by PolyOne		$	0.4			$	0.3			$	2.0			$	2.3

During the third quarter of 2008, we recorded a non-cash impairment charge of $2.6 million related to our proportionate share of a write-down of goodwill of Geon Polimeros Andinos. The impairment charge, included in Income from equity affiliates and minority interest on the condensed consolidated statements of operations and reflected on the line Corporate and eliminations in Note 13, Segment Information, mainly resulted from declines in current and projected operating results and cash flows of the equity affiliate. Also, in the third quarter of 2008, we recorded a $2.1 million charge related to an impairment of our investment in Geon Polimeros Andinos. These impairments are not reflected in the above equity affiliate earnings because they are excluded as a measure of segment operating income or loss that is reported to and reviewed by the chief operating decision maker (See Note 13, Segment Information). These impairments are recorded in Income from equity affiliates and minority interest in the condensed consolidated statements of operations.

Note 8 – Weighted-Average Shares Used in Computing Earnings Per Share

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In millions)		2009				2008				2009				2008
Weighted-average shares outstanding – basic			92.4				92.9				92.4				92.9
Weighted-average shares – diluted:
Weighted-average shares outstanding – basic			92.4				92.9				92.4				92.9
Plus dilutive impact of stock options and awards			1.5				–				0.6				0.6
Weighted-average shares – diluted			93.9				92.9				93.0				93.5

Basic earnings per common share is computed as net income available to common shareholders divided by the weighted average basic shares outstanding. Diluted earnings per common share is computed as net income available to common shareholders divided by the weighted average diluted shares outstanding. Pursuant to FASB ASC Topic 260, Earnings Per Share, when a loss is reported, the denominator of diluted earnings per share is not adjusted for the dilutive impact of stock options and other equity awards as doing so will result in anti-dilution. Therefore, for the three-month period ended September 30, 2008, basic weighted-average shares outstanding are used in calculating diluted earnings per share.

Outstanding stock options and stock appreciation rights with exercise prices greater than the average price of the common shares and certain other equity awards are anti-dilutive and are not included in the computation of diluted earnings per share. For the three-month and nine-month periods ended September 30, 2009, 5.5 million and 5.9 million, respectively, of these options and awards were excluded from the computation of diluted earnings per share. For the three-month and nine-month periods ended September 30, 2008, 5.8 million and 5.6 million, respectively, of these options and awards were excluded from the computation of diluted earnings per share.

Note 9 – Employee Separation and Plant Phaseout

Management has undertaken certain restructuring initiatives to improve profitability, and as a result, we have incurred employee separation and plant phaseout costs. Employee separation and plant phaseout costs are reflected on the line Corporate and eliminations in Note 13, Segment Information. For further discussion of these initiatives, see Note 4, Employee Separation and Plant Phaseout, of the consolidated financial statements and the accompanying notes included in our 2008 Annual Report on Form 10-K.

A summary of total employee separation and plant phaseout costs for the three-month and nine-month periods ended September 30, 2009 and 2008, including where the charges are recorded in the accompanying condensed consolidated statements of operations, follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In millions)		2009				2008				2009				2008
Cost of sales		$	10.5			$	11.5			$	23.2			$	11.9
Selling and administrative			1.6				0.1				2.0				1.2
Total employee separation and plant phaseout		$	12.1			$	11.6			$	25.2			$	13.1

Cash payments during the three-month periods ended September 30, 2009 and 2008 were $6.6 million and $1.8 million, respectively. Cash payments during the nine-month periods ended September 30, 2009 and 2008 were $26.9 million and $2.4 million, respectively. Included in Cost of sales for the three-month and nine-month periods ended September 30, 2009 were charges of $2.1 million and $7.5 million, respectively, for accelerated depreciation on assets related to these restructuring initiatives.

In July 2008, we announced the restructuring of certain manufacturing assets, including the closure of seven production facilities in North America and one in the United Kingdom. In January 2009, we announced further cost saving measures that include eliminating approximately 370 positions worldwide, implementing reduced work schedules for another 100 to 300 employees, closing our Niagara, Ontario facility and idling certain other capacity. We expect to incur one-time pre-tax charges of approximately $66 million related to these actions, including cash costs of approximately $40 million related to severance and site closure costs and non-cash charges of approximately $26 million related to asset write-downs and accelerated depreciation. We recognized charges of $38.3 million in 2008 and an additional $25.2 million in the nine-month period ended September 30, 2009. We expect to incur approximately $3 million of additional cash costs associated with these activities, most of which will be recognized during the fourth quarter of 2009.

The following table details the charges and changes to the reserves associated with these restructuring initiatives for the nine-month period ended September 30, 2009:

		Employee Separation								Plant Phaseout Costs
		Number of								Cash				Asset
(Dollars in millions)		Employees				Costs				Closure				Write-downs				Total
Realignment of certain manufacturing plants
Balance at January 1, 2009			526			$	23.7			$	0.7			$	–			$	24.4
Charge			170				2.9				7.1				15.2				25.2
Utilized			(686	)			(20.6	)			(6.3	)			(15.2	)			(42.1	)
Impact of foreign currency translation			–				(0.6	)			–				–				(0.6	)
Balance at September 30, 2009			10			$	5.4			$	1.5			$	–			$	6.9

In addition to the above, during the nine-month periods ended September 30, 2009 and 2008, we paid $0.7 million and $0.9 million, respectively, related to executive severance. Our liability for unpaid severance costs was $0.4 million at September 30, 2009 and will be paid over the next 12 months.

Note 10 – Employee Benefit Plans

Components of defined benefit pension plan costs are as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In millions)		2009				2008				2009				2008
Service cost		$	0.4			$	0.4			$	1.1			$	1.0
Interest cost			8.4				8.1				24.1				24.3
Expected return on plan assets			(6.3	)			(8.3	)			(17.1	)			(24.9	)
Curtailment gain											(0.5	)
Amortization of unrecognized losses, transition obligation and prior service cost			1.7				2.1				10.2				6.1
		$	4.2			$	2.3			$	17.8			$	6.5

On January 15, 2009, our Board of Directors approved and adopted changes to the Geon Pension Plan (Geon Plan), the Benefit Restoration Plan (BRP), the voluntary retirement savings plan (RSP) and the Supplemental Retirement Benefit Plan (SRP). Effective March 20, 2009, the amendments permanently froze future benefit accruals and provided that participants will not receive credit under the Geon Plan or the BRP for any eligible earnings paid on or after that date. All accrued benefits under the Geon Plan and the BRP will remain intact, and service credits for vesting and retirement eligibility will continue in accordance with the terms of the Geon Plan and the BRP. The amendments to the RSP and SRP provide that transition contributions under the RSP and the SRP were eliminated after March 20, 2009.

Components of postretirement health care plan benefit costs are as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In millions)		2009				2008				2009				2008
Service cost		$	0.1			$	0.1			$	0.2			$	0.3
Interest cost			1.1				1.5				4.0				4.5
Expected return on plan assets			–				–				–				–
Curtailment gain			(21.1	)			–				(21.1	)			–
Amortization of unrecognized losses, transition obligation and prior service cost			(2.4	)			(1.1	)			(4.2	)			(3.3	)
		$	(22.3	)		$	0.5			$	(21.1	)		$	1.5

On September 1, 2009, we adopted changes to our postretirement healthcare plan whereby, effective January 1, 2010, the plan, for certain eligible retirees, will be discontinued, and benefits will be phased out through December 31, 2012 (the plan change). As a result, we recognized a curtailment gain of $21.1 million related to unrecognized prior service costs as of the date of the plan change in our third quarter of 2009. This gain is reflected in selling and administrative expenses in our statement of operations. Additionally, as a result of the plan change, our liability for postretirement healthcare was reduced by $58.1 million. This reduction of the liability and unrecognized actuarial losses of approximately $9.5 million are recognized in accumulated other comprehensive income.

Note 11 – Financing Arrangements

Short-term debt – At September 30, 2009, $0.6 million of short-term notes issued by certain of our European subsidiaries was outstanding.

Long-term debt – Long-term debt consisted of the following:

		September 30,				December 31,
(Dollars in millions)		2009(1)				2008(1)
8.875% senior notes due May 2012		$	279.4			$	279.2
7.500% debentures due December 2015			50.0				50.0
Medium-term notes:
6.91% medium-term notes due October 2009			20.0				19.8
6.52% medium-term notes due February 2010			19.9				19.6
6.58% medium-term notes due February 2011			19.6				19.5
Credit facility borrowings, facility expires March 2011			40.0				40.0
Total long-term debt			428.9				428.1
Less current portion			39.9				19.8
Total long-term debt, net of current portion		$	389.0			$	408.3

Current maturities of long-term debt at September 30, 2009 includes $20.0 million of our 6.91% medium-term notes, which were paid on October 6, 2009, and $19.9 million of our 6.52% medium-term notes due February 23, 2010.

We are exposed to market risk from changes in interest rates on debt obligations and from changes in foreign currency exchange rates. Information about these risks and exposure management is included in Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in our 2008 Annual Report on Form 10-K. There have been no material changes in the market risk from December 31, 2008 to September 30, 2009.

Note 12 – Sale of Accounts Receivable

Accounts receivable consist of the following:

		September 30,				December 31,
(In millions)		2009				2008
Trade accounts receivable		$	142.4			$	141.6
Retained interest in securitized accounts receivable			160.8				127.2
Allowance for doubtful accounts			(6.0	)			(6.7	)
		$	297.2			$	262.1

Under the terms of our receivables sale facility, we sell accounts receivable to PolyOne Funding Corporation (PFC) and PolyOne Funding Canada Corporation (PFCC), both wholly owned, bankruptcy-remote subsidiaries. PFC and PFCC, in turn, may sell an undivided interest in up to $175.0 million and $25.0 million of these accounts receivable, respectively, to certain investors. The receivables sale facility matures in June 2012. As of September 30, 2009, there was $103.4 million of availability remaining under the accounts receivable sale facility.

As of September 30, 2009 and December 31, 2008, accounts receivable totaling $160.8 million and $141.4 million, respectively, were sold by us to PFC and PFCC. The maximum proceeds that PFC and PFCC may receive under the facility is limited to the lesser of $200.0 million or 85% of the eligible domestic and Canadian accounts receivable sold. As of September 30, 2009, PFC and PFCC had not sold any of their undivided interests in accounts receivable. As of December 31, 2008, PFC and PFCC had sold $14.2 million of their undivided interests in accounts receivable.

We retain an interest in the difference between the amount of trade receivables sold by us to PFC and PFCC and the undivided interest sold by PFC and PFCC as of September 30, 2009 and December 31, 2008. As a result, the interest retained by us was $160.8 million and $127.2 million, as of September 30, 2009 and December 31, 2008, respectively, and was included in Accounts receivable, net on the accompanying condensed consolidated balance sheets.

The receivables sale facility also makes up to $40.0 million available for the issuance of standby letters of credit as a sub-limit within the $200.0 million facility, of which $12.9 million was used at September 30, 2009.

Note 13 – Segment Information

Segment information for the three-month and nine-month periods ended September 30, 2009 and 2008, follows:

		Three Months Ended September 30, 2009												Three Months Ended September 30, 2008
																						Segment
		Sales to								Segment				Sales to								Operating
		External								Operating				External								Income
(In millions)		Customers				Total Sales				Income				Customers				Total Sales				(Loss)
International Color and Engineered Materials		$	124.4			$	124.4			$	8.4			$	153.7			$	153.7			$	4.6
Specialty Engineered Materials			47.2				53.6				5.9				57.6				66.1				5.0
Specialty Color, Additives and Inks			51.6				52.2				5.2				59.1				60.1				4.7
Performance Products and Solutions			162.4				180.9				12.0				251.4				274.4				5.3
PolyOne Distribution			162.7				163.1				6.5				213.3				214.7				9.4
Resin and Intermediates			–				–				3.8				–				–				9.6
Corporate and eliminations			–				(25.9	)			14.4				–				(33.9	)			(37.3	)
Total		$	548.3			$	548.3			$	56.2			$	735.1			$	735.1			$	1.3
		Nine Months Ended September 30, 2009												Nine Months Ended September 30, 2008
										Segment												Segment
		Sales to								Operating				Sales to								Operating
		External								Income				External								Income
(In millions)		Customers				Total Sales				(Loss)				Customers				Total Sales				(Loss)
International Color and Engineered Materials		$	333.5			$	333.5			$	13.9			$	491.0			$	491.0			$	22.8
Specialty Engineered Materials			138.1				155.1				11.0				175.2				197.9				11.1

		Nine Months Ended September 30, 2009												Nine Months Ended September 30, 2008
										Segment												Segment
		Sales to								Operating				Sales to								Operating
		External								Income				External								Income
(In millions)		Customers				Total Sales				(Loss)				Customers				Total Sales				(Loss)
Specialty Color, Additives and Inks			144.6				146.2				9.7				177.1				179.3				11.0
Performance Products and Solutions			458.2				510.0				35.4				733.7				807.4				18.9
PolyOne Distribution			433.8				435.1				15.3				619.9				624.0				21.9
Resin and Intermediates			–				–				23.5				–				–				24.2
Corporate and eliminations			–				(71.7	)			(36.0	)			–				(102.7	)			(64.5	)
Total		$	1,508.2			$	1,508.2			$	72.8			$	2,196.9			$	2,196.9			$	45.4

Note 14 – Commitments and Contingencies

We have been notified by federal and state environmental agencies and by private parties that we may be a potentially responsible party (PRP) in connection with the investigation and remediation of certain environmental waste disposal 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 believe that our potential continuing liability with respect to these sites will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. In addition, we initiate corrective and preventive environmental projects of our own to ensure safe and lawful activities at our operations. We believe that compliance with current governmental regulations at all levels will not have a material adverse effect on our financial condition.

During the nine-month periods ended September 30, 2009 and 2008, we recognized $8.3 million and $14.3 million, respectively, of expense related to environmental activities at all of our active and inactive sites.

During August of 2009, we received $23.9 million from our former parent company, as partial reimbursement of certain previously incurred environmental remediation costs. The gain associated with this reimbursement is included in Cost of sales in our consolidated statement of operations.

Based on estimates that were prepared by our environmental engineers and consultants, we had accrued $81.0 million at September 30, 2009 and $84.6 million at December 31, 2008 for probable future environmental expenditures related to previously contaminated sites. The accruals represent our best estimate of the remaining probable remediation costs, based upon information and technology that is currently available and our view of the most likely remedy. Depending upon the results of future testing, the ultimate remediation alternatives undertaken, changes in regulations, new information, newly discovered conditions and other factors, it is reasonably possible that we could incur additional costs in excess of the amount accrued at September 30, 2009. However, such additional costs, if any, cannot be currently estimated. Our estimate of the liability may be revised as new regulations or technologies are developed or additional information is obtained. Additional information related to environmental liabilities is in Note 13, Commitments and Related-Party Information, to the consolidated financial statements included in our 2008 Annual Report on Form 10-K.

We guarantee $54.8 million of SunBelt’s outstanding senior secured notes in connection with the construction of a chlor-alkali facility in McIntosh, Alabama. This debt matures in equal annual installments through 2017.

Note 15 – Fair Value

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

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

instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participants would use in pricing the asset or liability. The following table presents information about our financial liabilities measured at fair value on a recurring basis as of September 30, 2009 and indicates the level in the fair value hierarchy:

(In millions)

Fair Value Measurement Used

Quoted Prices in Active

Quoted Prices in

Markets for Similar

Other

Recorded Value

Active Markets for

Instruments and

Unobservable

as of

Identical Assets

Observable

Inputs

Description

September 30, 2009

(Level 1)

Inputs (Level 2)

(Level 3)

Foreign exchange contracts

$

0.8

–

$

0.8

–

Foreign exchange contracts are valued based on observable market spot and forward rates, and accordingly, are classified within Level 2 of the fair value hierarchy.

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

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

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

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

In accordance with the provisions of FASB ASC Topic 360, Property, Plant, and Equipment, we assess the fair value of our long-lived assets on a non-recurring basis. In the first nine months of 2009 we recorded impairment charges totaling

approximately $7.7 million for certain of the facilities that were closed as a result of the realignment activities. Our estimates of fair value are based primarily on estimates from broker opinions of value and appraisals of the assets. As these fair value measurements are based on significant unobservable inputs, such as recent sales of comparable properties, they are classified within Level 3 of the fair value hierarchy.

Note 16 – Financial Instruments

We are exposed to certain risks relating to our ongoing business operations. The primary risk managed by using derivative instruments is foreign exchange risk. Foreign exchange contracts are entered into to manage foreign exchange risk associated with intercompany lending transactions denominated in various foreign currencies. These derivative instruments are not treated as hedges under FASB ASC Topic 815, Derivatives and Hedging.

The following table summarizes the notional amounts of our foreign exchange contracts at September 30, 2009:

		September 30, 2009
Currency (In millions)		Buy				Sell
U.S. Dollar		$	71.6
Euro						€	44.4
British pound						£	3.8

The following table summarizes derivative information at September 30, 2009:

		Balance Sheet
(In millions)		Location		Fair Value
Derivatives not designated as hedging instruments under FASB ASC 815:
Foreign exchange forwards		Other assets		$	0.8

For the three-month period ended September 30, 2009, we recognized a loss of $2.3 million on foreign exchange forwards not designated as hedging instruments under FASB ASC Topic 815. This loss is included in Other expense, net.

Certain of our derivative instruments contain provisions that require collateral and require us to increase collateral if the market value of the hedge is at a deficit of more than $0.15 million. If we fail to meet this requirement, we would be in violation of those provisions and the counterparty could request immediate payment on derivative instruments in net liability positions. All derivative instruments with credit-risk-related contingent features were in an asset position as of September 30, 2009.

The following summarizes the carrying amounts and fair values of our financial instruments as of September 30, 2009:

(In millions)		Carrying Amount				Fair Value
Cash and cash equivalents		$	241.0			$	241.0
Long-term debt
Credit facility borrowings			40.0				40.0
7.500% debentures			50.0				37.5
8.875% senior notes			279.4				280.8
Medium-term notes			59.5				58.3

Note 17 – Comprehensive Income

The following table sets forth the reconciliation of net income (loss) to comprehensive income:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In millions)		2009				2008				2009				2008
Net income (loss)		$	49.6			$	(5.6	)		$	43.8			$	9.7
Amortization of unrecognized (losses) gains, transition obligation and prior service costs			(0.7	)			0.6				5.5				1.8
Adjustment for supplemental executive retirement plan			–				(1.3	)			–				(1.3	)
Net (loss) gain occurring in the year due to retiree plan amendments (See Note 10)			–				(3.9	)			18.5				(3.9	)
Net gain occurring in the year due to postretirement healthcare plan amendments (See Note 10)			37.0				–				37.0				–
Translation adjustment			3.9				(13.3	)			2.8				(4.6	)
Other			–				(0.2	)			0.1				(0.6	)
Total comprehensive income (loss)		$	89.8			$	(23.7	)		$	107.7			$	1.1

Note 18 – Subsequent Events

On October 13, 2009, we sold Geon Polimeros Andinos, previously a 50% owned equity affiliate of ours and part of the Performance Products and Solutions operating segment, to Mexichem Compuestos, S.A. de C.V. We received cash proceeds of $13.5 million and will record a pre-tax gain of approximately $2 million in our fourth quarter 2009 results of operations.

Events subsequent to September 30, 2009 have been evaluated through November 4, 2009, or the date of issuance of these financial statements. There were no subsequent events requiring recognition in these financial statements for the quarter ended September 30, 2009.

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Business

We are a premier provider of specialized polymer materials, services and solutions with operations in thermoplastic compounds, specialty polymer formulations, color and additive systems, thermoplastic resin distribution and specialty vinyl resins. We also have three equity investments: one in a manufacturer of caustic soda and chlorine; one in a formulator of polyurethane compounds; and one in a manufacturer of polyvinyl chloride (PVC) compound products. Headquartered in Avon Lake, Ohio, we have employees at manufacturing sites and distribution facilities in North America, Europe and Asia and equity investments in North America. We provide value to our customers through our ability to link our knowledge of polymers and formulation technology with our manufacturing and supply chain to provide an essential link between large chemical producers (our raw material suppliers) and designers, assemblers and processors of plastics (our customers).

Highlights and Executive Summary

Selected Financial Data

		Three Months Ended September 30,								Nine Months Ended September 30,
(In millions)		2009				2008				2009				2008
Sales		$	548.3			$	735.1			$	1,508.2			$	2,196.9
Operating income		$	56.2			$	1.3			$	72.8			$	45.4
Net income (loss)		$	49.6			$	(5.6	)		$	43.8			$	9.7

Sales in the third quarter and first nine months of 2009 declined 25.4% and 31.3%, respectively, versus the corresponding periods in 2008. Volumes in the third quarter and first nine months of 2009 declined 20.1% and 28.0%, respectively, compared to the corresponding periods in 2008. These results reflect the adverse impact of the global recession on demand levels across all end markets. Particularly hardest hit were the transportation and building and construction end markets. Changes in currency exchange rates had a negative impact on sales of 3.6% and 5.4% for the third quarter and first nine months of 2009, respectively.

Operating income in the third quarter and first nine months of 2009 increased $54.9 million and $27.4 million, respectively, versus the corresponding periods in 2008 primarily as a result of third quarter 2009 gains of $21.1 million associated with the curtailment of our postretirement healthcare plan and $23.9 million related to the reimbursement of previously incurred environmental costs. Additionally, operating income was favorably impacted by improved mix, lower raw material costs, the realization of restructuring savings, and an incremental benefit from LIFO related to the significant inventory reduction in the United States in the first nine months of 2009. The impact of the previously noted volume declines partially offset these favorable items in the third quarter and first nine months of 2009 compared to the corresponding periods in 2008. Additionally, we recognized charges of $12.1 million and $25.2 million related to restructuring and employee separation in the third quarter and first nine months of 2009, respectively, as compared to $11.6 million and $13.1 million in the corresponding periods in 2008. Our operating income for the first nine months of 2009 was also negatively impacted by the $5.0 million adjustment to our estimated 2008 year-end goodwill impairment charge. Changes in currency exchange rates unfavorably impacted operating income by $1.0 million and $4.5 million, respectively, in the third quarter and first nine months of 2009 as compared to the corresponding periods in 2008, driven mainly by the strengthening of the U.S. dollar versus the Euro and Canadian dollar.

Net income increased $55.2 million and $34.1 million during the third quarter and first nine months of 2009, respectively, as compared to the same periods in 2008 primarily due to the items discussed in the paragraph above. Net interest expense was lower than in comparable prior periods primarily due to lower average borrowing levels and lower average interest rates on our variable rate debt. Income tax benefit for the first nine months of 2009 included $13.2 million of income tax benefits and related interest income due to the favorable settlement of a foreign tax audit and a state tax refund. These items were partially offset by $8.3 million of charges for similar items in the second and third quarters of 2009.

Liquidity

		September 30, 2009				December 31, 2008
Cash and cash equivalents		$	241.0			$	44.3
Accounts receivable facility availability			103.4				121.4
Liquidity		$	344.4			$	165.7

Since December 31, 2008, our liquidity increased by $178.7 million to $344.4 million as the increase in our cash balance has more than offset the decline in our borrowing capacity on the accounts receivable facility. The increase in cash and cash equivalents of $196.7 million was driven by substantially lower working capital investment in the first nine months of 2009 as compared to year-end 2008.

Results of Operations – Three-Month Period Ended September 30, 2009 versus the Three-Month Period Ended September 30, 2008

										Variances—Favorable
		Three Months Ended September 30,								(Unfavorable)
(Dollars in millions, except per share data)		2009				2008				Change				% Change
Sales		$	548.3			$	735.1			$	(186.8	)			(25.4	)%
Cost of sales			441.0				669.9				228.9				34.2	%
Gross margin			107.3				65.2				42.1				64.6	%
Selling and administrative			56.3				69.7				13.4				19.2	%
Income from equity affiliates and minority interest			5.2				5.8				(0.6	)			(10.3	)%
Operating income			56.2				1.3				54.9			NM
Interest expense, net			(8.5	)			(9.7	)			1.2				12.4	%
Other expense, net			(1.2	)			–				(1.2	)		NM
Income (loss) before income taxes			46.5				(8.4	)			54.9			NM
Income tax benefit			3.1				2.8				0.3				10.7	%
Net income (loss)		$	49.6			$	(5.6	)		$	55.2			NM
Earnings (loss) per common share:
Basic earnings (loss)		$	0.54			$	(0.06	)
Diluted earnings (loss)		$	0.53			$	(0.06	)

NM – Not meaningful

Sales

Sales declined $186.8 million, or 25.4%, due to the effects of the global recession on demand levels. The components of this decrease include the unfavorable impact of the decline in volumes, which reduced sales 20.1% and the unfavorable impact of foreign exchange on sales of 3.6%. All operating segments experienced a decline in sales. The end markets particularly hardest hit globally were transportation and building and construction.

Cost of Sales

Cost of sales includes raw material, plant conversion, distribution and environmental remediation related costs and plant related restructuring charges. These costs, as a percentage of sales, declined to 80.4% in the third quarter of 2009 as compared to 91.1% in the third quarter of 2008. Included in cost of sales for the third quarter of 2009 is a gain of $23.9 million associated with the reimbursement of previously incurred environmental costs. Restructuring charges in cost of sales were $10.5 million in the third quarter 2009 as compared to $11.5 million in the same period in 2008. The primary drivers of the remaining quarter-over-quarter decline were lower raw material costs, realization of restructuring savings and the LIFO benefit related to inventory reductions in the United States.

Selling and Administrative

Selling and administrative costs include selling, technology, administrative functions, and general corporate expenses. These costs were $13.4 million lower in the third quarter of 2009 due to the impact of the $21.1 million curtailment gain,

savings from our restructuring activities and decreases in insurance and bad debt expense, which were partially offset by increases in pension and incentive compensation expenses.

Income from Equity Affiliates

Income from equity affiliates is summarized as follows:

		Three Months Ended
		September 30,
(In millions)		2009				2008
SunBelt		$	4.8			$	10.2
Other equity affiliates		$	0.4			$	(4.4	)

During the third quarter of 2009, income from equity affiliates declined $0.6 million. Lower earnings from our SunBelt joint venture were due primarily to lower pricing for caustic soda, partially offset by an increase in pricing and volume for chlorine as compared to the third quarter of 2008. Also, in the third quarter of 2008, we recognized charges of $4.7 million related to our investment in Geon Polimeros Andinos, a 50% owned equity affiliate.

Interest Expense, net

Interest expense, net declined $1.2 million in the third quarter of 2009 versus the third quarter of 2008 due primarily to lower average borrowings and lower interest rates on our variable rate debt. Included in interest expense, net for the third quarter of 2009 and 2008 was interest income of $0.9 million and $0.8 million, respectively.

Other Expense, net

		Three Months Ended
		September 30,
(In millions)		2009				2008
Currency exchange gain		$	1.7			$	1.2
Foreign exchange contracts loss			(2.3	)			(0.4	)
Fees and discount on sale of trade receivables			(0.4	)			(0.6	)
Other loss			(0.2	)			(0.2	)
Other expense, net		$	(1.2	)		$	–

The expense related to the discount on sale of trade receivables was lower in the third quarter of 2009 as we had no borrowings under our receivables sale facility.

Income Tax (Expense) Benefit

For the third quarter of 2009, we recognized an income tax benefit of $3.1 million compared to a benefit of $2.8 million in the third quarter of 2008. We record our interim provision for income taxes based on our estimated annual effective tax rate as well as certain items discrete to the current period. Our interim provision as well as our estimated annual effective tax rate is impacted by a number of factors including our U.S. federal, state and foreign income tax loss carryforwards and our ability to use them, as well as changes to our unrealized tax benefits.

We decreased existing valuation allowances against our deferred tax assets by $28.4 million in the third quarter of 2009. The non-cash benefit to income tax expense was $15.3 million and related to various U.S. federal, state, local and foreign deferred tax assets. The remaining decrease of $13.1 million related to pension and postretirement health care liabilities and was recorded as an increase to accumulated other comprehensive income. We review all valuation allowances related to deferred tax assets and will adjust these reserves when appropriate.

During the third quarter of 2009, we recognized $3.4 million of benefit related to a state tax refund.

Results of Operations – Nine-Month Period Ended September 30, 2009 versus the Nine-Month Period Ended September 30, 2008

										Variances—Favorable
		Nine Months Ended September 30,								(Unfavorable)
(Dollars in millions, except per share data)		2009				2008				Change				% Change
Sales		$	1,508.2			$	2,196.9			$	(688.7	)			(31.3	)%
Cost of sales			1,255.4				1,958.3				702.9				35.9	%
Gross margin			252.8				238.6				14.2				6.0	%
Selling and administrative			203.6				217.6				14.0				6.4	%
Adjustment to impairment of goodwill			5.0				–				(5.0	)		NM
Income from equity affiliates and minority interest			28.6				24.4				4.2				17.2	%
Operating income			72.8				45.4				27.4				60.4	%
Interest expense, net			(26.1	)			(27.9	)			1.8				6.5	%
Other expense, net			(8.5	)			(2.7	)			(5.8	)			(214.8	)%
Income before income taxes			38.2				14.8				23.4				158.1	%
Income tax benefit (expense)			5.6				(5.1	)			10.7			NM
Net income		$	43.8			$	9.7			$	34.1				351.5	%
Basic and diluted earnings per common share		$	0.47			$	0.10

NM – Not meaningful

Sales

Sales declined $688.7 million, or 31.3%, in the first nine months of 2009 due to the effects of the global recession. The components of this decrease include the unfavorable impact of the decline in volumes of 28.0% and the unfavorable impact of foreign exchange on sales of 5.4%. All operating segments experienced declines in sales and volumes reflecting the significant impact of the global recession on our end markets, particularly transportation and building and construction.

Cost of Sales

Cost of sales includes raw material, plant conversion, distribution and environmental remediation related costs and plant related restructuring charges. These costs, as a percentage of sales, declined to 83.2% of sales in the first nine months of 2009 as compared to 89.1% in the first nine months of 2008. Cost of sales for the first nine months of 2009 includes a gain of $23.9 million associated with the reimbursement of previously incurred environmental costs. Restructuring charges in cost of sales were $23.2 million in the first nine months of 2009 and $11.9 million in the same period in 2008. Lower raw material costs, the realization of restructuring savings and a benefit from LIFO related to inventory reductions in the United States favorably impacted cost of good sold in the first nine months of 2009 as compared to the same period in 2008.

Selling and Administrative

Selling and administrative includes selling, technology, administrative, and general corporate expenses. These costs were $14.0 million lower in the first nine months of 2009 due to a $21.1 million curtailment gain, a decrease in insurance and bad debt expense and savings from our restructuring activities, partially offset by increases in pension and incentive compensation expenses.

Adjustment to Impairment of Goodwill

As previously disclosed in our 2008 Annual Report on Form 10-K, during the fourth quarter of 2008, we identified indicators of potential impairment and evaluated the carrying values of goodwill and other intangible and long-lived assets. The measurement of goodwill impairment consists of two steps. In the first step, we compared the fair value of each reporting unit to its carrying value, and determined that the fair value of both the Geon Compounds and Specialty Coatings reporting units (reporting units within Performance Products and Solutions) was less than their corresponding

carrying values. Following that determination, we performed a second step in order to measure the amount of the impairment by comparing the implied fair value of each reporting unit’s goodwill to its carrying value. The calculation of the goodwill impairment in this second step includes a hypothetical allocation of the fair value of the assets and liabilities as if the reporting units had been acquired. Due to the extensive work involved in performing the related asset appraisals, we initially recognized an estimated impairment loss of $170.0 million in our 2008 Annual Report on Form 10-K.

Subsequently, in the first quarter of 2009, we completed the second step of the analysis and determined the final goodwill impairment charge as of December 31, 2008 was $175.0 million, reflecting impairments of $147.8 million and $27.2 million for the Geon Compounds and Specialty Coatings reporting units, respectively. This represented an increase in the goodwill impairment charge for Specialty Coatings of approximately $12.4 million and a decrease for Geon Compounds of $7.4 million, as compared to the preliminary estimates recorded in the fourth quarter of 2008. The total difference of approximately $5.0 million from our preliminary estimate was recorded in the first quarter of 2009.

This adjustment is recorded in the accompanying consolidated statements of operations and is reflected within Corporate and eliminations in Note 13 to the accompanying consolidated financial statements.

Income from Equity Affiliates

Income from equity affiliates is summarized as follows:

		Nine Months Ended
		September 30,
(In millions)		2009				2008
SunBelt		$	26.6			$	26.8
Other equity affiliates		$	2.0			$	(2.4	)

Income from other equity affiliates increased $4.2 million in the first nine months of 2009. In the first nine months of 2008 we recorded $4.7 million of charges related to our investment in Geon Polimeros Andinos, a 50% owned equity affiliate.

Interest Expense, Net

The decrease in interest expense, net of $1.8 million for the first nine months of 2009 as compared to the first nine months of 2008 was the result of lower average borrowing levels and lower interest rates on our variable rate debt.

Included in interest expense, net for the nine months of 2009 and 2008 was interest income of $2.4 million and $2.5 million, respectively.

Other Expense, Net

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

		Nine Months Ended
		September 30,
(In millions)		2009				2008
Currency exchange gain		$	1.3			$	1.4
Foreign exchange contracts loss			(8.4	)			(0.9	)
Fees and discount on sale of trade receivables			(1.0	)			(2.8	)
Other loss			(0.4	)			(0.4	)
Other expense, net		$	(8.5	)		$	(2.7	)

In the first quarter of 2009, we recorded $7.1 million in foreign currency-related losses, which were primarily attributable to Euro-denominated exposures that were not hedged in connection with the transition of treasury management services to new providers.

Income Tax (Expense) Benefit

For the first nine months of 2009, we recorded an income tax benefit of $5.6 million compared to income tax expense of $5.1 million in the first nine months of 2008. We record our interim provision for income taxes based on our estimated annual effective tax rate as well as certain items discrete to the current period. Our interim provision as well as our estimated annual effective tax rate is impacted by a number of factors including our U.S. federal, state, and foreign income tax loss carryforwards, our ability to use them, as well as changes to our unrealized tax benefits.

We decreased existing valuation allowances against our deferred tax assets by $34.6 million in the first nine months of 2009. The non-cash benefit to income tax expense was $12.6 million and related to various U.S. federal, state, local and foreign deferred tax assets. The remaining decrease of $22.0 million related to pension and postretirement health care liabilities and was recorded as an increase to accumulated other comprehensive income. We review all valuation allowances related to deferred tax assets and will adjust these reserves when appropriate.

During the third quarter of 2009, we recognized $3.4 million of benefit related to a state tax refund.

SEGMENT INFORMATION

Operating income is the primary financial measure reported to the chief operating decision maker for purposes of making decisions, allocating resources to our segments and assessing their performance. Operating income at the segment level (segment operating income) 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 phaseout costs; executive separation agreements; share-based compensation costs; asset impairments; environmental remediation costs for facilities no longer owned or closed in prior years; gains and losses on the divestiture of joint ventures and equity investments; and certain other items that are not included in segment operating income. These costs are included in Corporate and eliminations.

Sales and Operating Income – Three Months Ended September 30, 2009 versus the Three Months Ended September 30, 2008:

		Three Months Ended September 30,
(Dollars in millions)		2009				2008				Change				% Change
Sales:
International Color and Engineered Materials		$	124.4			$	153.7			$	(29.3	)			(19.1	)%
Specialty Engineered Materials			53.6				66.1				(12.5	)			(18.9	)%
Specialty Color, Additives and Inks			52.2				60.1				(7.9	)			(13.1	)%
Performance Products and Solutions			180.9				274.4				(93.5	)			(34.1	)%
PolyOne Distribution			163.1				214.7				(51.6	)			(24.0	)%
Corporate and eliminations			(25.9	)			(33.9	)			8.0				23.6	%
		$	548.3			$	735.1			$	(186.8	)			(25.4	)%
Operating income (loss):
International Color and Engineered Materials		$	8.4			$	4.6			$	3.8				82.6	%
Specialty Engineered Materials			5.9				5.0				0.9				18.0	%
Specialty Color, Additives and Inks			5.2				4.7				0.5				10.6	%
Performance Products and Solutions			12.0				5.3				6.7				126.4	%
PolyOne Distribution			6.5				9.4				(2.9	)			(30.9	)%
Resin and Intermediates			3.8				9.6				(5.8	)			(60.4	)%
Corporate and eliminations			14.4				(37.3	)			51.7			NM
		$	56.2			$	1.3			$	54.9			NM
Operating income as a percentage of sales:
International Color and Engineered Materials			6.8	%			3.0	%			3.8 %	points
Specialty Engineered Materials			11.0	%			7.6	%			3.4 %	points
Specialty Color, Additives and Inks			10.0	%			7.8	%			2.2 %	points
Performance Products and Solutions			6.6	%			1.9	%			4.7 %	points
PolyOne Distribution			4.0	%			4.4	%			(0.4)%	points
Total			10.2	%			0.2	%			10.0 %	points

International Color and Engineered Materials

Sales decreased $29.3 million, or 19.1%, in the third quarter of 2009 compared to the third quarter of 2008. Approximately 15.5% of the decrease was due to lower volumes as a result of the effects of the global recession on demand levels in Europe and Asia. Changes in currency exchange rates in the quarter resulted in a decrease in sales of approximately 6.1%. These unfavorable items were partially offset by the benefit of a slight improvement in the price and mix of products sold.

Operating income increased by $3.8 million, or 82.6%, in the third quarter of 2009 compared to the third quarter of 2008 driven by declining raw material costs, the realization of savings from our restructuring programs and reduced discretionary spending. These items were partially offset by the impacts of lower volumes and changes in currency exchange rates.

Specialty Engineered Materials

Sales decreased $12.5 million, or 18.9%, in the third quarter of 2009 compared to the same period of 2008 due to the decreased demand in our end markets related to transportation, building and construction and general industrial applications. Volume declined approximately 15.8% in the third quarter of 2009 versus the third quarter of 2008.

Operating income increased $0.9 million, or 18.0%, in the third quarter of 2009 compared to the third quarter of 2008 driven primarily by lower raw material costs, the realization of savings from restructuring, the benefit from LIFO related to the inventory reduction in the United States, and reduced discretionary spending. These items more than offset the impact of declines in volumes.

Specialty Color, Additives and Inks

Sales decreased $7.9 million, or 13.1%, in the third quarter of 2009 compared to the third quarter of 2008 due to the decreased demand in our end markets. Volumes declined 12.8% in the third quarter of 2009 versus the third quarter of 2008.

Operating income improved $0.5 million, or 10.6%, primarily due to the benefits of a more profitable sales mix, lower raw material costs, the realization of savings from our restructuring activities, the benefit from LIFO related to the inventory reduction in the United States and decreased discretionary spending, all of which offset the adverse impact of the decline in volumes.

Performance Products and Solutions

Sales decreased $93.5 million, or 34.1%, in the third quarter of 2009 compared to the third quarter of 2008 due to the decreased demand in our end markets, particularly those related to the North American building and construction market. Volumes declined 26.7% in the third quarter 2009 versus the third quarter of 2008. Lower market prices associated with lower commodity costs resulted in an 8.4% decline in sales during the third quarter of 2009 versus the third quarter of 2008.

Operating income increased $6.7 million, or 126.4%, in the third quarter of 2009 compared to the third quarter of 2008 despite lower volume. LIFO reserve changes decreased operating income by $0.6 million in the third quarter of 2009 as compared to $6.8 million in the third quarter of 2008. Beyond that, lower raw material costs, realization of savings from our restructuring activities and reduced discretionary spending offset the impact of the significant decline in volume quarter to quarter.

PolyOne Distribution

PolyOne Distribution sales decreased $51.6 million, or 24.0%, in the third quarter of 2009 compared to the third quarter of 2008, as volume declined 9.7% with the remainder due to lower market pricing.

Operating income decreased $2.9 million, or 30.9%, in the third quarter of 2009 compared to the third quarter of 2008 due to the decline in volume, partially offset by realization of savings from our restructuring activities and reduced discretionary spending.

Resin and Intermediates

During the third quarter of 2009, Resin and Intermediates operating income declined $5.8 million, due primarily to lower earnings from our SunBelt joint venture. This decrease is due to lower pricing and volume for caustic soda, partially offset by an increase in pricing and volume for chlorine, as compared to the third quarter of 2008.

Corporate and Eliminations

Operating income from Corporate and eliminations was $14.4 million in the third quarter of 2009 as compared to a loss of $37.3 million in the third quarter of 2008 due to the curtailment gain of $21.1 million related to the phase out of benefits to be paid under certain of our postretirement healthcare plan and a gain associated with the reimbursement of previously incurred environmental costs of $23.9 million. In addition, operating results for Corporate and eliminations improved due to decreased environmental remediation costs partially offset by higher pension and incentive costs. Operating loss for the third quarter of 2008 included $4.7 million of charges related to our investment in Geon Polimeros Andinos, a 50% owned equity affiliate. The following table breaks down Corporate and eliminations into its components:

		Three Months Ended September 30,
(In millions)		2009				2008
Curtailment gain related to postretirement health care plan (a)		$	21.1				–
Reimbursement of previously incurred environmental costs (b)			23.9				–
Environmental remediation costs			(5.4	)		$	(10.4	)
Employee separation and plant phaseout (c)			(12.1	)			(11.6	)
Share-based compensation			(0.8	)			(0.7	)
Incentive compensation			(7.0	)			(0.9	)
Write-down of certain assets of and investment in equity affiliate (d)			–				(4.7	)
Unallocated pension & postretirement medical expense			(3.3	)			(1.9	)
All other and eliminations (e)			(2.0	)			(7.1	)
Total Corporate and eliminations		$	14.4			$	(37.3	)