e10vk
United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
þ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2009
o 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)
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Ohio
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34-1730488
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer Identification No.)
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33587 Walker Road,
Avon Lake, Ohio
(Address of principal executive
offices)
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44012
(Zip Code)
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Registrants telephone number,
including area
code (440) 930-1000
Securities registered pursuant to
Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $.01 per share
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New York Stock Exchange
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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 o No þ
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 o No þ
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 þ No o
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants 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. þ
Indicate by check mark whether the
registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
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):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a 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 o No þ
The aggregate market value of the
registrants outstanding common stock held by
non-affiliates on June 30, 2009, determined using a per
share closing price on that date of $2.71, as quoted on the New
York Stock Exchange, was $228,620,378.
The number of shares of common
stock outstanding as of February 16, 2010 was 92,542,800.
DOCUMENTS INCORPORATED BY
REFERENCE
Part III of this Annual Report
on
Form 10-K
incorporates by reference certain information from the
registrants definitive Proxy Statement with respect to the
2010 Annual Meeting of Shareholders.
POLYONE
CORPORATION
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
managements expectations that involve a number of business
risks and uncertainties, any of which could cause actual results
to differ materially from those expressed in or implied by the
forward-looking statements. You can identify these statements by
the fact that they do not relate strictly to historic or current
facts. They use words such as anticipate,
estimate, expect, project,
intend, plan, believe and
other words and terms of similar meaning in connection with any
discussion of future operating or financial performance
and/or
sales. In particular, these include statements relating to
future actions; prospective changes in raw material costs,
product pricing or product demand; future performance; results
of current and anticipated market conditions and market
strategies; sales efforts; expenses; the outcome of
contingencies such as legal proceedings; and financial results.
Factors that could cause actual results to differ materially
include, but are not limited to:
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the effect on foreign operations of currency fluctuations,
tariffs and other political, economic and regulatory risks;
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changes in polymer consumption growth rates where we conduct
business;
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changes in global industry capacity or in the rate at which
anticipated changes in industry capacity come online in the
polyvinyl chloride (PVC), chlor alkali, vinyl chloride monomer
(VCM) or other industries in which we participate;
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fluctuations in raw material prices, quality and supply and in
energy prices and supply;
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production outages or material costs associated with scheduled
or unscheduled maintenance programs;
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unanticipated developments that could occur with respect to
contingencies such as litigation and environmental matters,
including any developments that would require any increase in
our costs
and/or
reserves for such contingencies;
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an inability to achieve or delays in achieving or achievement of
less than the anticipated financial benefit from initiatives
related to our specialization strategy, operational excellence
initiatives, cost reductions and employee productivity goals;
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an inability to raise or sustain prices for products or services;
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an inability to maintain appropriate relations with unions and
employees;
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the possibility of further degradation in the North American
building and construction market;
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amounts for non-cash charges relating to property, plant and
equipment that differ from the original estimates because of the
ultimate fair market value of such property, plant and equipment;
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amounts required for capital expenditures at remaining locations
changing based on the level of expenditures required to shift
production capacity;
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our ability to continue to realize anticipated savings and
operational benefits from our realigning of assets, including
those related to closure of certain production facilities;
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disruptions, uncertainty or volatility in the credit markets
that may limit our access to capital;
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other factors affecting our business beyond our control,
including, without limitation, changes in the general economy,
changes in interest rates and changes in the rate of inflation;
and
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other factors described in this Annual Report on
Form 10-K
under Item 1A, Risk Factors.
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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 inaccurate assumptions. Should known or
unknown risks or uncertainties materialize, or should underlying
assumptions prove inaccurate, actual results could vary
materially from those anticipated, estimated or projected.
Investors should bear this in mind as they consider
forward-looking statements. We undertake no obligation to
publicly update forward-looking statements, whether as a result
of new information, future events or otherwise, except as
otherwise required by law. You are advised, however, to consult
any further disclosures we make on related subjects in our
reports on
Forms 10-Q,
8-K and
10-K
furnished to the SEC. You should understand that it is not
possible to predict or identify all risk factors. Consequently,
you should not consider any such list to be a complete set of
all potential risks or uncertainties.
Business
Overview
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 PVC
resins. We also have two equity investments: SunBelt
Chlor-Alkali
Partnership, a manufacturer of caustic soda and chlorine and
BayOne Urethane Systems, L.L.C., a formulator of polyurethane
compounds. When used in this Annual Report on
Form 10-K,
the terms we, us, our and
the Company mean PolyOne Corporation and its
subsidiaries.
We are incorporated in Ohio and our headquarters are in Avon
Lake, Ohio. We employ approximately 3,900 people and have
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2 POLYONE
CORPORATION
manufacturing sites and 11 distribution facilities in North
America, Europe and Asia, and joint ventures in North America.
We offer more than 35,000 polymer solutions to over 10,000
customers across the globe. In 2009, we had sales of
$2.1 billion, 37% of which were to customers outside the
United States.
We provide value to our customers through our ability to link
our knowledge of polymers and formulation technology with our
manufacturing and supply chain processes to provide an essential
link between large chemical producers (our raw material
suppliers) and designers, assemblers and processors of plastics
(our customers). We believe that large chemical producers are
increasingly outsourcing
less-than-railcar
business; polymer and additive producers need multiple channels
to market; processors continue to outsource compounding; and
international companies need suppliers with global reach. Our
goal is to provide our customers with specialized material and
service solutions through our global reach, product platforms,
low-cost manufacturing operations, a fully integrated
information technology network, broad market knowledge and raw
material procurement leverage. Our end markets are primarily in
the building and construction materials, wire and cable,
transportation, durable goods, packaging, electrical and
electronics, medical and telecommunications markets, as well as
many industrial applications.
PolyOne was formed on August 31, 2000 from the
consolidation of The Geon Company (Geon) and M.A. Hanna (Hanna).
Geons roots date back to 1927 when BFGoodrich scientist
Waldo Semon produced the first usable vinyl polymer. In 1948,
BFGoodrich created a vinyl plastic division that was
subsequently spun off through a public offering in 1993,
creating Geon, a separate publicly-held company. Hanna was
formed in 1885 as a privately-held company and became
publicly-held in 1927. In the mid-1980s, Hanna began to divest
its historic mining and shipping businesses to focus on
polymers. Hanna purchased its first polymer company in 1986 and
completed its 26th polymer company acquisition in 2000.
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, in its most basic form. 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 balances.
Through our equity interest in SunBelt Chlor-Alkali Partnership
(SunBelt), we realize a portion of the economic benefits of a
base resin producer for PVC resin, one of our major raw
materials.
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 product.
Thermoplastic resins are found in a number of end-use products
and in a variety of markets, including packaging, building and
construction, wire and cable, transportation, medical, furniture
and furnishings, durable goods, institutional products,
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, the
largest consumer of plastics, 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 uses. In the
wire and cable industry, thermoplastics serve to protect by
providing electrical insulation, flame resistance, durability,
water resistance, and color coding to wire coatings and
connectors. In the transportation industry, plastic has proved
to be durable, lightweight and corrosion resistant while
offering fuel savings, design flexibility and high performance.
In the medical industry, plastics help save lives by safely
providing a range of transparent and opaque thermoplastics that
are used for a vast array of devices including blood and
intravenous bags, medical tubing, masks, lead replacement for
radiation shielding, clamps and connectors to bed frames,
curtains and sheeting, and electronic enclosures. 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 combined with a base resin to provide
it with greater versatility and performance. These combinations
are known as plastic compounds. Plastic compounds have
advantages over metals, wood, rubber 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. Plastic compounds
offer advantages compared to traditional materials that include
processability, weight reduction, chemical resistance, flame
retardance and lower cost. Plastics have a reputation for
durability, aesthetics, ease of handling and recyclability.
3 POLYONE
CORPORATION
PolyOne
Segments
We operate in six reportable segments: International Color and
Engineered Materials; Specialty Engineered Materials; Specialty
Color, Additives and Inks; Performance Products and Solutions;
PolyOne Distribution; and Resin and Intermediates. Our segments
are further discussed in Note 16, Segment
Information, to the accompanying consolidated financial
statements.
International
Color and Engineered Materials
The International Color and Engineered Materials operating
segment combines the strong regional heritage of our color and
additive masterbatches and engineered materials operations to
create global capabilities with plants, sales and service
facilities located throughout Europe and Asia.
Working in conjunction with our Specialty Color, Additives and
Inks and North American Engineered Materials operating segments,
we provide solutions that meet our international customers
demands for both global and local manufacturing, service and
technical support.
Specialty
Engineered Materials
The Specialty Engineered Materials operating segment is a
leading provider of custom plastic compounding services and
solutions for processors of thermoplastic materials across a
wide variety of markets and end-use applications including those
that currently employ traditional materials such as metal.
Specialty Engineered Materials product portfolio, one of
the broadest in our industry, includes standard and custom
formulated high-performance polymer compounds that are
manufactured using a full range of thermoplastic compounds and
elastomers, which are then combined with advanced polymer
additive, reinforcement, filler, colorant
and/or
biomaterial technologies.
With a depth of compounding expertise, we are able to expand the
performance range and structural properties of traditional
engineering-grade thermoplastic resins that meet our
customers unique performance requirements. Our product
development and application reach is further enhanced by the
capabilities of our North American Engineered Materials
Solutions Center, which produces and evaluates 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.
This segment also includes GLS Corporation (GLS), which we
acquired in January 2008. GLS is a global developer of
innovative thermoplastic elastomer (TPE) compounds and offers
the broadest range of soft-touch TPE materials in the industry.
Specialty
Color, Additives and Inks
The Specialty Color, Additives and Inks operating segment is a
leading provider of specialized color and additive concentrates
as well as inks and latexes.
Color and additive products include an innovative array of
colors, special effects and performance-enhancing and
eco-friendly solutions. Our color masterbatches contain a high
concentration of color pigments
and/or
additives that are dispersed in a polymer carrier medium and are
sold in pellet, liquid, flake or powder form. When combined with
non pre-colored base resins, our colorants help our customers
achieve a wide array of specialized colors and effects that are
targeted at the demands of todays highly design-oriented
consumer and industrial end markets. Our additive masterbatches
encompass a wide variety of performance enhancing
characteristics and are commonly categorized by the function
that they perform, such as UV stabilization, anti-static,
chemical blowing, antioxidant and lubricant, and processing
enhancement.
Our colorant and additives masterbatches are used in most
plastics manufacturing processes, including injection molding,
extrusion, sheet, film, rotational molding and blow molding
throughout the plastics industry, particularly in the packaging,
transportation, consumer, outdoor decking, pipe and wire and
cable markets. They are also incorporated into such end-use
products as stadium seating, toys, housewares, vinyl siding,
pipe, food packaging and medical packaging.
This segment also provides custom-formulated liquid systems that
meet a variety of customer needs and chemistries, including
vinyl, natural rubber and latex, polyurethane and silicone.
Products include proprietary fabric screen-printing inks and
latexes for diversified markets that range from recreational and
athletic apparel, construction and filtration to outdoor
furniture and healthcare. In addition, we have a 50% interest in
BayOne, a joint venture between PolyOne and Bayer Corporation,
which sells liquid polyurethane systems into many of the same
markets.
Performance
Products and Solutions
The Performance Products and Solutions operating segment is a
global leader offering an array of products and services for
vinyl coating, molding and extrusion processors. Our product
offerings include: rigid, flexible and dry blend vinyl
compounds; industry-leading dispersion, blending and specialty
suspension grade vinyl resins; and specialty coating materials
based largely on vinyl. These products are sold to a wide
variety of manufacturers of plastic parts and consumer-oriented
products. We also offer a wide range of services to the customer
base utilizing these products to meet the ever changing needs of
our multi-market customer base. These services include materials
testing and component analysis, custom compound development,
colorant and additive services, design assistance, structural
analyses, process simulations and extruder screw design.
Much of the revenue and income for Performance Products and
Solutions is generated in North America. However, sales in Asia
and Europe constitute a minor but growing portion of this
segment. In addition, we owned 50% of a joint venture producing
and marketing vinyl compounds in Latin America through the
disposition date of October 13, 2009.
4 POLYONE
CORPORATION
Vinyl is one of the most widely used plastics, utilized in a
wide range of applications in building and construction, wire
and cable, consumer and recreation markets, transportation,
packaging and healthcare. Vinyl resin can be combined with a
broad range of additives, resulting in performance versatility,
particularly when fire resistance, chemical resistance or
weatherability is required. We believe we are well-positioned to
meet the stringent quality, service and innovation requirements
of this diverse and highly competitive marketplace.
This operating segment also includes Producer Services, which
offers custom compounding services to resin producers and
processors that design and develop their own compound and
masterbatch recipes. Customers often require high quality, cost
effective and confidential services. As a strategic and
integrated supply chain partner, Producer Services offers resin
producers a way to develop custom products for niche markets by
using our compounding expertise and multiple manufacturing
platforms.
PolyOne
Distribution
The PolyOne Distribution operating segment distributes more than
3,500 grades of engineering and commodity grade resins,
including PolyOne-produced compounds, to the North American
market. These products are sold to over 5,000 custom injection
molders and extruders who, in turn, convert them into plastic
parts that are sold to end-users in a wide range of industries.
Representing over 20 major suppliers, we offer our customers a
broad product portfolio,
just-in-time
delivery from multiple stocking locations and local technical
support.
Resin and
Intermediates
We report the results of our Resin and Intermediates operating
segment on the equity method. This segment consists almost
entirely of our 50% equity interest in SunBelt and our former
24% equity interest in OxyVinyls LP (OxyVinyls), through its
disposition date of July 6, 2007. SunBelt, a producer of
chlorine and caustic soda, is a partnership with Olin
Corporation. OxyVinyls, a producer of PVC resins, VCM and
chlorine and caustic soda, was a partnership with Occidental
Chemical Corporation. In 2009, SunBelt had production capacity
of approximately 320 thousand tons of chlorine and 358 thousand
tons of caustic soda. Most of the chlorine manufactured by
SunBelt is consumed by OxyVinyls to produce PVC resin. Caustic
soda is sold on the merchant market to customers in the pulp and
paper, chemical, building and construction and consumer products
industries.
Competition
The production of compounded plastics and the manufacture 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
compounder of plastics and producer of custom and proprietary
formulated color and additive masterbatch systems in the United
States and Europe, with a growing presence in Asia. Our
competitors range from large international companies with broad
product offerings to local independent custom compounders 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 thermoplastic resin and compound
distribution market is directly 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, coupled with the quality of products
and flexibility of our distribution network, allow us to compete
effectively.
Raw
Materials
The primary raw materials used by our manufacturing operations
are PVC resin, VCM, polyolefin and other thermoplastic resins,
plasticizers, inorganic and organic pigments, all of which we
believe are in adequate supply. We have long-term supply
contracts with OxyVinyls under which the majority of our PVC
resin and all of our VCM is supplied. These contracts will
expire in 2013, although they contain two five-year renewal
provisions that are at our option. We believe these contracts
should assure the availability of adequate amounts of PVC resin
and VCM. We also believe that the pricing under these contracts
provides PVC resins and VCM to us at a competitive cost. We also
periodically obtain raw materials from foreign suppliers. See
discussion of risks associated with raw material supply and
costs in Item 1A. Risk Factors.
Patents and
Trademarks
We own and maintain a large number of U.S. and foreign
patents and trademarks 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 if all fees are paid, 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 the continuation of our
business. Nevertheless, we have implemented management processes
designed to protect our inventions and trademarks.
Seasonality and
Backlog
Sales of our products and services are slightly seasonal as
demand is generally slower in the first and fourth calendar
quarters of the year. Because of the nature of our business, we
do not believe that
5 POLYONE
CORPORATION
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 accounts for more than 3% of our consolidated
revenues, and neither we nor any of our operating segments would
suffer a material adverse effect 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, 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 compounding
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
$22.9 million in 2009, $26.5 million in 2008 and
$21.6 million in 2007. In 2010, we expect our investment in
research and development to increase moderately as we deploy
greater resources to focus on material and service innovations.
Methods of
Distribution
We sell products primarily through direct sales personnel,
distributors, including our PolyOne Distribution segment, and
commissioned sales agents. We primarily use truck carriers to
transport our products to customers, although some customers
pick up product at our operating facilities or warehouses. We
also ship some of our manufactured products to customers by
railroad cars.
Employees
As of February 1, 2010, we employed approximately
3,900 people. Less than 2% of our employees are represented
by labor unions under collective bargaining agreements. We
believe that relations with our employees are good, and we do
not anticipate significant operating issues to occur as a result
of current negotiations or when we renegotiate collective
bargaining agreements as they expire.
Environmental,
Health and Safety
We are subject to various environmental laws and regulations
that apply to the production, use and sale of chemicals,
emissions into the air, discharges into waterways and other
releases of materials into the environment and the generation,
handling, storage, transportation, treatment and disposal of
waste material. We endeavor to ensure the safe and lawful
operation of our facilities in the manufacture and distribution
of products, and we believe we are in material compliance with
all applicable laws and regulations.
We maintain a disciplined environmental and occupational safety
and health compliance program and conduct periodic internal and
external regulatory audits at our facilities to identify and
categorize potential environmental exposures, including
compliance matters and any actions that may be required to
address them. This effort can result in process or operational
modifications, the installation of pollution control devices or
cleaning up grounds or facilities. We believe that we are in
material compliance with all applicable requirements.
We are strongly committed to safety as evidenced by our injury
incidence rate of 0.9 per 100 full-time workers per year in
2009, an improvement from 1.1 in 2008. The 2008 average injury
incidence rate for our NAICS Code (326 Plastics and Rubber
Products Manufacturing) was 5.7.
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) and the Consumer Product Safety
Information Act of 2008, 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.
6 POLYONE
CORPORATION
A number of foreign countries and domestic communities have
enacted, or are considering enacting, laws and regulations
concerning the use and disposal of plastic materials. Widespread
adoption of these laws and regulations, along with public
perception, may have an adverse impact on sales of plastic
materials. Although many of our major markets are in durable,
longer-life applications that could reduce the impact of these
kinds of environmental regulations, more stringent regulation of
the use and disposal of plastics may have an adverse effect on
our business.
During 2004, the U.S. Environmental Protection Agency (EPA)
conducted multimedia audits at two of our facilities, pursuant
to which certain fines and penalties have been asserted by the
EPA. See Item 3., Legal Proceedings, for
additional information.
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 their investigation
and remediation of a number of environmental waste disposal
sites. While government agencies assert that PRPs are jointly
and severally liable at these sites, in our experience, interim
and final allocations of liability costs are generally made
based on the relative contribution of waste. However, even when
allocations of costs based on relative contribution of waste
have been made, we cannot assure that our allocation will not
increase if other PRPs do not pay their allocated share of these
costs.
Based on September 2007 court rulings (see Note 12,
Commitments and Related-Party Information, to the
accompanying consolidated financial statements) in the case of
Westlake Vinyls, Inc. v. Goodrich Corporation, et al. and a
settlement agreement related to the former Goodrich Corporation
(now owned by Westlake Vinyls, Inc.) Calvert City facility, we
recorded a charge during 2007 of $15.6 million for past
remediation costs payable to Goodrich Corporation. We also
adjusted our environmental reserve for future remediation costs,
a portion of which already related to the Calvert City site,
resulting in an additional charge of $28.8 million in 2007.
We incurred environmental expenses of $11.7 million in
2009, $17.1 million in 2008 and $48.8 million in 2007.
Our environmental expense in 2009 related mostly to ongoing
remediation. Our environmental expense in 2008 consisted of
higher utility cost estimates necessary to support remediation.
Our environmental expenses in 2007 were largely driven by the
charges stemming from the aforementioned Calvert City settlement
and subsequent reserve adjustment. Additionally, in 2009, we
received $23.9 million from our former parent company as
partial reimbursement of certain previously incurred
environmental remediation costs. In 2008, we received
$1.5 million of insurance recoveries. There were no
insurance recoveries in 2007.
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
sites we or our predecessors formerly owned or operated. We
believe that our potential continuing liability at these sites
will not have a material adverse effect on our results of
operations or financial position. In addition, we voluntarily
initiate corrective and preventive environmental projects at our
facilities. Based on current information and estimates prepared
by our environmental engineers and consultants, we had reserves
as of December 31, 2009 on our accompanying consolidated
balance sheet totaling $81.7 million to cover probable
future environmental expenditures related to previously
contaminated sites. This figure represents our best estimate of
probable costs for remediation, based upon the information and
technology 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 December 31, 2009. Such
costs, if any, cannot be currently estimated. We may revise our
estimate of this liability as new regulations or technologies
are developed or additional information is obtained.
We expect cash paid for environmental remediation expenditures
will be approximately $15 million in 2010.
International
Operations
Our international operations are subject to a variety of risks,
including currency fluctuations and devaluations, exchange
controls, currency restrictions and changes in local economic
conditions. While the impact of these risks is difficult to
predict, any one or more of them could adversely affect our
future operations. For more information about our international
operations, see Note 16, Segment Information, to the
accompanying consolidated financial statements, which is
incorporated by reference into this Item 1.
Where You Can
Find Additional Information
Our principal executive offices are located at 33587 Walker
Road, Avon Lake, Ohio 44012, and our telephone number is
(440) 930-1000.
We are subject to the information reporting requirements of the
Exchange Act, and, in accordance with these requirements, we
file annual, quarterly and other reports, proxy statements and
other information with the SEC relating to our business,
financial results and other matters. The reports, proxy
statements and other information we file may be inspected and
copied at prescribed rates at the SECs Public Reference
Room and via the SECs website (see below for more
information).
You may inspect a copy of the reports, proxy statements and
other information we file with the SEC, without charge, at the
SECs Public Reference Room, 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549, and you may obtain
copies of the reports, proxy statements and other information we
file with the SEC, from those offices for a fee. You may obtain
information on the operation of the Public Reference Room by
calling the SEC at
1-800-SEC-0330.
Our filings are available to the public at the SECs
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
7 POLYONE
CORPORATION
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 Edgar filings)
or upon written request, as soon as reasonably practicable after
we electronically file or furnish them to the SEC. These reports
are also available on the SECs website at
www.sec.gov.
The following are certain risk factors that could affect our
business, financial position, results of operations 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, financial position, results of operations
or cash flows could be negatively 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,
that could adversely affect our financial position, results of
operations or cash flows.
Several factors may affect the demand for and supply of our
products and services, including:
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economic downturns in the significant end markets that we serve;
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product obsolescence or technological changes that unfavorably
alter the value / cost proposition of our products and
services;
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competition from existing and unforeseen polymer and non-polymer
based products;
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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;
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changes in environmental regulations that would limit our
ability to sell our products and services in specific markets;
and
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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.
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If any of these events occur, the demand for and supply of our
products and services could suffer, which would adversely affect
our financial position, results of operations and cash flows.
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.
Our manufacturing operations are subject to the usual hazards
and risks associated with polymer production and the related
storage and transportation of raw materials, products and
wastes. These hazards and risks include, but are not limited to:
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explosions, fires, inclement weather and natural disasters;
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mechanical failure resulting in protracted or short duration
unscheduled downtime;
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regulatory changes that affect or limit the transportation of
raw materials;
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inability to obtain or maintain any required licenses or permits;
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interruptions and environmental hazards such as chemical spills,
discharges or releases of toxic or hazardous substances or gases
into the environment or workplace; and
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storage tank leaks or other issues resulting from remedial
activities.
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The occurrence of any of these operating problems at our
facilities may have a material adverse effect on the
productivity and profitability of a particular manufacturing
facility or on our operations as a whole, during and after the
period of these operating difficulties. These operating problems
may also cause personal injury and loss of life, severe damage
to or destruction of property and equipment and environmental
damage. We are subject to present and potential future claims
with respect to workplace exposure, workers compensation
and other matters. Although we maintain property and casualty
insurance of the types and in the amounts that we believe are
customary for the industry, we may not be fully insured against
all potential hazards that are incident to our business.
Extensive
environmental, health and safety laws and regulations impact our
operations and assets and compliance with these regulations
could adversely affect our financial position, results of
operations or cash flows.
Our operations on, and ownership of, real property are subject
to extensive environmental, health and safety laws and
regulations at the national, state and local governmental
levels. The nature of our business exposes us to compliance
costs and risks of liability under these laws and regulations
due to the production, storage, transportation, recycling or
disposal
and/or sale
of materials that can cause contamination and other harm to the
environment or personal injury if they are 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, damages, criminal or
civil sanctions, remediation costs or experience interruptions
in our operations for violations of these laws.
8 POLYONE
CORPORATION
We also conduct investigations and remediation at some of our
active and inactive facilities and have assumed responsibility
for environmental liabilities at sites formerly owned or
operated by our predecessors or by us. Also, federal and state
environmental statutes impose strict, and under some
circumstances, joint and several liability for the cost of
investigations and remedial actions on any company that
generated the waste, arranged for disposal of the waste,
transported the waste to the disposal site or selected the
disposal site as well as on the owners and operators of these
sites. Any or all of the responsible parties may be required to
bear all of the costs of clean up, regardless of fault or
legality of the waste disposal or ownership of the site, and may
also be subject to liability for natural resource damages. We
have been notified by federal and state environmental agencies
and private parties that we may be a potentially responsible
party in connection with certain sites. We may incur substantial
costs for some of these sites. It is possible that we will be
identified as a potentially responsible party at more sites in
the future which could result in our being assessed substantial
investigation or cleanup costs.
We may also incur additional costs and liabilities as a result
of increasingly strict environmental, safety and health laws,
regulations and related enforcement policies, restrictions on
the use of lead and phthalates under the Restriction on the Use
of Certain Hazardous Substances (RoHS) and the Consumer Product
Safety Information Act of 2008 and restrictions on greenhouse
gases emissions.
The European Union has adopted REACH, a legislative act to cover
Registration, Evaluation, Authorization and Restriction of
Chemicals. The goal of this legislation, which became effective
in June 2007, is to minimize risk to human health and to the
environment by regulating the use of chemicals. As these
regulations evolve, we will endeavor to remain in compliance
with REACH.
We accrue costs for environmental matters that have been
identified when it is probable that these costs will be required
and when they can be reasonably estimated. However, we may be
subject to additional environmental liabilities or potential
liabilities that have not been identified. We expect that we
will continue to be subject to increasingly stringent
environmental, health and safety laws and regulations. We
anticipate that compliance with these laws and regulations will
continue to require capital expenditures and operating costs,
which could adversely affect our financial position, results of
operations or cash flows.
Because our
operations are conducted worldwide, they are inherently affected
by risk.
As noted above in Item 1. Business, we have
extensive operations outside of the United States. Revenue from
these operations (principally from Canada, Mexico, Europe and
Asia) was approximately 37% in each of 2009, 2008 and 2007.
Long-lived assets of our foreign operations represented 36% in
2009, 35% in 2008 and 36% in 2007 of our total long-lived assets.
International operations are subject to risks, which include,
but are not limited to, the following:
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changes in local government regulations and policies including,
but not limited to foreign currency exchange controls or
monetary policy; repatriation of earnings; expropriation of
property; duty or tariff restrictions; investment limitations;
and tax policies;
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political and economic instability and disruptions, including
labor unrest, civil strife, acts of war, guerilla activities,
insurrection and terrorism;
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legislation that regulates the use of chemicals;
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disadvantages of competing against companies from countries that
are not subject to U.S. laws and regulations, including the
Foreign Corrupt Practices Act (FCPA);
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difficulties in staffing and managing multi-national operations;
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limitations on our ability to enforce legal rights and remedies;
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reduced protection of intellectual property rights; and
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other risks arising out of foreign sovereignty over the areas
where our operations are conducted.
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In addition, we could be adversely affected by violations of the
FCPA and similar worldwide anti-bribery laws. The FCPA 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 anti-bribery 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 always will protect us from the reckless
or criminal acts committed by our employees or agents. If we are
found to be liable for FCPA violations, we could suffer from
criminal or civil penalties or other sanctions, 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 the demand for our products
or reducing the prices at which we can sell our products, which
could result in an adverse effect on our business, financial
position, results of operations or cash flows. We may not be
able to continue to operate in compliance with applicable
customs, currency exchange control regulations, transfer pricing
regulations or any other laws or regulations that we may be
subject to. In addition, these laws or regulations may be
modified in the future, and we may not be able to operate in
compliance with those modifications.
9 POLYONE
CORPORATION
We engage in
acquisitions and joint ventures, and may encounter unexpected
difficulties integrating those businesses.
Attainment of our strategic plan objectives may require, in
part, strategic acquisitions or joint ventures intended to
complement or expand our businesses globally or add product
technology that accelerates our specialization strategy, or
both. Success will depend on our ability to complete these
transactions or arrangements, and integrate the businesses
acquired in these transactions as well as develop satisfactory
working arrangements with our strategic partners in the joint
ventures. Unexpected difficulties in completing and integrating
acquisitions with our existing operations and in managing
strategic investments could occur. Furthermore, we may not
realize the degree, or timing, of benefits initially
anticipated, which could adversely affect our business,
financial position, results of operations or cash flows.
Our results of
operations may be adversely affected by the results of
operations of SunBelt.
SunBelt is our largest equity investment. The earnings of this
partnership may be significantly affected by changes in the
commodity cycle for hydrocarbon feedstocks and for chlor-alkali
products. If the profitability of SunBelt is adversely affected,
cash distributions from the partnership may decline or we may be
required to make cash contributions to the partnership, either
of which could adversely affect our financial position, results
of operations or cash flows.
Natural gas,
electricity, fuel and raw material costs, and other external
factors beyond our control, as well as downturns in the home
repair and remodeling and new home sectors of the economy, can
cause wide fluctuations in our margins.
The cost of our natural gas, electricity, fuel and raw
materials, and other costs, may not correlate with changes in
the prices we receive for our products, either in the direction
of the price change or in absolute magnitude. Natural gas and
raw materials costs represent a substantial part of our
manufacturing energy costs. In particular, electricity and fuel
represent a component of the costs to manufacture building
products. Most of the raw materials we use are commodities and
the price of each can fluctuate widely for a variety of reasons,
including changes in availability because of major capacity
additions or reductions or significant facility operating
problems. Other external factors beyond our control can cause
volatility in raw materials prices, demand for our products,
product prices, sales volumes and margins. These factors include
general economic conditions, the level of business activity in
the industries that use our products, competitors actions,
international events and circumstances, and governmental
regulation in the United States and abroad, such as climate
change regulation. These factors can also magnify the impact of
economic cycles on our business. While we attempt to pass
through price increases in energy costs and raw materials, we
have been unsuccessful in doing so in some circumstances in the
past and there can be no reassurance that we can do so in the
future.
Additionally, our products used in housing, transportation and
building and construction markets are impacted by changes in
demand in these sectors, which may be significantly affected by
changes in economic and other conditions such as gross domestic
product levels, employment levels, demographic trends,
legislative actions and consumer confidence. These factors can
lower the demand for and pricing of our products, which could
cause our net sales and net income to decrease.
We face
competition from other polymer and chemical companies, which
could adversely affect our sales, results of operations or cash
flows.
We actively compete with companies that produce the same or
similar products, and in some instances with companies that
produce different products that are designed for the same end
uses. We encounter competition in price, 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 major customers. An inability to compete successfully could
have an adverse effect on our financial position, results of
operations or cash flows.
We may also experience increased competition from companies that
offer products based on alternative technologies and processes
that may be more competitive or better in price or performance,
causing us to lose customers and result in a decline in our
sales volume and earnings.
Additionally, some of our customers may already be or may become
large enough to justify developing in-house production
capabilities. Any significant reduction in customer orders as a
result of a shift to in-house production could adversely affect
our sales and operating profits.
A major
failure of our information systems could harm our
business.
We depend on integrated information systems to conduct our
business. We may experience operating problems with our
information systems as a result of system failures, viruses,
computer hackers or other causes. Any significant
disruption or slowdown of our systems could cause customers to
cancel orders or cause standard business processes to become
ineffective, which could adversely affect our financial
position, results of operations or cash flows.
Adverse credit
market conditions may significantly affect our access to
capital, cost of capital and ability to meet liquidity
needs.
Disruptions, uncertainty or volatility in the credit markets may
adversely impact our ability to access credit already arranged
10 POLYONE
CORPORATION
and the availability and cost of credit to us in the future.
These market conditions may limit our ability to replace
maturing liabilities in a timely manner and 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. There can be no
assurances that government responses to the disruptions in the
financial markets will stabilize the markets or increase
liquidity and the availability of credit. Longer term
disruptions in the capital and credit markets as a result of
uncertainty, changing or increased regulation, reduced
alternatives or failures of significant financial institutions
could adversely affect our access to liquidity needed for our
business. Any disruption could require us to take measures to
conserve cash until the markets stabilize or until alternative
credit arrangements or other funding for our business needs can
be arranged. Such measures could include deferring capital
expenditures and reducing or eliminating future share
repurchases or other discretionary uses of cash. Overall, our
results of operations, financial condition and cash flows could
be materially adversely affected by disruptions in the credit
markets.
The recent
global financial crisis may have significant effects on our
customers and suppliers that would result in material adverse
effects on our business and operating results.
The recent global financial crisis, which has included, among
other things, significant reductions in available capital and
liquidity from banks and other providers of credit, substantial
reductions and fluctuations in equity and currency values
worldwide, and concerns that the worldwide economy may enter
into a prolonged recessionary period, may materially adversely
affect our customers access to capital or willingness to
spend capital on our products or their ability to pay for
products that they will order or have already ordered from us.
In addition, the current global financial crisis may materially
adversely affect our suppliers access to capital and
liquidity with which to maintain their inventories, production
levels and product quality, which could cause them to raise
prices or lower production levels.
Also, availability under our receivables sales facility may be
adversely impacted by credit quality and performance of our
customer accounts receivable. The availability under the
receivable sales facility is based on the amount of receivables
that meet the eligibility criteria of the receivables sales
facility. As sales decline, receivable losses increase or credit
quality deteriorates, the amount of eligible receivables
declines and, in turn, lowers the availability under the
facility.
These potential effects of the recent global financial crisis
are difficult to forecast and mitigate. As a consequence, our
operating results for a particular period are difficult to
predict, and, therefore, prior results are not necessarily
indicative of results to be expected in future periods. Any of
the foregoing effects could have a material adverse effect on
our business, results of operations and financial condition.
We have a
significant amount of goodwill, and any future goodwill
impairment charges could adversely impact our results of
operations.
As of December 31, 2009, we had goodwill of
$163.5 million. The future occurrence of a potential
indicator of impairment, such as a significant adverse change in
legal factors or business climate, an adverse action or
assessment by a regulator, unanticipated competition, a material
negative change in relationships with significant 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.
Poor
investment performance by our pension plan assets may increase
our pension liability and expense, which may increase the
required funding of our pension obligations and divert funds
from other potential uses.
We provide defined benefit pension plans to eligible employees.
Our pension expense and our required contributions to our
pension plans are directly affected by the value of plan assets,
the projected rate of return on plan assets, the actual rate of
return on plan assets and the actuarial assumptions we use to
measure our defined benefit pension plan obligations, including
the rate at which future obligations are discounted to a present
value, or the discount rate. As of December 31, 2009, for
pension accounting purposes, we assumed an 8.5% rate of return
on pension assets.
Poor investment performance by our pension plan assets resulting
from a decline in the stock market could significantly increase
the deficit position of our plans. Should the assets earn an
average return less than 8.5% over time, it is likely that
future pension expenses and funding requirements would increase.
We establish the discount rate used to determine the present
value of the projected and accumulated benefit obligation at the
end of each year based upon the available market rates for high
quality, fixed income investments. An increase in the discount
rate would reduce the future pension expense and, conversely, a
lower discount rate would raise the future pension expense.
Based on current guidelines, assumptions and estimates,
including stock market prices and interest rates, we anticipate
that we will be required to make a cash contribution of
approximately $20.8 million to our pension plans in 2010.
We cannot predict whether changing market or economic
conditions, regulatory changes or other factors will further
increase our pension expense or funding obligations, diverting
funds we would otherwise apply to other uses.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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We have no outstanding or unresolved comments from the staff of
the SEC.
11 POLYONE
CORPORATION
As of February 1, 2010, we operated facilities in the
United States and internationally. Our corporate office is
located in Avon Lake, Ohio. We employ approximately
3,900 people and have 47 manufacturing sites and 11
distribution facilities in North America, Europe, and Asia, and
joint ventures in North America. We own substantially all 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:
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Performance Products and
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International Color and
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Specialty Color, Additives
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Solutions
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Engineered Materials
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and Inks
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PolyOne Distribution
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Long Beach, California
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Assesse, Belgium
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Glendale, Arizona
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Livermore, California
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Commerce, California
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Pudong (Shanghai), China
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Kennesaw, Georgia
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Rancho Cucamonga, California
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Kennesaw,
Georgia(1)
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Shenzhen, China
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Suwanee,
Georgia(2)
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Chicago,
Illinois(4)
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Henry, Illinois
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Suzhou, China
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Elk Grove Village, Illinois
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Ayer, Massachusetts
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Terre Haute, Indiana
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Tianjin,
China(2)
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St. Louis, Missouri
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Chesterfield Township, Michigan
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Louisville, Kentucky
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Cergy, France
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Massillon, Ohio
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Eagan, Minnesota
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Sullivan, Missouri
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Tossiat, France
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Norwalk, Ohio
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Statesville, North Carolina
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Pedricktown, New Jersey
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Bendorf, Germany
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Lehigh, Pennsylvania
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Massillon, Ohio
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Avon Lake, Ohio
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Gaggenau, Germany
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Vonore, Tennessee
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La Porte, Texas
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North Baltimore, Ohio
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Melle, Germany
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Shenzhen,
China(1)
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Fife, Washington
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Clinton, Tennessee
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Gyor, Hungary
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Toluca, Mexico
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Mississauga, Ontario, Canada
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Dyersburg, Tennessee
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Kutno, Poland
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(9 manufacturing plants)
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(11 distribution facilities)
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Pasadena, Texas
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Mumbai, India
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Seabrook, Texas
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Jurong,
Singapore(3)
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Specialty
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Resin and Intermediates
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Orangeville, Ontario, Canada
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Barbastro, Spain
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Engineered Materials
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SunBelt joint venture
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St. Remi de Napierville,
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Pamplona, Spain
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McHenry, Illinois
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McIntosh,
Alabama(5)
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Quebec, Canada
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Angered, Sweden
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Avon Lake, Ohio
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Dongguan, China
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Bangkok, Thailand
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Dyersburg,
Tennessee(1)
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(16 manufacturing plants)
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Istanbul, Turkey
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North Haven, Connecticut
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(18 manufacturing plants)
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Seabrook,
Texas(1)
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Suzhou, China
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Gaggenau,
Germany(1)
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Jurong,
Singapore(1)
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Barbastro,
Spain(1)
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(4 manufacturing plants)
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(1) |
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Facility is not included in
manufacturing plants total as it is also included as part of
another segment.
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(2) |
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Facility is not included in
manufacturing plants total as it is a design center/lab.
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(3) |
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As part of the restructuring
actions announced in January 2009, the Jurong, Singapore
facility will be closed during 2010.
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(4) |
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Facility is not owned by PolyOne,
however it is included in distribution facility total as it is a
primary distribution location.
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(5) |
|
Facility is shared as part of a
joint venture, not included in manufacturing plants total.
|
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
During 2004, the EPA conducted multimedia inspections at our
polyvinyl chloride resin manufacturing facilities located in
Henry, Illinois and Pedricktown, New Jersey. In December 2007,
the EPA met with the Company for the first time since those
inspections to discuss possible violations of the Clean Air Act,
the Clean Water Act and the Resource Conservation and Recovery
Act at each of the Henry, Illinois and Pedricktown, New Jersey
facilities. Discussions between representatives for the Company
and the EPA occurred in 2008, during which we provided
additional information as well as our position regarding the
compliance status of the facilities and discussed certain
modifications to testing procedures and record keeping. In
January 2009, we received a letter from the EPA proposing a
resolution of any violations identified as a result of the 2004
inspection that would include our payment of fines and penalties
in the amount of $1.3 million. We continue to discuss with
the EPA resolution of proposed violations on a mutually agreed
basis.
In addition to the matters regarding the environment described
above and in Item 1. under the heading Environmental,
Health and Safety, 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 could be materially adverse to our financial
position, results of operations or cash flows.
|
|
ITEM 4.
|
SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of security holders during
the fourth quarter of 2009.
EXECUTIVE
OFFICERS OF THE REGISTRANT
(Included pursuant to Instruction 3 to paragraph
(b) of Item 401 of
Regulation S-K)
12 POLYONE
CORPORATION
Executive officers are elected by our Board of Directors to
serve one-year terms. The following table lists the name of each
person currently serving as an executive officer of our company,
his age as of February 18, 2010 and his current position
with our company:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
|
Stephen D. Newlin
|
|
|
57
|
|
|
Chairman, President and Chief Executive Officer
|
Robert M. Patterson
|
|
|
37
|
|
|
Senior Vice President and Chief Financial Officer
|
Bernard P. Baert
|
|
|
60
|
|
|
Senior Vice President, President of Europe and International
|
Michael E. Kahler
|
|
|
52
|
|
|
Senior Vice President, Chief Commercial Officer
|
Thomas J. Kedrowski
|
|
|
51
|
|
|
Senior Vice President, Supply Chain and Operations
|
Craig M. Nikrant
|
|
|
48
|
|
|
Senior Vice President, President of Global Specialty Engineered
Materials
|
Michael L. Rademacher
|
|
|
59
|
|
|
Senior Vice President, President of Distribution
|
Robert M. Rosenau
|
|
|
55
|
|
|
Senior Vice President, President of Performance Products and
Solutions
|
Kenneth M. Smith
|
|
|
55
|
|
|
Senior Vice President, Chief Information and Human Resources
Officer
|
John V. Van Hulle
|
|
|
52
|
|
|
Senior Vice President, President of Global Color, Additives and
Inks
|
Stephen D. Newlin: Chairman, President and Chief
Executive Officer, February 2006 to date. President
Industrial Sector of Ecolab Inc. (a global developer and
marketer of cleaning and sanitizing specialty chemicals,
products and services) from 2003 to 2006. Mr. Newlin served
as President and a Director of Nalco Chemical Company (a
manufacturer of specialty chemicals, services and systems) from
1998 to 2001 and was Chief Operating Officer and Vice Chairman
from 2000 to 2001. Mr. Newlin serves on the Boards of
Directors of Black Hills Corporation and The Valspar Corporation.
Robert M. Patterson: Senior Vice President and Chief
Financial Officer, May 2008 to date. Vice President and
Treasurer of Novelis, Inc. (an aluminum rolled products
manufacturer) from 2007 to May 2008. Vice President, Controller
and Chief Accounting Officer of Novelis from 2006 to 2007.
Mr. Patterson served as Vice President and Segment Chief
Financial Officer, Thermal and Flow Technology Segments of SPX
Corporation (a multi-industry manufacturer and developer) from
2005 to 2006 and as Vice President and Chief Financial Officer,
Cooling Technologies and Services of SPX from 2004 to 2005.
Mr. Patterson served as Vice President and Chief Financial
Officer of Marley Cooling Tower Company, a cooling tower
manufacturer and subsidiary of SPX, from 2002 to 2004.
Bernard P. Baert: Senior Vice President, President of
Europe and International, January 2010 to date. Senior Vice
President and General Manager, Color and Engineered Materials,
Europe and Asia, May 2006 to January 2010. Vice President and
General Manager, Colors and Engineered Materials, Europe and
Asia, September 2000, upon formation of PolyOne, to April 2006.
General Manager, Color Europe, M.A. Hanna Company, 1997 to
August 2000.
Michael E. Kahler: Senior Vice President, Chief
Commercial Officer, January 2010 to date. Senior Vice President,
Commercial Development, May 2006 to January 2010. President,
Process Technology Division, Alfa Laval Inc. (a global provider
of heat transfer, separation and fluid handling products and
engineering solutions) from January 2004 to March 2006. Group
Vice President, Nalco Chemical Company (a manufacturer of
specialty chemicals, services and systems) from December 1999 to
October 2002.
Thomas J. Kedrowski: Senior Vice President, Supply Chain
and Operations, September 2007 to date. Vice President of
Strategy and Process Improvement, H.B. Fuller Company (a global
manufacturer and marketer of adhesives and specialty chemical
products) from November 2005 to April 2007. Vice President of
Global Operations, H.B. Fuller Company from February 2002 to
November 2005.
Craig M. Nikrant: Senior Vice President, President of
Global Specialty Engineered Materials, January 2010 to date.
Vice President and General Manager, Specialty Engineered
Materials, September 2006 to December 2009. General Manager,
Specialty Film & Sheet, General Electric Plastics,
June 2004 to September 2006. Director, Global Commercial
Effectiveness, General Electric Plastics (a former division of
General Electric specializing in supplying plastics), December
2003 to June 2004. Six Sigma Master Black Belt, General Electric
Company Plastics Business, March 2001 to December 2002. General
Manager, Commercial Operations, North Central Region, General
Electric Plastics, June 1999 to March 2001.
Michael L. Rademacher: Senior Vice President, President
of Distribution, January 2010 to date. Senior Vice President and
General Manager, Distribution, May 2006 to January 2010. Vice
President and General Manager, PolyOne Distribution, September
2000, upon formation of PolyOne, to April 2006. Senior Vice
President Plastics Americas, M.A. Hanna Company,
January 2000 to August 2000. Vice President and General Manager,
Industrial Chemical and Solvents Division, Ashland Chemical
Company (chemical manufacturing and distribution), 1998 to
January 2000.
Robert M. Rosenau: Senior Vice President, President of
Performance Products and Solutions, January 2010 to date. Senior
Vice President and General Manager, Performance Products and
Solutions, June 2008 to January 2010, Senior Vice President and
General Manager, Vinyl Business, May 2006 to June 2008. Vice
President and General Manager, Vinyl Compounds, January 2003 to
April 2006. General Manager, Extrusion Products, September 2000
to December 2002. General Manager, Custom Profile Compounds, The
Geon Company, April 1998 to August 2000.
13 POLYONE
CORPORATION
Kenneth M. Smith: Senior Vice President, Chief
Information and Human Resources Officer, May 2006 to date. Chief
Human Resources Officer, January 2003 to date, and Vice
President and Chief Information Officer, September 2000, upon
formation of PolyOne, to April 2006. Vice President, Information
Technology, The Geon Company, May 1999 to August 2000, and Chief
Information Officer, August 1997 to May 1999.
John V. Van Hulle: Senior Vice President, President of
Global Color, Additives and Inks, January 2010 to date. Senior
Vice President and General Manager, Specialty Color, Additives
and Inks, July 2006 to January 2010. President and Chief
Executive Officer ChemDesign Corporation (a custom
chemical manufacturer), December 2001 to July 2006. President,
Specialty & Fine Chemicals Cambrex
Corporation (a specialty chemical and pharmaceutical business)
August 1994 to November 2000.
14 POLYONE
CORPORATION
PART II
|
|
ITEM 5.
|
MARKET FOR
REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
|
The following table sets forth the range of the high and low
sale prices for our common stock, $0.01 par value per
share, as reported by the New York Stock Exchange, where the
shares are traded under the symbol POL, for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarters
|
|
|
2008 Quarters
|
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
First
|
|
|
|
|
Common stock price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
7.74
|
|
|
$
|
7.19
|
|
|
$
|
3.65
|
|
|
$
|
3.56
|
|
|
$
|
6.39
|
|
|
$
|
8.57
|
|
|
$
|
8.23
|
|
|
$
|
7.15
|
|
Low
|
|
$
|
5.45
|
|
|
$
|
2.50
|
|
|
$
|
2.23
|
|
|
$
|
1.32
|
|
|
$
|
2.33
|
|
|
$
|
6.26
|
|
|
$
|
6.30
|
|
|
$
|
5.11
|
|
As of February 16, 2010, there were 2,514 holders of record
of our common stock.
We did not pay dividends in 2009 or 2008. Future declarations of
dividends on common stock are at the discretion of the Board of
Directors, and the declaration of any dividends will depend on,
among other things, earnings, capital requirements and our
financial position, results of operations and cash flows.
Additionally, the agreements that govern our receivables sale
facility contain restrictions that could limit our ability to
pay future dividends.
The table below sets forth information regarding repurchases of
our common shares during the fourth quarter of 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Number of
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Shares that May Yet
|
|
|
|
Total Number of
|
|
|
Average Price Paid
|
|
|
Part of Publicly
|
|
|
be Purchased Under
|
|
Period
|
|
Shares Purchased
|
|
|
Per Share
|
|
|
Announced Program
|
|
|
the
Program(1)
|
|
|
|
|
October 1 to October 31
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
8,750,000
|
|
November 1 to November 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,750,000
|
|
December 1 to December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,750,000
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On August 18, 2008, our Board
of Directors approved a stock repurchase program authorizing us,
depending upon market conditions and other factors, to
repurchase up to 10.0 million shares of our common stock,
in the open market or in privately negotiated transactions.
|
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
You should refer to Item 7., Managements
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)
|
|
2009(1)
|
|
|
2008(2)
|
|
|
2007
|
|
|
2006(3)
|
|
|
2005
|
|
|
|
|
Sales
|
|
$
|
2,060.7
|
|
|
$
|
2,738.7
|
|
|
$
|
2,642.7
|
|
|
$
|
2,622.4
|
|
|
$
|
2,450.6
|
|
Operating income (loss)
|
|
$
|
98.4
|
|
|
$
|
(129.3
|
)
|
|
$
|
33.9
|
|
|
$
|
190.6
|
|
|
$
|
141.3
|
|
Income (loss) before discontinued operations
|
|
$
|
67.8
|
|
|
$
|
(272.9
|
)
|
|
$
|
11.4
|
|
|
$
|
125.6
|
|
|
$
|
63.2
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
(15.3
|
)
|
|
Net income (loss)
|
|
$
|
67.8
|
|
|
$
|
(272.9
|
)
|
|
$
|
11.4
|
|
|
$
|
122.9
|
|
|
$
|
47.9
|
|
|
|
Basic and diluted (loss) earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before discontinued operations
|
|
$
|
0.73
|
|
|
$
|
(2.94
|
)
|
|
$
|
0.12
|
|
|
$
|
1.36
|
|
|
$
|
0.69
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
(0.17
|
)
|
|
Basic and diluted (loss) earnings per common share
|
|
$
|
0.73
|
|
|
$
|
(2.94
|
)
|
|
$
|
0.12
|
|
|
$
|
1.33
|
|
|
$
|
0.52
|
|
|
|
Total assets
|
|
$
|
1,385.9
|
|
|
$
|
1,277.7
|
|
|
$
|
1,583.0
|
|
|
$
|
1,780.8
|
|
|
$
|
1,695.3
|
|
Long-term debt, net of current portion
|
|
$
|
389.2
|
|
|
$
|
408.3
|
|
|
$
|
308.0
|
|
|
$
|
567.7
|
|
|
$
|
638.7
|
|
15 POLYONE
CORPORATION
|
|
|
(1) |
|
Included in operating income for
2009 results are charges of $27.2 million related to
employee separation and plant phaseout and benefits of
$23.9 million related to reimbursement of previously
incurred environmental expenses and $21.1 million related
to a curtailment gain from amendments to certain of our employee
benefit plans.
|
|
(2) |
|
Included in operating expense for
2008 results are charges of $39.7 million related to
employee separation and plant phaseout and $170.0 million
related to goodwill impairment. Included in net loss for 2008
are charges of $105.9 million to record deferred a deferred
tax valuation allowance.
|
|
(3) |
|
In February 2006, we sold 82% of
our Engineered Films business. This business was previously
reported as discontinued operations and is recognized as such in
our historical results. The retained ownership of 18% is
reported on the cost method of accounting and is recognized in
our accompanying consolidated financial statements as such.
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Overview
Managements 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. MD&A includes the
following sections:
|
|
|
|
|
Business Model and Key Concepts
|
|
|
|
Key Challenges
|
|
|
|
Strategy and Key Trends
|
|
|
|
Recent Developments
|
|
|
|
|
|
Highlights and Executive Summary
|
|
|
|
Results of Operations an analysis of our
consolidated results of operations for the three years presented
in our consolidated financial statements
|
|
|
|
Liquidity and Capital Resources an analysis of the
effect of our operating, financing and investing activities on
our liquidity and capital resources
|
|
|
|
Off-Balance Sheet Arrangements a discussion of such
arrangements
|
|
|
|
Contractual Obligations a summary of our aggregate
contractual obligations
|
|
|
|
Critical Accounting Policies and Estimates a
discussion of accounting policies that require significant
judgments and estimates
|
|
|
|
New Accounting Pronouncements a summary and
discussion of our plans for the adoption of new accounting
standards relevant to us
|
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 thermoplastic
compounds, specialty polymer formulations, color and additive
systems, thermoplastic resin distribution and specialty vinyl
resins. We also have two equity investments: one in a
manufacturer of caustic soda and chlorine and one in a
formulator of polyurethane compounds. Headquartered in Avon
Lake, Ohio, with 2009 sales of $2.1 billion, we have
manufacturing sites and distribution facilities in North
America, Europe and Asia and joint ventures in North America. We
currently employ approximately 3,900 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 to provide an essential
link between large chemical producers (our raw material
suppliers) and designers, assemblers and processors of plastics
(our customers).
Business Model
and Key Concepts
The central focus of our business model is to provide
specialized material and service solutions to our customers by
leveraging our global footprint, product and technology breadth,
manufacturing expertise, fully integrated information technology
network, broad market reach and raw material procurement
strength. These resources enable us to capitalize on dynamic
changes in the end markets we serve, which include appliances,
building and construction materials, electrical and electronics,
medical, industrial, packaging, transportation, and wire and
cable markets.
Key
Challenges
Overall, our business faces a number of issues resulting from
the recent economic downturn, especially as it relates to
critically affected markets such as building and construction
and transportation. Maintaining profitability during periods of
raw material price volatility is another critical challenge.
Further, we need to capitalize
16 POLYONE
CORPORATION
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 RoHS 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 takes us into growth markets to service our
customers with consistency wherever their operations might be.
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.
In the short term, we will maintain our focus on top-line
growth, improving or maintaining the cost/price relationship
with regard to raw materials and improving working capital
efficiency. In addition to driving top-line growth, we have
established margin improvement targets for all businesses. In
2010, most of our capital expenditures will be focused on
maintenance spending and supporting growth in top-line sales. We
will also consider smaller, bolt-on strategic acquisitions and
other synergy opportunities that complement our core platforms.
These actions will ensure that we continue to invest in
capabilities that advance the pace of our transformation but do
not adversely impact our liquidity.
We will continue our enterprise-wide Lean Six Sigma program
directed at improving 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 the drive toward sustainability in
polymers and their processing, the emergence of biodegradable
and bio-based polymers, consumer concern over the use of
bisphenol-A (BPA) in infant-care products and developing
legislation that bans lead and certain phthalates from toys and
child-care items.
Recent
Developments
Acquisition
of New England Urethane
On December 23, 2009, we acquired substantially all of the
assets of New England Urethane, Inc. (NEU), a specialty
healthcare engineered materials provider for a cash purchase
price of $11.5 million paid at close and an earnout of up
to $0.5 million payable in 2011, resulting in goodwill of
$4.5 million and $5.9 million of identifiable
intangible assets. NEU had sales of $7.7 million for the
year ended December 31, 2008. Our purchase price allocation
is preliminary as of December 31, 2009.
Sale of
Columbian Joint Venture Interest
On October 13, 2009, we sold our investment in Geon
Polimeros Andinos (GPA), previously a 50% owned equity affiliate
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 recorded a pre-tax gain of
$2.8 million in our fourth quarter 2009 results of
operations.
Pension
plan changes
On January 15, 2009, we adopted amendments 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 to the Geon Plan and the BRP permanently froze
future benefit accruals and provide that participants will not
receive credit under the Geon Plan or the BRP for any eligible
earnings paid on or after that date. Additionally, certain
benefits provided under the RSP and SRP were eliminated after
March 20, 2009. These actions resulted in a reduction of
our 2009 annual benefit expense of $3.7 million and are
expected to reduce our future pension fund contribution
requirements by approximately $20 million.
On September 1, 2009, we adopted changes to our
post-retirement healthcare plan whereby, effective
January 1, 2010, the plan, for certain eligible retirees,
was discontinued, and benefits will be phased out through
December 31, 2012. As a result of the plan change, our
liability for post-retirement healthcare was reduced by
$58.1 million.
Highlights and
Executive Summary
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Sales
|
|
$
|
2,060.7
|
|
|
$
|
2,738.7
|
|
|
$
|
2,642.7
|
|
Operating income (loss)
|
|
$
|
98.4
|
|
|
$
|
(129.3
|
)
|
|
$
|
33.9
|
|
Net income (loss)
|
|
$
|
67.8
|
|
|
$
|
(272.9
|
)
|
|
$
|
11.4
|
|
Cash and cash equivalents
|
|
$
|
222.7
|
|
|
$
|
44.3
|
|
|
$
|
79.4
|
|
Accounts receivable availability
|
|
|
112.8
|
|
|
|
121.4
|
|
|
|
151.2
|
|
|
Liquidity
|
|
$
|
335.5
|
|
|
$
|
165.7
|
|
|
$
|
230.6
|
|
|
|
Debt, short- and long-term
|
|
$
|
409.6
|
|
|
$
|
434.3
|
|
|
$
|
336.7
|
|
2009 vs.
2008
The decrease in sales was primarily attributable to a 21.6%
decline in volume in 2009 as compared to 2008, reflecting 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.
Additionally, changes in currency exchange rates had a negative
impact on sales of approximately 3% in 2009.
The improvement in operating income for 2009 reflects the
favorable impact of higher margin business gains, lower raw
material costs, the realization of restructuring savings, and an
incremental benefit from LIFO related to the significant
inventory reduction in
17 POLYONE
CORPORATION
the United States. These factors more than offset the impact of
the decrease in volumes and the negative impact of changes in
currency exchange rates in 2009. Operating income in 2009 also
included gains of $21.9 million associated with the
curtailment of certain of our employee benefit plans,
$23.9 million related to the reimbursement of previously
incurred environmental costs and a $2.8 million gain
associated with the sale of our interest in a previously 50%
owned equity affiliate, GPA. We recognized charges of
$27.2 million related to restructuring and employee
separation in 2009 as compared to $39.7 million in 2008.
Our operating income was also negatively impacted by a
$170.0 million goodwill impairment charge in 2008, and a
subsequent $5.0 million charge to finalize this preliminary
estimate in the first quarter of 2009. Changes in currency
exchange rates unfavorably impacted operating income by
$5.2 million in 2009 as compared to 2008, driven primarily
by changes in the U.S. dollar versus the Euro and Canadian
dollar.
The increase in net income in 2009 as compared to 2008 was
primarily due to the items discussed in the paragraph above.
Additionally, net interest expense was lower in 2009 than in the
prior year primarily due to lower average interest rates on our
variable rate debt and a lower average debt balance. Income tax
benefit was $13.3 million in 2009 as compared to expense of
$101.8 million in 2008 as the 2008 amount reflects a
$105.9 million charge to record a tax valuation allowance.
Since December 31, 2008, our liquidity increased by
$169.8 million to $335.5 million as the increase in
our cash balance has more than offset the decrease in our
borrowing capacity under the accounts receivable facility. The
increase in cash and cash equivalents of $178.4 million was
primarily the result of improved earnings coupled with
substantially lower working capital investment at
December 31, 2009 as compared to December 31, 2008.
Our cash balance was favorably impacted by the
$23.9 million reimbursement of previously incurred
environmental costs and $13.5 million of proceeds
associated with the sale of our interest in GPA. These items
more than offset the impact of $17.2 million of pension
contributions, $31.3 million of payments in 2009 for our
previously announced restructuring activities, the payment of
$11.5 million related to the acquisition of NEU, the
repayment of $20.0 million aggregate principal amount of
our 6.91% medium-term notes and a reduction in short-term debt
of $5.7 million.
2008 vs.
2007
The acquisition of GLS in January of 2008, the favorable impact
from foreign exchange and higher prices driven by an improved
sales mix and the result of offsetting rising raw material and
energy costs helped counterbalance the adverse impact of lower
volume driven by a significant slowing in global economic
activity in the late third quarter and the fourth quarter of
2008. This downturn in economic activity and the underlying
financial credit crisis that precipitated it had a significant
negative impact on our businesses, particularly the Performance
Products and Solutions segment. The International Color and
Engineered Materials business, while benefiting from favorable
foreign exchange rates, saw demand contract in the third quarter
and then more dramatically in the fourth quarter of 2008 as the
economies in Europe and Asia slowed and declining exports from
Asia offset any sales increase during the prior quarters in 2008.
Operating income declined due to a $170 million goodwill
impairment charge taken in the fourth quarter of 2008,
$39.7 million of restructuring charges, and
year-over-year
declines in Performance Products and Solutions and International
Color and Engineered Materials segment operating income. The
acquisition of GLS, margin and mix improvements and the impact
from foreign exchange were favorable items that partially offset
the overall decrease.
The decline in net income was due to the items described
previously and the recording of a $105.9 million tax
valuation allowance.
Liquidity declined $64.9 million due to a lower available
pool of receivables to sell and a
year-over-year
decline in cash and cash equivalents driven by a higher
investment in working capital, pension funding, and lower
dividends from our equity affiliates due primarily to the
divestiture of our ownership stake in OxyVinyls. The increase in
total debt resulted from the financing activities necessary to
support the acquisition of GLS.
18 POLYONE
CORPORATION
Results of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VariancesFavorable (Unfavorable)
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 versus 2008
|
|
|
2008 versus 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
(Dollars in millions, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
|
|
|
Sales
|
|
$
|
2,060.7
|
|
|
$
|
2,738.7
|
|
|
$
|
2,642.7
|
|
|
$
|
(678.0
|
)
|
|
|
(24.8
|
)%
|
|
$
|
96.0
|
|
|
|
3.6
|
%
|
Cost of sales
|
|
|
1,720.2
|
|
|
|
2,442.1
|
|
|
|
2,381.7
|
|
|
|
721.9
|
|
|
|
29.6
|
%
|
|
|
(60.4
|
)
|
|
|
(2.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
340.5
|
|
|
|
296.6
|
|
|
|
261.0
|
|
|
|
43.9
|
|
|
|
14.8
|
%
|
|
|
35.6
|
|
|
|
13.6
|
%
|
Selling and administrative
|
|
|
272.3
|
|
|
|
287.1
|
|
|
|
254.8
|
|
|
|
14.8
|
|
|
|
5.2
|
%
|
|
|
(32.3
|
)
|
|
|
(12.7
|
)%
|
Impairment of goodwill
|
|
|
5.0
|
|
|
|
170.0
|
|
|
|
|
|
|
|
165.0
|
|
|
|
NM
|
|
|
|
(170.0
|
)
|
|
|
NM
|
|
Income from equity affiliates and minority interest
|
|
|
35.2
|
|
|
|
31.2
|
|
|
|
27.7
|
|
|
|
4.0
|
|
|
|
12.8
|
%
|
|
|
3.5
|
|
|
|
12.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
98.4
|
|
|
|
(129.3
|
)
|
|
|
33.9
|
|
|
|
227.7
|
|
|
|
NM
|
|
|
|
(163.2
|
)
|
|
|
NM
|
|
Interest expense, net
|
|
|
(34.3
|
)
|
|
|
(37.2
|
)
|
|
|
(46.9
|
)
|
|
|
2.9
|
|
|
|
7.8
|
%
|
|
|
9.7
|
|
|
|
20.7
|
%
|
Premium on early extinguishment of long-term debt
|
|
|
|
|
|
|
|
|
|
|
(12.8
|
)
|
|
|
|
|
|
|
|
|
|
|
12.8
|
|
|
|
100.0
|
%
|
Other expense, net
|
|
|
(9.6
|
)
|
|
|
(4.6
|
)
|
|
|
(6.6
|
)
|
|
|
(5.0
|
)
|
|
|
(108.7
|
)%
|
|
|
2.0
|
|
|
|
30.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
54.5
|
|
|
|
(171.1
|
)
|
|
|
(32.4
|
)
|
|
|
225.6
|
|
|
|
NM
|
|
|
|
(138.7
|
)
|
|
|
NM
|
|
Income tax benefit (expense)
|
|
|
13.3
|
|
|
|
(101.8
|
)
|
|
|
43.8
|
|
|
|
115.1
|
|
|
|
NM
|
|
|
|
(145.6
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
67.8
|
|
|
$
|
(272.9
|
)
|
|
$
|
11.4
|
|
|
$
|
340.7
|
|
|
|
NM
|
|
|
$
|
(284.3
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per common share:
|
|
$
|
0.73
|
|
|
$
|
(2.94
|
)
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Sales decreased in 2009 as compared to 2008 due to a decrease in
volume of 21.6% and the unfavorable impact of foreign exchange
on sales of approximately 3%. All operating segments experienced
a decline in sales in 2009. The end markets most impacted
globally were transportation and building and construction.
The increase in sales in 2008, as compared to 2007, includes
6.3% from acquisitions and other, 1.7% due to the favorable
impact of foreign exchange, and a 9.7% favorable impact from
price and mix, which offset an unfavorable impact of 14.1% due
to the decline in volume. The impact of the decline in volume
was evident across all of our operating segments but of greatest
magnitude in our businesses tied to the North American building
and construction and transportation end markets.
Cost of
Sales
These costs include raw materials, plant conversion,
distribution, environmental remediation and plant related
restructuring charges. As a percentage of sales, these costs
declined to 83.5% of sales in 2009 as compared to 89.2% in 2008.
Cost of sales in 2009 includes a gain of $23.9 million
associated with the reimbursement of previously incurred
environmental costs. Charges related to environmental
remediation and plant related restructuring were
$36.1 million in 2009 as compared to $44.9 million in
2008. The benefit of LIFO, primarily related to inventory
reductions in the United States, favorably impacted cost of
sales by $18.3 million, as compared to $4.6 million in
2008. Additionally, lower raw material costs and the realization
of restructuring savings favorably impacted cost of goods sold
in 2009 as compared to 2008.
As a percentage of sales, these costs declined to 89.2% of sales
in 2008 as compared to 90.1% in 2007. GLS contributed
0.5 percentage points of the improvement reflecting the
margin impact of its specialty sales mix. Charges related to
environmental remediation and plant related restructurings were
$44.9 million in 2008 as compared to $50.2 million in
2007. The remaining decrease in cost of sales is due to the
realization of pricing initiatives and sales mix improvements
partially offset by higher raw material costs.
Selling and
Administrative
These costs include selling, technology, administrative
functions and corporate and general expenses. Selling and
administrative costs decreased $14.8 million, or 5.2%, in
2009 as compared to 2008. Favorably impacting selling and
administrative costs was $21.9 million of curtailment
gains, $7.6 million less employee separation and plant
phase-out costs, a decrease in insurance and bad debt expense
and savings from our restructuring activities. These favorable
items were partially offset by increased pension and incentive
compensation expenses.
During 2008, selling and administrative costs increased
$32.3 million, or 12.7%, as compared to 2007. Selling and
administrative costs was negatively impacted by an increase of
$9.6 million for employee separation and approximately
$17.5 million of incremental costs associated with GLS,
which was acquired in January of 2008.
Impairment of
Goodwill
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. Due to the
extensive work involved in performing the related asset
appraisals, we initially recognized a preliminary estimate of
the impairment loss of $170.0 million in 2008. Upon
completion of the analysis in the
19 POLYONE
CORPORATION
first quarter of 2009, we revised our estimate of goodwill
impairment to $175.0 million, of which $147.8 million
and $27.2 million related to the Geon Compounds and
Specialty Coatings reporting units, respectively. This
represented a decrease for Geon Compounds of $7.4 million
and an increase in the goodwill impairment charge for Specialty
Coatings of $12.4 million, as compared to the preliminary
estimates recorded in the fourth quarter of 2008.
Income from
Equity Affiliates
Income from equity affiliates for 2009, 2008 and 2007 is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
SunBelt
|
|
$
|
29.7
|
|
|
$
|
32.5
|
|
|
$
|
41.0
|
|
Other equity affiliates
|
|
|
2.7
|
|
|
|
3.4
|
|
|
|
3.1
|
|
Impairment of OxyVinyls investment
|
|
|
|
|
|
|
|
|
|
|
(14.8
|
)
|
Gain on sale and (charges) related to investment in GPA
|
|
|
2.8
|
|
|
|
(4.7
|
)
|
|
|
(1.6
|
)
|
|
|
|
$
|
35.2
|
|
|
$
|
31.2
|
|
|
$
|
27.7
|
|
|
|
During 2009, income from equity affiliates increased
$4.0 million, or 12.8%, as compared to 2008. In 2008, we
recorded $4.7 million of charges related to our investment
in GPA, a 50% owned equity affiliate. In 2009, we sold our
investment in GPA, resulting in a pre-tax gain of
$2.8 million. Additionally, lower earnings from our SunBelt
joint venture for 2009 were due primarily to lower pricing for
caustic soda, partially offset by an increase in pricing and
volume for chlorine as compared to 2008.
During 2008, income from equity affiliates increased
$3.5 million, or 12.6%, versus 2007. The increase was due
to $11.7 million lower impairment charges recorded in 2008
as compared to 2007, partially offset by lower SunBelt earnings.
The $8.5 million lower SunBelt earnings were mainly due to
lower demand for chlorine in the downstream PVC resin markets as
a result of the significant deterioration of the North American
building and construction and basic infrastructure markets.
Interest
Expense, Net
Interest expense, net decreased in 2009 as compared to 2008 due
to lower average borrowing levels and lower interest rates on
our variable rate debt. Interest expense decreased in 2008 as
compared to 2007 due to lower average borrowing levels.
Included in interest expense, net for the years ended
December 31, 2009, 2008 and 2007 is interest income of
$3.2 million, $3.4 million and $4.5 million,
respectively.
Premium on
Early Extinguishment of Long-term Debt
Cash expense from the premium on our repurchase of
$241.4 million aggregate principal amount of our
10.625% senior notes in 2007 was $12.8 million.
Other Expense,
Net
Financing costs associated with our receivables sale facility,
foreign currency gains and losses and other miscellaneous items
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Currency exchange gain (loss)
|
|
$
|
(0.1
|
)
|
|
$
|
1.2
|
|
|
$
|
(5.0
|
)
|
Foreign exchange contracts (loss) gain
|
|
|
(7.9
|
)
|
|
|
(1.3
|
)
|
|
|
0.7
|
|
Fees and discount on sale of trade receivables
|
|
|
(1.3
|
)
|
|
|
(3.6
|
)
|
|
|
(2.0
|
)
|
Impairment of available for sale security
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
Other expense, net
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
Other expense, net
|
|
$
|
(9.6
|
)
|
|
$
|
(4.6
|
)
|
|
$
|
(6.6
|
)
|
|
|
Income Tax
(Expense) Benefit
In 2009, we recorded tax benefit of $13.3 million related
primarily to tax refunds in both U.S. and foreign
jurisdictions.
We also decreased our existing deferred tax asset valuation
allowances related to various U.S. federal, state and
foreign deferred tax assets by $54.6 million in 2009,
resulting in a non-cash tax benefit of $23.8 million. The
remaining decrease of $30.8 million related primarily to
changes in our liabilities for pensions and other
post-retirement benefits, for which the tax impact is recorded
in accumulated other comprehensive income. We review all
valuation allowances related to deferred tax assets and will
adjust these reserves when appropriate.
We have U.S. federal net operating loss carryforwards of
$66.0 million which expire at various dates from 2024
through 2028 and combined state net operating loss carryforwards
of $314.6 million which expire at various dates from 2010
through 2029. Various foreign subsidiaries have net operating
loss carryforwards totaling $34.5 million which expire at
various dates from 2010 through 2019. We have provided valuation
allowances of $42.9 million against these loss
carryforwards.
Segment
Information
Operating income is the primary financial measure that is
reported to the chief operating decision maker for purposes of
making decisions about allocating resources to the segment and
assessing its 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
phaseout costs; executive separation agreements; share-based
compensation costs; asset and goodwill 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 the measure of segment profit or loss
that is reported to and reviewed by the chief operating decision
maker. These costs are included in Corporate and
eliminations.
20 POLYONE
CORPORATION
Sales and
Operating Income (Loss) 2009 compared with
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Color and Engineered Materials
|
|
$
|
459.4
|
|
|
$
|
587.4
|
|
|
$
|
(128.0
|
)
|
|
|
(21.8)%
|
|
Specialty Engineered Materials
|
|
|
208.6
|
|
|
|
252.3
|
|
|
|
(43.7
|
)
|
|
|
(17.3)%
|
|
Specialty Color, Additives and Inks
|
|
|
194.7
|
|
|
|
228.6
|
|
|
|
(33.9
|
)
|
|
|
(14.8)%
|
|
Performance Products and Solutions
|
|
|
667.7
|
|
|
|
1,001.4
|
|
|
|
(333.7
|
)
|
|
|
(33.3)%
|
|
PolyOne Distribution
|
|
|
625.1
|
|
|
|
796.7
|
|
|
|
(171.6
|
)
|
|
|
(21.5)%
|
|
Corporate and eliminations
|
|
|
(94.8
|
)
|
|
|
(127.7
|
)
|
|
|
32.9
|
|
|
|
25.8%
|
|
|
|
|
|
|
|
|
$
|
2,060.7
|
|
|
$
|
2,738.7
|
|
|
$
|
(678.0
|
)
|
|
|
(24.8)%
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Color and Engineered Materials
|
|
$
|
22.6
|
|
|
$
|
20.4
|
|
|
$
|
2.2
|
|
|
|
10.8%
|
|
Specialty Engineered Materials
|
|
|
16.2
|
|
|
|
12.9
|
|
|
|
3.3
|
|
|
|
25.6%
|
|
Specialty Color, Additives and Inks
|
|
|
14.2
|
|
|
|
13.5
|
|
|
|
0.7
|
|
|
|
5.2%
|
|
Performance Products and Solutions
|
|
|
43.5
|
|
|
|
34.9
|
|
|
|
8.6
|
|
|
|
24.6%
|
|
PolyOne Distribution
|
|
|
24.8
|
|
|
|
28.1
|
|
|
|
(3.3
|
)
|
|
|
(11.7)%
|
|
Resin and Intermediates
|
|
|
25.5
|
|
|
|
28.6
|
|
|
|
(3.1
|
)
|
|
|
(10.8)%
|
|
Corporate and eliminations
|
|
|
(48.4
|
)
|
|
|
(267.7
|
)
|
|
|
219.3
|
|
|
|
(81.9)%
|
|
|
|
|
|
|
|
|
$
|
98.4
|
|
|
$
|
(129.3
|
)
|
|
$
|
227.7
|
|
|
|
(176.1)%
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) as a percentage of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Color and Engineered Materials
|
|
|
4.9
|
%
|
|
|
3.5
|
%
|
|
|
1.4
|
% points
|
|
|
|
|
Specialty Engineered Materials
|
|
|
7.8
|
%
|
|
|
5.1
|
%
|
|
|
2.7
|
% points
|
|
|
|
|
Specialty Color, Additives and Inks
|
|
|
7.3
|
%
|
|
|
5.9
|
%
|
|
|
1.4
|
% points
|
|
|
|
|
Performance Products and Solutions
|
|
|
6.5
|
%
|
|
|
3.5
|
%
|
|
|
3.0
|
% points
|
|
|
|
|
PolyOne Distribution
|
|
|
4.0
|
%
|
|
|
3.5
|
%
|
|
|
0.5
|
% points
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4.8
|
%
|
|
|
(4.7
|
)%
|
|
|
9.5
|
% points
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
Color and Engineered Materials
Sales decreased $128.0 million, or 21.8%, in 2009 as
compared to 2008. Approximately 17.9% 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 2009 resulted in a decrease in sales of
approximately 6.2%. These unfavorable items were partially
offset by improvement in the price and mix of products sold.
Operating income increased by $2.2 million, or 10.8%, in
2009 compared to 2008 driven by declining raw material costs,
improved product mix and pricing, the realization of savings
from our restructuring programs and reduced discretionary
spending. These favorable items were partially offset by lower
volumes and changes in currency exchange rates.
Specialty
Engineered Materials
Sales decreased $43.7 million, or 17.3%, in 2009 as
compared to 2008 due to the decreased demand in our end markets
related to transportation and wire and cable applications.
Volumes declined approximately 19.7% in 2009 as compared to
2008. Partially offsetting the impact of lower volume were
improvements in pricing and sales mix.
Operating income increased $3.3 million, or 25.6%, in 2009
as compared to 2008 driven primarily by lower raw material
costs, the realization of savings from restructuring and the
change in the LIFO reserve related to the inventory reduction in
the United States. These items more than offset the impact of
declines in volumes. Also contributing to the improved income
results is the continued successful integration of GLS, which
was acquired in 2008.
Specialty
Color, Additives and Inks
Sales declined $33.9 million, or 14.8%, in 2009 as compared
to 2008 as volume declined 16.7% due primarily to decreased
demand in the transportation and packaging end markets.
Partially offsetting the impact of lower volume was a higher
value sales mix driven by business gains in specialty type
applications.
Operating income increased $0.7 million, or 5.2%, primarily
due to the benefits of a more profitable sales mix, lower raw
material costs, 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 $333.7 million, or 33.3%, in 2009 as
compared to 2008 due to the decreased demand across all end
markets, particularly those related to the North American
building and construction market. Volumes declined 27.8% in 2009
as compared to 2008. Lower market prices associated with lower
commodity costs resulted in a 5.7% decline in sales during 2009
as compared to 2008.
Operating income increased $8.6 million, or 24.6%, in 2009
as compared to 2008 despite lower volume. LIFO reserve changes
added $11.0 million to operating income in 2009 versus
$3.2 million in 2008. Beyond that, decreased raw material
costs and savings from restructuring more than offset the impact
of the decline in volumes.
PolyOne
Distribution
PolyOne Distribution sales decreased $171.6 million, or
21.5%, in 2009 as compared to 2008, as volumes declined 12.1%,
with the remainder due to lower market pricing associated with
lower commodity costs.
21 POLYONE
CORPORATION
Operating income decreased $3.3 million, or 11.7%, in 2009
as compared to 2008 due primarily to the decline in volume.
Resin and
Intermediates
During 2009, income from equity affiliates included in Resin and
Intermediates decreased $3.1 million due to lower earnings
from our SunBelt joint venture.
Corporate and
Eliminations
Operating loss from Corporate and eliminations was
$48.4 million in 2009 as compared to $267.7 million in
2008 as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
Curtailment of post-retirement health care plan and
other(a)
|
|
$
|
21.9
|
|
|
$
|
|
|
Impairment of
goodwill(b)
|
|
|
(5.0
|
)
|
|
|
(170.0
|
)
|
Environmental remediation costs, net of
recoveries(c)
|
|
|
12.2
|
|
|
|
(15.6
|
)
|
Employee separation and plant
phaseout(d)
|
|
|
(27.2
|
)
|
|
|
(39.7
|
)
|
Recognition of inventory
step-up
associated with GLS
acquisition(e)
|
|
|
|
|
|
|
(1.6
|
)
|
Gain on sale and (charges) related to investment in equity
affiliate(f)
|
|
|
2.8
|
|
|
|
(4.7
|
)
|
Share-based compensation
|
|
|
(2.6
|
)
|
|
|
(3.0
|
)
|
Incentive compensation
|
|
|
(19.6
|
)
|
|
|
(4.2
|
)
|
Unallocated pension and post-retirement medical expense
|
|
|
(13.6
|
)
|
|
|
(5.4
|
)
|
All other and
eliminations(g)
|
|
|
(17.3
|
)
|
|
|
(23.5
|
)
|
|
Total Corporate and eliminations
|
|
$
|
(48.4
|
)
|
|
$
|
(267.7
|
)
|
|
|
|
|
|
(a) |
|
During the third quarter of 2009,
we amended certain of our post-retirement healthcare plans
whereby benefits to be paid under these plans will be phased out
through 2012, resulting in a curtailment gain of
$21.1 million. We also recorded curtailment gains totaling
approximately $0.8 million related to other employee
benefit plans.
|
|
(b) |
|
In the first quarter of 2009, we
increased our estimated year-end goodwill impairment charge of
$170.0 million by $5.0 million, which is comprised of
an increase of $12.4 million related to our Specialty
Coatings reporting unit and a decrease of $7.4 million to
our Geon Compounds reporting unit. See Note 2,
Goodwill, to the accompanying consolidated financial
statements for further information.
|
|
(c) |
|
During the third quarter of 2009,
we received $23.9 million from our former parent company,
as partial reimbursement for certain previously incurred
environmental remediation costs.
|
|
(d) |
|
During the third quarter of 2008
and subsequently in January 2009, we announced the restructuring
of certain manufacturing assets, primarily in North America. See
Note 3, Employee Separation and Plant Phaseout, to
the accompanying consolidated financial statements for further
information.
|
|
(e) |
|
Upon acquisition of GLS in 2008,
GLSs inventory was initially stepped up from cost to fair
value. This difference was recognized with the first turn of
inventory within Corporate and eliminations.
|
|
(f) |
|
On October 13, 2009, we sold
our 50% interest in GPA, previously part of the Performance
Products and Solutions operating segment, to Mexichem
Compuestos, S.A. de C.V, resulting in a pre-tax gain of
approximately $2.8 million in our 2009 results of
operations. In the third quarter of 2008, we recorded
$2.6 million related to our proportionate share of the
write-down of certain assets by GPA and a $2.1 million
charge related to an impairment of our investment in this equity
affiliate.
|
|
(g) |
|
All other and eliminations is
comprised of intersegment eliminations and corporate general and
administrative costs that are not allocated to segments.
|
22 POLYONE
CORPORATION
Sales and
Operating Income (Loss) 2008 compared with
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Color and Engineered Materials
|
|
$
|
587.4
|
|
|
$
|
588.6
|
|
|
$
|
(1.2
|
)
|
|
|
(0.2)%
|
|
Specialty Engineered Materials
|
|
|
252.3
|
|
|
|
124.3
|
|
|
|
128.0
|
|
|
|
103.0%
|
|
Specialty Color, Additives and Inks
|
|
|
228.6
|
|
|
|
232.0
|
|
|
|
(3.4
|
)
|
|
|
(1.5)%
|
|
Performance Products and Solutions
|
|
|
1,001.4
|
|
|
|
1,086.8
|
|
|
|
(85.4
|
)
|
|
|
(7.9)%
|
|
PolyOne Distribution
|
|
|
796.7
|
|
|
|
744.3
|
|
|
|
52.4
|
|
|
|
7.0%
|
|
Corporate and eliminations
|
|
|
(127.7
|
)
|
|
|
(133.3
|
)
|
|
|
5.6
|
|
|
|
4.2%
|
|
|
|
|
|
|
|
|
$
|
2,738.7
|
|
|
$
|
2,642.7
|
|
|
$
|
96.0
|
|
|
|
3.6%
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Color and Engineered Materials
|
|
$
|
20.4
|
|
|
$
|
25.1
|
|
|
$
|
(4.7
|
)
|
|
|
(18.7)%
|
|
Specialty Engineered Materials
|
|
|
12.9
|
|
|
|
(2.2
|
)
|
|
|
15.1
|
|
|
|
686.4%
|
|
Specialty Color, Additives and Inks
|
|
|
13.5
|
|
|
|
7.0
|
|
|
|
6.5
|
|
|
|
92.9%
|
|
Performance Products and Solutions
|
|
|
34.9
|
|
|
|
57.5
|
|
|
|
(22.6
|
)
|
|
|
(39.3)%
|
|
PolyOne Distribution
|
|
|
28.1
|
|
|
|
22.1
|
|
|
|
6.0
|
|
|
|
27.1%
|
|
Resin and Intermediates
|
|
|
28.6
|
|
|
|
34.8
|
|
|
|
(6.2
|
)
|
|
|
(17.8)%
|
|
Corporate and eliminations
|
|
|
(267.7
|
)
|
|
|
(110.4
|
)
|
|
|
(157.3
|
)
|
|
|
(142.5)%
|
|
|
|
|
|
|
|
|
$
|
(129.3
|
)
|
|
$
|
33.9
|
|
|
$
|
(163.2
|
)
|
|
|
(481.4)%
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) as a percentage of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Color and Engineered Materials
|
|
|
3.5
|
%
|
|
|
4.3
|
%
|
|
|
(0.8
|
)% points
|
|
|
|
|
Specialty Engineered Materials
|
|
|
5.1
|
%
|
|
|
(1.8
|
)%
|
|
|
6.9
|
% points
|
|
|
|
|
Specialty Color, Additives and Inks
|
|
|
5.9
|
%
|
|
|
3.0
|
%
|
|
|
2.9
|
% points
|
|
|
|
|
Performance Products and Solutions
|
|
|
3.5
|
%
|
|
|
5.3
|
%
|
|
|
(1.8
|
)% points
|
|
|
|
|
PolyOne Distribution
|
|
|
3.5
|
%
|
|
|
3.0
|
%
|
|
|
0.5
|
% points
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(4.7
|
)%
|
|
|
1.3
|
%
|
|
|
(6.0
|
)% points
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
Color and Engineered Materials
Sales declined $1.2 million, or 0.2%, in 2008 as weakening
demand in the second half of 2008 in both Europe and Asia offset
higher pricing and a $42.6 million favorable impact from
foreign exchange. Volumes declined 11.1%.
Operating income declined $4.7 million, or 18.7%, in 2008
despite the favorable impact of foreign exchange of
$2.2 million. Continued progress in improving the sales mix
through the penetration of specialty applications in the
packaging, electrical and electronics, specialty wire and cable
and transportation end markets did not offset the adverse impact
of the substantial weakening of demand in the fourth quarter of
2008.
Specialty
Engineered Materials
Sales increased $128.0 million, or 103.0%, in 2008 compared
to 2007 primarily due to the acquisition of GLS. GLS continued
to demonstrate its ability to grow its specialty mix of
applications in the healthcare, consumer products and medical
end markets. Partially offsetting the favorable benefit to sales
from the acquisition of GLS was lower demand for wire and cable
and general purpose products that go into the North American
building and construction and transportation end markets.
Operating income increased $15.1 million in 2008 driven
primarily by the GLS acquisition and the elimination of
unprofitable accounts.
Specialty
Color, Additives and Inks
Sales declined $3.4 million, or 1.5%, in 2008 as volume
declined 10.7%. Partially mitigating the impact of lower volume
was a higher value sales mix driven by a greater focus on
capturing specialty type applications and higher pricing to
offset increased raw material costs.
Operating income improved $6.5 million in 2008 driven by
the combined effect of a more profitable sales mix, cost
reduction initiatives in operations, and a focused effort on
culling unprofitable business.
Performance
Products and Solutions
Sales declined $85.4 million, or 7.9%, in 2008 due
primarily to significantly lower demand in the North American
building and construction and transportation markets. Volume
declined 19.9%. Favorable items impacting sales were higher
prices due to rising raw material costs and an improved sales
mix.
Operating income declined $22.6 million, or 39.3%, in 2008
as compared to 2007 due to lower demand and because selling
price increases did not offset higher raw material costs.
Falling raw material costs and reduced inventory resulted in a
favorable LIFO reserve adjustment of $3.2 million for the
year.
PolyOne
Distribution
PolyOne Distribution sales increased $52.4 million, or
7.0%, in 2008 despite lower volumes. The combined impact of
price increases to offset increasing raw material costs,
continued growth in higher value end markets, such as healthcare
and consumer products, and the success of a national accounts
program offset the impact of declining volume.
23 POLYONE
CORPORATION
Operating income increased $6.0 million, or 27.1%, in 2008
driven by a more profitable sales mix, margin benefits realized
as a result of increased market prices, cost containment
programs to mitigate rising transportation and distribution
costs, and the cumulative impact of various margin improvement
programs.
Resin and
Intermediates
Operating income declined $6.2 million, or 17.8%, in 2008
driven by a 20.8% volume decline driven partially by force
majeure claims from SunBelts sole chlorine customer,
OxyVinyls. In December, OxyVinyls declared force majeure due to
a plant shutdown. In the third quarter of 2008, OxyVinyls
declared force majeure due to the combined effect of Hurricanes
Gustav and Ike.
Corporate and
Eliminations
Operating loss from Corporate and eliminations was
$157.3 million higher in 2008 due mainly to a
$170 million impairment of goodwill, higher
year-over-year
restructuring charges offset partially by lower environmental
remediation charges. In 2008, we recorded environmental
remediation, restructuring and impairment charges of
$229.0 million as compared to $69.9 million of similar
charges recorded in 2007. The following table breaks down
Corporate and eliminations into its various components:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
|
|
Impairment of goodwill(a)
|
|
$
|
(170.0
|
)
|
|
$
|
|
|
Environmental remediation costs(b)
|
|
|
(15.6
|
)
|
|
|
(33.2
|
)
|
Employee separation and plant phaseout(c)
|
|
|
(39.7
|
)
|
|
|
(2.2
|
)
|
Charges related to investment in equity affiliate(d)
|
|
|
(4.7
|
)
|
|
|
(1.6
|
)
|
Share-based compensation
|
|
|
(3.0
|
)
|
|
|
(4.3
|
)
|
Impairment of OxyVinyls equity investment(e)
|
|
|
|
|
|
|
(14.8
|
)
|
Settlement of environmental costs related to Calvert City(f)
|
|
|
|
|
|
|
(15.6
|
)
|
Impairment of intangibles and other investments(g)
|
|
|
|
|
|
|
(2.5
|
)
|
Cost related to sale of OxyVinyls equity investment
|
|
|
|
|
|
|
(0.4
|
)
|
Gain on sale of assets(h)
|
|
|
|
|
|
|
2.5
|
|
All other and eliminations(i)
|
|
|
(34.7
|
)
|
|
|
(38.3
|
)
|
|
Total Corporate and eliminations
|
|
$
|
(267.7
|
)
|
|
$
|
(110.4
|
)
|
|
|
|
|
|
(a) |
|
In the fourth quarter of 2008, we
recognized a non-cash goodwill impairment charge of
$170.0 million related to our Geon Compounds and Specialty
Coatings reporting units within the Performance Products and
Solutions segment. See Note 2, Goodwill and Other
Intangibles, to the accompanying consolidated financial
statements for further information.
|
|
(b) |
|
In the third quarter of 2007, our
accrual for costs related to future remediation at inactive or
formerly owned sites was adjusted based on a U.S. District
Courts rulings on several motions in the case of Westlake
Vinyls, Inc. v. Goodrich Corporation et al. and a
settlement agreement entered into in connection with the case,
which requires us to pay remediation costs related to the
Calvert City facility.
|
|
(c) |
|
During the third quarter of 2008
and subsequently in January 2009, we announced the restructuring
of certain manufacturing assets, primarily in North America. See
Note 3, Employee Separation and Plant Phaseout, to
the accompanying consolidated financial statements for further
information.
|
|
(d) |
|
In the third quarter of 2008 and
2007, we recorded $2.6 million and $1.6 million,
respectively, related to our proportionate share of the
write-down of certain assets by GPA, our former equity affiliate
in Columbia. Also, in the third quarter of 2008, we recorded a
$2.1 million charge related to our proportionate share of
an impairment of our investment in this former equity affiliate.
|
|
(e) |
|
Our 24% equity investment in
OxyVinyls was adjusted at June 30, 2007 as the carrying
value was higher than the fair value and the decrease was
determined to be an other than temporary decline in value.
|
|
(f) |
|
In the third quarter of 2007, we
accrued $15.6 million to reimburse Goodrich Corporation for
remediation costs paid on our behalf and certain legal costs
related to the Calvert City facility.
|
|
(g) |
|
An impairment of the carrying value
of certain patents and technology agreements and investments of
$2.5 million was recorded during 2007.
|
|
(h) |
|
The gains on sale of assets in 2007
relates to the sale of previously closed facilities and other
assets.
|
|
(i) |
|
All other and eliminations is
comprised of intersegment eliminations and corporate general and
administrative costs that are not allocated to segments.
|
Liquidity and
Capital Resources
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
222.7
|
|
|
$
|
44.3
|
|
Accounts receivable availability
|
|
|
112.8
|
|
|
|
121.4
|
|
|
Liquidity
|
|
$
|
335.5
|
|
|
$
|
165.7
|
|
|
|
Liquidity is defined as an enterprises ability to generate
adequate amounts of cash to meet both current and future needs.
These needs include paying obligations as they mature,
maintaining production capacity and providing for planned
growth. Capital resources are sources of funds other than those
generated by operations.
Liquidity increased as of December 31, 2009 compared to
December 31, 2008 primarily as a result of the increase in
cash associated with improved earnings and the reduction in
working capital investment since the beginning of 2009. The
reduction in working capital is reflective of our efforts to
increase inventory efficiency, and improve the timing between
customer receipt and vendor payments. Our cash balance was also
favorably impacted by the $23.9 million reimbursement of
previously incurred environmental costs and $13.5 million
of proceeds associated with the sale of our interest in GPA.
These items more than offset the impact of $17.2 million of
pension contributions and $31.3 million of payments in 2009
for our previously announced restructuring activities, the
payment of $11.5 million related to the acquisition of NEU,
the repayment of $20.0 million aggregate principal amount
of our 6.91% medium-term notes and the reduction in short-term
debt of
24 POLYONE
CORPORATION
$5.7 million. Additionally, liquidity was negatively
impacted by the reduction in availability under our receivables
sale facility due to the decrease in our U.S. and Canadian
accounts receivable.
Cash
Flows
The following discussion focuses on the material components of
cash flows from operating, investing and financing activities.
Operating
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
67.8
|
|
|
$
|
(272.9
|
)
|
|
$
|
11.4
|
|
Depreciation and amortization
|
|
|
64.8
|
|
|
|
68.0
|
|
|
|
57.4
|
|
Deferred income tax provision (benefit)
|
|
|
5.9
|
|
|
|
89.4
|
|
|
|
(57.1
|
)
|
Premium on early extinguishment of long-term debt
|
|
|
|
|
|
|
|
|
|
|
12.8
|
|
Provision for doubtful accounts
|
|
|
3.3
|
|
|
|
6.0
|
|
|
|
1.9
|
|
Stock compensation expense
|
|
|
2.6
|
|
|
|
3.0
|
|
|
|
4.3
|
|
Impairment of goodwill
|
|
|
5.0
|
|
|
|
170.0
|
|
|
|
|
|
Asset write-downs and impairment charges, net of (gain) on sale
of closed facilities
|
|
|
3.7
|
|
|
|
3.6
|
|
|
|
3.3
|
|
Companies carried at equity and minority interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity affiliates and minority interest
|
|
|
(35.2
|
)
|
|
|
(31.2
|
)
|
|
|
(27.7
|
)
|
Distributions and distributions received
|
|
|
36.5
|
|
|
|
32.9
|
|
|
|
37.6
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
1.3
|
|
|
|
60.8
|
|
|
|
(10.8
|
)
|
Decrease in inventories
|
|
|
39.1
|
|
|
|
33.6
|
|
|
|
26.7
|
|
Increase (decrease) in accounts payable
|
|
|
76.3
|
|
|
|
(94.7
|
)
|
|
|
17.8
|
|
Increase (decrease) in sale of accounts receivable
|
|
|
(14.2
|
)
|
|
|
14.2
|
|
|
|
|
|
(Decrease) increase in accrued expenses and other
|
|
|
(27.2
|
)
|
|
|
(10.2
|
)
|
|
|
(10.4
|
)
|
|
Net cash provided by operating activities
|
|
$
|
229.7
|
|
|
$
|
72.5
|
|
|
$
|
67.2
|
|
|
|
Cash provided by operating activities increased in 2009 as
compared to 2008 due primarily to improved earnings and the
previously described favorable impacts related to improved
working capital performance.
Cash provided by operating activities increased in 2008 as
compared to 2007 due to higher earnings before giving effect to
non-cash restructuring and tax valuation allowance charges,
lower debt extinguishment premiums, lower cash payments for
environmental remediation, and an increase in the sale of
accounts receivable, all of which more than offset higher
pension funding.
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
(31.7
|
)
|
|
$
|
(42.5
|
)
|
|
$
|
(43.4
|
)
|
Investment in affiliated company
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
Business acquisitions, net of cash acquired
|
|
|
(11.5
|
)
|
|
|
(150.2
|
)
|
|
|
(11.2
|
)
|
Proceeds from sale of investment in equity affiliate and other
assets
|
|
|
17.0
|
|
|
|
0.3
|
|
|
|
269.9
|
|
|
Net cash (used) provided by investing activities
|
|
$
|
(26.2
|
)
|
|
$
|
(193.5
|
)
|
|
$
|
215.3
|
|
|
|
Net cash used by investing activities in 2009 reflects
$13.5 million of cash proceeds from the sale of our
interest in GPA and $3.5 million of proceeds from the sale
of other assets. Capital expenditures primarily related to
maintenance spending and implementing our restructuring
initiatives. Business acquisitions, net of cash acquired in 2009
reflects cash paid for our acquisition of NEU.
Net cash used by investing activities in 2008 relates primarily
to the $150.2 million to fund the acquisition of GLS and
$42.5 million of capital expenditures. Capital expenditures
in 2008 reflect strategic investments to upgrade our Enterprise
Resource Planning system, expand our global footprint in China
and India through investment in manufacturing and customer
specific projects, product line investments to support our
specialization strategy, and the enablement of the manufacturing
restructuring initiative we announced in July 2008. Spending on
strategic projects constituted approximately 48% of total
spending. The remainder of spending was related to productivity
improvement, on-going maintenance of the asset base and critical
environmental, health and safety (EH&S) projects.
Net cash provided by investing activities in 2007 totaled
$215.3 million, primarily from the proceeds of the sale of
our 24% interest in OxyVinyls. In a transaction related to the
sale of our interest in OxyVinyls, we purchased the remaining
10% minority interest in Powder Blends, LP. Included in the
$43.4 million of capital expenditures were strategic
investments to expand our footprint in Eastern Europe through
the building of our Poland facility, and increase our
capabilities to compete in more specialized end-markets related
to additives and liquid color applications. Spending on
strategic projects constituted approximately 42% of total
spending. The remainder of spending was related to productivity
improvement, on-going maintenance of the asset base and critical
EH&S projects.
Capital expenditures are currently estimated to be approximately
$40 million in 2010, primarily to maintain manufacturing
operations, support an implementation of a Enterprise Resource
Planning system in Asia and other strategic spending.
25 POLYONE
CORPORATION
Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in short-term debt
|
|
$
|
(5.7
|
)
|
|
$
|
43.3
|
|
|
$
|
(0.2
|
)
|
Issuance of long-term debt, net of debt issuance costs
|
|
|
|
|
|
|
77.8
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
(20.0
|
)
|
|
|
(25.3
|
)
|
|
|
(264.1
|
)
|
Purchase of common stock for treasury
|
|
|
|
|
|
|
(8.9
|
)
|
|
|
|
|
Premium paid on early extinguishment of long-term debt
|
|
|
|
|
|
|
|
|
|
|
(12.8
|
)
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
1.1
|
|
|
|
1.2
|
|
|
Net cash (used) provided by financing activities
|
|
$
|
(25.7
|
)
|
|
$
|
88.0
|
|
|
$
|
(275.9
|
)
|
|
|
Cash used by financing activities in 2009 reflects the repayment
of short-term debt and our 6.91% medium-term notes.
Cash provided by financing activities in 2008 was primarily used
for the acquisition of GLS and the funding necessary to
extinguish maturing debt. On January 9, 2008, we borrowed
$40.0 million under the new credit facility. In April 2008,
we sold an additional $80.0 million in aggregate principal
amount of 8.875% senior notes due 2012.
Cash used by financing activities in 2007 was primarily for the
extinguishment of debt.
Balance
Sheets
The following discussion focuses on material changes in balance
sheet line items from December 31, 2008 to
December 31, 2009 that are not discussed in the preceding
Cash Flows section.
Pension benefits Our liability for
pension benefits decreased $52.0 million during 2009, due
mainly to the January 15, 2009 amendments to certain of our
pension plans and improved plan asset returns for the year.
These amendments permanently froze future benefit accruals and
reduced our total future pension fund contributions by
approximately $19 million.
Post-retirement benefits other than
pension Our liability for post-retirement
benefits other than pensions decreased by $59.1 million due
primarily to the September 1, 2009 amendments to certain of
our other post-retirement benefit plans. These amendments
resulted in the phase-out of benefits for certain eligible
retirees through December 31, 2012 and reduced our total
future contributions by approximately $58 million.
Capital
Resources
As of December 31, 2009, we had existing facilities to
access capital resources (receivables sale facility, credit
facility, medium term notes and senior unsecured notes and
debentures) totaling $522.4 million. As of
December 31, 2009, we had used $409.6 million of these
facilities, and $112.8 million was available to be drawn.
As of December 31, 2009, we also had a $222.7 million
cash and cash equivalents balance adding to our available
liquidity.
The following table summarizes our available and outstanding
facilities at December 31, 2009:
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Outstanding
|
|
|
Available
|
|
|
|
|
Long-term debt, including current maturities
|
|
$
|
409.1
|
|
|
$
|
|
|
Receivables sale facility
|
|
|
|
|
|
|
112.8
|
|
Short-term debt
|
|
|
0.5
|
|
|
|
|
|
|
|
|
$
|
409.6
|
|
|
$
|
112.8
|
|
|
|
Long-Term
Debt
Our long-term debt matures over the period ranging from 2010 to
2015. Current maturities of long-term debt at December 31,
2009 were $19.9 million.
Guarantee and
Agreement
We entered into a definitive Guarantee and Agreement with
Citicorp USA, Inc., KeyBank National Association and National
City Bank on June 6, 2006. Under this Guarantee and
Agreement, we guarantee some treasury management and banking
services provided to us and our subsidiaries, such as foreign
currency forwards and bank overdrafts. This guarantee is secured
by our inventories located in the United States.
Credit
Facility
On January 3, 2008, we entered into a credit agreement with
Citicorp USA, Inc., as administrative agent and as issuing bank,
and The Bank of New York, as paying agent. The credit agreement
provides for an unsecured revolving and letter of credit
facility with total commitments of up to $40 million. The
credit agreement expires on March 20, 2011.
Borrowings under the credit facility are based on the applicable
LIBOR rate plus a fixed facility fee of 4.77%. At
December 31, 2009, we had outstanding borrowings under the
credit facility of $40.0 million that is included in
Long-term debt on the accompanying consolidated balance
sheets. The credit agreement contains covenants that, among
other things, restrict our ability to incur liens, and various
other customary provisions, including affirmative and negative
covenants, and representations and warranties. As of
December 31, 2009, we were in compliance with the covenants
in the credit agreement.
Receivables
Sale Facility
The receivables sale facility was amended in June 2007 to extend
the maturity to June 2012 and to, among other things, modify
certain financial covenants and reduce the cost of utilizing the
facility. In July 2007, the receivables sale facility was
amended to include up to $25.0 million of Canadian
receivables, which increased the facility size to
$200.0 million. The maximum proceeds that we may receive
are limited to the lesser of $200.0 million or 85% of the
eligible domestic and Canadian accounts receivable sold. This
facility also makes up to $40.0 million available for
26 POLYONE
CORPORATION
issuing standby letters of credit as a
sub-limit
within the $200.0 million facility, of which
$12.8 million was used at December 31, 2009.
The facility requires us to maintain a minimum fixed charge
coverage ratio (defined as Adjusted EBITDA less capital
expenditures, divided by interest expense and scheduled debt
repayments for the next four quarters) of at least 1 to 1 when
average excess availability under the facility is
$40.0 million or less. As of December 31, 2009, the
average excess availability under the facility was greater than
$40.0 million. Additionally, the fixed charge coverage
ratio exceeded 1 to 1.
Notes
Receivable
Included in Other current assets as of December 31,
2009 is $8.1 million outstanding on a seller note
receivable due to us from OSullivan Films, which purchased
our engineered films business in February 2006. This note
accrues interest at 7% and is due in full with accrued interest
at maturity in December 2010.
Included in Other non-current assets as of
December 31, 2009 is $23.5 million outstanding on a
seller note receivable due from Excel Polymers LLC, which
purchased our elastomers and performance additives business in
August 2004. During 2009, we and Excel agreed to extend the
maturity of the seller note to February 29, 2012. As a
result of this extension, we were given a secured position in
the assets of the business. This note accrues interest at 10%
per annum and is due in full with accrued interest at maturity.
Concentrations
of Credit Risk
Financial instruments, including foreign exchange contracts and
interest rate swap agreements, along with trade accounts
receivable and notes receivable, subject us to potential credit
risk. Concentration of credit risk for trade accounts receivable
is limited due to the large number of customers constituting our
customer base and their distribution among many industries and
geographic locations. We are exposed to credit risk with respect
to notes receivable but we believe collection of the outstanding
amounts is probable. We are exposed to credit risk with respect
to forward foreign exchange contracts and interest rate swap
agreements in the event of non-performance by the
counter-parties to these financial instruments. We believe that
the risk of incurring material losses related to this credit
risk is remote. We do not require collateral to support the
financial position of our credit risks.
Of the capital resource facilities available to us as of
December 31, 2009, the portion of the receivables that was
actually sold under the receivables sale facility provided
security for the transfer of ownership of these receivables.
Each indenture governing our senior unsecured notes and
debentures and our guarantee of $48.8 million of SunBelt
notes allows a specific level of secured debt, above which
security must be provided on each indenture and our guarantee of
the SunBelt notes. The receivables sale facility and our
guarantee of SunBelt debt are not considered debt under the
covenants associated with our senior unsecured notes and
debentures.
Off-Balance Sheet
Arrangements
Receivables
sale facility
We sell a portion of our domestic accounts receivable to PolyOne
Funding Corporation (PFC) and a portion of our Canadian accounts
receivable to PolyOne Funding Canada Corporation (PFCC), both
wholly-owned, bankruptcy-remote subsidiaries. At
December 31, 2009, accounts receivable totaling
$151.1 million were sold to PFC and PFCC. When PFC and PFCC
sell an undivided interest in these accounts receivable to
certain third-party investors, such amounts are reflected as a
reduction of accounts receivable in the accompanying
consolidated balance sheets. 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. At December 31, 2009, PFC and
PFCC had not sold any of their undivided interests in accounts
receivable. We believe that available funding under our
receivables sale facility provides us increased flexibility to
manage working capital requirements and is an important source
of liquidity.
Guarantee of
indebtedness of others
We guarantee $48.8 million of unconsolidated equity
affiliate debt of SunBelt in connection with the construction of
a chlor-alkali facility in McIntosh, Alabama. This debt
guarantee matures in 2017.
Letters of
credit
The receivables sale facility makes up to $40.0 million
available for the issuance of standby letters of credit,
$12.8 million of which was used at December 31, 2009.
These letters of credit are issued by the bank in favor of third
parties and are mainly related to insurance claims and interest
rate swap agreements.
We have no other off-balance sheet arrangements as defined in
Item 303(a)(4)(ii) of
Regulation S-K.
Contractual
Obligations
The following table summarizes our obligations under long-term
debt, operating leases, standby letters of credit, interest
obligations, pension and post-retirement obligations, guarantees
and purchase obligations as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
(In millions)
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
409.1
|
|
|
$
|
19.9
|
|
|
$
|
339.2
|
|
|
$
|
|
|
|
$
|
50.0
|
|
Operating leases
|
|
|
75.6
|
|
|
|
19.8
|
|
|
|
26.3
|
|
|
|
12.5
|
|
|
|
17.0
|
|
Standby letters of credit
|
|
|
12.8
|
|
|
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
obligations(1)
|
|
|
88.8
|
|
|
|
32.2
|
|
|
|
45.5
|
|
|
|
7.5
|
|
|
|
3.6
|
|
Pension and post-retirement
obligations(2)
|
|
|
237.6
|
|
|
|
25.4
|
|
|
|
80.9
|
|
|
|
72.4
|
|
|
|
58.9
|
|
Guarantees
|
|
|
48.8
|
|
|
|
6.1
|
|
|
|
12.2
|
|
|
|
12.2
|
|
|
|
18.3
|
|
Purchase obligations
|
|
|
19.6
|
|
|
|
10.2
|
|
|
|
7.0
|
|
|
|
1.7
|
|
|
|
0.7
|
|
|
Total
|
|
$
|
892.3
|
|
|
$
|
126.4
|
|
|
$
|
511.1
|
|
|
$
|
106.3
|
|
|
$
|
148.5
|
|
|
|
27 POLYONE
CORPORATION
|
|
(1)
|
Interest obligations are stated at
the rate of interest that is defined by the debt instrument,
assuming that the debt is paid at maturity.
|
|
(2)
|
Pension and post-retirement
obligations relate to our U.S. and international pension and
other post-retirement plans.
|
We expect to maintain existing levels of available capital
resources and meet our cash requirements in 2010. Expected
sources of cash in 2010 include cash from operations, additional
borrowings under existing loan agreements that are not fully
drawn if needed, cash distributions from equity affiliates and
proceeds from the sale of previously closed facilities and
redundant assets. Expected uses of cash in 2010 include interest
payments, cash taxes, contributions to our defined benefit
pension plan, debt retirements, environmental remediation at
inactive and formerly owned sites and capital expenditures.
Capital expenditures are currently estimated to be approximately
$40 million in 2010, primarily to maintain manufacturing
operations, support an SAP implementation in Asia and other
strategic spending.
We may from time to time seek to retire or purchase our
outstanding debt through cash purchases
and/or
exchanges for equity securities, in open market purchases,
privately negotiated transactions or otherwise. Such repurchases
or exchanges, if any, will depend on prevailing market
conditions, our liquidity requirements, contractual restrictions
and other factors. The amounts involved may be material.
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 receivables sale facility, should allow us to maintain
adequate levels of available capital resources to fund our
operations and meet debt service and minimum pension funding
requirements for both the short and long term.
Critical
Accounting Policies and Estimates
Significant accounting policies are described more fully in
Note 1, 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
financial statements and accompanying notes. We base our
estimates on historical experience and assumptions that we
believe are reasonable under 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. We have reviewed these critical
accounting policies and related disclosures with the Audit
Committee of our Board of Directors.
28 POLYONE
CORPORATION
29
POLYONE
CORPORATION
|
|
|
|
|
|
|
|
|
Effect if Actual Results
|
Description
|
|
Judgments and Uncertainties
|
|
Differ from Assumptions
|
|
Pension and Other Post- retirement Plans
|
|
|
|
|
We account for our defined benefit
pension plans and other post- retirement plans in accordance
with FASB ASC Topic 715, Compensation Retirement
Benefits.
|
|
Included in our results of operations
are significant amounts associated with our pension and post-
retirement benefit plans that we measure using actuarial
valuations. Inherent in these valuations are key assumptions,
including assumptions about discount rates and expected returns
on plan assets. These assumptions are updated at the beginning
of each fiscal year. We consider current market conditions,
including changes in interest rates, when making these
assumptions. Changes in pension and post-retirement benefit
costs may occur in the future due to changes in these
assumptions.
Market conditions and interest rates
significantly affect the value of future assets and liabilities
of our pension and post-retirement 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, fixed-income investments
with maturities that correspond to the timing of our benefit
obligations.
To develop our expected return on plan
assets, we consider our historical long-term asset return
experience, the expected investment portfolio mix of plan assets
and an estimate of long-term investment returns. To develop our
expected portfolio mix of plan assets, we consider the duration
of the plan liabilities and give more weight to equity
investments than to fixed-income securities.
|
|
The weighted average discount rates
used to value our pension and other post-retirement liabilities
as of December 31, 2009 were 6.17% and 5.61%, respectively. As
of December 31, 2009, an increase/decrease in the discount rate
of 50 basis points, holding all other assumptions constant,
would have increased or decreased accumulated other
comprehensive income and the related pension and post-retirement
liability by approximately $24.4 million.
The weighted-average expected return on
assets was 8.50% for 2009, 2008 and 2007. The expected return on
assets is a long-term assumption whose accuracy can only be
measured over a long period based on past experience. A
variation in the expected return on assets by 50 basis
points as of December 31, 2009 would result in a change of
approximately $1.6 million in net periodic benefit cost.
|
Goodwill and Intangible Assets
|
|
|
|
|
Goodwill represents the excess of the
purchase price over the fair value of the net assets of acquired
companies. We follow the guidance in ASC 350,
Intangibles Goodwill and Other, and test
goodwill for 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.
The carrying value of goodwill at December 31, 2009 was
$163.5 million.
|
|
We have identified our reporting units
at the operating segment level or in some cases one level below
the operating segment level. Goodwill is allocated to the
reporting units based on the estimated fair value at the date of
acquisition.
We determine the fair value of our
reporting units using a combination of two valuation methods;
the income approach and the market approach.
The income approach requires us to make
assumptions and estimates regarding projected economic and
market conditions, growth rates, operating margins and cash
expenditures.
The market approach requires us to make
assumptions and judgments to identify comparable publicly-traded
companies, trailing twelve-month earnings before interest,
taxes, depreciation and amortization (EBITDA) and projected
EBITDA.
|
|
If actual results are not consistent
with our assumptions and estimates, we may be exposed to
additional goodwill impairment charges.
Based on our 2009 annual impairment
test, the fair value of each of our reporting units exceeded the
corresponding carrying value by 14% to 82%.
|
At December 31, 2009, our balance
sheet reflected $33.2 million associated with the trade
name acquired as part of the acquisition of GLS.
|
|
We have estimated the fair value of
the GLS tradename using a relief from royalty
payments approach. This approach involves two steps (1)
estimating reasonable royalty rate for the tradename 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 tradename.
|
|
If actual results are not consistent
with our assumptions and estimates, we may be exposed to
impairment charges related to our indefinite lived tradenames.
|
|
|
|
|
|
30
POLYONE
CORPORATION
|
|
|
|
|
|
|
|
|
Effect if Actual Results
|
Description
|
|
Judgments and Uncertainties
|
|
Differ from Assumptions
|
|
Income Taxes
|
|
|
|
|
We account for income taxes using the
asset and liability method. 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.
|
|
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. This
means that significant estimates and judgments are required to
determine the extent that valuation allowances should be
provided against deferred tax assets. We have provided valuation
allowances as of December 31, 2009 aggregating $132.9 million
against such assets based on our current assessment of future
operating results and these other factors.
|
|
Although management believes that the
estimates and judgments discussed herein are reasonable, actual
results could differ, which could result in gains or losses that
could be material.
|
Environmental Liabilities
|
|
|
|
|
Based upon estimates prepared by our
environmental engineers and consultants, we have
$81.7 million accrued at December 31, 2009 to cover
probable future environmental remediation expenditures.
|
|
This accrual represents our best
estimate of the remaining probable remediation costs based upon
information and technology 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.
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. Changes during the past five years have
primarily resulted from an increase in the estimate of future
remediation costs at existing sites and payments made each year
for remediation costs that were already accrued.
|
|
If further developments or resolution
of these matters are not consistent with our assumptions and
judgments, we may need to recognize a significant charge in a
future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect if Actual Results
|
Description
|
|
Judgments and Uncertainties
|
|
Differ from Assumptions
|
|
Share-Based Compensation
|
|
|
|
|
We have share-based compensation plans
that include non-qualified stock options, incentive stock
options, restricted stock, restricted stock units, performance
shares, performance units and stock appreciation rights (SARs).
See Note 15, Share-Based Compensation, to the
accompanying consolidated financial statements for a complete
discussion of our stock-based compensation programs.
|
|
Option-pricing models and generally
accepted valuation techniques require management to make
assumptions and to apply judgment to determine the fair value of
our awards. These assumptions and judgments include estimating
the future volatility of our stock price, future employee
turnover rates and risk-free rate of return.
|
|
We do not believe there is a
reasonable likelihood there will be a material change in the
future estimates or assumptions we use to determine share- based
compensation expense. However, if actual results are not
consistent with our estimates or assumptions, we may be exposed
to changes in share-based compensation expense that could be
material.
|
We determine the fair value of our
SARs granted in 2009 and 2007 based on a Monte Carlo simulation
method. For SARs granted during 2008, the option pricing model
used was the Black-Scholes method.
|
|
|
|
|
We determine the fair value of our
market-based and performance-based nonvested share awards at the
date of grant using generally accepted valuation techniques and
the average of the high and low grant date market price of our
stock.
|
|
|
|
|
Management reviews its assumptions and
the valuations provided by independent third-party valuation
advisors to determine the fair value of share-based compensation
awards.
|
|
|
|
|
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 entitys purpose and design and a companys
ability to direct the activities of the entity that most
significantly impact the entitys 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 companys involvement in variable interest entities and
any significant changes in risk exposure due to that
involvement. The new requirements are effective for our fiscal
year beginning January 1, 2010. The adoption of this
guidance will not materially affect our financial statements.
Subsequent Events In May 2009, the
FASB issued new guidance to establish general standards of
accounting for and disclosure 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 22, Subsequent
Events.
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. GAAP 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
materially affect our financial statements. See Note 19,
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 adoption of this new guidance did not
materially impact our 2009 financial statements. Refer to
Note 20, Business Combinations.
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 affect
our financial statements. Refer to Note 18, Financial
Instruments, for information on our derivatives and the
required disclosures.
31 POLYONE
CORPORATION
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are exposed to certain market risks as part of our ongoing
business operations, including risks from changes in interest
rates on debt obligations and foreign currency exchange rates
that could impact our financial condition, results of operations
and cash flows. We manage our exposure to these and other market
risks through regular operating and financing activities,
including the use of derivative financial instruments. We intend
to use these derivative financial instruments as risk management
tools and not for speculative investment purposes.
Interest rate exposure We are subject
to interest rate risk related to our floating rate debt. As of
December 31, 2009, approximately 90% of the principal
amount of our debt obligations were at fixed rates.
Additionally, borrowings under the credit facility are based on
the applicable LIBOR rate plus a fixed facility fee of 4.77%.
There would be no significant 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, 2009.
Foreign currency exposure We enter
into intercompany lending transactions that are denominated in
various foreign currencies and are subject to financial exposure
from foreign exchange rate movement from the date a loan is
recorded to the date it is settled or revalued. To mitigate this
risk, we enter into foreign exchange contracts. Gains and losses
on these contracts generally offset gains and losses on the
assets and liabilities being hedged.
Effective April 1, 2009, we changed the functional currency
for our Canadian operations from the Canadian dollar to the
U.S. dollar. Our sales in Canada are primarily denominated
in U.S. dollars. Additionally, with the closure of our
Niagara, Canada facility in the first quarter of 2009, the
majority of our inventory is sourced from our
U.S. operations. The change in functional currency is
applied on a prospective basis. The U.S dollar translated
amounts of nonmonetary assets and liabilities at March 31,
2009 became the historical accounting basis for those assets and
liabilities at April 1, 2009. The change in functional
currency in Canada did not have a material effect on our
consolidated results of operations for 2009.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Index to
Financial Statements
32 POLYONE
CORPORATION
MANAGEMENTS
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 financial statements and disclosures included in this Annual
Report fairly present in all material respects the financial
position, results of operations, shareholders equity and
cash flows of PolyOne Corporation as of and for the year ended
December 31, 2009.
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 companys disclosure controls
and procedures at December 31, 2009 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 Corporations
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 companys
transactions are properly recorded and reported to permit the
preparation of the companys financial statements in
conformity with generally accepted accounting principles; and
the companys 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 PolyOnes
internal control over financial reporting as of
December 31, 2009 and has prepared Managements Annual
Report On Internal Control Over Financial Reporting contained on
page 62 of this Annual Report. This report concludes that
internal control over financial reporting is effective and that
no material weaknesses were identified.
|
|
|
|
|
/s/ Robert
M. Patterson
|
|
|
|
Stephen D. Newlin
|
|
Robert M. Patterson
|
Chairman, President and
Chief Executive Officer
|
|
Senior Vice President
and Chief Financial Officer
|
February 18, 2010
33 POLYONE
CORPORATION
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of
Directors and Shareholders
PolyOne Corporation
We have audited PolyOne Corporations internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). PolyOne
Corporations 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
Managements Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an
opinion on the companys internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys 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 companys
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 companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, PolyOne Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of PolyOne Corporation and
subsidiaries as of December 31, 2009, and 2008, and the
related consolidated statements of operations,
shareholders equity and cash flows for each of the three
years in the period ended December 31, 2009, and our report
dated February 18, 2010 expressed an unqualified opinion
thereon.
Cleveland, Ohio
February 18, 2010
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of
Directors and Shareholders
PolyOne Corporation
We have audited the accompanying consolidated balance sheets of
PolyOne Corporation as of December 31, 2009 and 2008, and
the related consolidated statements of operations,
shareholders equity and cash flows for each of the three
years in the period ended December 31, 2009. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the
report of other auditors provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of PolyOne Corporation at December 31,
2009 and 2008, and the consolidated results of their operations
and their cash flows for each of the three years in the period
ended December 31, 2009, 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),
PolyOne Corporations internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission, and our report dated February 18, 2010
expressed an unqualified opinion thereon.
Cleveland, Ohio
February 18, 2010
34 POLYONE
CORPORATION
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In millions, except per share data)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Sales
|
|
$
|
2,060.7
|
|
|
$
|
2,738.7
|
|
|
$
|
2,642.7
|
|
Cost of sales
|
|
|
1,720.2
|
|
|
|
2,442.1
|
|
|
|
2,381.7
|
|
|
Gross margin
|
|
|
340.5
|
|
|
|
296.6
|
|
|
|
261.0
|
|
Selling and administrative
|
|
|
272.3
|
|
|
|
287.1
|
|
|
|
254.8
|
|
Impairment of goodwill
|
|
|
5.0
|
|
|
|
170.0
|
|
|
|
|
|
Income from equity affiliates
|
|
|
35.2
|
|
|
|
31.2
|
|
|
|
27.7
|
|
|
Operating income (loss)
|
|
|
98.4
|
|
|
|
(129.3
|
)
|
|
|
33.9
|
|
Interest expense, net
|
|
|
(34.3
|
)
|
|
|
(37.2
|
)
|
|
|
(46.9
|
)
|
Premium on early extinguishment of long-term debt
|
|
|
|
|
|
|
|
|
|
|
(12.8
|
)
|
Other expense, net
|
|
|
(9.6
|
)
|
|
|
(4.6
|
)
|
|
|
(6.6
|
)
|
|
Income (loss) before income taxes
|
|
|
54.5
|
|
|
|
(171.1
|
)
|
|
|
(32.4
|
)
|
Income tax benefit (expense)
|
|
|
13.3
|
|
|
|
(101.8
|
)
|
|
|
43.8
|
|
|
Net income (loss)
|
|
$
|
67.8
|
|
|
$
|
(272.9
|
)
|
|
$
|
11.4
|
|
|
|
Basic and diluted earnings (loss) per common share:
|
|
$
|
0.73
|
|
|
$
|
(2.94
|
)
|
|
$
|
0.12
|
|
Weighted-average shares used to compute earnings (loss) per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
92.4
|
|
|
|
92.7
|
|
|
|
92.8
|
|
Diluted
|
|
|
93.4
|
|
|
|
92.7
|
|
|
|
93.1
|
|
The accompanying notes to
consolidated financial statements are an integral part of these
statements.
35 POLYONE
CORPORATION
Consolidated Balance
Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(In millions, except per share data)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
222.7
|
|
|
$
|
44.3
|
|
Accounts receivable (less allowance of $5.9 in 2009 and $6.7 in
2008)
|
|
|
274.4
|
|
|
|
262.1
|
|
Inventories
|
|
|
159.6
|
|
|
|
197.8
|
|
Deferred income tax assets
|
|
|
|
|
|
|
1.0
|
|
Other current assets
|
|
|
38.0
|
|
|
|
19.9
|
|
|
Total current assets
|
|
|
694.7
|
|
|
|
525.1
|
|
Property, net
|
|
|
392.4
|
|
|
|
432.0
|
|
Investment in equity affiliates and nonconsolidated subsidiary
|
|
|
5.8
|
|
|
|
20.5
|
|
Goodwill
|
|
|
163.5
|
|
|
|
163.9
|
|
Other intangible assets, net
|
|
|
71.7
|
|
|
|
69.1
|
|
Deferred income tax assets
|
|
|
8.1
|
|
|
|
0.5
|
|
Other non-current assets
|
|
|
55.7
|
|
|
|
66.6
|
|
|
Total assets
|
|
$
|
1,391.9
|
|
|
$
|
1,277.7
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
19.9
|
|
|
$
|
19.8
|
|
Short-term debt
|
|
|
0.5
|
|
|
|
6.2
|
|
Accounts payable, including amounts payable to related party
|
|
|
238.3
|
|
|
|
160.0
|
|
Accrued expenses and other liabilities
|
|
|
117.0
|
|
|
|
118.2
|
|
|
Total current liabilities
|
|
|
375.7
|
|
|
|
304.2
|
|
Long-term debt
|
|
|
389.2
|
|
|
|
408.3
|
|
Post-retirement benefits other than pensions
|
|
|
21.8
|
|
|
|
80.9
|
|
Pension benefits
|
|
|
173.0
|
|
|
|
225.0
|
|
Other non-current liabilities
|
|
|
98.6
|
|
|
|
83.4
|
|
Commitments and contingencies (See Note 12)
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
Preferred stock, 40.0 shares authorized, no shares issued
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par, 400.0 shares authorized,
122.2 shares issued in 2009 and 2008
|
|
|
1.2
|
|
|
|
1.2
|
|
Additional paid-in capital
|
|
|
1,065.5
|
|
|
|
1,065.0
|
|
Accumulated deficit
|
|
|
(253.6
|
)
|
|
|
(321.4
|
)
|
Common stock held in treasury, at cost, 29.7 shares in 2009
and 29.9 shares in 2008
|
|
|
(321.0
|
)
|
|
|
(323.8
|
)
|
Accumulated other comprehensive loss
|
|
|
(158.5
|
)
|
|
|
(245.1
|
)
|
|
Total shareholders equity
|
|
|
333.6
|
|
|
|
175.9
|
|
|
Total liabilities and shareholders equity
|
|
$
|
1,391.9
|
|
|
$
|
1,277.7
|
|
|
|
The accompanying notes to
consolidated financial statements are an integral part of these
balance sheets.
36 POLYONE
CORPORATION
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
67.8
|
|
|
$
|
(272.9
|
)
|
|
$
|
11.4
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
64.8
|
|
|
|
68.0
|
|
|
|
57.4
|
|
Deferred income tax provision (benefit)
|
|
|
5.9
|
|
|
|
89.4
|
|
|
|
(57.1
|
)
|
Premium on early extinguishment of long-term debt
|
|
|
|
|
|
|
|
|
|
|
12.8
|
|
Provision for doubtful accounts
|
|
|
3.3
|
|
|
|
6.0
|
|
|
|
1.9
|
|
Stock compensation expense
|
|
|
2.6
|
|
|
|
3.0
|
|
|
|
4.3
|
|
Impairment of goodwill
|
|
|
5.0
|
|
|
|
170.0
|
|
|
|
|
|
Asset write-downs and impairment charges, net of gain on sale of
assets
|
|
|
3.7
|
|
|
|
3.6
|
|
|
|
3.3
|
|
Companies carried at equity and minority interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity affiliates and minority interest
|
|
|
(35.2
|
)
|
|
|
(31.2
|
)
|
|
|
(27.7
|
)
|
Dividends and distributions received
|
|
|
36.5
|
|
|
|
32.9
|
|
|
|
37.6
|
|
Changes in assets and liabilities, net of acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
1.3
|
|
|
|
60.8
|
|
|
|
(10.8
|
)
|
Decrease in inventories
|
|
|
39.1
|
|
|
|
33.6
|
|
|
|
26.7
|
|
Increase (decrease) in accounts payable
|
|
|
76.3
|
|
|
|
(94.7
|
)
|
|
|
17.8
|
|
(Decrease) increase in sale of accounts receivable
|
|
|
(14.2
|
)
|
|
|
14.2
|
|
|
|
|
|
Decrease in accrued expenses and other
|
|
|
(27.2
|
)
|
|
|
(10.2
|
)
|
|
|
(10.4
|
)
|
|
Net cash provided by operating activities
|
|
|
229.7
|
|
|
|
72.5
|
|
|
|
67.2
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(31.7
|
)
|
|
|
(42.5
|
)
|
|
|
(43.4
|
)
|
Investment in affiliated company
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
Business acquisitions and related deposits, net of cash acquired
|
|
|
(11.5
|
)
|
|
|
(150.2
|
)
|
|
|
(11.2
|
)
|
Proceeds from sale of investment in equity affiliates and other
assets
|
|
|
17.0
|
|
|
|
0.3
|
|
|
|
269.9
|
|
|
Net cash (used) provided by investing activities
|
|
|
(26.2
|
)
|
|
|
(193.5
|
)
|
|
|
215.3
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in short-term debt
|
|
|
(5.7
|
)
|
|
|
43.3
|
|
|
|
(0.2
|
)
|
Issuance of long-term debt, net of debt issuance costs
|
|
|
|
|
|
|
77.8
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
(20.0
|
)
|
|
|
(25.3
|
)
|
|
|
(264.1
|
)
|
Purchase of common stock for treasury
|
|
|
|
|
|
|
(8.9
|
)
|
|
|
|
|
Premium on early extinguishment of long-term debt
|
|
|
|
|
|
|
|
|
|
|
(12.8
|
)
|
Proceeds from the exercise of stock options
|
|
|
|
|
|
|
1.1
|
|
|
|
1.2
|
|
|
Net cash (used) provided by financing activities
|
|
|
(25.7
|
)
|
|
|
88.0
|
|
|
|
(275.9
|
)
|
Effect of exchange rate changes on cash
|
|
|
0.6
|
|
|
|
(2.1
|
)
|
|
|
6.6
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
178.4
|
|
|
|
(35.1
|
)
|
|
|
13.2
|
|
Cash and cash equivalents at beginning of year
|
|
|
44.3
|
|
|
|
79.4
|
|
|
|
66.2
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
222.7
|
|
|
$
|
44.3
|
|
|
$
|
79.4
|
|
|
|
The accompanying notes to
consolidated financial statements are an integral part of these
statements.
37 POLYONE
CORPORATION
Consolidated
Statements of Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Common
|
|
|
Other
|
|
(Dollars in millions, except per share data;
|
|
Common
|
|
|
Shares Held
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stock Held
|
|
|
Comprehensive
|
|
shares in thousands)
|
|
Shares
|
|
|
in Treasury
|
|
|
Total
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
in Treasury
|
|
|
Income (Loss)
|
|
|
|
|
|
|
|
Balance January 1, 2007
|
|
|
122,192
|
|
|
|
(29,384
|
)
|
|
$
|
581.7
|
|
|
$
|
1.2
|
|
|
$
|
1,065.7
|
|
|
$
|
(59.9
|
)
|
|
$
|
(326.2
|
)
|
|
$
|
(99.1
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
28.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.3
|
|
Adjustments related to Pensions and Postemployment benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit recognized during year, net of tax of $1.9
|
|
|
|
|
|
|
|
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.0
|
)
|
Net actuarial gain occurring during year, net of tax benefit of
$12.2
|
|
|
|
|
|
|
|
|
|
|
26.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
61.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation and benefits and exercise of options
|
|
|
|
|
|
|
325
|
|
|
|
5.8
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007
|
|
|
122,192
|
|
|
|
(29,059
|
)
|
|
|
649.4
|
|
|
|
1.2
|
|
|
|
1,065.0
|
|
|
|
(48.5
|
)
|
|
|
(319.7
|
)
|
|
|
(48.6
|
)
|
|
|
|
|
|
|
Comprehensive (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(272.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(272.9
|
)
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(25.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25.3
|
)
|
Adjustments related to Pensions and Postemployment benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit recognized during year, net of tax of $0.0
|
|
|
|
|
|
|
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.4
|
)
|
Net actuarial loss occurring during year, net of tax of $0.2
|
|
|
|
|
|
|
|
|
|
|
(157.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(157.8
|
)
|
Adjustment for plan amendment, net of tax of $0.0
|
|
|
|
|
|
|
|
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.1
|
)
|
Adjustment for supplemental executive retirement plan, net of
tax of $0.0
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
(469.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(1,250
|
)
|
|
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.9
|
)
|
|
|
|
|
Stock-based compensation and benefits and exercise of options
|
|
|
|
|
|
|
391
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
|
122,192
|
|
|
|
(29,918
|
)
|
|
|
175.9
|
|
|
|
1.2
|
|
|
|
1,065.0
|
|
|
|
(321.4
|
)
|
|
|
(323.8
|
)
|
|
|
(245.1
|
)
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
67.8
|
|
|
|
|
|
|
|
|
|
|
|
67.8
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
Adjustments related to Pensions and Postemployment benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain occurring during year, net of tax of $0.6
|
|
|
|
|
|
|
|
|
|
|
30.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.2
|
|
Net gain due to retiree plan amendments, net of tax of $0.0
|
|
|
|
|
|
|
|
|
|
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.5
|
|
Net gain due to
|
|
|
|
|
|
|
|
|
|
|
37.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.0
|
|
post-retirement healthcare plan amendments, net of tax of $0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on
available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
154.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation and benefits and exercise of options
|
|
|
|
|
|
|
212
|
|
|
|
3.3
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009
|
|
|
122,192
|
|
|
|
(29,706
|
)
|
|
$
|
333.6
|
|
|
$
|
1.2
|
|
|
$
|
1,065.5
|
|
|
$
|
(253.6
|
)
|
|
$
|
(321.0
|
)
|
|
$
|
(158.5
|
)
|
|
|
|
|
|
|
The accompanying notes to financial
statements are an integral part of these statements.
38 POLYONE
CORPORATION
Note 1 DESCRIPTION OF BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Note 2 GOODWILL AND INTANGIBLE ASSETS
Note 3 EMPLOYEE SEPARATION AND PLANT
PHASEOUT
Note 4 FINANCIAL INFORMATION OF EQUITY
AFFILIATES
Note 5 FINANCING ARRANGEMENTS
Note 6 LEASING ARRANGEMENTS
Note 7 ACCOUNTS RECEIVABLE
Note 8 INVENTORIES
Note 9 PROPERTY
Note 10 OTHER BALANCE SHEET LIABILITIES
Note 11 EMPLOYEE BENEFIT PLANS
Note 12 COMMITMENTS AND RELATED-PARTY
INFORMATION
Note 13 OTHER EXPENSE, NET
Note 14 INCOME TAXES
Note 15 SHARE-BASED COMPENSATION
Note 16 SEGMENT INFORMATION
Note 17 WEIGHTED-AVERAGE SHARES USED IN
COMPUTING EARNINGS PER SHARE
Note 18 FINANCIAL INSTRUMENTS
Note 19 FAIR VALUE
Note 20 BUSINESS COMBINATIONS
Note 21 SHAREHOLDERS EQUITY
Note 22 SUBSEQUENT EVENTS
Note 23 SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
|
|
Note 1
|
DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Description of
Business
PolyOne Corporation (PolyOne, Company, we, us or our) is 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 polyvinyl chloride (PVC)
resins. We also have two equity investments: one in a
manufacturer of caustic soda and chlorine and one in a
formulator of polyurethane compounds. PolyOne was incorporated
in the state of Ohio on August 31, 2000.
Our operations are located primarily in the United States,
Europe, Canada, Asia and Mexico. Our operations are reported in
six reportable segments: International Color and Engineered
Materials; Specialty Engineered Materials; Specialty Color,
Additives and Inks; Performance Products and Solutions; PolyOne
Distribution; and Resin and Intermediates. See Note 16,
Segment Information, for more information.
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. Investments in
affiliates and joint ventures in which our ownership is 50% or
less, or in which we do not have control but have the ability to
exercise significant influence over operating and financial
policies, are accounted for under the equity method.
Intercompany transactions are eliminated. Transactions with
related parties, including joint ventures, are in the ordinary
course of business.
Effective April 1, 2009, we changed the functional currency
for our Canadian operations from the Canadian dollar to the
U.S. dollar. Our sales in Canada are primarily denominated
in U.S. dollars. Additionally, with the closure of our
Niagara, Canada facility in the first quarter of 2009, the
majority of our inventory is sourced from our
U.S. operations. The change in functional currency is
applied on a prospective basis. The U.S dollar translated
amounts of nonmonetary assets and liabilities at March 31,
2009 became the historical accounting basis for those assets and
liabilities at April 1, 2009.
39 POLYONE
CORPORATION
The change in functional currency in Canada did not have a
material effect on our consolidated results of operations for
2009.
Reclassifications
Certain reclassifications of the prior period amounts and
presentation have been made to conform to the presentation for
the current period.
Use of
Estimates
Preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions in certain
circumstances that affect amounts reported in the accompanying
consolidated financial statements and notes. Actual results
could differ from these estimates.
Cash and Cash
Equivalents
We consider all highly liquid investments purchased with a
maturity of less than three months to be cash equivalents. Cash
equivalents are stated at cost, which approximates fair value.
Allowance for
Doubtful Accounts
We evaluate the collectability of trade receivables based on a
combination of factors. We regularly analyze significant
customer accounts and, when we become aware of a specific
customers inability to meet its financial obligations to
us, such as in the case of a bankruptcy filing or deterioration
in the customers operating results or financial position,
we record a specific allowance for bad debt to reduce the
related receivable to the amount we reasonably believe is
collectible. We also record bad debt allowances for all other
customers based on a variety of factors including the length of
time the receivables are past due, the financial health of the
customer, economic conditions and historical experience. In
estimating the allowances, we take into consideration the
existence of credit insurance. If circumstances related to
specific customers change, our estimates of the recoverability
of receivables could be adjusted further.
Inventories
Inventories are stated at the lower of cost or market.
Approximately 76% and 66% of our inventories as of
December 31, 2009 and 2008, respectively, are valued using
the
first-in,
first-out (FIFO) cost method. Inventories not valued by the FIFO
method are valued using the
last-in,
first-out (LIFO) or average cost method.
Property and
Depreciation
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 life of the
assets, which ranges from 3 to 15 years for machinery and
equipment and up to 40 years for buildings. Computer
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 capitalize interest expense on major construction and
development projects while in progress.
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 (loss) from continuing
operations in the accompanying consolidated statements of
operations.
We account for operating leases under the provisions of
Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 840, Leases.
Impairment of
Long-Lived Assets
We assess the recoverability of long-lived assets whenever
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 net 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.
Goodwill and
Other Intangible Assets
Goodwill is the excess of the purchase price paid over the fair
value of the net assets of the acquired business. Goodwill and
other indefinite-lived intangible assets are tested for
impairment at the reporting unit level. Our reporting units have
been identified at the operating segment level or in some cases
one level below the operating segment level. Goodwill is
allocated to the reporting units based on the estimated fair
value at the date of acquisition.
Our annual measurement date for testing impairment of goodwill
and other indefinite-lived intangibles is October 1st. We
completed our testing of impairment on October 1, 2009,
noting no impairment. The future occurrence of a potential
indicator of impairment would require an interim assessment for
some or all of the reporting units prior to the next required
annual assessment on October 1, 2010. Refer to
Note 19, Fair Value, for further discussion of our
approach for assessing fair value of goodwill.
Notes
Receivable
As of December 31, 2009, included in Other current
assets is $8.1 million outstanding on a seller note
receivable from OSullivan Films, which purchased our
engineered films business in February 2006. This note accrues
interest at 7% and is due in full with accrued interest at
maturity in December 2010.
40 POLYONE
CORPORATION
As of December 31, 2009, included in Other non-current
assets is $23.5 million outstanding on a seller note
receivable due from Excel Polymers LLC (Excel), which purchased
our elastomers and performance additives business in August
2004. During 2009, the Company and Excel agreed to extend the
maturity of the seller note to February 29, 2012. As a
result of this extension, we were given a secured position in
the assets of the business. This note accrues interest at 10%
per annum and is due in full with accrued interest at maturity.
Litigation
Reserves
FASB ASC Topic 450, Contingencies, requires that we
accrue for loss contingencies associated with outstanding
litigation, claims and assessments for which management has
determined it is probable that a loss contingency exists and the
amount of loss can be reasonably estimated. We record expense
associated with professional fees related to litigation claims
and assessments as incurred.
Derivative
Financial Instruments
FASB ASC Topic 815, Derivative and Hedging, requires that
all derivative financial instruments, such as foreign exchange
contracts and interest rate swap agreements, 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 interest rate
fluctuations in the normal course of business. We have
established policies and procedures that manage these exposures
through the use of financial instruments. By policy, we do not
enter into these instruments for trading purposes or speculation.
We enter into intercompany lending transactions denominated in
various foreign currencies and are subject to financial exposure
from foreign exchange rate movement over the term of the loans.
To mitigate this risk, we enter into foreign exchange contracts
with major financial institutions. These contracts are not
treated as hedges and, as a result, are adjusted to fair value,
with the resulting gains and losses recognized as other income
or expense in the accompanying consolidated statements of
operations. Realized and unrealized gains and losses on these
contracts offset the foreign exchange gains and losses on the
underlying transactions. Our forward contracts have original
maturities of one year or less. See Note 18, Financial
Instruments, for more information.
During 2008 and 2007, we used interest rate swap agreements that
modified the exposure to interest rate risk by converting
fixed-rate debt to a floating rate. These interest rate swaps
qualified as fair value hedges in accordance with FASB ASC Topic
815. The interest rate swap and instrument being hedged were
adjusted to fair value in the balance sheet, with the
corresponding change recognized in the statement of operations.
As of and for the year ended December 31, 2009, there were
no open interest rate swaps. See Note 5, Financing
Arrangements, 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. This
standard requires us to (1) recognize the funded status of
the benefit plans in our statement of financial position,
(2) recognize as a component of other comprehensive income,
net of tax, the gains or losses and prior service costs or
credits that arise during the period but are not recognized as
components of net periodic benefit cost, (3) measure
defined benefit plan assets and obligations as of the date of
the employers fiscal year end statement of financial
position and (4) disclose additional information in the
notes to financial statements about certain effects on net
periodic benefit costs for the next fiscal year that arise from
delayed recognition of gains or losses, prior service costs or
credits, and transition assets or obligations.
Accumulated Other
Comprehensive Loss
Accumulated other comprehensive loss at December 31, 2009
and 2008 are as follows:
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
Foreign currency translation adjustments
|
|
$
|
(4.3
|
)
|
|
$
|
(5.0
|
)
|
Unrecognized losses, transition obligation and prior service
costs
|
|
|
(154.4
|
)
|
|
|
(240.1
|
)
|
Unrealized gain in
available-for-sale
securities
|
|
|
0.2
|
|
|
|
|
|
|
|
|
$
|
(158.5
|
)
|
|
$
|
(245.1
|
)
|
|
|
Fair Value of
Financial Instruments
FASB ASC Topic 820, Fair Value Measurements and Disclosures,
requires disclosures of the fair value of financial
instruments. The estimated fair values of financial instruments
were principally based on market prices where such prices were
available and, where unavailable, fair values were estimated
based on market prices of similar instruments. See Note 18,
Financial Instruments, for further discussion.
Foreign Currency
Translation
Revenues and expenses are translated at average currency
exchange rates during the related period. Assets and liabilities
of foreign subsidiaries and equity investees are translated
using the exchange rate at the end of the period. The resulting
translation adjustment is recorded as accumulated other
comprehensive income or loss in shareholders equity. Gains
and losses resulting from foreign currency transactions,
including intercompany transactions that are not considered
permanent investments, are included in other income, net in the
accompanying consolidated statements of operations.
Revenue
Recognition
We recognize revenue when the revenue is realized or realizable,
and has been earned. We recognize revenue when a firm sales
agreement is in place, shipment has occurred and collectability
of the fixed or determinable sales price is reasonably assured.
41 POLYONE
CORPORATION
Shipping and
Handling Costs
Shipping and handling costs are included in cost of sales.
Research and
Development Expense
Research and development costs, which were $22.9 million in
2009, $26.5 million in 2008 and $21.6 million in 2007,
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 the remediation of 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.
Equity
Affiliates
We account for our investments in equity affiliates under FASB
ASC Topic 323, Investments Equity Method and
Joint Ventures. We recognize our proportionate share of the
income of equity affiliates. Losses of equity affiliates are
recognized to the extent of our investment, advances, financial
guarantees and other commitments to provide financial support to
the investee. Any losses in excess of this amount are deferred
and reduce the amount of future earnings of the equity investee
recognized by PolyOne. As of December 31, 2009 and 2008,
there were no deferred losses related to equity investees.
We recognize impairment losses in the value of investments that
we judge to be other than temporary. See Note 4,
Financial Information of Equity Affiliates, for more
information.
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 using an
option-pricing model. 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 operations. As of December 31, 2009, we had
one active share-based employee compensation plan, which is
described more fully in Note 15, Share-Based
Compensation.
Income
Taxes
Deferred 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.
New Accounting
Pronouncements
Consolidation In June 2009, the 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 entitys purpose and
design and a companys ability to direct the activities of
the entity that most significantly impact the entitys
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 companys 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 are effective for us on January 1, 2010. The
adoption of this guidance will not materially affect our
financial statements.
Subsequent Events In May 2009, the
FASB issued new guidance to establish general standards of
accounting for and disclosure 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 22, Subsequent
Events.
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 19, 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 adoption of this new guidance did not
materially impact our 2009 financial statements. Refer to
Note 20, Business Combinations.
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
42 POLYONE
CORPORATION
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 18, Financial
Instruments, for information on our derivatives and the
required disclosures.
|
|
Note 2
|
GOODWILL AND
INTANGIBLE ASSETS
|
The total purchase price associated with acquisitions is
allocated to the fair value of assets acquired and liabilities
assumed based on their fair values at the acquisition date, with
excess amounts recorded as goodwill. Based on a preliminary
purchase price allocation, the acquisition of New England
Urethane, Inc (NEU) resulted in the addition of
$4.5 million of goodwill and $5.9 million in
identifiable intangibles during the year ended December 31,
2009. Additionally, in 2008 the acquisition of GLS resulted in
the addition of $44.1 million of goodwill and
$65.7 million in identifiable intangibles. See
Note 20, Business Combination, for more information
on the NEU and GLS acquisitions. The following table details the
changes in the carrying amount of goodwill:
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
Balance at beginning of the year
|
|
$
|
163.9
|
|
|
$
|
288.8
|
|
Acquisition of businesses
|
|
|
4.5
|
|
|
|
45.2
|
|
Impairment
|
|
|
(5.0
|
)
|
|
|
(170.0
|
)
|
Translation and other adjustments
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
Balance at end of year
|
|
$
|
163.5
|
|
|
$
|
163.9
|
|
|
|
Goodwill as of December 31, 2009 and 2008, by operating
segment, was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
International Color and Engineered Materials
|
|
$
|
72.1
|
|
|
$
|
72.0
|
|
Specialty Engineered Materials
|
|
|
48.6
|
|
|
|
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
|
|
$
|
163.5
|
|
|
$
|
163.9
|
|
|
|
FASB ASC Topic 350 requires that our annual, and any interim,
impairment assessment be performed at the reporting unit level.
At October 1, 2009, five of our reporting units had
goodwill: Geon Compounds; International Color and Engineered
Materials; GLS; Specialty Inks and Polymer Systems; and PolyOne
Distribution. These five reporting units were tested for
impairment as of October 1, 2009, and no indicators of
potential impairment were noted.
During the fourth quarter of 2008, indicators of potential
impairment caused us to conduct an interim impairment test.
Those indicators included the following: a significant decrease
in market capitalization; a decline in recent operating results
and a decline in our business outlook primarily due to the
macroeconomic environment. We completed step one of the
impairment analysis and concluded that, as of December 31,
2008, the fair value of two of our reporting units was below
their respective carrying values, including goodwill. The two
reporting units that showed potential impairment were Geon
Compounds and Specialty Coatings (reporting units within
Performance Products and Solutions). As such, step two of the
impairment test was initiated; however, due to its time
consuming nature, the step-two analysis had not been completed
as of the filing date of our 2008 annual report on
Form 10-K
for the year ended December 31, 2008. We recorded an
estimated non-cash goodwill impairment charge of
$170.0 million as of December 31, 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 Impairment of goodwill in the
accompanying Consolidated Statements of Operations and is
reflected on the line Corporate and eliminations in
Note 16, Segment Information.
At December 31, 2009, PolyOne had $33.2 million of
indefinite-lived other intangible assets that are not subject to
amortization, consisting of a trade name acquired as part of the
GLS acquisition. This indefinite-lived intangible asset was
tested for impairment as of October 1, 2009, and no
impairment adjustments were determined to be required.
Information regarding PolyOnes finite-lived other
intangible assets follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
Acquisition
|
|
|
Accumulated
|
|
|
Currency
|
|
|
|
|
(In millions)
|
|
Cost
|
|
|
Amortization
|
|
|
Translation
|
|
|
Net
|
|
|
|
|
Non-contractual customer relationships
|
|
$
|
42.2
|
|
|
$
|
(11.7
|
)
|
|
$
|
|
|
|
$
|
30.5
|
|
Sales contract
|
|
|
11.4
|
|
|
|
(10.4
|
)
|
|
|
|
|
|
|
1.0
|
|
Patents, technology and other
|
|
|
9.5
|
|
|
|
(3.7
|
)
|
|
|
1.2
|
|
|
|
7.0
|
|
|
Total
|
|
$
|
63.1
|
|
|
$
|
(25.8
|
)
|
|
$
|
1.2
|
|
|
$
|
38.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
Acquisition
|
|
|
Accumulated
|
|
|
Currency
|
|
|
|
|
(In millions)
|
|
Cost
|
|
|
Amortization
|
|
|
Translation
|
|
|
Net
|
|
|
|
|
Non-contractual customer relationships
|
|
$
|
37.0
|
|
|
$
|
(9.2
|
)
|
|
$
|
|
|
|
$
|
27.8
|
|
Sales contract
|
|
|
11.4
|
|
|
|
(10.2
|
)
|
|
|
|
|
|
|
1.2
|
|
Patents, technology and other
|
|
|
8.8
|
|
|
|
(3.2
|
)
|
|
|
1.3
|
|
|
|
6.9
|
|
|
Total
|
|
$
|
57.2
|
|
|
$
|
(22.6
|
)
|
|
$
|
1.3
|
|
|
$
|
35.9
|
|
|
|
Amortization of other finite-lived intangible assets for the
years ended December 31, 2009, 2008 and 2007 was
$3.3 million, $3.3 million and $2.1 million,
respectively. As of December 31, 2009, we expect
amortization expense on other finite-lived intangibles for the
next five years as follows: 2010 $3.7 million;
2011 $3.5 million; 2012
$3.1 million; 2013 $3.1 million; and
2014 $3.0 million.
43 POLYONE
CORPORATION
|
|
Note 3
|
EMPLOYEE
SEPARATION AND PLANT PHASEOUT
|
Management has undertaken certain restructuring initiatives to
reduce costs and, as a result, we have incurred employee
separation and plant phaseout costs.
Employee separation costs include one-time termination benefits
including salary continuation benefits, medical coverage and
outplacement assistance and are based on a formula that takes
into account each individual employees base compensation
and length of service. Employee separation costs also include
on-going postemployment benefits accounted for under FASB ASC
Topic 712, Compensation Nonretirement
Postemployment Benefits, which are accrued when it is
probable that a liability has been incurred and the amount can
be reasonably estimated.
Plant phaseout costs include the impairment of property, plant
and equipment at manufacturing facilities and the resulting
write-down of the carrying value of these assets to fair value,
which represents managements best estimate of the net
proceeds to be received for the assets to be sold or scrapped,
less any costs to sell. Plant phaseout costs also include cash
facility closing costs and lease termination costs. Assets
transferred to our other facilities are transferred at net book
value.
Employee separation and plant phaseout costs associated with
continuing operations are reflected on the line Corporate and
eliminations in Note 16, Segment Information. A
summary of total employee separation and plant phaseout costs,
including where the charges are recorded in the accompanying
consolidated statements of operations, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Cost of sales
|
|
$
|
24.4
|
|
|
$
|
29.3
|
|
|
$
|
1.4
|
|
|
|
|
|
Selling and administrative
|
|
|
2.8
|
|
|
|
10.4
|
|
|
|
0.8
|
|
|
|
|
|
|
Total employee separation and plant phaseout
|
|
$
|
27.2
|
|
|
$
|
39.7
|
|
|
$
|
2.2
|
|
|
|
|
|
|
|
Included in employee separation and plant phaseout costs shown
in the preceding table were charges of $7.4 million,
included in Cost of sales, and $1.2 million,
included in Selling and administrative, for accelerated
depreciation on assets related to the 2009 restructuring
initiatives discussed below. Cash payments for employee
separation and plant phaseout costs during 2009, 2008 and 2007
were $32.1 million, $5.5 million and
$1.5 million, respectively.
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
included 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 recognized charges of
$26.9 million and $38.3 million in 2009 and 2008,
respectively, related to these actions. We do not expect to
incur significant additional expenses associated with these
activities.
The following table details the charges and changes to the
reserves associated with these initiatives for the year ended
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
Plant Phaseout Costs
|
|
|
|
|
|
|
Separation
|
|
|
Cash
|
|
|
Asset
|
|
|
|
|
(Dollars in millions, except employee numbers)
|
|
Costs
|
|
|
Closure
|
|
|
Write-downs
|
|
|
Total
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Charge
|
|
|
26.1
|
|
|
|
2.2
|
|
|
|
10.0
|
|
|
|
38.3
|
|
Utilized
|
|
|
(2.4
|
)
|
|
|
(1.5
|
)
|
|
|
(10.0
|
)
|
|
|
(13.9
|
)
|
|
Balance at December 31, 2008
|
|
$
|
23.7
|
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
24.4
|
|
Charge
|
|
|
3.0
|
|
|
|
8.4
|
|
|
|
15.5
|
|
|
|
26.9
|
|
Utilized
|
|
|
(23.8
|
)
|
|
|
(7.5
|
)
|
|
|
(15.5
|
)
|
|
|
(46.8
|
)
|
Impact of foreign currency translation
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.2
|
|
|
Balance at December 31, 2009
|
|
$
|
3.0
|
|
|
$
|
1.7
|
|
|
$
|
|
|
|
$
|
4.7
|
|
|
|
In addition to the above, during 2009 and 2008, we incurred
$0.3 million and $1.1 million, respectively, of
expense related to executive severance agreements, which was
included in Selling and administrative in the
accompanying consolidated statements of operations. In 2009 and
2008, we paid $0.8 million and $1.0 million,
respectively, related to executive severance agreements. Our
liability for unpaid executive severance costs was
$0.6 million at December 31, 2009 and will be paid
over the next 12 months.
|
|
Note 4
|
FINANCIAL
INFORMATION OF EQUITY AFFILIATES
|
SunBelt Chlor-Alkali Partnership (SunBelt) is the most
significant of our equity investments and is reported in the
Resin and Intermediates segment. PolyOne owns 50% of SunBelt.
The remaining 50% of SunBelt is owned by Olin SunBelt Inc., a
wholly owned subsidiary of the Olin Corporation.
Summarized financial information for SunBelt follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
SunBelt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
167.4
|
|
|
$
|
173.0
|
|
|
$
|
180.6
|
|
Operating income
|
|
$
|
67.6
|
|
|
$
|
73.6
|
|
|
$
|
91.3
|
|
Partnership income as reported by SunBelt
|
|
$
|
59.4
|
|
|
$
|
65.1
|
|
|
$
|
82.0
|
|
PolyOnes ownership of SunBelt
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
50
|
%
|
|
Earnings of equity affiliate recorded by PolyOne
|
|
$
|
29.7
|
|
|
$
|
32.5
|
|
|
$
|
41.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Summarized balance sheet as of December 31:
|
|
2009
|
|
|
2008
|
|
|
|
|
Current assets
|
|
$
|
16.1
|
|
|
$
|
22.4
|
|
Non-current assets
|
|
|
94.1
|
|
|
|
107.7
|
|
|
Total assets
|
|
|
110.2
|
|
|
|
130.1
|
|
|
Current liabilities
|
|
|
21.4
|
|
|
|
19.7
|
|
Non-current liabilities
|
|
|
85.3
|
|
|
|
97.5
|
|
|
Total liabilities
|
|
|
106.7
|
|
|
|
117.2
|
|
|
Partnership interest
|
|
$
|
3.5
|
|
|
$
|
12.9
|
|
|
|
44 POLYONE
CORPORATION
OxyVinyls, a former 24% owned affiliate, purchases chlorine from
SunBelt under an agreement that expires in 2094. The agreement
requires OxyVinyls to purchase all of the chlorine that is
produced by SunBelt up to a maximum of 250,000 tons per year at
market price, less a discount. OxyVinyls chlorine
purchases from SunBelt were $33.9 million in 2007 through
its disposition date of July 6, 2007.
On July 6, 2007, we sold our 24% interest in OxyVinyls, a
manufacturer and marketer of PVC resins, for cash proceeds of
$261 million.
The following table presents OxyVinyls summarized
financial results for the periods indicated:
|
|
|
|
|
|
|
Six Months Ended
|
|
(In millions)
|
|
June 30, 2007
|
|
|
|
|
OxyVinyls:
|
|
|
|
|
Net sales
|
|
$
|
1,107.4
|
|
Operating income
|
|
$
|
11.6
|
|
Partnership (loss) as reported by OxyVinyls
|
|
$
|
(2.0
|
)
|
PolyOnes ownership of OxyVinyls
|
|
|
24
|
%
|
|
PolyOnes proportionate share of OxyVinyls (loss)
|
|
|
(0.5
|
)
|
Amortization of the difference between PolyOnes investment
and its underlying share of OxyVinyls equity
|
|
|
0.3
|
|
|
(Loss) of equity affiliate recorded by PolyOne
|
|
$
|
(0.2
|
)
|
|
|
We recorded an impairment of $14.8 million on our OxyVinyls
investment during 2007 due to an other than temporary decline in
value. It is included in Income from equity affiliates in
the accompanying consolidated statements of operations. The
impairment is not reflected in the equity affiliate earnings
above because it is excluded as a measure of segment operating
income or loss that is reported to and reviewed by the chief
operating decision maker (See Note 16, Segment
Information).
Our other investments in equity affiliates include the BayOne
Urethane Systems, L.L.C (BayOne) equity affiliate (owned 50%),
which is included in the Specialty Color, Additives and Inks
operating segment, and the Altona Properties equity affiliate
(owned 37.4%), which is included in the Resin and Intermediates
operating segment.
Combined summarized financial information for these equity
affiliates follows:
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
Net sales
|
|
$
|
77.9
|
|
|
$
|
112.2
|
|
Operating income
|
|
|
6.2
|
|
|
|
7.7
|
|
Partnership income as reported by other equity affiliates
|
|
|
5.4
|
|
|
|
6.6
|
|
Equity affiliate earnings recorded by PolyOne
|
|
|
2.7
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
Summarized balance sheet as of December 31:
|
|
2009
|
|
|
2008
|
|
|
|
|
Current assets
|
|
$
|
7.1
|
|
|
$
|
31.4
|
|
Non-current assets
|
|
|
4.2
|
|
|
|
12.3
|
|
|
Total assets
|
|
$
|
11.3
|
|
|
$
|
43.7
|
|
|
|
Current liabilities
|
|
$
|
8.8
|
|
|
$
|
24.6
|
|
Non-current liabilities
|
|
|
|
|
|
|
1.6
|
|
|
Total liabilities
|
|
$
|
8.8
|
|
|
$
|
26.2
|
|
|
|
On October 13, 2009, we sold our interest in Geon Polimeros
Andinos (GPA), previously a 50% owned equity affiliate and part
of the Performance Products and Solutions operating segment. We
received cash proceeds of $13.5 million and recorded a
pre-tax gain of $2.8 million in the fourth quarter 2009
results of operations.
|
|
Note 5
|
FINANCING
ARRANGEMENTS
|
Short-term debt At December 31, 2009 and
2008, $0.5 million and $6.2 million, respectively, of
short-term notes issued by certain of our European subsidiaries
were outstanding. This short-term debt has maturities of less
than one year, is renewable with the consent of both parties,
and is prepayable.
The weighted-average interest rate on total short-term
borrowings was 3.1% at December 31, 2009 and 4.4% at
December 31, 2008.
Long-term debt Long-term debt as of December
31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(Dollars in millions)
|
|
2009(1)
|
|
|
2008(1)
|
|
|
|
|
8.875% senior notes due 2012
|
|
$
|
279.5
|
|
|
$
|
279.2
|
|
7.500% debentures due 2015
|
|
|
50.0
|
|
|
|
50.0
|
|
Medium-term notes:
|
|
|
|
|
|
|
|
|
6.91% medium-term notes due 2009
|
|
|
|
|
|
|
19.8
|
|
6.52% medium-term notes due 2010
|
|
|
19.9
|
|
|
|
19.6
|
|
6.58% medium-term notes due 2011
|
|
|
19.7
|
|
|
|
19.5
|
|
Credit facility borrowings, facility expires 2011
|
|
|
40.0
|
|
|
|
40.0
|
|
|
Total long-term debt
|
|
$
|
409.1
|
|
|
$
|
428.1
|
|
Less current portion
|
|
|
19.9
|
|
|
|
19.8
|
|
|
Total long-term debt, net of current portion
|
|
$
|
389.2
|
|
|
$
|
408.3
|
|
|
|
|
|
|
(1) |
|
Book values include unamortized
discounts and adjustments related to hedging instruments, as
applicable.
|
Aggregate maturities of long-term debt for the next five years
are: 2010 $19.9 million; 2011
$59.7 million; 2012 $279.5 million;
2013 $0.0 million; 2014
$0.0 million; and thereafter $50.0 million.
During April 2008, we sold an additional $80.0 million
aggregate principal amount of 8.875% senior notes due 2012.
Net proceeds from the offering were used to reduce the amount of
receivables previously sold under the receivables sale facility.
On January 3, 2008, we entered into a credit facility with
Citicorp USA, Inc., as administrative agent and as issuing bank,
45 POLYONE
CORPORATION
and The Bank of New York, as paying agent. The credit agreement
provides for an unsecured revolving and letter of credit
facility with total commitments of up to $40.0 million. The
credit agreement expires on March 20, 2011. Borrowings
under the credit facility are based on the applicable LIBOR rate
plus a fixed facility fee of 4.77%.
During 2007, we repurchased $241.4 million aggregate
principal amounts of our 10.625% senior notes at a premium
of $12.8 million. The premium is shown as a separate line
item in the accompanying consolidated statements of operations.
Unamortized deferred note issuance costs of $2.8 million
were charged to expense due to this repurchase and are included
in Interest expense, net in the accompanying consolidated
statements of operations in 2007. Also, during each of the years
ended December 31, 2009, 2008 and 2007, $20.0 million
of aggregate principal amount of our medium-term notes became
due and were paid.
Included in Interest expense, net for the years ended
December 31, 2009, 2008 and 2007 was interest income of
$3.2 million, $3.4 million, and $4.5 million.
Total interest paid on long-term and short-term borrowings was
$35.1 million in 2009, $37.1 million in 2008 and
$45.7 million in 2007.
As of December 31, 2009, our secured borrowings were not at
levels that would trigger the security provisions of the
indentures governing our senior notes and debentures and our
guarantee of the SunBelt notes. See Note 12, Commitments
and Related-Party Information.
We entered into a definitive Guarantee and Agreement with
Citicorp USA, Inc., KeyBank National Association and National
City Bank on June 6, 2006. Under this Guarantee and
Agreement, we guarantee some treasury management and banking
services provided to us and our subsidiaries, such as foreign
currency forwards and bank overdrafts. This guarantee is secured
by our inventories located in the United States.
We are exposed to market risk from changes in interest rates on
our debt obligations. In prior years we entered into interest
rate swap agreements that modified our exposure to interest rate
risk by converting fixed-rate obligations to floating rates or
floating rate obligations to fixed rates. As of
December 31, 2009, there were no open interest rate swap
agreements. The following table shows the interest rate impact
of the swap agreements during 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
|
Effective
|
|
|
|
Interest Rate
|
|
|
Interest Rate
|
|
|
|
during 2008
|
|
|
during 2007
|
|
|
|
|
$40.0 million of borrowings under credit facility with an
interest rate of 6.65%
|
|
|
8.4
|
%
|
|
|
|
|
$60.0 million of medium-term notes with a weighted-average
interest rate of 6.67%
|
|
|
7.1
|
%
|
|
|
|
|
$80.0 million of medium-term notes with a weighted-average
interest rate of 6.76%
|
|
|
|
|
|
|
9.5
|
%
|
|
|
Note 6
|
LEASING
ARRANGEMENTS
|
We lease certain manufacturing facilities, warehouse space,
machinery and equipment, automobiles and railcars under
operating leases. Rent expense was $20.6 million in 2009,
$24.0 million in 2008 and $22.4 million in 2007.
Future minimum lease payments under non-cancelable operating
leases with initial lease terms longer than one year as of
December 31, 2009 were as follows: 2010
$19.8 million; 2011 $15.2 million;
2012 $11.1 million; 2013
$6.9 million; 2014 $5.6 million; and
thereafter $17.0 million.
|
|
Note 7
|
ACCOUNTS RECEIVABLE
|
Accounts receivable as of December 31 consist of the following:
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
Trade accounts receivable
|
|
$
|
129.2
|
|
|
$
|
141.6
|
|
Retained interest in securitized accounts receivable
|
|
|
151.1
|
|
|
|
127.2
|
|
Allowance for doubtful accounts
|
|
|
(5.9
|
)
|
|
|
(6.7
|
)
|
|
|
|
$
|
274.4
|
|
|
$
|
262.1
|
|
|
|
The following table details the changes in allowance for
doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Balance at beginning of the year
|
|
$
|
(6.7
|
)
|
|
$
|
(4.8
|
)
|
|
$
|
(5.9
|
)
|
Provision for doubtful accounts
|
|
|
(3.3
|
)
|
|
|
(6.0
|
)
|
|
|
(1.9
|
)
|
Accounts written off
|
|
|
4.0
|
|
|
|
4.2
|
|
|
|
3.3
|
|
Translation and other adjustments
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
Balance at end of year
|
|
$
|
(5.9
|
)
|
|
$
|
(6.7
|
)
|
|
$
|
(4.8
|
)
|
|
|
Sale of Accounts Receivable 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 was amended in June 2007 to extend
the maturity of the facility to June 2012 and to, among other
things, modify certain financial covenants and reduce the cost
of utilizing the facility.
As of December 31, 2009 and 2008, accounts receivable
totaling $151.1 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
December 31, 2009, neither PFC nor PFCC had 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 December 31, 2009 and
2008. As a result, the interest retained by us is $151.1 million
and
46 POLYONE
CORPORATION
$127.2 million and is included in accounts receivable on
the accompanying consolidated balance sheets as of
December 31, 2009 and 2008, respectively.
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 limit under the facility, of
which $12.8 million was used at December 31, 2009. The
level of availability under the receivables sale facility is
based on the prior months total accounts receivable sold
to PFC and PFCC, as reduced by outstanding letters of credit.
Additionally, availability is dependent upon compliance with a
fixed charge coverage ratio covenant related primarily to
operating performance that is set forth in the related
agreements. As of December 31, 2009, we were in compliance
with these covenants. As of December 31, 2009,
$112.8 million was available for sale.
We also service the underlying accounts receivable and receive a
service fee of 1% per annum on the average daily amount of the
outstanding interests in our receivables. The net discount and
other costs of the receivables sale facility are included in
Other expense, net in the accompanying consolidated
statements of operations.
Components of Inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
At FIFO or average cost, which approximates current cost:
|
|
|
|
|
|
|
|
|
Finished products
|
|
$
|
107.6
|
|
|
$
|
127.4
|
|
Work in process
|
|
|
2.4
|
|
|
|
2.1
|
|
Raw materials and supplies
|
|
|
72.9
|
|
|
|
109.9
|
|
|
|
|
|
182.9
|
|
|
|
239.4
|
|
Reserve to reduce certain inventories to LIFO cost basis
|
|
|
(23.3
|
)
|
|
|
(41.6
|
)
|
|
|
|
$
|
159.6
|
|
|
$
|
197.8
|
|
|
|
During 2009 and 2008, reductions in LIFO inventory layers
resulted in liquidations of LIFO inventory layers carried at
lower costs prevailing in prior years as compared with the cost
of current-year purchases. The effect of LIFO liquidations on
Cost of sales in 2009 and 2008 was a decrease of
$15.8 million and $7.5 million, respectively.
Components of Property, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
Land and land improvements
|
|
$
|
40.7
|
|
|
$
|
40.7
|
|
Buildings
|
|
|
277.0
|
|
|
|
278.6
|
|
Machinery and equipment
|
|
|
916.5
|
|
|
|
912.0
|
|
|
|
|
|
1,234.2
|
|
|
|
1,231.3
|
|
Less accumulated depreciation and amortization
|
|
|
(841.8
|
)
|
|
|
(799.3
|
)
|
|
|
|
$
|
392.4
|
|
|
$
|
432.0
|
|
|
|
Depreciation expense was $61.5 million in 2009,
$64.7 million in 2008 and $55.3 million in 2007.
During 2009 and 2008, we recorded $8.6 million and
$6.9 million, respectively, of accelerated depreciation
related to the restructuring of certain manufacturing assets,
respectively.
|
|
Note 10
|
OTHER
LIABILITIES
|
Other liabilities at December 31, 2009 and 2008 consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Expenses
|
|
|
Non-current Liabilities
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Employment costs
|
|
$
|
68.8
|
|
|
$
|
48.1
|
|
|
$
|
22.0
|
|
|
$
|
10.2
|
|
Environmental
|
|
|
10.2
|
|
|
|
14.1
|
|
|
|
71.5
|
|
|
|
71.5
|
|
Taxes
|
|
|
7.8
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
Post-retirement benefits
|
|
|
4.6
|
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
5.2
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
4.6
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
Employee separation and plant phaseout
|
|
|
5.3
|
|
|
|
25.5
|
|
|
|
|
|
|
|
|
|
Insurance accruals
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
0.8
|
|
|
|
0.2
|
|
Deferred tax liabilities
|
|
|
0.5
|
|
|
|
|
|
|
|
3.8
|
|
|
|
|
|
Other
|
|
|
9.6
|
|
|
|
5.7
|
|
|
|
0.5
|
|
|
|
1.5
|
|
|
|
|
$
|
117.0
|
|
|
$
|
118.2
|
|
|
$
|
98.6
|
|
|
$
|
83.4
|
|
|
|
|
|
Note 11
|
EMPLOYEE BENEFIT
PLANS
|
We have several pension plans; however, as of December 31,
2009, only certain foreign plans accrue benefits. The plans
generally provide benefit payments using a formula that is based
upon employee compensation and length of service. All
U.S. defined benefit pension plans are frozen from accruing
benefits and are closed to new participants.
On January 15, 2009, we adopted amendments 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 to the Geon Plan and the BRP permanently froze
future benefit accruals and provide that participants will not
receive credit under the Geon Plan or the BRP for any eligible
earnings paid on or after that date. Additionally, certain
benefits provided under the RSP and SRP were eliminated after
March 20, 2009. These actions resulted in a reduction of
our 2009 annual benefit expense of $3.7 million and are
expected to reduce our future pension fund contribution
requirements by approximately $20 million.
We also sponsor several unfunded defined benefit post-retirement
plans that provide subsidized health care and life insurance
benefits to certain retirees and a closed group of eligible
employees. On September 1, 2009, we adopted changes to our
U.S. 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. Only certain
47 POLYONE
CORPORATION
employees hired prior to December 31, 1999 are eligible to
participate in our subsidized post-retirement health care and
life insurance plans. These amendments resulted in a curtailment
gain of $21.1 million in our 2009 results and decreased the
accumulated pension benefit obligation by $58.1 million.
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. Actuarial assumptions that were used are also included.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Health Care Benefits
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation beginning of year
|
|
$
|
501.2
|
|
|
$
|
487.1
|
|
|
$
|
91.0
|
|
|
$
|
91.5
|
|
Service cost
|
|
|
1.4
|
|
|
|
1.3
|
|
|
|
0.1
|
|
|
|
0.3
|
|
Interest cost
|
|
|
30.7
|
|
|
|
32.4
|
|
|
|
4.1
|
|
|
|
5.5
|
|
Participant contributions
|
|
|
0.1
|
|
|
|
|
|
|
|
5.9
|
|
|
|
6.0
|
|
Benefits paid
|
|
|
(38.9
|
)
|
|
|
(37.0
|
)
|
|
|
(10.9
|
)
|
|
|
(12.1
|
)
|
Plan amendments/settlements
|
|
|
(18.0
|
)
|
|
|
2.2
|
|
|
|
(58.1
|
)
|
|
|
6.1
|
|
Change in discount rate and other
|
|
|
22.2
|
|
|
|
15.2
|
|
|
|
(5.5
|
)
|
|
|
(6.3
|
)
|
|
Projected benefit obligation end of year
|
|
$
|
498.7
|
|
|
$
|
501.2
|
|
|
$
|
26.6
|
|
|
$
|
91.0
|
|
Projected salary increases
|
|
|
2.1
|
|
|
|
19.9
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
496.6
|
|
|
$
|
481.3
|
|
|
$
|
26.6
|
|
|
$
|
91.0
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets beginning of year
|
|
$
|
271.9
|
|
|
$
|
401.3
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
63.7
|
|
|
|
(120.8
|
)
|
|
|
|
|
|
|
|
|
Company contributions
|
|
|
23.5
|
|
|
|
29.8
|
|
|
|
5.0
|
|
|
|
6.1
|
|
Plan participants contributions
|
|
|
0.1
|
|
|
|
|
|
|
|
5.9
|
|
|
|
6.0
|
|
Benefits paid
|
|
|
(38.9
|
)
|
|
|
(37.0
|
)
|
|
|
(10.9
|
)
|
|
|
(12.1
|
)
|
Other
|
|
|
0.3
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
Plan assets end of year
|
|
$
|
320.6
|
|
|
$
|
271.9
|
|
|
$
|
|
|
|
$
|
|
|
|
|
Under-funded status at end of year
|
|
$
|
(178.1
|
)
|
|
$
|
(229.3
|
)
|
|
$
|
(26.6
|
)
|
|
$
|
(91.0
|
)
|
|
|
Plan assets of $320.6 million and $271.9 million as of
December 31, 2009 and 2008, respectively, relate to our
funded pension plans that have a projected benefit obligation of
$455.4 million and $458.1 million as of
December 31, 2009 and 2008, respectively. As of
December 31, 2009 and 2008, we are 70% and 59% funded,
respectively, in regards to these plans and their respective
projected benefit obligation.
Amounts included in the accompanying consolidated balance sheets
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Health Care Benefits
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Other non-current assets
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
|
|
Current liabilities
|
|
|
5.0
|
|
|
|
4.6
|
|
|
|
4.6
|
|
|
|
10.1
|
|
Long-term liabilities
|
|
|
173.4
|
|
|
|
225.0
|
|
|
|
22.0
|
|
|
|
80.9
|
|
Amounts recognized in AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Health Care Benefits
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Net loss
|
|
$
|
229.0
|
|
|
$
|
279.4
|
|
|
$
|
8.9
|
|
|
$
|
15.7
|
|
Prior service loss (credit)
|
|
|
1.2
|
|
|
|
1.2
|
|
|
|
(52.3
|
)
|
|
|
(24.4
|
)
|
|
|
|
$
|
230.2
|
|
|
$
|
280.6
|
|
|
$
|
(43.4
|
)
|
|
$
|
(8.7
|
)
|
|
|
48 POLYONE
CORPORATION
Change in AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Health Care Benefits
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
AOCI in prior year
|
|
$
|
280.6
|
|
|
$
|
114.8
|
|
|
$
|
(8.7
|
)
|
|
$
|
(13.8
|
)
|
Prior service (cost) credit recognized during year
|
|
|
(0.5
|
)
|
|
|
(0.2
|
)
|
|
|
30.3
|
|
|
|
5.5
|
|
Prior service (cost) credit occurring in the year
|
|
|
0.5
|
|
|
|
1.9
|
|
|
|
(58.1
|
)
|
|
|
6.1
|
|
Net loss (gain) recognized during the year
|
|
|
(12.0
|
)
|
|
|
(7.7
|
)
|
|
|
(0.6
|
)
|
|
|
(1.1
|
)
|
Net (gain) loss occurring in the year
|
|
|
(38.5
|
)
|
|
|
172.1
|
|
|
|
(6.4
|
)
|
|
|
(4.8
|
)
|
Other adjustments
|
|
|
0.1
|
|
|
|
(0.3
|
)
|
|
|
0.1
|
|
|
|
(0.6
|
)
|
|
AOCI in current year
|
|
$
|
230.2
|
|
|
$
|
280.6
|
|
|
$
|
(43.4
|
)
|
|
$
|
(8.7
|
)
|
|
|
As of December 31, 2009 and 2008, we had plans with total
projected and accumulated benefit obligations in excess of the
related plan assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Health Care Benefits
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Projected benefit obligation
|
|
$
|
497.9
|
|
|
$
|
499.6
|
|
|
$
|
26.6
|
|
|
$
|
91.0
|
|
Accumulated benefit obligation
|
|
|
495.9
|
|
|
|
480.2
|
|
|
|
26.6
|
|
|
|
91.0
|
|
Fair value of plan assets
|
|
|
319.6
|
|
|
|
270.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Health Care Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Weighted-average assumptions used to determine benefit
obligation at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.17
|
%
|
|
|
6.62
|
%
|
|
|
5.61
|
%
|
|
|
6.65
|
%
|
Rate of compensation increase
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
Assumed health care cost trend rates at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care cost trend rate assumed for next year
|
|
|
|
|
|
|
|
|
|
|
9.25
|
%
|
|
|
9.25
|
%
|
Rate to which the cost trend rate is assumed to decline (the
ultimate trend rate)
|
|
|
|
|
|
|
|
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
Assumed health care cost trend rates have an effect on the
amounts reported for the health care plans. A one percentage
point change in assumed health care cost trend rates would have
the following impact:
|
|
|
|
|
|
|
|
|
|
|
One Percentage
|
|
|
One Percentage
|
|
(In millions)
|
|
Point Increase
|
|
|
Point Decrease
|
|
|
|
|
Effect on total of service and interest cost
|
|
$
|
0.2
|
|
|
$
|
(0.2
|
)
|
Effect on post-retirement benefit obligation
|
|
|
1.2
|
|
|
|
(1.1
|
)
|
An expected return on plan assets of 8.5% will be used to
determine the 2010 pension expense. The expected long-term rate
of return on pension assets was determined after considering the
historical experience of long-term asset returns by asset
category, the expected investment portfolio mix by category of
asset and estimated future long-term investment returns.
The following table summarizes the components of net period
benefit cost that was recognized during each of the years in the
three-year period ended December 31, 2009. Actuarial
assumptions that were used are also included.
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Pension Benefits
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Health Care Benefits
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(In millions)
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2009
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2008
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2007
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2009
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2008
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2007
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Components of net periodic benefit costs:
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Service cost
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$
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1.4
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$
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1.3
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$
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1.1
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$
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0.1
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$
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0.3
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$
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0.4
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Interest cost
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30.7
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32.4
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30.1
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4.1
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5.5
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5.2
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Expected return on plan assets
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(21.8
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)
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(33.4
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)
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(31.8
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)
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Amortization of net loss
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12.1
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7.5
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9.6
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0.6
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1.2
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1.7
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Curtailment (gain) loss and settlement charges
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(0.8
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)
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0.5
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0.3
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(21.1
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)
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Amortization of prior service credit (cost)
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0.8
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0.2
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(0.1
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)
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(9.1
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)
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(5.6
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)
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(5.8
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)
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$
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22.4
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$
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8.5
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$
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9.2
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$
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(25.4
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)
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$
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1.4
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$
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1.5
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49 POLYONE
CORPORATION
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Pension Benefits
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Health Care Benefits
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2009
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2008
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2007
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2009
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2008
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2007
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Weighted-average assumptions used to determine net periodic
benefit cost for the years ended December 31:
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Discount rate
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6.61
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%
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6.78
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%
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6.07
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%
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6.50
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%
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6.61
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%
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6.02
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%
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Expected long-term return on plan assets
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8.50
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%
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8.50
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%
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8.50
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%
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Rate of compensation increase
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3.5
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%
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3.5
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%
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3.5
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%
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Assumed health care cost trend rates at December 31:
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Health care cost trend rate assumed for next year
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9.25
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%
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9.25
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%
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10.0
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%
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Rate to which the cost trend rate is assumed to decline (the
ultimate trend rate)
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5.00
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%
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5.00
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%
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5.25
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%
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