Edgar Filing: POLYONE CORP

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Document

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, 2016

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number 1-16091

PolyOne Corporation

(Exact name of registrant as specified in its charter)



Ohio		34-1730488

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

33587 Walker Road,		44012
Avon Lake, Ohio		(Zip Code)
(Address of principal executive offices)

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

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Name of each exchange on which registered
Common Shares, par value $.01 per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No 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 ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 þ No ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

The aggregate market value of the registrant’s outstanding common shares held by non-affiliates on June 30, 2016, determined using a per share closing price on that date of $35.24, as quoted on the New York Stock Exchange, was $3.0 billion.

The number of shares of common shares outstanding as of February 1, 2017 was 82,167,364.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement with respect to the 2017 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 management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance and/or sales. In particular, these include statements relating to future actions; prospective changes in raw material costs, product pricing or product demand; future performance; estimated capital expenditures; results of current and anticipated market conditions and market strategies; sales efforts; expenses; the outcome of contingencies such as legal proceedings; and financial results. Factors that could cause actual results to differ materially from those implied by these forward-looking statements include, but are not limited to:


•	effects on foreign operations due to currency fluctuations, tariffs and other political, economic and regulatory risks;


•	changes in polymer consumption growth rates and laws and regulations regarding the disposal of plastic materials where we conduct business;


•	changes in global industry capacity or in the rate at which anticipated changes in industry capacity come online in the industries in which we participate;


•	fluctuations in raw material prices, quality and supply, and in energy prices and supply;


•	production outages or material costs associated with scheduled or unscheduled maintenance programs;


•	unanticipated developments that could occur with respect to contingencies such as litigation and environmental matters, including any developments that would require any increase in our costs and/or reserves for such contingencies;


•	an inability to achieve or delays in achieving or achievement of less than the anticipated financial benefit from initiatives related to working capital reductions, cost reductions and employee productivity goals;


•	an inability to raise or sustain prices for products or services;


•	an inability to maintain appropriate relations with unions and employees;


•	the strength and timing of economic recoveries;


•	the financial condition of our customers, including the ability of customers (especially those that may be highly leveraged and those with inadequate liquidity) to maintain their credit availability;


•	disruptions, uncertainty or volatility in the credit markets that may limit our access to capital;


•	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;


•	the amount and timing of repurchases, if any, of PolyOne common shares;


•	our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends;

•

our ability to realize anticipated savings and operational benefits from the realignment of assets, including the closure of manufacturing facilities; the timing of closings and shifts of production to new facilities related to asset realignments and any unforeseen loss of customers and/or disruptions of service or quality caused by such closings and/or production shifts; separation and severance amounts that differ from original estimates, amounts for non-cash charges related to asset write-offs and accelerated depreciation realignments of property, plant and equipment, that differ from original estimates;


•	our ability to identify and evaluate acquisition targets and consummate acquisitions;

•

the ability to successfully integrate acquired businesses into our operations, including whether such businesses will be accretive to our earnings, retain the management teams of acquired businesses, and retain relationships with customers of acquired businesses, including, without limitation, SilCoTec, Comptek, substantially all of the assets of Gordon Composites, Polystrand and Gordon Holdings and certain TPE assets from Kraton;

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•	information systems failures and cyberattacks; and


•	other factors described in this Annual Report on Form 10-K under Item 1A, “Risk Factors.”

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. You are advised, however, to consult any further disclosures we make on related subjects in our reports on Forms 10-Q, 8-K and 10-K filed with the SEC. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

ITEM 1. BUSINESS

Business Overview

We are a premier provider of specialized polymer materials, services and solutions with operations in specialty engineered materials, color and additive systems, plastic sheet and film solutions and polymer distribution. We are also a highly specialized developer and manufacturer of performance enhancing additives, liquid colorants and fluoropolymers and silicone colorants. Headquartered in Avon Lake, Ohio, we have employees at sales, manufacturing and distribution facilities in North America, South America, Europe, Asia and Africa. When used in this Annual Report on Form 10-K, the terms “we,” “us,” “our”, "PolyOne" and the “Company” mean PolyOne Corporation and its consolidated subsidiaries.

PolyOne was formed on August 31, 2000 from the consolidation of The Geon Company (Geon) and M.A. Hanna Company (Hanna). Geon’s roots date back to 1927 when B.F.Goodrich scientist Waldo Semon produced the first usable vinyl polymer. In 1948, B.F.Goodrich created a vinyl plastic division that was subsequently spun off through a public offering in 1993, creating 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 26^th polymer company acquisition in 2000.

PolyOne Corporation is incorporated in Ohio and headquartered in Avon Lake, Ohio. We employ approximately 7,000 people and have 80 manufacturing sites and eight distribution facilities in North America, South America, Europe, Asia and Africa. We offer more than 35,000 polymer solutions to over 10,000 customers across the globe. In 2016, we had sales of $3.3 billion, 36% of which were to customers outside the United States.

We use our ability to leverage our polymer and formulation expertise with our operational capabilities, being the essential link between large chemical producers (our raw material suppliers) and designers, assemblers and processors of plastics (our customers). We believe that our role in the value chain continues to become more essential as our customers need reliable suppliers with global reach and more effective solutions to improve their profitability and competitive advantage. Our goal is to provide our customers with specialized materials and service solutions through our global reach, broad market knowledge, technical expertise, product breadth, efficient manufacturing operations, a fully integrated information technology network and raw material procurement leverage. Our end markets are primarily in transportation, packaging, building and construction, industrial, healthcare, consumer, wire and cable, electrical and electronics and appliance.

Polymer Industry Overview

Polymers are a class of organic materials that are generally produced by converting natural gas or crude oil derivatives into monomers, such as ethylene, propylene, vinyl chloride and styrene. These monomers are then polymerized into chains called polymers, or plastic resin, such as polyethylene and polypropylene, in their most basic forms. Large petrochemical companies, including some in the petroleum industry, produce a majority of the monomers and base resins because they have direct access to the raw materials needed for production. Monomers make up the majority of the variable cost of manufacturing the base resin. As a result, the cost of a base resin tends to move in tandem with the industry market prices for monomers and the cost of raw materials and energy used during production. Resin selling prices can move in tandem with costs, but are largely driven by supply and demand.

Thermoplastic polymers make up a substantial majority of the resin market and are characterized by their ability to be reshaped repeatedly into new forms after heat and pressure are applied. Thermoplastics offer versatility and a

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wide range of applications. The major types of thermoplastics include polyethylene, polyvinyl chloride, polypropylene, polystyrene, polyester and a range of specialized engineering resins. Each type of thermoplastic has unique qualities and characteristics that make it appropriate for use in a particular application. Thermoplastic composites include these base resins, but are combined with a structural filler such as glass, wood, carbon or polymer fibers to enhance strength, rigidity and structure. Further performance can be delivered through an engineered thermoplastic sheet or thick film, which may incorporate more than one resin formulation or composite in multiple layers to impart additional properties such as gas barrier, structural integrity and lightweighting.

Thermoplastics and polymer composites are found in a variety of end-use products and markets, including packaging, building and construction, wire and cable, transportation, medical, furniture and furnishings, durable goods, outdoor high performance, electrical and electronics, adhesives, inks and coatings. Each type of thermoplastic resin has unique characteristics (such as flexibility, strength or durability) suitable for use in a particular end-use application. The packaging industry requires plastics that help keep food fresh and free of contamination while providing a variety of options for product display, and offering advantages in terms of weight and user-friendliness. In the building and construction industry, plastic provides an economical and energy efficient replacement for other traditional materials in piping applications, siding, flooring, insulation, windows and doors, as well as structural and interior or decorative uses. In the wire and cable industry, thermoplastics serve to protect by providing electrical insulation, flame resistance, durability, water resistance and color coding to wire coatings and connectors. In the transportation industry, plastic has proven to be durable, lightweight and corrosion resistant while offering fuel savings, design flexibility and high performance, often replacing traditional materials such as metal and glass. In the medical industry, plastics are used for a vast array of devices and equipment, including blood and intravenous bags, medical tubing, catheters, lead replacement for radiation shielding, clamps and connectors to bed frames, curtains and sheeting, electronic enclosures and equipment housings. In the outdoor high performance industry, plastic applications are used for components and colorants for all terrain vehicles and reinforced polymers are used for various outdoor activities. In the electronics industry, plastic enclosures and connectors not only enhance safety through electrical insulation, but thermally and electrically conductive plastics provide heat transferring, cooling, antistatic, electrostatic discharge, and electromagnetic shielding performance for critical applications including integrated circuit chip packaging.

Various additives can be formulated with a base resin and further engineered into a structure to provide them with greater versatility and performance. Polymer formulations and structures have advantages over metals, wood, rubber, glass and other traditional materials, which have resulted in the replacement of these materials across a wide spectrum of applications that range from automobile parts to construction materials. These specialized polymers offer advantages compared to traditional materials that include design freedom, processability, weight reduction, chemical resistance, flame retardance and lower cost. Plastics are renowned for their durability, aesthetics, ease of handling and recyclability.

PolyOne Segments

We operate in five reportable segments: (1) Color, Additives and Inks; (2) Specialty Engineered Materials; (3) Designed Structures and Solutions; (4) Performance Products and Solutions; and (5) PolyOne Distribution.

On January 3, 2017, the Company completed the acquisition of SilCoTec, Inc. (SilCoTec), a leading producer of innovative silicone colorants, dispersions and formulations. The results of operations of SilCoTec will be reported in the Color, Additives and Inks segment.

On November 30, 2016, the Company completed the acquisition of COMPTEK Kunststoffverarbeitung GmbH (Comptek), an innovative producer of colorants, additives and formulations for products that utilize high-temperature and highly engineered thermoplastics. The results of operations of Comptek are reported in the Color, Additives and Inks segment.

On July 26, 2016, the Company completed the acquisition of substantially all of the assets of Gordon Composites, Inc. (Gordon Composites), Polystrand, Inc. (Polystrand) and Gordon Holdings, Inc. (Gordon Holdings). Gordon Composites develops high strength profiles and laminates for use in vertical and crossbow archery, sports and recreation equipment, prosthetics and office furniture systems. Polystrand operates in the advanced area of continuous reinforced thermoplastic composite technology space, a next generation material science that delivers the high strength and lightweight characteristics of composites, further enhanced with the design flexibility to form more complex shapes. The results of operations of the acquired businesses are reported in the Specialty Engineered Materials segment.

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innovation and design. The results of operations of Kraton are reported in the Specialty Engineered Materials segment.

Our segments are further discussed in Note 14, Segment Information.

Color, Additives and Inks

Color, Additives and Inks is a leading provider of specialized custom color and additive concentrates in solid and liquid form for thermoplastics, dispersions for thermosets, as well as specialty inks, plastisols, and vinyl slush molding solutions. Color and additive solutions include an innovative array of colors, special effects and performance-enhancing and eco-friendly solutions. When combined with polymer resins, our solutions help customers achieve differentiated specialized colors and effects targeted at the demands of today’s highly design-oriented consumer and industrial end markets. Our additive concentrates encompass a wide variety of performance and process enhancing characteristics and are commonly categorized by the function that they perform, including UV light stabilization and blocking, antimicrobial, anti-static, blowing or foaming, antioxidant, lubricant, oxygen and visible light blocking and productivity enhancement. Our colorant and additives concentrates are used in a broad range of polymers, including those used in medical and pharmaceutical devices, food packaging, personal care and cosmetics, transportation, building products, wire and cable markets. We also provide custom-formulated liquid systems that meet a variety of customer needs and chemistries, including polyester, vinyl, natural rubber and latex, polyurethane and silicone. Our offerings also include proprietary inks and latexes for diversified markets such as recreational and athletic apparel, construction and filtration, outdoor furniture and healthcare. Our liquid polymer coatings and additives are largely based on vinyl and are used in a variety of markets, including building and construction, consumer, healthcare, industrial, packaging, textiles, appliances, transportation, and wire and cable. Color, Additives and Inks has manufacturing, sales and service facilities located throughout North America, South America, Europe, Asia and Africa.

Specialty Engineered Materials

Specialty Engineered Materials is a leading provider of specialty polymer formulations, services and solutions for designers, assemblers and processors of thermoplastic materials across a wide variety of markets and end-use applications. Our product portfolio, which we believe to be one of the most diverse in our industry, includes specialty formulated high-performance polymer materials that are manufactured using thermoplastic resins and elastomers, which are then combined with advanced polymer additives, reinforcement, filler, colorant and/or biomaterial technologies. We also have what we believe is the broadest composite platform of solutions, which include a full range of products from long glass and carbon fiber technology to thermoset and thermoplastic composites. These solutions meet a wide variety of unique customer requirements for light weighting. Our technical and market expertise enables us to expand the performance range and structural properties of traditional engineering-grade thermoplastic resins to meet evolving customer needs. Specialty Engineered Materials has manufacturing, sales and service facilities located throughout North America, Europe, and Asia. Our product development and application reach is further enhanced by the capabilities of our Innovation Centers in the United States, Germany and China, which produce and evaluate prototype and sample parts to help assess end-use performance and guide product development. Our manufacturing capabilities are targeted at meeting our customers’ demand for speed, flexibility and critical quality.

Designed Structures and Solutions

The Designed Structures and Solutions segment was created on March 13, 2013, as a result of the acquisition of Spartech Corporation (Spartech). PolyOne's Designed Structures and Solutions segment utilizes a variety of polymers, specialty additives and processing technologies to produce a complete portfolio of sheet, custom rollstock and specialty film, laminate and acrylic solutions. Our solutions can be engineered to provide structural or functional performance in an application or design and visual aesthetics to meet our customers’ needs. Our offerings also include a wide range of sustainable, cost-effective stock and custom packaging solutions for various industry processes used in the food, medical and consumer markets. In addition to packaging, we also work closely with customers to provide solutions for transportation, building and construction, healthcare and consumer markets. Designed Structures and Solutions has manufacturing, sales and service facilities located throughout North America.

Performance Products and Solutions

Performance Products and Solutions is comprised of the Geon Performance Materials (Geon) and Producer Services business units. The Geon business delivers an array of products and services for vinyl molding and extrusion processors located in North America and Asia. The Geon^TM brand name carries strong recognition globally. Geon's products are sold to manufacturers of durable plastic parts and consumer-oriented products. We also offer a wide range of services including materials testing, component analysis, custom formulation

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development, colorant and additive services, part design assistance, structural analysis, process simulations, mold design and flow analysis and extruder screw design. Vinyl is used across a broad range of markets and applications, including, but not limited to: healthcare, wire and cable, building and construction, consumer and recreational products and transportation and packaging. The Producer Services business unit offers contract manufacturing and outsourced polymer manufacturing services to resin producers and polymer marketers, primarily in the United States and Mexico, as well as its own proprietary formulations for certain applications. As a strategic and integrated supply chain partner, Producer Services offers resin producers a capital-efficient way to effectively develop custom products for niche markets by leveraging its extensive process technology expertise, broad manufacturing capabilities and geographic locations.

PolyOne Distribution

The PolyOne Distribution business distributes more than 4,000 grades of engineering and commodity grade resins, including PolyOne-produced solutions, principally to the North American and Asian markets. These products are sold to over 6,500 custom injection molders and extruders who, in turn, convert them into plastic parts that are sold to end-users in a wide range of industries. Representing over 25 major suppliers, we offer our customers a broad product portfolio, just-in-time delivery from multiple stocking locations and local technical support. Recent expansion in Central America and Asia have bolstered PolyOne Distribution's ability to serve the specialized needs of customers globally.

Competition

The production of plastics and the manufacturing of custom and proprietary formulated color and additives systems for the plastics industry are highly competitive. Competition is based on service, performance, product innovation, product recognition, speed, delivery, quality and price. The relative importance of these factors varies among our products and services. We believe that we are the largest independent formulator of plastic materials and producer of custom and proprietary color and additive systems in the United States and Europe, with a growing presence in Asia and South America. Our competitors range from large international companies with broad product offerings to local independent custom producers whose focus is a specific market niche or product offering.

The distribution of polymer resin is also highly competitive. Speed, service, reputation, product line, brand recognition, delivery, quality and price, are the principal factors affecting competition. We compete against other national independent resin distributors in North America, along with other regional distributors. Growth in the polymer distribution market is highly correlated with growth in the base polymer resins market. We believe that the strength of our company name and reputation, the broad range of product offerings from our suppliers and our speed and responsiveness, combined with the quality of products and agility of our distribution network, allow us to compete effectively.

Raw Materials

The primary raw materials used by our manufacturing operations are polyolefin and other thermoplastic resins, polyvinyl chloride (PVC) resin, plasticizers, inorganic and organic pigments, all of which we believe are in adequate supply. Oxy Vinyls LP sells PVC to PolyOne under terms of a Resin Purchase Agreement that expires on December 31, 2020. The agreement requires PolyOne to purchase a majority of its annual requirements in North America from Oxy Vinyls LP. This contract provides a year-by-year evergreen renewal provision, unless terminated by either party with a one-year advance notice. We believe this contract assures the availability of adequate amounts of PVC resin. We also believe that the pricing under this contract provides PVC resin to PolyOne at a competitive price. See the discussion of risks associated with raw material supply and costs in Item 1A, “Risk Factors”.

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Patents and Trademarks

We own and maintain a number of patents and trademarks in the United States and other key countries that contribute to our competitiveness in the markets we serve because they protect our inventions and product names against infringement by others. Patents exist for 20 years from filing date, and trademarks have an indefinite life based upon continued use. While we view our patents and trademarks to be valuable because of the broad scope of our products and services and brand recognition we enjoy, we do not believe that the loss or expiration of any single patent or trademark would have a material adverse effect on our results of operations, financial position or cash flows. Nevertheless, we have management processes designed to rigorously protect our inventions and trademarks.

Seasonality and Backlog

Sales of our products and services are seasonal as demand is generally slower in the first and fourth calendar quarters of the year. Because of the nature of our business, we do not believe that our backlog is a meaningful indicator of the level of our present or future business.

Working Capital Practices

Our products are generally manufactured with a short turnaround time, and the scheduling of manufacturing activities from customer orders generally includes enough lead time to assure delivery of an adequate supply of raw materials. We offer payment terms to our customers that are competitive. We generally allow our customers to return merchandise if pre-agreed quality standards or specifications are not met; however, we employ quality assurance practices that seek to minimize customer returns. Our customer returns are immaterial.

Significant Customers

No customer accounted for more than 1% of our consolidated revenues in 2016, and we do not believe we would suffer a material adverse effect to our consolidated financial statements if we were to lose any single customer.

Research and Development

We have substantial technology and development capabilities. Our efforts are largely devoted to developing new product formulations to satisfy defined market needs, by providing quality technical services to evaluate alternative raw materials, assuring the continued success of our products for customer applications, providing technology to improve our products, processes and applications and providing support to our manufacturing plants for cost reduction, productivity and quality improvement programs. We operate research and development centers that support our commercial development activities and manufacturing operations. These facilities are equipped with state-of-the-art analytical, synthesis, polymer characterization and testing equipment, along with pilot plants and polymer manufacturing operations that simulate specific production processes that allow us to rapidly translate new technologies into new products. Our investment in product research and development was $54.5 million in 2016, $53.0 million in 2015 and $53.4 million in 2014.

Methods of Distribution

We sell products primarily through direct sales personnel, distributors, including our PolyOne Distribution segment, and commissioned sales agents. We primarily use truck carriers to transport our products to customers, although some customers pick up product at our manufacturing facilities or warehouses. We also ship some of our manufactured products to customers by rail.

Employees

As of December 31, 2016, we employed approximately 7,000 people. Approximately 4% of our employees are represented by labor unions under collective bargaining agreements. We believe that relations with our employees are good, and we do not anticipate significant operating issues to occur as a result of current negotiations, or when we renegotiate collective bargaining agreements as they expire.

Environmental, Health and Safety

We are subject to various environmental laws and regulations that apply to the production, use and sale of chemicals, emissions into the air, discharges into waterways and other releases of materials into the environment and the generation, handling, storage, transportation, treatment and disposal of waste material. We endeavor to ensure the safe and lawful operation of our facilities in the manufacture and distribution of products, and we believe we are in material compliance with all applicable laws and regulations.

We maintain a disciplined environmental and occupational safety and health compliance program and conduct periodic internal and external regulatory audits at our facilities to identify and correct potential environmental exposures, including compliance matters and operational risk reduction opportunities. This effort can result in

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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 0.74 per 100 full-time workers per year in 2016 and in 2015. The 2015 average injury incidence rate for our NAICS Code (326 Plastics and Rubber Products Manufacturing) was 4.3.

In our operations, we must comply with product-related governmental law and regulations affecting the plastics industry generally and also with content-specific law, regulations and non-governmental standards. We believe that compliance with current governmental laws and regulations and with non-governmental content-specific standards will not have a material adverse effect on our financial position, results of operations or cash flows. The risk of additional costs and liabilities, however, is inherent in certain plant operations and certain products produced at these plants, as is the case with other companies in the plastics industry. Therefore, we may incur additional costs or liabilities in the future. Other developments, such as increasingly strict environmental, safety and health laws, regulations and related enforcement policies, including those under the Restrictions on the Use of Certain Hazardous Substances (RoHS), Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), the Dodd-Frank Wall Street Reform and Consumer Protection Act (covering Conflict Minerals), and the Consumer Product Safety Improvement Act, the implementation of additional content-specific standards, discovery of unknown conditions, and claims for damages to property, persons or natural resources resulting from plant emissions or products, could also result in additional costs or liabilities.

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.

We have been notified by federal and state environmental agencies and by private parties that we may be a potentially responsible party (PRP) in connection with the investigation and remediation of certain environmental sites. While government agencies frequently assert that PRPs are jointly and severally liable at these sites, in our experience, the interim and final allocations of liability costs are generally made based on the relative contribution of waste. We initiate corrective and preventive environmental projects of our own to ensure safe and lawful activities at our operations. We believe that compliance with current governmental regulations at all levels will not have a material adverse effect on our financial position, results of operations or cash flows.

We incurred environmental expenses, before insurance recoveries, of $8.3 million in 2016, $9.3 million in 2015 and $10.3 million in 2014. Our environmental expense in 2016, 2015 and 2014 related mostly to ongoing remediation projects. In 2016, 2015 and 2014, we recognized gains associated with insurance recoveries of $6.1 million, $3.5 million and $3.7 million, respectively, as reimbursement of previously incurred environmental remediation costs.

We also conduct investigations and remediation at certain of our active and inactive facilities and have assumed responsibility for the resulting environmental liabilities from operations at certain sites we, or our predecessors, formerly owned or operated. We believe that our potential continuing liability at these sites will not have a material adverse effect on our results of operations, financial position or cash flows. As of December 31, 2016, our reserves totaled $117.3 million, covering probable future environmental expenditures that we can reasonably estimate related to previously contaminated sites. This amount represents our best estimate of probable costs, based upon the information and technology currently available. We continue to pursue available insurance coverage related to these matters and recognize gains as we receive reimbursement. No receivable has been recognized for future recoveries.

Refer to Note 11, Commitments and Contingencies, for further discussion of our environmental liabilities.

We expect 2017 cash environmental expenditures to approximate $10.0 million.

International Operations

Our international operations are subject to a variety of risks, including currency fluctuations and devaluations, exchange controls, currency restrictions and changes in local economic conditions. While the impact of these risks is difficult to predict, any one or more of them could adversely affect our future operations. For more information about our international operations, see Note 14, Segment Information, to the accompanying consolidated financial statements.

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Where You Can Find Additional Information

Our principal executive offices are located at 33587 Walker Road, Avon Lake, Ohio 44012, and our telephone number is (440) 930-1000. We are subject to the information reporting requirements of the Exchange Act, and, in accordance with these requirements, we file annual, quarterly and other reports, proxy statements and other information with the SEC relating to our business, financial results and other matters. The reports, proxy statements and other information we file may be inspected and copied at prescribed rates at the SEC’s Public Reference Room and via the SEC’s website (see below for more information).

You may inspect a copy of the reports, proxy statements and other information we file with the SEC, without charge, at the SEC’s Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549, and you may obtain copies of the reports, proxy statements and other information we file with the SEC, from those offices for a fee. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings are available to the public at the SEC’s website at http://www.sec.gov.

Our Internet address is www.polyone.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available, free of charge, on our website (www.polyone.com, select Investors and then SEC Filings) or upon written request, as soon as reasonably practicable after we electronically file or furnish them to the SEC. The contents of our website are not part of this Annual Report on Form 10-K, and the reference to our website does not constitute incorporation by reference into this Form 10-K of the information contained at that site.

ITEM 1A. RISK FACTORS

The following are certain risk factors that could affect our business, results of operations, financial position or cash flows. These risk factors should be considered along with the forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause our actual results or financial condition to differ materially from those projected in forward-looking statements. The following discussion is not an all-inclusive listing of risks, although we believe these are the more material risks that we face. If any of the following occur, our business, results of operations, financial position or cash flows could be adversely affected.

Demand for and supply of our products and services may be adversely affected by several factors, some of which we cannot predict or control.

Several factors may affect the demand for and supply of our products and services, including:


•	economic downturns in the significant end markets that we serve;


•	product obsolescence or technological changes that unfavorably alter the value/cost proposition of our products and services;


•	competition from existing and unforeseen polymer and non-polymer based products;


•	declines in general economic conditions or reductions in industrial production growth rates, both domestically and globally, which could impact our customers’ ability to pay amounts owed to us;


•	changes in environmental regulations that would limit our ability to sell our products and services in specific markets;


•	changes in laws and regulations regarding the disposal of plastic materials; and


•	inability to obtain raw materials or supply products to customers due to factors such as supplier work stoppages, supply shortages, plant outages or regulatory changes that may limit or prohibit overland transportation of certain hazardous materials and exogenous factors, like severe weather.

If any of these events occur, the demand for and supply of our products and services could suffer and potentially lead to asset impairment.

Our manufacturing operations are subject to hazards and other risks associated with polymer production and the related storage and transportation of raw materials, products and wastes.

The occurrence of an operating problem at our facilities (e.g., an explosion, mechanical failure, chemical spills or discharges) may have a material adverse effect on the productivity and profitability of a particular manufacturing or distribution facility or on our operations as a whole, during and after the period of these operating difficulties. Operating problems may cause personal injury and/or loss of life, customer attrition and severe damage to or destruction of property and equipment and environmental damage. We are subject to present claims and potential future claims with respect to workplace exposure, workers’ compensation and other matters. Our property and

8 POLYONE CORPORATION

casualty insurance, which we believe is of the types and in the amounts that are customary for the industry, may not fully insure us against all potential hazards that are incident to our business or otherwise could occur.

Extensive environmental, health and safety laws and regulations impact our operations and financial statements.

Our operations on, and ownership of, real property are subject to extensive environmental, health and safety laws and regulations at the national, state and local governmental levels (including, but not limited to, the Restrictions on the Use of Certain Hazardous Substances and the Consumer Product Safety Information Act of 2008). The nature of our business exposes us to compliance costs and risks of liability under these laws and regulations due to the production, storage, transportation, recycling or disposal and/or sale of materials that can cause contamination and other harm to the environment or personal injury if they are improperly handled and released. Environmental compliance requirements on us and our vendors may significantly increase the costs of these activities involving raw materials, energy, finished products and wastes. We may incur substantial costs, including fines, criminal or civil sanctions, damages, remediation costs or experience interruptions in our operations for violations of these laws.

Our operations could be adversely affected by various risks inherent in conducting operations worldwide.

Our operations are subject to risks; including, but not limited to, the following:


•	changes in local government regulations and policies including, but not limited to foreign currency exchange controls or monetary policy, repatriation of earnings, expropriation of property, duty or tariff restrictions, investment limitations and tax policies;


•	political and economic instability and disruptions, including labor unrest, civil strife, acts of war, guerrilla activities, insurrection and terrorism;


•	legislation that regulates the use of chemicals;


•	disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the Foreign Corrupt Practices Act (FCPA) and the U.K. Bribery Act;


•	compliance with international trade laws and regulations, including export control and economic sanctions;


•	difficulties in staffing and managing multi-national operations;


•	limitations on our ability to enforce legal rights and remedies;


•	reduced protection of intellectual property rights; and


•	other risks arising out of foreign sovereignty over the areas where our operations are conducted.

In addition, we could be adversely affected by violations of the FCPA, U.K Bribery Act and similar worldwide anti-bribery laws as well as export controls and economic sanction laws. The FCPA, U.K. Bribery Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our policies mandate compliance with these laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot assure you that our internal controls and procedures will always protect us from the reckless or criminal acts committed by our employees or agents. If we are found to be liable for FCPA, U.K Bribery Act, export control or sanction violations, we could suffer from criminal or civil penalties or other sanctions, including loss of export privileges or authorization needed to conduct aspects of our international business, which could have a material adverse effect on our business.

Any of these risks could have an adverse effect on our international operations by reducing demand for our products.

We engage in acquisitions and joint ventures, and may encounter unexpected difficulties integrating those businesses.

Attainment of our strategic plan objectives require, in part, 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 integrating recent and future acquisitions with our existing operations and in managing strategic investments could occur. Furthermore, we may not realize the degree, or timing, of benefits initially anticipated.

9 POLYONE CORPORATION

Natural gas, electricity, fuel and raw material costs and other external factors that are also beyond our control can cause volatility in our results.

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 costs. Most of the raw materials we use are commodities and the price of each can fluctuate widely for a variety of reasons, including changes in availability because of major capacity additions or reductions or significant facility operating problems. Other external factors beyond our control can cause volatility in raw materials prices, demand for our products, product prices, sales volumes and margins.

Volatility of end markets that PolyOne serves.

PolyOne's segment results have varied in the past and may vary from quarter to quarter in the future. Profitability can be negatively impacted by volatility in the end markets that PolyOne serves. The Company has undertaken measures to reduce the impact of this volatility through diversification of markets it serves and expansion of geographic regions in which it operates. Future downturns in any of the markets could adversely affect our results.

We face competition from other companies and alternative technologies.

We encounter competition in price, payment terms, delivery, service, performance, product innovation, product recognition and quality, depending on the product involved.

We expect that our competitors will continue to develop and introduce new and enhanced products, which could cause a decline in the market acceptance of our products. In addition, our competitors could cause a reduction in the selling prices of some of our products as a result of intensified price competition. Competitive pressures can also result in the loss of customers.

Additionally, some of our customers may already be or may become large enough to justify developing in-house production capabilities. Any significant reduction in customer orders as a result of a shift to in-house production could adversely affect our sales and operating profits.

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 inefficient or ineffective.

Increased information systems security threats and more sophisticated and targeted computer crime could pose a risk to our systems, networks and products.

Increased global information systems security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data and communications. While we attempt to mitigate these risks by employing a number of measures, including employee training, comprehensive monitoring of our networks and systems, and maintenance of backup and protective systems, our systems, networks and products remain potentially vulnerable to advanced persistent threats. Depending on their nature and scope, such threats could potentially lead to the compromising of confidential information and communications, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations.

Significant movements in foreign currency exchange rates or change in monetary policy may harm our financial results.

We are exposed to fluctuations in foreign currency exchange rates. Any significant change in the value of the currencies of the countries in which we do business against the U.S. dollar could affect our ability to sell products competitively and control our cost structure, which could have a material adverse effect on our business, financial condition and results of operations. For additional detail related to this risk, see Item 7A, "Quantitative and Qualitative Disclosure About Market Risk."

10 POLYONE CORPORATION

Disruptions in the global credit and financial markets could limit our access to credit, which could negatively impact our business.

Global credit and financial markets have experienced volatility in recent years, including volatility in security prices, liquidity and credit availability, declining valuations of certain investments and significant changes in the capital and organizational structures of certain financial institutions. These market conditions may limit our ability to access the capital necessary to grow and maintain our business. Accordingly, we may be forced to delay raising capital, issue shorter tenors than we prefer or pay unattractive interest rates, which could increase our interest expense, decrease our profitability and significantly reduce our financial flexibility.

The agreements governing our debt, including our revolving credit facility, term loan and other debt instruments, contain various covenants that limit our ability to take certain actions and also require us to meet financial maintenance tests, failure to comply with which could have a material adverse effect on us.

The agreements governing our revolving credit facility and our secured term loan, and the indentures and credit agreements governing other debt, contain a number of customary restrictive covenants that, among other things, limit our ability to: consummate asset sales, incur additional debt or liens, consolidate or merge with any entity or transfer or sell all or substantially all of our assets, pay dividends or make certain other restricted payments, make investments, enter into transactions with affiliates, create dividend or other payment restrictions with respect to subsidiaries, make capital investments and alter the business we conduct.

In addition, certain of these agreements require us to comply under certain circumstances with specific financial tests, under which we are required to achieve certain or specific financial and operating results. Our ability to comply with these provisions may be affected by events beyond our control. A breach of any of these covenants would result in a default under such agreements and instruments, which in certain circumstances could be a default under all of these agreements and instruments. In the event of any default, our lenders could elect to declare all amounts borrowed under the agreements, together with accrued interest thereon, to be due and payable. In such event, we cannot assure that we would have sufficient assets to pay debt then outstanding under the agreements governing our debt.

Furthermore, certain of these agreements condition our ability to obtain additional borrowing capacity, engage in certain transactions or take certain other actions, on our achievement of certain or specific financial and operating results, although our failure to achieve such results would not result in a default under such agreements. Any future refinancing of the revolving credit facility or other debt may contain similar restrictive covenants.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to pay interest on our debt and to satisfy our other debt obligations will depend in part upon our future financial and operating performance and that of our subsidiaries and upon our ability to renew or refinance borrowings. Prevailing economic conditions and financial, business, competitive, legislative, regulatory and other factors, many of which are beyond our control, will affect our ability to make these payments. While we believe that cash flow from our current level of operations, available cash and available borrowings under our revolving credit facilities will provide adequate sources of liquidity for at least the next twelve months, a significant drop in operating cash flow resulting from economic conditions, competition or other uncertainties beyond our control could create the need for alternative sources of liquidity. If we are unable to generate sufficient cash flow to meet our debt service obligations, we will have to pursue one or more alternatives, such as reducing or delaying capital or other expenditures, refinancing debt, selling assets, or raising equity capital.

11 POLYONE CORPORATION

We have a significant amount of goodwill, and any future goodwill impairment charges could adversely impact our results of operations.

As of December 31, 2016, we had goodwill of $677.4 million. For additional information, see Note 3, Goodwill and Intangible Assets, to the accompanying consolidated financial statements. The future occurrence of a potential indicator of impairment, such as a significant adverse change in legal factors or business climate, an adverse action or assessment by a regulator, unanticipated competition, a material negative change in relationships with customers, strategic decisions made in response to economic or competitive conditions, loss of key personnel or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed of, could result in goodwill impairment charges, which could adversely impact our results of operations. We have recorded goodwill impairment charges in the past, and such charges materially impacted our historical results of operations and financial condition. Based on our 2016 goodwill impairment test, performed as of October 1, 2016, our Custom Engineered Structures (CES) reporting unit, which is included in our Designed Structures and Solutions segment, was identified as being at risk of future impairment. For additional information, see “Critical Accounting Policies” included in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Risks related to our pension plans may adversely impact our results of operations, cash flows and financial position.

Significant changes in the actual investment return on pension assets, discount rates, and other factors have and may continue to adversely affect our results of operations, financial position and pension contributions in future periods. U.S. generally accepted accounting principles require that we calculate income or expense for the plans using actuarial valuations. These valuations reflect assumptions about financial markets and interest rates. Changes in these assumptions have resulted in material gains and losses to income in recent years and may continue to do so in future periods. For a discussion regarding the significant assumptions used to estimate pension expense, including discount rate, expected long-term rate of return on plan assets and mortality, and how our financial statements can be affected by pension plan accounting policies, see "Critical Accounting Policies" and estimates included in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Poor investment performance by our pension plan assets resulting from a decline in prices in the equity and/or fixed income markets could impact the funded status of our plans. Should the assets earn an average return less than our assumed rate, future pension expenses and funding requirements could increase. Further, we cannot predict whether changing market or economic conditions, regulatory changes or other factors will further increase our pension expense or funding obligations, diverting funds we would otherwise apply to other uses.

12 POLYONE CORPORATION

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Headquartered in Avon Lake, Ohio we operate globally with principal locations consisting of 80 manufacturing sites and eight distribution facilities in North America, South America, Europe, Asia and Africa. We own the majority of our manufacturing sites and lease our distribution facilities. We believe that the quality and production capacity of our facilities is sufficient to maintain our competitive position for the foreseeable future. The following table identifies the principal facilities of our segments:



Performance Products and Solutions	Specialty Engineered Materials	Color, Additives and Inks	PolyOne Distribution	Designed Structures and Solutions
1. Carson, California	1. McHenry, Illinois	1. Glendale, Arizona	1. Rancho Cucamonga,	1. Cape Girardeau,
2. Terre Haute, Indiana	2. Avon Lake, Ohio	2. Kennesaw, Georgia	California	Missouri
3. Louisville, Kentucky	Dyersburg, Tennessee ⁽¹⁾	Suwanee, Georgia ⁽³⁾	2. Chicago, Illinois	2. Goodyear, Arizona
4. Avon Lake, Ohio	3. North Haven, Connecticut	3. Elk Grove Village, Illinois	3. Eagan, Minnesota	3. Greenville, Ohio
5. Clinton, Tennessee	Seabrook, Texas⁽¹⁾	4. St. Louis, Missouri	4. Edison, New Jersey	4. Hackensack, New Jersey
6. Dyersburg, Tennessee	4. Gaggenau, Germany	5. Massillon, Ohio	5. Statesville, North	5. La Mirada, California
7. Pasadena, Texas	5. Istanbul, Turkey	6. Norwalk, Ohio	Carolina	6. Manitowoc, Wisconsin
8. Seabrook, Texas	6. Barbastro, Spain	7. North Baltimore, Ohio	6. Elyria, Ohio	7. McMinnville, Oregon
9. Orangeville, Ontario,	7. Melle, Germany	8. Lehigh, Pennsylvania	7. La Porte, Texas	8. Muncie, Indiana
Canada	8. & 9. Suzhou, China ⁽²⁾	9. Mountain Top,	8. Brampton, Ontario,	9. Newark, New Jersey
10. St. Remi de Napierville,	10. Shenzhen, China	Pennsylvania	Canada	10. Paulding, Ohio
Quebec, Canada	Shanghai, China ⁽³⁾	10. Vonore, Tennessee	(8 Distribution Facilities)	11. Pleasant Hill, Iowa
11. Dongguan, China	11. Birmingham, Alabama	11. Toluca, Mexico		12. Ripon, Wisconsin
12. Lockport, New York	12. Englewood, Colorado	12. Assesse, Belgium		13. Salisbury, Maryland
13. Ramos Arizpe, Mexico	13. Montrose, Colorado	13. Cergy, France		14. Portage, Wisconsin
(13 Manufacturing Plants)	(13 Manufacturing Plants)	14. Tossiat, France		15. Sheboygan Falls,
		15. Gyor, Hungary		Wisconsin
		16. Milan, Italy		16. Stamford, Connecticut
		17. Kutno, Poland		Maryland Heights,
		18. Pune, India		Missouri (3)
		19. Pamplona, Spain		(16 Manufacturing Plants)
		20. Bangkok, Thailand
		21. Pudong (Shanghai),
		China
		22. Jeddah, Saudi Arabia
		Shenzhen, China ⁽¹⁾
		23. Tianjin, China
		24. Novo Hamburgo, Brazil
		25. Berea, Ohio
		26. Richland Hills, Texas
		27. Bethel, Connecticut
		28. Barberton, Ohio
		29. Knowsley, United
		Kingdom
		30. Eindhoven, Netherlands
		31. Suzhou, China
		32. & 33. Shanghai, China ⁽⁴⁾
		34. Itupeva, Brazil
		35. Odkarby, Finland
		Manitowoc, Wisconsin ⁽¹⁾
		36. Cape Town, South Africa
		37. Diez, Germany
		38. La Porte, Indiana
		(38 Manufacturing Plants)


(1)	Facility is not included in manufacturing plants total as it is also included as part of another segment.


(2)	There are two manufacturing plants located at Suzhou, China.


(3)	Facility is not included in manufacturing plants total as it is a design center/lab.


(4)	There are two manufacturing plants located at Shanghai, China

13 POLYONE CORPORATION

ITEM 3. LEGAL PROCEEDINGS

Information regarding other legal proceedings can be found in Note 11, Commitments and Contingencies, to the consolidated financial statements and is incorporated by reference herein.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

Executive officers are elected by our Board of Directors to serve one-year terms. The following table lists the name of each person currently serving as an executive officer of the Company, their age as of February 16, 2017 and current position with the Company.



Name	Age	Position
Robert M. Patterson	44	Chairman, President and Chief Executive Officer
Bradley C. Richardson	58	Executive Vice President, Chief Financial Officer
Richard N. Altice	52	Senior Vice President, President of Designed Structures and Solutions
Mark D. Crist	58	Senior Vice President, President of Distribution
Michael A. Garratt	53	Senior Vice President, Chief Commercial Officer
Lisa K. Kunkle	48	Senior Vice President, General Counsel and Secretary
M. John Midea, Jr.	52	Senior Vice President, Global Operations and Process Improvement
Craig M. Nikrant	55	Senior Vice President, President of Specialty Engineered Materials
Joel R. Rathbun	44	Senior Vice President, Mergers & Acquisitions
João José San Martin Neto	56	Senior Vice President, Chief Human Resource Officer
John V. Van Hulle	59	Senior Vice President, President of Color, Additives and Inks
Donald K. Wiseman	49	Senior Vice President, President of Performance Products and Solutions

Robert M. Patterson: Chairman, President and Chief Executive Officer, May 2016 to date. President and Chief Executive Officer, May 2014 to May 2016. Executive Vice President and Chief Operating Officer, March 2012 to May 2014. Executive Vice President and Chief Financial Officer, January 2011 to March 2012. Senior Vice President and Chief Financial Officer, May 2008 to January 2011. Vice President and Treasurer of Novelis, Inc. (an aluminum rolled products manufacturer) from 2007 to May 2008. Vice President, Controller and Chief Accounting Officer of Novelis from 2006 to 2007. Mr. Patterson served as Vice President and Segment Chief Financial Officer, Thermal and Flow Technology Segments of SPX Corporation (a multi-industry manufacturer and developer) from 2005 to 2006 and as Vice President and Chief Financial Officer, Cooling Technologies and Services of SPX from 2004 to 2005.

Bradley C. Richardson: Executive Vice President, Chief Financial Officer, November 2013 to date. Executive Vice President, Chief Financial Officer of Diebold, Incorporated (an integrated self-service delivery manufacturer for the banking industry and security systems) from November 2009 through November 2013. Executive Vice President, Corporate Strategy and Chief Financial Officer at Modine Manufacturing Company (a manufacturer of thermal management systems and components) from 2003 to 2009. Vice President, Performance Management Planning and Control, Chief Financial Officer, Upstream, BP Amoco, London, (a producer of oil, natural gas, and petro chemicals) from 2000 to 2003. Mr. Richardson serves on the Board of Directors of Brady Corporation and is Chair of its Audit Committee.

Richard N. Altice: Senior Vice President, President of Designed Structures and Solutions, May 2015 to date. Vice President, Epoxy Specialties Resins of Hexion Inc. (a global manufacturer of thermoset resins) from June 2013 to May 2015. Operating Partner, Quinpario Partners LLC (a private equity firm specializing in investments in specialty chemical businesses) from September 2012 to June 2013. Mr. Altice served as President & General Manager, Technical Specialties of Solutia Inc. (a global manufacturer of performance materials and specialty chemicals) from October 2011 to September 2012, as Vice President, Business Management of Solutia Inc. from August 2010 to October 2011, as Vice President, Commercial Services of Solutia Inc. from May 2009 to August 2010, as Global Commercial Director, Fluids of Solutia Inc. from October 2008 to May 2009.

Mark D. Crist: Senior Vice President, President of Distribution, June 2014 to date. Vice President, Global Key Accounts and Vice President of Asia January 2012 to May 2014. Global Commercial Director of Geon Performance Materials, June 2008 to December 2011. General Manager, Nalco Chemical Company Europe (a manufacturer of specialty chemicals, services and systems) from April 2006 to March 2008. General Manager, Nalco Chemical Company North America from June 2003 to March 2006.

14 POLYONE CORPORATION

Michael A. Garratt: Senior Vice President, Chief Commercial Officer, April 2016 to date. Senior Vice President, President of Performance Products and Solutions, September 2013 to April 2016. President, Marmon Utility (a manufacturer of medium-high voltage utility, subsea and down-hole power cables and molded insulator systems) from March 2011 to September 2013. Chief Operating Officer, Excel Polymers (a custom thermoset rubber formulator) from November 2009 to December 2010. Vice President and General Manager - Americas Compounding and Performance Additives, Excel Polymers from March 2009 to November 2009. Vice President and General Manager - Industrial and Consumer, Excel Polymers from December 2005 to March 2009. From April 1996 to June 2005, Mr. Garratt worked for DuPont Dow Elastomers, a joint venture of Dupont and Dow (global manufacturers of engineered thermoset rubber and thermoplastic elastomer materials) in market development and product management positions, culminating in a regional commercial leadership role for Europe, the Middle East and Africa.

Lisa K. Kunkle: Senior Vice President, General Counsel and Secretary, May 2015 to date. Vice President, General Counsel and Secretary, August 2007 to May 2015, Assistant General Counsel February 2007 to August 2007. Partner, Jones Day (a global law firm) from January 2006 to February 2007. Associate, Jones Day from August 1995 to January 2006.

M. John Midea, Jr.: Senior Vice President, Global Operations and Process Improvement, February 2015 to date. President and Chief Executive Officer, Resco Products (a refractory products company) from August 2012 to October 2014. President and Chief Operating Officer, Ennis Traffic Safety Solutions (a traffic safety and infrastructure company) from June 2008 to July 2012. Vice President, North American - General Industrial, Valspar Corporation (a manufacturer of paints and coatings) from June 2007 to May 2008. Vice President and General Manager, Power Coatings, Valspar Corporation from February 2002 to June 2007.

Craig M. Nikrant: Senior Vice President, President of Specialty Engineered Materials, January 2010 to date. Vice President and General Manager, Specialty Engineered Materials, September 2006 to December 2009. General Manager, Specialty Film & Sheet, General Electric Plastics (a former division of General Electric specializing in supplying plastics) from June 2004 to September 2006. Director, Global Commercial Effectiveness, General Electric Plastics from December 2003 to June 2004. Six Sigma Master Black Belt, General Electric Company Plastics Business from March 2001 to December 2002. General Manager, Commercial Operations, North Central Region, General Electric Plastics from June 1999 to March 2001.

Joel R. Rathbun: Senior Vice President, Mergers and Acquisitions, January 2016 to date. General Manager, Specialty Engineered Material North America, February 2013 to January 2016. Vice President, Mergers and Acquisitions, June 2011 to February 2013. Mr. Rathbun served as Senior Vice President, Mergers and Acquisitions, Moelis & Company (an American global independent investment bank) from January 2008 to June 2011. He also served as Executive Director, Mergers and Acquisitions of CIBC World Markets (an investment bank in the domestic and international equity and debt capital markets) from 2006 to 2008.

João José San Martin Neto: Senior Vice President, Chief Human Resources Officer, November 2016 to date. Senior Director, Human Resources, Color, Additives and Inks, February 2013 to November 2016. Group Global Director, Human Resources, Engineered Products and Solutions from November 2012 to February 2013. Vice President Human Resources, Alcoa Power and Propulsion (a business unit of Alcoa Inc. specializing in titanium and aluminum castings) from May 2009 to October 2012. Vice President Human Resources, Alcoa Electrical & Electronic Solutions (a business unit of Alcoa Inc. specializing in the design, development and production of electrical and electronic distribution systems) from August 2003 to April 2009.

John V. Van Hulle: Senior Vice President, President of 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) from December 2001 to July 2006. President, Specialty & Fine Chemicals — Cambrex Corporation (a specialty chemical and pharmaceutical business) from August 1994 to November 2000.

Donald K. Wiseman: Senior Vice President, President of Performance Products and Solutions, April 2016 to date. General Manager of Geon Performance Materials, September 2015 to April 2016. Prior to PolyOne, he worked at Johns Manville (a manufacturer of insulation, roofing materials and engineered products), where he had responsibility for its Performance Materials business from December 2013 to September 2015. Managing Director, Cabot Microelectronics Corporation (a provider of chemical mechanical planarization solutions) from June 2012 to December 2013. Global Business Director, Cabot Microelectronics Corporation from June 2007 to June 2012. Vice President of Operations, Michelman (a manufacturer of advanced materials used in coatings, printing & packaging and industrial markets) from May 2005 to June 2007. Global Business Director, Americhem (a global manufacturer specializing in custom color and additive solutions) from June 1994 to June 2005.

15 POLYONE CORPORATION

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table sets forth the range of the high and low sale prices for our common shares, $0.01 par value per share, as reported by the New York Stock Exchange, where the shares are traded under the symbol “POL,” for the periods indicated:



	2016 Quarters								2015 Quarters
Common share price:	Fourth		Third		Second		First		Fourth		Third		Second		First
High	$	34.68	$	38.34	$	38.41	$	31.30	$	36.24	$	39.89	$	41.20	$	40.72
Low	$	28.77	$	31.25	$	29.74	$	22.35	$	28.97	$	29.09	$	36.33	$	34.41

As of February 1, 2017, there were 2,010 holders of record of our common shares.

The following table presents quarterly dividends declared per common share for the fiscal year ended December 31, 2016 and 2015:



Quarter Ended:	2016		2015
March 31,	$	0.120	$	0.100
June 30,	0.120		0.100
September 30,	0.120		0.100
December 31,	0.135		0.120
Total	$	0.495	$	0.420

The table below sets forth information regarding repurchase of shares of our common shares during the period indicated. For the full year 2016, we repurchased 3.0 million shares at a weighted average share price of $28.91.



Period	Total Number of Shares Purchased	Weighted Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares that May Yet be Purchased Under the Program⁽¹⁾
October 1 to October 31	593,767	$	29.43	593,767	9,088,333
November 1 to November 30	526,795	29.55		526,795	8,561,538
December 1 to December 31	75,000	33.27		75,000	8,486,538
Total	1,195,562	$	29.75	1,195,562

(1) On August 18, 2008, we announced that our Board of Directors approved a common shares repurchase program authorizing PolyOne to purchase up to 10.0 million of its common shares. On October 11, 2011 and October 23, 2012, we further announced that our Board of Directors had increased the common shares repurchase authorization by an additional 5.3 million and 13.2 million, respectively. On May 16, 2016, we announced that we would increase our share buyback by 7.3 million to 10.0 million. As of December 31, 2016, approximately 8.5 million shares remain available for purchase under these authorizations. Purchases of common shares may be made by open market purchases or privately negotiated transactions and may be made pursuant to Rule 10b5-1 plans and accelerated share repurchases.

16 POLYONE CORPORATION

ITEM 6. SELECTED FINANCIAL DATA

Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Part II of this Annual Report on Form 10-K and the notes to our accompanying consolidated financial statements for additional information regarding the financial data presented below, including matters that might cause this data not to be indicative of our future financial condition, results of operations or cash flows.



(In millions, except per share data)	2016		2015		2014		2013		2012
Sales	$	3,339.8	$	3,377.6	$	3,835.5	$	3,771.2	$	2,860.8
Operating income	281.9		250.9		155.1		231.5		137.5
Net income from continuing operations	165.0		144.7		77.2		92.9		53.2
Net income from continuing operations attributable to PolyOne shareholders	165.2		144.6		78.0		94.0		53.3

Cash dividends declared per common share	$	0.495	$	0.420	$	0.340	$	0.260	$	0.200

Earnings per share from continuing operations attributable to PolyOne shareholders:
Basic	$	1.97	$	1.65	$	0.85	$	0.98	$	0.60
Diluted	$	1.95	$	1.63	$	0.83	$	0.97	$	0.59

Total assets	$	2,723.3	$	2,595.1	$	2,666.3	$	2,896.6	$	2,102.0
Long-term debt	$	1,239.8	$	1,128.0	$	948.9	$	961.1	$	686.5

17 POLYONE CORPORATION

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide information that is supplemental to, and should be read together with, our consolidated financial statements and the accompanying notes contained in this Annual Report on Form 10-K. Information in this Item 7 is intended to assist the reader in obtaining an understanding of our consolidated financial statements, the changes in certain key items in those financial statements from year to year, the primary factors that accounted for those changes, and any known trends or uncertainties that we are aware of that may have a material effect on our future performance, as well as how certain accounting principles affect our consolidated financial statements.

The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Cautionary Note on Forward-Looking Statements” and Item 1A, “Risk Factors.”

Our Business

We are a premier provider of specialized polymer materials, services and solutions with operations in specialty engineered materials, color and additive systems, plastic sheet and packaging solutions and polymer distribution. We are also a highly specialized developer and manufacturer of performance enhancing additives, liquid colorants, and fluoropolymer and silicone colorants. Headquartered in Avon Lake, Ohio, with 2016 sales of $3.3 billion, we have manufacturing sites and distribution facilities in North America, South America, Europe, Asia and Africa. We currently employ approximately 7,000 people and offer more than 35,000 polymer solutions to over 10,000 customers across the globe. We provide value to our customers through our ability to link our knowledge of polymers and formulation technology with our manufacturing and supply chain capabilities to provide value-added solutions to designers, assemblers and processors of plastics (our customers).

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 transportation, packaging, building and construction, industrial, healthcare, consumer, wire and cable, electrical and electronics and appliance.

Key Challenges

Our business faces macroeconomic exposures resulting from economic downturns, especially as it relates to cyclical markets such as building and construction, automotive and industrial. In addition, with 55% and 49% of our respective Color, Additives and Inks and Specialty Engineered Materials segments' sales outside the United States, we experience volatility related to foreign currency fluctuations, most significantly the Euro. Increasing profitability during periods of raw material price volatility is another challenge. Further, we strive to capitalize on the opportunity to accelerate development of products that meet a growing body of environmental laws and regulations such as lead and phthalate restrictions included in the Restrictions on the Use of Certain Hazardous Substances and the Consumer Product Safety Information Act of 2008.

Strategy and Key Trends

To address these challenges and achieve our vision, we have implemented a strategy with four core components: specialization, globalization, operational excellence and commercial excellence. Specialization differentiates us through products, services, technology and solutions that add value. Globalization allows us to service our customers with consistency wherever their operations might be around the world. Operational excellence empowers us to respond to the voice of the customer while focusing on continuous improvement. Commercial excellence enables us to deliver value to customers by supporting their growth and profitability with superior customer service.

As part of our Platinum Vision for 2020, we have established margin improvement targets for all businesses. In the short term, we will maintain our focus on sales growth with expanding margins, with a goal of offsetting weaker foreign currencies and raw material volatility. Longer term, we will continue to focus on accelerating the launch of new products and collaborating with our customers to develop new and unique solutions for their benefit. Capital expenditures will be focused primarily to support sales growth, investment in recent acquisitions, and other strategic investments. We also continue to consider acquisitions and other synergy opportunities that complement our core

18 POLYONE CORPORATION

platforms. These actions will ensure that we continue to invest in capabilities that advance the pace of our transformation and continue to support growth in key markets and product offerings.

We will continue our enterprise-wide Lean Six Sigma program directed at improving margin, profitability and cash flow by applying proven management techniques and strategies to key areas of the business, such as pricing, supply chain and operations management, productivity and quality. Long-term trends that currently provide opportunities to leverage our strategy include improving health and wellness, protecting the environment, globalizing and localizing and increasing energy efficiency. Examples of how our strategy supports these trends can be found in numerous initiatives: active participation in the medical device market, leveraging our global footprint to deliver consistent solutions globally, lightweighting and metal replacement and development of solutions that respond to ever-changing market needs by offering alternatives to traditional materials.

Recent Developments

On January 29, 2016, the Company completed the acquisition of certain technologies and assets from Kraton Performance Polymers, Inc. (Kraton), to expand its global footprint and expertise in thermoplastic elastomer (TPE) innovation and design. The results of operations of Kraton are reported in the Specialty Engineered Materials segment.

Highlights and Executive Summary

A summary of PolyOne’s sales, operating income, income from continuing operations net of income taxes, net income from continuing operations attributable to PolyOne common shareholders, liquidity and total debt is included in the following table:



(In millions)	2016		2015		2014
Sales	$	3,339.8	$	3,377.6	$	3,835.5
Operating income	281.9		250.9		155.1
Net income from continuing operations	165.0		144.7		77.2
Net income from continuing operations attributable to PolyOne common shareholders	165.2		144.6		78.0

Liquidity	$	612.9	$	621.7	$	475.0
Long-term debt	$	1,239.8	$	1,128.0	$	948.9

19 POLYONE CORPORATION



Results of Operations										Variances — Favorable (Unfavorable)
										2016 versus 2015					2015 versus 2014
(Dollars in millions, except per share data)	2016			2015			2014			Change			% Change		Change			% Change
Sales	$	3,339.8		$	3,377.6		$	3,835.5		$	(37.8	)	(1.1	)%	$	(457.9	)	(11.9	)%
Cost of sales	2,633.6			2,696.1			3,127.6			62.5			2.3	%	431.5			13.8	%
Gross margin	706.2			681.5			707.9			24.7			3.6	%	(26.4		)	(3.7	)%
Selling and administrative expense	424.3			430.6			552.8			6.3			1.5	%	122.2			22.1	%
Operating income	281.9			250.9			155.1			31.0			12.4	%	95.8			61.8	%
Interest expense, net	(59.8		)	(64.1		)	(62.2		)	4.3			6.7	%	(1.9		)	(3.1	)%
Debt extinguishment costs	(0.4		)	(16.4		)	—			16.0			97.6	%	(16.4		)	(100.0	)%
Other income (expense), net	0.6			(2.7		)	(4.5		)	3.3			122.2	%	1.8			40.0	%
Income from continuing operations, before income taxes	222.3			167.7			88.4			54.6			32.6	%	79.3			89.7	%
Income tax expense	(57.3		)	(23.0		)	(11.2		)	(34.3		)	(149.1	)%	(11.8		)	(105.4	)%
Net income from continuing operations	$	165.0		$	144.7		$	77.2		$	20.3		14.0	%	$	67.5		87.4	%
Income from discontinued operations, net of income taxes	—			—			1.2			—			—	%	(1.2		)	(100.0	)%
Net income	165.0			144.7			78.4			20.3			14.0	%	66.3			84.6	%
Net loss (income) attributable to noncontrolling interests	0.2			(0.1		)	0.8			0.3			300.0	%	(0.9		)	(112.5	)%
Net income attributable to PolyOne common shareholders	$	165.2		$	144.6		$	79.2		$	20.6		14.2	%	$	65.4		82.6	%

Earnings per share attributable to PolyOne common shareholders - basic:
Continuing operations	$	1.97		$	1.65		$	0.85
Discontinued operations	—			—			0.01
Total	$	1.97		$	1.65		$	0.86


Earnings per share attributable to PolyOne common shareholders - diluted:
Continuing operations	$	1.95		$	1.63		$	0.83
Discontinued operations	—			—			0.02
Total	$	1.95		$	1.63		$	0.85

Sales

Sales decreased $37.8 million, or 1.1%, in 2016 compared to 2015. Growth within the industrial and consumer markets positively impacted sales by 3.8%, while acquisitions increased sales by 2.0%. Declining hydrocarbon based raw material costs that led to reduced overall average selling prices, particularly for the Performance Products and Solutions, PolyOne Distribution and Designed Structures and Solutions segments, reduced sales by 3.1% and unfavorable foreign exchange impacted sales 0.8%. The remaining decrease is primarily due to volume declines largely associated with legacy Spartech business.

Sales decreased $457.9 million, or 11.9%, in 2015 compared to 2014. Sales decreased 6.0% as lower volume associated with the ongoing integration of the legacy Spartech businesses more than offset new business gains in smaller, niche specialty applications. Sales further declined 2.3% as a result of unfavorable foreign exchange rates and 4.5% due to declining hydrocarbon based raw material costs that led to reduced overall average selling prices, particularly for the Performance Products and Solutions and PolyOne Distribution segments. Partially offsetting these items were acquisitions, which increased sales 0.9%.

Cost of sales

As a percent of sales, cost of sales decreased from 79.8% in 2015 to 78.9% in 2016 primarily due to lower restructuring charges of $20.0 million.

As a percent of sales, cost of sales decreased from 81.5% in 2014 to 79.8% in 2015. This is primarily a result of improved mix within the Color, Additives and Inks and Specialty Engineered Materials specialty segments and $27.0 million in lower restructuring charges in 2015.

20 POLYONE CORPORATION

Selling and administrative expense

These costs include selling, technology, administrative functions, corporate and general expenses. Selling and administrative expense in 2016 decreased $6.3 million, primarily related to an $18.7 million reduction in our pension mark-to-market adjustment. The favorable impact of the mark-to-market adjustment in 2016 was a result of actual asset returns exceeding our assumed rate of return and the use of updated mortality tables, partially offset by a decrease in interest rates. See Note 10, Employee Benefit Plans, for further discussion on our mark-to-market adjustment. Offsetting this decrease were selling and administrative expenses associated with acquired businesses of $6.7 million and an increase in employee costs, including incentives, of $7.0 million.

Selling and administrative expense in 2015 decreased $122.2 million, primarily related to lower restructuring charges of $25.2 million, lower compensation costs of $32.4 million, a $16.6 million reduction due to foreign currency, primarily driven by the weaker Euro, and a $43.9 million reduction in the pension mark-to-market adjustment. The 2015 adjustment was a result of actual asset returns that were lower than our assumed rate of return partially offset by the impact of increased discount rates. See Note 10, Employee Benefit Plans, for further discussion on our mark-to-market adjustment. The remaining decrease is primarily due to an improved cost structure as a result of restructuring actions.

Interest expense, net

Interest expense, net decreased $4.3 million in 2016 compared to 2015 due to the refinancing of higher interest-bearing debt during the fourth quarter of 2015.

Interest expense, net increased $1.9 million in 2015 compared to 2014 due to increased borrowings on our revolving credit facility during 2015 as compared to 2014.

Debt extinguishment costs

Debt extinguishment costs of $0.4 million for 2016 includes the write-off of unamortized deferred financing costs and premium and consent payments in connection with the amendment of the senior secured term loan due 2022 that reduced the margin by 25 basis points.

Debt extinguishment costs of $16.4 million for 2015 includes $13.4 of premium and consent payments and $3.0 million associated with the write-off of unamortized deferred financing costs due to the early repurchase of the remaining $316.6 million aggregate principal of our 7.375% senior notes due 2020.

Income taxes

The Company is subject to taxation in the U.S. and numerous foreign jurisdictions. In determining the effective income tax rate, the Company analyzes various factors, including annual earnings, the laws of taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the ability to use tax credits, net operating loss carryforwards, and available tax planning alternatives. Discrete items, including the effect of changes in tax laws, statutory tax rates, and valuation allowances or other non-recurring tax adjustments are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision.

A reconciliation of the U.S. federal statutory tax rate to the consolidated effective income tax rate along with a description of significant or unusual reconciling items is included below.



	2016		2015		2014
Income tax expense at 35%	35.0	%	35.0	%	35.0	%
Foreign tax rate differential	(5.2	)	(5.0	)	(5.7	)
State and local tax, net	2.1		2.7		2.8
Tax benefits on certain foreign investments	(2.0	)	(0.7	)	(17.0	)
Domestic production activities deduction	(1.6	)	(2.0	)	(2.5	)
Amended prior period tax returns	(1.4	)	(18.3	)	(2.3	)
Uncertain tax positions	(1.3	)	0.6		1.0
Permanent tax differences	0.3		1.8		(2.1	)
U.S. credit for research activities	(0.5	)	(0.7	)	(1.2	)
Changes in valuation allowances	0.4		0.3		7.8
Settlements	—		—		(3.1	)
Effective income tax rate	25.8	%	13.7	%	12.7	%

21 POLYONE CORPORATION

2016

Tax benefits on certain foreign investments decreased the effective tax rate by 2.0% ($4.4 million) primarily related to the dissolution of an entity.

Uncertain tax positions decreased the effective tax rate by 1.3% ($3.0 million) that primarily related to the reversal of an uncertain tax position due to the expiration of the statute of limitations.

2015

Amending U.S. federal income tax returns for 2004 through 2012 to use foreign tax credits decreased the effective tax rate by 18.3% ($30.7 million).

Uncertain tax positions increased the effective tax rate by 0.6% ($1.0 million). The reversal of an uncertain tax position due to the expiration of the statute of limitations decreased the effective tax rate by 5.9% ($9.9 million). A foreign court ruling, which settled an uncertain position taken in a prior year, increased the effective tax rate by 4.7% ($7.9 million). Other unfavorable uncertain tax positions more than offset the net decrease in the effective tax rate of these two items.

2014

Tax benefits on certain foreign investments decreased the effective tax rate by 17.0% ($15.0 million) related to the write-off of our investment in certain Brazil subsidiaries for tax purposes and operating losses primarily as a result of restructuring actions to close certain Brazil facilities discussed in Note 4, Employee Separation and Restructuring Costs.

Permanent tax differences decreased the effective tax rate by 2.1% ($1.9 million) primarily related to foreign tax law changes and the utilization of foreign tax credits.

Changes in valuation allowances increased the effective tax rate by 7.8% ($6.9 million) primarily related to certain Brazilian subsidiaries as a result of cumulative operating losses.

Segment Information

Operating income is the primary measure that is reported to our chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. Operating income at the segment level does not include: corporate general and administrative costs that are not allocated to segments; intersegment sales and profit eliminations; charges related to specific strategic initiatives, such as the consolidation of operations; restructuring activities, including employee separation costs resulting from personnel reduction programs, plant closure and phase-in costs; costs incurred directly in relation to acquisitions or divestitures; integration costs; executive separation agreements; share-based compensation costs; environmental remediation costs and other liabilities for facilities no longer owned or closed in prior years; gains and losses on the divestiture of joint ventures and equity investments; actuarial gains and losses associated with our pension and post-retirement benefit plans; and certain other items that are not included in the measure of segment profit or loss that is reported to and reviewed by our chief operating decision maker. These costs are included in Corporate and eliminations.

PolyOne has five reportable segments: (1) Color, Additives and Inks; (2) Specialty Engineered Materials; (3) Designed Structures and Solutions; (4) Performance Products and Solutions; and (5) PolyOne Distribution.

Our segments are further discussed in Note 14, Segment Information, to the accompanying consolidated financial statements.

22 POLYONE CORPORATION

Sales and Operating Income — 2016 compared with 2015 and 2015 compared with 2014



										2016 versus 2015					2015 versus 2014
(Dollars in millions)	2016			2015			2014			Change			% Change		Change			% Change
Sales:
Color, Additives and Inks	797.7			810.7			850.8			(13.0		)	(1.6	)%	(40.1		)	(4.7	)%
Specialty Engineered Materials	565.8			542.8			598.3			23.0			4.2	%	(55.5		)	(9.3	)%
Designed Structures and Solutions	401.7			453.5			617.5			(51.8		)	(11.4	)%	(164.0		)	(26.6	)%
Performance Products and Solutions	668.5			694.1			816.6			(25.6		)	(3.7	)%	(122.5		)	(15.0	)%
PolyOne Distribution	1,071.0			1,034.1			1,114.4			36.9			3.6	%	(80.3		)	(7.2	)%
Corporate and eliminations	(164.9		)	(157.6		)	(162.1		)	(7.3		)	(4.6	)%	4.5			2.8	%
Sales	$	3,339.8		$	3,377.6		$	3,835.5		$	(37.8	)	(1.1	)%	$	(457.9	)	(11.9	)%

Operating income:
Color, Additives and Inks	127.5			135.4			124.9			(7.9		)	(5.8	)%	10.5			8.4	%
Specialty Engineered Materials	81.1			79.6			72.4			1.5			1.9	%	7.2			9.9	%
Designed Structures and Solutions	(3.8		)	13.8			45.1			(17.6		)	(127.5	)%	(31.3		)	(69.4	)%
Performance Products and Solutions	74.4			57.4			63.1			17.0			29.6	%	(5.7		)	(9.0	)%
PolyOne Distribution	68.2			68.0			68.2			0.2			0.3	%	(0.2		)	(0.3	)%
Corporate and eliminations	(65.5		)	(103.3		)	(218.6		)	37.8			36.6	%	115.3			52.7	%
Operating income	$	281.9		$	250.9		$	155.1		$	31.0		12.4	%	$	95.8		61.8	%

Operating income as a percentage of sales:
Color, Additives and Inks	16.0		%	16.7		%	14.7		%	(0.7)% points					2.0% points
Specialty Engineered Materials	14.3		%	14.7		%	12.1		%	(0.4)% points					2.6% points
Designed Structures and Solutions	(0.9		)%	3.0		%	7.3		%	(3.9)% points					(4.3)% points
Performance Products and Solutions	11.1		%	8.3		%	7.7		%	2.8% points					0.6% points
PolyOne Distribution	6.4		%	6.6		%	6.1		%	(0.2)% points					0.5% points
Total	8.4		%	7.4		%	4.0		%	1.0% points					3.4% points

Color, Additives and Inks

Sales decreased $13.0 million, or 1.6%, in 2016 compared to 2015. Sales increases of 2.2% from acquisitions were offset by unfavorable foreign exchange rate impacts of 1.5% and sales declines of 1.6% associated with legacy Spartech business. The remaining decline is a result of lower demand within the oil and gas and packaging end markets.

Operating income decreased $7.9 million in 2016 compared to 2015. An operating income increase of $2.8 million associated with acquisitions was more than offset by the unfavorable exchange rate impacts of $1.0 million, unfavorable product mix and the decline in sales noted above.

Sales decreased $40.1 million, or 4.7%, in 2015 compared to 2014 primarily due to unfavorable foreign exchange rate impact of 6.7% and 2.3% related to lower volume from the legacy Spartech business offsetting smaller, specialty niche application wins. Partially offsetting these decreases were sales increases of 4.1% due to acquisitions.

Operating income increased $10.5 million in 2015 compared to 2014. This increase was driven primarily by improved mix of $14.6 million, $3.0 million due to acquisitions and $2.7 million as a result of an improved cost structure primarily due to restructuring actions. Restructuring savings were largely a result of the closure of a manufacturing plant in Europe. Partially offsetting these increases was an unfavorable foreign exchange rate impact of $8.9 million.

Specialty Engineered Materials

Sales increased $23.0 million, or 4.2%, in 2016 compared to 2015. Sales increased 9.0% due to acquisitions, partially offset by unfavorable product mix of 3.7% primarily resulting from a decline in oil and gas applications, and an unfavorable foreign exchange rate impact of 1.1%.

Operating income increased $1.5 million in 2016 compared to 2015. This was primarily due to the increase in operating income of $4.8 million related to acquisitions, which was partially offset by $1.0 million of unfavorable foreign exchange rate impact and the unfavorable product mix noted above.

23 POLYONE CORPORATION

Sales decreased $55.5 million, or 9.3%, in 2015 compared to 2014 primarily due to an unfavorable foreign exchange rate impact of 5.1% and mix of 1.8%. Further reducing sales by 2.2% was lower volume as a result of exiting certain business in Brazil and legacy Spartech products, which offset gains in specialty niche applications.

Operating income increased $7.2 million in 2015 compared to 2014. This increase was driven by favorable mix of $6.1 million and $3.6 million of benefits realized from the closure of two manufacturing facilities in Brazil. See further discussion of this restructuring action in Note 4, Employee Separation and Restructuring Costs. Partially offsetting these increases was an unfavorable foreign exchange rate impact of $2.6 million.

Total cost savings achieved in 2015 for the Spartech realignment and Brazil restructuring actions were in-line with our expectations. These actions did not have a material impact to the Specialty Engineered Materials segment in 2016.

Designed Structures and Solutions

Sales decreased $51.8 million, or 11.4%, in 2016 compared to 2015 primarily due to lower volumes and decreased average selling prices from lower hydrocarbon based raw material costs.

Operating income decreased $17.6 million in 2016 compared to 2015. This decline was primarily due to lower sales and unfavorable mix impacting operating income by $22.6 million. This was partially offset by $2.8 million in benefits realized from the 2015 restructuring actions and $2.1 million in lower compensation costs and discretionary spending.

Sales decreased $164.0 million, or 26.6%, in 2015 compared to 2014. 13.7% was a result of lower volume, while the remaining decline is associated with lower selling prices due to declining hydrocarbon raw material costs.

Operating income decreased $31.3 million in 2015 compared to 2014. This decline was primarily due to lower sales impacting operating income by $48.5 million. This was partially offset by $7.3 million in benefits realized from the 2013 Spartech manufacturing realignment actions and $7.5 million in lower compensation costs and discretionary spending.

In 2015, PolyOne determined it would close two manufacturing facilities within the Designed Structures and Solutions segment to right size operations as a result of declining operating results and near term outlook. See further discussion of this restructuring action in Note 4, Employee Separation and Restructuring Costs.

Performance Products and Solutions

Sales decreased $25.6 million, or 3.7%, in 2016 compared to 2015 as volume growth of 7.0% was more than offset by a 5.6% decline related to reduced overall average selling prices, largely due to lower hydrocarbon based raw material costs and a 4.9% decline resulting from lower volume related to legacy Spartech business.

Operating income increased $17.0 million in 2016 compared to 2015 primarily as a result of expanding gross margin driven by improved mix and volume growth.

Sales decreased $122.5 million, or 15.0%, in 2015 compared to 2014. Sales declined 10.8% as a result of lower volume related to legacy Spartech business along with customer destocking in the first quarter of 2015. The remaining decrease in sales of 4.2% is a result of declining hydrocarbon based raw material costs that led to reduced overall average selling prices.

Operating income decreased $5.7 million in 2015 compared to 2014. Lower volume related to legacy Spartech business reduced operating income by $13.2 million. Benefits realized of $6.3 million related to the 2013 Spartech restructuring actions partially offset this decrease.

The cost savings achieved from the restructuring actions noted above were in-line with our expectations. These actions did not have a material impact to the Performance Products and Solutions segment in 2016.

PolyOne Distribution

Sales increased $36.9 million, or 3.6%, in 2016 compared to 2015. Volume growth of 11.1% was partially offset by lower overall average selling prices due to declining hydrocarbon based resin costs.

Operating income increased $0.2 million in 2016 compared to 2015 as a result of increased sales, offset by increased selling and administrative costs from our investment in commercial resources and margin compression from lower overall average selling prices due to declining hydrocarbon based resin costs.

Sales decreased $80.3 million, or 7.2%, in 2015 compared to 2014 primarily due to declining hydrocarbon based raw material costs that led to lower overall average selling prices.

24 POLYONE CORPORATION

Operating income decreased $0.2 million in 2015 compared to 2014 as a result of the decline in sales and higher selling and administrative costs resulting from an investment in commercial resources.

Corporate and Eliminations

Corporate and eliminations decreased $37.8 million in 2016 compared to 2015. This decrease was largely due to $22.9 million of lower restructuring charges associated with our various actions that have been completed prior to or are substantially complete in 2016 and a $20.0 million lower mark-to-market adjustment in 2016 as compared to 2015. The 2016 mark-to-market adjustment was a result of actual asset returns exceeding our assumed rate of return and the use of updated mortality tables, partially offset by a decrease in interest rates. See Note 10, Employee Benefit Plans, for further discussion on our mark-to-market adjustment. Offsetting these decreases was an increase associated with acquisition related costs of $5.5 million.

Corporate and eliminations decreased $115.3 million in 2015 as compared to 2014. This decrease was largely due to $52.2 million of lower restructuring charges primarily associated with our 2013 and 2014 actions that were completed or are substantially complete in 2015 and a $44.9 million lower mark-to-market adjustment in 2015 as compared to 2014. The 2015 adjustment was a result of actual asset returns that were lower than our assumed rate of return partially offset by the impact of increased interest rates. See Note 10, Employee Benefit Plans, for further discussion on our mark-to-market adjustment. The remaining decrease was primarily due to lower compensation costs.

Liquidity and Capital Resources

Our objective is to finance our business through operating cash flow and an appropriate mix of debt and equity. By laddering the maturity structure, we avoid concentrations of debt maturities, reducing liquidity risk. We may from time to time seek to retire or purchase our outstanding debt with cash and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. We may also seek to repurchase our outstanding common shares. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved have been and may continue to be material.

The following table summarizes our liquidity as of December 31, 2016:



(In millions)
Cash and cash equivalents	$	226.7
Revolving credit availability	386.2
Liquidity	$	612.9

As of December 31, 2016, 83% of the Company’s cash and cash equivalents resided outside the United States. Repatriation of these funds could result in potential foreign and domestic taxes. To the extent foreign earnings previously treated as indefinitely reinvested were to be repatriated, the potential U.S. tax liability may be reduced by any foreign income taxes paid on these earnings. However, based on the Company’s policy of indefinite reinvestment, it is not practicable to determine the U.S. federal income tax liability, if any, due to the complexities associated with this hypothetical calculation and the Company’s indefinite reinvestment policy. As of December 31, 2016, the non-U.S. subsidiaries have a cumulative unremitted foreign earnings income position of $336.9 million, for which no deferred tax liability has been provided.

Based on current projections, we believe that we will be able to continue to manage and control working capital, discretionary spending and capital expenditures and that cash provided by operating activities, along with available borrowing capacity under our revolving credit facilities, will allow us to maintain adequate levels of available capital to fund our operations, meet debt service obligations, continue paying dividends and repurchase outstanding common shares in accordance with our board authorization.

Expected sources of cash in 2017 include cash from operations and available liquidity under our revolving credit facility, if needed. Expected uses of cash in 2017 include interest payments, cash taxes, contributions to our pension plans, dividend payments, share repurchases, environmental remediation costs and capital expenditures. Capital expenditures are currently estimated to be $90.0 to $95.0 million in 2017, primarily to support sales growth, our continued investment in recent acquisitions and other strategic investments.

25 POLYONE CORPORATION

Cash Flows

The following summarizes our cash flows from operating, investing and financing activities.



(In millions)	2016			2015			2014
Cash provided by (used by):
Operating Activities	$	221.3		$	227.2		$	208.4
Investing Activities	(235.4		)	(106.5		)	(111.8		)
Financing Activities	(34.0		)	(70.4		)	(218.4		)
Effect of exchange rate on cash	(5.0		)	(9.1		)	(4.8		)
Net (decrease) increase in cash and cash equivalents	$	(53.1	)	$	41.2		$	(126.6	)

Operating activities

In 2016, net cash provided by operating activities was $221.3 million as compared to $227.2 million in 2015. The decrease in net cash provided by operating activities of $5.9 million is primarily driven by working capital changes of $60.1 million between 2016 and 2015. Reduced sales in 2015 compared to 2014 resulted in a reduction in working capital of $55.7 million in 2015 compared to a slight build in working capital of $4.4 million in 2016. This change in working capital was partially offset by lower incentive payments of $22.0 million, higher earnings of $20.3 million and lower payroll payments of $12.3 million primarily as a result of payment timing.

Working capital as a percentage of sales, which we define as the average thirteen months of accounts receivable, plus inventory, less accounts payable, divided by full year sales, increased to 10.4% at December 31, 2016 from 9.7% at December 31, 2015. This increase is primarily due to the impact of recent acquisitions.

In 2015, net cash provided by operating activities was $227.2 million as compared to $208.4 million in 2014. The increase in net cash provided by operating activities of $18.8 million is primarily driven by higher earnings and a decrease in working capital of $18.1 million. Partially offsetting these increases were higher payroll payments of $12.3 million as a result of payment timing and an increase in pension contributions of $5.4 million.

Investing Activities

Net cash used by investing activities during 2016 of $235.4 million reflects capital expenditures of $84.2 million and acquisitions of $164.2 million, partially offset by the sale of and proceeds from other assets of $13.0 million.

Net cash used by investing activities during 2015 of $106.5 million reflects capital expenditures of $91.2 million and acquisitions of $18.3 million, partially offset by the sale of and proceeds from other assets of $3.0 million.

Net cash used by investing activities during 2014 of $111.8 million primarily reflects capital expenditures of $92.8 million and acquisitions of $47.2 million. These uses were partially offset by the third and final earn-out payment from the 2011 sale of our equity investment in SunBelt of $26.8 million and the sale of and proceeds from other assets of $1.4 million.

Financing Activities

Net cash used by financing activities in 2016 primarily reflects repurchases of $86.2 million of our outstanding common shares, cash dividends paid of $40.2 million and $6.0 million repayment of long-term debt. Partially offsetting these cash outflows was the increase of $100.0 million to the senior secured term loan due 2022 primarily used to fund acquisitions.

Net cash used in financing activities in 2015 primarily reflects repayment of long-term debt totaling $365.3 million, a $45.5 million net payment under existing credit facilities, repurchases of $156.1 million of our outstanding common shares and cash dividends paid of $35.7 million. Partially offsetting these cash outflows was $547.3 million of proceeds from our senior secured term loan.

Net cash used in financing activities in 2014 reflects repurchases of $233.2 million of our outstanding common shares, cash dividends paid of $29.9 million and the repayment of long-term debt of $8.0 million. These cash outflows more than offset the tax benefit of $6.9 million related to the exercise of employee equity awards and a $45.8 million net draw under existing credit facilities.

26 POLYONE CORPORATION

Total Debt

The following table summarizes debt as presented at December 31, 2016 and 2015.



(In millions)	December 31, 2016		December 31, 2015
Senior term loan due 2022	$	635.3	$	541.4
5.250% senior notes due 2023	592.9		591.7
Other debt⁽¹⁾	30.1		13.5
Total debt	$	1,258.3	$	1,146.6
Less short-term and current portion of long-term debt	18.5		18.6
Long-term debt	$	1,239.8	$	1,128.0


(1)	Other debt includes capital lease obligations of $17.8 million and $0.4 million as of December 31, 2016 and 2015, respectively.

On November 12, 2015, PolyOne entered into a senior secured term loan having an aggregate principal amount of $550.0 million. On June 15, 2016, the Company entered into an amendment to its senior secured term loan. Under the terms of the amended senior secured term loan, the margin was reduced by 25 basis points to 275 basis points. At the Company's discretion, interest is based upon (i) a margin rate of 275 basis points plus the 1-, 2-, 3-, or 6-month LIBOR, subject to a floor of 75 basis points or (ii) a margin rate of 175 basis points plus a Prime rate, subject to a floor of 175 basis points. In connection with the amendment, the Company recognized $0.4 million of Debt extinguishment costs in our Consolidated Statements of Income. On August 3, 2016, the Company increased the senior secured term loan due 2022 by $100.0 million in connection with the acquisition of substantially all of the assets of Gordon Composites, Polystrand and Gordon Holdings. Repayments in the amount of one percent of the aggregate principal amount as of August 3, 2016 are payable annually, while the remaining balance matures on November 12, 2022. The total aggregate principal repayments as of December 31, 2016 was $6.0 million. The weighted average annual interest rate for the senior secured term loan for the years ended December 31, 2016 and 2015 was 3.61% and 3.75%, respectively.

PolyOne has outstanding $600.0 million aggregate principal amount of senior notes, which mature on March 15, 2023. The senior notes bear an interest rate of 5.25% per year, payable semi-annually, in arrears, on March 15 and September 15 of each year.

The Company maintains a senior secured revolving credit facility, which matures on March 1, 2018, which provides a maximum borrowing facility size of $400.0 million, subject to a borrowing base with advances against certain U.S. and Canadian accounts receivable, inventory and other assets as specified in the agreement. We have the option to increase the availability under the facility to $450.0 million, subject to meeting certain requirements and obtaining commitments for such increase. The revolving credit facility has a U.S. and a Canadian line of credit. Currently there are no borrowings on the U.S. or Canadian portion of the facility. Advances under the U.S. portion of our revolving credit facility bear interest, at the Company’s option, at a Base Rate or a LIBOR Rate plus an applicable margin. The Base Rate is a fluctuating rate equal to the greater of (i) the Federal Funds Rate plus one-half percent, (ii) the prevailing LIBOR Rate plus one percent, and (iii) the prevailing Prime Rate. The applicable margins vary based on the Company’s daily average excess availability during the previous quarter. The weighted average annual interest rate under this facility for the year ended December 31, 2016 and 2015 were 3.15% and 2.46%, respectively. As of December 31, 2016 and 2015, we had no borrowings under our revolving credit facility, which had availability of $382.7 million and $338.7 million, respectively.

The agreements governing our revolving credit facility and our senior secured term loan, and the indentures and credit agreements governing other debt, contain a number of customary financial and restrictive covenants that, among other things, limit our ability to: consummate asset sales, incur additional debt or liens, consolidate or merge with any entity or transfer or sell all or substantially all of our assets, pay dividends or make certain other restricted payments, make investments, enter into transactions with affiliates, create dividend or other payment restrictions with respect to subsidiaries, make capital investments and alter the business we conduct. As of December 31, 2016, we were in compliance with all covenants.

The Company also has a credit line of $16.0 million with Saudi Hollandi Bank. The credit line has an interest rate equal to the Saudi Arabia Interbank Offered Rate plus a fixed rate of 0.85% and is subject to annual renewal. Borrowings under the credit line were primarily used to fund capital expenditures related to the manufacturing facility in Jeddah, Saudi Arabia. As of December 31, 2016, letters of credit under the credit line were $0.2 million and borrowings were $12.3 million with an interest rate of 2.84%. As of December 31, 2015, letters of credit under the credit line were $0.2 million and borrowings were $12.6 million with an interest rate of 1.78%. As of December 31, 2016 and 2015, there was remaining availability on the credit line of $3.5 million and $3.2 million, respectively.

27 POLYONE CORPORATION

For additional information about our debt obligations, see Note 5, Financing Arrangements, to the accompanying consolidated financial statements.

Concentrations of Credit Risk

Financial instruments, including foreign exchange contracts, and trade accounts 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 foreign exchange contracts 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.

Letters of Credit

Our revolving credit facility provides up to $50.0 million for the issuance of letters of credit, $11.1 million of which was used at December 31, 2016. These letters of credit are issued by the bank in favor of third parties and are mainly related to insurance claims.

Contractual Cash Obligations

The following table summarizes our obligations under debt agreements, operating leases, interest obligations, pension and other post-retirement plan obligations and purchase obligations as of December 31, 2016:



	Payment Due by Period
(In millions)	Total		2017		2018 & 2019		2020 & 2021		Thereafter
Total debt ⁽¹⁾	$	1,274.1	$	18.5	$	27.6	$	13.4	$	1,214.6
Operating leases	77.2		20.0		26.7		15.8		14.7
Interest on long-term debt obligations ⁽²⁾	338.8		55.9		108.1		107.2		67.6
Pension and post-retirement obligations ⁽³⁾	54.1		5.7		11.1		12.2		25.1
Purchase obligations ⁽⁴⁾	18.7		13.3		5.3		0.1		—
Total	$	1,762.9	$	113.4	$	178.8	$	148.7	$	1,322.0


(1)	Total debt includes both the current and long-term portions of debt and capital lease obligations.


(2)	Represents estimated contractual interest payments for all outstanding debt.

(3)

Pension and post-retirement obligations relate to our U.S. and international pension and other post-retirement plans. The expected payments associated with these plans represent an actuarial estimate of future assumed payments based upon retirement and payment patterns. Due to uncertainties regarding the assumptions involved in estimating future required contributions to our pension and non-pension postretirement benefit plans, including: (i) interest rate levels, (ii) the amount and timing of asset returns and (iii) what, if any, changes may occur in pension funding legislation, the estimates in the table may differ materially from actual future payments.


(4)	Purchase obligations are primarily comprised of service agreements related to telecommunication, information technology, utilities and other manufacturing plant services and certain capital commitments.

The table excludes the liability for unrecognized income tax benefits, since we cannot predict with reasonable certainty the timing of cash settlements, if any, with the respective taxing authorities. At December 31, 2016, the gross liability for unrecognized income tax benefits, including interest and penalties, totaled $11.2 million.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Estimates

Significant accounting policies are described more fully in Note 1, Description of Business and Summary of Significant Accounting Policies, to the accompanying consolidated financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires us to make estimates and assumptions about future events that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and assumptions that we believe are reasonable considering the related facts and circumstances. The application of these critical accounting policies involves the exercise of judgment and use of assumptions for future uncertainties. Accordingly, actual results could differ significantly from these estimates. We believe that the following discussion addresses our most critical accounting policies, which are those that are the most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective and complex judgments.

28 POLYONE CORPORATION



Description	Judgments and Uncertainties	Effect if Actual Results Differ from Assumptions

Environmental Liabilities
• Based upon our estimates, we have an undiscounted accrual of $117.3 million at December 31, 2016 for probable future environmental expenditures. Any such provision is recognized using the Company's best estimate of the amount of loss incurred, or at the lower end of an estimated range, when a single best estimate is not determinable. As of December 31, 2016, we have not accrued for costs of remediation to the lower Passaic River as we are unable to estimate a liability, if any, related to this matter. In some cases, the Company recovers a portion of the costs relating to these obligations from insurers or other third parties; however, the Company records such amounts only when they are collected.	• This accrual represents our best estimate of the remaining probable costs based upon information and technology currently available. Depending upon the results of future testing, the ultimate remediation alternatives undertaken, changes in regulations, new information, newly discovered conditions and other factors, it is reasonably possible that we could incur additional costs in excess of the amount accrued. However, such additional costs, if any, cannot currently be estimated. Our estimate of this liability may be revised as new regulations or technologies are developed or additional information is obtained.	• If further developments or resolution of these matters are not consistent with our assumptions and judgments, we may need to recognize a significant adjustment in a future period. • As we progress through certain benchmarks such as completion of the remedial investigation and feasibility study, issuance of a record of decision and remedial design, additional information will become available that may require an adjustment to our existing reserves.



Pension and Other Post-retirement Plans
• We account for our defined benefit pension plans and other post-retirement plans in accordance with FASB ASC Topic 715, Compensation — Retirement Benefits. We immediately recognize actuarial gains and losses in our operating results in the year in which the gains or losses occur. In 2016, we recognized an $8.4 million gain as a result of the recognition of these actuarial gains, which favorably impacted net income, comprehensive income and the funded status of our pension plans. This gain was mainly driven by higher than expected asset returns and updated mortality assumptions.	• Asset returns and interest rates significantly affect the value of future assets and liabilities of our pension and post-retirement plans and therefore the funded status of our plans. It is difficult to predict these factors due to the volatility of market conditions. • To develop our discount rate, we consider the yields of high-quality corporate bonds with maturities that correspond to the timing of our benefit obligations, referred to as the bond matching approach. • To develop our expected long-term return on plan assets, we consider historical and forward looking long-term asset returns and the expected investment portfolio mix of plan assets. The weighted-average expected long-term rate of return on plan assets was 6.87% for 2016, 6.87% for 2015 and 6.86% for 2014. • Life expectancy is a significant assumption that impacts our pension and other post-retirement benefits obligation. During 2016, we adopted the MP-2016 mortality improvement scale which was issued by the Society of Actuaries in October 2016.	• The weighted average discount rates used to value our pension liabilities as of December 31, 2016 and 2015 were 3.97% and 4.10%, respectively, post-retirement liabilities were 4.04% and 4.12%, respectively. As of December 31, 2016, an increase/decrease in the discount rate of 50 basis points, holding all other assumptions constant, would have increased or decreased pre-tax income and the related pension and post-retirement liability by approximately $22.9 million. An increase/decrease in the discount rate of 50 basis points as of December 31, 2016 would result in a change of approximately $1.6 million in the 2017 net periodic benefit cost. • The expected long-term return on plan assets utilized as of January 1, 2016 and 2015 was 6.87%. An increase/decrease in our expected long-term return on plan assets of one percent would result in a change of approximately $4.6 million to 2017 net periodic benefit cost.

29 POLYONE CORPORATION



Description	Judgments and Uncertainties	Effect if Actual Results Differ from Assumptions

Income Taxes
• We account for income taxes using the asset and liability method under ASC Topic 740. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, deferred tax assets are also recorded with respect to net operating losses and other tax attribute carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when realization of the benefit of deferred tax assets is not deemed to be more likely than not. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.	• The ultimate recovery of certain of our deferred tax assets is dependent on the amount and timing of taxable income that we will ultimately generate in the future and other factors such as the interpretation of tax laws. We have provided valuation allowances as of December 31, 2016, aggregating to $19.8 million primarily against certain foreign and state net operating loss carryforwards based on our current assessment of future operating results and other factors. At December 31, 2016, the gross liability for unrecognized income tax benefits, including interest and penalties, totaled $11.2 million.	• Although management believes that the estimates and judgments discussed herein are reasonable, actual results could differ, which could result in income tax expense or benefits that could be material.

• 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.

30 POLYONE CORPORATION



Description	Judgments and Uncertainties	Effect if Actual Results Differ from Assumptions

Goodwill
• Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired companies. We follow the guidance in ASC 350, Intangibles — Goodwill and Other, and test goodwill for impairment at least annually, absent a triggering event that would warrant an impairment assessment. On an ongoing basis, absent any impairment indicators, we perform our goodwill impairment testing as of the first day of October of each year.	• We have identified our reporting units at the operating segment level, or in most cases, one level below the operating segment level. Goodwill is allocated to the reporting units based on the estimated fair value at the date of acquisition. • We estimated fair value using the best information available to us, including market information and discounted cash flow projections using the income approach. • The income approach requires us to make assumptions and estimates regarding projected economic and market conditions, growth rates, operating margins and cash expenditures. Sensitivity analyses were performed around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values.	• If actual results are not consistent with our assumptions and estimates, we may be exposed to goodwill impairment charges. • The fair value of the reporting unit is based on a number of subjective factors including: (a) appropriate consideration of valuation approaches, (b) the consideration of our business outlook for fiscal 2017 and beyond and (c) weighted average cost of capital (discount rate), growth rates and market multiples for our estimated cash flows. • Based on our 2016 annual impairment test performed on October 1st, we determined one reporting unit was considered to be at risk of future impairment due to the fair value's close proximity to the carrying value. Weak operating results for the Custom Engineered Structures (CES) reporting unit, included in the Designed Structures and Solutions segment, resulted in the fair value of the reporting unit exceeding the carrying value by 8.0% as of October 1, 2016. Accordingly, we concluded that the goodwill assigned to the CES business was not impaired. Although we believe that the current assumptions and estimates are reasonable, supportable and appropriate, our continued efforts to improve the performance of this business could be impacted by negative or unforeseen changes in market factors, which could impact our existing assumptions used in the impairment test. As such, there can be no assurance that these estimates and assumptions made for the purposes of the goodwill impairment test will prove to be accurate predictions of future performance. The carrying value of our CES reporting unit included goodwill of $108.8 million as of December 31, 2016. We will continue to closely monitor these factors along with the performance of the CES reporting unit.



Indefinite-lived Intangible Assets
• At December 31, 2016, our Consolidated Balance Sheet reflected $100.3 million of indefinite lived trade name assets, which includes, $33.2 million associated with the trade name acquired as part of the acquisition of GLS Corporation, $63.1 million associated with trade names acquired as part of the ColorMatrix Group Inc. acquisition and $4.0 million associated with the trade name acquired as part of the Gordon Composites acquisition.	• We estimate the fair value of trade names using a “relief from royalty payments” approach. This approach involves two steps: (1) estimating reasonable royalty rate for the trade name and (2) applying this royalty rate to a net sales stream and discounting the resulting cash flows to determine fair value. Fair value is then compared with the carrying value of the trade name.	• If actual results are not consistent with our assumptions and estimates, we may be exposed to impairment charges related to our indefinite lived trade names. • Based on our 2016 annual impairment test, no trade names were considered at risk.

Recent and Future Adoption of Accounting Standards

Information regarding recent and future adoption of accounting standards can be found in Note 1, Description of Business and Summary of Significant Accounting Policies, to the consolidated financial statements and is incorporated by reference herein.

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 — Interest on our revolving credit facility and senior secured term loan is based upon a Prime rate or LIBOR, plus a margin. Interest on the credit line with Saudi Hollandi Bank is based upon SAIBOR plus a fixed rate of 0.85%. There would be no material impact on our interest expense or cash flows from either a 10% increase or decrease in market rates of interest on our outstanding variable rate debt as of December 31, 2016.

Foreign currency exposure — We enter into intercompany lending transactions that are denominated in various foreign currencies and are subject to financial exposure from foreign exchange rate movement from the date a loan is recorded to the date it is settled or revalued. To mitigate this risk, we may enter into foreign exchange forward contracts. Gains and losses on these contracts generally offset gains and losses on the assets and liabilities being hedged.

We face translation risks related to the changes in foreign currency exchange rates. Amounts invested in our foreign operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. The resulting translation adjustments are recorded as a component of Accumulated other comprehensive loss in the Shareholders’ equity section of the accompanying Consolidated Balance Sheets. Net sales and expenses in our foreign operations’ foreign currencies are translated into varying amounts of U.S. dollars depending upon whether the U.S. dollar weakens or strengthens against other currencies. Therefore, changes in exchange rates may either positively or negatively affect our net sales and expenses from foreign operations as expressed in U.S. dollars.

32 POLYONE CORPORATION

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statement



	Page
Management’s Report	34
Reports of Independent Registered Public Accounting Firm	35
Consolidated Financial Statements:
Consolidated Statements of Income	37
Consolidated Statements of Comprehensive Income	38
Consolidated Balance Sheets	39
Consolidated Statements of Cash Flows	40
Consolidated Statements of Shareholders’ Equity	41
Notes to Consolidated Financial Statements	42

33 POLYONE CORPORATION

MANAGEMENT’S REPORT

The management of PolyOne Corporation is responsible for preparing the consolidated financial statements and disclosures included in this Annual Report on Form 10-K. The consolidated financial statements and disclosures included in this Annual Report fairly present in all material respects the consolidated financial position, results of operations, shareholders’ equity and cash flows of PolyOne Corporation as of and for the year ended December 31, 2016.

Management is responsible for establishing and maintaining disclosure controls and procedures designed to ensure that the information required to be disclosed by the Company is captured and reported in a timely manner. Management has evaluated the design and operation of the Company’s disclosure controls and procedures at December 31, 2016 and found them to be effective.

Management is also responsible for establishing and maintaining a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that provide reasonable assurance that: PolyOne Corporation’s accounting records accurately and fairly reflect the transactions and dispositions of the assets of the Company; unauthorized or improper acquisition, use or disposal of Company assets will be prevented or timely detected; the Company’s transactions are properly recorded and reported to permit the preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles; and the Company’s receipts and expenditures are made only in accordance with authorizations of management and the Board of Directors of the Company.

Management has assessed the effectiveness of PolyOne’s internal control over financial reporting as of December 31, 2016 and has prepared Management’s Annual Report On Internal Control Over Financial Reporting contained on page 66 of this Annual Report, which concludes that as of December 31, 2016, PolyOne’s internal control over financial reporting is effective and that no material weaknesses were identified.




/s/ ROBERT M. PATTERSON			/s/ BRADLEY C. RICHARDSON

Robert M. Patterson			Bradley C. Richardson
Chairman, President and Chief Executive Officer			Executive Vice President, Chief Financial Officer

February 16, 2017

34 POLYONE CORPORATION

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of PolyOne Corporation

We have audited PolyOne Corporation’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). PolyOne Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Management’s Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We 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 company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, PolyOne Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, 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 as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2016 and our report dated February 16, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Cleveland, Ohio

February 16, 2017

35 POLYONE CORPORATION

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of PolyOne Corporation

We have audited the accompanying consolidated balance sheets of PolyOne Corporation as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's 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 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, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, 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 Corporation’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 16, 2017 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Cleveland, Ohio

February 16, 2017

36 POLYONE CORPORATION

Consolidated Statements of Income



	Year Ended December 31,
(In millions, except per share data)	2016			2015			2014
Sales	$	3,339.8		$	3,377.6		$	3,835.5
Cost of sales	2,633.6			2,696.1			3,127.6
Gross margin	706.2			681.5			707.9
Selling and administrative expense	424.3			430.6			552.8
Operating income	281.9			250.9			155.1
Interest expense, net	(59.8		)	(64.1		)	(62.2		)
Debt extinguishment costs	(0.4		)	(16.4		)	—
Other income (expense), net	0.6			(2.7		)	(4.5		)
Income from continuing operations, before income taxes	222.3			167.7			88.4
Income tax expense	(57.3		)	(23.0		)	(11.2		)
Net income from continuing operations	165.0			144.7			77.2
Income from discontinued operations, net of income taxes	—			—			1.2
Net income	165.0			144.7			78.4
Net loss (income) attributable to noncontrolling interests	0.2			(0.1		)	0.8
Net income attributable to PolyOne common shareholders	$	165.2		$	144.6		$	79.2

Earnings per share attributable to PolyOne common shareholders - basic:
Continuing operations	$	1.97		$	1.65		$	0.85
Discontinued operations	—			—			0.01
Total	$	1.97		$	1.65		$	0.86

Earnings per share attributable to PolyOne common shareholders - diluted:
Continuing operations	$	1.95		$	1.63		$	0.83
Discontinued operations	—			—			0.02
Total	$	1.95		$	1.63		$	0.85

Cash dividends declared per common share	$	0.495		$	0.420		$	0.340

Weighted-average number of common shares outstanding:
Basic	83.9			87.8			92.3
Diluted	84.6			88.7			93.5

The accompanying notes to the consolidated financial statements are an integral part of these statements.

37 POLYONE CORPORATION

Consolidated Statements of Comprehensive Income



	Year Ended December 31,
(In millions)	2016			2015			2014
Net income	$	165.0		$	144.7		$	78.4
Other comprehensive loss:
Translation adjustments	(23.0		)	(29.1		)	(27.5		)
Unrealized gain on available-for-sale securities	0.1			0.1			—
Total other comprehensive loss	(22.9		)	(29.0		)	(27.5		)
Total comprehensive income	142.1			115.7			50.9
Comprehensive loss (income) attributable to noncontrolling interests	0.2			(0.1		)	0.8
Comprehensive income attributable to PolyOne common shareholders	$	142.3		$	115.6		$	51.7

The accompanying notes to the consolidated financial statements are an integral part of these statements.

38 POLYONE CORPORATION

Consolidated Balance Sheets



	Year Ended December 31,
(In millions, except par value per share)	2016			2015
ASSETS
Current assets:
Cash and cash equivalents	$	226.7		$	279.8
Accounts receivable, net	363.7			347.0
Inventories, net	312.4			287.0
Other current assets	46.7			47.0
Total current assets	949.5			960.8
Property, net	607.7			583.5
Goodwill	677.4			597.7
Intangible assets, net	363.5			344.6
Other non-current assets	125.2			108.5
Total assets	$	2,723.3		$	2,595.1

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term and current portion of long-term debt	$	18.5		$	18.6
Accounts payable	361.5			351.6
Accrued expenses and other liabilities	129.6			127.9
Total current liabilities	509.6			498.1
Long-term debt	1,239.8			1,128.0
Pension and other post-retirement benefits	63.1			77.5
Deferred income taxes	43.1			33.8
Other non-current liabilities	142.2			152.5
Total non-current liabilities	1,488.2			1,391.8

SHAREHOLDERS' EQUITY
Preferred stock, 40.0 shares authorized, no shares issued	—			—
Common Shares, $0.01 par, 400.0 shares authorized, 122.2 shares issued	1.2			1.2
Additional paid-in capital	1,157.1			1,155.6
Retained earnings	491.2			367.1
Common shares held in treasury, at cost, 39.6 shares in 2016 and 36.9 shares in 2015	(830.6		)	(748.4		)
Accumulated other comprehensive loss	(94.2		)	(71.3		)
Total PolyOne shareholders' equity	724.7			704.2
Noncontrolling interest	0.8			1.0
Total equity	725.5			705.2
Total liabilities and equity	$	2,723.3		$	2,595.1

The accompanying notes to the consolidated financial statements are an integral part of these statements.

39 POLYONE CORPORATION

Consolidated Statements of Cash Flows



	Year Ended December 31,
(In millions)	2016		2015		2014
Operating activities
Net income	$	165.0	$	144.7	$	78.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	100.5		98.1		100.8
Accelerated depreciation and fixed asset charges associated with restructuring activities	5.4		17.6