e10vk
United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
þ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2010
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period
from
to .
Commission file number 1-16091
PolyOne Corporation
(Exact name of registrant as
specified in its charter)
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Ohio
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34-1730488
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer Identification No.)
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33587 Walker Road,
Avon Lake, Ohio
(Address of principal executive
offices)
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44012
(Zip Code)
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Registrants telephone number,
including area
code (440) 930-1000
Securities registered pursuant to
Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Shares, par value $.01 per share
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New York Stock Exchange
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Securities registered pursuant to
Section 12(g) of the Act:
None
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the
registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past
90 days. Yes þ No o
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the
registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer,
accelerated filer and smaller reporting
company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the
registrants outstanding common shares held by
non-affiliates on June 30, 2010, determined using a per
share closing price on that date of $8.42, as quoted on the New
York Stock Exchange, was $726,785,663.
The number of shares of common
shares outstanding as of February 15, 2011 was 94,029,027.
DOCUMENTS INCORPORATED BY
REFERENCE
Part III of this Annual Report
on
Form 10-K
incorporates by reference certain information from the
registrants definitive Proxy Statement with respect to the
2011 Annual Meeting of Shareholders.
POLYONE
CORPORATION
PART I
CAUTIONARY
NOTE ON FORWARD-LOOKING STATEMENTS
In this Annual Report on
Form 10-K,
statements that are not reported financial results or other
historical information are forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements give
current expectations or forecasts of future events and are not
guarantees of future performance. They are based on
managements expectations that involve a number of business
risks and uncertainties, any of which could cause actual results
to differ materially from those expressed in or implied by the
forward-looking statements. You can identify these statements by
the fact that they do not relate strictly to historic or current
facts. They use words such as anticipate,
estimate, expect, project,
intend, plan, believe and
other words and terms of similar meaning in connection with any
discussion of future operating or financial performance
and/or
sales. In particular, these include statements relating to
future actions; prospective changes in raw material costs,
product pricing or product demand; future performance; results
of current and anticipated market conditions and market
strategies; sales efforts; expenses; the outcome of
contingencies such as legal proceedings; and financial results.
Factors that could cause actual results to differ materially
include, but are not limited to:
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the effect on foreign operations of currency fluctuations,
tariffs and other political, economic and regulatory risks;
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changes in polymer consumption growth rates where we conduct
business;
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changes in global industry capacity or in the rate at which
anticipated changes in industry capacity come online in the
polyvinyl chloride (PVC), chlor alkali, vinyl chloride monomer
(VCM) or other industries in which we participate;
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fluctuations in raw material prices, quality and supply and in
energy prices and supply;
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production outages or material costs associated with scheduled
or unscheduled maintenance programs;
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unanticipated developments that could occur with respect to
contingencies such as litigation and environmental matters,
including any developments that would require any increase in
our costs
and/or
reserves for such contingencies;
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an inability to achieve or delays in achieving or achievement of
less than the anticipated financial benefit from initiatives
related to working capital reductions, cost reductions and
employee productivity goals and our new global organization
structure;
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an inability to raise or sustain prices for products or services;
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an inability to maintain appropriate relations with unions and
employees;
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the speed and extent of an economic recovery, including the
recovery of the housing and chlor-alkali markets;
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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;
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disruptions, uncertainty or volatility in the credit markets
that may limit our access to capital;
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other factors affecting our business beyond our control,
including, without limitation, changes in the general economy,
changes in interest rates and changes in the rate of inflation;
and
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other factors described in this Annual Report on
Form 10-K
under Item 1A, Risk Factors.
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We cannot guarantee that any forward-looking statement will be
realized, although we believe we have been prudent in our plans
and assumptions. Achievement of future results is subject to
risks, uncertainties and inaccurate assumptions. Should known or
unknown risks or uncertainties materialize, or should underlying
assumptions prove inaccurate, actual results could vary
materially from those anticipated, estimated or projected.
Investors should bear this in mind as they consider
forward-looking statements. We undertake no obligation to
publicly update forward-looking statements, whether as a result
of new information, future events or otherwise, except as
otherwise required by law. You are advised, however, to consult
any further disclosures we make on related subjects in our
reports on
Forms 10-Q,
8-K and
10-K
furnished to the SEC. You should understand that it is not
possible to predict or identify all risk factors. Consequently,
you should not consider any such list to be a complete set of
all potential risks or uncertainties.
ITEM 1.
BUSINESS
Business
Overview
We are a premier provider of specialized polymer materials,
services and solutions with operations in thermoplastic
compounds, specialty polymer formulations, color and additive
systems, thermoplastic resin distribution and specialty PVC
resins. We also have an equity investment in SunBelt
Chlor-Alkali Partnership (SunBelt), a manufacturer of caustic
soda and chlorine. When used in this Annual Report on
Form 10-K,
the terms we, us, our and
the Company mean PolyOne Corporation and its
subsidiaries.
We are incorporated in Ohio and our headquarters are in Avon
Lake, Ohio. We employ approximately 4,000 people and have
49 manufacturing sites and 6 distribution facilities in North
America, Europe, Asia and South America, and a joint venture in
North America. We offer more than 36,000 polymer solutions to
over 10,000 customers across the globe. In 2010, we had sales of
$2.6 billion, 34% of which were to customers outside the
United States.
We provide value to our customers through our ability to link
our knowledge of polymers and formulation technology with our
2 POLYONE
CORPORATION
manufacturing and supply chain processes to provide an essential
link between large chemical producers (our raw material
suppliers) and designers, assemblers and processors of plastics
(our customers). We believe that large chemical producers are
increasingly outsourcing
less-than-railcar
business; polymer and additive producers need multiple channels
to market; processors continue to outsource compounding; and
international companies need suppliers with global reach. Our
goal is to provide our customers with specialized material and
service solutions through our global reach, product platforms,
low-cost manufacturing operations, a fully integrated
information technology network, broad market knowledge and raw
material procurement leverage. Our end markets are primarily in
industrial applications, durable goods, transportation, building
and construction materials, packaging, wire and cable,
healthcare, electrical and electronics and textiles.
PolyOne was formed on August 31, 2000 from the
consolidation of The Geon Company (Geon) and M.A. Hanna (Hanna).
Geons roots date back to 1927 when BFGoodrich scientist
Waldo Semon produced the first usable vinyl polymer. In 1948,
BFGoodrich created a vinyl plastic division that was
subsequently spun off through a public offering in 1993,
creating Geon, a separate publicly-held company. Hanna was
formed in 1885 as a privately-held company and became
publicly-held in 1927. In the mid-1980s, Hanna began to divest
its historic mining and shipping businesses to focus on
polymers. Hanna purchased its first polymer company in 1986 and
completed its 26th polymer company acquisition in 2000.
Polymer Industry
Overview
Polymers are a class of organic materials that are generally
produced by converting natural gas or crude oil derivatives into
monomers, such as ethylene, propylene, vinyl chloride and
styrene. These monomers are then polymerized into chains called
polymers, or plastic resin, in its most basic form. Large
petrochemical companies, including some in the petroleum
industry, produce a majority of the monomers and base resins
because they have direct access to the raw materials needed for
production. Monomers make up the majority of the variable cost
of manufacturing the base resin. As a result, the cost of a base
resin tends to move in tandem with the industry market prices
for monomers and the cost of raw materials and energy used
during production. Resin selling prices can move in tandem with
costs, but are largely driven by supply and demand balances.
Through our equity interest in SunBelt, we realize a portion of
the economic benefits of a base resin producer for PVC resin,
one of our major raw materials.
Thermoplastic polymers make up a substantial majority of the
resin market and are characterized by their ability to be
reshaped repeatedly into new forms after heat and pressure are
applied. Thermoplastics offer versatility and a wide range of
applications. The major types of thermoplastics include
polyethylene, polyvinyl chloride, polypropylene, polystyrene,
polyester and a range of specialized engineering resins. Each
type of thermoplastic has unique qualities and characteristics
that make it appropriate for use in a particular product.
Thermoplastic resins are found in a number of end-use products
and in a variety of markets, including packaging, building and
construction, wire and cable, transportation, medical, furniture
and furnishings, durable goods, institutional products,
electrical and electronics, adhesives, inks and coatings. Each
type of thermoplastic resin has unique characteristics (such as
flexibility, strength or durability) suitable for use in a
particular end-use application. The packaging industry, the
largest consumer of plastics, requires plastics that help keep
food fresh and free of contamination while providing a variety
of options for product display, and offering advantages in terms
of weight and user-friendliness. In the building and
construction industry, plastic provides an economical and energy
efficient replacement for other traditional materials in piping
applications, siding, flooring, insulation, windows and doors,
as well as structural and interior or decorative uses. In the
wire and cable industry, thermoplastics serve to protect by
providing electrical insulation, flame resistance, durability,
water resistance, and color coding to wire coatings and
connectors. In the transportation industry, plastic has proved
to be durable, lightweight and corrosion resistant while
offering fuel savings, design flexibility and high performance.
In the medical industry, plastics help save lives by safely
providing a range of transparent and opaque thermoplastics that
are used for a vast array of devices including blood and
intravenous bags, medical tubing, masks, lead replacement for
radiation shielding, clamps and connectors to bed frames,
curtains and sheeting, and electronic enclosures. In the
electronics industry, plastic enclosures and connectors not only
enhance safety through electrical insulation, but thermally and
electrically conductive plastics provide heat transferring,
cooling, antistatic, electrostatic discharge, and
electromagnetic shielding performance for critical applications
including integrated circuit chip packaging.
Various additives can be combined with a base resin to provide
it with greater versatility and performance. These combinations
are known as plastic compounds. Plastic compounds have
advantages over metals, wood, rubber and other traditional
materials, which have resulted in the replacement of these
materials across a wide spectrum of applications that range from
automobile parts to construction materials. Plastic compounds
offer advantages compared to traditional materials that include
processability, weight reduction, chemical resistance, flame
retardance and lower cost. Plastics have a reputation for
durability, aesthetics, ease of handling and recyclability.
PolyOne
Segments
We operate in five reportable segments: (1) Global
Specialty Engineered Materials; (2) Global Color, Additives
and Inks; (3) Performance Products and Solutions;
(4) PolyOne Distribution; and (5) SunBelt Joint
Venture. Our segments are further discussed in Note 16,
Segment Information, to the accompanying consolidated
financial statements.
Global
Specialty Engineered Materials
Global Specialty Engineered Materials is a leading provider of
custom plastic formulations, compounding services and solutions
for
3 POLYONE
CORPORATION
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 standard and custom formulated high-performance polymer
compounds that are manufactured using thermoplastic compounds
and elastomers, which are then combined with advanced polymer
additive, reinforcement, filler, colorant
and/or
biomaterial technologies. This segment includes
GLS Corporation (GLS), which we acquired in 2008. We
believe GLS offers the broadest range of soft-touch
thermoplastic elastomers in the industry. Our compounding
expertise enables us to expand the performance range and
structural properties of traditional engineering-grade
thermoplastic resins. Global Specialty Engineered Materials has
plants, sales and service facilities located throughout North
America, Europe and Asia, and with the acquisition of Uniplen
Indústria de Polímeros Ltda. (Uniplen) on
January 3, 2011, we further extended our global
capabilities to South America. Our product development and
application reach is further enhanced by the capabilities of our
Engineered Materials Solutions 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.
Global
Color, Additives and Inks
Global Color, Additives and Inks is a leading provider of
specialized color and additive concentrates as well as inks and
latexes. Color and additive products include an innovative array
of colors, special effects and performance-enhancing and
eco-friendly solutions. When combined with non pre-colored base
resins, our colorants help customers achieve a wide array of
specialized colors and effects that are targeted at the demands
of todays highly design-oriented consumer and industrial
end markets. Our additive masterbatches encompass a wide variety
of performance enhancing characteristics and are commonly
categorized by the function that they perform, such as UV
stabilization, anti-static, chemical blowing, antioxidant and
lubricant, and processing enhancement. Our colorant and
additives masterbatches are used in a broad range of plastics,
including those used in food and medical packaging,
transportation, building products, pipe and wire and cable
markets. We also provide custom-formulated liquid systems that
meet a variety of customer needs and chemistries, including
vinyl, natural rubber and latex, polyurethane and silicone.
Products include proprietary inks and latexes for diversified
markets including recreational and athletic apparel,
construction and filtration, outdoor furniture and healthcare.
Global Color, Additives and Inks has plants, sales and service
facilities located throughout North America, Europe and Asia,
and with the acquisition of Polimaster Indústria E
Comércio de Pigmentos Pláticos LTDA (Polimaster) on
October 1, 2010, we further extended our global
capabilities to South America. In addition, through its
disposition on November 30, 2010, we had a 50% interest in
BayOne Urethane Systems LLC (BayOne), a joint venture between
PolyOne and Bayer Corporation, which sells liquid polyurethane
systems into many of the same markets. The equity earnings from
BayOne are included in Global Color, Additives and Inks
results.
Performance
Products and Solutions
Performance Products and Solutions is an industry leader
offering an array of products and services for vinyl, molding
and extrusion processors principally in North America. Our
product offerings include: vinyl compounds, vinyl resins, and
specialty coating materials based largely on vinyl. We believe
that Geon is the leading North American vinyl compounder, and
the Geon name carries strong brand recognition. These products
are sold to manufacturers of plastic parts and consumer-oriented
products. We also offer a wide range of services including
materials testing and component analysis, custom compound
development, colorant and additive services, design assistance,
structural analyses, process simulations and extruder screw
design. In addition, we owned 50% of Geon Polimeros Andinos
(GPA), a former equity affiliate and producer and marketer of
vinyl compounds in Latin America, through the disposition date
of October 13, 2009. Vinyl is utilized across a broad range
of applications in building and construction, wire and cable,
consumer and recreation markets, transportation, packaging and
healthcare. This segment also includes Producer Services, which
offers custom compounding services to resin producers and
processors that design and develop their own compound and
masterbatch recipes. As a strategic and integrated supply chain
partner, Producer Services offers resin producers a way to
develop custom products for niche markets by using our
compounding expertise and multiple manufacturing platforms.
PolyOne
Distribution
Our PolyOne Distribution business distributes more than 3,500
grades of engineering and commodity grade resins, including
PolyOne-produced compounds, to the North American market. These
products are sold to over 5,500 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 20 major suppliers, we offer our customers a broad product
portfolio,
just-in-time
delivery from multiple stocking locations and local technical
support.
SunBelt
Joint Venture
Our SunBelt Joint Venture consists entirely of our 50% equity
interest in SunBelt. SunBelt, a producer of chlorine and caustic
soda, is a partnership with Olin Corporation. In 2010, SunBelt
had production capacity of approximately 320 thousand tons of
chlorine and 358 thousand tons of caustic soda. Most of the
chlorine manufactured by SunBelt is used to produce PVC resin.
Caustic soda is sold on the merchant market to customers in the
pulp and paper, chemical, building and construction and consumer
products industries.
4 POLYONE
CORPORATION
Competition
The production of compounded plastics and the manufacture of
custom and proprietary formulated color and additives systems
for the plastics industry are highly competitive. Competition is
based on service, performance, product innovation, product
recognition, speed, delivery, quality and price. The relative
importance of these factors varies among our products and
services. We believe that we are the largest independent
formulator and compounder of plastics and producer of custom and
proprietary color and additive masterbatch 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 compounders whose focus is a specific market niche or
product offering.
The distribution of polymer resin is also highly competitive.
Speed, service, reputation, product line, brand recognition,
delivery, quality and price are the principal factors affecting
competition. We compete against other national independent resin
distributors in North America, along with other regional
distributors. Growth in the thermoplastic resin and compound
distribution market is directly correlated with growth in the
base polymer resins market.
We believe that the strength of our company name and reputation,
the broad range of product offerings from our suppliers and our
speed and responsiveness, coupled with the quality of products
and flexibility of our distribution network, allow us to compete
effectively.
Raw
Materials
The primary raw materials used by our manufacturing operations
are PVC resin, VCM, polyolefin and other thermoplastic resins,
plasticizers, inorganic and organic pigments, all of which we
believe are in adequate supply. We have long-term supply
contracts with OxyVinyls LP, a former equity investment
affiliate, under which the majority of our PVC resin and all of
our VCM is supplied. These contracts will expire in 2013,
although they contain two five-year renewal provisions that are
at our option. We believe these contracts should assure the
availability of adequate amounts of PVC resin and VCM. We also
believe that the pricing under these contracts provides PVC
resins and VCM to us at a competitive cost. We also periodically
obtain raw materials from foreign suppliers. See discussion of
risks associated with raw material supply and costs in
Item 1A. Risk Factors.
Patents and
Trademarks
We own and maintain a number of U.S. and foreign patents
and trademarks that contribute to our competitiveness in the
markets we serve because they protect our inventions and product
names against infringement by others. Patents exist for
20 years if all fees are paid, and trademarks have an
indefinite life based upon continued use. While we view our
patents and trademarks to be valuable because of the broad scope
of our products and services and brand recognition we enjoy, we
do not believe that the loss or expiration of any single patent
or trademark would have a material adverse effect on our results
of operations, financial position or the continuation of our
business. Nevertheless, we have implemented management processes
designed to protect our inventions and trademarks.
Seasonality and
Backlog
Sales of our products and services are slightly seasonal as
demand is generally slower in the first and fourth calendar
quarters of the year. Because of the nature of our business, we
do not believe that our backlog is a meaningful indicator of the
level of our present or future business.
Working Capital
Practices
Our products are generally manufactured with a short turnaround
time, and the scheduling of manufacturing activities from
customer orders generally includes enough lead time to assure
delivery of an adequate supply of raw materials. We offer
payment terms to our customers that are competitive. We
generally allow our customers to return merchandise if
pre-agreed quality standards or specifications are not met;
however, we employ quality assurance practices that seek to
minimize customer returns. Our customer returns are immaterial.
Significant
Customers
No customer accounted for more than 3% of our consolidated
revenues in 2010, and neither we nor any of our segments would
suffer a material adverse effect if we were to lose any single
customer.
Research and
Development
We have substantial technology and development capabilities. Our
efforts are largely devoted to developing new product
formulations to satisfy defined market needs, providing quality
technical services to evaluate alternative raw materials,
assuring the continued success of our products for customer
applications, providing technology to improve our products,
processes and applications, and providing support to our
manufacturing plants for cost reduction, productivity and
quality improvement programs. We operate research and
development centers that support our commercial development
activities and manufacturing operations. These facilities are
equipped with
state-of-the-art
analytical, synthesis, polymer characterization and testing
equipment, along with pilot plants and polymer compounding
operations that simulate specific production processes that
allow us to rapidly translate new technologies into new products.
Our investment in product research and development was
$33.8 million in 2010, $30.2 million in 2009 and
$33.8 million in 2008. In 2011, we expect our investment in
research and development to increase moderately as we deploy
additional resources to focus on material and service
innovations.
5 POLYONE
CORPORATION
Methods of
Distribution
We sell products primarily through direct sales personnel,
distributors, including our PolyOne Distribution segment, and
commissioned sales agents. We primarily use truck carriers to
transport our products to customers, although some customers
pick up product at our operating facilities or warehouses. We
also ship some of our manufactured products to customers by rail.
Employees
As of February 1, 2011, we employed approximately
4,000 people. Less than 2% of our employees are represented
by labor unions under collective bargaining agreements. We
believe that relations with our employees are good, and we do
not anticipate significant operating issues to occur as a result
of current negotiations or when we renegotiate collective
bargaining agreements as they expire.
Environmental,
Health and Safety
We are subject to various environmental laws and regulations
that apply to the production, use and sale of chemicals,
emissions into the air, discharges into waterways and other
releases of materials into the environment and the generation,
handling, storage, transportation, treatment and disposal of
waste material. We endeavor to ensure the safe and lawful
operation of our facilities in the manufacture and distribution
of products, and we believe we are in material compliance with
all applicable laws and regulations.
We maintain a disciplined environmental and occupational safety
and health compliance program and conduct periodic internal and
external regulatory audits at our facilities to identify and
categorize potential environmental exposures, including
compliance matters and any actions that may be required to
address them. This effort can result in process or operational
modifications, the installation of pollution control devices or
cleaning up grounds or facilities. We believe that we are in
material compliance with all applicable requirements.
We are strongly committed to safety as evidenced by our injury
incidence rate of 0.6 per 100 full-time workers per year in
2010, an improvement from 0.9 in 2009. The 2009 average injury
incidence rate for our NAICS Code (326 Plastics and Rubber
Products Manufacturing) was 4.8.
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 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 their investigation
and remediation of a number of environmental waste disposal
sites. While government agencies assert that PRPs are jointly
and severally liable at these sites, in our experience, interim
and final allocations of liability costs are generally made
based on the relative contribution of waste. However, even when
allocations of costs based on relative contribution of waste
have been made, we cannot assure that our allocation will not
increase if other PRPs do not pay their allocated share of these
costs.
Based on September 2007 court rulings (see Note 12,
Commitments and Related-Party Information, to the
accompanying consolidated financial statements) in the case of
Westlake Vinyls, Inc. v. Goodrich Corporation, et al. and a
settlement agreement related to the former Goodrich Corporation
(now owned by Westlake Vinyls, Inc.) Calvert City facility, we
recorded a charge during 2007 of $15.6 million for past
remediation costs payable to Goodrich Corporation. We also
adjusted our environmental reserve for future remediation costs,
a portion of which already related to the Calvert City site,
resulting in an additional charge of $28.8 million in 2007.
We incurred environmental expenses of $20.5 million in
2010, $11.7 million in 2009 and $17.1 million in 2008.
Our environmental expense in 2010 and 2009 related mostly to
ongoing remediation. In 2010, 2009, and 2008 we received
$16.7 million, $23.9 million, and $1.5 million,
respectively, as reimbursement of previously incurred
environmental remediation costs.
We also conduct investigations and remediation at certain of our
active and inactive facilities and have assumed responsibility
for the resulting environmental liabilities from operations at
sites we or our predecessors formerly owned or operated. We
believe that our potential continuing liability at these sites
will not have a material adverse effect on our results of
operations or financial position. In addition, we voluntarily
initiate corrective and preventive environmental projects at our
facilities. Based on current information and estimates prepared
by our environmental engineers and consultants, we had reserves
as of December 31, 2010 on our accompanying consolidated
balance sheet totaling $87.4 million to cover
6 POLYONE
CORPORATION
probable future environmental expenditures related to previously
contaminated sites. This figure represents our best estimate of
probable costs for remediation, based upon the information and
technology currently available and our view of the most likely
remedy.
Depending upon the results of future testing, the ultimate
remediation alternatives undertaken, changes in regulations, new
information, newly discovered conditions and other factors, it
is reasonably possible that we could incur additional costs in
excess of the amount accrued at December 31, 2010. Such
costs, if any, cannot be currently estimated. We may revise our
estimate of this liability as new regulations or technologies
are developed or additional information is obtained.
We expect cash paid for environmental remediation expenditures
will be approximately $15 million in 2011.
International
Operations
Our international operations are subject to a variety of risks,
including currency fluctuations and devaluations, exchange
controls, currency restrictions and changes in local economic
conditions. While the impact of these risks is difficult to
predict, any one or more of them could adversely affect our
future operations. For more information about our international
operations, see Note 16, Segment Information, to the
accompanying consolidated financial statements, which is
incorporated by reference into this Item 1.
Where You Can
Find Additional Information
Our principal executive offices are located at 33587 Walker
Road, Avon Lake, Ohio 44012, and our telephone number is
(440) 930-1000.
We are subject to the information reporting requirements of the
Exchange Act, and, in accordance with these requirements, we
file annual, quarterly and other reports, proxy statements and
other information with the SEC relating to our business,
financial results and other matters. The reports, proxy
statements and other information we file may be inspected and
copied at prescribed rates at the SECs Public Reference
Room and via the SECs website (see below for more
information).
You may inspect a copy of the reports, proxy statements and
other information we file with the SEC, without charge, at the
SECs Public Reference Room, 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549, and you may obtain
copies of the reports, proxy statements and other information we
file with the SEC, from those offices for a fee. You may obtain
information on the operation of the Public Reference Room by
calling the SEC at
1-800-SEC-0330.
Our filings are available to the public at the SECs
website at
http://www.sec.gov.
Our Internet address is www.polyone.com. Our Annual
Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act are available,
free of charge, on our website (www.polyone.com, select
Investors and then SEC Edgar filings) or upon
written request, as soon as reasonably practicable after we
electronically file or furnish them to the SEC. 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, financial position, results of operations or cash
flows. These risk factors should be considered along with the
forward-looking statements contained in this Annual Report on
Form 10-K
because these factors could cause our actual results or
financial condition to differ materially from those projected in
forward-looking statements. The following discussion is not an
all-inclusive listing of risks, although we believe these are
the more material risks that we face. If any of the following
occur, our business, financial position, results of operations
or cash flows could be negatively affected.
Demand for and
supply of our products and services may be adversely affected by
several factors, some of which we cannot predict or control,
that could adversely affect our financial position, results of
operations or cash flows.
Several factors may affect the demand for and supply of our
products and services, including:
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economic downturns in the significant end markets that we serve;
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product obsolescence or technological changes that unfavorably
alter the value / cost proposition of our products and
services;
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competition from existing and unforeseen polymer and non-polymer
based products;
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declines in general economic conditions or reductions in
industrial production growth rates, both domestically and
globally, which could impact our customers ability to pay
amounts owed to us;
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changes in environmental regulations that would limit our
ability to sell our products and services in specific markets;
and
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inability to obtain raw materials or supply products to
customers due to factors such as supplier work stoppages, supply
shortages, plant outages or regulatory changes that may limit or
prohibit overland transportation of certain hazardous materials
and exogenous factors, like severe weather.
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If any of these events occur, the demand for and supply of our
products and services could suffer, which would adversely affect
our financial position, results of operations and cash flows.
7 POLYONE
CORPORATION
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 hazards and risks our manufacturing operations are subject
to include, but are not limited to:
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explosions, fires, inclement weather and natural disasters;
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mechanical failure resulting in protracted or short duration
unscheduled downtime;
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regulatory changes that affect or limit the transportation of
raw materials;
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inability to obtain or maintain any required licenses or permits;
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interruptions and environmental hazards such as chemical spills,
discharges or releases of toxic or hazardous substances or gases
into the environment or workplace; and
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storage tank leaks or other issues resulting from remedial
activities.
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The occurrence of any of these operating problems at our
facilities may have a material adverse effect on the
productivity and profitability of a particular manufacturing
facility or on our operations as a whole, during and after the
period of these operating difficulties. These operating problems
may also cause personal injury and loss of life, severe damage
to or destruction of property and equipment and environmental
damage. We are subject to present and potential future claims
with respect to workplace exposure, workers compensation
and other matters. Although we maintain property and casualty
insurance of the types and in the amounts that we believe are
customary for the industry, we may not be fully insured against
all potential hazards that are incident to our business.
Extensive
environmental, health and safety laws and regulations impact our
operations and assets and compliance with these regulations
could adversely affect our financial position, results of
operations or cash flows.
Our operations on, and ownership of, real property are subject
to extensive environmental, health and safety laws and
regulations at the national, state and local governmental
levels. The nature of our business exposes us to compliance
costs and risks of liability under these laws and regulations
due to the production, storage, transportation, recycling or
disposal
and/or sale
of materials that can cause contamination and other harm to the
environment or personal injury if they are released.
Environmental compliance requirements on us and our vendors may
significantly increase the costs of these activities involving
raw materials, energy, finished products and wastes. We may
incur substantial costs, including fines, damages, criminal or
civil sanctions, remediation costs or experience interruptions
in our operations for violations of these laws.
We also conduct investigations and remediation at some of our
active and inactive facilities and have assumed responsibility
for environmental liabilities at sites formerly owned or
operated by our predecessors or by us. Also, federal and state
environmental statutes impose strict, and under some
circumstances, joint and several liability for the cost of
investigations and remedial actions on any company that
generated the waste, arranged for disposal of the waste,
transported the waste to the disposal site or selected the
disposal site as well as on the owners and operators of these
sites. Any or all of the responsible parties may be required to
bear all of the costs of clean up, regardless of fault or
legality of the waste disposal or ownership of the site, and may
also be subject to liability for natural resource damages. We
have been notified by federal and state environmental agencies
and private parties that we may be a potentially responsible
party in connection with certain sites. We may incur substantial
costs for some of these sites. It is possible that we will be
identified as a potentially responsible party at more sites in
the future which could result in our being assessed substantial
investigation or cleanup costs.
We may also incur additional costs and liabilities as a result
of increasingly strict environmental, safety and health laws,
regulations and related enforcement policies, restrictions on
the use of lead and phthalates under the Restrictions on the Use
of Certain Hazardous Substances and the Consumer Product Safety
Information Act of 2008 and restrictions on greenhouse gases
emissions.
The European Union has adopted REACH, a legislative act to cover
Registration, Evaluation, Authorization and Restriction of
Chemicals. The goal of this legislation, which became effective
in June 2007, is to minimize risk to human health and to the
environment by regulating the use of chemicals. As these
regulations evolve, we will endeavor to remain in compliance
with REACH.
We accrue costs for environmental matters that have been
identified when it is probable that these costs will be required
and when they can be reasonably estimated. However, we may be
subject to additional environmental liabilities or potential
liabilities that have not been identified. We expect that we
will continue to be subject to increasingly stringent
environmental, health and safety laws and regulations. We
anticipate that compliance with these laws and regulations will
continue to require capital expenditures and operating costs,
which could adversely affect our financial position, results of
operations or cash flows.
Because our
operations are conducted worldwide, they are inherently affected
by risk.
As noted above in Item 1., Business, we have
extensive operations outside of the United States. Revenue from
these operations (principally from Canada, Mexico, Europe and
Asia) was approximately 34% in 2010 and 37% in each of 2009 and
2008. Long-lived assets of our foreign operations represented
37% in 2010, 36% in 2009 and 35% in 2008 of our total long-lived
assets.
International operations are subject to risks, which include,
but are not limited to, the following:
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changes in local government regulations and policies including,
but not limited to foreign currency exchange controls or
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8 POLYONE
CORPORATION
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monetary policy; repatriation of earnings; expropriation of
property; duty or tariff restrictions; investment limitations;
and tax policies;
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political and economic instability and disruptions, including
labor unrest, civil strife, acts of war, guerilla activities,
insurrection and terrorism;
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legislation that regulates the use of chemicals;
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disadvantages of competing against companies from countries that
are not subject to U.S. laws and regulations, including the
Foreign Corrupt Practices Act (FCPA);
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difficulties in staffing and managing multi-national operations;
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limitations on our ability to enforce legal rights and remedies;
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reduced protection of intellectual property rights; and
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other risks arising out of foreign sovereignty over the areas
where our operations are conducted.
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In addition, we could be adversely affected by violations of the
FCPA and similar worldwide anti-bribery laws. The FCPA and
similar anti-bribery laws in other jurisdictions generally
prohibit companies and their intermediaries from making improper
payments to
non-U.S. officials
for the purpose of obtaining or retaining business. Our policies
mandate compliance with these anti-bribery laws. We operate in
many parts of the world that have experienced governmental
corruption to some degree and, in certain circumstances, strict
compliance with anti-bribery laws may conflict with local
customs and practices. We cannot assure you that our internal
controls and procedures always will protect us from the reckless
or criminal acts committed by our employees or agents. If we are
found to be liable for FCPA violations, we could suffer from
criminal or civil penalties or other sanctions, which could have
a material adverse effect on our business.
Any of these risks could have an adverse effect on our
international operations by reducing the demand for our products
or reducing the prices at which we can sell our products, which
could result in an adverse effect on our business, financial
position, results of operations or cash flows. We may not be
able to continue to operate in compliance with applicable
customs, currency exchange control regulations, transfer pricing
regulations or any other laws or regulations that we may be
subject to. In addition, these laws or regulations may be
modified in the future, and we may not be able to operate in
compliance with those modifications.
We engage in
acquisitions and joint ventures, and may encounter unexpected
difficulties integrating those businesses.
Attainment of our strategic plan objectives may require, in
part, strategic acquisitions or joint ventures intended to
complement or expand our businesses globally or add product
technology that accelerates our specialization strategy, or
both. Success will depend on our ability to complete these
transactions or arrangements, and integrate the businesses
acquired in these transactions as well as develop satisfactory
working arrangements with our strategic partners in the joint
ventures. Unexpected difficulties in completing and integrating
acquisitions with our existing operations and in managing
strategic investments could occur. Furthermore, we may not
realize the degree, or timing, of benefits initially
anticipated, which could adversely affect our business,
financial position, results of operations or cash flows.
Our results of
operations may be adversely affected by the results of
operations of SunBelt.
The earnings of SunBelt may be significantly affected by changes
in the commodity cycle for hydrocarbon feedstocks and for
chlor-alkali products. If the profitability of SunBelt is
adversely affected, cash distributions from the partnership may
decline or we may be required to make cash contributions to the
partnership, either of which could adversely affect our
financial position, results of operations or cash flows.
Natural gas,
electricity, fuel and raw material costs, and other external
factors beyond our control, as well as downturns in the home
repair and remodeling and new home sectors of the economy, can
cause fluctuations in our margins.
The cost of our natural gas, electricity, fuel and raw
materials, and other costs, may not correlate with changes in
the prices we receive for our products, either in the direction
of the price change or in absolute magnitude. Natural gas and
raw materials costs represent a substantial part of our
manufacturing energy costs. In particular, electricity and fuel
represent a component of the costs to manufacture building
products. Most of the raw materials we use are commodities and
the price of each can fluctuate widely for a variety of reasons,
including changes in availability because of major capacity
additions or reductions or significant facility operating
problems. Other external factors beyond our control can cause
volatility in raw materials prices, demand for our products,
product prices, sales volumes and margins. These factors include
general economic conditions, the level of business activity in
the industries that use our products, competitors actions,
international events and circumstances, and governmental
regulation in the United States and abroad, such as climate
change regulation. These factors can also magnify the impact of
economic cycles on our business. While we attempt to pass
through price increases in energy costs and raw materials, we
have been unsuccessful in doing so in some circumstances in the
past and there can be no reassurance that we can do so in the
future.
Additionally, our products used in housing, transportation and
building and construction markets are impacted by changes in
demand in these sectors, which may be significantly affected by
changes in economic and other conditions such as gross domestic
product levels, employment levels, demographic trends,
legislative actions and consumer confidence. These factors can
lower the demand for and pricing of our products, which could
cause our net sales and net income to decrease.
9 POLYONE
CORPORATION
We face
competition from other polymer and chemical companies, which
could adversely affect our sales, results of operations or cash
flows.
We actively compete with companies that produce the same or
similar products, and in some instances with companies that
produce different products that are designed for the same end
uses. We encounter competition in price, delivery, service,
performance, product innovation, product recognition and
quality, depending on the product involved.
We expect that our competitors will continue to develop and
introduce new and enhanced products, which could cause a decline
in the market acceptance of our products. In addition, our
competitors could cause a reduction in the selling prices of
some of our products as a result of intensified price
competition. Competitive pressures can also result in the loss
of major customers. An inability to compete successfully could
have an adverse effect on our financial position, results of
operations or cash flows.
We may also experience increased competition from companies that
offer products based on alternative technologies and processes
that may be more competitive or better in price or performance,
causing us to lose customers and result in a decline in our
sales volume and earnings.
Additionally, some of our customers may already be or may become
large enough to justify developing in-house production
capabilities. Any significant reduction in customer orders as a
result of a shift to in-house production could adversely affect
our sales and operating profits.
A major
failure of our information systems could harm our
business.
We depend on integrated information systems to conduct our
business. We may experience operating problems with our
information systems as a result of system failures, viruses,
computer hackers or other causes. Any significant
disruption or slowdown of our systems could cause customers to
cancel orders or cause standard business processes to become
ineffective, which could adversely affect our financial
position, results of operations or cash flows.
Current and
future disruptions in the global credit and financial markets
could limit our access to credit, which could negatively impact
our business.
Domestic and foreign credit and financial markets have
experienced extreme disruption in the past two years, including
volatility in security prices, diminished liquidity and credit
availability, declining valuations of certain investments and
significant changes in the capital and organizational structures
of certain financial institutions. We are unable to predict the
likely duration and severity of the continuing disruption in the
credit and financial markets or of any related adverse economic
conditions. 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. Overall, our results of operations, financial
condition and cash flows could be materially adversely affected
by the disruptions in the global credit and financial markets.
The global
economic downturn has had and may continue to have a negative
effect on our business and operations.
The global economic downturn has caused, among other things, a
general tightening in the credit markets, lower levels of
liquidity, increases in the rates of default and bankruptcy, and
lower business spending, all of which have had and may continue
to have a negative effect on our business, results of
operations, financial condition and liquidity. Many of our
customers, distributors and suppliers have been affected by the
current economic conditions. Current or potential customers may
be unable to fund purchases or may determine to reduce purchases
or inventories or may cease to continue in business. In
addition, suppliers may not be able to supply us with needed raw
materials on a timely basis, may increase prices or go out of
business, which could result in our inability to meet customer
demand or could affect our gross margins.
Also, availability under our receivables sales facility may be
adversely impacted by credit quality and performance of our
customer accounts receivable. The availability under the
receivable sales facility is based on the amount of receivables
that meet the eligibility criteria of the receivables sales
facility. As sales decline, receivable losses increase or credit
quality deteriorates, the amount of eligible receivables
declines and, in turn, lowers the availability under the
facility.
The timing, strength or duration of any recovery in the global
economic markets remains uncertain, and there can be no
assurance that market conditions will improve in the near future
or that our results will not continue to be materially and
adversely affected. Such conditions make it very difficult to
forecast operating results, make business decisions and identify
and address material business risks. While our operating results
have improved along with the improvement in the economy, there
can be no assurance that the economy and our operating results
will continue to improve, that the economy will not experience
another significant downturn, or that our operating results will
not decrease. In such an event, our operating results, financial
condition and business could be adversely affected. While we
have seen recent signs of recovery, we cannot predict the
timing, strength or duration of any economic slowdown or
subsequent recovery.
We have a
significant amount of goodwill, and any future goodwill
impairment charges could adversely impact our results of
operations.
As of December 31, 2010, we had goodwill of
$164.1 million. The future occurrence of a potential
indicator of impairment, such as a significant adverse change in
legal factors or business climate, an adverse action or
assessment by a regulator, unanticipated competition, a material
negative change in relationships with significant
10 POLYONE
CORPORATION
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.
Poor
investment performance by our pension plan assets may increase
our pension liability and expense, which may increase the
required funding of our pension obligations and divert funds
from other potential uses.
We provide defined benefit pension plans to eligible employees.
Our pension expense and our required contributions to our
pension plans are directly affected by the value of plan assets,
the projected rate of return on plan assets, the actual rate of
return on plan assets and the actuarial assumptions we use to
measure our defined benefit pension plan obligations, including
the rate at which future obligations are discounted to a present
value, or the discount rate. As of December 31, 2010, we
assumed an 8.5% rate of return on pension assets.
Poor investment performance by our pension plan assets resulting
from a decline in the stock market could significantly increase
the deficit position of our plans. Should the assets earn an
average return less than 8.5% over time, it is likely that
future pension expenses and funding requirements would increase.
We establish the discount rate used to determine the present
value of the projected and accumulated benefit obligation at the
end of each year based upon the available market rates for high
quality, fixed income investments. An increase in the discount
rate would reduce the future pension expense and, conversely, a
lower discount rate would raise the future pension expense.
Based on current guidelines, assumptions and estimates,
including stock market prices and interest rates, we anticipate
that we will be required to make a cash contribution of
approximately $24.8 million to our pension plans in 2011.
We cannot predict whether changing market or economic
conditions, regulatory changes or other factors will further
increase our pension expense or funding obligations, diverting
funds we would otherwise apply to other uses.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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We have no outstanding or unresolved comments from the staff of
the SEC.
11 POLYONE
CORPORATION
As of February 1, 2011, we operated facilities in the
United States and internationally. Our corporate office is
located in Avon Lake, Ohio. We employ approximately
4,000 people and have 49 manufacturing sites and 6
distribution facilities in North America, Europe, Asia, and
South America. We also have a joint venture in North America. We
own substantially all of our manufacturing sites and lease our
distribution facilities. We believe that the quality and
production capacity of our facilities is sufficient to maintain
our competitive position for the foreseeable future. The
following table identifies the principal facilities of our
segments:
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Performance Products and
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Global Specialty
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Global Color,
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Solutions
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Engineered Materials
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Additives and Inks
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PolyOne Distribution
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1. Long Beach, California
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1. McHenry, Illinois
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1. Glendale, Arizona
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1. Rancho Cucamonga,
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Kennesaw,
Georgia(1)
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2. Avon Lake, Ohio
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2. Kennesaw, Georgia
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California(4)
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2. Henry, Illinois
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Dyersburg,
Tennessee(1)
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Suwanee,
Georgia(3)
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2. Chicago,
Illinois(4)
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3. Terre Haute, Indiana
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3. North Haven, Connecticut
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3. Elk Grove Village, Illinois
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3. Eagan,
Minnesota(4)
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4. Louisville, Kentucky
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Seabrook,
Texas(1)
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4. St. Louis, Missouri
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4. La Porte,
Texas(4)
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5. Sullivan, Missouri
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4. Gaggenau, Germany
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5. Massillon, Ohio
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5. Fife,
Washington(4)
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6. Pedricktown, New Jersey
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5. Istanbul, Turkey
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6. Norwalk, Ohio
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6. Brampton, Ontario,
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7. Avon Lake, Ohio
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6. Barbastro, Spain
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7. Lehigh, Pennsylvania
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Canada(4)
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8. North Baltimore, Ohio
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7. Melle, Germany
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8. Vonore, Tennessee
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(6 distribution facilities)
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9. Clinton, Tennessee
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8. Pamplona, Spain
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9. Toluca, Mexico
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10. Dyersburg, Tennessee
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9 & 10. Suzhou,
China(2)
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10. Assesse, Belgium
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11. Pasadena, Texas
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11. Shenzhen, China
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11. Cergy, France
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12. Seabrook, Texas
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Jurong,
Singapore(3)
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12. Tossiat, France
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13. Orangeville, Ontario,
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12. Sao Paulo,
Brazil(7)
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13. Bendorf, Germany
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SunBelt Joint Venture
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Canada
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13. Santa Catharina,
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14. Gyor, Hungary
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SunBelt Joint Venture
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14. St. Remi de Napierville,
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Brazil(7)
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15. Kutno, Poland
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McIntosh,
Alabama(5)
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Quebec, Canada
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(13 manufacturing plants)
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16. Mumbai, India
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15. Dongguan, China
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Pamplona,
Spain(1)
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(15 manufacturing plants)
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17. Angered, Sweden
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18. Bangkok, Thailand
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19. Pudong (Shanghai), China
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Shenzhen,
China(1)
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Tianjin,
China(3)
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20. Sao Paulo,
Brazil(6)
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21. Novo Hamburgo,
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Brazil(6)
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(21 manufacturing plants)
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(1) |
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Facility is not included in
manufacturing plants total as it is also included as part of
another segment.
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(2) |
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There are two manufacturing plants
located at Suzhou, China.
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(3) |
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Facility is not included in
manufacturing plants total as it is a design center/lab.
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(4) |
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Facility is not owned by PolyOne,
however it is included in distribution facility total as it is a
primary distribution location.
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(5) |
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Facility is shared as part of a
joint venture, not included in manufacturing plants total.
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(6) |
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Facility added in connection with
the acquisition of Polimaster on October 1, 2010.
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(7) |
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Facility added in connection with
the acquisition of Uniplen on January 3, 2011.
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ITEM 3.
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LEGAL
PROCEEDINGS
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In December 2007, the EPA met with the Company to discuss
possible violations of the Clean Air Act, the Clean Water Act
and the Resource Conservation and Recovery Act at our polyvinyl
chloride resin manufacturing facilities located in Henry,
Illinois and Pedricktown, New Jersey. Discussions between
representatives for the Company and the EPA occurred in 2008,
during which we provided additional information as well as our
position regarding the compliance status of the facilities and
discussed certain modifications to testing procedures and record
keeping. In January 2009, we received a letter from the EPA
proposing a resolution of any violations identified that would
include our payment of penalties in the amount of
$1.3 million. We continue to discuss with the EPA
resolution of these proposed violations on a mutually agreed
basis.
In addition to the matters regarding the environment described
above and in Item 1. under the heading Environmental,
Health and Safety, we are involved in various pending or
threatened claims, lawsuits and administrative proceedings, all
arising from the ordinary course of business concerning
commercial, product liability, employment and environmental
matters that seek remedies or damages. We believe that the
probability is remote that losses in excess of the amounts we
have accrued could be materially adverse to our financial
position, results of operations or cash flows.
12 POLYONE
CORPORATION
EXECUTIVE
OFFICERS OF THE REGISTRANT
Executive officers are elected by our Board of Directors to
serve one-year terms. The following table lists the name of each
person currently serving as an executive officer of our company,
his age as of February 18, 2011 and his current position
with our company:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
|
Stephen D. Newlin
|
|
|
58
|
|
|
Chairman, President and Chief Executive Officer
|
Robert M. Patterson
|
|
|
38
|
|
|
Executive Vice President and Chief Financial Officer
|
Bernard P. Baert
|
|
|
61
|
|
|
Senior Vice President, President of Europe and International
|
Michael E. Kahler
|
|
|
53
|
|
|
Senior Vice President, Chief Commercial Officer
|
Thomas J. Kedrowski
|
|
|
52
|
|
|
Senior Vice President, Supply Chain and Operations
|
Craig M. Nikrant
|
|
|
49
|
|
|
Senior Vice President, President of Global Specialty Engineered
Materials
|
Michael L. Rademacher
|
|
|
60
|
|
|
Senior Vice President, President of Distribution
|
Robert M. Rosenau
|
|
|
56
|
|
|
Senior Vice President, President of Performance Products and
Solutions
|
Kenneth M. Smith
|
|
|
56
|
|
|
Senior Vice President, Chief Information and Human Resources
Officer
|
John V. Van Hulle
|
|
|
53
|
|
|
Senior Vice President, President of Global Color, Additives and
Inks
|
Stephen D. Newlin: Chairman, President and Chief
Executive Officer, February 2006 to date. President
Industrial Sector of Ecolab Inc. (a global developer and
marketer of cleaning and sanitizing specialty chemicals,
products and services) from 2003 to 2006. Mr. Newlin served
as President and a Director of Nalco Chemical Company (a
manufacturer of specialty chemicals, services and systems) from
1998 to 2001 and was Chief Operating Officer and Vice Chairman
from 2000 to 2001. Mr. Newlin serves on the Boards of
Directors of Black Hills Corporation and The Valspar Corporation.
Robert M. Patterson: Executive Vice President and Chief
Financial Officer, January 2011 to date. 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. Mr. Patterson served as Vice President and Chief
Financial Officer of Marley Cooling Tower Company, a cooling
tower manufacturer and subsidiary of SPX, from 2002 to 2004.
Bernard P. Baert: Senior Vice President, President of
Europe and International, January 2010 to date. Senior Vice
President and General Manager, Color and Engineered Materials,
Europe and Asia, May 2006 to January 2010. Vice President and
General Manager, Colors and Engineered Materials, Europe and
Asia, September 2000, upon formation of PolyOne, to April 2006.
General Manager, Color Europe, M.A. Hanna Company, 1997 to
August 2000.
Michael E. Kahler: Senior Vice President, Chief
Commercial Officer, January 2010 to date. Senior Vice President,
Commercial Development, May 2006 to January 2010. President,
Process Technology Division, Alfa Laval Inc. (a global provider
of heat transfer, separation and fluid handling products and
engineering solutions) from January 2004 to March 2006. Group
Vice President, Nalco Chemical Company (a manufacturer of
specialty chemicals, services and systems) from December 1999 to
October 2002.
Thomas J. Kedrowski: Senior Vice President, Supply Chain
and Operations, September 2007 to date. Vice President of
Strategy and Process Improvement, H.B. Fuller Company (a global
manufacturer and marketer of adhesives and specialty chemical
products) from November 2005 to April 2007. Vice President of
Global Operations, H.B. Fuller Company from February 2002 to
November 2005.
Craig M. Nikrant: Senior Vice President, President of
Global Specialty Engineered Materials, January 2010 to date.
Vice President and General Manager, Specialty Engineered
Materials, September 2006 to December 2009. General Manager,
Specialty Film & Sheet, General Electric Plastics,
June 2004 to September 2006. Director, Global Commercial
Effectiveness, General Electric Plastics (a former division of
General Electric specializing in supplying plastics), December
2003 to June 2004. Six Sigma Master Black Belt, General Electric
Company Plastics Business, March 2001 to December 2002. General
Manager, Commercial Operations, North Central Region, General
Electric Plastics, June 1999 to March 2001.
Michael L. Rademacher: Senior Vice President, President
of Distribution, January 2010 to date. Senior Vice President and
General Manager, Distribution, May 2006 to January 2010. Vice
President and General Manager, PolyOne Distribution, September
2000, upon formation of PolyOne, to April 2006. Senior Vice
President Plastics Americas, M.A. Hanna Company,
January 2000 to August 2000. Vice President and General Manager,
Industrial Chemical and Solvents Division, Ashland Chemical
Company (chemical manufacturing and distribution), 1998 to
January 2000.
Robert M. Rosenau: Senior Vice President, President of
Performance Products and Solutions, January 2010 to date. Senior
Vice President and General Manager, Performance Products and
13 POLYONE
CORPORATION
Solutions, June 2008 to January 2010, Senior Vice President and
General Manager, Vinyl Business, May 2006 to June 2008. Vice
President and General Manager, Vinyl Compounds, January 2003 to
April 2006. General Manager, Extrusion Products, September 2000
to December 2002. General Manager, Custom Profile Compounds, The
Geon Company, April 1998 to August 2000.
Kenneth M. Smith: Senior Vice President, Chief
Information and Human Resources Officer, May 2006 to date. Chief
Human Resources Officer, January 2003 to date, and Vice
President and Chief Information Officer, September 2000, upon
formation of PolyOne, to April 2006. Vice President, Information
Technology, The Geon Company, May 1999 to August 2000, and Chief
Information Officer, August 1997 to May 1999.
John V. Van Hulle: Senior Vice President, President of
Global Color, Additives and Inks, January 2010 to date. Senior
Vice President and General Manager, Specialty Color, Additives
and Inks, July 2006 to January 2010. President and Chief
Executive Officer ChemDesign Corporation (a custom
chemical manufacturer), December 2001 to July 2006. President,
Specialty & Fine Chemicals Cambrex
Corporation (a specialty chemical and pharmaceutical business)
August 1994 to November 2000.
14 POLYONE
CORPORATION
PART II
|
|
ITEM 5.
|
MARKET FOR
REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
|
The following table sets forth the range of the high and low
sale prices for our common 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Quarters
|
|
|
2009 Quarters
|
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
First
|
|
|
Fourth
|
|
|
Third
|
|
|
Second
|
|
|
First
|
|
|
|
|
Common share price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
13.99
|
|
|
$
|
12.59
|
|
|
$
|
11.89
|
|
|
$
|
10.65
|
|
|
$
|
7.74
|
|
|
$
|
7.19
|
|
|
$
|
3.65
|
|
|
$
|
3.56
|
|
Low
|
|
$
|
11.58
|
|
|
$
|
7.38
|
|
|
$
|
8.38
|
|
|
$
|
6.93
|
|
|
$
|
5.45
|
|
|
$
|
2.50
|
|
|
$
|
2.23
|
|
|
$
|
1.32
|
|
As of February 15, 2011, there were 2,346 holders of record
of our common shares.
We did not pay dividends in 2010 or 2009. Future declarations of
dividends on common shares are at the discretion of the Board of
Directors, and the declaration of any dividends will depend on,
among other things, earnings, capital requirements and our
financial position, results of operations and cash flows.
Additionally, the agreements that govern our receivables sale
facility contain restrictions that could limit our ability to
pay future dividends.
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
You should refer to Item 7., Managements
Discussion and Analysis of Financial Condition and Results of
Operations, in Part II of this Annual Report on
Form 10-K
and the notes to our accompanying consolidated financial
statements for additional information regarding the financial
data presented below, including matters that might cause this
data not to be indicative of our future financial condition,
results of operations or cash flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions, except per share data)
|
|
2010(1)
|
|
|
2009(2)
|
|
|
2008(3)
|
|
|
2007
|
|
|
2006(4)
|
|
|
|
|
Sales
|
|
$
|
2,621.9
|
|
|
$
|
2,060.7
|
|
|
$
|
2,738.7
|
|
|
$
|
2,642.7
|
|
|
$
|
2,622.4
|
|
Operating income (loss)
|
|
$
|
174.3
|
|
|
$
|
80.1
|
|
|
$
|
(133.9
|
)
|
|
$
|
43.8
|
|
|
$
|
176.9
|
|
Income (loss) before discontinued operations
|
|
$
|
111.0
|
|
|
$
|
49.5
|
|
|
$
|
(260.2
|
)
|
|
$
|
17.8
|
|
|
$
|
98.1
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.7
|
)
|
|
Net income (loss)
|
|
$
|
162.6
|
|
|
$
|
49.5
|
|
|
$
|
(260.2
|
)
|
|
$
|
17.8
|
|
|
$
|
95.4
|
|
|
|
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before discontinued operations
|
|
$
|
1.75
|
|
|
$
|
0.54
|
|
|
$
|
(2.81
|
)
|
|
$
|
0.19
|
|
|
$
|
1.06
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.03
|
)
|
|
Basic and diluted earnings (loss) per common share
|
|
$
|
1.75
|
|
|
$
|
0.54
|
|
|
$
|
(2.81
|
)
|
|
$
|
0.19
|
|
|
$
|
1.03
|
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before discontinued operations
|
|
$
|
1.69
|
|
|
$
|
0.53
|
|
|
$
|
(2.81
|
)
|
|
$
|
0.19
|
|
|
$
|
1.06
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.03
|
)
|
|
Diluted earnings (loss) per common share
|
|
$
|
1.69
|
|
|
$
|
0.53
|
|
|
$
|
(2.81
|
)
|
|
$
|
0.19
|
|
|
$
|
1.03
|
|
|
|
Total assets
|
|
$
|
1,671.9
|
|
|
$
|
1,416.0
|
|
|
$
|
1,320.1
|
|
|
$
|
1,630.0
|
|
|
$
|
1,817.9
|
|
Long-term debt, net of current portion
|
|
$
|
432.9
|
|
|
$
|
389.2
|
|
|
$
|
408.3
|
|
|
$
|
308.0
|
|
|
$
|
567.7
|
|
15 POLYONE
CORPORATION
|
|
|
(1) |
|
Included in net income for 2010
are: 1) gains of $23.9 million related to legal and
insurance settlements, 2) a gain of $16.3 million
related to the sale of our 50% interest in BayOne, 3) debt
extinguishment costs of $29.5 million, and 4) tax
benefits of $107.1 million associated with the reversal of
our valuation allowance.
|
|
(2) |
|
Included in operating income for
2009 results are charges of $27.2 million related to
employee separation and plant phase-out and benefits of
$23.9 million related to reimbursement of previously
incurred environmental expenses and $21.1 million related
to a curtailment gain from amendments to certain of our employee
benefit plans.
|
|
(3) |
|
Included in operating expense for
2008 results are charges of $39.7 million related to
employee separation and plant phase-out and $170.0 million
related to goodwill impairment. Included in net loss for 2008
are charges of $90.3 million to record deferred a deferred
tax valuation allowance.
|
|
(4) |
|
In February 2006, we sold 82% of
our Engineered Films business. This business was previously
reported as discontinued operations and is recognized as such in
our historical results.
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Overview
Managements Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) is designed to provide
information that is supplemental to, and should be read together
with, our consolidated financial statements and the accompanying
notes contained in this Annual Report on
Form 10-K.
Information in this Item 7 is intended to assist the reader
in obtaining an understanding of our consolidated financial
statements, the changes in certain key items in those financial
statements from year to year, the primary factors that accounted
for those changes, and any known trends or uncertainties that we
are aware of that may have a material effect on our future
performance, as well as how certain accounting principles affect
our consolidated financial statements. MD&A includes the
following sections:
|
|
|
|
|
Business Model and Key Concepts
|
|
|
|
Key Challenges
|
|
|
|
Strategy and Key Trends
|
|
|
|
Recent Developments
|
|
|
|
|
|
Highlights and Executive Summary
|
|
|
|
Results of Operations an analysis of our
consolidated results of operations for the three years presented
in our consolidated financial statements
|
|
|
|
Liquidity and Capital Resources an analysis of the
effect of our operating, financing and investing activities on
our liquidity and capital resources
|
|
|
|
Off-Balance Sheet Arrangements a discussion of such
arrangements
|
|
|
|
Contractual Obligations a summary of our aggregate
contractual obligations
|
|
|
|
Critical Accounting Policies and Estimates a
discussion of accounting policies that require significant
judgments and estimates
|
The following discussion contains forward-looking statements
that reflect our plans, estimates and beliefs. Our actual
results could differ materially from those discussed in these
forward-looking statements. Factors that could cause or
contribute to these differences include, but are not limited to,
those discussed below and elsewhere in this Annual Report on
Form 10-K
particularly in Cautionary Note On Forward-Looking
Statements and Item 1A., Risk Factors.
Our
Business
We are a premier provider of specialized polymer materials,
services and solutions with operations in thermoplastic
compounds, specialty polymer formulations, color and additive
systems, thermoplastic resin distribution and specialty vinyl
resins. We also have an equity investment that manufactures
caustic soda and chlorine. Headquartered in Avon Lake, Ohio,
with 2010 sales of $2.6 billion, we have manufacturing
sites and distribution facilities in North America, Europe, Asia
and South America and a joint venture in North America. We
currently employ approximately 4,000 people and offer more
than 36,000 polymer solutions to over 10,000 customers across
the globe. We provide value to our customers through our ability
to link our knowledge of polymers and formulation technology
with our manufacturing and supply chain to provide an essential
link between large chemical producers (our raw material
suppliers) and designers, assemblers and processors of plastics
(our customers).
Business Model
and Key Concepts
The central focus of our business model is to provide
specialized material and service solutions to our customers by
leveraging our global footprint, product and technology breadth,
manufacturing expertise, fully integrated information technology
network, broad market reach and raw material procurement
strength. These resources enable us to capitalize on dynamic
changes in the end markets we serve, which include appliances,
building and construction materials, electrical and electronics,
medical, industrial, packaging, transportation, and wire and
cable markets.
Key
Challenges
Overall, our business faces issues resulting from the recent
economic downturn, especially as it relates to affected markets
such as building and construction and transportation.
Maintaining profitability during periods of raw material price
volatility is another critical
16 POLYONE
CORPORATION
challenge. Further, we need 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.
In the short term, we will maintain our focus on top-line
growth, improving or maintaining the cost/price relationship
with regard to raw materials and improving working capital
efficiency. In addition to driving top-line growth, we have
established margin improvement targets for all businesses. In
2011, most of our capital expenditures will be focused on
supporting sales growth, integrating information systems, and
other strategic investments. We also continue to consider
acquisitions and other synergy opportunities that complement our
core platforms. These actions will ensure that we continue to
invest in 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 profitability and cash flow by applying
proven management techniques and strategies to key areas of the
business, such as pricing, supply chain and operations
management, productivity and quality.
Long-term trends that currently provide opportunities to
leverage our strategy include the drive toward sustainability in
polymers and their processing, the emergence of biodegradable
and bio-based polymers, consumer concern over the use of
bisphenol-A (BPA) in infant-care products and developing
legislation that bans lead and certain phthalates from toys and
child-care items.
Recent
Developments
Brazilian
Acquisitions
On October 1, 2010, we acquired substantially all of the
assets of Polimaster, a specialty color business in Brazil for a
cash purchase price of $3.3 million paid at close,
resulting in goodwill of $0.4 million. Polimaster had sales
of approximately $4.0 million for the year ended
December 31, 2009. Our purchase price allocation is
preliminary as of December 31, 2010. Polimasters
results of operations since the acquisition date are included
within Global Color, Additives & Inks.
On January 3, 2011, we acquired the assets of Uniplen, a
leading Brazilian producer of specialty engineered materials and
distributor of thermoplastics. The Uniplen transaction was
completed for an upfront cash purchase price of $21 million
with a potential for further consideration payable over the next
three years based on achieving certain performance metrics.
Uniplen recorded revenues of approximately $34 million in
2010. Uniplens results of operations will be included
within Global Specialty Engineered Materials.
These acquired businesses serve customers in an array of end
markets, including consumer, transportation and durable goods.
Sale of
BayOne Joint Venture Interest
On November 30, 2010, we sold our investment in BayOne,
previously a 50% owned equity affiliate and part of Global
Color, Additives and Inks, to Bayer MaterialScience LLC. We
received cash proceeds of $19.3 million and recorded a
pre-tax gain of $16.3 million in our fourth quarter 2010
results of operations.
Issuance of
7.375% Senior Notes and Debt
Extinguishment
In September 2010, we issued $360 million aggregate
principal amount of senior unsecured notes at par. The notes
mature in September 2020 and bear interest at 7.375% per annum,
payable semi-annually in arrears on March 15th and
September 15th of each year. Deferred financing costs
from the issuance of $7.3 million are included in Other
non-current assets and will be amortized over the term of
the senior unsecured notes. We used a portion of the net
proceeds from these notes to repurchase $257.1 million
aggregate principal amount of our 8.875% senior notes due
May 2012 at a premium of $25.7 million in a tender offer.
The tender premium, $0.7 million of other debt
extinguishment costs and the write off of deferred note issuance
costs of $1.7 million are shown within the Debt
Extinguishment Costs line in our Consolidated Statement of
Operations.
On July 7, 2010, we fully repaid $40 million of
outstanding borrowings and terminated our credit agreement,
dated January 3, 2008, with Citicorp USA, Inc. (the Credit
Agreement). The Credit Agreement provided for an unsecured
revolving and letter of credit facility with total commitments
of up to $40 million and was scheduled to expire on
March 20, 2011. In connection with the repayment of this
facility, we incurred $1.4 million of debt extinguishment
costs.
Highlights and
Executive Summary
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Sales
|
|
$
|
2,621.9
|
|
|
$
|
2,060.7
|
|
|
$
|
2,738.7
|
|
Operating income (loss)
|
|
$
|
174.3
|
|
|
$
|
80.1
|
|
|
$
|
(133.9
|
)
|
Net income (loss)
|
|
$
|
162.6
|
|
|
$
|
49.5
|
|
|
$
|
(260.2
|
)
|
Cash and cash equivalents
|
|
$
|
378.1
|
|
|
$
|
222.7
|
|
|
$
|
44.3
|
|
Accounts receivable availability
|
|
|
128.2
|
|
|
|
112.8
|
|
|
|
121.4
|
|
|
Liquidity
|
|
$
|
506.3
|
|
|
$
|
335.5
|
|
|
$
|
165.7
|
|
|
|
Debt, short- and long-term
|
|
$
|
452.9
|
|
|
$
|
409.6
|
|
|
$
|
434.3
|
|
17 POLYONE
CORPORATION
2010 vs.
2009
The increase in sales was primarily attributable to an 18.2%
increase in volume in 2010 as compared to 2009, reflecting
improved demand levels across all end markets, most notably in
the transportation, consumer, building and construction and
healthcare end markets. Additionally, sales were impacted by
increased market pricing associated with raw material inflation
of approximately 9% in 2010.
Operating income increased $94.2 million in 2010 compared
to 2009 due to the increase in sales and improved operating
margin driven by ongoing efficiency gains from our Lean Six
Sigma initiatives. Additionally, operating income in 2010
included gains of $23.9 million from insurance and legal
settlements and $16.3 million associated with the sale of
our 50% interest in BayOne, compared to 2009 gains of
$23.9 million for insurance settlements, $21.9 million
associated with the curtailment of certain of our employee
benefit plans, and $2.8 million related to the sale of our
50% interest in GPA, a former equity affiliate. We recognized
charges of $3.1 million related to restructuring and
employee separation in 2010 as compared to $27.2 million in
2009. Our operating income for 2009 also included a
$5.0 million charge related to an adjustment of our 2008
estimated goodwill impairment charge, whereas no such charge was
incurred in 2010. Changes in currency exchange rates unfavorably
impacted operating income by $1.5 million in 2010 as
compared to 2009, driven primarily by changes in the value of
the Euro.
Net income increased in 2010 primarily due to the items
discussed above. Partially offsetting the favorable items was
$29.5 million of debt extinguishment costs. Income tax
expense decreased in 2010 as compared to 2009 primarily due to
the utilization of net operating loss carryforwards and the
reversal of the valuation allowance associated with our
U.S. deferred tax assets of $107.1 million in 2010,
partially offset by increased tax expense associated with our
improved operating results.
Since December 31, 2009, liquidity increased by
$170.8 million driven by the increase in our cash balance
and the increased availability under our accounts receivable
facility.
2009 vs.
2008
The decrease in sales was primarily attributable to a 21.6%
decline in volume in 2009 as compared to 2008, reflecting the
adverse impact of the global recession on demand levels across
all end markets. Particularly hardest hit were the
transportation and building and construction end markets.
Additionally, changes in currency exchange rates had a negative
impact on sales of approximately 3% in 2009.
The improvement in operating income for 2009 reflects the
favorable impact of higher margin business gains, lower raw
material costs and the realization of restructuring savings.
These factors more than offset the impact of the decrease in
volumes and the negative impact of changes in currency exchange
rates in 2009. Operating income in 2009 also included gains of
$21.9 million associated with the curtailment of certain of
our employee benefit plans, $23.9 million related to the
reimbursement of previously incurred environmental costs and a
$2.8 million gain associated with the sale of our interest
in a previously 50% owned equity affiliate, GPA. We recognized
charges of $27.2 million related to restructuring and
employee separation in 2009 as compared to $39.7 million in
2008. Our operating income was also negatively impacted by a
$170.0 million goodwill impairment charge in 2008, and a
subsequent $5.0 million charge to finalize this preliminary
estimate in the first quarter of 2009. Changes in currency
exchange rates unfavorably impacted operating income by
$5.2 million in 2009 as compared to 2008, driven primarily
by changes in the U.S. dollar versus the Euro and Canadian
dollar.
The increase in net income in 2009 as compared to 2008 was
primarily due to the items discussed in the paragraph above.
Additionally, net interest expense was lower in 2009 than in the
prior year primarily due to lower average interest rates on our
variable rate debt and a lower average debt balance. Income tax
benefit was $13.3 million in 2009 as compared to expense of
$84.5 million in 2008 as the 2008 amount reflects a
$90.3 million charge to record a tax valuation allowance.
Compared to December 31, 2008, our liquidity increased by
$169.8 million to $335.5 million as the increase in
our cash balance has more than offset the decrease in our
borrowing capacity under the accounts receivable facility. The
increase in cash and cash equivalents of $178.4 million was
primarily the result of improved earnings coupled with
substantially lower working capital investment at
December 31, 2009 as compared to December 31, 2008.
18 POLYONE
CORPORATION
Results of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VariancesFavorable (Unfavorable)
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 versus 2009
|
|
|
2009 versus 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
(Dollars in millions, except per share data)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
|
|
|
Sales
|
|
$
|
2,621.9
|
|
|
$
|
2,060.7
|
|
|
$
|
2,738.7
|
|
|
$
|
561.2
|
|
|
|
27.2
|
%
|
|
$
|
(678.0
|
)
|
|
|
(24.8
|
)%
|
Cost of sales
|
|
|
2,193.0
|
|
|
|
1,738.5
|
|
|
|
2,446.7
|
|
|
|
(454.5
|
)
|
|
|
(26.1
|
)%
|
|
|
708.2
|
|
|
|
28.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
428.9
|
|
|
|
322.2
|
|
|
|
292.0
|
|
|
|
106.7
|
|
|
|
33.1
|
%
|
|
|
30.2
|
|
|
|
10.3
|
%
|
Selling and administrative
|
|
|
296.6
|
|
|
|
272.3
|
|
|
|
287.1
|
|
|
|
(24.3
|
)
|
|
|
(8.9
|
)%
|
|
|
14.8
|
|
|
|
5.2
|
%
|
Impairment of goodwill
|
|
|
|
|
|
|
5.0
|
|
|
|
170.0
|
|
|
|
5.0
|
|
|
|
NM
|
|
|
|
165.0
|
|
|
|
NM
|
|
Income related to equity affiliates
|
|
|
42.0
|
|
|
|
35.2
|
|
|
|
31.2
|
|
|
|
6.8
|
|
|
|
19.3
|
%
|
|
|
4.0
|
|
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
174.3
|
|
|
|
80.1
|
|
|
|
(133.9
|
)
|
|
|
94.2
|
|
|
|
117.6
|
%
|
|
|
214.0
|
|
|
|
NM
|
|
Interest expense, net
|
|
|
(31.5
|
)
|
|
|
(34.3
|
)
|
|
|
(37.2
|
)
|
|
|
2.8
|
|
|
|
8.2
|
%
|
|
|
2.9
|
|
|
|
7.8
|
%
|
Premium on early extinguishment of long-term debt
|
|
|
(29.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(29.5
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
(2.3
|
)
|
|
|
(9.6
|
)
|
|
|
(4.6
|
)
|
|
|
7.3
|
|
|
|
76.0
|
%
|
|
|
(5.0
|
)
|
|
|
(108.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
111.0
|
|
|
|
36.2
|
|
|
|
(175.7
|
)
|
|
|
74.8
|
|
|
|
206.6
|
%
|
|
|
211.9
|
|
|
|
NM
|
|
Income tax (expense) benefit
|
|
|
51.6
|
|
|
|
13.3
|
|
|
|
(84.5
|
)
|
|
|
38.3
|
|
|
|
NM
|
|
|
|
97.8
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
162.6
|
|
|
$
|
49.5
|
|
|
$
|
(260.2
|
)
|
|
$
|
113.1
|
|
|
|
228.5
|
%
|
|
$
|
309.7
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share:
|
|
$
|
1.75
|
|
|
$
|
0.54
|
|
|
$
|
(2.81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share:
|
|
$
|
1.69
|
|
|
$
|
0.53
|
|
|
$
|
(2.81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Sales increased 27.2% in 2010 as compared to 2009, due primarily
to an increase in volumes of 18.2% and increased market pricing
associated with raw material inflation. Sales increased across
many of our end markets in 2010 as compared to 2009, led by
gains in the transportation, consumer, building and
construction, and healthcare end markets.
Sales decreased 24.8% in 2009, as compared to 2008, due to a
decrease in volume of 21.6% and the unfavorable impact of
foreign exchange on sales of approximately 3%. All segments
experienced a decline in sales in 2009. The end markets most
impacted globally were transportation and building and
construction.
Cost of
Sales
These costs include raw materials, plant conversion,
distribution, environmental remediation and plant related
restructuring charges. Cost of sales declined to 83.6% of sales
in 2010 as compared to 84.4% in 2009. Cost of sales in 2010 was
favorably impacted by the realization of savings associated with
the previously announced plant realignment activities and
savings associated with our Lean Six Sigma initiatives. Cost of
sales in 2010 and 2009 reflects gains of $21.4 million and
$23.9 million, respectively, associated with legal and
insurance settlements. Charges related to environmental
remediation and plant related restructuring in cost of sales
totaled $22.5 million in 2010 as compared to
$36.1 million in 2009. In addition, cost of sales increased
as a percentage of sales due to mix changes, principally due to
increased sales from our Distribution business, which has lower
gross margin percentages than our other businesses. Distribution
sales increased from 30.3% to 34.8% of total PolyOne sales in
2010 as compared to 2009.
As a percentage of sales, these costs declined to 84.4% of sales
in 2009 as compared to 89.3% in 2008. Cost of sales in 2009
includes a gain of $23.9 million associated with the
reimbursement of previously incurred environmental costs.
Charges related to environmental remediation and plant related
restructuring were $36.1 million in 2009 as compared to
$44.9 million in 2008. Lower raw material costs and the
realization of restructuring savings favorably impacted cost of
goods sold in 2009 as compared to 2008.
Selling and
Administrative
These costs include selling, technology, administrative
functions and corporate and general expenses. Selling and
administrative costs in 2009 includes curtailment gains of
$21.9 million associated with the phase out of certain of
our other post-retirement benefit plans. In 2010, these costs
were favorably impacted by lower pension and other
post-employment benefit expenses and savings associated with our
previously announced restructuring activities.
Selling and administrative costs decreased $14.8 million,
or 5.2%, in 2009 as compared to 2008. Favorably impacting
selling and administrative costs was $21.9 million of
curtailment gains, $7.6 million less employee separation
and plant phase-out costs, a decrease in insurance and bad debt
expense and savings from our restructuring activities. These
favorable items were partially offset by increased pension
expense.
Impairment of
Goodwill
During the fourth quarter of 2008, we identified indicators of
potential impairment and evaluated the carrying values of
goodwill and other intangible and long-lived assets. Due to the
extensive work involved in performing the related asset
appraisals, we initially recognized a preliminary estimate of
the impairment loss of
19 POLYONE
CORPORATION
$170 million in 2008. Upon completion of the analysis in
the first quarter of 2009, we revised our estimate of goodwill
impairment to $175 million, and, accordingly, we recorded
$5.0 million of additional goodwill impairment. There were
no such charges in 2010.
Income Related
to Equity Affiliates
Income related to equity affiliates for 2010, 2009 and 2008 is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
SunBelt
|
|
$
|
23.1
|
|
|
$
|
29.7
|
|
|
$
|
32.5
|
|
Other equity affiliates
|
|
|
2.6
|
|
|
|
2.7
|
|
|
|
3.4
|
|
Gain on sale of investment in BayOne
|
|
|
16.3
|
|
|
|
|
|
|
|
|
|
Gain on sale and (charges) related to investment in GPA
|
|
|
|
|
|
|
2.8
|
|
|
|
(4.7
|
)
|
|
|
|
$
|
42.0
|
|
|
$
|
35.2
|
|
|
$
|
31.2
|
|
|
|
During 2010, Income related to equity affiliates increased as
compared to 2009 due to a gain of $16.3 million from the
sale of our 50% investment in BayOne, partially offset by lower
earnings from our SunBelt joint venture. The decrease in
earnings from our SunBelt joint venture were driven primarily by
lower caustic soda prices, partially offset by the favorable
impact of increased volume for caustic soda and improved pricing
and volume for chlorine as compared to 2009.
During 2009, Income related to equity affiliates increased
$4.0 million, or 12.8%, as compared to 2008. In 2008, we
recorded $4.7 million of charges related to our investment
in GPA, a 50% owned equity affiliate. In 2009, we sold our
investment in GPA, resulting in a pre-tax gain of
$2.8 million. Additionally, lower earnings from our SunBelt
joint venture for 2009 were due primarily to lower pricing for
caustic soda, partially offset by an increase in pricing and
volume for chlorine as compared to 2008.
Interest
Expense, Net
Interest expense, net decreased in 2010 as compared to 2009 due
primarily to lower average borrowing levels. Interest expense,
net decreased in 2009 as compared to 2008 due to lower average
borrowing levels and lower interest rates on our variable rate
debt.
Included in interest expense, net for the years ended
December 31, 2010, 2009 and 2008 is interest income of
$2.9 million, $3.2 million and $3.4 million,
respectively.
Premium on
Early Extinguishment of Long-term Debt
Debt extinguishment costs include costs related to the
repurchase of our 8.875% senior notes due 2012 in a tender
offer and costs associated with the repayment of our
$40 million credit facility. We incurred $25.7 million
of premiums related to our tender offer from which we
extinguished $257.1 million aggregate principal amount of
our 8.875% senior notes. In addition, we wrote off
$1.7 million of deferred financing fees and incurred other
extinguishment costs of $0.7 million. In connection with
the repayment of our $40 million credit facility, we
incurred extinguishment costs of $1.4 million.
Other Expense,
Net
Financing costs associated with our receivables sale facility,
foreign currency gains and losses and other miscellaneous items
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Currency exchange (loss) gain
|
|
$
|
(5.6
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
1.2
|
|
Foreign exchange contracts gain (loss)
|
|
|
3.8
|
|
|
|
(7.9
|
)
|
|
|
(1.3
|
)
|
Fees and discount on sale of trade receivables
|
|
|
(1.1
|
)
|
|
|
(1.3
|
)
|
|
|
(3.6
|
)
|
Impairment of available for sale security
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
Other income (expense), net
|
|
|
0.6
|
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
Other expense, net
|
|
$
|
(2.3
|
)
|
|
$
|
(9.6
|
)
|
|
$
|
(4.6
|
)
|
|
|
Income Tax
(Expense) Benefit
In 2010, we recorded an income tax benefit of $51.6 million
primarily related to a tax valuation allowance reversal totaling
$107.1 million. In 2009, we recorded a tax benefit of
$13.3 million related primarily to tax refunds in both
U.S. and foreign jurisdictions.
In the fourth quarter of 2010, we determined that it is more
likely than not that we will realize the benefit from our
remaining U.S. deferred tax assets. During the year, we
recorded a $107.1 million reversal of valuation allowance.
This amount is comprised of a $32.1 million utilization of
net operating loss carryforwards in 2010 and a
$75.0 million reversal associated with our determination
that it is more likely than not that the deferred tax assets
will be realized. At December 31, 2010, we had remaining
valuation allowances of $18.1 million pertaining to various
state and foreign jurisdictions. We increased our existing
valuation allowances for foreign deferred tax assets by
$0.7 million. We review all valuation allowances related to
deferred tax assets and adjust these reserves as necessary.
In 2009, we recorded tax benefit of $13.3 million related
primarily to tax refunds in both U.S. and foreign
jurisdictions. We also decreased our existing deferred tax asset
valuation allowances related to various U.S. federal, state
and foreign deferred tax assets by $47.9 million in 2009,
resulting in a non-cash tax benefit of $17.1 million. The
$17.1 million decrease in our valuation allowance resulted
from generation of $36.2 million of pretax income, allowing
for utilization of deferred tax assets related to prior
years net operating losses, which were fully reserved;
changes in other timing differences; and realization of tax
credits for which a valuation allowance was no longer required.
The remaining decrease of $30.8 million related primarily
to changes in our liabilities for pensions and other
post-retirement benefits, for which the tax impact is recorded
in accumulated other comprehensive income.
In 2008, we recorded income tax expense of $101.8 million
primarily related to tax valuation allowances recorded in the
fourth quarter totaling $105.9 million.
We have U.S. federal net operating loss carryforwards of
$22.1 million which expire at various dates from 2024
through 2028 and combined state net operating loss carryforwards
of $272.9 million which expire at various dates from 2011
through 2029. Various foreign subsidiaries have net operating
loss
20 POLYONE
CORPORATION
carryforwards totaling $35.9 million which expire at
various dates from 2011 through 2020. We have provided valuation
allowances of $15.6 million against these loss
carryforwards.
Segment
Information
Operating income is the primary financial measure that is
reported to the chief operating decision maker for purposes of
making decisions about allocating resources to the segment and
assessing its performance. Operating income at the segment level
does not include: corporate general and administrative costs
that are not allocated to segments; intersegment sales and
profit eliminations; charges related to specific strategic
initiatives, such as the consolidation of operations;
restructuring activities, including employee separation costs
resulting from personnel reduction programs, plant closure and
phase-out costs; executive separation agreements; share-based
compensation costs; asset and goodwill impairments;
environmental remediation costs for facilities no longer owned
or closed in prior years; gains and losses on the divestiture of
joint ventures and equity investments; and certain other items
that are not included in the measure of segment profit or loss
that is reported to and reviewed by the chief operating decision
maker. These costs are included in Corporate and
eliminations.
We operate in five reportable segments: (1) Global
Specialty Engineered Materials; (2) Global Color, Additives
and Inks; (3) Performance Products and Solutions;
(4) PolyOne Distribution; and (5) SunBelt Joint
Venture. Our segments are further discussed in Note 16,
Segment Information, to the accompanying consolidated
financial statements.
21 POLYONE
CORPORATION
Sales and
Operating Income (Loss) 2010 compared with
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Specialty Engineered Materials
|
|
$
|
517.4
|
|
|
$
|
402.9
|
|
|
$
|
114.5
|
|
|
|
28.4%
|
|
Global Color, Additives and Inks
|
|
|
527.4
|
|
|
|
459.8
|
|
|
|
67.6
|
|
|
|
14.7%
|
|
Performance Products and Solutions
|
|
|
776.3
|
|
|
|
667.7
|
|
|
|
108.6
|
|
|
|
16.3%
|
|
PolyOne Distribution
|
|
|
911.9
|
|
|
|
625.1
|
|
|
|
286.8
|
|
|
|
45.9%
|
|
Corporate and eliminations
|
|
|
(111.1
|
)
|
|
|
(94.8
|
)
|
|
|
(16.3
|
)
|
|
|
(17.2)%
|
|
|
|
|
|
|
|
|
$
|
2,621.9
|
|
|
$
|
2,060.7
|
|
|
$
|
561.2
|
|
|
|
27.2%
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Specialty Engineered Materials
|
|
$
|
49.7
|
|
|
$
|
20.6
|
|
|
$
|
29.1
|
|
|
|
141.3%
|
|
Global Color, Additives and Inks
|
|
|
37.7
|
|
|
|
25.2
|
|
|
|
12.5
|
|
|
|
49.6%
|
|
Performance Products and Solutions
|
|
|
54.0
|
|
|
|
33.1
|
|
|
|
20.9
|
|
|
|
63.1%
|
|
PolyOne Distribution
|
|
|
42.0
|
|
|
|
24.8
|
|
|
|
17.2
|
|
|
|
69.4%
|
|
SunBelt Joint Venture
|
|
|
18.9
|
|
|
|
25.5
|
|
|
|
(6.6
|
)
|
|
|
(25.9)%
|
|
Corporate and eliminations
|
|
|
(28.0
|
)
|
|
|
(49.1
|
)
|
|
|
21.1
|
|
|
|
(43.0)%
|
|
|
|
|
|
|
|
|
$
|
174.3
|
|
|
$
|
80.1
|
|
|
$
|
94.2
|
|
|
|
117.6%
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) as a percentage of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Specialty Engineered Materials
|
|
|
9.6
|
%
|
|
|
5.1
|
%
|
|
|
4.5
|
% points
|
|
|
|
|
Global Color, Additives and Inks
|
|
|
7.1
|
%
|
|
|
5.5
|
%
|
|
|
1.6
|
% points
|
|
|
|
|
Performance Products and Solutions
|
|
|
7.0
|
%
|
|
|
5.0
|
%
|
|
|
2.0
|
% points
|
|
|
|
|
PolyOne Distribution
|
|
|
4.6
|
%
|
|
|
4.0
|
%
|
|
|
0.6
|
% points
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6.6
|
%
|
|
|
3.9
|
%
|
|
|
2.7
|
% points
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Specialty Engineered Materials
Sales increased $114.5 million, or 28.4%, in 2010 compared
to 2009 primarily due to improved demand in our end markets.
Volumes increased 18.5% as compared to 2009 led by growth in the
electrical and electronics, industrial, transportation and
consumer end markets. Pricing and mix of products sold also
favorably impacted sales by 11.1% while changes in currency
exchange rates reduced sales approximately 1%.
Operating income increased $29.1 million in 2010 as
compared to 2009 primarily due to increased volumes, improved
sales mix and ongoing savings from our Lean Six Sigma
initiatives. These items were partially offset by an increase in
selling and administrative costs.
Global Color,
Additives and Inks
Sales increased $67.6 million, or 14.7%, in 2010 compared
to 2009 due to an increase in volumes, a higher value sales mix
and new business gains. Volumes increased 9.6% as compared to
2009, with increases in most of our end markets, led by the
industrial, packaging and transportation end markets. Pricing
and mix of products sold also favorably impacted sales by 6.6%
while changes in currency exchange rates reduced sales
approximately 1%.
Operating income increased $12.5 million in 2010 as
compared to 2009 driven by increased volumes, improved sales mix
and ongoing savings from our Lean Six Sigma initiatives.. These
items were partially offset by an increase in selling and
administrative costs.
Performance
Products and Solutions
Sales increased $108.6 million, or 16.3%, in 2010 compared
to 2009. Volumes increased 18.1% compared to 2009, led by
improvements in the automotive, wire and cable and packaging end
markets, which more than offset the slower than forecasted
recovery in the building and construction end markets. Mix
changes reduced revenues approximately 2% as sales from our
Producer Services business, which maintains an average selling
price half that of consolidated Performance Products and
Solutions, increased revenue 19% as compared to 2009.
Operating income increased $20.9 million in 2010 compared
to 2009 primarily due to the increased volumes, improved sales
mix and ongoing savings from our Lean Six Sigma initiatives.
PolyOne
Distribution
PolyOne Distribution sales increased $286.8 million, or
45.9%, in 2010 compared to 2009, reflecting a 19.9% increase in
volume led by new business gains and improvements in industrial,
transportation, consumer and healthcare end markets. The
remainder of the increase in sales was due to increased market
pricing associated with raw material inflation and mix.
Operating income increased $17.2 million in 2010 compared
to 2009 due to the increase in volume and leveraging our
commercial and logistics infrastructure. These items were
partially offset by an increase in selling and administrative
costs.
SunBelt Joint
Venture
Income from the SunBelt Joint Venture declined $6.6 million
in 2010 compared to 2009 driven primarily by lower caustic soda
prices, partially offset by the favorable impact of increased
volume for caustic soda and improved pricing and volume for
chlorine.
22 POLYONE
CORPORATION
Corporate and
Eliminations
The following table breaks down Corporate and eliminations into
its various components for 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
|
|
Curtailment of post-retirement health care plan and
other(a)
|
|
$
|
|
|
|
$
|
21.9
|
|
Gains from insurance and legal
settlements(b)
|
|
|
23.9
|
|
|
|
23.9
|
|
Impairment of
goodwill(c)
|
|
|
|
|
|
|
(5.0
|
)
|
Environmental remediation costs
|
|
|
(20.5
|
)
|
|
|
(11.7
|
)
|
Employee separation and plant
phase-out(d)
|
|
|
(3.1
|
)
|
|
|
(27.2
|
)
|
Gain on sale related to investment in equity
affiliate(e)
|
|
|
16.3
|
|
|
|
2.8
|
|
Incentive compensation
|
|
|
(30.3
|
)
|
|
|
(24.2
|
)
|
Unallocated pension and post-retirement medical benefit (expense)
|
|
|
4.1
|
|
|
|
(13.6
|
)
|
All other and
eliminations(f)
|
|
|
(18.4
|
)
|
|
|
(16.0
|
)
|
|
Total Corporate and eliminations
|
|
$
|
(28.0
|
)
|
|
$
|
(49.1
|
)
|
|
|
|
|
|
(a) |
|
In 2009, we amended certain of our
post-retirement healthcare plans whereby benefits to be paid
under these plans will be phased out through 2012, resulting in
a curtailment gain of $21.1 million. We also recorded
curtailment gains totaling approximately $0.8 million
related to other employee benefit plans.
|
|
(b) |
|
We recorded gains associated with
legal and insurance settlements of $23.9 million in 2010
and 2009. These settlements related to the reimbursement of
previously incurred environmental costs and proceeds from
workers compensation insurance claims.
|
|
(c) |
|
In 2009, we increased our estimated
year-end goodwill impairment charge of $170.0 million by
$5.0 million, which is comprised of an increase of
$12.4 million related to our Specialty Coatings reporting
unit and a decrease of $7.4 million to our Geon Compounds
reporting unit, both of which are within Performance Products
and Solutions.
|
|
(d) |
|
During the third quarter of 2008
and subsequently in January 2009, we announced the restructuring
of certain manufacturing assets, primarily in North America. See
Note 3, Employee Separation and Plant Phase-out, to
the accompanying consolidated financial statements for further
information.
|
|
(e) |
|
On November 30, 2010, we sold
our 50% interest in BayOne, previously part of our Global Color,
Additives and Inks, to Bayer MaterialScience LLC. On
October 13, 2009, we sold our 50% interest in GPA,
previously part of Performance Products and Solutions, to
Mexichem Compuestos, S.A. de C.V, resulting in a pre-tax gain of
approximately $2.8 million in our 2009 results of
operations.
|
|
(f) |
|
All other and eliminations is
comprised of intersegment eliminations and corporate general and
administrative costs that are not allocated to segments.
|
23 POLYONE
CORPORATION
Sales and
Operating Income (Loss) 2009 compared with
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
% Change
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Specialty Engineered Materials
|
|
$
|
402.9
|
|
|
$
|
514.0
|
|
|
$
|
(111.1
|
)
|
|
|
(21.6
|
)%
|
Global Color, Additives and Inks
|
|
|
459.8
|
|
|
|
554.3
|
|
|
|
(94.5
|
)
|
|
|
(17.0
|
)%
|
Performance Products and Solutions
|
|
|
667.7
|
|
|
|
1,001.4
|
|
|
|
(333.7
|
)
|
|
|
(33.3
|
)%
|
PolyOne Distribution
|
|
|
625.1
|
|
|
|
796.7
|
|
|
|
(171.6
|
)
|
|
|
(21.5
|
)%
|
Corporate and eliminations
|
|
|
(94.8
|
)
|
|
|
(127.7
|
)
|
|
|
32.9
|
|
|
|
25.8
|
%
|
|
|
|
|
|
|
|
$
|
2,060.7
|
|
|
$
|
2,738.7
|
|
|
$
|
(678.0
|
)
|
|
|
(24.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Specialty Engineered Materials
|
|
$
|
20.6
|
|
|
$
|
17.6
|
|
|
$
|
3.0
|
|
|
|
17.0
|
%
|
Global Color, Additives and Inks
|
|
|
25.2
|
|
|
|
28.1
|
|
|
|
(2.9
|
)
|
|
|
(10.3
|
)%
|
Performance Products and Solutions
|
|
|
33.1
|
|
|
|
31.3
|
|
|
|
1.8
|
|
|
|
5.8
|
%
|
PolyOne Distribution
|
|
|
24.8
|
|
|
|
28.1
|
|
|
|
(3.3
|
)
|
|
|
(11.7
|
)%
|
SunBelt Joint Venture
|
|
|
25.5
|
|
|
|
28.6
|
|
|
|
(3.1
|
)
|
|
|
(10.8
|
)%
|
Corporate and eliminations
|
|
|
(49.1
|
)
|
|
|
(267.6
|
)
|
|
|
218.5
|
|
|
|
(81.7
|
)%
|
|
|
|
|
|
|
|
$
|
80.1
|
|
|
$
|
(133.9
|
)
|
|
$
|
214.0
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) as a percentage of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Specialty Engineered Materials
|
|
|
5.1
|
%
|
|
|
3.4
|
%
|
|
|
1.7
|
% points
|
|
|
|
|
Global Color, Additives and Inks
|
|
|
5.5
|
%
|
|
|
5.1
|
%
|
|
|
0.4
|
% points
|
|
|
|
|
Performance Products and Solutions
|
|
|
5.0
|
%
|
|
|
3.1
|
%
|
|
|
1.9
|
% points
|
|
|
|
|
PolyOne Distribution
|
|
|
4.0
|
%
|
|
|
3.5
|
%
|
|
|
0.5
|
% points
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3.9
|
%
|
|
|
(4.9
|
)%
|
|
|
8.8
|
% points
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
Specialty Engineered Materials
Sales decreased $111.1 million, or 21.6%, in 2009 as
compared to 2008 due primarily to the decreased demand in our
end markets related to transportation and wire and cable
applications. Volumes declined most notably in North America and
Europe, aggregating to a total decrease of approximately 20.8%
in 2009 as compared to 2008. Changes in currency exchange rates
in 2009 resulted in a decrease in sales of approximately 3.4%.
Partially offsetting the impact of these items were improvements
in pricing and sales mix.
Operating income increased $3.0 million, or 17.0%, in 2009
as compared to 2008 driven primarily by lower raw material
costs, the realization of savings from restructuring and
decreased discretionary spending. These items more than offset
the impact of the decline in volumes and unfavorable changes in
currency exchange rates in 2009. Also contributing to the
improved income results is the continued successful integration
of GLS, which was acquired in 2008.
Global Color,
Additives and Inks
Sales declined $94.5 million, or 17.0%, in 2009 as compared
to 2008 primarily to decreased demand in the transportation and
packaging end markets. Volumes declined most notably in North
America and Europe aggregating to a total decrease of
approximately 15.0%. Changes in currency exchange rates in 2009
resulted in a decrease in sales of approximately 6.2%. Partially
offsetting the impact of these items was a higher value sales
mix driven by business gains in specialty type applications.
Operating income decreased $2.9 million, or 10.3%,
primarily due to the adverse impact of the decline in volumes
and the unfavorable impact of changes in currency exchange
rates. Partially offsetting these items was the benefits of a
more profitable sales mix, lower raw material costs and
decreased discretionary spending.
Performance
Products and Solutions
Sales decreased $333.7 million, or 33.3%, in 2009 as
compared to 2008 due to the decreased demand across all end
markets, particularly those related to the North American
building and construction market. Volumes declined 27.8% in 2009
as compared to 2008. Lower market prices associated with lower
commodity costs resulted in a 5.7% decline in sales during 2009
as compared to 2008.
Operating income increased $1.8 million, or 5.8%, in 2009
as compared to 2008 due primarily to savings from restructuring
and decreased raw material costs, which more than offset the
impact of lower volume.
PolyOne
Distribution
PolyOne Distribution sales decreased $171.6 million, or
21.5%, in 2009 as compared to 2008, as volumes declined 12.1%,
with the remainder due to lower market pricing associated with
lower commodity costs.
Operating income decreased $3.3 million, or 11.7%, in 2009
as compared to 2008 due primarily to the decline in volume.
SunBelt Joint
Venture
During 2009, income from the SunBelt Joint Venture decreased
$3.1 million due to lower pricing for caustic soda,
partially offset by an increase in pricing and volume for
chlorine as compared to 2008.
24 POLYONE
CORPORATION
Corporate and
Eliminations
Operating loss from Corporate and eliminations was
$49.1 million in 2009 as compared to $267.6 million in
2008 as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2009
|
|
|
2008
|
|
|
|
|
Curtailment of post-retirement health care plan and
other(a)
|
|
$
|
21.9
|
|
|
$
|
|
|
Impairment of
goodwill(b)
|
|
|
(5.0
|
)
|
|
|
(170.0
|
)
|
Environmental remediation costs, net of
recoveries(c)
|
|
|
12.2
|
|
|
|
(15.6
|
)
|
Employee separation and plant
phase-out(d)
|
|
|
(27.2
|
)
|
|
|
(39.7
|
)
|
Recognition of inventory
step-up
associated with GLS
acquisition(e)
|
|
|
|
|
|
|
(1.6
|
)
|
Gain on sale and (charges) related to investment in equity
affiliate(f)
|
|
|
2.8
|
|
|
|
(4.7
|
)
|
Incentive compensation
|
|
|
(24.2
|
)
|
|
|
(8.1
|
)
|
Unallocated pension and post-retirement medical expense
|
|
|
(13.6
|
)
|
|
|
(5.4
|
)
|
All other and
eliminations(g)
|
|
|
(16.0
|
)
|
|
|
(22.5
|
)
|
|
Total Corporate and eliminations
|
|
$
|
(49.1
|
)
|
|
$
|
(267.6
|
)
|
|
|
|
|
|
(a) |
|
In 2009, we amended certain of our
post-retirement healthcare plans whereby benefits to be paid
under these plans will be phased out through 2012, resulting in
a curtailment gain of $21.1 million. We also recorded
curtailment gains totaling approximately $0.8 million
related to other employee benefit plans.
|
|
(b) |
|
In 2009, we increased our estimated
year-end goodwill impairment charge of $170.0 million by
$5.0 million, which is comprised of an increase of
$12.4 million related to our Specialty Coatings reporting
unit and a decrease of $7.4 million to our Geon Compounds
reporting unit, both of which are within Performance Products
and Solutions.
|
|
(c) |
|
In 2009, we received
$23.9 million from our former parent company, as partial
reimbursement for certain previously incurred environmental
remediation costs.
|
|
(d) |
|
During the third quarter of 2008
and subsequently in January 2009, we announced the restructuring
of certain manufacturing assets, primarily in North America. See
Note 3, Employee Separation and Plant Phase-out, to
the accompanying consolidated financial statements for further
information.
|
|
(e) |
|
Upon acquisition of GLS in 2008,
GLSs inventory was initially stepped up from cost to fair
value. This difference was recognized with the first turn of
inventory within Corporate and eliminations.
|
|
(f) |
|
On October 13, 2009, we sold
our 50% interest in GPA, previously part of Performance Products
and Solutions, to Mexichem Compuestos, S.A. de C.V, resulting in
a pre-tax gain of approximately $2.8 million in our 2009
results of operations. In the third quarter of 2008, we recorded
$2.6 million related to our proportionate share of the
write-down of certain assets by GPA and a $2.1 million
charge related to an impairment of our investment in this equity
affiliate.
|
|
(g) |
|
All other and eliminations is
comprised of intersegment eliminations and corporate general and
administrative costs that are not allocated to segments.
|
Liquidity and
Capital Resources
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
378.1
|
|
|
$
|
222.7
|
|
Accounts receivable availability
|
|
|
128.2
|
|
|
|
112.8
|
|
|
Liquidity
|
|
$
|
506.3
|
|
|
$
|
335.5
|
|
|
|
Liquidity is defined as an enterprises ability to generate
adequate amounts of cash to meet both current and future needs.
These needs include paying obligations as they mature,
maintaining production capacity and providing for planned
growth. Capital resources are sources of funds other than those
generated by operations.
Since December 31, 2009, liquidity increased by
$170.8 million driven by the increase in our cash balance
and increased availability under our accounts receivable
facility. The increase in cash of $155.4 million includes
proceeds of $23.9 million from insurance and legal
settlements, $9.8 million from the sale of our investment
in, and payment of the related seller note receivable from,
OSullivan Films, $19.3 of proceeds from the sale of our
investment in BayOne, $25.6 million related to the
collection of our seller note from Excel Polymers, inclusive of
$11.6 million of accrued interest, and net proceeds of
$353.6 million from the issuance of our 7.375% senior
notes due 2020. A portion of the net proceeds from the issuance
of our 7.375% senior notes was used to repurchase
$257.1 million aggregate principal amount of our
8.875% senior notes due May 2012 in a tender offer, which
resulted in the extinguishment of $257.1 million of debt
and related payment of $26.4 million of debt extinguishment
costs. Additionally, we repaid our $40 million credit
facility, paid $1.4 million of extinguishment costs
associated therewith, and repaid $20 million aggregate
principal of our 6.52% medium-term notes. The increase in our
accounts receivable facility availability reflects an increase
in sales.
25 POLYONE
CORPORATION
Cash
Flows
The following discussion focuses on the material components of
cash flows from operating, investing and financing activities.
Operating
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
162.6
|
|
|
$
|
49.5
|
|
|
$
|
(260.2
|
)
|
Depreciation and amortization
|
|
|
55.2
|
|
|
|
64.8
|
|
|
|
68.0
|
|
Deferred income (benefit) tax provision
|
|
|
(69.4
|
)
|
|
|
5.9
|
|
|
|
72.1
|
|
Debt extinguishment costs
|
|
|
27.8
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
2.5
|
|
|
|
3.3
|
|
|
|
6.0
|
|
Stock compensation expense
|
|
|
4.4
|
|
|
|
2.6
|
|
|
|
3.0
|
|
Impairment of goodwill
|
|
|
|
|
|
|
5.0
|
|
|
|
170.0
|
|
Asset write-downs and impairment charges, net of gain on sale of
closed facilities
|
|
|
0.4
|
|
|
|
3.7
|
|
|
|
3.6
|
|
Companies carried at equity and minority interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income related to equity affiliates
|
|
|
(42.0
|
)
|
|
|
(35.2
|
)
|
|
|
(31.2
|
)
|
Dividends and distributions received
|
|
|
24.2
|
|
|
|
36.5
|
|
|
|
32.9
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
(24.9
|
)
|
|
|
1.3
|
|
|
|
60.8
|
|
(Increase) decrease in inventories
|
|
|
(29.2
|
)
|
|
|
57.4
|
|
|
|
38.2
|
|
Increase (decrease) in accounts payable
|
|
|
31.9
|
|
|
|
76.3
|
|
|
|
(94.7
|
)
|
Increase (decrease) in sale of accounts receivable
|
|
|
|
|
|
|
(14.2
|
)
|
|
|
14.2
|
|
Decrease in accrued expenses and other
|
|
|
(2.7
|
)
|
|
|
(27.2
|
)
|
|
|
(10.2
|
)
|
|
Net cash provided by operating activities
|
|
$
|
140.8
|
|
|
$
|
229.7
|
|
|
$
|
72.5
|
|
|
|
In 2010, net cash provided by operating activities was
$140.8 million as compared to $229.7 million in 2009.
In 2010, working capital, which we define as accounts receivable
plus inventory less accounts payable, increased reflecting our
investment in support of our sales growth. We have invested in
working capital to ensure adequate supply of certain raw
materials and to improve our on-time delivery to customers.
However, as a percentage of sales, year over year working
capital continued to improve, decreasing from 12.1% for 2009 to
9.6% for 2010. Days sales outstanding at December 31, 2010
was relatively consistent with days sales outstanding at
December 31, 2009, increasing slightly from 49.1 to 49.5
due primarily to a change in the mix of our customers
payment terms.
Cash provided by operating activities increased in 2009 as
compared to 2008 due primarily to improved earnings and the
previously described favorable impacts related to improved
working capital performance.
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
(39.5
|
)
|
|
$
|
(31.7
|
)
|
|
$
|
(42.5
|
)
|
Investment in affiliated company
|
|
|
|
|
|
|
|
|
|
|
(1.1
|
)
|
Business acquisitions, net of cash acquired
|
|
|
(3.3
|
)
|
|
|
(11.5
|
)
|
|
|
(150.2
|
)
|
Proceeds from sale of investment in equity affiliate and other
assets
|
|
|
41.1
|
|
|
|
17.0
|
|
|
|
0.3
|
|
|
Net cash used by investing activities
|
|
$
|
(1.7
|
)
|
|
$
|
(26.2
|
)
|
|
$
|
(193.5
|
)
|
|
|
Net cash used by investing activities during 2010 of
$1.7 million reflects the acquisition of Polimaster and
capital expenditures of $39.5 million, partially offset by
cash proceeds of $19.3 million from the sale of our
investment in BayOne, $7.8 million from the sale our
investment in OSullivan Films, and collection of
$14 million principal on the Excel Polymers note
receivable. Capital expenditures primarily related to
maintenance spending and an Enterprise Resource System (ERP)
implementation in Asia. Business acquisitions, net of cash
acquired reflects our acquisition of Polimaster.
Net cash used by investing activities in 2009 reflects
$13.5 million of cash proceeds from the sale of our
interest in GPA and $3.5 million of proceeds from the sale
of other assets. Capital expenditures primarily related to
maintenance spending and implementing our restructuring
initiatives. Business acquisitions, net of cash acquired in 2009
reflects cash paid for our acquisition of NEU.
Net cash used by investing activities in 2008 relates primarily
to the $150.2 million to fund the acquisition of GLS and
$42.5 million of capital expenditures. Capital expenditures
in 2008 reflect strategic investments to upgrade our Enterprise
Resource Planning system, expand our global footprint in China
and India through investment in manufacturing and customer
specific projects, product line investments to support our
specialization strategy, and the enablement of the manufacturing
restructuring initiative we announced in July 2008. Spending on
strategic projects constituted approximately 48% of total
spending. The remainder of spending was related to productivity
improvement, on-going maintenance of the asset base and critical
environmental, health and safety (EH&S) projects.
Capital expenditures are currently estimated to be approximately
$40 million in 2011, primarily to support sales growth,
integrate information systems and other strategic investments.
26 POLYONE
CORPORATION
Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in short-term debt
|
|
$
|
(0.4
|
)
|
|
$
|
(5.7
|
)
|
|
$
|
43.3
|
|
Issuance of long-term debt, net of debt issuance costs
|
|
|
353.6
|
|
|
|
|
|
|
|
77.8
|
|
Repayment of long-term debt
|
|
|
(317.1
|
)
|
|
|
(20.0
|
)
|
|
|
(25.3
|
)
|
Purchase of common shares for treasury
|
|
|
|
|
|
|
|
|
|
|
(8.9
|
)
|
Premium paid on early extinguishment of long-term debt
|
|
|
(27.8
|
)
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
7.4
|
|
|
|
|
|
|
|
1.1
|
|
|
Net cash provided (used) by financing activities
|
|
$
|
15.7
|
|
|
$
|
(25.7
|
)
|
|
$
|
88.0
|
|
|
|
Net cash provided by financing activities in 2010 reflects
proceeds from the issuance of our 7.375% senior notes due
2020 and the related tender offer by which $257.1 million
aggregate principal amount of our 8.875% senior notes were
extinguished. Additionally, we repaid our $40 million
credit facility and $20 million aggregate principal amount
of our 6.52% medium-term notes. In connection with the tender
offer, we paid tender premiums and other costs of
$26.4 million, and we paid $1.4 million of costs
associated with the extinguishment of the $40 million
credit facility.
Net cash used by financing activities in 2009 reflects the
repayment of short-term debt and our 6.91% medium-term notes.
Net cash provided by financing activities in 2008 was primarily
used for the acquisition of GLS and the funding necessary to
extinguish maturing debt. On January 9, 2008, we borrowed
$40.0 million under the new credit facility. In April 2008,
we sold an additional $80.0 million in aggregate principal
amount of 8.875% senior notes due 2012.
Capital
Resources
The following table summarizes our available and outstanding
facilities as of December 31, 2010:
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Outstanding
|
|
|
Available
|
|
|
|
|
Long-term debt, including current maturities
|
|
$
|
452.9
|
|
|
$
|
|
|
Receivables sale facility
|
|
|
|
|
|
|
128.2
|
|
|
|
|
$
|
452.9
|
|
|
$
|
128.2
|
|
|
|
We may from time to time seek to retire or purchase our
outstanding debt through cash purchases
and/or
exchanges for equity securities, in open market purchases,
privately negotiated transactions or otherwise. We may also seek
to repurchase our outstanding equity securities. Such
repurchases or exchanges, if any, will depend on prevailing
market conditions, our liquidity requirements, contractual
restrictions and other factors. The amounts involved may be
material.
Long-Term
Debt
The following summarizes our long-term debt as of
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(Dollars in millions)
|
|
2010(1)
|
|
|
2009(1)
|
|
|
|
|
Medium-term notes:
|
|
|
|
|
|
|
|
|
6.52% medium-term notes due 2010
|
|
$
|
|
|
|
$
|
19.9
|
|
6.58% medium-term notes due 2011
|
|
|
20.0
|
|
|
|
19.7
|
|
Credit facility borrowings, terminated in 2010
|
|
|
|
|
|
|
40.0
|
|
8.875% senior notes due 2012
|
|
|
22.9
|
|
|
|
279.5
|
|
7.500% debentures due 2015
|
|
|
50.0
|
|
|
|
50.0
|
|
7.375% senior notes due 2020
|
|
|
360.0
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
452.9
|
|
|
$
|
409.1
|
|
Less current portion
|
|
|
20.0
|
|
|
|
19.9
|
|
|
Total long-term debt, net of current portion
|
|
$
|
432.9
|
|
|
$
|
389.2
|
|
|
|
|
|
|
(1) |
|
Book values include unamortized
discounts, where applicable.
|
Aggregate maturities of long-term debt for the next five years
are: 2011 $20.0 million; 2012
$22.9 million; 2013 $0.0 million;
2014 $0.0 million; 2015
$50.0 million; and thereafter
$360.0 million.
Each of our 7.375% senior notes due 2020,
7.500% debentures due 2015, 8.875% senior notes due
2012 and medium-term notes are our direct, unsecured obligations
and are not guaranteed by any of our subsidiaries. Each of the
indentures governing these debt securities contains limitations
on our ability to incur secured debt.
Guarantee and
Agreement
We entered into a definitive Guarantee and Agreement with
Citicorp USA, Inc., KeyBank National Association and PNC Bank
(formerly known as National City Bank) on June 6, 2006.
Under this Guarantee and Agreement, we guarantee some treasury
management and banking services provided to us and our
subsidiaries, such as foreign currency forwards and bank
overdrafts. This guarantee is secured by our inventories located
in the United States.
Receivables
Sale Facility
As of December 31, 2010, we had receivables sale facilities
outstanding in the United States and Canada totaling
$200 million. These facilities expire in June 2012. The
maximum proceeds that we may receive are limited to the lesser
of $200 million or 85% of the eligible domestic and
Canadian accounts receivable sold. This facility also makes up
to $40 million available for issuing standby letters of
credit as a
sub-limit
within the $200 million facility, of which
$12.9 million was used at December 31, 2010.
The facility requires us to maintain a minimum fixed charge
coverage ratio (defined as Adjusted EBITDA less capital
expenditures, divided by the sum of interest expense and
scheduled debt
27 POLYONE
CORPORATION
repayments for the next four quarters) of at least 1 to 1 when
average excess availability under the facility is
$40 million or less. As of December 31, 2010, the
average excess availability under the facility was greater than
$40 million. Additionally, the fixed charge coverage ratio
exceeded 1 to 1.
Each indenture governing our senior unsecured notes and
debentures and our guarantee of the $42.7 million of
SunBelt notes allows a specific level of secured debt, above
which security must be provided on each indenture and our
guarantee of the SunBelt notes. The receivables sale facility
and our guarantee of the SunBelt notes are not considered debt
under the covenants associated with our senior unsecured notes
and debentures.
Concentrations
of Credit Risk
Financial instruments, including foreign exchange contracts
along with 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 forward 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.
Each indenture governing our senior unsecured notes and
debentures and our guarantee of $42.7 million of SunBelt
notes allows a specific level of secured debt, above which
security must be provided on each indenture and our guarantee of
the SunBelt notes. The receivables sale facility and our
guarantee of SunBelt debt are not considered debt under the
covenants associated with our senior unsecured notes and
debentures.
Off-Balance Sheet
Arrangements
Receivables
sale facility
We sell a portion of our domestic accounts receivable to PolyOne
Funding Corporation (PFC) and a portion of our Canadian accounts
receivable to PolyOne Funding Canada Corporation (PFCC), both
wholly-owned, bankruptcy-remote subsidiaries. At
December 31, 2010, accounts receivable totaling
$163.2 million were sold to PFC and PFCC. When PFC and PFCC
sell an undivided interest in these accounts receivable to
certain third-party investors, such amounts are reflected as a
reduction of accounts receivable in the accompanying
consolidated balance sheets. The maximum proceeds that PFC and
PFCC may receive under the facility is limited to the lesser of
$200.0 million or 85% of the eligible domestic and Canadian
accounts receivable sold. At December 31, 2010, PFC and
PFCC had not sold any of their undivided interests in accounts
receivable. We believe that available funding under our
receivables sale facility provides us increased flexibility to
manage working capital requirements and is an important source
of liquidity.
Guarantee of
indebtedness of others
We guarantee $42.7 million of unconsolidated equity
affiliate debt of SunBelt in connection with the construction of
a chlor-alkali facility in McIntosh, Alabama. SunBelt makes
annual and equal payments on this debt with the final payment in
2017.
Letters of
credit
The receivables sale facility makes up to $40.0 million
available for the issuance of standby letters of credit,
$12.9 million of which was used at December 31, 2010.
These letters of credit are issued by the bank in favor of third
parties and are mainly related to insurance claims.
We have no other off-balance sheet arrangements as defined in
Item 303(a)(4)(ii) of
Regulation S-K.
Contractual
Obligations
The following table summarizes our obligations under long-term
debt, operating leases, standby letters of credit, interest
obligations, pension and post-retirement obligations, guarantees
and purchase obligations as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
(In millions)
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
452.9
|
|
|
$
|
20.0
|
|
|
$
|
22.9
|
|
|
$
|
50.0
|
|
|
$
|
360.0
|
|
Operating leases
|
|
|
93.5
|
|
|
|
22.5
|
|
|
|
34.0
|
|
|
|
17.0
|
|
|
|
20.0
|
|
Standby letters of credit
|
|
|
12.9
|
|
|
|
12.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
obligations(1)
|
|
|
287.0
|
|
|
|
32.0
|
|
|
|
61.6
|
|
|
|
60.6
|
|
|
|
132.8
|
|
Pension and post-retirement
obligations(2)
|
|
|
182.4
|
|
|
|
28.5
|
|
|
|
72.5
|
|
|
|
49.1
|
|
|
|
32.3
|
|
Guarantees
|
|
|
42.7
|
|
|
|
6.1
|
|
|
|
12.2
|
|
|
|
12.2
|
|
|
|
12.2
|
|
Purchase
obligations(3)
|
|
|
22.6
|
|
|
|
13.5
|
|
|
|
7.1
|
|
|
|
1.4
|
|
|
|
0.6
|
|
|
Total
|
|
$
|
1,094.0
|
|
|
$
|
135.5
|
|
|
$
|
210.3
|
|
|
$
|
190.3
|
|
|
$
|
557.9
|
|
|
|
|
|
(1)
|
Interest obligations are stated at
the rate of interest that is defined by the debt instrument,
assuming that the debt is paid at maturity.
|
|
(2)
|
Pension and post-retirement
obligations relate to our U.S. and international pension and
other post-retirement plans.
|
|
(3)
|
Purchase obligations are primarily
comprised of service agreements related to telecommunication,
information technology, utilities and other manufacturing plant
services and certain capital commitments.
|
We expect to maintain existing levels of available capital
resources and meet our cash requirements in 2011. Expected
sources of cash in 2011 include cash from operations, available
funding under our receivables sale facility if needed, cash
distributions from equity affiliates and proceeds from the sale
of previously closed facilities and redundant assets. Expected
uses of cash in 2011 include interest payments, cash taxes,
contributions to our defined benefit pension plan, debt
retirements, environmental remediation at inactive and formerly
owned sites and capital expenditures. Capital expenditures are
currently estimated to be
28 POLYONE
CORPORATION
approximately $40 million in 2011, primarily to support
sales growth, integrate information systems and other strategic
investments.
We may from time to time seek to retire or purchase our
outstanding debt through cash purchases
and/or
exchanges for equity securities, in open market purchases,
privately negotiated transactions or otherwise. Such repurchases
or exchanges, if any, will depend on prevailing market
conditions, our liquidity requirements, contractual restrictions
and other factors. The amounts involved may be material.
Based on current projections, we believe that we will be able to
continue to manage and control working capital, discretionary
spending and capital expenditures and that cash provided by
operating activities, along with available borrowing capacity
under our receivables sale facility, should allow us to maintain
adequate levels of available capital resources to fund our
operations and meet debt service and minimum pension funding
requirements for both the short and long term.
Critical
Accounting Policies and Estimates
Significant accounting policies are described more fully in
Note 1, Summary of Significant Accounting Policies,
to the accompanying consolidated financial statements. The
preparation of financial statements in conformity with
U.S. generally accepted accounting principles
(U.S. GAAP) requires us to make estimates and assumptions
about future events that affect the amounts reported in our
financial statements and accompanying notes. We base our
estimates on historical experience and assumptions that we
believe are reasonable under the related facts and
circumstances. The application of these critical accounting
policies involves the exercise of judgment and use of
assumptions for future uncertainties. Accordingly, actual
results could differ significantly from these estimates. We
believe that the following discussion addresses our most
critical accounting policies, which are those that are the most
important to the portrayal of our financial condition and
results of operations and require our most difficult, subjective
and complex judgments. We have reviewed these critical
accounting policies and related disclosures with the Audit
Committee of our Board of Directors.
29 POLYONE
CORPORATION
30
POLYONE
CORPOR
|
|
|
|
|
|
|
|
|
Effect if Actual Results
|
Description
|
|
Judgments and Uncertainties
|
|
Differ from Assumptions
|
|
Pension and Other Post- retirement Plans
|
|
|
|
|
We account for our defined benefit pension plans
and other post-retirement plans in accordance with FASB ASC
Topic 715, Compensation Retirement Benefits.
|
|
Included in our results of operations
are significant amounts associated with our pension and post-
retirement benefit plans that we measure using actuarial
valuations. Inherent in these valuations are key assumptions,
including assumptions about discount rates and expected returns
on plan assets. These assumptions are updated at the beginning
of each fiscal year. We consider current market conditions,
including changes in interest rates, when making these
assumptions. Changes in pension and post-retirement benefit
costs may occur in the future due to changes in these
assumptions.
Market conditions and interest rates
significantly affect the value of future assets and liabilities
of our pension and post-retirement plans. It is difficult to
predict these factors due to the volatility of market
conditions.
To develop our discount rate, we
consider the yields of high-quality, fixed-income investments
with maturities that correspond to the timing of our benefit
obligations.
To develop our expected return on plan
assets, we consider our historical long-term asset return
experience, the expected investment portfolio mix of plan assets
and an estimate of long-term investment returns. To develop our
expected portfolio mix of plan assets, we consider the duration
of the plan liabilities and give more weight to equity
investments than to fixed-income securities.
|
|
The weighted average discount rates
used to value our pension and other post-retirement liabilities
as of December 31, 2010 were 5.71% and 5.07%, respectively. As
of December 31, 2010, an increase/decrease in the discount rate
of 50 basis points, holding all other assumptions constant,
would have increased or decreased accumulated other
comprehensive income and the related pension and post-retirement
liability by approximately $25.0 million. An increase/decrease
in the discount rate of 50 basis points as of December 31,
2010 would result in a change of approximately $0.1 million in
net periodic benefit cost.
The weighted-average expected return on
assets was 8.50% for 2010, 2009 and 2008. The expected return on
assets is a long-term assumption whose accuracy can only be
measured over a long period based on past experience. A
variation in the expected return on assets by 50 basis
points as of December 31, 2010 would result in a change of
approximately $1.8 million in net periodic benefit cost.
|
Goodwill and Intangible Assets
|
|
|
|
|
Goodwill represents the excess of the purchase
price over the fair value of the net assets of acquired
companies. We follow the guidance in ASC 350,
Intangibles Goodwill and Other, and test
goodwill for impairment at least annually, absent a triggering
event that would warrant an impairment assessment. On an ongoing
basis, absent any impairment indicators, we perform our goodwill
impairment testing as of the first day of October of each year.
The carrying value of goodwill at December 31, 2010 was
$164.1 million.
|
|
We have identified our reporting units
at the operating segment level or in some cases one level below
the operating segment level. Goodwill is allocated to the
reporting units based on the estimated fair value at the date of
acquisition.
We determine the fair value of our
reporting units using a combination of two valuation methods;
the income approach and the market approach.
The income approach requires us to make
assumptions and estimates regarding projected economic and
market conditions, growth rates, operating margins and cash
expenditures.
The market approach requires us to make
assumptions and judgments to identify comparable publicly-traded
companies, trailing twelve-month earnings before interest,
taxes, depreciation and amortization (EBITDA) and projected
EBITDA.
|
|
If actual results are not consistent
with our assumptions and estimates, we may be exposed to
additional goodwill impairment charges.
Based on our 2010 annual impairment
test, the fair value of each of our reporting units exceeded the
corresponding carrying value by at least 40%.
|
At December 31, 2010, our balance
sheet reflected $33.2 million associated with the trade
name acquired as part of the acquisition of GLS.
|
|
We have estimated the fair value of
the GLS tradename using a relief from royalty
payments approach. This approach involves two steps (1)
estimating reasonable royalty rate for the tradename and (2)
applying this royalty rate to a net sales stream and discounting
the resulting cash flows to determine fair value. Fair value is
then compared with the carrying value of the tradename.
|
|
If actual results are not consistent
with our assumptions and estimates, we may be exposed to
impairment charges related to our indefinite lived tradenames.
|
|
|
ATION
|
|
|
31
POLYONE
CORPOR
|
|
|
|
|
|
|
|
|
Effect if Actual Results
|
Description
|
|
Judgments and Uncertainties
|
|
Differ from Assumptions
|
|
Income Taxes
|
|
|
|
|
We account for income taxes using the asset and
liability method. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. In addition, deferred tax assets are also
recorded with respect to net operating losses and other tax
attribute carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or
settled. Valuation allowances are established when realization
of the benefit of deferred tax assets is not deemed to be more
likely than not. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
We recognize net tax benefits under
the recognition and measurement criteria of ASC Topic 740,
Income Taxes, which prescribes requirements and other
guidance for financial statement recognition and measurement of
positions taken or expected to be taken on tax returns. We
record interest and penalties related to uncertain tax positions
as a component of income tax expense.
|
|
The ultimate recovery of certain of
our deferred tax assets is dependent on the amount and timing of
taxable income that we will ultimately generate in the future
and other factors such as the interpretation of tax laws. This
means that significant estimates and judgments are required to
determine the extent that valuation allowances should be
provided against deferred tax assets. We have provided valuation
allowances as of December 31, 2010 aggregating $18.1 million
against such assets based on our current assessment of future
operating results and these other factors.
|
|
Although management believes that the
estimates and judgments discussed herein are reasonable, actual
results could differ, which could result in gains or losses that
could be material.
|
Environmental Liabilities
|
|
|
|
|
Based upon estimates prepared by our environmental
engineers and consultants, we have $87.4 million accrued at
December 31, 2010 to cover probable future environmental
remediation expenditures.
|
|
This accrual represents our best
estimate of the remaining probable remediation costs based upon
information and technology currently available and our view of
the most likely remedy. Depending upon the results of future
testing, the ultimate remediation alternatives undertaken,
changes in regulations, new information, newly discovered
conditions and other factors; it is reasonably possible that we
could incur additional costs in excess of the amount accrued.
However, such additional costs, if any, cannot currently be
estimated. Our estimate of this liability may be revised as new
regulations or technologies are developed or additional
information is obtained. Changes during the past five years have
primarily resulted from an increase in the estimate of future
remediation costs at existing sites and payments made each year
for remediation costs that were already accrued.
|
|
If further developments or resolution
of these matters are not consistent with our assumptions and
judgments, we may need to recognize a significant charge in a
future period.
|
|
|
ATION
|
|
|
|
|
|
|
|
|
|
|
|
Effect if Actual Results
|
Description
|
|
Judgments and Uncertainties
|
|
Differ from Assumptions
|
|
Share-Based Compensation
|
|
|
|
|
We have share-based compensation plans
that include non-qualified stock options, incentive stock
options, restricted stock, restricted stock units, performance
shares, performance units and stock appreciation rights (SARs).
See Note 15, Share-Based Compensation, to the
accompanying consolidated financial statements for a complete
discussion of our stock-based compensation programs.
|
|
Option-pricing models and generally
accepted valuation techniques require management to make
assumptions and to apply judgment to determine the fair value of
our awards. These assumptions and judgments include estimating
the future volatility of our stock price, future employee
turnover rates and risk-free rate of return.
|
|
We do not believe there is a
reasonable likelihood there will be a material change in the
future estimates or assumptions we use to determine share- based
compensation expense. However, if actual results are not
consistent with our estimates or assumptions, we may be exposed
to changes in share-based compensation expense that could be
material.
|
For SARs granted during 2010 and 2008,
the option pricing model used was the Black-Scholes method. We
determine the fair value of our SARs granted in 2009 based on a
Monte Carlo simulation method.
|
|
|
|
|
We determine the fair value of our
market-based and performance-based nonvested share awards at the
date of grant using generally accepted valuation techniques and
the average of the high and low grant date market price of our
stock.
|
|
|
|
|
Management reviews its assumptions and
the valuations provided by independent third-party valuation
advisors to determine the fair value of share-based compensation
awards.
|
|
|
|
|
32 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 On July 7,
2010, we fully repaid the $40 million of outstanding
borrowings and also terminated the related commitments under our
credit agreement. Because this was our only variable rate debt,
we currently have no significant exposure to changes in market
interest rates.
To help manage borrowing costs, we may periodically enter into
interest rate swap agreements. Under these arrangements, we
agree to exchange, at specified intervals, the difference
between fixed and floating interest amounts on
agreed-upon
notional principal amounts. As of December 31, 2010, there
were no outstanding interest rate swap agreements.
Foreign currency exposure We enter
into intercompany lending transactions that are denominated in
various foreign currencies and are subject to financial exposure
from foreign exchange rate movement from the date a loan is
recorded to the date it is settled or revalued. To mitigate this
risk, we enter into foreign exchange contracts, which had a fair
value of $(0.4) million at December 31, 2010. 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 income (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.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Index to
Financial Statements
33 POLYONE
CORPORATION
MANAGEMENTS
REPORT
The management of PolyOne Corporation is responsible for
preparing the consolidated financial statements and disclosures
included in this Annual Report on
Form 10-K.
The financial statements and disclosures included in this Annual
Report fairly present in all material respects the financial
position, results of operations, shareholders equity and
cash flows of PolyOne Corporation as of and for the year ended
December 31, 2010.
Management is responsible for establishing and maintaining
disclosure controls and procedures designed to ensure that the
information required to be disclosed by the company is captured
and reported in a timely manner. Management has evaluated the
design and operation of the companys disclosure controls
and procedures at December 31, 2010 and found them to be
effective.
Management is also responsible for establishing and maintaining
a system of internal control over financial reporting that is
designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. Internal control over
financial reporting includes policies and procedures that
provide reasonable assurance that: PolyOne Corporations
accounting records accurately and fairly reflect the
transactions and dispositions of the assets of the company;
unauthorized or improper acquisition, use or disposal of company
assets will be prevented or timely detected; the companys
transactions are properly recorded and reported to permit the
preparation of the companys financial statements in
conformity with generally accepted accounting principles; and
the companys receipts and expenditures are made only in
accordance with authorizations of management and the board of
directors of the company.
Management has assessed the effectiveness of PolyOnes
internal control over financial reporting as of
December 31, 2010 and has prepared Managements Annual
Report On Internal Control Over Financial Reporting contained on
page 61 of this Annual Report, which concludes that as of
December 31, 2010, PolyOnes internal control over
financial reporting is effective and that no material weaknesses
were identified.
|
|
|
|
|
/s/ Robert
M. Patterson
|
|
|
|
Stephen D. Newlin
|
|
Robert M. Patterson
|
Chairman, President and
|
|
Executive Vice President and
|
Chief Executive Officer
|
|
Chief Financial Officer
|
February 18, 2011
34 POLYONE
CORPORATION
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of
Directors and Shareholders
PolyOne Corporation
We have audited PolyOne Corporations internal control over
financial reporting as of December 31, 2010, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). PolyOne
Corporations management is responsible for maintaining
effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an
opinion on the companys internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that: (1) pertain to the
maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or
disposition of the companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, PolyOne Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2010, 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, 2010, and 2009, and the related consolidated
statements of operations, shareholders equity and cash
flows for each of the three years in the period ended
December 31, 2010, and our report dated February 18,
2011, expressed an unqualified opinion thereon.
Cleveland, Ohio
February 18, 2011
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of
Directors and Shareholders
PolyOne Corporation
We have audited the accompanying consolidated balance sheets of
PolyOne Corporation as of December 31, 2010 and 2009, and
the related consolidated statements of operations,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2010. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits 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,
2010 and 2009, and the consolidated results of their operations
and their cash flows for each of the three years in the period
ended December 31, 2010, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
PolyOne Corporations internal control over financial
reporting as of December 31, 2010, based on criteria
established in Internal
Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February 18,
2011 expressed an unqualified opinion thereon.
Cleveland, Ohio
February 18, 2011
35 POLYONE
CORPORATION
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In millions, except per share data)
|
|
|
2010
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
|
|
Sales
|
|
|
$
|
2,621.9
|
|
|
|
$
|
2,060.7
|
|
|
|
$
|
2,738.7
|
|
Cost of sales
|
|
|
|
2,193.0
|
|
|
|
|
1,738.5
|
|
|
|
|
2,446.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
|
428.9
|
|
|
|
|
322.2
|
|
|
|
|
292.0
|
|
Selling and administrative
|
|
|
|
296.6
|
|
|
|
|
272.3
|
|
|
|
|
287.1
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
5.0
|
|
|
|
|
170.0
|
|
Income related to equity affiliates
|
|
|
|
42.0
|
|
|
|
|
35.2
|
|
|
|
|
31.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
174.3
|
|
|
|
|
80.1
|
|
|
|
|
(133.9
|
)
|
Interest expense, net
|
|
|
|
(31.5
|
)
|
|
|
|
(34.3
|
)
|
|
|
|
(37.2
|
)
|
Premium on early extinguishment of long-term debt
|
|
|
|
(29.5
|
)
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
|
(2.3
|
)
|
|
|
|
(9.6
|
)
|
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
|
111.0
|
|
|
|
|
36.2
|
|
|
|
|
(175.7
|
)
|
Income tax benefit (expense)
|
|
|
|
51.6
|
|
|
|
|
13.3
|
|
|
|
|
(84.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
$
|
162.6
|
|
|
|
$
|
49.5
|
|
|
|
$
|
(260.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss)
|
|
|
$
|
1.75
|
|
|
|
$
|
0.54
|
|
|
|
$
|
(2.81
|
)
|
Diluted earnings (loss)
|
|
|
$
|
1.69
|
|
|
|
$
|
0.53
|
|
|
|
$
|
(2.81
|
)
|
Weighted-average shares used to compute earnings (loss) per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
93.1
|
|
|
|
|
92.4
|
|
|
|
|
92.7
|
|
Diluted
|
|
|
|
96.0
|
|
|
|
|
93.4
|
|
|
|
|
92.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes to consolidated financial statements are an integral part
of these statements.
36 POLYONE
CORPORATION
Consolidated Balance
Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
(In millions, except per share data)
|
|
|
2010
|
|
|
|
2009
|
|
|
|
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
378.1
|
|
|
|
$
|
222.7
|
|
Accounts receivable (less allowance of $4.1 in 2010 and $5.9 in
2009)
|
|
|
|
294.5
|
|
|
|
|
274.4
|
|
Inventories
|
|
|
|
211.3
|
|
|
|
|
183.7
|
|
Other current assets
|
|
|
|
55.1
|
|
|
|
|
38.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
939.0
|
|
|
|
|
718.8
|
|
Property, net
|
|
|
|
374.4
|
|
|
|
|
392.4
|
|
Investment in equity affiliates and nonconsolidated subsidiary
|
|
|
|
2.7
|
|
|
|
|
5.8
|
|
Goodwill
|
|
|
|
164.1
|
|
|
|
|
163.5
|
|
Other intangible assets, net
|
|
|
|
67.8
|
|
|
|
|
71.7
|
|
Deferred income tax assets
|
|
|
|
59.7
|
|
|
|
|
8.1
|
|
Other non-current assets
|
|
|
|
64.2
|
|
|
|
|
55.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
1,671.9
|
|
|
|
$
|
1,416.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
$
|
20.0
|
|
|
|
$
|
19.9
|
|
Short-term debt
|
|
|
|
|
|
|
|
|
0.5
|
|
Accounts payable, including amounts payable to related party
|
|
|
|
269.0
|
|
|
|
|
238.3
|
|
Accrued expenses and other liabilities
|
|
|
|
145.8
|
|
|
|
|
117.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
434.8
|
|
|
|
|
375.7
|
|
Long-term debt
|
|
|
|
432.9
|
|
|
|
|
389.2
|
|
Post-retirement benefits other than pensions
|
|
|
|
19.4
|
|
|
|
|
21.8
|
|
Pension benefits
|
|
|
|
154.5
|
|
|
|
|
173.0
|
|
Other non-current liabilities
|
|
|
|
114.3
|
|
|
|
|
98.6
|
|
Commitments and contingencies (See Note 12)
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, 40.0 shares authorized, no shares issued
|
|
|
|
|
|
|
|
|
|
|
Common shares, $0.01 par, 400.0 shares authorized,
122.2 shares issued in 2010 and 2009
|
|
|
|
1.2
|
|
|
|
|
1.2
|
|
Additional paid-in capital
|
|
|
|
1,059.4
|
|
|
|
|
1,065.5
|
|
Accumulated deficit
|
|
|
|
(66.9
|
)
|
|
|
|
(229.5
|
)
|
Common shares held in treasury, at cost, 28.3 shares in
2010 and 29.7 shares in 2009
|
|
|
|
(305.6
|
)
|
|
|
|
(321.0
|
)
|
Accumulated other comprehensive loss
|
|
|
|
(172.1
|
)
|
|
|
|
(158.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
|
516.0
|
|
|
|
|
357.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
$
|
1,671.9
|
|
|
|
$
|
1,416.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes to consolidated financial statements are an integral part
of these balance sheets.
37 POLYONE
CORPORATION
Consolidated
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
(In millions)
|
|
|
2010
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
$
|
162.6
|
|
|
|
$
|
49.5
|
|
|
|
$
|
(260.2
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
55.2
|
|
|
|
|
64.8
|
|
|
|
|
68.0
|
|
Deferred income tax (benefit) provision
|
|
|
|
(69.4
|
)
|
|
|
|
5.9
|
|
|
|
|
72.1
|
|
Premium on early extinguishment of long-term debt
|
|
|
|
27.8
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
|
2.5
|
|
|
|
|
3.3
|
|
|
|
|
6.0
|
|
Stock compensation expense
|
|
|
|
4.4
|
|
|
|
|
2.6
|
|
|
|
|
3.0
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
5.0
|
|
|
|
|
170.0
|
|
Asset write-downs and impairment charges, net of gain on sale of
assets
|
|
|
|
0.4
|
|
|
|
|
3.7
|
|
|
|
|
3.6
|
|
Companies carried at equity and minority interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income related to equity affiliates
|
|
|
|
(42.0
|
)
|
|
|
|
(35.2
|
)
|
|
|
|
(31.2
|
)
|
Dividends and distributions received
|
|
|
|
24.2
|
|
|
|
|
36.5
|
|
|
|
|
32.9
|
|
Changes in assets and liabilities, net of acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
|
(24.9
|
)
|
|
|
|
1.3
|
|
|
|
|
60.8
|
|
(Increase) decrease in inventories
|
|
|
|
(29.2
|
)
|
|
|
|
57.4
|
|
|
|
|
38.2
|
|
Increase (decrease) in accounts payable
|
|
|
|
31.9
|
|
|
|
|
76.3
|
|
|
|
|
(94.7
|
)
|
(Decrease) increase in sale of accounts receivable
|
|
|
|
|
|
|
|
|
(14.2
|
)
|
|
|
|
14.2
|
|
Decrease in accrued expenses and other
|
|
|
|
(2.7
|
)
|
|
|
|
(27.2
|
)
|
|
|
|
(10.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
140.8
|
|
|
|
|
229.7
|
|
|
|
|
72.5
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
(39.5
|
)
|
|
|
|
(31.7
|
)
|
|
|
|
(42.5
|
)
|
Investment in affiliated company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.1
|
)
|
Business acquisitions and related deposits, net of cash acquired
|
|
|
|
(3.3
|
)
|
|
|
|
(11.5
|
)
|
|
|
|
(150.2
|
)
|
Proceeds from sale of investment in equity affiliates and other
assets
|
|
|
|
41.1
|
|
|
|
|
17.0
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
(1.7
|
)
|
|
|
|
(26.2
|
)
|
|
|
|
(193.5
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in short-term debt
|
|
|
|
(0.4
|
)
|
|
|
|
(5.7
|
)
|
|
|
|
43.3
|
|
Issuance of long-term debt, net of debt issuance costs
|
|
|
|
353.6
|
|
|
|
|
|
|
|
|
|
77.8
|
|
Repayment of long-term debt
|
|
|
|
(317.1
|
)
|
|
|
|
(20.0
|
)
|
|
|
|
(25.3
|
)
|
Purchase of common shares for treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.9
|
)
|
Premium on early extinguishment of long-term debt
|
|
|
|
(27.8
|
)
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of stock options
|
|
|
|
7.4
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
|
15.7
|
|
|
|
|
(25.7
|
)
|
|
|
|
88.0
|
|
Effect of exchange rate changes on cash
|
|
|
|
0.6
|
|
|
|
|
0.6
|
|
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
155.4
|
|
|
|
|
178.4
|
|
|
|
|
(35.1
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
|
222.7
|
|
|
|
|
44.3
|
|
|
|
|
79.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
|
$
|
378.1
|
|
|
|
$
|
222.7
|
|
|
|
$
|
44.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes to consolidated financial statements are an integral part
of these statements.
38 POLYONE
CORPORATION
Consolidated
Statements of Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Common
|
|
|
Other
|
|
(Dollars in millions, except per share data;
|
|
Common
|
|
|
Shares Held
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Shares Held
|
|
|
Comprehensive
|
|
shares in thousands)
|
|
Shares
|
|
|
in Treasury
|
|
|
Total
|
|
|
Shares
|
|
|
Capital
|
|
|
Deficit
|
|
|
in Treasury
|
|
|
Income (Loss)
|
|
|
|
|
|
|
|
Balance January 1, 2008
|
|
|
122,192
|
|
|
|
(29,059
|
)
|
|
$
|
679.1
|
|
|
$
|
1.2
|
|
|
$
|
1,065.0
|
|
|
$
|
(18.8
|
)
|
|
$
|
(319.7
|
)
|
|
$
|
(48.6
|
)
|
Comprehensive (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(260.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(260.2
|
)
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(25.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25.3
|
)
|
Adjustments related to Pensions and Postemployment benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit recognized during year, net of tax of $0.0
|
|
|
|
|
|
|
|
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.4
|
)
|
Net actuarial loss occurring during year, net of tax of $0.2
|
|
|
|
|
|
|
|
|
|
|
(157.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(157.8
|
)
|
Adjustment for plan amendment, net of tax of $0.0
|
|
|
|
|
|
|
|
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.1
|
)
|
Adjustment for supplemental executive retirement plan, net of
tax of $0.0
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
(456.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common shares
|
|
|
|
|
|
|
(1,250
|
)
|
|
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8.9
|
)
|
|
|
|
|
Stock-based compensation and benefits and exercise of options
|
|
|
|
|
|
|
391
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
|
122,192
|
|
|
|
(29,918
|
)
|
|
$
|
218.3
|
|
|
$
|
1.2
|
|
|
|
1,065.0
|
|
|
|
(279.0
|
)
|
|
|
(323.8
|
)
|
|
|
(245.1
|
)
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
49.5
|
|
|
|
|
|
|
|
|
|
|
|
49.5
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
Adjustments related to Pensions and Postemployment benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain occurring during year, net of tax of $0.6
|
|
|
|
|
|
|
|
|
|
|
30.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30.2
|
|
Net gain due to retiree plan amendments, net of tax of $0.0
|
|
|
|
|
|
|
|
|
|
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.5
|
|
Net gain due to post-retirement healthcare plan amendments, net
of tax of $0.0
|
|
|
|
|
|
|
|
|
|
|
37.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.0
|
|
Unrealized gain on
available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
136.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation and benefits and exercise of options
|
|
|
|
|
|
|
212
|
|
|
|
3.3
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009
|
|
|
122,192
|
|
|
|
(29,706
|
)
|
|
$
|
357.7
|
|
|
$
|
1.2
|
|
|
$
|
1,065.5
|
|
|
$
|
(229.5
|
)
|
|
$
|
(321.0
|
)
|
|
$
|
(158.5
|
)
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
162.6
|
|
|
|
|
|
|
|
|
|
|
|
162.6
|
|
|
|
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.3
|
)
|
Adjustments related to Pensions and Postemployment benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit recognized during the year, net of tax of
$2.0
|
|
|
|
|
|
|
|
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.7
|
)
|
Net actuarial gain occurring during year, net of tax of $5.1
|
|
|
|
|
|
|
|
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
149.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation and benefits and exercise of options
|
|
|
|
|
|
|
1,417
|
|
|
|
9.3
|
|
|
|
|
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2010
|
|
|
122,192
|
|
|
|
(28,289
|
)
|
|
$
|
516.0
|
|
|
$
|
1.2
|
|
|
$
|
1,059.4
|
|
|
$
|
(66.9
|
)
|
|
$
|
(305.6
|
)
|
|
$
|
(172.1
|
)
|
|
|
|
|
|
|
The accompanying
notes to financial statements are an integral part of these
statements.
39 POLYONE
CORPORATION
|
|
Note 1
|
DESCRIPTION
OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Description of
Business
PolyOne Corporation (PolyOne, Company, we, us or our) is a
premier provider of specialized polymer materials, services and
solutions with operations in thermoplastic compounds, specialty
polymer formulations, color and additive systems, thermoplastic
resin distribution and specialty polyvinyl chloride (PVC)
resins. We also have an equity investment that manufactures
caustic soda and chlorine. PolyOne was incorporated in the state
of Ohio on August 31, 2000.
Our operations are located primarily in the United States,
Europe, Canada, Asia, Mexico, and Brazil. Our operations are
reported in five reportable segments: Global Specialty
Engineered Materials; Global Color, Additives and Inks;
Performance Products and Solutions; PolyOne Distribution; and
SunBelt Joint Venture. See Note 16, Segment
Information, for more information.
Consolidation and
Basis of Presentation
The consolidated financial statements include the accounts of
PolyOne and its subsidiaries. All majority-owned affiliates over
which we have control are consolidated. Investments in
affiliates and joint ventures in which our ownership is 50% or
less, or in which we do not have control but have the ability to
exercise significant influence over operating and financial
policies, are accounted for under the equity method.
Intercompany transactions are eliminated. Transactions with
related parties, including joint ventures, are in the ordinary
course of business.
Reclassifications
Certain reclassifications of the prior period amounts and
presentation have been made to conform to the presentation for
the current period.
40 POLYONE
CORPORATION
Use of
Estimates
Preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions in certain
circumstances that affect amounts reported in the accompanying
consolidated financial statements and notes. Actual results
could differ from these estimates.
Cash and Cash
Equivalents
We consider all highly liquid investments purchased with a
maturity of less than three months to be cash equivalents. Cash
equivalents are stated at cost, which approximates fair value.
Allowance for
Doubtful Accounts
We evaluate the collectability of trade receivables based on a
combination of factors. We regularly analyze significant
customer accounts and, when we become aware of a specific
customers inability to meet its financial obligations to
us, such as in the case of a bankruptcy filing or deterioration
in the customers operating results or financial position,
we record a specific allowance for bad debt to reduce the
related receivable to the amount we reasonably believe is
collectible. We also record bad debt allowances for all other
customers based on a variety of factors including the length of
time the receivables are past due, the financial health of the
customer, economic conditions and historical experience. In
estimating the allowances, we take into consideration the
existence of credit insurance. If circumstances related to
specific customers change, our estimates of the recoverability
of receivables could be adjusted further.
Inventories
Inventories are stated at the lower of cost or market using the
first-in,
first-out (FIFO) method.
Property and
Depreciation
Property, plant and equipment is carried at cost, net of
depreciation and amortization that is computed using the
straight-line method over the estimated useful life of the
assets, which ranges from 3 to 15 years for machinery and
equipment and up to 40 years for buildings. Computer
software is amortized over periods not exceeding 10 years.
Property, plant and equipment is generally depreciated on
accelerated methods for income tax purposes. We expense repair
and maintenance costs as incurred.
We capitalize replacements and betterments that increase the
estimated useful life of an asset. We capitalize interest
expense on major construction and development projects while in
progress.
We retain fully depreciated assets in property and accumulated
depreciation accounts until we remove them from service. In the
case of sale, retirement or disposal, the asset cost and related
accumulated depreciation balance is removed from the respective
account, and the resulting net amount, less any proceeds, is
included as a component of income (loss) from continuing
operations in the accompanying consolidated statements of
operations.
We account for operating leases under the provisions of
Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 840, Leases.
Impairment of
Long-Lived Assets
We assess the recoverability of long-lived assets whenever
events or changes in circumstances indicate that we may not be
able to recover the assets carrying amount. We measure the
recoverability of assets to be held and used by a comparison of
the carrying amount of the asset to the expected net future
undiscounted cash flows associated with the asset. We measure
the amount of impairment of long-lived assets as the amount by
which the carrying value of the asset exceeds the fair value of
the asset, which is generally determined based on projected
discounted future cash flows or appraised values.
Goodwill and
Other Intangible Assets
Goodwill is the excess of the purchase price paid over the fair
value of the net assets of the acquired business. Goodwill and
other indefinite-lived intangible assets are tested for
impairment at the reporting unit level. Our reporting units have
been identified at the operating segment level or in some cases
one level below the operating segment level. Goodwill is
allocated to the reporting units based on the estimated fair
value at the date of acquisition.
Our annual measurement date for testing impairment of goodwill
and other indefinite-lived intangibles is October 1st. We
completed our testing of impairment on October 1, 2010,
noting no impairment. The future occurrence of a potential
indicator of impairment would require an interim assessment for
some or all of the reporting units prior to the next required
annual assessment on October 1, 2011. Refer to
Note 19, Fair Value, for further discussion of our
approach for assessing fair value of goodwill.
Litigation
Reserves
FASB ASC Topic 450, Contingencies, requires that we
accrue for loss contingencies associated with outstanding
litigation, claims and assessments for which management has
determined it is probable that a loss contingency exists and the
amount of loss can be reasonably estimated. We record expense
associated with professional fees related to litigation claims
and assessments as incurred.
Derivative
Financial Instruments
FASB ASC Topic 815, Derivative and Hedging, requires that
all derivative financial instruments, such as foreign exchange
contracts, be recognized in the financial statements and
measured at fair value, regardless of the purpose or intent in
holding them.
We are exposed to foreign currency changes in the normal course
of business. We have established policies and procedures that
manage this exposure through the use of financial
41 POLYONE
CORPORATION
instruments. By policy, we do not enter into these instruments
for trading purposes or speculation.
We enter into intercompany lending transactions denominated in
various foreign currencies and are subject to financial exposure
from foreign exchange rate movement over the term of the loans.
To mitigate this risk, we enter into foreign exchange contracts
with major financial institutions. These contracts are not
treated as hedges and, as a result, are adjusted to fair value,
with the resulting gains and losses recognized as other income
or expense in the accompanying consolidated statements of
operations. Realized and unrealized gains and losses on these
contracts offset the foreign exchange gains and losses on the
underlying transactions. Our forward contracts have original
maturities of one year or less. See Note 18, Financial
Instruments, for more information.
Pension and Other
Post-retirement Plans
We account for our pensions and other post-retirement benefits
in accordance with FASB ASC Topic 715,
Compensation Retirement Benefits. This
standard requires us to (1) recognize the funded status of
the benefit plans in our statement of financial position,
(2) recognize as a component of other comprehensive income,
net of tax, the gains or losses and prior service costs or
credits that arise during the period but are not recognized as
components of net periodic benefit cost, (3) measure
defined benefit plan assets and obligations as of the date of
the employers fiscal year end statement of financial
position and (4) disclose additional information in the
notes to financial statements about certain effects on net
periodic benefit costs for the next fiscal year that arise from
delayed recognition of gains or losses, prior service costs or
credits, and transition assets or obligations.
Accumulated Other
Comprehensive Loss
Accumulated other comprehensive loss at December 31, 2010
and 2009 are as follows:
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
|
|
Foreign currency translation adjustments
|
|
$
|
(8.6
|
)
|
|
$
|
(4.3
|
)
|
Unrecognized losses, transition obligation and prior service
costs
|
|
|
(163.7
|
)
|
|
|
(154.4
|
)
|
Unrealized gain in
available-for-sale
securities
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
$
|
(172.1
|
)
|
|
$
|
(158.5
|
)
|
|
|
Fair Value of
Financial Instruments
FASB ASC Topic 820, Fair Value Measurements and Disclosures,
requires disclosures of the fair value of financial
instruments. The estimated fair values of financial instruments
were principally based on market prices where such prices were
available and, where unavailable, fair values were estimated
based on market prices of similar instruments. See Note 18,
Financial Instruments, for further discussion.
Foreign Currency
Translation
Revenues and expenses are translated at average currency
exchange rates during the related period. Assets and liabilities
of foreign subsidiaries and equity investees are translated
using the exchange rate at the end of the period. The resulting
translation adjustment is recorded as accumulated other
comprehensive income or loss in shareholders equity. Gains
and losses resulting from foreign currency transactions,
including intercompany transactions that are not considered
permanent investments, are included in other income, net in the
accompanying consolidated statements of operations.
Revenue
Recognition
We recognize revenue when the revenue is realized or realizable,
and has been earned. We recognize revenue when a firm sales
agreement is in place, shipment has occurred and collectability
of the fixed or determinable sales price is reasonably assured.
Shipping and
Handling Costs
Shipping and handling costs are included in cost of sales.
Research and
Development Expense
Research and development costs, which were $33.8 million in
2010, $30.2 million in 2009 and $33.8 million in 2008,
are charged to expense as incurred.
Environmental
Costs
We expense costs that are associated with managing hazardous
substances and pollution in ongoing operations on a current
basis. Costs associated with the remediation of environmental
contamination are accrued when it becomes probable that a
liability has been incurred and our proportionate share of the
cost can be reasonably estimated.
Equity
Affiliates
We account for our investments in equity affiliates under FASB
ASC Topic 323, Investments Equity Method and
Joint Ventures. We recognize our proportionate share of the
income of equity affiliates. Losses of equity affiliates are
recognized to the extent of our investment, advances, financial
guarantees and other commitments to provide financial support to
the investee. Any losses in excess of this amount are deferred
and reduce the amount of future earnings of the equity investee
recognized by PolyOne. As of December 31, 2010 and 2009,
there were no deferred losses related to equity investees.
We recognize impairment losses in the value of investments that
we judge to be other than temporary. See Note 4,
Financial Information of Equity Affiliates, for more
information.
42 POLYONE
CORPORATION
Share-Based
Compensation
We account for share-based compensation under the provisions of
FASB ASC Topic 718, Compensation Stock
Compensation, which requires us to estimate the fair value
of share-based awards on the date of grant using an
option-pricing model. The value of the portion of the award that
is ultimately expected to vest is recognized as expense over the
requisite service periods in the accompanying consolidated
statements of operations. As of December 31, 2010, we had
one active share-based employee compensation plan, which is
described more fully in Note 15, Share-Based
Compensation.
Income
Taxes
Deferred tax liabilities and assets are determined based upon
the differences between the financial reporting and tax basis of
assets and liabilities and are measured using the tax rate and
laws currently in effect. In accordance with FASB ASC Topic 740,
Income Taxes, we evaluate our deferred income taxes to
determine whether a valuation allowance should be established
against the deferred tax assets or whether the valuation
allowance should be reduced based on consideration of all
available evidence, both positive and negative, using a
more likely than not standard.
|
|
Note 2
|
GOODWILL
AND INTANGIBLE ASSETS
|
The total purchase price associated with acquisitions is
allocated to the fair value of assets acquired and liabilities
assumed based on their fair values at the acquisition date, with
excess amounts recorded as goodwill. We completed an acquisition
in 2010 that resulted in the addition of $0.4 million of
goodwill during the year ended December 31, 2010. In 2009,
the acquisition of New England Urethane, Inc. (NEU) resulted in
the addition of $4.5 million of goodwill and
$5.9 million in identifiable intangibles.
Goodwill as of December 31, 2010 and 2009, and changes in
the carrying amount of goodwill by segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Specialty
|
|
|
Global Color,
|
|
|
Performance
|
|
|
|
|
|
|
|
|
|
Engineered
|
|
|
Additives and
|
|
|
Products and
|
|
|
PolyOne
|
|
|
|
|
(In millions)
|
|
Materials
|
|
|
Inks
|
|
|
Solutions
|
|
|
Distribution
|
|
|
Total
|
|
|
|
|
Balance at January 1, 2009
|
|
$
|
77.9
|
|
|
$
|
72.0
|
|
|
$
|
12.4
|
|
|
$
|
1.6
|
|
|
$
|
163.9
|
|
Acquisition of businesses
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5
|
|
Impairment
|
|
|
|
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
(5.0
|
)
|
Translations and other adjustments
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
Balance at December 31, 2009
|
|
$
|
82.4
|
|
|
$
|
72.1
|
|
|
$
|
7.4
|
|
|
$
|
1.6
|
|
|
$
|
163.5
|
|
Acquisition of businesses
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translations and other adjustments
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
Balance at December 31, 2010
|
|
$
|
82.6
|
|
|
$
|
72.5
|
|
|
$
|
7.4
|
|
|
$
|
1.6
|
|
|
$
|
164.1
|
|
|
|
Other adjustments to goodwill primarily represented final
adjustments to the purchase price allocation for acquisitions
during the measurement period subsequent to the acquisition
date. Total accumulated impairment losses were
$203.3 million as of December 31, 2010 and 2009. Of
these accumulated impairment losses, $12.2 million relates
to Global Specialty Engineered Materials, $16.1 million
relates to Global Color Additives and Inks, and
$175.0 million relates to Performance Products and
Solutions.
At December 31, 2010, PolyOne had $33.2 million of
indefinite-lived other intangible assets that are not subject to
amortization, consisting of a trade name acquired as part of the
acquisition of GLS Corporation.
Information regarding PolyOnes finite-lived other
intangible assets follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
Acquisition
|
|
|
Accumulated
|
|
|
Currency
|
|
|
|
|
(In millions)
|
|
Cost
|
|
|
Amortization
|
|
|
Translation
|
|
|
Net
|
|
|
|
|
Non-contractual customer relationships
|
|
$
|
42.2
|
|
|
$
|
(14.6
|
)
|
|
$
|
|
|
|
$
|
27.6
|
|
Sales contracts
|
|
|
11.4
|
|
|
|
(10.6
|
)
|
|
|
|
|
|
|
0.8
|
|
Patents, technology and other
|
|
|
9.4
|
|
|
|
(4.3
|
)
|
|
|
1.1
|
|
|
|
6.2
|
|
|
Total
|
|
$
|
63.0
|
|
|
$
|
(29.5
|
)
|
|
$
|
1.1
|
|
|
$
|
34.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
Acquisition
|
|
|
Accumulated
|
|
|
Currency
|
|
|
|
|
(In millions)
|
|
Cost
|
|
|
Amortization
|
|
|
Translation
|
|
|
Net
|
|
|
|
|
Non-contractual customer relationships
|
|
$
|
42.2
|
|
|
$
|
(11.7
|
)
|
|
$
|
|
|
|
$
|
30.5
|
|
Sales contracts
|
|
|
11.4
|
|
|
|
(10.4
|
)
|
|
|
|
|
|
|
1.0
|
|
Patents, technology and other
|
|
|
9.5
|
|
|
|
(3.7
|
)
|
|
|
1.2
|
|
|
|
7.0
|
|
|
Total
|
|
$
|
63.1
|
|
|
$
|
(25.8
|
)
|
|
$
|
1.2
|
|
|
$
|
38.5
|
|
|
|
Amortization of other finite-lived intangible assets for the
years ended December 31, 2010, 2009 and 2008 was
$3.7 million, $3.3 million and $3.3 million,
respectively. As of December 31, 2010, we expect
amortization expense on other finite-lived intangibles for the
next five years as follows: 2011 $3.5 million;
2012 $3.1 million; 2013
$3.1 million; 2014 $3.0 million; and
2015 $2.9 million.
|
|
Note 3
|
EMPLOYEE
SEPARATION AND PLANT PHASE-OUT
|
Management has undertaken certain restructuring initiatives to
reduce costs and, as a result, we have incurred employee
separation and plant phase-out costs.
Employee separation costs include one-time termination benefits
including salary continuation benefits, medical coverage and
outplacement assistance and are based on a formula that takes
into account each individual employees base compensation
and length of service. Employee separation costs also include
on-going postemployment benefits accounted for under FASB ASC
Topic 712, Compensation Nonretirement
Postemployment Benefits, which
43 POLYONE
CORPORATION
are accrued when it is probable that a liability has been
incurred and the amount can be reasonably estimated.
Plant phase-out costs include the impairment of property, plant
and equipment at manufacturing facilities and the resulting
write-down of the carrying value of these assets to fair value,
which represents managements best estimate of the net
proceeds to be received for the assets to be sold or scrapped,
less any costs to sell. Plant phase-out costs also include cash
facility closing costs and lease termination costs. Assets
transferred to our other facilities are transferred at net book
value.
Employee separation and plant phase-out costs associated with
continuing operations are reflected on the line Corporate and
eliminations in Note 16, Segment Information. A
summary of total employee separation and plant phase-out costs,
including where the charges are recorded in the accompanying
consolidated statements of operations, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Cost of sales
|
|
$
|
2.0
|
|
|
$
|
24.4
|
|
|
$
|
29.3
|
|
Selling and administrative
|
|
|
1.1
|
|
|
|
2.8
|
|
|
|
10.4
|
|
|
Total employee separation and plant phase-out
|
|
$
|
3.1
|
|
|
$
|
27.2
|
|
|
$
|
39.7
|
|
|
|
Included in 2010 employee separation and plant phase-out
costs shown in the preceding table were charges of
$0.2 million, included in Cost of sales, for
accelerated depreciation related to our restructuring
initiatives. Included in employee separation and plant phase-out
costs, in 2009, shown in the preceding table were charges of
$7.4 million, included in Cost of sales, and
$1.2 million, included in Selling and
administrative, for accelerated depreciation related to our
restructuring initiatives. Cash payments for employee separation
and plant phase-out costs during 2010, 2009 and 2008 were
$6.3 million, $32.1 million and $5.5 million,
respectively.
In July 2008, we announced the restructuring of certain
manufacturing assets, including the closure of seven production
facilities in North America and one in the United Kingdom. In
January 2009, we announced further cost saving measures that
included eliminating approximately 370 positions worldwide,
implementing reduced work schedules for another 100 to
300 employees, closing our Niagara, Ontario facility and
idling certain other capacity. We recognized charges of
$26.9 million and $38.3 million in 2009 and 2008,
respectively, related to these actions. We do not expect to
incur significant additional expenses associated with these
activities.
The following table details the charges and changes to the
reserves associated with our restructuring initiatives for the
year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
Plant Phase-out Costs
|
|
|
|
|
|
|
Separation
|
|
|
Cash
|
|
|
Asset
|
|
|
|
|
(In millions)
|
|
Costs
|
|
|
Closure
|
|
|
Write-downs
|
|
|
Total
|
|
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Charge
|
|
|
26.1
|
|
|
|
2.2
|
|
|
|
10.0
|
|
|
|
38.3
|
|
Utilized
|
|
|
(2.4
|
)
|
|
|
(1.5
|
)
|
|
|
(10.0
|
)
|
|
|
(13.9
|
)
|
|
Balance at December 31, 2008
|
|
$
|
23.7
|
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
24.4
|
|
Charge
|
|
|
3.0
|
|
|
|
8.4
|
|
|
|
15.5
|
|
|
|
26.9
|
|
Utilized
|
|
|
(23.8
|
)
|
|
|
(7.5
|
)
|
|
|
(15.5
|
)
|
|
|
(46.8
|
)
|
Impact of foreign currency translation
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.2
|
|
|
Balance at December 31, 2009
|
|
$
|
3.0
|
|
|
$
|
1.7
|
|
|
$
|
|
|
|
$
|
4.7
|
|
Charge
|
|
|
1.0
|
|
|
|
1.7
|
|
|
|
0.1
|
|
|
|
2.8
|
|
Utilized
|
|
|
(3.5
|
)
|
|
|
(2.8
|
)
|
|
|
(0.1
|
)
|
|
|
(6.4
|
)
|
Impact of foreign currency translation
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
Balance at December 31, 2010
|
|
$
|
0.5
|
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
1.2
|
|
|
|
|
|
Note 4
|
FINANCIAL
INFORMATION OF EQUITY AFFILIATES
|
SunBelt Chlor-Alkali Partnership (SunBelt) is reported in the
SunBelt Joint Venture segment. PolyOne owns 50% of SunBelt. The
remaining 50% of SunBelt is owned by Olin SunBelt Inc., a wholly
owned subsidiary of the Olin Corporation.
Summarized financial information for SunBelt follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
SunBelt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
157.3
|
|
|
$
|
167.4
|
|
|
$
|
173.0
|
|
Operating income
|
|
$
|
53.9
|
|
|
$
|
67.6
|
|
|
$
|
73.6
|
|
Partnership income as reported by SunBelt
|
|
$
|
46.2
|
|
|
$
|
59.4
|
|
|
$
|
65.1
|
|
PolyOnes ownership of SunBelt
|
|
|
50
|
%
|
|
|
50
|
%
|
|
|
50
|
%
|
|
Earnings of equity affiliate recorded by PolyOne
|
|
$
|
23.1
|
|
|
$
|
29.7
|
|
|
$
|
32.5
|
|
|
|
|
|
|
|
|
|
|
|
|
Summarized balance sheet as of December 31:
|
|
2010
|
|
|
2009
|
|
|
|
|
Current assets
|
|
$
|
21.2
|
|
|
$
|
16.1
|
|
Non-current assets
|
|
|
78.7
|
|
|
|
94.1
|
|
|
Total assets
|
|
$
|
99.9
|
|
|
|
110.2
|
|
|
Current liabilities
|
|
$
|
21.3
|
|
|
|
21.4
|
|
Non-current liabilities
|
|
|
73.1
|
|
|
|
85.3
|
|
|
Total liabilities
|
|
$
|
94.4
|
|
|
|
106.7
|
|
|
Partnership interest
|
|
$
|
5.5
|
|
|
$
|
3.5
|
|
|
|
44 POLYONE
CORPORATION
Through its disposition on November 30, 2010, we owned 50%
of BayOne Urethane Systems, L.L.C. (BayOne), which was included
in Global Color, Additives and Inks. Through its disposition on
October 13, 2009, the former Geon Polimeros Andinos (GPA)
equity affiliate was included in Performance Products and
Solutions.
Combined summarized financial information for these other equity
affiliates follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Net sales
|
|
$
|
51.5
|
|
|
$
|
77.9
|
|
|
$
|
112.2
|
|
Operating income
|
|
|
5.3
|
|
|
|
6.2
|
|
|
|
7.7
|
|
Partnership income as reported by other equity affiliates
|
|
|
5.2
|
|
|
|
5.4
|
|
|
|
6.6
|
|
Equity affiliate earnings recorded by PolyOne
|
|
|
2.6
|
|
|
|
2.7
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
Summarized balance sheet as of December 31:
|
|
2010
|
|
|
2009
|
|
|
|
|
Current assets
|
|
$
|
0.1
|
|
|
$
|
7.1
|
|
Non-current assets
|
|
|
4.4
|
|
|
|
4.2
|
|
|
Total assets
|
|
$
|
4.5
|
|
|
$
|
11.3
|
|
|
|
Current liabilities
|
|
$
|
6.8
|
|
|
$
|
8.8
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
6.8
|
|
|
$
|
8.8
|
|
|
|
On November 30, 2010, we sold our interest in BayOne for
cash proceeds of $19.3 million and recorded a pre-tax gain
of $16.3 million in the fourth quarter 2010 results of
operations. On October 13, 2009, we sold our interest in
GPA for cash proceeds of $13.5 million and recorded a
pre-tax gain of $2.8 million in the fourth quarter 2009
results of operations.
|
|
Note 5
|
FINANCING
ARRANGEMENTS
|
Long-term debt as of December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(Dollars in millions)
|
|
2010(1)
|
|
|
2009(1)
|
|
|
|
|
Medium-term notes:
|
|
|
|
|
|
|
|
|
6.52% medium-term notes due 2010
|
|
$
|
|
|
|
$
|
19.9
|
|
6.58% medium-term notes due 2011
|
|
|
20.0
|
|
|
|
19.7
|
|
Credit facility borrowings, terminated in 2010
|
|
|
|
|
|
|
40.0
|
|
8.875% senior notes due 2012
|
|
|
22.9
|
|
|
|
279.5
|
|
7.500% debentures due 2015
|
|
|
50.0
|
|
|
|
50.0
|
|
7.375% senior notes due 2020
|
|
|
360.0
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
452.9
|
|
|
$
|
409.1
|
|
Less current portion
|
|
|
20.0
|
|
|
|
19.9
|
|
|
Total long-term debt, net of current portion
|
|
$
|
432.9
|
|
|
$
|
389.2
|
|
|
|
|
|
|
(1) |
|
Book values include unamortized
discounts, where applicable.
|
In February 2010, we repaid $20 million aggregate principal
amount of our 6.52% medium-term notes.
In July 2010, we repaid $40 million of outstanding
borrowings and terminated the related commitments under our
$40 million unsecured revolving and letter of credit
facility, which was scheduled to mature on March 20, 2011.
Debt extinguishment costs of $1.4 million related to the
early retirement of this debt are shown within the Debt
extinguishment costs line in our Consolidated Statement of
Operations.
In September 2010, we issued $360 million of senior
unsecured notes at par that mature in September 2020 and bear
interest at 7.375% per annum, payable semi-annually in arrears
on March 15th and September 15th of each
year. Deferred financing costs of $7.3 million from the
issuance are included in Other non-current assets and
will be amortized over 10 years, the term of the senior
unsecured notes. We used a portion of the net proceeds from the
issuance of these notes to repurchase $257.1 million
aggregate principle amount of its 8.875% senior notes due
May 2012 at a premium of $25.7 million. The tender premium,
$0.7 million of other debt extinguishment costs and the
write-off of deferred note issuance costs of $1.7 million
are shown within the Debt extinguishment costs line in
our Consolidated Statement of Operations.
Aggregate maturities of long-term debt for the next five years
are: 2011 $20.0 million; 2012
$22.9 million; 2013 $0.0 million;
2014 $0.0 million; 2015
$50.0 million; and thereafter
$360.0 million.
Included in Interest expense, net for the years ended
December 31, 2010, 2009 and 2008 was interest income of
$2.9 million, $3.2 million, and $3.4 million
respectively. Total interest paid on long-term and short-term
borrowings was $34.4 million in 2010, $35.1 million in
2009 and $37.1 million in 2008.
As of December 31, 2010, our secured borrowings were not at
levels that would trigger the security provisions of the
indentures governing our senior notes and debentures and our
guarantee of the SunBelt notes. See Note 12, Commitments
and Related-Party Information.
We entered into a definitive Guarantee and Agreement with
Citicorp USA, Inc., KeyBank National Association and PNC Bank
(formerly known as National City Bank) on June 6, 2006.
Under this Guarantee and Agreement, we guarantee some treasury
management and banking services provided to us and our
subsidiaries, such as foreign currency forwards and bank
overdrafts. This guarantee is secured by our inventories located
in the United States.
|
|
Note 6
|
LEASING
ARRANGEMENTS
|
We lease certain manufacturing facilities, warehouse space,
machinery and equipment, automobiles and railcars under
operating leases. Rent expense was $22.4 million in 2010,
$20.6 million in 2009 and $24.0 million in 2008.
Future minimum lease payments under non-cancelable operating
leases with initial lease terms longer than one year as of
December 31, 2010 were as follows: 2011
$22.5 million; 2012 $19.3 million;
2013 $14.7 million; 2014
$9.8 million; 2015 $7.3 million; and
thereafter $20.0 million.
45 POLYONE
CORPORATION
|
|
Note 7
|
ACCOUNTS
RECEIVABLE
|
Accounts receivable as of December 31 consist of the following:
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
|
|
Trade accounts receivable
|
|
$
|
135.4
|
|
|
$
|
129.2
|
|
Retained interest in securitized accounts receivable
|
|
|
163.2
|
|
|
|
151.1
|
|
Allowance for doubtful accounts
|
|
|
(4.1
|
)
|
|
|
(5.9
|
)
|
|
|
|
$
|
294.5
|
|
|
$
|
274.4
|
|
|
|
The following table details the changes in allowance for
doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Balance at beginning of the year
|
|
$
|
(5.9
|
)
|
|
$
|
(6.7
|
)
|
|
$
|
(4.8
|
)
|
Provision for doubtful accounts
|
|
|
(2.5
|
)
|
|
|
(3.3
|
)
|
|
|
(6.0
|
)
|
Accounts written off
|
|
|
4.1
|
|
|
|
4.0
|
|
|
|
4.2
|
|
Translation and other adjustments
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
Balance at end of year
|
|
$
|
(4.1
|
)
|
|
$
|
(5.9
|
)
|
|
$
|
(6.7
|
)
|
|
|
Sale of Accounts Receivable Under the terms
of our receivables sale facility, we sell accounts receivable to
PolyOne Funding Corporation (PFC) and PolyOne Funding Canada
Corporation (PFCC), both wholly-owned, bankruptcy-remote
subsidiaries. PFC and PFCC, in turn, may sell an undivided
interest in up to $175.0 million and $25.0 million of
these accounts receivable, respectively, to certain investors.
The receivables sale facility matures in June 2012. As of
December 31, 2010 and 2009, accounts receivable totaling
$163.2 million and $151.1 million, respectively, were
sold by us to PFC and PFCC. The maximum proceeds that PFC and
PFCC may receive under the facility is limited to the lesser of
$200.0 million or 85% of the eligible domestic and Canadian
accounts receivable sold. We retain an interest in the
difference between the amount of trade receivables sold by us to
PFC and PFCC and the undivided interest sold by PFC and PFCC. As
of December 31, 2010 and 2009, neither PFC nor PFCC had
sold any of their undivided interests in accounts receivable.
The receivables sale facility also makes up to
$40.0 million available for the issuance of standby letters
of credit as a
sub-limit
within the $200.0 million limit under the facility, of
which $12.9 million was used at December 31, 2010. The
level of availability under the receivables sale facility is
based on the prior months total accounts receivable sold
to PFC and PFCC, as reduced by outstanding letters of credit.
Additionally, availability is dependent upon compliance with a
fixed charge coverage ratio covenant related primarily to
operating performance that is set forth in the related
agreements. As of December 31, 2010, we were in compliance
with these covenants. As of December 31, 2010,
$128.2 million of securitized accounts receivable were
available for sale.
We also service the underlying accounts receivable and receive a
service fee of 1% per annum on the average daily amount of the
outstanding interests in our receivables. The net discount and
other costs of the receivables sale facility are included in
Other expense, net in the accompanying consolidated
statements of operations.
Components of Inventories are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
|
|
At FIFO cost:
|
|
|
|
|
|
|
|
|
Finished products
|
|
$
|
129.2
|
|
|
$
|
108.4
|
|
Work in process
|
|
|
2.4
|
|
|
|
2.4
|
|
Raw materials and supplies
|
|
|
79.7
|
|
|
|
72.9
|
|
|
|
|
$
|
211.3
|
|
|
$
|
183.7
|
|
|
|
Components of Property, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
|
|
Land and land improvements
|
|
$
|
43.5
|
|
|
$
|
43.3
|
|
Buildings
|
|
|
290.0
|
|
|
|
288.2
|
|
Machinery and equipment
|
|
|
909.7
|
|
|
|
902.7
|
|
|
|
|
|
1,243.2
|
|
|
|
1,234.2
|
|
Less accumulated depreciation and amortization
|
|
|
(868.8
|
)
|
|
|
(841.8
|
)
|
|
|
|
$
|
374.4
|
|
|
$
|
392.4
|
|
|
|
Depreciation expense was $51.5 million in 2010,
$61.5 million in 2009 and $64.7 million in 2008.
During 2010, 2009 and 2008, we recorded $0.2 million,
$8.6 million and $6.9 million, respectively, of
accelerated depreciation related to restructuring.
|
|
Note 10
|
OTHER
BALANCE SHEET LIABILITIES
|
Other liabilities at December 31, 2010 and 2009 consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Expenses
|
|
|
Non-current Liabilities
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Employment costs
|
|
$
|
87.5
|
|
|
$
|
68.8
|
|
|
$
|
32.2
|
|
|
$
|
22.0
|
|
Environmental
|
|
|
16.2
|
|
|
|
10.2
|
|
|
|
71.2
|
|
|
|
71.5
|
|
Taxes
|
|
|
17.1
|
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
Pension and other post-employment benefits
|
|
|
8.3
|
|
|
|
9.2
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
7.8
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
8.9
|
|
|
|
15.8
|
|
|
|
10.9
|
|
|
|
5.1
|
|
|
|
|
$
|
145.8
|
|
|
$
|
117.0
|
|
|
$
|
114.3
|
|
|
$
|
98.6
|
|
|
|
|
|
Note 11
|
EMPLOYEE
BENEFIT PLANS
|
We have several pension plans; however, as of December 31,
2010, only certain foreign plans accrue benefits. The plans
generally provide benefit payments using a formula that is based
upon employee compensation and length of service. All
U.S. defined benefit pension plans are frozen, no longer
accrue benefits and are closed to new participants.
On January 15, 2009, we adopted amendments to the Geon
Pension Plan (Geon Plan), the Benefit Restoration Plan (BRP),
the
46 POLYONE
CORPORATION
voluntary retirement savings plan (RSP) and the Supplemental
Retirement Benefit Plan (SRP). Effective March 20, 2009,
the amendments to the Geon Plan and the BRP permanently froze
future benefit accruals and provide that participants will not
receive credit under the Geon Plan or the BRP for any eligible
earnings paid on or after that date. Additionally, certain
benefits provided under the RSP and SRP were eliminated after
March 20, 2009. These actions resulted in a reduction of
our 2009 annual benefit expense of $3.7 million.
We also sponsor several unfunded defined benefit post-retirement
plans that provide subsidized health care and life insurance
benefits to certain retirees and a closed group of eligible
employees. On September 1, 2009, we adopted changes to our
U.S. post-retirement healthcare plan whereby, effective
January 1, 2010, the plan, for certain eligible retirees,
were discontinued, and benefits are phased out through
December 31, 2012. Only certain employees hired prior to
December 31, 1999 are eligible to participate in our
subsidized post-retirement health care and life insurance plans.
These amendments resulted in a curtailment gain of
$21.1 million in 2009 and decreased the accumulated pension
benefit obligation by $58.1 million.
The following tables present the change in benefit obligation,
change in plan assets and components of funded status for
defined benefit pension and post-retirement health care benefit
plans. Actuarial assumptions that were used are also included.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Health Care Benefits
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation beginning of year
|
|
$
|
498.7
|
|
|
$
|
501.2
|
|
|
$
|
26.6
|
|
|
$
|
91.0
|
|
Service cost
|
|
|
1.6
|
|
|
|
1.4
|
|
|
|
|
|
|
|
0.1
|
|
Interest cost
|
|
|
29.6
|
|
|
|
30.7
|
|
|
|
1.3
|
|
|
|
4.1
|
|
Actuarial loss (gain)
|
|
|
24.6
|
|
|
|
21.4
|
|
|
|
(0.9
|
)
|
|
|
(6.4
|
)
|
Participant contributions
|
|
|
|
|
|
|
0.1
|
|
|
|
0.6
|
|
|
|
5.9
|
|
Benefits paid
|
|
|
(39.1
|
)
|
|
|
(38.9
|
)
|
|
|
(4.7
|
)
|
|
|
(10.9
|
)
|
Plan amendments/settlements
|
|
|
|
|
|
|
(18.0
|
)
|
|
|
|
|
|
|
(58.1
|
)
|
Other
|
|
|
(1.0
|
)
|
|
|
0.8
|
|
|
|
0.3
|
|
|
|
0.9
|
|
|
Projected benefit obligation end of year
|
|
$
|
514.4
|
|
|
$
|
498.7
|
|
|
$
|
23.2
|
|
|
$
|
26.6
|
|
Projected salary increases
|
|
|
2.8
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
511.6
|
|
|
$
|
496.6
|
|
|
$
|
23.2
|
|
|
$
|
26.6
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets beginning of year
|
|
$
|
320.6
|
|
|
$
|
271.9
|
|
|
$
|
|
|
|
$
|
|
|
Actual return on plan assets
|
|
|
40.2
|
|
|
|
63.7
|
|
|
|
|
|
|
|
|
|
Company contributions
|
|
|
33.4
|
|
|
|
23.5
|
|
|
|
4.1
|
|
|
|
5.0
|
|
Plan participants contributions
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.6
|
|
|
|
5.9
|
|
Benefits paid
|
|
|
(39.1
|
)
|
|
|
(38.9
|
)
|
|
|
(4.7
|
)
|
|
|
(10.9
|
)
|
Other
|
|
|
(0.6
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Plan assets end of year
|
|
$
|
354.6
|
|
|
$
|
320.6
|
|
|
$
|
|
|
|
$
|
|
|
|
|
Under-funded status at end of year
|
|
$
|
(159.8
|
)
|
|
$
|
(178.1
|
)
|
|
$
|
(23.2
|
)
|
|
$
|
(26.6
|
)
|
|
|
Plan assets of $354.6 million and $320.6 million as of
December 31, 2010 and 2009, respectively, relate to our
qualified pension plans that have a projected benefit obligation
of $468.3 million and $455.4 million as of
December 31, 2010 and 2009, respectively. As of
December 31, 2010 and 2009, we are 76% and 70% funded,
respectively, in regards to these plans and their respective
projected benefit obligation.
Amounts included in the accompanying consolidated balance sheets
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Health Care Benefits
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Other non-current assets
|
|
$
|
0.2
|
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
|
|
Current liabilities
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
3.7
|
|
|
|
4.6
|
|
Long-term liabilities
|
|
|
155.0
|
|
|
|
173.4
|
|
|
|
19.5
|
|
|
|
22.0
|
|
47 POLYONE
CORPORATION
Amounts recognized in accumulated other comprehensive income
(AOCI):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Health Care Benefits
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Net loss
|
|
$
|
230.4
|
|
|
$
|
229.0
|
|
|
$
|
7.5
|
|
|
$
|
8.9
|
|
Prior service loss (credit)
|
|
|
0.1
|
|
|
|
1.2
|
|
|
|
(34.8
|
)
|
|
|
(52.3
|
)
|
|
|
|
$
|
230.5
|
|
|
$
|
230.2
|
|
|
$
|
(27.3
|
)
|
|
$
|
(43.4
|
)
|
|
|
Change in AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Health Care Benefits
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
AOCI in prior year
|
|
$
|
230.2
|
|
|
$
|
280.6
|
|
|
$
|
(43.4
|
)
|
|
$
|
(8.7
|
)
|
Prior service (cost) credit recognized during year
|
|
|
(0.8
|
)
|
|
|
(0.5
|
)
|
|
|
17.4
|
|
|
|
30.3
|
|
Prior service credit (cost) occurring in the year
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
(58.1
|
)
|
Net (gain) loss recognized during the year
|
|
|
(9.4
|
)
|
|
|
(12.0
|
)
|
|
|
(0.5
|
)
|
|
|
(0.6
|
)
|
Net loss(gain) occurring in the year
|
|
|
10.6
|
|
|
|
(38.5
|
)
|
|
|
(0.9
|
)
|
|
|
(6.4
|
)
|
Other adjustments
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
AOCI in current year
|
|
$
|
230.5
|
|
|
$
|
230.2
|
|
|
$
|
(27.3
|
)
|
|
$
|
(43.4
|
)
|
|
|
As of December 31, 2010 and 2009, we had plans with total
projected and accumulated benefit obligations in excess of the
related plan assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Health Care Benefits
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Projected benefit obligation
|
|
$
|
509.5
|
|
|
$
|
497.9
|
|
|
$
|
23.2
|
|
|
$
|
26.6
|
|
Accumulated benefit obligation
|
|
|
511.6
|
|
|
|
495.9
|
|
|
|
23.2
|
|
|
|
26.6
|
|
Fair value of plan assets
|
|
|
353.6
|
|
|
|
319.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Health Care Benefits
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Weighted-average assumptions used to determine benefit
obligation at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.71
|
%
|
|
|
6.17
|
%
|
|
|
5.07
|
%
|
|
|
5.61
|
%
|
Rate of compensation increase
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
Assumed health care cost trend rates at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care cost trend rate assumed for next year
|
|
|
|
|
|
|
|
|
|
|
8.50
|
%
|
|
|
9.25
|
%
|
Rate to which the cost trend rate is assumed to decline (the
ultimate trend rate)
|
|
|
|
|
|
|
|
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
2016
|
|
Assumed health care cost trend rates have an effect on the
amounts reported for the health care plans. A one percentage
point change in assumed health care cost trend rates would have
the following impact:
|
|
|
|
|
|
|
|
|
|
|
One Percentage
|
|
One Percentage
|
(In millions)
|
|
Point Increase
|
|
Point Decrease
|
|
|
Effect on total of service and interest cost
|
|
$
|
0.1
|
|
|
$
|
(0.1
|
)
|
Effect on post-retirement benefit obligation
|
|
|
1.2
|
|
|
|
(1.1
|
)
|
An expected return on plan assets of 8.5% will be used to
determine the 2011 pension expense. The expected long-term rate
of return on pension assets was determined after considering the
historical experience of long-term asset returns by asset
category, the expected investment portfolio mix by category of
asset and estimated future long-term investment returns.
48 POLYONE
CORPORATION
The following table summarizes the components of net period
benefit cost that was recognized during each of the years in the
three-year period ended December 31, 2010. Actuarial
assumptions that were used are also included.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Health Care Benefits
|
|
(In millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Components of net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1.6
|
|
|
$
|
1.4
|
|
|
$
|
1.3
|
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
0.3
|
|
Interest cost
|
|
|
29.6
|
|
|
|
30.7
|
|
|
|
32.4
|
|
|
|
1.3
|
|
|
|
4.1
|
|
|
|
5.5
|
|
Expected return on plan assets
|
|
|
(26.2
|
)
|
|
|
(21.8
|
)
|
|
|
(33.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net loss
|
|
|
9.4
|
|
|
|
12.1
|
|
|
|
7.5
|
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
1.2
|
|
Curtailment (gain) loss and settlement charges
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
0.5
|
|
|
|
|
|
|
|
(21.1
|
)
|
|
|
|
|
Amortization of prior service credit (cost)
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
0.2
|
|
|
|
(17.4
|
)
|
|
|
(9.1
|
)
|
|
|
(5.6
|
)
|
|
|
|
$
|
15.2
|
|
|
$
|
22.4
|
|
|
$
|
8.5
|
|
|
$
|
(15.6
|
)
|
|
$
|
(25.4
|
)
|
|
$
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Health Care Benefits
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2008
|
|
|
2008
|
|
|
|
|
Weighted-average assumptions used to determine net periodic
benefit cost for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.17
|
%
|
|
|
6.61
|
%
|
|
|
6.78
|
%
|
|
|
5.61
|
%
|
|
|
6.50
|
%
|
|
|
6.61
|
|