UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________

FORM 10-Q

________________________________________________

(Mark One)

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

For the quarterly period ended September 30, 2019

OR

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from             to             .

Commission file number 1-16091

 ________________________________________________

POLYONE CORPORATION

(Exact name of registrant as specified in its charter)

________________________________________________

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

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

________________________________________________

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, par value $.01 per share	POL	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒    Yes   ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒    Yes   ☐ No

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐  

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

The number of the registrant’s outstanding common shares, $0.01 par value, as of September 30, 2019 was 76,915,099.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PolyOne Corporation

Condensed Consolidated Statements of Income (Unaudited)

(In millions, except per share data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Sales	$	705.3	$	729.0	$	2,204.1	$	2,203.9
Cost of sales	544.8		571.8		1,700.2		1,720.0
Gross margin	160.5		157.2		503.9		483.9
Selling and administrative expense	117.4		108.5		367.6		335.5
Operating income	43.1		48.7		136.3		148.4
Interest expense, net	(15.5)		(15.6)		(47.6)		(47.2)
Debt extinguishment costs	—		—		—		(0.1)
Other income, net	0.6		0.7		1.4		2.0
Income from continuing operations before income taxes	28.2		33.8		90.1		103.1
Income tax expense	(4.6)		(1.3)		(20.8)		(14.2)
Net income from continuing operations	23.6		32.5		69.3		88.9
Income from discontinued operations, net of income taxes	19.5		17.7		54.2		59.4
Net income	$	43.1	$	50.2	$	123.5	$	148.3
Net (income) loss attributable to noncontrolling interests	(0.1)		—		(0.2)		0.1
Net income attributable to PolyOne common shareholders	$	43.0	$	50.2	$	123.3	$	148.4
Earnings per common share attributable to PolyOne common shareholders - Basic:
Continuing operations	$	0.31	$	0.41	$	0.89	$	1.11
Discontinued operations	0.25		0.22		0.71		0.74
Total	$	0.56	$	0.63	$	1.60	$	1.85
Earnings per common share attributable to PolyOne common shareholders - Diluted:
Continuing operations	$	0.30	$	0.40	$	0.89	$	1.10
Discontinued operations	0.26		0.22		0.69		0.74
Total	$	0.56	$	0.62	$	1.58	$	1.84
Weighted-average shares used to compute earnings per common share:
Basic	76.9		79.8		77.3		80.1
Plus dilutive impact of share-based compensation	0.5		0.9		0.5		0.7
Diluted	77.4		80.7		77.8		80.8
Anti-dilutive shares not included in diluted common shares outstanding	0.6		—		0.8		—
Cash dividends declared per share of common stock	$	0.195	$	0.175	$	0.585	$	0.525

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

1

PolyOne Corporation

Consolidated Statements of Comprehensive Income (Unaudited)

(In millions)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Net income	$	43.1	$	50.2	$	123.5	$	148.3
Other comprehensive income, net of tax
Translation adjustments and related hedging instruments	(9.8)		(11.5)		(4.0)		(27.7)
Cash flow hedges	(0.4)		0.7		(3.3)		0.7
Total comprehensive income	32.9		39.4		116.2		121.3
Comprehensive (income) loss attributable to noncontrolling interests	(0.1)		—		(0.2)		0.1
Comprehensive income attributable to PolyOne common shareholders	$	32.8	$	39.4	$	116.0	$	121.4

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

2

PolyOne Corporation

Condensed Consolidated Balance Sheets (Unaudited)

(In millions)

	September 30, 2019		December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	199.6	$	170.9
Accounts receivable, net	368.7		347.2
Inventories, net	281.6		284.6
Current assets held for sale	265.5		129.7
Other current assets	58.4		66.4
Total current assets	1,173.8		998.8
Property, net	386.0		384.5
Goodwill	682.6		639.1
Intangible assets, net	475.8		422.4
Operating lease assets, net	65.0		—
Non-current assets held for sale	—		124.5
Other non-current assets	163.0		154.0
Total assets	$	2,946.2	$	2,723.3
Liabilities and Equity
Current liabilities:
Short-term and current portion of long-term debt	$	18.6	$	19.4
Accounts payable	289.3		305.0
Current operating lease obligations	20.7		—
Current liabilities held for sale	105.2		104.5
Accrued expenses and other current liabilities	191.7		128.7
Total current liabilities	625.5		557.6
Non-current liabilities:
Long-term debt	1,406.3		1,336.2
Pension and other post-retirement benefits	52.7		54.3
Non-current operating lease obligations	44.3		—
Non-current liabilities held for sale	—		3.3
Other non-current liabilities	225.2		231.3
Total non-current liabilities	1,728.5		1,625.1
Equity:
PolyOne shareholders’ equity	591.4		540.0
Noncontrolling interests	0.8		0.6
Total equity	592.2		540.6
Total liabilities and equity	$	2,946.2	$	2,723.3

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

3

PolyOne Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

	Nine Months Ended September 30,
	2019		2018
Operating Activities
Net income	$	123.5	$	148.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	68.4		69.0
Debt extinguishment costs	—		0.1
Share-based compensation expense	8.7		8.3
Change in assets and liabilities, net of the effect of acquisitions:
Increase in accounts receivable	(12.7)		(70.6)
Decrease (increase) in inventories	20.0		(0.1)
Increase (decrease) in accounts payable	(28.3)		28.4
Decrease in pension and other post-retirement benefits	(7.0)		(7.7)
Increase (decrease) in accrued expenses and other assets and liabilities, net	26.0		(4.8)
Net cash provided by operating activities	198.6		170.9
Investing Activities
Capital expenditures	(47.9)		(51.2)
Business acquisitions, net of cash acquired	(119.6)		(98.6)
Sale of and proceeds from other assets	5.3		3.9
Net cash used by investing activities	(162.2)		(145.9)
Financing Activities
Borrowings under credit facilities	882.4		835.3
Repayments under credit facilities	(808.5)		(797.5)
Repayment of other debt	—		(16.4)
Purchase of common shares for treasury	(26.9)		(53.0)
Cash dividends paid	(45.7)		(42.1)
Repayment of long-term debt	(4.9)		(4.9)
Payments of withholding tax on share awards	(2.0)		(3.9)
Debt financing costs	(0.2)		(0.5)
Net cash used by financing activities	(5.8)		(83.0)
Effect of exchange rate changes on cash	(1.9)		(4.8)
Increase (decrease) in cash and cash equivalents	28.7		(62.8)
Cash and cash equivalents at beginning of period	170.9		243.6
Cash and cash equivalents at end of period	$	199.6	$	180.8

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

4

PolyOne Corporation

Consolidated Statements of Shareholders' Equity (Unaudited)

(In millions)

	Common Shares		Shareholders’ Equity
	Common Shares	Common Shares  Held in Treasury	Common Shares		Additional Paid-in Capital		Retained Earnings		Common Shares  Held in Treasury		Accumulated Other Comprehensive Loss		Total PolyOne shareholders' equity		Non-controlling Interests		Total equity
Balance at January 1, 2019	122.2	(44.5)	$	1.2	$	1,166.9	$	472.9	$	(1,018.7)	$	(82.3)	$	540.0	$	0.6	$	540.6
Net income							38.2						38.2		0.1		38.3
Other comprehensive gain											3.2		3.2				3.2
Cash dividends declared							(14.8)						(14.8)				(14.8)
Share-based compensation and exercise of awards		0.1			0.5				1.1				1.6				1.6
Balance at March 31, 2019	122.2	(44.4)	$	1.2	$	1,167.4	$	496.3	$	(1,017.6)	$	(79.1)	$	568.2	$	0.7	$	568.9
Net income							42.1						42.1				42.1
Other comprehensive gain											(0.3)		(0.3)				(0.3)
Cash dividends declared							(15.2)						(15.2)				(15.2)
Repurchase of common shares		(1.0)							(26.9)				(26.9)				(26.9)
Share-based compensation and exercise of awards		0.1			1.8				0.7				2.5				2.5
Balance at June 30, 2019	122.2	(45.3)	$	1.2	$	1,169.2	$	523.2	$	(1,043.8)	$	(79.4)	$	570.4	$	0.7	$	571.1
Net income							43.0						43.0		0.1		43.1
Other comprehensive loss											(10.2)		(10.2)				(10.2)
Cash dividends declared							(14.7)						(14.7)				(14.7)
Share-based compensation and exercise of awards					2.4				0.5				2.9				2.9
Balance at September 30, 2019	122.2	(45.3)	$	1.2	$	1,171.6	$	551.5	$	(1,043.3)	$	(89.6)	$	591.4	$	0.8	$	592.2

5

	Common Shares		Shareholders’ Equity
	Common Shares	Common Shares  Held in Treasury	Common Shares		Additional Paid-in Capital		Retained Earnings		Common Shares  Held in Treasury		Accumulated Other Comprehensive Loss		Total PolyOne shareholders' equity		Non-controlling Interests		Total equity
Balance at January 1, 2018	122.2	(41.3)	$	1.2	$	1,161.5	$	387.1	$	(898.3)	$	(53.0)	$	598.5	$	0.9	$	599.4
Net income							46.9						46.9				46.9
Other comprehensive gain											10.6		10.6				10.6
Cash dividends declared							(14.0)						(14.0)				(14.0)
Repurchase of common shares		(1.0)							(42.2)				(42.2)				(42.2)
Share-based compensation and exercise of awards		0.1			0.2				1.2				1.4				1.4
Other							(16.6)				(0.4)		(17.0)				(17.0)
Balance at March 31, 2018	122.2	(42.2)	$	1.2	$	1,161.7	$	403.4	$	(939.3)	$	(42.8)	$	584.2	$	0.9	$	585.1
Net income							51.3						51.3		(0.1)		51.2
Other comprehensive loss											(26.8)		(26.8)				(26.8)
Cash dividends declared							(13.9)						(13.9)				(13.9)
Repurchase of common shares		(0.1)							(3.1)				(3.1)				(3.1)
Share-based compensation and exercise of awards					1.8				0.4				2.2				2.2
Balance at June 30, 2018	122.2	(42.3)	$	1.2	$	1,163.5	$	440.8	$	(942.0)	$	(69.6)	$	593.9	$	0.8	$	594.7
Net income							50.2						50.2		—		50.2
Other comprehensive loss											(10.8)		(10.8)				(10.8)
Cash dividends declared							(14.0)						(14.0)				(14.0)
Repurchase of common shares		(0.2)							(7.7)				(7.7)				(7.7)
Share-based compensation and exercise of awards		0.1			1.1				0.6				1.7				1.7
Balance at September 30, 2018	122.2	(42.4)	$	1.2	$	1,164.6	$	477.0	$	(949.1)	$	(80.4)	$	613.3	$	0.8	$	614.1

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

PolyOne Corporation

6

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Form 10-Q instructions and in the opinion of management contain all adjustments, including those that are normal, recurring and necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. These interim financial statements should be read in conjunction with the financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended December 31, 2018 of PolyOne Corporation. When used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “PolyOne” and the “Company” mean PolyOne Corporation and its consolidated subsidiaries.

Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be attained in subsequent periods or for the year ending December 31, 2019. Historical information has been retrospectively adjusted to reflect the classification of discontinued operations. Discontinued operations are further discussed in Note 3, Discontinued Operations.

Accounting Standards Adopted

On January 1, 2019, the Company adopted Accounting Standards Codification (ASC) 842, Leases (ASC 842). ASC 842 was issued to increase transparency and comparability among entities by recognizing right-of-use assets and lease liabilities on the balance sheet and disclosing key information about lease arrangements.

We elected to transition to ASC 842 using the option to apply the standard on its effective date, January 1, 2019. The comparative periods presented reflect the former lease accounting guidance and the required comparative disclosures are included in Note 5, Leasing Arrangements. There was not a material cumulative-effect adjustment to our beginning retained earnings as a result of adopting ASC 842. We have recognized additional operating lease assets and obligations of $72.3 million and $65.0 million as of January 1, 2019 and September 30, 2019, respectively. We elected to not reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases that commenced prior to January 1, 2019. Additionally, we elected to not use hindsight to determine lease terms and to not separate non-lease components within our lease portfolio. For additional disclosure and detail, see Note 5, Leasing Arrangements.

Accounting Standards Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under ASU 2016-13, the Company will be required to use a current expected credit loss (CECL) model that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. This guidance becomes effective for the Company on January 1, 2020, including the interim periods in the year. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on the consolidated financial statements and related disclosures.

Note 2 — BUSINESS COMBINATIONS

On January 2, 2019, the Company acquired Fiber-Line, LLC (Fiber-Line), a global leader in polymer coated engineered fibers and composite materials, for total consideration of $152.7 million, net of cash acquired and inclusive of contingent consideration. Fiber-Line's results are reported in the Specialty Engineered Materials segment. The preliminary purchase price allocation resulted in intangible assets of $77.1 million, goodwill of $46.3 million, and net working capital of $26.0 million. A portion of the goodwill is deductible for U.S. federal income tax purposes. The definite-lived intangible assets that have been acquired are being amortized over a period of five to 19 years. Fiber-Line's sales included in the Company's results for the three and nine months ended September 30, 2019 were $29.4 million and $85.3 million, respectively.

7

Our acquisitions of PlastiComp, Inc. (PlastiComp) on May 31, 2018 and Fiber-Line involve contingent consideration that includes earnouts payable over periods of up to two years in the event that certain operating results are achieved. The PlastiComp earnout has a ceiling of $35 million. The Fiber-Line earnout is based on two annual earnout periods, with the second earnout period target based on year-one results. We estimate the total earnout payment for Fiber-Line to be in the range of $40 to $60 million. The earnouts are considered Level 3 under the fair value hierarchy as the fair value is based on unobservable inputs, which require PolyOne to develop its own assumptions. The earnouts are valued each quarter using Monte Carlo simulation analyses in a risk-neutral framework with assumptions for volatility, risk-free rate and dividend yield. As of September 30, 2019, we had recorded a total of $72.2 million of contingent liabilities for both acquisitions, of which $64.2 million was reflected within Accrued expenses and other current liabilities and $8.0 million was reflected within Other non-current liabilities on the Condensed Consolidated Balance Sheets. During the three and nine months ended September 30, 2019, the Company recorded charges of $10.0 million and $20.7 million, respectively, associated with the earnouts within Selling and administrative expense on the Condensed Consolidated Statements of Income that was primarily attributable to improved earnings from the acquisitions.

Note 3 — DISCONTINUED OPERATIONS

On August 16, 2019, PolyOne entered into a definitive asset purchase agreement with SK Echo Group S.à r.l. (Purchaser). Pursuant to the terms of the purchase agreement, the Purchaser has agreed to acquire the Company’s Performance Products and Solutions business segment (PP&S) for $775 million in cash, subject to a working capital adjustment. The closing of the transaction is expected to occur in the fourth quarter of 2019, subject to the receipt of regulatory approvals and the satisfaction or waiver of customary closing conditions.

PolyOne has classified the PP&S assets and liabilities as held-for-sale for all periods presented in the accompanying Condensed Consolidated Balance Sheets and has classified the PP&S operating results as discontinued operations in the accompanying Condensed Consolidated Statement of Income for all periods presented. Previously, PP&S was included as a separate operating segment.

The following table summarizes the major line items constituting pretax income of discontinued operations associated with PP&S for the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Sales	$	143.1	$	154.0	$	448.0	$	495.5
Cost of sales	114.0		126.3		358.4		399.5
Selling and administrative expense	8.2		5.9		21.7		17.5
Pretax income of discontinued operations	20.9		21.8		67.9		78.5
Income tax expense	(1.4)		(4.1)		(13.7)		(18.0)
Income from discontinued operations, net of taxes	$	19.5	$	17.7	$	54.2	$	60.5

8

The following table summarizes the major classes of assets and liabilities of PP&S that were classified as held for sale in the consolidated balance sheets as of September 30, 2019 and December 31, 2018:

(In millions)	(Unaudited) September 30, 2019		(Unaudited) December 31, 2018
Assets:
Current assets:
Accounts receivable, net	$	67.2	$	66.2
Inventories, net	57.6		60.1
Other current assets	3.0		3.4
Total current assets	127.8		129.7
Non-current assets:
Property, net	111.9		110.9
Goodwill	11.2		11.2
Other non-current assets	14.6		2.4
Total non-current assets	137.7		124.5
Total assets held-for-sale	$	265.5	$	254.2
Liabilities
Current liabilities:
Accounts payable	$	84.5	$	94.0
Other current liabilities	11.3		10.5
Total current liabilities	95.8		104.5
Total non-current liabilities	9.4		3.3
Total liabilities held for sale	$	105.2	$	107.8

The following table presents the depreciation, amortization, and capital expenditures of our discontinued operations for the nine months ended September 30, 2019 and 2018. There were no other significant operating or investing non-cash items for the nine months ended September 30, 2019 and 2018.

	Nine Months Ended September 30,
(In millions)	2019		2018
Depreciation and amortization	$	9.4	$	11.9
Capital Expenditures	11.1		13.2

9

Note 4 — GOODWILL AND INTANGIBLE ASSETS

Goodwill as of September 30, 2019 and December 31, 2018 and changes in the carrying amount of goodwill by segment were as follows: 

(In millions)	Specialty Engineered Materials		Color, Additives and Inks		PolyOne Distribution		Total
Balance December 31, 2018	$	188.9	$	448.6	$	1.6	$	639.1
Acquisition of businesses	47.2		—		—		47.2
Currency translation	(2.2)		(1.5)		—		(3.7)
Balance September 30, 2019	$	233.9	$	447.1	$	1.6	$	682.6

Indefinite and finite-lived intangible assets consisted of the following: 

	As of September 30, 2019
(In millions)	Acquisition Cost		Accumulated Amortization		Currency Translation		Net
Customer relationships	$	286.8	$	(85.5)	$	(1.5)	$	199.8
Patents, technology and other	244.0		(75.8)		(1.7)		166.5
Indefinite-lived trade names	109.5		—		—		109.5
Total	$