Company Quick10K Filing
Quick10K
Polyone
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$31.04 78 $2,415
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-11-07 Officers
8-K 2019-10-25 M&A, Exhibits
8-K 2019-08-16 Enter Agreement
8-K 2019-07-25 Earnings, Exhibits
8-K 2019-06-28 Enter Agreement, Off-BS Arrangement
8-K 2019-05-16 Shareholder Vote
8-K 2019-04-18 Officers
8-K 2019-04-17 Earnings, Exhibits
8-K 2019-03-06 Officers
8-K 2019-01-29 Earnings, Exhibits
8-K 2018-12-13 Officers
8-K 2018-11-09 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-07-24 Earnings, Exhibits
8-K 2018-05-17 Shareholder Vote
8-K 2018-04-30 Officers
8-K 2018-04-04 Suspend Trading, Exhibits
8-K 2018-03-07 Officers
8-K 2018-01-26 Earnings, Exhibits
CE Celanese 14,150
GCP GCP Applied Technologies 1,237
KRO Kronos Worldwide 1,172
LOOP Loop Industries 489
GPP Green Plains Partners 306
ADES Advanced Emissions Solutions 233
HYGS Hydrogenics 232
VNTR Venator Materials 222
FTK Flotek Industries 121
SHI Sinopec Shanghai Petrochemical 0
POL 2019-06-30
Part I - Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Business Combinations
Note 3 - Goodwill and Intangible Assets
Note 4 - Leasing Arrangements
Note 5 - Inventories, Net
Note 6 - Property, Net
Note 7 - Income Taxes
Note 8 - Financing Arrangements
Note 9 - Segment Information
Note 10 - Commitments and Contingencies
Note 11 - Derivatives and Hedging
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.2 polex10220190630.htm
EX-31.1 pol-ex31120190630.htm
EX-31.2 pol-ex31220190630.htm
EX-32.1 pol-ex32120190630.htm
EX-32.2 pol-ex32220190630.htm

Polyone Earnings 2019-06-30

POL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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 June 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: (440930-1000
________________________________________________
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 June 30, 2019 was 76,870,558.
 




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 June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019

2018
Sales
$
903.8

 
$
914.8

 
$
1,803.7

 
$
1,816.4

Cost of sales
698.3

 
718.3

 
1,401.9

 
1,421.4

Gross margin
205.5

 
196.5

 
401.8

 
395.0

Selling and administrative expense
133.9

 
119.1

 
261.9

 
238.8

Operating income
71.6

 
77.4

 
139.9

 
156.2

Interest expense, net
(16.2
)
 
(16.1
)
 
(32.1
)
 
(31.6
)
Debt extinguishment costs

 
(0.1
)
 

 
(0.1
)
Other income, net
0.8

 
0.4

 
1.0

 
1.5

Income from continuing operations before income taxes
56.2

 
61.6

 
108.8

 
126.0

Income tax expense
(14.1
)
 
(10.1
)
 
(28.4
)
 
(26.8
)
Net income from continuing operations
42.1

 
51.5

 
80.4

 
99.2

Loss from discontinued operations, net of income taxes

 
(0.3
)
 

 
(1.1
)
Net income
$
42.1

 
$
51.2

 
$
80.4

 
$
98.1

Net loss (income) attributable to noncontrolling interests

 
0.1

 
(0.1
)
 
0.1

Net income attributable to PolyOne common shareholders
$
42.1

 
$
51.3

 
$
80.3

 
$
98.2

 
 
 
 
 
Earnings (loss) per common share attributable to PolyOne common shareholders - Basic:
 
 
 
 
Continuing operations
$
0.54


$
0.65

 
$
1.04

 
$
1.24

Discontinued operations

 
(0.01
)
 

 
(0.02
)
Total
$
0.54

 
$
0.64

 
$
1.04

 
$
1.22

Earnings (loss) per common share attributable to PolyOne common shareholders - Diluted:
 
 
 
 
Continuing operations
$
0.54


$
0.64

 
$
1.03

 
$
1.23

Discontinued operations

 
(0.01
)
 

 
(0.02
)
Total
$
0.54

 
$
0.63

 
$
1.03

 
$
1.21


 
 
 
 
 
 
 
Weighted-average shares used to compute earnings per common share:
 
 
 
 
 
 
 
Basic
77.3


79.9

 
77.5

 
80.2

Plus dilutive impact of share-based compensation
0.4

 
0.9

 
0.5

 
0.8

Diluted
77.7


80.8

 
78.0

 
81.0

 
 
 
 
 
 
 
 
Anti-dilutive shares not included in diluted common shares outstanding
0.8

 

 
0.9

 
0.1

 
 
 
 
 
 
 
 
Cash dividends declared per share of common stock
$
0.195

 
$
0.175

 
$
0.390

 
$
0.350

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

3



PolyOne Corporation
Consolidated Statements of Comprehensive Income (Unaudited)
(In millions)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
42.1

 
$
51.2

 
$
80.4

 
$
98.1

Other comprehensive income, net of tax
 
 
 
 
 
 
 
Translation adjustments and related hedging instruments
1.6

 
(26.8
)
 
5.8

 
(16.2
)
Cash flow hedges
(1.9
)
 

 
(2.9
)
 

Total comprehensive income
41.8

 
24.4

 
83.3

 
81.9

Comprehensive loss (income) attributable to noncontrolling interests

 
0.1

 
(0.1
)
 
0.1

Comprehensive income attributable to PolyOne common shareholders
$
41.8

 
$
24.5

 
$
83.2

 
$
82.0

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

4



PolyOne Corporation
Condensed Consolidated Balance Sheets
(In millions)
 
(Unaudited) June 30, 2019
 
December 31, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
125.5

 
$
170.9

Accounts receivable, net
473.8

 
413.4

Inventories, net
353.3

 
344.7

Other current assets
67.2

 
69.8

Total current assets
1,019.8

 
998.8

Property, net
498.5

 
495.4

Goodwill
696.9

 
650.3

Intangible assets, net
485.7

 
423.4

Operating lease assets, net
73.7

 

Other non-current assets
156.0

 
155.4

Total assets
$
2,930.6

 
$
2,723.3

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Short-term and current portion of long-term debt
$
18.7

 
$
19.4

Accounts payable
398.0

 
399.0

Current operating lease obligations
23.1

 

Accrued expenses and other current liabilities
167.5

 
139.2

Total current liabilities
607.3

 
557.6

Non-current liabilities:
 
 
 
Long-term debt
1,392.5

 
1,336.2

Pension and other post-retirement benefits
53.8

 
54.3

Non-current operating lease obligations
50.6

 

Other non-current liabilities
255.3

 
234.6

Total non-current liabilities
1,752.2

 
1,625.1

Equity:
 
 
 
PolyOne shareholders’ equity
570.4

 
540.0

Noncontrolling interests
0.7

 
0.6

Total equity
571.1

 
540.6

Total liabilities and equity
$
2,930.6

 
$
2,723.3

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

5



PolyOne Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
 
Six Months Ended June 30,
 
2019
 
2018
Operating Activities

 

Net income
$
80.4

 
$
98.1

Adjustments to reconcile net income to net cash provided by operating activities:

 
 
Depreciation and amortization
46.9

 
45.0

Debt extinguishment costs

 
0.1

Share-based compensation expense
5.7

 
5.5

Change in assets and liabilities, net of the effect of acquisitions:

 

Increase in accounts receivable
(46.1
)
 
(87.0
)
Decrease in inventories
9.6

 
15.5

(Decrease) increase in accounts payable
(8.2
)
 
34.0

Decrease in pension and other post-retirement benefits
(4.0
)
 
(5.0
)
Increase in accrued expenses and other assets and liabilities, net
15.1

 
2.7

Net cash provided by operating activities
99.4

 
108.9

Investing Activities

 

Capital expenditures
(26.5
)
 
(31.5
)
Business acquisitions, net of cash acquired
(119.6
)
 
(98.6
)
Sale of and proceeds from other assets
3.9

 

Net cash used by investing activities
(142.2
)
 
(130.1
)
Financing Activities

 

Borrowings under credit facilities
607.4

 
552.8

Repayments under credit facilities
(548.9
)
 
(535.9
)
Purchase of common shares for treasury
(26.9
)
 
(45.3
)
Cash dividends paid
(30.7
)
 
(28.2
)
Repayment of long-term debt
(3.3
)
 
(3.3
)
Payments of withholding tax on share awards
(1.9
)
 
(2.4
)
Debt financing costs
(0.2
)
 
(0.5
)
Net cash used by financing activities
(4.5
)
 
(62.8
)
Effect of exchange rate changes on cash
1.9

 
(1.0
)
Decrease in cash and cash equivalents
(45.4
)
 
(85.0
)
Cash and cash equivalents at beginning of period
170.9

 
243.6

Cash and cash equivalents at end of period
$
125.5

 
$
158.6

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

6



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
)
Repurchase of common shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 

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

 
 
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

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.


7




PolyOne Corporation
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 six months ended June 30, 2019 are not necessarily indicative of the results that may be attained in subsequent periods or for the year ending December 31, 2019.
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 4, 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 $73.7 million as of January 1, 2019 and June 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 4, Leasing Arrangements.
Accounting Standards Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (FASB) issued 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 $77.4 million, goodwill of $46.0 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 20 years. Fiber-Line's sales included in the Company's results for the three and six months ended June 30, 2019 were $29.1 million and $55.9, respectively.
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,

8



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 June 30, 2019, we had recorded a total of $62.2 million of contingent liabilities for both acquisitions, of which $29.5 million was reflected within Accrued expenses and other current liabilities and $32.7 million was reflected within Other non-current liabilities on the Condensed Consolidated Balance Sheets. During the three and six months ended June 30, 2019, the Company recorded a charge of $10.7 million associated with the earnouts within Selling and administrative expense on the Condensed Consolidated Statements of Income that was primarily attributable to higher than originally anticipated earnings from the acquisitions.
Note 3 — GOODWILL AND INTANGIBLE ASSETS
Goodwill as of June 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
 
Performance
Products  and
Solutions
 
PolyOne
Distribution
 
Total
Balance December 31, 2018
$
188.9

 
$
448.6

 
$
11.2

 
$
1.6

 
$
650.3

Acquisition of businesses
46.8

 

 

 

 
46.8

Currency translation

 
(0.2
)
 

 

 
(0.2
)
Balance June 30, 2019
$
235.7

 
$
448.4

 
$
11.2

 
$
1.6

 
$
696.9

Indefinite and finite-lived intangible assets consisted of the following: 
 
As of June 30, 2019
(In millions)
Acquisition
Cost
 
Accumulated
Amortization
 
Currency
Translation
 
Net
Customer relationships
$
290.7

 
$
(82.3
)
 
$
(0.7
)
 
$
207.7

Patents, technology and other
244.6

 
(74.5
)
 
(1.0
)
 
169.1

Indefinite-lived trade names
108.9

 

 

 
108.9

Total
$
644.2

 
$
(156.8
)
 
$
(1.7
)
 
$
485.7

 
As of December 31, 2018
(In millions)
Acquisition
Cost
 
Accumulated
Amortization
 
Currency
Translation
 
Net
Customer relationships
$
278.4

 
$
(75.0
)
 
$
(0.7
)
 
$
202.7

Patents, technology and other
188.1

 
(66.8
)
 
(0.9
)
 
120.4

Indefinite-lived trade names
100.3

 

 

 
100.3

Total
$
566.8

 
$
(141.8
)
 
$
(1.6
)
 
$
423.4


Note 4 — LEASING ARRANGEMENTS
We lease certain manufacturing facilities, warehouse space, machinery and equipment, vehicles and information technology equipment under operating leases. The majority of our leases are operating leases. Finance leases are immaterial to our condensed consolidated financial statements. Operating lease assets and obligations are reflected within Operating lease assets, net, Current operating lease obligations, and Non-current operating lease obligations, respectively, on the Condensed Consolidated Balance Sheets.
Lease expense for these leases is recognized on a straight-line basis over the lease term, with variable lease payments recognized in the period those payments are incurred. The components of lease cost recognized within our Condensed Consolidated Statements of Income were as follows:

9



(In millions)
Condensed Consolidated Statements of Income Location
 
Three Months Ended June 30, 2019
Six Months Ended June 30, 2019
Lease cost:
 
 
 
 
Operating lease cost
Cost of sales
 
$
4.2

$
7.6

Operating lease cost
Selling and administrative expense
 
2.7

5.4

Other(1)
Selling and administrative expense
 
0.1

0.8

Total operating lease cost
 
 
$
7.0

$
13.8

(1) Other lease costs include short-term lease costs and variable lease costs
We often have options to renew lease terms for buildings and other assets. The exercise of lease renewal options are generally at our sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at our discretion. We evaluate renewal and termination options at the lease commencement date to determine if we are reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease term for our operating leases as of June 30, 2019 was 4.3 years.
The discount rate implicit within our leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for our leases is determined based on lease term and currency in which lease payments are made, adjusted for impacts of collateral. The weighted average discount rate used to measure our operating lease liabilities as of June 30, 2019 was 6.8%.
Maturity Analysis of Lease Liabilities:
 
 
As of June 30, 2019
(In millions)
 
Operating Leases
2019
 
$
13.5

2020
 
23.7

2021
 
15.5

2022
 
11.1

2023
 
8.3

Thereafter
 
9.6

Total lease payments
 
$
81.7

Less amount of lease payment representing interest
 
(8.0
)
Total present value of lease payments
 
$
73.7

 
 
As of December 31, 2018
(In millions)
 
Operating Leases
2019
 
$
24.5

2020
 
20.4

2021
 
12.4

2022
 
8.5

2023
 
5.8

Thereafter
 
9.0

Total
 
$
80.6


Note 5 — INVENTORIES, NET
Components of Inventories, net are as follows: 
(In millions)
As of June 30, 2019
 
As of December 31, 2018
Finished products
$
204.4

 
$
204.3

Work in process
10.1

 
6.9

Raw materials and supplies
138.8

 
133.5

Inventories, net
$
353.3

 
$
344.7



10



Note 6 — PROPERTY, NET
Components of Property, net are as follows: 
(In millions)
As of June 30, 2019
 
As of December 31, 2018
Land and land improvements
$
48.8

 
$
48.8

Buildings
320.2

 
316.5

Machinery and equipment
1,099.3

 
1,082.2

Property, gross
1,468.3

 
1,447.5

Less accumulated depreciation and amortization
(969.8
)
 
(952.1
)
Property, net
$
498.5

 
$
495.4


Note 7 — INCOME TAXES
During the three and six months ended June 30, 2019, the Company’s effective tax rate of 25.1% and 26.1%, respectively, was above the Company's federal statutory rate of 21.0% primarily due to state taxes, global intangible low-taxed income (GILTI) tax, unfavorable tax effects of foreign valuation allowances, and certain other non-deductible items, which were partially offset by lower statutory tax rate differences on foreign earnings and higher U.S. research and development tax credits.
During the three months ended June 30, 2018, the Company’s effective tax rate of 16.4% was below the Company's U.S. federal statutory rate of 21.0%. This was primarily a result of foreign permanent items, impact from lower statutory tax rate differences on foreign earnings and a favorable impact resulting from the Staff Accounting Bulletin 118 (SAB 118) measurement period adjustment associated with the Tax Cuts and Jobs Act (TCJA). The repatriation of 2018 earnings, state taxes and the impact of GILTI tax partially offset this favorability.
During the six months ended June 30, 2018, the Company's effective tax rate of 21.3% was above the Company's U.S. federal statutory rate of 21.0%. This was primarily a result of foreign taxes from repatriation of certain foreign earnings from prior periods and 2018, state taxes and the impact of GILTI tax. Largely offsetting these items were favorable impacts from foreign permanent items, lower statutory tax rate differences on foreign earnings and the SAB 118 measurement period adjustment associated with the TCJA.
Note 8 — FINANCING ARRANGEMENTS
Debt consists of the following instruments:
As of June 30, 2019 (In millions)
Principal Amount
 
Unamortized discount and debt issuance cost
 
Net Debt
 
Weighted average interest rate
Senior secured revolving credit facility due 2022
$
179.0

 
$

 
$
179.0

 
3.97
%
Senior secured term loan due 2026
627.7

 
10.4

 
617.3

 
4.23
%
5.25% senior notes due 2023
600.0

 
4.2

 
595.8

 
5.25
%
Other debt
19.1

 

 
19.1

 
 
Total debt
$
1,425.8

 
$
14.6

 
$
1,411.2

 
 
Less short-term and current portion of long-term debt
18.7

 

 
18.7

 
 
Total long-term debt, net of current portion
$
1,407.1

 
$
14.6

 
$
1,392.5

 
 

As of December 31, 2018 (In millions)
Principal Amount
 
Unamortized discount and debt issuance cost
 
Net Debt
 
Weighted average interest rate
Senior secured revolving credit facility due 2022
$
120.1

 
$

 
$
120.1

 
3.35
%
Senior secured term loan due 2026
631.0

 
11.2

 
619.8

 
3.80
%
5.25% senior notes due 2023
600.0

 
5.0

 
595.0

 
5.25
%
Other debt
20.7

 

 
20.7

 
 
Total debt
$
1,371.8

 
$
16.2

 
$
1,355.6

 
 
Less short-term and current portion of long-term debt
19.4

 

 
19.4

 
 
Total long-term debt, net of current portion
$
1,352.4

 
$
16.2

 
$
1,336.2

 
 

On June 28, 2019, the Company amended the senior secured revolving credit facility to add a European line of credit, up to the euro equivalent of $50.0 million, subject to a borrowing base with advances against certain European accounts receivable.

11



The agreements governing our senior secured revolving credit facility, our senior secured term loan, and the indentures and credit agreements governing other debt, contain a number of customary financial and restrictive covenants that, among other things, limit our ability to: consummate asset sales, incur additional debt or liens, consolidate or merge with any entity or transfer or sell all or substantially all of our assets, pay dividends or make certain other restricted payments, make investments, enter into transactions with affiliates, create dividend or other payment restrictions with respect to subsidiaries, make capital investments and alter the business we conduct. As of June 30, 2019, we were in compliance with all covenants.
The estimated fair value of PolyOne’s debt instruments at June 30, 2019 and December 31, 2018 was $1,439.7 million and $1,316.8 million, respectively. The fair value of PolyOne’s debt instruments was estimated using prevailing market interest rates on debt with similar creditworthiness, terms and maturities and represent Level 2 measurements within the fair value hierarchy.
Note 9 — SEGMENT INFORMATION
Operating income is the primary measure that is reported to our chief operating decision maker (CODM) for purposes of allocating resources to the segments and assessing their performance. Operating income at the segment level does not include: corporate general and administrative expenses that are not allocated to segments; intersegment sales and profit eliminations; charges related to specific strategic initiatives such as the consolidation of operations; restructuring activities, including employee separation costs resulting from personnel reduction programs, plant closure and phase-in costs; executive separation agreements; share-based compensation costs; asset impairments; environmental remediation costs, along with related gains from insurance recoveries, and other liabilities for facilities no longer owned or closed in prior years; gains and losses on the divestiture of joint ventures and equity investments; actuarial gains and losses associated with our pension and other post-retirement benefit plans; and certain other items that are not included in the measure of segment profit or loss that is reported to and reviewed by our CODM. These costs are included in Corporate and eliminations.
PolyOne has four reportable segments: (1) Color, Additives and Inks; (2) Specialty Engineered Materials; (3) Performance Products and Solutions; and (4) Distribution.
Segment information for the three and six months ended June 30, 2019 and 2018 is as follows: 
 
Three Months Ended
June 30, 2019
 
Three Months Ended
June 30, 2018
(In millions)
Sales to
External
Customers
 
Total Sales
 
Operating
Income
 
Sales to
External
Customers
 
Total Sales
 
Operating
Income
Color, Additives and Inks
$
266.0


$
267.5


$
42.3


$
272.7


$
273.7


$
45.3

Specialty Engineered Materials
180.3


195.3


25.7


152.6


165.5


21.1

Performance Products and Solutions
155.6


174.9


19.5


170.9


191.9


22.6

Distribution
301.9


306.6


20.1


318.6


323.3


18.7

Corporate and eliminations


(40.5
)

(36.0
)



(39.6
)

(30.3
)
Total
$
903.8


$
903.8


$
71.6


$
914.8


$
914.8


$
77.4

 
 
Six Months Ended
June 30, 2019
 
Six Months Ended
June 30, 2018
(In millions)
Sales to
External
Customers
 
Total Sales
 
Operating
Income
 
Sales to
External
Customers
 
Total Sales
 
Operating
Income
Color, Additives and Inks
$
528.1

 
$
530.8

 
$
81.8

 
$
541.8

 
$
544.6

 
$
87.4

Specialty Engineered Materials
356.1

 
385.2

 
47.0

 
303.3

 
328.6

 
41.2

Performance Products and Solutions
304.9

 
344.7

 
34.7

 
341.5

 
382.9

 
45.3

Distribution
614.6

 
623.9

 
39.6

 
629.8

 
638.8

 
36.9

Corporate and eliminations

 
(80.9
)
 
(63.2
)
 

 
(78.5
)
 
(54.6
)
Total
$
1,803.7

 
$
1,803.7

 
$
139.9

 
$
1,816.4

 
$
1,816.4

 
$
156.2


12



 
Total Assets
(In millions)