UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~June 30, 2018~~March 31, 2019



¨	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

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. ý Yes ¨ No

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ý Yes ¨ No

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



Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨~~(Do not check if a smaller reporting company)~~	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 ý No

The number of the registrant’s outstanding common shares, $0.01 par value, as of ~~June 30, 2018~~March 31, 2019 was ~~79,941,483.~~77,815,154.

~~Part~~PART I — ~~Financial Information~~FINANCIAL INFORMATION

~~Item~~ITEM 1. ~~Financial Statements~~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,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Sales	$	914.8		$	814.1		$	1,816.4		$	1,610.8		$	899.9		$	901.6
Cost of sales	718.3			626.2			1,421.4			1,240.7			703.6			703.1
Gross margin	196.5			187.9			395.0			370.1			196.3			198.5
Selling and administrative expense	119.1			109.9			238.8			210.1			128.0			119.7
Operating income	77.4			78.0			156.2			160.0			68.3			78.8
Interest expense, net	(16.1		)	(15.2		)	(31.6		)	(29.8		)	(15.9		)	(15.5		)
Debt extinguishment costs	(0.1		)	—			(0.1		)	(0.3		)
Other income, net	0.4			0.6			1.5			1.5			0.2			1.1
Income from continuing operations before income taxes	61.6			63.4			126.0			131.4			52.6			64.4
Income tax expense	(10.1		)	(13.8		)	(26.8		)	(33.5		)	(14.3		)	(16.7		)
Net income from continuing operations	51.5			49.6			99.2			97.9			38.3			47.7
Loss from discontinued operations, net of income taxes	(0.3		)	(231.0		)	(1.1		)	(232.4		)	—			(0.8		)
Net income (loss)	$	51.2		$	(181.4	)	$	98.1		$	(134.5	)
Net loss attributable to noncontrolling interests	0.1			—			0.1			—
Net income (loss) attributable to PolyOne common shareholders	$	51.3		$	(181.4	)	$	98.2		$	(134.5	)
Net income													$	38.3		$	46.9
Net income attributable to noncontrolling interests													(0.1		)	—
Net income attributable to PolyOne common shareholders													$	38.2		$	46.9

Earnings (loss) per common share attributable to PolyOne common shareholders - Basic:	Earnings (loss) per common share attributable to PolyOne common shareholders - Basic:												Earnings (loss) per common share attributable to PolyOne common shareholders - Basic:
Continuing operations	$	0.65		$	0.61		$	1.24		$	1.20		$	0.49		$	0.59
Discontinued operations	(0.01		)	(2.83		)	(0.02		)	(2.84		)	—			(0.01		)
Total	$	0.64		$	(2.22	)	$	1.22		$	(1.64	)	$	0.49		$	0.58
Earnings (loss) per common share attributable to PolyOne common shareholders - Diluted:	Earnings (loss) per common share attributable to PolyOne common shareholders - Diluted:												Earnings (loss) per common share attributable to PolyOne common shareholders - Diluted:
Continuing operations	$	0.64		$	0.60		$	1.23		$	1.19		$	0.49		$	0.59
Discontinued operations	(0.01		)	(2.80		)	(0.02		)	(2.82		)	—			(0.01		)
Total	$	0.63		$	(2.20	)	$	1.21		$	(1.63	)	$	0.49		$	0.58

Weighted-average shares used to compute earnings per common share:
Basic	79.9			81.8			80.2			81.9			77.8			80.4
Plus dilutive impact of share-based compensation	0.9			0.7			0.8			0.7			0.4			0.9
Diluted	80.8			82.5			81.0			82.6			78.2			81.3

Anti-dilutive shares not included in diluted common shares outstanding	—			—			0.1			0.1			0.9			0.1

Cash dividends declared per share of common stock	$	0.175		$	0.135		$	0.350		$	0.270		$	0.195		$	0.175

See ~~Accompanying~~accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

PolyOne Corporation

Consolidated Statements of Comprehensive Income (Unaudited)

(In millions)

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Net income (loss) $ 51.2
$ (181.4 ) $ 98.1
$ (134.5 )
Other comprehensive income (loss)
Translation adjustments (26.8 ) 13.0
(16.2 ) 19.4
Other —
(0.2 ) —
(0.1 )
Total comprehensive income (loss) 24.4
(168.6 ) 81.9
(115.2 )
Comprehensive loss attributable to noncontrolling interests 0.1
—
0.1
—
Comprehensive income (loss) attributable to PolyOne common shareholders $ 24.5
$ (168.6 ) $ 82.0
$ (115.2 )



	Three Months Ended March 31,
	2019			2018
Net income	$	38.3		$	46.9
Other comprehensive income, net of tax
Translation adjustments and related hedging instruments	4.2			10.6
Cash flow hedges	(1.0		)	—
Total comprehensive income	41.5			57.5
Comprehensive income attributable to noncontrolling interests	(0.1		)	—
Comprehensive income attributable to PolyOne common shareholders	$	41.4		$	57.5

See ~~Accompanying~~accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

PolyOne Corporation

Condensed Consolidated Balance Sheets

(In millions)


	(Unaudited) June 30, 2018		December 31, 2017		(Unaudited) March 31, 2019		December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	158.6	$	243.6	$	108.3	$	170.9
Accounts receivable, net	490.0		392.4		480.2		413.4
Inventories, net	321.0		327.8		374.9		344.7
Other current assets	67.6		102.8		71.3		69.8
Total current assets	1,037.2		1,066.6		1,034.7		998.8
Property, net	486.3		461.6		497.1		495.4
Goodwill	651.6		610.5		705.5		650.3
Intangible assets, net	437.0		400.0		492.4		423.4
Operating lease assets, net					76.6		—
Other non-current assets	156.4		166.6		155.5		155.4
Total assets	$	2,768.5	$	2,705.3	$	2,961.8	$	2,723.3

Liabilities and Equity
Current liabilities:
Short-term and current portion of long-term debt	$	34.6	$	32.6	$	19.0	$	19.4
Accounts payable	427.5		388.9		407.2		399.0
Current operating lease obligations					23.2		—
Accrued expenses and other current liabilities	126.7		149.1		120.9		139.2
Total current liabilities	588.8		570.6		570.3		557.6
Non-current liabilities:
Long-term debt	1,296.6		1,276.4		1,440.7		1,336.2
Pension and other post-retirement benefits	60.9		62.3		54.0		54.3
Non-current operating lease obligations					53.4		—
Other non-current liabilities	227.5		196.6		274.5		234.6
Total non-current liabilities	1,585.0		1,535.3		1,822.6		1,625.1
Equity:
PolyOne shareholders’ equity	593.9		598.5		568.2		540.0
Noncontrolling interests	0.8		0.9		0.7		0.6
Total equity	594.7		599.4		568.9		540.6
Total liabilities and equity	$	2,768.5	$	2,705.3	$	2,961.8	$	2,723.3

See ~~Accompanying~~accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

PolyOne Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)


	Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2019			2018
Operating Activities
Net income (loss)	$	98.1		$	(134.5	)
Adjustments to reconcile net income to net cash used by operating activities:
Loss from classification to held for sale, net of tax	—			229.3
Net income							$	38.3		$	46.9
Adjustments to reconcile net income to net cash (used) provided by operating activities:
Depreciation and amortization	45.0			52.6			23.3			22.4
Accelerated depreciation and fixed asset charges associated with restructuring activities	—			0.9
Gain from sale of closed facilities	—			(3.1		)
Debt extinguishment costs	0.1			0.3
Share-based compensation expense	5.5			5.7			2.5			2.7
Change in assets and liabilities, net of the effect of acquisitions:
Increase in accounts receivable	(87.0		)	(98.5		)	(53.0		)	(82.4		)
Decrease (increase) in inventories	15.5			(17.8		)
(Increase) decrease in inventories							(12.0		)	17.0
Increase in accounts payable	34.0			39.5			1.2			16.6
Decrease in pension and other post-retirement benefits	(5.0		)	(6.7		)	(1.9		)	(2.3		)
Increase (decrease) in accrued expenses and other assets and liabilities - net	2.7			(24.0		)
Net cash provided by operating activities	108.9			43.7
(Decrease) increase in accrued expenses and other assets and liabilities, net							(23.1		)	5.8
Net cash (used) provided by operating activities							(24.7		)	26.7
Investing Activities
Capital expenditures	(31.5		)	(34.1		)	(9.9		)	(12.9		)
Business acquisitions, net of cash acquired	(98.6		)	(137.9		)	(119.6		)	(73.0		)
Sale of and proceeds from other assets	—			9.8			1.6			—
Net cash used by investing activities	(130.1		)	(162.2		)	(127.9		)	(85.9		)
Financing Activities
Borrowings under credit facilities	552.8			699.6			374.7			286.6
Repayments under credit facilities	(535.9		)	(555.0		)	(269.2		)	(249.1		)
Purchase of common shares for treasury	(45.3		)	(34.3		)	—			(42.2		)
Cash dividends paid	(28.2		)	(22.2		)	(15.6		)	(14.2		)
Repayment of long-term debt	(3.3		)	(3.3		)	(1.6		)	(1.6		)
Payments of withholding tax on share awards	(2.4		)	(2.7		)	(1.3		)	(1.6		)
Debt financing costs	(0.5		)	(1.9		)
Net cash (used) provided by financing activities	(62.8		)	80.2
Net cash provided (used) by financing activities							87.0			(22.1		)
Effect of exchange rate changes on cash	(1.0		)	2.7			3.0			3.2
Decrease in cash and cash equivalents	(85.0		)	(35.6		)	(62.6		)	(78.1		)
Cash and cash equivalents at beginning of period	243.6			226.7			170.9			243.6
Cash and cash equivalents at end of period	$	158.6		$	191.1		$	108.3		$	165.5

See ~~Accompanying~~accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

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



	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

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

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, ~~2017~~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, 2018~~March 31, 2019 are not necessarily indicative of the results that may be attained in subsequent periods or for the year ending December 31, ~~2018.~~2019.

Accounting Standards Adopted

On January 1, ~~2018,~~2019, the Company adopted Accounting Standards Codification (ASC) ~~606,~~842, ~~Revenue from Contracts with Customers~~ Leases. ASC 842 was issued to increase transparency and ~~all related amendments (the Standard), for all contracts~~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 ~~modified retrospective method.~~option to apply the standard on its effective date, January 1, 2019. The ~~Standard implements~~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 five-step process for revenue recognition that focuses on transfer of control and defines a contract as “an agreement between two or more parties that creates legally enforceable rights and obligations." The adoption of the Standard did not significantly impact the timing and measurement of revenue recognition. Additionally, we concluded that the methodology for which we historically estimated and recognized variable consideration (e.g. rebates) is consistent with the requirements of the Standard. As a result, we did not recognize a cumulative effectmaterial cumulative-effect adjustment to ~~the opening balance of retained earnings.~~

At contract inception, PolyOne assesses the goods and services promised to a customer and identifies a performance obligation for each promised good or service that is distinct. Our contracts, generally in the form of purchase orders or written contracts, specify the product or service that is promised to the customer. The typical contract life is less than 12 months and contains only one performance obligation, to provide conforming goods or services to the customer. Revenue is recognized at the point in time when control of the product is transferred to the customer, which typically occurs when products are shipped from our ~~facilities with the exception of certain contract manufacturing arrangements.~~

Within the Performance Products & Solutions (PP&S) segment, there are certain contract manufacturing arrangements where PolyOne charges the customer a conversion fee for processing raw materials that are owned and controlled by the customer. PolyOne will recognize revenue for these contract manufacturing arrangements over time, as we convert customer owned material, and have elected the “right to invoice” practical expedient available within ASC 606-10-55-18 as our measure of progress. Order fulfillment cycles are short and at any given time we have a right to payment from a customer in an amount that corresponds directly with the value of our performance completed to-date.

~~The revenue streams within the Company are consistent with those disclosed for our reportable segments, within Note 9,~~ ~~Segment Information. For descriptions of our product offerings and segments see Note 14,~~ ~~Segment Information~~ in our annual report on Form 10-K for the year ended December 31, 2017. We offer more than 35,000 polymer solutions to over 10,000 customers across the world. No customer accounts for more than 3% of our consolidated revenues and we do not have a high concentration of business in one particular end market.

~~In October 2016, the FASB issued Accounting Standards Update (ASU) 2016-16, Income Taxes (Topic 740),~~ ~~Intra-Entity Transfers of Assets Other than Inventory~~ (ASU 2016-16), which requires companies to recognize the income tax effects of intercompany sales or transfers of assets, other than inventory, in the income statement as income tax expense or benefit in the period the sale or transfer occurs. We recognized an adjustment of $17.0 million to beginning retained earnings ~~upon adoption~~as a result of ~~this standard on January 1, 2018 from transactions completed as~~adopting ASC 842. We have recognized additional operating lease assets and obligations of ~~December 31, 2017.~~

~~In March 2017, the FASB issued ASU 2017-07,~~ ~~Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost~~$72.3 million and ~~Net Periodic Postretirement Benefit Cost~~ ~~(ASU 2017-07)~~. This standard requires the presentation of the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. All other components of net periodic benefit cost must be presented below operating income. The Company has adopted ASU 2017-07$76.6 million as of January 1, ~~2018.~~

~~ASU 2017-07 provides a practical expedient~~2019 and March 31, 2019, respectively. We elected to ~~utilize previously disclosed~~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 ~~of net periodic benefit costs as an estimate for retrospective presentation. Utilizing this practical expedient, the Company reclassified non-service components of net periodic benefit cost from~~ ~~Cost of sales~~ ~~and~~ ~~Selling and administrative expense~~ ~~into~~ ~~Other income, net~~ on the Condensed Consolidated Statements of Income. The adoption of ASU 2017-07 resulted in $1.5 million and $2.0 million for the three months ended June 30, 2018 and 2017, respectively, and $2.9 million and $4.0 million for the six months ended June 30, 2018 and 2017, respectively, of the non-service components of net periodic benefit gain presented in ~~Other income, net~~.within our lease portfolio. For additional disclosure and detail, ~~on the components of our annual net periodic benefit cost, please~~ see Note ~~10,~~4, ~~Employee Benefit Plans~~ ~~in our annual report on Form 10-K for the year ended December 31, 2017.~~Leasing Arrangements.

Accounting Standards Not Yet Adopted

In ~~February~~June 2016, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ASU ~~2016-02,~~2016-13, ~~Leases~~Financial Instruments - Credit Losses (Topic ~~842)~~326): Measurement of Credit Losses on Financial Instruments (ASU ~~2016-02), which~~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 ~~lessee~~current expected credit loss model (CECL) that will immediately recognize an estimate of credit losses that are expected to ~~recognize on~~occur over the ~~balance sheet~~life of the ~~assets~~financial instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and ~~liabilities~~supportable information in the development of credit loss estimates. This guidance becomes effective for the rights and obligations created by those leases with a lease term of more than twelve months. Leases will continue to be classified as either financing or operating, with classification affecting the recognition, measurement and presentation of expenses and cash flows arising from a lease. The Company ~~will adopt ASU 2016-02~~ on January 1, ~~2019.~~2020, including the interim periods in the year. The ~~implementation team~~Company is ~~analyzing our current lease portfolio and assessing the transition method, available practical expedients and~~currently evaluating the impact that the adoption of this ~~standard~~ASU will have on ~~our Consolidated Financial Statements as well as future disclosure requirements.~~the consolidated financial statements and related disclosures.

Note 2 — BUSINESS COMBINATIONS

On January 2, ~~2018,~~2019, the Company acquired ~~the outstanding shares~~Fiber-Line, LLC (Fiber-Line), a global leader in polymer coated engineered fibers and composite materials, for total consideration of ~~IQAP Masterbatch Group S.L. (IQAP) for $73.0~~$152.7 million, net of cash ~~acquired. IQAP is an innovative provider of specialty colorants~~acquired and additives based in Spain with customers primarily throughout Europe. The IQAP results are reported in the Color, Additives and Inks segment. The preliminary purchase price allocation resulted in intangible assets of $31.9 million, goodwill of $24.5 million, property, plant and equipment of $24.1 million, other liabilities of $20.8 million and net working capital of $13.3 million. Goodwill is not deductible for tax purposes. The intangible assets that have been acquired are being amortized over a period of 13 to 20 years. IQAP's sales included in the three and six months ended June 30, 2018 results were $16.2 million and $33.0 million, respectively.

~~On May 31, 2018, the Company acquired the outstanding shares of PlastiComp, Inc. (PlastiComp) for total consideration of $44.3 million,~~ inclusive of contingent ~~earn-out~~consideration. The contingent consideration ~~that will be finalized two years from the date of acquisition. PlastiComp specializes in long-fiber reinforced thermoplastics~~is calculated over a two-year period where each year's earnings before interest, taxes, depreciation, and ~~its~~amortization (EBITDA) must exceed "baseline EBITDA." Fiber-Line's results are reported in the Specialty Engineered Materials segment. The preliminary purchase price allocation resulted in intangible assets of ~~$18.9~~$77.4 million, goodwill of $55.1 million, and net working capital of $26.0 million. A portion of the goodwill ~~of $17.5 million. Goodwill~~ is ~~not~~ deductible for U.S. federal income tax purposes. The intangible assets that have been acquired are being amortized over a period of 15five to 1820 years.

~~Note 3 — DISCONTINUED OPERATIONS~~

~~On July 19, 2017, PolyOne divested its Designed Structures and Solutions segment (DSS) to an affiliate of Arsenal Capital Partners for $115.0 million cash. The sale resulted~~ Fiber-Line's sales included in the ~~recognition of an after-tax loss of $228.8 million that was primarily recognized during the second quarter of 2017.~~

~~The following table summarizes the discontinued operations associated with DSS~~Company's results for the three ~~and six~~ months ended ~~June 30, 2018 and 2017, which is reflected within the~~ ~~Loss from discontinued operations, net of income taxes~~ ~~line of the Condensed Consolidated Statements of Income.~~March 31, 2019 were $26.8 million.

Three Months Ended June 30, Six Months Ended June 30,
(In millions) 2018 2017 2018 2017
Sales $ —
$ 104.2
$ —
$ 206.3

Loss on sale $ (0.4 ) $ (295.9 ) $ (1.5 ) $ (295.9 )
Loss from operations —
(3.0 ) —
(5.3 )
Loss before taxes (0.4 ) (298.9 ) (1.5 ) (301.2 )
Income tax benefit 0.1
67.9
0.4
68.8
Loss from discontinued operations, net of taxes $ (0.3 ) $ (231.0 ) $ (1.1 ) $ (232.4 )

Note 43 — GOODWILL AND INTANGIBLE ASSETS

Goodwill as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~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, 2017 $ 173.2
$ 424.5
$ 11.2
$ 1.6
$ 610.5
Acquisition of businesses 17.5
25.1
—
—
42.6
Currency translation and other adjustments (0.5 ) (1.0 ) —
—
(1.5 )
Balance June 30, 2018 $ 190.2
$ 448.6
$ 11.2
$ 1.6
$ 651.6



(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	55.9			—			—		—		55.9
Currency translation	(0.2		)	(0.5		)	—		—		(0.7		)
Balance March 31, 2019	$	244.6		$	448.1		$	11.2	$	1.6	$	705.5

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


	As of June 30, 2018										As of March 31, 2019
(In millions)	Acquisition Cost		Accumulated Amortization			Currency Translation			Net		Acquisition Cost		Accumulated Amortization			Currency Translation			Net
Customer relationships	$	278.4	$	(68.2	)	$	(0.4	)	$	209.8	$	290.7	$	(79.3	)	$	(1.1	)	$	210.3
Patents, technology and other	187.9		(60.5		)	(0.5		)	126.9		253.2		(70.1		)	(1.3		)	181.8
Indefinite-lived trade names	100.3		—			—			100.3		100.3		—			—			100.3
Total	$	566.6	$	(128.7	)	$	(0.9	)	$	437.0	$	644.2	$	(149.4	)	$	(2.4	)	$	492.4


	As of December 31, 2017									As of December 31, 2018
(In millions)	Acquisition Cost		Accumulated Amortization			Currency Translation		Net		Acquisition Cost		Accumulated Amortization			Currency Translation			Net
Customer relationships	$	257.3	$	(61.5	)	$	0.1	$	195.9	$	278.4	$	(75.0	)	$	(0.7	)	$	202.7
Patents, technology and other	158.2		(54.4		)	—		103.8		188.1		(66.8		)	(0.9		)	120.4
Indefinite-lived trade names	100.3		—			—		100.3		100.3		—			—			100.3
Total	$	515.8	$	(115.9	)	$	0.1	$	400.0	$	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 Sheet.

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:



(In millions)	Condensed Consolidated Statements of Income Location	Three Months Ended March 31, 2019
Lease cost:
Operating lease cost	Cost of sales	$	3.4
Operating lease cost	Selling and administrative expense	2.7
Other⁽¹⁾	Selling and administrative expense	0.7
Total operating lease cost		$	6.8

(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 March 31, 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 March 31, 2019 was 5.7%.

Maturity Analysis of Lease Liabilities:



	As of March 31, 2019
(In millions)	Operating Leases
2019	$	19.9
2020	22.3
2021	14.2
2022	10.1
2023	7.5
Thereafter	8.9
Total lease payments	$	82.9
Less amount of lease payment representing interest	(6.3		)
Total present value of lease payments	$	76.6



	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)	June 30, 2018		December 31, 2017		As of March 31, 2019		As of December 31, 2018
Finished products	$	186.6	$	203.3	$	224.2	$	204.3
Work in process	6.5		5.1		8.6		6.9
Raw materials and supplies	127.9		119.4		142.1		133.5
Inventories, net	$	321.0	$	327.8	$	374.9	$	344.7

Note 6 — PROPERTY, NET

Components of Property, net are as follows:


(In millions)	June 30, 2018			December 31, 2017			As of March 31, 2019			As of December 31, 2018
Land and land improvements ⁽¹⁾	$	47.5		$	40.7		$	48.6		$	48.8
Buildings ⁽²⁾	315.6			303.5			318.8			316.5
Machinery and equipment	1,069.1			1,038.0			1,085.5			1,082.2
Property, gross	1,432.2			1,382.2			1,452.9			1,447.5
Less accumulated depreciation and amortization	(945.9		)	(920.6		)	(955.8		)	(952.1		)
Property, net	$	486.3		$	461.6		$	497.1		$	495.4


~~(1)~~	~~Land and land improvements include properties under capital leases of $1.7 million as of June 30, 2018 and December 31, 2017.~~


~~(2)~~	~~Buildings include properties under capital leases of $16.5 million as of June 30, 2018 and December 31, 2017.~~

Note 7 — INCOME TAXES

The Tax Cuts and Jobs Act (TCJA) was enacted on December 22, 2017. ~~Among other things, effective in 2018, the~~The TCJA ~~reduces~~reduced the U.S. federal corporate tax rate from 35% to 21%, and required companies to pay a one-time transition tax on earnings of foreign corporate subsidiaries that were at least ten-percent owned by such U.S. companies and that were previously deferred from

U.S. taxation.

The TCJA exempts from U.S. federal income taxation dividends from certain foreign corporations to their U.S. shareholders, eliminates or reduces the effect of various federal tax deductions and creates new taxes on certain outbound payments and future foreign earnings generated after 2017. The TCJA also requires U.S. companies to pay a one-time transition tax on earnings of foreign corporate subsidiaries that are at least ten-percent owned by such U.S. companies and that were previously deferred from U.S. taxation.

We have not completed our accounting for the tax effects of the enactment of the TCJA; however, in compliance with the SEC's amendment to Staff Accounting Bulletin (SAB) 118 (issued December 22, 2017), we have made a reasonable estimate of the effects on our existing deferred income tax balances and the one-time transition tax, which was included as a component of income tax expense from continuing operations for the year ending December 31, 2017. We have made a measurement period adjustment related to an opportunity resulting from the enactment of the TCJA. This adjustment resulted in a favorable impact to our rate during the respective three and six months ended June 30, 2018. Once we have finalized our 2017 tax returns, we will update our estimates including the consideration of additional clarifications on the TCJA from the U.S. government. Any additional adjustments to our provisional amounts will be disclosed in our respective filings within the one-year measurement period provided by SAB 118.

We elected to recognize the resulting tax on the global intangible low-taxed income (GILTI) as a period expense in the period the tax is incurred and we have included a provisional estimate for GILTI in our estimated annual effective tax rate.

During the three months ended ~~June 30, 2018,~~March 31, 2019, the Company’s effective tax rate of ~~16.4%~~27.2% was ~~below~~above the Company's federal statutory rate of 21.0% primarily due to state taxes (2.3%), GILTI tax (0.6%), unfavorable tax effects of foreign valuation allowances (2.6%), and certain other non-deductible items (4.9%), which were partially offset by lower statutory tax rate differences on foreign earnings.

During the three months ended March 31, 2018, no measurement period adjustment was recognized as we finalized the accounting for the enactment-date effect of the TCJA. The Company’s effective tax rate of 25.9% for this period was above the Company's U.S. federal statutory rate of 21.0%. This was primarily ~~a result~~due to state taxes (1.9%), foreign withholding tax liability associated with the repatriation of certain foreign ~~permanent items (6.4%~~earnings (5.3%) and contemplation of GILTI to our current year operations (1.5%), ~~impact from~~which were partially offset by lower statutory tax rate differences on foreign earnings (1.5%) and a favorable impact resulting from the SAB 118 measurement period adjustment noted above (3.4%). The repatriation of current year earnings (4.3%), state taxes (1.6%) and the impact of GILTI to our current year operations (1.7%) partially offset this favorability.earnings.

During the six months ended June 30, 2018, the Company's effective tax rate of 21.3% was above the Company's US federal statutory rate of 21.0%. This was primarily a result of foreign taxes from repatriation of certain foreign earnings from prior periods and the current year (4.8%), state taxes (1.8%) and the impact of GILTI to our current year operations (1.6%). Largely offsetting these items were favorable impacts from foreign permanent items (3.8%), lower statutory tax rate differences on foreign earnings (1.7%) and the SAB 118 measurement period adjustment noted above (1.7%).

During the three and six months ended June 30, 2017, the Company’s effective tax rate of 21.8% and 25.5%, respectively, were below the Company's federal statutory rate of 35.0% primarily due to favorable impact of lower statutory tax rate differences on foreign earnings (8.6% and 8.2%, respectively) and foreign permanent items (2.0% and 1.4%, respectively).

Note 8 — FINANCING ARRANGEMENTS

Debt consists of the following instruments:


As of June 30, 2018 (In millions)	Principal Amount		Unamortized discount and debt issuance cost		Net Debt		Weighted average interest rate
As of March 31, 2019 (In millions)									Principal Amount		Unamortized discount and debt issuance cost		Net Debt		Weighted average interest rate
Senior secured revolving credit facility due 2022	$	74.0	$	—	$	74.0	3.19	%	$	225.7	$	—	$	225.7	3.72	%
Senior secured term loan due 2022	634.2		8.1		626.1		3.65	%
Senior secured term loan due 2026									629.4		10.8		618.6		4.25	%
5.25% senior notes due 2023	600.0		5.4		594.6		5.25	%	600.0		4.5		595.5		5.25	%
Other debt ⁽¹⁾	36.5		—		36.5				19.9		—		19.9
Total debt	$	1,344.7	$	13.5	$	1,331.2			$	1,475.0	$	15.3	$	1,459.7
Less short-term and current portion of long-term debt	34.6		—		34.6				19.0		—		19.0
Total long-term debt, net of current portion	$	1,310.1	$	13.5	$	1,296.6			$	1,456.0	$	15.3	$	1,440.7

As of December 31, 2017 (In millions)
Principal Amount Unamortized discount and debt issuance cost Net Debt Weighted average interest rate
Senior secured revolving credit facility due 2022 $ 56.5
$ —
$ 56.5
2.77 %
Senior secured term loan due 2022 637.5
8.5
629.0
3.27 %
5.25% senior notes due 2023 600.0
6.0
594.0
5.25 %
Other debt ⁽¹⁾
29.5
—
29.5

Total debt $ 1,323.5
$ 14.5
$ 1,309.0

Less short-term and current portion of long-term debt 32.6
—
32.6

Total long-term debt, net of current portion $ 1,290.9
$ 14.5
$ 1,276.4


~~(1)~~	~~Other debt includes capital lease obligations of $17.9 million and $17.8 million as of June 30, 2018 and December 31, 2017, respectively.~~

On April 11, 2018, the Company entered into a fifth amendment to its senior secured term loan. Under the terms of the amended senior secured term loan, the margin was reduced by 25 basis points to 175 basis points. At the Company's discretion, interest is based upon (i) a margin rate of 175 basis points plus the 1-, 2-, 3-, or 6-month LIBOR, subject to a floor of 75 basis points, or (ii) a margin rate of 75 basis points plus a Prime Rate, subject to a floor of 175 basis points.



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

The agreements governing our senior secured revolving credit facility and our senior secured term loan, and the indentures and credit agreements governing other debt, contain a number of customary financial and restrictive covenants that, among other things, limit our ability to: consummate asset sales, incur additional debt or liens, consolidate or merge with any entity or transfer or sell all or substantially all of our assets, pay dividends or make certain other restricted payments, make investments, enter into transactions with affiliates, create dividend or other payment restrictions with respect to subsidiaries, make capital investments and alter the business we conduct. As of ~~June 30, 2018,~~March 31, 2019, we were in compliance with all covenants.

The estimated fair value of PolyOne’s debt instruments at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 was ~~$1,343.1~~$1,475.2 million and ~~$1,343.3~~$1,316.8 million, ~~respectively, compared to carrying values of $1,331.2 million and $1,309.0 million as of June 30, 2018 and December 31, 2017,~~ 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 ~~realignment~~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) ~~PolyOne~~ Distribution.

Segment information for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ is as follows:


	Three Months Ended June 30, 2018								Three Months Ended June 30, 2017								Three Months Ended March 31, 2019								Three Months Ended March 31, 2018
(In millions)	Sales to External Customers		Total Sales			Operating Income			Sales to External Customers		Total Sales			Operating Income			Sales to External Customers		Total Sales			Operating Income			Sales to External Customers		Total Sales			Operating Income
Color, Additives and Inks	$	272.7	$	273.7		$	45.3		$	218.1	$	223.7		$	38.6		$	262.1	$	263.3		$	39.5		$	269.1	$	270.9		$	42.1
Specialty Engineered Materials	152.6		165.5			21.1			146.1		158.7			19.6			175.8		189.9			21.3			150.7		163.1			20.1
Performance Products and Solutions	170.9		191.9			22.6			163.3		184.2			22.3			149.3		169.8			15.2			170.6		191.0			22.7
PolyOne Distribution	318.6		323.3			18.7			286.6		290.8			20.3
Distribution																	312.7		317.3			19.5			311.2		315.5			18.2
Corporate and eliminations	—		(39.6		)	(30.3		)	—		(43.3		)	(22.8		)	—		(40.4		)	(27.2		)	—		(38.9		)	(24.3		)
Total	$	914.8	$	914.8		$	77.4		$	814.1	$	814.1		$	78.0		$	899.9	$	899.9		$	68.3		$	901.6	$	901.6		$	78.8

Six Months Ended June 30, 2018 Six Months Ended June 30, 2017
(In millions) Sales to External Customers Total Sales Operating Income Sales to External Customers Total Sales Operating Income
Color, Additives and Inks $ 541.8
$ 544.6
$ 87.4
$ 424.6
$ 435.5
$ 73.7
Specialty Engineered Materials 303.3
328.6
41.2
292.7
317.8
42.5
Performance Products and Solutions 341.5
382.9
45.3
325.5
367.9
44.4
PolyOne Distribution 629.8
638.8
36.9
568.0
576.9
38.9
Corporate and eliminations —
(78.5 ) (54.6 ) —
(87.3 ) (39.5 )
Total $ 1,816.4
$ 1,816.4
$ 156.2
$ 1,610.8
$ 1,610.8
$ 160.0


	Total Assets				Total Assets
(In millions)	June 30, 2018		December 31, 2017		As of March 31, 2019		As of December 31, 2018
Color, Additives and Inks	$	1,253.2	$	1,146.8	$	1,273.8	$	1,235.1
Specialty Engineered Materials	605.0		545.1		800.3		596.2
Performance Products and Solutions	282.2		275.8		285.3		275.4
PolyOne Distribution	265.9		250.9
Distribution					278.3		249.0
Corporate and eliminations	362.2		486.7		324.1		367.6
Total assets	2,768.5		2,705.3		$	2,961.8	$	2,723.3

Note 10 — COMMITMENTS AND CONTINGENCIES

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

In September 2007, the United States District Court for the Western District of Kentucky in the case of Westlake Vinyls, Inc. v. Goodrich Corporation, et ~~al.~~al., held that PolyOne must pay the remediation costs at the former Goodrich Corporation Calvert City facility (now largely owned and operated by Westlake Vinyls), together with certain defense costs of Goodrich Corporation. The rulings also provided that PolyOne can seek indemnification for contamination attributable to Westlake Vinyls.

Following the Court rulings, the parties to the litigation agreed to settle all claims regarding past environmental costs incurred at the site. The settlement agreement provides a mechanism to pursue allocation of future remediation costs

at the Calvert City site to Westlake Vinyls. We will adjust our accrual, in the future, consistent with any such future allocation of costs. Additionally, we continue to pursue available insurance coverage related to this matter and recognize gains as we receive reimbursement.

The environmental obligation at the site arose as a result of an agreement between The B.F.Goodrich Company (n/k/a Goodrich Corporation) and our predecessor, The Geon Company, at the time of the initial public offering in 1993. Under the agreement, The Geon Company agreed to indemnify Goodrich Corporation for certain environmental costs at the site. Neither PolyOne nor The Geon Company ever operated the facility.

Since 2009, PolyOne, along with respondents Westlake Vinyls, Inc., and Goodrich Corporation, have worked with the United States Environmental Protection Agency (USEPA) on the investigation of contamination at the site as well as evaluation of potential remedies to address the contamination. ~~On December 1, 2017, the~~The USEPA issued a proposed plan for the site, followed by the issuance of a proposed plan amendment on June 20, 2018, containing an updated preferred remedy. The public comment period for the USEPA’s proposed plan amendment ended on July 20, 2018. Subsequent to the closure of the public comment period, the USEPA is expected to issue its Record of Decision (ROD) in ~~2018.~~September 2018, selecting a remedy consistent with our accrual assumptions. In March 2019, the USEPA and respondents began circulating, for execution, an Administrative Settlement Agreement and Order on Consent for Remedial Design to conduct the remedial design. Our current reserve of ~~$105.6~~$103.2 million ~~reflects~~is consistent with the ~~updated preferred remedy~~USEPA's estimates contained in the ~~proposed plan amendment. We expect that the ROD will confirm selection of the USEPA’s preferred remedy, but note that changes to the remedy may result in an adjustment to our current reserve.~~ROD.

On March 13, 2013, PolyOne acquired Spartech Corporation (Spartech). One of Spartech's subsidiaries, Franklin-Burlington Plastics, Inc. (Franklin-Burlington), operated a plastic resin compounding facility in Kearny, New Jersey, located adjacent to the Passaic River. The USEPA requested that companies located in the area of the lower Passaic River, including Franklin-Burlington, cooperate in an investigation of contamination of approximately 17 miles of the lower Passaic River Study Area (the LPRSA). In response, Franklin-Burlington and approximately 70 other companies (collectively, the Cooperating Parties) agreed, pursuant to an Administrative Order on Consent (AOC) with the USEPA, to assume responsibility for development of a Remedial Investigation and Feasibility Study ~~(RIFS)~~ of the LPRSA. The RIFS costs are exclusive of any costs that may ultimately be required to remediate the LPRSA or costs associated with natural resource damages that may be assessed. By agreeing to bear a portion of the cost of the RIFS, Franklin-Burlington ~~did~~has not ~~admit~~admitted to any liability or agree to bear any ~~such~~other costs for remediation or natural resource ~~damage costs.~~damage.

In 2015, the Cooperating Parties submitted to the USEPA a remedial investigation report and feasibility study for the LPRSA, and are currently engaged in technical discussions with the USEPA regarding those documents. Neither of those documents contemplates who is responsible for remediation or how such costs might be allocated to PRPs. In March 2016, the USEPA issued a ~~Record of Decision~~ROD selecting a remedy for an eight-mile portion of the LPRSA at an estimated and discounted cost of $1.4 billion. On March 31, 2016, the USEPA sent a Notice of Potential Liability to over 100 companies, including Franklin-Burlington, and several municipalities for this eight-mile portion. In September 2016, the USEPA reached an agreement with Occidental Chemical Corporation (OCC), which orders OCC to ~~perform~~conduct the remedial design for the lower ~~eight mile~~eight-mile portion of the Passaic River. In September 2017, the USEPA sent a letter to over 80 companies, including Franklin-Burlington, indicating that the USEPA would engage the recipients in an allocation process for the lower eight miles of the LPRSA and has engaged a third-party allocator as part of that process. Along with other parties, Franklin-Burlington is participating in the development of this allocation process with the allocator retained by the USEPA, and this process is expected to continue into at least ~~2019.~~2020. On June 30, 2018, OCC, independent of the USEPA, filed suit over 100 named entities, including Franklin-Burlington, seeking contribution for past and future costs associated with the remediation of the lower eight-mile portion of the LPRSA.

Based on the currently available information, we have ~~found no~~not identified evidence that Franklin-Burlington contributed any of the primary contaminants of concern to the lower Passaic River. A timeline as to when an allocation of the remedial costs may be determined is not yet known and any allocation to Franklin-Burlington has not been determined. As a result of these uncertainties, we are unable to estimate a liability related to this matter and, as of ~~June 30, 2018,~~March 31, 2019, we have not accrued for costs of remediation related to the lower Passaic River.

During the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017,~~ PolyOne recognized ~~$8.7~~$2.1 million and ~~$5.0~~$3.1 million, respectively, of expense related to environmental remediation costs. During the ~~six~~three months ended ~~June 30, 2018 and 2017, PolyOne recognized $11.8 million and $7.2 million, respectively, of expense related to environmental remediation activities. During the three and six months ended June 30,~~March 31, 2018, PolyOne received ~~$1.6 million and $2.3 million, respectively, of insurance recoveries for previously incurred environmental costs. During the three and six months ended June 30, 2017, PolyOne received $3.8~~$0.7 million of insurance recoveries for previously incurred environmental costs. These expenses and insurance recoveries are included within Cost of sales within our Condensed Consolidated Statements of Income. Insurance recoveries are recognized as a gain when received.

Our Condensed Consolidated Balance Sheets include accruals totaling ~~$114.2~~$113.3 million and ~~$117.1~~$114.1 million as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, based on our estimates of probable future environmental expenditures relating to previously contaminated sites. These undiscounted amounts are included in Accrued expenses and other current liabilities and Other non-current liabilities on the accompanying Condensed Consolidated Balance Sheets. The accruals represent our best estimate of probable future costs that we can reasonably estimate, based upon currently available information and technology and our view of the most likely remedy. Depending upon the results of future testing,

completion and results of remedial investigation and feasibility studies, the ultimate remediation alternatives undertaken, changes in regulations, technology development, 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 ~~June 30, 2018.~~March 31, 2019. However, such additional costs, if any, cannot be currently estimated.

Note 11 — ~~EQUITY~~DERIVATIVES AND HEDGING

~~Changes~~We are exposed to market risks, such as changes in ~~accumulated other comprehensive~~foreign currency exchange rates and interest rates. To manage the volatility related to these exposures we may enter into various derivative transactions. We formally assess, designate and document, as a hedge of an underlying exposure, the qualifying derivative instrument that will be accounted for as an accounting hedge at inception. Additionally, we assess both at inception and at least quarterly thereafter, whether the financial instruments used in the hedging transaction are effective at offsetting changes in either the fair values or cash flows of the underlying exposures. In accordance with ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, that ongoing assessment will be done qualitatively for highly effective relationships.

Net Investment Hedge

During October and December of 2018, as a means of mitigating the impact of currency fluctuations on our Euro investments in foreign entities, we executed a total of six cross currency swaps, in which we will pay fixed-rate interest in Euros and receive fixed-rate interest in U.S. dollars with a combined notional amount of 250.0 million Euros and which mature in March 2023. This effectively converts a portion of our U.S. dollar denominated fixed-rate debt to Euro denominated fixed-rate debt. That conversion resulted in a benefit of $2.1 million for the three months ended March 31, 2019, which was recognized within Interest expense, net within the Condensed Consolidated Statements of Income.

We designated the swaps as net investment hedges of our net investment in our European operations under ASU 2017-12 and applied the spot method to these hedges. The changes in fair value of the derivative instruments that are designated and qualify as hedges of net investments in foreign operations are recognized within Accumulated Other Comprehensive Income (AOCI) to offset the changes in the values of the net investment being hedged. For the three months ended March 31, 2019, a $4.6 million gain was recognized within translation adjustments in AOCI, net of tax.

Derivatives Designated as Cash Flow Hedging Instruments

In August 2018, we entered into two interest rate swaps with a combined notional amount of $150.0 million to manage the variability of cash flows in the interest rate payments associated with our existing LIBOR-based interest payments, effectively converting $150.0 million of our floating rate debt to a fixed rate. We began to receive floating rate interest payments based upon one month U.S. dollar LIBOR and in return are obligated to pay interest at a fixed rate of 2.732% until November 2022. We have designated these swap contracts as cash flow hedges pursuant to ASC 815, Derivatives and Hedging. The net interest payments accrued each month for these highly effective hedges are reflected in net income as adjustments of interest expense and the remaining change in the fair value of the derivatives is recorded as a component of AOCI. The amount of expense recognized within Interest expense, net in our Condensed Consolidated Statements of Income was $0.1 million for the three months ended March 31, 2019. For the three months ended March 31, 2019, $1.0 million of loss ~~year-to-date~~was recognized in AOCI, net of tax.

All of our derivative assets and liabilities measured at fair value are classified as Level 2 within the fair value hierarchy. We determine the fair value of ~~June 30, 2018~~our derivatives based on valuation methods, which project future cash flows and ~~2017 were~~discount the future amounts present value using market based observable inputs, including interest rate curves and foreign currency rates. The fair value of derivative financial instruments recognized in the Condensed Consolidated Balance Sheets is as follows:

(In millions) Cumulative Translation Adjustment Pension and Other Post-Retirement Benefits Other Total
Balance at January 1, 2018 $ (58.6 ) $ 5.2
$ —
$ (53.4 )
Translation adjustments (16.2 ) —
—
(16.2 )
Balance at June 30, 2018 $ (74.8 ) $ 5.2
$ —
$ (69.6 )

Balance at January 1, 2017 $ (99.8 ) $ 5.2
$ 0.4
$ (94.2 )
Translation adjustments 19.4
—
—
19.4
Unrecognized gain —
—
(0.1 ) (0.1 )
Balance at June 30, 2017 $ (80.4 ) $ 5.2
$ 0.3
$ (74.9 )



(In millions)	Balance Sheet Location	As of March 31, 2019		As of December 31, 2018
Assets
Cross Currency Swaps (Net Investment Hedge)	Other non-current assets	$	8.9	$	2.6
Liabilities
Interest Rate Swap (Fair Value Hedge)	Other non-current liabilities	$	3.1	$	1.7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Business

We are a premier provider of specialized polymer materials, services and solutions with operations in specialty engineered materials, advanced composites, color and additive systems and polymer distribution. We are also a highly specialized developer and manufacturer of performance enhancing additives, liquid colorants, and fluoropolymer and silicone colorants. Headquartered in Avon Lake, Ohio, we have employees at manufacturing sites and distribution facilities in North America, South America, Europe and Asia. We provide value to our customers through our ability to link our knowledge of polymers and formulation technology with our manufacturing and supply chain capabilities to provide value-added solutions to designers, assemblers and processors of plastics (our customers). 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.

Highlights and Executive Summary

A summary of PolyOne’s sales, operating income, net income ~~(loss)~~ and net income ~~(loss)~~ attributable to PolyOne common shareholders follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(In millions)	2018			2017			2018			2017			2019		2018
Sales	$	914.8		$	814.1		$	1,816.4		$	1,610.8		$	899.9	$	901.6

Operating income	$	77.4		$	78.0		$	156.2		$	160.0		$	68.3	$	78.8

Net income from continuing operations	$	51.5		$	49.6		$	99.2		$	97.9		$	38.3	$	47.7
Loss from discontinued operations, net of income taxes	(0.3		)	(231.0		)	(1.1		)	(232.4		)	—		(0.8		)
Net income (loss)	$	51.2		$	(181.4	)	$	98.1		$	(134.5	)
Net income													$	38.3	$	46.9

Net income (loss) attributable to PolyOne common shareholders	$	51.3		$	(181.4	)	$	98.2		$	(134.5	)
Net income attributable to PolyOne common shareholders													$	38.2	$	46.9

Recent Developments

On January 2, ~~2018,~~2019, the Company ~~completed the acquisition~~acquired Fiber-Line, LLC (Fiber-Line), a global leader in polymer coated engineered fibers and composite materials, for total consideration of ~~IQAP Masterbatch Group S.L. (IQAP) for $73.0~~$152.7 million, net of cash ~~acquired. IQAP is an innovative provider of specialty colorants~~acquired and additives based in Spain with customers throughout Europe. The IQAP results are reported in the Color, Additives and Inks segment. IQAP is expected to add approximately $56.0 million to total sales on an annual basis.

~~On May 31, 2018, the Company acquired the outstanding shares of PlastiComp, Inc. (PlastiComp) for total consideration of $44.3 million,~~ inclusive of contingent ~~earn-out~~consideration. The contingent consideration ~~that will be finalized two years from the date of acquisition. PlastiComp specializes in long-fiber reinforced thermoplastics~~is calculated over a two-year period where each year's earnings before interest, taxes, depreciation, and ~~its~~amortization (EBITDA) must exceed "baseline EBITDA." Fiber-Line's results are reported in the Specialty Engineered Materials segment. Fiber-Line is expected to add approximately $100 million to the Company's total sales on an annual basis.

Results of Operations — The three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 compared to three ~~and six~~ months ended ~~June 30, 2017:~~March 31, 2018:


	Three Months Ended June 30,						Variances — Favorable (Unfavorable)					Six Months Ended June 30,						Variances — Favorable (Unfavorable)					Three Months Ended March 31,						Variances — Favorable (Unfavorable)
(Dollars in millions, except per share data)	2018			2017			Change			% Change		2018			2017			Change			% Change		2019			2018			Change			% Change
Sales	$	914.8		$	814.1		$	100.7		12.4	%	$	1,816.4		$	1,610.8		$	205.6		12.8	%	$	899.9		$	901.6		$	(1.7	)	(0.2	)%
Cost of sales	718.3			626.2			(92.1		)	(14.7	)%	1,421.4			1,240.7			(180.7		)	(14.6	)%	703.6			703.1			(0.5		)	(0.1	)%
Gross margin	196.5			187.9			8.6			4.6	%	395.0			370.1			24.9			6.7	%	196.3			198.5			(2.2		)	(1.1	)%
Selling and administrative expense	119.1			109.9			(9.2		)	(8.4	)%	238.8			210.1			(28.7		)	(13.7	)%	128.0			119.7			(8.3		)	(6.9	)%
Operating income	77.4			78.0			(0.6		)	(0.8	)%	156.2			160.0			(3.8		)	(2.4	)%	68.3			78.8			(10.5		)	(13.3	)%
Interest expense, net	(16.1		)	(15.2		)	(0.9		)	(5.9	)%	(31.6		)	(29.8		)	(1.8		)	(6.0	)%	(15.9		)	(15.5		)	(0.4		)	(2.6	)%
Debt extinguishment costs	(0.1		)	—			(0.1		)	nm		(0.1		)	(0.3		)	0.2			66.7	%
Other income, net	0.4			0.6			(0.2		)	(33.3	)%	1.5			1.5			—			—	%	0.2			1.1			(0.9		)	(81.8	)%
Income from continuing operations before income taxes	61.6			63.4			(1.8		)	(2.8	)%	126.0			131.4			(5.4		)	(4.1	)%	52.6			64.4			(11.8		)	(18.3	)%
Income tax expense	(10.1		)	(13.8		)	3.7			26.8	%	(26.8		)	(33.5		)	6.7			20.0	%	(14.3		)	(16.7		)	2.4			14.4	%
Net income from continuing operations	51.5			49.6			1.9			3.8	%	99.2			97.9			1.3			1.3	%	38.3			47.7			(9.4		)	(19.7	)%
Loss from discontinued operations, net of income taxes	(0.3		)	(231.0		)	230.7			99.9	%	(1.1		)	(232.4		)	231.3			99.5	%	—			(0.8		)	0.8			nm
Net income (loss)	51.2			(181.4		)	232.6			128.2	%	98.1			(134.5		)	232.6			172.9	%
Net loss attributable to noncontrolling interests	0.1			—			0.1			nm		0.1			—			0.1			nm
Net income (loss) attributable to PolyOne common shareholders	$	51.3		$	(181.4	)	$	232.7		128.3	%	$	98.2		$	(134.5	)	$	232.7		173.0	%
Net income																							38.3			46.9			(8.6		)	(18.3	)%
Net income attributable to noncontrolling interests																							(0.1		)	—			(0.1		)	nm
Net income attributable to PolyOne common shareholders																							$	38.2		$	46.9		$	(8.7	)	(18.6	)%

Earnings (loss) per common share attributable to PolyOne common shareholders - Basic:	Earnings (loss) per common share attributable to PolyOne common shareholders - Basic:																						Earnings (loss) per common share attributable to PolyOne common shareholders - Basic:
Continuing operations	$	0.65		$	0.61							$	1.24		$	1.20							$	0.49		$	0.59
Discontinued operations	(0.01		)	(2.83		)						(0.02		)	(2.84		)						—			(0.01		)
Total	$	0.64		$	(2.22	)						$	1.22		$	(1.64	)						$	0.49		$	0.58
Earnings (loss) per common share attributable to PolyOne common shareholders - Diluted:	Earnings (loss) per common share attributable to PolyOne common shareholders - Diluted:																						Earnings (loss) per common share attributable to PolyOne common shareholders - Diluted:
Continuing operations	$	0.64		$	0.60							$	1.23		$	1.19							$	0.49		$	0.59
Discontinued operations	(0.01		)	(2.80		)						(0.02		)	(2.82		)						—			(0.01		)
Total	$	0.63		$	(2.20	)						$	1.21		$	(1.63	)						$	0.49		$	0.58

nm - not meaningful

Sales

Sales ~~increased $100.7~~decreased $1.7 million, or ~~12.4%~~0.2%, in the three months ended ~~June 30, 2018~~March 31, 2019 compared to the three months ended ~~June 30, 2017 driven by organic sales growth of 6.4%, an increase~~March 31, 2018. The impact from acquisitions ~~of 4.3% and a favorable~~was more than offset by unfavorable foreign exchange ~~impact of 1.7%.~~

~~Sales increased $205.6 million, or 12.8%,~~and weakness in ~~the six months ended June 30, 2018 compared to the six months ended June 30, 2017 driven by organic~~certain end markets, including a decline in automotive related sales ~~growth of 6.1%, an increase from acquisitions of 4.4%~~in China and ~~a favorable foreign exchange impact of 2.3%.~~Europe, and construction related sales in North America.

Cost of sales

As a percent of sales, cost of sales ~~increased from 76.9%~~of 78.2% in the three months ended ~~June 30, 2017 to 78.5%~~March 31, 2019 was consistent with 78.0% in the three months ended June 30, 2018 and from 77.0% in the six months ended June 30, 2017 to 78.3% in the six months ended June 30, 2018, primarily as a result of raw material cost inflation and increased logistics costs in North America.March 31, 2018.

Selling and administrative expense

Selling and administrative expense increased ~~$9.2~~$8.3 million during the three months ended ~~June 30, 2018~~March 31, 2019 compared to the three months ended ~~June 30, 2017.~~March 31, 2018. This increase was primarily driven by costs associated with acquired businesses, ~~unfavorable~~partially offset by favorable foreign ~~exchange and additional investments in commercial resources.~~

Selling and administrative expense increased by $28.7 million during the six months ended June 30, 2018 compared to the six months ended June 30, 2017. This increase was driven by $12.3 million associated with acquired businesses, unfavorable foreign exchange of $5.3 million, a $4.3 million favorable legal settlement received in 2017 and a $3.8 million reversal of certain non-income tax reserves in 2017 due to the expiration of statute of limitations.exchange.

Income taxes

During the three months ended ~~June 30, 2018,~~March 31, 2019, the Company’s effective tax rate was ~~16.4% compared to 21.8%~~27.2% versus 25.9% for the three months ended ~~June 30, 2017,~~March 31, 2018. The income tax rate increased primarily due to the ~~enactment~~unfavorable tax effects of ~~the Tax Cuts~~foreign valuation allowances and ~~Jobs Act (TCJA), which lowered the U.S. federal corporate tax rate from 35% to 21%, foreign permanent~~certain other non-deductible items ~~(4.4%) and the SEC Staff Accountant Bulletin (SAB) 118 measurement period adjustment (3.4%)~~ for the three months ended ~~June 30, 2018. The following~~March 31, 2019. Partially offsetting these items ~~offset such decreases as compared to 2017:~~was the absence, in 2019, of foreign withholding tax ~~from~~on repatriation of certain foreign earnings ~~(4.7%) and~~that the ~~impact of~~Company incurred in the ~~tax on global intangible low-taxed income (GILTI) to our current operations (1.7%).~~

~~During the six~~three months ended June 30, 2018, the Company's effective tax rate was 21.3% compared to 25.5% for the six months ended June 30, 2017, primarily due to the enactment of the TCJA, foreign permanent items (2.4%) and the SAB 118 measurement period adjustment (1.7%) for the six months ended June 30,March 31, 2018. ~~These decreases were offset by foreign withholding tax from repatriation of certain foreign earnings (3.8%) and the impact of GILTI to our current operations (1.6%).~~

SEGMENT INFORMATION

PolyOne has four reportable segments: (1) Color, Additives and Inks; (2) Specialty Engineered Materials; (3) Performance Products and Solutions; and (4) ~~PolyOne~~ Distribution. Our segments are further discussed in Note 9, Segment Information, to the accompanying ~~Consolidated Financial Statements.~~condensed consolidated financial statements.

Sales and Operating Income — The three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 compared to the three ~~and six~~ months ended ~~June 30, 2017~~March 31, 2018:


	Three Months Ended June 30,						Variances — Favorable (Unfavorable)					Six Months Ended June 30,						Variances — Favorable (Unfavorable)					Three Months Ended March 31,						Variances — Favorable (Unfavorable)
(Dollars in millions)	2018			2017			Change			% Change		2018			2017			Change			% Change		2019			2018			Change			% Change
Sales:
Color, Additives and Inks	$	273.7		$	223.7		$	50.0		22.4	%	$	544.6		$	435.5		$	109.1		25.1	%	$	263.3		$	270.9		$	(7.6	)	(2.8	)%
Specialty Engineered Materials	165.5			158.7			6.8			4.3	%	328.6			317.8			10.8			3.4	%	189.9			163.1			26.8			16.4	%
Performance Products and Solutions	191.9			184.2			7.7			4.2	%	382.9			367.9			15.0			4.1	%	169.8			191.0			(21.2		)	(11.1	)%
PolyOne Distribution	323.3			290.8			32.5			11.2	%	638.8			576.9			61.9			10.7	%
Distribution																							317.3			315.5			1.8			0.6	%
Corporate and eliminations	(39.6		)	(43.3		)	3.7			8.5	%	(78.5		)	(87.3		)	8.8			10.1	%	(40.4		)	(38.9		)	(1.5		)	(3.9	)%
Total Sales	$	914.8		$	814.1		$	100.7		12.4	%	$	1,816.4		$	1,610.8		$	205.6		12.8	%	$	899.9		$	901.6		$	(1.7	)	(0.2	)%

Operating income:
Color, Additives and Inks	$	45.3		$	38.6		$	6.7		17.4	%	$	87.4		$	73.7		$	13.7		18.6	%	$	39.5		$	42.1		$	(2.6	)	(6.2	)%
Specialty Engineered Materials	21.1			19.6			1.5			7.7	%	41.2			42.5			(1.3		)	(3.1	)%	21.3			20.1			1.2			6.0	%
Performance Products and Solutions	22.6			22.3			0.3			1.3	%	45.3			44.4			0.9			2.0	%	15.2			22.7			(7.5		)	(33.0	)%
PolyOne Distribution	18.7			20.3			(1.6		)	(7.9	)%	36.9			38.9			(2.0		)	(5.1	)%
Distribution																							19.5			18.2			1.3			7.1	%
Corporate and eliminations	(30.3		)	(22.8		)	(7.5		)	(32.9	)%	(54.6		)	(39.5		)	(15.1		)	(38.2	)%	(27.2		)	(24.3		)	(2.9		)	(11.9	)%
Total Operating Income	$	77.4		$	78.0		$	(0.6	)	(0.8	)%	$	156.2		$	160.0		$	(3.8	)	(2.4	)%	$	68.3		$	78.8		$	(10.5	)	(13.3	)%

Operating income as a percentage of sales:	Operating income as a percentage of sales:																						Operating income as a percentage of sales:
Color, Additives and Inks	16.6		%	17.3		%	(0.7		)	% points		16.0		%	16.9		%	(0.9		)	% points		15.0		%	15.5		%	(0.5		)	% points
Specialty Engineered Materials	12.7		%	12.4		%	0.3			% points		12.5		%	13.4		%	(0.9		)	% points		11.2		%	12.3		%	(1.1		)	% points
Performance Products and Solutions	11.8		%	12.1		%	(0.3		)	% points		11.8		%	12.1		%	(0.3		)	% points		9.0		%	11.9		%	(2.9		)	% points
PolyOne Distribution	5.8		%	7.0		%	(1.2		)	% points		5.8		%	6.7		%	(0.9		)	% points
Distribution																							6.1		%	5.8		%	0.3			% points
Total	8.5		%	9.6		%	(1.1		)	% points		8.6		%	9.9		%	(1.3		)	% points		7.6		%	8.7		%	(1.1		)	% points

Color, Additives and Inks

Sales ~~increased~~decreased by ~~$50.0~~$7.6 million, or ~~22.4%~~2.8%, in the three months ended ~~June 30, 2018~~March 31, 2019 compared to the three months ended ~~June 30, 2017. Acquisitions increased sales~~March 31, 2018. Organic growth of 1.1% included gains in packaging and sustainable solutions that were partially offset by ~~14.5%, organic growth~~weakness in ~~all regions contributed 4.6%~~China and ~~favorable~~Europe automotive end markets. Unfavorable foreign exchange ~~added 3.3%.~~

~~Sales increased by $109.1 million, or 25.1%, in the six months ended June 30, 2018 compared to the six months ended June 30, 2017. Acquisitions increased~~reduced sales ~~15.5%, organic growth in all regions contributed 5.0% and foreign exchange added 4.6%~~3.9%.

Operating income ~~rose by $6.7~~decreased $2.6 million in the three months ended ~~June 30, 2018~~March 31, 2019 as compared to the three months ended ~~June 30, 2017, largely driven~~March 31, 2018 as the benefit of higher organic sales was more than offset by ~~higher sales.~~unfavorable foreign exchange and the noted softness in China and Europe automotive end markets.

~~Operating income rose by $13.7 million in the six months ended June 30, 2018 compared to the six months ended June 30, 2017. This growth was largely driven by higher sales.~~

Specialty Engineered Materials

Sales increased ~~$6.8~~$26.8 million, or ~~4.3%~~16.4%, in the three months ended ~~June 30, 2018~~March 31, 2019 compared to the three months ended ~~June 30, 2017. Sales~~March 31, 2018, largely driven by the impact from acquisitions of 19.2% and organic growth in ~~Europe and Asia contributed 4.5% (including favorable~~the composites business. These gains were partially offset by unfavorable foreign exchange of ~~3.6%)~~3.7% and ~~the acquisition of PlastiComp added 1.4%. Lower~~lower sales in ~~North America partially offset these increases.~~

~~Sales increased by $10.8 million, or 3.4%,~~the automotive end markets in ~~the six months ended June 30, 2018 compared to the six months ended June 30, 2017. Sales growth in Europe~~China and ~~Asia contributed 5.8% (including favorable foreign exchange of 4.7%) and the acquisition of PlastiComp added 0.7%. Lower sales in North America partially offset these increases.~~

Europe.

Operating income increased ~~$1.5~~$1.2 million in the three months ended ~~June 30, 2018~~March 31, 2019 as compared to the three months ended ~~June 30, 2017~~March 31, 2018 as ~~the benefit~~a result of ~~increased sales was~~acquisitions, partially offset by unfavorable foreign exchange and the ~~impacts~~impact of ~~higher raw material~~China and ~~logistics costs.~~

~~Operating income decreased $1.3 million~~Europe due to weakness in the six months ended June 30, 2018 compared to the six months ended June 30, 2017 as the benefit of increased sales was more than offset by the impacts from our continued investment in commercial resources and higher raw material and logistics costs.automotive end markets.

Performance Products and Solutions

Sales ~~increased $7.7~~decreased $21.2 million, or ~~4.2%~~11.1%, in the three months ended ~~June 30, 2018~~March 31, 2019 as compared to the three months ended ~~June 30, 2017 and $15.0 million, or 4.1%,~~March 31, 2018, largely driven by lower demand in the ~~six months ended June 30, 2018 compared to the six months ended June 30, 2017 primarily due to volume growth.~~North America building and construction end market.

Operating income ~~increased $0.3~~decreased $7.5 million in the three months ended ~~June 30, 2018~~March 31, 2019 as compared to the three months ended ~~June 30, 2017 and $0.9 million in the six months ended June 30,~~March 31, 2018 ~~compared~~primarily due to ~~the six months ended June 30, 2017 as the benefit of increased sales was partially offset by higher logistics costs and raw material inflation.~~lower sales.

~~PolyOne~~ Distribution

Sales increased ~~$32.5~~$1.8 million, or ~~11.2%~~0.6%, in the three months ended ~~June 30, 2018~~March 31, 2019 as compared to the three months ended ~~June 30, 2017 and $61.9 million, or 10.7%, in the six months ended June 30,~~March 31, 2018 ~~compared~~primarily due to ~~the six months ended June 30, 2017 as a result of increased volume and higher overall average selling prices associated with raw material cost inflation.~~improved mix.

Operating income ~~decreased $1.6~~increased $1.3 million in the three months ended ~~June 30, 2018~~March 31, 2019 as compared to the three months ended ~~June 30, 2017~~March 31, 2018, as a result of slightly improved mix and $2.0 million in the six months ended June 30, 2018 compared to the six months ended June 30, 2017 as the benefit of higher sales was more than offset by mix changes, increased logistics costs and increased selling and administrative costs related to our continued investment in commercial resources.pricing.

Corporate and Eliminations

Corporate and eliminations increased ~~$7.5~~$2.9 million in the three months ended ~~June 30, 2018~~March 31, 2019 as compared to the three months ended ~~June 30, 2017~~March 31, 2018 primarily as a result of ~~higher environmental remediation~~ costs ~~combined with lower insurance reimbursements associated with such costs in 2018.~~

Corporate and eliminations increased $15.1 million in the six months ended June 30, 2018 compared to the six months ended June 30, 2017 primarily as a result of higher environmental remediation costs combined with lower insurance reimbursements associated with such costs in 2018, $4.3 million favorable legal settlement received in 2017 and a $3.9 million reversal of certain non-income tax reserves in 2017 due to the expiration of statute of limitations.incurred for acquisitions.

Liquidity and Capital Resources

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

The following table summarizes our liquidity as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:


(In millions)	June 30, 2018		December 31, 2017		As of March 31, 2019		As of December 31, 2018
Cash and cash equivalents	$	158.6	$	243.6	$	108.3	$	170.9
Revolving credit availability	325.5		330.3		174.1		280.7
Liquidity	$	484.1	$	573.9	$	282.4	$	451.6

As of ~~June 30, 2018,~~March 31, 2019, approximately ~~93%~~91% of the Company’s cash and cash equivalents resided outside the United States. Repatriation of such foreign cash and cash equivalents are exempt from domestic taxation pursuant to the enactment of the TCJA, but in certain cases may be subject to foreign taxes. During the first quarter of 2018, in contemplation of the TCJA enactment, we determined we would repatriate certain foreign earnings from prior periods. This repatriation of cash was subject to foreign withholding taxes that was paid upon the receipt of funds in the second quarter. As we

continue to assess the impacts of the TCJA and the geopolitical environment in foreign countries, strategic repatriation opportunities may arise and could result in a recognition of additional tax liabilities.

After considering the impact of foreign tax credit carryforwards, we anticipate that the resulting cash tax payable as a result of the one-time transition tax on previously deferred foreign earnings is estimated to be less than $10.0 million.

Cash Flows

The following describes the significant components of cash flows from operating, investing and financing activities for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018.

Operating Activities — In the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, net cash ~~provided~~used by operating activities was ~~$108.9~~$24.7 million as compared to net cash provided by operating activities of ~~$43.7~~$26.7 million for the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018, primarily ~~reflecting improved underlying operating results~~due to higher working capital in 2019 and a receipt of $27.9 million of U.S. federal income tax ~~refunds.~~refunds in 2018.

Working capital as a percentage of sales, which we define as the average accounts receivable, plus average inventory, less average accounts payable, divided by sales, for the ~~second quarter of 2018~~three months ended March 31, 2019 increased to ~~10.6%~~11.0% compared to ~~10.1%~~10.6% for the ~~second quarter of 2017.~~three months ended March 31, 2018. This working capital percentage increase is primarily due to the impact of recent acquisitions.

Investing Activities — Net cash used by investing activities during the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 of ~~$130.1~~$127.9 million primarily reflects ~~$98.6~~$119.6 million for the acquisition of ~~acquisitions~~Fiber-Line and ~~$31.5~~$9.9 million of capital expenditures.

Net cash used by investing activities during the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 of ~~$162.2~~$85.9 million reflects ~~$137.9~~$73.0 million for the acquisition of ~~acquisitions~~IQAP Masterbatch Group S.L. and ~~$34.1~~$12.9 million of capital ~~expenditures, partially offset by the sale of assets of $9.8 million.~~expenditures.

Financing Activities — Net cash provided by financing activities for the three months ended March 31, 2019 of $87.0 million primarily reflects net borrowings of $105.5 million under our senior secured revolving credit facility, offset by$15.6 million of dividends paid.

Net cash used by financing activities for the ~~six~~three months ended ~~June 30,~~March 31, 2018 of ~~$62.8~~$22.1 million ~~primarily~~ reflects ~~$45.3~~$42.2 million of repurchases of our outstanding common shares and ~~$28.2~~$14.2 million of dividends paid, offset by net borrowings of ~~$16.9~~$37.5 million under our senior secured revolving credit facility.

~~Net cash provided by financing activities for the six months ended June 30, 2017 of $80.2 million~~primarily reflects the net borrowings of $144.6 million under our senior secured revolving credit facility, principally to finance our acquisition of Rutland Plastics Technologies, Inc., primarily offset by $34.3 million of repurchases of our outstanding common shares and $22.2 million of dividends paid.

Debt

As of ~~June 30, 2018,~~March 31, 2019, the principal amount of debt totaled ~~$1,344.7~~$1,475.0 million. Aggregate maturities of the principal amount of debt for the current year, next five years and thereafter, are as follows:


(In millions)
2018	$	30.3
2019	8.7		$	16.9
2020	8.2		8.2
2021	7.5		7.6
2022	686.2		232.9
2023	600.4		607.0
Thereafter	3.4		602.4
Aggregate maturities	$	1,344.7	$	1,475.0

As of ~~June 30, 2018,~~March 31, 2019, we were in compliance with all customary financial and restrictive covenants pertaining to our debt. For additional information regarding our debt, please see Note 8, Financing ~~Arrangements.~~Arrangements to the accompanying condensed consolidated financial statements.

Contractual Obligations

We have future obligations under various contracts relating to debt and interest payments, operating leases, pension and post-retirement benefit plans and purchase obligations. During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, there were no material changes to these obligations as reported in our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

In this ~~quarterly report~~Quarterly Report on Form 10-Q, statements that are not reported financial results or other historical information are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give current expectations or forecasts of future events and are not guarantees of future performance. They are based on management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as "will," “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 condition, performance and/or sales. In particular, these include statements relating to future actions; prospective changes in raw material costs, product pricing or product demand; future performance; estimated capital expenditures; results of current and anticipated market conditions and market strategies; sales efforts; expenses; the outcome of contingencies such as legal proceedings and environmental liabilities; and financial results. Factors that could cause actual results to differ materially from those implied by these forward-looking statements include, but are not limited to:

disruptions, uncertainty or volatility in the credit markets that could adversely impact the availability of credit already arranged and the availability and cost of credit in the future;

the effect on foreign operations of currency fluctuations, tariffs and other political, economic and regulatory risks;

changes in polymer consumption growth rates and laws and regulations regarding ~~the disposal of plastic~~plastics in jurisdictions where we conduct business;

changes in global industry capacity or in the rate at which anticipated changes in industry capacity come online;

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

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

unanticipated developments that could occur with respect to contingencies such as litigation and environmental matters;

~~information systems failures and cyberattacks;~~

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

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

our ~~business beyond~~ ability to pay regular cash dividends and the amounts and timing of any future dividends;

our ~~control, including, without limitation, changes in the general economy, changes in interest rates~~ability to identify and ~~changes in the rate of inflation;~~evaluate acquisition targets and consummate and integrate acquisitions;

information systems failures and cyberattacks; and

other factors described in our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 under Item 1A, “Risk Factors.”

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to exposures to market risk as reported in our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure controls and procedures

PolyOne’s management, under the supervision of and with the participation of its Chief Executive Officer and its Chief Financial Officer, has evaluated the effectiveness of the design and operation of PolyOne’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this quarterly report. Based upon this evaluation, PolyOne’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, its disclosure controls and procedures were effective.

Changes in internal control over financial reporting

During the quarter ended March 31, 2019, we adopted Accounting Standards Codification 842, Leases. This adoption resulted in modifications to several processes and changes in our information technology systems, which materially affected our internal control over financial reporting.

There were no other changes in PolyOne’s internal control over financial reporting during the quarter ended ~~June 30, 2018~~March 31, 2019 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information regarding certain legal proceedings can be found in Note 10, Commitments and Contingencies, to the accompanying condensed consolidated financial statements and is incorporated by reference herein.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below sets forth information regarding the repurchase of shares of our common shares during the period indicated.

Period Total Number of Shares Purchased Weighted Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program
Maximum Number of Shares that May Yet be Purchased Under the Program⁽¹⁾
April 1 to April 30 73,282
$ 42.33
73,282
5,412,592
May 1 to May 31 —
—
—
5,412,592
June 1 to June 30 —
—
—
5,412,592
Total 73,282
$ 42.33
73,282



Period	Total Number of Shares Purchased	Weighted Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares that May Yet be Purchased Under the Program⁽¹⁾
January 1 to January 31	—	$	—	—	3,107,472
February 1 to February 28	—	—		—	3,107,472
March 1 to March 31	—	—		—	3,107,472
Total	—	$	—	—

⁽¹⁾On August 18, 2008, we announced that our Board of Directors approved a common shares repurchase program authorizing PolyOne to purchase up to 10.0 million of its common shares. On October 11, 2011 and October 23, 2012, we further announced that our Board of Directors had increased the common shares repurchase authorization by an additional 5.3 million and 13.2 million, respectively. On May 16, 2016, we announced that we would increase our share buyback by 7.3 million to 10.0 million. As of ~~June 30, 2018,~~March 31, 2019, approximately ~~5.4~~3.1 million shares remain available for purchase under these authorizations. Purchases of common shares may be made by open market purchases or privately negotiated transactions and may be made pursuant to Rule 10b5-1 plans and accelerated share repurchases.

ITEM 6. EXHIBITS

EXHIBIT INDEX



Exhibit No.		Exhibit Description

~~10.1~~		Amendment Agreement No. 5, dated April 11, 2018, by and among PolyOne Corporation, the subsidiaries of PolyOne Corporation party thereto, Citibank, N.A., as administrative agent, and the lenders party thereto.

31.1		Certification of Robert M. Patterson, Chairman, President and Chief Executive Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Bradley C. Richardson, Executive Vice President, Chief Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification pursuant to 18 U.S.C. § 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as signed by Robert M. Patterson, Chairman, President and Chief Executive Officer

32.2		Certification pursuant to 18 U.S.C. § 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as signed by Bradley C. Richardson, Executive Vice President, Chief Financial Officer

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




~~July 24, 2018~~April 17, 2019	POLYONE CORPORATION

	/s/ Bradley C. Richardson
	Bradley C. Richardson Executive Vice President, Chief Financial Officer

2321



As of December 31, 2017 (In millions)	Principal Amount		Unamortized discount and debt issuance cost		Net Debt		Weighted average interest rate
Senior secured revolving credit facility due 2022	$	56.5	$	—	$	56.5	2.77	%
Senior secured term loan due 2022	637.5		8.5		629.0		3.27	%
5.25% senior notes due 2023	600.0		6.0		594.0		5.25	%
Other debt ⁽¹⁾	29.5		—		29.5
Total debt	$	1,323.5	$	14.5	$	1,309.0
Less short-term and current portion of long-term debt	32.6		—		32.6
Total long-term debt, net of current portion	$	1,290.9	$	14.5	$	1,276.4



	Six Months Ended June 30, 2018								Six Months Ended June 30, 2017
(In millions)	Sales to External Customers		Total Sales			Operating Income			Sales to External Customers		Total Sales			Operating Income
Color, Additives and Inks	$	541.8	$	544.6		$	87.4		$	424.6	$	435.5		$	73.7
Specialty Engineered Materials	303.3		328.6			41.2			292.7		317.8			42.5
Performance Products and Solutions	341.5		382.9			45.3			325.5		367.9			44.4
PolyOne Distribution	629.8		638.8			36.9			568.0		576.9			38.9
Corporate and eliminations	—		(78.5		)	(54.6		)	—		(87.3		)	(39.5		)
Total	$	1,816.4	$	1,816.4		$	156.2		$	1,610.8	$	1,610.8		$	160.0



(In millions)	Cumulative Translation Adjustment			Pension and Other Post-Retirement Benefits		Other			Total
Balance at January 1, 2018	$	(58.6	)	$	5.2	$	—		$	(53.4	)
Translation adjustments	(16.2		)	—		—			(16.2		)
Balance at June 30, 2018	$	(74.8	)	$	5.2	$	—		$	(69.6	)

Balance at January 1, 2017	$	(99.8	)	$	5.2	$	0.4		$	(94.2	)
Translation adjustments	19.4			—		—			19.4
Unrecognized gain	—			—		(0.1		)	(0.1		)
Balance at June 30, 2017	$	(80.4	)	$	5.2	$	0.3		$	(74.9	)