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, 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, 2016
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
months ended
March 31, 2017
are not necessarily indicative of the results that may be attained in subsequent periods or for the year ending
December 31, 2017
.
Accounting Standards Adopted
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), which simplifies the accounting for share-based payment transactions. Excess tax benefits and deficiencies reflect the difference between the book expense and the tax deduction of share based compensation. Book expense is based on an estimated fair value of the award at the grant date and the tax deduction is based on the actual value of the award at the grant or vesting date. Such book and tax differences are required to be recognized as income tax expense or benefit in the Consolidated Statements of Income rather than additional paid-in capital. Further, the update allows an entity to make a policy election to recognize forfeitures as they occur or estimate the number of awards expected to be forfeited. We have adopted ASU 2016-09 as of January 1, 2017.
As a result of this adoption, certain reclassifications of the prior period presentation have been made to conform to the presentation for the current period. The excess tax benefits are classified as an operating activity, rather than a financing activity, and the cash paid for shares withheld to satisfy statutory tax withholding obligations are classified as a financing activity (
$5.1 million
for the three months ended March 31, 2016) on the Consolidated Statement of Cash Flows. Also, we elected to continue to estimate forfeitures rather than account for them as they occur.
In January 2017, the FASB issued ASU 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.
This standard removes the second step of the goodwill impairment test, where a determination of the fair value of individual assets and liabilities of a reporting unit were needed to measure the goodwill impairment. Under this updated standard, goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. We have adopted this update for any impairment test performed after January 1, 2017.
Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
(ASU 2014-09). Under this standard, a company recognizes revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard implements a five-step process for customer contract revenue recognition that focuses on transfer of control. We are analyzing the impact of the standard on our contract portfolio and reviewing our current accounting policies and practices to identify the impact of the new standard. The implementation team has identified our revenue streams and is currently assessing the adoption method and the expected impact that ASU 2014-09, along with the subsequent updates and clarifications, will have on our Consolidated Financial Statements as well as future disclosure requirements. The Company will adopt ASU 2014-09 no later than the required date of January 1, 2018.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
(ASU 2016-02), which requires a lessee to recognize on the balance sheet the assets and liabilities 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 no later than the required date of January 1, 2019. We are currently assessing the impact this standard will have on our Consolidated Financial Statements.
In October 2016, the FASB issued 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. There would be no material impact on our Consolidated Financial Statements from intercompany transactions completed as of December 31, 2016 and March 31, 2017. We will continue to assess the impact of ASU 2016-16 on future transactions and the Company will adopt ASU 2016-16 no later than the required date of January 1, 2018.
In March 2017, the FASB issued ASU 2017-07,
Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost 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 will be presented below operating income. Additionally, only the service cost component will be eligible for capitalization in assets. The Company will adopt ASU 2017-07 no later than the required date of January 1, 2018. For detail on the components of our annual net periodic benefit cost please see Note 10,
Employee Benefit Plans
in our annual report on Form 10-K for the year ended
December 31, 2016
and Note 8,
Employee Benefit Plans
included herein.
Note 2 — BUSINESS COMBINATIONS
On January 3, 2017, the Company completed the acquisition of SilCoTec, Inc. (SilCoTec), a leading producer of innovative silicone colorants, dispersions and formulations. The results of operations of SilCoTec will be reported in the Color, Additives and Inks segment.
On
July 26, 2016
, the Company completed the acquisition of substantially all of the assets of Gordon Composites, Inc. (Gordon Composites), Polystrand, Inc. (Polystrand) and Gordon Holdings, Inc. (Gordon Holdings). Gordon Composites develops high strength profiles and laminates for use in vertical and crossbow archery, sports and recreation equipment, prosthetics and office furniture systems. Polystrand operates in the advanced area of continuous reinforced thermoplastic composite technology space, a next generation material science that delivers the high strength and lightweight characteristics of composites, further enhanced with the design flexibility to form more complex shapes.
The purchase price was
$85.5 million
for Gordon Composites, Polystrand and Gordon Holdings and the results of operations of the acquired businesses are included in the Company's Consolidated Statements of Income for the period subsequent to the date of the acquisition and are reported in the Specialty Engineered Materials segment. The final purchase price allocation resulted in goodwill of
$36.2 million
and in intangible assets of
$30.0 million
, of which
$4.0 million
represent indefinite-lived trade names. Goodwill recognized as a result of this acquisition is deductible for tax purposes. The definite-lived intangible assets that have been acquired are being amortized over a period of
20
years.
Note 3 — GOODWILL AND INTANGIBLE ASSETS
Goodwill as of
March 31, 2017
and
December 31, 2016
, and changes in the carrying amount of goodwill by segment were as follows:
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|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
(In millions)
|
Specialty
Engineered
Materials
|
|
Color,
Additives and
Inks
|
|
Designed Structures and Solutions
|
|
Performance
Products and
Solutions
|
|
PolyOne
Distribution
|
|
Total
|
Balance December 31, 2016
|
$
|
173.5
|
|
|
$
|
346.4
|
|
|
$
|
144.7
|
|
|
$
|
11.2
|
|
|
$
|
1.6
|
|
|
$
|
677.4
|
|
Acquisitions of businesses
|
—
|
|
|
9.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.2
|
|
Currency translation and other adjustments
|
(0.1
|
)
|
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Balance March 31, 2017
|
$
|
173.4
|
|
|
$
|
355.8
|
|
|
$
|
144.7
|
|
|
$
|
11.2
|
|
|
$
|
1.6
|
|
|
$
|
686.7
|
|
Indefinite and finite-lived intangible assets consisted of the following:
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
As of March 31, 2017
|
(In millions)
|
Acquisition
Cost
|
|
Accumulated
Amortization
|
|
Currency
Translation
|
|
Net
|
Customer relationships
|
$
|
224.7
|
|
|
$
|
(54.9
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
169.6
|
|
Patents, technology and other
|
158.2
|
|
|
(60.7
|
)
|
|
(0.4
|
)
|
|
97.1
|
|
Indefinite-lived trade names
|
100.3
|
|
|
—
|
|
|
—
|
|
|
100.3
|
|
Total
|
$
|
483.2
|
|
|
$
|
(115.6
|
)
|
|
$
|
(0.6
|
)
|
|
$
|
367.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
(In millions)
|
Acquisition
Cost
|
|
Accumulated
Amortization
|
|
Currency
Translation
|
|
Net
|
Customer relationships
|
$
|
217.1
|
|
|
$
|
(52.2
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
164.6
|
|
Patents, technology and other
|
156.6
|
|
|
(57.6
|
)
|
|
(0.4
|
)
|
|
98.6
|
|
Indefinite-lived trade names
|
100.3
|
|
|
—
|
|
|
—
|
|
|
100.3
|
|
Total
|
$
|
474.0
|
|
|
$
|
(109.8
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
363.5
|
|
As previously reported in our annual report on Form 10-K for the year ended
December 31, 2016
, we performed our annual goodwill impairment analysis on October 1, 2016, which resulted in an excess of fair value over carrying value of
8.0%
for our Custom Engineered Structures (CES) reporting unit, which is included in our Designed Structures and Solutions segment results. CES had goodwill of
$108.8 million
at March 31, 2017. We have continued to monitor the performance of CES in 2017 and our assessment for the quarter ended March 31, 2017 did not indicate the presence of any goodwill impairment triggering events for CES. If the timing of new business opportunities and operational improvements are not achieved, impairment of intangible assets, including goodwill, and our other long-lived assets, could result.
Note 4 — EMPLOYEE SEPARATION AND RESTRUCTURING COSTS
During the
three months ended March 31, 2017
, we recognized total employee separation and restructuring charges of
$3.9 million
, of which
$0.4 million
was recognized within
Cost of goods sold
and
$3.5 million
within
Selling and administrative expenses
. These costs were primarily related to actions taken across our North American and European locations.
During the
three months ended March 31, 2016
, we recognized total employee separation and restructuring charges of
$7.1 million
, of which
$2.7 million
was recognized within
Cost of goods sold
and
$4.4 million
within
Selling and administrative expenses.
These costs were
primarily associated with the closure of
two
manufacturing facilities in 2015 within the Designed Structures and Solutions segment and other corporate actions to reduce costs
.
Note 5 — INVENTORIES, NET
Components of
Inventories, net
are as follows:
|
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|
|
|
|
|
|
|
(In millions)
|
March 31, 2017
|
|
December 31, 2016
|
Finished products
|
$
|
207.1
|
|
|
$
|
197.4
|
|
Work in process
|
7.8
|
|
|
5.8
|
|
Raw materials and supplies
|
122.3
|
|
|
109.2
|
|
Inventories, net
|
$
|
337.2
|
|
|
$
|
312.4
|
|
Note 6 — PROPERTY, NET
Components of
Property, net
are as follows:
|
|
|
|
|
|
|
|
|
(In millions)
|
March 31, 2017
|
|
December 31, 2016
|
Land and land improvements
(1)
|
$
|
49.5
|
|
|
$
|
49.0
|
|
Buildings
(2)
|
338.7
|
|
|
335.5
|
|
Machinery and equipment
|
1,172.8
|
|
|
1,159.9
|
|
Property, gross
|
1,561.0
|
|
|
1,544.4
|
|
Less accumulated depreciation and amortization
|
(955.4
|
)
|
|
(936.7
|
)
|
Property, net
|
$
|
605.6
|
|
|
$
|
607.7
|
|
|
|
(1)
|
Land and land improvements include properties under capital leases of
$1.8 million
as of March 31, 2017 and December 31, 2016.
|
|
|
(2)
|
Buildings include properties under capital leases of
$16.9 million
as of March 31, 2017 and December 31, 2016.
|
Depreciation expense was
$20.3 million
and
$21.7 million
for the three months ended March 31, 2017 and 2016, respectively. Included in depreciation expense during the three months ended March 31, 2016 is accelerated depreciation of
$2.8 million
related to restructuring actions.
Note 7 — INCOME TAXES
During the first quarter of 2017, the Company’s effective tax rate of
28.6%
differed from the Company's federal statutory rate of
35.0%
primarily due to the favorable impact of foreign tax rate differences on foreign earnings. The effective tax rate for the three months ended March 31, 2016 was
31.6%
. The decrease in effective tax rate of
3.0%
is primarily due to a more favorable foreign tax rate differential in 2017 compared to 2016.
Note 8 — EMPLOYEE BENEFIT PLANS
Weighted-average assumptions used to determine net periodic benefit (gain) cost for the periods ended March 31:
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|
|
Pension Benefits
|
|
Health Care Benefits
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Discount rate
|
|
3.97
|
%
|
|
4.10
|
%
|
|
4.04
|
%
|
|
4.12
|
%
|
Expected long-term return on plan assets
|
|
6.08
|
%
|
|
6.87
|
%
|
|
—
|
%
|
|
—
|
%
|
Components of defined benefit pension plan net periodic gains and post-retirement health care plan benefit costs are as follows:
|
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|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(In millions)
|
2017
|
|
2016
|
Defined benefit pension plan net periodic gains:
|
|
|
|
Service cost
|
$
|
0.1
|
|
|
$
|
0.2
|
|
Interest cost
|
4.8
|
|
|
5.2
|
|
Expected return on plan assets
|
(6.9
|
)
|
|
(7.9
|
)
|
Net periodic benefit gains
|
$
|
(2.0
|
)
|
|
$
|
(2.5
|
)
|
|
|
|
|
Post-retirement health care plan benefit costs:
|
|
|
|
Interest cost
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Net periodic benefit costs
|
$
|
0.1
|
|
|
$
|
0.1
|
|
Note 9 — FINANCING ARRANGEMENTS
Debt consists of the following instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
(In millions)
|
Principal Amount
|
|
Unamortized discount and debt issuance cost
|
|
Net Debt
|
Senior secured term loan due 2022
|
$
|
642.4
|
|
|
$
|
9.1
|
|
|
$
|
633.3
|
|
Revolving credit facility due 2022
|
41.0
|
|
|
—
|
|
|
41.0
|
|
5.25% senior notes due 2023
|
600.0
|
|
|
6.8
|
|
|
593.2
|
|
Other debt
(1)
|
29.6
|
|
|
—
|
|
|
29.6
|
|
Total long-term debt
|
$
|
1,313.0
|
|
|
$
|
15.9
|
|
|
$
|
1,297.1
|
|
Less short-term and current portion of long-term debt
|
17.9
|
|
|
—
|
|
|
17.9
|
|
Total long-term debt, net of current portion
|
$
|
1,295.1
|
|
|
$
|
15.9
|
|
|
$
|
1,279.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
(In millions)
|
Principal Amount
|
|
Unamortized discount and debt issuance cost
|
|
Net Debt
|
Senior secured term loan due 2022
|
$
|
644.0
|
|
|
$
|
8.7
|
|
|
$
|
635.3
|
|
5.25% senior notes due 2023
|
600.0
|
|
|
7.1
|
|
|
592.9
|
|
Other debt
(1)
|
30.1
|
|
|
—
|
|
|
30.1
|
|
Total long-term debt
|
$
|
1,274.1
|
|
|
$
|
15.8
|
|
|
$
|
1,258.3
|
|
Less short-term and current portion of long-term debt
|
18.5
|
|
|
—
|
|
|
18.5
|
|
Total long-term debt, net of current portion
|
$
|
1,255.6
|
|
|
$
|
15.8
|
|
|
$
|
1,239.8
|
|
|
|
(1)
|
Other debt includes capital lease obligations of
$17.9 million
and
$17.8 million
as of March 31, 2017 and December 31, 2016, respectively.
|
On January 24, 2017, the Company entered into a third amendment to its senior secured term loan. Under the terms of the amended senior secured term loan, the margin was reduced by 50 basis points to 225 basis points. At the Company's discretion, interest is based upon (i) a margin rate of 225 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 125 basis points plus a Prime Rate, subject to a floor of 175 basis points. Repayments in the amount of
one
percent of the aggregate principal amount as of January 24, 2017 are payable annually, while the remaining balance matures on November 12, 2022. The weighted average annual interest rate for the senior secured term loan for the three months ended March 31, 2017 was
3.17%
.
PolyOne has outstanding
$600.0 million
aggregate principal amount of senior notes, which mature on March 15, 2023. The senior notes bear an interest rate of
5.25%
per year, payable semi-annually, in arrears, on March 15 and September 15 of each year.
On February 24, 2017, PolyOne amended and restated its senior secured revolving credit facility increasing the maximum borrowing facility size from
$400.0 million
to
$450.0 million
, subject to a borrowing base with advances against certain U.S. and Canadian accounts receivable, inventory and other assets as specified in the agreement. Under the terms of the amended and restated senior secured revolving facility the maturity date was extended to February 24, 2022. The senior secured revolving credit facility has a U.S. and a Canadian line of credit. Currently there are
no
borrowings on the Canadian portion of the facility. Advances under the U.S. portion of our revolving credit facility bear interest, at the Company’s option, at a Base Rate or a LIBOR Rate plus an applicable margin. The Base Rate is a fluctuating rate equal to the greater of (i) the Federal Funds Rate plus one-half percent, (ii) the prevailing LIBOR Rate plus one percent, and (iii) the prevailing Prime Rate. The applicable margins vary based on the Company’s daily average excess availability during the previous quarter. The weighted average annual interest rate under this facility for the three months ended March 31, 2017 was
2.88%
. As of
March 31, 2017
, we had
$41.0 million
outstanding borrowings and had availability of
$389.7 million
under this facility.
The agreements governing our revolving credit facility and our secured term loan, and the indentures and credit agreements governing other debt, contain a number of customary 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
March 31, 2017
, we were in compliance with all covenants.
The estimated fair value of PolyOne’s debt instruments at
March 31, 2017
and
December 31, 2016
was $
1,306.3 million
and $
1,272.1 million
, respectively, compared to carrying values of $
1,297.1 million
and
$1,258.3 million
as of
March 31, 2017
and
December 31, 2016
, 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 10 — SEGMENT INFORMATION
Operating income is the primary measure that is reported to our chief operating decision maker 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 costs; executive separation agreements; share-based compensation costs; asset impairments; environmental remediation costs and other liabilities for facilities no longer owned or closed in prior years; gains and losses on the divestiture of joint ventures and equity investments; actuarial gains and losses associated with our pension and 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 chief operating decision maker. These costs are included in
Corporate and eliminations
.
PolyOne has
five
reportable segments: (1) Color, Additives and Inks; (2) Specialty Engineered Materials; (3) Designed Structures and Solutions; (4) Performance Products and Solutions; and (5) PolyOne Distribution.
Segment information for the
three
months ended
March 31, 2017
and
2016
is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
Three Months Ended March 31, 2016
|
(In millions)
|
Sales to
External
Customers
|
|
Total Sales
|
|
Operating
Income
|
|
Sales to
External
Customers
|
|
Total Sales
|
|
Operating
Income
|
Color, Additives and Inks
|
$
|
206.5
|
|
|
$
|
211.8
|
|
|
$
|
35.1
|
|
|
$
|
201.2
|
|
|
$
|
204.9
|
|
|
$
|
34.9
|
|
Specialty Engineered Materials
|
146.6
|
|
|
159.1
|
|
|
23.6
|
|
|
128.4
|
|
|
141.0
|
|
|
23.4
|
|
Designed Structures and Solutions
|
102.1
|
|
|
102.1
|
|
|
(3.3
|
)
|
|
108.1
|
|
|
108.5
|
|
|
0.4
|
|
Performance Products and Solutions
|
162.2
|
|
|
183.7
|
|
|
22.1
|
|
|
145.2
|
|
|
166.2
|
|
|
19.7
|
|
PolyOne Distribution
|
281.4
|
|
|
286.1
|
|
|
18.6
|
|
|
264.1
|
|
|
268.8
|
|
|
17.5
|
|
Corporate and eliminations
|
—
|
|
|
(44.0
|
)
|
|
(14.7
|
)
|
|
—
|
|
|
(42.4
|
)
|
|
(24.6
|
)
|
Total
|
$
|
898.8
|
|
|
$
|
898.8
|
|
|
$
|
81.4
|
|
|
$
|
847.0
|
|
|
$
|
847.0
|
|
|
$
|
71.3
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
(In millions)
|
March 31, 2017
|
|
December 31, 2016
|
Color, Additives and Inks
|
$
|
966.4
|
|
|
$
|
919.1
|
|
Specialty Engineered Materials
|
549.0
|
|
|
539.0
|
|
Designed Structures and Solutions
|
454.7
|
|
|
442.9
|
|
Performance Products and Solutions
|
259.5
|
|
|
238.6
|
|
PolyOne Distribution
|
243.4
|
|
|
206.9
|
|
Corporate and eliminations
|
303.7
|
|
|
376.8
|
|
Total assets
|
$
|
2,776.7
|
|
|
$
|
2,723.3
|
|
Note 11 — COMMITMENTS AND CONTINGENCIES
Environmental
— 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., 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. While we do not currently assume any allocation of costs in our current accrual, we will adjust our accrual, in the future, consistent with any such future allocation of costs.
A remedial investigation and feasibility study (RIFS) is underway at Calvert City. The United States Environmental Protection Agency (USEPA) provided a final remedial investigation report in 2015 and assumed responsibility for the completion of the feasibility study. In 2016, the USEPA conducted additional site investigations from which results are still being reviewed. We continue to pursue available insurance coverage related to this matter and recognize gains as we receive reimbursement.
On March 13, 2013, PolyOne acquired 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 has 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 (the lower Passaic River Study Area). 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 RIFS of the lower Passaic River Study Area. By agreeing to bear a portion of the cost of the RIFS, Franklin-Burlington did not admit to any liability or agree to bear any remediation or natural resource damage costs.
In 2015, the Cooperating Parties submitted to the USEPA a remedial investigation report for the lower Passaic River Study Area and Franklin-Burlington, along with nine other PRPs, submitted a de minimis settlement petition to the USEPA, asserting the ten entities contributed little or no impact to the lower Passaic River. On March 4, 2016, the USEPA issued a Record of Decision selecting a remedy for an
eight
-mile portion of the lower Passaic River Study Area at an estimated and discounted cost of
$1.4 billion
. On September 30, 2016, the USEPA reached an agreement with Occidental Chemical Corporation (OCC), which orders OCC to perform the remedial design for the lower
eight
mile portion of the Passaic River.
As of
March 31, 2017
, we have concluded that the same uncertainties that limited our ability to reasonably estimate an accrual at December 31, 2016 still exist and it will not be material to our Consolidated Financial Statements.
During the
three
months ended
March 31, 2017
and
2016
, PolyOne recognized
$2.2 million
and
$1.7 million
, respectively, of expense related to environmental remediation activities. These expenses are included within
Cost of sales
within our
Condensed Consolidated Statements of Income
.
Our Consolidated Balance Sheet includes accruals totaling
$116.9 million
and
$117.3 million
as of
March 31, 2017
and
December 31, 2016
, 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 liabilities
and
Other non-current liabilities
on the accompanying 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
March 31, 2017
. However, such additional costs, if any, cannot be currently estimated.
Note 12 — EQUITY
Changes in accumulated other comprehensive loss year-to-date as of
March 31, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Cumulative Translation Adjustment
|
|
Pension and Other Post-Retirement Benefits
|
|
Unrealized Gain in Available-for-Sale Securities
|
|
Total
|
Balance at January 1, 2017
|
$
|
(99.8
|
)
|
|
$
|
5.2
|
|
|
$
|
0.4
|
|
|
$
|
(94.2
|
)
|
Translation adjustments
|
6.4
|
|
|
—
|
|
|
—
|
|
|
6.4
|
|
Unrealized gain on available-for-sale securities
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
Balance at March 31, 2017
|
$
|
(93.4
|
)
|
|
$
|
5.2
|
|
|
$
|
0.5
|
|
|
$
|
(87.7
|
)
|
|
|
|
|
|
|
|
|
Balance at January 1, 2016
|
$
|
(76.8
|
)
|
|
$
|
5.2
|
|
|
$
|
0.3
|
|
|
$
|
(71.3
|
)
|
Translation adjustments
|
(0.2
|
)
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
Balance at March 31, 2016
|
$
|
(77.0
|
)
|
|
$
|
5.2
|
|
|
$
|
0.3
|
|
|
$
|
(71.5
|
)
|