PolyOne 2009 Annual Report

POLYONE CORPORATION
Shipping and Handling Costs
Shipping and handling costs are included in cost of sales.
Research and Development Expense
Research and development costs, which were $22.9 million in
2009, $26.5 million in 2008 and $21.6 million in 2007, are
charged to expense as incurred.
Environmental Costs
We expense costs that are associated with managing hazardous
substances and pollution in ongoing operations on a current basis.
Costs associated with the remediation of environmental contamination
are accrued when it becomes probable that a liability has
been incurred and our proportionate share of the cost can be
reasonably estimated.
Equity Affiliates
We account for our investments in equity affiliates under FASB ASC
Topic 323, Investments — Equity Method and Joint Ventures. We
recognize our proportionate share of the income of equity affiliates.
Losses of equity affiliates are recognized to the extent of our
investment, advances, financial guarantees and other commitments
to provide financial support to the investee. Any losses in
excess of this amount are deferred and reduce the amount of future
earnings of the equity investee recognized by PolyOne. As of December
31, 2009 and 2008, there were no deferred losses related to
equity investees.
We recognize impairment losses in the value of investments
that we judge to be other than temporary. See Note 4, Financial
Information of Equity Affiliates, for more information.
Share-Based Compensation
We account for share-based compensation under the provisions of
FASB ASC Topic 718, Compensation — Stock Compensation, which
requires us to estimate the fair value of share-based awards on the
date of grant using an option-pricing model. The value of the portion
of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the accompanying
consolidated statements of operations. As of December 31, 2009,
we had one active share-based employee compensation plan, which
is described more fully in Note 15, Share-Based Compensation.
Income Taxes
Deferred tax liabilities and assets are determined based upon the
differences between the financial reporting and tax basis of assets
and liabilities and are measured using the tax rate and laws currently
in effect. In accordance with FASB ASC Topic 740, Income
Taxes, we evaluate our deferred income taxes to determine whether
a valuation allowance should be established against the deferred
tax assets or whether the valuation allowance should be reduced
based on consideration of all available evidence, both positive and
negative, using a “more likely than not” standard.
New Accounting Pronouncements
Consolidation — In June 2009, the FASB issued new guidance that
modifies how a company determines when an entity that is insufficiently
capitalized or is not controlled through voting (or similar
rights) should be consolidated. The new guidance clarifies that the
determination of whether a company is required to consolidate an
entity is based on, among other things, an entity’s purpose and
design and a company’s ability to direct the activities of the entity
that most significantly impact the entity’s economic performance. A
requirement of the new guidance is an ongoing reassessment of
whether a company is the primary beneficiary of a variable interest
entity. Additional disclosures are also required about a company’s
involvement in variable interest entities and any significant changes
in risk exposure due to that involvement. The new requirements are
effective for fiscal years beginning after November 15, 2009 and
are effective for us on January 1, 2010. The adoption of this
guidance will not materially affect our financial statements.
Subsequent Events — In May 2009, the FASB issued new guidance
to establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. The new
guidance also requires entities to disclose the date through which
subsequent events were evaluated as well as the rationale for the
date that was selected and is effective for interim and annual
periods ending after June 15, 2009. Refer to Note 22, Subsequent
Events.
Fair Value Measurements and Disclosures — In September 2006,
the FASB issued new guidance regarding fair value measurements,
which defines fair value, establishes the framework for measuring
fair value under U.S. generally accepted accounting principles and
expands disclosures about fair value measurements. In February
2008, the FASB issued further guidance that delayed the effective
date of fair value measurements for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed
at fair value in the financial statements on a recurring basis,
to fiscal years beginning after November 15, 2008. The adoption of
this new guidance on January 1, 2009, for all nonfinancial assets
and nonfinancial liabilities, did not have a material impact on our
financial statements. See Note 19, Fair Value, for information on our
assets and liabilities measured at fair value.
Business Combinations — In December 2007, the FASB issued
new guidance that establishes principles over the method entities
use to recognize and measure assets acquired and liabilities
assumed in a business combination and enhances disclosures
of business combinations. The new guidance is effective for business
combinations completed on or after January 1, 2009. The
adoption of this new guidance did not materially impact our 2009
financial statements. Refer to Note 20, Business Combinations.
Derivatives and Hedging — In March 2008, the FASB issued new
guidance that requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair
value amounts of and gains and losses on derivative instruments,
and disclosures about credit-risk-related contingent features in
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