Dave Wilson – SVP and CFO Steve Newlin – Chairman, President and CEO

Mike Judd – Greenwich Consultants Rosemarie Morbelli – Ingalls & Snyder Mike Harrison – First Analysis Saul Ludwig – KeyBanc Roger Spitz – Merrill Lynch Christopher Butler – Sidoti & Co. Bob Amenta – JPMorgan Asset Management

Good day ladies and gentlemen and welcome to the Q1 2008 PolyOne Corporation earnings conference call. My name is Antoine and I will be your operator for today. At this time, all participants are in a listen-only mode. (Operator instructions) I would now like to turn the call over to Mr. Dave Wilson, Chief Financial Officer. Please proceed sir.

Thank you, Antoine, and thanks to everybody for calling in this morning. As Antoine said, I'm Dave Wilson, PolyOne's CFO. Joining me on today's call is Steve Newlin, our Chairman, President and Chief Executive Officer, who will open the discussion with remarks pertaining to our first quarter operating performance. I will then follow with a more in-depth look at our financials before opening up the lines for questions. Because we would like to provide as much opportunity as practical for the investment community to ask questions this morning, we ask members of the media who have questions to please contact me after the conclusion of the conference call. Last night, we released our first quarter earnings report, which is posted on the Investor Relations section of PolyOne's Web site. We also filed our Form 10-Q. If you didn't receive our release and would like to be added to our mailing list, please do give me a call or e-mail me and I'll see that we take care of your request. I want to tell everybody that this call is being webcast. In our discussion today, we will use both GAAP and non-GAAP financial measures. I refer you to our earnings release where we describe the non-GAAP measures and our reconciliation of them to the most comparable GAAP financial measures. A detailed list of these special items can be found on Attachment 5 of the release and then in Attachment 7 through 9, we provide reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of how our management uses these measures. In addition, we will be discussing statements or other information defined as forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give current expectations or forecast to future events and are not guarantees of future performance. They are based on our management's expectations and 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. I recommend that you review the updated risk factors in yesterday's press release. Now, I'll turn the call over to Steve.

Well, thank you, Dave, and welcome to all of you participating in PolyOne's first quarter 2008 earnings call. Let me begin with a brief summary of first quarter performance and strategic progress. And then Dave will provide you a more detailed review of our financial results and near-term outlook before we open up the call for your questions. Now, to avoid any confusion to historical references that we might make during today's call, I want to first briefly comment on the recent renaming of our two business segments and one of our platforms during the quarter. First, we introduced specialty engineered materials as a new reportable segment, giving you better visibility into this important business. This move reflects the strategic shift towards specialization that our North American engineered materials business has undergone, including the GLS acquisition and focused investments in commercial and innovation resources. Second, we changed the name of our vinyl business segment to Geon Performance Polymers to further build upon Geon's renowned global brand, which is synonymous with excellence, quality and reliability. And in a similar vein, our general business platform is now known as Performance Products and Solutions or PP&S. This new name more effectively describes our mandate to understand customer needs and provide them with unmatched value-added services to help them succeed. The PP&S platform will better reflect our value proposition within these businesses. Of course, our two other strategic business platforms are Specialty and PolyOne Distribution. Now, let me turn to our financial performance for the quarter. Our first quarter results show that we are making significant progress with our transformational strategy despite tremendous external challenges. Sales increased 8.5% from a year ago to $714 million, reflecting the benefit of acquisition growth and foreign currency translation. First quarter 2008 net income was $6.5 million or…

Thanks, Steve, those are kind words and I do appreciate them. And I don't want to take too much of the focus off the real purpose of the call, which is discussing the strong performance of PolyOne this quarter. But I do want to say to our audience that one of my favorite responsibilities as CFO has been to be the voice or a voice of PolyOne to the Street and the shareholders. I've thoroughly enjoyed the rigor of the relationships with the Street in good times, tough times, and all times. And I'm proud of all that we've accomplished at PolyOne and I'm proud of how well positioned the company is today to succeed at levels of performance never before reached. I'm absolutely confident our best performance is still ahead and I do look forward over the next quarter to working with Bob to ensure a smooth and seamless transition. Now, turning over to the quarter's performance, I'll be discussing first quarter sales and earnings, our financial position and make some brief comments on our outlook for the second quarter and for the full year. Before I begin my remarks, I want to draw your attention to Attachment 6 of the earnings release. Steve reviewed the changes we've made this quarter to our reportable segments. Attachment 6 provides a recast of segment performance by quarter back through 2007 and for the whole year 2006, and this of course conforms with our 2008 presentation. So we have provided the history to help people understand our segments as we're reporting them today. Steve reviewed the many accomplishments we delivered this quarter. The strong earnings growth demonstrated by our specialty businesses, especially considering the challenging economic environment and depressed residential housing market in North America, reflect the fundamental change occurring within PolyOne.…

(Operator instructions) Your first question comes from the line of Mike Judd with Greenwich Consultants. Please proceed with your question. Mike Judd – Greenwich Consultants: Yes, good morning.

Hi, Mike. Mike Judd – Greenwich Consultants: A couple of questions. On SG&A, do you have an estimate for us for the June quarter, what that should look like? Obviously with the addition of your new business and given some of the targets that you talked about, 14% of sales, it's hard to imagine you'd get there in one quarter, but – so what should we be looking at there, please?

I think the S&A to sales ratio should be about what it was in the first quarter. As sales grow, the percentage in fact may come down a little bit. I wouldn't anticipate that the absolute level of S&A would increase. And from our Specialty businesses, you're right, it will take some time for us to continue to invest in more commercial resources to see the S&A to lift. But even then, the blend of S&A to sales with the specialty at 14% or so when you look at our – the Geon businesses, the Distribution business, the S&A to sales ratios for those businesses would be closer to 5%, and so would stay at that blended 9.5% to 10% rate.

We've said a 10% is in the range given our current portfolio and I think we have no reason to deviate from that. I want to be really clear, when Dave gave I thought a good illustration of the GLS sort of pro forma, that doesn't mean that the entire PolyOne portfolio supports and sustains that sort of a pro forma. You've got to have margins in order to invest in the sellers and the research organization and the marketing organization behind it that justifies a 14% or 15% SG&A in that arena. So, this is something that we ratchet up with time and we grow margins faster than we grow our SG&A. And in the end, you come out with a model that looks a lot like a 10% return on sales organization. So, I wouldn't want you to think that we are on a pace to ratchet up to 14% for the company or even for all of our specialty businesses right now. Mike Judd – Greenwich Consultants: And just secondly, with the SunBelt, I guess we learned from one of the other companies that's involved in that joint venture, at least in terms of some of their other businesses, it seems that there are limits in some of the contracts in terms of how much caustic prices can go up. Caps essentially on an annual basis or whatever. Is that one of the issues that your joint venture faces also?

Honestly, I don't know. Olin does manage caustic sales for the joint venture, but I think that more important than that, the challenge that the venture faces is low incremental chlorine demand. And so, there's the contract that we have with OxyVinyls for chlorine, but above that it's open market sales. And with the weak PVC resin demand, not quite as weak polyurethane demand, there just isn't a lot of incremental chlorine that we can sell. And as you know, if you can't move the chlorine, you can't make the ECU. That's really what's limiting SunBelt's profitability this past quarter and perhaps in the second quarter. I think the jury is still out as to whether or not caustic increases can offset the adverse effect of lower volume. In the first quarter, that dynamic didn't happen but, as we look forward, we know the team at SunBelt and Olin managing for SunBelt, is going to be work diligently to get the very best result. Mike Judd – Greenwich Consultants: And just lastly, Dave, thanks for the help over the years.

Thanks, Mike. I appreciate that.

Your next question comes from the line of Rosemarie Morbelli with Ingalls & Snyder. Please proceed with your question. : Rosemarie Morbelli – Ingalls & Snyder: Good morning all. And I want to start by thanking Dave for all of your help over the years. You'll be missed and we can talk before you leave.

We certainly will and thank you for those kind words. Rosemarie Morbelli – Ingalls & Snyder: When you look at the trend throughout the first quarter, you said that you expect the second quarter to be weak. Have you seen a decline in your markets, the demand overall, etc., during the first quarter? And do you expect it to continue to decline in the second quarter or just weak at the same level? Do you have any feel for what is happening out there, both in the U.S. and internationally?

I don't know that we've said that we expect the second quarter to be weak, and we always are very careful about what we state in our outlook. Rosemarie Morbelli – Ingalls & Snyder: I'm sorry, Steve, you meant that the U.S. will continue to be weak in the second quarter, so I was wondering if it was at the same level or if it's actually weakening some more. I was not talking about your results.

Okay. Yes, certainly, we see the same news and headlines that you all do when it comes to the economic environment externally. We don't see a lot of change in the U.S. It's all a matter of what you read and what you believe. Yesterday, there was an article in The Wall Street Journal declaring that the housing crisis is over. So I guess if you believe that author, we should feel really good. I don't think we're going to actually go that far, frankly. We see sequential sales improvement for the quarter and we've indicated that. We are seeing continued solid growth internationally. There is a few little pockets in Asia that is business that's sold to American-based houses that tend to soften with this economy. But beyond that, we're seeing solid growth in Asia. Europe, we keep hearing about slowdowns in Europe. I'll be honest, we're not seeing it right now. So, I think another good barometer for us has been our PolyOne distribution business, which in the first quarter we saw slowdowns in base business. There's no question that the molders and the customers of PolyOne distribution in general bought a little less from us this quarter because they produced fewer goods. But, at the same time, it was offset by growth of new business. So, that's a good benchmark for us. How is the PolyOne distribution business doing and what does it say about production throughout the U.S.? And yes, it was softer. We don't see much change to quarter two. We think the outlook that we're talking the about here is pretty consistent and consistent with the macro economic environment. And I think what's offsetting the downturn for us is some good solid performance on new business gains. Rosemarie Morbelli – Ingalls & Snyder: Regardless of what we read in different journals and so on, what do you hear from your customers? If you take their temperature, are they continuing to be negative, are they kind of depressed, for lack of a better word, or do they see a little light?

It's really tough. These are anecdotal stories and you have to be I think a little careful about valuing them. And sometimes negotiations are woven into these stories. But, I would just say this – in the housing related markets, it is really tough. We have empathy for the people that are our customers. We're trying to help them succeed in a very difficult environment. Other markets don't seem to be feeling much of a downturn. We have seen a little bit in wire and cable, obviously appliances which is connected to housing, and you see some of our key customers there, earnings releases and revenue growth rates. So, those are challenging markets. But, all in all, we think customers have been cautious. I think they're going to be very cautious about inventory buildup, but I think all in all things seem to be sort of simmering down a bit from the really rough period in March, when all the news that you saw in your industry was very bad and the financial markets were very distressed. I think that people got extremely cautious in that period and based on anecdotal stories and data points from customers, I think we're working our way out of that right now. I hope that answers your question. Rosemarie Morbelli – Ingalls & Snyder: Yes, it does. I wonder if you could address the raw material cost for the balance of the year and then in this economic environment, your ability to continue increasing prices? And linked to that, what is the competition attitude? Are they raising prices as you are, or have they decided to change their model and go for volume at all costs and therefore, are not raising prices?

I think you're over the question limit but we're going to try and answer your good question the best we can, and then we'll have to allow someone else the opportunity. I think with regard to our ability to see inflation and to capture pricing the remainder of this year, it's an important point. I mapped it out as priority for us very intentionally. Internally, we have to do all the things on the top numerator and the denominator of a gross margin line to make sure that we continue to expand the margins. I'm thrilled that we were able to do it in the first quarter, but inflationary costs keep coming at us and it comes on several fronts. Freight, for example, if we don't act on our freight costs, we'll have a lot of maybe $7 million or $8 million worth of costs that we'll have to absorb, and we can't do that. Our job is to provide valuable solutions to customers at a fair price. So, they're going to have to deal with some of the inflation that we can't control. On the other hand, we have an obligation to our customers and our shareholders to run very efficient manufacturing, to be as lean as possible, to do the most streamlined purchasing that we can on a value-oriented basis for the lowest total cost of operation. And so, those are the things that we'll continue to do. I think that as our value proposition strengthens and as we move to markets where value is more appreciated, we have much better ability to get fair and appropriate pricing for what we deliver. And I think you're seeing some of that the last few quarters with our performance. I don't think that customers in major medical applications want to…

(Operator instructions) Your next question comes from the line of Mike Harrison with First Analysis. Please proceed with your question. Mike Harrison – First Analysis: Hi, good morning.

Good morning, Mike. Mike Harrison – First Analysis: Congratulations to Dave on your retirement and best wishes.

Well, thank you. Thank you. We'll have opportunity over the next 60, 90 days to catch up and I'll continue to be talking about PolyOne. Mike Harrison – First Analysis: To be sure. I wanted to kind of continue following up on what Rosemarie asked about pricing. In terms of PVC pricing and pricing in your vinyl business, or Geon Performance Polymers, any move to increase the proportion of customers who are indexed to raw material costs? Can you maybe talk more broadly about how you are approaching pricing in that vinyl business, where you're dealing with more general purpose applications and it's maybe a little bit more difficult to institute the kind of value-based pricing that you're pursuing in more specialized areas of your business.

It's always a tough situation when you have soft demand and escalating prices and escalating raws that are out of your control. It's a tough situation and we have to deal with this in aggregate and individually and some markets are certainly easier than others. Some of this depends on our end customers' ability to pass on pricing. When we talk about being a value-added collaborator and partner, in some cases, we work with our customers to help them go get pricing from their customers to get relief based on this sort of energy derivative world that's escalating rapidly right now. So it's tough. There's no question. We have announced price increases. We have captured reasonable pricing but our margins are certainly, without question, are down. Part of that is demand driven. I would say the majority is demand driven. I think our customers understand. They don't like it, but they understand. We have to keep working through the battles one by one. And I will tell you, in the more general purpose applications where we're not differentiated, it's darn tough. We're going to keep fighting them out. But, as we continue to evolve and mature as an organization that moves toward more value-added applications, every quarter we get a little farther down that path and we get a customer base that is understanding of the components that add up to our value proposition. So, I think that's about all I can really say with regard to our pricing externally. Mike Harrison – First Analysis: As you look at the vinyl business sales decline of about 4%, is there any way that you can break out – was pricing positive and volume in the high-single digits negative, or how should we look at that?

You should look at it as pricing was positive and volume was down mid-teens, frankly, on a year-over-year basis. Mike Harrison – First Analysis: Okay. And then I wanted to also ask, in terms of – I know you've talked pretty recently about positioning yourself as a no surprises supplier for your customers, trying to prevent some of the bad publicity that rises from lead and other undesirable substances being found in plastic products. Looking at some of the backlash that we've seen recently against phthalates in baby products in particularly, as well as BPA and some other additives, with governmental bodies moving to ban certain additives or at least talking about banning these additives in certain applications for plastics, how do you think this is going to play out for the plastics industry overall over the next few years and maybe how is PolyOne positioned to deal with these potential changes?

That's a great question, Michael, and thanks for asking it. The industry will respond. The industry will adapt to the new environment, to the new world we're living in, and to new information about certain materials that are used in our marketplace. For PolyOne, we see this as a terrific opportunity. We have opportunities to provide alternatives to customers who desire a BPA-free technology. We're working on a number of options to use our polymer performance expertise and our compounding knowledge to develop new applications that have very similar performance characteristics to the BPA-based products. I would tell from you PolyOne's perspective, we have relatively low risk here, less than 1% of our raw material spend is on polycarbonate. We are not aware of any sales into baby bottle or water bottle applications and we don't provide any epoxy-based products into can coatings that contain BPA. So, our PolyOne distribution business does distribute some polycarbonate to molders who are making parts primarily for transportation, recreational equipment, clear packaging like music CDs. And our engineered materials business sells some into computer, printers and other business equipment applications. But these applications are not expected to be impacted by the current attention on BPA-containing plastics. So overall, we have relatively low exposure. We think net-net, we see this as an opportunity. This is why when you're on top of innovation opportunities and on top of your markets and you see changes occur, we think change is great because we think we're an adaptable organization and we're pretty quick at responding, despite our size, and so we think there's upside for us. We have an answer for our customers today and we'll have additional options for them in the future. Did that answer your question? Mike Harrison – First Analysis: Yes, it did. Thanks very much.

You're welcome.

Your next question comes from the line of Saul Ludwig with KeyBanc. Please proceed with your question. Saul Ludwig – KeyBanc: Good morning, everyone.

Good morning, Saul. Saul Ludwig – KeyBanc: In the outlook comments, are you kind of suggesting that as regards to the Geon sector, that their second quarter earnings might be in the same neighborhood as the $7 million you made in the first quarter?

We didn't really get that specific, but we would not anticipate that there would be a substantial improvement, although we would expect to see sequential improvement, yes. Saul Ludwig – KeyBanc: Okay. And then in your outlook for the back-end of the year where you've said your total corporate earnings would be more heavily weighted toward the back-end of the year, how does that outlook tie in with your outlook for the Geon portion of the business? Are you counting on them to do much better than they will have done in the first half of the year in the second half of the year?

No, it's really our second half performance. We're not anticipating that there's going to be a marked recovery in the vinyl business in the second half. That would be great if it did. But, what we're seeing in the second half is just continued momentum, primarily from our specialty businesses. As Steve mentioned, the success we've had on new business closes and the high value that we're realizing from those new closes. And it's really that momentum that's going to continue to have us see sequential improvements in earnings. Saul Ludwig – KeyBanc: In the first quarter, where you said you had the margin decline in your vinyl business, obviously your volume dropping off is a factor, but you also said there was some margin compression. Was that a margin compression that came about because of a – call it a variable margin compression, the difference between your selling price and your PVC input cost, or was it due to compression in fixed costs spread over fewer units?

It was both. There was a slight compression on a variable base, but the operating margin or even gross margin for that business was most affected by volume. Saul Ludwig – KeyBanc: Okay. Just two quickies.

Saul, you only get one more quickie. Saul Ludwig – KeyBanc: Where's the environmental $1.6 million charge, in which segment?

Corporate and other. Saul Ludwig – KeyBanc: That's in corporate also.

Yes. Saul Ludwig – KeyBanc: And then just finally, GLS, in the 10-Q report would appear to have had operating income last year in the first quarter of only $800,000. You said a terrific increase from a loss of $900,000, to $2.9 million. And if we were to put the GLS from last year in last year's numbers, you would have been essential breakeven. Was the improvement due to GLS doing a lot better or due to your former engineered materials business doing better? I thought the improvement was very, very impressive and significant. But, I was also surprised to see how little GLS made last year in the first quarter.

What you're looking at is in the Q for everybody's knowledge, where we have a pro forma look at the first quarter, as if we had purchased GLS the first quarter of '07. And what that shows is really total company, not specifically GLS, and included in that pro forma number is a $1.6 million inventory step-up similar to what we had this year. So, the net-net for the total company would have been only $800,000 or so. But, when you add back the $1.6 million, you get a better reflection of where GLS earnings really were. Now, I will also tell that you relative to last year, they did see sequential improvement – or year-over-year improvement, as did the other parts of our specialty engineered materials segment.

Your next question comes from the line of Roger Spitz with Merrill Lynch. Please proceed with your question. Roger Spitz – Merrill Lynch: Thanks very much. Can you provide EBITDA for GLS for 2007 and for the last nine months of 2007? I think you provided the EBIT for 2007.

Their depreciation is $2.5 million and this year, it's going to be up another $1 million or so associated with purchase accounting. Roger Spitz – Merrill Lynch: Okay. Would you say that GLS EBIT over the four quarters was reasonably flat or are they subject to seasonality? I'm trying to figure out how to get the right LTM EBITDA on a pro forma basis.

Right. You're asking me a question – I think they're going to be susceptible to a level of seasonality but their end markets are more stable than we would have in the general PolyOne business, with the automotive and residential construction exposure. Their focus is more packaging, as well as consumer and healthcare, which are flatter. So, I think Roger, it's safe to say that there is seasonality but not as dramatic as what you'd expect from the balance of the PolyOne portfolio, particularly the performance products and platform businesses. Roger Spitz – Merrill Lynch: So, dividing full-year EBIT by four, adding on your $2.5 million divided by four, is a reasonable proxy to get a pro forma EBITDA is what you're suggesting?

I think it's a reasonable proxy, yes. Roger Spitz – Merrill Lynch: Thank you very much.

Your next question comes from the line of Christopher Butler with Sidoti & Company. Please proceed with your question.

Hi, Chris. Christopher Butler – Sidoti & Co.: Hi, good morning guys. I think a lot of my questions are answered. Just one here really for you. We're looking at inflationary costs, you mentioned freights. You're passing through pricing as quickly as possible, understanding the conditions in the market. Yet, your guidance for top line has come down for the full year. Could you give us an idea of where the give is here?

Yes, we have stated for the last year now that we've cautioned investors to be careful about their view of our top line because of the pruning process. It's very important in improving our profitability. And that process continues. It's alive and well. It's having a very positive impact on our organization. I don't want to put our businesses in the position of putting top line pressure on to the degree that we fail to prune business that doesn't make sense for us. And so, it's always a difficult thing to gauge because you don't go into a process, always expecting to walk away from the business. You try to work things out with the customer. You try to get pricing that's reasonable. And sometimes you're unable to but, if it doesn't make any sense for us to have that account, we'd rather put it in someone else's hands who is willing to lose money or has some willingness to go ahead and do business on a basis that isn't highly attractive. So, we'll continue this process and we're working on some of this in Europe right now, as well as select markets in North America. And so, this is all about upgrading our accounts, upgrading the target businesses that we pursue. It certainly takes its toll on the top line. So, that's why we've always been careful about that, Chris. I would also say, we have not forecast any kind of upturn in the vinyl demand for later this year. That would be upside if it comes, but that's not factored into how we're viewing the business today. Christopher Butler – Sidoti & Co.: Just following up on that last comment, if I remember for your Analysts Day, the projection for housing was to reach a bottom by the end of the year, somewhere in and around there, is your expectations for 2008 looking for housing to continue to trend downward for this full year?

Yes, it's a really tough call. We're kind of basing our business around 850,000 to 900,000 housing starts. The latest forecasts are showing that to be more like 950,000 housing starts. So, we think there may be a little upside there. But, we just aren't going to be in the vulnerably spot of hoping for things to happen; we're trying to make things happen. So, that's where we are with regard to the housing market. Certainly, we're hopeful that it improves, but we're not counting on it. And the latest numbers we saw said 950,000 units started in '08 and 1,050,000 more or less in '09. So, that would say that we've hit the trough, but we're not going to hold our breath for that. We're going to keep bringing costs out of the organization. We're going to keep going after new opportunities in non-building construction markets. So, that would be our response to our view on housing and its impact on us. We're still cautious about it. Christopher Butler – Sidoti & Co.: Dave, it's been a pleasure working with you and thank you for your time this morning guys.

Thanks, Chris.

Thanks, Chris. Is there time for one more, do you want to take one more?

Yes, why don't we take one more question.

Your next question comes from the line of Bob Amenta with JPMorgan Asset Management. Please proceed with your question. Bob Amenta – JPMorgan Asset Management: Thank you, good morning guys.

Good morning, Bob. Bob Amenta – JPMorgan Asset Management: Two quick ones, I believe. In the even pro forma for the bond offering and everything, the short-term debt is about $90 million. $40 million you said was the revolver. Is the other $50 million – what is it? Is it stuff that can be rolled over? Is it truly due in the next year or what is that?

It's short-term facilities that we have with banks. It's largely in Europe. So, it's debt that we can take in and out as cash flow comes. Bob Amenta – JPMorgan Asset Management: Okay. So, we don't have to look at this as truly $90 million needing to be paid off. The revolver obviously is long term.

That's right. Bob Amenta – JPMorgan Asset Management: And the other question is, on the attachment six, you referred to it. Is it pretty safe that any one-time items that we would consider for all these periods shown would be in the corporate line, such that all the segments are actually pretty much apples-to-apples?

Yes. That is, frankly, our reporting convention. All the specials go into corporate and eliminations, frankly, for just that reason. So, that you've got good comparability between periods for the operating segments themselves. Bob Amenta – JPMorgan Asset Management: Okay. Well, like everyone else, I want to thank you. And I think in the last year, you and Dennis leaving, PolyOne has lost a couple of good guys. And I'm going to miss; I'm going to have find someone else to whine about Cleveland Sports to. But, there's a lot of whining to be done after last night. But anyway, good luck in your retirement.

I appreciate that. Thanks, Bob.

Okay. Thank you all very much. I'm sorry we've gone over a little bit today, but good questions and we appreciate your participation. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.