Good day, ladies and gentlemen, and welcome to the fourth quarter 2007 PolyOne Corporation earnings conference call. (Operator Instructions) I would now like to turn the call over to Mr. Dave Wilson, Chief Financial Officer.

Thank you, Latasha, and thanks everyone for joining us this morning. As Latasha said, I am Dave Wilson, PolyOne’s CFO. Joining me today is Steve Newlin, PolyOne’s Chairman, President, and Chief Executive Officer who’ll open the discussion with remarks pertaining to our fourth quarter operating performance. I’ll 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 that members of the media who have questions please contact John Daggett, our Director of Communications at the conclusion of this conference call. He can be reached at 440-930-3162. Last night, as I think you all know, we released our fourth quarter earnings report and also posted it within the Investor Relations section of the PolyOne website. If you did not receive our release and would like to be added to our mailing list, please call or e-mail me, and I will see that we take care of your request. This call, for your information, is being webcast. In our discussion today, we use both GAAP and non-GAAP financial measures. The non-GAAP financial measures are free cash flow, operating income before special items, per share impact to special items, non-vinyl operating income, specialty platform operating income, specialty platform gross margin as adjusted, gross margin as adjusted, and non-vinyl business gross margins as adjusted. The most directly comparable GAAP financial measures are net cash provided by operating activities, operating income, net income, and net income per share, and gross margin. A detailed definition and list of special items can be found in Attachment 5 of the release. In Attachment 7 through 10, we provide reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of how PolyOne’s management uses these non-GAAP 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 give current expectation or forecasts of future events and are not guarantees of future performance. They are based on PolyOne’s management 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. I recommend that you review the updated risk factors in yesterday’s press release. Now, I’ll turn the call over to Steve.

Thank you, Dave, and welcome to all of you participating in PolyOne’s fourth-quarter and full-year 2007 earnings call. I am going to begin with a brief summary of our quarter followed by a review of the accomplishments made in executing our strategy in 2007. I’ll then ask Dave to provide you with a more detailed review of our financial results before opening the call up for your questions. Our fourth-quarter performance offers continued evidence that our transformational strategy is gaining traction despite adverse economic and raw material headwinds. Sales were $631 million, up 6% compared with last year. We reported net income of $7.1 million or $0.08 per diluted share for the quarter. Last year, reported earnings were $0.16 per share. On a comparable basis, excluding special items in both periods, fourth-quarter 2007 earnings increased 50% to $0.09 per share compared with $0.06 per share reported last year. Continuing a positive trend, operating income for our non-vinyl business nearly tripled to over $12 million, compared with the $4.4 million operating income reported in the same quarter last year. This was due in large part to our ongoing success at upgrading our business mix with the decisive shift toward our specialty platform. Our International Color and Engineered Materials business recorded year-over-year sales and operating profit increases of 15% and 48%, respectively, in the quarter. This strong performance reflects new business gains and greater penetration of specialized niche applications. PolyOne Distribution enjoyed another strong quarter. They had 10% sales growth being leveraged into $5.7 million of operating income, up over $2 million compared to a year ago. The effectiveness of our POD sales team was evident as we grew our business in difficult operating conditions, offsetting market declines with new business gains. All other, which includes our North American Specialty businesses plus…

Thank you, Steve. This morning I’ll be discussing the following topics: fourth quarter and full year sales and earnings, our end of year financial positions, and some brief comments on our outlook for 2008. As Steve reviewed, there are many encouraging aspects of our performance this quarter, especially considering the economic backdrop and the depressed residential housing market in North America. Taken together, this performance underscores our progress to building a strong foundation of sustainable earnings platforms that by their nature are less susceptible to economic volatility and importantly, can increasingly serve to counter balance the vulnerability our Vinyl Business has to the cyclical residential housing market. For the total company, reported EPS for the quarter was $0.08 per share compared to $0.16 reported in the fourth quarter last year. Special items in the two quarters, and I refer you to Attachment 5 of our earnings release, were a $0.01 charge this year and a $0.10 benefit in 2006. Adjusting for these special items, EPS in the fourth quarter was $0.09 per share, a $0.03 or 50% improvement compared to the $0.06 per share performance of last year. I’ll be providing greater detail on our earnings performance later in our remarks. Turning to sales, in the fourth quarter, sales were $631 million, up 6% from a year ago. This was our first quarter in 2007 with a meaningful positive year-over-year comp. The improvement was driven by a 15% improvement in PolyOne Distribution sales reflecting market gains in the face of softening economic conditions, and a 10% increase in international sales, largely reflecting FX benefits coupled with a shipment improvement in Asia of approximately 15%. Sales for the Vinyl Business were flat from a year ago. Sales reported under all other were down 3% in aggregate, primarily reflecting actions to improve…

(Operator Instructions) And your first question comes from the line of Mike Harrison - First Analysis.

I was wondering, David, if you could break out the currency impact on the top line in the quarter.

Yes, the international sales, the currency was a benefit of about $14 million. And so when you look at our international sales in the quarter which were up 15%, if you adjust for FX, it would really have only been about a 2% increase. And my comment there was even though sales were only up 2% for the quarter in International, Asian growth on a shipment basis was up substantially. From an OI perspective − I am sure that’s your next question − there was about $0.5 million of benefit reflected.

Thanks for anticipating that. The other question I had: regarding China, we’ve seen a lot of news there with the snow and the cold weather, have any of your operations or the operations of your major customers been affected by that?

So far we haven’t heard anything that’s caused us any concern. Right now, it’s Chinese New Year. So, there is not a lot of business activity going on at the moment anyway. So we haven’t had any reports of slowdowns related to weather in China, Mike.

And then maybe a broad question. There has been a lot of talk about, if you will, the difference between what Wall Street is seeing and what Main Street is seeing in terms of an economic downturn here in the U.S. You’ve commented in the past that your distribution business gives you some insight into what’s going on in the industry broadly. So based on what you are seeing in that segment, can you give us a sense of how you see the overall health of your customers and the economy as a whole?

I don’t know how strong a barometer distribution really is of the external environment. I think there is some linkage, but I’ve never yet seen data in fact that correlates precisely. But let me say this. That’s one of the reasons we were really pleased with Distribution’s performance, because we do know that our existing customer base, those molders out there, some of the molders are facing difficult times. Some of the processors are facing challenging times, and so they are producing fewer products than they had at this period a year ago. And therefore the fact that we’ve grown in this space, the delta is really the incremental business gains and market share that the team at PolyOne has been able to achieve. I would tell you that we see it soft. We see housing, in particular, which everyone sees, but just generally we see a caution by our customers that’s been building over the last quarter or two. So it’s not the most healthy, robust external environment, and I think our challenge is to make the most of whatever cards are dealt with us economically and gain share and grow the business.

Okay. And the last question I had is, with the additional sales and marketing people that you brought on, you’ve been guiding us toward a higher SG&A number going forward. Yet you came in, at least relative to my expectations, significantly below where I thought you’d be. Can you give us a sense of what your expectations are for SG&A as we move into ‘08 either in dollars or as a percent of sales?

I think what you saw in the fourth quarter was just year-end adjustments that happened. I think your expectation of S&GA to be in the 9.5% up to 10% range is appropriate. We are continuing to invest, although invest prudently, to bring new resources on, as well as to continue to do global training to upgrade the skills of our existing team. So I think what you saw in the fourth quarter was more an aberration, and your expectations on a percent to sales, which was really more reflective of the first three quarters this year, is more the trend line that I would anticipate going into ‘08.

Your next question comes from the line of Rosemarie Morbelli - Ingalls & Snyder. Rosemarie Morbelli - Ingalls & Snyder: Congratulations for a good quarter given the environment. And looking at that environment and looking at the operating income of $3 million from Vinyl, which obviously is at its lowest level, do you think that with housing, let’s say, continuing to decline in North America, Vinyl Compounding could actually get into negative territory or have you done enough changes in house in order to keep it more or less at this $3 million level?

I would say that I agree that the $3 million we hope is the low point. You never say never, but I think we also have to remember that the fourth quarter is the seasonal low for us. And so as we go into the first and second quarters, even though housing on a macro basis is expected to continue to soften, we would expect our demand to be picking up to a level. I think, if you recall last year first quarter was our strongest quarter for Vinyl. So we are not talking to that level, but we are looking at sequential improvement, and we would expect that to be the case. Four times three is certainly below our expectation for the year for our Vinyl business. Rosemarie Morbelli - Ingalls & Snyder: Okay.

We are cautious, and we’re working hard to streamline everywhere we can in that Vinyl business segment, and you can count on us to continue to do that and try to run the business properly. And you look at housing starts, and we had ‘04 and ‘05 running around two million units. The latest forecast we have for this year is about 1.08 million units, so that’s a big falloff for us, and we’re going to have to manage the business in a manner that allows us to make money in the worst of times, and as things improve, we’ll be in really good shape. Rosemarie Morbelli - Ingalls & Snyder: So, Steve, you mentioned that you have taken some steps in the fourth quarter in order to adjust the way you do business in this environment. If you were to look at the same environment in next year’s fourth quarter compared to this year’s fourth quarter in the Vinyl, is it fair to assume that because of what you are doing, you would actually earn more than $3 million, all things being equal?

I think all things being equal, I would say that’s an accurate statement, but I wouldn’t predict them to be equal. I mean it’s a dynamic. Resin costs are moving around and things in the marketplace are changing, so we’re working to make our business more efficient. And we do this each and every day, and that’s part of the cultural we are building. So I would say that, if nothing else changed, we’d be in better shape a year from now. If the number of housing units and the same orders came from our customers, I think we’d be in somewhat better shape than we’re in today, but that’s just part of our ongoing quest to lean our organization and look for productivity gains. Rosemarie Morbelli - Ingalls & Snyder: And talking about resin, what do you expect in terms of resin cost trends into 2008?

We expect them, on average, to be higher year-over-year, but that’s just because we’re starting at a higher point. We’re expecting them to move up moderately through the first quarter or so and then start to trail off as new capacity comes on. But really the supply-demand factor on resin is such a big influence that if the housing market were to turn things, tighten up, that would throw that forecast out. If things remain sloppy, the expectation of some improvement in the first half of the year may come into question too. But from what we’re looking at, I would anticipate some upward movement near-term followed by some declines at the back half of the year with capacity increases. Rosemarie Morbelli - Ingalls & Snyder: Just following up on that, Dave, if the demand were to turn around, resin prices would go up, but given the fact that the volume would go up as well, wouldn’t you be able to do actually better because you can raise prices and then you have a stronger volume.

Yes. Absolutely. I am rooting for a turnaround in the housing market and the adverse effect that may have on raw materials will be overly compensated by our ability to price value better as well as to sell more product, no question about it. Rosemarie Morbelli - Ingalls & Snyder: And lastly if I may, I see that you have carefully stayed away from making any projection in terms of earnings for 2008. And when you say that the assumption is that earnings will be up, are we talking about up a penny?

Up is up; up is better than $0.41. There are so many dynamics in the market. We want them to make sure that that the market understands our expectations of our team delivering performance improvements year-in, year-out regardless of the economic conditions. We’ve got great momentum in many parts of the business. We’ve have got programs going on to improve efficiencies. We know we’ve got the year-over-year interest savings, and all together we recognize the challenge our Vinyl business is under, but we believe that we’ll more than offset that through these other programs and progress of the other businesses, so that in the end we will be up. Not to mention the fact that we did make the acquisition of GLS and we’ve said that that’s going to be slightly accretive as well. Rosemarie Morbelli - Ingalls & Snyder: And your assumptions for SunBelt contribution?

We’re expecting SunBelt to be down a little, but not too much frankly. The expectation is for caustic to remain quite robust in terms of pricing. Fundamentally we’re expecting another really very strong year from SunBelt. To think of SunBelt in the $40 million contribution range, which we’ve seen over the last three years, is really a marked step up from history. We’re not expecting it to stay at that level, but we’re not expecting a precipitous drop either.

Your next question comes from the line of Roger Spitz - Merrill Lynch.

Could you tell us the split in the earnings decline in the Vinyls business of Q4 ‘07 versus ‘06 between the Vinyl compounds and the dispersion PVC resins?

We don’t break that out now that it’s become an operating segment, Roger.

Okay. Would you consider something like a JV for these businesses with the strategic players to try to improve them?

We can’t comment on that either. Obviously, we can’t comment on any specific portfolio changes before they are ripe, and so I can’t say that we would consider, I can’t say that we wouldn’t consider. I can’t say anything.

We consider everything; that’s our job. We look at improving our business and creating value everyday that we come to wok. And so deals that make great sense for our shareholders and the business, we would always consider. But that’s the only comment we could make about a specific change in our portfolio.

Fair enough. You are starting to build some cash, you don’t have much cheaply accessible debt, it looks like $10 to $20 million of MTNs maturing each year. What’s your plans with the cash build middle-to-high-class problem to maintain high liquidly during the current market volatility, keep cash for some bolt-ons or consider any share buybacks, dividends or any other shareholder-friendly activities?

Certainly, the first two were yeses. We really can’t comment on the last set. But echoing what Steve said, we consider everything. But, I also want to draw your attention that we did acquire GLS at the very beginning of 2008, and so the cash balances that we were building at the end of ‘07 went in part to fund that. Having said that, we clearly will maintain strong liquidity. We’ve set a minimum level of $100 million of untapped liquidity available, and we’re certainly there and expect to stay there. And we would expect to be able to access our facilities to be able to do bolt-on acquisitions or other investments, if they were to come to pass.

Great. And lastly, can you provide a 2008 CapEx projection?

$50 to $60 million and, obviously, depending upon how the year develops, it will tell you where we are in that range.

Your next question comes from the line of Joe (Eric?) - Gardner Research.

Steve, earlier today on the call, you talked more about some of your lean initiatives and the benefits you are getting. Can you give some more color revolving around your Lean and Six Sigma initiatives and your plans and some of the throughput benefits you expect to see out of those?

I think I captured that question. You were asking about Lean Six Sigma and benefits we are seeing and where we are going with that. Is that correct?

In terms of like throughput (inaudible) things like that.

As I think you all know, we hired a real winner in that front to take care of operations for us. Our Senior VP of Operations, Tom Kedrowski joined us in September, and he is having a great time. He is working hard, he is getting a lot of data, making an impact right away in our business, and he’s steeped in Lean Six Sigma. Here is what we know, we are behind where we should be and where a lot of faster moving firms on this front have already but they are on ground we haven’t gotten to yet. It’s bad news and good news. I wish we were already there, but it’s still a big prize that’s in front of us. So, he is rounding up resources and data and information, look at what we’ve done and what we have left in front of us in the near-term. And, of course, longer term, we expect this to really be woven into the real fabric of our organization and our culture. We have specific projects; we do Kaizen events each day, each week. Every business has metrics around this. We quantify these savings in a couple of different ways. We look at the outset what we think the value we can create and the savings we can capture, and then we go back and measure what we really realize from that. So, we have some fairly good data around the improvements. We focused a lot of the efforts early on around improving our delivery, and I think we’ve given you metrics on that. We moved the delivery from the low-81% out to above 95% and that’s now becoming a way of life for us here. It’s not to say it might be 94% in month and 96% the next,…

Regarding that optimization, you are looking at RONA and OE. Are those some of the metrics you are judging yourselves in terms of return on net assets and capacity?

Yes.

Do you have certain targets that you like to achieve for those targets?

We are establishing the targets frankly by the different lines to be appropriate for the type of products that they are running and the businesses that they are in. Clearly, on a RONA basis, we are looking to drive the numbers that would be in line with our ROIC targets, which are minimum 15%. And, the OE is, it’s hard to comment on that singularly.

You talked earlier about combining (inaudible) from you operations. Are you concerned about the throughput at some of your plants compared to others in different parts of the world and can you give some more color on that?

Again, we are going to put our capacity where the demand is and where we anticipate the demand to grow, and that’s what we have been doing with our investment. With our established base of capacity, if the business isn’t going to follow it, we can’t get the demand to meet our profitability criteria and our specialization strategy, then we have to look at taking some capacity off line.

Where are you seeing most of your demand, and in what part of the world are you seeing (inaudible)?

Asia is our fastest growing market. Eastern Europe is a hotspot for us. But, we are seeing even in North America, and I think we need to understand that while the conditions are a little soft out there, we have a small enough share. As large as we are in our industry, we have plenty of opportunity to grow. We’ve got 90% of the business out there that isn’t ours. So, there is plenty of opportunity and we get the feet on the street trained well and out there making calls and persuading customers on value creation proposition and we will grow. So, it all comes into play. But, demand is greatest clearly in the geographic regions, as you would expect, with the highest GDP growth rates.

Okay. I really like what I am hearing on the call today. Going forward for 2008, in order to be number one in the market, which you always are, what are going to be your systems and solutions that you are going to be putting in place to accelerate continuous improvement initiatives you have going already now to really say this is why we are going to be number one and how we are going to stay number one?

It’s a great question, and there are lots of things that we do and that we have going on in terms of initiatives. If there is one thing I worry about it, it’s that we may have too many and so we have to be focused and disciplined and really prioritize. But it’s on every front. The sales organization next week is going to get another big dose of three days of training in how to create value for customers and how to sell value for customers and how to solve problems and spot problems in customers’ plants. So on the commercial front, we’ve got that going on. On the marketing front, we’ve got lots of new information about the markets that we really want to pursue and we are directing our sales forces there. And that’s also connected very closely with our drive for innovation. So we are filling a pipeline that had a big void, and it’s not full, but it’s filling up and it’s improving. So that’s on the specialization front. On the supply chain side, Tom’s charter is, and we’ve committed this publicly, we feel we can find $50 million of improvement over the next three years. So he is at work on that right now. And I am getting to know Tom better each day and my guess is he is going to beat that target. I would be very surprised if he doesn’t. So those are the things that are going on on those fronts. Globalization, its continued emphasis of putting resources where we see the greatest opportunity and to be thoughtful about where we put our limited resources. In times like this, we have to be a little more cautious than we would have been a few years ago when business was growing. But it doesn’t mean we are not going to invest where we see opportunities to grow. We can’t have a broad brush initiative that says we are freezing this or we are freezing that. It doesn’t make any sense. You have to invest where your business is growing and that’s exactly what we are doing. So I think those are just a few of the examples of things that we are trying to do on the various fronts to improve our operations.

Your next question comes from the line of Bill Hoffman - UBS.

I wanted to talk a little bit more about the Vinyl segment and just trying of calibrate here a little bit as we go into the first quarter versus the fourth quarter. If we look year-over-year in 2007 versus 2006, certainly on the operating income line on Vinyls, we have at the end of the year quite a bit weaker and you know that the housing market obviously is not getting better anytime soon. So I wonder if you can talk a little bit about where you are seeing margins as you enter 2008?

The margins that we saw in the December quarter, the fourth quarter, were the weakest that we’ve seen all year as you expect and you see that in the income. I would tell you it was primarily driven by volume. There was margin compression, yes. But the precipitous decline in earnings is volume. And when you look at Q1 last year versus the fourth quarter, the volume differences is the primary challenge. And we are going to have that going into the first quarter. Having said that, there is a seasonal improvement that’s overweight relative to housing demand. That’s always going to be in the backdrop. And, so our expectation is, one, it’s going to be challenging year. In the Investor Day, I think we made it clear that our expectation is that operating margins are going to be down year-over-year. Our expectation is, is that the first half is going to be more challenging than the second half. Second half, we will be gaining momentum, we will be gaining more benefits from the efficiency improvements and things of that nature, as well as some earlier comments relative to perhaps raw material benefits on margins. So, that’s how we see the year shaping up. But, there is no question, and you see it and you see it in the whole industry that the Vinyl business in 2008 is going to be under a lot of pressure which is why it’s so encouraging to see the progress that we are making in our non-vinyl businesses. We now have clearly a credible and building earnings base that can offset the volatility that we are seeing in the Vinyl business.

It may sound a little unusual, but frankly if I saw a lot of growth in our Vinyl business in this environment, I’d be very concerned and suspicious, because you have to be very careful about which customers you are hooking up with in an environment like this. You end-up with bad debts that wipeout any chance for making a living in the space. You can’t be going after chasing business that is on the ragged edge and we are not doing that. So, I think our Vinyl position is very solid. I wish there were a lot more homes being built. That would clearly help us. Even an improvement in remodels that cause more demand through the big boxes of Lowe’s and Home Depot helps us with window profiles, et cetera. But, I think we are positioning ourselves to get through this period without harming our business long-term. I think with that I just like to make a couple of closing remarks. We appreciate very much you investing your time to learn more about us today. I hope you can see we’ve got a clear plan in place to create increasing shareholder value, and I believe with all confidence we have the leadership team needed to see that this plan is executed properly. We are the recognized industry leader with we think an enviable breadth of product and geographic reach, and this is a company with significant untapped growth potential. We’ve come a long way in a short time. But, I got to tell you, we don’t kid ourselves, not for one minute. We know that there is much more work that remains in order for us to fully realize this potential. We think we got a tremendous story and we are very passionate about it. And I hope you will take the time to develop a better understanding of what is essentially a new company. Thank you all very much for your attention.