Good morning, ladies and gentlemen, and welcome to the PolyOne Corporation First Quarter 2012 Conference Call. My name is Chantelle, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. At this time, I would like to turn the call over to Cynthia Tomasch, Vice President of Planning and Investor Relations. Please proceed.

Thank you, Chantelle. Good morning, and welcome to everyone joining us on the call today. Before beginning, we would like to remind you that statements made during this conference call, which are not historical facts, may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give current expectations or forecasts of future events and are not guarantees of future performance. They're based on 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. Some of these risks and uncertainties can be found in the company's filings with the Securities and Exchange Commission, as well as in today's press release. During the discussion today, the company will use both GAAP and non-GAAP financial measures. Please refer to the earnings release posted on the PolyOne website, where the company describes the non-GAAP measures and provides a reconciliation of them to the most comparable GAAP financial measures. Operating results referenced during today's call will be comparing the first quarter of 2012 to the first quarter of 2011, unless otherwise stated. Joining me today on our call is our Chairman, President and Chief Executive Officer, Steve Newlin; and Executive Vice President and Chief Operating Officer, Bob Patterson and Senior Vice President and Chief Financial Officer, Rich Diemer. Now, I will turn the call over to Steve Newlin.

Okay. Thanks, Cynthia. And thanks again to everyone who's joining us on the call this morning. We always welcome the opportunity to speak to our investors and analysts about the performance of PolyOne. We're going to change things up just a little bit today. I know you all anxious to hear about our first quarter results, but I'm going to begin my comments by sharing some important organizational changes that took place during the quarter. As you probably know in mid-March we announced Bob Patterson's promotion from Chief Financial Officer to his current position of Executive Vice President and Chief Operating Officer. In this role, Bob has primary responsibility for developing and executing PolyOne's operating annual operating plans as well as our strategic plans to drive growth and revenue, gross margin and operating income. He had accountability for the performance of the operating segments, and the 4 division Presidents now report to Bob. I am very happy to have Bob in his new role of COO and I believe that in his new capacity he'll continue to have an extremely positive impact on PolyOne. Now in conjunction with Bob's promotion, we also announced the appointment of Rich Diemer to Senior Vice President and Chief Financial Officer. Rich joins PolyOne with more than 30 years of experience in global business leadership, and he's held CFO roles at several global specialty companies, including Styron, Albemarle and Honeywell's Specialty Chemicals business segment. In fact, I understand that many of you already know Rich from past dealings with him, so you can understand why we're thrilled to have Rich as part of our executive team, as his skills and experience with large global specialty organizations make him uniquely qualified to help us accelerate our transformation. Another organizational change we made to drive growth is…

Thank you, Steve, and good morning. I'd like to begin with a few words about how pleased I am to have joined PolyOne. As Steve mentioned, I have spent a significant portion of my career with successful specialty chemicals and materials companies. Having watched PolyOne's transformation over the past few years as an outsider, I'm delighted to have the opportunity to join this exceptional management team and to be a part of leading this company to even greater heights. And greater heights were indeed achieved in our first quarter as we delivered a 10th consecutive quarter of double-digit adjusted EPS expansion over the prior year. For the first quarter of 2012, we reported an all-time quarterly sales record of $781 million and adjusted income of $26.4 million versus sales of $718.5 million and adjusted income of $25.2 million in the first quarter of 2011. This resulted in a 12% expansion in adjusted EPS to a first quarter record of $0.29 this year versus $0.26 last year. These results were driven by sales and gross margin expansion in every platform with the Global Color, Additives and Inks segment leading the way. Bob will discuss both the performance of the business platforms and the ColorMatrix integration in detail shortly. Geographically, and as a result of improved business performance in Asia and North America, we're able to overcome the demand challenges in Europe and unfavorable foreign exchange to deliver 9% sales growth and record first quarter EPS. From an end market perspective, these results were driven by growth in health care, packaging and wire and cable. We attribute this access to our recent and continued investments in commercial resources over the last 2 years, solid growth from new product applications and the successful integration of ColorMatrix, which is progressing even better than planned.…

Thanks, Rich, and good morning to everyone. Let me begin by saying how much I am looking forward to my new opportunities as Chief Operating Officer, which is allowing me to spend more time with our customers and work closely with our division presidents to accelerate growth and margin expansion. Rich discussed the total company's first quarter results so I will now review the performance of each of our platforms in more detail. Our Distribution platform increased revenues by 6% in the first quarter versus prior year, setting a first quarter record of $263 million. Distribution also delivered an all-time record quarter in both operating income and return on sales led by gains in the health care and industrial end markets. As a result of these gains, coupled with margin expansion, operating income increased 14% over prior year to $16.7 million for the quarter. At a 6.4% return on sales, this marks the first time in history this segment has surpassed 6% and it is substantially exceeding our 2012 target of 4% to 5%. Price inflation and inventory prebuys helped us modestly. We estimate this to be approximately $2 million of operating income benefit in the first quarter 2012 versus a $1 million of benefit in the first quarter of 2011. Turning to Performance Products and Solutions. Revenues in this platform increased 7% in the quarter versus last year, due to gains in appliance, packaging and wire and cable end markets as well as from higher pricing due to raw material inflation. PP&S increased operating income by 24% over the prior year to $17.8 million, resulting in a return on sales of 8%, 110 basis point improvement over the first quarter of last year. Specialty Platform revenues increased by 11% over prior year to $325 million, driven by the ColorMatrix…

Thanks, Bob. I'm very pleased with the results of the first quarter that Rich and Bob just reviewed with you. I think to overcome the downdraft in Europe, where much of our Specialty business resides, yet still grow earnings double digits is an accomplishment. As evidence that our strategy is working, I'd like to highlight a specific milestone that we delivered in the first quarter. We're very pleased to report that 10% of our total first quarter revenues were in the healthcare industry. Further evidence that our focused-efforts to grow in health care are working. You know 6 years ago, we didn't even measure our sales to this market. And by year end, we anticipate sales of over $300 million to the health care industry. Before closing, I'd like to share with you a few of my observations about 2 important industry events in which PolyOne participated in the month of April. The National Plastics Exposition or NPE in Orlando, and CHINAPLAS in Shanghai. As you know, we've invested significantly in innovation over the past several years and those efforts are beginning to yield some exciting new commercial launches. Solutions we showcased at these events included our new reFlex 100 bioplasticizer, which provides a bio-based plasticizer alternative to traditional oil-based products for customers who are looking for more sustainable solutions. This bioplasticizer was recently awarded recognition by the USDA BioPreferred program which granted reFlex 100 a 94% bio-based label. What this means is it enables our customers to grow by expanding their offerings of products with bio content. This particular product is a result of a joint development agreement that we have with Archer Daniels Midland and I think it's a great example of innovating the meet the changing needs of our customers. Some of the other innovations that we…

[Operator Instructions] Your first question comes of the line of Frank Mitsch of Wells Fargo Securities.

I wanted to, if you could take some time to talk about ColorMatrix, talk about how did ColorMatrix do year-over-year in the first quarter. And what -- if you could talk about the specific contributions, I guess GCAI was up 30% sales and 53% on profits, what's was the ColorMatrix contribution there, that would be very helpful?

Frank, this is Bob. First of all, ColorMatrix sales was up 7% year-over-year to just under $52 million and operating income expanded about 4% to $6.5 million and so that gives you better perspective on relative contribution to the Color segment hopefully.

Okay, great. And Steve, you talked obviously that GSEM was a bit disappointing primarily due to the weakness in Europe. Could you explain upon what you're seeing there and talk about the monthly trends if you can January, February, March and April if you have any color on that.

Yes, I can, but probably not get into April. But I mean, the trends in Europe this really started late or mid-third quarter of last year, Frank, as you know, and it's continued. We are not seeing a rebound in Europe. we're not holding our breath and we're not going to wait for things to happen. What it's done for us is it's caused us, given us an opportunity and a catalyst to sort of redirect some of our activities there. But Europe is in difficult shape right now. There's a lot of, I think consumer pause concerned about the overall economic backdrop and that's I think causing delays in major purchases whether that's appliances or automotive. And certainly automobile production is down very substantially in Europe right now. I think even consumers are being a little more prudent in their choice of higher end products. You see that somewhat in our packaging and consumer-products applications. So it's a very challenging environment and we are again, we're redirecting our efforts to get more focus and we haven't done a great job up to this point in our healthcare expansion in Europe. And that's one of the areas that we're working on with great diligence. So I think it's a great opportunity for us. But we're going to suffer along with everybody else in this European backdrop and we're not anticipating any kind of major turn in the near-term in Europe.

Okay, that's very helpful. And just previewing your Investor Day in a couple of weeks and you're going to talk about the new targets. My sense is that you're probably going to raise your health care margin targets in such a -- I'm sorry, your Distribution margin targets, I guess due in part to health care, given how strong that is. So I look forward to seeing you guys in a couple of weeks there.

Yes, we look forward to it as well, Frank.

Your next question comes from the line of Saul Ludwig of Northcoast Research.

Steve, anybody that's done anything with your company understands the importance of innovation and I think in the past you've talked about a Vitality Index of 40% or thereabouts. Just if you could -- is it possible to highlight, let's just say in the first quarter of this year and maybe in other quarters as you go through the year, how many dollars of sales of products are you getting this year that you didn't have last year from products that were introduced subsequent to the end of the first quarter of last year to give a little more granularity to the innovation emphasis and results?

Well, Saul, I'm not sure I'd can give you a year-over-year number. I know we have it, we track it. But I didn't prepare for that because it's not something we commonly talk about. We tend to talk more about this 5-year trend. And as you know, every year percentage of those products fall off and new ones are introduced. What we can tell you is that our Vitality Index continues to expand. And in fact, in the first quarter we exceeded more than 40%, it was actually 41.8%. Now ColorMatrix helped with that. And if you extract ColorMatrix from that number, it was 38.7%. These are very robust, very attractive numbers. I think when we established that goal of getting 35% sort of 40% max target out there, we were ambitious. And so it's working and working very well. But I can't tell you specifically what it is year-over-year. Here's a way to look at it though, as that number continues to grow and our sales base continues to grow, obviously we are having to bring in more sales dollars that are from this category of Vitality Index or 5 years of newer products. So I think it's a statement about the launches. We have internal metrics around every single new product that's been rolled out and the launch versus our expectations. We don't share those publicly, but rest assured we track very carefully how we're doing on every product. And many times we exceed our expectations and our ambitions, and occasionally, we fall a little bit short of what we thought we'd sell but we track those for a 5-year period as well.

Okay. And in your full year forecast where you said that you expect to have double-digit growth in earnings per share, how are you handicapping the European component in that outlook?

I mean, I think it's basically, Saul, as I suggested, we are not counting on we're not banking on progress on a recovery in Europe this year. We hope for that, of course. We hope for more houses being built, we hope for more autos being built, but we're not banking on that. I mean, I think we're trying to have our organization prepared for the most challenging conditions and if we do better, so much the better for us. But we have to keep our organization mobilized around the current state that we know while sort of somewhat anticipating future for us. I mean, we may not hit double-digit EPS growth every single quarter of this year but we certainly expect to deliver it for the year. Second quarter comps as you know, for us are very difficult and I would not expect during the second quarter at least, any uptick in European demand. When we have the greater opportunity for lower comps in Q3 and Q4, well, let's see what happens by then. Q3 is notoriously soft in Europe due to vacations and just sort of the culture and the way business is conducted there. So year-over-year comps will be a lot easier. But we're not calling any kind of turn in Europe at this point.

And then just finally, corporate expense, Rich was backing out the specials was $10 million was only $7.5 million last year, why the increase and how should we think about that corporate expense in the remaining quarters?

Thanks Saul, so the -- almost the entire increase year-over-year is in the kind of the incentives, bonus, variable bonuses, that type thing based on our view of the year, so we accrue based on that. So year-over-year, I guess, we're a little bit more optimistic of the full year now than we were about the full-year in the first quarter of last year is the way I would put it. And just in terms of modeling it, what I would say is you should model it at probably $1 million or $2 million more in Q2, Q3 and Q4 than what we had in Q1, just based on how we're kind of forecasting the year.

Your next question comes from the line of Mike Sison of KeyBanc.

Bob, you noted that ColorMatrix was coming in a little bit better in terms of the integration. Can you give us a little bit more maybe color to what's coming better? And would you expect the earnings growth to sort of accelerate year-over-year for that business as the year unfolds?

Well I mean, initially I think the results for the first quarter for ColorMatrix look largely are a result of actions that, that team had put in place even before we came on the scene. So largely I'd say that my positive comments about the integration relate to longer-term opportunities where we can drive growth from sales synergy standpoint. And specifically, we're looking at how to utilize their barrier technology for our product line and leverage our global scale to help them drive their products further into different regions. I mentioned on the call some specific potential investments in the future such as India, South Africa and Brazil. Those are 3 ideas that we have generated recently.

Okay, great. And then for GSEM, I was encouraged to see margin improved sequentially from the fourth and third quarter to the 8% level. Steve, what do you think needs to happen? Or what are the other things you're doing to maybe continue to improve that business over the next couple of quarters given that Europe is going to still be weak?

Yes, Mike, we can't -- as an organization, we can't throw in the towel in Europe and we're not going to. We have to get after better quality new business, some a little more recession resilient, not recession proof but a little less cyclical business. We still have a fairly high preponderance of SEM business in Europe that is very much tied to automotive. And while we love auto and we like it globally, it puts us in a difficult strait in Europe and we haven't frankly done the kind of job that I'd expect in terms of specializing our business in Europe yet, and we're working on that. We have a new leader of our SEM business there [indiscernible], who's been around a long time, does a great job and he's spending a lot of time with customers and prospects. What I like the best about his new leadership activities, he is getting the sales force into different markets than we've been in the past. And certainly, even within the markets in different applications there are more unique and do, I think put us in a position of having a competitive advantage and be able to take advantage of that opportunity and not have to bang head-to-head so much with the competition in a very challenging environment over there. So I think we're -- I personally believe we're doing all the right things in Europe. I think that the challenge we have in Global SEM and I'd just sort of say this for the benefit of everyone here, this is consistent with what we said for a long time, in Color Additives and Inks we have a very short sales cycle. We can make things happen and we can make them happen fairly quickly because product life cycles and…

Great, and just one quick one, looks like ColorMatrix is turning out to be a nice acquisition for you. How's the hopper for other potential ColorMatrixes out there? Is there -- are there any exciting technologies that you're targeting? Perfectly after NPE, you probably saw a lot of businesses to look at?

Yes, Mike, this is Bob. We have a very robust pipeline of opportunities we were looking at all through the course of last year. Obviously, we focused our attention on ColorMatrix towards the second half of the year. But still, we'd make the same remarks about the types of opportunities we see available to us today, as you can appreciate. We can't speak to anything specifically, but there is some exciting technology opportunities out there. As you know, that's where our M&A focus is, is trying to bring us new technology or advance our presence in attractive markets like health care.

Let me just add a little color on that. I think Bob has summed it up perfectly, with one add, there are not a lot of ColorMatrix around out there. I mean, this was unique property. And if we find them, we will go after them. But it's not going to be commonplace to find a business that has that kind of scale with that degree of uniqueness and differentiation and intellectual property. If we're going to find that degree of innovation, it's most likely going to be a much smaller opportunity for us that we could in fact leverage. But were out there and we're kicking around, kicking around the bushes and we've got a lot of stuff in the hopper. And that it would include some businesses that are more in what I would call a fix-it category. I think we've demonstrated ability to take businesses that can perform well and turned them into a very attractive functioning businesses. So we won't shy away from those opportunities, but our first priority clearly is technology, innovation, opportunities to acquire businesses that we can accelerate the growth through the whole of PolyOne infrastructure.

Your next question comes from the line of Mike Ritzenthaler of Piper Jaffray.

On the health care milestone, 10% of revenues in the first quarter, obviously the margins probably a little higher from that end market, but I guess the spirit of my question is, would you say it's easier on a relative basis to achieve value-in-use pricing in the health care end markets versus other end markets. And I guess maybe just help us understand a little bit more why you're still excited about that particular metric?

Well, I think there are a lot of reasons. I mean, it is a more profitable, more profitable than the normal segment for us. What the situation with health care is such that there are more risk averse set of users and buyers. And so they want quality, they want a premiere company. A company that's going to be around, a company with a global brand. They want innovation. But more than anything else, they want to mitigate their risk. They have an aversion to risk. You're in an environment that lots of difficult challenging things can happen. And whether it's reducing the opportunity for nosocomial infections in hospitals or making sure that, that lifeline to a human being through a very precise chemical pump is going to function properly. Those are the kinds of critical applications that we are striving for. I mean, that's our wheelhouse and we're getting really good at this. And I think the marketplace and our customer base, they understand this. And so our reputation has improved substantially in the space. And I think that's creating, that and our internal energy around us that our focus on it is creating a lot of energy and a lot of excitement and the consequent growth that comes along with it. So it's really more about the kind of marketplace that we're dealing with here. It's -- every market has some degree of price sensitivity, but they're very intelligent about the trade-offs. They don't want to take a lot of risk. This is not a toy or something that is a durable good -- a non-durable that's not going to be utilized repeatedly or stressed. We're talking here about a very sophisticated many cases applications when the customer base does not want to take risk and increase their litigation exposure.

That all makes sense. On gross margins, it showed progression in the quarter, operating margin's a little lighter. Can you help us understand the dynamics within the operating expenses that sort of drove the wedge between the 2? Is it that sales of the specialty products come at a higher expense from an SG&A standpoint since you have to kind of go after -- you have to go out and get the price increases or something like that?

Let's -- we're probably -- we're all eager to chime in here. Let me start and then I'll ask Bob and Rich to make some remarks. I think one thing you should add in to the mix here is, we have a long-term strategy. We have never tried to run this business on a quarterly basis. We added 61 commercial additions in 2011, and there is carryover of those. We had another 11 in quarter 1. So a little slower pace, but those are incremental costs of fairly talented, fairly high-priced people that we will stay the course with. I mean, we believe slow and steady wins the race and that's what we're doing and we're not going to gyrate. While we might moderate a little bit our investment, we have such confidence and belief in our long-term strategy, we're going to continue to make sound decisions on that front. So there was an element of that in the first quarter. Also in Europe, where we had -- first quarter last year, more than half of our operating income for Specialty was in Europe in the first quarter of last year. When you have a volume decline like we saw with our same-store sales, you're going to have some reverse economies of scale that enter into the fray as well. So there's some of that going on and we will react, but we will react very, I think, thoughtfully. Bob?

I want to make only one add to that, and that was just to reiterate what Rich said specifically to answer your earlier question, which was that corporate costs were up and that was principally due to higher incentive accruals. So I think, with the combination of Steve's answer on that, that's summarizing mostly what you see, that -- explaining the delta between gross margins and operating margins.

Your next question comes from the line of Dmitry Silbersteyn of Longbow Research.

A couple of questions. If I strip out the ColorMatrix acquisition from your results, it looks like both the Specialty or the Engineered Materials and the Color Additives and Inks were both down about 6% to 7%. Is that all Europe-related or have there been issues with any product lines? I know in the past in the second half of last year you talked about some of the TPE business being a little bit soft in the consumer segment. Can you talk about kind of beyond Europe, what are some of the challenges you're seeing that's offsetting the growth that you're seeing in health care and appliances and wire and cable and all of the things you highlighted as positives?

Yes, Dmitry, this is Bob. It is predominantly Europe. And we did make some observations in the second half last year of some softness around higher and premium priced products in the consumer market. That hasn't picked up like we would have liked it to in the first quarter of this year. So on a comp versus year-over-year, that's still part of it. But nothing compared to what the Europe effect is. And on balance, we had revenue gains in North America and Asia. So we're really happy actually with our growth rates outside of Europe, we just have one challenging region right now.

Okay. Speaking of Europe, can you give us an idea by sort of by the Specialty sub business as far as Engineering Materials versus Color Additives and Inks, what's your sales into Europe are?

Yes, Color is about 46%, and EM is about 34%. Account balance all on Specialty is 41% for sales.

Okay, and overall, 41%. Okay. that's great. If you look at sort of margins of the Engineered Materials business, excluding again the -- well the ColorMatrix is not part of Engineered Materials, so if you just look at the margins there, they're down year-over-year, was that just a function of volume loss in Europe? Or are you a little bit behind on your pricing versus raw materials? Can you give us a little bit of idea what going on with margins there?

I missed the very first part of that? Margins were down where, I'm sorry?

On Engineering Materials.

Oh on Engineering Materials. Yes, I think principally this is a, like I said mix story more than anything else. It's not a pricing issue. In fact, we did get pricing year-over-year and it's primarily associated with lower demand for our high-end wire and cable business in Europe. And 2 end markets they serve are solar and nuclear applications. And so that's not recovered, a let down year-over-year as well as the premium priced products in the consumer market that our TPE businesses serve. So more than anything, it's really a mix-driven an effect, not a pricing effect as we have been getting pricing over raws.

Great, Bob. Your Performance Product and Solutions business obviously has gotten off to a good year given the all excitement about housing and whatnot. Is that sort of the new run rate we should be thinking about as far as margins in this business? Or are there something going on in terms of your ability to get pricing in the raw material price direction that things can get better in the second of the year?

Well look, I think as our end markets recover, we're going to continue to see improving margin profile in this business. So I would say, yes, from our run rate standpoint and we would expect that to continue to improve. As you know in this business, it is the one where we're most challenged from a pricing standpoint and we can have pricing lags based on index to pricing so, in any one quarter, I would say that you could see an anomalous result as a result of the pricing lag. But on a general basis and trending, I would expect margins to continue to improve the way they have.

Okay, and I'm assuming utilization rates in that business and everything is picking up and you're continuing to see a good demand?

Yes.

Okay, final question, on the corporate expense line, the $10 million that you reported, is that sort of the new run rate we should be thinking about with respect to addition of ColorMatrix?

Dmitry, this is Rich. You probably didn't hear the earlier question from Saul. So what I said is, in terms of run rate, year-over-year it was because of incentives. And our view of the rest of the year, this year compared to what it must been last year in the first quarter, I guess we're a little bit more optimistic about earning those incentives. So I would tell you the run rate is, I would put in for your model $11 million or $12 million a quarter for the rest of the year for that line item and we shouldn't be far off from that.

Your next question comes from Steve Schwartz of First Analysis.

Can you talk a little bit about your pricing in the segments. Bob, you did mention pricing was higher in I think PP&S and Distribution. Can share with us the numbers?

Yes, we had pricing gains in all of our businesses, Steve. And if you look at for the company as a whole for example, we had 9% revenue growth, 7% attributable to ColorMatrix with price and mix being about 6.5% offsetting sort of 4%, 4.5% volume. So that helps to explain really the year-over-year change in revenue growth for the company as a whole. And we have pricing and mix gains across all the businesses.

Okay, and with respect to CapEx, it looks like it was flat year-over-year despite bringing in ColorMatrix. I think in the Q, you mentioned you funded the Juffali JV in March, so what's going on with CapEx there? What should we model going forward this year?

Yes, Steve, this is Rich. I think what we've said up to this point is a range of 55 to 60. We did get off to a little bit of a slow start. So I guess I would say we're probably closer to the lower end of that 55 to 60 right now. But we just haven't gotten off to a quick start. We will catch up to that kind of guidance as the year progresses is my sense.

Clarification on that too. We do call out the funding of Juffali, but that was just a fragment of the investment, so more to come in the balance of the year.

Your next question comes from the line of Christopher Butler of Sidoti & Company.

Looking at the PP&S segment, could you give us what your outlook is for the -- at the U.S. housing and auto markets for 2012? And was there any pull forward from the second quarter here due to the warm weather?

We may have some pull forward. There is some who believe we do have. It's very difficult, Chris, for us to know with any degree of certainty about that. But we certainly know that in places where usually there's not a lot of building going on due to weather, we had an extremely warm first quarter and there may well have been some pull into Q1. I think you'd put us and certainly me in the camp of skeptical yet about the housing recovery but encouraged. The April forecast is 740,000 units. It's less than half the 50-year norm but hey, it's still up 20% from prior year, so we have some reason to be encouraged about that. I think that we're -- our belief in housing is there's not a lot that we can do to really influence it. And we're ready to capture additional of volume that will occur as a result of it. But we're just not -- we're not waiting for things to happen there. We're going to have PP&S continue to diversify their end markets into less cyclical operations. So housing, you probably got a better view of it than we do. We have always been, I would say for the past 5 years, we've been on the more pessimistic side of the views that are out there. So if you say it's 740, you might have us down at 700 or so, but it's still a nice improvement over prior year. We'll see how second quarter unfolds and that will give us the answer, real answer to your question did anything get -- get pulled into Q1 from Q2.

And as we look at this segment, can you give us an idea of sensitivity here, where it looks like you're going to exceed the bottom end of your 8% to 10% return target for PP&S? The 10%, what would you have needed for housing starts in order to be up at that level for this year? 900, 1 million starts?

Well, first of all. When we presented that case, we were coming off a year-end which was laid out in '07, we were coming off a year of 1.8 million, 1.9 million housing starts. So I want to put it in context, so I mean, if we ever saw anywhere near that again we'd below the top end of that range out substantially. We couldn't actually meet the demand that we would have associated with that. So I think we have to kind of set the stage for why we established those goals when we did. We have so revamped that business and restructured that business subsequently because we saw the housing downturn as multiyear phenomena and we saw that we have some businesses in our mix that just didn't make a lot of sense for us when we didn't have the differentiation. So I think we've forever changed the landscape from our perspective. Bob?

I think it's right. I would say one last item of remark there because you're leading towards it looks like we've got the 8% to 10% in the bag. And just to remind you that this is a seasonal business, Chris. So you do see pick up in the summer months with the fourth quarter being down. So you got to take that on balance when you think about where we'll end the year.

I just mentioned the projections the industry, [indiscernible] projections for 2013 are 900,000 units. So that would be a 50% uptick from '11. I don't know if they'll come in or not but that's where the industry has it right now. And there are a lot of early signs of encouragement around housing, but we're just skeptics.

And just finally, uses of cash other than acquisitions that was discussed, you repurchased fewer shares here in the quarter but you did lift the dividend. Could you give us your thoughts on but that going forward?

Yes, sure, Chris, this is Rich. So I'd say we have multipronged uses for the cash and we got a little bit of a late start buying back stock in the quarter. So what we're kind of committed to do during the course of this year is buyback at least as much to offset dilution and we kind of earmarked that as about 1 million shares a year. So I guess, opportunistically, we have some catching up to do based on how we got off to do that in the first quarter. And I have a theory about dividends, I mean, I think that once you have them, you've got to keep them and more importantly you like to increase them. So the good news about having a $0.04 or $0.05 a quarter dividend is that you can increase it at a nice percentage, and still it's not a big drag. So in terms of the money that we're going to spend this year, it's about $17 million of cash on the dividend as announced. And we hope to continue to return money in that way to shareholders going forward. So we'll use all those opportunities to do that.

I appreciate that. This concludes our First Quarter 2012 Conference Call. I want to thank you all for your continued interest in PolyOne and for joining the call today. We look forward to seeing you at our Investor Day in New York on May 16 and to updating you on our 2012 progress during our second quarter conference call scheduled for early August. Thank you all and have a great day.

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