Good day everyone and welcome to the Eastman Chemical Company Third Quarter Earnings Conference Call. Today's conference is being recorded. This call is being broadcast live on the Eastman's website www.eastman.com. We would now turn the call over to Mr. Greg Riddle of Eastman Chemical Company Investor Relations. Please go ahead, sir.

Okay. Thank you Vicki and good morning everyone and thanks for joining us. On the call with me today are Brian Ferguson Chairman and CEO; Rich Lorraine, Senior Vice President and Chief Financial Officer; and Jennifer Bogni, Manager of Investor Relations. Before we begin let me cover two items. First, during this call you'll hear certain forward-looking statements concerning our plans and expectations for fourth quarter and full year 2007. Actual results could differ materially from our plans and expectations. Certain factors related to future expectations are or will be detailed in the Company's third quarter 2007 financial results news release, on our website and our filings with the Securities and Exchange Commission including the Form 10-Q filed for second quarter 2007 and the Form 10-K to be filed for third quarter 2007. Secondly, our comments today will reference non-GAAP financial measures such as earnings per share and operating earnings that exclude restructuring related items. A reconciliation to the most directly comparable GAAP financial measure and another associated disclosures, including the description of the restructuring related items are available in our third quarter financial results news release and the conference call tables accompanying in the news release. With that I will turn it over to Brian.

Hi good morning everybody. Thanks for joining us. This morning, I will follow the usual pattern of talking about quarterly highlights at the corporate level, the segment level, the regional level and fourth quarter outlook. I'll wrap up with some gasification comments. But before I get started with all of that I'd like to make a special announcement to everyone, the first item today is to announce that our Board of Directors has authorized the repurchase of up to $700 million of Eastman common stock when combined with the $300 million repurchase program that was authorized earlier this year and which we have completed this quarter. The total share repurchase authorization in 2007 is $1 billion. I'd like to give you some thoughts on how we came to think about this, if we look at a timeframe between 2003 and what will be by the end of this year. We will have accumulated approximately $1.5 billion in divesture proceeds over that time. And over that time, we used about a third of that to pay down debt. So the remainder, we are returning to stockholders through the $1 billion in share repurchases authorized this year. This authorization will also allow us to manage our share count down to a level much closer to where it was about five years ago, and it also means that we believe that we can fund our very aggressive growth initiatives with a combination of existing cash and the ongoing cash flows, which we think is a very, very good story. So I wanted to give you that news first before we move on to the regular conversation. So now, I will go on to the corporate highlights. I think it's clear that we remain very focused as a Company on delivering strong performance. Last…

Thank you Brian and good morning everybody. This morning, I will discuss our normal agenda of cash flow, interest expense, I will touch on other income, talk about our tax rate and our overall financial position or net debt. First, like I normally do let me add some color around the restructuring related items. As Brian mentioned, we announced last month that we have entered into definitive agreements to divest our Argentina and Mexico PET facilities. We expect that these transactions will close during the fourth quarter. The cash proceeds for these assets will be $138 million which includes working capital which as in many transactions is subject to some minor adjustment at closing. As a result of these agreements, we incurred asset impairment and restructuring charges in the amount of $117 million or $75 million net of tax in the third quarter. Also, as Brian mentioned, to help you size the revenue and operating earnings impact of the pending divestitures of these sites, we've provided additional information in the conference call tables that accompany the earnings news release. Looking at Europe, we continue to make good progress on the divestiture of the facilities there, and we do not expect to incur material asset impairment and restructuring charges related to this action if any. Brian also described the series of actions we are taking to transform our South Carolina PET site. One of these actions is shutting down our highest cost PET lines and 100,000 metric tons of that shutdown has already been completed. We've incurred $21 million of accelerated depreciation cost at our South Carolina facility through the first nine months related to these actions with $7 million of that being recorded in the third quarter. Looking forward into the fourth quarter, we expect accelerated depreciation cost should be…

Okay thanks Rich, and that concludes our prepared remarks. Vicki we are ready for questions. Question And Answer

Thank you. [Operator Instructions]. Our first question will come from Prashant Juvekar with Citi.

Good morning Brian.

Good morning sir, how are you?

Good, first question on PCI. With oil and propylene moving up, how are oxos doing in Asia. I would imagine that a lot of smaller clients would be unprofitable right now? You have comments on that?

Yes, I will make a comment. Remember PCI first of all is about 50% coal based and about 50% olefin derived. So the coal-based stuff is doing great. Your question speaks to the olefin side of the house. The thing we have to remember is that the raw materials are going up like crazy, you are exactly right, whether it's propane for crackers or whether it is propylene. But the derivatives themselves have been fairly tight. The oxo derivatives are not oversupplied and we don't see any big scenario over supply coming in the near future or even into 2008. So that has allowed us to pop up our derivative margins. Now Asia is a little more sensitive, it fluctuates more than the others but worldwide oxo has held up pretty down well.

Right, no, my question was do you believe that Asian plants are going to be unprofitable now?

We have been doing well in the Asian plant this year. It has a history of not doing so well in the past and it did... we are in the cyclical peak right now. So it's I mean... down the road it doesn't do as well as its doing now but we are enjoying a lot.

I am sorry not your plant but your competitor the smaller players in Asia maybe in China.

Oh! I done have a good comment for you on that competitive position of those folks. I think if they are buying raws outside our formula... if you are buying its spot they are hurting. We have a formula that has affords us some protection, but even that formula has a lot of volatility and because it tracks some of the major underlying components that move around.

Okay. And the second question on Specialty Plastics you have this goal of 10% to 15% operating margins.

Yes.

Well currently you are closer to about half of that.

Yes.

So the question is how much of your existing PET capacity is now converted into copolyester. And just sort of outline steps for us, how do you get there?

Its really an easy answer, that's why I gave you the gross margin information. The gross margin for Specialty Plastics is 25%. All we got to do is get their SG&A and R&D down to something at below 15% and they are making the margin that we set. The appropriate overhead load for this business probably is between 10% and 15% overtime, which would make it about twice what the load is for the whole company. Right now it's running above that just because we have been investing in the growth of all the other products. So this is under our control PJ. We ratchet back some of the spending that we have been using on launching and commercializing and we just like the gross margin carry today. The gross margin is strong.

Okay and how much of that existing PET capacity is now converted into copolyester?

15%,:

I am sorry 50,000 metric tons.

Okay, Greg was trying to whisper to me that 50,000 metric tons is on the way here.

Okay, thank you.

Your next question will come from Mike Judd with Greenwich Consultant.

Yes a question about your methanol business, I guess it is coal based. Obviously methanol prices are way up here. Is there any arbitrage opportunities here, may be selling a little bit more methanol into the market and how do you manage your mix products here given through that unusual dynamic. And evidently according to Methanex the issues around methanol supplier continue well into next year. And then secondly, I just had a question about the, that other income line again with the foreign exchange, should we expect a similar or may be even a bit larger dig here for the December quarter?

Okay Mike I need to make sure I clarify and get the answer that you want. Are you talking about methanol today or methanol in the future?

Well I mean methanol prices are obviously up significantly today.

You are talking about today. Mike mostly we make methanol for primarily, for internal use. It is towards the intermediate that we pass through on the way to acetic gas and acetic acid and acetic anhydride and other products. We are not in the methanol market out there and its... we are not... the answer is no, we are not going to try to play some kind of arbitrage or move intermediates out there into that world. We need the material internally and we add a lot of value to material internally. In the future now, of course we will be watching that carefully because we are going to have a whole lot more methanol than we have now. On the other income, Rich needs to answer that.

Yes, the gain we reported was primarily driven by the strengthening of the Euro against our accounts receivable. The only way we could duplicate that would be of the euro strengthened further during the quarter against our receivables and then we'd have another gain. I'm certainly not in a position to know what these all be by the end of the year but again if it continues to strengthen we'll have an additional gain.

kay and then just secondly, on PET, thank you for providing the detail to us so that we can kind of back out the Latin American plants, but is the implication there though that the business looks like continue operating at a loss even with the sale of those particular assets, is that sort of the right influence at least in the near term?

Yes, it is and that's the combination of things. First of all, we are not dealt with the European side of this equation yet and that's still in there. We have all of that, expense that we're going through is tearing up South Carolina to make it leaner and switching materials. So all of that friction is using up some money. It will be a modest number but it will still be rocky between now and the middle of '08 that's why we keep on putting on the benchmark out there in the middle of '08. All of this heat and friction to fix it. It is going on between now and then and that after that is when you get to see the improvements.

Thanks for the help.

Next we'll hear from Frank Mitsch with BB&T Capital Markets. Frank Mitsch - BB&T Capital Markets: Good morning gentlemen.

Hey Frank. Frank Mitsch - BB&T Capital Markets: Good thing I got in when I did... you guys started out the call with a bang, can you talk a little bit of the timing of that. I mean you ripped through the first $300 million fairly quickly. Is 700 going to be equally as fast?

I'm looking at my CFO here; I think we are going to be opportunistic on this as we were Frank. That's timing of using the first 300 have something to do with what's going on in the markets. We saw some great buying opportunities and Rich being a shrewd guy with money jumped in there and took his opportunities. It's going to be a same thing in the future and in higher numbers we are going to be less interested in lower numbers, we are going to be more interested and we will just see what the markets do. Frank Mitsch - BB&T Capital Markets: All right I mean obviously at 60, if you bought a whole bunch back at 65 obviously your buyers as soon as this call is completed. Can you talk a little bit more about the PET business, Brian? I think you talked a little bit about consolidation and rationalization in North America. Can you talk a little bit about that and also Wellman announced a lawsuit on IntegRex, can you talk a little bit about that as well?

Sure, let me start with the lawsuits. The... we usually don't comment on pending litigation, but as you know we are the market leader in PET. We have introduced this IntegRex process, which is a game changing technology that could be viewed as being threatening to a lot of people. I have to tell you this is supported by a very broad portfolio of R&D extensive research and development. We understand and know everything about the patents were all that exists out there and it doesn't surprise us as some people would want to challenge it, but we consider the pending claim to be without merit and we will defend it vigorously. And going back to the PET structure comment, starting with our situation, I have to point out that we started this year with about 1.5 million tons of PET. By the time, we get to the end of 2008; we will have removed from our portfolio 80% of that conventional PET. We will have taken out over 1.2 million tons of conventional PET and we will have added IntegRex capacity, but even with adding the IntegRex capacity, well we have to size with about 60% IntegRex. So we are feeling good about the position that we will have, in that changing marketplace. We look around and we see all the announcements. We see us slowing, some frankly and somewhat slowing demand picture in North America. We use to think of North American demands growth being about 250,000 tons. We think it's more like 200,000 tons these days and we look at the cost pressures, the global cost pressures in the new entrance that bring the materials from North America. This just looks and if I also throw in the supplier power for the raw materials guys and the buying power of the big brand owners. This is an industry, which is right for structure change. We have a great technology. We are watching as this structure changes slowing around us and we are looking for ways to capture value as it goes on. Frank Mitsch - BB&T Capital Markets: All right, fair enough. And then lastly, you referenced propane cost rather high. Can you talk about the calculation between higher raw materials and the price increases that you are putting in place to offset that. How should we think about that?

We are going to be a little bit stressed, but we gave you our guidance for the quarter, which would tell you that is not an undo stress. We are fairly fortunate that the derivatives that we sell in are fairly tight. And so that gives you some ability to pass on prices, but there is always a lag there, Frank, the raw material guys can go up fast which takes... our inertia in pricing is always a little slower then that but I think our fourth quarter guidance gives you a sense of how we are feeling about that its stressed but its not undo stress. Frank Mitsch - BB&T Capital Markets: Terrific, thank you.

Our next question will come form Banc of America's Kevin McCarthy

Yes good morning

Good morning.

Good morning.

Brian, you mentioned the elevated R&D spend in SPO for the Tritan project. Is there an inflection point coming where that spend will diminish and we can expect margin advancement towards your double digit goal?

Yes, and it's somewhere between the end of this year and about the middle of next year. I keep on doing this to you, I keep pushing it toward the middle of next year, but that's really where a lot of these things start to trail off and come due ahead. But it's somewhere between the end of this year and the middle of next year, it starts to trail off and we start yanking back on some of those expenditures plus they have some margin expansion. I need to point out that the sale assessors are going to LCDs, are growing like gangbusters, they are doubling every year or two in terms of their volumes. The copolyesters are growing at over 8% a year and this new material looks like a winner. So all of that starts to come into play somewhere next year, somewhere next year basically.

Okay. And it sounds like maybe a year or two from now, you might be getting far fewer Wall Street analyst questions on your PET business, but once you are still in it, I have a couple for you. As you exit these international assets should we anticipate anything meaningful in the way of stranded costs in that business?

We've given all the big lead balloons around write-offs and things like that are basically done with this announcement in this quarter. I think the next time we don't expect any significant restructuring or write-offs or anything, Rich, you want to make any comments?

No, I would just say that what you're thinking, we're going to reduce and eliminate the vast majority of the costs, the other pockets surrounding those plants. So going forward, I think you'll see it more, you will see that stability.

And then on the lackluster demand that you referenced Brian, can you comment on little bit on what's causing that. Is that just simple, maturing of the market and given that circumstance, do you think it's still reasonable to expect your double-digit margin go in that business I would presume?

First of all, as far as our business expectations, as we mentioned, we are taking this plant that we invested in and we are going to be increasing it by 50%. We are taking out 80% of the oil capacity, we are switching to lower cost materials and we are doing a lot of things to improve the existing business. But demand has been little bit soft this year. The customers have reduced some inventories, water growth has slowed a little bit and that's why we think that the demand growth is closer to 200,000 tons then 250. Don't know if that's a long term trend or not, that's just what we have seen.

Okay. Then finally, in table 2D of your release I think you have some volume numbers in there by region, however they do include the divestitures as far I understand, not sure if you have any handy or maybe we can follow up on, but I will be curious to know what the underlying unit volume numbers might be for these parts of the world?

Yes Kevin, I think Brian mentioned a few of those numbers in his prepared comments so I will be happy after this call to run through.

In terms of sales dollar but not volume.

Some volume numbers.

Yes, I was interested in getting up to demand numbers, but I'll surely get back thanks.

Yes.

Our next question will come from Ted Izatt with Bear Stearns.

Yes, hi good morning congratulations on your earnings.

Thank you.

I have a question on the share repurchase well really the questions is on your balance sheet. Would you use new debt to fund the $700 million if you do it this year?

No we have more then enough cash on hand and coming proceeds from divestures to handle it completely out of cash.

Okay. So there is no expectation of any debt out bond market offerings or anything?

No, it is not.

Okay, thank you.

We will now have one from J.P. Morgan, Jeff Zekauskas.

Hi good morning.

Good morning Jeff.

A few things, the Fibers' earnings were up very significantly versus the second quarter, in fact they were up so much they almost equaled the sales, the sequential sales gain and in you sensed for the year that you expected the business to be a little bit better than last year. So I guess that means we're going to go down into the low 50s in terms of operating income in the fourth quarter. So can you explain this volatility? How do you go from sort of 50 to 66 back to 50 again?

It has to do with order preference, to only clarify we're saying that this year's going to be a bit above last year.

Yes, yes.

And we're going to quantify exactly what a bid is, of course. The order patterns, these are large customers that especially in other parts of the world where they place large orders, load up on inventory, run it down and then wait to look for opportunity to place other large orders and that's why I coined the phrase 'chunky' some years ago and some days its chunky good and some days its chunky bad but it all kind of goes along in a pattern, on an annual basis but looks about the way we have described it. So that's the best I can describe it to you. We're used to it and we try to get you guys used to it, so that you don't either panic or become overjoyed alternately.

Second, I would imagine that the squeezing CASPI from higher propylene costs or propane costs is a little bit more difficult to handle, I would think that the prices for the CASPI product line would be a little stickier in the market. So is that an area where you are a little bit more worried about raw material squeeze?

Sure any of the specialty, whether it is paraxylene and especially plastics business or whether it's a raw materials and CASPI, those orders exactly as you described the prices are driven more by functionality then they are about cost plus so you have to figure out ways to deal with that and again without breaking it down any kind of detail for you we gave you a outlook and we think that there is some squeeze, therefore we think we are okay.

Lastly about the opportunistic share repurchases, first I can see Eastman's price has been relatively stable this year and so I don't know why last quarter was any more opportunistic then any other quarter. So can you give us a better idea of the timing of execution of the $700 million in there that you intend to spend for share repurchase because I mean Eastman's price is been around here for the last three years so does that mean you are going to execute it really quickly or is there some other factor.

Jeff, we saw some prices bouncing around in the months previous week we got some shares in the 63s for example but looking forward again I don't foresee a big rush into the market I think we will place ourselves and keep drive powder and the opportunistic depending on the ups and down in the marketplace. So I guess the only clear message I can send is we are not in a huge hurry to go out and spend the $700 million and that would be just going to be very measured.

Well if the price say fluctuated between 60 and 64 over the next 12 months how many shares would you buy?

I can't answer that very specifically but if the price fluctuated down to 60 I am in the market.

Okay, good. Thank you very much.

Moving on, we'll hear from Scopus Asset Management's, Bob Goldberg.

Good morning.

Good morning.

Good morning Bob.

Could you update us on where you stand in terms of divesting the European PET assets?

Yes, I mean I will be very brief just let you know that we've been very active and we feel like we are getting close to the final announcements and I can just say stay tuned we are working very hard on it.

And a follow up question to that. Brian if you look at the analyst earnings models I am sure you spend a lot of your time on. They all have PET business, performance polymers either being around breakeven or losing money in 2008. Despite the fact that if you go through your earnings release it looks like you are relatively flat in North America now losing $3 million, I believe, in Europe and $4 million in Latin America which is going away. So you are almost back to breakeven on a run rate basis not quite but almost especially if you divest the European assets in the timely fashion. So the question is what's the reasonable expectation given all the measures you are taking into next year for performance polymers business in 2008?

Yes we are about three months early in giving the model for 2008 but my first answer will be it's not zero. We're taking these actions to move us being back into the black and that's why we do these things. We expect when we get done its going to be well into the black. We have given you some parameters and where we think its going to go and we still believe that. So we think... I guess I would judge that those numbers that look at us as being zero going forward are light. I am not going to give anything more than that right now, Bob. We're two months away from giving you views of 2008.

Right okay, I appreciate it. Thanks.

Next question will come from Gregg Goodnight with UBS.

Good morning all.

Good morning.

You mentioned several times about the high cost of propylene, would this justify an acceleration of your initiative to MTP process to make propylene from Methanol?

I am not going to comment on what we're going to... the derivatives from coal gasification. We're still working on our derivative portfolio for coal gasification. There is a lot of reasons why we don't want to talk about that. But just to answer your general question this is an energy related play that we are doing. These low cost hydrocarbons are all about trying to play the arbitrage against other hydrocarbons that have higher cost, and that's true of all of them. How... whether it's, whether if they propylene derivative or whether it's coal related derivative we're going... you've got the right idea, that these high cost things can be attacked, but we're not going to comment on any of those choices right now.

Okay. Conceptually though I should be thinking of 2012 to 14 in that range, or later?

Yes, we would like to get them up as quick as possible. We have hopes of timings at least one of these close to the start up of the Texas project, but it's an R&D project you can't burst those things any faster than they have their natural way to go. So, yes that's probably a good yes for you.

Okay. I look forward to your additional information on coal gasification projects which you mentioned is coming, just one question, would you characterize the CO2 market at the tertiary well process. In a formal call you mentioned that if there's value in being a first end is that an under supply market over supplied market, what is the value and use of the CO2 that you would supply?

Yes good question, down there on the Golf Coast as we all know for as many years as anybody can remember. They have even drilling holes to pull out oil. There really is not of a man made CO2 supply down there actually. The CO2 supply has come up from Northwest Texas and Oklahoma, they have natural supplies there, but that's not easily transported. I guess my point is there are whole lot of holes that are right for secondary recovery, enhanced oil recovery and this is a rapidly growing market in the Gulf Coast. So as an early entrant, we think there is a lot of opportunity to move this product and that's its... that allows us to move to sequester the CO2, which is already fairly easily captured by us. I mean when you kind of talk about the world of CO2 there is two problems, the carbon captures usually a big problem for a lot of people because we make chemicals instead of power. We get to capture it more easily than other folks might and then the question of sequestering is the next problem people have to face by being on the Gulf Coast with all those depleted oil wells down there. There is a lots of places to put the CO2 and I think I don't know if I am talking out of school [ph] here but I think we estimated that the two projects that we are in would generate something like 10 million barrels a year of oil just because of the ability of the CO2 to enhance the oil recovery.

Fantastic, I appreciate the comment.

Our next question will come from Morgan Stanley's, Charles Neivert.

Hi guys, how are you?

Well how are you?

Good, I just want to ask you in getting the additional PET capacity that you got out of the IntegRex operation, you have talked about an initial stand something over a $100 million pretty indefinite but how much more was spent to get the additional piece that you got and sort of at the margin how did you add that 50 odd percent?

We don't reveal that but it's a modest number relative to the first number. It's the typical... Charlie you have been in the business long time you know de-bottlenecks are a fraction of the initial costs. This is not different, same thing. This is really in many ways not fully appreciating the size of what we had built. When you are building a brand new technology you put in all these extra... in case this happens, in case this happens kinds of allowances. As it turns out this critter was able to generate a lot of pounds that we hadn't anticipated and there are certain bottlenecks that you move of out of the ways which you concede it so that you can process things and it's a modest amount of money.

I mean could you classify at least some proportion of this more like an accelerated capacity creep as opposed with de-bottlenecking or was it more de-bottle?

It is more of a de-bottleneck. It is certainly less than 50%, so put it that way.

Okay, thank you.

Next we will hear Andrew Feinman with Iridian Asset Management.

Thanks, first I would just like to commend your board for making the decision on buying back stock. I think that it demonstrates their conviction and belief in the investments that you are making and it is not just... I should not think of it as returning cash to shareholders, I should think of it as investing in the future growth of the Company because it will make every share worth more, so.

I'll pass that on to them Andy, thanks for the comment.

Can you tell me... first of all, I assume that the receivables off balance sheet there is still about $200 million?

That is correct.

Okay. And the Green Rock announcement, is that different than who you might have thought it was going to be a few weeks ago or is that kind of what you were expecting all along?

No this is not different we've been working with these folks for quite some time. They are the partner that we have become comfortable within the Faustina project which we've been working on for quite sometime and the only reason we were delaying the announcement here is we wanted to ink the agreement between us and agreements take a lot of the hammer out but they are very capable, knowledgeable group. They understand what they're investing in. They have a history of investing in basic assets like this. They are motivated similarly to us. I would think they're going to be a very good partner and now we have one partner for two projects. So we don't have to try to understand two partners, we can understand one two times.

Okay. And I wonder if you would be willing to tell me what the net book value of the European PET business is?

Andy this is Rich, when we get to the end of that process, we'll certainly inform you and everyone else what the net results are. I would like to leave it at that.

Okay. And then the last thing just because I sleep better at night when I hear it and I haven't heard it yet on this call was 10% in the second half of '08. Are we still thinking along those lines if we're still in the business?

Yes Andy. This is going to be much, much better business. You're going to be, if not on that number in the neighborhood of that number. I think this is one of those things that again we're doing different things at different times. We're doing part of the transformation in the middle of '08. At the end of '08, remember we're picking up this IntegRex facility 50%. So I feel even better about '09 than I feel about the end of '08. But yes, I am not trying to crawfish on the number.

Thank you.

Let's make the next question the last one please.

Okay with that being said, we'll take our last question from Paul Christopherson with New Vernon Associates.

Hi thank you. I know it might be historic, but there is a possibility that in the fourth quarter there are going to be some pretty big sequential cost increases not just in propylene but in paraxylene and ethylene glycol. I mean this could be a big cost quarter. Do you include that in your fourth quarter outlook?

Yes absolutely.

Thank you.

At this time, I will turn the conference back over for any additional or closing remarks.

Okay, thanks again everyone for joining us this morning. An audio replay of this conference call will be available this afternoon through Friday, November 2nd. Have a great day.

And that does conclude today's teleconference. Thank you all for joining have a wonderful day.