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

Okay, thank you Rufus and good morning everyone and thank you 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 Marie Wilson [ph], our new Manger of Investor Relations. Before we begin, I will cover two items. First, during this call, you will hear certain forward-looking statements concerning our plans and expectations for second quarter and full year 2008. 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 first quarter 2008 financial results news release on our website and in our filings with the Securities Exchange and Commission including the Form 10-K filed for 2007 and a Form 10-Q to be filed for first quarter 2008. Second, our comments today will reference non-GAAP financial measures such as earning per share and operating earnings that exclude restructuring related items. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures including a description of the restructuring-related items are available in our first quarter 2008 financial results news release and the tables accompanying the news release. With that, I will turn the call over to Brian.

Well, good morning everyone, thanks for joining us. Last night, we announced another solid quarter with earnings of a $48 per share or $46 on a GAAP basis. Excluding the restructuring-related costs and charges and tax related items that Rich is going to cover in a few minutes, our EPS was up 24% year-over-year. Sales revenue increased by 6% as we did a good job offsetting high and volatile raw material and energy costs with higher selling prices. One of the consequences of our restructuring actions is that we have now... now have contract ethylene and contract polymer intermediate sales which have very little impact on earnings. These contracts will expire over time, and so we have shown their revenue in the tables that accompany our news release. If you disregard these sales, our corporate revenue increased by 10% as higher selling prices more than offset a 2% decline in sales volume. The volume decline was focused in Performance Polymers and PCI which were both impacted by restructuring actions that we've taken. Gross margins excluding items increased to approximately 20% in the first quarter, an improvement of roughly 150 basis points versus the year ago quarter. Operating margins excluding items were 11% in the quarter. This is in line with our goal of maintaining operating margins above 10%. And this is despite a more than $150 million year-over-year increase in raw material and energy costs. By the way, the increases in raw and energy this quarter were almost as much as the increase for the entire year in 2007. One more point on the solid corporate results. They are dependent on operational excellence at all of our global facilities. Eastman employees take great pride in operating our facilities safely and reliably, and it continues to directly contribute to our strong…

Thanks Brian. Good morning everyone. I'll just reinforce what Bryan said. This was a great quarter for us with solid high quality earnings from all of our segments. Let me save a little bit of time perhaps on some math. I'll walk through a couple of the items you might be considering when you evaluate the first quarter for us. We repurchased 3.8 million shares during the quarter at an average price of about $64. When we weight those share repurchases into our calculations, the improvement to EPS from those actions this quarter is about $0.03 per share. Also this quarter, we recorded three tax benefits, two of which are related to certain items we previously excluded. We did enjoy one $3 million tax benefit item in our pro forma earnings which lowered our effective tax rate for the quarter to 32% and contributed about $0.04 per share to earnings. Also, we usually get some questions around currency and hedging impacts. My only comment here is that we continue to maintain our strategic risk mitigation program covering currency, key raw materials and interest rates, and the primary purpose is clipping the peaks and valleys of volatility we may experience. This didn't have any appreciable impact on earnings in the quarter. Turn back to my normal agenda and topics, I'll provide some color around our restructuring-related items, our cash flow, our net debt and our effective tax rate. Turning to restructuring-related items, as Brian mentioned, we achieved another milestone this quarter in our efforts to restructure the Performance Polymer segment. At the end of the quarter, we closed on the sale at a remainder of the PET and related PTA facilities in Europe for $340 million. In addition, as part of the transaction, we retained about $10 million in working capital,…

Okay. Thank you very much and that concludes our prepared remarks. Rufus, we are ready for questions. Question And Answer

Thank you, sir. Ladies and gentlemen, our question-and-answer session will be conducted electronically. [Operator Instructions] and we will pass for just a moment to assemble the question roster. And for our first question we go to P.J. Juvekar with Citi.

Yes, Good morning.

Good morning P.J.

How much of you're your improvements Brian in PET came from selling the international assets versus the IntegRex plant starting up and is the IntegRex plant in the black?

The most of the, vast majority of the improvement was IntegRex running flat out this quarter versus not running as much in first quarter of last year, that's the answer to that. Since we are reporting to you that will be... how the black quarter with nothing but U.S. assets and the second quarter it would be fair to assume that we are doing fine today, it wouldn't be big step change from to date [ph] to the second quarter... first quarter to second quarter, so yes.

Okay, I understand, and secondly on coal gasification projects in Faustina [ph] and in Texas which one is ahead in terms of progress, and what are you on economics relative to your expectations.

Well first of all, we are still very excited about these projects. They have some... each of them some have unique things that makes them attractive not like to us but attractive to others. And what I did P.J. is that I laid out a number of milestones, and when we get to those milestones I want to report on them. Even in this meeting, you saw as we tripped milestones for PET especially plastics, we reported on them. The things that you are asking are things that I promise to report on as we get more to the milestone time which is later on this summer. So I am anticipating a series of questions on this call asking me details about every low part of these projects, and I really want to resist that. We are moving ahead nicely, and all the milestones we continue to be very excited about the profitability, and that's about as much as... I don't want have to report on a micro basis for full years on every part of it.

Okay, fair enough. And lastly quickly, are you excluding any options for coal gasification in China? Thank you.

Would not exclude that because I think the point that you are observing there is that is value proposition that we are describing to use coals as raw material exist not only here but other places in the world. And where it exists we will seek it out and see if it's interesting for us.

We go next to Mike Judd with Greenwich Consultant.

Yeah, just on the Fibers business, it really had great performance. I am just wondering if you could just provide a little more detail on how the dynamics look for the current quarter and for the rest of the year in that business place.

Yes, I have always I have adjective that I've used for fuss almost growing on 7 years now to describe fibers and if they were chunky. There was a phrase that we used in the dialogue there that fibers out performance this quarter was driven by some extra sales in China primarily, and that is usually the source of the chunkiness in there earnings. They had a very, very good quarter. We often do give an outlook for the year just because their chunkiness is hard to look through. We would tell you that fibers is on track to be a little bit better this year than it was last year, and that would be 5 years in a row. So you got to track record to look at Mike, that's probably a good indicator for you.

Thank you.

For our next question, we got to Frank Mitsch with BBT Capital Markets.

Good morning, gentlemen. I was planning on asking about your local relations with the with the coal gasification size, and how you doing there with planning but I guess it's a little bit too granular?

Well, you can try again Frank, you are a persistent guy.

I am indeed. Obviously, a bit of a surprise in terms of the share buy back takes in the first quarter, can you talk about where your shares outstanding was at the end of the quarter, and do you plan on keeping this pace up. And how much do you have left in terms of your authorization?

Frank, we have about $350 million left in the authorization. The phase during the quarter I'd say we are opportunistic, we think the average price we got of $64 was a good buy, given we are trading at 6.5 times cash, and we had a plan to double our EPS, going forward. So we think that was just a good opportunistic buy and going forward we will continue to be opportunistic.

Okay and you mentioned that you should have a 30, 000 tons plan up on Tritan in 2010, do you think you may given the... the BPA controversy and a potential opportunities there, is that fully factored into the thinking behind the 30, 000 tons, could that be expanded, what's the... when would you... so you expect to see first meaningful commercial sales into this... into the plastic bottle arena during the time frame or can that be moved up?

Yes, you are all the questions we've been asking ourselves Frank. This is a brand new plastic, it has some unique ingredients that really very hard for anyone, but has to make. We have pushed as hard as we can, we're very excited about the enthusiasm of the customers that have come to us, I'm sure you're aware of some of the deep concerns that are emerging about BPA in food contact and children toys and things. So the market pull is remarkable for this product, it has, not only that feature by the way, it has many other positive features that will be described at a later time. To your question, we are... traditionally we have converted PET lines to copolyester lines, that's what we're doing here. We will... as soon as we get down the road unless we're working on the next one it'll be a good, bit bigger but to your question, we can't get any meaningful commercial quantities out there until we get this first plant done. The address for market is so... we are on the... talking about the potential here, the address will market for this product, its easily 700,000 tons. And the 30,000 ton facility, we are just scratching the surface, so you can bet that, our aspirations, for plans to and beyond, would be will be on it and somewhat different approach to scale there.

Okay, that's terrific. Lastly, I think you mentioned on last call that you were pursuing in IntegRex licensing opportunities, any progress to report there?

We always thought that this was the best technology in the world of its kind and we're getting some confirmation on that by the interest that we've seen. We're really pleased by the interest. We are in conversations, and since we're in those conversations and negotiation, I can't give you anything else but yes, it's gratifying to see the interest

Terrific, thank you.

For our next question, we go to Kevin McCarthy with Banc of America Securities.

Yes, good morning.

Good morning.

Brian your PCI margins have been strong for quite a while running double digits I guess last six quarters 8 over the last 9. You sound confident that's going to be sustainable at least for this year. I was wondering if you could talk a little bit about your inputs there... propane looks to be 15 year low versus energy proxy like crude oil. How important is that in driving the profits in PCI and other things that you can do to may be look in lower propane cost to engender that sustainability.

Yeah, you are good in [indiscernible] with your question Kevin. Remember that PCI is a mixture of coal produced products and olefin derivatives. So the colder [ph] products are marching along happily as for reasons you understand but I... about you but remember that's part of the PCI story as well. Regarding olefins derivatives, the input costs to the crackers are important and we said on a past to shutdown the older crackers but as we operate them now, it's the continuous make versus buy choices and in the environment that you describing our propane is cheap relative to some of the other things that are going on it could be a mix decision for a longer period of time and that helps us. Also remember that propylene derivatives that we make, are not being built or over built, the same way that she would... you would think of the whole ethylene cycle or things like ethylene glycol. We have a number of propylene derivatives that just do not have a lot of over building in the future and that is the pretty key factor in that sustainability of our margins as well.

Just a follow-up on that Brian. If I look at the ethylene cracking margins and propylene starts such a bad [indiscernible] these days especially compared to Masta [ph] and might have not make sense just to run these things for another couple of years?

Well, I mean... we have some agreements that we are obliged to follow, we are going to follow the money here as you suggest.

Okay, great. And then, elsewhere on fibers, what is... can you remind me of the timing of the UK expansion and the size of that for calculations of financial impact there?

Yeah, it's around the end of this year. We think we're going to get it done, it is relatively small in capacity, its light of 4 to 5%, 5% is not a huge incremental of capacity, so its proportionally... that kind of impact to the business, but as you know we're also working on something in Asia as well and hope to talk about that later.

Great, thank you very much.

We will go next to Jeff Zekauskas with JPMorgan.

Hi, good morning.

Good morning.

A few questions, when you originally plan your coal gasification units, you probably had certain cost estimates and has those cost estimates changed and if they have... sort of what order of magnitude?

Yes, if the CapEx had not changed, we'll be the only project in the world that had not changed since the beginning of something two years ago, all CapEx cost in every project is going up, commentary with that we're seeing spreads for the materials go up as well. Remember what's important to us is the spread between the solid hydro-carbons and things like natural gas or oil. And so if those two travel together to some degree and you can lock in some of that spread through financial mechanism set as certain point of time, then you mitigate some of that extra CapEx. There is a number of moving parts here as well in other parts of the project which again... this is getting to the risk of micro reporting but I want to emphasize the reason people are asking me this question are you do you still think these are attractive? Absolutely. They are very attractive, we are excited about and we are marching ahead.

My question was less on whether they were attractive and that I do think them attractive but it was more on what's the magnitude of higher CapEx?

We are in the middle of the feed process, that's one of the milestones as more of the summer milestones so it's always its frankly impossible to report on that until you are done with the feed process.

Okay second question, is in can you talk about demand into the fee market domestically, you know that is when you exit [ph] the various operations that you sold what was your underlying PET and growth rate and how do you see that market over the next quarter as we go into the prime selling season.

Yeah reporting that we are essentially running flat out we continue to see the growth in North America around 200,000 tons a year. The wildcard in past times has been the Asian import quantities changing the dynamics domestically because primarily there was an arbitrage between North America and paraxylene and PTA versus Asian paraxylene and PTA and charge [ph] has disappeared so that would indicate that with no difference between U.S. and Asian raw material prices there is not a big driver to bring in a whole lot more imports. So I see this as a fairly stable demand situation.

Okay in the BPA market, forgive me Brian but I just don't know how big the size of first BPA maybe bottom market is or whatever else that you want to pull BPA out of it, have you been able to size that just yet.

We have, we haven't spoken about it because of... for a couple of a causes but it's bigger than we can handle, lets just say that way the... you have the Water Bottle Industry... you have the Baby Bottle industry, now... there may be a New York Times article this morning was talking about contact with children's toys, if you have referenced to New York Times this morning, this is about we're still rolling Jeff so I don't know... it keeps on changing the answer to your question. So there's... I guess the other thing I want to emphasize is that... there is a broader way of markets. This is the products that's chemical resistant, its very tough, it's forming in the shapes, its got a higher temperature, you can make products and throw in the dish washer a thousands times and it never get that kind of fussy crack look to it... we've got a lot of properties that make it attractive.

So to assist will do they change your longer term EBIT forecast for Specialty Plastics?

Maybe someday but not today.

Just because you haven't had time to do the numbers, or because of other reasons?

Just because there no time yet.

Not time yet. Okay, and then

I mean just we were Eastman, right so we want to get the first plan out there, we want to show what the numbers look like and then we'll start talking about it-- I mean talking about it before you get it out there's... I just I would always resist.

Just a little lastly, in PCI, how much of operating profit is oxo related?

We have never really broken out the split between those two. I will just tell you they are roughly in equal proportion to each other, Coal guys versus olefin guys, and all of our olefin derivatives in PCI for the... the vast majority of more propylene derivatives.

Okay. Thank you very much.

Yes, in fact we are down to essentially one meaningful ethylene derivative which is acetaldehyde, and we make ethylene glycol and we consume for ourselves transfers the costs. So it's essentially except for the acetaldehyde it's essentially a propelling machine.

Okay. Thank you very much.

[Operator Instructions]. We'll go on the next to Bob Goldberg with Scopus Asset Management.

Good morning guys.

Good morning.

Brian, you didn't have any update on the 2008 full year guidance and of course, we understand with the volatility and petrochemical and uncertainty in the economy, it may be earlier in the year to update. But I will... I had a qualitative question though, because you do have quite a bit going on internally, at the company with the restructuring of South Carolina and other initiatives. And just curious about the seasonality which is normally been skewed toward the first half, what is your thinking on how the internal initiatives will affect the normal seasonality in the two halves of the year?

Great question. You gave my answer already for me about why I haven't made more comments about the full year. I stand by the comments we made earlier at the end of the first quarter about how we think about this year. There is a... if you think about the guidance I've given for the first half. This first half is in the parade of Eastern first half, so it's a very good first half. It was only eclipsed by '05 and in '95 when PET drove the story. So, this is obviously very good first half. Second half, it is more about uncertainty than anything else Bob. On certain economy, you have to get through a lot of hard projects, we expect we can get through them just fine. But you... I'm just going to stand by the guidance that I have before, so I guess I'm reaffirming that, but that's all I would do.

But you're going to earn about $3 in the first half?

Yeah, it's in neighborhood. Yes.

Which is about 60% for the full year?

Yeah, I know you are doing your 60-40 math Bob and sometime it's 55, 45 sometime it's 60s, 40s, probably its somewhere... I'll let you do the guessing on that... I don't want to do anything more.

Okay. Thanks Brian

And with that ladies and gentlemen we have no further questions on our roster therefore Mr. Riddle I'll turn the conference back over to you for any closing remarks.

Okay great, Rufus, thank you very much, and thank you all for joining us this morning. An audio replay of this conference call will be available this afternoon through Friday May 2nd. Have a great day.

And again ladies and gentlemen, this does conclude the Eastman Chemical Company's first quarter earnings conference call. We do appreciate your participation and you may disconnect at this time.