Good day, everyone and welcome to the Eastman Chemical Company second 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 will now turn the call over to Mr. Greg Riddle of Eastman Chemical Company Investor Relations. Mr. Riddle, 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 Jim Rogers, President and CEO; Curt Espeland, Senior Vice President and Chief Financial Officer; and, Amelia Nitesh [ph], who is new to our Investor Relations team. Before we begin, I will cover three items. First, during this call, you will hear certain forward-looking statements concerning our plans and expectations for third quarter and full year 2009. 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 second-quarter 2009 financial results news release on our website and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for 2008 and the Form 10-Q to be filed for second quarter 2009. Second, except when otherwise indicated, all financial measures referenced in the call and in the slides accompanying the call will be non-GAAP financial measures, such as sales revenue, operating earnings, and earnings per share 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 second quarter 2009 financial results news release and the tables accompanying the news release. Lastly, I want to remind you that we have posted slides that accompany our remarks for this morning’s call on our website at www.eastman.com in the Investor section. With that, I will turn it over to Jim.

Thanks, Greg; and good morning everyone. I will begin on slide 3. I'm going to start out this morning looking back at some of the outlook statements we gave you during our first quarter earnings call in April. I would like to do this, kind of look back on each quarterly call, good or bad, so that we hold ourselves accountable for the statements we make. I have listed a few of the corporate statements here and we will look at the segment statements when we get to their results. On second-quarter EPS, we said we would be near $0.71 a share, and we came at $0.86. Yes, we were a little above our own expectations and I will talk more about that in a minute. Next, we told you full year 2009 EPS would be between two and three dollars. Through the first half of 2009, we have earned $1.11 per share and with our EPS outlook for the second half; we remain on track to meet this expectation. We told you the $200 million of cost reduction actions we have taken since December would be evident to you in our results through the first half of 2009. Our SG&A and R&D are down $38 million and we are seeing the impact of the cost reduction actions in our cost of goods sold as well. And I do not want to steal Curt’s thunder, but we told you we would have positive free cash flow for the year; and through the first half of 2009, our free cash flow was $69 million and we are set up for a very strong second half of cash generation. Moving next to our corporate numbers. First, on sales volume, while we were down 13% year over year, excluding contract ethylene and polymer…

Well, thanks, Jim and appreciate those kind words and took one off the eye and everyone focused on cash appreciate the comments. And good morning to everyone. While most of Jim's comments were focused on earnings performance and outlook, I am going to focus on cash generation. We have a great story to tell, as Jim already mentioned. In March, we committed to generate positive free cash flow for full-year 2009. This commitment is possible because of the strong focus on cash that is occurring throughout the company. To a greater extent, the increased focus on cash represents an important cultural shift for Eastman. And I'm very pleased with all, everyone at Eastman has stepped up and responded to the challenge, particularly in this tough economic environment. And as you can see from the results, we are making good progress. In the second quarter, our $255 million in cash from operations was the best second-quarter cash generation we have had in over five years, bringing our year-to-date operating cash flows to $337 million. Solid net earnings was a contributor, as was cash from working capital, which I will speak to in a minute. Our capital expenditures decreased to $94 million in the second quarter and we expect to continue to reduce our capital spending in the second half of the year. And we continue to pay our dividend, which is currently still at a healthy 4% yield. On free cash flow, we generated $129 million during the second quarter, and with $69 million through the first half of the year, we are on track to meet our expectations for positive free cash flow in 2009. Turning to slide 14, as part of our free cash flow objective, in March, we committed to generate $100 million in cash from working capital.…

Okay, Curt. And that concludes our prepared remarks. We're ready for questions.

(Operator instructions) And for our first question, we go to Frank Mitsch with BB&T Capital Markets. Frank Mitsch -- BB&T Capital Markets: Good morning, gentlemen; and nice results, obviously. Curt, in your free cash flow expectations for the full year, did you factor in the bonus that the fellow who got the 62nd shout out will be receiving on these conference calls into that projection?

Cut it out, Frank. Frank Mitsch -- BB&T Capital Markets: But I did want to ask a pay-related question. Obviously, the aggressive stance that Eastman took in this unprecedented period in terms of cost reductions is paying dividends here in terms of your performance. Any thoughts on when we are past the crisis and you go back to the old pay methodology?

Well, that is a good question. There is probably 10,000 people who care a lot about how I answer that, Frank. Look, (inaudible) is not out of the woods yet, when I was talking about Performance Polymers, but it is certainly true for our whole economy and for the company itself. You have to have been here and have enjoyed this culture to appreciate the ability for management to be able to adjust on the fly and make significant changes like that, and for the people to just keep doing the job and the professionalism you see, even though we did take a 5% pay cut from the Board all the way down. What I would like to do, Frank, as I would like for Eastman to always remain competitive in terms of its comp and benefits and salary structure. This was an extraordinary case. Frankly, I think that with the amount of uncertainty we have, we are not going to look at any changes till we get closer to year end, so I would expect to run at this level for a while. But eventually, yes, the economy comes back, the earnings come back and we will go back to the -- I would envision us going back to the levels we were before we made the pay reduction. Frank Mitsch -- BB&T Capital Markets: All right. Terrific. And Jim, thank you for the update on Beaumont. Given the uncertainties on cap and trade and CO2 legislation you highlighted, we really can't expect Eastman to make a cogent decision on this anytime soon, until we get clarity. So I guess my expectation would be that whatever timeframe had been in place gets pushed back as every day goes by that we have this uncertainty. Am I thinking about that the right way?

I think so, Frank. In my comments, I talked about how we are reducing the burn rate, we do have some legislation we would like to see fall in place. The number for Beaumont, since we sequester most of that CO2, like 90% plus of the CO2 could actually be an upside, but the dust hasn't settled on that, the capital number, like I said, even though we are not done with these, I am pretty sure we are going to think it is too high and so we are going to be working everything from incentives to what is the best we can do on financing, but I am not expecting to talk a lot about Beaumont until we actually have something we think we can pull the trigger on. Frank Mitsch -- BB&T Capital Markets: All right, great. And lastly, Curt, you talked about the possibility of inorganic options in terms of use of cash. Which areas do you believe offer attractive possibilities for you as you look out over the next 6 to 12 months?

What we have been looking at, Frank, we have seen -- we have been looking at options with mergers and acquisitions in the past, little ongoing in the future. Those areas that are -- really of particular interest of us are those that might leverage our acetyl stream or areas of our acetyl streams or derivatives that we have in our CASPI or Specialty Plastics businesses. And so you look at both businesses at our core to those businesses or potentially even adjacent to those businesses. That is probably some of the areas that we will be looking for.

Hey, Frank, if I could add, we have been somewhat surprised we haven't seen the attractive opportunities that I might have thought we would see at this point in the cycle. So I just want to let everyone know we are going to be very patient. If we do anything, it will probably be on the smaller size, we like the kind of thing we did with SK, where we got the tow capacity in Korea and like I said, I just tell people we are going to be smart about this and we are going to be patient. Frank Mitsch -- BB&T Capital Markets: Thank you.

We go next to P.J. Juvekar with Citi.

Yes, hi, good morning.

Good morning.

You know, CASPI performance held up quite well, but PCI hasn't performed that well. I think the end markets are kind of similar, with paints and coatings and all that. So is there a supply/demand issue in PCI and could that last into 2010?

Yes, I'm not sure I caught every word, but you are comparing CASPI and PCI and the supply/demand issue and yes, definitely, that has affected PCI, in particular, in the (inaudible) stream, so that is kind of what has held it down, that is why we talk about being cyclical and why it gets impacted in the recession. On the other hand, look what the performance they turned in, even though they were carrying that load of the turnaround of a major site there in Texas, and as we look forward, this is where we are seeing some improvement come, as I think we will get a little more demand back here. I guess the way -- the way I think about it and let me just jump to something for you, P.J., because you are talking about CASPI/PCI. You know, we led you to about 10 for the next quarter, we kind of showed you how we got there, we took that $0.86 and we added back the two kind of exceptional things we knew about this quarter. One of the things we are counting on is for PCI to be up from second to third quarter, and because we are going to have Performance Polymers back down, maybe fibers is going to come off a little bit; CASPI flat to up a little; (inaudible) flat to up a little, but PCI is the one that has got to do some nice improvement second quarter over third quarter. And a lot of that does have to do with supply/demand cost decision et cetera. P.J. Juvekar – Citigroup: And my second question is about coal gasification. There has been a fundamental change in natural gas supply in the US. There is a lot of new supply that has been found, gas has gone to 350. Is coal gasification justifiable at these natural gas prices, given that gas is cheap, and it is more environmentally friendly?

Well, we have said that we would like higher natural gas prices in order to go forward with the project, but remember, we are looking out over say 20 years and what the prospects are for natural gas. The other thing I will say is that as the winds blow out of Washington, there are other factors in the project that have economic importance, let us put it that way. So your CO2 stream, and whether or not you get paid for sequestering it or how that gets treated, if we could choose for enhanced oil recovery, it can be fairly significant. Plus I would say all the products that would come out of the gasification project would not necessarily be tied to natural gas. But you are right. I mean, I believe the arbitrage spread between the solid and liquid hydrocarbons is going to be there over the long run, but right now, gas is way down and so it is just one more reason why we are taking a pause here. P.J. Juvekar – Citigroup: Thank you.

And we go next to Kevin McCarthy with Bank of America.

Yes, good morning. What is the level of raw material inflation in the back half that you are baking into your $1.10 guidance, Jim?

I would say roughly, and surprisingly, I am actually going to give you a direct answer on this. I would say roughly $20 million from second quarter to third quarter, give or take. So, I am trying to ballpark it for you, that is not an exact number. We will see on the fourth quarter what happens.

Is that similar in magnitude to the costs related to the reconfiguration, will you be rolling off?

Yes, I hadn’t tied the two together in my mind, I mean a better way to think about it is what is going on with pricing. We are going to get a little pricing from second to third as well and one of the things that -- I would take this opportunity to say is, I am really impressed with the job the folks have done in terms of managing the margins, because you have had the raws move all over the place. We haven’t always responded well when you have fast moves on raw material costs, but I feel like our margins are pretty much there in almost all our businesses and so it is really a volume issue right now and that is the upside. We are just waiting for the volume.

Okay. Next question on CASPI, I thought profit hung in remarkably well there. You mentioned in your prepared remarks that the solvent portion of CASPI has benefited from some structural improvements relative to the last recession. I wonder if you could elaborate a little bit on that and explain why that might be the case.

It is a matter of capacity, some capacity that has exited the market, but we talked about it ahead of time, we didn't really think we would say more than that, other than that you know the solvents do look a little better and in fact, I would say the company as a whole, if you look at such a deep recession and you look at where we are guiding people for the full year, I don’t think anyone would have believed four or five years ago that in a deep recession, we would be talking about approaching $3 a share. So there has been a little improvement there, but I guess I don't want to go there name by name.

Okay. And finally, what is the magnitude of the savings associated with lower burn rate on coal gasification?

Well, it is -- I'm not sure how noticeable it is going to be to you guys, because we have another line that picks up this cost, but it has other costs in there too. So I think we came down from like 12 to 9 on that line from first to second quarter. But there are some other good stuff in there beside gasification we are working on that I personally want to see us work on, that is very front end on some different platforms et cetera. So I think a company our size, to have that kind of spend on some upfront R&D, on some stuff that would be meaningful for the company down the road is what we should do. So don't start modeling in a 0 there. We are going to keep spending on that line.

And Jim, if I might add, besides the other line item in our P&L, you are also seeing some of the effect of that, Kevin, as we have tightened up our capital spending outlook for this year. That is another example of how we have reduced the burn rate on gasification.

Thank you very much.

Our next question will go to Jason Miner with Deutsche Bank.

Thank you, good morning.

Good morning.

Just sort of returning to the guidance again, if we -- originally I think we spoke about 75% to 80% utilization could drive us in this $2 to $3 range. We are looking at sort of mid-seventies now it sounds like, but it is still now perhaps headed toward the high-end. So I wonder if some of the cost reductions had held in or performed, I guess I should say better than you had expected, and if now 80% could drive us above, how should we think about that?

I would say that the cost reductions came in pretty much as expected, maybe the discipline we have shown and how quickly people turn the knobs down, I was personally impressed with -- again, it goes back to our culture. On utilization rates, first, let me say I'm hoping the Wenu [ph] guys offer those. Because I think at one point, it was very valuable, at another point, it starts to become more valuable to our competitors than it does to our investors, so we have got to think through how we talk about utilization rates. But I mentioned we had 74% without the reconfiguration of Longview in the second quarter. The guidance we are giving is not in anticipation of us reaching to 80%, it is anticipation of things staying in that range of 75% to 80%, but we are not pegging it to the top of the range. So again, yes, I guess the volume comes back for the whole economy, and hopefully there is some upside.

Okay, fair enough. Just on prices, it did look like there was some downward acceleration, I am not sure how much of that to read as competitive pressures versus raw materials, half through in some of the segments, but could you just comment on how you think about pricing playing out through the rest of the year?

I am pleased that we are kind of getting back to the margins you would expect for the value that our products yield to customers. So, I would say most of the move in pricing has been due to the raws coming down and you can kind of see that in our margins, right? So if pricing was coming off a lot more than the raws were moving, you would have seen a contraction in our margins. You know, when I just look forward, that is probably one of the unknowns, is what is going to happen in the marketplace as volume comes back and it is up for grabs, how aggressive our competitors are going to be on pricing. You know, we have some price increases in place right now within PCI for example, there were some price increases that went forward in PET, I think. So we will just have to see. But that is probably a place I feel the least comfortable talking about is predicting the pricing. I can just tell you that it has been a nice surprise that through this deep a recession, prices have been able to track with raw materials in a way that we could protect our margins.

Okay, fair enough. And lastly, on CASPI. I wonder if you could in anyway break apart what end markets or regions -- to be a little more specific in Specialty Plastics perhaps, if you could take a similar treatment to CASPI and sort of help us understand, and just so I can append a question to my question. Sorry. How much -- I guess the concern there might be with such an impressive sequential improvement, plus the comment that restocking or destocking is coming to an end, is there any restocking going on there that kind of pulls demand forward? Thanks very much.

Yes, you know, that is a good question on the restocking and that is hard for us to see right away. I mean, we told you last time that we could see what was happening to our specialties, that we knew the volumes were down well below what the in-demand was, so we knew guys were destocking and that really hurts your mix. This is good stuff in CASPI, we talk about two thirds specialty and there is some stuff that is truly special, let us put it that way, that was way down and that has come back. I don't think it was restocking. I am not sure you can possibly know, I can tell you is Asia or just about all the businesses is kind of leading the drive upward. If I think of it regionally, if I think by markets, honestly I don't think we can point to the transportation or autos and building and construction is anything exceptional. I think at best we just got the destocking behind us, but still a noticeably lower level. So, no particular market I would point you to, I would point you to Asia and I would just also say the power of our specialties in CASPI, it has been there all along but when you don't have the volume to sell it, you can’t see it. Well, the destocking was pretty much behind this and now you see what that business really looks like. And as we look forward, we are saying that auto do the same or even a little better the next quarter. Remember, seasonally for CASPI, they typically do better in the second and third and then they usually come off some in the fourth.

Okay, that is very helpful. Thanks a lot.

We go next to Mike Judd with Greenwich Consultants.

Yes, looking at your balance sheet, I didn't see an inventory number. Do you have that?

That will be in the Q, we will file that next week.

Okay, could you maybe just help us understand whether inventories were lower or higher sequentially than the March quarter?

Well, you can see that in the tables, Mike, I think that will give you some sense that inventories decreased --

You can see it in the cash flow statement.

Right.

Perfect. Okay, great. That is what I wanted to know. And then, I guess, there has been sort of a recurring theme across the chemical industry in terms of the earning supports and you guys certainly fit into some of these categories. A lot of the earnings (inaudible) their call savings, leads and lags of raw materials, and also some -- there is one of the item, I am trying to remember what it is. But as you guys think about the December quarter, and the issues around, potentially higher oil prices and things like that, what is really driving your customers’ desire to restock? Yes, I guess that was actually the third issue was restocking issue. So I mean, is this something that looks like it is clearly just sort of a mid-year restocking type of scenario that is seasonally driven or do you think that it really has sustainability from here. Because I think this is the thing that most people are struggling with is trying to understand whether this is just a typical seasonal bump and then go back down sort of in the December quarter. Any thoughts along those lines would be very helpful. Thank you.

Yes, I can. It is a good question, I don't have a good answer for you. I can tell you specific to Eastman, there is seasonality and we see it in the number of our businesses and you see it -- like I was just saying, second and third stronger and we always come off in the fourth quarter. You used the word restocking and I haven’t heard our customers telling us that and maybe they wouldn’t, even if they were. So I can’t point to restocking. I am pretty sure that destocking is over just about everywhere, but I am not very sure that customers are doing any restocking and so as we look forward and obviously by giving you annual guidance and third quarter guidance, we are kind of saying we are pegging a range for the fourth quarter and that will be down from the third quarter. So we are looking at more traditional seasonal pattern for our business and we are not counting on any big move in restocking and I really don't know that we have seen much of restocking yet.

Okay, and just as a follow-on to that, and maybe this is just a new one here and what you are saying makes a lot of sense. But in terms of the end of destocking, is the issue here really just the inventory levels were just too low or were drawn down too much or what is driving the end of destocking? Is it being driven by higher energy prices or what is really driving that in your opinion?

Again, I think you see it -- let me use the idea of specialties, because that is where we really felt it the most was in the destocking of specialties. If perhaps there is added over something, we are really the only reliable supplier in the world someone can get it from. They did not just keep six or eight weeks worth of inventory. They would keep three or four months worth of inventory. When their in-demand goes down noticeably, that three or four months of inventory turns into eight months of inventory. So it wasn't so much that they had to take a different view on the market, it is just there in-demand went down and all of a sudden, they have a lot more inventory of our specialties. As they finally work that down to where they get back to that comfort range of 3 to 4 months for the lower level, from then on out, they have got to go back to ordering again. So I don't think of it as the restocking back up to the eight months, they never liked the eight months in the first place, but they would be trying to hold the three months. So that is -- I'm trying to give you a -- I have a specific product in mind that I know about and that would accurately reflect what we saw happening with a particular specialty. The commodities, they don't carry three or four months worth, it is much smaller and that is why we saw the destocking in there sooner. But this whole issue, you are hitting the right issues, I mean, the whole issue of restocking versus destocking, I have never talked so much about it in my life and it is a real hard one to read.

That is very helpful. Thank you and congratulations on a good quarter.

You are welcome.

For our next question, we go to Brian DeRubio [ph] with Yield Capital Appreciation Partners.

Good morning, gentlemen.

Good morning.

My question is on Performance Polymers. At one point, you guys were talking about possibility of licensing out the IntegRex technology. Are those discussions that you are still having at this point of time, A.; and B. have some of the delays you have experienced with IntegRex, has that put off some of those discussions?

Yes, I wouldn't tie the two together. We are still in discussions. I would tie much, much more to the economy and just how tough things are out there for people and for people who would perhaps like to license. So discussions are ongoing. I hate to commit to a time when we could sign one up. I know there is real value in our technology, I can see it when I look at the numbers and I compare legacy pounds to our ParaStar and IntegRex pounds. So I know there is value in the technology, it is just the worst of all possible times to be out there talking to someone about building something new and using our technology. The trouble is, with the plant is, not so much technology-driven, I mean it is just a place where we need to get back to operational excellence and for someone like me, who has worn the Eastman label now for 10 years, it hurts to talk about a plant that doesn't run well. So that is unusual for us, I don't -- that is something we are addressing. I would expect that will change and we will achieve operational excellence there. But the technology, I know works add value, we have demonstrated the higher capacity run rates. And so, I would expect that we will be able to monetize some value of that technology through licensing, but I can't tell you when.

Okay, thank you.

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

Okay, thank you again for joining us this morning. An audio replay of this conference call will be available on our website this afternoon through Monday, August 3. Have a great day, everybody.

And ladies and gentlemen, this does conclude today's conference. We do appreciate your participation.