Good day, everyone, and welcome to the Eastman Chemical Co. Fourth Quarter and Year End 2010 Earnings Conference Call. [Operator Instructions] This call is being broadcast live on the Eastman website, www.eastman. com. We will now turn the conference over to Mr. Greg Riddle of Eastman Chemical Company, Investor Relations. Please go ahead, sir.

Okay. Thank you, Candice, and good morning, everyone, and thanks for joining us. On the call with me today are Jim Rogers, Chairman and CEO; and Curt Espeland, Senior Vice President and Chief Financial Officer. Before we begin, I'll cover three items. First, during this call, you will hear certain forward-looking statements concerning our plans and expectations for first quarter and full year 2011. 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 fourth quarter and full year 2010 financial results news release on our website and in our filings with the Securities and Exchange Commission, including the Form 10-Q filed for third quarter 2010 and the Form 10-K to be filed for full year 2010. 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, including earnings per share, operating earnings and cash flows from operating activities that exclude asset impairment and restructuring charges, early debt extinguishment costs and the impact of the adoption of amended accounting guidance for transfers of financial assets. Our reconciliation to the most directly comparable GAAP financial measure and other associated disclosures, including the description of the asset pairs restructuring charges, debt extinguishment costs and adoption of amended accounting guidance, are available in our fourth quarter and full year 2010 financial results news release and the tables accompanying the release. Lastly, we've posted slides that accompany our remarks for this morning's call on our website at www.investors. eastman.com in the Presentation and Events section. With that I'll turn the call over to Jim.

Okay. Thanks, Greg, and good morning, everybody. Thanks for joining us. I'm going to begin on Page 3. And 2010 was a tremendous year for Eastman Chemical Co. Our solid core business has demonstrated their earnings potential and established a new level of earnings performance for the company. Volumes returned for the strengthening global economy and in a number of areas we gained market share due to innovative products. We continue to make progress on our growth initiatives including the acquisition of Genovique Specialties, manufacture of non-phthalate plasticizers in May of 2010, completing an acetate tow expansion in Korea during the first quarter which increased our capacity there by 15% and selling out our first Tritan Copolyster resin line a year ahead of schedule. Our free cash flow was over $400 million in 2010, and I remind you that we subtract out our dividend from that. And just yesterday we completed the sale of our PET business. Moving on to Slide 4, and as I normally do on these calls, I'll take just a minute to review how we did against some of the commitments we made to you. In October, we told you that we expected our fourth quarter EPS to be between $1.40 and $1.50 and we came in at the low end of the range and I'll talk more about that in a minute. For the year, on the last call, we indicated EPS would be above $7 for the year and we were slightly below that. On cash flow, we said we would generate more than $300 million, and as I said, we came in at over $400 million with the outperformance mostly due to the timing of a pension contribution that Curt will cover. Earlier in the year, we said we would review strategic actions…

Thanks, Jim, and good morning, everyone. I'm starting on Slide 14 with the review of our 2010 financial highlights. Cash from operations for 2010 was $575 million. This includes a reduction of $200 million due to the adoption of amended accounting guidance in the first quarter impacting our accounts receivable securitization program. Excluding that, cash from operations was $775 million, slightly above the $758 million we reported in 2009. Working capital, including the adoption of accounting guidance, increased by $166 million. This mainly reflects increases in our receivables and inventories, which is consistent with our sales revenue for the year increasing by 33% and with higher raw material and energy costs. In December, all participants in our deferred compensation plan had amounts distributed early under a provision of the plan triggered by certain participants electing early withdrawal. This resulted in a $37 million reduction in employee liabilities and a use of operating cash flow in fourth quarter 2010. In addition, there was an $8 million increase to the provision for income taxes for the non-deductible portion of these distributions. This equated to the $0.11 per share impact on fourth quarter and full year results. Capital expenditures for the year were $243 million. This is above our previous expectation of approximately $225 million for the year as CapEx for the fourth quarter of $110 million reflected the acceleration of the growth efforts we are funding. Free cash flow for the year was $405 million. Our previous projection of over $300 million of free cash flow for the year included a planned $100 million pension contribution in the fourth quarter at the same time that the PET transaction was anticipated to close. With the PET transaction closing yesterday, we held the pension contribution until the first quarter of 2011 primarily for tax…

Okay, great. Thanks, Curt. And this concludes our prepared remarks. Candice, we are ready for our questions.

[Operator Instructions] And we'll go first to David Begleiter with Deutsche Bank.

Jim, with PET closed and the cash balance high, can you update us on your thoughts on share of buybacks versus acquisitions?

Yes, sure. I mean, it's something we've talked a lot about in the past. And I think I've said in the past, it's one of the ways we believe we can differentiate ourselves so we're just smart about how we put our cash to work. So we're still in the frame of mind that we should be using all those buckets. As I look at it, having sold PET, you see we got a little cost that's stuck to our ribs -- very much when we'd be doing more acquisitions. But they've got to be smart and we can't over pay and so you ought to expect us to continue on that at a measured pace. Odds are that will not be the only use of cash we want do, we want to use the other buckets. You saw what we did in the debt bucket, I imagine we'll fairly quiet in that one. The equity bucket, with the dividend and with buyback, seems like a prudent way to use a portion of the cash as well. I don't want to get nailed down on a particular number. You know the board is the one who approves dividend increases and share buyback increases. But when I look across all four buckets, I know the CapEx is going to go up. I feel very confident we'll be able to do some acquisitions, they may not be real big, they maybe more like Genovique, maybe a little larger, we'll see. And I would guess we'll continue to buy back stock.

And Jim, just in terms of the capacity constraints, at least by quarter, which quarters are you most constrained? Is it Q2 and Q3? And besides some Specialty Plastics, any capacity constraints in PCI or CASPI?

Yes in all. Yes everywhere because the demand has been so strong. So by just starting CASPI in the coating side of the specialties, not a constraint there and we hope that we're never constrained there because there's a number of products we're the only ones in the world who make it. But when I get to more the resin side, the old Adhesives business, there we've had some constraints and that's where you've seen this expanding capacity. When I look at PCI, we've been constrained on 2-EH, which is a precursor we need for plasticizers, so that's another place you see us adding capacity. Specialty Plastics, we've talked a lot about. Just on that, I mean, if we'd had perfect foresight, we would've started these projects sooner, but I think we've mentioned it was really tough in early '09 to go to your board of directors and say, "Let's start spending a lot on money on capital. " And our industry is such that it takes a while to get it in the ground and running. Good news is that's true for everybody, so the markets have tightened up and probably through '11, we'll still be able to do fairly well on pricing versus raws and energy.

Now to Frank Mitsch with BB&T. Frank Mitsch - BB&T Capital Markets: One thing you didn't mention though is that you guys, on the forecasting front, aren't all that sharp. I mean, you originally guided 2010 at $4.35, you came in at 7%. Now you're saying that you're going to get 10% above in 2011 or slightly above 10% in 2011. Jim, you listed a heck of a lot of tailwinds here. If you have to figure out where you were likely to be wrong on your forecast, where are you guessing that it'll be? I mean, on the buying side, you guys are killing it in Europe and elsewhere. Where can you be surprised on your outlook?

Yes, where is our upside, because we did say better than 10% percent. I might remind people that's assuming that we don't find good ways to put that cash to work. As I look across the businesses, I guess I don't want to kind of go line by line or business by business, but to the extent the volumes come in strong and to the extent that the raw materials don't screw us over somehow in terms of having a lot of volatility or really shooting up rapidly, we'll do a little better on spread than maybe we thought. But here we are at the beginning of February, looking out the rest of the year, we just had a smash-up year, and in the past, in our industry and for Eastman, we typically went down after a big year like that, and here we're saying we're confident we'll do better than 10% up. And like I say, if we can put the cash to work, I think we'd do even better than that. I don't know. Curt, do you want to add anything?

No. I'd agree. And as we've talked about some of the upside of additional volume will come will come as we put more steel on the ground and get that capital and growth spending.

That's not going to kick in to '12, '13. So we'll talk more about it here in a few weeks when we get to Investor's Day, Frank. But we're not just bullish on 2011. I mean, we see things down the road for '12 and '13 that we'll be able to talk more about that. So we want to keep this high rate of earnings growth going. Frank Mitsch - BB&T Capital Markets: As I look at the CASPI forecast, you have it up 5% to 10% in 2011. I'm not sure a lot of people would say that 2010 was a blowout year in terms of coatings. What sort of forecast -- what sort of coatings recovery are you forecasting to have that just up 5% to 10% in 2011?

Well, it's not just coatings. There's other parts of the business. But maybe the industry didn't have a blowout year, but we sure had a record year, a really strong year for CASPI. Frank, we're trying to be prudent in terms of how we're looking at the different segments. There are some places that are capacity constrained. There are specialties that when the raws move, you don't always get the price right away and that's what happened to CASPI some in the fourth quarter. Although, I think I mentioned as I look through January, we can see that we do have pricing in place to make up that shortfall that hit us in the fourth quarter in CASPI. So I mean, overall, I'm bullish but I'm not trying to call some big uptick for the coatings marketplace. Frank Mitsch - BB&T Capital Markets: You did mention that there was some growth spending, additional growth spending in the fourth quarter that may have been pulled forward. Any sense in the order of magnitude that negatively impacted your fourth quarter?

I'll let Curt kind of give some numbers on it. But not just CASPI but across the whole company. I was a little disappointed in our SG&A discipline in the fourth quarter and I take responsibility for that. We had a strong year. There was some pent-up demand to do, some things out there on the shop floors and so people spend a little bit of money. I think our discipline is back here in the first and second quarter. I think, Curt, for CASPI, the gross stuff, we're ball parking at $5 million to $7 million, is that. . .

Yes. $5 million to $7 million and the nature of that kind of cost is business development costs that we have with some strategic customers as they look at applying products to new markets, some consulting fees as we're looking at around trying to penetrate some of the merging markets, as well as some strategy work. And even though it's pulled forward to maybe it was on the fourth quarter, the good news is that, that should contribute to the continued growth of CASPI. And we'll spend that money as we continue to see a return on that investment.

We'll move now to Kevin McCarthy with Bank of America Merrill Lynch.

First off, just a clarification, if I may, on your earnings guidance with regard to the growth of slightly more than 10% in 2011, am I correct in understanding that the base for that is $6.96 in 2010?

Yes, that's correct.

And then second, I guess with regard to raw material costs. Jim, you mentioned CASPI, you mentioned paraxylene, as we think about the spread between selling price where realizations have been quite good and then the inflation that you cited, is that spread more likely to become more favorable or unfavorable in 1Q versus 4Q?

I would say more favorable and that's only because I'm looking at the pricing actions we've taken. So I'll just give you an example. In a specialty product line within CASPI, we are really the only ones in the world who make the product, you just never want to price off a particular raw material moves. And so we can catch you during the quarter, maybe even for a following quarter, we've talked in the past about long supply lines, they saw some destocking, but eventually, you have a right to get that in price. And so when I look at CASPI, for example, I will say that I know they have more price increases in the first quarter, and so I factored that in and if raws just stayed where they are now or somewhere near now, I'd be fairly confident we'd have expansion in spread.

Just a follow up on share repurchases. Looks like you bought back $212 million in 4Q. Can you comment on the remainder on the authorization and -- I think, you already commented on your outlook there, but is it fair to say you need more headwind there soon?

Yes, I think it's fair to say that we'll need more than 116 million of share, that's current authorization as we look at some of the share repurchases and we'll discuss that with our board over the coming year.

I'll move now to P.J. Juvekar with Citigroup.

Your CASPI modules declined in the quarter and you mentioned destocking in 4Q. I was wondering if you can elaborate on that.

I mean, you know what destocking is, and it was, I would say, a little bit of a surprise for us. We saw it more towards the end of the quarter. It was in the coatings additives, the specialty side, think about some of the longer supply lines to, say, Asia, et cetera. And I think the customers just took an opportunity to clean up at year end. I can tell you in January the volume is back. So I look at it as a kind of one-time blip.

And then you also mentioned olefins cracker restart as a positive for CASPI going into 2011. I was just wondering if you could quantify what benefit would you see.

Well, not so much in dollars because obviously there's a few moving parts but most people, when they think of the cracker, they think of PCI. PCI will get 60% plus of the benefit, but CASPI will get close to more than a third of the benefit from restarting that cracker just due to the propylene derivatives and their cost position on that.

Jim, you have that nice propane to propylene spread. With all this gas sitting on the balance sheet, what can you do with your capital to take further advantage of that spread?

Yes. I mean, we think we're doing what is prudent right now in terms of some of the capacity expansions. I don't know how aggressive we want to get in the marketplaces, the sheer commodity marketplaces that PCI plays into, so we're much more interested in the derivatives and carrying that spread down the value chain into the derivatives. And there, frankly, the capital numbers are typically smaller to expand some of those product lines because they're not as big a marketplace when I look at the derivatives. So I think we take advantage of that spread for a long time. I think we're being prudent about where we add capacity, but I don't see us making any kind of big plays in the olefin world.

We'll move now to Robert Koort with Goldman Sachs.

This is Luisa Hermann in for Bob. I just had a one quick question on the Fibers segment. Specifically when you look at the EBIT margins, looks like they're the lowest now since 2008 and I noticed that you've kind of cited favorable product mix which shifted to higher volumes, but it looks like it contributed to lower profit margins. So could you just give us some more color on this and what the outlook is, I guess, in terms of raw materials going forward?

Yes. I guess, and we've talked about this on other calls. I don't often think in terms of percentage margin. I know most of the people on the call do. I think in terms of absolute dollars, and I guess, I just have had the experiences. Raws move around and pricing moves around. The percentages can fool you, but the absolute dollars never lie. So when I look at our Fibers business, I'm very pleased with the absolute earnings they've brought in, which as you know, were very good. Specifically on the raws, we talked about that. Wood pulp in particular goes up. In this industry, a lot of your suppliers will give you a price for the year. Many of us in the tow manufacturing will give our customers a price for the year and try and match that up. Fairly significant increase in wood pulp this year, we'll see what coal does for us. But what we think is between the pricing that we got at the beginning of the year and the additional volumes that we're expecting, especially having a full year of our Korean joint venture going, that's why we're looking for another up year in this Fibers business. And I guess, that's about as much as I can say. Like I said I don't particularly focus in on the percent margin for Fibers.

We'll move to Edlain Rodriguez with Gleacher & Company. Edlain Rodriguez - Gleacher & Company, Inc.: Jim, you've talked about acquisitions being so-so for use of cash. Can you talk about where you see opportunities in the near term? Like is it in the U.S.? Or outside of the U.S.?

Yes, it's interesting. I mean, our desire is to be more in the emerging markets to have a greater exposure there but frankly the opportunities come out you from everywhere including just the states and that's a good deal. We're going to turn it down just because it's a U.S. company. So we're seeing it both. We're seeing it in the U.S., Europe, some in Latin America, a little bit harder to find them in Asia, frankly. Maybe that's just us but in my opinion, that seems to be tough for everyone and it has more opportunities under $500 million than over $500 million, so that's why I kind of say, the sweet spot is probably that few hundred million. More than likely what you end up with some company that's global and represented in several regions like Genovique was, so even they had a small U.S. op, they were big in Eastern Europe and had position in Asia, and that's kind of the ideal scenario in my opinion. Edlain Rodriguez - Gleacher & Company, Inc.: Also geographically, can you talk about what you're seeing in Europe, any concerns there on the demand side? I don't have things in full status [ph].

At one-time, I thought we were the exception because we were strong in Europe, but I've heard more and more people talk about Europe coming back. I just got --back from Davos last week and I would say the tone there -- and it is very much dominated by Europeans, the tone there was fairly bullish. For the next several years they think we're at the beginning of an expansion cycle. I do as well. And I know that there's a lot of crazy stuff going in the world, in North Africa and places like Ireland and Greece, et cetera, but the way they were talking about it and what make sense to me is you just got to hold this in perspective in the large economies like Germany and France and the U.K. are quite strong and it looks like the growth has come back to Eastern Europe. So I continue to be bullish on Europe as a whole.

We'll move now to Paul Mann with Morgan Stanley Smith Barney.

Just looking at your Q1 guidance, just at the midpoint of that, your guidance have $1.80 a share. If we just annualized that flat across the year, it kind of get to your 10% guidance for the year. In 2010, there's some seasonal strength from Q2 and Q3, did your guidance suggest you're not expecting any seasonal strength this year in Q2 and Q3?

No. I think we will have seasonal strength. What we were trying to reflect was just the fact that we will be capacity constrained in a few areas that typically as you go across the year, usually the lightest of the three quarters so just to keep your numbers up. But I would expect the middle of the year to be stronger and we did say we hope to do better than 10%, so we'll see how that shakes up.

And then just in terms of your guidance, what are you assuming in terms of -- hopefully in pricing for the year? Can you give us any guidance on your thoughts on where pricing trends in the U.S. over the next sort of six month or so? Also can you quantify the effect on Eastman as a whole of the start of the Texas cracker?

I'll let Curt answer the last part. What we see between propane and propylene right now, in general, the trend is going to continue. There's some other things going on in the marketplace that'll probably make the first half of the year better than the second half of the year and that has to do with competitors and outages, et cetera. But overall, we believe we're going to continue to see a positive spread there, just can't guarantee that it'll be as strong as it is today.

Yes. What I'll just comment on the cracker was a cost obviously in the fourth quarter, part of third quarter and as we start the year particularly the first half of the year, we think CASPI and PCI are going to see them break it out specifically, but I think you'll see in the guidance and then particularly PCI being over $250 million, that reflects a strong first half of the year for CASPI and PCI. As Jim mentioned, second half of the year, I don't think we're ready to call it yet.

We'll move now to Andy Feinman with Iridian Asset Management.

So your pension expense, you said was going to be up $50 million. Was it $50 million for 2010?

Yes, Andy, that's correct. It'll be above $50 million for 2010.

And the funding was going to be $135 million. So now it's just $35 million?

No, in 2010 we we're going to do $135 million. It will only be $35 million in '10 and will be $100 million in 2011.

And the $100 million is the whole thing for the year in 2011? I mean. . .

That's all were committing to at this point.

And how about the -- you sold the Beaumont plant that you bought from Terra Industries during the first quarter. Can you tell us how much money you got for it?

Well, we signed some agreements, I mean, the Beaumont assets, as part of the former TXE, have three or four different parts. We had some write-downs of those assets some time ago, probably sitting around $50 million plus on our balance sheet today. I think we'll do a little better then that over the two or three different components that we'll divest over the next first or second quarter.

So Q1 and Q2 -- and I had estimated it will be worth around $80 million. So I'll just say that, and my boss will kill me for this, but you guys can spend our money anytime. My hat goes off to the search team because these PET earnings are really great.

They did do a good job, Andy. And I hear you on spending the cash. Again, the tough part for us is just finding the right stuff. So I appreciate the patience of our shareholders as we sit on some of this cash. We've seen too many times in the past where guys had run out and just spend it and we want to be really prudent as we do it. So we're going to continue, I hope, buying back stock and building where we're tight on capacity, but then also looking for the right acquisitions. I'd love to do some more like Genovique.

We'll move now to Jeff Zekauskas, JP Morgan. Jeffrey Zekauskas - JP Morgan Chase & Co: Your depreciation and amortization next year are likely to go down $15 million. I guess in part from the divestiture of the PET business. But you talked about stranded costs being up $20 million to $25 million. So does that mean that the stranded costs are really something more like $35 million or $40 million given that you have this positive offset?

I'm not sure they're additive. The $15 million was some cost distant from the depreciation and just goes with the business, doesn't really affect the cash flow. The stranded costs are what they are, that we're planning to grow into them.

Yes, Jeff. The way I look at it, I hadn't thought about the depreciation piece, we were just trying to quantify what's mainly labor and you know how that goes. You have the leverage of one functional department and it's almost like no matter how many operating assets you have, it's kind of a fixed expense. What we did at year end is we had a voluntary where we did have a little less than 200 people decide to retire from the company. It was a little less than we wanted. Could I have done more in the fourth quarter? And yes, I guess, I could have. But with a record year, morale being strong and us wanting to grow, having major plants and a headquarters in a small town, you just don't think in terms of so let another 100 people go and you'll just hire them back in the next 12 months. Our culture is such that we thought the right thing to do was to go ahead and eat those costs for a while and then just really put the pressure on ourselves to grow and grow our core businesses but also do some acquisitions and absorb those costs again.

And Jeff, what I might also add is just to keep in mind that, that assumes we don't do anything with the cash proceeds from that transaction. So while there may be some overhang in the form of cost, we still have the opportunity to create some value and earnings with that cash. Jeffrey Zekauskas - JP Morgan Chase & Co: You talked about $500 million as being the net proceeds excluding various adjustments. What's the magnitude of the adjustments that you're thinking of? Is this $50 million or $100 million or $25 million…

No. That would be worked primarily working capital and it maybe single millions to $10 million. It's not going to be in the $50 million, that magnitude. Jeffrey Zekauskas - JP Morgan Chase & Co: Lastly, your working capital use excluding the charge for the way you look at your receivables, you're use less about $125 million. Do you think that you're going to have a working capital use in 2011? Or do you think your working capital will shrink?

I think we will expect to see some use of working capital in 2011, primarily, just because of the increase in sales and so you'll see accounts receivable go up proportionally with the sales. I'm hoping we can keep inventory fairly manages and then the only think worth the mercy of is raw material increases that go into the value of inventory. But otherwise, it's the quantity. Our guys are starting they year with the expectation of really keeping their inventory tight.

That concludes our question-and-answer session. I'll turn the conference back over to our speakers for any additional or closing amongst.

Okay. Thank again for joining us this morning. A replay of this call will be available on our website this afternoon through February 11. Have a great day, everyone.

That concludes our conference. Thank you all for your participation.