伊士曼化學 (EMN) 2008 Q1 法說會逐字稿

Good day, everyone. Welcome to the Eastman Chemical Companies 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 Investor Relations. Please go ahead, sir.

Okay, thank you, 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 our new Manager of Investor Relations. Before we begin I'll cover two items.

First, during this call you'll 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 and Exchange Commission including the Form 10-K filed for 2007 and the Form 10-Q to be filed for first quarter 2008. Second, 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 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'll turn the call over to Brian.

Well, good morning, everyone. Thanks for joining us. Last night, we announced another solid quarter with earnings of $1.48 per share or $1.46 on a GAAP basis. Excluding the restructuring related cost 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 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 raws 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 results.

Now, turning to the segments beginning with Fibers. Fibers had a really great quarter with the best ever $68 million of operating earnings. Both sales volume and selling prices were up 5%. The volume increase was primarily due to higher toll volumes in China and the higher prices were due to efforts to offset higher raw material costs which for Fibers was primarily wood pulp and methanol. After the great start to the year, Fibers is on track for full year 2008 earnings to be slightly better than 2007 and if happens that will be the fifth year in a row that fibers has improved their operating earnings versus the prior year.

Looking at our growth initiatives in this segment we are on track both to expand acetate to capacity in our United Kingdom facility and to give you more details about our Asian option for growth by the end of this year.

Next is CASPI. Their first quarter 2008 operating earnings remain very solid at $59 million. Revenue increased 13% with higher selling prices partially offsetting higher raw material and energy costs. Despite a modest decline in the U.S., CASPI had a 2% increase in volume. This is primarily due to higher volume in Europe and Asia, and the diversity of markets that CASPI serves. We expect CASPI will continue to benefit from geographic and market diversity throughout the year.

Next is Specialty Plastics. Their sales revenue increased by 6%. Volume was up slightly as continued double digit growth in co-polyester was offset by lower volumes elsewhere. For the year, we continue to see volume growth of 6 to 8%, as we benefit from the completion in the second quarter of converting 50,000 metric tons of PET capacity to co-polyester and growth for cellulose Esthers used in LCD screens continues to be very strong.

Operating earnings for the Specialty Plastics were down slightly year-over-year. This is primarily due to higher raw material and energy costs particularly paraxylene. I think you all know that most of the plastics that are being sold in the marketplace are stressed right now by higher raw material and energy costs and are having a hard time pushing on prices and of course we're no different, but we expect this to continue through the year and start to moderate in 2009 as paraxylene capacity is added. One last point for Specialty Plastics, you have heard us talk recently about our new co-polyester, trademarked Triton, which we launched during the fourth quarter. There has been a lot in the news, a lot of buzz recently about Bisphenol A and the fact that Triton is a BPA-free product. We're currently working on building a new 30,000 metric ton Triton facility and we expect we'll be online in early 2010 and we see this as a starting point for our Triton capacity going forward.

Performance Chemicals and intermediates is next and they continue their streak of very solid quarters. Operating earnings were $61 million which is flat compared with last year despite the significant increase in raw material and energy costs particularly propane. Sales revenue excluding the contract ethylene sales increased by 9% primarily due to higher selling prices. Sales volume was down 8% as the strategic shut down of a Cracker in the fourth quarter impacted the amount of bulk olefins we had to sell. Regionally, strong results in North America In just about every product line more than offset a decline in Asia Pacific as our competitors in Asia have restarted some facilities that were down and that led to lower utilization rates and margins there in Asia. Looking forward, we expect strong results for PCI to continue in 2008.

Now turning to Performance Polymers, we made very solid progress during the first quarter on improving the profitability of our PET business. Operating results for the quarter improved significantly, both sequentially and year-over-year, as we had a full quarter of high operating rates for our IntegRex PET manufacturing facility. The IntegRex facility continues to exceed our expectations for cost improvement and our ParaStar PET is widely accepted in the marketplace. At the end of the quarter, we completed the divestiture of our PET and PTA assets in Europe so we have now completed the divestiture of our outside U.S. PET facilities. You remember this is one of our major milestones for improving the profitability of our PET business. Additionally, in South Carolina, we completed the expansion of our PTA Intermediates, we shut down our DMT Intermediates, and we shut down 300,000 metric tons of our existing PET capacity at the end of the first quarter, all were milestones we expected to complete in the first half of 2008. As a result, we are also on target to remove $30 million in annual costs by the end of the second quarter. One remaining milestone for improving the profitability of our PET business is the 50% debottleneck of the IntegRex facility and we expect to begin this in the second half of the year.

Looking forward, we expect to report positive operating earnings for the Performance Polymers segment in the second quarter and for the first half of this year. Now, since we had a $39 million operating loss in the first half of 2007, you will agree this is a significant improvement.

Turning to the regions, in our regional performance, I'm going to make some overall comments first. We've said that in 2007, our revenue was about 60% domestic and 40% in the rest of the world, while our earnings were closer to 50/50. With the PET improvement in the first quarter of 2008 which was concentrated in the United States, our domestic earnings were closer to 60% this quarter, but with more than 40% of our earnings coming from outside the U.S., we continued to benefit from our geographic diversity.

Now looking at North America, first quarter North American revenues increased by 9% and excluding the contract sales revenue I mentioned earlier, North American revenues increased by 7%. The increase was primarily due to higher selling prices, particularly in the PCI, CASPI and Performance Polymers segments. Sales volume was down 5% with a decline in all segments except for Performance Polymers. Operating earnings increased year-over-year primarily due to the improved result in Performance Polymers and PCI segments, partially offset by a decline in CASPI.

Asia Pacific revenue increased by 9% as higher selling price has more than offset lower sales volume. The lower sales volume was primarily in PCI and was partially offset by higher volume in Fibers. Operating earnings declined primarily in PCI as first quarter 2007 results for the segment benefited from competitor outages. On a revenue basis, Asia Pacific remained the Company's second largest region in the first quarter of this year. In Europe, revenue increased by 17% driven by the strengthening of the euro versus the dollar and increased sales volume. The higher sales volume was in all segments except Performance Polymers. Profitability in Europe increased with improvements in Performance Polymers and PCI and lastly Latin American revenue declined by 29% for the quarter primarily due to the divestiture of PET facilities.

Now looking at our second quarter outlook. We are seeing softness in the U.S. economy and there's uncertainty about the global economy. We also expect high and volatile raw material and energy costs to continue during the quarter; however, due to our global geographic profile and diverse market portfolio, we expect solid results throughout the Company in the second quarter. Adding this all up, we expect second quarter 2008 earnings per share excluding items related to strategic decisions to be slightly above first quarter 2008 earnings per share of $ 1.48 which is significantly above last years second quarter EPS of $1.32 on the same basis.

Lastly let me conclude with some brief remarks about our Corporate strategy. In my last quarterly conference call with you, we made some very specific financial commitments and we gave you a number of milestones that you can use to track our progress on major initiatives. As I mentioned throughout my comments this morning, we're making great progress on a number of those initiatives. We have accomplished many of the milestones we laid out for improving our PET business. We are moving ahead in Specialty Plastics to convert PET capacity to make co-polyester and with our new Triton co-polyester facility. We're on track to expand acetate tow capacity at our UK facility by the end of the year and to give you more details about our Asian option for growth, and we are also marching ahead on all other complex aspects of the industrial gasification projects. Overall, we remain on track to achieve our goal of doubling our earnings in the next five years and I look forward to telling you more as we have meaningful developments to report. And with that let me turn it over to Rich.

Thanks, Brian. Good morning, everyone. I'll just reinforce what Brian 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.

Turning 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 of the 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 which we'll liquidate over the coming weeks. Consistent with what we've told you recently the sale resulted in an after-tax gain. What I couldn't discuss at that time was the amount of the gain, and you've now seen that and its $18 million. With this divestiture now, we've completed the divestiture of all of our PET and PTA assets located outside of the U.S.

As I mentioned last quarter, prior period and first quarter results for all of the divested Operations in Europe are now reported as Discontinued Operations, as is the gain we recognized in this quarter. Prior period results for the Latin American operations divested are not called out as discontinued. I should also mention here that under the transition agreements with the divestiture of our Latin American sites we're supplying polymer intermediate raw materials to the purchaser basically at a breakeven, and there's information to help you understand this in the conference call tables.

We've also completed a number of other milestones in our efforts to improve the profitability of our PET business. During the quarter we shit down our DMT intermediate assets, expanded our PTA Intermediates production and shut down 300,000 metric tons of PET capacity, in addition to the 50,000 metric tons we shut down last year. Related to these actions during the first quarter of '08 we recognized $1 million of accelerated depreciation cost and $1 million of restructuring charges. We expect another $3 million of accelerated depreciation the remainder of the year related to this transformation in South Carolina.

Staying with site transformation for another moment, we also incurred accelerated depreciation costs of $1 million related to the shut down of our cracking facilities at our Longview, Texas site that we report in the PCI segment. We expect another $5 million of accelerated depreciation cost in 2008 related to these Cracker shut downs. We also incurred asset impairment and restructuring costs of $16 million resulting from the decision to close a previously impaired fine Chemicals manufacturing site in Whales in the UK which was part of the PCI segment. This charge is primarily non-cash pension curtailment cost of $11 million and the rest is mainly severance.

Looking at our cash flow, on a net basis, we used $53 million of cash in operations during the first quarter. That compares to $66 million used in the same period last year. Included in that, we had strong earnings from operations and we did have a seasonal build up in working capital during the quarter which this year includes an additional inventory build of about $30 million in front of planned maintenance shut downs. We'll see this get drawn down over the coming quarters.

Next on cash from investing activities, we had cash proceeds from the sale of assets and investments mostly from the closing of the European PET divestiture of $323 million. We'll see additional cash in the second quarter when we settle up on work-up on working associated with the transaction. Our capital expenditures totaled $132 million in the first quarter compared to $86 million in the first quarter of 2007. We're tracking on capital expenditures to be a bit above $600 million for the year as we continue to invest in our strategic initiatives. Hitting those highlights, we're debottlenecking our IntegRex facility adding an additional 50% to capacity. We're increasing our expenditures in support of our efforts in gasification and we're also increasing the capacities for CTA for LCD screens. We're increasing capacity on Eastman Triton co-polyester and completing our acetate tow expansion in the UK. Also, we continue to fund improvements to increase efficiencies and invest in reliability throughout the Company.

That brings me down to net debt, which is as usual, defined as total borrowings less cash and cash equivalents. We ended the quarter with net debt of $836 million. That's a 16% increase over year-end of 2007. The increase in net debt has been very deliberate. We've had share repurchases in the quarter of $245 million and the increased capital spending I just reviewed added to that. I would also add that we have $72 million of notes maturing in the second quarter that will be repaying from cash. Also in the second quarter, we plan to repay a portion of a euro credit facility with part of the euro proceeds from the PET facility sales which is currently being held in cash.

How does that impact our net interest expense? We had $16 million for the first quarter of 2008. That's a bit lower than the first quarter of '07, resulting from higher interest income on our invested cash balance. We do expect net interest expense to increase slightly for full year 2008 compared with '07 due to lower interest income driven by the lower interest rates as well as lower average invested cash balances.

On the tax side, our first quarter of this year effective tax rate for continuing operations on a GAAP basis was 25%. When we exclude the restructuring related items which we called out, the effective tax rate was 32%. Looking forward at the tax rate for the full year on a pro forma basis, I'm going to stick with my previous guidance that it will be about 34% for the year. With that, back to you, Greg.

Okay, thank you very much, and that concludes our prepared remarks. We are ready for questions.

Thank you, sir. (OPERATOR INSTRUCTIONS) For our first question we go to P.J. Juvekar with Citi.

Yes, good morning.

Good morning, PJ.

How much of your improvement, Brian, in PET came from selling the international assets versus IntegRex plant starting up? And is the IntegRex plant in the black?

Most of the -- the vast majority of the improvement was IntegRex running flat out this quarter versus not running as much in the first quarter of last year. That's the answer to that. Since we are reporting to you that we'll be, have a black quarter with nothing but U.S. assets in the second quarter, it would be fair to assume that we're doing fine today. It wouldn't be a big step change from today to the second quarter or first quarter to second quarter so yes.

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

Well, first of all we're still very excited about these projects. They have some, each of them have unique things that make them attractive, not only to us but attractive to others. And what I did, P.J., is 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 and Specialty Plastics we reported on them. The things that you're asking are things I promise to report on as we get more to the milestone time which is later on this Summer so I'm anticipating a series of questions on this call asking details about every little part of these projects and I really want to resist that. We're moving ahead nicely on all of the milestones and we continue to be very excited about the profitability and I don't want to have to report on a micro basis for four years on every part of it.

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

Would not exclude that. I think the point that you're observing there is that this value proposition that we're describing to use coal as a raw material exists not only here but other places in the world and where it exists we'll seek it out and see if it's interesting for us.

We go next to Mike Judd with Greenwich Consultants.

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

Yes, I've always, I had this adjective that I've used for going on seven years now to describe Fibers, and it's the word "Chunky". There was a phrase we used in the dialogue there that Fibers outperformance this quarter was driven by some extra sales in China primarily and that is usually the source of the chunkiness in our earnings and they had a very very good quarter. Now, we often do give an outlook for the year just because that 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 five years in a row so you got a track record to look there, Mike, that's probably a good indicator for you.

Thank you.

Our next question we go to Frank Mitsch with BBT Capital Markets.

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

Well, you can try again, Frank. You're a persistent guy.

I am indeed. Obviously, a bit of a surprise in terms of the share buyback pace 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 pace during the quarter, I'd say we were opportunistic. We think the average price we got of $64 was a good buy, given we're trading at 6.5 times cash and we've got a plan to double our EPS going forward. So we think that was just a good opportunistic buy and going forward we'll continue to be opportunistic.

Okay, and you mentioned that you should have a 30,000 ton plant up on Triton in 2010. Do you think you may, given the BPA controversy and potential opportunities there, is that fully factored into the thinking behind the 30,000 ton? Could that be expanded? What's -- when would you -- so you'd expect to see first meaningful commercial sales into the plastic bottles during that time frame or can that be moved up?

Yes, you're asking all the questions we've been asking ourselves, Frank. This is a brand new plastic. It has some unique ingredients that really, it's very hard for anyone but us 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 the BPA and food contact in children's 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, traditionally we have converted PET lines to co-polyester lines and that's what we're doing here. We will, as soon as we get down the road on this we'll be working on the next one it will 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 addressable market, just so we're on the, talking about the potential here, the addressable market for this product is easily 700,000 tons, and the 30,000 ton facility we are just scratching the surface so you can bet that our aspirations for plants to and beyond would be on a somewhat different approach to scale there.

Okay. Terrific. Lastly, I think you mentioned on the last call that you were pursuing 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 of that by the interest we have seen. We're very pleased by the interest. We're in conversations and since we're in those conversations and negotiations I can't give you anything else but yes, it's gratifying to see the interest.

Terrific. Thank you.

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 awhile, running double digits I guess the last six quarters, eight out of the last nine. You sound confident that that's going to be sustainable at least for this year, was wondering if you could talk a little bit about your inputs there. Propane looks to be near a 15 year low versus an energy proxy like crude oil. How important is that in driving the profits in PCI and are there things you can do to maybe lock in lower propane costs to in gender that sustainability?

Good insights there with your question, Kevin. Remember that PCI is a mixture of coal produced products and olefin derivatives so the coal derived products are marching along happily for reasons you understand that you didn't ask about here but remember that's part of the PCI story as well. Regarding the olefin derivatives, yes, the input costs to the Crackers are important and we said we're on a path to shut down the older Crackers but as we operate them now, it's the continuous make versus buy choices, and then the environment that you're describing where propane is cheap relative to some of the other things going on it could be a make decision for a longer period of time and that helps us. Also remember that many of the propylene derivatives that we make are not being built or overbuilt the same way that 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 overbuilding on their future and that's a pretty key factor in the sustainability of their margins as well.

Just to follow-up on that, Brian, if I look at ethylene cracking margins and propane is not such a bad feed these days especially compared to naphtha. Might it 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 but we're going to follow the money here as you suggest.

Okay, great. And then elsewhere, on Fibers, Can you remind me of the timing of the UK expansion and the size of that for calculation of the financial impact there?

Yes. It's around the end of this year we think we're ging to get it done. It's a relatively small incremental capacity. It's what, 4, 5%, so it's not a huge incremental capacity so it's proportionally it's not in 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 go next to Jeff Zekauskas with JPMorgan.

Hi, good morning.

Good morning.

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

Yes, if the CapEx had not changed we would be the only project in the world that had not changed since the beginning of something two years ago, so all CapEx costs in every project are going up. Commensurate 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 hydrocarbons and things like natural gas or oil so if those two travel together to some degree and you can lock in some of that spread through financial mechanisms at a certain point in time, then you mitigate some of that extra CapEx. There's 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 this question is are you, do you still think these are attractive? Absolutely. They're very attractive. We're excited about them and marching ahead.

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

We're in the middle of the feed process. That's one of those milestones that's more of a Summertime milestone so it's frankly impossible to report on that until you're done with the feed process.

Okay, second question, is in, can you talk about demand in the PET market domestically? That is when you ex out the various operations that you sold, what was your underlying PET and growth rate? And sort of how do you see that market over the next quarter as we go into the prime selling season?

Yes. I'll report to you that we're essentially running flat out.

Okay.

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 American paraxylene and PTA versus Asian paraxylene and PTA, and that arbitrage has disappeared so that would indicate that with no difference between U.S. and Asian raw material prices, there's not a dig driver to bring in a whole lot more imports. So I see this as a fairly stable demand situation.

Okay. And in the BPA market, forgive me, Brian, but I just don't know how big the size of the BPA baby bottle market is or whatever else that you want to pull BPA out of. Have you been able to size that just yet?

We have. We haven't spoken about it because for a couple of reasons, but it's bigger than we can handle. Let's just say it that way. You have the water bottle industry. You have the baby bottle industry and now I think there may be a New York Times article this morning talking about contact with children's toys, if you reference the New York Times this morning. This is a ball that's still rolling, Jeff, so I don't know, it keeps on changing the answer to your question. So I guess the other thing I want to emphasize is that there is a broad array of markets. This is a product that is chemically resistant. It's very tough. It can form into shapes. It has a higher temperature. You can make products and throw it in the-washer a thousand times and it never gets that fuzzy cracked look to it. It's got a lot of properties that make it attractive.

So does this lead you to change your longer term EBIT forecast for Specialty Plastics?

Maybe some day but not today.

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

Just because it's not time yet.

Not time yet, okay.

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

Just and then lastly, in PCI, how much of operating profit is oxo related?

We've never really broken out the split between those two. I'll just tell you they're roughly in equal proportion to each other, the coal guys versus the olefin guys and all of our olefin derivatives for PCI, the vast majority are propylene derivatives. In fact we're down to essentially one meaningful ethylene derivative which is ethyl [aldehyde] and we make an ethyl glycol we consume for ourselves to transfer the cost, so it's essentially a propylene machine.

Okay, thank you very much.

(OPERATOR INSTRUCTIONS) We go 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 in petrochemicals and uncertainty in the economy, that it may be early in the year to update but I had a qualitative question though because you do have quite a bit going on internally at the Company with the restructuring in South Carolina and other initiatives and I'm just curious about the seasonality which has normally been skewed toward the first half. What is your thinking on how the internal initiatives will affect the normal seasonality?

Yes.

In the two heads 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's a, if you think about the guidance I've given for the first half, this first half is in the parade of Eastman first half so it's a very good first half. It was only eclipsed by '05 and '95 when PET drove the story, so this is obviously a very good first half. Second half, it is just, it's more about uncertainty than anything else, Bob. Uncertain economy, you have to get through a lot of hard projects, we expect we're going to get through them just fine, but I'm just going to stand by the guidance that I had before so I guess I'm reaffirming that but that's all I would do.

Okay but you are going to earn about $3 in the first half ?

Yes, it's in the neighborhood, yes.

Which is about 60% for the full year.

Yes, I know you're doing your 60/40 math, Bob, and sometimes it's 55/45, sometimes 60/40, it's probably somewhere, I'll let you do the guessing on that one. I don't want to do anything more.

Okay. Thanks, Brian.

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

Okay, great. 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 2. Have a great day.

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