伊士曼化學 (EMN) 2009 Q3 法說會逐字稿

Good morning everyone and welcome to the Eastman Chemical Company third quarter earnings conference call. Today's conference is being recorded. This call is being broadcast live on Eastman's website at www.eastman.com.

We'll now turn the call over to Mr. Greg Riddle of Eastman Chemical Company, Investor Relations. Please go ahead, sir.

Okay, thank you, Trisha 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 [Anita Detesch] from our Investor Relations department.

Before we begin I'll cover three items. First, we posted the slides that accompany our remarks for this morning's call on our website at www.eastman.com in the Investor section.

Second, during this call you will hear certain forward-looking statements concerning our plans and expectations for fourth quarter 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 third quarter 2009 financial results news release on our website and in our filings with the Securities and Exchange Commission, including the Form 10-Q filed for second quarter 2009 and the Form 10-Q to be filed for third quarter 2009.

Lastly, 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 third quarter 2009 financial results news release and the tables accompanying the news release.

With that I'll turn the call over to Jim.

Thank you, Greg and thank all of you on the call for joining us this morning. I'm going to start out on slide three, and starting out there this morning by looking at the outlook statements we made on our last call in July. An accountability check, if you will.

In July we told you we expected third quarter EPS would be approximately $1.10, and in September Curt updated our guidance to above $1.10 and we came in at $1.38 above our own expectations off the strength of our CASPI and Fiber segments. Next we told you we expected for the full year that our EPS would be slightly above $3, and with our fourth quarter guidance you can see we expect to be solidly above $3. We told you we expected the cost reduction actions we've taken would be evident in our results, and they clearly are. We also told you we expected to generate greater than $200 million in free cash flow for the year, and on this one we have greatly exceeded our expectations, as Curt will discuss.

I can tell you it didn't feel overly conservative when we gave the guidance in July given the poor visibility we all had, and if you're going to miss we missed in the right direction. All I can say is we do our best to call it as best we see it. Obviously it's been difficult to do so in the current environment.

Now moving next to our corporate results starting with sales volume. We were down 4% year-over-year after excluding contract ethylene and polymer intermediate sales from third quarter OA, and sequentially we were up about 5%. As a result, our capacity utilization for the quarter was just over 80%. Customer demand is not quite back to where we were last year but we are making progress.

Next, you can see that pricing was down 18% year-over-year. This is a result of lower raw material and energy costs, particularly for propane, paraxylene and natural gas which were down between 30% and 70%. The decline was greatest in our more commodity businesses such as performance polymers and PCI, but we were able to hang on to pricing better in our Fibers, CASPI and Specialty Plastics segments.

Now for earnings. Our operating earnings improved both year-over-year and sequentially. Our gross margin was about 25% for the third quarter while our operating margin was just under 15%. Earnings and margins benefited from the lower raw material and energy costs that I mentioned, the cost reduction actions that we've taken and a more favorable Company product mix. And also our EPS of $1.38 included a tax hit of $0.16 which Curt will talk about later. So this was a strong quarter for us under difficult conditions and I'd say we were pleased, pleasantly surprised by the strength of our specialty products.

Turning next to the segments beginning with Fibers. Sales volume declined year-over-year primarily due to acetyl chemicals but earnings remained strong due to higher selling prices and cost reduction actions. Looking to the fourth quarter, we expect earnings to be down somewhat compared with the record third quarter levels. This is due to customer buying patterns for acetate tow in China and slightly lower global demand for acetate tow due to the recession.

Now for CASPI on slide six. CASPI was hitting on all cylinders in the third quarter and as a result this was a record quarter. While volume and price were down year-over-year they were both up sequentially. Product mix also improved sequentially. Operating earnings improved substantially due to a number of factors. First of all their businesses are performing well at the same time across Coatings and Adhesives, all of them. CASPI also benefited from lower raw material and energy cost and cost reduction actions. In addition we are seeing the benefit of the actions we've taken over the last several years to improve this business. Looking forward to fourth quarter we expect operating earnings to be down from the very strong third quarter levels as volumes decline due to seasonality and the raw material and energy costs increase.

PCI is next on slide seven. In July I talked about this business improving in the third quarter versus the second and they delivered. Sequentially, volume improved and selling prices increased slightly while year-over-year sales revenue declined due to lower selling prices which reflected lower raw material and energy costs. Operating earnings improved sequentially due to higher volumes and lower raw material and energy cost. Year-over-year, operating earnings declined primarily due to the lower selling prices. Looking forward to the fourth quarter, we expect earnings to decline slightly sequentially due to seasonality and higher raw material costs.

Lastly, on PCI, I would point out that they are now positioned to deliver operating earnings in the mid 60s for the full year and this is a lot better than the earnings they had in the 2001, 2003 time frame, if you remember that recession, despite this recession being more severe. And this improved earnings level is a testament to the actions we've taken to improve the profitability of this business.

One other note, earlier this month, Ron Lindsay and I traveled to Saudi Arabia and we had a chance to meet with the Sipchem team and some of our Eastman employees working there with them. And I can tell you we're looking forward to the offtake of 50,000 net tons of acetic and hydride from this facility, which we expect to place into Europe and Asia. We also had the chance to meet with a number of other people while there and we were encouraged that there are a number of potential opportunities and partners for a company like Eastman. So a good trip overall.

Specialty Plastics is next up on slide eight. Looking year-over-year, volume declined due to the global recession. Our decline is generally in line, we think, with what we are seeing for competitive products such as polycarbonate and acrylics, and we did see an improvement sequentially in our volumes. Pricing declined year-over-year due to lower raw material and energy costs, particularly for paraxylene. But despite the drop in volume and price, operating earnings improved due to the lower raw material costs and cost reduction actions. Looking to the fourth quarter, we expect seasonality to result in lower volume and as a result expect earnings to be slightly lower sequentially.

Turning next to Performance Polymers on slide nine. Sales revenue declined year-over-year due to lower selling prices which are largely the result of lower paraxylene prices. Operating results declined due to lower selling prices and continuing operational challenges with our IntegRex based PET manufacturing facility. Looking forward to the fourth quarter, while we have made progress identifying and resolving operational issues with our IntegRex asset we have more work to do. As a result we will have a shut down in the fourth quarter to make additional improvements that we expect will get this asset operating like we know it can.

During the quarter we'll also be impacted by the volatility of paraxylene costs which declined by approximately 20% in October from September, and as you would expect this has led to domestic customers destocking PET in anticipation of lower prices. It's also causing some margin pressure for us as higher cost paraxylene is still in our system is working its way through. As a result, we expect fourth quarter results to be significantly below third quarter.

Slide 10. Now for some comments on our outlook for fourth quarter overall. We expect to continue to benefit from the favorable Company product mix we saw in the third quarter as well as the cost reduction actions we've taken. However we'll face some headwinds from volatile raw material and energy costs and normal seasonality which we expect will lead to lower volumes. On raw material costs, propane is already up 10% in the month of October, and as I mentioned earlier, paraxylene was down 20% in October compared with September, and both of these, believe it or not, can pressure margins.

As I mentioned a minute ago, we are also expecting a very challenging, one might even say ugly, fourth quarter for Performance Polymers and the industry as a whole. The result is that we are expecting our EPS to decline sequentially but to be slightly above the high end of the current range of analyst's estimates on First Call which is $0.85.

Now before I turn it over to Curt, it's time for me to continue the practice of highlighting one of Eastman's executives who had an exceptional quarter. And given the results for Specialty Plastics and the Specialty CASPI, the choice was easy, Mark Costa. When I reorganized the management team in May, I thought that Mark's Monitor consulting background and marketing expertise could add significant value to specialty businesses like CASPI and Specialty Plastics, and I haven't been disappointed. Mark also leads our marketing and innovation groups, is a key player in our sustainability efforts and has a passion for driving profitable growth in the Company. Mark consistently gives the credit to a strong team so he would want me to shine the spotlight on Dante Rutstrom, our VP GM of Specialty Plastics, and Brad Lich, our VP GM of CASPI. Together, they have built a strong team where I believe we have the right players in the right positions and you are just beginning to see the results of what they can accomplish. Of course I know what's going through their minds as they listen to this is what are we going to do for an encore.

And with that I'll turn it over to Curt.

Thanks, Jim. And good morning, everyone. While we had a strong earnings in the third quarter, you can see on slide 12 we also had great cash generation. Our cash from operations was $331 million for the quarter. This starts with strong net earnings. We also benefited from continued reductions in net working capital and we benefited by over $100 million from a combination of a refund of previously paid taxes and lower estimated tax payments. This is related to the change in accounting methodology used for federal tax purposes to accelerate the timing of deductions from manufacturing repairs that I mentioned on the call in July.

Moving down the cash flow statement. You can see that our capital expenditures were $64 million for the quarter, down from $153 million in third quarter 2008. This is consistent with our expected sequential declines in capital expenditures during 2009. And so after our dividend, free cash flow was $235 million for the quarter which is really an outstanding performance. Through nine months our free cash flow now stands at $304 million which is above the $200 million full year 2009 free cash flow objective I previously discussed. This out performance has been achieved through our focus on cash throughout the Company and we, quite simply, underestimated the impact and speed of the actions we have been taking, including reductions in working capital.

Turning next to slide 13. Reductions in working capital remain a high priority. Back in March, as part of our free cash flow objective, we committed to generate $100 million in cash from working capital. As you can see, we remain very disciplined in the third quarter. At the end of the first half of the year, our inventories were at historically low levels. I expected there would be a build in the third quarter but it was less than anticipated. Thus we have, in essence, achieved our goal. Looking at the fourth quarter we expect to maintain the progress we've made on generating cash from working capital.

Moving next to income taxes. The third quarter effective tax rate was 40%. During the quarter we completed the front end engineering and design package for the Beaumont, Texas industrial gasification project and it included higher than expected costs and a later estimated project completion date. While we continue to believe in the long term arbitrage between solid and liquid hydrocarbons there continues to be current legislative and other uncertainties for the project. The result is a $12 million impact from the reversal of a previously recognized investment tax credit related to the project. Without the reversal the effective tax rate would have been 33%.

Since I get this question from investors periodically let me tell you there is $230 million of assets on our balance sheet in the form of capitalized engineering costs, purchased land, acquired assets and technology, et cetera. I also wanted to remind you that we continue to look at this project as an attractive opportunity that is unique to Eastman. However we need a few things to move in our direction before going forward.

Through nine months our effective tax rate is at 39%. This included the ITC reversal which I just mentioned and a $7 million elimination of domestic manufacturing credits related to the manufacturing repairs change, again as discussed in the second quarter. Without these two items the effective tax rate would have been 33%. Looking forward to the fourth quarter, we expect our effective tax rate will be approximately 35%.

An update on our cash priorities is next on slide 15. First, as I previously mentioned we expect to maintain the progress we have made this year and therefore generate $100 million from working capital. Next on capital expenditures fourth quarter will be below third quarter and more like maintenance capital levels. As a result capital expenditures will be approximately $320 million for the year. Looking at free cash flow, we expect in the fourth quarter to build on the $300 million of free cash flow we generated so far this year. And on pension contributions, so far in 2009 we have contributed $35 million to our pension plans. In the fourth quarter we are evaluating the benefits of making an additional contribution. If we were to make such contribution it would likely take us above $50 million which was the high end of the range we had previously communicated.

On slide 16, I'll just take a minute to remind you of the great financial position we are currently in. We have a little less than $1.5 billion of total debt. Our cash on the balance sheet as of the end of the quarter was $668 million and that will likely increase in the fourth quarter. Our net debt stands at $773 million with a net debt to total capital ratio of 32%. And we have a committed and undrawn $700 million revolver substantially available to us well into 2013. We are in a very strong position from a liquidity standpoint and getting stronger as the year goes on.

With our strong balance sheet and potential for cash generation we are very well positioned for growth going forward. We continue to believe that deploying our cash in a value creating way will differentiate us and we are continuing to evaluate all options. There is still a premium on cash in the current environment, thus we'll remain disciplined as we pursue growth initiatives. And as we grow we remain committed to maintaining our current investment grade credit rating.

Lastly I'm pleased to invite you to our Investor Day on Tuesday November 17th in New York. We'll update you on our strategy for growth and how we'll use our strategic cash to create shareholder value. If you haven't already done so please go to www.eastman.com to RSVP.

With that I'll turn it back over to Greg.

Okay, thanks Curt, and that concludes our prepared remarks. Trisha, please get the queue ready for questions.

(Operator Instructions) We'll go first to Jason Miner with Deutsche Bank.

Thank you, good morning. Just on some of the savings, how much will full year '09 earnings benefit from the 5% cut you guys made to salaries? And conversely, maybe asked another way, how much would it add back costs if salaries across-the-board went back to '08 levels?

Well, Jason, we just happened to have been looking at that subject. Let me be serious. We did take some extraordinary actions this year and I think we did it fairly quickly and I think we did it at the right level. I love our culture that we had the option of doing something like a pay reduction instead of having to let a lot more people go, people who actually contribute value and do meaningful work. That's my set up to say I believe we did the right thing, you don't have all the one-time charges when you do a pay reduction. And so there was $200 million of savings there and actually how it feeds into the year and how much of it we got during the year, it was more of an annualized number but we would have had most of that in this year.

As I look going forward, you can't keep those extraordinary measures forever so I would expect it's quite likely we will be reversing some of those extraordinary measures including the pay reduction around year end. We're still waiting to get a little more visibility into the fourth quarter and next year before we make a final decision. But as we look at that and maybe a couple other things, that's probably $40 million on an annual run rate that if you roll it altogether that you would expect to put back in place. I would get there's another $50 million to $60 million, and that's just a ballpark, of savings that are tied more to volumes so when the volume comes back you would hire back the contractors, et cetera. You have to lighten up a little bit on some of the spending constraints. Eventually people have got to travel and you got to let them spend a little bit of money. There's at least a good solid $100 million that sticks to your ribs going forward.

The other thing I'd say is, we don't talk a lot about it but we're trying to continue to be very disciplined, so since that reduction in force we had in the spring we've allowed attrition to run ahead of hiring almost at a ratio of 10 to 1 such that by end of year I'd expect we'll be down another 2% in our headcount which, again, you're not paying any severance charges. We're very conscience of cash but you are reducing your ongoing costs. So I guess that wraps up how we're looking at the cost savings we obtained and what we have to overcome as we move from '09 to 2010.

That's very helpful. Glad to hear you'll hold more than half of that. Let's shift gears for a second, if I may, into tow. Some have reported some volume drops in cigarettes recently. With some new capacity coming on in Korea I wonder if you could characterize for us the current situation and outlook for utilization rates in the industry for tow?

Since it's our new capacity that's coming on in Korea I guess we should have a handle on this one too. Again, to start, great industry, certainly not impacted to the extent all of the other businesses were by the recession but it was impacted. People did trade down in brands, et cetera, around the world. The tax increases we had which have impacted smoking, and particularly in the States. The good news there is the States is a fairly small part of the world filter tow market. But to come to it, we expect utilization rates next year will be less than the utilization rates were this year.

Let me just shift to Beaumont for one quick second and I'll get back in queue. I know we had spoken about loan guarantees possibly earlier in the year. If Beaumont has slowed down is there still a potential for government loan guarantees to help in that project in the long run do you think or do we miss that window?

No we have not missed that window so that is still on our agenda and we think we're still in the right place in line, let's put it that way, for those. Bigger issue is all of the other building blocks that have to come together before you can start thinking about going forward with the gasification project, and we've listed those in the past in terms of the capital costs where energy prices are, how much government incentives can you get. We've also said that if we go forward we would like to go forward with a partner, it's a big project. So again, there's so many things that are not in place today. The mode we're in right now is to hold those costs down to a minimal amount to keep the option alive as we continue to review how we feel about that project and the chances of it happening any time soon.

That's very helpful, thank you.

We'll take our next question from Jeff Zekauskas with JPMorgan.

Hi, good morning. First on your taxes, do your book taxes and your cash taxes more or less match each other with a small delay or is there now a difference in what you're paying versus what you're reporting?

Jeff, this is Curt. If you look at 2009 it's definitely where our current taxes are and our deferred taxes have a different view and that's primarily due to the project that we've talked, about our tax project. As we go back into next year, our tax department will still continue to look at all ways to impact cash and minimize tax payments but it will probably be more normalized going forward. But we're looking for advantaged ways to impact our cash.

So this year, what's the difference in very rough terms between your cash taxes and your book taxes?

I think if you look in the cash flow statement I'd say you'd see the difference right on the deferred tax benefit.

Okay. Secondly, when you think about the cost cutting program at Eastman, can you give us an idea of what your level of savings was by the end of the second quarter for this year and what your level of savings now is by the end of the third quarter?

No, I'd have to do some math. I guess you could do that as well, Jeff. You know when our pay reduction kicked in. I think that was April 1st, we did a reduction in force around then, so much of it would have been in the second quarter. As I think it through, in fact we were running at a lower utilization rate in the second quarter so we probably had pretty much, Curt wouldn't you guess, most all of the cost cutting in place at that time. So I'm not sure there was a huge difference between second and third, other than we ran at a higher utilization rate in the third quarter so we may have had to bring a few more contractors back.

Then as a last question, if I can, sometimes what Dow Chemical does is it gives investors an idea of how much their hydrocarbon costs decreased year-over-year or sequentially. How much did your hydrocarbon costs decrease sequentially?

If you're talking about lava, I'm not sure, when you say hydrocarbons per se. I can tell you what our raw material costs are.

Raw materials is just great.

If you look year-over-year our raw material costs declined $350 million.

$350 million. And what about sequentially?

Sequentially, I think it's probably increased about $40 million. Some of that still may be tied up in inventory but it's about $40 million.

And Jeff the one thing you have to watch for both of us is obviously how does price move with that raw material, and that's the other piece of the equation that you have to focus on because what we try and do is we try and manage the spreads.

How much did prices change sequentially?

Sequentially price was up 1%.

Okay, thanks very much.

We'll take our next question from Kevin McCarthy with Banc of America Merrill Lynch.

Yes, good morning. Jim, I was wondering if you could comment on the fourth quarter profit outlook in CASPI. Most years you see a seasonal dip there but it's not always the case. I think you had improvements in 2003 and 2006. As you look at raw material trends and what you see volumetrically, what should we expect for that segment in the fourth quarter?

Kevin, forgive me if I take this opportunity to comment on CASPI. I was waiting for the question. Wow, what a great quarter for that business. And so let me remember a few things. And I will get to your question but I just can't resist thinking about all the stuff that's been done in that business, going all the way back to some of the restructuring and selling off the resin inks and monomers business quite a while ago, to more recent things like getting out of the crude tall oil in our adhesives business. I think about people changes that were made down in the organization, more recently getting the right players in the right jobs.

It's just like everything was clicking. We had the raws come off in this third quarter and we know that they're turning around and going back up, so that's one of the things that tells us, yes, we are definitely coming down from that third quarter high. We normally have seasonality and we don't think this year is going to be any different. We will come off, just given the markets they sell into, we'll come off from third to fourth quarter. But the point is, it's still going to be a very strong quarter for CASPI and just such a great business.

I know you guys looked at it and you're probably wondering how do I think about that going forward. So the fourth quarter, yes, we're coming off, but as I look longer term, remember I used to build up how I thought we could set peak earnings higher than the last peak just within our core businesses, and I had CASPI be around 200 or it could be back better than 200. And you're seeing potential to set a new level of earnings in CASPI. One quarter doesn't do that. We had a lot of stuff go our way. All of the businesses clicked at the same time whether it was in adhesives or coatings. That doesn't happen very often but still, you can just see the strength of that underlying business, and that's one of the things I count on when I talk about setting much higher earnings in the future on these core businesses.

It is nice to quadrupole operating profit over two quarters. Well done.

Part of that is how weak it was two quarters ago, too.

Record level, though. Shifting gears, Jim, you mentioned you were excited about acetic and hydride offtake from Sipchem. Can you give us some kind of feel for the timing and magnitude of that in terms of financial impact?

Yes, I'm not sure it will have that great a financial impact. I'm excited just because it gets us out more globally. It's part of the world I think we should have a bigger presence in, the Middle East. I can tell you, they have built one beautiful plant that any North American chemical site would be proud to have. I'll let them say their exact timing but I think they're planning on being operational early next year, is my guess, but they will give you the definitive term. To me it's just one more way we're playing off of our asset yield stream, just working everything from logistics to cost position and serving a growing market. It wasn't so much that it's going to have a material impact, 50,000 tons of anhydride, but it's more that it's the right direction that we want to go.

And final question, if I may. On the subject of cash deployment, obviously things have changed dramatically in terms of the capital markets over the past, say, nine months but you're at a point now where you've generated a lot more cash. Your net debt to EBITDA is not very far from 1. I was wondering if you might comment on the dividend. It's been flat for something like 12 years. And I realize it's a board decision, but at what point should we be thinking about resuming increases there?

When you say resuming increases I think the last increase was like '95 or '96. The way we look at that is we believe in getting a return to our shareholders. It's a very legitimate use of cash to give it back to shareholders but we're guided, to, by our yield and reference to the rest of the industry and we think it's still quite an attractive yield now. So assuming that we continue to run our businesses well and that price moves up we'll be looking for ways to get a return to shareholders but I'm not going to say it will necessarily be by increasing the dividend.

Thank you very much.

We'll take our next question from PJ Juvekar with Citi.

Good morning, Jim.

Jim, as you said, PCI did really well, especially compared to the last recession. I was wondering if you can talk about the supply demand of Oxos and acetyl now versus back then? Yes, that's a good question. I'm not sure how much better the markets are than back then. I know we're doing business differently. This was such a severe recession. I believe I'd be correct if I said there was some capacity that exited the market but I just can't remember if that also happened back in that '01, '03 time frame. When I think about the difference, PJ, I think about things like swap arrangements we've done with other producers such that we have product in the right region without all of the logistics costs and so do they. I think about, in particular, a lot of work we did on pricing and deciding what segments of the market we want to play in. So you know, for example, we have a different acetic acid strategy, albeit we're a much smaller player anyway, but now we have more of a North American specialty strategy there as compared to other players. There's a laundry list of things that are more internal to us, I think, than the marketplace in total but you wouldn't know that by looking at the other guys and seeing how they're doing compared to that last recession.

What are your current operating rates?

I think I said we're just slightly over 80%. So say 81%-ish. And that's part of the reason, PJ, we're looking at the fourth quarter coming off because we're expecting that utilization rate to come back down a few points.

My second question is many institutions are banning the use of single serve PET bottles but on the flip side they're encouraging use of plastics like Tritan. Can you just talk about that shift that's taking place?

Yes, I don't know about banning PET per se. I know there's polyethylene bans and polycarbonate.

Not banning but I should say they're frowning upon the use of PETs.

I understand, yes. That is one trend in the plastics world where everyone is looking for greener plastics and I think we're hitting the timing just right with our Tritan product. It's just such a great product with a great future. It's BPA free, it does so many things in terms of having a higher TG. You can use it in the dishwasher, a lot of other places. We're winning contracts with some brand names that we think is going to really drive growth. And we think there's going to be generations of products, families of products, after this initial wave. So that wave, what we call a sustainability wave, we are very conscience of that looking at our portfolio where we can take advantage of that wave. And it's not just there, it's a number of places but you'll be hearing more about that if we get together in a few weeks on Investors Day.

Thank you.

We'll go next to Frank Mitsch with BB &T Capital Markets.

Good morning guys. Dow and DuPont mentioned their Investor Day nine times in their conference call. I took the under on you guys. I'm feeling pretty good about that bet right now because you've only mentioned it twice so I appreciate that.

We know you'll be there.

Absolutely. With the overall results on an operational basis, the best since '05, and given a lackluster market, speculate with me, Jim, where could your earnings have been if you got back to '05 type operating rates?

Boy, it's like that's the dream at night as I go to bed I think about we did this on 81% utilization rates? Now admittedly, we had some extraordinary measures in place for cost. The last time we had a pay raise was back in April of '08 so there's some extraordinary measures we took which you can't count on but I'm very pleased with the power of these core businesses to run at this rate. And just to give you an idea, so CASPI's utilization rate isn't much different than the Company overall. It's right around there. Specialty Plastics is actually less, Fibers is noticeably more. One of the benefits you get in these businesses such as Fibers, even though their utilization rate I don't think went up from second or third, or not by much, is the fact that we're integrated. And so as other businesses pick up their volumes and they absorb more cost from the stream every business benefits. So I feel very confident when I say that if we get back to those kind of run rates, utilization rates of a strong year, that we're going to have no problem setting peak earnings higher than the last peak.

Higher than the last peak?

Yes.

All right, that's terrific because, of course, the last peak, your biggest peak obviously was jacked up by PET back in the mid '90s.

Yes, and Frank, it wasn't that big a difference. I think the last peak was $5.73 and I think if I go back to '95 it was $6 something. And you're seeing $1.30 something plus 16, you're seeing a pretty decent quarter here at 81% run rate. But again, admittedly, a lot of stuff went our way -- raw materials versus price, cost savings, etc.

Okay, great. And it's been previously mentioned on the call your nice cash position and a strong balance sheet, and you went out of your way to discuss your trip to Saudi Arabia and talk about possible opportunities and partnerships et cetera, in that part of the world. What sort of things would you be considering?

It's too early to mention anything specific, Frank, but I know what you're driving for. Our game plan is to be more global. We want to get more than our fair share of the regional growth that's happening out there in the developing world. We very much like the idea of advantaged feedstocks. You've seen that here in Kingsport, with what we start with coal. We think we can do that, we can have advantaged feedstocks in other parts of the world. We think that our CASPI business and parts of our Performance Chemicals and Intermediates business could be good hunting grounds for add-on acquisitions. So just to give you a sense, the idea of advantaged feedstocks, differentiated products, I think we can really create some value going with that strategy around the world.

When is your next trip?

That's a good question. I'll probably be making some big tour in the first quarter.

Okay, great, great. See you next month.

We'll take a follow-up from Jason Miner with Deutsche Bank.

Thanks, just wondering back on Fibers for a moment. If the volumes in that business came from lower sales chemicals, and I know that you do sell some to competitors, could that suggest that you're taking any market share there?

I wouldn't read it that way. Some of the sale of chemicals goes to a joint venture we have right here in Kingsport, (inaudible), and but we do sell to a few other players around the world. Frankly, I see the market share in Fibers as fairly steady, I would guess, and that's probably the way Rick Johnson who runs that business would characterize it, as well.

All right, and if I can revisit my utilization question one last time, forgive me. Do you think we can keep global utilization above 90% in Fibers across the industry?

I think that is the current thinking for 2010. We're bringing on a few extra tons there in Korea but the Asian market is still growing even through this period of time. Of course, when we bring that Korean facility on we're going to have some startup costs next year, we're going to have to do some product qualifying with our major customers. So you might not, specific to Eastman, you might not see a lot of the benefit of that Korean facility until 2011. But guys, the market is still growing strong in Asia and that's where we want the capacity.

Excellent. Thanks again.

There are no further questions in queue. Mr. Riddle, I'd like to turn the conference back over to you for any additional or closing remarks.

Thank you and thanks again, everyone, for joining us this morning. An audio replay of this conference call will be available on our website this afternoon through next Monday, November 2. Have a great day. Thanks.

Once again, everyone, thank you for participation. This will conclude today's conference call.