Gregory Riddle – Director, IR Mark Costa – CEO Curtis Espeland – EVP and CFO.

Kevin McCarthy – Bank of America Merrill Lynch Robert Ford – Goldman Sachs Frank Mitsch – Wells Fargo Securities Nils-Bertil Wallin – CLSA Limited John Roberts – UBS Investment Bank Vincent Andrews – Morgan Stanley Jeffrey Zekauskas – JP Morgan Jeffery Fisher – Barclays Capital P.J.

Juvekar – Citigroup Mike Sison – KeyBanc Capital Markets James Sheehan – SunTrust Laurence Alexander – Jefferies LLC David Begleiter – Deutsche Bank.

Good day, everyone, and welcome to the Eastman Chemical Company’s First Quarter 2014 Earnings Conference Call. Today's conference is being recorded. This call is being broadcast live on Eastman's website, at www.eastman.com. We will now turn the call over to Mr. Greg Riddle of Eastman Chemical Investor Relations. Please go ahead, sir..

Mark Costa, CEO; Curtis Espeland, Executive Vice President and CFO; and Josh Morgan, Manager, Investor Relations. Before we begin, I'll cover 3 items. First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. Actual events or results could differ materially.

Certain factors related to future expectations are or will be detailed in the company's first quarter 2014 financial results news release and our filings with the Securities and Exchange Commission, including the Form 10-K filed for 2013 and the Form 10-Q to be filed for first quarter 2014.

Second, earnings per share and operating earnings referenced in this presentation exclude certain noncore or nonrecurring costs and charges.

A reconciliation to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded items, are available in our first quarter 2014 financial results news release, which can be found at eastman.com in the Investors section.

Projections of future earnings in the presentation also exclude such items as described in the first quarter news release. And lastly, we have posted slides that accompany our remarks for this morning's call on our website in the Presentations & Events section. With that, I'll turn the call over to Mark..

Good morning. Thanks for joining us. It’s good to be here emerging into the spring and putting the winter behind us. I would like to begin on Slide 3 with some of the highlights from the first quarter. Business results from the first quarter were as expected and we feel good about our expected performance for the full year.

Eastman specific actions which we expect to contribute $0.50 to $0.75 of earnings per share growth in 2014 are on track. Some examples include mix improvements in Advanced Materials or [ph] products like Tritan copolyester and premium acoustic interlayers, we had the larger percentage of our revenue in the first quarter.

Our acetate joint venture in China is also producing commercial quantities. And we continue to benefit from synergies related to Solutia acquisition. Another Solutia related synergy is the progress we continue to make on our corporate tax rate this quarter, bringing the rate down to 28% and with the potential for it to go lower.

As a comparison, for the full-year of 2010, our effective tax rate was 34%. We also continue to be disciplined in how we deploy capital. During the quarter, we announced two bolt-on acquisitions which are complementary to our existing fluids and performance films businesses and will help us grow profitably and I will talk more about those later.

And our board authorized us to repurchase another $1 billion of shares and with $260 million of share repurchase in the quarter, we’ve begun using this authorization after completing the previous $300 million authorization.

This authorization further reinforces the board’s commitment to returning cash to shareholders and its confidence in our ability to deliver consistent superior value. Finally, Eastman was recognized by the EPA with the 2014 ENERGY STAR Partner of The Year – Sustained Excellence Award.

This is the third consecutive year Eastman has been recognized as an Energy Star Partner of the year. And we are the only chemical company to have won 3 Energy Star awards.

This recognition is a great win for us on two fronts, as it represents both our commitment to improving the environment through energy conservation, as well as our ability to reduce energy costs through smart management, innovative sustainable solutions and ongoing productivity improvement. On Slide 4, I will review our first quarter results.

As we indicated back in January, we expected to start out the year a bit slower than we did in 2013 due to factors such as narrowing olefin spreads and customer buying patterns for certain product lines especially fluids, fibers and performance films, and our results are consistent with that guidance.

Sales revenue was essentially flat as volume growth in coatings, advanced materials – premium product lines and Adhesives & Plasticizers was offset by lower volume in specialty fluids, performance films and rubber additives.

Operating earnings declined by about 5% with higher propane costs being a significant headwind this quarter, particularly for Specialty Fluids & Intermediates segment and also impacting our Additives & Functional Products and Adhesives & Plasticizers segments.

Another factor that impacted our results in the first quarter was weak demand in China, particularly for solvents, tires and plasticizer product lines where we see slowing China growth results and increased composition in the North American and European markets.

While longer-term we remain very positive on China in their shift towards a more consumer-based economy, midterm this transition is clearly challenged. Earnings-per-share was about flat year over year as lower operating earnings was offset by a lower share count, stronger other income, lower interest expense and a lower tax rate.

And this result is consistent with our strategy of using all lines of the income statement to deliver EPS growth. And I will turn over to Curt to review the segment results and our cash generation..

Thanks, Mark and good morning everyone. I will begin on Slide 5 with the review of the Additives & Functional Products segment. Sales revenue increased slightly as higher sales volumes for coatings more than offset lower sales volumes for rubber additives.

The higher sales volumes for coatings was primarily attributed to strong demand in both the building and construction and transportation end markets.

The lower sales volume for rubber additives was primarily attributed to customer destocking in Asia-Pacific, which we believe is now behind us and we look forward to volume growth in this business for the balance of 2014. Operating earnings were down $4 million as propane prices were roughly 55% higher year-over-year.

Looking forward we expect strengthening [ph] demand in the coatings and tires markets generally will be a benefit. However higher year-over-year propane costs will continue to be challenged carrying into the second quarter. So we expect these higher costs will not be a factor in the second half of the year.

In addition, we are investing roughly $10 million in our tire business for the year. This is primarily to support enhancements in the technology for our market-leading Crystex product line and we expect this investment to begin ramping up in the second quarter.

And we are seeing increasing competition for solvents primarily due to the impact of economic weakness in China. As a result, we continue to expect operating earnings will be between $410 million and $430 million for the year. Adhesives & Plasticizers is next on Slide 6. Year over year revenue was flat as tire volume was offset by lower selling prices.

Volume increased for adhesive resins as the hygiene and packaging markets strengthened and in the year ago quarter, there was customer inventory destocking. Pricing decline for both adhesive resins and plasticizers due to increased competitive pressures.

Operating earnings declined slightly year-over-year with lower selling prices and higher propane costs offsetting lower operating costs and volume growth. Given the challenge that adhesives and plasticizers experienced in 2013, I thought I would provide some sequential comments for this segment.

Sequentially revenue increased more than 7% with volume gains in adhesive resins driven by a competitor outage and some seasonality and volume gains in plasticizers due to continued substitution of phthalate plasticizers with non-phthalate plasticizers and seasonality.

Operating earnings increased sequentially primarily due to the volume growth in adhesives resins. Looking at the full-year 2014, we expect end markets, including hygiene, packaging and building and construction to have stronger demand.

However we do not expect the competitor outages that occurred earlier part of the year to continue into the second half. We are also expecting increased competition from adhesive resins capacity being added by a competitor. As a result, we continue to expect adhesives and plasticizers earnings to be between $150 million and $175 million for the year.

Moving next to Advanced Materials on Slide 7. Revenue was relatively unchanged while operating earnings increased.

For revenue higher sales volume for Tritan copolyesters and premium acoustic interlayers was offset by lower performance films volume due to a plan change in customer incentive terms in Asia-Pacific, shifting volume to second and third quarters.

The increase in operating earnings was primarily due to lower unit costs especially for copolyesters resulting from higher capacity utilization, partially offset by lower volume and lower capacity utilization in performance films.

Additionally, product mix improvements continue to be a source of earnings growth for this segment and that was reflected in this quarter's results with the previously noted growth in Tritan and premium acoustic interlayers.

Looking at the full year, we continue to expect volumes to increase and product mix to improve as we grow our premium branded products, including Tritan, premium acoustic interlayers and performance films. As a result, we expect earnings to be between $280 million and $300 million which would be strong growth. Next up is Fibers on Slide 8.

Sales revenue increased as higher selling prices were partially offset by lower sales volume. The lower volume was primarily in acetate tow due to customer buying patterns and additional industry capacity, including our joint venture with China National Tobacco Corporation, which is now producing commercial quantities.

This was partially offset by acetate flake sales volume to the joint venture. We anticipate buying [ph] patterns for acetate tow will return to more normal levels beginning in the second quarter. Operating earnings increased as the higher selling prices and the sales of flake to the JV were partially offset by the lower acetate tow volume.

For the full year, Fibers is on track for operating earnings between $500 million and $520 million. I will finish up the segment reviews with Specialty Fluids & Intermediates on Slide 9. Sales revenue decreased primarily due to lower volume which was mostly offset by higher prices.

The lower sales volume was in both specialty fluids and other intermediates. The lower sales volume in specialty fluids was primarily due to the timing of customer project completions. The higher selling prices were primarily due to more sales of higher priced specialty fluids and higher raw material and energy costs.

Operating earnings declined due to higher raw material energy costs, lower volume and cost of a weather related outage at our Longview Texas facility. For the company, the weather related outage in Longview had about an $8 million negative impact on the first quarter's and there will be a smaller impact that will carry into the second quarter.

Looking at the full year, we expect higher raw material and energy costs will continue to be a challenge. We also expect some of our license activities to be completed in 2015 as opposed to during 2014.

And we’re expecting specialty fluids volumes to be down for the year as the slowdown in China negatively impacts the rate of construction for new chemical plants. As a result, we are expecting operating earnings will likely be towards the lower end of the range of $330 million to $370 million that we provided in January.

On Slide 10, I will cover some of our other financial highlight for the quarter. We used operating cash of $30 million in the first quarter which was in line with our expectations. Net earnings were solid and we had our normal seasonal working capital increased for receivables and inventory.

Moving to free cash flow, you see it was a negative $205 million in what is typically our seasonally lowest quarter for the free cash flow. Capital expenditures at $122 million is in line with our expectation for full-year 2004 capital expenditures of approximately $600 million. And we paid our dividend which was $53 million in the quarter.

We also repurchased $260 million in outstanding shares during the first quarter completing our prior authorization and using approximately $100 million of the new $1 billion authorization announced in February. With our first quarter results we're on track for the full-year free cash flow of approximately $600 million.

I would note this expectation does not include the cash impact of any acquisition related costs. Lastly, our tax rate for the first quarter was just over 28%, a nice improvement over our previous guidance, reflecting continuing benefits from the integration of Eastman and Solutia business operations and our underlying legal entity structures.

We currently expect our tax rate for the full-year to be approximately 28%. We are continuing our efforts with Solutia operation which could possibly result in a slightly lower effective tax rate going forward.

Further, the effective tax rate excludes the benefits of any tax extenders in 2014 should our legislators be kind enough to extend them in this calendar year. With that, though, I'll turn it back over to Mark..

Thanks, Curt. I am on Slide 11 to discuss our full-year 2014 outlook. Our first quarter earnings were solid start to the year putting us on track to meet our previous expectations. We continue to expect that Eastman- specific actions will continue to contribute $0.50 to $0.75 for the year.

As we previously guided, the benefits of these actions should increase over the course of the year and be more significant in the second half. We also haven't seen anything that changes our view on the impact of nearing olefin spreads on 2014 earnings.

We still expect to be between $0.30 and $0.40 with more of the impacts in the first half given how high propane prices were at the beginning of the year. We start out the year with flat revenue and we expect global economic growth to be lackluster this year. However second quarter revenue started out very strong.

And with that, and the expectations that will gain momentum this year, our revenue growth for the full year should be consistent with global GDP growth. We’ll see economic growth improve globally from where it is now, and particularly in end markets such as transportation, building construction and consumables, we have leveraged to that growth.

And we will continue to benefit from a disciplined approach to capital allocation including share repurchases and bolt-on acquisitions we have announced. As a result, we continue to expect 2014 EPS to be between $6.70 and $7.00 per share.

Turning next to Slide 12, we remain committed to our strategy of delivering consistent earnings growth from a portfolio, especially businesses, that we will grow through both organic efforts and acquisitions, at the heart of our strategy sustaining our earnings and growth in our core businesses that provides cash flow to deliver consistent growth.

With two thirds of our sales revenue coming from product lines where we have the number one or two position we are well positioned in leading these markets including how we continue to innovate and win with our customers. Our growth in Tritan, premium acoustics are great examples of this success.

At the foundation of our success is our world-class technologies and integrated nature of our streams which gives us an advantage.

We’re well positioned to leverage our world-class technology platforms in cellulose, polyesters, olefins and PVB into new applications as we address global macro trends such as energy efficiency in emerging class and a move towards increased health and wellness.

We’re seeing great promise in several of our top organic growth platforms such as microfibers, cellulose for tires and polyesters for coatings. Further our significant stream integration not only gives us the cost advantage, but enables flexibility in how we manage our portfolio to flex where we can have the highest margins.

The expectations we have for this year and beyond indicate they were making great progress implementing the strategy, which should enable us to drive growth above GDP in the long-term while maintaining our industry average margins – industry above average margins.

And more importantly, this strategy delivers very strong free cash flow enables us to continue our balanced approach to capital allocation to create shareholder value. On Slide 13, is a nerve review of the bolt-on acquisitions we announced during this quarter.

Starting with the BP aviation turbine engine oil business we expect this acquisition will close in the second quarter and will be slightly accretive to 2014 earnings with high single digit EPS accretion in 2015.

Results from this acquisition will be reported in specialty fluids intermediate segment and 2013 annual revenues were approximately $100 million. With this acquisition, we will grain a growing and nicely profitable business that aligns well with our existing Skydrol Aviation Fluids Business.

As a result, we’ll be better able to meet the needs of the global aviation industry which we expect will result in growth above GDP. Next is Commonwealth Laminating and Coating or CLC. We expect this acquisition will close during the second half of the year and will be accretive in the first full year after close.

Results from this acquisition will be reported in advanced material segment and as with the BP acquisition, 2013 revenues were approximately $100 million annual.

With this acquisition, we will extend our performance films global product offerings for solar control window film and protective film applications, expanding our portfolio and our customer base. We also gain efficiencies to better utilization of our manufacturing assets.

These acquisitions are examples of Eastman deploying capital to businesses where we have our leadership position in order to strengthen our position and accelerate growth and we are very confident that the returns from these acquisitions will be consistent with our expectation of value creating spread above the cost to capital.

Next is capital allocation on Slide 14. And in the first quarter, we continue to demonstrate our commitment to disciplined capital allocation.

Starting with capital expenditures, we are in track for approximately $600 million in 2014 and we are spending on specialty products that will contribute to earnings growth this year such as Tritan expansion and the Therminol specialty fluids expansion of wells expected to start later this year or early 2015.

Moving next to debt, after repaying the term loan from Solutia acquisition last year, our remaining debt maturities are attractive and our profile is consistent with our investment grade company. On joint ventures and acquisitions, we are continuing to look for additional acquisitions, but the market remains floppy.

And on the trading cash to shareholders through dividends and share repurchases, we did both in the quarter. We expect to continue to repurchase shares for the balance for the year, but expect the pace to moderate from the first quarter levels.

And on the dividend it continues to be reasonable for investors expect that dividends will increase of their earnings. Lastly this morning I’m pleased to announce that we’re hosting an Investor Day in New York on Thursday November 6.

We’ve been on quite a journey over the last decade to get to where we have a portfolio especially businesses with leading positions and product lines that represent two thirds of our revenue. We’ve delivered four consecutive earnings growth – years of growth and are poised for a fifth year in 2014.

The main purpose of our Investor Day this year will be for our senior management share with you our strategy for building on its foundation to grow earnings for the years to come. We’ll be sending more detail shortly, I hope you all be able to join us, with that I’ll turn it back to Greg..

Okay thanks, Mark. We have a lot of people on the line this morning and we'd like to get to as many questions as possible. So please limit yourself to one question and one follow up. With that, Augusta, we are ready for questions..

Thank you, Mr. Riddle. The question-and-answer session will be expected electronically [Operator Instructions]. Our first question will come from Kevin McCarthy of Bank of America Merrill Lynch..

Yes, good morning.

Mark can you discuss how your volume would’ve trended on a monthly basis through the quarter recognizing you have the outage at long view? And then how you’re order books were shaping up for April?.

Good morning, Kevin. The order trend as you might expect from our guidance trended upward from January through March. So January and February are softer than we expected due to all the factors that we mentioned and then we saw you know some good improvement in margin and even further strength in April..

Okay.

And then secondly, on the adhesives and plasticizers you indicated some issues there, how would you compare the sequential improvement to a normal seasonal pattern and to maybe can provide a little bit more color on the various issues, plasticizer pricing and how you see that playing out through the year?.

Sure, the adhesive and plasticizer segment I would describe as stabilizing this year and along lines of what we expected.

So on the adhesive side these talking seems to be over when we put it behind us last year and we’ve saw some reasonable improvement in demand in adhesives around packing, hygiene, in particular hygiene and that was a good source of strength for us in the demand improvement.

I would also note though that last year was an easy comp where was a little bit of destocking in adhesives as the market loosened up and people are dumping safety stock in Q1, 2013.

Overall demand came in nicely and we were also given an additional bump in demand because one of the key competitors in this market had several supply issues that drove some demand our way as well. But that continues to be solid strong growing market and we continue to expect to do so and look forward to that demand.

On the pricing side with adhesives I’d say that the pricing discipline has stabilized for the first half of the year from what we can see rather than prices went up considerably and are staying relatively high which is the key alternative material to hydrocarbon resins, but we do expect some moderation rather than prices towards the back of the year because we can see people are climbing up the trees in China and up to mountain in China to tap the trees and expect a bit of a better raising crop this year and one of our competitors in hydrogen, hydrocarbon business is bringing some capacity online, we’ll be looking to fill that out in the back half of the year..

That’s helpful, thanks a lot..

I just want to make sure that I answered your plasticizer question too Kevin which is demand there is improving and quite strong. We see an acceleration and substitution towards 168 non-phthalate plasticizers especially with prop 65 in California naming DIMP as a product of concern for health effects, we’re already seeing some strong moment there.

So, the demand’s good there but we continue to face competitor challenges on pricing in plasticizers as a result of Asia Pacific demand being week and competitor from Asia looking to place material in Europe and North America..

Thanks Mark..

Our next question will come from Robert Ford of Goldman Sachs..

Thank you good morning..

Good morning..

If you could talk a little bit about the – I may have missed, when you talked about the film Customer Incentives in Asia that is one of issue or is it something that is a sustainable change..

It's a sustainable change in our shifting to customer order pattern where we hope to be more in line with demand and production through the season which is predominately strong in second and third quarter.

We had some customers who are loading up in the beginning of the year and then are buying much and we’re trying to smooth out the production patterns. So we expect that demand will be solid and on track for performance films for the year, it just as a slightly different shape and that will be the case in the future years..

I think that’s kind of rubber market and particularly in tires, we saw some pretty good macro data out there and I guess, if that was evident I didn’t notice it in your trends, are there something going around buying patterns for rubber additives that we would have missed some of that better macro data during the quarter?.

No, it’s not a buying pattern shift. This was more of a destocking issue. In Asia Pacific, we had a number of customers who had built more inventory than they needed through the end of last year and entire demand was not great over in Asia Pacific.

And you have remembered that we’re highly leveraged commercial truck and tire demand as oppose to passenger tires. And we saw a lot of destocking, I think some of our – other suppliers to this industry, saw a similar kind of event in Asia Pacific.

But demand has already started to improve pretty dramatically relative to where we were in January and February across all the regions. So we feel good about the year from the demand point of view..

Got it, it’s helpful. Thank you..

We’ll go next to Frank Mitsch of Wells Fargo Securities..

Good morning and nice start to the year..

Thank you..

I just want to follow up also on this the non-phthalate and phthalate switching plasticizers side, obviously you had tasted some issues with phthalate guys dropping price to maintain share and that was capping your business.

But now you’re talking about some of the regulatory issues that are driving your business and how should we think about that switch going forward and the concerns from the competitor behavior from the phthalate guys?.

It’s a good question, Frank. And as we look at, we’re very confident in the demand growth on non-phthalate plasticizers in North America and Europe in particular, is going to be quite strong into the future.

We’re only a small percentage of the total plasticizers market at this point, so there is plenty of room for growth and this prop 65 event in California has pushed the number of customers over into finally switching, they all knew was coming and this was sort of – this rather broke the camel back we think.

So on the demand side we feel quite good, but it’s important to note that on the competitive side we still see a lot of competition in which weak demand in Asia there is still lot of price pressure in this business and with this large amount of demand growth we would expect other competitors to switch into trying to make non-phthalate plasticizers on a long-term basis.

So great growth, competitor pressure still solid attractive business and the overall segment earnings well above the cost of capital for the business even though it’s earnings we’d like to improve from where we are today..

All right great. Obviously that’s agents of the guidance of the 150 to 175 for that business which kind of teams on the light side, but we’ll see how the year progresses. And then I also want to follow up on that $0.50 to $0.75 of Eastman specific actions that you guys are taking on the capacity expansion improved mix, tech licensing and synergies.

On the tech licensing I thought I heard you suggest that some of that might be slipping in to 2015, I don’t know if I heard that correctly, can you expand upon that? And how are you feeling about that $0.50 to $0.75 for 2014?.

Frank, you heard correctly. The license was part of the $0.50 to $0.75 and the reason you had so much of range of $0.50 to $0.75 was some of the uncertainty we had around licensing on what would happen. So that would be pushing us towards the lower in to that.

But I would also recognize Curtis tax department as delivering another solution related synergy on continuing to find ways to improve our taxes. And therefore earnings per share and I think as Curt noted we’re guiding 28 but we have good chance of improving that number and continuing to deliver better EPS growth through that synergy..

I want to remind you Frank all those factors that some of the improvement that are specific Eastman actions like our expansion of Tritan in the a second half for the year. So we feel good about what’s in $0.50 to $0.75 as it relates to things we control other than the licensing which we’re at to some extent we have to work with our license fees.

But it’s really baked in well to our overall guidance for the year..

All right, so that probably makes $8 a little bit easier for 2015. Thank you so much..

Thanks Frank..

We’ll go next to Nils Wallin of CLSA..

Good morning, thanks for taking my question. One is on Europe; a lot of your competitors have noted how strong Europe’s been from a volume perspective and rebound in the economy there. It seems like your revenues were pretty flat year-over-year.

So is there a mix effect, is there something different that’s going out that you’re seeing then others?.

I would say we feel good about Europe being solid. I wouldn’t describe it as a strong volume growth for us. I’m not sure which competitors were discussing strong Europe growth in which segments.

What I can tell you is that we’re seeing good strong growth in automotive demand, related to our Saflex products we’re seeing good recovery and strength in the tire related demand and feel good about that. So it’s pretty much in line with our expectations..

Got it. And then just on the closure of the performance film factory in Taiwan.

Was that because of poor costs or demand what was the reason for that closure?.

Yeah, well, we look that as ways to satisfy our business and I would say some of our demand for that Saflex probably is not as strong as we anticipated. So we really took these actions for twofold one is to respond to that expected demand, but also then to improve our costs support service..

Great, thanks very much..

Our next question will come from John Roberts of UBS..

Hi, good morning..

Good morning John..

Could you tell us what the next step are in the Westlake pipeline dispute, and just give us an updated and status of any efforts to monetize assets long you?.

Well, I’ll start, and I’m going to ask Josh just to remind people where we stand with that – what is our excess ethylene position in Westlake, we have the taxes, but we continue to explore options for monetizing our excess ethylene Josh could just remind everyone on phone what that is?.

Sure. This is Josh, John. So the size of this we’re talking about around 700 million pounds of excess ethylene that we sell to the market every year..

So there is a various contractual and other complexities involved as we talked about. One of those complexities continues to be with our dispute with Westlake. We continue to feel good about our position. The next step is really the Texas Railroad Commission is going to be holding a hearing the next year here is coming up in May.

So until we continue to progress with the those actions, we’ll continue to try to monitor the situation. We still have people interested in that excess ethylene position but this just down now a matter of timing to get these results satisfactory..

And then as a follow up, do you expand you propane hedge at all during the quarter and could you give us an update on that?.

Sure. As I mentioned at the last call, given the volatility in propane and some of our other input costs, we modified our commodity hedging program to extent up to a potential two years rather in the past we can only look at six months as winter spike protection and ultimately our goals to remove volatility of costs.

I would say we’re already actively executing out program and also we’re much further along this year then we were at this point last year.

So the only thing that’s different year-over-year as I mentioned before we don’t have any hedges on emergence of ethylene sales, but I feel very good about our steps that we’re taking to protect some of our input costs over the next couple of years..

Thanks..

Our next question will come from Vincent Andrews of Morgan Stanley..

Thanks.

Can you remind me what’s in the other segment and what actually happened in the quarter that may they come in better?.

Sure. If you look at the other segment, that’s a reflection of both some of our corporate growth spending that’s not specific to any individual business, as well as some of our pension cost that are not allocated to a segment.

When you look at the performance in the first quarter really couple of factors going on, one is there are some lower cost based on some of the actions we took last year, reducing some specific programs.

We knew that some of those costs we’re going to go in to some other segments as we supported those growth efforts and that’s why being done so it might have reduced other segment, but it’s being felt in other areas of the businesses.

And then some of our gross spending is probably off to a opt to a little slower start then we anticipated, but that’s good cost discipline and aligned with what we’re trying to achieve, but I would expect our corporate growth spending to increase during the course of the year, but when I look at all those pieces together or other segment for the year we’ll probably be more 55 million versus what I provided earlier in the year..

I just add, it’s important to keep Curtis’ comment about some of those resource is being deployed to other segment which matched a bit of the earnings growth that’s going on in some this other segment as we’re wrapping up and working on some critical growth programs for the future of the company especially AFP and AM.

So just, it’s important to keep that in mind as you’re looking at the year-over-year comps..

Okay, thanks very much..

Our next question will come from Jeffrey Zekauskas Morgan Stanley – excuse me, JP Morgan..

Hi, good morning. You spoke about improving your tax position.

Does this change for cash taxes and if it does change for cash taxes, by what percent?.

I would say the changes that we’re making on the effective tax rate also impact our cash taxes. These are real savings both in 2014 and going forward. So the things we’re putting in place are things that will help Eastman for many years to come.

The cash tax rate that is more – the change would be more in line with the change in the effective tax rates. So if you go down to 29% to 28% rate, you’ll improve cash taxes by that same percentage point. And then as we improve it further and I’m confident we’ll improve it just the order of magnitude, that will have the same impact on cash.

The main factor going on right this year on cash taxes continues to the NOL that we’re utilizing from the Solutia integration and that will continue this year and next year..

Right.

And you also said that this $0.30 to $0.40 headwind from propane, how much of the $0.30 to $0.40 was in the first quarter?.

$0.30 to $0.40 that we talked about, we said predominantly was going to be in the first half of the year and that’s what we’re experiencing, Jeff..

Right, I know that, but how much is in the first quarter?.

We’re going to see a fair bit in the first half and it’s probably a weighted a little bit more towards first quarter than second quarter..

Okay, thank you very much..

Jeffery Fisher with Barclays has our next question..

Yes, good morning.

First questions, the continuing, kind of the propane – if we look at the conversation, propylene to your propylene derivatives, how successful on the commodity part of that have you been in getting price, you know with the run up in propane over the last six months?.

On the propane to propylene side of the equation, we actually feel quite good about how we’ve managed the pressures in the first quarter and what we expect in the second quarter.

Obviously there’s some pressure there, but propylene prices have been a little bit higher than last year giving us the ability to price in the marketplace and on the commodity side in particular, I think we’ve done a good job of holding on to our pricing and doing well there. So that part feels good.

The real challenge we face is more on the propane to ethylene side as I noted in the last call where ethylene prices are obviously – considerably lower than what we would have expected at the Investor Day in 2012, for example and so the pressure is more on the bulk olefins and some of the ethylene special derivatives..

Okay, thank you. And then on the comments you made around your new JV and acetate tow, can you talk about the dynamics? It seems like you’re kind of cannibalizing some of your old tow sales, but yet getting some flake sales into the JV.

How should we expect that to roll through over the next year as this anniversaries?.

This is Curt. So if you look at total volumes, again they’re lower due to customer buying patterns again not unusual for this industry. But again, additionally industry is absorbing some additional capacity primarily at our 30,000 ton plant with the joint venture with the CNTC.

So you can think of that 30,000 tons as the volume and revenue from that is being – we don’t see that in our segment results. That’s really going through our other income line for our 45% interest.

But as expected, the volume loss that the industry is absorbing and we’ve included our percentage of that industry absorption is resulting other tow lines but it’s been offset by the acetate flake volumes that we’re selling to the Joint Venture. So that’s kind of the trade-off you’re seeing in that.

But again, fibers is delivering some pretty good earnings even with some of that shift from, you know direct sales versus due to joint venture delivering that $500 million to $520 million plus some of the benefits we’ll see from that joint venture in the other income line..

Great, thank you guys..

We’ll go next to P.J. Juvekar of Citigroup..

Yes, hi. Good morning..

Good morning P.J..

Mark, there was a big decline, 500 basis point decline in specialty fluids in the intermediate margin. I know you had that outage, but how much of that was due to propane spike and how much of that was due to I think these specialty fluids destocking that you mentioned..

Yeah, the drop was primarily driven by the propane compression on ethylene and propylene related products. But specialty fluids was a contributor, a meaningful contributor as well. That’s really just the chunkiness of demand patterns in specialty fluids.

So the fields were just weren’t as strong – in particular, solar fields can be quite large and cost a chunkiness nature across quarters. So it was soft in the first quarter. We actually expect it to be strong in the second quarter and balance itself out.

I would note that this brings up a broader topic that it means that this year because of some of these propane related things, we’re going to have a bit of a stronger second half than normal from an earnings point of view and softer first half. You can see it just by the cost loads there is and some of the ways demand patterns are picking up.

And it’s just important to keep in mind as you’re thinking about your models..

And if I could Mark, if I look at overall cost increases from raw materials year over year it’s roughly about $40 million. That’s many times what Jeff will as in some of our calls. And of that $40 million, it’s predominantly propane and natural gas. So Josh, remind me the percentage of the segment – of that propane headwind..

Okay, so for propane just the pure cost is that the majority we’re seeing this quarter is going to go as five, but it’s also shared between [indiscernible]..

So the majority of that – that raw material had when I mentioned [indiscernible]..

Just one other point which is the cost associated with the Longview outage which was about $8 million in the quarter. A good portion of that was in the specialty fluids in the intermediate segment as well..

Thank you. And then, secondly, sticking to this propane thing, you have this deal with enterprise on the PDH Unit and your long term contract. When that starts up, what kind of bottom line impact do you expect? Thank you..

Okay. So yeah, we’re looking forward to that unit coming on and our participation with it. When we announced that opportunity, we also discussed a long term supply agreement we are already feeling the benefits of that. And I would say once we bring the PDH unit, there will be at a slight improvement over where we are today..

Can you quantify that at all? Thank you..

P.J. I don’t have a number before you right now..

Thanks..

We’ll go next to Mike Sison of KeyBanc.

Hey, good morning guys, nice start to the year..

Thank you..

Mark, you mentioned investing in a Crystex this year.

Can you maybe help us what exactly that does for you in terms of maybe profitability or a longer term positioning?.

We’ve been working on a fairly comprehensive Crystex strategy about how we sustain earnings growth in this business. As those who followed Solutia know Crystex actually one of the key parts of Solutia, great product line which is insoluble salt that vulcanizes rubber.

But it does phase competitive challenges with some competitors coming in great synergy between Eastman and Solutia where we were able to take some of our scientists to dramatically improve the process technology with them.

And where we [indiscernible] a process technology that will enable us to improve the cost structure -- we’ll start building by the end of the year by 20% to 30%. [Indiscernible] this technology is that it allows us to retrofit existing plans and get significant cost improvements.

It would be more exciting for me [indiscernible] it improves the performance characteristics of the product and allows us to differentiate ourselves in what we offer to the marketplace versus the current competitors.

So we’re actually starting the retrofit on one of the first lines in Europe and we’re also doing a lot of piloting to make sure we understand all the product performance characteristics and validate all the left home with the process technology. And that’s really what's causing the $10 million ramp up in cost.

And I would note that that ramp up really starts happening in the second quarter through the end of the year on that $10 million. So it’s a great long term investment. We’re really excited about this. When you start these things, it takes some investment..

Okay, great. And then, when you look at advanced materials, you had a decent start to the year.

But still if you take a look at the ramp that you need to see to head 2015, how are you feeling in terms of the – maybe structurally getting there from what you’ve seen for the business thus far?.

It was a great start to the year. You know, it was little masked by the performance comes over the patterned shift. But we feel great about the momentum in that segment for this year. The demand recovery and the automotive first sectors is driving good demand not just for the premium products, but for the standard products as well.

And we certainly continue to see very robust demand for Tritan and our co-polyesters, so that part is going great, we’re rushing to do our debottleneck expansion on Tritan to enable that growth which will be key contributor to 2015 earnings growth so we bring that additional capacity online to grow in especially plastics group.

We also have some new product launches and they are doing well, we’ll tell you more about later in the year that are getting us into some new products and markets in especially plastics and the electronics market..

Thanks..

Overall I feel good about the momentum, I think that as you look to 2015 in earnings growth for advance materials I think it’s well position to have another strong earnings growth in 15 over 14..

And what I could Mick on top of that is if you remember our guidance back at the Investor Day that was built around three elements strong growth that Mark talked about with the product lines, levering the asset investments that we’ve made in the improved product mix all those things are on target.

I would remind you though that the two areas that may be are little softer than what we thought back in Investor Day is one is just what is the level of auto and interlayer growth in Europe. And then secondly with the electronics business or display business is probably not as strong as we are visioning back there.

So great fundamentals overall but those are the two areas of weak that’s compared to what we were assumed back in Investor Day.

And speaking on Investor Day just going back to one of the question PJ had, there is a slide we provide at the Investor Day that gave some – shows you some of the benefits we’re expecting from the improvements we’ve made in olefins from our cracker – some of our cracker expansions, the propylene contracts we have as well as what we expected the PDH unit benefit to be at 15 then the assumption at that time was a mid-year benefit, and the 15 – it was by the $10 million benefit going from 14 to 15 was our rough estimate of the benefit of that enterprise contract..

Great, thank you..

James Sheehan with SunTrust has our next question..

Good morning, just wondering on your Crystex investment.

You mentioned some weakness in China and you would specifically target the entire market for that, is there any concern about where the demand is for that new capacity or is that are you confident that the higher technology offering that you’re giving is going to offset that?.

We continue to view the overall global tire market holding around the 5% long-term growth rate and we don’t think it’s going on right now and China indicates that there are some sort of structural changes in the need for tires in the future.

I think that globally there is a question about changing consumer driving patters and all of that that feed into the long-term growth rate but we’re seeing and say that we’re concerned about demand.

We’d also note that when we build the Canton plant it is an extremely attractive plant and how we can leverage the existing fixed cost at our Canton sites since we’re just adding another unit next to an existing one which gives us great flexibility going forward in the future to both support growth at the markets growing or if necessary if demand is not as strong as we would all like we’ve got the flexibility to rationalize some of our smaller plant and improve our overall fixed cost structure across the globe.

So it's a good investment no matter what scenario of the world you look at..

Very good and then in just in fiber I noticed the pricing that go up this quarter that lower rate than in previous quarters, did you see that pricing gain decelerating over the rest of the year or are we getting back to the type of increases we have last year?.

Well I think on the pricing side, I think while we tend to have is good conversations with their customers around what's the quality of our product and their ultimate demands as well as the change in input cost.

So I think it’s usually good transparency with both parties and pricing will be indicative of raw material inputs and just how the overall market is..

Thank you..

We’ll go next to Laurence Alexander of Jefferies LLC..

Good morning, one short-term question, one long-term question on fibers, can you give some detail on the negative volumes and particularly given class [ph] expansion you did what's going on in the industry dynamics? And then longer term question is this you look at the bridge to 2015, you’re going to have a tailwind from the acquisitions, it sounds like in the mid-teens, you have the buybacks, the product will catch up to the raw material pressure, you have the licensing that’s moved into 2015 of lower core growth, if you put all those together, it sounds like you have about of $0.50 to $0.70 tailwind next year.

What are the negatives that would offset that?.

I’ll get to the second question in a second, but could you repeat the first question, it was a little for some reason it was gobble that I couldn’t hear it..

So fiber volumes were down about 2% could you give some detail on what you’re seeing in the industry and [indiscernible] contacts of your leasing capacity expansion?.

Sure, on the first question around fiber demand, we certainly see a slowdown in fiber demand growth, we’re not looking at the overall market in decline for 2014 relative to ’13, but if it's at the lower end of the growth rate we would’ve expected, it's not hard to imagine why that’s happening with all the drivers out there from taxes to smoking concerns and to a minor extend e-cigarettes.

So that’s consistent with how we think about and view the market, but I would say it's growing slower than it did if you look at past average primer growth rates over the last five years.

In regards to 2015, as we look at that year and the challenges in general I’d say we feel very good about the things that you noted, but the biggest challenge that’s out there especially if people are asking their dollar share question is the global economic growth that Curt noted, propane prices are moving in ways that we expected from a propylene point of view as we discussed in last call we certainly face some compression on propylene, ethylene related products versus our original assumptions.

So that’s a bit of a headwind in 15 but it in the year-over-year headwind I think we – from 14 to 15 point of view that impact is already being felt in 14 and I don’t expect a big year-over-year problem in 15 in fact I think we’ve done a better job of hedging in the next year to mitigate some of that cost pressure we felt on 13 to 14 basis.

So I think we’re actually well positioned on the propane topic.

This is more of a general economic question and then you always have that question around competitive behavior, the biggest impact we’ve had if you look at our 2012 Investor Day expectations with the drop in adhesives and plasticizer earnings relative to where were and we don’t see that recovering back to high levels.

I think it stabilized and I think our ability to improve from where it has, but certainly not going to jump back where it was..

One other thing I might add with this to, what I like about Eastman today may be when much you saw about Eastman ten years ago, the men and women at Eastman are focused on year-over-year earnings growth. So the specific actions we take, we know sometimes we’ll have benefits in one year while they’re continuing benefits into the other year.

So we know some of that $0.50 to $0.75 benefit that we’re expecting in ’14, will have a benefit on a full year basis next year an example again is that Tritan expansion where we are to bottleneck in 25% of our capacity there. So we are focused on everything we can control to deliver that year-over-year earnings growth ‘14, ‘15, and beyond..

It's important to know the strength of our cash flows. So it gives us a lot of options.

As you’ve already seen, we demonstrated the willingness to continue doing acquisitions that are accretive and have good finishing with the company and willing to repurchase shares and we’ve got a great organic portfolios, so we continue to feel very good about delivering consistent strong earnings growth as we go forward..

Thank you..

We’ll go next to David Begleiter of Deutsche Bank..

Thank you, Mark.

On fibers to reach the upper end of your guidance range, you’ll need to add about $135 million of earnings in Q2 – Q4 that’s versus $117 million in Q1, so what's going to drive that increase sequentially?.

Well David I appreciate your effort to try and give me to move to the upper end of the range in fibers, we have a range out there because there is some uncertainty about demand and so as we look at Q1 we don’t think that’s representative of the future.

We certainly can see that the buying pattern shifting back to what we’d actually call normal buying patterns.

Last couple of years demand was so tight, people are buying a lot more in first quarter just to make sure they got product, in this year we see a more typical buying patter and develop where our first quarter was little bit softer than you’d like and second will be stronger.

And so we don’t have any concerns we think demand will continue to develop us as we expected for the year, but certainly it's at a more moderate growth rate than what we saw in the past couple of years..

And just the buyback pace.

Mark, you mentioned will slow over as Q1, just how much will it slow you think in the rest of the year on the total basis?.

Well, I couldn’t answer that one..

Yeah, I mean as you know you look at the share repurchases as one of the mechanisms to deploy cash. I mean, our priorities for cash remain capital expenditures to support our organic growth, attractive mergers and acquisition and share repurchases as just again a good valuable use of cash.

We’ve still have $900 million remaining on our authorization that our board was going up to provide us given the confidence in our financial positions and cash flows.

But it will moderate, but having said that, we’re in the market today and we’ll be in the market throughout the year just not at that same pace of the first quarter and probably at a pace that’s more similar to what you’ve seen from us in the past..

Thanks you..

We’ve got time for one more question please..

And our last question will come from Bill [indiscernible].

Hi, this question is for Mark, just and I hope that you might clarify a comment that you’ve made earlier about the relationship between the first and second half, where you referring to the growth rates being stronger in the second half or the absolute dollars of earnings being stronger in the second half?.

I was referring to earrings.

So while we certainly would have preferred some revenue growth in the first quarter than what we saw, we see strong improvement in revenue growth already in the beginning of the second quarter and expect that to deliver a good revenue, sequential improvement in the second quarter and of course continuing out into the third and fourth.

So it’s really an earnings comment as the propane cost are primarily driven by the high propane prices in the winter of the first quarter, but of course a lot of still have to flow through into the second quarter and that creates some earnings headwinds.

And we have some additional growth investments like the tires growth investment ramping up in the second quarter that wasn’t in the first.

So there is a few things that are creating some cost dynamics relative to revenue in the second quarter, but those are expected to abate by the end of the second quarter as well as the Texas outage I should know that would allow earnings to be better than what is a typical first half, second half seasonal or patterned earnings raising..

And if I may also, the eastern specific actions are weighted more towards latter part of the year than the first part..

I mean, just to be absolutely clear what you are saying is, unlike current first call estimates, the third quarter will be larger than the fourth quarter – larger than the second quarter, this was not the case in 2013, is that correct?.

Bill, we’re not giving quarterly EPS or EBIT targets today, that’s not what we’re doing. So you are getting a directional guidance, but we’re not going quite that specific..

Okay. Great, thanks..

Okay..

Thank you everyone for joining us this morning. Well, replay and a replay and downloadable MP3 format will be available on our website beginning in approximately 11 AM. Have a great day..

Thank you, everyone..

That does conclude today’s conference. Thank you all for your participation..