Greg Riddle - IR Mark Costa - CEO Curt Espeland - CFO Josh Morgan - Manager IR.

Kevin McCarthy - Bank of America, Merrill Lynch David Begleiter - Deutsche Bank Frank Mitsch - Wells Fargo Securities John Roberts - UBS Vincent Andrews - Morgan Stanley James Sheehan - SunTrust Jeffrey Zekauskas - JP Morgan P.J. Juvekar - Citi Laurence Alexander - Jefferies Bob Koort - Goldman Sachs Mike Sison - KeyBanc.

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

Thank you, Jake, and good morning, everyone, and thanks for joining us. On the call with me today are Mark Costa, CEO; Curt Espeland, Executive Vice President and CFO; and Josh Morgan, Manager, Investor Relations. Before we begin, I'll cover three items.

First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. Actual results could differ materially.

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

Second, earnings per share and operating earnings referenced in this presentation exclude certain non-core or non-recurring costs, charges and gains.

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

Projections of future earnings in the financial presentation also exclude such items as described in the fourth quarter financial results news release. Lastly, we've posted slides that accompany our remarks for this morning's call on our Web site in the Presentations and Events section. With that, I'll turn the call over to Mark..

Good morning and thank you for joining us. I’ll begin on Slide 3. 2014 was a strong year for Eastman as we continue to make progress on our goal to becoming a leading specialty chemical company. We delivered our fifth consecutive year of strong EPS growth despite a challenging global environment and volatile raw material environment.

We are very proud of that track record given that only 25% of the Companies in S&P 500 have even accomplished this performance. In 2014 we also generated free cash flow of $810 million consistent with our expectations.

This level of earnings growth and strong cash flow generation reflect how our world class technology platforms have enabled us to achieve success in expanding our leadership positions in diverse and attractive end markets and geographies, accelerating our earnings growth with innovation driven specialty products and leveraging our advantage cost position through vertical integration and advantaged raw material positions.

We also completed four acquisitions during the year. Each of these acquired businesses aligns well with our strategy of delivering consistent superior value. In December, we completed the largest of these acquisitions, Taminco, a highly successful global specialty chemical producer with market leading positions.

And I’ll talk more about Taminco in the next slide. During the year we also added several smaller bolt-on acquisitions to our portfolio. Commonwealth Laminating & Coating, Knowlton Technologies, and the Aviation Turbine Oil business from BP.

Both Commonwealth and the Aviation Turbine Oil business are great additions to our existing product portfolio in performance films and specialty fluids respectively. The Knowlton acquisition was very attractive as it will enable us to accelerate the innovation cycle for our microfibers platform.

Each of these acquisitions represents a solid addition to our portfolio reflecting our commitment to use M&A as means of creating value both earnings and cash flow. We also made significant progress on our organic initiatives across the Company.

We continue to have double digit growth in our Tritan copolyester due to market adoption which will be supported by our fourth quarter expansion at our Kingsport site. In addition we began work on an additional 60,000 metric ton expansion for Triatan which we expect to be operational in 2017.

We expect continued double digit growth in our premium acoustic and head-up display Saflex interlayer products and are proud of our successful launch of a new optical film product for the high growth mobile device market where we are already realizing strong growth.

Our rubber additives team has achieved rapid success in developing and validating a breakthrough technology for significantly reducing our Crystex manufacturing cost.

As a result we are currently retrofitting one of our assets in Europe with this technology and we intent to proceed with plan to double our Crystex insoluble sulfur capacity in Kuantan, Malaysia with this technology as well which we expect to be operational in the first half of 2017.

In AFP we launched Omnia, a new sustainable solvent for household cleaners and we expect to see great growth from that business as well. I was particularly impressed with the speed of our team when they went from concept to successful product launch in 18 months which is outstanding for this industry.

We continue to see strong market switching to non-phthalate plasticizers and have completed an expansion of our 168 capacity to support our growth in this market where we’re leverage this trend.

Finally, during the year we remain committed to returning cash to our stockholders by increasing our dividends for the fifth consecutive year and repurchasing more than $400 million of stock. This front format is on so many fronts, it is a great testament to the strength of the Eastman portfolio.

More importantly I am very fortunate to have such a great management team and a great group of employees who consistently overcome challenges and find ways to deliver results for our stakeholders.

And move to the next page, as I mentioned we completed the acquisition of Taminco in December and I am very pleased to welcome Taminco employees to the Eastman team. We are confident Taminco will be a great strategic fit in the deployment of our balance sheet. We have diversified in attractive end markets with solid macro trends.

We will accelerate growth opportunities in personal care, coatings and oil and gas markets across the portfolio. And we see substantial opportunities to leverage our strengths in creating value from their similar business model that leverages a world class integrated stream.

As we look at projected earnings from Taminco’s business for 2015 we expect them to continue to deliver solid top line growth and operating earnings to be modestly higher than 2014 which is consistent with our previous expectations. We’re also on track with our synergy targets.

With the integration of Taminco’s businesses and various purchase accounting adjustments we expect approximately 75% of Taminco’s total operating earnings will be added in functional products where we are locating the specialty amines in crop protection businesses and approximately 25% will be in specialty foods and intermediates where the functional amines business will be located.

We remain on track for EPS accretion from Taminco to be greater than $0.35 in 2015 and greater than $0.60 in 2016 excluding acquisition and integration cost. Now I’ll turn over to Curt to discuss the corporate and segment results..

Thanks Mark and good morning everyone. I’ll start with our fourth quarter and full year corporate results on Slide 5. For the fourth quarter sales revenue increased largely due to continued high sales volume for premium products in the Advanced Material segment and sales of products of the acquired Taminco businesses.

Operating earnings in the fourth quarter also increased driven by lower raw material energy cost, the higher premium product sales in advanced materials and earnings from the acquired businesses partially offset by higher plan maintenance cost.

For full year 2014, we delivered another strong year at $7.07 of earnings per share which is a 10% growth over 2013 and as Mark mentioned, our fifth consecutive year of earnings growth. Sales revenue increased 2% due to growth in Advanced Materials and Adhesives & Plasticizers segments and sales revenue from acquired businesses.

Operating earnings were slightly higher year-over-year as higher volume and improved product mix particularly in Advanced Materials and earnings of acquired businesses more than offset higher raw material and energy cost and higher cost related to manufacturing shutdowns during the year.

Our operating margin remains strong at 17% consistent with full year 2013. Moving next to the segment results and starting with Additives & Functional Products in Slide 6. For fourth quarter both sales revenue and operating earnings increased due to the addition of sales from the acquired Taminco specialty amines and crop protection businesses.

For the full year sales revenue increased due to both higher sales volume and prices for coatings product lines and sales of the acquired Taminco product lines partially offset by lower rubber additive sales volumes.

Both the higher sales volume and pricing for coatings was attributed to strong end market demand throughout the year primarily in the building and construction and transportation markets. The lower rubber additive sales volume was primarily attributed to decreased tire production in Asia.

Full year operating earnings declined as higher raw material and energy costs primarily propane in the first half of the year more than offset higher prices and earnings from acquired Taminco businesses.

As we look at 2015 we expect that Additives & Functional Products will be positively impacted by the full year benefit of acquired Taminco businesses and solid performance from Heritage Eastman businesses due to volume growth in coatings and to some extent tire additives.

These benefits will be partially offset by the negative impact of a decline in often derivative pricing outpacing the decline in raw material cost due to impact of propane hedges and a strengthening U.S. particularly against the Euro.

Both of these challenges will impact all of our segments to some degree so I’ll cover them in more detail in a few minutes.

Taking together we expect strong earnings growth for this segment with the addition of Taminco somewhat offset by modest decline in the Heritage Eastman businesses as the benefit of underlying growth is offset by the oil and currency challenges. Moving next to Adhesives & Plasticizers on Slide 7.

For the fourth quarter sales revenue declined primarily due to lower adhesive resin sales volume resulting from limited raw material availability. Fourth quarter earnings increased due to higher adhesive resin prices, lower raw material and energy cost and lower operating cost which included targeted cost reductions.

These lower costs were partially offset by costs of the planned shutdown of an olefins cracking unit at the Longview, Texas site and lower plasticizer selling prices. For the full year sales revenue increased due to higher plasticizer and adhesives resins volume partially offset by lower selling prices primarily for plasticizers.

Full year operating earnings increased significantly primarily due to higher sales volume and corresponding higher capacity utilization and lower operating cost partially offset by the lower selling prices.

Looking forward to 2015 we expect continued growth for our Eastman 168 non-phthalate plasticizers, but an otherwise challenging global plasticizers market will continue to pressure margins primarily due to competition from Asia producers.

We also expect adhesives resins market to remain tight due to solid demand growth particularly in the hygiene and packaging markets and limited availability for the industry of key raw materials.

Putting this all together, we expect Adhesives & Plasticizers will deliver strong earnings growth, but this growth to mostly offset by the impact of oil and currency. Now to Advanced Materials on Slide 8, which delivered another excellent year.

Fourth quarter and full year sales revenue increased slightly as stronger volume growth for premium products including Eastman Tritan copolyesters, interlayers with acoustic properties and window films, was offset by lower core copolyester products selling prices primarily due to lower raw material and energy costs, and an unfavorable shift in foreign currency rates.

Full year sales revenue also increased slightly as higher premium product sales volume including Tritan and the interlayers with acoustic properties was largely offset by core copolyesters selling prices. Earnings increased both in the fourth quarter and for the full year due to higher sales volume in improved mix.

As we continue to have growth in our all premium products including Tritan copolyesters and acoustic interlayers. The full year 2014 operating margin improved nicely to over 12% moving the segment into the range we expect for this business of 12% to 15%.

Looking to 2015, we continue to make progress and our strategy for this business, volume growth, mixed improvement and fixed cost leverage. Advanced materials will also benefit from lower raw materials in the Commonwealth acquisition, which we expect to be a strong contributor earnings growth in 2015.

As a result, we expect continued strong earnings growth in the segment somewhat offset by currency headwinds. Moving to Fibers on Slide 9. Fourth quarter sales revenue was relatively unchanged, as higher selling prices for acetate tow and increased flake sales to our China joint venture were largely offset by lower sales volume for acetyl chemicals.

Fourth quarter operating earnings were slightly with the higher tow selling prices, more than offsetting lower sales volume and our unit cost due to lower acetate tow capacity utilization.

For the full year sales revenue was slightly higher driven by acetate tow selling prices and higher acetate flake sales volume to our China tow joint venture, more than offsetting lower acetate tow sales volume. The lower acetate tow sales volume was attributed to additional industry capacity including our joint venture.

Full year earnings increased due to higher selling prices in lower raw material and energy costs, partially offset by lower tow sales volume and lower capacity utilization. Looking forward to 2015. We expect continued acetate tow inventory destocking, which is larger and broader to more customers than we originally anticipated.

We expect this will be most pronounced in the first-half of 2015. We also expect lower raw material and energy cost particularly for wood pulp and we are actively reviewing options to reduce cost for this segment to help improve overall results.

Taken this together, we expect full year 2015 earnings to be down between $40 million and $50 million compared to 2014. With that said, we expect global acetate tow demand to stabilize once the inventory destocking is behind us and we continue to pursue actions to improve the overall cost position of this business.

As a result, longer-term we are optimistic this business will recover to an earnings profile consistent with our Investor Day expectation. I’ll finish the segment review with Specialty Fluids & Intermediates on Slide 10.

Fourth quarter sales revenue increased due to the sale of products of acquired businesses more than offsetting lower prices for olefin-based intermediates and heat transfer fluids.

Fourth quarter operating earnings decline primarily due to the impact of the planned shutdowns of an olefins cracking unit and the lower selling prices, partially offset by lower raw material and energy costs and earnings of acquired aviation turbine oil businesses.

For the full year sales revenue was flat as sales of products of acquired businesses and higher selling prices were offset by lower sales volume. The lower sales volume was due to manufacturing capacity shutdown, increased use, downstream use of intermediates in other parts of the company and weakness in the heat transfer fluids market.

Full year operating earnings were lower primarily due to the higher raw material and energy cost, primarily propane in the first-half for the year and cost of manufacturing capacity shutdowns partially offset by higher intermediate selling prices and earnings from acquired businesses.

Looking forward to 2015, Specialty Fluids & Intermediates will be positively impacted by the addition of the Taminco functional amines businesses.

They will also benefit from the full year impact of the aviation turbine oil business, challenges include the negative impact of oil, lower expected demand in heat transfer fluids and expected lower volume in intermediates and parts due to continued downstream use of intermediates in other parts of the company.

As a result, we expect 2015 earnings to be somewhat lower than 2014. On Slide 11, I’ll transition to an overview of our cash and other financial highlights for 2014. We did an excellent job of generating cash in 2014 with operating cash flow of $1.4 billion. This is a record for cash from operations.

Our free cash flow was $810 million for the year consistent with our expectations. Capital expenditures totaled $593 million including the impact of acquired businesses which was also consistent with the guidance we provided.

Looking at the balance sheet, net-debt stands at approximately $7 billion at the end of the year reflecting the addition of the Taminco financing. During fourth quarter we successfully issued $2 billion in bonds which maturities of 5, 10 and 30 years. This was a very successful issue reflected in our strong balance sheet and cash flow profile.

These new bonds fit nicely into our maturity profile actually increasing the average duration of our bond portfolio while lowering the average interest rates. Our overall cost to financing for Taminco acquisitions was approximately 2.8% including the previously disclosed $1 billion term loan.

Over the next two years we'll focus on paying down debt as part of our commitment to return our credit metrics consistent with our investment rate credit rating.

This is also a good opportunity to remind everyone that Eastman has access to sufficient liquidity in addition to our strong cash flow in a form of 1.25 billion revolvers and a $250 million accounts receivable securitization program.

The combination of cash flow is from balance sheet and liquidity continues to provide flexibility to pursue growth even in uncertain economy. Moving back to fourth quarter results a few items to highlight.

Our effective tax rate for the fourth quarter pro-forma earnings was 22% reflecting the one year extension of favorable U.S Federal tax provisions which resulted in a net benefit of $15 million. This benefit was primarily related to research and development credits and deferral certain earnings of foreign subsidiaries from U.S. income taxes.

The full-year 2014 effective tax rate on pro-forma earnings was 26 percent compared to 28 percent for full year 2013. This lower rates reflects the continued benefit of the integration of Eastman and Solutia business operations and legal entity structures.

In addition GAAP earnings were impacted by a mark-to-market loss of $304 million related to our pension and other postretirement benefit plans. This loss was primarily driven by the change in discount rates increasing our estimated pension liabilities. We also had acquisition related cost at $31 million related primarily to Taminco and common wealth.

On Slide 12, I'll discuss some key assumptions for our projections in 2015. In retrospect as compared to we shared back at November in our Investor Day. Our projections for global growth remains at approximately 3% of course there is uncertainty in this projection. But we are currently seeing solid demand in our order books.

Moving next to raw materials we are expecting our key raw materials propane, ethane, terephalane, et cetra to be consistent with recent forward cruse to the end of the year or throughout the end of this year. And as you're seeing most of this four occurs do not anticipate any dramatic change during the course of the year.

So we'll see how that plays out, but regardless this is obviously a big change compared with our Investor Day projections when [brent] crude was projected to be a $100 per barrel. We expect the dollar to euro exchange range to remain their current levels at approximately $1.15 per Euro.

And this is another big change from our investor day where we had projected between the $1.25 and $1.30 per Euro and was actually higher than the 2014 average of just over $1.13 per Euro. This results in a year over year earnings per share headwind of $0.25 to $0.30 per share including mitigation from our currency hedging program.

Our tax rate is expected to be between 26% and 27% reflecting the continued benefits of our improvement and business operations and legal entity structures resulting from acquisitions.

The range of the effective tax rate reflects uncertainty as to whether there we further extension of the R&D tax credit and potentially changes to our geographic range mix. Finally, we continue to expect to offset dilution with share repurchases.

Lastly, I thought it would helpful to provide some color and how we project the lower impact of crude oil on our Olefins related businesses here shown on Slide 13. Unlike Investor Day my comments were focus only on olefins and not include actions we are taking across the Company portfolio.

First propylene and ethylene prices are expected to decline to some extent with oil. Second on an on hedge basis we expect cracking spreads to expand as ethane and propane cost has brought. In particular Eastman's cracking configuration towards a heavy propane mix has vanished at this time.

However our hedging strategies that we had taken to reduce volatility in our propane and other input cost have become a significant headwind given the unprecedented recent drop in the price of propane.

Obviously we and rest of the world do not foresee this dramatic drop in oil or propane prices and also don't think anyone really know exactly where these prices are going to settle up from here. As a result although propane although dropping more than ethane is generally positive for us.

This benefit will be more than offset by the impact of our propane hedges resulting in expected earnings of $0.40 to $0.50 per share for 2015. Having said that I want to be clear that this analysis is broad, a directional exercise as the vast majority of our Olefin related earnings come from derivatives with the exception of bulk Olefin sales.

Our Olefin derivative pricing does not directly track olefin prices across the portfolio on a monthly basis. While the commodity will track fairly tightly the majority of our derivatives as specialties or special position product line were we have additional dynamics that impact value captured relative to olefins.

Our estimated $0.40 to $0.50 per share does not include our efforts to mitigate this headwind by holding on to value in our specialty and special position product line as olefin prices decline.

My last point on the slide you can see that the benefit of producing olefins for mainly small part of our overall earnings profile in part reflected actions we've taken to strength our portfolio including the additions of Solutia at Taminco which were not meaningfully exposed to these spreads.

So with that I thank you for your time and your interest in Eastman Chemical and I will turn it back over to Mark..

Thanks Curt. As we look at our earnings growth potential for 2015 and beyond we feel great about our strategy which we discussed in detail at Investor Day. We have strong growth drivers in place across the Company; we have a solid portfolio of specialty businesses that are well positioned to grow.

Solid end market growth especially in transportation and B&C end markets. Strong premium products that we expect to accelerate earnings growth especially advanced materials. We're working hard to hold on to the raw material tailwinds in our specialty products.

We also expect to benefit in 2015 from significant accretion from the attractive acquisitions we completed in 2014. I would also note that our acquisitions are mostly neutral volatile oil and manufactured in the regions where they sell. These additions are great improvements to the robust mix of our portfolio.

Obviously we faced some short-term headwinds like many U.S companies but we don't think any of them undermining our long-term strategy. The unprecedented change in oil prices has created a challenge with our current propane hedge and some uncertainty about how competitive credit flow might change.

The dollar has strengthened considerably against the basket of currencies most notably for us against the euro. And while we anticipated that a risk of inventory destocking existed in fibers, we now have a better understanding that the level of destocking is larger, more broader than we expected across the customer base.

Given all that we expect our full year 2015 EPS to be similar to 2014 EPS. With the split between the first half and the second half of the year and being consistent with our history. As we consider the sensitivity of this outlook we can't see a pathway to earnings growth.

If the drop in oil prices is predominantly driven by supply then it should be a stimulus to economic demand and this benefit can show up in several different ways. First many of our customers are maintaining very low inventory level and as oil prices stabilize and go up we could see some restocking.

Second we believe that oil prices will also be a long-term stimulus to global GDP and great for Eastman's specialty strategy where we're selling high value differentiated products that are leveraged in economic recovery. Third improving demand will tighten supply to demand balances in some of the industries as well.

Of course if we're headed into a global economic slowdown the declining demand and further reduction of oil prices will face the challenge.

As I think about our cash flow and the next stage I believe our cash flow is one of Eastman's greatest strengths and we continue to generate very strong free cash flow in 2014 and we expect to do it again in 2015. With our current outlook we expect approximately $1.6 billion of operating cash flow.

This outlook reflects current earnings expectations as well as some improvement in working capital resulting from lower commodity cost. Capital expenditures are expected to be approximately $700 million to $725 million this reflects normal maintenance capital as well as some additional infrastructure spending.

This also reflects growth capital this year for the expansion of our Tritan copolyester capacity and our new Crystex capacity in Malaysia. Free cash flow is expected to be approximately $850 million to $900 million and this is a nice improvement over 2014. As a reminder our priority for free cash flow over the next 24 months is deleveraging our debt.

While doing so it is reasonable for investors to expect it will continue to increase our dividend and we expect to offset dilution with stock repurchases. And as we continue to generate very strong free cash flow over the coming years we will continue to employ capital in a balanced and disciplined way.

We now want to reflect what we said at Investor Day. I firmly believe that our strategy is intact and we will deliver strong consistent earnings growth and compelling free cash flow overtime.

We have obviously hit some short-term headwinds that we and most of the world did not expect but our portfolio of businesses is robust and capable of offsetting these challenges and finding pathways to grow. These challenges are a headwind as we head into 2015 but are not likely to be an additional headwind in 2016.

The growth drivers of our portfolio are strong overtime and we will continue to deliver strong earnings growth and compelling free cash flow. We remain confident that we will continue to create value for our stockholders and all of our stakeholders. With that I will turn it back over to Gregory. .

Thanks Mark. We've got a lot of people on the line this morning we would like to get to as many questions as possible so please limit yourself to one question and one follow-up. With that Jake we're ready for questions. .

[Operator Instructions] And we will take our first question from Kevin McCarthy of Bank of America, Merrill Lynch. .

Mark with regard to the fibers business if we think back to your Investor Day sounded like you were contemplating some optionality to take restructuring action in that business. Listening to the language on the call today I heard a lot about destocking there so I guess a two part question.

First what's your degree of confidence that the weakness you are seeing is in fact destocking versus perhaps a more structural or durable weakness in the business.

And then secondly how are you thinking about potential to reduce cost in that context and what might be the timeline for your decision there?.

Good morning Kevin, thank you for the question. So I will start with the demand side of that question, I want to start first with our view about primary demand as you are getting out and then tow demand. So if you think about primary consumer demand we don’t have any change in our view about the outlook of demand in the medium term.

We continue to expect developed world to slowly declined, the developing world including China to show some growth. And then the real question then it settles on what’s happening in China. As we look at back at 2014 demand was relatively flat at the consumption level in China.

And everything were being told about that continues to suggest that primary driver for that flatness was austerity measures changing the use environment of cigarettes and if we believe that to be true and we are not hearing anything otherwise, that’s like a destocking even where you take a chunk of demand out but when you look at population modeling and growth you would then expect demand growth to return at a modest level in China.

So that although holding together we are not seeing any change in that from all of our sources which is primarily talking to our customers. When you get to tow demand, as we discussed last year, there are two different dynamics going on when you go from demand in ’14 to ’15.

The first is CNTC in China has added additional capacity like they added capacity with us in ’14. They have added some additional capacity to [dye] sale.

And so of course they are going to run those assets full as they own them and that takes a certain chunk of demand out of the imports which was factored into our guidance back in Investor Day, that’s not really a surprise for us.

The second part is we expected some modest destocking, but all the customers who come to us and been very clear that they are going to do some amount of destocking, particular in China. And where it behind that and were it makes sense to us Kevin is from 2011 to ’13 you saw a tremendous tightness in capacity unitization, this industry close to 100%.

So lot of customers were carrying a safety stock to make sure that they didn’t run out and makes a lot of sense when you look at how small of a percentage tow is of the final price of the cigarette not a place you want to run out, in short your production sales.

And then with the slowdown in demand and this capacity add in China obviously the capacity utilization loosing up a little bit and customers have felt that it’s more appropriate to destock some of that safety stock and readjust their inventory.

So everything we know suggests that it’s destocking, if we believe that to be true then there is reason to believe that demand in ’16 could actually be higher than ’15, and that’s the best that we know of that part.

So when we get to sort of what we do about that, well we want to make sure we understood exactly how demand is going to play out across all of customers and finish the contracting which happened this week.

So if you are pretty good about sort of knowing where we stand and now of course you take an assessment all of what I have said and decide most appropriate actions to take on the cost structure side. We are actively in the middle of making those decisions and it’s inappropriate for us to discuss them further and what finalize those decision. .

Fair enough, I appreciate the color. As a follow-up perhaps for Curt, do you have any propane hedges that extend into 2016? And if so would you comment on the level and ratio I suppose. .

Kevin when we implemented our propane change last year we did talk about multiyear program so it does extend beyond a couple of years but the focus of that typically is the first couple of years, that’s where we are taking most of the focus. But we will have some tail going beyond that but is not as significant as what we talked about next two years.

.

And now I will take the next question from David Begleiter from Deutsche Bank. .

Thank you Mark.

Just again propane, are there any other actions you are looking at or could take in ’15 to coming at the lower end or below the $0.40 to $0.50 propane hedge?.

So David on the hedge, it is what it is. What we are doing most of importantly on the price side is we are fighting hard to hold on the value that we create for our customers with our products and hold on that somewhere that raw material tailwinds at all the places that we can. And that will have variant degrees a success offset some of that headwind.

So that’s going on right now. In addition we expect to and plan to run our cracker as well. We did a big turnaround last fall.

And the big cracker that’s come up is running incredibly well, with that cracker and other efforts to leverage towards propane mix as much as we can, will advantage us, because that will be all spot propane purchases at very advantage of prices.

So there are things we are doing both on the volume side and pricing side to get the maximum value out of that advantage position we have with our propane crackers. .

And Curt just again on the ’16 impact versus ’15, would it be fair to say that the benefit in ’16 versus ’15 from the lack of propane hedges to be $0.20 or $0.30 a share?.

I would say Kevin as I mentioned on our Investor Day the program that we put in place hedge substantially amount of our purchase of propane in ’15 and ’16. And I would not be expecting material change between those two. So it will be a tailwind but I am not going to try to quantify that at this point. .

And we will take a question from Frank Mitsch with Wells Fargo Securities..

I was looking at Slide 13 and I see that the operating earnings or indicated up for 2015, I know your interest cost have gone up.

But as I do the math on some of the puts and takes in terms of negatives, obviously you got the hedge $0.50 foreign exchange, $0.25 fibers destock and other $0.20 or so, so about $0.95 to a $1 negative offsetting that to make positive $0.35 to turnaround, assuming you don’t have it in ’15 versus ’14 so another $0.10, so it's a positive $0.45.

So you got about $0.50, $0.55 of a whole, so to keep it flat you would need to grow earnings about 7% to 8% obviously Eastman’s targeted goal is to do double-digits, could be there be room of a couple of percent or so in terms of earnings growth if Eastman hits kind of is double-digit EPS growth goals?.

I knew I can count on you for the growth math question. Your math is actually incorrect, you're actually missing out on some additional accretion so Taminco wasn’t the only acquisition we did, we’ve got some nice accretion coming in from BP turbine oil, Commonwealth little bit more share count advantage rolling into the year.

So, I think of acquisitions being $0.50 or little bit above $0.50 of accretion.

So then you're talking about how do I hold on to value, we’re certainly tend to run our plans better as you mentioned, we still have some decent amount of shutdowns coming in this year, so there is not a huge planned shutdown differential from year-to-year and we certainly plan to run better.

So you were talking about, can we do better than either $0.50 to $0.40 a share organic in our portfolio, that’s certainly is our goal and we’re driving really hard on all fronts to do that, I think we see very solid demand trends especially B&C and transportation durables especially in U.S.

and it's a nice actually having 50% of our -- little bit less than 50% of our revenue in the U.S. these days and we’re pretty happy that our exposure to Europe is one of the lower ones relative to our peers from both the currency and weak demand point of view.

So, I think our portfolio is very well positioned for primary demand, more importantly we get a lot of accelerate earnings growth out of our earnings in premium price especially of Advanced Materials where we’re selling double-digit growth rates and things like Tritan, Acoustics heads up displays, window films, resins and tires and AFP all of which are accelerating earnings growth within that top-line growth as those margin are quite attractive.

So, it all adds up where we feel they are good about that driving to that $0.50 and to get beyond $0.50 you need to believe that demand is going to be a little bit better this year than the overall demand growth that we saw last year.

And I think there is every reason to believe that’s possible, I mean the camp that oil is supply driven primarily therefore is a global stimulus to demand and there is potentially some restocking that if we get if oil price stabilize and all that can show up as some stronger demand than what we have in our current outlook and put us on a path, but it's a beginning of a year and a very volatile year right now Frank, we know when the oil prices are going or trade flows are going to change and so I think it's prudent at this point just see how it plays out, we get lot more insider for the first quarter and be in a much better position to discuss this when we get through the first quarter..

That is very helpful, much appreciated.

And maybe if you can provide an update, I know that in previous discussions of Eastman actions the technology licensing was something that perhaps would show up in late ’15 or early ’16, can you talk about what your expectations are there?.

Sure, we have some small amount of licensing that we do expect to get in 2015 and that’s included in our comments around SFI which is where that licensing value shows up, there is some bigger licenses that we’ve been working on, but given the uncertainty of them we’re not including that in the forecast and that will be upside if they happen either this year or next year..

And now we’ll move to our next question that will come from John Roberts with UBS..

Back on slide 13, is there a hit to your coal based operations as well from lower oil that is, do things like acidic anhydride, acetaldehyde come down with oil prices and again your coal cost are relatively fix?.

No so much, the best material of our coal derive products are sale investors whether it's going into fibers or grade specialty products are going to our display business in some specialty plastics or very high value additives that go into automotive coatings and other applications in AFP and all of those are very well positioned and the real competitor is natural gas, actually not oil from the competitive cost base and that were up against and we’re not seeing any significant changes in natural gas and the raw materials are relatively small part of those cost structures.

So it's not a main factor like it is in the olefins discussion..

Then there is a follow-up, I think you said the $0.25 to $0.30 currency hit was after hedging, could you comment on your foreign exchange hedging practices?.

Sure, similar to what I talked about all of them, we do have a multi-year hedging program on currencies to remove volatility that could result from that.

You’ve been seeing that benefit over the last couple of years we haven’t really seen currency is enough factor, because of the dramatic decline, you see the impact we’ve quantified and I’d say roughly our hedge position in 2015 is about 50% hedge..

And now we’ll move to our next question that will come from Vincent Andrews with Morgan Stanley..

Are there any press of your portfolio where given the move in oil and everything else where you think some of your competitors might now have a better cost position and may be more likely to either increase production or be able to export to other markets or how you are thinking about that?.

So certainly as we view this sort of olefin analysis and in particular where you’re seeing the biggest impact from an oil point of view. That’s all factored into our thinking when you sat that $0.40, $0.60 headwind because that’s the change and they are not the oil drive cost structures across the globe and how that impacts our U.S cost position.

So that’s included in that discussion. I think the other place we're getting nice tailwinds like all of our competitors on an equal basis Para xylene and Benzene drive products were all in the same both together and we're not seeing any significant sort of changes in the way of cost position in those places.

I have no doubt that as European and Asians getting improvement in the cost structure there are going to be more aggressive and we factor that our thinking.

But we still think that we're putting lot more value and just price in our relationships with the customers we have a lot of great specialty products and differentiate positions and those will endure some of those threats..

Okay and then if I could just on your amines business now number of the large herbicide manufactures have spoken about storing some excess inventory in a chain, that their volumes are going be down.

How does that work with Taminco?.

So Taminco first of Taminco is a great portfolio of business in a very diverse side in the markets and niche applications. You have to keep that in mind where Ag is specifically row crops where the current concerns seems us sit specifically even more so on corn.

That’s a pretty small percentage of Taminco's overall revenue so only about 10% of Tamico's total revenue associated with row crops. All of crop protection which is the high value, high margin specialties going to perishable, vegetables, fruits, flower type market that they are expected very consistent demand year over year.

But within that area lot of products go into both soybeans corns so as the mix of shifting from corn to soybean that doesn’t actually effect as. And of course we do expect some modest amount of headwind on the corn side but other than that it will still be growth for us because there is a lot destocking in the big winter hit last year.

So even in the herbicide area for us -- even where we sitting to supply chain we still foresee some growth in that 10% year-over-year based on what our customers are telling us. .

And now our next caller James Sheehan, SunTrust. Please go ahead. .

Could you comment on the tire additives in Crystex outlook for 2015?.

Sure great business really excited about our technology breakthrough and the investments we're making to grow this business improve our cost position. In addition to my prepared remarks the great thing about this technologies also going to allow us to have differentiated products not just cheaper ones from the cost point of view.

Therefore a lot of opportunities to grow from a primary market demand point of view we expect tire demand growth in '15 versus '14 this industry is had tough couple of years '14 was a tough year especially for Crystex which is highly leveraged to commercial tires and construction and mining tires.

So obviously '14 wasn’t a good year especially in Asia Pacific. But everything we can see right now from our customer suggests that we're going to have solid growth this year on the demand side.

We are very committed to maintaining our market share with our new technology in product advantages and growing with that market as we go forward and so we feel good about it..

What's the latest status of the pipeline line dispute?.

This is Curt as it relates to the pipeline as you've seen the various rulings that are come up in the Texas railroad commission continue to be always in our favorite including the unlawful discriminatory action by West Lake to remove the bidirectional flow as well as the pipeline for exchanges.

It is unfortunate these disputes have kind of delayed our ability to get something done and pursue actions with our excess that way in the last few and half. Do you take that now combine with the current oil environment that makes kind of unlikely we're getting thing done soon with that excess [indiscernible] wing positions.

So we’re still looking options but right now it's not likely to have an intention..

And now we'll move to our next caller Jeffrey Zekauskas, JP Morgan..

Your volume growth in additive was 14% in the quarter and fluids I think was plus 4.

If you pick up the acquisition benefits what would those numbers have been?.

You would have saw some slight growth in those segment, other than that is the function of products I think we talked about there was benefit of improvement in volume and are nice coating product line offset by some maybe lower tire added to those product lines..

And normally in the fourth quarter your operating cash flow rises versus third quarter and this year the sequential comparison was weaker and I think you had use this year of working capital of around 250 million.

Can you speak to what happen to the fourth quarter cash flow or why this year was different than your historical pattern?.

Sure so if you look at just a trend of cash flows in 2014 versus 2013. First of all our cash conversion cycle metrics have actually improved year-over-year. And so we're still seeing good working capital management.

The main drivers to the third and fourth quarter Jeff, quite honestly just a timing difference in when we made our pension contributions as well just how tax payments flowed. So it's really those two items on a quarterly, but then well not that dramatically year-over-year. .

And now we will move to our next question that will come from P.J. Juvekar with Citi. .

Regarding the propane hedge and I remember Eastman always used to hedge against propane during winter but now you are putting on hedges for going out couple of years for propane also for FX.

What's behind the change in strategy?.

As you know Eastman has had an active hedging program for a number of years PJ, consistent some of the changes and discussions we had whether it's commodities, currencies, interest rates et cetera.

We talked last year and we were pretty transparent on this change that consistent with our strategy to deliver consistent year-over-year earnings growth we revised our propane hedging program from that winter spike protection you mentioned to a multi-year program in 2014.

Such change in the program was not taken lightly, it was discussed broadly amongst our executive team, it was based on good fundamental analysis and inputs from industry experts which well indicating propane was going to remain volatile much like it did the last few years and as result propane varied from $0.80 a gallon to a $1.50 gallon.

Further all those indications at the time pointed to higher propane cost as the impact of PDH units and expert terminals were supposed to result in U.S propane prices increasing to be more aligned with global prices.

So when we assessed that case and we assessed what other different scenarios could play out, we look at the likelihood that propane would drop below $0.80 a gallon and that would here mean it would have had to been even more than it did back in 2009 in recessionary period.

So we looked at that as a very extremely remote scenario but nonetheless we know where we're at today, the oil shock has in fact occurred and we recognized we will need to work through these hedge positions over the next three years. .

And just to add to that I mean clearly we're a bit of a black swan when it comes to oil even last October the propane forward market was just above a $1 a gallon, so no one really saw this coming and it's an extreme case.

I think it is important to keep in mind that what our goal was, was to try and neutralize and frankly get olefins off the table obviously but that objective didn't sort of workout.

But when you think about capital deployment -- how we’re growing our Company you need to step back and realize that while this is an important short-term issue and we're managing it as aggressively as we possibly can.

Our strategy is to grow our company in specialty products, our capital deployment centered on organic investments, capital deployment in specialty products like Tritan, like Crystex and microfibers.

Our acquisition are centered on adding great portfolios of businesses that are durable under these kind of volatile scenarios and have great ways to grow with nice macro trends.

So the things that we're controlling, that we're investing in and that give long-term growth are all sort of moving in that direction and reducing the amount of olefins is part of our portfolio. We intentionally choose a strategy not to be investing against the spread of oil versus Shell gas in large investments.

Obviously, we're not happy about this hedge but the hedge also rolls off over the next couple of years.

And even if you look at it on a short-term basis more like '15 to '16 I don't expect it to be a headwind in '16 unless we think oil is going to further drop from here and I think most people have of the view that it's stable to up and then we're backing to growing earnings 8% to 12% in '16 or '15 per our strategy.

When you sort of think about this whole oil scenario is really just a '15 type issue for us. .

And secondly, adhesive volumes breakdown, I mean on the last quarter you talked about lower rosin supply from this year's crop and how do you see that impacting your resin pricing. And then in terms of volumes what do you think is going in the Chinese adhesive market? Thank you. .

Adhesives has had a nice recovery in '14 to '13 and we expect it to continue into '15. So we're seeing very strong solid demand growth in hygiene, high value packaging applications that use our more advantaged hydrogenated resins, so it's been a nice demand story in '14 and that will continue into '15.

What we also see is the availability of hydrocarbon raw materials to make resins became tighter again relative to demand growth and we got some surprising power back and we are able to start improving our margins.

And as part of that question rosin prices have been relatively stable at a more normalized level, so it's not as attractive to substitute from hydrocarbons to rosins as it was back in 2013 and that's expected to stay pretty stable consistent in '15.

So we just continue to think of this business is having continued recovery which will be a balance of creating value for our shareholders with price and volume as that raw material market is also a little bit tied to the whole industry on making hydrocarbon resins, so we're going to create value with both levers. .

Operator:.

. :.

In your free cash flow bridge for 2015 what is your working capital assumption and then have seen working capital days evolving in 2016, 2017?.

So generally speaking I expect our cash conversion cycle to be roughly the same. Particularly what we focus on mostly is the quantity, when we look at items like inventory. So as we work through that business-by-business look at where some of their growth is going to be and understand a working capital requirements et cetera.

I generally think it will be flat. Now we will also try to estimate the impact of the flow through lower raws that we have been talking about today on a net basis, so we have factored in that as well. So when I think about working capital ’15 over ’14 on a net-debt, I think it’s going to be a slight headwind for us a cash basis going into ’15. .

Okay, and then on Taminco, you addressed sort of the Ag impact for amines on the volume side, are you seeing any pressure on margins for that industry for that business, either in 2015 or going into 2016?.

No we are not seeing any pressures on the margin side. I will remind you that most of Taminco’s businesses is long-term contracted, pricing structures are typically cost pass-through, so olefins go down they are going to pass-through, if it goes up it passes through.

So in general I don’t think there is anything meaningful from a price point view, they of course have some modest currency headwinds in their European operations, but it’s not significant relative to some of the other parts of our portfolio. So that’s not really a concern. .

And now moving to the next question that will come from Bob Koort with Goldman Sachs. .

At least in Taminco I know that’s chlorine chloride other product that serves the drilling industry, and you guys started to see some erosion in demand trends for any of your energy application?.

Hey Bob good question. We are looking at that, right now the chlorine chloride is a pretty small percentage of the total portfolio for fracking. Some of that goes into cleaning up sour gas which isn’t as vulnerable as some of those dynamic of the oil right now.

But we aren’t seeing any dramatic trends yet in the demand and it seems pretty solid starting out year, but our forecast includes an expectation of softening demand growth in that business towards the back half of the year. You can’t avoid the news of how people cutting back on drilling right now. And so we expect that to be little bit more modest.

But it’s a very small percentage of the total revenue today. So, not a big exposure. .

Let me ask you -- maybe it’s more of a theoretical question but, it seems to be Eastman is positioned like many companies, between cracker outputs and ultimate consumer products.

And we are seeing a lot of the output, some of these refineries crackers have melted down and we also hear from a lot of consumer the end market companies saying they haven’t really seen any great windfall yet, so it would seem that there is a whole slug of profitability out there that somebody should be grabbing at the moment.

And maybe Eastman given where you are across that supply chain, so is there potential for that to happen? Are the customers just too aggressive in seeking out their share of that raw material? Is there something about your particular portfolio that doesn’t expose you to that release beyond the propane hedge? Why aren’t Companies like yours really sitting at sweet spot for the next couple of quarters until the customers can bang down pricing?.

Bob of I all I can assure you that we are everything we can do to aggressively hold on the value everywhere in this raw material environment.

The story is product-by-product I can give you a different story where we are very strong, a lot of our portfolio frankly just is an subject to this raw material tailwind, it’s just very steady very nice, solid margin businesses, our whole cellulose ester and is just is in part of this dynamic right now.

And so you put that aside and say let’s focus on volume growth -- in delivering value.

In the places where you got benzene, Para xylene, parts of advanced materials, heat transfer fluids and PPD things like that where we got some raw material tailwind, some of that, some are commodity oriented, you are going to pass the price on pretty fast and you got formula contracts in place.

And other places we are going to hold on to as much of that value as we can, and there is the dynamics are different. And then olefins it’s a same story. Some of its commodity where it’s going to pass on quickly you can see where the prices are going in some of the SFI products and the ISIS daily report. But other places are holding on to.

So our guidance includes holding on to modest amount of that value through the year to offset the currency and propane hedge headwinds. So get us to where we are guiding right now, if we do better in holding on that value which is certainly our goal. That will be upside.

But we don’t want to get ahead of ourselves until we see how successful we are after the first quarter. .

And do you have concerns settling those hedges just to remove the stigma going forward and people will capitalize that?.

Whether it’s cash flow heads and we don’t get in the habit of trying to reposition them constantly, but we do evaluate that but if you look at the opportunity right now it looks like ways more likely to go up than down.

I think quite honestly even if we settle them from a cash basis the earnings implication will still flow through as a cash flow hedges over the next couple of years. .

And our last question will come from Mike Sison with KeyBanc..

Mark you talked about, Saflex the interesting business doing pretty well in ’14, can you talk about the growth potential in ’15 and is that a business that could really benefit from the raw materials as you hold pricing?.

Great, question Mike. The interlayers business is great business in particular the premium products Acoustics and heads-up displays, both high margin, very high growth double-digits and expected to continue from a volume point of view into 2015 and beyond.

OEM auto builders are switching not just windshields acoustics but side lamps, et cetera for both acoustic and light weighting purposes, so it's just a great growth trend and we’ve got some great next generation products coming out down the pipe to make that value proposition even better over the next couple of years.

on the pricing side, you're absolutely right, premium products you don’t have to give a lot of the drill benefit back, so that will also be some tailwind for that business across all portfolio those also have a lot of our business area annual contracts like fibers where we sort of get locked in and so if you have headwinds like we did last year and then prices going up, that hurts and this year we expect to have some tailwind..

And you maintained your EPS accretion for Taminco that you had previously -- is the integration synergy potential about the same in that number is it better, how is that coming along?.

First of all I’d say the integration efforts have gone up to a great start across many fronts, great feedback from customer suppliers and we’re really thankful to have the talent that’s come over from Taminco to help us manage these businesses.

As you look at the synergies themselves, we still feel we’re on target to a 5% synergy, if you recall those 5% synergies are mostly cost synergies in the form of operational synergies, supply chain optimization, et cetera. Those will take a little longer than some of the synergies that we’ve captured from other acquisition such as Solutia.

So I still feel good about getting these majority of these 5% over the next two years, we get just a portion of that in 2015, maybe little less than I was thinking little while ago, but we’ll get the majority of those cost synergies in 2016 and then we’ll get a little bit beyond that plus the business and revenue synergies will kick in there..

Thank you again everyone for joining us this morning. A web replay and a replay and downloadable MP3 format will be available on our Web site later this morning. Thanks again and have a good day..

Once again ladies and gentlemen, this does conclude your cash conference for today. Thank you for your participation..