Greg Riddle - Investor Relations Mark Costa - Chairman and CEO Curt Espeland - Executive Vice President and CFO.

David Begleiter - Deutsche Bank Frank Mitsch - Wells Fargo Vincent Andrews - Morgan Stanley Duffy Fischer - Barclays Capital P.J. Juvekar - Citi Jim Sheehan - SunTrust Robinson Humphrey Jeff Zekauskas - JPMorgan Ryan Berney - Goldman Sachs Laurence Alexander - Jefferies Mike Sison - KeyBanc Aleksey Yefremov - Nomura John Roberts - UBS.

Good day, everybody and welcome to the Eastman Chemical Company Fourth Quarter Full Year 2015 Conference Call. Today’s conference is being recorded. This call is being broadcast live on the Eastman’s website, 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, Taylor. And good morning everyone and thanks for joining us. On the call with me today are Mark Costa, Chairman and CEO; Curt Espeland, Executive Vice President and CFO; and Louis Reavis, Manager, Investor Relations. Before we begin, I’ll cover two 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 fourth quarter and full year 2015 financial results news release, and our filings with the Securities and Exchange Commission, including the Form 10-Q filed for third quarter 2015 and the Form 10-K to be filed for 2015.

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

A reconciliation to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded items, are available in the fourth quarter and full year 2015 financial results news release and the appendix to the slides that accompany our remarks this morning, both of these can be found on our website, www.eastman.com in the investors section.

Projections of future earnings in the presentation also exclude such items as described in the news release. With that, I’ll turn the call over to Mark..

Good morning, everyone; I’ll start on Slide 3. 2015 was another outstanding year for Eastman as we continued to make excellent progress on our strategy to transform towards a specialty portfolio.

We delivered our sixth consecutive year of solid EPS growth despite a very challenging global business environment, and generated record free cash flow of $960 million, reflecting strong earnings as well as the benefit of recent acquisition, which generate outstanding free cash flow.

A strong contributor to earnings growth in our specialty businesses in 2015 was the progress we made on organic growth initiatives. I’ll highlight just a couple of examples. In the Advanced Materials segment, our window interlayers, particularly our acoustic and heads-up display products delivered solid double-digit volume growth for the year.

Also in AM, we delivered very strong growth from our new optical film solutions for mobile devices. And in Additives & Functional Products, tackifying resins into tires was a strong contributor to overall growth in 2015. These are just a few examples of how innovation and market development is supporting growth in an overall difficult environment.

We also did a great job in 2015 of successfully integrating our recently acquired businesses. Each of these acquisitions were completed and aligned well with our strategy of delivering consistent superior value, and combined delivered over $0.50 a share in accretion for the year, as expected.

In our cost management, we did an outstanding job in 2015, reflecting very strong productivity gains. Overall, we were able to more than offset inflation by about $25 million. We also made substantial progress on reducing our net debt. Finally, during the year, we remained committed to returning cash to our stockholders.

We increased our dividend by 15%, the sixth straight year of increases and over that time, we have more than doubled the dividend. And we repurchased more than $100 million of stock. This strong performance on so many fronts is a great testament to the strength of Eastman’s portfolio and the integration and scale that has been built over decades.

More importantly, I am very fortunate to work with such a strong team of employees who consistently overcome challenges and find ways to deliver results for our stakeholders. Now, I hand the call over to Curt to cover the financial details for 2015, and then I’ll come back to talk about 2016..

Volume growth and mixed improvement; volume from the acquisition; operational improvements; and improved spread. The improved product mix was driven by increased sales of optical film solutions and premium interlayers. The operating margin increased to roughly 17% from just over 12% in 2014.

These results reflect execution of a strategy over a number of years to improve the operating margin in this business and to achieve an appropriate return given the investments made. We expect to build on this success going forward.

Moving next to Additives & Functional Products on Slide 7, which had a solid year; the revenue increase was due to the impact of the Taminco acquisition. This was partially offset by lower coatings and other formulated products, selling prices which reflected lower raw material and energy costs as well as the impact of currency.

Operating earnings were up year-over-year, reflecting both improved spread and the impact of the Taminco acquisition. The business did a great job managing value in the face of a slower growth environment, increased competitive rivalry and narrowing olefin spreads.

Moving next to Adhesives & Plasticizers on Slide 8, for 2015 sales revenue declined primarily due to lower prices reflecting lower raw material costs and currency.

Volume was about flat as growth in non-phthalate plasticizers, particularly in North America was offset by lower adhesives resins volume due to the lack of availability of raw materials early in the year as well some operational constraints. Operating earnings increased as improved spread was partially offset by propane hedges and currency.

The operating margin increased to just under 20% as we did a good job of holding onto value through the year. Now to Fibers on Slide 9, revenue declined mainly due to lower acetate tow and acetyl chemical sales volume. The decline in tow volume was mainly attributed to customer destocking, especially in China.

And the decline in acetyl chemicals volume was due to increased sales to the cellulose acetate flake joint venture in Kingsport. Operating earnings were down year-over-year due to lower tow and acetyl chemicals volume. Despite the challenge for lower volume, the operating margin for the segment was 32%.

I’ll finish the segment review with Specialty Fluids & Intermediates on Slide 10. Sales revenue decreased as lower selling prices, and lower chemical and other intermediate sales volumes more than offset the impact of acquisitions. For operating earnings, we had a number of significant headwinds impacting results.

The significant decline in oil prices reduced the North America shale gas advantage. And as the market became long in ethylene and propylene, the drop in olefin prices outpaced the decline in oil, further impacting margins. Also slower than expected economic growth in Asia led to an increased level of competitive import threats to the U.S. and Europe.

And the impact of propane hedges was significant for this segment. These headwinds more than offset earnings from acquired businesses and commercial and productivity actions we took through the year. While operating earnings declined for the year, we did a good job managing through a challenging environment.

On Slide 11, I’ll transition to the overview of cash flow and other financial highlights for 2015. We did an excellent job of generating cash in 2015 with operating cash flow over $1.6 billion. This is a new record for cash from operations as is our free cash flow of $960 million for the year.

Capital expenditures totaled $652 million, below our previous expectations as we managed the pace of spend with the current economic environment while maintaining our growth investments. We expect to be at a similar level in 2016.

Looking at the balance sheet, net debt stands at $6.7 billion as of year-end, reflecting almost $600 million in debt reduction for the year. Our cash flow, strong balance sheet, and liquidity keep Eastman in a position of strength in an uncertain economy. Our full-year dividend was $238 million, and this included a 15% increase in the fourth quarter.

In addition, we had $103 million in share repurchases through the year including $55 million in the fourth quarter. The combination of regular increases in our dividend and share repurchases reflected a continued confidence in future earnings and cash flows.

And finally, our effective tax rate for the year was approximately 25%, which again includes the enactment of tax extenders during the fourth quarter as well as favorable geographic mix of earnings. We expect the effect of tax rate for 2016 will be at a similar level, if not better, as we continue to pursue opportunities to reduce this rate further.

Overall, a strong year of results given the challenging conditions. And with that, I’ll turn it back over to Mark..

We expect another year of strong growth in Advanced Materials driven by volume and mix upgrades; Adhesive & Functional Products is expected to remain stable despite a tough market with volume growth offsetting price pressures, including Adhesives being modestly lower.

For Fibers, we’re expecting declining prices due to lower pulp prices and weakening currencies, which will be offset by cost actions we have taken. Therefore, the key variable is volume. We expect continued destocking in China, but we don’t know yet how far it’ll go and we expect no more in the coming months.

For Chemical Intermediates, we expect earnings to be lower given the collapse in the oil and the pressure on spreads in that business, with the same trends impacting plasticizers. And once again, we believe this new business structure supports our strategy to transform towards a specialty portfolio.

As you know, we have been on a long and committed journey to divest commodity businesses and additional specialties. On Slide 20, I’ll provide an update on our portfolio management efforts.

Having successfully integrated our attractive acquisitions in 2015, we are shifting our focus in 2016 towards portfolio optimization, consistent with our long-term strategy. Over the last few years, we’ve been looking to divest our excess ethylene position that continues to be a source of earnings volatility.

These efforts have been constrained due to the pipeline dispute with Westlake which we have discussed previously. With favorable rulings from the Texas Railroad Commission and the Appeals Court, we believe we can now move forward with our efforts to divest the excess ethylene.

We are also pursuing strategic options for both excess ethylene and commodity olefin intermediates that are not essential to our specialty strategy, and can be operationally segregated at the site. Of course, the specific scope may vary depending on buyer interest and valuation.

I also want to be clear that our integrated Texas site produces advantaged ethylene and propylene, much of which we translate into our specialty derivatives and as such, will remain a critical integrated stream within our portfolio.

We have hired an investment bank to restart the process to monetize our excess ethylene position and the other commodity olefin related product lines that are not essential to our long-term strategy. This effort will be one of our top priorities in 2016 and we’ll provide more details later in the year as it progresses.

On Slide 21 here are our expectations for cash generation. As you can see on the bar chart, we have a history of generating strong free cash flow, particularly over the last five years. This reflects the strength of our solid core businesses as well as the transformation of our portfolio.

Looking at 2016, we expect free cash flow to be greater than $900 million. With this free cash flow, we expect to continue deleveraging, having reduced the debt by over $600 million in 2015, and we expect to complete our de-levering in 2016 to get to approximately $1 billion of debt reduction.

As a result, we’ve also committed to our investors in past calls that we expect to fully utilize our free cash flow to pay an increasing dividend, continue de-levering and repurchase shares.

So in summary, on Slide 22, we have a strong portfolio of specialty businesses that we are confident in and we know that are going to drive volume growth this year and continue to drive volume growth into the future.

This organic set of initiatives, our innovation, our product mix improvement are essential to our strategy and they were essential in how we grew value last year, this year, and into the future. We are committed to using every lever we have in this challenging environment including increasing our cost reduction efforts.

And we will return our strong free cash flow to stockholders. So, despite our short-term challenges this year, I’m confident we’ll continue to deliver solid earnings growth in the long-term. And I’m looking forward to the questions on this call. Thank you..

Okay. Thanks, Mark. We’ve got a lot of people on the line this morning. So, I ask that you limit yourself to one question and one follow-up. With that, Taylor, we’re ready for questions..

Thank you. [Operator Instructions] And we’ll take our first question from David Begleiter with Deutsche Bank..

Mark, on SFI, it was a challenging Q4; how should we think about the earnings progression into Q1 and for the full year?.

This is Curt, David. I’ll take that. It’s fair to say first half will be our toughest comp year-over-year especially the first quarter given the strong performance Specialty Fluids & Intermediates had last year.

Also if you think about earnings trajectory in general, our cost reduction efforts will help in first quarter but will be mostly in the subsequent quarters, plus the deleverage in some other share repurchases in the second half of 2016 will help kind of the overall shaping of next year.

And specifically of SFI, when I look at their run rate last year versus this year, I would say right now the way things are shaping up what you saw in third quarter is more representative of what you might expect for the year..

And just Curt and Mark, just on Slide 16 on the cost actions, can you give any more concrete examples besides Workington reduction, where else will cost actions come from, plants being closed, people being let go, anything more concrete you can add?.

Sure. So, we saw things developing and knew that we needed to take action on cost like most people in this industry. And so, we’ve done a restructuring program where we’re going to reduce non-operating labor about 7%, David.

In addition, there’s a bunch of other non-labor spend items in SG&A and R&D that we have that we are going to be able to reduce some spend on, and then there is a wide range of manufacturing cost improvement throughout our plants that we are pursuing. In addition of course, there are things like the plant closure in Workington.

But that would be additive to the $0.50 a share. That Workington closure was not included in that $100 million. So that’s an additional plus. I’d also emphasize that you’ve got quite a bit of cost synergies continuing to flow in from the acquisitions on top of that $0.50 a share. So, in collection it adds up to a pretty significant number..

And we’ll take our next question from Frank Mitsch with Wells Fargo..

When Curt was talking about the various segments, he did talk a fair amount about the interplay of pricing dropping due to the raw materials coming down, and that always is kind of a signal of more commodity type behavior rather than specialty type behavior.

So, Mark, as you think about your portfolio, and you went through this exercise to re-segmenting to four, what percent do you see being commodity versus specialty in your mind? And I know you mentioned that you’re going to restart the ethylene sale process.

Are there other parts of the portfolio that you see as perhaps not fitting longer term into EMN?.

Sure, Frank. First on the specialty part, with the re-segmentation, you should think about the parts of the products that we have that are commodity oriented have been concentrated in Chemical Intermediates. So, the other segments really don’t have anything we consider to be commodities.

The reality is that even in specialty businesses when you have oil prices drop from $100 to $30, and you are oil-based, your customer sort of notice and expect that some of that raw material benefit is going to be shared with them. So throughout last year, we realized obviously significant raw material benefits in our specialties and our commodities.

And the pace at which the price is shared with them is very different. So, in the commodities it happens relatively quickly. In the specialties, you still give back value to your customers.

If you don’t do that and if you hold onto price very aggressively which you can certainly do in a specialty, you set yourself up for a volume cliff in the future because even if you’re a proprietary product and we have a number of ones where we’re the only manufacturer in the world, if you don’t share some of that value at an appropriate level, you put your customers on a jihad [ph] to find new suppliers, whether it’s an alternative material or a smaller competitor you might have where you’re a very strong leader in a specialty business.

So, we do that. We have probably the most sophisticated commercial excellence and pricing systems I think in the industry where we make these price volume trade-offs all year long to make sure that we’re sharing value but we’re also maintaining to be able to grow volume in the long-term.

So, over the year that plays out and prices come down to some degree and you take that into this year, and that’s a bit of a headwind versus how you started last year. But no, I don’t think our specialties are commoditizing at all.

And what I love about most of our technology platforms is we have next generation products building off of the same assets whether it’s next generation of acoustics in heads-up display, the Tritan product replacing some copolyesters and a series of opportunities going on to improve Crystex with our next generation Crystex technology etc.

So, we never sit around waiting for people to try and replicate as we are always moving the ball down the field and advancing what we offer to our customers. So no, overall I would say the portfolio feels great on that front.

What I did say though in my prepared remarks is, we are expanding the scope of what we’re considering selling beyond excess ethylene.

So, we are looking at what other olefins that have commodity behavior in Chemical Intermediates, a lot of volatility, a lot of distraction for investors that is not essential to our long-term strategy, so they are not critical intermediates for our specialties.

And so, we’re going to look at how much of that we can package with excess ethylene and find a buyer who values that olefin portfolio and their strategy..

And following up on this theme, I really appreciate the Slide 14 with the volume growth of 3% in your AAA businesses. And then on top of that I believe you’re expecting 1% to 2% innovation market development as well. So that would almost imply kind of a 4 plus percent improvement in that area.

My sense is that given the economic backdrop in 2016 that would not be the case.

How are you thinking about the potential volumes in the AAA side in 2016?.

So Frank, I think when we look at what is now the AA I guess, we’re moving up in the ranks, those two segments we still expect solid volume growth. Obviously, the economy is going to do what it does and we’ll track with it, especially in the end markets we serve from transportation to B&C and consumables being our three large end markets.

And I think those all have attractive growth trends this year from what we can see. So, I think we’ll grow with those markets. So, I think we’ll have volume growth that will be like history.

And within that I think we’ll get some mix uplift that will be these high growth specialty products that aren’t necessarily huge volumes but they are very attractive to earnings and they provide a nice lever to earnings. But we don’t see a volume problem in this year. We think it continues to be solid. We think AM and AFP will have good volume growth.

We think AFP’s volume growth will be better this year than last year when we look at as last year wasn’t as much as we wanted of course. So, we do see some places in specific areas where we’re improving our market share position where we’ll get better volume growth there too..

And we’ll take our next question from Vincent Andrews with Morgan Stanley..

Just trying to get a sense on the earnings bridge. You did 7.28 in 2015 bringing $0.50 of cost savings. In your segment breakdown, you basically told us that AM is going to be up; AFP is going to be stable; Fibers, there is a question mark around volume; and then you’ve got the oil spread issues.

So, can you just help us, what do you think the FX headwind is in 2016? And then when you say, you’re going to approach last year, does that mean you’re going to be north of 7 or do you think you’re actually going to get close to 7.28? And I guess what I’m really asking you is how much risk do you think there is on spread side of things and is that really the true wildcard for results next year or this year?.

So Vincent, thanks for the question. And it’s obviously a very important one. As we look at it, we do see a lot of tailwinds, as you noted. Good volume growth, mix upgrade, the cost reduction actions, the acquisition synergies, improvements in tax, pension costs as well as share count. So, there are a number of very attractive tailwinds for us.

And there are really two principal issues, as you’ve identified that are the headwinds.

So, how much spread compression do we take this year versus last year in this volume on Fibers? When it comes to the spread issue, I think that there’s predominately that spread from compression is going to be in Chemical Intermediates but you also feel a little bit of an AFP, which still will have some olefins in that segment and we expect prices to come off a bit in Adhesives where things have been relatively tight last year.

And so, we’ll have a little bit of price give back but better volume growth this year, netting each other but somewhat down. But the majority of the issue is really a spread issue. And then of course, we’ve put in an expectation of some additional destocking in Fibers.

There’s a lot of moving parts when it comes to oil, the economy, the uncertainty in destocking, and I can combine those into a variety of different scenarios. The way I would suggest you all think about it is we’re somewhere between stable to 2015 EPS and down 5% when I combine all those different factors together.

And those I think give us that sort of a range. Specific to FX, I’ll let Curt answer that question..

Yes, Vince, just the way I think about currency itself, right now the currencies we’ve seen, predominately our exposure is euro is slightly down compared to what we saw on average for 2015.

Maybe the best way to look at is if you think about just the net impact of hedges, whether that was the cost of the propane hedges or the benefit of the currency hedges, net-net that was probably a $0.60 headwind for us for the year. For ‘16, we think the net impact of these changes in hedges net-net is going to be about flat.

This is a little lower than we were thinking before, primarily due to the class of oil and the underlying impact on our propane hedges, but then that $0.60 impact really rolls off in ‘17 and ‘18..

And just building on that comment, I think it’s important for investors to understand that a lot of what we’re seeing right now we view as very much short-term pressure, not long-term pressure. We don’t think there is anything undermining our long-term growth strategy of delivering attractive earnings growth in ‘17 and beyond.

To Curt’s point, if oil and currency stay where they are at, we’ll just get a natural $0.60 lift in ‘17 and ‘18 -- $0.60 a share lift, as those roll off. If oil prices go up, our earnings will improve just as they’ve pressured it down.

So either way, you look at, you’ve got earnings growth coming in ‘17 and ‘18, depending on your view about oil prices because I think it’s likely they’ll be better than where they are today. In addition to that, you’ve got continued volume growth next year.

You’ve got this transition of spread expansion into 2015, normalizing a bit of those spreads in 2016. That is a two-year event when you’re adjusting from $100 to $30 oil, but you don’t have that in 2016 anymore; that will be behind us.

And then on top of that, we’ve got continued ways to improve costs and very importantly, we have a very strong free cash flow. And we’ll be repurchasing shares starting in the back half of this year and strongly in ‘17.

So while we’re certainly disappointed about some of these challenges we’re enduring right now, we are focused on driving long-term growth and taking actions that make sense to maintain that volume growth long-term and deliver strong earnings growth beyond this year in ‘17, ‘18 and beyond..

And we’ll take our next question from Duffy Fischer with Barclays Capital..

Question on just the bridge between earnings and free cash flow.

So, other than the share count changing, which should advantage earnings, if I’m looking at a linear relationship, is there anything else that should affect the difference between free cash flow and earnings in that bridge?.

One is we’re not anticipating the release of working capital as great as we experienced in 2015 as we go into 2016, just because of just the way the raws have fallen on a relative basis; plus, there’s always some difference in years between when you make your tax payments et cetera.

But I’m very confident in our ability to generate meaningful cash flow in 2016. And I think it’s just a matter of how much higher over $900 million it’s going to be..

And then in Q4 AF&P also saw price down about 10%, which was probably the price movement that surprised me the most.

Is that still just the olefins affecting that segment or were there some other spreads in there that got compressed as well?.

It was principally just the olefins. We’ve been doing a great job of holding onto value all year long, but we came to the point where at some places we needed to reduce prices to remain competitive. It’s a tough comp versus where prices were at $100 oil in the fourth quarter of ‘14. So, it was just that..

And we’ll take our next question from P.J. Juvekar with Citi..

It just seems like you were hurt more by the ethylene change than the propylene change, given your spot ethylene exposure.

Would you agree with that? On the propylene side, how much give backs did you have to do in the coatings area?.

So, on the propylene side, propylene prices also came off through the year, and when you look at cracking spreads, they obviously came in on the propylene side, if you look at the first half versus the second half of the year and our prices tracked with it. And we’re taking in that lower propylene price into this year.

So, certainly there is a first half headwind this year versus last year, when it comes to propylene. The ethylene is sort of the opposite story. Ethylene prices were relatively good in the first half of last year and then obviously came off pretty significantly in the back half of last year.

So, it’s sort of the flip story there on sort of where it goes. But we expect ethylene prices to improve into the second quarter this year. As this very large cracking maintenance schedule takes place this year that should sort of move ethylene prices back up a bit.

We’re not expecting it to go back to last year but we certainly expect improvements versus right now, so moving parts there.

On the coating side, our customers there have done a pretty good job -- on the coating side, we certainly saw our customers do a very good job of working with us and getting their prices down on the propane related derivatives and getting a benefit from that..

A quick question on tow. You took a step down in 4Q in terms of year-over-year comparison. Can you discuss some of the declines? You said declines in China.

Can you discuss tow declines in China and outside of China?.

Sure. So, with the tow business -- first I’ll take outside of China, which is the more straightforward story. What we’ve seen there is that destocking come to an end and we expect volumes to be relatively stable into this year.

Outside of China, we have seen prices come off some with the reduction in pulp prices and our competitors in Europe and Asia Pacific using their weakening currency as a way to attempt to chase volume. We of course defended our market position but the prices did come down a bit.

With all the cost actions we’re taking in that business, we’ve been able to offset that pricing decline that we’re seeing outside of China. So, really, it is about a pure question around what does volume do in China at this point.

And what I’d say is in the -- from what we can see, the Chinese National Tobacco Company made progress in their destocking in 2015 but did not achieve their objectives in going as far as they wanted to.

They have to walk a tight balance in delivering their tax revenue increase for the year, which they did do, which limits how far they can go in reducing production and achieving their inventory management goals. And so, they are going to do another round of that this year in trying to work that inventory down.

It’s important to keep in mind as well that when you see this sort of volume issue in ‘15 and ‘16, a good portion of it is also the CNTC backward integrating with tow suppliers. So, we did our JV in the end of 2014 with CNTC and that is what led to a certain amount of volume decline in ‘15.

And Daicel did a JV which is going to be part of why volume goes down this year. So, you shouldn’t misinterpret that as a decline in primary demand. We don’t see any issues with primary demand and cigarette [ph] consumption going to a decline. This is all about inventory management and some backward integration.

The good news on the backward integration front is that we don’t expect any other tow backward integration by CNTC until the 2019, 2020 timeframe. So that won’t be an issue. Again as we go into ‘17 and ‘18, another upside for us or ‘17 and ‘18 versus what we’re seeing this year.

So overall, I’d say we expect some decline and we’re just going to have to wait to see how it goes with the final conversations and contract negotiation..

And we will take our next question from Jim Sheehan with SunTrust Robinson Humphrey..

Mark, could you give us outlook in 2016 on the Crystex business?.

Sure. Crystex has been a great business for us. Obviously, it’s a challenging market condition with primary demand not being robust, but we saw volume growth last year. And in particular, we saw that volume growth really pick up in the second half of last year relative to the first half. And we expect that volume growth will continue into this year.

So from a demand point of view, everything seems to be on track. On the pricing side, it’s a competitive business. We have a bunch of little small competitors in Asia we have been dealing with since 2012 and we’re seeing some price pressure there.

I’d say in one place, our Japanese competitor is using their weakening yen to sort of chase volume where we’re once again defending our market position, so they are just giving up potential earnings growth but -- and improving margins. But I think it’s all playing out sort of as we planned.

We feel very good about our new technology; we’re bringing on our new process technology and our retrofit in Germany this quarter; and we’re on track to develop the new plant and build the new plants and have it on line at the end of -- in the beginning of 2017. And that will significantly improve our cost structure for competing in this business.

So, feel good about the business..

And then you made some comments on ethylene divestitures and how the pipeline dispute was holding that process up. It looks like you feel more confident that this process is moving forward in 2016.

Could you just evaluate the pipeline dispute and where it stands and how quickly you think you could wrap that up?.

Eastman has -- and Mark mentioned, Eastman has won every case to-date on this dispute, whether it’s those Texas Railroad Commission rulings or their favorable opinion on their Appeals Court. So, it really speaks to the strength of our position.

So, we recognize there may be a few more steps to completely resolve this dispute, but we’re confident that we can move forward with these efforts to divest the excess ethylene at this time. And the timing of resolving these disputes is very similar to the timeline we think it’s going to take to complete a divestiture..

And we’ll take our next question from Jeff Zekauskas with JPMorgan..

In the fourth quarter, your EBIT in Specialty Fluids was $20 million, and I don’t know how much of your -- how much of the hedge penalty you had or how many hedges you unwound. But in general, oil prices have come down a lot.

So, is that $20 million your run rate on a quarterly basis for 2016 in the current environment or in some way is that an unrepresentative number, and could you explain why it’s unrepresentative, if it is?.

Jeff, I mentioned that earlier in a previous question, do not think the fourth quarter is representative of this business segment. When I think about the moving parts that you’ve highlighted, we think it will be down, as Mark mentioned in 2016.

But it’s probably more comparable, if I look at the best quarter of last year, it’s more comparable to kind of a third quarter normal rate as we’re going into 2016..

And so why was it so much lower than the third quarter? Is that because there was an above average amount of hedges that were unwound there?.

Jeff, and I’ll end it with this. There is a plenty of items that always affect the fourth quarter; sometimes it’s your schedule of shutdowns; sometimes it’s going to be the impact of the seasonality; and sometimes it is going to just be competitive behavior in that particular quarter. So those are some of the moving parts.

As we best see it, we know it’s going to come down, but fourth quarter is not representative of what we’re expecting this share at this point..

We also saw some destocking in volume….

Some destocking?.

There was just a variety of individual elements that added up to that number, making it a bit more sort of extreme than what is representative..

And then lastly, you have very good cash flow and free cash flow generation for next year. You talked about a $200 million productivity gain.

Are there non-recurring charges that you need to enact in order to capture that $200 million? And if you do have to take them, how large are they?.

As you’d expect, Mark mentioned some of the labor reductions of that restructuring. You do anticipate a restructuring charge in 2016 that will have a cash impact. We’ll highlight that into our adjustments and that number is roughly about $50 million..

$50 million.

And then of the businesses that you want to sell, like if you totaled them all up, what’s the revenue and EBITDA order of magnitude?.

Jeff, as we said, we’re still working through the scoping of what our divestiture process, our strategic options will be. That’s going to highly depend on just a variety of factors including what the buyer slate may be interested in. We’re just going to work on that out over the next several months..

Yes. On that point, I just want to be clear with folks because I’m sure this question will come up a lot. The reality is we want to maintain some flexibility because in the olefins world, each potential buyer actually has a slightly different interest in what they might want in our portfolio.

And so to maximize shareholder value in what we sell, we’re going to keep that flexibility in there and be able to sort of address what the interest might be..

And we’ll take our question from Bob Koort with Goldman Sachs..

Good morning. This is Ryan Berney on for Bob. I just wanted to ask within your EPS guidance that you’ve given, which sounds like it’ll be a little bit below where you were in 2015. You gave this really nice breakout where you break out price and volume for us, both kind of by the segments but also for the company as a whole.

So, if you were to take a step back and think about what you’re imputing in your guidance for 2016, what kind of overall Eastman Corp.

volume price assumption are you assuming?.

Well, to be honest with you, I would just have you go through segment by segment and do that analysis. I think what you’re going to see is the volume growth in the Advanced Materials as well as AFP. You’ll probably see solid volumes in SFI. That’s going to be more of a margin pressure.

And Fibers volume is going to be impacted by the final imports into China. Pricing, we’re going to see where oil goes..

And then maybe you can help me understand the ethylene issue a little bit better. My understanding is that you are running about 70% propane feed through your crackers and you still also have one of your crackers that’s shut down.

So, when you think about divestitures, would you be -- I mean can you help me understand, would you be moving away the asset you closed down or would you potentially be putting any capital to work to move towards a heavier even propane feed in order to kind of get the propylene you need? I guess I’m just kind of figure out how you get rid of that ethylene without also losing some of the propylene that you need..

The good news, there are solutions they are. And so, as we’ve talked about in the past as we’ve tried to monetize our excess ethylene, we’ve always indicated we do not necessarily need to be the owner of the smaller crackers, many times we call the type 3 crackers. Nothing has changed in that regards.

Our larger cracker is really heavily integrated into our overall site operations and is really critical to our specialty derivative production. So, as we go through the strategic evaluation and we will ensure the reliability, integrity and the safety of this cracker is preserved to support our specialty derivative product lines.

And this is consistent with our strategy again to reduce volatility, but not compromising our specialty growth. On the propylene, I’d also remind you, yes, we are a net buyer today but as we look forward to the start-up of the PDH unit with Enterprise, we’ll be kind of fully integrated with our propylene.

But as we look down the road, we can think about different options on how these crackers may play out in our strategic options. And we’ll be able to adjust appropriately..

And we’ll take our next question from Laurence Alexander with Jefferies..

Just a quick one on your transportation and construction breakouts for the special businesses, can you break out your current thinking about how much is maintenance versus first fit for OEM and what you’re seeing on the OEM trends in the very near term, like the next three, six months?.

I’ll take a shot at it, but I’d say our customers are probably more qualified to comment. On the tire side, 75% of that business is roughly replacement. It’s important to remember that we’re levered to commercial tires much more so than passenger tires when it comes to the amount of Crystex for tires 10 times in a commercial tire versus passenger.

So, what we see there is like the globe, the economy getting better in the U.S., improving in Europe and it is still growing in China by the way, just not as fast as we’d all like.

And so that’s all sort of driving the need for replacement tires especially increased construction activity in North America and even some increased construction activity in Europe that we’re seeing. So that’s how I’d talk about the tire side of it.

On coatings, when you look at transportation and building construction, we expect a good year in North America which is where we have our largest market share with the increasing construction rate of housing coming for us in ‘16. And we also saw decent growth rates in Europe. So, that’s all feeling relatively good.

China is a bit of a wildcard but still some growth. When it comes to interlayers, they had a phenomenal year last year in automotive as well as a good architectural year in Europe. And on the automotive side, we grew significantly faster than the market for a couple of reasons.

One is we’re seeing the addressable market grow because a lot of company -- OEMs are moving to putting laminated glass in the side windows and even the sunroofs, so the market is just getting bigger relative to OEM build rate.

In addition, a lot more use of acoustics, both for quieting in the cabin as well as light weighting the windows and heads-up displays growing very strongly with the whole mobility trend. To figure out the next trend you’ve got to go to the consumer electronics show for cars and the heads-up display is a critical part of all those technology trends.

So, all of that’s allowing us to grow much faster than the OEM build rate which is about 60%, 70% of the total for interlayers. So, each business is a different story, but all of them are good ones..

And then if we roll all of them up for the two As over the next three, four years, what you see as your mix tailwind for margins when you have a lot of moving parts in terms of the hedges and market trends, but what do you just see as a tailwind just from margin uplift, if any from mix shift?.

I think what you’re going to see, this is Curt, in Advanced Materials, you’ve already seen what has happened with their different elements of improving mix, getting volume growth and fixed cost leverage. And so they are at a 17% operating margin, so I think they’ll continue to grow from that.

On the Additives & Functional Products, I think over the next several years, they can maintain their margins if not slightly improve them through that mix of group..

And we’ll take our next question from Mike Sison with KeyBanc..

I was wondering, it might be helpful if you total up all the headwinds that you’re facing in 2016, it seems like it’s going to be well over $1, maybe even more.

And is that kind of what you’re overcoming with your specialty businesses and what you can control internally?.

I’m not sure I’ve done all of the exact math that Mike you’re doing, but we can compare notes like we always do over time. But I would say, yes, we’re facing significant headwinds and so we are offsetting that with again growth in Advanced Materials, stability in AFP. We’re also then seeing the cost reduction actions.

I’d also remind that we’re also going to finish deleveraging during the course of 2016 as well as look at repurchasing shares, mostly weighted towards the second half of the year. So, those will also help overcome some of that headwind..

And then one quick one, Mark. Eastman’s done a nice job of kind of locking away from more commodity businesses and adding specialty businesses. Unfortunately, the commodity business seems to continue to weigh on your earnings results probably more than you might have thought.

What are your thoughts -- what do you think you need to do with the portfolio now to maybe reposition it to continue to lessen those exposures? I know you want to pay down debt, but is acquisitions something that you would consider to continue to improve the portfolio?.

I think what we want to do is what we just announced which is get the volatile bit out of the portfolio. So, going to four segments, concentrating the olefins in one segment where we can better manage that business and the volatility in it day to day to make sure we capture the best value in the current market situation.

That’s why we pulled the distribution solvents out of AFP and put plasticizers in there. It also allows us to look at all the options for what is best divested from this portfolio that certainly is a distraction for investors having a disproportionate impact on our valuation and allow us to focus on our specialty strategy.

Because -- you’re right, last year we did a great job of growing our specialties. It was why we delivered earnings growth and we’re going to do it again this year and beyond. And that’s where we should be spending our time and focusing our efforts.

When it comes to acquisitions, as I said in the second quarter call and the third quarter call last year, we’re not looking for large M&A. We’re looking to focus on growing our platforms that we have. We have a lot of great organic growth initiatives kicking into gear already and ones that are about to come especially in AFP.

Those were a little bit behind in the cycle relative to Advanced Materials. So. you’re going to hear a lot more stories about that as we go forward. But we’re not looking for any large M&A.

It’s always possible to find some bolt-on M&A that might be attractive that dramatically improves the business we’re in, like we did last year in Advanced Materials with our Commonwealth acquisition, but our focus right now is generating cash flow and repurchasing shares..

And we’ll take our next question from Aleksey Yefremov with Nomura..

How did Taminco products do in the fourth quarter and was there any change in competitive intensity or volumes there?.

Taminco had a great year and a good quarter. So overall, they did as we expected. Volumes held together nicely. You saw strength in things like crop protection for the year as well as personal care doing well.

Obviously, there’s some pressure in soybean and corn-related functional mean demand with all the drama in the ag industry, but that’s a relatively small percentage of their total revenue.

And we took some hits of course in some of our products going into down-hole applications on the energy side but a lot of that was offset by gas cleanup sales doing quite well on the downstream part of that business for us. So, volumes held in well and it came out as we expected. Margins also are fine.

The only two hits we’ve had in that business is currency obviously like everything else, and then some of the methanol that we produce from our advantage contract obviously is feeling spread pressure relative to how methanol prices have come down..

And if I could add Mark, on top of that, what I also like about Taminco is we have completed the integration. We achieved about $25 million in cost synergies in 2015. We expect that to be about $50 million of cost synergies as well as we now believe we will have some good tax synergies that will help our effective tax rate in 2016.

So, again, not only is that a good reflection of good integration by both teams, it’s also the business -- the team is responding to tough business climates to help our businesses, whether it’s Taminco or heritage Eastman..

And as a follow-up, does your guidance include buybacks? And if so, how much?.

The guidance, you could assume, there will be some buybacks weighted mostly towards the second half of the year, and so some of that would be included in that guidance. But that will be more of a benefit as we go into 2017 because you’ll get the full effect of those buybacks plus how we deploy our cash in 2017..

We’ll take our final question from John Roberts with UBS..

Congratulations on moving forward. We had another chemical company write off an unfavorable raw material contract this quarter. You haven’t been able to do that with your propane contracts.

Is that just due to how hedge accounting works or is it simply because it would just improve the optics and there is no net present value to doing it?.

In this case, John, it is purely the accounting because it’s a cash flow hedge. Even if we settled those hedges today and spent the cash, I’d still have to recognize the impact and earnings over the cash flow associated with the purchases..

Okay.

So, it’s more an accounting issue than it is an NPV issue?.

Yes..

Okay. Thanks again for joining us this morning. A web replay and a replay in downloadable mp3 format will be available on our website later this morning. Have a great day..

And this concludes today’s conference. Thank you for your participation. You may now disconnect..