Good morning, ladies and gentlemen, and welcome to the Trinseo Second Quarter 2014 Financial Results Conference Call. Turning to Slide 2, we welcome Trinseo management, Chris Pappas, President and CEO; John Feenan, Executive Vice President and CFO; and David Stasse, Vice President of Treasury and Investor Relations, who will be conducting the call.

I will now hand the call over to David Stasse. .

Thank you, Kevin, and good morning everyone. [Operator Instructions] The slide presentation for today's call has been posted on the company's Investor Relations website in the webcast viewer and with the financial -- and the financial results press release by means of a Form 8-K filing with the SEC.

A replay of the conference call and transcript will be archived on the company's Investor Relations website shortly following the conference call. The replay will be available until August 7, 2005 -- 2015..

Before beginning, I call your attention to the disclosure rules on Slide 2 regarding forward-looking statements and the use of non-GAAP measures. The agenda is on Slide 3..

I will now hand the call over to the Chris Pappas. .

Thank you, Dave. Hello, everyone. Good morning, and thank you for joining us to discuss our second quarter 2014 financial results..

Our agenda today, as shown on Slide 3, will be as follows. First, I will give a business review covering highlights from the quarter, including accomplishments and the primary drivers of our performance. John will then review the details of our latest results from both a consolidated and business segment perspective.

After that, I will comment about the current business conditions and our focus for the remainder of the year, and we will then open the call up for your questions..

Before reviewing the results of the quarter, I would like to highlight a few other items. First, in mid-June, we completed Trinseo's initial public offering of 11.5 million ordinary shares at a price of $19 per share. Trinseo received approximately $197 million of proceeds from the offering, net of underwriter fees and expenses.

The majority of these proceeds were used for the early redemption of $132.5 million face amount of our senior secured notes, and John will provide additional details on the use of proceeds in his comments shortly..

Jeffrey Cote and Pierre-Marie De Leener. Both of them will be on our Audit Committee, and Jeff will chair this committee. Both Jeff and Pierre-Marie bring substantial business and board experience to Trinseo, and their appointment satisfies the current Independent Audit Committee requirements for Trinseo.

Within 1 year, we will have a fully independent 3-person Audit Committee in compliance with Sarbanes-Oxley requirements..

Third, at the end of May, we entered into an agreement with Dow to terminate the Emerging Markets Latex JV Option Agreement in exchange for a termination payment of $32.5 million. This termination payment was recorded as an expense within other expense net in the second quarter consolidated results.

This agreement was part of the 2010 carve-out pursuant to which Dow was granted an irrevocable option to purchase a 50% interest and a joint venture to be formed by Dow and our affiliates with respect to the SB latex business in emerging markets. That option is now terminated..

Before moving to the second quarter results, I want to also mention a few reporting and disclosure changes for Trinseo as a public company.

All of these changes are focused on providing more transparency to our investors to allow a better understanding of our current period results as well as improving shareholders' ability to assess future period results..

First, as part of our transition to a publicly traded equity company, we are redefining our adjusted EBITDA to one that is more similar to those of our publicly traded peer companies.

In general, adjustments to GAAP financials will be limited to onetime items, such as restructuring costs, asset impairment charges, gains and losses on the sale of businesses or significant assets, loss from the extinguishment of our long-term debt and, at times, other nonrecurring items.

Additionally, we will now be including the JV earnings of our Americas Styrenics and Sumika Styron joint ventures in our adjusted EBITDA rather than the cash dividends received from these JVs. We will also be reporting adjusted income and adjusted earnings per share. John will also discuss this in more detail later..

Second, in the appendix, you will see we have provided volume by quarter by segment for the first quarter of 2012 through the second quarter of 2014 periods. We believe volume trends are an important part of what investors need to assess our performance going forward..

1 showing our European-produced styrene monomer dynamics; and one showing our Asia cost-based, purchased styrene monomer dynamics. We'll have more to say on this point later..

Now let's turn to Slide 4. This is a snapshot of Trinseo and our performance in the second quarter of 2014 at the total company, division and segment levels. Trinseo second quarter of 2014 adjusted EBITDA was $79 million, including a $3 million favorable impact from inventory revaluation.

This includes joint venture earnings of $5 million, which was impacted by a weak June performance at Americas Styrenics due to an extended turnaround and the cost related to that..

Now let's look at the second quarter by segment. First, our Emulsion Polymers division continue to have good results at $64 million of adjusted EBITDA. Latex delivered $27 million of adjusted EBITDA during the quarter, with volumes just slightly below the historical band of 300 million to 330 million pounds.

The graphical paper market has declined about 5% in the Americas and Europe versus last year, and we do see continued price pressure globally from competitors due to overcapacity.

But our aggregate Latex margins remained steady as we continue to execute our strategy focused on growth in Asia, growth in specialty paper and board coatings, growth in carpet and diversifying into new chemistries.

Although the graphical paper industry is declining in the Americas and Europe, market segments like specialty paper and board are growing. In addition, we have seen higher volumes in the carpet market, and we continue to regain share from VAE.

In China, our Latex operating rates are the highest in the industry, which we attribute to our technology capabilities and solid reputation in the market. We signed several new paper coating customer contracts and extended others during the second quarter of 2014, positioning the Latex business for stable performance.

Our paper coating volume under contract is now approximately 70% for the Americas and about 50% for Europe through 2015, in some cases longer.

As part of our strategic growth plans to meet increasing demand for latex in China's paper and paperboard industry, we are on schedule and on budget with the new reactor in the Zhangjiagang China production facility.

It will serve mainly the paper and paperboard markets but also carpet industries, and it will complement Trinseo's other latex production facilities in the Asia-Pacific region, specifically in Korea and Indonesia. The new reactor is expected to come onstream late in the second quarter of 2015.

We are also progressing on additional capabilities in Zhangjiagang targeted toward growing applications in the aseptic packaging and construction markets. These 2 growth markets will give us increased margins and better end-market diversification from the beginning of late in the second quarter of 2015..

Now let's turn to Synthetic Rubber, which had another strong quarter with adjusted EBITDA of $37 million. The tire market has improved year-to-date through June compared to 2013 with about 5% growth in Europe and North America and about 10% in China. And we reported higher sales volume in all regions on a year-over-year basis.

In May and June, we reached record SSBR sales volumes. We made a strategic investment in March to purchase SSBR capacity rights from JSR, increasing our SSBR capacity in Schkopau, Germany, by 25 kilotons per year for a total of 150 kilotons per year of capacity.

As a result, we're able to support growing market demands for SSBR, and this capacity will allow us to continue to grow our high-value rubber business in an economical and timely manner. Our total SSBR volume for the first half 2014 run rate is about 75% above our 2012 volume, and our enhanced SSBR volume run rate is now double what it was in 2012.

We are making good progress on SSBR. In April, we announced plans to convert our nickel butadiene rubber production line to neodymium butadiene rubber. This investment will meet increasing demand for high-performance tires.

And the project is moving forward, and we are on schedule for the startup of the production line in the fourth quarter of 2015 and expect revenue and EBITDA impact in the first quarter of 2016. Finally, we are progressing our plans to invest an added capability in SSBR technology.

We call it Generation 4, and it continues to move the performance bar up on rolling resistance and wet grip. We are trialing this technology at key customers, and we will have it commercially available by the end of 2015. These investments will continue to support our rubber strategy of focusing on high-performance tires..

Now let's move to the Plastics division, which delivered adjusted EBITDA of $32 million for the quarter. Within the division, the Styrenics segment adjusted EBITDA was $27 million, including $7 million of equity affiliate income from Americas Styrenics. Styrenic polymers demand in the second quarter of 2014 was quite good.

And in Europe and Asia, we saw seasonal increases in demand in the appliance and building and construction markets, while packaging demand remained steady. We expect both market conditions to remain competitive due to new capacity in China and Middle East.

And we remain focused on controlling costs, managing operating rates and driving margin, not volume in polystyrene..

The Engineered Polymers segment delivered $5 million of adjusted EBITDA. This is the best performance for the segment since the third quarter of 2012 and was driven by strong performance in our automotive, consumer-essential markets and an improving polycarbonate business.

In automotive, market conditions continue to improve in Europe, North America and Asia. In aggregate, we saw year-over-year volume growth and margin expansion in these regions, but this was partially offset by very weak conditions in Latin America, where OEM car builds have slowed considerably.

Our refocused approach to consumer essential markets, which includes medical, electrical and lighting industries, is paying off. In the second quarter, we experienced double-digit growth in these consumer-essential markets on both a year-over-year and sequential basis.

We are well positioned to penetrate several growth markets with our high-performance plastics, including energy-efficient lighting, affordable medical diagnostics and smaller, lighter consumer electronics. We've recently secured some new accounts in the LED lighting space, and we see this momentum continuing..

In polycarbonate, global demand continues to improve. Demand is up more than 5% year-over-year, but margins remained very depressed. The second quarter margins did benefit from a small price increase and lower raw material cost.

However, the recent increase in bisphenol A prices will compress margins in the third quarter, and I'll talk more about this later. Trinseo made some big steps to change and improve our performance in the polycarbonate business.

First, we negotiated a new raw material contract for our polycarbonate production facility in Stade, Germany, which will improve the business cost position. In addition, we announced that we are changing our sourcing strategy by ending our contract manufacturing agreement with Dow for the production of polycarbonate at Dow's Freeport, Texas, plant.

We are on track to terminate this contract manufacturing agreement in October. We have previously indicated a total annual savings related to these actions of about $35 million based on 2013 volumes and costs.

Our pro forma savings in the first half of 2014 from this restructuring were approximately $20 million, which was split equally between the first and second quarters. We are hopeful that polycarbonate market conditions will be more favorable in the coming quarters and margins will expand as operating rates are now rising.

However, we believe our restructuring strategy, which is targeted for completion at the end of 2014, will results in significant EBITDA improvement in 2015, independent of improving polycarbonate market dynamics..

Turning to Slide 5. Let's discuss recent trends in our raw materials markets. As mentioned earlier, we've included 2 charts on the styrene monomer this quarter. The top chart is a proxy for our styrene monomer margins on the approximate 650 kilotons of styrene monomer we produce in Europe.

The bottom chart is a proxy for our styrene monomer margins on the approximately 300 million -- 300 kilotons we purchased on an Asia cost-basis for use in our Asian polystyrene and latex products.

As you look at the 18-month history, you can easily spot the periods when our styrene monomer margins were compressed, such as May and June of 2013 in Europe, and when they expanded, such as July to October of 2013, in both Europe and Asia. You can also see that thus far in 2014, we have not had any significant margin expansion in styrene monomer.

You will note that recently there has been some compression in styrene monomer margins both in Europe and Asia. But in general, styrene monomer margins in 2013 and thus far in 2014 are above the very weak periods of 2011 and 2012.

This trend of improving styrene monomer margins is what we expect as operating rates continue to move up structurally through 2017..

Moving to Slide 6 and butadiene trends. Asia prices were the lowest in the world for much of second quarter. Although the gap versus Europe began to close late in the quarter, our level of spot rubber sales into Asia was limited, especially as compared to the prior 3 quarters when Europe prices were below those in Asia.

Overall, butadiene prices have remained relatively stable as compared to recent prior periods..

Now I'd like to turn the call over to John for a more detailed review of our financial results at a consolidated and business segment level. .

Thanks, Chris, and good morning. As you heard in Chris' opening comments, we had strong performance during the quarter, and we are positioned to improve on that with our restructuring and other performance-enhancing projects.

As Chris mentioned earlier, we have changed our adjusted EBITDA definition to be more consistent with those of our publicly traded peer group. In the past, we included adjustments for items such as stock compensation, pension funding versus expense, JV dividends versus earnings and FX gain and loss.

Starting in this quarter, we did not adjust our GAAP financials for these items and other recurring items. Instead, our adjustments will be strictly related to onetime items, such as restructuring charges and the extinguishment of debt. In addition, we also began reporting adjusted net income, which reflects the after-tax impacts of these adjustments.

Adjustments in the second quarter included $32.5 million for the Latex JV termination; $23.3 million for the Bain Advisory fee and contract termination; and about $2 million related to the Altona, Australia, latex plant closure in the polycarbonate restructuring. As I mentioned, 1 item that we are no longer adjusting for is FX gain or loss.

Starting in the third quarter of '14, we are implementing an FX hedging program, which aims to significantly reduce the impact of this item..

Now turning to the financials, first with Slide 8. You can see the second quarter results for Trinseo along with 2 comparison periods, the second quarter of 2013 and the first quarter of 2014. All have been adjusted to reflect the new reporting format.

Second quarter 2014 revenue of $1.34 billion was 2% below prior year, driven by a 5% reduction in price, which was primarily driven by the pass-through of lower styrene and butadiene costs. These impacts were partially offset by favorable FX as the euro strengthened versus the U.S. dollar.

Second quarter adjusted EBITDA was $79 million, including $5 million of equity affiliate income. This adjusted EBITDA performance compares to $43 million in the second quarter of 2013 and $88 million in the first quarter of 2014.

I will discuss EBITDA drivers by segment in the coming slides, and this performance translated to adjusted net income for the quarter of $11 million or $0.28 per share..

Now turning to Slide 9. The Latex segment revenue of $321 million for the quarter was down 7% versus prior year due mostly to the pass-through of lower raw material costs. Lower volumes sold to the Europe and North America paper markets was partially offset by higher volume to the Asia paper and North American carpet markets.

Adjusted EBITDA of $27 million was $2 million below prior year due mostly to volume. Sequentially, adjusted EBITDA increased about $1 million due to the lower raw material costs..

Now turning to Slide 10. Synthetic Rubber revenue of $165 million increased 6% from the prior year. Higher volume, largely due to increased SSBR sales, increased revenue by 14%. This was mostly offset by the pass-through of lower raw material costs.

Adjusted EBITDA of $37 million was approximately $9 million higher than prior year due mostly to the higher SSBR volume.

Sequentially, revenue decreased 7% and adjusted EBITDA decreased $6 million due mostly to lower spot sales, the first quarter termination of the JSR capacity rights agreement and some carryover of SSBR volume from the fourth quarter of 2013 to the first quarter of 2014..

Now turning to Slide 11. The Styrenics segment revenue of $590 million for the quarter was 1% below prior year due mostly to the pass-through of lower styrene costs. Adjusted EBITDA of $27 million was $6 million above prior year, primarily due to the higher margins driven by lower material and utility costs.

Sequentially, adjusted EBITDA decreased $15 million due to a $9 million decrease in earnings at Americas Styrenics, which was related to their planned second quarter turnaround, tighter styrene margins in Asia and styrenic polymers price competition in Europe..

Now turning to Slide 12. Engineered Polymers adjusted EBITDA was $5 million, which was approximately $8 million higher than prior year, including a $1 million loss from Sumika Styron. This increase was driven by higher margins from compounds and blends products to the automotive and electronic markets.

Sequentially, adjusted EBITDA increased $7 million due to higher polycarbonate margins and higher compounds and blends volume..

Now turning to Slide 13 for the discussion on cash and liquidity. On July 14, we used $142 million of the IPO proceeds to pay down 10% or $132.5 million face amount of bonds, plus the 3% premium and accrued interest. Our Q2 ending liquidity level, excluding this $142 million, was $675 million..

Free cash flow was breakeven for the quarter and included $56 million in payments for the Emerging Markets Latex JV Option and the Bain Advisory Agreement termination. Capital spending for the quarter was $15 million, and we did receive $7.5 million of dividends from Americas Styrenics..

In addition, we received $5 million from the Livorno land sale that we previously disclosed. Year-to-date capital spending was $56 million, including $26 million for the JSR capacity acquisition in the first quarter. We are still on track to meet our CapEx target range of $110 million to $120 million for the full year. .

With that, I will now turn the call back to Chris. .

Thanks, John. Let's turn to Slide 15. This is the same styrene raw material slide as discussed earlier. In mid-June, we saw an increase in spot benzene prices due to supply limitations and some increased styrene production in the U.S. In fact this run-up drove spot in July contract benzene price in the U.S.

to an all-time high and pushed global prices higher as well. July contract styrene price also increased but to a lesser extent, compressing styrene margins on a spot basis in the back half of June and on a contract basis into July. This margin compression was particularly acute in Asia.

As we progress to the third quarter, we expect benzene prices to moderate through more supply and styrene prices to firm up on the basis of post-summer demand improvements. Therefore, margins should trend up during the latter part of the third quarter in both Europe and Asia.

Second quarter to third quarter performance should be comparable, but anticipated margin expansion in the third quarter was deflated by the benzene strength in June and July. Perhaps, the fourth quarter will yield some styrene margin expansion..

In order to help you understand the magnitude of the styrene dynamic, I'd like to provide 2 rules of thumb regarding our styrene margins. We've been producing about 650 kilotons of styrene monomer per year in Europe.

Therefore, a $50 per metric ton change in styrene margin over benzene and ethylene in Europe results in a change of about $35 million of annual EBITDA.

Now if you also consider that we purchased about 300 kilotons of styrene monomer per year based on Asia benzene and ethylene costs, we also have on a $50 per metric ton change in styrene monomer margin over benzene and ethylene. In Asia, that alone would be about $50 million of annual EBITDA change.

Together, those equal roughly $50 million of annual EBITDA change from a $50 change in margin per ton in styrene monomer..

Now let's look at a real example of this leverage to styrene monomer margin in our business. Look at the third quarter of 2013, where we saw significant styrene monomer to ethylbenzene spreads. So far this year, we have not seen those kinds of margins, but we do expect widening styrene margins in the fourth quarter.

We still hold the view that styrene monomer is generally tightening globally, and we do expect periods of stronger styrene monomer margins through the end of 2014 and into 2015, provided we get some demand lift out of Asia.

Exactly how much styrene margin we will get in a specific period of time is hard to predict, but we believe styrene margins are on an upward trend..

Now let's turn to Slide 16 for another look at butadiene. Butadiene Asia prices have been increasing due to lower supply and better demand for downstream products. The price differential compared to Europe, although small, has increased, which improves the chances of arbitrage for our Synthetic Rubber business.

If you recall, we have grown the percentage of rubber revenue that is sold through contracts to more than 80%. And because of this, our exposure to the spot market is reduced from prior periods..

On Slide 17, you can see a snapshot of our second half of 2014. Overall, we expect 2014 year-end adjusted EBITDA to be comfortably ahead of our 2013 result.

The third quarter of 2014 will have some challenges, notably the summer slowdown in Europe and an outage-driven spike in global benzene that will constrain styrene monomer margins and reduce polycarbonate margins. We also had our ESBR turnaround and a short unplanned outage at our Schkopau site in July.

All of these items, however, will be behind us by the end of September, and we expect a good fourth quarter. We are seeing some pretty good trends out there, including moderating benzene costs, rising butadiene demand and prices in Asia. Global polycarbonate demand is increasing.

And operating rates are improving and will improve further as capacity comes offline in the fourth quarter. These higher operating rates in polycarbonate, combined with announced price increases, have the potential to improve our polycarbonate margins going into the fourth quarter. Our major customers continue to be aligned and committed to Trinseo.

We signed new customer contracts and renewed several existing contracts, which will result in increased volumes in performance latex, carpet latex and automotive, electrical and lighting compounds.

It is becoming clear that the replacement tire market is rebounding after 2 slow years, and we are in the process of extending our contractual relationships with large tire producers beyond 2015..

Now let's turn to Slide 18. I'd like to highlight 1 of our 5 objectives for 2014. This 1 is focused on environmental health and safety. Our company is committed to reducing our environmental footprint and managing our products in a safe and sustainable manner.

As part of our business strategy, we are developing innovative solutions for our customers, and we are seeking technologies and solutions that will help their products contribute to a more sustainable world. In July, Trinseo published its 2013 Sustainability and Corporate Social Responsibility Report, the fourth report since our formation in 2010.

In 2013, the company reported a 2% reduction in electricity use, a 2% reduction in total chemical emissions, a 5% reduction in volatile organic compound emissions and a 4% reduction in waste compared to the previous year. We also achieved a 26% reduction in waste compared to 2011.

This is a testament to our company culture of operational excellence and continuous improvement in cost and efficiency.

The report also profiles how the company's products help its customers improve their sustainability in areas such as LED lighting, green tires, smart meters, lifesaving medical devices and lighter weight cars that get better mileage.

This report also outlines Trinseo's programs and product stewardship, quality, safety, ethics and compliance, volunteerism and responsible care. The full report is available on the sustainability section of the company's website..

Let's turn to 19. In conclusion, we feel very good about the second quarter of 2014, our performance, the successful initial public offering and our focus on shareholder value going forward.

While the third quarter does have a few challenges, we view the benzene pressure as temporary, and the seasonal and turnaround effects on the business is a third-quarter-only issue. Based on that, we are affirming our view of a good fourth quarter result as well as a full year 2014 result that will outpace our 2013 result..

More importantly, our thesis for Trinseo value generation in 2015 remains solid. Our thesis has 3 components. First are the structural changes that are driving Trinseo value.

These include the restructuring of our polycarbonate business, the structural changes we are targeting for our balance sheet and the continual structural changes occurring in the styrene monomer and polystyrene industry and landscape. Second is our profitable growth agenda that we are executing to increase higher value EBITDA.

This includes our focus on new capacity for SSBR, our new SSBR technology, neodymium PBR and rubber customer expansion into Asia as well as our focus for growth on automotive and consumer-essential market compounds, our focus on growth and performance latex and carpet latex.

Third are the cyclical upsides we have to drive EBITDA and cash flow as economic conditions improve in Europe and elsewhere. These include the rising operating rates and the potential for higher margins in styrene monomer, polycarbonate and polystyrene over 2015 to 2017..

We continue to be excited about the future. And now, Kevin, we can open the phone line for questions. .

[Operator Instructions] Our first question comes from Bob Koort with Goldman Sachs. .

Chris, can you talk a little bit about any impact, a vital impact, you might have from benzene that rolls into the third quarter? And then I'm also curious in the Americas Styrenics turnaround.

Was that just a vanilla turnaround? Or were they able to do anything around cost or capacity there?.

Yes, in the third quarter, Bob, we do expect, as we said, that benzene pinched to impact our third quarter results. It'll come in 2 forms. One, we will not have, of course, a styrene monomer expansion, although we may get a little bit of that in September.

But we're going to have the compression of styrene monomer in the first couple of months of the third quarter. And we're going to see bis A cost up in the third quarter, and that's going to contract our polycarbonate margins. So those are going to be the 2 direct effects in the third quarter above from that benzene.

And if I were to size that for you, I think you should think about the polycarbonate effect is probably $3 million to $4 million. And in our Styrenics business, while we do see that compression, we actually think overall Styrenics will in the third quarter perform somewhere in between the second quarter results and the first quarter.

So we expect that to be a little bit weaker but improving as we see better results out of AmSty. I'll let John comment a little bit on the AmSty turnaround, which was a vanilla turnaround but did not turn out to be vanilla. They had some issues and problems associated with it that lead to some extra costs. .

Yes. That's exactly it, Bob. The Q2 performance of AmSty was all driven by the major turnaround at the St. James facility. During the turnaround, they found a couple of items that they had to address during the turnaround, which added to the complexity of it. It's pretty much done.

And they also had -- in light of that turnaround, they had to purchase some styrene monomer externally, which -- versus manufacturing internally, which was a drag as well. But looking towards the back half of the year, we expect them to be back to their run rate of what we experienced in Q1. .

And John, could you give us some help on tax rate assumptions as you finish off the year?.

one, the improvement in our rubber business that Chris and I talked about, which goes to our holdco structure in Europe, which is incredibly efficient. As we continue to increase EBITDA and continue to delever the business, those will all be beneficial in driving the effective rate to a more reasonable level. .

Our next question is from David Begleiter with Deutsche Bank. .

Obviously, very impressive growth in SSBR, particularly the enhanced grades.

Could you just remind us of the margin differential, maybe ESBR to SSBR to enhanced SSBR?.

The margin differentials are substantial between those, and it depends a little bit, of course, on how is ESBR trending as a commoditized rubber. But you think of them as about 2 to 2.5x, Dave. And enhanced SSBR is at the high end of that range, SSBR would be at the low end of that range.

I think the important thing you noted is we have been very successful at growing our SSBR business and, more importantly, shifting our rubber business to high-performance rubber. And that's going to continue with the conversion of capacity, the acquisition of JSR.

So our strategy on tires, which we implemented really from day 1 in the company, was focused on high-performance tires. And to do that, we need the technology and the capability of SSBR and the other rubbers we're developing. .

That's very helpful. And then 1 quick housekeeping item for John.

Going forward, how should we think about the corporate line to trend by quarter?.

The corporate line that we had in there you can expect that to stay relatively flat, somewhere in the range of $18 million to $20 million. And again, as part of our culture, any potential increases or inflationary items that we would see are being addressed through efficiencies and productivities.

That's the culture that we talked about and that we continue to execute on and that you can expect going forward. .

The next question comes from Kevin McCarthy with Bank of America. .

This is Matt Thone [ph] filling in for Kevin McCarthy. I want to see if you guys could provide any color on styrene monomer operating rates for both you and the industry for 2Q and maybe a forecast for the third quarter and going forward. .

Sure. There really -- I think globally the best number we gave you is mid-70s on styrene monomer. They've been trending up. We expect them to continue to trend it up. The forecasted operating rates -- we just actually had a pretty good review on this with DeWitt yesterday -- are looking very good over the next couple of years.

There is limited capacity coming, and decent growth rates out of Asia are what's required to drive that. But we see those operating rates increasing looking forward as we have over the last 6 months. .

Our next question comes from P.J. Juvekar with Citi. .

So on the SSBR market, you mentioned 5% growth in the industry, but you saw SSBR growth of 30%.

So was there some inventory build? Or is it SSBR gaining share from ESBR?.

Yes, the tire market growth, P.J., is 1 thing. The high-value tire market growth is another, which is outpacing that. And the quantity of SSBR and other high-performing rubbers needed to satisfy increasing demands in the high-performance tire market is growing. And that kind of creates the multiple effect that you see in those growth rates.

And frankly, we're doing quite well in SSBR as a company. So that's how we get to those kinds of numbers both on market and our specific capability, P.J. .

And you mentioned polycarbonates, can you talk about the pace of restructuring, how that is going, and if you're on track to go back to have the profitability that you had in the last peak?.

We're absolutely on track. The restructuring has 2 components. It has the exiting of the contract manufacturing agreement in Freeport, Texas. We will exit that as of October 1. That component is about $21 million of fixed costs that we'll no longer have in the company.

We have certain raw material and other contractual changes in the business that will occur January 1, 2015. The aggregate of those restructuring efforts is what equals the $35 million of pro forma improvement.

And as we stated, if we were to have had those changes in place for the first 6 months of this year, the pro forma savings would have been about $20 million; so running slightly ahead of that about $10 million per quarter, P.J., so on track, on schedule.

And it'll start to show itself directly in the fourth quarter and more completely as we move through beginning of 2015. .

Our next question comes from Vincent Andrews with Morgan Stanley. .

Kind of as a follow-up to some of this. There's been a lot of conversation in the equity analyst community recently over this concept of peak auto. You just laid out sort of why on the tire side of things your mix trends or your mix effect of how you're positioned is very favorable regardless of whether peak auto exists or not.

Maybe you could just expand on that and then also address sort of how those same dynamics would work on the light-weighting side of your business. .

Sure, Vincent, yes. So I think you're exactly right, by the way, on tires. So remember, replacement tires is 75% of tires around the world, and OEM is 25%, roughly, so auto production matters in tires.

But what really matters is replacement tire purchases and, importantly, in the future how much of that replacement tire market is going to be high-performance tires because the cars that were bought from the OEM have high-performance tires on them.

So the replacement tire market still has a lot of legs in it in terms of growth of high-performance tires independent of whether the OEM rates on autos are moving up over time. And that's an important trend we believe for our rubber business. In light-weighting, Vincent, Plastics, we have had a very good automotive business, as we stated.

It continues to be strong. Light-weighting continues to be a major theme. We're, obviously, very active in that traditionally on the interior cars. Recently, we've moved to structural exterior components. We're having some very good success in those applications.

And we see automotive and, in general, compounding, where we're focused now on these consumer-essential markets, lighting, medical, electronics, as really a very interesting growth engine for the company more broadly in compounds, fueled by light-weighting in auto and the other things that I mentioned in lighting and medical and electronics, which we are also very active in.

.

Our next question comes from Frank Mitsch with Wells Fargo Securities. .

It's Sabina Chatterjee in for Frank. Just back on Synthetic Rubber. We've talked a lot about the impressive volume growth. But on the flip side, you gave up a fair amount on price due to raws.

And Chris, I know you touched on this with the contract structures, but with all the initiatives in this segment to go more premium, when can we expect results to get a little less sensitive to raw material prices?.

Well, we don't -- we -- just to be clear, our model in rubber, and particularly SSBR, but in rubber is a fixed-to-growing margin model. We have prices that move with raw materials, of course, because butadiene complex goes down or up, but our margins do not change with respect to that.

So you have to separate out, say, revenue from margin a little bit because we have a model that we've effectively put in place that's highly contract driven where we have fixed margins in our rubber business based on grades, based on performance, and we continue to execute that model. So we don't look at price.

We look at margin and volume, and our volumes are growing, and our margins are stable. And that's what we expect to do going forward. .

So as you go more premium, can we expect better margins logically or... .

We think that the better products we're bringing out, Generation 4 SSBR, neodymium PBR that -- and our product looks pretty good. It's early stage yet, market development. We think those products can carry some premiums, but we think at the other end of the product mix, we may see some decline in premiums.

So our model would suggest that overall in SSBR, we can maintain our margins -- and in high-value rubber, I should say, maintain our margins and grow our volume, which would grow our EBITDA.

We may be able to increase our margin some, but our fundamental model is really to take advantage of new technology, secure long-term contracts, grow our volume and maintain these excellent margins over time. .

Okay. And then on the projects that you have across the businesses, which are expected to start contributing to EBITDA late this year and into next.

Standing here today, how comfortable are you with the timing and contribution of each of those?.

Well, I mentioned in the script that the Zhangjiagang expansion is on time, on schedule. The neodymium conversion is on time, on schedule. The JSR purchase is behind us, and we will be filling the JSR capacity over the course of '14 and '15. The polycarbonate restructuring is on time, on schedule.

So we're on time, on schedule and believe they're going to happen as planned. .

Our next question comes from Laurence Alexander with Jefferies. .

This is George D'Angelo on for Lawrence.

Do you expect there to be an inventory headwind in Q3?.

You mean from an inventory reval FIFO effect?.

Yes. .

Is that what you're asking? Yes, John?.

No. De minimis, I mean we didn't have much in either Q1 or Q2 compared to some prior quarters historically, but we would expect it to be de minimis. .

Okay.

And following the refinancing, what is the run rate for interest expense? And any tax rate impacts going forward?.

The quarterly run rate for interest expense... .

Quarterly run rate, $30 million approximately. .

Our last question comes from Robert (sic) [Roger] Spitz with Bank of America. .

In regaining our share of SB latex versus VAE in carpets, is that based on BD going down to $0.60 to $0.70 a pound? And if it is, do you have any view of how that might look if BD got back to the up 25 level?.

One, you have to have a very high BD price in order to have VAE advantaged enough to overcome some of the performance issues. It's also been the case that there have been some performance issues in VAE as people switched during this very high, spiky BD period.

Now having said that, yes, if we get a big differential, you can see some carpet particularly, which is where this dynamic occurs. In North America, you could see some of those carpet mills perhaps switch back to VAE; but you'd have to have, I think, a pretty big delta between BD and, of course, the ethylene complex.

I can't tell you whether $1.25 would do it. But you can see we were quite high back in January, February '13. That's where really started to see that kind of problem in North America. I want to make sure y'all understand that's only in North America. That's not a European issue for obvious reasons, the relative ethylene complex cost.

And it's a small part of our business, guys. We sized that for you 1 time at less than several -- a few percent of our Latex business is vulnerable to that dynamic on a global basis. It was a relatively small volume. So I think there was a lot written, a lot of noise, but we're happy to have it back.

It's helpful, and we expect to be able to keep it in the current forward period based on cost and performance. .

And what percent of European SSBR demand is satisfied by imports, would you say?.

We don't know that number, but it was minimal, but we'll get back to you. The imports would come out of, of course, Asia, and the importers would include companies like JSR and Nippon [ph] Zeon [ph] and a few others. And there are some. I don't know the number off the top of my head. We'll get back to you. It's relatively small.

Okay, Kevin, I think we're wrapped up. Thank you, everybody, for listening in, and we'll be talking to some of you later. Take care. Bye-bye. .

Ladies and gentlemen, this does concludes today's presentation. You may now disconnect, and have a wonderful day..