Good day, everyone, and welcome to the Eastman Chemical Company first quarter 2012 Earnings 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.

Okay. Thank you, Jenny, and good morning, everyone, and thanks for joining us. On the call with me today are Jim Rogers, Chairman and CEO; Curt Espeland, Senior Vice President and CFO; Ron Lindsay, Executive Vice President, PCI Fibers; and Fernando Subijana, Manager, Investor Relations. Before we begin, I'll cover 2 items. First, during this call, you will hear certain forward-looking statements concerning our plans and expectations for full year 2012 and 2013, as well as the acquisition of Solutia. Actual results could differ materially from our plans and expectations. Certain factors related to future expectations are or will be detailed in the company's first quarter 2012 financial results news release and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for full year 2011 and the Form 10-Q to be filed for first quarter 2012. Second, certain Eastman financial measures referenced in this presentation are non-GAAP financial measures, such as earnings per share and operating earnings, that exclude transaction and financing costs related to the pending acquisition of Solutia and another postretirement plan gain. Also referenced are cash from operations excluding capital expenditures and dividend. A reconciliation to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the transaction and financing cost related to the pending acquisition of Solutia and other postretirement plan gain, are available on our first quarter financial results news release and the tables accompanying the news release available at www.investors.eastman.com Lastly, we have posted slides that accompany our remarks for this morning's call on our website, again at www.investors.eastman.com, and they're located in the Presentations and Events section. With that, I'll turn the call over to Jim.

Thanks, Greg, and good morning, everyone. And you'd hopefully noticed Greg mentioned that Ron Lindsay is on the call with us this morning. Ron is one of 2 EVPs here along with Mark Costa. Ron has Fibers and PCI, and I imagine many of you have met Ron, and I'm pleased to have him on the call. Just to show that I'm a very generous CEO, he has a bit of good news, and rather than me saying it, I'm going to let Ron say it because it was his team that worked on it. Plus I'm guessing there may just be 1 or 2 questions on cracker spreads, et cetera, so Ron's probably the right man to have with us here on the call. As I normally do, I'll start with an update on our most recent outlook statements. Back in January, we said we expected first quarter 2012 earnings per share to be between $1.05 and $1.15. This guidance was given prior to the implementation of a pension accounting change we announced in March, and Curt will have more on that in his remarks. With the pension accounting change, we reported first quarter EPS of $1.22, which is on a comparable basis. It's near the top of our range. We also said that we expect to make progress this year on a number of organic growth initiatives, and you will hear this morning that we have completed several capacity expansions recently, and our Perennial Wood product is on the shelves in 50 Lowe's stores. In addition, we said we expected to close the Solutia acquisition by midyear 2012, and we remain on track to do just that. And we guided full year 2012 EPS to be approximately $5 and that the pension accounting change would add approximately $0.30…

Thank you, Jim. On Slide 8 is an update on our thinking about options to further leverage Eastman's exposure to the propane propylene spread. Back in December 2010, when we restarted our third olefin cracking unit that had been idled, we were a little ahead of the market in recognizing that the cost position of our crackers had improved dramatically with the shale gas boom, and restarting that cracker was a winner on day 1. In the middle of 2011, as we were considering all of our options, we said we are going forward with a number of incremental debottlenecks at our Longview facility and we expect those to come online in 2012 and 2013. In January this year, we said we were considering an olefins conversion unit or OCU in Longview. The OCU investment has a very strong return profile, well above the cost of capital and would allow us to take advantage of the attractive propylene market in the U.S. But we've continued to explore all of our options and have identified another attractive alternative, a propylene purchase agreement with a third party that will allow us to participate in their planned propane dehydrogenation unit with cost base pricing and capital recovery spread out over the term of the agreement. And while the OCU option remains a strong alternative for us, we are far enough along that we've signed a contract for our portion of the capacity from the planned PDH unit. This agreement will give us similar propylene economics to the OCU and preserves our capital for other uses. The project owner is working on finalizing agreements with enough customers to proceed with the PDH unit. And assuming they're successful, we would expect an announcement to be likely in the next few weeks. I'll also be speaking at an investor conference in the second half of May. At that time, I'll be able to update investors on where things stand. Jim, back to you.

Thanks, Ron. Nice job by Ron and his team. So I'll continue on Slide 9, Specialty Plastics, which as expected, improved substantially from the fourth quarter. Sequentially, earnings increased by $16 million as raw material and energy cost declined and volume increased to 9%. Year-over-year operating earnings declined as a combination of lower volumes, lower capacity utilization and higher raw material and energy costs were partially offset by higher selling prices. Looking at the full year, Specialty Plastics will begin to benefit from a number of capacity additions, including a second Tritan copolyester resin line, which came online during the first quarter and the expansion of our cellulose triacetate or CTA capacity, used in the LCD market, expected online midyear. The key variable for Specialty Plastics continues to be sales volume and while we have seen it improved from fourth quarter levels, it is not yet back to where it was in first half of 2011 due to weakened demand. Paraxylene recently has been less volatile but remains slightly disadvantaged compared to raw materials for competing products. Considering all of these factors, we expect Specialty Plastics operating earnings to be approximately $130 million, which would also be record performance. So have I mentioned we're expecting record operating earnings for all of our segments in 2012 after record performance in 2011? Seriously, developing a track record of consistent year-over-year earnings growth is a top priority for us. And that's a good segue into our guidance for full year 2012 on Slide 10. We do expect slow economic growth globally but with the U.S. remaining solid. We anticipate that Europe will remain weak but not deteriorate from current levels. Asia, and particularly China, is the region with the most uncertainty as the growth rate has been slowing, and we are seeing the…

Thanks, Jim, and good morning, everyone. I just have a few slides this morning, and I'll begin with our financial highlights on Slide 13. We generated $19 million of cash from operating activities in the first quarter. This really starts with, first and foremost, net earnings remained solid across all of our businesses. In working capital, receivables increased, as expected, due to higher sales revenue. Additionally, our business and supply chain teams are doing a great job managing inventory quantities, which, combined with moderated raw material cost as a whole, provided operating cash flows of $14 million in the quarter. We also made a $25 million contribution to our U.S. defined benefit pension plans and continue to expect the full year contributions will be approximately $100 million. Looking at free cash flow in the quarter, it was a negative $107 million, which is a good result in what is typically our weakest quarter for free cash flow generation due to seasonal working capital requirements. Next on Slide 14 is a review of our pension accounting change. You may recall we announced this in early March. We believe the change improves transparency, enabling investors to more clearly evaluate our operating performance. At a high level, actuarial gains and losses for the pension and OPEB plans are now recognized in operating results in the year they occur, rather than being amortized over future periods, as they were previously. The mark-to-market gains and losses are recognized annually in the fourth quarter and can be found in corporate expense rather than being allocated to the segments. An interim remeasurement triggered by curtailment, settlement or significant plan changes will be recognized as a mark-to-market adjustment in the quarter in which the triggering event occurs. An example of that is what we recognized in first quarter…

Okay, thanks, Curt. Jenny, this concludes our prepared remarks. We are ready for questions.

[Operator Instructions] And so we will go to our first question from Frank Mitsch with Wells Fargo Securities.

I guess this is a question for Ron. There were some discussion about restarting the fourth cracker, and then this morning, you're talking about investing in a PDH unit. Does that preclude restarting the fourth cracker? Where do you stand on that decision-making process?

Frank, let me go back to what was driving a lot of our assessment of our options here. We buy a substantial amount of propylene still. Even though we make it, we're net short. We're net long on ethylene, and so we've been looking at how to address, in particular, that position on propylene and effectively fully backwards integrate our propylene derivatives out of Longview. And so we looked at a variety of options there. Starting the cracker was certainly one that we've gone through carefully. It did not meet all of our propylene needs to fully backwards integrate, and unlike when we did restart it, it was quite a bit more expensive. It was in a poorer condition, needs a lot more work, so the capital requirement there was much higher, and that really drove us to look at is that really the right approach to proceed. And that led to these other options being surfaced. And we believe this one is the best one of the bunch because of the impact it's going to have on us, as well as the fact that we can take that capital we would've gone to rebuild something and to get the same position and take that capital elsewhere.

Okay. Great. And then you expect this PDH unit to be fully constructed by 2015? And am I correct that this project has not been announced yet publicly?

You're right on both fronts there.

Frank, this is Jim. We're just a little ahead of the game on this one, but we thought it was important. We know, for a few calls now, people have been looking at so what's Eastman going to do down there in Texas. And let me just say, this is a good, good outcome. We're getting the economics of the olefin conversion unit, close to it, and saving our capital. And as we look at doing acquisitions and the other kind of growth initiatives we've got, we've got to do some more smart moves like this, where you get the economics but don't spend your capital. So I just want to make sure people understand how happy we are with this contract. They still got to sign up a couple more folks. I don't think you have long to wait. Right, Ron?

That's right.

I mean, this one looks like this is a good project. They're being smart. The people building it are being smart about how they're managing their risk and pretty much locking up the output of this thing. That makes a lot of sense to me. So this is a win-win for the guys building it and for us as well.

Well, I must say I do admire the way that you keep us sitting on the edge of our seats. You have Ron giving some news next month. You've got Greg Nelson giving some news next month, so I just can't wait for the next piece of news out of EMN, I've got to tell you.

Hey, we're trying to look down the road. You might have noticed, we're trying to be a little more long-term focused. For example on this Perennial Wood, if this thing -- if this hits the way we got a shot of it hitting, you're not going to feel it in this first thing we built because it's smaller and it's really just to tease the market out. But when we go to a commercial scale on Perennial, it should look very good.

Well I was going to ask a different question, but why don't we stay with Eastman -- I mean, Perennial Wood? You said the initial response has been quite favorable. Can you give us some color around that, any sort of metrics in terms of why you're feeling better about that today than you did perhaps a couple of months ago?

Yes, and I'm not going to steal Greg's thunder. I will say the response, I mean, there's different metrics you get in terms of response to ads, response to turning, I can't remember what you call it, but when people first call in, that initial lead, turning it into an actual sale. I mean all those kind of numbers are good. I guess while I'm here feeling good, I want to make sure I caveat it a little bit because this is still pretty early on. We're still getting the bugs out of a few things in the chain. But in general, the reception we get from people who know what they're talking about like the folks within Lowe's or the folks within Boston Cedar, I think this one can be pretty good. But Greg will talk some more about it when he gets up in front of people in a couple of weeks.

And we'll hear next from David Begleiter with Deutsche Bank.

Jim, just on your coal gasification facility in Kingsport, I think you said in the past it was advantaged up until nat gas got low at $2.50 per MMBtu, I might be wrong in that, but given where gas is, is that facility, is that still to [ph] change, still advantaged given low-priced nat gas in U.S.?

Yes, it is. I mean we went back and looked at the history. We could not find a time when we were not advantaged being on coal here in Kingsport. And of course, there's 2 moving parts. There's the price of coal and what we pay for it. There’s the efficiency of how we run our operations. There's more than 2 moving parts, and then there's the price of natural gas. The other thing I would ask you to remember is you're not necessarily competing with those products. You're not necessarily competing against other people who are natural-gas-based. So when we think globally with where we take those products, a lot of people are competing where they’re naphtha-based or natural-gas-based in other regions of the world. But yes, we're still pretty pleased with the economics of our gasification facility here in Kingsport.

And just on the PDH [indiscernible], you will not be making any capital investment, correct?

That's correct.

Did you consider making one or taking ownership interest in the facility?

Well, this is Jim again, we anticipated the question, why not do 2 or 3 things, why not restart the cracker, why not do the OCU, why not take a chunk of this PDH. We're really trying to think about our long-term strategy, how we deploy our cash, our resources. And we don't necessarily just want to be a bigger ethylene producer. And if we did, it wouldn't be with the size crackers that we have in Texas. So we were more than willing to go ahead with the OCU. That made a lot of sense. But this was a very elegant solution in terms of saving our capital and getting what we need. By the way, the economics look different when you're talking about replacing or backing out your propylene purchases versus just being a merchant ethylene or propylene producer. So we really like where we're ending up. I hope they go ahead and wrap up their project and get it announced publicly so that we can talk more about it.

And Jim lastly, can you comment on the propane propylene spread in Q1? And can you quantify the benefit to you guys?

Yes. We did it once last year to kind of lay it out for people. We said that wasn't the emphasis we wanted people to think about. We didn't want them just focusing on propane and propylene. I can tell you, it was good again in the first quarter. Of course, the ethylene was what was really good in the first quarter if we’re showing you everything. You've got to think more than just the propane/propylene. It's also how the ethylene did. Year-over-year, it's going to be -- the whole cracker spreads are going to be pretty good for us compared to last year. I was sitting here thinking as much I don't want to talk about it, it's nice to have these spreads, nice to have these spreads this year. The other thing I'll say on it is there's some chatter about whether or not propane is going to come off in the middle of the year, maybe go a little long. And that very well could be. One of the things I thought about is you're perhaps more likely to hold on to spread if propane is what comes off. Just propylene going up sometimes, the way we move so much propylene through derivatives, you don't -- you can't always get the pricing and the derivatives that equates to what the propylene went up. And we talked about that last year in the second quarter when people were thinking we're going to do better than we did. So propane coming off, you may be more likely to keep some of that spread, but as we looked forward in the year and looked at our numbers, we just kind of assumed it was steady-state where it is now.

And moving on, we have a question from Kevin McCarthy with Bank of America Merrill Lynch.

Jim, just a couple of clarifications on the new PDH contract. On a pro forma basis for that contract, does it move your long, short position to 0 or exactly 100% integrated? Or would it be more or less than that? And then second, am I correct in understanding it's a propane-plus deal rather than a market-minus deal?

I'll let Ron answer that.

On the balance -- this will effectively make us balanced on propylene. So between this contract and what we make, we'll be covered for our needs. And it is a cost-based off propane formula.

Okay. Great. Then a couple of questions on CASPI. I guess I was a little surprised -- maybe I shouldn't be surprised that you've sold out your Regalite capacity so quickly. It seems like you had 20% every so often and whereas most units take a year or 2 to load, this thing is sold out in a quarter or 2. Can you help us understand why that is the case? And if it keeps happening, why you might not just double capacity or get more aggressive on increases there?

Yes. Well, thanks for noticing, by the way, that we have done a good job. We've got, again, some wind at our back in this marketplace. I mean, very strong growth if you think about all the personal hygiene, adhesives on diapers, et cetera, in the emerging markets. It's a pretty strong driver. Of course, we're not the only player in this marketplace. So other people tend to want to expand their capacity too. We're being very disciplined in how we approach it. I can say, though, that we think there's a great opportunity to do something perhaps a little larger in Asia in this marketplace. But I don't have anything to talk about or announce yet. But it would be logical that people would be looking for capacity in Asia, and we would be a logical player to do that. So but we'll just have to put a placeholder there and see what we can make happen.

Okay. Then also on CASPI, Jim, as I think about it broadly, solvents and various specialties that you sell, what percentage of CASPI sales would you say goes into architectural coatings? Is that meaningful? And related to that, might there have been any benefit related to favorable weather through the spring?

Yes, that's a good question. We showed building and construction at about 17% of CASPI sales. And when we say favorable weather, we've got our little North American hats on, and so we think about North America had favorable weather. Of course, the way I think I've heard Eastern Europe, et cetera, had very extreme cold weather. So it's a global business. I would guess there was some benefit from that, but it's hard to pin down. Basically, CASPI's just firing on all the cylinders. A little sloppiness in solvents, particularly in Asia, but in general, firing on all cylinders.

And we will hear next from Bob Koort with Goldman Sachs.

Jim, you referred to something in one of your remarks about propylene prices don't really affect your revenue line because you've got to convert that into propylene derivative price hikes. And then you mentioned also maybe propane gets soft in the summer. Can you just talk a little bit about what you expect on your propylene derivative pricing and what the usual lag might be in the marketplace between olefin changes and your product price changes?

Yes. If I implied that it didn't have an impact to something, that was wrong. I was just saying it's not a one-for-one relationship. So propylene can move, but a number of our derivatives are considered more specialty, and so you don't just jerk those around each week as propylene’s -- you get the last spot price on propylene. That's more what I was saying. So it's not quite the same as being a merchant seller of propylene. We take it through other products. So I wasn't even talking so much about a lag, although there would obviously be a lag as you process it further. I was just meaning we're trying to be more disciplined in our pricing when it comes to our end products, priced more off of value where we can. But without a doubt, higher propylene prices aids our pricing. Now I can also tell you that pricing in general, not just in this area, but I'd say pricing in general is a little sloppier in the marketplace than it was a year ago. So I've got Ron sitting next to me, and I think he would say the same thing within PCI and CASPI. Last year, the demand was so strong that you pretty much got the price you wanted or you could sell it somewhere else in the world. And with Asia and Europe being fairly loose right now, you don't quite have that pricing power that you had a year ago, and that's not so much an Eastman comment as it is a market comment in general.

Okay. And on your PDH unit, obviously, you're reluctant to name the counter-party until they talk about it. But the one PDH unit out there had a few growing pains, and so there appears to be some magic to the art of PDH. Are you concerned at all about start-up date, timing and the technology necessary here? Or are you pretty confident it will come on and start providing some help in 2015?

Ron?

Yes. We certainly are aware of some of the history here, and that was part of our due diligence as we went through this. I would say that we went in with that cautionary view and got ourselves comfortable that the technology is very viable that some of the -- we understand some of the reasons for prior concerns with another plan out there and feel like those are not things that are going to translate to this project. So the long short of it is we feel good about it from a technical and operational standpoint, as well as obviously the deal.

All right. And one last one if I might, it seemed like one benefit of turning your fourth cracker maybe into some sort of metathesis-type unit is you could consume ethylene, and while producing ethylene is wonderful for the next 3 or 4 years, then maybe you go through the typical down cycle. Have you ever considered maybe getting a pass-through ethylene price with somebody if they'd be willing to take the other side of that? Or how do you think about your ethylene price and getting it to market from Longview versus if you were down in the Gulf Coast?

I'll get Ron to answer this again. But we do have a contract with Westlake right now, which affects the pricing we get for ethylene. But Ron?

That's right. Certainly, as we look ahead, we haven't excluded the capability of doing the OCU with this other deal. So if we judge later that, that was attractive, something we wanted to do, we’ve still got that option. So we've kept some optionality there. But we’ve got our immediate concern dealt with, with the PDH deal that we've got.

Bob, I think we size this for people before that we said in OCU or in this case a contract, probably gives us slightly more benefit than we got opening up the last cracker we did. So you put that on an annual basis, that's fairly significant. And we can go to the next question.

And we'll hear next from Jeff Zekauskas with JPMorgan. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: You spoke of your earnings in the first half this year being roughly flat with your earnings last year. What were your earnings last year in the first half?

Jeff, again, I think if you look at our comments, I said that first half this year would be roughly equivalent to the second half of this year. I mean, I don't want to beat around the bush. We're trying to get away from quarterly guidance. We're trying to get people to think about us longer term. A lot of the things we're spending money on are projects that have long-term payback like Perennial Wood and microfibers, et cetera. So excuse me for taking your question to make this little point. But so while we gave some guidance about first half this year to second half next year, and a lot of that is just based on the thought that maybe the economy is not going to slow down and so maybe we'll get a little bit of a pickup in the second half, maybe fourth quarter won't be the typical down -- such a down quarter for us like it is so many other years. But again, it's pretty early in the year to try and be making these calls. Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division: Okay. Will you generate much free cash flow this year?

When I look at free cash flow expectations with our operating cash flow, we have some working capital programs we're trying to actually implement to actually improve our cash flow that reduce capital expenditure. On legacy Eastman, the way I look at it right now, we’ll probably generate in excess of $300 million in free cash flow.

And that's after your dividend.

And that's after CapEx and dividend.

And we will move on to our next question from Nils Wallin with CLSA. Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division: On CASPI, you noted some weakness -- some volume weakness in polymers. Was that mainly in the auto side or in the packaging side? Just a little bit more color on that would be helpful.

Yes. When we think polymers, I think the weakness we're talking about as compared to last year, last year we had price increases going up on April 1. And so we got some nice buying going on in March, as you might imagine, last year. So year-over-year comparison, tough comparison for our polymers there. In general, all of CASPI seems to be doing quite well here. I would say auto, if you look specifically to autos, where some of our polymers go and CASPI some of the higher-margin stuff goes, North America looking pretty good, but Asia and Europe in particular are soft. Longer term, again though, I mean, what do you think, more cars being produced 5 years from now or fewer than this year? Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division: Well, I think I can answer that one. In terms of Fibers, obviously, price increases because of cost, but pulp -- there's some expectation that pulp has sort of hit a bottom here and is likely to go up. How do you feel about your cost position in Fibers and whether you're going to -- how much you're going to be able to raise price further this year to offset the rise in pulp?

Yes. Just a little bit on the Fibers market. Much of the marketplace is annual contracts. And so we buy our Fibers on a fix priced for a year -- buy our pulp on a fixed price for a year. But we also commit to a price for most of our large customers per year, not completely, but in general that's the way that market is priced. So typically, you have this big round of annual pricing in the winter, and at that time, you usually have a good idea what your costs are. So you try and line those up. And what's Fibers got -- is this the ninth year of earnings, record earnings? So, so far, we've been doing a pretty good job of lining those up. Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division: Great. And then just finally on PCI, obviously, you noted some weakness in Asia-Pacific. Would you give us a little bit more color? I mean, I know 2-EH has been coming down there, and certainly, you're facing a tough comparison year-over-year. Is that where you're seeing some of the weakness? Or is it broad-based? Just a little bit more color around -- on APAC for -- and PCI, please.

Ron?

Yes. This is Ron. It is in our oxo alcohols primarily. And keep in mind, we are comparing on a year-over-year basis against a pretty strong market environment in 2011. So there's some contrast there that's part of the issue. But there is -- we saw weakening late last year. There was quite a bit of destocking, a good bit of inventory coming in the year over there and looking for a home, and then we have not seen the rebound quite as robustly as we had hoped, and that is just not an Eastman comment. I think that's generally being seen across a lot of businesses. And so that's just turned into a weaker demand environment over there, and that's depressed margins.

And we'll hear next from Jeffrey Stafford with Morningstar.

We've heard commentary from a few other companies that, in terms of demand, January and February were pretty weak and then March was very strong. Did your business progress this way through the first quarter?

It did, but I don't know how much weight to put on that, honestly. That's such a pretty typical pattern in a first quarter for our industry. So I personally am not going to play that up too much, but I know others have.

Okay. And then just to clarify, does the $5.30 EPS estimate, does that include Solutia or not?

Yes, it does. So if you build up, I mean, we're basically reaffirming guidance, and that's $0.30 from the pension change and about $0.30 from Solutia.

And with no further questions in the queue, I'd now like to turn the call back over to the speakers for any additional or closing remarks.

Okay. Thanks again, everyone, for joining us this morning. A web replay and a replay in downloadable MP3 format will be available on our website beginning at 9 AM on Monday. Have a great day.

And ladies and gentlemen, that does conclude today's call. We thank you for your participation.