Good day, everyone and welcome to the Eastman Chemical Company's Third Quarter 2013 Earnings Conference Call. Today's call is being recorded. This call is being broadcast live on 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, Christie. 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 Chief Financial Officer; Mark Costa, President and CEO designate; and Josh Morgan, Manager, Investor Relations. Before we begin, I'll cover 3 items. First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. Actual events or results could differ materially. Certain factors related to future expectations are or will be detailed in the company's third quarter 2013 financial results news release and in our filings with the Securities and Exchange Commission, including the Form 10-Q filed for second quarter 2013 and the Form 10-Q to be filed for third quarter 2013. Second, earnings per share and operating earnings referenced in this presentation excludes certain noncore or nonrecurring 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 our third quarter 2013 financial results news release, which can be found at eastman.com in the Investors section. Projections of future earnings in the presentation also exclude such items as described in the third quarter financial results news release. And lastly, we posted the slides accompanying our remarks for this morning's call on our website in the Presentation & Events section. With that, I'll turn the call over to Jim.

Thanks, Greg, and good morning, everyone. I'll begin on Slide 3. And as I always do on these calls, I'll take a moment to provide an update on our most recent outlook statements. First of all, we have executed very well on the Solutia integration, and we're at the point now where I can say it is largely complete. Curt will provide you with an update and a bit more color on this topic in his section, but let me state again what I've said on several of these calls now. And that is that I'm very pleased with the success of the integration and how well these businesses and cultures have come together to create value for our shareholders. Next, in July, we raised our full year 2013 EPS expectations to a range of $6.40 to $6.50 from the previous range of $6.30 to $6.40, so we raised $0.10. Today, we are adjusting our guidance back down to those $0.10 to $6.30 and $6.40, and I'll talk more about that in a few minutes. We also said we expected to generate between $600 million and $650 million of free cash flow in 2013, and we remain on track to achieve this. And finally, as always, we committed to remain disciplined in our capital allocation. If you look at how we put our capital to work this quarter and go back to our track record over the past several years, I hope you would agree that we have been very prudent in our choices and focused on creating value over the long term. Next, on Slide 4, the Eastman corporate results. Operating earnings increased third quarter '13 versus third quarter '12 as higher sales volume in the Additives & Functional Products and Advanced Materials segments, as well as higher pricing…

All right. Thank you, Jim, and good morning, everyone. Moving to Slide 14, I'll review some of our financial highlights for the third quarter. We generated $427 million of cash from operating activities in the quarter, primarily due to strong net earnings. Working capital decreased by $81 million, primarily due to lower receivables. We also made a $75 million contribution to the U.S. defined-benefit pension plans on top of the $24 million we made in the first half of 2013. We continue to expect the full year contribution will be approximately $120 million. Free cash flow for the quarter was $255 million, which is net of capital expenditures of $125 million and dividend payments of $47 million. Finally, our cash balance was $2,222 million (sic) [$222 million] at the end of the third quarter. Third quarter results were impacted by the $86 million benefit due to an interim remeasurement of our Eastman OPEB planned obligation. This remeasurement was triggered by a planned change in life insurance benefits during the quarter. Additionally, we also incurred $9 million in costs related to the Solutia transaction and $3 million in restructuring charges for severance associated with the continued integration of Solutia. Finally, our tax rate for the third quarter was approximately 27%. This is lower than our previous expectation of 31%, primarily attributed to an adjustment to the tax provision to reflect the finalization of the 2012 consolidated U.S. federal income tax return. We expect our tax rate for the fourth quarter to be approximate 31%, assuming no dramatic change in foreign earnings mix. Next, on Slide 15, I'll walk you through our estimate for free cash flow in 2013. Consistent with our previous guidance, we project operating cash of roughly $125 billion (sic) [$1.25 billion]. The full year operating cash estimate includes…

Okay. Thanks, Curt. We have a number of people on the line this morning, and we'd like to get to as many questions as possible. [Operator Instructions] With that, Christie, we are ready for questions.

[Operator Instructions] We'll go first to Duffy Fischer with Barclays.

Jim, on Plasticizers and Adhesives, when you first came out with the issues first quarter of this year, you gave us a number that was lower, but it kind of said there was more downside to that number than upside until you got a handle on it. Now that we've been dealing with that for a couple or 3 quarters, do you feel good that we've kind of gotten underneath what the pain will be and, going forward, we can actually grow from here? Or is there still more downside than upside as you look at that?

So, Duffy, let me make a comment. And then on this call, you'll probably notice that I seem to be doing the shuffle pass quite often because I understand -- my ego accepts the fact that you probably want to hear Mark and Curt talk about a lot of these issues going forward. But just on the -- on this business segment, I do think we're starting to get a handle on what it is. I mean, let's just say we know the problem is. I think you can still get surprised in terms of how competitors act, et cetera. If I can take the longer-term picture, and then maybe Mark will want to comment a little bit about what he's seeing nearer term, but longer term -- so this segment's probably going to be down in the valley and I'm guessing maybe as much as a couple of years. Does it ever get back to the kind of peak margins it had? It's hard to see that it gets back there. But again, we've been surprised before. On the other hand, I can easily see a time when it's performing noticeably better than it is today. I just wanted to take the opportunity to say, when you look about one segment under stress like this, this is, to me, where the strength of the overall portfolio come through. I mean, if you think about it, this segment is definitely underperforming. And yet, we're still going to come in for the year, up 20%-ish, and it's going to be on the strength of all the other segments we have. And we're still going to hit and maybe exceed the kind of original guidance we had for the year. So with that, I don't know, Mark, what more do you want to say, maybe about the 2 pieces of Adhesives, Plasticizers?

Sure. Thanks, Duffy. And I certainly would support all of Jim's comments on this. It's still a good business and still provides a good, attractive return even at these margins. We're certainly not at all happy with the performance and want to find every lever we have available as to improve it. But a lot of the challenge we have right now is supply/demand imbalance, as Jim noted in his prepared comments. I'm not about to call it bottom. At this point, I don't think we have yet to have enough information. But I certainly now see signs that are both positive and negative about the situation. So on the negative side, we certainly continue to see weak demand and have not seen a recovery in demand. The good news is destocking seems to be behind us, which was an additional demand headwind that we faced through this year, and I think that's going to stabilize and not be a challenge as we move forward. So that's going to help. In regards to the supply side, as Jim noted, the supply is long, but we also see some signs of stabilization there. Raws in prices, which has been the key, low raw -- low-priced raw materials that's put the pressure in this market on adhesives has gone up meaningfully in price. And if it stays at this higher level, it will take some of the pressure of substitution of hydrocarbon resins towards rosins. That will reduce a little bit. So those things will balance things out a little bit. On the Plasticizers side, this is more of a demand-based issue where we just need demand to start recovering. If it does, especially in Asia, it will draw that Asian supply that's putting margin pressure here back into Asia. That will help. But the -- I want to emphasize that the strength of demand on the Plasticizers side is quite good. Our volume is growing quite strongly on the non-phthalates and offsetting some of that price pressure. We don't have as much of that benefit in Adhesives right now.

Okay. And one of the businesses that's been a rock star, Fibers. One of your competitor is out with a pretty significant price increase, again, for next year. Price, obviously, the last 3 or 4 years, has been very, very beneficial. When you look out over the next 1 to 3 years in that business, can you continue to get mid-single-digit pricing that's accretive to margins over that period, do you think?

Well, this is Jim again. Let me just say, yes, it is a great business. We have a great relationship with our customers and, obviously, one major customer where we got a joint venture that we're filling that plant out. We respect our customers a lot. We don't like to negotiate price with either customers or suppliers on earnings calls. And so we approach it more of a partnership, but I think both sides of the table realized that we both have to create value. And as we look at the negotiations with raw materials and the negotiations that we're having with our customers and what they value, by the way, the service, the reliability, the having the product there, the high quality when they need it, I would expect to -- this business earnings to continue to grow.

And our next questions comes from Andy Cash with SunTrust.

This is Jim Sheehan in for Andy. I'm just wondering your thoughts now on long-term growth. And you talked about double-digit growth possible over the next 2 years. And is -- do you still have confidence in that, in the context of continued pressures in Adhesives & Plasticizers or pressures from raw materials?

Okay. Well, you just named the 2 headwinds, and we're all -- and we all see them. But yes, I mean, our objective is double-digit earnings growth. We've done that for 4 years. Let me tell you what gives me some of the confidence in this. And you're right, any one business segment can go through a rough patch. We know which one it is this time. We know the raws can move around. But this company has tremendous cash flow. And we've said all along, and I've been saying it back from my CFO days, the way to differentiate yourself in this industry is how you apply your cash. What do you do with it? So yes, we're going to drive organic growth as strong as we can. There'll be some years where that gets us perhaps all the way there. Some years, it's more likely where it gets you most of the way there. And then you have to be smart with what you do with your cash, whether it's acquisitions or buying back stock. But that -- we think what our shareholders want and the best way to create long-term value is the double-digit earnings growth. And that's why we threw that slide in at the end, just to show you that there's chunks of earnings we can be working on. In this case, it's a list '14 over '13. There's other things we do that are going to make '15 better than '14. So we're a fairly conservative bunch. We never make guarantees about the future. Things can always change. But I like the portfolio of businesses we have. You see the strength that we could grow earnings the way we did this year. Even with one of the business segments having weak performance and when I put on top of that that we can use our cash, I feel very good about the next several years in terms of earnings growth.

And a follow-up on non-phthalate plasticizers. When do you think the inflection point is going to be when the tailwind from substitution into non-phthalate plasticizers is greater than the headwind from some of the lower pricing you're seeing from some of the phthalate competitors?

This is Mark. Yes, it's good question. What we seem to see is some indications that demand's going to improve in '14 over '13 from the housing and construction market, the commercial flooring market, the key things that drive our demand. So that's, I would say, encouraging about next year when it comes to phthalates. When it comes to competitive behavior, it's always a bit difficult to predict on when the aggression of some of the competitors will abate. But I'd say on the phthalate side, things feel like they can improve, to some degree, as we look forward.

And we'll take our next question from Robert Koort with Goldman Sachs.

Guys, you gave some Eastman-specific actions, and I guess I thought maybe we'd see something around the contract with enterprise on your propane. So can you talk a little bit on it, how much a benefit that could be, what your hedge position might be, and then also, any updates on optionality for your olefins crackers.

Let me let Curt start it off.

So let me go in reverse order, I think, in your questions. First on the -- where we stand with our efforts in Texas. We've had an initial hearing with the hearings officer for the Railroad Commission to provide clarity on that -- on the process going forward, trying to resolve that dispute we talked about last quarter. And we hope to obtain such clarity fairly soon, and that will help us understand kind of what the next steps are. So we have continued interest in our 700 million pounds of excess ethylene, both on- and off-site. But continued uncertainty around this common carrier access is negatively impacting our ability to get something done. So we'll see how this plays out there. I think, Bob, you've asked about hedging as well. We continue to look at hedging as a viable way for us to reduce volatility. We've had a program in place for a number of years. Given some of the recent volatility in our input cost, we continue to look at what kind of hedging we can provide in '14. We haven't really quantified that for anyone yet. There's -- it's kind of early yet. But we continue to have a good hedging program.

And the enterprise contract is really more a 2015 event.

Okay. And then on the Adhesives & Plasticizers, I think you guys guided to $175 million of operating profit. Can you give us -- are you comfortable giving us any sense of how big the non-phthalate plasticizer chunk of that might be?

Of the $175 earnings?

Yes, sir.

Yes, I don't think we've broken it out. Obviously, that's the part that's growing. We talked about how it's growing 30%. I think what you're seeing right now, and I think Mark did a good job explaining it, you're getting the pressure from the phthalate guys, who -- same thing we would be doing, they're being as sticky as possible as they give up share and trying to hold on to as much volume as possible. But eventually, I think that wave's going to crash over. But I don't think we want to go to breaking out the earnings by -- down that low.

And we'll go next to P.J. Juvekar with Citibank.

Just a quick question on Adhesives & Plasticizers. The pressure point seems to be in Adhesives. The Chinese have added capacity, and they're coming in a big way. I mean, longer term, do you want to keep fighting the Chinese or do you think there is other optionality?

I mean, I'm going to let Mark answer this because our plant in China is -- they're -- people are going to be fighting us when it comes to our cost position. But I hope this is kind of the last question on this segment, only because it is our smallest segment. I think we've tried to spell out for you what we see there. But, Mark, you want to talk about the Chinese and...?

Certainly. The challenge comes not just from hydrocarbon resins, P.J., but also the rosins, which is a large percentage of the total supply for adhesives, and there's certainly more rosin supply than anyone expected this year. And that's where the vast majority of the price pressure is coming in the marketplace, it's the rosins, especially with the excess EVA from solar being available that is matched with the rosin to make an adhesive. And those prices, as I noted, improved. If they stay up where they are, that takes some of that pressure off, because it's less competitive than where it's been. On the C5 direct competition, there's certainly some competition there. And if demand growth in packaging, tapes and labels had been what everyone expected, it frankly would've been absorbed pretty readily in Asia Pacific and not created as much challenge as we face. So that amount of supply isn't the big issue if demand returns to what is more of a normal level and, over a period of time, would absorb that supply. So it's certainly an issue, but it's not one that's permanent.

Okay. And the automotive market seems to be improving. Even in Europe, there are some positive data points. And you've seen an incremental tire demand. Any signs of restocking?

The automotive market, I think, was the question, yes.

About automotive demand on the Interlayer side, P.J.?

He talked about tires as well.

And tires?

Yes.

Certainly, automotive has been a good story in North America this year and Asia has been solid. Europe has obviously not been great with another decline, but I would say we see stabilization in Europe. We've seen an improvement in demand for both our interlayers products as well as our tires products. It's a modest improvement in demand and by no means a restocking event, but at least the sign that the globe's stabilizing and starting to get better. From a primary demand point of view, when it comes to tires, the Michelins, the Goodyears are better to call the restocking of the channel that is likely to happen at some point. It certainly hasn't happened yet. That would be upside for us in the future when that does happen.

And we'll go next to Vincent Andrews with Morgan Stanley.

Just to follow-up on the cracker situation. Can you just kind of walk us through the legal process that you're in and give us a sense of what the next steps are? Timing might be uncertain, but what you think it could or might be?

Well, I'll take a stab at it. I mean -- and I think we talked more about it in the last quarterly conference call, too. But, as you know, there was a -- the Westlake made a change or attempts to make a change in their common carrier pipeline, and basically, we disagreed that they could do what they wanted to do. And so it's in front of the railroad -- Texas Railroad Commission now. The one hearing, Curt, you mentioned -- it's not like you had a hearing and now you're waiting for an answer, you're just waiting for it -- to hear what the process is. So it may not move. In fact, it does not move as fast as we would like to move. But while you're trying to talk to other parties about what to do with the excess ethylene, they kind of like to know what their access is to that pipeline. So not so much an Eastman issue. We have contractual rights, et cetera. But as you talk about introducing a new party, it's important to them, the use of that pipeline. And so that's an issue that we have to have resolved before we can proceed further with talking to third parties who are interested in those 700 million pounds, but we need to get this resolved. And I wish I knew the timing. I'm almost betting that's going to take longer than either you or I would want it to take. But we'll see how quickly they can get this thing going.

And there's no legal avenue available to you other than the Texas Railroad Commission?

Well, I wouldn't say no other one -- no other legal avenue. I'm saying this is the right way to approach this issue. That's where we believe the jurisdiction is, and that's where we should go.

And if it's -- just as last point. If it's not resolved in your favor there, what would you do?

Then we consider what our options are.

And our next question comes from David Begleiter from Deutsche Bank.

Jim and Mark, I know in Crystex truck, bus and/or auto [ph] are bigger impact than auto. Could you comment on any pickup in that market, especially in Asia?

Sure, Dave. The management in -- has been reasonably good in truck and tire, especially in the back half of this year, from what we can see. And so that's been encouraging. As you noted, it's a high leverage of Crystex usage in a commercial tire versus a residential tire. So that's been feeling relatively good.

And -- sorry, but -- if I ask the question about the propane issue. But can you quantify the impact of the higher propane prices on the quarter, perhaps in Q4, and how much that will be recaptured in your index-based pricing mechanisms?

Yes. I'll probably not going to get into it penny by penny. But I would say to the extent that we had to come back down on our guidance, that was probably the main driver of that and still the uncertainty on the Adhesives side. It's this catch 22. We move more towards specialties. Specialty is priced less and less off at raws, and so you don't always have that 100% ability to pass-through the higher cost. We have stepped up our hedging, I guess, I would say that, in terms of how far out we go and how much we do, but we're trying to be prudent about that as well. We're not just grabbing any price we see in the marketplace. We're managing at the best we can. It's interesting though when the -- if I could just take a second, thinking about $6.30 to $6.40, $6.40 to $6.50, they're moving around. If at the beginning of the year, I had said earnings were going to be up somewhere between 19% and 21%, everyone would have said that sounds pretty good. But when you go back later and say, "You know what, earnings is not going to be up 21%, they're going to only be up 20%, I understand the aggravation but I'm just trying to keep it all in perspective that we're moving stuff around 1.5%, at most 2% when you look at it year-over-year. And I'll just pull you back to remember that what we're talking about is driving the machine here that grows earnings double digit year after year.

And just for Curt, one last thing, Curt. Is that tax rate for '15 -- 30% stable for '15 as well?

Yes. I would say the actions we're taking contribute to that 30% rate in 2014, and I'll also say we're not standing still. We're taking a harder look at what other things we can do to see if we can better that going into '15.

And we'll go next to Frank Mitsch from Wells Fargo.

And a hell of a run, Jim. It just seem like yesterday that you took over a PET company, and now, you're running a propane-to-propylene-spread company.

Frank, I'm going to miss this phone calls. I tell you.

Well, we can still arrange on a quarterly basis to have a call, and I'll ask for your opinions on what's going on now that you're laying duck, et cetera. During the conversations, I didn't hear a heck of a lot regarding -- when you're talking about the 4 bucket uses of cash, the JV acquisition bucket, can you talk a little bit about how the pipeline's looking and what your appetite is for doing something more in that area over the near and midterm?

Yes, I'll make a comment and then Curt may want to add on too. But I'm glad I work for an organization and have a board that doesn't push me to do stuff that's marginal. So if I can just say, we're going to try and be every bit as disciplined as we have been in the past about putting that cash to work on the M&A side. And it -- honestly, I think it's a little bit tougher environment to see good deals. There are things out there that we like. Quite often, the main issue is going to be is it at a price we like. We can be patient. We're not in it quarter-to-quarter. We can be patient. We don't mind sitting on cash. We know it's also a very valid use of cash to buy back stock, and so that's something else we're going to have to look at and weigh that and compare it to what opportunities we see on the M&A side. But I would -- as a shareholder of Eastman, I would fully expect that we are going to grow this company, both organically and we still will do M&A. It may be hotter or cooler, based upon the environment we see out there and where things are getting priced. And we're not afraid to use our cash to buy back stock, and we're not afraid to sit on cash when we think that's the right thing to do.

Frank, if I look at our M&A team, it's busy right now. They're not on the beach, I can put it that way. They are probably as busy as they've ever been, because there is activity out there. I would go in to support what Jim said. There is probably a bid-ask spread that's still a challenge out there. Things are -- people got some pretty high expectations, given some of the multiples that are out there. So we're looking at several opportunities. I think some could fit us very well, but we'll see if we can close these bid-ask spreads in this competitive environment.

Terrific. And a question for Mark. How do you think about $8 in 2015 and your confidence in being able to achieve that?

Frank, I've been waiting for that question all day. I'm surprised it took this long. It's a great question. We still feel confident about getting to the $8 a share. Obviously, we have to pull every lever available to us to get it. As Jim noted, we have a number of things that we can do better, in actions we control to improve earnings as we laid out on that slide in his comments. There's, of course, the economy that, to some degree, has to be there and drive demand. And then as Jim just laid out, we have multiple levers available to us with an incredibly strong cash flow available that goes beyond our organic needs, whether it be M&A or buybacks. So when you look at it, I think we're in very good position to continue and deliver that double-digit earnings growth.

And, Frank, I'm going to suggest to Mark and team, we put that $8 up there as one -- as a flag, one point in time, rally the troops. That was a while ago. The much bigger driver is just that double-digit earnings growth. So you don't think, oh, I get to 15% and I'm done. And that double-digit earnings growth, whether it's 10% or 15% or you have another 20% year like we had this year, that is really the key to creating long-term value. And I also think that if we can do it consistently, you will eventually see it, see the improvement in the multiple.

And our next question comes from Mike Sison with KeyBanc.

In terms of Solutia, with the integration efforts largely complete, can you give us a little bit of color to what's sort of the next step, where your focus is on? I know there's a lot of volume to be had there. Maybe some comments on how to recoup some of that volume in the businesses over the next couple of years.

Sure. In regards to the Solutia businesses, we continue to be excited and impressed by the growing list of both commercial and operational improvements, above and beyond the sort of traditional synergies you get when you combine 2 companies. So I think we're going to see some real benefits and operational improvements in interlayers and performance films, in particular next year over this year. We're seeing significant improvements in how we do contracting and pricing and go to market and the SAP integration that's gone so well this year. It allows us a lot more detail and insight about how to improve our pricing and capture value. And then the long-term innovation product portfolio looks quite robust and things that we can do that's -- even including the crossing of heritage Eastman and Solutia technology streams to create some new-to-world products. So we feel great about this. The obvious big challenge has been European demand, which has been a big part of their demand, both in revenue and higher profitability, in that part of the geographic mix. But with Europe appearing to have bottomed out and stabilized and if that starts to get a little bit better, that's going to help as well.

And, Mike, if I could add on top of that, and one of the benefits of the combined enterprises is that continued strong free cash flow generation. So not only can we see the improvement that Mark talked about in the businesses, we also are just generating some significant cash that we can deploy, either through M&A or return it to shareholders. And when I think about the portfolio of businesses we have today, well, there's just more options for us to explore and put that cash to work.

Okay, great. And then shifting gears to Additives & Functional Products. Volumes are up pretty nice in the quarter, up 10%. Earnings are up 6%. The fourth quarter looks like earnings growth will be similar. It does look like being squeezed a little bit there. Are you having issues getting pricing? When do you think you can get better leverage there, given the volume growth has been pretty good?

Well, first off, we're incredibly excited about Additives & Functional Products and how well it's performed this year in a record quarter despite having some raw material propane-based headwinds in the third quarter. You certainly always see a seasonal drop-off in demand in this business into the fourth quarter, which is largely what the issue is here. There are a few additional headwinds, as you noted, around propane as that flows into solvents. And with propylene prices coming off in October, it creates a bit of a challenge in the short term on how we can recover some of those propane costs. I think the bigger question will be what happens in the first quarter around propylene. There's some debate out there where the propylene prices might go. And if they go up, that would be a very helpful factor.

So the leverage really isn't on the tire side issues.

No, no. No issues in the tires. In fact, tires is probably doing slightly better than our expectations going into the year. I wouldn't say significantly better on the Crystex side. The big challenge we've had in tires is in the PPDs. That's been a headwind for the overall segment over last year, where price competition stays pretty stiff in that market with a dramatic oversupply and benzene cost being pretty high. I certainly don't expect next year to be worse than this year. So again, that will be not be a headwind in the next year like it's been this year.

And we'll go next to Nils Wallin with CLSA.

One of the things I was surprised that I didn't see in the Eastman-specific ways to drive earnings growth for 2014 is how you're going to invest in your innovation pipeline. So I was wondering if you'd be able to give us an update on what you see or your plan to grow Perennial Wood and surface or cut back on those to generate some better costs.

Yes, great question. And the innovation pipeline we have that spans from things like surface and Perennial to Tritan, where we're certainly seeing -- it delivered great earnings this year. Microfibers would be the one I'd love to highlight, because I think it's got the longest term of significant potential of the ones I just mentioned. I think that portfolio is robust. As many of you know, innovation portfolios don't deliver dramatically out the gate. I mean, so it's not a huge contributor to earnings growth next year. But as you look out how we deliver double-digit earnings growth over the next 5 years, that innovation portfolio is a key driver of our results. But there's no big thing that's about to take off next year in that innovation portfolio.

Okay, great. And then just a little kind of housekeeping. Would you mind explaining the composition of volume growth in Crystex? Was it new tires versus replacement passenger tires versus heavy-duty truck?

I'd love to have that level of insight from our customers about where our Crystex demand is coming from, but unfortunately, they don't break it down like that. We do look at the composition of their demand and try and guess that, how that translates to our direct Crystex demand. But I would say that, as David noted earlier, commercial tires is our bigger deal than passenger tires. Remember that 75% of tire demand for all of us is replacement tires versus OEM. So as the OEM market shows dramatic improvement, that's not a direct impact for overall tire demand as much as some people might think.

And we'll go next to Laurence Alexander with Jefferies.

Two quick ones. Just the near term, what you're seeing on sequential trends in packaging, particularly any changes or deviations from normal behavior in the consumer products chain. And secondly, as you -- I'm thinking about bridge to 2014, any first read on pension expense? And which of your segments do you feel it's a slam dunk that you can grow earnings or segment profits faster than 10%?

So I'm going to let Curt start first on the pension side.

Yes. On the pension side, pension expense really will be flat, if not a slight tailwind.

And, Mark?

And then regarding packaging demand, that's been disappointing this year for us. It's been weak. That's one of the biggest drivers of our Adhesives challenge, and it also has led to a little bit softer copolyester demand than we would have liked. I don't think we have any clear indication that there's a upswing in that demand yet, but it would be, I think, reasonable to expect that '14 will be better than '13, assuming the global economy keeps moving forward.

Our next question comes from Chris Nocella with RBC Capital Markets.

Historically, you've done a good job of exiting businesses as they begin to have some more competitive pressures. So have any of your businesses moved into this bucket recently? And on the other side of that, can you unlock value by maybe spinning off or selling some of the higher-margin businesses that maybe aren't fully appreciated, something like Fibers maybe?

Yes. You were breaking up just a little bit on that. Did you give an example on...

He said -- go ahead, Chris.

Yes, the businesses that have more competitive pressures would be -- maybe Adhesives & Plasticizers, something on that line?

Yes. So first of all, I'd take the compliment on the portfolio management. I do feel like the company has done a good job, and I like the portfolio so much better now than what we had 5, 6 years ago. And as you know, a lot of these changes happened before I took the helm. So they were -- we've been at this for a while. And I would expect we'll continue being at it. But the one thing I want people to remember is a lot of the Eastman strength comes from integration. So it's not as -- so we don't have all these just separate little boxes sitting out there where you just take it and you put a bow around it and you send it out to the public. And you can do that. Some of the companies is doing that more recently. Maybe they're getting around to doing what we did a few years ago. But I don't think just seeing a valley for a business like I talked about with Adhesives & Plasticizers is a rationale for oh, well, the first time they have a couple of down years or whatever, they're out of here. That's not the way we think. We really look at the value creation and the long-term path, how well it fits with Eastman, what the integration is. As you know, we make some of the raw materials for those businesses. Having said that, we're going to do what's in the best interest of the shareholders, whether it's looking at underperforming businesses or -- I hadn't thought as much about the flip side where you have a high-performing business and what do you do with that. I can tell you, typically, taxes get in the way, which leads companies to spend, which then leads you to say it's something big enough to be standalone. But the overriding driver I've seen when thinking about Eastman is the level of integration we have and how well things click, both all the way from the technology side to our supply chain side and, in particular, through our manufacturing integration.

It makes sense. And just the $0.50 to $0.75 a share for next year, how much of that is from the capacity expansion's bucket versus the other 3? And do you expect CapEx to be higher or lower next year?

Yes. Curt may want to comment on the CapEx. I -- what we did is we put together a list of projects. And we wondered if people are going to say, "Now put a number next to each one." And we don't want to do that. I can tell you, though, I feel pretty good about the -- those big building blocks and then that's not all there is. I mean, we didn't talk about it, about licensing, but I think our licensing stream has improved greatly with this new EG technology. I think you're going to see a more consistent year-in/year-out income coming from licensing. So it's hard to oversell that, because we haven't sold the first license yet. So -- but we wanted people to be aware that we think we're onto something really good here with that license. But we're probably not going to break out the pennies next to each product. Curt, on CapEx for next year?

CapEx, it's a little early. But here's how I normally think about CapEx. CapEx, in normal times, would be $500 million, plus or minus 10%. I think next year, it's probably going to be more on the higher side of that because we have some growth investments we want to make that we'll be talking through. And in addition, there'll be some infrastructure spending next year, because of that natural gas conversion we talked about early in the year. So I'd say capital expenditures are going to be higher next year. We'll probably quantify that for you in January. But even having said that, I'd still expect very good, strong free cash flow generation next year.

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

Would you comment on current global operating rates and oxo alcohols, 2-EH and some of the butanols. Just trying to get a sense -- there's always been a lag on pass-through there. Just trying to get a sense for whether it's becoming any more difficult for you to pass along propylene costs irrespective of lag effects.

Sure. Kevin, in regards to the run rates and propylene cost structures, all of our assets are running relatively well. What we like about our big engine is they good great job of running the intermediates flat out and keeping us well positioned in cost structure. And fortunately, we have a good amount of capacity at some of the specialties to continue growing and selling. I don't think that we've got a utilization headwind or tailwind that's significant in our future around the assets, except for Adhesive & Plasticizers, where demand is off. In Asia, there's no question that the competitive situation is pretty significant, as always, in things like solvents and some of the commodity products out of SFI. And we've seen some headwinds on a price basis in the third quarter and expect some of that in the fourth quarter. Did I answer your question?

Yes, that helps, and maybe I'll follow-up off-line as well. On the -- just to shift gears a bit. On your ethylene glycol, can you speak to the value add of the technology that you've developed? And it sounds like you're getting fairly close on something if you expect some revenue in 2014. Order of magnitude, would it be similar to your acetyl's licensing that you've had in the past? What's the opportunity there?

Let me -- Mark may want to add something, too. But when -- the confidence for '14, now -- I feel like we've got 2 horses now. We have the acetyl licensing we can do, and we now have EG licensing we can do. And we assume that demand in China is going to be fairly strong for that EG licensing. We're in this with a partnership with Davy. There's an understanding that we're not going to start talking about the economics around it. I might have gone too far when I just said that I think it's going to be pretty good and it's going to be fairly consistent. But I'm not sure I can add a whole lot more than other than -- I'm going to want the Street to think of us as having a stream of income from licensing, because we're going to be working very hard at making that more consistent, more real.

Okay. And if I may squeeze in one final short one for Curt. Just coming back to pension. A number of companies across the space have talked about potential improvement in funded status. Do you have an early read on that, and what could it mean for your cash injections in 2014 versus the $120 million you indicated for this year?

Well, as you're seeing, the improved discount rate is resulted in some reduction in liability, and that's going to improve funding status across our plans, both our pension plan and our benefit plans -- or I'm sorry, our OPEB plans. And so I think we quantified in our 10-K a 25 bp change in discount rate is roughly $100 million reduction of our pension liability. So that's going to have a favorable trend, and you already saw that with that remeasurement that was triggered into -- in the third quarter. That's a reflection of that discount rate. On pension funding, what I've talked about is that -- what we're really focused on is what's required under the Pension Protection Act. And so right now, I would still assume that we're going to spend -- contribute about the same amount we did this year over the next couple of years.

Okay. Thanks, again, for joining us this morning. A web replay and a replay and downloadable MP3 format will be available on our website beginning approximately 11 a.m. Have a great day.

That concludes our conference today. Thank you for your participation.