Thank you, Maxine. And good morning, everyone and thanks for joining us. On the call with me today are Mark Costa, Board Chair and CEO; Willie McLain, Senior Vice President and CFO; and Jake LaRoe Manager, Investor Relations. Yesterday after market closed, we posted our third quarter 2022 financial results news release and SEC 8-K filing, our slides and the related prepared remarks in the Investors section of our website. Before we begin, I'll cover two items. First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. Actual events or results could differ materially. Certain factors related to future expectations are or will be detailed in our third quarter 2022 financial results news release. During this call, in the preceding slides and prepared remarks, and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for full year 2021 and the Form 10-Q to be filed for third quarter 2022. Second, earnings referenced in this presentation exclude certain non-core and unusual items. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items are available in the third quarter 2022 financial results news release. As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A. Maxine, please let’s start with our first question.

Thank you. Our first question today comes from Vincent Andrews from Morgan Stanley. Please go ahead. Your line is now open.

Thank you, and good morning, everyone, and congratulations on the announcement with Pepsi. It’s very exciting news. Maybe you could just talk about the balance of the customers at the facility. I don't know if you can name any of the other ones or just sort of tell us how many they are and are they contracted similarly at this point, or what's left to do there?

So Vincent, great to hear from you, and we're really incredibly excited about the Pepsi contract and their commitment. And it is a significant volume for that plant as the base load for the plant. We have very active conversations going on with several other customers, but we're not in a position at this point to sort of talk about those discussions. But we do believe the Pepsi agreement, consistent with what we're attempting to achieve with the PET market, is a great endorsement and proof point about the value proposition that we can bring to solving the plastic waste crisis and create economic value for our shareholders at the same time. So, we're excited about working with them going forward.

If I could just ask a question get your point of view on all the destocking that's going on. I know from the prepared comments, there's some thought that hopefully will end by the end of the year. But what exactly are you hearing from customers in that regard? And how do you think we'll know that it's over other than it just being over? Like what signposts are you looking for?

It's a great question and certainly a challenging one to navigate, particularly regarding demand in the context of destocking. Each market presents its own dynamics, but the most significant headwind we face is in the retail discretionary spending landscape globally, especially in Europe and the US. There was an anticipated shift from consumer goods to services and leisure as people moved on from the COVID period, but the extent of that shift, combined with high inflation, was underestimated. While travel remains a priority for many, the current inflation has constrained personal budgets for other expenses, leading to substantial cutbacks on discretionary purchases. Additionally, delayed shipments of consumer goods have intensified these challenges, resulting in retail giants like Walmart, Target, and Best Buy struggling with inventory management. While the wholesale side has limited stock, retail destocking is significant, affecting customers such as Whirlpool and Electrolux. This has led to a notable decline in both demand and destocking as we enter the fourth quarter, making it difficult to predict when this situation will stabilize. In Europe, we see stagflation causing decreased consumer demand amidst high energy costs, while China's ongoing no-COVID policy continues to limit consumer behavior, particularly in the B&C sector, which has faced challenges for over a year. Moreover, the US housing market is experiencing a downturn, as reflected in recent construction data. While the B&C sector in North America is still showing some strength, the momentum may wane next year. Even stable companies, like P&G, are looking to manage high-cost inventory and generate cash for the year's end while preparing for lower prices ahead. Overall, we are witnessing some modest destocking in stable markets that we expect will resolve by year-end. Europe and China have faced challenges for some time, but I believe the destocking process will largely be completed by the end of the year. The US is still in the earlier stages of this destocking and adjusting to market changes. On the positive side, automotive trends are strong, and we’re already noticing a recovery that has benefited us in the third quarter and will continue into the fourth quarter. The trends in electric vehicles are significant, as we generate considerably more revenue from EVs compared to traditional internal combustion engine cars. As EVs become more prominent in our offerings, we see this as an opportunity for a favorable shift in our product mix. Additionally, consumers remain relatively financially healthy, which helps balance some of these market trends. We estimate that over 50% of the destocking will be resolved by the end of the fourth quarter. Looking ahead to next year, with destocking behind us and expectations of a mild recession, we anticipate a meaningful improvement in demand after the fourth quarter from a primary market perspective.

Sounds good. Thanks, so much.

Our next question comes from David Begleiter from Deutsche Bank. Your line is now open. Please go ahead.

Good morning. Mark, on the $150 million of cost you've targeted for next year, how much is structural and how much is somewhat temporary? Does that include the lower shutdown costs or turnaround costs next year versus this year?

Good morning, David. Thanks for the question. This is Willie. As we think about the $150 million, I would look at it in two buckets. Roughly $100 million, we expect to be on the manufacturing front. And obviously, as we've talked about inflation being a key factor, as you think about the demand that we had in the first half of 2022 along with the outages, that's driven a lot of inefficiency. And we expect that to be a large component as you think about contractors, as you think about the level over time. So, I do view that as structural, as we get back to operating in a more controlled demand environment that we'll be taking a significant amount of that type of cost out of our system. There will be a lower amount of planned turnarounds. That will be a smaller portion of that $100 million that we see in the manufacturing space. As it comes to the non-manufacturing, that's about one-third of the actions that we see. And in many cases what I would say is, the level of consulting spend discretionary, so that's more of I would say variable versus structural in the current environment as we expect to continue to invest in the growth programs, as was just highlighted. With the third project gaining momentum with our circular investments, we will balance that out of $150 million structural/discretionary to ensure that we can continue those investments.

Very good. And Mark just Slide 12, looking at initial 2023 guidance perhaps. It looks like you're looking at perhaps, a modest maybe 5%-type EPS growth year-over-year. Is that in that ballpark?

Well, good question, Dave. We're not going to be giving quantitative guidance about 2023 versus this year, which we still have to finish out. But what I would say is, we look at the tailwinds and the headwinds in a mild recessionary environment, we think we're in a good position. It's obviously a very dynamic time right now whether it's what's going to happen in China, the Ukraine war or inflation etc. There's a lot of uncertainty and that certainly goes back to a trade war in 2019 and a pandemic in 2020. What we know is the market is challenged as I just said around the short term in the recessionary environment that the manufacturing world seems to be entering. And I do think a lot of the destocking will play itself out. So, we're really focused on what we can control. And I think the volume and growth side of things, is in a good position with over $400 million of new business revenue closes on innovation. We've got a lot of tailwinds whether it's the multifunctional layers growing and EVs, the tremendous success we're having in our paint protection films growth, we're seeing in Tetrashield and food and beverage cans. Really seeing a lot of growth continuing even in the semiconductor environment, for our high-purity solvents, as we expand the product portfolio there in sustainable coating items etc. So, a lot of innovative growth going. And I do think there's a meaningful tailwind that comes out of the lack of unplanned outages, that we had this year next year, and then less planned outages obviously helps as well.

Very helpful. Thank you.

Thank you. Our next question comes from Jeff Zekauskas from JPMorgan Chase. Please go ahead. Your line is now open.

Thanks very much. What's the financial terms of your agreement with Pepsi? How do you price the material to them, or how do they buy it from you?

Thanks Jeff. So we're very excited about this commitment with Pepsi. And we don't discuss the specific contract terms with any of our customers. And in this case in particular, we view our contracting approach for the circular economy as a competitive advantage. What I can tell you is the contract did align with our circular contracting strategy that we've discussed with investors in the past. These agreements really demonstrate that molecular recycling is an essential part of solving the plastic waste crisis in sort of collaboration with the mechanical recycling industry. And we really view this Pepsi commitment, which is one of the most significant and most successful brands in the world that they see the value in what we're doing both from an environmental point of view and it also demonstrates that we have an economically viable platform when we meet these terms in this contract strategy. So when you think about the principles that are behind this contract strategy for these types of contracts, we will have margin stability in how the product is sold to them and it's structured relative to what goes on in the marketplace. And these contracts will be long-term and have a sufficient base load for us to commit to this third plant. So we can see a clear vision of the cash flow necessary to provide appropriate return on investment on this. So it's a really exciting situation we find ourselves in. And I would say that back to Vince's question there's a lot of companies out there who are excited. We have over 1000 SSOs already for our first plant. We're going to be starting up in the spring of next year on a wide range of specialty products. The brand engagement in Europe is incredibly strong both in specialty as well as in PET. And I think it's really a significant proof point when we get this contract that there has to be a pathway for hard-to-recycle materials back to food grade to sort of truly have a circular economy in that marketplace that we can partner with mechanical recyclers. It's an essential part of solving this problem that we're going to do this at a lower carbon footprint, and make sure that we have a very minimal impact on the communities that we operate in. And importantly, we need to make sure we don't move to other materials. Plastic is by far the most carbon-efficient product out there for these applications. And if we don't use plastic then we're going to have a huge impact negatively on climate if we start moving to glass, aluminum as well as other products. And frankly in many applications there just isn't an alternative material that's going to work for the brands. So for us we think this is a big part of the circular economy and we feel great about working with Pepsi as an anchor client.

Okay. And then for my follow-up, in Chemical Intermediates, are you closing one of your smaller crackers permanently, or what are you doing with your closure? And can you discuss what's going on with propylene spreads in that it doesn't look like people can make money taking propane to propylene at this particular point in time? How is the propane/propylene dynamic affected Eastman during the year relative to last year or now relative to previous quarters?

Okay, Jeff, this is Willie. I'll address the first part of the question regarding our operations. As we've mentioned before, this year we've experienced significant inflation in working capital and raw materials. We are evaluating this in conjunction with the demand we've observed, including the destocking we’ve noted in late Q3 and currently in Q4. As we have a planned turnaround for one of our crackers at the Longview Texas site, we are taking this opportunity to keep it down for the rest of the year. This will help us realign our inventories in the olefin stream and manage higher costs related to energy and raw materials, positioning us more favorably in 2023 from operational, supply chain, and working capital perspectives. Regarding propylene and its margins, I want to emphasize our continuous optimization of operations. Our investment in refinery-grade propylene is yielding positive results given the current economic climate. Furthermore, our propylene derivatives have also performed strongly in the first half. While we expected some normalization of margins in the second half, this segment remains robust within Chemical Intermediates and continues to generate significant cash flow for the company.

I'd like to highlight that our commercial teams are demonstrating excellent pricing discipline. While we don't sell propylene directly, we sell derivatives, and we have maintained those prices steady from Q2 to the third quarter. We anticipate some price reductions in the fourth quarter due to customer contracts linked to propylene costs. However, our priority is maintaining pricing discipline during this economic transition rather than chasing demand that is not present due to destocking. In terms of earnings and cash flow, we are balancing volume and price while we assess where primary demand stabilizes, ensuring we retain value for as long as possible.

Okay. Great. Thanks so much.

Our next question comes from Duffy Fischer from Goldman Sachs. Please go ahead. Your line is now open.

Yes. Good morning. First question Mark, when you look at what your expected sales are for the fourth quarter and look at what your planned operating rates are, did you bring operating rates down enough that you don't think you'll build inventory, or what will you do with your inventory throughout fourth quarter if the numbers hit the budget you have planned?

Willie, we are expecting a decline in sequential revenue and volume numbers. We are adjusting our operating rates accordingly and plan to reduce our inventory quantities by about 5% to 10%. We've noted the steps we are taking within our olefin streams, and we are managing this across the entire enterprise and our portfolio. The utilization rates and their impact on our profit and loss are accounted for in our guidance. I also want to point out that what we are seeing in October regarding order and demand patterns aligns with our expectations.

Yeah. We made a decision that cash is an incredibly important part of any company and certainly in our value proposition. And it's obviously very challenging here when it comes to cash with working capital and all the inflation that we're trying to manage. But we are focused on generating cash in the fourth quarter and taking the actions necessary to do that as our priority and positions us well for next year in how we sort of drive forward and run our plants next year well; as well as position for lower-cost raw material that we're going to be purchasing; that we believe we already see the trends now in the marketplace of raw materials coming off that we'll see already flowing through in the first quarter and how to position ourselves even better for that in January.

Thanks for your question. Regarding the shipping issues from the East Coast and the port challenges, what is the plan to resolve that? Have you found alternative, possibly more costly, trucking or rail routes to different ports? As we move into the first half of next year, will this continue to be a challenge for you, or do you have other solutions besides hoping that the ports improve over time?

First of all, the ports themselves are getting better. And with the reduction in demand in the US, as well as in other economies, the amount of trade occurring on a lot of what we were shipping in containers out of those ports has lowered itself. So the logistic constraints are not a major factor in the fourth quarter and we don't expect it next year. In fact, we expect to see a significant distribution cost tailwind for us next year relative to this year for two reasons, one with demand as tight as it was and all the challenges we had in keeping customers supplied, we use a lot of different expensive modes of transportation to make sure we honored our commitments to our customers. And so those modes were a higher cost to us some of which we passed on in pricing, but some of which is something we're not going to use next year and pick up a cheaper position in how we transport products from a mode point of view. And then, of course, distribution rates are coming down. You can see it on major routes like the dramatic drop in container costs between China and here. So we really do think this goes from a significant logistics constraint on volume limitations this year that we couldn't serve even though demand was there, and very high modes and rates to a meaningful tailwind next year as we optimize our operations and our distribution to a softer environment.

Great. Thank you guys.

Thank you. Our next question comes from Frank Mitsch from Fermium Research. Please go ahead. Your line is now open.

Hey, good morning folks. One of the more surprising things, I want to come back to the fibers contracts for 2023, because that seems impressive that you're able to drive that much profit growth already signed up for next year. And also in the prepared remarks, it said that it's going to bring the levels back to sustainable investment levels. Are you indicating that perhaps we might see capacity expansions in this business? And any other color you could give us in terms of why we're seeing such a step change for 2023 would be helpful.

To clarify, we do not plan to increase tow capacity. Our focus on achieving sustainable margin levels is about being a dependable supplier. Initially, we projected a year-over-year market decline of 2% to 3% in tow, but our current outlook is that it will be flat or decrease by 1%. This change is partly due to the overall market not declining as sharply as anticipated, and importantly, the heat-not-burn market is experiencing rapid growth. Companies like Philip Morris and other brands have seen great success with their heat-not-burn products, which still require a significant amount of tow. This demand wasn't factored into the projected decline of traditional products. Overall, the market situation appears much more stable than previously expected. Additionally, Eastman is experiencing fantastic growth in textiles, with strong interest in our products. Our textiles are made from a blend of sustainably certified forest wood pulp and recycled plastic, creating a compelling value proposition. Concerns regarding microfibers from textiles contaminating oceans are mitigated by our biodegradable certifications, enhancing our market appeal and brand engagement. This growth in textiles more than offsets the decline in traditional tow. Our assets are constrained, and we've repurposed some tow resources for textiles, reducing market capacity. Other companies have optimized their own capacities, impacted by factors like the Ukraine war, resulting in less supply than in previous years. In conversations with customers, they are keen to ensure we remain a highly reliable supplier to fulfill their needs. To achieve this, we need to improve our margins. We are securing price increases this year and plan to implement substantial price hikes next year to restore more appropriate profit margins for this business.

Well, they say, there's no business like tow business.

Yeah. So just one thing I wanted to mention is that the contracts also include provisions to adjust for changes in variable cost, which we didn't have in the past. So that makes them a little bit more predictable too on how they're going to perform.

Got you, got you. And I also wanted to ask about in this environment it's very helpful to have an asset footprint that skews more towards the U.S. than Europe. But you still have a lot of assets over in that part of the world. We're starting to see some other companies talk about rationalizing capacity in that part of the world. And I'm wondering what your thoughts are on the long-term viability of your assets over in Europe.

So first when it comes to Eastman, about 75% of our production from a volume point of view is in the United States right? So, that's a significant competitive advantage for us on an energy cost basis relative to other markets. And you have to remember that 55% of revenue is outside the U.S. And most of what we sell in Europe and China, in particular are our specialties. So we in how we serve our global markets are in a very strong cost position. Obviously, currency is not helping at the moment. But long-term, I think that energy position is going to be a strong competitive advantage. When it comes to Europe, our asset base in Europe is a lot smaller than it used to be after we sold the tires and adhesives business which has significant assets and energy-intensive assets in Europe. So with what's left now, we have our Interlayers plants and a small Performance Films plant which are more electricity driven and not that energy intensive. Our most energy-intensive asset is our Amines facility in Belgium. So, the segment that's most impacted by us is AFP when it comes to high energy costs, where for that segment about 35% of their production as is based in Europe. And so they're seeing a pretty significant energy headwind. If you just look at the fourth quarter it's probably a $20 million headwind that they're facing on a year-over-year basis relative to sort of where they were a year ago, for just that segment. But none of these assets are in a position where we were concerned about them being economically shut in because the costs are so high. And we feel we have a very good plan in place especially in Belgium to feel that we'll get the natural gas supply that we need through the winter. So on top of it a lot of teams working to make sure everything has got supply agreements in place, so we don't get rationed. And we don't have a concern around the economic impact from a viability of the assets.

Got you. Thank you so much.

Yeah.

Our next question comes from Matthew DeYoe from Bank of America. Please go ahead. Your line is now open.

Good morning everyone. So I believe this morning you have some euro-denominated debt maturities approaching. Does it make sense to take that out with USD debt? And how are you thinking about the term-loan? I guess as well what are the implications for next year's interest expense with all this? And does this kind of shift your commitment to the buyback?

What I want to emphasize is that we have approximately €700 million to €750 million maturing in May of next year. Our treasury team is actively working on how to manage that. You can anticipate that we will likely implement some strategies in the fourth quarter and finalize them in early January. Given the movement in rates, we are looking at a headwind of about $25 million to $30 million on a year-over-year basis based on current rates. Regarding the share buyback, we remain committed to the $1 billion plan we announced for this year. Looking ahead to 2023, based on Mark's guidance, I expect operating cash flow in a normalized working capital environment to potentially increase our cash earnings by $300 million to $400 million. After accounting for our dividend, this positions us with over $1 billion in strategic cash for our organic growth strategy, as well as for acquisitions and share repurchases in 2023. I believe that by 2024, we will return to operating cash flow of $1.6 billion or more.

Thanks Willie. And I guess following the agreement with Interzero what percent of your France facility is now feedstock locked in or contracted or secured?

We have mentioned the Interzero contract, which is worth approximately 20,000 tons, and we're constructing a 150,000-ton plant in two phases. While this is a positive step, it's still a small portion of the overall plant capacity. We are currently discussing other agreements that could bring us closer to what we need for start-up, and I am optimistic about our progress. It's impressive to consider that we are securing contracts for plant operations expected to begin around 2025-2026. Most importantly, I am excited about the collaboration we are fostering with mechanical recyclers. They are crucial to addressing the plastic waste crisis, as they operate with a low energy footprint and are able to integrate waste back into applications effectively. However, there is a significant quantity of packaging, textile, and carpet waste that cannot be easily mechanically recycled, particularly when it comes to food-grade applications. Mechanical recycling has limitations in this area. This creates an important partnership opportunity to develop a circular economy within the high-value packaging market, which these recyclers recognize. Additionally, there are long-term concerns with mechanical recycling, as polymers degrade over time and can lead to performance quality issues after several heat cycles. Our facility can rejuvenate that degraded polymer, offering a sustainable future for mechanical recycling and enabling plastics to be recycled infinitely, with a considerably lower carbon footprint than existing methods. Interzero recognizes this potential, and I hope to announce a few more collaborations before the year ends, emphasizing the need for cooperation to maintain the most carbon-efficient materials in use without harming the environment.

Understood. Thank you.

Our next question comes from Aleksey Yefremov from KeyBanc Capital Markets. Please go ahead. Your line is now open.

Thanks. Good morning everyone. Could you discuss what share of the third methanolysis facility is covered by the Pepsi agreement? Is this enough for you to make FID? And if so when are you planning to break ground?

So, we're not going to disclose the volume. As I said before, we don't discuss sort of specific contract terms with our customers. In this case, what I can tell you is this commitment was the key milestone we needed to achieve to feel we could have confidence in the economics to move forward in starting the engineering work and in the planning to construct this plant in the US. So, both the contract terms, the length of the contract, and the size of the contract give us confidence to start aggressively moving forward in the construction of this third plant. So, that's where we needed to be and we're excited about this partnership. And I would also note that there's a lot of other customers who are very interested in this capacity. So, we'll be accelerating those conversations now that we've got the sort of base load position set to get you some additional customer announcements.

Thanks Mark and staying with recycling it looks like virgin plastics prices are falling in many cases and so as the feedstock for mechanical recycling, does that change your discussions with potential suppliers of feedstock and also with potential customers for your recycled materials in any way basically the current market conditions?

Yes, I don't believe it's significantly altering anything. There will naturally be fluctuations in supply and demand within the packaging industry, which is generally more stable compared to consumer durables. One of the advantages of the circular platform is that it enhances our revenue from much more stable end markets in terms of demand, which is a beneficial addition to our portfolio. However, regarding pricing trends amidst the current economic turmoil, marked by extreme inflation and companies looking for lower prices in the future, we anticipate a lot of short-term volatility. Yet, none of our customers seem distracted by this; they are focused on meeting their commitments for 2025 and 2030. Discussions are centered on how to achieve those goals rather than on the composition of virgin versus recycled materials in 2022. In the short term, if they need to save money, they may make some compromises on current purchases, but they cannot backtrack on their commitments. Furthermore, in Europe, it’s not optional for brands; it’s mandated by government legislation. If they fail to meet recycling targets, they face substantial taxes, which reflects poorly on their efforts to manage recycled content and to avoid tax penalties. Thus, in Europe, there are strong structural reasons compelling brands to remain committed to addressing this issue. The current mechanical recycling infrastructure cannot provide enough recycled material for the packaging industry, which is where we demonstrate our value proposition.

Thanks Mark.

The next question comes from P.J. Juvekar from Citi. Please go ahead. Your line is now open.

Mark, I have a question about inventories in relation to cash flows. Your cash flow from operations has decreased by more than 50%. You mentioned that working capital impacted this by $500 million. So, I’d like to know how much of that is due to increased costs for raw materials and how much is from rising inventory levels. Additionally, can you describe the current status of inventories in terms of days and where you expect that to go? That's my first question.

Thanks P.J. for the question. What I would highlight as we went into the second half of the year, we had some large turnarounds as we've highlighted here in both Q3 and Q4. So, we were building inventories going into the second half. I would highlight at that point there was probably roughly half of raw material energy inflation and half quantity. We brought those quantities back down through Q3 and we'll be expecting that by year-end effectively the entire increase is raw material and energy inflation. So, bringing our DQO/DIO numbers back in line with the prior year-end.

I mean if you think about the first eight months, we are trying to ship things as fast as we can make it in serving market demand, really through most of August. Some of that was outage related and raw material availability-related interlayers that constrained our ability to supply markets. But demand was great. It was just a logistics or a production constraint in getting it all served. But the market has obviously shifted pretty dramatically in September and through this quarter in destocking.

Thank you. And I appreciate your discussion of a mild recession in your prepared comments. You mentioned amines acetic anhydride and plasticizers to kind of hold up even if olefins decline. Amines and plasticizers have been cyclical in the past. So why do you think they'll hold up in a mild recession here? Thank you.

Yes, one significant development in our CI portfolio has been the growth of functional amines. This business is closely linked to agriculture, which is performing well this year and is expected to continue next year. While we rely on agricultural demand, our margins remain highly attractive and stable because nearly all of this segment operates under cost pass-through contracts. This means that it hasn’t seen a drastic increase in spreads due to market tightness in the past two years, nor will it face a decrease from market looseness going forward. This segment, along with our care chemical and AFP businesses, is very appealing. Regarding acetyls, acetic anhydride has relatively stable margins compared to other acetyls. It didn’t experience a surge in margins during 2021 and 2022, nor will it see a significant decline as the market softens. This stability is due to the nature of its end markets, such as pharmaceuticals and food applications. While margins may decrease slightly, this will be more than compensated for by much higher volume, which was constrained this year due to significant planned shutdowns and operational outages. With improved operations and without these shutdowns, we anticipate substantial volume growth, which should help keep acetyls stable compared to this year. As for specialty plasticizers, which are derived from benzoic compounds, they have historically shown stability and reliability. Together, these three categories account for 50% of the EBITDA in the segment. The other half comes from general plasticizers like DOTP and various olefin derivatives. Typically, the most volatility in this area stems from bulk ethylene rather than its derivatives. Currently, margins for bulk ethylene are already very low. We have successfully reduced production as much as we can, but margins are at a cash cost for the latter half of the year and were not strong in the second quarter. Looking ahead to next year, we do not expect a significant sequential headwind from 2021 to 2022.

Great. Thanks for the color.

Thank you. Our next question comes from Laurence Alexander from Jefferies. Please go ahead, Laurence. Your line is now open.

Good morning. So I just wanted to flesh out the discussion on pricing, and sort of the price initiative-driven spread expansions. Are you seeing any change in the volume elasticity of demand in response to price initiatives particularly in Europe, where I guess the slowdown has been going on the most?

We need to clearly understand what constitutes primary demand in the market, what is due to destocking, and what might be influenced by pricing—whether that pricing is harming end market demand or causing us to lose market share to competitors. Currently, we are not observing any significant negative impact on demand linked to our pricing at the consumer level. In fact, our costs represent only a small portion of the overall price that consumers pay for products. Thus, we are not influencing retail pricing much. Regarding potential share loss, we are closely monitoring whether our pricing strategies might be affecting our market share, particularly concerning commodities, but so far, we are not seeing evidence of that. The presence of destocking complicates things, as it can be challenging to determine if we are merely reducing inventory or losing share. It typically takes a few quarters to clarify this situation. However, the demand drop we are observing corresponds with market trends and retailer destocking efforts. Therefore, we believe maintaining a disciplined pricing strategy while awaiting clearer market signals is appropriate. Our strong value propositions have enabled us to raise prices to offset $1.4 billion in inflation this year. We are optimistic that we can sustain our pricing levels as raw material and distribution costs decline next year, which will allow us to realign our profit margins. We just need the raw material price decreases we are currently experiencing to persist into next year, along with similar trends in distribution costs. I want to note that I'm not considering energy prices as a favorable factor because the outlook is much less certain given the global circumstances. So, we are not counting on energy to provide a tailwind next year.

Okay. A couple of years ago, there was a debate about the Green Premium, and it was suggested that as we aimed to bring on larger facilities, this premium would decrease. However, it doesn't seem like that's occurring. Can you clarify how resilient the Green Premium is? Is it possible that the Green Premium is actually increasing as CPG companies recognize the limitations in their supply of renewable or recycled products?

Yes. So first, I don't think we've ever thought the Green Premium was going to compress over time at least not over the next decade, because the supply and infrastructure needed to solve the plastic waste crisis at a lower carbon footprint. So we're making both climate and waste better. It's just significantly beyond what we and others can add to solve that, right? So, simple macroeconomics demand is going to be a lot greater than supply for quite some time. So, the value proposition of recycled content in polymer is a true specialty product for some period of time here in what it uniquely brings to the marketplace. At some point, is it possible that people add a lot of capacity? Sure. But that's way out in the future for when that starts sort of exceeding demand.

Our next question comes from Kevin McCarthy from VRP. Please go ahead. Your line is now open.

Yes. Good morning, everyone. Would you discuss your capital budget profile for this year and next? It looks as though you took $100 million out of the plan for this year. Are there any projects that you're rethinking in this environment, or is that more of a timing issue whereby it would shift into 2023?

Good morning, Kevin. Thank you for your question. Regarding cash flow progression, we have assessed our capital portfolio and made adjustments on both fronts. There are timing issues that we mentioned earlier this year, as some projects have been delayed due to supply chain challenges, which means some cash flows are now set to occur in 2023. In addition, we have narrowed our focus and made strategic investments to ensure the safety and maintenance of our plants, the continued growth of our core specialties, and to further develop our circular platform. To provide context for our 2023 expectations, in a mild recession scenario, our cash flow could be around $600 million, potentially increasing by $100 million or $200 million as we progress on our three key projects. As Mark emphasized, we anticipate mechanical completion of our Kingsport methanolysis facility by the end of the first quarter, and we will be advancing our projects in France and the US, which will boost our capital levels. We are confident in our ability to generate cash flow and are committing a significant portion of that to our innovation-led growth strategy and the circular platform.

And the key to winning at times like this is staying focused on how you're going to create value long-term and making sure you're positioning yourself for the other side of an economic correction to be the winner. So we're not losing sight of that. We may adjust the timing of some projects relative to when we expect the demand necessary. And frankly, the softening economy will make construction costs cheaper. So it will actually help us out in some of this inflationary element of CapEx costs.

Okay. That's helpful. And then secondly for Willie on slide 12, you referenced a pension and OPEB headwind of $100 million. What is driving that? And is there any cash attached to it in terms of what you may have to inject, or is it strictly a P&L issue?

So, let me first start with our pension plans are well-funded. Two, there's no near-term cash requirements that we would expect. Our large US pension plans are still today roughly 100%-plus funded. The key factors here are really about the accounting. At the end of the day, discount rates and interest rates have gone up. So we'll have a gain at the end of the year in our mark-to-market. That comes back in as a higher interest cost in 2023. Additionally, with investment performance this year the asset base has deteriorated. But ultimately that will result in lower return on asset. So, bottom-line is from a cash and from a funding standpoint there are no issues. I would just attribute this to mark-to-market accounting and the volatility that we're seeing in both interest and assets here in 2022.

Got it. Thank you very much.

Let take this question, the last one please.

Thank you. Our final question today comes from John Roberts from Credit Suisse. Please go ahead. Your line is now open.

Thank you. Two quick ones here. One is since Interzero is burning the waste plastic you're going to get in Europe are you going to pay something just over fuel value for that waste? And then secondly, in your 2023 guidance you've got pension costs going up. I don't think I've heard of anyone actually talking about higher pension costs in 2023 yet. So maybe you could tell us how that's coming about.

So Interzero, we're not going to disclose the price we're paying for the material, but it is a very attractive price that supports our economics. And there's a whole spectrum from things that go to waste things that are going to park benches to some modestly higher down-cycled applications. And so it's a portfolio managing on price to make sure the sort of average comes out. And we're seeing that very much on track with the economics of these platforms delivering $450 million of EBITDA across these three projects when they're all up and running. So feel good about the pricing that we're getting as well as where the feedstock price is set. And then on pension I'll let...

Yes, John, I thought the last question was on the pension. So it has been answered.

Yes. Okay. This concludes our call for this morning. Thank you very much for your time and for joining us and your interest in Eastman. Have a great rest of your day.

This concludes today's call. Thank you for your participation. You may now disconnect.