Delaware | 1-12626 | 62-1539359 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
200 South Wilcox Drive, Kingsport, TN | 37662 | |
(Address of Principal Executive Offices) | (Zip Code) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
EASTMAN CHEMICAL COMPANY - EMN |
EASTMAN CHEMICAL COMPANY - EMN |
EASTMAN CHEMICAL COMPANY - EMN |
Eastman Chemical Company | ||
By: /s/Scott V. King Scott V. King Vice President, Controller and Chief Accounting Officer | ||
Date: October 24, 2013 |
(In millions, except per share amounts) | 3Q2013 | 3Q2012 | ||||
Sales revenue | $ | 2,338 | $ | 2,259 | ||
Earnings per diluted share | $ | 1.97 | $ | 0.99 | ||
Earnings per diluted share excluding non-core or non-recurring items* | $ | 1.68 | $ | 1.57 | ||
Net cash provided by operating activities | $ | 427 | $ | 353 |
Item | Page | |
Table 1 | Statements of Earnings | |
Table 2A | Segment Sales Information | |
Table 2B | Segment Sales Information (Eastman and Solutia Pro Forma Combined) | |
Table 2C | Sales Revenue Change | |
Table 2D | Sales Revenue Change (Eastman and Solutia Pro Forma Combined) | |
Table 2E | Sales by Region | |
Table 2F | Sales by Region (Eastman and Solutia Pro Forma Combined) | |
Table 3A | Company, Segment, and Other Operating Earnings (Loss), and Non-GAAP Operating Earnings Reconciliations | |
Table 3B | Company, Segment, and Other Operating Earnings (Loss), and Non-GAAP Operating Earnings Reconciliations (Eastman and Solutia Pro Forma Combined) | |
Table 4 | Operating Earnings, Earnings, and Earnings Per Share from Continuing Operations Non-GAAP Reconciliations | |
Table 5 | Statements of Cash Flows | |
Table 5A | Net Cash Provided By Operating Activities to Free Cash Flow Reconciliation | |
Table 6 | Selected Balance Sheet Items |
Table 1 – Statements of Earnings | |||||||||||||||
Third Quarter | First Nine Months | ||||||||||||||
(Dollars in millions, except per share amounts; unaudited) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Sales | $ | 2,338 | $ | 2,259 | $ | 7,085 | $ | 5,933 | |||||||
Cost of sales (1) | 1,649 | 1,734 | 5,103 | 4,496 | |||||||||||
Gross profit | 689 | 525 | 1,982 | 1,437 | |||||||||||
Selling, general and administrative expenses (1) | 159 | 173 | 510 | 420 | |||||||||||
Research and development expenses (1) | 48 | 52 | 148 | 136 | |||||||||||
Asset impairments and restructuring charges, net | 3 | 37 | 24 | 37 | |||||||||||
Operating earnings | 479 | 263 | 1,300 | 844 | |||||||||||
Net interest expense | 44 | 48 | 137 | 95 | |||||||||||
Other charges (income), net | 1 | (6 | ) | 2 | 14 | ||||||||||
Earnings from continuing operations before income taxes | 434 | 221 | 1,161 | 735 | |||||||||||
Provision for income taxes from continuing operations | 125 | 64 | 338 | 240 | |||||||||||
Earnings from continuing operations | 309 | 157 | 823 | 495 | |||||||||||
Gain from disposal of discontinued operations, net of tax | — | — | — | 1 | |||||||||||
Net earnings | 309 | 157 | 823 | 496 | |||||||||||
Less: net income attributable to noncontrolling interest | 1 | 3 | 4 | 5 | |||||||||||
Net earnings attributable to Eastman | $ | 308 | $ | 154 | $ | 819 | $ | 491 | |||||||
Amounts attributable to Eastman stockholders: | |||||||||||||||
Earnings from continuing operations, net of tax | $ | 308 | $ | 154 | $ | 819 | $ | 490 | |||||||
Gain from discontinued operations, net of tax | — | — | — | 1 | |||||||||||
Net earnings attributable to Eastman stockholders | $ | 308 | $ | 154 | $ | 819 | $ | 491 | |||||||
Basic earnings per share attributable to Eastman | |||||||||||||||
Earnings from continuing operations | $ | 2.00 | $ | 1.01 | $ | 5.31 | $ | 3.43 | |||||||
Earnings from discontinued operations | — | — | — | 0.01 | |||||||||||
Basic earnings per share attributable to Eastman | $ | 2.00 | $ | 1.01 | $ | 5.31 | $ | 3.44 | |||||||
Diluted earnings per share attributable to Eastman | |||||||||||||||
Earnings from continuing operations | $ | 1.97 | $ | 0.99 | $ | 5.23 | $ | 3.35 | |||||||
Earnings from discontinued operations | — | — | — | — | |||||||||||
Diluted earnings per share attributable to Eastman | $ | 1.97 | $ | 0.99 | $ | 5.23 | $ | 3.35 | |||||||
Shares (in millions) outstanding at end of period | 153.9 | 153.4 | 153.9 | 153.4 | |||||||||||
Shares (in millions) used for earnings per share calculation | |||||||||||||||
Basic | 154.0 | 152.9 | 154.3 | 142.8 | |||||||||||
Diluted | 156.4 | 156.4 | 156.7 | 146.3 |
(1) | Third quarter and first nine months 2013 included a total mark-to-market gain of $86 million due to the interim remeasurement of the Eastman other postretirement benefits ("OPEB") plan obligation, triggered by a plan change in life insurance benefits. |
Table 2A – Segment Sales Information | ||||||||||||||||
Third Quarter | First Nine Months | |||||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Sales by Segment | ||||||||||||||||
Additives & Functional Products | $ | 445 | $ | 406 | $ | 1,294 | $ | 948 | ||||||||
Adhesives & Plasticizers | 321 | 348 | 1,005 | 1,094 | ||||||||||||
Advanced Materials | 583 | 559 | 1,792 | 1,166 | ||||||||||||
Fibers | 363 | 349 | 1,072 | 990 | ||||||||||||
Specialty Fluids & Intermediates | 620 | 592 | 1,904 | 1,728 | ||||||||||||
Total Sales by Segment | 2,332 | 2,254 | 7,067 | 5,926 | ||||||||||||
Other | 6 | 5 | 18 | 7 | ||||||||||||
Total Eastman Chemical Company | $ | 2,338 | $ | 2,259 | $ | 7,085 | $ | 5,933 |
Table 2B – Segment Sales Information (Eastman and Solutia Pro Forma Combined) | ||||||||||||
First Nine Months | ||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | ||||||||||
Sales by Segment | ||||||||||||
Additives & Functional Products | $ | 1,294 | $ | 1,229 | ||||||||
Adhesives & Plasticizers | 1,005 | 1,094 | ||||||||||
Advanced Materials | 1,792 | 1,726 | ||||||||||
Fibers | 1,072 | 990 | ||||||||||
Specialty Fluids & Intermediates | 1,904 | 1,883 | ||||||||||
Total Sales by Segment | 7,067 | 6,922 | ||||||||||
Other | 18 | 29 | ||||||||||
Total Eastman Chemical Company | $ | 7,085 | $ | 6,951 |
Table 2C – Sales Revenue Change | ||||||||
Third Quarter 2013 Compared to Third Quarter 2012 | ||||||||
(Unaudited) | Change in Sales Revenue Due To | |||||||
Revenue % Change | Volume Effect | Price Effect | Exchange Rate Effect | |||||
Additives & Functional Products | 10 | % | 10 | % | — | % | — | % |
Adhesives & Plasticizers | (8) | % | (5) | % | (3) | % | — | % |
Advanced Materials | 4 | % | 5 | % | (1) | % | — | % |
Fibers | 4 | % | (2) | % | 6 | % | — | % |
Specialty Fluids & Intermediates | 5 | % | 2 | % | 3 | % | — | % |
Total Eastman Chemical Company | 3 | % | 2 | % | 1 | % | — | % |
First Nine Months 2013 Compared to First Nine Months 2012 | ||||||||
(Unaudited) | Change in Sales Revenue Due To | |||||||
Revenue % Change | Volume Effect | Price Effect | Exchange Rate Effect | |||||
Additives & Functional Products | 36 | % | 37 | % | (1) | % | — | % |
Adhesives & Plasticizers | (8) | % | (6) | % | (2) | % | — | % |
Advanced Materials | 54 | % | 54 | % | — | % | — | % |
Fibers | 8 | % | 2 | % | 6 | % | — | % |
Specialty Fluids & Intermediates | 10 | % | 11 | % | (1) | % | — | % |
Total Eastman Chemical Company | 19 | % | 19 | % | — | % | — | % |
Table 2D – Sales Revenue Change (Eastman and Solutia Pro Forma Combined) | ||||||||
First Nine Months 2013 Compared to First Nine Months 2012 | ||||||||
(Unaudited) | Change in Sales Revenue Due To | |||||||
Revenue % Change | Volume Effect | Price Effect | Exchange Rate Effect | |||||
Additives & Functional Products | 5 | % | 6 | % | (1) | % | — | % |
Adhesives & Plasticizers | (8) | % | (6) | % | (2) | % | — | % |
Advanced Materials | 4 | % | 5 | % | (1 | )% | — | % |
Fibers | 8 | % | 2 | % | 6 | % | — | % |
Specialty Fluids & Intermediates | 1 | % | 2 | % | (1) | % | — | % |
Total Eastman Chemical Company | 2 | % | 2 | % | — | % | — | % |
Table 2E – Sales by Region | ||||||||||||||||
Third Quarter | First Nine Months | |||||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Sales by Region | ||||||||||||||||
United States and Canada | $ | 1,069 | $ | 1,036 | $ | 3,271 | $ | 3,026 | ||||||||
Asia Pacific | 658 | 627 | 1,935 | 1,470 | ||||||||||||
Europe, Middle East, and Africa | 481 | 468 | 1,503 | 1,143 | ||||||||||||
Latin America | 130 | 128 | 376 | 294 | ||||||||||||
Total Eastman Chemical Company | $ | 2,338 | $ | 2,259 | $ | 7,085 | $ | 5,933 |
Table 2F – Sales by Region (Eastman and Solutia Pro Forma Combined) | ||||||||||||
First Nine Months | ||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | ||||||||||
Sales by Region | ||||||||||||
United States and Canada | $ | 3,271 | $ | 3,295 | ||||||||
Asia Pacific | 1,935 | 1,778 | ||||||||||
Europe, Middle East, and Africa | 1,503 | 1,506 | ||||||||||
Latin America | 376 | 372 | ||||||||||
Total Eastman Chemical Company | $ | 7,085 | $ | 6,951 |
Table 3A - Company, Segment, and Other Operating Earnings (Loss), and Non-GAAP Operating Earnings Reconciliations | ||||||||||||||||
Third Quarter | First Nine Months | |||||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Operating Earnings by Segment and Non-Core or Non-Recurring Items | ||||||||||||||||
Additives & Functional Products | ||||||||||||||||
Operating earnings | $ | 111 | $ | 86 | $ | 313 | $ | 215 | ||||||||
Additional costs of acquired Solutia inventories (1) | — | 19 | — | 19 | ||||||||||||
Asset impairments and restructuring charges, net (2)(3) | — | — | 1 | — | ||||||||||||
Excluding non-core or non-recurring items | 111 | 105 | 314 | 234 | ||||||||||||
Adhesives & Plasticizers | ||||||||||||||||
Operating earnings | 41 | 73 | 139 | 211 | ||||||||||||
Asset impairments and restructuring charges (2) | — | — | 1 | — | ||||||||||||
Excluding non-core or non-recurring item | 41 | 73 | 140 | 211 | ||||||||||||
Advanced Materials | ||||||||||||||||
Operating earnings | 69 | 18 | 216 | 86 | ||||||||||||
Additional costs of acquired Solutia inventories (1) | — | 39 | — | 39 | ||||||||||||
Asset impairments and restructuring charges, net (2)(3) | — | — | (1 | ) | — | |||||||||||
Excluding non-core or non-recurring items | 69 | 57 | 215 | 125 | ||||||||||||
Fibers | ||||||||||||||||
Operating earnings | 113 | 98 | 343 | 295 | ||||||||||||
Specialty Fluids & Intermediates | ||||||||||||||||
Operating earnings | 90 | 79 | 302 | 204 | ||||||||||||
Additional costs of acquired Solutia inventories (1) | — | 17 | — | 17 | ||||||||||||
Asset impairments and restructuring charges (2) | — | — | 1 | — | ||||||||||||
Excluding non-core or non-recurring items | 90 | 96 | 303 | 221 | ||||||||||||
Total Operating Earnings by Segment | ||||||||||||||||
Operating earnings | 424 | 354 | 1,313 | 1,011 | ||||||||||||
Additional costs of acquired Solutia inventories | — | 75 | — | 75 | ||||||||||||
Asset impairments and restructuring charges, net | — | — | 2 | — | ||||||||||||
Excluding non-core or non-recurring items | $ | 424 | $ | 429 | $ | 1,315 | $ | 1,086 |
(1) | As required by purchase accounting, the acquired inventories were marked to fair value. These inventories were sold in third quarter 2012 resulting in a one-time increase in cost of sales, net of the LIFO impact for these inventories. |
(2) | Included in first nine months 2013 earnings are restructuring charges of $2 million, $1 million, $2 million, and $1 million in the Additives & Functional Products, Adhesives & Plasticizers, Advanced Materials, and Specialty Fluids & Intermediates segments, respectively, primarily for severance. |
(3) | Included in first nine months 2013 earnings is a reduction in previous charges for the fourth quarter 2012 termination of the operating agreement for the Sao Jose dos Campos, Brazil site, which is reported as reductions of $1 million and $3 million in the Additives & Functional Products and Advanced Materials segments, respectively. |
Table 3A - Company, Segment, and Other Operating Earnings (Loss), and Non-GAAP Operating Earnings Reconciliations (continued) | ||||||||||||||||
Third Quarter | First Nine Months | |||||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Total Operating Earnings by Segment | ||||||||||||||||
Operating earnings | $ | 424 | $ | 354 | $ | 1,313 | $ | 1,011 | ||||||||
Additional costs of acquired Solutia inventories | — | 75 | — | 75 | ||||||||||||
Asset impairments and restructuring charges, net | — | — | 2 | — | ||||||||||||
Excluding non-core or non-recurring items | 424 | 429 | 1,315 | 1,086 | ||||||||||||
Other (1) | ||||||||||||||||
Operating earnings (loss) | ||||||||||||||||
Growth initiatives and businesses not allocated to segments (2) | (20 | ) | (36 | ) | (73 | ) | (84 | ) | ||||||||
Pension and OPEB income (expense) and gain (loss) not allocated to operating segments | 87 | (5 | ) | 93 | (18 | ) | ||||||||||
Transaction, integration, and restructuring costs related to the acquisition of Solutia | (12 | ) | (50 | ) | (33 | ) | (65 | ) | ||||||||
Operating earnings (loss) before non-core or non-recurring items | 55 | (91 | ) | (13 | ) | (167 | ) | |||||||||
Transaction and integration costs related to the acquisition of Solutia | 9 | 22 | 24 | 37 | ||||||||||||
Mark-to-market pension and other postretirement benefits (gain) loss (3) | (86 | ) | — | (86 | ) | — | ||||||||||
Asset impairments and restructuring charges (4)(5)(6) | 3 | 37 | 22 | 37 | ||||||||||||
Operating loss excluding non-core or non-recurring items | (19 | ) | (32 | ) | (53 | ) | (93 | ) | ||||||||
Total Eastman Chemical Company | ||||||||||||||||
Total operating earnings | 479 | 263 | 1,300 | 844 | ||||||||||||
Additional costs of acquired Solutia inventories | — | 75 | — | 75 | ||||||||||||
Transaction and integration costs related to the acquisition of Solutia | 9 | 22 | 24 | 37 | ||||||||||||
Mark-to-market pension and other postretirement benefits (gain) loss | (86 | ) | — | (86 | ) | — | ||||||||||
Asset impairments and restructuring charges, net | 3 | 37 | 24 | 37 | ||||||||||||
Total operating earnings excluding non-core or non-recurring items | $ | 405 | $ | 397 | $ | 1,262 | $ | 993 |
(1) | Research and development, certain components of pension and OPEB, and other expenses and income not identifiable to an operating segment are not included in segment operating results and are shown as "other" operating earnings (loss). |
(2) | Businesses not allocated to segments include the Perennial WoodTM business and Photovoltaics product line. |
(3) | Mark-to-market gain in third quarter and first nine months 2013 due to the interim remeasurement of the Eastman OPEB plan obligation, triggered by a plan change in life insurance benefits in third quarter 2013. |
(4) | Included in first nine months 2013 earnings are asset impairments and restructuring charges of $13 million primarily for the closure of a production facility in Germany for the Photovoltaics product line. |
(5) | Included in third quarter and first nine months 2013 earnings are restructuring charges of $3 million and $9 million, respectively, primarily for severance associated with the continued integration of Solutia. |
(6) | Included in third quarter and first nine months 2012 was $28 million primarily for severance related to the acquisition and integration of Solutia and asset impairments of $9 million, primarily related to land retained from the previously discontinued Beaumont, Texas industrial gasification project. |
Table 3B - Company, Segment, and Other Operating Earnings (Loss), and Non-GAAP Operating Earnings Reconciliations (Eastman and Solutia Pro Forma Combined) | ||||||||||||
First Nine Months | ||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | ||||||||||
Operating Earnings by Segment and Non-Core or Non-Recurring Items | ||||||||||||
Additives & Functional Products | ||||||||||||
Operating earnings | $ | 313 | $ | 287 | ||||||||
Additional costs of acquired Solutia inventories (1) | — | 19 | ||||||||||
Asset impairments and restructuring charges, net (2)(3) | 1 | — | ||||||||||
Excluding non-core or non-recurring items | 314 | 306 | ||||||||||
Adhesives & Plasticizers | ||||||||||||
Operating earnings | 139 | 211 | ||||||||||
Asset impairments and restructuring charges (2) | 1 | — | ||||||||||
Excluding non-core or non-recurring item | 140 | 211 | ||||||||||
Advanced Materials | ||||||||||||
Operating earnings | 216 | 137 | ||||||||||
Additional costs of acquired Solutia inventories (1) | — | 39 | ||||||||||
Asset impairments and restructuring charges, net (2)(3)(4) | (1 | ) | 5 | |||||||||
Excluding non-core or non-recurring items | 215 | 181 | ||||||||||
Fibers | ||||||||||||
Operating earnings | 343 | 295 | ||||||||||
Specialty Fluids & Intermediates | ||||||||||||
Operating earnings | 302 | 249 | ||||||||||
Additional costs of acquired Solutia inventories (1) | — | 17 | ||||||||||
Asset impairments and restructuring charges (2) | 1 | — | ||||||||||
Excluding non-core or non-recurring items | 303 | 266 | ||||||||||
Total Operating Earnings by Segment | ||||||||||||
Operating earnings | 1,313 | 1,179 | ||||||||||
Additional costs of acquired Solutia inventories | — | 75 | ||||||||||
Asset impairments and restructuring charges, net | 2 | 5 | ||||||||||
Excluding non-core or non-recurring items | $ | 1,315 | $ | 1,259 |
(1) | As required by purchase accounting, the acquired inventories were marked to fair value. These inventories were sold in third quarter 2012 resulting in a one-time increase in cost of sales, net of the LIFO impact for these inventories. |
(2) | Included in first nine months 2013 earnings are restructuring charges of $2 million, $1 million, $2 million, and $1 million in the Additives & Functional Products, Adhesives & Plasticizers, Advanced Materials, and Specialty Fluids & Intermediates segments, respectively, primarily for severance. |
(3) | Included in first nine months 2013 earnings is a reduction in previous charges for the fourth quarter 2012 termination of the operating agreement for the Sao Jose dos Campos, Brazil site, which is reported as reductions of $1 million and $3 million in the Additives & Functional Products and Advanced Materials segments, respectively. |
(4) | Acquisition-related expenses of $5 million in first nine months 2012, respectively, for Solutia's Southwall Technologies Inc. acquisition. |
Table 3B - Company, Segment, and Other Operating Earnings (Loss), and Non-GAAP Operating Earnings Reconciliations (Eastman and Solutia Pro Forma Combined) (continued) | ||||||||||||
First Nine Months | ||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | ||||||||||
Total Operating Earnings by Segment | ||||||||||||
Operating earnings | $ | 1,313 | $ | 1,179 | ||||||||
Additional costs of acquired Solutia inventories | — | 75 | ||||||||||
Asset impairments and restructuring charges, net | 2 | 5 | ||||||||||
Excluding non-core or non-recurring items | 1,315 | 1,259 | ||||||||||
Other (1) | ||||||||||||
Operating loss | ||||||||||||
Growth initiatives and businesses not allocated to segments (2) | (73 | ) | (87 | ) | ||||||||
Pension and OPEB income (expense) and gain (loss) not allocated to operating segments | 93 | (18 | ) | |||||||||
Transaction, integration, and restructuring costs related to the acquisition of Solutia | (33 | ) | (90 | ) | ||||||||
Operating loss before non-core or non-recurring items | (13 | ) | (195 | ) | ||||||||
Transaction and integration costs related to the acquisition of Solutia | 24 | 62 | ||||||||||
Mark-to-market pension and other postretirement benefits (gain) loss (3) | (86 | ) | — | |||||||||
Asset impairments and restructuring charges (4)(5)(6) | 22 | 37 | ||||||||||
Operating loss excluding non-core or non-recurring items | (53 | ) | (96 | ) | ||||||||
Total Eastman Chemical Company | ||||||||||||
Total operating earnings | 1,300 | 984 | ||||||||||
Additional costs of acquired Solutia inventories | — | 75 | ||||||||||
Transaction and integration costs related to the acquisition of Solutia | 24 | 62 | ||||||||||
Mark-to-market pension and other postretirement benefits (gain) loss | (86 | ) | — | |||||||||
Asset impairments and restructuring charges, net | 24 | 42 | ||||||||||
Total operating earnings excluding non-core or non-recurring items | $ | 1,262 | $ | 1,163 |
(1) | Research and development, certain components of pension and OPEB, and other expenses and income not identifiable to an operating segment are not included in segment operating results and are shown as "other" operating earnings (loss). |
(2) | Businesses not allocated to segments include the Perennial WoodTM business and Photovoltaics product line. |
(3) | Mark-to-market gain in third quarter and first nine months 2013 due to the interim remeasurement of the Eastman OPEB plan obligation, triggered by a plan change in life insurance benefits in third quarter 2013. |
(4) | Included in first nine months 2013 earnings are asset impairments and restructuring charges of $13 million primarily for the closure of a production facility in Germany for the Photovoltaics product line. |
(5) | Included in first nine months 2013 earnings are restructuring charges of $9 million, respectively, primarily for severance associated with the continued integration of Solutia. |
(6) | Included in first nine months 2012 was $28 million primarily for severance related to the acquisition and integration of Solutia and asset impairments of $9 million, primarily of land retained from the previously discontinued Beaumont, Texas industrial gasification project. |
Table 4 – Operating Earnings, Earnings, and Earnings Per Share from Continuing Operations Non-GAAP Reconciliations | ||||||||||||||||
Third Quarter 2013 | ||||||||||||||||
Operating Earnings | Earnings from Continuing Operations Before Tax | Earnings from Continuing Operations Attributable to Eastman Stockholders | ||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | After Tax (1) | Per Diluted Share | ||||||||||||||
As reported | $ | 479 | $ | 434 | $ | 308 | $ | 1.97 | ||||||||
Non-Core or Non-Recurring Items: | ||||||||||||||||
Solutia integration costs (2) | 9 | 9 | 6 | 0.04 | ||||||||||||
Mark-to-market pension and other postretirement benefits (gain) loss (3) | (86 | ) | (86 | ) | (53 | ) | (0.34 | ) | ||||||||
Asset impairments and restructuring charges, net (4) | 3 | 3 | 2 | 0.01 | ||||||||||||
Excluding non-core or non-recurring items | $ | 405 | $ | 360 | $ | 263 | $ | 1.68 |
Third Quarter 2012 | ||||||||||||||||
Operating Earnings | Earnings from Continuing Operations Before Tax | Earnings from Continuing Operations Attributable to Eastman Stockholders | ||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | After Tax (1) | Per Diluted Share | ||||||||||||||
As reported | $ | 263 | $ | 221 | $ | 154 | $ | 0.99 | ||||||||
Non-Core or Non-Recurring Items: | ||||||||||||||||
Additional costs of acquired Solutia inventories (5) | 75 | 75 | 53 | 0.34 | ||||||||||||
Solutia transaction and integration costs (2) | 22 | 22 | 15 | 0.10 | ||||||||||||
Asset impairments and restructuring charges, net (6) | 37 | 37 | 24 | 0.14 | ||||||||||||
Excluding non-core or non-recurring items | $ | 397 | $ | 355 | $ | 246 | $ | 1.57 |
(1) | Excluding the non-core or non-recurring items, the third quarter 2013 effective tax rate was 27 percent and the third quarter 2012 effective tax rate was 31 percent. The lower third quarter 2013 effective tax rate was primarily due to a $14 million benefit for adjustments to the tax provision to reflect the finalization of the 2012 consolidated U.S. Federal income tax return. |
(2) | Integration costs of $9 million and $7 million in third quarter 2013 and 2012, respectively, and transaction costs of $15 million in third quarter 2012 included in selling, general, and administrative expenses. |
(3) | Mark-to-market gain due to the interim remeasurement of the Eastman OPEB plan obligation, triggered by a plan change in life insurance benefits in third quarter 2013. |
(4) | Restructuring charges of $3 million primarily for severance associated with the continued integration of Solutia in third quarter 2013. |
(5) | As required by purchase accounting, the acquired inventories were marked to fair value. These inventories were sold in third quarter 2012 resulting in a one-time increase in cost of sales, net of the LIFO impact for these inventories. |
(6) | Severance charges of $28 million related to the acquisition and integration of Solutia and $9 million of asset impairments, primarily for land retained from Beaumont, Texas gasification project in third quarter 2012. |
Table 4 – Operating Earnings, Earnings, and Earnings Per Share from Continuing Operations Non-GAAP Reconciliations (continued) | ||||||||||||||||
First Nine Months 2013 | ||||||||||||||||
Operating Earnings | Earnings from Continuing Operations Before Tax | Earnings from Continuing Operations Attributable to Eastman Stockholders | ||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | After Tax (1) | Per Diluted Share | ||||||||||||||
As reported | $ | 1,300 | $ | 1,161 | $ | 819 | $ | 5.23 | ||||||||
Non-Core or Non-Recurring Items: | ||||||||||||||||
Solutia integration costs (2) | 24 | 24 | 16 | 0.10 | ||||||||||||
Mark-to-market pension and other postretirement benefits (gain) loss (3) | (86 | ) | (86 | ) | (53 | ) | (0.34 | ) | ||||||||
Asset impairments and restructuring charges, net (4) | 24 | 24 | 16 | 0.10 | ||||||||||||
Excluding non-core or non-recurring items | $ | 1,262 | $ | 1,123 | $ | 798 | $ | 5.09 |
First Nine Months 2012 | ||||||||||||||||
Operating Earnings | Earnings from Continuing Operations Before Tax | Earnings from Continuing Operations Attributable to Eastman Stockholders | ||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | After Tax (1) | Per Diluted Share | ||||||||||||||
As reported | $ | 844 | $ | 735 | $ | 490 | $ | 3.35 | ||||||||
Non-Core or Non-Recurring Items: | ||||||||||||||||
Additional costs of acquired Solutia inventories (5) | 75 | 75 | 53 | 0.36 | ||||||||||||
Solutia transaction, integration, and financing costs (6) | 37 | 69 | 48 | 0.32 | ||||||||||||
Asset impairments and restructuring charges (7) | 37 | 37 | 24 | 0.17 | ||||||||||||
Excluding non-core or non-recurring items | $ | 993 | $ | 916 | $ | 615 | $ | 4.20 |
(1) | Excluding the non-core or non-recurring items, the first nine months 2013 effective tax rate was 29 percent and the first nine months 2012 effective tax rate was 33 percent. The lower third quarter 2013 effective tax rate was primarily due to a $14 million benefit for adjustments to the tax provision to reflect the finalization of the 2012 consolidated U.S. Federal income tax return. |
(2) | Integration costs of $24 million included in selling, general, and administrative expenses. |
(3) | Mark-to-market gain due to the interim remeasurement of the Eastman OPEB plan obligation, triggered by a plan change in life insurance benefits in third quarter 2013. |
(4) | Asset impairments and restructuring charges of $13 million primarily for the closure of a production facility in Germany for the Photovoltaics product line, $6 million for severance primarily for a voluntary separation plan, and $9 million of restructuring charges primarily for severance associated with the continued integration of Solutia, partially offset by $4 million of a reduction in previous charges associated with the fourth quarter 2012 termination of the operating agreement for the Sao Jose dos Campos, Brazil site. |
(5) | As required by purchase accounting, the acquired inventories were marked to fair value. These inventories were sold in third quarter 2012 resulting in a one-time increase in cost of sales, net of the LIFO impact for these inventories. |
(6) | Transaction and integration costs of $37 million in selling, general and administrative expenses, financing costs of $9 million in net interest expense, and $23 million in other charges (income), net, related to the acquisition of Solutia. |
(7) | Severance charges related to the acquisition and integration of Solutia of $28 million and asset impairments, primarily for land retained from Beaumont, Texas gasification project, of $9 million. |
Table 5 – Statements of Cash Flows | |||||||||||||||
Third Quarter | First Nine Months | ||||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Cash flows from operating activities | |||||||||||||||
Net earnings including noncontrolling interest | $ | 309 | $ | 157 | $ | 823 | $ | 496 | |||||||
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | |||||||||||||||
Depreciation and amortization | 108 | 112 | 326 | 252 | |||||||||||
Asset impairment charges | — | 9 | 6 | 9 | |||||||||||
Provision for deferred income taxes | 72 | 40 | 118 | 63 | |||||||||||
Mark-to-market pension and other postretirement benefits (gain) loss | (86 | ) | — | (86 | ) | — | |||||||||
Pension and other postretirement contributions (in excess of) less than expenses | (78 | ) | (40 | ) | (120 | ) | (85 | ) | |||||||
Variable compensation (in excess of) less than expenses | 39 | 31 | 30 | (5 | ) | ||||||||||
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures: | |||||||||||||||
(Increase) decrease in trade receivables | 95 | 40 | (119 | ) | (63 | ) | |||||||||
(Increase) decrease in inventories | 21 | 32 | (14 | ) | 30 | ||||||||||
Increase (decrease) in trade payables | (35 | ) | 44 | (67 | ) | 13 | |||||||||
Other items, net | (18 | ) | (72 | ) | (103 | ) | (22 | ) | |||||||
Net cash provided by operating activities | 427 | 353 | 794 | 688 | |||||||||||
Cash flows from investing activities | |||||||||||||||
Additions to properties and equipment | (125 | ) | (120 | ) | (312 | ) | (297 | ) | |||||||
Proceeds from redemption of short-term time deposits | — | — | — | 200 | |||||||||||
Proceeds from sale of assets and investments | 1 | 1 | 6 | 7 | |||||||||||
Acquisitions and investments in joint ventures, net of cash acquired | — | (2,658 | ) | — | (2,668 | ) | |||||||||
Additions to capitalized software | (1 | ) | (1 | ) | (2 | ) | (4 | ) | |||||||
Other items, net | 8 | 2 | — | (33 | ) | ||||||||||
Net cash used in investing activities | (117 | ) | (2,776 | ) | (308 | ) | (2,795 | ) | |||||||
Cash flows from financing activities | |||||||||||||||
Net increase (decrease) in commercial paper, credit facility and other borrowings | — | — | 300 | (1 | ) | ||||||||||
Proceeds from borrowings | — | 1,200 | 150 | 3,511 | |||||||||||
Repayment of borrowings | (250 | ) | (1,520 | ) | (805 | ) | (1,666 | ) | |||||||
Dividends paid to stockholders | (47 | ) | (36 | ) | (94 | ) | (107 | ) | |||||||
Treasury stock purchases | (35 | ) | — | (113 | ) | — | |||||||||
Dividends paid to noncontrolling interests | (3 | ) | (3 | ) | (10 | ) | (4 | ) | |||||||
Proceeds from stock option exercises and other items, net | 8 | 17 | 55 | 32 | |||||||||||
Net cash provided by (used in) financing activities | (327 | ) | (342 | ) | (517 | ) | 1,765 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 5 | 2 | 4 | 2 | |||||||||||
Net change in cash and cash equivalents | (12 | ) | (2,763 | ) | (27 | ) | (340 | ) | |||||||
Cash and cash equivalents at beginning of period | 234 | 3,000 | 249 | 577 | |||||||||||
Cash and cash equivalents at end of period | $ | 222 | $ | 237 | $ | 222 | $ | 237 |
Table 5A – Net Cash Provided By Operating Activities to Free Cash Flow Reconciliation | ||||||||||||||||
Third Quarter | First Nine Months | |||||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Net cash provided by operating activities | $ | 427 | $ | 353 | $ | 794 | $ | 688 | ||||||||
Additions to properties and equipment | (125 | ) | (120 | ) | (312 | ) | (297 | ) | ||||||||
Dividends paid to stockholders | (47 | ) | (36 | ) | (94 | ) | (107 | ) | ||||||||
Free Cash Flow | $ | 255 | $ | 197 | $ | 388 | $ | 284 |
Table 6 – Selected Balance Sheet Items | ||||||||
September 30, | December 31, | |||||||
(Dollars in millions, unaudited) | 2013 | 2012 | ||||||
Cash and cash equivalents | $ | 222 | $ | 249 | ||||
Short-term Borrowings | — | 4 | ||||||
Long-term Borrowings | 4,429 | 4,779 | ||||||
Total Eastman Stockholders' Equity | 3,588 | 2,943 |