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, Finance and Chief Accounting Officer | ||
Date: October 29, 2015 |
(In millions, except per share amounts) | 3Q2015 | 3Q2014 |
Sales revenue | $2,447 | $2,413 |
Earnings per diluted share | $1.71 | $1.39 |
Earnings per diluted share excluding non-core items* | $1.84 | $1.89 |
Net cash provided by operating activities | $368 | $560 |
Item | Page | |
Table 1 – Statements of Earnings | |||||||||||||||
Third Quarter | First Nine Months | ||||||||||||||
(Dollars in millions, except per share amounts; unaudited) | 2015 | 2014 | 2015 | 2014 | |||||||||||
Sales | $ | 2,447 | $ | 2,413 | $ | 7,423 | $ | 7,178 | |||||||
Cost of sales (1) | 1,752 | 1,777 | 5,352 | 5,290 | |||||||||||
Gross profit | 695 | 636 | 2,071 | 1,888 | |||||||||||
Selling, general and administrative expenses | 178 | 171 | 552 | 511 | |||||||||||
Research and development expenses | 64 | 56 | 177 | 165 | |||||||||||
Asset impairments and restructuring charges, net | 21 | 71 | 130 | 77 | |||||||||||
Operating earnings | 432 | 338 | 1,212 | 1,135 | |||||||||||
Net interest expense | 66 | 45 | 198 | 132 | |||||||||||
Other charges (income), net | 13 | (5 | ) | 2 | (16 | ) | |||||||||
Earnings from continuing operations before income taxes | 353 | 298 | 1,012 | 1,019 | |||||||||||
Provision for income taxes from continuing operations | 95 | 86 | 283 | 281 | |||||||||||
Earnings from continuing operations | 258 | 212 | 729 | 738 | |||||||||||
Earnings from discontinued operations, net of tax (2) | — | — | — | 2 | |||||||||||
Net earnings | 258 | 212 | 729 | 740 | |||||||||||
Less: net earnings attributable to noncontrolling interest | 2 | 2 | 5 | 5 | |||||||||||
Net earnings attributable to Eastman | $ | 256 | $ | 210 | $ | 724 | $ | 735 | |||||||
Amounts attributable to Eastman stockholders: | |||||||||||||||
Earnings from continuing operations, net of tax | $ | 256 | $ | 210 | $ | 724 | $ | 733 | |||||||
Earnings from discontinued operations, net of tax (2) | — | — | — | 2 | |||||||||||
Net earnings attributable to Eastman stockholders | $ | 256 | $ | 210 | $ | 724 | $ | 735 | |||||||
Basic earnings per share attributable to Eastman | |||||||||||||||
Earnings from continuing operations | $ | 1.73 | $ | 1.41 | $ | 4.87 | $ | 4.89 | |||||||
Earnings from discontinued operations (2) | — | — | — | 0.01 | |||||||||||
Basic earnings per share attributable to Eastman | $ | 1.73 | $ | 1.41 | $ | 4.87 | $ | 4.90 | |||||||
Diluted earnings per share attributable to Eastman | |||||||||||||||
Earnings from continuing operations | $ | 1.71 | $ | 1.39 | $ | 4.83 | $ | 4.83 | |||||||
Earnings from discontinued operations (2) | — | — | — | 0.02 | |||||||||||
Diluted earnings per share attributable to Eastman | $ | 1.71 | $ | 1.39 | $ | 4.83 | $ | 4.85 | |||||||
Shares (in millions) outstanding at end of period | 148.6 | 148.5 | 148.6 | 148.5 | |||||||||||
Shares (in millions) used for earnings per share calculation | |||||||||||||||
Basic | 148.6 | 148.7 | 148.6 | 149.8 | |||||||||||
Diluted | 149.8 | 150.3 | 149.8 | 151.5 |
(1) | First nine months 2015 included mark-to-market pension plan loss of $2 million due to the interim remeasurement of a UK pension plan triggered by the closure of the Workington, UK acetate tow manufacturing facility. |
(2) | In first nine months 2014, the Company recognized $2 million, net of tax, in earnings from discontinued operations from final settlement of commercial litigation related to the previously discontinued polyethylene terephthalate ("PET") business. |
Table 2A – Segment Sales Information | ||||||||||||||||
Third Quarter | First Nine Months | |||||||||||||||
(Dollars in millions, unaudited) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Sales by Segment | ||||||||||||||||
Additives & Functional Products | $ | 602 | $ | 458 | $ | 1,827 | $ | 1,333 | ||||||||
Adhesives & Plasticizers | 305 | 347 | 942 | 1,050 | ||||||||||||
Advanced Materials | 624 | 604 | 1,832 | 1,816 | ||||||||||||
Fibers | 320 | 346 | 903 | 1,086 | ||||||||||||
Specialty Fluids & Intermediates | 584 | 650 | 1,883 | 1,884 | ||||||||||||
Total Sales by Segment | 2,435 | 2,405 | 7,387 | 7,169 | ||||||||||||
Other | 12 | 8 | 36 | 9 | ||||||||||||
Total Eastman Chemical Company | $ | 2,447 | $ | 2,413 | $ | 7,423 | $ | 7,178 |
Table 2B – Sales Revenue Change | ||||||||||
Third Quarter 2015 Compared to Third Quarter 2014 | ||||||||||
(Unaudited) | Change in Sales Revenue Due To | |||||||||
Revenue % Change | Acquired Businesses Effect (1) | Volume / Product Mix Effect | Price Effect | Exchange Rate Effect | ||||||
Additives & Functional Products | 31 | % | 42 | % | 2 | % | (10) | % | (3) | % |
Adhesives & Plasticizers | (12) | % | — | % | (1) | % | (8) | % | (3) | % |
Advanced Materials | 3 | % | 5 | % | 5 | % | (3) | % | (4) | % |
Fibers | (8) | % | — | % | (6) | % | (1) | % | (1) | % |
Specialty Fluids & Intermediates | (10) | % | 15 | % | (6) | % | (18) | % | (1) | % |
Total Eastman Chemical Company | 1 | % | 14 | % | (1) | % | (9) | % | (3) | % |
First Nine Months 2015 Compared to First Nine Months 2014 | ||||||||||
(Unaudited) | Change in Sales Revenue Due To | |||||||||
Revenue % Change | Acquired Businesses Effect (1) | Volume / Product Mix Effect | Price Effect | Exchange Rate Effect | ||||||
Additives & Functional Products | 37 | % | 45 | % | 3 | % | (7) | % | (4) | % |
Adhesives & Plasticizers | (10) | % | — | % | (1) | % | (5) | % | (4) | % |
Advanced Materials | 1 | % | 6 | % | 3 | % | (4) | % | (4) | % |
Fibers | (17) | % | — | % | (16) | % | — | % | (1 | )% |
Specialty Fluids & Intermediates | — | % | 19 | % | (2) | % | (16) | % | (1) | % |
Total Eastman Chemical Company | 3 | % | 15 | % | (2) | % | (7) | % | (3) | % |
(1) | Contribution to 2015 revenue of businesses acquired since the 2014 period. |
Table 2C – Sales by Customer Location | ||||||||||||||||
Third Quarter | First Nine Months | |||||||||||||||
(Dollars in millions, unaudited) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Sales by Customer Location | ||||||||||||||||
United States and Canada | $ | 1,089 | $ | 1,131 | $ | 3,391 | $ | 3,342 | ||||||||
Asia Pacific | 600 | 631 | 1,741 | 1,886 | ||||||||||||
Europe, Middle East, and Africa | 615 | 520 | 1,865 | 1,578 | ||||||||||||
Latin America | 143 | 131 | 426 | 372 | ||||||||||||
Total Eastman Chemical Company | $ | 2,447 | $ | 2,413 | $ | 7,423 | $ | 7,178 |
Table 3 - Segment, Other, and Company Non-GAAP Operating Earnings (Loss) (1) | |||||||||||||||
Third Quarter | First Nine Months | ||||||||||||||
(Dollars in millions, unaudited) | 2015 | 2014 | 2015 | 2014 | |||||||||||
Additives & Functional Products | $ | 126 | $ | 102 | $ | 365 | $ | 299 | |||||||
Adhesives & Plasticizers | 74 | 52 | 190 | 155 | |||||||||||
Advanced Materials | 116 | 80 | 326 | 231 | |||||||||||
Fibers | 102 | 112 | 283 | 352 | |||||||||||
Specialty Fluids & Intermediates | 48 | 96 | 233 | 256 | |||||||||||
Total segment operating earnings excluding non-core items | $ | 466 | $ | 442 | $ | 1,397 | $ | 1,293 | |||||||
Total Other | (7 | ) | (15 | ) | (23 | ) | (42 | ) | |||||||
Total operating earnings excluding non-core items | $ | 459 | $ | 427 | $ | 1,374 | $ | 1,251 |
(1) | For identification of excluded non-core items and reconciliations to GAAP operating earnings, see Table 3A. |
Table 3A - Segment, Other, and Company Non-GAAP Operating Earnings (Loss) Reconciliations | |||||||||||||||
Third Quarter | First Nine Months | ||||||||||||||
(Dollars in millions, unaudited) | 2015 | 2014 | 2015 | 2014 | |||||||||||
Additives & Functional Products | |||||||||||||||
Operating earnings | $ | 126 | $ | 37 | $ | 365 | $ | 236 | |||||||
Asset impairments and restructuring charges, net (1) | — | 65 | — | 63 | |||||||||||
Excluding non-core items | 126 | 102 | 365 | 299 | |||||||||||
Adhesives & Plasticizers | |||||||||||||||
Operating earnings | 74 | 52 | 190 | 155 | |||||||||||
Advanced Materials | |||||||||||||||
Operating earnings | 98 | 76 | 301 | 217 | |||||||||||
Asset impairments and restructuring charges, net (1)(2) | 18 | 4 | 18 | 14 | |||||||||||
Additional costs of acquired inventories (1) | — | — | 7 | — | |||||||||||
Excluding non-core items | 116 | 80 | 326 | 231 | |||||||||||
Fibers | |||||||||||||||
Operating earnings | 102 | 112 | 188 | 352 | |||||||||||
Asset impairments and restructuring charges, net (3) | — | — | 95 | — | |||||||||||
Excluding non-core item | 102 | 112 | 283 | 352 | |||||||||||
Specialty Fluids & Intermediates | |||||||||||||||
Operating earnings | 48 | 90 | 233 | 248 | |||||||||||
Additional costs of acquired inventories (1) | — | 6 | — | 8 | |||||||||||
Excluding non-core item | 48 | 96 | 233 | 256 | |||||||||||
Other | |||||||||||||||
Operating loss | (16 | ) | (29 | ) | (65 | ) | (73 | ) | |||||||
Acquisition integration and transaction costs (1)(4) | 6 | 12 | 23 | 31 | |||||||||||
Asset impairments and restructuring charges, net (1)(5) | 3 | 2 | 17 | — | |||||||||||
Mark-to-market pension and other postretirement benefit plans loss (3) | — | — | 2 | — | |||||||||||
Excluding non-core items | (7 | ) | (15 | ) | (23 | ) | (42 | ) | |||||||
Total Eastman Chemical Company | |||||||||||||||
Operating earnings | 432 | 338 | 1,212 | 1,135 | |||||||||||
Asset impairments and restructuring charges, net | 21 | 71 | 130 | 77 | |||||||||||
Acquisition integration and transaction costs | 6 | 12 | 23 | 31 | |||||||||||
Additional costs of acquired inventories | — | 6 | 7 | 8 | |||||||||||
Mark-to-market pension and other postretirement benefit plans loss | — | — | 2 | — | |||||||||||
Total operating earnings excluding non-core items | $ | 459 | $ | 427 | $ | 1,374 | $ | 1,251 | |||||||
Company Non-GAAP Operating Earnings Reconciliations by Line Items | |||||||||||||||
Operating earnings | $ | 432 | $ | 338 | $ | 1,212 | $ | 1,135 | |||||||
Costs of sales | — | 6 | 9 | 8 | |||||||||||
Selling, general and administrative expenses | 6 | 12 | 23 | 31 | |||||||||||
Asset impairment and restructuring charges, net | 21 | 71 | 130 | 77 | |||||||||||
Total operating earnings excluding non-core items | $ | 459 | $ | 427 | $ | 1,374 | $ | 1,251 |
(1) | See "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Quarterly Reports on Form 10-Q for third quarter 2014, second quarter 2014, first quarter 2014 and second quarter 2015 for descriptions of non-core items. |
(2) | Included in third quarter and first nine months 2015 earnings are indefinite-lived intangible asset impairments of $18 million in the Advanced Materials segment to reduce the carrying value of trade names in the window films market to their estimated current fair values. |
(3) | Included in first nine months 2015 earnings are asset impairments and restructuring charges, net, and a mark-to-market loss on a UK pension plan obligation triggered by the closure of the Workington, UK acetate tow manufacturing facility. |
(4) | Included in third quarter and first nine months 2015 earnings are integration and transaction costs primarily for the completed acquisitions of Taminco Corporation and Commonwealth Laminating & Coating, Inc. |
(5) | Included in third quarter and first nine months 2015 earnings are severance costs associated with the integration of Taminco of $2 million and $4 million, respectively. Included in first nine months 2015 earnings are asset impairments and restructuring charges of $12 million resulting from the decision to discontinue a growth initiative reported in "other". |
Table 4 – Operating Earnings, Earnings, and Earnings Per Share from Continuing Operations Non-GAAP Reconciliations | ||||||||||||||||
Third Quarter 2015 | ||||||||||||||||
Operating Earnings | Earnings from Continuing Operations Before Income Taxes | Earnings from Continuing Operations Attributable to Eastman | ||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | After Tax (1) | Per Diluted Share | ||||||||||||||
As reported | $ | 432 | $ | 353 | $ | 256 | $ | 1.71 | ||||||||
Non-Core Items: | ||||||||||||||||
Asset impairments and restructuring charges, net (2) | 21 | 21 | 17 | 0.10 | ||||||||||||
Acquisition integration and transaction costs (2) | 6 | 6 | 3 | 0.03 | ||||||||||||
Excluding non-core items | $ | 459 | $ | 380 | $ | 276 | $ | 1.84 |
Third Quarter 2014 | ||||||||||||||||
Operating Earnings | Earnings from Continuing Operations Before Income Taxes | Earnings from Continuing Operations Attributable to Eastman | ||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | After Tax (1) | Per Diluted Share | ||||||||||||||
As reported | $ | 338 | $ | 298 | $ | 210 | $ | 1.39 | ||||||||
Non-Core Items: | ||||||||||||||||
Asset impairments and restructuring charges, net (2) | 71 | 71 | 60 | 0.42 | ||||||||||||
Acquisition integration, transaction, and financing costs (2)(3) | 12 | 15 | 10 | 0.06 | ||||||||||||
Additional costs of acquired inventories (2) | 6 | 6 | 4 | 0.02 | ||||||||||||
Excluding non-core items | $ | 427 | $ | 390 | $ | 284 | $ | 1.89 |
(1) | Excluding the tax impact of non-core items, both the third quarter 2015 and 2014 effective tax rates were 27 percent. |
(2) | See Table 3A for description of asset impairments and restructuring charges, net, acquisition integration and transaction costs, and additional costs of acquired inventories. |
(3) | Acquisition transaction and integration costs of $12 million in selling, general, and administrative expenses and acquisition financing cost of $3 million in other charges (income), net. |
Table 4 – Operating Earnings, Earnings, and Earnings Per Share from Continuing Operations Non-GAAP Reconciliations (continued) | ||||||||||||||||
First Nine Months 2015 | ||||||||||||||||
Operating Earnings | Earnings from Continuing Operations Before Income Taxes | Earnings from Continuing Operations Attributable to Eastman | ||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | After Tax (1) | Per Diluted Share | ||||||||||||||
As reported | $ | 1,212 | $ | 1,012 | $ | 724 | $ | 4.83 | ||||||||
Non-Core Items: | ||||||||||||||||
Asset impairments and restructuring charges, net (2) | 130 | 130 | 109 | 0.72 | ||||||||||||
Acquisition integration and transaction costs (2) | 23 | 23 | 14 | 0.10 | ||||||||||||
Additional costs of acquired inventories (2) | 7 | 7 | 4 | 0.03 | ||||||||||||
Mark-to-market pension and other postretirement benefit plans loss (2) | 2 | 2 | 1 | 0.01 | ||||||||||||
Excluding non-core items | $ | 1,374 | $ | 1,174 | $ | 852 | $ | 5.69 |
First Nine Months 2014 | ||||||||||||||||
Operating Earnings | Earnings from Continuing Operations Before Income Taxes | Earnings from Continuing Operations Attributable to Eastman | ||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | After Tax (1) | Per Diluted Share | ||||||||||||||
As reported | $ | 1,135 | $ | 1,019 | $ | 733 | $ | 4.83 | ||||||||
Non-Core Items: | ||||||||||||||||
Asset impairments and restructuring charges, net (2) | 77 | 77 | 63 | 0.43 | ||||||||||||
Acquisition integration, transaction, and financing costs (2)(3) | 31 | 34 | 21 | 0.14 | ||||||||||||
Additional costs of acquired inventories (2) | 8 | 8 | 5 | 0.03 | ||||||||||||
Excluding non-core items | $ | 1,251 | $ | 1,138 | $ | 822 | $ | 5.43 |
(1) | Excluding the tax impact of non-core items, the first nine months 2015 effective tax rate was 27 percent compared to 28 percent for first nine months 2014. |
(2) | See Table 3A for description of asset impairments and restructuring charges, net, acquisition integration and transaction costs, additional costs of acquired inventories, and mark-to-market loss. |
(3) | Acquisition transaction and integration costs of $31 million in selling, general, and administrative expenses and acquisition financing cost of $3 million in other charges (income), net. |
Table 5 – Statements of Cash Flows | |||||||||||||||
Third Quarter | First Nine Months | ||||||||||||||
(Dollars in millions, unaudited) | 2015 | 2014 | 2015 | 2014 | |||||||||||
Operating activities | |||||||||||||||
Net earnings | $ | 258 | $ | 212 | $ | 729 | $ | 740 | |||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 142 | 111 | 429 | 328 | |||||||||||
Asset impairment charges | 18 | 42 | 107 | 50 | |||||||||||
Gain on sale of assets | — | — | — | (5 | ) | ||||||||||
Provision (benefit) for deferred income taxes | 59 | (3 | ) | 29 | 58 | ||||||||||
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures: | |||||||||||||||
(Increase) decrease in trade receivables | 49 | 73 | (54 | ) | (118 | ) | |||||||||
(Increase) decrease in inventories | (66 | ) | (22 | ) | (23 | ) | (76 | ) | |||||||
Increase (decrease) in trade payables | (30 | ) | 32 | (139 | ) | (12 | ) | ||||||||
Pension and other postretirement contributions (in excess of) less than expenses | (110 | ) | (31 | ) | (147 | ) | (76 | ) | |||||||
Variable compensation (in excess of) less than expenses | 44 | 45 | 20 | (8 | ) | ||||||||||
Other items, net | 4 | 101 | 99 | 68 | |||||||||||
Net cash provided by operating activities | 368 | 560 | 1,050 | 949 | |||||||||||
Investing activities | |||||||||||||||
Additions to properties and equipment | (160 | ) | (152 | ) | (426 | ) | (406 | ) | |||||||
Proceeds from sale of assets | — | 1 | 4 | 13 | |||||||||||
Acquisitions, net of cash acquired | (45 | ) | (42 | ) | (45 | ) | (325 | ) | |||||||
Additions to capitalized software | (1 | ) | (1 | ) | (2 | ) | (2 | ) | |||||||
Other items, net | 4 | — | 2 | 2 | |||||||||||
Net cash used in investing activities | (202 | ) | (194 | ) | (467 | ) | (718 | ) | |||||||
Financing activities | |||||||||||||||
Net increase (decrease) in commercial paper borrowings | — | (211 | ) | 157 | (185 | ) | |||||||||
Proceeds from borrowings | — | — | 250 | 615 | |||||||||||
Repayment of borrowings | (50 | ) | — | (675 | ) | (125 | ) | ||||||||
Dividends paid to stockholders | (60 | ) | (53 | ) | (179 | ) | (159 | ) | |||||||
Treasury stock purchases | (17 | ) | (50 | ) | (48 | ) | (410 | ) | |||||||
Dividends paid to noncontrolling interests | (3 | ) | — | (6 | ) | (9 | ) | ||||||||
Proceeds from stock option exercises and other items, net | 8 | (8 | ) | 20 | 22 | ||||||||||
Net cash used in financing activities | (122 | ) | (322 | ) | (481 | ) | (251 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | (3 | ) | (7 | ) | (7 | ) | (5 | ) | |||||||
Net change in cash and cash equivalents | 41 | 37 | 95 | (25 | ) | ||||||||||
Cash and cash equivalents at beginning of period | 268 | 175 | 214 | 237 | |||||||||||
Cash and cash equivalents at end of period | $ | 309 | $ | 212 | $ | 309 | $ | 212 |
Table 5A – Net Cash Provided By Operating Activities to Free Cash Flow Reconciliation | ||||||||||||||||
Third Quarter | First Nine Months | |||||||||||||||
(Dollars in millions, unaudited) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Net cash provided by operating activities | $ | 368 | $ | 560 | $ | 1,050 | $ | 949 | ||||||||
Additions to properties and equipment | (160 | ) | (152 | ) | (426 | ) | (406 | ) | ||||||||
Free Cash Flow | $ | 208 | $ | 408 | $ | 624 | $ | 543 |
Table 6 – Selected Balance Sheet Items | ||||||||
September 30, | December 31, | |||||||
(Dollars in millions, unaudited) | 2015 | 2014 | ||||||
Cash and cash equivalents | $ | 309 | $ | 214 | ||||
Short-term Borrowings | 251 | 301 | ||||||
Long-term Borrowings | 7,029 | 7,248 | ||||||
Total Eastman Stockholders' Equity | 3,877 | 3,510 |
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