Eastman Chemical Company (EMN)

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Eastman Chemical (EMN)

Q3 2012 Earnings Call

October 26, 2012 8:00 am ET

Executives

Gregory A. Riddle - Director of Investor Relations

James P. Rogers - Chairman and Chief Executive Officer

Curtis E. Espeland - Chief Financial Officer and Senior Vice President

Analysts

David L. Begleiter - Deutsche Bank AG, Research Division

Vincent Andrews - Morgan Stanley, Research Division

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Edlain S. Rodriguez - Lazard Capital Markets LLC, Research Division

Laurence Alexander - Jefferies & Company, Inc., Research Division

P.J. Juvekar - Citigroup Inc, Research Division

Robert Koort - Goldman Sachs Group Inc., Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Nils-Bertil Wallin - Credit Agricole Securities (USA) Inc., Research Division

Lee Bressler

Duffy Fischer - Barclays Capital, Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

William Young

Presentation

Operator

Good day, everyone, and welcome to the Eastman Chemical Company Third Quarter 2012 Earnings Conference Call. Today's conference is being recorded. This call is being broadcast live on Eastman's website, www.eastman.com.

We will now turn the call over to Mr. Greg Riddle of Eastman Chemical Company Investor Relations. Please go ahead, sir.

Gregory A. Riddle

Okay, thank you, Mara. And good morning, everyone, and thanks for joining us. On the call with me today are Jim Rogers, Chairman and CEO; Curt Espeland, Senior Vice President and Chief Financial Officer; and Josh Morgan, Manager, Investor Relations.

Before we begin, I'll cover 4 items. First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. Actual results could differ materially. Certain factors related to future expectations are or will be detailed in the company's third quarter 2012 financial results news release and in our filings with the Securities and Exchange Commission, including the form 10-K filed for full year 2011 and the Form 10-Q to be filed for third quarter 2012.

Second, earnings per share and operating earnings referenced in this presentation exclude Solutia acquisition financing, transaction, integration and inventory costs and charges, as well as asset impairments and restructuring charges net. A reconciliation to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the Solutia acquisition transaction, financing, integration and inventory costs and charges and the asset impairment restructuring charges net, are available in our third quarter financial results news release and the tables accompanying the release available in the Investors section of our website, eastman.com.

Third, this presentation includes sales revenue and operating earnings on a pro forma combined basis, assuming the acquisition of Solutia have been completed prior to third quarter 2011, that compares post-acquisition results to pre-acquisition pro forma combined results. For more information on pro forma combined results, see the Solutia acquisition section in our third quarter financial results news release.

Also, on October 15, we furnished to the SEC a Form 8-K with pro forma combined historical financial information for our new segments. In the said 8-K, you will find sales revenue, operating earnings and depreciation and amortization for 2009 through the first half of 2012 for our new segments.

And lastly, we have posted the slides that accompany our remarks this morning on our website in the presentation and events section.

With that, I'll turn the call over to Jim.

James P. Rogers

Thanks, Greg. And good morning, everyone. I'll start on Slide 3.

As is my normal practice, I will start by holding us accountable for our key outlook statements. As you're aware, we were able to close the Solutia acquisition on July 2, meeting the midyear commitment we made to you back in January when the deal was announced. Let me reiterate how excited we are to have Solutia as part of the Eastman and how confident we are in the value this transaction will create both in the near and long term. We will go into greater detail during our upcoming Investor Day, highlighting why these businesses are so attractive and fit so well with our strategy. In his section, Curt will also give a brief update on how the integration is progressing as well as provide a summary of the transaction from the standpoint of the opening balance sheet.

Next, back in July, we indicated our expectation was for full year 2012 EPS to be approximately $5.30, and we slightly raised that expectation and I'll talk more about that in a moment. And lastly, we indicated we expected to generate $1 billion of free cash in 2012 and 2013 combined. Again, we are on track to deliver on this commitment.

While I don't want to give too much away out of the great story we will share with you on November 5, what I will say today is that, given all of the portfolio work we have done over the last several years, including the Solutia acquisition, we now have a portfolio of businesses that we expect to produce solid, consistent earnings growth and cash generation for years to come.

On Slide 4, I'll hit the Eastman corporate results. You can see, sales revenue on a pro forma basis declined slightly as lower selling prices primarily due to lower raws and energy costs were partially offset by higher sales volume in most segments. Pro forma combined operating earnings increased due to lower raw material and energy costs and higher sales volume, partially offset by the lower selling prices.

Third quarter EPS was $1.57, which is a record for our company, demonstrating the strength and diversity of our businesses during a challenging economic environment. I will also point out that we had a lower-than-expected tax rate during the quarter, which Curt will discuss in his section.

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