EFTA01100347.pdf

Deutsche Bank Markets Research VA Rating Company 29 July 2014 Buy Eastman Chemical Results North America United States Reuters Bloomberg Price at 29 Jul 2014 IUSD) 81.52 Industrials EMN.N EMN UN Price target 100.00 Chemicals / Specialty 52-week range 90.20 - 72.67 Share Price Decline Unwarranted David Begleiter Research Analyst 1+1) 212 250.5473 david.begleiter@db.com Concerns overdone. Valuation compelling at 10.6x '15E vs Dow at 14.8x. Buy Eastman shares fell 8% despite a solid Q2 beat and the reaffirming of '14 Ramanan Sivalingam guidance as investors focused on i) new '15 guidance of $7.50-$8.00 (vs $8 Research Associate previously) and ii) a lowering of '14 Fibers (largest and highest margin 1+1 ) 212 250-8619 segment) EBIT guidance by 6%. We believe investor concerns are overdone as ramanan.sivalingam@db.com i) Eastman has been backing away from the $8 target for months and, as evidenced by consensus of $7.77, was not viewed as achievable either and ii) Fibers is under-earning in '14 due to destocking, lower demand and reduced Jermaine Brown operating rates. With valuation a compelling 10.6x '15 EPS vs 14.8x for Dow Research Associate and Q2 evidencing a more predictable and resilient earnings generator, Buy. 1+1) 212 250.3624 02 beats by $0.08. '14 guidance of $6.70-$7.00 reaffirmed (cons: $6.93) jermaine-r.brown@db.com Eastman reported Q2 EPS of $1.92, up 7%, and $0.08 or 4% above consensus. An unplanned outage at Eastman's Kingsport plant reduced sates by $10MM I Price/price relative (in Specialty Fluids & Intermediates {SFI),), EBIT by $10MM (evenly divided between Advanced Matis, Fibers and SFI) and EPS by $0.05. Prior to the los outage, consensus was $1.88. A lower than expected tax rate added $0.01. 90 The upside was driven by stronger than expected results in Adhesives & 79 Plasticizers (AP) and SFI. Sales rose 1% on flat volumes and price while FX 60 added 1%. EBIT fell 3% to $441MM while margins compressed 70bps YoY (+130 QoQ) to 17.9% on higher propane costs. Eastman repurchased $100MM and 2112 ern 2113 fet3 2114 of stock in Q2 and has $640MM left under its $18 authorization. Eastman —fawn.. Chanical reaffirmed its full year guidance range of $630-$7.00, up 4-9% (cons: $6.93). Sap WO MOM 'Relined, Lowering '14E EPS by $0.05 to $6.90. Lowering '15E EPS by $0.05 to $7.70 Notwithstanding a solid 02 release, Eastman shares fell 8% due to concerns Performance (%) 1m 3m 12m over lowered '15 EPS and '14 Fibers guidance. Another driver, in our view, was Absolute -6.7 -5.4 8.6 the wide $0.30 guidance range for 21114 as it implies a high degree of volatility S&P 500 INDEX 0.5 4.9 16.9 in Eastman's business. A slight narrowing of the range to $6.75-$6.95, in our view, would have alleviated this concern. For 21414, we expect slightly lower Swear Oarocia spat EPS for Eastman due to destocking in Fibers, a slowdown in heat transfer argot price of $100 fluids (China) and a planned outage at the company's largest ethylene cracker Our $100 target price is based on in Longview, TX ($20MM, or $0.10 impact in Q4). Looking ahead to '15, we Eastman trading at 13x '15E EPS in believe Fiber earnings will recover modestly post destocking and lower plant 12mos, a 12% discount to its operating rates in '14. While we concur with Eastman's view that Fiber differentiated chemical peer Dow. Risks: earnings are plateauing, we believe EBIT will be higher in '15 at —$500MM vs weaker tire demand, the depressed level of $480MM in '14. And with EBITDA of $550MM and increased leverage and the Solutia capex of just $50MM, Fibers should be strong source of cash to fund growth integration. (M&A, buybacks). For all of '15, we believe Eastman has a number of tailwinds that should drive eamings well above $7.50 including: normalized operations (outages/tumarounds: $0.20), lower propane costs ($0.15-$0.20), acquisitions ($0.10-plus), base business growth ($0.35) and share buybacks ($0.20). To reflect lower Fibers earnings, we are trimming our '14E EPS by $0.05 to $6.90, up 7% and our '15E by $0.05 to $7.70 up 12%. I Forecasts And Ratios Year End Dec 31 2013A 2014E 2015E FY EPS ILISDI 6.44 6.90 7.70 Saent alidSt.hit ate* tfailteltit 1:09,01fly au Deutsche Bank Securities Inc. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 148/04/2014. EFTA01100347 29 July 2014 Chemicals / Specialty Eastman Chemical IFigure 1: Eastman Q2 2014 Results ($ in millions) Segment 02'14 02'13 % change Comment Sales $2,460 $2,440 1% Vols: flat, Price: flat, FX: +1%. Marginal sales growth as higher demand in Additives & functional, Adhesives & plasticizers and Fibers offset by lower demand in Specialty fluids & intermediates. Acquired BP's aviation turbine oil business for $283MM. Outlook: FY'14 Expects sales to grow at global GDP growth rate in H2'14. Additives & $452 $430 5% Vols: +4%, Price: flat, FX: +1%. Upside driven by higher demands for coating Functional Products product lines partially offset by continues destocking in China (primarily for commercial tiresl. Outlook: Expects vats to be better in H214. Adhesives & $358 $339 6% Vols: +9%, Price: -4%, FX: +1%. Upside led by higher sales vols for adhesives Plasticizers resins and plasticizers more than offsetting lower selling prices due to cont'd competitive pressure as increased supply of adhesive resins and weak plasticizers demand in APac and Europe regions. Advanced Materials $631 $625 1% Vols: flat, Price: flat, FX: +1%. Lower sales growth as higher vols for premium products like interfayers with acoustic properties and Eastman Tritan"' copolyester offset by weak demand for Flexvue coated films. Outlook: Expects sales growth to be in the range of 4%-5% in ;42'14 on higher demand for premium products. Fibers $386 $363 6% Vols: +2%, Price: +4%, FX: flat. Higher growth driven by improved selling prices and sales of acetate flake to EMN's China acetate tow joint venture more than offsetting by lower vols of acetate tow due to additional industry capacity. Outlook: Expects lower sales vols in H2'14 Specialty Fluids & $633 $677 (6%) Vols: -,9%%, Price: +2%, FX: flat. Downside due to the unplanned shutdown of Intermediates the plant (due to power disruption) and lower sales vols for intermediates product line partially offset by improved vols of acetyl-based products. Operating profit $441 $454 (3%) Downside primarily due to higher raw material costs, outage costs alongside competitive pressure in core products partially offset by better product mix. Additives & $103 $105 (2%) Weakness due to higher raw mat & energy costs (esp propane) partially offset Functional Products by higher vols. Outlook: FY'14 SIT: -$410-$430MM. Adhesives & $56 $50 12% Higher earnings due to improved vofs, better productivity and lower operating Plasticizers costs partially offset by lower prices. Outlook: FY'14 ENT: Expects to be more than $175MM. Advanced Materials $80 $81 (1%) Relatively flat as lower raw material & energy costs offset by costs of the unplanned shutdown. Outlook: FY14 EMT: -$280-$300MM Fibers $123 $116 6% Upside led by higher prices coupled with increased sales of acetate flake to JV and lower raw material costs more then offsetting lower tow acetate vols and higher operating costs. Outlook: FY'14 SIT: -$480MM Specialty Fluids & $96 $118 119%1 Downside due to lower vols, higher raw material. & energy costs (esp propane{ Intermediates alongside costs of the unplanned shutdown at the Kingsport site. Outlook: FY'14 EMT: -$300-$320MM Operating margin 17.9% 18.6% -70bps Additives & 22.8% 24.4% -160bps Functional Products Adhesives & 15.6% 14.7% +90bps Plasticizers Advanced Materials 12.7% 13.0% -30bps Fibers 31.9% 32.0% -10bps Specialty Fluids & 15.2% 17.4% -230bps Intermediates Interest Expense ($45) ($46) (2%) Other $8 $0 Income/Expense Pretax profits $404 $408 (1%) ($124) Taxes ($112) Tax rate 28% 30% Outlook: FY'14: —280% Non-controlling lid ($2) ($2) 0% Earnings from ops $290 $282 3% One time items $0 ($18) Page 2 Deutsche Bank Securities Inc. EFTA01100348 29 July 2014 Chemicals / Specialty Eastman Chemical Income from $2 $0 discount. Ops Reported net inc. $292 $284 Earnings per share $1.92 $1.80 7% FY'14 Guidance: $6.70 - '15 Guidance: $7.50 - $8.00 (EPS) Cash flow items Q2'14 Cash: $175MM, CFO: +$419MM, Capex: $132MM, Acquisition: $283MM, FCF: $234MM, Dividends: $53MM, Repurchase: $100MM. Outlook: FY14 Capex: $575MM, FCF: $600MM. &tom Drvatht Bat* Figure 2: US Propane to Propylene spread (cnb) in poised to fall in Q3'14 vs 02'14 due to modestly higher propane prices 45 .• 40 -.- 35 4- 30 - 25 -,- 20 -,- 15 -.- 10 5 0 I I I I I I I 1 I I I I I I I I I I 1 I 1 i .0mk..lNWWWWWM4DAI , I, AWWWWMMMM0000.—.—r.—NNNNCOMMMV. g§ggg§g8g§§8g§§8g§§8g§§g5883588358835883581i Santa Detotahr Batt. Eastman Off Ofilratall Deutsche Bank Securities Inc. Page 3 EFTA01100349 29 July 2014 Chemicals / Specialty Eastman Chemical Q2 Results Eastman reported Q2 EPS of $1.92, up 7%, and $0.08 or 4% above consensus of $1.84. A lower than expected tax rate added $0.01. The upside was driven by stronger than expected results in Adhesives & Plasticizers and SFI. Sales rose 1% on flat volumes and price while FX added 1%. EBIT fell 3% to $441MM while margins compressed 70bps YoY (+130 QoQ) to 17.9% amid higher propane costs. Eastman reaffirmed '14 EPS guidance of $6.70-$7.00, up 4-9% YoY (consensus: $6.93). Additives & Functional Products sales rose 5% on 4% higher volumes on improved coatings demand (building and construction, transportation). EBIT fell 2% to $103MM (cons: S104MM) while margins compressed 160 bps to 22.8% on higher propane prices. Adhesives & Plasticizers sales rose 6% on 9% higher volumes partially offset by 4% lower price. EBIT rose 12% to $56MM (cons: $45MM) as adhesive demand appears to have turned the corner following last year's sharp declines and a shift towards Eastman's non-phthalate plasticizers owing to substitution away from phthalate plasticizers. Margins expanded 90 bps to 15.6%. Advanced Materials sales rose 1% on flat volumes and price while FX added 1%. EBIT fell 1% to S80MM (cons: $87MM) as margins compressed 30 bps to 12.7% owing to the impact of the Kingsport outage. Fibers sales rose 6% on 4% higher price and 2% higher volume. EBIT climbed 6% to $123MM (cons: $126MM) while margins compressed 10 bps to 31.9%. Specialty Fluids & Intermediates sales fell 6% on 8% lower volume due to the Kingsport outage partially offset by 2% higher price. EBIT fell 19% to $96MM (cons: $81MM) and margins compressed 220 bps to 15.2% on higher propane costs and the effects from the Kingsport outage. 'Figure 3: Q2 '14 segment sales % change (YoY) Volume Mee FX Total Additives & Functional 4% — 1% 6% Products Adhesives & Plasticizers 9% 14%1 1% 6% Advanced Materials 1% 1% Fibers 2% 4% 6% Specialty Fluids & (8%) 2% 16%) Intermediates Total 1% 1% Sweat Seternan Page 4 Deutsche Bank Securities Inc. EFTA01100350 29 July 2014 Chemicals / Specialty Eastman Chemical 2014 Segment Outlook Figure 4: 2014E Segment Operating Earnings Guidance and DriversiS in millions) Segment 2014E 2013 %A Comments Additives & Functional $410-430 $406 1%-6% (+I Higher vols as improvements in the Products transportation and building & construction markets I-I Partial offset by contracted olefin spread. Adhesives & Plasticizers >$176 $173 1% (+I Improved vols, better productivity and lower operating costs (-I Competitive pricing pressure in plasticizers Advance Materials $280-$300 $260 8%-15% (+I Increased volume and mix improvement. (-I Costs of the unplanned shutdown. Fibers —$480 5462 4% (+I Strong acetate flake volume, lower raw material costs and higher selling prices. I-I Lower tow acetate vols and higher operating costs Specialty Fluids & $300-$320 $364 (12%-18%l I-I Volatility of key raw materials (primarily Intermediates propane) and unplanned shutdown. I+ITechnology licensing revenue to negate the impact of raw material volatility. Sc..* Ememan IFigure 5: 2014 olefins spread Rio impact year projected olefins prices Propane $1.18/gallon Ethane $0.29/gallon Propylene $0.70/lb Ethylene $0.46/lb AC/inOtb:Lothetbeadecinda Increasing use of ethane relative to propane as a feedstock Hedging program mitigates propane costs exposure Pricing actions expected to partially offset higher feedstock costs Narrowing olefins spreads projected to negatively impact 2014 EPS relative to 2013 by $0.30 to $0.40 Sown Logro.b.k HAWS( ins Deutsche Bank Securities Inc. Page 5 EFTA01100351 29 July 2014 Chemicals / Specialty Eastman Chemical 'Figure 6: 2013 Geographic Safes Analysis 'Figure 7: 2013 Segment Sales Analysis LallnIereace A6S1644 and 5% Funcionsi Sp000ly Rids & r4cclets worrroatuos S 19% 26% WS Cowl& AdheeMes& 46% pSliciws 14% Palos 16% Athancod IMIOrot 25% Sweat Lwow, Sown. fawn.» 'Figure 8: 2013 sales by end-market Energy. Fuels & Electronics Agriculture Water 3% 2% Transportation 5% le% Health & Wellness 6% Other 6% Building & Construction Durable Goods 15% 8% Industrial Chemical & Processing Cornmeal*. 12% 14% Tobacco 13% SWAM Saltaan 'Figure 9: 2Q'14 Sales by Region 'Figure 10: 2O'14 Safes by Segment Lath Americo AtISIMetat 5% *Wary Rio A heated %Web) M. 19% 26% vase Steered Canada Adnsu6sA 46% ft :0MM 14% Mats 16% PalvenC441 falier961 26% Savant fr ame" anal% Sans &Nowt Clauitcola Page 6 Deutsche Bank Securities Inc. EFTA01100352 29 July 2014 Chemicals / Specialty Eastman Chemical Valuation Our $100 target is based on Eastman trading at 13x 2015E EPS in 12 months, a 12% discount to its closest differentiated chemical peer Dow, which trades at 14.8x '15E EPS. We believe this multiple is warranted given the progress made integrating Solutia and cost synergies already realized. With the new Eastman becoming a more consistent, stable and predictable earnings generator, we believe Eastman's discount versus its main differentiated peer, DOW will begin to close. Our valuation is further supported by our estimate of Eastman's return on invested capital of 11.2% in 2013E and 11.2% in 2014E and our analysis showing a strong correlation (R2>70%) between chemical sector valuations and returns on capital. Risks Downside risks to our forecasts include increased leverage (-2.8x debt/EBITDA) a failure to achieve Solutia acquisition synergies, increases in propane and paraxylene prices (Eastman's two largest raw materials), a narrowing of the US Gulf Coast propane•propylene spread, price erosion within Additives and Functional Products, additional acetate tow capacity and lower global demand. Deutsche Bank Securities Inc. Page 7 EFTA01100353 29 July 2014 Chemicals /Specialty Eastman Chemical Figure 11 lhons, s are data) 2011 2012 2013 2014E 2015E Sales 7,178 8,102 9,350 9,533 9,915 % Change 11% 13% 15% 2% 4% Cost of Sales (5,538) (5,978) (6,939) (7,068) (7,272) Gross Profit 1,640 2,124 2,411 2,465 2,643 Gross Margin 22.8% 26.2% 25.8% 25.9% 26.7% % Change 8% 30% 14% 2% 7% Selling & Administrative (469) (607) (624) (625) (645) SG&ASales 6.5% 7.5% 6.7% 6.6% 6.5% % Change 4% 29% 3% 0% 3% Research & Development (158) (198) (196) (210) (218) R&D/Sates 2.2% 2.4% 2.1% 2.2% 2.2% % Change (1%) 25% (1%) 7% 4% (S&A+R&D)'Sales 8.7% 9.9% 8.8% 8.8% 8.7% Operating Profit 1,013 1,319 1,591 1,630 1,780 Operating Margin 14.1% 16.3% 17.0% 17.1% 18.0% % Change 11% 30% 21% 2% 9% EBITDA 1,305 1,689 2,021 2,086 2,245 Operating Margin 18.2% 20.8% 21.6% 21.9% 226`. 96 Change 11% 29% 20% 3% 8 Interest Expense (76) (134) (180) (181) (188) % Change (23%) 76% 34% 1% 4% Other Income/Expense 19 10 (3) 11 0 Pretax Income 956 1,195 1,408 1,460 1,592 Pretax Margin 13.3% 14.7% 15.1% 15.3% 16.1% % Change 20% 25% 18% 4% 9% Taxes (304) (391) (393) (407) (446) Tax Rate 31.8% 32.7% 27.9% 27.9% 28.O% Net Income Attributable to Noncontrolling Interests 0 (2) (7) (7) (8) Net Income 652 802 1,008 1,046 1,138 Net Margin 9.1% 9.9% 10.8% 11.0% 11.5% % Change 24% 23% 26% 4% 9% Basic Shares Outstanding 139.7 145.5 154.0 149.4 145.4 % Change (3%) 4% 6% (3%) (3%) Diluted Shares Outstanding 143.0 148.9 156.5 151.5 147.8 % Change 13%1 4% 5% (3%) (2%1 Basic EPS $4.66 $5.51 $6.55 $7.00 $7.83 % Change 28% 18% 19% 7% 12% Diluted EPS $4.56 $5.39 $6.44 $6.90 $7.70 % Change 28% 18% 20% 7% 12% Sane:Doutscb Bane common Eastmain Page 8 Deutsche Bank Securities Inc. EFTA01100354 29 July 2014 Chemicals / Specialty Eastman Chemical Figure 12: Eastman Quarterly Income Statement 2013-2014E ($ in millions except per-share data) 2013 2014E U1 02 03 04 YtAB 01A 02A 13.1 04 rta( Sale.. 2,307 2.440 2,338 2,265 9.350 2,305 2,460 2,421 2.347 9,533 ',. Ctiarigc 27% 32% 3% 4% 15% (0%) 1% 4% 4% 2% Cost of Sales 11.691) 11.763) 11.717) 11.768) 16.939) 11.710) 11.791) 11.7811 11.787) 0.0691 Gross Profit 616 677 621 497 2,411 595 669 641 561 2.465 Gross 1.43rgin 26.7% 27.7% 26.6% 21.9% 25.8% 25.8% 27.2% 26.5% 23.9% 25.9% % Change 43% 41% 3% (19%) 14% (3%) (1%) 3% 13% 2% Selling 8i Administrative 1104) 4172) 1165) (123) 1624) 1159) (172) 1166) 1128) 1625) SG8s4Sales 7.1% 7.0% 7.1% 5.4% 6.7% 6.9% 7.0% 6.9% 5.5% 6.6% % Change 40% 50% 9% (45%) 3% (3%) 0% 1% 4% 0% Research & Development 1491 1511 1511 145) 1196) 4531 156) 1541 1481 1210) R&D/Sates 2.1% 2.1% 2.2% 2.0% 2.1% 2.3% 2.3% 2.2% 2.0% 2.2% % Change 20% 19% (2%1 (27%) (1%) 8% 10% 5% 6% 7% ($8.4.R&DPSales 9.2% 9.1% 9.2% 7.4% ani 9.2% an 9.1% 7.5% atm Operating Profit 403 454 405 329 1,591 383 441 421 385 1,630 Operating Margin 17.5% 18.6% 17.3% 14.5% 17.0% 16.6% 17.9% 17.4% 16.4% 17.1% % Change 48% 41% 2% 1% 21% (5%) (3%) 4% 17% 2% EBITDA 512 562 512 435 2.021 493 559 532 496 2,086 Operating Margin 22.2% 23.0% 21.9% !an 21.6% 21.4% 22.7% 22.0% 21.1% 21.9% % Cha 44 1 4 1 4 14 Interest Expense 071 1461 1441 (43) 1180) 1421 (45) 1471 1471 1181) % Change 147% 142% (8%) f10%) 34% (11%) (2%) 7% 9% 1% Other Income (Expense) 111 0 111 (11 131 3 8 0 0 11 Pretax Income 355 408 360 285 1,408 344 404 374 338 1.460 Pretax Margin 15.4% 16.7% 15.4% 12.6% 15.1% 14.9% 16.4% 15.4% 14.4% 15.3% % Change 38% 36% 2% 0% 18% (3%) (1%) 4% 19% 4% Taxes 1101) 11241 1961 172) 1393) 1961 1112) 1105) 1951 1407) Tax Rate 28.5% 30.4% 26.7% 25.3% 27.9% 27.9% 27.7% 28.0% 28.0% 27.9% Net Income Attributable to Noncontrolling Interests 111 121 111 131 171 111 121 111 131 17/ Net Income 253 282 263 210 1.008 247 290 268 240 1.046 Net Margin 11.0% 11.6% 11.2% 9.3% 10.8% 10.7% 11.8% 11.1% 10.2% 11.0% % Change 47% 43% 7% 12% 26% (2%) 3% 2% 14% 4% Basic Shares Outstanding 154.4 154.4 154.0 153.2 154.0 151.4 149.5 148.7 148,2 149.4 °s Change 12% 12% 1% (0%1 6% (2%1 (3%1 (3%1 (3%1 (3%1 Diluted Shares Outstanding 156.7 156.7 156.4 155.6 156.5 153.0 151.3 151.1 150.6 151.5 "J Change 11% 11% 0% (1%) 5% (2%) (3%) (3%) (3%) .53%) Basic EPS $1.64 $1.83 $1.71 $1.37 $6.66 stet) $1.94 $1.90 $1.62 $7.00 % Change 3I% 28% 8% 13% 19% (0%1 6% 6% 18% 7% Diluted EPS $1.61 $1.80 91.68 91.35 96.44 91.61 91.92 91.78 $1.60 $6.90 % Change 32% 29% 7% 13% 20% (0%1 7% 6% 18% 7% Sara afuOUa1Bane uNw•a EILL0WJA Deutsche Bank Securities Inc. Page 9 EFTA01100355 29 July 2014 Chemicals / Specialty Eastman Chemical 'Figure 13: Eastman A 2011 2012 2013P 2014E 2016E pro ForrosAntual Rag Et EE Additives & Functional Products 1.677 1,613 1,719 1.780 1,860 % Change 8% (4%) 7% 4% 4% Adhesives & Plasticizers 1.381 1.432 1.326 1.375 1,425 % Change 32% 4% (7%) 4% 4% Advanced Materials 2.313 2.254 2.349 2.370 2.500 % Change 12% 13%1 4% 1% 6% Fibers 1.279 1,315 1.441 1.500 1.525 % Change 12% 3% 10% 4% 2% Specialty Fluids & Intermediates 2.548 2.473 2.497 2.505 2.600 % °dope 34% (3%) 7% 0% 4% Total Segment Sales 9.198 9.087 9.332 9.530 9.910 Other 77 33 18 3 5 Sales 9,275 9,120 9.350 9.533 9.915 % Change 19% (2%) 3% 2% 4% pro Forma/Actual Oneratina Profit PE EE Additives & Functional Products 382 393 406 415 454 Operating Man*, 22.8% 24.4% 23.6% 23.3% 24.4% % Change 3% 3% 3% 2% 9% Adhesives & Plasticizers 250 263 173 185 195 Operating Margin 18.1% 18.4% 13.0% 13.5% 13.7% % Change 34% 6% (34%) 7% 6% Advanced Materials 251 210 280 295 323 Operating Maigin 10.9% 9.3% 11.1% 12.4% 12.9% % Change 20% (16%) 24% 13% 9% Fibers 365 388 462 480 488 Operating Margin 28.5% 29.5% 32.1% 32.0% 32.0% % Change 7% 6% 19% 4% 2% Specialty Fluids & Intermedates 278 359 384 310 375 Operating Margin 10.9% 14.5% 14.6% 12.4% 14.4% % Change 28% 29%. 1% I15%) 21/4, Segment Operating Profit 1,526 1,613 1,665 1,685 1.835 % Change 15% 6% 3% 1% 9% Other 1128) 1126) 174) 155) 155) Operating Profit 1.398 1.487 1.591 1,630 1.780 Operating !Navin 191% 76.3% 17.0% 17.1% 18.0% % Change 12% 6% 7% 2% 9% Pro Forme/Actual EMMA PE & Additives & Functional Products 477 490 501 513 557 EHITDA Margin 28.4% 30.4% 29.1% 28.8% 29.9% % Change 3% 3% 2% 2% 9% Adhesives &Plasticizers 294 308 218 230 241 681117A Margin 21.3% 21.5% 16.4% 16.7% 16.9% % Change 31% 5% (29%) 6% 5% Advanced Materials 386 347 404 443 477 581T0.4 Abrgin 16.7% 15.4% 17.2% 18.7% 19.7% % Change 10% 00%) 16% 10% 8% Fibers 433 457 527 545 554 EBITOA Margin 33.9% 34.8% 36.6% 38.3% 363% % Change 7% 6% 15% 3% 2% Specialty Fluids & I mennedates 358 440 444 395 467 5HITOA Mirgin 14.1% 17.8% 17.8% 15.8% 18.0% % Change 23% 23% 7% OM) 18% SOWThifit E BUDA 1,948 2.042 2.094 2.126 2.296 % Change 14% 5% 3% 2% 8% Other 11211 (119) 1701 151) 1511 EBITDA 1.827 1,923 2.024 2.075 2.245 EBITOA Abigin 19.7% 21.1% 21.6% 21.8% 22.6% % Change 11% 5% 6% 3% 8% Interest Expense 176) 1134) 1180) 1181) 1188) % Chanue (23%) 76% 34% 1% 4% Other IncomciE xpensc 19 10 13) II 0 Pretax Income 956 1.195 1,408 1,480 1,592 Pretax Margin 13.3% 14.7% 15.7% 15.3% 76.194 % Change 20% 25% 18% 4% 9% Taxes 1304) 1391) 1393) 1407) 1446) rex Rate 31.8% 32.7% 27.9% 27.9% no% Net Income Attributable to Noncontioning Interests 0 12) 47) 17) 18) Not Income 652 802 1,008 1,046 1,138 SaiKIVOCUISOW &at erema Lenin, Page 10 Deutsche Bank Securities Inc. EFTA01100356 29 July 2014 Chemicals / Specialty Eastman Chemical igure 14: Eastman Quarterly Segment Income Statement 2013-2014E ($ in millions, except per-share data) 2013 2014E 01 122 03 OS WA WA WA OD as read Selea Ad:Wives & Functional Products 419 430 445 425 1,719 423 452 485 440 1.780 % Change 5% 2% 10% 11% 7% 1% 5% 4% 4% 4% Adhesiran &Plasticizers 345 339 321 321 1.326 345 358 335 337 1.375 % Change (8%) (9%) (8%) (5%) (7%) 0% 6% 4% 5% 4% Advanced Skiterials 584 625 583 557 2.349 581 631 590 588 2.370 % Change 3% 4% 4% 5% 4% (1%) 1% 1% 2% 1% Fibers 348 363 363 369 1.441 364 386 380 380 1500 % Change 7% 14% 4% 14% 10% 2% 6% 5% 3% 4% Specialty Fluids & intermediates 607 677 820 593 2.497 601 633 650 621 2.505 % Change 15%1 4% 5% 1% 1% (1%) (8%) 5% 5% 0% Total Segment Sales 2.301 2.434 2.332 2.265 9.332 2.304 2.480 2.420 2.346 9.530 Other 6 6 6 0 t8 1 0 I i 3 Sates 2.307 2,440 2.338 2.285 9.350 2.305 2.480 2.421 2.347 9.533 % Change (1%) 3% 3% 4% 3% (0%) 1% 4% 4% 2% aggratino Profit Ackkives & Functional Products 98 105 III 92 408 94 103 110 108 415 Operating Margin 23.4% 24.4% 24.9% 21.6% 23.6% 22.2% 22.8% 23.7% 24.5% 23.3% % Change 4% 0% 6% 3% 3% (4%) (2%) UV 17% 2% Adheshois & Plasticizers 49 50 41 33 173 47 56 45 37 185 Operating Unpin 14.2% 14.7% 12.8% 10.3% 73.0% 33.6% 15.6% 13.4% 110% 13.596 % Change (26%) (31%1 144%1 137%1 134%) (4%) 12% 10% 12% 7% Advanced Wens& 65 81 69 45 280 71 80 80 84 295 Operating Unpin 11.1% 73.094 118% 8.7% 17.1% 12.2% 12.7% 13.6% 11.3% 12.4% % Change 7% 29% 21% 55% 24% 9% (1%) 16% 42% 13% Fibers 114 116 113 119 482 117 123 115 125 480 Operating Mogin 32.9% 32.0% 31.1% 32.2% 32.1% 33.1% 31.9% 30.3% 32.9% 32.0% % Change 13% 21% 15% 28% 19% 3% 6% 2% 5% 4% Specialty Fluids & Intermediates 95 118 90 61 384 64 98 85 85 310 Operating Margin 15.7% 17.4% 14.5% 10.3% 14.6% 10.6% 15.2% 13.1% 10.5% 12.4% % Change 30% 22% (6%) (34%) 1% (33%) (19%) (6%) 7% 05%1 Segment Operating Profit 421 470 424 350 1665 393 458 435 399 1,685 % Change 7% 9% (1%) (2%) 3% (7%) (3%) 3% 14% 1% Other 118) (18) (19) (21) (74) (10) (171 (14) (14) _1551 Operating Profit 403 454 405 329 1,591 383 441 421 385 1.630 Operating Margin 17.5% 18.6% 17.3% 14.5% 17.0% 16.6% 17.9% 17.4% 16.4% 17.1% % Change I I% I.7%