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: January 30, 2014 |
(in millions, except per share amounts) | 4Q13 | 4Q12 | FY13 | FY12 |
Sales revenue | $2,265 | $2,169 | $9,350 | $8,102 |
Pro forma combined sales revenue* | $2,265 | $2,169 | $9,350 | $9,120 |
Earnings (loss) per diluted share from continuing operations | $2.22 | ($0.35) | $7.44 | $2.92 |
Earnings per diluted share from continuing operations excluding non-core or non-recurring items** | $1.35 | $1.19 | $6.44 | $5.38 |
Net cash provided by operating activities | $503 | $440 | $1,297 | $1,128 |
Item | Page | |
Table 1 | Statements of Earnings (Loss) | |
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 (Loss), Earnings (Loss), and Earnings (Loss) 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 (Loss) | |||||||||||||||
Fourth Quarter | Twelve Months | ||||||||||||||
(Dollars in millions, except per share amounts; unaudited) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Sales | $ | 2,265 | $ | 2,169 | $ | 9,350 | $ | 8,102 | |||||||
Cost of sales (1) | 1,471 | 1,844 | 6,574 | 6,340 | |||||||||||
Gross profit | 794 | 325 | 2,776 | 1,762 | |||||||||||
Selling, general and administrative expenses (1) | 135 | 224 | 645 | 644 | |||||||||||
Research and development expenses (1) | 45 | 62 | 193 | 198 | |||||||||||
Asset impairments and restructuring charges, net | 52 | 83 | 76 | 120 | |||||||||||
Operating earnings (loss) | 562 | (44 | ) | 1,862 | 800 | ||||||||||
Net interest expense | 43 | 48 | 180 | 143 | |||||||||||
Other charges (income), net | 1 | (6 | ) | 3 | 8 | ||||||||||
Earnings (loss) from continuing operations before income taxes | 518 | (86 | ) | 1,679 | 649 | ||||||||||
Provision (benefit) for income taxes from continuing operations | 169 | (34 | ) | 507 | 206 | ||||||||||
Earnings (loss) from continuing operations | 349 | (52 | ) | 1,172 | 443 | ||||||||||
Gain from disposal of discontinued operations, net of tax | — | — | — | 1 | |||||||||||
Net earnings (loss) | 349 | (52 | ) | 1,172 | 444 | ||||||||||
Less: net income attributable to noncontrolling interest | 3 | 2 | 7 | 7 | |||||||||||
Net earnings (loss) attributable to Eastman | $ | 346 | $ | (54 | ) | $ | 1,165 | $ | 437 | ||||||
Amounts attributable to Eastman stockholders: | |||||||||||||||
Earnings (loss) from continuing operations, net of tax | $ | 346 | $ | (54 | ) | $ | 1,165 | $ | 436 | ||||||
Gain from discontinued operations, net of tax | — | — | — | 1 | |||||||||||
Net earnings (loss) attributable to Eastman stockholders | $ | 346 | $ | (54 | ) | $ | 1,165 | $ | 437 | ||||||
Basic earnings (loss) per share attributable to Eastman | |||||||||||||||
Earnings (loss) from continuing operations | $ | 2.26 | $ | (0.35 | ) | $ | 7.57 | $ | 2.99 | ||||||
Earnings from discontinued operations | — | — | — | 0.01 | |||||||||||
Basic earnings (loss) per share attributable to Eastman | $ | 2.26 | $ | (0.35 | ) | $ | 7.57 | $ | 3.00 | ||||||
Diluted earnings (loss) per share attributable to Eastman | |||||||||||||||
Earnings (loss) from continuing operations | $ | 2.22 | $ | (0.35 | ) | $ | 7.44 | $ | 2.92 | ||||||
Earnings from discontinued operations | — | — | — | 0.01 | |||||||||||
Diluted earnings (loss) per share attributable to Eastman | $ | 2.22 | $ | (0.35 | ) | $ | 7.44 | $ | 2.93 | ||||||
Shares (in millions) outstanding at end of period | 152.5 | 153.9 | 152.5 | 153.9 | |||||||||||
Shares (in millions) used for earnings per share calculation | |||||||||||||||
Basic | 153.2 | 153.6 | 154.0 | 145.5 | |||||||||||
Diluted | 155.6 | 153.6 | 156.5 | 149.1 |
(1) | Fourth quarter and twelve months 2013 included mark-to-market ("MTM") pension and other postretirement benefit plans net gains of $297 million and $383 million, respectively. Included in twelve months 2013 was a third quarter MTM gain of $86 million due to the interim remeasurement of the other postretirement benefit plan obligation. Fourth quarter and twelve months 2012 included MTM pension and other postretirement benefit plans net loss of $276 million in both periods. |
Table 2A – Segment Sales Information | ||||||||||||||||
Fourth Quarter | Twelve Months | |||||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Sales by Segment | ||||||||||||||||
Additives & Functional Products | $ | 425 | $ | 384 | $ | 1,719 | $ | 1,332 | ||||||||
Adhesives & Plasticizers | 321 | 338 | 1,326 | 1,432 | ||||||||||||
Advanced Materials | 557 | 528 | 2,349 | 1,694 | ||||||||||||
Fibers | 369 | 325 | 1,441 | 1,315 | ||||||||||||
Specialty Fluids & Intermediates | 593 | 590 | 2,497 | 2,318 | ||||||||||||
Total Sales by Segment | 2,265 | 2,165 | 9,332 | 8,091 | ||||||||||||
Other | — | 4 | 18 | 11 | ||||||||||||
Total Eastman Chemical Company | $ | 2,265 | $ | 2,169 | $ | 9,350 | $ | 8,102 |
Table 2B – Segment Sales Information (Eastman and Solutia Pro Forma Combined) | ||||||||||||
Twelve Months | ||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | ||||||||||
Sales by Segment | ||||||||||||
Additives & Functional Products | $ | 1,719 | $ | 1,613 | ||||||||
Adhesives & Plasticizers | 1,326 | 1,432 | ||||||||||
Advanced Materials | 2,349 | 2,254 | ||||||||||
Fibers | 1,441 | 1,315 | ||||||||||
Specialty Fluids & Intermediates | 2,497 | 2,473 | ||||||||||
Total Sales by Segment | 9,332 | 9,087 | ||||||||||
Other | 18 | 33 | ||||||||||
Total Eastman Chemical Company | $ | 9,350 | $ | 9,120 |
Table 2C – Sales Revenue Change | ||||||||
Fourth Quarter 2013 Compared to Fourth Quarter 2012 | ||||||||
(Unaudited) | Change in Sales Revenue Due To | |||||||
Revenue % Change | Volume Effect | Price Effect | Exchange Rate Effect | |||||
Additives & Functional Products | 11 | % | 12 | % | (1) | % | — | % |
Adhesives & Plasticizers | (5) | % | (2) | % | (3) | % | — | % |
Advanced Materials | 5 | % | 6 | % | (1) | % | — | % |
Fibers | 14 | % | 7 | % | 7 | % | — | % |
Specialty Fluids & Intermediates | 1 | % | 2 | % | (1) | % | — | % |
Total Eastman Chemical Company | 4 | % | 4 | % | — | % | — | % |
Twelve Months 2013 Compared to Twelve Months 2012 | ||||||||
(Unaudited) | Change in Sales Revenue Due To | |||||||
Revenue % Change | Volume Effect | Price Effect | Exchange Rate Effect | |||||
Additives & Functional Products | 29 | % | 29 | % | — | % | — | % |
Adhesives & Plasticizers | (7) | % | (5) | % | (2) | % | — | % |
Advanced Materials | 39 | % | 39 | % | — | % | — | % |
Fibers | 10 | % | 4 | % | 6 | % | — | % |
Specialty Fluids & Intermediates | 8 | % | 9 | % | (1) | % | — | % |
Total Eastman Chemical Company | 15 | % | 15 | % | — | % | — | % |
Table 2D – Sales Revenue Change (Eastman and Solutia Pro Forma Combined) | ||||||||
Twelve Months 2013 Compared to Twelve Months 2012 | ||||||||
(Unaudited) | Change in Sales Revenue Due To | |||||||
Revenue % Change | Volume Effect | Price Effect | Exchange Rate Effect | |||||
Additives & Functional Products | 7 | % | 8 | % | (1) | % | — | % |
Adhesives & Plasticizers | (7) | % | (5) | % | (2) | % | — | % |
Advanced Materials | 4 | % | 5 | % | (1) | % | — | % |
Fibers | 10 | % | 4 | % | 6 | % | — | % |
Specialty Fluids & Intermediates | 1 | % | 2 | % | (1) | % | — | % |
Total Eastman Chemical Company | 3 | % | 3 | % | — | % | — | % |
Table 2E – Sales by Region | ||||||||||||||||
Fourth Quarter | Twelve Months | |||||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Sales by Region | ||||||||||||||||
United States and Canada | $ | 1,019 | $ | 969 | $ | 4,290 | $ | 3,995 | ||||||||
Asia Pacific | 649 | 618 | 2,584 | 2,088 | ||||||||||||
Europe, Middle East, and Africa | 472 | 462 | 1,975 | 1,605 | ||||||||||||
Latin America | 125 | 120 | 501 | 414 | ||||||||||||
Total Eastman Chemical Company | $ | 2,265 | $ | 2,169 | $ | 9,350 | $ | 8,102 |
Table 2F – Sales by Region (Eastman and Solutia Pro Forma Combined) | ||||||||||||
Twelve Months | ||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | ||||||||||
Sales by Region | ||||||||||||
United States and Canada | $ | 4,290 | $ | 4,264 | ||||||||
Asia Pacific | 2,584 | 2,396 | ||||||||||
Europe, Middle East, and Africa | 1,975 | 1,968 | ||||||||||
Latin America | 501 | 492 | ||||||||||
Total Eastman Chemical Company | $ | 9,350 | $ | 9,120 |
Table 3A - Company, Segment, and Other Operating Earnings (Loss), and Non-GAAP Operating Earnings Reconciliations | ||||||||||||||||
Fourth Quarter | Twelve Months | |||||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Operating Earnings (Loss) by Segment and Non-Core or Non-Recurring Items | ||||||||||||||||
Additives & Functional Products | ||||||||||||||||
Operating earnings | $ | 92 | $ | 70 | $ | 405 | $ | 285 | ||||||||
Additional costs of acquired Solutia inventories (1) | — | 2 | — | 21 | ||||||||||||
Asset impairments and restructuring charges, net (2)(3)(4)(5)(6) | — | 17 | 1 | 17 | ||||||||||||
Excluding non-core or non-recurring items | 92 | 89 | 406 | 323 | ||||||||||||
Adhesives & Plasticizers | ||||||||||||||||
Operating earnings | 33 | 49 | 172 | 260 | ||||||||||||
Asset impairments and restructuring charges (2)(4) | — | 3 | 1 | 3 | ||||||||||||
Excluding non-core or non-recurring item | 33 | 52 | 173 | 263 | ||||||||||||
Advanced Materials | ||||||||||||||||
Operating earnings | 41 | (2 | ) | 257 | 84 | |||||||||||
Additional costs of acquired Solutia inventories (1) | — | 2 | — | 41 | ||||||||||||
Asset impairments and restructuring charges, net (2)(3)(4)(5)(7) | 4 | 29 | 3 | 29 | ||||||||||||
Excluding non-core or non-recurring items | 45 | 29 | 260 | 154 | ||||||||||||
Fibers | ||||||||||||||||
Operating earnings | 119 | 90 | 462 | 385 | ||||||||||||
Asset impairments and restructuring charges, net (4) | — | 3 | — | 3 | ||||||||||||
Excluding non-core or non-recurring item | 119 | 93 | 462 | 388 | ||||||||||||
Specialty Fluids & Intermediates | ||||||||||||||||
Operating earnings | 61 | 84 | 363 | 288 | ||||||||||||
Additional costs of acquired Solutia inventories (1) | — | — | — | 17 | ||||||||||||
Asset impairments and restructuring charges (2)(4)(5) | — | 9 | 1 | 9 | ||||||||||||
Excluding non-core or non-recurring items | 61 | 93 | 364 | 314 | ||||||||||||
Total Operating Earnings by Segment | ||||||||||||||||
Operating earnings | 346 | 291 | 1,659 | 1,302 | ||||||||||||
Additional costs of acquired Solutia inventories | — | 4 | — | 79 | ||||||||||||
Asset impairments and restructuring charges, net | 4 | 61 | 6 | 61 | ||||||||||||
Excluding non-core or non-recurring items | $ | 350 | $ | 356 | $ | 1,665 | $ | 1,442 |
(1) | As required by purchase accounting, the acquired inventories were marked to fair value. These inventories were sold in 2012 resulting in an increase in cost of sales, net of the LIFO impact for these inventories in fourth quarter and twelve months 2012. |
(2) | Included in 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 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) | Included in fourth quarter and twelve months 2012 were asset impairments and restructuring charges of $3 million, $3 million, $5 million, $3 million, and $6 million in the Additives & Functional Products, Adhesives & Plasticizers, Advanced Materials, Fibers, and Specialty Fluids & Intermediates segments, respectively, primarily related to discontinuance of a project to modify existing utility assets in order to meet requirements of recently enacted environmental regulations controlling air emissions from boilers. |
(5) | Included in fourth quarter and twelve months 2012 were asset impairments and restructuring charges of $8 million, $24 million, and $3 million in the Additives & Functional Products, Advanced Materials, and Specialty Fluids & Intermediates segments, respectively, for the fourth quarter termination of an operating agreement at the acquired Solutia manufacturing facility in Sao Jose Dos Campos, Brazil and related manufacturing facility closure costs. |
(6) | Included in fourth quarter and twelve months 2012 earnings are asset impairments and restructuring charges of $6 million related to the closure of a production facility in China. |
(7) | Included in fourth quarter and twelve months 2013 are asset impairments of $4 million for the fourth quarter decision to terminate efforts to develop a continuous resin process in Kuantan, Malaysia and Antwerp, Belgium. |
Table 3A - Company, Segment, and Other Operating Earnings (Loss), and Non-GAAP Operating Earnings Reconciliations (continued) | ||||||||||||||||
Fourth Quarter | Twelve Months | |||||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Total Operating Earnings by Segment | ||||||||||||||||
Operating earnings | $ | 346 | $ | 291 | $ | 1,659 | $ | 1,302 | ||||||||
Additional costs of acquired Solutia inventories | — | 4 | — | 79 | ||||||||||||
Asset impairments and restructuring charges, net | 4 | 61 | 6 | 61 | ||||||||||||
Excluding non-core or non-recurring items | 350 | 356 | 1,665 | 1,442 | ||||||||||||
Other (1) | ||||||||||||||||
Operating earnings (loss) | ||||||||||||||||
Growth initiatives and businesses not allocated to segments (2) | (59 | ) | (48 | ) | (132 | ) | (132 | ) | ||||||||
Pension and other postretirement benefit plans income (expense) and gain (loss) not allocated to operating segments | 301 | (276 | ) | 394 | (294 | ) | ||||||||||
Transaction, integration, and restructuring costs related to the acquisition of Solutia | (26 | ) | (11 | ) | (59 | ) | (76 | ) | ||||||||
Operating earnings (loss) before non-core or non-recurring items | 216 | (335 | ) | 203 | (502 | ) | ||||||||||
Transaction and integration costs related to the acquisition of Solutia | 12 | 7 | 36 | 44 | ||||||||||||
Mark-to-market pension and other postretirement benefit plans (gains) loss, net (3) | (297 | ) | 276 | (383 | ) | 276 | ||||||||||
Asset impairments and restructuring charges (4)(5)(6)(7) | 48 | 22 | 70 | 59 | ||||||||||||
Operating loss excluding non-core or non-recurring items | (21 | ) | (30 | ) | (74 | ) | (123 | ) | ||||||||
Total Eastman Chemical Company | ||||||||||||||||
Total operating earnings (loss) | 562 | (44 | ) | 1,862 | 800 | |||||||||||
Additional costs of acquired Solutia inventories | — | 4 | — | 79 | ||||||||||||
Transaction and integration costs related to the acquisition of Solutia | 12 | 7 | 36 | 44 | ||||||||||||
Mark-to-market pension and other postretirement benefit plans (gains) loss, net | (297 | ) | 276 | (383 | ) | 276 | ||||||||||
Asset impairments and restructuring charges, net | 52 | 83 | 76 | 120 | ||||||||||||
Total operating earnings excluding non-core or non-recurring items | $ | 329 | $ | 326 | $ | 1,591 | $ | 1,319 |
(1) | Research and development, certain components of pension and other postretirement benefit plans, 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 growth initiative and Photovoltaics product line. See footnotes 4 and 5 to this table for more information. |
(3) | Fourth quarter and twelve months 2013 and 2012 MTM gains or loss, net, for pension and other postretirement benefit plans actuarial adjustments. MTM gains, net, in twelve months 2013 included an $86 million gain for the third quarter 2013 interim remeasurement of the Eastman other postretirement benefit plan obligation, triggered by a plan change in life insurance benefits. |
(4) | Included in fourth quarter and twelve months 2013 are asset impairment and restructuring charges of approximately $30 million for management's decision not to pursue its Perennial WoodTM growth initiative. Fourth quarter and twelve months 2012 included restructuring charges of $17 million for inventory costs in excess of recoverable value of certain Perennial WoodTM product lines and to accrue for losses on take-or-pay contracts with third parties. |
(5) | Included in twelve months 2013 earnings are asset impairments and restructuring charges of $14 million primarily for the shut-down of the Photovoltaics product line primarily in Germany. |
(6) | Included in fourth quarter and twelve months 2013 earnings are restructuring charges of $15 million and $23 million, respectively, primarily for severance associated with the continued integration of Solutia. Fourth quarter and twelve months 2012 included restructuring charges of $4 million and $32 million, respectively, primarily for severance related to the acquisition and integration of Solutia. |
(7) | Included in fourth quarter and twelve months 2012 were asset impairments and restructuring charges of $1 million and $4 million, respectively, for termination of the research and development activities of a site acquired in 2011. Twelve months 2012 also included a charge of $6 million for the impairment of land retained from the terminated 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) | ||||||||||||
Twelve Months | ||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | ||||||||||
Operating Earnings (Loss) by Segment and Non-Core or Non-Recurring Items | ||||||||||||
Additives & Functional Products | ||||||||||||
Operating earnings | $ | 405 | $ | 357 | ||||||||
Additional costs of acquired Solutia inventories (1) | — | 21 | ||||||||||
Asset impairments and restructuring charges, net (2)(3)(4)(5)(6) | 1 | 17 | ||||||||||
Excluding non-core or non-recurring items | 406 | 395 | ||||||||||
Adhesives & Plasticizers | ||||||||||||
Operating earnings | 172 | 260 | ||||||||||
Asset impairments and restructuring charges (2)(4) | 1 | 3 | ||||||||||
Excluding non-core or non-recurring item | 173 | 263 | ||||||||||
Advanced Materials | ||||||||||||
Operating earnings | 257 | 135 | ||||||||||
Additional costs of acquired Solutia inventories (1) | — | 41 | ||||||||||
Asset impairments and restructuring charges, net (2)(3)(4)(5)(7)(8) | 3 | 34 | ||||||||||
Excluding non-core or non-recurring items | 260 | 210 | ||||||||||
Fibers | ||||||||||||
Operating earnings | 462 | 385 | ||||||||||
Asset impairments and restructuring charges (4) | — | 3 | ||||||||||
Excluding non-core or non-recurring item | 462 | 388 | ||||||||||
Specialty Fluids & Intermediates | ||||||||||||
Operating earnings | 363 | 333 | ||||||||||
Additional costs of acquired Solutia inventories (1) | — | 17 | ||||||||||
Asset impairments and restructuring charges (2)(4)(5) | 1 | 9 | ||||||||||
Excluding non-core or non-recurring items | 364 | 359 | ||||||||||
Total Operating Earnings by Segment | ||||||||||||
Operating earnings | 1,659 | 1,470 | ||||||||||
Additional costs of acquired Solutia inventories | — | 79 | ||||||||||
Asset impairments and restructuring charges, net | 6 | 66 | ||||||||||
Excluding non-core or non-recurring items | $ | 1,665 | $ | 1,615 |
(1) | As required by purchase accounting, the acquired inventories were marked to fair value. These inventories were sold in 2012 resulting in an increase in cost of sales, net of the LIFO impact for these inventories in 2012. |
(2) | Included in 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 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) | Included in 2012 were asset impairments and restructuring charges of $3 million, $3 million, $5 million, $3 million, and $6 million in the Additives & Functional Products, Adhesives & Plasticizers, Advanced Materials, Fibers, and Specialty Fluids & Intermediates segments, respectively, primarily related to discontinuance of a project to modify existing utility assets in order to meet requirements of recently enacted environmental regulations controlling air emissions from boilers. |
(5) | Included in 2012 were asset impairments and restructuring charges of $8 million, $24 million, and $3 million in the Additives & Functional Products, Advanced Materials, and Specialty Fluids & Intermediates segments, respectively, for the fourth quarter termination of an operating agreement at the acquired Solutia manufacturing facility in Sao Jose Dos Campos, Brazil and related manufacturing facility closure costs. |
(6) | Included in 2012 earnings are asset impairments and restructuring charges of $6 million related to the closure of a production facility in China. |
(7) | Acquisition-related expenses of $5 million in 2012, respectively, for Solutia's Southwall Technologies Inc. acquisition. |
(8) | Included in 2013 are asset impairments of $4 million for the fourth quarter decision to terminate efforts to develop a continuous resin process in Kuantan, Malaysia and Antwerp, Belgium. |
Table 3B - Company, Segment, and Other Operating Earnings (Loss), and Non-GAAP Operating Earnings Reconciliations (Eastman and Solutia Pro Forma Combined) (continued) | ||||||||||||
Twelve Months | ||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | ||||||||||
Total Operating Earnings by Segment | ||||||||||||
Operating earnings | $ | 1,659 | $ | 1,470 | ||||||||
Additional costs of acquired Solutia inventories | — | 79 | ||||||||||
Asset impairments and restructuring charges, net | 6 | 66 | ||||||||||
Excluding non-core or non-recurring items | 1,665 | 1,615 | ||||||||||
Other (1) | ||||||||||||
Operating loss | ||||||||||||
Growth initiatives and businesses not allocated to segments (2) | (132 | ) | (135 | ) | ||||||||
Pension and other postretirement benefit plans income (expense) and gain (loss) not allocated to operating segments | 394 | (294 | ) | |||||||||
Transaction, integration, and restructuring costs related to the acquisition of Solutia | (59 | ) | (101 | ) | ||||||||
Operating earnings (loss) before non-core or non-recurring items | 203 | (530 | ) | |||||||||
Transaction and integration costs related to the acquisition of Solutia | 36 | 69 | ||||||||||
Mark-to-market pension and other postretirement benefit plans (gains) loss, net (3) | (383 | ) | 276 | |||||||||
Asset impairments and restructuring charges (4)(5)(6)(7) | 70 | 59 | ||||||||||
Operating loss excluding non-core or non-recurring items | (74 | ) | (126 | ) | ||||||||
Total Eastman Chemical Company | ||||||||||||
Total operating earnings | 1,862 | 940 | ||||||||||
Additional costs of acquired Solutia inventories | — | 79 | ||||||||||
Transaction and integration costs related to the acquisition of Solutia | 36 | 69 | ||||||||||
Mark-to-market pension and other postretirement benefit plans (gains) loss, net | (383 | ) | 276 | |||||||||
Asset impairments and restructuring charges, net | 76 | 125 | ||||||||||
Total operating earnings excluding non-core or non-recurring items | $ | 1,591 | $ | 1,489 |
(1) | Research and development, certain components of pension and other postretirement benefit plans, 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 growth initiative and Photovoltaics product line. See footnotes 4 and 5 to this table for more information. |
(3) | Included in 2013 and 2012 are MTM gains and loss, net, for pension and other postretirement benefit plans actuarial adjustments. MTM gains, net, in twelve months 2013 included an $86 million gain for the third quarter 2013 interim remeasurement of the Eastman other postretirement benefit plan obligation, triggered by a plan change in life insurance benefits. |
(4) | Included in 2013 are asset impairment and restructuring charges of approximately $30 million for management's decision not to pursue its Perennial WoodTM growth initiative. Included in 2012 are restructuring charges of $17 million for inventory costs in excess of recoverable value of certain Perennial WoodTM product lines and to accrue for losses on take-or-pay contracts with third parties. |
(5) | Included in 2013 earnings are asset impairments and restructuring charges of $14 million primarily for the shut-down of the Photovoltaics product line, primarily in Germany. |
(6) | Included in 2013 earnings are restructuring charges of $23 million primarily for severance associated with the continued integration of Solutia. Included in 2012 were restructuring charges of $32 million primarily for severance related to the acquisition and integration of Solutia. |
(7) | Included in 2012 were asset impairments and restructuring charges of $4 million for termination of the research and development activities of a site acquired in 2011. Included in 2012 was a charge of $6 million for the impairment of land retained from the terminated Beaumont, Texas industrial gasification project. |
Table 4 – Operating Earnings (Loss), Earnings (Loss), and Earnings (Loss) Per Share from Continuing Operations Non-GAAP Reconciliations | ||||||||||||||||
Fourth 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 | $ | 562 | $ | 518 | $ | 346 | $ | 2.22 | ||||||||
Non-Core or Non-Recurring Items: | ||||||||||||||||
Solutia integration costs (2) | 12 | 12 | 7 | 0.05 | ||||||||||||
Mark-to-market pension and other postretirement benefit plans (gains) loss, net (3) | (297 | ) | (297 | ) | (180 | ) | (1.15 | ) | ||||||||
Asset impairments and restructuring charges, net (4) | 52 | 52 | 37 | 0.23 | ||||||||||||
Excluding non-core or non-recurring items | $ | 329 | $ | 285 | $ | 210 | $ | 1.35 |
Fourth Quarter 2012 | ||||||||||||||||
Operating Earnings (Loss) | Earnings (Loss) from Continuing Operations Before Tax | Earnings (Loss) from Continuing Operations Attributable to Eastman Stockholders | ||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | After Tax (1) | Per Diluted Share | ||||||||||||||
As reported | $ | (44 | ) | $ | (86 | ) | $ | (54 | ) | $ | (0.35 | ) | ||||
Non-Core or Non-Recurring Items: | ||||||||||||||||
Additional costs of acquired Solutia inventories (5) | 4 | 4 | 3 | 0.02 | ||||||||||||
Solutia transaction and integration costs (2) | 7 | 7 | 4 | 0.03 | ||||||||||||
Mark-to-market pension and other postretirement benefit plans loss (gains), net (3) | 276 | 276 | 178 | 1.14 | ||||||||||||
Asset impairments and restructuring charges, net (4) | 83 | 83 | 56 | 0.35 | ||||||||||||
Excluding non-core or non-recurring items (6) | $ | 326 | $ | 284 | $ | 187 | $ | 1.19 |
(1) | Excluding the tax impact of non-core or non-recurring items, the fourth quarter 2013 effective tax rate was 26 percent compared to 34 percent for fourth quarter 2012. The fourth-quarter 2013 effective tax rate reflects the positive impacts of integrating the Eastman and Solutia tax structures and a $14 million benefit for a favorable foreign tax audit settlement. |
(2) | Included in selling, general, and administrative expenses. |
(3) | MTM gains and loss for pension and other postretirement benefit plans. |
(4) | See Table 3A for description of asset impairments and restructuring charges, net. |
(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. |
(6) | Earnings per share calculated using diluted shares of 157.1 million. |
Table 4 – Operating Earnings (Loss), Earnings (Loss), and Earnings (Loss) Per Share from Continuing Operations Non-GAAP Reconciliations (continued) | ||||||||||||||||
Twelve 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 | $ | 1,862 | $ | 1,679 | $ | 1,165 | $ | 7.44 | ||||||||
Non-Core or Non-Recurring Items: | ||||||||||||||||
Solutia integration costs (2) | 36 | 36 | 23 | 0.15 | ||||||||||||
Mark-to-market pension and other postretirement benefit plans (gains) loss, net (3) | (383 | ) | (383 | ) | (233 | ) | (1.49 | ) | ||||||||
Asset impairments and restructuring charges, net (4) | 76 | 76 | 53 | 0.34 | ||||||||||||
Excluding non-core or non-recurring items | $ | 1,591 | $ | 1,408 | $ | 1,008 | $ | 6.44 |
Twelve 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 | $ | 800 | $ | 649 | $ | 436 | $ | 2.92 | ||||||||
Non-Core or Non-Recurring Items: | ||||||||||||||||
Additional costs of acquired Solutia inventories (5) | 79 | 79 | 56 | 0.37 | ||||||||||||
Solutia transaction, integration, and financing costs (6) | 44 | 76 | 52 | 0.35 | ||||||||||||
Mark-to-market pension and other postretirement benefit plans loss (gains), net (3) | 276 | 276 | 178 | 1.20 | ||||||||||||
Asset impairments and restructuring charges, net (4) | 120 | 120 | 80 | 0.54 | ||||||||||||
Excluding non-core or non-recurring items | $ | 1,319 | $ | 1,200 | $ | 802 | $ | 5.38 |
(1) | Excluding the tax impact of the non-core or non-recurring items, the full year 2013 effective tax rate was 28 percent compared to 33 percent for full year 2012. The full year 2013 effective tax rate reflects the positive impacts of integrating the Eastman and Solutia tax structures, a $10 million benefit previously disclosed for enactment of the American Taxpayer Relief Act of 2012 in first quarter, a $14 million benefit for adjustments to the tax provision to reflect the finalization of the Federal income tax return in third quarter, and a $14 million benefit for a favorable foreign tax audit settlement in fourth quarter. |
(2) | Included in selling, general, and administrative expenses. |
(3) | MTM gains and loss for pension and other postretirement benefit plans. MTM gains, net, in twelve months 2013 included an $86 million gain for the third quarter 2013 interim remeasurement of the Eastman other postretirement benefit plan obligation, triggered by a plan change in life insurance benefits. |
(4) | See Table 3A for description of asset impairments and restructuring charges, net. |
(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. |
(6) | Transaction and integration costs of $44 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. |
Table 5 – Statements of Cash Flows | |||||||||||||||
Fourth Quarter | Twelve Months | ||||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | 2013 | 2012 | |||||||||||
Cash flows from operating activities | |||||||||||||||
Net earnings including noncontrolling interest | $ | 349 | $ | (52 | ) | $ | 1,172 | $ | 444 | ||||||
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | |||||||||||||||
Depreciation and amortization | 107 | 108 | 433 | 360 | |||||||||||
Asset impairment charges | 22 | 37 | 28 | 46 | |||||||||||
Provision (benefit) for deferred income taxes | 199 | (15 | ) | 317 | 48 | ||||||||||
Mark-to-market pension and other postretirement benefit plans (gains) loss, net | (297 | ) | 247 | (383 | ) | 247 | |||||||||
Pension and other postretirement contributions (in excess of) less than expenses | (29 | ) | (12 | ) | (149 | ) | (97 | ) | |||||||
Variable compensation (in excess of) less than expenses | 52 | 31 | 82 | 26 | |||||||||||
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures: | |||||||||||||||
(Increase) decrease in trade receivables | 81 | 111 | (38 | ) | 48 | ||||||||||
(Increase) decrease in inventories | 8 | 8 | (6 | ) | 38 | ||||||||||
Increase (decrease) in trade payables | 65 | (3 | ) | (2 | ) | 10 | |||||||||
Other items, net | (54 | ) | (20 | ) | (157 | ) | (42 | ) | |||||||
Net cash provided by operating activities | 503 | 440 | 1,297 | 1,128 | |||||||||||
Cash flows from investing activities | |||||||||||||||
Additions to properties and equipment | (171 | ) | (168 | ) | (483 | ) | (465 | ) | |||||||
Proceeds from redemption of short-term time deposits | — | — | — | 200 | |||||||||||
Proceeds from sale of assets and investments | 25 | — | 31 | 7 | |||||||||||
Acquisitions and investments in joint ventures, net of cash acquired | — | (1 | ) | — | (2,669 | ) | |||||||||
Additions to capitalized software | (3 | ) | (1 | ) | (5 | ) | (5 | ) | |||||||
Other items, net | — | 3 | — | (30 | ) | ||||||||||
Net cash used in investing activities | (149 | ) | (167 | ) | (457 | ) | (2,962 | ) | |||||||
Cash flows from financing activities | |||||||||||||||
Net increase (decrease) in commercial paper, credit facility and other borrowings | 125 | — | 425 | (1 | ) | ||||||||||
Proceeds from borrowings | — | — | 150 | 3,511 | |||||||||||
Repayment of borrowings | (300 | ) | (200 | ) | (1,105 | ) | (1,866 | ) | |||||||
Dividends paid to stockholders | (46 | ) | (85 | ) | (140 | ) | (192 | ) | |||||||
Treasury stock purchases | (125 | ) | — | (238 | ) | — | |||||||||
Dividends paid to noncontrolling interests | — | — | (10 | ) | (4 | ) | |||||||||
Proceeds from stock option exercises and other items, net | 4 | 24 | 59 | 56 | |||||||||||
Net cash provided by (used in) financing activities | (342 | ) | (261 | ) | (859 | ) | 1,504 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 3 | — | 7 | 2 | |||||||||||
Net change in cash and cash equivalents | 15 | 12 | (12 | ) | (328 | ) | |||||||||
Cash and cash equivalents at beginning of period | 222 | 237 | 249 | 577 | |||||||||||
Cash and cash equivalents at end of period | $ | 237 | $ | 249 | $ | 237 | $ | 249 |
Table 5A – Net Cash Provided By Operating Activities to Free Cash Flow Reconciliation | ||||||||||||||||
Fourth Quarter | Twelve Months | |||||||||||||||
(Dollars in millions, unaudited) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Net cash provided by operating activities | $ | 503 | $ | 440 | $ | 1,297 | $ | 1,128 | ||||||||
Additions to properties and equipment | (171 | ) | (168 | ) | (483 | ) | (465 | ) | ||||||||
Dividends paid to stockholders | (46 | ) | (85 | ) | (140 | ) | (192 | ) | ||||||||
Free Cash Flow | $ | 286 | $ | 187 | $ | 674 | $ | 471 |
Table 6 – Selected Balance Sheet Items | ||||||||
December 31, | December 31, | |||||||
(Dollars in millions, unaudited) | 2013 | 2012 | ||||||
Cash and cash equivalents | $ | 237 | $ | 249 | ||||
Short-term Borrowings | — | 4 | ||||||
Long-term Borrowings | 4,254 | 4,779 | ||||||
Total Eastman Stockholders' Equity | 3,796 | 2,943 |