Eastman Announces Fourth-Quarter and Full-Year 2012 Financial Results

Thu Jan 31, 2013 5:32pm EST

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FOR IMMEDIATE RELEASE



 


 

KINGSPORT, Tenn., Jan. 31, 2013 - Eastman Chemical Company (NYSE:EMN) today announced earnings
from continuing operations, excluding the items described in the "Non-GAAP Items and Pro Forma
Combined Results" section and Tables 3 and 4, of $1.19 per diluted share for fourth quarter 2012
versus $0.78 per diluted share for fourth quarter 2011.  Reported results from continuing
operations were a loss of $0.35 per diluted share in fourth quarter 2012 and earnings of $0.09 per
diluted share in fourth quarter 2011.  

"Eastman delivered another year of consistently strong earnings, with fourth-quarter results
providing an outstanding way to end 2012," said Jim Rogers, Chairman and CEO.  "This high level of
performance was driven by our market-leading businesses and the significant strategic actions we
have taken to improve our portfolio.  We are well positioned for continued growth in 2013 and
beyond, supported by strong cash generation."

 (In millions, except per share amounts)            4Q12     4Q11    FY12    FY11    
 Sales revenue                                      $2,169   $1,723  $8,102  $7,178  
 Pro forma combined sales revenue*                  $2,169   $2,250  $9,120  $9,275  
 Earnings (loss) per diluted share from             ($0.35)  $0.09   $2.92   $4.24   
 continuing operations                                                               
 Earnings per diluted share from                    $1.19    $0.78   $5.38   $4.81   
 continuing operations excluding MTM                                                 
 pension and OPEB losses and gains, Solutia                                          
 acquisition-related costs, and asset impairments                                    
 and restructuring charges and gains**                                               
 Net cash provided by operating activities          $440     $352    $1,128  $625    


*See "Non-GAAP Items and Pro Forma Combined Results" below and Table 2.
**For reconciliation to reported company and segment earnings, see Tables 3 and 4.  

Corporate 4Q 2012 versus 4Q 2011

Sales revenue for fourth quarter 2012 was $2.2 billion, a 26 percent increase compared with fourth
quarter 2011.  Fourth quarter 2012 included sales revenue from the acquired Solutia businesses. 
Pro forma combined sales revenue declined 4 percent due primarily to lower selling prices.  The
lower selling prices were primarily due to lower raw material and energy costs.

Operating results in fourth quarter 2012 were a loss of $44 million compared to operating earnings
of $19 million in fourth quarter 2011.  Excluding mark-to-market pension and other post-retirement
benefits (MTM) losses in both periods and asset impairments and restructuring charges and Solutia
acquisition-related costs in fourth quarter 2012, operating earnings were $326 million in fourth
quarter 2012 and $178 million in fourth quarter 2011.  Fourth quarter 2012 included operating
earnings from the acquired Solutia businesses.  Pro forma combined operating earnings, excluding
MTM losses, asset impairments and restructuring charges, and Solutia acquisition-related costs,
were $326 million in fourth quarter 2012 compared with $255 million in fourth quarter 2011.  Pro
forma combined operating earnings increased primarily due to lower raw material and energy costs
more than offsetting lower selling prices.  Operating results and pro forma combined operating
earnings included the "Other" operating losses detailed in Table 3.

Segment Results 4Q 2012 versus 4Q 2011

Additives & Functional Products - Fourth quarter 2012 included sales revenue and operating
earnings from the acquired Solutia rubber materials product lines.  Pro forma combined sales
revenue declined due to lower selling prices in solvents product lines in response to lower raw
material and energy costs and lower selling prices in rubber materials anti-degradant product
lines attributed to competitive conditions in a relatively weak tire market, primarily in Europe. 
Excluding fourth-quarter 2012 asset impairments and restructuring charges and additional costs of
acquired Solutia inventories, pro forma combined operating earnings increased to $89 million in
fourth quarter 2012 compared with $68 million in fourth quarter 2011.  The increase was primarily
due to lower raw material and energy costs partially offset by lower selling prices, primarily in
solvents product lines. 

Adhesives & Plasticizers - Sales revenue increased due to higher sales volume attributed to the
continued substitution of phthalate plasticizers with non-phthalate plasticizers.  Excluding
fourth-quarter 2012 asset impairments and restructuring charges, operating earnings in fourth
quarter 2012 increased to $52 million compared with $49 million in fourth quarter 2011 primarily
due to lower raw material and energy costs and higher sales volume, which more than offset lower
selling prices.

Advanced Materials - Fourth quarter 2012 included sales revenue and operating earnings from the
acquired Solutia PVB sheet and resins and performance films product lines.  The pro forma combined
sales revenue decrease was attributed primarily to weakened demand in specialty copolyester end
markets, particularly durable goods and consumables.  Excluding fourth-quarter 2012 asset
impairments and restructuring charges and additional costs of acquired Solutia inventories, pro
forma combined operating earnings declined to $29 million in fourth quarter 2012 compared with $37
million in fourth quarter 2011.  The decline in operating earnings was due to lower capacity
utilization, which was primarily the result of efforts to reduce inventory in PVB sheet and
specialty materials product lines and weakened demand for specialty copolyester product lines.

Fibers - Sales revenue was unchanged as higher selling prices in response to higher raw material
and energy costs, particularly for wood pulp, were offset by lower sales volume for the acetate
yarn product line attributed to weakened demand in the apparel market.  Excluding asset
impairments and restructuring charges in 2012, operating earnings increased to $93 million in
fourth quarter 2012 compared with $84 million in fourth quarter 2011 due to higher selling prices.

Specialty Fluids & Intermediates - Fourth quarter 2012 included sales revenue and operating
earnings from the acquired Solutia specialty fluids product lines.  Pro forma combined sales
revenue declined primarily due to lower selling prices for intermediates product lines in response
to lower raw material and energy costs and lower sales volume due primarily to maintenance at a
Longview, Texas, olefins cracking unit.  Excluding fourth-quarter 2012 asset impairments and
restructuring charges, pro forma combined operating earnings increased to $93 million in fourth
quarter 2012 compared with $47 million in fourth quarter 2011.  The increase was primarily due to
lower raw material and energy costs, which more than offset lower selling prices.

Corporate FY 2012 versus FY 2011

Earnings from continuing operations, excluding the items described in the "Non-GAAP Items and Pro
Forma Combined Results" section and Tables 3 and 4, were $5.38 per diluted share for full year
2012 versus $4.81 per diluted share for full year 2011.  Reported earnings from continuing
operations were $2.92 per diluted share in full year 2012 and $4.24 per diluted share in full year
2011.  

Eastman's full-year 2012 sales revenue was $8.1 billion, an increase of 13 percent year over year.
 Full year 2012 included sales revenue from the acquired Solutia businesses.  Pro forma combined
sales revenue declined 2 percent.  

Operating earnings for full year 2012 were $800 million compared to $937 million for full year
2011.  Excluding MTM losses and asset impairments and restructuring charges and gains for both
periods, and Solutia acquisition-related costs for 2012, operating earnings were $1.3 billion for
full year 2012 and $1.1 billion for full year 2011.  Full year 2012 included operating earnings
from the acquired Solutia businesses.  Pro forma combined operating earnings, excluding MTM losses
and asset impairments and restructuring charges and gains for both periods and Solutia
acquisition-related costs for 2012, were $1.5 billion for full year 2012 compared with $1.4
billion for full year 2011.  Operating earnings and pro forma combined operating earnings included
the "Other" operating losses detailed in Table 3.

Segment Results FY 2012 versus FY 2011

Additives & Functional Products - Full year 2012 included sales revenue and operating earnings
from the acquired Solutia rubber materials product lines.  Pro forma combined sales revenue
declined due to lower selling prices in solvents product lines in response to lower raw material
and energy costs and lower selling prices in rubber materials anti-degradant product lines
attributed to competitive conditions in a relatively weak tire market, primarily in Europe. 
Excluding full-year 2012 additional costs of acquired Solutia inventories and asset impairments
and restructuring charges, pro forma combined operating earnings increased to $395 million in full
year 2012 compared with $365 million in full year 2011.  The increase was primarily due to lower
raw material and energy costs partially offset by lower selling prices, particularly in solvents
product lines, and higher operating costs including labor and maintenance.

Adhesives & Plasticizers - Sales revenue increased due to higher sales volume attributed to the
continued substitution of phthalate plasticizers with non-phthalate plasticizers.  Excluding
full-year 2012 asset impairments and restructuring charges, operating earnings for full year 2012
increased to $263 million compared with $250 million for full year 2011.  The increase was
primarily due to higher sales volume, partially offset by higher operating costs including labor
and maintenance and costs associated with the startup of non-phthalate plasticizers manufacturing
assets at the Texas City, Texas, facility.

Advanced Materials - Full year 2012 included sales revenue and operating earnings from the
acquired Solutia PVB sheet and resins and performance films product lines.  The pro forma combined
sales revenue decrease was attributed primarily to weakened demand in PVB sheet end markets,
particularly the transportation market in Europe, and specialty copolyester end markets,
particularly durable goods and consumables, partially offset by increased sales revenue in
performance films.   Full-year 2012 operating earnings included additional costs of acquired
Solutia inventories and asset impairments and restructuring charges.  Excluding these costs and
charges, pro forma combined operating earnings for full year 2012 declined to $210 million
compared with $251 million for full year 2011.  The decline in operating earnings was due to lower
capacity utilization, which was primarily the result of weakened demand in PVB sheet and specialty
materials end markets, efforts to reduce inventory in specialty materials and PVB sheet and resins
product lines, and additional costs related to capacity expansions.

Fibers - Sales revenue increased as higher selling prices in response to higher raw material and
energy costs, particularly for wood pulp, were partially offset by lower sales volume for the
acetate yarn product line attributed to weakened demand in the apparel market.  Excluding asset
impairments and restructuring charges in 2012, operating earnings increased to $388 million in
full year 2012 compared with $365 million in full year 2011 due to higher selling prices which
more than offset higher raw material and energy costs and higher operating costs including labor
and maintenance.

Specialty Fluids & Intermediates - Full year 2012 included sales revenue and operating earnings
from the acquired Solutia specialty fluids product lines.  Pro forma combined sales revenue
declined due to lower selling prices in intermediates product lines in response to lower raw
material and energy costs.  Excluding full-year 2012 additional costs of acquired Solutia
inventories and asset impairments and restructuring charges in both periods, pro forma combined
operating earnings increased to $359 million in full-year 2012 compared with $278 million in full
year 2011.  The increase was primarily due to lower raw material and energy costs which more than
offset lower selling prices and higher operating costs including labor and maintenance.

Cash Flow 

Eastman generated $1.1 billion in cash from operating activities in 2012.  The company contributed
approximately $125 million to its U.S. defined benefit pension plans.  The company generated
strong free cash flow, defined as cash from operating activities minus capital expenditures and
dividends, of $471 million in 2012, which included the accelerated payment of the fourth-quarter
dividend in December of $45 million.  In addition, during the second half of 2012 the company
repaid $250 million of the $1.2 billion Solutia acquisition term loan.  See Table 5B for
reconciliation of cash provided by operating activities to free cash flow.

Outlook
    
Commenting on the outlook for full year 2013, Rogers said:  "With our world-class technology
platforms and leading positions in attractive end markets, we are well positioned to generate
strong earnings growth in 2013.  We expect the continued integration of Solutia, capacity
expansions serving customers in growing end-markets, and the increased benefit of producing versus
purchasing olefins will positively impact results.  However, there continues to be global economic
uncertainty, particularly the timing of a recovery in Europe.  Taking all these factors into
consideration, we are increasing our expectation for 2013 earnings per share from continuing
operations to between $6.30 and $6.40."  Solutia integration costs, any asset impairments and
restructuring charges, and mark-to-market pension and OPEB gains or losses are excluded from the
earnings per share projection.
         
Non-GAAP Items and Pro Forma Combined Results

Solutia Acquisition -- On July 2, 2012, the company completed the acquisition of Solutia Inc. 
This news release includes a comparison of fourth-quarter and full-year 2012 and 2011 results on a
pro forma combined basis assuming the acquisition of Solutia on January 1, 2011.  For other
selected pro forma combined information, see the company's Current Report on Form 8-K furnished
with the Securities and Exchange Commission on October 15, 2012 and Tables 2 and 3.  

As required by purchase accounting, the acquired Solutia inventories were marked to fair value. 
These inventories were subsequently sold resulting in a $79 million increase in cost of sales ($4
million in fourth quarter and $79 million for the full year), net of the LIFO impact of these
inventories.  Fourth-quarter and full-year 2012 results of operations also included $7 million and
$69 million, respectively, of Solutia transaction, integration, and financing costs and $4 million
and $32 million, respectively, of Solutia-related restructuring charges on a pro forma combined
basis.  These restructuring charges were primarily for severance associated with the acquisition
and integration of Solutia. 

MTM Pension and OPEB Losses and Gain- As previously reported, in 2012 Eastman changed its method
of accounting for actuarial gains and losses for its pension and other postretirement benefits
plans so that these gains and losses are measured annually and recognized as a MTM adjustment
during the fourth quarter of each year.  In addition, any interim remeasurements triggered by
certain plan actions or changes are recognized as a MTM adjustment in the quarter in which such
remeasurement occurs.  This new accounting method has been applied retrospectively to all periods.
During fourth quarter 2012, Eastman recognized a pre-tax MTM loss of $276 million, compared with a
$224 million loss in fourth quarter 2011 on a pro forma combined basis.  At December 31, 2012, the
Company's weighted-average assumed discount rate was 3.84 percent, down significantly from the
prior year, resulting in an actuarial loss of approximately $380 million.  Partially offsetting
the impact of the lower discount rate was an increase in pension asset value of approximately $105
million due to asset values appreciating in excess of the assumed weighted-average rate of return
of 7.27 percent. In addition, in first quarter 2011 the Company recognized a $15 million MTM gain
due to the interim remeasurement of the OPEB plan obligation.  

Other Asset Impairments and Restructuring Charges -- During fourth quarter and full year, the
Company also recognized other asset impairments and restructuring charges of $79 million and $93
million, respectively, on a pro forma combined basis.  These charges were primarily for costs to
shut down plant sites (including the fourth quarter termination of the operating agreement at the
newly acquired Sao Jose dos Campos, Brazil, Solutia site), costs resulting from a strategy change
for the Perennial WoodTM developing business initiative (including losses on take-or-pay contracts
with third parties and reserves for inventory costs in excess of recoverable value), costs of
discontinuance of an environmental project, and, in full-year an impairment charge on land
retained from the industrial gasification project.  

For reconciliation of Non-GAAP to GAAP financial measures, see Tables 3 and 4.

Forward-Looking Statements: This news release includes forward-looking statements concerning
current expectations for future economic, business, and competitive conditions, the financial
impact of recent capacity additions and acquisitions, raw material and energy costs, and earnings
for full year 2013. Such expectations are based upon certain preliminary information, internal
estimates, and management assumptions, expectations, and plans, and are subject to a number of
risks and uncertainties inherent in projecting future conditions, events, and results. Actual
results could differ materially from expectations expressed in the forward-looking statements if
one or more of the underlying assumptions or expectations prove to be inaccurate or are
unrealized. Important factors that could cause actual results to differ materially from such
expectations are and will be detailed in the company's filings with the Securities and Exchange
Commission, including the Form 10-Q filed for third quarter 2012 available, and the Form 10-K to
be filed for 2012 and to be available, on the Eastman web site at www.eastman.com
https://inpublic.huginonline.com/hugin/www.eastman.com  in the Investors, SEC filings section. 

Eastman will host a conference call with industry analysts on February 1, 2013 at 8:00 a.m.
Eastern Time. To listen to the live webcast of the conference call and view the accompanying
slides, go to www.investors.eastman.com http://www.investors.eastman.com/ , Presentations.  To
listen via telephone, the dial-in number is (913) 312-1295, passcode number 6467816. A web and
telephone replay will be available continuously from 11:00 a.m. Eastern Time, February 1, to 11:00
a.m. Eastern Time, February 15, 2013, at (888) 203-1112 or (719) 457-0820, passcode 6467816.

Eastman is a global specialty chemicals company that produces a broad range of products found in
items people use every day. With a portfolio of specialty businesses, Eastman works with customers
to deliver innovative products and solutions while maintaining a commitment to safety and
sustainability. Its market-driven approaches take advantage of world-class technology platforms
and leading positions in attractive end-markets such as transportation, building and construction,
and consumables. Eastman focuses on creating consistent, superior value for all stakeholders. As a
globally diverse company, Eastman serves customers in approximately 100 countries and had 2012 pro
forma combined revenues, giving effect to the Solutia acquisition, of approximately $9 billion.
The company is headquartered in Kingsport, Tennessee, USA and employs approximately 13,500 people
around the world. For more information, visit www.eastman.com http://www.eastman.com/ .

###

Contacts:

Media:  Tracy Kilgore Broadwater
423-224-0498 / tkbroadwater@eastman.com mailto:tkbroadwater@eastman.com   

Investors:  Greg Riddle
212-835-1620 / griddle@eastman.com mailto:griddle@eastman.com

Financial Tables http://hugin.info/150386/R/1674813/545446.pdf 


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Source: Eastman Chemical Company via Thomson Reuters ONE


HUG#1674813

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