Eastman Chemical Company : Eastman Announces Fourth-Quarter and Full-Year 2012 Financial Results

Eastman Chemical Company : Eastman Announces Fourth-Quarter and Full-Year 2012
                              Financial Results




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 4Q12         4Q11        FY12        FY11
amounts)
Sales revenue                  $2,169    $1,723    $8,102    $7,178
                                                         
Pro forma combined sales       $2,169       $2,250      $9,120      $9,275  
revenue*
Earnings (loss) per diluted    ($0.35)    $0.09    $2.92    $4.24
share from                                           
continuing operations    
     
   
Earnings per diluted share     $1.19     $0.78    $5.38    $4.81
from                                                  
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 $440      $352     $1,128    $625  
activities                                        





*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 January1, 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 Wood^TM 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 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,
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.

                                     ###

Contacts:

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

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

Financial Tables

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Source: Eastman Chemical Company via Thomson Reuters ONE
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