UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 31, 2004
EASTMAN CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 1-12626 (Commission File Number) | 62-1539359 (I.R.S. employer identification No.) |
| 100 N. Eastman Road, Kingsport, TN | 37660 |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:(423) 229-2000
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Item 2.Acquisition or Disposition of Assets
On July 31, 2004 Eastman Chemical Company (the "Company") completed the sale of certain businesses and product lines and related assets in the Coatings, Adhesives, Specialty Polymers and Inks ("CASPI") segment to Resolution Specialty Materials, Inc. ("RSM"), an affiliate of Apollo Management, L.P., for approximately $175 million including cash and the receipt of a $50 million note receivable (the "Sale"). The Company retained approximately $40 million of accounts receivable related to these businesses and product lines. These businesses and product lines include acrylate ester monomers, composites (unsaturated polyester r esins), inks and graphics arts raw materials, liquid resins, powder resins and textile chemicals. The final purchase price is subject to adjustment based upon meeting working capital and other targets established in the agreement. In accordance with the terms of the sales agreement, the Company will continue to produce certain products for the buyer under ongoing supply agreements with terms in excess of one year. In addition, the Company indemnified the buyer against certain liabilities primarily related to taxes, legal matters, environmental matters, and other representations and warranties.
Item 7.Financial Statements and Exhibits
(b) Pro Forma Financial Information
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The accompanying unaudited pro forma consolidated income statements for the six months ended June 30, 2004 and fiscal year ended December 31, 2003 gives effect of the Sale as well as other restructuring, divestiture and consolidation activities that the Company has completed related to these businesses and product lines as if the actions were completed on January 1, 2003.
The accompanying unaudited pro forma consolidated balance sheet as of June 30, 2004 gives effect to the Sale as if the transaction had occurred as of that date.
The unaudited pro forma consolidated financial statements presented herein are shown for illustrative purposes only and are not necessarily indicative of the future financial position or future results of operations of the Company, or of the financial position or results of operations of the Company that would have actually occurred had the actions described above taken place as of the date or for the periods presented. The unaudited pro forma consolidated financial statements should be read in conjunction with the historical financial statements and related notes of the Company’s 2003 Annual Report on Form 10-K and 2004 Quarterly Reports on Form 10-Q.
Financial Statements and Exhibits:
| (1) | Eastman Chemical Company and Subsidiaries Pro Forma Consolidated Income Statement (unaudited) for the six months ended June 30, 2004 |
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| (2) | Eastman Chemical Company and Subsidiaries Pro Forma Consolidated Income Statement (unaudited) for the fiscal year ended December 31, 2003 |
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| (3) | Eastman Chemical Company and Subsidiaries Pro Forma Consolidated Balance Sheet (unaudited) as of June 30, 2004. |
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| (4) | Notes to the unaudited Eastman Chemical Company and Subsidiaries Pro Forma Consolidated Financial Statements. |
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EXHIBIT 1
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Six months ended June 30, 2004
| | | Eastman | | (A) | | | | |
| (Dollars in millions, except per share amounts) | | Chemical | | Divested | | Other | | Pro |
| | | Company | | Businesses | | Adjustments | | Forma |
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| Sales | $ | 3,273 | $ | 368 | $ | 19 (B) | $ | 2,924 |
| Cost of sales | | 2,768 | | 338 | | 16 (B) | | 2,446 |
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| Gross profit | | 505 | | 30 | | 3 | | 478 |
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| Selling and general administrative expenses | | 222 | | 22 | | -- | | 200 |
| Research and development expenses | | 81 | | 8 | | -- | | 73 |
| Asset impairments and restructuring charges, net | | 146 | | 67 | | -- | | 79 |
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| Pro forma operating earnings (loss) | | 56 | | (67) | | 3 | | 126 |
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| Interest expense (income), net | | 59 | | -- | | (3) (C) | | 56 |
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| Pro forma earnings (loss) before income taxes and cumulative effect of changes in accounting principles | | (3) | | (67) | | 6 | | 70 |
| Provision (benefit) for income taxes | | (81) | | (12) | | 1 (D) | | (68) |
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| Pro forma earnings (loss) before cumulative effect of changes in accounting principles | $ | 78 | $ | (55) | $ | 5 | $ | 138 |
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| Pro forma earnings (loss) per share | | | | | | | | |
| Basic | | | | | | | | |
| Before cumulative effect of changes in accounting | | | | | | | | |
| principles | $ | 1.01 | | | | | $ | 1.78 |
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| Weighted average basic shares outstanding | | 77,299,417 | | | | | | 77,299,417 |
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| Diluted | | | | | | | | |
| Before cumulative effect of changes in accounting | | | | | | | | |
| principles | $ | 1.00 | | | | | $ | 1.77 |
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| Weighted average diluted shares outstanding | | 77,989,198 | | | | | | 77,989,198 |
See Notes to the Unaudited Pro Forma Consolidated Financial Statements.
EXHIBIT 2
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Year ended December 31, 2003
| | | Eastman | | (A) | | | | |
| (Dollars in millions, except per share amounts) | | Chemical | | Divested | | Other | | Pro |
| | | Company | | Businesses | | Adjustments | | Forma |
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| Sales | $ | 5,800 | $ | 719 | $ | 39 (B) | $ | 5,120 |
| Cost of sales | | 4,990 | | 704 | | 33 (B) | | 4,319 |
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| Gross profit | | 810 | | 15 | | 6 | | 801 |
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| Selling and general administrative expenses | | 414 | | 34 | | -- | | 380 |
| Research and development expenses | | 173 | | 25 | | -- | | 148 |
| Asset impairments and restructuring charges, net | | 489 | | 424 | | -- | | 65 |
| Goodwill impairments | | 34 | | 34 | | -- | | -- |
| Other operating income | | (33) | | (13) | | -- | | (20) |
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| Pro forma operating earnings (loss) | | (267) | | (489) | | 6 | | 228 |
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| Interest (income) expense, net | | 124 | | -- | | (5) (C) | | 119 |
| Other (income) charges, net | | (10) | | (4) | | -- | | (6) |
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| Pro forma earnings (loss) before income taxes and cumulative effect of changes in accounting principles | | (381) | | (485) | | 11 | | 115 |
| Provision (benefit) for income taxes | | (108) | | (143) | | 2 (D) | | 37 |
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| Pro forma earnings (loss) before cumulative effect of changes in accounting principles | | (273) | | (342) | | 9 | | 78 |
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| Pro forma earnings (loss) per share | | | | | | | | |
| Basic | | | | | | | | |
| Before cumulative effect of changes in accounting | | | | | | | | |
| principles | $ | (3.54) | | | | | $ | 1.01 |
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| Weighted average basic shares outstanding | | 77,145,897 | | | | | | 77,145,897 |
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| Diluted | | | | | | | | |
| Before cumulative effect of changes in accounting | | | | | | | | |
| principles | $ | (3.54) | | | | | $ | 1.01 |
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| Weighted average diluted shares outstanding | | 77,145,897 | | | | | | 77,391,137 |
See Notes to the Unaudited Pro Forma Consolidated Financial Statements.
EXHIBIT 3
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
(dollars in millions)
As of June 30, 2004
| | | Eastman | | (E) | | | | |
| | | Chemical | | Divested | | Other | | Pro |
| (Dollars in millions, except per share amounts) | | Company | | Businesses | | Adjustments | | Forma |
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| Assets | | | | | | | | |
| Current assets | | | | | | | | |
| Cash and cash equivalents | $ | 145 | $ | -- | $ | -- | $ | 145 |
| Trade receivables, net of allowance of $21 and $28 | | 670 | | -- | | -- | | 670 |
| Miscellaneous receivables | | 69 | | -- | | -- | | 69 |
| Inventories | | 589 | | -- | | -- | | 589 |
| Other current assets | | 52 | | -- | | -- | | 52 |
| Current assets held for sale | | 192 | | 192 | | -- | | -- |
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| Total current assets | | 1,717 | | 192 | | -- | | 1,525 |
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| Properties | | | | | | | | |
| Properties and equipment at cost | | 9,434 | | -- | | -- | | 9,434 |
| Less: Accumulated depreciation | | 6,228 | | -- | | -- | | 6,228 |
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| Net properties | | 3,206 | | -- | | -- | | 3,206 |
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| Goodwill | | 315 | | -- | | -- | | 315 |
| Other intangibles, net of accumulated amortization of $4 and $218 | | 21 | | -- | | -- | | 21 |
| Other noncurrent assets | | 481 | | -- | | 50 (F) | | 531 |
| Noncurrent assets held for sale | | 68 | | 68 | | -- | | -- |
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| Total assets | $ | 5,808 | $ | 260 | $ | 50 | $ | 5,598 |
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| Liabilities and Stockholders’ Equity | | | | | | | | |
| Current liabilities | | | | | | | | |
| Payables and other current liabilities | $ | 942 | $ | -- | $ | 12 (G) | $ | 954 |
| Borrowings due within one year | | 1 | | -- | | -- | | 1 |
| Current liabilities related to assets held for sale | | 66 | | 66 | | -- | | -- |
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| Total current liabilities | | 1,009 | | 66 | | 12 | | 955 |
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| Long-term borrowings | | 2,153 | | -- | | (125) (F) | | 2,028 |
| Deferred income tax liabilities | | 240 | | -- | | -- | | 240 |
| Postemployment obligations | | 1,157 | | -- | | -- | | 1,157 |
| Other long-term liabilities | | 197 | | -- | | -- | | 197 |
| Long-term liabilities related to assets held for sale | | 7 | | 7 | | -- | | -- |
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| Total liabilities | | 4,763 | | 73 | | (113) | | 4,577 |
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| Stockholders’ equity | | | | | | | | |
| Common stock ($0.01 par value – 350,000,000 shares authorized; shares issued – 85,638,077 and 85,177,467) | | 1 | | -- | | -- | | 1 |
| Additional paid-in capital | | 135 | | -- | | -- | | 135 |
| Retained earnings | | 1,486 | | 163 | | 163 | | 1,486 |
| Accumulated other comprehensive loss | | (142) | | 24 | | -- | | (166) |
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| | | 1,480 | | 187 | | 163 | | 1,456 |
| Less: Treasury stock at cost (7,933,646 shares for 2004 and 2003) | | 435 | | -- | | -- | | 435 |
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| Total stockholders’ equity | | 1,045 | | 187 | | 163 | | 1,021 |
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| Total liabilities and stockholders’ equity | $ | 5,808 | $ | 260 | $ | 50 | $ | 5,598 |
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See Notes to the Unaudited Pro Forma Consolidated Financial Statements.
EXHIBIT 4
Notes to the Unaudited Eastman Chemical Company and Subsidiaries Pro Forma Consolidated Financial Statements
| (A) | The "Divested Businesses" column in the Unaudited Eastman Chemical Company and Subsidiaries Pro Forma Income Statement represents the results of the businesses and product lines divested as part of the Sale as well as those restructured, divested and consolidated during the periods presented. Provision for income taxes reflects a mix of income and losses between tax jurisdictions with different statutory tax rates. |
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| (B) | The "Other Adjustments" in the Unaudited Eastman Chemical Company and Subsidiaries Pro Forma Consolidated Income Statement include adjustments for sales (and related cost of goods sold) made by the Company to the businesses sold to RSM under supply agreements that previously were eliminated in the Company's consolidated financial results. |
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| (C) | The "Other Adjustments" in the Unaudited Eastman Chemical Company and Subsidiaries Pro Forma Consolidated Income Statements include adjustments for the impact on interest expense of the assumed use of cash to reduce commercial paper and credit facility borrowings and interest income on a $50 million note receivable. |
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| (D) | The "Other Adjustments" in the Unaudited Eastman Chemical Company and Subsidiaries Pro Forma Consolidated Income Statements include the tax effects at the applicable statutory rates for adjustment (B). |
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| (E) | The "Divested Businesses" column in the Unaudited Eastman Chemical Company and Subsidiaries Pro Forma Consolidated Balance Sheet reflects the elimination of the assets, liabilities and components of equity included in the Sale to RSM as determined as of June 30, 2004. Details of these assets and liabilities can be found in Note 3 to the unaudited Eastman Chemical Company and Subsidiaries Consolidated Financial Statements for June 30, 2004 as reported in the Company’s Form 10-Q. |
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| (F) | The "Other Adjustments" in the Unaudited Eastman Chemical Company and Subsidiaries Pro Forma Consolidated Balance Sheet include adjustments to reflect the assumed use of cash to reduce commercial paper and credit facility borrowings and the receipt of a $50 million note receivable from RSM. |
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| (G) | The "Other Adjustments" in the Unaudited Eastman Chemical Company and Subsidiaries Pro Forma Consolidated Balance Sheet includes an adjustment to reflect the estimated transaction costs and other liabilities associated with the Sale. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| EASTMAN CHEMICAL COMPANY |
| (Registrant) |
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_/s/ Curtis E. Espeland__________________ |
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| ; Curtis E. Espeland |
| ; Vice President and Controller |
August 16, 2004
