Eastman Chemical Company (EMN) — 2021 Form 10-K
Business context and reporting period. This is an annual report for the fiscal year ended December 31, 2021, not a standalone quarterly filing. Eastman is a global specialty materials and chemicals company reporting four segments: Additives & Functional Products (AFP), Advanced Materials (AM), Chemical Intermediates (CI), and Fibers. About 60% of 2021 sales came from outside the United States and Canada.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Sales | $10.476 billion | $8.473 billion |
| Gross profit | $2.500 billion | $1.975 billion |
| EBIT (GAAP) | $1.281 billion | $741 million |
| Adjusted EBIT (non-GAAP) | $1.635 billion | $1.216 billion |
| Net earnings attributable to Eastman | $857 million | $478 million |
| Diluted EPS | $6.25 | $3.50 |
| Adjusted diluted EPS (non-GAAP) | $8.85 | $6.15 |
| Cash from operating activities | $1.619 billion | $1.455 billion |
| Capital expenditures | $555 million | $383 million |
| Free cash flow (non-GAAP) | $1.064 billion | $1.072 billion |
| Borrowings / net debt | $5.159 billion / $4.700 billion | $5.618 billion / $5.054 billion |
| Cash and cash equivalents at year-end | $459 million | $564 million |
Sales rose 24%, reflecting 15% higher pricing, 8% higher volume/product mix, and a 1% favorable currency effect. Gross margin was approximately 23.9% versus 23.3%; GAAP EBIT margin was approximately 12.2% versus 8.7%, and adjusted EBIT margin was approximately 15.6% versus 14.4%. These margins are calculated from reported figures.
Operating cash flow increased, but higher capital spending left free cash flow roughly flat. The $1.50 billion revolving credit facility was undrawn at year-end, with no commercial paper outstanding; the company reported covenant compliance. Current assets were $4.646 billion and current liabilities $2.971 billion, including $747 million of borrowings due within one year. Total liabilities were $9.731 billion and stockholders’ equity was $5.788 billion.
Material changes and segment results
- AFP: Sales increased 22% to $3.700 billion. Adjusted EBIT rose to $537 million from $448 million, but reported EBIT was a $54 million loss, principally reflecting a $570 million loss on divested business and related costs.
- AM: Sales increased 20% to $3.027 billion; adjusted EBIT rose 19% to $532 million. Stronger demand and mix were partly offset by higher input, energy, and distribution costs.
- CI: Sales increased 36% to $2.849 billion; adjusted EBIT rose to $461 million from $171 million, as higher selling prices more than offset cost increases.
- Fibers: Sales increased 8% to $900 million, while EBIT decreased 21% to $142 million, primarily due to higher raw material, energy, and distribution costs.
- Eastman completed the sale of its rubber additives business on November 1, 2021, for estimated consideration of $687 million, subject to contingent consideration and adjustments. It recorded a $552 million divestiture loss. A separate agreement to sell the adhesives resins business for $1 billion was pending at year-end, subject to approvals and closing adjustments; completion was expected in the first half of 2022.
Outlook, commentary, risks, and unusual items
- For 2022, management forecast adjusted EPS of $9.50–$10.00 and operating cash flow above $1.6 billion. It expected approximately $700 million of capital expenditures, approximately $190 million of interest expense, and a 15%–16% adjusted effective tax rate. The forecast excludes non-core and unusual items; GAAP earnings reconciliation was not provided.
- Management cited growth from innovation and market development, with pricing and cost discipline intended to counter higher raw material, energy, and distribution costs. It expected headwinds from divested product lines, growth investment, and normalization of CI selling-price/cost spreads.
- Inflation and volatile input and energy costs, supply-chain and transportation disruption, COVID-19 effects, cyclicality, global economic conditions, and foreign exchange exposure are key risks. The company also identified operational and cybersecurity disruptions, execution and cost risks in growth projects, and changing environmental and climate-related requirements.
- 2021 results included a $267 million mark-to-market pension and postretirement benefit gain, $47 million of impairment and restructuring charges, and the $552 million divestiture loss. Adjusted measures exclude these and other specified items; they are non-GAAP and should be considered alongside GAAP results.
- Environmental reserves were $281 million at year-end; estimated undiscounted future remediation costs ranged from $253 million to $473 million. A proposed EPA/Pennsylvania environmental consent decree alleged violations at the Jefferson Hills facility; the company said it would vigorously defend the allegations and considered a civil penalty below $1 million unlikely. Management did not expect pending matters, based on then-available facts, to materially affect overall financial condition, results, or cash flows.
Most important facts for investors to verify
- Reconcile the $552 million divestiture loss and pension mark-to-market gain to GAAP earnings, and assess the quality and repeatability of adjusted EPS and adjusted EBIT.
- Confirm the timing, final proceeds, adjustments, and earnings impact of the adhesives resins sale, as well as the continuing effects of the rubber additives divestiture.
- Track whether price increases and cost controls offset inflation and whether CI margins normalize as management assumed.
- Assess execution, spending, utilization, and returns for the Kingsport molecular-recycling facility and other planned growth projects.
- Review near-term debt maturities, cash generation after capital spending and shareholder returns, and environmental remediation and legal developments.