ENVIRONMENTAL MATTERS
Certain Eastman manufacturing sites generate hazardous and nonhazardous wastes, the treatment, storage, transportation, and disposal of which are regulated by various governmental agencies. In connection with the cleanup of various hazardous waste sites, the Company, along with many other entities, has been designated a potentially responsible party ("PRP"), by the U.S. Environmental Protection Agency under the Comprehensive Environmental Response, Compensation and Liability Act, which potentially subjects PRPs to joint and several liability for such cleanup costs. In addition, the Company will be required to incur costs for environmental remediation and closure and postclosure under the federal Resource Conservation and Recovery Act. Reserves for environmental contingencies have been established in accordance with Eastman's policies described in Note 1, "Significant Accounting Policies". The Company's total reserve for environmental contingencies was $368 million and $394 million at December 31, 2013 and 2012, respectively. At December 31, 2013 and 2012, this reserve included $9 million and $8 million, respectively, related to sites previously closed and impaired by Eastman, as well as sites that have been divested by Eastman but for which the Company retains the environmental liability. Amounts at December 31, 2013 and 2012 included environmental contingencies assumed in the acquisition of Solutia on July 2, 2012. See Note 2, "Acquisitions and Investments in Joint Ventures".
Estimated future environmental expenditures for remediation costs ranged from the minimum or best estimate of $341 million to the maximum of $581 million and from the minimum or best estimate of $365 million to the maximum of $623 million at December 31, 2013 and 2012, respectively. The maximum estimated future costs are considered to be reasonably possible and include the amounts accrued at both December 31, 2013 and 2012. Although the resolution of uncertainties related to these environmental matters may have a material adverse effect on the Company's consolidated results of operations in the period recognized, because of expected sharing of costs, the availability of legal defenses, and the Company's preliminary assessment of actions that may be required, management does not believe that the Company's liability for these environmental matters, individually or in the aggregate, will be material to the Company's consolidated financial position or cash flows.
For facilities that have environmental asset retirement obligations, the best estimate accrued to date over the facilities' estimated useful lives for these asset retirement obligation costs were $27 million and $29 million at December 31, 2013 and 2012, respectively.
Reserves for environmental remediation that management believes to be probable and estimable are recorded as current and long-term liabilities in the Consolidated Statements of Financial Position. These reserves include liabilities expected to be paid out within 30 years. The amounts charged to pre-tax earnings for environmental remediation and related charges are included in cost of sales and other charges (income), net, and are summarized below:
|
| | | |
(Dollars in millions) | |
Balance at December 31, 2012 | $ | 365 |
|
Changes in estimates recorded to earnings and other | 7 |
|
Cash reductions | (31 | ) |
Balance at December 31, 2013 | $ | 341 |
|
The Company's total environmental reserve for environmental contingencies, including remediation costs and asset retirement obligations, is recorded in the Consolidated Statements of Financial Position as follows:
|
| | | | | | | |
| December 31, |
(Dollars in millions) | 2013 | | 2012 |
Environmental contingent liabilities, current | $ | 40 |
| | $ | 35 |
|
Environmental contingent liabilities, long-term | 328 |
| | 359 |
|
Total | $ | 368 |
| | $ | 394 |
|
Additionally, costs of certain remediation projects included in the assumed environmental reserve are subject to a cost-sharing arrangement with Monsanto Company ("Monsanto") under the provisions of the Amended and Restated Settlement Agreement effective February 28, 2008 (the "Effective Date"), into which Solutia entered with Monsanto upon its emergence from bankruptcy (the "Monsanto Settlement Agreement"). Under the provisions of the Monsanto Settlement Agreement, the Company shares responsibility with Monsanto for remediation at certain locations outside of the boundaries of plant sites in Anniston, Alabama and Sauget, Illinois (the "Shared Sites"). The Company is responsible for the funding of environmental liabilities at the Shared Sites up to a total of $325 million from the Effective Date. If remediation costs for the Shared Sites exceed this amount, such costs will thereafter be shared equally between the Company and Monsanto. Including payments by Solutia prior to its acquisition by Eastman, $56 million had been paid for costs at the Shared Sites as of December 31, 2013. As of December 31, 2013, an additional $215 million has been accrued for estimated future remediation costs at the Shared Sites, over a period of thirty years.
Environmental costs are capitalized if they extend the life of the related property, increase its capacity, and/or mitigate or prevent future contamination. The cost of operating and maintaining environmental control facilities is charged to expense. The Company's cash expenditures related to environmental protection and improvement were $285 million, $262 million, and $219 million in 2013, 2012, and 2011, respectively. These amounts were primarily for operating costs associated with environmental protection equipment and facilities, but also included $53 million and $34 million in expenditures for engineering and construction in 2013 and 2012, respectively.
In fourth quarter 2012, the Company recognized asset impairments of $17 million due to a change in approach to address recently finalized boiler air emissions regulations. See Note 16, "Asset Impairments and Restructuring Charges (Gains), Net" for additional information.
